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PROSPECTUS SUPPLEMENT FILE PURSUANT TO RULE 424(b)(3)
(TO PROSPECTUS DATED JUNE 30, 2000) REGISTRATION NO. 333-10577
U.S. $561,500,000
KEYCORP
SENIOR MEDIUM-TERM NOTES, SERIES E
SUBORDINATED MEDIUM-TERM NOTES, SERIES D
DUE FROM 9 MONTHS TO 30 YEARS FROM DATE OF ISSUE
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We plan to offer and sell Notes with various terms, including the
following:
- - Ranking as our senior or subordinated indebtedness
- - Stated maturities of 9 months to 30 years from date of issue
- - Redemption and/or repayment provisions, whether mandatory, at our option, at
the option of the holders or none at all
- - Payments in U.S. dollars or one or more foreign currencies
- - Minimum denominations of $1,000 or other specified denominations of foreign
currencies
- - Book-entry (through The Depository Trust Company) or certificated form
- - Interest payments on fixed rate Notes on each June 1 and December 1
- - Interest payments on floating rate Notes on a monthly, quarterly, semiannual
or annual basis
- - Interest at fixed or floating rates, or no interest at all. We may base the
floating interest rate on one or more of the following indices plus or minus a
spread and/or multiplied by a spread multiplier:
- CD rate
- CMT rate
- Commercial paper rate
- Eleventh district cost of funds rate
- Federal funds rate
- LIBOR
- Prime rate
- Treasury rate
- Such other interest basis or interest rate formula as we may specify in
the applicable pricing supplement
We will specify the final terms for each Note, which may be different from
the terms described in this prospectus supplement, in the applicable pricing
supplement.
INVESTING IN THE NOTES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" ON PAGE
S-3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT, THE ACCOMPANYING PROSPECTUS OR ANY PRICING SUPPLEMENT IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
We may sell the Notes to the Agents as principals for resale at varying or
fixed offering prices or through the Agents as agents using their reasonable
best efforts on our behalf. Unless otherwise specified in the applicable pricing
supplement, the price to the public for the Notes will be 100% of the principal
amount. If we sell all of the Notes, we expect to receive proceeds of between
$557,288,750 and $560,798,125, after paying the Agents' discounts and
commissions of between $701,875 and $4,211,250 and before deducting expenses
payable by us. We may also sell the Notes without the assistance of the Agents
(whether acting as principal or as agent).
SALOMON SMITH BARNEY
CHASE SECURITIES INC. CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO. J.P. MORGAN & CO.
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The date of this prospectus supplement is June 30, 2000.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
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Risk Factors................................................ S-3
About this Prospectus Supplement and the Pricing
Supplements............................................... S-5
Ratio of Earnings to Fixed Charges.......................... S-5
Selected Consolidated Financial Data........................ S-6
Description of Notes........................................ S-8
Special Provisions Relating to Foreign Currency Notes....... S-22
United States Tax Considerations............................ S-24
Plan of Distribution........................................ S-34
Validity of the Notes....................................... S-35
PROSPECTUS
PAGE
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Where You Can Find More Information......................... 2
The Corporation............................................. 3
Use of Proceeds............................................. 5
Description of Debt Securities.............................. 6
Description of Preferred Stock.............................. 20
Description of Depositary Shares............................ 23
Description of Common Shares................................ 28
Description of Capital Securities........................... 30
Description of Securities Warrants.......................... 31
Plan of Distribution........................................ 33
Legal Opinions.............................................. 34
Experts..................................................... 35
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You should rely only on the information contained in or incorporated by
reference in this prospectus supplement, the accompanying prospectus and any
pricing supplement. We have not, and the Agents have not, authorized any other
person to provide you with different or additional information. If anyone
provides you with different or additional information, you should not rely on
it. We are not, and the Agents are not, making an offer to sell these securities
in any jurisdiction where the offer or sale is not permitted. You should assume
that the information appearing in or incorporated by reference in this
prospectus supplement, the accompanying prospectus and any pricing supplement is
accurate as of its date only. Our business, financial condition, results of
operations and prospects may have changed since that date.
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RISK FACTORS
Your investment in the Notes is subject to certain risks, especially if the
Notes involve in some way a foreign currency. This prospectus supplement does
not describe all of the risks of an investment in the Notes, whether arising
because the Notes are denominated in a currency other than U.S. dollars or
because the return on the Notes is linked to one or more interest rate or
currency indices or formulas. You should consult your own financial and legal
advisors about the risks entailed by an investment in the Notes and the
suitability of your investment in the Notes in light of your particular
circumstances. The Notes are not an appropriate investment for investors who are
unsophisticated with respect to foreign currency transactions or transactions
involving the type of index or formula used to determine amounts payable. Before
investing in the Notes, you should consider carefully, among other factors, the
matters described below.
EXCHANGE RATES AND EXCHANGE CONTROLS
If you invest in foreign currency Notes and currency indexed Notes, your
investment will be subject to significant risks not associated with investments
in debt instruments denominated in U.S. dollars or U.S. dollar-based indices.
Such risks include the possibility of significant changes in the rate of
exchange between the U.S. dollar and your payment currency and the imposition of
modification of foreign exchange controls by either the United States or the
applicable foreign governments. KeyCorp has no control over the factors that
generally affect these risks, such as economic, financial and political events
and the supply and demand for the applicable currencies. In recent years, rates
of exchange between the U.S. dollar and certain foreign currencies have been
volatile and such volatility may continue in the future. Past fluctuations in
any particular exchange rate are not necessarily indicative, however, of
fluctuations that may occur in the future. Fluctuations in exchange rates
against the U.S. dollar could result in a decrease in the U.S. dollar-equivalent
value of the principal or any premium payable at maturity of your Notes and,
generally, in the U.S. dollar-equivalent market value of your Notes. The
currency risks with respect to your foreign currency Notes or currency indexed
Notes may be further described in the applicable pricing supplement.
Foreign exchange rates can either float or be fixed by sovereign
governments. Governments, however, often do not voluntarily allow their
currencies to float freely in response to economic forces. Instead, governments
use a variety of techniques, such as intervention by that country's central
bank, or the imposition of regulatory controls or taxes, to affect the exchange
rate of their currencies. Governments also may issue a new currency to replace
an existing currency or alter the exchange rate or relative exchange
characteristics by the devaluation or revaluation of a currency. Thus, an
important risk in purchasing foreign currency Notes or currency indexed Notes
for U.S. dollar-based investors is that their U.S. dollar-equivalent yields
could be affected by governmental actions that could change or interfere with
currency valuation that was previously freely determined, fluctuations in
response to other market forces and the movement of currencies across borders.
KeyCorp will make no adjustment or change in the terms of the foreign currency
Notes or currency indexed Notes if exchange rates become fixed, or if any
devaluation or revaluation or imposition of exchange or other regulatory
controls or taxes occur, or other developments, affecting the U.S. dollar or any
applicable currency occur.
The Exchange Rate Agent will make all calculations relating to your foreign
currency Notes or currency indexed Notes. All such determinations will, in the
absence of clear error, be binding on holders of the Notes.
On January 1, 1999, Austria, Belgium, Finland, France, Germany, Ireland,
Italy, Luxembourg, The Netherlands, Portugal and Spain (the "Participating
States") commenced a new stage of economic and monetary union and introduced a
single currency (the "euro"), which is legal tender in the participating States
in substitution for the national currencies of those countries. Bills and coins
denominated in euro will be circulated for the first time on January 1, 2002 and
for a three-year transitional period until December 31, 2001, the current
currencies of the Participating States remain legal tender in those countries as
a subdivision of the euro. The conversion rate between the current currencies of
each Participating State and the euro was fixed irrevocably by the Council of
the European Union on January 1, 1999. The Council of the European Union has
adopted regulations providing specific rules for the introduction of the euro.
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For Notes with a specified currency other than U.S. dollars, KeyCorp may
include in the applicable pricing supplement information concerning historical
exchange rates for that currency against the U.S. dollar and a brief description
of any relevant exchange controls.
FOREIGN CURRENCY JUDGMENTS
The Indenture and the Notes, except to the extent specified otherwise in a
pricing supplement, will be governed by, and construed in accordance with, the
laws of the State of New York. As a holder of Notes, you may bring an action
based upon an obligation payable in a currency other than U.S. dollars in courts
in the United States. However, courts in the United States have not customarily
rendered judgments for money damages denominated in any currency other than U.S.
dollars. In addition, it is not clear whether in granting such judgment, the
rate of conversion would be determined with reference to the date of default,
the date judgment is rendered or any other date. The Judiciary Law of the State
of New York provides, however, that an action based upon an obligation payable
in a currency other than U.S. dollars will be rendered in the foreign currency
of the underlying obligation and converted to U.S. dollars at a rate of exchange
prevailing on the date the judgment or decree is entered. In these cases,
holders of foreign currency Notes would bear the risk of exchange rate
fluctuations between the time the dollar amount of this judgment is calculated
and the time U.S. dollars were paid to the holders.
RISKS ASSOCIATED WITH INDEXED NOTES
If you invest in indexed Notes, your investment will be subject to
significant risks that are not associated with an investment in a conventional
fixed rate debt security. Indexation of the interest rate of a Note may result
in lower (or no) interest compared to a conventional fixed rate debt security
issued at the same time. Indexation of the principal of and/or premium on a Note
may result in the payment of a lower amount of principal and/or premium (or no
principal and/or premium) compared to the original purchase price of the Note.
The value of an index can fluctuate based on a number of interrelated factors,
including economic, financial and political events over which KeyCorp has no
control. Additionally, if the formula specified to determine the amount of
principal, premium and/or interest payable with respect to indexed Notes
contains a multiple or leverage factor, that feature may magnify the effect of
any change in the index. You should not view the historical experience of an
index as an indication of its future performance.
CREDIT RATINGS
The credit ratings on KeyCorp's Medium-Term Note Program may not reflect
the potential impact of all risks related to structure and other factors on the
value of the Notes. In addition, real or anticipated changes in KeyCorp's credit
ratings generally will affect the market value of the Notes.
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ABOUT THIS PROSPECTUS SUPPLEMENT AND THE PRICING SUPPLEMENTS
We intend to use this prospectus supplement, the attached prospectus and a
related pricing supplement to offer our Notes from time to time.
This prospectus supplement provides you with certain terms of the Notes and
supplements the description of the Debt Securities contained in the attached
prospectus. If information in this prospectus supplement is inconsistent with
the prospectus, this prospectus supplement will replace the inconsistent
information in the prospectus.
