<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
KeyCorp
(Exact Name of Registrant as Specified in Its Charter)
Ohio
(State or Other Jurisdiction of
Incorporation or Organization)
6712
(Primary Standard Industrial
Classification Code Number)
34-6542451
(I.R.S. Employer Identification
Number)
------------------------
127 Public Square
Cleveland, Ohio 44114-1306
(216) 689-6300
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
------------------------
Daniel R. Stolzer, Esq.
Vice President and Associate General Counsel
KeyCorp
127 Public Square
Cleveland, Ohio 44114-1306
(216) 689-6300
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent For Service)
------------------------
COPIES TO:
Carolyn E. Cheverine, Esq.
Vice President and Senior Counsel
KeyCorp
127 Public Square
Cleveland, Ohio 44114-1306
(216) 689-6300
Thomas F. McKee, Esq.
Calfee, Halter & Griswold LLP
1400 McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114-2688
(216) 622-8200
------------------------
Approximate date of commencement of proposed sale to the public: At the
effective time of the merger as described in the attached Proxy
Statement-Prospectus.
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
TITLE OF PROPOSED PROPOSED
EACH CLASS OF MAXIMUM MAXIMUM
SECURITIES AMOUNT OFFERING AGGREGATE AMOUNT OF
TO BE TO BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED(1) UNIT(2) PRICE(2) FEE(3)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Common Shares, with a par value
of $1 each(4) 21,753,382 $28.10 $611,217,558 $52,818.14
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The maximum number of Common Shares that may be issued in connection with
the merger described in the attached Proxy Statement-Prospectus was
determined on the basis of a maximum exchange ratio that could be applicable
in the merger (1.14 KeyCorp Common Shares for each share of McDonald &
Company Common Stock).
(2) The maximum offering price was estimated solely for purposes of calculating
the registration fee, computed in accordance with Rule 457(f) under the
Securities Act, based on the average of the high and low sales prices per
share of McDonald & Company Common Stock of $32.03125 as reported on the New
York Stock Exchange on August 5, 1998.
(3) In accordance with Rule 457(b), the total registration fee of $180,309.18
has been reduced by $127,491.04, which was previously paid on July 24, 1998
at the time of filing under the Exchange Act of a preliminary copy of
McDonald & Company's proxy materials included herein. Therefore, the
registration fee payable upon filing of this Registration Statement is
$52,818.14.
(4) Includes associated rights to purchase Common Shares.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until the Registration Statement shall become effective on
such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE> 2
McDonald & Company
Investments, Inc. Logo
McDONALD INVESTMENT CENTER
800 SUPERIOR AVENUE
CLEVELAND, OHIO 44114-2603
216-443-2300
August 14, 1998
To the Stockholders of McDonald & Company Investments, Inc.:
You are cordially invited to attend a Special Meeting of the Stockholders
of McDonald & Company Investments, Inc., to be held on Tuesday, September 15,
1998 at 9:30 a.m., local time, at the McDonald Investment Center Auditorium,
20th Floor, McDonald Investment Center, 800 Superior Avenue, Cleveland, Ohio.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to adopt the Agreement and Plan of Merger, dated as of June 15, 1998,
between McDonald & Company and KeyCorp pursuant to which McDonald & Company will
be merged with and into KeyCorp. A copy of the Merger Agreement is attached as
Appendix A to the accompanying Proxy Statement-Prospectus.
At the effective time of the Merger, each share of McDonald & Company's
common stock will be converted into the right to receive approximately $35.00 in
value of KeyCorp common shares, subject to adjustments if KeyCorp's average
common share price during a specified period prior to the closing is below
$33.00 or above $44.50 per share. These adjustments are described in greater
detail in the accompanying Proxy Statement-Prospectus.
This strategic transaction will provide you with the opportunity to
participate as a shareholder in one of the nation's largest financial services
companies. The Board of Directors believes the Merger will create an institution
that will be able to provide a broader array of financial products and services
to the customers it serves, creating significant benefits for the customers and
stockholders of both companies and enhancing opportunities for employees.
The Board of Directors has carefully considered and unanimously approved
the Merger Agreement and has determined that the Merger is fair to, and in the
best interests of, McDonald & Company and its stockholders. Accordingly, the
Board of Directors unanimously recommends that stockholders vote in favor of
adopting the Merger Agreement. Morgan Stanley & Co. Incorporated, McDonald &
Company's financial advisor, has delivered to the Board of Directors its written
opinion that the exchange ratio in the Merger is fair from a financial point of
view to the holders of shares of McDonald & Company's common stock (other than
KeyCorp and its affiliates). A copy of such opinion is attached as Appendix B to
the accompanying Proxy Statement-Prospectus.
Attached are a Notice of Special Meeting of Stockholders and a Proxy
Statement-Prospectus, which describes the Merger and the background to the
transaction. You are urged to read all of these materials carefully. The Board
of Directors has fixed the close of business on August 10, 1998 as the record
date for the Special Meeting. Accordingly, only stockholders of record on that
date are entitled to notice of, and to vote at, the Special Meeting or any
adjournments or postponements thereof.
It is important that your shares be represented at the Special Meeting. For
that reason, we ask that you promptly sign, date and mail the enclosed Proxy
Card in the return envelope provided. Stockholders who attend the Special
Meeting may revoke their Proxies and vote in person.
Sincerely yours,
<TABLE>
<S> <C>
/s/ Thomas M. O'Donnell /s/ William B. Summers, Jr.
THOMAS M. O'DONNELL WILLIAM B. SUMMERS, JR.
Chairman President and Chief Executive Officer
</TABLE>
<PAGE> 3
McDonald & Company
Investments, Inc. Logo
McDONALD INVESTMENT CENTER
800 SUPERIOR AVENUE
CLEVELAND, OHIO 44114-2603
216-443-2300
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 15, 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of McDonald &
Company Investments, Inc., a Delaware corporation ("McDonald & Company"), will
be held on Tuesday, September 15, 1998, at 9:30 a.m., local time, at the
McDonald Investment Center Auditorium, 20th Floor, McDonald Investment Center,
800 Superior Avenue, Cleveland, Ohio, for the following purposes:
1. To consider and vote upon a proposal to adopt the Agreement and
Plan of Merger, dated as of June 15, 1998 (the "Merger Agreement"), between
McDonald & Company and KeyCorp, an Ohio corporation, pursuant to which
McDonald & Company will be merged with and into KeyCorp (the "Merger") upon
the terms and subject to the conditions set forth in the Merger Agreement,
as more fully described in the attached Proxy Statement-Prospectus. A copy
of the Merger Agreement is set forth as Appendix A to the attached Proxy
Statement-Prospectus.
2. To transact such other business as may properly be brought before
the Special Meeting, or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on August 10, 1998
as the record date for determining stockholders entitled to vote at the Special
Meeting and any adjournments or postponements thereof. Accordingly, only
stockholders of record on such date are entitled to notice of, and to vote at,
the Special Meeting and any adjournments or postponements thereof.
The affirmative vote of the holders of a majority of the outstanding shares
of McDonald & Company's common stock is necessary to adopt the Merger Agreement.
An abstention from voting or a broker non-vote will have the same effect as a
vote against adoption of the Merger Agreement.
THE BOARD OF DIRECTORS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND HAS
DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, MCDONALD &
COMPANY AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
BY ORDER OF THE BOARD OF DIRECTORS
THOMAS F. MCKEE
Secretary
Cleveland, Ohio
August 14, 1998
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING,
WHETHER OR NOT YOU PLAN TO ATTEND IN PERSON. ACCORDINGLY, YOU ARE REQUESTED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU
ATTEND THE SPECIAL MEETING, YOU MAY VOTE SHARES REGISTERED IN YOUR NAME (AND, IF
YOU HAVE A PROPER POWER OF ATTORNEY, REGISTERED IN A NOMINEE'S NAME) IN PERSON
IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE> 4
<TABLE>
<S> <C>
PROSPECTUS PROXY STATEMENT
KeyCorp McDonald & Company Investments, Inc.
Common Shares, Special Meeting of Stockholders
With a Par Value of $1 Each To be Held on September 15, 1998
</TABLE>
ACQUISITION OF MCDONALD & COMPANY INVESTMENTS, INC. BY KEYCORP
The Board of Directors of McDonald & Company Investments, Inc. has agreed
to a merger transaction in which KeyCorp will acquire McDonald & Company
Investments, Inc. We believe this proposed merger will create an institution
that will be able to provide a broader array of financial products and services.
In the merger, McDonald & Company will merge with and into KeyCorp, with
KeyCorp as the surviving corporation. Each share of McDonald & Company common
stock that you hold will be converted in the merger into the right to receive
approximately $35.00 in value of KeyCorp common shares (based on the average
closing price of the KeyCorp common shares during a specified period of time
prior to the merger). This amount will be adjusted, however, if the average
closing price of the KeyCorp common shares is below $33.00 per share or above
$44.50 per share during the specified period.
This Proxy Statement-Prospectus relates to up to 21,753,382 KeyCorp common
shares (together with attached stock purchase rights). KeyCorp common shares
trade on the New York Stock Exchange under the symbol "KEY". The last reported
sale price of KeyCorp common shares on the New York Stock Exchange on August 10,
1998 was $ .
In order to complete the merger, KeyCorp and McDonald & Company must obtain
the necessary governmental approvals and the approval of McDonald & Company's
stockholders. McDonald & Company will hold a special meeting of stockholders to
consider and vote on this merger proposal. This document describes the meeting
and the merger.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the special
meeting, please take the time to vote by completing and mailing the enclosed
proxy card. If you date and mail your proxy card without indicating how you want
to vote, your proxy will be counted as a vote "FOR" the merger. If you do not
return your card, or if you do not instruct your broker how to vote any shares
held for you in "street name," the effect will be the same as a vote against
this merger.
This Proxy Statement-Prospectus gives you detailed information about the
proposed merger and it includes the merger agreement as Appendix A. You can also
obtain information about both KeyCorp and McDonald & Company from publicly
available documents we have filed with the Securities and Exchange Commission.
We encourage you to read this entire document carefully.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED UNDER THIS
PROXY STATEMENT-PROSPECTUS OR DETERMINED IF THIS PROXY STATEMENT-PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES TO BE ISSUED UNDER THIS PROXY STATEMENT-PROSPECTUS ARE NOT
SAVINGS ACCOUNTS OR DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS
ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE BANK INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
Proxy Statement-Prospectus dated August 14, 1998 and first mailed to
stockholders on August 14, 1998.
<PAGE> 5
FORWARD-LOOKING STATEMENTS
This Proxy Statement-Prospectus contains certain forward-looking statements
with respect to the financial condition, results of operations and business of
KeyCorp. These statements may be made directly in this document or may be
"incorporated by reference" to other documents and may include statements for
the period following the consummation of the merger. You can find many of these
statements by looking for words such as "believes," "expects," "anticipates,"
"estimates" or similar expressions.
These forward-looking statements are subject to numerous assumptions, risks
and uncertainties. Factors that may cause actual results to be different from
those contemplated by the forward-looking statements include, among others, the
following possibilities:
- Competitive pressures in the banking, broker-dealer, investment banking
or financial services industries may increase significantly.
- Revenues may be lower than expected.
- Costs or difficulties related to the integration of the businesses of
KeyCorp and McDonald & Company may be greater than expected.
- Competitive and other factors may make it difficult for McDonald &
Company to attract and retain qualified personnel.
- Changes in the interest rate environment may reduce profit margins.
- General economic or business conditions may be less favorable than
expected, resulting in, among other things, a deterioration in credit
quality or a reduced demand for credit or other financial services.
- Legislative or regulatory changes may adversely affect the businesses in
which KeyCorp is engaged.
- The rate of customer bankruptcies may increase.
- Necessary technological changes (including changes to address "Year 2000"
data systems issues) may be more difficult or expensive to make than
anticipated.
- Adverse changes may occur in the securities markets.
REFERENCES TO ADDITIONAL INFORMATION
This Proxy Statement-Prospectus incorporates important business and
financial information about KeyCorp and McDonald & Company from documents that
are not included in or delivered with this document. This information is
available to you without charge upon your written or oral request. You can
obtain documents incorporated by reference in this Proxy Statement-Prospectus
(other than certain exhibits to those documents) by requesting them in writing
or by telephone from the appropriate company at the following addresses:
<TABLE>
<S> <C>
KEYCORP MCDONALD & COMPANY INVESTMENTS, INC.
127 Public Square McDonald Investment Center
Cleveland, Ohio 44114-1306 800 Superior Avenue
Attention: Investor Relations Cleveland, Ohio 44114-2603
(216) 689-6300 Attention: Treasurer
(216) 443-2300
</TABLE>
If you would like to request documents, please do so by September 8, 1998
in order to receive them before the special meeting.
See "Where You Can Find More Information" (page 61).
i
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FORWARD-LOOKING STATEMENTS.................................. i
REFERENCES TO ADDITIONAL INFORMATION........................ i
SUMMARY..................................................... 1
The Parties to the Merger................................. 1
Special Meeting........................................... 1
Record Date; Vote Required................................ 1
Recommendation of the McDonald & Company Board and Reasons
for the Merger......................................... 2
The Merger................................................ 2
Comparison of Rights of Holders of McDonald & Company
Common Stock and KeyCorp
Common Shares.......................................... 6
Appraisal Rights.......................................... 6
Share Information and Market Prices....................... 6
UNAUDITED COMPARATIVE PER SHARE DATA........................ 7
SELECTED FINANCIAL DATA..................................... 9
Selected Historical Consolidated Financial Data of
KeyCorp................................................ 9
Selected Historical Consolidated Financial Data of
McDonald & Company..................................... 11
SPECIAL MEETING............................................. 12
General................................................... 12
Matters to Be Considered.................................. 12
Proxies................................................... 12
Solicitation of Proxies................................... 12
Record Date; Vote Required................................ 13
Recommendation of McDonald & Company Board................ 13
THE MERGER.................................................. 14
General................................................... 14
Background to the Merger.................................. 14
Reasons for the Merger.................................... 16
Opinion of McDonald & Company's Financial Advisor......... 19
Structure of the Merger................................... 23
Conversion of McDonald & Company Common Stock; Fractional
Shares; Treatment of McDonald & Company Stock
Options................................................ 23
Exchange of McDonald & Company Certificates............... 24
Effective Date............................................ 25
Acquisition Proposals; Takeover Provisions................ 26
Conditions to the Consummation of the Merger.............. 26
Regulatory Approvals Required for the Merger.............. 27
Certain Federal Income Tax Consequences................... 28
Accounting Treatment...................................... 29
Termination of the Merger Agreement....................... 29
Waiver and Amendment of the Merger Agreement.............. 30
Employee Benefits......................................... 30
Stock Exchange Listing.................................... 31
Expenses.................................................. 31
Option Agreement.......................................... 31
Amendment to McDonald & Company Rights Agreement.......... 34
Restrictions on Resales by Affiliates..................... 34
Interests of Certain Persons in the Merger................ 35
Representations and Warranties............................ 37
Conduct of Business Pending the Merger; Other
Agreements............................................. 37
Management and Operations after the Merger................ 39
STOCK OWNERSHIP OF PRINCIPAL HOLDERS AND MANAGEMENT......... 40
</TABLE>
ii
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS................... 41
Market Prices............................................. 41
Dividends................................................. 42
BUSINESS OF KEYCORP......................................... 43
Overview.................................................. 43
Subsidiaries.............................................. 43
Year 2000................................................. 44
BUSINESS OF MCDONALD & COMPANY.............................. 45
CERTAIN REGULATORY MATTERS.................................. 46
General................................................... 46
Dividend Restrictions..................................... 46
Capital Requirements...................................... 47
DESCRIPTION OF KEYCORP CAPITAL STOCK........................ 48
General................................................... 48
Voting Rights............................................. 48
Removal of Directors and Filling Vacancies................ 49
Dividend and Liquidation Rights........................... 50
Opt-Out of Control Share Acquisition Law.................. 50
Certain Board of Director Super-Majority Vote Requirements
for Extraordinary Transactions......................... 50
Serial Preferred Stock.................................... 50
COMPARISON OF RIGHTS OF HOLDERS OF MCDONALD & COMPANY COMMON
STOCK AND KEYCORP COMMON SHARES........................... 51
Business Combinations..................................... 51
Appraisal Rights.......................................... 51
State Takeover Legislation................................ 52
Shareholder Rights Agreements............................. 53
Amendments to Certificates of Incorporation............... 56
Amendments to By-Laws..................................... 57
Stockholder Action........................................ 57
Special Stockholder Meetings.............................. 57
Cumulative Voting......................................... 58
Number and Election of Directors.......................... 58
Removal of Directors...................................... 58
Vacancies................................................. 59
Liability and Indemnification of Directors................ 59
RIGHTS OF DISSENTING STOCKHOLDERS........................... 60
VALIDITY OF SECURITIES...................................... 60
EXPERTS..................................................... 60
STOCKHOLDER PROPOSALS....................................... 61
OTHER MATTERS............................................... 61
WHERE YOU CAN FIND MORE INFORMATION......................... 61
INDEX OF DEFINED TERMS...................................... 64
APPENDIX A -- Merger Agreement
APPENDIX B -- Opinion of Morgan Stanley & Co. Incorporated
APPENDIX C -- Option Agreement
</TABLE>
iii
<PAGE> 8
SUMMARY
This brief summary highlights selected information from this Proxy
Statement-Prospectus. It does not contain all of the information that is
important to you. We urge you to carefully read the entire Proxy
Statement-Prospectus and the other documents to which this document refers to
fully understand the merger. See "Where You Can Find More Information" (page
61). Each item in this summary includes a page reference directing you to a more
complete description of that item.
THE PARTIES TO THE MERGER (PAGES 43 AND 45)
KeyCorp
127 Public Square
Cleveland, Ohio 44114-1306
(216) 689-6300
KeyCorp is a bank holding company that was incorporated under the laws of Ohio
in 1958 and is registered under the Bank Holding Company Act of 1956.
Headquartered in Cleveland, Ohio, it is engaged primarily in the business of
commercial and retail banking. As of June 30, 1998, it was one of the largest
bank holding companies in the United States, with consolidated total assets of
$75.8 billion. KeyCorp's subsidiaries provide a wide range of banking, equipment
leasing, fiduciary and other financial services to its corporate, individual and
institutional customers. These services are provided across much of the northern
tier of the country through subsidiaries operating 962 full-service banking
offices in 13 states.
KeyCorp's largest banking subsidiaries are KeyBank National Association,
headquartered in Cleveland, Ohio (the 14th largest bank in the United States as
of December 31, 1997, based on assets), with $71.2 billion in total assets as of
June 30, 1998, and Key Bank USA, National Association, headquartered in
Cleveland, Ohio, which engages in consumer lending activities and had total
assets of $4.5 billion as of June 30, 1998.
McDonald & Company Investments, Inc.
McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114-2603
(216) 443-2300
McDonald & Company is a holding company that was incorporated under the laws of
Delaware in 1983, succeeding to the business of a partnership established in
1924. Its principal subsidiary, McDonald & Company Securities, Inc., operates a
regional investment banking and securities brokerage business. McDonald &
Company's activities include the origination, underwriting, distribution,
trading and brokerage of fixed income and equity securities, investment advisory
services, and investment research and other related services. McDonald & Company
also provides personal trust services through its wholly owned subsidiary,
McDonald Trust Company, and asset management services through its Gradison &
Company division.
McDonald & Company serves institutional customers in the United States and in
Canada, Europe and the Far East. McDonald & Company's retail (individual)
customers are primarily located in Ohio, Michigan and Indiana. For the fiscal
year ended March 27, 1998, about 51% of McDonald & Company's total revenues were
derived from retail customers, 18% from institutional customers, 23% from non-
customer related principal transactions, investment banking fees and other
activities, and 8% from interest and dividend income.
McDonald & Company has a total of 43 offices in 11 states. McDonald & Company's
principal office is in Cleveland, Ohio.
SPECIAL MEETING (PAGE 12)
The special meeting of McDonald & Company's stockholders will be held on
September 15, 1998 at 9:30 a.m. local time, at the McDonald Investment Center
Auditorium, 20th Floor, McDonald Investment Center, 800 Superior Avenue,
Cleveland, Ohio. At the meeting, you will be asked to:
- - vote on a proposal to adopt the merger agreement, which provides for the
merger of McDonald & Company with KeyCorp; and
- - act on any other matters that may be properly brought before the meeting.
RECORD DATE; VOTE REQUIRED (PAGE 13)
You can vote at the special meeting if you owned McDonald & Company common stock
at the close of business on August 10, 1998. On that date, there were
shares of McDonald & Company common stock outstanding and
entitled to vote. To adopt the merger agreement, the holders of a majority of
those shares must vote in favor of doing
1
<PAGE> 9
so. You can cast one vote for each share of McDonald & Company common stock that
you owned on August 10, 1998.
A failure to vote, either by not returning the enclosed proxy card or by
checking the "ABSTAIN" box on the proxy card, will have the same effect as a
vote "AGAINST" adoption of the merger agreement. Accordingly, the Board of
Directors of McDonald & Company urges you to complete, date and sign the
accompanying proxy card and return it promptly in the enclosed, postage-paid
envelope.
As of August 10, 1998, directors and executive officers of McDonald & Company
held approximately shares (or %) of the McDonald & Company common
stock entitled to vote at the special meeting. We expect that each of them will
vote for the adoption of the merger agreement. As of August 10, 1998, directors
and executive officers of KeyCorp did not own any shares entitled to vote.
RECOMMENDATION OF THE MCDONALD & COMPANY BOARD AND REASONS FOR THE MERGER (PAGE
16)
The Board of Directors of McDonald & Company believes that the merger is fair to
you as a McDonald & Company stockholder and in your best interests. It
unanimously recommends that you vote "FOR" the proposal to adopt the merger
agreement.
The Board believes that combining the businesses of McDonald & Company and
KeyCorp will create an organization well positioned to serve the respective
customers of each company. The merger will enable the combined entity to offer a
wider array of services to its existing customers and expand its customer base
in the national market.
To review the background and reasons for the merger in greater detail, see pages
14 through 19.
THE MERGER (PAGE 14)
The merger agreement is attached to this document as Appendix A. Please read the
merger agreement. It is the legal document that governs the merger.
General
We propose a merger in which McDonald & Company will merge into KeyCorp. KeyCorp
will continue as an Ohio corporation and will keep its Amended and Restated
Articles of Incorporation and Amended and Restated Regulations (Regulations are
an Ohio corporation's version of by-laws). After the merger, McDonald & Company
will no longer exist as a separate legal entity.
Conversion of McDonald & Company Common Stock (page 23)
When the merger is complete, each share of McDonald & Company common stock will
automatically convert into the right to receive a certain number of KeyCorp
common shares. This number is referred to as the "exchange ratio."
In particular, as long as the average closing price of KeyCorp common shares is
not below $33.00 or above $44.50 for the ten New York Stock Exchange full
trading days (on which the stock is traded) ending on the fifth full trading day
before the scheduled closing date of the merger, the number of KeyCorp common
shares received for each share of McDonald & Company common stock will equal
$35.00 divided by that average closing price. Under these circumstances, you
would receive approximately $35.00 in value of KeyCorp common shares for each
share of McDonald & Company common stock. Please note, however, that under these
circumstances you cannot be sure of receiving any particular number of KeyCorp
shares, because the exchange ratio depends on the average price of KeyCorp
common shares before the merger.
As an example, assume the merger occurred on August 10, 1998. The average
closing price of KeyCorp common shares for the ten trading days ending August 3,
1998, five trading days prior to August 10, 1998, was $35.175. In this example,
you would receive 1.00 KeyCorp common share for each share of McDonald & Company
common stock you own on the merger date.
However, if the average closing price of KeyCorp common shares for the ten
trading days ending on the fifth trading day before the scheduled closing is
below $33.00 (but not less than $29.00) or above $44.50 (but not greater than
$50.00), then the exchange ratio is calculated in a different manner. If the
average price is outside this range, the number of KeyCorp common shares you
will receive for each share of McDonald & Company common stock will be fixed (at
1.06 if the average price is below $33.00 and at 0.79 if the average price is
above $44.50). In this case, you may not receive approximately $35.00 in value
of KeyCorp common shares (based on the average price).
2
<PAGE> 10
If the average closing price of KeyCorp common shares falls below $29.00,
McDonald & Company has the option to require KeyCorp to choose between
abandoning the merger or increasing the exchange ratio according to an agreed
formula to provide a value of approximately $30.76 per share of McDonald &
Company common stock.
If the average closing price of KeyCorp common shares is greater than $50.00,
you will receive for each share of McDonald & Company common stock an amount of
KeyCorp common shares equal in value to approximately $39.33 plus an additional
$0.50 for each dollar by which the average closing price exceeds $50.00.
Because of the agreed structure, the actual exchange ratio will not be known
until very shortly before the merger occurs and, therefore, after you vote at
the special meeting.
Each KeyCorp common share you receive in the merger will have attached to it a
right to purchase (under very limited circumstances) additional KeyCorp common
shares. These rights are sometimes referred to as "Poison Pill" rights.
Opinion of McDonald & Company's Financial Advisor (page 19)
Morgan Stanley & Co. Incorporated, which has served as a financial advisor to
McDonald & Company in connection with the merger, has delivered its opinion to
McDonald & Company's Board of Directors that the exchange ratio in the merger is
fair from a financial point of view to the holders of McDonald & Company common
stock. A copy of the opinion delivered by Morgan Stanley is attached to this
document as Appendix B. You should read the opinion completely to understand the
assumptions made, matters considered and limitations of the review undertaken by
Morgan Stanley in providing this opinion.
Effective Date (page 25)
The merger will occur shortly after all of the conditions to consummation of the
merger have been satisfied. It is currently anticipated that the merger will
occur in the fourth calendar quarter of 1998. Shortly after the merger is
completed, you will be able to exchange your certificates of McDonald & Company
common stock for certificates of KeyCorp common shares.
Conditions to the Consummation of the Merger (page 26)
The completion of the merger depends on a number of conditions being met. In
addition to some standard conditions regarding compliance with the merger
agreement, these include:
- - Adoption of the merger agreement by McDonald & Company's stockholders.
- - The Registration Statement (which includes this document, among other things)
being effective.
- - Approval of the merger by certain federal and state regulatory authorities and
self-regulatory organizations such as the National Association of Securities
Dealers, Inc.
- - Receipt by each of KeyCorp and McDonald & Company of legal opinions that the
United States federal income tax treatment of McDonald & Company, KeyCorp and
holders of McDonald & Company common stock will be as we have described in
this document.
- - Approval by the New York Stock Exchange of the listing of the KeyCorp common
shares to be issued in the merger.
- - Certain employment agreements between KeyCorp and employees of McDonald &
Company being in full force and effect. These agreements were entered into at
the same time as the merger agreement.
If the law permits, either KeyCorp or McDonald & Company could choose to waive a
condition to its obligation to complete the merger even though that condition
had not been satisfied. We cannot be certain when (or if) the conditions to the
merger will be satisfied or waived, or that the merger will be completed.
Termination of the Merger Agreement (page 29)
We can agree at any time to abandon the merger (and terminate the merger
agreement), even if McDonald & Company's stockholders have approved it. Also,
either of us can decide, without the consent of the other, to abandon the merger
if any of the following occurs:
- - Any federal or state regulatory authority denies an approval we need to
complete the merger (in a final and nonappealable way) or takes certain other
negative actions regarding such an approval.
3
<PAGE> 11
- - The merger has not been completed by June 15, 1999 (other than because of a
knowing breach of the merger agreement by the party that wants to terminate
it).
- - The other party breaches the merger agreement in a material way and does not
(or cannot) correct the breach in 30 days.
- - McDonald & Company's stockholders vote not to adopt the merger agreement.
In addition, KeyCorp may abandon the merger if McDonald & Company's Board of
Directors withdraws its recommendation to you to adopt the merger agreement or
modifies its recommendation in certain ways.
Price-Based Termination (page 30)
In addition to the circumstances already described, McDonald & Company's Board
of Directors has the option of abandoning the merger if the average closing
price of KeyCorp common shares during a specified period before the merger date
is less than $29.00 per share. If the Board exercises this option, the merger
agreement will terminate unless, within a specified period of time, KeyCorp
increases the exchange ratio according to an agreed formula set out in the
merger agreement in order to provide for a value of approximately $30.76 per
share of McDonald & Company common stock.
Termination Fee (page 30)
McDonald & Company has agreed to pay KeyCorp a fee of $5,000,000 if the merger
agreement is terminated by KeyCorp after certain events involving another person
making merger or similar proposals to McDonald & Company. This fee is intended
to increase the likelihood that the merger with KeyCorp occurs and may
discourage competing offers.
Conduct of Business Pending the Merger (page 37)
McDonald & Company has agreed to conduct its business pending the merger only in
the ordinary course, except as the merger agreement permits. McDonald & Company
has also agreed not to take certain specified actions relating to its operations
pending the merger without the consent of KeyCorp, except as the merger
agreement permits.
Expenses (page 31)
KeyCorp and McDonald & Company are evenly dividing the costs and expenses that
each has incurred in printing this document and the registration fees paid to
the Securities and Exchange Commission in connection with the merger. Otherwise,
regardless of whether the merger is completed, each company will pay for its own
fees and expenses.
Waiver and Amendment of the Merger Agreement (page 30)
We may agree to amend the merger agreement. After McDonald & Company's
stockholders adopt the merger agreement, however, the agreement cannot be
amended in any way that requires further stockholder approval under applicable
law without obtaining that approval. Also, each of us may waive our right to
require the other party to adhere to the terms and conditions of the merger
agreement, to the extent legally permissible.
Accounting Treatment (page 29)
KeyCorp will account for the merger under the purchase method of accounting in
accordance with generally accepted accounting principles (commonly referred to
as "GAAP").
Regulatory Approvals Required for the Merger (page 27)
KeyCorp and McDonald & Company cannot complete the merger unless it is approved
by the Board of Governors of the Federal Reserve System.
In addition, the merger is subject to the approval of, or notice to, certain
state and other regulatory authorities.
We have filed (or soon will file) all of the required applications or notices
with the Federal Reserve Board and these other regulatory authorities.
As of the date of this document, we have not yet received the required
approvals. While we do not know of any reason why we would not be able to obtain
the necessary approvals in a timely manner, we cannot be certain when or if we
will obtain them.
Option Agreement (page 31)
To induce KeyCorp to enter into the merger agreement, McDonald & Company granted
KeyCorp an option to purchase shares of McDonald & Company common stock under
certain circumstances. The
4
<PAGE> 12
maximum number of shares that can be purchased if this option is exercised may
not exceed 19.9% of the outstanding shares of McDonald & Company's common stock.
The purchase price under the option is $30.8125 per share of McDonald & Company
common stock (which was the closing price of McDonald & Company common stock on
the last trading day before we signed the merger agreement). Under certain
circumstances, McDonald & Company may be required to repurchase the option
(and/or any shares purchased under the option) at a predetermined price. Instead
of purchasing the shares, KeyCorp may choose to surrender the option to McDonald
& Company for a cash payment of $25,000,000, less the amount of the termination
fee, if the termination fee has been paid by McDonald & Company to KeyCorp under
the merger agreement.
KeyCorp cannot exercise this option unless certain events occur. These events
can generally be described as business combinations or acquisition transactions
relating to McDonald & Company and certain related events (other than the merger
we are proposing in this document). We do not know of any event that has
occurred as of the date of this document that would allow KeyCorp to exercise
its option.
McDonald & Company granted the option to KeyCorp in order to induce KeyCorp to
enter into the Merger Agreement and increase the likelihood that the merger
would be completed. The option agreement could discourage other companies from
trying or proposing to combine with McDonald & Company.
The option agreement is attached to this document as Appendix C.
Interests of Certain Persons in the Merger (page 35)
Some of the directors and officers of McDonald & Company have interests in the
merger that are different from, or in addition to, their interests as
stockholders of McDonald & Company.
- - William B. Summers, Jr., currently the President and Chief Executive Officer
and a Director of McDonald & Company, Robert T. Clutterbuck, currently the
Treasurer and a Director of McDonald & Company and President and Chief
Operating Officer of McDonald & Company Securities, Inc. (the main subsidiary
of McDonald & Company), Daniel F. Austin, currently Vice Chairman of McDonald
& Company Securities, Inc. and Ralph M. Della Ratta, Jr., currently a Senior
Managing Director of McDonald & Company Securities, Inc. will become senior
executive officers in the combined capital markets businesses of the two
companies.
- - In connection with the merger agreement, KeyCorp entered into employment
agreements with these four, and seven other, executives of McDonald & Company.
Each of these executives will receive, for either three or five years, a
minimum annual salary and be eligible to receive an annual cash bonus. The
employment agreements also provide that the sum of an executive's annual
salary and bonus will not be less than a specified amount for either two or
three calendar years. In addition, the employment agreements entitle these
individuals to certain salary, bonus and other payments upon certain
terminations of employment.
- - KeyCorp has agreed to establish a retention program for key employees of
McDonald & Company (including the eleven executives described above). This
program will consist of $30 million in cash and $38 million in value of
options to acquire KeyCorp common shares.
- - Some restrictions on benefits to directors and executive officers under
McDonald & Company's existing incentive plans will be removed as a result of
the merger and some benefits may vest earlier than they otherwise might.
- - Following the merger, KeyCorp will indemnify and provide insurance for the
officers and directors of McDonald & Company for events occurring before the
merger, including events that are related to the merger agreement.
The members of McDonald & Company's Board of Directors knew about these
additional interests, and considered them, when they approved the merger
agreement.
Certain Federal Income Tax Consequences (page 28)
We expect that for United States federal income tax purposes, your exchange of
shares of McDonald & Company common stock for KeyCorp common shares generally
will not cause you to recognize any gain or loss. You will, however, have to
recognize income or gain in connection with any cash received instead of
fractional interests in KeyCorp common shares.
5
<PAGE> 13
We have conditioned the merger on our receipt of legal opinions that the federal
income tax treatment will be as we have described in this document.
This tax treatment may not apply to certain McDonald & Company stockholders.
Determining the actual tax consequences of the merger to you may be complex.
They will depend on your specific situation and on variables not within our
control. You should consult your own tax advisor for a full understanding of the
merger's tax consequences.
Treatment of McDonald & Company Stock Options (page 23)
When we complete the merger, each unexercised stock option to buy McDonald &
Company common stock under McDonald & Company's stock option plans that is then
outstanding will become an option to purchase KeyCorp common shares. The number
of KeyCorp common shares subject to the new option, as well as the exercise
price of the stock option, will be adjusted to reflect the merger.
COMPARISON OF RIGHTS OF HOLDERS OF MCDONALD & COMPANY COMMON STOCK AND KEYCORP
COMMON SHARES (PAGE 51)
The rights of McDonald & Company's stockholders are currently governed by
Delaware law and McDonald & Company's Certificate of Incorporation and By-Laws.
Upon our completing the merger, you will become shareholders of KeyCorp, and
your rights will be governed by Ohio law and by KeyCorp's Amended and Restated
Articles of Incorporation and Amended and Restated Regulations (Regulations are
an Ohio corporation's version of by-laws). As a result of these different
governing laws and organizational documents, you will have different rights as a
holder of KeyCorp common shares than you currently have holding McDonald &
Company common stock.
APPRAISAL RIGHTS (PAGE 51)
Applicable law does not provide McDonald & Company stockholders with dissenters'
appraisal rights in the merger.
SHARE INFORMATION AND MARKET PRICES (PAGE 41)
KeyCorp common shares and McDonald & Company common stock are listed on the New
York Stock Exchange under the symbols "KEY" and "MDD", respectively. As of
August 10, 1998, there were KeyCorp common shares outstanding. As
of the same date, there were shares of McDonald & Company common stock
outstanding.
The table below shows the last sale price for KeyCorp common shares and shares
of McDonald & Company common stock on June 12, 1998, the last trading day before
we announced the proposed merger, and on August 10, 1998. The column entitled
"McDonald & Company Common Stock Equivalent" represents the last sale price of
the KeyCorp common shares on that date multiplied by an exchange ratio of 0.95.
This exchange ratio is the exchange ratio that would apply as a result of the
merger, assuming an average closing price of the KeyCorp common shares for the
applicable pricing period equal to $36.875, the last sale price for KeyCorp
common shares on June 12, 1998.
<TABLE>
<CAPTION>
MCDONALD &
MCDONALD & COMPANY
KEYCORP COMPANY COMMON
COMMON COMMON STOCK
SHARES STOCK EQUIVALENT
------- ---------- ----------
<S> <C> <C> <C>
June 12, 1998........ $36.875 $30.8125 $35.03
August 10, 1998...... $ $ $
</TABLE>
Of course, the market price of both KeyCorp common shares and McDonald & Company
common stock will fluctuate prior to the merger. You should obtain current stock
price quotations for both KeyCorp common shares and McDonald & Company common
stock.
6
<PAGE> 14
UNAUDITED COMPARATIVE PER SHARE DATA
The following table shows information about our net income per share, cash
dividends per share and book value per share, and similar information reflecting
the merger (which we refer to as "pro forma" information).
In presenting the pro forma information for certain time periods, we
assumed that we had been merged throughout those periods. We also prepared the
pro forma information giving effect to the merger under the purchase method of
accounting in accordance with generally accepted accounting principles (commonly
referred to as "GAAP").
We expect that we will incur merger and integration charges as a result of
combining our companies. The pro forma information, while helpful in
illustrating the financial characteristics of the combined company under one set
of assumptions, does not reflect these expenses or benefits and, accordingly,
does not attempt to predict or suggest future results. It also does not
necessarily reflect what the historical results of the combined company would
have been had our companies been combined.
The information listed as "equivalent pro forma" was obtained for McDonald
& Company by multiplying the "pro forma" amounts for KeyCorp by an assumed
exchange ratio of 0.95. We present this information to reflect the fact that you
will receive some multiple of a KeyCorp common share for each McDonald & Company
share you hold. The assumed exchange ratio of 0.95 is based on an average
closing price for the KeyCorp common shares of $36.875 per share, which was the
actual closing price on the last trading day before we announced the merger
(June 12, 1998). The actual exchange ratio will not be known until shortly
before the merger.
The information in the following table is based on, and should be read
together with, the historical financial information that we have presented in
our prior Securities and Exchange Commission filings. We have incorporated this
material into this document by reference. See "Where You Can Find More
Information" on page 61.
<TABLE>
<CAPTION>
MCDONALD & COMPANY(2)
KEYCORP(1) --------------------------
-------------------------- EQUIVALENT
HISTORICAL PRO FORMA(3) HISTORICAL PRO FORMA(4)
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
BOOK VALUE
June 30, 1998............................ $12.55 $13.03 N/A $12.38
June 26, 1998............................ N/A N/A $10.88 N/A
December 31, 1997........................ 11.83 12.33 9.58 11.71
March 27, 1998........................... N/A N/A 10.38 N/A
CASH DIVIDENDS DECLARED (5)
Second Quarter 1998...................... $ .235 $ .235 $.0625 $ .223
First Quarter 1998....................... .235 .235 .0625 .223
Fourth Quarter 1997...................... .21 .21 .0625 .20
Third Quarter 1997....................... .21 .21 .0625 .20
Second Quarter 1997...................... .21 .21 .0469 .20
First Quarter 1997....................... .21 .21 .0469 .20
NET INCOME
Six months ended June 1998(6)............ $ 1.10 $ 1.09 $ 1.22 $ 1.04
Twelve months ended December 31,
1997(7)............................... 2.09 2.04 1.57 1.94
Year ended March 27, 1998................ N/A N/A 2.02 N/A
NET INCOME -- ASSUMING DILUTION
Six months ended June 1998(6)............ $ 1.09 $ 1.08 $ 1.21 $ 1.03
Twelve months ended December 31,
1997(7)............................... 2.07 2.01 1.54 1.91
Year ended March 27, 1998................ N/A N/A 1.99 N/A
</TABLE>
- ---------------
(1) Gives effect to a two-for-one stock split effected on February 18, 1998.
(2) Gives effect to a two-for-one stock split effected on August 25, 1997.
7
<PAGE> 15
(3) The KeyCorp pro forma cash dividends represent KeyCorp's historical
dividends. The pro forma book value and net income amounts include the
results of both companies' operations as well as acquisition related
adjustments. The pro forma book value data gives effect to the merger as if
the merger had occurred at the date presented. The pro forma net income data
gives effect to the merger as if the merger had occurred at January 1, 1997.
(4) The McDonald & Company equivalent pro forma book value and net income
amounts were computed by multiplying the KeyCorp pro forma amounts by an
assumed exchange ratio of 0.95. The McDonald & Company equivalent pro forma
cash dividend amounts were computed by multiplying the historical data for
the KeyCorp common shares by an assumed exchange ratio of 0.95.
(5) Information provided regarding cash dividends declared is based upon
calendar quarters. KeyCorp's fiscal year corresponds to calendar quarters,
but McDonald & Company's fiscal year does not. McDonald & Company's actual
quarterly accounting periods ended on June 26, 1998, March 27, 1998,
December 31, 1997, September 26, 1997, June 27, 1997 and March 28, 1997.
(6) The six-month period corresponds to the first six months in KeyCorp's fiscal
year, but represents the last fiscal quarter of fiscal year 1998 and the
first fiscal quarter of fiscal year 1999 for McDonald & Company.
(7) The 12-month period corresponds to the full fiscal year for KeyCorp, but
represents the last fiscal quarter of fiscal year 1997 and the first three
fiscal quarters of fiscal year 1998 for McDonald & Company.
N/A = Not Applicable
8
<PAGE> 16
SELECTED FINANCIAL DATA
The following tables show selected historical financial data for each of
KeyCorp and McDonald & Company. This information is based on historical
financial information that we have presented in our prior filings with the
Securities and Exchange Commission. You should read all of the selected
financial information we provide in the following tables in conjunction with the
historical financial information, which is incorporated into this document by
reference. See "Where You Can Find More Information" on page 61.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF KEYCORP
The following table presents selected consolidated financial data for
KeyCorp for each of the years in the five-year period ended December 31, 1997.
The data presented for the six-month periods ended June 30, 1998 and June 30,
1997 are not necessarily indicative of the data for the entire year and have
been derived from unaudited consolidated financial statements of KeyCorp.
KeyCorp believes that these financial statements include all adjustments of a
normal recurring nature and disclosures that are necessary to present fairly the
data for the interim periods. The comparability of the data presented is
affected by certain acquisitions and divestitures that KeyCorp has completed in
the time periods presented. KeyCorp has adjusted the relevant share amounts and
per share data to give effect to a two-for-one stock split effected on February
18, 1998.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD
Interest income.................. $ 2,699 $ 2,550 $ 5,262 $ 4,951 $ 5,121 $ 4,490 $ 4,214
Interest expense................. 1,355 1,165 2,468 2,234 2,485 1,797 1,535
Net interest income.............. 1,344 1,385 2,794 2,717 2,636 2,693 2,679
Provision for loan losses........ 149 142 320 197 100 125 212
Noninterest income............... 736 547 1,306 1,087 933 883 1,002
Noninterest expense.............. 1,216 1,157 2,435 2,464 2,312 2,168 2,385
Income before income taxes and
extraordinary item............. 715 633 1,345 1,143 1,157 1,283 1,084
Income before extraordinary
item........................... 484 435 919 783 789 853 710
Net income....................... 484 435 919 783 825 853 710
Net income applicable to Common
Shares......................... 484 435 919 775 809 837 692
PER COMMON SHARE
Income before extraordinary
item........................... $ 1.10 $ .99 $ 2.09 $ 1.69 $ 1.65 $ 1.72 $ 1.44
Net income....................... 1.10 .99 2.09 1.69 1.73 1.72 1.44
Net income -- assuming
dilution....................... 1.09 .98 2.07 1.67 1.71 1.70 1.43
Cash dividends................... .47 .42 .84 .76 .72 .64 .56
Book value at period end......... 12.55 11.02 11.83 10.92 10.68 9.44 8.76
Weighted average Common Shares
(000).......................... 439,345 440,628 439,042 459,810 469,574 486,134 479,550
Weighted average Common Shares
and potential Common
Shares(000).................... 445,707 445,504 444,544 464,282 472,882 490,932 483,158
AT PERIOD END
Loans............................ $ 57,769 $ 51,644 $ 53,380 $ 49,235 $ 48,332 $ 46,579 $ 41,396
Earning assets................... 66,941 61,508 64,246 59,260 58,762 60,047 54,353
Total assets..................... 75,778 69,672 73,699 67,621 66,339 66,801 59,634
Deposits......................... 41,794 44,626 45,073 45,317 47,282 48,564 46,499
Long-term debt................... 10,196 5,182 7,446 4,213 4,003 3,570 1,764
Common shareholders' equity...... 5,525 4,814 5,181 4,881 4,993 4,530 4,225
Total shareholders' equity....... 5,525 4,814 5,181 4,881 5,153 4,690 4,385
PERFORMANCE RATIOS
Return on average total assets... 1.34% 1.31% 1.33% 1.21% 1.24% 1.36% 1.24%
Return on average common
equity......................... 18.36 18.46 18.89 15.73 17.35 18.87 17.27
Return on average total equity... 18.36 18.46 18.89 15.64 17.10 18.56 16.95
Efficiency(1).................... 57.81 58.28 57.50 60.84 63.03 59.39 60.50
Overhead(2)...................... 36.34 42.36 39.64 45.46 49.66 46.14 46.85
Net interest margin(TE).......... 4.21 4.72 4.62 4.78 4.47 4.83 5.31
</TABLE>
9
<PAGE> 17
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITAL RATIOS AT PERIOD END
Equity to assets(3).............. 8.28% 7.63% 7.71% 7.96% 7.77% 7.03% 7.37%
Tangible equity to tangible
assets(3)...................... 6.91 6.39 6.21 6.63 6.25 6.19 6.51
Tier 1 risk-adjusted
capital(4)..................... 6.86 7.14 6.65 7.98 7.53 8.48 8.73
Total risk-adjusted capital(5)... 11.38 11.66 10.83 13.01 10.85 11.62 12.22
Leverage(6)...................... 7.04 6.65 6.40 6.93 6.20 6.63 6.72
ASSET QUALITY DATA
Nonperforming loans.............. $ 374 $ 372 $ 381 $ 349 $ 333 $ 256 $ 336
Nonperforming assets............. 417 433 431 400 379 340 500
Allowance for loan losses........ 900 880 900 870 876 830 803
Net loan charge-offs............. 149 132 293 195 99 109 213
Nonperforming loans to period end
loans.......................... .65% .72% .71% .71% .69% .55% .81%
Nonperforming assets to period
end loans plus OREO and other
nonperforming assets........... .72 .84 .81 .81 .78 .73 1.20
Allowance for loan losses to
nonperforming loans............ 240.64 236.56 236.22 249.28 263.15 324.27 238.69
Allowance for loan losses to
period end loans............... 1.56 1.70 1.69 1.77 1.81 1.78 1.94
Net loan charge-offs to average
loans.......................... .54 .54 .57 .40 .21 .25 .54
RATIO OF EARNINGS TO FIXED
CHARGES(7)
Excluding deposit interest....... 2.01x 2.35x 2.24x 2.41x 2.42x 3.50x 4.15x
Including deposit interest....... 1.51x 1.53x 1.53x 1.50x 1.46x 1.70x 1.69x
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS(7)
Excluding deposit interest....... 2.01x 2.35x 2.24x 2.38x 2.35x 3.34x 3.83x
Including deposit interest....... 1.51x 1.53x 1.53x 1.49x 1.45x 1.68x 1.66x
</TABLE>
- ---------------
(1) Calculated as noninterest expense (excluding certain nonrecurring charges
and distributions on capital securities) divided by taxable-equivalent net
interest income plus noninterest income (excluding net securities
transactions and gains on bank and branch divestitures).
(2) Calculated as noninterest expense (excluding certain nonrecurring charges
and distributions on capital securities) less noninterest income (excluding
net securities transactions and gains on bank and branch divestitures)
divided by taxable-equivalent net interest income.
(3) Excluding certain capital securities receiving Tier 1 treatment, these
ratios at June 30, 1998, were 7.29% and 5.91%, respectively; at June 30,
1997, were 6.91% and 5.67%, respectively; at December 31, 1997, were 7.03%
and 5.52%, respectively; and at December 31, 1996, were 7.22% and 5.88%,
respectively. Capital securities were not present prior to the fourth
quarter of 1996.
(4) KeyCorp's Tier 1 capital consists of common shareholders' equity (excluding
net unrealized gains or losses on securities, except for net unrealized
losses on marketable equity securities), perpetual preferred stock and
capital securities; less goodwill and other non-qualifying intangible
assets. The ratio as of June 30, 1998, is estimated.
(5) KeyCorp's total capital consists of Tier 1 capital, subordinated debt,
qualifying preferred stock and the qualifying portion of the allowance for
loan losses. At least half of a bank holding company's total capital is
required to be comprised of Tier 1 capital. The ratio as of June 30, 1998,
is estimated.
(6) The leverage ratio is defined as Tier 1 capital as a percentage of average
quarterly total assets, less goodwill and other non-qualifying intangible
assets. Guidelines of the Federal Reserve Board provide for a minimum
leverage ratio of 3% for bank holding companies that meet certain specified
criteria, including assignment of the highest regulatory rating. All other
bank holding companies are required to maintain a leverage ratio of 3% plus
an additional cushion of at least 100 to 200 basis points. 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. The ratio as of June 30, 1998, is estimated.
(7) Earnings represent consolidated income before income taxes and extraordinary
item plus fixed charges. Fixed charges include consolidated interest expense
(excluding or including interest on deposits, as the case may be),
distributions on capital securities and the proportion deemed representative
of the interest factor of rental expense, net of income from subleases.
TE = Taxable Equivalent
10
<PAGE> 18
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF MCDONALD & COMPANY
The following table presents selected consolidated financial data for
McDonald & Company for each of the fiscal years in the five-year period ended
March 27, 1998. The data presented for the three-month periods ended June 26,
1998 and June 27, 1997 are not necessarily indicative of the data for the entire
year and have been derived from unaudited consolidated financial statements of
McDonald & Company. McDonald & Company believes that these financial statements
include all adjustments of a normal recurring nature and disclosures that are
necessary to present fairly the data for the interim periods. McDonald & Company
has adjusted the share and per share data to give effect to a two-for-one stock
split effected on August 25, 1997. McDonald & Company has also adjusted the net
income per share and the cash dividend per share data for the fiscal year ended
March 25, 1994 to give effect to a 20% stock dividend paid during that year.
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS ENDED AT OR FOR THE FISCAL YEAR ENDED
------------------- ---------------------------------------------------------
JUNE 26, JUNE 27, MARCH 27, MARCH 28, MARCH 29, MARCH 31, MARCH 25,
1998 1997 1998 1997 1996 1995 1994
-------- -------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Revenues......................... $ 78,992 $ 64,562 $333,346 $261,497 $220,621 $177,726 $204,680
Income before income taxes....... 9,740 8,921 56,803 38,256 30,766 20,704 34,688
Net income....................... 6,330 5,621 36,803 24,656 19,766 13,684 21,588
Basic net income per share....... .34 .31 2.02 1.38 1.11 0.75 1.21
Diluted net income per share..... .34 .31 1.99 1.36 1.09 0.74 1.19
Cash dividends paid per share.... .0625 .0469 .2344 .1831 .1675 .1575 .1440
</TABLE>
<TABLE>
<CAPTION>
JUNE 26, JUNE 27, MARCH 27, MARCH 28, MARCH 29, MARCH 31, MARCH 25,
1998 1997 1998 1997 1996 1995 1994
FINANCIAL POSITION AS OF: -------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets..................... $987,014 $601,746 $702,520 $501,968 $471,101 $401,332 $590,578
Long-term borrowings............. 20,000 25,000 20,000 25,000 25,000 25,000 25,000
Stockholders' equity............. 203,089 161,365 191,178 154,122 130,823 114,362 107,405
</TABLE>
11
<PAGE> 19
SPECIAL MEETING
GENERAL
This Proxy Statement-Prospectus is first being mailed to the holders of
McDonald & Company common stock, par value $1.00 per share (the "McDonald &
Company Stockholders") on or about August 14, 1998, and is accompanied by the
Notice of the Special Meeting and a form of proxy that is solicited by the Board
of Directors of McDonald & Company (the "McDonald & Company Board") for use at
the Special Meeting of McDonald & Company Stockholders to be held on September
15, 1998, at 9:30 a.m., local time, at the McDonald Investment Center
Auditorium, 20th Floor, McDonald Investment Center, 800 Superior Avenue,
Cleveland, Ohio, and at any adjournments or postponements thereof (the "Special
Meeting").
MATTERS TO BE CONSIDERED
At the Special Meeting, McDonald & Company Stockholders will be asked to
consider and vote upon (i) the proposal to adopt the Agreement and Plan of
Merger, dated as of June 15, 1998 (the "Merger Agreement"), between McDonald &
Company Investments, Inc., a Delaware corporation ("McDonald & Company"), and
KeyCorp, an Ohio corporation ("KeyCorp" or the "Surviving Corporation"), and
(ii) such other matters as may properly be submitted to a vote at the Special
Meeting. The McDonald & Company Stockholders may also be asked to vote upon a
proposal to adjourn or postpone the Special Meeting, which adjournment or
postponement could be used for the purpose, among others, of allowing additional
time for the soliciting of additional votes to approve the Merger Agreement.
PROXIES
The accompanying form of proxy is for use at the Special Meeting if a
McDonald & Company Stockholder will be unable to attend in person. The proxy may
be revoked by the McDonald & Company Stockholder at any time before it is
exercised, by submitting to the Secretary of McDonald & Company written notice
of revocation, a properly executed proxy of a later date or by attending the
Special Meeting and electing to vote in person. Written notices of revocation
and other communications with respect to the revocation of proxies should be
addressed to McDonald & Company Investments, Inc., McDonald Investment Center,
800 Superior Avenue, Cleveland, Ohio 44114, Attention: Secretary. All shares
represented by valid proxies received pursuant to this solicitation and not
revoked before they are exercised will be voted in the manner specified therein.
If no specification is made, the proxies will be voted "FOR" adoption of the
Merger Agreement. The McDonald & Company Board is unaware of any other matters
that may be presented for action at the Special Meeting. If other matters do
properly come before the Special Meeting, however, it is intended that shares
represented by proxies in the accompanying form will be voted or not voted by
the persons named in the proxies in their discretion, provided that no proxy
that is voted against approval and adoption of the Merger Agreement will be
voted in favor of any adjournment or postponement of the Special Meeting for the
purpose of soliciting additional proxies.
SOLICITATION OF PROXIES
The entire cost of soliciting the proxies from the McDonald & Company
Stockholders will be borne by McDonald & Company; provided, however, that
KeyCorp and McDonald & Company have each agreed to pay one-half of the printing
costs and filing fees of this Proxy Statement-Prospectus and related materials.
In addition to the solicitation of the proxies by mail, McDonald & Company will
request banks, brokers and other record holders to send proxies and proxy
material to the beneficial owners of the stock and secure their voting
instructions, if necessary. McDonald & Company will reimburse such record
holders for their reasonable expenses in so doing. McDonald & Company has also
made arrangements with Regan & Associates, Inc. to assist it in soliciting
proxies from banks, brokers and nominees and has agreed to pay approximately
$3,500 plus expenses for such services. If necessary, McDonald & Company may
also use several of its regular employees, who will not be specially
compensated, to solicit proxies from stockholders, either personally or by
telephone, telegram, facsimile, special delivery letter, express mail or other
means of communication.
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<PAGE> 20
RECORD DATE; VOTE REQUIRED
Pursuant to the provisions of the Delaware General Corporation Law (the
"DGCL") and the McDonald & Company By-laws, August 10, 1998 has been fixed as
the record date (the "Record Date") for determination of holders of McDonald &
Company common stock, par value $1.00 per share (the "McDonald & Company Common
Stock"), entitled to notice of and to vote at the Special Meeting. Accordingly,
only holders of shares of McDonald & Company Common Stock of record at the close
of business on the Record Date will be entitled to notice of and to vote at the
Special Meeting. At the close of business on the Record Date, there were
shares of McDonald & Company Common Stock outstanding held by
approximately holders of record.
