<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 12, 1999
REGISTRATION NOS. 333-76619 AND 333-76619-01
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------------------
<TABLE>
<S> <C>
KEYCORP KEYCORP CAPITAL III
(Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its charter)
OHIO DELAWARE
(State or other jurisdiction of incorporation or (State or other jurisdiction of incorporation or
organization) organization)
34-6542451 34-1891371
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
C/O KEYCORP
127 PUBLIC SQUARE 127 PUBLIC SQUARE
CLEVELAND, OHIO 44114-1306 CLEVELAND, OHIO 44114-1306
(216) 689-6300 (216) 689-6300
(Address, including zip code, and telephone number, (Address, including zip code, and telephone number,
including area code, of registrant's principal executive including area code, of registrant's principal executive
offices) offices)
</TABLE>
---------------------------
DANIEL R. STOLZER, ESQ.
VICE PRESIDENT AND ASSOCIATE GENERAL COUNSEL
KEYCORP
127 PUBLIC SQUARE
CLEVELAND, OHIO 44114-1306
(216) 689-6300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C>
CAROLYN E. CHEVERINE, ESQ. MITCHELL S. EITEL, ESQ.
VICE PRESIDENT & SENIOR COUNSEL SULLIVAN & CROMWELL
KEYBANK NATIONAL ASSOCIATION 125 BROAD STREET
127 PUBLIC SQUARE NEW YORK, NEW YORK 10004
CLEVELAND, OHIO 44114-1306 (212) 558-4000
(216) 689-6300
</TABLE>
---------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [X]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<TABLE>
TITLE OF EACH CLASS OF AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE(2)
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<S> <C> <C> <C> <C>
Junior Subordinated
Deferrable Interest
Debentures of
KeyCorp(3)(4).......... $250,000,000 $1,000 $250,000,000 N/A
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Capital Securities of
KeyCorp Capital III.... 250,000 $1,000 $250,000,000 $69,500
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KeyCorp Guarantee with
respect to Capital
Securities(4).......... N/A N/A N/A N/A
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Total.................... $250,000,000 100% $250,000,000(5) $69,500
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</TABLE>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457.
(2) The filing fee was previously paid in connection with the filings of this
Registration Statement on April 20, 1999 and June 8, 1999.
(3) The Junior Subordinated Deferrable Interest Debentures will be purchased by
KeyCorp Capital III with the proceeds of the sale of the Capital Securities.
(4) This Registration Statement is deemed to cover the Junior Subordinated
Deferrable Interest Debentures of KeyCorp, the rights of holders of Junior
Subordinated Deferrable Interest Debentures of KeyCorp under the Indenture,
the rights of holders of Capital Securities of KeyCorp Capital III under the
Trust Agreement, the rights of holders of the Capital Securities under the
Guarantee of KeyCorp and the Expense Agreement to be entered into by
KeyCorp, which taken together, fully, irrevocably and unconditionally
guarantee all of the obligations of KeyCorp Capital III under the Capital
Securities. No separate consideration will be received for the KeyCorp
Guarantee.
(5) Such amount represents the principal amount of Junior Subordinated
Deferrable Interest Debentures issued at their principal amount and the
issue price rather than the principal amount of Junior Subordinated
Deferrable Interest Debentures issued at an original issue discount. Such
amount also represents the initial public offering price of the Capital
Securities.
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<PAGE> 2
[KeyCorp Logo]
$250,000,000
KEYCORP CAPITAL III
% Capital Securities
Guaranteed by
KEYCORP
------------------
The capital securities represent undivided interests in KeyCorp Capital
III, a Delaware trust created by us, KeyCorp, for the sole purpose of issuing
the capital securities. The trust will hold our junior debentures as its only
asset. We will fully, irrevocably and unconditionally guarantee the capital
securities as described in this prospectus.
The trust will pay semi-annual distributions on the capital securities at
the annual rate of $ per capital security and may defer distributions for up to
10 consecutive semi-annual periods. The capital securities may be redeemed at
any time for any reason, and at other times for the reasons described in this
prospectus.
INVESTING IN THE CAPITAL SECURITIES INVOLVES RISKS. SEE "RISK FACTORS" ON
PAGE 8.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS THE TRUST
--------- ------------- -----------
<S> <C> <C> <C>
Per capital security................................. $ (2) $
Total................................................ $ (2) $
</TABLE>
(1) Plus accumulated distributions, if any, from July , 1999.
(2) Since the trust will use the proceeds from the sale of the capital
securities to purchase our junior debentures, we have agreed to pay an
underwriting commission of $ per capital security, or a total of
$ for the sale of the capital securities.
Delivery of the capital securities in book-entry form only will be made on
or about July , 1999.
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.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
MCDONALD INVESTMENTS
A KEYCORP COMPANY
J.P. MORGAN & CO.
SALOMON SMITH BARNEY
The date of this prospectus is July , 1999.
<PAGE> 3
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FORWARD-LOOKING STATEMENTS.......... 3
SUMMARY OF OFFERING................. 4
RATIOS OF EARNINGS TO FIXED
CHARGES........................... 7
RISK FACTORS........................ 8
KEYCORP............................. 11
KEYCORP CAPITAL III................. 14
SELECTED CONSOLIDATED FINANCIAL
DATA.............................. 15
USE OF PROCEEDS..................... 17
ACCOUNTING TREATMENT................ 17
CAPITALIZATION...................... 18
DESCRIPTION OF CAPITAL SECURITIES... 20
DESCRIPTION OF JUNIOR DEBENTURES.... 32
DESCRIPTION OF THE GUARANTEE AND THE
EXPENSE AGREEMENT................. 38
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RELATIONSHIP AMONG THE CAPITAL
SECURITIES, THE JUNIOR DEBENTURES,
THE GUARANTEE AND THE EXPENSE
AGREEMENT......................... 40
BOOK-ENTRY ISSUANCE................. 42
U.S. FEDERAL INCOME TAX
CONSIDERATIONS.................... 45
ERISA CONSIDERATIONS................ 47
UNDERWRITING........................ 49
NOTICE TO CANADIAN RESIDENTS........ 50
VALIDITY OF SECURITIES.............. 52
EXPERTS............................. 52
WHERE YOU CAN FIND MORE
INFORMATION....................... 53
</TABLE>
------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. NEITHER WE, THE TRUST NOR ANY UNDERWRITER HAS
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS
DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE
INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT.
2
<PAGE> 4
FORWARD-LOOKING STATEMENTS
This prospectus, and the information incorporated by reference in this
prospectus, contains statements that plan for or anticipate the future.
Forward-looking statements include statements about the future financial
performance, business plans and strategies of KeyCorp and the trust and most
other statements that are not historical in nature. Because forward-looking
statements involve future risks and uncertainties, there are factors that could
cause actual results to differ materially from those expressed or implied.
Besides the specified risk factors identified beginning on page 8, some of the
uncertainties that could effect the accuracy of forward-looking statements
include:
-- sharp or rapid changes in interest rates;
-- significant changes in the economy that could materially change
anticipated credit quality trends and the ability to generate loans;
-- failure of the capital markets to function consistent with customary
levels;
-- significant delay in or inability to execute strategic initiatives
designed to grow revenues 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.
3
<PAGE> 5
SUMMARY OF OFFERING
This summary highlights information contained in this prospectus. This
summary is not complete and does not contain all the information that you should
consider before investing in the capital securities. You should read the entire
prospectus carefully, especially the risk of investing in capital securities
discussed under the "Risk Factors" section beginning on page 8.
KEYCORP.................... We are a bank holding company engaged primarily in
the business of commercial and retail banking. We
are one of the nation's largest bank holding
companies, with consolidated total assets of $80.0
billion at March 31, 1999. Our subsidiaries provide
a wide range of banking, equipment leasing,
fiduciary and other financial services to
corporate, individual and institutional customers
through four businesses: Key Corporate Capital, Key
Consumer Finance, Key Community Bank and Key
Capital Partners. These services are provided
across much of the country through full-service
banking offices in 13 states, a 24-hour telephone
banking call center services group and nearly 2,600
ATMs at March 31, 1999.
Our principal office and mailing address is at 127
Public Square, Cleveland, Ohio 44114-1306. Our
telephone number is (216) 689-6300.
KEYCORP CAPITAL III........ KeyCorp Capital III is a Delaware statutory
business trust created solely for the purpose of
issuing capital securities to investors and common
securities to us and investing the proceeds in an
equivalent amount of our junior debentures. The
junior debentures will be the sole assets of the
trust.
The trust has its principal office and mailing
address at c/o KeyCorp, 127 Public Square,
Cleveland, Ohio, 44114-1306. Its telephone number
is (216) 689-6300.
CAPITAL SECURITIES
OFFERED.................... $250,000,000 aggregate liquidation amount of %
Capital Securities.
LIQUIDATION AMOUNT......... $1,000 per capital security.
OFFERING PRICE............. $ per capital security, plus accumulated
distributions, if any, from July , 1999.
DISTRIBUTION AMOUNT........ Each capital security will pay distributions
totaling $ per year, or % of the
liquidation amount of the capital security.
DISTRIBUTION DATES......... and of each year,
beginning on , 1999, subject to any
deferral.
JUNIOR DEBENTURES.......... We will issue and sell to the trust $257,800,000
aggregate principal amount of our % Junior
Subordinated Deferrable Interest Debentures due
, 20 .
DEFERRAL OF
DISTRIBUTIONS.............. We may defer interest payments on the junior
debentures for up to 10 consecutive semi-annual
periods. If we defer interest payments, the trust
also will defer the payment of distributions on the
capital securities. During any deferral period,
distributions will continue to accumulate on the
capital securities and additional distributions
will accumulate on these deferred distributions at
the annual rate of $ per capital security.
During any deferral period, you will be required to
accrue interest income and include it in your gross
income for U.S. federal income tax purposes, even
if you are a cash basis taxpayer.
4
<PAGE> 6
RANKING.................... The capital securities will rank equally with the
common securities. Except in cases of default,
distributions will be made simultaneously and
proportionately on the capital securities and
common securities. In case of default, holders of
capital securities will have priority in right of
payment over holders of common securities.
The junior debentures are not secured by any of our
property or assets and will rank junior in priority
of payment to all of our senior indebtedness.
REDEMPTION................. The trust must redeem the capital securities and
common securities:
(1) in whole but not in part when we repay the
principal on the junior debentures at their
maturity;
(2) if we elect to redeem the junior debentures in
whole but not in part at any time upon the
occurrence of (a) changes in U.S. federal
income tax laws or regulations that could have
adverse tax consequences for us or the trust
or (b) changes that could prevent us from
treating an amount equal to the liquidation
amount of the capital securities as "Tier 1"
capital for purposes of the applicable Federal
Reserve capital adequacy guidelines; and
(3) if we elect to redeem the junior debentures in
whole or in part at any time.
The redemption price will be calculated pursuant to
the applicable formula specified in this
prospectus. The applicable formula will depend upon
which redemption right we exercise.
LIQUIDATION DISTRIBUTION... We may dissolve the trust at any time with the
prior approval of the Federal Reserve, if then
required. If we dissolve the trust, the trust will
distribute the junior debentures to you in exchange
for the capital securities. If the exchange is not
practical, the trust will distribute an amount
equal to $1,000 per capital security plus any
accumulated and unpaid distributions. In all cases,
however, distributions will be made only to the
extent of the trust's assets that are available
after satisfaction of all liabilities to creditors.
GUARANTEE.................. We will guarantee payments on the capital
securities, but only to the extent that the trust
has funds available on hand to make those payments.
Our obligations under the guarantee agreement will
rank junior in right of payment to all of our
senior indebtedness.
MATURITY................... The junior debentures will mature on
, 20 , at which date the trust must
redeem the capital securities at a price equal to
$1,000 per capital security plus all accrued and
unpaid distributions.
USE OF PROCEEDS............ The trust will use the proceeds from this offering
to purchase the junior debentures issued by us. We
expect to use the net proceeds from the sale of the
junior debentures to the trust for general
corporate purposes, which may include (1)
investments in, or extensions of credit to, our
subsidiaries, (2) repurchases or redemptions of our
capital stock and (3) financing possible future
acquisitions including, without limitation, the
acquisition of banking and nonbanking companies and
financial assets and liabilities.
We have not specifically allocated any of the
proceeds to these purposes, although our management
has determined that funds should be borrowed
5
<PAGE> 7
at this time. The precise amount and timing of
investments in, or extensions of credit to, our
subsidiaries will depend on our subsidiaries'
funding requirements and the availability of other
funds. We may temporarily invest the net proceeds
or apply the net proceeds to the reduction of
short-term indebtedness.
BOOK-ENTRY ISSUANCE ONLY... The capital securities will be represented by a
global security that will be deposited with and
registered in the name of The Depository Trust
Company or its nominee. This means that, except in
limited circumstances, you will not receive a
certificate for the capital securities.
6
<PAGE> 8
RATIOS OF EARNINGS TO FIXED CHARGES
The following table shows our consolidated ratios of earnings to fixed
charges and preferred stock dividends for each of the years in the five-year
period ended December 31, 1998 and for each of the quarterly periods ended March
31, 1999 and 1998.
For the purpose of calculating the ratio of earnings to fixed charges and
preferred stock dividends, we divided consolidated income, before income taxes
and extraordinary item, plus fixed charges by fixed charges. Fixed charges
consist of:
-- consolidated interest expense, excluding or including interest on
deposits, as the case may be; and
-- that portion of rental expense which is deemed representative of the
interest factor, net of income from subleases.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------ ------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES
Excluding deposit interest............. 2.09x 2.01x 1.97x 2.24x 2.41x 2.42x 3.50x
Including deposit interest............. 1.62x 1.50x 1.51x 1.53x 1.50x 1.46x 1.70x
RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
Excluding deposit interest............. 2.09x 2.01x 1.97x 2.24x 2.38x 2.35x 3.34x
Including deposit interest............. 1.62x 1.50x 1.51x 1.53x 1.49x 1.45x 1.68x
</TABLE>
7
<PAGE> 9
RISK FACTORS
An investment in the capital securities involves a number or risks, some of
which relate to the terms of the capital securities or the junior debentures and
others of which relate to KeyCorp and its business. You should carefully review
the following information about these risks together with other information
contained in this prospectus and in documents incorporated by reference in this
prospectus before deciding whether this investment is suitable for you.
YOU ARE MAKING AN INVESTMENT DECISION WITH REGARD TO THE JUNIOR DEBENTURES AS
WELL AS THE CAPITAL SECURITIES.
The trust will rely on the payments it receives on the junior debentures to
fund all payments on the capital securities. In addition, the trust may
distribute the junior debentures in exchange for the capital securities upon
liquidation of the trust. Accordingly, you should carefully review the
information in this prospectus regarding both of these securities.
PAYMENTS ON THE CAPITAL SECURITIES ARE DEPENDENT ON OUR PAYMENTS ON THE JUNIOR
DEBENTURES.
The ability of the trust timely to pay distributions on the capital
securities and to pay the liquidation amount is dependent upon us making the
related payments on the junior debentures when due.
If we default on our obligation to pay principal of or interest on the
junior debentures, the trust will not have sufficient funds to pay distributions
or the liquidation amount. As a result, you will not be able to rely upon the
guarantee for payment of these amounts. You or the property trustee of the trust
may, however, sue us to enforce the rights of the trust under the junior
debentures. For more information, please refer to "Description of Capital
Securities -- Enforcement rights" and "Relationship Among Capital Securities,
Junior Debentures, the Guarantee and the Expense Agreement -- Enforcement rights
of holders of capital securities".
OUR OBLIGATIONS WILL BE DEEPLY SUBORDINATED AND WE WILL PAY OUR OTHER DEBT
OBLIGATIONS BEFORE WE PAY YOU.
Our obligations under the guarantee and under the junior debentures are
unsecured and rank subordinate and junior in right of payment to all of our
senior indebtedness, which includes nearly all of our existing indebtedness,
other than a total of $1.25 billion debentures previously issued to our other
subsidiary trusts as of March 31, 1999. For further information regarding our
existing indebtedness, see "Description of Guarantee -- Status of the guarantee"
and "Description of Junior Debentures -- Subordination."
Because we are a holding company, our right to participate in any
distribution of the assets of our banking or nonbanking subsidiaries, upon a
subsidiary's dissolution, winding-up, liquidation or reorganization or
otherwise, and thus your ability to benefit indirectly from such distribution,
is subject to the prior claims of creditors of that subsidiary, except to the
extent that we may be a creditor of that subsidiary and our claims are
recognized. There are legal limitations on the extent to which some of our
subsidiaries may extend credit, pay dividends or otherwise supply funds to, or
engage in transactions with, us or some of our other subsidiaries. Accordingly,
the junior debentures and the guarantee will be effectively subordinated to all
existing and future liabilities of our subsidiaries, and holders of junior
debentures and the guarantee should look only to our assets for payments on the
junior debentures and the guarantee.
Neither the indenture governing the junior debentures nor the amended trust
agreement and the guarantee relating to the capital securities place any
limitation on the nature or amount of additional indebtedness that we, or our
subsidiaries, may incur in the future.
YOU WILL NOT RECEIVE TIMELY DISTRIBUTIONS IF WE ELECT TO DEFER PAYMENTS.
We may defer the payment of interest on the junior debentures at any time
up to 10 consecutive semi-annual periods, provided that (1) no deferral period
may extend beyond the stated maturity date and (2) we are not in default under
the indenture governing the junior debentures. If there is a deferral, the trust
also will
8
<PAGE> 10
defer distributions on the capital securities. During a deferral period, your
distributions will continue to accrue, and interest on the unpaid distributions
will compound semi-annually.
At the end of any deferral period and the payment of all interest then
accrued and unpaid, we may elect to begin a new deferral period. There is no
limitation on the number of deferral periods. For further information on our
option to defer payments, see "Description of Capital
Securities -- Distributions -- Deferral period," and "Description of Junior
Debentures -- Interest".
IF WE ELECT TO DEFER INTEREST PAYMENTS, YOU WILL HAVE TO INCLUDE INTEREST IN
YOUR TAXABLE INCOME BEFORE YOU RECEIVE THE MONEY.
During a deferral period, you will be required to accrue interest income
for U.S. federal income tax purposes on your proportionate share of the junior
debentures held by the trust, even if you are a cash basis taxpayer. As a
result, you need to include this income in your gross income for U.S. federal
income tax purposes in advance of the receipt of cash. You also will not receive
the cash related to any accrued and unpaid interest income from the trust if you
dispose of the capital securities prior to the record date for the payment of
distributions. For further information, see "Federal Income Tax
Considerations -- Interest income and original issue discount" and "-- Sale or
redemption of capital securities".
