<PAGE> 1
Filed Pursuant To Rule 424(b)(1)
Registration No. 333-55959
and 333-55959-01
$250,000,000
KEYBANK LOGO KEYCORP CAPITAL I
FLOATING RATE CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
KEYCORP
The Floating Rate Capital Securities (the "Capital Securities") offered
hereby represent preferred undivided beneficial interests in the assets of
KeyCorp Capital I, a statutory business trust created under the laws of the
State of Delaware (the "Issuer Trust"). KeyCorp, an Ohio corporation ("KeyCorp"
or the "Corporation"), will be the holder of all the beneficial interests
represented by the common securities of the Issuer Trust (the "Common
Securities" and together with the Capital Securities, the "Trust Securities").
The Issuer Trust exists for the sole purpose of issuing the Trust Securities and
investing the proceeds thereof in an equivalent amount of Floating Rate Junior
Subordinated Deferrable Interest Debentures (the "Junior Subordinated
Debentures") to be issued by KeyCorp. The Junior Subordinated Debentures will
mature on July 1, 2028 (such date, the "Stated Maturity"). The Capital
Securities will have a preference over the Common Securities under certain
circumstances with respect to cash distributions and amounts payable on
liquidation, redemption or otherwise.
(continued on next page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 OF THIS PROSPECTUS FOR CERTAIN
INFORMATION RELEVANT TO AN INVESTMENT IN THE CAPITAL SECURITIES.
------------------------
THESE SECURITIES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING ISSUER TRUST
PUBLIC (1) COMMISSION (2) (1) (3) (4)
---------- -------------- ------------
<S> <C> <C> <C>
Per Capital Security........................ $989.94 (3) $989.94
Total....................................... $247,485,000 (3) $247,485,000
</TABLE>
- ---------------
(1) Plus accumulated Distributions, if any, from June 25, 1998.
(2) KeyCorp and the Issuer Trust have each agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting".
(3) In view of the fact that the proceeds of the sale of the Capital Securities
will be invested in the Junior Subordinated Debentures, KeyCorp has agreed
to pay to the Underwriters as compensation for their arranging the
investment therein of such proceeds $10.00 per Capital Security (or
$2,500,000 in the aggregate). See "Underwriting".
(4) Expenses of the offering to be paid by KeyCorp are estimated to be $306,750.
See "Underwriting".
------------------------
The Capital Securities offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that delivery of the Capital Securities will be made in book-entry form only
through the facilities of The Depository Trust Company ("DTC") in New York, New
York on or about June 25, 1998, against payment therefor in immediately
available funds.
GOLDMAN, SACHS & CO.
KEY CAPITAL MARKETS, INC.
J.P. MORGAN & CO.
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
The date of this Prospectus is June 18, 1998.
<PAGE> 2
(cover page continued)
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CAPITAL
SECURITIES, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN
CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING".
Holders of the Capital Securities will be entitled to receive preferential
cumulative cash distributions ("Distributions") accumulating from the date of
initial issuance of the Capital Securities, and payable quarterly in arrears on
October 1, January 1, April 1 and July 1 of each year, commencing October 1,
1998, in respect of the Liquidation Amount of $1,000 per Capital Security at a
rate per annum equal to three-month LIBOR (as defined herein) plus a margin of
0.74% (the "Distribution Rate"). Subject to certain exceptions, as described
herein, the Corporation has the right to defer payment of interest on the Junior
Subordinated Debentures at any time or from time to time for a period not
exceeding 20 consecutive quarterly periods with respect to each deferral period
(each, an "Extension Period"), provided that no Extension Period may extend
beyond the Stated Maturity. Upon the termination of any such Extension Period
and the payment of all amounts then due, the Corporation may elect to begin a
new Extension Period subject to the requirements set forth herein. If interest
payments on the Junior Subordinated Debentures are so deferred, Distributions on
the Capital Securities will also be deferred and the Corporation will not be
permitted, subject to certain exceptions described herein, to declare or pay any
cash distributions with respect to the Corporation's capital stock or with
respect to debt securities of the Corporation that rank pari passu in all
respects with or junior to the Junior Subordinated Debentures. During an
Extension Period, interest on the Junior Subordinated Debentures will continue
to accrue (and the amount of Distributions to which holders of the Capital
Securities are entitled will accumulate) at the Distribution Rate, compounded
quarterly, from the relevant payment date and holders of Capital Securities will
be required to accrue interest income for United States federal income tax
purposes. See "Description of Junior Subordinated Debentures -- Option to Extend
Interest Payment Period" and "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue Discount".
The Corporation has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures, the Indenture and the Expense Agreement (each as
defined herein), taken together, fully, irrevocably and unconditionally
guaranteed all of the Issuer Trust's obligations under the Capital Securities.
See "Relationship Among the Capital Securities, the Junior Subordinated
Debentures, the Guarantee and the Expense Agreement -- Full and Unconditional
Guarantee". The Guarantee of the Corporation guarantees the payment of
Distributions and payments on liquidation or redemption of the Capital
Securities, but only in each case to the extent of funds held by the Issuer
Trust, as described herein. See "Description of Guarantee". If the Corporation
does not make payments on the Junior Subordinated Debentures held by the Issuer
Trust, the Issuer Trust will have insufficient funds to pay Distributions on the
Capital Securities. The Guarantee does not cover payment of Distributions when
the Issuer Trust does not have sufficient funds to pay such Distributions. In
such event, a holder of Capital Securities may institute a legal proceeding
directly against the Corporation to enforce payment of such Distributions to
such holder. See "Description of Junior Subordinated Debentures -- Enforcement
of Certain Rights by Holders of Capital Securities". The obligations of the
Corporation under the Guarantee and the Capital Securities are subordinate and
junior in right of payment to all Senior Indebtedness (as defined in
"Description of Junior Subordinated Debentures -- Subordination") of the
Corporation.
The Capital Securities are subject to mandatory redemption, in whole or in
part, upon repayment of the Junior Subordinated Debentures at Stated Maturity or
their earlier redemption. The Junior Subordinated Debentures are redeemable
prior to maturity at the option of the Corporation (i) on or after July 1, 2008,
in whole at any time or in part from time to time, or (ii) in whole (but not in
part) at any time within 90 days following the occurrence and continuation of a
Tax Event or Capital Treatment Event (each as defined herein), in each case at a
redemption price set forth herein which includes the accrued and unpaid interest
on the Junior Subordinated Debentures so redeemed to the date fixed for
redemption.
2
<PAGE> 3
(cover page continued)
The Corporation has committed to the Federal Reserve Bank of Cleveland (the
"Reserve Bank") that the Corporation will not exercise its rights to cause
redemption of the Junior Subordinated Debentures or the Capital Securities
(prior to the Stated Maturity) without having received the prior approval of the
Board of Governors of the Federal Reserve System (the "Federal Reserve") to do
so, if then required under applicable Federal Reserve capital guidelines or
policies. See "Description of Junior Subordinated Debentures -- Redemption".
The Corporation, as the holder of the outstanding Common Securities, has
the right at any time to dissolve the Issuer Trust and, after satisfaction of
liabilities to creditors of the Issuer Trust as provided by applicable law,
cause the Junior Subordinated Debentures to be distributed to the holders of the
Capital Securities and Common Securities in liquidation of the Issuer Trust. The
Corporation has committed to the Reserve Bank that, so long as the Corporation
is a holder of Common Securities, the Corporation will not so dissolve the
Issuer Trust without having received the prior approval of the Federal Reserve
to do so, if then required under applicable Federal Reserve capital guidelines
or policies. See "Risk Factors -- Exchange of Capital Securities for Junior
Subordinated Debentures" and "Description of Capital Securities -- Liquidation
Distribution upon Termination".
The Junior Subordinated Debentures are unsecured and subordinated to all
Senior Indebtedness of the Corporation. As of March 31, 1998, the Corporation
had approximately $1.14 billion of aggregate principal amount of Senior
Indebtedness outstanding. See "Description of Junior Subordinated
Debentures -- Subordination".
In the event of the dissolution of the Issuer Trust, after satisfaction of
liabilities to creditors of the Issuer Trust in accordance with applicable law
and subject to the Expense Agreement, the holders of the Capital Securities will
be entitled to receive a Liquidation Amount of $1,000 per Capital Security plus
accumulated and unpaid Distributions thereon to the date of payment, subject to
certain exceptions, which may be in the form of a distribution of such amount in
Junior Subordinated Debentures. See "Description of Capital
Securities -- Liquidation Distribution upon Termination".
The Capital Securities will be represented by global certificates
registered in the name of DTC or its nominee. Beneficial interests in the
Capital Securities will be shown on, and transfers thereof will be effected only
through, records maintained by participants in DTC. Except as described herein,
Capital Securities in certificated form will not be issued in exchange for the
global certificates. See "Description of the Capital Securities -- Book Entry
Issuance".
This Prospectus may be used by Key Capital Markets, Inc., an affiliate of
the Corporation, in connection with offers and sales related to market-making
transactions in the Capital Securities effected from time to time after the
commencement of the offering to which this Prospectus relates. Key Capital
Markets, Inc. may act as principal or agent in such transactions, including as
agent for the counterparty when acting as principal or as agent for both
counterparties, and may receive compensation in the form of discounts and
commissions, including from both counterparties when it acts as agent for both.
Such sales will be made at prevailing market prices at the time of sale, at
prices related thereto or at negotiated prices.
3
<PAGE> 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents (the "Incorporated Documents"), which have been
filed with the Securities and Exchange Commission (the "Commission"), are
incorporated by reference in this Prospectus:
1. The Corporation's Annual Report on Form 10-K for the year ended December
31, 1997;
2. The Corporation's Quarterly Report on Form 10-Q for the period ended
March 31, 1998; and
3. The Corporation's Current Reports on Form 8-K filed on January 21, 1998,
March 6, 1998, April 17, 1998 and June 15, 1998.
All documents filed by the Corporation pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), after the date of this Prospectus and prior to the termination of the
offering made hereunder shall be deemed to be incorporated by reference into
this Prospectus and to be a part of this Prospectus from the respective dates of
the filing of such documents. The Corporation will provide without charge to
each person to whom this Prospectus is delivered, on the written or oral request
of such person, a copy of any or all of the documents incorporated by reference
herein (other than exhibits not specifically incorporated by reference into the
text of such documents). Requests should be directed to KeyCorp, 127 Public
Square, Cleveland, Ohio 44114-1306, Attention: Investor Relations, telephone
(216) 689-6300.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained in this
Prospectus or in any other subsequently filed document which also is or is
deemed to be incorporated herein by reference modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Prospectus (including information incorporated by reference herein)
contains forward-looking statements that are subject to numerous assumptions,
risks and uncertainties. Statements pertaining to future periods are subject to
uncertainty because of the possibility of changes in underlying factors and
assumptions. Actual results could differ materially from those contained in or
implied by such forward-looking statements for a variety of factors including:
sharp and/or rapid changes in interest rates; significant changes in the
economic scenario from the current anticipated scenario that could materially
change anticipated credit quality trends and the ability to generate loans;
significant delay in or inability to execute strategic initiatives designed to
grow revenues and/or manage expenses; consummation of significant business
combinations or divestitures; unforeseen business risks related to Year 2000
computer systems issues; and significant changes in accounting, tax or
regulatory practices or requirements.
AVAILABLE INFORMATION
The Corporation is subject to the informational requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements and
other information with the Commission. Such reports (including the Incorporated
Documents), proxy statements and other information can be inspected and copied
at the public reference facilities of the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, Suite 1300, New York,
New York 10048 and Suite 1400, Citicorp Center, 14th Floor, 500 West Madison
Street, Chicago, Illinois 60661. Copies of such material (including the
Incorporated Documents) can also be obtained at prescribed rates by writing to
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such material (including the Incorporated Documents) may
also be accessed electronically by means of the Commission's home page on the
Internet at
4
<PAGE> 5
HTTP://WWW.SEC.GOV. In addition, such reports (including the Incorporated
Documents), proxy statements and other information concerning the Corporation
can be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
The Corporation and the Issuer Trust have filed with the Commission a
Registration Statement on Form S-3 (together with all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the securities offered hereby.
This Prospectus omits, in accordance with the rules and regulations of the
Commission, certain of the information contained in the Registration Statement.
Reference is hereby made to the Registration Statement and the exhibits and the
financial statements, notes and schedules filed as a part thereof or
incorporated by reference therein for further information with respect to the
Corporation, the Issuer Trust and the securities offered hereby. Statements
contained herein concerning the provisions of any document are not necessarily
complete and, in each instance, where a copy of such document has been filed as
an exhibit to the Registration Statement or otherwise has been filed with the
Commission, reference is made to the copy so filed. Each such statement is
qualified in its entirety by such reference.
No separate financial statements of the Issuer Trust have been included or
incorporated by reference herein. The Corporation and the Issuer Trust do not
consider that such financial statements would be material to holders of the
Capital Securities because the Issuer Trust is a newly formed special purpose
entity, has no operating history or independent operations and is not engaged in
and does not propose to engage in any activity other than holding as trust
assets the Junior Subordinated Debentures of the Corporation and issuing the
Trust Securities. See "KeyCorp Capital I," "Description of Capital Securities,"
"Description of Junior Subordinated Debentures" and "Description of Guarantee".
In addition, the Corporation does not expect that the Issuer Trust will be
filing reports under the Exchange Act with the Commission.
5
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. As used herein, (i) the
"Indenture" means the Indenture, as amended and supplemented from time to time,
between the Corporation and Bankers Trust Company, as trustee (the "Debenture
Trustee"), pursuant to which the Junior Subordinated Debentures are to be
issued, (ii) the "Trust Agreement" means the Amended and Restated Trust
Agreement relating to the Issuer Trust among the Corporation, as Depositor,
Bankers Trust Company, as Property Trustee (the "Property Trustee"), Bankers
Trust (Delaware), as Delaware Trustee (the "Delaware Trustee"), and the
Administrative Trustees named therein (the "Administrative Trustees"); and,
collectively with the Property Trustee and the Delaware Trustee, the "Issuer
Trustees"), and the holders from time to time of undivided beneficial interests
in the assets of the Issuer Trust, and (iii) the "Guarantee" means the Guarantee
Agreement, as amended and supplemented from time to time, between the
Corporation and Bankers Trust Company, as trustee (the "Guarantee Trustee"), for
the benefit of holders of Capital Securities. See "Risk Factors" for a
discussion of certain information prospective investors should carefully review
in connection with an investment in the securities offered hereby.
KEYCORP
GENERAL
The Corporation, incorporated in 1958 under the laws of the State of Ohio
and registered under the Bank Holding Company Act of 1956, as amended (the
"BHCA"), is headquartered in Cleveland, Ohio, and is engaged primarily in the
business of commercial and retail banking. At March 31, 1998, it was one of the
largest bank holding companies in the United States with consolidated total
assets of approximately $73.2 billion. The Corporation and its subsidiaries
(collectively, "Key") provide a wide range of banking, equipment leasing,
fiduciary and other financial services to their 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
more than 1,000 full-service banking offices in 13 states (Alaska, Colorado,
Idaho, Indiana, Maine, Michigan, New Hampshire, New York, Ohio, Oregon, Utah,
Vermont and Washington), a 24-hour telephone banking call center services group
and more than 2,200 automated teller machines ("ATMs") as of March 31, 1998. At
March 31, 1998, KeyCorp and its subsidiaries had approximately 24,650 full-time
equivalent employees.
In addition to the customary banking services of accepting deposits and
making loans, the 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, the Corporation provides investment management services to
institutional and individual clients, including large corporate and public
retirement plans, Taft-Hartley plans (i.e., multiemployer trust funds
established for 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.
The Corporation 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. Key is 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. See "KeyCorp".
6
<PAGE> 7
RECENT DEVELOPMENTS
On June 15, 1998, the Corporation announced that it had entered into a
merger agreement to acquire McDonald & Company Investments, Inc. ("McDonald"), a
full-service investment banking and securities brokerage firm based in
Cleveland, Ohio. Under the terms of the merger agreement, subject to adjustment
under certain circumstances, the Corporation will issue, in exchange for each
McDonald common share, the Corporation's common shares in a number equal to
$35.00 divided by the average closing price per common share of the Corporation
over a 10-day period ending shortly prior to the closing. Based on 18,665,000
shares of McDonald common stock outstanding as of June 15, 1998 and a $36.875
per share closing price of the Corporation's common shares on June 12, 1998, the
Corporation would be required to issue approximately 17,716,000 common shares as
consideration to McDonald shareholders. The transaction, which remains subject
to the approval of McDonald shareholders, as well as regulatory approval and
other conditions to closing, is currently expected to close during the fourth
quarter of 1998.
7
<PAGE> 8
KEYCORP CAPITAL I
The Issuer Trust is a statutory business trust created under Delaware law
pursuant to (i) a Trust Agreement executed by the Corporation, as Depositor,
Bankers Trust (Delaware), as Delaware Trustee, and the Administrative Trustee
named therein, and (ii) the filing of a certificate of trust with the Delaware
Secretary of State on June 2, 1998. The Issuer Trust's business and affairs are
conducted by its trustees: Bankers Trust Company, as Property Trustee, Bankers
Trust (Delaware), as Delaware Trustee and two individual Administrative Trustees
who are employees of or officers of or affiliated with the Corporation. The
Issuer Trust exists for the exclusive purposes of (i) issuing and selling the
Trust Securities, (ii) using the proceeds from the sale of Trust Securities to
acquire the Junior Subordinated Debentures and (iii) engaging in only those
other activities necessary or incidental thereto (such as registering the
transfer of the Trust Securities). Accordingly, the Junior Subordinated
Debentures will be the sole assets of the Issuer Trust, and payments under the
Junior Subordinated Debentures will be the sole source of revenue of the Issuer
Trust. See "KeyCorp Capital I".
THE OFFERING
Securities Offered.................. $250,000,000 aggregate Liquidation
Amount of Floating Rate Capital
Securities (Liquidation Amount $1,000
per Capital Security).
Offering Price...................... $989.94 per Capital Security, plus
accumulated Distributions, if any, from
the date of initial issuance.
Distribution Rate................... Floating rate per annum determined by
reference to the three-month London
interbank offered rate ("LIBOR") plus a
margin of 0.74%. See "Description of
Capital Securities -- Distributions".
Distribution Dates.................. October 1, January 1, April 1 and July
1 of each year, commencing October 1,
1998.
Extension Periods................... Distributions on Capital Securities may
be deferred for the duration of any
Extension Period elected by the
Corporation with respect to the payment
of interest on the Junior Subordinated
Debentures. No Extension Period will
exceed 20 consecutive quarterly periods
or extend beyond the Stated Maturity of
the Junior Subordinated Debentures
(July 1, 2028). See "Description of
Junior Subordinated Debentures --
Option to Extend Interest Payment
Period" and "Certain Federal Income Tax
Consequences -- Interest Income and
Original Issue Discount".
Ranking............................. The Capital Securities will rank pari
passu, and payments thereon will be
made pro rata, with the Common
Securities except as described under
"Description of Capital
Securities -- Subordination of Common
Securities". The Junior Subordinated
Debentures will be unsecured and
subordinate and junior in right of
payment to the extent and in the manner
set forth in the Indenture to all
Senior Indebtedness (as defined
herein). See "Description of Junior
Subordinated Debentures". The Guarantee
will constitute an unsecured obligation
of the Corporation and will rank
subordinate and junior in right of
8
<PAGE> 9
payment to the extent and in the manner
set forth in the Guarantee to all
Senior Indebtedness. See "Description
of Guarantee".
Redemption.......................... The Trust Securities are subject to
mandatory redemption in whole but not
in part (i) at the Stated Maturity upon
repayment of the Junior Subordinated
Debentures, (ii) contemporaneously with
the optional redemption at any time by
the Corporation of the Junior
Subordinated Debentures upon the
occurrence and continuation of a Tax
Event or Capital Treatment Event and
(iii) at any time on or after July 1,
2008, contemporaneously with the
optional redemption by the Corporation
of the Junior Subordinated Debentures,
in each case at the applicable
Redemption Price. See "Description of
Capital Securities -- Redemption".
Use of Proceeds..................... All the proceeds to the Issuer Trust
from the sale of the Capital Securities
will be invested by the Issuer Trust in
the Junior Subordinated Debentures. The
net proceeds to the Corporation from
the sale of the Junior Subordinated
Debentures will be used by the
Corporation for general corporate
purposes, which may include investments
in, or extensions of credit to, the
Corporation's subsidiaries, repurchases
or redemptions of capital stock of the
Corporation and financing possible
future acquisitions including, without
limitation, the acquisition of banking
and nonbanking companies and financial
assets and liabilities. Specific
allocations of the proceeds to such
purposes have not been made, although
management has determined that funds
should be borrowed at this time. The
precise amount and timing of such
investments in, or extensions of credit
to, subsidiaries will depend on the
subsidiaries' funding requirements and
the availability of other funds.