At the Special Meeting, in accordance with the DGCL, the inspectors of
election appointed by the McDonald & Company Board for the Special Meeting will
determine the presence of a quorum and will tabulate the results of stockholder
voting. Pursuant to the McDonald & Company By-Laws, at the Special Meeting the
holders of a majority of the outstanding shares of McDonald & Company Common
Stock entitled to vote at the meeting, present in person or by proxy, will
constitute a quorum. The shares represented at the Special Meeting by proxies
that are marked "ABSTAIN" will be counted as shares present for purposes of
determining whether a quorum is present. Brokers who hold shares of McDonald &
Company Common Stock in nominee or "street" name for customers who are the
beneficial owners of such shares are prohibited from giving a proxy to vote
shares held for such customers with respect to the matters to be considered and
voted upon at the Special Meeting without specific instructions from such
customers. Shares represented by proxies returned by a broker holding such
shares in "street" name will be counted for purposes of determining whether a
quorum exists, even if such shares are not voted in matters where discretionary
voting by the broker is not allowed ("broker non-votes").
Each share of McDonald & Company Common Stock entitles its holder to one
vote. The affirmative vote of a majority of the outstanding shares of McDonald &
Company Common Stock is required to adopt the Merger Agreement and approve the
transactions contemplated thereby.
BECAUSE ADOPTION OF THE MERGER AGREEMENT REQUIRES THE AFFIRMATIVE VOTE OF
THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF MCDONALD & COMPANY COMMON
STOCK, ABSTENTIONS AND BROKER NON-VOTES WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE MERGER AGREEMENT. ACCORDINGLY, THE MCDONALD & COMPANY BOARD URGES
THE HOLDERS OF MCDONALD & COMPANY COMMON STOCK TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED, POSTAGE-PAID
ENVELOPE.
As of the Record Date, directors and executive officers of McDonald &
Company beneficially owned approximately shares of McDonald & Company
Common Stock, representing % of the McDonald & Company Common Stock
entitled to vote at the Special Meeting. It is currently expected that each such
director and executive officer of McDonald & Company will vote the shares of
McDonald & Company Common Stock beneficially owned by him or her for the
adoption of the Merger Agreement. As of the Record Date, directors and executive
officers of KeyCorp beneficially owned no shares of McDonald & Company Common
Stock. In addition, as of the Record Date, affiliates of KeyCorp, as
fiduciaries, advisors, custodians or agents, held, with sole or shared voting
power, less than 1% of the shares of McDonald & Company Common Stock entitled to
vote at the Special Meeting.
Additional information with respect to beneficial ownership of McDonald &
Company Common Stock by persons and entities owning more than 5% of such stock
and more detailed information with respect to beneficial ownership of McDonald &
Company Common Stock by directors and executive officers of McDonald & Company
is presented below. See "Stock Ownership of Principal Holders and Management."
RECOMMENDATION OF MCDONALD & COMPANY BOARD
The McDonald & Company Board has unanimously approved and adopted the
Merger Agreement and the transactions contemplated thereby. The McDonald &
Company Board believes that the Merger Agreement is fair to, and in the best
interests of, McDonald & Company and the McDonald & Company Stockholders and
recommends that the McDonald & Company Stockholders vote "FOR" the adoption of
the Merger Agreement. See "The Merger -- Reasons for the Merger."
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<PAGE> 21
THE MERGER
The following summary of certain terms and provisions of the Merger
Agreement and the Option Agreement is qualified in its entirety by reference to
the Merger Agreement and the Option Agreement. The Merger Agreement is attached
as Appendix A to this Proxy Statement-Prospectus and the Option Agreement is
attached as Appendix C to this Proxy Statement-Prospectus, and each is
incorporated herein by reference. McDonald & Company Stockholders are urged to
read the Merger Agreement and Option Agreement carefully.
GENERAL
The McDonald & Company Board has unanimously approved the Merger Agreement
pursuant to which McDonald & Company will be merged with and into KeyCorp (the
"Merger"). At the time the Merger becomes effective (the "Effective Time"), each
outstanding share of McDonald & Company Common Stock will be converted into the
right to receive a certain number of KeyCorp common shares, with a par value of
$1 each ("KeyCorp Common Shares"). This number is referred to as the "Exchange
Ratio." In particular, as long as the average closing price of KeyCorp Common
Shares is not less than $33.00 or more than $44.50 for a specified period before
the scheduled closing date of the Merger, the Exchange Ratio will equal $35.00
divided by that average closing price. The details of calculating the Exchange
Ratio (including how to determine the Exchange Ratio if the average price is
outside the $33.00-$44.50 range) are described below under "Conversion of
McDonald & Company Common Stock; Fractional Shares; Treatment of McDonald &
Company Stock Options." Each KeyCorp Common Share outstanding at the Effective
Time will continue to be outstanding after the Merger.
Each KeyCorp Common Share has attached to it a right to purchase (under
very limited circumstances) additional KeyCorp Common Shares (the "KeyCorp
Rights"). Rights like the KeyCorp Rights are sometimes referred to as "Poison
Pill Rights." When we refer to the KeyCorp Common Shares in this Proxy
Statement-Prospectus, we are generally including the KeyCorp Rights.
This section of the Proxy Statement-Prospectus describes certain aspects of
the proposed Merger, including the principal provisions of the Merger Agreement
and the Stock Option Agreement, dated as of June 15, 1998, between McDonald &
Company and KeyCorp (the "Option Agreement").
BACKGROUND TO THE MERGER
The decision of the McDonald & Company Board to authorize the Merger
Agreement and recommend that stockholders approve the Merger is the result of
the Board's assessment of the opportunities to enhance stockholder value
resulting from the proposed Merger.
During the mid-1990s, increasing legislative and regulatory attention was
paid to modernizing the United States' financial services industry. Congress and
regulatory agencies began to consider proposals to modify or eliminate
long-standing restrictions on the ability of financial institutions to engage in
underwriting of corporate debt and equity securities and other
securities-related activities. Beginning in mid-1995, McDonald & Company's
senior management began to monitor the evolving competitive and regulatory
environment and to assess the short and long-term effects of potential changes
on McDonald & Company's competitive position. These matters were taken into
account by McDonald & Company in its strategic planning process and were
reviewed periodically with the McDonald & Company Board during 1996 and 1997.
During this period, senior management and the McDonald & Company Board
continued to believe that remaining an independent firm was in the long-term
best interests of the McDonald & Company Stockholders. However, as part of its
review of industry developments, management, at the direction of the McDonald &
Company Board, also gave attention to various alternatives to independence. As
part of this process, from time to time, senior management was approached by
financial institutions and other potential strategic partners interested in
exploring possible business combinations, joint ventures and other strategic
transactions. Members of senior management met with certain of these parties in
order to gain an understanding of their views about the potential benefits of an
alliance and the role that McDonald & Company would play in their organizations.
The knowledge gained in this process resulted in a conclusion by management that
only a strategic transaction that offered an
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<PAGE> 22
opportunity to significantly enhance long-term stockholder value would justify a
departure from its existing business strategy.
On December 30, 1996, the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board") announced a change to the regulations governing
the securities affiliates of financial institutions, which took effect on March
6, 1997. Among other things, the change increased from 10% to 25% the percentage
of revenues that bank holding companies may derive from "ineligible" activities,
essentially equity and debt underwriting, of securities affiliates. Following
these changes, a number of acquisitions of brokerage and investment banking
firms by financial institutions have been announced.
In April 1997, Robert W. Gillespie, Chairman and Chief Executive Officer of
KeyCorp, contacted Mr. Summers to discuss these industry developments. Mr.
Gillespie also preliminarily raised with Mr. Summers the potential for a
strategic alliance or other similar business relationship between McDonald &
Company and KeyCorp.
In June 1997, Mr. Summers discussed with members of the McDonald & Company
Board the important recent developments in the regulatory and competitive
environment in the financial services industry and updated them on inquiries
received from parties interested in a strategic relationship with McDonald &
Company. In light of the accelerating pace of change in the industry and the
McDonald & Company Board's desire to closely monitor the effect of these
developments on McDonald & Company, management recommended that the Board
establish a Business Review Committee (the "Committee").
At a special meeting held on June 18, 1997, the McDonald & Company Board
established the Committee and appointed three outside Directors, James A.
Karman, Edward Fruchtenbaum and David N. McCammon to serve as its members. The
McDonald & Company Board delegated to the Committee the authority to (i) assess
the results of management's review of the ongoing changes in the securities
industry and their potential impact on McDonald & Company's business or
strategy, (ii) evaluate the potential viability of the strategic alternatives
identified in the review process (including continued independence), (iii)
consider the adequacy of the terms of any preliminary proposals made to or
received from third parties concerning a strategic alliance with or other
strategic transaction involving McDonald & Company and (iv) make recommendations
to the entire McDonald & Company Board concerning any of these matters.
Mr. Summers advised the Committee of Mr. Gillespie's indication of
interest, and indicated that, in his view, a transaction between KeyCorp and
McDonald & Company had the potential to enhance long-term stockholder value and,
under appropriate circumstances, could be feasible. He asked for and received
authority from the Committee to engage in preliminary discussions with Mr.
Gillespie concerning KeyCorp's views on relative values of the two companies,
the benefits of such an alliance and McDonald & Company's role in a combined
entity.
Continuing through September 1997, senior executives of KeyCorp and
McDonald & Company engaged in telephone discussions and met from time to time
regarding a possible business combination involving the two companies. A
confidentiality agreement was executed on July 7, 1997 and senior executives of
both companies subsequently exchanged limited financial and operating
information in order to evaluate a possible transaction. Messrs. Summers and
Clutterbuck periodically discussed their communications with members of the
Committee and solicited the views of members of the Committee concerning a
possible business combination with KeyCorp. During the course of these meetings,
the parties determined that their differing approaches to valuation made it
inadvisable to engage in more serious discussions about a strategic transaction
at that time.
In late February 1998, KeyCorp renewed its interest in a potential
transaction, and informal contacts resumed. Discussions focused on the strong
condition of the securities industry in general, the healthy strategic position
of McDonald & Company in, and the fundamental strengths of, its target markets,
as well as the financial performance of McDonald & Company.
On March 5, 1998, the Committee held a special meeting for the purpose of
reviewing the status of the discussions with KeyCorp. At the meeting, among
other things, Mr. Summers reviewed the background of the discussions between
McDonald & Company and KeyCorp and discussed the strategic business implications
of a combination between the two companies. The Committee authorized further
preliminary contacts with KeyCorp
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<PAGE> 23
and also authorized senior executives to engage financial advisors to assist in
evaluating any proposals received from KeyCorp.
Throughout the remainder of March and in early April 1998, senior
executives of KeyCorp and McDonald & Company met, engaged in telephone
discussions and exchanged limited financial and operating information on several
occasions in connection with the consideration of a possible business
combination.
On April 16, 1998, senior executive officers of McDonald & Company,
including Messrs. Summers and Clutterbuck, interviewed several investment
banking firms with experience in transactions involving financial institutions
and the securities industry. Upon consideration of the relevant experience of
the firms and other criteria, the executives engaged Morgan Stanley & Co.
Incorporated ("Morgan Stanley") and Lazard Freres & Co. LLC ("Lazard") to
represent and render financial advice to McDonald & Company in connection with a
possible business combination. McDonald & Company entered into engagement
letters with each of Morgan Stanley and Lazard on April 22, 1998.
In April and May 1998, senior executives of KeyCorp and McDonald & Company,
together with their legal and financial advisors, conducted limited due
diligence investigations with respect to the other firm regarding the financial
aspects of a possible business combination. The parties also engaged in
discussions concerning valuation.
Throughout the period of May 1998 through June 14, 1998, numerous meetings
and discussions occurred between representatives of McDonald & Company and
KeyCorp. Also, the Committee held frequent meetings during which it was advised
by management, Morgan Stanley and Lazard regarding developments relating to a
possible transaction with KeyCorp.
At the meeting of the McDonald & Company Board held on June 14, 1998, Mr.
Summers reviewed the process that management and the Board had gone through,
commencing in 1995, evaluating the changes in the securities industry leading up
to the establishment of the Committee in 1997. Mr. Summers also reviewed the
reasons for creating the Committee, the discussions between senior executives
and representatives of KeyCorp, and the role of the Committee in considering the
proposed business combination with KeyCorp. Mr. Summers also reviewed the
relative advantages and disadvantages of the Merger and expressed management's
recommendation that the McDonald & Company Board approve the Merger. Mr. Karman,
on behalf of the Committee, also reviewed the discussions and negotiations with
KeyCorp and reasons for the Merger and expressed the Committee's recommendation
in favor of the Merger. See "-- Reasons for the Merger." In addition, Morgan
Stanley discussed the financial terms of the proposed transaction, presented
analyses thereof and rendered its opinion that the Exchange Ratio was fair from
a financial point of view to the holders of shares of McDonald & Company Common
Stock, and McDonald & Company's legal advisors reviewed the terms of the Merger
Agreement, the Option Agreement, the employee retention arrangements and other
relevant legal issues. See "-- Opinion of McDonald & Company's Financial
Advisor." After due consideration of these matters, which are more specifically
described under "-- Reasons for the Merger," the McDonald & Company Board
determined that the Merger was fair to, and in the best interests of, McDonald &
Company and its stockholders and unanimously approved the Merger Agreement and
the Option Agreement and the transactions contemplated thereby.
On June 15, 1998, the Merger Agreement and the Option Agreement were
executed by KeyCorp and McDonald & Company. In addition, certain employment
agreements were executed by KeyCorp, McDonald & Company and employees of
McDonald & Company. See "-- Interests of Certain Persons in the Merger."
Following the execution of the Merger Agreement and prior to the commencement of
trading on June 15, 1998, the companies issued a joint press release announcing
the execution of the Merger Agreement.
REASONS FOR THE MERGER
Recommendation of the McDonald & Company Board and Reasons for the
Merger. THE MCDONALD & COMPANY BOARD BELIEVES THAT THE MERGER IS FAIR TO, AND IN
THE BEST INTERESTS OF, MCDONALD & COMPANY AND THE MCDONALD & COMPANY
STOCKHOLDERS. ACCORDINGLY, THE MCDONALD & COMPANY BOARD HAS UNANIMOUSLY
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<PAGE> 24
APPROVED AND ADOPTED THE MERGER AGREEMENT AND RECOMMENDS THAT THE MCDONALD &
COMPANY STOCKHOLDERS VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT.
The McDonald & Company Board believes that by combining McDonald & Company
with KeyCorp, the Merger will create an organization well positioned to serve
their respective clients. The Merger will combine McDonald & Company's
traditional investment banking, equity underwriting, retail sales and investment
advisory businesses with KeyCorp's financial services strengths and strong
national corporate capital capabilities, thereby enabling the combined entity to
offer a wider array of services to its existing customers and at the same time
expand its customer base in the national market.
In reaching its determination, the McDonald & Company Board consulted with
McDonald & Company's management, as well as its legal counsel, Morgan Stanley,
Lazard and other advisors, and considered a number of factors, including the
following principal factors:
(i) The consideration to be received by the McDonald & Company
Stockholders in the Merger and the Board's view of the likelihood that the
Merger would deliver value to the McDonald & Company Stockholders exceeding
the value that could be expected in connection with continued independence.
See "--Conversion of McDonald & Company Common Stock; Fractional Shares;
Treatment of McDonald & Company Stock Options" and "--Exchange of McDonald
& Company Certificates."
(ii) The presentation of Morgan Stanley delivered to the McDonald &
Company Board on June 14, 1998, including, without limitation, Morgan
Stanley's opinion that, as of June 14, 1998, the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to the holders
of shares of McDonald & Company Common Stock. See "-- Opinion of McDonald &
Company's Financial Advisor."
(iii) The historical performance of the KeyCorp Common Shares and
KeyCorp's financial performance relative to McDonald & Company's financial
performance.
(iv) The increasing consolidation in the securities industry and the
possibility that consolidation and the entrance into the industry of bank
holding companies might affect the competitive position of McDonald &
Company in the future.
(v) The complementary nature of McDonald & Company's and KeyCorp's
respective businesses (including, without limitation, the range of services
provided, existing client and customer relationships and the geographic
scope of KeyCorp's business), services and products, strategic objectives
and competitive positions and the opportunities to grow McDonald &
Company's business and diversify earnings as a result of the Merger.
(vi) Information provided by McDonald & Company's advisors with
respect to the United States federal income tax consequences of the Merger
to McDonald & Company Stockholders. The McDonald & Company Board was
advised that, for United States federal income tax purposes, no gain or
loss will be recognized by the holders of McDonald & Company Common Stock
who exchange all of their McDonald & Company Common Stock solely for
KeyCorp Common Shares pursuant to the Merger (except with respect to cash
received in lieu of a fractional share interest in the KeyCorp Common
Shares). See "--Certain Federal Income Tax Consequences."
(vii) The terms and conditions of the Merger Agreement and the Option
Agreement, including the amount and form of the consideration, the parties'
representations, warranties, covenants and agreements, the conditions to
the respective obligations set forth in the Merger Agreement and the
termination fee that may become payable by McDonald & Company upon
termination of the Merger Agreement under certain circumstances.
(viii) The likelihood that the Merger will be consummated given the
terms and conditions of the Merger Agreement.
(ix) The comparable values and client bases of McDonald & Company and
KeyCorp.
(x) The level of autonomy that the business of McDonald & Company is
expected to have after the consummation of the Merger and the comfort level
of key members of the McDonald & Company
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<PAGE> 25
management team with the transaction, and the resulting preservation of
McDonald & Company's existing enterprise that is expected to facilitate the
consummation of the Merger.
(xi) The fact that McDonald & Company's business is expected to be
operated after the Merger under the name "McDonald Key Investments Inc."
("McDonald Key Investments") and that the business will continue to be
headquartered in Cleveland, Ohio.
(xii) The employee benefits offered to continuing employees and the
terms and value of the key employee retention program and the employment
agreements that 11 executives of McDonald & Company and its subsidiaries
have entered with KeyCorp and McDonald & Company in connection with the
Merger (the "Employment Agreements"). See "-- Employee Benefits" and
"-- Interests of Certain Persons in the Merger."
(xiii) The fact that the Merger would result in an end to McDonald &
Company's independence.
(xiv) The possibility that the value of McDonald & Company to
potential acquirors might increase over time as the number of independent
investment banks decreases as a result of continued industry consolidation.
(xv) The possibility that the value of McDonald & Company to the
McDonald & Company Stockholders as an independent entity might increase
near-term as a result of a strong management team, existing momentum and
excellent fundamentals underlying target markets.
(xvi) The risk of business disruption, including the loss of key
personnel, clients and material business, and the potential for culture
clash as a result of the Merger.
(xvii) The risks associated with combining operations the size of
McDonald & Company's operations with those the size of KeyCorp's operations
and the risk of a change of control of KeyCorp.
The foregoing discussion of information and factors considered and given
weight by the McDonald & Company Board is not intended to be exhaustive,
although it is intended to include all material factors considered. In view of
the wide variety of factors considered in connection with its evaluation of the
terms of the Merger, the McDonald & Company Board did not find it practicable
to, and did not, quantify or otherwise attempt to assign relative weights to the
specific factors considered in reaching its determinations. In addition,
individual members of the McDonald & Company Board may have given different
weights to different factors.
KeyCorp Reasons for the Merger. Over the past several years, KeyCorp has
been building one of its major lines of business, which it calls "Key Capital
Partners," to take advantage of investment banking, capital markets, asset
management, brokerage and insurance agency business opportunities. One
motivation for creating Key Capital Partners was to create a balance between net
interest income and noninterest income in KeyCorp's overall revenue composition.
KeyCorp believes that diversifying its sources of revenue in such a manner will
not only improve the consistency and stability of its earnings, but also create
new opportunities to enhance future growth. The Merger provides Key Capital
Partners with a significant additional source of noninterest revenue with growth
opportunities.
These steps are part of KeyCorp's overall strategy to build a diversified
financial services institution while recognizing that many of its core strengths
lie in the relationships it has developed with its community banking retail
customers and its commercial banking corporate customers. Key Capital Partners
seeks to capitalize on the strengths of these existing relationships by offering
customers, particularly middle market corporate customers, the kinds of products
and services that meet their needs. The Merger enhances Key Capital Partners'
product mix by providing complementary expertise in areas such as equity
underwriting and other equity-based capital markets products, private client
brokerage and high-yield debt underwriting.
KeyCorp believes that by acquiring McDonald & Company it can improve the
overall effectiveness and profitability of Key Capital Partners. The economics
of the financial services industry favor organizations that can spread costs
over a large base of revenues. KeyCorp believes that the Merger offers
meaningful opportunities to improve efficiency, particularly with regard to the
consolidation of systems and back-office functions.
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<PAGE> 26
The competitive environment within which KeyCorp and McDonald & Company
currently operate has been continually and rapidly changing. KeyCorp believes
that by meeting the needs of its customers, enhancing its relationships with
them, and improving the operating efficiency of Key Capital Partners, the Merger
will make KeyCorp more competitive in this changing environment.
OPINION OF MCDONALD & COMPANY'S FINANCIAL ADVISOR
McDonald & Company retained Morgan Stanley and Lazard to render financial
advisory services in connection with the Merger based upon their qualifications,
expertise and reputation.
At the June 14, 1998 meeting of the McDonald & Company Board, at which the
McDonald & Company Board reviewed and considered the terms of the Merger, Morgan
Stanley rendered its oral opinion to the McDonald & Company Board that, as of
such date, the Exchange Ratio provided in the Merger Agreement was fair from a
financial point of view to the holders of shares of McDonald & Company Common
Stock (other than KeyCorp and its affiliates). Morgan Stanley subsequently
delivered to the McDonald & Company Board a written opinion dated as of June 15,
1998 confirming its oral opinion. Morgan Stanley has also delivered to the
McDonald & Company Board a written opinion dated the date of this Proxy
Statement-Prospectus that is substantially identical to its June 15, 1998
opinion. No limitations were imposed by the McDonald & Company Board upon Morgan
Stanley with respect to the investigations made or procedures followed by it in
rendering its opinions.
THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY, DATED THE DATE OF
THIS PROXY STATEMENT-PROSPECTUS, WHICH SETS FORTH, AMONG OTHER THINGS, THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITS ON THE
REVIEW UNDERTAKEN IN CONNECTION THEREWITH, IS ATTACHED AS APPENDIX B TO THIS
PROXY STATEMENT-PROSPECTUS, AND IS INCORPORATED HEREIN BY REFERENCE. MCDONALD &
COMPANY STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE OPINION IN ITS ENTIRETY.
THE OPINION OF MORGAN STANLEY IS ADDRESSED TO THE MCDONALD & COMPANY BOARD, IS
DIRECTED ONLY TO THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE EXCHANGE
RATIO PURSUANT TO THE MERGER AGREEMENT TO THE HOLDERS OF MCDONALD & COMPANY
COMMON STOCK AND DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER, NOR DOES IT
CONSTITUTE A RECOMMENDATION TO ANY MCDONALD & COMPANY STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE SPECIAL MEETING. THE SUMMARY OF THE OPINION OF
MORGAN STANLEY SET FORTH IN THIS PROXY STATEMENT-PROSPECTUS DESCRIBES THE
MATERIAL ASPECTS OF SUCH OPINION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, Morgan Stanley, among other things: (i)
reviewed certain publicly available financial statements and other information
of McDonald & Company and KeyCorp, respectively; (ii) reviewed certain internal
financial statements and other financial and operating data concerning McDonald
& Company and KeyCorp prepared by the managements of McDonald & Company and
KeyCorp, respectively; (iii) analyzed certain financial projections prepared by
the management of McDonald & Company; (iv) discussed the past and current
operations and financial conditions and the prospects of McDonald & Company and
KeyCorp with senior executives of McDonald & Company and KeyCorp, respectively;
(v) reviewed the reported prices and trading activity for the McDonald & Company
Common Stock and the KeyCorp Common Shares; (vi) compared the financial
performance of McDonald & Company and KeyCorp and the prices and trading
activity of the McDonald & Company Common Stock and the KeyCorp Common Shares
with that of certain other comparable publicly traded companies and their
securities; (vii) discussed the results of regulatory examinations of McDonald &
Company and KeyCorp with senior management of the respective companies; (viii)
discussed with senior managements of McDonald & Company and KeyCorp the
strategic objectives of the Merger and their estimates of the synergies and
other benefits of the Merger for the combined company; (ix) analyzed the pro
forma impact of the Merger on the combined company's earnings per share and
financial ratios; (x) reviewed the financial terms, to the extent publicly
available, of certain comparable merger transactions; (xi) participated in
discussions among representatives of McDonald & Company and KeyCorp and their
financial and legal advisors; (xii) reviewed the Merger Agreement and certain
related documents; and (xiii) performed such other analyses and considered such
other factors as it deemed appropriate.
Morgan Stanley assumed and relied upon, without independent verification,
the accuracy and completeness of the information reviewed by it for the purposes
of its opinion. With respect to the financial projections,
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including the estimated synergies and other estimated benefits expected to
result from the Merger, Morgan Stanley assumed that they were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the future financial performance of McDonald & Company and KeyCorp.
Morgan Stanley did not make any independent valuation or appraisal of the assets
or liabilities of McDonald & Company or KeyCorp, nor was it furnished any such
appraisals, and Morgan Stanley did not examine any individual loan credit files
of KeyCorp. In addition, Morgan Stanley assumed the Merger will be consummated
substantially in accordance with the terms set forth in the Merger Agreement.
Morgan Stanley's opinion is based on economic, market and other conditions as in
effect on, and the information made available to it as of, the date of such
opinion. In arriving at its opinion, Morgan Stanley was not authorized to
solicit, and did not solicit, interest from any party with respect to an
acquisition, business combination or other extraordinary transaction involving
McDonald & Company.
The following is a summary of the material financial analyses performed by
Morgan Stanley in connection with its presentation and its opinion to the
McDonald & Company Board on June 14, 1998. The following summary does not
purport to be a complete description of the analyses underlying the opinion of
Morgan Stanley.
Overview of McDonald & Company Stock Price Performance. Morgan Stanley
presented an overview of McDonald & Company that included a comparison of
profitability and stock price performance data for McDonald & Company to
corresponding data for the nine members of a peer group comprised of the
following nine regional investment banking and brokerage companies: A.G. Edwards
& Sons, Inc., Advest, Inc., Dain Rauscher Incorporated, EVEREN Securities, Inc.,
Freedom, Hambrecht & Quist LLC, Legg Mason Wood Walker, Incorporated, Morgan
Keegan & Company, Inc. and Raymond James & Associates, Inc. (the "Peer Group"),
including (i) current stock price as a percentage of 52-week high closing stock
price; (ii) price to 1998 and 1999 estimated earnings per share; (iii) price to
book value; (iv) ratio of common equity to assets; (v) last quarter percentage
return on equity and (vi) one-year and three-year stock price performance.
Comparable Company Analysis. Comparable company analysis analyzes a
company's operating performance relative to a group of publicly traded peers.
Based on relative performance and outlook for a company versus its peers, this
analysis enables an implied unaffected market trading value to be determined.
Morgan Stanley analyzed the operating performance of McDonald & Company relative
to the nine investment banking and brokerage companies in the Peer Group.
Morgan Stanley analyzed the relative performance and value of McDonald &
Company by comparing certain market trading statistics for McDonald & Company
with those of companies comprising the Peer Group. Historical financial
information used in calculating the market price to book value multiples for the
comparable company analysis was as of March 31, 1998 (or most recent quarter
available as of June 12, 1998), and market information used in calculating the
multiples for the comparable company analysis was as of June 12, 1998. Earnings
per share estimates for McDonald & Company and for the companies comprising the
Peer Group were based on calendarized "IBES" mean estimates as of June 12, 1998
and calendar quarter ended March 31, 1998 actual earnings per share. IBES
(Institutional Brokers Estimate System International Inc.) is a data service
that monitors and publishes a compilation of earnings estimates produced by
selected research analysts on companies of interest to investors.
The market price to estimated 1998 and 1999 earnings per share multiples
for McDonald & Company were 13.0x and 13.8x, respectively, compared to mean
multiples of 14.8x and 13.1x, respectively, and median multiples of 14.8x and
13.0x, respectively, for the Peer Group. The market price to book value multiple
for McDonald & Company was 3.0x, compared to mean and median multiples of 2.6x
and 2.5x, respectively, for the Peer Group.
Dividend Discount Analysis. Morgan Stanley performed a dividend discount
analysis to determine a range of present values per share of McDonald & Company
Common Stock assuming McDonald & Company continued to operate as a stand-alone
entity. This range was determined by adding (i) the present value of the
estimated future dividend stream that McDonald & Company could generate over the
five-year period from 1999 through 2003 and (ii) the present value of the
"terminal value" of McDonald & Company Common Stock at the end of 2003. To
determine a projected dividend stream, Morgan Stanley used management's
financial forecasts for 1999 and assumed for the years 2000 through 2004 a
compensation to net revenues ratio of 61%, other
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expenses to operating revenue ratio of 21% and a growth rate of required capital
equal to the growth rate of operating revenues during the five-year period, with
excess capital being distributed. Morgan Stanley assumed a 0% to 10% annual
growth rate in operating revenues for years 2000 through 2004 (excluding
investment income and other income, which were held constant at $2 million each,
in the projected periods). The "terminal value" of McDonald & Company Common
Stock at the end of the five-year period was determined by applying two forward
price-to-earnings multiples (12x and 14x) to projected net income for McDonald &
Company in 2004. The dividend stream and terminal value were discounted to
present values using discount rates of 13% to 15%, which Morgan Stanley viewed
as the appropriate range of discount rates for a company with McDonald &
Company's risk characteristics. Using this analysis, the indicated fully diluted
stand-alone value of McDonald & Company Common Stock ranged from approximately
$24.00 per share to approximately $35.00 per share.
Comparable Transaction Analysis. Using publicly available information,
Morgan Stanley performed an analysis of certain merger and acquisition
transactions involving selected brokerage companies that, in Morgan Stanley's
judgment, were deemed comparable for purposes of this analysis in order to
obtain a valuation range for McDonald & Company Common Stock. Morgan Stanley
also compared the multiples of the last 12 months ("LTM") revenues and earnings
per share and book value implied by the consideration to be received by McDonald
& Company Stockholders in the Merger with corresponding multiples indicated for
nine brokerage company merger and acquisition transactions announced in 1997 and
1998 (the "Comparable Transactions"). The Comparable Transactions consisted of
the following (acquiror/acquiree): Bankers Trust New York Corporation/Alex.
Brown & Sons Incorporated; Swiss Bank Corporation/Dillon, Read & Co. Inc.;
BankAmerica Corporation/Robertson, Stephens & Company L.L.C.; NationsBank
Corporation/Montgomery Securities; Canadian Imperial Bank/Oppenheimer Holdings,
Inc.; First Union Corporation/Wheat First Butcher Singer, Inc.; ING Group/Furman
Selz Incorporated; U.S. Bancorp/Piper Jaffray Companies Inc.; and Societe
Generale/Cowen & Company.
The indicated price to LTM revenues multiple in the Merger was 2.0x,
compared to a median price to LTM revenues multiple of 1.0x for the Comparable
Transactions. The indicated price to book value multiple in the Merger was 3.4x,
compared to a median price to book value multiple of 3.1x for the Comparable
Transactions. The indicated price to LTM earnings per share multiple in the
Merger was 17.6x, compared to a median price to LTM earnings per share multiple
of 13.6x for the Comparable Transactions. Nominal employee retention payments as
a percentage of gross deal value in the Merger was approximately 10%, compared
to a median percentage of nominal retention payments to gross deal value of 12%
for the Comparable Transactions. For the Comparable Transactions, the price to
LTM revenues multiples ranged from 0.5x to 2.0x , the price to book value
multiples ranged from 1.0x to 9.4x, the price to LTM earnings per share
multiples ranged from 7.0x to 17.8x, and the percentages of nominal retention
payments to gross deal value ranged from 0% to 17%.
The price to LTM revenues multiples and the price to LTM earnings per share
multiples used in the comparable transaction analysis were computed based on the
acquired company's revenues and earnings per share for the last reported 12
months preceding the date of announcement of the transaction. The price to LTM
revenues, price to book value and price to LTM earnings per share multiples
indicated in the Merger were calculated based on an assumed Exchange Ratio of
0.9492, and the closing prices of KeyCorp Common Shares and McDonald & Company
Common Stock on the New York Stock Exchange, Inc. ("NYSE") Composite Transaction
List as of June 12, 1998 of $36.875 and $30.8125, respectively. The percentages
of nominal retention payments to gross deal value were calculated based on the
gross deal value as of announcement of the transaction.
No company or transaction used in the comparable company or comparable
transaction analyses is identical to McDonald & Company or the Merger.
Accordingly, an analysis of the results of the foregoing necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of McDonald & Company and other factors that could
affect the public trading value of the companies to which they are being
compared. Mathematical analysis (such as determining the mean or median) is not
in itself a meaningful method of using comparable company or comparable
transaction data.
Pro Forma Merger Analysis. Morgan Stanley analyzed certain potential pro
forma effects of the Merger in calendar year 1999. This analysis indicated that
relative to McDonald & Company on a stand-alone basis the
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Merger would be accretive to McDonald & Company's book value and dividends per
share in 1999, assuming that certain cost savings and revenue enhancements
anticipated by the management of KeyCorp to result from the Merger are achieved.
The actual results achieved by the combined company may vary materially from
those assumed in the analysis.
In connection with its opinion dated as of the date of this Proxy
Statement-Prospectus, Morgan Stanley confirmed the appropriateness of its
reliance on the analyses used to render its June 14, 1998 oral opinion by
performing procedures to update certain of such analyses and by reviewing the
assumptions upon which such analyses were based and the factors considered in
connection therewith.
The summaries set forth above do not purport to be complete descriptions of
the analyses conducted by Morgan Stanley. The preparation of a fairness opinion
is a complex process and is not necessarily susceptible to a partial analysis or
summary description. Morgan Stanley believes that its analyses must be
considered as a whole and that selecting portions of its analyses, without
considering the analyses taken as a whole, would create an incomplete view of
the analyses underlying its opinion. In addition, Morgan Stanley considered the
results of all such analyses and did not assign relative weights to any of the
analyses, so that the ranges of valuations resulting from any particular
analysis described above should not be taken to be Morgan Stanley's view of the
actual value of McDonald & Company Common Stock.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business, economic and regulatory
conditions and other matters, many of which are beyond the control of McDonald &
Company or KeyCorp. The analyses performed by Morgan Stanley are not necessarily
indicative of actual values, trading values or actual future results that might
be achieved, all of which may be significantly more of less favorable than
suggested by such analyses. Such analyses were prepared solely as part of Morgan
Stanley's analysis of the fairness of the Exchange Ratio to the holders of
McDonald & Company Common Stock from a financial point of view and do not
purport to be appraisals or to reflect the prices at which a company might be
sold. In addition, as described above, the opinion of Morgan Stanley was one of
many factors taken into consideration by the McDonald & Company Board in making
its determination to approve the Merger. Consequently, the analyses described
above should not be viewed as determinative of the McDonald & Company Board's or
management's opinion with respect to the value of McDonald & Company or a
combination of McDonald & Company and KeyCorp, or of whether the McDonald &
Company Board or McDonald & Company management would have been willing to agree
to a different exchange ratio.
Morgan Stanley is an internationally recognized investment banking and
advisory firm. As part of its investment banking business, Morgan Stanley is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. In the course of its market
making and other trading activities, Morgan Stanley may, from time to time, have
a long or short position in, and may buy and sell, securities of McDonald &
Company, KeyCorp and other institutions. In the past, Morgan Stanley and certain
of its affiliates have provided financial advisory and financial services to
McDonald & Company and KeyCorp and have received and contemplate receiving
customary fees for the rendering of these types of financial services. In the
future, Morgan Stanley may provide additional financial advisory and financial
services to KeyCorp.
McDonald & Company has agreed to pay Morgan Stanley an advisory fee, based
on time spent on assignments, if the Merger is not completed, which Morgan
Stanley estimates would likely be between $50,000 and $100,000. McDonald &
Company has also agreed to pay a transaction fee, which will become payable upon
consummation of the Merger and against which any previously paid or currently
payable advisory fee related to this transaction will be credited. The
transaction fee will be calculated as a percentage of the total amount of cash
and the fair market value of all other property payable by KeyCorp to McDonald &
Company or its stockholders in connection with the Merger, including amounts
reserved for retention of key employees. Assuming an Average Closing Price (as
defined below) of the KeyCorp Common Shares of $ (the last sale price
reported on the NYSE Composite Transactions List for KeyCorp Common Shares on
the Record Date), the transaction fee would be approximately $ .
In addition, McDonald & Company has agreed, among other things, to reimburse
Morgan Stanley for its expenses incurred in connection with the services
provided by Morgan Stanley
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and to indemnify and hold harmless Morgan Stanley and certain related parties
from and against liabilities and expenses, including certain liabilities under
the federal securities laws, in connection with its engagement. Such obligation,
to the extent not then satisfied, will be assumed by KeyCorp upon consummation
of the Merger.
STRUCTURE OF THE MERGER
Subject to the terms and conditions of the Merger Agreement and in
accordance with the Ohio General Corporation Law (the "OGCL") and the DGCL, at
the Effective Time, McDonald & Company will merge with and into KeyCorp. KeyCorp
will be the Surviving Corporation in the Merger and will continue its corporate
existence under the laws of the State of Ohio. At the Effective Time, the
separate corporate existence of McDonald & Company will terminate. The KeyCorp
Amended and Restated Articles of Incorporation (the "KeyCorp Articles"), as in
effect immediately prior to the Effective Time, will be the articles of
incorporation of the Surviving Corporation and the KeyCorp Amended and Restated
Regulations (the "KeyCorp Regulations"), as in effect immediately prior to the
Effective Time, will be the regulations of the Surviving Corporation.
The Merger Agreement provides that, at KeyCorp's election, the Merger may
be alternatively structured so that (i) McDonald & Company is merged with and
into any direct or indirect wholly owned subsidiary of KeyCorp or (ii) any
direct or indirect wholly owned subsidiary of KeyCorp is merged with and into
McDonald & Company, subject to certain conditions intended to protect the rights
of McDonald & Company, the McDonald & Company Stockholders and the holders of
McDonald & Company stock options. As of the date of this Proxy
Statement-Prospectus, KeyCorp has not indicated that it intends to make such
election.
Following the Merger, KeyCorp and McDonald & Company currently intend to
effectuate the combination of the business of Key Capital Markets, Inc., a
wholly owned subsidiary of KeyCorp, with that of McDonald & Company and to
consolidate the operations of other businesses of KeyCorp and McDonald & Company
that provide comparable services. See "-- Management and Operations after the
Merger."
CONVERSION OF MCDONALD & COMPANY COMMON STOCK; FRACTIONAL SHARES; TREATMENT OF
MCDONALD & COMPANY STOCK OPTIONS
Upon consummation of the Merger, each share of McDonald & Company Common
Stock (excluding shares owned by McDonald & Company or its subsidiaries, which
will be cancelled) issued and outstanding immediately prior to the Effective
Time will be converted, by virtue of the Merger, automatically and without any
action on the part of the holder thereof, into the right to receive a number of
KeyCorp Common Shares, together with the appropriate number of attached KeyCorp
Rights, equal to the Exchange Ratio. The Exchange Ratio is calculated by
dividing $35.00 by the average closing price of the KeyCorp Common Shares as
reported on the NYSE Composite Transactions Reporting System (as published in
The Wall Street Journal or, if not published therein, in another authoritative
source) for the ten consecutive NYSE full trading days ending at the close of
trading on the fifth NYSE full trading day immediately preceding the date of
consummation of the Merger (such price being referred to herein as the "Average
Closing Price"); provided, that if the Average Closing Price is (i) less than
$33.00, then the Average Closing Price for purposes of the foregoing will be
deemed to be $33.00, (ii) greater than $44.50 but not greater than $50.00, then
the Average Closing Price for purposes of the foregoing will be deemed to be
$44.50, or (iii) greater than $50.00, then the Exchange Ratio shall equal a
fraction the numerator of which is the sum of (a) $39.325 and (b) one half of
the difference between the Average Closing Price and $50.00 and the denominator
of which is such Average Closing Price. In each case, the Exchange Ratio will be
rounded to the nearest hundredth. The Exchange Ratio was negotiated on an arms'
length basis between representatives of KeyCorp and McDonald & Company.
As an example, assume the Merger occurred on the Record Date. The Average
Closing Price of KeyCorp Common Shares for the ten trading days ending August 3,
1998, five trading days prior to the Record Date, was $35.175. In this example,
McDonald & Company Stockholders would receive 1.00 KeyCorp Common Share for each
share of McDonald & Company Common Stock owned on the Effective Date (defined
below).
Notwithstanding the foregoing, if McDonald & Company gives notice to
KeyCorp of the exercise of McDonald & Company's right to terminate the Merger
Agreement as a result of the Average Closing Price being less than $29.00 (as
further described under the caption "-- Termination of the Merger Agreement"),
KeyCorp
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will have the option of adjusting the Exchange Ratio to a fraction (rounded to
the nearest hundredth) the numerator of which is the product of $35.00 and
$29.00 and the denominator of which is the product of $33.00 and the Average
Closing Price. The Exchange Ratio may also be adjusted if KeyCorp takes certain
actions affecting its capitalization.
Each holder of McDonald & Company Common Stock who would otherwise be
entitled to a fractional interest in KeyCorp Common Share will receive cash in
lieu thereof in an amount determined by multiplying the average of the daily
last sale prices of KeyCorp Common Shares as reported on the NYSE Composite
Transactions Reporting System for the ten consecutive NYSE full trading days (in
which such shares are traded on the NYSE) ending at the close of trading on the
NYSE full trading day immediately preceding the date of consummation of the
Merger by the fraction of an interest in the KeyCorp Common Share to which such
holder would otherwise be entitled.
In connection with the Merger, KeyCorp will assume the McDonald & Company
equity incentive plans (the "McDonald & Company Stock Plans"). Each stock option
to acquire McDonald & Company Common Stock granted under the McDonald & Company
Stock Plans that is outstanding and unexercised immediately prior to the
Effective Time will be converted automatically at the Effective Time into, and
will become, a substantially identical stock option to purchase KeyCorp Common
Shares and will continue to be governed by the terms of the applicable McDonald
& Company Stock Plan and the stock option agreement by which such option is
evidenced. In each case, (i) the number of KeyCorp Common Shares subject to such
option after the Effective Time will be equal to the product of (a) the number
of shares of McDonald & Company Common Stock subject to such option immediately
prior to the Effective Time and (b) the Exchange Ratio, rounded down to the
nearest whole share, and (ii) the exercise price per KeyCorp Common Share
subject to such option will be equal to (a) the exercise price per share of
McDonald & Company Common Stock under such option divided by (b) the Exchange
Ratio, rounded up to the nearest whole cent. Pursuant to the McDonald & Company
Stock Plans, each option to acquire McDonald & Company Common Stock, if not
already exercisable in full, will become exercisable in full upon approval of
the Merger by the McDonald & Company Stockholders at the Special Meeting. See
"-- Interests of Certain Persons in the Merger."
EXCHANGE OF MCDONALD & COMPANY CERTIFICATES
At or prior to the Effective Time, KeyCorp will deposit, or will cause to
be deposited, with Harris Trust and Savings Bank (in such capacity, and
including any successor that may from time to time be appointed by KeyCorp, the
"Exchange Agent"), for the benefit of the holders of certificates formerly
representing shares of McDonald & Company Common Stock ("Old Certificates"), for
exchange in accordance with the Merger Agreement, certificates representing the
KeyCorp Common Shares ("New Certificates") to be issued, and an estimated amount
of cash to be paid, in the Merger (such cash and New Certificates, together with
any dividends or distributions with a record date occurring after the Effective
Time with respect thereto (without any interest thereon), being hereinafter
referred to as the "Exchange Fund").
Promptly after the Effective Date, KeyCorp will send or cause to be sent to
each holder of record of McDonald & Company Common Stock as of the Effective
Date, transmittal materials for use in exchanging all of such holder's Old
Certificates representing McDonald & Company Common Stock for New Certificate(s)
representing the KeyCorp Common Shares to which such holder is entitled and a
check for such holder's fractional share interest and any dividends or
distributions to which such holder is entitled, as appropriate. The transmittal
materials will contain information and instructions with respect to the
surrender and exchange of such certificates.
MCDONALD & COMPANY STOCK CERTIFICATES SHOULD NOT BE RETURNED WITH THE
ENCLOSED PROXY AND SHOULD NOT BE FORWARDED TO THE EXCHANGE AGENT UNLESS AND
UNTIL YOU RECEIVE A LETTER OF TRANSMITTAL FOLLOWING THE EFFECTIVE TIME.
Upon surrender of all of the Old Certificates registered in the name of a
holder of such certificates (or indemnity satisfactory to KeyCorp and the
Exchange Agent if any of such certificates are lost, stolen or destroyed),
together with a properly completed letter of transmittal, the Exchange Agent
will mail to such holder a New Certificate(s) representing the number of KeyCorp
Common Shares to which such holder is entitled,
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together with all undelivered dividends or distributions in respect of such
shares and, where applicable, a check for any fractional share interest (in each
case, without interest).
Dividends and other distributions on KeyCorp Common Shares having a record
date on or after the Effective Date will include dividends on all KeyCorp Common
Shares issued in the Merger, but no dividend or other distribution payable to
the holders of record of KeyCorp Common Shares at or as of any time after the
Effective Date will be distributed to the holder of any Old Certificates until
such holder physically surrenders all such certificates as described above.
Promptly after such surrender, all undelivered dividends and other distributions
and, where applicable, a check for any fractional share interest, will be
delivered to such holder, in each case, without interest. KeyCorp dividends
having a record date before the Effective Date (which record date may, in
KeyCorp's sole discretion, be the day immediately preceding the Effective Date
or any other day prior to the Effective Date) will not include dividends on the
KeyCorp Common Shares issued in the Merger. See "--Conduct of Business Pending
the Merger; Other Agreements." Further, a holder of Old Certificates will not be
eligible to vote the KeyCorp Common Shares into which the McDonald & Company
Common Stock represented thereby was converted in the Merger until such holder
physically surrenders all such certificates as described above. After the
Effective Time, the stock transfer books of McDonald & Company will be closed,
and there will be no transfers on the transfer books of McDonald & Company of
the shares of McDonald & Company Common Stock that were outstanding immediately
prior to the Effective Time.
The Merger Agreement provides that McDonald & Company will use its
reasonable best efforts to cause each person who may be deemed to be an
"affiliate," as defined in the Securities Act of 1933, as amended (the
"Securities Act") or Accounting Series Releases 130 and 135 of the Securities
and Exchange Commission (the "Commission"), of McDonald & Company to execute an
agreement restricting the disposition of such affiliate's shares of McDonald &
Company Common Stock and KeyCorp Common Shares. The Merger Agreement further
provides that although shares of McDonald & Company Common Stock held by an
affiliate of McDonald & Company will automatically be converted into the right
to receive KeyCorp Common Shares upon consummation of the Merger, such shares
will not be physically exchanged for KeyCorp Common Shares (and no payment for
fractional interests in KeyCorp Common Shares will be made) until KeyCorp
receives such an agreement.
Any portion of the Exchange Fund that remains unclaimed by former
stockholders of McDonald & Company for six months after the Effective Time will
be returned to KeyCorp. Any such stockholders who have not theretofore complied
with the foregoing exchange procedures will thereafter look only to KeyCorp for
payment of any Merger consideration and any unpaid dividends and distributions
on the KeyCorp Common Shares to which such stockholder is entitled in the
Merger, without any interest thereon. Notwithstanding the foregoing, neither the
Exchange Agent nor KeyCorp will be liable to any former holder of McDonald &
Company Common Stock for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
For a description of the differences between the rights of the holders of
KeyCorp Common Shares and McDonald & Company Common Stock, see "Comparison of
Rights of Holders of McDonald & Company Common Stock and KeyCorp Common Shares."
EFFECTIVE DATE
Subject to the conditions to the obligations of the parties to effect the
Merger, the Merger will become effective on (i) the fifth full NYSE trading day
to occur after the last of the conditions set forth in the Merger Agreement
shall have been satisfied or waived (or, at the election of KeyCorp, on the last
business day of the month in which such day occurs), or (ii) such date as
KeyCorp and McDonald & Company mutually agree upon in writing (the "Effective
Date"). Subject to the foregoing, it is currently anticipated that the Merger
will be consummated in the fourth calendar quarter of 1998, however, the
Effective Time could be delayed, including as a result of a delay in the receipt
of all regulatory approvals and authorizations and the making of all filings
with and notifications to governmental authorities and self-regulatory
organizations required to consummate the Merger (the "Requisite Regulatory
Approvals"). If the Merger is consummated in such quarter, or in any other
quarter, McDonald & Company Stockholders should not assume or expect that the
Effective Date will precede the record date for the dividend on KeyCorp Common
Shares for that quarter, so as to enable such stockholders to
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receive such dividend. Either KeyCorp or McDonald & Company may terminate the
Merger Agreement if the Effective Date does not occur on or before June 15,
1999. See "-- Exchange of McDonald & Company Certificates", "--Conduct of
Business Pending the Merger; Other Agreements", "-- Conditions to the
Consummation of the Merger" and "-- Termination of the Merger Agreement."
ACQUISITION PROPOSALS; TAKEOVER PROVISIONS
McDonald & Company has agreed in the Merger Agreement that it will not, and
will cause its subsidiaries and its and its subsidiaries' officers, directors,
agents, advisors and affiliates not to, solicit or encourage inquiries or
proposals with respect to, or engage in any negotiations concerning, or provide
any confidential information to, or have any discussions with, any person
relating to, any tender or exchange offer, proposal for a merger, consolidation
or other business combination involving McDonald & Company or any of its
subsidiaries or any proposal or offer to acquire in any manner a substantial
equity interest in, or a substantial portion of the assets or operations of,
McDonald & Company or any of its subsidiaries, other than the transactions
contemplated by the Merger Agreement (any of the foregoing, an "Acquisition
Proposal"); provided, that, if McDonald & Company is not otherwise in violation
of the foregoing, the McDonald & Company Board may provide information to, and
may engage in such negotiations or discussions with, a person, directly or
through representatives, if (i) the McDonald & Company Board, after having
consulted with and considered the written advice of outside counsel to such
Board, has determined in good faith that the provision of such information or
the engaging in such negotiations or discussions is required in order to
discharge properly the directors' fiduciary duties in accordance with the DGCL
and (ii) McDonald & Company has received from such person a confidentiality
agreement on substantially the same terms as entered into by KeyCorp. McDonald &
Company will promptly advise KeyCorp on a current basis following the receipt by
it of any Acquisition Proposal and the substance thereof (including the identity
of the person making such Acquisition Proposal), and advise KeyCorp of any
developments with respect to such Acquisition Proposal promptly upon the
occurrence thereof.
KeyCorp and McDonald & Company have agreed that neither will take any
action that would cause the transactions contemplated by the Merger Agreement to
be subject to requirements imposed by any anti-takeover law and each of them
will take all necessary steps within its control to exempt (or ensure the
continued exemption of) the transactions contemplated by the Merger Agreement
from, or if necessary challenge the validity or applicability of, any applicable
anti-takeover law. Further, McDonald & Company has agreed to take all reasonable
steps necessary to ensure that the entering into of the Merger Agreement and the
consummation of the transactions contemplated thereby and any other action or
combination of actions contemplated thereby do not and will not result in the
grant of any rights to any person (i) under the Certificate of Incorporation, as
amended, of McDonald & Company (the "McDonald & Company Certificate") or
McDonald & Company By-Laws or (ii) under any contract to which McDonald &
Company is a party (except as expressly contemplated by the mandatory provisions
under its stock option plans or contracts).
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Consummation of the Merger is subject, among other things, to: (i) adoption
of the Merger Agreement by the affirmative vote of the holders of a majority of
the shares of McDonald & Company Common Stock outstanding and entitled to vote
thereon; (ii) receipt of the Requisite Regulatory Approvals and expiration of
applicable waiting periods required by law without any restrictions or
conditions the effect of which would have been such that KeyCorp would not
reasonably have entered into the Merger Agreement had such restrictions or
conditions been known at the time the Merger Agreement was executed; (iii)
receipt of all requisite material consents or approvals of all persons, other
than governmental authorities; (iv) no court or governmental or regulatory
authority having taken any action which enjoins or prohibits the Merger; (v)
receipt by KeyCorp of the opinion of Sullivan & Cromwell, counsel to KeyCorp,
and by McDonald & Company of the opinion of Wachtell, Lipton, Rosen & Katz,
special counsel to McDonald & Company, each dated as of the Effective Date, as
to certain United States federal income tax consequences of the Merger; (vi) the
KeyCorp Common Shares to be issued in the Merger having been approved for
listing on the NYSE, subject to official notice of issuance; (vii) the
Registration Statement registering the KeyCorp Common Shares to be issued in the
Merger shall have become effective under the Securities Act and no stop order
suspending the effectiveness shall have been issued; and
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(viii) all permits and other authorizations under state securities laws
necessary to issue the KeyCorp Common Shares shall have been received and be in
force and effect.
Consummation of the Merger is also subject to the satisfaction or waiver of
various other conditions specified in the Merger Agreement, including, among
others: (i) the delivery by McDonald & Company and KeyCorp, each to the other,
of certificates executed by certain of their respective executive officers as to
(A) the accuracy of the representations and warranties contained in, and (B) the
performance of its obligations under the Merger Agreement; and (ii) the receipt
by KeyCorp and McDonald & Company of "comfort" letters from Ernst & Young LLP
prepared in accordance with Statement on Auditing Standards No. 72.
Further, the obligation of KeyCorp to consummate the Merger is also subject
to the satisfaction or waiver of certain conditions specified in the Merger
Agreement, including, among others: (i) no person having become an "Acquiring
Person" and no "Distribution Date" (as such terms are defined in the Rights
Agreement, dated November 1, 1995, as amended by Amendment No. 1 thereto, dated
February 4, 1998, and as further amended by Amendment No. 2 thereto, dated June
15, 1998, between McDonald & Company and National City Bank, as Rights Agent
(the "McDonald & Company Rights Agreement")) having occurred, and the McDonald &
Company preferred share purchase rights (the "McDonald & Company Rights") not
having become separable, distributable, redeemable or exercisable and (ii) the
Employment Agreements of certain individuals being in full force and effect
(other than as a consequence of death or disability) and, in each case, such
individuals not having committed an act or omission that would permit their
termination for "cause" thereunder.
No assurance can be provided as to if or when the Requisite Regulatory
Approvals necessary to consummate the Merger will be obtained or whether all of
the other conditions precedent to the Merger will be satisfied or waived by the
party permitted to do so. If the Merger is not effected on or before June 15,
1999, the Merger Agreement may be terminated by either KeyCorp or McDonald &
Company, except to the extent that the failure to effect the Merger by such date
arises out of or results from the knowing action or inaction of the party
seeking to terminate the Merger Agreement. As of the date of this Proxy
Statement-Prospectus, the requisite notice has been filed with the Federal
Reserve Board, the Employment Agreements with the required individuals are in
effect and the McDonald & Company Rights have not become separable,
distributable, redeemable or exercisable. See "--Regulatory Approvals Required
for the Merger."
REGULATORY APPROVALS REQUIRED FOR THE MERGER
KeyCorp and McDonald & Company have agreed to use their reasonable best
efforts to obtain the Requisite Regulatory Approvals, which include approval
from the Federal Reserve Board and various State Authorities. The Merger cannot
proceed in the absence of the Requisite Regulatory Approvals. There can be no
assurance that such Requisite Regulatory Approvals will be obtained, and, if
obtained, there can be no assurance as to the date of any such approvals or the
absence of any litigation challenging such approvals.
The following discussion describes the primary governmental approvals or
actions that are required prior to the parties' consummation of the Merger. It
is presently contemplated that if any additional governmental approvals or
actions are required, such approvals or actions will be sought. There can be no
assurance, however, that any such additional approvals or actions will be
obtained.