THE MARKET PRICE OF THE CAPITAL SECURITIES MAY NOT REFLECT UNPAID INTEREST AND
YOU MAY SUFFER A LOSS IF YOU SELL THEM WHILE INTEREST REMAINS UNPAID.
Because of our right to defer interest payments on the junior debentures,
the market price of the capital securities may be more volatile than the market
prices of similar securities that do not have this feature. If we exercise our
right to defer, the market price of the capital securities may decline.
Accordingly, the capital securities that you purchase, whether in this offering
or in the secondary market, or the junior debentures that you may receive on
liquidation of the trust, may trade at a discount to the price that you paid.
If you dispose of your capital securities before the record date for the
payment of a distribution, then you will not receive that distribution. However,
you will be required to include accrued but unpaid interest on the junior
debentures through the date of the sale as ordinary income for U.S. federal
income tax purposes and to add the amount of the accrued but unpaid interest to
your tax basis in the capital securities. Your increased tax basis in the
capital securities will increase the amount of any capital loss that you may
have otherwise realized on the sale. In general, an individual taxpayer may only
offset $3,000 of capital losses against regular income during any year. For
further information on tax consequences, see "U.S. Federal Income Tax
Considerations -- Sale or redemption of capital securities".
WE MAY REDEEM THE JUNIOR DEBENTURES AT ANY TIME OR UPON THE OCCURRENCE OF
SPECIFIED TAX OR REGULATORY EVENTS.
We may redeem the junior debentures at any time in whole or in part. In
addition, we may redeem the junior debentures within 90 days following the
occurrence of specified tax or regulatory events, including:
-- any change in tax laws or regulations that poses a substantial risk
that the capital securities might lose their special tax treatment;
and
-- any change in laws or regulations that poses a substantial risk that
we will not be able to treat the capital securities as "Tier 1"
capital for purposes of the Federal Reserve capital adequacy
guidelines.
If we redeem the junior debentures, the trust will be required to redeem
the capital securities. The calculation of the redemption price will depend upon
which redemption option we have exercised.
We will need the prior approval of the Federal Reserve to make a
redemption, if then required under applicable Federal Reserve capital guidelines
or policies. For further information on redemption, see "Description of Capital
Securities -- Redemption".
9
<PAGE> 11
THE TRUST MAY DISTRIBUTE THE JUNIOR DEBENTURES IN EXCHANGE FOR THE CAPITAL
SECURITIES, WHICH COULD AFFECT THE MARKET PRICE AND COULD BE A TAXABLE EVENT.
We may dissolve the trust at any time. After satisfying its liabilities to
its creditors, the trust may distribute the junior debentures to the holders of
the capital securities and common securities. We will not dissolve the trust
without the prior approval of the Federal Reserve, if then required under
applicable Federal Reserve capital guidelines or policies. For further
information, see "Description of Capital Securities -- Liquidation distribution
upon termination".
We cannot predict the market prices for capital securities or for junior
debentures that may be distributed in exchange for capital securities.
Accordingly, the capital securities, or the junior debentures that you may
receive on liquidation of the trust, may trade at a discount to the price that
you paid to purchase the capital securities.
Under current U.S. federal income tax law and assuming, as we expect, that
the trust will not be classified as an association taxable as a corporation, you
should not be taxed if we dissolve the trust and the trust distributes junior
debentures to you. However, if the trust were to become taxed on the income
received or accrued on the junior debentures due to a tax event, both you and
the trust might be taxed on a distribution of the junior debentures by the
trust. For further information, see "U.S. Federal Income Tax
Considerations -- Distribution of junior debentures to holders of capital
securities upon liquidation of the trust".
INVESTORS WILL NOT CONTROL THE ADMINISTRATION OF THE TRUST AND WILL HAVE LIMITED
VOTING RIGHTS.
We will hold all the common securities of the trust. These securities give
us the right to control nearly all aspects of the administration, operation or
management of the trust, including selection and removal of the administrative
trustees. The capital securities, on the other hand, will generally have no
voting rights. You will be able to vote only on matters relating to the
modification of the terms of the capital securities or the junior debentures,
the acceleration of payments and other matters described in this prospectus. For
further information, see "Description of Capital Securities -- Voting rights".
THE TRADING CHARACTERISTICS OF THE CAPITAL SECURITIES MAY ADVERSELY AFFECT THEIR
LIQUIDITY.
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.
YEAR 2000 ISSUE MAY CAUSE COMPUTER PROBLEMS.
Many existing computer programs use only two digits to identify a year in a
data field. These programs were designed and developed without considering the
upcoming end of the century. If not corrected, many computer applications could
fail or create erroneous results by or at the year 2000. The Year 2000 issue
affects us because the financial services industry depends heavily on computer
applications. For information regarding our efforts in handling the Year 2000
issue, see "KeyCorp -- Our Year 2000 efforts".
10
<PAGE> 12
KEYCORP
OVERVIEW
KeyCorp, incorporated in 1958 under the laws of the State of Ohio and
registered under the Bank Holding Company Act of 1956, is headquartered in
Cleveland, Ohio. We are engaged primarily in the business of commercial and
retail banking. At March 31, 1999, we were one of the nation's largest bank
holding companies with consolidated total assets of $80.0 billion. Our
subsidiaries provide a wide range of banking, equipment leasing, fiduciary and
other financial services to corporate, individual and institutional customers
through four businesses: (1) Key Corporate Capital; (2) Key Consumer Finance;
(3) Key Community Bank; and (4) Key Capital Partners.
As of March 31, 1999, these services were provided across much of the
country through subsidiaries operating 969 full-service banking offices in 13
states, a 24-hour telephone banking call center services group and nearly 2,600
ATMs. At March 31, 1999, we, together with our subsidiaries, had 25,650
full-time equivalent employees.
We are a legal entity separate and distinct from our banking and other
subsidiaries. Accordingly, our rights and the rights of our security holders and
creditors to participate in any distribution of the assets or earnings of our
banking and other subsidiaries is necessarily subject to the prior claims of the
respective creditors of our banking and other subsidiaries, except to the extent
that our claims in our capacity as a creditor of our banking and other
subsidiaries may be recognized.
Our principal executive office is located at 127 Public Square, Cleveland,
Ohio 44114-1306. Our telephone number is (216) 689-6300.
OUR SUBSIDIARIES
Our largest banking subsidiaries are:
-- KeyBank National Association, headquartered in Cleveland, Ohio -- the
12th largest bank in the United States at December 31, 1998, based on
asset size. KeyBank had $72.9 billion in total assets and 969
full-service banking offices in Alaska, Colorado, Idaho, Indiana,
Maine, Michigan, New Hampshire, New York, Ohio, Oregon, Utah, Vermont
and Washington at March 31, 1999; and
-- Key Bank USA, National Association, headquartered in Cleveland, Ohio,
with total assets of $5.4 billion at March 31, 1999. Key Bank USA is
involved in consumer loan activities.
In addition to the customary banking services of accepting deposits and
making loans, our 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 our subsidiary banks,
trust companies and registered investment adviser subsidiaries, we provide
investment management services to institutional and individual clients,
including large corporate and public retirement plans, foundations and
endowments, high net worth individuals and Taft-Hartley plans - multiemployer
trust funds providing pension, vacation, or other benefits to employees. In
addition, our investment management subsidiaries serve as investment advisers to
our proprietary mutual funds.
OUR MAJOR LINES OF BUSINESS
Key Corporate Capital. We offer a complete range of financing, transaction
processing and financial advisory services to corporations throughout the
country through Key Corporate Capital. This line of business also operates one
of the largest bank-affiliated equipment leasing companies with operations
conducted both domestically and throughout Europe and Asia. Key Corporate
Capital's business units are organized around specialized industry client
segments, inclusive of commercial real estate, lease financing, structured
finance, healthcare and media/telecommunications.
In serving these targeted segments, Key Corporate Capital provides a number
of specialized services, including international banking, and corporate finance
advisory services, and, based on transaction volume, is a leading provider of
cash management services. Key Corporate Capital also provides investment
banking, capital markets, 401(k) and trust custody products through Key Capital
Partners.
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<PAGE> 13
Key Consumer Finance. Key Consumer Finance is responsible for our indirect,
non-branch-based consumer loan products. This line of business specializes in
automobile loans and leases, home equity loans, education loans, marine and
recreational vehicle loans, and credit cards. As of December 31, 1998, based on
the volume of loans generated, Key Consumer Finance was one of the: (1) five
largest education lenders in the nation, (2) top ten in retail automobile
financing and (3) leading providers of financing for consumer purchases of
marine and recreational vehicles.
Key Community Bank. Key Community Bank is responsible for delivering a
complete line of branch-based financial products and services to small
businesses, consumers, and commercial banking businesses. The delivery of these
products and services is accomplished through 969 KeyCenters, a 24-hour
telephone banking call center services group, nearly 2,600 ATMs that access 14
different networks and comprise one of the largest ATM networks in the United
States, and a core team of relationship management professionals.
Key Capital Partners. Key Capital Partners provides clients with asset
management, investment banking, capital markets, insurance and brokerage
expertise. It also plays a major role in generating fee income through its broad
range of investment choices and customized products. Key Capital Partners is
comprised of two major business groups. One group, operating under the name
"McDonald Investments", includes retail and institutional brokerage, equity and
fixed income trading and underwriting, investment banking, capital markets
products, loan syndication and trading, public finance and clearing operations.
The second major business group includes asset management, mutual funds,
institutional asset services, venture capital, mezzanine finance, alliance
funds, wealth management and insurance. Leveraging our corporate and community
banking distribution channels and client relationships is and will continue to
be an essential factor in ensuring Key Capital Partners' future growth and
success.
We provide other financial services both inside and outside of our primary
banking markets through our nonbank subsidiaries. These services include
accident and health insurance on loans made by banking subsidiaries, venture
capital, community development financing, securities underwriting and brokerage,
automobile financing and other financial services. We are also an equity
participant in a joint venture with Key Merchant Services, L.L.C., which
provides merchant services to businesses.
RECENT DEVELOPMENTS
Electronic Payment Services, Inc. On February 28, 1999, Electronic Payment
Services, Inc., an electronic funds transfer processor in which we held a 20%
ownership interest, merged with a wholly owned subsidiary of Concord EFS, Inc.,
a Delaware corporation. We received approximately 5.9 million shares of Concord
EFS stock and recognized a gain of $134 million, or $85 million after taxes, on
the transaction. The gain was recorded in gains from divestitures on our income
statement.
Long Island District Sale. On May 26, 1999, we reached a definitive
agreement for the sale of our Long Island District to The Dime Savings Bank of
New York, FSB. Our Long Island District includes 28 branches with approximately
$1.3 billion in deposits. Completion of the sale, which is subject to regulatory
approval, is expected in the third quarter of 1999.
OUR YEAR 2000 EFFORTS
The Year 2000 issue refers to the fact that many computer systems were
originally programmed using two digits rather than four digits to identify the
applicable year. Therefore, when the year 2000 occurs, these systems could
interpret the year as 1900 rather than 2000. Unless hardware, system software
and applications are corrected to be Year 2000 compliant, computers and the
devices they control could generate miscalculations and create operational
problems. Various systems could be affected ranging from complex computer
systems to telephone systems, ATMs and elevators.
To address this issue, we developed an extensive plan in 1995, including
the formation of a team consisting of internal resources and third-party
experts. The plan has been in implementation since that time and consists of
five major phases:
-- awareness -- ensuring a common understanding of the issue throughout
the KeyCorp organization;
-- assessment -- identifying and prioritizing the systems and third
parties with whom we have exposure to Year 2000 issues;
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<PAGE> 14
-- renovation -- enhancing, replacing or retiring hardware, software and
system applications;
-- validation -- testing modifications made; and
-- implementation -- certifying Year 2000 compliance and user
understanding and acceptance.
We have completed the awareness and assessment phases. The remaining phases
are substantially complete and final testing and refinement will be addressed in
1999. As of March 31, 1999, we had completed all of the above phases for
approximately 90% of the core systems identified. We expect to complete
compliance efforts for the remaining technology components by June 30, 1999.
As a financial institution, we may experience increases in problem loans
and credit losses in the event that borrowers fail to properly respond to this
issue. In addition, we may incur higher funding costs if consumers react to
publicity about the issue by withdrawing deposits. We also could be impacted if
third parties we deal with in conducting our business, such as foreign banks,
governmental agencies, clearing houses, telephone companies, and other service
providers, fail to properly address this issue.
Accordingly, we have formed a separate internal team charged with the task
of: (1) identifying critical business interfaces, (2) assessing potential
problems relating to credit, liquidity and counterparty risk, and (3) where
appropriate, developing contingency plans. This team has been surveying
significant credit customers to ascertain their Year 2000 readiness and to
evaluate the level of potential credit risk to us. Based on the information
obtained, specific follow-up policies will be established and the adequacy of
our allowance for loan losses will be assessed. The results of the assessment
will be reflected in the assignment of an appropriate risk rating in our loan
grading system. On an ongoing basis, we are also contacting significant third
parties with which we conduct business to determine the status of their Year
2000 compliance efforts.
Despite these actions, we cannot guarantee that significant customers or
critical third parties will adequately address their Year 2000 issues.
Consequently, we are developing contingency plans to help mitigate the risks
associated with: (1) potential delays in completing the renovation, validation
and implementation phases of our Year 2000 plans and (2) the failure of external
parties to adequately address their Year 2000 issues. These plans were well
underway by the 1998 year end and address primarily contingency solutions for
our core systems and the identification of alternative business partners.
Because the Year 2000 issue has never previously occurred, we are unable to
foresee or quantify the possible overall financial and operational impact or to
determine whether it will be material to our financial condition or operations.
The cost of the project, currently estimated to be $45 million to $50
million, and timing of its implementation are based on our management's best
estimates. We derived these estimates using numerous assumptions about future
events, including the continued availability of certain resources and other
factors. However, we cannot guarantee that these estimates will be achieved, and
actual results could differ materially from those anticipated. As of March 31,
1999, we had spent approximately $44 million of our total estimated project
cost. We currently expect that the estimated remaining cost of $1 million to $6
million will be recognized in 1999 and the first half of 2000. The total cost of
the project is being funded through operating cash flows.
SUPERVISION AND REGULATION
As a bank holding company, we are subject to regulation, supervision and
examination of the Federal Reserve under the Bank Holding Company Act. For a
discussion of the material elements of the regulatory framework applicable to
bank holding companies and their subsidiaries and specific information relevant
to us, reference is made to our annual report on Form 10-K for the fiscal year
ended December 31, 1998, incorporated by reference in this prospectus. 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 our business.
Our earnings 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 our bank subsidiaries, and the
Federal Deposit Insurance Corporation, which insures, up to applicable limits,
the deposits of all of our full-service
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<PAGE> 15
banking subsidiaries. In addition, there are numerous governmental requirements
and regulations which affect our business activities.
Depository institutions such as our bank subsidiaries are also affected by
various federal laws, including those relating to consumer protection and
similar matters. We also have 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 and
self-regulatory organizations. For example, our brokerage and asset management
subsidiaries are subject to supervision and regulation by the SEC, the NASD or
the NYSE and state securities regulators, and our insurance subsidiaries are
subject to regulation by the insurance regulatory authorities of the various
states. Our other nonbank subsidiaries may be subject to other laws and
regulations of the federal government or the various states in which they are
authorized to do business, or both.
KEYCORP CAPITAL III
KeyCorp Capital III is a statutory business trust created under Delaware
law. The trust was created under (1) a trust agreement, dated as of April 13,
1999, executed by us, as depositor, Daniel R. Stolzer, as trustee, and Bankers
Trust (Delaware), as trustee, and (2) the filing of a certificate of trust with
the Delaware Secretary of State on April 13, 1999. This trust agreement will be
amended and restated in its entirety, substantially in the form filed as an
exhibit to the registration statement.
The trust will issue the capital securities and the common securities under
the amended trust agreement. The capital securities will represent preferred
undivided beneficial interests in the assets of the trust, and the common
securities will represent common undivided beneficial interests in the assets of
the trust.
At the closing of the offering, we will purchase all of the common
securities from the trust. The common securities will represent at least 3% of
the trust's total capital at the closing. The capital securities will represent
the remaining 97% or less of the trust's total capital at the closing. We will
continue to hold all the common securities, directly or through our
subsidiaries, after the closing.
The trust exists solely for the following purposes:
-- to issue and sell the capital securities and common securities;
-- to use the proceeds from the sale of the capital securities and
common securities to acquire the junior debentures; and
-- to engage only in those other activities that are necessary or
incidental to those activities.
The trust will have no assets other than the junior debentures and the
right to receive reimbursement of certain expenses under an expense agreement.
Consequently, the trust will have no revenue other than payments under the
junior debentures and the expense agreement.
The trust has a term of approximately 31 years but may dissolve earlier as
provided in the amended trust agreement. The Trust's business and affairs will
be conducted by its trustees. The trustees will include Bankers Trust Company,
as property trustee, and Bankers Trust (Delaware), as Delaware trustee. In
addition, as the holder of the common securities, we will select two individuals
who will act as administrative trustees of the trust. The administrative
trustees will initially be our employees or officers.
We will fully, irrevocably and unconditionally guarantee the capital
securities to the extent that the trust has funds sufficient to make payments.
We also will reimburse the trust for all of its expenses and liabilities other
than the trust's obligations under the capital securities and the common
securities. We will also pay the expenses of this offering, including the
underwriters' commissions.
The trust does not have separate financial statements. The statements would
not be material to holders of the capital securities because the trust has no
independent operations. In addition, we anticipate that the trust will not be
subject to the reporting requirements of the Securities Exchange Act of 1934.
The principal executive office of the trust is 127 Public Square,
Cleveland, Ohio 44144-1306, Attention: Office of the Secretary, and its
telephone number is (216) 689-6300.
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<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents summary consolidated financial data for each
of the years in the five-year period ended December 31, 1998 and for each of the
quarterly periods ended March 31, 1999 and 1998. The data (except for ratios)
for each of the years in the five-year period ended December 31, 1998 has been
derived from, and should be read in conjunction with, our audited consolidated
financial statements, accompanying notes and other information pertaining to us
included in the documents incorporated by reference in this prospectus. The data
presented for the three-month periods ended March 31, 1999 and 1998 are not
necessarily indicative of the data for the entire year and have been derived
from, and should be read in conjunction with, our unaudited consolidated
financial statements incorporated by reference in this prospectus. 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 these interim periods.