Each time we issue Notes, we will prepare a pricing supplement that will
contain additional terms of the offering and the specific description of the
Notes offered. The pricing supplement also may add, update or change information
in this prospectus supplement or the attached prospectus, including provisions
describing the calculation of interest and the method of making payments under
the terms of a Note. The flexibility available to us to set or negotiate
individualized terms for Notes means that there will be transactions,
particularly with Indexed Notes, that are quite complex. Frequently, the terms
of the Notes differ from the terms that we describe in this prospectus
supplement. Any information in the pricing supplement that is inconsistent with
this prospectus supplement will replace the inconsistent information in this
prospectus supplement.
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, 1999 and for each of the three-month periods ended
March 31, 2000 and 1999.
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 that is deemed representative of the
interest factor, net of income from subleases.
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
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2000 1999 1999 1998 1997 1996 1995
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RATIO OF EARNINGS TO FIXED CHARGES
Excluding deposit interest......... 2.26x 2.09x 2.02x 1.97x 2.24x 2.41x 2.42x
Including deposit interest......... 1.68x 1.62x 1.57x 1.51x 1.53x 1.50x 1.46x
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK
DIVIDENDS
Excluding deposit interest......... 2.26x 2.09x 2.02x 1.97x 2.24x 2.38x 2.35x
Including deposit interest......... 1.68x 1.62x 1.57x 1.51x 1.53x 1.49x 1.45x
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SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents summary consolidated financial data which has
been derived from, and should be read in conjunction with, the consolidated
financial statements, the notes thereto and the other financial information
pertaining to KeyCorp incorporated by reference into the accompanying
prospectus. This summary is qualified in its entirety by the detailed
information and financial statements included in the documents incorporated by
reference under "Where You Can Find More Information" in the accompanying
prospectus. The data presented for the years ended December 31, 1999, 1998,
1997, 1996 and 1995 (except for ratios) is derived from audited consolidated
financial statements of KeyCorp. The data presented for the three-month periods
ended March 31, 2000 and 1999 have been derived from unaudited consolidated
financial statements of KeyCorp and are not necessarily indicative of the data
for the entire year. These interim financial statements include, in the opinion
of management, all adjustments of a normal recurring nature and disclosures
which are necessary to present fairly the data for such interim periods. The
comparability of the data presented is affected by certain acquisitions and
divestitures that KeyCorp and its subsidiaries have completed in the time
periods presented. Some previously reported results have been reclassified to
conform to the current presentation.
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
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2000 1999 1999 1998 1997 1996 1995
-------- -------- ------- ------- ------- ------- -------
(UNAUDITED) [AUDITED (EXCEPT RATIOS)]
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
FOR THE PERIOD
Interest income.................... $ 1,489 $ 1,381 $ 5,695 $ 5,525 $ 5,262 $ 4,951 $ 5,121
Interest expense................... 818 696 2,908 2,841 2,517 2,237 2,485
Net interest income................ 671 685 2,787 2,684 2,745 2,714 2,636
Provision for loan losses.......... 183 111 348 297 320 197 100
Noninterest income................. 806 615 2,315 1,600 1,315 1,090 936
Noninterest expense................ 727 754 3,070 2,508 2,395 2,464 2,315
Income before income taxes and
extraordinary item............... 567 435 1,684 1,479 1,345 1,143 1,157
Income before extraordinary item... 367 293 1,107 996 919 783 789
Net income......................... 367 293 1,107 996 919 783 825
Net income applicable to common
shares........................... 367 293 1,107 996 919 775 809
PER COMMON SHARE
Income before extraordinary item... $ .83 $ .65 $ 2.47 $ 2.25 $ 2.09 $ 1.69 $ 1.65
Income before extraordinary item --
assuming dilution................ .83 .65 2.45 2.23 2.07 1.67 1.63
Net income......................... .83 .65 2.47 2.25 2.09 1.69 1.73
Net income -- assuming dilution.... .83 .65 2.45 2.23 2.07 1.67 1.71
Cash dividends..................... .28 .26 1.04 .94 .84 .76 .72
Book value at period end........... 14.84 13.63 14.41 13.63 11.83 10.92 10.68
Market price:
High........................... 22.25 34.19 38.13 44.88 36.59 27.13 18.63
Low............................ 15.56 29.69 21.00 23.38 23.94 16.69 12.25
Close.......................... 19.00 30.31 22.13 32.00 35.41 25.25 18.13
Weighted average common shares
(000)............................ 441,834 449,520 448,168 441,895 439,042 459,810 469,574
Weighted average common shares and
potential common shares(000)..... 443,757 454,197 452,363 447,437 444,544 464,282 472,882
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THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
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2000 1999 1999 1998 1997 1996 1995
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(UNAUDITED) [AUDITED (EXCEPT RATIOS)]
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
AT PERIOD END
Loans.............................. $64,064 $61,045 $64,222 $62,012 $53,380 $49,235 $48,332
Earning assets..................... 73,953 70,458 73,733 70,240 64,246 59,260 58,762
Total assets....................... 83,504 79,992 83,395 80,020 73,699 67,621 66,339
Deposits........................... 46,036 41,323 43,233 42,583 45,073 45,317 47,282
Long-term debt..................... 14,784 15,457 15,881 12,967 7,446 4,213 4,003
Common shareholders' equity........ 6,493 6,105 6,389 6,167 5,181 4,881 4,993
Total shareholders' equity......... 6,493 6,105 6,389 6,167 5,181 4,881 5,153
PERFORMANCE RATIOS
Return on average total assets..... 1.77% 1.49% 1.37% 1.32% 1.33% 1.21% 1.24%
Return on average common equity.... 22.68 19.48 17.68 17.97 18.89 15.73 17.35
Return on average total equity..... 22.68 19.48 17.68 17.97 18.89 15.64 17.10
Efficiency(1)...................... 62.27 61.16 59.61 58.74 58.31 60.91 63.06
Overhead(2)........................ 35.75 33.19 31.52 35.17 40.34 45.51 49.66
Net interest margin (taxable
equivalent)...................... 3.68 3.95 3.93 4.08 4.54 4.78 4.47
CAPITAL RATIOS AT PERIOD-END
Equity to assets................... 7.78% 7.63% 7.66% 7.71% 7.03% 7.22% 7.77%
Tangible equity to tangible
assets........................... 6.16 5.86 6.03 5.93 5.52 5.88 6.25
Tier I risk-adjusted capital....... 7.98 7.44 7.68 7.21 6.65 7.98 7.53
Total risk-adjusted capital........ 12.04 11.92 11.66 11.69 10.83 13.01 10.85
Leverage........................... 7.89 7.21 7.77 6.95 6.40 6.93 6.20
ASSET QUALITY DATA
Nonperforming loans................ $ 423 $ 395 $ 407 $ 365 $ 381 $ 349 $ 333
Nonperforming assets............... 447 430 433 404 431 400 379
Allowance for loan losses.......... 979 930 930 900 900 870 876
Net loan charge-offs............... 134 81 318 297 293 195 99
Nonperforming loans to period-end
loans............................ .66% .65% .63% .59% .71% .71% .69%
Nonperforming assets to period-end
loans plus OREO and other
nonperforming assets............. .70 .70 .67 .65 .81 .81 .78
Allowance for loan losses to
nonperforming loans.............. 231.44 235.44 228.50 246.58 236.22 249.28 263.15
Allowance for loan losses to
period-end loans................. 1.53 1.52 1.45 1.45 1.69 1.77 1.81
Net loan charge-offs to average
loans............................ .84 .53 .51 .52 .57 .40 .21
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(1) This ratio measures the extent to which recurring revenues are absorbed by
operating expenses and is calculated as follows: noninterest expense
(excluding certain nonrecurring charges) divided by the sum of
taxable-equivalent net interest income and noninterest income (excluding
gains from certain divestitures and certain nonrecurring charges).
(2) This ratio is the difference between noninterest expense (excluding certain
nonrecurring charges) and noninterest income (excluding gains from certain
divestitures and certain nonrecurring charges) divided by taxable-equivalent
net interest income.
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DESCRIPTION OF NOTES
The following summary of certain terms of the Notes is not complete. For
additional terms of the Notes, you should also read the Indentures under which
the Notes will be issued, which are exhibits to our shelf registration statement
(File No. 333-10577). The following description of the Notes offered
supplements, and to the extent the descriptions are inconsistent, replaces the
description of the general terms and provisions of the Debt Securities that is
found under the heading "Description of Debt Securities" in the accompanying
prospectus. The following descriptions will apply to each Note unless otherwise
specified in the pricing supplement.
GENERAL
KeyCorp will offer the Notes on a continuous basis as Senior Notes or
Subordinated Notes.
The Notes are KeyCorp's direct, unsecured obligations. The total initial
public offering price of the Notes that we may offer using this prospectus
supplement is $561,500,000 or its equivalent in one or more foreign currencies
or composite currencies.
Notes issued under the Senior Indenture will rank equally with all of our
other unsecured and unsubordinated indebtedness that is not accorded a priority
under applicable law. Notes issued under the Subordinated Indenture will be
subordinated in right of payment to the prior payment in full of our Senior
Indebtedness and, in certain insolvency events, our Other Senior Obligations.
The Senior Medium-Term Notes, Series E, Due from 9 Months to 30 Years from
Date of Issue constitute a single series for purposes of the Senior Indenture
(separate from our other series of senior medium-term notes) and the aggregate
principal amount of such series is not limited. At March 31, 2000, our total
Senior Indebtedness and Other Senior Obligations was $321 million and $338
million, respectively. Since March 31, 2000, we have issued an additional $400
million of Senior Indebtedness. As of the date of this prospectus supplement, we
have not issued any Senior Medium-Term Notes, Series E, under the Senior
Indenture.
The Subordinated Medium-Term Notes, Series D, constitute a single series
for purposes of the Subordinated Indenture (separate from our other series of
subordinated medium-term notes) and the aggregate principal amount of such
series is not limited. At March 31, 2000, our total Existing Subordinated
Indebtedness was $440 million and we had $468 million of Subordinated Debt
Securities, none of which constitute Existing Subordinated Indebtedness under
the Subordinated Indenture. At the date of this prospectus supplement, we have
not issued any Subordinated Medium-Term Notes, Series D, under the Subordinated
Indenture.
The Indentures do not limit the amount of our Notes or other debt
obligations that may be issued thereunder.
Each Note will mature on any day nine months or more from its date of
issue, subject to extension, redemption or repayment as specified in the
applicable pricing supplement.
The Notes (other than the Amortizing Notes) will not be subject to any
sinking fund, unless otherwise specified in the applicable pricing supplement.