Federal Reserve Board. The Merger is subject to prior approval by the
Federal Reserve Board under the Bank Holding Company Act of 1956, as amended
(the "BHCA"). With respect to the Merger, KeyCorp, as an acquiring bank holding
company, is required to file a notice with the Federal Reserve Board that
describes the Merger proposal and the proposed activities of the combined
entity, the effect of the proposal on competition among entities that engage in
such activities, the identity of the parties involved in the transaction,
including subsidiaries of the parties, a description of the public benefits that
may be expected from the proposal, a description of the terms of the
transaction, the sources of funds for the transaction and other financial and
managerial information. The information included in the notice and other
requests for information will allow the Federal Reserve Board, when considering
approval of the Merger, to take into consideration the financial and managerial
resources and prospects of the existing and proposed institutions and the
benefits that may be expected from the Merger. The Federal Reserve Board will,
among other things, evaluate the adequacy of the capital levels of the acquiring
bank holding company both before and following the proposed transaction.
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The Federal Reserve Board may deny a request for approval of an acquisition
by a bank holding company if it determines that the transaction would result in
a monopoly or be in furtherance of any combination or conspiracy to monopolize
or to attempt to monopolize a given business activity in any part of the United
States, or if its effect in any section of the country would be substantially to
lessen competition or to tend to create a monopoly, or if it would in any other
manner result in a restraint of trade, unless the Federal Reserve Board finds
that the anticompetitive effects of a transaction are clearly outweighed by the
probable effects of the transaction in providing benefits to the public.
Applicable federal law provides for the publication of notice and public
comment on notice applications filed with the Federal Reserve Board. The Merger
may not be consummated until after Federal Reserve Board approval is obtained.
KeyCorp's rights to exercise its option under the Option Agreement are also
subject to the prior approval of the Federal Reserve Board, to the extent that
the exercise of its option under the Option Agreement would result in KeyCorp
owning more than 5% of the outstanding shares of McDonald & Company Common
Stock. In considering whether to approve KeyCorp's right to exercise its option,
including KeyCorp's right to purchase more than 5% of the outstanding shares of
McDonald & Company Common Stock, the Federal Reserve Board would generally apply
the same statutory criteria it would apply to its consideration of approval of
the Merger.
Other Requisite Approvals and Consents. Approvals also will be required
from certain regulatory agencies in connection with changes, as a result of the
Merger, in the ownership of certain businesses that are controlled by McDonald &
Company. These agencies include certain state insurance, trust company and
securities authorities.
Approvals or notices are also required from or to the NYSE, the National
Association of Securities Dealers, Inc. (the "NASD"), the Securities Investor
Protection Corporation (the "SIPC") and other self-regulatory organizations and
may be required from or to certain other regulatory agencies.
THE MERGER CANNOT PROCEED IN THE ABSENCE OF THE REQUISITE REGULATORY
APPROVALS. THERE CAN BE NO ASSURANCE THAT SUCH REGULATORY APPROVALS WILL BE
OBTAINED OR AS TO THE DATES OF ANY SUCH REQUISITE REGULATORY APPROVALS. THERE
ALSO CAN BE NO ASSURANCE THAT SUCH APPROVALS WILL NOT CONTAIN A CONDITION OR
REQUIREMENT THAT CAUSES SUCH APPROVALS TO FAIL TO SATISFY THE CONDITIONS SET
FORTH IN THE MERGER AGREEMENT OR THAT WOULD CAUSE THE PARTIES TO TERMINATE THE
MERGER AGREEMENT. SEE "-- CONDITIONS TO THE CONSUMMATION OF THE MERGER."
See " -- Effective Date," " -- Conditions to the Consummation of the
Merger" and " -- Termination of the Merger Agreement."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material anticipated United States
federal income tax consequences of the Merger to holders of McDonald & Company
Common Stock who hold such stock as a capital asset. The summary is based on the
Code, Treasury regulations thereunder, and administrative rulings and court
decisions in effect as of the date hereof, all of which are subject to change at
any time, possibly with retroactive effect. This summary is not a complete
description of all of the consequences of the Merger and, in particular, may not
address United States federal income tax considerations applicable to
stockholders subject to special treatment under United States federal income tax
law (including, for example, non-United States persons, financial institutions,
dealers in securities, insurance companies, tax-exempt entities, holders who
acquired their shares of McDonald & Company Common Stock pursuant to the
exercise of an employee stock option or right or otherwise as compensation, and
holders who hold McDonald & Company Common Stock as part of a hedge, straddle or
conversion transaction). In addition, no information is provided herein with
respect to the tax consequences of the Merger under applicable foreign, state or
local laws.
MCDONALD & COMPANY STOCKHOLDERS ARE URGED TO CONSULT WITH THEIR TAX
ADVISORS REGARDING THE TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE
EFFECTS OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
General. In connection with the filing of the Registration Statement,
KeyCorp has received an opinion of Sullivan & Cromwell, counsel to KeyCorp, and
McDonald & Company has received an opinion of Wachtell,
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Lipton, Rosen & Katz, special counsel to McDonald & Company, addressing the
United States federal income tax consequences of the Merger described below.
Such opinions have been rendered on the basis of facts, representations and
assumptions set forth or referred to in such opinions. In rendering these
opinions, Sullivan & Cromwell and Wachtell, Lipton, Rosen & Katz have required
and relied upon representations contained in certificates of officers of KeyCorp
and McDonald & Company. The opinions are to the effect that, for United States
federal income tax purposes, the Merger qualifies as a "reorganization" within
the meaning of Section 368(a) of the Code and that, accordingly:
(a) No gain or loss will be recognized by KeyCorp or McDonald &
Company as a result of the Merger;
(b) No gain or loss will be recognized by the holders of McDonald &
Company Common Stock who exchange all of their McDonald & Company Common
Stock solely for KeyCorp Common Shares pursuant to the Merger (except with
respect to cash received in lieu of a fractional share interest in the
KeyCorp Common Shares);
(c) the aggregate tax basis of the KeyCorp Common Shares received in
the Merger (including fractional shares deemed received and redeemed) will
equal the aggregate tax basis of the shares of McDonald & Company Common
Stock surrendered in exchange therefor; and
(d) the holding period of KeyCorp Common Shares received in the Merger
(including fractional shares deemed received and redeemed) will include the
holding period of the shares of McDonald & Company Common Stock surrendered
in exchange therefor, provided that such shares of McDonald & Company
Common Stock were held as capital assets at the Effective Time.
The obligations of KeyCorp and McDonald & Company to consummate the Merger
are conditioned upon the receipt of further opinions of Sullivan & Cromwell and
Wachtell, Lipton, Rosen & Katz, dated the Closing Date and as further described
under the caption "--Conditions to the Consummation of the Merger." None of the
tax opinions to be delivered to the parties in connection with the Merger as
described herein are binding on the Internal Revenue Service (the "IRS") or the
courts, and the parties do not intend to request a ruling from the IRS with
respect to the Merger.
Cash received by a McDonald & Company Stockholder in lieu of a fractional
share interest in the KeyCorp Common Shares will be treated as received in
redemption of such fractional share interest, and a McDonald & Company
Stockholder should generally recognize capital gain or loss for United States
federal income tax purposes measured by the difference between the amount of
cash received and the portion of the tax basis of the share of McDonald &
Company Common Stock allocable to such fractional share interest. Such capital
gain or loss would be a long-term capital gain or loss if the holding period for
such share of McDonald & Company Common Stock is greater than one year at the
Effective Time.
Information Reporting and Backup Withholding. Payments in respect of
McDonald & Company Common Stock may be subject to information reporting to the
IRS and to a 31% backup withholding tax. Backup withholding will not apply,
however, to a payment to a holder of McDonald & Company Common Stock or other
payee if such stockholder or payee completes and signs the substitute Form W-9
that will be included as part of the transmittal letter, or otherwise proves to
the satisfaction of KeyCorp and the Exchange Agent that it is exempt from backup
withholding.
ACCOUNTING TREATMENT
The Merger will be accounted for by KeyCorp under the purchase method of
accounting in accordance with GAAP. Under this method of accounting, the
purchase price will be allocated to assets acquired and liabilities assumed
based on their estimated fair values at the Effective Time.
TERMINATION OF THE MERGER AGREEMENT
General. The Merger Agreement provides that, whether before or after the
Special Meeting and notwithstanding the approval of the Merger Agreement by the
McDonald & Company Stockholders, the Merger Agreement may be terminated and the
Merger abandoned at any time prior to the Effective Time: (i) by mutual consent
of KeyCorp and McDonald & Company; (ii) by either KeyCorp or McDonald & Company
(a) if the
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McDonald & Company Stockholders fail to approve the Merger Agreement or any
Requisite Regulatory Approval is denied and such denial has become final and
nonappealable or a governmental entity has requested the permanent withdrawal of
any application therefor or any such approval is made subject to certain
conditions or restrictions, (b) in the event of a material breach by the other
party of any representation, warranty or covenant contained in the Merger
Agreement, which breach is not cured within 30 days after the giving of written
notice thereof to the party committing such breach, or (c) if the Merger is not
consummated on or before June 15, 1999, except to the extent that the failure of
the Merger then to be consummated results from the knowing action or inaction of
the party seeking to terminate; or (iii) by KeyCorp if at any time prior to the
Special Meeting the McDonald & Company Board shall have failed to recommend the
Merger for approval by its stockholders, withdrawn such recommendation or
modified or changed such recommendation in a manner adverse to the interests of
KeyCorp.
Price-Based Termination. The Merger Agreement also may be terminated by
McDonald & Company at any time during the two-day period commencing with the
date immediately following the fourth full trading day preceding the scheduled
closing date of the Merger if the Average Closing Price is less than $29.00 (the
"Price-Based Termination Right"); provided, that (i) if McDonald & Company
elects to exercise the Price-Based Termination Right, it will give irrevocable
written notice to KeyCorp during such two-day period, (ii) during the two-day
period commencing with the date of its receipt of such notice, KeyCorp will have
the option of adjusting the Exchange Ratio to a fraction (rounded to the nearest
hundredth) the numerator of which is the product of $35.00 and $29.00 and the
denominator of which is the product of $33.00 and the Average Closing Price, and
(iii) if KeyCorp determines to so adjust the Exchange Ratio, it will give
written notice (within such two-day period) to McDonald & Company of its
determination and the adjusted Exchange Ratio, whereupon no termination of the
Merger Agreement will occur pursuant to McDonald & Company's exercise of the
Price-Based Termination Right and the Merger Agreement will remain in effect in
accordance with its terms (except as the Exchange Ratio shall have been so
adjusted). An increase in the Exchange Ratio may cause the number of KeyCorp
Common Shares to be issued in the Merger to exceed the number indicated on the
cover page of this Proxy Statement-Prospectus.
Termination Fee. McDonald & Company has agreed to pay KeyCorp a fee of $5
million (the "Termination Fee") if KeyCorp exercises its right to terminate the
Merger Agreement as a result of the McDonald & Company Board failing to
recommend the Merger, withdrawing its recommendation or changing its
recommendation in a manner adverse to the interests of KeyCorp, following
receipt by McDonald & Company of a proposal with respect to, or a proposal to
engage in any negotiations or discussions with any person concerning, any tender
or exchange offer, proposal for a merger, consolidation or other business
combination involving McDonald & Company or any of its subsidiaries or any
proposal or offer to acquire in any manner a substantial equity interest in, or
a substantial portion of the assets or operations of, McDonald & Company or any
of its subsidiaries. See also "The Merger -- Option Agreement".
WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
Prior to the Effective Time, any provision of the Merger Agreement may be
(i) waived by the party benefited by the provision or (ii) amended or modified
at any time by an agreement in writing among the parties, executed in the same
manner as the Merger Agreement, provided that after approval by the McDonald &
Company Stockholders, the Merger Agreement may not be amended without obtaining,
if required under applicable law, any required further approval of such
stockholders.
EMPLOYEE BENEFITS
The Merger Agreement provides that, at the Effective Time, KeyCorp will
provide employees of McDonald & Company who become employed by KeyCorp or any of
its subsidiaries as of the Effective Time, with employee benefit plans, programs
and arrangements that in the aggregate are substantially comparable to those
currently provided by McDonald & Company (other than plans, programs and
arrangements involving the potential issuance of securities of McDonald &
Company) or, at the option of KeyCorp, KeyCorp will maintain such plans,
programs and arrangements currently provided by McDonald & Company. The Merger
Agreement further provides that, for purposes of all KeyCorp employee benefit
plans, KeyCorp will treat prior service with
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McDonald & Company (to the extent recognized under analogous plans of McDonald &
Company) as service rendered to KeyCorp for purposes of eligibility to
participate and vesting under any such plans. In addition, the Merger Agreement
provides that KeyCorp will cause all pre-existing condition limitations (to the
extent such limitations did not apply under McDonald & Company's plans) and
eligibility waiting periods under any health plans to be waived with respect to
McDonald & Company employees and their dependents who participated in McDonald &
Company's health plans immediately prior to the Effective Time. The Merger
Agreement also provides that KeyCorp will honor, pursuant to the terms of
McDonald & Company's plans and to the extent consistent with applicable law, all
employee benefit obligations to current and former employees of McDonald &
Company.
STOCK EXCHANGE LISTING
KeyCorp has agreed to use its reasonable best efforts to cause the KeyCorp
Common Shares to be issued in the Merger to be approved for listing on the NYSE.
It is a condition to the consummation of the Merger that such KeyCorp Common
Shares be authorized for listing on the NYSE, subject to official notice of
issuance.
EXPENSES
Other than the Termination Fee, all expenses incurred by or on behalf of
the parties in connection with the Merger Agreement and the transactions
contemplated thereby will be borne by the party incurring the same, except that
printing expenses for this Proxy Statement - Prospectus and the Commission fee
for filing the Registration Statement will be shared equally by KeyCorp and
McDonald & Company.
OPTION AGREEMENT
As an inducement and condition to KeyCorp's willingness to enter into the
Merger Agreement, McDonald & Company entered into the Option Agreement with
KeyCorp. Pursuant to the Option Agreement, McDonald & Company granted to KeyCorp
an option to purchase from McDonald & Company up to an aggregate of 3,669,088 of
the issued and outstanding shares of McDonald & Company Common Stock for a
purchase price of $30.8125 per share (the "McDonald & Company Option"), subject
to adjustment in certain circumstances; provided, however, that the number of
shares of McDonald & Company Common Stock subject to the McDonald & Company
Option may not exceed 19.9% of the issued and outstanding shares of McDonald &
Company Common Stock. The purchase of any shares of McDonald & Company Common
Stock pursuant to the McDonald & Company Option is subject to compliance with
applicable law, including the receipt of any necessary approval under the BHCA.
Subject to applicable law and regulatory restrictions, KeyCorp may exercise
the McDonald & Company Option, in whole or in part, if, but only if, both an
Initial Triggering Event (as hereinafter defined) and a Subsequent Triggering
Event (as hereinafter defined) have occurred prior to the occurrence of an
Exercise Termination Event (as hereinafter defined), provided that written
notice of such exercise as required by the Option Agreement is provided within
90 days following such Subsequent Triggering Event (or such later period as
provided in the Option Agreement).
As defined in the Option Agreement, "Initial Triggering Event" means any of
the following events or transactions occurring on or after the date of signing
the Option Agreement:
(i) McDonald & Company or any of its Significant Subsidiaries (as
defined on page 2 of the Option Agreement), without having received
KeyCorp's prior written consent, shall have entered into an agreement to
engage in an Acquisition Transaction (as hereinafter defined) with any
person other than KeyCorp or the McDonald & Company Board shall have
recommended that the McDonald & Company Stockholders approve or accept any
Acquisition Transaction other than as contemplated by the Merger Agreement.
For purposes of the Option Agreement, "Acquisition Transaction" means (x) a
merger or consolidation, or any similar transaction, involving McDonald &
Company or a Significant Subsidiary, other than those involving solely
McDonald & Company and its wholly-owned subsidiaries or in which the voting
securities of McDonald & Company outstanding immediately prior thereto
continue to represent at least 50% of the voting power following such
transaction, (y) a purchase, lease or other acquisition of 25% or more of
the
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assets of McDonald & Company or a Significant Subsidiary, or (z) a purchase
or other acquisition of securities representing 15% or more of the voting
power of McDonald & Company or a Significant Subsidiary;
(ii) any person other than KeyCorp shall have acquired beneficial
ownership or the right to acquire beneficial ownership of 15% or more of
the outstanding shares of McDonald & Company Common Stock;
(iii) the McDonald & Company Stockholders shall have voted and failed
to approve the Merger Agreement at the Special Meeting, or the Special
Meeting shall not have been held, in violation of the Merger Agreement, or
shall have been canceled prior to termination of the Merger Agreement if,
prior to the Special Meeting (or if the Special Meeting shall not have been
held or shall have been canceled, prior to such termination), it shall have
been publicly announced that any person other than KeyCorp shall have made,
or disclosed an intention to make, a proposal to engage in an Acquisition
Transaction;
(iv) the McDonald & Company Board shall have withdrawn or modified (or
publicly announced its intention to withdraw or modify) in any manner
adverse to KeyCorp its recommendation that the McDonald & Company
Stockholders approve the transactions contemplated by the Merger Agreement,
or McDonald & Company or a Significant Subsidiary shall have authorized,
recommended or proposed (or publicly announced its intention to authorize,
recommend or propose) an agreement to engage in an Acquisition Transaction
with any person other than KeyCorp;
(v) any person other than KeyCorp shall have made a proposal to
McDonald & Company or its stockholders to engage in an Acquisition
Transaction and such proposal shall have been publicly announced;
(vi) any person other than KeyCorp shall have filed with the
Commission a registration statement, tender offer materials or a
preliminary proxy statement with respect to a potential exchange or tender
offer that would constitute an Acquisition Transaction; or
(vii) McDonald & Company shall have willfully breached any covenant or
obligation contained in the Merger Agreement after any person other than
KeyCorp shall have made a proposal to engage in an Acquisition Transaction
and, following such breach, KeyCorp would be entitled to terminate the
Merger Agreement.
As defined in the Option Agreement, "Subsequent Triggering Event" means any
of the following events or transactions occurring after the date of signing the
Option Agreement:
(i) the acquisition by any person other than KeyCorp of beneficial
ownership of 25% or more of the then outstanding McDonald & Company Common
Stock; or
(ii) the occurrence of an Initial Triggering Event described above
under subparagraph (i) under the definition of Initial Triggering Event,
except that the percentage referred to in clause (z) of subparagraph (i)
thereof shall be 25%.
As defined in the Option Agreement, "Exercise Termination Event" means each
of the following:
(i) the Effective Time;
(ii) termination of the Merger Agreement in accordance with the
provisions thereof if such termination occurs prior to the occurrence of an
Initial Triggering Event, except a termination by KeyCorp due to a breach
of the Merger Agreement by McDonald & Company or due to the McDonald &
Company Board failing to recommend the Merger Agreement to McDonald &
Company's Stockholders (each, a "Listed Termination"); or
(iii) the passage of 18 months (or such longer period as provided in
the Option Agreement) after termination of the Merger Agreement if such
termination is concurrent with or follows the occurrence of an Initial
Triggering Event or is a Listed Termination.
Under applicable law, KeyCorp may be required to obtain regulatory approval
prior to acquiring shares of McDonald & Company Common Stock pursuant to the
McDonald & Company Option.
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At any time after the occurrence of a Repurchase Event (as hereinafter
defined) at the request of the holder of the McDonald & Company Option,
delivered prior to an Exercise Termination Event (or such later period as
provided in the Option Agreement), McDonald & Company must repurchase the
McDonald & Company Option from such holder at a price (the "Option Repurchase
Price") equal to (i) the amount by which the Market/Offer Price (as hereinafter
defined) exceeds $30.8125, multiplied by (ii) the number of shares for which the
McDonald & Company Option may then be exercised. In addition, at the request of
the owner of shares of McDonald & Company Common Stock issued upon exercise of
the McDonald & Company Option (the "Option Shares") from time to time (the
"Owner"), delivered prior to an Exercise Termination Event (or such later period
as provided in the Option Agreement), McDonald & Company (or any successor
thereto) must repurchase such number of the Option Shares from the Owner as the
Owner may designate at a price (the "Option Shares Repurchase Price") equal to
the Market/Offer Price multiplied by the number of Option Shares so designated.
The term "Market/ Offer Price" means the highest of (i) the highest price per
share of McDonald & Company Common Stock paid by any person that acquires
beneficial ownership of 50% or more of the then outstanding McDonald & Company
Common Stock, (ii) the price per share of McDonald & Company Common Stock to be
paid by any third party pursuant to an agreement with McDonald & Company entered
into prior to the date the holder of the McDonald & Company Option gives notice
of the required repurchase of the McDonald & Company Option or the Owner gives
notice of the required repurchase of Option Shares, as the case may be, (iii)
the highest last sale price for shares of McDonald & Company Common Stock within
the six-month period immediately preceding the date the holder of the McDonald &
Company Option gives notice of the required repurchase of the McDonald & Company
Option or the Owner gives notice of the required repurchase of Option Shares, as
the case may be, or (iv) in the event of a sale of all or any substantial part
of McDonald & Company's assets or deposits, the sum of the net price paid in
such sale for such assets or deposits and the current market value of the
remaining net assets of McDonald & Company as determined by a nationally
recognized investment banking firm selected by the holder of the McDonald &
Company Option or the Owner, as the case may be, and reasonably acceptable to
McDonald & Company, divided by the number of shares of McDonald & Company Common
Stock outstanding at the time of such sale on a fully-diluted basis. In
determining the Market/Offer Price, the value of consideration other than cash
will be determined by a nationally recognized investment banking firm selected
by the holder of the McDonald & Company Option or Owner, as the case may be, and
reasonably acceptable to McDonald & Company. Notwithstanding anything to the
contrary, neither the Option Repurchase Price nor the Option Share Repurchase
Price in the aggregate will be less than the Surrender Price (as hereinafter
defined).
A "Repurchase Event" will be deemed to have occurred upon the occurrence of
any of the following events or transactions after the date of signing the Option
Agreement:
(i) the acquisition by any person other than KeyCorp of beneficial
ownership of 50% or more of the then outstanding McDonald & Company Common
Stock; or
(ii) the consummation of any Acquisition Transaction described in
subparagraph (i) under the definition of Initial Triggering Event, except
that the percentage referred to in clause (z) shall be 50%.
In the event that prior to an Exercise Termination Event, McDonald &
Company enters into an agreement (i) to consolidate with or merge into any
person, other than KeyCorp, or engages in a plan of exchange with any person,
other than KeyCorp and McDonald & Company is not the continuing or surviving
corporation of such consolidation or merger or the acquiror in such plan of
exchange, (ii) to permit any person, other than KeyCorp, to merge into McDonald
& Company or be acquired by McDonald & Company in a plan of exchange and
McDonald & Company is the continuing or surviving or acquiring corporation, but,
in connection with such merger or plan of exchange, the then outstanding shares
of McDonald & Company Common Stock are changed into or exchanged for stock or
other securities of any other person or cash or any other property or the then
outstanding shares of McDonald & Company Common Stock after such merger or plan
of exchange represent less than 50% of the outstanding shares and share
equivalents of the merged or acquiring company, or (iii) to sell or otherwise
transfer all or substantially all of its assets to any person, other than
KeyCorp, then, and in each such case, the agreement governing such transaction
must make proper provision so that the McDonald & Company Option will, upon the
consummation of any such transaction and upon the terms and conditions set forth
in the Option Agreement, be converted into, or exchanged for, an option (the
"Substitute Option"), at the election of the holder of the McDonald & Company
Option, of either (A) the Acquiring Corporation (as hereinafter defined)
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or (B) any person that controls the Acquiring Corporation. "Acquiring
Corporation" means (i) the continuing or surviving person of a consolidation or
merger with McDonald & Company (if other than McDonald & Company), (ii) the
acquiring person in a plan of exchange in which McDonald & Company is acquired,
(iii) McDonald & Company in a merger or plan of exchange in which McDonald &
Company is the continuing or surviving or acquiring person and (iv) the
transferee of all or substantially all of McDonald & Company's assets.
Notwithstanding the foregoing, KeyCorp may, at any time following a
Repurchase Event and prior to the occurrence of an Exercise Termination Event
(or such later period as provided in the Option Agreement), relinquish the
McDonald & Company Option and all shares issued thereunder to McDonald & Company
in exchange for a cash fee equal to $25 million plus the aggregate purchase
price, if any, previously paid by KeyCorp with respect to shares issued under
the McDonald & Company Option, less the sum of any net cash profit received by
KeyCorp pursuant to an arm's-length sale of shares issued under the McDonald &
Company Option and any Termination Fee previously paid to KeyCorp pursuant to
the Merger Agreement (the "Surrender Price").
The Option Agreement and the McDonald & Company Option are intended to
increase the likelihood that the Merger will be consummated according to the
terms set forth in the Merger Agreement, and may be expected to discourage
offers by third parties to acquire McDonald & Company.
To the knowledge of McDonald & Company and KeyCorp, no event giving rise to
exercise of the McDonald & Company Option has occurred as of the date of this
Proxy Statement-Prospectus.
A copy of the Option Agreement is set forth in Appendix C to this Proxy
Statement-Prospectus, and reference is made thereto for the complete terms of
the Option Agreement and the McDonald & Company Option. The foregoing discussion
is qualified in its entirety by reference to the Option Agreement, which is
incorporated in this Proxy Statement-Prospectus by reference.
AMENDMENT TO MCDONALD & COMPANY RIGHTS AGREEMENT
In connection with the execution of the Merger Agreement, McDonald &
Company amended the McDonald & Company Rights Agreement to provide, among other
things, that (i) the execution of the Merger Agreement and the Option Agreement,
and the consummation of the Merger and the other transactions contemplated
thereby, will not cause the McDonald & Company Rights to become exercisable, and
(ii) the McDonald & Company Rights may not become exercisable at any time from
and after, and the McDonald & Company Rights will expire as of, the Effective
Time. See "Comparison of Rights of Holders of McDonald & Company Common Stock
and KeyCorp Common Shares -- Shareholder Rights Agreements."
RESTRICTIONS ON RESALES BY AFFILIATES
The KeyCorp Common Shares to be issued to McDonald & Company Stockholders
in the Merger will have been registered under the Securities Act. Such shares
will be tradeable freely and without restriction by those stockholders not
deemed to be "affiliates" of McDonald & Company as that term is defined under
the Securities Act. An affiliate of McDonald & Company, as defined by the rules
promulgated pursuant to the Securities Act, is a person who directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with McDonald & Company. Any subsequent transfer of such
shares by any person who is an affiliate of McDonald & Company at the time the
Merger is submitted for vote of the McDonald & Company Stockholders will, under
existing law, require either (i) the further registration under the Securities
Act of the KeyCorp Common Shares to be transferred, (ii) compliance with Rule
145 promulgated under the Securities Act (permitting limited sales under certain
circumstances) or (iii) the availability of another exemption from registration.
The foregoing restrictions are expected to apply to the directors, executive
officers and the holders of 10% or more of the McDonald & Company Common Stock
(and to certain relatives or the spouse of any such person and any trusts,
estates, corporations or other entities in which any such person has a 10% or
greater beneficial or equity interest). Stop transfer instructions will be given
by KeyCorp to the transfer agent with respect to the KeyCorp Common Shares to be
received by persons subject to the restrictions described above, and the
certificates for such stock will be appropriately legended.
34
<PAGE> 42
McDonald & Company has agreed in the Merger Agreement to use its reasonable
best efforts to cause each person who is an affiliate (for purposes of Rule 145
or the Commission's Accounting Series Releases 130 and 135) of McDonald &
Company to deliver to McDonald & Company and KeyCorp a written agreement
intended to ensure compliance with the Securities Act.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of McDonald & Company's management have interests in the
Merger in addition to their interests solely as McDonald & Company Stockholders,
as described below.
Employment Agreements. In connection with the Merger, KeyCorp and McDonald
& Company have entered into Employment Agreements with 11 executives of McDonald
& Company and its subsidiaries (collectively, the "Executives"), including the
following executive officers -- William B. Summers, Robert T. Clutterbuck,
Daniel F. Austin and Ralph M. Della Ratta, Jr. The Employment Agreements with
the Executives are substantially similar and are described collectively herein,
except to the extent that their terms differ materially. Each Employment
Agreement is for a term of three years (five years in the case of Messrs.
Summers and Clutterbuck), commencing at the Effective Time and terminating on
the third (or fifth) anniversary thereof (the "Employment Period").
During the Employment Period, Mr. Summers will serve as the Chairman and
Chief Executive Officer of McDonald Key Investments and of Key Capital Partners
and will serve on KeyCorp's Management Committee, the Key Capital Partners'
management committee and as a member of the Board of Directors of McDonald Key
Investments and as the Chairman of such board's Compensation Committee (the
"Compensation Committee"). During the Employment Period, Mr. Clutterbuck will
serve as the President and Chief Operating Officer of McDonald Key Investments
and will serve on Key Capital Partners' management committee and as a member of
the Board of Directors of McDonald Key Investments and the Compensation
Committee. During the Employment Period, Mr. Austin will serve as Vice Chairman
of McDonald Key Investments, and Mr. Della Ratta will serve as a Senior Managing
Director of McDonald Key Investments.
Pursuant to the terms of the Employment Agreements, each Executive will
receive an annual base salary at least equal to the annual base salary paid to
him by McDonald & Company immediately prior to the Effective Time. During the
Employment Period, each Executive will be eligible to receive an annual cash
bonus, which will be determined by the Compensation Committee in accordance with
the historic compensation policies of McDonald & Company and KeyCorp and in
conformity with industry practice for all Executives (other than Messrs. Summers
and Clutterbuck). The annual bonuses of Messrs. Summers and Clutterbuck will be
determined by the Compensation and Organization Committee of KeyCorp's Board of
Directors. The Employment Agreements provide that the sum of an Executive's
annual base salary and annual bonus will not be less than a stated amount (the
"Guaranteed Compensation") for each of calendar years 1999 and 2000 and, in the
case of Messrs. Summers and Clutterbuck, calendar year 2001. The Guaranteed
Compensation for each of Messrs. Summers, Clutterbuck, Austin and Della Ratta is
$1,500,000, $1,500,000, $1,250,000 and $1,250,000, respectively. In addition,
the Employment Agreements provide that each Executive will be entitled to
receive a retention amount (the "Aggregate Retention Amount"), consisting of
cash payments and awards of non-qualified stock options to acquire KeyCorp
Common Shares (the "Retention Options"). See "-- Interests of Certain Persons in
the Merger -- Retention Program." The cash portion of each Executive's Aggregate
Retention Amount and the Retention Options will vest over the Employment Period
(five years in the case of Messrs. Summers and Clutterbuck and three years in
the case of all other Executives), subject to accelerated vesting in the event
of certain terminations of employment. The Retention Options have a term of ten
years and an exercise price equal to the fair market value of a KeyCorp Common
Share on the date of grant. The Aggregate Retention Amount for each of Messrs.
Summers, Clutterbuck, Austin and Della Ratta is $5,000,000, $5,000,000,
$3,000,000 and $3,500,000, respectively. The Employment Agreements provide that
the Executives will be eligible to participate in benefit plans which are no
less favorable in the aggregate than the plans provided to the Executives prior
to the Effective Time.
The Employment Agreements further provide that, upon the termination of an
Executive's employment other than for Cause (as defined in the Employment
Agreements) or if the Executive terminates employment for
35
<PAGE> 43
Good Reason (as defined in the Employment Agreements), each Executive will be
entitled to a lump-sum cash payment equal to the sum of (i) any unpaid annual
base salary, (ii) a pro rata annual bonus, based on the average annual bonus
earned in the three years prior to the date of termination (the "Average Annual
Bonus") and (iii) the product of (a) the number of years (including portions
thereof) from the date of termination until the end of the Employment Period and
(b) the sum of the Executive's annual base salary and the Average Annual Bonus.
Upon a covered termination, the unpaid cash portion of the Aggregate Retention
Amount and the unvested Retention Options will become fully vested and payable
or exercisable, as the case may be. In addition, each Executive will be entitled
to receive medical and welfare benefits coverage through the end of the
Employment Period. Generally, if any amounts payable to an Executive under the
Employment Agreement or otherwise would subject such Executive to the excise tax
under Section 4999 of the Code, the Executive will be entitled to a payment such
that after the payment of all income and excise taxes, the Executive will be in
the same after-tax position as if no excise tax under Section 4999 had been
imposed, provided that, if such payments (excluding additional amounts payable
due to the excise tax) do not exceed 110% of the greatest amount that could be
paid without giving rise to the excise tax, no additional payments will be made
with respect to the excise tax, and the payments otherwise due to the Executive
will be reduced to an amount necessary to prevent the application of the excise
tax. Each Employment Agreement contains restrictive covenants, which prohibit
the Executive from disclosing confidential information, soliciting employees or
customers of McDonald & Company and competing with McDonald & Company or its
affiliates during the Employment Period and for specified periods thereafter.
Retention Program. The Merger Agreement provides that, in connection with
the Merger, a key employee retention program (the "Retention Program") will be
established, consisting of approximately (i) $30 million in cash and (ii)
Retention Options valued at $38 million (based on the Black-Scholes option
pricing model), which will be awarded to certain designated employees
(including, as described above, the Executives), in the amounts determined by
the senior management of McDonald & Company and, in the case of the Executives,
in the amounts set forth in the Employment Agreements. David W. Knall, Senior
Managing Director of McDonald & Company Securities, Inc. ("McDonald
Securities"), and one of the five most highly compensated executive officers of
McDonald & Company for the fiscal year ended March 27, 1998, who has not entered
into an Employment Agreement, is eligible to receive an Aggregate Retention
Amount under the Retention Program of up to $2,415,717, subject to the terms of
the Retention Program. Generally, the cash portion of the retention and the
stock options vest and become payable or exercisable, as the case may be, over a
three-year period, subject to accelerated vesting upon certain terminations of
employment.
Equity Incentive Plans. The Merger Agreement provides that at the Effective
Time each outstanding and unexercised stock option to purchase shares of
McDonald & Company Common Stock granted under the McDonald & Company Stock Plans
will cease to represent the right to acquire shares of McDonald & Company Common
Stock and will be converted into and become a substantially identical right with
respect to KeyCorp Common Shares. Pursuant to the terms of the McDonald &
Company Stock Plans on the date on which the Merger is approved by the McDonald
& Company Stockholders, the unvested stock options and the restricted stock
awards granted under the McDonald & Company Stock Plans, including awards held
by certain executive officers and employee directors of McDonald & Company, will
become fully vested and exercisable and all restrictions on any such awards will
lapse. The number of unvested stock options to acquire shares of McDonald &
Company Common Stock held by Messrs. Summers, Clutterbuck, Austin, Della Ratta
and Knall as of the Record Date that will become fully vested and exercisable as
a result of the Merger is approximately , ,
, and , respectively. The number of
shares of McDonald & Company Common Stock underlying awards of restricted stock
held by Messrs. Summers, Clutterbuck, Austin, Della Ratta and Knall as of the
Record Date that will become transferable or nonforfeitable as a result of the
Merger is approximately , , ,
and , respectively.
Indemnification and Insurance. The Merger Agreement provides that, for a
period of six years following the Effective Time, KeyCorp will indemnify, defend
and hold harmless, to the fullest extent that McDonald & Company is permitted to
indemnify its directors and officers on the date of the Merger Agreement, the
present and former officers and directors of McDonald & Company and its
subsidiaries against all losses, expenses, claims, damages or liabilities
arising out of actions or omissions occurring at or prior to the Effective Time.
The
36
<PAGE> 44
Merger Agreement also provides that KeyCorp will use its reasonable best efforts
for five years after the Effective Time, to cause the persons serving as
officers and directors of McDonald & Company and its subsidiaries immediately
prior to the Effective Time to be covered by the directors' and officers'
liability insurance policy maintained by McDonald & Company, or a substitute
therefor with at least the same coverage, with respect to acts or omissions
occurring prior to the Effective Time; provided that in no event is KeyCorp
required to expend more than 200% of the current amount expended by McDonald &
Company to maintain such insurance and that if KeyCorp is unable to maintain or
obtain such insurance it will use its reasonable best efforts to obtain as much
comparable insurance as available for such 200% amount.
The McDonald & Company Board was aware of these interests and considered
them, among other matters, in approving the Merger Agreement and the
transactions contemplated thereby.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains representations and warranties of KeyCorp and
McDonald & Company as to, among other things, (i) the corporate organization and
existence of each party and its subsidiaries; (ii) the capitalization of each of
KeyCorp and McDonald & Company and its subsidiaries; (iii) the corporate power
and authority of each party; (iv) the compliance of the Merger Agreement and the
Option Agreement with (a) the certificate and by-laws (or similar organizational
documents) of each party, (b) applicable law and (c) the contracts of each
party; (v) governmental and third-party approvals; (vi) required regulatory
reports; (vii) KeyCorp's and McDonald & Company's financial statements and
filings with the Commission; (viii) broker's fees; (ix) the absence of certain
changes in KeyCorp's and McDonald & Company's businesses since January 1, 1998;
(x) the absence of material legal proceedings; (xi) the filing and accuracy of
tax returns; (xii) employee benefit plans and related matters; (xiii) compliance
with applicable law; (xiv) the absence of material defaults under certain
contracts; (xv) agreements with regulatory agencies; (xvi) the validity of
investment securities; (xvii) derivative contracts; (xviii) the absence of
undisclosed liabilities; (xix) the absence of environmental liabilities; (xx)
investment advisory activities; and (xxi) insurance coverage.
CONDUCT OF BUSINESS PENDING THE MERGER; OTHER AGREEMENTS
McDonald & Company agreed in the Merger Agreement to refrain from taking
certain actions relating to its operations pending consummation of the Merger,
without the prior written consent of KeyCorp, except as otherwise permitted in
the Merger Agreement (including exceptions disclosed in connection with the
Merger Agreement). These actions include, without limitation: (i) conducting the
business of McDonald & Company other than in the ordinary and usual course or
failing to use reasonable best efforts to preserve McDonald & Company's business
organizations, assets and relationships, or engaging in any new lines of
business; (ii) issuing any additional shares of McDonald & Company Common Stock,
other than pursuant to options or other rights to acquire McDonald & Company
Common Stock previously disclosed to KeyCorp and outstanding on the date of the
Merger Agreement, or permitting any additional shares of McDonald & Company
Common Stock to become subject to new grants of employee or director stock
options, or similar stock-based employee rights; (iii) (a) declaring or paying
any dividend or making any distribution (other than regular quarterly cash
dividends on McDonald & Company Common Stock in an amount not to exceed $0.0625
per share) on shares of McDonald & Company Common Stock or (b) adjusting,
splitting, combining, redeeming, reclassifying or acquiring any shares of
McDonald & Company's capital stock; (iv) entering into, amending or renewing any
employment, consulting, severance or similar agreement with any director,
officer or employee, or granting any salary or wage increase or increasing any
employee benefit, except (a) for normal individual compensation increases in the
ordinary course of business consistent with past practice, (b) for changes
required by applicable law, (c) to satisfy existing contractual obligations, or
(d) for employment arrangements for, or grants of awards to, newly hired
employees in the ordinary course of business consistent with past practice; (v)
entering into, establishing, adopting or amending any employee benefit,
incentive or welfare contract, plan or arrangement, in respect of any director,
officer or employee, or taking any action to accelerate the vesting or
exercisability of stock options, restricted stock or other compensation or
benefits payable thereunder, except (a) as required by applicable law, (b) to
satisfy existing obligations or (c) the adoption of the McDonald & Company 1998
Deferred Bonus Plan (the "1998 Plan"), which provides for bonuses of shares of
McDonald & Company Common Stock to eligible employees, provided
37
<PAGE> 45
that McDonald & Company may not make awards under the 1998 Plan without
KeyCorp's consent; (vi) selling, transferring, mortgaging, leasing, encumbering
or disposing of or discontinuing any material portion of its assets, business or
properties except for the sale of securities or other investments or assets in
the ordinary course of business consistent with past practice; (vii) merging or
consolidating with, or acquiring all or any material portion of the assets of,
any other entity except the purchase of securities or other investments or
assets in the ordinary course of business consistent with past practice and
except for the acquisition of Essex Investment Group and its wholly owned
subsidiary Essex Capital Markets, Inc. ("Essex"), to which KeyCorp has
consented; (viii) amending the McDonald & Company Certificate or the McDonald &
Company By-Laws; (ix) implementing or adopting any change in its accounting
principles, practices or methods, other than as may be required by generally
accepted accounting principles ("GAAP"); (x) entering into, renewing,
terminating, amending or modifying any material contract except in the ordinary
course of business consistent with past practice; (xi) settling any claim,
action or proceeding, except for those involving solely money damages in an
amount, individually or in the aggregate for all such settlements, that is not
more than $250,000 and that is not reasonably likely to establish an adverse
precedent or basis for subsequent settlements; (xii) except as and to the extent
required, based upon the advice of outside counsel, in the exercise of the
fiduciary obligations of McDonald & Company to any investment company,
requesting that any action be taken by any board of directors or trustees of any
investment company sponsored, organized, advised or managed by McDonald &
Company, other than (a) routine actions that would not, individually or in the
aggregate, be material to McDonald & Company or any such investment company or
(b) actions necessary to allow consummation of the Merger; (xiii) (a) taking any
action reasonably likely to prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), or (b) knowingly taking any action that is
intended or is reasonably likely to result in (1) any of its representations and
warranties set forth in the Merger Agreement being untrue in any material
respect at any time at or prior to the Effective Time, (2) any of the conditions
to the Merger set forth in the Merger Agreement not being satisfied or (3) a
material violation of any provision of the Merger Agreement except, in each
case, as may be required by applicable law; (xiv) except as required by
applicable law, (a) implementing or adopting any material change in McDonald &
Company's interest rate or other risk management policies, procedures or
practices or (b) failing to use commercially reasonable means to avoid any
material increase in McDonald & Company's aggregate exposure to risk from
general United States securities markets; (xv) authorizing or making any capital
expenditures, other than (a) annual budgeted amounts or (b) in the ordinary
course of business consistent with past practice in amounts not exceeding
$250,000 in the aggregate; (xvi) making or changing any material tax election,
changing any annual tax accounting period, adopting or changing any method of
tax accounting, filing any amended tax return, entering into any material
closing agreement, settling any material tax claim or assessment, surrendering
or compromising any right to claim a material tax refund, or consenting to any
extension or waiver of the limitations period applicable to any material tax
claim or assessment, in each case, other than any of the foregoing actions that
are not material and which are taken in the ordinary course of business
consistent with past practice; (xvii) initiating any new business activity that
would be impermissible for a "bank holding company" under the BHCA; and (xviii)
agreeing or committing to do any of the foregoing.
KeyCorp agreed in the Merger Agreement to refrain from taking certain
actions relating to its operations pending consummation of the Merger, without
the prior written consent of McDonald & Company, except as otherwise permitted
in the Merger Agreement. These actions include, without limitation: (i) taking
any action reasonably likely to prevent or impede the Merger from qualifying as
a reorganization within the meaning of Section 368(a) of the Code; (ii)
knowingly taking any action that is intended or is reasonably likely to result
in (a) any of its representations and warranties set forth in the Merger
Agreement being or becoming untrue in any material respect at any time prior to
the Effective Time, (b) any of the conditions to the Merger set forth in the
Merger Agreement not being satisfied or (c) a material breach of any provision
of the Merger Agreement, except, in each case, as may be required by applicable
law; and (iii) declaring any extraordinary dividend.
KeyCorp and McDonald & Company also have agreed to use their reasonable
best efforts to take all actions and to do all things necessary, proper or
desirable so as to permit the consummation of the Merger as promptly as
reasonably practicable and otherwise enable the consummation of the transactions
contemplated by the Merger Agreement. KeyCorp and McDonald & Company have each
further agreed to give the other party such access as reasonably necessary to
all of their respective properties, books, personnel and records and to such
other
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<PAGE> 46
information as the other party may reasonably request, subject to the
restrictions set forth in the Merger Agreement.
McDonald & Company will use its reasonable best efforts to obtain, as
promptly as practicable, (i) the approval of the stockholders of each of the
funds (the "Funds") sponsored, organized, advised or managed by McDonald &
Company or one of its subsidiaries that is registered or required to be
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), pursuant to the provisions of Section 15 of the 1940 Act if applicable
thereto, of a new investment company advisory agreement for such Fund no less
favorable to McDonald & Company or its subsidiaries to that in effect
immediately prior to the closing of the Merger and (ii) a consent to assignment
from each private account holder to whom it is providing investment advisory
services. In addition, McDonald & Company will assure, prior to the Effective
Time, that the composition of the board of directors or the trustees of each
Fund is in compliance with Section 15(f)(1)(A) of the 1940 Act. The parties also
agreed, for a period of three years following the Effective Time, to use their
respective reasonable best efforts to assure compliance with the conditions of
Section 15(f) of the 1940 Act with respect to the Funds.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
After the Effective Time, certain officers of McDonald & Company and its
subsidiaries will serve in executive capacities with KeyCorp or its subsidiaries
under the Employment Agreements. See " -- Interests of Certain Persons in the
Merger."
Following the Merger, KeyCorp and McDonald & Company currently intend to
effectuate the combination of the business of Key Capital Markets, Inc. with
that of McDonald & Company and to consolidate the operations of other businesses
of KeyCorp and McDonald & Company that provide comparable services. The combined
entity will operate under the name "McDonald Key Investments Inc." The
combination is subject to required regulatory approvals, receipt of which is not
a condition to the Merger. As of the date of this Proxy Statement-Prospectus, no
final determination with respect to such matters has been made.
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<PAGE> 47
STOCK OWNERSHIP OF PRINCIPAL HOLDERS AND MANAGEMENT
The following table sets forth, as of August 1, 1998, the beneficial
ownership of McDonald & Company Common Stock of (i) each person who is known to
McDonald & Company to own beneficially more than 5% of McDonald & Company Common
Stock (without taking into account the shares of McDonald & Company Common Stock
that KeyCorp could acquire if it exercised the McDonald & Company Option
pursuant to the terms of the Option Agreement), (ii) each Director of McDonald &
Company, (iii) each of those persons who were (a) the chief executive officer
during the fiscal year ended March 27, 1998 and (b) the other four most highly
compensated executive officers of McDonald & Company for the fiscal year ended
March 27, 1998, and (iv) all Directors and executive officers of McDonald and
Company as a group as of August 1, 1998, and the percentage of the outstanding
shares represented thereby:
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER,
DIRECTOR, EXECUTIVE OFFICER AMOUNT AND NATURE OF PERCENT
OR NUMBER OF PERSONS IN GROUP BENEFICIAL OWNERSHIP OF CLASS
----------------------------- -------------------- --------
<S> <C> <C>
Peter R. Kellogg(1)
120 Broadway
New York, New York 10271.................................. 1,200,000 6.43%
Daniel F. Austin(2)......................................... 141,522(5)(6)(7) *
Rena J. Blumberg(3)......................................... 20,000(5) *
Jeanette Grasselli Brown(3)................................. 9,000(5) *
Robert T. Clutterbuck(4).................................... 301,787(5)(6)(8) 1.61
Ralph M. Della Ratta, Jr.(2)................................ 65,192(5)(6) *
Edward Fruchtenbaum(3)...................................... 10,000(5) *
James A. Karman(3).......................................... 20,000(5) *
David W. Knall(2)........................................... 169,788(5) *
David N. McCammon(3)........................................ 6,000(5) *
Frederick R. Nance(3)....................................... 13,200(5) *
Thomas M. O'Donnell(4)...................................... 261,160(9) 1.40
William B. Summers, Jr.(4).................................. 394,444(5)(6) 2.11
Donald E. Weston(3)......................................... 493,228(10) 2.64
All Directors and executive officers
as a group (26 persons)................................... 2,819,928(5)(6) 14.87
</TABLE>
- ---------------
* Less than one percent.
(1) Based solely upon information contained in a Schedule 13D filed with the
Commission.
(2) Executive officer of McDonald & Company.
(3) Director of McDonald & Company.
(4) Director and executive officer of McDonald & Company.
(5) Includes the following number of shares of McDonald & Company Common Stock
which such individual or group had the right to acquire within 60 days after
August 1, 1998 through the exercise of stock options, including shares
subject to stock options that will vest and become exercisable if the Merger
Agreement is adopted by the McDonald & Company Stockholders at the Special
Meeting: 41,600 shares (Mr. Austin); 17,600 shares (Ms. Blumberg); 8,000
shares (Ms. Brown); 34,000 shares (Mr. Clutterbuck); 6,479 shares (Mr. Della
Ratta); 8,000 shares (Mr. Fruchtenbaum); 17,600 shares (Mr. Karman); 2,500
shares (Mr. Knall); 6,000 shares (Mr. McCammon); 11,100 shares (Mr. Nance);
70,000 shares (Mr. Summers); and 301,629 shares (all Directors and executive
officers as a group). For purposes of calculating the percentage of
outstanding shares beneficially owned by such individual or group, the
shares which such individual or group had the right to acquire during that
period by exercise of stock options are deemed to be outstanding.
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<PAGE> 48
(6) Includes shares of McDonald & Company Common Stock owned under the McDonald
& Company 1995 Stock Bonus Plan and the McDonald & Company 1993 Stock Bonus
Plan.
(7) Includes 1,176 shares of McDonald & Company Common Stock owned by Mr.
Austin's spouse.
(8) Includes 40,244 shares of McDonald & Company Common Stock owned by Mr.
Clutterbuck's spouse, 168 shares of McDonald & Company Common Stock owned by
Mr. Clutterbuck as custodian for his children, and 4,000 shares of McDonald
& Company Common Stock owned by the Clutterbuck Family Foundation.
(9) Includes 7,900 shares of McDonald & Company Common Stock owned by the T.M.
and M.A. O'Donnell Foundation of which Mr. O'Donnell serves as the trustee.
(10) Includes 8,000 shares held by the Weston Family Foundation and 484,200
shares owned by the Donald E. Weston Revocable Trust.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
MARKET PRICES
KeyCorp Common Shares are, and the shares offered hereby will be, listed on
the NYSE and traded under the symbol "KEY." The following table sets forth, for
the periods indicated, the high and low reported closing sale prices per KeyCorp
Common Share on the NYSE Composite Transactions List. The KeyCorp Common Share
price information has been adjusted to reflect the two-for-one stock split
effected by means of a 100% stock dividend payable March 6, 1998.
McDonald & Company Common Stock is listed on the NYSE and traded under the
symbol "MDD." The following tables set forth, for the periods indicated, the
high and low reported closing sale prices per share of McDonald & Company Common
Stock on the NYSE Composite Transactions List. The McDonald & Company Stock
price information has been adjusted to reflect a two-for-one stock split
effected by means of a 100% stock dividend payable September 15, 1997.
<TABLE>
<CAPTION>
KEYCORP
SALES PRICES
----------------
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
First Quarter............................................. $19.57 $16.69
Second Quarter............................................ 20.13 18.38
Third Quarter............................................. 22.19 18.13
Fourth Quarter............................................ 27.13 21.85
YEAR ENDED DECEMBER 31, 1997:
First Quarter............................................. $28.19 $24.32
Second Quarter............................................ 29.22 23.94
Third Quarter............................................. 32.72 27.63
Fourth Quarter............................................ 36.59 28.50
YEAR ENDED DECEMBER 31, 1998:
First Quarter............................................. $39.25 $31.56
Second Quarter............................................ 44.88 34.44
Third Quarter (through August 10, 1998)...................
</TABLE>
<TABLE>
<CAPTION>
MCDONALD &
COMPANY
SALES PRICES
----------------
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED MARCH 28, 1997:
First Quarter............................................. $10.38 $ 9.44
Second Quarter............................................ 12.56 8.87
Third Quarter............................................. 17.44 11.94
Fourth Quarter............................................ 20.44 16.50
</TABLE>
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<PAGE> 49
<TABLE>
<CAPTION>
MCDONALD &
COMPANY
SALES PRICES
----------------
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED MARCH 27, 1998:
First Quarter............................................. $22.75 $17.63
Second Quarter............................................ 29.50 21.50
Third Quarter............................................. 29.44 21.94
Fourth Quarter............................................ 30.94 23.38
YEAR ENDED MARCH 26, 1999:
First Quarter............................................. $33.56 $27.50
Second Quarter (through August 10, 1998)..................
</TABLE>
DIVIDENDS
The following tables set forth dividends declared per KeyCorp Common Share
and share of McDonald & Company Common Stock, respectively, for the periods
indicated. The dividend information has been adjusted to reflect the KeyCorp
two-for-one stock split, payable March 6, 1998, and the McDonald & Company
two-for-one stock split, payable September 15, 1997. The ability of KeyCorp to
pay dividends to its shareholders is subject to certain restrictions. See
"Certain Regulatory Matters." Pursuant to the Merger Agreement, McDonald &
Company has covenanted not to declare or pay any dividend or other distribution
on shares of its capital stock other than regular quarterly cash dividends on
shares of McDonald & Company Common Stock in an amount not to exceed $0.0625 per
share. See "The Merger -- Conduct of Business Pending the Merger; Other
Agreements".
<TABLE>
<CAPTION>
KEYCORP
DIVIDENDS
---------
<S> <C>
YEAR ENDED DECEMBER 31, 1996:
First Quarter............................................. $.19
Second Quarter............................................ .19
Third Quarter............................................. .19
Fourth Quarter............................................ .19
YEAR ENDED DECEMBER 31, 1997:
First Quarter............................................. $.21
Second Quarter............................................ .21
Third Quarter............................................. .21
Fourth Quarter............................................ .21
YEAR ENDED DECEMBER 31, 1998:
First Quarter............................................. $.235
Second Quarter............................................ .235
</TABLE>
<TABLE>
<CAPTION>
MCDONALD & COMPANY
DIVIDENDS
------------------
<S> <C>
YEAR ENDED MARCH 28, 1997:
First Quarter............................................. $.0424
Second Quarter............................................ .0469
Third Quarter............................................. .0469
Fourth Quarter............................................ .0469
YEAR ENDED MARCH 27, 1998:
First Quarter............................................. $.0469
Second Quarter............................................ .0625
Third Quarter............................................. .0625
Fourth Quarter............................................ .0625
YEAR ENDED MARCH 26, 1999:
First Quarter............................................. $.0625
</TABLE>
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<PAGE> 50
BUSINESS OF KEYCORP
OVERVIEW
KeyCorp, incorporated in 1958 under the laws of the State of Ohio and
registered under the BHCA, is headquartered in Cleveland, Ohio, and is engaged
primarily in the business of commercial and retail banking. At June 30, 1998, it
was one of the largest bank holding companies in the United States with
consolidated total assets of approximately $75.8 billion. Its subsidiaries
provide a wide range of banking, equipment leasing, fiduciary and other
financial services to its corporate, individual and institutional customers
through four lines of business: Key Corporate Capital, Key Consumer Finance, Key
Community Bank and Key Capital Partners. These services are provided across much
of the country through subsidiaries operating 962 full-service banking offices
in 13 states (Alaska, Colorado, Idaho, Indiana, Maine, Michigan, New Hampshire,
New York, Ohio, Oregon, Utah, Vermont and Washington), as 24-hour telephone
banking call center services group and nearly 2,600 ATMs as of June 30, 1998. At
June 30, 1998, KeyCorp and its subsidiaries had approximately 24,711 full-time
equivalent employees.
KeyCorp is a legal entity separate and distinct from its banking and other
subsidiaries. Accordingly, the rights of KeyCorp, its security holders and its
creditors to participate in any distribution of the assets or earnings of its
banking or other subsidiaries is necessarily subject to the prior claims of the
respective creditors of such banking and other subsidiaries, except to the
extent that claims of KeyCorp in its capacity as a creditor of such banking and
other subsidiaries may be recognized. The principal executive office of KeyCorp
is 127 Public Square, Cleveland, Ohio 44114-1306, and its telephone number is
(216) 689-6300.
