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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
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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)
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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.
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KEYCORP
1993 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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ITEM PAGE
NUMBER NUMBER
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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
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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,
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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:
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DESCRIPTION OF FINANCIAL DATA PAGE
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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
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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.
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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
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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
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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.
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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.
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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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<TABLE>
(FIG. 1) - COMPONENTS OF EARNINGS PER COMMON SHARE
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
CHANGE
-----------------
1993 1992 AMOUNT PERCENT
------ ------ ------ ------
<S> <C> <C> <C> <C>
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
------ ------ ------
------ ------ ------
</TABLE>
10
<PAGE> 13
<TABLE>
(FIG. 2) - SELECTED FINANCIAL DATA (1)
<CAPTION>
(dollars in millions,
except per share amounts) 1993 1992 1991 1990 1989 1988
- ------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
COMPOUND
ANNUAL RATE
(dollars in millions, OF CHANGE
except per share amounts) (1988-1993)
- ------------------------------- -----------
<S> <C>
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
<FN>
- --------------------------------------------------------------------------------
(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.
</TABLE>
11
<PAGE> 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
<PAGE> 15
[PAGE INTENTIONALLY LEFT BLANK]
13
<PAGE> 16
<TABLE>
(FIG. 3) - AVERAGE BALANCE SHEETS, NET INTEREST INCOME, AND YIELDS/RATES (4)
<CAPTION>
1993 1992
--------------------------------- ---------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
(dollars in millions) BALANCE INTEREST RATE BALANCE INTEREST RATE
- ------------------------------------- --------- -------- ------ --------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
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
<FN>
- ----------------------------------------------------------------------------
(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.
<CAPTION> 1991 1990
-------------------------------- -----------------------------
AVERAGE YIELD/ AVERAGE YIELD/
(dollars in millions) BALANCE INTEREST RATE BALANCE INTEREST RATE
- ------------------------------------- --------- -------- ------ --------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
COMPOUND ANNUAL
RATE OF CHANGE
1989 1988 (1988-1993)
--------------------------------- --------------------------------- --------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST
--------- -------- ------ --------- -------- ------ -------- --------
<C> <C> <C> <C> <C> <C> <C> <C>
$ 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)
</TABLE>
<PAGE> 18
<TABLE>
(FIG. 4) - COMPONENTS OF NET INTEREST INCOME CHANGES
<CAPTION>
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
- --------------------------------------- ------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
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.
</TABLE>
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
<PAGE> 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
<PAGE> 20
<TABLE>
(FIG. 5) - INTEREST RATE GAP ANALYSIS
<CAPTION>
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
- ----------------------------------- ------- --------- ---------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
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%
------- --------- ---------- -------
------- --------- ---------- -------
</TABLE>
<TABLE>
(FIG. 6) - INTEREST RATE SWAP PORTFOLIO
<CAPTION>
DECEMBER 31, 1993
----------------------------------------------------
WEIGHTED WEIGHTED AVERAGE
AVERAGE RATE
NOTIONAL MATURITY FAIR ----------------
(in millions) VALUE (YEARS) VALUE RECEIVE PAY
- --------------------------------------------- -------- -------- ----- ------- ----
<S> <C> <C> <C> <C> <C>
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
-------- -----
-------- -----
</TABLE>
18
<PAGE> 21
<TABLE>
(FIG. 7) - "PORTFOLIO" SWAP ACTIVITY
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
---------------------------------------------
TOTAL
RECEIVE PAY FORWARD- "PORTFOLIO"
(in millions) FIXED FIXED BASIS STARTING SWAPS
- ----------------------------------------------------- ------ ----- ----- -------- ---------
<S> <C> <C> <C> <C> <C>
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
------ ----- ----- -------- ---------
------ ----- ----- -------- ---------
</TABLE>
<TABLE>
(FIG. 8) - LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
<CAPTION>
DECEMBER 31, 1993
-------------------------------------------
WITHIN 1 - 5 OVER
(in millions) 1 YEAR YEARS 5 YEARS TOTAL
- ----------------------------------------------------- -------- -------- ------- --------
<S> <C> <C> <C> <C>
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
-------- -------
-------- -------
</TABLE>
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
<PAGE> 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.