The defeasance and covenant defeasance provisions of the Indentures
described under "Description of Debt Securities -- Satisfaction and Discharge,
Defeasance and Covenant Defeasance" in the attached prospectus will apply to the
Notes.
The pricing supplement relating to each Note will specify the price
(expressed as a percentage of the aggregate principal amount thereof) at which
such Note will be issued if other than 100%, the principal amount, the interest
rate or interest rate formula, ranking, maturity, currency, any redemption or
repayment provisions and any other terms on which each such Note will be issued
that are not inconsistent with the applicable indenture.
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Unless we specify otherwise in the applicable pricing supplement, we will
denominate the Notes in U.S. dollars and we will make all payments on the Notes
in U.S. dollars. For further information regarding Foreign Currency Notes, see
"Risk Factors" and "Special Provisions Relating To Foreign Currency Notes".
You must pay the purchase price of the Notes in immediately available
funds.
Unless otherwise defined in the pricing supplement, "Business Day" means
any day, other than a Saturday or Sunday, that is neither a legal holiday nor a
day on which commercial banks are authorized or required by law, regulation or
executive order to close in The City of New York; provided, however, that, with
respect to Foreign Currency Notes, such day is also not a day on which
commercial banks are authorized or required by law, regulation or executive
order to close in the Principal Financial Center (as defined) of the country
issuing the specified currency (or, if the specified currency is the euro, such
day is also a day on which the Trans-European Automated Real-Time Gross
Settlement Express Transfer (TARGET) System is open); provided, further, that,
with respect to Notes as to which LIBOR is an applicable interest rate basis,
such day is also a London Business Day.
"London Business Day" means a day on which commercial banks are open for
business (including dealings in the designated LIBOR Currency) in London.
Unless otherwise specified in the applicable pricing supplement, "Principal
Financial Center" means (1) the capital city of the country issuing the
specified currency or (2) the capital city of the country to which the
designated LIBOR Currency relates, as applicable, except, in the case of (1) or
(2) above, that with respect to United States dollars, Australian dollars,
Canadian dollars, Deutsche marks, Dutch guilders, Portuguese escudos, South
African rand and Swiss francs, the "Principal Financial Center" shall be The
City of New York, Sydney and (solely in the case of the specified currency)
Melbourne, Toronto, Frankfurt, Amsterdam, London (solely in the case of the
designated LIBOR Currency), Johannesburg and Zurich, respectively.
Unless otherwise specified in the applicable pricing supplement, the
authorized denominations of Notes denominated in U.S. dollars will be $1,000 or
any greater amount that is an integral multiple of $1,000. We will designate the
authorized denominations of Foreign Currency Notes in the applicable pricing
supplement.
BOOK-ENTRY DEBT SECURITIES
Except under certain circumstances, we will issue the Notes in book-entry
form only. This means that we will generally not issue actual Notes or
certificates to you. Instead, we will issue a Global Security representing Notes
with similar terms and such Global Security will be held by The Depository Trust
Company ("DTC") or its nominee. In order to own a beneficial interest in a Note,
you must be an institution that has an account with DTC or have an account with
an institution, such as a brokerage firm, that has an account with DTC. For a
more complete description of book-entry Debt Securities, see "Description of
Debt Securities -- Book-Entry Procedures" in the prospectus.
Payments of principal of, premium if any, and interest on the Notes
represented by a Global Security will be made in same-day funds to DTC in
accordance with arrangements then in effect between the applicable Trustee and
DTC.
INTEREST AND INTEREST RATES
General
Each Note will begin to accrue interest from the date it is originally
issued or from the last date in respect of which interest has been paid or duly
provided for, as the case may be, until the principal thereof is paid or made
available for payment. In the related pricing supplement, we will designate each
Note as a Fixed Rate Note, a Floating Rate Note, an Amortizing Note, a Renewable
Note, an Extendible Note or an Indexed Note and describe the method of
determining the interest rate, including any Spread and/or Spread Multiplier.
For an Indexed Note, we will also describe in the related pricing supplement the
method for calculating and
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paying principal and interest. For a Floating Rate Note or Indexed Note, we may
also specify a maximum and a minimum interest rate in the related pricing
supplement.
We may issue a Note as a Fixed Rate Note or a Floating Rate Note or as a
Note that combines fixed and floating rate terms.
Interest rates on the Notes that we offer may differ depending upon, among
other things, the aggregate principal amount of Notes purchased in any single
transaction. We may offer Notes with similar variable terms but different
interest rates, as well as Notes with different variable terms, concurrently to
different investors. We may, from time to time, change the interest rates or
formulas and other terms of Notes, but no such change will affect any Note
already issued or as to which an offer to purchase has been accepted.
Interest will be payable to the person in whose name the note is registered
at the close of business on the applicable record date; provided that the
interest payable upon maturity, redemption or repayment (whether or not the date
of maturity, redemption or repayment is an interest payment date) will be
payable to the person whom principal is payable.
U.S. dollar payments of interest, other than interest payable at maturity
(or on the date of redemption or repayment, if a Note is redeemed or repaid
prior to maturity), will be made by check mailed to the address of the person
entitled thereto as shown on the Note register. U.S. dollar payments of
principal, premium, if any, and interest upon maturity, redemption, or repayment
will be made in immediately available funds against presentation and surrender
of the Note. Notwithstanding the foregoing, (a) DTC, as holder of Book-Entry
Notes, shall be entitled to receive payments of interest by wire transfer of
immediately available funds and (b) a holder of U.S. $1.0 million (or the
equivalent) or more in aggregate principal amount of Certificated Notes (whether
having identical or different terms and provisions) shall be entitled to receive
payments of interest by wire transfer of immediately available funds upon
written request to the Paying Agent not later than 15 calendar days prior to the
applicable Interest Payment Date.
Fixed Rate Notes
In the pricing supplement for Fixed Rate Notes, we will specify a fixed
interest rate payable semiannually in arrears on each June 1 and December 1
(each an "Interest Payment Date") and the Regular Record Date for Fixed Rate
Notes will be May 15 and November 15, respectively. Interest on Fixed Rate Notes
will be computed on the basis of a 360-day year of twelve 30-day months. If the
maturity date or an Interest Payment Date for any Fixed Rate Note is not a
Business Day, we will pay principal, premium, if any, and interest for that Note
on the next Business Day, and no interest will accrue from and after the
maturity date or Interest Payment Date.
Original Issue Discount Notes
We may issue original issue discount Notes (including zero coupon Notes)
("Discount Notes"), which are Notes issued at a discount from the principal
amount payable at the maturity date. A Discount Note may not have any periodic
interest payments. For Discount Notes, interest normally accrues during the life
of the Note and is paid at the maturity date or upon earlier redemption. Upon a
redemption, repayment or acceleration of the maturity of a Discount Note, the
amount payable will be determined as set forth under " -- Optional Redemption,
Repayment and Repurchase". Normally this amount is less than the amount payable
at the maturity date.
Amortizing Notes
We may issue amortizing Notes, which are Fixed Rate Notes for which
combined principal and interest payments are made in installments over the life
of each Note ("Amortizing Notes"). Unless otherwise specified in the applicable
pricing supplement, payments will be made either quarterly on March 1, June 1,
September 1 and December 1 or semiannually on each June 1 and December 1, as
indicated in the related pricing supplement. We apply payments on Amortizing
Notes first to interest due and then to reduce the
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unpaid principal amount. We will include a table setting forth repayment
information in the related pricing supplement for an Amortizing Note.
Floating Rate Notes
Each Floating Rate Note will have an interest rate basis or formula.
KeyCorp may base that formula on:
- the CD Rate;
- the CMT Rate;
- the Commercial Paper Rate;
- the Eleventh District Cost of Funds Rate;
- the Federal Funds Rate;
- LIBOR;
- the Prime Rate;
- the Treasury Rate; or
- another negotiated interest rate basis or formula.
In the pricing supplement, KeyCorp also will indicate any Spread and/or
Spread Multiplier that would be applied to the interest rate formula to
determine the interest rate. Any Floating Rate Note may have a maximum or
minimum interest rate limitation. In addition to any maximum interest rate
limitation, the interest rate on the Floating Rate Notes will in no event be
higher than the maximum rate permitted by New York law, as the same may be
modified by United States law of general application.
KeyCorp will appoint a calculation agent to calculate interest rates on the
Floating Rate Notes. Unless we identify a different party in the pricing
supplement, KeyBank National Association, a wholly owned subsidiary of KeyCorp,
will be the calculation agent for each Note. In most cases, a Floating Rate Note
will have a specified "Interest Reset Date", "Interest Determination Date" and
"Calculation Date" associated with it. An Interest Reset Date is the date on
which the interest rate on the Note is subject to change. An Interest
Determination Date is the date as of which the new interest rate is determined
for a particular Interest Reset Date, based on the applicable interest rate
basis or formula as of that Interest Determination Date. The Calculation Date is
the date by which the calculation agent will determine the new interest rate
that became effective on a particular Interest Reset Date based on the
applicable interest rate basis or formula on the Interest Determination Date.
CHANGE OF INTEREST RATE
We may reset the interest rate on each Floating Rate Note daily, weekly,
monthly, quarterly, semiannually, annually or on some other basis that we
specify (such period being the "Interest Reset Period"). The Interest Reset Date
is the first day of each Interest Reset Period and will be:
- for Notes with interest that resets daily, each Business Day;
- for Notes (other than Treasury Rate Notes) with interest that resets
weekly, Wednesday of each week;
- for Treasury Rate Notes with interest that resets weekly, Tuesday of each
week;
- for Notes with interest that resets monthly, the third Wednesday of each
month;
- for Notes with interest that resets quarterly, the third Wednesday of
March, June, September and December of each year;
- for Notes with interest that resets semiannually, the third Wednesday of
each of the two months of each year indicated in the applicable pricing
supplement; and
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- for Notes with interest that resets annually, the third Wednesday of the
month of each year indicated in the applicable pricing supplement.
The related pricing supplement will describe the initial interest rate or
interest rate formula on each Note. That rate is effective until the following
Interest Reset Date. Thereafter, the interest rate will be the rate determined
on each Interest Determination Date. Each time a new interest rate is
determined, it becomes effective on the subsequent Interest Reset Date. If any
Interest Reset Date is not a Business Day, then the Interest Reset Date is
postponed to the next Business Day, except, in the case of a LIBOR Note, in
which case, if the next Business Day is in the next calendar month, the Interest
Reset Date is the immediately preceding Business Day.