Pending such applications, such net
proceeds may be temporarily invested or
applied to the reduction of short-term
indebtedness. See "Use of Proceeds".
For additional information regarding the Capital Securities, see
"Description of Capital Securities," "Description of Junior Subordinated
Debentures," "Description of Guarantee," "The Expense Agreement," "Relationship
among the Capital Securities, the Junior Subordinated Debentures, the Guarantee
and the Expense Agreement," and "Certain Federal Income Tax Consequences".
9
<PAGE> 10
RISK FACTORS
Prospective purchasers of the Capital Securities should carefully review
the information contained elsewhere in this Prospectus and should particularly
consider the following matters. In addition, because holders of the Capital
Securities may receive Junior Subordinated Debentures in exchange therefor upon
liquidation of the Issuer Trust, prospective purchasers of Capital Securities
are also making an investment decision with regard to the Junior Subordinated
Debentures and should carefully review all the information regarding the Junior
Subordinated Debentures contained herein.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES
The obligations of the Corporation under the Guarantee issued by the
Corporation for the benefit of the holders of Capital Securities and under the
Junior Subordinated Debentures are unsecured and rank subordinate and junior in
right of payment to all Senior Indebtedness of the Corporation. Substantially
all of the Corporation's existing indebted ness constitutes Senior Indebtedness.
Because the Corporation is a holding company, the right of the Corporation to
participate in any distribution of assets of any subsidiary, including its
banking and nonbanking subsidiaries, upon such subsidiary's dissolution,
winding-up, liquidation or reorganization or otherwise (and thus the ability of
holders of the Capital Securities to benefit indirectly from such distribution),
is subject to the prior claims of creditors of that subsidiary, except to the
extent that the Corporation may itself be a creditor of that subsidiary and its
claims are recognized. There are various legal limitations on the extent to
which certain of the Corporation's subsidiaries may extend credit, pay dividends
or otherwise supply funds to, or engage in transactions with, the Corporation or
certain of its other subsidiaries. Accordingly, the Junior Subordinated
Debentures and Guarantee will be effectively subordinated to all existing and
future liabilities of the Corporation's subsidiaries, and holders of Junior
Subordinated Debentures and the Guarantee should look only to the assets of the
Corporation for payments on the Junior Subordinated Debentures and the
Guarantee. See "KeyCorp". Substantially all of the Corporation's existing
indebtedness is Senior Indebtedness, other than $750 million aggregate principal
amount of the Corporation's 7.826% Junior Subordinated Deferrable Interest
Debentures issued to a subsidiary trust on December 4, 1996 (the "7.826% Junior
Subordinated Debentures"), the Corporation's 8.25% Junior Subordinated
Deferrable Interest Debentures issued to a subsidiary trust on December 30, 1996
(the "8.25% Junior Subordinated Debentures") and the Corporation's 6.625%
Debentures, Series A issued to a subsidiary trust on May 30, 1997 (the "CAPS
Debentures"). None of the Indenture, the Guarantee or the Trust Agreement places
any limitation on the amount of secured or unsecured debt, including Senior
Indebtedness, that may be incurred by the Corporation. See "Description of
Guarantee -- Status of the Guarantee" and "Description of Junior Subordinated
Debentures -- Subordination".
The ability of the Issuer Trust to pay amounts due on the Capital
Securities is entirely dependent upon the Corporation's making payments on the
Junior Subordinated Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
So long as no Event of Default (as defined in the Indenture) has occurred
and is continuing with respect to the Junior Subordinated Debentures (a
"Debenture Event of Default"), the Corporation has the right under the Indenture
to defer the payment of interest on the Junior Subordinated Debentures at any
time or from time to time for a period not exceeding 20 consecutive quarterly
periods with respect to each Extension Period, provided that no Extension Period
may extend beyond the Stated Maturity of the Junior Subordinated Debentures. See
"Description of Junior Subordinated Debentures -- Option to Extend Interest
Payment Period". As a consequence of any such deferral, quarterly Distributions
on the Capital Securities by the Issuer Trust will also be deferred (and the
amount of Distributions to which holders of the Capital Securities are entitled
will accumulate additional Distributions thereon at the Distribution Rate per
annum, compounded quarterly from the relevant payment date for such
Distributions) during any such Extension Period. During any such Extension
Period, the Corporation may not (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation
10
<PAGE> 11
payment with respect to, any of the Corporation's capital stock or (ii) make any
payment of principal of or interest or premium, if any, on or repay, repurchase
or redeem any debt securities of the Corporation (including other Junior
Subordinated Debentures) that rank pari passu in all respects with or junior in
interest to the Junior Subordinated Debentures, subject to certain exceptions
described herein.
Prior to the termination of any such Extension Period, the Corporation may
further defer the payment of interest, provided that no Extension Period may
exceed 20 consecutive quarterly periods or extend beyond the Stated Maturity of
the Junior Subordinated Debentures. Upon the termination of any Extension Period
and the payment of all interest then accrued and unpaid (together with interest
thereon at the Distribution Rate, compounded quarterly, to the extent permitted
by applicable law), the Corporation may elect to begin a new Extension Period
subject to the above conditions. There is no limitation on the number of times
that the Corporation may elect to begin an Extension Period. See "Description of
Capital Securities -- Distributions" and "Description of Junior Subordinated
Debentures -- Option to Extend Interest Payment Period".
Should an Extension Period occur, a holder of Capital Securities will
continue to accrue income (in the form of original issue discount) in respect of
its pro rata share of the Junior Subordinated Debentures held by the Issuer
Trust for United States federal income tax purposes. As a result, a holder of
Capital Securities will include such income in gross income for United States
federal income tax purposes in advance of the receipt of cash, and will not
receive the cash related to such income from the Issuer Trust if the holder
disposes of the Capital Securities prior to the record date for the payment of
Distributions. See "Certain Federal Income Tax Consequences -- Interest Income
and Original Issue Discount" and " -- Sales or Redemptions of Capital
Securities".
The Corporation has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures. However, should the Corporation elect to exercise such
right in the future, the market price of the Capital Securities is likely to be
affected. A holder that disposes of its Capital Securities during an Extension
Period, therefore, might not receive the same return on its investment as a
holder that continues to hold its Capital Securities.
TAX EVENT OR CAPITAL TREATMENT EVENT REDEMPTION
Upon the occurrence and during the continuation of a Tax Event or Capital
Treatment Event, the Corporation has the right to redeem the Junior Subordinated
Debentures in whole (but not in part) at any time within 90 days following the
occurrence of such Tax Event or Capital Treatment Event and thereby cause a
mandatory redemption of the Capital Securities. The Corporation has committed to
the Reserve Bank that the Corporation will not exercise such right without
having received prior approval of the Federal Reserve to do so, if then required
under applicable Federal Reserve capital guidelines or policies.
A "Tax Event" means the receipt by the Corporation and the Issuer Trust of
an opinion of counsel experienced in such matters to the effect that, as a
result of any amendment to or change (including any announced prospective
change) in the laws or any regulations thereunder of the United States or any
political subdivision or taxing authority thereof or therein, or as a result of
any official administrative pronouncement (including any private letter ruling,
technical advice memorandum, field service advice, regulatory procedure, notice
or announcement, including any notice or announcement of intent to adopt such
procedures or regulations (an "Administrative Action")) or judicial decision
interpreting or applying such laws or regulations, regardless of whether such
Administrative Action or judicial decision is issued to or in connection with a
proceeding involving the Corporation or the Issuer Trust and whether or not
subject to review or appeal, which amendment, clarification, change,
Administrative Action or decision is enacted, promulgated or announced, in each
case on or after the Issue Date, there is more than an insubstantial risk that:
(i) the Issuer Trust is, or will be within 90 days of the date of such opinion,
subject to United States federal income tax with respect to income received or
accrued on the Junior Subordinated Debentures; (ii) interest payable by the
Corporation on the Junior Subordinated Debentures is not, or within 90 days of
the date of such opinion, will not be, deductible by the Company, in whole or in
part, for United States federal income tax purposes; or (iii) the Issuer Trust
is, or will be within
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<PAGE> 12
90 days of the date of such opinion, subject to more than a de minimis amount of
other taxes, duties or other governmental charges. See " -- Possible Tax Law
Changes Affecting the Capital Securities".
A "Capital Treatment Event" means the reasonable determination by the
Corporation that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change) in, the laws (or any rules or
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, which amendment or change is effective or such pronouncement,
action or decision is announced on or after the date of issuance of the Capital
Securities under the Trust Agreement, there is more than an insubstantial risk
that the Corporation will not be entitled to treat an amount equal to the
Liquidation Amount of the Capital Securities as "Tier 1 Capital" (or the then
equivalent thereof) for purposes of applicable Federal Reserve capital
guidelines, as then in effect. See "Capitalization".
EXCHANGE OF CAPITAL SECURITIES FOR JUNIOR SUBORDINATED DEBENTURES
The Corporation will have the right at any time to dissolve the Issuer
Trust and, after satisfaction of liabilities to creditors of the Issuer Trust in
accordance with applicable law and the Expense Agreement, cause the Junior
Subordinated Debentures to be distributed to the holders of the Capital
Securities and Common Securities in liquidation of the Issuer Trust. The
Corporation has committed to the Reserve Bank that, so long as the Corporation
or any affiliate is a holder of Common Securities, the Corporation will not
exercise such right without having received the prior approval of the Federal
Reserve to do so, if then required under applicable Federal Reserve capital
guidelines or policies. See "Description of Capital Securities -- Liquidation
Distribution upon Termination" and "The Expense Agreement".
Under current United States federal income tax law and interpretations and
assuming, as expected, that the Issuer Trust will not be classified as an
association taxable as a corporation, a distribution of the Junior Subordinated
Debentures upon a liquidation of the Issuer Trust should not be a taxable event
to holders of the Capital Securities. However, if a Tax Event were to occur that
would cause the Issuer Trust to be subject to United States federal income tax
with respect to income received or accrued on the Junior Subordinated
Debentures, a distribution of the Junior Subordinated Debentures by the Issuer
Trust could be a taxable event to the Issuer Trust and the holders of the
Capital Securities. See "Certain Federal Income Tax Consequences -- Distribution
of Junior Subordinated Debentures to Securityholders".
MARKET PRICES
There can be no assurance as to the market prices for Capital Securities or
for Junior Subordinated Debentures that may be distributed in exchange for
Capital Securities if a liquidation of the Issuer Trust occurs. Accordingly, the
Capital Securities or the Junior Subordinated Debentures that a holder of
Capital Securities may receive on liquidation of the Issuer Trust may trade at a
discount to the price that the investor paid to purchase the Capital Securities
offered hereby. As a result of the existence of the Corporation's right to defer
interest payments, the market price of the Capital Securities (which represent
preferred undivided beneficial interests in the Issuer Trust) may be more
volatile than the market prices of other securities on which original issue
discount accrues that are not subject to such optional deferrals. See
"Description of Junior Subordinated Debentures".
RIGHTS UNDER THE GUARANTEE; DIRECT ACTION
Bankers Trust Company will act as the Guarantee Trustee for purposes of
compliance with the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), and will hold the Guarantee for the benefit of the holders of
the Capital Securities. Bankers Trust Company will also act as Debenture Trustee
for the Junior Subordinated Debentures and as Property Trustee under the Trust
Agreement. The Guarantee guarantees to the holders of the Capital Securities the
following payments, to the extent not paid by the Issuer Trust: (i) any
accumulated and unpaid Distributions required to be paid on the Capital
12
<PAGE> 13
Securities, to the extent that the Issuer Trust has funds on hand available
therefor at such time; (ii) the Redemption Price with respect to any Capital
Securities called for redemption, to the extent that the Issuer Trust has funds
on hand available therefor at such time; and (iii) upon a voluntary or
involuntary termination, winding-up or liquidation of the Issuer Trust (unless
the Junior Subordinated Debentures are distributed to holders of the Capital
Securities), the lesser of (a) the aggregate of the Liquidation Amount and all
accumulated and unpaid Distributions to the date of payment, to the extent that
the Issuer Trust has funds on hand available therefor at such time, and (b) the
amount of assets of the Issuer Trust remaining available for distribution to
holders of the Capital Securities on liquidation of the Issuer Trust. The
Guarantee is subordinated as described under " -- Ranking of Subordinated
Obligations under the Guarantee and the Junior Subordinated Debentures". The
Guarantee will be qualified as an indenture under the Trust Indenture Act.
The holders of at least a majority in aggregate Liquidation Amount of the
outstanding Capital Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of the Guarantee or to direct the exercise of any trust power
conferred upon the Guarantee Trustee under the Guarantee. Notwithstanding the
foregoing, any holder of the Capital Securities may institute a legal proceeding
directly against the Corporation to enforce its rights under the Guarantee
without first instituting a legal proceeding against the Issuer Trust, the
Guarantee Trustee or any other person or entity. If the Corporation were to
default on its obligation to pay amounts payable under the Junior Subordinated
Debentures, the Issuer Trust may lack funds for the payment of Distributions or
amounts payable on redemption of the Capital Securities or otherwise, and, in
such event, holders of the Capital Securities would not be able to rely upon the
Guarantee for payment of such amounts. Instead, if a Debenture Event of Default
has occurred and is continuing and such event is attributable to the failure of
the Corporation to pay any amounts payable in respect of the Junior Subordinated
Debentures on the payment date on which such payment is due, then a holder of
Capital Securities may institute a legal proceeding directly against the
Corporation for enforcement of payment to such holder of any amounts payable in
respect of such Junior Subordinated Debentures having a principal amount equal
to the aggregate Liquidation Amount of the Capital Securities of such holder (a
"Direct Action"). In connection with such Direct Action, the Corporation will
have a right of set-off under the Indenture to the extent of any payment made by
the Corporation to such holder of Capital Securities in the Direct Action.
Except as described herein, holders of Capital Securities will not be able to
exercise directly any other remedy available to the holders of the Junior
Subordinated Debentures or assert directly any other rights in respect of the
Junior Subordinated Debentures. See "Description of Junior Subordinated
Debentures -- Enforcement of Certain Rights by Holders of Capital Securities," "
- -- Debenture Events of Default" and "Description of Guarantee". The Trust
Agreement provides that each holder of Capital Securities by acceptance thereof
agrees to the provisions of the Guarantee and the Indenture.
LIMITED VOTING RIGHTS
Holders of Capital Securities will have limited voting rights relating
generally to the modification of the Capital Securities and the Guarantee and
the exercise of the Issuer Trust's rights as holder of Junior Subordinated
Debentures. Holders of Capital Securities will not be entitled to appoint,
remove or replace the Property Trustee or the Delaware Trustee except upon the
occurrence of certain events described herein. The Property Trustee and the
holders of all of the Common Securities may, subject to certain conditions,
amend the Trust Agreement without the consent of holders of Capital Securities
to cure any ambiguity or to make other provisions not inconsistent with existing
provisions of the Trust Agreement or to ensure that the Issuer Trust will not be
classified for United States federal income tax purposes as an association
subject to taxation as a corporation or will be classified as a grantor trust.
See "Description of Capital Securities -- Voting Rights; Amendment of Trust
Agreement" and " -- Removal of Issuer Trustees".
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<PAGE> 14
TRADING CHARACTERISTICS OF CAPITAL SECURITIES
The Capital Securities have not been listed on a national securities
exchange or the NASDAQ Stock Market. The absence of such a listing for the
Capital Securities could adversely affect the liquidity of the Capital
Securities.
The Capital Securities may trade at prices that do not fully reflect the
value of accrued but unpaid interest with respect to the underlying Junior
Subordinated Debentures. A holder of Capital Securities that disposes of its
Capital Securities between record dates for payments of Distributions (and
consequently does not receive a Distribution from the Issuer Trust for the
period prior to such disposition) will nevertheless be required to include
accrued but unpaid interest on the Junior Subordinated Debentures through the
date of disposition in income as ordinary income and to add such amount to its
adjusted tax basis in the Capital Securities disposed of. Such a holder will
recognize a capital loss to the extent the amount realized on the sale (less any
amount that is treated as a payment of accrued interest required to be included
in income) is less than its adjusted tax basis. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes. See "Certain Federal Income Tax
Consequences -- Sale or Redemption of Capital Securities".
POSSIBLE TAX LAW CHANGES AFFECTING THE CAPITAL SECURITIES
Prospective investors should be aware that Enron Corporation has filed a
petition with the United States Tax Court challenging the proposed disallowance
by the Internal Revenue Service of the deduction of interest expense on
securities issued by Enron Corporation in 1993 and 1994 that are similar to,
although different in a number of respects from, the Junior Subordinated
Debentures. It is possible that a decision in that case could give rise to a Tax
Event, which would permit the Corporation to cause a redemption of the Capital
Securities, as described more fully under "Description of Capital Securities --
Redemption". Prospective investors should also be aware that legislation has
been proposed by the Clinton Administration in the past that, if enacted, would
have denied an interest deduction to issuers of instruments such as the Junior
Subordinated Debentures. No such legislation is currently pending. There can be
no assurance, however, that similar legislation will not ultimately be enacted
into law, or that other developments will not occur on or after the date hereof
that would adversely affect the tax treatment of the Junior Subordinated
Debentures or the Corporation. Such changes could also give rise to a Tax Event,
which may permit the Corporation to cause a redemption of the Capital
Securities.
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<PAGE> 15
KEYCORP
OVERVIEW
The Corporation, 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 March 31,
1998, it was one of the largest bank holding companies in the United States with
consolidated total assets of approximately $73.2 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 more than 1,000 full-service
banking offices in 13 states (Alaska, Colorado, Idaho, Indiana, Maine, Michigan,
New Hampshire, New York, Ohio, Oregon, Utah, Vermont and Washington), a 24-hour
telephone banking call center services group and more than 2,200 ATMs as of
March 31, 1998. At March 31, 1998, KeyCorp and its subsidiaries had
approximately 24,650 full-time equivalent employees.
The Corporation is a legal entity separate and distinct from its banking
and other subsidiaries. Accordingly, the rights of the Corporation, its security
holders and its creditors to participate in any distribution of the assets or
earnings of its banking and 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 the Corporation in its capacity as a
creditor of such banking and other subsidiaries may be recognized. The principal
executive office of the Corporation is 127 Public Square, Cleveland, Ohio
44114-1306, and its telephone number is (216) 689-6300.
SUBSIDIARIES
The Corporation'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 $69.2 billion in
total assets and 1,000 full-service banking offices in Alaska, Colorado, Idaho,
Indiana, Maine, Michigan, New York, Ohio, Oregon, Utah, Vermont and Washington
at March 31, 1998; and Key Bank USA, National Association, headquartered in
Cleveland, Ohio, with total assets of approximately $3.6 billion at March 31,
1998, which is involved in consumer loan activities. In addition, the
Corporation operates a bank subsidiary in New Hampshire.
In addition to the customary banking services of accepting deposits and
making loans, the Corporation'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, the Corporation 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 Key's major lines of business as of March 31,
1998, is as follows:
Key Corporate Capital. Key offers a complete range of financing,
transaction processing and financial advisory services to corporations
throughout the country through its 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. 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
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<PAGE> 16
services, investment banking and capital markets products, and 401(k) and trust
custody products. Key is also one of the leading cash management providers in
the country.
Key Consumer Finance. Key Consumer Finance is responsible for Key's
indirect, non-branch-based consumer loan and deposit products. This line of
business specializes in credit cards, automobile loans and leases, 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 1,006 KeyCenters, a 24-hour telephone banking
call center services group, more than 2,200 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 and capital markets,
insurance and brokerage expertise and is expected to play a major role in
developing fee income through its broad range of investment choices and
customized products. Leveraging Key's corporate and community banking
distribution channels and client relationships will be an essential factor in
ensuring Key Capital Partner's future growth and success.
The Corporation 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. Key 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.
RECENT DEVELOPMENTS
On June 15, 1998, the Corporation announced that it had entered into a
merger agreement to acquire McDonald, a full-service investment banking and
securities brokerage firm based in Cleveland, Ohio. Under the terms of the
merger agreement, subject to adjustment under certain circumstances, the
Corporation will issue, in exchange for each McDonald common share, the
Corporation's common shares in a number equal to $35.00 divided by the average
closing price per common share of the Corporation over a 10-day period ending
shortly prior to the closing. Based on 18,665,000 shares of McDonald common
stock outstanding as of June 15, 1998 and a $36.875 per share closing price of
the Corporation's common shares on June 12, 1998, the Corporation would be
required to issue approximately 17,716,000 common shares as consideration to
McDonald shareholders. The transaction, which remains subject to the approval of
McDonald shareholders, as well as regulatory approval and other conditions to
closing, is currently expected to close during the fourth quarter of 1998.