<TABLE>
(FIG. 9) - NONINTEREST INCOME
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
CHANGE 1993 VS
1992
-----------------
(dollars in millions) 1993 1992 1991 AMOUNT PERCENT
- --------------------------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
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
------ ------ ------ ------
------ ------ ------ ------
<FN>
N/M = Not Meaningful
</TABLE>
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
<PAGE> 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
<PAGE> 24
<TABLE>
(FIG. 10) - NONINTEREST EXPENSE
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
CHANGE
1993 VS 1992
---------------------
(dollars in millions) 1993 1992 1991 AMOUNT PERCENT
- ----------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
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
<FN>
(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.
</TABLE>
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
<PAGE> 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
<PAGE> 26
<TABLE>
<S> <C>
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.
</TABLE>
<TABLE>
(FIG. 11) - COMPOSITION OF LOANS
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1993 1992 1991
------------------- ------------------- -------------------
% OF % OF % OF
(dollars in millions) AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
- ---------------------------------------- --------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
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%
========= ===== ========= ===== ========= =====
<CAPTION>
December 31,
-------------------------------------------
1990 1989
------------------- -------------------
% OF % OF
(dollars in millions) AMOUNT TOTAL AMOUNT TOTAL
- ---------------------------------------- --------- ----- --------- -----
<S> <C> <C> <C> <C>
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%
========= ===== ========= =====
</TABLE>
2
<PAGE> 27
<TABLE>
(FIG. 12) - COMMERCIAL MORTGAGE AND CONSTRUCTION LOANS
<CAPTION>
(in millions) DECEMBER 31, 1993 DECEMBER 31, 1992
COMMERCIAL MORTGAGE ---------------------------------- ----------------------------------
Nonowner-occupied properties: OHIO OTHER STATES TOTAL OHIO OTHER STATES TOTAL
-------- ------------ -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
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
-------- ------------ -------- -------- ------------ --------
-------- ------------ -------- -------- ------------ --------
</TABLE>
<TABLE>
<CAPTION>
(in millions) DECEMBER 31, 1993 DECEMBER 31, 1992
CONSTRUCTION ---------------------------------- ----------------------------------
Nonowner-occupied properties: OHIO OTHER STATES TOTAL OHIO OTHER STATES TOTAL
-------- ------------ -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
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
-------- ------------ -------- -------- ------------ --------
-------- ------------ -------- -------- ------------ --------
</TABLE>
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
<PAGE> 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.
<TABLE>
(FIG. 13) - SECURITIES
<CAPTION>
STATES AND MORTGAGE-
FEDERAL POLITICAL BACKED OTHER
(dollars in millions) AGENCIES SUBDIVISIONS SECURITIES(1) SECURITIES TOTAL
- ------------------------------------- --------- ------------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
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
<CAPTION>
U.S. TREASURY WEIGHTED
AVAILABLE AVERAGE
(dollars in millions) FOR SALE YIELD(2)
- ------------------------------------- ------------- ---------
<S> <C> <C>
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.......................
<FN>
(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.
</TABLE>
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
<PAGE> 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
<PAGE> 30
<TABLE>
(FIG. 14) - ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<CAPTION>
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
- ---------------------------- ------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
------ -------- ------ -------- ------ -------- ------ --------
------ -------- ------ -------- ------ -------- ------ --------
<CAPTION>
1989
-------------------
CATEGORY
PERCENT
(dollars in millions) AMOUNT OF LOANS
- ---------------------------- ------ --------
<S> <C> <C>
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%
------ --------
------ --------
<FN>
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.