DATE INTEREST RATE IS DETERMINED
The Interest Determination Date for all Floating Rate Notes (except LIBOR
Notes, Treasury Rate Notes and Eleventh District Cost of Funds Rate Notes) will
be the second Business Day before the Interest Reset Date. The Interest
Determination Date in the case of LIBOR Notes will be the second London Business
Day immediately preceding the applicable Interest Reset Date, unless the
Designated LIBOR Currency is British pounds sterling, in which case the
"Interest Determination Date" will be the applicable Interest Reset Date.
The Interest Determination Date for Treasury Rate Notes will be the day of
the week in which the Interest Reset Date falls on which Treasury bills of the
same Index Maturity are normally auctioned. Treasury bills are usually sold at
auction on Monday of each week, unless that day is a legal holiday, in which
case the auction is usually held on Tuesday. Sometimes, the auction is held on
the preceding Friday. If an auction is held on the preceding Friday, that day
will be the Interest Determination Date relating to the Interest Reset Date
occurring in the next week. If an auction date falls on any Interest Reset Date
then the Interest Reset Date will instead be the first Business Day immediately
following the auction date.
The Interest Determination Date for an Eleventh District Cost of Funds Rate
Note is the last Business Day of the month immediately preceding the applicable
Interest Reset Date on which the Federal Home Loan Bank of San Francisco
published the index.
CALCULATION DATE
Unless we specify a different date in a pricing supplement, the
"Calculation Date," if applicable, relating to an Interest Determination Date
will be the earlier of;
(1) the tenth calendar day after such Interest Determination Date or,
if such day is not a Business Day, the next succeeding Business Day, or
(2) the Business Day immediately preceding the relevant Interest
Payment Date or the maturity date, as the case may be.
Upon the request of the beneficial holder of any Floating Rate Note, the
calculation agent will provide the interest rate then in effect and, if
different, the interest rate that will become effective on the next Interest
Reset Date for the Floating Rate Note.
PAYMENT OF INTEREST
We will pay installments of interest on Floating Rate Notes as follows:
- for Notes (other than Eleventh District Cost of Funds Rate Notes) with
interest payable monthly, on the third Wednesday of each month;
- for Eleventh District Cost of Funds Rate Notes, the first calendar day of
each month as specified in the applicable pricing supplement;
- for Notes with interest payable quarterly, on the third Wednesday of
March, June, September, and December of each year;
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- for Notes with interest payable semiannually, on the third Wednesday of
each of the two months specified in the applicable pricing supplement;
- for Notes with interest payable annually, on the third Wednesday of the
month specified in the applicable pricing supplement (each of the above
an "Interest Payment Date"); and
- at maturity, redemption or repurchase.
Each interest payment on a Floating Rate Note will include interest accrued
from, and including, the issue date or the last Interest Payment Date, as the
case may be, to, but excluding, the following Interest Payment Date or the
maturity date, as the case may be.
We will pay installments of interest on Floating Rate Notes beginning on
the first Interest Payment Date after its issue date to holders of record on the
corresponding Regular Record Date. Unless we otherwise specify in the applicable
pricing supplement, the Regular Record Date for a Floating Rate Note will be on
the 15th day (whether or not a Business Day) next preceding the Interest Payment
Date. If an Interest Payment Date (but not the maturity date) is not a Business
Day (except for LIBOR Notes), we will postpone payment until the next Business
Day. In the case of LIBOR Notes, such Interest Payment Date will be the
preceding Business Day if the next Business Day is in the next calendar month.
If the maturity date of any Floating Rate Note is not a Business Day, principal,
premium, if any, and interest for that Note will be paid on the next Business
Day, and no interest will accrue from and after the maturity date.
We will calculate accrued interest on a Floating Rate Note by multiplying
the principal amount of a Note by an accrued interest factor. The accrued
interest factor is the sum of the interest factors calculated for each day in
the period for which accrued interest is being calculated. The interest factor
for each day is computed by dividing the interest rate in effect on that day by
(1) the actual number of days in the year, in the case of Treasury Rate Notes or
CMT Rate Notes, or (2) 360, in the case of other Floating Rate Notes. All
percentages resulting from any calculation are rounded to the nearest one
hundred-thousandth of a percentage point, with five one-millionths of a
percentage point rounded upward. For example, 9.876545% (or .09876545) will be
rounded to 9.87655% (or .0987655). Dollar amounts used in the calculation are
rounded to the nearest cent (with one-half cent being rounded upward).
CALCULATION OF INTEREST
In this Section, we explain how we will calculate the interest rate basis
on different types of Floating Rate Notes.
CD Rate Notes
The "CD Rate" for any Interest Determination Date is the rate on that date
for negotiable certificates of deposit having the Index Maturity described in
the related pricing supplement, as published in H.15(519) prior to 3:00 PM., New
York City time, on the Calculation Date, for that Interest Determination Date
under the heading "CDs (secondary market)". The "Index Maturity" is the period
to maturity of the instrument or obligation with respect to which the related
interest rate basis or formulae will be calculated.
The calculation agent will observe the following procedures if the CD Rate
cannot be determined as described above:
- If the above rate is not published in H.15(519) by 3:00 PM., New York
City time, on the Calculation Date, the CD Rate will be the rate on that
Interest Determination Date for negotiable certificates of deposit of the
Index Maturity described in the pricing supplement as published in H.15
Daily Update, or such other recognized electronic source used for the
purpose of displaying such rate, under the caption "CDs (secondary
market)".
- If that rate is not published in H.15(519), H.15 Daily Update or another
recognized electronic source by 3:00 P.M., New York City time, on the
Calculation Date, then the calculation agent will determine the CD Rate
to be the average of the secondary market offered rates as of 10:00 A.M.,
New York City time, on that Interest Determination Date, quoted by three
leading non-bank dealers of negotiable U.S.
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dollar certificates of deposit in New York City for negotiable
certificates of deposit in a denomination of $5,000,000 of major United
States money-center banks of the highest credit standing (in the market
for negotiable certificates of deposit) with a remaining maturity closest
to the Index Maturity described in the pricing supplement. The
calculation agent will select the three dealers referred to above.
- If fewer than three dealers are quoting as mentioned above, the CD Rate
will remain the CD Rate then in effect on that Interest Determination
Date.
"H.15(519)" means the weekly statistical release designated as such, or any
successor publication, published by the Board of Governors of the Federal
Reserve System.
"H.15 Daily Update" means the daily update of H.15(519), available through
the Internet site of the Board of Governors of the Federal Reserve System at
http://www.bog.frb.fed.us/releases/h15/update, or any successor site or
publication.
Commercial Paper Rate Notes
The "Commercial Paper Rate" for any Interest Determination Date is the
Money Market Yield of the rate on that date for commercial paper having the
Index Maturity described in the related pricing supplement, as published in
H.15(519) prior to 3:00 P.M., New York City time, on the Calculation Date for
that Interest Determination Date under the heading "Commercial
Paper -- Nonfinancial".
The calculation agent will observe the following procedures if the
Commercial Paper Rate cannot be determined as described above:
- If the above rate is not published in H.15(519) by 3:00 P.M., New York
City time, on the Calculation Date, the Commercial Paper Rate will be the
Money Market Yield of the rate on that Interest Determination Date for
commercial paper having the Index Maturity described in the pricing
supplement, as published in H.15 Daily Update, or such other recognized
electronic source used for the purpose of displaying such rate, under the
caption "Commercial Paper -- Nonfinancial".
- If that rate is not published in H.15(519), H.15 Daily Update or another
recognized electronic source by 3:00 P.M., New York City time, on the
Calculation Date, then the calculation agent will determine the
Commercial Paper Rate to be the Money Market Yield of the average of the
offered rates of three leading dealers of U.S. dollar commercial paper in
New York City as of 11:00 A.M., New York City time, on that Interest
Determination Date for commercial paper having the Index Maturity
described in the pricing supplement placed for an industrial issuer whose
bond rating is "Aa", or the equivalent, from a nationally recognized
securities rating organization. The calculation agent will select the
three dealers referred to above.
- If fewer than three dealers selected by the calculation agent are quoting
as mentioned above, the Commercial Paper Rate will remain the Commercial
Paper Rate then in effect on that Interest Determination Date.
"Money Market Yield" means a yield (expressed as a percentage) calculated
in accordance with the following formula:
D X 360
Money Market Yield = ------------ X 100
360 -(D X M)
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the reset period for which interest is being calculated.
LIBOR Notes
On each Interest Determination Date, the calculation agent will determine
LIBOR as follows:
- If the pricing supplement specifies "LIBOR Telerate", LIBOR on any
Interest Determination Date will be the rate for deposits in the LIBOR
Currency having the Index Maturity described in the related
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pricing supplement on the applicable Interest Reset Date, as such rate
appears on the Designated LIBOR Page as of 11:00 A.M., London time, on
that Interest Determination Date.
- If the pricing supplement specifies "LIBOR Reuters", LIBOR on any
Interest Determination Date will be the average of the offered rates for
deposits in the LIBOR Currency having the Index Maturity described in the
related pricing supplement on the applicable Interest Reset Date, as such
rates appear on the Designated LIBOR Page as of 11:00 A.M., London time,
on that Interest Determination Date, if at least two such offered rates
appear on the Designated LIBOR Page.
- If the pricing supplement does not specify "LIBOR Telerate" or "LIBOR
Reuters," the LIBOR Rate will be LIBOR Telerate. In addition, if the
Designated LIBOR Page by its terms provides only for a single rate, that
single rate will be used regardless of the foregoing provisions requiring
more than one rate.
On any Interest Determination Date on which fewer than the required number of
applicable rates appear or no rate appears on the applicable Designated LIBOR
Page, the calculation agent will determine LIBOR as follows:
- LIBOR will be determined on the basis of the offered rates at which
deposits in the LIBOR Currency having the Index Maturity described in the
related pricing supplement on the Interest Determination Date and in a
principal amount that is representative of a single transaction in that
market at that time are offered by four major banks in the London
interbank market at approximately 11:00 A.M., London time, on the
Interest Determination Date to prime banks in the London interbank
market. The calculation agent will select the four banks and request the
principal London office of each of those banks to provide a quotation of
its rate for deposits in the LIBOR Currency. If at least two quotations
are provided, LIBOR for that Interest Determination Date will be the
average of those quotations.
- If fewer than two quotations are provided as mentioned above, LIBOR will
be the average of the rates quoted by three major banks in the Principal
Financial Center selected by the calculation agent at approximately 11:00
A.M. in the Principal Financial Center, on the Interest Determination
Date for loans to leading European banks in the LIBOR Currency having the
Index Maturity designated in the pricing supplement and in a principal
amount that is representative for a single transaction in the LIBOR
Currency in that market at that time. The calculation agent will select
the three banks referred to above.