YEAR 2000
The Year 2000 issue pertains to the potential problems that may arise by
having in place computer systems that were originally programmed to identify the
year using two digits rather than four digits. Accordingly, these systems will
not be able to distinguish the year 1900 from 2000. Unless hardware, system
software and applications are corrected to be Year 2000 compliant, computers and
the devices
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<PAGE> 17
they control could generate miscalculations and create operational problems. 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. Various systems could be affected ranging from complex computer systems
to telephone systems, ATMs and elevators.
To address this issue, in 1995, Key developed a comprehensive plan,
including the formation of a team consisting of internal resources and
third-party experts. Key prioritized the various 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 Key have been accelerated. The cost of the project (currently
estimated to be $40 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. Key is monitoring the efforts of its business partners and
suppliers involved in addressing the potential problem 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 March 31, 1998, compliance efforts
had been completed for approximately 29% of the core systems identified. Key
believes the efforts described above will ensure its systems are adequately
prepared for the Year 2000. See "Cautionary Statement Regarding Forward-Looking
Information".
SUPERVISION AND REGULATION
As a bank holding company, the Corporation is subject to regulation,
supervision and examination of the Federal Reserve under the BHCA. For a
discussion of certain of the material elements of the regulatory framework
applicable to bank holding companies and their subsidiaries and certain specific
information relevant to the Corporation, reference is made to the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997
incorporated by reference in the Registration Statement of which this Prospectus
forms a part. This regulatory framework is intended primarily for the protection
of depositors and the federal deposit insurance funds and not for the protection
of security holders. A change in applicable statutes, regulations or regulatory
policy may have a material effect on the business of the Corporation.
The earnings of the Corporation also are affected by general economic
conditions, management policies and the legislative and governmental actions of
various regulatory authorities, including the Federal Reserve, the Office of the
Comptroller of the Currency, which is the principal regulator of the
Corporation's bank subsidiaries, and the Federal Deposit Insurance Corporation
(the "FDIC"), which insures (up to applicable limits) the deposits of all of the
Corporation's full-service banking subsidiaries. In addition, there are numerous
governmental requirements and regulations which affect the activities of the
Corporation.
Depository institutions such as the bank subsidiaries of the Corporation
are also affected by various federal laws, including those relating to consumer
protection and similar matters. The Corporation also has other financial
services subsidiaries that are subject to regulation, supervision and
examination by the Federal Reserve, as well as other applicable state and
federal regulatory agencies. For example, the Corporation's brokerage and asset
management subsidiaries are subject to supervision and regulation by the
Commission, the National Association of Securities Dealers, Inc. and state
securities regulators, and the Corporation's insurance subsidiaries are subject
to regulation by the insurance regulatory authorities of the various states.
Other nonbank subsidiaries of the Corporation are subject to other laws and
regulations of both the federal government and the various states in which they
are authorized to do business.
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<PAGE> 18
KEYCORP CAPITAL I
The Issuer Trust is a statutory business trust created under Delaware law
pursuant to (i) the Trust Agreement between the Corporation, as Depositor,
Bankers Trust (Delaware), as Delaware Trustee, and the Administrative Trustee
named therein and (ii) the filing of a certificate of trust with the Delaware
Secretary of State on June 2, 1998. The Issuer Trust's business and affairs are
conducted by its trustees: initially Bankers Trust Company, as Property Trustee,
and Bankers Trust (Delaware), as Delaware Trustee. In addition, two individuals
who are employees or officers of or affiliated with Corporation, as the holder
of a majority of the Common Securities, will act as the "Administrative
Trustees". The Administrative Trustees will be selected by the holders of the
Common Securities. See "Description of Capital Securities -- Miscellaneous". The
Issuer Trust exists for the exclusive purposes of (i) issuing and selling the
Trust Securities, (ii) using the proceeds from the sale of Trust Securities to
acquire the Junior Subordinated Debentures and (iii) engaging in only those
other activities necessary or incidental thereto (such as registering the
transfer of the Trust Securities). Accordingly, the Junior Subordinated
Debentures will be the sole assets of the Issuer Trust, and payments under the
Junior Subordinated Debentures will be the sole source of revenue of the Issuer
Trust.
All of the Common Securities will be initially owned by the Corporation.
The Common Securities will rank pari passu, and payments will be made thereon
pro rata, with the Capital Securities, except that upon the occurrence and
continuance of an event of default under the Trust Agreement arising as a result
of any failure by the Corporation to pay any amounts in respect of Junior
Subordinated Debentures when due, the rights of the holders of the Common
Securities to payment in respect of Distributions and payments upon liquidation,
redemption or otherwise will be subordinated to the rights of the holders of the
Capital Securities. See "Description of Capital Securities -- Subordination of
Common Securities". The Corporation will acquire Common Securities in an
aggregate liquidation amount equal to at least 3% of the total capital of the
Issuer Trust. The Issuer Trust has a term of 31 years, but may dissolve earlier
as provided in the Trust Agreement. The principal executive office of the Issuer
Trust is 127 Public Square, Cleveland, Ohio 44144-1306, Attention: Office of the
Secretary, and its telephone number is (216) 689-6300.
It is anticipated that the Issuer Trust will not be subject to the
reporting requirements of the Exchange Act.
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<PAGE> 19
SELECTED CONSOLIDATED KEYCORP FINANCIAL DATA
The following table presents summary consolidated financial data for each
of the years in the five-year period ended December 31, 1997, which has been
derived from, and should be read in conjunction with, the audited consolidated
financial statements, notes thereto and other information pertaining to the
Corporation included in the Incorporated Documents incorporated by reference in
this Prospectus. This summary is qualified in its entirety by the detailed
information included therein. See "Incorporation of Certain Documents by
Reference". The data presented for the three-month periods ended March 31, 1998
and March 31, 1997, are not necessarily indicative of the data for the entire
year and have been derived from unaudited consolidated financial statements of
the Corporation. These financial statements include, in the opinion of
management, all adjustments of a normal recurring nature and disclosures which
are necessary to present fairly the data for such interim periods. The
comparability of the data presented is affected by certain acquisitions and
divestitures that Key has completed in the time periods presented. All relevant
common share amounts and per common share data have been adjusted for the
two-for-one stock split announced on January 15, 1998, effected by means of a
100% stock dividend payable March 6, 1998, to shareholders of record as of
February 18, 1998.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 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.......... $ 1,327 $ 1,255 $ 5,262 $ 4,951 $ 5,121 $ 4,490 $ 4,214
Interest expense......... 663 566 2,468 2,234 2,485 1,797 1,535
Net interest income...... 664 689 2,794 2,717 2,636 2,693 2,679
Provision for loan
losses................. 77 67 320 197 100 125 212
Noninterest income....... 356 259 1,306 1,087 933 883 1,002
Noninterest expense...... 600 575 2,435 2,464 2,312 2,168 2,385
Income before income
taxes and extraordinary
item................... 343 306 1,345 1,143 1,157 1,283 1,084
Income before
extraordinary item..... 235 212 919 783 789 853 710
Net income............... 235 212 919 783 825 853 710
Net income applicable to
Common Shares.......... 235 212 919 775 809 837 692
PER COMMON SHARE
Income before
extraordinary item..... $ .53 $ .48 $ 2.09 $ 1.69 $ 1.65 $ 1.72 $ 1.44
Net income............... .53 .48 2.09 1.69 1.73 1.72 1.44
Net income-assuming
dilution............... .53 .47 2.07 1.67 1.71 1.70 1.43
Cash dividends........... .235 .21 .84 .76 .72 .64 .56
Book value at period
end.................... 12.15 10.64 11.83 10.92 10.68 9.44 8.76
Weighted average Common
Shares (000)........... 438,589 443,340 439,042 459,810 469,574 486,134 479,550
Weighted average Common
Shares and potential
Common Shares(000)..... 444,836 448,558 444,544 464,282 472,882 490,932 483,158
AT PERIOD END
Loans.................... $ 54,900 $ 49,724 $ 53,380 $ 49,235 $ 48,332 $ 46,579 $ 41,396
Earning assets........... 64,368 59,825 64,246 59,260 58,762 60,047 54,353
Total assets............. 73,198 67,893 73,699 67,621 66,339 66,801 59,634
Deposits................. 41,661 44,239 45,073 45,317 47,282 48,564 46,499
Long-term debt........... 9,041 4,774 7,446 4,213 4,003 3,570 1,764
Common shareholders'
equity................. 5,338 4,674 5,181 4,881 4,993 4,530 4,225
Total shareholders'
equity................. 5,338 4,674 5,181 4,881 5,153 4,690 4,385
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 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>
PERFORMANCE RATIOS
Return on Average Total
assets................. 1.32% 1.30% 1.33% 1.21% 1.24% 1.36% 1.24%
Return on average common
equity................. 18.25 18.07 18.89 15.73 17.35 18.87 17.27
Return on average total
equity................. 18.25 18.07 18.89 15.64 17.10 18.56 16.95
Efficiency(1)............ 57.39 58.92 57.50 60.84 63.03 59.39 60.50
Overhead(2).............. 35.36 43.71 39.64 45.46 49.66 46.14 46.85
Net interest
margin(TE)............. 4.23 4.75 4.62 4.78 4.47 4.83 5.31
CAPITAL RATIOS AT PERIOD
END
Equity to assets(3)...... 7.98% 7.62% 7.71% 7.96% 7.77% 7.03% 7.37%
Tangible equity to
tangible assets(3)..... 6.51 6.32 6.21 6.63 6.25 6.19 6.51
Tier 1 risk-adjusted
capital(4)............. 6.81 7.47 6.65 7.98 7.53 8.48 8.73
Total risk-adjusted
capital(5)............. 11.38 12.31 10.83 13.01 10.85 11.62 12.22
Leverage(6).............. 6.61 6.68 6.40 6.93 6.20 6.63 6.72
ASSET QUALITY DATA
Nonperforming loans...... $ 373 $ 371 $ 381 $ 349 $ 333 $ 256 $ 336
Nonperforming assets..... 421 425 431 400 379 340 500
Allowance for loan
losses................. 900 870 900 870 876 830 803
Net loan charge-offs..... 77 67 293 195 99 109 213
Nonperforming loans to
period end loans....... .68% .75% .71% .71% .69% .55% .81%
Nonperforming assets to
period end loans plus
OREO and other
nonperforming assets... .77 .85 .81 .81 .78 .73 1.20
Allowance for loan losses
to nonperforming
loans.................. 241.29 234.50 236.22 249.28 263.15 324.27 238.69
Allowance for loan losses
to period end loans.... 1.64 1.75 1.69 1.77 1.81 1.78 1.94
Net loan charge-offs to
average loans.......... .58 .55 .57 .40 .21 .25 .54
RATIO OF EARNINGS TO FIXED
CHARGES(7)
Excluding deposit
interest............... 2.02x 2.31x 2.24x 2.41x 2.42x 3.50x 4.15x
Including deposit
interest............... 1.50x 1.52x 1.53x 1.50x 1.46x 1.70x 1.69x
RATIO OF EARNINGS TO FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS(7)
Excluding deposit
interest............... 2.02x 2.31x 2.24x 2.38x 2.35x 3.34x 3.83x
Including deposit
interest............... 1.50x 1.52x 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 March 31, 1998, are 7.29% and 5.81%, respectively; at March 31,
1997, are 6.88% and 5.58%, respectively; at December 31, 1997, are 7.03% and
5.52%, respectively; and at December 31, 1996, are 7.22% and 5.88%,
respectively. Capital Securities were not present prior to the fourth
quarter of 1996.
20
<PAGE> 21
(4) Key'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.
(5) Key'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 to
be comprised of Tier 1 capital.
(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 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.
(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
21
<PAGE> 22
USE OF PROCEEDS
All of the proceeds to the Issuer Trust from the sale of the Capital
Securities will be invested by the Issuer Trust in the Junior Subordinated
Debentures. The net proceeds to the Corporation from the sale of the Junior
Subordinated Debentures will be used by the Corporation for general corporate
purposes, which may include investments in, or extensions of credit to, the
Corporation's subsidiaries, repurchases or redemptions of capital stock of the
Corporation and financing possible future acquisitions including, without
limitation, the acquisition of banking and nonbanking companies and financial
assets and liabilities. Specific allocations of the proceeds to such purposes
have not been made, although management has determined that funds should be
borrowed at this time. The precise amount and timing of such investments in, or
extensions of credit to, subsidiaries will depend on the subsidiaries' funding
requirements and the availability of other funds. Pending such applications,
such net proceeds may be temporarily invested or applied to the reduction of
short-term indebtedness.
ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer Trust will be treated as a
subsidiary of the Corporation and, accordingly, the accounts of the Issuer Trust
will be included in the consolidated financial statements of the Corporation.
The Capital Securities will be presented as a separate line item in the
consolidated balance sheets of the Corporation, entitled "Corporation-obligated
mandatorily redeemable preferred capital securities of subsidiary trusts holding
solely debentures of the Corporation" and appropriate disclosures about the
Capital Securities, the Guarantee and the Junior Subordinated Debentures will be
included in the notes to the consolidated financial statements. For financial
reporting purposes, the Corporation will record Distributions payable on the
Capital Securities as an expense in the consolidated statements of income.
22
<PAGE> 23
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Corporation as of March 31, 1998, and as adjusted to give effect to the
consummation of the offering of the Capital Securities. The following data
should be read in conjunction with the consolidated financial statements of the
Corporation, including the notes thereto, incorporated herein by reference.
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------
OUTSTANDING ADJUSTED
----------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
LONG-TERM DEBT
KeyCorp
Senior medium-term notes due through 2005(1).............. $ 469 $ 469
Subordinated medium-term notes due through 2005(2)........ 182 182
7.50% Subordinated notes due 2006......................... 250 250
6.75% Subordinated notes due 2006......................... 200 200
8.125% Subordinated notes due 2002........................ 199 199
8.00% Subordinated notes due 2004......................... 125 125
8.40% Subordinated notes due 1999......................... 75 75
8.404% Notes due 1997 through 2001........................ 42 42
All other long-term debt.................................. 14 14
------- -------
Total KeyCorp.......................................... 1,556 1,556
Subsidiaries
Senior medium-term notes due through 2002(3).............. 4,369 4,369
Senior euro medium-term bank notes due through 2007(4).... 864 864
6.95% Subordinated notes due 2028......................... 300 300
7.25% Subordinated notes due 2005......................... 200 200
7.85% Subordinated notes due 2002......................... 200 200
6.75% Subordinated notes due 2003......................... 200 200
7.50% Subordinated notes due 2008......................... 165 165
7.125% Subordinated notes due 2006........................ 250 250
7.55% Subordinated notes due 2006......................... 75 75
7.375% Subordinated notes due 2008........................ 70 70
Lease financing debt due through 2003(5).................. 496 496
Federal Home Loan Bank Advances due through 2014.......... 264 264
All other long-term debt.................................. 32 32
------- -------
Total subsidiaries..................................... 7,485 7,485
------- -------
Total long-term debt................................... 9,041 9,041
CORPORATION-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
CAPITAL SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY
DEBENTURES OF THE CORPORATION
7.826% Capital securities due 2026(6)..................... 350 350
8.25% Capital securities due 2026(6)...................... 150 150
6.625% Capital securities due 2029(6)..................... 250 250
Floating rate capital securities due 2028(7).............. -- 250
------- -------
Total capital securities............................... 750 1,000
SHAREHOLDERS' EQUITY
Preferred stock, $1 par value; authorized 25,000,000
shares, none issued.................................... -- --
Common stock, $1 par value; authorized 900,000,000 shares;
issued 491,888,780 shares.............................. 492 492
Capital surplus........................................... 1,284 1,284
Retained earnings......................................... 4,743 4,743
Loans to ESOP trustee..................................... (42) (42)
Accumulated other comprehensive income.................... 8 8
Treasury stock, at cost (52,573,384 shares)............... (1,147) (1,147)
------- -------
Total shareholders' equity............................. 5,338 5,338
------- -------
Total capitalization................................... $15,129 $15,379
======= =======
</TABLE>
23
<PAGE> 24
- ---------------
(1) The weighted average rate on the senior medium-term notes due through 2005
was 6.82%. These notes had a combination of both fixed and floating interest
rates.
(2) The weighted average rate on the subordinated medium-term notes due through
2005 was 6.95%. These notes had a combination of both fixed and floating
interest rates.
(3) The weighted average rate on the senior medium-term notes due through 2002
was 5.33%. These notes had a combination of both fixed and floating interest
rates.
(4) The weighted average rate on the senior euro medium-term bank notes due
through 2007 was 5.93%. These notes are obligations of KeyBank National
Association and had fixed and floating interest rates based on the
three-month London Interbank Offered Rate.
(5) The weighted average rate on the lease financing debt was 7.12% and
represented primarily nonrecourse debt collateralized by lease equipment
under operating, direct financing and sales type leases.
(6) On December 4, 1996, a subsidiary trust of the Corporation issued
$350,000,000 of capital securities that mature on December 1, 2026. On
December 30, 1996, a second subsidiary trust of the Corporation issued
$150,000,000 of capital securities that mature on December 15, 2026. On May
30, 1997, a third subsidiary trust of the Corporation issued $250,000,000 of
Coupon Adjusted Pass-Through Securities, Series A, that mature on June 1,
2029. Such capital securities have terms substantially identical to the
Capital Securities offered hereby and accumulate distributions at a per
annum rate of 7.826%, 8.25% and 6.625%, respectively, of the liquidation
amount of $1,000 per capital security.
(7) As described herein, the sole assets of the Issuer Trust will be
$257,800,000 aggregate principal amount of Junior Subordinated Debentures,
issued by the Corporation to the Issuer Trust. The Junior Subordinated
Debentures will mature on July 1, 2028. The Corporation owns all of the
Common Securities of the Issuer Trust. It is anticipated that the Issuer
Trust will not be subject to the reporting requirements under the Exchange
Act.
DESCRIPTION OF CAPITAL SECURITIES
Pursuant to the terms of the Trust Agreement, the Issuer Trust will issue
the Capital Securities and the Common Securities. The Capital Securities will
represent preferred undivided beneficial interests in the assets of the Issuer
Trust and the holders thereof will be entitled to a preference in certain
circumstances with respect to Distributions and amounts payable on redemption or
liquidation over the Common Securities, as well as other rights and privileges
as described in the Trust Agreement. This summary of certain material provisions
of the Capital Securities and the Trust Agreement does not purport to be
complete and is subject to, and qualified in its entirety by reference to, all
the provisions of the Trust Agreement, including the definitions therein of
certain terms, and the Trust Indenture Act. Wherever particular defined terms of
the Trust Agreement are referred to herein, such defined terms are incorporated
herein by reference. The form of the Trust Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
GENERAL
The Capital Securities will be limited to $250,000,000 aggregate
Liquidation Amount outstanding. The Capital Securities will rank pari passu, and
payments will be made thereon pro rata, with the Common Securities except as
described under " -- Subordination of Common Securities". Legal title to the
Junior Subordinated Debentures will be held by the Property Trustee in trust for
the benefit of the holders of the Trust Securities. The Guarantee will be a
guarantee on a subordinated basis with respect to the Capital Securities but
will not guarantee payment of Distributions or amounts payable on redemption or
liquidation of such Capital Securities when the Issuer Trust does not have funds
on hand available to make such payments. See "Description of Guarantee".
24
<PAGE> 25
DISTRIBUTIONS
The Capital Securities represent preferred undivided beneficial interests
in the assets of the Issuer Trust, and each Capital Security will be entitled to
a preference in Distributions payable at the Distribution Rate (as defined
below) applied to the Liquidation Amount of $1,000, payable quarterly in arrears
on October 1, January 1, April 1 and July 1 of each year (each a "Distribution
Date"), to the holders of the Capital Securities at the close of business on the
fifteenth day preceding the relevant Distribution Date. Distributions on the
Capital Securities will be cumulative. Distributions will accumulate from the
date of initial issuance. The first Distribution Date for the Capital Securities
will be October 1, 1998. If any date on which Distributions are payable on the
Capital Securities is not a Business Day (as defined below), then payment of the
Distributions payable on such date will be made on the next succeeding day that
is a Business Day (without any additional Distributions or other payment in
respect of any such delay), with the same force and effect as if made on the
date such payment was originally payable. The period beginning on, and including
October 1, 1998, and ending on, but excluding, the next succeeding Distribution
Date is herein called a "Distribution Period".
"Business Day" means any day on which (a) commercial banks and foreign
exchange markets are open for business (including dealings in foreign exchange
and foreign currency deposits) in New York and London and, for purposes of the
final paragraph of " -- Payments and Paying Agency" only, in the relevant place
of payment, and (b) the Corporate Trust Offices of the Property Trustee, the
Debenture Trustee and the Guarantee Trustee are open for business.