</TABLE>
(FIG. 15) - SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
(dollars in millions) 1993 1992 1991 1990 1989
- ---------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
28
<PAGE> 31
<TABLE>
(FIG. 16) - SUMMARY OF NONPERFORMING ASSETS AND PAST DUE LOANS
<CAPTION>
DECEMBER 31,
--------------------------------------------------
(dollars in millions) 1993 1992 1991 1990 1989
- --------------------------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
(FIG. 17) - SUMMARY OF CHANGES IN NONACCRUAL LOANS AND OREO
<TABLE>
<CAPTION>
SUMMARY OF CHANGES IN NONACCRUAL LOANS 1993 QUARTERS
- ---------------------------------------- FULL -----------------------------------------
(in millions) YEAR FOURTH THIRD SECOND FIRST
- ---------------------------------------- -------- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
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
-------- ------ ------ ------ --------
-------- ------ ------ ------ --------
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF CHANGES IN OREO 1993 QUARTERS
- ---------------------------------------- FULL -----------------------------------------
(in millions) YEAR FOURTH THIRD SECOND FIRST
- ---------------------------------------- -------- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
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
-------- ------ ------ ------ --------
-------- ------ ------ ------ --------
<FN>
(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.
</TABLE>
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
<PAGE> 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.
<TABLE>
(FIG. 18) - MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 OR MORE
<CAPTION>
DECEMBER 31, 1993
---------------------
DOMESTIC FOREIGN
(in millions) OFFICES OFFICE
- ------------------------------------------------- -------- --------
<S> <C> <C>
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
-------- --------
-------- --------
</TABLE>
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
<PAGE> 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
<PAGE> 34
<TABLE>
(FIG. 19) - CAPITAL COMPONENTS AND RISK-ADJUSTED ASSETS
<CAPTION>
DECEMBER 31,
-----------------------
(dollars in millions) 1993 1992
- ---------------------------------------------------------------- --------- ---------
<S> <C> <C>
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
<FN>
(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.
</TABLE>
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
<PAGE> 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
<PAGE> 36
<TABLE>
(FIG. 20) - SELECTED QUARTERLY FINANCIAL DATA
<CAPTION>
1993
(dollars in millions, ---------------------------------------------------
except per share amounts) 4TH 3RD 2ND 1ST
- ---------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
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
<CAPTION>
1992
(dollars in millions, -----------------------------------------------------
except per share amounts) 4TH 3RD 2ND 1ST
- ---------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
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
<FN>
(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.
</TABLE>
34
<PAGE> 37
<TABLE>
SIX-YEAR CONSOLIDATED BALANCE SHEETS
Society Corporation and Subsidiaries
<CAPTION> COMPOUND
DECEMBER 31 ANNUAL RATE
-------------------------------------------------------------------- OF CHANGE
(dollars in millions) 1993 1992 1991 1990 1989 1988 (1988 TO 1993)
- ------------------------------------ --------- --------- --------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
--------- --------- --------- --------- --------- --------- -----
--------- --------- --------- --------- --------- --------- -----
<FN>
N/M = Not Meaningful.
</TABLE>
35
<PAGE> 38
<TABLE>
SIX-YEAR CONSOLIDATED STATEMENTS OF INCOME
Society Corporation and Subsidiaries
<CAPTION>
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)
- -------------------------------------- --------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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
<FN>
N/M = Not Meaningful.
</TABLE>
36
<PAGE> 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
<PAGE> 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
<PAGE> 41
<TABLE>
CONSOLIDATED BALANCE SHEETS
Society Corporation and Subsidiaries
<CAPTION>
DECEMBER 31,
---------------------------
(dollars in thousands) 1993 1992
- ---------------------------------------------------------------- ----------- -----------
<S> <C> <C>
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
----------- -----------
----------- -----------
<FN>
See notes to consolidated financial statements.
</TABLE>
39
<PAGE> 42
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
Society Corporation and Subsidiaries
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
(dollars in thousands, except per share amounts) 1993 1992 1991
- ------------------------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
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
<FN>
See notes to consolidated financial statements.
</TABLE>
40
<PAGE> 43
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Society Corporation and Subsidiaries
<CAPTION>
LOANS TO COMMON
(dollars in thousands, PREFERRED COMMON CAPITAL RETAINED ESOP SHARES IN
except per share amounts) STOCK SHARES SURPLUS EARNINGS TRUSTEE TREASURY
- ------------------------------------ --------- -------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
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)
-------- -------- ---------- -------- ---------
-------- -------- ---------- -------- ---------
<FN>
See notes to consolidated financial statements.