This summary is qualified in its entirety by the detailed information
included in those documents incorporated by reference in this prospectus. The
comparability of the data presented is affected by certain acquisitions and
divestitures that we have completed in the periods presented. During the first
quarter of 1999, we reclassified the distributions on capital securities from
noninterest expense to interest expense. Where applicable, all information
presented in the following table has been restated to conform to the current
presentation.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED) (AUDITED (EXCEPT RATIOS))
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD
Interest income.............................. $ 1,381 $ 1,327 $ 5,525 $ 5,262 $ 4,951 $ 5,121 $ 4,490
Interest expense............................. 696 677 2,841 2,517 2,237 2,485 1,797
Net interest income.......................... 685 650 2,684 2,745 2,714 2,636 2,693
Provision for loan losses.................... 111 77 297 320 197 100 125
Noninterest income........................... 609 356 1,575 1,306 1,087 933 883
Noninterest expense.......................... 748 586 2,483 2,386 2,461 2,312 2,168
Income before income taxes and extraordinary
item....................................... 435 343 1,479 1,345 1,143 1,157 1,283
Income before extraordinary item............. 293 235 996 919 783 789 853
Net income................................... 293 235 996 919 783 825 853
Net income applicable to Common Shares....... 293 235 996 919 775 809 837
PER COMMON SHARE
Income before extraordinary item............. $ .65 $ .53 $ 2.25 $ 2.09 $ 1.69 $ 1.65 $ 1.72
Net income................................... .65 .53 2.25 2.09 1.69 1.73 1.72
Net income-assuming dilution................. .65 .53 2.23 2.07 1.67 1.71 1.70
Cash dividends............................... .26 .235 .94 .84 .76 .72 .64
Book value at period end..................... 13.63 12.15 13.63 11.83 10.92 10.68 9.44
Weighted average Common Shares (000)......... 449,520 438,589 441,895 439,042 459,810 469,574 486,134
Weighted average Common Shares and potential
Common Shares (000)........................ 454,197 444,836 447,437 444,544 464,282 472,882 490,932
AT PERIOD END
Loans........................................ $ 61,045 $ 54,900 $ 62,012 $ 53,380 $ 49,235 $ 48,332 $ 46,579
Earning assets............................... 70,458 64,368 70,240 64,246 59,260 58,762 60,047
Total assets................................. 79,992 73,198 80,020 73,699 67,621 66,339 66,801
Deposits..................................... 41,323 41,661 42,583 45,073 45,317 47,282 48,564
Long-term debt............................... 15,457 9,041 12,967 7,446 4,213 4,003 3,570
Capital securities........................... 1,244 750 997 750 500 - -
Common shareholders' equity.................. 6,105 5,338 6,167 5,181 4,881 4,993 4,530
Total shareholders' equity................... 6,105 5,338 6,167 5,181 4,881 5,153 4,690
</TABLE>
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<PAGE> 17
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED) (AUDITED (EXCEPT RATIOS))
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS
Return on average total assets............... 1.49% 1.32% 1.32% 1.33% 1.21% 1.24% 1.36%
Return on average common equity.............. 19.48 18.25 17.97 18.89 15.73 17.35 18.87
Return on average total equity............... 19.48 18.25 17.97 18.89 15.64 17.10 18.56
Efficiency(1)................................ 60.22 58.19 58.49 58.21 60.88 63.03 59.39
Overhead(2).................................. 33.19 36.12 35.17 40.34 45.51 49.66 46.14
Net interest margin (taxable equivalent)..... 3.95 4.14 4.08 4.54 4.78 4.47 4.83
CAPITAL RATIOS AT PERIOD END
Equity to assets............................. 7.63% 7.29% 7.71% 7.03% 7.22% 7.77% 7.03%
Tangible equity to tangible assets........... 5.86 5.81 5.93 5.52 5.88 6.25 6.19
Tier 1 risk-adjusted capital................. 7.44 6.81 7.21 6.65 7.98 7.53 8.48
Total risk-adjusted capital.................. 11.92 11.38 11.69 10.83 13.01 10.85 11.62
Leverage..................................... 7.21 6.61 6.95 6.40 6.93 6.20 6.63
ASSET QUALITY DATA
Nonperforming loans.......................... $ 395 $ 373 $ 365 $ 381 $ 349 $ 333 $ 256
Nonperforming assets......................... 430 421 404 431 400 379 340
Allowance for loan losses.................... 930 900 900 900 870 876 830
Net loan charge-offs......................... 81 77 297 293 195 99 109
Nonperforming loans to period end loans...... .65% .68% .59% .71% .71% .69% .55%
Nonperforming assets to period end loans plus
OREO and other nonperforming assets........ .70 .77 .65 .81 .81 .78 .73
Allowance for loan losses to nonperforming
loans...................................... 235.44 241.29 246.58 236.22 249.28 263.15 324.27
Allowance for loan losses to period end
loans...................................... 1.52 1.64 1.45 1.69 1.77 1.81 1.78
Net loan charge-offs to average loans........ .53 .58 .52 .57 .40 .21 .25
</TABLE>
- ---------------
(1) The efficiency ratio is noninterest expense, excluding certain nonrecurring
charges, divided by taxable-equivalent net interest income plus noninterest
income, excluding net securities transactions and gains from certain
divestitures.
(2) Overhead is noninterest expense, excluding certain nonrecurring charges,
less noninterest income, excluding net securities transactions and gains
from certain divestitures, divided by taxable-equivalent net interest
income.
---------------
The basis for the capital ratios presented in the table above is as
follows:
-- Tier 1 capital consists of: (1) common shareholders' equity,
excluding net unrealized gains or losses on securities, except for
net unrealized losses on marketable equity securities, (2) perpetual
preferred stock and (3) capital securities; less goodwill and other
non-qualifying intangible assets.
-- Total risk-adjusted capital consists of: (1) Tier 1 capital, (2)
subordinated debt, (3) qualifying preferred stock, (4) the qualifying
portion of the allowance for loan losses and (5) the qualifying
portion of certain unrealized net holding gains. At least half of a
bank holding company's total capital is required to be comprised of
Tier 1 capital.
-- The leverage ratio is 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 either
have the highest supervisory rating or have implemented the Federal
Reserve's risk-based capital measures for market risk.
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<PAGE> 18
USE OF PROCEEDS
The trust will invest all of the proceeds from the sale of the capital
securities and the common securities in the junior debentures. We will use the
net proceeds from the sale of our junior debentures to the trust for general
corporate purposes. These purposes may include:
-- investments in subsidiaries;
-- extensions of credit to subsidiaries;
-- repurchases or redemptions of our capital stock; and
-- possible future acquisitions including, without limitation, the
acquisition of banking and nonbanking companies and financial assets
and liabilities.
We have not specifically allocated the proceeds to these purposes, although
our management has determined that funds should be borrowed at this time. The
precise amount and timing of investments in, or extensions of credit to, our
subsidiaries will depend on our subsidiaries' funding requirements and the
availability of other funds. We may temporarily invest the net proceeds or apply
the net proceeds to the reduction of short-term indebtedness.
ACCOUNTING TREATMENT
For financial reporting purposes, the trust will be treated as our
subsidiary. Accordingly, the accounts of the trust will be included in our
consolidated financial statements.
The capital securities will be included as a component of total liabilities
and represented in a separate line item in our consolidated balance sheets. The
separate line item is entitled "Corporation-obligated mandatorily redeemable
preferred capital securities of subsidiary trusts holding solely debentures of
the Corporation". Appropriate disclosures about the capital securities, the
guarantee and the junior debentures will be included in the notes to our
consolidated financial statements. For financial reporting purposes, we will
record distributions payable on the capital securities as interest expense in
our consolidated statements of income.
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<PAGE> 19
CAPITALIZATION
The following table sets forth our consolidated capitalization (1) as of
March 31, 1999 and (2) as adjusted to give effect to the consummation of the
offering of the capital securities.
You should read the following data in conjunction with our consolidated
financial statements and information incorporated by reference in this
prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------
OUTSTANDING ADJUSTED
-------------------------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C>
LONG-TERM DEBT
KeyCorp
Senior medium-term notes due through 2005(1).............. $ 401 $ 401
Subordinated medium-term notes due through 2005(2)........ 133 133
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 capital notes due 1999................. 75 75
8.404% Notes due through 2001............................. 34 34
All other long-term debt.................................. 5 5
------- -------
Total KeyCorp........................................... 1,422 1,422
Subsidiaries
Senior medium-term bank notes due through 2004(3)......... 9,499 9,499
Senior euro medium-term bank notes due through 2007(4).... 1,856 1,856
6.50% Subordinated remarketable securities due 2027....... 313 313
6.95% Subordinated notes due 2028......................... 300 300
7.25% Subordinated notes due 2005......................... 200 200
7.85% Subordinated notes due 2002......................... 93 93
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
7.30% Subordinated notes due 2011......................... 107 107
Lease financing debt due through 2004(5).................. 600 600
Federal Home Loan Bank Advances due through 2028(6)....... 237 237
------- -------
All other long-term debt.................................. 70 70
------- -------
Total subsidiaries...................................... 14,035 14,035
------- -------
Total long-term debt.................................... 15,457 15,457
CORPORATION-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
CAPITAL SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY
DEBENTURES OF THE CORPORATION
7.826% Capital securities due 2026(7)..................... 350 350
8.250% Capital securities due 2026(7)..................... 150 150
6.625% Capital securities due 2029(7)..................... 250 250
Floating rate capital securities due 2028(7).............. 247 247
6.875% Capital securities due 2029(7)..................... 247 247
% Capital securities due 20 (8)...................... -- 250
------- -------
Total capital securities................................ 1,244 1,494
------- -------
Total long-term debt, including capital securities...... 16,701 16,951
SHAREHOLDERS' EQUITY
Preferred stock, $1 par value; authorized 25,000,000
shares, none issued..................................... -- --
Common stock, $1 par value; authorized 1,400,000,000
shares; issued 491,888,780 shares....................... 492 492
Capital surplus........................................... 1,409 1,409
Retained earnings......................................... 5,369 5,369
Loans to ESOP trustee..................................... (34) (34)
Treasury stock, at cost (44,066,638 shares)............... (1,075) (1,075)
Accumulated other comprehensive loss...................... (56) (56)
------- -------
Total shareholders' equity.............................. 6,105 6,105
------- -------
Total capitalization.................................... $22,806 $23,056
</TABLE>
- ---------------
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<PAGE> 20
(1) The weighted average rate on the senior medium-term notes due through 2005
was 6.38%. 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 7.09%. These notes had a combination of both fixed and floating
interest rates.
(3) The weighted average rate on the senior medium-term bank notes due through
2004 was 5.11%. 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 5.33%. 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 5.99% and
represented primarily nonrecourse debt collateralized by lease equipment
under operating, direct financing and sales type leases.
(6) Long-term advances from the Federal Home Loan Bank had a weighted average
rate of 4.97%. These advances had a combination of both fixed and floating
interest rates.
(7) On December 4, 1996, a subsidiary trust of KeyCorp issued $350,000,000 of
capital securities that mature on December 1, 2026. On December 30, 1996, a
second subsidiary trust of KeyCorp issued $150,000,000 of capital securities
that mature on December 15, 2026. On May 30, 1997, a third subsidiary trust
of KeyCorp issued $250,000,000 of Coupon Adjusted Pass-Through Securities,
Series A, that mature on June 1, 2029. On June 25, 1998, a fourth subsidiary
trust of KeyCorp issued $247,000,000 of capital securities that mature on
July 1, 2028. On March 17, 1999, a fifth subsidiary trust of KeyCorp issued
$247,000,000 of capital securities that mature on March 17, 2029. These
capital securities have terms substantially identical to the capital
securities offered by this prospectus and accumulate distributions at an
annual rate of 7.826%, 8.250%, 6.625%, three-month LIBOR plus a margin of
.74% and 6.875%, respectively, of the liquidation amount of $1,000 per
capital security.
(8) The sole assets of the trust will be $ aggregate principal amount of the
junior debentures issued by us to the trust. The junior debentures will
mature on , 20 . We own all of the common securities of the trust.
We anticipate that the trust will not be subject to the reporting
requirements under the Securities Exchange Act of 1934.
19
<PAGE> 21
DESCRIPTION OF CAPITAL SECURITIES
This section summarizes the material provisions of the capital securities
and the amended trust agreement governing the trust. The amended trust agreement
and its associated documents, including the capital securities themselves,
contain the full legal text of the matters described in this section. We have
filed with the SEC a form of the amended trust agreement as an exhibit to our
registration statement. See "Where You Can Find More Information" on page 53 for
information on how to obtain a copy.
The amended trust agreement, the capital securities and the common
securities are governed by Delaware law.
ISSUANCE AND GENERAL CHARACTERISTICS
The trust will issue the capital securities and the common securities, with
a liquidation amount of $1,000 per security. The capital securities and the
common securities will rank equally with one another, and the trust will make
all payments on the capital securities proportionately with the common
securities, except under certain cases of default under the amended trust
agreement.
The trust will use the proceeds from the sale of the capital securities and
the common securities to purchase the junior debentures from us. We will issue
the junior debentures under an indenture between us and Bankers Trust Company as
further described in "Description of Junior Debentures -- Issuance and general
characteristics". Bankers Trust Company will also act as property trustee and
will hold legal title to the junior debentures in trust for the benefit of the
holders of the capital securities and common securities. We will guarantee, on a
subordinated basis, the payment of distributions and other amounts payable on
the capital securities, but only to the extent that the trust has funds
available on hand to make those payments. For further information on our
guarantee, see "Description of the Guarantee and the Expense Agreement".
The amended trust agreement will be qualified as an indenture under the
Trust Indenture Act. The property trustee will act as indenture trustee for the
capital securities, in order to comply with the provisions of the Trust
Indenture Act.
The capital securities will be represented by a global security that will
be deposited with and registered in the name of The Depository Trust Company or
its nominee. Whenever we refer to a "holder" of capital securities in this
prospectus, we mean the registered holder, which, for any capital securities in
book-entry form, will be DTC or its nominee. We discuss matters relevant to
global securities under the caption "Book-Entry Issuance".
DISTRIBUTIONS
Distributions will accumulate on the capital securities from their original
issue date, at the annual rate of % of their liquidation amount, or
$ per year per capital security. Unless deferred as described below,
distributions will be payable semi-annually in arrears on and of each
year to the holders of the capital securities at the close of business on the
or next preceding the relevant distribution date. The first
distribution date will be , 1999. The amount of distributions payable
for any period will be computed on the basis of a 360-day year of twelve 30-day
months.
The trust will have no funds to distribute in respect of the capital
securities other than the payments it receives from us in respect of the junior
debentures. Consequently, if we defer or for any other reason fail to make
interest payments on the junior debentures, the trust will not have funds
available to pay distributions on the capital securities. We have no current
intention to exercise our right to defer interest payments on the junior
debentures.
Deferral periods. As long as no event of default under the indenture, as
described under "Description of Junior Debentures -- Indenture events of
default", has occurred and is continuing, we have the right under the indenture
to defer the payment of interest on the junior debentures at any time and in
each case for a period not exceeding 10 consecutive semi-annual periods. No
deferral period may extend beyond the stated maturity of the junior debentures.
Before a deferral period ends, we may extend it further, subject to the limit
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described above. When a deferral period ends and we have paid all interest then
accrued and unpaid on the junior debentures, we may begin a new deferral period,
so long as no event of default under the indenture has occurred and is
continuing. There is no particular limit on the number of deferral periods that
we may begin.
If we elect to defer interest payments on the junior debentures, the trust
will defer the payment of distributions on the capital securities during the
related deferral period. However, during a deferral period, distributions will
continue to accumulate on the capital securities and additional distributions
will accumulate on each deferred distribution payment at the annual rate of
%, compounded semi-annually from the corresponding distribution date. The
term "distribution", wherever we use it in this prospectus, includes any of
these additional distributions. During a deferral period, holders of capital
securities will continue to be required to accrue interest income for U.S.
federal income tax purposes. For further information on tax consequences, see
"U.S. Federal Income Tax Considerations -- Interest income and original issue
discount".
Any distributions that would otherwise become due and payable during a
deferral period will not become due and payable until the day after the period
ends. If any capital securities become subject to redemption during a deferral
period, that period will end automatically on the day before the redemption
date.
We must give the property trustee and the holders of capital securities
notice of our election to begin or extend a deferral period. In general, each
notice must be given at least one business day before the record date for the
distribution date on which distributions would have been payable but for the
election. We must notify the holders in the manner described below in
"-- Notices".
Deferral period restrictions. The indenture provides that, during any
deferral period, neither we nor any of our subsidiaries may take any of the
following actions:
-- declare or pay any dividend or other distribution on, or redeem,
purchase or otherwise acquire any of our capital stock;
-- pay any principal, interest or other amount in respect of, or redeem,
purchase or otherwise acquire, any of our debt securities that rank
equally with or junior to the junior debentures; or
-- make a guarantee payment with respect to our guarantees of our
subsidiaries' securities that rank equally in all respects or junior
to the junior debentures.
The indenture restriction described above provides for significant
exceptions. Any of the following that would otherwise be covered by this
restriction will nevertheless be permitted:
-- any transaction in which the only consideration given or to be given
by us or any of our subsidiaries is junior securities, as defined
below;
-- any transaction in connection with or arising from:
-- any employment contract, benefit plan or other similar arrangement
with, or for the benefit of, one or more of our employees, officers,
directors or consultants;
-- any dividend reinvestment or stockholders' rights plans; and
-- any issuance of junior securities as consideration in an acquisition
transaction entered into before the applicable deferrable period;
-- any exchange or conversion of any class or series of our capital
stock or indebtedness into or for any other class or series of our
capital stock;
-- any purchase of fractional interests in our capital stock pursuant to
the conversion or exchange provisions of a security being converted
into or exchanged for capital stock; and
-- any declaration or payment of a dividend, issuance of rights, stock
or other property or redemption or other acquisition of rights in
connection with any stockholder rights plan.
"Junior securities" means (1) our capital stock or debt securities that rank, in
right of payment in all respects, equally with or junior to the junior
debentures and (2) warrants, options and other rights to acquire capital stock
or debt securities of the kind described in clause (1).
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REDEMPTION
The capital securities will remain outstanding until the trust redeems them
or distributes the junior debentures in exchange for the capital securities. Any
redemption of capital securities must occur as described below.
Redemption of capital securities. If we repay or redeem the junior
debentures at any time, the trust will be obligated to redeem a like amount of
capital securities and common securities. The redemption of the capital
securities will occur on the redemption date, which means the date on which
payment of the principal of those junior debentures becomes due under the
indenture. The redemption price for the capital securities will be the total
liquidation amount of the capital securities being redeemed plus (1) accumulated
but unpaid distributions up to but excluding the redemption date and (2) the
related amount of the premium, if any, paid by us on the concurrent redemption
of the junior debentures.
Repayment and redemption of junior debentures. We may redeem the junior
debentures before their stated maturity as follows:
(1) in whole at any time or in part from time to time, provided that no partial
redemption may occur during a deferral period; or
(2) in whole at any time within 90 days after the occurrence of a Tax Event or
a Capital Treatment Event, each as defined below.
