-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, H8Po9nbEk76pTjiH+jVkC/Uc+v1otfmPRmBVysotyy8/ihjjpUQNCbrHH2AlGwRU 9DIoeVDYtYEzR2iGFAQN7Q== 0000950152-94-000385.txt : 19940404 0000950152-94-000385.hdr.sgml : 19940404 ACCESSION NUMBER: 0000950152-94-000385 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOCIETY CORP CENTRAL INDEX KEY: 0000091576 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 346542451 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-11302 FILM NUMBER: 94519956 BUSINESS ADDRESS: STREET 1: 127 PUBLIC SQ CITY: CLEVELAND STATE: OH ZIP: 44114-1306 BUSINESS PHONE: 2166893000 10-K 1 KEYCORP 10-K 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, 1993 OR [ ] TRANSLATION 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 (FORMERLY KNOWN AS SOCIETY CORPORATION) (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) OHIO 34-6542451 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 127 PUBLIC SQUARE, CLEVELAND, OHIO 44114-1306 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (216) 689-3000
Securities registered pursuant New York Stock Exchange to Section 12(b) of the Act:(1) ----------------------------- (NAME OF EACH EXCHANGE 10% Cumulative Preferred Stock, Class A ON WHICH REGISTERED) Depositary Shares representing one-fifth of one share of 10% Cumulative Securities registered pursuant Preferred Stock, Class A to Section 12(g) of the Act: Common Shares, $1 par value Rights to Purchase Common Shares None - ---------------------------------------- ----------------------------- (TITLE OF CLASS) (TITLE OF CLASS)
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 the 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 the Registrant's knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes X No --- --- The aggregate market value of voting stock held by nonaffiliates of the Registrant was approximately $7,300,303,000 at March 1, 1994. (The aggregate market value has been computed using the closing market price of the stock as reported by the New York Stock Exchange on March 1, 1994.) There were 241,764,577 KeyCorp Common Shares outstanding, exclusive of treasury shares, on March 1, 1994. - --------------- (1) The securities listed include those securities of KeyCorp registered pursuant to Section 12(b) of the Act. Prior to the merger of old KeyCorp with and into Society Corporation, Society Corporation securities registered pursuant to Section 12(b) of the Act included Common Shares, $1 par value, and Rights to purchase Common Shares. 2 KEYCORP 1993 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS
ITEM PAGE NUMBER NUMBER - ------ --------------------- PART I 1 Business................................................... 1 2 Properties................................................. 8 3 Legal Proceedings.......................................... 8 4 Submission of Matters to a Vote of Security Holders........ 9 PART II 5 Market for Registrant's Common Stock and Related Stockholder Matters...................................... 9 6 Selected Financial Data.................................... 9 7 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 9 8 Financial Statements and Supplementary Data................ 37 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................... 62 PART III 10 Directors and Executive Officers of the Registrant......... 62 11 Executive Compensation..................................... 62 12 Security Ownership of Certain Beneficial Owners and Management............................................... 62 13 Certain Relationships and Related Transactions............. 62 PART IV 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................................. 63 Signatures................................................. 99 Exhibits................................................... 100
3 PART I ITEM 1. BUSINESS OVERVIEW On March 1, 1994, KeyCorp ("old KeyCorp"), a financial services holding company headquartered in Albany, New York, with approximately $33 billion in assets at December 31, 1993, merged into and with Society Corporation, an Ohio corporation ("Society"), which was the surviving corporation of the merger under the name KeyCorp (See Mergers, Acquisitions and Divestitures on page 2 for a more complete description of the merger). Because the merger, which was accounted for as a pooling of interests, occurred subsequent to December 31, 1993, the information presented in this Annual Report on Form 10-K does not give effect to the impact of the merger. Consequently, unless otherwise expressly stated, the information presented relates to Society prior to its merger with old KeyCorp. However, supplemental financial statements included on pages 65 through 94 present the combined financial condition and results of operations of Society and old KeyCorp as if the merger had been in effect for all periods presented. Society, a financial services holding company organized in 1958, is headquartered in Cleveland, Ohio, is incorporated in Ohio, and is registered under the Bank Holding Company Act ("BHCA") and the Home Owners' Loan Act ("HOLA"). It is principally a regional banking organization and provides a wide range of banking, fiduciary, and other financial services to corporate, institutional, and individual customers. Based on total consolidated assets of approximately $27 billion at December 31, 1993, Society ranked as the third largest bank holding company in Ohio. The first predecessor of a subsidiary of Society was organized in 1849. At December 31, 1993, Society's subsidiary banks operated 434 full-service banking offices in the States of Ohio, Indiana, Michigan, and Florida. At December 31, 1993, Society had 12,038 full-time equivalent employees. SUBSIDIARIES Banking operations in Ohio are conducted through Society National Bank, a Federally-chartered bank headquartered in Cleveland, Ohio, which is the largest bank in Ohio and one of the nation's major regional banks. At December 31, 1993, Society National Bank had total assets of $21.8 billion and operated 291 full- service banking offices. Banking operations in Indiana are conducted through Society National Bank, Indiana, a Federally-chartered bank headquartered in South Bend, Indiana. At December 31, 1993, Society National Bank, Indiana had total assets of $3.0 billion and operated 83 full-service banking offices. Banking operations in Michigan are conducted through Society Bank, Michigan, a state-chartered bank headquartered in Ann Arbor, Michigan. At December 31, 1993, Society Bank, Michigan had assets of $1.1 billion and operated 36 full-service banking offices. Banking operations in Florida are conducted through Society First Federal Savings Bank, a Federally-chartered savings bank headquartered in Fort Myers, Florida. At December 31, 1993, Society First Federal Savings Bank had assets of $1.4 billion and operated 24 full-service banking offices. In addition to the customary banking services of accepting funds for deposit and making loans, Society's subsidiary banks provide a wide range of specialized services tailored to specific markets, including investment management, personal and corporate trust services, personal financial services, cash management services, investment banking services, and international banking services. At December 31, 1993, Society had one of the nation's largest trust departments with managed assets (excluding corporate trust assets) of approximately $29.4 billion. Society's nonbanking subsidiaries provide investment advisory services, securities brokerage services, institutional and personal trust services, mortgage banking services, reinsurance of credit life and accident and health insurance on loans made by subsidiary banks, venture capital and small business investment financing services, 1 4 equipment lease financing, community development financing, stock transfer agent services and other financial services. Society is a legal entity separate and distinct from its subsidiaries. The principal source of Society's income is the earnings of subsidiary banks, and the principal source of its cash flow is dividends from its subsidiary banks. Applicable state and Federal laws impose limitations on the ability of Society's banking subsidiaries to pay dividends. In addition, the subsidiary banks are subject to the limitations contained in the Federal Reserve Act regarding extensions of credit to, investments in, and certain other transactions with Society and its other subsidiaries. See "Supervision and Regulation" on page 3 for a more complete description of the regulatory restrictions to which Society and its subsidiaries are subject. The following financial data concerning Society and its subsidiaries is incorporated herein by reference as indicated below:
DESCRIPTION OF FINANCIAL DATA PAGE ---------------------------------------------------------------------------- ---- Average Balance Sheets, Net Interest Income, and Yields/Rates............... 14 Components of Net Interest Income Changes................................... 16 Securities.................................................................. 26 Composition of Loans........................................................ 24 Loan Maturities and Sensitivity to Changes in Interest Rates................ 19 Summary of Nonperforming Assets and Past Due Loans.......................... 29 Nonperforming Assets........................................................ 48 Summary of Loan Loss Experience............................................. 28 Allocation of the Allowance for Loan Losses................................. 28 Maturity Distribution of Time Deposits of $100,000 or More.................. 30 Selected Financial Data..................................................... 11 Short-Term Borrowings....................................................... 49
MERGERS, ACQUISITIONS AND DIVESTITURES On March 1, 1994, old KeyCorp, a financial services holding company headquartered in Albany, New York, with approximately $33 billion in assets as of December 31, 1993, merged into and with Society, which was the surviving corporation and assumed the name KeyCorp. Under the terms of the merger agreement, 124,351,183 KeyCorp Common Shares were exchanged for all of the outstanding shares of old KeyCorp common stock (based on an exchange ratio of 1.205 KeyCorp Common Shares for each share of old KeyCorp). The outstanding preferred stock of old KeyCorp was exchanged on a one-for-one basis for 1,280,000 shares of a comparable, new issue of 10% Cumulative Preferred Stock of KeyCorp. The merger was accounted for as a pooling of interests and, accordingly, financial results for all prior periods presented will be restated to include the financial results of old KeyCorp. The supplemental financial statements presented on pages 65 through 94 of this report present the financial condition and results of operations of Society and old KeyCorp as if the merger had been in effect for all periods presented. On October 5, 1993, Society completed the acquisition of Schaenen Wood & Associates, Inc. ("SWA"), a New York City-based investment management firm which manages approximately $1.3 billion in assets. The transaction was accounted for as a purchase. Accordingly, the results of operations of SWA have been included in the consolidated financial statements from the date of acquisition. On September 15, 1993, Society completed the sale of Ameritrust Texas Corporation ("ATC") to Texas Commerce Bank, National Association, an affiliate of Chemical Banking Corporation. ATC was based in Dallas, Texas, and provided a range of investment management and fiduciary services to institutions, businesses and individuals through 11 offices operating in Texas. For the year-to-date period through the closing date, ATC had net income of $3.2 million. The $29.4 million gain on the sale ($12.2 million after tax, $.10 per Common Share) is included in noninterest income. 2 5 On January 22, 1993, Society acquired all of the outstanding shares of First Federal Savings and Loan Association of Fort Myers ("Society First Federal"), a Federal stock savings bank, for total cash consideration of $144 million. The transaction was accounted for as a purchase. Accordingly, the results of operations of Society First Federal have been included in the consolidated financial statements from the date of acquisition. Society First Federal had 24 offices in southwest and central Florida and approximately $1.1 billion in total assets at the date of acquisition. On December 4, 1992, Society and three other bank holding companies formed a joint venture in a newly-formed company, Electronic Payment Services, Inc. This company is the largest processor of automated teller machine transactions in the United States and a national leader in point-of-sale transaction processing. As part of the agreement, Society contributed its wholly-owned subsidiary, Green Machine Network Corporation, and its point-of-sale business in return for an equity interest. On September 30, 1992, Society acquired all the outstanding shares of First of America Bank-Monroe ("FAB-Monroe") from First of America Bank Corporation in a cash purchase. The transaction was accounted for as a purchase, and accordingly, the results of operations of FAB-Monroe have been included in the consolidated financial statements from the date of acquisition. FAB-Monroe operated 10 offices in southeastern Michigan and had approximately $160 million in total assets at the date of acquisition. On March 16, 1992, Ameritrust Corporation ("Ameritrust"), a financial services holding company located in Cleveland, Ohio, with approximately $10 billion in assets as of December 31, 1991, merged with and into Society. Under the terms of the merger agreement, 49,550,862 Society Common Shares were exchanged for all of the outstanding shares of Ameritrust common stock (based on an exchange ratio of .65 shares of Society for each share of Ameritrust). The outstanding preferred stock of Ameritrust was exchanged on a one-for-one basis for 1,200,000 shares of a comparable, new issue of Fixed/Adjustable Rate Cumulative Preferred Stock of Society. The merger was accounted for as a pooling of interests and, accordingly, financial results for all prior periods presented have been restated to include the financial results of Ameritrust. In connection with the merger and as part of an agreement with the United States Department of Justice, Society sold 28 Ameritrust branches located in Cuyahoga and Lake Counties in Ohio in June 1992. Deposits of $933.3 million and loans or loan participations totaling $331.8 million were sold along with the branches at a gain of $20.1 million ($13.2 million after tax, $.11 per Common Share) which is included in noninterest income. In addition, in May 1992, deposits and loans totaling $98.7 million and $45.7 million, respectively, were sold along with four branches in Ashtabula County, Ohio, in accordance with the Federal Reserve Board order that approved the merger. COMPETITION The market for banking and bank-related services is highly competitive. Society and its subsidiaries compete with other providers of financial services such as other bank holding companies, commercial banks, savings and loan associations, credit unions, mutual funds, including money market mutual funds, insurance companies, and a growing list of other local, regional and national institutions which offer financial services. Mergers between financial institutions have added competitive pressure. Competition is expected to intensify as a consequence of reciprocal interstate banking laws now in effect in a substantial number of states, and the prospect of possible Federal legislation authorizing nationwide interstate banking. Society and its subsidiaries compete by offering quality products and innovative services at competitive prices. SUPERVISION AND REGULATION GENERAL As a bank holding company, Society is subject to supervision by the Board of Governors of the Federal Reserve System ("Federal Reserve Board"). As a result of the 1993 acquisition of Society First Federal, Society is also subject to supervision by the Office of Thrift Supervision (the "OTS") as a savings and loan holding company registered under HOLA. The banking and savings association subsidiaries (collectively, "banking subsidiaries") of Society are subject to extensive supervision, examination, and regulation by applicable Federal and state banking agencies, including the Office of the Comptroller of the Currency (the "OCC") in the case of national bank subsidiaries, the Michigan Financial Institutions Bureau in the case of Society Bank, Michigan, and the OTS in the case of Society First Federal. Each of the banking subsidiaries is 3 6 insured by, and therefore also subject to the regulations of, the Federal Deposit Insurance Corporation (the "FDIC"). Depository institutions such as the banking subsidiaries are affected significantly by the actions of the Federal Reserve Board as it attempts to control the money supply and credit availability in order to influence the economy. The regulatory regime applicable to bank holding companies and their subsidiaries generally is not intended for the protection of investors and is directed toward protecting the interests of depositors, the FDIC deposit insurance funds, and the U.S. banking system as a whole. Society's nonbanking subsidiaries are also subject to supervision and examination by the Federal Reserve Board, as well as other applicable regulatory agencies. For example, Society's discount brokerage and investment advisory subsidiaries are subject to supervision and regulation by the SEC, the National Association of Securities Dealers, Inc., and state securities regulators. Society's insurance subsidiary is subject to regulation by the insurance regulatory authorities of the various states. Other nonbanking subsidiaries are subject to other laws and regulations of both the Federal government and the various states in which they are authorized to do business. The following references to certain statutes and regulations are brief summaries thereof. The references are not intended to be complete and are qualified in their entirety by reference to the statutes and regulations. In addition there are other statutes and regulations that apply to and regulate the operation of banking institutions. A change in applicable law or regulation may have a material effect on the business of Society. DIVIDEND RESTRICTIONS Various Federal and state statutory provisions limit the amount of dividends that may be paid to Society by its banking subsidiaries without regulatory approval. The approval of the OCC is required for the payment of any dividend by a national bank if the total of all dividends declared by the bank in any calendar year would exceed the total of its net profits (as defined by the OCC) for that year combined with its retained net profits for the preceding two years, less any required transfers to surplus or a fund for the retirement of any preferred stock. In addition, a national bank is not permitted to pay a dividend in an amount greater than its net profits then on hand (as defined by the OCC) after deducting its losses and bad debts. For this purpose, bad debts are defined to include, generally, loans which have matured as to which interest is overdue by six months or more, other than such loans which are well secured and in the process of collection. Society's principal banking subsidiaries -- Society National Bank and Society National Bank, Indiana are national banks. In addition, OTS regulations impose limitations upon all capital distributions by savings associations. These limitations are applicable to Society First Federal, Society's only savings association subsidiary. State banks that are not members of the Federal Reserve System ("nonmember banks") are also subject to varying restrictions on the payment of dividends under state laws. Society Bank, Michigan is Society's only state nonmember bank. Under these restrictions, as of December 31, 1993, Society's banking subsidiaries could have declared dividends of approximately $76.0 million in the aggregate, without obtaining prior regulatory approval. In addition, if, in the opinion of the applicable 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. In addition, the Federal Reserve Board, the OCC, the FDIC and the OTS have issued policy statements which provide that insured depository institutions and their holding companies should generally pay dividends only out of current operating earnings. HOLDING COMPANY STRUCTURE Transactions Involving Banking Subsidiaries. Transactions involving Society's banking subsidiaries are subject to Federal Reserve Act restrictions which limit the transfer of funds from such subsidiaries to Society and (with certain exceptions) to Society's nonbanking subsidiaries (together, "affiliates") in so-called "covered transactions," such as loans, extensions of credit, investments, or asset purchases. Unless an exemption applies, each such transfer by a banking subsidiary to one of its affiliates is limited in amount to 10% of that banking subsidiary's capital and surplus and, with respect to all such transfers to affiliates, in the aggregate, to 20% of that banking subsidiary's capital and surplus. Furthermore, loans and extensions of credit are required 4 7 to be secured in specified amounts. "Covered transactions" also include the acceptance of securities issued by the banking subsidiary as collateral for a loan and the issuance of a guarantee, acceptance, or letter of credit for the benefit of Society or any of its affiliates. In addition, a bank holding company and its banking subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property, or furnishing of services. Bank Holding Company Support of Banking Subsidiaries. Under Federal Reserve Board policy, a bank holding company is expected to act as a source of financial and managerial strength to each of its subsidiary banks and to commit resources to support each such subsidiary bank. This support may be required by the Federal Reserve Board at times when Society may not have the resources to provide it or, for other reasons, would not otherwise be inclined to provide it. Any capital loans by Society to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of a 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 the 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. A depository institution, the deposits of which are insured by the FDIC, can be held liable for any loss incurred by, or reasonably expected to be incurred by the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default (the so-called "cross guaranty" provision). "Default" is defined under the FDIC's regulations generally as the appointment of a conservator or receiver and "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. CAPITAL REQUIREMENTS The minimum ratio of total capital to risk-adjusted assets (including certain off-balance sheet items, such as standby letters of credit) required by the Federal Reserve Board for bank holding companies is 8%. At least one-half of the total capital must be comprised of common equity, retained earnings, qualifying noncumulative perpetual preferred stock, a limited amount of qualifying cumulative perpetual preferred stock, and minority interests in the equity accounts of consolidated subsidiaries, less goodwill and certain other intangible assets ("Tier I capital"). The remainder may consist of hybrid capital instruments, perpetual debt, mandatory convertible debt securities, a limited amount of subordinated debt, other preferred stock, and a limited amount of loan and lease loss reserves ("Tier II capital"). The Federal Reserve Board has stated that banking organizations generally, and, in particular, those that actively make acquisitions, are expected to operate well above the minimum risk-based capital ratios. As of December 31, 1993, Society's Tier I and total capital to risk-adjusted assets ratios were 8.65% and 12.88%, respectively. In addition, Society is subject to minimum leverage ratio (Tier I capital to average total assets for the relevant period) guidelines. These guidelines provide for a minimum leverage ratio of 3% for bank holding companies that meet certain specified criteria, such as having the highest supervisory rating. All other bank holding companies are required to maintain a leverage ratio which is at least 100 to 200 basis points higher (i.e., a leverage ratio of at least 4% to 5%). Neither Society, nor any of its banking subsidiaries have been advised by its appropriate Federal regulatory agency of any specific leverage ratio applicable to it. At December 31, 1993, Society's Tier I leverage ratio was 7.18%. The guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. Furthermore, the guidelines indicate that the Federal Reserve Board will continue to consider a "tangible Tier I leverage ratio" in evaluating proposals for expansion or new activities. The tangible Tier I leverage ratio is the ratio of a banking organization's Tier I capital less all intangibles, to total assets less all intangibles. Each of Society's banking subsidiaries is also subject to capital requirements adopted by applicable Federal regulatory agencies which are substantially similar to those imposed by the Federal Reserve Board on bank holding companies. As of December 31, 1993, each of Society's banking subsidiaries had capital in excess of all minimum regulatory requirements. 5 8 All the Federal banking agencies have proposed regulations that would add an additional capital requirement based upon the amount of an institution's exposure to interest rate risk. The OTS recently adopted its final rule adding an interest rate component to its risk-based capital rule. Under the final OTS rule, savings associations with a greater than "normal" level of interest rate risk exposure will be subject to a deduction from total capital for purposes of calculating the risk-based capital ratio. The new OTS rule was effective January 1, 1994, except for limited provisions which are effective July 1, 1994. The other Federal banking agencies have yet to adopt their final rules on the interest rate risk component of risk-based capital. The OCC, the Federal Reserve, and the FDIC have proposed amendments to their respective regulatory capital rules to include in Tier I capital the net unrealized changes in the value of securities available for sale for purposes of calculating the risk-based and leverage ratios. The proposed amendments are in response to the provisions outlined in Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which takes effect for fiscal years beginning after December 15, 1993. See Note 3, Securities, on page 46 for a more complete description of SFAS No. 115. This new accounting standard establishes, among other things, net unrealized holding gains and losses on securities available for sale as a new component of stockholders' equity. If adopted as proposed, the rules could cause the Tier I capital to be subject to greater volatility. However, neither SFAS No. 115 nor the capital proposals would have any direct impact on reported earnings. SIGNIFICANT AMENDMENTS TO THE FEDERAL DEPOSIT INSURANCE ACT In 1991, Congress enacted the Federal Deposit Insurance Corporation Improvement Act of 1991, which, among other things, amended the Federal Deposit Insurance Act (the "FDIA"), and increased the FDIC's borrowing authority to resolve bank failures, mandated least-cost resolutions and prompt regulatory action with regard to undercapitalized institutions, expanded consumer protection, and mandated increased supervision of domestic depository institutions and the U.S. operations of foreign depository institutions. The amendments to the FDIA resulting from enactment of the Federal Deposit Insurance Corporation Improvement Act of 1991 require Federal banking agencies to promulgate regulations and specify standards in numerous areas of bank operations, including interest rate exposure, asset growth, internal controls, credit underwriting, executive officer and director compensation, real estate construction financing, additional review of capital standards, interbank liabilities, and other operational and managerial standards as the agencies determine appropriate. Most of these regulations have been promulgated in final form by the appropriate Federal bank regulatory agencies, although some have only been proposed. These regulations have increased and may continue to increase the cost of and the regulatory burden associated with the banking business. Prompt Corrective Action. Effective in December 1992, the FDIC, the Federal Reserve Board, the OCC and the OTS adopted new regulations to implement the prompt corrective action provisions of the FDIA. The regulations group FDIC-insured depository institutions into five broad categories based on their capital ratios. The five categories are "well capitalized," "adequately capitalized", "undercapitalized", "significantly undercapitalized," and "critically undercapitalized." An institution is "well capitalized" if it has a total risk-based capital ratio (total capital to risk-adjusted assets) of 10% or greater, a Tier I risk-based capital ratio (Tier I capital to risk-adjusted assets) of 6% or greater and a Tier I leverage capital ratio (Tier I capital to average total assets) of 5% or greater, and it is not subject to a regulatory order, agreement or directive to meet and maintain a specific capital level for any capital measure. An institution is "adequately capitalized" if it has a total risk-based capital ratio of 8% or greater, a Tier I risk-based capital ratio of 4% or greater and (generally) a Tier I leverage capital ratio of 4% or greater, and the institution does not meet the definition of a "well capitalized" institution. An institution is "undercapitalized" if the relevant capital ratios are less than those specified in the definition of an "adequately capitalized" institution. An institution is "significantly undercapitalized" if it has a total risk-based capital ratio of less than 6%, a Tier I risk-based capital ratio of less than 3%, or a Tier I leverage capital ratio of less than 3%. An institution is "critically undercapitalized" if it has a ratio of tangible equity (as defined in the regulations) to total assets of 2% or less. An institution may be downgraded to, or be deemed to be in a capital category that is lower than is indicated by its actual capital position if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters. 6 9 The capital-based prompt corrective action provisions of the FDIA and their implementing regulations apply to FDIC insured depository institutions and are not applicable to holding companies which control such institutions. However, both the Federal Reserve Board and the OTS have indicated that, in regulating holding companies, they will take appropriate action at the holding company level based on their assessment of the effectiveness of supervisory actions imposed upon subsidiary depository institutions pursuant to such provisions and regulations. Although the capital categories defined under the prompt corrective action regulations are not directly applicable to Society under existing law and regulations, based upon its ratios Society would qualify, and its subsidiary banks do qualify, as well-capitalized as of December 31, 1993. The capital category, as determined by applying the prompt corrective action provisions of the law, may not constitute an accurate representation of the overall financial condition or prospects of Society or its banking subsidiaries. The FDIA generally prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the institution would thereafter be undercapitalized. Undercapitalized depository institutions are also subject to restrictions on borrowing from the Federal Reserve System (effective December 19, 1993). Undercapitalized depository institutions are subject to increased monitoring by the appropriate Federal banking agency and limitations on growth, and are required to submit a capital restoration plan. The Federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the institution's capital. In addition, for a capital restoration plan to be acceptable, the depository institution's parent holding company must guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company with respect to such a guarantee is limited to the lesser of: (a) an amount equal to 5% of the depository institution's total assets at the time it became undercapitalized or (b) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it were significantly undercapitalized. Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized and requirements to reduce total assets, and are prohibited from receiving deposits from correspondent banks. "Critically undercapitalized" institutions are subject to the appointment of a receiver or conservator. FDIC Insurance. Under the risk-related insurance assessment system, adopted in final form effective beginning with the January 1, 1994 assessment period, a bank or savings association is required to pay an assessment ranging from $.23 to $.31 per $100 of deposits based on the institution's risk classification. The risk classification is based on an assignment of the institution by the FDIC to one of three capital groups and to one of three supervisory subgroups. The capital groups are "well capitalized," "adequately capitalized," and "undercapitalized." The three supervisory subgroups are Group "A" (for financially solid institutions with only a few minor weaknesses), Group "B" (for those institutions with weaknesses which, if uncorrected, could cause substantial deterioration of the institution and increase the risk to the deposit insurance fund), and Group "C" (for those institutions with a substantial probability of loss to the fund absent effective corrective action). For the period commencing on July 1, 1993 through December 31, 1993, insurance assessments on all deposits of Society's banking subsidiaries were paid at the $.23 per $100 of deposits rate. DEPOSITOR PREFERENCE STATUTE In August 1993, Federal legislation was enacted which provides that insured and uninsured deposits of, and certain claims for administrative expenses and employee compensation against, an insured depository institution would be afforded a priority over other general unsecured claims against such an institution, including federal funds and letters of credit, in the "liquidation or other resolution" of such an institution by any receiver. Under this new legislation, if an insured depository institution fails, insured and uninsured depositors along with the FDIC will be placed ahead of all unsecured, nondeposit creditors in order of priority of payment. Due to its recent enactment, it is too early to determine what impact this legislation will have on the ability of financial institutions to attract junior creditors in the future or otherwise. 7 10 IMPLICATIONS OF BEING A SAVINGS AND LOAN HOLDING COMPANY Society is a savings and loan holding company within the meaning of HOLA. With certain exceptions, a savings and loan holding company must obtain prior written approval from the OTS (as well as the Federal Reserve Board, or other Federal agencies whose approval may be required, depending upon the structure of the acquisition transaction) before acquiring control of a savings association or savings and loan holding company through the acquisition of stock or through a merger or some other business combination. HOLA prohibits the OTS from approving an acquisition by a savings and loan holding company which would result in the holding company's controlling savings associations in more than one state unless (a) the holding company is authorized to do so by the FDIC as an emergency acquisition, (b) the holding company controls a savings association which operated an office in the additional state or states on March 5, 1987, or (c) the statutes of the state in which the savings association to be acquired is located specifically permit a savings association chartered by such state to be acquired by an out-of-state savings association or savings and loan holding company. CONTROL ACQUISITIONS The Change in Bank Control prohibits a person or group of persons from acquiring "control" of a bank holding company unless the Federal Reserve Board has been given 60 days' prior written notice of proposed acquisition and within that time period the Federal Reserve Board has not issued a notice disapproving the proposed acquisition or extending for up to another 30 days the period during which such a disapproval may be issued. An acquisition may be made prior to the expiration of the disapproval period if the Federal Reserve Board issues written notice of its intention not to disapprove the action. Under a rebuttable presumption established by the Federal Reserve Board, the acquisition of 10% or more of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act, such as Society would, under the circumstances set forth in the presumption, constitute the acquisition of control. In addition, any "company" would be required to obtain the approval of the Federal Reserve Board under the BHCA before acquiring 25% (5% in the case of an acquiror that is a bank holding company) or more of the outstanding Society Common Shares, or otherwise obtaining control over Society. ITEM 2. PROPERTIES The headquarters of Society and of Society National Bank are located in Society Center at 127 Public Square, Cleveland, Ohio 44114-1306. Society currently leases approximately 625,000 square feet of the complex, encompassing the first twenty-one floors and the 55th and 56th floors of the 57-story Society Tower and all ten floors of the adjacent Society for Savings Building. Society owns a four-story office building and the Summit Center Building, a 16-story office building, both located in downtown Toledo. In addition, Society has an office center located in a one-story building containing approximately 500,000 square feet on a 55 acre site in Brooklyn, Ohio which is owned in fee by a subsidiary. Society National Bank is still under lease on the former Ameritrust offices at 2017 East Ninth Street in Cleveland in accordance with obligations assumed as part of the merger. These offices under lease consist of a portion of a 29-story office building, an attached 13-story office building and an 8-story parking garage. Society Bank, Michigan owns its seven-story main office building in Ann Arbor, Michigan, which is also the headquarters of Society Bancorp of Michigan, Inc. Society National Bank, Indiana leases its 14-story headquarters building in South Bend, Indiana. At December 31, 1993, the banking subsidiaries of Society owned 247 of their branch banking offices and leased 187 offices. The lease terms for applicable branch banking offices are not individually material, with terms ranging from month-to-month to 99-year leases from inception. ITEM 3. LEGAL PROCEEDINGS In the ordinary course of business, Society and its subsidiaries are subject to legal actions which involve claims for substantial monetary relief. Based on information presently available to management and Society's counsel, management does not believe that any legal actions, individually or in the aggregate, will have a material adverse effect on the consolidated financial condition of Society. 8 11 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 Society. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The discussion with respect to Common Shares and Shareholder Information appearing on page 32 and the dividend restrictions discussions included on page 4 and in Note 13, Commitments, Contingent Liabilities, and Other Disclosures, on page 56 are incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The Selected Financial Data included on page 11 is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides a narrative discussion and analysis of the consolidated financial condition and results of operations of Society Corporation and its subsidiaries (the "Corporation"). The financial data included throughout the remainder of this discussion should be read in conjunction with the consolidated financial statements and notes presented on pages 39 through 61 of this report. On March 1, 1994, KeyCorp ("old KeyCorp"), a financial services holding company headquartered in Albany, New York, with approximately $33 billion in assets as of December 31, 1993, merged into and with Society Corporation ("Society"), an Ohio corporation, which was the surviving corporation of the merger under the name "KeyCorp". Because the merger, which was accounted for as a pooling of interests, occurred subsequent to December 31, 1993, the financial information and narrative discussion presented herein covers Society's financial performance prior to the merger and does not give effect to the restatement to include old KeyCorp's financial results. However, the supplemental financial statements included on pages 65 through 94 of this report present the combined financial condition and results of operations of Society and old KeyCorp as if the merger had been in effect for all periods presented. In addition to the merger of Society and old KeyCorp, the following transactions, which were completed over the past two years and have had a significant impact on the Corporation's overall growth and geographic diversification, are described in greater detail in Note 2, Mergers, Acquisitions and Divestitures, on page 45 of this report: (i) the March 16, 1992, merger of Ameritrust Corporation ("Ameritrust") with and into Society, (ii) the September 30, 1992, acquisition by Society of all the outstanding shares of First of America Bank - Monroe ("FAB-Monroe"), (iii) the December 4, 1992, formation by Society and three other bank holding companies of a joint venture in a new corporation named Electronic Payment Services, Inc., (iv) the January 22, 1993, acquisition by Society of all the outstanding shares of First Federal Savings and Loan Association of Fort Myers ("Society First Federal"), (v) the September 15, 1993, sale by Society of Ameritrust Texas Corporation ("ATC"), and (vi) the October 5, 1993, acquisition by Society of Schaenen Wood & Associates, Inc. ("SWA"). 9 12 PERFORMANCE OVERVIEW Net income for 1993 reached a record level of $347.2 million, or $2.93 per Common Share, up from the previous record of $301.2 million, or $2.51 per Common Share, achieved in 1992 and $76.5 million, or $.61 per Common Share, in 1991. The return on average common equity for the current year rose to 17.87%, up from 17.52% and 4.24% in 1992 and 1991, respectively. The return on average total assets was 1.36% in 1993, 1.26% in 1992 and .30% in 1991. Record-level earnings were attained in 1993 despite fourth-quarter merger and integration charges of $53.9 million ($39.6 million after tax, $.33 per Common Share) recorded in connection with the merger with old KeyCorp. In 1992, earnings were also adversely impacted by similar charges of $50.0 million ($34.2 million after tax, $.29 per Common Share) recorded in the first quarter in connection with the merger with Ameritrust. In addition, 1992 earnings reflected a $20.1 million ($13.2 million after tax, $.11 per Common Share) gain on the sale of certain branch offices and loans. Excluding the impact of the above items, 1993 net income grew by $64.6 million, or 20%, relative to the previous year. On a pre-tax basis, this improvement reflected a $62.1 million, or 5%, increase in taxable-equivalent net interest income, a $28.3 million, or 6%, increase in noninterest income and a $75.1 million, or 51%, decrease in the provision for loan losses. These positive factors were offset in part by a $52.1 million, or 5%, increase in noninterest expense. Adjusting for the merger and integration charges in both years and the 1992 gain, the returns on average common equity and the returns on average total assets were 19.92% and 1.51%, respectively, in 1993, and 18.77% and 1.35%, respectively, in 1992. In 1991, net income was also impacted by merger and integration charges totaling $93.8 million ($68.2 million after tax, $.59 per Common Share) recorded during the fourth quarter in connection with the Ameritrust merger. Excluding the merger and integration charges in both 1992 and 1991 and the gain referred to above, net income in 1992 grew by $177.5 million, or 123%, relative to the previous year. On a pre-tax basis, this improvement reflected a $72.3 million, or 7%, increase in taxable-equivalent net interest income, a $26.4 million, or 6%, increase in noninterest income and a $132.7 million, or 47%, decrease in the provision for loan losses. Noninterest expense also decreased $22.7 million, after adjusting for the merger and integration charges in both years. On an adjusted basis, the 1991 return on average common equity and the return on average total assets were 8.36% and .57%, respectively. (FIG. 1) - COMPONENTS OF EARNINGS PER COMMON SHARE
YEAR ENDED DECEMBER 31, --------------------------------------- CHANGE ----------------- 1993 1992 AMOUNT PERCENT ------ ------ ------ ------ Interest income...................... $15.81 $16.22 $ (.41) (2.5)% Interest expense..................... 5.68 6.59 (.91) (13.8) ------ ------ ------ Net interest income................ 10.13 9.63 .50 5.2 Provision for loan losses............ .61 1.25 (.64) (51.2) ------ ------ ------ Net interest income after provision....................... 9.52 8.38 1.14 13.6 Noninterest income................... 4.31 4.27 .04 .9 Noninterest expense.................. 9.31 8.91 .40 4.5 ------ ------ ------ Income before income taxes......... 4.52 3.74 .78 20.9 Income taxes......................... 1.58 1.17 .41 35.0 Preferred dividends.................. .01 .06 (.05) (83.3) ------ ------ ------ Earnings per common share.......... $ 2.93 $ 2.51 $ .42 16.7 ------ ------ ------ ------ ------ ------
10 13 (FIG. 2) - SELECTED FINANCIAL DATA (1)
(dollars in millions, except per share amounts) 1993 1992 1991 1990 1989 1988 - ------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- YEAR ENDED DECEMBER 31, Interest income................ $ 1,871.3 $ 1,903.4 $ 2,263.9 $ 2,521.4 $ 2,564.1 $ 2,222.3 Interest expense............... 672.3 773.0 1,216.7 1,498.9 1,538.0 1,292.7 Net interest income............ 1,199.0 1,130.4 1,047.2 1,022.5 1,026.1 929.6 Provision for loan losses...... 72.2 147.4 280.0 419.9 212.1 147.3 Noninterest income............. 509.8 501.5 455.0 460.6 361.1 332.1 Noninterest expense............ 1,101.9 1,045.9 1,112.5 1,065.1 979.3 866.4 Income (loss) before income taxes........................ 534.7 438.6 109.7 (1.9) 195.8 248.0 Net income..................... 347.2 301.2 76.5 61.5 121.8 204.8 Net income applicable to Common Shares....................... 346.1 295.0 70.2 56.3 119.9 202.7 PER COMMON SHARE(2) Net income..................... $ 2.93 $ 2.51 $ .61 $ .49 $ 1.00 $ 1.65 Originally reported........ 2.93 2.51 2.45 2.35 2.32 2.09 Cash dividends................. 1.12 .98 .92 .88 .80 .68 Book value at year-end......... 17.37 15.49 13.82 13.90 14.46 14.87 Originally reported........ 17.37 15.49 16.90 15.34 16.58 14.98 Market price at year-end....... 29.75 32.13 24.75 16.13 17.07 16.63 Dividend payout ratio.......... 38.23% 39.04% 150.82% 179.59% 80.00% 41.21% Weighted average Common Shares (000)........................ 118,323.5 117,348.7 115,266.8 115,465.1 119,729.8 122,858.9 AT DECEMBER 31, Loans.......................... $ 17,897.6 $ 16,031.5 $ 16,831.7 $ 18,076.8 $ 18,372.5 $ 17,627.3 Earning assets................. 24,678.5 22,587.2 23,265.3 23,565.1 24,530.5 23,832.4 Total assets................... 27,007.3 24,978.3 25,585.6 26,121.4 27,450.1 26,694.5 Deposits....................... 19,880.7 18,658.0 20,014.8 21,395.0 21,763.4 20,506.8 Long-term debt................. 952.7 886.0 463.8 471.1 468.9 463.1 Common shareholders' equity.... 2,038.6 1,808.1 1,595.2 1,586.0 1,677.9 1,744.8 Total shareholders' equity..... 2,038.6 1,868.1 1,655.2 1,646.0 1,702.9 1,769.8 PERFORMANCE RATIOS Return on average total assets....................... 1.36% 1.26% .30% .23% .47% .81% Originally reported........ 1.36 1.26 1.09 1.03 1.11 1.07 Return on average common equity....................... 17.87 17.52 4.24 3.39 6.89 11.53 Originally reported........ 17.87 17.52 15.36 16.17 15.49 15.56 Return on average total equity....................... 17.84 17.28 4.46 3.59 6.91 11.30 Originally reported........ 17.84 17.28 15.36 16.14 15.23 15.28 Efficiency(3).................. 60.41 61.11 66.44 68.09 68.70 65.96 Overhead(4).................... 45.57 45.27 52.60 54.65 56.95 54.51 Net interest margin............ 5.26 5.33 4.65 4.44 4.54 4.30 CAPITAL RATIOS AT DECEMBER 31, Equity to assets............... 7.55% 7.48% 6.47% 6.30% 6.20% 6.63% Tier I risk-adjusted capital... 8.65 8.53 7.43 6.15 6.78 N/A Total risk-adjusted capital.... 12.88 12.39 9.71 9.42 9.27 N/A Leverage....................... 7.18 6.98 5.92 5.57 5.78 N/A COMPOUND ANNUAL RATE (dollars in millions, OF CHANGE except per share amounts) (1988-1993) - ------------------------------- ----------- YEAR ENDED DECEMBER 31, Interest income................ (3.4)% Interest expense............... (12.3) Net interest income............ 5.2 Provision for loan losses...... (13.3) Noninterest income............. 9.0 Noninterest expense............ 4.9 Income (loss) before income taxes........................ 16.6 Net income..................... 11.1 Net income applicable to Common Shares....................... 11.3 PER COMMON SHARE(2) Net income..................... 12.2 Originally reported........ 7.0 Cash dividends................. 10.5 Book value at year-end......... 3.2 Originally reported........ 3.0 Market price at year-end....... 12.3 Dividend payout ratio.......... (1.5) Weighted average Common Shares (000)........................ (.8) AT DECEMBER 31, Loans.......................... .3 Earning assets................. .7 Total assets................... .2 Deposits....................... (.6) Long-term debt................. 15.5 Common shareholders' equity.... 3.2 Total shareholders' equity..... 2.9 PERFORMANCE RATIOS Return on average total assets....................... N/A Originally reported........ N/A Return on average common equity....................... N/A Originally reported........ N/A Return on average total equity....................... N/A Originally reported........ N/A Efficiency(3).................. N/A Overhead(4).................... N/A Net interest margin............ N/A CAPITAL RATIOS AT DECEMBER 31, Equity to assets............... N/A Tier I risk-adjusted capital... N/A Total risk-adjusted capital.... N/A Leverage....................... N/A - -------------------------------------------------------------------------------- (1) Amounts have been restated to reflect the March 16, 1992, merger with Ameritrust Corporation and the January 5, 1990, merger with Trustcorp, Inc., each accounted for as a pooling of interests. (2) Common Share and per Common Share amounts have been restated to reflect a two-for-one stock split effected by means of a 100% stock dividend paid on March 22, 1993. (3) Calculated as noninterest expense (excluding merger and integration charges and other non-recurring charges) divided by taxable-equivalent net interest income plus noninterest income (excluding net securities transactions, gain on sale of subsidiary and gain on sale of branch offices and loans). (4) Calculated as noninterest expense (excluding merger and integration charges and other non-recurring charges) less noninterest income (excluding net securities transactions, gain on sale of subsidiary and gain on sale of branch offices and loans) divided by taxable-equivalent net interest income. N/A = Not Applicable.
11 14 RESULTS OF OPERATIONS NET INTEREST INCOME Net interest income, which is comprised of interest and loan-related fee income less interest expense, is the principal source of earnings for Society's banking affiliates. Net interest income is affected by a number of factors including the level, pricing and maturity of earning assets and interest-bearing liabilities, interest rate fluctuations and asset quality. To facilitate comparisons in the following discussion, net interest income is presented on a taxable-equivalent basis, which increases reported interest income on tax-exempt loans and securities by an amount equivalent to the taxes which would be paid if the income were taxable at the statutory Federal income tax rate. The trends in various components of the balance sheet and their respective yields and rates which affect interest income and expense are illustrated in Figure 3. The table presented in Figure 4 provides an analysis of the effect of changes in yields/rates and average balances on net interest income in 1993 and 1992. A more in-depth discussion of changes in earning assets and funding sources is presented in the Financial Condition section beginning on page 23. Net interest income was $1.2 billion in 1993, up $62.1 million, or 5%, from the prior year. This followed an increase of $72.3 million, or 7%, in 1992 relative to the comparable 1991 period. In 1993, the growth in net interest income resulted from a higher level of average earning assets, which more than offset a slight decline in the net interest margin. The net interest margin is computed by dividing taxable equivalent net interest income by average earning assets. Average earning assets in 1993 totaled $23.2 billion which represented an increase of $1.5 billion, or 7%, from the prior year. This followed a decrease of $1.6 billion, or 7%, in 1992 relative to the previous year. Excluding the impact of the January 1993, acquisition of Society First Federal, average earning assets increased by $325.2 million in 1993 due to increases of $461.8 million in total securities and $69.2 million in loans and mortgage loans held for sale. These increases were partially offset by a $205.7 million decline in aggregate short-term investments. The increase in loans can be primarily attributed to growth in student loans held for sale, residential mortgage loans and lease financing, offset in part by lower levels of outstanding loans in the consumer and commercial portfolios. The $1.6 billion decrease in average earning assets in 1992 resulted primarily from a $1.3 billion decline in average loans, principally in the commercial and real estate construction portfolios. The decline also reflected a decrease of $375.4 million in Federal funds sold and security resale agreements. This latter decrease resulted from reduced short-term funding requirements for loans and the planned reduction of excess liquidity. The decrease in loans in 1992 can be attributed to a decline in demand due to weak economic conditions, strategic efforts to reduce certain types of lending, the anticipated run-off of certain Ameritrust credits and the second quarter sale of branch offices, including $331.8 million in loans, required in connection with the merger with Ameritrust. As shown in Figure 3, the net interest margin for the current year was 5.26% compared with 5.33% in 1992 and 4.65% in 1991. The slight decline in the 1993 net interest margin reflected the narrower interest rate spread contributed by Society First Federal and the lower proportion of interest free funds supporting earning assets in comparison with the prior year. The interest rate spread is computed as the difference between the taxable-equivalent yield on earning assets and the rate paid on interest-bearing liabilities. Excluding the impact of Society First Federal, the net interest margin increased to 5.35%. On an adjusted basis, the improvement in the margin over the past two years was principally the result of a wider spread. In 1993 and 1992 the spread increased by 16 basis points and 85 basis points, respectively, as the decrease in the rate paid on interest-bearing liabilities exceeded the decrease in the yield on earning assets. Several factors were responsible for the widened spreads, including an interest rate sensitivity position which has enabled the Corporation to benefit from the lower interest rate environment. This position was enhanced through the increased use of "portfolio" interest rate swaps and securities. The notional amount of such swaps increased to $5.2 billion at December 31, 1993, up from $4.8 billion at December 31, 1992, and $2.9 billion at December 31, 1991. Interest rate swaps contributed $131.1 million to net interest income and 56 basis points to the net interest margin in 1993. In 1992 interest rate swaps increased net interest income by $93.8 million and added 44 basis points to the net interest margin. The manner in which interest rate swaps are used in the Corporation's overall program of asset and liability management is described in the Asset and Liability Management section on page 16 of this report. Also contributing to the widened spread was a shift in deposits from time to lower rate savings deposits with higher liquidity and to noninterest-bearing deposits. The improved margin also reflected the effects of a lower level of nonperforming assets and the 1992 reduction in short-term investments (made by Ameritrust prior to the merger) which had narrower spreads. 12 15 [PAGE INTENTIONALLY LEFT BLANK] 13 16 (FIG. 3) - AVERAGE BALANCE SHEETS, NET INTEREST INCOME, AND YIELDS/RATES (4)
1993 1992 --------------------------------- --------------------------------- AVERAGE YIELD/ AVERAGE YIELD/ (dollars in millions) BALANCE INTEREST RATE BALANCE INTEREST RATE - ------------------------------------- --------- -------- ------ --------- -------- ------ ASSETS Loans(1)(2): Commercial, financial and agricultural..................... $ 4,430.4 $ 359.0 8.10% $ 4,843.0 $ 405.0 8.36% Real estate........................ 7,078.7 574.3 8.11 6,267.8 517.9 8.26 Consumer........................... 3,165.3 332.1 10.49 4,173.5 452.6 10.84 Student loans held for sale........ 1,195.9 77.0 6.44 Lease financing.................... 1,010.8 75.4 7.46 758.9 59.3 7.81 Foreign............................ 71.0 4.5 6.37 105.3 6.2 5.88 --------- -------- --------- -------- Total loans...................... 16,952.1 1,422.3 8.39 16,148.5 1,441.0 8.92 Mortgage loans held for sale......... 243.4 17.8 7.31 149.0 12.8 8.59 Investment Securities: Taxable investment securities...... 4,161.0 330.1 7.93 4,250.6 397.1 9.34 Tax-exempt investment securities(1).................... 461.4 41.9 9.10 584.0 54.8 9.38 --------- -------- --------- -------- Total investment securities...... 4,622.4 372.0 8.05 4,834.6 451.9 9.35 Securities available for sale........ 911.1 63.8 7.00 Interest-bearing deposits with banks.............................. 409.9 14.5 3.53 409.6 17.9 4.36 Federal funds sold and security resale agreements.................. 45.4 1.4 3.18 168.9 6.5 3.85 Trading account assets............... 16.8 .6 3.37 20.5 .9 4.34 --------- -------- --------- -------- Total earning assets............. 23,201.1 1,892.4 8.16 21,731.1 1,931.0 8.89 Allowance for loan losses............ (496.3) (522.2) Other assets......................... 2,888.2 2,657.6 --------- --------- $25,593.0 $23,866.5 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Money market deposit accounts...... $ 2,509.4 $ 62.9 2.51% $ 2,816.0 $ 91.8 3.26% Savings deposits................... 2,702.6 70.9 2.62 2,301.0 74.1 3.22 NOW accounts....................... 2,383.8 52.9 2.22 2,008.8 56.4 2.81 Certificates ($100,000 or more).... 1,046.7 51.8 4.95 1,441.7 87.2 6.05 Other time deposits................ 5,624.7 234.2 4.17 6,255.2 319.7 5.11 Deposits in foreign office......... 1,018.8 31.5 3.09 367.9 13.7 3.72 --------- -------- --------- -------- Total interest-bearing deposits....................... 15,286.0 504.2 3.30 15,190.6 642.9 4.23 Federal funds purchased and securities sold under agreements to repurchase......................... 2,729.1 81.2 2.98 2,312.2 77.6 3.35 Other short-term borrowings.......... 818.0 24.0 2.93 360.6 11.9 3.31 Long-term debt(3).................... 1,028.7 62.9 6.57 609.3 40.6 7.55 --------- -------- --------- -------- Total interest-bearing liabilities.................... 19,861.8 672.3 3.40 18,472.7 773.0 4.20 -------- ------ -------- ------ Noninterest-bearing deposits......... 3,152.8 3,062.9 Other liabilities.................... 632.0 587.6 Preferred stock...................... 9.9 60.0 Common shareholders' equity.......... 1,936.5 1,683.3 --------- --------- $25,593.0 $23,866.5 ========= ========= Interest rate spread................. 4.76% 4.69% ==== ==== Net interest income and net interest margin............................. $1,220.1 5.26% $1,158.0 5.33% ======== ==== ======== ==== Taxable-equivalent adjustment(1)..... $ 21.1 $ 27.6 - ---------------------------------------------------------------------------- (1) Interest income on tax-exempt investment securities and loans has been adjusted to a fully taxable-equivalent basis using the statutory Federal income tax rate of 35% for 1993 and 34% for all other years presented. (2) For purposes of these computations, nonaccrual loans are included in average loan balances outstanding. (3) Rate calculation excludes ESOP debt. (4) Certain amounts previously reported have been reclassified to conform with the current reporting presentation. N/M = Not Meaningful. 1991 1990 -------------------------------- ----------------------------- AVERAGE YIELD/ AVERAGE YIELD/ (dollars in millions) BALANCE INTEREST RATE BALANCE INTEREST RATE - ------------------------------------- --------- -------- ------ --------- -------- ------ ASSETS Loans(1)(2): Commercial, financial and agricultural..................... $ 5,757.1 $ 548.2 9.51% $ 6,584.3 $ 723.6 10.99% Real estate........................ 6,568.4 633.8 9.65 6,809.3 698.3 10.25 Consumer........................... 4,341.1 529.4 12.19 4,259.1 548.7 12.88 Student loans held for sale........ Lease financing.................... 675.1 60.3 8.94 621.3 63.5 10.22 Foreign............................ 84.9 5.8 6.83 79.6 6.9 8.67 --------- -------- -------- Total loans...................... 17,426.6 1,777.5 10.19 18,353.6 2,041.0 11.12 Mortgage loans held for sale......... 73.2 6.8 9.29 105.9 9.7 9.15 Investment Securities: Taxable investment securities...... 3,963.8 378.3 9.54 3,297.2 308.0 9.34 Tax-exempt investment securities(1).................... 688.6 66.3 9.63 824.0 79.8 9.68 --------- -------- --------- -------- Total investment securities...... 4,652.4 444.6 9.57 4,121.2 387.8 9.41 Securities available for sale........ 10.4 .9 8.88 Interest-bearing deposits with banks.............................. 579.8 39.5 6.80 1,030.0 91.3 8.87 Federal funds sold and security resale agreements.................. 544.3 30.7 5.64 447.4 36.1 8.07 Trading account assets............... 49.3 3.3 6.75 65.1 4.8 7.36 --------- -------- --------- -------- Total earning assets............. 23,325.6 2,302.4 9.87 24,133.6 2,571.6 10.66 Allowance for loan losses............ (463.8) (366.2) Other assets......................... 2,539.5 2,644.4 --------- --------- $25,401.3 $26,411.8 --------- --------- --------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Money market deposit accounts...... $ 2,972.0 $ 147.3 4.96% $2,753.2 $ 169.2 6.15% Savings deposits................... 2,101.7 94.5 4.50 2,205.0 105.7 4.79 NOW accounts....................... 1,759.2 77.7 4.42 1,694.9 84.4 4.98 Certificates ($100,000 or more).... 2,238.7 162.4 7.26 2,777.3 233.8 8.42 Other time deposits................ 7,777.8 535.7 6.89 7,884.8 616.4 7.82 Deposits in foreign office......... 367.4 23.8 6.48 756.2 61.9 8.19 --------- -------- --------- -------- Total interest-bearing deposits....................... 17,216.8 1,041.4 6.05 18,071.4 1,271.4 7.04 Federal funds purchased and securities sold under agreements to repurchase......................... 2,240.8 124.5 5.56 2,191.8 171.2 7.81 Other short-term borrowings.......... 316.3 17.5 5.52 278.3 21.1 7.57 Long-term debt(3).................... 468.1 33.3 8.41 477.5 35.2 8.69 --------- -------- --------- -------- Total interest-bearing liabilities.................... 20,242.0 1,216.7 6.03 21,019.0 1,498.9 7.16 -------- ------ -------- Noninterest-bearing deposits......... 2,920.6 3,115.2 Other liabilities.................... 523.2 565.3 Preferred stock...................... 60.0 50.0 Common shareholders' equity.......... 1,655.5 1,662.3 --------- --------- $25,401.3 $26,411.8 --------- --------- --------- --------- Interest rate spread................. 3.84% 3.50% ------ ----- ------ ----- Net interest income and net interest margin............................. $1,085.7 4.65% $1,072.7 4.44% -------- ------ -------- ----- -------- ------ -------- ----- Taxable-equivalent adjustment(1)..... $ 38.5 $ 50.2
14 17
COMPOUND ANNUAL RATE OF CHANGE 1989 1988 (1988-1993) --------------------------------- --------------------------------- -------------------- AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST --------- -------- ------ --------- -------- ------ -------- -------- $ 7,323.8 $ 863.0 11.78% $ 7,433.5 $ 768.0 10.33% (9.8)% (14.1)% 6,045.4 649.2 10.74 5,155.3 530.7 10.29 6.5 1.6 4,025.8 525.8 13.06 3,827.4 450.4 11.77 N/M N/M 548.7 53.5 9.74 453.5 41.9 9.24 17.3 12.4 108.0 11.6 10.78 168.7 13.5 8.02 (15.8) (19.7) --------- -------- --------- -------- 18,051.7 2,103.1 11.65 17,038.4 1,804.5 10.59 (.1) (4.6) 79.1 9.4 11.87 19.2 2.0 10.51 66.2 54.8 3,215.2 277.0 8.61 2,950.7 229.4 7.77 7.1 7.6 935.8 87.8 9.39 1,147.2 107.6 9.38 (16.7) (17.1) --------- -------- --------- -------- 4,151.0 364.8 8.79 4,097.9 337.0 8.22 2.4 1.9 28.8 2.9 10.33 N/M N/M 1,163.1 110.3 9.48 1,562.8 123.1 7.88 (23.5) (34.8) 279.5 26.0 9.30 112.4 9.0 8.03 (16.6) (31.1) 22.2 1.9 8.78 7.7 .2 2.01 16.9 24.6 --------- -------- --------- -------- 23,775.4 2,618.4 11.01 22,838.4 2,275.8 9.97 3 (3.6) (305.0) (250.3) 14.7 2,592.7 2,668.3 1.6 --------- --------- $26,063.1 $25,256.4 .3 --------- --------- --------- --------- $ 2,471.6 $ 147.4 5.96% $ 2,820.1 $ 153.0 5.42% (2.3)% (16.3)% 2,329.5 115.8 4.97 2,516.0 120.5 4.79 1.4 (10.1) 1,673.8 82.9 4.95 1,676.2 78.1 4.66 7.3 (7.5) 2,940.7 260.4 8.86 2,116.4 156.1 7.38 (13.1) (19.8) 7,229.1 580.9 8.04 6,546.5 474.3 7.25 (3.0) (13.2) 653.0 58.6 8.97 783.2 58.3 7.45 5.4 (11.6) --------- -------- --------- -------- 17,297.7 1,246.0 7.20 16,458.4 1,040.3 6.32 (1.5) (13.4) 2,569.5 226.3 8.80 2,589.3 185.2 7.15 1.1 (15.2) 284.1 24.1 8.50 332.2 24.7 7.45 19.7 (.6) 485.2 41.6 9.24 466.6 42.5 9.10 17.1 8.2 --------- -------- --------- -------- 20,636.5 1,538.0 7.47 19,846.5 1,292.7 6.51 (12.3) -------- ------ -------- ------ 3,163.2 3,185.5 (.2) 499.6 412.1 8.9 25.0 53.7 (28.7) 1,738.8 1,758.6 1.9 --------- --------- $26,063.1 $25,256.4 .3 --------- --------- --------- --------- 3.54% 3.46% ------ ------ ------ ------ $1,080.4 4.54% $ 983.1 4.30% 4.4 -------- ------ -------- ------ -------- ------ -------- ------ $ 54.3 $ 53.5 (17.0)
18 (FIG. 4) - COMPONENTS OF NET INTEREST INCOME CHANGES
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------- 1993 VS. 1992 1992 VS. 1991 -------------------------------- ---------------------------------- AVERAGE YIELD/ NET AVERAGE YIELD/ NET (dollars in millions) VOLUME RATE CHANGE VOLUME RATE CHANGE - --------------------------------------- ------ -------- -------- -------- -------- -------- INTEREST INCOME Loans.................................. $69.8 $ (88.5) $ (18.7) $ (124.3) $ (212.1) $ (336.4) Mortgage loans held for sale........... 7.1 (2.1) 5.0 6.5 (.5) 6.0 Taxable investment securities.......... (8.2 ) (58.8) (67.0) 26.9 (8.1) 18.8 Tax-exempt investment securities....... (11.2 ) (1.7) (12.9) (9.8) (1.7) (11.5) Securities available for sale.......... 63.8 63.8 Short-term investments................. (4.9 ) (3.9) (8.8) (28.8) (19.4) (48.2) ------ -------- -------- -------- -------- -------- Total interest income................ 116.4 (155.0) (38.6) (129.5) (241.8) (371.3) INTEREST EXPENSE Money market deposit accounts.......... (9.3 ) (19.6) (28.9) (7.4) (48.1) (55.5) Savings deposits....................... 11.8 (15.0) (3.2) 8.3 (28.7) (20.4) NOW accounts........................... 9.5 (13.0) (3.5) 9.9 (31.2) (21.3) Certificates ($100,000 or more)........ (21.3 ) (14.1) (35.4) (51.2) (24.0) (75.2) Other time deposits.................... (30.1 ) (55.4) (85.5) (93.2) (122.7) (215.9) Deposits in foreign office............. 20.5 (2.7) 17.8 (10.1) (10.1) ------ -------- -------- -------- -------- -------- Total interest-bearing deposits...... (18.9 ) (119.8) (138.7) (133.6) (264.8) (398.4) Federal funds purchased and securities sold under agreements to repurchase........................... 13.0 (9.4) 3.6 3.8 (50.7) (46.9) Other short-term borrowings............ 13.6 (1.5) 12.1 2.2 (7.7) (5.5) Long-term debt......................... 25.9 (3.6) 22.3 9.2 (2.0) 7.2 ------ -------- -------- -------- -------- -------- Total interest expense............... 33.6 (134.3) (100.7) (118.4) (325.2) (443.6) ------ -------- -------- -------- -------- -------- NET INTEREST INCOME.................. $82.8 $ (20.7) $ 62.1 $ (11.1) $ 83.4 $ 72.3 ------ -------- -------- -------- -------- -------- ------ -------- -------- -------- -------- -------- The change in interest not due solely to volume or rate has been allocated in proportion to the absolute dollar amount of the change in each.
ASSET AND LIABILITY MANAGEMENT The Corporation manages its exposure to economic loss from fluctuations in interest rates through an active program of asset and liability management within guidelines established by the Corporation's Asset/Liability Management Committee ("ALCO"). The ALCO has the responsibility for approving the asset/liability management policies of the Corporation, approving changes in the balance sheet that would result in deviations from guidelines in the policy, approving strategies to improve balance sheet positioning and/or earnings, and reviewing the interest rate sensitivity positions of the Corporation and each of the affiliate banks. The ALCO meets twice monthly to conduct this review and to approve strategies consistent with its policies. The primary tool utilized by management to measure and manage interest rate exposure is a simulation model. Use of the model to perform simulations of changes in interest rates over one-and two-year time horizons has enabled management to develop strategies for managing exposure to interest rate risk. In performing its simulations, management projects the impact on net interest income from pro forma 100 and 200 basis point changes in the overall level of interest rates. ALCO policy guidelines provide that a 200 basis point increase or decrease over a 12-month period should not result in more than a 2% negative impact on net interest income. Simulations as of December 31, 1993, indicated that a 200 basis point increase in interest rates over the next twelve months would have reduced net interest income by 2.2%. Conversely, a 200 basis point decrease in interest rates over the same time period would have increased net interest income by 1.4%. Accordingly, as of December 31, 1993, the simulation model indicated that the Corporation's liability-sensitivity position was outside of policy guidelines. ALCO determined that this interest rate sensitivity position was appropriate considering the pending merger with old KeyCorp. Simulations on a pro forma combined basis with old KeyCorp as of December 31, 1993, indicated that the combined corporation was positioned within the guidelines and was slightly liability sensitive. The simulation model is supplemented with a more traditional tool used in the banking industry for measuring interest rate risk known as interest rate sensitivity gap analysis. This tool measures the difference between 16 19 assets and liabilities repricing or maturing within specified time periods. An asset-sensitive position indicates that there are more rate-sensitive assets than rate-sensitive liabilities repricing or maturing within specified time horizons, which would generally imply a favorable impact on net interest income in periods of rising interest rates. Conversely, a liability sensitive position, where rate-sensitive liabilities exceed the amount of rate-sensitive assets repricing or maturing within applicable time frames, would generally imply a favorable impact on net interest income in periods of declining interest rates. The interest rate gap analysis table shown in Figure 5 presents the gap position (including the impact of off-balance sheet items) of the Corporation at December 31, 1993. Gap analysis has several limitations. For example, it does not take into consideration the varying degrees of interest rate sensitivity pertaining to the assets and liabilities that reprice within one year. Thus at December 31, 1993, the cumulative adjusted interest rate sensitivity gap of 4.78% within the one-year time frame indicated that the Corporation was asset-sensitive, whereas the more precise simulation model, previously described, indicated the Corporation was slightly liability-sensitive. The Corporation's core lending and deposit-gathering businesses tend to generate significantly more fixed-rate deposits than fixed-rate interest-earning assets. Left unaddressed, this tendency would place the Corporation's earnings at risk to declining interest rates as interest-earning assets would reprice faster than would interest-bearing liabilities. To reduce this risk, management has utilized its securities portfolio and, for the past several years, interest rate swaps in the management of interest rate risk. The decision to use "portfolio" interest rate swaps to manage interest rate risk versus on-balance sheet securities has depended on various factors, including funding costs, liquidity, and capital requirements. The Corporation's "portfolio" swaps totaled $5.2 billion at December 31, 1993, and consisted principally of contracts wherein the Corporation receives a fixed rate of interest, while paying at a variable rate, as summarized in Figure 6. In addition to "portfolio" swaps, the Corporation has entered into interest rate swap agreements to accommodate the needs of its customers, typically commercial loan customers. The Corporation offsets the interest rate risk of customer swaps by entering into offsetting swaps, primarily with third parties. These offsetting swaps are also included in the customer swap portfolio. Where the Corporation does not have an existing loan with the customer, the swap position of the customer and any offsetting swap with a third party are carried at their respective fair values. The $1.2 billion notional value of customer swaps in Figure 6 includes $645 million of interest rate swaps that receive a fixed rate and pay a variable rate and $569 million of interest rate swaps that receive a variable rate and pay a fixed rate. The total notional value of all interest rate swap contracts outstanding was $6.5 billion and $5.5 billion as of December 31, 1993 and 1992, respectively. Figure 7 shows the current year activity for such swaps. At December 31, 1993, the aggregate notional values of interest rate swap contracts, excluding customer swaps, maturing in each of the years 1994 through 1998 were $2.5 billion, $1.0 billion, $500 million, $200 million and $650 million, respectively. The credit risk exposure to the counterparties for each interest rate swap contract is monitored by the appropriate credit committees at both the Corporate and affiliate bank levels. Based upon detailed credit reviews of the counterparties, these credit committees establish limitations on the total credit exposure the Corporation may have with each counterparty and indicate whether collateral is required. At December 31, 1993, excluding customer swaps, the Corporation had 16 counterparties to interest rate swap contracts, of which the largest credit exposure to an individual counterparty was $16.4 million on a notional amount of $900 million. The average total notional amount of swap contracts with these 16 counterparties was $328 million with an average credit exposure of $4.1 million. 17 20 (FIG. 5) - INTEREST RATE GAP ANALYSIS
DECEMBER 31, 1993 ----------------------------------------------------------------------- 1 TO 90 91 TO 180 181 TO 365 1 TO 5 OVER 5 (dollars in millions) DAYS DAYS DAYS YEARS YEARS TOTAL - ----------------------------------- ------- --------- ---------- ------- ------ ------- ASSETS Loans............................ $9,477 $ 925 $1,949 $ 3,951 $1,596 $17,898 Mortgage loans held for sale..... 322 322 Investment securities............ 433 312 1,633 2,593 682 5,653 Securities available for sale.... 104 100 4 327 203 738 Short-term investments........... 68 68 Other assets..................... 2,315 13 2,328 ------- --------- ---------- ------- ------ ------- Total assets.................. 10,404 1,337 3,586 9,186 2,494 27,007 ------- --------- ---------- ------- ------ ------- LIABILITIES AND SHAREHOLDERS' EQUITY Noninterest-bearing deposits..... 601 3,203 3,804 Interest-bearing deposits........ 4,911 1,482 1,414 8,209 61 16,077 Short-term borrowings............ 3,529 3,529 Long-term debt................... 312 641 953 Other liabilities................ 606 606 Shareholders' equity............. 2,038 2,038 ------- --------- ---------- ------- ------ ------- Total liabilities and shareholders' equity........ 9,041 1,482 1,414 11,724 3,346 27,007 ------- --------- ---------- ------- ------ ------- Off balance sheet items............ (1,745 ) (875) 410 1,810 400 ------- --------- ---------- ------- ------ Rate sensitivity gap............... $ 382 $(1,020) $2,582 $ (728) $(452 ) Cumulative gap..................... $ 382 $(1,402) $1,180 $ 452 ------- --------- ---------- ------- ------- --------- ---------- ------- Cumulative gap as a % of earning assets........................... (1.55)% (5.68)% 4.78% 1.83% ------- --------- ---------- ------- ------- --------- ---------- -------
(FIG. 6) - INTEREST RATE SWAP PORTFOLIO
DECEMBER 31, 1993 ---------------------------------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE RATE NOTIONAL MATURITY FAIR ---------------- (in millions) VALUE (YEARS) VALUE RECEIVE PAY - --------------------------------------------- -------- -------- ----- ------- ---- Receive fixed/pay variable................... $4,490 2.2 $66 6.32% 3.45% Pay fixed/receive variable................... 100 .8 (4) 3.38 8.78 Basis swaps.................................. 150 3.54 2.81 Forward-starting receive fixed/pay variable................................... 500 1.7 2 6.06 3.48 -------- ----- Total "portfolio" swaps................. 5,240 2.1 64 5.45 3.53 Customer swaps............................... 1,214 3.7 4 5.22 5.03 -------- ----- Total interest rate swaps............... $6,454 2.4 $68 5.90 3.82 -------- ----- -------- -----
18 21 (FIG. 7) - "PORTFOLIO" SWAP ACTIVITY
YEAR ENDED DECEMBER 31, 1993 --------------------------------------------- TOTAL RECEIVE PAY FORWARD- "PORTFOLIO" (in millions) FIXED FIXED BASIS STARTING SWAPS - ----------------------------------------------------- ------ ----- ----- -------- --------- Balance at beginning of year......................... $3,455 $200 $1,180 $ 4,835 Additions....................................... 1,750 $150 502 2,402 Maturities/amortization......................... (1,445) (112 ) (1,557) Terminations.................................... (380) (60) (440) Forward-starting becoming effective............. 1,110 12 (1,122) ------ ----- ----- -------- --------- Balance at end of year............................... $4,490 $100 $150 $ 500 $ 5,240 ------ ----- ----- -------- --------- ------ ----- ----- -------- ---------
(FIG. 8) - LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
DECEMBER 31, 1993 ------------------------------------------- WITHIN 1 - 5 OVER (in millions) 1 YEAR YEARS 5 YEARS TOTAL - ----------------------------------------------------- -------- -------- ------- -------- Commercial, financial and agricultural............... $2,801.3 $1,143.8 $443.1 $4,388.2 Real estate -- construction.......................... 333.7 201.5 88.0 623.2 -------- -------- ------- -------- $3,135.0 $1,345.3 $531.1 $5,011.4 -------- -------- ------- -------- -------- -------- ------- -------- Loans at floating or adjustable rates................ $ 901.0 $237.0 Loans at predetermined interest rates................ 444.3 294.1 -------- ------- $1,345.3 $531.1 -------- ------- -------- -------
NONINTEREST INCOME As shown in Figure 9, noninterest income totaled $509.8 million in 1993, up $8.3 million, or 2%, from the prior year. After excluding the $29.4 million gain on the sale of ATC, the $26.1 million in net securities gains and certain other nonrecurring items, noninterest income in 1993 was $457.6 million. This represented an increase of $14.1 million, or 3%, from the amount reported in 1992, after excluding last year's $20.1 million gain on the sale of branch offices and loans, and net securities gains totaling $9.8 million. Adjusting for the 1992 gains and the securities transactions recorded in 1991, noninterest income in 1992 rose $23.9 million, or 5%, relative to the prior year. Trust fees continued to be a major source of revenue. After excluding the gains referred to above, these fees accounted for 45% of noninterest income in both 1993 and 1992, compared to 44% in 1991. The growth during the 1992 period reflected the development of new business, expanded geographic coverage and enhanced service capability. At December 31, 1993, the Corporation, through Society Asset Management, Inc. ("SAMI") and the trust departments of its affiliate banks and trust subsidiaries, managed assets (excluding corporate trust assets) of approximately $29.4 billion. SAMI, which is a wholly-owned subsidiary of Society National Bank, is registered with the Securities and Exchange Commission ("SEC") as an investment advisor and is one of the largest money managers in the Great Lakes region. The sale of ATC in September 1993 reduced managed trust assets and trust fees by approximately $4 billion and $8.0 million, respectively. Service charges on deposit accounts decreased $1.6 million, or 2%, in 1993 following an increase of $3.7 million, or 4%, in 1992. The decrease in 1993 was due, in part, to the change in the mix of the deposit base and related pricing structure resulting from acquisitions and divestitures. Factors contributing to the improvement in 1992 were pricing strategies and other corporate-wide initiatives designed to offset higher costs associated with servicing deposit accounts. In 1993, credit card fees decreased $6.8 million, or 12%, primarily due to a decline in annual membership fees relative to the prior year. This compared to an increase of $2.5 million, or 5%, in 1992. 19 22 Growth in the insurance and brokerage component of other income over the past three years was due to increased broker dealer commissions at Society Investments, Inc. (SII). SII, which is a wholly-owned subsidiary of Society National Bank, is a registered broker dealer with the SEC and the National Association of Securities Dealers. The increase in commissions at SII resulted from aggressive and strategic sales initiatives, including an expanded sales force and product line. "Miscellaneous" other income in 1993 decreased $8.0 million, or 12%, from the comparable 1992 amount. Primary factors contributing to this decrease were an $8.2 million decline in ATM fees resulting from Society's contribution of the Green Machine subsidiary to the newly formed Electronic Payment Systems joint venture which Society entered into in the fourth quarter of 1992, and $10.2 million in gains resulting from the curtailment and settlement of retirement obligations recorded in 1992 in connection with merger-related staff reductions. The impact of these factors was partially offset by a $4.5 million interest rate swap trading gain recorded in 1993. (FIG. 9) - NONINTEREST INCOME
YEAR ENDED DECEMBER 31, -------------------------------------------------- CHANGE 1993 VS 1992 ----------------- (dollars in millions) 1993 1992 1991 AMOUNT PERCENT - --------------------------------------------- ------ ------ ------ ------ ------ Trust income................................. $204.9 $210.0 $199.1 $ (5.1) (2.4)% Service charges on deposit accounts.......... 98.0 99.6 95.9 (1.6) (1.6) Credit card fees............................. 48.0 54.8 52.3 (6.8) (12.4) Gain on sale of subsidiary................... 29.4 29.4 N/M Gain on sale of branch offices and loans..... 20.1 (20.1) (100.0) Net securities gains......................... 26.1 9.8 7.4 16.3 166.3 Other income: Insurance and brokerage.................... 21.4 18.1 13.7 3.3 18.2 International fees......................... 21.4 20.5 18.2 .9 4.4 Miscellaneous.............................. 60.6 68.6 68.5 (8.0) (11.7) ------ ------ ------ ------ Total other income...................... 103.4 107.2 100.4 (3.8) (3.5) ------ ------ ------ ------ Total noninterest income.............. $509.8 $501.5 $455.1 $ 8.3 1.7 ------ ------ ------ ------ ------ ------ ------ ------ N/M = Not Meaningful
NONINTEREST EXPENSE Noninterest expense, as shown in Figure 10, totaled $1.1 billion in 1993, up $55.9 million, or 5%, from the 1992 level. In both 1993 and the prior year, noninterest expense was adversely impacted by merger and integration charges of $53.9 million and $50.0 million, respectively. In addition, the current year included several nonrecurring charges totaling $34.4 million. Significant items included in these charges were $21.6 million related to various systems conversion costs, $7.0 million of facilities-related charges and $4.0 million associated with the adoption of SFAS No. 112, "Employers' Accounting for Postemployment Benefits." Excluding the merger and integration charges and the nonrecurring items, 1993 expenses rose $17.6 million, or 2%, principally due to increases in personnel expense, marketing expense and the "Miscellaneous" category, offset in part by lower fees for professional services. The overall increase in recurring noninterest expense was due, in large part, to the acquisition of Society First Federal in January 1993. The 1991 period also included merger and integration charges of $93.8 million, as well as $6.9 million of costs associated with a branch optimization program. After adjusting for these items, 1992 noninterest expense decreased $15.8 million, or 2%, relative to the prior year, reflecting the effectiveness of cost management initiatives. Personnel expense for 1993 increased $15.0 million, or 3%, over 1992. In addition to the $9.3 million impact of the Society First Federal acquisition, this increase reflected the Corporation's January 1, 1993, adoption of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which added $4.7 million to 1993 employee benefits expense, as well as additional costs associated with a new employee incentive program. Excluding the impact of the adoption of SFAS No. 106 and SFAS No. 112, personnel expense for 1993 increased $6.3 million or 1%. SFAS No. 106 and SFAS No. 112 are more fully described 20 23 below. Personnel expense for 1992 increased $4.5 million, or less than 1%, from the prior year. The 1992 increase in the salaries component was mainly due to higher costs related to temporary contracted personnel, but was substantially offset by the decrease in benefits resulting from reduced staff levels. At December 31, 1993, the number of full-time equivalent employees was 12,038, down 3% and 11% from 1992 and 1991 levels, respectively. Merger and integration charges of $53.9 million, $50.0 million and $93.8 million were recorded in 1993, 1992, and 1991, respectively. The 1993 charges were incurred in connection with the merger with old KeyCorp, while the 1992 and 1991 amounts related to the merger with Ameritrust. The merger and integration charges directly attributable to the old KeyCorp merger included accruals for merger expenses, consisting primarily of investment banking and other professional fees directly related to the merger ($12.6 million); severance payments and other employee costs ($17.6 million); systems and facilities costs ($16.7 million); and other costs incident to the merger ($7.0 million). These charges were recorded by the parent company in the fourth quarter of 1993 at which time management determined that it was probable that a liability for such charges had been incurred and could be reasonably estimated. The merger and integration charges recorded in connection with the Ameritrust merger in 1992 and 1991 were similar in nature. Although no assurance can be given, it is also expected that as a result of the old KeyCorp merger, cost savings will be achieved by the combined institution at an annual rate of approximately $100 million by the end of the first quarter of 1995. These cost savings are anticipated to result from the integration of operations and from efficiencies in certain combined lines of business. Management presently expects that approximately 50% of the annual cost savings will be achieved in 1994. One measure used in the banking industry to assess the level of noninterest expense is the efficiency ratio, which is defined in Figure 10. The efficiency ratios for 1993, 1992, and 1991 were 60.41%, 61.11%, and 66.44%, respectively. The improvement in the Corporation's efficiency ratios reflects, in large part, the success achieved in reducing overhead costs through the successful integration of banking companies, coupled with the strong growth in taxable-equivalent net interest income. SFAS No. 106, previously referred to on page 20, requires that employers recognize the cost of providing postretirement benefits over the employees' active service periods to the date they attain full eligibility for such benefits. A transition obligation, defined as the unfunded accumulated postretirement benefit obligation at the date the standard is adopted, may be recognized immediately (through a charge to earnings in the year of adoption), or on a delayed basis, generally over a transition period not to exceed 20 years. The Corporation elected to recognize the transition obligation of approximately $77 million over a 20-year transition period. As previously stated, adoption of the new standard added $4.7 million to noninterest expense in the current year. As of December 31, 1993, the discount rate used in determining the actuarial present value of both pension and other postretirement benefits was reduced from 8.5% to 7.5%. In addition, the assumed rate of increase in future compensation levels (applicable only to the determination of pension benefits) was reduced from 4.5% to 4.0%. The net effect of these assumption changes on 1994 expense levels is not expected to be material. Another assumption used in the determination of the costs of other postretirement benefits is the health care cost trend rate. Because of certain cost-sharing provisions and benefit limitations in effect, increasing the rates assumed in each future year by one percentage point would not be expected to have a material impact on the costs for other postretirement benefits. The Corporation adopted the provisions of SFAS No. 112, "Employers' Accounting for Postemployment Benefits" during 1993. This standard requires that employers who provide benefits to former and inactive employees after employment but before retirement recognize a liability for such benefits if specified conditions are met. Adoption of the standard increased third quarter and full year 1993 noninterest expense by $4.0 million. Postemployment benefits for 1992 and 1991, which were recorded on a cash basis, were not restated. 21 24 (FIG. 10) - NONINTEREST EXPENSE
YEAR ENDED DECEMBER 31, ------------------------------------------------------------ CHANGE 1993 VS 1992 --------------------- (dollars in millions) 1993 1992 1991 AMOUNT PERCENT - ----------------------------------------------- -------- -------- -------- -------- -------- Personnel: Salaries..................................... $ 433.3 $ 429.7 $ 409.9 $ 3.6 .8% Employee benefits............................ 73.4 62.0 77.3 11.4 18.4 -------- -------- -------- -------- Total personnel........................... 506.7 491.7 487.2 15.0 3.1 Net occupancy.................................. 92.6 89.1 90.4 3.5 3.9 Equipment...................................... 79.0 77.0 72.9 2.0 2.6 FDIC insurance assessments..................... 40.7 43.8 42.1 (3.1) (7.1) Professional fees.............................. 20.4 31.4 29.8 (11.0) (35.0) Merger and integration charges................. 53.9 50.0 93.8 3.9 7.8 Other expense: Marketing.................................... 28.6 23.3 28.2 5.3 22.7 Amortization of intangibles.................. 26.5 30.1 27.5 (3.6) (12.0) OREO (net of income of $14.4, $11.5 and $4.8)..................................... 5.6 6.1 9.7 (.5) (8.2) Miscellaneous................................ 247.9 203.5 230.9 44.4 21.8 -------- -------- -------- -------- Total other expense....................... 308.6 263.0 296.3 45.6 17.3 -------- -------- -------- -------- Total noninterest expense............... $1,101.9 $1,046.0 $1,112.5 $ 55.9 5.3 -------- -------- -------- -------- -------- -------- -------- -------- Full-time equivalent employees................. 12,038 12,451 13,507 Efficiency ratio (1)........................... 60.41% 61.11% 66.44% Overhead ratio (2)............................. 45.57 45.27 52.60 (1) Calculated as noninterest expense (excluding merger and integration charges and other non-recurring charges) divided by taxable-equivalent net interest income plus noninterest income (excluding net securities transactions, gain on sale of subsidiary and gain on sale of branch offices and loans). (2) Calculated as noninterest expense (excluding merger and integration charges and other non-recurring charges) less noninterest income (excluding net securities transactions, gain on sale of subsidiary and gain on sale of branch offices and loans) divided by taxable-equivalent net interest income.
INCOME TAXES The provision for income taxes for 1993 was $187.5 million, compared with $137.4 million in 1992 and $33.2 million in 1991. The increases in both 1993 and the prior year resulted from an overall increase in the level of taxable earnings. The Omnibus Budget Reconciliation Act of 1993, which was signed into law on August 10, 1993, includes a number of significant items which impacted the Corporation's Federal income tax provision. Primary among these items is a retroactive increase in the Federal statutory tax rate from 34% to 35% as of January 31, 1993. In addition, the Act places certain limitations on deductible expenses which take effect after 1993. The effective tax rate (provision for income taxes as a percentage of income before income taxes) was 35.1% in 1993, 31.3% in 1992 and 30.3% in 1991. The effective tax rate in 1993 exceeded the current Federal statutory tax rate of 35% as a higher tax-basis gain on the sale of ATC and non tax-deductible expenses, including the amortization of certain intangible assets and certain merger expenses, exceeded tax-exempt income in the current year. The non tax-deductible merger expenses incurred in 1993 were primarily due to additional costs associated with the merger with old KeyCorp. The effective tax rate in 1992 and 1991 was less than the Federal statutory tax rate of 34.0%, in effect at the time, due primarily to tax-exempt income from certain investment securities and loans. During the first quarter of 1992, the Corporation adopted the provisions of SFAS No. 109, "Accounting for Income Taxes." The adoption of this standard did not have a material effect on the Corporation's financial condition or results of operations. 22 25 FINANCIAL CONDITION The financial condition of Society and its subsidiaries as of December 31 is presented in the comparative balance sheet on page 39. The following discussions address significant elements of financial condition including loans, securities, credit quality and experience, sources of funds, liquidity and capital adequacy. Unless otherwise indicated, amounts presented in the discussions are as of the appropriate period-end. LOANS At December 31, 1993, total loans outstanding were $17.9 billion, as compared with $16.0 billion at December 31, 1992, and $16.8 billion at December 31, 1991, as shown in Figure 11. The increase from the year-end 1992 level was due, in part, to the acquisition of Society First Federal in January 1993. Excluding the $836.6 million impact of this acquisition and adjusting for $200.0 million of student loans securitized or sold in 1993, loans increased by $1.3 billion since the prior year end. This reflected increases of $603.0 million in residential real estate loans, $578.5 million in student loans held for sale and $289.3 million in lease financing receivables. These increases were partially offset by decreases of $360.0 million in commercial mortgage and construction loans, $43.6 million in commercial loans, $41.5 million in credit card outstandings and $38.1 million in foreign loans. Commercial loans outstanding at December 31, 1993, were $4.4 billion, down slightly from the December 31, 1992 level, following a decrease of $747.6 million, or 14%, in the prior year. The declines in both years can be attributed to weaker loan demand as a consequence of the economic environment and to strategic efforts to reduce the level of exposure related to highly-leveraged transactions ("HLT"s), principally acquired in the Ameritrust Merger, where there has not been a long-standing relationship with the borrower. These transactions are defined and monitored based upon the criteria previously used by the banking regulators. In addition, the decline in 1992 reflected the run-off of certain other Ameritrust credits which management believed were incompatible with the Corporation's credit risk profile. At December 31, 1993, the Corporation had $247.5 million in HLT loans outstanding, down $157.7 million, or 39%, from the December 31, 1992, level. This followed a decline of $145.3 million, or 26%, in 1992. Loans secured by real estate totaled $7.3 billion at December 31, 1993, compared with $6.3 billion at December 31, 1992, and $6.4 billion at December 31, 1991. Loans secured by real estate consist of construction loans, one-to-four family residential loans (including home equity loans) and commercial mortgage loans. The increase from 1992 was mainly attributable to the acquisition of Society First Federal. The acquisition accounted for $811.9 million of the increase in total real estate loans and $767.2 million of the increase in the residential mortgage portfolio. Construction loans decreased to $623.2 million at December 31, 1993, from $737.6 million at December 31, 1992, and $839.4 million at December 31, 1991. After adjusting for the impact of the acquisition of Society First Federal, the decrease from year-end 1992 was $132.6 million. As portrayed in Figure 12, loans in the construction portfolio are concentrated in the Midwest, which has not experienced, to the same degree, the level of overbuilding and declines in real estate values as have certain other regions of the country. At December 31, 1993, 70% of the portfolio was secured by properties in Ohio, and 17% were in Indiana and Michigan, Society's principal banking markets. The commercial mortgage loan portfolio totaled $2.1 billion at December 31, 1993, compared with $2.3 billion at December 31, 1992, and $2.6 billion at December 31, 1991. In addition to efforts to downsize the portfolio, the slower economy also contributed to this decrease. As depicted in Figure 12, commercial mortgages are also geographically concentrated in the Midwest, with 64% of outstandings secured by properties in Ohio, and 21% in Indiana and Michigan. At December 31, 1993, 49% of the commercial mortgage loan portfolio was comprised of loans secured by owner-occupied properties. Those borrowers are engaged in business activities other than real estate, and the primary source of repayment is not solely dependent on the real estate market. The Corporation manages risk exposure in the construction and commercial mortgage portfolios through prudent underwriting criteria and by monitoring loan concentrations by geographic region and property type. One-to-four family residential mortgages (including home equity loans) were $4.6 billion at December 31, 1993, compared with $3.2 billion at December 31, 1992, and $2.9 billion at December 31, 1991. Excluding the 23 26 impact of the acquisition of Society First Federal, residential mortgages increased $603.0 million, or 19%, in 1993. This followed an increase of $515.6 million, or 19%, in 1992, after adjusting for the sale of $260.0 million of mortgage loans in connection with the branch sales previously discussed. Excluding the impact of the acquisition of Society First Federal, loan originations increased $428.5 million, or 25%, in 1993, following an increase of $806.6 million, or 88%, in 1992. A significant portion of the loan originations during the past two years is attributable to homeowner refinancings, reflecting the lower level of interest rates. During 1993 the Corporation continued its strategy of originating and selling most fixed rate loans with 30-year maturities in the secondary market (and such loans are classified outside of the loan portfolio as mortgage loans held for sale), whereas adjustable rate loans and fixed rate loans with 15-year maturities are originated to secondary market standards and maintained in the portfolio. At December 31, 1993, 22% of the residential loan portfolio was adjustable rate. The Corporation's mortgage banking operation services $5.1 billion in loans, of which $2.4 billion is held by third parties. Consumer loans totaled $3.3 billion at December 31, 1993, compared with $3.2 billion at December 31, 1992, and $4.4 billion at December 31, 1991. The decrease during 1992 reflected the designation of approximately $1.1 billion of student loans as held for sale in the fourth quarter of 1992. Consumer loans also declined as a result of the sale of $117.6 million in outstandings as part of the branch sales in May and June 1992 in connection with the Ameritrust merger, and the sale of $240.0 million in student loans in August 1992. Excluding the impact of these 1992 items, consumer loans increased $446.0 million, or 9%, from the December 31, 1991, level. As indicated above, during the latter part of 1992 the Corporation initially designated its student loan portfolio, totaling approximately $1.1 billion at the time, as held for sale. Since then, this portfolio has grown to $1.6 billion at December 31, 1993, representing an increase of $578.5 million, or 54%, from the year-end 1992 level. The higher level of outstandings in 1993 reflected the Corporation's increased involvement in the Law Access Loan Program as a primary provider of education loans to law school students. In June 1993, the Corporation securitized, without recourse, a portion of this portfolio totaling $200.0 million.