</TABLE>
41
<PAGE> 44
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Society Corporation and Subsidiaries
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
(in thousands) 1993 1992 1991
- ------------------------------------------------------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
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
<FN>
See notes to consolidated financial statements.
</TABLE>
42
<PAGE> 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
<PAGE> 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
<PAGE> 47
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
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
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(in thousands, ----------------------------------------
except per share amounts) 1993 1992 1991
- --------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
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
</TABLE>
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
<PAGE> 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.
<TABLE>
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:
<CAPTION>
DECEMBER 31, 1993
-------------------------------------------------------
GROSS GROSS
BOOK UNREALIZED UNREALIZED MARKET
(in thousands) VALUE GAINS LOSSES VALUE
- --------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1992
-------------------------------------------------------
GROSS GROSS
BOOK UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
46
<PAGE> 49
The remaining maturities of the Corporation's securities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------------------------------------------
U.S. TREASURY --
INVESTMENT SECURITIES AVAILABLE FOR SALE
------------------------- -----------------------
BOOK MARKET BOOK MARKET
(in thousands) VALUE VALUE VALUE VALUE
- --------------------------------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
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
---------- ---------- -------- ----------
---------- ---------- -------- ----------
</TABLE>
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
<PAGE> 50
NOTE 4. LOANS
<TABLE>
Loans are summarized as follows:
<CAPTION>
DECEMBER 31,
-------------------------------------------
(in thousands) 1993 1992 1991
- ------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
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
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<TABLE>
Changes in the allowance for loan losses are summarized as follows:
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
(in thousands) 1993 1992 1991
- ------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
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
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
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
<TABLE>
Nonperforming assets were as follows:
<CAPTION>
DECEMBER 31,
-----------------------
(in thousands) 1993 1992
--------------------------------------------------------- -------- --------
<S> <C> <C>
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
-------- --------
-------- --------
</TABLE>
48
<PAGE> 51
<TABLE>
The effect on interest income of loans classified as nonperforming at December
31 of each respective year was as follows:
<CAPTION>
(in thousands) 1993 1992 1991
---------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
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
------- ------- -------
------- ------- -------
</TABLE>
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.
<TABLE>
NOTE 6. PREMISES AND EQUIPMENT
Premises and equipment were as follows:
<CAPTION>
DECEMBER 31,
-----------------------
(in thousands) 1993 1992
--------------------------------------------------------- -------- --------
<S> <C> <C>
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
-------- --------
-------- --------
</TABLE>
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
<PAGE> 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.
<TABLE>
The details of short-term borrowings are as follows:
<CAPTION>
(dollars in thousands) 1993 1992 1991
- --------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
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
</TABLE>
<TABLE>
NOTE 8. LONG-TERM DEBT
The components of long-term debt, presented net of unamortized discount where
appropriate, are as follows:
<CAPTION>
DECEMBER 31,
---------------------
(dollars in thousands) 1993 1992
- --------------------------------------------------------------------- -------- --------
<S> <C> <C>
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
-------- --------
-------- --------
</TABLE>
50
<PAGE> 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
<PAGE> 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
<TABLE>
<CAPTION>
1993 1992
------------------------- -------------------------
SHARES OPTION PRICE SHARES OPTION PRICE
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
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
---------- ----------
---------- ----------
</TABLE>
52
<PAGE> 55
<TABLE>
STOCK APPRECIATION RIGHTS
<CAPTION>
1993 1992
------------------------- -------------------------
SHARES OPTION PRICE SHARES OPTION PRICE
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
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
---------- ----------
---------- ----------
<FN>
(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.
</TABLE>
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.
<TABLE>
Net pension income included the following components:
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
(in thousands) 1993 1992 1991
- ---------------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
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)
------- ------- -------
------- ------- -------
</TABLE>
53
<PAGE> 56
<TABLE>
The following table sets forth the funded status of these plans and the amounts
recognized in Society's consolidated balance sheets:
<CAPTION>
DECEMBER 31,
--------------------
(in thousands) 1993 1992
- ------------------------------------------------------------------------ -------- --------
<S> <C> <C>
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
-------- --------
-------- --------
</TABLE>
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.