If we elect to redeem the junior debentures, we will do so at the relevant
redemption price. The redemption price will equal accrued and unpaid interest on
the junior debentures being redeemed plus the greater of:
-- 100% of the principal amount of the junior debentures being redeemed;
or
-- as determined by a Quotation Agent, the sum of the present value of
scheduled payments of principal and interest from the redemption date
to , 20 on the junior debentures being redeemed, discounted to
the redemption date on a semi-annual basis at a discount rate equal
to the Treasury Rate plus %, in the case of a redemption under
clause (1) above, or plus %, in the case of a redemption under
clause (2) above.
Definition of Quotation Agent "Quotation Agent" means . However,
if ceases to be a primary U.S. Government securities dealer in New
York City, we will replace them with another primary U.S. Government securities
dealer.
Definition of Treasury Rate. "Treasury Rate" means (1) the yield, under the
heading which represents the average for the week immediately prior to the date
of calculation, appearing in the most recently published statistical release
designated H.15(519) or any successor publication which is published weekly by
the Federal Reserve and which establishes yields on actively traded U.S.
Treasury securities adjusted to constant maturity under the caption "Treasury
Constant Maturities", for the maturity corresponding to the time period from the
redemption date to , 20 , or if no maturity is within three months
before or after this time period, yields for the two published maturities most
closely corresponding to this time period will be determined and the Treasury
Rate will be interpolated or extrapolated from those yields on a straight-line
basis, rounding to the nearest month, or (2) if the release or any successor
release is not published during the week preceding the calculation date or does
not contain such yields, the annual rate equal to the semi-annual equivalent
yield to maturity of the Comparable Treasury Issue, calculated using a price for
the Comparable Treasury Issue, expressed as a percentage of its principal
amount, equal to the Comparable Treasury Price for the redemption date. The
Treasury Rate shall be calculated on the third business day preceding the
redemption date.
Definition of Comparable Treasury Issue. "Comparable Treasury Issue" means
with respect to any redemption date the U.S. Treasury security selected by the
Quotation Agent as having a maturity comparable to the time period from the
redemption date to , 20 that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to this time period.
If no U.S. Treasury security has a maturity which is
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within a period from three months before to three months after , 20 ,
the two most closely corresponding U.S. Treasury securities shall be used as the
Comparable Treasury Issue, and the Treasury Rate shall be interpolated or
extrapolated on a straight-line basis, rounding to the nearest month using such
securities.
Definition of Comparable Treasury Price. "Comparable Treasury Price" means
(a) the average of five Reference Treasury Dealer Quotations for such redemption
date, after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (b) if the debenture trustee obtains fewer than five such
Reference Treasury Dealer Quotations, the average of all such quotations.
Definition of Reference Treasury Dealer Quotations. "Reference Treasury
Dealer Quotations" means, with respect to each Reference Treasury Dealer and any
redemption date, the average, as determined by the debenture trustee, of the bid
and asked prices for the Comparable Treasury Issue, expressed in each case as a
percentage of its principal amount, quoted in writing to the debenture trustee
by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third
business day preceding such redemption date.
Definition of Reference Treasury Dealer. "Reference Treasury Dealer" means
(1) the Quotation Agent and (2) any other primary U.S. Government securities
dealer selected by the debenture trustee after consultation with us.
Definition of business day. As used in this prospectus, "business day"
means a day other than (1) a Saturday or Sunday, (2) a day on which banking
institutions in The City of New York are authorized or required by law or
executive order to remain closed, or (3) a day on which the property trustee's
Corporate Trust Office or the Corporate Trust Office of the debenture trustee is
closed for business.
Definition of Capital Treatment Event. "Capital Treatment Event" means the
reasonable determination by us that as a result of:
-- any amendment to or change, including any announced prospective
change, in the laws, or any rules or regulations under the laws, of
the United States or of any political subdivision of or in the United
States, if the amendment or change is effective on or after the date
of this prospectus or
-- any official or administrative pronouncement or action or any
judicial decision interpreting or applying such laws or regulations,
if the pronouncement, action or decision is announced on or after the
date of this prospectus,
there is more than an insubstantial risk that we will not be entitled to treat
the liquidation amount of the capital securities as "Tier 1" capital for
purposes of the applicable Federal Reserve capital adequacy guidelines as then
in effect.
Definition of Tax Event. "Tax Event" means the receipt by us and the trust
of an opinion of independent counsel, experienced in the following matters, to
the following effect:
As a result of any tax change, there is more than an insubstantial risk that any
of the following will occur:
(1) the trust is, or will be within 90 days after the date of the opinion of
counsel, subject to U.S. federal income tax on income received or accrued
on the junior debentures;
(2) interest payable by us on the junior debentures is not, or within 90 days
after the opinion of counsel will not be, deductible by us, in whole or in
part, for U.S. federal income tax purposes; or
(3) the trust is, or will be within 90 days after the date of the opinion of
counsel, subject to more than a de minimis amount of other taxes, duties or
other governmental charges.
As used above, "tax change" means any of the following:
-- any amendment to or change, including any announced prospective
change, in the laws or any regulations under the laws of the United
States or of any political subdivision or taxing authority of or in
the United States, if the amendment or change is enacted, promulgated
or announced on or after the date of this prospectus; or
-- any official administrative pronouncement, including any private
letter ruling, technical advice memorandum, field service advice,
regulatory procedure, notice or announcement, including any
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notice or announcement of intent to adopt any procedures or
regulations, or any judicial decision interpreting or applying such
laws or regulations, whether or not the pronouncement or decision is
issued to or in connection with a proceeding involving us or the
trust or is subject to review or appeal, if the pronouncement or
decision is enacted, promulgated or announced on or after the date of
this prospectus.
Payment of additional amounts. The indenture provides that, if a Tax Event
described in items (1) and (3) of the definition of Tax Event above has occurred
and is continuing and we do not redeem the junior debentures, we may be required
to pay additional sums on the junior debentures. These additional sums would be
those amounts necessary to ensure that distributions due and payable on the
capital securities and common securities will not be reduced as a result of any
additional taxes, duties and other governmental charges to which the trust has
become subject as a result of a Tax Event.
Redemption procedures. The property trustee will give notice of any
redemption of capital securities to the holders of capital securities not less
than 30 nor more than 60 days before the redemption date, unless the redemption
results from acceleration of the maturity of the junior debentures and the
property trustee cannot reasonably give this notice during this period. In that
case, the property trustee will give the notice as soon as practicable. In all
cases, the property trustee will give the notice of redemption in the manner
described below under "-- Notices".
Payment of the redemption price for any capital securities will be made
against surrender of the certificates representing those capital securities, or,
in the case of any capital securities held in book-entry form, in accordance
with the applicable procedures of DTC. However, any distributions that are
payable on or before the redemption date will be payable to the persons who are
the holders of those capital securities on the record date for the distribution.
If the property trustee gives a notice of redemption, the property trustee
will deposit funds sufficient to pay the redemption price for all capital
securities to be redeemed on that date to the extent the funds are available to
the property trustee. The property trustee, in the case of book-entry capital
securities, or the paying agent, in the case of non-book-entry capital
securities, will irrevocably deposit these amounts with DTC by noon, New York
City time, on the redemption date. If the property trustee gives notice of
redemption and deposits funds as required under the amended trust agreement then
upon the date of deposit all rights of the holders of the capital securities
called for redemption will cease, except the right of those holders to receive
the redemption price, without interest, and those capital securities will cease
to be outstanding. If payment of the redemption price for any capital securities
called for redemption is improperly withheld or refused and not paid either by
the trust or by us under the guarantee, or if notice of redemption is not given
as required, distributions on those capital securities will continue to
accumulate from the original redemption date to the date the redemption price is
actually paid.
If the trust redeems less than all the capital securities and common
securities, the aggregate liquidation amount of capital securities and common
securities to be redeemed will be allocated proportionately between the
outstanding capital securities and the outstanding common securities, based upon
their respective aggregate liquidation amounts. Not more than 60 days prior to
the redemption date, the property trustee will select the capital securities to
be redeemed from among the outstanding capital securities not previously called
for redemption. The property trustee may use any method of selection that it
deems to be fair and appropriate, including any method that involves the
redemption of a portion of the aggregate liquidation amount of any particular
holder's capital securities.
Other purchases of capital securities. Subject to applicable law, we may,
and our subsidiaries may, purchase outstanding capital securities by tender, in
the open market or by private agreement. These purchases may occur at any time
and from time to time.
EXCHANGE OF CAPITAL SECURITIES FOR JUNIOR DEBENTURES
As the holders of the common securities, we may dissolve the trust at any
time in our sole discretion subject to the prior approval of the Federal
Reserve, if then required. Upon such an election, the property
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trustee will dissolve the trust and satisfy liabilities to creditors, if any.
The property trustee will then distribute to the holders of the outstanding
capital securities and common securities, a like amount of junior debentures in
exchange for those securities. In this context, "like amount" means junior
debentures having an aggregate principal amount equal to the aggregate
liquidation amount of all outstanding capital securities and common securities.
If an exchange distribution occurs, we will use our best efforts to include
the junior debentures on those stock exchanges or other automated quotation
systems on which the capital securities are then listed or traded.
Exchange Procedures. The property trustee will notify holders of capital
securities of any exchange not less than 30 nor more than 60 days before the
exchange date, in the manner described below under "-- Notices". On the exchange
date, the following will occur:
-- the capital securities will cease to be outstanding;
-- DTC or its nominee will receive certificates representing the junior
debentures to be distributed in exchange for all capital securities
held in book-entry form, with those junior debentures also being in
book-entry form;
-- any certificates representing capital securities in non-book-entry
form will be deemed to represent a like amount of junior debentures,
bearing accrued and unpaid interest in an amount equal to the
accumulated and unpaid distributions on those capital securities,
until those certificates are presented to the paying agent for
exchange or transfer; and
-- all rights of the holders of capital securities will cease, except
for the right of holders of capital securities in non-book-entry form
to receive certificates representing junior debentures in non-book-
entry form upon surrender of the certificates representing their
capital securities.
LIQUIDATION DISTRIBUTION UPON TERMINATION
Under the amended trust agreement, the trust will automatically dissolve
upon the occurrence of any of the following events:
-- the expiration of its term of approximately 31 years;
-- certain events of bankruptcy, dissolution or liquidation of KeyCorp;
-- distribution of the junior debentures in exchange for the capital
securities and common securities, upon our election to dissolve the
trust, as described above under "-- Exchange of capital securities
for junior debentures";
-- redemption of all the capital securities; or
-- the entry of an order for the dissolution of the trust by a court of
competent jurisdiction.
If the trust dissolves while the capital securities are outstanding, the
property trustee will liquidate the trust as expeditiously as the property
trustee determines to be possible. After the property trustee satisfies
liabilities of the trust's creditors, it will distribute to the holders of the
outstanding capital securities and the common securities, a like amount of the
junior debentures.
If the property trustee determines that an exchange distribution is not
practical, each holder of outstanding capital securities will be entitled to
receive out of the available assets of the trust, after satisfaction of
liabilities to creditors of the trust, an amount equal to the liquidation
distribution. The "liquidation distribution" for any capital securities will
equal the aggregate liquidation amount of those capital securities plus all
accrued and unpaid distributions on them to the date of payment. If the
liquidation distribution for all outstanding capital securities can be paid only
in part because the trust has insufficient assets available to pay it in full,
the amounts payable by the trust on the capital securities will be paid
proportionately, based on their respective liquidation distributions.
On any liquidation of the trust, the holders of the common securities will
be entitled to receive distributions proportionately with the holders of the
capital securities, unless an event of default under the
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amended trust agreement, a "trust event of default", has occurred and is
continuing. In that case, the capital securities will have priority in right of
payment over the common securities, as described below under "-- Priority over
common securities".
PRIORITY OVER COMMON SECURITIES
Payment of distributions and the redemption price will be made on the
capital securities and the common securities proportionately, based on the
respective aggregate liquidation amounts of the two classes, except as follows.
If a trust event of default has occurred and is continuing, the trust will not
pay any distribution or redemption price, or make any liquidation distribution,
in respect of the common securities on any day unless the following have
occurred:
-- in the case of any distribution to be paid, all accumulated and
unpaid distributions on all outstanding capital securities for all
distribution periods ending on or before the payment day have been
paid or duly provided for in cash;
-- in the case of any redemption price to be paid, the redemption price
on all outstanding capital securities called on or before the payment
day for redemption has been paid or duly provided for in cash; and
-- in the case of a liquidation distribution to be made, the liquidation
distribution on all outstanding capital securities has been made or
duly provided for.
Accordingly, if a trust event of default has occurred and is continuing,
whenever any distributions or redemption price is due and payable in respect of
the capital securities, the property trustee will apply all available funds to
the payment of those amounts in full in cash before making any payment in
respect of the common securities.
The trust will not make any payment or other distribution in respect of the
common securities, including on account of any purchase or other acquisition,
while the capital securities are outstanding, other than distributions, the
redemption price and the liquidation distribution on the terms set forth in the
amended trust agreement.
If a trust event of default occurs as a result of an indenture event of
default, the holders of the common securities will be treated as having waived
all rights to act with respect to the trust event of default until all trust
events of default have been cured, waived or otherwise eliminated. Until that
time, the property trustee will act solely on behalf of the holders of the
capital securities and not on behalf of the holders of the common securities,
and only the holders of the capital securities will have the right to direct the
property trustee to act on their behalf.
TRUST EVENTS OF DEFAULT
Any one of the following events will be a "trust event of default" under
the amended trust agreement:
-- the occurrence of an "indenture event of default" under the
indenture, see "Description of Junior Debentures -- Indenture events
of default";
-- default by the trust in the payment of any distribution when it
becomes due and payable and continuation of the default for 30 days;
-- default by the trust in the payment of any redemption price when it
becomes due and payable;
-- material default or breach under any covenant or warranty of the
property trustee or Delaware trustee under the amended trust
agreement, and continuation of the default or breach for 60 days
after a notice of default has been given; a notice of default may be
given only by the holders of at least 25% of the outstanding capital
securities, as provided under the amended trust agreement; and
-- 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.
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Within five business days after learning about a trust event of default,
the property trustee will notify the administrative trustees and the holders of
the outstanding capital securities and common securities, unless the trust event
of default has been cured or waived.
We, as depositor, and the administrative trustees are obligated to file
annually with the property trustee a certificate as to whether or not we are in
compliance with all the conditions and covenants applicable to us under the
amended trust agreement.
ENFORCEMENT RIGHTS
If an indenture event of default occurs, the holders of capital securities
must rely on the property trustee, as the holder of the junior debentures, to
enforce their rights under the junior debentures and the indenture against us,
subject to the following.
Right to direct property trustee's actions. The holders of a majority of
outstanding capital securities will have the right to direct the time, method
and place of conducting any proceeding for any remedy available to, or
exercising any trust or power conferred on, the property trustee under the
amended trust agreement. This includes the right to direct the property trustee
to exercise the remedies available to it as the holder of the junior debentures.
Accordingly, the property trustee will not take any of the following actions
without obtaining the prior approval of the holders of a majority of the
outstanding capital securities, or, in the case of any action that under the
indenture may be taken only with the prior consent of each affected holder of
junior debentures, without the prior consent of each holder of outstanding
capital securities:
-- direct the time, method or place of conducting any proceeding for any
remedy available to, or executing any trust or power conferred on,
the indenture trustee with respect to the junior debentures;
-- waive any past default that may be waived under the indenture;
-- exercise any right to rescind or annul a declaration that the
principal of all the junior debentures be due and payable;
-- consent to any amendment, modification or termination of the
indenture or the junior debentures, if the consent of any holder of
junior debentures is required under the indenture; or
-- revoke any action previously authorized or approved by the holders of
the capital securities except by or with the subsequent authorization
or approval of the holders of the capital securities.
Before taking any of the actions described above, the property trustee must
also obtain, at our expense, an opinion of counsel, experienced in the following
matters, to the effect that the action will not cause the trust to be classified
as an association taxable as a corporation, or as other than a grantor trust,
for U.S. federal income tax purposes. The property trustee will notify the
holders of capital securities of any notice of default with respect to the
junior debentures, in the manner described below under "-- Notices".
Any required approval of holders of capital securities may be given by
written consent, without prior notice, or at a meeting convened for that
purpose. The property trustee must cause a notice to be given to the holders of
capital securities of any meeting at which holders of capital securities are
entitled to vote, in the manner described below under "-- Notices".
Right of direct action. If an indenture event of default has occurred and
is continuing and is attributable to our failure to pay any interest or
principal on the junior debentures when due and payable, a holder of capital
securities may begin a legal proceeding directly against us for enforcement of
payment to that holder of the interest or principal due and payable on a like
amount of junior debentures. We may not amend the indenture to remove the right
of any holder of outstanding capital securities to bring a direct action without
the prior written consent of that holder.
We will have the right under the indenture to set off any payment made to a
holder of capital securities in connection with a direct action. Except for the
right to bring a direct action, holders of capital securities will not have the
right to exercise directly against us any remedy available to a holder of junior
debentures.
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Right to accelerate junior debentures. If the holders of junior debentures
do not exercise their rights under the indenture to:
-- accelerate the maturity of the junior debentures when an indenture
event of default has occurred and is continuing,
-- annul a declaration of acceleration of the junior debentures, and
-- waive certain defaults under the indenture,
then the holders of certain minimum percentages of the outstanding capital
securities will be entitled to exercise these specified rights. See "Description
of Junior Debentures -- Indenture events of default".
MERGERS, CONSOLIDATIONS, AMALGAMATIONS AND REPLACEMENTS OF THE TRUST
At our request and with the consent of the holders of a majority of the
capital securities, the trust may merge with or into, or consolidate or
amalgamate with, or be replaced by, or convey, transfer or lease its properties
and assets substantially as an entirety to, another entity. Each of these
mentioned transactions, referred to as "trust successor transactions", may be
consummated only if the other entity is organized as a trust under the laws of
any state in the United States and only if all the following requirements are
met:
-- the successor entity, if not the trust, either (1) expressly assumes
all the obligations of the trust with respect to the capital
securities or (2) substitutes for the capital securities other
securities having substantially the same terms as the capital
securities, or "successor securities", provided that these successor
securities rank at least as high as the capital securities rank with
regard to the priority in right of payment of all distributions and
other amounts payable upon liquidation, redemption and otherwise;
-- the successor entity, if not the trust, has a purpose substantially
identical to that of the trust;
-- a trustee of the successor entity, if not the trust, possessing the
same powers and duties as the property trustee is appointed to hold
the junior debentures;
-- the trust successor transaction does not cause the capital
securities, or any successor securities, to be downgraded by any
nationally recognized statistical rating organization that assigns
ratings to the capital securities;
-- the trust successor transaction does not adversely affect the rights,
preferences and privileges of the holders of the capital securities,
or any successor securities, in any material respect;
-- prior to the trust successor transaction, we and the trust have
received an opinion from our independent counsel, experienced in the
following matters, to the effect that (1) the trust successor
transaction will not adversely affect the rights, preferences and
privileges of the holders of the capital securities, or any successor
securities, in any material respect and (2) upon completion of the
trust successor transaction, the trust or the successor entity, as
applicable, will not be required to register as an investment company
under the Investment Company Act of 1940; and
-- we, or any permitted successor, together with our permitted
assignees, hold all the common securities of the trust or all
comparable securities of the successor entity, as applicable, and
guarantee the obligations of the successor entity, if not the trust,
in respect of the capital securities, or any successor securities, at
least to the extent provided by the guarantee.