- If fewer than three banks selected by the calculation agent are quoting
as mentioned above, LIBOR will remain LIBOR then in effect on that
Interest Determination Date.
"LIBOR Currency" means the currency specified in the applicable pricing
supplement as to which LIBOR shall be calculated or, if no such currency is
specified in the applicable pricing supplement, United States dollars.
"Designated LIBOR Page" means:
- if the pricing supplement specifies "LIBOR Reuters", the display on the
Reuter Monitor Money Rates Service (or any successor service) on the page
specified in such pricing supplement (or any other page as may replace
such page on such service) for the purpose of displaying the London
interbank rates of major banks for the LIBOR Currency; or
- if the pricing supplement specifies "LIBOR Telerate" or neither "LIBOR
Reuters" nor "LIBOR Telerate" is specified in the applicable pricing
supplement as the method of calculating LIBOR, the display on Bridge
Telerate, Inc. (or any successor service, "Telerate") on the page
specified in such pricing supplement (or any other page as may replace
such page on such service) for the purpose of displaying the London
interbank rates of major banks for the LIBOR Currency.
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Federal Funds Rate Notes
The "Federal Funds Rate" for any Interest Determination Date is the rate on
that date for Federal Funds, as published in H.15(519) prior to 3:00 P.M., New
York City time, on the Calculation Date for that Interest Determination Date
under the heading "Federal Funds (Effective)", as such rate is displayed on
Telerate on page 120 (or any other page as may replace such page on such
service) ("Telerate Page 120").
The calculation agent will follow the following procedures if the Federal
Funds Rate cannot be determined as described above:
- If the above rate is not published in H.15(519) by 3:00 P.M., New York
City time, on the Calculation Date, the Federal Funds Rate will be the
rate on that Interest Determination Date, as published in H.15 Daily
Update, or such other recognized electronic source used for the purpose
of displaying such rate, under the caption "Federal Funds (Effective)".
- If that rate does not appear on Telerate Page 120 or is not published in
H.15(519), H.15 Daily Update or another recognized electronic source by
3:00 P.M., New York City time, on the Calculation Date, then the
calculation agent will determine the Funds Rate to be the average of the
rates for the last transaction in overnight Federal Funds quoted by three
leading brokers of Federal Funds transactions in New York City as of 9:00
A.M., New York City time, on that Interest Determination Date. The
calculation agent will select the three brokers referred to above.
- If fewer than three brokers selected by the calculation agent are quoting
as mentioned above, the Federal Funds Rate will be the Federal Funds Rate
then in effect on that Interest Determination Date.
Prime Rate Notes
The "Prime Rate" for any Interest Determination Date is the prime rate or
base lending rate on that date, as published in H.15(519) by 3:00 P.M., New York
City time, on the Calculation Date for that Interest Determination Date under
the heading "Bank Prime Loan" or, if not published by 3:00 P.M., New York City
time, on the related Calculation Date, the rate on such Interest Determination
Date as published in H.15 Daily Update, or such other recognized electronic
source used for the purpose of displaying such rate, under the caption "Bank
Prime Loan."
The calculation agent will follow the following procedures if the Prime
Rate cannot be determined as described above:
- If the rate is not published in H.15(519), H.15 Daily Update or another
recognized electronic source by 3:00 PM., New York City time, on the
Calculation Date, then the calculation agent will determine the Prime
Rate to be the average of the rates of interest publicly announced by
each bank that appears on the Reuters screen designated as "U.S. Prime 1"
as that bank's prime rate or base lending rate as in effect for that
Interest Determination Date.
- If at least one rate but fewer than four rates appear on the Reuters
screen U.S. Prime 1 on the Interest Determination Date, then the Prime
Rate will be the average of the prime rates or base lending rates quoted
(on the basis of the actual number of days in the year divided by a
360-day year) as of the close of business on the Interest Determination
Date by three major money center banks in the City of New York selected
by the calculation agent.
- If the banks selected by the calculation agent are not quoting as
mentioned above, the Prime Rate will remain the Prime Rate then in effect
on the Interest Determination Date.
Treasury Rate Notes
The "Treasury Rate" for any Interest Determination Date is the rate set at
the auction of direct obligations of the United States ("Treasury bills") having
the Index Maturity described in the related pricing supplement under the caption
"INVESTMENT RATE" on the display on Telerate on page 56 (or any other page as
may replace such page on such service) or page 57 (or any other page as may
replace such page on
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such service) by 3:00 PM., New York City time, on the Calculation Date for that
Interest Determination Date.
The calculation agent will follow the following procedures if the Treasury
Rate cannot be determined as described above:
- If the rate is not so published by 3:00 P.M., New York City time, on the
Calculation Date, the Treasury Rate will be the Bond Equivalent Yield of
the auction rate of such Treasury bills as published in H.15 Daily
Update, or such recognized electronic source used for the purpose of
displaying such rate, under the caption "U.S. Government Securities
Treasury Bills/Auction High."
- If the rate is not so published by 3:00 P.M., New York City time, on the
Calculation Date and cannot be determined as described in the immediately
preceding paragraph, the Treasury Rate will be the Bond Equivalent Yield
of the auction rate of such Treasury bills as otherwise announced by the
United States Department of Treasury.
- If the results of the most recent auction of Treasury bills having the
Index Maturity described in the pricing supplement are not published or
announced as described above by 3:00 P.M., New York City time, on the
Calculation Date, or if no auction is held on the Interest Determination
Date, then the Treasury Rate will be the Bond Equivalent Yield on such
Interest Determination Date of Treasury bills having the Index Maturity
specified in the applicable pricing supplement as published in H.15(519)
under the caption "U.S. Government securities/Treasury bills/Secondary
market" or, if not published by 3:00 P.M., New York City time, on the
related Calculation Date, the rate on such Interest Determination Date of
such Treasury Bills as published in H.15 Daily Update, or such other
recognized electronic source used for the purpose of displaying such
rate, under the caption "U.S. Government securities/Treasury
bills/Secondary market."
- If such rate is not published in H.15(519), H.15 Daily Update or another
recognized electronic source by 3:00 P.M., New York City time, on the
related Calculation Date, then the calculation agent will determine the
Treasury Rate to be the Bond Equivalent Yield of the average of the
secondary market bid rates, as of approximately 3:30 PM., New York City
time, on the Interest Determination Date of three leading primary U.S.
government securities dealers (which may include the Agents or their
affiliates) for the issue of Treasury bills with a remaining maturity
closest to the Index Maturity described in the related pricing
supplement. The calculation agent will select the three dealers referred
to above.
- If fewer than three dealers selected by the calculation agent are quoting
as mentioned above, the Treasury Rate will remain the Treasury Rate then
in effect on that Interest Determination Date.
"Bond Equivalent Yield" means a yield (expressed as a percentage) calculated in
accordance with the following formula:
D X N
Bond Equivalent Yield = ------------ X 100
360 -(D X M)
where "D" refers to the applicable per annum rate for Treasury bills quoted on a
bank discount basis, "N" refers to 365 or 366, as the case may be, and "M"
refers to the actual number of days in the applicable Interest Reset Period.
CMT Rate Notes
The "CMT Rate" for any Interest Determination Date is the rate displayed on
the Designated CMT Telerate Page by 3:00 PM., New York City time, on the
Calculation Date for that Interest Determination Date under the caption " ...
Treasury Constant Maturities ... Federal Reserve Board Release H.15 ... Mondays
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Approximately 3:45 P.M.," under the column for the Index Maturity described in
the related pricing supplement for:
(1) if the Designated CMT Telerate Page is 7051, the rate on such Interest
Determination Date; or
(2) if the Designated CMT Telerate Page is 7052, the weekly or monthly
average for the week or the month, specified in the related pricing
supplement, ended immediately preceding the week or month in which the
related Interest Determination Date occurs.
The calculation agent will follow the following procedures if the CMT Rate
cannot be determined as described above:
- If the rate is not displayed on the relevant page by 3:00 P.M., New York
City time, on the Calculation Date, then the CMT Rate will be the
Treasury constant maturity rate for the Designated CMT Maturity Index, as
published in H.15(519).
- If that rate is not published in H.15(519) by 3:00 P.M., New York City
time, on the Calculation Date, then the CMT Rate will be the Treasury
constant maturity rate (or other United States Treasury rate) for the
Designated CMT Maturity Index for the Interest Determination Date as may
then be published by either the Board of Governors of the Federal Reserve
System or the United States Department of the Treasury that the
calculation agent determines to be comparable to the rate formerly
displayed on the Designated CMT Telerate Page and published in H.15(519).
- If that information is not provided by 3:00 PM., New York City time, on
the Calculation Date, then the calculation agent will determine the CMT
Rate to be a yield to maturity based on the average of the secondary
market closing offered rates, as of approximately 3:30 P.M., New York
City time, on the Interest Determination Date reported, according to
their written records, by three leading primary United States government
securities dealers (each, a "Reference Dealer") in New York City. The
calculation agent will select five Reference Dealers and will eliminate
the highest quotation (or, in the event of overlap, one of the highest
quotations) and the lowest quotation (or, in the event of overlap, one of
the lowest quotations), for the most recently issued direct noncallable
fixed rate obligations of the United States ("Treasury Notes") with an
original maturity of approximately the Designated CMT Maturity Index and
a remaining term to maturity of not less than the Designated CMT Maturity
Index minus one year.
- If the calculation agent cannot obtain three Treasury Note quotations,
the calculation agent will determine the CMT Rate to be a yield to
maturity based on the average of the secondary market offered rates as of
approximately 3:30 P.M., New York City time, on the Interest
Determination Date of three Reference Dealers in New York City (selected
using the same method described above) for Treasury Notes with an
original maturity of the number of years that is the next highest to the
Designated CMT Maturity Index and a remaining term to maturity closest to
the Designated CMT Maturity Index and in an amount of at least
$100,000,000. If two Treasury Notes with an original maturity have
remaining terms to maturity equally close to the Designated CMT Maturity
Index, the calculation agent will obtain quotations for the Treasury Note
with the shorter remaining term to maturity.
- If three or four (but not five) Reference Dealers are quoting as
described above, then the CMT Rate will be based on the average of the
offered rates obtained and neither the highest nor the lowest of those
quotations will be eliminated.
- If fewer than three Reference Dealers selected by the calculation agent
are quoting as described above, the CMT Rate will remain the CMT Rate
then in effect on the Interest Determination Date.