Distribution Rate. The Distribution Rate in respect of the Capital
Securities will be a floating rate per annum determined by reference to
three-month LIBOR, determined as described below, plus a margin of 0.74%. All
results of the calculations set forth under this heading will be rounded upwards
to the nearest 0.00001%.
(i) At approximately 11:00 a.m. (London time) on each "Determination Date,"
which shall be the second day on which commercial banks are open for business
(including dealings in foreign exchange and foreign currency deposits) in London
(or, for purposes of paragraph (iii)(B) below, New York) prior to the
commencement of the Distribution Period for which such rate will apply, Goldman,
Sachs & Co. or its successor in this capacity (the "Calculation Agent") will
calculate the Distribution Rate for such Distribution Period as, subject to the
provisions described below, the rate per annum equal to 0.74% above the rate
appearing on the Dow Jones Telerate Page 3750 (or such other page as may replace
that page on the Dow Jones Telerate Service) for three-month U.S. dollar
deposits in the London interbank market on such Determination Date.
(ii) If on any Determination Date an appropriate rate cannot be determined
from the Dow Jones Telerate Service, the Distribution Rate for the next
Distribution Period will be, subject to the provisions described below, the rate
per annum that the Calculation Agent certifies to be 0.74% per annum above the
arithmetic mean of the offered quotations, as communicated to and at the request
of the Calculation Agent by not less than two major banks in London selected by
the Calculation Agent (the "Reference Banks," which expression will include any
successors nominated by the Calculation Agent), to leading banks in London by
the principal London offices of the Reference Banks for three-month U.S. dollar
deposits in the London interbank market as at 11:00 a.m. (London time) on such
Determination Date.
(iii) If on any Determination Date fewer than two of such offered rates are
available, the Distribution Rate for the next Distribution Period will be the
higher of:
(A) the Distribution Rate in effect for the last preceding Distribution
Period to which (i) or (ii) above applied; and
(B) the Reserve Distribution Rate. The "Reserve Distribution Rate" will be
the rate per annum which the Calculation Agent determines to be 0.74%
per annum above either (I) the arithmetic mean of the U.S. dollar
offered rates which New York City banks selected by the Calculation
Agent are or were quoting, on the relevant Determination Date, for
three-month deposits to the Reference Banks or those of them (being at
least two in number) to which such quotations are
25
<PAGE> 26
or were, in the opinion of the Calculation Agent, being so made, or
(II) in the event that the Calculation Agent can determine no such
arithmetic mean, the arithmetic mean of the U.S. dollar offered rates
which New York City banks selected by the Calculation Agent are or were
quoting on such Determination Date to leading European banks for a
period of three months; provided, however, that if the banks selected
as aforesaid by the Calculation Agent are not quoting as mentioned
above, the Distribution Rate will be the Distribution Rate specified in
(A) above.
The rate for three-month U.S. dollar deposits in the London interbank
market, determined pursuant to paragraphs (i), (ii) or (iii), as the case may
be, is referred to herein as "three-month LIBOR."
Determination of Distribution Rate and Calculation of Distribution
Amount. The Calculation Agent shall, as soon as practicable after 11:00 a.m.
(London time) on each Determination Date, determine the Distribution Rate and
calculate the amount of Distributions payable in respect of the following
Distribution Period (the "Distribution Amount"). The Distribution Amount shall
be calculated by (1) applying the Distribution Rate to the Liquidation Amount of
each Capital Security outstanding at the commencement of the Distribution
Period, multiplying each such amount by the actual number of days in such
Distribution Period (which actual number of days shall include the first day but
exclude the last day of such Distribution Period) divided by 360 and (2)
rounding such quotient upwards to the nearest cent (half a cent being rounded
upwards). The determination of the Distribution Rate and the Distribution Amount
by the Calculation Agent will (absent manifest error) be final and binding on
all parties.
Notification of Distribution Rate, Distribution Amount and Distribution
Date. The Calculation Agent will notify the Property Trustee, each Paying Agent
appointed by the Issuer Trust and the Holders of the Distribution Rate, the
Distribution Amount in respect of each Capital Security and the Distribution
Date for each Distribution Period, in each case as soon as possible after the
determination thereof but in no event later than the second Business Day of the
relevant Distribution Period. The Distribution Amount and Distribution Date may
subsequently be amended without notice in the event of an extension of such
Distribution Period.
Calculation Agent. So long as any of the Capital Securities remain
outstanding, there will at all times be a Calculation Agent. If the Calculation
Agent is unable or unwilling to continue to act as the Calculation Agent or the
Calculation Agent fails duly to establish the Distribution Rate for any
Distribution Period, the Issuer Trust will appoint the London office of some
other leading bank engaged in the London interbank market to act in its place.
The Calculation Agent may not resign its duties without a successor having so
been appointed.
Certificates to be Final. All certificates, communications, opinions,
determinations, calculations, quotations and decisions given, expressed, made or
obtained for the purposes of the provisions relating to the payment and
calculation of interest on the Capital Securities, whether by the Reference
Banks (or any of them) or the Calculation Agent, will (absent manifest error) be
binding on the Issuer Trust, the Corporation, the Calculation Agent and all of
the holders of the Capital Securities, and no liability will (absent manifest
error) attach to the Calculation Agent in connection with the performance by it
of its duties.
Deferral of Distributions. So long as no Debenture Event of Default has
occurred and is continuing, the Corporation has the right under the Indenture to
defer the payment of interest on the Junior Subordinated Debentures at any time
or from time to time for a period not exceeding 20 consecutive quarterly periods
with respect to each Extension Period, provided that no Extension Period may
extend beyond the Stated Maturity of the Junior Subordinated Debentures. As a
consequence of any such election, quarterly Distributions on the Capital
Securities will be deferred by the Issuer Trust during any such Extension
Period. Distributions to which holders of the Capital Securities are entitled
will accumulate additional Distributions thereon at the Distribution Rate,
compounded quarterly from the relevant payment date for such Distributions,
computed as described above under " -- Determination of Distribution Rate and
Calculation of Distribution Amount". The term "Distributions" as used herein
shall include any such additional Distributions. During any such Extension
Period, the Corporation may not
26
<PAGE> 27
(i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the Corporation's
capital stock or (ii) make any payment of principal of or interest or premium,
if any, on or repay, repurchase or redeem any debt securities of the Corporation
that rank pari passu in all respects with or junior in interest to the Junior
Subordinated Debentures, including, without limitation, the Corporation's 7.826%
Junior Subordinated Debentures, the Corporation's 8.25% Junior Subordinated
Debentures and the Corporation's CAPS Debentures (other than (a) repurchases,
redemptions or other acquisitions of shares of capital stock of the Corporation
in connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of any one or more employees, officers,
directors or consultants, in connection with a dividend reinvestment or
shareholder stock purchase plan or in connection with the issuance of capital
stock of the Corporation (or securities convertible into or exercisable for such
stock) as consideration in an acquisition transaction entered into prior to the
Extension Period, (b) as a result of an exchange or conversion of any class or
series of the Corporation's capital stock for any other class or series of the
Corporation's capital stock or of any class or series of the Corporation's
indebtedness for any class or series of the Corporation's capital stock, (c) the
purchase of fractional interests in shares of the Corporation's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged, (d) any declaration of a dividend in
connection with the implementation or amendment of the Corporation's
shareholders' rights plan (or any successor thereto), or the issuance of rights,
stock or other property under any such rights plan, or the redemption or
repurchase of rights pursuant thereto, or (e) any dividend in the form of stock,
warrants, options or other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is the same stock as
that on which the dividend is being paid or ranks pari passu with or junior to
such stock). Prior to the termination of any such Extension Period, the
Corporation may further defer the payment of interest, provided that no
Extension Period may exceed 20 consecutive quarterly periods or extend beyond
the Stated Maturity of the Junior Subordinated Debentures. Upon the termination
of any such Extension Period and the payment of all amounts then due, the
Corporation may elect to begin a new Extension Period. There is no limitation on
the number of times that the Corporation may elect to begin an Extension Period.
See "Description of Junior Subordinated Debentures -- Option To Extend Interest
Payment Period" and "Certain Federal Income Tax Consequences -- Interest Income
and Original Issue Discount".
The Corporation has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
The revenue of the Issuer Trust available for distribution to holders of
the Capital Securities will be limited to payments under the Junior Subordinated
Debentures in which the Issuer Trust will invest the proceeds from the issuance
and sale of the Capital Securities. See "Description of Junior Subordinated
Debentures". If the Corporation does not make interest payments on the Junior
Subordinated Debentures, the Issuer Trust may not have funds available to pay
Distributions or other amounts owing in respect of the Capital Securities. The
payment of Distributions (if and to the extent the Issuer Trust has funds
legally available for the payment of such Distributions and cash sufficient to
make such payments) is guaranteed by the Corporation on a limited basis as set
forth herein under "Description of Guarantee".
REDEMPTION
Upon the repayment or redemption, in whole or in part, of the Junior
Subordinated Debentures, whether at maturity or upon earlier redemption as
provided in the Indenture, the proceeds from such repayment or redemption shall
be applied by the Property Trustee to redeem a Like Amount (as defined below) of
the Capital Securities, upon not less than 30 nor more than 60 days' notice, at
a redemption price (the "Redemption Price") equal to the aggregate Liquidation
Amount of such Capital Securities plus accumulated but unpaid Distributions
thereon to the date of redemption (the "Redemption Date"). See "Description of
Junior Subordinated Debentures -- Redemption". If less than all of the Junior
Subordinated Debentures are to be repaid or redeemed on a Redemption Date, then
the proceeds from
27
<PAGE> 28
such repayment or redemption shall be allocated to the redemption pro rata of
the Capital Securities and the Common Securities.
The Corporation has the right to redeem the Junior Subordinated Debentures,
(i) on or after July 1, 2008, in whole at any time or in part from time to time,
or (ii) in whole (but not in part) at any time within 90 days following the
occurrence and during the continuation of a Tax Event or Capital Treatment Event
(each as defined below), in each case at a Redemption Price equal to 100% of the
principal amount of Junior Subordinated Debentures so redeemed plus accrued and
unpaid interest thereon to the Redemption Date. A redemption of the Junior
Subordinated Debentures would cause a mandatory redemption of a Like Amount of
the Capital Securities and Common Securities.
"Capital Treatment Event" means the reasonable determination by the
Corporation that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change) in, the laws (or any rules or
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, which amendment or change is effective or such pronouncement,
action or decision is announced on or after the date of issuance of the Capital
Securities under the Trust Agreement, there is more than an insubstantial risk
that the Corporation will not be entitled to treat an amount equal to the
Liquidation Amount of the Capital Securities as "Tier 1 Capital" (or the then
equivalent thereof) for purposes of the applicable Federal Reserve capital
adequacy guidelines, as then in effect.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount (as defined below) equal to that
portion of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Common Securities and to the Capital Securities based upon the relative
Liquidation Amounts of such classes and (ii) with respect to a distribution of
Junior Subordinated Debentures to holders of Trust Securities in connection with
a dissolution or liquidation of the Issuer Trust, Junior Subordinated Debentures
having a principal amount equal to the Liquidation Amount of the Trust
Securities of the holder to whom such Junior Subordinated Debentures are
distributed.
"Liquidation Amount" means the stated amount of $1,000 per Trust Security.
"Tax Event" means the receipt by the Corporation and the Issuer Trust of an
opinion of counsel experienced in such matters to the effect that, as a result
of any amendment to or change (including any announced prospective change) in
the laws or any regulations thereunder of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement (including any private letter ruling,
technical advice memorandum, field service advice, regulatory procedure, notice
or announcement, including any notice or announcement of intent to adopt such
procedures or regulations (an "Administrative Action")) or judicial decision
interpreting or applying such laws or regulations, regardless of whether such
Administrative Action or judicial decision is issued to or in connection with a
proceeding involving the Corporation or the Issuer Trust and whether or not
subject to review or appeal, which amendment, clarification, change,
Administrative Action or decision is enacted, promulgated or announced, in each
case on or after the Issue Date, there is more than an insubstantial risk that:
(i) the Issuer Trust is, or will be within 90 days of the date of such opinion,
subject to United States federal income tax with respect to income received or
accrued on the Junior Subordinated Debentures; (ii) interest payable by the
Corporation on the Junior Subordinated Debentures is not, or within 90 days of
the date of such opinion, will not be, deductible by the Corporation, in whole
or in part, for United States federal income tax purposes; or (iii) the Issuer
Trust is, or will be within 90 days of the date of such opinion, subject to more
than a de minimis amount of other taxes, duties or other governmental charges
(each of the circumstances referred to in clauses (i), (ii) and (iii) being
referred to herein as an "Adverse Tax Consequence"). See "Certain Federal Income
Tax Consequences -- Possible Tax Law Changes".
Payment of Additional Sums. If a Tax Event described in clause (i) or (iii)
of the definition of Tax Event above has occurred and is continuing and the
Issuer Trust is the holder of all of the Junior
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Subordinated Debentures, the Corporation will pay Additional Sums, if any (as
defined below), on the Junior Subordinated Debentures. "Additional Sums" means
the additional amounts as may be necessary in order that the amount of
Distributions then due and payable by the Issuer Trust on the outstanding
Capital Securities and Common Securities of the Issuer Trust will not be reduced
as a result of any additional taxes, duties and other governmental charges to
which the Issuer Trust has become subject as a result of a Tax Event.
REDEMPTION PROCEDURES
Capital Securities redeemed on each Redemption Date shall be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Junior Subordinated Debentures. Redemptions of the Capital
Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Issuer Trust has funds on hand
available for the payment of such Redemption Price. See also " -- Subordination
of Common Securities".
If the Property Trustee gives a notice of redemption in respect of the
Capital Securities, then, by 12:00 noon, New York City time, on the Redemption
Date, to the extent funds are available, in the case of Capital Securities held
in book-entry form, the Property Trustee will deposit irrevocably with DTC funds
sufficient to pay the applicable Redemption Price and will give DTC irrevocable
instructions and authority to pay the Redemption Price to the holders of
beneficial interests in the Capital Securities. See " -- Book Entry Issuance".
If the Capital Securities are no longer held in book-entry form, the Property
Trustee, to the extent funds are available, will irrevocably deposit with the
paying agent for the Capital Securities funds sufficient to pay the applicable
Redemption Price and will give such paying agent irrevocable instructions and
authority to pay the Redemption Price to the holders thereof upon surrender of
their certificates evidencing the Capital Securities. Notwithstanding the
foregoing, Distributions payable on or prior to the Redemption Date for any
Capital Securities called for redemption shall be payable to the holders of the
Capital Securities on the relevant record dates for the related Distribution
Dates. If notice of redemption shall have been given and funds deposited as
required, then upon the date of such deposit, all rights of the holders of such
Capital Securities so called for redemption will cease, except the right of the
holders of such Capital Securities to receive the Redemption Price, but without
interest on such Redemption Price, and such Capital Securities will cease to be
outstanding. If any date fixed for redemption of Capital Securities is not a
Business Day, then payment of the Redemption Price payable on such date will be
made on the next succeeding day which is a Business Day (without any interest or
other payment in respect of any such delay), except that, if such Business Day
falls in the next calendar year, such payment will be made on the immediately
preceding Business Day. In the event that payment of the Redemption Price in
respect of Capital Securities called for redemption is improperly withheld or
refused and not paid either by the Issuer Trust or by the Corporation pursuant
to the Guarantee as described under "Description of Guarantee," Distributions on
such Capital Securities will continue to accumulate at the then applicable rate,
from the Redemption Date originally established by the Issuer Trust for such
Capital Securities to the date such Redemption Price is actually paid, in which
case the actual payment date will be the date fixed for redemption for purposes
of calculating the Redemption Price.
Subject to applicable law (including, without limitation, the United States
federal securities laws), the Corporation or its subsidiaries may at any time
and from time to time purchase outstanding Capital Securities by tender, in the
open market or by private agreement.
If less than all of the Capital Securities and Common Securities are to be
redeemed on a Redemption Date, then the aggregate Liquidation Amount of such
Capital Securities and Common Securities to be redeemed shall be allocated pro
rata to the Capital Securities and the Common Securities based upon the relative
Liquidation Amounts of such classes. The particular Capital Securities to be
redeemed shall be selected on a pro rata basis not more than 60 days prior to
the Redemption Date by the Property Trustee from the outstanding Capital
Securities not previously called for redemption, by such method as the Property
Trustee shall deem fair and appropriate and which may provide for the selection
for redemption of portions (equal to $1,000 or an integral multiple of $1,000 in
excess thereof) of the Liquidation
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Amount of Capital Securities of a denomination larger than $1,000. The Property
Trustee shall promptly notify the securities registrar for the Trust Securities
in writing of the Capital Securities selected for redemption and, in the case of
any Capital Securities selected for partial redemption, the Liquidation Amount
thereof to be redeemed. For all purposes of the Trust Agreement, unless the
context otherwise requires, all provisions relating to the redemption of Capital
Securities shall relate, in the case of any Capital Securities redeemed or to be
redeemed only in part, to the portion of the aggregate Liquidation Amount of
Capital Securities which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each registered holder of Capital
Securities to be redeemed at its registered address. Unless the Corporation
defaults in payment of the Redemption Price on the Junior Subordinated
Debentures, on and after the Redemption Date interest will cease to accrue on
the Junior Subordinated Debentures or portions thereof (and, unless payment of
the Redemption Price in respect of the Capital Securities is withheld or refused
and not paid either by the Issuer Trust or the Corporation pursuant to the
Guarantee, Distributions will cease to accumulate on the Capital Securities or
portions thereof) called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Capital
Securities and Common Securities, as applicable, shall be made pro rata based on
the Liquidation Amount of such Capital Securities and Common Securities;
provided, however, that if on any Distribution Date or Redemption Date a
Debenture Event of Default has occurred and is continuing as a result of any
failure by the Corporation to pay amounts in respect of Junior Subordinated
Debentures when due, no payment of any Distribution on, or Redemption Price of,
any of the Common Securities, and no other payment on account of the redemption,
liquidation or other acquisition of such Common Securities, shall be made unless
payment in full in cash of all accumulated and unpaid Distributions on all of
the outstanding Capital Securities for all Distribution periods terminating on
or prior thereto, or in the case of payment of the Redemption Price the full
amount of such Redemption Price on all of the outstanding Capital Securities
then called for redemption, shall have been made or provided for, and all funds
available to the Property Trustee shall first be applied to the payment in full
in cash of all Distributions on, or Redemption Price of, the Capital Securities
then due and payable.
In the case of any Event of Default (as defined below) resulting from a
Debenture Event of Default, the Corporation as holder of the Common Securities
will be deemed to have waived any right to act with respect to any such Event of
Default under the Trust Agreement until the effect of all such Events of Default
with respect to such Capital Securities have been cured, waived or otherwise
eliminated. See " -- Events of Default; Notice" and "Description of Junior
Subordinated Debentures -- Debenture Events of Default". Until any such Events
of Default under the Trust Agreement with respect to the Capital Securities have
been so cured, waived or otherwise eliminated, the Property Trustee will act
solely on behalf of the holders of such Capital Securities and not on behalf of
the holders of the Common Securities, and only the holders of such Capital
Securities will have the right to direct the Property Trustee to act on their
behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
The amount payable on the Capital Securities in the event of any
liquidation of the Issuer Trust is $1,000 per Capital Security plus accumulated
and unpaid Distributions, subject to certain exceptions, which may be in the
form of a distribution of such amount in Junior Subordinated Debentures.
The Corporation, as Depositor, has the right at any time to dissolve the
Issuer Trust and, after satisfaction of liabilities to creditors of the Issuer
Trust as provided by applicable law, cause the Junior Subordinated Debentures to
be distributed to the holders of the Capital Securities and Common Securities in
liquidation of the Issuer Trust. The Corporation has committed to the Reserve
Bank that, so long as the Corporation (or an affiliate) is a holder of Common
Securities, the Corporation will not
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exercise its right to dissolve the Issuer Trust without having the prior
approval of the Federal Reserve to do so, if then required under applicable
Federal Reserve capital guidelines or policies.
Pursuant to the Trust Agreement, the Issuer Trust will automatically
dissolve upon expiration of its term or, if earlier, will dissolve on the first
to occur of: (i) certain events of bankruptcy, dissolution or liquidation of the
Corporation as the holder of the Common Securities; (ii) the distribution of a
Like Amount of the Junior Subordinated Debentures to the holders of the Trust
Securities, if the Corporation, as Depositor, has given written direction to the
Property Trustee to dissolve the Issuer Trust (which direction, subject to the
foregoing restrictions, is optional and wholly within the discretion of the
Corporation); (iii) redemption of all of the Capital Securities as described
under " -- Redemption"; or (iv) the entry of an order for the dissolution of the
Issuer Trust by a court of competent jurisdiction.