<TABLE>
Net postretirement benefits expense included the following components:
<CAPTION>
YEAR ENDED
(in thousands) DECEMBER 31, 1993
---------------------------------------------------------------- -----------------
<S> <C>
Service cost.................................................... $ 1,627
Interest cost................................................... 6,415
Amortization of transition obligation over 20 years............. 3,848
-----------------
Net postretirement benefits expense........................ $ 11,890
-----------------
-----------------
</TABLE>
54
<PAGE> 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:
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31, 1993
---------------------------------------------------------------- -----------------
<S> <C>
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)
-----------------
-----------------
</TABLE>
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
<PAGE> 58
The current and deferred components of the provision for income taxes were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
(in thousands) 1993 1992 1991
- --------------------------------------------- -------- -------- -------
<S> <C> <C> <C>
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
-------- -------- -------
-------- -------- -------
</TABLE>
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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
(in thousands) 1993 1992 1991
- --------------------------------------------- -------- -------- -------
<S> <C> <C> <C>
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
-------- -------- -------
-------- -------- -------
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
--------------------------- ---------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
(in thousands) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
- ------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
(in thousands) 1993 1992
- ---------------------------------------------------------------- ----------- -----------
<S> <C> <C>
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
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
---------------------------------------------------
RECEIVE PAY FORWARD-
(in millions) FIXED FIXED BASIS STARTING TOTAL
- --------------------------------------------- ------- ----- ----- -------- ------
<S> <C> <C> <C> <C> <C>
"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
------- ----- ----- -------- ------
------- ----- ----- -------- ------
</TABLE>
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
<PAGE> 62
NOTE 15. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
Condensed financial information for Society Corporation (Parent Company only) is
as follows:
<TABLE>
CONDENSED BALANCE SHEETS
Society Corporation (Parent Company)
<CAPTION>
DECEMBER 31,
-------------------------
(in thousands) 1993 1992
- ------------------------------------------------------------- ---------- ----------
<S> <C> <C>
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
---------- ----------
---------- ----------
<FN>
(1) See Consolidated Statements of Shareholders' Equity on page 41.
</TABLE>
<TABLE>
CONDENSED STATEMENTS OF INCOME
Society Corporation (Parent Company)
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
in thousands 1993 1992 1991
- ----------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
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
-------- -------- --------
-------- -------- --------
</TABLE>
60
<PAGE> 63
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
Society Corporation (Parent Company)
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
(in thousands) 1993 1992 1991
- ------------------------------------------------------ -------- -------- --------
<S> <C> <C> <C>
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
<FN>
(1) Transactions are primarily with subsidiaries.
</TABLE>
61
<PAGE> 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
<PAGE> 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:,
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
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
</TABLE>
(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
<PAGE> 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
<PAGE> 67
<TABLE>
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
KEYCORP AND SUBSIDIARIES
<CAPTION>
DECEMBER 31,
---------------------------
(dollars in thousands) 1993 1992
- ---------------------------------------------------------------- ----------- -----------
<S> <C> <C>
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
----------- -----------
----------- -----------
<FN>
See notes to supplemental consolidated financial statements.
</TABLE>
65
<PAGE> 68
<TABLE>
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
KEYCORP AND SUBSIDIARIES
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
(dollars in thousands, except per share amounts) 1993 1992 1991
- ------------------------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
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
<FN>
See notes to supplemental consolidated financial statements.
</TABLE>
66
<PAGE> 69
<TABLE>
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
KEYCORP AND SUBSIDIARIES
<CAPTION>
LOANS TO COMMON
(dollars in thousands, PREFERRED COMMON CAPITAL RETAINED ESOP SHARES IN
except per share amounts) STOCK SHARES SURPLUS EARNINGS TRUSTEE TREASURY
- ----------------------------------------------- --------- -------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
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)
--------- -------- ---------- ---------- -------- ---------
--------- -------- ---------- ---------- -------- ---------
<FN>
See notes to supplemental consolidated financial statements.