Despite the foregoing, the trust may not engage in a trust successor
transaction that would cause the trust or the successor entity, as applicable,
to be classified as an association taxable as a corporation or as other than a
grantor trust for U.S. federal income tax purposes, unless it first obtains the
consent of all holders of outstanding capital securities.
AMENDMENT OF THE TRUST AGREEMENT
We, as holder of common securities, the property trustee and the Delaware
trustee, without the consent of the holders of the capital securities, may amend
the amended trust agreement from time to time to:
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-- cure any ambiguity, or correct or supplement any provision that may
be inconsistent with any other provision, in the amended trust
agreement;
-- make any provision with respect to matters or questions arising under
the amended trust agreement that is consistent with the other
provisions of the amended trust agreement; and
-- modify, eliminate or add to any provisions of the amended trust
agreement to any extent that may be necessary to ensure that the
trust will not be taxable as a corporation or be classified as other
than a grantor trust, or to ensure that the junior debentures are
treated as our indebtedness, for U.S. federal income tax purposes, or
to ensure that the trust will not be required to register as an
"investment company" under the Investment Company Act;
but only if the amendment does not adversely affect the interests of any holder
of capital securities in any material respect and does not become effective
until notice of the amendment is given to the holders of capital securities.
We and the trustees may also amend the amended trust agreement if all of
the following requirements are met:
-- we obtain the consent of the holders of not less than a majority of
the outstanding capital securities; and
-- the trustees receive an opinion of counsel to the effect that the
amendment or the exercise of any power granted to them in accordance
with the amendment will not result in the trust being taxable as a
corporation or being classified as other than a grantor trust, or the
junior debentures being treated as other than our indebtedness, for
U.S. federal income tax purposes or being required to register as an
"investment company" under the Investment Company Act.
Despite the foregoing, each holder of capital securities must consent to an
amendment of the amended trust agreement that does any of the following:
-- changes the amount or timing of any distribution or other payment, or
otherwise adversely affects the amount of any distribution or other
payment required to be made as of a specified date, in respect of
that holder's capital securities; or
-- restricts the right of that holder to institute suit for the
enforcement of any payment on those capital securities on or after
the date on which it becomes due and payable.
For the purpose of any vote or consent of holders of capital securities,
any capital securities owned by us, the property trustee, the Delaware trustee
or any affiliate of the foregoing will be treated as if they were not
outstanding.
VOTING RIGHTS
The holders of the capital securities will have no voting rights except as
provided under "-- Enforcement rights", "-- Amendment of the trust agreement",
"Description of Guarantee -- Amendments, assignment and succession", and as
otherwise required by law and the amended trust agreement.
NOTICES
Notices to be given to holders of capital securities held in book-entry
form will be given only to DTC in accordance with its applicable procedures.
Notices to be given to holders of capital securities held in non-book-entry form
may be given by mail to the respective addresses of the holders as they appear
in the security register and will be deemed duly given when mailed to those
addresses. Neither the failure to give any notice to a particular holder, nor
any defect in a notice given to a particular holder, will affect the sufficiency
of any notice given to another holder.
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PAYMENT AND PAYING AGENCY
Payments in respect of any capital securities held in book-entry form will
be made only to DTC or its nominee in accordance with DTC's applicable
procedures. Payments in respect of any capital securities not held in book-entry
form will be made at the offices of any paying agent. However, at our option,
distributions payable on non-book-entry capital securities may be paid by check
mailed to the persons entitled to receive them, at their addresses appearing on
the security register on the relevant record date.
The property trustee will initially serve as the paying agent. From time to
time, the property trustee may select one or more firms to act as the paying
agent or as co-paying agents. Each paying agent must be a bank or trust company
acceptable to the administrative trustees. A paying agent will be permitted to
resign as paying agent upon 30 days' written notice to the property trustee and
us. In the event there is no paying agent, the property trustee will appoint a
firm to act as paying agent.
If any distribution, redemption price or other amount is payable in respect
of the capital securities on a day that is not a business day, the payment may
be made on the next succeeding business day unless that business day is in a
different calendar year, in which case the payment may be made on the next
preceding business day.
The owners of beneficial interests in capital securities held in book-entry
form will not have any rights under the amended trust agreement or the indenture
to receive payments in respect of those capital securities. Those beneficial
owners will have only such rights as may exist under the applicable procedures
of DTC and its direct and indirect participants. For a description of certain
matters relating to securities held in book-entry form, see "Book-Entry
Issuance".
Any moneys deposited with the property trustee or any paying agent, or then
held in trust by us or the trust, for the payment of any amount due and payable
on any capital securities, and remaining unclaimed for two years after the
amount has become due and payable, will, at our request, be repaid to us.
Thereafter, the holders of those capital securities will look, as a general
unsecured creditor, only to us for payment thereof.
REGISTRAR AND TRANSFER AGENT
The property trustee will act as registrar and transfer agent for the
capital securities. The property trustee will exchange and register transfers of
capital securities without charge by or on behalf of the trust, but will require
payment of any tax or other governmental charge that may be imposed in
connection with the exchange or transfer. If any capital securities have been
called for redemption, the property trustee may refuse to register any transfer
of those capital securities.
THE TRUSTEES OF THE TRUST
Removal, appointment and successors. The holders of at least a majority of
the outstanding capital securities may remove either the property trustee or the
Delaware trustee for cause or, if an indenture event of default has occurred and
is continuing, with or without cause. If one of these trustees is removed by the
holders of the outstanding capital securities, the successor may be appointed by
the holders of at least 25% of the outstanding capital securities. If one of
these trustees resigns, it will appoint its successor. If the trustee fails to
appoint a successor, the holders of at least 25% of the outstanding capital
securities may appoint a successor. If a successor has not been appointed by the
holders, any holder of capital securities or common securities, or the other
trustee, may petition a court in the State of Delaware to appoint a successor.
As long as no indenture event of default has occurred and is continuing, we, as
the holder of the common securities, have the right to remove the property
trustee and the Delaware trustee at any time.
Any Delaware trustee must meet the applicable requirements of Delaware law.
Any property trustee must be a national or state-chartered bank and, at the time
of appointment, must have securities rated in one of the three highest rating
categories by a nationally recognized statistical rating organization and have
capital and surplus of at least $50,000,000. No resignation or removal of a
trustee, and no appointment of a successor trustee, will be effective until the
acceptance of appointment by the successor trustee in accordance with the
provisions of the amended trust agreement.
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In no event will the holders of the capital securities have the right to
vote to appoint, remove or replace the administrative trustees. We have this
exclusive right as the holder of the common securities.
Co-trustees and separate property trustee. As long as no event of default
has occurred and is continuing, in order to meet the legal requirement of the
Trust Indenture Act or of any other jurisdiction where any part of the trust
property may be located, we, as the holder of the common securities, and the
administrative trustees may at any time appoint a co-trustee or a separate
property trustee. We will vest the co-trustee, which will act jointly with the
property trustee, or the separate trustee with any property, title, right or
power sufficient to enable him to comply with the legal requirements of the
Trust Indenture Act or of any other jurisdiction.
If an indenture event of default is occurred and is continuing, the
property trustee will have the sole authority to appoint a co-trustee or a
separate trustee.
Merger, consolidation, etc. If the property trustee or the Delaware trustee
merges, consolidates with or converts into, another entity, or another entity
succeeds to all or substantially all the corporate trust business of that
trustee, that other entity will be the successor of that trustee under the
amended trust agreement, but only if that other entity is qualified and eligible
to be a trustee.
Duties of property trustee. The property trustee undertakes to perform only
those duties that are specifically set forth in the amended trust agreement. If,
however, a trust event of default is continuing, the property trustee 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 will have no obligation to exercise any of the powers vested in
it by the amended trust agreement at the request of any holder of capital
securities unless it is offered reasonable indemnity against the costs, expenses
and liabilities that it might incur as a result.
If no trust event of default is continuing and the property trustee must
decide between alternative causes of action or construe ambiguous provisions in
the amended trust agreement, or is unsure of the application of any provision of
the amended trust agreement, and the matter is not one on which the holders of
capital securities and common securities are entitled under the amended trust
agreement to vote, then the property trustee may take any action that it deems
to be advisable and in the best interests of the holders of the capital
securities and common securities and will have no liability except for its own
bad faith, negligence or willful misconduct.
Conducting the affairs and operations of the trust. The amended trust
agreement authorizes and directs the administrative trustees and the property
trustee to conduct the affairs of and to operate the trust so that the trust
will not be required to register as an "investment company" under the Investment
Company Act or be classified as an association taxable as a corporation or as
other than a grantor trust for U.S. federal income tax purposes and so that the
junior debentures will be treated as our indebtedness for U.S. federal income
tax purposes. The amended trust agreement authorizes the property trustee and
the holders of common securities to take any action, not inconsistent with
applicable law, the certificate of trust of the trust or the amended trust
agreement, that they, or any successor entity, determine in their discretion to
be necessary or desirable for these purposes, as long as the action does not
adversely affect the interests of the holders of the capital securities in any
material respect.
NO PREEMPTIVE RIGHTS
Holders of the capital securities will have no preemptive or similar
rights.
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DESCRIPTION OF JUNIOR DEBENTURES
This section summarizes the material provisions of the junior debentures
and a document called the "indenture", which governs the junior debentures. The
indenture is a contract between us and Bankers Trust Company, who acts as
indenture trustee. The indenture and its associated documents, including the
junior debentures, contain the full legal text of the matters described in this
section. A copy of the indenture has been filed with the SEC as part of our
registration statement. See "Where You Can Find More Information" on page 53 for
information on how to obtain a copy.
The indenture and the junior debentures are governed by New York law.
ISSUANCE AND GENERAL CHARACTERISTICS
We will issue the junior debentures under the indenture concurrently with
the issuance of the capital securities. The trust will use the proceeds from the
sale of the capital securities, together with the consideration we will pay for
the common securities, to purchase the junior debentures. The junior debentures
will initially have an aggregate principal amount of $ , which will
equal the sum of the initial aggregate liquidation amount of the capital
securities and the common securities. Unless the trust distributes the junior
debentures in exchange for the capital securities as described below, the junior
debentures will be held in the name of the property trustee in trust for the
benefit of the holders of the capital securities and common securities.
The junior debentures will be our general and unsecured obligations and
will be subordinated in right of payment to all of our senior indebtedness as
described in "-- Subordination". Because we are a holding company, the junior
debentures will also effectively be subordinated to all existing and future
liabilities of our bank or non-bank subsidiaries.
The junior debentures will have a stated maturity of , 20 .
INTEREST
Interest will accrue on the principal of the junior debentures from their
original issue date at the annual rate of %. Unless deferred as described
below, interest will be payable semi-annually in arrears on
and of each year commencing on , 1999, to the persons who are the
record holders of the junior debentures at the close of business on the or
next preceding the relevant interest payment date. The amount of interest
payable for any period will be computed on the basis of a 360-day year of twelve
30-day months.
We will have the right to defer the payment of interest on the junior
debentures as long as no indenture event of default has occurred and is
continuing, as described in "Description of Capital Securities --
Distributions -- Deferral periods". During a deferral period, interest will
continue to accrue on the junior debentures and additional interest will accrue
on each deferred interest payment at the yearly rate of %, compounded
semi-annually from the corresponding interest payment date. The term "interest",
wherever we use it in this prospectus with respect to the junior debentures,
includes any of this additional interest. In addition, during any deferral
period, the indenture will prohibit us and our subsidiaries from taking certain
actions described in "Description of Capital
Securities -- Distributions -- Deferral period restrictions".
Any interest that would otherwise become due and payable in respect of any
junior debentures during a deferral period will not become due and payable until
the day after the period ends. If the principal of any junior debentures becomes
due and payable on a day that would otherwise occur during a deferral period,
that period will end automatically on the next preceding day.
REDEMPTION
We will have the option to redeem the junior debentures before the stated
maturity as follows:
(1) in whole at any time or in part from time to time, provided that no partial
redemption may occur during a deferral period; or
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(2) in whole at any time within 90 days after the occurrence of a Tax Event or
a Capital Treatment Event.
The definitions of "Tax Event" and "Capital Treatment Event" are set forth
in "Description of Capital Securities -- Redemption".
If we redeem any junior debentures, we will do so at the relevant
redemption prices set forth in "Description of Capital
Securities -- Redemption -- Repayment and redemption of junior debentures".
Unless we default in payment of the redemption price, interest will cease to
accrue on the junior debentures called for redemption on and after the
redemption date. We may not redeem any junior debentures on a redemption date
that would occur during a deferral period unless we redeem all of the
outstanding junior debentures.
We must give notice of any redemption to the holders of the junior
debentures not less than 30 days nor more than 60 days before the redemption
date, in the manner described below under "-- Notices". In all other respects,
the procedures for redeeming the junior debentures will be similar to those for
redeeming the capital securities. See "Description of Capital
Securities -- Redemption -- Redemption procedures".
Payment of additional sums. As described under "Description of Capital
Securities -- Redemption -- Payment of additional sums", if a Tax Event has
occurred and is continuing, we may be obligated to pay additional sums on the
junior debentures.
EXCHANGE OF CAPITAL SECURITIES FOR JUNIOR DEBENTURES
As described under "Description of Capital Securities -- Exchange of
capital securities for junior debentures", we may elect to dissolve the trust
and cause the trust to distribute a like amount of the junior debentures to the
holders of the capital securities and common securities in exchange for these
securities. Junior debentures distributed in exchange for capital securities
held in book-entry form will also be issued, upon the distribution, in
book-entry form. We expect that the book-entry arrangements for the junior
debentures will be substantially similar to those that will apply to the capital
securities. For further information on book-entry arrangements, see "Book-Entry
Issuance".
If an exchange distribution occurs, we will be obligated to use our best
efforts to list the junior debentures on the NYSE or any other stock exchange or
organization on which the capital securities are then listed. We can give no
assurance as to the market price of any junior debentures that may be
distributed to the holders of the capital securities.
CERTAIN COVENANTS MADE BY US IN THE INDENTURE
We will make the following covenants in the indenture:
-- to hold, directly or indirectly through one or more of our
subsidiaries, 100% of the common securities, provided that permitted
successors under the indenture may succeed to our ownership of the
common securities;
-- not to voluntarily terminate, wind-up or liquidate the trust, except
with the prior approval of the Federal Reserve, if then required, and
either in connection with (1) a distribution of junior debentures in
exchange for capital securities or (2) any merger, consolidation or
amalgamation permitted by the amended trust agreement; and
-- to use our reasonable efforts, consistent with the amended trust
agreement, to cause the trust to be classified as a grantor trust and
not to be taxable as a corporation for U.S. federal income tax
purposes.
MODIFICATION OF THE INDENTURE
From time to time we and the indenture trustee may, without the consent of
the holders of the junior debentures, amend, waive or supplement the indenture
for specified purposes. These include curing ambiguities, defects or
inconsistencies, provided that doing so does not adversely affect the interests
of the
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holders of the junior debentures or the capital securities in any material
respect, and qualifying, or maintaining the qualification of, the indenture
under the Trust Indenture Act.
The indenture also permits us and the indenture trustee, with the consent
of the holders of a majority of the outstanding junior debentures, to modify the
indenture in any manner whatsoever. However, we and the indenture trustee may
not modify the indenture in the following ways without the consent of the holder
of each outstanding junior debenture:
-- change the stated maturity of the junior debentures;
-- reduce the principal amount of the junior debentures;
-- reduce the rate of interest on or any premium payable upon the
redemption of the junior debentures;
-- change the place of payment where, or the currency in which, any
amount is payable on the junior debentures;
-- impair the right to institute a suit for enforcement of any junior
debenture; or
-- reduce the percentage of principal amount of the outstanding junior
debentures, the holders of which are required to consent to any
modification of the indenture.
As long as the capital securities are outstanding, any modification, waiver
or termination of the indenture which will adversely affect the holders of the
capital securities cannot be made without obtaining the consent of at least a
majority of the holders of capital securities. See "Description of Capital
Securities -- Enforcement rights".
INDENTURE EVENTS OF DEFAULT
Each of the following events will be an "indenture event of default":
-- failure to pay any interest or additional sum on the junior
debentures when due and continuation of the default for 30 days,
subject to any deferral period;
-- failure to pay any principal of the junior debentures when due;
-- failure to observe or perform any other covenants in the indenture in
any material respect for 90 days after written notice has been given
to us by the indenture trustee or the holders of at least 25% of the
outstanding junior debentures; and
-- certain events of bankruptcy, insolvency or reorganization of
KeyCorp.
If an indenture event of default has occurred and is continuing, either the
indenture trustee or the holders of not less than 25% of the outstanding junior
debentures may declare the principal of all junior debentures to be due and
payable immediately. If the capital securities are outstanding and the indenture
trustee or those holders of junior debentures fail to exercise this right, the
holders of at least 25% of the outstanding capital securities may do so.
The holders of a majority of the outstanding junior debentures may annul
any declaration of acceleration if we paid or deposited with the property
trustee all matured installments of interest and principal, and any additional
sums, due otherwise than by acceleration. Upon such payment, if the holders of
junior debentures do not exercise this right, the holders of a majority of the
outstanding capital securities may do so.
The holders of a majority of the outstanding junior debentures may waive
any default under the indenture other than:
-- a default in the payment of principal or interest, and any additional
sum, unless the default has been cured; or
-- a default in respect of a covenant that under the indenture cannot be
modified or amended without the consent of the holder of each
affected junior debenture.
If the holders of the junior debentures do not waive a default under the
indenture as permitted, the holders of a majority in aggregate liquidation
amount of the outstanding capital securities may do so.
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The holders of a majority of outstanding junior debentures will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the indenture trustee. This right, as well as the rights of
the holders of junior debentures with regard to acceleration, annulment and
waiver described above, will be subject to the enforcement rights of the holders
of capital securities when the capital securities are outstanding. See
"Description of Capital Securities -- Enforcement rights". We will be obligated
to provide the indenture trustee, and, if the capital securities are
outstanding, the property trustee, annually a certificate as to whether or not
we are in compliance with the applicable provisions of the indenture.