If dissolution of the Issuer Trust occurs as described in clause (i), (ii)
or (iv) above, the Issuer Trust will be liquidated by the Property Trustee as
expeditiously as the Property Trustee determines to be possible by distributing,
after satisfaction of liabilities to creditors of the Issuer Trust as provided
by applicable law, to the holders of such Trust Securities a Like Amount of the
Junior Subordinated Debentures, unless such distribution is determined by the
Property Trustee not to be practical, in which event such holders will be
entitled to receive out of the assets of the Issuer Trust available for
distribution to holders, after satisfaction of liabilities to creditors of the
Issuer Trust as provided by applicable law, an amount equal to, in the case of
holders of Capital Securities, the aggregate of the Liquidation Amount plus
accumulated and unpaid Distributions thereon to the date of payment (such amount
being the "Liquidation Distribution"). If such Liquidation Distribution can be
paid only in part because the Issuer Trust has insufficient assets available to
pay in full the aggregate Liquidation Distribution, then the amounts payable
directly by the Issuer Trust on its Capital Securities shall be paid on a pro
rata basis. Notwithstanding the foregoing sentence, the holder(s) of the Common
Securities will be entitled to receive distributions upon any such liquidation
pro rata with the holders of the Capital Securities, except that if a Debenture
Event of Default has occurred and is continuing as a result of any failure by
the Corporation to pay any amount in respect of Junior Subordinated Debentures
when due, the Capital Securities shall have a priority over the Common
Securities.
After the liquidation date fixed for any distribution of Junior
Subordinated Debentures (i) the Capital Securities will no longer be deemed to
be outstanding, (ii) DTC or its nominee, as the registered holder of the Capital
Securities, will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution with respect to Capital Securities held by DTC or its nominee and
(iii) any certificates representing the Capital Securities not held by DTC or
its nominee will be deemed to represent the Junior Subordinated Debentures
having a principal amount equal to the stated Liquidation Amount of the Capital
Securities and bearing accrued and unpaid interest in an amount equal to the
accumulated and unpaid Distributions on the Capital Securities until such
certificates are presented for transfer or reissuance to the securities
registrar for the Trust Securities.
If the Corporation does not redeem the Junior Subordinated Debentures prior
to maturity and the Issuer Trust is not liquidated and the Junior Subordinated
Debentures are not distributed to holders of the Capital Securities, the Capital
Securities will remain outstanding until the repayment of the Junior
Subordinated Debentures and the distribution of the Liquidation Distribution to
the holders of the Capital Securities.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under the
Trust Agreement (an "Event of Default") with respect to the Capital Securities
(whatever the reason for such Event of Default and whether it is voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default under the Indenture
(see "Description of Junior Subordinated Debentures -- Debenture Events of
Default"); or
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(ii) default by the Issuer Trust in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a
period of 30 days; or
(iii) default by the Issuer Trust in the payment of any Redemption
Price of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect,
of any covenant or warranty of the Issuer Trustees in the Trust Agreement
(other than a covenant or warranty a default in the performance of which or
the breach of which is dealt with in clause (ii) or (iii) above), and
continuation of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the Issuer Trustees and
the Corporation by the holders of at least 25% in aggregate Liquidation
Amount of the outstanding Capital Securities, a written notice specifying
such default or breach and requiring it to be remedied and stating that
such notice is a "Notice of Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee if a successor Property Trustee has not
been appointed within 90 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of Trust Securities and the
Administrative Trustees, unless such Event of Default has been cured or waived.
The Corporation, as Depositor, and the Administrative Trustees are required to
file annually with the Property Trustee a certificate as to whether or not they
are in compliance with all the conditions and covenants applicable to them under
the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing as a result
of any failure by the Corporation to pay any amount in respect of Junior
Subordinated Debentures when due, the Capital Securities will have a preference
over the Common Securities with respect to payments of any amounts in respect of
Capital Securities. See " -- Subordination of Common Securities,"
" -- Liquidation Distribution upon Termination" and "Description of Junior
Subordinated Debentures -- Debenture Events of Default".
The existence of an Event of Default does not entitle the holders of
Capital Securities to accelerate the maturity thereof.
REMOVAL OF ISSUER TRUSTEES
Unless a Debenture Event of Default has occurred and is continuing, an
Issuer Trustee may be removed at any time by the holder of the Common
Securities. If a Debenture Event of Default has occurred and is continuing, the
Property Trustee and the Delaware Trustee may be removed at such time by the
holders of a majority in Liquidation Amount of the outstanding Capital
Securities. In no event will the holders of the Capital Securities have the
right to vote to appoint, remove or replace the Administrative Trustees, which
voting rights are vested exclusively in the Corporation as the holder of the
Common Securities. No resignation or removal of an Issuer Trustee and no
appointment of a successor trustee shall be effective until the acceptance of
appointment by the successor trustee in accordance with the provisions of the
Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default shall have occurred and be continuing, at any
time or from time to time, for the purpose of meeting the legal requirements of
the Trust Indenture Act or of any jurisdiction in which any part of the Trust
Property may at the time be located, the Corporation, as the holder of the
Common Securities, and the Administrative Trustees shall have the power to
appoint one or more persons either to act as a co-trustee, jointly with the
Property Trustee, of all or any part of such Trust Property, or to act as
separate trustee of any such property, in either case with such powers as may be
provided in the instrument of appointment, and to vest in such person or persons
in such capacity any property, title, right or power deemed necessary or
desirable, subject to the provisions of the applicable Trust
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Agreement. In case a Debenture Event of Default has occurred and is continuing,
the Property Trustee alone shall have the power to make such appointment.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any entity into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any entity resulting from any merger,
conversion or consolidation to which such Issuer Trustee is a party, or any
entity succeeding to all or substantially all the corporate trust business of
such Issuer Trustee, will be the successor of such Issuer Trustee under the
Trust Agreement, provided such entity is otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE ISSUER TRUST
The Issuer Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any entity, except as described below or as
otherwise set forth in the Trust Agreement. The Issuer Trust may, at the request
of the holders of the Common Securities and with the consent of the holders of
at least a majority in Liquidation Amount of the outstanding Capital Securities,
merge with or into, consolidate, amalgamate, or be replaced by or convey,
transfer or lease its properties and assets substantially as an entirety to a
trust organized as such under the laws of any State, so long as (i) such
successor entity either (a) expressly assumes all of the obligations of the
Issuer Trust with respect to the Capital Securities or (b) substitutes for the
Capital Securities other securities having substantially the same terms as the
Capital Securities (the "Successor Securities") so long as the Successor
Securities have the same priority as the Capital Securities with respect to
distributions and payments upon liquidation, redemption and otherwise; (ii) a
trustee of such successor entity, possessing the same powers and duties as the
Property Trustee, is appointed to hold the Junior Subordinated Debentures; (iii)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not cause the Capital Securities (including any Successor Securities)
to be downgraded by any nationally recognized statistical rating organization;
(iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer
or lease does not adversely affect the rights, preferences and privileges of the
holders of the Capital Securities (including any Successor Securities) in any
material respect; (v) such successor entity has a purpose substantially
identical to that of the Issuer Trust; (vi) prior to such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Issuer Trust has
received an opinion from independent counsel experienced in such matters to the
effect that (A) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the Capital Securities (including any Successor
Securities) in any material respect and (B) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, neither
the Issuer Trust nor such successor entity will be required to register as an
investment company under the Investment Company Act of 1940, as amended (the
"Investment Company Act"); and (vii) the Corporation or any permitted successor
or assignee owns all of the common securities of such successor entity and
guarantees the obligations of such successor entity under the Successor
Securities at least to the extent provided by the Guarantee. Notwithstanding the
foregoing, the Issuer Trust may not, except with the consent of holders of 100%
in Liquidation Amount of the Capital Securities, consolidate, amalgamate, merge
with or into, or be replaced by or convey, transfer or lease its properties and
assets substantially as an entirety to any other entity or permit any other
entity to consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger, replacement, conveyance, transfer or lease
would cause the Issuer Trust or the successor entity to be classified as an
association taxable as a corporation or as other than a grantor trust for United
States federal income tax purposes.
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VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under "Description of Guarantee--Amendments
and Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Capital Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the holders of a
majority of the Common Securities and the Property Trustee, without the consent
of the holders of the Capital Securities (i) to cure any ambiguity, correct or
supplement any provisions in the Trust Agreement that may be inconsistent with
any other provision, or to make any other provisions with respect to matters or
questions arising under the Trust Agreement, which are not inconsistent with the
other provisions of the Trust Agreement, provided that any such amendment shall
not adversely affect the interests of holders of Trust Securities in any
material respect, or (ii) to modify, eliminate or add to any provisions of the
Trust Agreement to such extent as may be necessary to ensure that the Issuer
Trust will not be classified for United States federal income tax purposes as an
association taxable as a corporation or will be classified as a grantor trust at
any time that any Trust Securities are outstanding or to ensure that the Issuer
Trust will not be required to register as an "investment company" under the
Investment Company Act; provided, that any such action does not adversely affect
in any material respect the interests of any holder of Trust Securities, and any
such amendments of the Trust Agreement will become effective when notice of such
amendments is given to the holders of Trust Securities. The Trust Agreement may
be amended by the holders of a majority of the Common Securities and the
Property Trustee with (i) the consent of holders representing not less than a
majority in aggregate Liquidation Amount of the outstanding Capital Securities
and (ii) receipt by the Issuer Trustees of an opinion of counsel to the effect
that such amendment or the exercise of any power granted to the Issuer Trustees
in accordance with such amendment will not affect the Issuer Trust's not being
an association that is taxable as a corporation or being a grantor trust for
United States federal income tax purposes or the Issuer Trust's exemption from
status as an "investment company" under the Investment Company Act, except that
without the consent of each holder of Trust Securities, the Trust Agreement may
not be amended to (i) change the amount or timing of any Distribution on the
Trust Securities or otherwise adversely affect the amount of any Distribution
required to be made in respect of the Trust Securities as of a specified date or
(ii) restrict the right of a holder of Trust Securities to institute suit for
the enforcement of any such payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Issuer Trust,
the Issuer Trustees will not (i) direct the time, method and place of conducting
any proceeding for any remedy available to the Debenture Trustee, or execute any
trust or power conferred on the Property Trustee with respect to the Junior
Subordinated Debentures, (ii) waive any past default that is waivable under the
Indenture, (iii) exercise any right to rescind or annul a declaration that the
principal of all the Junior Subordinated Debentures shall be due and payable or
(iv) consent to any amendment, modification or termination of the Indenture or
the Junior Subordinated Debentures, where such consent shall be required,
without, in each case, obtaining the prior approval of the holders of at least a
majority in aggregate Liquidation Amount of the outstanding Capital Securities,
except that if a consent under the Indenture would require the consent of each
holder of Junior Subordinated Debentures affected thereby, no such consent will
be given by the Property Trustee without the prior consent of each holder of the
Capital Securities. The Issuer Trustees may not revoke any action previously
authorized or approved by a vote of the holders of the Capital Securities except
by subsequent vote of the holders of the Capital Securities. The Property
Trustee will notify each holder of Capital Securities of any notice of default
with respect to the Junior Subordinated Debentures. In addition to obtaining the
foregoing approvals of the holders of the Capital Securities, before taking any
of the foregoing actions, the Property Trustee will obtain an opinion of counsel
experienced in such matters to the effect that the Issuer Trust will not be
classified as an association taxable as a corporation or as other than a grantor
trust for United States federal income tax purposes on account of such action.
Any required approval of holders of Capital Securities may be given at a
meeting of holders of Capital Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a
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notice of any meeting at which holders of Capital Securities are entitled to
vote, or of any matter upon which action by written consent of such holders is
to be taken, to be given to each registered holder of Capital Securities in the
manner set forth in the Trust Agreement.
No vote or consent of the holders of Capital Securities will be required to
redeem and cancel Capital Securities in accordance with the Trust Agreement.
Notwithstanding that holders of Capital Securities are entitled to vote or
consent under any of the circumstances described above, any of the Capital
Securities that are owned by the Corporation, the Issuer Trustees or any
affiliate of the Corporation or any Issuer Trustees, will, for purposes of such
vote or consent, be treated as if they were not outstanding.
BOOK ENTRY ISSUANCE
DTC will act as securities depositary for all of the Capital Securities.
The Capital Securities will be issued initially as fully-registered securities
registered in the name of Cede & Co. (DTC's nominee). One or more
fully-registered global certificates will be issued for the Capital Securities,
representing in the aggregate the total number of Capital Securities, and will
be deposited with DTC.
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code, and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC holds
securities that its participants ("Participants") deposit with DTC. DTC also
facilitates the settlement among Participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc. and the National Association of
Securities Dealers, Inc. Access to the DTC system is also available to others
such as securities brokers and dealers, banks and trust companies that clear
through or maintain custodial relationships with Direct Participants, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the Commission.
Purchases of Capital Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Capital
Securities on DTC's records. The ownership interest of each actual purchaser of
each Capital Security ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the transactions,
as well as periodic statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased Capital Securities.
Transfers of ownership interests in the Capital Securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in Capital Securities, except in the event that use of
the book-entry system for the Capital Securities of the Trust is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the Capital
Securities; DTC's records reflect only the identity of the Direct Participants
to whose accounts such Capital Securities are credited, which may or may not be
the Beneficial Owners. The Participants will remain responsible for keeping
account of their holdings on behalf of their customers.
Redemption notices shall be sent to Cede & Co. as the registered holder of
the Capital Securities. If less than all of the Capital Securities are being
redeemed, DTC's current practice is to determine by lot the amount of the
interest of each Direct Participant to be redeemed.
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Although voting with respect to the Capital Securities is limited to the
holders of record of the Capital Securities, in those instances in which a vote
is required, neither DTC nor Cede & Co. will itself consent or vote with respect
to Capital Securities. Under its usual procedures, DTC would mail an omnibus
proxy (the "Omnibus Proxy") to the Property Trustee as soon as possible after
the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting
rights to those Direct Participants to whose accounts such Capital Securities
are credited on the record date (identified in a listing attached to the Omnibus
Proxy).
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners and the voting
rights of Direct Participants, Indirect Participants and Beneficial Owners will
be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Distribution payments on the Capital Securities will be made by the
Property Trustee to DTC. DTC's practice is to credit Direct Participants'
accounts on the relevant payment date in accordance with their respective
holdings shown on DTC's records, unless DTC has reason to believe that it will
not receive payments on such payment date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices and will be the responsibility of such Participant and not of DTC, the
Property Trustee, the Issuer Trust or the Corporation, subject to any statutory
or regulatory requirements as may be in effect from time to time. Payment of
Distributions to DTC is the responsibility of the Property Trustee, disbursement
of such payments to Direct Participants is the responsibility of DTC, and
disbursements of such payments to the Beneficial Owners is the responsibility of
Direct and Indirect Participants.
DTC may discontinue providing its services as securities depositary with
respect to any of the Capital Securities at any time by giving reasonable notice
to the Property Trustee and the Corporation. In the event that a successor
securities depositary is not obtained, definitive Capital Securities
certificates representing such Capital Securities are required to be printed and
delivered. The Corporation, at its option, may decide to discontinue use of the
system of book-entry transfers through DTC (or a successor depositary). After a
Debenture Event of Default, the holders of a majority in liquidation preference
of Capital Securities may determine to discontinue the system of book-entry
transfers through DTC. In any such event, definitive certificates for the
Capital Securities will be printed and delivered. Except as provided herein, a
Beneficial Owner of an interest in a global Capital Securities certificate will
not be entitled to receive physical delivery of Capital Securities. Accordingly,
each Beneficial Owner must rely on the procedures of DTC to exercise any rights
under the Capital Securities.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Issuer Trust or the Corporation believe
to be accurate, but the Issuer Trust and the Corporation assume no
responsibility for the accuracy thereof. None of the Issuer Trustees, the Issuer
Trust or the Corporation has any responsibility for the performance by DTC or
its Participants of their respective obligations as described herein or under
the rules and procedures governing their respective operations.
PAYMENT AND PAYING AGENCY
Payments in respect of the Capital Securities will be made to DTC, which
will credit the relevant accounts at DTC on the applicable Distribution Dates
or, if the Issuer Trust's Capital Securities are not held by DTC, such payments
will be made by check mailed to the address of the holder entitled thereto as
such address appears on the Register. The paying agent (the "Paying Agent") will
initially be the Property Trustee and any co-paying agent chosen by the Property
Trustee and acceptable to the Administrative Trustees. The Paying Agent will be
permitted to resign as Paying Agent upon 30 days' written notice to the Property
Trustee and the Administrative Trustees. If the Property Trustee is no longer
the Paying Agent, the Property Trustee will appoint a successor (which must be a
bank or trust company reasonably acceptable to the Administrative Trustees) to
act as Paying Agent.
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REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Capital Securities.
Registration of transfers of Capital Securities will be effected without
charge by or on behalf of the Issuer Trust, but only upon payment of any tax or
other governmental charges that may be imposed in connection with any transfer
or exchange. The Issuer Trust will not be required to register or cause to be
registered the transfer of its Capital Securities after such Capital Securities
have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of
an Event of Default, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, after such Event of Default, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the Property
Trustee is under no obligation to exercise any of the powers vested in it by the
Trust Agreement at the request of any holder of Capital Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby. If no Event of Default has occurred and is continuing
and the Property Trustee is required to decide between alternative courses of
action, or construe ambiguous provisions in the Trust Agreement, or is unsure of
the application of any provision of the Trust Agreement, and the matter is not
one on which holders of Capital Securities are entitled under the Trust
Agreement to vote, then the Property Trustee will take such action as it deems
advisable and in the best interests of the holders of the Trust Securities and
will have no liability except for its own bad faith, negligence or willful
misconduct.
For information concerning the relationships between Bankers Trust Company,
the Property Trustee, and the Corporation, see "Description of Junior
Subordinated Debentures--Information Concerning the Debenture Trustee".
GOVERNING LAW
The Trust Agreement and the Trust Securities will be governed by and
construed in accordance with the laws of the State of Delaware.
MISCELLANEOUS
The Administrative Trustees and the Property Trustee are authorized and
directed to conduct the affairs of and to operate the Issuer Trust in such a way
that the Issuer Trust will not be deemed to be an "investment company" required
to be registered under the Investment Company Act or taxable as a corporation
for United States federal income tax purposes and so that the Junior
Subordinated Debentures will be treated as indebtedness of the Corporation for
United States federal income tax purposes. In this connection, the Property
Trustee and the holders of Common Securities are authorized to take any action,
not inconsistent with applicable law, the certificate of trust of the Issuer
Trust or the Trust Agreement, that the Property Trustee and the holders of
Common Securities determine in their discretion to be necessary or desirable for
such purposes, as long as such action does not materially adversely affect the
interests of the holders of the Capital Securities.
Holders of Capital Securities have no preemptive or similar rights.
The Issuer Trust may not borrow money or issue debt or mortgage or pledge
any of its assets.
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DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under the Indenture,
under which Bankers Trust Company is acting as Debenture Trustee. This summary
of certain material terms and provisions of the Junior Subordinated Debentures
and the Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Indenture,
including the definitions therein of certain terms. Whenever particular defined
terms of the Indenture (as amended or supplemented from time to time) are
referred to herein, such defined terms are incorporated herein by reference. A
copy of the form of Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.
GENERAL
Concurrently with the issuance of the Capital Securities, the Issuer Trust
will invest the proceeds thereof, together with the consideration paid by the
Corporation for the Common Securities, in the Junior Subordinated Debentures
issued by the Corporation. The Junior Subordinated Debentures will bear
interest, accruing from the date of initial issuance, at the Interest Rate (as
defined below) applied to the principal amount thereof, payable quarterly in
arrears on October 1, January 1, April 1 and July 1 of each year (each, an
"Interest Payment Date"), commencing October 1, 1998, to the person in whose
name each Junior Subordinated Debenture is registered at the close of business
on the fifteenth day next preceding such Interest Payment Date. It is
anticipated that, until the liquidation, if any, of the Issuer Trust, each
Junior Subordinated Debenture will be held in the name of the Property Trustee
in trust for the benefit of the holders of the Trust Securities. The period
beginning on, and including, October 1, 1998, and ending on, but excluding, the
first Interest Payment Date and each successive period beginning on, and
including, an Interest Payment Date and ending on, but excluding, the next
succeeding Interest Payment Date is herein called an "Interest Period". The
Interest Rate and the amount of interest payable in respect of each Interest
Period will be calculated by Goldman, Sachs & Co. or its successor in this
capacity, in the same manner as the Distribution Rate and Distribution Amount in
respect of each Distribution Period, as described under "Description of Capital
Securities -- Distributions". If any date on which interest is payable on the
Junior Subordinated Debentures is not a Business Day, then payment of the
interest payable on such date will be made on the next succeeding day that is a
Business Day (without any interest or other payment in respect of any such
delay), with the same force and effect as if made on the date such payment was
originally payable. Accrued interest that is not paid on the applicable Interest
Payment Date will bear additional interest on the amount thereof (to the extent
permitted by law) at the Interest Rate calculated as set forth above compounded
quarterly. The amount of additional interest payable for any full interest
period will be computed by dividing the rate per annum by four. The term
"interest" as used herein includes quarterly interest payments, interest on
quarterly interest payments not paid on the applicable Interest Payment Date and
Additional Sums (as defined below), as applicable.