(FIG. 11) - COMPOSITION OF LOANS
DECEMBER 31, ------------------------------------------------------------------- 1993 1992 1991 ------------------- ------------------- ------------------- % OF % OF % OF (dollars in millions) AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL - ---------------------------------------- --------- ----- --------- ----- --------- ----- Commercial, financial, and agricultural.......................... $ 4,388.2 24.5 % $ 4,430.0 27.6% $ 5,177.7 30.8% Real estate -- construction............. 623.2 3.5 737.6 4.6 839.4 5.0 Real estate -- commercial mortgage...... 2,119.8 11.8 2,320.8 14.5 2,631.2 15.6 --------- ----- --------- ----- --------- ----- Total commercial real estate.......... 2,743.0 15.3 3,058.4 19.1 3,470.6 20.6 Real estate -- residential mortgage..... 4,574.5 25.6 3,204.4 20.0 2,948.8 17.5 --------- ----- --------- ----- --------- ----- Total real estate................... 7,317.5 40.9 6,262.8 39.1 6,419.4 38.1 Credit card............................. 1,036.1 5.8 1,076.5 6.7 1,108.6 6.6 Other consumer.......................... 2,230.7 12.5 2,166.9 13.5 3,324.4 19.7 --------- ----- --------- ----- --------- ----- Total consumer........................ 3,266.8 18.3 3,243.4 20.2 4,433.0 26.3 Student loans held for sale............. 1,648.6 9.2 1,070.1 6.7 Lease financing......................... 1,213.2 6.8 923.8 5.8 724.7 4.3 Foreign................................. 63.3 .3 101.4 .6 76.9 .5 --------- ----- --------- ----- --------- ----- Total............................... $17,897.6 100.0% $16,031.5 100.0% $16,831.7 100.0% ========= ===== ========= ===== ========= ===== December 31, ------------------------------------------- 1990 1989 ------------------- ------------------- % OF % OF (dollars in millions) AMOUNT TOTAL AMOUNT TOTAL - ---------------------------------------- --------- ----- --------- ----- Commercial, financial, and agricultural.......................... $ 6,188.0 34.2% $ 7,045.9 38.4% Real estate -- construction............. 1,331.8 7.4 1,177.4 6.4 Real estate -- commercial mortgage...... 2,396.9 13.2 2,359.3 12.8 --------- ----- --------- ----- Total commercial real estate.......... 3,728.7 20.6 3,536.7 19.2 Real estate -- residential mortgage..... 3,033.8 16.8 2,824.7 15.4 --------- ----- --------- ----- Total real estate................... 6,762.5 37.4 6,361.4 34.6 Credit card............................. 1,033.1 5.7 870.3 4.7 Other consumer.......................... 3,358.1 18.6 3,421.4 18.6 --------- ----- --------- ----- Total consumer........................ 4,391.2 24.3 4,291.7 23.3 Student loans held for sale............. Lease financing......................... 662.6 3.7 597.7 3.3 Foreign................................. 72.5 .4 75.8 .4 --------- ----- --------- ----- Total............................... $18,076.8 100.0% $18,372.5 100.0% ========= ===== ========= =====
2 27 (FIG. 12) - COMMERCIAL MORTGAGE AND CONSTRUCTION LOANS
(in millions) DECEMBER 31, 1993 DECEMBER 31, 1992 COMMERCIAL MORTGAGE ---------------------------------- ---------------------------------- Nonowner-occupied properties: OHIO OTHER STATES TOTAL OHIO OTHER STATES TOTAL -------- ------------ -------- -------- ------------ -------- Retail facilities..................... $ 252.6 $136.9 $ 389.5 $ 274.7 $175.0 $ 449.7 Multi-family properties............... 117.0 96.6 213.6 150.7 108.1 258.8 Office buildings...................... 115.0 31.1 146.1 123.9 31.7 155.6 Health facilities..................... 41.8 11.1 52.9 67.2 12.7 79.9 Manufacturing facilities.............. 34.3 19.8 54.1 37.1 27.7 64.8 Warehouses............................ 31.0 22.2 53.2 30.5 16.5 47.0 Other................................. 101.2 68.5 169.7 142.9 152.7 295.6 Owner-occupied properties............... 656.3 384.4 1,040.7 592.7 376.7 969.4 -------- ------------ -------- -------- ------------ -------- Total................................. $1,349.2 $770.6 $2,119.8 $1,419.7 $901.1 $2,320.8 -------- ------------ -------- -------- ------------ -------- -------- ------------ -------- -------- ------------ --------
(in millions) DECEMBER 31, 1993 DECEMBER 31, 1992 CONSTRUCTION ---------------------------------- ---------------------------------- Nonowner-occupied properties: OHIO OTHER STATES TOTAL OHIO OTHER STATES TOTAL -------- ------------ -------- -------- ------------ -------- Retail facilities..................... $ 81.1 $ 47.0 $ 128.1 $ 122.4 $ 89.4 $ 211.8 Multi-family properties............... 61.4 16.5 77.9 55.1 14.7 69.8 Office buildings...................... 113.6 22.6 136.2 157.6 33.7 191.3 Health facilities..................... 2.8 4.1 6.9 4.2 2.8 7.0 Manufacturing facilities.............. 1.0 .9 1.9 3.5 2.3 5.8 Warehouses............................ 1.5 3.7 5.2 4.0 2.5 6.5 Other................................. 64.1 59.0 123.1 81.7 51.7 133.4 Owner-occupied properties............... 108.2 35.7 143.9 88.8 23.2 112.0 -------- ------------ -------- -------- ------------ -------- Total................................. $ 433.7 $189.5 $ 623.2 $ 517.3 $220.3 $ 737.6 -------- ------------ -------- -------- ------------ -------- -------- ------------ -------- -------- ------------ --------
SECURITIES In December 1992, the Corporation transferred its U.S. Treasury securities from the investment portfolio to the "available for sale" portfolio. At December 31, 1993, the book value of the securities portfolio, including securities available for sale, totaled $6.4 billion, up $784.7 million, or 14%, from December 31, 1992. The year-end 1992 amount was $816.1 million, or 17%, higher than the comparable amount for 1991. The growth from the 1992 year-end primarily resulted from an increase of $1.2 billion, or 35%, in mortgage-backed securities and an increase of $145.5 million, or 25%, in other securities. These increases were partially offset by decreases in securities issued by states and political subdivisions of $150.2 million, or 29%, and $384.1 million, or 34%, in securities available for sale. The increase during 1992 primarily resulted from purchases of U.S. Treasury securities, collateralized mortgage obligations ("CMOs") and other mortgage-backed securities. The securities portfolio comprised 26% of total earning assets at December 31, 1993, up from 25% at December 31, 1992, and up from 21% at December 31, 1991. The yield on the securities portfolio declined to 6.49% at December 31, 1993, from 7.61% at December 31, 1992. This reduction is attributable to prepayments on higher-yielding mortgage-backed securities and lower reinvestment yields resulting from the declining rate environment. The yield on the securities portfolio has not declined as rapidly as market yields due primarily to prior investment programs in which the portfolio was structured to benefit from the declining interest rate environment. The portfolio's market value exceeded its book value by $125.6 million at December 31, 1993, compared with an excess of $111.7 million at December 31, 1992, and $192.9 million at December 31, 1991. At December 31, 1993, the Corporation had $4.5 billion invested in mortgage-backed pass-through securities and collateralized mortgage obligations ("CMO") within the investment securities portfolio, compared with $3.4 billion at December 31, 1992. A mortgage-backed pass-through security depends on the underlying pool of mortgage loans to provide a cash flow "pass-through" of principal and interest. The Corporation had $2.9 billion invested in mortgage-backed pass-through securities at December 31, 1993. A CMO is a mortgage- 25 28 backed security that is comprised of classes of bonds created by prioritizing the cash flows from the underlying mortgage pool in order to meet different objectives of investors. The Corporation had $1.6 billion invested in CMO securities at December 31, 1993. The CMO securities held by the Corporation are primarily shorter-maturity class bonds that were structured to have more predictable cash flows by being less sensitive to prepayments during periods of changing interest rates. At December 31, 1993, substantially all of the CMOs and mortgage-backed pass-through securities held by the Corporation were issued by Federal agencies or backed by Federal agency pass-through securities. (FIG. 13) - SECURITIES
STATES AND MORTGAGE- FEDERAL POLITICAL BACKED OTHER (dollars in millions) AGENCIES SUBDIVISIONS SECURITIES(1) SECURITIES TOTAL - ------------------------------------- --------- ------------- -------------- ----------- -------- DECEMBER 31, 1993: Maturity: One year or less........ $ 3.1 $ 156.5 $ 173.8 $ 138.6 $ 472.0 After one through five years................... 4.0 179.2 1,976.8 425.4 2,585.4 After five through ten years................... 3.3 33.1 2,230.2 49.8 2,316.4 After ten years........... .2 5.8 163.4 110.0 279.4 --------- ------------- -------------- ----------- -------- Book value......................... $ 10.6 $ 374.6 $4,544.2 $ 723.8 $5,653.2 --------- ------------- -------------- ----------- -------- --------- ------------- -------------- ----------- -------- Market value....................... $ 11.7 $ 390.2 $4,594.8 $ 738.5 $5,735.2 Weighted average yield............. 8.94% 8.52% 6.35% 5.78% 6.43% Average maturity................... 4.3years 2.3years 6.6years 4.6years 6.0years DECEMBER 31, 1992: Book value......................... $ 6.9 $ 524.8 $3,374.4 $ 578.3 $4,484.4 Market value....................... 7.4 542.8 3,424.2 594.3 4,568.7 DECEMBER 31, 1991: Book value......................... $ 735.6 $ 632.8 $2,763.1 $ 659.0 $4,790.5 Market value....................... 767.6 654.5 2,887.7 673.6 4,983.4 U.S. TREASURY WEIGHTED AVAILABLE AVERAGE (dollars in millions) FOR SALE YIELD(2) - ------------------------------------- ------------- --------- DECEMBER 31, 1993: Maturity: One year or less........ $ 206.9 6.67% After one through five years................... 327.4 7.13 After five through ten years................... 201.3 5.66 After ten years........... 2.5 7.08 ------------- Book value......................... $ 738.1 6.49% ------------- ------------- Market value....................... $ 781.7 Weighted average yield............. 6.91% Average maturity................... 3.5years DECEMBER 31, 1992: Book value......................... $ 1,122.2 7.61% Market value....................... 1,149.6 DECEMBER 31, 1991: Book value......................... 8.90% Market value....................... (1) Maturity is based upon expected average lives rather than contractual terms. (2) Weighted average yields are calculated on the basis of book value. At December 31, 1993, the weighted average yield by maturity represents the combined yield for investment securities and U.S. Treasury securities available for sale. Weighted average yields have been adjusted to a fully taxable-equivalent basis using the statutory Federal income tax rate of 35% for 1993 and 34% for 1992 and 1991.
ASSET QUALITY The measurement and management of asset quality is the responsibility of the Corporation's Credit Policy/Risk Management Group. This Group is responsible for both commercial and consumer lending credit policy, credit systems development and procedures, loan examination, providing additional controls in the early identification of problem loans, and the monitoring of major loan workouts in the subsidiary banks. The Group is also responsible for the determination of the adequacy of the allowance for loan losses for each of Society's bank subsidiaries. Each allowance is reviewed on the basis of three methodologies which, when combined, determine the allocated and unallocated portions of the allowance and provide management with a benchmark by which its adequacy is measured. The methodologies are: (1) a review of internal loan classifications; (2) an historical analysis of prior periods' charge-off experience; and (3) an evaluation of estimated worst-case losses on internally-classified credits. Management targets the maintenance of a minimum allowance equal to the indicated allocated requirement plus an unallocated portion, as appropriate, in light of current and expected economic conditions and trends, geographic and industry concentrations, and similar risk-related matters. The 1993 provision for loan losses was $72.2 million compared to $147.4 million for 1992 and $280.0 million for 1991. The 1991 amount included an additional provision of $93.9 million recorded by Ameritrust during the fourth quarter to conform its approach with that of the Corporation to determine the adequacy of the allowance. The significantly lower provisions in 1993 and 1992 reflect the continued corporate-wide improvement in asset quality trends, including significant declines in nonperforming loans. Net loans charged-off in 1993 decreased $76.4 million, or 45%, from the 1992 level, following a decrease of $43.4 million, or 20%, from 1991. The significant decrease in 1993 was due to lower net charge-offs in all loan categories with the largest improvement occurring in the consumer and real estate-mortgage portfolios. The 1992 decrease was largely due to a lower level of net charge-offs in the commercial loan portfolio and the 26 29 consumer loan portfolio, partially offset by higher net charge-offs in the real estate portfolios. The majority of the charge-offs in both 1993 and 1992 reflected losses on problem credits for which reserves were established in previous periods. The allowance at December 31, 1993, was $480.6 million, or 2.69% of loans, as compared with $502.7 million, or 3.10% of loans, at December 31, 1992. The allowance as a percent of nonperforming loans was 295.20% at December 31, 1993, compared with 144.17% at December 31, 1992. Although used as a general indicator, the allowance to nonperforming loans ratio is not a primary factor in the determination of the adequacy of the allowance by management. As indicated in Figure 14, the unallocated portion of the allowance increased in 1993, reflecting the continued improvement in the overall quality of the loan portfolios. As shown in Figure 16, nonperforming assets totaled $224.4 million at December 31, 1993, down $272.5 million, or 55%, from the December 31, 1992, level. This followed a decrease of $130.1 million, or 21%, in the previous year. The significant improvement in 1993 resulted largely from a $185.9 million, or 53%, decrease in nonperforming loans and an $85.2 million, or 63.9%, decrease in other real estate owned. Other nonperforming assets, which are comprised primarily of nonperforming venture capital investments, decreased $1.4 million, or 9.4%, in 1993. The reduction in nonperforming loans was principally attributable to decreases in nonaccrual commercial (including HLTs), construction and commercial real estate loans. At the end of 1993, nonaccrual loans in these categories comprised 40%, 17% and 24%, respectively, of total nonperforming loans and totaled $131.9 million, down $173.8 million, or 57%, from the previous year-end. This reduction reflected progress made in working through the credit problems associated with the Ameritrust acquisition, principally through the efforts of the Special Assets Group ("SAG"). As indicated in Figure 17, the reduction in other real estate owned was primarily due to the selective sale of assets. At December 31, 1993, HLT loans classified as nonperforming amounted to $25.3 million, or 16% of total nonperforming loans. At December 31, 1992, nonperforming HLT loans aggregated $4.6 million, or 1% of total nonperforming loans. One individual nonperforming HLT loan represented $18.1 million or 72% of the total at December 31, 1993. The SAG was formed in conjunction with the acquisition of Ameritrust, and charged with the responsibility to manage and resolve primarily problem assets acquired in the merger. These assets totaled $865.3 million at March 31, 1992, and were comprised of commercial loans, commercial real estate loans and other real estate owned. At that date, the nonperforming portion of these assets was $432.6 million, and represented 69% of the Corporation's total nonperforming assets. As a result of the efforts of the SAG, total SAG assets declined $275.9 million, or 32%, to $589.4 million at December 31, 1992, and during 1993 declined $337.3 million, or 57%, to $252.1 million at December 31, 1993. The nonperforming portion of SAG assets at year-end totaled $68.4 million and represented 30% of the Corporation's total nonperforming assets, while comparable amounts at December 31, 1992, were $254.8 million and 51%, respectively. In May 1993, the Financial Accounting Standards Board ("FASB") issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan." This standard affects the definition and basis for measuring impaired loans and is more fully discussed in Note 5, Nonperforming Assets, on page 48. 27 30 (FIG. 14) - ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
DECEMBER 31, ------------------------------------------------------------------------------------------- 1993 1992 1991 1990 ------------------- ------------------- ------------------- ------------------- CATEGORY CATEGORY CATEGORY CATEGORY PERCENT PERCENT PERCENT PERCENT (dollars in millions) AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS - ---------------------------- ------ -------- ------ -------- ------ -------- ------ -------- Commercial, financial and agricultural.............. $114.8 27.0% $145.0 29.6% $152.0 30.8% $191.0 34.2% Real estate-construction.... 12.4 3.8 16.5 4.9 8.5 5.0 7.3 7.4 Real estate-mortgage........ 25.7 41.2 50.6 36.9 58.6 33.1 67.1 30.0 Consumer.................... 53.3 20.1 89.3 21.7 94.4 26.3 87.2 24.3 Lease financing............. 9.9 7.5 2.7 6.2 2.7 4.3 4.2 3.7 Foreign..................... .4 1.5 .7 20.2 .5 19.5 .4 Unallocated................. 264.5 197.1 189.5 84.7 ------ -------- ------ -------- ------ -------- ------ -------- Total..................... $480.6 100.0% $502.7 100.0% $525.9 100.0% $461.0 100.0% ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- 1989 ------------------- CATEGORY PERCENT (dollars in millions) AMOUNT OF LOANS - ---------------------------- ------ -------- Commercial, financial and agricultural.............. $ 64.8 38.4% Real estate-construction.... 6.4 Real estate-mortgage........ 17.8 28.2 Consumer.................... 52.2 23.3 Lease financing............. 1.0 3.3 Foreign..................... 35.2 .4 Unallocated................. 112.4 ------ -------- Total..................... $283.4 100.0% ------ -------- ------ -------- Amounts in the "Category Percent of Loans" column represent outstanding loans in each respective portfolio as a percentage of the total loan portfolio at December 31. These percentages were computed excluding loans held for sale from the portfolio total as no allowances were deemed necessary for such loans.
(FIG. 15) - SUMMARY OF LOAN LOSS EXPERIENCE
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- (dollars in millions) 1993 1992 1991 1990 1989 - ---------------------------------------- --------- --------- --------- --------- --------- Average loans outstanding during the year.................................. $16,952.1 $16,148.5 $17,426.6 $18,353.6 $18,051.7 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Allowance for loan losses at beginning of year............................... $ 502.7 $ 525.9 $ 461.0 $ 283.4 $ 261.6 Loans charged off: Commercial, financial and agricultural....................... 44.6 56.2 108.9 119.2 65.4 Real estate - construction............ 19.5 17.2 21.9 30.0 2.2 Real estate - mortgage................ 22.7 43.8 20.7 38.0 62.7 Consumer.............................. 59.8 97.5 110.8 93.3 75.4 Lease financing....................... 1.2 9.0 4.5 4.0 3.7 Foreign............................... .8 2.3 15.1 --------- --------- --------- --------- --------- 147.8 223.7 267.6 286.8 224.5 Recoveries: Commercial, financial and agricultural....................... 12.7 15.1 21.0 17.0 8.7 Real estate - construction............ 5.7 .7 1.3 2.2 Real estate - mortgage................ 6.5 4.9 1.4 .6 1.7 Consumer.............................. 26.5 26.9 27.9 25.9 19.0 Lease financing....................... 1.1 4.5 .8 .7 .5 Foreign............................... .1 .2 .8 4.3 --------- --------- --------- --------- --------- 52.6 52.1 52.6 47.2 34.2 --------- --------- --------- --------- --------- Net loans charged off................... (95.2) (171.6) (215.0) (239.6) (190.3) Provision for loan losses............... 72.2 147.4 280.0 419.9 212.1 Allowances of subsidiaries purchased (sold)................................ .9 1.0 (.1) (2.7) --------- --------- --------- --------- --------- Allowance for loan losses at end of year.................................. $ 480.6 $ 502.7 $ 525.9 $ 461.0 $ 283.4 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Net loan charge-offs to average loans... .56% 1.06% 1.23% 1.31% 1.05% Allowance for loan losses to year-end loans................................. 2.69 3.14 3.12 2.55 1.54 Allowance for loan losses to nonperforming loans................... 295.20 144.17 107.39 78.46 77.32
28 31 (FIG. 16) - SUMMARY OF NONPERFORMING ASSETS AND PAST DUE LOANS
DECEMBER 31, -------------------------------------------------- (dollars in millions) 1993 1992 1991 1990 1989 - --------------------------------------------- ------ ------ ------ ------ ------ Nonaccrual loans............................. $162.4 $347.8 $482.1 $577.5 $334.3 Restructured loans........................... .4 .9 7.6 10.1 32.3 ------ ------ ------ ------ ------ Total nonperforming loans.................. 162.8 348.7 489.7 587.6 366.6 Other real estate owned...................... 48.1 133.3 125.6 73.2 27.1 Other nonperforming assets................... 13.5 14.9 11.7 2.7 4.1 ------ ------ ------ ------ ------ Total nonperforming assets................. $224.4 $496.9 $627.0 $663.5 $397.8 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Accruing loans past due 90 days or more...... $ 16.2 $ 33.8 $ 31.3 $ 36.9 $ 43.1 Nonperforming loans to year-end loans........ .91% 2.18% 2.91% 3.25% 2.00% Nonperforming assets to year-end loans plus other real estate owned and other nonperforming assets....................... 1.25 3.07 3.70 3.66 2.16 Nonperforming assets to total assets......... .83 1.99 2.45 2.54 1.45
(FIG. 17) - SUMMARY OF CHANGES IN NONACCRUAL LOANS AND OREO
SUMMARY OF CHANGES IN NONACCRUAL LOANS 1993 QUARTERS - ---------------------------------------- FULL ----------------------------------------- (in millions) YEAR FOURTH THIRD SECOND FIRST - ---------------------------------------- -------- ------ ------ ------ -------- Balance at beginning of period.......... $ 347.8 $199.4 $221.5 $308.0 $ 347.8 Loans placed on nonaccrual............ 154.9 41.8 25.1 27.6 60.4 Charge-offs(1)........................ (100.4) (19.0) (20.1) (27.8) (33.5) Payments.............................. (145.1) (19.4) (16.3) (60.6) (48.8) Transfers to OREO..................... (23.3) (2.0) (7.1) (11.8) (2.4) Loans returned to accrual............. (73.4) (38.4) (4.5) (13.9) (16.6) Acquisitions.......................... 1.1 1.1 Transfers from OREO................... .8 .8 -------- ------ ------ ------ -------- Balance at end of period................ $ 162.4 $162.4 $199.4 $221.5 $ 308.0 -------- ------ ------ ------ -------- -------- ------ ------ ------ --------
SUMMARY OF CHANGES IN OREO 1993 QUARTERS - ---------------------------------------- FULL ----------------------------------------- (in millions) YEAR FOURTH THIRD SECOND FIRST - ---------------------------------------- -------- ------ ------ ------ -------- Balance at beginning of period.......... $ 133.3 $ 90.9 $ 99.3 $127.4 $ 133.3 Additions............................. 25.7 2.5 7.6 13.0 2.6 Sales................................. (89.4) (40.7) (13.8) (29.2) (5.7) Charge-offs and write-downs........... (13.9) (3.4) (.9) (6.6) (3.0) Transfers to loans.................... (2.8) (2.8) Acquisitions.......................... 3.2 3.2 Other................................. (8.0) (1.2) (1.3) (2.5) (3.0) -------- ------ ------ ------ -------- Balance at end of period................ $ 48.1 $ 48.1 $ 90.9 $ 99.3 $ 127.4 -------- ------ ------ ------ -------- -------- ------ ------ ------ -------- (1) Excludes credit card charge-offs of $40.8 million and charge-offs of approximately $6.6 million taken against other accruing loans in 1993.
DEPOSITS AND OTHER SOURCES OF FUNDS Core deposits, defined as domestic deposits other than certificates of deposit of $100,000 or more, are the Corporation's primary source of funding. These deposits averaged $16.4 billion in both 1993 and 1992 and $17.5 billion in 1991. In 1993 average core deposits were significantly impacted by the January 1993 acquisition of Society First Federal. Excluding the impact of Society First Federal, core deposits declined $1.1 29 32 billion during the current year reflecting declining interest rates and other alternatives pursued by consumers. Over the past year, balances have also shifted significantly from the "Other time deposits" category, consisting primarily of fixed rate certificates of deposit, to demand and savings deposits (including NOW accounts) with higher liquidity, also principally as a result of declining interest rates. Based on the amounts shown in Figure 3, and after excluding the impact of Society First Federal, the $1.3 billion decline in the "Other time deposits" category and the $407.0 million decline in money market deposit accounts were partially offset by increases of $258.4 million in NOW accounts, $244.6 million in savings deposits and $72.9 million in demand deposits. The decline in core deposits in 1992 was primarily due to the sale of approximately $1.0 billion in deposits late in the second quarter (as part of the agreement reached with the United States Department of Justice and in accordance with the Federal Reserve Board order to divest certain branches in connection with the Ameritrust merger) and the pursuit of other alternatives by consumers in response to declining interest rates. Purchased funds, which are comprised of large certificates of deposit, foreign office deposits, and short-term borrowings, averaged $5.6 billion for 1993, up $1.1 billion, or 25%, from the prior year, following a decrease of $680.8 million, or 13%, in 1992. Average purchased funds were not materially impacted by the acquisition of Society First Federal. Based on the amounts shown in Figure 3, and after excluding the impact of Society First Federal, the 1993 increase was largely attributable to a $650.9 million increase in foreign office deposits, a $416.9 million increase in Federal funds purchased and securities sold under agreements to repurchase, and a $457.4 million increase in other short-term borrowings due to the issuance of Medium-Term Notes in the current year. These increases were partially offset by a $425.9 million decline in large certificates of deposits. (FIG. 18) - MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 OR MORE
DECEMBER 31, 1993 --------------------- DOMESTIC FOREIGN (in millions) OFFICES OFFICE - ------------------------------------------------- -------- -------- Time remaining to maturity: Three months or less........................... $498.0 $2,014.5 Over three through six months.................. 155.9 Over six through twelve months................. 103.4 Over twelve months............................. 175.7 -------- -------- Total....................................... $933.0 $2,014.5 -------- -------- -------- --------
LIQUIDITY Liquidity represents the availability of funding to meet the needs of depositors, borrowers, and creditors at a reasonable cost and without adverse consequences. The Corporation's ALCO actively analyzes and manages the Corporation's liquidity in coordination with similar committees at each bank subsidiary. The bank subsidiaries individually maintain sufficient liquidity in the form of short-term money market investments, anticipated prepayments on securities and through the maturity structure of their loan portfolios. Another source of liquidity are those securities classified as available for sale. In addition, the bank subsidiaries have access to various sources of non-core market funding for short-term liquidity requirements should the need arise. The effective management of balance sheet volumes, mix, and maturities enables the bank subsidiaries to maintain adequate levels of liquidity while enhancing profitability. During 1993, Society's lead bank, Society National Bank, issued $685 million in debt securities under a Medium-Term Bank Note program. These securities have maturities of less than one year and are included in other short-term borrowings. At December 31, 1993, the lead bank was authorized to issue up to an additional $2.3 billion of securities with maturities ranging from 9 months to 15 years under this program and an additional $1.0 billion under a separate, Medium-Term Deposit Note program. The proceeds from these programs are to be used for general corporate purposes in the ordinary course of business. During both the second quarter of 1993 and the fourth quarter of 1992, the lead bank issued $200 million in subordinated long-term debt to be used to supplement its capital base and to provide funds for loans and investments. During 1993, Society issued $111 million in debt securities under a separate Medium-Term Note program. These securities have maturities in excess of one year and are included in long-term debt. 30 33 During 1993, Society redeemed $100 million in long-term debt securities due in 1996 at par plus accrued interest. In addition, Society redeemed 1,200,000 outstanding shares of Fixed/Adjustable Rate Cumulative Preferred Stock at 103% of its stated value of $60 million plus accumulated but unpaid dividends. The liquidity requirements of Society, primarily for dividends to shareholders, retirement of debt and other corporate purposes, are met principally through regular dividends from bank subsidiaries. As of December 31, 1993, $76.0 million was available in the bank subsidiaries for the payment of dividends to Society without prior regulatory approval. Excess funds are maintained in short-term investments. Society has no lines of credit with other financial institutions, but has ready access to the capital markets as a result of its favorable debt ratings. CAPITAL AND DIVIDENDS Total shareholders' equity at December 31, 1993, was $2.0 billion, up 9%, or $170.5 million, from the balance at the end of 1992. This followed an increase of $212.9 million, or 13%, in the prior year. In both years the increase was principally due to the retention of net income after dividends on Common Shares. Further information with respect to dividends is presented in the "Common Shares and Shareholder Information" section which follows and in the dividend restriction discussion included on page 56. In 1993, shareholders' equity was also impacted by the redemption of preferred stock referred to above. Capital adequacy is an important indicator of financial stability and performance. Overall, Society's capital position remains strong with a ratio of total shareholders' equity to total assets of 7.55% at December 31, 1993, up from 7.48% and 6.47% at December 31, 1992 and 1991, respectively. Banking industry regulators define minimum capital ratios for bank holding companies and their bank and savings association subsidiaries. Based on the risk-based capital rules and definitions prescribed by the banking regulators, the Corporation's Tier I and total capital to risk-adjusted assets ratios at December 31, 1993, were 8.65% and 12.88%, respectively. These compare favorably with the minimum requirements of 4.0% for Tier I and 8.0% for total capital. The Tier I leverage ratio standard prescribes a minimum ratio of 3.0%, although most banking organizations are expected to maintain ratios of at least 100 to 200 basis points above the minimum. At December 31, 1993, the Corporation's leverage ratio was 7.18%, substantially higher than the minimum requirement of 3%. Figure 19 presents the details of Society's capital position at December 31, 1993 and 1992. Effective in December 1992, Federal bank regulators adopted new regulations to implement the prompt corrective action provisions of the FDIA which group FDIC-insured institutions into five broad categories based on certain capital ratios. The five categories are "well-capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized." Although these provisions are not directly applicable to Society under existing law and regulations, based upon its ratios Society would qualify, and the banks do qualify, as "well capitalized" at December 31, 1993. The Corporation's capital category, as determined by applying the prompt corrective action provisions of law, may not constitute an accurate representation of the overall financial condition or prospects of Society or its banking subsidiaries. The OCC, the Federal Reserve, and the FDIC are proposing amendments to their respective regulatory capital rules to include in Tier I capital the net unrealized changes in the value of securities available for sale for purposes of calculating the risk-based and leverage ratios. The proposed amendments are in response to the provisions outlined in SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which takes effect for fiscal years beginning after December 15, 1993. See Note 3, Securities, on page 46 for a more complete description of SFAS No. 115. This new accounting standard establishes, among other things, net unrealized holding gains and losses on securities available for sale as a new component of stockholders' equity. If adopted as proposed, the rules could cause the Tier I capital to be subject to greater volatility. However, neither SFAS No. 115 nor the capital proposals would have any direct impact on reported earnings. Based upon the Corporation's securities portfolio classified as available for sale as of December 31, 1993, the estimated impact of the new standard would be an increase to shareholders' equity of approximately $28 million. The regulatory agencies are also proposing to add an additional component to the risk-based capital requirements based upon the level of an institution's exposure to interest rate risk. 31 34 (FIG. 19) - CAPITAL COMPONENTS AND RISK-ADJUSTED ASSETS
DECEMBER 31, ----------------------- (dollars in millions) 1993 1992 - ---------------------------------------------------------------- --------- --------- TIER I CAPITAL Common shareholders' equity..................................... $ 2,038.6 $ 1,808.1 Qualifying preferred stock...................................... 60.0 Less: Goodwill.................................................. 181.0 161.5 Other intangible assets (1)............................... 1.8 --------- --------- Total Tier I Capital.......................................... 1,855.8 1,706.6 --------- --------- TIER II CAPITAL Allowance for loan losses (2)................................... 270.8 253.1 Qualifying long-term debt....................................... 636.4 520.9 --------- --------- Total Tier II Capital......................................... 907.2 774.0 --------- --------- Total Capital.............................................. $ 2,763.0 $ 2,480.6 --------- --------- --------- --------- RISK-ADJUSTED ASSETS Risk-adjusted assets on balance sheet........................... $18,045.5 $17,589.1 Risk-adjusted off-balance sheet exposure........................ 3,800.2 2,822.5 Less: Goodwill.................................................. 181.0 161.5 Other intangible assets (1)............................... 1.8 --------- --------- Gross risk-adjusted assets.................................... 21,662.9 20,250.1 Less: Excess allowance for loan losses.......................... 209.9 249.7 --------- --------- Net risk-adjusted assets...................................... $21,453.0 $20,000.4 --------- --------- --------- --------- AVERAGE QUARTERLY TOTAL ASSETS.................................. $26,047.0 $24,614.1 CAPITAL RATIOS Tier I capital to risk-adjusted assets.......................... 8.65% 8.53% Total capital to risk-adjusted assets........................... 12.88 12.39 Leverage (3).................................................... 7.18 6.98 (1) Intangible assets (excluding goodwill, purchased mortgage servicing rights and purchased credit card relationships) recorded after February 19, 1992, and deductible portions of purchased mortgage servicing rights and purchased credit card relationships. (2) The allowance for loan losses included in Tier II capital is limited to 1.25% of gross risk-adjusted assets. (3) Tier I capital divided by average total assets for the quarter less goodwill and other intangible assets as defined in (1) above.
COMMON SHARES AND SHAREHOLDER INFORMATION On September 1, 1992, Society's Common Shares commenced trading on the New York Stock Exchange under the symbol SCY. The sales price ranges of the Common Shares and per Common Share net income and dividends by quarter for each of the last two years are presented in Figure 20. Common Shares outstanding and per Common Share data have been adjusted for a two-for-one stock split declared on January 21, 1993, which was effected by means of a 100% stock dividend paid on March 22, 1993, to Common Shareholders of record on March 2, 1993. At December 31, 1993, book value per Common Share was $17.37 based on 117,377,404 shares outstanding, compared with $15.49 based on 116,725,976 shares outstanding at December 31, 1992. At year-end 1993, the closing sales price on the New York Stock Exchange was $29.75 per share. This price was 171% of year-end book value per share and had a dividend 32 35 yield of 3.76%. On January 20, 1994, the quarterly dividend on Common Shares was increased by 14% to $.32 per Common Share, up from $.28 per Common Share in 1993. The new quarterly dividend rate of $.32 per Common Share will be payable on March 15, 1994, to shareholders of record on February 28, 1994. There were 36,331 holders of record of Society Common Shares at December 31, 1993. FOURTH QUARTER RESULTS As shown in Figure 20, net income for the fourth quarter of 1993 was $57.0 million, or $.49 per Common Share, compared with $86.5 million, or $.72 per Common Share, for the same period last year. The 1993 period was impacted by merger and integration charges of $53.9 million ($39.6 million after-tax, $.33 per Common Share) recorded in connection with the merger with old KeyCorp. Excluding the impact of the merger and integration charges, net income was $96.6 million, up $10.1 million or 12%, from the prior year. This reflected a $4.8 million, or 2%, increase in taxable-equivalent net interest income and an $18.0 million, or 58%, decrease in the provision for loan losses, which were partially offset by an increase of $10.3 million, or 4%, in noninterest expense. On an annualized basis, the return on average total assets for the fourth quarter of 1993 was .87% compared with 1.40% for the fourth quarter of 1992. The annualized returns on average common equity for the fourth quarters of 1993 and 1992 were 11.09% and 19.08%, respectively. Excluding the merger and integration charges, the fourth quarter 1993 annualized return on average total assets was 1.47%, while the return on average common equity was 18.80%. The improvement in taxable-equivalent net interest income in the fourth quarter of 1993, as compared to the fourth quarter of 1992, reflected a $1.4 billion or 6% increase in the level of average earning assets, offset in part by a 23 basis point decline in the net interest margin to 5.10%. The higher level of average earning assets was primarily due to the acquisition of Society First Federal in January 1993. Excluding the impact of this acquisition, average earning assets increased by $177.1 million, mainly due to an increase of $579.3 million in average loans, principally those in the residential real estate portfolio, an increase of $732.8 million in securities available for sale and an increase of $146.2 million in mortgage loans held for sale. These increases were substantially offset by decreases of $670.9 million in interest-bearing deposits with banks and $573.0 million in investment securities. The decline in the net interest margin reflected the narrowing of spreads available on the replacement of matured and prepaid securities and interest rate swaps and the narrower spread contributed by Society First Federal. The lower provision for loan losses resulted from the overall improvement in asset quality, including a $185.9 million or 53% decline in nonperforming loans from December 31, 1992, to December 31, 1993. The increase in noninterest expense, excluding merger and integration charges, was primarily due to higher personnel expense, offset in part by lower costs associated with professional services. 33 36 (FIG. 20) - SELECTED QUARTERLY FINANCIAL DATA
1993 (dollars in millions, --------------------------------------------------- except per share amounts) 4TH 3RD 2ND 1ST - ---------------------------- --------- --------- --------- --------- FOR THE QUARTER Interest income............. $ 460.1 $ 457.9 $ 474.7 $ 478.6 Interest expense............ 162.5 163.8 170.7 175.3 Net interest income......... 297.6 294.1 304.0 303.3 Provision for loan losses... 13.2 17.0 18.0 24.0 Noninterest income.......... 113.6 170.9(B) 114.4 110.9 Noninterest expense......... 311.3(A) 284.9(C) 257.0 248.7 Income before income taxes..................... 86.7 163.1 143.4 141.5 Net income.................. 57.0 98.2 97.0 95.0 Net income applicable to Common Shares............. 57.0 98.2 97.0 93.9 PER COMMON SHARE Net income.................. $ .49 $ .83 $ .82 $ .79 Cash dividends.............. .28 .28 .28 .28 Book value at quarter end... 17.37 17.15 16.58 16.02 Market price: High...................... 33.50 35.75 37.25 35.75 Low....................... 27.25 30.88 28.63 30.88 Close..................... 29.75 32.00 35.13 34.63 Weighted average Common Shares (millions)......... 118.2 118.5 118.3 118.3 AT PERIOD END Loans....................... $17,897.6 $17,019.3 $16,758.5 $17,036.3 Earning assets.............. 24,678.5 23,735.6 23,850.2 23,858.1 Total assets................ 27,007.3 25,760.6 25,919.8 25,957.5 Deposits.................... 19,880.7 17,765.0 18,147.0 18,780.2 Long-term debt.............. 952.7 1,077.8 1,091.6 996.8 Common shareholders' equity.................... 2,038.6 2,008.0 1,939.5 1,871.4 Total shareholders' equity.................... 2,038.6 2,008.0 1,939.5 1,871.4 PERFORMANCE RATIOS Return on average total assets.................... .87% 1.55% 1.52% 1.50% Return on average common equity.................... 11.09 19.81 20.39 20.82 Return on average total equity.................... 11.09 19.81 20.39 20.60 Efficiency (f).............. 61.92 59.94 60.65 59.37 Overhead (g)................ 47.54 44.13 46.12 44.96 Net interest margin......... 5.10 5.25 5.35 5.32 CAPITAL RATIOS AT PERIOD END Equity to assets............ 7.55% 7.79% 7.48% 7.21% Tier I risk-adjusted capital................... 8.65 8.71 8.32 7.93 Total risk-adjusted capital................... 12.88 12.99 12.67 11.68 Leverage.................... 7.18 7.34 6.86 6.56 1992 (dollars in millions, ----------------------------------------------------- except per share amounts) 4TH 3RD 2ND 1ST - ---------------------------- --------- --------- --------- --------- FOR THE QUARTER Interest income............. $ 463.7 $ 457.8 $ 475.4 $ 506.5 Interest expense............ 172.8 176.3 197.4 226.5 Net interest income......... 290.9 281.5 278.0 280.0 Provision for loan losses... 31.1 33.9 46.0 36.4 Noninterest income.......... 113.9 120.6 143.0(d) 124.0 Noninterest expense......... 247.2 246.0 247.0 305.7(e) Income before income taxes..................... 126.5 122.2 128.0 61.9 Net income.................. 86.5 82.8 87.7 44.2 Net income applicable to Common Shares............. 85.0 81.3 86.1 42.6 PER COMMON SHARE Net income.................. $ .72 $ .69 $ .74 $ .36 Cash dividends.............. .245 .245 .245 .245 Book value at quarter end... 15.49 14.97 14.51 14.00 Market price: High...................... 33.44 29.88 31.63 29.88 Low....................... 28.13 26.13 25.32 24.25 Close..................... 32.13 28.25 29.13 27.38 Weighted average Common Shares (millions)......... 117.8 117.3 117.3 117.0 AT PERIOD END Loans....................... $16,031.5 $15,742.1 $15,880.0 $16,575.5 Earning assets.............. 22,587.2 22,052.0 21,291.2 22,194.6 Total assets................ 24,978.3 24,388.9 23,528.5 24,455.8 Deposits.................... 18,658.0 17,327.2 17,724.2 19,125.2 Long-term debt.............. 886.0 687.1 689.3 463.0 Common shareholders' equity.................... 1,808.1 1,738.7 1,681.7 1,620.5 Total shareholders' equity.................... 1,868.1 1,798.7 1,741.7 1,680.5 PERFORMANCE RATIOS Return on average total assets.................... 1.40% 1.43% 1.51% .73% Return on average common equity.................... 19.08 19.03 21.02 10.63 Return on average total equity.................... 18.79 18.74 20.65 10.62 Efficiency (f).............. 60.15 60.36 60.59 63.39 Overhead (g)................ 44.90 43.89 43.67 48.64 Net interest margin......... 5.33 5.51 5.33 5.13 CAPITAL RATIOS AT PERIOD END Equity to assets............ 7.48% 7.38% 7.40% 6.87% Tier I risk-adjusted capital................... 8.53 8.16 7.86 7.44 Total risk-adjusted capital................... 12.39 11.15 10.92 9.70 Leverage.................... 6.98 7.16 6.78 6.22 (a) Noninterest expense included $53.9 million in merger and integration charges recorded in connection with the merger with old KeyCorp. (b) Noninterest income included a $29.4 million gain on the sale of ATC and $25.1 million in net securities gains. (c) Noninterest expense included $34.4 million in nonrecurring charges principally related to system conversion write-downs, facilities-related charges and charges recorded in connection with adoption of SFAS No. 112, "Employer's Accounting for Postemployment Benefits". (d) Noninterest income included a $20.1 million gain on the sale of branch offices and loans recorded in connection with the merger with Ameritrust and as part of an agreement with the United States Department of Justice. (e) Noninterest expense included $50.0 million in merger and integration charges recorded in connection with the merger with Ameritrust. (f) Calculated as noninterest expense (excluding merger and integration charges and other non-recurring charges) divided by taxable-equivalent net interest income plus noninterest income (excluding net securities transactions, gain on sale of subsidiary and gain on sale of branch offices and loans). (g) Calculated as noninterest expense (excluding merger and integration charges and other non-recurring charges) less noninterest income (excluding net securities transactions, gain on sale of subsidiary and gain on sale of branch offices and loans) divided by taxable-equivalent net interest income.
34 37 SIX-YEAR CONSOLIDATED BALANCE SHEETS Society Corporation and Subsidiaries
COMPOUND DECEMBER 31 ANNUAL RATE -------------------------------------------------------------------- OF CHANGE (dollars in millions) 1993 1992 1991 1990 1989 1988 (1988 TO 1993) - ------------------------------------ --------- --------- --------- --------- --------- --------- -------------- ASSETS Cash and due from banks........... $ 1,375.7 $ 1,345.1 $ 1,473.9 $ 1,673.5 $ 1,957.5 $ 1,861.8 (5.9) Short-term investments............ 67.9 778.8 1,538.5 1,075.1 1,953.2 2,145.4 (49.9) Mortgage loans held for sale...... 321.7 170.3 104.6 43.8 110.4 18.7 76.7 Securities available for sale..... 738.1 1,122.2 172.6 N/M Investment securities............. 5,653.2 4,484.4 4,790.5 4,369.4 3,921.8 4,041.0 6.9 Loans............................. 17,897.6 16,031.5 16,831.7 18,076.8 18,372.5 17,627.3 .3 Less: Allowance for loan losses. 480.6 502.7 525.9 461.0 283.4 261.6 12.9 --------- --------- --------- --------- --------- --------- ----- Net Loans..................... 17,417.0 15,528.8 16,305.8 17,615.8 18,089.1 17,365.7 .1 Premises and equipment............ 421.8 406.6 327.0 351.5 328.2 365.1 2.9 Other real estate owned........... 48.1 133.3 125.6 73.2 27.1 14.2 27.6 Intangible assets................. 214.1 280.7 308.8 334.8 203.0 208.2 .6 Other assets...................... 749.7 728.1 610.9 584.3 687.2 674.4 2.1 --------- --------- --------- --------- --------- --------- ----- TOTAL ASSETS.................. $27,007.3 $24,978.3 $25,585.6 $26,121.4 $27,450.1 $26,694.5 .2 --------- --------- --------- --------- --------- --------- ----- --------- --------- --------- --------- --------- --------- ----- LIABILITIES Deposits in domestic offices: Noninterest-bearing............. $ 3,803.7 $ 3,658.9 $ 3,410.8 $ 3,587.1 $ 3,505.3 $ 3,585.3 1.2 Interest-bearing................ 14,062.5 13,883.9 16,302.9 17,312.9 17,199.4 16,371.5 (3.0) Deposits in foreign office -- interest-bearing................ 2,014.5 1,115.2 301.1 495.0 1,058.7 550.0 29.7 --------- --------- --------- --------- --------- --------- ----- Total deposits................ 19,880.7 18,658.0 20,014.8 21,395.0 21,763.4 20,506.8 (.6) Federal funds purchased and securities sold under agreements to repurchase...................... 2,353.7 2,834.1 2,502.4 2,026.6 2,521.2 3,115.3 (5.5) Other short-term borrowings....... 1,175.7 276.4 453.2 161.8 440.2 428.3 22.4 Other liabilities................. 605.9 455.7 496.2 420.9 553.5 411.2 8.1 Long-term debt.................... 952.7 886.0 463.8 471.1 468.9 463.1 15.5 --------- --------- --------- --------- --------- --------- ----- TOTAL LIABILITIES............. 24,968.7 23,110.2 23,930.4 24,475.4 25,747.2 24,924.7 .1 SHAREHOLDERS' EQUITY Preferred Stock................... 60.0 60.0 60.0 25.0 25.0 N/M Common Shares..................... 118.7 118.7 62.5 62.1 62.1 62.4 13.7 Capital surplus................... 635.5 632.8 809.9 797.1 821.6 832.8 (5.3) Retained earnings................. 1,369.0 1,153.3 965.5 979.1 1,021.5 989.4 6.7 Loans to ESOP trustee............. (63.9) (65.5) (65.3) (67.2) (71.6) N/M Treasury stock, at cost........... (20.7) (31.2) (177.4) (185.1) (155.7) (139.8) (31.8) --------- --------- --------- --------- --------- --------- ----- TOTAL SHAREHOLDERS' EQUITY.... 2,038.6 1,868.1 1,655.2 1,646.0 1,702.9 1,769.8 2.9 --------- --------- --------- --------- --------- --------- ----- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....... $27,007.3 $24,978.3 $25,585.6 $26,121.4 $27,450.1 $26,694.5 .2 --------- --------- --------- --------- --------- --------- ----- --------- --------- --------- --------- --------- --------- ----- N/M = Not Meaningful.
35 38 SIX-YEAR CONSOLIDATED STATEMENTS OF INCOME Society Corporation and Subsidiaries
COMPOUND ANNUAL RATE YEAR ENDED DECEMBER 31 OF CHANGE (dollars in millions, except per share --------------------------------------------------------------------- (1988 TO amounts) 1993 1992 1991 1990 1989 1988 1993) - -------------------------------------- --------- --------- --------- --------- --------- --------- ----------- INTEREST INCOME Loans................................ $ 1,415.0 $ 1,430.9 $ 1,760.3 $ 2,016.0 $ 2,075.1 $ 1,785.2 (5.4)% Mortgage loans held for sale......... 17.8 12.8 6.8 9.7 9.4 2.0 54.8 Taxable investment securities........ 330.0 397.6 379.1 308.8 277.7 232.0 10.9 Tax-exempt investment securities..... 28.2 36.8 44.2 53.8 60.7 72.5 (17.2) Securities available for sale........ 63.8 .9 3.0 N/M Short-term investments............... 16.5 25.3 73.5 132.2 138.2 130.6 (33.9) --------- --------- --------- --------- --------- --------- Total interest income.............. 1,871.3 1,903.4 2,263.9 2,521.4 2,564.1 2,222.3 (3.4) INTEREST EXPENSE Deposits............................. 504.2 642.9 1,041.4 1,271.4 1,246.0 1,040.3 13.9 Federal funds purchased and securities sold under agreements to repurchase......................... 81.2 77.6 124.5 171.2 226.3 185.2 (15.2) Other short-term borrowings.......... 24.0 11.9 17.5 21.1 24.1 24.7 1.6 Long-term debt....................... 62.9 40.6 33.3 35.2 41.6 42.5 11.2 --------- --------- --------- --------- --------- --------- Total interest expense............. 672.3 773.0 1,216.7 1,498.9 1,538.0 1,292.7 (12.3) --------- --------- --------- --------- --------- --------- NET INTEREST INCOME.................... 1,199.0 1,130.4 1,047.2 1,022.5 1,026.1 929.6 5.2 Provision for loan losses.............. 72.2 147.4 280.0 419.9 212.1 147.3 (13.3) --------- --------- --------- --------- --------- --------- Net interest income after provision for loan losses.................. 1,126.8 983.0 767.2 602.6 814.0 782.3 7.6 NONINTEREST INCOME Trust income......................... 204.9 210.0 199.1 183.6 135.6 125.3 10.3 Service charges on deposit accounts........................... 98.0 99.6 95.9 87.2 81.3 107.0 (1.7) Credit card fees..................... 48.0 54.8 52.3 45.5 35.9 34.5 6.8 Gain on sale of subsidiary........... 29.4 N/M Gain on sale of branch offices and loans.............................. 20.1 (100.0) Net securities gains (losses)........ 26.1 9.8 7.4 8.5 (2.8) 1.6 74.8 Other income......................... 103.4 107.2 100.3 135.8 111.1 63.7 10.2 --------- --------- --------- --------- --------- --------- Total noninterest income........... 509.8 501.5 455.0 460.6 361.1 332.1 9.0 --------- --------- --------- --------- --------- --------- NONINTEREST EXPENSE Personnel............................ 506.7 491.7 487.2 492.5 462.8 427.2 3.5 Net occupancy........................ 92.6 89.1 90.4 85.6 73.6 67.2 6.6 Equipment............................ 79.0 77.0 72.9 75.7 84.1 69.0 2.7 FDIC insurance assessments........... 40.7 43.8 42.1 24.0 17.0 15.3 21.6 Merger and integration charges....... 53.9 50.0 93.8 26.9 N/M Other expense........................ 329.0 294.3 326.1 360.4 341.8 287.7 2.7 --------- --------- --------- --------- --------- --------- Total noninterest expense.......... 1,101.9 1,045.9 1,112.5 1,065.1 979.3 866.4 4.9 --------- --------- --------- --------- --------- --------- Income (loss) before income taxes and cumulative effect of accounting change................ 534.7 438.6 109.7 (1.9) 195.8 248.0 16.6 Income taxes........................... 187.5 137.4 33.2 (60.7) 74.0 43.2 34.1 --------- --------- --------- --------- --------- --------- Income before cumulative effect of accounting change................ 347.2 301.2 76.5 58.8 121.8 204.8 11.1 Cumulative effect of accounting change............................... 2.7 N/M --------- --------- --------- --------- --------- --------- NET INCOME......................... $ 347.2 $ 301.2 $ 76.5 $ 61.5 $ 121.8 $ 204.8 11.1 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Net income applicable to Common Shares............................... $ 346.1 $ 295.0 $ 70.2 $ 56.3 $ 119.9 $ 202.7 11.3 Net income per Common Share: Before cumulative effect of accounting change.................. $ 2.93 $ 2.51 $ .61 $ .47 $ 1.00 $ 1.65 12.2 After cumulative effect of accounting change............................. 2.93 2.51 .61 .49 1.00 1.65 12.2 Weighted average Common Shares and Common Share equivalents outstanding (000)................................ 118,323.5 117,348.7 115,266.8 115,465.1 119,729.8 122,858.9 (.8) Full-time equivalent employees......... 12,038 12,451 13,507 14,927 15,380 15,795 N/M N/M = Not Meaningful.
36 39 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF MANAGEMENT The management of Society Corporation and its subsidiaries (the "Corporation") is responsible for the preparation, content and integrity of the financial statements and other statistical data and analysis compiled for this report. The financial statements and related notes have been prepared in conformity with generally accepted accounting principles and, in the judgment of management, present fairly and consistently the Corporation's financial position, results of operations, and cash flows. Management also believes that financial information elsewhere in this report is consistent with that in the financial statements. The amounts contained in the financial statements are based on management's best estimates and judgments. The Corporation maintains a system of internal controls designed to provide reasonable assurance as to the protection of assets and the integrity of the financial statements. This corporate-wide system of controls includes written policies and procedures, proper delegation of authority and organizational division of responsibility and the careful selection and training of qualified personnel. In addition, an effective internal audit function periodically tests the system of internal controls. Management believes that the system of internal controls provides reasonable assurances that financial transactions are recorded properly to permit the preparation of reliable financial statements. The Board of Directors discharges its responsibility for the Corporation's financial statements through its Audit Committee which is composed of outside directors and has responsibility for the recommendation of the independent auditors. The Audit Committee meets regularly with the independent auditors and internal auditors to review the scope of their audits and audit reports and to discuss any action to be taken. Both the independent auditors and internal auditors have direct access to the Audit Committee. Management has made an assessment of the Corporation's internal control structure and procedures over financial reporting using established and recognized criteria. On the basis of this assessment, management believes that the Corporation maintained an effective system of internal control for financial reporting as of December 31, 1993. ROBERT W. GILLESPIE Chairman of the Board and Chief Executive Officer JAMES W. WERT Vice Chairman of the Board and Chief Financial Officer 37 40 REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS The Board of Directors and Shareholders Society Corporation We have audited the accompanying consolidated balance sheets of Society Corporation and Subsidiaries as of December 31, 1993 and 1992, and the related statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Society Corporation and Subsidiaries at December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. /s/ Ernst & Young Cleveland, Ohio January 28, 1994, except for Note 2, as to which the date is March 1, 1994 38 41 CONSOLIDATED BALANCE SHEETS Society Corporation and Subsidiaries
DECEMBER 31, --------------------------- (dollars in thousands) 1993 1992 - ---------------------------------------------------------------- ----------- ----------- ASSETS Cash and due from banks....................................... $ 1,375,645 $ 1,345,085 Short-term investments........................................ 67,931 778,875 Mortgage loans held for sale.................................. 321,703 170,300 Securities available for sale (market value: $781,664 and $1,149,577)................................................ 738,078 1,122,224 Investment securities (market value: $5,735,240 and $4,568,734)................................................ 5,653,227 4,484,381 Loans......................................................... 17,897,647 16,031,488 Less: Allowance for loan losses............................ 480,634 502,744 ----------- ----------- Net loans................................................ 17,417,013 15,528,744 Premises and equipment........................................ 421,765 406,560 Other real estate owned....................................... 48,095 133,341 Intangible assets............................................. 214,138 280,689 Other assets.................................................. 749,732 728,103 ----------- ----------- TOTAL ASSETS............................................. $27,007,327 $24,978,302 ----------- ----------- ----------- ----------- LIABILITIES Deposits in domestic offices: Noninterest-bearing........................................ $ 3,803,677 $ 3,658,878 Interest-bearing........................................... 14,062,494 13,883,943 Deposits in foreign office -- interest-bearing................ 2,014,533 1,115,179 ----------- ----------- Total deposits........................................... 19,880,704 18,658,000 Federal funds purchased and securities sold under agreements to repurchase............................. 2,353,740 2,834,105 Other short-term borrowings................................... 1,175,752 276,357 Other liabilities............................................. 605,888 455,685 Long-term debt................................................ 952,657 886,052 ----------- ----------- TOTAL LIABILITIES........................................ 24,968,741 23,110,199 SHAREHOLDERS' EQUITY Preferred Stock, without par value; authorized 25,000,000 shares, none issued Fixed/Adjustable Rate Cumulative Preferred Stock, $50 stated value; authorized and issued 1,200,000 shares.............. 60,000 Common Shares, $1 par value; authorized 400,000,000 shares; issued 118,658,008 shares.................................. 118,658 118,658 Capital surplus............................................... 635,508 632,789 Retained earnings............................................. 1,368,992 1,153,309 Loans to ESOP trustee......................................... (63,909) (65,478) Treasury stock at cost (1,280,604 and 1,932,032 shares)....... (20,663) (31,175) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY............................... 2,038,586 1,868,103 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $27,007,327 $24,978,302 ----------- ----------- ----------- ----------- See notes to consolidated financial statements.
39 42 CONSOLIDATED STATEMENTS OF INCOME Society Corporation and Subsidiaries
YEAR ENDED DECEMBER 31, ---------------------------------------------- (dollars in thousands, except per share amounts) 1993 1992 1991 - ------------------------------------------------------ ------------ ------------ ------------ INTEREST INCOME Loans............................................... $1,414,999 $1,430,894 $1,760,277 Mortgage loans held for sale........................ 17,786 12,839 6,847 Taxable investment securities....................... 330,045 397,627 379,089 Tax-exempt investment securities.................... 28,231 36,794 44,177 Securities available for sale....................... 63,773 Short-term investments.............................. 16,462 25,280 73,483 ------------ ------------ ------------ Total interest income............................ 1,871,296 1,903,434 2,263,873 ------------ ------------ ------------ INTEREST EXPENSE Deposits............................................ 504,239 642,944 1,041,395 Federal funds purchased and securities sold under agreements to repurchase......................... 81,223 77,572 124,507 Other short-term borrowings......................... 24,002 11,932 17,460 Long-term debt...................................... 62,842 40,599 33,351 ------------ ------------ ------------ Total interest expense........................... 672,306 773,047 1,216,713 ------------ ------------ ------------ NET INTEREST INCOME................................... 1,198,990 1,130,387 1,047,160 Provision for loan losses............................. 72,240 147,366 280,047 ------------ ------------ ------------ Net interest income after provision for loan losses......................................... 1,126,750 983,021 767,113 NONINTEREST INCOME Trust income........................................ 204,852 209,952 199,147 Service charges on deposit accounts................. 97,970 99,610 95,885 Credit card fees.................................... 48,032 54,771 52,336 Gain on sale of subsidiary.......................... 29,410 Gain on sale of branch offices and loans............ 20,074 Net securities gains................................ 26,078 9,775 7,431 Other income........................................ 103,442 107,352 100,265 ------------ ------------ ------------ Total noninterest income......................... 509,784 501,534 455,064 ------------ ------------ ------------ NONINTEREST EXPENSE Personnel........................................... 506,716 491,718 487,150 Net occupancy....................................... 92,635 89,109 90,356 Equipment........................................... 78,950 76,958 72,888 FDIC insurance assessments.......................... 40,691 43,803 42,094 Professional fees................................... 20,371 31,370 29,759 Merger and integration charges...................... 53,906 50,016 93,828 Other expense....................................... 308,633 262,977 296,418 ------------ ------------ ------------ Total noninterest expense........................ 1,101,902 1,045,951 1,112,493 ------------ ------------ ------------ Income before income taxes....................... 534,632 438,604 109,684 Income taxes.......................................... 187,473 137,394 33,206 ------------ ------------ ------------ NET INCOME....................................... $ 347,159 $ 301,210 $ 76,478 ------------ ------------ ------------ ------------ ------------ ------------ Net income applicable to Common Shares................ $ 346,121 $ 294,984 $ 70,229 Net income per Common Share........................... 2.93 2.51 .61 Weighted average Common Shares and Common Share equivalents outstanding................ 118,323,452 117,348,656 115,266,844 See notes to consolidated financial statements.
40 43 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Society Corporation and Subsidiaries
LOANS TO COMMON (dollars in thousands, PREFERRED COMMON CAPITAL RETAINED ESOP SHARES IN except per share amounts) STOCK SHARES SURPLUS EARNINGS TRUSTEE TREASURY - ------------------------------------ --------- -------- -------- ---------- -------- --------- BALANCE AT JANUARY 1, 1991.......... $60,000 $62,147 $797,056 $ 979,086 $(67,226) $(185,064) Net income........................ 76,478 Cash dividends on Common Shares, $.92 per share.................. (60,449) Cash dividends of pooled company prior to merger: Common Stock.................. (23,982) Preferred Stock............... (6,283) Issuance of 907,326 Common Shares under stock option plans........ 410 12,833 16,025 Tax benefits attributable to ESOP dividends....................... 622 Loan payments from ESOP trustee... 1,877 Purchase of 237,185 treasury shares.......................... (8,340) --------- -------- -------- ---------- -------- --------- BALANCE AT DECEMBER 31, 1991........ 60,000 62,557 809,889 965,472 (65,349) (177,379) Adjustments relating to pooling of interests....................... (2 ) (132) (381) Cancellation of treasury stock of pooled company.................. (3,300 ) (124,793) 128,093 Net income........................ 301,210 Cash dividends on Common Shares, $.98 per share.................. (101,547) Cash dividends on Fixed/Adjustable Rate Cumulative Preferred Stock, $3.89 per share................. (4,670) Cash dividends of pooled company prior to merger: Common Stock.................. (6,098) Preferred Stock............... (1,556) Issuance of 635,321 Common Shares under stock option plans........ 74 7,154 18,111 Tax benefits attributable to ESOP dividends....................... 879 Loan payments from ESOP trustee... (129) Two-for-one stock split effected by means of a 100% stock dividend paid March 22, 1993.... 59,329 (59,329) --------- -------- -------- ---------- -------- --------- BALANCE AT DECEMBER 31, 1992........ 60,000 118,658 632,789 1,153,309 (65,478) (31,175) Net income........................ 347,159 Cash dividends on Common Shares, $1.12 per share................. (131,031) Cash dividends on Fixed/Adjustable Rate Cumulative Preferred Stock, $1.297 per share................ (1,556) Issuance of 651,428 Common Shares under stock option plans........ 4,519 10,512 Redemption of 1,200,000 shares of Fixed/Adjustable Rate Cumulative Preferred Stock................. (60,000) (1,800) Tax benefits attributable to ESOP dividends....................... 1,111 Loan payments from ESOP trustee... 1,569 -------- -------- ---------- -------- --------- BALANCE AT DECEMBER 31, 1993........ $118,658 $635,508 $1,368,992 $(63,909) $ (20,663) -------- -------- ---------- -------- --------- -------- -------- ---------- -------- --------- See notes to consolidated financial statements.
41 44 CONSOLIDATED STATEMENTS OF CASH FLOWS Society Corporation and Subsidiaries
YEAR ENDED DECEMBER 31, ------------------------------------------- (in thousands) 1993 1992 1991 - ------------------------------------------------------------------------ ----------- ----------- ----------- OPERATING ACTIVITIES Net income............................................................ $ 347,159 $ 301,210 $ 76,478 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses........................................... 72,240 147,366 280,047 Depreciation and amortization expense............................... 115,425 93,983 85,135 Gain on sale of branch offices and loans............................ (20,074) Gain on sale of subsidiary.......................................... (29,410) Deferred income taxes............................................... 56,811 68,272 12,997 Net securities gains................................................ (26,078) (9,775) (7,431) Net increase in mortgage loans held for sale........................ (151,403) (65,671) (60,819) Decrease (increase) in interest receivable.......................... 2,457 (16,431) 24,134 Increase (decrease) in interest payable............................. 1,166 (29,442) (33,709) Other operating activities, net..................................... 94,083 (180,385) 61,441 ----------- ----------- ----------- Net cash provided by operating activities...................... 482,450 289,053 438,273 INVESTING ACTIVITIES Principal collected on loans held by nonbank subsidiaries and loans sold................................................................ 626,773 359,912 411,671 Loans originated by nonbank subsidiaries and loans purchased.......... (409,623) (128,821) (154,203) Net (increase) decrease in loans held by bank subsidiaries, excluding loans purchased or sold............................................. (1,389,072) 132,097 611,184 Purchases of investment securities.................................... (3,210,342) (3,191,221) (1,572,478) Proceeds from sales of investment securities.......................... 141,325 610,999 435,799 Proceeds from prepayments and maturities of investment securities..... 2,036,783 1,815,279 875,794 Net change in securities available for sale........................... 421,200 Net decrease (increase) in Federal funds sold and security resale agreements.......................................................... 96,047 460,490 (250,822) Net decrease (increase) in interest-bearing deposits with banks....... 750,950 301,067 (269,690) Purchases of premises and equipment................................... (78,402) (185,809) (39,755) Proceeds from sales of premises and equipment......................... 5,425 34,575 5,905 Purchase of thrift or bank subsidiary, net of cash acquired........... (117,858) (2,286) Proceeds from sale of subsidiary...................................... 148,054 Other investing activities, net....................................... 2,352 ----------- ----------- ----------- Net cash (used in) provided by investing activities............ (978,740) 206,282 55,757 FINANCING ACTIVITIES Net increase (decrease) in deposits................................... 186,218 (469,102) (1,376,287) Net increase in short-term borrowings................................. 419,030 153,177 767,229 Proceeds from issuance of long-term debt.............................. 310,499 396,179 Payments on long-term debt............................................ (229,776) (13,355) (12,485) Redemption of preferred stock......................................... (61,800) Proceeds from exercise of stock options............................... 12,047 20,104 27,003 Purchase of treasury stock............................................ (8,340) Cash dividends........................................................ (132,587) (113,871) (90,714) Sales of branch offices and loans: Deposit liabilities assumed by purchasers........................... (1,032,006) Loans sold.......................................................... 377,578 Long-term debt issued to fund branch sale........................... 36,154 Other, net.......................................................... 23,956 Other financing activities, net....................................... 23,219 (2,984) ----------- ----------- ----------- Net cash provided by (used in) financing activities............ 526,850 (624,170) (693,594) ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS...................... 30,560 (128,835) (199,564) CASH AND DUE FROM BANKS AT BEGINNING OF YEAR............................ 1,345,085 1,473,920 1,673,484 ----------- ----------- ----------- CASH AND DUE FROM BANKS AT END OF YEAR.................................. $ 1,375,645 $ 1,345,085 $ 1,473,920 ----------- ----------- ----------- ----------- ----------- ----------- Additional disclosures relative to cash flows: Cash interest payments.................................................. $ 671,140 $ 802,489 $ 1,250,422 Cash income tax payments................................................ 121,783 95,156 13,874 See notes to consolidated financial statements.
42 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Society Corporation is an Ohio-based financial services company primarily engaged in the business of commercial banking. It provides a wide range of banking, fiduciary and financial services to corporate, institutional and individual customers. The accounting policies of Society Corporation and its subsidiaries conform with generally accepted accounting principles and with general practices within the banking industry. The following is a summary of the Corporation's significant accounting policies. BASIS OF PRESENTATION The consolidated financial statements include the accounts of Society Corporation and its subsidiaries. All significant intercompany transactions have been eliminated. Certain amounts previously reported in the financial statements have been reclassified to conform with the current presentation. As discussed in Note 2, Mergers, Acquisitions and Divestitures, the financial statements give retroactive effect to the 1992 merger of Ameritrust Corporation with and into Society, accounted for as a pooling of interests. Accordingly, all financial data are presented as if both companies had been merged for all periods presented. BUSINESS COMBINATIONS Business combinations accounted for as purchases include the results of operations of the acquired businesses from the respective dates of acquisition. The assets and liabilities are recorded at fair value at the acquisition date and related purchase premiums and discounts are amortized over the remaining average lives of the respective assets or liabilities. Goodwill, representing the excess of the cost of acquisitions over the fair value of net assets acquired, is amortized on a straight-line basis, over the estimated period to be benefited, generally not exceeding 25 years. Other intangibles are amortized using either straight-line or accelerated methods, generally over periods ranging from 4 to 15 years. In transactions accounted for as poolings of interests, the assets and liabilities of the combined companies are carried forward at their historical amounts, the companies' results of operations are combined and the consolidated financial statements and notes thereto are restated as if the companies had been merged for all periods presented. On March 1, 1994, KeyCorp, ("old KeyCorp"), merged into and with Society Corporation ("Society"), which was the surviving corporation under the name KeyCorp. Because the merger, which was accounted for as a pooling of interests, occurred subsequent to December 31, 1993, the financial statements do not give retroactive effect to the merger. However, the supplemental financial statements included on pages 65 to 94 of this report present the combined financial condition and results of operations of Society and old KeyCorp as if the merger had been in effect for all periods presented. Further details pertaining to this merger are presented in Note 2, Mergers, Acquisitions and Divestitures. STATEMENT OF CASH FLOWS The Corporation defines cash and cash equivalents as cash on hand and noninterest-bearing amounts due from banks as reported under the consolidated balance sheet caption, "Cash and due from banks." INVESTMENT SECURITIES Securities which the Corporation has the ability and positive intent to hold to maturity are carried at cost, adjusted for amortization of premiums and accretion of discounts using the level yield method. Gains and losses on sales of investment securities are computed using the specific identification method and are included in net securities gains. SECURITIES AVAILABLE FOR SALE AND TRADING ACCOUNT ACTIVITIES Securities available for sale are carried at the lower of aggregate cost or market value. Trading account assets include foreign exchange trading positions and are carried at market value. Gains and losses on sales of securities available for sale are computed using the specific identification method and are included in net 43 46 securities gains. Market value adjustments for trading account assets (included in short-term investments) and securities available for sale are included in noninterest income. MORTGAGE LOANS HELD FOR SALE Mortgage loans held for sale are carried at the lower of aggregate cost or market value. LOANS Student loans held for sale are included in total loans and are carried at the lower of aggregate cost or market value. Interest income on loans is primarily accrued based on principal amounts outstanding. Accrual of interest is discontinued, and accrued but unpaid interest on a loan is reversed and charged against current earnings, when circumstances indicate that collection is questionable. Loans are returned to accrual status when management determines that the circumstances have improved to the extent that both principal and interest are deemed collectible. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is the amount which, in the opinion of management, is necessary to absorb potential losses in the loan portfolio. Management's evaluation of the adequacy of the allowance is based on the market area served, local economic conditions, the growth and composition of the loan portfolios and their related risk characteristics, and the continual review by management of the quality of the loan portfolio. PREMISES AND EQUIPMENT Premises and equipment are stated at cost less accumulated depreciation and amortization. Provisions for the depreciation of premises and equipment are determined using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are amortized using the straight-line method over the terms of the leases. OTHER REAL ESTATE OWNED Other real estate owned includes real estate acquired through foreclosure or a similar conveyance of title and real estate considered to be in-substance foreclosed when specific criteria are met. Other real estate owned is carried at the lower of its recorded amount or fair value, less estimated cost of disposal. Write-downs of the assets at, or prior to, the dates of acquisition are charged to the allowance for loan losses. Subsequent write-downs, income and expenses incurred in connection with holding such assets, and gains and losses resulting from the sales of such assets, are included in other noninterest expense. INCOME TAXES The Corporation files a consolidated Federal income tax return. Effective January 1, 1992, the Corporation prospectively adopted SFAS No. 109, "Accounting for Income Taxes" which supersedes SFAS No. 96. The cumulative effect of adopting SFAS No. 109 was not material. INTEREST RATE SWAPS, FINANCIAL FUTURES AND OPTIONS The Corporation uses interest rate swaps, financial futures and options to manage the interest rate exposure of certain interest-sensitive assets and liabilities as part of the Corporation's overall strategy to manage interest rate risk. The net interest received or paid on interest rate swaps is recognized over the lives of the respective contracts as an adjustment to interest income or expense. Gains and losses resulting from the termination of interest rate swaps are deferred and amortized over the remaining lives of the related financial instruments. Gains and losses on futures and option contracts are recognized when the related hedged financial instruments are sold. COMMON SHARES Net income per Common Share is computed by dividing net income, less any dividend requirement on preferred stock, by the weighted average number of Common Shares and Common Share equivalents outstanding during the year as presented below. These amounts have been adjusted to reflect a two-for-one stock split in the form of a 100% stock dividend effective as of March 22, 1993. 44 47
YEAR ENDED DECEMBER 31, ------------------------------------------- 1993 1992 1991 ----------- ----------- ----------- Weighted average Common Shares outstanding........................... 116,976,477 115,951,058 114,385,402 Common Share equivalents-stock options............................... 1,346,975 1,397,598 881,442 ----------- ----------- ----------- Total.............................. 118,323,452 117,348,656 115,266,844 ----------- ----------- ----------- ----------- ----------- -----------
NOTE 2. MERGERS, ACQUISITIONS AND DIVESTITURES On March 1, 1994, KeyCorp ("old KeyCorp"), a financial services holding company headquartered in Albany, New York, with approximately $33 billion in assets as of December 31, 1993, merged into and with Society, which was the surviving corporation under the name KeyCorp. Under the terms of the merger agreement, 124,351,183 KeyCorp Common Shares were exchanged for all of the outstanding shares of old KeyCorp (based on an exchange ratio of 1.205 shares for each share of old KeyCorp). The outstanding preferred stock of old KeyCorp was exchanged on a one-for-one basis for 1,280,000 shares of a comparable, new issue of 10% Cumulative Preferred Stock of KeyCorp. The merger was accounted for as a pooling of interests and, accordingly financial results for all prior periods presented will be restated to include the financial results of old KeyCorp. The supplemental financial statements presented on pages 65 through 94 of this report present the financial condition and results of operations of Society and old KeyCorp as if the merger had been in effect for all periods presented. The following table presents consolidated net interest income, net income and per Common Share reported by each of the companies and on a combined basis.