"Designated CMT Telerate Page" means the display on Telerate, on the page
specified in the applicable pricing supplement (or any other page as may replace
such page on such service) for the purpose of displaying Treasury Constant
Maturities as reported in H.15(519) or, if no such page is specified in the
applicable pricing supplement, page 7052.
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"Designated CMT Maturity Index" means the original period to maturity of
the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years)
specified in the applicable pricing supplement with respect to which the CMT
Rate will be calculated or, if no such maturity is specified in the applicable
pricing supplement, 2 years.
Eleventh District Cost of Funds Rate Notes
The "Eleventh District Cost of Funds Rate" for any Interest Determination
Date is the rate equal to the monthly weighted average cost of funds for the
month preceding the Interest Determination Date as displayed on the Telerate
Page 7058 by 11:00 A.M., San Francisco time, on the Calculation Date for that
Interest Determination Date under the caption "11th District."
The calculation agent will use the following procedures if the Eleventh
District Cost of Funds Rate cannot be determined as described above:
- If the rate is not displayed on the relevant page by 11:00 A.M., San
Francisco time, on the Calculation Date, then the Eleventh District Cost
of Funds Rate will be the monthly weighted average cost of funds paid by
member institutions of the Eleventh Federal Home Loan Bank District, as
announced by the Federal Home Loan Bank of San Francisco, for the month
immediately preceding the Interest Determination Date.
- If no announcement was made relating to the month preceding the Interest
Determination Date, the Eleventh District Cost of Funds Rate will remain
the Eleventh District Cost of Funds Rate then in effect on the Interest
Determination Date.
INDEXED NOTES
We may issue Notes for which the amount of interest or principal that you
will receive will not be known on your date of purchase. We will specify the
formulae for computing interest or principal payments for these types of Notes,
which we call "Indexed Notes", by reference to securities, financial or
non-financial indices, currencies, commodities, interest rates, or composites or
baskets of any or all of the above. Examples of indexed items that we may use
include a published stock index, the common stock price of a publicly traded
company, the value of the U.S. dollar versus the Japanese Yen, or the price in a
particular market of a barrel of West Texas intermediate crude oil.
If you purchase an Indexed Note, you may receive a principal amount at
maturity that is greater than or less than the Note's face amount, and an
interest rate that is greater than or less than the interest rate that you would
have earned if you had instead purchased a conventional debt security issued by
us at the same time with the same maturity. The amount of interest and principal
that you will receive will depend on the structure of the Indexed Note and the
level of the specified indexed item throughout the term of the Indexed Note and
at maturity. Specific information pertaining to the method of determining the
interest payments and the principal amount will be described in the pricing
supplement, as well as additional risk factors unique to the Indexed Note,
certain historical information for the specified indexed item and certain
additional United States federal tax considerations.
RENEWABLE NOTES
We may issue Renewable Notes ("Renewable Notes"), which are Notes that
mature on an Interest Payment Date as specified in the applicable pricing
supplement (the "Initial Maturity Date"), unless the maturity of all or any
portion of the principal amount is extended as described below. On the Interest
Payment Dates in June and December each year (unless different Interest Payment
Dates are specified in the pricing supplement), which are "Election Dates", the
maturity of the Renewable Notes will be extended to the Interest Payment Date
occurring 12 months after the Election Date, unless the holder elects to
terminate the automatic extension of the maturity of the Renewable Notes or any
portion having a principal amount of $1,000 or any multiple of $1,000 in excess
thereof. To terminate, notice has to be delivered to the paying agent not less
than nor more than the number of days specified in the applicable pricing
supplement prior to the related Election Date. The option may be exercised with
respect to less than the entire principal amount of the
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Renewable Notes so long as the principal amount for which the option is not
exercised is at least $1,000 or any larger amount that is a integral multiple of
$1,000. The maturity of the Renewable Notes may not be extended beyond the Final
Maturity Date that is set forth in the applicable pricing supplement. If the
holder elects to terminate the automatic extension of the maturity and the
election is not revoked, then the portion of the Renewable Note for which
election was made will become due and payable on the Interest Payment Date,
unless another date is set forth in the pricing supplement, falling six months
after the Election Date prior to which the holder made such election.
An election to terminate the automatic extension of maturity may be revoked
as to any portion of the Renewable Notes have a principal maturity of $1,000 or
any multiple of $1,000 in excess thereof by delivering a notice to the paying
agent on any day following the effective date of the election to terminate the
automatic extension and prior to the date 15 days before the date on which the
portion would have matured.
If a Note is represented by a Global Security, DTC or its nominee will be
the holder of the Note and therefore will be the only entity that can exercise a
right to terminate the automatic extension of a Note. In order to ensure that
DTC or its nominee will exercise a right to terminate the automatic extension
provisions of a particular Note, the beneficial owner of the Note must instruct
the broker or other DTC participant through which it holds an interest in the
Note to notify DTC of its desire to terminate the automatic extension of the
Note. Different firms have different cut-off times for accepting instructions
from their customers and, accordingly, each beneficial owner should consult the
broker or other participant through which it holds an interest in a Renewable
Note to ascertain the cut-off time by which an instruction must be given for
delivery of timely notice to DTC or its nominee.
EXTENDIBLE NOTES
We may issue Notes whose stated maturity date may be extended at our option
(an "Extendible Note") for one or more whole year periods (each an "Extension
Period"), up to but not beyond a final maturity date described in the related
pricing supplement.
We may exercise our option to extend the Extendible Note by notifying the
applicable Trustee (or any duly appointed paying agent) at least 50 but not more
than 60 days prior to the then effective maturity date. If we elect to extend
the Extendible Note, the Trustee (or paying agent) will mail (at least 40 days
prior to the maturity date) to the registered holder of the Extendible Note a
notice ("Extension Notice") informing the holder of our election, the new
maturity date and any updated terms. Upon the mailing of the Extension Notice,
the maturity of such Note will be extended automatically as set forth in the
Extension Notice.
However, we may, not later than 20 days prior to the maturity date of an
Extendible Note (or, if such date is not a Business Day, on the immediately
succeeding Business Day), at our option, establish a higher interest rate, in
the case of a Fixed Rate Note, or a higher Spread and/or Spread Multiplier, in
the case of a Floating Rate Note, for the Extension Period by mailing or causing
the applicable Trustee (or paying agent) to mail notice of such higher interest
rate or higher Spread and/or Spread Multiplier to the holder of the Extendible
Note. The notice will be irrevocable.
If we elect to extend the maturity of an Extendible Note, the holder of the
Note will have the option to instead elect repayment of the Note by us on the
then effective maturity date. In order for an Extendible Note to be so repaid on
the maturity date, we must receive, at least 25 days but not more than 35 days
prior to the maturity date:
(1) the Note with the form "Option to Elect Repayment" on the reverse
of the Note duly completed; or
(2) a facsimile transmission, telex or a letter from a member of a
national securities exchange or the National Association of Securities
Dealers, Inc. or a commercial bank or trust company in the United States
setting forth the name of the holder of the Note, the principal amount of
the Note, the principal amount of the Note to be repaid, the certificate
number or a description of the tenor and terms of the Note, a statement
that the option to elect repayment is being exercised thereby and a
guarantee that the Note to be repaid, together with the duly completed form
entitled "Option to Elect Repayment" on the
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reverse of the Note, will be received by the applicable Trustee (or paying
agent) not later than the fifth Business Day after the date of the
facsimile transmission, telex or letter; provided, however, that the
facsimile transmission, telex or letter will only be effective if the
applicable Trustee or paying agent receives the Note and form duly
completed by that fifth Business Day. A holder of an Extendible Note may
exercise this option for less than the aggregate principal amount of the
Note then outstanding if the principal amount of the Note remaining
outstanding after repayment is an authorized denomination.
If a Note is represented by a Global Security, DTC or its nominee will be
the holder of that Note and therefore will be the only entity that can exercise
a right to repayment. To ensure that DTC or its nominee timely exercises a right
to repayment with respect to a particular Note, the beneficial owner of that
Note must instruct the broker or other participant through which it holds an
interest in the Note to notify DTC of its desire to exercise a right of
repayment. Different firms have different cut-off times for accepting
instructions from their customers and, accordingly, each beneficial owner should
consult the broker or other participant through which it holds an interest in a
Note to determine the cut-off time by which an instruction must be given for
timely notice to be delivered to DTC or its nominee.
OPTIONAL REDEMPTION, REPAYMENT AND REPURCHASE
We will indicate in the pricing supplement for a Note whether we will have
the option to redeem the Note before the stated maturity and the price or prices
at which, and date or dates on which, redemption may occur. If we are allowed to
redeem a Note, we may exercise the option by notifying the applicable Trustee at
least 45 days prior to the redemption date. At least 30 but not more than 60
days before the redemption date, the Trustee will mail notice or cause the
paying agent to mail notice of redemption to the Holders. If we partially redeem
a Note, we will issue a new Note or Notes for the unredeemed portion.
The pricing supplement relating to a Note will also indicate whether you
will have the option to elect repayment by us prior to the stated maturity and
the price and the date or dates on which, repayment may occur.
For a Note to be repaid at your option, the paying agent must receive at
least 30 but not more than 45 days prior to an optional repayment date, such
Note with the form entitled "Option to Elect Repayment" on the reverse of the
Note duly completed. You may also send the paying agent a facsimile or letter
from a member of a national securities exchange or the National Association of
Securities Dealers, Inc. or a commercial bank or trust company in the United
States describing the particulars of the repayment, including a guarantee that
the Note and the form entitled "Option to Elect Repayment" will be received by
the paying agent no later than five Business Days after such facsimile or
letter. If you present a Note for repayment, such act will be irrevocable. You
may exercise the repayment option for less than the entire principal of the
Note, provided the remaining principal outstanding is an authorized
denomination. If you elect partial repayment, your Note will be cancelled, and
we will issue a new Note or Notes for the remaining amount.
DTC or its nominee will be the holder of each Global Security and will be
the only party that can exercise a right of repayment. If you are a beneficial
owner of a Global Security and you want to exercise your right of repayment, you
must instruct your broker or indirect participant through which you hold a Note
interest to notify DTC. You should consult your broker or such indirect
participant to discuss the appropriate cut-off times and any other requirements
for giving this instruction. The giving of any such instruction will be
irrevocable.