The Junior Subordinated Debentures will mature on the Stated Maturity date,
July 1, 2028.
The Junior Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior Indebtedness of the
Corporation. Because the Corporation is a holding company, the right of the
Corporation to participate in any distribution of assets of any subsidiary,
including the Corporation's bank and nonbank subsidiaries upon such subsidiary's
dissolution, winding-up, liquidation or reorganization or otherwise (and thus
the ability of holders of the Junior Subordinated Debentures to benefit
indirectly from such distribution), is subject to the prior claims of creditors
of that subsidiary, except to the extent that the Corporation may itself be a
creditor of that subsidiary and its claims are recognized. There are various
legal limitations on the extent to which certain of the Corporation's
subsidiaries may extend credit, pay dividends or otherwise supply funds to the
Corporation or certain of its other subsidiaries. Accordingly, the Junior
Subordinated Debentures will be effectively subordinated to all existing and
future liabilities of the Corporation's subsidiaries, and holders of Junior
Subordinated Debentures should look only to the assets of the Corporation for
payments on the Junior Subordinated Debentures. See "KeyCorp". The Indenture
does not limit the incurrence or issuance of
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other secured or unsecured debt by the Corporation, including Senior
Indebtedness, whether under the Indenture or any existing or other indenture
that the Corporation may enter into in the future or otherwise. See
"--Subordination".
Under certain circumstances involving the dissolution of the Issuer Trust
following the occurrence of a Tax Event or a Capital Treatment Event, Junior
Subordinated Debentures may be distributed to the holders of the Trust
Securities in liquidation of the Issuer Trust. See "Description of Capital
Securities--Redemption" and "--Distribution of Junior Subordinated Debentures".
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default has occurred and is continuing,
the Corporation has the right at any time during the term of the Junior
Subordinated Debentures to defer the payment of interest at any time or from
time to time for a period not exceeding 20 consecutive quarterly periods with
respect to each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity. At the end of such Extension Period, the Corporation
must pay all interest then accrued and unpaid (together with interest thereon at
the Interest Rate, compounded quarterly and calculated as described under
"--General" above, to the extent permitted by applicable law). The amount of
additional interest payable for any full interest period will be computed by
dividing the rate per annum by four. During an Extension Period, interest will
continue to accrue and holders of Junior Subordinated Debentures (or holders of
Capital Securities while outstanding) will be required to accrue interest income
for United States federal income tax purposes. See "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue Discount".
During any such Extension Period, the Corporation may not (i) declare or
pay any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Corporation's capital stock or
(ii) make any payment of principal of or interest or premium, if any, on or
repay, repurchase or redeem any debt securities of the Corporation that rank
pari passu in all respects with or junior in interest to the Junior Subordinated
Debentures, including, without limitation, the 7.826% Junior Subordinated
Debentures, the 8.25% Junior Subordinated Debentures and the CAPS Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Corporation in connection with any employment contract,
benefit plan or other similar arrangement with or for the benefit of any one or
more employees, officers, directors or consultants, in connection with a
dividend reinvestment or shareholder stock purchase plan or in connection with
the issuance of capital stock of the Corporation (or securities convertible into
or exercisable for such stock) as consideration in an acquisition transaction
entered into prior to the Extension Period, (b) as a result of an exchange or
conversion of any class or series of the Corporation's capital stock for any
other class or series of the Corporation's capital stock or of any class or
series of the Corporation's indebtedness for any class or series of the
Corporation's capital stock, (c) the purchase of fractional interests in shares
of the Corporation's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(d) any declaration of a dividend in connection with the implementation or
amendment of the Corporation's shareholders' rights plan (or any successor
thereto), or the issuance of rights, stock or other property under any such
rights plan, or the redemption or repurchase of rights pursuant thereto, or (e)
any dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock). Prior to the termination of any
such Extension Period, the Corporation may further defer the payment of
interest, provided that no Extension Period may exceed 20 consecutive quarterly
periods or extend beyond the Stated Maturity of the Junior Subordinated
Debentures. Upon the termination of any such Extension Period and the payment of
all amounts then due, the Corporation may elect to begin a new Extension Period
subject to the above conditions. No interest shall be due and payable during an
Extension Period, except at the end thereof. The Corporation must give the
Issuer Trustees notice of its election of such Extension Period at least one
Business Day prior to the earlier of (i) the date the Distributions on the
Capital Securities would have been payable but for the election to begin such
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Extension Period and (ii) the date the Property Trustee is required to give
notice to holders of the Capital Securities of the record date or the date such
Distributions are payable, but in any event not less than one Business Day prior
to such record date. The Property Trustee will give notice of the Corporation's
election to begin a new Extension Period to the holders of the Capital
Securities. There is no limitation on the number of times that the Corporation
may elect to begin an Extension Period.
REDEMPTION
The Junior Subordinated Debentures are redeemable prior to the Stated
Maturity at the option of the Corporation (i) on or after July 1, 2008, in whole
at any time or in part from time to time, or (ii) in whole (but not in part) at
any time within 90 days following the occurrence and during the continuation of
a Tax Event or Capital Treatment Event (each as defined under "Description of
Capital Securities -- Redemption"), in each case at the Redemption Price equal
to 100% of the principal amount to be redeemed plus accrued and unpaid interest
thereon to the date of redemption. The proceeds of any such redemption will be
used by the Issuer Trust to redeem the Capital Securities. The Corporation has
committed to the Reserve Bank that it will not cause any such redemption without
having the prior approval of the Federal Reserve to do so, if then required
under applicable Federal Reserve capital guidelines or policies.
ADDITIONAL SUMS
The Corporation has covenanted in the Indenture that, if and for so long as
(i) the Issuer Trust is the holder of all Junior Subordinated Debentures and
(ii) the Issuer Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, the Corporation will pay as
additional sums on the Junior Subordinated Debentures such amounts as may be
required so that the Distributions payable by the Issuer Trust will not be
reduced as a result of any such additional taxes, duties or other governmental
charges. See "Description of Capital Securities -- Redemption".
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES
As described under "Description of Capital Securities -- Liquidation
Distribution upon Termination," under certain circumstances involving the
dissolution of the Issuer Trust, Junior Subordinated Debentures may be
distributed to the holders of the Capital Securities in exchange therefor upon
liquidation of the Issuer Trust after satisfaction of liabilities to creditors
of the Issuer Trust as provided by applicable law. If distributed to holders of
Capital Securities, the Junior Subordinated Debentures will initially be issued
in the form of one or more global securities and DTC, or any successor
depositary for the Capital Securities, will act as depositary for the Junior
Subordinated Debentures. It is anticipated that the depositary arrangements for
the Junior Subordinated Debentures would be substantially identical to those in
effect for the Capital Securities. If Junior Subordinated Debentures are
distributed to the holders of Capital Securities in exchange therefor upon
liquidation of the Issuer Trust, the Corporation will use its best efforts to
include the Junior Subordinated Debentures on such stock exchanges or automated
quotation system, if any, on which the Capital Securities are then listed or
quoted. There can be no assurance as to the market price of any Junior
Subordinated Debentures that may be distributed to the holders of Capital
Securities.
REGISTRATION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures will be represented by global
certificates registered in the name of DTC or its nominee. Beneficial interests
in the Junior Subordinated Debentures will be shown on, and transfers thereof
will be effected only through, records maintained by Participants in DTC. Except
as contemplated in this Prospectus, Junior Subordinated Debentures in
certificated form will not be issued in exchange for the global certificates.
A global security shall be exchangeable for Junior Subordinated Debentures
registered in the names of persons other than DTC or its nominee only if (i) DTC
notifies the Corporation that it is unwilling or
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unable to continue as a depositary for such global security and no successor
depositary shall have been appointed, or if at any time DTC ceases to be a
clearing agency registered under the Exchange Act, at a time when DTC is
required to be so registered to act as such depositary, (ii) the Corporation in
its sole discretion determines that such global security shall be so
exchangeable, or (iii) there shall have occurred and be continuing an event of
default under the Indenture with respect to the Junior Subordinated Debentures.
Any global security that is exchangeable pursuant to the preceding sentence
shall be exchangeable for definitive certificates registered in such names as
DTC shall direct. It is expected that such instructions will be based upon
directions received by DTC from its Participants with respect to ownership of
beneficial interests in such global security. In the event that Junior
Subordinated Debentures are issued in definitive form, such Junior Subordinated
Debentures will be in denominations of $1,000 and integral multiples thereof and
may be transferred or exchanged at the offices described below.
Payments on Junior Subordinated Debentures represented by a global security
will be made to DTC, as the depositary for the Junior Subordinated Debentures.
In the event Junior Subordinated Debentures are issued in certificated form,
principal and interest will be payable, the transfer of the Junior Subordinated
Debentures will be registrable, and Junior Subordinated Debentures will be
exchangeable for Junior Subordinated Debentures of other denominations of a like
aggregate principal amount, at the corporate office of the Debenture Trustee in
New York, New York, or at the offices of any paying agent or transfer agent
appointed by the Corporation, provided that payment of interest may be made at
the option of the Corporation by check mailed to the address of the persons
entitled thereto or by wire transfer. In addition, if the Junior Subordinated
Debentures are issued in certificated form, the record dates for payment of
interest will be the 15th day of the last month of each semi-annual period. For
a description of DTC and the terms of the depositary arrangements relating to
payments, transfers, voting rights, redemptions and other notices and other
matters, see "Description of Capital Securities -- Book Entry Issuance".
RESTRICTIONS ON CERTAIN PAYMENTS; CERTAIN COVENANTS OF THE CORPORATION
The Corporation has covenanted that it will not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Corporation's capital stock or
(ii) make any payment of principal of or interest or premium, if any, on or
repay, repurchase or redeem any debt securities of the Corporation that rank
pari passu in all respects with or junior in interest to the Junior Subordinated
Debentures, including, without limitation, the 7.826% Junior Subordinated
Debentures, the 8.25% Junior Subordinated Debentures and the CAPS Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Corporation in connection with any employment contract,
benefit plan or other similar arrangement with or for the benefit of any one or
more employees, officers, directors or consultants, in connection with a
dividend reinvestment or shareholder stock purchase plan or in connection with
the issuance of capital stock of the Corporation (or securities convertible into
or exercisable for such stock) as consideration in an acquisition transaction
theretofore entered into prior to the Extension Period, (b) as a result of an
exchange or conversion of any class or series of the Corporation's capital stock
for any other class or series of the Corporation's capital stock or of any class
or series of the Corporation's indebtedness for any class or series of the
Corporation's capital stock, (c) the purchase of fractional interests in shares
of the Corporation's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(d) any declaration of a dividend in connection with the implementation or
amendment of the Corporation's shareholder rights plan (or any successor
thereto), or the issuance of rights, stock or other property under any such
rights plan, or the redemption or repurchase of rights pursuant thereto, or (e)
any dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock), if at such time (i) there has
occurred any event of which the Corporation has actual knowledge that (a) with
the giving of notice or the lapse of time, or both, would constitute an "Event
of Default" under the Indenture with respect to the Junior Subordinated
Debentures of such series and
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(b) that the Corporation has not taken reasonable steps to cure, (ii) if such
Junior Subordinated Debentures are held by the Issuer Trust, the Corporation is
in default with respect to its payment of any obligations under the Guarantee or
(iii) the Corporation has given notice of its selection of an Extension Period
as provided in the Indenture with respect to the Junior Subordinated Debentures
and has not rescinded such notice, or such Extension Period, or any extension
thereof, is continuing.
The Corporation has covenanted in the Indenture (i) to continue to hold
directly or indirectly 100% of the Common Securities of the Issuer Trust,
provided that certain successors that are permitted pursuant to the Indenture
may succeed to the Corporation's ownership of the Common Securities, (ii) as
holder of the Common Securities, not to voluntarily terminate or liquidate the
Issuer Trust, except (a) in connection with a distribution of Junior
Subordinated Debentures to the holders of the Capital Securities in liquidation
of the Issuer Trust or (b) in connection with certain mergers, consolidations or
amalgamations permitted by the Trust Agreement and (iii) to use its reasonable
efforts, consistent with the terms and provisions of the Trust Agreement, to
cause the Issuer Trust to be classified as not an association taxable as a
corporation and as a grantor trust for United States federal income tax
purposes. In addition, the Corporation has committed to the Reserve Bank that,
so long as the Corporation is the holder of the Common Securities, the
Corporation will not voluntarily terminate or liquidate the Issuer Trust without
having the prior approval of the Federal Reserve to do so, if then required
under applicable Federal Reserve capital guidelines or policies.
MODIFICATION OF INDENTURE
From time to time the Corporation and the Debenture Trustee may, without
the consent of the holders of the Junior Subordinated Debentures, amend, waive
or supplement the provisions of the Indenture for specified purposes, including,
among other things, curing ambiguities, defects or inconsistencies (provided
that any such action does not materially adversely affect the interest of the
holders of the Junior Subordinated Debentures or the holders of the Capital
Securities so long as they remain outstanding) and qualifying, or maintaining
the qualification of, the Indenture under the Trust Indenture Act. The Indenture
contains provisions permitting the Corporation and the Debenture Trustee, with
the consent of the holders of not less than a majority in principal amount of
the Junior Subordinated Debentures, to modify the Indenture in a manner
affecting the rights of the holders of the Junior Subordinated Debentures,
except that no such modification may, without the consent of the holder of each
outstanding Junior Subordinated Debenture so affected, (i) change the Stated
Maturity of the Junior Subordinated Debentures, or reduce the principal amount
thereof, the rate of interest thereon or any premium payable upon the redemption
thereof, or change the place of payment where, or the currency in which, any
such amount is payable or impair the right to institute suit for the enforcement
of any Junior Subordinated Debenture or (ii) reduce the percentage of principal
amount of Junior Subordinated Debentures the holders of which are required to
consent to any such modification of the Indenture. Furthermore, so long as any
of the Capital Securities remain outstanding, no such modification may be made
that adversely affects the holders of such Capital Securities in any material
respect, and no termination of the Indenture may occur, and no waiver of any
Debenture Event of Default or compliance with any covenant under the Indenture
may be effective, without the prior consent of the holders of at least a
majority of the aggregate Liquidation Amount of the outstanding Capital
Securities unless and until the principal of the Junior Subordinated Debentures
and all accrued and unpaid interest thereon have been paid in full and certain
other conditions are satisfied.
DEBENTURE EVENTS OF DEFAULT
As defined in the Indenture, any one or more of the following described
events with respect to the Junior Subordinated Debentures that has occurred and
is continuing constitutes an "Event of Default" with respect to the Junior
Subordinated Debentures:
(i) failure for 30 days to pay any interest on such Junior
Subordinated Debentures, when due (subject to the deferral of any due date
in the case of an Extension Period); or
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(ii) failure to pay any principal of or premium, if any, on the Junior
Subordinated Debentures when due whether at maturity, upon redemption, by
declaration of acceleration or otherwise; or
(iii) failure to observe or perform in any material respect certain
other covenants contained in the Indenture for 90 days after written notice
to the Corporation from the Debenture Trustee or the holders of at least
25% in aggregate outstanding principal amount of the outstanding Junior
Subordinated Debentures; or
(iv) certain events of bankruptcy, insolvency or reorganization of the
Corporation.
For purposes of the Trust Agreement and this Prospectus, each such Event of
Default is referred to as a "Debenture Event of Default". As described in
"Description of Capital Securities -- Events of Default; Notice" the occurrence
of a Debenture Event of Default will also constitute an Event of Default with
respect to the Capital Securities.
The holders of at least a majority in aggregate principal amount of
outstanding Junior Subordinated Debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debenture Trustee. The Debenture Trustee or the holders of not less than 25% in
aggregate outstanding principal amount of outstanding Junior Subordinated
Debentures may declare the principal due immediately upon a Debenture Event of
Default, and, should the Debenture Trustee or such holders of Junior
Subordinated Debentures fail to make such declaration, the holders of at least
25% in aggregate Liquidation Amount of the outstanding Capital Securities shall
have such right. The holders of at least a majority in aggregate outstanding
principal amount of outstanding Junior Subordinated Debentures may annul such
declaration and waive the default if all defaults (other than the non-payment of
the principal of Junior Subordinated Debentures which has become due solely by
such acceleration) have been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee. Should the holders of Junior
Subordinated Debentures fail to annul such declaration and waive such default,
the holders of a majority in aggregate outstanding Liquidation Amount of the
Capital Securities shall have such right.
The holders of at least a majority in aggregate principal amount of the
outstanding Junior Subordinated Debentures affected thereby may, on behalf of
the holders of all the Junior Subordinated Debentures, waive any past default,
except a default in the payment of principal or interest (unless such default
has been cured and a sum sufficient to pay all matured installments of interest
and principal due otherwise than by acceleration has been deposited with the
Debenture Trustee) or a default in respect of a covenant or provision which
under the Indenture cannot be modified or amended without the consent of the
holder of each outstanding Junior Subordinated Debenture. See "--Modification of
Indenture". Should the holders of such Junior Subordinated Debentures fail to
annul such declaration and waive such default, the holders of a majority in
aggregate Liquidation Amount of the Capital Securities shall have such right.
The Corporation is required to file annually with the Debenture Trustee a
certificate as to whether or not the Corporation is in compliance with all the
conditions and covenants applicable to it under the Indenture.
If a Debenture Event of Default occurs and is continuing, the Property
Trustee will have the right to declare the principal of and the interest on the
Junior Subordinated Debentures, and any other amounts payable under the
Indenture, to be forthwith due and to enforce its other rights as a creditor
with respect to the Junior Subordinated Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Corporation to pay any amounts
payable in respect of the Junior Subordinated Debentures on the date such
amounts are otherwise payable, a registered holder of Capital Securities may
institute a Direct Action against the Corporation for enforcement of payment to
such holder of an amount equal to the amount payable in respect of such Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Capital Securities held by such holder. The
Corporation may
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not amend the Indenture to remove the foregoing right to bring a Direct Action
without the prior written consent of the holders of all of the Capital
Securities. The Corporation will have the right under the Indenture to set off
any payment made to such holder of Capital Securities by the Corporation in
connection with a Direct Action.
The holders of the Capital Securities are not able to exercise directly any
remedies available to the holders of the Junior Subordinated Debentures except
under the circumstances described in the preceding paragraph. See "Description
of Capital Securities -- Events of Default; Notice".
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Corporation may not consolidate with or
merge into any other Person or convey, transfer or lease its properties and
assets substantially as an entirety to any Person, and no Person may consolidate
with or merge into the Corporation or convey, transfer or lease its properties
and assets substantially as an entirety to the Corporation, unless (i) if the
Corporation consolidates with or merges into another Person or conveys or
transfers its properties and assets substantially as an entirety to any Person,
the successor Person is organized under the laws of the United States or any
state or the District of Columbia, and such successor Person expressly assumes
the Corporation's obligations in respect of the Junior Subordinated Debentures
issued under the Indenture; (ii) immediately after giving effect thereto, no
Debenture Event of Default, and no event which, after notice or lapse of time or
both, would constitute a Debenture Event of Default, has occurred and is
continuing; and (iii) certain other conditions as prescribed in the Indenture
are satisfied.
The provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Corporation that may adversely affect holders of the
Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and payable
at the Stated Maturity within one year, and the Corporation deposits or causes
to be deposited with the Debenture Trustee funds, in trust, for the purpose and
in an amount sufficient to pay and discharge the entire indebtedness on the
Junior Subordinated Debentures not previously delivered to the Debenture Trustee
for cancellation, for the principal (and premium, if any) and interest and
Additional Sums to the date of the deposit or to the Stated Maturity, as the
case may be, then the Indenture will cease to be of further effect (except as to
the Corporation's obligations to pay all other sums due pursuant to the
Indenture and to provide the officers' certificates and opinions of counsel
described therein), and the Corporation will be deemed to have satisfied and
discharged the Indenture.