YEAR ENDED DECEMBER 31, (in thousands, ---------------------------------------- except per share amounts) 1993 1992 1991 - --------------------------------- ---------- ---------- ---------- NET INTEREST INCOME Society........................ $1,198,990 $1,130,387 $1,047,160 Old KeyCorp.................... 1,479,987 1,318,286 1,085,801 ---------- ---------- ---------- Combined.................... $2,678,977 $2,448,673 $2,132,961 ---------- ---------- ---------- ---------- ---------- ---------- NET INCOME Society........................ $ 347,159 $ 301,210 $ 76,478 Old KeyCorp.................... 362,767 290,888 237,218 ---------- ---------- ---------- Combined.................... $ 709,926 $ 592,098 $ 313,696 ---------- ---------- ---------- ---------- ---------- ---------- NET INCOME PER COMMON SHARE Society........................ $ 2.93 $ 2.51 $ .61 Old KeyCorp.................... 3.43 2.80 2.45 Combined....................... 2.89 2.42 1.31
On October 5, 1993, Society Asset Management, Inc., an indirect wholly-owned subsidiary of Society, completed the acquisition of Schaenen Wood & Associates, Inc. ("SWA"), a New York City-based investment management firm which manages approximately $1.3 billion in assets. The transaction was accounted for as a purchase. On September 15, 1993, Society completed the sale of Ameritrust Texas Corporation ("ATC") to Texas Commerce Bank, National Association, an affiliate of Chemical Banking Corporation. ATC was based in Dallas, Texas, and provided a range of investment management and fiduciary services to institutions, businesses and individuals through 11 offices operating in Texas. For the period through the closing date, ATC had net income of $3.2 million. The $29.4 million gain on the sale ($12.2 million after tax, $.10 per Common Share) is included in noninterest income. On January 22, 1993, Society acquired all of the outstanding shares of First Federal Savings and Loan Association of Fort Myers ("Society First Federal"), a Federal stock savings bank, for total cash consideration of $144 million. The transaction was accounted for as a purchase. Society First Federal had 24 offices in southwest and central Florida and approximately $1.1 billion in total assets at the date of acquisition. 45 48 On December 4, 1992, Society and three other bank holding companies formed a joint venture in a newly-formed company, Electronic Payment Services, Inc. This company is the largest processor of automated teller machine transactions in the United States and a national leader in point-of-sale transaction processing. As part of the agreement. Society contributed its wholly-owned subsidiary Green Machine Network Corporation, and its point-of-sale business in return for an equity interest. On September 30, 1992, Society acquired all the outstanding shares of First of America Bank - Monroe ("FAB - Monroe") from First of America Bank Corporation in a cash purchase. The transaction was accounted for as a purchase. FAB - Monroe operated 10 offices in southeastern Michigan and had approximately $160 million in total assets at the date of acquisition. On March 16, 1992, Ameritrust Corporation ("Ameritrust"), a financial services holding company located in Cleveland, Ohio, with approximately $10 billion in assets as of December 31, 1991, merged with and into Society. Under the terms of the merger agreement, 49,550,862 Society Common Shares were exchanged for all of the outstanding shares of Ameritrust common stock (based on an exchange ratio of .65 shares of Society for each share of Ameritrust). The outstanding preferred stock of Ameritrust was exchanged on a one-for-one basis for 1,200,000 shares of a comparable, new issue of Fixed/Adjustable Rate Cumulative Preferred Stock of Society. The merger was accounted for as a pooling of interests and, accordingly, financial results for all prior periods presented have been restated to include the financial results of Ameritrust. In connection with the merger and as part of an agreement with the United States Department of Justice, Society sold 28 Ameritrust branches located in Cuyahoga and Lake Counties in Ohio in June 1992. Deposits of $933.3 million and loans or loan participations totaling $331.8 million were sold along with the branches at a gain of $20.1 million ($13.2 million after tax, $.11 per Common Share) included in noninterest income. In addition, in May 1992, deposits and loans totaling $98.7 million and $45.7 million, respectively, were sold along with the four branches in Ashtabula County, Ohio, in accordance with the Federal Reserve Board order that approved the merger. NOTE 3. SECURITIES The book values, unrealized gains and losses, and approximate market values of securities held to maturity and securities available for sale were as follows:
DECEMBER 31, 1993 ------------------------------------------------------- GROSS GROSS BOOK UNREALIZED UNREALIZED MARKET (in thousands) VALUE GAINS LOSSES VALUE - --------------------------------- ---------- ---------- ---------- ---------- Federal agencies................. $ 10,585 $ 1,090 $ 11,675 States and political subdivisions................... 374,671 15,601 $ 45 390,227 Mortgage-backed securities....... 4,544,178 58,951 8,289 4,594,840 Other securities................. 723,793 14,726 21 738,498 ---------- ---------- ---------- ---------- Total investment securities................. 5,653,227 90,368 8,355 5,735,240 U.S. Treasury-available for sale........................... 738,078 43,595 9 781,664 ---------- ---------- ---------- ---------- Total securities............. $6,391,305 $ 133,963 $ 8,364 $6,516,904 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
DECEMBER 31, 1992 ------------------------------------------------------- GROSS GROSS BOOK UNREALIZED UNREALIZED MARKET VALUE GAINS LOSSES VALUE ---------- ---------- ---------- ---------- Federal Agencies................. $ 6,869 $ 501 $ 7,370 States and political subdivisions................... 524,825 18,317 $ 298 542,844 Mortgage-backed securities....... 3,374,364 74,118 24,244 3,424,238 Other securities................. 578,323 16,158 199 594,282 ---------- ---------- ---------- ---------- Total investment securities................. 4,484,381 109,094 24,741 4,568,734 U.S. Treasury-available for sale........................... 1,122,224 32,042 4,689 1,149,577 ---------- ---------- ---------- ---------- Total securities............. $5,606,605 $ 141,136 $ 29,430 $5,718,311 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
46 49 The remaining maturities of the Corporation's securities were as follows:
DECEMBER 31, 1993 ----------------------------------------------------- U.S. TREASURY -- INVESTMENT SECURITIES AVAILABLE FOR SALE ------------------------- ----------------------- BOOK MARKET BOOK MARKET (in thousands) VALUE VALUE VALUE VALUE - --------------------------------- ---------- ---------- -------- ---------- Due in one year or less.......... $ 471,932 $ 479,921 $206,941 $ 208,504 Due after one through five years.......................... 2,585,370 2,654,823 327,373 344,128 Due after five through ten years.......................... 2,316,463 2,319,442 201,291 226,106 Due after ten years.............. 279,462 281,054 2,473 2,926 ---------- ---------- -------- ---------- Total securities............. $5,653,227 $5,735,240 $738,078 $ 781,664 ---------- ---------- -------- ---------- ---------- ---------- -------- ----------
Mortgage-backed securities are included in the above investment securities maturity schedule based on their expected average lives. Other securities consist primarily of those collateralized by credit card and automobile installment loan receivables, corporate floating-rate notes and venture capital investments. The proceeds from sales of securities were $724.6 million, $611.0 million and $435.8 million in 1993, 1992 and 1991, respectively. Gross gains and losses related to securities were $33.4 million and $7.3 million, respectively, in 1993, $10.7 million and $.9 million, respectively, in 1992 and $8.8 million and $1.4 million, respectively, in 1991. Corporate assets, primarily securities, with a book value of approximately $4.4 billion at December 31, 1993, were pledged to secure public and trust deposits and securities sold under agreements to repurchase, and for other purposes required or permitted by law. In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115 requires that equity securities having readily determinable fair values and all investments in debt securities be classified and accounted for in three categories. Debt securities that management has the positive intent and ability to hold to maturity are to be classified as "held-to-maturity securities" and reported at amortized cost. Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are to be classified as "trading securities" and reported at fair value, with unrealized gains and losses included in operating results. Debt and equity securities not classified as either held-to-maturity securities or trading securities are to be classified as "available for sale securities" and reported at fair value, with unrealized gains and losses excluded from operating results and reported as a separate component of shareholders' equity. Adoption of the standard is required for fiscal years beginning after December 15, 1993, with earlier application permitted. The Corporation will adopt the new standard in 1994. Based upon the Corporation's securities portfolio classified as available for sale as of December 31, 1993, the estimated impact of the new standard would be an increase to shareholders' equity of approximately $28 million, with no impact on the results of operations. With the adoption of SFAS No. 115 in 1994, the Corporation anticipates that securities with an aggregate book value of approximately $3.2 billion will be designated as available for sale. Based upon the market values of these securities at year end 1993, the reclassification of these securities is not expected to have a material effect on shareholders' equity. 47 50 NOTE 4. LOANS Loans are summarized as follows:
DECEMBER 31, ------------------------------------------- (in thousands) 1993 1992 1991 - ------------------------------------------------- ----------- ----------- ----------- Commercial, financial and agricultural........... $ 4,388,185 $ 4,430,027 $ 5,177,633 Real estate-construction......................... 623,245 737,583 839,418 Real estate-residential mortgage................. 4,574,503 3,204,349 2,948,769 Real estate-commercial mortgage.................. 2,119,857 2,320,787 2,631,174 Consumer......................................... 3,266,772 3,243,383 4,433,077 Student loans held for sale...................... 1,648,611 1,070,140 Lease financing.................................. 1,213,162 923,856 724,737 Foreign.......................................... 63,312 101,363 76,866 ----------- ----------- ----------- Total.......................................... $17,897,647 $16,031,488 $16,831,674 ----------- ----------- ----------- ----------- ----------- -----------
Changes in the allowance for loan losses are summarized as follows:
YEAR ENDED DECEMBER 31, ------------------------------------------- (in thousands) 1993 1992 1991 - ------------------------------------------------- ----------- ----------- ----------- Balance at beginning of year..................... $ 502,744 $ 525,916 $ 461,039 Recoveries....................................... 52,617 52,145 52,585 Charge-offs...................................... (147,816) (223,711) (267,624) ----------- ----------- ----------- Net charge-offs................................ (95,199) (171,566) (215,039) Provision for loan losses........................ 72,240 147,366 280,047 Allowance of affiliates purchased (sold)......... 849 1,028 (131) ----------- ----------- ----------- Balance at end of year......................... $ 480,634 $ 502,744 $ 525,916 ----------- ----------- ----------- ----------- ----------- -----------
In 1991, Ameritrust recorded an additional $93.9 million provision for loan losses to conform its approach to determining the level of the allowance for loan losses to that used by the Corporation. In the ordinary course of business, Society's banking subsidiaries have made loans at prevailing interest rates and terms to directors and executive officers of Society and its subsidiaries and their associates (as defined by the Securities and Exchange Commission). Such loans, in management's opinion, did not present more than the normal risk of collectibility or incorporate other unfavorable features. The aggregate amount of loans outstanding to qualifying related parties at January 1, 1993, was $135.0 million. During 1993, activity with respect to these loans included new loans, repayments and a net decrease (due to changes in the status of executive officers and directors) of $30.8 million, $76.5 million and $21.5 million, respectively, resulting in an aggregate balance of loans outstanding to related parties at December 31, 1993, of $67.8 million. NOTE 5. NONPERFORMING ASSETS Nonperforming assets were as follows:
DECEMBER 31, ----------------------- (in thousands) 1993 1992 --------------------------------------------------------- -------- -------- Nonaccrual loans......................................... $162,448 $347,779 Restructured loans....................................... 370 934 -------- -------- Total nonperforming loans.............................. 162,818 348,713 Other real estate owned.................................. 48,095 133,341 Other nonperforming assets............................... 13,462 14,903 -------- -------- Total.................................................. $224,375 496,957 -------- -------- -------- --------
48 51 The effect on interest income of loans classified as nonperforming at December 31 of each respective year was as follows:
(in thousands) 1993 1992 1991 ---------------------------------------------- ------- ------- ------- Interest income which would have been recorded if assets had been current under original terms....................................... $17,482 $34,731 $52,880 Less: Interest income recorded during the period...................................... 3,450 14,374 24,131 ------- ------- ------- Net reduction to reported interest income... $14,032 $20,357 $28,749 ------- ------- ------- ------- ------- -------
At December 31, 1993, there were no significant commitments outstanding to lend additional funds to borrowers with nonaccrual or restructured loans. In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan." SFAS No. 114 prescribes a valuation methodology for impaired loans as defined by the standard. Generally, a loan is considered impaired if management believes that it is probable that all amounts due will not be collected according to the contractual terms as scheduled in the loan agreement. An impaired loan must be valued using the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price or the fair value of the loan's underlying collateral. The Corporation expects to adopt SFAS No. 114 prospectively starting in the first quarter of 1995. It is anticipated that adoption of the new standard will not have a material effect on the Corporation's financial condition and results of operations. NOTE 6. PREMISES AND EQUIPMENT Premises and equipment were as follows:
DECEMBER 31, ----------------------- (in thousands) 1993 1992 --------------------------------------------------------- -------- -------- Land..................................................... $ 43,025 $ 28,742 Buildings and leasehold improvements..................... 348,117 356,076 Furniture and equipment.................................. 414,663 381,581 -------- -------- 805,805 766,399 Accumulated depreciation and amortization................ (384,040) (359,839) -------- -------- Total.................................................. $421,765 $406,560 -------- -------- -------- --------
Depreciation and amortization expense related to premises and equipment totaled $57.1 million, $62.3 million, and $48.4 million in 1993, 1992 and 1991, respectively. At December 31, 1993, banking subsidiaries of Society were obligated under noncancellable leases for land and buildings and for other property, consisting principally of data processing equipment. Rental expense under all operating leases aggregated $53.3 million in 1993, $56.4 million in 1992, and $49.6 million in 1991. Many of the realty lease agreements contain renewal options for varying periods. In many cases, renewal terms must be negotiated at the renewal date, including annual rentals to be paid under the renewed lease. Minimum future rental payments under noncancellable leases at December 31, 1993, were as follows: 1994 -- $37.3 million; 1995 -- $30.7 million; 1996 -- $29.0 million; 1997 -- $23.8 million; 1998 -- $21.6 million; and subsequent years -- $261.3 million. NOTE 7. SHORT-TERM BORROWINGS Short-term borrowings consist primarily of Federal funds purchased and securities sold under repurchase agreements which generally represent overnight borrowing transactions. Other short-term borrowings consist of fixed rate and variable rate Medium-Term Notes with original maturities of one year or less, Treasury, tax and loan demand notes, and other borrowings with original maturities of one year or less. 49 52 On November 30, 1992, Society National Bank authorized the issuance of up to $1 billion of Medium-Term Notes to be offered on a continuous basis. During 1993, $685 million in debt securities were issued under this program. These securities have original maturities of less than one year and are included in other short-term borrowings. The details of short-term borrowings are as follows:
(dollars in thousands) 1993 1992 1991 - --------------------------------------------- ---------- ---------- ---------- FEDERAL FUNDS PURCHASED Balance at year end........................ $1,013,800 $1,316,567 $1,371,638 Average during the year.................... 1,063,530 807,654 968,500 Maximum month-end balance.................. 2,159,644 1,742,855 1,641,222 Weighted average rate during the year...... 3.06% 3.45% 5.72% Weighted average rate at December 31....... 3.18 3.37 3.87 SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE Balance at year-end........................ $1,339,940 $1,517,538 $1,130,786 Average during the year.................... 1,665,644 1,504,562 1,272,282 Maximum month-end balance.................. 2,102,629 1,927,907 1,726,720 Weighted average rate during the year...... 2.92% 3.30% 5.43% Weighted average rate at December 31....... 2.89 2.95 4.12 OTHER SHORT-TERM BORROWINGS Balance at year-end........................ $1,175,752 $ 276,357 $ 453,229 Average during the year.................... 817,953 360,575 316,295 Maximum month-end balance.................. 1,175,752 546,340 520,375 Weighted average rate during the year...... 2.93% 3.31% 5.52% Weighted average rate at December 31....... 3.16 2.42 4.30
NOTE 8. LONG-TERM DEBT The components of long-term debt, presented net of unamortized discount where appropriate, are as follows:
DECEMBER 31, --------------------- (dollars in thousands) 1993 1992 - --------------------------------------------------------------------- -------- -------- 8.125% Subordinated Notes, due 2002.................................. $197,902 $197,655 Medium Term Notes, due through 1996.................................. 110,600 8.875% Notes, due 1996............................................... 74,772 74,715 11.125% Notes, due 1995.............................................. 49,979 49,967 8.48% Notes, due 1997 through 2001................................... 48,864 48,864 8.33% Notes, due 1996................................................ 22,794 22,794 7.875% Notes, due 1993............................................... 99,952 8.625% Notes, due 1996............................................... 99,773 8.25% Notes, due 1993................................................ 25,000 9.56% Note, due 1995................................................. 14,922 Other long-term debt................................................. 384 4,514 -------- -------- Total Parent Company............................................ 505,295 638,156 -------- -------- 7.85% Subordinated Notes, due 2002................................... 199,823 198,524 6.75% Subordinated Notes, due 2003................................... 198,823 10% Note, due 1995................................................... 36,735 36,735 Industrial revenue bonds............................................. 10,938 11,314 Other long-term debt................................................. 1,043 1,323 -------- -------- Total Subsidiaries.............................................. 447,362 247,896 -------- -------- Total........................................................... $952,657 $886,052 -------- -------- -------- --------
50 53 On June 15, 1992, Society issued $200 million of 8.125% Subordinated Notes under a shelf registration. The Notes are not redeemable prior to maturity. During 1993, Society issued $110.6 million of Medium-Term Notes with maturities exceeding one year. The Notes had a weighted average annual interest rate of 5.19% at December 31, 1993, and have varying maturities through 1996. The 8.875% Notes, issued under an earlier registration, and the 11.125% Notes are not redeemable prior to maturity. In 1989, the Ameritrust Corporation Employees' Savings and Investment Plan (the "Plan") was amended to include a leveraged employee stock ownership plan ("ESOP"). To fund the ESOP, Ameritrust borrowed $71.7 million from several institutional investors through the placement of unsecured notes totaling $22.8 million (the "8.33% Notes") and $48.9 million (the "8.48% Notes"). The interest on those notes totaled $6.0 million in each of the years 1993, 1992, and 1991. The ESOP trustee used the proceeds to purchase 5,847,102 shares of Ameritrust Common Stock. These shares, as converted in the merger with Society, are held by the ESOP trustee for matching employee contributions to the Plan. The net difference between the cost of the treasury shares sold to the ESOP trustee and their market value was recorded as a reduction to retained earnings. Except for the repayment schedule, the loans to the ESOP trustee are on substantially similar terms as the borrowings from the institutional investors and, in addition, are secured by the unallocated shares held by the ESOP trustee. The ESOP trustee will repay the loans from Society using corporate contributions made by the Plan for that purpose and dividends on the Common Shares acquired with the loans. The amount of dividends on the ESOP shares used for debt service by the ESOP trustee totaled $3.9 million in 1993, $3.1 million in 1992, and $1.8 million in 1991. As contributions and dividends are received, a portion of the shares acquired with the loans will be allocated to Plan participants. Interest income recognized on loans to the ESOP trustee is netted against the interest expense incurred on the notes payable to the institutional investors. Society's receivable from the ESOP trustee, representing deferred compensation to the Corporation's employees, has been recorded as a separate reduction of shareholders' equity. Society National Bank, Society's lead bank, issued $200 million of 7.85% Subordinated Notes on November 3, 1992, and $200 million of 6.75% Subordinated Notes on June 16, 1993. The Bank issued a 10% Note in connection with the sale of branch offices and loans resulting from the merger with Ameritrust Corporation. None of these notes may be redeemed prior to maturity. Industrial revenue bonds issued by banking subsidiaries have varying maturities extending to the year 2009 and had weighted average annual interest rates of 7.14% and 7.19%, respectively, at December 31, 1993 and 1992. Other long-term debt at December 31, 1993 and 1992, consisted of capital lease obligations and various secured and unsecured obligations of corporate subsidiaries and had weighted average annual interest rates of 13.54% and 10.14%, respectively. The 8.625% Notes were redeemed at par plus accrued interest on June 30, 1993, and the 9.56% Note was assumed by the purchaser in connection with the sale of Ameritrust Texas Corporation on September 15, 1993. At December 31, 1993, the aggregate of annual maturities for all long-term debt obligations for the years 1994 through 1998 were $.5 million, $148.5 million, $147.2 million, $7.2 million, and $ 8.3 million, respectively. Long-term debt qualifying as supplemental capital for purposes of calculating Tier II Capital under Federal Reserve Board Guidelines amounted to $636.5 million and $520.9 million at December 31, 1993, and 1992, respectively. NOTE 9. SHAREHOLDERS' EQUITY PREFERRED STOCK AND COMMON SHARES In August 1989, Society's Board of Directors adopted a Shareholder Rights Plan ("Rights") under which each shareholder received one Right for each Society Common Share. Each Right represents the right to purchase a Common Share of Society at a price of $65. The Rights become exercisable 20 days after a person or group acquires 15 percent or more of the outstanding shares or commences a tender offer that could result in such an ownership interest. Until the Rights become exercisable, they will trade with the Common Shares, 51 54 and any transfer of the Common Shares will also constitute a transfer of associated Rights. When the Rights become exercisable, they will begin to trade separate and apart from the Common Shares. Twenty days after the occurrence of certain "Flip-In Events," each Right will become the right to purchase a Common Share of Society for the then par value per share (now $1 per share) and the Rights held by a 15 percent or more shareholder will become void. Society may redeem these Rights at its option at $.005 per Right subject to certain limitations. Unless redeemed earlier, the Rights expire on September 12, 1999. On October 1, 1993, Society amended the Rights so that the pending merger with old KeyCorp would not activate the provisions of the Rights. On March 1, 1993, Society redeemed the 1.2 million outstanding shares of Fixed/Adjustable Rate Cumulative Preferred Stock at 103% of its stated value ($60 million), plus accumulated but unpaid dividends. Society effected a two-for-one stock split on March 22, 1993, by means of a 100% stock dividend. All relevant Common Share amounts, per Common Share amounts and related data in this report have been adjusted to reflect this split. In connection with the merger with old KeyCorp, at a special meeting held February 16, 1994, shareholders increased the authorized number of shares of Society to 926.4 million, of which 1.4 million are shares of 10% Cumulative Preferred Stock, Class A, par value $5 per share; 25.0 million are shares of Preferred Stock, par value $1 per share; and 900.0 million are Common Shares, par value $1 per share. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS Society maintains various incentive compensation plans which provide for its ability to grant stock options, stock appreciation rights, limited stock appreciation rights, restricted stock and performance shares to selected employees. Generally, the terms of these plans stipulate that the exercise price of options may not be less than the fair market value of Society's Common Shares at the date the options are granted. Options granted expire not later than ten years and one month from the date of grant. Several option plans have been acquired through mergers. These plans have expired or were terminated, but unexercised options granted under the plans remain outstanding. At December 31, 1993 and 1992, options for Common Shares available for future grant totaled 1,237,965 and 1,233,958, respectively. The terms of Society's plans stipulate that stock appreciation rights may only be granted in tandem with stock options. The appreciation rights have the same terms as do the options, except that, upon exercise, the holder may receive either cash or shares for the excess of the current market value of Society's Common Shares over the option's exercise price. Upon exercise of a stock appreciation right, the related option is surrendered. During 1993, all stock appreciation rights for which exercisability was limited to a period following a change in control of the Corporation were cancelled. The following table presents a summary of pertinent information with respect to Society's stock options and stock appreciation rights. STOCK OPTIONS
1993 1992 ------------------------- ------------------------- SHARES OPTION PRICE SHARES OPTION PRICE ---------- ------------ ---------- ------------ Outstanding at beginning of year........... 5,161,748 $ 3.89-28.25 3,924,258 $ 2.49-25.87 Granted.................................... 1,218,500 32.41-33.94 2,654,800 28.25 Assumed in acquisition..................... 9,008 4.69- 7.61 Exercised or surrendered................... 656,428 3.89-28.25 1,288,658 2.49-22.92 Lapsed or cancelled........................ 59,515 14.44-33.94 128,652 12.30-28.25 ---------- ---------- Outstanding at end of year (1)............. 5,673,313 4.79-33.94 5,161,748 3.89-28.25 ---------- ---------- ---------- ---------- Exercisable at end of year (2)............. 3,192,913 4.79-28.25 2,592,548 3.89-25.87 ---------- ---------- ---------- ----------
52 55 STOCK APPRECIATION RIGHTS
1993 1992 ------------------------- ------------------------- SHARES OPTION PRICE SHARES OPTION PRICE ---------- ------------ ---------- ------------ Outstanding at beginning of year........... 2,028,240 $11.69-28.25 1,828,708 $ 6.78-20.88 Granted.................................... 222,000 33.94 920,000 28.25 Exercised or surrendered................... 36,400 11.69-20.88 672,468 6.78-20.88 Lapsed or cancelled........................ 2,169,840 11.69-33.94 48,000 28.25 ---------- ---------- Outstanding at end of year (1)............. 44,000 11.69 2,028,240 11.69-28.25 ---------- ---------- ---------- ---------- Exercisable at end of year................. 44,000 11.69 49,000 11.69 ---------- ---------- ---------- ---------- (1) Ordinary options outstanding at December 31, 1992 include 1,979,240 shares granted in tandem with Limited SARs. (2) Ordinary options exercisable at December 31, 1992 include 1,107,240 shares granted in tandem with Limited SARs.
NOTE 10. MERGER AND INTEGRATION CHARGES Merger and integration charges of $53.9 million ($39.6 million after tax, $.33 per Common Share), $50.0 million ($34.2 million after tax, $.29 per Common Share), and $93.8 million ($68.2 million after tax, $.59 per Common Share) were recorded in 1993, 1992, and 1991, respectively. The 1993 charges were incurred in connection with the merger with old KeyCorp, while the 1992 and 1991 amounts related to the merger with Ameritrust. The merger and integration charges directly attributable to the old KeyCorp merger included accruals for merger expenses, consisting primarily of investment banking and other professional fees directly related to the merger ($12.6 million); severance payments and other employee costs ($17.6 million); systems and facilities costs ($16.7 million); and other costs incident to the merger ($7.0 million). These charges were recorded by the parent company in the fourth quarter of 1993 at which time management determined that it was probable that a liability for such charges had been incurred and could be reasonably estimated. The merger and integration charges recorded in connection with the Ameritrust merger in 1992 and 1991 were similar in nature. Although no assurance can be given, it is also expected that, as a result of the old KeyCorp merger, cost savings will be achieved by the combined institution at an annual rate of approximately $100 million by the end of the first quarter of 1995. These cost savings are anticipated to result from the integration of operations and from efficiencies in certain combined lines of business. Management presently expects that approximately 50% of the annual cost savings will be achieved in 1994. NOTE 11. EMPLOYEE BENEFIT PLANS PENSION PLANS Society and its subsidiaries have noncontributory pension plans covering substantially all employees. Benefits paid from these plans are based on age, years of service and compensation prior to retirement or termination and are determined in accordance with defined formulas. The Corporation's policy is to fund pension expense in accordance with ERISA standards. Net pension income included the following components:
YEAR ENDED DECEMBER 31, ----------------------------- (in thousands) 1993 1992 1991 - ---------------------------------------------------------------- ------- ------- ------- Service cost.................................................... $ 8,654 $ 9,961 $12,671 Interest cost................................................... 18,178 16,516 17,307 Actual return on plan assets.................................... (29,857) (34,427) (66,949) Net amortization and deferral................................... (6,706) (1,772) 34,322 ------- ------- ------- Net pension income......................................... $(9,731) $(9,722) $(2,649) ------- ------- ------- ------- ------- -------
53 56 The following table sets forth the funded status of these plans and the amounts recognized in Society's consolidated balance sheets:
DECEMBER 31, -------------------- (in thousands) 1993 1992 - ------------------------------------------------------------------------ -------- -------- Accumulated benefit obligations, including vested benefits of $234,050 and $187,670.......................................................... $244,498 $193,955 -------- -------- -------- -------- Fair value of plan assets, primarily listed stocks and fixed income securities............................................................ $360,995 $348,433 Projected benefit obligations........................................... 268,421 210,789 -------- -------- Excess of fair value of plan assets over projected benefit obligations....................................................... 92,574 137,644 Unrecognized net loss (gain)............................................ 42,392 (10,704) Unrecognized prior service benefit...................................... (14,352) (17,701) Unrecognized net asset at January 1, 1986, being recognized over 15 years................................................................. (26,824) (32,314) -------- -------- Prepaid pension cost............................................... $ 93,790 $ 76,925 -------- -------- -------- --------
The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of projected benefit obligations were 7.50% and 4.00%, respectively, at December 31, 1993, and 8.50% and 4.50%, respectively, at December 31, 1992. The weighted average expected long-term rate of return on pension assets used in determining net pension income was 9.50% for 1993, 9.00% for 1992 and 9.16% for 1991. In 1993, the Corporation recognized curtailment and settlement gains of $2.9 million resulting from the divestiture of ATC. Such amount was included in the net gain from that divestiture. In 1992, the Corporation recognized curtailment gains of $7.2 million resulting from merger-related staff reductions. A portion of the retirement obligations associated with these reductions were settled by lump-sum cash distributions which resulted in settlement gains of $1.4 million and $3.0 million in 1993 and 1992, respectively. Both the curtailment and settlement gains related to the merger-related staff reductions are included in other noninterest income. OTHER POSTRETIREMENT BENEFIT PLANS The Corporation provides postretirement health care and life insurance benefits to employees who retire at age 55 or later and have at least 10 years of service. Additionally, such benefits are provided to participants in the Corporation's long term disability plan. The postretirement health care plan is unfunded and contributory, with retirees' contributions adjusted annually to reflect certain cost-sharing provisions and benefit limitations. The postretirement life insurance plan is noncontributory. Life insurance benefits for participants who retired before 1993 are generally provided for through outside insurance carriers. Life insurance benefits for employees retiring in 1993 or later years are to be paid from the Corporation's pension plan and are, accordingly, included in the determination of the pension benefit obligation. Effective January 1, 1993, the Corporation adopted the provisions of SFAS No. 106, "Employers Accounting for Postretirement Benefits Other Than Pensions." This statement requires that employers recognize the cost of providing postretirement benefits over the employees' active service period to the date they attain full eligibility for such benefits. Postretirement benefits costs for 1992 and 1991, which were recorded on a cash basis, have not been restated. Net postretirement benefits expense was $11.9 million in 1993, including $4.7 million due to adoption of the new standard, $5.2 million in 1992 and $4.8 million in 1991. Net postretirement benefits expense included the following components:
YEAR ENDED (in thousands) DECEMBER 31, 1993 ---------------------------------------------------------------- ----------------- Service cost.................................................... $ 1,627 Interest cost................................................... 6,415 Amortization of transition obligation over 20 years............. 3,848 ----------------- Net postretirement benefits expense........................ $ 11,890 ----------------- -----------------
54 57 The following table sets forth the unfunded status of the postretirement benefit plans reconciled with the amount recognized in Society's consolidated balance sheet:
(in thousands) DECEMBER 31, 1993 ---------------------------------------------------------------- ----------------- Accumulated unfunded postretirement benefits obligation: Retirees...................................................... $ (63,953) Fully eligible active plan participants....................... (6,998) Other active plan participants................................ (14,722) ----------------- (85,673) Unrecognized transition obligation.............................. 72,699 Unrecognized net loss........................................... 6,166 ----------------- Accrued postretirement benefits cost....................... $ (6,808) ----------------- -----------------
The assumed 1994 health care cost trend rate for Medicare-eligible retirees was 11.0%, while that for non-Medicare-eligible retirees was 13.0%. Both rates are assumed to gradually decrease to 5.5% by the year 2009 and remain constant thereafter. Increasing the assumed health care cost trend rates by one percentage point in each future year would have an immaterial impact on postretirement benefits cost due to cost-sharing provisions and benefit limitations. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.5% at December 31, 1993. EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN Substantially all of the Corporation's employees are covered under a stock purchase and savings plan that is qualified under Section 401(k) of the Internal Revenue Code. Under provisions of this plan, the Corporation matches 100% of the employee's pre-tax contribution, up to a maximum of 6% of eligible compensation, with an equivalent amount of Society's Common Shares. Under an annual discretionary profit sharing component, employees can receive additional matching employer contributions from the Corporation based on a formula established each year by Society's Board of Directors. Total expense associated with this plan was $24.0 million, $18.1 million and $19.7 million in 1993, 1992, and 1991, respectively. POSTEMPLOYMENT BENEFITS The Corporation adopted the provisions of SFAS No. 112, "Employers' Accounting for Postemployment Benefits," during 1993. This standard requires that employers who provide benefits to former or inactive employees after employment but before retirement recognize a liability for such benefits if specified conditions are met. Adoption of this standard increased noninterest expense by $4.0 million. Postemployment benefits for 1992 and 1991, which were recorded on a cash basis, were not restated. NOTE 12. INCOME TAXES During the first quarter of 1992, the Corporation adopted the provisions of SFAS No. 109, "Accounting for Income Taxes." The adoption of this new standard did not have a material impact on Society's consolidated financial condition or results of operations. At December 31, 1993, the net deferred tax liability totaled $146.0 million compared to $80.2 million at December 31, 1992. The gross deferred tax liability was $386.0 million at December 31, 1993, and $321.8 million at the prior year-end. In both periods, deferred taxes relating to lease financing activities comprised approximately 75% of the balance. Gross deferred tax assets were $240.0 million and $241.6 million at December 31, 1993 and 1992, respectively, and amounts related to loan loss provisions comprised approximately 70% of the balance in both periods. 55 58 The current and deferred components of the provision for income taxes were as follows:
YEAR ENDED DECEMBER 31, --------------------------------- (in thousands) 1993 1992 1991 - --------------------------------------------- -------- -------- ------- Current payable: Federal................................. $126,601 $ 67,632 $18,802 State/Local............................. 4,061 1,490 1,407 -------- -------- ------- 130,662 69,122 20,209 Deferred: Federal................................. 55,707 67,577 12,834 State/Local............................. 1,104 695 163 -------- -------- ------- 56,811 68,272 12,997 -------- -------- ------- Provision for income taxes.............. $187,473 $137,394 $33,206 -------- -------- ------- -------- -------- -------
Income taxes on securities transactions are provided for at the statutory income tax rate and included in the current portion of the provision. The following is a reconciliation of the provision for income taxes to the amount computed by applying the Federal statutory tax rate of 35% in 1993, and 34% in 1992 and 1991 to income before income taxes.
YEAR ENDED DECEMBER 31, --------------------------------- (in thousands) 1993 1992 1991 - --------------------------------------------- -------- -------- ------- Tax provision at statutory rate.............. $187,121 $149,125 $37,293 Adjustment due to: Tax-exempt interest income.............. (13,852) (18,335) (24,124) Leveraged leases and investment tax credits............................... (2,014) (2,432) (2,244) State and local income taxes (net of Federal tax benefit).................. 3,357 1,442 1,036 Amortization of goodwill and other intangible assets..................... 6,236 7,439 7,041 Nondeductible merger expenses........... 4,548 814 6,095 Other, net.............................. 2,077 (659) 8,109 -------- -------- ------- Provision for income taxes................... $187,473 $137,394 $33,206 -------- -------- ------- -------- -------- -------
At December 31, 1993, approximately $15.4 million of alternative minimum tax credit carryovers existed for Federal income tax purposes only. These carryovers have no fixed expiration date. NOTE 13. COMMITMENTS, CONTINGENT LIABILITIES, AND OTHER DISCLOSURES LEGAL PROCEEDINGS In the ordinary course of business, Society and its subsidiaries are subject to legal actions which involve claims for substantial monetary relief. Based on information presently available to management and the Corporation's counsel, management does not believe that any legal actions, individually or in the aggregate, will have a material adverse effect on Society's consolidated financial condition. RESTRICTIONS ON CASH, DUE FROM BANKS, SUBSIDIARY DIVIDENDS AND LENDING ACTIVITIES Under the provisions of the Federal Reserve Act, depository institutions are required to maintain certain average balances in the form of cash or noninterest-bearing balances with the Federal Reserve Bank. Average reserve balances aggregating $479.5 million in 1993 were maintained in fulfillment of these requirements. The principal source of income for the parent company is dividends from its subsidiary banks. Such dividends are subject to certain restrictions as set forth in the national and state banking laws and regulations. At December 31, 1993, undistributed earnings of $76.0 million were free of such restrictions and available for the payment of dividends to the parent company. Loans and advances from banking subsidiaries to the parent company are also limited by law and are required to be collateralized. 56 59 NOTE 14. FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURES The following disclosures are made in accordance with the provisions of SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," which requires the disclosure of fair value information about both on-and off-balance sheet financial instruments where it is practicable to estimate that value. Fair value is defined in SFAS No. 107 as the amount at which an instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. It is not the Corporation's intent to enter into such exchanges. Financial instruments, as defined in SFAS No. 107, include the categories presented on page 58 and exclude related intangible assets such as customer relationships, mortgage servicing rights and core deposit intangibles. These intangible assets, if considered an integral part of the related financial instruments, would increase their fair values. In cases where quoted market prices were not available, fair values were based on estimates using present value or other valuation methods, as described below. The use of different assumptions (e.g., discount rates and cash flow estimates) and estimation methods could have a significant effect on fair value amounts. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Corporation could realize in a current market exchange. Because SFAS No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements, any aggregation of the fair value amounts presented would not represent the underlying value of the Corporation.
DECEMBER 31, 1993 DECEMBER 31, 1992 --------------------------- --------------------------- CARRYING ESTIMATED CARRYING ESTIMATED (in thousands) AMOUNT FAIR VALUE AMOUNT FAIR VALUE - ------------------------------------- ----------- ----------- ----------- ----------- ASSETS Cash and due from banks............ $ 1,375,645 $ 1,375,645 $ 1,345,085 $ 1,345,085 Short-term investments............. 67,931 67,931 778,875 778,875 Mortgage loans held for sale....... 321,703 321,703 170,300 170,300 Securities available for sale...... 738,078 781,664 1,122,224 1,149,577 Investment securities.............. 5,653,227 5,735,240 4,484,381 4,568,734 Loans.............................. 17,897,647 18,041,907 16,031,488 16,127,970 LIABILITIES Deposits........................... $19,880,704 $19,968,500 $18,658,000 $18,746,149 Federal funds purchased and securities sold under agreements to repurchase................... 2,353,740 2,353,740 2,834,105 2,834,105 Other short-term borrowings........ 1,175,752 1,175,752 276,357 276,357 Long-term debt..................... 952,657 1,036,881 886,052 937,169
The following methods and assumptions were used in estimating the fair values of financial instruments presented in the preceding table and in the following paragraphs. For financial instruments with a remaining average life to maturity of less than six months, carrying amounts were used as an approximation of fair value. The carrying amounts reported for cash and due from banks, and short-term investments are their fair values. The carrying value of mortgage loans held for sale approximates fair value. Securities available for sale and investment securities were valued based on quoted market prices. Where quoted market prices were unavailable, fair values were based on quoted market prices of similar instruments. A discounted cash flow model was used to estimate the fair values for fixed-rate commercial, installment, construction and commercial real estate loans. Carrying amounts for variable rate loans, including loans with no stated maturity (e.g., credit card loans and home equity lines of credit), were used as a reasonable approximation of their fair values. Residential real estate loans and student loans held for sale were valued based on quoted market prices of similar loans offered or sold in recent sale or securitization transactions. Lease financing receivables, although excluded from the scope of SFAS No. 107, were included in the estimated fair value for loans at their carrying amount. The fair values of certificates of deposit and of long-term debt were estimated based on discounted cash flows. Carrying amounts reported for other deposits and short-term borrowings were used as a 57 60 reasonable approximation of their fair values. Interest rate swaps were valued based on discounted cash flow models and had a fair value of $67.8 million and $78.6 million at December 31, 1993 and 1992, respectively. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Corporation, mainly through its affiliate banks, is party to various financial instruments with off-balance sheet risk. The banks use these financial instruments in the normal course of business to meet financing needs of their customers and to effectively manage their exposure to interest rate risk. The financial instruments used include commitments to extend credit, standby letters of credit, interest rate swap agreements, forward contracts, futures and options on financial futures, and interest rate cap and floor agreements. These instruments involve, to varying degrees, credit and interest rate risks in excess of amounts recognized in Society's consolidated balance sheet. Credit risk is the possibility that a counterparty to a financial instrument will be unable to perform its contractual obligations. Interest rate risk is the possibility that, due to changes in economic conditions, the Corporation's net interest income will be adversely affected. The Corporation mitigates its exposure to credit risk through internal controls over the extension of credit. These controls include the process of credit approval and review, the establishment of credit limits, and, when deemed necessary, securing collateral. The Corporation manages its exposure to interest rate risk, in part, by using off-balance sheet instruments to offset existing interest rate risk of its assets and liabilities, and by setting variable rates of interest on contingent extensions of credit. The following is a summary of the contractual or notional amount of each significant class of off-balance sheet financial instruments outstanding. The Corporation's maximum possible accounting loss from commitments to extend credit and from standby letters of credit equals the contractual amount of these instruments. The notional amount represents the total dollar volume of transactions and is significantly greater than the amount at risk.
DECEMBER 31, --------------------------- (in thousands) 1993 1992 - ---------------------------------------------------------------- ----------- ----------- FINANCIAL INSTRUMENTS WHOSE CONTRACTUAL AMOUNTS REPRESENT CREDIT AND/OR MARKET RISK Loan commitments: Credit card lines............................................. $ 3,095,458 $ 2,790,308 Home equity................................................... 1,628,273 1,115,172 Commercial real estate and construction....................... 654,225 331,673 Other......................................................... 5,127,700 4,694,235 ----------- ----------- Total loan commitments..................................... 10,505,656 8,931,388 Other commitments: Standby letters of credit..................................... 899,539 696,633 Commercial letters of credit.................................. 236,832 16,039 ----------- ----------- Total loan and other commitments........................... $11,642,027 $ 9,644,060 ----------- ----------- ----------- ----------- FINANCIAL INSTRUMENTS WHOSE NOTIONAL OR CONTRACTUAL AMOUNTS EXCEED THE AMOUNT OF CREDIT AND/OR MARKET RISK Mortgage loan sale commitments.................................. $ 166,112 $ 104,600 Mortgage loan options........................................... 23,000 13,000 Futures and options on financial futures........................ 688,541 428,742 Interest rate swap agreements................................... 6,454,000 5,457,363 Interest rate cap and floor agreements.......................... 102,026 177,630
The banks' commitments to extend credit are agreements with customers to provide financing at predetermined terms as long as the customer continues to meet specified criteria. Loan commitments serve to meet the financing needs of the banks' customers and generally carry variable rates of interest, have fixed expiration dates or other termination clauses, and may require the payment of fees. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent 58 61 future cash requirements of the Corporation. Society evaluates each customer's creditworthiness on a case-by-case basis. Standby letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Society's mortgage banking subsidiary enters into forward sale agreements and option contracts to hedge against adverse movements in interest rates on mortgage loans held for sale. Forward sale agreements commit the subsidiary to deliver mortgage loans in future periods; option contracts allow the subsidiary to purchase mortgage loans at a specified price, in future periods. The banks enter into interest rate swap agreements primarily to manage interest rate risk and to accommodate the business needs of customers. Under a typical swap agreement, one party pays a fixed rate of interest based on a notional amount to a second party, which pays to the first party a variable rate of interest based on the same notional amount. The swaps have an average maturity of 2.4 years, with selected swaps having fixed maturity dates through 2003. The following is a summary of the notional amounts of outstanding interest rate swap agreements:
DECEMBER 31, 1993 --------------------------------------------------- RECEIVE PAY FORWARD- (in millions) FIXED FIXED BASIS STARTING TOTAL - --------------------------------------------- ------- ----- ----- -------- ------ "Portfolio".................................. $4,490 $100 $150 $500 $5,240 Customer..................................... 623 561 30 1,214 ------- ----- ----- -------- ------ Total interest rate swaps............... $5,113 $661 $150 $530 $6,454 ------- ----- ----- -------- ------ ------- ----- ----- -------- ------
The banks enter into interest rate cap and floor agreements in the management of their interest rate risk and to accommodate the business needs of customers. These financial instruments transfer interest rate risk at predetermined levels. The banks receive a fee as compensation for writing interest rate caps and floors. The risk from writing interest rate caps and floors is minimized by the banks through offsetting transactions. Financial futures contracts and options on financial futures provide for the delayed delivery or purchase of securities, interest rate instruments or foreign currency. The banks enter into forward contracts to manage their interest rate risk and in connection with customer transactions, as well as to minimize the interest rate risk exposure of mortgage banking activities. 59 62 NOTE 15. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY Condensed financial information for Society Corporation (Parent Company only) is as follows: CONDENSED BALANCE SHEETS Society Corporation (Parent Company)
DECEMBER 31, ------------------------- (in thousands) 1993 1992 - ------------------------------------------------------------- ---------- ---------- ASSETS Cash and due from bank subsidiaries........................ $ 56 $ 46 Interest-bearing deposits with bank subsidiaries........... 481,000 344,000 Securities purchased from bank subsidiaries under resale agreements.............................................. 5,466 603 Other securities........................................... 1,502 13,786 Loans and advances to nonbank subsidiaries................. 56,766 79,833 Investments in subsidiaries: Bank subsidiaries....................................... 1,790,878 1,882,694 Bank holding company subsidiaries....................... 80,824 50,986 Nonbank subsidiaries.................................... 179,880 136,906 Other assets............................................... 127,515 87,167 ---------- ---------- TOTAL ASSETS............................................ $2,723,887 $2,596,021 ---------- ---------- ---------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY Accrued interest and other liabilities..................... $ 180,006 $ 89,762 Long-term debt............................................. 505,295 638,156 ---------- ---------- Total liabilities....................................... 685,301 727,918 Shareholders' equity (1)................................... 2,038,586 1,868,103 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $2,723,887 $2,596,021 ---------- ---------- ---------- ---------- (1) See Consolidated Statements of Shareholders' Equity on page 41.
CONDENSED STATEMENTS OF INCOME Society Corporation (Parent Company)
YEAR ENDED DECEMBER 31, ---------------------------------- in thousands 1993 1992 1991 - ----------------------------------------------------------- -------- -------- -------- INCOME Dividends from: Bank subsidiaries..................................... $501,130 $ 63,653 $269,957 Bank holding company subsidiaries..................... 8,479 2,695 57,244 Nonbank subsidiaries.................................. 1,978 2,414 10,354 Interest on interest-bearing deposits with bank subsidiaries.......................................... 10,413 7,832 3,420 Interest on securities purchased from bank subsidiaries under resale agreements............................... 113 1,089 6,399 Interest on loans and advances to nonbank subsidiaries... 2,093 5,304 4,521 Gain on sale of subsidiary............................... 29,410 Other income............................................. 1,608 8,792 852 -------- -------- -------- Total income.......................................... 555,224 91,779 352,747 -------- -------- -------- EXPENSE Interest expense......................................... 44,531 35,151 33,903 Merger and integration charges........................... 53,906 34,680 18,139 Other noninterest expense................................ 107,562 49,296 44,556 -------- -------- -------- Total expense......................................... 205,999 119,127 96,598 -------- -------- -------- Income (loss) before income taxes and equity in undistributed net (loss) income of subsidiaries....... 349,225 (27,348) 256,149 Credit for income taxes.................................... (45,980) (32,686) (22,455) -------- -------- -------- Income before equity in undistributed net (loss) income of subsidiaries.............................. 395,205 5,338 278,604 Equity in undistributed net (loss) income of subsidiaries............................................. (48,046) 295,872 (202,126) -------- -------- -------- NET INCOME............................................ $347,159 $301,210 $ 76,478 -------- -------- -------- -------- -------- --------
60 63 CONDENSED STATEMENTS OF CASH FLOWS Society Corporation (Parent Company)
YEAR ENDED DECEMBER 31, ---------------------------------- (in thousands) 1993 1992 1991 - ------------------------------------------------------ -------- -------- -------- OPERATING ACTIVITIES Net income.......................................... $347,159 $301,210 $ 76,478 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income tax credit....................... (21,711) (1,215) (1,774) Gain on sale of subsidiary....................... (29,410) Net (increase) decrease in other assets.......... (20,024) (30,337) 238 Net increase (decrease) in other liabilities..... 56,829 (2,023) 6,591 Net increase in accrued merger and integration charges........................................ 37,176 18,930 12,114 Amortization of intangibles...................... 1,546 1,851 1,691 Equity in undistributed net loss (income) of subsidiaries................................... 48,046 (295,872) 202,126 Other operating activities, net.................. 3,377 9,076 2,282 -------- -------- -------- Net cash provided by operating activities............. 422,988 1,620 299,746 INVESTING ACTIVITIES Proceeds from maturities of investment securities... 419 2,236 Purchases of investment securities.................. (471) (7,334) (1,374) Net (increase) decrease in security resale agreements (1)................................... (4,863) 237,974 (180,029) Net (increase) decrease in interest-bearing deposits (1).............................................. (137,000) (273,071) 3,251 Net decrease (increase) in loans (1)................ 13,782 10,307 (22,531) Proceeds from sale of subsidiary.................... 148,054 Purchase of subsidiary.............................. (137,431) Increase in investments in subsidiaries............. (6,460) (24,893) (2,786) Other investing activities, net..................... (816) (2,442) (88) -------- -------- -------- Net cash used in investing activities................. (124,786) (59,459) (201,321) FINANCING ACTIVITIES Net decrease in commercial paper.................... (33,878) (19,678) Proceeds from issuance of long-term debt............ 110,600 197,655 Payments on long-term debt.......................... (229,132) (11,660) (9,030) Purchase of treasury stock.......................... (8,340) Redemption of preferred stock....................... (61,800) Net adjustment related to pooling of interests...... (515) Proceeds from exercise of stock options............. 12,047 20,104 27,003 Cash dividends...................................... (132,587) (113,871) (90,714) Other financing activities, net..................... 2,680 -------- -------- -------- Net cash (used in) provided by financing activities... (298,192) 57,835 (100,759) -------- -------- -------- INCREASE (DECREASE) IN CASH AND DUE FROM BANKS........ 10 (4) (2,334) CASH AND DUE FROM BANKS AT BEGINNING OF YEAR.......... 46 50 2,384 -------- -------- -------- CASH AND DUE FROM BANKS AT END OF YEAR................ $ 56 $ 46 $ 50 -------- -------- -------- -------- -------- -------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash interest payments.............................. $ 45,713 $ 35,285 $ 34,357 Cash income tax payments............................ 121,783 95,156 13,874 (1) Transactions are primarily with subsidiaries.
61 64 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is set forth in the sections captioned "ELECTION OF DIRECTORS" and "EXECUTIVE OFFICERS" contained in KeyCorp's definitive Proxy Statement for the 1994 Annual Meeting of Shareholders to be held May 19, 1994, and is incorporated herein by reference. KeyCorp expects to file its proxy statement on or about April 20, 1994. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is set forth in the section captioned "THE BOARD OF DIRECTORS AND ITS COMMITTEES" and "COMPENSATION OF EXECUTIVE OFFICERS" contained in KeyCorp's definitive Proxy Statement for the 1994 Annual Meeting of Shareholders to be held on May 19, 1994, and is incorporated herein by reference. The information set forth in the sections captioned "COMPENSATION AND ORGANIZATION AND EXECUTIVE EQUITY COMPENSATION COMMITTEE JOINT REPORT ON EXECUTIVE COMPENSATION" and "KEYCORP STOCK PRICE PERFORMANCE" contained in KeyCorp's definitive Proxy Statement for the 1994 Annual Meeting of Shareholders to be held May 19, 1994, is not incorporated by reference in this report on Form 10-K. KeyCorp expects to file its proxy statement on or about April 20, 1994. 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" contained in KeyCorp's definitive Proxy Statement for the 1994 Annual Meeting of Shareholders to be held May 19, 1994, and is incorporated herein by reference. KeyCorp expects to file its proxy statement on or about April 20, 1994. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is set forth in the section captioned "ELECTION OF DIRECTORS" contained in KeyCorp's definitive Proxy Statement for the 1994 Annual Meeting of Shareholders to be held May 19, 1994, and is incorporated herein by reference. KeyCorp expects to file its proxy statement on or about April 20, 1994. 62 65 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A)(1) FINANCIAL STATEMENTS The following consolidated financial statements of Society Corporation and Subsidiaries, and the auditor's report thereon are included in Part II of this report:,
PAGE -------- Consolidated Financial Statements: Report of Ernst & Young, Independent Auditors...................... 38 Consolidated Balance Sheets at December 31, 1993 and 1992.......... 39 Consolidated Statements of Income for the Years Ended December 31, 1993, 1992 and 1991............................................. 40 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1993, 1992 and 1991................................ 41 Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1992 and 1991......................................... 42 Notes to Consolidated Financial Statements......................... 43
(A)(1)(A) SUPPLEMENTAL FINANCIAL STATEMENTS On March 1, 1994, KeyCorp ("old KeyCorp") merged into and with Society Corporation, which was the surviving corporation of the merger under the name KeyCorp. Because the merger occurred subsequent to December 31, 1993, the financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations included in this Form 10-K do not give effect to the restatement to include old KeyCorp's financial results. The following Supplemental Financial Statements restate the Corporation's 1993 and prior years' financial statements, giving effect to the merger with old KeyCorp. 63 66 REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS The Board of Directors and Shareholders KeyCorp We have audited the accompanying supplemental consolidated balance sheets of KeyCorp and subsidiaries as of December 31, 1993 and 1992, and the related supplemental consolidated statements of income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1993. The supplemental financial statements give retroactive effect to the merger of KeyCorp and Society Corporation on March 1, 1994, which has been accounted for as a pooling of interests as described in the notes to the supplemental financial statements. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the supplemental financial statements referred to above present fairly, in all material respects, the consolidated financial position of KeyCorp and subsidiaries at December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, after giving retroactive effect to the merger of KeyCorp and Society Corporation as described in the notes to the supplemental financial statements in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG Cleveland, Ohio March 1, 1994 64 67 SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS KEYCORP AND SUBSIDIARIES
DECEMBER 31, --------------------------- (dollars in thousands) 1993 1992 - ---------------------------------------------------------------- ----------- ----------- ASSETS Cash and due from banks....................................... $ 2,777,438 $ 3,079,737 Short-term investments........................................ 107,219 985,502 Mortgage loans held for sale.................................. 1,325,338 938,541 Securities available for sale (market value: $1,794,845 and $2,518,320)................................................ 1,726,828 2,458,641 Investment securities (market value: $11,340,206 and $9,193,081)................................................ 11,122,093 8,976,300 Loans......................................................... 40,071,244 36,021,825 Less: Allowance for loan losses............................ 802,712 782,649 ----------- ----------- Net loans................................................ 39,268,532 35,239,176 Premises and equipment........................................ 912,870 843,314 Other real estate owned....................................... 150,362 332,351 Intangible assets............................................. 549,348 601,620 Purchased mortgage servicing rights........................... 188,592 165,433 Other assets.................................................. 1,502,531 1,447,761 ----------- ----------- TOTAL ASSETS............................................. $59,631,151 $55,068,376 ----------- ----------- ----------- ----------- LIABILITIES Deposits in domestic offices: Noninterest-bearing........................................ $ 8,826,300 $ 8,291,436 Interest-bearing........................................... 35,658,315 34,026,450 Deposits in foreign office -- interest-bearing................ 2,014,533 1,115,179 ----------- ----------- Total deposits........................................... 46,499,148 43,433,065 Federal funds purchased and securities sold under agreements to repurchase.............................................. 4,120,258 4,207,520 Other short-term borrowings................................... 1,776,192 874,887 Other liabilities............................................. 1,078,116 835,538 Long-term debt................................................ 1,763,870 1,790,078 ----------- ----------- TOTAL LIABILITIES........................................ 55,237,584 51,141,088 SHAREHOLDERS' EQUITY Preferred Stock, without par value; authorized 25,000,000 shares, none issued........................................ -- -- Cumulative Preferred Stock; authorized 10,000,000 shares: Series A, $50 stated value; issued 479,394 shares.......... -- 23,970 Series B, $125 stated value; issued 1,280,000 shares....... 160,000 160,000 Fixed/Adjustable Rate Cumulative Preferred Stock, $50 stated value; authorized and issued 1,200,000 shares.............. -- 60,000 Common Shares, $1 par value; authorized 400,000,000 shares; issued 242,827,755 and 237,364,213 shares.................. 242,828 237,364 Capital surplus............................................... 1,433,861 1,336,556 Retained earnings............................................. 2,641,450 2,206,051 Loans to ESOP trustee......................................... (63,909) (65,478) Treasury stock at cost(1,280,604 and 1,932,032 shares)........ (20,663) (31,175) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY............................... 4,393,567 3,927,288 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $59,631,151 $55,068,376 ----------- ----------- ----------- ----------- See notes to supplemental consolidated financial statements.
65 68 SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME KEYCORP AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, ---------------------------------------------- (dollars in thousands, except per share amounts) 1993 1992 1991 - ------------------------------------------------------ ------------ ------------ ------------ INTEREST INCOME Loans............................................ $ 3,313,689 $ 3,254,085 $ 3,655,934 Mortgage loans held for sale..................... 74,062 59,392 46,990 Taxable investment securities.................... 556,381 676,908 678,221 Tax-exempt investment securities................. 107,363 119,788 126,263 Securities available for sale.................... 140,895 57,167 59,594 Short-term investments........................... 21,484 31,451 85,349 ------------ ------------ ------------ Total interest income.......................... 4,213,874 4,198,791 4,652,351 ------------ ------------ ------------ INTEREST EXPENSE Deposits......................................... 1,233,331 1,468,974 2,135,651 Federal funds purchased and securities sold under repurchase agreements.......................... 130,213 142,894 213,722 Other short-term borrowings...................... 44,451 31,165 74,498 Long-term debt................................... 126,902 107,085 95,519 ------------ ------------ ------------ Total interest expense......................... 1,534,897 1,750,118 2,519,390 ------------ ------------ ------------ NET INTEREST INCOME................................... 2,678,977 2,448,673 2,132,961 Provision for loan losses............................. 211,662 338,337 466,163 ------------ ------------ ------------ Net interest income after provision for loan losses...................................... 2,467,315 2,110,336 1,666,798 NONINTEREST INCOME Trust income..................................... 244,646 250,788 235,757 Service charges on deposit accounts.............. 252,537 236,573 217,424 Mortgage banking income.......................... 93,626 88,700 74,323 Credit card fees................................. 73,466 80,947 71,403 Gains on certain asset sales..................... 29,410 22,906 23,975 Net securities gains............................. 28,319 14,627 18,939 Other income..................................... 279,702 230,652 207,440 ------------ ------------ ------------ Total noninterest income....................... 1,001,706 925,193 849,261 ------------ ------------ ------------ NONINTEREST EXPENSE Personnel........................................ 1,100,724 1,013,644 925,328 Net occupancy.................................... 204,205 189,709 184,761 Equipment........................................ 161,281 151,615 134,074 FDIC insurance assessments....................... 98,707 96,179 84,661 Professional fees................................ 53,274 75,983 55,532 Merger and integration charges................... 118,718 92,716 93,828 Other expense.................................... 648,214 550,566 587,495 ------------ ------------ ------------ Total noninterest expense...................... 2,385,123 2,170,412 2,065,679 INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE................................... 1,083,898 865,117 450,380 Income taxes..................................... 373,972 279,632 136,684 ------------ ------------ ------------ INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE.............................................. 709,926 585,485 313,696 Cumulative effect of accounting change........... -- 6,613 -- ------------ ------------ ------------ NET INCOME............................................ $ 709,926 $ 592,098 $ 313,696 ------------ ------------ ------------ ------------ ------------ ------------ Net income applicable to Common Shares................ $ 691,829 $ 568,069 $ 297,473 Net income per Common Share: Before cumulative effect of accounting change.... $ 2.89 $ 2.39 $ 1.31 After cumulative effect of accounting change..... 2.89 2.42 1.31 Weighted average Common Shares outstanding............ 239,775,188 235,004,821 227,116,237 See notes to supplemental consolidated financial statements.
66 69 SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY KEYCORP AND SUBSIDIARIES
LOANS TO COMMON (dollars in thousands, PREFERRED COMMON CAPITAL RETAINED ESOP SHARES IN except per share amounts) STOCK SHARES SURPLUS EARNINGS TRUSTEE TREASURY - ----------------------------------------------- --------- -------- ---------- ---------- -------- --------- BALANCE AT JANUARY 1, 1991..................... $ 83,970 $163,833 $1,272,585 $1,758,110 $(67,226) $(185,596) Net income................................... 313,696 Cash dividends on Common Shares ($.92 per share)..................................... (60,449) Cash dividends declared by pooled companies prior to mergers: Common stock............................. (108,837) Preferred stock.......................... (16,257) Issuance of Common Shares: Public offerings -- 11,333,523 shares.... 11,334 159,151 Dividend reinvestment, stock option, grant and purchase plans -- 1,961,946 net shares............................. 1,421 25,351 16,557 Common Shares dividend -- 2,515,692 shares... 2,516 35,641 (38,187) Issuance of Series B Preferred Stock public offering -- 1,280,000 shares............... 160,000 (5,344) Tax benefits attributable to ESOP dividends.................................. 622 Loan payments from ESOP trustee.............. 1,877 Purchase of 237,185 treasury shares.......... (8,340) --------- -------- ---------- ---------- -------- --------- BALANCE AT DECEMBER 31, 1991................... 243,970 179,104 1,487,384 1,848,698 (65,349) (177,379) Adjustments relating to pooling of interests.................................. (2 ) (132) (381) Cancellation of treasury stock of pooled company.................................... (3,300 ) (124,793) 128,093 Net income................................... 592,098 Cash dividends on Common Shares ($.98 per share)..................................... (101,547) Cash dividends on Fixed/Adjustable Rate Cumulative Preferred Stock ($3.89 per share)..................................... (4,670) Cash dividends declared by pooled companies prior to mergers: Common stock............................. (109,667) Preferred stock.......................... (19,359) Issuance of Common Shares: Acquisitions -- 838,307 shares........... 838 8,255 Dividend reinvestment, stock option, grant and purchase plans -- 1,956,516 net shares............................. 1,395 25,171 18,111 Tax benefits attributable to ESOP dividends.................................. 879 Loan payments from ESOP trustee.............. (129) Two-for-one stock split effected by means of a 100% stock dividend paid March 22, 1993....................................... 59,329 (59,329) --------- -------- ---------- ---------- -------- --------- BALANCE AT DECEMBER 31, 1992................... 243,970 237,364 1,336,556 2,206,051 (65,478) (31,175) Net income................................... 709,926 Cash dividends on Common Shares ($1.12 per share)..................................... (131,031) Cash dividends on Fixed/Adjustable Rate Cumulative Preferred Stock ($1.297 per share)..................................... (1,556) Cash dividends declared by pooled company prior to merger: Common stock............................. (125,992) Preferred stock.......................... (17,059) Issuance of Common Shares: Acquisitions -- 4,494,543 shares......... 4,495 79,364 Dividend reinvestment, stock option, grant and purchase plans -- 1,620,479 net shares............................. 969 19,741 10,512 Redemption of 1,200,000 shares of Fixed/Adjustable Rate Cumulative Preferred Stock...................................... (60,000 ) (1,800) Redemption of 479,394 shares of Series A Preferred Stock............................ (23,970 ) Tax benefits attributable to ESOP dividends.................................. 1,111 Loan payments from ESOP trustee.............. 1,569 --------- -------- ---------- ---------- -------- --------- BALANCE AT DECEMBER 31, 1993................... $160,000 $242,828 $1,433,861 $2,641,450 $(63,909) $ (20,663) --------- -------- ---------- ---------- -------- --------- --------- -------- ---------- ---------- -------- --------- See notes to supplemental consolidated financial statements.
67 70 SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS KEYCORP AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, ------------------------------------------- (in thousands) 1993 1992 1991 ----------- ----------- ----------- OPERATING ACTIVITIES Net income............................................................ $ 709,926 $ 592,098 $ 313,696 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses........................................... 211,662 338,337 466,163 Depreciation expense................................................ 110,852 104,330 84,394 Amortization of intangibles......................................... 58,050 61,692 57,574 Amortization of purchased mortgage servicing rights................. 56,566 29,607 20,410 Gains on certain asset sales........................................ (29,410) (22,906) (23,975) Deferred income taxes............................................... 49,431 68,700 19,480 Net securities gains................................................ (28,319) (14,627) (18,939) Net increase in mortgage loans held for sale........................ (386,797) (156,911) (348,238) Gains on sales of mortgage servicing rights......................... (25,494) -- -- Losses from the sales of other real estate owned.................... 748 3,082 5,135 Other operating activities, net..................................... 123,149 (408,475) 287,982 ----------- ----------- ----------- Net cash provided by operating activities...................... 850,364 594,927 863,682 INVESTING ACTIVITIES Net (increase) decrease in loans...................................... (1,807,283) (99,078) 4,535 Purchases of investment securities.................................... (5,441,846) (5,266,842) (3,822,950) Proceeds from sales of investment securities.......................... 142,092 662,221 1,102,695 Proceeds from prepayments and maturities of investment securities..... 3,709,134 3,425,344 2,039,757 Net decrease in securities available for sale......................... 795,686 173,444 101,805 Net decrease (increase) in short-term investments..................... 1,040,389 835,503 (558,454) Purchases of premises and equipment................................... (172,157) (270,787) (134,620) Proceeds from sales of premises and equipment......................... 24,492 46,261 14,438 Proceeds from sales of other real estate owned........................ 189,571 162,961 86,899 Purchases of mortgage servicing rights................................ (77,312) (67,359) -- Proceeds from sales of subsidiaries................................... 153,254 4,800 -- Net cash (used in) provided by acquisitions........................... (37,427) 52,381 423,499 ----------- ----------- ----------- Net cash used in investing activities.......................... (1,481,407) (341,151) (742,396) FINANCING ACTIVITIES Net decrease in deposits.............................................. (57,506) (26,545) (1,381,093) Net increase (decrease) in short-term borrowings...................... 695,185 (32,795) 1,097,626 Net proceeds from issuance of long-term debt.......................... 556,439 700,337 298,911 Payments on long-term debt............................................ (568,529) (174,249) (224,888) Net proceeds from issuance of common stock............................ -- -- 172,946 Net proceeds from issuance of preferred stock......................... -- -- 154,656 Redemption of preferred stock......................................... (85,770) -- -- Proceeds from issuance of common stock pursuant to employee stock purchase, stock option and dividend reinvestment plans.............. 28,238 39,442 41,084 Cash dividends........................................................ (262,532) (233,480) (182,906) Sales of branch offices and loans: Deposit liabilities assumed by purchasers........................... -- (1,032,006) -- Loans sold.......................................................... -- 377,578 -- Long-term debt issued to fund branch sale........................... -- 36,154 -- Other, net.......................................................... -- 23,956 -- Other financing activities, net....................................... 23,219 (2,984) (8,340) ----------- ----------- ----------- Net cash provided by (used in) financing activities............ 328,744 (324,592) (32,004) ----------- ----------- ----------- NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS...................... (302,299) (70,816) 89,282 CASH AND DUE FROM BANKS AT BEGINNING OF YEAR............................ 3,079,737 3,150,553 3,061,271 ----------- ----------- ----------- CASH AND DUE FROM BANKS AT END OF YEAR.................................. $ 2,777,438 $ 3,079,737 $ 3,150,553 ----------- ----------- ----------- ----------- ----------- ----------- Additional disclosures relative to cash flows: Interest paid......................................................... $ 1,529,058 $ 1,803,194 $ 2,573,578 Income taxes paid..................................................... 306,489 242,346 109,540 Noncash items: Transfer of loans to other real estate owned.......................... 88,709 193,628 218,697 Transfer of investment securities to securities available for sale.... -- 2,632,085 -- Transfer of loans to mortgage loans held for sale..................... -- 86,155 -- See notes to supplemental consolidated financial statements.
68 71 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES KeyCorp is a financial services holding company headquartered in Cleveland, Ohio, and is engaged primarily in the business of commercial and retail banking. It provides a wide range of banking, fiduciary, mortgage banking, insurance and other financial services to corporate, institutional and individual customers. The accounting policies of KeyCorp and its subsidiaries (the "Corporation") conform with generally accepted accounting principles and prevailing practices within the financial services industry. The following is a summary of significant accounting and reporting policies. KEYCORP-SOCIETY MERGER On March 1, 1994, KeyCorp ("old KeyCorp") merged into and with Society Corporation ("Society"), which was the surviving corporation under the name KeyCorp. The merger was accounted for by the pooling of interests method. These supplemental financial statements and notes have been restated to present the combined financial condition and results of operations of both companies as if the merger had been in effect for all periods presented. Further details pertaining to the merger are presented in Note 2, Mergers, Acquisitions and Divestitures, on page 71 of this report. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of KeyCorp and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications, including adjustments to conform accounting practices, have been made to prior year amounts to agree to the current year presentation. BUSINESS COMBINATIONS In business combinations accounted for as poolings of interests, the assets, liabilities and shareholders' equity of the respective companies are carried forward at their historical amounts, the companies' results of operations are combined and the prior periods' financial statements are restated to give effect to the merger. In business combinations accounted for as purchases, the results of operations of the acquired businesses are included from the respective dates of acquisition. Net assets of the companies acquired are recorded at their cost to the Corporation at the date of acquisition and related purchase premiums and discounts are amortized over the remaining average lives of the respective assets or liabilities. STATEMENT OF CASH FLOWS Cash and due from banks are considered as cash and cash equivalents. INVESTMENT SECURITIES Securities which the Corporation has the ability and positive intent to hold to maturity are carried at cost, adjusted for amortization of premiums and accretion of discounts using the level yield method. Gains or losses from the sales of investment securities are computed using the specific identification method and included in net securities gains. SECURITIES AVAILABLE FOR SALE AND TRADING ACCOUNT ASSETS Securities available for sale are carried at the lower of aggregate cost or market value. Gains or losses from the sale of securities available for sale are computed using the specific identification method and are included in net securities gains. Market value adjustments for trading account assets (included in short-term investments) and changes in net unrealized losses on securities available for sale are included in noninterest income. MORTGAGE LOANS HELD FOR SALE Mortgage loans held for sale are carried at the lower of aggregate cost, market value, or contracted sales value when fixed price commitments to sell exist. 69 72 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED LOANS Loans are carried at the principal amount outstanding, net of unearned income, including deferred loan fees. Certain nonrefundable loan origination and commitment fees and the direct costs associated with originating or acquiring the loans are deferred. The net deferred amount is amortized as an adjustment to the related loan yield over the contractual lives of the related loans. Student loans held for sale are carried at the lower of aggregate cost or market value. Interest income on loans is primarily accrued based on principal amounts outstanding. The accrual of interest is discontinued when circumstances indicate that collection is questionable, or generally when payment is over 90 days past due. In such cases, interest accrued but not collected is charged against the allowance for loan losses. There after, payments received are first applied to the principal. Depending on management's assessment of the ultimate collectibility of the loan, interest income may be recognized on a cash basis. Loans are returned to accrual status when management determines that the circumstances have improved to the extent that both principal and interest are deemed collectible and there has been a sustained period of repayment performance. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is the amount which, in the opinion of management, is necessary to absorb potential losses in the loan portfolio. Management's evaluation of the adequacy of the allowance is based on the market area served, local economic conditions, the growth and composition of the loan portfolios and their related risk characteristics, and the continual review by management of the quality of the loan portfolio. INTEREST RATE SWAPS, FINANCIAL FUTURES AND OPTIONS The Corporation uses interest rate swaps, financial futures and options to manage the interest rate exposure of certain interest-sensitive assets and liabilities as part of the Corporation's overall strategy to manage interest rate risk. The net interest received or paid on interest rate swaps is recognized over the lives of the respective contracts as an adjustment to interest income or expense. Gains and losses resulting from the termination of interest rate swaps are deferred and amortized over the remaining lives of the related financial instruments. Gains and losses on futures and option contracts are recognized when the related hedged financial instruments are sold. PREMISES AND EQUIPMENT Premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation and amortization. Depreciation of premises and equipment is determined using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are amortized using the straight-line method over the terms of the leases. OTHER REAL ESTATE OWNED Other real estate owned includes real estate acquired through foreclosure or a similar conveyance of title and real estate considered to be in-substance foreclosed when specific criteria are met. Other real estate owned is carried at the lower of its recorded amount or fair value less estimated cost of disposal. Writedowns of the assets at, or prior to, the dates of acquisition are charged to the allowance for loan losses. Subsequent writedowns, income and expenses incurred in connection with holding such assets, and gains and losses resulting from the sales of such assets, are included in other noninterest expense. INTANGIBLE ASSETS Goodwill, representing the excess of the cost of acquisitions over the fair value of net assets acquired, is amortized using the straight-line method over the estimated period to be benefited, generally not exceeding 25 years. Core deposit intangibles represent the net present value of the future economic benefits related to the use of deposits purchased. They are being amortized using an accelerated method over periods ranging from 7 to 15 years. Other intangibles are generally being amortized using the straight-line method over periods ranging from 4 to 15 years. 70 73 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED PURCHASED MORTGAGE SERVICING RIGHTS Purchased mortgage servicing rights represent the cost of the right to receive future servicing income. Purchased mortgage servicing rights are amortized, as a reduction to service fee income, over the estimated life of the related loans in proportion to the recognition of estimated net servicing income. An evaluation of the carrying amount of the purchased mortgage servicing rights is performed on a disaggregated basis by discounting the expected future cash flows, taking into consideration the estimated level of prepayments based upon current industry expectations. INCOME TAXES Old KeyCorp and Society each filed consolidated Federal income tax returns for the periods presented. Effective January 1, 1992, the Corporation prospectively adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which supersedes SFAS No. 96. The cumulative effect of adopting SFAS No. 109 was not material. EARNINGS PER SHARE Earnings per Common Share is computed by dividing net income, less preferred stock dividends, by the weighted average number of Common Shares outstanding. These amounts have been adjusted to reflect stock splits. NOTE 2. MERGERS, ACQUISITIONS AND DIVESTITURES KEYCORP-SOCIETY MERGER On March 1, 1994, KeyCorp ("old KeyCorp"), a financial services holding company headquartered in Albany, New York, with approximately $33 billion in assets as of December 31, 1993, merged into and with Society Corporation ("Society"), a financial services holding company headquartered in Cleveland, Ohio, with approximately $27 billion in assets at year-end 1993, which was the surviving corporation and assumed the name KeyCorp. Under the terms of the merger agreement, 124,351,183 KeyCorp Common Shares were exchanged for all of the outstanding shares of old KeyCorp common stock (based on an exchange ratio of 1.205 shares for each share of old KeyCorp). The outstanding preferred stock of old KeyCorp was exchanged for 1,280,000 shares of a comparable, new issue of 10% Cumulative Preferred Stock of KeyCorp. The merger was accounted for as a pooling of interests and, accordingly, financial results for prior periods presented have been restated to include the combined financial results of both companies. The following table presents net interest income, net income and net income per Common Share reported by each of the companies and on a combined basis.
YEAR ENDED DECEMBER 31, (in thousands ---------------------------------------- except per share amounts) 1993 1992 1991 - --------------------------------- ---------- ---------- ---------- NET INTEREST INCOME: Old Keycorp.................... $1,479,987 $1,318,286 $1,085,801 Society........................ 1,198,990 1,130,387 1,047,160 ---------- ---------- ---------- Combined.................... $2,678,977 $2,448,673 $2,132,961 ---------- ---------- ---------- ---------- ---------- ---------- NET INCOME: Old KeyCorp.................... $ 362,767 $ 290,888 $ 237,218 Society........................ 347,159 301,210 76,478 ---------- ---------- ---------- Combined.................... $ 709,926 $ 592,098 $ 313,696 ---------- ---------- ---------- ---------- ---------- ---------- NET INCOME PER COMMON SHARE: Old KeyCorp.................... $ 3.43 $ 2.80 $ 2.45 Society........................ 2.93 2.51 .61 Combined....................... 2.89 2.42 1.31
71 74 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED JACKSON COUNTY FEDERAL BANK On December 31, 1993, Jackson County Federal Bank of Medford, Oregon ("JCF") merged into Key Bank of Oregon, an indirect wholly-owned subsidiary of KeyCorp. A total of 1,430,813 KeyCorp Common Shares were issued to the holders of JCF common and preferred stock. The transaction qualified for accounting as a pooling of interests; however, financial statements for periods prior to the merger have not been restated to include the accounts and results of operations of JCF because the transaction was not material to KeyCorp. JCF had total assets of approximately $338 million at the date of merger. SCHAENEN WOOD & ASSOCIATES, INC. On October 5, 1993, Society Asset Management Inc., an indirect wholly-owned subsidiary of KeyCorp, completed the acquisition of Schaenen Wood & Associates, Inc. ("SWA"), a New York City-based investment management firm which manages approximately $1.3 billion in assets. The transaction was accounted for as a purchase. AMERITRUST TEXAS CORPORATION On September 15, 1993, KeyCorp completed the sale of Ameritrust Texas Corporation ("ATC"), a wholly-owned subsidiary of KeyCorp, to Texas Commerce Bank, National Association, an affiliate of Chemical Banking Corporation. ATC was based in Dallas, Texas, and provided a range of investment management and fiduciary services to institutions, businesses and individuals through 11 offices operating in Texas. For the year-to-date period through the closing date, ATC had net income of $3.2 million. A $29.4 million gain was realized on the sale ($12.2 million after tax, $.10 per Common Share) and included in noninterest income. NORTHWESTERN NATIONAL BANK On July 22, 1993, Northwestern National Bank of Port Angeles, Washington ("NNB") merged into Key Bank of Washington, an indirect wholly-owned subsidiary of KeyCorp. A total of 361,607 KeyCorp Common Shares were issued to the holders of NNB common stock. The transaction was accounted for as a purchase. NNB had total assets of approximately $49 million at the date of acquisition. EMERALD CITY BANK On July 2, 1993, Key Bank of Washington, an indirect wholly-owned subsidiary of KeyCorp, assumed $7 million of deposits of the failed Emerald City Bank of Seattle, Washington in an FDIC-assisted transaction. HOME FEDERAL SAVINGS BANK On June 30, 1993, Home Federal Savings Bank of Fort Collins, Colorado ("Home Federal") merged into Key Bank of Colorado, a wholly-owned subsidiary of KeyCorp formed for the purposes of consummating the merger. A total of 590,485 KeyCorp Common Shares were issued to the holders of Home Federal common stock. The transaction qualified for accounting as a pooling of interests; however, financial statements for periods prior to the merger have not been restated to include the accounts and results of operations of Home Federal because the transaction was not material to KeyCorp. Home Federal had total assets of approximately $230 million at the date of merger. FIRST AMERICAN BANK OF NEW YORK On March 25, 1993, Key Bank of New York, an indirect wholly-owned subsidiary of KeyCorp, acquired all of the deposits and the majority of the assets of First American Bank of New York ("First American"). Key Bank of New York acquired 40 branches and other business operations with approximately $1.0 billion in deposits and approximately $600 million in loans, in addition to branch real estate and other physical assets. The transaction was accounted for as a purchase. Key Bank of New York paid a premium of $41 million on the acquired deposits. In connection with the transaction, Key Bank of New York recorded a core deposit intangible of $33 million and goodwill of $8 million. 72 75 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NATIONAL SAVINGS BANK OF ALBANY On February 26, 1993, National Savings Bank of Albany, New York ("National") merged into Key Bank of New York, an indirect wholly-owned subsidiary of KeyCorp. A total of 2,111,638 KeyCorp Common Shares were issued to the holders of National common stock. The transaction qualified for accounting as a pooling of interests; however, financial statements for periods prior to the merger have not been restated to include the accounts and results of operations of National because the transaction was not material to KeyCorp. National had total assets of approximately $671 million at the date of merger. FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION On January 22, 1993, KeyCorp acquired all of the outstanding shares of First Federal Savings and Loan Association of Fort Myers ("Society First Federal"), a Federal stock savings bank, for total cash consideration of $144 million. The transaction was accounted for as a purchase. Society First Federal had 24 offices in southwest and central Florida and approximately $1.1 billion in total assets at the date of acquisition. PUGET SOUND BANCORP On January 15, 1993, Puget Sound Bancorp ("PSB"), a bank holding company headquartered in Tacoma, Washington, with approximately $4.7 billion in assets as of December 31, 1992, merged into Key Bancshares of Washington, Inc., a wholly-owned subsidiary of KeyCorp. A total of 31,391,544 KeyCorp Common Shares were exchanged for all of the outstanding shares of PSB common stock (based on an exchange ratio of 1.32 shares for each share of PSB). The merger was accounted for as a pooling of interests and, accordingly, financial results for prior periods presented have been restated to include the combined financial results of both companies. ELECTRONIC PAYMENT SERVICES, INC. On December 4, 1992, KeyCorp and three other bank holding companies formed a joint venture in a newly-formed company, Electronic Payment Services, Inc. This company is the largest processor of automated teller machine transactions in the United States and a national leader in point-of-sale transaction processing. As part of the agreement, the Corporation contributed its wholly-owned subsidiary, Green Machine Network Corporation, and its point-of-sale business in return for an equity interest. FIRST OF AMERICA BANK-MONROE On September 30, 1992, KeyCorp acquired all of the outstanding shares of First of America Bank-Monroe ("FAB-Monroe") from First of America Bank Corporation in a cash purchase. The transaction was accounted for as a purchase. FAB Monroe operated 10 offices in southeastern Michigan and had approximately $160 million in total assets at the date of acquisition. SECURITY PACIFIC BANK BRANCHES On September 3, 1992, Key Bank of Washington ("Key Bank"), an indirect wholly-owned subsidiary of KeyCorp, acquired 48 branches and other business and private banking operations with approximately $1.3 billion in deposits and $709 million in loans in addition to branch real estate and other physical assets in the state of Washington from BankAmerica Corporation. The transaction was accounted for as a purchase. Key Bank paid a premium of $53.6 million on the acquired deposits. OLYMPIC SAVINGS BANK On July 31, 1992, Key Savings Bank ("Key Savings"), an indirect wholly-owned subsidiary of KeyCorp, acquired Olympic Savings Bank of Washington ("Olympic"). The transaction was accounted for as a purchase. Olympic had approximately $81 million in assets at the date of acquisition. VALLEY BANCORPORATION On June 4, 1992, Valley Bancorporation ("Valley") of Idaho Falls, Idaho was merged with Key Bancshares of Idaho, a wholly-owned subsidiary of KeyCorp. A total of 838,308 KeyCorp Common Shares were issued for all of the outstanding shares of Valley common stock. The transaction qualified for accounting as a pooling of 73 76 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED interests; however, financial statements for periods prior to the merger have not been restated to include the accounts and results of operations of Valley because the transaction was not material to KeyCorp. Valley had assets of approximately $221 million at the date of merger. AMERITRUST CORPORATION On March 16, 1992, Ameritrust Corporation ("Ameritrust"), a financial services holding company located in Cleveland, Ohio, with approximately $10 billion in assets as of December 31, 1991, merged with and into the Corporation. Under the terms of the merger agreement, 49,550,862 KeyCorp Common Shares were exchanged for all of the outstanding shares of Ameritrust common stock (based on an exchange ratio of .65 shares of KeyCorp for each share of Ameritrust). The outstanding preferred stock of Ameritrust was exchanged on a one for-one basis for 1,200,000 shares of a comparable, new issue of Fixed/Adjustable Rate Cumulative Preferred Stock of KeyCorp. The merger was accounted for as a pooling of interests and, accordingly, financial results for prior periods presented have been restated to include the financial results of Ameritrust. In connection with the merger and as part of an agreement with the United States Department of Justice, the Corporation sold 28 Ameritrust branches located in Cuyahoga and Lake Counties in Ohio in June 1992. Deposits of $933.3 million and loans or loan participations totaling $331.8 million were sold along with the branches at a gain of $20.1 million ($13.2 million after tax, $.11 per Common Share) which is included in noninterest income. In addition, in May 1992, deposits and loans totaling $98.7 million and $45.7 million, respectively, were sold along with four branches in Ashtabula County, Ohio, in accordance with the Federal Reserve Board order that approved the merger. PENDING ACQUISITIONS COMMERCIAL BANCORPORATION OF COLORADO On March 24, 1994, Commercial Bancorporation of Colorado ("CBC"), a bank holding company with subsidiary banks operating in the Denver, Colorado Springs, Sterling and Fort Collins areas of Colorado, merged with Key Bank of Colorado, a wholly-owned subsidiary of KeyCorp. Holders of CBC common stock received .899 KeyCorp Common Shares for each outstanding share of CBC common stock. CBC had total assets of $390 million at December 31, 1993. The transaction qualified for accounting as a pooling of interests; however, financial statements will not be restated to include the accounts and results of operations of CBC because the transaction was not material to KeyCorp. THE BANK OF GREELEY On October 5, 1993, KeyCorp agreed to acquire the Bank of Greeley, a single branch bank headquartered in Greeley, Colorado ("Greeley Bank"). Under terms of the agreement, all shares of Greeley Bank will be exchanged for approximately 240,000 KeyCorp Common Shares. Greeley Bank had total assets of approximately $61 million at December 31, 1993. 3. SECURITIES AVAILABLE FOR SALE The book values, unrealized gains and losses and approximate market values of securities available for sale were as follows:
DECEMBER 31, 1993 ------------------------------------------------------- GROSS GROSS BOOK UNREALIZED UNREALIZED MARKET (in thousands) VALUE GAINS LOSSES VALUE - ---------------------------------------- ---------- ---------- ---------- ---------- U.S. Treasury, agencies and corporations.......................... $1,433,980 $ 64,136 $ (171) $1,497,945 Mortgage-backed securities.............. 269,735 4,165 (861) 273,039 Other securities........................ 23,113 753 (5) 23,861 ---------- ---------- ---------- ---------- Total................................. $1,726,828 $ 69,054 $ (1,037) $1,794,845 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
74 77 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1992 ------------------------------------------------------- GROSS GROSS BOOK UNREALIZED UNREALIZED MARKET (in thousands) VALUE GAINS LOSSES VALUE - ---------------------------------------- ---------- ---------- ---------- ---------- U.S. Treasury, agencies and corporations.......................... $2,032,526 $ 61,731 $ (4,982) $2,089,275 Mortgage-backed securities.............. 405,812 6,183 (3,794) 408,201 Other securities........................ 20,303 564 (23) 20,844 ---------- ---------- ---------- ---------- Total................................. $2,458,641 $ 68,478 $ (8,799) $2,518,320 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
The proceeds from sales of securities available for sale during 1993 and 1992 were $630.8 million and $661.9 million, respectively. Gross gains of $35.3 million and $9.6 million were realized on those sales in 1993 and 1992, respectively, and gross losses of $24 thousand and $7.1 million were realized on those sales in 1993 and 1992, respectively. Securities available for sale by remaining maturity were as follows:
DECEMBER 31, 1993 ------------------------- BOOK MARKET (in thousands) VALUE VALUE - ---------------------------------- ---------- ---------- Due in one year or less........... $ 513,674 $ 520,190 Due after one through five years........................... 739,081 771,946 Due after five through ten years........................... 307,384 332,813 Due after ten years............... 166,689 169,896 ---------- ---------- Total........................ $1,726,828 $1,794,845 ---------- ---------- ---------- ----------
Mortgage-backed securities are included in the above maturity schedule based on their expected average lives. In May 1993, the Financial Accounting Standards Board ("FASB") issued SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115 requires that equity securities having readily determinable fair values and all investments in debt securities be classified and accounted for in three categories. SFAS No. 115 is more fully described in Note 4, Investment Securities. 4. INVESTMENT SECURITIES The book values, unrealized gains and losses and approximate market values of investment securities were as follows:
DECEMBER 31, 1993 --------------------------------------------------------- GROSS GROSS BOOK UNREALIZED UNREALIZED MARKET (in thousands) VALUE GAINS LOSSES VALUE - ---------------------------------------- ----------- ---------- ---------- ----------- U.S. Treasury, agencies and corporations.......................... $ 795,966 $ 11,601 $ (134) $ 807,433 States and political subdivisions....... 1,677,823 102,402 (394) 1,779,831 Mortgage-backed securities.............. 7,877,216 108,627 (18,582) 7,967,261 Other securities........................ 771,088 14,900 (307) 785,681 ----------- ---------- ---------- ----------- Total................................. $11,122,093 $ 237,530 $(19,417) $11,340,206 ----------- ---------- ---------- ----------- ----------- ---------- ---------- -----------
75 78 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1992 ------------------------------------------------------- GROSS GROSS BOOK UNREALIZED UNREALIZED MARKET (in thousands) VALUE GAINS LOSSES VALUE - ---------------------------------------- ---------- ---------- ---------- ---------- U.S. Treasury, agencies and corporations.......................... $ 494,195 $ 11,830 $ (21) $ 506,004 States and political subdivisions....... 1,806,831 80,627 (863) 1,886,595 Mortgage-backed securities.............. 6,062,422 142,726 (33,393) 6,171,755 Other securities........................ 612,852 16,889 (1,014) 628,727 ---------- ---------- ---------- ---------- Total................................. $8,976,300 $ 252,072 $(35,291) $9,193,081 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Investment securities by remaining maturity were as follows:
DECEMBER 31, 1993 --------------------------- BOOK MARKET (in thousands) VALUE VALUE - ---------------------------------- ----------- ----------- Due in one year or less........... $ 1,819,775 $ 1,841,524 Due after one through five years........................... 5,590,121 5,715,782 Due after five through ten years........................... 3,193,927 3,245,422 Due after ten years............... 518,270 537,478 ----------- ----------- Total........................... $11,122,093 $11,340,206 ----------- ----------- ----------- -----------
Mortgage-backed securities are included in the above maturity schedule based on their expected average lives. Other securities consist primarily of those collateralized by credit card and automobile installment loan receivables, corporate floating-rate notes and venture capital investments. The proceeds from sales of investment securities were $142.1 million, $662.2 million and $1.1 billion during 1993, 1992 and 1991, respectively. Gross gains and losses related to securities were $.8 million and $7.8 million, respectively, in 1993, $13.0 million and $.9 million, respectively, in 1992, and $26.2 million and $7.3 million, respectively, in 1991. At December 31, 1993, investment and available for sale securities with a book value of approximately $9.6 billion were pledged to secure public and trust deposits and securities sold under agreements to repurchase, and for certain other purposes required or permitted by law. In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115 requires that equity securities having readily determinable fair values and all investments in debt securities be classified and accounted for in three categories. Debt securities that management has the positive intent and ability to hold to maturity are to be classified as "held-to-maturity securities" and reported at amortized cost. Debt and equity securities that are bought and principally held for the purpose of selling them in the near term are to be classified as "trading securities" and reported at fair value, with unrealized gains and losses included in operating results. Debt and equity securities not classified as either held-to-maturity securities or trading securities are to be classified as "available for sale securities" and reported at fair value, with the unrealized gains and losses excluded from operating results and reported as a separate component of shareholders' equity. Adoption of SFAS No. 115 is required for fiscal years beginning after December 15, 1993, with earlier application permitted. The Corporation will adopt SFAS No. 115 in 1994. Based upon the Corporation's securities portfolio classified as available for sale as of December 31, 1993, the estimated impact of the new standard would be an increase to shareholders' equity of approximately $44 million, with no effect on the results of operations. With the adoption of SFAS No. 115 in 1994, the Corporation anticipates that securities with an aggregate book value ranging from $4.5 billion to $5.0 billion will be designated as available for sale. Based upon the market values of these securities at year-end 1993, the reclassification of these securities is not expected to have a material effect on shareholders' equity. 76 79 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 5. LOANS Loans are summarized as follows:
DECEMBER 31, ----------------------------- (in thousands) 1993 1992 ---------------------------------------------------- ----------- ----------- Commercial, financial and agricultural.............. $ 8,965,528 $ 8,869,032 Real estate -- construction......................... 1,160,480 1,448,032 Real estate -- commercial mortgage.................. 6,228,188 5,937,022 Real estate -- residential mortgage................. 11,026,319 8,289,386 Consumer............................................ 9,276,334 9,081,657 Student loans held for sale......................... 1,648,611 1,070,140 Lease financing..................................... 1,702,472 1,225,193 Foreign............................................. 63,312 101,363 ----------- ----------- Total.......................................... $40,071,244 $36,021,825 ----------- ----------- ----------- -----------
Changes in the allowance for loan losses are summarized as follows:
YEAR ENDED DECEMBER 31, ----------------------------------------- (in thousands) 1993 1992 1991 ---------------------------------------- --------- --------- --------- Balance at beginning of year............ $ 782,649 $ 793,519 $ 677,294 Charge-offs............................. (303,160) (440,396) (465,858) Recoveries.............................. 90,385 79,930 74,042 --------- --------- --------- Net charge-offs.................... (212,775) (360,466) (391,816) Provision for loan losses............... 211,662 338,337 466,163 Allowance of affiliates purchased....... 21,176 11,259 41,878 --------- --------- --------- Balance at end of year............. $ 802,712 $ 782,649 $ 793,519 --------- --------- --------- --------- --------- ---------
In 1991, Ameritrust recorded an additional $93.9 million provision for loan losses to conform its approach to determining the level of the allowance to that used by the Corporation. In the ordinary course of business, KeyCorp's banking affiliates have made loans at prevailing interest rates and terms to directors and executive officers of KeyCorp and its subsidiaries and their associates (as defined by the Securities and Exchange Commission). Such loans, in management's opinion, did not present more than the normal risk of collectibility or incorporate other unfavorable features. The aggregate amount of loans outstanding to qualifying related parties at January 1, 1993, was $241.3 million. During 1993, activity with respect to these loans included new loans, repayments and a net decrease (due to changes in the status of executive officers and directors) of $149.3 million, $153.9 million and $40.3 million, respectively, resulting in an aggregate balance of loans outstanding to related parties at December 31, 1993, of $196.4 million. 77 80 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 6. NONPERFORMING ASSETS Nonperforming assets were as follows:
DECEMBER 31, ----------------------- (in thousands) 1993 1992 --------------------------------------------------------- -------- -------- Nonaccrual loans......................................... $329,843 $550,522 Restructured loans....................................... 6,469 2,380 -------- -------- Total nonperforming loans........................... 336,312 552,902 Other real estate owned.................................. 186,052 350,266 Allowance for OREO losses................................ (35,690) (17,915) -------- -------- Other real estate owned, net of allowance........... 150,362 332,351 Other nonperforming assets............................... 13,462 14,903 -------- -------- Total............................................... $500,136 $900,156 -------- -------- -------- --------
The effect on interest income of loans classified as nonperforming, at December 31, was as follows:
(in thousands) 1993 1992 1991 ---------------------------------------------- ------- ------- ------- Interest income which would have been recorded if assets had been current under original terms....................................... $30,037 $52,002 $71,235 Less: Interest income recorded during the period...................................... (7,900) (20,536) (28,877) ------- ------- ------- Net reduction to reported interest income... $22,137 $31,466 $42,358 ------- ------- ------- ------- ------- -------
At December 31, 1993, there were no significant commitments to lend additional funds to borrowers with nonaccrual or restructured loans. Changes in the allowance for OREO losses are summarized as follows:
YEAR ENDED DECEMBER 31, ----------------------------------- (in thousands) 1993 1992 1991 ---------------------------------------------- ------- ------- ------- Balance at beginning of year.................. $17,915 $19,191 $13,754 Net charge-offs............................... (21,697) (33,793) (12,661) Provision for other real estate owned losses...................................... 39,132 32,517 15,513 Allowance of affiliates purchased............. 340 -- 2,585 ------- ------- ------- Balance at end of year...................... $35,690 $17,915 $19,191 ------- ------- ------- ------- ------- -------
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," which takes effect for fiscal years beginning after December 15, 1994. SFAS No. 114 prescribes a valuation methodology for impaired loans as defined by the standard. Generally, a loan is considered impaired if management believes that it is probable that all amounts due will not be collected according to the contractual terms, as scheduled in the loan agreement. An impaired loan must be valued using the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price or the fair value of the loan's underlying collateral. The Corporation expects to adopt SFAS No. 114 prospectively in the first quarter of 1995. It is anticipated that the adoption of SFAS No. 114 will not have a material effect on the Corporation's financial condition or results of operations. 78 81 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 7. PREMISES AND EQUIPMENT Premises and equipment were as follows:
DECEMBER 31, ------------------------- (in thousands) 1993 1992 - ------------------------------------- ---------- ---------- Land................................. $ 116,335 $ 86,196 Buildings and leasehold improvements....................... 741,043 715,762 Furniture and equipment.............. 759,721 681,058 ---------- ---------- 1,617,099 1,483,016 Accumulated depreciation and amortization....................... (704,229) (639,702) ---------- ---------- Total................................ $ 912,870 $ 843,314 ---------- ---------- ---------- ----------
Depreciation and amortization expense related to premises and equipment totaled $110.9 million, $104.3 million, and $84.4 million in 1993, 1992, and 1991, respectively. At December 31, 1993, KeyCorp's affiliate banks were obligated under noncancelable leases for land and buildings and for other property, consisting principally of data processing equipment. Rental expense under all operating leases totaled $123.7 million in 1993, $116.5 million in 1992 and $103.4 million in 1991. Minimum future rental payments under noncancelable leases at December 31, 1993, were as follows: 1994 -- $98.9 million; 1995 -- $89.0 million; 1996 -- $82.1 million; 1997 -- $74.2 million; 1998 -- $59.2 million; and subsequent years -- $547.5 million. 8. INTANGIBLE ASSETS AND PURCHASED MORTGAGE SERVICING RIGHTS Intangible assets, net of accumulated amortization, were as follows:
DECEMBER 31, ------------------------- (in thousands) 1993 1992 ------------------------------------------- -------- -------- Goodwill................................... $385,359 $361,290 Core deposit intangibles................... 139,501 132,402 Credit card intangibles.................... 16,648 20,240 Other...................................... 7,840 87,688 -------- -------- Total.................................... $549,348 $601,620 -------- -------- -------- -------- Purchased mortgage servicing rights........ $188,592 $165,433
The amortization expense for intangible assets was as follows:
YEAR ENDED DECEMBER 31, ---------------------------------- (in thousands) 1993 1992 1991 - --------------------------------- -------- -------- -------- Goodwill......................... $ 24,210 $ 21,589 $ 22,397 Core deposit intangibles......... 22,436 25,049 22,379 Credit card intangibles.......... 4,460 4,449 4,534 Other............................ 6,944 10,605 8,264 -------- -------- -------- Total.......................... $ 58,050 $ 61,692 $ 57,574 -------- -------- -------- -------- -------- --------
The amortization expense for purchased mortgage servicing rights totaled $56.6 million, $29.6 million and $20.4 million in 1993, 1992 and 1991, respectively. The amount of purchased mortgage servicing rights capitalized during 1993 was $77.3 million. 79 82 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 9. SHORT-TERM BORROWINGS Short-term borrowings consist primarily of Federal funds purchased and securities sold under repurchase agreements, which generally represent overnight borrowing transactions. Other short-term borrowings consist primarily of Medium-Term Notes with original maturities of one year or less, Treasury, tax and loan demand notes and commercial paper which is issued principally in amounts of $100,000 or more with maturities of 270 days or less. On November 30, 1992, Society National Bank ("SNB"), KeyCorp's Ohio banking affiliate, authorized the issuance of up to $1 billion of Medium-Term Notes to be offered on a continuous basis. During 1993, $685 million in debt securities were issued under this program. These securities have original maturities of less than one year and are included in other short-term borrowings. The details of short-term borrowings were as follows:
(dollars in thousands) 1993 1992 1991 - --------------------------------------------- ---------- ---------- ---------- FEDERAL FUNDS PURCHASED Balance at year-end........................ $1,932,211 $1,826,522 $2,194,057 Average during the year.................... 1,828,606 1,519,406 1,412,714 Maximum month-end balance.................. 3,127,134 2,924,193 2,531,555 Weighted average rate during the year...... 3.06% 3.74% 5.72% Weighted average rate at December 31....... 3.13 3.30 4.02 SECURITIES SOLD UNDER REPURCHASE AGREEMENTS Balance at year-end........................ $2,188,047 $2,380,998 $2,060,012 Average during the year.................... 2,549,582 2,542,522 2,394,966 Maximum month-end balance.................. 3,163,603 3,036,009 3,228,383 Weighted average rate during the year...... 2.91% 3.38% 5.42% Weighted average rate at December 31....... 2.84 2.97 4.12 OTHER SHORT-TERM BORROWINGS Balance at year-end........................ $1,776,192 $ 874,887 $ 833,465 Average during the year.................... 1,196,188 721,800 1,188,228 Maximum month-end balance.................. 1,776,192 1,144,870 900,611 Weighted average rate during the year...... 3.72% 4.31% 6.27% Weighted average rate at December 31....... 3.16 3.57 3.86
At December 31, 1993, the Corporation had available lines of credit for general corporate purposes aggregating $200 million, all of which were unused at December 31, 1993. Standard fees were paid for these facilities, which were cancelled subsequent to the end of the year. 10. LONG-TERM DEBT The components of long-term debt, presented net of unamortized discount where appropriate, were as follows:
DECEMBER 31, ------------------------- (dollars in thousands) 1993 1992 - --------------------------------------------------------------------- ---------- ---------- Medium-Term Notes due through 2003................................... $ 546,230 $ 303,930 8.125% Subordinated Notes due 2002................................... 197,902 197,655 8.00% Subordinated Notes due 2004.................................... 125,000 125,000 8.40% Subordinated Capital Notes due 1999............................ 75,000 75,000 8.875% Notes due 1996................................................ 74,772 74,715 11.125% Notes due 1995............................................... 49,979 49,967 8.48% Notes due 1997 through 2001.................................... 48,864 48,864 8.33% Notes due 1996................................................. 22,794 22,794 12.63% Notes due 1994................................................ 1,860 1,860 7.875% Notes due 1993................................................ -- 99,952
80 83 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, ------------------------- (dollars in thousands) 1993 1992 - --------------------------------------------------------------------- ---------- ---------- 8.625% Notes due 1996................................................ -- 99,773 9.45% Senior Notes due 1993.......................................... -- 75,000 5.25% Floating Rate Subordinated Notes due 1997...................... -- 50,000 8.25% Notes due 1993................................................. -- 25,000 9.56% Note due 1995.................................................. -- 14,922 7.75% Debentures due through 2002.................................... -- 13,533 All other long-term debt............................................. 384 4,514 ---------- ---------- Total parent company................................................. 1,142,785 1,282,479 7.85% Subordinated Notes due 2002.................................... 199,823 198,524 6.75% Subordinated Notes due 2003.................................... 198,823 -- Federal Home Loan Bank Advances(1)................................... 165,100 246,350 10.00% Notes due 1995................................................ 36,735 36,735 Industrial revenue bonds............................................. 10,938 11,314 All other long-term debt............................................. 9,666 14,676 ---------- ---------- Total subsidiaries................................................... 621,085 507,599 ---------- ---------- Total................................................................ $1,763,870 $1,790,078 ---------- ---------- ---------- ---------- - --------------- (1)Long-term advances from the Federal Home Loan Bank of Seattle (FHLB) are at adjustable and fixed rates ranging from 3.125% to 12.125% at December 31, 1993, and mature at various dates through 2005. Real estate loans with a recorded value of $472.6 million and $375.4 million at December 31, 1993 and 1992, respectively, collateralize FHLB advances.