SUBSIDIARIES
KeyCorp's largest banking subsidiaries are KeyBank National Association,
headquartered in Cleveland, Ohio (the 14th largest bank in the United States at
December 31, 1997, based on asset size), with $71.2 billion in total assets and
962 full-service banking offices in Alaska, Colorado, Idaho, Indiana, Maine,
Michigan, New Hampshire, New York, Ohio, Oregon, Utah, Vermont and Washington at
June 30, 1998; and Key Bank USA, National Association, headquartered in
Cleveland, Ohio, with total assets of $4.5 billion at June 30, 1998, which is
involved in consumer loan activities.
In addition to the customary banking services of accepting deposits and
making loans, KeyCorp's bank and trust company subsidiaries provide specialized
services, including personal and corporate trust services, personal financial
services, customer access to mutual funds, cash management services, investment
banking and capital markets products, and international banking services.
Through its subsidiary banks, trust companies and registered investment adviser
subsidiaries, KeyCorp provides investment management services to institutional
and individual clients, including large corporate and public retirement plans,
Taft-Hartley plans (i.e., multiemployer trust funds providing pension, vacation
or other benefits to employees that are established in accordance with
applicable law), foundations and endowments, and high net worth individuals. In
addition, investment management subsidiaries serve as investment advisers to the
proprietary mutual funds offered by other affiliates.
A description of each of KeyCorp's major lines of business as of June 30,
1998, is as follows:
Key Corporate Capital. KeyCorp offers a complete range of financing,
transaction processing and financial advisory services to corporations
throughout the country through the Key Corporate Capital unit. It also operates
one of the largest bank-affiliated equipment leasing companies with operations
conducted both domestically and throughout Europe and Asia. Key Corporate
Capital's business units are organized around specialized industry client
segments, inclusive of healthcare, media/telecommunications, structured finance
and commercial real estate. In serving these targeted segments, Key Corporate
Capital provides a number of specialized services including international
banking, corporate finance advisory services, investment banking and capital
markets products, and 401(k) and trust custody products. Key Corporate Capital
is also one of the leading cash management providers in the country.
Key Consumer Finance. Key Consumer Finance is responsible for KeyCorp's
indirect, non-branch-based consumer loan and deposit products. This line of
business specializes in credit cards, automobile loans and leases,
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<PAGE> 51
marine and recreational vehicle loans, education loans, home equity loans and
branchless deposit-generating activities. As of December 31, 1997, based on the
volume of loans generated, Key Consumer Finance was the third largest education
lender in the nation, was one of the leading providers of financing for consumer
purchases of marine and recreational vehicles and ranked in the top ten in
retail automobile financing.
Key Community Bank. Key Community Bank is responsible for delivering a
complete line of branch-based retail financial products and services to small
businesses and consumers, addressing the more complex, diverse needs of the
affluent client segment and maximizing relationship management in the commercial
banking and public sector businesses. The delivery of these products and
services is accomplished through 962 KeyCenters, a 24-hour telephone banking
call center services group, nearly 2,600 ATMs that access 14 different networks
and comprise one of the largest ATM networks in the United States, and a core
team of relationship management professionals.
Key Capital Partners. Key Capital Partners was formed at the end of 1997 to
provide clients with asset management, investment banking, capital markets,
insurance and brokerage expertise.
KeyCorp provides other financial services both inside and outside of its
primary banking markets through its nonbank subsidiaries. These services include
accident and health insurance on loans made by subsidiary banks, venture
capital, community development financing, securities underwriting and brokerage,
automobile financing and other financial services. KeyCorp is also an equity
participant in joint ventures with a number of other unaffiliated companies in
Electronic Payment Services, Inc., which operates ATMs throughout the country,
Integrion Financial Network, L.L.C., which is building a platform for electronic
banking, and Key Merchant Services, L.L.C., which provides merchant services to
businesses.
YEAR 2000
The Year 2000 issue refers to the fact that many computer systems were
originally programmed using two digits rather than four digits to identify the
applicable year. When the year 2000 occurs, these systems could interpret the
year as 1900 rather than 2000. Unless hardware, system software and applications
are corrected to be Year 2000 compliant, computers and the devices they control
could generate miscalculations and create operational problems. Various systems
could be affected ranging from complex computer systems to telephone systems,
ATMs and elevators.
To address this issue, KeyCorp developed an extensive plan, including the
formation of a team consisting of internal resources and third-party experts.
The plan, originally developed in 1995, has been in implementation since that
time and has undergone appropriate modifications as warranted by the related
circumstances. KeyCorp prioritized the various operating systems (including
those maintained by its business partners and suppliers) that could be affected
by the Year 2000 issue, and efforts to ensure compliance of core systems deemed
critical to KeyCorp's operations have been accelerated. The cost of the project
(currently estimated to be in the range of $45 to $50 million) and timing of its
implementation are based on management's best estimates, which were derived
using numerous assumptions about future events, including the continued
availability of certain resources and other factors. However, there can be no
guarantee that these estimates will be achieved, and actual results could differ
materially from those anticipated. It is currently expected that approximately
$10 million of the estimated $15 to $20 million of costs yet to be incurred in
this project will be recognized during the second half of 1998 and the remainder
in 1999. KeyCorp is monitoring the efforts of its business partners, suppliers
and customers involved in addressing the potential problem on an on-going basis
and expects to complete substantially all of the necessary work by the end of
1998, allowing 1999 as a year of final testing and refinement. As of June 30,
1998, compliance efforts had been completed for approximately 40% of the core
systems identified.
In addition, financial institutions may experience increases in problem
loans and credit losses in the event that borrowers fail to properly respond to
this issue. KeyCorp also could be impacted if third parties it deals with in
conducting its business, such as foreign banks, governmental agencies, clearing
houses, telephone companies, and other service providers, fail to properly
address this issue. KeyCorp has formed an internal team to attempt to identify
critical business interfaces, to assess potential problems, and where
appropriate, to develop contingency plans. Because the Year 2000 issue has never
previously occurred, it is not possible to foresee or quantify the overall
financial and operational impact and/or to determine whether it will be material
to the financial condition or operations of KeyCorp.
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<PAGE> 52
BUSINESS OF MCDONALD & COMPANY
Founded as a partnership in 1924, and incorporated under the laws of the
State of Delaware on May 20, 1983, McDonald & Company is a holding company that
operates a full-service, regional investment banking, brokerage and investment
advisory business through its principal subsidiary McDonald Securities. McDonald
& Company is involved in the origination, underwriting, distribution, trading
and brokerage of fixed income and equity securities and provides investment
advisory services. It also provides personal trust services. Throughout its
history, McDonald & Company has enjoyed consistent profitability and financial
stability. Today, McDonald & Company has a total of 43 offices in 11 states.
McDonald & Company's principal office is in Cleveland, with 23 other offices in
Ohio (including the Gradison Division in Cincinnati, Ohio, which provides asset
management services, and the S. J. Wolfe Division in Dayton, Ohio, which
conducts a stock brokerage business) and 19 additional offices in 10 other
states. McDonald & Company has approximately 1,450 employees, of whom
approximately 340 are full-time retail investment consultants and approximately
65 are full-time institutional investment consultants.
McDonald & Company serves institutional customers that are located
throughout the United States and in Canada, Europe and the Far East. McDonald &
Company's retail (individual) customers are primarily located in the tri-state
region of Ohio, Michigan and Indiana. For the fiscal year ended March 27, 1998,
approximately 51% of total revenues were derived from retail customers, 18% from
institutional customers, 23% from non-customer related principal transactions,
investment banking fees and other activities and 8% from interest and dividend
income.
On June 26, 1998, McDonald & Company announced plans to acquire Essex, a
privately held, regional investment firm with five offices. Upon completion of
the merger, which is expected to close in early September 1998, Essex will
operate as a division of McDonald & Company.
McDonald Securities is a member of the NYSE, the American Stock Exchange,
Inc. (Associate), the Midwest Stock Exchange, Inc., the Philadelphia Stock
Exchange, Inc. and the NASD. McDonald & Company is also a member of the SIPC.
The address of the principal executive office of McDonald & Company is
McDonald Investment Center, 800 Superior Avenue, Cleveland, Ohio 44114-2603 and
its telephone number is (216) 443-2300.
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<PAGE> 53
CERTAIN REGULATORY MATTERS
The following discussion addresses certain of the material elements of the
regulatory framework applicable to bank holding companies and their
subsidiaries, and provides certain specific information regarding KeyCorp. For
further discussion of this regulatory framework, see pages 2-7 of KeyCorp's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997, which is
incorporated herein by reference. See "Where You Can Find More Information."
Regulation of financial institutions, such as KeyCorp, is intended primarily for
the protection of depositors, the deposit insurance funds of the Federal Deposit
Insurance Corporation ("FDIC") and the banking system as a whole, and generally
is not intended for the protection of shareholders or other investors.
In the following discussion, references to statutes and regulations are
brief summaries thereof and are qualified in their entirety by reference to the
full text of such statutes and regulations. In addition, there are other
statutes and regulations not described below that apply to the operation of
banking institutions. Changes in the applicable laws, and in their application
by regulatory agencies, cannot necessarily be predicted, but they may have a
material effect on the business and results of KeyCorp.
GENERAL
As a bank holding company, KeyCorp is subject to the regulation,
supervision and examination of the Federal Reserve Board under the BHCA. Under
the BHCA, bank holding companies may not, in general, directly or indirectly
acquire the ownership or control of more than 5% of the voting shares, or
substantially all of the assets, of any company, including a bank, without the
prior approval of the Federal Reserve Board. In addition, bank holding companies
are generally prohibited under the BHCA from engaging in commercial or
industrial activities.
KeyCorp's banking and trust company subsidiaries are also subject to
extensive regulation, supervision and examination by applicable federal and
state banking agencies. These subsidiaries are also affected by various federal
laws, including those relating to consumer protection and similar matters.
KeyCorp also has other financial services subsidiaries that are subject to
regulation, supervision and examination by the Federal Reserve Board, as well as
other applicable state and federal regulatory agencies. Other nonbank
subsidiaries of KeyCorp are subject to other laws and regulations of both the
federal government and the various states in which they were organized or are
authorized to do business.
DIVIDEND RESTRICTIONS
The principal source of cash flow to KeyCorp, including cash flow to pay
dividends on the KeyCorp Common Shares and debt service on KeyCorp's debt, is
dividends from its banking and other subsidiaries. Various statutory and
regulatory provisions limit the amount of dividends that may be paid to KeyCorp
by its banking subsidiaries without regulatory approval.
The approval of the Office of the Comptroller of the Currency ("OCC") is
required for the payment of any dividend by a national bank if the total of all
dividends declared by the board of directors of such bank in any calendar year
would exceed the total of: (i) the bank's net income for the current year plus
(ii) the retained net income (as defined and interpreted by regulation) for the
preceding two years, less any required transfer to surplus or a fund for the
retirement of any preferred stock. In addition, a national bank can pay
dividends only to the extent of its undivided profits. All of KeyCorp's banking
subsidiaries and trust company subsidiaries, with the exception of Society Trust
Company of New York, are national banks and are subject to these restrictions.
In addition, if, in the opinion of a federal banking agency, a depository
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
institution, could include the payment of dividends) the agency may require,
after notice and hearing, that such institution cease and desist from such
practice. The payment of dividends that would deplete a depository institution's
capital base to an inadequate level could be deemed an unsafe and unsound
practice.
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<PAGE> 54
CAPITAL REQUIREMENTS
KeyCorp is subject to risk-based capital requirements and guidelines
imposed by the Federal Reserve Board, which are substantially similar to the
capital requirements and guidelines imposed by the Federal Reserve Board, the
OCC and the FDIC on the depository institutions within their respective
jurisdictions. For this purpose, a depository institution's or holding company's
assets and certain specified off-balance sheet commitments and obligations are
assigned to various risk categories. A depository institution's or holding
company's capital, in turn, is classified in one of three tiers: core ("Tier 1")
capital, which includes common equity, non-cumulative perpetual preferred stock,
a limited amount of cumulative perpetual preferred stock at the holding company
level and minority interests in equity accounts of consolidated subsidiaries,
less goodwill, and most intangible assets; supplementary ("Tier 2") capital,
which includes, among other items, perpetual preferred stock not meeting the
Tier 1 definition, mandatory convertible securities, subordinated debt and
allowances for loan and lease losses, subject to certain limitations; and market
risk ("Tier 3") capital, which includes qualifying unsecured subordinated debt.
KeyCorp, like other bank holding companies, currently is required to
maintain Tier 1 capital and "total capital" (the sum of Tier 1, Tier 2 and Tier
3 capital) equal to at least 4% and 8%, respectively, of its total risk-weighted
assets (including certain off-balance-sheet items, such as standby letters of
credit). In addition, in order for a holding company or depository institution
to be considered "well capitalized" for regulatory purposes, its Tier 1 and
total capital ratios must be 6% and 10% on a risk-adjusted basis, respectively.
At June 30, 1998, KeyCorp met both requirements, with estimated Tier 1 and total
capital equal to 6.86% and 11.38%, respectively, of its total risk-weighted
assets.
The Federal Reserve Board, the FDIC and the OCC have adopted rules to
incorporate market and interest rate risk components into their risk-based
capital standards. Amendments to the risk-based capital requirements,
incorporating market risk, became effective January 1, 1998. Under the new
market risk requirements, capital will be allocated to support the amount of
market risk related to a financial institution's ongoing trading activities.
The Federal Reserve Board also requires bank holding companies to maintain
a minimum "leverage ratio" (Tier 1 capital to adjusted total assets) of 3% if
the holding company has the highest regulatory rating and meets certain other
requirements, or of 3% plus an additional "cushion" of at least 100 to 200 basis
points if the holding company does not meet these requirements. At June 30,
1998, KeyCorp's estimated leverage ratio was 7.04%.
The Federal Reserve Board may set capital requirements higher than the
minimums noted above for holding companies whose circumstances warrant it. For
example, holding companies experiencing or anticipating significant growth may
be expected to maintain capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the Federal Reserve Board has indicated that it will consider a
"tangible Tier 1 capital leverage ratio" (deducting all intangibles) and other
indicia of capital strength in evaluating proposals for expansion or new
activities.
KeyCorp's banking subsidiaries are subject to similar risk-based and
leveraged capital requirements adopted by its applicable federal banking agency,
and each was in compliance with the applicable capital requirements as of June
30, 1998.
Failure to meet capital requirements could subject a bank to a variety of
enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business.
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<PAGE> 55
DESCRIPTION OF KEYCORP CAPITAL STOCK
KeyCorp's authorized capital stock consists of 1,400,000,000 KeyCorp Common
Shares, and 25,000,000 shares of Preferred Stock, with a par value of $1 each
(the "Serial Preferred Stock"). As of August 10, 1998, KeyCorp
Common Shares were outstanding.
The following summary of the material terms of the KeyCorp Common Shares
reflects the KeyCorp Regulations, as well as the KeyCorp Articles, and
provisions of the OGCL. The summary does not purport to be complete and is
qualified in its entirety by reference to the KeyCorp Articles, the KeyCorp
Regulations and relevant provisions of the OGCL.
GENERAL
The KeyCorp Common Shares have no preemptive rights or sinking fund
provisions and are not redeemable or convertible into other securities. All
presently outstanding KeyCorp Common Shares have been fully paid and are
non-assessable. Upon full payment of KeyCorp Common Shares hereafter issued in
an amount in excess of the par value thereof, holders of KeyCorp Common Shares,
as such holders, will not be liable for further calls or to assessment by
KeyCorp or for the liabilities of KeyCorp.
VOTING RIGHTS
The holders of KeyCorp Common Shares are entitled to one vote for each
KeyCorp Common Share held of record on each matter properly submitted to
shareholders for their vote, consent, waiver, release or other action. Holders
of KeyCorp Common Shares are not entitled to the right of cumulative voting.
Under the KeyCorp Articles, any proposal which, under applicable law,
requires the approval of the shareholders of KeyCorp:
(i) to adopt an amendment to the KeyCorp Articles,
(ii) to sell, exchange, transfer or otherwise dispose of all, or
substantially all, the assets of KeyCorp,
(iii) to effect a merger or consolidation involving KeyCorp,
(iv) to effect a combination or majority share acquisition (as such
terms are defined by the laws of the State of Ohio), or
(v) to dissolve, liquidate or wind up the affairs of KeyCorp,
may be authorized and approved by the affirmative vote of the holders of shares
entitling them to exercise a majority of the voting power of KeyCorp, and by the
affirmative vote of the majority of any class if a class vote is required
(except as otherwise provided with respect to the Serial Preferred Stock). The
KeyCorp Articles do not reduce the vote of shareholders required to approve a
transaction which requires shareholder approval under the Ohio Interested
Shareholder Transaction Law.
The KeyCorp Regulations provide that the KeyCorp Regulations may be
amended, repealed or altered or new regulations may be adopted (i) at a meeting
of shareholders by the affirmative vote of the holders of shares entitling them
to exercise three-quarters of the voting power of KeyCorp on such proposal,
provided, however, if such amendment, repeal, alteration or adoption is
recommended by at least two-thirds of the entire authorized Board of Directors,
the shareholder vote required is the affirmative vote of the holders of shares
entitling them to exercise a majority of the voting power of KeyCorp on such
proposal or (ii) without a meeting, by the written consent of the holders of
shares entitling them exercise 100% of the voting power of KeyCorp on such
proposal.
The KeyCorp Regulations provide that the number of directors shall be
between 17 and 20, divided into three classes. The Board of Directors presently
consists of 19 members divided into three classes as follows: one class of seven
directors whose terms will expire at the 1999 annual meeting of shareholders and
two classes of six directors whose terms will expire at the 2000 and 2001 annual
meetings of shareholders, respectively. The Board of Directors may change the
size of the Board of Directors within the foregoing range by the affirmative
vote of a majority of the entire authorized Board. The shareholders may fix or
change the size of the Board of Directors
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<PAGE> 56
within the foregoing range at a meeting of the shareholders of KeyCorp called
for the purpose of electing directors (i) by the affirmative vote of the holders
of shares entitling them to exercise three-quarters of the voting power of
KeyCorp represented at the meeting and entitled to elect directors or (ii) if
the proposed change in the number of directors is recommended by a majority of
the entire authorized Board of Directors, by the affirmative vote of the holders
of shares entitling them to exercise a majority of the voting power of KeyCorp
represented at the meeting and entitled to elect directors. If the Board of
Directors or the shareholders change the number of directors as provided for in
this paragraph, the three classes of the Board of Directors shall be divided
into as equal a number of directors as possible, with the Board of Directors or
the shareholders, as the case may be, fixing or determining the adjustment to be
made in each class. No reduction in the number of directors shall of itself have
the effect of shortening the term of any incumbent director. In the event that
the Board of Directors increases the number of directors, it may fill the
vacancy or vacancies created by the increase in the number of directors for the
respective unexpired terms as set forth below. In the event the shareholders
increase the number of directors and fail to fill the vacancy or vacancies
created thereby, the Board of Directors may fill such vacancy or vacancies for
the respective unexpired terms as set forth below.
The number of directors and the number of directors of any class may not be
fixed or changed by the shareholders or directors, except (i) by amending the
KeyCorp Regulations as set forth above, (ii) pursuant to an agreement of merger
or consolidation approved by two-thirds of the members of the entire authorized
Board of Directors and adopted by the shareholders at a meeting held for such
purpose by the affirmative vote of the holders of shares entitling them to
exercise a majority of the voting power of KeyCorp on such proposal, or (iii) as
provided in the immediately preceding paragraph or in the next following
paragraph.
The number of directors is subject to automatic increase by two during
certain periods when dividends payable on any class or series of preferred stock
of KeyCorp are in arrears for six quarterly dividend payment periods, as set
forth in the KeyCorp Articles and/or the express terms of any outstanding
preferred stock of KeyCorp.
REMOVAL OF DIRECTORS AND FILLING VACANCIES
The KeyCorp Regulations provide that the Board of Directors may remove any
director and thereby create a vacancy on the Board: (i) if by order of court the
director has been found to be of unsound mind or if the director is adjudicated
a bankrupt or (ii) if within 60 days from the date of his or her election the
director does not qualify by accepting in writing his or her election to such
office or by acting at a meeting of directors.
All of the directors, or all of the directors of a particular class, or any
individual director, may only be removed from office by the affirmative vote of
the holders of shares entitling them to exercise three-quarters of the voting
power of KeyCorp entitled to elect directors in place of those to be removed. In
case of any such removal, a new director nominated in accordance with the
KeyCorp Regulations may be elected at the same meeting for the unexpired term of
each director removed. Failure to elect a director to fill the unexpired term of
any director removed is deemed to create a vacancy on the Board.
The KeyCorp Regulations provide that any vacancies on the Board of
Directors resulting from death, resignation, removal or other cause may be
filled by the affirmative vote of a majority of the remaining directors then in
office, even though less than a quorum of the Board of Directors, or by a sole
remaining director. Newly created directorships resulting from any increase in
the number of directors by action of the Board of Directors may be filled by the
affirmative vote of a majority of the directors then in office, or if not so
filled, by the shareholders at the next annual meeting thereof or at a special
meeting called for that purpose in accordance with the KeyCorp Regulations. In
the event that the shareholders increase the authorized number of directors in
accordance with the KeyCorp Regulations but fail at the meeting at which such
increase is authorized, or an adjournment of that meeting, to elect the
additional directors provided for, or if the shareholders fail at any meeting to
elect the whole authorized number of directors, such vacancies may be filled by
the affirmative vote of a majority of the directors then in office. Any director
elected in accordance with the three preceding sentences will hold office for
the remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor has been elected and qualified.
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DIVIDEND AND LIQUIDATION RIGHTS
Subject to any dividend and liquidation preferences applicable to any
shares of preferred stock outstanding at the time and to applicable restrictions
imposed by law or regulation, holders of KeyCorp Common Shares are entitled to
dividends when and as declared by KeyCorp's Board of Directors from funds
legally available therefor and, in the event of liquidation, are entitled to
share ratably in all assets remaining after payment of KeyCorp's liabilities.
OPT-OUT OF CONTROL SHARE ACQUISITION LAW
The KeyCorp Articles expressly provide that Section 1701.831 of the Ohio
Revised Code (commonly referred to as the Ohio Control Share Acquisition Law)
shall not apply to control share acquisitions of shares of KeyCorp.
CERTAIN BOARD OF DIRECTOR SUPER-MAJORITY VOTE REQUIREMENTS FOR EXTRAORDINARY
TRANSACTIONS
The affirmative vote of at least two-thirds of the entire authorized Board
of Directors of KeyCorp is required for the approval or recommendation of any of
the following transactions: (i) any merger or consolidation of KeyCorp (a) with
any "interested shareholder" (as such term is defined in Chapter 1704 of the
OGCL) or (b) with any other corporation if the merger or consolidation is caused
by any interested shareholder; (ii) any transaction as a result of which any
person or entity will become an interested shareholder; (iii) any merger or
consolidation involving KeyCorp with or into any other corporation if such other
corporation, on a consolidated basis, has assets with an aggregate book value
equal to 50% or more of the aggregate book value of the consolidated assets of
KeyCorp; (iv) any liquidation or dissolution of KeyCorp; (v) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition to or with an
interested shareholder of assets of KeyCorp having an aggregate book value equal
to 10% or more of the aggregate book value of all the consolidated assets of
KeyCorp; (vi) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition to or with any person or entity of assets of KeyCorp having an
aggregate book value equal to 25% or more of the aggregate book value of all the
consolidated assets of KeyCorp; (vii) any transaction resulting in the issuance
or transfer by KeyCorp to any person or entity of more than 15% of the voting
stock of KeyCorp (determined prior to the issuance or transfer); and (viii)
certain other transactions involving an interested shareholder which result in
an increase in the proportionate amount of stock of KeyCorp owned by such
shareholder or in the receipt by such shareholder of the benefit of certain
financial benefits (such as loans, guarantees or pledges) provided through
KeyCorp (other than proportionately as a shareholder of KeyCorp).
SERIAL PREFERRED STOCK
KeyCorp does not presently have any shares of Serial Preferred Stock issued
and outstanding. KeyCorp may issue Serial Preferred Stock from time to time in
one or more series.
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COMPARISON OF RIGHTS OF HOLDERS OF MCDONALD & COMPANY
COMMON STOCK AND KEYCORP COMMON SHARES
Upon the consummation of the Merger, stockholders of McDonald & Company, a
Delaware corporation, will become shareholders of KeyCorp, an Ohio corporation.
Differences between the laws of Delaware and those of Ohio, and between the
McDonald & Company Certificate and the McDonald & Company By-Laws and the
KeyCorp Articles and the KeyCorp Regulations, and the existence of certain other
documents setting forth additional stockholders' rights, will result in several
changes in the rights of stockholders of McDonald & Company when the Merger is
effected. A summary of the more significant changes is set forth below. While
the summary is a complete statement in all material respects of the comparative
rights of the holders of KeyCorp Common Shares and McDonald & Company Common
Stock, it does not purport to be a complete description of the specific
provisions referred to herein. The identification of specific differences is not
meant to indicate that other differences do not exist. This summary is qualified
in its entirety by reference to the McDonald & Company Certificate and the
McDonald & Company By-Laws, the KeyCorp Articles and the KeyCorp Regulations,
and the DGCL and the OGCL.
A copy of the McDonald & Company Certificate is included as an exhibit to
the Annual Report on Form 10-K filed by McDonald & Company with the Commission
on June 22, 1998 and a copy of the McDonald & Company By-Laws is included as an
exhibit to the Registration Statement on Form S-8 filed by McDonald & Company
with the Commission on February 2, 1987. A copy of the KeyCorp Articles are
included as an exhibit to the Registration Statement on Form S-4 filed by
KeyCorp with the Commission on August 7, 1998 and a copy of the KeyCorp
Regulations is included as an exhibit to the Registration Statement on Form
8-A/A filed by KeyCorp with the Commission on June 19, 1997.
BUSINESS COMBINATIONS
Generally, under the OGCL, the approval by the affirmative vote of
two-thirds of the voting power of a corporation entitled to vote on the matter
is required for mergers, consolidations, majority share acquisitions,
combinations involving the issuance of shares with one-sixth or more of the
voting power of the corporation, and any transfers of all or substantially all
of the assets of a corporation unless the articles of incorporation of the
corporation specify a different proportion (which cannot be less than a
majority). The KeyCorp Articles provide that such matters must be approved by
the affirmative vote of a majority of the voting power of the corporation and,
if particular classes are required to vote separately upon such matters, by the
affirmative vote of a majority of the voting power of each class.
Under the DGCL, the approval by the affirmative vote of a majority of the
voting power of a corporation is required for mergers, consolidations and
transfers of all or substantially all of the assets of the corporation. The
McDonald & Company Certificate does not contain any provisions that alter the
effect of the DGCL in this regard.
APPRAISAL RIGHTS
Under the OGCL, dissenting shareholders are entitled to appraisal rights in
connection with the transfer of all or substantially all of the assets of a
corporation and in connection with certain amendments to a corporation's
articles of incorporation. Shareholders of an Ohio corporation are also entitled
to appraisal rights if the corporation is merged or consolidated into a
surviving or new entity or if the corporation becomes the surviving corporation
in a merger with another Ohio corporation and in connection therewith the
surviving corporation issues shares having one-sixth or more of its voting power
to shareholders of the corporation which is being merged into it.
KeyCorp shareholders do not have any appraisal rights in connection with
the Merger.
Under the DGCL, generally, stockholders of a Delaware corporation are
entitled to appraisal rights in the event of a merger into or consolidation with
another corporation or entity. However, appraisal rights are not available to
holders of (i) shares listed on a national securities exchange, designated as a
national market system security on the Nasdaq National Market or held of record
by more than 2,000 stockholders or (ii) shares of a
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surviving corporation of a merger if the merger did not require the approval of
the stockholders of such corporation, unless, in either case, the holders of
such stock are required pursuant to the terms of the merger to accept anything
other than (a) shares of stock of the surviving corporation, (b) shares of stock
of another corporation which are also listed on a national securities exchange,
designated as national market securities on the Nasdaq National Market or held
of record by more than 2,000 holders, or (c) cash in lieu of fractional shares
of such stock. A Delaware corporation may provide in its certificate of
incorporation that appraisal rights are available as a result of an amendment to
its certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation, or the sale of all or substantially
all of the corporation's assets.
McDonald & Company stockholders do not have any appraisal rights in
connection with the Merger.
STATE TAKEOVER LEGISLATION
Transactions Involving Interested Shareholders. Section 1704.02 of the OGCL
prohibits any Chapter 1704 transaction (as defined below) for a period of three
years from the date on which a shareholder first becomes an interested
shareholder unless the directors of the corporation approved the transaction
prior to the shareholder becoming an interested shareholder or approved the
transaction pursuant to which the shareholder became an interested shareholder.
A "Chapter 1704 transaction" is defined in the OGCL to include a variety of
transactions such as mergers, consolidations, combinations or majority share
acquisitions between an Ohio corporation and an "interested shareholder" or an
affiliate of an interested shareholder. An interested shareholder is defined
generally as any person who, directly or indirectly, beneficially owns 10% or
more of the outstanding voting stock of the corporation. After such three-year
period, a Chapter 1704 transaction is prohibited unless certain fair price
provisions are complied with, the directors of the corporation approved the
purchase of shares which made the shareholder an interested shareholder, or the
shareholders of the corporation approve the transaction by the affirmative vote
of two-thirds of the voting power of the corporation or such other percentage
set forth in the articles of incorporation of the corporation provided that a
majority of the disinterested shareholders approve the transaction.
Control Share Acquisitions. Section 1701.831 of the OGCL generally
prohibits transactions pursuant to which a person obtains one-fifth or more but
less than one-third of all the voting power of a corporation, one-third or more
but less than a majority of all of the voting power of a corporation, or a
majority or more of all the voting power of a corporation (a "control share
acquisition"), unless the shareholders approve the transaction at a special
meeting, at which a quorum is present, by both the affirmative vote of a
majority of the voting power of the corporation and by the affirmative vote of a
majority of the voting power of the corporation excluding the voting power of
interested shares. A corporation can provide in its articles of incorporation or
regulations that Section 1701.831 does not apply to control share acquisitions
of shares of such corporation.
The KeyCorp Articles provide that Section 1701.831 does not apply to
control share acquisitions of shares of KeyCorp.
Business Combinations with Interested Stockholders. Under the DGCL, a
corporation is prohibited from engaging in any business combination (as defined
below) with an interested stockholder or any entity if the transaction is caused
by the interested stockholder for a period of three years from the date on which
the stockholder first becomes an interested stockholder unless (i) the directors
approved such transaction prior to the stockholder becoming an interested
stockholder or approved the purchase pursuant to which the stockholder became an
interested stockholder or (ii) upon the consummation of the transaction pursuant
to which the stockholder became an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation. The DGCL
defines the term "business combination" to include transactions such as mergers,
consolidations or transfers of 10% or more of the assets of the corporation and
defines the term "interested stockholder" generally as any person who, directly
or indirectly, beneficially owns 15% or more of the outstanding voting stock of
the corporation or was the owner of 15% or more of the outstanding voting stock
of the corporation at any time during the three-year period immediately prior to
the date in question. A corporation can expressly elect not to be governed by
the business combination statute in its certificate of incorporation or by-
laws.
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The McDonald & Company Certificate prohibits business combinations (which
are defined in the McDonald & Company Certificate as, among other things, a
merger or consolidation between McDonald & Company and a related person, or any
sale of all or substantially all of the assets of McDonald & Company to a
related person or assets of a related person to McDonald & Company) unless the
business combination is approved by the affirmative vote of 70% of the
outstanding shares of McDonald & Company, which shall include 55% of the
outstanding shares held by stockholders other than the related person. A related
person is defined by the McDonald & Company Certificate as any stockholder who
beneficially owns 5% or more of the outstanding shares of McDonald & Company
Common Stock. Such approval is not required if the business combination has been
proposed to the stockholders by the affirmative vote of a majority of directors
or if certain fair price provisions are met. This approval is not required with
respect to the Merger since the Merger has been proposed to the stockholders by
the affirmative vote of a majority of the directors of McDonald & Company.
SHAREHOLDER RIGHTS AGREEMENTS
KeyCorp Rights. The following summarizes the principal terms of the
Restated Rights Agreement, dated May 15, 1997, between KeyCorp and KeyBank
National Association, as Rights Agent (the "KeyCorp Rights Agreement").
On August 17, 1989, the Board of Directors of KeyCorp declared a dividend
consisting of the KeyCorp Rights to purchase KeyCorp Common Shares. One KeyCorp
Right was distributed with respect to each KeyCorp Common Share outstanding on
September 12, 1989 (the "KeyCorp Rights Record Date"). KeyCorp Rights have been
and will continue to be issued in respect of all KeyCorp Common Shares that are
(i) issued after the KeyCorp Rights Record Date but before the earlier of the
expiration or redemption of the KeyCorp Rights or the occurrence of a Flip-in
Event (as defined below), or (ii) issued after the KeyCorp Rights Record Date
but before the expiration or redemption of the KeyCorp Rights upon the exercise
of any employee stock option granted prior to a Flip-in Event.
Each of the KeyCorp Rights initially represents the right to purchase one
KeyCorp Common Share for $82.50 (as used in this section, the "Purchase Price").
The KeyCorp Rights will become exercisable on the Distribution Date (as defined
below). Separate certificates for the KeyCorp Rights will be mailed to holders
when a person or group becomes the beneficial owner of 15% or more of the
outstanding KeyCorp Common Shares (such person or group being an "Acquiring
Person" and such event being a "Flip-in Event") or on such earlier date as the
Board of Directors of KeyCorp may specify (the "Distribution Date"). A person
will not be deemed to be an Acquiring Person if (i) the person becomes the
beneficial owner of more than 15% of the KeyCorp Common Shares as a result of a
reduction in the number of KeyCorp Common Shares outstanding unless, after the
reduction, the person acquires additional KeyCorp Common Shares, or (ii) the
person becomes the beneficial owner of more than 15% of the KeyCorp Common
Shares inadvertently and, as soon as practicable after learning of such
beneficial ownership, divests enough KeyCorp Common Shares so that the person
ceases to be the beneficial owner of more than 15% of the KeyCorp Common Shares.
Before the Distribution Date, the KeyCorp Rights will be represented by the
certificate which represents the associated KeyCorp Common Shares, and any
transfer of KeyCorp Common Shares will also constitute a transfer of the
associated KeyCorp Rights. After the Distribution Date, the KeyCorp Rights will
begin to trade separate and apart from the KeyCorp Common Shares. At that time,
separate certificates representing the KeyCorp Rights will be mailed to holders
of KeyCorp Common Shares.
Upon the occurrence of a Flip-in Event, each of the KeyCorp Rights will
become the right to purchase one KeyCorp Common Share for $1 (the par value per
share), and the KeyCorp Rights beneficially owned by the Acquiring Person will
become void. A "Flip-in Event" will occur whenever any person or group becomes
an Acquiring Person, unless the person or group became an Acquiring Person
pursuant to a tender or exchange offer for all of the KeyCorp Common Shares at a
price and on other terms approved in advance by KeyCorp's Board of Directors.
If, after a person or group becomes an Acquiring Person, KeyCorp is
acquired in a merger or other business combination or 50% or more of its assets
or earning power is sold, each of the KeyCorp Rights will "flip-over" and become
the right to purchase common shares of the acquiror (a "Flip-over Event"). The
holder of each
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KeyCorp Right would, upon the occurrence of Flip-over Event, be entitled to
purchase for the then par value of a KeyCorp Common Share (now $1) the number of
common shares of the acquiror having a market price equal to the market price of
a KeyCorp Common Share.
The Purchase Price and/or the number of KeyCorp Common Shares (or common
shares of an acquiror) to be purchased upon exercise of the KeyCorp Rights are
subject to adjustment from time to time to prevent dilution in the event KeyCorp
(i) declares a dividend on the KeyCorp Common Shares payable in KeyCorp Common
Shares, (ii) subdivides or combines the KeyCorp Common Shares or issues other
shares in a reclassification of the KeyCorp Common Shares, or (iii) makes a
distribution to all holders of KeyCorp Common Shares of debt securities,
subscription rights, warrants or other assets (except regular cash dividends).
With certain exceptions, no adjustment will be required until a cumulative
adjustment of at least 1% is required. KeyCorp is not required to issue
fractional shares and, instead, may make cash payments based on the market price
of KeyCorp Common Shares.
KeyCorp's Board of Directors may redeem the KeyCorp Rights for $0.005 each
(as used in this section, the "Redemption Price") at any time before the
occurrence of a Flip-in Event. The KeyCorp Rights will expire on May 14, 2007,
unless they are redeemed before that date. Until the KeyCorp Rights are
exercised, the holders of the KeyCorp Rights, as such, will have no rights as
shareholders of KeyCorp, including the right to vote or receive dividends.
The provisions of the KeyCorp Rights Agreement may be amended by KeyCorp's
Board of Directors to cure any ambiguity or correct any defect or inconsistency
or, prior to the occurrence of a Flip-in Event, to make other changes that the
Board of Directors deems to be desirable.
The KeyCorp Rights will not prevent a takeover of KeyCorp. However, the
KeyCorp Rights may cause substantial dilution to a person or group that acquires
15% or more of the KeyCorp Common Shares unless the KeyCorp Rights are first
redeemed by the Board of Directors of KeyCorp.
The Merger will not constitute a Flip-in Event or a Flip-over Event under
the KeyCorp Rights Agreement.
A copy of the KeyCorp Rights Agreement is included as an exhibit to the
Registration Statement on Form 8-A filed by KeyCorp with the Commission on June
19, 1997. The foregoing description of the KeyCorp Rights does not purport to be
complete and is qualified in its entirety by reference to the KeyCorp Rights
Agreement.
McDonald & Company Rights. The following summarizes the principal terms of
the McDonald & Company Rights Agreement.
On November 1, 1995, the McDonald & Company Board declared a dividend of
one McDonald & Company Right for each outstanding share of McDonald & Company
Common Stock. One McDonald & Company Right was distributed with respect to each
share of McDonald & Company Common Stock outstanding on November 15, 1995 (the
"McDonald & Company Rights Record Date"). McDonald & Company Rights have been
and will continue to be issued in respect of all shares of McDonald & Company
Common Stock that are issued after the McDonald & Company Rights Record Date but
before the earlier of the distribution, redemption or expiration of the McDonald
& Company Rights.
Each of the McDonald & Company Rights initially represents the right to
purchase a one-hundredth of a share of McDonald & Company Series A Junior
Participating Preferred Stock, without par value (the "McDonald & Company
Preferred Stock") for $95 per one-hundredth of a share (as used in this section,
the "Purchase Price"). The McDonald & Company Rights will become exercisable
after the earlier of (i) 10 days following a public announcement that a person
or group has become an Acquiring Person (as defined below) or (ii) 10 business
days following the commencement of, or the announcement of an intention to make,
a tender offer or exchange offer that would result in a person or group becoming
an Acquiring Person (the "Distribution Date"). As used in this section, an
"Acquiring Person" means a person or group that beneficially owns 20% or more of
the shares of McDonald & Company Common Stock outstanding, except that a person
will not be deemed to be an Acquiring Person if (a) the person becomes the
beneficial owner of 20% or more of the shares of McDonald & Company Common Stock
as a result of a reduction in the number of shares of McDonald & Company Common
Stock outstanding unless, after the reduction, the person acquires additional
shares of McDonald & Company
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Common Stock, or (b) the Board of Directors of McDonald & Company determines in
good faith that a person became the beneficial owner of 20% or more of the
shares of McDonald & Company Common Stock inadvertently and, as soon as
practicable after learning of such beneficial ownership, that person divests
enough McDonald & Company Common Stock so that he ceases to be the beneficial
owner of 20% or more of the McDonald & Company Common Stock.
Before the Distribution Date, the McDonald & Company Rights will be
represented by the certificate which represents the associated shares of
McDonald & Company Common Stock, and any transfer of McDonald & Company Common
Stock will also constitute a transfer of the associated McDonald & Company
Rights. After the Distribution Date, the McDonald & Company Rights will begin to
trade separate and apart from the shares of McDonald & Company Common Stock. At
that time, separate certificates representing the McDonald & Company Rights will
be mailed to holders of McDonald & Company Common Stock.
If, after a person or group becomes an Acquiring Person, McDonald & Company
is acquired in a merger or other business combination or 50% or more of its
consolidated assets or earning power is sold, each of the McDonald & Company
Rights will become the right to receive, upon exercise, the number of common
shares of the acquiror having a market price equal to two times the Purchase
Price. In the event that any person or group becomes an Acquiring Person, each
holder of a McDonald & Company Right, other than McDonald & Company Rights
beneficially owned by the Acquiring Person (which will thereafter be void), will
thereafter have the right to receive, upon exercise, that number of shares of
McDonald & Company Common Stock having a market value equal to two times the
Purchase Price.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
McDonald & Company Common Stock, the McDonald & Company Board may exchange the
McDonald & Company Rights (other than McDonald & Company Rights owned by such
Acquiring Person, which will have become void), in whole or in part, at an
exchange ratio of one share of McDonald & Company Common Stock, or one
one-hundredth of a share of McDonald & Company Preferred Stock per McDonald &
Company Right.
The Purchase Price and/or the number of shares of McDonald & Company
Preferred Stock (or common shares of an acquiror) to be purchased upon exercise
of the McDonald & Company Rights are subject to adjustment from time to time to
prevent dilution (i) in the event a stock dividend on, or a subdivision,
combination or reclassification of, the McDonald & Company Preferred Stock, (ii)
upon the grant to holders of McDonald & Company Preferred Stock of certain
rights or warrants to subscribe for or purchase McDonald & Company Preferred
Stock at a price, or securities convertible into McDonald & Company Preferred
Stock with a conversion price, less than the then-current market price of the
McDonald & Company Preferred Stock, or (iii) upon the distribution to holders of
McDonald & Company Preferred Stock of evidences of indebtedness or assets
(excluding regular periodic cash dividends paid out of earnings or retained
earnings or dividends payable in McDonald & Company Preferred Stock) or of
subscription rights or warrants (other then those referred to above). With
certain exceptions, no adjustment will be required until a cumulative adjustment
of at least 1% is required. Other than integral multiples of a one-hundredth of
a share of McDonald & Company Preferred Stock, McDonald & Company is not
required to issue fractional shares and, instead, may make cash payments based
on the market price of McDonald & Company Preferred Stock.
The number of outstanding McDonald & Company Rights and the number of one
one-hundredths of a share of McDonald & Company Preferred Stock issuable upon
exercise of each McDonald & Company Right are also subject to adjustment in the
event of a stock split of the McDonald & Company Common Stock or a stock
dividend on the McDonald & Company Common Stock payable in McDonald & Company
Common Stock or subdivisions, consolidations or combinations of the McDonald &
Company Common Stock occurring, in any such case, prior to the Distribution
Date.
Shares of McDonald & Company Preferred Stock purchasable upon exercise of
the McDonald & Company Rights will not be redeemable. Each share of McDonald &
Company Preferred Stock will be entitled to a minimum preferential quarterly
dividend payment of $1 per share but will be entitled to an aggregate dividend
of 100 times the dividend declared per share of McDonald & Company Common Stock.
In the event of liquidation, the holders of the McDonald & Company Preferred
Stock will be entitled to a minimum preferential liquidation
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payment of $100 per share but will be entitled to an aggregate payment of 100
times the payment made per share of McDonald & Company Common Stock. Each share
of McDonald & Company Preferred Stock will have 100 votes, voting together with
the McDonald & Company Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which McDonald & Company Common Stock is
exchanged, each share of McDonald & Company Preferred Stock will be entitled to
receive 100 times the amount received per share of McDonald & Company Common
Stock. These rights are protected by customary antidilution provisions.
Because of the nature of the McDonald & Company Preferred Stock's dividend,
liquidation and voting rights, the value of one one-hundredth interest in a
share of McDonald & Company Preferred Stock purchasable upon exercise of each
McDonald & Company Right should approximate the value of one share of McDonald &
Company Common Stock.
At any time prior to a person or group becoming an Acquiring Person, the
McDonald & Company Board may redeem the McDonald & Company Rights, in whole, but
not in part, for $.01 each (as used in this section, the "Redemption Price").
The McDonald & Company Rights will expire on the earlier of November 1, 2005 or
immediately prior to the time of the consummation of the Merger, unless they are
redeemed before that time. Until the McDonald & Company Rights are exercised,
the holders of the McDonald & Company Rights, as such, will have no rights as
shareholders of McDonald & Company, including the right to vote or receive
dividends.
The terms of the McDonald & Company Rights may be amended by the McDonald &
Company Board without the consent of the holders of the McDonald & Company
Rights, including an amendment to lower certain thresholds described above to
not less than the greater of (i) the sum of .001% and the largest percentage of
the outstanding McDonald & Company Common Stock then known to McDonald & Company
to be beneficially owned by any person or group of affiliated or associated
persons and (ii) 10%, except that from and after such time as any person or
group of affiliated or associated persons becomes an Acquiring Person no such
amendment may adversely affect the interests of the holders of the McDonald &
Company Rights.
McDonald & Company has agreed in the Merger Agreement to take all
reasonable steps necessary to ensure that the execution of the Merger Agreement
did not, and the consummation of the transactions contemplated thereby will not,
result in the distribution of the McDonald & Company Rights. Furthermore,
KeyCorp is not obligated to consummate the Merger if any person or group shall
have become an Acquiring Person or a Distribution Date has occurred under the
McDonald & Company Rights Agreement or the McDonald & Company Rights have
otherwise become separable, distributable, redeemable or exercisable. Amendment
No. 2 to the McDonald & Company Rights Agreement provides that (i) KeyCorp, and
its affiliates and associates, will not be an Acquiring Person for purposes of
the McDonald & Company Rights Agreement by virtue of the execution of the Merger
Agreement or the consummation of the transactions contemplated thereby, (ii) the
McDonald & Company Rights will not be separable, distributable or exercisable,
in any way, as a result of the execution of the Merger Agreement or the
consummation of the transactions contemplated thereby, and (iii) the McDonald &
Company Rights Agreement will expire upon the earlier of November 1, 2005 or
immediately prior to the time of the consummation of the Merger.
A copy of the McDonald & Company Rights Agreement, as amended, is included
as an exhibit to the Registration Statement on Form 8-A filed by McDonald &
Company with the Commission on November 15, 1995, as amended on February 19,
1998 and August 6, 1998. The foregoing description of the McDonald & Company
Rights does not purport to be complete and is qualified in its entirety by
reference to the McDonald & Company Rights Agreement, as amended.
AMENDMENTS TO CERTIFICATES OF INCORPORATION
Under the OGCL, an amendment to the articles of incorporation requires the
affirmative vote of two-thirds of the voting power of a corporation unless a
greater or lesser percentage (which cannot be less than a majority) is specified
in the corporation's articles of incorporation. The KeyCorp Articles can be
amended by the affirmative vote of a majority of the voting power of KeyCorp.
Under the DGCL, to amend a corporation's certificate of incorporation, the
directors of the corporation and a majority of the voting power of the
corporation must approve the amendment. Provisions in the McDonald &
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Company Certificate relating to directors, such as the number and classification
of directors and the filling of vacancies, special meetings of stockholders,
indemnification, business combinations, and amendments to the McDonald & Company
Certificate can be amended, altered or repealed only by the affirmative vote of
70% of the outstanding shares entitled to vote and 55% of the shares entitled to
vote excluding any related person. However, if the board of directors proposes
and authorizes the amendment by the affirmative vote of a majority of directors
then only the affirmative vote of a majority of the voting power is required for
approval of the amendments.
AMENDMENTS TO BY-LAWS
Under the OGCL, the power to adopt, alter and repeal the regulations of a
corporation is vested in the shareholders. Such action can be taken by the
affirmative vote of a majority of the voting power of the corporation unless the
articles of incorporation or regulations provide for a greater percentage.
The KeyCorp Regulations may be adopted, altered or repealed by the
affirmative vote of three-quarters of the voting power of KeyCorp or by a
majority of the voting power of KeyCorp if the proposal is approved by two-
thirds of the board of directors.
Under the DGCL, the power to adopt, alter and repeal the by-laws is vested
in the stockholders unless the certificate of incorporation vests such power in
the directors. Vesting such power in the directors does not divest the
stockholders of power to adopt, alter or repeal the by-laws.
The McDonald & Company By-Laws may be amended or repealed by the
affirmative vote of a majority of the McDonald & Company Board or by the
affirmative vote of 70% of the voting power of McDonald & Company entitled to
vote on such matter.
STOCKHOLDER ACTION
Under the OGCL, unless a corporation's articles of incorporation or
regulations prohibit the taking of action without a meeting, any action required
or permitted to be taken at a meeting of the shareholders may be taken without a
meeting with the affirmative vote in a writing setting forth the action signed
by all shareholders who would be entitled to notice of a meeting. The KeyCorp
Articles and the KeyCorp Regulations do not prohibit the taking of action by the
shareholders without a meeting.
Under the DGCL, unless a corporation's certificate of incorporation
provides otherwise, any action to be taken or which can be taken at a meeting of
stockholders may be taken without a meeting if a consent in writing setting
forth the action is signed by all of the stockholders having the minimum number
of votes necessary to authorize such action at a meeting. The McDonald & Company
Certificate prohibits the taking of action by stockholders by consent in writing
without a meeting.
SPECIAL STOCKHOLDER MEETINGS
The OGCL provides that a special meeting of shareholders may be called by
the chairman of the board, the president, the directors at a meeting, or a
majority of the directors without a meeting, persons holding 25% or more of the
shares entitled to vote at such meeting (unless the articles of incorporation or
regulations specify a greater or lesser percentage but not more than a majority)
or such other officers or persons specified in the articles of incorporation or
regulations. The KeyCorp Regulations provide that persons holding 50% or more of
the shares entitled to vote at a special meeting may call a special meeting in
addition to the other persons referred to in the applicable OGCL provision.
The DGCL provides that a special meeting of stockholders may be called by
the board of directors or by such persons specified in the certificate of
incorporation or bylaws. The McDonald & Company Certificate provides that a
special meeting of the stockholders may be called by the president or chairman
of the board of directors and shall be called by the president or secretary at
the written request of a majority of the McDonald & Company Board. The McDonald
& Company Certificate expressly denies any power to stockholders to call a
special meeting of the stockholders.
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CUMULATIVE VOTING
Under the OGCL, unless otherwise provided in a corporation's articles of
incorporation, each shareholder is entitled to cumulate such shareholder's votes
in the election of directors if the shareholder gives notice to the corporation.
The KeyCorp Articles prohibit cumulative voting by shareholders.
The DGCL permits the certificate of incorporation of a corporation to
provide that in all elections of directors each stockholder is entitled to
cumulate such stockholder's votes. The McDonald & Company Certificate prohibits
cumulative voting by stockholders.
NUMBER AND ELECTION OF DIRECTORS
Under the OGCL, the number of directors of a corporation may not be less
than three (unless the corporation has less than three shareholders). The OGCL
permits the articles of incorporation or regulations of a corporation to contain
provisions classifying the directors into two or three classes consisting of not
less than three directors in each class (unless the corporation has less than
three directors in which event less than three directors may be in each class).
The term of each class need not be the same but no term for any class may exceed
three years.
The KeyCorp Regulations fix the number of directors at 20 which number may
be increased to not more than 20 or decreased to not less than 17 by the
directors or the shareholders. Modification of the size of the board of
directors by the directors requires the affirmative vote of a majority of the
board of directors. Modification of the size of the Board of directors by the
shareholders requires the affirmative vote of three-quarters of the voting power
of KeyCorp represented at the meeting or, if the modification is recommended by
a majority of the board of directors, by the affirmative vote of a majority of
the voting power represented at the meeting. The KeyCorp Regulations classify
the Board of directors into three classes, one class with six directors and two
classes with seven directors. The term of each class is three years.
The DGCL provides that a corporation may have one or more directors and
permits the certificate of incorporation or bylaws to contain provisions
classifying the directors into two or three classes. Under the DGCL, there is no
minimum number of directors that must be in each class.
The McDonald & Company Certificate and the McDonald & Company By-Laws
provide that the McDonald & Company Board shall consist of not less than three
nor more than 18 members. The McDonald & Company By-Laws provide that the number
of directors is fixed by the affirmative vote of a majority of the Board of
Directors. The McDonald & Company Certificate classifies the Board of Directors
into three classes, with as nearly equal number of members in each class as
possible. If there is one extra director, such director shall be a member of
Class I, and if there are two extra directors, one director shall be a member of
Class I and one director shall be a member of Class II. The term of each class
is three years.
REMOVAL OF DIRECTORS
The OGCL provides that if shareholders do not have the right to vote
cumulatively, the shareholders may remove any or all directors without cause by
the affirmative vote of a majority of the voting power, unless the articles of
incorporation or regulations require a vote greater than a majority or provide
that no director may be removed from office at all. In the event of such
removal, the shareholders may elect a new director at the same meeting for the
unexpired term of the director removed. Failure to elect a new director is
deemed to create a vacancy.
The KeyCorp Regulations provide that the shareholders may remove a director
from office without cause by the affirmative vote of three-quarters of the
voting power of the corporation entitled to elect directors. At the same meeting
a new director nominated in accordance with the KeyCorp Regulations may be
elected for the unexpired term.
The DGCL provides that any or all directors may be removed with or without
cause by the affirmative vote of a majority of the voting power entitled to
elect directors unless the board of directors is classified, in which case a
director may only be removed for cause, provided that the certificate of
incorporation does not provide otherwise.
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The McDonald & Company Certificate provides that no director may be removed
except for cause by the affirmative vote of a majority of the voting power.
VACANCIES
Under the OGCL, unless the articles of incorporation or regulations provide
otherwise, the remaining directors (even if less than a majority of the
authorized number of directors) may by the affirmative vote of a majority of
such remaining directors fill any vacancy on the board of directors for the
unexpired term. A vacancy exists if the shareholders do not elect the number of
authorized directors or if the shareholders increase the number of directors and
fail at the meeting at which the number of directors was increased to elect
additional directors.
The KeyCorp Regulations provide that a vacancy shall be filled by the
affirmative vote of a majority of the remaining directors. If the vacancy is the
result of an increase in the number of directors by action of the board of
directors, the vacancy may be filled by the affirmative vote of a majority of
the remaining directors, or if not so filled, by the shareholders at the next
annual meeting or a special meeting called for such purpose. If the vacancy is
the result of an increase in the number of directors by action of the
shareholders and the shareholders do not elect an additional director, or the
shareholders do not elect the entire authorized number of directors, the vacancy
shall be filled by the affirmative vote of a majority of the remaining
directors.
The DGCL permits a majority of the remaining directors to fill any vacancy
resulting from an increase in the authorized number of directors elected by all
the stockholders voting as a single class. If the holders of any class of shares
are entitled by the certificate of incorporation to elect one or more directors,
any vacancies of directors elected by such class shall be filled by the
affirmative vote of a majority of the remaining directors elected by such class.
The McDonald & Company Certificate provides that any vacancy shall be
filled by the affirmative vote of a majority of the remaining directors. Any
such director so elected shall serve for the remainder of the unexpired term.
LIABILITY AND INDEMNIFICATION OF DIRECTORS
The OGCL provides, with certain limited exceptions, that a director may be
held liable in damages for his acts or omissions as a director only if it is
proved by clear and convincing evidence that he undertook the act or omission
with deliberate intent to cause injury to the corporation or with reckless
disregard for its best interests.
Under the OGCL, Ohio corporations may indemnify directors from liability if
the director acted in good faith and in a manner reasonably believed by the
director to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal actions, if the director had no reason to believe
his action was unlawful. In the case of an action by or on behalf of a
corporation, indemnification may not be made (i) if the person seeking
indemnification is adjudged liable for negligence or misconduct, unless the
court in which such action was brought determines such person is fairly and
reasonably entitled to indemnification or (ii) if liability asserted against
such person concerns certain unlawful distributions. The indemnification
provisions of the OGCL require indemnification of a director who has been
successful on the merits or otherwise in defense of any action, suit or
proceeding that he was a party to by reason of the fact that he is or was a
director of the corporation. The indemnification authorized by the OGCL is not
exclusive and is in addition to any other rights granted to directors under the
articles of incorporation or regulations of the corporation or to any agreement
between the directors and the corporation.