SUBORDINATION
The Junior Subordinated Debentures will be subordinate and junior in right
of payment, to the extent set forth in the Indenture, to all Senior Indebtedness
(as defined below) of the Corporation. If the Corporation defaults in the
payment of any principal, premium, if any, or interest, if any, or any other
amount payable on any Senior Indebtedness when the same becomes due and payable,
whether at maturity or at a date fixed for prepayment or redemption or by
declaration of acceleration or otherwise, then, unless and until such default
has been cured or waived or has ceased to exist or all Senior Indebtedness has
been paid, no direct or indirect payment (in cash, property, securities, by
set-off or otherwise) may be made or agreed to be made on the Junior
Subordinated Debentures or in respect of any redemption, repayment, retirement,
purchase or other acquisition of any of the Junior Subordinated Debentures.
As used herein, "Senior Debt" means any obligation of the Corporation to
its creditors, whether now outstanding or subsequently incurred, other than any
obligation as to which, in the instrument creating or evidencing the obligation
or pursuant to which the obligation is outstanding, it is provided that such
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obligation is not Senior Debt. As used herein, "Senior Subordinated Debt" means
any obligation of the Corporation to its creditors, whether now outstanding or
subsequently incurred, where the instrument creating or evidencing the
obligation or pursuant to which the obligation is outstanding, provides that it
is subordinate and junior in right of payment to Senior Debt. Senior
Subordinated Debt includes the Corporation's outstanding subordinated debt
securities and any subordinated debt securities issued in the future with
substantially similar subordination terms and does not include the Junior
Subordinated Debentures, the 7.826% Junior Subordinated Debentures, the 8.25%
Junior Subordinated Debentures, the CAPS Debentures or any subordinated debt
securities issued in the future with substantially similar subordination terms.
Senior Debt does not include Senior Subordinated Debt or the Junior Subordinated
Debentures.
As used herein, "Senior Indebtedness" shall include (i) Senior Debt (but
excluding trade accounts payable and accrued liabilities arising in the ordinary
course of business) and (ii) the Allocable Amounts (as defined below) of Senior
Subordinated Debt. As of March 31, 1998, the Corporation had approximately $1.14
billion of Senior Indebtedness outstanding.
As used herein, "Allocable Amounts," when used with respect to any Senior
Subordinated Debt, means the amount necessary to pay all principal of (and
premium, if any) and interest, if any, on such Senior Subordinated Debt in full
less, if applicable, any portion of such amounts which would have been paid to,
and retained by, the holders of such Senior Subordinated Debt (whether as a
result of the receipt of payments by the holders of such Senior Subordinated
Debt from the Corporation or any other obligor thereon or from any holders of,
or trustee in respect of, other indebtedness that is subordinate and junior in
right of payment to such Senior Subordinated Debt pursuant to any provision of
such indebtedness for the payment over of amounts received on account of such
indebtedness to the holders of such Senior Subordinated Debt) but for the fact
that such Senior Subordinated Debt is subordinate or junior in right of payment
to trade accounts payable or accrued liabilities arising in the ordinary course
of business.
In the event of (i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to the Corporation, its creditors or its property, (ii) any proceeding for the
liquidation, dissolution or other winding up of the Corporation, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings,
(iii) any assignment by the Corporation for the benefit of creditors or (iv) any
other marshalling of the assets of the Corporation, all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made on account of the
Junior Subordinated Debentures. In such event, any payment or distribution on
account of the Junior Subordinated Debentures, whether in cash, securities or
other property, that would otherwise (but for the subordination provisions) be
payable or deliverable in respect of the Junior Subordinated Debentures will be
paid or delivered directly to the holders of Senior Indebtedness in accordance
with the priorities then existing among such holders until all Senior
Indebtedness (including any interest thereon accruing after the commencement of
any such proceedings) has been paid in full.
In the event of any such proceeding, after payment in full of all sums
owing with respect to Senior Indebtedness, the holders of Junior Subordinated
Debentures, together with the holders of any obligations of the Corporation
ranking on a parity with the Junior Subordinated Debentures, will be entitled to
be paid from the remaining assets of the Corporation the amounts at the time due
and owing on the Junior Subordinated Debentures and such other obligations
before any payment or other distribution, whether in cash, property or
otherwise, will be made on account of any capital stock or obligations of the
Corporation ranking junior to the Junior Subordinated Debentures and such other
obligations. If any payment or distribution on account of the principal of or
interest on the Junior Subordinated Debentures of any character or any security,
whether in cash, securities or other property, is received by any holder of any
Junior Subordinated Debentures in contravention of any of the terms hereof and
before all the Senior Indebtedness has been paid in full, such payment or
distribution or security will be received in trust for the benefit of, and must
be paid over or delivered and transferred to, the holders of the Senior
Indebtedness at the time outstanding in accordance with the priorities then
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existing among such holders for application to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay all such Senior
Indebtedness in full. By reason of such subordination, in the event of the
insolvency of the Corporation, holders of Senior Indebtedness may receive more,
ratably, and holders of the Junior Subordinated Debentures may receive less,
ratably, than the other creditors of the Corporation. Such subordination will
not prevent the occurrence of any Event of Default in respect of the Junior
Subordinated Debentures.
The Indenture places no limitation on the amount of additional Senior
Indebtedness that may be incurred by the Corporation. The Corporation expects
from time to time to incur additional indebtedness constituting Senior
Indebtedness.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee, other than during the continuance of a default by
the Corporation in performance of its obligations under the Indenture, is under
no obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of Junior Subordinated Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
that might be incurred thereby. The Debenture Trustee is not required to expend
or risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Debenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
Bankers Trust Company, the Debenture Trustee, may serve from time to time
as trustee under other indentures or trust agreements with the Corporation or
its subsidiaries relating to other issues of their securities. In addition, the
Corporation and certain of its affiliates may have other banking relationships
with Bankers Trust Company.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by
and construed in accordance with the laws of the State of New York.
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DESCRIPTION OF GUARANTEE
The Guarantee will be executed and delivered by the Corporation
concurrently with the issuance by the Issuer Trust of its Capital Securities for
the benefit of the holders from time to time of such Capital Securities. Bankers
Trust Company will act as Guarantee Trustee. This summary of certain material
provisions of the Guarantee does not purport to be complete and is subject to,
and qualified in its entirety by reference to, all of the provisions of the
Guarantee. A copy of the Guarantee has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part.
GENERAL
The Corporation will irrevocably agree to pay in full on a subordinated and
junior basis, to the extent set forth herein, the Guarantee Payments (as defined
below) to the holders of the Capital Securities, as and when due, regardless of
any defense, right of set-off or counterclaim that the Issuer Trust may have or
assert other than the defense of payment. The following payments with respect to
the Capital Securities, to the extent not paid by or on behalf of the Issuer
Trust (the "Guarantee Payments"), will be subject to the Guarantee: (i) any
accumulated and unpaid Distributions required to be paid on such Capital
Securities, to the extent that the Issuer Trust has funds on hand available
therefor at such time; (ii) the Redemption Price with respect to any Capital
Securities called for redemption, to the extent that the Issuer Trust has funds
on hand available therefor at such time; and (iii) upon a voluntary or
involuntary termination, or liquidation of the Issuer Trust (unless the Junior
Subordinated Debentures are distributed to holders of the Capital Securities),
the lesser of (a) the Liquidation Distribution, to the extent that the Issuer
Trust has funds on hand available therefor at such time, and (b) the amount of
assets of the Issuer Trust remaining available for distribution to holders of
the Capital Securities on liquidation of the Issuer Trust. The Corporation's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by the Corporation to the holders of the Capital Securities or
by causing the Issuer Trust to pay such amounts to such holders.
The Guarantee will be an irrevocable guarantee on a subordinated and junior
basis of the Issuer Trust's obligations under the Capital Securities, but will
apply only to the extent that the Issuer Trust has funds sufficient to make such
payments, and is not a guarantee of collection.
If the Corporation does not make interest payments on the Junior
Subordinated Debentures held by the Issuer Trust, the Issuer Trust will not be
able to pay any amounts payable in respect of the Capital Securities and will
not have funds legally available therefor. The Guarantee will rank subordinate
and junior in right of payment to all Senior Indebtedness of the Corporation.
See "--Status of the Guarantee". Because the Corporation is a holding company,
the right of the Corporation to participate in any distribution of assets of any
subsidiary upon such subsidiary's dissolution, winding-up, liquidation or
reorganization or otherwise, is subject to the prior claims of creditors of that
subsidiary, except to the extent that the Corporation may itself be a creditor
of that subsidiary and its claims are recognized. There are also various legal
limitations on the extent to which certain of the Corporation's subsidiaries may
extend credit, pay dividends or otherwise supply funds to the Corporation or
certain of its other subsidiaries. Accordingly, the Corporation's obligations
under the Guarantee will be effectively subordinated and junior in right of
payment to all existing and future liabilities of the Corporation's
subsidiaries, and claimants under the Guarantee should look only to the assets
of the Corporation for payments thereunder. See "KeyCorp". The Guarantee does
not limit the incurrence or issuance of other secured or unsecured debt of the
Corporation, including Senior Indebtedness, whether under the Indenture, any
other indenture that the Corporation may enter into in the future or otherwise.
The Corporation has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures, the Indenture and the Expense Agreement, taken
together, fully, irrevocably and unconditionally guaranteed all of the Issuer
Trust's obligations under the Capital Securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these documents
that has the effect of providing a full, irrevocable and unconditional guarantee
of the Issuer Trust's obligations in respect of the Capital
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Securities. See "Relationship Among the Capital Securities, the Junior
Subordinated Debentures, the Guarantee and the Expense Agreement".
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Corporation
and will rank subordinate and junior in right of payment to all Senior
Indebtedness of the Corporation in the same manner as the Junior Subordinated
Debentures.
The Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Capital Securities. The Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by the Issuer
Trust or distribution to the holders of the Capital Securities of the Junior
Subordinated Debentures.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Capital Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of at least a majority of the aggregate Liquidation Amount of the
outstanding Capital Securities. The manner of obtaining any such approval will
be as set forth under "Description of the Capital Securities -- Voting Rights;
Amendment of Trust Agreement". All guarantees and agreements contained in the
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Corporation and shall inure to the benefit of the holders
of the outstanding Capital Securities.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Corporation to perform any of its payment or other obligations thereunder, or to
perform any non-payment obligation if such non-payment default remains
unremedied for 30 days. The holders of at least a majority in aggregate
Liquidation Amount of the outstanding Capital Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of the Guarantee or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under the
Guarantee.
Any registered holder of Capital Securities may institute a legal
proceeding directly against the Corporation to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Issuer Trust,
the Guarantee Trustee or any other person or entity.
The Corporation, as guarantor, is required to file annually with the
Guarantee Trustee a certificate as to whether or not the Corporation is in
compliance with all the conditions and covenants applicable to it under the
Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of
a default by the Corporation in performance of the Guarantee, undertakes to
perform only such duties as are specifically set forth in the Guarantee and,
after the occurrence of an event of default under the Guarantee, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by the
Guarantee at the request of any holder of Capital Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
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For information concerning the relationship between Bankers Trust Company,
the Guarantee Trustee, and the Corporation, see "Description of Junior
Subordinated Debentures--Information Concerning the Debenture Trustee".
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the Capital Securities, upon full
payment of the amounts payable in respect of Capital Securities upon liquidation
of the Issuer Trust or upon distribution of Junior Subordinated Debentures to
the holders of the Capital Securities. The Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of Capital Securities must restore payment of any sums paid under the Capital
Securities or the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
THE EXPENSE AGREEMENT
Pursuant to an Agreement as to Expenses and Liabilities entered into by the
Corporation under the Trust Agreement (as amended or supplemented from time to
time, the "Expense Agreement"), the Corporation will irrevocably and
unconditionally guarantee to each person or entity to whom the Issuer Trust
becomes indebted or liable, the full payment of any costs, expenses or
liabilities of the Issuer Trust, other than obligations of the Issuer Trust to
pay to the holders of Trust Securities of the amounts due such holders pursuant
to the terms of the Trust Securities. The Expense Agreement will constitute an
unsecured obligation of the Corporation and will rank subordinate and junior in
right of payment to all Senior Indebtedness of the Corporation in the same
manner as the Guarantee and the Junior Subordinated Debentures.
RELATIONSHIP AMONG THE CAPITAL SECURITIES,
THE JUNIOR SUBORDINATED DEBENTURES, THE GUARANTEE
AND THE EXPENSE AGREEMENT
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Capital Securities
(to the extent the Issuer Trust has funds available for such payment) are
irrevocably guaranteed by the Corporation as and to the extent set forth under
"Description of Guarantee". Taken together, the Corporation's obligations under
the Junior Subordinated Debentures, the Indenture, the Trust Agreement, the
Expense Agreement and the Guarantee provide, in the aggregate, a full,
irrevocable and unconditional guarantee of payments of Distributions and other
amounts due on the Capital Securities. No single document standing alone or
operating in conjunction with fewer than all of the other documents constitutes
such guarantee. It is only the combined operation of these documents that has
the effect of providing a full, irrevocable and unconditional guarantee of the
Issuer Trust's obligations in respect of the Capital Securities. If and to the
extent that the Corporation does not make payments on the Junior Subordinated
Debentures, the Issuer Trust will not pay Distributions or other amounts due on
the Capital Securities. The Guarantee does not cover payment of amounts payable
with respect to the Capital Securities when the Issuer Trust does not have
sufficient funds to pay such amounts. In such event, the remedy of a holder of
Capital Securities is to institute a legal proceeding directly against the
Corporation for enforcement of payment of the Corporation's obligations under
the Junior Subordinated Debentures having a principal amount equal to the
Liquidation Amount of the Capital Securities held by such holder.
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The obligations of the Corporation under the Junior Subordinated
Debentures, the Guarantee and the Expense Agreement are subordinate and junior
in right of payment to all Senior Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments are made when due on the Junior Subordinated
Debentures, such payments will be sufficient to cover Distributions and other
payments distributable in respect of the Capital Securities, primarily because
(i) the aggregate principal amount of the Junior Subordinated Debentures will be
equal to the sum of the aggregate stated Liquidation Amount of the Capital
Securities and Common Securities; (ii) the interest rate and interest and other
payment dates on the Junior Subordinated Debentures will match the Distribution
rate, Distribution Dates and other payment dates for the Capital Securities;
(iii) the Corporation will pay for all and any costs, expenses and liabilities
of the Issuer Trust except the Issuer Trust's obligations to holders of the
Trust Securities; and (iv) the Trust Agreement further provides that the Issuer
Trust will not engage in any activity that is not consistent with the limited
purposes of the Issuer Trust.
Notwithstanding anything to the contrary in the Indenture, the Corporation
has the right to set-off any payment it is otherwise required to make thereunder
against and to the extent the Corporation has theretofore made, or is
concurrently on the date of such payment making, a payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF CAPITAL SECURITIES
A holder of any Capital Security may institute a legal proceeding directly
against the Corporation to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Issuer Trust
or any other person or entity. See "Description of Guarantee".
A default or event of default under any Senior Indebtedness of the
Corporation would not constitute a default or Event of Default in respect of the
Capital Securities. However, in the event of payment defaults under, or
acceleration of, Senior Indebtedness of the Corporation, the subordination
provisions of the Indenture provide that no payments may be made in respect of
the Junior Subordinated Debentures until such Senior Indebtedness has been paid
in full or any payment default thereunder has been cured or waived. See
"Description of Junior Subordinated Debentures -- Subordination".
LIMITED PURPOSE OF ISSUER TRUST
The Capital Securities represent a preferred undivided beneficial interest
in the assets of the Issuer Trust, and the Issuer Trust exists for the sole
purpose of issuing its Capital Securities and Common Securities and investing
the proceeds thereof in Junior Subordinated Debentures. A principal difference
between the rights of a holder of a Capital Security and a holder of a Junior
Subordinated Debenture is that a holder of a Junior Subordinated Debenture is
entitled to receive from the Corporation payments on Junior Subordinated
Debentures held, while a holder of Capital Securities is entitled to receive
Distributions or other amounts distributable with respect to the Capital
Securities from the Issuer Trust (or from the Corporation under the Guarantee)
only if and to the extent the Issuer Trust has funds available for the payment
of such Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary dissolution, winding up or liquidation of
the Issuer Trust, other than any such dissolution, winding up or liquidation
involving the distribution of the Junior Subordinated Debentures, after
satisfaction of liabilities to creditors of the Issuer Trust as required by
applicable law, the holders of the Capital Securities will be entitled to
receive, out of assets held by the Issuer Trust, the Liquidation Distribution in
cash. See "Description of Capital Securities -- Liquidation Distribution Upon
Termination". Upon any voluntary or involuntary liquidation or bankruptcy of the
Corporation, the Property Trustee, as registered holder of the Junior
Subordinated Debentures, would be a subordinated creditor of the Corporation,
subordinated and junior in right of payment to all Senior Indebtedness as set
forth in the
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Indenture, but entitled to receive payment in full of all amounts payable with
respect to the Junior Subordinated Debentures before any shareholders of the
Corporation receive payments or distributions. Since the Corporation is the
guarantor under the Guarantee and has agreed to pay for all costs, expenses and
liabilities of the Issuer Trust (other than the Issuer Trust's obligations to
the holders of the Trust Securities) under the Expense Agreement, the positions
of a holder of the Capital Securities and a holder of such Junior Subordinated
Debentures relative to other creditors and to stockholders of the Corporation in
the event of liquidation or bankruptcy of the Corporation are expected to be
substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of the purchase, ownership and disposition of Capital Securities.
This summary only addresses the tax consequences to a person that acquires
Capital Securities on their original issue at their original offering price and
that is (i) an individual citizen or resident of the United States, (ii) a
corporation organized under the laws of the United States or any State thereof
or the District of Columbia, (iii) an estate the income of which is subject to
United States federal income tax without regard to its source or (iv) a trust if
a court within the United States is able to exercise primary supervision over
the administration of such trust and one or more United States persons have the
authority to control all substantial decisions of such trust (collectively, a
"United States Person"). This summary does not address all tax consequences that
may be applicable to a United States Person that is a beneficial owner of
Capital Securities, nor does it address the tax consequences to (i) persons that
are not United States Persons, (ii) persons that may be subject to special
treatment under United States federal income tax law, such as banks, insurance
companies, thrift institutions, regulated investment companies, real estate
investment trusts, tax-exempt organizations, dealers in securities or
currencies, and traders in securities that elect to mark to market, (iii)
persons that will hold Capital Securities as part of a position in a "straddle"
or as part of a "hedging," "conversion" or other integrated investment
transaction for federal income tax purposes, (iv) persons whose functional
currency is not the United States dollar or (v) persons that do not hold Capital
Securities as capital assets.
The statements of law or legal conclusion set forth in this summary
constitute the opinion of Sullivan & Cromwell, special tax counsel to the
Corporation and the Issuer Trust. This summary is based upon the Code, Treasury
Regulations, Internal Revenue Service rulings and pronouncements and judicial
decisions now in effect, all of which are subject to change at any time. Such
changes may be applied retroactively in a manner that could cause the tax
consequences to vary substantially from the consequences described below,
possibly adversely affecting a beneficial owner of Capital Securities. In
particular, a decision by the Tax Court in the Enron Corporation case could
adversely affect the Corporation's ability to deduct interest on the Junior
Subordinated Debentures, which may in turn permit the Corporation to cause a
redemption of the Capital Securities. See "--Possible Tax Law Changes". The
authorities on which this summary is based are subject to various
interpretations, and it is therefore possible that the United States federal
income tax treatment of the purchase, ownership and disposition of Capital
Securities may differ from the treatment described below.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS IN
LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE UNITED STATES FEDERAL TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF CAPITAL SECURITIES,
AS WELL AS THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
CLASSIFICATION OF THE ISSUER TRUST
Under current law and assuming compliance with the terms of the Trust
Agreement and the Indenture, the Issuer Trust will not be taxable as a
corporation for United States federal income tax purposes. As a result, each
beneficial owner of Capital Securities (a "Securityholder") will be required to
include in its gross income its pro rata share of the interest income, including
original issue discount
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("OID"), paid or accrued with respect to the Junior Subordinated Debentures
whether or not cash is actually distributed to the Securityholders. See
"--Interest Income and Original Issue Discount".
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under Treasury Regulations applicable to debt instruments issued on or
after August 13, 1996 (the "Regulations"), a "remote" contingency that stated
interest will not be timely paid will be ignored in determining whether a debt
instrument is issued with OID. The Corporation believes that the likelihood of
its exercising its option to defer payments is remote. Based on the foregoing,
the Corporation believes that the Junior Subordinated Debentures will not be
considered to be issued with OID at the time of their original issuance. Because
the discount at which the Junior Subordinated Debentures are being issued is
less than 1/3 of 1 percent of the Junior Subordinated Debentures' stated
redemption price at maturity times the number of complete years to maturity of
the Junior Subordinated Debentures, such discount will constitute de minimis OID
and will not be required to be taken into account on a current basis. The
following discussion will assume that unless and until the Corporation exercises
its option to defer any payment of interest, the Junior Subordinated Debentures
will not be treated as issued with OID.