Scheduled payments on long-term debt are as follows:
(in thousands) PARENT SUBSIDIARIES TOTAL ------------------------------------------------- -------- ------------ -------- 1994............................................. $ 72,569 $ 37,371 $109,940 1995............................................. 160,179 103,386 263,565 1996............................................. 214,202 12,170 226,372 1997............................................. 47,758 1,623 49,381 1998............................................. 82,418 1,101 83,519
During 1993 and 1992, KeyCorp issued $305.1 million and $77.0 million, respectively, of Medium-Term Notes with original maturities exceeding one year. In addition to general corporate purposes, the proceeds from the issuance of these notes were used to redeem and pay principal on notes and debentures; to fund the purchase of OREO from affiliate banks by NCB Properties, Inc., an OREO workout subsidiary; and to provide subordinated capital to affiliate banks. At December 31, 1993, KeyCorp's Medium-Term Notes as presented in the table had a weighted average interest rate of 6.61% and had varying maturities through 2003. On June 15, 1992, KeyCorp issued $200 million of 8.125% Subordinated Notes under a shelf registration. The Notes are not redeemable prior to maturity. The 8.875% Notes, issued under a separate registration statement, and the 11.125% Notes are not redeemable prior to maturity. On March 26, 1987, KeyCorp issued $75 million of 8.40% Subordinated Capital Notes due 1999 under an indenture dated March 1, 1987, between KeyCorp and Chemical Bank, as Trustee. The Notes are unsecured obligations of KeyCorp and will, at maturity, be exchanged for Capital Securities having a market value equal to the principal amount of the Notes. Proceeds of this issue were used primarily to fund the acquisition of Seattle Trust & Savings Bank in July 1987. On June 29, 1992, KeyCorp issued $125 million of 8.00% Subordinated Notes. Proceeds from these twelve-year notes were used to redeem without penalty all of its 11.25% Senior Notes prior to maturity. Proceeds were also employed to provide capital for Key Bank of Washington. This capital infusion was made in anticipation 81 84 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED of Key Bank of Washington's purchase of 48 former Security Pacific Bank branches from BankAmerica on September 3, 1992. In 1989, the Ameritrust Corporation Employees' Savings and Investment Plan (the "Plan") was amended to include a leveraged employee stock ownership plan ("ESOP"). To fund the ESOP, Ameritrust borrowed $71.7 million from several institutional investors through the placement of unsecured notes totaling $22.8 million (the "8.33% Notes") and $48.9 million (the "8.48% Notes"). The interest on those notes totaled $6.0 million in each of the years 1993, 1992 and 1991. The ESOP trustee used the proceeds to purchase 5.8 million shares of Ameritrust common stock. These shares, as converted in the merger with Society, are held by the ESOP trustee for matching employee contributions to the Plan. The net difference between the cost of the treasury shares sold to the ESOP trustee and their market value was recorded as a reduction to retained earnings. Except for the repayment schedule, the loans to the ESOP trustee are on substantially similar terms as the borrowings from the institutional investors and, in addition, are secured by the unallocated shares held by the ESOP trustee. The ESOP trustee will repay the loans from KeyCorp using corporate contributions made by the Plan for that purpose and dividends on the Common Shares acquired with the loans. The amount of dividends on the ESOP shares used for debt service by the ESOP trustee totaled $3.9 million in 1993, $3.1 million in 1992 and $1.8 million in 1991. As contributions and dividends are received, a portion of the shares acquired with the loans will be allocated to Plan participants. Interest income recognized on loans to the ESOP trustee is netted against the interest expense incurred on the notes payable to the institutional investors. KeyCorp's receivable from the ESOP trustees, representing deferred compensation to the Corporation's employees, has been recorded as a separate reduction of shareholders' equity. SNB issued $200 million of 7.85% Subordinated Notes on November 3, 1992, and $200 million of 6.75% Subordinated Notes on June 16, 1993. SNB also issued a 10% Note in connection with the sale of branch offices and loans resulting from the merger with Ameritrust. None of these notes may be redeemed prior to maturity. The 8.625% Notes due 1996 were redeemed at par plus accrued interest on June 30, 1993, and the 9.56% Note due 1995 was assumed by the purchaser in connection with the sale of Ameritrust Texas Corporation on September 15, 1993. On May 6, 1993, and May 27, 1993, KeyCorp redeemed prior to maturity, and without penalty, all of its floating rate subordinated notes due 1997 and all of its 7.75% debentures due through 2002, respectively. Industrial revenue bonds issued by affiliate banks have varying maturities extending to the year 2009 and had weighted average annual interest rates of 7.14% and 7.19%, respectively, at December 31, 1993 and 1992. Other long-term debt at December 31, 1993 and 1992, consisted of capital lease obligations and various secured and unsecured obligations of corporate subsidiaries and had weighted average annual interest rates of 13.54% and 10.14%, respectively. Long-term debt qualifying as supplemental capital for purposes of calculating Tier II capital under Federal Reserve Board Guidelines amounted to $993.4 million and $799.1 million at December 31, 1993, and 1992, respectively. 11. SHAREHOLDERS' EQUITY COMMON SHARES AND PREFERRED STOCK In August 1989, KeyCorp's Board of Directors adopted a Shareholder Rights Plan ("Rights") under which each shareholder received one Right for each Common Share of KeyCorp. Each Right represents the right to purchase a Common Share of KeyCorp at a price of $65. The Rights become exercisable 20 days after a person or group acquires 15% or more of the outstanding shares or commences a tender offer that could result in such an ownership interest. Until the Rights become exercisable, they will trade with the Common Shares, and any transfer of the Common Shares will also constitute a transfer of associated Rights. When the Rights become exercisable, they will begin to trade separate and apart from the Common Shares. Twenty days after the occurrence of certain "Flip-In Events," each Right will become the right to purchase a Common Share of 82 85 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED KeyCorp for the then par value per share (now $1 per share) and the Rights held by a 15% or more shareholder will become void. KeyCorp may redeem these Rights at its option at $.005 per Right subject to certain limitations. Unless redeemed earlier, the Rights expire on September 12, 1999. On October 1, 1993, KeyCorp amended the Rights so that the Merger would not activate the provisions of the Rights. At December 31, 1993, KeyCorp had 10.0 million shares of $5 par value, non-voting preferred stock authorized of which 1,280,000 shares of Series B were outstanding represented by 6.4 million Depositary Shares. Each Depositary Share represents a one-fifth interest in a share of 10% Cumulative Preferred Stock, Series B, $125 liquidation preference per share. Preferred stock is reported on the accompanying consolidated balance sheet at its stated value of $125 per share. In the Merger, each of the Series B shares were converted into one share of 10% Cumulative Preferred Stock, Class A. On August 2, 1993, KeyCorp redeemed the 479,394 outstanding shares of Series A Preferred Stock at its stated value ($24 million) plus accumulated but unpaid dividends. On March 1, 1993, KeyCorp redeemed the 1.2 million outstanding shares of Fixed/Adjustable Rate Cumulative Preferred Stock at 103% of its stated value ($60 million), plus accumulated but unpaid dividends. KeyCorp effected a two-for-one stock split on March 22, 1993, by means of a 100% stock dividend. All relevant Common Share amounts, per Common Share amounts and related data in this report have been adjusted to reflect this split. In connection with the Merger, at a special meeting held February 16, 1994, shareholders increased the authorized number of shares of KeyCorp to 926.4 million, of which 1.4 million are shares of 10% Cumulative Preferred Stock, Class A, par value $5 per share; 25.0 million are shares of Preferred Stock, par value $1 per share; and 900.0 million are Common Shares, par value $1 per share. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS KeyCorp maintains various incentive compensation plans which provide for its ability to grant stock options, stock appreciation rights, limited stock appreciation rights, restricted stock and performance shares to selected employees and directors. Generally, the terms of these plans stipulate that the exercise price of options may not be less than the fair market value of KeyCorp's Common Shares at the date the options are granted. Options granted expire not later than ten years and one month from the date of grant. Several option plans have been acquired through mergers. These plans have expired or were terminated, but unexercised options granted under the plans remain outstanding. At December 31, 1993 and 1992, options for Common Shares available for future grant totaled 1,237,965 and 1,233,958, respectively. The terms of KeyCorp's plans stipulate that stock appreciation rights may only be granted in tandem with stock options. The appreciation rights have the same terms as do the options, except that, upon exercise, the holder may receive either cash or shares for the excess of the current market value of KeyCorp's Common Shares over the options exercise price. Upon exercise of a stock appreciation right, the related option is surrendered. During 1993, all stock appreciation rights for which exercisability was limited to a period following a change in control of the Corporation were cancelled. 83 86 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The following table presents a summary of pertinent information with respect to KeyCorp's stock options and stock appreciation rights. STOCK OPTIONS
1993 1992 ------------------------- ------------------------- SHARES OPTION PRICE SHARES OPTION PRICE ---------- ------------ ---------- ------------ Outstanding at beginning of year........... 9,324,776 $ 3.36-32.06 8,457,547 $ 2.49-25.87 Granted.................................... 2,062,544 29.37-38.18 3,670,370 24.63-32.06 Assumed in acquisition..................... 9,008 4.69- 7.61 -- -- Exercised or surrendered................... 1,697,458 3.89-28.25 2,508,626 2.49-22.92 Lapsed or cancelled........................ 88,955 13.77-33.94 294,515 12.30-28.25 ---------- ---------- Outstanding at end of year (1)............. 9,609,915 3.36-38.18 9,324,776 3.36-32.06 ---------- ---------- Exercisable at end of year (2)............. 6,529,168 3.36-38.18 6,069,912 3.36-32.06 ---------- ---------- ---------- ----------
STOCK APPRECIATION RIGHTS
1993 1992 ------------------------- ------------------------- SHARES OPTION PRICE SHARES OPTION PRICE ---------- ------------ ---------- ------------ Outstanding at beginning of year........... 2,028,240 $11.69-28.25 1,828,708 $ 6.78-20.88 Granted.................................... 222,000 33.94 920,000 28.25 Exercised or surrendered................... 36,400 11.69-20.88 672,468 6.78-20.88 Lapsed or cancelled........................ 2,169,840 11.69-33.94 48,000 28.25 ---------- ---------- Outstanding at end of year (1)............. 44,000 11.69 2,028,240 11.69-28.25 ---------- ---------- Exercisable at end of year................. 44,000 11.69 49,000 11.69 ---------- ---------- ---------- ---------- (1) Ordinary options outstanding at December 31, 1992 include 1,979,240 shares granted in tandem with Limited SARs. (2) Ordinary options exercisable at December 31, 1992 include 1,107,240 shares granted in tandem with Limited SARs.
In 1991, KeyCorp's Board of Directors approved grants to certain officers of KeyCorp and its subsidiaries under the Career Equity Program ("Program"). The Program is designed to increase equity ownership by the participants, who make an initial investment and elect to have options automatically exercised at regular intervals when share value appreciation is present. At exercise, replacement option grants are made at the current market value. Shares received under the Program are restricted as to resale during the five-year period of the Program. 12. MERGER AND INTEGRATION CHARGES Merger and integration charges of $118.7 million ($80.6 million after tax, $.33 per Common Share), $92.7 million ($66.6 million after tax, $.29 per Common Share) and $93.8 million ($68.2 million after tax, $.29 per Common Share) were recorded in 1993, 1992 and 1991, respectively. The 1993 charges were incurred in connection with the March 1, 1994, merger of old KeyCorp into and with Society, while the 1992 charges related to the mergers with PSB and Ameritrust. The 1991 charges related to the merger with Ameritrust. The merger and integration charges included accruals for merger expenses, consisting primarily of investment banking and other professional fees directly related to the merger ($20.5 million); severance payments and other employee costs ($49.6 million); systems and facilities costs ($35.7 million); and other costs incident to the Merger ($12.9 million). These charges were recorded by the parent company in the fourth quarter of 1993 at which time management determined that it was probable that a liability for all such charges had been incurred and could be reasonably estimated. The merger and integration charges recorded in connection with the PSB and Ameritrust mergers in 1992, and the Ameritrust merger in 1991, were similar in nature. The above mergers are described in greater detail in Note 2, Mergers, Acquisitions and Divestitures, on page 71 of this report. 84 87 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 13. EMPLOYEE BENEFITS PENSION PLANS KeyCorp and its subsidiaries sponsor noncontributory pension plans covering substantially all employees. Benefits paid from these plans are based on age, years of service and compensation prior to retirement and are determined in accordance with defined formulas. The Corporation's funding policy is to contribute amounts to the plans which meet the minimum funding requirements set forth in the Employee Retirement Income Security Act (ERISA) of 1974, plus such additional amounts as the Corporation determines to be appropriate. The following table sets forth the status of the unfunded plans and the amounts recognized in the consolidated balance sheets:
DECEMBER 31, ----------------------- (in thousands) 1993 1992 --------------------------------------------------------- -------- -------- Accumulated benefit obligations, including vested benefits of $444,018 and $362,626...................... $454,831 $373,595 -------- -------- -------- -------- Fair value of plan assets, primarily listed stock and fixed income securities(1)............................. $614,139 $583,235 Projected benefit obligations............................ 502,614 433,509 -------- -------- Excess of fair value of plan assets over projected benefit obligations................................. 111,525 149,726 Unrecognized net loss (gain)............................. 56,834 (132) Unrecognized prior service benefit....................... (2,850) (3,809) Unrecognized net asset at January 1, 1986 being recognized over 15 years............................... (38,609) (45,405) -------- -------- Prepaid pension cost (included in other assets)........ $126,900 $100,380 -------- -------- -------- --------
(1)Including KeyCorp Common Shares valued at $27.8 million and $30.4 million at December 31, 1993 and 1992, respectively. The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of projected benefit obligations were 7.37% and 4.00%, respectively, at December 31, 1993, and 8.08% and 4.78%, respectively, at December 31, 1992. The weighted average expected long-term rate of return on pension assets used in determining net pension cost was 9.91% for 1993, 9.60% for 1992 and 9.69% for 1991. The Corporation also maintains several unfunded, non-qualified, supplemental executive retirement programs that provide additional defined pension benefits for certain officers. 85 88 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The following table sets forth the status of the unfunded plans and the amounts recognized in the consolidated balance sheets:
DECEMBER 31, ----------------------- (in thousands) 1993 1992 --------------------------------------------------------- -------- -------- Accumulated benefit obligations, including vested benefits of $47,288 and $35,300........................ $ 50,321 $ 36,211 -------- -------- -------- -------- Projected benefit obligations............................ $ 62,659 $ 42,414 Unrecognized prior service cost.......................... (5,352) (6,524) Unrecognized transition obligation....................... (3,864) (4,362) Unrecognized net loss.................................... (18,286) (6,868) Adjustment to recognize minimum liability................ 11,653 10,897 -------- -------- Accrued pension cost (included in other liabilities)... $ 46,810 $ 35,557 -------- -------- -------- --------
Net pension cost (income) for the funded and unfunded plans included the following components:
YEAR ENDED DECEMBER 31, ------------------------------------ (in thousands) 1993 1992 1991 - ----------------------------------------------------- ------- ------- -------- Service cost of benefits earned...................... $22,506 $21,424 $ 21,604 Interest cost on projected benefit obligations....... 39,098 34,687 33,487 Actual return on plan assets......................... (44,619) (51,773) (105,430) Net amortization and deferral........................ (14,229) (4,360) 55,480 ------- ------- -------- Net pension cost (income)....................... $ 2,756 $ (22) $ 5,141 ------- ------- -------- ------- ------- --------
In 1993, the Corporation recognized curtailment and settlement gains of $2.9 million resulting from the divestiture of ATC. Such amounts were included in the net gain from that divestiture. In 1992, the Corporation recognized curtailment gains of $7.2 million resulting from merger-related staff reductions. A portion of the retirement obligations associated with these reductions was settled by lump-sum cash distributions which resulted in settlement gains of $1.4 million and $3.0 million in 1993 and 1992, respectively. Both the curtailment and settlement gains related to the merger-related staff reductions are included in other noninterest income. OTHER POSTRETIREMENT BENEFIT PLANS The Corporation sponsors postretirement health care and life insurance plans that cover substantially all employees. The postretirement health care plans are nonfunded and contributory, with retirees' contributions adjusted annually to reflect certain cost-sharing provisions and benefit limitations. The postretirement life insurance plans are noncontributory. The Corporation has adopted a funding policy for one of its life insurance plans and annually contributes the service cost of benefits earned plus one-thirtieth of the unfunded accumulated postretirement benefit obligations. Effective January 1, 1993, the Corporation adopted the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This statement requires that employers recognize the cost of providing postretirement benefits over the employees' active service periods to the date they attain full eligibility for such benefits. Postretirement benefits costs for 1992 and 1991, which were recorded on a cash basis, have not been restated. Net postretirement benefits cost was $16.9 million in 1993, including $8.2 million due to adoption of the new standard, $7.7 million in 1992 and $6.6 million in 1991. 86 89 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Net post retirement benefits cost include the following components:
YEAR ENDED (in thousands) DECEMBER 31, 1993 ------------------------------------------------------------- ----------------- Service cost of benefits attributed to service............... $ 2,873 Interest cost on accumulated postretirement benefit obligations................................................ 8,713 Actual return on plan assets................................. (22) Amortization of transition obligation over 20 years.......... 5,372 Net amortization and deferral................................ (10) ----------------- Net postretirement benefits cost........................ $16,926 ----------------- -----------------
The following table sets forth the plans' combined funded status reconciled with the amount shown in the consolidated balance sheet:
YEAR ENDED (in thousands) DECEMBER 31, 1993 ------------------------------------------------------------- ----------------- Accumulated postretirement benefit obligations: Retirees................................................ $ (81,208) Fully eligible plan participants........................ (10,624) Other active plan participants.......................... (27,396) ----------------- (119,228) Fair value of plan assets.................................... 168 ----------------- Accumulated postretirement benefit obligations in excess of plan assets................................................ (119,060) Unrecognized transition obligation........................... 101,654 Unrecognized net loss........................................ 7,826 ----------------- Accrued postretirement benefits cost (included in other liabilities).......................................... $ (9,580) ----------------- -----------------
The assumed 1994 health care cost trend rate for Medicare-eligible retirees was 11.0% while that for non-Medicare-eligible retirees was 13.0%. Both rates are assumed to gradually decrease to 5.5% by the year 2009 and remain constant thereafter. Increasing the assumed health care cost trend rates by one percentage point in each future year would have an immaterial impact on postretirement benefits cost due to cost-sharing provisions and benefit limitations. The weighted average discount rate used in determining the accumulated postretirement benefit obligations was 7.4% at December 31, 1993. EMPLOYEE STOCK PURCHASE AND SAVINGS PLANS Substantially all of the Corporation's employees are covered under stock purchase and savings plans that are qualified under Section 401(k) of the Internal Revenue Code. Under provisions of these plans, employees may contribute 1% to 15% of eligible compensation, with up to 6% being eligible for matching contributions from the Corporation in the form of KeyCorp Common Shares. Under an annual discretionary profit sharing component, employees can receive additional matching employer contributions from the Corporation based on a formula established each year by KeyCorp's Board of Directors. Total expense associated with these plans was $40.4 million, $30.4 million and $29.0 million in 1993, 1992 and 1991, respectively. POSTEMPLOYMENT BENEFITS The Corporation adopted the provisions of SFAS No. 112, "Employers' Accounting for Postemployment Benefits," during 1993. This standard requires that employers who provide benefits to former or inactive employees after employment but before retirement recognize a liability for such benefits if specified conditions are met. Adoption of this standard increased noninterest expense by $4.0 million. Postemployment benefits for 1992 and 1991, which were recorded on a cash basis, were not restated. 87 90 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 14. INCOME TAXES Income taxes included in the consolidated statements of income are as follows:
YEAR ENDED DECEMBER 31, ---------------------------------- (in thousands) 1993 1992 1991 - --------------------------------------------- -------- -------- -------- Current payable: Federal................................. $289,987 $182,277 $ 99,485 State................................... 34,554 28,655 17,719 -------- -------- -------- 324,541 210,932 117,204 Deferred: Federal................................. 55,043 68,297 17,580 State................................... (5,612) 403 1,900 -------- -------- -------- 49,431 68,700 19,480 -------- -------- -------- Total income tax expense................ $373,972 $279,632 $136,684 -------- -------- -------- -------- -------- --------
The reasons for the differences between income tax expense and the amount computed by applying the statutory Federal tax rate to income before taxes are as follows:
YEAR ENDED DECEMBER 31, ---------------------------------- (in thousands) 1993 1992 1991 - --------------------------------------------- -------- -------- -------- Income before taxes times statutory tax rate(1).................................... $379,364 $294,139 $153,129 State income tax, net of Federal tax benefit.................................... 18,295 19,636 13,056 Amortization of non-deductible intangibles... 10,349 11,317 10,760 Tax-exempt interest income................... (40,610) (47,228) (52,073) Tax credits.................................. (4,184) (3,120) (2,825) Other........................................ 10,758 4,888 14,637 -------- -------- -------- Total income tax expense................... $373,972 $279,632 $136,684 -------- -------- -------- -------- -------- -------- - --------------- (1) 35% for 1993, 34% for 1992 and 1991.
The significant types of temporary differences that gave rise to net deferred income taxes include the provision for loan losses, lease income, merger and integration charges and writedown of other real estate owned. Significant components of deferred income taxes are as follows:
YEAR ENDED DECEMBER 31, ---------------------------------- (in thousands) 1993 1992 1991 - --------------------------------------------- -------- -------- -------- Provision for loan losses.................... $ (4,536) $ 8,164 $(24,957) Leasing income reported using the operating method for tax purposes.................... 101,859 66,304 49,699 Writedown of other real estate owned......... (14,105) (14,243) (6,100) Merger and integration charges............... (33,949) 17,050 (27,016) Other........................................ 162 (8,575) 27,854 -------- -------- -------- Deferred income tax expense................ $ 49,431 $ 68,700 $ 19,480 -------- -------- -------- -------- -------- --------
88 91 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Significant components of KeyCorp's deferred tax asset (liability) are as follows:
DECEMBER 31, ---------------------------------- (in thousands) 1993 1992 1991 - --------------------------------------------- -------- -------- -------- Provision for loan losses.................... $259,082 $263,531 $265,731 Leasing income reported using the operating method for tax purposes.................... (381,393) (282,006) (216,330) Writedown of other real estate owned......... 25,289 24,393 9,174 Merger and integration charges............... 48,677 14,700 26,827 Other........................................ (50,523) (61,216) (64,990) -------- -------- -------- Deferred tax asset (liability)............. $(98,868) $(40,598) $ 20,412 -------- -------- -------- -------- -------- --------
15. COMMITMENTS, CONTINGENT LIABILITIES AND OTHER DISCLOSURES LEGAL PROCEEDINGS In the ordinary course of business, KeyCorp and its subsidiaries are subject to legal actions which involve claims for substantial monetary relief. Based on information presently available to management and the Corporation's counsel, management does not believe that any legal actions, individually or in the aggregate, will have a material adverse effect on KeyCorp's consolidated financial condition. RESTRICTIONS ON CASH, DUE FROM BANKS, SUBSIDIARY DIVIDENDS AND LENDING ACTIVITIES Under the provisions of the Federal Reserve Act, depository institutions are required to maintain certain average balances in the form of cash or noninterest-bearing balances with the Federal Reserve Bank. Average reserve balances aggregating $1.1 billion in 1993 were maintained in fulfillment of these requirements. The principal source of income for the parent company is dividends from its affiliate banks. Such dividends are subject to certain restrictions as set forth in the national and state banking laws and regulations. At December 31, 1993, undistributed earnings of $535.4 million were free of such restrictions and available for the payment of dividends to the parent company. Loans and advances from banking affiliates to the parent company are also limited by law and are required to be collateralized. 16. FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURES The following disclosures are made in accordance with the provisions of SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," which requires the disclosure of fair value information about both on-and off-balance sheet financial instruments where it is practicable to estimate that value. Fair value is defined in SFAS No. 107 as the amount at which an instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. It is not the Corporation's intent to enter into such exchanges. In accordance with the provisions of SFAS No. 107, the estimated fair values of deposits, credit card loans and residential real estate mortgage loans do not take into account the fair values of long-term relationships, which are integral parts of the related financial instruments. The disclosed estimated fair values of such instruments would increase significantly if the fair values of the long-term relationships were considered. In cases where quoted market prices were not available, fair values were estimated using present value or other valuation methods, as described below. The use of different assumptions (e.g., discount rates and cash flow estimates) and estimation methods could have a significant effect on fair value amounts. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Corporation could realize in a current market exchange. Because SFAS No. 107 excludes certain financial instruments and all nonfinancial 89 92 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED instruments from its disclosure requirements, any aggregation of the fair value amounts presented would not represent the underlying value of the Corporation.
DECEMBER 31, 1993 DECEMBER 31, 1992 --------------------------- --------------------------- CARRYING ESTIMATED CARRYING ESTIMATED (in thousands) AMOUNT FAIR VALUE AMOUNT FAIR VALUE - ------------------------------------- ----------- ----------- ----------- ----------- ASSETS Cash and due from banks............ $ 2,777,438 $ 2,777,438 $ 3,079,737 $ 3,079,737 Short-term investments............. 107,219 107,219 985,502 985,502 Mortgage loans held for sale....... 1,325,338 1,325,338 938,541 938,541 Securities available for sale...... 1,726,828 1,794,845 2,458,641 2,518,320 Investment securities.............. 11,122,093 11,340,206 8,976,300 9,193,081 Loans, net of allowance............ 39,268,532 40,023,240 35,239,176 35,813,114 Liabilities Deposits........................... $46,499,148 $46,717,907 $43,433,065 $43,616,733 Federal funds purchased and securities sold under agreements to repurchase...................... 4,120,258 4,120,258 4,207,520 4,207,520 Other short-term borrowings........ 1,776,192 1,776,192 874,887 874,887 Long-term debt..................... 1,763,870 1,908,159 1,790,078 1,830,945
The following methods and assumptions were used in estimating the fair values of financial instruments presented in the preceding table and in the following paragraphs. For financial instruments with a remaining average life to maturity of less than six months, carrying amounts were used as an approximation of fair value. The carrying amounts reported for cash and due from banks, and short-term investments are their fair values. The carrying value of mortgage loans held for sale approximates fair value. Securities available for sale and investment securities were valued based on quoted market prices. Where quoted market prices were unavailable, fair values were based on quoted market prices of similar instruments. A discounted cash flow model was used to estimate the fair values for certain loans. Certain residential real estate loans and student loans held for sale were valued based on quoted market prices of similar loans offered or sold in recent securitization transactions. Lease financing receivables, although excluded from the scope of SFAS No. 107, were included in the estimated fair value for loans at their carrying amount. In circumstances in which the fair value of loans was not estimated, the carrying amount was used as a reasonable approximation of fair value. The fair values of certificates of deposit and of long-term debt were estimated based on discounted cash flows. Carrying amounts reported for other deposits and short-term borrowings were used as a reasonable approximation of their fair values. Interest rate swaps were valued based on discounted cash flow models and had a fair value of $57.2 million and $75.8 million at December 31, 1993 and 1992, respectively. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Corporation, mainly through its affiliate banks, is party to various financial instruments with off-balance sheet risk. The banks use these financial instruments in the normal course of business to meet the financing needs of their customers and to manage effectively their exposure to interest rate risk. The financial instruments used include commitments to extend credit, standby letters of credit, interest rate swap agreements, forward contracts, futures and options on financial futures, and interest rate cap and floor agreements. These instruments involve, to varying degrees, credit and interest rate risks in excess of amounts recognized in the Corporation's consolidated balance sheet. Credit risk is the possibility that a counterparty to a financial instrument will be unable to perform its contractual obligations. Market risk is the possibility that, due to changes in economic conditions, the Corporation's net interest income will be adversely affected. The Corporation mitigates its exposure to credit risk through internal controls over the extension of credit. These controls include the process of credit approval and review, the establishment of credit limits, and, when deemed necessary, securing collateral. The Corporation manages its exposure to market risk, in part, by using 90 93 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED off-balance sheet instruments to offset existing interest rate risk of its assets and liabilities, and by setting variable rates of interest on contingent extensions of credit. The following is a summary of the contractual or notional amount of each significant class of off-balance sheet financial instruments outstanding. The Corporation's maximum possible accounting loss from commitments to extend credit and from standby letters of credit equals the contractual amount of these instruments. The notional amount represents the total dollar volume of transactions and is significantly greater than the amount at risk.
DECEMBER 31, --------------------------- (in thousands) 1993 1992 - ---------------------------------------------------------------- ----------- ----------- FINANCIAL INSTRUMENTS WHOSE CONTRACTUAL AMOUNTS REPRESENT CREDIT AND/OR MARKET RISK Loan commitments: Credit card lines............................................. $ 4,561,794 $ 4,067,628 Home equity................................................... 2,690,127 1,940,505 Commercial real estate and construction....................... 1,184,443 866,816 Other......................................................... 8,382,207 7,655,666 ----------- ----------- Total loan commitments........................................ 16,818,571 14,530,615 Other commitments: Standby letters of credit..................................... 1,095,521 978,790 Commercial letters of credit.................................. 347,705 58,729 Loans sold with recourse...................................... 156,070 203,381 ----------- ----------- Total loan and other commitments.............................. $18,417,867 $15,771,515 ----------- ----------- ----------- ----------- FINANCIAL INSTRUMENTS WHOSE NOTIONAL OR CONTRACTUAL AMOUNTS EXCEED THE AMOUNT OF CREDIT AND/OR MARKET RISK When issued securities: Commitments to purchase....................................... $ 20,200 $ 1,200 Other......................................................... 4,152 115,697 Mortgage loan sale commitments.................................. 1,124,374 786,473 Mortgage loan options........................................... 68,000 63,000 Futures and options on financial futures........................ 688,541 428,742 Interest rate swap agreements................................... 9,573,171 5,649,563 Interest rate cap and floor agreements.......................... 102,026 207,630
KeyCorp's commitments to extend credit are agreements with customers to provide financing at predetermined terms as long as the customer continues to meet specified criteria. Loan commitments serve to meet the financing needs of the banks' customers, have fixed expiration dates or other termination clauses, and may require the payment of fees. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent actual future cash requirements of the Corporation. KeyCorp evaluates each customer's creditworthiness on a case-by-case basis. Standby letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. KeyCorp's mortgage banking affiliates originate and service residential mortgage loans to be sold in the secondary market. In years prior to 1992, residential mortgages were sold with provisions for recourse by companies acquired by KeyCorp. At December 31, 1993, the amount of such loans sold with recourse was $156.1 million. KeyCorp has not and does not sell residential mortgages with provisions for recourse. 91 94 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED KeyCorp's mortgage banking affiliates enter into forward sale agreements and option contracts to hedge against adverse movements in interest rates on mortgage loans held for sale. Forward sale agreements commit the affiliates to deliver mortgage loans in future periods; option contracts allow the affiliates to sell or purchase mortgage loans at a specified price, in future periods. The banks enter into interest rate swap agreements primarily to manage interest rate risk and to accommodate the business needs of customers. Under a typical swap agreement, one party pays a fixed rate of interest based on a notional amount to a second party, which pays to the first party a variable rate of interest based on the same notional amount. The swaps have an average maturity of 1.8 years, with selected swaps having fixed maturity dates through 2003. The following is a summary of the notional amounts of outstanding interest rate swap agreements:
December 31, 1993 --------------------------------------------------- Receive Pay Forward- (in millions) Fixed Fixed Basis Starting Total - ------------------------------ ------- ----- ----- -------- ------ "Portfolio"................... $7,559 $150 $150 $500 $8,359 Customer...................... 623 561 -- 30 1,214 ------- ----- ----- -------- ------ Total interest rate swaps... $8,182 $711 $150 $530 $9,573 ------- ----- ----- -------- ------ ------- ----- ----- -------- ------
The banks enter into interest rate cap and floor agreements in the management of their interest rate risk and to accommodate the business needs of customers. These financial instruments transfer interest rate risk at predetermined levels. The banks receive a fee as compensation for writing interest rate caps and floors. The interest rate risk from writing interest rate caps and floors is minimized by the banks through offsetting transactions. Financial futures contracts and options on financial futures provide for the delayed delivery or purchase of securities, interest rate instruments or foreign currency. The banks enter into forward contracts and options to hedge their interest rate risk and in connection with customer transactions, as well as to minimize the interest rate risk exposure of mortgage banking activities. 92 95 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 17. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY CONDENSED BALANCE SHEETS
DECEMBER 31, ------------------------- (in thousands) 1993 1992 - ------------------------------------------------------------- ---------- ---------- ASSETS Cash and due from banks.................................... $ 1,004 $ 827 Interest-bearing deposits with bank affiliates............. 481,000 344,000 Securities purchased from bank affiliates under resale agreements.............................................. 5,466 603 Investment securities...................................... 46,936 61,410 Loans and advances to subsidiaries: Banks and bank holding companies........................ 218,507 172,229 Nonbank subsidiaries.................................... 227,403 271,980 ---------- ---------- 445,910 444,209 Investment in subsidiaries: Banks and bank holding companies........................ 4,515,267 4,259,452 Nonbank subsidiaries.................................... 192,953 194,309 ---------- ---------- 4,708,220 4,453,761 Other assets............................................... 226,770 168,061 ---------- ---------- TOTAL ASSETS............................................ $5,915,306 $5,472,871 ---------- ---------- ---------- ---------- LIABILITIES Short-term borrowings...................................... $ 27,600 $ 120,000 Long-term debt............................................. 1,142,785 1,282,479 Accrued interest and other liabilities..................... 351,354 143,104 ---------- ---------- Total liabilities....................................... 1,521,739 1,545,583 SHAREHOLDERS' EQUITY......................................... 4,393,567 3,927,288 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $5,915,306 $5,472,871 ---------- ---------- ---------- ----------
CONDENSED STATEMENTS OF INCOME
DECEMBER 31, ---------------------------------------- (in thousands) 1993 1992 1991 - ------------------------------------------------------------- ---------- ---------- ---------- INCOME Dividends from subsidiaries: Banks and bank holding companies........................ $ 664,981 $ 218,764 $ 408,707 Nonbank subsidiaries.................................... 3,843 5,292 12,573 Management fees and interest income from subsidiaries...... 113,684 95,169 78,051 Other income............................................... 34,549 12,323 3,129 ---------- ---------- ---------- 817,057 331,548 502,460 EXPENSES Interest on borrowed funds................................. 97,584 84,613 74,859 Merger and integration charges............................. 118,718 77,380 18,139 Personnel and other expenses............................... 198,136 82,743 99,571 ---------- ---------- ---------- 414,438 244,736 192,569 Income before income tax benefit and equity in undistributed net income (loss) of subsidiaries......... 402,619 86,812 309,891 Income tax benefit......................................... 81,710 45,403 32,221 ---------- ---------- ---------- 484,329 132,215 342,112 Equity in undistributed net income (loss) of subsidiaries.... 225,597 459,883 (28,416) ---------- ---------- ---------- NET INCOME.............................................. $ 709,926 $ 592,098 $ 313,696 ---------- ---------- ---------- ---------- ---------- ----------
93 96 NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED CONDENSED STATEMENTS OF CASH FLOW
YEAR ENDED DECEMBER 31, ---------------------------------- (in thousands) 1993 1992 1991 - ------------------------------------------------- -------- -------- -------- OPERATING ACTIVITIES Net income..................................... $709,926 $592,098 $313,696 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes....................... (15,315) (63) (3,378) Gain on sale of subsidiary.................. (29,410) -- -- Net increase in other assets................ (38,037) (53,552) (6,492) Net increase in other liabilities........... 72,688 12,570 12,685 Amortization of intangibles................. 8,754 7,704 7,559 Net increase in accrued merger and integration charges....................... 78,261 18,930 12,114 Equity in undistributed net (income) loss of subsidiaries.............................. (225,597) (459,883) 28,416 Other operating activities, net............. 3,377 7,627 (179) -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES........ 564,647 125,431 364,421 INVESTING ACTIVITIES Proceeds from prepayments and maturities of investment securities....................... 8,523 8,404 30,915 Purchases of investment securities............. (5,929) (15,834) (46,510) Net (increase) decrease in security resale agreements.................................. (4,863) 237,974 (180,029) Net (increase) decrease in interest-bearing deposits.................................... (137,000) (273,071) 3,251 Net decrease (increase) in loans and advances to subsidiaries................ 116,676 (259,774) (206,115) Proceeds from sale of subsidiary............... 148,054 -- -- Purchase of subsidiary......................... (137,431) -- -- Purchases of premises and equipment............ (10,895) (3,317) (1,367) Increase in investments in subsidiaries........ (6,460) (24,893) (2,786) Other investing activities, net................ -- (2,442) (88) -------- -------- -------- NET CASH USED IN INVESTING ACTIVITIES............ (29,325) (332,953) (402,729) FINANCING ACTIVITIES Net increase (decrease) in short-term borrowings.................................. (92,400) 64,122 (224,528) Net proceeds from issuance of long-term debt... 305,100 451,655 222,630 Payments on long-term debt..................... (430,465) (115,630) (94,310) Purchase of treasury stock..................... -- -- (8,340) Net proceeds from issuance of preferred stock....................................... -- -- 154,656 Redemption of preferred stock.................. (85,770) -- -- Net proceeds from issuance of common stock..... -- -- 122,885 Net adjustment related to pooling of interests................................... -- (515) -- Proceeds from issuance of common stock pursuant to employee stock purchase, stock option and dividend reinvestment plans................. 28,238 39,442 41,084 Cash dividends................................. (262,528) (233,480) (182,906) Other financing activities, net................ 2,680 -- -- -------- -------- -------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES..................................... (535,145) 205,594 31,171 -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS.......................................... 177 (1,928) (7,137) CASH AND DUE FROM BANKS AT BEGINNING OF YEAR..... 827 2,755 9,892 -------- -------- -------- CASH AND DUE FROM BANKS AT END OF YEAR........... $ 1,004 $ 827 $ 2,755 -------- -------- -------- -------- -------- -------- - --------------- For the years ended December 31, 1993, 1992 and 1991, the parent company paid interest on borrowed funds of $98.1 million, $78.2 million and $70.6 million, respectively.
94 97 (A)(2) FINANCIAL STATEMENT SCHEDULES All financial statement schedules for Society Corporation and subsidiaries have been included in the consolidated financial statements or the related footnotes, or they are either inapplicable or not required. (A)(3) EXHIBITS* 3.1 Amended and Restated Articles of Incorporation of KeyCorp. Filed as Exhibit 7 to Form 8-A/A filed on February 25, 1994, and incorporated herein by reference. 3.2 Regulations of KeyCorp. Filed as Exhibit 6 to Form 8-A/A filed on February 25, 1994, and incorporated herein by reference. 4.1 Rights Agreement, dated as of August 25, 1989, between Society Corporation and First Chicago Trust Company of New York, as Rights Agent. Filed as Exhibit 1 to Form 8-A filed on August 29, 1989, and incorporated herein by reference. 4.2 First Amendment to Rights Agreement, dated as of February 21, 1991, between Society Corporation and First Chicago Trust Company of New York, as Rights Agent. Filed as Exhibit 2 to Form 8, filed on February 28, 1991, amending Registration Statement on Form 8-A filed August 29, 1989, and incorporated herein by reference. 4.3 Second Amendment to Rights Agreement, dated as of September 12, 1991, between Society Corporation and First Chicago Trust Company of New York, as Rights Agent. Filed as Exhibit 4 to Schedule 13D filed September 23, 1991, and incorporated herein by reference. 4.4 Resignation of First Chicago Trust Company of New York as Rights Agent and appointment of Society National Bank as Rights Agent effective July 1, 1992. Filed as Exhibit 4.4 to Form 10-K for the year ended December 31, 1992, and incorporated herein by reference. 4.5 Third Amendment to Rights Agreement, dated as of October 1, 1993, between Society Corporation and Society National Bank, as Rights Agent. Filed as Exhibit 4 to Schedule 13D filed on October 12, 1993, and incorporated herein by reference. 4.6 Deposit Agreement, dated July 27, 1991, by and between old KeyCorp and Chase Manhattan Bank. Filed as Exhibit 4(c) to old KeyCorp's Registration Statement on Form S-3 (Registration No. 33-40633), and incorporated herein by reference. 10.1 Society Corporation Management Incentive Compensation Plan (November 30, 1993 Restatement) 10.2 Society Corporation Long-Term Incentive Compensation Plan (November 30, 1993 Restatement) 10.3 Society Corporation Supplemental Retirement Plan (January 1, 1993 Amendment and Restatement). Filed as Exhibit 10.3 to Form 10-K for the year ended December 31, 1992, and incorporated herein by reference. 10.4 Society Corporation Excess Benefit Retirement Plan (April 26, 1990 Amendment and Restatement). Filed as Exhibit 10.4 to Form 10-K for the year ended December 31, 1990, and incorporated herein by reference. 10.5 Society Corporation Supplemental Stock Purchase and Savings Plan (December 30, 1992 Amendment and Restatement). Filed as Exhibit 10.5 to Form 10-K for the year ended December 31, 1992, and incorporated herein by reference. 10.6 Compensation Continuance Agreement executed between Society Corporation and certain executive officers of Society Corporation as of December 5, 1990. Filed as Exhibit 10.5 to Form 10-K for the year ended December 31, 1990, and incorporated herein by reference. 10.7 Compensation Continuance Agreement executed between Society Corporation and certain executive officers of Society Corporation as of March 31, 1992. Filed as Exhibit 10.7 to Form 10-K for the year ended December 31, 1992, and incorporated herein by reference. 10.8 Compensation Continuation Agreements executed between Society Corporation and certain executive officers of Society Corporation as of June 24, 1993.
95 98 10.9 Amended and Restated Employment Agreement between Society Corporation and Victor J. Riley, Jr., dated December 20, 1993. Filed as Exhibit 99(f) to Registration Statement on Form S-4 filed on December 28, 1993 (Registration No. 33-51717), and incorporated herein by reference. 10.10 Amended and Restated Employment Agreement between Society Corporation and Robert W. Gillespie, dated December 20, 1993. 10.11 Employment Agreement between Society Corporation and Roger Noall, dated February 4, 1994. 10.12 Agreement dated August 16, 1990, between Society Corporation and George H. Cress. Filed as Exhibit 10.10 to Form 10-K for the year ended December 31, 1990, and incorporated herein by reference. 10.13 Society Corporation Director Deferred Compensation Plan (June 30, 1993 Restatement). 10.14 Society Corporation Compensation Arrangement Relating to Financial Planning and Tax Services. Filed as Exhibit 10.12 to Form 10-K for the year ended December 31, 1990, and incorporated herein by reference. 10.15 Society Corporation Corporate Universal Life Policy Program. 10.16 Society Corporation Supplemental Long Term Disability Program. 10.17 1985 St. Joseph Bancorporation, Inc. Master Stock Compensation Plan. Filed as Exhibit 10.26 to Form 10-K for the year ended December 31, 1989, and incorporated herein by reference. 10.18 Trustcorp, Inc. Excess Retirement Plan. Filed as Exhibit 10.27 to Form 10-K for the year ended December 31, 1989, and incorporated herein by reference. 10.19 Society Corporation 1977 Stock Option Plan, as amended. Filed as Exhibit 10.14 to Form 10-K for the year ended December 31, 1991, and incorporated herein by reference. 10.20 Society Corporation 1984 Stock Option Plan, as amended. Filed as Exhibit 10.15 to Form 10-K for the year ended December 31, 1991, and incorporated herein by reference. 10.21 Society Corporation 1984 Stock Appreciation Rights Plan, as amended. Filed as Exhibit 10.17 to Form 10-K for the year ended December 31, 1991, and incorporated herein by reference. 10.22 Centran Corporation 1984 Stock Option Plan, as amended. Filed as Exhibit 10.19 to Form 10-K for the year ended December 31, 1991, and incorporated herein by reference. 10.23 Society Corporation 1988 Stock Option Plan, as amended. 10.24 Society Corporation 1988 Stock Appreciation Plan, as amended. 10.25 1987 Stock Option Plan of Trustcorp, Inc. Filed as Exhibit 10.24 to Form 10-K for the year ended December 31, 1989, and incorporated herein by reference. 10.26 1981 Incentive Stock Option Plan of Toledo Trustcorp, Inc. Filed as Exhibit 10.25 to Form 10-K for the year ended December 31, 1989, and incorporated herein by reference. 10.27 Society Corporation 1991 Equity Compensation Plan. Filed as Exhibit 10 to Form 10-Q for the quarter ended March 31, 1991, and incorporated herein by reference. 10.28 First Amendment to Society Corporation 1991 Equity Compensation Plan. 10.29 Restatement of the Ameritrust Long-Term Incentive Plan as the Ameritrust Stock Option Plan Filed as Exhibit 10.25 to Form 10-K for the year ended December 31, 1991, and incorporated herein by reference. 10.30 Trust Agreement (Executive Benefits Rabbi Trust), dated November 3, 1988. Filed as Exhibit 10.26 to Form 10-K for the year ended December 31, 1991, and incorporated herein by reference. 10.31 Ameritrust Corporation Excess Benefit Plan. Filed as Exhibit 10.29 to Form 10-K for the year ended December 31, 1991, and incorporated herein by reference.
96 99 10.32 Ameritrust Corporation Deferred Compensation Plan. Filed as Exhibit 10.30 to Form 10-K for the year ended December 31, 1991, and incorporated herein by reference. **10.33 Old KeyCorp Supplemental Disability Benefit Plan (Specimen Document). **10.34 Old KeyCorp Performance Unit Plan. 10.35 Form of old KeyCorp Severance Agreement. 10.36 Form of old KeyCorp Employment Agreement. 10.37 Form of Amendment to Employment Agreement and Severance Agreement for Old KeyCorp executives. 10.38 Form of Amendment to Change of Control Agreement for Society executives, dated December 20, 1993. Filed as Exhibit 99(i) to Registration Statement on Form S-4 filed December 28, 1993 (Registration No. 33-51717), and incorporated herein by reference. 10.39 Form of Change of Control Agreement for old KeyCorp executives and Society executives, dated December 20, 1993. Filed as Exhibit 99(j) to Registration Statement on Form S-4 filed December 28, 1993 (Registration No. 33-51717), and incorporated herein by reference. 10.40 Old KeyCorp Stock Option Plan. 10.41 Old KeyCorp Directors' Stock Option Plan. 10.42 Old KeyCorp 1988 Stock Option Plan, as amended. **10.43 Old KeyCorp Executive Incentive Compensation Plan Description. **10.44 Old KeyCorp Deferred Compensation Plan for Directors, effective June 1, 1990. **10.45 Old KeyCorp Executive Deferred Compensation Plan, effective June 1, 1990. **10.46 Old KeyCorp Survivor Benefit Plan, effective September 1, 1990. **10.47 Old KeyCorp Directors' Survivor Benefit Plan, effective September 1, 1990. **10.48 Old KeyCorp Supplemental Retirement Benefit Plan for Key Executives, effective July 1, 1990 and restated August 16, 1990. **10.49 Old KeyCorp Umbrella Trust for Executives, between KeyCorp and National Bank of Detroit dated July 1, 1990. **10.50 Old KeyCorp Umbrella Trust for Directors, between KeyCorp and National Bank of Detroit dated July 1, 1990. **10.51 Employment Agreement between old KeyCorp and William H. Dougherty dated August 15, 1991. 11 Statement re: Computation of Per Share Earnings. 21 Subsidiaries of the Registrant. 23 Consent of Ernst & Young, Independent Auditors. 24 Powers of Attorney.
Society 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 10.51 constitute management contracts or compensatory plans or arrangements. - --------------- * Copies of these Exhibits have been filed with Securities and Exchange Commission. Shareholders may obtain a copy of any exhibit, upon payment of reproduction costs, by writing Mr. Jay S. Gould, Investor Relations, at 127 Public Square 01-127-0406, Cleveland, Ohio 44114-1306. ** These Exhibits are incorporated by reference from old KeyCorp's Current Report on Form 8-K dated March 9, 1992. 97 100 (b) Reports on Form 8-K October 13, 1993 -- Item 5. Other Events. On October 1, 1993, Society announced the signing of a definitive agreement providing for the merger of old KeyCorp into and with Society. November 19, 1993 -- Item 7. Financial Statements, Pro Forma Financial Information, and Exhibits. Society filed certain pro forma financial information that gives effect to the proposed merger of Society and old KeyCorp, and supplemental historical financial statements of old KeyCorp and its subsidiaries. No other reports on Form 8-K were filed during the three-month period ended December 31, 1993. 98 101 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTIONS 13 OR 15(D) OF THE SECURITIES AND 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 CARTER B. CHASE Executive Vice President, Secretary and General Counsel March 31, 1994 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.
SIGNATURE TITLE - ---------------------------------------------- *Victor J. Riley, Jr. Chairman of the Board, Chief Executive Officer, and Director (Principal Executive Officer) *Robert W. Gillespie President, Chief Operating Officer, and Director (Principal Operating Officer) *James W. Wert Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer) *Lee G. Irving Executive Vice President, Treasurer and Chief Accounting Officer (Principal Accounting Officer) *H. Douglas Barclay Director *William G. Bares Director *Albert C. Bersticker Director *Thomas A. Commes Director *Kenneth M. Curtis Director *John C. Dimmer Director *Lucie J. Fjeldstad Director *Stephen R. Hardis Director *Henry S. Hemingway Director *Charles R. Hogan Director *Lawrence A. Leser Director *Steven A. Minter Director *M. Thomas Moore Director *John C. Morley Director *Richard W. Pogue Director *Robert A. Schumacher Director *Ronald B. Stafford Director *Dennis W. Sullivan Director *Peter G. Ten Eyck, II Director *Nancy B. Veeder Director *By Carter B. Chase, attorney-in-fact March 31, 1994
99 EX-10.1 2 KEYCORP EX-10.1 1 SOCIETY CORPORATION MANAGEMENT INCENTIVE COMPENSATION PLAN (NOVEMBER 30, 1993 RESTATEMENT) The Society Corporation Management Incentive Compensation Plan, originally established effective as of January 1, 1986, and thereafter amended, is hereby amended and restated in its entirety effective November 30, 1993. Society Corporation hereby establishes this Management Incentive Compensation Plan for the purpose of providing an incentive to selected key officers of Society Corporation and its subsidiaries who are in a position to make a significant contribution to the success of Society Corporation and its subsidiaries and to enable Society Corporation and its subsidiaries to retain such personnel and to attract others of the highest caliber. ARTICLE I DEFINITIONS For the purposes hereof, the following words and phrases shall have the meanings indicated: 1. A "Beneficiary" shall mean any person designated by a Participant in accordance with the Plan to receive payment of all or a portion of any Incentive Compensation Award for which the Participant is eligible at the time of the Participant's death or the remaining balance of the Deferred Compensation Account in the event of the death of the Participant prior to receipt by such Participant of the entire amount credited to the Participant's Deferred Compensation Account. 2. The "Committee" shall mean the Compensation and Organization Committee of the Board of Directors of the Corporation, or another Committee of the Board of Directors hereafter succeeding to the responsibilities currently performed by the Compensation and Organization Committee. JCK92309 1 2 3. The "Corporation" shall mean Society Corporation, a bank holding company and its corporate successors, including the surviving corporation resulting from any merger of Society Corporation with any other corporation or corporations. 4. A "Deferred Compensation Account" shall mean the bookkeeping account on which the amount of the Incentive Compensation Award that is deferred, pursuant to Section 4 of Article II, shall be recorded and on which interest shall be credited in accordance with the Plan. 5. An "Eligible Employee" shall mean any officer of the Corporation or any Subsidiary who is determined by the Committee to be in a key management position that can affect the Corporation's results. 6. An "Incentive Compensation Award" shall mean the bonus which may be paid to a Participant pursuant to the Plan for any calendar year. 7. "Market Point" shall mean for any Participant for any calendar year the market point (as determined under the Corporation's salary administration program) of such Participant's job grade; provided, however, that if (a) the Corporation changes such Participant's job grade during any such calendar year, or such Participant is promoted, transferred, or otherwise moves into a different job grade during such calendar year, then such Market Point shall be calculated on a pro rata basis for each of the periods in which such job grades were in effect for such participant. 8. A "Participant" shall mean an Eligible Employee who is selected by the Committee to participate in the Plan. 9. The "Plan" shall mean this Management Incentive Compensation Plan, together with all amendments hereto. 10. "Plan Year" shall mean each calendar year for which the Plan remains in existence. JCK92309 2 3 11. "Subsidiary" shall mean a corporation organized and existing under the laws of the United States or of any state or the District of Columbia of which 80 percent or more of the issued and outstanding stock is owned by the Corporation or by a Subsidiary of the Corporation. 12. The "Target Incentive Compensation Pool" shall mean the aggregate amount, as determined in accordance with Article II of the Plan, of the aggregate individual target bonuses of Participants. 13. "Target Pool Percentage" shall mean the percentage determined pursuant to Article II, Section 2 below that will be used to establish the aggregate amount available for incentive compensation awards. ARTICLE II INCENTIVE COMPENSATION AWARDS 1. Participation. Annually, the Committee shall select the Participants in the Plan for the Plan Year. In general, the selection will be made prior to the beginning of each Plan Year or as soon thereafter as is reasonably possible; in addition, such selection may be made at any time during a Plan Year in the case of a newly hired employee or an employee that receives a new position. Not in limitation of the foregoing, the Committee shall have the authority to designate at the beginning of a Plan Year Eligible Employees in selected job grades as Participants, including any employee that may later be hired or promoted into any such job grade during the Plan Year, without further action on behalf on the Committee. Participants shall be notified of their selection in writing. 2. Incentive Compensation Pool. As soon as practical after the end of each Plan Year, the Committee shall determine the Target Pool Percentage to be applied to the Target Incentive Compensation Pool to establish the aggregate amount to be distributed as Incentive Compensation Awards. The guidelines for determining the percentage shall be determined by the Committee prior to the Plan Year or as soon thereafter as is reasonably possible. JCK92309 3 4 Such individual target bonuses are as follows:
Incentive Salary Target Bonus As a Group Grades Percent of Market Point --------- ------ ----------------------- I 50 50% II 49 45% III 48 40% IV 46-47 35% V 45 30% VI 44 25% VII 43 20% VIII 42 15% IX 41 and below 10%
Target bonuses for Participants who are eligible for part of the Plan Year or whose incentive group assignment changed during the Plan Year will be calculated on a pro rata basis for both the period of each incentive group assignment and the period during the Plan Year in which the Participant was an Eligible Employee. In the event that the Committee approves participation in the Plan for an individual whose job does not have an assigned salary grade, the Committee is authorized to select a Target Bonus percentage for such individual and base the calculation of Target Bonus and other calculations under this Plan on such individual's base salary. 3. Incentive Compensation Awards. The Committee will determine the amount of the Incentive Compensation Award for each Participant. No Incentive Compensation Award may exceed the Participant's target bonus for the Plan Year multiplied by the greater of (a) two hundred percent (200%) or (b) one hundred fifty percent (150%) of the Target Pool Percentage. The Committee may determine that a Participant shall receive no Incentive Compensation Award for the Plan Year. Ordinarily, Incentive Compensation Awards shall be made only to Participants who are actively employed at the end of the Plan Year; however, the Committee shall have the right to make Incentive Compensation Awards to Participants who retired or were disabled during a Plan Year, or to the Beneficiary(s) or estate of a Participant whose death occurred during a Plan Year. JCK92309 4 5 4. Payment of Incentive Compensation Award. A Participant who desires to defer payment of all or a portion of the Participant's Incentive Compensation Award for any Plan Year must complete and deliver an election agreement to the Corporation no later than December 31 of the year prior to the Plan Year; provided, however, that if a person becomes a Participant during a Plan Year, such election must be filed within thirty (30) days after the Participant is selected as a Participant. Such election agreement shall designate (a) the amount of the Participant's Incentive Compensation Award to be deferred (which must be either a fixed percentage of the Incentive Compensation Award, an amount in excess of a specific dollar amount, or up to a specific dollar amount), (b) the type of deferral, (which must be either a one year deferral, a three year deferral, or a retirement deferral), (c) for retirement deferrals, the date to which the Participant's Incentive Compensation Award shall be deferred (which must be either the first business day of the quarter following retirement or the first business day of January in the year following retirement), and (d) for retirement deferrals, whether the distribution of the Incentive Compensation Award is to be paid in a lump sum or installments, and if in installments, the number of annual or quarterly payments; if the Participant fails to file such an election agreement with the Corporation prior within the time periods set forth above, the Participant's Incentive Compensation Award shall be paid in cash. The Corporation shall provide each Participant with an appropriate election form at the time the Participant is notified of the Participant's selection for the applicable Plan Year. Such election shall be irrevocable. Amounts deferred shall be credited to the Deferred Compensation Account, and amounts paid in cash shall be paid, on or prior to March 15. If a Participant elects to defer payment of all or a portion of the Incentive Compensation Award, the Corporation shall establish a Deferred Compensation Account, and payment of the amounts reflected therein shall be in accordance with Article II, Section 6. In the event that a Participant dies prior to receiving an Incentive Compensation Award, the Corporation shall pay any such Incentive Compensation Award to the Participant's estate, unless the Participant designates in writing that payment shall be made to a Beneficiary or Beneficiaries; such JCK92309 5 6 designation of Beneficiary(s) shall be effective only if acknowledged in writing by a duly authorized representative of the Corporation. Such designation shall include the proportion to be paid to each Beneficiary and indicate the disposition of such share if a Beneficiary does not survive the Participant. Notwithstanding any other provision of the Plan, the Committee, in its sole discretion, shall have the authority to authorize payment or credit to a Deferred Compensation Account, whichever the Participants shall have selected, of all or a portion of all Incentive Compensation Awards prior to the end of the Plan Year, and if a portion, the Corporation shall pay or credit, whichever the Participants shall have selected, the remaining portion of the Award on or prior to March 15, as provided above. Notwithstanding any other provision of the Plan, the Committee, in its sole discretion, shall have the authority to require deferral of payment of all or a portion of all Incentive Compensation Awards due to any Plan Participant if the Committee determines that the Corporation would be denied a deduction for federal income tax purposes for such Award or the portion thereof by reason of Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder, if the Award or the portion thereof were not so deferred. Such deferred Incentive Compensation Awards, or the portion thereof, shall be treated as Incentive Compensation deferred under Section 5 below and shall be payable to the Participant at such time as the Committee, in its sole discretion, determines that such Award, or the portion thereof, would be so deductible, but not later than thirty (30) days following the fiscal year in which the Participant terminates employment with the Corporation and its subsidiaries. JCK92309 6 7 All payments of Incentive Compensation Awards shall be in cash from the general assets of the Corporation or a Subsidiary, and Participants shall have the status of general unsecured creditors of the Corporation. Incentive Compensation Awards payable under the Plan constitute a mere promise by the Corporation to make such payments in the future. Finally, it is the intention of the Corporation and the Participants that the Plan be unfunded for tax purposes and for the purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended. 5. Deferred Compensation Account. The amount of any Incentive Compensation Award that is deferred shall be treated as if it were set aside in a Deferred Compensation Account on the date the Incentive Compensation Award would otherwise have been paid in cash to the Participant. The balance of such Deferred Compensation Account shall be credited with interest computed quarterly (based on calendar quarters) on the lowest balance of the Deferred Compensation Account during each calendar quarter. The interest credited to the Account shall be based on an annual rate (the "Base Rate") equal to the highest annual rate paid by Society National Bank on new IRA certificates of deposit issued on the last business day of such quarter, or at such other rate as may be determined from time to time by the Committee. In the event that the Participant remains employed with the Corporation or one of its Subsidiaries until the Participant becomes eligible for retirement under the Corporation's retirement plan, death, or disability, the interest rate credited to that portion of the Participant's Deferred Incentive Compensation Account that relates to any Retirement Deferral made under Section 6 below, from and after January 1, 1993, shall be 2% in excess of the Base Rate (the "Bonus Rate"). The Corporation shall credit interest to the Deferred Compensation Account with respect to each calendar quarter on the first day of the following calendar quarter. Deferred Compensation Accounts maintained on behalf of Participants (or Beneficiaries of such Participants) who retired, died, or became disabled prior to January 1, 1993, shall in no event be entitled to have interest credited at the Bonus Rate. The JCK92309 7 8 Corporation may establish separate Deferred Compensation Accounts for a particular Participant to properly account for amounts deferred under different alternatives and amounts deferred during different years. 6. Payment of Deferred Compensation Account. Payment of the Deferred Compensation Account shall be made, depending upon the alternative selected by the Participant, as follows: (a) One Year Deferral. The Deferred Compensation Account shall be paid in a single cash lump sum on the first business day of the second calendar year following the Plan Year in which the Incentive Compensation Award was earned. (b) Three Year Deferral. The Deferred Compensation Account shall be paid in three substantially equal consecutive annual installments, on the first business day of the second through fourth calendar years following the Plan Year in which the Incentive Compensation Award was earned. (c) Retirement Deferral. If a Participant retires or terminates employment due to disability, the amount of a Deferred Compensation Account paid under this alternative shall be paid to the Participant in such a manner and at such time or times as the Participant selects pursuant to Article II, Section 4 above. The amount of any Deferred Compensation Account of a Participant whose employment terminates for any reason other than retirement or disability shall be paid to the Participant in a lump sum within ninety days after the date of termination of employment. Notwithstanding the foregoing, the Committee may, in its sole discretion, accelerate the making of payment of all or any portion of the amount of the Deferred Compensation Account to a Participant in the case of any of the following events: (a) An "unforeseeable emergency" of the Participant, which shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the individual if such withdrawal were not permitted. The amount of the withdrawal that is permitted under this subparagraph (a) is limited to the amount necessary to meet such emergency. JCK92309 8 9 (b) Upon the written request of a Participant, provided that (i) the Committee determines that such withdrawal would not be adverse to the best interests of the Corporation, (ii) the request is made ninety (90) days before the requested date of payment, (iii) the Participant forfeits an amount equal to 10% of the amount requested, and (iv) the Participant is disqualified from deferring the next Incentive Compensation Award for which the Participant would be eligible to defer under this Plan. (c) Upon the written request of a Participant, provided that (i) the Participant agrees to apply all of the net distributed amount (after reduction for applicable payroll taxes) to purchase the Corporation's Common Shares through the exercise of stock options or otherwise, (ii) the Participant agrees to hold the Corporation's Common Shares so purchased for a period of time determined by the Committee, which period shall terminate no earlier than the Participant's termination of employment with the Corporation and any Subsidiary, and (iii) the Participant agrees to such other limitations, restrictions, and potential penalties as determined by Committee to be applicable in connection with the distribution. Payment of any such withdrawal under this Section 6 will be paid out of one year deferrals first, three year deferrals second, and retirement deferrals last, and paid out among three year deferrals pro rata if there is more than one such deferral. 7. Death of Participant. In the event of the death of a Participant prior to receipt by such participant of the entire amount of the Participant's Deferred Compensation Account, such amount shall be paid to the Beneficiary or Beneficiaries designated in writing by the Participant; in the event there is more than one Beneficiary, such designation shall include the proportion to be paid to each Beneficiary and indicate the disposition of such share if a Beneficiary does not survive the Participant. The Committee, in its sole discretion, shall determine whether payment of the remaining amount of a Participant's Deferred Compensation Account shall be in a lump sum or in a number of substantially equal quarterly or annual installments over a period not to exceed ten years; such payments shall commence on such date within one year of the date of the Participant's death as shall be designated by the Committee. A Participant's Beneficiary designation may be changed at any time prior to the Participant's JCK92309 9 10 death by written notice signed by the Participant and received by the Corporation. The Beneficiary designation on file with the Corporation at the time of the Participant's death which bears the latest date shall govern. In the absence of a Beneficiary designation or the failure of all Beneficiaries to survive the Participant, the remaining amount of the Deferred Compensation Account shall be paid to the Participant's estate in a lump sum within ninety days after the appointment of an executor or administrator. The Committee may, in its sole discretion, accelerate the making of payment to a Beneficiary of the amount of a Deferred Compensation Account in the event of unforeseeable emergency as defined in Section 6 above. In the event of the death of a Beneficiary after payments to the Beneficiary have commenced, the remaining amount of the Deferred Compensation Account payable to such Beneficiary shall be paid to such Beneficiary's estate in a lump sum within ninety days after the appointment of an executor or administrator. JCK92309 10 11 ARTICLE III ADMINISTRATION The Corporation shall be responsible for the general administration of the Plan and for carrying out the provisions hereof. The Committee shall have all such powers as may be necessary to carry out its duties under the Plan, including the power to determine all questions relating to eligibility for and the amount in a Deferred Compensation Account, all questions pertaining to claims for benefits and procedures for claim review, and the power to resolve all other questions arising under the Plan, including any questions of construction. The Corporation and the Committee may take such further action as the Corporation and the Committee shall deem advisable in the administration of the Plan. The actions taken and the decisions made by the Corporation and the Committee hereunder shall be final and binding upon all interested parties. In accordance with the provisions of Section 503 of the Employee Retirement Income Security Act of 1974, as amended, the Committee shall provide a procedure for handling claims of Participants or their Beneficiaries under this Plan. Such procedure shall be in accordance with regulations issued by the Secretary of Labor and shall provide adequate written notice within a reasonable period of time with respect to the denial of any such claims as well as a reasonable opportunity for a full and fair review by the Committee of any such denial. Notwithstanding anything to the contrary contained herein, the Corporation shall be the "administrator" for the purpose of the Employee Retirement Income Security Act of 1974, as amended. Any action authorized under the Plan to be done by the Committee may be done by the Board of Directors or any other Board Committee authorized by the Board of Directors. JCK92309 11 12 ARTICLE IV AMENDMENT AND TERMINATION The Corporation reserves the right to amend or terminate the Plan at any time by action of its Board of Directors or a duly authorized Committee thereof; provided, however, that no such action shall adversely affect any Participant or Beneficiary with respect to the amount credited to a Deferred Compensation Account. ARTICLE V MISCELLANEOUS 1. Non alienation of Deferred Compensation Account. No Participant or Beneficiary shall encumber or dispose of the right to receive any payment of the amount of a Deferred Compensation Account hereunder without the written consent of the Corporation. If a Participant or Beneficiary without the written consent of the Corporation attempts to assign, transfer, alienate, or encumber the right to receive the amount of a Deferred Compensation Account hereunder or permits the same to be subject to alienation, garnishment, attachment, execution, or levy of any kind, then the Committee, in its discretion, may hold or pay such amount or any part thereof to or for the benefit of such Participant or Beneficiary, the Participant's or Beneficiary's spouse, children, blood relatives, or other dependents, or any of them, in such manner and in such proportions as the Committee may consider proper. Any such application of the amount of a Deferred Compensation Account may be made without the intervention of a guardian. The receipt by the payee(s) of such payment(s) shall constitute a complete acquittance to the Corporation with respect thereto, and neither the Corporation, nor any Subsidiary, nor the Committee, nor any officer, member, employee, or agent thereof, shall have any responsibility for the proper application thereof. JCK92309 12 13 2. Plan Non contractual. 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 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 Participants shall remain subject to discharge to the same extent as if the Plan had never been put into effect. 3. Interest of Participants and Beneficiary. The obligation of the Corporation under the Plan to make payments of Incentive Compensation Awards and amounts reflected on Deferred Compensation Accounts merely constitute the unsecured promise of the Corporation to make payments from its general assets as provided herein, and no Participant or Beneficiary shall have any interest in, or a lien or prior claim upon, any property of the Corporation or any Subsidiary. 4. 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. 5. Absence of Liability. No member of the Board of Directors of the Corporation or a Subsidiary or the Committee or any officer of the Corporation or a Subsidiary shall be liable for any act or action hereunder, whether of commission or omission, taken by any other member, or by any officer, agent, or employee, or, except in circumstances involving his bad faith or willful misconduct, for anything done or omitted to be done by himself. 6. Severability. The invalidity or unenforceability of any particular provisions 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. JCK92309 13 14 7. Governing Law. The provisions of the Plan shall be governed and construed in accordance with the laws of the State of Ohio. EXECUTED at Cleveland, Ohio as of the 30th day of November, 1993. SOCIETY CORPORATION By: _________________________ Roger Noall Vice Chairman and Chief Administrative Officer
JCK92309 14 EX-10.2 3 KEYCORP EX-10.2 1 SOCIETY CORPORATION LONG TERM INCENTIVE COMPENSATION PLAN (NOVEMBER 30, 1993 RESTATEMENT) The Society Corporation Long Term Incentive Compensation Plan, originally established effective as of January 1, 1987, is hereby amended and restated in its entirety effective November 30, 1993. Society Corporation hereby establishes this Long Term Incentive Compensation Plan for the purpose of providing an incentive to selected senior officers of Society Corporation and its subsidiaries who have major responsibility for the long term performance of Society Corporation and its Subsidiaries. ARTICLE I DEFINITIONS For the purposes hereof, the following words and phrases shall have the meanings indicated: 1. A "Beneficiary" shall mean any person designated by a Participant in accordance with the Plan to receive payment of all or a portion of any Incentive Compensation Award for which the Participant is eligible at the time the Participant's death or the remaining balance of the Deferred Compensation Account in the event of the death of the Participant prior to receipt by such Participant of the entire amount credited to the Participant's Deferred Compensation Account. JCK92310 1 2 2. "Change in Control" shall be deemed to have occurred if at any time or from time to time: (i) there is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form, or report), each as adopted under the Securities Exchange Act of 1934, as amended, disclosing the acquisition of 25% or more of the voting stock of the Corporation in a transaction or series of transactions by 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), (ii) during any period of 24 consecutive calendar months, individuals who at the beginning of such period constitute the directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election of each new director of the Corporation was approved or recommended by the vote of at least two-thirds of the directors of the Corporation then still in office who were directors of the Corporation at the beginning of any such period, (iii) The Corporation merges with or into or consolidates with another corporation and, after giving effect to such merger or consolidation, less than sixty percent (60%) of the then outstanding voting securities of the surviving or resulting corporation represent or were issued in exchange for voting securities of the Corporation outstanding immediately prior to such merger or consolidation, (iv) 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, or (v) the shareholders of the Corporation shall approve any plan or proposal for the liquidation or dissolution of the Corporation; JCK92310 2 3 Notwithstanding the foregoing, the Corporation's merger with KeyCorp shall not constitute a Change in Control hereunder. 3. The "Committee" shall mean the Compensation and Organization Committee of the Board of Directors of the Corporation, or another Committee of the Board of Directors hereafter succeeding to the responsibilities currently performed by the Compensation and Organization Committee. 4. "Compensation Period" shall mean a period consisting of three consecutive calendar years. 5. The "Corporation" shall mean Society Corporation, a bank holding company and its corporate successors, including the surviving corporation resulting from any merger of Society Corporation with any other corporation or corporations. 6. A "Deferred Compensation Account" shall mean the bookkeeping account on which the amount of the Incentive Compensation Award that is deferred, pursuant to Section 4 of Article II, shall be recorded and on which interest shall be credited in accordance with the Plan. 7. An "Eligible Employee" shall mean any senior officer of the Corporation or of any Subsidiary who is determined by the Committee to have major responsibility for the long term performance of the Corporation. 8. An "Incentive Compensation Award" shall mean the bonus which may be paid to a Participant pursuant to the Plan for any Compensation Period. JCK92310 3 4 9. "Market Point" shall mean for any Participant the average market point (as determined under the Corporation's salary administration program) of such Participant's job grade during the applicable Compensation Period; provided, however, that if (a) the Corporation changes such Participant's job grade during any such Compensation Period, or such Participant is promoted, transferred, or otherwise moves into a different job grade during such Compensation Period then such Market Point shall be calculated on a pro rata basis for each of the periods in which such job grades were in effect for such participant. 10. A "Participant" shall mean an Eligible Employee who is selected by the Committee to participate in the Plan. 11. The "Plan" shall mean this Long Term Incentive Compensation Plan, together with all amendments hereto. 12. "Subsidiary" shall mean a corporation organized and existing under the laws of the United States or of any state or the District of Columbia of which 80 percent or more of the issued and outstanding stock is owned by the Corporation or by a Subsidiary of the Corporation. ARTICLE II INCENTIVE COMPENSATION AWARDS 1. Participation. Annually, the Committee shall select the Participants in the Plan for the Compensation Period and shall determine whether such Participant shall be in Incentive Group I or Incentive Group II. The selection will be made prior to the beginning of each Compensation Period or as soon thereafter as is reasonably possible; additional selections for such Compensation Period may not thereafter be made. Participants shall be notified of their selection in writing. JCK92310 4 5 2. Incentive Compensation Awards. The Incentive Compensation Awards are determined by applying a percentage to each Participant's target bonus. The formula for determining the percentage shall be based on return on common equity of the Corporation for the Compensation Period (i.e., average annual return on common equity) and such formula shall be established by the Committee prior to the beginning of a Compensation Period or as soon thereafter as is reasonably possible. The Committee, in its sole discretion, may discontinue the participation of an individual Participant; any such discontinued Participant shall receive a pro rata Incentive Compensation Award based on a fraction the numerator of which is the number of months of the Compensation Period that are completed prior to such discontinuance and the denominator of which is 36. Individual target bonuses are as follows:
TARGET BONUS AS A INCENTIVE GROUP PERCENT OF MARKET POINT --------------- ----------------------- I 25% II 20%
In the event that the Committee approves participation in the Plan for an individual whose job does not have an assigned salary grade, the Committee is authorized to base the calculation of Target Bonus and other calculations under this Plan on such individual's base salary. As soon as practical after the end of each Compensation Period, the Corporation shall compute the amount of the Incentive Compensation Awards payable under the Plan for such Compensation Period in accordance with the percentage determined by the formula. The Committee, after consulting with the Chief Executive Officer or in its sole discretion, reserves the right to increase or decrease by the same percentage the Incentive Compensation Awards of all Participants on the basis of extraordinary circumstances that affected the Corporation's JCK92310 5 6 financial performance; provided, however, if there occurs a Change in Control, such authority to increase or decrease the Incentive Compensation Awards shall not apply to any Incentive Compensation Award, or any portion of Incentive Compensation Award, earned on or prior to such Change in Control, but not yet paid or deferred. 3. Payment upon death, disability, and plan termination. Participants who retired or were disabled during a Compensation Period, or the Beneficiary(s) or the estate of a Participant whose death occurred during a Compensation Period, shall receive a pro rata Incentive Compensation Award; such pro rata payment shall be based on a fraction the numerator of which is the number of months of the Compensation Period that are completed prior to such change in status and the denominator of which is 36. If a Participant terminates employment during the Compensation Period for any reason other than retirement, disability, or death, no Incentive Compensation Award shall be payable to such Employee. In the event that a Participant dies prior to receiving an Incentive Compensation Award, the Corporation shall pay any such Incentive Compensation Award to the Participant's estate, unless the Participant designates in writing that payment shall be made to a Beneficiary or Beneficiaries; such designation of Beneficiary(s) shall be effective only if acknowledged in writing by a duly authorized representative of the Corporation. Such designation shall include the proportion to be paid to each Beneficiary and indicate the disposition of such share if a Beneficiary does not survive the Participant. JCK92310 6 7 In the event of any termination of this Plan for any reason, the guidelines or formulas for determining the Incentive Compensation Awards shall be based on the performance of the Corporation from the beginning of such Compensation Period to the calendar month end occurring just prior to the effective date of the termination of the Plan. In the event of any such termination of the Plan, the Committee shall have no right to increase or decrease the Incentive Compensation Awards computed in accordance with this Section and Article II, Section 2 above. If this Plan is terminated during a Compensation Period for any reason, including but not limited to a termination caused by a Change In Control, each Participant shall receive a pro rata Incentive Compensation Award based on the number of full months of the Compensation Period that are completed prior to such termination of the Plan. Notwithstanding any other provision of this Plan, in the event of any such termination of the Plan, each Participant shall receive a pro rata Incentive Compensation Award for each applicable Compensation Period in cash within sixty days after the effective date of such Plan termination. In the event of any such plan termination, the Corporation shall base such pro rata Incentive Compensation Awards on the Corporation's performance for each full year of any current Compensation Period and, for the year in which the termination occurs, on the number of full months of such year prior to the effective date of such Plan termination; the Corporation shall retain the services of the independent public accountants used by the Corporation (prior to the plan termination) to determine the financial performance for such partial year. The Corporation shall then calculate such pro rata Incentive Compensation Award using the Corporation's performance for each such full year and such partial year as determined above (i.e., average monthly return on equity). JCK92310 7 8 4. Payment of Incentive Compensation Award. A Participant who desires to defer payment of all or a portion of the Participant's Incentive Compensation Award for a specific Compensation Period must complete and deliver an election agreement to the Corporation within thirty (30) days after the Participant is selected as a participant for such Compensation Period. Such election agreement shall designate (a) the amount of the Participant's Incentive Compensation Award to be deferred (which must be either a fixed percentage of the Award, an amount in excess of a specific dollar amount, or up to a specific dollar amount), (b) the type of deferral (which must be a one year deferral, a three year deferral, or a retirement deferral), (c) for retirement deferrals, the date to which the Participant's Incentive Compensation Award shall be deferred (which must be either the first business day of the quarter following retirement or the first business day of January in the year following retirement), and (d) for retirement deferrals, whether the distribution of the Incentive Compensation Award is to be paid in a lump sum or installments, and if in installments, the number of annual or quarterly payments; if the participant fails to file such an election agreement with the Corporation within such thirty (30) day period, the Participant's Incentive Compensation Award shall be paid in cash. The Corporation shall provide each Participant with an appropriate election form at the time the Participant is notified of the Participant's selection for the applicable Compensation Period. Such election shall be irrevocable. Amounts deferred shall be credited to the Deferred Compensation Account, and amounts paid in cash shall be paid, on or prior to March 15 of the calendar year following the end of the Compensation Period. If a Participant elects to defer payment of all or a portion of the Incentive Compensation Award, the Corporation shall establish a Deferred Compensation Account, and payment of the amounts reflected therein shall be in accordance with Article II, Section 6. JCK92310 8 9 Notwithstanding any other provision of the Plan, the Committee, in its sole discretion, shall have the authority to authorize payment or credit to a Deferred Compensation Account, whichever the Participants shall have selected, of all or a portion of all Incentive Compensation Awards prior to the end of the Compensation Period, and if a portion, the Corporation shall pay or credit, whichever the Participants shall have selected, the remaining portion of the Award on or prior to March 15, as provided above. Notwithstanding any other provision of the Plan, the Committee, in its sole discretion, shall have the authority to require deferral of payment of all or a portion of all Incentive Compensation Awards due to any Plan Participant if the Committee determines that the Corporation would be denied a deduction for federal income tax purposes for such Award or the portion thereof by reason of Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder, if the Award or the portion thereof were not so deferred. Such deferred Incentive Compensation Awards, or the portion thereof, shall be treated as Incentive Compensation deferred under Section 5 below and shall be payable to the Participant at such time as the Committee, in its sole discretion, believes that such Award, or the portion thereof, would be so deductible, but not later than thirty (30) days following the fiscal year in which the Participant terminates employment with the Corporation and its subsidiaries. All payments of Incentive Compensation Awards shall be in cash from the general assets of the Corporation or a Subsidiary, and Participants shall have the status of general unsecured creditors of the Corporation. Incentive Compensation Awards payable under the Plan constitute a mere promise by the Corporation to make such payments in the future. Finally, it is the intention of the Corporation and the Participants that the Plan be unfunded for tax purposes and for the purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended. JCK92310 9 10 5. Deferred Compensation Account. The amount of any Incentive Compensation Award that is deferred shall be treated as if it were set aside in a Deferred Compensation Account on the date the Incentive Compensation Award would otherwise have been paid in cash to the Participant. The balance of such Deferred Compensation Account shall be credited with interest computed quarterly (based on calendar quarters) on the lowest balance of the Deferred Compensation Account during each calendar quarter. The interest credited to the Account shall be based on an annual rate (the "Base Rate") equal to the highest annual rate paid by Society National Bank on new IRA certificates of deposit issued on the last business day of such quarter, or at such other rate as may be determined from time to time by the Committee. In the event that the Participant remains employed with the Corporation or one of its Subsidiaries until the Participant becomes eligible for retirement under the Corporation's retirement plan, death, or disability, the interest rate credited to that portion of the Participant's Deferred Compensation Account that relates to any Retirement Deferral made under Section 6 below, from and after January 1, 1993, shall be 2% in excess of the Base Rate (the "Bonus Rate"). The Corporation shall credit interest to the Deferred Compensation Account with respect to each calendar quarter on the first day of the following calendar quarter. Deferred Compensation Accounts maintained on behalf of Participants (or Beneficiaries of such Participants) who retired, died, or became disabled prior to January 1, 1993, shall in no event be entitled to have interest credited at the Bonus Rate. The Corporation may establish separate Deferred Compensation Accounts for a particular Participant to properly account for amounts deferred under different alternatives and amounts deferred under different years. 6. Payment of Deferred Compensation Account. Payment of the Deferred Compensation Account shall be made, depending upon the alternative selected by the Participant, as follows: JCK92310 10 11 (a) One Year Deferral. The Deferred Compensation Account shall be paid in a single cash lump sum on the first business day of the second calendar year following the Compensation Period in which the Incentive Compensation Award was earned. (b) Three Year Deferral. The Deferred Compensation Account shall be paid in three substantially equal consecutive annual installments, on the first business day of the second through fourth calendar years following the Compensation Period in which the Incentive Compensation Award was earned. (c) Retirement Deferral. If a Participant retires or terminates employment due to disability, the amount of a Deferred Compensation Account paid under this alternative shall be paid to the Participant in such a manner and at such time or times as the Participant selects pursuant to Article II, Section 4 above. The amount of any Deferred Compensation Account of a Participant whose employment terminates for any reason other than retirement or disability shall be paid to the Participant in a lump sum within ninety days after the date of termination of employment. Notwithstanding the foregoing, the Committee may, in its sole discretion, accelerate the making of payment of all or any portion of the amount of the Deferred Compensation Account to a Participant in the case of any of the following events: (a) An "unforeseeable emergency" of the Participant, which shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the individual if such withdrawal were not permitted. The amount of the withdrawal that is permitted under this subparagraph (a) is limited to the amount necessary to meet such emergency. (b) Upon the written request of a Participant, provided that (i) the Committee determines that such withdrawal would not be adverse to the best interests of the Corporation, (ii) the request is made ninety (90) days before the requested date of payment, (iii) the Participant forfeits an amount equal to 10% of the amount requested, and (iv) the Participant is disqualified from deferring the next Incentive Compensation Award for which the Participant would be eligible to defer under this Plan. JCK92310 11 12 (c) Upon the written request of a Participant, provided that (i) the Participant agrees to apply all of the net distributed amount (after reduction for applicable payroll taxes) to purchase the Corporation's Common Shares through the exercise of stock options or otherwise, (ii) the Participant agrees to hold the Corporation's Common Shares so purchased for a period of time determined by the Committee, which period shall terminate no earlier than the Participant's termination of employment with the Corporation and any Subsidiary, and (iii) the Participant agrees to such other limitations, restrictions, and potential penalties as determined by Committee to be applicable in connection with the distribution. Payment of any such withdrawal under this Section 6 will be paid out of one year deferrals first, three year deferrals second, and retirement deferrals last, and paid out among three year deferrals pro rata if there is more than one such deferral. 7. Death of Participant. In the event of the death of a Participant prior to receipt by such participant of the entire amount of the Participant's Deferred Compensation Account, such amount shall be paid to the Beneficiary or Beneficiaries designated in writing by the Participant; in the event there is more than one Beneficiary, such designation shall include the proportion to be paid to each Beneficiary and indicate the disposition of such share if a Beneficiary does not survive the Participant. The Committee, in its sole discretion, shall determine whether payment of the remaining amount of a Participant's Deferred Compensation Account shall be in a lump sum or in a number of substantially equal quarterly or annual installments over a period not to exceed ten years; such payments shall commence on such date within one year of the date of the Participant's death as shall be designated by the Committee. A Participant's Beneficiary designation may be changed at any time prior to the Participant's death by written notice signed by the Participant and received by the Corporation. The Beneficiary designation on file with the Corporation at the time of the Participant's death which bears the latest date shall govern. In the absence of a Beneficiary designation or the failure of all Beneficiaries to survive the Participant, the remaining amount of the Deferred Compensation Account shall be paid to the Participant's estate in a lump sum within ninety days after the appointment of an executor or administrator. The Committee may, in its sole JCK92310 12 13 discretion, accelerate the making of payment to a Beneficiary of the amount of a Deferred Compensation Account in the event of unforeseeable emergency as defined in Section 6 above. In the event of the death of a Beneficiary after payments to the Beneficiary have commenced, the remaining amount of the Deferred Compensation Account payable to such Beneficiary shall be paid to such Beneficiary's estate in a lump sum within ninety days after the appointment of an executor or administrator. ARTICLE III ADMINISTRATION The Corporation shall be responsible for the general administration of the Plan and for carrying out the provisions hereof. The Committee shall have all such powers as may be necessary to carry out its duties under the Plan, including the power to determine all questions relating to eligibility for and the amount in a Deferred Compensation Account, all questions pertaining to claims for benefits and procedures for claim review, and the power to resolve all other questions arising under the Plan, including any questions of construction. The Corporation and the Committee may take such further action as the Corporation and the Committee shall deem advisable in the administration of the Plan. The actions taken and the decisions made by the Corporation and the Committee hereunder shall be final and binding upon all interested parties. In accordance with the provisions of Section 503 of the Employee Retirement Income Security Act of 1974, as amended, the Committee shall provide a procedure for handling claims of Participants or their Beneficiaries under this Plan. Such procedure shall be in accordance with regulations issued by the Secretary of Labor and shall provide adequate written notice within a reasonable period of time with respect to the denial of any such claims as well as a reasonable opportunity for a full and fair review by the Committee of any such denial. Notwithstanding anything to the contrary contained herein, the Corporation shall be the "administrator" for the purpose of the Employee Retirement Income Security Act of 1974, as amended. Any action authorized under this Plan to be done by the JCK92310 13 14 Committee may be done by the Board of Directors or any other Board Committee authorized by the Board of Directors. ARTICLE IV AMENDMENT AND TERMINATION The Corporation reserves the right to amend or terminate the Plan at any time by action of its Board of Directors or a duly authorized Committee thereof; provided, however, that no such action shall adversely affect any Participant or Beneficiary with respect to the amount credited to a Deferred Compensation Account. This Plan shall be automatically terminated on the effective date of any Change in Control. ARTICLE V MISCELLANEOUS 1. Non alienation of Deferred Compensation Account. No Participant or Beneficiary shall encumber or dispose of the right to receive any payment of the amount of a Deferred Compensation Account hereunder without the written consent of the Corporation. If a Participant or Beneficiary without the written consent of the Corporation attempts to assign, transfer, alienate, or encumber the right to receive the amount of a Deferred Compensation Account hereunder or permits the same to be subject to alienation, garnishment, attachment, execution, or levy of any kind, then the Committee, in its discretion, may hold or pay such amount or any part thereof to or for the benefit of such Participant or Beneficiary, the Participant's or Beneficiary's spouse, children, blood relatives, or other dependents, or any of them, in such manner and in such proportions as the Committee may consider proper. Any such application of the amount of a Deferred Compensation Account may be made without the intervention of a guardian. The receipt by the payee(s) of such payment(s) shall constitute a complete acquittance to the Corporation with respect thereto, and neither the Corporation, nor any Subsidiary, nor the Committee, nor any officer, member, employee, or agent thereof, shall have any responsibility for the proper application thereof. JCK92310 14 15 2. Plan Non contractual. 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 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 Participants shall remain subject to discharge to the same extent as if the Plan had never been put into effect. 3. Interest of Participants and Beneficiaries. The obligation of the Corporation under the Plan to make payments of Incentive Compensation Awards and amounts reflected on Deferred Compensation Accounts merely constitute the unsecured promise of the Corporation to make payments from its general assets as provided herein, and no Participant or Beneficiary shall have any interest in, or a lien or prior claim upon, any property of the Corporation or any Subsidiary. 4. 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 as 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. 5. Absence of Liability. No member of the Board of Directors of the Corporation or a Subsidiary or the Committee or any officer of the Corporation or a Subsidiary shall be liable for any act or action hereunder, whether of commission or omission, taken by any other member, or by any officer, agent, or employee, or, except in circumstances involving his bad faith or willful misconduct, for anything done or omitted to be done by himself. 6. Severability. The invalidity or unenforceability of any particular provisions 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. JCK92310 15 16 7. Governing Law. The provisions of the Plan shall be governed and construed in accordance with the laws of the State of Ohio. EXECUTED AT Cleveland, Ohio, as of the 30th day of November, 1993. SOCIETY CORPORATION By: _____________________________ Roger Noall Vice Chairman and Chief Administrative Officer