</TABLE>
67
<PAGE> 70
<TABLE>
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
KEYCORP AND SUBSIDIARIES
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
(in thousands) 1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
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 --
<FN>
See notes to supplemental consolidated financial statements.
</TABLE>
68
<PAGE> 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
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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
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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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(in thousands ----------------------------------------
except per share amounts) 1993 1992 1991
- --------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
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
</TABLE>
71
<PAGE> 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
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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
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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:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-------------------------------------------------------
GROSS GROSS
BOOK UNREALIZED UNREALIZED MARKET
(in thousands) VALUE GAINS LOSSES VALUE
- ---------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
74
<PAGE> 77
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31, 1992
-------------------------------------------------------
GROSS GROSS
BOOK UNREALIZED UNREALIZED MARKET
(in thousands) VALUE GAINS LOSSES VALUE
- ---------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
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:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-------------------------
BOOK MARKET
(in thousands) VALUE VALUE
- ---------------------------------- ---------- ----------
<S> <C> <C>
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
---------- ----------
---------- ----------
</TABLE>
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:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
---------------------------------------------------------
GROSS GROSS
BOOK UNREALIZED UNREALIZED MARKET
(in thousands) VALUE GAINS LOSSES VALUE
- ---------------------------------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
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
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
</TABLE>
75
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NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31, 1992
-------------------------------------------------------
GROSS GROSS
BOOK UNREALIZED UNREALIZED MARKET
(in thousands) VALUE GAINS LOSSES VALUE
- ---------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
Investment securities by remaining maturity were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
---------------------------
BOOK MARKET
(in thousands) VALUE VALUE
- ---------------------------------- ----------- -----------
<S> <C> <C>
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
----------- -----------
----------- -----------
</TABLE>
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
<PAGE> 79
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
5. LOANS
Loans are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
(in thousands) 1993 1992
---------------------------------------------------- ----------- -----------
<S> <C> <C>
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
----------- -----------
----------- -----------
</TABLE>
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
(in thousands) 1993 1992 1991
---------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
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
--------- --------- ---------
--------- --------- ---------
</TABLE>
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
<PAGE> 80
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
6. NONPERFORMING ASSETS
Nonperforming assets were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
(in thousands) 1993 1992
--------------------------------------------------------- -------- --------
<S> <C> <C>
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
-------- --------
-------- --------
</TABLE>
The effect on interest income of loans classified as nonperforming, at December
31, was as follows:
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
---------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
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
------- ------- -------
------- ------- -------
</TABLE>
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
(in thousands) 1993 1992 1991
---------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
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
------- ------- -------
------- ------- -------
</TABLE>
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
<PAGE> 81
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
7. PREMISES AND EQUIPMENT
Premises and equipment were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
(in thousands) 1993 1992
- ------------------------------------- ---------- ----------
<S> <C> <C>
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
---------- ----------
---------- ----------
</TABLE>
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:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
(in thousands) 1993 1992
------------------------------------------- -------- --------
<S> <C> <C>
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
</TABLE>
The amortization expense for intangible assets was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
(in thousands) 1993 1992 1991
- --------------------------------- -------- -------- --------
<S> <C> <C> <C>
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
-------- -------- --------
-------- -------- --------
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
(dollars in thousands) 1993 1992 1991
- --------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
(dollars in thousands) 1993 1992
- --------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
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
</TABLE>
80
<PAGE> 83
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
(dollars in thousands) 1993 1992
- --------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
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
---------- ----------
---------- ----------
<FN>
- ---------------
(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.
</TABLE>
Scheduled payments on long-term debt are as follows:
<TABLE>
<CAPTION>
(in thousands) PARENT SUBSIDIARIES TOTAL
------------------------------------------------- -------- ------------ --------
<S> <C> <C> <C>
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
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<TABLE>
<CAPTION>
1993 1992
------------------------- -------------------------
SHARES OPTION PRICE SHARES OPTION PRICE
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
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
---------- ----------
---------- ----------
</TABLE>
STOCK APPRECIATION RIGHTS
<TABLE>
<CAPTION>
1993 1992
------------------------- -------------------------
SHARES OPTION PRICE SHARES OPTION PRICE
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
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
---------- ----------
---------- ----------
<FN>
(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.