The KeyCorp Regulations provide for the indemnification of directors of
KeyCorp to the maximum extent permitted by the OGCL.
The McDonald & Company Certificate provides that a director of McDonald &
Company shall not be personally liable to McDonald & Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability for (i) breach of the director's duty of loyalty, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) unlawful payments, or (iv) any transaction from which
the director derived an improper personal benefit.
59
<PAGE> 67
Under the DGCL, Delaware corporations may indemnify directors from
liability if the director acted in good faith and in a manner reasonably
believed by the director to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal actions, if the director had no
reason to believe his action was unlawful. In the case of an action by or on
behalf of a corporation, indemnification may not be made if the person seeking
indemnification is adjudged liable, unless the court in which such action was
brought determines such person is fairly and reasonably entitled to
indemnification. The indemnification provisions of the DGCL require
indemnification of a director who has been successful on the merits or otherwise
in defense of any action, suit or proceeding that he was a party to by reason of
the fact that he is or was a director of the corporation. The indemnification
authorized by the DGCL is not exclusive and is in addition to any other rights
granted to directors under the certificate of incorporation or by-laws of the
corporation or to any agreement between the directors and the corporation.
The McDonald & Company By-Laws provide for the indemnification of directors
of McDonald & Company to the maximum extent permitted by the DGCL.
RIGHTS OF DISSENTING STOCKHOLDERS
McDonald & Company Stockholders will not be entitled to dissenters'
appraisal rights under Delaware law or any other statute in connection with the
Merger. See "Comparison of Rights of Holders of McDonald & Company Common Stock
and KeyCorp Common Shares -- Appraisal Rights."
VALIDITY OF SECURITIES
The validity of the KeyCorp Common Shares to be issued in connection with
the Merger will be passed upon for KeyCorp by Daniel R. Stolzer, Esq., Senior
Vice President & Associate General Counsel of KeyCorp. As of the date of this
Proxy Statement-Prospectus, Mr. Stolzer beneficially owns 16,000 KeyCorp Common
Shares, including shares beneficially owned under options that are immediately
exercisable.
EXPERTS
The consolidated financial statements of KeyCorp and subsidiaries
incorporated by reference in KeyCorp's Annual Report on Form 10-K for the year
ended December 31, 1997, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon incorporated therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated into this Proxy Statement-Prospectus by reference in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
With respect to the unaudited condensed consolidated interim financial
information for the three-month periods ended March 31, 1998 and 1997 and the
three-month and six-month periods ended June 30, 1998 and 1997 incorporated by
reference in this Proxy Statement-Prospectus, Ernst & Young LLP have reported
that they have applied limited procedures in accordance with professional
standards for a review of such information. However, their separate reports,
included in KeyCorp's Quarterly Report on Form 10-Q for the quarters ended March
31, 1998 and June 30, 1998 and incorporated herein by reference, state that they
did not audit and they do not express an opinion on that interim financial
information. Accordingly, the degree of reliance on their reports on such
information should be restricted considering the limited nature of the review
procedures applied. The independent auditors are not subject to the liability
provisions of Section 11 of the Securities Act for their report on the unaudited
interim financial information because that report is not a "report" or a "part"
of the Registration Statement prepared or certified by the auditors within the
meaning of Section 7 and 11 of the Securities Act.
The consolidated financial statements of McDonald & Company incorporated by
reference in McDonald & Company's Annual Report on Form 10-K for the year ended
March 27, 1998, have been audited by Ernst & Young LLP, independent auditors, as
set forth in their report thereon incorporated therein and incorporated into
this Proxy Statement-Prospectus by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
60
<PAGE> 68
Representatives of Ernst & Young LLP will be present at the Special
Meeting, will be given an opportunity to make a statement if they so desire, and
will be available to respond to any appropriate questions.
STOCKHOLDER PROPOSALS
McDonald & Company will hold a 1999 Annual Meeting of stockholders only if
the Merger is not consummated before the time of such meeting. In the event that
such a meeting is held, any stockholder who wishes to submit a proposal for
inclusion in the proxy materials to be distributed by McDonald & Company in
connection with its 1999 Annual Meeting of stockholders must do so no later than
February 26, 1999. To be eligible for inclusion in the 1999 proxy materials of
McDonald & Company, proposals must conform to the requirements set forth in
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
OTHER MATTERS
As of the date of this Proxy Statement-Prospectus, the McDonald & Company
Board knows of no matters that will be presented for consideration at the
Special Meeting other than as described in this Proxy Statement-Prospectus. If
any other matters properly come before the Special Meeting or any adjournment or
postponement thereof and are voted upon, the accompanying proxy will be deemed
to confer discretionary authority on the persons named as proxies therein to
vote the shares represented by such proxies as to any such matters. It is the
intention of the persons named in the accompanying proxy to vote in accordance
with their best judgment on such matters insofar as the proxies are not limited
to the contrary.
You are urged to sign and return your proxy promptly in the enclosed return
envelope to make certain your shares will be voted at the Special Meeting.
WHERE YOU CAN FIND MORE INFORMATION
KeyCorp has filed with the Commission a Registration Statement under the
Securities Act that registers the distribution to the McDonald & Company
Stockholders of the KeyCorp Common Shares (and associated rights) to be issued
in connection with the Merger. The Registration Statement, including the
attached exhibits and schedules, contains additional relevant information about
KeyCorp and KeyCorp Common Shares. The rules and regulations of the Commission
allow us to omit certain information included in the Registration Statement from
this Proxy Statement-Prospectus.
In addition, KeyCorp and McDonald & Company file reports, proxy statements
and other information with the Commission under the Exchange Act. You may read
and copy this information at the following locations of the Commission:
Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
New York Regional Office
7 World Trade Center
Suite 1300
New York, New York 10048
Chicago Regional Office
Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661-2511
You may also obtain copies of this information by mail from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. Further information on the
operation of the Commission's Public Reference Room in Washington, D.C. can be
obtained by calling the Commission at 1-800-SEC-0330.
The Commission also maintains an Internet world wide web site that contains
reports, proxy statements and other information about issuers, such as KeyCorp
and McDonald & Company, who file electronically with the Commission. The address
of that site is http://www.sec.gov.
You can also inspect reports, proxy statements and other information about
KeyCorp and McDonald & Company at the offices of the New York Stock Exchange, 20
Broad Street, New York, New York 10005.
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<PAGE> 69
The Commission allows KeyCorp and McDonald & Company to "incorporate by
reference" information into this Proxy Statement-Prospectus. This means that the
companies can disclose important information to you by referring you to another
document filed separately with the Commission. The information incorporated by
reference is considered to be a part of this Proxy Statement-Prospectus, except
for any information that is superseded by other information included directly in
this document or incorporated in this document by reference.
This Proxy Statement-Prospectus incorporates by reference the documents
listed below that KeyCorp and McDonald & Company have previously filed with the
Commission. They contain important information about our companies and their
financial condition.
<TABLE>
<CAPTION>
KEYCORP SEC FILINGS PERIOD
------------------- ------
<S> <C>
Annual Report on Form 10-K.................. Year ended December 31, 1997
Quarterly Reports on Form 10-Q.............. Quarter ended March 31, 1998
Quarter ended June 30, 1998
The description of the KeyCorp Common Shares
set forth in the KeyCorp registration
statement on Form 8-A filed pursuant to
Section 12 of the Exchange Act on June 19,
1997, including any amendment or report
filed with the Commission for the purpose of
updating such description
The description of the KeyCorp Rights set
forth in the KeyCorp registration statement
on Form 8-A filed pursuant to Section 12 of
the Exchange Act on March 6, 1998, including
any amendment or report filed with the
Commission for the purpose of updating such
description
Current Reports on Form 8-K................. Filed:
- January 21, 1998
- March 6, 1998
- April 17, 1998
- June 15, 1998
- July 17, 1998
MCDONALD & COMPANY SEC FILINGS PERIOD
- ------------------------------ ------
Annual Report on Form 10-K.................. Year ended March 27, 1998
Quarterly Report on Form 10-Q............... Quarter ended June 26, 1998
The description of McDonald & Company Common
Stock set forth in the McDonald & Company
registration statement on Form 8-A filed
pursuant to Section 12 of the Exchange Act,
dated July 1, 1983 (File No. 1-8526),
including any amendment or report filed with
the Commission for the purpose of updating
such description
The description of the McDonald & Company
Rights set forth in the McDonald & Company
registration statement on Form 8-A filed
pursuant to Section 12 of the Exchange Act
on November 15, 1995 (as amended February
19, 1998 and August 6, 1998), including any
amendment or report filed with the
Commission for the purpose of updating such
description
</TABLE>
62
<PAGE> 70
<TABLE>
<CAPTION>
MCDONALD & COMPANY SEC FILINGS PERIOD
------------------------------ ------
<S> <C>
Current Reports on Form 8-K or Form 8-K/A... Filed:
- June 16, 1998
- June 17, 1998
</TABLE>
KeyCorp and McDonald & Company also incorporate by reference additional
documents that either company may file with the Commission between the date of
this Proxy Statement-Prospectus and the date of the Special Meeting. These
documents include periodic reports, such as Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy
statements.
KeyCorp has supplied all information contained or incorporated by reference
in this Proxy Statement-Prospectus relating to KeyCorp and McDonald & Company
has supplied all such information relating to McDonald & Company.
You can obtain any of the documents incorporated by reference in this
document from KeyCorp or McDonald & Company, as the case may be, or from the
Commission through the Commission's web site at the address described above.
Documents incorporated by reference are available from the companies without
charge, excluding any exhibits to those documents unless the exhibit is
specifically incorporated by reference as an exhibit in this Proxy
Statement-Prospectus. You can obtain documents incorporated by reference in this
Proxy Statement-Prospectus by requesting them in writing or by telephone from
the appropriate company at the following addresses:
KEYCORP
127 Public Square
Cleveland, Ohio 44114-1306
Attention: Investor Relations
(216) 689-6300
MCDONALD & COMPANY INVESTMENTS, INC.
McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114-2603
Attention: Treasurer
(216) 443-2300
If you would like to request documents, please do so by September 8, 1998
in order to receive them before the meeting.
No one is authorized to give any information or make any representation
about the Merger or our companies that is different from, or in addition to,
that contained in this Proxy Statement-Prospectus or in any of the materials
that we have incorporated into this document. Therefore, if anyone does give you
information of this sort, you should not rely on it. If you are in a
jurisdiction where offers to exchange or sell, or solicitations of offers to
exchange or purchase, the securities offered by this document or the
solicitation of proxies is unlawful, or if you are a person to whom it is
unlawful to direct these types of activities, then the offer presented in this
document does not extend to you. The information contained in this document
speaks only as of the date of this document unless the information specifically
indicates that another date applies.
By Order of the Board of Directors
THOMAS F. MCKEE
Secretary
August 14, 1998
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<PAGE> 71
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM PAGE NO.
------------ --------
<S> <C>
1940 Act.......................... 39
1998 Plan......................... 37
Acquiring Corporation............. 34
Acquiring Person (KeyCorp)........ 53
Acquiring Person (McDonald &
Company)........................ 54
Acquisition Proposal.............. 26
Acquisition Transaction........... 31
Aggregate Retention Amount........ 35
Average Annual Bonus.............. 36
Average Closing Price............. 23
BHCA.............................. 27
broker non-votes.................. 13
Chapter 1704 transaction.......... 52
Code.............................. 38
Commission........................ 25
Committee......................... 15
Comparable Transactions........... 21
Compensation Committee............ 35
control share acquisition......... 52
DGCL.............................. 13
Distribution Date (KeyCorp)....... 53
Distribution Date (McDonald &
Company)........................ 54
Effective Date.................... 25
Effective Time.................... 14
Employment Agreements............. 18
Employment Period................. 35
Essex............................. 38
Exchange Act...................... 61
Exchange Agent.................... 24
Exchange Fund..................... 24
Exchange Ratio.................... 14
Executives........................ 35
Exercise Termination Event........ 32
FDIC.............................. 46
Federal Reserve Board............. 15
Flip-in Event..................... 53
Flip-over Event................... 53
Funds............................. 39
</TABLE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE NO.
------------ --------
<S> <C>
GAAP.............................. 38
Guaranteed Compensation........... 35
IBES.............................. 20
Initial Triggering Event.......... 31
IRS............................... 29
KeyCorp........................... 12
KeyCorp Articles.................. 23
KeyCorp Common Shares............. 14
KeyCorp Regulations............... 23
KeyCorp Rights.................... 14
KeyCorp Rights Agreement.......... 53
KeyCorp Rights Record Date........ 53
Lazard............................ 16
Listed Termination................ 32
LTM............................... 21
Market/Offer Price................ 33
McDonald & Company................ 12
McDonald & Company Board.......... 12
McDonald & Company Certificate.... 26
McDonald & Company Common Stock... 13
McDonald & Company Option......... 31
McDonald & Company Preferred
Stock........................... 54
McDonald & Company Rights......... 27
McDonald & Company Rights
Agreement....................... 27
McDonald & Company Rights Record
Date............................ 54
McDonald & Company Stockholders... 12
McDonald & Company Stock Plans.... 24
McDonald Key Investments.......... 18
McDonald Securities............... 36
Merger............................ 14
Merger Agreement.................. 12
Morgan Stanley.................... 16
NASD.............................. 28
New Certificates.................. 24
NYSE.............................. 21
OCC............................... 46
OGCL.............................. 23
Old Certificates.................. 24
</TABLE>
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<PAGE> 72
<TABLE>
<CAPTION>
DEFINED TERM PAGE NO.
------------ --------
<S> <C>
Option Agreement.................. 14
Option Repurchase Price........... 33
Option Shares..................... 33
Option Shares Repurchase Price.... 33
Owner............................. 33
Peer Group........................ 20
Price-Based Termination Right..... 30
Purchase Price (KeyCorp).......... 53
Purchase Price (McDonald &
Company)........................ 54
Record Date....................... 13
Redemption Price (KeyCorp)........ 54
Redemption Price (McDonald &
Company)........................ 56
Repurchase Event.................. 33
Requisite Regulatory Approvals.... 25
Retention Options................. 35
</TABLE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE NO.
------------ --------
<S> <C>
Retention Program................. 36
Securities Act.................... 25
Serial Preferred Stock............ 48
Significant Subsidiary............ 31
SIPC.............................. 28
Special Meeting................... 12
Subsequent Triggering Event....... 32
Substitute Option................. 33
Surrender Price................... 34
Surviving Corporation............. 12
terminal value.................... 21
Termination Fee................... 30
Tier 1 capital.................... 47
Tier 2 capital.................... 47
Tier 3 capital.................... 47
</TABLE>
65
<PAGE> 73
================================================================================
- --------------------------------------------------------------------------------
Appendix A
AGREEMENT AND PLAN OF MERGER
dated as of June 15, 1998
between
MCDONALD & COMPANY INVESTMENTS, INC.
and
KEYCORP
- --------------------------------------------------------------------------------
================================================================================
<PAGE> 74
TABLE OF CONTENTS
PAGE
----
RECITALS......................................................................1
ARTICLE I
Certain Definitions; Interpretation
1.01 Certain Definitions..................................................2
1.02 Interpretation.......................................................8
ARTICLE II
The Merger
2.01 The Merger...........................................................8
2.02 Effective Time.......................................................8
2.03 Integration of Legal Entities........................................9
2.04 Reservation of Right to Revise Structure.............................9
ARTICLE III
Consideration; Exchange
3.01 Merger Consideration.................................................9
3.02 Rights as Stockholders; Stock Transfers.............................10
3.03 Fractional Shares...................................................10
3.04 Exchange Procedures.................................................10
3.05 Adjustment of Exchange Ratio........................................11
3.06 Options.............................................................11
ARTICLE IV
Actions Pending the Effective Time
4.01 Forebearances of the Company........................................12
4.02 Forebearances of the Acquiror.......................................14
-i-
<PAGE> 75
PAGE
----
ARTICLE V
Representations and Warranties
5.01 Disclosure Schedules................................................14
5.02 Standard............................................................15
5.03 Representations and Warranties of the Company.......................15
5.04 Representations and Warranties of the Acquiror......................28
ARTICLE VI
Covenants
6.01 Reasonable Best Efforts.............................................31
6.02 Stockholder Approvals...............................................31
6.03 Registration Statement..............................................32
6.04 Access; Information.................................................32
6.05 Acquisition Proposals...............................................33
6.06 Affiliate Agreements................................................33
6.07 Takeover Laws.......................................................34
6.08 No Rights Triggered.................................................34
6.09 NYSE Listing........................................................34
6.10 Regulatory Applications.............................................34
6.11 Retention Program...................................................34
6.12 Certain Employee Benefits...........................................35
6.13 Indemnification.....................................................35
6.14 Section 15 of the Investment Company Act............................36
6.15 Accountants' Letters................................................36
6.16 Notification of Certain Matters.....................................36
6.17 Press Releases......................................................37
6.18 Certain Policies of the Company.....................................37
ARTICLE VII
Conditions to Consummation of the Merger
7.01 Conditions to Each Party's Obligation to Effect the Merger..........37
7.02 Conditions to Obligation of the Company.............................38
7.03 Conditions to Obligation of the Acquiror............................39
-ii-
<PAGE> 76
PAGE
----
ARTICLE VIII
Termination
8.01 Termination.........................................................40
8.02 Effect of Termination and Abandonment...............................41
8.03 Termination Fee.....................................................41
ARTICLE IX
Miscellaneous
9.01 Survival............................................................41
9.02 Waiver; Amendment...................................................41
9.03 Counterparts........................................................41
9.04 Governing Law.......................................................41
9.05 Expenses............................................................42
9.06 Notices.............................................................42
9.07 Entire Understanding; No Third Party Beneficiaries..................43
ANNEX A Form of Stock Option Agreement
ANNEX B [INTENTIONALLY OMITTED]
ANNEX C List of Persons to Execute Employment Agreements
ANNEX D Forms of Employment Agreements
ANNEX E Terms and Conditions of Retention Program
ANNEX F Form of Amendment to Company Rights Agreement
ANNEX G Form of Company Affiliate Agreement
-iii-
<PAGE> 77
AGREEMENT AND PLAN OF MERGER, dated as of June 15, 1998 (this
"Agreement"), between McDonald & Company Investments, Inc. (the "Company") and
KeyCorp (the "Acquiror").
RECITALS
A. The Company. The Company is a Delaware corporation, having its
principal place of business in Ohio.
B . The Acquiror. The Acquiror is an Ohio corporation, having its
principal place of business in Ohio.
C. Certain Intentions of the Parties. Subject to the terms and
conditions contained in this Agreement, the parties to this Agreement intend to
effect the merger of the Company with and into the Acquiror, with the Acquiror
being the corporation surviving such merger. It is the intention of the parties
to this Agreement that the business combination contemplated hereby be treated
as a "reorganization" under Section 368(a) of the Internal Revenue Code of 1986,
as amended.
D. Stock Option Agreement. As a condition and inducement to the
Acquiror's willingness to enter into this Agreement, concurrently with the
execution and delivery of this Agreement, the Company has executed and delivered
a Stock Option Agreement with the Acquiror, in substantially the form of Annex
A, pursuant to which the Company is granting to the Acquiror an option to
purchase, under certain circumstances, shares of Company Common Stock.
E. Employment Agreements. Certain employees of the Company identified
on Annex C have executed and delivered employment agreements, as the case may
be, with the Company in substantially the forms contained in Annex D.
F. Retention Program. The Acquiror and the Company have agreed to
establish a retention program on the terms described herein and in Annex E, the
purpose of which is to retain the services of certain employees of the Company
following the Merger.
G. Board Action. The respective Boards of Directors of each of the
Acquiror and the Company have determined that it is in the best interests of
their respective companies and their stockholders to consummate the transactions
provided for in this Agreement.
NOW, THEREFORE, in consideration of the premises, and of the mutual
covenants, representations, warranties and agreements contained herein, the
parties agree as follows:
<PAGE> 78
ARTICLE I
CERTAIN DEFINITIONS; INTERPRETATION
1.01 Certain Definitions. The following terms are used in this
Agreement with the meanings set forth below:
"Acquiror" has the meaning set forth in the preamble to this
Agreement.
"Acquiror Common Stock" means the common stock, par value $1.00 per
share, of the Acquiror.
"Acquiror Preferred Stock" means the preferred stock, par value
$1.00 per share, of the Acquiror.
"Acquiror Reports" has the meaning assigned in Section 5.04(i)(5).
"Acquiror Rights" means the rights to purchase Acquiror Stock
outstanding from time to time pursuant to the Acquiror Rights Agreement.
"Acquiror Rights Agreement" means the Restated Rights Agreement,
dated as of May 15, 1997 and as amended thereafter, between the Acquiror
and KeyBank National Association, as Rights Agent.
"Acquiror Stock" means, collectively, the Acquiror Common Stock and
the Acquiror Preferred Stock.
"Acquisition Proposal" has the meaning assigned in Section 6.05.
"Advisory Agreements" has the meaning assigned in Section
5.03(m)(1).
"Affiliate" means, with respect to any specified person, any other
person directly or indirectly controlling, controlled by or under common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any specified person means the power
to direct the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by
Contract or otherwise; and the terms "controlling" and "controlled" have
correlative meanings to the foregoing.
"Agreement" means this Agreement, as amended or modified from time
to time in accordance with Section 9.02.
"AMEX" means the American Stock Exchange, Inc.
"Average Closing Price" means as of any date, the average of the
daily last sale prices of Acquiror Common Stock as reported on the NYSE
Composite Transactions Reporting System (as published in The Wall Street
Journal or, if not published therein, in another authoritative source) for
the ten consecutive NYSE full trading days (in which such shares are
traded on the NYSE) ending at the close of trading on the NYSE full
trading day immediately preceding such date.
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<PAGE> 79
"CFTC" means the United States Commodities Futures Trading
Commission.
"Client" means any person, including the Registered Funds, to which
the Company or any of its Subsidiaries provides products or services under
any Contract.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning assigned in the preamble to this
Agreement.
"Company Affiliate" has the meaning assigned in Section 6.06.
"Company Board" means the Board of Directors of the Company.
"Company By-Laws" means the By-laws of the Company, as amended.
"Company Certificate" means the Certificate of Incorporation of the
Company, as amended.
"Company Common Stock" means the common stock, par value $1.00 per
share, of the Company.
"Company Meeting" has the meaning assigned in Section 6.02.
"Company Preferred Stock" means the preferred stock, without par
value, of the Company.
"Company Reports" has the meaning assigned in Section 5.03(l)(10).
"Company Rights" means the rights to purchase Company Stock
outstanding from time to time pursuant to the Company Rights Agreement.
"Company Rights Agreement" means the Agreement, dated as of November
1, 1995, and as amended thereafter, between the Company and National City
Bank, as Rights Agent.
"Company Stock" means, collectively, the Company Common Stock and
the Company Preferred Stock.
"Company Stock Option" means each option to purchase shares of
Company Common Stock under the Company Stock Plans.
"Company Stock Plans" means the stock-based compensation plans of
the Company Previously Disclosed as of the date hereof.
"Compensation Plans" has, with respect to any person, the meaning
assigned in Section 5.03(r)(1).
-3-
<PAGE> 80
"Contract" means, with respect to any person, any agreement,
indenture, undertaking, debt instrument, contract, lease or other
commitment to which such person or any of its Subsidiaries is a party or
by which any of them is bound or to which any of their properties is
subject.
"Covered Employees" has the meaning assigned in Section 6.12.
"Derivatives Contracts" has the meaning assigned in Section 5.03(u).
"DGCL" means the General Corporation Law of the State of Delaware.
"Disclosure Schedule" has the meaning assigned in Section 5.01.
"DOL" means the United States Department of Labor.
"Effective Date" means the date on which the Effective Time occurs.
"Effective Time" means the date and time at which the Merger becomes
effective.
"Employment Agreements" means, collectively, the employment
agreements executed and delivered among the Acquiror, the Company or one
of its Subsidiaries and certain of the employees of the Company or one of
its Subsidiaries identified on Annex C, in substantially the forms
contained in Annex D.
"Environmental Laws" means any federal, state or local law,
regulation, order, decree, permit, authorization, common law or agency
requirement with force of law relating to: (1) the protection or
restoration of the environment, health or safety (in each case as relating
to the environment) or natural resources, or (2) the handling, use,
presence, disposal, release or threatened release of any Hazardous
Substance.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" has, with respect to any person, the meaning
assigned in Section 5.03(r)(3).
"ERISA Plans" has the meaning assigned in Section 5.03(r)(2).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Exchange Agent" has the meaning assigned in Section 3.04(a).
"Exchange Fund" has the meaning assigned in Section 3.04(a).
"Exchange Ratio" has the meaning assigned in Section 3.01(a)
"Federal Reserve System" means the Board of Governors of the Federal
Reserve System and the Federal Reserve Banks.
"Financial Statements" has the meaning assigned in Section
5.03(g)(2).
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"Fund Board" has the meaning assigned in Section 5.03(m)(1).
"Governmental Authority" means any court, administrative agency or
commission or other foreign, federal, state or local governmental
authority or instrumentality.
"Hazardous Substance" means any hazardous or toxic substance,
material or waste, including those substances, materials and wastes listed
in the United States Department of Transportation Hazardous Materials
Table (49 C.F.R. section 172.101), or by the United States Environmental
Protection Agency as hazardous substances (40 C.F.R. Part 302) and
amendments thereto, petroleum products or other such substances, materials
and wastes that are or become regulated under any applicable local, state
or federal law, including petroleum compounds, lead, asbestos and
polychlorinated biphenyls.
"Indemnified Party" has the meaning assigned in Section 6.13(a).
"Insurance Amount" has the meaning assigned in Section 6.13(b).
"Insurance Policies" has the meaning assigned in Section 5.03(w).
"Investment Advisers Act" means the Investment Advisers Act of 1940,
as amended, and the rules and regulations thereunder.
"Investment Company" has the meaning assigned for purposes of the
Investment Company Act that is sponsored, organized, advised or managed by
the Company or one of its Subsidiaries (including the Registered Funds).
"Investment Company Act" means the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder.
"IRS" means the Internal Revenue Service.
"Liens" means any charge, mortgage, pledge, security interest,
restriction, claim, lien, or encumbrance.
"Litigation" has the meaning assigned in Section 5.03(p).
"Material" means, with respect to any fact, circumstance, event or
thing, that such fact, circumstance, event or thing is material to (1) the
financial position, results of operations, assets, properties or business
of the Acquiror and its Subsidiaries, taken as a whole, the Company and
its Subsidiaries, taken as a whole, or the Surviving Corporation and its
Subsidiaries, taken as a whole, as the case may be, or (2) the ability of
either the Acquiror or the Company timely to perform its obligations under
this Agreement or otherwise to consummate the transactions contemplated by
this Agreement, in each case, other than any fact, circumstance, event or
thing (i) generally affecting the securities industry, or resulting from
general economic or market conditions (including changes in interest
rates), changes in accounting principles or changes in laws, regulations
or regulatory policies of general applicability (or interpretations
thereof), or (ii) resulting from actions or omissions of a party hereto
taken with the prior written consent of the other party in contemplation
of the transactions contemplated hereby; and provided that as of the
Closing Date the failure of any Employment Agreement to be in full force
and effect or the failure of the related employee to be employed by the
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Company or any Subsidiary of the Company as of the Closing Date will not
in and of itself be deemed Material to the Company and its Subsidiaries,
taken as a whole, unless such failure (taken together with any other such
failures) would cause the closing condition set forth in Section 7.03(e)
to not be satisfied.
"Merger" has the meaning assigned in Section 2.01(a).
"Merger Consideration" has the meaning assigned in Section 2.04.
"MSRB" means the Municipal Securities Rulemaking Board.
"Multiemployer Plans" has the meaning assigned in Section
5.03(r)(2).
"New Certificates" has the meaning assigned in Section 3.04(a).
"NYSE" means the New York Stock Exchange, Inc.
"OGCL" means the General Corporation Law of the State of Ohio.
"Old Certificates" has the meaning assigned in Section 3.04(a).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plan" has, with respect to any person, the meaning assigned
in Section 5.03(r)(2).
"person" means any individual, bank, corporation, partnership,
association, joint-stock company, business trust or unincorporated
organization.
"Previously Disclosed" has the meaning assigned in Section 5.01.
"Pricing Date" means the fourth full NYSE trading day immediately
preceding the Scheduled Closing Date.
"Proxy Statement" has the meaning assigned in Section 6.03(a).
"Registered Funds" has the meaning assigned in Section 5.03(m)(1).
"Registration Statement" has the meaning assigned in Section
6.03(a).
"Representatives" means, with respect to any person, such person's
directors, officers, employees, legal or financial advisors or any
representatives of such legal or financial advisors.
"Rights" means, with respect to any person, securities or
obligations convertible into or exercisable or exchangeable for, or giving
any person any right to subscribe for or acquire, or any options, calls or
commitments relating to, or any stock appreciation right or other
instrument the value of which is determined in whole or in part by
reference to the market price or value of, shares of capital stock of such
person.
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"Scheduled Closing Date" has the meaning assigned in Section 2.02.
"SEC" means the Securities and Exchange Commission.
"SEC Documents", with respect to the Company or the Acquiror, has
the meaning assigned in Section 5.03(g) or 5.04(g), as the case may be.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations thereunder.
"Securities Laws" means, collectively, the Securities Act, the
Exchange Act, the Investment Advisers Act, the Investment Company Act and
any state securities and "blue sky" laws.
"Self-Regulatory Organization" means the National Association of
Securities Dealers, Inc., the NYSE, the AMEX, the MSRB, the Midwest Stock
Exchange and the Philadelphia Stock Exchange, or other commission, board,
agency or body that is not a Governmental Authority but is charged with
the supervision or regulation of brokers, dealers, securities underwriting
or trading, stock exchanges, commodities exchanges, insurance companies or
agents, investment companies or investment advisers, or to the
jurisdiction of which the Company or one of its Subsidiaries is otherwise
subject.
"Stock Option Agreement" means the Stock Option Agreement, dated the
date hereof, between the Company and the Acquiror (which is in
substantially the form of Annex A, as the same may be amended,
supplemented of replaced from time to time).
"Subsidiary" and "Significant Subsidiary" have the meanings ascribed
to them in Rule 1-02 of SEC Regulation S-X; provided that "Subsidiary"
shall not include, with respect to the Company, (1) any Registered Fund or
any person in which a Registered Fund holds an ownership interest, or (2)
any investment account advised or managed by a person on behalf of third
parties.
"Subsidiary Combination" has the meaning assigned in Section 2.03.
"Surviving Corporation" has the meaning assigned in Section 2.01(a).
"Takeover Laws" has the meaning assigned in Section 5.03(c)(2).
"Taxes" means all federal, state, local and foreign taxes, levies or
other assessments, however denominated, including, without limitation, all
net income, gross income, gross receipts, sales, use, ad valorem, goods
and services, capital, transfer, franchise, profits, license, withholding,
payroll, employment, employer health, excise, estimated, severance, stamp,
occupation, property or other taxes, and custom duties, together with any
interest and any penalties, additions to tax or additional amounts imposed
by any taxing authority.
"Tax Returns" means, collectively, all returns, declarations,
reports, estimates, information returns and statements required to be
filed under federal, state, local or any foreign tax laws.
"Termination Fee" has the meaning assigned in Section 8.03.
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"Treasury Shares" means shares of Company Common Stock owned by the
Company or a Subsidiary of the Company.
1.02 Interpretation. When a reference is made in this Agreement to
Recitals, Sections, Annexes or Schedules, such reference shall be to a Recital,
Section, Annex or Schedule to this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and are not part of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." No rule of construction against the
draftsperson shall be applied in connection with the interpretation or
enforcement of this Agreement. Whenever this Agreement shall require a party to
take an action, such requirement shall be deemed to constitute an undertaking by
such party to cause its Subsidiaries, and to use its reasonable best efforts to
cause its other Affiliates, to take appropriate action in connection therewith.
References herein to "transactions contemplated by this Agreement" shall be
deemed to include a reference to the Subsidiary Combination.
ARTICLE II
THE MERGER
2.01 The Merger. At the Effective Time, the business combination
contemplated by this Agreement shall occur and in furtherance thereof:
(a) STRUCTURE AND EFFECTS OF THE MERGER. The Company shall
merge with and into the Acquiror, and the separate corporate existence
of the Company shall thereupon cease (the "Merger"). The Acquiror shall
be the surviving corporation in the Merger (sometimes hereinafter
referred to as the "Surviving Corporation") and shall continue to be
governed by the laws of the State of Ohio, and the separate corporate
existence of the Acquiror with all its rights, privileges, immunities,
powers and franchises shall continue unaffected by the Merger. The
Merger shall have the effects specified in the DGCL and OGCL.
(b) CERTIFICATE OF INCORPORATION. The certificate of
incorporation of the Surviving Corporation shall be the certificate of
incorporation of the Acquiror as in effect immediately prior to the
Effective Time, until duly amended in accordance with the terms thereof
and the OGCL.
(c) BY-LAWS. The by-laws of the Surviving Corporation shall be
the by-laws of the Acquiror as in effect immediately prior to the
Effective Time, until duly amended in accordance with the terms thereof
and the certificate of incorporation referred to in Section 2.01(b).
(d) DIRECTORS. The directors of the Surviving Corporation
shall be the directors of the Acquiror immediately prior to the
Effective Time, and such directors shall hold such office until such
time as their successors shall be duly elected and qualified.
(e) OFFICERS. The officers of the Surviving Corporation shall
be the officers of the Acquiror immediately prior to the Effective
Time.
2.02 Effective Time. The Merger shall become effective upon the
filing, in the office of the Secretary of State of the State of Delaware, of a
certificate of merger in accordance with Section 251 of the DGCL and, in the
office of the Secretary of State of the State of Ohio, of a certificate of
merger in accordance
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with Section 1701.81 of the OGCL, or at such later date and time as may be set
forth in such certificates. Subject to the terms of this Agreement, the parties
shall cause the Merger to become effective (1) on the date that is the fifth
full NYSE trading day (the "Scheduled Closing Date") to occur after the last of
the conditions set forth in Article VII (other than conditions relating solely
to the delivery of documents dated the Effective Date) shall have been satisfied
or waived in accordance with the terms of this Agreement (or, at the election of
the Acquiror, on the last business day of the month in which such day occurs),
or (2) on such other date as the parties may agree in writing.
2.03 Integration of Legal Entities. Following the Effective Time the
parties hereto currently intend to effectuate, or cause to be effectuated, the
combination (the "Subsidiary Combination") of the business of Key Capital
Markets, Inc. with that of McDonald & Company Securities, Inc. The Company
agrees to cooperate with the Acquiror and to take all reasonable actions prior
to or following the Effective Time, including executing all requisite
documentation, as may be requested by the Acquiror to effect the Subsidiary
Combination; provided, however, that any such actions shall not materially
impede or delay receipt of any approval or consent referred to in Section
7.01(b) or consummation of the Merger. The Company also agrees to cooperate with
the Acquiror and to take all reasonable additional action prior to or following
the Effective Time, including executing all requisite documentation and taking
reasonable restructuring steps for regulatory purposes, as may be requested by
the Acquiror to merge or otherwise consolidate legal entities to the extent
desirable for regulatory or other reasons; provided, however, that any such
actions shall not materially impede or delay receipt of any approval or consent
referred to in Section 7.01(b) or consummation of the Merger.
2.04 Reservation of Right to Revise Structure. At the Acquiror's
election, the Merger may alternatively be structured so that (1) the Company is
merged with and into any direct or indirect wholly owned subsidiary of the
Acquiror, or (2) any direct or indirect wholly owned subsidiary of the Acquiror
is merged with and into the Company; provided, however, that no such change
shall (A) alter or change the amount or kind of the consideration to be issued
to the Company's stockholders in the Merger or under such alternative structure
(the "Merger Consideration") or the treatment of the holders of Company Stock
Options, (B) adversely affect the tax treatment to the Company's stockholders as
a result of receiving the Merger Consideration or prevent the parties from
obtaining the opinion of Counsel referred to in Sections 7.01(h), or (C)
materially impede or delay consummation of the Merger. In the event of such an
election, the parties agree to execute an appropriate amendment to this
Agreement in order to reflect such election.
ARTICLE III
CONSIDERATION; EXCHANGE
3.01 Merger Consideration. Subject to the provisions of this
Agreement, at the Effective Time, automatically by virtue of the Merger and
without any action on the part of any stockholder:
(a) OUTSTANDING COMPANY COMMON STOCK. Each share of Company Common
Stock, excluding Treasury Shares, issued and outstanding immediately prior
to the Effective Time shall become and be converted into the right to
receive a number of shares of Acquiror Common Stock, together with the
appropriate number of attached Acquiror Rights, equal to $35.00 divided by
the Average Closing Price as of the Pricing Date (subject to adjustment
pursuant to Sections 3.05 and 8.01(f) and to the proviso to this Section
3.01(a), the "Exchange Ratio"); provided, that if the Average Closing
Price is (1) less than $33.00, then the Average Closing Price for purposes
of this Section
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3.01(a) will be deemed $33.00, (2) greater than $44.50 but not greater
than $50.00, then the Average Closing Price for purposes of this Section
3.01(a) will be deemed $44.50, or (3) greater than $50.00, then the
Exchange Ratio shall equal (for all purposes of this Agreement) a fraction
the numerator of which is the sum of (A) $39.325 and (B) one half of the
difference between the Average Closing Price and $50.00 and the
denominator of which is such Average Closing Price (in each case, subject
to adjustment pursuant to Section 3.05). Notwithstanding any other
provision herein, the Exchange Ratio will be rounded to the nearest
hundredth.
(b) OUTSTANDING ACQUIROR COMMON STOCK. Each share of Acquiror Common
Stock issued and outstanding immediately prior to the Effective Time shall
be unchanged and shall remain issued and outstanding as one share of
common stock of the Surviving Corporation.
(c) TREASURY SHARES. Each Treasury Share shall be canceled and
retired at the Effective Time and no consideration shall be issued in
exchange therefor.
3.02 Rights as Stockholders; Stock Transfers. At the Effective Time,
holders of Company Common Stock shall cease to be, and shall have no rights as,
stockholders of the Company, other than to receive (a) any dividend or other
distribution with respect to such Company Common Stock with a record date
occurring prior to the Effective Time and (b) the consideration provided under
this Article III. Following the Effective Time, there shall be no transfers of
Company Stock on the stock transfer books of the Company or the Surviving
Corporation.
3.03 Fractional Shares. Notwithstanding any other provision in this
Agreement, no fractional shares of Acquiror Common Stock and no certificates or
scrip therefor, or other evidence of ownership thereof, will be issued in the
Merger; instead, the Acquiror shall pay to each holder of Company Common Stock
who otherwise would be entitled to a fractional share of Acquiror Common Stock
(after taking into account all Old Certificates delivered by such holder) an
amount in cash (without interest) determined by multiplying such fraction by the
Average Closing Price as of the Effective Date.
3.04 Exchange Procedures. (a) At or prior to the Effective Time, the
Acquiror shall deposit, or shall cause to be deposited, with KeyBank National
Association (in such capacity, and including any successor that may from time to
time be appointed by the Acquiror, the "Exchange Agent"), for the benefit of the
holders of certificates formerly representing shares of Company Common Stock
("Old Certificates"), for exchange in accordance with this Article III,
certificates representing the shares of Acquiror Common Stock ("New
Certificates") to be issued, and an estimated amount of cash to be paid, as
Merger Consideration (such cash and New Certificates, together with any
dividends or distributions with a record date occurring after the Effective Time
with respect thereto (without any interest on any such case, dividends or
distributions), being hereinafter referred to as the "Exchange Fund").
(b) Promptly after the Effective Date, the Surviving Corporation shall
send or cause to be sent to each former holder of record of shares of Company
Common Stock (other than Treasury Shares) immediately prior to the Effective
Time transmittal materials for use in exchanging such stockholder's Old
Certificates for the Merger Consideration. The Surviving Corporation will cause
New Certificates and any check in respect of any fractional share interests or
dividends or distributions that a former holder of Company Common Stock is
entitled to receive to be delivered to such stockholder upon delivery to the
Exchange Agent of Old Certificates representing the shares of Company Common
Stock formerly owned by such stockholder as of the Effective Time (or indemnity
satisfactory to the Surviving Corporation and the Exchange Agent, if any of such
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certificates are lost, stolen or destroyed), together with properly completed
transmittal materials; provided that such New Certificates and any such check
shall not be issued to any Company Affiliate unless and until such Company
Affiliate has delivered an agreement pursuant to Section 6.06. No interest will
be paid on any Merger Consideration, including cash to be paid in lieu of
fractional share interests, or in respect of dividends or distributions which
any such person may be entitled to receive pursuant to this Article III upon
such delivery.
(c) Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to any former holder of Company Stock for any
amount properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(d) No dividends or other distributions on Acquiror Common Stock with a
record date occurring after the Effective Time shall be paid to the holder of
any unsurrendered Old Certificate until the holder thereof shall be entitled to
receive New Certificates in exchange therefor in accordance with this Article
III, and no such stockholder shall be eligible to vote such Acquiror Common
Stock until the holder of such Old Certificates is entitled to receive New
Certificates in accordance with this Article III. After becoming so entitled in
accordance with this Article III, the record holder thereof also shall be
entitled to receive any such dividends or other distributions, without any
interest thereon, which theretofore had become payable with respect to shares of
Acquiror Common Stock such holder had the right to receive upon surrender of the
Old Certificate.
(e) Any portion of the Exchange Fund that remains unclaimed by former
stockholders of the Company for six months after the Effective Time shall be
returned to the Acquiror. Any such stockholders who have not theretofore
complied with this Article III shall thereafter look only to the Acquiror for
payment of any Merger Consideration, and any unpaid dividends and distributions
on the Acquiror Common Stock to which such stockholder is entitled under this
Section 3.04, in each case, without any interest thereon.
3.05 Adjustment of Exchange Ratio. If, after the date of this
Agreement but prior to the Effective Time, the shares of Acquiror Common Stock
issued and outstanding shall, through a reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
similar change (regardless of the method of effectuation of any of the
foregoing, including by way of a merger or otherwise) in the capitalization of
the Acquiror, increase or decrease in number or be changed into or exchanged for
a different kind or number of securities, then an appropriate and proportionate
adjustment shall be made to the Exchange Ratio and to each of the prices
referred to in Section 8.01(f) and the proviso to Section 3.01(a).
3.06 Options. At the Effective Time, all Company Stock Options which
are then outstanding and unexercised, shall cease to represent a right to
acquire shares of Company Common Stock and shall be converted into options to
purchase shares of Acquiror Common Stock on the same terms and conditions under
the applicable Company Stock Plan and the stock option agreement by which such
Company Stock Option is evidenced. From and after the Effective Time:
(a) the number of shares of Acquiror Common Stock purchasable upon
exercise of such Company Stock Option shall equal the product (rounded
down to the nearest share) of (1) the number of shares of Company Common
Stock that were subject to such Company Stock Option immediately prior to
the Effective Time and (2) the Exchange Ratio, and
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(b) the per share exercise price under each such Company Stock
Option shall be equal to the result (rounded up to the nearest cent) of
dividing the per share exercise price of each such Company Stock Option by
the Exchange Ratio.
Notwithstanding the foregoing, each Company Stock Option that is intended to be
an "incentive stock option" (as defined in Section 422 of the Code) shall be
adjusted in accordance with the requirements of Section 424 of the Code.
ARTICLE IV
ACTIONS PENDING THE EFFECTIVE TIME
4.01 Forebearances of the Company. From the date hereof until the
Effective Time, except as expressly contemplated by this Agreement, without the
prior written consent of the Acquiror (which consent shall not be unreasonably
withheld), the Company will not, and will cause each of its Subsidiaries not to:
(a) ORDINARY COURSE. Conduct the business of the Company or any of
its Subsidiaries other than in the ordinary and usual course, or, to the
extent consistent therewith, fail to use reasonable best efforts to
preserve intact any of their business organizations and assets and
maintain their rights, franchises and existing relations with clients,
customers, suppliers, employees and business associates; or engage in any
new lines of business.
(b) CAPITAL STOCK. Other than pursuant to Previously Disclosed
Rights outstanding on the date hereof, (1) issue, sell or otherwise permit
to become outstanding, or authorize the creation of, any additional shares
of Company Stock or any Rights, (2) enter into any Contract with respect
to the foregoing, or (3) permit any additional shares of Company Stock to
become subject to new grants of employee or director stock options, other
Rights or similar stock-based employee rights. Without limiting the
foregoing, the Company will not issue or agree to issue any shares of
Company Stock or Rights under the Company Stock Plans other than pursuant
to Previously Disclosed Rights outstanding on the date hereof.
(c) DIVIDENDS, ETC. (1) Make, declare, pay or set aside for payment
any dividend on or in respect of, or declare or make any distribution on,
any shares of its capital stock, other than (A) regular quarterly cash
dividends on Company Common Stock in an amount not to exceed $0.0625 per
share paid with record and payment dates consistent with past practice and
(B) dividends from wholly owned Subsidiaries to the Company or another
wholly owned Subsidiary of the Company, as applicable (in each case having
record and payment dates consistent with past practice), or (2) directly
or indirectly adjust, split, combine, redeem, reclassify, purchase or
otherwise acquire, any shares of its capital stock.
(d) COMPENSATION; EMPLOYMENT AGREEMENTS; ETC. Enter into, amend,
modify or renew any Contract regarding employment, consulting, severance
or similar arrangements with any directors, officers, employees of, or
independent contractors with respect to, the Company or its Subsidiaries,
or grant any salary, wage or other increase in compensation or increase in
any employee benefit (including incentive or bonus payments), except (1)
for normal individual increases in compensation to employees in the
ordinary and usual course of business consistent with past practice, (2)
for other changes that are required by applicable law, (3) to satisfy
Previously Disclosed Contracts existing on
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the date hereof, or (4) for employment arrangements for, or grants of
awards to, newly hired employees in the ordinary course of business
consistent with past practice.
(e) BENEFIT PLANS. Enter into, establish, adopt, amend or modify any
pension, retirement, stock option, stock purchase, savings, profit
sharing, deferred compensation, consulting, bonus, group insurance or
other employee benefit, incentive or welfare Contract, plan, program or
arrangement, or any trust agreement (or similar arrangement) related
thereto, in respect of any directors, officers, employees of, or
independent contractors with respect to, the Company or its Subsidiaries,
including taking any action that accelerates the vesting or exercisability
of stock options, restricted stock or other compensation or benefits
payable thereunder, except, in each such case, (1) as may be required by
applicable law, or (2) to satisfy Previously Disclosed Contracts existing
on the date hereof.
(f) DISPOSITIONS. Except (1) pursuant to Previously Disclosed
Contracts existing on the date hereof, or (2) sales of securities or other
investments or assets in the ordinary course of business consistent with
past practice, sell, transfer, mortgage, lease, encumber or otherwise
dispose of or discontinue any material portion of its assets, business or
properties.
(g) ACQUISITIONS. Except (1) pursuant to Previously Disclosed
Contracts existing on the date hereof, or (2) the purchase of securities
or other investments or assets in the ordinary course of business
consistent with past practice, merge or consolidate with, or acquire a
material portion of the assets of, any other person.
(h) GOVERNING DOCUMENTS. Amend the Company Certificate, the Company
By-laws or the certificate of incorporation or by-laws (or similar
governing documents) of any of the Company's Subsidiaries.
(i) ACCOUNTING METHODS. Implement or adopt any change in accounting
principles, practices or methods, other than as may be required by
generally accepted accounting principles.
(j) CONTRACTS. Except in the ordinary course of business consistent
with past practice, enter into, renew or terminate any material Contract
or amend or modify in any material respect any of its existing material
Contracts.
(k) CLAIMS. Settle any claim, action or proceeding, except for any
claim, action or proceeding involving solely money damages in an amount,
individually and in the aggregate for all such settlements, not more than
$250,000 and which is not reasonably likely to establish an adverse
precedent or basis for subsequent settlements.
(l) FUND ACTION. Except as and to the extent required, based upon
the advice of outside counsel, in the exercise of the fiduciary
obligations of the Company or one of its Subsidiaries to any Investment
Company, request that any action be taken by any Fund Board, other than
(1) routine actions that would not, individually or in the aggregate, be
reasonably likely to have a Material adverse effect on the Company or any
Investment Company, (2) actions Previously Disclosed, or (3) actions
necessary to allow consummation of the Merger or the Subsidiary
Combination.
(m) ADVERSE ACTIONS. (1) Take any action reasonably likely to
prevent or impede the Merger from qualifying as a reorganization within
the meaning of Section 368(a) of the Code, or (2) knowingly take any
action that is intended or is reasonably likely to result in (A) any of
its
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representations and warranties set forth in this Agreement being or
becoming untrue in any material respect at any time at or prior to the
Effective Time, (B) any of the conditions to the Merger set forth in
Article VII not being satisfied, or (C) a material breach of any provision
of this Agreement; except, in each case, as may be required by applicable
law.
(n) CAPITAL EXPENDITURES. Authorize or make any capital
expenditures, other than (1) annual budgeted amounts Previously Disclosed,
or (2) in the ordinary and usual course of business consistent with past
practice in amounts not exceeding $250,000 in the aggregate.
(o) RISK MANAGEMENT. Except as required by applicable law or
regulation, (1) implement or adopt any change in the risk management
policies, procedures or practices of the Company, which, individually or
in the aggregate with all such other changes, would be Material, or (2)
fail to use commercially reasonable means to avoid any material increase
in the aggregate exposure of the Company to risk from the general United
States securities markets.
(p) TAX MATTERS. Make or change any material tax election, change
any annual tax accounting period, adopt or change any method of tax
accounting, file any amended Tax Return, enter into any material closing
agreement, settle any material Tax claim or assessment, surrender or
compromise any right to claim a material Tax refund, consent to any
extension or waiver of the limitations period applicable to any material
Tax claim or assessment, in each case, other than any of the foregoing
actions that are not Material and which are taken in the ordinary and
usual course of business consistent with past practice.
(q) NEW ACTIVITIES. Initiate any new business activity that would be
impermissible for a "bank holding company" under the Bank Holding Company
Act of 1956, as amended.
(r) COMMITMENTS. Agree or commit to do anything that would be
precluded by clauses (a) through (q) without first obtaining the
Acquiror's consent.
4.02 Forebearances of the Acquiror. From the date hereof until the
Effective Time, except as expressly contemplated by this Agreement, without the
prior written consent of the Company, the Acquiror will not, and will cause each
of its Subsidiaries not to (1) take any action reasonably likely to prevent or
impede the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code, (2) knowingly take any action that is intended or is
reasonably likely to result in (A) any of its representations and warranties set
forth in this Agreement being or becoming untrue in any material respect at any
time at or prior to the Effective Time, (B) any of the conditions to the Merger
set forth in Article VII not being satisfied, or (C) a material breach of any
provision of this Agreement; except, in each case, as may be required by
applicable law, or (3) make, declare, pay or set aside for payment any
extraordinary dividend.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01 Disclosure Schedules. On or prior to the date hereof, the
Company has delivered to the Acquiror, and the Acquiror has delivered to the
Company, a schedule (respectively, its "Disclosure Schedule") setting forth,
among other things, items the disclosure of which is necessary or appropriate
either (1) in response to an express informational requirement contained in or
requested by a provision hereof, or (2)
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as an exception to one or more representations or warranties contained in
Section 5.03 or 5.04, respectively, or to one or more of its covenants contained
in Article IV or VI; provided, that the mere inclusion of an item in a
Disclosure Schedule as an exception to a representation or warranty or covenant
shall not be deemed an admission by a party that such item (or any undisclosed
item or information of comparable or greater significance) represents a Material
exception or fact, event or circumstance with respect to the Company or the
Acquiror, respectively. Information set forth in a Disclosure Schedule, whether
in response to an express informational requirement or as an exception to one or
more representations or warranties or covenants, in each case, that is contained
in a correspondingly enumerated portion of such Disclosure Schedule, is referred
to herein as "Previously Disclosed."
5.02 Standard. No representation or warranty of the Company or the
Acquiror contained in Section 5.03 or 5.04 shall be deemed untrue or incorrect,
and no party hereto shall be deemed to have breached a representation or
warranty, as a consequence of the existence of any fact, event, or circumstance
that should have been disclosed as an exception to one or more representations
or warranties, unless such fact, event or circumstance (individually or taken
together with all other facts, events or circumstances that should have been so
disclosed with respect to any representation or warranty contained in Section
5.03 or 5.04) is not Previously Disclosed and would be Material with respect to
the Company or the Acquiror, respectively.
5.03 Representations and Warranties of the Company. Except as
Previously Disclosed, the Company hereby represents and warrants to the Acquiror
as follows:
(a) ORGANIZATION, STANDING AND AUTHORITY. The Company is a
corporation, duly organized, validly existing and in good standing under
the laws of the State of Delaware, and is duly qualified to do business
and is in good standing in all jurisdictions where its ownership or
leasing of property or assets or the conduct of its business requires it
to be so qualified.
(b) CORPORATE POWER. The Company and each of its Subsidiaries has
the corporate power and authority to carry on its business as it is now
being conducted and to own or lease all its properties and assets.
(c) CORPORATE AUTHORITY AND ACTION. (1) The Company has the
requisite corporate power and authority, and has taken all corporate
action necessary, in order (A) to authorize the execution and delivery of,
and performance of its obligations under, this Agreement and the Stock
Option Agreement and (B) subject only to receipt of the requisite approval
of the plan of merger contained in this Agreement by the holders of a
majority of the outstanding shares of Company Common Stock, to consummate
the transactions contemplated by this Agreement and the Stock Option
Agreement. This Agreement and the Stock Option Agreement each is a valid
and legally binding obligation of the Company, enforceable in accordance
with its terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization and similar laws of general
applicability relating to or affecting creditors' rights or by general
equity principles).
(2) The Company has taken all action required to be taken by it
in order to exempt this Agreement, the Stock Option Agreement and the
transactions contemplated hereby from, and this Agreement, the Stock
Option Agreement and the transactions contemplated hereby each is exempt
from, the requirements of (1) any applicable "moratorium," "control
share," "fair price" or other antitakeover laws and regulations of any
state (collectively, "Takeover Laws"), including Section 203 of the DGCL
and (2) Article X of the Company Certificate.
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(d) REGULATORY FILINGS; NO DEFAULTS. (1) No consents or approvals
of, or filings or registrations with, any Governmental Authority,
Self-Regulatory Organization or with any third party are required to be
made or obtained by the Company in connection with the execution, delivery
or performance by the Company of this Agreement, or to consummate the
Merger, except for (A) filings of applications or notices with Previously
Disclosed securities licensing or supervisory authorities, (B) the filing
with the SEC of the Proxy Statement in definitive form, (C) approval of
the NYSE and consents of national securities exchanges to the transfer of
ownership of seats or memberships and (D) the filing of (x) a certificate
of merger with the Secretary of State of the State of Delaware pursuant to
the DGCL and (y) a certificate of merger with the Secretary of State of
the State of Ohio pursuant to the OGCL. As of the date hereof, the Company
is not aware of any reason why the approvals of all Governmental
Authorities or Self-Regulatory Organizations necessary to permit
consummation of the transactions contemplated by this Agreement will not
be received without the imposition of a condition or requirement described
in Section 7.01(b).
(2) Subject only to the approval by the holders of a majority of
the outstanding shares of Company Common Stock, the receipt of the
regulatory approvals referred to in Section 5.03(d)(1), the expiration of
applicable waiting periods and the making of required filings under
federal and state securities laws, the execution, delivery and performance
of this Agreement and the Stock Option Agreement and the consummation of
the transactions contemplated hereby do not and will not (A) constitute a
breach or violation of, or a default under, or give rise to any Lien, any
acceleration of remedies or any right of termination (with or without the
giving of notice, passage of time or both) under, any law, rule or
regulation or any judgment, decree, order, governmental or
non-governmental permit or license, or Contract of the Company or of any
of its Subsidiaries or to which the Company or any of its Subsidiaries or
its or their properties is subject or bound, (B) constitute a breach or
violation of, or a default under, the Company Certificate or the Company
By-laws or similar governing documents of any of its Subsidiaries, or (C)
require any consent or approval under any such law, rule, regulation,
judgment, decree, order, governmental or non-governmental permit or
license or Contract.