If a Note is a Discount Note (other than an Indexed Note), the amount
payable in the event of redemption or repayment prior to its stated maturity
will be the amortized face amount on the redemption or repayment date, as the
case may be. The amortized face amount of a Discount Note will be equal to (i)
the issue price plus (ii) that portion of the difference between the issue price
and the principal amount of the Note that has accrued at the yield to maturity
described in the pricing supplement (computed in accordance with generally
accepted U.S. bond yield computation principles) by the redemption or repayment
date. However, in no case will the amortized face amount of a Discount Note
exceed its principal amount.
We may at any time purchase Notes at any price in the open market or
otherwise. We may hold, resell or surrender for cancellation any Notes that we
purchase.
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SPECIAL PROVISIONS RELATING TO FOREIGN CURRENCY NOTES
GENERAL
Unless we indicate otherwise in the applicable pricing supplement, we will
denominate the Notes in U.S. dollars, we will make principal and interest
payments on the Notes in U.S. dollars and you must pay the purchase price of the
Notes in immediately available funds. If any of the Notes ("Foreign Currency
Notes") are to be denominated or payable in a currency or basket of currencies
other than U.S. dollars (a "specified currency"), the following provisions will
apply in addition to, and to the extent inconsistent therewith will replace, the
description of general terms and provisions of Notes set forth in the
accompanying prospectus and elsewhere in this prospectus supplement.
A pricing supplement with respect to any Foreign Currency Note (which may
include information with respect to applicable current foreign exchange
controls) is a part of this prospectus and prospectus supplement. Any
information we furnish you concerning exchange rates is furnished as a matter of
information only and you should not regard it as indicative of the range of or
trends in fluctuations in currency exchange rates that may occur in the future.
CURRENCIES
We may offer Foreign Currency Notes denominated and/or payable in a
specified currency or specified currencies. Unless we indicate otherwise in the
applicable pricing supplement, you are required to pay for Foreign Currency
Notes in the specified currency. At the present time, there are limited
facilities in the United States for conversion of U.S. dollars into specified
currencies and vice versa, and banks may elect not to offer non-U.S. dollar
checking or savings account facilities in the United States. However, at your
request on or prior to the third Business Day preceding the date of delivery of
the Foreign Currency Notes, or by such other day as determined by the Agent who
presents such offer to purchase Foreign Currency Notes to us, such Agent may be
prepared to arrange for the conversion of U.S. dollars into the applicable
specified currency set forth in the applicable pricing supplement to enable the
purchasers to pay for the Foreign Currency Notes. The Agent or Agents will make
each such conversion on such terms and subject to such conditions, limitations
and charges as the Agent may from time to time establish in accordance with
their regular foreign exchange practices. If you purchase Foreign Currency Notes
you will pay all costs of exchange.
The applicable pricing supplement will set forth information about the
specified currency in which a particular Foreign Currency Note is denominated
and/or payable, including historical exchange rates and a description of the
currency and any exchange controls, and, in the case of a basket of currencies,
will include a description of such basket and a description of provisions for
payment in the event such currency basket is no longer used for the purposes for
which it was established.
PAYMENT OF PRINCIPAL AND INTEREST
We will pay the principal of and interest on Foreign Currency Notes in the
specified currency. Currently, banks do not generally offer non-U.S. dollar
denominated account facilities in their offices in the United States, although
they are permitted to do so. Accordingly, if you are a holder of Foreign
Currency Notes you will be paid in U.S. dollars converted from the specified
currency unless you elect to be paid in the specified currency or unless the
applicable pricing supplement provides otherwise.
If you hold a Foreign Currency Note we will base any U.S. dollar amount
that you are owed on the highest bid quotation in The City of New York received
by our agent specified in the applicable pricing supplement (the "Exchange Rate
Agent") at approximately 11:00 A.M., New York City time, on the second Business
Day preceding the applicable payment date from three recognized foreign exchange
dealers (one of whom may be the Exchange Rate Agent) selected by the Exchange
Rate Agent and approved by us for the purchase by the quoting dealer of the
specified currency for U.S. dollars for settlement on such payment date in the
aggregate amount of the specified currency payable to all holders of Foreign
Currency Notes scheduled to receive U.S. dollar payments and at which the
applicable dealer commits to execute a contract. If three
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such bid quotations are not available, we will make payments in the specified
currency. All currency exchange costs will be borne by the holders of the
Foreign Currency Note by deductions from such payments.
Unless we indicate otherwise in the applicable pricing supplement, as a
holder of Foreign Currency Notes you may elect to receive payment of the
principal of and interest on the Foreign Currency Notes in the specified
currency by transmitting a written request for such payment to the corporate
trust office of the Trustee in The City of New York on or prior to the Regular
Record Date or at least 15 calendar days prior to maturity, as the case may be.
You may make this request in writing (mailed or hand delivered) or sent by
facsimile transmission. As a holder of a Foreign Currency Note, you may elect to
receive payment in the specified currency for all principal and interest
payments and need not file a separate election for each payment. Your election
will remain in effect until revoked by written notice to the Trustee, but
written notice of any such revocation must be received by the Trustee on or
prior to the Regular Record Date or at least 15 calendar days prior to the
maturity date, as the case may be. If your Foreign Currency Notes are held in
the name of a broker or nominee, you should contact your broker or nominee to
determine whether and how you may elect to receive payments in the specified
currency.
If a Note is represented by a Global Security, DTC or its nominee will be
the holder of the Note and will be entitled to all payments on the Note.
Although DTC can hold Notes denominated in foreign currencies, all payments to
DTC will be made in U.S. dollars. Accordingly, a beneficial owner of the related
Global Security who elects to receive payments of principal, premium, if any,
and/or interest, if any, in the specified currency must notify the Participant
through which it owns its interest on or prior to the applicable Record Date or
at least 15 calendar days prior to the maturity, as the case may be, of such
beneficial owner's election. The Participant must notify DTC of such election on
or prior to the third Business Day after such Record Date or at least 12
calendar days prior to the maturity, as the case may be, and DTC will notify the
Trustee of such election on or prior to the fifth Business Day after such Record
Date or at least 10 calendar days prior to the maturity, as the case may be. If
the Participant receives complete instructions from the beneficial owner and
such instructions are forwarded by the Participant to DTC, and by DTC to the
Trustee, on or prior to such dates, then the beneficial owner will receive
payments in the specified currency. See "Description of Debt
Securities -- Book-Entry Debt Securities."
We will pay principal and interest on Foreign Currency Notes to be paid in
U.S. dollars in the manner specified in the accompanying prospectus and this
prospectus supplement with respect to Notes denominated in U.S. dollars. See
"Description of the Notes -- General". We will pay interest on Foreign Currency
Notes in the specified currency by check mailed on the relevant Interest Payment
Date to the persons entitled thereto to the address of such holders as they
appear in the Security Register or, at our option by wire transfer to a bank
account maintained by the holder in the country of the specified currency. The
principal of Foreign Currency Notes, together with interest accrued and unpaid
thereon, due at maturity will be paid in immediately available funds upon
surrender of such Notes at the corporate trust office of the applicable Trustee
in The City of New York, or, at our option, by wire transfer to such bank
account.
PAYMENT CURRENCY
If a specified currency is not available for the payment of principal,
premium or interest with respect to a Foreign Currency Note due to the
imposition of exchange controls or other circumstances beyond our control, we
will be entitled to satisfy our obligations to holders of Foreign Currency Notes
by making such payment in U.S. dollars on the basis of the noon buying rate in
The City of New York for cable transfers of the specified currency as certified
for customs purposes (or, if not so certified as otherwise determined) by the
Federal Reserve Bank of New York (the "Market Exchange Rate") as computed by the
Exchange Rate Agent on the second Business Day prior to such payment or, if not
then available, on the basis of the most recently available Market Exchange Rate
or as otherwise indicated in an applicable pricing supplement. Any payment made
under such circumstances in U.S. dollars where the required payment is in a
specified currency will not constitute a default under the Indenture with
respect to the Notes.
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All determinations referred to above made by the Exchange Rate Agent will
be at its sole discretion and will, in the absence of clear error, be conclusive
for all purposes and binding on the holders of the Foreign Currency Notes.
AS INDICATED ABOVE, IF YOU INVEST IN FOREIGN CURRENCY NOTES OR CURRENCY
INDEXED NOTES YOUR INVESTMENT WILL BE SUBJECT TO SUBSTANTIAL RISKS, THE EXTENT
AND NATURE OF WHICH CHANGE CONTINUOUSLY. AS WITH ANY INVESTMENT THAT YOU MAKE IN
A SECURITY, YOU SHOULD CONSULT YOUR OWN FINANCIAL AND LEGAL ADVISORS AS TO THE
RISKS ENTAILED IN AN INVESTMENT IN FOREIGN CURRENCY NOTES OR CURRENCY INDEXED
NOTES. SUCH NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR YOU IF YOU ARE
UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY MATTERS.
UNITED STATES TAX CONSIDERATIONS
In the opinion of Thompson Hine & Flory LLP, special tax counsel to the
Corporation, the following summary accurately describes certain material United
States federal income tax statutory and regulatory provisions which may pertain
to the purchase, ownership and disposition of Notes as of the date hereof. This
summary is based on laws, regulations, rulings and decisions now in effect (or,
in the case of certain regulations, in proposed form) all of which are subject
to change (including changes in effective dates) or possible differing
interpretations, which could result in federal income tax consequences different
from those discussed below. It deals only with Notes held as capital assets and
does not purport to deal with persons in special tax situations, such as:
- financial institutions,
- insurance companies,
- regulated investment companies,
- dealers in securities or currencies,
- persons holding Notes as a hedge against currency risks or as a position
in a "straddle" for tax purposes, or
- United States persons (as defined below) whose functional currency is not
the United States dollar.
It does not deal with Notes other than Notes in the registered form.
The federal income tax consequences of purchasing, holding or disposing of
Amortizing Notes, Extendible Notes, Renewable Notes, Indexed Notes, Foreign
Currency Notes (other than the Single Foreign Currency Notes (as defined below))
and Floating Rate Notes that provide for one base rate followed by a different
base rate, a base rate followed by a fixed rate, or a fixed rate followed by a
base rate will be set out in the applicable pricing supplement. It also does not
deal with holders other than original purchasers except as provided below.