JCK92310 16 EX-10.8 4 KEYCORP EX-10.8 1 AGREEMENT This AGREEMENT ("Agreement"), made as of the 24th day of June, 1993, between SOCIETY CORPORATION, an Ohio corporation ("Society"), and ________________ (the "Executive"), W I T N E S S E T H: WHEREAS, Society has determined that, in light of the importance of the Executive's continued services to the continuity of management of Society and its Subsidiaries (as defined in Section 1 below), it is in Society's best interest to encourage the Executive's continued attention and dedication to the Executive's duties in the potentially disruptive circumstances of a possible Change of Control (as defined in Section 1 below) of Society; NOW, THEREFORE, Society and the Executive agree as follows: 1. DEFINITIONS. (a) ACCOUNTING FIRM. The term "Accounting Firm" means the independent auditors of Society for the fiscal year preceding the year in which the Change of Control occurred and such firm's successor or successors; provided, however, if such firm is unable or unwilling to serve and perform in the capacity contemplated by this -1- 2 Agreement, Society 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 Society or any of its affiliates (as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended). (b) AGGREGATE INCENTIVE COMPENSATION AWARD. The term "Aggregate Incentive Compensation Award" with respect to the Executive for 1993 and any later year shall mean the aggregate incentive compensation awards (whether paid in cash, deferred, or a combination of both) payable to the Executive under both the Society Management Incentive Compensation Plan and the Society Long Term Incentive Compensation Plan for that year. For these purposes, an incentive compensation award payable to the Executive under the Society Long Term Incentive Compensation Plan with respect to any three-year period will be deemed to be "for" the last year of that three-year period. Thus, for example, the incentive compensation award payable to the Executive under the Society Long Term Incentive Compensation Plan with respect to the three year period comprised of 1993, 1994, and 1995 will be deemed to be "for" 1995 (without regard to the time of payment), the entire award under that plan for that period will be part of the Aggregate Incentive Compensation Award for 1995, and no part of the award under -2- 3 that plan for that period will be part of the Aggregate Incentive Compensation Award for any year other than 1995. If no incentive compensation award is payable to the Executive for 1993 or any later year under either the Society Management Incentive Compensation Plan or the Society Long Term Incentive Compensation Plan, the Aggregate Incentive Compensation Award payable to the Executive for that year will be $- 0-. For purposes of this Agreement, the Aggregate Incentive Compensation Awards payable to the Executive for each of the years 1992, 1991, 1990, 1989, and 1988 shall be deemed to be ______________________. (c) AVERAGE ANNUAL INCENTIVE COMPENSATION. The term "Average Annual Incentive Compensation" shall mean the greater of: (i) the average of the three highest Aggregate Incentive Compensation Awards payable to the Executive for any of the years during the five-year period ended on the December 31 immediately preceding the Termination Date, or (ii) the average of the three highest Aggregate Incentive Compensation Awards payable to the Executive for any of the years during the five-year period ended on the December 31 immediately preceding the first Change of Control occurring after the execution of this Agreement. As an illustration, if the Termination Date were to occur during 1993, the term Average Annual Incentive Compensation would mean $__________, arrived at by adding together $__________ (for 1992), $__________ (for 1991), and $__________ (for 1990) (there being no other year during the -3- 4 relevant five year period in which the Aggregate Incentive Compensation Award was higher than $__________) and dividing the sum $__________) by three. (d) CAUSE. The employment of the Executive by Society or any of its Subsidiaries shall have been terminated for "Cause" if, after a Change of Control and prior to the termination of employment, any of the following has occurred: (i) the Executive shall have been convicted of a felony, (ii) the Executive commits an act or series of acts of dishonesty in the course of the Executive's employment which are materially inimical to the best interests of Society or a Subsidiary and which constitutes the commission of a felony, all as determined by the vote of three fourths of all of the members of the Board of Directors of Society (other than the Executive, if the Executive is a Director of Society) 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, or (iii) after being notified in writing by the Board of Directors of Society to cease the Competitive Activity in question, the Executive shall intentionally continue to engage in such Competitive Activity while the Executive remains in the employ of Society or a Subsidiary. (e) CHANGE OF CONTROL. A "Change of Control" shall be deemed to have occurred if at any time or from time to time after the date of this Agreement: (i) there is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form, or report), each as adopted under the Securities Exchange Act of 1934, as amended, disclos- -4- 5 ing the acquisition of 25% or more of the voting stock of Society in a transaction or series of transactions by 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), (ii) during any period of 24 consecutive calendar months, individuals who at the beginning of such period constitute the directors of Society cease for any reason to constitute at least a majority thereof unless the election of each new director of Society was approved or recommended by the vote of at least two-thirds of the directors of Society then still in offfice who were directors of Society at the beginning of any such period, (iii) Society merges with or into or consolidates with another corporation and, after giving effect to such merger or consolidation, less than sixty percent (60%) of the then outstanding voting securities of the surviving or resulting corporation represent or were issued in exchange for voting securities of Society outstanding immediately prior to such merger or consolidation, (iv) 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 Society, or (v) the shareholders of Society shall approve any plan or proposal for the liquidation or dissolution of Society. (f) COMPETITIVE ACTIVITY. The Executive shall be deemed to have engaged in "Competitive Activity" if the Executive: (i) engages in any business or business activity in which Society 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 Society or any of its Subsidiaries), or (ii) serves as a director, officer, or employee of any bank, bank holding company, -5- 6 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 Society or any of its Subsidiaries (each of the foregoing being hereinafter referred to as a "Financial Services Company"), or renders services of a consultative or advisory nature or otherwise to any such Financial Services Company; provided, however, this clause (ii) shall not prohibit or restrict the Executive from serving in any such capacity with the consent of Society. (g) Day. A "day" as used in this Agreement means a calendar day unless business day is specifically referred to. (h) FULL-TIME EMPLOYMENT WITH AN UNAFFILIATED EMPLOYER. "Full-time Employment with an Unaffiliated Employer" means full-time (more than 30 hours per week) employment at either a base salary, hourly rate, partnership interest, or other form of participation resulting in compensation to the Executive, but does not include employment by (i) a corporation or other firm organized or formed by the Executive as a new business (including, without limitation, a consulting business) after the Termination Date, or (ii) a corporation or other firm the majority of the equity interests of which were acquired by the Executive and/or the Executive's immediate family members after the Termination Date. (i) NON-WINDOW VOLUNTARY RESIGNATION. A "Non-Window Voluntary Resignation" shall have occurred if the Executive, on any day during the two-year period -6- 7 beginning on the date of a Change of Control other than any day that falls within the Window Period, terminates the Executive's employment with Society and all its Subsidiaries by voluntarily resigning, unless during that two year period and prior to the Executive's voluntary resignation, there has occurred a Reduction of Base Salary or a Mandatory Relocation; provided further, in the event that there has been more than one Change of Control, there shall not be a Non-Window Voluntary Resignation if the Termination Date occurs during the Window Period with respect to any of the Changes of Control. (j) PERMITTED EMPLOYMENT TERMINATION. A "Permitted Employment Termination" shall have occurred if, after a Change of Control, the employment of the Executive by Society or any of its Subsidiaries is terminated: (i) by Society or its Subsidiary, for Cause, (ii) by Society, its Subsidiary, or the Executive by reason of disability of the Executive, as a result of accidental bodily injury or sickness for a period of 180 consecutive days, but only if the Executive begins to receive payments under the Society Long Term Disability Plan, or (iii) by the death of the Executive. (k) REDUCTION OF BASE SALARY OR A MANDATORY RELOCATION. A "Reduction of Base Salary or a Mandatory Relocation" shall have occurred if either of the following has occurred: -7- 8 (i) after a Change of Control, the base salary of the Executive is at any time reduced, or (ii) after a Change of Control, the Executive is required to relocate the Executive's principal place of employment for Society or its Subsidiary more than 35 miles from where the Executive was located prior to the Change of Control. (l) SOCIETY LONG TERM DISABILITY PLAN. The term "Society Long Term Disability Plan" means and includes the Society Corporation Long Term Disability Plan (January 1, 1993 Restatement) as from time to time amended, restated, or otherwise modified, including any long term disability plan hereafter succeeding, replacing, or being substituted for such plan. (m) SOCIETY LONG TERM INCENTIVE COMPENSATION PLAN. The term "Society Long Term Incentive Compensation Plan" means and includes the Society Corporation Long Term Incentive Compensation Plan (January 1, 1993 Restatement) as from time to time amended, restated, or otherwise modified, including any incentive compensation plan hereafter succeeding, replacing, or being substituted for such plan. (n) SOCIETY MANAGEMENT INCENTIVE COMPENSATION PLAN. The term "Society Management Incentive Compensation Plan" means and includes the Society Corporation Management Incentive Compensation Plan (January 1, 1993 Restatement) as from time to time amended, restated, or otherwise modified, including any incentive compensation -8- 9 plan hereafter succeeding, replacing, or being substituted for such plan. (o) SOCIETY QUALIFIED PENSION PLAN. The term "Society Qualified Pension Plan" means the Retirement Plan for Employees of Society Corporation and Subsidiaries (January 1, 1993 Restatement) as from time to time amended, restated, or otherwise modified, including any plan hereafter succeeding, replacing, or being substituted for that plan. (p) SOCIETY RETIREMENT PLANS. The term "Society Retirement Plans" means and includes the Society Qualified Pension Plan, the Society Corporation Excess Benefit Retirement Plan (April 26, 1990 Amendment and Restatement), and the Amended and Restated Society Corporation Supplemental Retirement Plan (January 1, 1993 Restatement), in all cases, as from time to time amended, restated, or otherwise modified, including any plan hereafter succeeding, replacing, or being substituted for any such plan, and all retirement plans of any nature (including, without limitation, retirement benefits or rights provided under employment contracts or agreements with the Executive or provided in resolutions adopted by the Board of Directors of Society or any of its Subsidiaries) maintained by Society or any of its Subsidiaries in which the Executive was participating prior to the Termination Date. -9- 10 (q) SOCIETY SAVINGS PLANS. The term "Society Savings Plans" means and includes the Society Corporation Employee Stock Purchase and Savings Plan (December 30, 1990 Restatement) and the Amended and Restated Society Corporation Supplemental Stock Purchase and Savings Plan, in both cases, as from time to time amended, restated, or otherwise modified, including any plan hereafter succeeding, replacing, or being 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 Society or any of its Subsidiaries in which the Executive was participating prior to the Termination Date. (r) SOCIETY SUPPLEMENTAL RETIREMENT PLAN. The term "Society Supplemental Retirement Plan" means and includes the Amended and Restated Society Corporation Supplemental Retirement Plan (January 1, 1993 Restatement) as from time to time amended, restated, or otherwise modified, including any supplemental retirement plan hereafter succeeding, replacing, or being substituted for such plan. (s) SUBSIDIARY. A "Subsidiary" means any corporation, bank, partnership, or other entity a majority -10- 11 of the voting control of which is directly or indirectly owned or controlled at the time in question by Society. (t) TERMINATION DATE. The term "Termination Date" means the date on which the Executive's employment with Society and its Subsidiaries terminates. (u) WINDOW PERIOD. The term "Window Period," with respect to any Change of Control, means the three-month period beginning on the date that falls on same day of the month as the date of the Change of Control in the fifteenth month after the month in which the Change of Control occurs. 2. COMPENSATION CONTINUATION, SEVERANCE, AND OTHER BENEFITS IF EMPLOYMENT IS TERMINATED WITHIN TWO YEARS OF A CHANGE OF CONTROL. If, within two years following the occurrence of a Change of Control, the Executive's employment with Society and its Subsidiaries is terminated for any reason (whether by Society or its Subsidiary or by resignation of the Executive), other than a Non-Window Voluntary Resignation or a Permitted Employment Termination, this Section 2 shall become applicable and Society, either directly or through one or more of its Subsidiaries, shall pay to the Executive the amounts specified in Paragraphs (a) and (b) of this Section 2 on the dates indicated therein and shall provide to the Executive the benefits specified in Paragraphs (c) and (d) of this Section 2 for the period specified therein: -11- 12 (a) Society or a Subsidiary shall pay to the Executive monthly compensation continuation payments for 24 months (commencing on the fifteenth day of the month following the month in which the Termination Date occurs and continuing on the fifteenth day of each of the next succeeding 23 months). The amount of each such monthly payment shall be the sum of (i) one month's base salary of the Executive (at the highest rate in effect at any time from one year prior to the Change of Control to the Termination Date), plus (ii) one-twelfth (1/12) of the Executive's Average Annual Incentive Compensation. (b) Society or a Subsidiary shall pay to the Executive, within 10 business days after the Termination Date, a lump sum severance payment in an amount equal to six times the amount of the monthly payment calculated under Paragraph (a), above. (c) Society or a Subsidiary shall arrange to provide the Executive, for 24 months following the Termination Date, with medical benefits (including, if applicable, dental), long term disability benefits, and group term life insurance benefits, in all cases at substantially the same level of coverage, and subject to the same (by dollar amount) employee contribution requirement (if any), as those which the Executive was -12- 13 receiving or entitled to receive as an officer of Society or its Subsidiary on the Termination Date. (d) For 24 months following the Termination Date, Society shall cause the Executive to continue to be covered by and to participate in all Society Retirement Plans and Society Savings Plans that the Executive was entitled to be covered by and participating in as an officer of Society or its Subsidiary on the Termination Date, except where such coverage or participation is "impermissible," as defined below. For purposes of determining the benefits, if any, to be provided to the Executive under this Paragraph (d): (i) the 24 month period following the Termination Date that the Executive is entitled to continued coverage by and participation in such plans shall be included in determining the Executive's years of service; (ii) the Executive's base salary during such 24 month period shall be deemed to be the amount the Executive receives under clause (i) of Paragraph (a) of this Section 2 and that portion of the amount payable under clause (ii) of Paragraph (a) of this Section 2 that is attributable to incentive compensation paid under the Society Management Incentive Compensation Plan shall be deemed to be incentive compensation paid under the Society Management Incentive Compensation Plan; and (iii) if (A) the -13- 14 Executive is not already fully vested under the Society Supplemental Retirement Plan and (B) the Executive would be fully vested under the Society Qualified Pension Plan if the Executive's employment with Society continued through the end of the 24 month period, the Executive will be treated as immediately vested under the Society Supplemental Retirement Plan without regard to age or years of service. For purposes of this Paragraph (d), the Executive's continued coverage by and participation in any of the Society Retirement Plans and Society Savings Plans will be deemed to be "impermissible" if such a continuation would violate the provisions of such plan, would cause such plan to fail to be qualified under Section 401(a) of the Internal Revenue Code, or would be unlawful. If, during the 24 month period referred to in this Paragraph (d), Society determines in good faith that continuing, after the Termination Date, the Executive's coverage by and participation in any of the Society Savings Plans is impermissible, Society shall not be required to cause the Executive to continue to be covered by and to participate in such affected plan or plans, but in lieu thereof, Society shall, within 45 days after the end of such 24 month period, pay to the Executive a lump-sum amount, with respect to each such plan in which the Executive's coverage or participation -14- 15 ceased for any time during such 24 month period, equal to the aggregate maximum amount of the employer matching contributions which would have been, but were not, credited to the Executive's account if the Executive had, at all times during such 24 month period, continued to be covered by and participate in that Society Savings Plan to the maximum extent permitted. If, during the 24 month period referred to in this Paragraph (d), Society determines in good faith that continuing, after the Termination Date, the Executive's coverage by and participation in any of the Society Retirement Plans is impermissible, Society shall not be required to cause the Executive to continue to be covered by and to participate in such affected plan or plans, but in lieu thereof, Society shall provide to the Executive a special supplemental retirement benefit in an amount equal to the difference between the amount of the benefit under that Society Retirement Plan that the Executive would have received if the Executive had, at all times during such 24 month period, continued to be covered by and participate in that plan and the actual benefit paid or payable to the Executive under that plan. Any such special supplemental retirement benefit shall be paid at the same time or times (which will depend upon the settlement option under the Society Retirement Plan -15- 16 selected by the Executive) as payments are made under the particular Society Retirement Plan with respect to which the special supplemental retirement benefit is calculated. All determinations and calculations required to be made to determine either the amount of any lump sum with respect to a Society Savings Plan or the amount of any special supplemental retirement benefit under this Paragraph (d) shall be made by the Accounting Firm, which shall provide detailed supporting calculations both to Society and the Executive within 30 days after the end of such 24 month period (which calculations, in the case of any special supplemental retirement benefit, may be in the alternative leaving open to the Executive all of the settlement options among which the Executive may be entitled to choose under the particular Society Retirement Plan). All such determinations and calculations by the Accounting Firm shall be final and binding upon Society and the Executive. The payments under Paragraph (a) of this Section 2 and the benefits required to be provided by Paragraphs (c) and (d) of this Section 2 are subject to reduction or earlier termination, as the case may be, as provided in Section 4 of this Agreement in the event that the Executive accepts Full-time Employment with an Unaffiliated Employer within 24 months following the Termination Date. The payments provided in -16- 17 this Section are also subject to reduction as provided in Section 8 dealing with excess parachute payments. 3. REIMBURSEMENT OF CERTAIN EXPENSES AFTER A CHANGE OF CONTROL. (a) From and after a Change of Control, Society shall pay, as incurred, all expenses, including the reasonable fees of counsel engaged by the Executive, of defending any action brought to have this Agreement declared invalid or unenforceable. (b) From and after a Change of Control, Society shall pay, as incurred, all expenses, including the reasonable fees of counsel engaged by the Executive, of prosecuting any action to compel Society to comply with the terms of this Agreement upon receipt from Executive of an undertaking to repay Society for such expenses if, and only if, it is ultimately determined by a court of competent jurisdiction that the Executive had no reasonable grounds for bringing that action (which determination need not be made simply because the Executive fails to succeed in the action). (c) From and after a Change of Control, expenses (including attorney's fees) incurred by the Executive in defending any action, suit, or proceeding commenced or threatened against the Executive for any action or failure to act as an employee, officer, or -17- 18 director of Society or any Subsidiary shall be paid by Society, as they are incurred, in advance of final disposition of the action, suit, or proceeding upon receipt of an undertaking by or on behalf of the Executive in which the Executive agrees to reasonably cooperate with Society or the Subsidiary, as the case may be, concerning the action, suit, or proceeding, and (i) if the action, suit, or proceeding is commenced or threatened against the Executive for any action or failure to act as a director, to repay the amount if it is proved by clear and convincing evidence in a court of competent jurisdiction that the Executive's action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to Society or a Subsidiary or (ii) if the action, suit, or proceeding is commenced or threatened against the Executive for any action or failure to act as an officer or employee, to repay the amount if it is ultimately determined that the Executive is not entitled to be indemnified. The provisions of this Paragraph (c) shall not apply if the only liability asserted against the Executive in such action, suit, or proceeding is against the Executive in the Executive's status as a director pursuant to Section 1701.95 of the Ohio Revised Code. -18- 19 4. NO SET-OFF; NO OBLIGATION TO SEEK OTHER EMPLOYMENT OR TO OTHERWISE MITIGATE DAMAGES. Society'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 which Society or any of its Subsidiaries may have against the Executive; provided, however, if the Executive is indicted or charged by information in criminal proceedings on account of theft from Society or its Subsidiary, Society may thereafter suspend payments under this Agreement pending conclusion (including available appeals) of such criminal proceedings and, if the Executive is convicted at the conclusion of the criminal proceedings of theft from Society or its Subsidiary, Society may set-off amounts owing under this Agreement against the amounts taken by theft by the Executive; otherwise, at the conclusion of the criminal proceedings without the Executive being convicted of theft from Society or its Subsidiary, all suspended payments shall be immediately paid to the Executive. The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise. Except as provided in the next following sentence, the amount of any payment provided for under this Agreement shall not be reduced by any compensation or benefits earned by the Executive as the result of employment by -19- 20 another employer or otherwise after the termination of the Executive's employment. In the event that the Executive accepts Full-time Employment with an Unaffiliated Employer within 24 months following the Termination Date: (i) the Executive shall, within five business days after accepting such employment, notify Society of such fact, (ii) as long as Society is obligated to continue to make monthly compensation continuation payments under Paragraph (a) of Section 2 of this Agreement, the Executive shall, by the fifth business day of each month occurring after accepting such employment, notify Society of the amount of cash compensation the Executive received during the preceding month from the Executive's new employer, (iii) each remaining monthly compensation continuation payment under Paragraph (a) of Section 2 of this Agreement shall be reduced (but in no event to less than zero) by the amount of cash compensation received by the Executive from the Executive's employment with the Executive's new employer during the month preceding the month in which such payment is made, and (iv) Society's obligation to provide the Executive with benefits under Paragraphs (c) and (d) of Section 2 of this Agreement shall cease on the date that the Executive commences Full-time Employment with an Unaffiliated Employer instead of at the end of the 24 month period specified in Paragraphs (c) and (d) of Section 2 of this Agreement; at each place in such Paragraphs (c) and (d) that there is a reference to a 24 month period, the reference shall be deemed to be to the period from the Termination Date to the commencement date of Full- time Employment with an Unaffiliated Employer; and if Society has an obligation to make a lump-sum payment under clauses (x) or (y) of Paragraph (d) of Section 2, such lump-sum payment shall be made within 45 days after the date that the Executive commences Full-time Employment with an Unaffiliated Employer for -20- 21 the period from the Termination Date to such commencement date. 5. NO EFFECT ON OTHER PLANS OR RIGHTS. The provisions of this Agreement, and any payment provided for hereunder, shall not reduce or increase any amounts otherwise payable, or in any way diminish or enlarge the Executive's rights, or rights which would accrue solely as a result of the passage of time, under any incentive compensation plan, stock option or stock appreciation rights plan, retirement or supplemental retirement plan, stock purchase and savings plan, disability or insurance plans, or other similar contract, plan or arrangement of Society or any Subsidiary. If the Executive becomes entitled to receive any payments under this Agreement as a result of termination of the Executive's employment following a Change of Control, those payments shall be in lieu of any and all other claims or rights that the Executive may have for severance, separation, and/or salary continuation pay upon that termination of the Executive's employment. 6. INDEMNIFICATION. Society shall indemnify the Executive, to the full extent permitted or authorized by the Ohio General Corporation Law as it may from time to time be amended, if the Executive is 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 -21- 22 the Executive is or was a director, officer, or employee of Society or any Subsidiary, or is or was serving at the request of Society 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 6 shall not be deemed exclusive of any other rights to which the Executive may be entitled under the articles of incorporation or the regulations of Society or of any Subsidiary, or any agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in the Executive's official capacity and as to action in another capacity while holding such office, and shall continue as to the Executive after the Executive has ceased to be a director, trustee, officer, or employee and shall inure to the benefit of the heirs, executors, and administrators of the Executive. 7. DISABILITY. If, after a Change of Control and prior to the Termination Date, the Executive is unable to perform services for Society or any Subsidiary for any period by reason of disability of the Executive, as a result of accidental bodily injury or sickness, Society will pay and provide to the Executive all compensation and benefits to which the Executive would have been entitled had the Executive continued to be actively employed by Society through the earliest of the following dates: (a) the first date on which the Executive is no longer so disabled to such -22- 23 an extent that the Executive is unable to perform services for Society, (b) the date on which the Executive becomes eligible for payment of long term disability benefits under the Society Long Term Disability Plan, (c) the date on which Society has paid and provided 24 months of compensation and benefits to the Executive during the Executive's disability, or (d) the date of the Executive's death. 8. EXCESS PARACHUTE PAYMENT REDUCTION. Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by Society or any of its Subsidiaries 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) (a "Payment") would be nondeductible by Society for Federal income tax purposes because of Section 280G of the Internal Revenue Code and applicable regulations promulgated thereunder, then the aggregate present value of amounts payable or distributable to or for the benefit of the Executive pursuant to this Agreement (such payments or distributions pursuant to this Agreement are hereinafter referred to as "Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be nondeductible by Society because of Section 280G of the Internal Revenue Code and applicable regulations promulgated thereunder. For purposes of this Section 8, present value shall be determined in accordance with Section 280G(d)(4) of the Internal -23- 24 Revenue Code and applicable regulations promulgated thereunder. All determinations required to be made under this Section 8 shall be made by the Accounting Firm which shall provide detailed supporting calculations both to Society and the Executive within 30 days after the Termination Date or such earlier time as is requested by Society. Society and the Executive shall cooperate with each other and the Accounting Firm and will provide necessary information so that the Accounting Firm may make all such determinations. All such determinations by the Accounting Firm shall be final and binding upon Society and the Executive. The Executive shall determine which of the Agreement Payments (or, at the election of the Executive, other payments) shall be eliminated or reduced consistent with the requirements of this Section 8, provided that, if the Executive does not make such determination within 20 days of the receipt of the calculations made by the Accounting Firm, Society shall elect which of the Agreement Payments shall be eliminated or reduced consistent with the requirements of this Section 8 and shall notify the Executive promptly of such election. As a result of the uncertainty in the application of Section 280G of the Internal Revenue Code and applicable regulations promulgated thereun- -24- 25 der at the time of the initial determination by the Accounting Firm hereunder, it is possible that Agreement Payments will be made by Society which should not have been made ("Overpayment") or that additional Agreement Payments will not be made by Society which could have been made ("Underpayment"), in each case, consistent with the calculations required to be made hereunder. In the event that the Accounting Firm or a court of competent jurisdiction (in a final judgment as to which the time for appeal has lapsed or no appeal is available) determines at any time that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to the Executive which the Executive shall repay to Society together with interest at the applicable short-term Federal rate provided for in Section 1274(d)(1) of the Internal Revenue Code, compounded semi-annually; provided, however, that no amount shall be payable by the Executive to Society (or if paid by the Executive to Society, such payment shall be returned to the Executive) if and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Internal Revenue Code. In the event that the Accounting Firm or a court of competent jurisdiction (in a final judgment as to which the time for appeal has lapsed or no appeal is available) determines at any time that an Underpayment has occurred, any such Underpayment shall be promptly paid by Society to or for the benefit of the Execu- -25- 26 tive together with interest at the applicable short-term Federal rate provided for in Section 1274(d)(1) of the Internal Revenue Code, compounded semi-annually. 9. TAXES; WITHHOLDING OF TAXES. Without limiting the right of Society or its Subsidiary to withhold taxes pursuant to this Section, the Executive shall be responsible for all income, excise, and other taxes (federal, state, city, or other) imposed on or incurred by the Executive as a result of receiving the payments and benefits provided in this Agreement, including, without limitation, the payments and benefits provided under Section 2 of this Agreement. Society or its Subsidiary may withhold from any amounts payable under this Agreement all federal, state, city, or other taxes as Society shall determine to be required pursuant to any law or government regulation or ruling. 10. SUCCESSOR TO SOCIETY. Society will not consolidate with or merge into any other corporation, or transfer all or substantially all of its assets to another corporation or bank, unless such other corporation or bank shall assume this Agreement in a signed writing and deliver a copy thereof to the Executive. Upon such assumption the successor corporation or bank shall become obligated to perform the obligations of Society under this Agreement, and the term "Society" as used in this Agreement shall be deemed to refer to such successor corporation or bank. -26- 27 11. PAYMENTS TO CONTINUE AFTER EXECUTIVE'S DEATH. If, at the time of the Executive's death, the Executive is entitled to receive payments under this Agreement, all amounts still payable in accordance with the terms of this Agreement shall be paid to the individual or trust designated in a writing delivered to Society by the Executive prior to the Executive's death (with the Executive having the right to change from time to time such designation by delivering to Society prior to the Executive's death a new written designation) or, if there is no such designation, to the Executive's estate. As provided in the preceding sentence, this Agreement will inure to the benefit of and be enforceable by the Executive's personal representatives, executors, administrators, successors, heirs, and designees. 12. TERM OF THIS AGREEMENT. This Agreement shall be effective immediately and shall continue in full force and effect until terminated as provided in this Section 12. (a) This Agreement shall automatically terminate on the first date occurring before a Change of Control on which both: (i) the Executive is neither an elected officer of Society nor an elected officer of any Subsidiary; and (ii) it is not contemplated that the Executive will be elected an officer of Society or any Subsidiary within 60 days thereafter; provided, -27- 28 however, that any termination of employment of the Executive or removal of the Executive as an elected officer done primarily in contemplation of a Change of Control shall be deemed to be a termination or removal of the Executive as of immediately after such Change of Control, if such Change of Control in fact occurs, for purposes of this Agreement. (b) Before a Change of Control, Society may terminate this Agreement by giving the Executive not less than twelve months' prior written notice of its intention to terminate this Agreement; provided, however, that any such notice of intention to terminate shall not be effective if a Change of Control occurs during such twelve month period, and, provided further, that Society shall in no event give a notice under this Paragraph (b) prior to February 22, 1995. After a Change of Control, this Agreement may not be terminated. However, in the event the Executive's employment with Society and its Subsidiaries continues for two years or more following the occurrence of a Change of Control, then, for all purposes of this Agreement, such Change of Control shall thereafter be treated as if it never occurred. 13. NOTICES. For purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United -28- 29 States registered mail, return receipt requested, postage prepaid, as follows: If to Society or a Subsidiary: Society Corporation 800 Superior Avenue Cleveland, Ohio 44114 Attention: Secretary If to the Executive: ___________________________ ___________________________ ___________________________ 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. 14. EMPLOYMENT RIGHTS. Nothing expressed or implied in this Agreement shall create any right or duty on the part of Society or the Executive to have the Executive continue as an officer of Society or a Subsidiary or to remain in the employment of Society or a Subsidiary. 15. ADMINISTRATION. Society shall be responsible for the general administration of this Agreement and for making payments under this Agreement. All payments under this Agreement shall be made solely from the general assets of Society or one of its Subsidiaries, and the Executive shall have the rights of an unsecured general creditor of Society. All expenses incurred to or costs of the Accounting Firm are the responsibility of Society. -29- 30 16. CLAIMS REVIEW PROCEDURE. Whenever Society decides for whatever reason to deny, whether in whole or in part, a claim for benefits under this Agreement by the Executive, Society shall transmit a written notice of its decision to the Executive, which notice shall be written in a manner calculated to be understood by the Executive and shall contain a statement of the specific reasons for the denial of the claim and a statement advising the Executive that, within 60 days of the date on which the Executive receives such notice, the Executive may obtain review of the decision of Society in accordance with the procedures hereinafter set forth. Within such 60-day period, the Executive or the Executive's authorized representative may request that the claim denial be reviewed by filing with Society a written request therefor, which request shall contain the following information: (i) the date on which the request was filed with Society, (ii) the specific portions of the denial of the Executive's claim which the Executive requests Society to review, and (iii) any written material which the Executive desires Society to examine. Within 30 days of the date specified in clause (i) of this Section, Society shall conduct a full and fair review of its decision to deny the Executive's claim for benefits and deliver to the Executive its written decision on review, written in a manner calculated to be understood by the Executive, specifying the reasons and the Agreement provi- -30- 31 sions upon which its decision is based. Nothing in this Section shall be construed as limiting or restricting the Executive's right to institute legal proceedings in a court of competent jurisdiction to enforce this Agreement after complying with the procedures set forth in this Section or as limiting or restricting the scope of the court's review (which review shall be de novo); provided, further, that the failure of the Executive to comply with the procedures set forth in this Section shall not bar or prohibit the subsequent compliance by the Executive with those procedures and thereafter the Executive shall have the right to institute legal proceedings to enforce this Agreement. 17. 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. 18. 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 the Executive and Society. 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 -31- 32 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. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. SOCIETY CORPORATION By___________________________ Robert W. Gillespie Chairman of the Board and Chief Executive Officer THE "EXECUTIVE" _____________________________ -32- EX-10.10 5 KEYCORP EX-10.10 1 AMENDED AND RESTATED EMPLOYMENT AGREEMENT BETWEEN SOCIETY CORPORATION AND ROBERT W. GILLESPIE THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") is made at Cleveland, Ohio, as of December 20, 1993, between SOCIETY CORPORATION, an Ohio corporation ("Society"), and ROBERT W. GILLESPIE, 1800 Berkshire Road, Gates Mills, Ohio 44040 ("Gillespie"). W I T N E S S E T H: WHEREAS, pursuant to an Agreement and Plan of Merger and a related Supplemental Agreement to Agreement and Plan of Merger, both dated as of October 1, 1993 (collectively, the "Merger Agreement"), by and between Society and KeyCorp, a New York corporation and a bank holding company ("KeyCorp"), Society and KeyCorp have agreed to a merger of KeyCorp into Society in which Society will be the surviving corporation and will be renamed Key Bancs Inc.; WHEREAS, Society and Gillespie are parties to an employment agreement, made December 5, 1990, pursuant to which Society agreed to continue to employ Gillespie as its Chairman and Chief Executive Officer for a period to end on the date of the 1996 Annual Meeting of Shareholders of Society, unless such period should be extended by mutual agreement; WHEREAS, in connection with the merger of KeyCorp with and into Society (the "Merger"), Society and Gillespie entered into an employment agreement as of October 1, 1993 (to become effective at the Effective Time, as defined in the Merger Agreement), pursuant to which Society will employ Gillespie and Gillespie will serve Society, initially as its President and Chief Operating Officer and thereafter as its President and Chief Executive Officer; and WHEREAS, Society and Gillespie now desire to amend and restate in its entirety the employment agreement entered into between them as of October 1, 1993; NOW, THEREFORE, Society (which, pursuant to the Merger Agreement will change its name to Key Bancs Inc. and is hereinafter sometimes referred to as "Key Bancs") and Gillespie, in consideration of the promises and mutual covenants herein contained, amend and restate the employment agreement entered into between them as of October 1, 1993 and agree as follows: Final Execution Copy -1- 2 1. DEFINITIONS. 1.1 ACCOUNTING FIRM. The term "Accounting Firm" means the independent auditors of Key Bancs 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 Time, 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 Bancs 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 Bancs or any of its affiliates (as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended). 1.2 AGGREGATE INCENTIVE COMPENSATION AWARD. The term "Aggregate Incentive Compensation Award" with respect to Gillespie for any year shall mean the aggregate annual incentive compensation awards (whether paid in cash, deferred, or a combination of both) payable to Gillespie under both the Combined Management Incentive Compensation Plan and the Combined Long Term Incentive Compensation Plan for that year. For these purposes, an incentive compensation award payable to Gillespie under the Combined Long Term Incentive Compensation Plan with respect to any multi-year period will be deemed to be "for" the last year of that multi-year period. Thus, for example, any incentive compensation award payable to Gillespie under the Combined Long Term Incentive Compensation Plan with respect to the three year period comprised of 1990, 1991, and 1992 will be deemed to be "for" 1992 (without regard to the time of payment), the entire award under that plan for that period will be part of the Aggregate Incentive Compensation Award for 1992, and no part of the award under that plan for that period will be part of the Aggregate Incentive Compensation Award for any year other than 1992. 1.3 AVERAGE ANNUAL INCENTIVE COMPENSATION. The term "Average Annual Incentive Compensation" shall mean the greater of: (a) The average of the three highest Aggregate Incentive Compensation Awards payable to Gillespie for any of the years during the five-year period ended on the December 31 immediately preceding the Termination Date; or (b) The average of the three highest Aggregate Incentive Compensation Awards payable to Gillespie for any of the years during the five-year period ended on the December 31 immediately preceding the first Change of Control, if any, occurring after the Effective Time. Final Execution Copy -2- 3 1.4 CAUSE (BEFORE A CHANGE OF CONTROL). Key Bancs will have "Cause" to terminate Gillespie before a Change of Control if: (a) Gillespie commits a felony; (b) Gillespie commits an act or series of acts of dishonesty in the course of his employment which are materially inimical to the best interests of Key Bancs or a Subsidiary as determined by the vote of three quarters of the entire authorized number of members of the Board of Directors of Key Bancs and, if the act or acts are capable of being cured, Gillespie fails to cure or take all reasonable steps to cure within 30 days of notice from the Board of Directors to Gillespie; (c) Gillespie continues to violate his obligation under Section 14.1 not to engage in Competitive Activities after the Board of Directors has advised him in writing to cease those activities; or (d) Other than for disability, Gillespie totally abandons and completely fails to attempt to perform his duties and responsibilities as specified from time to time by the Board of Directors of Key Bancs for 90 consecutive days after written notice from the Board of Directors. 1.5 CAUSE (AFTER A CHANGE OF CONTROL). Key Bancs will have "Cause" to terminate Gillespie after a Change of Control has occurred only if: (a) Gillespie is convicted of a felony; (b) Gillespie commits an act or series of acts of dishonesty in the course of his employment which are materially inimical to the best interests of Key Bancs or a Subsidiary and which constitutes the commission of a felony, all as determined in good faith by the vote of three quarters of the entire authorized number of members of the Board of Directors of Key Bancs, 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; or (c) Gillespie continues to violate his obligation under Section 14.1 not to engage in Competitive Activities after the Board of Directors has advised him in writing to cease those activities and that violation is material. Final Execution Copy -3- 4 1.6 CHANGE OF CONTROL. A "Change of Control" shall be deemed to have occurred if at any time or from time to time after the Effective Time: (a) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form, or report), each as adopted under the Securities Exchange Act of 1934, as amended, disclosing the acquisition of 25% or more of the voting stock of Key Bancs in a transaction or series of transactions by 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); (b) During (i) any period commencing with the Effective Time and ending not later than the second anniversary of the Effective Time, or (ii) any period of 24 consecutive calendar months commencing on any date after the Effective Time, individuals who at the beginning of such period constitute the directors of Key Bancs cease for any reason to constitute at least a majority thereof unless the election of each new director of Key Bancs was approved or recommended by the vote of at least two-thirds of the entire authorized number of members of the Board of Directors immediately before the time each new director of Key Bancs was elected to the Board; (c) Key Bancs merges with or into or consolidates with another corporation and, after giving effect to such merger or consolidation, less than sixty percent (60%) of the then outstanding voting securities of the surviving or resulting corporation represent or were issued in exchange for voting securities of Key Bancs outstanding immediately prior to such merger or consolidation; (d) 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 Bancs; or (e) The shareholders of Key Bancs shall approve any plan or proposal for the liquidation or dissolution of Key Bancs. 1.7 COMBINED LONG TERM DISABILITY PLAN. The term "Combined Long Term Disability Plan" means and includes the Society Corporation Long Term Disability Plan (January 1, 1993 Restatement) and the Society Corporation supplemental disability coverage program, in both cases as from time to time amended, restated, or otherwise modified, including any long term disability plan that, after the Effective Time, succeeds, replaces, or is substituted for either such plan and includes long term disability benefits or rights Final Execution Copy -4- 5 provided pursuant to or under insurance contracts maintained by Key Bancs applicable to senior executives of Key Bancs. 1.8 COMBINED LONG TERM INCENTIVE COMPENSATION PLAN. The term "Combined Long Term Incentive Compensation Plan" means and includes the Society Corporation Long Term Incentive Compensation Plan (January 1, 1993 Restatement) as from time to time amended, restated, or otherwise modified, including any incentive compensation plan that, after the Effective Time, succeeds, replaces, or is substituted for such plan and is applicable to senior executives of Key Bancs. 1.9 COMBINED MANAGEMENT INCENTIVE COMPENSATION PLAN. The term "Combined Management Incentive Compensation Plan" means and includes the Society Corporation Management Incentive Compensation Plan (January 1, 1993 Restatement) as from time to time amended, restated, or otherwise modified, including any incentive compensation plan that, after the Effective Time, succeeds, replaces, or is substituted for such plan and is applicable to senior executives of Key Bancs. 1.10 COMBINED RETIREMENT PLANS. The term "Combined Retirement Plans" means and includes the Retirement Plan for Employees of Society Corporation and Subsidiaries (January 1, 1993 Restatement), the Society Corporation Excess Benefit Retirement Plan (April 26, 1990 Amendment and Restatement), and the Amended and Restated Society Corporation Supplemental Retirement Plan (January 1, 1993 Restatement), in all cases, as from time to time amended, restated, or otherwise modified, including any plan that, after the Effective Time, succeeds, replaces, or is substituted for any such plan, and all retirement plans of any nature (including, without limitation, retirement benefits or rights provided under employment contracts or agreements with Gillespie or provided in resolutions adopted by the Board of Directors of Key Bancs or any of its Subsidiaries) maintained by Key Bancs or any of its Subsidiaries in which Gillespie was participating prior to the Termination Date. Reference to a "Combined Retirement Plan," in the singular, shall mean any of the Combined Retirement Plans. 1.11 COMBINED SAVINGS PLANS. The term "Combined Savings Plans" means and includes the Society Corporation Employee Stock Purchase and Savings Plan (December 30, 1990) and the Amended and Restated Society Corporation Supplemental Stock Purchase and Savings Plan, in both cases, as from time to time amended, restated, or otherwise modified, including any plan that, after the Effective Time, 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 Final Execution Copy -5- 6 Section 401(k) of the Internal Revenue Code), maintained by Key Bancs or any of its Subsidiaries in which Gillespie was participating prior to the Termination Date. Reference to a "Combined Savings Plan," in the singular, shall mean any of the Combined Savings Plans. 1.12 COMPETITIVE ACTIVITY (BEFORE TERMINATION DATE). Gillespie shall be deemed to have engaged in "Competitive Activity" before the Termination Date if, before the Termination Date, he engages, without the consent of Key Bancs, in any business or business activity in which Key Bancs 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 Bancs or any of its Subsidiaries). 1.13 COMPETITIVE ACTIVITY (AFTER TERMINATION DATE). Gillespie shall be deemed to have engaged in "Competitive Activity" after the Termination Date if, after the Termination Date and without the consent of Key Bancs, he serves as a director, officer, or employee of any Financial Services Company located in a Restricted State or renders services of a consultative or advisory nature or otherwise to any Financial Services Company located in a Restricted State. 1.14 DAY. A "day" as used in this Agreement means a calendar day unless business day is specifically referred to. 1.15 DEMOTION OR REMOVAL. Gillespie shall be deemed to have been subjected to "Demotion or Removal" if, other than by Voluntary Resignation, (a) during the Post-Merger Period, (i) Gillespie ceases to be a director of Key Bancs, (ii) Gillespie ceases to be President of Key Bancs, (iii) Gillespie ceases to be Chief Operating Officer of Key Bancs, or (iv) any individual other than Gillespie holds the title of Deputy Chairman of the Board of Key Bancs or Deputy Chairman of the Executive Committee of the Board of Key Bancs; or (b) during the period of Gillespie's employment under this Agreement and after the Post-Merger Period, (i) Gillespie ceases to be a director of Key Bancs, (ii) Gillespie ceases to be the President and Chief Executive Officer of Key Bancs, or (iii) any individual other than Gillespie holds the title of Deputy Chairman of the Board of Key Bancs, Deputy Chairman of the Executive Committee of the Board of Key Bancs, President of Key Bancs, or Chief Executive Officer of Key Bancs. Final Execution Copy -6- 7 For purposes of this Section 1.15, another individual will be deemed hold the title of Deputy Chairman of the Board of Key Bancs or Deputy Chairman of the Executive Committee of the Board of Key Bancs if the Board of Directors of Key Bancs confers the title of Deputy Chairman, Vice Chairman, or any similar title on any other individual and Gillespie will be deemed to have "ceased" to hold the positions specified in clause (b) above if he remains employed immediately after the end of the Post-Merger Period and he is prevented from attaining those positions. 1.16 EFFECTIVE TIME. The term "Effective Time" means the time defined as such in the Merger Agreement. 1.17 FINANCIAL SERVICES COMPANY. "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 Bancs or any of its Subsidiaries. 1.18 FULL-TIME EMPLOYMENT WITH AN UNAFFILIATED EMPLOYER. "Full-time Employment with an Unaffiliated Employer" means full-time (more than 30 hours per week) employment at either a base salary, hourly rate, partnership interest, or other form of participation, which will result in annual compensation to Gillespie of at least 75% of the annual base salary of Gillespie with Key Bancs and its Subsidiaries at the highest rate in effect at any time under this Agreement, but does not include employment by (a) a corporation or other firm organized or formed by Gillespie as a new business (including, without limitation, a consulting business) after the Termination Date, or (b) a corporation or other firm the majority of the equity interests of which were acquired by Gillespie and/or his immediate family members after the Termination Date. 1.19 GOOD REASON (THROUGHOUT THE TERM). Gillespie shall have "Good Reason" to terminate his employment under this Agreement if, at any time during the term of his employment hereunder, one or more of the events listed in (a) through (e) of this Section 1.19 occurs and, based on that event, Gillespie gives notice of his intention to terminate his employment effective on a date that is within one year of the occurrence of that event: (a) Gillespie is subjected to Demotion or Removal; (b) Gillespie's base salary is reduced from the level of his base salary as in effect from time to time (other than in conjunction with an across the board and equal percentage reduction in the base salaries of all Key Bancs senior executives); Final Execution Copy -7- 8 (c) Gillespie is excluded from full participation in any benefit plan or arrangement maintained for senior executives of Key Bancs generally; (d) Gillespie determines in good faith that his responsibilities, duties, or authority with Key Bancs are at any time materially less than or reduced from those contemplated by the Job Description and the shortfall or reduction has not been cured within 90 days after Gillespie gives notice to the Board of Directors of Key Bancs of his election to terminate his employment for Good Reason based upon that shortfall or reduction; or (e) Gillespie's principal place of employment for Key Bancs is relocated outside of the Cleveland metropolitan area or Gillespie is otherwise required by Key Bancs to relocate outside the Cleveland metropolitan area. 1.20 GOOD REASON (AFTER A CHANGE OF CONTROL). After a Change of Control, in addition to those events that constitute Good Reason at any time during the term of his employment under this Agreement and are listed in Section 1.19, Gillespie shall have "Good Reason" to terminate his employment under this Agreement if, during the two year period commencing on the date of that Change of Control, any of the events listed in (a) through (c) of this Section 1.20 occurs and, based on that event, Gillespie gives notice of his intention to terminate his employment effective on a date that is both (i) within one year of the occurrence of that event and (ii) not later than the second anniversary of that Change of Control: (a) The aggregate dollar amount of the incentive compensation awards to Gillespie under both the Combined Management Incentive Compensation Plan and the Combined Long Term Incentive Compensation Plan for any year ending after the date on which the Change of Control occurs is less than the Average Annual Incentive Compensation; (b) Gillespie determines in good faith that his responsibilities, duties or authority with Key Bancs are materially reduced from those in effect before the Change of Control and the reduction has not been cured within 30 days after Gillespie gives notice to the Board of Directors of Key Bancs of his election to terminate his employment for Good Reason based upon that reduction; or (c) Gillespie 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 President and Chief Operating Final Execution Copy -8- 9 Officer (during the Post-Merger Period) or as President and Chief Executive Officer (thereafter) as those authorities, powers, functions, responsibilities, or duties attached to those positions were in effect before the Change of Control. 1.21 IMPERMISSIBLE. The term "Impermissible" when used in the context of Gillespie's continued coverage by and participation in any of the Combined Retirement Plans or Combined Savings Plans shall mean that such a continuation would violate the provisions of any such Plan, would cause any such Plan to fail to be qualified under Section 401(a) of the Internal Revenue Code, or would be unlawful. 1.22 JOB DESCRIPTION. The term "Job Description" shall mean the description of Gillespie's duties, responsibilities, and authorities as President and Chief Operating Officer (during the Post-Merger Period) and as President and Chief Executive Officer (thereafter) set forth in Exhibit A to this Agreement. 1.23 POST-MERGER PERIOD. The term "Post-Merger Period" shall mean the period beginning with and including the Effective Time and ending with and including the first to occur of (a) December 31, 1995 or (b) the date upon which Victor J. Riley, Jr., ceases to be Chief Executive Officer of Key Bancs for any reason whatsoever. 1.24 RESTRICTED STATE. A "Restricted State" means Ohio, New York, and any other state (including the District of Columbia) in which Key Bancs and its Subsidiaries (taken as a whole) have at the time business operations or activities which account for or constitute more than 5% of the total assets or total deposits of Key Bancs and its Subsidiaries on a consolidated basis or more than 5% of the total income of Key Bancs and its Subsidiaries on a consolidated basis for the then preceding three months. A Financial Services Company shall be deemed to be located in a Restricted State if its headquarters are then located in the Restricted State or if it and its affiliates (taken as a whole) have at the time business operations or activities in the Restricted State with total assets or total deposits exceeding 5% of the total assets or total deposits of Key Bancs and its Subsidiaries on a consolidated basis or which generate gross income during the then preceding three months of more than 5% of the total income of Key Bancs and its Subsidiaries on a consolidated basis for that three month period. The determination of whether a state is a Restricted State shall be made at the time Gillespie first serves as a director, officer, or employee of the Financial Services Company in question or first renders services of a consultative or advisory nature or otherwise to such Financial Services Company. Final Execution Copy -9- 10 1.25 SCHEDULED TERM. The term "Scheduled Term" shall mean the period commencing at the Effective Time and ending on December 31, 1998. 1.26 SUBSIDIARY. A "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 Bancs. 1.27 SUPPLEMENTAL TERM. The term "Supplemental Term" shall mean the two-year period commencing on January 1, 1999 and ending on December 31, 2000. 1.28 TERMINATION DATE. The term "Termination Date" means the date on which Gillespie's employment with Key Bancs and its Subsidiaries terminates. 1.29 VOLUNTARY RESIGNATION. A "Voluntary Resignation" shall have occurred if Gillespie terminates his employment with Key Bancs and all its Subsidiaries by voluntarily resigning at his own instance without having been requested to so resign by Key Bancs, except that any resignation by Gillespie will not be deemed to be a Voluntary Resignation if, at the time of that resignation, Gillespie had Good Reason to resign. 2. TERM OF EMPLOYMENT. Key Bancs engages and employs Gillespie 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 at all times and from time to time with the Job Description, all in accordance with the terms and conditions of this Agreement, for a period commencing at the Effective Time and ending on December 31, 1998, unless such period is extended by the mutual agreement of Key Bancs and Gillespie or is sooner terminated pursuant to this Agreement. 3. FULL-TIME SERVICES. Gillespie will devote all his time and efforts to the service of Key Bancs, except (a) for usual vacation periods and reasonable periods of illness, (b) for services as an officer and director of any Subsidiary of Key Bancs, and (c) for service as a director or trustee of other corporations or organizations which are not in competition with Key Bancs or any Subsidiary. 4. DIRECTOR AND EXECUTIVE OFFICER. Throughout the period of his employment under this Agreement, Gillespie will be elected and serve as a director of Key Bancs. In addition: (a) During the Post-Merger Period, Gillespie shall hold the titles of President and Chief Operating Officer of Key Bancs and, in those capacities, shall have the duties, responsibilities, and authority that are allocated to the President of Key Bancs in the Job Description. Final Execution Copy -10- 11 (b) At all times during the term of his employment under this Agreement following the end of the Post-Merger Period, Gillespie shall hold the titles of President and Chief Executive Officer of Key Bancs and, in those capacities, shall have the duties, responsibilities, and authority that are allocated to the President and for the Chief Executive Officer of Key Bancs in the Job Description. 5. COMPENSATION. For all services to be rendered by Gillespie to Key Bancs under this Agreement, including services as an officer, director, or member of any committee of Key Bancs or of any Subsidiary, or any other services specified by the Board of Directors of Key Bancs, Key Bancs shall pay to Gillespie, in equal monthly or more frequent installments, base salary at a annual rate not lower than $700,000 per annum. In addition to such base salary, Gillespie shall participate in any incentive compensation, retirement, savings, stock option, disability, and other employee benefit and welfare plan or arrangement allowed or provided by Key Bancs in which he would otherwise be eligible for participation as an executive officer and employee of Key Bancs, and, to the extent not provided, Key Bancs shall pay or provide for the payment of benefits commensurate with Gillespie's annual compensation. 6. EFFECT OF FAILURE TO RENEW. If, at the expiration of the Scheduled Term, Gillespie's employment under this Agreement has not otherwise been terminated and Gillespie's employment with Key Bancs is not extended upon terms acceptable to Gillespie (either under this Agreement or under a new agreement), then each of Key Bancs and Gillespie shall have the option (exercisable at any time within 30 days after the expiration of the Scheduled Term) of terminating his employment with Key Bancs as of the last day of the Scheduled Term and, upon exercise of that option, Key Bancs shall pay and provide the following amounts and benefits to Gillespie: 6.1 Key Bancs shall pay to Gillespie semimonthly compensation continuation payments (one such payment to be made on each of the fifteenth and the last day of each calendar month) throughout the Supplemental Term. The first such semimonthly payment shall be made for the period commencing on the day after the Termination Date and ending on the first day after the Termination Date that is either the fifteenth or last day of the calendar month in which the Termination Date occurs. The last such semimonthly payment shall be made for the period commencing with the last date immediately preceding the end of the Supplemental Term that is either the first or sixteenth day of the calendar month in which the Supplemental Term ends and ending on the last day of the Supplemental Term. The amount of each such semimonthly payment (other than the first and the last such payment) shall be equal to the sum of (a) one half of one month's base salary of Gillespie (at the highest rate in effect at any time during the two year period ending on the Final Execution Copy -11- 12 Termination Date), plus (b) one-twenty-fourth (1/24) of Gillespie's Average Annual Incentive Compensation. The amount of each of the first and last such semimonthly payments shall be equal to the amount specified in the immediately preceding sentence multiplied by a fraction, the numerator of which is the number of days in the period for which that payment is payable and the denominator of which is the number of days in the semimonthly period at the end of which that payment is payable. If Gillespie dies after becoming entitled to payments under this Section 6.1 but before the end of the Supplemental Term, any payments due after his death shall be made to his estate or, if Gillespie shall so direct to Key Bancs in writing, to his wife or to a trust created by Gillespie. Gillespie's right to direct payment of such payments following his death may be exercised by him at any time and from time to time during his life, and any such direction made subsequent to an earlier one shall revoke and supersede such earlier direction. The amounts payable to Gillespie, his wife, or any trust created by Gillespie for any month under this Section 6.1 shall be reduced, but not below zero, by the full amount of the payments, if any, received by any person (including, without limitation, Gillespie, his wife, and any trust created by Gillespie) for that month from all Combined Retirement Plans on account of Gillespie. 6.2 Key Bancs shall arrange to provide Gillespie, throughout the period beginning on the first day of the Supplemental Term and ending on the earlier of (a) the last day of the Supplemental Term, or (b) the first date on which Gillespie accepts Full-time Employment with an Unaffiliated Employer, with medical benefits (including, if applicable, dental), long term disability benefits, and group term life insurance benefits, in all cases at substantially the same level of coverage, and subject to the same (by dollar amount) employee contribution requirement (if any), as those which Gillespie was receiving or entitled to receive as an officer of Key Bancs on the Termination Date. 6.3 For the period beginning on the first day of the Supplemental Term and ending on the earlier of (a) the last day of the Supplemental Term, or (b) the date of Gillespie's death (the "Section 6.3 Benefit Period"), Key Bancs shall cause Gillespie to continue to be covered by and to participate in all Combined Retirement Plans and Combined Savings Plans that he was entitled to be covered by and participating in as an officer of Key Bancs on the Termination Date, except where such coverage or participation is Impermissible. For these purposes: (i) the entire Section 6.3 Benefit Period shall be included in determining Gillespie's years of service, and (ii) Gillespie's base salary during the Section 6.3 Benefit Period shall be deemed to be the amount he receives under clause (a) of Section 6.1 and that portion of the amount payable under clause (b) of Section 6.1 that is attributable to incentive compensation Final Execution Copy -12- 13 taken into account for purposes of determining retirement benefits under any of the Combined Retirement Plans and Combined Savings Plans shall be taken into account as if it were such incentive compensation. If, at any time during the Section 6.3 Benefit Period, Key Bancs determines in good faith that continuing Gillespie's coverage by and participation in any of the Combined Retirement Plans or any of the Combined Savings Plans during the Supplemental Term is Impermissible, Key Bancs shall not be required to cause Gillespie to continue to be covered by and to participate in such affected Plan or Plans, but in lieu thereof, Key Bancs shall, within 45 days after the end of the Section 6.3 Benefit Period, pay to Gillespie a lump-sum amount, with respect to each such Plan in which Gillespie's coverage or participation ceased for any time during that period, equal to (x) in the case of a Combined Savings Plan, the aggregate maximum amount of the employer matching contributions which would have been, but were not, credited to Gillespie's account if he had, at all times during the Section 6.3 Benefit Period, continued to be covered by and participate in such Combined Savings Plan to the maximum extent permitted, and (y) in the case of a Combined Retirement Plan, the difference between the actuarial equivalent of the benefit under the Combined Retirement Plan which Gillespie would have received (after the end of the Section 6.3 Benefit Period) if he had, at all times during the Section 6.3 Benefit Period, continued to be covered by and participate in such Combined Retirement Plan and had thereafter elected to receive a straight life annuity at age 65 under that Combined Retirement Plan and the actuarial equivalent of the actual benefit paid or payable to Gillespie (after the end of the Section 6.3 Benefit Period) under the Combined Retirement Plan determined as if Gillespie had elected to receive a straight life annuity at age 65 under that Combined Retirement Plan. For purposes of determining these actuarial equivalents, the discount rate used shall be the lowest "immediate annuity rate" published by the Pension Benefit Guaranty Corporation under PBGC Regulation Section 2619 for plans with valuation dates during the 90-day period ending on the Termination Date and the accrual formulas and actuarial assumptions utilized shall be the most favorable to Gillespie of those in effect with respect to such Combined Retirement Plan during the 90-day period ending on the Termination Date. All determinations and calculations required to be made under sub-clauses (x) and (y) of this Section 6.3 shall be made by the Accounting Firm, which shall provide detailed supporting calculations both to Key Bancs and to Gillespie within 30 days after the end of the Section 6.3 Benefit Period. All such determinations and calculations by the Accounting Firm shall be final and binding upon Key Bancs and Gillespie. 7. EFFECT OF GOOD REASON (IN GENERAL). If, at any time before the expiration of the Scheduled Term, Gillespie has Good Reason to terminate his employment, Gillespie shall have Final Execution Copy -13- 14 the right, exercisable at any time during the period beginning on the date the event constituting any particular instance of Good Reason first occurs and ending on the earlier of (a) the first anniversary of that date, or (b) the end of the Scheduled Term, to terminate his employment with Key Bancs by giving written notice of such election to Key Bancs. Any such termination by Gillespie during that period shall be treated for all purposes of this Agreement as a termination of Gillespie's employment by Key Bancs without Cause effective as of the date on which Gillespie delivers notice of his election under this Section 7 to Key Bancs. 8. EFFECT OF TERMINATION WITHOUT CAUSE BEFORE A CHANGE OF CONTROL. If, at any time before the expiration of the Scheduled Term and before a Change of Control has occurred, Key Bancs terminates Gillespie's employment without Cause, Key Bancs shall pay and provide the following amounts and benefits to Gillespie: 8.1 Key Bancs shall pay to Gillespie semimonthly compensation continuation payments (one such payment to be made on each of the fifteenth and the last day of each calendar month) throughout the remainder of the Scheduled Term and thereafter throughout the Supplemental Term. The first such semimonthly payment shall be made for the period commencing on the day after the Termination Date and ending on the first day after the Termination Date that is either the fifteenth or last day of the calendar month in which the Termination Date occurs. The last such semimonthly payment shall be made for the period commencing with the last date immediately preceding the end of the Supplemental Term that is either the first or sixteenth day of the calendar month in which the Supplemental Term ends and ending on the last day of the Supplemental Term. The amount of each such semimonthly payment (other than the first and the last such payment) shall be equal to the sum of (a) one half of one month's base salary of Gillespie (at the highest rate in effect at any time during the two year period ending on the Termination Date), plus (b) one-twenty-fourth (1/24) of Gillespie's Average Annual Incentive Compensation. The amount of each of the first and last such semimonthly payments shall be equal to the amount specified in the immediately preceding sentence multiplied by a fraction, the numerator of which is the number of days in the period for which that payment is payable and the denominator of which is the number of days in the semimonthly period at the end of which that payment is payable. If Gillespie dies after becoming entitled to payments under this Section 8.1 but before the end of the Supplemental Term, any payments due after his death shall be made to his estate or, if Gillespie shall so direct to Key Bancs in writing, to his wife or to a trust created by Gillespie. Gillespie's right to direct payment of such payments following his death may be exercised by him at any time and from time to time during his life, and any such direction made subsequent to an earlier Final Execution Copy -14- 15 one shall revoke and supersede such earlier direction. The amounts payable to Gillespie, his wife, or any trust created by Gillespie for any month under this Section 8.1 shall be reduced, but not below zero, by the full amount of the payments, if any, received by any person (including, without limitation, Gillespie, his wife, and any trust created by Gillespie) for that month from all Combined Retirement Plans on account of Gillespie. 8.2 Key Bancs shall arrange to provide Gillespie, throughout the period beginning on the Termination Date and ending on the earlier of (a) the last day of the Supplemental Term, or (b) the first date on which Gillespie accepts Full-time Employment with an Unaffiliated Employer, with medical benefits (including, if applicable, dental), long term disability benefits, and group term life insurance benefits, in all cases at substantially the same level of coverage, and subject to the same (by dollar amount) employee contribution requirement (if any), as those which Gillespie was receiving or entitled to receive as an officer of Key Bancs on the Termination Date. 8.3 For the period beginning on the Termination Date and ending on the earlier of (a) the last day of the Supplemental Term, or (b) the date of Gillespie's death (the "Section 8.3 Benefit Period"), Key Bancs shall cause Gillespie to continue to be covered by and to participate in all Combined Retirement Plans and Combined Savings Plans that he was entitled to be covered by and participating in as an officer of Key Bancs on the Termination Date, except where such coverage or participation is Impermissible. For these purposes: (i) the Section 8.3 Benefit Period shall be included in determining Gillespie's years of service, and (ii) Gillespie's base salary during the Section 8.3 Benefit Period shall be deemed to be the amount he receives under clause (a) of Section 8.1 and that portion of the amount payable under clause (b) of Section 8.1 that is attributable to incentive compensation taken into account for purposes of determining retirement benefits under any of the Combined Retirement Plans and Combined Savings Plans shall be taken into account as if it were such incentive compensation. If, at any time during the Section 8.3 Benefit Period, Key Bancs determines in good faith that continuing Gillespie's coverage by and participation in any of the Combined Retirement Plans or any of the Combined Savings Plans during the Section 8.3 Benefit Period is Impermissible, Key Bancs shall not be required to cause Gillespie to continue to be covered by and to participate in such affected Plan or Plans, but in lieu thereof, Key Bancs shall, within 45 days after the end of the Section 8.3 Benefit Period, pay to Gillespie a lump-sum amount, with respect to each such Plan in which Gillespie's coverage or participation ceased for any time during the Section 8.3 Benefit Period, equal to (x) in the case of a Combined Savings Plan, the aggregate maximum amount of the employer matching contributions which would Final Execution Copy -15- 16 have been, but were not, credited to Gillespie's account if he had, at all times during the Section 8.3 Benefit Period, continued to be covered by and participate in such Combined Savings Plan to the maximum extent permitted, and (y) in the case of a Combined Retirement Plan, the difference between the actuarial equivalent of the benefit under the Combined Retirement Plan which Gillespie would have received (after the end of the Section 8.3 Benefit Period) if he had, at all times during the Section 8.3 Benefit Period, continued to be covered by and participate in such Combined Retirement Plan and had thereafter elected to receive a straight life annuity at age 65 under that Combined Retirement Plan and the actuarial equivalent of the actual benefit paid or payable to Gillespie (after the end of the Section 8.3 Benefit Period) under the Combined Retirement Plan determined as if Gillespie had elected to receive a straight life annuity at age 65 under that Combined Retirement Plan. For purposes of determining these actuarial equivalents, the discount rate used shall be the lowest "immediate annuity rate" published by the Pension Benefit Guaranty Corporation under PBGC Regulation Section 2619 for plans with valuation dates during the 90-day period ending on the Termination Date and the accrual formulas and actuarial assumptions utilized shall be the most favorable to Gillespie of those in effect with respect to such Combined Retirement Plan during the 90-day period ending on the Termination Date. All determinations and calculations required to be made under sub-clauses (x) and (y) of this Section 8.3 shall be made by the Accounting Firm, which shall provide detailed supporting calculations both to Key Bancs and to Gillespie within 30 days after the end of the Section 8.3 Benefit Period. All such determinations and calculations by the Accounting Firm shall be final and binding upon Key Bancs and Gillespie. 9. EFFECT OF TERMINATION AFTER A CHANGE OF CONTROL BY GILLESPIE FOR GOOD REASON OR BY KEY BANCS WITHOUT CAUSE. If, at any time before the expiration of the Scheduled Term and after a Change of Control has occurred, Gillespie terminates his employment for Good Reason or Key Bancs terminates Gillespie's employment without Cause, Key Bancs shall pay and provide the following amounts and benefits to Gillespie: 9.1 Key Bancs shall pay to Gillespie semimonthly compensation continuation payments (one such payment to be made on each of the fifteenth and the last day of each calendar month) throughout the remainder of the Scheduled Term and thereafter throughout the Supplemental Term. The first such semimonthly payment shall be made for the period commencing on the day after the Termination Date and ending on the first day after the Termination Date that is either the fifteenth or last day of the calendar month in which the Termination Date occurs. The last such semimonthly payment shall be made for the period commencing with the last date immediately preceding the end of the Supplemental Term that Final Execution Copy -16- 17 is either the first or sixteenth day of the calendar month in which the Supplemental Term ends and ending on the last day of the Supplemental Term. The amount of each such semimonthly payment (other than the first and the last such payment) shall be equal to the sum of (a) one half of one month's base salary of Gillespie (at the highest rate in effect at any time during the two year period ending on the Termination Date), plus (b) one-twenty-fourth (1/24) of Gillespie's Average Annual Incentive Compensation. The amount of each of the first and last such semimonthly payments shall be equal to the amount specified in the immediately preceding sentence multiplied by a fraction, the numerator of which is the number of days in the period for which that payment is payable and the denominator of which is the number of days in the semimonthly period at the end of which that payment is payable. If Gillespie dies after becoming entitled to payments under this Section 9.1 but before the end of the Supplemental Term, any payments due after his death shall be made to his estate or, if Gillespie shall so direct to Key Bancs in writing, to his wife or to a trust created by Gillespie. Gillespie's right to direct payment of such payments following his death may be exercised by him at any time and from time to time during his life, and any such direction made subsequent to an earlier one shall revoke and supersede such earlier direction. The amounts payable to Gillespie, his wife, or any trust created by Gillespie for any month under this Section 9.1 shall be reduced, but not below zero, by the full amount of the payments, if any, received by any person (including, without limitation, Gillespie, his wife, and any trust created by Gillespie) for that month from all Combined Retirement Plans on account of Gillespie. 9.2 Key Bancs shall arrange to provide Gillespie, throughout the period beginning on the Termination Date and ending on the earlier of (a) the last day of the Supplemental Term, or (b) the first date on which Gillespie accepts Full-time Employment with an Unaffiliated Employer, with medical benefits (including, if applicable, dental), long term disability benefits, and group term life insurance benefits, in all cases at substantially the same level of coverage, and subject to the same (by dollar amount) employee contribution requirement (if any), as those which Gillespie was receiving or entitled to receive as an officer of Key Bancs on the Termination Date. 9.3 For the period beginning on the Termination Date and ending on earlier of (a) the last day of the Supplemental Term, or (b) the date of Gillespie's death (the "Section 9.3 Benefit Period"), Key Bancs shall cause Gillespie to continue to be covered by and to participate in all Combined Retirement Plans and Combined Savings Plans that he was entitled to be covered by and participating in as an officer of Key Bancs on the Termination Date, except where such coverage or participation is Impermissible. For Final Execution Copy -17- 18 these purposes: (i) the entire Section 9.3 Benefit Period shall be included in determining Gillespie's years of service; and (ii) Gillespie's base salary during the Section 9.3 Benefit Period shall be deemed to be the amount he is deemed to receive under clause (a) Section 9.1 and that portion of the amount deemed payable under clause (b) of Section 9.1 that is attributable to incentive compensation taken into account for purposes of determining retirement benefits under any of the Combined Retirement Plans and Combined Savings Plans shall be taken into account as if it were such incentive compensation. If, at any time during the Section 9.3 Benefit Period, Key Bancs determines in good faith that continuing Gillespie's coverage by and participation in any of the Combined Retirement Plans or any of the Combined Savings Plans during the Section 9.3 Benefit Period is Impermissible, Key Bancs shall not be required to cause Gillespie to continue to be covered by and to participate in such affected Plan or Plans, but in lieu thereof, Key Bancs shall, within 45 days after the end of the Section 9.3 Benefit Period, pay to Gillespie a lump-sum amount, with respect to each such Plan in which Gillespie's coverage or participation ceased for any time during the Section 9.3 Benefit Period equal to (x) in the case of a Combined Savings Plan, the aggregate maximum amount of the employer matching contributions which would have been, but were not, credited to Gillespie's account if he had, at all times during the Section 9.3 Benefit Period, continued to be covered by and participate in such Combined Savings Plan to the maximum extent permitted, and (y) in the case of a Combined Retirement Plan, the difference between the actuarial equivalent of the benefit under the Combined Retirement Plan which Gillespie would have received (after the end of the Section 9.3 Benefit Period) if he had, at all times during the Section 9.3 Benefit Period, continued to be covered by and participate in such Combined Retirement Plan and had thereafter elected to receive a straight life annuity at age 65 under that Combined Retirement Plan and the actuarial equivalent of the actual benefit paid or payable to Gillespie (after the end of the Section 9.3 Benefit Period) under the Combined Retirement Plan determined as if Gillespie had elected to receive a straight life annuity at age 65 under that Combined Retirement Plan. For purposes of determining these actuarial equivalents, the discount rate used shall be the lowest "immediate annuity rate" published by the Pension Benefit Guaranty Corporation under PBGC Regulation Section 2619 for plans with valuation dates during the 90-day period ending on the Termination Date and the accrual formulas and actuarial assumptions utilized shall be the most favorable to Gillespie of those in effect with respect to such Combined Retirement Plan during the 90-day period ending on the Termination Date. All determinations and calculations required to be made under sub-clauses (x) and (y) of this Section 9.3 shall be made by the Accounting Firm, which shall provide detailed supporting calculations both to Key Bancs and to Gillespie within 30 Final Execution Copy -18- 19 days after the end of the Section 9.3 Benefit Period. All such determinations and calculations by the Accounting Firm shall be final and binding upon Key Bancs and Gillespie. 10. EFFECT OF DEATH WHILE IN EMPLOY OF KEY BANCS. If Gillespie dies while employed by Key Bancs, (a) Key Bancs shall pay to Gillespie's estate any unpaid base salary due or to become due to Gillespie with respect to any period ending before his death, (b) if Gillespie is survived by his wife, Key Bancs shall pay the monthly survivor pension benefit provided for in Section 15, (c) Key Bancs shall have no further obligations to Gillespie for base salary for any period after Gillespie's death, and (d) Key Bancs shall pay such incentive compensation as is provided for under the Combined Management Incentive Compensation Plan and the Combined Long Term Incentive Compensation Plan to Gillespie's estate or as otherwise provided for under such plans. 11. EFFECT OF DISABILITY WHILE IN EMPLOY OF KEY BANCS. If, while Gillespie is employed by Key Bancs, 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: 11.1 Key Bancs may relieve Gillespie of his duties under this Agreement for as long as Gillespie is so disabled. 11.2 Key Bancs shall pay to Gillespie all base salary and incentive compensation to which he would have been entitled under this Agreement and under the Combined Management Incentive Compensation Plan and the Combined Long Term Incentive Compensation Plan had he continued to be actively employed by Key Bancs to the earliest of (a) the first date on which he is no longer so disabled to such an extent that he is unable to perform his duties under this Agreement, (b) the date on which he becomes eligible for payment of long term disability benefits under the Combined Long Term Disability Benefit Plan, (c) the date of his death, or (d) the last day of the Supplemental Term. 11.3 If and when Gillespie becomes eligible for payment of long term disability benefits under the Combined Long Term Disability Benefit Plan, Key Bancs shall pay to Gillespie semimonthly compensation continuation payments (one such payment to be made on each of the fifteenth and the last day of each calendar month) throughout the period (the "Section 11.3 Benefit Period) beginning with the date on which Gillespie becomes so eligible and ending on the earliest of (a) the first date on which he is no longer so disabled to such an extent that he is unable to perform his duties under this Agreement, (b) the date of his death, or (c) the last day of the Supplemental Term. The first such semimonthly payment shall be made for the period commencing on the first day of the Section 11.3 Benefit Period and ending on the first day after that date that is either the Final Execution Copy -19- 20 fifteenth or last day of the calendar month in which the Section 11.3 Benefit Period begins. The last such semimonthly payment shall be made for the period commencing with the last date within the Section 11.3 Benefit Period that is either the first or sixteenth day of the calendar month in which the Section 11.3 Benefit Period ends and ending on the last day of the Section 11.3 Benefit Period. The amount of each such semimonthly payment (other than the first and the last such payment) shall be equal to the sum of (i) one half of one month's base salary of Gillespie (at the highest rate in effect at any time during the two year period ending on the last day before the date of the payment on which Gillespie performed services for Key Bancs), plus (ii) one-twenty-fourth (1/24) of Gillespie's Average Annual Incentive Compensation (determined as though the last day before the date of the payment on which Gillespie performed services for Key Bancs was the Termination Date). The amount of each of the first and last such semimonthly payments shall be equal to the amount specified in the immediately preceding sentence multiplied by a fraction, the numerator of which is the number of days in the period for which that payment is payable and the denominator of which is the number of days in the semimonthly period at the end of which that payment is payable. 11.4 The amounts payable to Gillespie for any month under this Section 11 shall be reduced, but not below zero, by the full amount of the payments, if any, received by Gillespie for that month (a) from all Combined Retirement Plans, (b) from the Combined Long-Term Disability Plan, and (c) from any other disability plan the entire cost of which is borne by Key Bancs. 11.5 For purposes of entitlement to a death benefit under Section 10 or Section 15 of this Agreement, (a) Gillespie will be treated as being employed by Key Bancs throughout any portion of the Scheduled Term during which he is entitled to receive payments from Key Bancs under either of Sections 11.2 or 11.3 and (b) Gillespie will not be treated as being employed by Key Bancs at any time during the Supplemental Term. 11.6 For purposes of all retirement, savings, stock option, disability, and other employee benefit and welfare plans or arrangements allowed or provided by Key Bancs to officers, Gillespie shall be treated in the same manner that Key Bancs treats other officers who become disabled. 11.7 Except as provided in this Section 11, Key Bancs shall have no further obligations to Gillespie for base salary or incentive compensation for any period during which Gillespie is so disabled to such an extent that he is unable to perform his duties under this Agreement. Final Execution Copy -20- 21 12. NO SET-OFF OR MITIGATION. The compensation and benefits to be paid and provided by Key Bancs to Gillespie under this Agreement are not to be subject to any set-off against any claim by Key Bancs against Gillespie. Gillespie will not be required to mitigate any amounts payable by Key Bancs to Gillespie under any of the terms of this Agreement and, except to the limited extent provided herein with respect to welfare benefit plans, no payment or benefit to Gillespie from any other source will reduce the obligation of Key Bancs to make payment to and provide benefits to Gillespie after termination of his employment as provided in this Agreement. 13. PAYMENTS ARE IN LIEU OF SEVERANCE PAYMENTS. If Gillespie becomes entitled to receive any 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 Gillespie may have for severance, separation, and/or salary continuation pay upon that termination of his employment. 14. LIMITATIONS ON COMPETITION. 14.1 Gillespie shall not engage in any Competitive Activity during the period of his employment with Key Bancs. 14.2 Gillespie shall not engage in any Competitive Activity during any period after the Termination Date during which he is receiving semimonthly compensation continuation payments under any of Sections 6.1, 8.1, or 9.1. If Gillespie continues to violate the restriction set forth in this Section 14.2 after the Board of Directors has advised him in writing to cease those activities and that violation is material, Key Bancs shall thereupon be relieved of all further obligations to make payments and provide benefits to Gillespie under any of the provisions contained in any of Sections 6 through 9. Gillespie shall not be required to repay to Key Bancs any payment received by him before he began to engage in any such Competitive Activity. If a Financial Services Company has business operations or activities in multiple states some of which are Restricted States and some of which are not Restricted States, Key Bancs will not unreasonably withhold its consent after the Termination Date to Gillespie serving as an officer, employee, or consultant of such Financial Services Company if (a) Gillespie's duties and responsibilities for such Financial Services Company are restricted to a specific geographic region which does not include a Restricted State, and (b) none of Gillespie's services or activities is performed in or related to a Restricted State. 15. DEATH BENEFIT FOR SURVIVING WIFE. If Gillespie dies while employed by Key Bancs leaving his wife surviving him, Key Bancs shall pay to Gillespie's wife or, if Gillespie shall so direct to Key Bancs in writing, to a trust in which his wife is one of the beneficiaries or to his estate, a Final Execution Copy -21- 22 monthly survivor pension equal to the excess, if any, of (a) one-third of the monthly amount Gillespie or his wife or his estate would receive under Section 8.1 if Gillespie had been terminated without Cause by Key Bancs on the day before the date of his death (i.e., an amount equal to one-third of the sum of two semimonthly payments calculated as provided in the fourth sentence of Section 8.1), over (b) the aggregate monthly survivor benefits, if any, under all Combined Retirement Plans received by Gillespie's wife. In the event Gillespie and his wife die in a common accident or in the event Gillespie and his wife die within six months of each other's death as a result of injuries sustained in a common accident, Gillespie's wife, for purposes of the preceding sentence and for purposes of Section 10, shall be deemed to have survived him, regardless of the actual order of their respective deaths. The monthly survivor payments shall be paid at the rate of one per month commencing with the month following the month in which Gillespie's death occurs and continuing through the later of (i) the month in which Gillespie's wife dies, or (ii) the 180th month following the month in which Gillespie's death occurs. If Gillespie's wife dies before 180 monthly payments have been made, Key Bancs shall pay the remaining payments to the estate of Gillespie's wife or in accordance with Gillespie's written direction, if any, as above provided. Gillespie's right to direct payment of such monthly survivor pension following his death may be exercised by him at any time and from time to time during his life, and any such direction made subsequent to an earlier one shall revoke and supersede such earlier direction. 