(e) COMPANY STOCK. As of the date hereof, the authorized capital
stock of the Company consists solely of 50,000,000 shares of Company
Common Stock, of which not more than 18,437,632 shares are outstanding as
of the date hereof, and 200,000 shares of Company Preferred Stock, of
which no shares are outstanding. As of the date hereof, 5,393,895 shares
of Company Common Stock are held as Treasury Shares. The outstanding
shares of Company Common Stock have been duly authorized and are validly
issued and outstanding, fully paid and nonassessable, and subject to no
preemptive rights (and were not issued in violation of any subscriptive or
preemptive rights). As of the date hereof, other than the Company Rights
and except as Previously Disclosed, there are no shares of Company Stock
authorized and reserved for issuance, the Company does not have any Rights
issued or outstanding with respect to Company Stock, and the Company does
not have any commitment to authorize, issue or sell any Company Stock or
Rights, except pursuant to this Agreement and the Stock Option Agreement.
The number of shares of Company Stock which are issuable and reserved for
issuance upon exercise of Company Stock Options as of the date hereof are
Previously Disclosed in the Company's Disclosure Schedule.
(f) Subsidiaries. (1) The Company has Previously Disclosed a list of
all its Subsidiaries, including the states in which such Subsidiaries are
organized, a brief description of such Subsidiaries' principal activities,
and if any of such Subsidiaries is not wholly owned by the Company or one
of its Subsidiaries, the percentage owned by the Company or any such
Subsidiary and the names, addresses
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and percentage ownership by any other person. No equity securities of any
of the Company's Subsidiaries are or may become required to be issued
(other than to the Company or a wholly owned Subsidiary of the Company) by
reason of any Rights with respect thereto. There are no Contracts by which
any of the Company's Subsidiaries is or may be bound to sell or otherwise
issue any shares of its capital stock, and there are no Contracts relating
to the rights of the Company to vote or to dispose of such shares. All of
the shares of capital stock of each of the Company's Subsidiaries are
fully paid and nonassessable and subject to no subscriptive or preemptive
rights or Rights and, except as Previously Disclosed, are owned by the
Company or a Company Subsidiary free and clear of any Liens. Each of the
Company's Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is organized and
is duly qualified to do business and in good standing in each jurisdiction
where its ownership or leasing of property or the conduct of its business
requires it to be so qualified.
(g) SEC DOCUMENTS; FINANCIAL STATEMENTS. (1) The Company has
provided or made available to the Acquiror copies of each registration
statement, offering circular, report, definitive proxy statement or
information statement filed by the Company with the SEC or circulated by
the Company with respect to periods since January 1, 1995 through the date
of this Agreement and will promptly provide each such registration
statement, offering circular, report, definitive proxy statement or
informa tion statement filed or circulated after the date hereof
(collectively, the "Company's SEC Documents"), each in the form (including
exhibits and any amendments thereto) filed with the SEC (or, if not so
filed, in the form used or circulated). As of their respective dates (and
without giving effect to any amendments or modifications filed after the
date of this Agreement), each of the SEC Documents, including the
financial statements, exhibits and schedules thereto, filed or circulated
prior to the date hereof complied (and each of the SEC Documents filed
after the date of this Agreement, will comply) as to form with applicable
Securities Laws and did not (or in the case of reports, statements, or
circulars filed after the date of this Agreement, will not) contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
(2) Each of the Company's statements of financial condition
included in or incorporated by reference into the SEC Documents, including
the related notes and schedules, fairly presented (or, in the case of SEC
Documents filed after the date of this Agreement, will fairly present) the
consolidated financial condition of the Company and its Subsidiaries as of
the date of such statement of financial condition and each of the
statements of income, cash flows and changes in stockholders' equity
included in or incorporated by reference into the SEC Documents, including
any related notes and schedules (collectively, the foregoing financial
statements and related notes and schedules are referred to as the
"Financial Statements"), fairly presented (or, in the case of SEC
Documents filed after the date of this Agreement, will fairly present) the
consolidated results of operations, cash flows and stockholders' equity,
as the case may be, of the Company and its Subsidiaries for the periods
set forth therein (subject, in the case of unaudited statements, to normal
year-end audit adjustments), in each case in accordance with generally
accepted accounting principles consistently applied during the periods
involved (except as may be noted therein and except that such unaudited
statements include no notes).
(3) There are no liabilities of the Company or any of its
Subsidiaries of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, and there
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is no existing condition, situation or set of circumstances known to the
Company which could reasonably be expected to result in such a liability,
other than:
(A) liabilities provided for in the statement of financial
condition included in the SEC Documents most recently filed prior to
the date hereof, or disclosed in the notes thereto; or
(B) other undisclosed liabilities which, individually or in
the aggregate, are not Material.
(h) Absence of Certain Changes. Since January 1, 1998, the business
of the Company, and its respective Subsidiaries has been conducted in the
ordinary and usual course, consistent with past practice, and there has
not been:
(1) any event, occurrence, development or state of
circumstances or facts which has had or could reasonably be expected
to constitute or result in a Material adverse change in the
financial condition, results of operations, business, assets,
properties or stockholders' equity of the Company and its
Subsidiaries, taken as a whole;
(2) any amendment of any term of any outstanding security of
the Company or any of its Subsidiaries or to the Company or any of
its Subsidiaries' certificate of incorporation or by-laws (or
similar governing documents);
(3) any (A) incurrence, assumption or guarantee by the Company
or any of its Subsidiaries of any indebtedness for borrowed money,
or (B) assumption, guarantee, endorsement or otherwise by the
Company of any obligations of any other person, in each case, other
than in the ordinary and usual course of business, consistent with
past practice, and in amounts and on terms consistent with past
practices;
(4) any creation or assumption by the Company or any of its
Subsidiaries of any Lien on any material asset other than in the
ordinary and usual course of business consistent with past
practices;
(5) any making of any loan in excess of $250,000, or aggregate
loans in excess of $1,000,000, advance or capital contributions to
or investment in any person, in each case, other than in the
ordinary and usual course of business consistent with past practice;
(6) any change in any accounting policies or practices by the
Company or any of its Subsidiaries; or
(7) any (A) employment, deferred compensation, severance,
retirement or other similar agreement entered into with any
director, officer, consultant, partner or employee of the Company or
any of its Subsidiaries (or any amendment to any such existing
agreement), (B) grant of any severance or termination pay to any
director, officer, consultant, partner or employee of the Company or
any of its Subsidiaries, or (C) change in compensation or other
benefits payable to any director, officer, consultant, partner or
employee of the Company or any of its Subsidiaries, except, in each
case, in the ordinary course of business or as required
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by Contract or applicable law with respect to employees of the
Company or any of its Subsidiaries;
(i) Contracts. (1) The Company has Previously Disclosed each
of the following Contracts to which either the Company or any of its
Subsidiaries is a party, or by which any of them is bound or to
which any of their properties is subject:
(A) any lease of real property;
(B) any agreement for the purchase of materials,
supplies, goods, services, equipment or other assets that
provides for either (x) annual payments of $250,000 or more or
(y) aggregate payments of $1,000,000 or more;
(C) any partnership, joint venture or other similar
agreement or arrangement, or any options or rights to acquire
from any person any capital stock, voting securities or
securities convertible into or exchangeable for capital stock
or voting securities or such person, in each case, entered
into other than in the ordinary course of business;
(D) any executory agreement relating to the acquisition
or disposition of any business (whether by merger, sale of
stock, sale of assets or otherwise);
(E) any outstanding indenture, mortgage, promissory
note, loan agreement, guarantee or other agreement or
commitment for the borrowing of money by the Company or one of
its Subsidiaries or the deferred purchase price of property in
excess of $1,000,000 (in either case, whether incurred,
assumed, guaranteed or secured by any asset);
(F) any agreement that creates future payment
obligations in excess of $250,000 in the aggregate and which
by its terms does not terminate or is not terminable without
penalty upon notice of 180 days or less;
(G) any license, franchise or similar agreement material
to the Company or any of its Subsidiaries or any agreement
relating to any trade name or intellectual property right that
is material to the Company or any of its Subsidiaries;
(H) any exclusive dealing agreement or any agreement
that materially limits the freedom of the Company or any of
its Subsidiaries to compete in any line of business or with
any person or in any area or that would so limit their freedom
after the Effective Date;
(I) any compensation, employment, severance,
supplemental retirement or other similar agreement or
arrangement with any employee or former employee of the
Company or any of its Subsidiaries;
(J) any Advisory Agreement; and
(K) any other Contract , if any, that is a "material
contract" as defined in Item 601(b)(10) of SEC Regulation S-K
and that has not been filed as an exhibit to the Company's SEC
Documents.
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(2) Each Contract that has been, or is required to be
Previously Disclosed pursuant to this Section, is a valid and binding
agreement of the Company or one or more of its Subsidiaries, as the
case may be, and is in full force and effect, and the Company or its
Subsidiaries parties thereto are not in default or breach in any
material respect under the terms of any such Contract.
(j) CONTRACTS WITH CLIENTS. (1) Each of the Company and its
Subsidiaries is in compliance with the terms of each Contract with any
Client, and each such Contract is in full force and effect with respect
to the applicable Client. There are no disputes pending or threatened
with any Client under the terms of any such Contract or with any former
Client. The Company has made available to the Acquiror true and
complete copies of all advisory, sub-advisory and similar agreements
with any Clients.
(2) Each extension of credit by the Company or any of its
Subsidiaries to any Client (A) is in full compliance with Regulation T
of the Federal Reserve System or any substantially similar regulation
of any governmental or regulatory agency or authority, (B) is fully
secured and (C) the Company or one or more of its Subsidiaries, as the
case may be, has a first priority perfected security interest in the
collateral securing such extension of credit.
(k) REGISTRATIONS. Except as Previously Disclosed, neither the
Company nor any of its Subsidiaries or Affiliates is subject to
regulation under the Investment Advisers Act or the Investment Company
Act. The Company and its Subsidiaries and each of their employees which
are or who are required to be registered as a broker/dealer, an
investment advisor, a registered representative, an insurance agent or
a sales person (or in similar capacity) with the SEC, the securities
commission of any state or foreign jurisdiction or any Self-Regulatory
Organization are duly registered as such. All federal, state and
foreign registration requirements have been complied with in all
material respects and such registrations as currently filed, and all
periodic reports required to be filed with respect thereto, are
accurate and complete in all material respects.
(l) COMPLIANCE WITH LAWS. Each of the Company and its
Subsidiaries, and, to the best of the Company's knowledge, each of
their respective officers and employees:
(1) is in compliance with all applicable federal,
state, local and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders or decrees applicable to
the conduct of its businesses or to the employees conducting
such businesses, and the rules of all Self-Regulatory
Organizations applicable thereto;
(2) has all permits, licenses, authorizations, orders
and approvals of, and has made all filings, applications and
registrations with, all Governmental Authorities and
Self-Regulatory Organizations that are required in order to
permit them to own or lease their properties and to conduct
their businesses as presently conducted; all such permits,
licenses, certificates of authority, orders and approvals are
in full force and effect and are current and, to the best of
the Company's knowledge, no suspension or cancellation of any
of them is threatened or is reasonably likely; are in good
standing with all relevant Governmental Authorities and are
members in good standing with all relevant Self-Regulatory
Organizations;
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(3) has received, since January 1, 1996, no
notification or written communication (or, to the best
knowledge of the Company, any other communication) from any
Governmental Authority or Self-Regulatory Organization (A)
asserting non-compliance with any of the statutes,
regulations, rules or ordinances that such Governmental
Authority or Self-Regulatory Organization enforces, (B)
threatening to revoke any license, franchise, seat on any
exchange, permit, or governmental authorization (nor, to the
Company's knowledge, do any grounds for any of the foregoing
exist), (C) requiring any of them (including any of the
Company's or its Subsidiary's directors or controlling
persons) to enter into a cease and desist order, agreement, or
memorandum of understanding (or requiring the board of
directors thereof to adopt any resolution or policy), or (D)
restricting or disqualifying their activities (except for
restrictions generally imposed by rule, regulation or
administrative policy on brokers or dealers generally);
(4) is not aware of any pending or threatened
investigation, review or disciplinary proceedings by any
Governmental Authority or Self-Regulatory Organization against
the Company, any of its Subsidiaries or any officer, director
or employee thereof;
(5) is not, nor is any Affiliate of any of them,
subject to a "statutory disqualification" as defined in
Section 3(a)(39) of the Exchange Act or is subject to a
disqualification that would be a basis for censure,
limitations on the activities, functions or operations of, or
suspension or revocation of the registration of any
broker-dealer Subsidiary as a broker-dealer, municipal
securities dealer, government securities broker or government
securities dealer under Section 15, Section 15B or Section 15C
of the Exchange Act and there is no reasonable basis for, or
proceeding or investigation, whether formal or informal, or
whether preliminary or otherwise, that is reasonably likely to
result in, any such censure, limitations, suspension or
revocation;
(6) is not required to be registered as an investment
company, commodity trading advisor, commodity pool operator,
futures commission merchant, introducing broker, insurance
agent, or transfer agent under any federal, state, local or
foreign statutes, laws, rules or regulations. No broker-dealer
Subsidiary acts as the "sponsor" of a "broker-dealer trading
program", as such terms are defined in Rule 17a-23 under the
Exchange Act;
(7) in the conduct of its business with respect to
employee benefit plans subject to Title I of ERISA, has not
(A) breached any applicable fiduciary duty under Part 4 of
Title I of ERISA which would subject it to liability under
Sections 405 or 409 of ERISA and (B) engaged in a "prohibited
transaction" within the meaning of Section 406 of ERISA or
Section 4975(c) of the Code which would subject it to
liability or Taxes under Sections 409 or 502(i) of ERISA or
Section 4975(a) of the Code;
(8) is subject to regulation under the Investment
Advisers Act or the Investment Company Act. The Company and
its Subsidiaries and each of their employees which are or who
are required to be registered as a broker/dealer, an
investment advisor, a registered representative, an insurance
agent or a sales person (or in similar capacity) with the SEC,
the securities commission of any state or foreign jurisdiction
or any Self-Regulatory Organization are duly registered as
such and such registrations are in full force and effect. All
federal, state and foreign registration requirements have been
complied with in all material respects and such registrations
as currently filed, and all periodic reports required to be
filed with respect
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thereto, are accurate and complete in all material respects.
The Company has made available to the Acquiror true and
correct copies of (A) each Form G-37/G-38 filed with the MSRB
since January 1, 1996 and (B) all records required to be kept
by the Company under Rule G- 8(a)(xvi) of the MSRB. Since
January 1, 1996, there have been no contributions or payments,
and there is no other information, that would be required to
be disclosed by the Company or any of the Company's
Subsidiaries;
(9) is not subject to any cease-and-desist or other
order issued by, or a party to any written agreement, consent
agreement or memorandum of understanding with, or a party to
any commitment letter or similar undertaking to, or subject to
any order or directive by, a recipient of any supervisory
letter from or has adopted any board resolutions at the
request of any Governmental Authority or Self-Regulatory
Organization, or been advised since January 1, 1996, by any
Governmental Authority or Self-Regulatory Organization that it
is considering issuing or requesting any such agreement or
other action or have knowledge of any pending or threatened
regulatory investigation; and
(10) since January 1, 1996, has timely filed all
reports, registrations and statements, together with any
amendments required to be made with respect thereto, that were
required to be filed under any applicable law, regulation or
rule, with (A) any applicable Governmental Authority and (B)
any Self-Regulatory Organization (collectively, the "Company
Reports"). As of their respective dates, the Company Reports
complied with the applicable statutes, rules, regulations and
orders enforced or promulgated by the regulatory authority
with which they were filed.
(m) INVESTMENT ADVISORY ACTIVITIES. (1) Each of the Investment
Companies (or the trust of which it is a series) has been Previously
Disclosed and is duly organized and existing in good standing under the
laws of the jurisdiction under which it is organized. Each of the
Investment Companies that represents itself in its offering materials
as qualifying as a "regulated investment company" under the Code is so
qualified. Each of the Investment Companies (or the trust or
corporation of which it is a series) that is registered or required to
be registered under the Investment Company Act ("Registered Funds") is
governed by a board of trustees or directors (each a "Fund Board" and,
collectively, the "Fund Boards") consisting of at least 50% of trustees
or directors who are not "interested persons") (as defined in the
Investment Company Act) of the Registered Funds or the Company. The
Fund Boards operate in all material respects in conformity with the
requirements and restrictions of Sections 10 and 16 of the Investment
Company Act, to the extent applicable. The Company has provided or made
available to the Acquiror true and complete copies of all the
constituent documents and related advisory, sub-advisory and similar
agreements ("Advisory Agreements") of all of the Registered Funds.
(2) Each of the Investment Companies is in compliance
with all applicable foreign, federal and state laws, rules and
regulations of the SEC, the IRS, and any Self-Regulatory Organization
having jurisdiction over such Investment Company. The Company has made
available to the Acquiror true and complete copies of all the
constitutive documents and related advisory agreements of all of the
Investment Companies managed or advised by the Company or any of its
Subsidiaries.
(3) Each Investment Company has been operated in
compliance with its respective objectives, policies and restrictions,
including those set forth in the applicable prospectus
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and registration statement, if any, for that Investment Company or
governing instruments for a Client. The Company and its Subsidiaries
have operated their investment accounts in accordance with the
investment objectives and guidelines in effect for such investment
accounts.
(4) Each Registered Fund has duly adopted procedures
pursuant to Rules 17a-7, 17e-1 and 10f-3 under the Investment Company
Act, to the extent applicable.
(5) Neither the Company, nor any "affiliated person"
(as defined in the Investment Company Act) thereof, is ineligible
pursuant to Section 9 of the Investment Company Act to serve as an
investment advisor (or in any other capacity contemplated by the
Investment Company Act) to an Investment Company; neither the Company,
nor any "associated person" (as defined in the Investment Advisors Act)
thereof, is ineligible pursuant to Section 203 of the Investment
Advisors Act to serve as an investment advisor or as an associated
person to a registered investment advisor.
(n) PROPERTIES; SECURITIES. (1) Except as reserved against in
the Company's Financial Statements dated before the date hereof, the
Company and its Subsidiaries have good and marketable title, free and
clear of all Liens (other than Liens for current taxes not yet
delinquent) to all of the Material properties and assets, tangible or
intangible, reflected in such financial statements as being owned by
the Company and its Subsidiaries as of the dates thereof. To the best
of the Company's knowledge, all buildings and all the Material
fixtures, equipment, and other property and assets held under leases or
subleases by any of the Company and its Subsidiaries are held under
valid leases or subleases enforceable in accordance with their
respective terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally and to general equity
principles). The Company has Previously Disclosed, as of the date
hereof, a list of all real estate owned by it or a Company Subsidiary.
Each of the Company and its Subsidiaries has good and marketable title
to all securities held by it (except securities sold under repurchase
agreements or held in any fiduciary or agency capacity), free and clear
of any Lien, except to the extent such securities are pledged in the
ordinary course of business consistent with prudent business practices
to secure obligations of each of the Company or any of its
Subsidiaries. Such securities are valued on the books of the Company or
its Subsidiaries in accordance with generally accepted accounting
practices.
(2) The Company has Previously Disclosed, as of the
date hereof, a list of all equity securities it or a Company Subsidiary
holds for its own account involving, in the aggregate, ownership or
control of 5% or more of any class of the issuer's voting securities or
25% or more of the issuer's equity (treating subordinated debt as
equity) and, as of the Effective Time, no additional persons will need
to be included on such a list. The Company has Previously Disclosed a
list, as of the date hereof, of all partnerships, limited liability
companies, joint ventures or similar entities, in which it is a general
partner, manager, managing member or holds some other similar position
or owns or controls any interest, directly or indirectly, of 5% or more
and the nature and amount of each such interest and, as of the
Effective Time, no additional persons will need to be included on such
a list.
(o) TAXES. (1) All Tax Returns with respect to the Company or
its subsidiaries including consolidated United States federal income
tax returns of it and its subsidiaries, have been timely filed, or
requests for extensions have been timely filed and have not expired,
and such Tax Returns were true, complete and accurate in all material
respects;
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(2) all Taxes shown to be due on such Tax Returns
have been paid in full or adequate reserves have been established in
accordance with generally accepted accounting principles for the
payment of such Taxes;
(3) all Taxes due with respect to completed and
settled examinations have been paid in full or adequate reserves have
been established in accordance with generally accepted accounting
principles for the payment of such Taxes;
(4) no issues have been raised by the relevant taxing
authority in connection with the examination of any such Tax Returns;
and
(5) no currently effective waivers of statutes of
limitations (excluding such statues that relate to years currently
under examination by the IRS) have been given by or requested in
writing (or to the best knowledge of the Company, any other
communication) with respect to any Taxes of it or any of its
subsidiaries.
(p) LITIGATION. Except as disclosed in the Company's SEC
Documents filed before the date of this Agreement, no litigation,
proceeding, investigation or controversy ("Litigation") before any
court, arbitrator, mediator, Governmental Authority or Self-Regulatory
Organization is pending against the Company or any of its Subsidiaries,
and, to the best of the Company's knowledge, no such Litigation has
been threatened. Previously Disclosed is a true and complete list, as
of the date hereof, of all Litigation pending (or, to the best of the
Company's knowledge, threatened) arising out of any state of
facts relating to the sale of investment products by the Company, the
Company Subsidiaries or any employees thereof (including equity or debt
securities, mutual funds, insurance Contracts, annuities, partnership
and limited partnership interests, interests in real estate, investment
banking services, securities underwritings in which the Company or any
of its Subsidiaries was a manager, co-manager, syndicate member or
distributor, Derivatives Contracts or structured notes).
(q) EMPLOYEES; LABOR MATTERS. (1) Each of the Company and its
Subsidiaries is in compliance with all currently applicable laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, including the Immigration Reform and
Control Act, the Worker Adjustment and Retraining Notification Act, any
such laws respecting employment discrimination, disability rights or
benefits, equal opportunity, plant closure issues, affirmative action,
workers' compensation, employee benefits, severance payments, labor
relations, employee leave issues, wage and hour standards, occupational
safety and health requirements and unemployment insurance and related
matters. None of the Company nor any of its Subsidiaries are engaged in
any unfair labor practice and there is no unfair labor practice
complaint pending or threatened against the Company or any of its
Subsidiaries before the National Labor Relations Board.
(2) Neither the Company nor any of its Subsidiaries
is a party to, or is bound by, any collective bargaining agreement,
Contract or other agreement or understanding with any labor union or
organization, nor has it agreed to recognize any union or other
collective bargaining unit nor has any union or other collective
bargaining unit been certified as representing any of the employees of
any of the Companies or their Subsidiaries. Neither the Company nor any
of its Subsidiaries is the subject of a proceeding asserting that the
Company or any such Subsidiary has committed an unfair labor practice
(within the meaning of the National Labor Relations Act) or seeking to
compel it or such Subsidiary to bargain with any labor organization as
to wages and conditions of employment, nor is there any strike or other
labor dispute involving the Company or any of its Subsidiaries,
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pending or, to the best of its knowledge, threatened, nor is it aware
of any activity involving the Company's or any of its Subsidiaries'
employees seeking to certify a collective bargaining unit or engaging
in any other organization activity. There are no pending or threatened
charges or complaints alleging sexual or other harassment or other
discrimination by the Company, any of its Subsidiaries or any of their
employees, agents or representatives .
(r) EMPLOYEE BENEFIT PLANS. (1) The Company has Previously
Disclosed a complete list of all bonus, deferred compensation, pension,
retirement, profit-sharing, thrift, savings, employee stock ownership,
stock bonus, stock purchase, restricted stock and stock option plans,
all employment or severance Contracts, all medical, dental, health and
life insurance plans, all other employee benefit plans, Contracts or
arrangements maintained or contributed to by it or any of the Company
Subsidiaries for the benefit of current or former employees or
directors or their beneficiaries (the "Compensation Plans"). True and
complete copies of all Compensation Plans, including, but not limited
to, any trust instruments and/or insurance Contracts, if any, forming a
part thereof, and all amendments thereto have been made available to
the Acquiror.
(2) All "employee benefit plans" within the meaning
of Section 3(3) of ERISA, other than "multiemployer plans" within the
meaning of Section 3(37) of ERISA ("Multiemployer Plans"), covering
employees or former employees of the Company and the Company
Subsidiaries (the "ERISA Plans"), to the extent subject to ERISA, are
in substantial compliance with ERISA. Each ERISA Plan which is an
"employee pension benefit plan" within the meaning of Section 3(2) of
ERISA ("Pension Plan") and which is intended to be qualified, under
Section 401(a) of the Code, has received a favorable determination
letter from the IRS with respect to "TRA" (as defined in Section 1 of
IRS Revenue Procedure 93-39), and the Company is not aware of any
circumstances reasonably likely to result in the revocation or denial
of any such favorable determination letter. There is no pending or, to
the knowledge of the Company, threatened litigation relating to the
ERISA Plans. Neither the Company nor any of its Subsidiaries has
engaged in a transaction with respect to any ERISA Plan that would
subject the Company or any of its Subsidiaries to a tax or penalty
imposed by either Section 4975 of the Code or Section 502(i) of ERISA
in an amount which would be material.
(3) No liability under Subtitle C or D of Title IV of
ERISA has been or is reasonably expected to be incurred by the Company
or any of its Subsidiaries with respect to any ongoing, frozen or
terminated "single-employer plan", within the meaning of Section 4001
of ERISA, currently or formerly maintained by any of them, or the
single-employer plan of any entity which is considered one employer
with the Company under Section 4001 of ERISA or Section 414 of the Code
(an "ERISA Affiliate"). Neither the Company nor any of its Subsidiaries
has contributed or been obligated to contribute to a Multiemployer Plan
at any time on or after September 26, 1980. No notice of a "reportable
event", within the meaning of Section 4043 of ERISA for which the
30-day reporting requirement has not been waived, has been required to
be filed for any Pension Plan or by any ERISA Affiliate within the past
12-month period.
(4) All contributions required to be made under the
terms of any ERISA Plan have been timely made. Neither any Pension Plan
nor any single-employer plan of an ERISA Affiliate has an "accumulated
funding deficiency" (whether or not waived) within the meaning of
Section 412 of the Code or Section 302 of ERISA. Neither the Company
nor any of its Subsidiaries has provided, or is required to provide,
security to any Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the Code.
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(5) Under each Pension Plan which is a
single-employer plan, as of the last day of the most recent plan year,
the actuarially determined present value of all "benefit liabilities",
within the meaning of Section 4001(a)(16) of ERISA (as determined on
the basis of the actuarial assumptions contained in the plan's most
recent actuarial valuation) did not exceed the then current value of
the assets of such plan, and there has been no adverse change in the
financial condition of such plan since the last day of the most recent
plan year.
(6) Neither the Company nor any of its Subsidiaries
has any obligations for retiree health and life benefits under any
plan, except for health continuation coverage as required by Section
4980B of the Code or Part 6 of Title I of ERISA. There are no
restrictions on the rights of the Company or any of its Subsidiaries to
amend or terminate any such plan without incurring any liability
thereunder.
(7) Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby
will (A) result in any payment (including severance, unemployment
compensation, golden parachute or otherwise) becoming due to any
director or any employee of the Company or any of its Subsidiaries
under any Compensation Plan or otherwise from the Company or any of its
Subsidiaries, (B) increase any benefits otherwise payable under any
Compensation Plan, or (C) result in any acceleration of the time of
payment or vesting of any such benefit.
(s) ENVIRONMENTAL MATTERS. The Company and its Subsidiaries
have complied at all times with applicable Environmental Laws; no
property (including buildings and any other structures) currently or
formerly owned or operated (or which the Company or any of its
Subsidiaries would be deemed to have owned or operated under any
Environmental Law) by the Company or any of its Subsidiaries or in
which the Company or any of its Subsidiaries (whether as fiduciary or
otherwise) has a Lien, has been contaminated with, or has had any
release of, any Hazardous Substance in such form or substance so as to
create any liability for the Company or its Subsidiaries; the Company
is not subject to liability for any Hazardous Substance disposal or
contamination on any other third-party property; within the last six
years, the Company and its Subsidiaries have not received any notice,
demand letter, claim or request for information alleging any violation
of, or liability of the Company under, any Environmental Law; the
Company and its Subsidiaries are not subject to any order, decree,
injunction or other agreement with any Governmental Authority or any
third party relating to any Environmental Law; the Company and its
Subsidiaries are not aware of any reasonably likely liability relating
to environmental circumstances or conditions (including the presence of
asbestos, underground storage tanks, lead products or polychlorinated
biphenyls) involving the Company or one of its Subsidiaries, any
currently or formerly owned or operated property (whether as fiduciary
or otherwise), or any reasonably likely liability related to any Lien
held by the Company or one of its Subsidiaries; and the Company has
made available to the Acquiror copies of all environmental reports,
studies, sampling data, correspondence, filings and other environmental
information in its possession or reasonably available to it relating to
the Company or one of its Subsidiaries or any currently or formerly
owned or operated property or any property in which the Company or one
of its Subsidiaries (whether as fiduciary or otherwise) has held a Lien
(t) INTERNAL CONTROLS. The Company and its Subsidiaries have
devised and maintained a system of internal accounting controls
sufficient to provide reasonable assurances that (1) transactions are
executed in accordance with management's general or specific
authorizations, (2) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
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accepted accounting principals and to maintain accountability for
assets, (3) access to assets is permitted only in accordance with
management's general or specific authorization, and (4) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(u) DERIVATIVES; ETC. All exchange-traded, over-the-counter or
other swaps, caps, floors, collars, option agreements, futures and
forward contracts and other similar arrangements or Contracts
(collectively,"Derivatives Contracts"), whether entered into for the
Company's own account, or for the account of one or more of the
Company's Subsidiaries or their customers, were entered into (1) in
accordance with prudent business practices and all applicable laws,
rules, regulations and regulatory policies and (2) with counterparties
reasonably believed to be financially responsible at the time; and each
of them constitutes the valid and legally binding obligation of the
Company or one of its Subsidiaries, enforceable in accordance with its
terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer
and similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles), and are in full
force and effect. Neither the Company nor its Subsidiaries, nor, to the
best of the Company's knowledge, any other party thereto, is in breach
of any of its obligations under any such agreement or arrangement. The
Company's SEC Documents disclose the value of such agreements and
arrangements on a mark-to-market basis in accordance with generally
accepted accounting principles and, since March 31, 1998, there has not
been a material change in such value.
(v) NAMES AND TRADEMARKS. The Company and its Subsidiaries
have the right to use the names, service-marks, trademarks and other
intellectual property currently used by them in the conduct of their
businesses; each of such names, service-marks, trademarks and other
intellectual property has been Previously Disclosed; and, in the case
of such names, service-marks and trademarks, in each state of the
United States, such right of use is free and clear of any Liens, and no
other person has the right to use such names, service-marks or
trademarks in any such state.
(w) INSURANCE. The Company has Previously Disclosed all of the
insurance policies, binders, or bonds maintained by the Company or its
Subsidiaries ("Insurance Policies"). The Company and its Subsidiaries
are insured with reputable insurers against such risks and in such
amounts as the management of the Company reasonably has determined to
be prudent in accordance with industry practices. All of the Insurance
Policies are in full force and effect; the Company and its Subsidiaries
are not in material default thereunder; and all claims thereunder have
been filed in due and timely fashion.
(x) NO BROKERS. No action has been taken by the Company that
would give rise to any valid claim against any party hereto for a
brokerage commission, finder's fee or other like payment with respect
to the transactions contemplated by this Agreement, excluding the fees
to be paid by the Company to Lazard Freres & Co. LLC and Morgan Stanley
& Co. Incorporated in amounts and on terms Previously Disclosed.
(y) COMPANY RIGHTS AGREEMENT. The Company has duly adopted an
amendment to the Company Rights Agreement in the form of Annex F, as a
result of which neither the Acquiror nor any affiliate or associate
will become an "Acquiring Person" and no "Distribution Date" (as such
terms are defined in the Company Rights Agreement) will occur, and the
rights issued under the Company Rights Agreement will not become
separable, distributable, unredeemable or exercisable as a result of
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the approval, execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby and the Company
rights will expire at the Effective Time.
5.04 Representations and Warranties of the Acquiror. Except as
Previously Disclosed in a paragraph of its Disclosure Schedule corresponding to
the relevant paragraph below, the Acquiror hereby represents and warrants to the
Company as follows:
(a) ORGANIZATION, STANDING AND AUTHORITY. The Acquiror is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Ohio, and is duly qualified to do business and
is in good standing in all jurisdictions where its ownership or leasing
of property or assets or the conduct of its business requires it to be
so qualified.
(b) CORPORATE POWER. The Acquiror and each of its Significant
Subsidiaries has the corporate power and authority to carry on its
business as it is now being conducted and to own all its properties and
assets.
(c) CORPORATE AUTHORITY. The Acquiror has the requisite
corporate power and authority, and has taken all corporate action
necessary, in order to authorize the execution, delivery of and
performance of its obligations under, this Agreement and the Stock
Option Agreement and to consummate the transactions contemplated by
this Agreement and the Stock Option Agreement. This Agreement and the
Stock Option Agreement each is a valid and legally binding agreement of
the Acquiror, enforceable in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of
general applicability relating to or affecting creditors' rights or by
general equity principles).
(d) REGULATORY APPROVALS; NO DEFAULTS. (1) No consents or
approvals of, or filings or registrations with, any Governmental
Authority, Self-Regulatory Organization or with any third party are
required to be made or obtained by the Acquiror or any of its
Subsidiaries in connection with the execution, delivery or performance
by the Acquiror of this Agreement, or to consummate the Merger, except
for (A) the filing of applications and notices, as applicable, with the
Federal Reserve System and the Department of Justice; (B) approval of
the listing on the NYSE of the Acquiror Common Stock to be issued as
Merger Consideration (and related Acquiror Rights); (C) the filing and
declaration of effectiveness of the Registration Statement; (D) the
filing of (x) a certificate of merger with the Secretary of State of
the State of Delaware pursuant to the DGCL and (y) a certificate of
merger with the Secretary of State of the State of Ohio pursuant to the
OGCL; and (E) such filings as are required to be made or approvals as
are required to be obtained under the securities or "Blue Sky" laws of
various states in connection with the issuance of Acquiror Common Stock
in the Merger. As of the date hereof, the Acquiror is not aware of any
reason why the approvals of all Governmental Authorities or
Self-Regulatory Organizations necessary to permit consummation of the
transactions contemplated hereby will not be received without the
imposition of a condition or requirement described in Section 7.01(b).
(2) Subject only to receipt of the regulatory
approvals referred to in Section 5.04(d)(1), the expiration of
applicable waiting periods and the making of all required filings under
federal and state securities laws, the execution, delivery and
performance of this Agreement and the Stock Option Agreement and the
consummation of the transactions contemplated hereby do not and will
not (A) constitute a breach or violation of, or a default under, or
give rise to any Lien, any acceleration of remedies or any right of
termination under, any law, rule or regulation or any
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judgment, decree, order, governmental permit or license, or Contract of
the Acquiror or of any of its Subsidiaries or to which the Acquiror or
any of its Subsidiaries or properties is subject or bound, (B)
constitute a breach or violation of, or a default under, the
certificate of incorporation or by-laws (or similar governing
documents) of the Acquiror or any of its Subsidiaries, or (C) require
any consent or approval under any such law, rule, regulation, judgment,
decree, order, governmental permit or license or Contract.
(e) ACQUIROR STOCK. (1) As of the date hereof, the authorized
capital stock of the Acquiror consists solely of 1,400,000,000 shares
of Acquiror Common Stock, of which not more than 450,000,000 shares
were outstanding as of the date hereof, and 25,000,000 shares of
Acquiror Preferred Stock, of which no shares are outstanding. As of the
date hereof, other than the Acquiror Rights and except as Previously
Disclosed, there are no shares of Acquiror Stock authorized and
reserved for issuance, the Acquiror does not have any Rights issued or
outstanding with respect to Acquiror Stock, and the Acquiror does not
have any commitment to authorize, issue or sell any Acquiror Stock or
Rights, except pursuant to this Agreement.
(2) The shares of Acquiror Common Stock to be issued
as Merger Consideration, when issued in accordance with the terms of
this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable and not in violation of any preemptive rights.
(f) SUBSIDIARIES. Each of the Acquiror's Significant
Subsidiaries has been duly organized, is validly existing and in good
standing under the laws of the jurisdiction of its organization, and is
duly qualified to do business and in good standing in the jurisdictions
where its ownership or leasing of property or the conduct of its
business requires it to be so qualified.
(g) SEC DOCUMENTS; FINANCIAL STATEMENTS. (1) The Acquiror has
provided or made available to the Company copies of the Acquiror's
Annual Reports on Form 10-K for the fiscal years ended December 31,
1994, 1995 and 1996 and all other reports, registration statements,
definitive proxy statements or information statements filed or to be
filed by the Acquiror or any of its Subsidiaries subsequent to December
31, 1996 under the Securities Act, or under Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act, in the form filed or to be filed
(collectively, the "Acquiror's SEC Documents") with the SEC. As of
their respective dates (and without giving effect to any amendments or
modification filed after the date of this Agreement) each of the SEC
Documents, including the financial statements, exhibits, and schedules
thereto, filed or circulated prior to the date hereof complied (and
each of the SEC Documents filed after the date of this Agreement will
comply) as to form with applicable Securities Laws and did not (or, in
the case of reports, statements, or circular filed after the date of
this Agreement, will not) contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(2) Each of the Acquiror's statements of financial
condition included in or incorporated by reference into the SEC
Documents, including the related notes and schedules, fairly presented
(or, in the case of SEC Documents filed after the date of this
Agreement, will fairly present) the consolidated financial condition of
the Acquiror and its Subsidiaries as of the date of such statement of
financial condition and each of the statements of income, cash flows
and changes in stockholders' equity included in or incorporated by
reference into the SEC Documents, including any related notes and
schedules, fairly presented (or, in the case of SEC Documents filed
after the date of this Agreement, will fairly present) the consolidated
results of operations, cash flows and
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stockholders' equity, as the case may be, of the Acquiror and its
Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments), in each
case in accordance with generally accepted accounting principles
consistently applied during the periods involved (except as may be
noted therein and except that such unaudited statements include no
notes).
(h) LITIGATION. Except as disclosed in the Acquiror's SEC
Documents filed before the date of this Agreement, no Litigation before
any court, arbitrator, mediator, Governmental Authority or
Self-Regulatory Organization is pending against the Acquiror or any of
its Subsidiaries, and, to the best of the Acquiror's knowledge, no such
Litigation has been threatened.
(i) COMPLIANCE WITH LAWS. The Acquiror and each of its
Significant Subsidiaries:
(1) is in compliance with all applicable federal,
state, local and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders or decrees applicable to
the conduct of its businesses or to the employees conducting
such businesses, and the rules of all Self-Regulatory
Organizations applicable thereto;
(2) has all permits, licenses, authorizations, orders
and approvals of, and has made all filings, applications and
registrations with, all Governmental Authorities and
Self-Regulatory Organizations that are required in order to
permit them to own or lease their properties and to conduct
their businesses as presently conducted; all such permits,
licenses, certificates of authority, orders and approvals are
in full force and effect and are current and, to the best of
the Acquiror's knowledge, no suspension or cancellation of any
of them is threatened or is reasonably likely; are in good
standing with all relevant Governmental Authorities and are
members in good standing with all relevant Self-Regulatory
Organizations;
(3) has received, since January 1, 1996, no
notification or written communication (or to the best
knowledge of the Acquiror, any other communication) from any
Governmental Authority or Self-Regulatory Organization (A)
asserting non-compliance with any of the statutes,
regulations, rules or ordinances that such Governmental
Authority or Self-Regulatory Organization enforces, (B)
threatening to revoke any license, franchise, seat on any
exchange, permit, or governmental authorization (nor, to the
Acquiror's knowledge, do any grounds for any of the foregoing
exist), (C) requiring any of them (including any of Acquiror's
or its Subsidiary's directors or controlling persons) to enter
into a cease and desist order, agreement, or memorandum of
understanding (or requiring the board of directors thereof to
adopt any resolution or policy), or (D) restricting or
disqualifying their activities;
(4) is not subject to any cease-and-desist or other
order issued by, or a party to any written agreement, consent
agreement or memorandum of understanding with, or a party to
any commitment letter or similar undertaking to, or subject to
any order or directive by, a recipient of any supervisory
letter from or has adopted any board resolutions at the
request of any Governmental Authority or Self-Regulatory
Organization, or been advised since January 1, 1996, by any
Governmental Authority or Self-Regulatory Organization that it
is considering issuing or requesting any such agreement or
other action or have knowledge of any pending or threatened
regulatory investigation; and
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(5) since January 1, 1996, has timely filed all
reports, registrations and statements, together with any
amendments required to be made with respect thereto, that were
required to be filed under any applicable law, regulation or
rule, with (A) any applicable Governmental Authority and (B)
any Self-Regulatory Organization (collectively, the "Acquiror
Reports"). As of their respective dates, the Acquiror Reports
complied with the applicable statutes, rules, regulations and
orders enforced or promulgated by the regulatory authority
with which they were filed.
(j) NO BROKERS. No action has been taken by the Acquiror that
would give rise to any valid claim against any party hereto for a
brokerage commission, finder's fee or other like payment with respect
to the transactions contemplated by this Agreement, excluding a fee to
be paid by the Acquiror to Goldman, Sachs & Co.
(k) ABSENCE OF CERTAIN CHANGES. Since January 1, 1998, there
has not been any event, occurrence, development or state of
circumstances or facts which has had or could reasonably be expected to
constitute or result in a Material adverse change in the financial
condition, results of operations, business, assets, properties or
stockholders' equity of the Acquiror and its Subsidiaries, taken as a
whole.
ARTICLE VI
COVENANTS
6.01 Reasonable Best Efforts. (a) Subject to the terms and
conditions of this Agreement, each of the Company and the Acquiror agrees to use
its reasonable best efforts in good faith to take, or cause to be taken
(including causing any of its Subsidiaries to take), all actions, and to do, or
cause to be done, all things necessary, proper or desirable, or advisable under
applicable laws, so as to permit consummation of the Merger as promptly as
reasonably practicable and otherwise to enable consummation of the transactions
contemplated hereby and shall cooperate fully with the other party hereto to
that end.
(b) Without limiting the generality of Section 6.01(a), the Company
agrees to use its reasonable best efforts to obtain (1) any consents of Clients
(including in the case of Registered Funds, stockholders of such Registered
Funds) necessary to effect the assignment of any Advisory Agreement to the
Surviving Corporation upon consummation of the Merger and (2) the consent or
approval of all persons party to a Contract with the Company, to the extent such
consent or approval is required in order to consummate the Merger or for the
Surviving Corporation to receive the benefits thereof.
6.02 Stockholder Approvals. The Company agrees to take, in
accordance with applicable law, applicable stock exchange rules, the Company
Certificate and the Company By-Laws, all action necessary to convene, and shall
hold, an appropriate meeting of stockholders of the Company to consider and vote
upon the approval and adoption of this Agreement and any other matters required
to be approved by the Company's stockholders for consummation of the Merger
(including any adjournment or postponement, the "Company Meeting") as promptly
as practicable after the Registration Statement is declared effective. Unless
the Company Board, after having consulted with and considered the written advice
of outside counsel, has determined in good faith that it is otherwise required
in order to discharge properly the directors' fiduciary duties in accordance
with the DGCL, the Company Board shall recommend such approval, and the Company
shall take all reasonable, lawful action to solicit such approval by its
stockholders.
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6.03 Registration Statement. (a) The Acquiror agrees to
prepare a registration statement on Form S-4 (the "Registration Statement"), to
be filed by the Acquiror with the SEC in connection with the issuance of
Acquiror Common Stock (and related Acquiror Rights) in the Merger (including the
proxy statement and prospectus and other proxy solicitation materials of the
Company constituting a part thereof (the "Proxy Statement") and all related
documents). The Company agrees to cooperate, and to cause its Subsidiaries to
cooperate, with the Acquiror, its counsel and its accountants, in preparation of
the Registration Statement and the Proxy Statement; and, provided, that the
Acquiror has prepared the Registration Statement as required above, the Company
agrees to file the Proxy Statement in preliminary form with the SEC as promptly
as reasonably practicable, and, provided, that the Company, and its Subsidiaries
have cooperated as required above, the Acquiror agrees to file the Registration
Statement with the SEC as soon as reasonably practicable after any SEC comments
with respect to the preliminary Proxy Statement are resolved. Each of the
Company and the Acquiror agrees to use all reasonable best efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as reasonably practicable after filing thereof. The Acquiror also
agrees to use all reasonable best efforts to obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement. The Company agrees to furnish to
the Acquiror all information concerning the Company, its Subsidiaries, officers,
directors and stockholders as may be reasonably requested in connection with the
foregoing.
(b) Each of the Company and the Acquiror agrees, as to itself and its
Subsidiaries, that none of the information supplied or to be supplied by it for
inclusion or incorporation by reference in (1) the Registration Statement will,
at the time the Registration Statement and each amendment or supplement thereto,
if any, becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and (2) the
Proxy Statement and any amendment or supplement thereto will, at the date of
mailing to stockholders and at the time of the Company Meeting, contain any
untrue statement which, at the time and in the light of the circumstances under
which such statement is made, will be false or misleading with respect to any
material fact, or which will omit to state any material fact necessary in order
to make the statements therein not false or misleading or necessary to correct
any statement in any earlier statement in the Proxy Statement or any amendment
or supplement thereto. Each of the Company and the Acquiror further agrees that
if it shall become aware prior to the Effective Date of any information
furnished by it that would cause any of the statements in the Proxy Statement to
be false or misleading with respect to any material fact, or to omit to state
any material fact necessary to make the statements therein not false or
misleading, to promptly inform the other party thereof and to take the necessary
steps to correct the Proxy Statement.
(c) The Acquiror agrees to advise the Company, promptly after the
Acquiror receives notice thereof, of the time when the Registration Statement
has become effective or any supplement or amendment has been filed, of the
issuance of any stop order or the suspension of the qualification of the
Acquiror Stock for offering or sale in any jurisdiction, of the initiation or
threat of any proceeding for any such purpose, or of any request by the SEC for
the amendment or supplement of the Registration Statement or for additional
information.
6.04 Access; Information. (a) Each of the Company and the
Acquiror agrees that upon reasonable notice and subject to applicable laws
relating to the exchange of information, it shall afford the other party and the
other party's officers, employees, counsel, accountants and other authorized
representatives, such access during normal business hours and at such other
times as are reasonably necessary throughout the period prior to the Effective
Time to the books, records (including tax returns and work papers of independent
auditors), properties, personnel and to such other information as any party may
reasonably request and, during such period, it shall furnish promptly to such
other party (1) a copy of each material report,
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schedule and other document filed by it pursuant to the requirements of federal
or state securities or banking laws and (2) all other information concerning the
business, properties and personnel of it as the other may reasonably request.
(b) Each of the Company and the Acquiror agrees that it will not, and
will cause its representatives not to, use any information obtained pursuant to
this Section 6.04 for any purpose unrelated to the consummation of the
transactions contemplated by this Agreement. Subject to the requirements of law,
each party will keep confidential, and will cause its representatives to keep
confidential, all information and documents obtained pursuant to this Section
6.04 unless such information (1) was already known to such party, (2) becomes
available to such party from other sources not known by such party to be bound
by a confidentiality obligation, (3) is disclosed with the prior written
approval of the party to which such information pertains, or (4) is or becomes
readily ascertainable from published information or trade sources. In the event
that this Agreement is terminated or the transactions contemplated by this
Agreement shall otherwise fail to be consummated, each party shall promptly
cause all copies of documents or extracts thereof containing information and
data as to another party hereto to be returned to the party which furnished the
same. No investigation by either party of the business and affairs of the other
shall affect or be deemed to modify or waive any representation, warranty,
covenant or agreement in this Agreement, or the conditions to either party's
obligation to consummate the transactions contemplated by this Agreement.
6.05 Acquisition Proposals. The Company agrees that it shall
not, and shall cause its Subsidiaries and its and its Subsidiaries' officers,
directors, agents, advisors and affiliates not to, solicit or encourage
inquiries or proposals with respect to, or engage in any negotiations
concerning, or provide any confidential information to, or have any discussions
with, any person relating to, any tender or exchange offer, proposal for a
merger, consolidation or other business combination involving the Company or any
of its Subsidiaries or any proposal or offer to acquire in any manner a
substantial equity interest in, or a substantial portion of the assets or
operations of, the Company or any of its Subsidiaries, other than the
transactions contemplated by this Agreement (any of the foregoing, an
"Acquisition Proposal"); provided, that, if the Company is not otherwise in
violation of this Section 6.05, the Company Board may provide information to,
and may engage in such negotiations or discussions with, a person, directly or
through representatives, if (1) the Company Board, after having consulted with
and considered the written advice of outside counsel to such Board, has
determined in good faith that the provision of such information or the engaging
in such negotiations or discussions is required in order to discharge properly
the directors' fiduciary duties in accordance with the DGCL and (2) the Company
has received from such person a confidentiality agreement on substantially the
same terms as entered into by the Acquiror. The Company also agrees immediately
to cease and cause to be terminated any activities, discussions or negotiations
conducted prior to the date of this Agreement with any parties other than the
Acquiror, with respect to any of the foregoing. The Company shall promptly
advise the Acquiror on a current basis following the receipt by it of any
Acquisition Proposal and the substance thereof (including the identity of the
person making such Acquisition Proposal), and advise the Acquiror of any
developments with respect to such Acquisition Proposal promptly upon the
occurrence thereof.
6.06 Affiliate Agreements. Not later than the 15th day prior
to the mailing of the Proxy Statement, the Company shall deliver to the Acquiror
a schedule of each person that, to the Company's knowledge, is or is reasonably
likely to be, as of the date of the Company Meeting, deemed to be an "affiliate"
of it (each, a "Company Affiliate") as that term is used in Rule 145 under the
Securities Act or SEC Accounting Series Releases 130 and 135. The Company agrees
to use its reasonable best efforts to cause each person who may be deemed to be
a Company Affiliate to execute and deliver to the Company and the Acquiror on or
before the date of mailing of the Proxy Statement an agreement in the form of
Annex G.
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6.07 Takeover Laws. No party shall take any action that would
cause the transactions contemplated by this Agreement to be subject to
requirements imposed by any Takeover Law and each of them shall take all
necessary steps within its control to exempt (or ensure the continued exemption
of) the transactions contemplated by this Agreement from, or if necessary
challenge the validity or applicability of, any applicable Takeover Law, as now
or hereafter in effect.
6.08 No Rights Triggered. The Company shall take all
reasonable steps necessary to ensure that the entering into of this Agreement
and the consummation of the transactions contemplated hereby and any other
action or combination of actions contemplated hereby do not and will not result
in the grant of any Rights to any person (1) under the Company Certificate or
Company By-laws, or (2) under any Contract to which the Company or any of its
Subsidiaries is a party (except as expressly contemplated by the mandatory
provisions under its stock option plans or Contracts effective as of the date
hereof that have been Previously Disclosed, as applicable).
6.09 NYSE Listing. The Acquiror shall use its reasonable best
efforts to list, prior to the Effective Date, on the NYSE, subject to official
notice of issuance, the shares of Acquiror Common Stock (and related Acquiror
Rights) to be issued to the holders of Company Common Stock in the Merger.
6.10 Regulatory Applications. (a) The Acquiror and the Company
and their respective Subsidiaries shall cooperate and use their respective
reasonable best efforts to prepare all documentation, to effect all filings and
to obtain all permits, consents, approvals and authorizations of all third
parties and Governmental Authorities necessary to consummate the transactions
contemplated by this Agreement as promptly as reasonably practicable. Each of
the Acquiror and the Company shall have the right to review in advance, and to
the extent practicable each will consult with the other, in each case subject to
applicable laws relating to the exchange of information, with respect to, all
material written information submitted to any third party or any Governmental
Authority in connection with the transactions contemplated by this Agreement. In
exercising the foregoing right, each of the Acquiror and the Company agrees to
act reasonably and as promptly as practicable. Each of the Acquiror and the
Company agrees that it will consult with the other party hereto with respect to
the obtaining of all material permits, consents, approvals and authorizations of
all third parties and Governmental Authorities necessary or advisable to
consummate the transactions contemplated by this Agreement and each party will
keep the other party apprised of the status of material matters relating to
completion of the transactions contemplated hereby.
(b) Each of the Acquiror and the Company agrees, upon request, to
furnish the other party with all information concerning itself, its
Subsidiaries, directors, officers and stockholders and such other matters as may
be reasonably necessary or advisable in connection with any filing, notice or
application made by or on behalf of such other party or any of its Subsidiaries
to any third party or Governmental Authority.
6.11 Retention Program. (a) At the Effective Time, the Company
will have established a retention program on terms described in Annex E to be
used to retain certain employees of the Company.
(b) Notwithstanding anything to the contrary contained in this
Agreement, Acquiror shall take all actions necessary to effect the items set
forth in Annex E , and Annex E shall be deemed incorporated into this Section
6.11.
6.12 Certain Employee Benefits. At the Effective Time, the
Acquiror will provide employees of the Company who as of the Effective Time
become employed by the Acquiror or any of its Subsidiaries (the "Covered
Employees"), with employee benefit plans, programs and arrangements that in the
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aggregate are substantially comparable to those currently provided by the
Company (other than plans, programs and arrangements involving the potential
issuance of securities of the Company) or, at the option of the Acquiror, the
Acquiror will maintain such plans, programs and arrangements currently provided
by the Company. For purposes of all employee benefit plans, programs and
arrangements maintained or contributed to by the Acquiror and its Subsidiaries,
the Acquiror shall, or shall cause its Subsidiaries to, cause each such plan,
program or arrangement to treat the prior service with the Company of each
Covered Employee (to the same extent such service is recognized under any
analogous plans, programs or arrangements of the Company immediately prior to
the Effective Time to the extent such a plan, program or arrangement is in
effect immediately prior to the effective date) as service rendered to the
Acquiror or its Subsidiaries, as the case may be, solely for purposes of
eligibility to participate and for vesting thereunder. The Acquiror will cause
any and all pre-existing condition limitations (to the extent such limitations
did not apply to a pre-existing condition under the Compensation Plans) and
eligibility waiting periods under any health plans to be waived with respect to
(a) Covered Employees who, immediately prior to the Effective Time, participated
in a health plan, and (b) their eligible dependents. The Acquiror shall honor,
pursuant to the terms of the Previously Disclosed Compensation Plans, and to the
extent consistent with applicable law, all employee benefit obligations to
current and former employees of the Company under such plans. Nothing in this
Section 6.12 shall prevent Acquiror from amending or terminating any
Compensation Plans of the Company or the Acquiror (or its Subsidiaries) or any
other contracts, arrangements, commitments or understandings, in accordance with
their terms and applicable law.
6.13 Indemnification. (a) Following the Effective Time and for
a period of six years thereafter, the Acquiror shall indemnify, defend and hold
harmless the present and former directors and officers of the Company and its
Subsidiaries (each, an "Indemnified Party") against all costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages or liabilities incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of actions or omissions occurring at or prior to the
Effective Time (including the transactions contemplated by this Agreement) to
the fullest extent that the Company is permitted to indemnify (and advance
expenses to) its directors and officers under the laws of the State of Delaware,
the Company Certificate and the Company By-Laws as in effect on the date hereof;
provided that any determination required to be made with respect to whether an
officer's or director's conduct complies with the standards set forth under
Delaware law, the Company Certificate and the Company By-Laws shall be made by
independent counsel (which shall not be counsel that provides material services
to the Acquiror) selected by the Acquiror and reasonably acceptable to such
officer or director; and provided, further, that in the absence of applicable
Delaware judicial precedent to the contrary, such counsel, in making such
determination, shall presume such officer's or director's conduct complied with
such standards and the Acquiror shall have the burden to demonstrate that such
officer's or director's conduct failed to comply with such standard. At the
Effective Time, the Acquiror shall assume all of the Company's obligations under
any Previously Disclosed Contracts in effect as of the date hereof providing for
indemnification of present or former directors or officers of the Company or its
Subsidiaries.