Under the Regulations, if the Corporation exercised its option to defer any
payment of interest, the Junior Subordinated Debentures would at that time be
treated as issued with OID, and all stated interest on the Junior Subordinated
Debentures and de minimis OID would thereafter be treated as OID as long as the
Junior Subordinated Debentures remained outstanding. In such event, all of a
Securityholder's taxable interest income with respect to the Junior Subordinated
Debentures would be accounted for as OID on an economic accrual basis regardless
of such Securityholder's method of tax accounting, and actual distributions of
stated interest would not be reported as taxable income. Consequently, a
Securityholder would be required to include in gross income OID even though the
Corporation would not make any actual cash payments during an Extension Period.
The Regulations have not been addressed in any rulings or other
interpretations by the Internal Revenue Service, and it is possible that the
Internal Revenue Service could take a position contrary to the interpretation
herein.
Because income on the Capital Securities will constitute interest or OID,
corporate Securityholders will not be entitled to a dividends-received deduction
with respect to any income recognized with respect to the Capital Securities.
Subsequent uses of the term "interest" in this summary shall include income
in the form of OID.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO SECURITYHOLDERS
Under current law, a distribution by the Issuer Trust of the Junior
Subordinated Debentures as described under the caption "Description of Capital
Securities -- Liquidation Distribution upon Termination" will be non-taxable and
will result in the Securityholder receiving directly his pro rata share of the
Junior Subordinated Debentures previously held indirectly through the Issuer
Trust, with a holding period and aggregate tax basis equal to the holding period
and aggregate tax basis such Securityholder had in its Capital Securities before
such distribution. If, however, the liquidation of the Issuer Trust were to
occur because the Issuer Trust is subject to United States federal income tax
with respect to income accrued or received on the Junior Subordinated
Debentures, the distribution of Junior Subordinated Debentures to
Securityholders by the Issuer Trust would be a taxable event to the Issuer Trust
and each Securityholder, and the Securityholder would recognize gain or loss as
if the Securityholder had exchanged its Capital Securities for the Junior
Subordinated Debentures it received upon the liquidation of the Issuer Trust. A
Securityholder will include interest in respect of Junior Subordinated
Debentures received from the Issuer Trust in the manner described above under
"--Interest Income and Original Issue Discount".
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<PAGE> 53
SALES OR REDEMPTIONS OF CAPITAL SECURITIES
A Securityholder that sells Capital Securities (including a redemption for
cash) will recognize gain or loss equal to the difference between its adjusted
tax basis in the Capital Securities and the amount realized on the sale of such
Capital Securities. Assuming that the Corporation does not exercise its option
to defer payment of interest on the Junior Subordinated Debentures, a
Securityholder's adjusted tax basis in the Capital Securities generally will be
its initial purchase price. If the Junior Subordinated Debentures are deemed to
be issued with OID as a result of the Corporation's deferral of any interest
payment, a Securityholder's tax basis in the Capital Securities generally will
be its initial purchase price, increased by OID previously includible in such
Securityholder's gross income to the date of disposition and decreased by
distributions or other payments received on the Capital Securities since and
including the date of the first Extension Period. Such gain or loss generally
will be a capital gain or loss (except to the extent such amount realized is
characterized as a payment in respect of accrued but unpaid interest with
respect to such Securityholder's pro rata share of the Junior Subordinated
Debentures required to be included in income) and generally will be a long-term
capital gain or loss if the Capital Securities have been held for more than one
year.
Should the Corporation exercise its option to defer any payment of interest
on the Junior Subordinate Debentures, the Capital Securities may trade at a
price that does not accurately reflect the value of accrued but unpaid interest
with respect to the underlying Junior Subordinated Debentures. In the event of
such a deferral, a Securityholder who disposes of its Capital Securities between
record dates for payments of distributions thereon will be required to include
in income as ordinary income accrued but unpaid interest on the Junior
Subordinated Debentures to the date of disposition as OID, but may not receive
the cash related thereto. However, such Securityholder will add such amount to
its adjusted tax basis in the Capital Securities. To the extent the selling
price is less than the Securityholder's adjusted tax basis, such Securityholder
will recognize a capital loss. Subject to certain limited exceptions, capital
losses cannot be applied to offset ordinary income for United States federal
income tax purposes.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of interest income paid or accrued on the Capital Securities
held of record by United States Persons (other than corporations and other
exempt Securityholders) will be reported to the Internal Revenue Service.
"Backup" withholding at a rate of 31% will apply to payments of interest to
non-exempt United States Persons unless the Securityholder furnishes its
taxpayer identification number in the manner prescribed in applicable Treasury
Regulations, certifies that such number is correct, certifies as to no loss of
exemption from backup withholding and meets certain other conditions.
Payment of the proceeds from the disposition of Capital Securities to or
through the United States office of a broker is subject to information reporting
and backup withholding unless the Securityholder establishes an exemption from
information reporting and backup withholding.
Any amounts withheld from a Securityholder under the backup withholding
rules will be allowed as a refund or a credit against such Securityholder's
United States federal income tax liability, provided the required information is
furnished to the Internal Revenue Service.
It is anticipated that income on the Capital Securities will be reported to
Securityholders on Form 1099 and mailed to Securityholders by January 31
following each calendar year.
POSSIBLE TAX LAW CHANGES
Prospective investors should be aware that Enron Corporation has filed a
petition with the United States Tax Court challenging the proposed disallowance
by the Internal Revenue Service of the deduction of interest expense on
securities issued by Enron Corporation in 1993 and 1994 that are similar to,
although different in a number of respects from, the Junior Subordinated
Debentures. It is possible that a decision in that case could give rise to a Tax
Event, which would permit the Corporation to cause a redemption of the Capital
Securities, as described more fully under "Description of Capital Securities --
53
<PAGE> 54
Redemption". Prospective investors should also be aware that legislation has
been proposed by the Clinton Administration in the past that, if enacted, would
have denied an interest deduction to issuers of instruments such as the Junior
Subordinated Debentures. No such legislation is currently pending. There can be
no assurance, however, that similar legislation will not ultimately be enacted
into law, or that other developments will not occur on or after the date hereof
that would adversely affect the tax treatment of the Junior Subordinated
Debentures or the Corporation. Such changes could also give rise to a Tax Event,
which may permit the Corporation to cause a redemption of the Capital
Securities.
CERTAIN ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee benefit plan
subject to the Employee Retirement Income Security Act ("ERISA") (a "Plan")
should consider the fiduciary standards of ERISA in the context of the Plan's
particular circumstances before authorizing an investment in the Capital
Securities. Accordingly, among other factors, the fiduciary should consider
whether the investment would satisfy the prudence and diversification
requirements of ERISA and would be consistent with the documents and instruments
governing the Plan.
Section 406 of ERISA and Section 4975 of the Internal Revenue Code (the
"Code") prohibit Plans, as well as individual retirement accounts and Keogh
plans subject to Section 4975 of the Code (also "Plans"), from engaging in
certain transactions involving "plan assets" with persons who are "parties in
interest" under ERISA or "disqualified persons" under the Code ("Parties in
Interest") with respect to such Plan. A violation of these "prohibited
transaction" rules may result in an excise tax or other liabilities under ERISA
and/or Section 4975 of the Code for such persons, unless exemptive relief is
available under an applicable statutory or administrative exemption. Employee
benefit plans that are governmental plans (as defined in Section 3(32) of
ERISA), certain church plans (as defined in Section 3(33) of ERISA) and foreign
plans (as described in Section 4(b)(5) of ERISA) are not subject to the
requirements of ERISA or Section 4975 of the Code.
Under a regulation (the "Plan Assets Regulation") issued by the United
States Department of Labor (the "DOL"), the assets of the Issuer Trust would be
deemed to be "plan assets" of a Plan for purposes of ERISA and Section 4975 of
the Code if "plan assets" of the Plan were used to acquire an equity interest in
the Issuer Trust and no exception were applicable under the Plan Assets
Regulation. An "equity interest" is defined under the Plan Assets Regulation as
any interest in an entity other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features and specifically includes a beneficial interest in a trust.
Pursuant to an exception contained in the Plan Assets Regulation, the
assets of the Issuer Trust would not be deemed to be "plan assets" of investing
Plans if, immediately after the most recent acquisition of any equity interest
in the Issuer Trust, less than 25% of the value of each class of equity
interests in the Issuer Trust were held by Plans, other employee benefit plans
not subject to ERISA or Section 4975 of the Code (such as governmental, church
and foreign plans), and entities holding assets deemed to be "plan assets" of
any Plan (collectively, "Benefit Plan Investors"). No assurance can be given
that the value of the Capital Securities held by Benefit Plan Investors will be
less than 25% of the total value of such Capital Securities at the completion of
the initial offering or thereafter, and no monitoring or other measures will be
taken with respect to the satisfaction of the conditions to this exception. All
of the Common Securities will be purchased and held by the Corporation.
Certain transactions involving the Issuer Trust could be deemed to
constitute direct or indirect prohibited transactions under ERISA and Section
4975 of the Code with respect to a Plan if the Capital Securities were acquired
with "plan assets" of such Plan and assets of the Issuer Trust were deemed to be
"plan assets" of Plans investing in the Issuer Trust. For example, if the
Corporation is a Party in Interest with respect to an investing Plan (either
directly or by reason of its ownership of its banking or other subsidiaries),
extensions of credit between the Corporation and the Issuer Trust (as
represented by the Junior Subordinated Debentures and the Guarantee) would
likely be prohibited by Sec-
54
<PAGE> 55
tion 406(a)(1)(B) of ERISA and Section 4975(c)(1)(B) of the Code, unless
exemptive relief were available under an applicable administrative exemption
(see below).
The DOL has issued five prohibited transaction class exemptions ("PTCEs")
that may provide exemptive relief for direct or indirect prohibited transactions
resulting from the purchase or holding of the Capital Securities, assuming that
assets of the Issuer Trust were deemed to be "plan assets" of Plans investing in
the Issuer Trust (see above). Those class exemptions are PTCE 96-23 (for certain
transactions determined by in-house asset managers), PTCE 95-60 (for certain
transactions involving insurance company general accounts), PTCE 91-38 (for
certain transactions involving bank collective investment funds), PTCE 90-1 (for
certain transactions involving insurance company separate accounts), and PTCE
84-14 (for certain transactions determined by independent qualified asset
managers).
Because the Capital Securities may be deemed to be equity interests in the
Issuer Trust for purposes of applying ERISA and Section 4975 of the Code, the
Capital Securities may not be purchased or held by any Plan, any entity whose
underlying assets include "plan assets" by reason of any Plan's investment in a
Plan Asset Entity or any person investing "plan assets" of any Plan, unless such
purchaser or holder is eligible for the exemptive relief available under PTCE
96-23, 95-60, 91-38, 90-1 or 84-14 or another applicable exemption. Any
purchaser or holder of the Capital Securities or any interest therein will be
deemed to have represented by its purchase and holding thereof that it either
(a) is not a Plan or a Plan Asset Entity and is not purchasing such securities
on behalf of or with "plan assets" of any Plan or (b) is eligible for the
exemptive relief available under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or
another applicable exemption with respect to such purchase or holding. If a
purchaser or holder of the Capital Securities that is a Plan or a Plan Asset
Entity elects to rely on an exemption other than PTCE 96-23, 95-60, 91-38, 90-1
or 84-14, the Corporation and the Issuer Trust may require a satisfactory
opinion of counsel or other evidence with respect to the availability of such
exemption for such purchase and holding.
DUE TO THE COMPLEXITY OF THESE RULES AND THE PENALTIES THAT MAY BE IMPOSED
UPON PERSONS INVOLVED IN NON-EXEMPT PROHIBITED TRANSACTIONS, IT IS PARTICULARLY
IMPORTANT THAT FIDUCIARIES OR OTHER PERSONS CONSIDERING PURCHASING THE CAPITAL
SECURITIES ON BEHALF OF OR WITH "PLAN ASSETS" OF ANY PLAN CONSULT WITH THEIR
COUNSEL REGARDING THE POTENTIAL CONSEQUENCES IF THE ASSETS OF THE ISSUER TRUST
WERE DEEMED TO BE "PLAN ASSETS" AND THE AVAILABILITY OF EXEMPTIVE RELIEF UNDER
PTCE 96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANY OTHER APPLICABLE EXEMPTION.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Capital
Securities, the enforceability of the Trust Agreement and the creation of the
Issuer Trust will be passed upon by Richards, Layton & Finger, P.A., special
Delaware counsel to the Corporation and the Issuer Trust. The validity of the
Guarantee and the Junior Subordinated Debentures will be passed upon for the
Corporation by the General Counsel or Associate General Counsel of the
Corporation authorized to render such opinions ("Corporation Counsel"), and for
the Underwriters by Sullivan & Cromwell, New York, New York. Corporation Counsel
will rely upon the opinion of Sullivan & Cromwell as to matters of New York law
and upon the opinion of Richards, Layton & Finger, P.A., as to matters of
Delaware law. Sullivan & Cromwell will rely upon the opinion of Corporation
Counsel as to matters of Ohio law and upon the opinion of Richards, Layton &
Finger, P.A., as to matters of Delaware law. Sullivan & Cromwell regularly
perform legal services for the Corporation and its subsidiaries. As of the date
hereof, the General Counsel and the Associate General Counsel of the Corporation
currently authorized to render the aforementioned opinion on behalf of the
Corporation each owned approximately 53,500 and 16,000 shares, respectively, of
the Corporation's common stock, including shares held under options that are
immediately exercisable.
Certain matters relating to United States federal income tax considerations
will be passed upon for the Corporation by Sullivan & Cromwell, as special tax
counsel to the Corporation and the Issuer Trust.
55
<PAGE> 56
EXPERTS
The consolidated financial statements of KeyCorp and subsidiaries
incorporated by reference in KeyCorp's Annual Report (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 by reference therein
and incorporated herein 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.
With respect to the unaudited consolidated interim financial information
for the three-month periods ended March 31, 1998 and 1997, incorporated by
reference in this 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 report, included in
KeyCorp's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998,
and incorporated herein by reference, states that they did not audit and they do
not express an opinion on that interim financial information. Accordingly, the
degree of reliance on their report 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 Sections 7 and 11 of
the Securities Act.
56
<PAGE> 57
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement between
the Underwriters, the Issuer Trust and the Corporation (the "Underwriting
Agreement"), the Corporation and the Issuer Trust have agreed that the Issuer
Trust will sell to each of the Underwriters named below, and each of such
Underwriters has severally agreed to purchase from the Issuer Trust, the
respective number of Capital Securities set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS CAPITAL SECURITIES
------------ ------------------
<S> <C>
Goldman, Sachs & Co. ....................................... 50,000
Key Capital Markets, Inc. .................................. 50,000
J.P. Morgan Securities Inc. ................................ 50,000
Morgan Stanley & Co. Incorporated........................... 50,000
Salomon Brothers Inc........................................ 50,000
---------
Total..................................................... 250,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all the Capital Securities
offered hereby, if any are taken.
The Underwriters propose to offer the Capital Securities in part directly
to the public at the initial public offering price set forth on the cover page
of this Prospectus and in part to certain securities dealers at such price less
a concession of $6.00 per Capital Security. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $4.00 per Capital Security to
certain brokers and dealers. After the Capital Securities are released for sale
to the public, the offering price and other selling terms may from time to time
be varied by the Underwriters.
In view of the fact that the proceeds from the sale of the Capital
Securities will ultimately be used to purchase the Junior Subordinated
Debentures issued by the Corporation, the Underwriting Agreement provides that
the Corporation will pay as compensation (the "Underwriters' Compensation") to
the Underwriters arranging the investment therein of such proceeds, an amount of
$10.00 per Capital Security for the accounts of the several Underwriters.
The Corporation and the Issuer Trust have agreed that, during a period of
30 days from the date of the Prospectus, they will not offer, sell, contract to
sell or otherwise dispose of any Capital Securities, any other beneficial
interests in the Issuer Trust, or any preferred securities or any other
securities of the Issuer Trust or the Corporation that are substantially similar
to the Capital Securities, including any guarantee of such securities, or any
securities convertible into or exchangeable for or representing the right to
receive preferred securities or any such substantially similar securities of
either the Issuer Trust or the Corporation, without the prior written consent of
the Underwriters, except for the Capital Securities offered in connection with
this offering.
The Capital Securities are a new issue of securities with no established
trading market. Each of the Underwriters, except Key Capital Markets, Inc., has
advised the Corporation and the Issuer Trust that it intends to, and by Key
Capital Markets, Inc. that it may, make a market in the Capital Securities, but
is not obligated to do so and may discontinue market making at any time without
notice. No assurance can be given as to the liquidity of the trading market for
the Capital Securities.
In connection with the offering, the Underwriters may purchase and sell the
Capital Securities in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover short
positions created by the Underwriters in connection with the offering.
Stabilizing transactions consist of certain bids or purchases for the purpose of
preventing or retarding a decline in the market price of the Capital Securities;
and short positions created by the Underwriters involve the sale by the
Underwriters of a greater number of Capital Securities than they are required to
purchase from the Corporation in the offering. The Underwriters also may impose
a penalty bid, whereby selling concessions allowed to broker-dealers in respect
of the securities sold in the offering may be reclaimed
U-1
<PAGE> 58
by the Underwriters if such Capital Securities are repurchased by the
Underwriters in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Capital
Securities, which may be higher than the price that might otherwise prevail in
the open market; and these activities, if commenced, may be discontinued at any
time. These transactions may be effected in the over-the-counter market or
otherwise.
The Corporation and the Issuer Trust have agreed to indemnify the several
Underwriters against, or contribute to payments that the Underwriters may be
required to make in respect of, certain liabilities, including liabilities under
the Securities Act.
Certain of the Underwriters or their affiliates have provided from time to
time, and expect to provide in the future, investment or commercial banking
services to the Corporation and its affiliates, for which such Underwriters or
their affiliates have received or will receive customary fees and commissions.
The offering is being conducted in accordance with Rule 2810 of the Conduct
Rules of the National Association of Securities Dealers, Inc. (the "NASD").
Offers and sales of Capital Securities will be made only to (i) "qualified
institutional buyers", as defined in Rule 144A under the Securities Act; (ii)
institutional "accredited investors", as defined in Rule 501(a)(1)-(3) of
Regulation D under the Securities Act or (iii) individual "accredited
investors", as defined in Rule 501(a)(4)-(6) under the Securities Act, for whom
an investment in non-convertible investment grade preferred securities is
appropriate. In addition, NASD members may not confirm sales of Capital
Securities to any accounts over which they exercise a discretionary authority
without the prior specific written approval by the customer.
Key Capital Markets, Inc. is a wholly owned subsidiary of the Corporation
and an affiliate of the Issuer Trust and may be participating in the
distribution of the Capital Securities. This Prospectus may be used by Key
Capital Markets, Inc., an affiliate of the Corporation, in connection with
offers and sales related to market-making transactions in the Capital Securities
effected from time to time after the commencement of the offering to which this
Prospectus relates. Key Capital Markets, Inc. may act as principal or agent in
such transactions, including as agent for the counterparty when acting as
principal or as agent for both counterparties, and may receive compensation in
the form of discounts and commissions, including from both counterparties when
it acts as agent for both. Such sales will be made at prevailing market prices
at the time of sale, at prices related thereto or at negotiated prices.
U-2
<PAGE> 59
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES BY ANY PERSON IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE CORPORATION OR THE ISSUER TRUST SINCE
THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by
Reference........................... 4
Cautionary Statement Regarding
Forward-Looking Information......... 4
Available Information................. 4
Summary............................... 6
Risk Factors.......................... 10
KeyCorp............................... 15
KeyCorp Capital I..................... 18
Selected Consolidated KeyCorp
Financial Data...................... 19
Use of Proceeds....................... 22
Accounting Treatment.................. 22
Capitalization........................ 23
Description of Capital Securities..... 24
Description of Junior Subordinated
Debentures.......................... 38
Description of Guarantee.............. 47
The Expense Agreement................. 49
Relationship Among the Capital
Securities, the Junior Subordinated
Debentures, the Guarantee and the
Expense Agreement................... 49
Certain Federal Income Tax
Consequences........................ 51
Certain ERISA Considerations.......... 54
Validity of Securities................ 55
Experts............................... 56
Underwriting.......................... U-1
</TABLE>
======================================================
======================================================
$250,000,000
KEYCORP CAPITAL I
FLOATING RATE CAPITAL SECURITIES
(LIQUIDATION AMOUNT
$1,000 PER CAPITAL SECURITY)
------------------------
KEYBANK LOGO
------------------------
GOLDMAN, SACHS & CO.
KEY CAPITAL MARKETS, INC.
J.P. MORGAN & CO.
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
======================================================