16. STOCK OPTIONS. If a Change of Control occurs during the period of Gillespie's employment under this Agreement and an election by Gillespie under this Section 16 would not conflict with the treatment for accounting purposes of any transaction entered into in connection with the Change of Control as a pooling of interests, Gillespie thereafter may from time to time elect to surrender to Key Bancs his rights in any or all outstanding stock options (whether or not then exercisable) to purchase Common Shares of Key Bancs then held by him that have been outstanding, at the time of Gillespie's election to surrender the same under this Section 16, for at least six months. Upon any such surrender, Key Bancs shall pay to Gillespie an amount equal to the excess of (a) the aggregate fair market value of all of the Common Shares subject to the stock options so surrendered over (b) the aggregate option price of all such Common Shares under those stock options. For purposes of this Section 16, "fair market value" shall mean the higher of (i) the highest price paid per share for Common Shares of Key Bancs in connection with the Change of Control, or (ii) the mean between the high and low sales prices for Common Shares of Key Bancs (as reported in THE WALL STREET JOURNAL) on the date of Gillespie's election to surrender his rights in all outstanding stock options. Final Execution Copy -22- 23 17. ADDITIONAL RETIREMENT BENEFITS. 17.1 If Gillespie's employment with Key Bancs terminates before March 26, 2009 (his 65th birthday) for any reason other than (a) a Voluntary Resignation that is effective before the end of the Scheduled Term, or (b) Cause and Gillespie (or any person claiming through Gillespie) receives retirement benefits under one or more of the Combined Retirement Plans at any time after March 26, 1999 (Gillespie's 55th birthday), Key Bancs shall pay to Gillespie, to his contingent annuitant, to his term-certain beneficiary, and/or to his other beneficiary under each such plan, on each date after March 26, 1999 on which a payment is payable under any such plan, a supplemental retirement benefit equal to the excess, if any, of (x) the amount that would be payable on that date under that plan if, at his Termination Date, Gillespie had attained age 65 (so that there would be no reduction in the amount of the benefit due to commencement of payment before age 65) and had completed 40 and 3/4 years of service with Key Bancs (so that he would be treated as having the same number of years of service as if he had continued in the employ of Key Bancs through his 65th birthday), over (y) the amount actually payable on that date under that plan. Any amount paid pursuant to this Section 17.1 shall be treated, for purposes of this Agreement, as paid from a Combined Retirement Plan. 17.2 If Gillespie's employment with Key Bancs is terminated by a Voluntary Resignation that is effective before the end of the Scheduled Term and Gillespie elects to begin receiving retirement benefits under one or more of the Combined Retirement Plans after his 60th birthday but before his 65th birthday, Key Bancs shall pay to Gillespie, to his contingent annuitant, to his term- certain beneficiary, and/ or to his other beneficiary under each such plan, on the date any payment is payable under such plan, a supplemental retirement benefit equal to the amount by which that payment is reduced because Gillespie began to receive benefits under that plan before his 65th birthday. Any amount paid pursuant to this Section 17.2 shall be treated, for purposes of this Agreement, as paid from a Combined Retirement Plan. 17.3 Upon termination of his employment with Key Bancs for any reason whatsoever at any time after the Effective Time, Gillespie will be treated as having satisfied all of the requirements for eligibility for a supplemental retirement benefit under the Society Corporation Supplemental Retirement Plan (as from time to time amended, restated, or otherwise modified, including any plan hereafter succeeding, replacing, or being substituted for such plan). 18. INDEMNIFICATION. Key Bancs shall indemnify Gillespie, to the full extent permitted or authorized by the Ohio General Corporation Law as it may from time to time be amended, Final Execution Copy -23- 24 if Gillespie 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 Gillespie is or was a director, officer, or employee of Key Bancs or any Subsidiary, or is or was serving at the request of Key Bancs 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 18 shall not be deemed exclusive of any other rights to which Gillespie may be entitled under the articles of incorporation or the regulations of Key Bancs or of any Subsidiary, or any agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in Gillespie's official capacity and as to action in another capacity while holding such office, and shall continue as to Gillespie after Gillespie has ceased to be a director, trustee, officer, or employee and shall inure to the benefit of the heirs, executors, and administrators of Gillespie. 19. REIMBURSEMENT OF CERTAIN EXPENSES. 19.1 Key Bancs shall pay, as incurred, all expenses, including the reasonable fees of counsel engaged by Gillespie, of defending any action brought to have this Agreement declared invalid or unenforceable. 19.2 Key Bancs shall pay, as incurred, all expenses, including the reasonable fees of counsel engaged by Gillespie, of prosecuting any action to compel Key Bancs to comply with the terms of this Agreement upon receipt from Gillespie of an undertaking to repay Key Bancs for such expenses if, and only if, it is ultimately determined by a court of competent jurisdiction that Gillespie had no reasonable grounds for bringing that action (which determination need not be made simply because Gillespie fails to succeed in the action). 19.3 Expenses (including attorney's fees) incurred by Gillespie in defending any action, suit, or proceeding commenced or threatened against Gillespie for any action or failure to act as an employee, officer, or director of Key Bancs or any Subsidiary shall be paid by Key Bancs, as they are incurred, in advance of final disposition of the action, suit, or proceeding upon receipt of an undertaking by or on behalf of Gillespie in which he agrees to reasonably cooperate with Key Bancs 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 Gillespie 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 Bancs or a Subsidiary or (b) if the action, suit, or proceeding is commenced or threatened against Final Execution Copy -24- 25 Gillespie 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 Bancs to advance expenses provided for in this Section 19.3 shall not be deemed exclusive of any other rights to which Gillespie may be entitled under the articles of incorporation or the regulations of Key Bancs or of any Subsidiary, or any agreement, vote of shareholders or disinterested directors, or otherwise. 20. TERMINATION FOR CAUSE. In the event Gillespie's employment is terminated for Cause, Key Bancs may, by giving written notice to Gillespie, terminate this Agreement and all its obligations remaining to be performed or observed by it under this Agreement. 21. EXCESS PARACHUTE PAYMENT REDUCTION. Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by Key Bancs or any of its Subsidiaries to or for the benefit of Gillespie (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would be nondeductible by Key Bancs for Federal income tax purposes because of Section 280G of the Internal Revenue Code and applicable regulations promulgated thereunder, then the aggregate present value of amounts payable or distributable to or for the benefit of Gillespie pursuant to this Agreement (such payments or distributions pursuant to this Agreement are hereinafter referred to as "Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be nondeductible by Key Bancs because of Section 280G of the Internal Revenue Code and applicable regulations promulgated thereunder. For purposes of this Section 21, present value shall be determined in accordance with Section 280G(d)(4) of the Internal Revenue Code and applicable regulations promulgated thereunder. All determinations required to be made under this Section 21 shall be made by the Accounting Firm which shall provide detailed supporting calculations both to Key Bancs and Gillespie within 30 days after the Termination Date or such earlier time as is requested by Key Bancs. Key Bancs and Gillespie shall cooperate with each other and the Accounting Firm and will provide necessary information so that the Accounting Firm may make all such determinations. All such determinations by the Accounting Firm shall be final and binding upon Key Bancs and Gillespie. Gillespie shall determine which of the Agreement Payments (or, at the election of Gillespie, other payments) shall be eliminated or reduced consistent with the requirements of this Section 21, provided that, if Gillespie does not make such determination within 20 days of the receipt of the calculations made by the Accounting Firm, Key Bancs shall elect which of the Agreement Payments shall be eliminated or reduced consistent with the requirements of this Section 21 and shall notify Gillespie promptly of such election. As a result of the uncertainty in the Final Execution Copy -25- 26 application of Section 280G of the Internal Revenue Code and applicable regulations promulgated thereunder at the time of the initial determination by the Accounting Firm hereunder, it is possible that Agreement Payments will be made by Key Bancs which should not have been made ("Overpayment") or that additional Agreement Payments will not be made by Key Bancs which could have been made ("Underpayment"), in each case, consistent with the calculations required to be made hereunder. In the event that the Accounting Firm or a court of competent jurisdiction (in a final judgment as to which the time for appeal has lapsed or no appeal is available) determines at any time that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to Gillespie which Gillespie shall repay to Key Bancs together with interest at the applicable short-term Federal rate provided for in Section 1274(d)(1) of the Internal Revenue Code, compounded semi-annually; provided, however, that no amount shall be payable by Gillespie to Key Bancs (or if paid by Gillespie to Key Bancs, such payment shall be returned to Gillespie) if and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Internal Revenue Code. In the event that the Accounting Firm or a court of competent jurisdiction (in a final judgment as to which the time for appeal has lapsed or no appeal is available) determines at any time that an Underpayment has occurred, any such Underpayment shall be promptly paid by Key Bancs to or for the benefit of Gillespie together with interest at the applicable short-term Federal rate provided for in Section 1274(d)(1) of the Internal Revenue Code, compounded semi-annually. 22. DEFERRAL OF PAYMENT OF COMPENSATION UNDER CERTAIN CIRCUMSTANCES. 22.1 SECTION 162(m). For purposes of this Section 22, 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. 22.2 DEFERRAL. Except as otherwise provided in either of Section 22.3 or Section 22.4, below, if Key Bancs 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 Gillespie is a participant) otherwise payable to Gillespie under this Agreement at any particular time (the "Scheduled Time"), Final Execution Copy -26- 27 (a) would not be deductible by Key Bancs if paid at the Scheduled Time by reason of the disallowance rules of Section 162(m), and (b) would be deductible by Key Bancs 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 Bancs 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 Bancs 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 22.5, below) can be paid without disallowance of the deduction, that portion that can be so paid shall be paid by Key Bancs during that year and the remainder, except as otherwise provided in Section 22.3 or Section 22.4, below, shall continue to be deferred until a later year. 22.3 EARLY PAYOUT OF DEFERRED AMOUNT IF DEFERRAL IS DETERMINED TO BE INEFFECTIVE. If any amount of compensation is deferred under Section 22.2 with the expectation that it will be deductible by Key Bancs if paid in a later year and Key Bancs later determines that the compensation will not be deductible by Key Bancs even if payment thereof is deferred until a later year, then, within three months of the date on which that determination is made, the deferral with respect to that compensation shall terminate and Key Bancs shall pay that compensation to Gillespie. 22.4 PAYOUT FOLLOWING TERMINATION OF EMPLOYMENT IN ALL EVENTS. On January 15 of the year immediately following the year in which Gillespie ceases to be employed by Key Bancs, Key Bancs shall pay to Gillespie, in a single lump sum, all amounts of compensation that have been deferred pursuant to this Section 22 and have not previously been paid out so that, as of the close of business on that date, no amount of compensation will remain deferred under this Section 22 whether or not Key Bancs is entitled to a deduction with respect to the payment of that compensation. 22.5 INTEREST ON DEFERRED AMOUNTS. Upon payment of any amounts of compensation deferred for any period of time pursuant to this Section 22, Key Bancs shall pay to Gillespie an additional amount equivalent to the interest that would have accrued on that deferred compensation if interest accrued thereon from the date on which that compensation would have been paid but for this Section 22 through the date on which that compensation is paid at a variable rate equal, in each calendar quarter, to the highest annual rate paid by Society National Bank on new IRA certificates of deposit issued in Cuyahoga County, Ohio on Final Execution Copy -27- 28 the first business day of that calendar quarter, compounded quarterly. 22.6 MISCELLANEOUS. Gillespie's rights with respect to payment during his lifetime of any compensation deferred under this Section 22 shall not be subject to assignment. If Gillespie dies before all compensation deferred under this Section 22 has been paid to him, any such unpaid compensation shall be paid, at the same time it would have been paid if Gillespie had not died but had merely ceased to be an employee of Key Bancs on the date of his death (or, if earlier, on the last date he actually was an employee of Key Bancs), to his estate or, if Gillespie shall so direct to Key Bancs in writing, to his wife or to a trust created by Gillespie. The obligation of Key Bancs to make payments of compensation deferred pursuant to this Section 22 constitutes the unsecured promise of Key Bancs to make payments from its general assets as and when due and neither Gillespie nor any person claiming through him shall have, as a result of this Section 22, any lien or claim on any assets of Key Bancs that is superior to the claims of the general creditors of Key Bancs. 23. MERGER OR TRANSFER OF ASSETS OF KEY BANCS. Key Bancs 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 Gillespie. Upon such assumption the successor corporation shall become obligated to perform the obligations of Key Bancs under this Agreement, and the term "Key Bancs" as used in this Agreement shall be deemed to refer to such successor corporation. 24. 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 Bancs in the case of notices to Key Bancs and to Gillespie in the case of notices to Gillespie) or mailed by United States registered mail, return receipt requested, postage prepaid, as follows: If to Key Bancs: Key Bancs Corporation 127 Public Square Cleveland, Ohio 44114-1306 Attention: Secretary If to Gillespie: Mr. Robert W. Gillespie 1800 Berkshire Road Gates Mills, Ohio 44040 Final Execution Copy -28- 29 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. 25. 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. 26. 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 Gillespie and Key Bancs. 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. 27. PRIOR AGREEMENT. This Agreement amends, restates, and extends the employment agreement between Gillespie and Society Corporation made December 5, 1990, and shall become effective at the Effective Time. At such time, the provisions of this Agreement shall supersede the provisions of the December 5, 1990 agreement and that agreement and all prior agreements on the same subject matter shall be of no further force or effect. SOCIETY CORPORATION By_________________________________ Roger Noall, Vice Chairman and Chief Administrative Officer ________________________________ ROBERT W. GILLESPIE Final Execution Copy -29- EX-10.11 6 KEYCORP EX-10.11 1 EMPLOYMENT AGREEMENT BETWEEN SOCIETY CORPORATION AND ROGER NOALL THIS EMPLOYMENT AGREEMENT (this "Agreement") is made at Cleveland, Ohio, this 4th day of February, 1994, between SOCIETY CORPORATION, an Ohio corporation ("Society"), and ROGER NOALL, 13705 Shaker Boulevard, Cleveland, Ohio 44120 ("Noall"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, pursuant to an Agreement and Plan of Merger and a related Supplemental Agreement to Agreement and Plan of Merger, both dated as of October 1, 1993 (collectively, the "Merger Agreement"), by and between Society and KeyCorp, a New York corporation and a bank holding company ("KeyCorp"), Society and KeyCorp have agreed to a merger of KeyCorp into Society in which Society will be the surviving corporation and will be renamed Key Bancshares Inc.; WHEREAS, Society and Noall are parties to an employment agreement, made December 5, 1990, pursuant to which Society agreed to continue to employ Noall for a period to end on the date of the 1996 Annual Meeting of Shareholders of Society, unless such period should be extended by mutual agreement; and WHEREAS, in connection with the merger of KeyCorp with and into Society (the "Merger"), Society and Noall desire to enter into this Agreement (to become effective at the Effective Time, as defined in the Merger Agreement), pursuant to which Society will continue to employ Noall and Noall will continue to serve Society; NOW, THEREFORE, Society (which, pursuant to the Merger Agreement will change its name to Key Bancshares Inc. and is hereinafter sometimes referred to as "Key Bancshares") and Noall, in consideration of the promises and mutual covenants herein contained, agree as follows: 1. DEFINITIONS. 1. 1 ACCOUNTING FIRM. The term "Accounting Firm" means the independent auditors of Key Bancshares 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 Time, 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 Bancshares shall select another national 2 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 Bancshares or any of its affiliates (as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended). 1.2 AGGREGATE INCENTIVE COMPENSATION AWARD. The term "Aggregate Incentive Compensation Award" with respect to Noall for any year shall mean the aggregate annual incentive compensation awards (whether paid in cash, deferred, or a combination of both) payable to Noall under both the Combined Management Incentive Compensation Plan and the Combined Long Term Incentive Compensation Plan for that year. For these purposes, an incentive compensation award payable to Noall under the Combined Long Term Incentive Compensation Plan with respect to any multi-year period will be deemed to be "for" the last year of that multi-year period. Thus, for example, any incentive compensation award payable to Noall under the Combined Long Term Incentive Compensation Plan with respect to the three year period comprised of 1990, 1991, and 1992 will be deemed to be "for" 1992 (without regard to the time of payment), the entire award under that plan for that period will be part of the Aggregate Incentive Compensation Award for 1992, and no part of the award under that plan for that period will be part of the Aggregate Incentive Compensation Award for any year other than 1992. 1.3 AVERAGE ANNUAL INCENTIVE COMPENSATION. The term "Average Annual Incentive Compensation" shall mean the greater of: (a) The average of the two highest Aggregate Incentive Compensation Awards payable to Noall for any of the years during the five-year period ended on the December 31 immediately preceding the Termination Date; or (b) The average of the two highest Aggregate Incentive Compensation Awards payable to Noall for any of the years during the five-year period ended on the December 31 immediately preceding the first Change of Control, if any, occurring during the Scheduled Term. 1.4 CAUSE (BEFORE A CHANGE OF CONTROL). Key Bancshares will have "Cause" to terminate Noall at any time during the Scheduled Term before a Change of Control has occurred only if: (a) Noall commits a felony; (b) Noall commits an act or series of acts of dishonesty in the course of his employment which are -2- 3 materially inimical to the best interests of Key Bancshares or a Subsidiary as determined by a vote of a majority of all of the members of the Board of Directors of Key Bancshares and, if the act or acts are capable of being cured, Noall fails to cure or take all reasonable steps to cure within 30 days of notice from the Board of Directors to Noall; (c) Noall continues to violate his obligation under Section 14.1 not to engage in Competitive Activities after the Board of Directors has advised him in writing to cease those activities; or (d) Other than for disability, Noall totally abandons and completely fails to attempt to perform his duties and responsibilities as specified from time to time by the Board of Directors of Key Bancshares for 90 consecutive days after written notice from the Board of Directors. 1.5 CAUSE (AFTER A CHANGE OF CONTROL). Key Bancshares will have "Cause" to terminate Noall at any time during the Scheduled Term after a Change of Control has occurred only if: (a) Noall is convicted of a felony; (b) Noall commits an act or series of acts of dishonesty in the course of his employment which are materially inimical to the best interests of Key Bancshares or a Subsidiary and which constitutes the commission of a felony, all as determined in good faith by the vote of three fourths of all of the members of the Board of Directors of Key Bancshares, 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; or (c) Noall continues to violate his obligation under Section 14.1 not to engage in Competitive Activities after the Board of Directors has advised him in writing to cease those activities and that violation is material. 1.6 CHANGE OF CONTROL. A "Change of Control" shall be deemed to have occurred if at any time or from time to time after the Effective Time: (a) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form, or report), each as adopted under the Securities Exchange Act of 1934, as amended, disclosing the acquisition of 25% or more of the voting stock of Key Bancshares in a -3- 4 transaction or series of transactions by 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); (b) During (i) any period commencing with the Effective Time and ending not later than the second anniversary of the Effective Time, or (ii) any period of 24 consecutive calendar months commencing on any date after the Effective Time, individuals who at the beginning of such period constitute the directors of Key Bancshares cease for any reason to constitute at least a majority thereof unless the election of each new director of Key Bancshares was approved or recommended by the vote of at least two-thirds of the entire authorized number of members of the Board of Directors immediately before the time each new director of Key Bancshares was elected to the Board; (c) Key Bancshares merges with or into or consolidates with another corporation and, after giving effect to such merger or consolidation, less than sixty percent (60%) of the then outstanding voting securities of the surviving or resulting corporation represent or were issued in exchange for voting securities of Key Bancshares outstanding immediately prior to such merger or consolidation; (d) 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 Bancshares; or (e) The shareholders of Key Bancshares shall approve any plan or proposal for the liquidation or dissolution of Key Bancshares. 1.7 COMBINED LONG TERM DISABILITY PLAN. The term "Combined Long Term Disability Plan" means and includes the Society Corporation Long Term Disability Plan (January 1, 1993 Restatement) and the Society Corporation supplemental disability coverage program, in both cases as from time to time amended, restated, or otherwise modified, including any long term disability plan that, after the Effective Time, succeeds, replaces, or is substituted for either such plan and includes long term disability benefits or rights provided pursuant to or under insurance contracts maintained by Key Bancshares applicable to senior executives of Key Bancshares. 1.8 COMBINED LONG TERM INCENTIVE COMPENSATION Plan. The term "Combined Long Term Incentive Compensation Plan" means and includes the Society Corporation Long Term Incentive Compensation Plan (November 30, 1993 Restatement) -4- 5 as from time to time amended, restated, or otherwise modified, including any incentive compensation plan that, after the Effective Time, succeeds, replaces, or is substituted for such plan and is applicable to senior executives of Key Bancshares. 1.9 COMBINED MANAGEMENT INCENTIVE COMPENSATION PLAN. The term "Combined Management Incentive Compensation Plan" means and includes the Society Corporation Management Incentive Compensation Plan (November 30, 1993 Restatement) as from time to time amended, restated, or otherwise modified, including any incentive compensation plan that, after the Effective Time, succeeds, replaces, or is substituted for such plan and is applicable to senior executives of Key Bancshares. 1.10 COMBINED RETIREMENT PLANS. The term "Combined Retirement Plans" means and includes the Retirement Plan for Employees of Society Corporation and Subsidiaries (January 1, 1993 Restatement), the Society Corporation Excess Benefit Retirement Plan (April 26, 1990 Amendment and Restatement), and the Amended and Restated Society Corporation Supplemental Retirement Plan (January 1, 1993 Restatement), in all cases, as from time to time amended, restated, or otherwise modified, including any plan that, after the Effective Time, succeeds, replaces, or is substituted for any such plan, and all retirement plans of any nature (including, without limitation, retirement benefits or rights provided under employment contracts or agreements with Noall or provided in resolutions adopted by the Board of Directors of Key Bancshares or any of its Subsidiaries) maintained by Key Bancshares or any of its Subsidiaries in which Noall was participating prior to the end of the Scheduled Term. Reference to a "Combined Retirement Plan," in the singular, shall mean any of the Combined Retirement Plans. 1.11 COMBINED SAVINGS PLANS. The term "Combined Savings Plans" means and includes the Society Corporation Employee Stock Purchase and Savings Plan (December 30, 1990) and the Amended and Restated Society Corporation Supplemental Stock Purchase and Savings Plan (December 30, 1992 Restatement), in both cases, as from time to time amended, restated, or otherwise modified, including any plan that, after the Effective Time, 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 Bancshares or any of its Subsidiaries in which Noall was participating prior to the end of the Scheduled Term. Reference to a "Combined Savings -5- 6 Plan," in the singular, shall mean any of the Combined Savings Plans. 1.12 COMPETITIVE ACTIVITY (BEFORE TERMINATION DATE). Noall shall be deemed to have engaged in "Competitive Activity" before the Termination Date if, before the Termination Date, he engages, without the consent of Key Bancshares, in any business or business activity in which Key Bancshares 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 Bancshares or any of its Subsidiaries). 1.13 COMPETITIVE ACTIVITY (AFTER TERMINATION DATE). Noall shall be deemed to have engaged in "Competitive Activity" after the Termination Date if, after the Termination Date and without the consent of Key Bancshares, he serves as a director, officer, or employee of any Financial Services Company located in a Restricted State or renders services of a consultative or advisory nature or otherwise to any Financial Services Company located in a Restricted State. 1.14 DAY. A "day" as used in this Agreement means a calendar day unless business day is specifically referred to. 1.15 DEMOTION OR REMOVAL. Noall shall be deemed to have been subjected to "Demotion or Removal" if, during the Scheduled Term and other than by Voluntary Resignation, Noall ceases to be Chief Administrative Officer of Key Bancshares, unless the reason for Noall ceasing to be Chief Administrative Officer of Key Bancshares, is that Noall was promoted to a higher position, in which case, ceasing to hold the higher position at any time during the Scheduled Term other than by Voluntary Resignation would be a Demotion or Removal. 1.16 EFFECTIVE TIME. The term "Effective Time" means the time defined as such in the Merger Agreement. 1.17 EQUITY COMPENSATION PLAN. The term "Equity Compensation Plan" means the Society Corporation 1991 Equity Compensation Plan as from time to time amended, restated, or otherwise modified, including any plan that, after the Effective Time, succeeds, replaces, or is substituted for that plan and any predecessor or successor thereto, and any other stock option or equity based plan adopted by Key Bancshares after the Effective Time. 1.18 FINANCIAL SERVICES COMPANY. "Financial Services Company" means a bank, bank holding company, savings and loan association, building and loan association, -6- 7 savings and loan holding company, insurance company, investment banking, or securities company, or other financial services company, other than Key Bancshares or any of its Subsidiaries. 1.19 FULL-TIME EMPLOYMENT WITH AN UNAFFILIATED EMPLOYER. "Full-Time Employment with an Unaffiliated Employer" means full-time (more than 30 hours per week) employment at either a base salary, hourly rate, partnership interest, or other form of participation, which will result in annual compensation to Noall of at least 75% of the annual base salary of Noall with Key Bancshares and its Subsidiaries at the highest rate in effect at any time under this Agreement, but does not include employment by (a) a corporation or other firm organized or formed by Noall as a new business (including, without limitation, a consulting business) after the Termination Date, or (b) a corporation or other firm the majority of the equity interests of which were acquired by Noall and/or his immediate family members after the Termination Date. 1.20 GOOD REASON (THROUGHOUT THE SCHEDULED TERM). Noall shall have "Good Reason" to terminate his employment under this Agreement if, at any time during the Scheduled Term, one or more of the events listed in (a) through (e) of this Section 1.20 occurs and, based on that event, Noall gives notice of his intention to terminate his employment effective on a date that is within one year of the occurrence of that event: (a) Noall is subjected to Demotion or Removal; (b) Noall's base salary is reduced from the level of his base salary as in effect from time to time (other than in conjunction with an across the board and equal percentage reduction in the base salaries of all Key Bancshares senior executives); (c) Noall is excluded from full participation in any benefit plan or arrangement maintained for senior executives of Key Bancshares generally; (d) Noall's principal place of employment for Key Bancshares is relocated outside of the Cleveland metropolitan area or Noall is otherwise required by Key Bancshares to relocate outside the Cleveland metropolitan area. 1.21 GOOD REASON (DURING THE SCHEDULED TERM AND AFTER A CHANGE OF CONTROL). After a Change of Control, in addition to those events that constitute Good Reason during the Scheduled Term and are listed in Section 1.20, Noall shall have "Good Reason" to terminate his employment under this Agreement during the Scheduled Term if, during the two -7- 8 year period commencing on the date of that Change of Control, any of the events listed in (a) through (c) of this Section 1.21 occurs and, based on that event, Noall gives notice of his intention to terminate his employment effective on a date that is both (i) within one year of the occurrence of that event and (ii) not later than the second anniversary of that Change of Control: (a) The aggregate dollar amount of the incentive compensation awards to Noall under both the Combined Management Incentive Compensation Plan and the Combined Long Term Incentive Compensation Plan for any year ending after the date on which the Change of Control occurs is less than the Average Annual Incentive Compensation; (b) Noall's responsibilities, duties, or authority with Key Bancshares are materially reduced from those in effect before the Change of Control and the reduction has not been cured within 30 days after Noall gives notice to the Board of Directors of Key Bancshares of his election to terminate his employment for Good Reason based upon that reduction; or (c) Noall 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 Chief Administrative Officer of Key Bancshares (or of such other position or positions to which Noall may have been promoted) attached to those positions before the Change of Control. Any determination by Noall under this Section 1.21 shall be deemed to have been made in good faith in the absence of clear and convincing evidence that his determination was made in bad faith. 1.22 IMPERMISSIBLE. The term "Impermissible," when used in the context of Noall's continued coverage by and participation in any of the Combined Retirement Plans or Combined Savings Plans shall mean that such a continuation would violate the provisions of any such Plan, would cause any such Plan to fail to be qualified under Section 401(a) of the Internal Revenue Code, or would be unlawful, and when used in the context of Noall's continued participation as an employee in the Equity Compensation Plan shall mean that such a continuation would violate the provisions of the plan, would require shareholder approval, or would be unlawful. 1.23 RESTRICTED STATE. A "Restricted State" means Ohio, New York, and any other state (including the District of Columbia) in which Key Bancshares and its -8- 9 Subsidiaries (taken as a whole) have at the time business operations or activities which account for or constitute more than 5% of the total assets or total deposits of Key Bancshares and its Subsidiaries on a consolidated basis or more than 5% of the total income of Key Bancshares and its Subsidiaries on a consolidated basis for the then preceding three months. A Financial Services Company shall be deemed to be located in a Restricted State if its headquarters are then located in the Restricted State or if it and its affiliates (taken as a whole) have at the time business operations or activities in the Restricted State with total assets or total deposits exceeding 5% of the total assets or total deposits of Key Bancshares and its Subsidiaries on a consolidated basis or which generate gross income during the then preceding three months of more than 5% of the total income of Key Bancshares and its Subsidiaries on a consolidated basis for that three month period. The determination of whether a state is a Restricted State shall be made at the time Noall first serves as a director, officer, or employee of the Financial Services Company in question or first renders services of a consultative or advisory nature or otherwise to such Financial Services Company. 1.24 SCHEDULED TERM. The term "Scheduled Term" shall mean the period commencing at the Effective Time and ending on the date of the 1996 Annual Meeting of Shareholders of Key Bancshares. 1.25 SUBSIDIARY. A "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 Bancshares. 1.26 SUPPLEMENTAL TERM. The term "Supplemental Term" shall mean the three-year period commencing on the day immediately following the date of the 1996 Annual Meeting of Shareholders of Key Bancshares and ending on the third anniversary of the 1996 Annual Meeting of Shareholders of Key Bancshares. 1.27 TERMINATION DATE. The term "Termination Date" means the last day of the Scheduled Term, or, if earlier, the date on which Noall's employment with Key Bancshares and its Subsidiaries terminates. 1.28 VOLUNTARY RESIGNATION. A "Voluntary Resignation" shall have occurred if, during the Scheduled Term, Noall terminates his employment with Key Bancshares and all its Subsidiaries by voluntarily resigning at his own instance without having been requested to so resign by Key Bancshares, except that any resignation by Noall during the Scheduled Term will not be deemed to be a Voluntary -9- 10 Resignation if, at the time of that resignation, Noall had Good Reason to resign. 2. TERM OF FULL-TIME EMPLOYMENT. Key Bancshares engages and employs Noall 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, for a period commencing at the Effective Time and ending on the date of the 1996 Annual Meeting of Shareholders of Key Bancshares, unless such period is extended by the mutual agreement of Key Bancshares and Noall or is sooner terminated pursuant to this Agreement. 3. FULL-TIME SERVICES. Throughout the Scheduled Term, Noall will devote all his time and efforts to the service of Key Bancshares, except (a) for usual vacation periods and reasonable periods of illness, (b) for services as an officer and director of any Subsidiary, (c) for service as a director or trustee of other corporations or organizations which are not in competition with Key Bancshares or any Subsidiary, and (d) for other activities agreed to by Key Bancshares. 4. EXECUTIVE OFFICER. Throughout the Scheduled Term, Noall will be elected and serve as Chief Administrative Officer of Key Bancshares, unless he is promoted to a higher position or positions, in which case he will thereafter during the remainder of the Scheduled Term be elected and serve in such higher position or positions. 5. COMPENSATION. For all services to be rendered by Noall to Key Bancshares under this Agreement during the Scheduled Term, including services as an officer of Key Bancshares or as an officer, director, or member of any committee of any Subsidiary, or any other services specified by the Board of Directors of Key Bancshares, Key Bancshares shall pay to Noall, in equal monthly or more frequent installments, base salary at a annual rate not lower than the annual rate of base salary being paid to Noall as of February 1, 1994. In addition to such base salary, Noall shall participate during the Scheduled Term in any incentive compensation, retirement, savings, stock option, disability, and other employee benefit and welfare plan or arrangement allowed or provided by Key Bancshares in which he would otherwise be eligible for participation as an executive officer and employee of Key Bancshares, and, to the extent not provided, Key Bancshares shall pay or provide for the payment of benefits commensurate with Noall's annual compensation. 6. EFFECT OF FAILURE TO EXTEND PERIOD OF FULL- TIME EMPLOYMENT. If, at the expiration of the Scheduled Term, Noall's employment under this Agreement has not otherwise been terminated and Noall's full-time employment with Key Bancshares is not extended upon terms acceptable to Noall (either under this Agreement or under a new agreement), then Noall shall cease to be an officer of Key Bancshares and shall cease to be an officer, director, or employee of any Subsidiary on the last day of the -10- 11 Scheduled Term but Noall's status as an employee of Key Bancshares shall continue from that date and throughout the Supplemental Term on the terms and subject to the conditions set forth in this Section 6. 6.1 DUTIES, AND RESPONSIBILITIES. During the Supplemental Term, Noall shall have such duties and responsibilities as Key Bancshares and Noall may mutually agree upon from time to time. Key Bancshares shall make available to Noall an office and secretarial services appropriate to the scope of the duties and responsibilities being assumed and performed by Noall from time to time during the Supplemental Term. Noall shall have complete discretion as to the time or times at which he performs services on behalf of Key Bancshares in response to any request for such services by Key Bancshares. 6.2 COMPENSATION, BENEFITS, AND PERQUISITES. During the Supplemental Term Noall shall be entitled to (a) the compensation and benefits specifically provided for in Sections 6.3, 6.4, 6.5, and 6.6 and (b) such perquisites as are generally provided by Key Bancshares to its senior executives. Except for the compensation, benefits, and perquisites referred to in the first sentence of this Section 6.2, Noall shall not be entitled to any other compensation, benefits, or perquisites from Key Bancshares as a result of his continuing employee status during the Supplemental Term. For purposes of determining Noall's rights under the Combined Long Term Incentive Compensation Plan and the Combined Management Incentive Compensation Plan during and after the Supplemental Term, Noall's employment with Key Bancshares shall be treated as if it had ended on the Termination Date. 6.3 CASH COMPENSATION. Throughout the Supplemental Term, Key Bancshares shall pay to Noall semimonthly compensation payments (one such payment to be made on the fifteenth and the last day of each calendar month) throughout the Supplemental Term. The first such semimonthly payment shall be made for the period commencing on the first day of the Supplemental Term and ending on the first day during the Supplemental Term that is either the fifteenth or last day of the calendar month in which the Supplemental Term begins. The last such semimonthly payment shall be made for the period commencing with the last date immediately preceding the end of the Supplemental Term that is either the first or sixteenth day of the calendar month in which the Supplemental Term ends and ending on the last day of the Supplemental Term. The amount of each such semimonthly payment (other than the first and the last such payment) shall be equal to the sum of (a) one half of one month's base salary of Noall (at the highest rate in effect at any time during the Scheduled Term), plus (b) one-twenty- fourth (1/24) of Noall's Average Annual Incentive -11- 12 Compensation, minus (c) the amount of any disability benefits received by Noall with respect to the semimonthly payment period from the Combined Long Term Disability Plan or any other disability plan the entire cost of which was borne by Key Bancshares. The amount of each of the first and last such semimonthly payments shall be equal to the amount specified in the immediately preceding sentence multiplied by a fraction, the numerator of which is the number of days in the period for which that payment is payable and the denominator of which is the number of days in the semimonthly period at the end of which that payment is payable. If Noall dies after becoming entitled to payments under this Section 6.3 but before the end of the Supplemental Term, any payments due after his death shall be made to his estate or, if Noall shall so direct to Key Bancshares in writing, to his wife or to a trust created by Noall. Noall's right to direct payment of such payments following his death may be exercised by him at any time and from time to time during his life, and any such direction made subsequent to an earlier one shall revoke and supersede such earlier direction. The amounts payable to Noall, his wife, or any trust created by Noall for any month under this Section 6.3 shall be reduced, but not below zero, by the full amount of the payments, if any, received by any person (including, without limitation, Noall, his wife, and any trust created by Noall) for that month from all Combined Retirement Plans on account of Noall. 6.4 MEDICAL AND LIFE INSURANCE BENEFITS. Key Bancshares shall arrange to provide Noall, throughout the period beginning on the first day of the Supplemental Term and ending on the earlier of (a) the last day of the Supplemental Term, or (b) the first date on which Noall accepts Full-Time Employment with an Unaffiliated Employer, with medical benefits (including, if applicable, dental) and group term life insurance benefits, in all cases at substantially the same level of coverage, and subject to the same (by dollar amount) employee contribution requirement (if any), as those which Noall was receiving or entitled to receive as an officer of Key Bancshares on the last day of the Scheduled Term. 6.5 RETIREMENT AND SAVINGS PLAN PARTICIPATION. For the period beginning on the first day of the Supplemental Term and ending on the earlier of (a) the last day of the Supplemental Term, or (b) the date of Noall's death (the "Section 6.5 Benefit Period"), Key Bancshares shall cause Noall to continue to be covered by and to participate in all Combined Retirement Plans and Combined Savings Plans that he was entitled to be covered by and participating in as an officer of Key Bancshares on the last day of the Scheduled Term in the same manner and to the same extent as if Noall continued in the full-time employ of Key Bancshares throughout the Section 6.5 Benefit Period, except -12- 13 where such coverage or participation is Impermissible. For these purposes: (i) the entire Section 6.5 Benefit Period shall be included in determining Noall's years of service, (ii) amounts received by Noall under clause (a) of Section 6.3 shall be deemed to be base salary received by Noall during the Section 6.5 Benefit Period, and (iii) amounts received by Noall under clause (b) of Section 6.3 shall be deemed to be incentive compensation received by Noall during the Section 6.5 Benefit Period and shall, if relevant, be allocated between the Combined Management Incentive Compensation Plan and the Combined Long Term Incentive Compensation Plan based on the degree to which awards under each of those plans were taken into account in determining Average Annual Incentive Compensation. If, at any time during the Section 6.5 Benefit Period, Key Bancshares determines in good faith that continuing Noall's coverage by and participation in any of the Combined Retirement Plans or any of the Combined Savings Plans during the Supplemental Term is Impermissible, Noall shall not be covered by and participate in such affected Plan or Plans during the Section 6.5 Benefit Period, but Key Bancshares shall, from time to time both during and after the Section 6.5 Benefit Period, provide to Noall under this Agreement payments, benefits, and opportunities that, when added to the payments, benefits, and opportunities available and payable to Noall under the Combined Retirement Plans and the Combined Savings Plans put Noall in the same position that he would have been in had he continued to be a full-time employee of Key Bancshares and a participant in all of the Combined Retirement Plans and the Combined Savings Plans throughout the Section 6.5 Benefit Period. 6.6 RIGHTS UNDER EQUITY COMPENSATION PLAN AND STOCK OPTIONS. For purposes of determining Noall's rights under the Equity Compensation Plan and under any stock options granted to Noall under the Equity Compensation Plan, Noall shall be treated as remaining in the employ of Key Bancshares throughout the Section 6.5 Benefit Period. 6.7 RIGHTS NOT AFFECTED BY ANY TERMINATION. If Noall becomes entitled to payments and benefits under this Section 6, his rights to receive payments, benefits, and opportunities shall continue as and to the extent provided in this Section 6 notwithstanding any subsequent termination of Noall's employment relationship with Key Bancshares, whether that subsequent termination is with or without cause, voluntary or involuntary, on account of disability, or otherwise. This Section 6.7 shall not override Section 14.2. 7. EFFECT OF GOOD REASON (IN GENERAL). If, at any time before the expiration of the Scheduled Term, Noall has Good Reason to terminate his employment, Noall shall have the right, exercisable at any time during the period beginning on the -13- 14 date the event constituting any particular instance of Good Reason first occurs and ending on the earlier of (a) the first anniversary of that date, or (b) the end of the Scheduled Term, to terminate his employment with Key Bancshares by giving written notice of such election to Key Bancshares. Any such termination by Noall during that period shall be treated for all purposes of this Agreement as a termination of Noall's employment by Key Bancshares without Cause effective as of the date on which Noall delivers notice of his election under this Section 7 to Key Bancshares. 8. EFFECT OF TERMINATION WITHOUT CAUSE BEFORE A CHANGE OF CONTROL. If, at any time before the expiration of the Scheduled Term and before a Change of Control has occurred, Key Bancshares terminates Noall's employment without Cause, Key Bancshares shall pay and provide the following amounts and benefits to Noall.: 8.1 COMPENSATION CONTINUATION PAYMENTS. Key Bancshares shall pay to Noall semimonthly compensation continuation payments (one such payment to be made on the fifteenth and the last day of each calendar month) throughout the remainder of the Scheduled Term and thereafter throughout the Supplemental Term. The first such semimonthly payment shall be made for the period commencing on the day after the Termination Date and ending on the first day after the Termination Date that is either the fifteenth or last day of the calendar month in which the Termination Date occurs. The last such semimonthly payment shall be made for the period commencing with the last date immediately preceding the end of the Supplemental Term that is either the first or sixteenth day of the calendar month in which the Supplemental Term ends and ending on the last day of the Supplemental Term. The amount of each such semimonthly payment (other than the first and the last such payment) shall be equal to the sum of (a) one half of one month's base salary of Noall (at the highest rate in effect at any time during the two year period ending on the Termination Date), plus (b) one-twenty-fourth (1/24) of Noall's Average Annual Incentive Compensation. The amount of each of the first and last such semimonthly payments shall be equal to the amount specified in the immediately preceding sentence multiplied by a fraction, the numerator of which is the number of days in the period for which that payment is payable and the denominator of which is the number of days in the semimonthly period at the end of which that payment is payable. If Noall dies after becoming entitled to payments under this Section 8.1 but before the end of the Supplemental Term, any payments due after his death shall be made to his estate or, if Noall shall so direct to Key Bancshares in writing, to his wife or to a trust created by Noall. Noall's right to direct payment of such payments following his death may be exercised by him at any time and from time to time during his life, and any such -14- 15 direction made subsequent to an earlier one shall revoke and supersede such earlier direction. The amounts payable to Noall, his wife, or any trust created by Noall for any month under this Section 8.1 shall be reduced, but not below zero, by the full amount of the payments, if any, received by any person (including, without limitation, Noall, his wife, and any trust created by Noall) for that month from all Combined Retirement Plans on account of Noall. 8.2 MEDICAL AND LIFE INSURANCE BENEFITS. Key Bancshares shall arrange to provide Noall, throughout the period beginning on the Termination Date and ending on the earlier of (a) the last day of the Supplemental Term, or (b) the first date on which Noall accepts Full-Time Employment with an Unaffiliated Employer, with medical benefits (including, if applicable, dental) and group term life insurance benefits, in all cases at substantially the same level of coverage, and subject to the same (by dollar amount) employee contribution requirement (if any), as those which Noall was receiving or entitled to receive as an officer of Key Bancshares on the Termination Date. 8.3 CONTRACTUAL SUPPLEMENT TO RETIREMENT AND SAVINGS PLAN BENEFITS. Key Bancshares shall, from time to time both during and after the period beginning on the Termination Date and ending on the earlier of (a) the last day of the Supplemental Term, or (b) the date of Noall's death (the "Section 8.3 Benefit Period"), provide to Noall, under this Agreement, payments, benefits, and opportunities that, when added to the payments, benefits, and opportunities available and payable to Noall under the Combined Retirement Plans and the Combined Savings Plans, put Noall in the same position that he would have been in had he continued to be a full-time employee of Key Bancshares and a participant in all of the Combined Retirement Plans and the Combined Savings Plans throughout the Section 8.3 Benefit Period. In determining the position that Noall would have been in had he continued to be a full- time employee of Key Bancshares and a participant in all of the Combined Retirement Plans and the Combined Savings Plans throughout the Section 8.3 Benefit Period: (i) the entire Section 8.3 Benefit Period shall be included in determining Noall's years of service, (ii) amount's received by Noall under clause (a) of Section 8.3 shall be deemed to be base salary received by Noall during the Section 8.3 Benefit Period, and (iii) amounts received by Noall under clause (b) of Section 8.3 shall be deemed to be incentive compensation received by Noall during the Section 8.3 Benefit Period and shall, if relevant, be allocated between the Combined Management Incentive Compensation Plan and the Combined Long Term Incentive Compensation Plan based on the degree to which awards under each of those plans were taken into account in determining Average Annual Incentive Compensation. -15- 16 8.4 RIGHTS UNDER EQUITY COMPENSATION PLAN AND STOCK OPTIONS. (a) For purposes of determining Noall's rights under the Equity Compensation Plan and under any stock options granted to Noall under the Equity Compensation Plan, Noall shall be treated as remaining in the employ of Key Bancshares throughout the Section 8.3 Benefit Period, unless that treatment is Impermissible. (b) If and to the extent the treatment prescribed in paragraph (a), above, is Impermissible, and the treatment prescribed in this paragraph (b) does not conflict with the treatment for accounting purposes of any transaction entered into by Key Bancshares as a pooling of interests, Key Bancshares shall provide to Noall from time to time, both during and after the Section 8.3 Benefit Period, payments, benefits, and opportunities that, when added to the payments, benefits, and opportunities available and payable to Noall under the Equity Compensation Plan and options granted thereunder put Noall in the same position that he would have been regarding payments, benefits, and opportunities under the Equity Compensation Plan and options granted thereunder, if he had continued to be actively employed by Key Bancshares throughout the Section 8.3 Benefit Period. (c) If and to the extent the treatment prescribed in paragraph (a), above, is Impermissible, and the treatment prescribed in paragraph (b), above, conflicts with the treatment for accounting purposes of any transaction entered into by Key Bancshares as a pooling of interests, Noall's rights under the Equity Compensation Plan and under any stock options granted to Noall under the Equity Compensation Plan shall be as provided in that plan and under those stock options without regard to this Section 8.4. 9. EFFECT OF TERMINATION AFTER A CHANGE OF CONTROL BY NOALL FOR GOOD REASON OR BY KEY BANCSHARES WITHOUT CAUSE. If, at any time before the expiration of the Scheduled Term and after a Change of Control has occurred, Noall terminates his employment for Good Reason or Key Bancshares terminates Noall's employment without Cause, Key Bancshares shall pay and provide the following amounts and benefits to Noall: 9.1 COMPENSATION CONTINUATION MONTHLY PAYMENTS OR LUMP SUM BENEFIT. At the election of Noall, to be exercised by written notice delivered to Key Bancshares, either (a) Key Bancshares shall pay Noall the monthly amounts set forth in A below, or (b) Key Bancshares shall pay Noall the lump sum amount set forth in B below: -16- 17 A. If Noall so elects pursuant to Section 9.1, Key Bancshares shall pay to Noall semimonthly compensation continuation payments (one such payment to be made on the fifteenth and the last day of each calendar month) throughout the remainder of the Scheduled Term and thereafter throughout the Supplemental Term. The first such semimonthly payment shall be made for the period commencing on the day after the Termination Date and ending on the first day after the Termination Date that is either the fifteenth or last day of the calendar month in which the Termination Date occurs. The last such semimonthly payment shall be made for the period commencing with the last date immediately preceding the end of the Supplemental Term that is either the first or sixteenth day of the calendar month in which the Supplemental Term ends and ending on the last day of the Supplemental Term. The amount of each such semimonthly payment (other than the first and the last such payment) shall be equal to the sum of (a) one half of one month's base salary of Noall (at the highest rate in effect at any time during the two year period ending on the Termination Date), plus (b) one-twenty-fourth (1/24) of Noall's Average Annual Incentive Compensation. The amount of each of the first and last such semimonthly payments shall be equal to the amount specified in the immediately preceding sentence multiplied by a fraction, the numerator of which is the number of days in the period for which that payment is payable and the denominator of which is the number of days in the semimonthly period at the end of which that payment is payable. If Noall dies after becoming entitled to payments under this paragraph A but before the end of the Supplemental Term, any payments due after his death shall be made to his estate or, if Noall shall so direct to Key Bancshares in writing, to his wife or to a trust created by Noall. Noall's right to direct payment of such payments following his death may be exercised by him at any time and from time to time during his life, and any such direction made subsequent to an earlier one shall revoke and supersede such earlier direction. The amounts payable to Noall, his wife, or any trust created by Noall for any month under this paragraph A shall be reduced, but not below zero, by the full amount of the payments, if any, received by any person (including, without limitation, Noall, his wife, and any trust created by Noall) for that month from all Combined Retirement Plans on account of Noall. B. If Noall so elects pursuant to Section 9.1, Key Bancshares shall pay to Noall, within 10 days of receipt of notice of that election from Noall, a lump sum payment in an amount equal to 48 times the amount -17- 18 of the semimonthly payment calculated under A above (without regard to the amount of the first and last semimonthly payment calculated under A above). 9.2 MEDICAL AND LIFE INSURANCE BENEFITS. Key Bancshares shall arrange to provide Noall, throughout the period beginning on the Termination Date and ending on the earlier of (a) the last day of the Supplemental Term, or (b) the first date on which Noall accepts Full-Time Employment with an Unaffiliated Employer, with medical benefits (including, if applicable, dental) and group term life insurance benefits, in all cases at substantially the same level of coverage, and subject to the same (by dollar amount) employee contribution requirement (if any), as those which Noall was receiving or entitled to receive as an officer of Key Bancshares on the Termination Date. 9.3 CONTRACTUAL SUPPLEMENT TO RETIREMENT AND SAVINGS PLAN BENEFITS. Key Bancshares shall, from time to time both during and after the period beginning on the Termination Date and ending on the earlier of (a) the last day of the Supplemental Term, or (b) the date of Noall's death (the "Section 9.3 Benefit Period"), provide to Noall, under this Agreement, payments, benefits, and opportunities that, when added to the payments, benefits, and opportunities available and payable to Noall under the Combined Retirement Plans and the Combined Savings Plans, put Noall in the same position that he would have been in had he continued to be a full-time employee of Key Bancshares and a participant in all of the Combined Retirement Plans and the Combined Savings Plans throughout the Section 9.3 Benefit Period. In determining the position that Noall would have been in had he continued to be a full- time employee of Key Bancshares and a participant in all of the Combined Retirement Plans and the Combined Savings Plans throughout the Section 9.3 Benefit Period: (i) the entire Section 9.3 Benefit Period shall be included in determining Noall's years of service, (ii) amounts received by Noall under clause (a) of said paragraph A shall be deemed to be base salary received by Noall during the Section 8.3 Benefit Period, and (iii) amounts received by Noall under clause (b) of said paragraph A shall be deemed to be incentive compensation received by Noall during the Section 8.3 Benefit Period and shall, if relevant, be allocated between the Combined Management Incentive Compensation Plan and the Combined Long Term Incentive Compensation Plan based on the degree to which awards under each of those plans were taken into account in determining Average Annual Incentive Compensation. -18- 19 9.4 RIGHTS UNDER EQUITY COMPENSATION PLAN AND STOCK OPTIONS. (a) For purposes of determining Noall's rights under the Equity Compensation Plan and under any stock options granted to Noall under the Equity Compensation Plan, Noall shall be treated as remaining in the employ of Key Bancshares throughout the Section 9.3 Benefit Period, unless that treatment is Impermissible. (b) If and to the extent the treatment prescribed in paragraph (a), above, is Impermissible, and the treatment prescribed in this paragraph (b) does not conflict with the treatment for accounting purposes of any transaction entered into by Key Bancshares as a pooling of interests, Key Bancshares shall provide to Noall from time to time, both during and after the Section 9.3 Benefit Period, payments, benefits, and opportunities that, when added to the payments, benefits, and opportunities available and payable to Noall under the Equity Compensation Plan and options granted thereunder put Noall in the same position that he would have been regarding payments, benefits, and opportunities under the Equity Compensation Plan and options granted thereunder, if he had continued to be actively employed by Key Bancshares throughout the Section 9.3 Benefit Period. (c) If and to the extent the treatment prescribed in paragraph (a), above, is Impermissible, and the treatment prescribed in paragraph (b), above, conflicts with the treatment for accounting purposes of any transaction entered into by Key Bancshares as a pooling of interests, Noall's rights under the Equity Compensation Plan and under any stock options granted to Noall under the Equity Compensation Plan shall be as provided in that plan and under those stock options without regard to this Section 9.4. 10. EFFECT OF DEATH WHILE IN EMPLOY OF KEY BANCSHARES. If Noall dies during the Scheduled Term while employed by Key Bancshares, (a) Key Bancshares shall pay to Noall's estate any unpaid base salary due or to become due to Noall with respect to any period ending before his death, (b) if Noall is survived by his wife, Key Bancshares shall pay the monthly survivor pension benefit provided for in Section 15, (c) Key Bancshares shall have no further obligations to Noall for base salary for any period after Noall's death, and (d) Key Bancshares shall pay such incentive compensation as is provided for under the Combined Management Incentive Compensation Plan and the Combined Long Term Incentive Compensation Plan to Noall's estate or as otherwise provided for under such plans. -19- 20 11. EFFECT OF DISABILITY WHILE IN EMPLOY OF KEY BANCSHARES. If, during the Scheduled Term and while Noall is employed by Key Bancshares, 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: 11.1 Key Bancshares may relieve Noall of his duties under this Agreement for as long as Noall is so disabled. 11.2 Key Bancshares shall pay to Noall all base salary and incentive compensation to which he would have been entitled under this Agreement and under the Combined Management Incentive Compensation Plan and the Combined Long Term Incentive Compensation Plan had he continued to be actively employed by Key Bancshares to the earliest of (a) the first date on which he is no longer so disabled to such an extent that he is unable to perform his duties under this Agreement, (b) the date on which he becomes eligible for payment of long term disability benefits under the Combined Long Term Disability Benefit Plan, (c) the date of his death, or (d) the last day of the Scheduled Term. 11.3 If and when Noall becomes eligible for payment of long term disability benefits under the Combined Long Term Disability Benefit Plan, Key Bancshares shall pay to Noall semimonthly compensation continuation payments (one such payment to be made on the fifteenth and the last day of each calendar month) throughout the period (the "Section 11.3 Benefit Period") beginning with the date on which Noall becomes so eligible and ending on the earliest of (a) the first date on which he is no longer so disabled to such an extent that he is unable to perform his duties under this Agreement, (b) the date of his death, or (c) the last day of the Scheduled Term. The first such semimonthly payment shall be made for the period commencing on the first day of the Section 11.3 Benefit Period and ending on the first day after that date that is either the fifteenth or last day of the calendar month in which the Section 11.3 Benefit Period begins. The last such semimonthly payment shall be made for the period commencing with the last date within the Section 11.3 Benefit Period that is either the first or sixteenth day of the calendar month in which the Section 11.3 Benefit Period ends and ending on the last day of the Section 11.3 Benefit Period. The amount of each such semimonthly payment (other than the first and the last such payment) shall be equal to the sum of (i) one half of one month's base salary of Noall (at the highest rate in effect at any time during the two year period ending on the last day before the date of the payment on which Noall performed services for Key Bancshares), plus (ii) one-twenty-fourth (1/24) of Noall's Average Annual Incentive Compensation (determined as though the last day before the date of the payment on which Noall performed services for Key Bancshares -20- 21 was the Termination Date). The amount of each of the first and last such semimonthly payments shall be equal to the amount specified in the immediately preceding sentence multiplied by a fraction, the numerator of which is the number of days in the period for which that payment is payable and the denominator of which is the number of days in the semimonthly period at the end of which that payment is payable. 11.4 The amounts payable to Noall for any month under this Section 11 shall be reduced, but not below zero, by the full amount of the payments, if any, received by Noall for that month (a) from all Combined Retirement Plans, (b) from the Combined Long Term Disability Plan, and (c) from any other disability plan the entire cost of which is borne by Key Bancshares. 11.5 For purposes of entitlement to a death benefit under Section 10 or Section 15 of this Agreement, (a) Noall will be treated as being employed by Key Bancshares throughout any portion of the Scheduled Term during which he is entitled to receive payments from Key Bancshares under either of Sections 11.2 or 11.3 and (b) Noall will not be treated as being employed by Key Bancshares at any time during the Supplemental Term. 11.6 For purposes of all retirement, savings, stock option, disability, and other employee benefit and welfare plans or arrangements allowed or provided by Key Bancshares to officers, Noall shall be treated in the same manner that Key Bancshares treats other officers who become disabled. 11.7 If (a) Noall becomes disabled during the Scheduled Term, (b) survives through the end of the Scheduled Term, and (b) remains disabled on the last day of the Scheduled Term, he shall be entitled to all of the payments, benefits, and perquisites provided for in Section 6 during the Supplemental Term in the same manner and to the same extent as if his full-time employment had continued through the end of the Scheduled Term and Key Bancshares and Noall had thereafter failed to extend the period of his full-time employment. 11.8 Except as provided in this Section 11, Key Bancshares shall have no further obligations to Noall for base salary or incentive compensation for any period during which Noall is so disabled to such an extent that he is unable to perform his duties under this Agreement. 12. NO SET-OFF OR MITIGATION. The compensation and benefits to be paid and provided by Key Bancshares to Noall under this Agreement are not to be subject to any set-off against any claim by Key Bancshares against Noall. Noall will not be -21- 22 required to mitigate any amounts payable by Key Bancshares to Noall under any of the terms of this Agreement and, except to the limited extent provided herein with respect to welfare benefit plans, no payment or benefit to Noall from any other source will reduce the obligation of Key Bancshares to make payment to and provide benefits to Noall during the Supplemental Term or after termination of his employment as provided in this Agreement. 13. PAYMENTS ARE IN LIEU OF SEVERANCE PAYMENTS. If Noall becomes entitled to receive any payments under this Agreement during the Supplemental Term or as a result of termination of his employment, those payments shall be in lieu of any and all other claims or rights that Noall may have for severance, separation, and/or salary continuation pay. 14. LIMITATIONS ON COMPETITION. 14.1 Noall shall not engage in any Competitive Activity during the period of his employment with Key Bancshares. 14.2 Noall shall not engage in any Competitive Activity at any time while he is receiving payments under any of Sections 6.3, 8.1, or 9.1. If Noall continues to violate the restriction set forth in this Section 14.2 after the Board of Directors has advised him in writing to cease those activities and that violation is material, Key Bancshares shall thereupon be relieved of all further obligations to make payments and provide benefits to Noall under any of the provisions contained in any of Sections 6 through 9. Noall shall not be required to repay to Key Bancshares any payment received by him before he began to engage in any such Competitive Activity. If a Financial Services Company has business operations or activities in multiple states some of which are Restricted States and some of which are not Restricted States, Key Bancshares will not unreasonably withhold its consent after the Termination Date to Noall serving as an officer, employee, or consultant of such Financial Services Company if (a) Noall's duties and responsibilities for such Financial Services Company are restricted to a specific geographic region which does not include a Restricted State, and (b) none of Noall's services or activities is performed in or relate to a Restricted State. 15. DEATH BENEFIT FOR SURVIVING WIFE. If Noall dies during the Scheduled Term and while employed by Key Bancshares leaving his wife surviving him, Key Bancshares shall pay to Noall's wife or, if Noall shall so direct to Key Bancshares in writing, to a trust in which his wife is one of the beneficiaries or to his estate, a monthly survivor pension equal to the excess, if any, of (a) one-third of the monthly amount Noall or his wife or his estate would receive under Section 8.1 if Noall had been terminated without Cause by Key Bancshares on -22- 23 the day before the date of his death (i.e., an amount equal to one-third of the sum of two semimonthly payments calculated as provided in the fourth sentence of Section 8.1), over (b) the aggregate monthly survivor benefits, if any, under all Combined Retirement Plans received by Noall's wife. The monthly survivor payments shall be paid at the rate of one per month commencing with the month following the month in which Noall's death occurs and continuing through the month in which Noall's wife dies. Noall's right to direct payment of such monthly survivor pension following his death may be exercised by him at any time and from time to time during his life, and any such direction made subsequent to an earlier one shall revoke and supersede such earlier direction. 16. STOCK OPTIONS. If a Change of Control occurs during the Scheduled Term and while Noall is employed by Key Bancshares under this Agreement and an election by Noall under this Section 16 would not conflict with the treatment for accounting purposes of any transaction entered into in connection with the Change of Control as a pooling of interests, Noall thereafter may from time to time elect to surrender to Key Bancshares his rights in any or all outstanding stock options (whether or not then exercisable) to purchase Common Shares of Key Bancshares then held by him that have been outstanding, at the time of Noall's election to surrender the same under this Section 16, for at least six months. Upon any such surrender, Key Bancshares shall pay to Noall an amount equal to the excess of (a) the aggregate fair market value of all of the Common Shares subject to the stock options so surrendered over (b) the aggregate option price of all such Common Shares under those stock options. For purposes of this Section 16, "fair market value" shall mean the higher of (i) the highest price paid per share for Common Shares of Key Bancshares in connection with the Change of Control, or (ii) the mean between the high and low sales prices for Common Shares of Key Bancshares (as reported in The Wall Street Journal) on the date of Noall's election to surrender his rights in all outstanding stock options. 17. ADDITIONAL RETIREMENT BENEFIT. Following the termination of Noall's employment with Key Bancshares under any circumstances other than a termination during the Scheduled Term by Key Bancshares for Cause, Key Bancshares will pay to Noall an annual pension equal to the aggregate of (a) the amount of normal retirement benefit, or early retirement benefit, or special deferred vested retirement benefit, whichever he would be entitled to receive under the Retirement Plan for Employees of Society Corporation and Subsidiaries (January 1, 1993 Restatement) (the "Retirement Plan"), as in effect on the Termination Date, without regard to the limitations of Sections 415 and 401 (a) (17) of the Internal Revenue Code, as if Noall had commenced employment with Key Bancshares on June 20, 1973, and (b) the amount of annual supplemental retirement benefit, if any, which Noall would be entitled to receive under the Society Corporation Supplemental Retirement Plan (January 1, 1993 -23- 24 Restatement), as in effect on the Termination Date, as if Noall had commenced employment with Key Bancshares on June 20, 1973, less the aggregate annual benefits received by Noall under all Combined Retirement Plans. The provisions of the Retirement Plan with respect to optional methods of payment, the commencement and duration of payments, and reemployment shall be applicable to the annual pension payable pursuant to this Section 17. As used in this Section 17, the terms "Retirement Plan" and "Society Corporation Supplemental Retirement Plan" mean and include, in each such case, such plan as currently in effect and as from time to time until the Termination Date amended, restated, or otherwise modified, including any plan hereafter succeeding, replacing, or being substituted for such plan. Following the termination of Noall's employment during the Scheduled Term by Key Bancshares for Cause, Key Bancshares will pay to Noall and/or to his beneficiary such amounts as Noall and/or his beneficiary is entitled to receive under the Resolution adopted by the Board of Directors of Central National Bank of Cleveland on November 21, 1984, relating to survivor benefits and amount of retirement income and payments, a copy of which is attached to this Agreement (the "Central Board Resolution"). Except as provided in the immediately preceding sentence, no amount will be paid to Noall under the Central Board Resolution. 18. NO REDUCTION IN RETIREMENT BENEFITS FOR EARLY COMMENCEMENT OF BENEFITS IN CERTAIN CIRCUMSTANCES. If Noall becomes entitled to benefits under any one of Sections 6.5, 8.3, or 9.3, and elects to commence receipt of benefits under the Combined Retirement Plans after the end of the Supplemental Term but before he attains age 65, he shall be entitled to receive, in the aggregate, benefits under the Combined Retirement Plans, under Section 6.5, 8.3, or 9.3 (as the case may be), under Section 17, and under this Section 18 that equal the amounts he would have received, in the aggregate, under the Combined Retirement Plans, under Section 6.5, 8.3, or 9.3 (as the case may be), and under Section 17 if the benefits under those Plans and Sections had been determined without any reduction on account of commencement of benefits before Noall's attainment of age 65. 19. INDEMNIFICATION. Key Bancshares shall indemnify Noall, to the full extent permitted or authorized by the Ohio General Corporation Law as it may from time to time be amended, if Noall 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 Noall is or was a director, officer, or employee of Key Bancshares or any Subsidiary, or is or was serving at the request of Key Bancshares 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 19 shall not be deemed exclusive of any other rights to which Noall may be entitled under the articles of incorporation or the regulations of Key Bancshares or of any Subsidiary, or any agreement, vote of -24- 25 shareholders or disinterested directors, or otherwise, both as to action in Noall's official capacity and as to action in another capacity while holding such office, and shall continue as to Noall after Noall has ceased to be a director, trustee, officer, or employee and shall inure to the benefit of the heirs, executors, and administrators of Noall. 20. REIMBURSEMENT OF CERTAIN EXPENSES. 20.1 Key Bancshares shall pay, as incurred, all expenses, including the reasonable fees of counsel engaged by Noall, of defending any action brought to have this Agreement declared invalid or unenforceable. 20.2 Key Bancshares shall pay, as incurred, all expenses, including the reasonable fees of counsel engaged by Noall, of prosecuting any action to compel Key Bancshares to comply with the terms of this Agreement upon receipt from Noall of an undertaking to repay Key Bancshares for such expenses if, and only if, it is ultimately determined by a court of competent jurisdiction that Noall had no reasonable grounds for bringing that action (which determination need not be made simply because Noall fails to succeed in the action). 20.3 Expenses (including attorney's fees) incurred by Noall in defending any action, suit, or proceeding commenced or threatened against Noall for any action or failure to act as an employee, officer, or director of Key Bancshares or any Subsidiary shall be paid by Key Bancshares, as they are incurred, in advance of final disposition of the action, suit, or proceeding upon receipt of an undertaking by or on behalf of Noall in which he agrees to reasonably cooperate with Key Bancshares 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 Noall 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 Bancshares or a Subsidiary or (b) if the action, suit, or proceeding is commenced or threatened against Noall 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 Bancshares to advance expenses provided for in this Section 20.3 shall not be deemed exclusive of any other rights to which Noall may be entitled under the articles of incorporation or the regulations of Key Bancshares or of any Subsidiary, or any agreement, vote of shareholders or disinterested directors, or otherwise. -25- 26 21. TERMINATION FOR CAUSE. In the event Noall's employment is terminated during the Scheduled Term by Key Bancshares for Cause, Key Bancshares may, by giving written notice to Noall, terminate this Agreement and all its obligations remaining to be performed or observed by it under this Agreement other than Key Bancshares's obligation to satisfy the terms of the Central Board Resolution referred to in the penultimate sentence of Section 17. 22. EXCESS PARACHUTE PAYMENT REDUCTION. Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by Key Bancshares or any of its Subsidiaries to or for the benefit of Noall (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would be nondeductible by Key Bancshares for Federal income tax purposes because of Section 280G of the Internal Revenue Code and applicable regulations promulgated thereunder, then the aggregate present value of amounts payable or distributable to or for the benefit of Noall pursuant to this Agreement (such payments or distributions pursuant to this Agreement are hereinafter referred to as "Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be nondeductible by Key Bancshares because of Section 280G of the Internal Revenue Code and applicable regulations promulgated thereunder. For purposes of this Section 22, present value shall be determined in accordance with Section 280G (d) (4) of the Internal Revenue Code and applicable regulations promulgated thereunder. All determinations required to be made under this Section 22 shall be made by the Accounting Firm which shall provide detailed supporting calculations both to Key Bancshares and Noall within 30 days after the Termination Date or such earlier time as is requested by Key Bancshares. Key Bancshares and Noall shall cooperate with each other and the Accounting Firm and will provide necessary information so that the Accounting Firm may make all such determinations. All such determinations by the Ac- counting Firm shall be final and binding upon Key Bancshares and Noall. Noall shall determine which of the Agreement Payments (or, at the election of Noall, other payments) shall be eliminated or reduced consistent with the requirements of this Section 22, provided that, if Noall does not make such determination within 20 days of the receipt of the calculations made by the Accounting Firm, Key Bancshares shall elect which of the Agreement Payments shall be eliminated or reduced consistent with the requirements of this Section 22 and shall notify Noall promptly of such election. As a result of the uncertainty in the application of Section 280G of the Internal Revenue Code and applicable regulations promulgated thereunder at the time of the initial determination by the Accounting Firm hereunder, it is possible that Agreement Payments will be made by Key Bancshares which should not have been made ("Overpayment") or that -26- 27 additional Agreement Payments will not be made by Key Bancshares which could have been made ("Underpayment"), in each case, consistent with the calculations required to be made hereunder. In the event that the Accounting Firm or a court of competent jurisdiction (in a final judgment as to which the time for appeal has lapsed or no appeal is available) determines at any time that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to Noall which Noall shall repay to Key Bancshares together with interest at the applicable short-term Federal rate provided for in Section 1274(d) (1) of the Internal Revenue Code, compounded semi -annually; provided, however, that no amount shall be payable by Noall to Key Bancshares (or if paid by Noall to Key Bancshares, such payment shall be returned to Noall) if and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Internal Revenue Code. In the event that the Accounting Firm or a court of competent jurisdiction (in a final judgment as to which the time for appeal has lapsed or no appeal is available) determines at any time that an Underpayment has oc- curred, any such Underpayment shall be promptly paid by Key Bancshares to or for the benefit of Noall together with interest at the applicable short-term Federal rate provided for in Section 1274(d)(1) of the Internal Revenue Code, compounded semi- annually. 23. DEFERRAL OF PAYMENT OF COMPENSATION UNDER CERTAIN CIRCUMSTANCES. 23.1 SECTION 162(M). For purposes of this Section 23, 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. 23.2 DEFERRAL. Except as otherwise provided in either of Section 23.3 or Section 23.4, below, if Key Bancshares 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 Noall is a participant) otherwise payable to Noall under this Agreement at any particular time (the "Scheduled Time"), (a) would not be deductible by Key Bancshares if paid at the Scheduled Time by reason of the disallowance rules of Section 162(m), and -27- 28 (b) would be deductible by Key Bancshares 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 Bancshares 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 Bancshares 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 23.5, below) can be paid without disallowance of the deduction, that portion that can be so paid shall be paid by Key Bancshares during that year and the remainder, except as otherwise provided in Section 23.3 or Section 23.4, below, shall continue to be deferred until a later year. 23.3 EARLY PAYOUT OF DEFERRED AMOUNT IF DEFERRAL IS DETERMINED TO BE INEFFECTIVE. If any amount of compensation is deferred under Section 23.2 with the expectation that it will be deductible by Key Bancshares if paid in a later year and Key Bancshares later determines that the compensation will not be deductible by Key Bancshares even if payment thereof is deferred until a later year, then, within three months of the date on which that determination is made, the deferral with respect to that compensation shall terminate and Key Bancshares shall pay that compensation to Noall. 23.4 PAYOUT FOLLOWING TERMINATION OF EMPLOYMENT IN ALL EVENTS. On January 15 of the year immediately following the year in which Noall ceases to be employed as an officer by Key Bancshares, Key Bancshares shall pay to Noall, in a single lump sum, all amounts of compensation that have been deferred pursuant to this Section 23 and have not previously been paid out so that, as of the close of business on that date, no amount of compensation will remain deferred under this Section 23 whether or not Key Bancshares is entitled to a deduction with respect to the payment of that compensation. 23.5 INTEREST ON DEFERRED AMOUNTS. Upon payment of any amounts of compensation deferred for any period of time pursuant to this Section 23, Key Bancshares shall pay to Noall an additional amount equivalent to the interest that would have accrued on that deferred compensation if interest accrued thereon from the date on which that compensation would have been paid but for this Section 23 through the date on which that compensation is paid at a variable rate equal, in each calendar quarter, to the highest annual rate paid by Society National Bank on new IRA certificates of deposit issued in Cuyahoga County, Ohio on -28- 29 the first business day of that calendar quarter, compounded quarterly. 23.6 MISCELLANEOUS. Noall's rights with respect to payment during his lifetime of any compensation deferred under this Section 23 shall not be subject to assignment. If Noall dies before all compensation deferred under this Section 23 has been paid to him, any such unpaid compensation shall be paid, at the same time it would have been paid if Noall had not died but had merely ceased to be an employee of Key Bancshares on the date of his death (or, if earlier, on the last date he actually was an employee of Key Bancshares), to his estate or, if Noall shall so direct to Key Bancshares in writing, to his wife or to a trust created by Noall. The obligation of Key Bancshares to make payments of compensation deferred pursuant to this Section 23 constitutes the unsecured promise of Key Bancshares to make payments from its general assets as and when due and neither Noall nor any person claiming through him shall have, as a result of this Section 23, any lien or claim on any assets of Key Bancshares that is superior to the claims of the general creditors of Key Bancshares. 24. MERGER OR TRANSFER OF ASSETS OF KEY BANCSHARES. Key Bancshares 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 Noall. Upon such assumption the successor corporation shall become obligated to perform the obligations of Key Bancshares under this Agreement, and the term "Key Bancshares" as used in this Agreement shall be deemed to refer to such successor corporation. 25. 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 Bancshares in the case of notices to Key Bancshares and to Noall in the case of notices to Noall) or mailed by United States registered mail, return receipt requested, postage prepaid, as follows: If to Key Bancshares: Key Bancshares Inc. 127 Public Square Cleveland, Ohio 44114-1306 Attention: Secretary If to Noall: Mr. Roger Noall 13705 Shaker Boulevard Cleveland, Ohio 44120 -29- 30 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. 26. 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. 27. 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 Noall and Key Bancshares. 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. 28. PRIOR AGREEMENT. This Agreement amends, restates, and extends the employment agreement between Noall and Society Corporation made December 5, 1990, and shall become effective at the Effective Time. At such time, the provisions of this Agreement shall supersede the provisions of the December 5, 1990 agreement and that agreement and all prior agreements on the same subject matter shall hereafter be of no further force or effect. SOCIETY CORPORATION By ______________________________ Robert W. Gillespie, Chairman and Chief Executive Officer ______________________________ ROGER NOALL -30- 31 BOARD OF DIRECTORS' MEETING CENTRAL NATIONAL BANK OF CLEVELAND NOVEMBER 21, 1984 RESOLUTION WHEREAS, this Board has decided to provide supplemental and independent retirement benefits to Roger Noall, Executive Vice President and Chief Financial Officer of the Bank ("Noall"), in addition to the retirement benefits incidental to his employment with Central National Bank of Cleveland and its successors and assigns (the "Bank"). RESOLVED, that the officers of the Bank are hereby authorized and directed to pay supplemental and independent retirement benefits to Noall based on the following terms and conditions: In addition to any retirement benefits possessed by Noall incident to his employment with the Bank, Noall shall have supplemental and independent retirement benefits as follows: (a) SURVIVOR BENEFITS If Noall is employed by the Bank at the time of his death, his spouse shall be entitled to supplemental and independent pre-retirement survivor benefits determined under Article VII of the Central National Bank of Cleveland's Retirement Plan, as amended (the "Plan"), in accordance with the provisions of the Plan in existence on November 21, 1984, based on the amount determined pursuant to paragraph (b) below. (b) AMOUNT OF RETIREMENT INCOME AND PAYMENTS Noall shall be entitled to supplemental and independent retirement income payment benefits determined under the formula as set forth in Article VI of the Plan, in accordance with the provisions of the Plan in existence on November 24, 1984 as if he had 5 years of Membership and as if his "Highest Compensation" equals his 1984 "Compensation", as such terms are defined in the Plan in existence on November 24, 1984. FURTHER RESOLVED, that the officers of the Bank be and each of them is hereby authorized to take any and all action and to execute any and all documents necessary to implement the foregoing resolution. FURTHER RESOLVED, that any Assistant Secretary of the Bank is hereby authorized and directed to evidence the Bank's obligation to pay the supplemental and independent retirement benefits as set forth above, by providing Noall wih a certified copy of this resolution. I hereby certify the the foregoing is a true copy of a resolution duly adopted by the Board of Directors of Central National Bank of Cleveland at a meeting thereof held on November 21, 1984 and that such resolution is still in full force and effect. November 21, 1984 Lawrence J. Carlini -------------------------------- Assistant Secretary EX-10.13 7 KEYCORP 10-13 1 SOCIETY CORPORATION DIRECTOR DEFERRED COMPENSATION PLAN (June 30, 1993 RESTATEMENT) The Society Corporation Deferred Compensation Plan, originally established as of January 1, 1984, is hereby amended and restated in its entirety, effective June 30, 1993. Society Corporation hereby establishes this Director Deferred Compensation Plan for directors of Society Corporation and its subsidiaries to provide directors with the opportunity to defer payment of their directors' fees in accordance with the provisions of this Plan. ARTICLE I DEFINITIONS For the purposes hereof, the following words and phrases shall have the meanings indicated. 1. "Account" shall mean the bookkeeping account established in accordance with Article II hereof. 2. "Beneficiary" shall mean any person designated by a Participant in accordance with the Plan to receive payment of all or a portion of the remaining balance of the Participant's Account in the event of the death of the Participant prior to receipt by the Participant of the entire amount credited to the Participant's Account. 3. "Corporation" shall mean Society Corporation, a bank holding company and its corporate successors, including the surviving corporation resulting from any merger of Society Corporation with any other corporation or corporations. 4. "Director" shall mean (i) any member of the Board of Directors of the Corporation, (ii) any member of the Board of Directors of a Subsidiary, and (iii) any member of a regional, district, or advisory board of the Corporation or a Subsidiary. 5. "Election Agreement" shall mean a written election to defer Fees signed in writing by the Director and in the form provided by the Secretary of the Corporation. 6. "Fees" shall mean the fees earned as a Director. ACS30205/1 2 7. "Participant" shall mean any Director who has at any time elected to defer the receipt of Fees in accordance with the Plan. 8. "Plan" shall mean this Director Deferred Compensation Plan, together with all amendments hereto. 9. "Subsidiary" shall mean a corporation organized and existing under the laws of the United States or of any state or the District of Columbia of which 80 percent or more of the issued and outstanding stock is owned by the Corporation or by a Subsidiary of the Corporation, and which has been designated by the Board of Directors or Chief Executive Officer of the Corporation as a Subsidiary eligible to participate in the Plan. 10. "Year" shall mean the calendar year. ARTICLE II ELECTION TO DEFER 1. Eligibility. Any Director may elect to defer receipt of all or a specified portion of his or her Fees for any Year in accordance with Section 2 of this Article. 2. Election to Defer. A Director who desires to defer the payment of all or a portion of his or her Fees for any Year must complete and deliver an Election Agreement to the Secretary of the Corporation no later than the last day of the Year prior to the Year for which the Fees would otherwise be paid; provided, however, that any Director hereafter elected to the Board of Directors of the Corporation or a Subsidiary who was not a Director on the preceding December 31 may make an election to defer payment of Fees for the Year in which he is elected to the Board of Directors by delivering the Election Agreement to the Secretary of the Corporation within 30 days of such election. A Director who timely delivers the Election Agreement to the Secretary of the Corporation shall be a Participant. A Participant's Election Agreement shall continue to be effective from Year to Year until terminated or modified by written notice to the Secretary of the Corporation. A revocation or modification must be delivered prior to the beginning of the Year for which it is to be effective. 3. Amount Deferred; Date of Deferral. A Participant shall designate on the Election Agreement (a) the amount of his or her Fees that are to be deferred, (b) the date to which the Participant's Fees shall be deferred, (c) whether the distribution of deferred fees is to be paid in a lump sum or in installments or both a lump sum and installments, and (d) if in installments, the number of quarterly installments. Deferral shall be until the earlier to occur of (i) the date specified by the Participant which may be not later than the date on which the Participant would attain age 72, or (ii) the date of death of the Participant, at which time payment of the amount deferred shall be made in accordance with Section 7 or 10 hereof. A Participant may select not more ACS30205/2 3 than one date upon which a lump sum distribution shall be made and not more than one date upon which installments shall begin; these distribution dates shall be the first business day of a calendar quarter. 4. Account. The Corporation shall maintain an Account of the Fees deferred by each Participant. A Participant shall designate on the Election Agreement whether to have the Account valued on the basis of Society Corporation Common Shares in accordance with Section 5 hereof or receive interest in accordance with Section 6 hereof. The Corporation may, if necessary or desirable, establish separate Accounts for a Participant to properly account for amounts deferred under the different alternatives and years; all such Accounts are collectively referred to herein as the Account. The Account based on Society Corporation Common Shares shall be known as the "Common Shares Account", and the interest bearing account shall be known as the "Interest Bearing Account"; a Participant may defer a portion of his or her Fees into each type of Account. 5. Common Shares Account. If a Participant elects to have all or a portion of his or her Fees deferred into the Common Shares Account, as of the last business day of any quarter, there shall be added to such Account the number of Common Shares (whole and fractional, rounded to the nearest one-hundredth of a share) equal to the dollar amount of such Fees payable for such calendar quarter plus all dividends payable during such quarter on the Common Shares held in the Account on the first day of such quarter divided by the market value of the Common Shares at the close of business on the last business day of such quarter. 6. Interest Bearing Account. If a Participant elects to have all or a portion of his or her Fees deferred into the Interest Bearing Account, as of the last business day of any calendar quarter, there shall be added to the Account the dollar amount of such Fees payable for such calendar quarter plus all interest payable on such Interest Bearing Account for such quarter as follows: A Participant's account will receive interest on the lowest balance in the Interest Bearing Account during each quarter at such rate and in such manner as determined from time to time by the Board of Directors. 7. Payment of Account; Period of Deferral. The amount of a Participant's Account shall be paid to the Participant in cash and in a lump sum and/or in a number of substantially equal consecutive quarterly installments (not to exceed 40), as elected by the Participant in his or her Election Agreement. The amount of the Account remaining after payment of an installment shall continue to be valued in accordance with Section 5 hereof or bear interest in accordance with Section 6 hereof. The lump sum payment or the first quarterly installment, as the case may be, shall be made as soon as reasonably possible after (i) the date specified in section 3 hereof, or (ii) the date of the Participant's death. Any installment payment shall be made pro rata from the Common Shares Account and the Interest Bearing Account. The election as to the time for and method ACS30205/3 4 of payment of the amount of the Account relating to Fees deferred for a particular Year shall be made on the Election Agreement(s) and may not thereafter be altered except as provided in Section 10 hereof. In the event that a Participant elects to receive installment payments under this Section 7, (a) The amount of the distribution from the Common Shares Account shall be valued based on the fair market value of the Common Shares on the last business day of the calendar quarter immediately prior to the distribution date; (b) The amount of the distribution from the Interest Bearing Account shall be valued based on the value of such Account on the last business day of the calendar quarter immediately prior to such distribution date; (c) The amount of each installment shall be determined by dividing the value of the Common Shares Account, the Interest Bearing Account, or both, as the case may be, by the number of installments remaining to be paid to the Participant. 8. Small Payments. Notwithstanding the foregoing, if the quarterly installment payments elected by a Participant hereunder would result in a quarterly payment of less than $500, the Corporation shall have the right in its sole discretion to pay the entire amount of the Account to the Participant in a lump sum on the day the installment payments were to begin. 9. Death of Participant. In the event of the death of a Participant, the amount of the Participant's Account shall be paid to the Beneficiary or Beneficiaries designated in writing signed by the Participant in the form provided by the Secretary of the Corporation; in the event there is more than one Beneficiary, such form shall include the proportion to be paid to each Beneficiary and indicate the disposition of such share if a Beneficiary does not survive the Participant; in the absence of any such designation, payment from the Account shall be divided equally among all other Beneficiaries. A Participant's Beneficiary designation may be changed at any time prior to the Participant's death by execution and delivery of a new Beneficiary designation form. The form on file with the Corporation at the time of the Participant's death which bears the latest date shall govern. In the absence of a Beneficiary designation or the failure of any Beneficiary to survive the Participant, the amount of the Participant's Account shall be paid to the Participant's estate in a lump sum ninety days after the appointment of an executor or administrator. In the event of the death of any Beneficiary after the death of a Participant, the remaining amount of the Account payable to such Beneficiary shall be paid in a lump sum to the estate of such Beneficiary ninety days after the appointment of an executor or administrator for such estate. ACS30205/4 5 10. Acceleration. Notwithstanding the foregoing, (i) the entire amount of a Participant's Account will be paid in a lump sum to the Participant or his or her Beneficiary in the event of the acquisition of substantially all of the assets of the Corporation or more than fifty percent (50%) of its stock by any person, firm, corporation or group of related corporations, in a transaction or transactions not approved by the Board of Directors of the Corporation, (ii) the Board of Directors of the Corporation (or its Executive Committee or Compensation and Organization Committee) may, in its sole discretion, accelerate the making of payment of the amount of a Participant's Account to a Participant in the event of an "unforeseeable emergency" of the Participant; "unforeseeable emergency" is defined as an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the individual if such withdrawal were not permitted; provided, however, that the amount of the withdrawal under this section is limited to the amount necessary to meet such emergency, and (iii) the Board of Directors (or its Executive Committee or Compensation and Organization Committee) may, in its sole discretion, accelerate the making of payment of all or any portion of the amount of a Participant's Account to a Participant upon the written request of a Participant, provided that the Board (or Committee) determines that such withdrawal would not be adverse to the best interests of the Corporation and further provided that the request shall be made ninety (90) days before the requested date of payment, that the Participant shall forfeit an amount equal to 10% of the amount requested, and that the Participant shall be disqualified from deferring Fees during the remainder of the calendar year in which the payment is made and the next succeeding year thereafter. No Participant shall participate in any Board or Committee action under this Section 10 with regard to such Participant's own Account. The foregoing provisions of this Section 10 shall not apply to the Common Shares Account of a Director of the Corporation during his or her term as a Director and for six months thereafter. 11. Statement. Each Participant shall receive a statement of his or her Account not less than annually. 12. Valuation of the Account. Each Account shall be valued as of the last day of each calendar quarter until payment of a Participant's Fees in full in accordance with Section 7 hereof. If a Participant has elected to have his or her Fees deferred into the Common Shares Account, the Corporation shall ascertain the number of shares in the Account (whole and fractional, rounded to the nearest one-hundredth of a share) after taking into account additions to the Account under Section 5 above and distributions from the Account under Section 7 above, based on the fair market value of the Common Shares on the last business day of such calendar quarter. In the event of any change in the number of outstanding Common Shares of the Corporation by reason of any stock dividend or split, recapitalization, merger, consolidation, spin-off, reorganization, combination, exchange of shares, or a similar corporate change, the Board of Directors ACS30205/5 6 shall determine, in its sole discretion, the extent to which such change equitably requires an adjustment in the number of shares held in a Participant's Account and such adjustment shall be made by the Corporation and shall be conclusive and binding on all Participants in the Plan. If a Participant has elected to have his or her Fees deferred into the Interest Bearing Account, the Corporation shall ascertain the value of such Interest Bearing Account by adding to the value of the Account at the beginning of such calendar quarter the dollar amount of the Fees deferred into the Account for such quarter, plus the value of any interest paid on the Account in accordance with Section 6 above, less any distributions made from the Account in accordance with Section 7 above. ARTICLE III ADMINISTRATION The Corporation shall be responsible for the general administration of the Plan and for carrying out the provisions hereof. The Corporation shall have all such powers as may be necessary to carry out its duties under the Plan, including the power to determine all questions relating to eligibility for and the amount in an Account, all questions pertaining to claims for benefits and procedures for claim review, and the power to resolve all other questions arising under the Plan, including any questions of construction. The Corporation may take such further action as the Corporation shall deem advisable in the administration of the Plan. The actions taken and the decisions made by the Corporation hereunder shall be final and binding upon all interested parties. In accordance with the provisions of Section 503 of the Employee Retirement Income Security Act of 1974, the Corporation shall provide a procedure for handling claims of Participants or their Beneficiaries under this Plan. Such procedure shall be in accordance with regulations issued by the Secretary of Labor and shall provide adequate written notice within a reasonable period of time with respect to the denial of any such claims as well as a reasonable opportunity for a full and fair review by the Corporation of any such denial. Notwithstanding anything to the contrary contained herein, the Corporation shall be the "administrator" for the purpose of the Employee Retirement Income Security Act of 1974. ARTICLE IV AMENDMENT AND TERMINATION The Corporation reserves the right to amend or terminate the Plan at any time by action of its Board of Directors or a duly authorized Committee thereof; provided, however, that no such action shall adversely affect any Participant or Beneficiary with respect to the amount credited to a Deferred Compensation Account. ACS30205/6 7 ARTICLE V PRIOR PLANS The Plan incorporates the merger of the Deferred Compensation Plan for Board of Directors of Trustcorp, Inc. (Revised November, 1986) (the "Trustcorp Plan"), the Centran Corporation Deferred Director Compensation Plan (the "Centran Plan"), and the Society Bank, Michigan Directors' Deferred Compensation Plan ("Michigan Plan") in their entirety and all accounts existing under such Trustcorp Plan and Centran Plan on September 30, 1990, and under such Michigan Plan on June 30, 1993, shall become Accounts (or, if a Participant has accounts under the Plan and any of such Plans, shall be merged into the Account under the Plan) fully subject to all terms and conditions hereof. All accounts under the Trustcorp Plan and the Centran Plan will be valued as of September 30, 1990, and all accounts under the Michigan Plan will be valued as of June 30, 1993, and this will constitute the initial balance of the Account under this Plan. Participants in the Trustcorp Plan, the Centran Plan, and the Michigan Plan will be given the opportunity to indicate the type of election and the type of account(s) into which their Trustcorp Plan, Centran Plan, or Michigan Plan account will be converted. In the absence of any such designation, such Participants in the Trustcorp Plan, the Centran Plan, and the Michigan Plan shall be deemed to have elected the Interest Bearing Account and the payout method and payment year indicated on their Trustcorp Plan, Centran Plan, and Michigan Plan elections, unless they have an Account under this Plan, in which case the Trustcorp Plan, the Centran Plan, or the Michigan Plan account will merge into such Account and be subject to the distribution elections made with regard to such Account. ARTICLE VI MISCELLANEOUS 1. Nonalienation of Deferred Compensation Account. No Participant or Beneficiary shall encumber or dispose of the right to receive any payment of the amount of an Account hereunder without the written consent of the Corporation. If a Participant or Beneficiary without the written consent of the Corporation attempts to assign, transfer, alienate, or encumber the right to receive the amount of a Deferred Compensation Account hereunder or permits the same to be subject to alienation, garnishment, attachment, execution, or levy of any kind, then the Corporation, in its discretion, may hold or pay such amount or any part thereof to or for the benefit of such Participant or Beneficiary, the Participant's or Beneficiary's spouse, children, blood relatives, or other dependents, or any of them, in such manner and in such proportions as the Corporation may consider proper. Any such application of the amount of an Account may be made without the intervention of a guardian. The receipt by the payee(s) of such payment(s) shall constitute a complete acquittance to the Corporation with respect thereto, and neither the Corporation, nor any Subsidiary, nor any officer, member, employee, or agent thereof, shall have any responsibility for the proper application thereof. ACS30205/7 8 2. Plan Noncontractual. Nothing herein contained shall be construed as a commitment to or agreement with any Director of the Corporation or a Subsidiary to continue such person's directorship with the Corporation or 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 directorship or the rate of director compensation of any such person for any period. All Directors shall remain subject to removal to the same extent as if the Plan had never been put into effect. 3. Interest of Director. The obligation of the Corporation under the Plan to make payment of amounts reflected on an Account merely constitutes the unsecured promise of only the Corporation to make payments from its general assets as provided herein, and no Participant or Beneficiary shall have any interest in, or a lien or prior claim upon, any property of the Corporation. Further, no Participant or Beneficiary shall have any claim whatsoever against any Subsidiary for amounts reflected on an Account. 4. 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 rights against the Corporation or any Subsidiary, or the officers, employees, or directors of the Corporation or any Subsidiary, 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. 5. Delegation of Authority. Any action to be taken by the Corporation's Board of Directors under this Plan may be taken by such Board's Executive Committee or any other duly authorized Committee of the Board of Directors. 6. Severability. The invalidity and 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 provisions were omitted herefrom. 7. Governing Law. The provisions of the Plan shall be governed and construed in accordance with the laws of the State of Ohio. EXECUTED at Cleveland, Ohio as of the 30th day of June, 1993. SOCIETY CORPORATION By:______________________________ Roger Noall, Vice Chairman and Chief Administrative Officer