(b) For a period of five years from the Effective Time, the Acquiror
shall use its reasonable best efforts to provide that portion of director's and
officer's liability insurance that serves to reimburse the present and former
officers and directors of the Company or any of its Subsidiaries (determined as
of the Effective Time) (as opposed to the Company) with respect to claims
against such directors and officers arising from fact or events which occurred
before the Effective Time, which insurance shall contain at least the same
coverage and amounts, and contain terms and conditions no less advantageous, as
that coverage currently provided by the Company; provided, however, that in no
event shall the Acquiror be required to expend more than 200 percent of the
current amount expended by the Company (the "Insurance Amount") to maintain or
procure
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such directors and officers insurance coverage for a comparable five-year
period; provided, further, that if the Acquiror is unable to maintain or obtain
the insurance called for by this Section 6.13(b), the Acquiror shall use its
reasonable best efforts to obtain as much comparable insurance as is available
for the Insurance Amount; provided, further, that officers and directors of the
Company or any subsidiary may be required to make application and provide
customary representations and warranties to the Acquiror's insurance carrier for
the purpose of obtaining such insurance.
(c) Any Indemnified Party wishing to claim indemnification under
Section 6.13(a), upon learning of any claim, action, suit, proceeding or
investigation described above, shall promptly notify the Acquiror thereof;
provided that the failure so to notify shall not affect the obligations of the
Acquiror under Section 6.13(a) unless and to the extent the Acquiror is actually
prejudiced as a result of such failure.
(d) The provisions of this Section 6.13 are intended to be for the
benefit of, and enforceable in accordance with their terms by, Indemnified
Parties.
6.14 Section 15 of the Investment Company Act. (a) The Company
will use its reasonable best efforts to obtain as promptly as practicable, (1)
the approval of the stockholders of each of the Registered Funds, pursuant to
the provisions of Section 15 of the Investment Company Act if applicable
thereto, of a new investment company advisory agreement for such Registered
Funds no less favorable to the Company or its Subsidiaries to that in effect
immediately prior to the Closing and in compliance with Section 15 of the
Investment Company Act, to the extent applicable, and (2) a consent to
assignment from each private account holder to whom it is providing investment
advisory services.
(b) The Company shall assure, prior to the Effective Time, that the
composition of the board of directors or trustees, as the case may be, of each
Registered Fund is in compliance at the time with Section 15(f)(1)(A) of the
Investment Company Act.
(c) The parties each agree for a period of three years following the
Effective Time to use their respective reasonable best efforts to assure
compliance with the conditions of Section 15(f) of the Investment Company Act as
it applies to the Registered Funds and the transactions contemplated by this
Agreement. Notwithstanding anything to the contrary contained herein, the
covenants contained in this Section 6.14 are intended only for the benefit of
parties to this Agreement and their respective stockholders and holders of stock
options immediately prior to the Effective Time and for no other person.
6.15 Accountants' Letters. Each of the Company and the
Acquiror shall use its reasonable best efforts to cause to be delivered to the
other party, and such other party's directors and officers who sign the
Registration Statement, a letter of Ernst & Young LLP independent auditors,
dated (1) the date on which the Registration Statement shall become effective
and (2) a date shortly prior to the Effective Date, and addressed to such other
party, and such directors and officers, in form and substance customary for
"comfort" letters delivered by independent accountants in accordance with
Statement of Accounting Standards No. 72.
6.16 Notification of Certain Matters. (a) Each of the Company
and the Acquiror shall give prompt notice to the other of any fact, event or
circumstance known to it that is reasonably likely, individually or taken
together with all other facts, events and circumstances known to it, to result
in a material breach of any of its representations, warranties, covenants or
agreements contained herein.
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(b) The Company and each of its Subsidiaries shall promptly notify the
Acquiror, and the Acquiror shall promptly notify the Company, of:
(1) any notice in writing (or to the best knowledge of the
Company, any other communication) from any person alleging that the
consent of such person is or may be required as a condition to the
Acquisition;
(2) any notice or other written communications from any client
(A) terminating or threatening to terminate any material Contract with
the Company or any of its Subsidiaries relating to the rendering of
services to such client, or (B) relating to any material dispute with
such client; or
(3) any notice or other communication from any Governmental
Authority or Self-Regulatory Organization in connection with the
transactions contemplated by this Agreement.
6.17 Press Releases. Each of the Company and the Acquiror
agrees that it will not, without the prior approval of the other party, issue
any press release or written statement for general circulation relating to the
transactions contemplated hereby, except as otherwise required by applicable law
or regulation or the rules of any applicable Self-Regulatory Organization.
6.18 Certain Policies of the Company. (a) Upon the request of
the Acquiror, the Company shall, consistent with generally accepted accounting
principles and regulatory accounting principles, use its reasonable best efforts
to record certain accounting adjustments intended to conform the litigation and
other accrual and reserve policies of the Company so as to reflect the policies
of the Acquiror; provided, however, that the Company shall not be obligated to
record any such accounting adjustments pursuant to this Section 6.18(a) unless
and until the Company shall be satisfied that the conditions to the obligation
of the parties to consummate the Merger will be satisfied or waived on or before
the Effective Time and (b) in no event until the day prior to the Effective
Date. The Company's representations, warranties and covenants contained in this
Agreement shall not be deemed to be untrue or breached in any respect for any
purpose as a consequence of any modifications or changes undertaken solely on
account of this Section 6.18.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
7.01 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each of the Acquiror and the Company to
consummate the Merger is subject to the fulfillment or written waiver by the
Acquiror and the Company prior to the Effective Time of each of the following
conditions:
(a) STOCKHOLDER APPROVAL. This Agreement shall have been duly
adopted by the requisite vote of the holders of outstanding shares of
Company Common Stock entitled to vote thereon in accordance with
Section 251 of the DGCL, other applicable law and the Company
Certificate and Company By-Laws.
(b) GOVERNMENTAL AND REGULATORY CONSENTS. All approvals and
authorizations of, filings and registrations with, and notifications
to, all Governmental Authorities and Self-Regulatory
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Organizations required for the consummation of the Merger shall have
been obtained or made and shall be in full force and effect and all
waiting periods required by law shall have expired; provided, however,
that none of the preceding shall be deemed obtained or made if it shall
be subject to any condition or restriction the effect of which would
have been such that the Acquiror would not reasonably have entered into
this Agreement had such condition or restriction been known as of the
date hereof.
(c) THIRD PARTY CONSENTS. All consents or approvals of all
persons, other than Governmental Authorities, required for or in
connection with the execution, delivery and performance of this
Agreement and the consummation of the Merger shall have been obtained
and shall be in full force and effect, unless the failure to obtain any
such consent or approval is not reasonably likely to have, individually
or in the aggregate, a Material adverse effect on the Surviving
Corporation.
(d) NO INJUNCTION. No Governmental Authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, judgment, decree, injunction or
other order (whether temporary, preliminary or permanent) which is in
effect and prohibits consummation of the transactions contemplated by
this Agreement.
(e) REGISTRATION STATEMENT. The Registration Statement shall
have become effective under the Securities Act and no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been
initiated or threatened by the SEC.
(f) BLUE SKY APPROVALS. All permits and other authorizations
under state securities laws necessary to consummate the transactions
contemplated hereby and to issue the shares of Acquiror Common Stock
(and related Acquiror Rights) to be issued in the Merger shall have
been received and be in full force and effect.
(g) LISTING. The shares of Acquiror Common Stock (and related
Acquiror Rights) to be issued in the Merger shall have been approved
for listing on the NYSE, subject to official notice of issuance.
(h) TAX OPINIONS. The Acquiror shall have received an opinion
of Sullivan & Cromwell, counsel to the Acquiror, and the Company shall
have received an opinion of Wachtell, Lipton, Rosen & Katz, special
counsel to the Company, in each case dated the Effective Date,
substantially to the effect that, based on the facts and assumptions
stated therein, for United States federal income tax purposes, the
Merger qualifies as a "reorganization" within the meaning of Section
368(a) of the Code. In rendering their respective opinions, Sullivan &
Cromwell and Wachtell, Lipton, Rosen & Katz may rely as to factual
matters on the representations made in this Agreement and in separate
certificates addressed to such counsel by both the Company and the
Acquiror. In addition, such opinion may be subject to customary
qualifications.
7.02 Conditions to Obligation of the Company. The obligation
of the Company to consummate the Merger is also subject to the fulfillment or
written waiver by the Company prior to the Effective Time of each of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Acquiror set forth in this Agreement shall be true
and correct as of the date of this Agreement and as of the
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Effective Date as though made on and as of the Effective Date (except
that representations and warranties that by their terms speak as of the
date of this Agreement or some other date shall be true and correct
only as of such date), and the Company shall have received a
certificate, dated the Effective Date, signed on behalf of the Acquiror
by a senior executive officer of the Acquiror to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE ACQUIROR. The Acquiror
shall have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the Effective
Time, and the Company shall have received a certificate, dated the
Effective Date, signed on behalf of the Acquiror by a senior executive
officer of the Acquiror to such effect.
(c) ACCOUNTANTS' LETTERS. The Company shall have received the
letters referred to in Section 6.15 from Ernst & Young LLP, the
Acquiror's independent auditors.
7.03 Conditions to Obligation of the Acquiror. The obligation
of the Acquiror to consummate the Merger is also subject to the fulfillment or
written waiver by the Acquiror prior to the Effective Time of each of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company set forth in this Agreement shall be true and
correct as of the date of this Agreement and as of the Effective Date
as though made on and as of the Effective Date (except that
representations and warranties that by their terms speak as of the date
of this Agreement or some other date shall be true and correct only as
of such date) and the Acquiror shall have received a certificate, dated
the Effective Date, signed on behalf of the Company by the Chief
Executive Officer and the Chief Financial Officer of the Company to
such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company
shall have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the Effective
Time, and the Acquiror shall have received, prior to the Effective
Time, a certificate, dated the Effective Date, signed on behalf of the
Company by the Chief Executive Officer and the Chief Financial Officer
of the Company to such effect.
(c) ACCOUNTANTS' LETTERS. The Acquiror and its directors and
officers who sign the Registration Statement shall have received the
letters referred to in Section 6.15 from Ernst & Young LLP, the
Company's independent auditors.
(d) COMPANY RIGHTS. No person shall have become an "Acquiring
Person" and no "Distribution Date" (as such terms are defined in the
Company Rights Agreement) shall have occurred, and the Company Rights
shall not have become separable, distributable, redeemable or
exercisable.
(e) EMPLOYMENT AGREEMENTS. The Employment Agreements of (1)
each individual comprising Group A as set forth in Annex C and (2)
seven of the individuals comprising Group B as set forth in Annex C
(including at least one of the two individuals listed in Acquiror's
Disclosure Schedule with respect to this Section) shall be in full
force and effect (other than as a consequence of death or disability)
and, in each case, such individual shall not have committed an act or
omission that would permit their termination for "cause" thereunder.
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ARTICLE VIII
TERMINATION
8.01 Termination. This Agreement may be terminated, and the
Merger may be abandoned:
(a) MUTUAL CONSENT. At any time prior to the Effective Time,
by the mutual consent of the Acquiror and the Company.
(b) BREACH. At any time prior to the Effective Time, by the
Acquiror or the Company in the event of either: (1) a breach by the
other party of any representation or warranty contained herein (subject
to the standard set forth in Section 5.02), which breach cannot be or
has not been cured within 30 days after the giving of written notice to
the breaching party of such breach, or (2) a breach by the other party
of any of the covenants or agreements contained herein, which breach
cannot be or has not been cured within 30 days after the giving of
written notice to the breaching party of such breach and which breach
would be reasonably likely, individually or in the aggregate, to have a
Material adverse effect on the breaching party or the Surviving
Corporation.
(c) DELAY. At any time prior to the Effective Time, by the
Acquiror or the Company in the event that the Merger is not consummated
by June 15, 1999, except to the extent that the failure of the Merger
then to be consummated arises out of or results from the knowing action
or inaction of the party seeking to terminate pursuant to this Section
8.01(c).
(d) NO APPROVAL. By the Company or the Acquiror in the event
(1) the approval of any Governmental Authority required for
consummation of the Merger and the other transactions contemplated by
this Agreement shall have been denied by final nonappealable action of
such Governmental Authority , or such Governmental Authority shall have
requested the permanent withdrawal of any application therefor, or any
such approval shall be made subject to any condition or restriction
described in the proviso to Section 7.01(b), or (2) any stockholder
approval required by Section 7.01(a) herein is not obtained at the
Company Meeting.
(e) FAILURE TO RECOMMEND, ETC. By the Acquiror, if at any time
prior to the Company Meeting the Company Board shall have failed to
make its recommendation referred to in Section 6.02, withdrawn such
recommendation or modified or changed such recommendation in a manner
adverse to the interests of the Acquiror (whether in accordance with
Section 6.02 or otherwise).
(f) FAILURE TO ADJUST BY THE ACQUIROR. By the Company, at any
time during the two-day period commencing with the date immediately
following the Pricing Date, if the Average Closing Price as of the
Pricing Date is less than $29.00; provided, that:
(1) If the Company elects to exercise its termination
right pursuant to this Section 8.01(f), it will give
irrevocable written notice to the Acquiror during the two-day
period referred to therein;
(2) During the two-day period commencing with the
date of its receipt of such notice, the Acquiror will have the
option of adjusting the Exchange Ratio to a fraction (rounded
to
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the nearest hundredth) the numerator of which is the product
of $35.00 and $29.00 and the denominator is the product of
$33.00 and the Average Closing Price as of the Pricing Date;
and
(3) If the Acquiror determines so to adjust the
Exchange Ratio, it will give written notice (within such
two-day period) to the Company of its determination and the
adjusted Exchange Ratio, whereupon no termination shall occur
pursuant to this Section 8.01(f) and this Agreement shall
remain in effect in accordance with its terms (except as the
Exchange Ratio shall have been so adjusted), and any
references in this Agreement to the "Exchange Ratio" shall
thereafter be deemed to refer to the Exchange Ratio as
adjusted pursuant to this Section 8.01(f).
8.02 Effect of Termination and Abandonment. In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article VIII, no party to this Agreement shall have any liability or further
obligation to any other party hereunder except (1) as set forth in Sections
8.03, 9.01 and 9.05 and (2) that termination will not relieve a breaching party
from liability for any willful breach of this Agreement.
8.03 Termination Fee. If the Acquiror terminates this
Agreement pursuant to Section 8.01(e) following receipt by the Company of an
Acquisition Proposal, then, within five business days of such termination, the
Company shall pay the Acquiror by wire transfer in immediately available funds a
fee of $5,000,000 (the "Termination Fee").
ARTICLE IX
MISCELLANEOUS
9.01 Survival. No representations, warranties, agreements and
covenants contained in this Agreement shall survive the Effective Time or
termination of this Agreement if this Agreement is terminated prior to the
Effective Time; provided, however, that (a) the agreements of the parties
contained in Sections 6.13 and in this Article IX shall survive the Effective
Time and (b) if this Agreement is terminated prior to the Effective Time, the
agreements of the parties contained in Sections 6.04(b), 8.02 and 8.03 and in
this Article IX shall survive such termination.
9.02 Waiver; Amendment. Prior to the Effective Time, any
provision of this Agreement may be (1) waived by the party benefitted by the
provision, or (2) amended or modified at any time, by an agreement in writing
between the parties hereto approved or authorized by their respective Boards of
Directors and executed in the same manner as this Agreement, except that, after
approval of the Merger by the stockholders of the Company, no amendment may be
made which under applicable law requires further approval of such stockholders
without obtaining such required further approval.
9.03 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to constitute an original.
9.04 Governing Law. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of Ohio applicable to
contracts made and to be performed entirely within such State.
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9.05 Expenses. Subject to Section 8.03, each party hereto will
bear all expenses incurred by it in connection with this Agreement and the
transactions contemplated hereby, except that printing expenses and SEC
registration fees shall be shared equally between the Company and the Acquiror.
9.06 Notices. All notices, requests and other communications
hereunder to a party shall be in writing and shall be deemed given (1) on the
date of delivery, if personally delivered or telecopied (with confirmation), (2)
on the first business day following the date of dispatch, if delivered by a
recognized next-day courier service, or (3) on the third business day following
the date of mailing, if mailed by registered or certified mail (return receipt
requested), in each case to such party at its address or telecopy number set
forth below or such other address or numbers as such party may specify by notice
to the parties hereto.
If to the Acquiror, to:
KeyCorp
127 Public Square
Cleveland, Ohio 44114
Attention: Thomas C. Stevens, Esq.
Facsimile: (216) 689-7827
With a copy to:
Mitchell S. Eitel, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Facsimile: (212) 558-3588.
If to the Company, to:
McDonald & Company Investments, Inc.
800 Superior Avenue
Cleveland, Ohio 44114
Attention: William B. Summers, Jr.
Facsimile: (216) 443-8452
With a copy to:
Edward D. Herlihy, Esq.
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Facsimile: (212) 403-2000.
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and to:
Thomas McKee, Esq.
Calfee, Halter & Griswold
1400 McDonald Investment Center
Cleveland, Ohio 44114
Facsimile: (216)241-0816
9.07 Entire Understanding; No Third Party Beneficiaries. This
Agreement (together with the Disclosure Schedules) and the Stock Option
Agreement represent the entire understanding of the parties hereto with
reference to the transactions contemplated hereby and this Agreement supersedes
any and all other oral or written agreements heretofore made. Except for Section
6.13, insofar as such Section expressly provides certain rights to the persons
named therein, nothing in this Agreement, expressed or implied, is intended to
confer upon any person, other than the parties hereto or their respective
successors and permitted assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
* * *
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<PAGE> 120
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in counterparts by their duly authorized officers, all
as of the day and year first above written.
MCDONALD & COMPANY INVESTMENTS, INC.
By: /s/ William B. Summers, Jr.
-----------------------------------
Name: William B. Summers, Jr.
Title: President and Chief Executive Officer
KEYCORP
By: /s/ Thomas C. Stevens
-----------------------------------
Name: Thomas C. Stevens
Title: Senior Executive Vice President
<PAGE> 121
Appendix B
[Morgan Stanley Letterhead]
August __, 1998
McDonald & Company Investments, Inc.
McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114
Members of the Board:
We understand that McDonald & Company Investments ("McDonald" or the "Company")
and KeyCorp ("KeyCorp"), have entered into an Agreement and Plan of Merger,
dated as of June 15, 1998 (the "Merger Agreement"), which provides, among other
things, for the merger (the "Merger") of McDonald with and into a direct or
indirect wholly owned subsidiary of KeyCorp. Pursuant to the Merger, each
outstanding share of common stock, par value $1.00 per share, of McDonald (the
"McDonald Common Stock"), other than shares held in treasury or held by KeyCorp
or any affiliate of KeyCorp, will be converted into the right to receive a
certain number of shares (the "Exchange Ratio") of common stock, par value
$1.00 per share, of KeyCorp (the "KeyCorp Common Stock") equal to $35.00,
subject to adjustment or termination in certain circumstances pursuant to a
certain formula set forth in the Merger Agreement. The terms and conditions
of the Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to the
Merger Agreement is fair from a financial point of view to the holders of shares
of McDonald Common Stock (other than KeyCorp and its affiliates).
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and
other information of McDonald and KeyCorp, respectively;
(11) reviewed certain internal financial statements and other
financial and operating data concerning McDonald and KeyCorp
prepared by the managements of McDonald and KeyCorp,
respectively;
<PAGE> 122
(iii) analyzed certain financial projections prepared by the
management of McDonald;
(iv) discussed the past and current operations and financial
condition and the prospects of McDonald and KeyCorp with
senior executives of McDonald and KeyCorp, respectively;
(v) reviewed the reported prices and trading activity for the
McDonald Common Stock and KeyCorp Common Stock;
(vi) compared the financial performance of McDonald and KeyCorp and
the prices and trading activity of the McDonald Common Stock
and the KeyCorp Common Stock with that of certain other
comparable publicly traded companies and their securities;
(vii) discussed the results of regulatory examinations of McDonald
and KeyCorp with senior management of the respective
companies;
(viii) discussed with senior managements of McDonald and KeyCorp
the strategic objectives of the Merger and their estimates of
the synergies and other benefits of the Merger for the
combined company;
(ix) analyzed the pro forma impact of the Merger on the combined
company's earnings per share and financial ratios;
(x) reviewed the financial terms, to the extent publicly
available, of certain comparable merger transactions;
(xi) participated in discussions among representatives of McDonald
and KeyCorp and their financial and legal advisors;
(xii) reviewed the Merger Agreement and certain related documents;
and
(xiii) performed such other analyses and considered such other
factors as we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, including the estimated
synergies and other estimated benefits expected to result from the Merger, we
have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgements of the future financial
performance of McDonald and KeyCorp. We have not made any independent valuation
or appraisal of the assets or liabilities of McDonald or KeyCorp, nor have we
been furnished with any such appraisals and we have not examined any individual
loan credit files of KeyCorp. In addition, we have assumed the Merger will be
consummated substantially in accordance with the terms set forth in the Merger
Agreement. Our opinion is necessarily based on economic, market
<PAGE> 123
and other conditions as in effect on, and the information made available to us
as of, the date hereof.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition, business
combination or other extraordinary transaction, involving the Company.
We have acted as financial advisor to the Board of Directors of McDonald in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for KeyCorp and McDonald, and have
received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of McDonald and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by McDonald with the Securities and Exchange Commission with
respect to the Merger. In addition, we express no opinion and make no
recommendation as to how the holders of McDonald Common Stock should vote at the
stockholders' meeting held in connection with the Merger.
Based on the foregoing, we are of the opinion on the date hereof that the
Exchange Ratio pursuant to the Merger Agreement is fair from a financial point
of view to the holders of shares of McDonald Common Stock (other than KeyCorp
and its affiliates).
Very truly yours.
MORGAN STANLEY & CO. INCORPORATED
By:
----------------------------
Stephen S. Crawford
Principal
<PAGE> 124
Appendix C
STOCK OPTION AGREEMENT, dated as of June 15, 1998, between
McDonald & Company Investments, Inc., a Delaware corporation ("Issuer"), and
KeyCorp, an Ohio corporation ("Grantee").
RECITALS
A. Grantee and Issuer have entered into an Agreement and Plan
of Merger, dated as of June 15, 1998 (as amended, supplemented or replaced from
time to time, the "Merger Agreement") contemplating a business combination
between Issuer and Grantee (the "Merger");
B. As a condition and inducement to the willingness of Grantee
to execute (and pursue the transactions contemplated by) the Merger Agreement,
and in consideration therefor, Issuer has agreed to grant Grantee the Option (as
defined below); and
C. The Board of Directors of Issuer has approved the Merger
Agreement and the transactions contemplated thereby (including the Merger and
the grant of the Option (as defined below)) prior to the date hereof;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements set forth herein and in the Merger Agreement,
the parties hereto agree as follows:
1. Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof, up
to an aggregate of 3,669,088 fully paid and nonassessable shares of the common
stock, par value $1.00 per share, of Issuer ("Common Stock") at a price per
share equal to $30.8125 (such price, as adjusted if applicable, the "Option
Price"); provided that in no event shall the number of shares for which this
Option is exercisable exceed 19.9% of the issued and outstanding shares of
Common Stock. The number of shares of Common Stock that may be received upon the
exercise of the Option and the Option Price are subject to adjustment as set
forth below.
2. (a) The Holder (as defined below) may exercise the Option,
in whole or part, if, but only if, both an Initial Triggering Event (as defined
below) and a Subsequent Triggering Event (as defined below) occur before the
occurrence of an Exercise Termination Event (as defined below), provided that
the Holder shall have sent the written notice of such exercise (as provided in
Section 2(e)) within 90 days following the first Subsequent Triggering Event to
occur (or such later period as provided in Section 10). Each of the following
shall be an "Exercise Termination Event": (1) the Effective Time of the Merger;
(2) the termination of the Merger Agreement in accordance with the provisions
thereof, if such termination occurs prior to the occurrence of an Initial
Triggering Event and is not a termination by Grantee pursuant to Section 8.01(b)
or (e); or (3) the passage of eighteen months (or such longer period as provided
in Section 10) after termination of the Merger Agreement, if such termination is
concurrent with or follows the occurrence of an Initial Triggering Event or is a
termination by Grantee pursuant to Section 8.01(b) or (e). The term "Holder"
shall mean the holder or holders of the Option. Notwithstanding anything to the
contrary contained herein, (1) the Option may not be exercised at any time when
Grantee shall be in material breach of any of its
<PAGE> 125
representations, warranties, covenants or agreements contained in the Merger
Agreement such that Issuer shall be entitled to terminate the Merger Agreement
pursuant to Section 8.01(b) thereof and (2) this Agreement shall automatically
terminate upon the termination of the Merger Agreement by Issuer pursuant to
Section 8.01(b) thereof as a result of the material breach by Grantee of its
representations, warranties, covenants or agreements contained in the Merger
Agreement.
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring on or after the date hereof:
(1) Issuer or any Issuer Subsidiary (as defined below),
without having received Grantee's prior written consent, shall
have entered into an agreement to engage in an Acquisition
Transaction (as defined below) with any person (the term
"person" for purposes of this Agreement having the meaning
assigned thereto in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder (collectively, the "1934 Act")) other
than Grantee or any Grantee Subsidiary (as defined below) or
the Board of Directors of Issuer (the "Issuer Board") shall
have recommended that the shareholders of Issuer approve or
accept any Acquisition Transaction other than the Merger. For
purposes of this Agreement:
(A) "Acquisition Transaction" shall mean (x)
a merger or consolidation, or any similar
transaction, involving Issuer or an Issuer Subsidiary
(other than mergers, consolidations or similar
transactions (1) involving solely Issuer and/or one
or more wholly owned Subsidiaries of the Issuer or
(2) in which the voting securities of Issuer
outstanding immediately prior thereto continue to
represent (by either remaining outstanding or being
converted into the voting securities of the surviving
entity of any such transaction) at least 50% of the
combined voting power of the voting securities of the
Issuer or the surviving entity outstanding
immediately after the consummation of such merger,
consolidation, or similar transaction, provided that
any such transaction is not entered into in violation
of the terms of the Merger Agreement), (y) a
purchase, lease or other acquisition of 25% or more
of the assets of Issuer or an Issuer Subsidiary, or
(z) a purchase or other acquisition (including by way
of merger, consolidation, share exchange or
otherwise) of securities representing 15% or more of
the voting power of Issuer or an Issuer Subsidiary;
(B) "Subsidiary" shall have the meaning set
forth in Rule 12b-2 under the 1934 Act;
(C) "Significant Subsidiary" shall have the
meaning set forth in Rule 1-02 of Regulation S-X
promulgated by the Securities and Exchange Commission
(the "SEC");
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(D) "Issuer Subsidiary" shall mean any
Significant Subsidiary of Issuer; and
(E) "Grantee Subsidiary" shall mean any
Subsidiary of Grantee.
(2) Any person other than the Grantee or any Grantee
Subsidiary shall have acquired beneficial ownership or the
right to acquire beneficial ownership of 15% or more of the
outstanding shares of Common Stock (the term "beneficial
ownership" for purposes of this Agreement having the meaning
assigned thereto in Section 13(d) of the 1934 Act);
(3) The shareholders of Issuer shall have voted and
failed to approve the Merger Agreement or the Merger at a
meeting which has been held for that purpose or any
adjournment or postponement thereof, or such meeting shall not
have been held in violation of the Merger Agreement or shall
have been cancelled prior to termination of the Merger
Agreement if, prior to such meeting (or if such meeting shall
not have been held or shall have been cancelled, prior to such
termination), it shall have been publicly announced that any
person (other than Grantee or any Grantee Subsidiary) shall
have made, or disclosed an intention to make, a proposal to
engage in an Acquisition Transaction;
(4) The Issuer Board shall have withdrawn or modified
(or publicly announced its intention to withdraw or modify) in
any manner adverse to Grantee its recommendation that the
shareholders of Issuer approve the transactions contemplated
by the Merger Agreement, or Issuer or an Issuer Subsidiary
shall have authorized, recommended or proposed (or publicly
announced its intention to authorize, recommend or propose) an
agreement to engage in an Acquisition Transaction with any
person other than Grantee or a Grantee Subsidiary;
(5) Any person other than Grantee or any Grantee
Subsidiary shall have made a proposal to Issuer or its
shareholders to engage in an Acquisition Transaction and such
proposal shall have been publicly announced;
(6) Any person other than Grantee or any Grantee
Subsidiary shall have filed with the SEC a registration
statement or tender offer materials with respect to a
potential exchange or tender offer that would constitute an
Acquisition Transaction (or filed a preliminary proxy
statement with the SEC with respect to a potential vote by its
shareholders to approve the issuance of shares to be offered
in such an exchange or tender offer); or
(7) Issuer shall have willfully breached any covenant
or obligation contained in the Merger Agreement after any
person other than Grantee or a Grantee Subsidiary shall have
made a proposal to Issuer or its shareholders to engage in an
Acquisition Transaction, and following such breach Grantee
would be entitled to
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<PAGE> 127
terminate the Merger Agreement (whether immediately or after
the giving of notice or both).
(c) The term "Subsequent Triggering Event" shall mean any of
the following events or transactions occurring after the date hereof:
(1) The acquisition by any person (other than Grantee
or any Grantee Subsidiary) of beneficial ownership of 25% or
more of the then outstanding Common Stock; or
(2) The occurrence of the Initial Triggering Event
described in Section 2(b)(1), except that the percentage
referred to in clause (z) of Section 2(b)(1)(A) shall be 25%.
(d) Issuer shall notify Grantee promptly in writing of the
occurrence of any Initial Triggering Event or Subsequent Triggering Event
(together, a "Triggering Event") promptly after becoming aware of the occurrence
thereof, it being understood that the giving of such notice by Issuer shall not
be a condition to the right of the Holder to exercise the Option.
(e) In the event the Holder is entitled to and wishes to
exercise the Option (or any portion thereof), it shall send to Issuer a written
notice (the date of which being herein referred to as the "Notice Date")
specifying (1) the total number of shares it will purchase pursuant to such
exercise and (2) a place and date not earlier than three business days nor later
than 60 business days from the Notice Date for the closing of such purchase (the
"Closing Date"); provided that, if prior notification to or approval of the
Federal Reserve Board or any other regulatory or antitrust agency is required in
connection with such purchase, the Holder shall promptly file the required
notice or application for approval, shall promptly notify Issuer of such filing,
and shall expeditiously process the same and the period of time that otherwise
would run pursuant to this sentence shall run instead from the date on which any
required notification periods have expired or been terminated or such approvals
have been obtained and any requisite waiting period or periods shall have
passed. Any exercise of the Option shall be deemed to occur on the Notice Date
relating thereto.
(f) At the closing referred to in Section 2(e), the Holder
shall (1) pay to Issuer the aggregate purchase price for the shares of Common
Stock purchased pursuant to the exercise of the Option in immediately available
funds by wire transfer to a bank account designated by Issuer and (2) present
and surrender this Agreement to Issuer at its principal executive offices;
provided that the failure or refusal of the Issuer to designate such a bank
account or accept surrender of this Agreement shall not preclude the Holder from
exercising the Option.
(g) At such closing, simultaneously with the delivery of
immediately available funds as provided in Section 2(f), Issuer shall deliver to
the Holder a certificate or certificates representing the number of shares of
Common Stock purchased by the Holder and, if the Option shall have been
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder.
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(h) Certificates for Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate is subject
to certain provisions of an agreement, dated as of June 15, 1998,
between the registered holder hereof and Issuer and to resale
restrictions arising under the Securities Act of 1933, as amended. A
copy of such agreement is on file at the principal office of Issuer and
will be provided to the holder hereof without charge upon receipt by
Issuer of a written request therefor."
It is understood and agreed that: (1) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act") in the above legend
shall be removed by delivery of substitute certificate(s) without such
reference, if the Holder shall have delivered to Issuer a copy of a letter from
the staff of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the 1933 Act, (2) the reference to the provisions of this Agreement
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference, if the shares have been sold or transferred in
compliance with the provisions of this Agreement and under circumstances that do
not require the retention of such reference in the reasonable opinion of counsel
to the Holder and (3) the legend shall be removed in its entirety if the
conditions in the preceding clauses (1) and (2) are both satisfied. In addition,
such certificates shall bear any other legend as may be required by law.
(i) Upon the giving by the Holder to Issuer of the written
notice of exercise of the Option provided for under Section 2(e) and the tender
of the applicable purchase price in immediately available funds, the Holder
shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. Issuer shall
pay all expenses, and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the initial
preparation, issue and delivery of stock certificates under this Section 2 in
the name of the Holder or its assignee, transferee or designee.
(j) In the event Issuer does not have sufficient authorized
but unissued shares of Common Stock to permit exercise of the Option, upon the
occurrence of a Subsequent Triggering Event, for the full number of shares of
Common Stock for which the Holder elects to exercise the Option, the Issuer
shall make a cash payment to the Holder, at the Closing Date specified in, and
in accordance with the other provisions of, this Section 2, in an amount equal
to the product of (1) the difference between the Fair Market Value (as defined
below) and the Option Price and (2) the number of shares of Common Stock subject
to the Option for which the Holder provides notice to Issuer, pursuant to
Section 2(e) of this Agreement, of its election to exercise that the Issuer is
unable to deliver due to insufficient authorized shares. For purposes of this
Section 2(j), Fair Market Value shall mean the average of the last reported sale
prices per share of Common Stock on the NYSE Composite Transactions reporting
system (as published in The Wall Street Journal or, if not published therein,
another authoritative source) for the ten trading days immediately preceding the
Closing Date. Upon the payment of the cash amount calculated pursuant to this
Section 2(j), the number of Option
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Shares subject to the Option shall be reduced by the number of shares of Common
Stock for which each cash payment is made.
3. Issuer agrees: (1) that it will not, by charter amendment
or through reorganization, consolidation, merger, dissolution or sale of assets,
or by any other voluntary act, avoid or seek to avoid the observance or
performance of any of the covenants, stipulations or conditions to be observed
or performed hereunder by Issuer, (2) promptly to take all action as may from
time to time be required (including (x) complying with all applicable premerger
notification, reporting and waiting period requirements specified in 15 U.S.C.
Section 18a and regulations promulgated thereunder and (y) in the event that,
under the Bank Holding Company Act of 1956, as amended (the "BHCA"), or any
state or other federal banking law, prior approval of or notice to the Federal
Reserve Board or to any state or other federal regulatory authority is necessary
before the Option may be exercised, cooperating fully with the Holder in
preparing such applications or notices and providing such information to the
Federal Reserve Board or such state or other federal regulatory authority as
they may require) in order to permit the Holder to exercise the Option and
Issuer duly and effectively to issue shares of Common Stock pursuant hereto and
(3) promptly to take all action provided in Sections 5 and 8 as and when
required pursuant to such Sections.
4. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer, for other
Agreements providing for Options of different denominations entitling the Holder
thereof to purchase, on the same terms and subject to the same conditions as are
set forth herein, in the aggregate the same number of shares of Common Stock
purchasable hereunder. The terms "Agreement" and "Option" as used herein include
any Agreements and related Options for which this Agreement (and the Option
granted hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date in substitution for the lost, stolen, destroyed or mutilated
Agreement.
5. In addition to the adjustment provided for in Section 1,
the number of shares of Common Stock purchasable upon the exercise of the Option
and the Option Price shall be subject to adjustment from time to time as
follows:
(a) In the event of any change in, or distributions in respect
of, the Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges
of shares or the like, the type and number of shares of Common Stock
purchasable upon exercise hereof shall be appropriately adjusted and
proper provision shall be made so that, in the event that any
additional shares of Common Stock are to be issued or otherwise become
outstanding as a result of any such change (other than pursuant to an
exercise of the Option), the number of shares of Common Stock that
remain subject to the Option shall be increased so that, after such
issuance and together with shares of Common Stock previously issued
pursuant to the exercise of the Option (as adjusted on account of any
of the foregoing changes in the Common Stock), it equals 19.9% of the
number of shares of Common Stock then issued and outstanding; and
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(b) Whenever the number of shares of Common Stock purchasable
upon exercise hereof is adjusted as provided in Section 5(a), the
Option Price shall be adjusted by multiplying the Option Price
immediately prior to the adjustment by a fraction, the numerator of
which shall be equal to the number of shares of Common Stock
purchasable prior to the adjustment and the
denominator of which shall be equal to the number of shares of Common
Stock purchasable after the adjustment.
6. Upon the occurrence of the first Subsequent Triggering
Event that occurs prior to an Exercise Termination Event, Issuer shall, at the
request of Grantee delivered within twelve months (or such later period as
provided in Section 10) of such Subsequent Triggering Event (whether on its own
behalf or on behalf of any subsequent Holder of this Option (or part thereof) or
any of the shares of Common Stock issued pursuant hereto), promptly prepare,
file and keep current a registration statement under the 1933 Act covering any
shares issued and issuable pursuant to this Option and shall use its reasonable
best efforts to cause such registration statement to become effective and remain
current in order to permit the sale or other disposition of any shares of Common
Stock issued upon total or partial exercise of this Option ("Option Shares") in
accordance with any plan of disposition requested by Grantee. Issuer will use
its reasonable best efforts to cause such registration statement promptly to
become effective and then to remain effective for such period not in excess of
180 days from the day such registration statement first becomes effective or
such shorter time as may be reasonably necessary to effect such sales or other
dispositions. Grantee shall have the right to demand no more than two such
registrations. The Issuer shall bear the costs of such registrations (including,
but not limited to, Issuer's attorneys' fees, printing costs and filing fees),
except for underwriting discounts or commissions, brokers' fees and the fees and
disbursements of Grantee's counsel related thereto. The foregoing
notwithstanding, if, at the time of any request by Grantee for registration of
Option Shares as provided above, Issuer is in registration with respect to an
underwritten public offering by Issuer of shares of Common Stock, and if in the
good faith judgment of the managing underwriter or managing underwriters, or, if
none, the sole underwriter or underwriters, of such offering the offer and sale
of the Option Shares would interfere with the successful marketing of the shares
of Common Stock offered by Issuer, the number of Option Shares otherwise to be
covered in the registration statement contemplated hereby may be reduced;
provided that, after any such required reduction, the number of Option Shares to
be included in such offering for the account of the Holder shall constitute at
least 25% of the total number of shares to be sold by the Holder and Issuer in
the aggregate; and provided, further, that, if such reduction occurs, then
Issuer shall file a registration statement for the balance as promptly as
practicable thereafter as to which no reduction pursuant to this Section 6 shall
be permitted or occur and the Holder shall thereafter be entitled to one
additional registration and the twelve month period referred to in the first
sentence of this section shall be increased to twenty-four months. Each such
Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in such
underwriting agreements for Issuer. Upon receiving any request under this
Section 6 from any Holder, Issuer agrees to send a copy thereof to any other
person known to Issuer to be entitled to registration rights under this Section
6, in each case by promptly mailing the same, postage prepaid, to the address of
record of the persons entitled to receive such copies. Notwithstanding anything
to the contrary contained herein, in no event shall the number of
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registrations that Issuer is obligated to effect be increased by reason of the
fact that there shall be more than one Holder as a result of any assignment or
division of this Agreement.
7. (a) At any time after the occurrence of a Repurchase Event
(as defined below) (1) at the request of the Holder, delivered prior to an
Exercise Termination Event (or such later period as provided in Section 10),
Issuer (or any successor thereto) shall repurchase the Option from the Holder at
a price (the "Option Repurchase Price") equal to (A) the amount by which the
market/offer price (as defined below) exceeds the Option Price (B) multiplied by
the number of shares for which this Option may then be exercised and (2) at the
request of the owner of Option Shares from time to time (the "Owner"), delivered
prior to an Exercise Termination Event (or such later period as provided in
Section 10), Issuer (or any successor thereto) shall repurchase such number of
the Option Shares from the Owner as the Owner shall designate at a price (the
"Option Share Repurchase Price") equal to the market/offer price multiplied by
the number of Option Shares so designated. The term "market/offer price" shall
mean the highest of (1) the highest price per share of Common Stock paid by any
person that acquires beneficial ownership of 50% or more of the then outstanding
Common Stock, (2) the price per share of Common Stock to be paid by any third
party pursuant to an agreement with Issuer entered into after the date hereof
and prior to the date the Holder gives notice of the required repurchase of this
Option or the Owner gives notice of the required repurchase of Option Shares, as
the case may be, (3) the highest last sale price for shares of Common Stock
within the six-month period immediately preceding the date the Holder gives
notice of the required repurchase of this Option or the Owner gives notice of
the required repurchase of Option Shares, as the case may be, or (4) in the
event of a sale of all or any substantial part of Issuer's or Issuer's
Subsidiary's assets or deposits, the sum of the net price paid in such sale for
such assets or deposits and the current market value of the remaining net assets
of Issuer or Issuer Subsidiary as determined by a nationally recognized
investment banking firm selected by the Holder or the Owner, as the case may be,
and reasonably acceptable to Issuer, divided by the number of shares of Common
Stock of Issuer outstanding at the time of such sale on a fully-diluted basis.
In determining the market/offer price, the value of consideration other than
cash shall be determined by a nationally recognized investment banking firm
selected by the Holder or Owner, as the case may be, and reasonably acceptable
to Issuer. Notwithstanding anything to the contrary herein, neither the Option
Repurchase Price nor the Option Share Repurchase Price in the aggregate shall be
less than the Surrender Price (as defined in Section 11).
(b) The Holder and the Owner, as the case may be, may exercise
its right to require Issuer to repurchase the Option and any Option Shares
pursuant to this Section 7 by surrendering for such purpose to Issuer, at its
principal office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that the Holder
or the Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 7. As promptly as practicable, and in any event within five business
days after the surrender of the Option and/or certificates representing Option
Shares and the receipt of such notice or notices relating thereto, Issuer shall
deliver or cause to be delivered to the Holder the Option Repurchase Price
and/or to the Owner the Option Share Repurchase Price therefor or the portion
thereof that Issuer is not then prohibited under applicable law, regulation and
administrative policy from so delivering.
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(c) To the extent that Issuer is prohibited under applicable
law or regulation, or as a consequence of administrative policy, from
repurchasing the Option and/or the Option Shares in full, Issuer shall
immediately so notify the Holder and/or the Owner and thereafter deliver or
cause to be delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from delivering,
within five business days after the date on which Issuer is no longer so
prohibited; provided that, if Issuer at any time after delivery of a notice of
repurchase pursuant to Section 7(b) is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from delivering to the
Holder and/or the Owner, as appropriate, the Option Repurchase Price and the
Option Share Repurchase Price, respectively, in full (and Issuer hereby
undertakes to use its reasonable best efforts to obtain all required regulatory
and legal approvals and to file any required notices as promptly as practicable
in order to accomplish such repurchase), the Holder or Owner may revoke its
notice of repurchase of the Option and/or the Option Shares whether in whole or
to the extent of the prohibition, whereupon, in the latter case, Issuer shall
promptly (1) deliver to the Holder and/or the Owner, as appropriate, that
portion of the Option Repurchase Price and/or the Option Share Repurchase Price
that Issuer is not prohibited from delivering and (2) deliver, as appropriate,
either (A) to the Holder, a new Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock obtained by multiplying the
number of shares of Common Stock for which the surrendered Agreement was
exercisable at the time of delivery of the notice of repurchase by a fraction,
the numerator of which is the Option Repurchase Price less the portion thereof
theretofore delivered to the Holder and the denominator of which is the Option
Repurchase Price, and/or (B) to the Owner, a certificate for the Option Shares
it is then so prohibited from repurchasing. If an Exercise Termination Event
shall have occurred prior to the date of the notice by Issuer described in the
first sentence of this Section 7(c), or shall be scheduled to occur at any time
before the expiration of a period ending on the thirtieth day after such date,
the Holder shall nonetheless have the right to exercise the Option until the
expiration of such 30-day period.
(d) For purposes of this Section 7, a "Repurchase Event" shall
be deemed to have occurred upon the occurrence of any of the following events or
transactions after the date hereof:
(1) The acquisition by any person (other than Grantee
or any Grantee Subsidiary) of beneficial ownership of 50% or
more of the then outstanding Common Stock; or
(2) The consummation of any Acquisition Transaction
described in Section 2(b) (1) hereof, except that the
percentage referred to in clause (z) of the definition of
Acquisition Transaction shall be 50%.
8. (a) In the event that prior to an Exercise Termination
Event, Issuer shall enter into an agreement (1) to consolidate with or merge
into any person, other than Grantee or a Grantee Subsidiary, or engage in a plan
of exchange with any person, other than Grantee or a Grantee Subsidiary and
Issuer shall not be the continuing or surviving corporation of such
consolidation or merger or the acquirer in such plan of exchange, (2) to permit
any person, other than Grantee or a Grantee Subsidiary, to merge into Issuer or
be acquired by Issuer in a plan of exchange and Issuer shall be the continuing
or surviving or acquiring corporation, but, in connection with such merger or
plan of exchange, the then outstanding shares of Common Stock shall be changed
into or exchanged
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for stock or other securities of any other person or cash or any other property
or the then outstanding shares of Common Stock shall after such merger or plan
of exchange represent less than 50% of the outstanding shares and share
equivalents of the merged or acquiring company, or (3) to sell or otherwise
transfer all or substantially all of its or any Issuer Subsidiary's assets to
any person, other than Grantee or a Grantee Subsidiary, then, and in each such
case, the agreement governing such transaction shall make proper provision so
that the Option shall, upon the consummation of any such transaction and upon
the terms and conditions set forth herein, be converted into, or exchanged for,
an option (the "Substitute Option"), at the election of the Holder, of either
(A) the Acquiring Corporation (as defined below) or (B) any person that controls
the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (A) the
continuing or surviving person of a consolidation or merger
with Issuer (if other than Issuer), (B) the acquiring person
in a plan of exchange in which Issuer is acquired, (C) the
Issuer in a merger or plan of exchange in which Issuer is the
continuing or surviving or acquiring person and (D) the
transferee of all or substantially all of Issuer's assets (or
the assets of an Issuer Subsidiary).
(2) "Substitute Common Stock" shall mean the common
stock issued by the issuer of the Substitute Option upon
exercise of the Substitute Option.
(3) "Assigned Value" shall mean the market/offer price,
as defined in Section 7(a).
(4) "Average Price" shall mean the average closing or
last sale price (as the case may be) of a share of the
Substitute Common Stock for one year immediately preceding the
consolidation, merger or sale in question, but in no event
higher than the closing price of the shares of Substitute
Common Stock on the day preceding such consolidation, merger
or sale; provided that, if Issuer is the issuer of the
Substitute Option, the Average Price shall be computed with
respect to a share of common stock issued by the person
merging into Issuer or by any company which controls or is
controlled by such person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the
Option; provided that, if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as possible
and in no event less advantageous to the Holder. The issuer of the Substitute
Option shall also enter into an agreement with the then Holder or Holders of the
Substitute Option in substantially the same form as this Agreement (after giving
effect for such purpose to the provisions of Section 9), which agreement shall
be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number
of shares of Substitute Common Stock as is equal to the Assigned Value
multiplied by the number of shares of Common Stock for which the Option was
exercisable immediately prior to the event described in the first sentence of
Section 8(a), divided by the Average Price. The exercise price of the Substitute
Option per share of Substitute Common Stock shall then be equal to the Option
Price multiplied by a
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<PAGE> 134
fraction, the numerator of which shall be the number of shares of Common Stock
for which the Option was exercisable immediately prior to the event described in
the first sentence of Section 8(a) and the denominator of which shall be the
number of shares of Substitute Common Stock for which the Substitute Option is
exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs,
shall the Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute Option.
In the event that the Substitute Option would be exercisable for more than 19.9%
of the shares of Substitute Common Stock outstanding prior to exercise but for
this Section 8(e), the issuer of the Substitute Option (the "Substitute Option
Issuer") shall make a cash payment to Holder equal to the excess of (1) the
value of the Substitute Option without giving effect to the limitation in this
Section 8(e) over (2) the value of the Substitute Option after giving effect to
the limitation in this Section 8(e). This difference in value shall be
determined by a nationally recognized investment banking firm selected by the
Holder and reasonably acceptable to Issuer.
(f) Issuer shall not enter into any transaction described in
Section 8(a) unless the Acquiring Corporation and any person that controls the
Acquiring Corporation assume in writing all the obligations of Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option
(the "Substitute Option Holder"), the Substitute Option Issuer shall repurchase
the Substitute Option from the Substitute Option Holder at a price (the
"Substitute Option Repurchase Price") equal to (x) the amount by which the
Highest Closing Price (as defined below) exceeds the exercise price of the
Substitute Option (y) multiplied by the number of shares of Substitute Common
Stock for which the Substitute Option may then be exercised, and at the request
of the owner (the "Substitute Share Owner") of shares of Substitute Common Stock
(the "Substitute Shares"), the Substitute Option Issuer shall repurchase the
Substitute Shares at a price (the "Substitute Share Repurchase Price") equal to
the Highest Closing Price multiplied by the number of Substitute Shares so
designated. The term "Highest Closing Price" shall mean the highest closing or
last sale price (as the case may be) for shares of Substitute Common Stock
within the six-month period immediately preceding the date the Substitute Option
Holder gives notice of the required repurchase of the Substitute Option or the
Substitute Share Owner gives notice of the required repurchase of the Substitute
Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share
Owner, as the case may be, may exercise its respective rights to require the
Substitute Option Issuer to repurchase the Substitute Option and the Substitute
Shares pursuant to this Section 9 by surrendering for such purpose to the
Substitute Option Issuer, at its principal office, the agreement for such
Substitute Option (or, in the absence of such an agreement, a copy of this
Agreement) and/or certificates for Substitute Shares accompanied by a written
notice or notices stating that the Substitute Option Holder or the Substitute
Share Owner, as the case may be, elects to require the Substitute Option Issuer
to repurchase the Substitute Option and/or the Substitute Shares in accordance
with the provisions of this Section 9. As promptly as practicable and in any
event within five business days after the surrender of the Substitute Option
and/or certificates representing Substitute Shares and the receipt of such
notice or notices relating thereto, the Substitute Option Issuer shall deliver
or cause to be delivered to the Substitute Option Holder the Substitute Option
Repurchase Price and/or to the Substitute Share Owner the Substitute Share
Repurchase Price therefor or the portion thereof which the Substitute
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<PAGE> 135
Option Issuer is not then prohibited under applicable law, regulation and
administrative policy from so delivering.
(c) To the extent that the Substitute Option Issuer is
prohibited under applicable law or regulation, or as a consequence of
administrative policy, from repurchasing the Substitute Option and/or the
Substitute Shares in part or in full, the Substitute Option Issuer shall
immediately so notify the Substitute Option Holder and/or the Substitute Share
Owner and thereafter deliver or cause to be delivered, from time to time, to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
portion of the Substitute Option Repurchase Price and/or the Substitute Share
Repurchase Price, respectively, which it is no longer prohibited from
delivering, within five business days after the date on which the Substitute
Option Issuer is no longer so prohibited; provided that, if the Substitute
Option Issuer is at any time after delivery of a notice of repurchase pursuant
to Section 9(b) prohibited under applicable law or regulation, or as a
consequence of administrative policy, from delivering to the Substitute Option
Holder and/or the Substitute Share Owner, as appropriate, the Substitute Option
Repurchase Price and the Substitute Share Repurchase Price, respectively, in
full (and the Substitute Option Issuer shall use its reasonable best efforts to
receive all required regulatory and legal approvals as promptly as practicable
in order to accomplish such repurchase), the Substitute Option Holder and/or
Substitute Share Owner may revoke its notice of repurchase of the Substitute
Option or the Substitute Shares either in whole or to the extent of prohibition,
whereupon, in the latter case, the Substitute Option Issuer shall promptly (1)
deliver to the Substitute Option Holder or Substitute Share Owner, as
appropriate, that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering and (2) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, and/or (B) to the Substitute
Share Owner, a certificate for the Substitute Option Shares it is then so
prohibited from repurchasing. If an Exercise Termination Event shall have
occurred prior to the date of the notice by the Substitute Option Issuer
described in the first sentence of this Section 9(c), or shall be scheduled to
occur at any time before the expiration of a period ending on the thirtieth day
after such date, the Substitute Option Holder shall nevertheless have the right
to exercise the Substitute Option until the expiration of such 30-day period.
10. The 30-day, 6-month, 12-month or 24-month periods for
exercise of certain rights under Sections 2, 6, 7 and 9 shall be extended: (a)
to the extent necessary to obtain all regulatory approvals for the exercise of
such rights (for so long as the Holder, Owner, Substitute Option Holder or
Substitute Share Owner, as the case may be, is using commercially reasonable
efforts to obtain such regulatory approvals), and for the expiration of all
statutory waiting periods, (b) during the pendency of any temporary restraining
order, injunction or other legal bar to exercise of such rights and (c) to the
extent necessary to avoid liability under Section 16(b) of the 1934 Act by
reason of such exercise.
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11. (a) Grantee in its sole discretion may, at any time during
which Issuer would be required to repurchase the Option or any Option Shares
pursuant to Section 7, surrender the Option (together with any Option Shares
issued to and then owned by the Grantee or any affiliate thereof) to Issuer in
exchange for a cash payment equal to the Surrender Price (as defined herein);
provided, however, that Grantee may not exercise its rights pursuant to this
Section 11 if Issuer has previously repurchased the Option (or any portion
thereof) or any Option Shares pursuant to Section 7. The "Surrender Price" shall
be equal to the sum of (i) 25,000,000 and (ii) if applicable, the aggregate
purchase price previously paid pursuant hereto by Grantee with respect to any
Option Shares, minus the sum of (iii) if applicable, the amount of the net cash
profit, if any, received by Grantee pursuant to the arm's-length sale of Option
Shares (or any other securities into which such Option Shares were converted or
exchanged) to any party not affiliated with Grantee, and (iv) the amount of any
Termination Fee paid pursuant to the Merger Agreement.
(b) Grantee may exercise its right to surrender the Option and
any Option Shares pursuant to this Section 11 by surrendering for such purchase
to Issuer, at its principal office, a copy of this Agreement, together with
certificates for Option Shares, if any, accompanied by a written notice stating
(i) that Grantee elects to surrender the Option and Option Shares, if any, in
accordance with the provisions of this Section 11 and (ii) the Surrender Price.
Within two business days after the surrender of the Option and the Option
Shares, if applicable, Issuer shall deliver or cause to be delivered to Grantee
the Surrender Price.
(c) To the extent that the Issuer is prohibited under
applicable law or regulation from paying the Surrender Price to Grantee in full,
Issuer shall immediately so notify Grantee and thereafter deliver, or cause to
be delivered, from time to time, to Grantee, that portion of the Surrender Price
that Issuer is not or no longer prohibited from paying, within two business days
after the date on which Issuer is no longer so prohibited; provided, however,
that if Issuer at any time after delivery of a notice of Surrender pursuant to
Section 11(b) is prohibited under applicable law or regulation from paying to
Grantee the Surrender Price in full, (i) Issuer shall (A) use its best efforts
to obtain all required regulatory and legal approvals and to file any required
notices as promptly as practicable in order to make such payments, (B) within
two business days of the submission or receipt of any documents relating to any
such regulatory and legal approvals, provide Grantee with copies of the same,
and (C) keep Grantee advised of both the status of any such request for
regulatory and legal approvals and any discussions with any relevant regulatory
or other third party reasonably related to the same, and (ii) Grantee may revoke
such notice of surrender by delivery of a notice of revocation, the Exercise
Termination Event shall be extended to a date six months from the date on which
the Exercise Termination Event would have occurred if not for the provisions of
this Section 11(c) (during which period Grantee may exercise any of its rights
hereunder, including any and all rights pursuant to this Section 11).