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
We may not consolidate with, or merge with or into, or convey, transfer or
lease our properties and assets substantially as an entirety to, any other
entity, referred to as a "successor transaction", unless the following
conditions are satisfied:
-- the successor entity, if not us, must be organized under the laws of
the United States or any state of the United States or the District
of Columbia, and must expressly assume our obligations in respect of
the junior debentures, the indenture, the guarantee and the expense
agreement;
-- immediately after giving effect to the transaction, no indenture
event of default, and no event that, after notice or lapse of time or
both, would become an indenture event of default, will have occurred
and be continuing;
-- such transaction is permitted under the amended trust agreements; and
-- we deliver to the property trustee an officer's certificate and
opinion of counsel, each stating that such transaction complies with
the indenture and that the property trustee can rely on the opinion
and certificate.
The general provisions of the indenture do not afford holders of the junior
debentures or capital securities protection in the event of a highly leveraged
or other transaction involving us that may adversely affect the interests of
those holders.
SATISFACTION AND DISCHARGE
Except as noted below, the indenture will cease to be of further effect,
and we will be deemed to have satisfied and discharged the indenture, when the
following conditions have been satisfied:
-- all junior debentures not previously delivered to the indenture
trustee for cancellation have become due and payable or will become
due and payable at their stated maturity or on a redemption date
within one year;
-- we deposit with the indenture trustee, in trust, funds sufficient to
pay the entire indebtedness on those junior debentures not previously
delivered for cancellation, for the principal and interest, including
any additional sums, to the date of the deposit for junior debentures
that have become due and payable or to the stated maturity or the
redemption date, as the case may be; and
-- we delivered to the indenture trustee an officer's certificate and an
opinion of counsel each stating that we complied with the conditions
relating to the satisfaction of the indenture, as stated above.
We will remain obligated to provide for registration of transfer and
exchange and notices of redemption and in other ministerial respects.
SUBORDINATION
To the extent set forth in the indenture, the junior debentures will be
subordinated in right of payment to all of our senior indebtedness. The
subordination provisions will have the following significant effects.
If we default in the payment of any principal, interest or other amount
payable on any senior indebtedness when the same becomes due and payable, we may
not make or agree to make any payment in respect of the junior debentures, or in
respect of any redemption, repayment, retirement, purchase or other acquisition
of the junior debentures, unless and until that default has been cured or waived
or has otherwise
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ceased to exist, or all senior indebtedness has been paid. This prohibition
would apply to payments of principal, interest and additional sums on any junior
debentures, as well as to payments in respect of any acquisition or retirement
of junior debentures.
In addition, if any of the following events occurs, all senior
indebtedness, including any interest that accrues after the commencement of any
proceedings, must be paid in full before any payment or distribution may be made
on account of the junior debentures:
-- the commencement of any insolvency, bankruptcy, receivership,
liquidation, reorganization, readjustment, composition or other
similar proceeding relating to us, our creditors or our property;
-- the commencement of any proceeding for the liquidation, dissolution
or other winding up of KeyCorp, voluntary or involuntary, whether or
not involving insolvency or bankruptcy proceedings;
-- any assignment by us for the benefit of creditors; or
-- any other marshaling of our assets.
In any of these events, any payment or distribution on account of the
junior debentures that would otherwise, but for the subordination provisions, be
payable or deliverable in respect of the junior debentures will be paid or
delivered directly to the holders of senior indebtedness in accordance with the
priorities then existing among those holders, until all senior indebtedness,
including any post-commencement interest, has been paid in full.
In the event of any proceeding described above, after payment in full of
all sums owing with respect to senior indebtedness, the holders of junior
debentures, together with the holders of any of our obligations ranking equally
with the junior debentures, will be entitled to be paid from our remaining
assets the amounts at the time due and owing on the junior debentures and those
other obligations before any payment or other distribution will be made on
account of any of our capital stock or any of our obligations ranking junior in
right of payment to the junior debentures.
If any holder of junior debentures receives any payment or distribution on
account of the junior debentures before all the senior indebtedness has been
paid in full, or otherwise in contravention of any of the subordination
provisions, the holder must receive the payment or distribution in trust for the
benefit of, and must pay over or deliver and transfer the same to, the holders
of the senior indebtedness at the time outstanding in accordance with the
priorities then existing among them for application to the payment of all senior
indebtedness remaining unpaid, to the extent necessary to pay all the senior
indebtedness in full.
If we become insolvent, then by reason of the subordination provisions,
holders of senior indebtedness may receive more, ratably, and holders of the
junior debentures may receive less, ratably, than our other creditors.
Definition of senior indebtedness. "Senior indebtedness" includes:
-- "senior debt", which means any of our obligations to our creditors,
whether now outstanding or incurred in the future, other than (1) any
obligation as to which, in the instrument creating or evidencing the
obligation or under which the obligation is outstanding, it is
provided that the obligation is not senior debt and (2) trade
accounts payable and accrued liabilities arising in the ordinary
course of business; and
-- the amounts necessary to pay all principal of, and premium, if any,
and interest, if any, on "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 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.
"Senior subordinated debt" means any of our obligations to our creditors,
whether now outstanding or incurred in the future, where the instrument creating
or evidencing the obligation or under which the obligation is outstanding,
provides that it is subordinate and junior in right of payment to senior debt.
Senior subordinated debt includes our outstanding subordinated debt securities
and any subordinated debt securities issued in the future with substantially
similar subordinated terms, but does not include:
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-- the junior debentures described in this prospectus;
-- our 7.826% Junior Subordinated Deferrable Interest Debentures issued
to a subsidiary trust on December 4, 1996;
-- our 8.250% Junior Subordinated Deferrable Interest Debentures issued
to a subsidiary trust on December 30, 1996;
-- our Floating Rate Junior Subordinated Deferrable Interest Debentures
issued to a subsidiary trust on June 25, 1998;
-- our 6.875% Junior Subordinated Deferrable Interest Debentures issued
to a subsidiary trust on March 17, 1999; or
-- any subordinated debt securities issued in the future with
substantially similar subordinated terms.
Senior debt does not include senior subordinated debt or the junior
debentures.
The indenture places no limitation on the amount of additional senior
indebtedness that we may incur in the future. We expect from time to time to
incur additional senior indebtedness. As of March 31, 1999, we had approximately
$24.1 billion of senior indebtedness outstanding.
PAYMENT AND PAYING AGENTS
Unless we distribute the junior debentures in exchange for the capital
securities, payments in respect of the junior debentures will be made to or upon
the order of the property trustee. If in the future we distribute the junior
debentures in exchange for the capital securities, payments in respect of the
junior debentures will be made in accordance with provisions similar to those
applicable to payments in respect of the capital securities. For further
information, see "Description of Capital Securities -- Payment and paying
agency".
NOTICES
Notices to holders of junior debentures under the indenture will also be
given to the holders of the capital securities in accordance with provisions
similar to those described in "Description of Capital Securities -- Notices" and
to the property trustee. If in the future we distribute the junior debentures in
exchange for the capital securities, notices to holders of junior debentures
will be given to those holders in accordance with the provisions for notices to
capital securities holders referred to above.
THE INDENTURE TRUSTEE
The indenture trustee will have all the duties and responsibilities
specified with respect to an indenture trustee under the Trust Indenture Act.
Subject to those provisions, the indenture trustee will have no obligation to
exercise any of the powers vested in it by the indenture at the request of any
holder of junior debentures, unless offered reasonable indemnity by such holder
against the costs, expenses and liabilities that might be incurred. The
indenture trustee will not be required to expend or risk its own funds or
otherwise incur personal financial liability in the performance of its duties if
it 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 entered into with us or
our subsidiaries relating to issues of other securities. In addition, we and
some of our affiliates may have other banking relationships with Bankers Trust
Company.
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DESCRIPTION OF THE GUARANTEE AND THE EXPENSE AGREEMENT
This section summarizes the material provisions of the guarantee agreement
and the agreement as to expenses and liabilities. The guarantee agreement and
the expense agreement contain the full legal text of the matters described in
this section and are governed by New York law. We have filed with the SEC a form
of each of these agreements as exhibits to our registration statement. See
"Where to Find More Information" on page 53 for information on how to obtain a
copy.
THE GUARANTEE
We will execute a guarantee agreement when the capital securities are
issued. Bankers Trust Company will act as trustee under the guarantee for the
purpose of compliance with the Trust Indenture Act, and the guarantee will be
qualified as an indenture under the Trust Indenture Act. The guarantee trustee
will hold the guarantee for the benefit of the holders of the capital
securities.
Under the guarantee, we will irrevocably and unconditionally agree to pay
in full, on a subordinated basis and to the extent described below, to the
holders of the capital securities, the guarantee payments as and when due,
regardless of any defense, right of set-off or counterclaim that the trust may
have or assert other than the defense of payment. The following payments in
respect of the capital securities, to the extent not paid by or on behalf of the
trust, are "guarantee payments":
-- any accumulated and unpaid distributions required to be paid on the
capital securities, to the extent that the trust has funds legally
and immediately available to pay them;
-- any redemption price required to be paid on the capital securities,
to the extent that the trust has funds legally and immediately
available to pay it; and
-- upon a voluntary or involuntary termination, winding-up or
liquidation of the trust unless the junior debentures are distributed
to holders of the capital securities in exchange for these
securities, the lesser of (1) the liquidation distribution for the
capital securities and (2) the amount of assets of the trust
remaining available for distribution to holders of capital securities
after satisfaction of liabilities to creditors of the trust as
required by applicable law.
We may satisfy our obligation to make a guarantee payment by paying the
required amounts directly to the holders of the capital securities, or by
causing the trust to pay them to the holders.
We will be required to make payments under the guarantee only to the extent
that the trust has funds sufficient to make payments in respect of its
obligations under the capital securities. If and to the extent we do not make
payments on the junior debentures, the trust will not be able to make payments
on the capital securities and will not have funds available to do so. However,
through the guarantee, the amended trust agreement, the junior debentures, the
indenture and the expense agreement, taken together, we have fully, irrevocably
and unconditionally guaranteed all the trust's obligations under the capital
securities. See "Relationship Among Capital Securities, Junior Debentures, the
Guarantee and the Expense Agreement".
The guarantee will guarantee payment and not collection. This means that
any holder of outstanding capital securities may begin a legal proceeding
directly against us to enforce its rights under the guarantee without first
beginning a legal proceeding against the trust, the guarantee trustee or any
other party.
STATUS OF THE GUARANTEE
The guarantee will be a general unsecured obligation of KeyCorp and will be
subordinated in right of payment to all of our senior indebtedness in the same
manner as the junior debentures.
Because we are a holding company, our obligations under the guarantee, like
our obligations under the junior debentures, will also be effectively
subordinated to all existing and future liabilities of our bank subsidiaries and
any other subsidiaries we may have. See "Description of Junior Debentures --
Subordination".
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AMENDMENTS, ASSIGNMENT AND SUCCESSION
We and Bankers Trust Company may not amend the guarantee in a way that will
adversely affect in any material respect the rights of the holders of the
capital securities without the consent of a majority of the outstanding capital
securities. The manner of obtaining any such approval will be similar to the
manner in which any approval to amend the amended trust agreement may be
obtained. See "Description of Capital Securities -- Amendment of the trust
agreement".
We may not assign our obligations under the guarantee except in connection
with a merger, consolidation or amalgamation which is permitted under the
indenture. In addition, any permitted successor to our obligations under the
indenture will also succeed to our obligations under the guarantee. See
"Description of Junior Debentures -- Consolidation, merger, sale of assets and
other transactions". The guarantee will bind our successors, assigns, receivers,
trustees and representatives and will inure to the benefit of the holders of the
outstanding capital securities.
EVENTS OF DEFAULT
An event of default under the guarantee will occur if we fail to (1) make
any guarantee payment when obligated to do so, or (2) perform any other
obligation and the default remains unremedied for 30 days. The holders of a
majority of the outstanding capital securities will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the guarantee trustee or to direct the exercise of any trust or power conferred
upon the guarantee trustee under the guarantee.
We, as guarantor, will be obligated to file annually with the guarantee
trustee a certificate as to our compliance with all the conditions and covenants
applicable to us under the guarantee.
THE GUARANTEE TRUSTEE
The guarantee trustee undertakes to perform only those duties that are
specifically set forth in the guarantee, except that, after a default by us
under the guarantee, it 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 it might incur as a result.
TERMINATION OF THE GUARANTEE
The guarantee will terminate and be of no further force or effect (1) when
the guarantee payments have been paid in full by us, the trust or both or (2)
when the junior debentures are distributed to the holders of the capital
securities in exchange for their securities. Until that time, the guarantee will
remain in full force and effect. In addition, the guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of the capital securities must restore payment of any sums paid to it under the
capital securities or the guarantee.
THE EXPENSE AGREEMENT
In the expense agreement, we will irrevocably and unconditionally guarantee
to each person to whom the trust becomes indebted or liable, the full payment of
all the trust's costs, expenses and liabilities, other than the obligations of
the trust to pay amounts due to the holders of the capital securities and common
securities pursuant to the terms of those securities. The expense agreement will
be enforceable by third parties.
Our obligations under the expense agreement will be subordinated in right
of payment to the same extent as the guarantee. Our obligations under the
expense agreement will be subject to provisions regarding amendment,
termination, assignment, succession and governing law similar to those
applicable to the guarantee.
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RELATIONSHIP AMONG THE CAPITAL SECURITIES, THE JUNIOR
DEBENTURES, THE GUARANTEE AND THE EXPENSE AGREEMENT
FULL, IRREVOCABLE AND UNCONDITIONAL GUARANTEE
Taken together, our obligations under the trust agreement, the junior
debentures, the indenture, the guarantee and expense agreement provide a full,
irrevocable and unconditional guarantee of the trust's obligations under the
capital securities. No single document standing alone or operating in
conjunction with fewer than all the other documents provides this guarantee. It
is only the combined operation of these documents that has the effect of
providing a full, irrevocable and unconditional guarantee of the trust's
obligations under the capital securities.
If and to the extent that we do not make payments on the junior debentures,
the trust will not have funds available for payments on the capital securities.
The guarantee will not apply to payment of any amounts due on the capital
securities when the trust does not have available funds to pay those amounts. In
that event, the remedy of a holder of capital securities is to exercise its
right of direct action -- that is, to begin a legal proceeding directly against
us for enforcement of our obligations under junior debentures.
If we make payment on the junior debentures and the trust has funds
available to make payments on the capital securities but fails to do so, a
holder of capital securities may begin a legal proceeding against us to enforce
our obligations under the guarantee to make these payments or to cause the trust
to make these payments. In the event that the trust receives payments on the
junior debentures, but these funds are unavailable for payment on the capital
securities because of claims made by creditors of the trust, we would be
obligated under the expense agreement to pay those claims.
Our obligations under the junior debentures, the guarantee and the expense
agreement are subordinated in right of payment to all of our senior
indebtedness. They are subordinated in the manner described in "Description of
Junior Debentures -- Subordination" and "Description of the Guarantee and the
Expense Agreement -- Status of the guarantee".
SUFFICIENCY OF PAYMENTS
As long as payments are made when due on the junior debentures, those
payments should be sufficient to fund distributions and other amounts payable on
the capital securities, primarily because:
-- the aggregate principal amount of the junior debentures will equal
the aggregate liquidation amount of the capital securities and the
common securities;
-- the interest rate, interest payment dates and other payment dates for
the junior debentures will match the distribution rate, distribution
dates and other payment dates for the capital securities;
-- the expense agreement provides that we will pay any and all costs,
expenses and liabilities of the trust, other than the trust's
obligations under the capital securities and common securities; and
-- the amended trust agreement provides that the trust will not engage
in any activity that is not consistent with the limited purposes of
the trust.
Despite anything to the contrary in the indenture, we have the right to set
off any payment we make under the guarantee in respect of the capital securities
against any payment we are otherwise required to make under the indenture in
respect of the junior debentures.
ENFORCEMENT RIGHTS OF HOLDERS OF CAPITAL SECURITIES
A holder of capital securities may begin a legal proceeding directly
against us to enforce its right of direct action under the indenture without
first beginning a legal proceeding against the trust, the property trustee or
any other party. A holder of capital securities may also begin a legal
proceeding directly against us to enforce its rights under the guarantee without
first instituting a legal proceeding against the guarantee trustee, the trust or
any other party.
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A default or event of default under any of our senior indebtedness would
not be a default with respect to the capital securities or the junior
debentures. However, in the event of a payment default under, or acceleration
of, any of our senior indebtedness, the subordination provisions of the
indenture provide that no payments may be made in respect of the junior
debentures, until the senior indebtedness has been paid in full or any payment
default under that debt has been cured or waived. See "Description of Junior
Debentures -- Subordination".
LIMITED PURPOSE OF ISSUER TRUST
The capital securities evidence a preferred undivided beneficial interest
in the assets of the trust, and the trust exists solely to issue and sell the
capital securities and common securities, invest the sale proceeds in the junior
debentures and engage only in such other activities as may be necessary or
incidental to those activities. A principal difference between the rights of a
holder of capital securities against the trust and those of a holder of junior
debentures against us is that a holder of junior debentures is entitled to
receive from us all amounts payable on the junior debentures, while a holder of
capital securities is entitled to receive from the trust, or from us under the
guarantee, amounts payable on the capital securities only if and to the extent
the trust has funds available to pay those amounts.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary dissolution of the trust, the holders of
capital securities will be entitled to receive a like amount of junior
debentures in exchange for their capital securities, subject to prior
satisfaction of liabilities to creditors of the trust. If the property trustee
determines that a distribution of junior debentures is not practical, the
holders of capital securities will be entitled to receive a liquidation
distribution out of the assets held by the trust after satisfaction of those
liabilities. For further information, see "Description of Capital
Securities -- Liquidation distribution upon termination".
Upon any voluntary or involuntary liquidation or bankruptcy of KeyCorp, the
property trustee, as registered holder of the junior debentures, would be our
creditor subordinated in right of payment to all of our senior indebtedness as
set forth in the indenture. However, the property trustee would be entitled to
receive payment in full of all amounts payable with respect to the junior
debentures before any holders of our capital stock receive payments or
distributions.
In light of the effective guarantee provided by the combined operation of
the documents described above and the subordinated status of the obligations
they evidence, the positions of a holder of capital securities and a holder of
junior debentures, in the event of our liquidation or bankruptcy, should be
substantially the same, relative to our other creditors and to our shareholders.
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BOOK-ENTRY ISSUANCE
The information in this section has been obtained from sources that we and
the trust believe to be accurate, but we nor the trust assume responsibility for
its accuracy. None of us, the trustees nor the trust has any responsibility for
the performance by DTC or its participants of their respective obligations as
described in this section or under the rules and procedures governing their
respective operations.