ACS30205/8 EX-10.15 8 KEYCORP EX-10.15 1 UNIVERSAL LIFE INSURANCE PROGRAM. A portable universal life insurance program provided to a select group of Society employees which provides life insurance coverage of 100% of the covered employee's final pay upon retirement at age 65. It also has cash value and loan provisions. JEC20908.DOC/1 KBF (02/14/94) EX-10.16 9 KEYCORP EX-10.16 1 SUPPLEMENTAL LONG TERM DISABILITY PROGRAM. A supplemental program of long term disability coverage provided to those employees in job grades 42 and above, which provides a disability benefit of 70% of the covered employee's average three years of incentive compensation awards. EX-10.23 10 KEYCORP EX-10.23 1 SOCIETY CORPORATION 1988 STOCK OPTION PLAN 1. PURPOSE. This 1988 Stock Option Plan (the "Plan") is intended to provide to selected officers of Society Corporation (the "Corporation") and its subsidiaries incentives for effective service and high levels of performance by affording them the opportunity to purchase Common Shares of the Corporation to increase their proprietary interest in the Corporation's continued progress and success and to enable the Corporation and its subsidiaries to attract qualified officers. 2. TYPES OF OPTIONS. Options granted under the Plan may be (a) "incentive stock options" within the meaning of Section 422A of the Internal Revenue Code of 1986, as amended, or (b) non-incentive stock options. 3. ADMINISTRATION. The Plan shall be administered by a Committee composed of not less than three directors of the Corporation to be appointed by the Board of Directors (the "Committee"). The members of the Committee shall not be officers or employees of the Corporation or any subsidiary. The Board of Directors may also appoint one or more directors as alternate members of the Committee. No option may be granted 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 officers to whom options shall be granted, the type of option granted, the number of shares to be covered by each option, the purchase price of the shares covered by each option, the form of consideration which may be accepted in payment of the option price including, without limitation, cash, securities, other property, or any combination thereof, the time or times at which options shall be exercisable, and the terms and provisions of the instruments by which options shall be evidenced, (b) to interpret the Plan, and (c) to make all determinations necessary for the administration of the Plan. Subject to Section 18, the Committee shall also have the authority to amend the terms and conditions applicable to outstanding options provided that no amendment shall contain terms and conditions inconsistent with the provisions of the Plan. Notwithstanding the foregoing, the Corporation's Board of Directors may exercise any authority granted herein to the Committee. The construction and interpretation by the Committee of any provision of the Plan or any stock option agreement entered into pursuant to the Plan and any determination by the Committee pursuant to any provision of the Plan or any stock option agreement 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. 4. ELIGIBILITY. Options may be granted to officers of the Corporation or any subsidiary (including officers who are members of the Board of Directors of the Corporation or any subsidiary). The granting of any option to an officer shall not entitle such officer to, nor disqualify him from, participation in any other grant of an option. Further, the granting of any option to an officer shall not be deemed or construed to impair or affect in any manner whatsoever the right of the Corporation or any subsidiary in its discretion to terminate the services of such officer. 5. STOCK AVAILABLE FOR OPTIONS. The stock which may be issued and sold upon the exercise of options granted under the Plan may be authorized and unissued Common Shares of the Corporation or treasury shares as the Board of Directors may from time to time determine. The Corporation may reacquire Common Shares at the time options are exercised, or from time to time in advance, whenever the Board of Directors may deem such purchase advisable. Common Shares may be either Ordinary Shares or Book Value Shares. "Ordinary Shares" are Common Shares of the Corporation for which there is a generally recognized trading market and which are freely transferable. "Book Value Shares" are Common Shares of the Corporation which have the same voting, dividend, and liquidation rights as Ordinary Shares, except that they shall not be transferable other than to the Corporation and except that they shall be subject to the repurchase provisions set forth in the stock option agreements pursuant to which they were acquired or purchased. 2 Subject to adjustment as provided in Section 14, the total number of Common Shares of the Corporation which may be issued or sold upon the exercise of all options granted under this Plan shall not exceed the following: (a) 1,350,000 Ordinary Shares, and (b) a number of Book Value Shares, which as of the respective dates of grant is proportionate to the number of Ordinary Shares described in (a) above, based on the ratio of the then fair market value per share of Ordinary Shares to the then applicable Book Value Per Share (as herein- after defined in Section 6) of the Book Value Shares; provided, however, that such number of Book Value Shares shall not exceed 2,025,000, and the number of Book Value Shares so determined shall be rounded to the next lowest whole number of Book Value Shares. The exercise of an option or stock appreciation right relating to Ordinary Shares will reduce proportionately the number of Book Value Shares, if any, subject to the same option or stock appreciation right, and vice versa. Any Book Value Shares or Ordinary Shares ceasing to be subject to the related option because of such reduction shall no longer be available for the future grant of options under the Plan. In the event that any outstanding option under the Plan for any reason expires or is terminated prior to the end of the period during which options may be granted under the Plan, the Common Shares subject to the unexercised portion of such option shall again be available for the future grant of options under the Plan. 6. OPTION PRICE. The option price under an option to purchase Ordinary Shares, whether an incentive stock option or a non-incentive stock option, shall be not less than the fair market value of the Ordinary Shares covered by the option, as determined by the Committee, on the date the option is granted. The option price for any Book Value Share shall be not less than the Book Value Per Share on the Fiscal Quarter Date coincident with or immediately preceding the date of the grant of the option. "Book Value Per Share" as of any date means the shareholders' equity allocable to Common Shares of the Corporation, as set forth in the consolidated balance sheet of the Corporation and its subsidiaries as at the Fiscal Quarter Date coincident with or immediately preceding such date, divided by the number of Common Shares of the Corporation outstanding as of such Fiscal Quarter Date; provided, however, that the Book Value Per Share, for the purpose of calculating the repurchase price of Book Value Shares, may be adjusted to such an extent as may be determined by the Committee to preserve the benefit of the arrangement for holders of options on Book Value Shares and the Corporation, if in the opinion of the Committee, after consultation with the Corporation's independent public accountants, changes in the Corporation's accounting policies, acquisitions, or other unusual or extraordinary items have materially affected the number of the Corporation's Common Shares outstanding or shareholders' equity allocable to the Corporation's Common Shares. "Fiscal Quarter Date" means March 31, June 30, September 30, or December 31 of any year or such other dates as the Corporation may from time to time fix as ending dates of fiscal quarters of the Corporation. 7. GRANT OF STOCK OPTIONS; STOCK OPTION AGREEMENTS. (a) INCENTIVE STOCK OPTIONS. The Committee may, from time to time, grant incentive stock options under the Plan. Any grant of an incentive stock option shall be to purchase a specified number of Ordinary Shares. The day on which the Committee authorizes the grant of an incentive stock option shall be the day on which such incentive stock option is granted. No optionee may be granted incentive stock options for Ordinary Shares that are exercisable for the first time by the optionee in any calendar year (under all plans of the Corporation and its subsidiaries) which exceed an aggregate fair market value (determined at the time of grant) of $100,000. (b) NON-INCENTIVE STOCK OPTIONS. The Committee may, from time to time, grant non-incentive stock options under the Plan. Any grant of a non-incentive stock option may be to purchase a specified number of Ordinary Shares or Book Value Shares, or both, and may give the optionee the election to purchase either Ordinary Shares or Book Value Shares. The day on which the Committee authorizes the grant of a non-incentive stock option shall be considered the day on which such non-incentive stock option is granted, unless the Committee specifies a later day. The exercise of a non-incentive stock option 3 to purchase Ordinary Shares will reduce proportionately the number of Book Value Shares, if any, covered by the same non-incentive stock option, and vice versa. Any grant in respect of Book Value Shares shall provide for the repurchase thereof by the Corporation, and upon such repurchase the repurchase price may be paid in cash, in Ordinary Shares, or a combination of such methods of payment, and may either give to the optionee or retain in the Committee the right to elect the method of payment of the repurchase price. (c) STOCK OPTION AGREEMENTS. Each grant of an incentive stock option or a non-incentive stock option under the Plan shall be evidenced by a stock option agreement executed on behalf of the Corporation by an officer designated by the Committee and accepted by the optionee. Such stock option agreement shall contain such terms and provisions, consistent with the Plan, as the Committee may approve. (d) ELECTION. The Committee may, at the time of the grant of a stock option, permit the optionee to irrevocably elect at such time whether such stock option shall be an incentive stock option subject to the terms and conditions set forth in the Plan applicable to incentive stock options, which terms and conditions, if such election is made, shall be set forth in the stock option agreement. 8. EXERCISE OF OPTIONS. Options, whether incentive stock options or non-incentive stock options, shall be exercised by delivery of written notice of exercise to the Corporation accompanied by payment of the option price. Except as otherwise provided in Section 9, an option may be exercised only while the optionee is in the employ of the Corporation or of a subsidiary. An optionee to whom an option has been granted must remain in the continuous employ of the Corporation or of a subsidiary for one year from the date on which the option is granted before he or she may exercise any part of the option; provided, however, that this requirement of one year of continuous employment shall not apply to an optionee who retires under any retirement plan, program, or policy of the Corporation or of a subsidiary unless the option is covered by a stock appreciation right, in which case, the retiring optionee must have been in the continuous employ of the Corporation or of a subsidiary for at least six months from the date on which the option is granted. Thereafter, each option shall become exercisable in one or more installments at the time or times provided in the instrument evidencing the option. Once an installment becomes exercisable, it shall remain exercisable until expiration or termination of the option. An officer to whom an option is granted may exercise the option from time to time, in whole or in part, up to the total number of shares with respect to which the option is then exercisable. No fraction of a Common Share may, however, be purchased upon the exercise of an option. Notwithstanding any provision of this Section 8 to the contrary, any option, whether an incentive stock option or a non-incentive stock option, granted pursuant to the Plan (a) may, in the discretion of the Committee, become fully exercisable as to all optioned shares from and after the time the optionee ceases to be an employee of the Corporation or any of its subsidiaries as a result of the sale or other disposition by the Corporation of assets or property (including shares of any subsidiary) in respect of which the optionee had theretofore been employed or as a result of which optionee's continued employment with the Corporation or any subsidiary is no longer required, and (b) shall, in the case of a change in control (as hereinafter defined) of the Corporation, become fully exercisable as to all optioned shares from and after the date of such change in control. For purposes of this paragraph, a "change in control" shall be deemed to occur: (i) upon the approval by the shareholders of the Corporation of (A) any consolidation or merger of the Corporation with or into another corporation or entity if, as a result of such consolidation or merger, voting securities of the Corporation outstanding immediately prior to such consolidation or merger will not represent or account for (either directly by continuing to be outstanding as voting securities of the resulting or surviving corporation or entity or indirectly by being converted into or exchanged for voting securities of the resulting or surviving corporation or entity) at least 60% of the voting securities of the resulting or surviving corporation as of immediately after the consolidation or merger, (B) any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Corporation, or (C) adoption of any plan or proposal for the liquidation or dissolution of the Corporation, or 4 (ii) upon any "person" (as defined in Section 13(d) of the Securities Exchange Act of 1934 as amended), corporation, or other entity, other than the Corporation or any subsidiary or employee benefit plan or trust maintained by the Corporation or any of its subsidiaries, becoming the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Securities Exchange Act of 1934), directly or indirectly, of more than 25% of the Common Shares of the Corporation outstanding at the time, without the prior approval of the Board of Directors of the Corporation, or (iii) if, during any period of 24 consecutive calendar months, individuals who at the beginning of such period constitute the directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election or the nomination for election by the share- holders of the Corporation of each new director of the Corporation was approved by the vote of at least two-thirds of the directors of the Corporation still then in office who were directors of the Corporation at the beginning of any such period. 9. EXERCISE OF OPTIONS AFTER TERMINATION OF EMPLOYMENT OR DEATH. (a) INCENTIVE STOCK OPTIONS. An incentive stock option may be exercised after termination of employment, whether upon death, disability, retirement, or otherwise only to the extent provided in this Section 9(a). (i) Upon any termination of employment for any reason other than the optionee's death, disability, or retirement under any retirement plan, program, or policy of the Corporation or of a subsidiary, the optionee shall have the right within the period of three months next following the date of such termination of employment, to purchase all or any part of the Common Shares which the optionee would have been entitled to purchase if he or she had exercised his or her option on the date of such termination of employment, except that, if the employment of the optionee is terminated by the Corporation or a subsidiary, the optionee may exercise his or her incentive stock option only with the consent of the Committee. (ii) Upon any termination of employment due to retirement under any retirement plan, program, or policy of the Corporation or of a subsidiary, the optionee shall have the right within the period of two years next following the date of termination of employment, to purchase all or any part of the Common Shares which the optionee would have been entitled to purchase if he or she had exercised his or her incentive stock option on the date of such termination of employment. (iii) Upon any termination of employment due to disability, the optionee, or his attorney in fact or guardian, shall have the right within the period of one year next following the date of termination of employ- ment, to purchase all or any part of the Common Shares which the optionee would have been entitled to purchase if he or she had exercised his or her incentive stock option on the date of such termination of employment. (iv) Upon the death of the optionee while in the active service of the Corporation or of a subsidiary, or within the period referred to in subsection (i), (ii), or (iii) of this Section 9(a), the optionee's executor or administrator or the person or persons to whom the optionee's rights under his or her option are transferred by will or the laws of descent and distribution shall have the right, within the period of two years next following the date of the optionee's death, to purchase all or any part of the Common Shares which the optionee would have been entitled to purchase if he or she had exercised his or her incentive stock option on the date of death. (b) NON-INCENTIVE STOCK OPTIONS. A non-incentive stock option may be exercised after termination of employment, whether upon death, disability, retirement, or otherwise only to the extent provided in this Section 9(b). (i) Upon any termination of employment for any reason other than the optionee's death, disability, or retirement under any retirement plan, program, or policy of the Corporation or of a subsidiary, the optionee shall have the right within the period of six months next following the date of such termination of employment, to purchase all or any part of the Common Shares which the optionee would have been entitled to purchase if he or she had exercised his or her option on the date 5 of such termination of employment, except that, if the employment of the optionee is terminated by the Corporation or a subsidiary, the optionee may exercise his or her non-incentive stock option only with the consent of the Committee. (ii) Upon any termination of employment due to retirement under any retirement plan, program, or policy of the Corporation or of a subsidiary, the optionee shall have the right within the period of two years next following the date of termination of employment, to purchase all or any part of the Common Shares which the optionee would have been entitled to purchase if he or she had exercised his or her non-incentive stock option on the date of such termination of employment. (iii) Upon any termination of employment due to disability, the optionee, or his attorney in fact or guardian, shall have the right within the period of two years next following the date of termination of employ- ment, to purchase all or any part of the Common Shares which the optionee would have been entitled to purchase if he or she had exercised his or her non-incentive stock option on the date of such termination of employment. (iv) Upon the death of the optionee while in the active service of the Corporation or of a subsidiary, or within the period referred to in subsection (i), (ii), or (iii) of this Section 9(b), the optionee's executor or administrator or the person or persons to whom the optionee's rights under his or her option are transferred by will or the laws of descent and distribution shall have the right, within the period of two years next following the date of the optionee's death, to purchase all or any part of the Common Shares which the optionee would have been entitled to purchase if he or she had exercised his or her non-incentive stock option on the date of death. 10. TERMINATION OF OPTIONS. Notwithstanding any other provision in this Plan, any option, whether an incentive stock option or a non-incentive stock option, granted under the Plan shall terminate, and the right of the optionee or other person to purchase Common Shares shall expire, at the time set forth in the grant, which shall be not later than ten years from the date such option is granted; provided, however, in the case of non-incentive stock options, the Committee may authorize a term of ten years and one week from the date such option is granted if the Committee determines it is desirable in order to assure that such option is not treated as an incentive stock option for Federal income tax purposes. 11. PAYMENT FOR SHARES. Upon exercise of an option, whether an incentive stock option or a non-incentive stock option, the option price shall be payable either (a) in cash, or (b) by the transfer to the Corporation by the optionee of Ordinary Shares or Book Value Shares having a value (current market value in the case of Ordinary Shares and Book Value in the case of Book Value Shares) equal to the option price, including, in the discretion of the Committee exercised at the time the option is granted, the right to transfer shares acquired upon the exercise of a part of an option in payment of the option price upon immediate exercise of a further part of the option, or (c) by a combination of the methods described in (a) and (b) of this Section 11. 12. ASSIGNABILITY. Except as otherwise provided in Section 9, an option, whether an incentive stock option or a non-incentive stock option, granted under the Plan may not be assigned or transferred and may be exercised only by the optionee to whom granted. 13. OPTIONS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER COMPANIES. Options, whether incentive stock options or non-incentive stock options, may be granted under the Plan in substitution for stock options held by employees of a company who become or are about to become officers 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 of the Corporation. The terms, provisions, and benefits of the substitute options 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 grant may deem appropriate to conform, in whole or in part, to the terms, provisions, and benefits of the options in substitution for which they are granted. 6 14. ADJUSTMENT UPON CHANGES IN SHARES. The number and option price of the Common Shares covered by each option and the total number of shares that may be sold under the plan shall be proportionately adjusted to reflect, as deemed equitable and appropriate by the Committee, any stock dividend, stock split or share combination of the Common Shares, or reclassification or recapitalization of the Corporation. If the Corporation shall be a party to any merger, consolidation, or other form of business combination, or liquidation or dissolution, and in connection therewith the holders of Common Shares shall become entitled to receive securities, cash, or other property in conversion or extinguishment of, exchange for, or otherwise in respect of Common Shares, the officer to whom an option has been granted shall be entitled, upon exercise of the option rights granted under the Plan on the terms and conditions set forth in the instrument evidencing the option, to receive, in lieu of Common Shares, the securities, cash, or other property that the officer would be entitled to receive as a holder of Common Shares had the officer exercised the option rights set forth in the instrument evidencing the option immediately prior to the effective date of the merger, consolidation or other form of business combination; provided, however, that the Committee may authorize the disposition of the option rights granted under the Plan in such other manner as may be necessary and equitable in its discretion to realize the intention of the option rights granted under the Plan. 15. PURCHASE FOR INVESTMENT. Each person exercising an option, whether an incentive stock option or a non-incentive stock option, may be required by the Corporation to furnish a representation that he or she is acquiring the shares purchased upon such exercise as an investment and not with a view to distribution thereof if the Corporation shall, in its sole discretion, determine that such representation is required to insure that a resale or other disposition of the 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. 16. LEGAL REQUIREMENTS. No option shall be granted and no shares shall be delivered under this Plan except 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. 17. DURATION AND TERMINATION OF THE PLAN. The Plan shall remain in effect through February 17, 1998, and shall then terminate, unless terminated at an earlier date by action of the Board of Directors; provided, however, that termination of the Plan shall not affect options granted prior thereto. 18. AMENDMENTS. The Board of Directors may alter or amend the Plan from time to time prior to its termination, except that, without shareholder approval, no amendment shall increase the aggregate number of shares with respect to which options may be granted (except in accordance with the provisions of Section 14), reduce the option price at which options may be exercised (except in accordance with the provisions of Section 14), extend the time within which options may be granted under the Plan, or change the requirements relating to either eligibility for participation in the Plan or administration of the Plan. Except in accordance with the provisions of Section 14, neither the Board of Directors nor the Committee may, without the consent of the holder of an option granted under the Plan, alter or impair such option. The Committee may, with the agreement of the affected optionee, cancel any stock option agreement entered into pursuant to the Plan. In the event of such cancellation, the Committee may authorize the grant of a new incentive stock option or non-incentive stock option for the same or a different number of Common Shares specified in the cancelled stock option agreement, at such option price and upon terms and provisions which would have been applicable under the Plan had not the Corporation and the optionee entered into the cancelled stock option agreement. EX-10.24 11 KEYCORP EX-10.24 1 SOCIETY CORPORATION 1988 STOCK APPRECIATION RIGHTS PLAN 1. PURPOSE. The purpose of this 1988 Stock Appreciation Rights Plan (the "Plan") is to provide to optionees under stock options heretofore or hereafter granted pursuant to any stock option plan of Society Corporation (the "Corporation") now or hereafter in effect an alternative method of realizing the benefits provided by such stock options. 2. DEFINITIONS. As used in the Plan: (a) "Change in Control" shall be deemed to occur: (i) upon the approval by the shareholders of the Corporation of (A) any consolidation or merger of the Corporation with or into another corporation or entity if, as a result of such consolidation or merger, voting securities of the Corporation outstanding immediately prior to such consolidation or merger will not represent or account for (either directly by continuing to be outstanding as voting securities of the resulting or surviving corporation or entity or indirectly by being converted into or exchanged for voting securities of the resulting or surviving corporation or entity) at least 60% of the voting securities of the resulting or surviving corporation as of immediately after the consolidation or merger, (B) any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Corporation, or (C) adoption of any plan for the liquidation or dissolution of the Corporation, or (ii) upon any "person" (as defined in Section 13(d) of the Securities Exchange Act of 1934 as amended), corporation or other entity, other than the Corporation, making a tender offer or exchange offer to acquire any Common Shares (or securities convertible into Common Shares) for cash, securities or any other consideration provided, that (A) at least a portion of such securities sought pursuant to the tender offer or exchange offer in question is acquired and (B) after consummation of such tender offer or exchange offer, the person, corporation, or other entity in question is the "beneficial owner" (as such term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended), directly or indirectly, of more than 25% of the outstanding Common Shares; (b) "Committee" means the committee provided for in Section 10. (c) "Common Shares" means Common Shares, $1 par value, of the Corporation or, if by reason of the adjustment provision in any stock option plan under which any stock option is outstanding, the class of shares subject to such outstanding stock option. (d) "fair market value" of Common Shares on any relevant date shall be determined by the Committee. (e) "limited stock appreciation right" means a right granted pursuant to Section 5. (f) "Minimum Price Per Share" shall mean the highest gross price (before brokerage commissions and soliciting dealers' fees) paid or to be paid for an Ordinary Share (whether by way of exchange, conversion, distribution upon liquidation or otherwise) pursuant to any change in control. For purposes of this definition, if the consideration paid or to be paid pursuant to any change in control shall consist, in whole or in part, of consideration other than cash, the Committee shall take such action, as in its judgment it deems appropriate, to establish the cash value of such consideration. (g) "outstanding stock option" means a stock option to purchase Common Shares (either Ordinary Shares or Book Value Shares) granted by the Corporation pursuant to any stock option plan of the Corporation now or hereafter in effect, whether or not such stock option is at the time exercisable, to the extent that such stock option at such time has not been exercised and has not terminated. 2 (h) "spread", in the case of an outstanding stock option relating to Ordinary Shares (as defined in the Society Corporation 1988 Stock Option Plan), means the excess of the fair market value of a Common Share on the date when a stock appreciation right granted pursuant to the Plan is exercised over the option price provided for in the related outstanding stock option, and in the case of an outstanding stock option relating to Book Value Shares, means the excess of the Book Value Per Share (as defined in the Society Corporation 1988 Stock Option Plan) on the date when a stock appreciation right granted pursuant to the Plan is exercised over the option price provided for in the related outstanding stock option. (i) "stock appreciation right" means a right granted pursuant to Section 3. 3. GRANT OF STOCK APPRECIATION RIGHTS. (a) The Committee may at any time and from time to time grant stock appreciation rights in respect of all or any part of any outstanding stock option (including any outstanding stock option simultaneously granted) and may define the terms of such stock appreciation rights, subject to the provisions of the Plan. Any grant may permit the exercise of stock appreciation rights with respect to the value of Ordinary Shares or Book Value Shares, or a combination of both, covered by the related outstanding stock option. (b) Stock appreciation rights shall entitle the optionee to receive from the Corporation, upon surrender of the related outstanding stock option, or any portion thereof, an amount equal to 100%, or such lesser percentage as the Committee may determine, of the spread at the time of the exercise of the stock appreciation rights, multiplied by the number of Common Shares in respect of which the stock appreciation rights shall have been exercised. Such amount may be paid by the Corporation in cash, in whole Ordinary Shares (taken at their fair market value at the time of exercise of the stock appreciation rights), in whole Book Value Shares (taken at their Book Value Per Share as defined in the Society Corporation 1988 Stock Option Plan), or in any combination thereof, as the Committee shall determine; provided, however, that in no event shall the total number of Common Shares which may be paid to the optionee pursuant to the exercise of stock appreciation rights exceed the total number of Common Shares subject to the related outstanding stock option. The foregoing determinations may be made at the time of grant of the stock appreciation rights or at any time thereafter and shall be subject to change at any time or from time to time. (c) Each grant of a stock appreciation right shall be evidenced by an Agreement executed on behalf of the Corporation by an officer designated by the Committee and accepted by the optionee. Such Agreement shall describe the stock appreciation rights, specify the related outstanding stock options, and state that such stock appreciation rights are subject to all the terms and provisions of the Plan and contain such other terms and provisions, consistent with the Plan, as the Committee may approve. (d) A grant of stock appreciation rights may specify waiting periods before exercise and permissible exercise dates; provided, however, that no stock appreciation right shall be exercisable except at a time when the related outstanding stock option may be exercised. (e) Stock appreciation rights shall not be granted in respect of outstanding stock options to purchase in excess of 1,350,000 Common Shares. In the event of any change in the Common Shares subject to outstanding stock options in respect of which stock appreciation rights have been granted under the Plan, by reason of any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Corporation, or any merger, consolidation, separation, reorganization or partial or complete liquidation, or any other corporate transaction or event having an effect similar to any of the foregoing, all as more fully described in Section 14 of the Society Corporation 1988 Stock Option Plan, the aggregate number of Ordinary Shares and Book Value Shares subject to outstanding stock options in respect of which stock appreciation rights may thereafter be granted under the Plan and the number and class of shares subject to each outstanding stock option in respect of which stock appreciation rights have theretofore been granted under the Plan shall be appropriately adjusted. 3 4. EXERCISE OF STOCK APPRECIATION RIGHTS. (a) Stock appreciation rights may be exercised only (i) when there is a positive spread, and (ii) by surrender to the Corporation, unexercised, of the related outstanding stock option or any applicable portion thereof. No stock appreciation right or related stock option shall in any event be exercised during the first six months of their respective terms. (b) Any Ordinary Shares or Book Value Shares covered by outstanding stock options so surrendered shall not be available for the granting of further stock options under any stock option plan of the Corporation, anything in such stock option plan to the contrary notwithstanding. 5. GRANT OF LIMITED STOCK APPRECIATION RIGHTS. (a) The Committee may at any time and from time to time grant limited stock appreciation rights in respect of all or any part of any outstanding stock option (including any outstanding stock option simultaneously granted) and may define the terms of such limited stock appreciation rights, subject to the provisions of the Plan. Any grant may permit the exercise of limited stock appreciation rights with respect to the value of Ordinary Shares or Book Value Shares, or a combination of both, covered by the related outstanding stock option. (b) Limited stock appreciation rights granted with respect to incentive stock options shall entitle the optionee to receive from the Corporation, upon surrender of the related outstanding incentive stock option, or any portion thereof, an amount equal to 100% of the spread at the time of the exercise of the limited stock appreciation rights, multiplied by the number of Ordinary Shares in respect of which the limited stock appreciation rights shall have been exercised. Such amount shall be paid by the Corporation in cash. (c) Limited stock appreciation rights granted with respect to non-incentive stock options shall entitle the optionee to receive from the Corporation, upon surrender of the related outstanding non-incentive stock option, or any portion thereof, an amount equal to 100% of the higher of (i) the spread at the time of the exercise of the limited stock appreciation rights, (ii) the excess of the Minimum Price Per Share over the option price per share of Ordinary Shares subject to the related non-incentive stock option, or (iii) the excess of the highest mean between the high and low sales prices per share in the over-the-counter market, National Market System, as reported by the National Quotations Bureau, Inc. and NASDAQ on any one day during the period beginning on the sixtieth day prior to the date on which such limited stock appreciation rights are exercised and ending on the date on which such limited rights are exercised over the option price per share of Ordinary Shares subject to the related non-incentive stock option, multiplied by the number of Common Shares in respect of which the limited stock appreciation rights have been exercised. Such amount shall be paid by the Corporation in cash. (d) Each grant of a limited stock appreciation right shall be evidenced by an agreement executed on behalf of the Corporation by an officer designated by the Committee and accepted by the optionee. Such agreement shall describe the limited stock appreciation rights, specify the related outstanding stock option(s) and state that such limited stock appreciation rights are subject to all the terms and provisions of the Plan and contain such other terms and provisions, consistent with the Plan, as the Committee may approve. (e) Limited stock appreciation rights shall not be granted in respect of outstanding stock options to purchase in excess of 1,350,000 Common Shares. In the event of any change in the Common Shares subject to outstanding stock options in respect of which limited stock appreciation rights have been granted under the Plan, by reason of any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Corporation, or any merger, consolidation, separation, reorganization or partial or complete liquidation, or any other corporate transaction or event having an effect similar to any of the foregoing, all as more fully described in Section 14 of the Society Corporation 1988 Stock Option Plan, the aggregate number of Ordinary Shares and Book Value Shares subject to outstanding stock options in respect of which limited stock appreciation rights may thereafter be granted under the Plan and the number and class of shares subject to each outstanding stock option in respect of 4 which limited stock appreciation rights have theretofore been granted under the Plan shall be appropriately adjusted. 6. EXERCISE OF LIMITED STOCK APPRECIATION RIGHTS. (a) Limited stock appreciation rights may be exercised only (i) when there is a positive spread, (ii) after the expiration of six months from the date of grant of the limited stock appreciation rights, (iii) during the 30-day period beginning on the first day after the date of a Change in Control of the Corporation, (iv) at a time when the holder of the related outstanding stock option is, directly or indirectly, subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, (v) at a time and to the same extent as the related outstanding stock option is exercisable, and (vi) by surrender to the Corporation, unexercised, of the related outstanding stock option or any applicable portion thereof. (b) Any Ordinary Shares or Book Value Shares covered by outstanding stock options so surrendered shall not be available for the granting of further stock options under any stock option plan of the Corporation, anything in such stock option plan to the contrary notwithstanding. 7. ASSIGNABILITY. Stock appreciation rights and limited stock appreciation rights shall not be transferable or assignable by the optionee otherwise than by will or the laws of descent and distribution. 8. TERMINATION. Stock appreciation rights and limited stock appreciation rights shall terminate and may no longer be exercised upon the earlier of (a) exercise or termination of the related outstanding stock option, or (b) any termination date specified by the Committee at the time of grant of such stock appreciation rights. 9. AMENDMENT, SUSPENSION, OR TERMINATION. The Committee may at any time amend, suspend, or terminate any stock appreciation rights or limited stock appreciation rights theretofore granted under the Plan without the holder's consent. In case of amendment, the amended stock appreciation rights or limited stock appreciation rights shall be in accordance with the Plan. 10. ADMINISTRATION. The Plan shall be administered by a committee composed of not less than three directors of the Corporation to be appointed by the Board of Directors (the "Committee"). The members of the Committee shall not be officers or employees of the Corporation or any subsidiary. The Board of Directors may also appoint one or more directors as alternate members of the Committee. No stock appreciation right or limited stock appreciation right shall be granted to any member or alternate member of the Committee. The Committee shall have authority to grant stock appreciation rights or limited stock appreciation rights under the Plan, and subject to the terms of the Plan, (a) to determine the officers to whom stock appreciation rights or limited stock appreciation rights shall be granted, the number of shares to be covered by each stock appreciation right or limited stock appreciation right, the time or times at which stock appreciation rights or limited stock appreciation rights shall be exercisable, and the terms and provisions of the instruments by which stock appreciation rights or limited stock appreciation rights shall be evidenced, (b) to interpret the Plan, and (c) to make all determinations necessary for the administration of the Plan. Notwithstanding the foregoing, the Corporation's Board of Directors may exercise any authority granted herein to the Committee. The construction and interpretation by the Committee of any provision of the Plan or any agreement granting stock appreciation rights or limited stock appreciation rights entered into pursuant to the Plan and any determination by the Committee pursuant to any provision of the Plan or any agreement granting stock appreciation rights or limited stock appreciation rights 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. 11. COMMON SHARES. Common Shares issued or delivered on the exercise of stock appreciation rights may be authorized and unissued Common Shares or treasury shares or a combination thereof. 12. DURATION AND TERMINATION OF THE PLAN. The Plan shall remain in effect through February 17, 1998, and shall then terminate, unless terminated at an earlier date by action of the Board of Directors of the Corporation; provided, however, that termination of the Plan shall not affect stock appreciation rights or limited stock appreciation rights granted prior thereto. 5 13. AMENDMENT OF PLAN. The Board of Directors may alter or amend the Plan from time to time, except that, without shareholder approval, no amendment shall (a) materially increase the benefits accruing to optionees to whom stock appreciation rights or limited stock appreciation rights have been granted under the Plan, or (b) materially increase the stock appreciation rights or limited stock appreciation rights which may be granted under the Plan (except that adjustments authorized by Sections 3(e) and 5(e) shall not be limited by this provision), or (c) materially modify the requirements as to eligibility for participation under the Plan. EX-10.28 12 KEYCORP EX-10.28 1 FIRST AMENDMENT TO SOCIETY CORPORATION 1991 EQUITY COMPENSATION PLAN WHEREAS, Society Corporation ("Society") has heretofore adopted the 1991 Equity Compensation Plan ("Plan"), and WHEREAS, Society reserved the right to amend the Plan under Section 20 of the Plan, and WHEREAS, Society now deems it necessary to amend the Plan; NOW, THEREFORE, the Plan is amended as follows: 1. Section 4 of the Plan, entitled "Eligibility," is hereby amended by adding the following sentence at the end of said Section: "No Employee may receive an Award in any year which when added to all previous Awards granted during such year shall cover Common Shares which in the aggregate would be in excess of .2% of the outstanding Common Shares of the Corporation on the date such Award was granted." 2. Except as herein specifically amended, the Plan shall remain in full force and effect. IN WITNESS WHEREOF, Society Corporation has caused this First Amendment to the Plan to be executed by its duly authorized officer as of the 29th day of December, 1993. SOCIETY CORPORATION By: /s/ Roger Noall Roger Noall Vice Chairman ACS94062/1 EX-10.35 13 KEYCORP EX-10.35 1 KEYCORP ONE KEYCORP PLAZA ALBANY, NEW YORK [September 1, 1990] Dear This Agreement confirms and restates our understanding as to the payments that are to be made to you if a change of control of KeyCorp occurs. KeyCorp considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of KeyCorp and its shareholders. As a consequence, KeyCorp recognizes that, as is the case with many publicly held corporations, the uncertainty and questions which arise among senior members of management in connection with the possibilities of a change of control, may result in the departure or distraction of management personnel to the detriment of KeyCorp and its shareholders. Accordingly, the Board of Directors of KeyCorp (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of KeyCorp's management to their assigned duties without distractions arising from the possibility of a change in control of KeyCorp. Hence, the Board believes it important, should KeyCorp or its shareholders receive a proposal for transfer of control of KeyCorp, that you be in a position to assess and advise senior management and the Board whether such a proposal would be in the best interests of KeyCorp and its shareholders and to take such other action regarding such proposal as the Board might determine to be appropriate, without being influenced by the uncertainties of your own situation. In order to induce you to remain in the employ of the Company, this letter agreement, which has been approved by the Board, sets forth the severance benefits which KeyCorp agrees will be provided to you in the event your employment with KeyCorp is terminated subsequent to a "change in control" of KeyCorp under the circumstances described below. For purposes of this Agreement, unless the context otherwise requires, the term "KeyCorp" includes KeyCorp and any subsidiary of KeyCorp. -1- 2 1. AGREEMENT TO PROVIDE SERVICES; RIGHT TO TERMINATE. (i) Except as otherwise provided in paragraph (ii) below, KeyCorp or you may terminate your employment at any time, subject to KeyCorp providing you with the benefits hereinafter specified in accordance with the terms hereof and the benefits due you under other benefit plans and agreements applicable to you. Upon receipt of a Termination Notice under the paragraph 4(v) of this Agreement, or upon your resignation, you shall, if so requested, forthwith cease any activity on behalf of or in the name of KeyCorp and vacate any office space assigned for your use, removing only your personal possessions. (ii) In the event a tender offer or exchange offer is made by a Person (as hereinafter defined) for more than 25% of the combined voting power of the KeyCorp's outstanding securities ordinarily having the right to vote at elections of directors ("Voting Securities"), including shares of KeyCorp (the "Company Shares") or in the event that a proposal is made that if implemented would result in a change of control of KeyCorp, as defined in Section 3 hereof, you agree that you will not leave the employ of KeyCorp (other than as a result of Disability or upon Retirement, as such terms are hereinafter defined) and will render the services contemplated in the recitals to this Agreement until such proposal has been abandoned or terminated or a change in control of KeyCorp, as defined in Section 3 hereof, has occurred. For purposes of this Agreement, the term "Person" shall mean and include any individual, corporation, partnership, group, association or other "person", as such term is used in Section 14(d) of the Securities Exchange Act of 2934, as amended (the "Exchange Act"), other than KeyCorp, a wholly owned subsidiary of KeyCorp or any employee benefit plan(s) sponsored by KeyCorp or a subsidiary of KeyCorp. 2. TERM OF AGREEMENT. This Agreement shall commence on the date hereof and shall continue in effect until [December 31, 1991; provided, however, that commencing on January 1, 1992] and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless at least 90 days prior to such January 1st date, KeyCorp or you shall have given notice that this Agreement shall not be extended; and provided, further, that this Agreement shall continue in effect for a period of twenty-four (24) months beyond the term provided herein if a change in control of KeyCorp, as defined in Section 3 hereof, shall have occurred during such term. However, notwithstanding anything in this Section 2 to the contrary, this Agreement shall terminate if you or KeyCorp terminate your employment prior to a change in control of the Company. -2- 3 3. CHANGE IN CONTROL. For purposes of this Agreement, a "Change in Control" of KeyCorp shall mean a Change in Control of a nature that would be required to be reported (assuming such event has not been "previously reported") in response to Item 1(a) of the Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Exchange Act; provided that, without limitation, such a Change in Control shall be deemed to have occurred at such time as (a) any person is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 25% or more of the combined voting power of KeyCorp's Voting Securities; or (b) individuals who constitute the Board of KeyCorp on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of KeyCorp or the Board of any corporation with which KeyCorp merges, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by KeyCorp's shareholders, was approved by a vote of at least three quarters of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this clause (b), considered as though such person were a member of the Incumbent Board, or (c) if any person or entity acquires an interest which is determined by the Federal Reserve Board to constitute a controlling interest in KeyCorp or (d) the sale by KeyCorp of more than 50% of the book value of its assets to a single purchaser or to a group of affiliated purchasers or (e) the merger or consolidation of KeyCorp in a transaction in which the Shareholders of KeyCorp receive less than 50% of the outstanding voting shares of the continuing corporation. Notwithstanding anything in the foregoing to the contrary, no Change in Control shall be deemed to have occurred for purposes of this Agreement by virtue of any transaction which results in you, or a group of Persons which includes you, acquiring, directly or indirectly, 25% or more of the combined voting power of the Company's Voting Securities. 4. TERMINATION FOLLOWING CHANGE IN CONTROL. If any of the events described in Section 3 hereof constituting a Change in Control of KeyCorp shall have occurred, you shall be entitled t the benefits provided in Section 5 hereof upon the termination of your employment with KeyCorp within twenty-four (24) months after such event, unless such termination is (a) because of your death or Retirement or Disability, (b) by KeyCorp for Cause or (c) by you other than for Good Reason (as all such capitalized terms are hereinafter defined). (i) DISABILITY. Termination by KeyCorp of your employment based on "Disability" shall mean termination because of your absence from your duties with KeyCorp on a -3- 4 full time basis for one hundred eighty (180) consecutive days as a result of your incapacity due to physical or mental illness, unless within thirty (30) days after Notice of Termination (as hereinafter defined) is given to you following such 180 day absence you shall have returned to the full time performance of your duties. (ii) RETIREMENT. Termination by you or by KeyCorp of your employment based on "Retirement" shall mean termination on or after your normal retirement date under the terms of KeyCorp's defined benefit pension plan applicable to you (or any successor or substitute plan or plans of KeyCorp put into effect prior to a Change in Control) (the "Retirement Plan") or pursuant to an agreement between KeyCorp and you described in Paragraph 14 of this Agreement. (iii) CAUSE. Termination by KeyCorp of your employment for "Cause" shall mean termination upon (a) the willful and continued failure by you to substantially perform your duties with KeyCorp (other than any such failure resulting from your incapacity due to physical or mental illness) or to substantially comply in all material respects with the terms and obligations of employment by KeyCorp as such terms and obligation are applied to similarly situated employees after a demand for substantial performance or compliance is delivered to you by the President of KeyCorp which specifically identifies the manner in which such President believes that you have not substantially performed your duties, or (b) the willful engaging by you in illegal conduct which is materially and demonstrably injurious to KeyCorp. For purposes of this paragraph (iii), no act, or failure to act, on your part shall be considered "willful" unless done, or omitted to be done, by you n bad faith and without reasonable belief that your action or omission was in, or not opposed to, the best interests of KeyCorp. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for KeyCorp shall be conclusively presumed to be done, or omitted to be done, by you in good faith and in the best interests of KeyCorp. It is also expressly understood that your attention to matters not directly related to the business of KeyCorp shall not itself provide a basis for termination for Cause. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three quarters of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of the conduct set forth above in (a) or -4- 5 (b) of this paragraph (iii) and specifying the particulars thereof in detail. (iv) GOOD REASON. Termination by you of your employment for "Good Reason" shall mean termination based on: (A) an adverse change in your status or position(s) as an officer of KeyCorp or a subsidiary of KeyCorp as in effect immediately prior to the Change in Control, including, without limitation, any material diminution in your duties or responsibilities (other than, if applicable, any such change directly attributable to the fact that KeyCorp is no longer publicly owned), or the assignment to you of any duties or responsibilities which, in your reasonable judgment, are inconsistent with such status or position(s), or any removal of you from or any failure to reappoint or reelect you to such position(s) (except in connection with the termination of your employment for Cause, Disability or Retirement or as a result of your death or by you other than for Good Reason); (B) a reduction by KeyCorp in your base salary as in effect immediately prior to the Change in Control except for across the board salary reductions proportionately affecting KeyCorp exempt payroll employees generally; (C) the failure by KeyCorp to continue in effect any Plan (as hereinafter defined) in which you are participating at the time of the Change in Control of KeyCorp (unless replaced by a Plan providing you with at least substantially similar benefits) other than as result of the normal expiration of any such Plan in accordance with its terms as in effect at the time of the Change in Control, or the taking of any action, or the failure to act, by KeyCorp which would adversely affect your continued participation in any of such Plans on at least as favorable a basis to you as is the case on the date of the Change in Control or which would materially reduce your benefits in the future under any of such Plans or deprive you of any material benefit enjoyed by you at the time of the Change in Control; (D) KeyCorp's requiring you to be based anywhere other than within the metropolitan area -5- 6 where your office is located immediately prior to the Change in Control except for required travel on KeyCorp's business to an extent substantially consistent with the business travel obligations which you undertook on behalf of KeyCorp prior to the Change in Control; or (E) any purported termination by KeyCorp of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (v) below (and, if applicable, paragraph (iii) above); and for purposes of this Agreement, no such purported termination shall be effective. For purposes of this Agreement, "Plan" shall mean any compensation plan such as an incentive stock option, incentive compensation, stock appreciation rights, supplemental retirement income plan, deferred compensation plan or restricted stock plan or any employee benefit plan such as a thrift, pension, profit sharing, medical, disability, accident, life insurance plan or a relocation plan or policy or any other plan, program or policy of KeyCorp intended to benefit employees. (v) NOTICE OF TERMINATION. Any purported terminations by KeyCorp or by you following a Change in Control shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon. (vi) DATE OF TERMINATION. "Date of Termination" following a Change in Control shall mean (a) if your employment is to be terminated for Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the performance of your duties on a full-time basis during such thirty (30) day period), (b) if your employment is to be terminated by KeyCorp for Cause or by you for any Good Reason, the date specified in the Notice of Termination, or (c) if your employment is to be terminated by KeyCorp for any reason other than Cause, the date specified in the Notice of Termination, which in no event shall be a date earlier than ninety (90) days after the date on which a Notice of Termination is given, unless an earlier date has been expressly agreed to by you in writing either in advance of, or after, receiving such Notice of Termination. In the case of termination by KeyCorp of your employment for Cause, if you have not previously expressly agreed in writing to the termination, then within thirty (30) days after receipt by you of the Notice of Termination with respect thereto, you may notify KeyCorp that a dispute -6- 7 exists concerning the termination, in which event the Date of Termination shall be the date set by mutual written agreement of the parties or the date of final resolution of the dispute. During the pendency of any such dispute, KeyCorp will continue to pay you your full compensation in effect just prior to the time the Notice of Termination is given and until the dispute is resolved. 5. COMPENSATION UPON TERMINATION OR DURING DISABILITY; OTHER AGREEMENTS. (i) During any period following a Change in Control of KeyCorp that you fail to perform your duties as a result of incapacity due to physical or mental illness, you shall be entitled to the benefits of the KeyCorp Disability Benefits Plan as applied to similarly situated officers. (ii) If your employment shall be terminated for Cause following a Change in Control of KeyCorp, KeyCorp shall pay you your salary through the Date of Termination at the rate in effect just prior to the time a Notice of termination is given plus any benefits or awards (including both the cash and any stock components) which pursuant to the terms of any Plan have been earned or become payable, but which have not yet been paid to you. Thereupon KeyCorp shall have no further obligations to you under this Agreement. (iii) Subject to Section 8 hereof,if, within twenty-four (24) months after a Change in Control of KeyCorp shall have occurred, your employment shall be terminated: (a) by KeyCorp other than for Cause, Disability or Retirement or (b) BY YOU FOR GOOD REASON, then KeyCorp shall pay to you, no later than the fifth day following the Date of Termination, without regard to any contrary provisions of any Plan, the following: (A) your base salary through the Date of Termination at the rate in effect just prior to the time a Notice of Termination is given plus any benefits or awards (including both the cash and any stock components) which pursuant to the terms of any Plans have been earned or become payable, but which have not yet been paid to you; (B) an amount equal to [299] percent of the higher of (i) your annual base salary on the Date of Termination or (ii) your annual base salary in effect immediately prior to the Change in Control; (C) an amount equal to the amount that would have been payable to you under any KeyCorp -7- 8 incentive compensation program which would have been due if you had been employed by KeyCorp on December 31 of the year in which your termination occurs, prorated to the end of the month in which your termination is effective. For purposes of this Agreement, the term "base salary" shall include any amounts deducted by KeyCorp with respect to you or for your account pursuant to Sections 125 or 401(K) of the Internal Revenue Code of 1986, as amended (the "Code"). (iv) If, within twenty-four (24) months after a Change in Control of KeyCorp shall have occurred, your employment by KeyCorp shall be terminated (a) by the Company other than for Cause, Disability or retirement or (b) by you for Good Reason, then you shall be entitled to participate in any KeyCorp Employee Benefit Plans only to the extent provided in such Plans. However, since the payments in this Agreement are intended to supplement and not to replace any payments to which you are otherwise entitled, you shall be entitled to all payments and benefits otherwise payable to you and similarly situated employees of KeyCorp under any KeyCorp compensation benefit plan or practice. (v) The amount of any payment provided for in this Section 5 shall not be reduced, offset or subject to recovery by KeyCorp by reason of any compensation earned by you as the result of employment by another employer after the Date of Termination, or otherwise. (vi) If the event that you become entitled to the payments provided by Section 5(iii) hereof (the "Agreement Payments") the present value of the Agreement Payments, when aggregated with the present value of any other payments to you under this Agreement or otherwise which constitute "parachute payments" shall not exceed 299.9% of your Base Amount. The term "parachute payment" shall have the meaning used in Section 280 G of the Code without regard to Clause 280G(b)(2)(A)(ii) and the term "present value" shall have the meaning used in Section 1274(b)(2) of the Code. If payments to you become subject to the limitations of this Section, the payments to you shall be reduced to the extent necessary to satisfy such limitations in accordance with the instruction you provide to KeyCorp as to which payments otherwise due shall be limited and KeyCorp shall provide you with the information in its possession as to the amounts and characteristics of such payments to facilitate your providing such instructions. 6. SUCCESSORS; BINDING AGREEMENT. (i) For purposes of this Agreement, "Successor" shall mean any Person that succeeds to, or has the practical -8- 9 ability to control (either immediately or with the passage of time), KeyCorp's business directly, by merger or consolidation,or indirectly, by purchase of KeyCorp's Voting Securities or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee, or if there be no such designee, to your estate. (iii) For purposes of this Agreement, KeyCorp shall include any corporation or other entity which is the surviving or continuing entity in respect of any merger, consolidation or form of business combination in which KeyCorp ceases to exist. 7. FEES AND EXPENSES; MITIGATION. (i) Keycorp shall pay all reasonable legal fees and related expenses incurred by you in connection with the Agreement following a Change in Control of KeyCorp, including, without limitation, (a) all such fees and expenses, if any, incurred in contesting or disputing any termination of your employment or incurred by you in seeking advice with respect to the matters set forth in Section 8 hereof or (b) your seeking to obtain or enforce any right or benefit provided by this Agreement. (ii) You shall not be required to mitigate the amount of any payment KeyCorp becomes obligated to make to you in connection with this Agreement, by seeking other employment or otherwise. 8. TAXES. All payments to be made to you under this Agreement will be subject to required withholding of federal, state and local income and employment taxes. 9. SURVIVAL. The respective obligations of, and benefits afforded to, KeyCorp and you as provided in Sections 5, 6(ii), 7, 8 and 13 of this Agreement shall survive termination of this Agreement. 10. NOTICES. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified mail, return receipt requested, postage prepaid and addressed, in the case of KeyCorp, to the address set forth on the first page of this Agreement or, in the case of the undersigned employee, to the address set forth below -9- 10 his signature, provided that all notices to KeyCorp shall be directed to the attention of the President of KeyCorp, with a copy to the Secretary of KeyCorp, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 11. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in a writing signed by you and the President or the Secretary of KeyCorp. No waiver by either party hereto at any time of any breach by the other party hereto of, or of 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 or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York. 12. 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. 13. EMPLOYEE'S COMMITMENT. You agree that for a period of six months subsequent to your period of employment with KeyCorp, you will not at any time communicate or disclose to any unauthorized person, without the written consent of KeyCorp, any proprietary processes of KeyCorp or any subsidiary or other confidential information concerning their business, affairs, products, suppliers or customers which, if disclosed, would have a material adverse effect upon the business or operations of KeyCorp and its subsidiaries, taken as a whole; it being understood, however, that the obligations under this Section 13 shall not apply to the extent that the aforesaid matters (a) are disclosed in circumstances where you are legally required to do so or (b) become generally known to and available for use by the public otherwise than by your wrongful act or omission. 14. PRIOR AGREEMENTS. This Agreement supersedes all earlier dated agreements concerning its subject matter. -10- 11 If this letter correctly sets forth our agreement on the subject matter hereof, kindly sign and return to KeyCorp the enclosed copy of this letter which will then constitute our agreement on this subject. Agreed to this [1st day Sincerely, of September, 1990]. KeyCorp _______________________ Address: By:____________________________ Victor J. Riley, Jr. President and Chief Executive Officer _______________________ _______________________ _______________________
-11- EX-10.36 14 KEYCORP EX-10.36 1 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement"), made as of the _____ day of ____, 199_, is by and between KeyCorp ("Key") and ___________________ ("Officer"). Key and Officer agree as follows: 1. EMPLOYMENT, POSITION, DUTIES, AND TERM 1.1 EMPLOYMENT AND POSITION. Key employs and Officer accepts employment as _________________________________________________ of Key. Officer shall also serve as a Director of such subsidiaries of Key as those senior officers designated in writing from time to time by the Chief Executive Officer of Key ("Designated Officers") shall direct. Officer's employment shall be subject solely to the supervision and direction of the Designated Officers and the Board of Directors of Key. Officer agrees to devote his full time and undivided attention to Key. 1.2 DUTIES AND RESPONSIBILITIES. As _______________________________ of Key, Officer shall supervise the activities and mangement of Key's bank subsidiaries and shall have general authority so to act, subject only to the direction of (1) the Designated Officers and (2) the Board of Directors of Key. Officer -1- 2 shall also perform such other duties as may be requested from time to time by the Designated Officers. 1.3 TERM OF EMPLOYMENT. The term of Officer's employment (the "Term of Employment") under this Agreement shall begin on ____ __, 199_ (the "Commencement Date"), and shall continue through ____ __, 199_ (the "Expiration Date"). 2. COMPENSATION 2.1 COMPENSATION. For all services to be rendered by Officer in any capacity pursuant to the terms of this Agreement, Officer shall be compensated as provided in this Article 2. 2.2 BASE SALARY. During each year of the Term of Employment, Key shall pay Officer a yearly Base Salary of not less than $_______ ("Base Salary"), payable in twenty-six bi-weekly installments. When necessary to conform to the Key payroll schedule at the commencement or termination of this Agreement, the Base Salary shall be computed on a per diem basis. Commencing in 1994 and annually thereafter, Key, in accordance with Key's salary review procedures, shall review the Base Salary paid to Officer and shall, if appropriate, increase Officer's Base Salary. -2- 3 3. TERMINATION 3.1 TERMINATION BY KEY. Officer's employment under this Agreement may be terminated by Key prior to the Expiration Date for Cause of Without Cause as described below. As an incident to the termination of employment, Key may relieve Officer of the performance of any duties and terminate his authority to act on behalf of Key at anytime upon written notice to Officer. A. TERMINATION WITHOUT CAUSE. Key may terminate this Agreement at any time after its Commencement Date, whether or not this Agreement has expired, at its sole discretion upon written notice to Officer, such termination to be effective on the date specified in the notice. If Key terminates this Agreement Without Cause, Key will perform all of its obligations under this Agreement (including providing any retirement and fringe benefits to which Officer may be entitled) through [the Expiration Date] as if Officer had performed all of his obligations under the Agreement. B. TERMINATION FOR CAUSE. Key may terminate this Agreement for Cause upon at least sixty (60) days' written notice to Officer, which Cause may only be determined in good faith by the Key Board following at least 30 days' prior written notice to Officer outlining the facts constituting Cause. Officer will be given the -3- 4 opportunity to refute the charges prior to final Key Board action. The Key Board shall use as guidelines for determining Cause for termination the following: (1) Material breach of this Agreement; (2) Misconduct as _____________________________ _______________________ of Key, involving, but not limited to, misappropriating any funds or property of Key or attempting to obtain any personal profit from any transaction in which Officer has an interest which is adverse to the interest of Key, unless Officer shall have first obtained written consent of the Key Board; (3) Unreasonable neglect or refusal to perform the duties assigned to Officer under or pursuant to this Agreement; (4) Conviction of a crime involving moral turpitude; (5) Adjudication as a bankrupt, which adjudication has not been contested in good faith; (6) Failure to follow the reasonable instructions of the Designated Officers or the Key Board; (7) The imposition by a bank regulatory agency of a final order, with no further right of appeal, of suspension or removal of Officer for improper conduct. C. TERMINATION UPON CHANGE OF CONTROL (1) RIGHT TO PAYMENT. In the event that during the Term of Employment (a) there is a Change of Control of Key (as defined below); and (b) Officer has Good Reason for doing so, Officer may, within six months from the effective date of such Change of Control, discontinue his employment under this Agreement. Good Reason shall mean (i) the assignment to Officer of any duties inconsistent with his status as Executive -4- 5 Vice President and Chief Banking Officer of Key or any material and adverse change in his responsibilities or authority hereunder; (ii) the relocation of Officer without his consent, to any place other than Albany, New York; or (iii) any other material breach of this Agreement by the surviving or successor entity, if in each such case such action or breach continues uncorrected for thirty (30) days following written notice thereof by Officer to the surviving entity. If during the aforementioned six-month period Officer elects not to continue his employment, Key or the surviving or successor entity will perform all Key's obligations under this Agreement through [the Expiration Date] (including providing any retirement benefits to which Officer may be entitled) as if Officer had performed all of his obligations under this Agreement. (2) DEFINITION OF CHANGE OF CONTROL. The following events shall constitute a change of control of Key: (a) The sale by Key of substantially all of its assets; (b) A bona fide decision by Key to terminate its business and liquidate its assets; (c) The merger or consolidation of Key into or with another person or entity; or (d) Purchase by a single shareholder or group of shareholders of a majority interest of Key's stock. (3) PAYMENT UPON A CHANGE OF CONTROL. It is the intent of the parties to this Agreement that the payments which are conditioned on a Change in Control would be such that there will be no excess parachute payments as defined in Section 280G of the Internal Revenue Code of the United States (the "Code"). Notwithstanding anything in this Agreement to the contrary, Officer shall have the right to elect to receive any payments to (or for the benefit of) him, which are payable to him as a result of a termination of this Agreement because of a Change of Control of Key, in lump sum or -5- 6 over a period of time, so long as none of the payments shall be deemed to be an "excess parachute payment" under the Code. (4) RELATED SEVERANCE AGREEMENT. Key and Officer have entered into a Severance Agreement in the form offered to certain other similarly situated Key senior officers. Key and Officer shall also enter into any amendments or substitutions for such Severance Agreement which are offered by Key to similarly situated senior executives where the rights of and benefits to Officer under such related Severance Agreement will not be materially and adversely affected. Officer shall be entitled to select and apply those provisions either from this Employment Agreement or from the Severance Agreement which, when read together, will provide Officer with the greatest possible benefit under the circumstances at the time Officer wishes to obtain benefits. D. TERMINATION DUE TO DISABILITY OR DEATH. (i) Key may terminate this Agreement if Officer is unable (as determined in good faith by Key), as the result of physical or mental disability, to render the services as provided in this Agreement for a continuous period of six months. Under such circumstances, termination shall be effective on the 90th day following written notice of termination by Key to Officer following such six-month period, unless Key is then satisfied that Officer is no longer disabled. If Key terminates this Agreement pursuant to this Paragraph 3.1.D, Key shall pay to Officer compensation in accordance with Key's practices for compensating totally and permanently disabled senior executives, making such payments from Key's general funds -6- 7 if necessary. In addition, Key shall pay Officer all amounts that have accrued (including any accrued deferred compensation) or are due under this Agreement prior to the date of termination. (ii) In the event this Agreement terminates due to the death of Officer, Key shall pay to Officer's estate any death benefits which are generally provided to the senior executives of Key Bank and shall provide to Officer's spouse any benefits normally provided to spouses of other deceased executives of Key. In addition, Key shall pay Officer's estate all amounts that have been accrued (including any accrued deferred compensation) or are due under this Agreement to the date of death. E. RESIGNATION OR RETIREMENT. In the event that Officer resigns his employment under this Agreement, Key shall pay Officer all amounts that have accrued, including any deferred compensation to which Officer may be entitled due under this Agreement to the date of Officer's resignation. Officer shall also receive retirement benefits to which he may be entitled. 4. ADDITIONAL UNDERTAKINGS BY KEY 4.1 INCENTIVE COMPENSATION. During the Term of Employment, Officer shall participate in Key's Executive Incentive Plan, as such may be modified from time to time, on the same terms and conditions as similarly situated Key Officers. For the second half of calendar year 199_, -7- 8 Officer's award for participation could be __%, __%, or __% of his 1993 Base Salary, as of January 1, 199_. 4.2 FRINGE BENEFITS. During the Term of Employment, Key shall provide Officer with all life, medical, vacation and other fringe benefit programs offered to similarly situated Key senior executives. Upon Officer's retirement or termination of employment except for Cause, medical coverage will continue in accordance with the generally applied Key policies, which may be changed from time to time. During the term of employment Key shall pay for normal executive perquisites, income tax preparation and physical examinations as provided to Key senior staff members. 4.3 RABBI TRUST. This Agreement shall be included in the KeyCorp Umbrella Trust for Executives. 5. ADDITIONAL UNDERTAKINGS BY OFFICER 5.1 DEVOTION TO DUTY. During the Term of Employment, Officer shall serve Key faithfully and to the best of his ability and shall devote his full working time, attention, and effort to his duties as described earlier in this Agreement. 5.2 NON-COMPETITION. During the Term of Employment and for as long as he is receiving payments pursuant to this Agreement, (excluding deferred compensation or -8- 9 payments from any employee pension benefit or supplemental retirement benefit plan), Officer will not engage in any direct, substantial competition with Key or any of its subsidiaries, provided that Key is not in breach of any of the provisions of this Agreement. Without limiting the generality of the foregoing, Officer specifically agrees not to serve as an executive of or obtain control of a bank holding company or banking organization after termination of this Agreement for a period equal to the period during which this Agreement was in effect. Nothing in this Section shall prohibit Officer from serving on the Board of Directors or other governing body of a civic or charitable organization or, with the prior consent of the Key Board of Directors, on the Board or other governing body of a for-profit business, or from owning or controlling shares of stock or other ownership interest in another corporation or entity, including one that operates a business that is competitive with Key, if (i) such stock or other ownership interest is in a public market which is reported on the NASDAQ National Market System or in consolidated trading on the New York Stock Exchange or the American Stock Exchange (or a substantially similar foreign market or exchange); or (ii) if Officer does not own or control more than a one percent equity interest in such entity. 5.3 CONFIDENTIALITY AND DISCLOSURE. During the Term of Employment, and during any period during which Key is making payment under this Agreement (excluding deferred -9- 10 compensation or payments from any employee pension benefit plan or supplemental retirement benefit plan), and for two (2) years thereafter, Officer agrees to regard and preserve as confidential all information pertaining to the business of Key and its subsidiaries and designated as confidential by Key obtained by him from any source whatever as a result of his employment. No information shall be considered confidential or proprietary if it is information already in possession of the party to whom disclosure is made, information acquired from the party to whom disclosure is made, or information which is in the public domain or generally available to interested persons or which at a later date passes into the public domain or becomes available to the party to whom disclosure is made without any wrongdoing by Officer or the party to whom disclosure is made. Officer shall not, except on behalf of Key, make use of any of its records, documents, contracts, writings, data, or other information, whether or not the same are in written or other recorded form. Not- withstanding the foregoing, such confidential information may be disclosed with the consent or at the direction of Key or when Officer is compelled to make such disclosure by legal process or other order issued by a court or government agency of competent jurisdiction. Officer shall deliver promptly to Key on the termination of his employment, or at any time that Key may so request, all memoranda, notes, records, reports, manuals, drawings, blueprints, and other documents (and all copies thereof) relating to the business of Key -10- 11 and its subsidiaries and all property associated therewith, which he may then possess or have under his control. 6. MISCELLANEOUS PROVISIONS 6.1 KEY POLICIES. Except as expressly otherwise provided in this Agreement, Officer shall be subject to the Key policies and procedures applicable to similarly situated senior executive officers. 6.2 ASSIGNMENT. This Agreement shall not be assignable, in whole or in part, by either party without the written consent of the other, except that Key may, without the consent of Officer, assign its rights and obligations under this Agreement to a corporation, firm, or other business entity with which or into which Key merges or consolidates, or to which Key sells or transfers all or substantially all of its assets; provided, however, that after any such assignment by Key, as the case may be, Key shall remain liable to Officer, together with any such assignee for all of the employer's obligations hereunder; and provided further that any such assignee becomes a signatory to this Agreement contemporaneously with the merger, consolidation or transfer, and provided further that any such assignment shall be subject to Officer's right of termination under Section 3.1.C hereof. Key shall require any successor to all or substantially all of the business and/or assets of Key, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, -11- 12 or otherwise, by an agreement in form and substance satisfactory to Officer, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as Key would be required to perform if no such succession had taken place. 6.3 GOVERNING LAW. This Agreement is made under and shall be governed and construed in accordance with the laws of the State of New York applied without reference to principles of conflict of laws. Venue of any action arising under this Agreement shall be the courts of the state in which Officer resides at the commencement of the action. 6.4 AMENDMENTS. No amendment or modification of this Agreement shall be deemed effective unless in writing and signed by the parties hereto. 6.5 WAIVER. No term or condition of the Agreement shall be deemed to have been waived nor shall there be any estoppel to enforce any provisions of this Agreement, except by a statement, in writing, signed by the party against whom enforcement of the waiver or estoppel is sought. Any written waiver shall not be deemed a continuing waiver unless specifically stated, shall operate only as to the specific term or condition waived, and shall not constitute a waiver of such term or condition for the future or as to any act other than specifically waived. -12- 13 6.6 SEVERABILITY. To the extent any provision of this Agreement shall be invalid or unenforceable, it shall be considered deleted from this Agreement; and the remainder of such provision and of this Agreement shall be unaffected and shall continue in full force and effect. 6.7 HEADINGS. The Section headings of this Agreement are solely for the convenience of reference and shall not control the meaning or interpretation of any provisions of this Agreement. 6.8 SUCCESSORS. This Agreement shall inure to the benefit of and be binding upon Officer, his legal representatives, heirs, and distributees, and upon Key, its successors and assigns. 6.9 COUNTERPART EXECUTIVES. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute the same instrument. 6.10 EFFECT ON OTHER AGREEMENTS, PLANS AND POLICIES. The Employment Agreement made as of the first day of _________, 199_, by and between Key, Key Bank of New York, N.A., and Officer is hereby cancelled and superseded in its entirety by the provisions of this Agreement. Except as expressly amended herein, any other agreements, plans or policies to which Key and Officer are parties are hereby -13- 14 ratified and remain in full force and effect, and such agreements, plans or policies shall govern during the period and to the extent that they provide greater compensation or benefits to Officer and Officer's family. 6.11 NOTICE. All notices required or permitted hereunder shall be in writing and may be personally delivered or mailed by registered or certified mail, postage pre-paid and addressed as follows: If to Officer: _______________ _____________________ _________________________ If to Key: KeyCorp One KeyCorp Plaza Albany, New York 12201 Attention: Secretary or such other address as the party entitled to receive notice shall designate in writing to the other. 6.12 VALIDITY. Key covenants to Officer that (i) this Agreement, when executed by Key, constitutes a valid and binding obligation of Key, enforceable in accordance with its terms; and (ii) the execution of this Agreement, and the performance of Key's obligations hereunder, have been duly authorized by Key's Board of Directors and no other approvals (including shareholder approvals) are required. -14- 15 6.13 TAX WITHHOLDING. Key may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. IN WITNESS WHEREOF, this Agreement as amended has been executed and delivered as of the date first written above. KEYCORP By: ------------------------------------------ Chairman, President and CEO Accepted: -------------------------------- -------------------------------- -15- EX-10.37 15 KEYCORP EX-10.37 1 AMENDMENT TO AGREEMENTS This Amendment to Agreements (this "Amendment") is made by and between KeyCorp, a New York corporation ("KeyCorp"), and _____________ ("Officer") and amends both the Employment Agreement entered into between KeyCorp and Officer as of ___________, 199_ (the "Employment Agreement") and the letter agreement regarding the effects of a change of control that was entered into between KeyCorp and Officer as of ___________, 199_ (the "Severance Agreement"). Except as otherwise defined in this Amendment, capitalized terms used in this Amendment have the same meanings as assigned to those terms in the Employment Agreement and in the Severance Agreement, respectively (which are sometimes referred to collectively in this Amendment as the "Agreements"). This Amendment is being entered into in anticipation of, and will become effective upon the consummation of, the Merger (as defined below). In connection with the execution of this Amendment, KeyCorp and Officer are entering into a new agreement that will provide certain protection to Officer if a new change of control occurs after the Merger and at a time when Officer remains in the employ of KeyCorp (the surviving corporation in the Merger, hereinafter referred to as "Key"). In consideration of these matters, KeyCorp and Officer make the following amendments to the Agreements: 1. AMENDMENT TO SECTION 1 OF EMPLOYMENT AGREEMENT. In connection with the Merger, Officer has agreed to accept the position, title, and duties with Key contemplated by the action taken by the Compensation and Organization Committee of the Board of Directors of Key at its January 20, 1994 pre-Merger meeting (the "Post-Merger Position"). Section 1 of the Employment Agreement is hereby amended so that each reference therein to Officer's position, title, or duties shall be deemed to be a reference to the Post-Merger Position. 2. DEFINITION OF "MERGER". The term "Merger" shall mean the merger of KeyCorp with and into Society Corporation, an Ohio corporation, after which the name of Society Corporation will be changed to "KeyCorp." 3. DEFINITIONS OF "CHANGE OF CONTROL" AND "CHANGE IN CONTROL". The definitions of the terms "Change of Control" (found in Section 3.1C(2) of the Employment Agreement) and "Change in Control" (found in Section 3 of the Severance Agreement) are hereby superseded by the following definition: "A 'Change of Control' and 'Change in Control' shall be deemed to have occurred on the date of the Merger." FINAL EXECUTION COPY 2 No event other than the Merger shall constitute a Change of Control or Change in Control for purposes of the Agreements or this Amendment. 4. DEFINITIONS OF "GOOD REASON". The definitions of the term "Good Reason" (in Section 3.2C(1) of the Employment Agreement and in Paragraph 4(iv) of the Severance Agreement) are hereby superseded by the following definitions which shall apply for purposes of the Employment Agreement, the Severance Agreement, and this Amendment as indicated: Officer shall be deemed to have "Good Reason" for terminating Officer's employment with Key if, within six months (for purposes of the Employment Agreement), within 24 months (for purposes of the Severance Agreement), or within 36 months (for purposes of Section 5 of this Amendment) after the effective date of the Merger, (a) the base salary of Officer is at any time reduced, (b) the job grade of Officer is reduced from the job grade of the Post-Merger Position or Officer is not provided with the same opportunities with respect to incentive compensation, stock option grants, and other benefits as are provided to other employees of Key whose job grade is the same as the job grade of Officer, or (c) Officer is required to relocate Officer's principal place of employment for Key, without Officer's consent, more than 35 miles from 127 Public Square, Cleveland, Ohio. (This clause (c) will apply only if Key has given written notice to Officer that such a relocation is required and Officer, in a written response to that notice, has declined to consent to the required relocation.) No other circumstance shall constitute "Good Reason" under the Agreements or this Amendment and no other circumstance shall give rise to any right on the part of Officer to voluntarily terminate employment with Key and continue to receive compensation under either of the Agreements or under this Amendment. Without limiting the generality of the immediately preceding sentence, Officer shall not be entitled to voluntarily terminate his employment with Key and continue to receive compensation under any of the Employment Agreement, the Severance Agreement, or this Amendment in any of the following circumstances: (i) any adverse change in Officer's status or position as an officer of Key that is not described in clause (b), above, (ii) changes in incentive compensation plans applicable to Officer, (iii) changes in benefit plans or executive perquisites, (iv) assignment of duties FINAL EXECUTION COPY - 2 - 3 inconsistent with Officer's prior duties, (v) any material diminution in Officer's duties or responsibilities, (vi) the requirement that Officer's principal place of employment be relocated to 127 Public Square, Cleveland, Ohio in connection with the Merger, or (vii) retirement by Officer under the terms of any Key retirement plan. Except insofar as it modifies the definition of the term "Good Reason," nothing in this Section 4 shall be construed as amending or otherwise affecting the rights or obligations of Officer under the Employment Agreement. 5. BENEFITS AVAILABLE UNDER THIS AMENDMENT IF OFFICER IS TERMINATED IN CERTAIN CIRCUMSTANCES AFTER THE MERGER. Except as provided in Section 6(a) of this Amendment (which allows Officer to elect to receive compensation after certain terminations under any one, but only one, of the Employment Agreement, the Severance Agreement, and this Amendment), if, at any time before the third anniversary of the Merger, Officer's employment with Key is terminated by Key (except for Cause) or by Officer at a time when Officer has Good Reason, then: (a) Key shall pay to Officer a lump sum payment equal to 1/12 of the sum of Officer's base salary (as in effect immediately before the termination) and Officer's average annual incentive compensation for the years 1991, 1992, and 1993 multiplied by the greater of: (i) 18 (i.e., 18 months of compensation), or (ii) the number of months between the date of Officer's termination and the third anniversary of the Merger (with any partial month rounded up to the next highest full month); and (b) Key shall provide to Officer medical and life insurance coverage for up to 18 months after the date of termination (or, if longer, up to the third anniversary of the Merger) but not beyond the date Officer becomes employed with any other entity. (For purposes of (a), above, "Officer's annual incentive compensation for the years 1991, 1992, and 1993" means the amount determined by adding together the amounts, if any, awarded to Officer under the KeyCorp Executive Incentive Compensation Plan for 1991, 1992, and 1993, respectively, and dividing the sum so obtained by three.) 