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
(in thousands) 1993 1992
--------------------------------------------------------- -------- --------
<S> <C> <C>
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
-------- --------
-------- --------
</TABLE>
(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
<PAGE> 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:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
(in thousands) 1993 1992
--------------------------------------------------------- -------- --------
<S> <C> <C>
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
-------- --------
-------- --------
</TABLE>
Net pension cost (income) for the funded and unfunded plans included the
following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
(in thousands) 1993 1992 1991
- ----------------------------------------------------- ------- ------- --------
<S> <C> <C> <C>
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
------- ------- --------
------- ------- --------
</TABLE>
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
<PAGE> 89
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Net post retirement benefits cost include the following components:
<TABLE>
<CAPTION>
YEAR ENDED
(in thousands) DECEMBER 31, 1993
------------------------------------------------------------- -----------------
<S> <C>
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
-----------------
-----------------
</TABLE>
The following table sets forth the plans' combined funded status reconciled with
the amount shown in the consolidated balance sheet:
<TABLE>
<CAPTION>
YEAR ENDED
(in thousands) DECEMBER 31, 1993
------------------------------------------------------------- -----------------
<S> <C>
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)
-----------------
-----------------
</TABLE>
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
<PAGE> 90
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
14. INCOME TAXES
Income taxes included in the consolidated statements of income are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
(in thousands) 1993 1992 1991
- --------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
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
-------- -------- --------
-------- -------- --------
</TABLE>
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
(in thousands) 1993 1992 1991
- --------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
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
-------- -------- --------
-------- -------- --------
<FN>
- ---------------
(1) 35% for 1993, 34% for 1992 and 1991.
</TABLE>
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
(in thousands) 1993 1992 1991
- --------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
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
-------- -------- --------
-------- -------- --------
</TABLE>
88
<PAGE> 91
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Significant components of KeyCorp's deferred tax asset (liability) are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
(in thousands) 1993 1992 1991
- --------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
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
-------- -------- --------
-------- -------- --------
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
--------------------------- ---------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
(in thousands) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
- ------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
(in thousands) 1993 1992
- ---------------------------------------------------------------- ----------- -----------
<S> <C> <C>
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
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
December 31, 1993
---------------------------------------------------
Receive Pay Forward-
(in millions) Fixed Fixed Basis Starting Total
- ------------------------------ ------- ----- ----- -------- ------
<S> <C> <C> <C> <C> <C>
"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
------- ----- ----- -------- ------
------- ----- ----- -------- ------
</TABLE>
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
<PAGE> 95
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
17. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
(in thousands) 1993 1992
- ------------------------------------------------------------- ---------- ----------
<S> <C> <C>
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
---------- ----------
---------- ----------
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
(in thousands) 1993 1992 1991
- ------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
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
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
93
<PAGE> 96
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
CONDENSED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
(in thousands) 1993 1992 1991
- ------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
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
-------- -------- --------
-------- -------- --------
<FN>
- ---------------
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.
</TABLE>
94
<PAGE> 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*
<TABLE>
<S> <C>
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.
</TABLE>
95
<PAGE> 98
<TABLE>
<S> <C>
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.
</TABLE>
96
<PAGE> 99
<TABLE>
<S> <C>
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.
</TABLE>
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
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ----------------------------------------------
<S> <C>
*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
</TABLE>
99
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 4
Such individual target bonuses are as follows:
<TABLE>
<CAPTION>
Incentive Salary Target Bonus As a
Group Grades Percent of Market Point
--------- ------ -----------------------
<S> <C> <C>
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%
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<TABLE>
<S> <C>
SOCIETY CORPORATION
By: _________________________
Roger Noall
Vice Chairman and
Chief Administrative Officer
</TABLE>
JCK92309 14
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
TARGET BONUS AS A
INCENTIVE GROUP PERCENT OF MARKET POINT
--------------- -----------------------
<S> <C>
I 25%
II 20%
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<TABLE>
<S> <C>
SOCIETY CORPORATION
By: _____________________________
Roger Noall
Vice Chairman and
Chief Administrative Officer
</TABLE>
JCK92310 16
<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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-
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<PAGE> 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,
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<PAGE> 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
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<PAGE> 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:
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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:
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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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
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<PAGE> 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.