The capital securities will be issued in the form of one or more global
certificates. A global certificate represents a large amount of securities and
is registered in the name of a financial institution that holds the certificate
as a depositary on behalf of its customers, who in turn own the beneficial
interests in those securities. The capital securities global certificates will
be registered in the name of DTC, which will act as securities depositary for
all of the capital securities except in the circumstances we describe at the end
of this section. We refer to capital securities represented by a global
certificate as being issued in "global" or "book-entry" form.
THE DTC SYSTEM
DTC has advised us that it is a limited-purpose trust company created to
hold securities for its participating organizations, or its "participants", and
to facilitate the clearance and settlement of transactions in those securities
between participants through electronic book-entry changes in accounts of its
participants. The participants include securities brokers and dealers including
the underwriters, banks, trust companies, clearing corporations and certain
other organizations. Access to DTC's system is also available to other entities
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly. We refer to these entities as "indirect participants".
If you buy capital securities while they are represented by a global
certificate, you must do so through a participant, which will receive a credit
in DTC's book-entry system for those capital securities, and your ownership
interest will in turn be recorded on the participant's records. We refer to
persons who have acquired an interest in a global security as a "beneficial
owner". Beneficial owners will not receive written confirmation from DTC of
their purchases, but we expect that beneficial owners will receive written
confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the participants through which they purchased
the capital securities. Transfers by beneficial owners of ownership interests in
the global certificates will be accomplished by entries made on the books of
participants or indirect participants acting on their behalf. Transfers between
DTC's participants will be effected in the ordinary way in accordance with DTC's
rules and will be settled in same-day funds. Beneficial owners will not receive
certificates representing their ownership interests in capital securities,
unless the book-entry system for the capital securities is discontinued, which
will only happen under the circumstances we describe at the end of this section.
DTC has no knowledge of the actual beneficial owners of the capital
securities. DTC's records reflect only the identity of the participants to whose
accounts the capital securities are credited, which may or may not be the
beneficial owners. The participants and indirect participants are responsible
for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to participants, by
participants to indirect participants and by participants and indirect
participants to beneficial owners, as well as the voting rights of participants,
indirect participants and beneficial owners, will be governed by arrangements
among them. Those arrangements may be subject to statutory or regulatory
requirements in effect from time to time.
Redemption notices will be sent to DTC or its nominee 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 participant to be redeemed. 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 its
nominee will itself consent or vote with respect to the capital securities.
Under its usual procedures, DTC would mail an omnibus proxy to the property
trustee as soon as possible after the
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record date. The omnibus proxy assigns the consenting or voting rights of DTC or
its nominee to those participants to whose accounts the capital securities are
credited on the record date identified in a listing attached to the omnibus
proxy.
EXCHANGE OF GLOBAL CERTIFICATES FOR NON-GLOBAL CERTIFICATES
Capital securities represented by a global certificate will not be
exchanged for capital securities represented by a non-global certificate -- that
is, one registered in the name of a person other than DTC or its nominee --
unless any of the following events occurs:
-- DTC notifies the trust that it is unwilling or unable to continue as
depositary for the global certificate and no successor depositary has
been appointed;
-- DTC ceases to be a clearing agency registered under the Securities
Exchange Act of 1934 at any time when it is required to be so
registered to act as a depositary;
-- we, in our sole discretion determine that the global certificate will
be exchangeable; or
-- an indenture event of default has occurred and is continuing, and
holders of a majority of the outstanding capital securities determine
to discontinue the system of book-entry transfers.
Any global certificate that is exchangeable as described above will be
exchangeable for non-global certificates registered in the names that DTC
directs. We expect that DTC will base these directions on instructions received
by it from its participants with respect to ownership of beneficial interests in
the global certificate. If capital securities are issued in non-global form,
they will be issued in denominations of $1,000 and multiples of that amount and
may be transferred or exchanged at the corporate office of the property trustee
in New York, New York, or at the offices of any paying agent or transfer agent
chosen by the property trustee and acceptable to the administrators.
BENEFICIAL OWNERS WILL NOT BE REGISTERED OWNERS
As the registered holder of the global certificate representing the capital
securities, DTC or its nominee will be the sole owner and holder of all the
capital securities for all purposes under the amended trust agreement, the
indenture and the guarantee. Consequently, unless and until beneficial owners
receive non-global certificates representing their ownership interests in the
capital securities and registered in their own name, beneficial owners will not
be considered the registered owners or holders of the capital securities for any
purpose under those documents. We and the trust will make all payments and give
all notices required to be made or given under those documents directly to DTC
or its nominee and not to any beneficial owner. Once we and the trust do so, we
and the trust will have no further responsibility for any payments or notices,
even if DTC or its nominee, or any participant or indirect participant, fails to
pass them along to the beneficial owners.
The rights and interests of beneficial owners will be subject to the rules
and practices of DTC and its participants and indirect participants, as
applicable. The rules and practices are subject to change by them, and we assume
no responsibility for those rules and practices.
The laws of some jurisdictions require that certain purchasers must take
physical delivery of securities in non-global form. As a result, the ability to
transfer beneficial interests in a global certificate to those purchasers may be
limited. Also, the ability of beneficial owners to pledge their beneficial
interests to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of those interests, may be impaired by the
lack of a non-global certificate representing those interests.
REGISTRATION OF JUNIOR DEBENTURES
The junior debentures will initially be registered in the name of and held
by the property trustee. If in the future the junior debentures are distributed
to the holders of capital securities in exchange for the capital securities and
the capital securities are then held in book-entry form, the junior debentures
would be distributed in book-entry form. We expect that the book-entry
arrangements applicable to the junior
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debentures would be similar to those applicable to the capital securities. If
junior debentures are issued in non-global form, they will be issued in
denominations of $1,000 and multiples of that amount.
DTC YEAR 2000 EFFORTS
DTC has advised us that its management is aware that some computer
applications systems, and the like for processing data that are dependent upon
calendar dates, including dates before, on and after January 1, 2000, may
encounter "Year 2000 problems".
DTC has informed its participants and other members of the financial
community, or the industry, that it has developed and is implementing a program
so that its systems, as the same relate to the timely payment of distributions,
including principal and income payments, to securityholders, book-entry
deliveries, and settlement of trades within DTC continue to function
appropriately. This program includes a technical assessment and a remediation
plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third-party vendors from whom DTC licenses software and hardware, and
third-party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the industry that it is contacting and will
continue to contact third-party vendors from whom DTC acquires services to:
-- impress upon them the importance of such services being Year 2000
compliant; and
-- determine the extent of their efforts for Year 2000 remediation, and,
as appropriate, testing, of their services.
In addition, DTC is in the process of developing contingency plans as it
deems appropriate.
According to DTC, the preceding year 2000 information has been provided to
the industry for informational purposes only and is not intended to serve as a
representation, warranty or contract modification of any kind.
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U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of the material U.S. federal income tax
consequences to the purchase, ownership and disposition of capital securities
only addresses the tax consequences to a U.S. holder that acquires capital
securities on their original issue date at their original offering price and
holds the capital securities as a capital asset for tax purposes. You are a U.S.
holder if you are a beneficial owner of a capital security that is:
-- a citizen or resident of the United States;
-- a domestic corporation;
-- an estate whose income is subject to U.S. federal income tax
regardless of its source; or
-- a trust if a U.S. court can exercise primary supervision over the
trust's administration and one or more U.S. persons have authority to
control all substantial decisions of the trust.
This section does not apply to you if you are a member of a class of
holders subject to special rules, such as:
-- a dealer in securities or currencies;
-- a trader in securities that elects to use a mark-to-market method of
accounting;
-- a bank;
-- an insurance company;
-- a thrift institution;
-- a regulated investment company;
-- a real estate investment trust;
-- a tax-exempt organization;
-- a person that holds capital securities that are a hedge or that are
hedged against interest rate or currency risks;
-- a person that holds capital securities as part of a straddle or
conversion transaction for tax purposes; or
-- a person whose functional currency is not the U.S. dollar.
The statements of law or legal conclusion set forth in this section
constitute the opinion of Sullivan & Cromwell, special tax counsel to us and the
trust. This section is based upon the U.S. Internal Revenue Code of 1986, as
amended, its legislative history, existing and proposed regulations under the
Internal Revenue Code, published rulings and court decisions, all as currently
in effect. These laws are subject to change, possibly on a retroactive basis.
The authorities on which this section is based are subject to various
interpretations, and it is therefore possible that the federal income tax
treatment of the purchase, ownership and disposition of capital securities may
differ from the treatment described below.
PLEASE CONSULT YOUR OWN TAX ADVISOR CONCERNING THE CONSEQUENCES OF OWNING
THE CAPITAL SECURITIES IN YOUR PARTICULAR CIRCUMSTANCES UNDER THE INTERNAL
REVENUE CODE AND THE LAWS OF ANY OTHER TAXING JURISDICTION.
CLASSIFICATION OF THE JUNIOR DEBENTURES AND THE TRUST
Under current law and assuming full compliance with the terms of the
amended trust agreement and the indenture, the trust will not be taxable as a
corporation for U.S. federal income tax purposes. As a result, you will be
required to include in your gross income your proportional share of the interest
income, including original issue discount, paid or accrued on the junior
debentures, whether or not the trust actually distributes cash to you.
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INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under Treasury regulations, an issuer and the Internal Revenue Service will
ignore a "remote" contingency that stated interest will not be timely paid when
determining whether a junior debenture is issued with OID. We believe that the
likelihood of exercising our option to defer interest payments is remote because
we would be prohibited from making certain distributions on our capital stock
and payments on our indebtedness if we exercise that option. Accordingly, we
believe that the junior debentures will not be considered to be issued with OID
at the time of their original issuance.
Under these regulations, if we were to exercise our option to defer any
payment of interest, the junior debentures would at that time be treated as
issued with OID, and all stated interest on the junior debentures would
thereafter be treated as OID as long as the junior debentures remained
outstanding. In that event, all of your taxable interest income on the junior
debentures would be accounted for as OID on an economic accrual basis regardless
of your method of tax accounting, and actual distributions of stated interest
would not be reported as taxable income. Consequently, you would be required to
include OID in gross income even though we would not make any actual cash
payments during a deferral period.
These 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 in
this prospectus.
Because income on the capital securities will constitute interest or OID,
corporate U.S. holders of the capital securities will not be entitled to a
dividends-received deduction for any income taken into account on the capital
securities.
In the rest of this section, we assume that unless and until we exercise
our option to defer any payment of interest, the junior debentures will not be
treated as issued with OID, and whenever we use the term interest, it also
includes income in the form of OID.
DISTRIBUTION OF JUNIOR DEBENTURES TO HOLDERS OF CAPITAL SECURITIES UPON
LIQUIDATION OF THE TRUST
If the trust distributes the junior debentures as described under the
caption "Description of Capital Securities -- Liquidation distribution upon
termination", you will receive directly your proportional share of the junior
debentures previously held indirectly through the trust. Under current law, you
will not be taxed on the distribution and your holding period and aggregate tax
basis in your junior debentures will be equal to the holding period and
aggregate tax basis you had in your capital securities before the distribution.
If, however, the trust were to become taxed on the income received or accrued on
the junior debentures due to a tax event, the trust might be taxed on a
distribution of junior debentures to you, and you might recognize gain or loss
as if you had exchanged your capital securities for the junior debentures you
received upon the liquidation of the trust. You will include interest in income
in respect of junior debentures received from the trust in the manner described
above under "-- Interest income and original issue discount".
SALE OR REDEMPTION OF CAPITAL SECURITIES
If you sell your capital securities, including through a redemption for
cash, you will recognize gain or loss equal to the difference between your
adjusted tax basis in your capital securities and the amount you realize on the
sale of your capital securities. Assuming that we do not exercise our option to
defer payment of interest on the junior debentures, your adjusted tax basis in
your capital securities generally will be the price you paid for your capital
securities.
If the junior debentures are deemed to be issued with OID as a result of an
actual deferral of interest payments, your adjusted tax basis in your capital
securities generally will be the price you paid for your capital securities,
increased by OID previously includible in your gross income to the date of
disposition and decreased by distributions or other payments you received on
your capital securities since and including the date of the first deferral
period. This gain or loss generally will be a capital gain or loss, except to
the extent any amount that you realize is treated as a payment of accrued
interest on your proportional share of the
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junior debentures required to be included in income. Capital gain of a
non-corporate U.S. holder is generally taxed at a maximum rate of 20% where the
property is held for more than one year.
If we exercise our option to defer any payment of interest on the junior
debentures, your 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 debentures. If you sell your capital securities before the
record date for the payment of distributions, then you will not receive payment
of a distribution for the period before the sale. However, you will be required
to include accrued but unpaid interest on the junior debentures through the date
of the sale as ordinary income for U.S. federal income tax purposes and to add
the amount of accrued but unpaid interest to your tax basis in the capital
securities. Your increased tax basis in the capital securities will increase the
amount of any capital loss that you may have otherwise realized on the sale. In
general, an individual taxpayer may only offset $3,000 of capital losses against
regular income during any year.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of interest income paid and OID accrued on your capital
securities will be reported to the Internal Revenue Service unless you are a
corporation or other exempt U.S. holder. Backup withholding at a rate of 31%
will apply to payments of interest to you unless you are an exempt U.S. holder
or you furnish your taxpayer identification number in the manner prescribed in
applicable regulations, certify that such number is correct, certify as to no
loss of exemption from backup withholding and meet certain other conditions.
Payment of the proceeds from the disposition of capital securities to or
through the U.S. office of a broker is subject to information reporting and
backup withholding unless you establish an exemption from information reporting
and backup withholding.
Any amounts withheld from you under the backup withholding rules will be
allowed as a refund or a credit against your U.S. federal income tax liability,
provided the required information is furnished to the Internal Revenue Service.
It is anticipated that the trust or its paying agent will report income on
the capital securities to the Internal Revenue Service and to you on Form 1099
by January 31 following each calendar year.
ERISA CONSIDERATIONS
If you are a fiduciary of a pension, profit-sharing or other employee
benefit plan subject to the Employee Retirement Income Security Act ("ERISA"),
you should review the fiduciary standards of ERISA and the plan's particular
circumstances before deciding to invest in the capital securities. You should
consider whether the investment would satisfy the prudence and diversification
requirements of ERISA and whether the investment would be consistent with the
terms of the plan and the other agreements which apply to plan investments.
A fiduciary of a plan subject to ERISA, as well as a person investing on
behalf of an individual retirement account or a pension or profit sharing plan
for one or more self-employed persons, should also consider whether an
investment in the capital securities could result in a prohibited transaction.
ERISA and the Internal Revenue Code prohibit plans and individual retirement
accounts from engaging in certain transactions involving plan assets with
persons who are called parties in interest under ERISA or disqualified persons
under the Internal Revenue Code with respect to the plan or individual
retirement account. A violation of these rules may result in a substantial
excise tax under the Internal Revenue Code and other liabilities under ERISA.
Employee benefit plans which are governmental plans, foreign plans or church
plans generally are not subject to the prohibited transaction rules or the
fiduciary standards of ERISA.
The assets of the trust would be treated as plan assets for purposes of the
prohibited transaction rules under a U.S. Department of Labor regulation if
plans and individual retirement accounts purchase capital securities, unless an
exception under the regulation applies. The only exception in the regulation
that could
47
<PAGE> 49
apply to the trust requires that after each purchase of capital securities in
the trust, less than 25% of the total value of the securities is held by:
(1) plans subject to ERISA, individual retirement accounts and plans for
self-employed persons;
(2) other employee benefit plans not subject to ERISA, such as governmental,
church and foreign plans; and
(3) entities which are considered to hold assets of a plan subject to ERISA
according to the regulation.
The plans, individual retirement accounts and entities described in clauses
(1), (2) and (3) are referred to as "benefit plan investors". The underwriters
cannot be certain that benefit plan investors will hold less than 25% of the
total value of capital securities when the initial offering is completed. After
that time, when a person sells capital securities, no one will review the
securities held by benefit plan investors to determine if the exception applies.
Some of the transactions involving the trust could be treated as prohibited
transactions if the trust's assets were considered to be plan assets. For
example, if we are a party in interest or a disqualified person with respect to
a plan or individual retirement account which buys capital securities, either
directly or because we own banking or other subsidiaries, extensions of credit
from us and the trust would likely be prohibited transactions unless an
administrative exemption issued by the Department of Labor applies.
The Department of Labor has issued five class exemptions that may apply to
exempt transactions resulting from the purchase or holding of the capital
securities. Those class exemptions are:
-- 96-23, for transactions determined by in-house asset managers;
-- 95-60, for transactions involving insurance company general accounts;
-- 91-38, for transactions involving bank collective investment funds;
-- 90-1, for transactions involving insurance company separate accounts;
and
-- 84-14, for transactions determined by independent qualified asset
managers.
Because the capital securities may be treated as equity interests in the
trust for purposes of applying the prohibited transaction rules, the capital
securities may not be purchased or held by any benefit plan investor, unless
such purchaser or holder can use one of the above class exemptions or another
applicable exemption. By purchasing or holding capital securities or any
interest in the capital securities, any purchaser or holder is deemed to have
represented that it either:
(1) is not a benefit plan investor; or
(2) can use one of the above class exemptions or another applicable exemption
with respect to its purchase or holding.
If a purchaser or holder of the capital securities that is a benefit plan
investor will rely on an exemption other than one listed above, we and the trust
may require a satisfactory opinion of counsel or other evidence with respect to
the availability of such exemption for such purchase and holding.
These rules are very complicated and the penalties that may be imposed upon
persons involved in prohibited transactions can be substantial. This makes it
very important that fiduciaries or other persons considering purchasing the
capital securities on behalf of a benefit plan investor consult with their
lawyer regarding what could happen if the assets of the trust were deemed to be
plan assets and if the investor can use one of the above class exemptions or
another applicable exemption.
48
<PAGE> 50
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated July , 1999, the trust has agreed to sell to each of the
underwriters named below, for whom Credit Suisse First Boston Corporation and
McDonald Investments Inc. are acting as representatives, the following
respective number of capital securities:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER CAPITAL SECURITIES
----------- ------------------
<S> <C>
Credit Suisse First Boston Corporation......................
McDonald Investments Inc....................................
J.P. Morgan Securities Inc..................................
Salomon Smith Barney Inc....................................
-----------
Total..................................................... 250,000
===========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all of the capital securities if any are purchased. The underwriting
agreement provides that if an underwriter defaults, the purchase commitments of
non-defaulting underwriters may be increased or the offering may be terminated.
The underwriters propose to offer the capital securities initially at the
public offering price on the cover page of this prospectus and to selling group
members at that price less a concession of % of the liquidation amount per
capital security. The underwriters and selling group members may allow a
discount of % of the liquidation amount per capital security to other
broker/dealers. After the initial public offering, the public offering price and
concession and discount to broker/dealers may be changed by the representatives.