6. ELECTION OF BENEFITS IF BENEFITS COULD BE PAID UNDER MORE THAN ONE OF THE EMPLOYMENT AGREEMENT, THE SEVERANCE AGREEMENT, AND THIS AMENDMENT. (a) ELECTION OF BENEFITS GENERALLY. Section 3.1C(4) of the Employment Agreement (which provides FINAL EXECUTION COPY - 3 - 4 for an election of benefits under the Employment Agreement and the Severance Agreement in certain circumstances) is superseded by this Section 6 and that Section 3.1C(4) shall no longer be of any force or effect. Except as provided in Section 6(b), if, at any time before the third anniversary of the Merger, Officer's employment with Key is terminated under circumstances giving rise to a right on the part of Officer to receive continuing compensation or other benefits under one or more of the Employment Agreement, the Severance Agreement, and Section 5 of this Amendment, Officer shall have the right to elect to receive benefits under any one, but not more than one, of the Employment Agreement, the Severance Agreement, or Section 5 of this Amendment. If this Section 6 applies, Key shall not make any payments under any of the Employment Agreement, the Severance Agreement, or Section 5 of this Amendment until after Officer has delivered to Key a signed notice of election to receive payments under the Employment Agreement, the Severance Agreement, or Section 5 of this Amendment. (b) ADDITIONAL RELOCATION BENEFITS. If Officer's employment is terminated before the third anniversary of the Merger under circumstances entitling Officer to payment after the date of termination under any one or more of the Employment Agreement, the Severance Agreement, or Section 5 of this Amendment, then, in addition to any other payments and benefits otherwise due to Officer (whether under the Employment Agreement, the Severance Agreement, or Section 5 of this Amendment), Key shall provide to Officer a relocation package for a further move from Cleveland back to Officer's location immediately before the Merger (or to a comparable location) with the same features as in the relocation package received by Officer in connection with the move to Cleveland. 7. RESOLUTION OF CONFLICTS BETWEEN AMENDMENT AND SEVERANCE AGREEMENT; TERMINATION OF SEVERANCE AGREEMENT ON SECOND ANNIVERSARY OF THE MERGER. (a) If there is any conflict or inconsistency between the provisions of the Severance Agreement and the provisions set forth in this Amendment, the provisions of this Amendment shall control in every case. (b) If Officer's employment with Key has not been terminated by the second anniversary of the Merger in such a manner as to entitle Officer to benefits under the Severance Agreement, then the Severance Agreement shall terminate on the second anniversary of the Merger and shall be of no further force or effect. FINAL EXECUTION COPY - 4 - 5 8. CONTINUING EFFECT OF EMPLOYMENT AGREEMENT. Except as otherwise specifically provided in this Amendment, all of the provisions of the Employment Agreement shall remain in full force and effect throughout the term of the Employment Agreement. Nothing in this Amendment shall be construed as having the effect of shortening the term of the Employment Agreement. 9. POTENTIAL DEFERRAL OF CERTAIN COMPENSATION IN EXCESS OF $1,000,000 IN ANY CALENDAR YEAR. (a) SECTION 162(m). For purposes of this Section 9, 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. (b) DEFERRAL. Except as otherwise provided in either of Section 9(c) or Section 9(d), 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 Officer is a participant) otherwise payable to Officer (whether under the Employment Agreement, the Severance Agreement, this Agreement, or otherwise) at any particular time (the "Scheduled Time"), (i) would not be deductible by Key if paid at the Scheduled Time by reason of the disallowance rules of Section 162(m), and (ii) 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 9(e), 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 9(c) or FINAL EXECUTION COPY - 5 - 6 Section 9(d), below, shall continue to be deferred until a later year. (c) EARLY PAYOUT OF DEFERRED AMOUNT IF DEFERRAL IS DETERMINED TO BE INEFFECTIVE. If any amount of compensation is deferred under Section 9(b) 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 three months 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 Officer. (d) PAYOUT FOLLOWING TERMINATION OF EMPLOYMENT IN ALL EVENTS. On January 15 of the year immediately following the year in which Officer ceases to be employed by Key, Key shall pay to Officer, in a single lump sum, all amounts of compensation that have been deferred pursuant to this Section 9 and have not previously been paid out so that, as of the close of business on that date, no amount of compensation will remain deferred under this Section 9 whether or not Key is entitled to a deduction with respect to the payment of that compensation. (e) INTEREST ON DEFERRED AMOUNTS. Upon payment of any amounts of compensation deferred for any period of time pursuant to this Section 9, Key shall pay to Officer an additional amount equivalent to the interest that would have accrued on that deferred compensation if interest accrued thereon from the date on which that compensation would have been paid but for this Section 9 through the date on which that compensation is paid at a variable rate equal, in each calendar quarter, to the highest annual rate paid by Society National Bank on new IRA certificates of deposit issued in Cuyahoga County, Ohio on the first business day of that calendar quarter, compounded quarterly. 10. EXCESS PARACHUTE PAYMENT REDUCTION. Anything in the Employment Agreement, the Severance Agreement, or this Amendment to the contrary notwithstanding, if it shall be determined that any payment or distribution by Key to or for the benefit of Officer (whether paid or payable or distributed or distributable pursuant to the terms of one or more of the Employment Agreement, the Severance Agreement, this Amendment, or otherwise) (a "Payment") would be nondeductible by Key for Federal income tax purposes because of Section 280G of the Internal Revenue Code and applicable regulations promulgated thereunder, then the aggregate present value of amounts payable or distributable to or for the benefit of Officer pursuant to one or more of the Employment Agreement, the Severance Agreement, and this Amendment (such payments or distributions are FINAL EXECUTION COPY - 6 - 7 hereinafter referred to in this Section 10 as "Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be nondeductible by Key because of Section 280G of the Internal Revenue Code and applicable regulations promulgated thereunder. For purposes of this Section 10, present value shall be determined in accordance with Section 280G(d)(4) of the Internal Revenue Code and applicable regulations promulgated thereunder. All determinations required to be made under this Section 10 shall be made, at the expense of Key, by the Accounting Firm (as defined in the last sentence of this Section 10) which shall provide detailed supporting calculations both to Key and Officer within 30 days after the date of termination of Officer's employment with Key or such earlier time as is requested by Key. Key and Officer shall cooperate with each other and the Accounting Firm and will provide necessary information so that the Accounting Firm may make all such determinations. All such determinations by the Accounting Firm shall be final and binding upon Key and Officer. Officer shall determine which of the Agreement Payments (or, at the election of Officer, other payments) shall be eliminated or reduced consistent with the requirements of this Section 10, provided that, if Officer does not make such determination within 20 days of the receipt of the calculations made by the Accounting Firm, Key shall elect which of the Agreement Payments shall be eliminated or reduced consistent with the requirements of this Section 10 and shall notify Officer promptly of such election. As a result of the uncertainty in the application of Section 280G of the Internal Revenue Code and applicable regulations promulgated thereunder at the time of the initial determination by the Accounting Firm hereunder, it is possible that Agreement Payments will be made by Key which should not have been made ("Overpayment") or that additional Agreement Payments will not be made by Key which could have been made ("Underpayment"), in each case, consistent with the calculations required to be made hereunder. If the Accounting Firm or a court of competent jurisdiction (in a final judgment as to which the time for appeal has lapsed or no appeal is available) determines at any time that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to Officer which Officer shall repay to Key together with interest at the applicable short-term Federal rate provided for in Section 1274(d)(1) of the Internal Revenue Code, compounded semi-annually; provided, however, that no amount shall be payable by Officer to Key (or if paid by Officer to Key, such payment shall be returned to Officer) if and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Internal Revenue Code. If the Accounting Firm or a court of competent jurisdiction (in a final judgment as to which the time for appeal has lapsed or no appeal is available) determines at any time that an Underpayment has occurred, FINAL EXECUTION COPY - 7 - 8 any such Underpayment shall be promptly paid by Key to or for the benefit of Officer together with interest at the applicable short-term Federal rate provided for in Section 1274(d)(1) of the Internal Revenue Code, compounded semi-annually. For purposes of this Section 10, the "Accounting Firm" shall mean Ernst & Young 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 Section 10, Key shall select another national accounting firm of recognized standing to serve and perform in that capacity under this Section 10, 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). IN WITNESS WHEREOF, the parties have executed this Amendment to Agreement as of February 25, 1994. KeyCorp By___________________________ Victor J. Riley, Jr. Chairman of the Board and Chief Executive Officer _____________________________ _____________________________ "Officer" FINAL EXECUTION COPY - 8 - EX-10.40 16 KEYCORP EX-10.40 1 KEY BANKS INC. STOCK OPTION PLAN 1. PURPOSES OF THE PLAN The Key Banks Inc. Stock Plan is intended to provide a method whereby employees of Key Banks Inc. and its Subsidiaries who are largely responsible for the management, growth and protection of the business and who are making and can continue to make substantial contributions to the success of the business may be encouraged to acquire a larger stock ownership in the Corporation, thus increasing their proprietary interest in the business, providing them with greater incentive for their continued employment and promoting the interests of the Corporation and all its stockholders. Accordingly, the Corporation will from time to time during the term of the Plan grant, to such employees as may be selected in the manner hereinafter provided options to purchase shares of Common Stock of the Corporation, subject to the conditions hereinafter provided. 2. DEFINITIONS Unless the context clearly indicates otherwise, the following terms have the meanings set forth below. "Board of Directors" means the Board of Directors of the Corporation. "Code" means the Internal Revenue Code of 1954, as amended. "Committee" means the Compensation Committee of the Board of Directors, which Committee shall be composed of not less than three directors who have not been eligible to receive an award under the Plan at any time within a period of one year immediately preceding the date of their appointment to such Committee. "Common Stock" means the Common Stock of the Corporation, $5 par value, or such other class of shares or others securities as to which the provision of the Plan may be applicable. "Corporation" means Key Banks Inc. and its subsidiaries. "Grant Date" as used with respect to a particular Option, means the date as of which such option is granted by the Committee pursuant to the Plan. "Grantee" means the individuals to whom an incentive Stock Option or Nonqualified Stock Option is granted by the Committee pursuant to the Plan. "Option" means an option, granted by the Committee pursuant to Section 5 to purchase shares of Common Stock and which shall be designated as either an "Incentive Stock Option" or a "Nonqualified Stock Option." "Incentive Stock Option" means an option that qualifies as an Incentive Stock Option as described in Section 422A of the Code of 1954, as amended. "Nonqualified Stock Option" means any option granted under this Plan, other than an Incentive Stock Option. "Option Period" means the period beginning on the Grant Date and ending the day prior to the tenth anniversary of the Grant Date. "Plan" means the Key Banks Inc. Stock Option Plan as set forth herein and as may be amended from time to time. "Retirement" as applied to a Grantee, means the Grantee's termination of employment at a time when the Grantee receives an immediately payable retirement benefit under the Key Banks Inc. Pension Plan or under any other retirement plan that is maintained by a subsidiary and that is determined by the Committee to be the functional equivalent of the Corporation's Retirement Plan. AAA0725C 03/23/94 A-1 2 "Subsidiary" means any stock corporation of which a majority of the voting common or capital stock is owned directly or indirectly by the Corporation, and any other company designated as such by the Committee, but only during the period of such ownership or designation. "Total and Permanent Disability" as applied to a Grantee, means that the Grantee: (i) has established to the satisfaction of the Corporation that the Grantee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death of which has lasted or can be expected to last for a continuous period of not less than 12 months (all within the meaning of Section 105(d)(4) of the Code), and (ii) has satisfied any requirement imposed by the Committee. 3. ADMINISTRATION OF THE PLAN The Plan shall be administered by a Committee (the "Committee") composed of three or more members who are appointed by the Board of Directors of the Corporation (the "Board") and selected from those directors who are not employees of the Corporation or of a Subsidiary. The Board may from time to time remove members from, or add members to, the Committee. Vacancies on the Committee, howsoever caused, shall be filled by the Board. The Board shall select one of its members as Chairman and shall hold meetings at such times and places as it may determine, subject to such rules as to procedures not inconsistent with the provisions of the Plan as are prescribed by the Board, set forth in the By-Laws of the Corporation as applicable to the Executive Committee, and as prescribed by the Committee itself. A majority of the authorized number of members of the Committee shall constitute a quorum for the transaction of business. Acts reduced to or approved in writing by a majority of the members of the Committee then serving shall be the valid acts of the Committee. No member of the Committee shall be eligible to be granted options under the Plan while he or she is a member of the Committee. The Committee shall be vested with full authority to make such rules and regulations as it deems necessary or desirable to administer the Plan and to interpret the provisions of the Plan. Any determination, decision or action of the Committee in connection with the construction, interpretation, administration or application of the Plan shall be final, conclusive and binding upon all optionees and any person claiming under or through an optionee, unless otherwise determined by the Board. Any determination, decision or action of the Committee provided for in the Plan may be made or taken by action of the Board if it so determines, with the same force and effect as if such determination, decision or action had been made or taken by the Committee. No member of the Committee or of the Board shall be liable for any determination, decision or action made in good faith with respect to the Plan or any option granted under the Plan. The fact that a member of the Board shall at the time be, or shall theretofore have been or thereafter may be, a person who has received or is eligible to receive an option shall not disqualify him or her from taking part in and voting at any time as a member of the Board in favor of or against any amendment or repeal of the Plan provided that such vote shall be in accordance with the recommendations of the Committee. 4. STOCK SUBJECT TO THE PLAN (a) The stock to be issued upon exercise of options granted under the Plan shall be the Corporation's Common Stock, $5 par value, (the "Common Stock") which shall be made available at the discretion of the Board, either from authorized but unissued Common Stock or from Common Stock reacquired by the Corporation, including shares purchased in the open market. The aggregate number of shares of Common Stock which may be issued under options shall not exceed 500,000 shares. The limitation established by the preceding sentence shall be subject to adjustment as provided in Section 15 of the Plan. (b) In the event that any outstanding option under the Plan for any reason expires or is terminated, the shares of Common Stock allocable to the unexercised portion of such option may again be made subject to option under the Plan. (c) The aggregate fair market value (determined as of the date an option is granted) of the stock for which any optionee may be granted incentive Stock Options in any calendar year under the Plan and all other plans maintained by the Corporation, its parent or any Subsidiary shall not exceed the sum of (i) $100,000 plus (ii) any unused limit carryover(s) to such year. AAA072C5 03/29/94 A-2 3 (d) For purposes of Subsection (c) above, an "unused limit carryover" shall arise only in a calendar year commencing after December 31, 1983, and shall be equal to one half of the excess of (i) $100,000 over (ii) the aggregate fair market value (determined as of the date an option is granted) of the stock for which the optionee is granted incentive Stock Options in such year under the Plan and all other plans maintained by the Corporation, or any Subsidiary. The unused limit carryover arising in any calendar year may be carried over to any of the three consecutive calendar years next following such year, but only to the extent not used in an earlier calendar year. The value of the Common Stock for which incentive Stock Options are granted under the Plan in any calendar year shall be applied first against the basic $100,000 limit for such year and then against any unused limit carryovers which may be carried over to such year in the order of the calendar years in which such carryovers arose. 5. GRANT OF OPTIONS The Committee may from time to time, subject to the provisions of the Plan, grant Options to key employees to purchase shares of Common Stock allotted in accordance with Section 4. The Committee may designate any option granted as either an Incentive Stock Option or a Nonqualified or the Committee may designate a portion of the Option as an "Incentive Stock Option" and the remaining portion as a "Nonqualified Stock Option." Any portion of an Option that is not designated as an "Incentive Stock Option" shall be a "Nonqualified Stock Option." 6. OPTION PRICE The purchase price per share shall be 100 percent of the fair market value of one share of Common Stock on the date the option is granted, except that the purchase price per share shall be 110 percent of such fair market value in the case of an Incentive Stock Option granted to an individual described in Section 7(c) of the Plan. During such time as Common Stock is not listed on an established stock exchange, fair market value per share shall be the mean between the closing dealer "bid" and "ask" prices for Common Stock as quoted by NASDAQ for the day of the grant and if no "bid" and "ask" prices are quoted for the day of the grant, the fair market value shall be determined by reference to such prices on the next preceding day on which such prices were quoted. If Common Stock is listed on an established stock exchange or exchanges, the fair market value shall be deemed to be the highest closing price of Common Stock on such stock exchange or exchanges on the day the option is granted or, if no sale of Common Stock has been made on any stock exchange on that day, the fair market value shall be determined by reference to such price for the next preceding day on which a sale occurred. In the event that Common Stock is not traded on an established stock exchange, and no closing dealer "bid" and "ask" prices are available, then the purchase price shall be 100 percent of the fair market value of one share of Common Stock on the day the option is granted, as determined by the Committee in good faith. The purchase price shall be subject to adjustment only as provided in Section 15 of the Plan. 7. ELIGIBILITY OF OPTIONEES (a) Options shall be granted only to person who are key employees of the Corporation or of a Subsidiary, as determined by the Committee. The term "key employees" shall include officers as well as other employees of the Corporation or of any Subsidiary. (b) Neither the members of the Committee nor any member of the Board of Key Banks Inc. who is an employee of the Corporation or of a Subsidiary shall be eligible to receive an option under the Plan. (c) Any other provision of the Plan notwithstanding an individual who owns more than 10 percent of the total combined voting power of all classes of outstanding stock of the Corporation, its parent or any Subsidiary shall not be eligible for the grant of an Incentive Stock Option unless the special requirements set forth in Sections 6 and 9(a) of the Plan are satisfied. For purposes of this Subsection (c) in determining stock ownership, an individual shall be considered as owning the stock owned, directly or indirectly, by or for his or her brothers and sisters, spouse, ancestors and lineal descendants. Stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by or for its shareholders, partners or beneficiaries. Stock with respect to which such individual holds an option shall not be counted. "Outstanding stock" shall include all stock actually issued and outstanding immediately after the grant of the option. "Outstanding stock" shall not include shares authorized for issue under outstanding options held by the optionee or by any other person. (d) Subject to the terms, provisions and conditions of the Plan and subject to review by the Board, the Committee shall have exclusive jurisdiction (i) to select the employees to be granted options (it being AAA072C5 03/29/94 A-3 4 understood that more than one option may be granted to the same person), (ii) to determine the number of shares subject to each option, (iii) to determine the date or dates when the options will be granted, (iv) to determine the purchase price of the shares subject to each option in accordance with Section 4 of the Plan, (v) to determine the date or dates when each option may be exercised within the term of the option specified pursuant to Section 9 of the Plan, (vi) to determine whether or not an option constitutes an Incentive Stock Option and (vii) to prescribe the form, which shall be consistent with the Plan, of the instruments evidencing any options granted under the Plan. (e) Neither anything contained in the Plan or in any instrument under the Plan nor the grant of any option hereunder shall confer upon any optionee any right to continue in the employ of the Corporation or of any Subsidiary or limit in any respect the right of the Corporation or of any Subsidiary to terminate the optionee's employment at any time and for any reason. 8. NON-TRANSFERABILITY OF OPTIONS No option granted under the Plan shall be assignable or transferable by the optionee other than by _____________ or the laws of descent and distribution, and during the lifetime of an optionee the option shall be exercisable only by such optionee. 9. TERMS AND EXERCISE OF OPTIONS (a) Each option granted under the Plan shall terminate on the date determined by the Committee and specified in the option agreement provided that each Incentive Stock Option granted to an individual described in Section 7(c) of the Plan shall terminate not later than five years after the date of grant and each other option shall terminate not later than 10 years after the date of grant. The Committee at its discretion may provide further limitations or the exercisability of options granted under the Plan. An option may be exercised only during the continuance of the optionee's employment, except as provided in Sections 10 and 11 of the Plan. (b) A person electing to exercise an option shall give written notice to the Corporation of such election and of the number of shares he or she has elected to purchase, in such forms as the Committee shall have prescribed or approved, and shall at the time of exercise tender the full purchase price of the shares he or she has elected to purchase. The purchase price shall be paid in full in cash upon the exercise of the option, provided, however, that in lieu of cash with the approval of the Committee at or prior to exercise, an optionee may exercise his or her option by tendering to the Corporation shares of Common Stock owned by him or her and having a fair market value equal to the cash exercise price applicable to his or her option with the fair market value of such stock to be determined in the manner provided in section 6 of the plan (with respect to the determination of the fair market value of Common Stock on the date an option is granted). (c) An option or a transferee of an option shall have no rights as a stockholder with respect to any shares covered by his or her option until the date the stock certificate is issued evidencing ownership of the shares. No adjustments shall be made for dividends (ordinary or extraordinary) whether in cash, securities or other property, or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 15 hereof. (d) In the case of options, other than Incentive Stock Options, a person may, in accordance with the other provisions of the Plan, elect to exercise such options in any order notwithstanding the fact that options granted to him or her prior to the grant of the options selected for exercise are unexpired. However, an Incentive Stock Option shall not be exercisable with respect to all or any part of the shares of Common Stock subject thereto while there is outstanding any other Incentive Stock Option granted to the optionee (under the Plan or otherwise) prior to the grant of the New Option to purchase any stock in the Corporation in a parent or Subsidiary of the Corporation or in a predecessor corporation. For purposes of the preceding sentence, an Incentive Stock Option shall be treated as "outstanding" until such Incentive Stock Option is exercised in full or expires by reason of the lapse of time. 10. TERMINATION OF EMPLOYMENT If an optionee severs from all employment with the Corporation and its Subsidiaries for any reason other than death, any option granted to him or her under the Plan shall terminate, and all rights under the option shall cease, in accordance with rules adopted by the Committee in any event. AAA072C5 03/29/94 A-4 5 (a) In the case of an Incentive Stock Option held by an optionee who is not permanently and totally disabled (within the meaning of Section 105(d)(4) of the Code) such Incentive Stock Option shall terminate no more than three months after the termination of employment. (b) In the case of an Incentive Stock Option held by an optionee who is permanently and totally disabled (within the meaning of Section 105(d)(4) of the Code) such Incentive Stock Option shall terminate 12 months after the termination of employment. (c) The foregoing notwithstanding, no option shall be exercisable after its expiration date . Whether an authorized leave of absence or an absence for military or governmental service shall constitute termination of employment for the purposes of the Plan shall be determined by the Committee, which determination shall be final, conclusive and binding upon the affected optionee and any person claiming under or through such optionee. 11. DEATH OF OPTIONEE If an optionee dies while in the employ of the Corporation or of any Subsidiary or after cessation of such employment but within the period during which he or she could have exercised the option under Section 10 of the Plan, then the option may be exercised by the executors or administrators of the optionee's estate or by any person or persons who have acquired the option directly from the optionee by bequest or inheritance, within 12 months after the termination of the optionee's employment for Incentive Stock Options and within a period prescribed by the Committee for Nonqualified Options provided, however, that no option shall be exercisable after its expiration date. 12. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS Subject to the terms and conditions and within the limitations of the Plan, the Committee may modify, extend or renew outstanding options granted under the Plan or accept the surrender of outstanding options (to the extent not theretofore exercised) and authorized the granting of new options in substitution therefor. Without limiting the generality of the foregoing the Committee may grant to an optionholder, if he or she is otherwise eligible and consents thereto, a new or modified option in lieu of an outstanding option for a number of shares, at an exercise price and for a term which are greater or lesser than under the earlier option, or may do so by cancellation and regrant, amendment, substitution or otherwise subject only to the general limitations and conditions of the Plan. The foregoing notwithstanding, no modification of an option shall without the consent of the optionee, alter or impair any rights or obligations under any option theretofore granted under the Plan. 13. PERIOD IN WHICH OPTIONS MAY BE GRANTED Options may be granted pursuant to the Plan at any time on or before (to read ten years from Plan adoption). 14. AMENDMENT OR TERMINATION OF THE PLAN The Board may at any time terminate, amend, modify or suspend the Plan, provided that, without the approval of the stockholders of the Corporation, no amendment or modification shall be made by the Board which: (a) Increases the maximum number of shares as to which options may be granted under the Plan; (b) Alters the method by which the option price is determined; (c) Extends any option for a period longer than 10 years after the date of grant; (d) Materially modifies the requirements as to eligibility for participation in the Plan; or (e) Alters this Section 14 so as to defeat its purpose. Further, no amendment, modification, suspension or termination of the Plan shall in any manner affect any option theretofore granted under the Plan without the consent of the optionee or any person validly claiming under or through the optionee. 15. CHANGES IN CAPITALIZATION (a) In the event that the shares of the Corporation, as presently constituted, shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Corporation or of AAA072C5 03/29/94 A-5 6 another corporation (whether by reason of merger, consolidation, recapitalization, reclassification, split-up, combination of shares or otherwise) or if the number of such shares of stock shall be increased through the payment of a stock dividend, then, subject to the provisions of Subsection (c) below, there shall be substituted for or added to each share of stock of the Corporation which was theretofore appropriated, or which hereafter may become subject to an option under the Plan, the number and kind of shares of stock or other securities into which each outstanding share of the stock of the Corporation shall be so changed or for which each such share shall be exchanged or to which each such share shall be entitled, as the case may be. Outstanding options shall also be appropriately amended as to price and other terms, as may be necessary to reflect the foregoing events. (b) If there shall be any other change in the number or kind of the outstanding shares of the stock of the Corporation, or of any stock or other securities into which such stock shall have been changed, or for which it shall have been exchanged, and if the Board or the Committee (as the case may be), shall in its sole discretion, determine that such change equitably requires an adjustment in any option which was theretofore granted or which may thereafter be granted under the Plan, then such adjustment shall be made in accordance with such determination. (c) A dissolution or liquidation of the Corporation, or a merger or consolidation in which the Corporation is not the surviving corporation, shall cause each outstanding option to terminate, except to the extent that another corporation may and does in the transaction assume and continue the option or substitute its own options. In either event, the Board or the Committee (as the case may be) shall have the right to accelerate the time within which the option may be exercised. (d) Fractional shares resulting from any adjustment in options pursuant to this Section 15 may be settled as the Board or the Committee (as the case may be) shall determine. (e) To the extent that the foregoing adjustments relate to stock or securities of the Corporation, such adjustments shall be made by the Committee whose determination in that respect shall be final, binding and conclusive. Notice of any adjustment shall be given by the Corporation to each holder of an option which shall have been so adjusted. (f) The grant of an option pursuant to the Plan shall not affect in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations or changes of its capital or business structure to merge, to consolidate, to dissolve, to liquidate or to sell or transfer all or any part of its business or assets. 16. LISTING AND REGISTRATION OF SHARES (a) No option granted pursuant to the Plan shall be exercisable in whole or in part if at any time the Board of the Committee (as the case may be) shall determine in its discretion that the listing, registration or qualification of the shares of Common Stock subject to such option on any securities exchange or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such option or the issue of shares thereunder, unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board. (b) If a registration statement under the Securities Act of 1933 with respect to the shares issuable upon exercise of any option granted under the Plan is not in effect at the time of exercise, as a condition of the issuance of the time of exercise, as a condition of the issuance of the shares the person exercising such option shall give the Committee a written statement, satisfactory in form and substance to the Committee, that he or she is acquiring the shares for his or her own account for investment and not with a view to their distribution. The Corporation may place upon any stock certificate for shares issuable upon exercise of such option the following legend or such other legend as the Committee may prescribe to prevent disposition of the shares in violation of the Securities Act of 1933 or other applicable law: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 ("ACT") AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AAA072C5 03/29/94 A-6 7 WITH RESPECT TO THEM UNDER THE ACT OR A WRITTEN OPINION OF COUNSEL FOR KEY BANKS INC. THAT REGISTRATION IS NOT REQUIRED." 17. PLAN EFFECTIVE DATE The Plan will be submitted to the Corporation shareholders for their approval at the shareholders meeting to be held on April 18, 1984 and, if approved by a majority vote of the shareholders, will become effective upon such approval. Unless sooner terminated by the Board, the Plan will terminate ten years from its effective date and no options may be granted under the Plan after such termination date. AAA072C5 03/29/94 A-7 EX-10.41 17 KEYCORP EX-10.41 1 KEYCORP DIRECTORS' STOCK OPTION PLAN 1. PURPOSE OF THE PLAN. The purpose of the KeyCorp Directors' Stock Option Plan is to encourage directors to acquire a larger stock ownership in KeyCorp, thus increasing their proprietary interest in the business and increasing their incentive to continue active service as a Director in the interest of KeyCorp and all its shareholders. Accordingly, KeyCorp will from time to time during the term of the Plan grant to Directors Options to purchase shares of Common Stock of KeyCorp subject to the conditions hereinafter provided. 2. DEFINITIONS. Unless the context clearly indicates otherwise, the following terms have the meanings set forth below. "Board of Directors" means the Board of Directors of KeyCorp. "Code" means the Internal Revenue Code of 1986, as amended. "Committee" means the Compensation Committee of the Board of Directors. "Common Stock" means the Common Stock of KeyCorp, $5 par value. "Director" means a member of the Board of Directors of KeyCorp. "Grant Date" as used with respect to a particular Option, means the date as of which such Option is granted by the Committee pursuant to the Plan. "Optionee" means the Director to which an Option is granted by the Committee pursuant to the Plan. "Option" means the right, granted by the Committee pursuant to Section 5 of the Plan, to purchase shares of Common Stock. "Plan" means this KeyCorp Directors' Stock Option Plan as it may be amended from time to time. "Total and Permanent Disability" as applied to an Optionee, means that the Optionee (i) has established to the satisfaction of the Committee that the Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental -1- 2 impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months (all within the meaning of Section 22(e)(3) of the Code); and (ii) has satisfied any other requirement imposed by the Committee. 3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a Committee composed of three or more Directors who are appointed by the Board of Directors of KeyCorp as the board's Compensation Committee and who may be members of the Committee appointed to administer the KeyCorp Stock Option Plan which became effective April 18, 1984. The Board may from time to time remove members from or add members to, the Committee. Vacancies on the Committee, however caused, shall be filled by the Board. The Board shall select one of the Committee's members as Chairman. The Committee shall hold meetings at such times and places as it may determine, subject to such rules as to procedures not inconsistent with the provisions of the Plan as are prescribed by the Board, as may be set out in the By-Laws of KeyCorp as applicable to the Executive Committee and as prescribed by the Committee itself. A majority of the authorized number of members of the Committee shall constitute a quorum for the transaction of business. Acts reduced to or approved in writing by a majority of the members of the Committee then serving shall be the valid acts of the Committee. A member of the Committee shall be eligible to be granted Options under this Plan while a member of the Committee. The Committee shall be vested with full authority to make such rules and regulations as it deems necessary or desirable to administer the Plan and to interpret the provisions of the Plan. Any determination, decision or action of the Committee in connection with the construction, interpretation, administration or application of the Plan shall be final, conclusive and binding upon all Optionees and any person claiming under or through an Optionee, unless otherwise determined by the Board. Any determination, decision or action of the Committee provided for in the Plan may be made or taken by action of the Board if it so determines, with the same force and effect as if such determination, decision or action had been made or taken by the Committee. No member of the Committee or of the Board shall be liable for any determination, decision or action made in good faith with respect to the Plan or any Option granted under the Plan. The fact that a member of the Board shall at the time be, or shall theretofore have been or thereafter may be, a person who has received or is eligible to receive an Option shall not disqualify him or her from taking part in and -2- 3 voting at any time as a member of the Board in favor of or against any amendment or repeal of the Plan. 4. STOCK SUBJECT TO THE PLAN. (a) The stock to be issued upon exercise of Options granted under the Plan shall be KeyCorp's Common Stock which shall be made available, at the discretion of the Board, either from authorized but unissued Common Stock or from Common Stock reacquired by KeyCorp, including shares purchased in the open market. The aggregate number of shares of Common Stock which may be issued under or subject to Options granted under this Plan shall not exceed 500,000 shares and the aggregate number of shares of Common Stock which may be issued under or subject to Options granted under this Plan to any one individual shall not exceed 25,000 shares. The limitation established by the preceding sentence shall be subject to adjustment as provided in Section 15 of the Plan. (b) In the event that any outstanding Option or portion thereof under the Plan for any reason expires or is terminated, the shares of Common Stock allocable to the unexercised portion of such Option may again be made subject to Option under the Plan. 5. GRANT OF OPTIONS. All Options granted under this Plan shall not be "Qualified Stock Options" for purposes of the Code. 6. OPTION PRICE. The purchase price per share of each share of Common Stock which is subject to an Option shall be 100 percent of the fair market value of a share of Common Stock on the date the Option is granted. For purposes of the Plan, the fair market value of a share of Common Stock shall be equal to the fair market value of a share of Common Stock as reported for trading on the New York Stock Exchange (or such other national securities exchange on which the Common Stock may be principally traded) on the date the Option is granted. The fair market value shall be the highest closing price of Common Stock on such stock exchange or exchanges on the day the Option is granted or, in the event that no sale of Common Stock has been made on any stock exchange on that day, the fair market value shall be determined by reference to such price for the next preceding day on which a sale occurred. During such time as Common Stock is not listed on a national securities exchange, fair market value per share shall be the mean between the closing dealer "bid" and "ask" prices for Common Stock as quoted by NASDAQ for the day of the grant, and if no "bid" and "ask" prices are quoted for the day of the grant, the fair market value -3- 4 shall be determined by reference to such prices on the next preceding day on which such prices were quoted. In the event that Common Stock is not traded on a national securities stock exchange, and no closing dealer "bid" and "ask" prices are available, then the fair market value of one share of Common Stock on the day the Option is granted shall be determined by the Committee in good faith. The purchase price shall be subject to adjustment only as provided in Section 15 of the Plan. 7. ELIGIBILITY OF OPTIONEES. (a) Options on 3,500 shares of KeyCorp common stock shall be granted annually at a meeting of the Board of Directors to be held on the third Thursday of March, commencing on March 19, 1992, to those persons who are then Directors of KeyCorp, except that no one individual shall be granted Options in an aggregate of more than 25,000 shares, and except that if the Executive Vice President and General Counsel of KeyCorp determines in his sole discretion that on such date KeyCorp is in possession of material non-public information concerning its affairs, such grant shall be delayed until the third day on which trading occurs on the New York Stock Exchange following the public dissemination of such information or the date of an event which renders such information immaterial. (b) Subject to the terms of the Plan, and subject to review by the Board, the Committee shall have exclusive jurisdiction (i) to determine the dates on which, or the time periods during which, the Option may be exercised, (ii) to determine the purchase price of the shares subject to each Option in accordance with Section 6 of the Plan and (iii) to prescribe the form, which shall be consistent with the Plan, of the instrument evidencing any Options granted under the Plan. (c) Neither anything contained in the Plan or in any document under the Plan nor the grant of any Option under the Plan shall confer upon any Optionee any right to continue as a Director of KeyCorp or limit in any respect the right of KeyCorp's shareholders to terminate the Optionee's directorship at any time and for any reason. 8. NON-TRANSFERABILITY OF OPTIONS. No Option granted under the Plan shall be assignable or transferable by the Optionee other than by will or the laws of descent and distribution, and during the lifetime of an Optionee the Option shall be exercisable only by such Optionee. -4- 5 9. TERM AND EXERCISE OF OPTIONS. (a) Each Option granted under the Plan shall terminate on the date which is 10 years after the date of grant. The Committee at its discretion may provide further limitations on the exercisability of Options granted under the Plan. An Option may be exercised only during the continuance of the Optionee's service as a Director, except as provided in Sections 10 and 11 of the Plan. (b) A person electing to exercise an Option shall give written notice to KeyCorp of such election and of the number of shares he or she has elected to purchase, in such forms as the Committee shall have prescribed or approved, and shall at the time of exercise tender the full purchase price of the shares he or she has elected to purchase. The purchase price shall be paid in full in cash upon the exercise of the Option; provided, however, that in lieu of cash, with the approval of the Committee at or prior to exercise, an Optionee may exercise his or her Option by tendering to KeyCorp shares of Common Stock owned by him or her and having a fair market value equal to the cash exercise price applicable to his or her Option, with the then fair market value of such stock to be determined in the same manner as provided in Section 6 of the Plan with respect to the determination of the fair market value of Common Stock on the date an Option is granted. (c) An Optionee or a transferee of an Option shall have no rights as a stockholder with respect to any shares covered by his or her Option until the date the stock certificate is issued evidencing ownership of the shares. No adjustments shall be made for dividends (ordinary or extraordinary), whether in cash, securities or other property, or distributions or other rights, for which the record date is prior to the date such stock certificate is issued, except as provided in Section 15 hereof. 10. TERMINATION OF DIRECTORSHIP. If an Optionee's status as a Director ceases for any reason other than death, any Option granted to him or her under the Plan shall terminate, and all rights under the Option shall cease, except (a) In the case of a Stock Option held by an Optionee who is not permanently and totally disabled (within the meaning of Section 22(e)3 of the Code), such Stock Option shall terminate three months after the termination of employment. -5- 6 (b) In the case of a Stock Option held by an Optionee who is permanently and totally disabled (within the meaning of Section 22(e)(3) of the Code), such Stock Option shall terminate 12 months after the termination of employment. (c) The foregoing notwithstanding, no Option shall be exercisable after its expiration date. 11. DEATH OF OPTIONEE. If an Optionee dies while serving as a Director, or after cessation of such service, but within the period during which he or she could have exercised the Option under Section 10 of the Plan, then the Option may be exercised by the executors or administrators of the Optionee's estate or by an person or person who have acquired the Option directly from the Optionee by bequest or inheritance, within a period prescribed by the Committee after the Optionee's death, except that no Option shall be exercisable after its expiration date. 12. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Subject to the terms and conditions and within the limitations of the Plan, the Committee may modify outstanding Options granted under the Plan, but no such modification shall alter or modify the amount or purchase price of the shares subject to such Option (except pursuant to Section 15 of the Plan) or the timing of the award of such Option. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, alter or impair any rights or obligations under any Option theretofore granted under the Plan. 13. PERIOD IN WHICH OPTION MAY BE GRANTED. Options may be granted pursuant to the Plan at any time on or before April 30, 1997. 14. AMENDMENT OR TERMINATION OF THE PLAN. The Board may at any time terminate, amend, modify or suspend the Plan, provided that, without the approval of the shareholders of KeyCorp, no amendment or modification shall be made by the Board which: (a) Increases the maximum number of shares as to which Options may be granted under the Plan; (b) Alters the method by which the Option price is determined; (c) Extends any Option for a period longer than 10 years after the date of grant; -6- 7 (d) Materially modifies the requirements as to eligibility for participation in the Plan; or (e) Amends Paragraphs 7(a) or 7(b) at intervals more frequent than once every six months except to the extent necessary to comport with changes in the federal Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder. (f) Alters this Section 14 so as to defeat its purpose. Further, no amendment, modification, suspension or termination of the Plan shall in any manner affect any Option theretofore granted under the Plan without the consent of the Optionee or any person validly claiming under or through the Optionee. 15. CHANGES IN CAPITALIZATION. (a) In the event that the shares of KeyCorp, as presently constituted, shall be changed into or exchanged for a different number or kind of shares of stock or other securities of KeyCorp or of another corporation (whether by reason of merger, consolidation, recapitalization, reclassification, stock dividend, stock split, combination of shares or otherwise) or if the number of such shares of stock shall be increased through the payment of a stock dividend, then, subject to the provision of Subsection (c) below, there shall be substituted for or added to each share of stock of KeyCorp which was theretofore appropriated, or which thereafter may become subject to an Option under the Plan, the number and kind of shares of stock or other securities into which each outstanding share of the stock of KeyCorp shall be so changed or for which each such share shall be exchanged to which each such share shall be entitled, as the case may be. Outstanding Options shall also be appropriately amended as to price and other terms, as may be necessary to reflect the foregoing events. (b) If there shall be any other change in the number or kind of the outstanding shares of the stock of KeyCorp, or of any stock or other securities into which such stock shall have been changed, or for which it shall have been exchanged, and if the Board or the Committee (as the case may be), shall in its sole discretion, determine that such change equitably requires an adjustment in any Option which was theretofore granted or which may thereafter be granted under the Plan, then such adjustment shall be made in accordance with such determination. -7- 8 (c) A dissolution or liquidation of KeyCorp or a merger or consolidation in which KeyCorp is not the surviving corporation, shall cause each outstanding Option to terminate, except to the extent that another corporation may and does in the transaction assume and continue the Option or substitute its own Options in either event, the Board or the Committee (as the case may be) shall have the right to accelerate the time within which the Option may be exercised. (d) Fractional shares resulting from any adjustment in Options pursuant to this Section 15 may be settled as the Board or the Committee (as the case may be) shall determine. (e) To the extent that the foregoing adjustments relate to stock or securities of KeyCorp such adjustments shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. Notice of any adjustment shall be given by KeyCorp to each holder of an Option which shall have been so adjusted. (f) The grant of an Option pursuant to the Plan shall not affect in any way the right or power of KeyCorp to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge, to concentrate, to dissolve, to liquidate or to sell or transfer all or any part of its business or assets. 16. LISTING AND REGISTRATION OF SHARES. (a) No Option granted pursuant to the Plan shall be exercisable in whole or in part if at any time the Board or the Committee (as the case may be) shall determine in its discretion that the listing, registration or qualification of the shares of Common Stock subject to such Option on any securities exchange or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Option or the issue of shares thereunder, unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any condition not acceptable to the Board. (b) If a registration statement under the Securities Act of 1933 with respect to the shares issuable upon exercise of any Option granted under the Plan is not in effect at the time of exercise, as a condition of the issuance of the shares the person exercising such Option -8- 9 shall give the Committee a written statement, satisfactory in form and substance to the Committee, that he or she is acquiring the shares for his or her own account for investment and not with a view to their distribution. KeyCorp may place upon any stock certificate for shares issuable upon exercise of such Option the following legend or such other legend as the Committee may prescribe to prevent disposition of the shares in violation of the Securities Act of 1933 or other applicable law: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 ("ACT") AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THEM UNDER THE ACT OR A WRITTEN OPINION OF COUNSEL FOR KEYCORP THAT REGISTRATION IS NOT REQUIRED. 17. PLAN EFFECTIVE DATE. The Plan will be submitted to KeyCorp's shareholder for their approval at the shareholder's meeting to be held on April 30, 1987 and if approved by a majority vote of the shareholders, will become effective upon such approval. Unless sooner terminated by the Board, the Plan will terminate ten years from its effective date and no Options may be granted under the Plan after such termination date. -9- EX-10.42 18 KEYCORP EX-10.42 1 KEYCORP 1988 STOCK OPTION PLAN (As Amended by the Shareholders on April 26, 1990, and on April 23, 1992) 1. PURPOSES OF THE PLAN The purpose of the KeyCorp 1988 Stock Option Plan is to provide a method by which those employees of KeyCorp and its Subsidiaries who are largely responsible for the management, growth, and protection of the business, and who are making and can continue to make substantial contributions to the success of the business, may be encouraged to acquire a larger stock ownership in KeyCorp, thus increasing their proprietary interest in the business, providing them with greater incentive for their continued employment, and promoting the interests of KeyCorp and all of its shareholders. Accordingly, KeyCorp will, from time to time during the term of the Plan, grant to such key employees as may be selected, in the manner provided in the Plan, options to purchase shares of Common Stock of KeyCorp and stock appreciation rights for use in connection with the stock options, subject to the conditions provided in the Plan. 2. DEFINITIONS Unless the context clearly indicates otherwise, the following terms have the meanings set forth below. (a) "BOARD OF DIRECTORS" or "BOARD" means the Board of Directors of KeyCorp. (b) "CODE" means the Internal Revenue Code of 1986, as amended. (c) "COMMITTEE" means the Compensation Committee of the Board of Directors of KeyCorp as described in Section 3 of the Plan. (d) "COMMON STOCK" means the Common Stock of KeyCorp, $5.00 par value. (e) "GRANT DATE," as used with respect to a particular Option, means the date as of which such Option is granted by the Board or Committee pursuant to the Plan. 2 (f) "INCENTIVE STOCK OPTION" means an Option that qualifies as an Incentive Stock Option as described in Section 422 of the Code. (g) "NON-QUALIFIED STOCK OPTION" means any Option granted under the Plan other than Incentive Stock Option. (h) "OPTION" means an option granted pursuant to Section 5 of the Plan to purchase shares of Common Stock and which shall be designated as either an Incentive Stock Option or a Non-Qualified Stock Option. (i) "OPTIONEE" means an individual to whom an Incentive Stock Option or Non-Qualified Stock Option or Right is granted pursuant to the Plan. (j) "PLAN" means the KeyCorp 1988 Stock Option Plan as set forth herein and as may be amended from time to time. (k) "RIGHT" means a stock appreciation right granted under Section 7 of the Plan. (l) "SUBSIDIARY" means any stock corporation of which a majority of the voting common or capital stock is owned, directly or indirectly, by KeyCorp and any other company designated as such by the Committee, but only during the period of such ownership or designation. (m) "TOTAL AND PERMANENT DISABILITY," as applied to an Optionee, means that the Optionee has (1) established to the satisfaction of KeyCorp that the Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve months, all within the meaning of Section 22(e)(3) of the Code, and (2) satisfied any requirement imposed by the Committee. 3. ADMINISTRATION OF THE PLAN (a) The Plan shall be administered by the Committee, which shall be comprised of three or more Directors who are appointed by the Board of Directors and selected from those Directors who are not employees of KeyCorp or a Subsidiary. The -2- 3 Board may from time to time remove members from or add members to the Committee. Vacancies on the Committee, howsoever caused, shall be filled by the Board. The Board shall select one of the Committee's members as Chairman. The Committee shall hold meetings at such times and places as it may determine, subject to such rules as to procedures not inconsistent with the provisions of the Plan as are prescribed by the Board, set forth in KeyCorp's By-Laws as applicable to the Executive Committee, and as prescribed by the Committee itself. A majority of the authorized number of members of the Committee shall constitute a quorum for the transaction of business. Acts reduced to or approved in writing by a majority of the members of the Committee then serving shall be the valid acts of the Committee. No member of the Committee shall be eligible to be granted Options or Rights under the Plan while a member of the Committee. (b) The Committee shall be vested with full authority to make such rules and regulations as it deems necessary or desirable to administer the Plan and to interpret the provisions of the Plan. Any determination, decision, or action of the Committee in connection with the construction, interpretation, administration, or application of the Plan shall be final, conclusive, and binding upon all Optionees and any person claiming under or through an Optionee unless otherwise determined by the Board. (c) Any determination, decision, or action of the Committee provided for in the Plan may be made or taken by action of the Board, if it so determines, with the same force and effect as if such determination, decision, or action had been made or taken by the Committee. No member of the Committee or of the Board shall be liable for any determination, decision, or action made in good faith with respect to the Plan or any Option or Right granted under the Plan. The fact that a member of the Board who is not then a member of the Committee shall at the time be, or shall theretofore have been, or thereafter may be a person who has received or is eligible to receive an Option or Right shall not disqualify him or her from taking part in and voting at any time as a member of the Board in favor of or against any amendment or repeal of the Plan, -3- 4 provided that such vote shall be in accordance with the recommendations of the Committee. 4. STOCK SUBJECT TO THE PLAN (a) The Common Stock to be issued or transferred under the Plan will be KeyCorp Common Stock which shall be made available, at the discretion of the Board, either from authorized but unissued Common Stock or from Common Stock reacquired by KeyCorp, including shares purchased in the open market. The maximum number of shares of Common Stock upon which Options may be granted in each year under this Plan shall not exceed 2 percent of the total issued and outstanding shares of Common Stock as of December 31 of the next preceding year, as adjusted pursuant to Section 15 of the Plan, provided, however, that for each year in which the Plan is in effect, no more than 750,000 of the total issued and outstanding shares of Stock shall be available for the grant of Incentive Stock Options under this Plan. Unused grant capacity shall not cumulate from one year to the next. (b) In the event that any outstanding Option or Right under the Plan for any reason expires or is terminated, the shares of Common Stock allocable to the unexercised portion of such Option or Right may again be made subject to Option or Right under the Plan. 5. GRANT OF OPTIONS The Committee may from time to time, subject to the provisions of the Plan, grant Options to key employees of KeyCorp or of a Subsidiary to purchase shares of Common Stock allotted in accordance with Section 4 of the Plan. The Committee may designate any Option granted as either an incentive Stock Option or a Non-Qualified Stock Option, or the Committee may designate a portion of the Option as an Incentive Stock Option and the remaining portion as a Non-Qualified Stock Option. If an Optionee exercises an Option, then at the discretion of the Committee or pursuant to the terms of the original Option, the Optionee may receive a replacement Option to purchase a number of shares of Common Stock determined by the Committee or the terms of the original Option, with an option price determined under Section 6 of the Plan as of the date of exercise of the original Option and with a term extending to the expiration date of the original Option. -4- 5 6. OPTION PRICE The purchase price per share of any Option granted under the Plan shall be 100 percent of the fair market value of one share of Common Stock on the date the Option is granted, except that the purchase price per share shall be 110 percent of the fair market value in the case of an Incentive Stock Option granted to an individual described in subsection 8(b) of the Plan. For purposes of the Plan, the fair market value of a share of Common Stock shall be equal to the highest closing price of one share of Common Stock as reported for consolidated trading on the New York Stock Exchange (or such other national securities exchange on which the Common Stock may be principally traded) on the date the Option is granted, or if no sale of Common Stock has been made on any securities exchange on that day, the fair market value shall be determined by reference to such price for the next preceding day on which a sale occurred. During such time as Common Stock is not listed on a national securities exchange, fair market value per share shall be the mean between the closing dealer "bid" and "ask" prices for Common Stock as quoted by National Association of Securities Dealers Automated Quotation System for the day of the grant, and if no "bid" and "ask" prices are quoted for the day of grant, the fair market value shall be determined by reference to such prices on the next preceding day on which such prices were quoted. In the event that Common Stock is not traded on a national securities exchange, and no closing dealer "bid" and "ask" prices are available, then the fair market value of one share of Common Stock on the day the Option is granted shall be determined by the Committee or by the Board. The purchase price shall be subject to adjustment only as provided in Section 15 of the Plan. 7. GRANT OF RIGHTS The Committee may, at any time and in its discretion, grant to any employee of KeyCorp or any of its subsidiaries who is awarded or who holds an outstanding Option or any other outstanding stock option granted by KeyCorp, the right to surrender such Option (to the extent any Option or such other stock option is otherwise exercisable) and to receive from KeyCorp an amount equal to the excess, if any, of the fair market value of the Common Stock with respect to which such Option is surrendered on the date of such surrender over the option price of the Option or other stock option surrendered. Payment of KeyCorp of the amount receivable upon any exercise of a Right may be made by -5- 6 delivery of Common Stock, or cash, or any combination of Common Stock and cash, as determined in the sole discretion of the Committee from time to time. No fractional shares shall be issued. The Committee may provide for the elimination of fractional shares of Common Stock delivered to the Optionee without adjustment or for the payment of the value of such fractional shares in cash. Shares of KeyCorp Common Stock delivered to the Optionee upon the exercise of a Right, and the surrender of the Option or stock option, shall be valued at the fair market value (determined pursuant to Section 6) of a share of Common Stock on the date the right is exercised and the Option or stock option is surrendered. The Committee may limit the period or periods during which the Rights may be exercised and may provide such other terms and conditions (which need not be the same with respect to each Optionee) under which a Right may be granted and/or exercised. A Right may be exercised only as long as the related Option or stock option is exercisable. In no event may a Right be exercised more than ten years after the date of the grant of the related Option or stock option. A right may not be granted with respect to an Incentive Stock Option at any time other than at the same time the Incentive Stock Option is granted. Rights granted with respect to Incentive Stock Options (a) shall expire no later than the expiration of the underlying Option, (b) shall be for no more than the difference between the exercise price of the underlying option and the market price of the stock subject to the underlying option at the time the right is exercised, (c) shall be transferrable only when the underlying Option is transferrable and under the same conditions, (d) shall be exercisable only when the underlying Option is exercisable, and (e) shall be exercisable only when the market price of the stock subject to the underlying Option exceeds the exercise price of the Option. 8. ELIGIBILITY OF OPTIONEES (a) Options and Rights shall be granted only to persons who are key employees of KeyCorp or of a Subsidiary as determined by the Committee at the time of grant. The term "employees" shall include persons who are Directors or Officers who are also employees of KeyCorp or of any Subsidiary. (b) Any other provision of the Plan notwithstanding, an individual who owns more than ten percent of the total combined voting power of all classes of outstanding Common Stock of KeyCorp or any -6- 7 Subsidiary shall not be eligible for the grant of an Incentive Stock Option unless the special requirements set forth in Sections 6 and 10(a) of the Plan are satisfied. For purposes of this subsection (b), in determining stock ownership, an individual shall be considered as owning the stock owned, directly or indirectly, by or for his or her brothers and sisters, spouse, ancestors, and lineal descendants. Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust shall be considered as being owned proportionately by or for its shareholders, partners, or beneficiaries. Stock with respect to which such individual holds an Option shall not be counted. Outstanding stock shall include all stock actually issued and outstanding immediately after the grant of the Option. Outstanding stock shall not include shares authorized for issue under outstanding Options held by the Optionee or by another person. (c) Subject to the terms, provisions, and conditions of the Plan and subject to review by the Board, the Committee shall have exclusive jurisdiction to (1) select the key employees to be granted Options or Rights (it being understood that more than one Option or Right may be granted to the same person), (2) determine the number of shares subject to each Option or Right, (3) determine the date or dates when the Options or Rights will be granted, (4) determine the purchase price of the shares subject to each Option in accordance with Section 6 of the Plan, (5) determine the date or dates when each Option or Right may be exercised within the term of the Option specified pursuant to Section 10 of the Plan, (6) determine whether or not an Option constitutes an Incentive Stock Option, and (7) prescribe the form, which shall be consistent with the Plan, of the documents evidencing any Options or Rights granted under the Plan. (d) Neither anything contained in the Plan or in any document under the Plan nor the grant of any Option or Right under the Plan shall confer upon any Optionee any right to continue in the employ of KeyCorp or of any Subsidiary or limit in any respect the right of Key Corp or of any Subsidiary to terminate the Optionee's employment at any time and for any reason. -7- 8 9. NON-TRANSFERABILITY No Option or Right granted under the Plan shall be assignable or transferable by the Optionee other than by will or the laws of descent and distribution; and during the lifetime of an Optionee, the Option shall be exercisable only by such Optionee. 10. TERM AND EXERCISE OF OPTIONS AND RIGHTS (a) Each Option or Right granted under the Plan shall terminate on the date determined by the Committee and specified in the Option Agreement, provided that each Option shall terminate not later than ten years after the date of grant. However, any Option designated as an Incentive Stock Option granted to a more than ten percent shareholder shall terminate not later than five years after the date of grant. The Committee, at its discretion, may provide further limitations on the exercisability of Options or rights granted under the Plan. An Option or Right may be exercised only during the continuance of the Optionee's employment, except as provided in Section 11 of the Plan. (b) A person electing to exercise an Option or Right shall give written notice to KeyCorp, in such form as the Committee shall have prescribed or approved, of such election and of the number of shares he or she has elected to purchase and shall at the time of exercise tender the full purchase price of any shares he or she has elected to purchase. The purchase price upon the exercise of an Option shall be paid in full in cash, provided, however, that in lieu of cash, with the approval of the Committee at or prior to exercise, an Optionee may exercise his or her Option by tendering to KeyCorp shares of Common Stock owned by him or her and having a fair market value equal to the cash exercise price applicable to his or her Option, with the then fair market value of such stock to be determined in the manner provided in Section 6 of the Plan (with respect to the determination of the fair market value of Common Stock on the date an Option is granted). However, if an Optionee pays the Option exercise price of a Non-Qualified Stock Option in whole or in part in the form of unrestricted Common Stock already owned by the Optionee, KeyCorp may require that the Optionee have owned the stock for a period of time that would not cause the exercise to create a -8- 9 charge to KeyCorp's earnings. Such provision may be used by KeyCorp to prevent a pyramid exercise. As conditions to exercising an Option or a Right, the holder must (1) arrange to pay to KeyCorp any amount required to be withheld under any tax law on the account of the exercise, and (2) in the case of an Incentive Stock Option, agree to notify KeyCorp of any disqualifying disposition (as defined in Section 421 of the Code) of the Common Stock acquired upon the exercise and agree to pay to KeyCorp any amount required to be withheld under any tax law on account of the disposition. Any payment on account of withholding taxes shall be made in a form acceptable to the Committee. (c) An Optionee or a transferee of an Option shall have no rights as a shareholder with respect to any shares covered by his or her Option or Right until the date the Stock Certificate is issued evidencing ownership of the shares. No adjustments shall be made for dividends (ordinary or extraordinary), whether in cash, securities, or other property, or distributions, or other rights for which the record date is prior to the date such Stock Certificate is issued, except as provided in Section 15 of the Plan. (d) A person may, in accordance with the other provisions of the Plan, elect to exercise Options or Rights in any order, notwithstanding the fact that Options or Rights granted to him or her prior to the grant of the Options or Rights selected for exercise are unexpired. 11. TERMINATION OF EMPLOYMENT If an Optionee severs from all employment with KeyCorp and/or its Subsidiaries, any Option or Right granted to him or her under the Plan shall terminate as follows: (a) An Option or Right held by an Optionee who is permanently and totally disabled within the meaning of Section 22(e)(3) of the Code shall terminate upon its expiration date; (b) An Option or Right held by an Optionee shall be exercisable within a period of one year from the date of Optionee's death by the executor or -9- 10 administrator of the Optionee's estate or by the person to whom the Optionee shall have transferred such right by last Will and Testament or by the laws of descent or distribution; (c) An Option or Right held by an Optionee who terminates for cause, as determined by the Committee, shall expire immediately upon the date of termination unless some other expiration date is fixed by the Committee; and (d) An Option or Right held by an Optionee who terminates for any reason other than those specified in subsections (a), (b), or (c) above shall expire three months after the date of termination unless a later expiration date is fixed by the Committee. The foregoing notwithstanding, no Option or Right shall be exercisable after its expiration date. Whether an authorized leave of absence or an absence for military or governmental service shall constitute termination of employment for purposes of the Plan shall be determined by the Committee, which determination shall be final, conclusive, and binding upon the affected Optionee and any person claiming under or through such Optionee. Termination or employment with any subsidiary of KeyCorp in order to accept employment with another subsidiary of KeyCorp or while remaining an employee of KeyCorp or of any of its subsidiaries shall not be a termination of employment for the purposes of this Section 11. 12. MODIFICATION, EXTENSION, AND RENEWAL Subject to the terms and conditions and within the limitations of the Plan, the Committee may modify, extend, or renew outstanding Options or Rights (to the extent not theretofore exercised) and authorize the granting of new Options or Rights in substitution therefor. Without in any way limiting the generality of the foregoing, the Committee may grant to an Optionee, if he or she is otherwise eligible and consents thereto, a new or modified Option or Right in lieu of an outstanding Option or Right for a number of shares at an exercise price and for a term which are greater or less than under the earlier Option or Right or may do so by cancellation and re-grant, amendment, substitution, or otherwise subject only to the general limitations and conditions of the Plan. The foregoing notwithstanding, no modification of an Option or Right -10- 11 shall, without the consent of the Optionee, alter or impair any rights or obligations under any Option or Right theretofore granted under the Plan. 13. PERIOD IN WHICH GRANTS MAY BE MADE Options and Rights may be granted pursuant to the Plan at any time on or before April 26, 2000. 14. AMENDMENT OR TERMINATION OF THE PLAN The Board may at any time terminate, amend, modify, or suspend the Plan, provided that, without the approval of the shareholders of KeyCorp, no amendment or modification shall be made by the Board which (a) increases the maximum number of shares as to which Options or Rights may be granted under the Plan; (b) alters the method by which the Option price is determined; (c) extends any Option or Right for a period longer than ten years after the date of the grant; (d) materially modifies the requirements as to eligibility for participation in the Plan; or (e) alters this Section 14 so as to defeat its purpose. Further, no amendment, modification, suspension, or termination of the Plan shall in any manner affect any Option or Right theretofore granted under the Plan without the consent of the Optionee or any person validly claiming under or through the Optionee. 15. CHANGES IN CAPITALIZATION (a) In the event that the shares of KeyCorp, as presently constituted, shall be changed into or exchanged for a different number or kind of shares of stock or other securities of KeyCorp or of another corporation (whether by reason of merger, consolidation, recapitalization, reclassification, split-up, combination of shares, or otherwise), or if the number of such shares of stock shall be increased through the payment of a stock dividend, then subject to the provisions of subsection (c) below, there shall be substituted for or added to each share of stock of KeyCorp which was theretofore appropriated or which thereafter may become subject to an Option or Right under the Plan the number and kind of shares of stock or other securities into which each outstanding share of Common Stock of KeyCorp shall be so changed, or for which each such share shall be exchanged or to which each such share shall be entitled, as the case may be. Outstanding Options and Rights shall also be appropriately amended as to price and -11- 12 other terms as may be necessary to reflect the foregoing events. The maximum number of shares of Common Stock upon which Options and Incentive Stock Options may be granted, as provided in Section 4(a) of the Plan, shall be proportionately adjusted to reflect any of the foregoing events. (b) If there shall be any other change in the number or kind of outstanding shares of stock of KeyCorp, or of any stock or other securities into which such stock shall have been changed, or for which it shall have been exchanged, and if the Board or the Committee, as the case may be, shall, in its sole discretion, determine that such change equitably requires an adjustment in any Option or Right which was theretofore granted or which may thereafter be granted under the Plan, then such adjustment shall be made in accordance with such determination. (c) A dissolution or liquidation of KeyCorp or a merger or consolidation in which KeyCorp is not the surviving corporation shall cause each outstanding Option and Right to terminate, except to the extent that another corporation may and does in the transaction assume and continue the Option or substitute its own options. In either event, the Board or the Committee, as the case may be, shall have the right to accelerate the time within which the Option or Right may be exercised. (d) Fractional shares resulting from any adjustment in Options or Rights pursuant to this Section 15 may be settled as the Board or the Committee, as the case may be, shall determine. (e) To the extent that the foregoing adjustments relate to stock or securities of KeyCorp, such adjustments shall be made by the Committee, whose determination in that respect shall be final, binding, and conclusive. Notice of any adjustment shall be given by KeyCorp to each holder of an Option or Right which shall have been so adjusted. (f) The grant of an Option or Right pursuant to the Plan shall not affect in any way the right or power of KeyCorp to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure or to merge, consolidate, dissolve, liquidate, sell, or transfer all or any part of its business or asset. -12- 13 16. LISTING AND REGISTRATION OF SHARES (a) No Option or Right granted pursuant to the Plan shall be exercisable in whole or in part if at any time the Board or the Committee, as the case may be, shall determine, in its discretion, that the listing, registration, or qualification of the shares of Common Stock subject to such Option or Right on any securities exchange or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of or in connection with the granting of such Option or Right or the issue of shares thereunder unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Board. (b) If a registration statement under the Securities Act of 1933 with respect to shares issuable upon exercise of any Option or Right granted under the Plan is not in effect at the time of exercise, the person exercising such Option or Right shall give the Committee a written statement, satisfactory in form and substance to the Committee, that he or she is acquiring the shares for his or her own account for investment and not with a view to their disposition. KeyCorp may place upon any Stock Certificate for shares issuable upon exercise of such Option or Right such legend as the Committee may prescribe to prevent disposition of the shares in violation of the Securities Act of 1933 or any other applicable law. 17. EFFECTIVE DATE OF PLAN The Plan was approved by KeyCorp's shareholders at the Annual Meeting of Shareholders held on April 23, 1992, and became effective on that date. -13- EX-11 19 KEYCORP EX-11 1 EXHIBIT 11 SOCIETY CORPORATION COMPUTATION OF NET INCOME PER COMMON SHARE (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, ------------------------------------------- 1993 1992 1991 ----------- ----------- ----------- NET INCOME APPLICABLE TO COMMON SHARES Net income..................................... $347,159 $301,210 $76,478 Less: Preferred dividend requirements.......... 1,038 6,226 6,249 ----------- ----------- ----------- Net income applicable to Common Shares......... $346,121 $294,984 $70,229 ----------- ----------- ----------- ----------- ----------- ----------- NET INCOME PER COMMON SHARE -- PRIMARY Weighted average Common Shares outstanding..... 116,976,477 115,951,058 114,385,402 Dilutive common stock options.................. 1,346,975 1,397,598 881,442 ----------- ----------- ----------- Weighted average Common Shares and Common Share equivalents outstanding..................... 118,323,452 117,348,656 115,266,844 ----------- ----------- ----------- ----------- ----------- ----------- Net income applicable to Common Shares......... $346,121 $294,984 $70,229 ----------- ----------- ----------- ----------- ----------- ----------- Net income per Common Share.................... $2.93 $2.51 $.61 ----------- ----------- ----------- ----------- ----------- ----------- NET INCOME PER COMMON SHARE -- FULLY DILUTED Weighted average Common Shares outstanding..... 116,976,477 115,951,058 114,385,402 Dilutive common stock options.................. 1,488,187 1,796,206 1,156,450 ----------- ----------- ----------- Weighted average Common Shares and Common Share equivalents outstanding..................... 118,464,664 117,747,264 115,541,852 ----------- ----------- ----------- ----------- ----------- ----------- Net income applicable to Common Shares......... $346,121 $294,984 $70,229 ----------- ----------- ----------- ----------- ----------- ----------- Net income per Common Share.................... $2.92 $2.51 $.61 ----------- ----------- ----------- ----------- ----------- ----------- Dilutive common stock options are based on the treasury stock method using average market price in computing net income per Common Share -- primary, and the higher of year-end market price or average market price in computing net income per Common Share -- fully diluted.
100 EX-21 20 KEYCORP EX-21 1 EXHIBIT 21 KEYCORP SUBSIDIARIES OF THE REGISTRANT AT MARCH 1, 1994
JURISDICTION PERCENT OF INCORPORATION OF OR ORGANIZATION OWNERSHIP(1) ----------------------- ------------------------- NAME OF HOLDING COMPANY SUBSIDIARY Key Bancshares of Alaska (KBsA) Alaska 100% Key Bancshares of Idaho (KBsI) Idaho 100% Key Bancshares of Maine (KBsM) Maine 100% Key Bancshares of New York (KBsNY) New York 100% Key Bancshares of Utah (KBsU) Utah 100% Key Bancshares of Washington (KBsWA) Washington 100% Key Bancshares of Wyoming (KBsWY) Wyoming 100% Society Bancorp of Michigan, Inc. (SBM) Michigan 100% NAME OF BANKING SUBSIDIARY Key Bank of Colorado (KBCO) Colorado 100% Key Bank of Alaska (KBA) Alaska 100% by KBsAK Key Bank of Idaho (KBI) Idaho 100% by KBsI Key Bank of Maine (KBM) Maine 100% by KBsM Key Bank of New York (KBNY) New York 100% by KBsNY Key Bank of Oregon (KBO) Oregon 100% by KBsAK Key Bank U.S.A. N.A. (KBUSA) New York 100% by KBsNY Key Bank of Utah (KBU) Utah 100% by KBsU Key Bank of Washington (KBWA) Washington 100% by KBsWA Key Bank of Wyoming (KBWY) Wyoming 100% by KBsWY Key Savings Bank (KSB) Washington 100% by KBsWA Society First Federal (SFF) Florida 100% Society Bank, Michigan Michigan 100% by SBM Society National Bank (SNB) United States 100% Society National Bank, Indiana (SNI) United States 100% Society National Trust Company United States 100% NAME OF NONBANKING SUBSIDIARY A.T. -- Sentinel, Inc. Delaware 100% by SNB A.T. Acceptance Corporation (2) Ohio 100% All Coast Services (2) New York 100% by KMI Ameritrust Company (2) Ohio 100% Ameritrust Petroleum Corp. (2) Texas 100% Ameritrust Realty Corp. (2) Texas 100% AT Financial Corporation (2) Ohio 100% AT Management Company (2) Delaware 100% Bar T Bar Fiduciary Holding Company Arizona 100% by SNB Beechnut Development Company Washington 100% by WMC Belgate Investors Ltd. Washington 100% by RSD Black & Warr Insurance Agency Inc. Idaho 100% by Gem State CFS One, Inc. (2) Alabama 100% Commercial Building Corporation Utah 100% by KBU Commercial Security (2) Utah 100% CSB Leasing, Inc. (2) Utah 100% by KBsU Electronic Payment Services, Inc. Delaware 7% Emgee Coal Company (2) Ohio 100% by SNB First Appraisal Services Corporation Florida 100% by SFF
2 KEYCORP SUBSIDIARIES OF THE REGISTRANT AT MARCH 1, 1994 (CONTINUED)
JURISDICTION PERCENT OF INCORPORATION OF OR ORGANIZATION OWNERSHIP(1) ----------------------- ------------------------- NAME OF NONBANKING SUBSIDIARY (CONTINUED) Gem State Properties Idaho 100% by KBI Goldome Mortgage Investment Corp. New York 100% by KMI GRCC Mid-Hudson Hotel Corp. New York 100% by KMI High Plains Agricultural Credit Corporation Wyoming 100% by KBWY HPCW, Inc. Oregon 100% by KBO INDORE Corporation Indiana 100% by SNI Insurance Services of Puget Sound, Inc. Washington 100% by KBWA Interstate Financial Corporation (2) Ohio 100% Investco Wyoming 100% by KBsWy KBNY Leasing New York 100% by KBNY KBWA Leasing Corporation Washington 100% by KBWA KBWA Services, Inc. Washington 100% by KBWA Key Agricultural Credit Corp. Utah 100% by KBWY Key Bank Life Insurance, Ltd. Arizona 100% by KBsNY Key Brokerage Company, Inc. New York 100% by KBUSA Key Financial Corporation New York 100% by KBNY Key Services Corporation New York 100% by KBsNY Key Trust Company (KTC) New York 100% by KBsNY Key Trust Company of the West Wyoming 100% by KBsWy Key Trust of Alaska Alaska 100% by KBA Key Trust of Florida N.A. Florida 100% by KTC Key Trust of Maine Maine 100% by KBsM Key Trust of the Northwest Washington 100% Key Venture Capital Corp. New York 100% by KBsNY KeyCorp Insurance Agency Maine, Inc. Maine 100% by KBUSA KeyCorp Insurance Agency, Inc. New York 100% by KBUSA KeyCorp Insurance Co. Ltd. Bermuda 100% KeyCorp Leasing Ltd. Delaware 100% by KBUSA KeyCorp Mortgage Inc. (KMI) Maryland 100% by KBNY Lenhart Land and Livestock Wyoming 100% by KBWY Michigan Shared Properties Company Ohio 100% by SNB Midwest Power Company Ohio 100% Millennium Asset Holding Corp. New York 100% by KBNY Money Station, Inc. Ohio 14% National Financial Services Corporation(2) Ohio 100% NCB Properties, Inc. New York 100% by KBsNY Niagara Asset Management Corp. New York 100% by KBNY Niagara Portfolio Management Corp. Texas 100% by KBNY OREO Corporation Ohio 100% by SNB Overthrust Motel Corp.(2) Wyoming 100% by KBsU P.B. Participation Oregon 100% P.S.M. Financial Management Corp. Washington 100% by KSB PacWest Building Corp. Oregon 100% Platinum Springs Maryland 100% by KBNY Puget Sound Mortgage Servicing Inc. Washington 100% by KSB Puget Sound Plaza, Inc.(PSP) Washington 100% by KBWA Puget Sound Securities, Inc. Washington 100% by KSB PWB Sixth Avenue Corp. Oregon 100% by KBO
3 KEYCORP SUBSIDIARIES OF THE REGISTRANT AT MARCH 1, 1994 (CONTINUED)
JURISDICTION PERCENT OF INCORPORATION OF OR ORGANIZATION OWNERSHIP(1) ----------------------- ------------------------- NAME OF NONBANKING SUBSIDIARY (CONTINUED) Royal Skies Development Co.(RSD) Washington 100% by KBWA Schaenen Wood & Associates, Inc. New York 100% by SAM Second Street Community Urban Redevelopment Corporation Ohio 100% by SNB Security Capital Leasing, Inc.(2) Kentucky 100% SELCO Service Corporation Ohio 100% by SNB Society Asset Management, Inc.(SAM) Ohio 100% by SNB Society Aviation Company Delaware 100% Society Capital Corporation Ohio 100% Society Community Development Corporation Ohio 100% Society Equipment Leasing Company Ohio 100% Society Equipment Leasing Corporation(SEL) Ohio 100% by SNB Society Funding Corporation(2) Ohio 100% by SEL Society Investments, Inc. Ohio 100% by SNB Society Life Insurance Company Arizona 100% Society Management Company Ohio 100% Society Mortgage Company Ohio 100% by SNB Society Shareholder Services, Inc. Delaware 100% by SNB Society Trust Company of New York New York 100% Society Venture Capital Corporation Ohio 100% by SNB SocietyLease, Inc. Ohio 100% by SNB St. Joseph Insurance Agency, Inc. Indiana 100% Summit International Sales, Inc. Virgin Islands 100% by SNB Summit Street Properties, Inc.(2) Ohio 100% by SNB Swan Island Salmon Ltd. Maine 100% by KBM TCIS, Inc.(2) Ohio 100% The Tacoma Partnership Washington 99% by KBsWa Touchstone Limited Partnership Washington 99% by PSP 1% by P.S.M. Fin. Mgmt. Trustcorp Financing Services, Inc. Ohio 100% Trustcorp Venture Capital, Inc.(2) Ohio 100% Virginia Stone Virginia 100% by KBNY Washington Mortgage Company (WMC) Washington 100% by KBsWA West Coast Plastics, Inc. Oregon 100% by KBO Western Audits(2) Oregon 100% by KBO
(1) Subsidiaries are directly owned by KeyCorp unless otherwise noted. (2) Subsidiaries are inactive or are discontinued operations. EX-23 21 KEYCORP EX-23 1 EXHIBIT 23 CONSENT OF ERNST & YOUNG, INDEPENDENT AUDITORS We consent to the incorporation by reference in the following Registration Statements of KeyCorp (formerly Society Corporation) and in the related Prospectuses of our report dated January 28, 1994, except for Note 2, as to which the date is March 1, 1994, with respect to the consolidated financial statements of Society Corporation and Subsidiaries, and of our report dated March 1, 1994 with respect to the Supplemental Financial Statements of KeyCorp (which give effect to the March 1, 1994 merger of the predecessor organizations, KeyCorp and Society Corporation) included in this Annual Report (Form 10-K) for the year ended December 31, 1993: * Form S-3 No. 33-5064 Form S-3 No. 33-10634 Form S-3 No. 33-39733 Form S-3 No. 33-39734 Form S-3 No. 33-51652 * Form S-4 No. 33-31569 Form S-4 No. 33-44657 Form S-4 No. 33-51717 * Form S-8 No. 2-67589 Form S-8 No. 2-96769 Form S-8 No. 2-97452 Form S-8 No. 33-21643 Form S-8 No. 33-42691 Form S-8 No. 33-45518 Form S-8 No. 33-46278 Form S-8 No. 33-52293 Form S-8 No. 33-57408 * Form S-8 No. 33-31569 (Post-Effective Amendment No. 1 to Form S-4) Form S-8 No. 33-31569 (Post-Effective Amendment No. 2 to Form S-4) Form S-8 No. 33-31569 (Post-Effective Amendment No. 3 to Form S-4) Form S-8 No. 33-44657 (Post-Effective Amendment No. 1 to Form S-4) Form S-8 No. 33-51717 (Post-Effective Amendment No. 1 to Form S-4) /s/ Ernst & Young Ernst & Young Cleveland, Ohio March 28, 1994 EX-24 22 KEYCORP EX-24 1 POWER OF ATTORNEY ----------------- The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "Annual Report"), hereby constitutes and appoints Carter B. Chase, and Roger Noall, and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report, and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 1, 1994. /s/ Victor J. Riley, Jr. -------------------------------- Type Name: Victor J. Riley, Jr. -------------------------------- 2 POWER OF ATTORNEY ----------------- The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "Annual Report"), hereby constitutes and appoints Lawrence J. Carlini, Carter B. Chase, Roger Noall, and James W. Wert, and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report, and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 1, 1994. /s/ Robert W. Gillespie -------------------------------- Type Name: Robert W. Gillespie -------------------------------- MBW/kar92380 3 POWER OF ATTORNEY ----------------- The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "Annual Report"), hereby constitutes and appoints Lawrence J. Carlini, Carter B. Chase, Roger Noall, and James W. Wert, and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report, and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 1, 1994. /s/ James W. Wert -------------------------------- Type Name: James W. Wert -------------------------------- MBW/kar92380 4 POWER OF ATTORNEY ----------------- The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "Annual Report"), hereby constitutes and appoints Lawrence J. Carlini, Carter B. Chase, Roger Noall, and James W. Wert, and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report, and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 1, 1994. /s/ Lee Irving -------------------------------- Type Name: Lee Irving -------------------------------- MBW/kar92380 5 POWER OF ATTORNEY ----------------- The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "Annual Report"), hereby constitutes and appoints Lawrence J. Carlini, Carter B. Chase, Roger Noall, and James W. Wert, and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report, and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of 3/18 , 1994. -------- /s/ H. Douglas Barclay -------------------------------- Typed Name: H. Douglas Barclay -------------------------------- MBW/kar92380 6 POWER OF ATTORNEY ----------------- The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "Annual Report"), hereby constitutes and appoints Lawrence J. Carlini, Carter B. Chase, Roger Noall, and James W. Wert, and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report, and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 1, 1994. /s/ William G. Bares -------------------------------- Type Name: William G. Bares -------------------------------- MBW/kar92380 7 POWER OF ATTORNEY ----------------- The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "Annual Report"), hereby constitutes and appoints Lawrence J. Carlini, Carter B. Chase, Roger Noall, and James W. Wert, and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report, and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 1, 1994. /s/ A.C. Bersticker -------------------------------- Type Name: A.C. Bersticker -------------------------------- MBW/kar92380 8 POWER OF ATTORNEY ----------------- The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "Annual Report"), hereby constitutes and appoints Lawrence J. Carlini, Carter B. Chase, Roger Noall, and James W. Wert, and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report, and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 1, 1994. /s/ Thomas A. Commes -------------------------------- Type Name: Thomas A. Commes -------------------------------- MBW/kar92380 9 POWER OF ATTORNEY ----------------- The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "Annual Report"), hereby constitutes and appoints Lawrence J. Carlini, Carter B. Chase, Roger Noall, and James W. Wert, and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report, and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 1, 1994. /s/ Kenneth M. Curtis -------------------------------- Type Name: Kenneth M. Curtis -------------------------------- MBW/kar92380 10 POWER OF ATTORNEY ----------------- The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "Annual Report"), hereby constitutes and appoints Lawrence J. Carlini, Carter B. Chase, Roger Noall, and James W. Wert, and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report, and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 1, 1994. /s/ John C. Dimmer -------------------------------- Type Name: John C. Dimmer -------------------------------- MBW/kar92380 11 POWER OF ATTORNEY ----------------- The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "Annual Report"), hereby constitutes and appoints Lawrence J. Carlini, Carter B. Chase, Roger Noall, and James W. Wert, and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report, and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 1, 1994. /s/ Lucie J. Fjeldstad -------------------------------- Type Name: Lucie J. Fjeldstad -------------------------------- MBW/kar92380 12 POWER OF ATTORNEY ----------------- The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "Annual Report"), hereby constitutes and appoints Lawrence J. Carlini, Carter B. Chase, Roger Noall, and James W. Wert, and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report, and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 1, 1994. /s/ Stephen R. Hardis -------------------------------- Type Name: Stephen R. Hardis -------------------------------- MBW/kar92380 13 POWER OF ATTORNEY ----------------- The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "Annual Report"), hereby constitutes and appoints Lawrence J. Carlini, Carter B. Chase, Roger Noall, and James W. Wert, and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report, and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 1, 1994. /s/ Henry S. Hemingway -------------------------------- Type Name: Henry S. Hemingway -------------------------------- MBW/kar92380 14 POWER OF ATTORNEY ----------------- The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "Annual Report"), hereby constitutes and appoints Lawrence J. Carlini, Carter B. Chase, Roger Noall, and James W. Wert, and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report, and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 1, 1994. /s/ Charles R. Hogan -------------------------------- Type Name: Charles R. Hogan -------------------------------- MBW/kar92380 15 POWER OF ATTORNEY ----------------- The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "Annual Report"), hereby constitutes and appoints Lawrence J. Carlini, Carter B. Chase, Roger Noall, and James W. Wert, and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report, and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 1, 1994. /s/ Lawrence A. Leser -------------------------------- Type Name: Lawrence A. Leser -------------------------------- MBW/kar92380 16 POWER OF ATTORNEY ----------------- The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "Annual Report"), hereby constitutes and appoints Lawrence J. Carlini, Carter B. Chase, Roger Noall, and James W. Wert, and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report, and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 1, 1994. /s/ Steven A. Minter -------------------------------- Type Name: Steven A. Minter -------------------------------- MBW/kar92380 17 POWER OF ATTORNEY ----------------- The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "Annual Report"), hereby constitutes and appoints Lawrence J. Carlini, Carter B. Chase, Roger Noall, and James W. Wert, each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report, and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 1, 1994. /s/ M. Thomas Moore -------------------------------- Type Name: M. Thomas Moore -------------------------------- 18 POWER OF ATTORNEY ----------------- The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "Annual Report"), hereby constitutes and appoints Lawrence J. Carlini, Carter B. Chase, Roger Noall, and James W. Wert, and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report, and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 1, 1994. /s/ John C. Morley -------------------------------- Type Name: John C. Morley -------------------------------- MBW/kar92380 19 POWER OF ATTORNEY ----------------- The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "Annual Report"), hereby constitutes and appoints Lawrence J. Carlini, Carter B. Chase, Roger Noall, and James W. Wert, and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report, and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 1, 1994. /s/ Richard W. Pogue -------------------------------- Type Name: Richard W. Pogue -------------------------------- MBW/kar92380 20 POWER OF ATTORNEY ----------------- The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "Annual Report"), hereby constitutes and appoints Lawrence J. Carlini, Carter B. Chase, Roger Noall, and James W. Wert, and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report, and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 1, 1994. /s/ Robert A. Schumacher -------------------------------- Type Name: Robert A. Schumacher -------------------------------- 21 POWER OF ATTORNEY ----------------- The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "Annual Report"), hereby constitutes and appoints Lawrence J. Carlini, Carter B. Chase, Roger Noall, and James W. Wert, and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report, and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 1, 1994. /s/ Ronald B. Stafford -------------------------------- Type Name: Ronald B. Stafford -------------------------------- MBW/kar92380 22 POWER OF ATTORNEY ----------------- The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "Annual Report"), hereby constitutes and appoints Lawrence J. Carlini, Carter B. Chase, Roger Noall, and James W. Wert, and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report, and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 1, 1994. /s/ Dennis W. Sullivan -------------------------------- Type Name: Dennis W. Sullivan -------------------------------- MBW/kar92380 23 POWER OF ATTORNEY ----------------- The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "Annual Report"), hereby constitutes and appoints Lawrence J. Carlini, Carter B. Chase, Roger Noall, and James W. Wert, and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report, and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 1, 1994. /s/ Peter G. Ten Eyck II -------------------------------- Type Name: Peter G. Ten Eyck II -------------------------------- MBW/kar92380 24 POWER OF ATTORNEY ----------------- The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "Annual Report"), hereby constitutes and appoints Lawrence J. Carlini, Carter B. Chase, Roger Noall, and James W. Wert, and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report, and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 1, 1994. /s/ Nancy Briwa Veeder -------------------------------- Type Name: Nancy Briwa Veeder -------------------------------- MBW/kar92380 -----END PRIVACY-ENHANCED MESSAGE-----