(d) Grantee shall have rights substantially identical to those
set forth in paragraphs (a), (b) and (c) of this Section 11 with respect to the
Substitute Option and the Substitute Option Issuer during any period in which
the Substitute Option Issuer would be required to repurchase the Substitute
Option pursuant to Section 9.
12. Issuer hereby represents and warrants to Grantee as
follows:
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(a) Issuer has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and
the Merger Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized
by the Issuer Board prior to the date hereof and no other corporate
proceedings on the part of Issuer are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This
Agreement has been duly and validly executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to
authorize and to permit it to issue, that number of shares of Common
Stock equal to the maximum number of shares of Common Stock issuable
hereunder, and all such shares, upon issuance pursuant thereto, will be
duly authorized, validly issued, fully paid, nonassessable, and will be
delivered free and clear of all claims, liens, encumbrances and
security interests and not subject to any preemptive rights.
13. Neither of the parties hereto may assign any of its rights
or obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event, Grantee, subject to the express provisions hereof, may assign
in whole or in part its rights and obligations hereunder following the date of
such Subsequent Triggering Event; provided that until the date 15 days following
the date on which the Federal Reserve Board has approved an application by
Grantee to acquire the shares of Common Stock subject to the Option, Grantee may
not assign its rights under the Option except in (a) a widely dispersed public
distribution, (b) a private placement in which no one party acquires the right
to purchase in excess of 2% of the voting shares of Issuer, (c) an assignment to
a single party (e.g., a broker or investment banker) for the sole purpose of
conducting a widely dispersed public distribution on Grantee's behalf, or (d)
any other manner approved by the Federal Reserve Board.
14. Each of Grantee and Issuer will use its reasonable best
efforts to make all filings with, and to obtain consents of, all third parties
and governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, including, without limitation, applying to the
Federal Reserve Board under the BHCA for approval to acquire the shares issuable
hereunder, but Grantee shall not be obligated to apply to state banking
authorities for approval to acquire the shares of Common Stock issuable
hereunder until such time, if ever, as it deems appropriate to do so.
15. The parties hereto acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party hereto and that
the obligations of the parties hereto shall be enforceable by either party
hereto through injunctive or other equitable relief. In connection therewith
both parties waive the posting of any bond or similar requirement.
16. If any term, provision, covenant or restriction contained
in this Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not
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<PAGE> 138
permitted to acquire, or Issuer is not permitted to repurchase pursuant to
Section 7, the full number of shares of Common Stock provided in Section 1
hereof (as adjusted pursuant to Section 5 hereof), it is the express intention
of Issuer to allow the Holder to acquire or to require Issuer to repurchase such
lesser number of shares as may be permissible, without any amendment or
modification hereof.
17. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by facsimile transmission, or by registered or certified mail
(postage prepaid, return receipt requested) at the respective addresses or
numbers of the parties set forth in the Merger Agreement.
18. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio, without regard to the conflict of
law principles thereof.
19. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
20. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
21. Except as otherwise expressly provided herein or in the
Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings in respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assignees. Nothing in this Agreement, expressed or implied, is intended to
confer upon any party, other than the parties hereto, and their respective
successors and assignees, any rights, remedies, obligations or liabilities under
or by reason of this Agreement, except as expressly provided herein.
22. Capitalized terms used in this Agreement and not defined
herein shall have the meanings assigned thereto in the Merger Agreement.
* * *
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the first date written above.
MCDONALD & COMPANY INVESTMENTS, INC.
By: /s/ William B. Summers, Jr.
----------------------------------------
Name: William B. Summers, Jr.
Title: President and Chief Executive Officer
KEYCORP
By: /s/ Thomas C. Stevens
---------------------------------------
Name: Thomas C. Stevens
Title: Senior Executive Vice President
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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the OGCL, Ohio corporations are authorized to indemnify directors,
officers, employees, and agents within prescribed limits and must indemnify them
under certain circumstances. The OGCL does not provide statutory authorization
for a corporation to indemnify directors, officers, employees, and agents for
settlements, fines, or judgments in the context of derivative suits. However, it
provides that directors (but not officers, employees, and agents) are entitled
to mandatory advancement of expenses, including attorneys' fees, incurred in
defending any action, including derivative actions, brought against the
director, provided the director agrees to cooperate with the corporation
concerning the matter and to repay the amount advanced if it is proved by clear
and convincing evidence that his act or failure to act was done with deliberate
intent to cause injury to the corporation or with reckless disregard to the
corporation's best interests.
The OGCL does not authorize payment of judgments to a director, officer,
employee, or agent after a finding of negligence or misconduct in a derivative
suit absent a court order. Indemnification is required, however, to the extent
such person succeeds on the merits. In all other cases, if a director, officer,
employee, or agent acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, indemnification
is discretionary except as otherwise provided by a corporation's articles of
incorporation, code of regulations, or by contract except with respect to the
advancement of expenses of directors.
Under the OGCL, a director is not liable for monetary damages unless it is
proved by clear and convincing evidence that his action or failure to act was
undertaken with deliberate intent to cause injury to the corporation or with
reckless disregard for the best interests of the corporation. There is, however,
no comparable provision limiting the liability of officers, employees, or agents
of a corporation. The statutory right to indemnification is not exclusive in
Ohio, and Ohio corporations may, among other things, procure insurance for such
persons.
The KeyCorp Regulations provide that KeyCorp shall indemnify to the fullest
extent permitted by law any person made or threatened to be made a party to any
action, suit, or proceeding by reason of the fact that he is or was a director,
officer, or employee of KeyCorp or of any other bank, corporation, partnership,
trust, or other enterprise for which he was serving as a director, officer, or
employee at the request of KeyCorp.
Under the terms of KeyCorp's directors' and officers' liability and company
reimbursement insurance policy, directors and officers of KeyCorp are insured
against certain liabilities, including liabilities arising under the Securities
Act.
KeyCorp is a party to agreements with, respectively, Robert W. Gillespie
and Henry L. Meyer III, and KeyCorp is a party to Change of Control Agreements
with certain other executive officers pursuant to which KeyCorp has agreed to
indemnify the officer, to the full extent permitted or authorized by the OGCL,
if the officer is made or threatened to be made a party to any action, suit, or
proceeding by reason of the officer's serving as an employee, officer, or
director of KeyCorp and/or any of its subsidiaries, and KeyCorp has agreed to
advance expenses incurred by the officer in defending any such action, suit, or
proceeding.
ITEM 21. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<C> <S>
2 Agreement and Plan of Merger dated as of June 15, 1998,
between McDonald & Company Investments, Inc. and KeyCorp.
Filed as Appendix A to the prospectus herein.
3(a) Amended and Restated Articles of Incorporation of KeyCorp.
3(b) Amended and Restated Regulations of KeyCorp. Filed as
Exhibit 2 to Form 8-A/A filed on June 19, 1997, and
incorporated herein by reference.
4(a) Restated Rights Agreement, dated as of May 15, 1997, between
KeyCorp and KeyBank National Association, as Rights Agent.
Filed as Exhibit 1 to Form 8-A filed on June 19, 1997, and
incorporated herein by reference.
</TABLE>
66
<PAGE> 141
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<C> <S>
4(b) Form of Certificate evidencing ownership of KeyCorp Common
Shares. Filed as Exhibit 1 to Form 8-A/A filed on June 19,
1997, and incorporated herein by reference.
5 Opinion of Daniel R. Stolzer, Esq., as to validity of the
Common Shares to be issued by KeyCorp.
8(a) Opinion of Sullivan & Cromwell as to certain federal income
tax consequences of the Merger.
8(b) Opinion of Wachtell, Lipton, Rosen & Katz as to certain
federal income tax consequences of the Merger.
15 Acknowledgment Letter of Ernst & Young LLP as to unaudited
interim financial information of KeyCorp.
21 Subsidiaries of KeyCorp. Filed as Exhibit 21 to Form 10-K
filed on March 27, 1998, and incorporated herein by
reference.
23(a) Consent of Ernst & Young LLP.
23(b) Consent of Ernst & Young LLP.
23(c) Consent of Daniel R. Stolzer, Esq. (Included in Exhibit 5).
23(d) Consent of Sullivan & Cromwell (Included in Exhibit 8(a)).
23(e) Consent of Wachtell, Lipton, Rosen & Katz (Included in
Exhibit 8(b)).
24 Powers of Attorney.
99(a) Stock Option Agreement dated as of June 15, 1998, between
McDonald & Company Investments, Inc. and KeyCorp. Filed as
Appendix C to the prospectus herein.
99(b) Form of Proxy to be used by McDonald & Company Investments,
Inc.
99(c) Consent of Morgan Stanley & Co. Incorporated.
</TABLE>
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
67
<PAGE> 142
the aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or 15(d) of the
Exchange Act that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The Registrant undertakes that every prospectus: (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
68
<PAGE> 143
SIGNATURES
Pursuant to the requirements of the Securities Act, KeyCorp has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Cleveland, State of Ohio, on the 7th
day of August, 1998.
KEYCORP
By: /s/ Daniel R. Stolzer
--------------------------------------
Daniel R. Stolzer
Vice President and Associate General
Counsel
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
below and on the date indicated above.
Robert W. Gillespie, Chairman, Chief Executive Officer and Director
(Principal Executive Officer); K. Brent Somers, Senior Executive Vice President
and Chief Financial Officer (Principal Financial Officer); Lee G. Irving,
Executive Vice President and Chief Accounting Officer (Principal Accounting
Officer); Cecil D. Andrus, Director; William G. Bares, Director; Albert C.
Bersticker, Director; Carol Cartwright, Director; T. A. Commes, Director;
Kenneth M. Curtis, Director; John C. Dimmer, Director; Stephen R. Hardis,
Director; Henry S. Hemingway, Director; Charles R. Hogan, Director; Douglas J.
McGregor, Director; Henry L. Meyer III, Director; Steven A. Minter, Director; M.
Thomas Moore, Director; Richard W. Pogue, Director; Ronald B. Stafford,
Director; Dennis W. Sullivan, Director; and Peter G. Ten Eyck, II, Director.
By: /s/ Daniel R. Stolzer
--------------------------------------
Daniel R. Stolzer
Attorney-in-Fact
69
<PAGE> 144
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<C> <S>
2 Agreement and Plan of Merger dated as of June 15, 1998,
between McDonald & Company Investments, Inc. and KeyCorp.
Filed as Appendix A to the prospectus herein.
3(a) Amended and Restated Articles of Incorporation of KeyCorp.
3(b) Amended and Restated Regulations of KeyCorp. Filed as
Exhibit 2 to Form 8-A/A filed on June 19, 1997, and
incorporated herein by reference.
4(a) Restated Rights Agreement, dated as of May 15, 1997, between
KeyCorp and KeyBank National Association, as Rights Agent.
Filed as Exhibit 1 to Form 8-A filed on June 19, 1997, and
incorporated herein by reference.
4(b) Form of Certificate evidencing ownership of KeyCorp Common
Shares. Filed as Exhibit 1 to Form 8-A/A filed on June 19,
1997, and incorporated herein by reference.
5 Opinion of Daniel R. Stolzer, Esq., as to validity of the
Common Shares to be issued by KeyCorp.
8(a) Opinion of Sullivan & Cromwell as to certain federal income
tax consequences of the Merger.
8(b) Opinion of Wachtell, Lipton, Rosen & Katz as to certain
federal income tax consequences of the Merger.
15 Acknowledgment Letter of Ernst & Young LLP as to unaudited
interim financial information of KeyCorp.
21 Subsidiaries of KeyCorp. Filed as Exhibit 21 to Form 10-K
filed on March 27, 1998, and incorporated herein by
reference.
23(a) Consent of Ernst & Young LLP.
23(b) Consent of Ernst & Young LLP.
23(c) Consent of Daniel R. Stolzer, Esq. (Included in Exhibit 5).
23(d) Consent of Sullivan & Cromwell (Included in Exhibit 8(a)).
23(e) Consent of Wachtell, Lipton, Rosen & Katz (Included in
Exhibit 8(b)).
24 Powers of Attorney.
99(a) Stock Option Agreement dated as of June 15, 1998, between
McDonald & Company Investments, Inc. and KeyCorp. Filed as
Appendix C to the prospectus herein.
99(b) Form of Proxy to be used by McDonald & Company Investments,
Inc.
99(c) Consent of Morgan Stanley & Co. Incorporated.
</TABLE>
70
<PAGE> 1
Exhibit 3(a)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
KEYCORP
ARTICLE I
Name
The name of the corporation (hereinafter called the
"Corporation") is "KeyCorp".
ARTICLE II
Principal Office
The principal office and headquarters of the Corporation shall
be located in the City of Cleveland, County of Cuyahoga, State of Ohio.
ARTICLE III
Purposes
The purposes of the Corporation are:
(a) to organize, acquire, invest in, own, or control shares and other
securities of banks, other depository institutions, and other companies
which a bank holding company is permitted to own or control by the
provisions of the Bank Holding Company Act of 1956, as now in effect or
hereafter amended, and to carry on the business of a bank holding
company in conformity with the Bank Holding Company Act of 1956, as now
in effect or hereafter amended;
(b) to do whatever is deemed necessary, incidental, or conducive to
carrying out any of the purposes of the Corporation; and
(c) to engage in any lawful act or activity for which corporations may be
formed under the Ohio General Corporation Law.
<PAGE> 2
ARTICLE IV
Authorized Shares of Capital Stock
The authorized number of shares of the Corporation is
1,425,000,000, of which 25,000,000 shall be shares of preferred stock, with a
par value of $1 each, as described in Part A of this Article IV (hereinafter
called "Preferred Stock"), and 1,400,000,000 shall be Common Shares, with a par
value of $1 each, as described in Part B of this Article IV (hereinafter called
"Common Shares").
The express terms of each class are as follows:
PART A
EXPRESS TERMS OF THE PREFERRED STOCK
SECTION 1. SERIES.
The Preferred Stock may be issued from time to time in series.
All shares of Preferred Stock shall be of equal rank and the express terms
thereof shall be identical, except in respect of the terms that may be fixed by
the Board of Directors as hereinafter provided, and each share of each series
shall be identical with all other shares of such series, except that in the case
of series on which dividends are cumulative the dates from which dividends are
cumulative may vary to reflect differences in the dates of issue. Subject to the
provisions of Sections 2 through 4, inclusive, of this Part A, which shall apply
to all Preferred Stock, the Board of Directors is hereby authorized to cause
shares of Preferred Stock to be issued in one or more series and with respect to
each such series to fix:
(a) The designation of the series, which may be by distinguishing
number, letter, or title.
(b) The authorized number of shares of the series, which number
the Board of Directors may, except to the extent otherwise
provided in the creation of the series, from time to time,
increase or decrease, but not below the number of shares
thereof then outstanding.
(c) The dividend rate or rates (which may be fixed or adjustable)
of the shares of the series.
(d) The dates on which dividends, if declared, shall be payable
and, in the case of series on which dividends are cumulative,
the dates from which dividends shall be cumulative.
<PAGE> 3
(e) The redemption rights and price or prices, if any, for shares
of the series.
(f) The amount, terms, conditions, and manner of operation of any
retirement or sinking fund to be provided for the purchase or
redemption of shares of the series.
(g) The amounts payable on shares of the series in the event of
any liquidation, dissolution, or winding up of the affairs of
the Corporation.
(h) Whether the shares of the series shall be convertible into
Common Shares or shares of any other series or class, and, if
so, the specification of such other class or series, the
conversion price or prices or rate or rates, any adjustment
thereof, and all other terms and conditions upon which such
conversion may be made.
(i) The restrictions, if any, upon the issue of any additional
shares of the same series or of any other class or series.
The Board of Directors is authorized to adopt from time to
time amendments to these articles of incorporation fixing, with respect to each
series, the matters described in Clauses (a) through (i), inclusive, of this
Section 1.
SECTION 2. VOTING RIGHTS.
(a) The holders of Preferred Stock shall not be entitled to vote upon
matters presented to the shareholders, except as provided in this
Section 2 or as required by law.
(b) If the Corporation shall fail to pay full dividends on any series
of Preferred Stock for six quarterly dividend payment periods, whether
or not consecutive, the number of directors will be increased by two,
and the holders of all outstanding series of Preferred Stock, voting as
a single class without regard to series, will be entitled to elect such
additional two directors until full cumulative dividends for all past
dividend payment periods on all series of Preferred Stock have been
paid or declared and set apart for payment and non-cumulative dividends
have been paid regularly for at least one full year. Such right to vote
separately as a class to elect directors shall, when vested, be
subject, always, to the same provisions for the vesting of such right
to elect directors separately as a class in the case of future dividend
defaults. At any time when such right to elect directors separately as
a class shall have so vested, the Corporation may, and upon the written
request of the holders of record of not less than twenty percent of the
total number of shares of the Preferred Stock of the Corporation then
outstanding shall, call a special meeting of shareholders for the
election of such directors. In the case of such a written request, such
special meeting shall be held within ninety days after the delivery of
such request and, in either case, at the place and upon the notice
provided by law and in the Regulations of the Corporation, provided
that the Corporation shall not be required to call
<PAGE> 4
such a special meeting if such request is received less than 120 days
before the date fixed for the next ensuing annual meeting of
shareholders of the Corporation. Directors elected as aforesaid shall
serve until the next annual meeting of shareholders of the Corporation
or until their respective successors shall be elected and qualify. If,
prior to the end of the term of any director elected as aforesaid, a
vacancy in the office of such director shall occur during the
continuance of a default in dividends on any series of Preferred Stock
by reason of death, resignation or disability, such vacancy shall be
filled for the unexpired term by the appointment by the remaining
director or directors elected as aforesaid of a new director for the
unexpired term of such former director.
(c) The affirmative vote or consent of the holders of at least
two-thirds of the then outstanding shares of Preferred Stock, given in
person or by proxy, either in writing or at a meeting called for the
purpose at which the holders of Preferred Stock shall vote separately
as a class, shall be necessary to effect any amendment, alteration, or
repeal of any of the provisions of these articles of incorporation or
the regulations of the Corporation which would be substantially
prejudicial to the voting powers, rights, or preferences of the holders
of Preferred Stock (but so far as the holders of Preferred Stock are
concerned, such action may be effected with such vote or consent);
provided, however, that neither the amendment of these articles of
incorporation to authorize or to increase the authorized or outstanding
number of shares of any class ranking junior to or on a parity with the
Preferred Stock, nor the amendment of the regulations so as to change
the number of directors of the Corporation, shall be deemed to be
substantially prejudicial to the voting powers, rights, or preferences
of the holders of Preferred Stock (and any such amendment referred to
in this proviso may be made without the vote or consent of the holders
of the Preferred Stock); and provided further that if such amendment,
alteration, or repeal would be substantially prejudicial to the rights
or preferences of one or more but not all then outstanding series of
Preferred Stock, the affirmative vote or consent of the holders of at
least two-thirds of the then outstanding shares of the series so
affected shall also be required.
(d) The affirmative vote or consent of the holders of at least
two-thirds of the then outstanding shares of Preferred Stock, given in
person or by proxy, either in writing or at a meeting called for the
purpose at which the holders of Preferred Stock shall vote as a single
class shall be necessary to effect any one or more of the following:
(i) The authorization of, or the increase in the authorized
number of, any shares of any class ranking prior to the
Preferred Stock; or
(ii) The purchase or redemption for sinking fund purposes or
otherwise of less than all of the then outstanding Preferred
Stock except in accordance with a purchase offer made to all
holders of record of Preferred Stock, unless all dividends on
all Preferred Stock then outstanding for all previous dividend
periods shall have been declared and paid or funds therefor
set apart and all accrued sinking fund obligations applicable
thereto shall have been complied with.
<PAGE> 5
SECTION 3. PREEMPTIVE RIGHTS.
No holder of Preferred Stock shall be entitled as such as a
matter of right to subscribe for or purchase any part of any issue of shares of
the Corporation, of any class whatsoever, or any part of any issue of securities
convertible into shares of the Corporation, of any class whatsoever, and whether
issued for cash, property, services or otherwise.
SECTION 4. DEFINITIONS.
For the purposes of this Part A:
(a) Whenever reference is made to shares "ranking prior to the Preferred
Stock," such reference shall mean and include all shares of the Corporation
in respect of which the rights of the holders thereof either as to the
payment of dividends or as to distribution in the event of a liquidation,
dissolution or winding up of the Corporation are given preference over the
rights of the holders of Preferred Stock.
(b) Whenever reference is made to shares "on a parity with the Preferred
Stock," such reference shall mean and include all shares of the Corporation
in respect of which the rights of the holders thereof as to the payment of
dividends or as to distributions in the event of a liquidation, dissolution
or winding up of the Corporation rank on an equality or parity with the
rights of the holders of Preferred Stock.
(c) Whenever reference is made to shares "ranking junior to the Preferred
Stock," such reference shall mean and include all shares of the Corporation
in respect of which the rights of the holders thereof as to the payment of
dividends and as to distributions in the event of a liquidation,
dissolution or winding up of the Corporation are junior or subordinate to
the rights of the holders of Preferred Stock.
PART B
EXPRESS TERMS OF COMMON SHARES
SECTION 1. GENERAL.
The holders of Common Shares shall be entitled to one vote for
each Common Share held by them, respectively, on each matter properly submitted
to shareholders for their vote, consent, waiver, release or other action.
SECTION 2. PREEMPTIVE RIGHTS.
No holder of Common Shares shall be entitled as such as a
matter of right to subscribe for or purchase any part of any issue of shares of
the Corporation of any class
<PAGE> 6
whatsoever, or any part of any issue of securities convertible into shares of
the Corporation, of any class whatsoever, and whether issued for cash, property,
services or otherwise.
PART C
CUMULATIVE VOTING
No holder of shares of any class of the Corporation may
cumulate his voting power.
ARTICLE V
Purchase of Shares
Subject to the provisions of Article IV hereof, the
Corporation, by action of its directors, and without action by its shareholders,
may, from time to time, purchase its own shares of any class in accordance with
the provisions of the Ohio General Corporation Law; and such purchase may be
made either in the open market, or at public or private sales, in such manner
and amounts, from such holder or holders of outstanding shares of the
Corporation and at such price as the directors shall, from time to time,
determine.
ARTICLE VI
Voting
Any proposal which, under applicable law, requires the
approval of holders of shares of the Corporation:
(1) to adopt an amendment to these articles of incorporation
(which term includes amended articles of incorporation),
(2) to sell, exchange, transfer, or otherwise dispose of all, or
substantially all, the assets of the Corporation,
(3) to effect a merger or consolidation involving the Corporation,
(4) to effect a combination or majority share acquisition (as such
terms are defined by the laws of the State of Ohio), or
(5) to dissolve, liquidate, or wind up the affairs of the
Corporation,
may be authorized and approved by the affirmative vote of the holders of shares
entitling them to exercise a majority of the voting power of the Corporation on
such proposal and, if a proposal upon which holders of shares of a particular
class or classes are required to vote separately as a class by other provisions
of these articles of incorporation or law, by the affirmative vote of the
<PAGE> 7
holders of shares entitling them to exercise a majority of the voting power of
such class or classes, except as otherwise provided in Section 2 of Part A of
Article IV with respect to the Preferred Stock of the Corporation.
Notwithstanding the foregoing, the provisions of this Article VI shall not
reduce the vote of shareholders required to approve a transaction which requires
shareholder approval under Chapter 1704 of the Ohio Revised Code.
ARTICLE VII
Opt-Out of Control Share Acquisitions Statute
Section 1701.831 of the Ohio Revised Code shall not apply to
control share acquisitions of shares of the Corporation.
ARTICLE VIII
Amended and Restated Articles
These Amended and Restated Articles of Incorporation of
KeyCorp supersede the Amended and Restated Articles of Incorporation of KeyCorp
filed with the Secretary of State of Ohio on March 4, 1998, as amended.
<PAGE> 1
Exhibit 5
[KeyCorp letterhead]
August 7, 1998
Board of Directors
KeyCorp
127 Public Square
Cleveland, OH 44114
Re: Merger of McDonald & Company Investments, Inc. with and into KeyCorp
--------------------------------------------------------------------
Ladies and Gentlemen:
I am Vice President and Associate General Counsel of KeyCorp, and have
acted as counsel to KeyCorp in connection with the merger of McDonald & Company
Investments, Inc. ("McDonald & Company") with and into KeyCorp (the "Merger"),
pursuant to an Agreement and Plan of Merger by and between KeyCorp and McDonald
& Company, dated as of June 15, 1998 (the "Merger Agreement"). This opinion is
furnished to you in connection with a Registration Statement on Form S-4 of
KeyCorp (the "Registration Statement") with respect to a maximum of 21,753,382
common shares of KeyCorp, par value $1 per share (the "Common Shares"), to be
issued in connection with the Merger.
In connection with this opinion, I have made such investigations of law
as I have deemed necessary and appropriate for the purpose of this opinion and
have examined the Merger Agreement (and exhibits thereto), the Registration
Statement (and exhibits thereto) as filed with the Securities and Exchange
Commission, as well as KeyCorp's Amended and Restated Articles of Incorporation
and Amended and Restated Regulations, and relevant corporate records. In
addition, I have made such investigations and reviewed such other documents as I
have deemed necessary or appropriate for the purpose of this opinion. In
rendering this opinion, I have assumed (i) the authenticity of all original
documents and records, (ii) the conformity of all documents and records
submitted to me as conformed copies or photocopies of original documents, and
(iii) that all persons executing agreements, instruments or documents examined
or relied on by me had the capacity to sign such agreements, instruments or
documents and all such signatures are genuine.
Based upon the foregoing and legal matters that I deem relevant, I am
of the opinion that the Common Shares, when issued in accordance with the terms
of the Merger Agreement, will be validly issued, fully paid and non-assessable.
<PAGE> 2
KeyCorp Board of Directors
August 7, 1998
Page 2
The information set forth herein is as of the date hereof. I assume no
obligation to advise you of changes that may hereafter be brought to my
attention. This opinion is based on statutory laws and judicial decisions that
are in effect on the date hereof, and I do not opine with respect to any law,
regulation, rule, or governmental policy that may be enacted or adopted after
the date hereof, nor do I assume any responsibility to advise you of further
changes in my opinion. This opinion is limited to matters of State of Ohio law
and United States federal law.
This opinion is solely for your information in connection with the
transaction contemplated by the Merger Agreement and is not to be quoted in
whole or in part or otherwise referred to in any other public release. This
letter may not be relied upon by any other person or for any other purposes
whatsoever.
I hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the use
of my name therein.
Very truly yours,
/s/ Daniel R. Stolzer
Daniel R. Stolzer
Vice President and
Associate General Counsel
<PAGE> 1
Exhibit 8(a)
[Sullivan & Cromwell Letterhead]
August 7, 1998
KeyCorp,
127 Public Square,
Cleveland, Ohio 44114.
Ladies and Gentlemen:
We have acted as counsel to KeyCorp, an Ohio corporation
("KeyCorp"), in connection with the planned merger of McDonald & Company
Investments, Inc., a Delaware corporation ("McDonald & Company"), with and into
KeyCorp, pursuant to the Agreement and Plan of Merger (the "Agreement"), dated
as of June 15, 1998, between KeyCorp and McDonald & Company. Capitalized terms
used but not defined herein shall have the meanings specified in the
Registration Statement to which this opinion is attached as an exhibit or the
appendices thereto (including the Agreement).
We have assumed with your consent that (1) the Merger will be
effected in accordance with the Agreement and (2) the representations contained
in the letters of representation from KeyCorp and McDonald & Company to us dated
August
<PAGE> 2
KeyCorp -2-
7, 1998 were true and correct when made and will be true and correct at the
Effective Time.
On the basis of the foregoing, and our consideration of such
other matters of fact and law as we have deemed necessary or appropriate, it is
our opinion, under presently applicable federal income tax law, that:
(i) the Merger qualifies as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code");
(ii) no gain or loss will be recognized by KeyCorp or McDonald
& Company as a result of the Merger;
(iii) no gain or loss will be recognized by the holders of
McDonald & Company Common Stock who exchange all of their McDonald &
Company Common Stock solely for KeyCorp Common Shares pursuant to the
Merger (except with respect to cash received in lieu of a fractional
share interest in the KeyCorp Common Shares);
(iv) the aggregate tax basis of the KeyCorp Common Shares
received in the Merger (including fractional shares deemed received and
redeemed) will equal the aggregate tax basis of the shares of McDonald
& Company Common Stock surrendered in exchange therefor; and
(v) the holding period of KeyCorp Common Shares received in
the Merger (including fractional shares
<PAGE> 3
KeyCorp -3-
deemed received and redeemed) will include the holding period of the
shares of McDonald & Company Common Stock surrendered in exchange
therefor, provided that such shares of McDonald & Company Common Stock
were held as capital assets at the Effective Time.
We express no opinion as to the effect of the Merger on any
person that is required to recognize unrealized gains and losses for federal
income tax purposes at the end of each taxable year under a mark-to-market
system.
The federal income tax consequences described herein may not
apply to certain classes of taxpayers, including, without limitation, McDonald &
Company stockholders who received their McDonald & Company Common Stock upon the
exercise of employee stock options or otherwise as compensation, that hold their
McDonald & Company Common Stock as part of a "hedge", "straddle" or "conversion
transaction" for federal income tax purposes, or that are foreign persons,
insurance companies, financial institutions or securities dealers.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the references to this opinion in the
Registration Statement. In giving this consent, we do not hereby admit that we
are within the category of persons whose consent is required
<PAGE> 4
KeyCorp -4-
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Sullivan & Cromwell
<PAGE> 1
Exhibit 8(b)
[Letterhead of Wachtell, Lipton, Rosen & Katz]
August 7, 1998
McDonald & Company Investments, Inc.
McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114-2603
Ladies/Gentlemen:
We have acted as special counsel to McDonald & Company
Investments, Inc., a Delaware corporation ("McDonald"), in connection with the
proposed merger (the "Merger") of McDonald with and into KeyCorp, an Ohio
corporation ("KeyCorp"), pursuant to the Agreement and Plan of Merger dated as
of June 15, 1998, between McDonald and KeyCorp (the "Merger Agreement"). At your
request, in connection with the filing of the Registration Statement on Form S-4
filed with the Securities Exchange Commission in connection with the Merger (the
"Registration Statement"), we are rendering our opinion concerning certain
federal income tax consequences of the Merger.
For purposes of the opinion set forth below, we have relied,
with the consent of KeyCorp and the consent of McDonald, upon the accuracy and
completeness of the statements and representations (which statements and
representations we have neither investigated nor verified) contained,
respectively, in the certificates of the officers of KeyCorp and McDonald dated
the date hereof, and have assumed that such statements and representations will
be complete and accurate as of the Effective Time. We have also relied upon the
accuracy of the Registration Statement and the Proxy Statement-Prospectus of
KeyCorp and McDonald (the "Proxy Statement-Prospectus") included therein. Any
capitalized term used and not defined
<PAGE> 2
McDonald & Company Investments, Inc.
August 7, 1998
Page 2
herein has the meaning given to it in the Proxy Statement-Prospectus or the
appendices thereto (including the Merger Agreement).
We have also assumed that (i) the transactions contemplated by
the Merger Agreement will be consummated in accordance therewith and as
described in the Proxy Statement/Prospectus and (ii) the Merger will qualify as
a statutory merger under the applicable laws of the States of Delaware and Ohio.
Based upon and subject to the foregoing, it is our opinion
that, under currently applicable United States federal income tax law, the
Merger qualifies as a "reorganization" within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended, and that, accordingly:
(a) No gain or loss will be recognized by KeyCorp or McDonald
as a result of the Merger;
(b) No gain or loss will be recognized by the holders of
McDonald & Company Common Stock who exchange all of their
McDonald & Company Common Stock solely for KeyCorp Common
Shares pursuant to the Merger (except with respect to cash
received in lieu of a fractional share interest in the
KeyCorp Common Shares);
(c) The aggregate tax basis of the KeyCorp Common Shares
received in the Merger (including fractional shares deemed
received and redeemed) will equal the aggregate tax basis
of the shares of McDonald & Company Common Stock
surrendered in exchange therefor; and
(d) The holding period of the KeyCorp Common Shares received
in the Merger (including fractional shares deemed received
and redeemed) will include the holding period of the
shares of McDonald & Company Common Stock surrendered in
exchange therefor, provided that such shares of McDonald &
Company Common Stock were held as capital assets at the
Effective Time.
We express no opinion as to the United States federal income
tax consequences of the Merger to stockholders subject to special treatment
under United States federal income tax law (including, for example, non-United
States persons, financial institutions, dealers in securities, insurance
companies, tax-exempt entities, holders who acquired their shares of McDonald &
Company Common Stock pursuant to the exercise of an employee stock option or
right or otherwise as compensation, and holders who hold McDonald & Company
Common Stock as part of a hedge, straddle or conversion transaction). In
addition, no opinion is expressed with respect to the tax consequences of the
Merger under applicable foreign, state or local laws or under any federal tax
laws other than those pertaining to the income tax.
<PAGE> 3
McDonald & Company Investments, Inc.
August 7, 1998
Page 3
We hereby consent to the filing of this opinion with the
Securities and Exchange Commission as an exhibit to the Registration Statement,
and to the references to us under the caption "THE MERGER -- Certain Federal
Income Tax Consequences" and elsewhere in the Proxy Statement-Prospectus. In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended.
Very truly yours,
/s/ Wachtell, Lipton, Rosen & Katz
<PAGE> 1
Exhibit 15
ACKNOWLEDGEMENT LETTER OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
KeyCorp
We are aware of the incorporation by reference in the McDonald & Company
Investments, Inc. Proxy Statement which is made a part of KeyCorp's Registration
Statement (Form S-4) and Prospectus of KeyCorp for the registration of shares of
its common stock, pertaining to the merger of McDonald & Company Investments,
Inc. with and into KeyCorp, of our report dated April 14, 1998 relating to the
unaudited condensed consolidation interim financial statements of KeyCorp, which
are included in its Form 10-Q for the quarter ended March 31, 1998.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a part
of the registration statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
/s/ Ernst & Young LLP
Cleveland, Ohio
July 31, 1998
<PAGE> 1
Exhibit 23(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 13, 1998, with respect to the consolidated
financial statements of KeyCorp incorporated by reference in its Annual Report
(Form 10-K) for the year ended December 31, 1997, filed with the Securities and
Exchange Commission and incorporated by reference in the Proxy Statement of
McDonald & Company Investments, Inc. which is made a part of the Registration
Statement (Form S-4) and Prospectus of KeyCorp for the registration of shares of
KeyCorp common stock pertaining to the merger of McDonald & Company Investments,
Inc. with and into KeyCorp.
/s/ Ernst & Young LLP
Cleveland, Ohio
July 31, 1998
<PAGE> 1
Exhibit 23(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated May 5, 1998, with respect to the consolidated financial
statements of McDonald & Company Investments, Inc. incorporated by reference in
its Annual Report (Form 10-K) for the fiscal year ended March 27, 1998, filed
with the Securities and Exchange Commission and incorporated by reference in the
Proxy Statement of McDonald & Company Investments, Inc. which is made a part of
the Registration Statement (Form S-4) and Prospectus of KeyCorp for the
registration of shares of KeyCorp common stock pertaining to the merger of
McDonald & Company Investments, Inc. with and into KeyCorp.
/s/ Ernst & Young LLP
Cleveland, Ohio
August 6, 1998
<PAGE> 1
Exhibit 24
KEYCORP
POWER OF ATTORNEY
-----------------
The undersigned, an officer or director, or both an officer
and director of KeyCorp, an Ohio corporation, which anticipates filing with the
Securities and Exchange Commission, in Washington, D.C., under the provisions of
the Securities Act of 1933, as amended, a Registration Statement on Form S-4 (or
such other form or forms as applicable), with respect to its Common Shares and
associated Rights issuable in the proposed merger of McDonald & Company
Investments, Inc. with and into KeyCorp, hereby constitutes and appoints K.
Brent Somers, Thomas C. Stevens, Lee G. Irving and Daniel R. Stolzer, 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 proposed Registration Statement and any and all amendments,
post-effective amendments and exhibits thereto, and any and all applications and
other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration 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 or substitutes.
IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand as of July 16, 1998.
/s/ R. W. Gillespie
-------------------
<PAGE> 2
KEYCORP
POWER OF ATTORNEY
-----------------
The undersigned, an officer or director, or both an officer
and director of KeyCorp, an Ohio corporation, which anticipates filing with the
Securities and Exchange Commission, in Washington, D.C., under the provisions of
the Securities Act of 1933, as amended, a Registration Statement on Form S-4 (or
such other form or forms as applicable), with respect to its Common Shares and
associated Rights issuable in the proposed merger of McDonald & Company
Investments, Inc. with and into KeyCorp, hereby constitutes and appoints K.
Brent Somers, Thomas C. Stevens, Lee G. Irving and Daniel R. Stolzer, 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 proposed Registration Statement and any and all amendments,
post-effective amendments and exhibits thereto, and any and all applications and
other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration 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 or substitutes.
IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand as of July 16, 1998.
/s/ K. Brent Somers
-------------------
<PAGE> 3
KEYCORP
POWER OF ATTORNEY
The undersigned, an officer or director, or both an officer and director of
KeyCorp, an Ohio corporation, which anticipates filing with the Securities and
Exchange Commission, in Washington, D.C., under the provisions of the Securities
Act of 1933, as amended, a Registration Statement on Form S-4 (or such other
form or forms as applicable), with respect to its Common Shares and associated
Rights issuable in the proposed merger of McDonald & Company Investments, Inc.
with and into KeyCorp, hereby constitutes and appoints K. Brent Somers, Thomas
C. Stevens, Lee G. Irving and Daniel R. Stolzer, 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 proposed
Registration Statement and any and all amendments, post-effective amendments and
exhibits thereto, and any and all applications and other documents to be filed
with the Securities and Exchange Commission pertaining to such securities or
such registration 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
or substitutes.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of
July 16, 1998.
/s/ Lee G. Irving
-----------------
<PAGE> 4
KEYCORP
POWER OF ATTORNEY
-----------------
The undersigned, an officer or director, or both an officer
and director of KeyCorp, an Ohio corporation, which anticipates filing with the
Securities and Exchange Commission, in Washington, D.C., under the provisions of
the Securities Act of 1933, as amended, a Registration Statement on Form S-4 (or
such other form or forms as applicable), with respect to its Common Shares and
associated Rights issuable in the proposed merger of McDonald & Company
Investments, Inc. with and into KeyCorp, hereby constitutes and appoints K.
Brent Somers, Thomas C. Stevens, Lee G. Irving and Daniel R. Stolzer, 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 proposed Registration Statement and any and all amendments,
post-effective amendments and exhibits thereto, and any and all applications and
other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration 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 or substitutes.
IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand as of July 16, 1998.
/s/ Cecil D. Andrus
-------------------
<PAGE> 5
KEYCORP
POWER OF ATTORNEY
-----------------
The undersigned, an officer or director, or both an officer
and director of KeyCorp, an Ohio corporation, which anticipates filing with the
Securities and Exchange Commission, in Washington, D.C., under the provisions of
the Securities Act of 1933, as amended, a Registration Statement on Form S-4 (or
such other form or forms as applicable), with respect to its Common Shares and
associated Rights issuable in the proposed merger of McDonald & Company
Investments, Inc. with and into KeyCorp, hereby constitutes and appoints K.
Brent Somers, Thomas C. Stevens, Lee G. Irving and Daniel R. Stolzer, 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 proposed Registration Statement and any and all amendments,
post-effective amendments and exhibits thereto, and any and all applications and
other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration 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 or substitutes.
IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand as of July 16, 1998.
/s/ William G. Bares
--------------------
<PAGE> 6
KEYCORP
POWER OF ATTORNEY
-----------------
The undersigned, an officer or director, or both an officer
and director of KeyCorp, an Ohio corporation, which anticipates filing with the
Securities and Exchange Commission, in Washington, D.C., under the provisions of
the Securities Act of 1933, as amended, a Registration Statement on Form S-4 (or
such other form or forms as applicable), with respect to its Common Shares and
associated Rights issuable in the proposed merger of McDonald & Company
Investments, Inc. with and into KeyCorp, hereby constitutes and appoints K.
Brent Somers, Thomas C. Stevens, Lee G. Irving and Daniel R. Stolzer, 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 proposed Registration Statement and any and all amendments,
post-effective amendments and exhibits thereto, and any and all applications and
other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration 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 or substitutes.
IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand as of July 16, 1998.
/s/ A. C. Bersticker
--------------------
<PAGE> 7
KEYCORP
POWER OF ATTORNEY
-----------------
The undersigned, an officer or director, or both an officer
and director of KeyCorp, an Ohio corporation, which anticipates filing with the
Securities and Exchange Commission, in Washington, D.C., under the provisions of
the Securities Act of 1933, as amended, a Registration Statement on Form S-4 (or
such other form or forms as applicable), with respect to its Common Shares and
associated Rights issuable in the proposed merger of McDonald & Company
Investments, Inc. with and into KeyCorp, hereby constitutes and appoints K.
Brent Somers, Thomas C. Stevens, Lee G. Irving and Daniel R. Stolzer, 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 proposed Registration Statement and any and all amendments,
post-effective amendments and exhibits thereto, and any and all applications and
other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration 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 or substitutes.
IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand as of July 16, 1998.
/s/ Carol Cartwright
--------------------
<PAGE> 8
KEYCORP
POWER OF ATTORNEY
-----------------
The undersigned, an officer or director, or both an officer
and director of KeyCorp, an Ohio corporation, which anticipates filing with the
Securities and Exchange Commission, in Washington, D.C., under the provisions of
the Securities Act of 1933, as amended, a Registration Statement on Form S-4 (or
such other form or forms as applicable), with respect to its Common Shares and
associated Rights issuable in the proposed merger of McDonald & Company
Investments, Inc. with and into KeyCorp, hereby constitutes and appoints K.
Brent Somers, Thomas C. Stevens, Lee G. Irving and Daniel R. Stolzer, 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 proposed Registration Statement and any and all amendments,
post-effective amendments and exhibits thereto, and any and all applications and
other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration 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 or substitutes.
IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand as of July 16, 1998.
/s/ T. A. Commes
----------------
<PAGE> 9
KEYCORP
POWER OF ATTORNEY
-----------------
The undersigned, an officer or director, or both an officer
and director of KeyCorp, an Ohio corporation, which anticipates filing with the
Securities and Exchange Commission, in Washington, D.C., under the provisions of
the Securities Act of 1933, as amended, a Registration Statement on Form S-4 (or
such other form or forms as applicable), with respect to its Common Shares and
associated Rights issuable in the proposed merger of McDonald & Company
Investments, Inc. with and into KeyCorp, hereby constitutes and appoints K.
Brent Somers, Thomas C. Stevens, Lee G. Irving and Daniel R. Stolzer, 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 proposed Registration Statement and any and all amendments,
post-effective amendments and exhibits thereto, and any and all applications and
other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration 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 or substitutes.
IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand as of July 16, 1998.
/s/ Kenneth M. Curtis
---------------------
<PAGE> 10
KEYCORP
POWER OF ATTORNEY
-----------------
The undersigned, an officer or director, or both an officer
and director of KeyCorp, an Ohio corporation, which anticipates filing with the
Securities and Exchange Commission, in Washington, D.C., under the provisions of
the Securities Act of 1933, as amended, a Registration Statement on Form S-4 (or
such other form or forms as applicable), with respect to its Common Shares and
associated Rights issuable in the proposed merger of McDonald & Company
Investments, Inc. with and into KeyCorp, hereby constitutes and appoints K.
Brent Somers, Thomas C. Stevens, Lee G. Irving and Daniel R. Stolzer, 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 proposed Registration Statement and any and all amendments,
post-effective amendments and exhibits thereto, and any and all applications and
other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration 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 or substitutes.
IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand as of July 16, 1998.
/s/ John C. Dimmer
------------------
<PAGE> 11
KEYCORP
POWER OF ATTORNEY
-----------------
The undersigned, an officer or director, or both an officer
and director of KeyCorp, an Ohio corporation, which anticipates filing with the
Securities and Exchange Commission, in Washington, D.C., under the provisions of
the Securities Act of 1933, as amended, a Registration Statement on Form S-4 (or
such other form or forms as applicable), with respect to its Common Shares and
associated Rights issuable in the proposed merger of McDonald & Company
Investments, Inc. with and into KeyCorp, hereby constitutes and appoints K.
Brent Somers, Thomas C. Stevens, Lee G. Irving and Daniel R. Stolzer, 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 proposed Registration Statement and any and all amendments,
post-effective amendments and exhibits thereto, and any and all applications and
other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration 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 or substitutes.
IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand as of July 16, 1998.
/s/ Stephen R. Hardis
---------------------
<PAGE> 12
KEYCORP
POWER OF ATTORNEY
-----------------
The undersigned, an officer or director, or both an officer
and director of KeyCorp, an Ohio corporation, which anticipates filing with the
Securities and Exchange Commission, in Washington, D.C., under the provisions of
the Securities Act of 1933, as amended, a Registration Statement on Form S-4 (or
such other form or forms as applicable), with respect to its Common Shares and
associated Rights issuable in the proposed merger of McDonald & Company
Investments, Inc. with and into KeyCorp, hereby constitutes and appoints K.
Brent Somers, Thomas C. Stevens, Lee G. Irving and Daniel R. Stolzer, 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 proposed Registration Statement and any and all amendments,
post-effective amendments and exhibits thereto, and any and all applications and
other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration 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 or substitutes.
IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand as of July 16, 1998.
/s/ Henry S. Hemingway
----------------------
<PAGE> 13
KEYCORP
POWER OF ATTORNEY
-----------------
The undersigned, an officer or director, or both an officer
and director of KeyCorp, an Ohio corporation, which anticipates filing with the
Securities and Exchange Commission, in Washington, D.C., under the provisions of
the Securities Act of 1933, as amended, a Registration Statement on Form S-4 (or
such other form or forms as applicable), with respect to its Common Shares and
associated Rights issuable in the proposed merger of McDonald & Company
Investments, Inc. with and into KeyCorp, hereby constitutes and appoints K.
Brent Somers, Thomas C. Stevens, Lee G. Irving and Daniel R. Stolzer, 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 proposed Registration Statement and any and all amendments,
post-effective amendments and exhibits thereto, and any and all applications and
other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration 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 or substitutes.
IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand as of July 16, 1998.
/s/ Charles R. Hogan
--------------------
<PAGE> 14
KEYCORP
POWER OF ATTORNEY
-----------------
The undersigned, an officer or director, or both an officer
and director of KeyCorp, an Ohio corporation, which anticipates filing with the
Securities and Exchange Commission, in Washington, D.C., under the provisions of
the Securities Act of 1933, as amended, a Registration Statement on Form S-4 (or
such other form or forms as applicable), with respect to its Common Shares and
associated Rights issuable in the proposed merger of McDonald & Company
Investments, Inc. with and into KeyCorp, hereby constitutes and appoints K.
Brent Somers, Thomas C. Stevens, Lee G. Irving and Daniel R. Stolzer, 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 proposed Registration Statement and any and all amendments,
post-effective amendments and exhibits thereto, and any and all applications and
other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration 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 or substitutes.
IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand as of July 16, 1998.
/s/ D. J. McGregor
------------------
<PAGE> 15
KEYCORP
POWER OF ATTORNEY
-----------------
The undersigned, an officer or director, or both an officer
and director of KeyCorp, an Ohio corporation, which anticipates filing with the
Securities and Exchange Commission, in Washington, D.C., under the provisions of
the Securities Act of 1933, as amended, a Registration Statement on Form S-4 (or
such other form or forms as applicable), with respect to its Common Shares and
associated Rights issuable in the proposed merger of McDonald & Company
Investments, Inc. with and into KeyCorp, hereby constitutes and appoints K.
Brent Somers, Thomas C. Stevens, Lee G. Irving and Daniel R. Stolzer, 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 proposed Registration Statement and any and all amendments,
post-effective amendments and exhibits thereto, and any and all applications and
other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration 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 or substitutes.
IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand as of July 16, 1998.
/s/ Henry L. Meyer III
----------------------
<PAGE> 16
KEYCORP
POWER OF ATTORNEY
-----------------
The undersigned, an officer or director, or both an officer
and director of KeyCorp, an Ohio corporation, which anticipates filing with the
Securities and Exchange Commission, in Washington, D.C., under the provisions of
the Securities Act of 1933, as amended, a Registration Statement on Form S-4 (or
such other form or forms as applicable), with respect to its Common Shares and
associated Rights issuable in the proposed merger of McDonald & Company
Investments, Inc. with and into KeyCorp, hereby constitutes and appoints K.
Brent Somers, Thomas C. Stevens, Lee G. Irving and Daniel R. Stolzer, 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 proposed Registration Statement and any and all amendments,
post-effective amendments and exhibits thereto, and any and all applications and
other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration 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 or substitutes.
IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand as of July 16, 1998.
/s/ Steven A. Minter
--------------------
<PAGE> 17
KEYCORP
POWER OF ATTORNEY
-----------------
The undersigned, an officer or director, or both an officer
and director of KeyCorp, an Ohio corporation, which anticipates filing with the
Securities and Exchange Commission, in Washington, D.C., under the provisions of
the Securities Act of 1933, as amended, a Registration Statement on Form S-4 (or
such other form or forms as applicable), with respect to its Common Shares and
associated Rights issuable in the proposed merger of McDonald & Company
Investments, Inc. with and into KeyCorp, hereby constitutes and appoints K.
Brent Somers, Thomas C. Stevens, Lee G. Irving and Daniel R. Stolzer, 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 proposed Registration Statement and any and all amendments,
post-effective amendments and exhibits thereto, and any and all applications and
other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration 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 or substitutes.
IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand as of July 16, 1998.
/s/ M. Thomas Moore
-------------------
<PAGE> 18
KEYCORP
POWER OF ATTORNEY
-----------------
The undersigned, an officer or director, or both an officer
and director of KeyCorp, an Ohio corporation, which anticipates filing with the
Securities and Exchange Commission, in Washington, D.C., under the provisions of
the Securities Act of 1933, as amended, a Registration Statement on Form S-4 (or
such other form or forms as applicable), with respect to its Common Shares and
associated Rights issuable in the proposed merger of McDonald & Company
Investments, Inc. with and into KeyCorp, hereby constitutes and appoints K.
Brent Somers, Thomas C. Stevens, Lee G. Irving and Daniel R. Stolzer, 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 proposed Registration Statement and any and all amendments,
post-effective amendments and exhibits thereto, and any and all applications and
other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration 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 or substitutes.
IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand as of July 16, 1998.
/s/ Richard W. Pogue
--------------------
<PAGE> 19
KEYCORP
POWER OF ATTORNEY
-----------------
The undersigned, an officer or director, or both an officer
and director of KeyCorp, an Ohio corporation, which anticipates filing with the
Securities and Exchange Commission, in Washington, D.C., under the provisions of
the Securities Act of 1933, as amended, a Registration Statement on Form S-4 (or
such other form or forms as applicable), with respect to its Common Shares and
associated Rights issuable in the proposed merger of McDonald & Company
Investments, Inc. with and into KeyCorp, hereby constitutes and appoints K.
Brent Somers, Thomas C. Stevens, Lee G. Irving and Daniel R. Stolzer, 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 proposed Registration Statement and any and all amendments,
post-effective amendments and exhibits thereto, and any and all applications and
other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration 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 or substitutes.
IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand as of July 16, 1998.
/s/ Ronald B. Stafford
----------------------
<PAGE> 20
KEYCORP
POWER OF ATTORNEY
-----------------
The undersigned, an officer or director, or both an officer
and director of KeyCorp, an Ohio corporation, which anticipates filing with the
Securities and Exchange Commission, in Washington, D.C., under the provisions of
the Securities Act of 1933, as amended, a Registration Statement on Form S-4 (or
such other form or forms as applicable), with respect to its Common Shares and
associated Rights issuable in the proposed merger of McDonald & Company
Investments, Inc. with and into KeyCorp, hereby constitutes and appoints K.
Brent Somers, Thomas C. Stevens, Lee G. Irving and Daniel R. Stolzer, 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 proposed Registration Statement and any and all amendments,
post-effective amendments and exhibits thereto, and any and all applications and
other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration 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 or substitutes.
IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand as of July 16, 1998.
/s/ Dennis W. Sullivan
----------------------
<PAGE> 21
KEYCORP
POWER OF ATTORNEY
-----------------
The undersigned, an officer or director, or both an officer
and director of KeyCorp, an Ohio corporation, which anticipates filing with the
Securities and Exchange Commission, in Washington, D.C., under the provisions of
the Securities Act of 1933, as amended, a Registration Statement on Form S-4 (or
such other form or forms as applicable), with respect to its Common Shares and
associated Rights issuable in the proposed merger of McDonald & Company
Investments, Inc. with and into KeyCorp, hereby constitutes and appoints K.
Brent Somers, Thomas C. Stevens, Lee G. Irving and Daniel R. Stolzer, 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 proposed Registration Statement and any and all amendments,
post-effective amendments and exhibits thereto, and any and all applications and
other documents to be filed with the Securities and Exchange Commission
pertaining to such securities or such registration 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 or substitutes.
IN WITNESS WHEREOF, the undersigned has hereunto set his or
her hand as of July 16, 1998.
/s/ Peter G. Ten Eyck, II
-------------------------
<PAGE> 1
Exhibit 99(b)
MCDONALD & COMPANY INVESTMENTS, INC.
PROXY
SPECIAL MEETING OF STOCKHOLDERS -- SEPTEMBER 15, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (i) appoints WILLIAM B. SUMMERS, JR., ROBERT T.
CLUTTERBUCK and THOMAS F. MCKEE, and each of them, as Proxy holders and
attorneys, with full power of substitution, to appear and vote all of the shares
of Common Stock of McDonald & Company Investments, Inc. which the undersigned
shall be entitled to vote at the Special Meeting of Stockholders of the Company,
to be held at the McDonald Investment Center Auditorium, 20th Floor, McDonald
Investment Center, 800 Superior Avenue, Cleveland, Ohio, on Tuesday, September
15, 1998, at 9:30 a.m., local time, and at any adjournments thereof, hereby
revoking any and all proxies heretofore given, and (ii) authorizes and directs
said Proxy holders to vote all of the shares of Common Stock of the Company
represented by this Proxy as follows, WITH THE UNDERSTANDING THAT IF NO
DIRECTIONS ARE GIVEN BELOW, SAID SHARES WILL BE VOTED "FOR" THE ADOPTION OF THE
AGREEMENT AND PLAN OF MERGER, DATED AS OF JUNE 15, 1998, BETWEEN MCDONALD &
COMPANY INVESTMENTS, INC. AND KEYCORP.
(1) PROPOSAL to adopt the Agreement and Plan of Merger, dated as of June 15,
1998, between McDonald & Company Investments, Inc. and KeyCorp.
[ ] FOR the Proposal [ ] AGAINST the Proposal [ ] ABSTAIN
(Continued and to be signed on other side)
PROXY NO. SHARES
(Proxy -- continued from other side)
(2) In their discretion to act on any other matter which may properly come
before the Special Meeting.
Please date, sign and return
promptly in the accompanying
envelope.
Dated: , 1998
-------------------------------
-------------------------------
Your signature to this Proxy
form should be exactly the same
as the name imprinted hereon.
Persons signing as executors,
administrators, trustees or in
similar capacities should so
indicate. For joint accounts,
the name of each joint owner
must be signed.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR THE PROPOSAL LISTED ABOVE.
Proxy Card
<PAGE> 1
Exhibit 99(c)
[Morgan Stanley Letterhead]
CONSENT OF MORGAN STANLEY & CO. INCORPORATED
August 6, 1998
KeyCorp
Dear Sirs:
We hereby consent to the inclusion in the Registration Statement of
KeyCorp, relating to the proposed merger of McDonald & Company Investments, Inc.
with and into KeyCorp, of our opinion letter in the Proxy Statement which is a
part of the Registration Statement, and to the references of our firm name
therein. In giving such consent, we do not thereby admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations adopted by the Securities
and Exchange Commission thereunder nor do we admit that we are experts with
respect to any part of such Registration Statement within the meaning of the
term "experts" as used in the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Stephen S. Crawford
-----------------------