Since the trust will use the proceeds from the sale of the capital
securities to purchase our junior debentures, we have agreed to pay the
underwriters an underwriting commission of $ per capital security or a total
of $ .
We estimate that our total expenses for this offering, excluding
underwriting discounts and commissions, will be approximately $307,500.
The capital securities are a new issue of securities with no established
trading market. One or more of the underwriters intends to make a secondary
market for the capital securities. However, the underwriters are not obligated
to do so and may discontinue making a secondary market for the capital
securities at any time without notice. We can give no assurance as to how liquid
the trading market for the capital securities will be.
In connection with the offer and sale of the capital securities, the
underwriters have advised us that they will comply with Rule 2810 of the Conduct
Rules of the NASD. Offers and sales of capital securities will be made only to:
-- "qualified institutional buyers", as defined in Rule 144A under the
Securities Act of 1933;
-- institutional "accredited investors", as defined in Rule
501(a)(1)-(3) of Regulation D under the Securities Act; or
-- 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 discretionary accounts without the prior written approval of the customer.
We and the trust have agreed with the underwriters not to offer, sell,
contract to sell or otherwise dispose of (1) any other capital securities, (2)
any other securities of KeyCorp, the trust or any other of our subsidiaries that
are substantially similar to the capital securities, including any guarantee of
those securities, or (3) any securities convertible into or exchangeable for any
of these securities, in each case except with the prior written consent of the
representative and except for the capital securities offered in this offering.
This restriction will apply for 30 days from the date of this prospectus.
49
<PAGE> 51
We and the trust have agreed to indemnify the underwriters against
liabilities under the Securities Act, or contribute to any payments which the
underwriters may be required to make in that respect.
One or more of the underwriters or their affiliates have provided from time
to time, and may provide in the future, investment or commercial banking
services in the ordinary course of business to us and our affiliates. For these
services, the underwriters or their affiliates have received or will receive
customary fees and commissions.
McDonald Investments is our wholly owned subsidiary and an affiliate of the
trust and may be participating in the distribution of the capital securities.
McDonald Investments, as our affiliate, can use this prospectus for 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. McDonald Investments 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. McDonald Investments may receive
compensation in the form of discounts and commissions, including from both
counterparties when it acts as agent for both. These sales will be made at
prevailing market prices at the time of sale, at prices related thereto or at
negotiated prices.
The representatives, on behalf of the underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934.
Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position. Stabilizing transactions permit bids
to purchase the underlying security so long as the stabilizing bids do not
exceed a specified maximum. Syndicate covering transactions involve purchases of
the capital securities in the open market after the distribution has been
completed in order to cover syndicate short positions. Penalty bids permit the
representatives to reclaim a selling concession from a syndicate member when the
capital securities originally sold by such syndicate member are purchased in a
syndicate covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the capital securities to be higher than it would
otherwise be in the absence of such transactions. These transactions, if
commenced, may be discontinued at any time.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the capital securities in Canada is being made only on
a private placement basis exempt from the requirement that we and the trust
prepare and file a prospectus with the securities regulatory authorities in each
province where trades to the capital securities are effected. Accordingly, any
resale of the capital securities in Canada must be made in accordance with
applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption granted
by the applicable Canadian securities regulatory authority. Purchasers are
advised to seek legal advice prior to any resale of the capital securities.
REPRESENTATIONS OF PURCHASERS
Each purchaser of capital securities in Canada who receives a purchase
confirmation will be deemed to represent to us and the trust and the dealer from
whom such purchase confirmation is received that (i) the purchaser is entitled
under applicable provincial securities laws to purchase the capital securities
without the benefit of a prospectus qualified under such securities laws, (ii)
where required by law, that the purchaser is purchasing as principal and not as
agent and (iii) the purchaser has reviewed the text above under "-- Resale
restrictions".
50
<PAGE> 52
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or these persons. All or a substantial portion of the assets of the
issuer and these persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuer or these persons in
Canada or to enforce a judgment obtained in Canadian courts against the issuer
or these persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of capital securities to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any capital securities acquired by such purchaser pursuant to this offering.
Such report must be in the form attached to British Columbia Securities
commission Blanket Order BOR #95/17, a copy of which may be obtained from the
trust. Only one report must be filed in respect of the capital securities
acquired on the same date and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of capital securities should consult their own legal
and tax advisors with respect to the tax consequence of an investment in the
capital securities in their particular circumstances and with respect to the
eligibility of the capital securities for investment by the purchaser under
relevant Canadian legislation.
51
<PAGE> 53
VALIDITY OF SECURITIES
Richards, Layton & Finger, P.A., special Delaware counsel to us and the
trust, will pass upon certain matters of Delaware law relating to the validity
of the capital securities, the enforceability of the amended trust agreement and
the creation of the trust. Our Associate General Counsel and Sullivan &
Cromwell, New York, New York, counsel for the underwriters, will each pass upon
the validity of the guarantee and the junior debentures. Our Associate General
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 our Associate
General 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 us and our subsidiaries.
Our General Counsel and the Associate General Counsel, who are currently
authorized to render an opinion on our behalf, own shares of KeyCorp, including
common stock and options that are immediately exercisable. As of this date, the
General Counsel holds 71,000 shares and the Associate General Counsel holds
20,000 shares.
Sullivan & Cromwell, as special tax counsel to us and the trust, will pass
upon certain matters relating to U.S. federal income tax considerations.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our annual report on Form 10-K for the year
ended December 31, 1998, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
consolidated financial statements are incorporated by reference in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.
With respect to the unaudited condensed consolidated interim financial
information for the three-month periods ended March 31, 1999 and 1998,
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 our quarterly report on Form 10-Q for the quarter ended March 31,
1999, which is incorporated by reference in this prospectus, 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 that
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.
52
<PAGE> 54
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document that we file at the
SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room. Our filings with the SEC are also available to the public
through the SEC's Internet site at http://www.sec.gov and through the New York
Stock Exchange, 20 Broad Street, New York, New York 10005. The trust will not
file any reports or other information with the SEC under the Securities Exchange
Act of 1934.
We and the trust have filed a registration statement on Form S-3 with the
SEC. This prospectus is a part of the registration statement and does not
contain all of the information in the registration statement. Wherever a
reference is made in this prospectus to a contract or other document, please be
aware that the reference is not necessarily complete and that you should refer
to the exhibits that are a part of the registration statement for a copy of the
contract or other document. You may review a copy of the registration statement
at the SEC's public reference room in Washington, D.C. as well as through the
SEC's Internet site.
The SEC allows us to "incorporate by reference" the information we file
with the SEC, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus.
Information that we file in the future with the SEC and incorporated by
reference in this prospectus will automatically update and replace this
information. We incorporate by reference the documents listed below and any
future filings made by us with the SEC under Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934 if the filings are made before the time
that all of the capital securities are sold in this offering:
-- annual report on Form 10-K for the year ended December 31, 1998; and
-- quarterly report on Form 10-Q for the quarter ended March 31, 1999;
and
-- current reports on Form 8-K, filed on January 20, March 15, 1999 and
April 16, 1999.
You may request a copy of these filings at no cost by writing or telephoning us
at the following address:
KeyCorp
127 Public Square
Cleveland, Ohio, 44114-1306
Attention: Investor Relations
(216) 689-6300
You should rely only on the information incorporated by reference or
provided in this prospectus. Neither we nor the trust has authorized anyone else
to provide you with different information. Neither we nor the trust is making an
offer of these securities in any state where the offer is not permitted. You
should not assume that the information in this prospectus is accurate as of any
date other than the date of this prospectus or the date of the documents
incorporated by reference in this prospectus.
53
<PAGE> 55
[KeyCorp Logo]
<PAGE> 56
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
<TABLE>
<S> <C>
Registration fee under the Securities Act of 1933, as
amended................................................... $ 69,500
Blue Sky fees and expenses (including counsel fees)......... 5,000
Fees of rating agencies..................................... 100,000
Trustees' fees and expenses................................. 8,000
Printing fees and expenses.................................. 50,000
Accounting fees and expenses................................ 20,000
Legal fees and expenses..................................... 30,000
Miscellaneous............................................... 25,000
--------
Total.................................................. $307,500
</TABLE>
- ---------------
* All of the above amounts, except the Registration Fee, are estimates.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Ohio law, Ohio corporations are authorized to indemnify directors,
officers, employees, and agents within prescribed limits and must indemnify them
under certain circumstances. Ohio law does not provide statutory authorization
for a corporation to indemnify directors, officers, employees, and agents for
settlements, fines, or judgments in the context of derivative suits. However, it
provides that directors (but not officers, employees, and agents) are entitled
to mandatory advancement of expenses, including attorneys' fees, incurred in
defending any action, including derivative actions, brought against the
director, provided the director agrees to cooperate with the corporation
concerning the matter and to repay the amount advanced if it is proved by clear
and convincing evidence that his act or failure to act was done with deliberate
intent to cause injury to the corporation or with reckless disregard to the
corporation's best interests.
Ohio law does not authorize payment of judgments to a director, officer,
employee, or agent after a finding of negligence or misconduct in a derivative
suit absent a court order. Indemnification is required, however, to the extent
such person succeeds on the merits. In all other cases, if a director, officer,
employee, or agent acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, indemnification
is discretionary except as otherwise provided by a corporation's articles, code
of regulations, or by contract except with respect to the advancement of
expenses of directors.
Under Ohio law, a director is not liable for monetary damages unless it is
proved by clear and convincing evidence that his action or failure to act was
undertaken with deliberate intent to cause injury to the corporation or with
reckless disregard for the best interests of the corporation. There is, however,
no comparable provision limiting the liability of officers, employees, or agents
of a corporation. The statutory right to indemnification is not exclusive in
Ohio, and Ohio corporations may, among other things, procure insurance for such
persons.
The KeyCorp Regulations provide that KeyCorp shall indemnify to the fullest
extent permitted by law any person made or threatened to be made a party to any
action, suit, or proceeding by reason of the fact that he is or was a director,
officer, or employee of KeyCorp or of any other bank, corporation, partnership,
trust, or other enterprise for which he was serving as a director, officer, or
employee at the request of KeyCorp.
Under the terms of KeyCorp's directors' and officers' liability and company
reimbursement insurance policy, directors and officers of KeyCorp are insured
against certain liabilities, including liabilities arising under the Securities
Act.
KeyCorp is a party to agreements with, respectively, Robert W. Gillespie,
Henry L. Meyer III and William B. Summers, Jr., and KeyCorp is party to Change
of Control Agreements with certain other executive officers (the provisions of
which became effective as a result of the merger of old KeyCorp with
II-1
<PAGE> 57
and into Society Corporation), pursuant to which KeyCorp has agreed to indemnify
the officer, to the full extent permitted or authorized by Ohio law, if the
officer is made or threatened to be made a party to any action, suit, or
proceeding by reason of the officer's serving as employee, officer, or director
of KeyCorp and/or any of its subsidiaries, and KeyCorp has agreed to advance
expenses incurred by the officer in defending any such action, suit, or
proceeding.
Under the Amended and Restated Trust Agreement, KeyCorp will agree to
indemnify each of the trustees of the trust and any predecessor trustees, and to
hold such trustees harmless, against any loss, damage, claims, liability or
expense incurred without negligence or bad faith on their part, arising out of
or in connection with the acceptance of administration of such trust agreement,
including the costs and expenses of defense against any claim or liability in
connection with the exercise or performance of any of their powers or duties
under the Trust Agreement or the Amended and Restated Trust Agreement, each of
which is an exhibit to this Registration Statement.
Reference is made to the indemnity provisions in the Underwriting Agreement
which is filed as Exhibit 1 to this Registration Statement.
ITEM 16. EXHIBITS.
Reference is made to the Exhibit Index filed herewith.
ITEM 17. UNDERTAKINGS.
Each of the undersigned Registrants hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of a Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934, as amended, that is incorporated
by reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of a registrant
pursuant to the foregoing provisions, or otherwise, each of the undersigned
Registrants has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against such public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by a
registrant of expenses incurred by a director, officer or controlling person of
a registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, each of the undersigned Registrants will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
Each of the undersigned Registrants hereby also undertakes:
(1) to provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit
prompt delivery to each purchaser.
(2) that, for the purposes of determining any liability under the
Securities Act:
(i) The information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(ii) Each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 58
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
KeyCorp certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3 and has duly caused this Post-Effective
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, State of Ohio,
as of the 12th day of July, 1999.
KEYCORP
By: /s/ DANIEL R. STOLZER
-------------------------------------
Name: Daniel R. Stolzer
Title: Vice President and Associate
General Counsel
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 1 to the Registration Statement has been
signed below by the following persons in the capacities indicated below and as
of the date indicated above.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
/s/ ROBERT W. GILLESPIE* Chairman of the Board, President, Chief
- -------------------------------------------- Executive Officer and Director (Principal
ROBERT W. GILLESPIE Executive Officer)
/s/ K. BRENT SOMERS* Senior Executive Vice President and Chief
- -------------------------------------------- Financial Officer (Principal Financial
K. Brent Somers Officer)
/s/ LEE G. IRVING* Executive Vice President and Chief
- -------------------------------------------- Accounting Officer (Principal Accounting
Lee G. Irving Officer)
/s/ CECIL D. ANDRUS* Director
- --------------------------------------------
Cecil D. Andrus
/s/ WILLIAM G. BARES* Director
- --------------------------------------------
William G. Bares
/s/ ALBERT C. BERSTICKER* Director
- --------------------------------------------
Albert C. Bersticker
/s/ EDWARD P. CAMPBELL* Director
- --------------------------------------------
Edward P. Campbell
/s/ CAROL A. CARTWRIGHT* Director
- --------------------------------------------
Carol A. Cartwright
/s/ THOMAS A. COMMES* Director
- --------------------------------------------
Thomas A. Commes
/s/ KENNETH M. CURTIS* Director
- --------------------------------------------
Kenneth M. Curtis
/s/ STEPHEN R. HARDIS* Director
- --------------------------------------------
Stephen R. Hardis
/s/ HENRY S. HEMINGWAY* Director
- --------------------------------------------
Henry S. Hemingway
</TABLE>
II-3
<PAGE> 59
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
/s/ CHARLES R. HOGAN* Director
- --------------------------------------------
Charles R. Hogan
/s/ DOUGLAS J. MCGREGOR* Director
- --------------------------------------------
Douglas J. McGregor
/s/ HENRY L. MEYER III* Director
- --------------------------------------------
Henry L. Meyer III
/s/ STEVEN A. MINTER* Director
- --------------------------------------------
Steven A. Minter
Director
- --------------------------------------------
Bill R. Sanford
/s/ RONALD B. STAFFORD* Director
- --------------------------------------------
Ronald B. Stafford
/s/ DENNIS W. SULLIVAN* Director
- --------------------------------------------
Dennis W. Sullivan
Director
- --------------------------------------------
Peter G. Ten Eyak, II
*By:/s/ DANIEL R. STOLZER
---------------------------------------
Name: Daniel R. Stolzer
Title: Attorney-in-Fact
</TABLE>
II-4
<PAGE> 60
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
KeyCorp Capital III certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Post-Effective Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cleveland,
State of Ohio, as of the 12th day of July, 1999.
KEYCORP CAPITAL III
BY: KEYCORP, AS DEPOSITOR
By: /s/ DANIEL R. STOLZER
------------------------------------
Name: Daniel R. Stolzer
Title: Vice President and
Associate General Counsel
II-5
<PAGE> 61
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
1 Form of Underwriting Agreement*
4(a) Junior Subordinated Indenture, dated as of December 4, 1996,
between KeyCorp and Bankers Trust Company, as Debenture
Trustee (Incorporated by reference to Exhibit 4(a) to
Registration Statement on Form S-4, Commission No. 333-19151
and 333-19151-01)
4(b) Certificate of Trust of KeyCorp Capital III, dated as of
April 13, 1999*
4(c) Trust Agreement of KeyCorp Capital III, dated as of April
13, 1999*
4(d) Form of Amended and Restated Trust Agreement of KeyCorp
Capital III (Including the related form of Expense
Agreement)*
4(e) Form of Capital Security Certificate (Included in Exhibit
4(d))
4(f) Form of Guarantee Agreement*
4(g) Form of % Junior Subordinated Deferrable Interest
Debentures*
5(a) Opinion of Daniel R. Stolzer, Esq., as to validity of the
Junior Subordinated Deferrable Interest Debentures and the
Guarantee*
5(b) Opinion of Richards, Layton & Finger, P.A., as to validity
of the Capital Securities*
8 Opinion of Sullivan & Cromwell as to certain federal income
tax matters*
12(a) Computations of Consolidated Ratios of Earnings to Fixed
Charges for the years ended December 31, 1998, 1997, 1996,
1995 and 1994 (Incorporated by reference to Exhibit 12 to
KeyCorp's Annual Report on Form 10-K for the year ended
December 31, 1998)
12(b) Computations of Consolidated Ratios of Earnings to Fixed
Charges for the three months ended March 31, 1999 and 1998*
15 Acknowledgment of Ernst & Young L.L.P.
23(a) Consent of Ernst & Young L.L.P.
23(b) Consent of Daniel R. Stolzer, Esq. (Included in Exhibit
5(a))
23(c) Consent of Richards, Layton & Finger, P.A. (Included in
Exhibit 5(b))
23(d) Consent of Sullivan & Cromwell (Included in Exhibit 8)
24 Powers of Attorney*
25 Form T-1 Statement of Eligibility of Bankers Trust Company
to act as trustee under the Indenture, under the Amended and
Restated Trust Agreement, and under the Guarantee for the
benefit of holders of Capital Securities*
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
Exhibit 15
ACKNOWLEDGMENT LETTER OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
KeyCorp
We are aware of the incorporation by reference in Post-Effective Amendment No. 1
to the Registration Statement (Form S-3 Nos. 333-76619 and 333-76619-01) and
related Prospectus of KeyCorp and KeyCorp Capital III of our report, dated April
13, 1999, relating to the unaudited condensed consolidated interim financial
statements of KeyCorp, included in the Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a part
of the Registration Statements prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
/s/ Ernst & Young LLP
Cleveland, Ohio
July 8, 1999
<PAGE> 1
Exhibit 23 (a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Post-Effective Amendment No. 1 to the Registration Statement (Form S-3 Nos.
333-76619 and 333-76619-01) and related Prospectus of KeyCorp and KeyCorp
Capital III and to the incorporation by reference therein of our report dated
January 14, 1999, with respect to the consolidated financial statements of
KeyCorp incorporated by reference in its Annual Report (Form 10-K) for the year
ended December 31, 1998, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Cleveland, Ohio
July 8, 1999