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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
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<PAGE> 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
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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
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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
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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
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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-
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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-
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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.
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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,
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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
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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.
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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-
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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
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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"
_____________________________
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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:
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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.
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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.
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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
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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
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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.
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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);
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(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
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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.
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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.
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(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
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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
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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
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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
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<PAGE> 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
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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
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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
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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
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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
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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.
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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
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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.
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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,
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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
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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
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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"),
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(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
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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
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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
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<PAGE> 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
<PAGE> 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
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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
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<PAGE> 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)
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<PAGE> 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
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<PAGE> 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,
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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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
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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
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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
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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
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<PAGE> 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.
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<PAGE> 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:
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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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.
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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
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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
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(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
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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
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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
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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
<PAGE> 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.
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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
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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
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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.
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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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<TABLE>
<S> <C>
SOCIETY CORPORATION
By:______________________________
Roger Noall, Vice Chairman and
Chief Administrative Officer
</TABLE>
ACS30205/8
<PAGE> 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)
<PAGE> 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.
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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
<PAGE> 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.
<PAGE> 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.
<PAGE> 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
<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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-
<PAGE> 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
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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
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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
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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
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<PAGE> 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.
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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.
<TABLE>
<S> <C>
Agreed to this [1st day Sincerely,
of September, 1990].
KeyCorp
_______________________
Address: By:____________________________
Victor J. Riley, Jr.
President and Chief
Executive Officer
_______________________
_______________________
_______________________
</TABLE>
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<PAGE> 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
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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.
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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_,
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<PAGE> 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
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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
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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
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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,
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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.
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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
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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.
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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:
--------------------------------
--------------------------------
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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."
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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
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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,
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<PAGE> 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"
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<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
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<PAGE> 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
<PAGE> 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
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<PAGE> 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
<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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;
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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.
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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.
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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
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<PAGE> 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-
<PAGE> 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-
<PAGE> 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
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<PAGE> 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
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<PAGE> 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-
<PAGE> 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.
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<PAGE> 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.
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<PAGE> 1
<TABLE>
EXHIBIT 11
SOCIETY CORPORATION
COMPUTATION OF NET INCOME PER COMMON SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
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
----------- ----------- -----------
----------- ----------- -----------
<FN>
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.
</TABLE>
100
<PAGE> 1
EXHIBIT 21
KEYCORP
SUBSIDIARIES OF THE REGISTRANT AT MARCH 1, 1994
<TABLE>
<CAPTION>
JURISDICTION PERCENT
OF INCORPORATION OF
OR ORGANIZATION OWNERSHIP(1)
----------------------- -------------------------
<S> <C> <C>
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
</TABLE>
<PAGE> 2
KEYCORP
SUBSIDIARIES OF THE REGISTRANT AT MARCH 1, 1994 (CONTINUED)
<TABLE>
<CAPTION>
JURISDICTION PERCENT
OF INCORPORATION OF
OR ORGANIZATION OWNERSHIP(1)
----------------------- -------------------------
<S> <C> <C>
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
</TABLE>
<PAGE> 3
KEYCORP
SUBSIDIARIES OF THE REGISTRANT AT MARCH 1, 1994 (CONTINUED)
<TABLE>
<CAPTION>
JURISDICTION PERCENT
OF INCORPORATION OF
OR ORGANIZATION OWNERSHIP(1)
----------------------- -------------------------
<S> <C> <C>
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
</TABLE>
(1) Subsidiaries are directly owned by KeyCorp unless otherwise noted.
(2) Subsidiaries are inactive or are discontinued operations.
<PAGE> 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
<PAGE> 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.
--------------------------------
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
--------------------------------
<PAGE> 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
<PAGE> 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
<PAGE> 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
--------------------------------
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