Additional tax considerations or consequences may result from the particular
terms established in any pricing supplement or in any Note. This opinion is
limited to the present laws of the United States, and, except as otherwise
provided by the federal securities laws, Thompson Hine & Flory LLP assumes no
obligation to revise or supplement this opinion with respect to Notes issued
pursuant to this Registration Statement in the event the present laws referred
to above change by legislative action, judicial decision, or otherwise, or the
facts as they presently exist change to the extent any such changes occur after
the date of issue. PERSONS CONSIDERING THE PURCHASE, OWNERSHIP, OR DISPOSITION
OF THE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE APPLICATION OF
UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS
ANY CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES ARISING
UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
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As used herein, a "U.S. holder" of a Note means a beneficial owner of a
Note that is for United States federal income tax purposes:
- an individual citizen or resident of the United States,
- a corporation, partnership (unless the IRS provides otherwise by Treasury
Regulations) or other entity created or organized in or under the laws of
the United States, any state, or of any political subdivision thereof,
- an estate the income of which is subject to United States federal income
taxation regardless of its source, or
- a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust, and one or more United
States persons have the authority to control all substantial decisions of
the trust.
As used herein, the term "non-U.S. holder" means a holder of a Note that is not
a U.S. holder.
"Single Foreign Currency Note" means a Note on which all payments a holder
is entitled to receive are denominated in or determined by reference to the
value of a single foreign currency. "Foreign currency" means a currency or
currency unit, other than a hyperinflationary currency or the U.S. dollar.
U.S. HOLDERS
Interest
Payments of interest on a Note, including "qualified stated interest" on a
"Discount Note" (each as defined below), generally will be taxable to a U.S.
holder as ordinary interest income at the time such payments are accrued or
received in accordance with the U.S. holder's method of accounting for United
States federal income tax purposes.
Original Issue Discount
Notes with a term greater than one year may be issued with original issue
discount for United States federal income tax purposes, i.e., a Discount Note.
Generally, original issue discount will arise if the stated redemption price at
maturity (generally, the payments to be made under the Note other than payments
of qualified stated interest) of a Note exceeds its issue price by more than a
de minimis amount or if a Note has certain interest payment characteristics
(e.g., interest holidays, interest payable in debt of the issuer, stepped
interest rates or interest rates based upon multiple indices). The issue price
of Discount Notes that are issued for cash will be the first price at which a
substantial amount of the Discount Notes in the issue are sold for money (for
this purpose, sales to bond houses, brokers, or similar persons or organizations
acting in the capacity of underwriters, placement agents, or wholesalers are
ignored). "Qualified stated interest" generally is stated interest that is
unconditionally payable in cash or property (other than a debt instrument of the
issuer) at least annually at a single fixed rate (appropriately taking into
account the length of the intervals of the payments) with certain exceptions for
lower rates paid during some periods. If a Note is issued with original issue
discount, a U.S. holder of the Note will be required to include original issue
discount amounts in gross income for United States federal income tax purposes
on an accrual basis using the constant yield to maturity method and, as a
result, a U.S. holder may be required to include these amounts in income in
advance of receipt of the cash payments to which the amounts are attributable.
Any amounts included in income as original issue discount with respect to a
Discount Note will increase a U.S. holder's adjusted tax basis in the Discount
Note.
Computation of Original Issue Discount
The amount of original issue discount includible in income by a U.S. holder
of a Discount Note is the sum of the daily portions of original issue discount
with respect to the Discount Note for each day during the taxable year or
portion of the taxable year in which the U.S. holder holds the Discount Note,
i.e., accrued original issue discount. Generally, the daily portion is
determined by allocating to each day in any accrual
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period a pro rata portion of the original issue discount allocable to that
accrual period. Accrual periods with respect to a Note may be of any length
selected by the U.S. holder and may vary in length over the term of the Note as
long as (1) no accrual period is longer than one year and (2) each scheduled
payment of interest or principal on the Note occurs either on the final or first
day of an accrual period.
The amount of original issue discount allocable to an accrual period equals
the excess if any of:
- the product of the Discount Note's adjusted issue price at the beginning
of the accrual period and the Note's yield to maturity (determined on the
basis of compounding at the close of each accrual period and properly
adjusted for the length of the accrual period) over
- the sum of the payments of qualified stated interest on the Note
allocable to the accrual period.
The "adjusted issue price" of a Discount Note at the beginning of any
accrual period (determined without regard to the amortization of any acquisition
or bond premium, as discussed below) is (a) the sum of the issue price of the
Note and the accrued original issue discount for each prior accrual period less
(b) any prior payments on the Note that were not qualified stated interest
payments.
The OID Regulations provide special rules for Notes that provide for one or
more alternative payment schedules applicable upon the occurrence of a
contingency or contingencies, including optional redemption. Notes which may be
redeemed in whole or in part prior to their stated maturity will be treated as
having a maturity date for federal income tax purposes on the earlier redemption
date if this redemption would result in a lower yield to maturity in the case of
a redemption at the issuer's option or a higher yield to maturity in the case of
a redemption at the holder's option. Notice will be given in the applicable
pricing supplement when the Corporation determines that a particular Note will
be deemed to have a maturity date for federal income tax purposes prior to its
stated maturity. Investors intending to purchase Notes with such features should
consult their own tax advisors, since the original issue discount consequences
will depend, in part, on the particular terms and features of those Notes.
De Minimis Rule
If a Note is issued with de minimis original issue discount (i.e., original
issue discount that is not considered original issue discount because it is less
than 0.25% of the stated redemption price at maturity multiplied by the number
of complete years to maturity), the U.S. holder generally must include any de
minimis original issue discount at maturity unless the election described below
under "Election to Treat All Interest as Original Issue Discount" is made. Any
amount of de minimis original issue discount that has not been included in
income prior to sale, exchange or retirement of a Note shall be treated as
capital gain.
Variable Rate Debt Instrument
In addition, Floating Rate Notes may be subject to rules that differ from
these general rules described above. Prospective investors should consult their
own tax advisors with respect to the tax consequences of any prospective
purchase of Floating Rate Notes. The following summary is based upon Treasury
Regulations that were published in the Federal Register on February 2, 1994,
that became effective as final Treasury Regulations on April 4, 1994 and that
were amended on June 14, 1996, which amendments generally became effective as
final Treasury Regulations on August 13, 1996 (collectively, the "OID
Regulations").
In general, a Note will be treated as a "variable rate debt instrument" for
purposes of the OID Regulations if the Note is issued for an amount that does
not exceed the total noncontingent principal payments by more than an amount
equal to the lesser of (1) 0.015 multiplied by the product of the total
noncontingent principal and the number of complete years to maturity from the
issue date; or (2) 15% of the total noncontingent principal payments. In
addition, to be a variable rate debt instrument, the Note must bear stated
interest (compounded or paid at least annually) at:
- one or more qualified floating rates,
- a single fixed rate and one or more qualified floating rates,
- a single objective rate, or
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- a single fixed rate and a single objective rate that is a "qualified
inverse floating rate."
A qualified floating rate or objective rate must be set at a current value
of that rate, that is, the value of the variable rate on any day that is no
earlier than three months prior to the first day on which that value is in
effect and no later than one year following that day. A "qualified floating
rate" generally is a rate the variations in the value of which can reasonably be
expected to measure contemporaneous variations in the cost of newly borrowed
funds in the currency in which the Note is denominated. Generally, a multiple of
a qualified floating rate will be a qualified floating rate only if it is a
fixed multiple that is greater than .65, but not more than 1.35. If a Note
provides for two or more qualified floating rates that can reasonably be
expected to have approximately the same values throughout the term of the
instrument, the qualified floating rates together constitute a single qualified
floating rate. Two or more qualified floating rates will be conclusively
presumed to be a single qualified floating rate if the values of all rates on
the issue date are within 0.25 percentage points of each other.
A variable rate that is subject to an interest rate cap, floor, governor or
similar restriction on rate adjustment may be a qualified floating rate only if
such restriction is fixed throughout the term of the debt instrument, or is not
reasonably expected as of the issue date to cause the yield on the debt
instrument to differ significantly from its expected yield absent the
restriction. An "objective rate" is a rate (other than a qualified floating
rate) that is determined using a single fixed formula and that is based on
objective financial or economic information other than a rate based on
information that is within the control of the issuer (or related party) or that
is unique to the circumstances of the issuer (or related party), for example,
dividends, profits or the value of the issuer's stock (although a rate does not
fail to be an objective rate merely because it is based on the credit quality of
the issuer). The IRS may designate other variable rates that will be treated as
objective rates. However, a variable rate is not an objective rate if it is
reasonably expected that the average value of the rate during the first half of
the debt instrument's term will differ significantly from the average value of
that rate during the final half of its term.
A "qualified inverse floating rate" is a rate that is equal to a fixed rate
minus a qualified floating rate and the variations in which can reasonably be
expected to inversely reflect contemporaneous variations in the qualified
floating rate, disregarding certain restrictions on that rate, for example, as
caps, floors or governors. Finally, the OID Regulations specify that a variable
rate debt instrument may not provide for any principal payments that are
contingent.
In general, the rules for determining the amount and accrual of original
issue discount and qualified stated interest on a variable rate debt instrument
convert the debt instrument into a fixed rate debt instrument and then apply the
general original issue discount rules to the debt instrument. If a Note bears
interest that is unconditionally payable at least annually at a single qualified
floating rate or an objective rate, all stated interest is qualified stated
interest. In the case of a single qualified floating rate or a qualified inverse
floating rate, the accrual of original issue discount is determined by assuming
that the Note bears interest at a fixed rate equal to the qualified floating
rate or qualified inverse floating rate. In the case of an objective rate (other
than a qualified inverse floating rate), the accrual of original issue discount
is calculated by assuming that the Note bears interest at a fixed rate that
reflects the yield that is reasonably expected for the Note. In both cases, the
amount of qualified stated interest allocable to an accrual period is increased
(or decreased) if the interest actually paid during that period exceeds (or is
less than) the interest assumed to be paid. If a Note that is a variable rate
debt instrument bears interest at a variable rate other than a single qualified
floating rate or objective rate, the amount and accrual of original issue
discount are generally determined by converting the variable rate debt
instrument into a fixed rate debt instrument as generally described above,
applying the general original issue discount rules, and then making appropriate
adjustments for actual interest rates under the Note.
Contingent Payment Debt Instruments
Notes that provide for a variable rate of interest but that do not qualify
as variable rate debt instruments are contingent payment debt instruments. The
OID Regulations relating to the tax treatment of contingent payment debt
instruments adopt the "noncontingent bond method" for contingent payment debt
instruments
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that are issued for cash or publicly traded property. Under the noncontingent
bond method, the yield on the debt instrument must first be determined based on
the yield at which the issuer would issue a fixed rate debt instrument with
terms and conditions similar to those of the contingent payment debt instrument.
A projected payment schedule is then set to fit the yield. Once a projected
payment schedule is determined for a debt instrument as of the issue date,
interest accrues on the debt instrument based on this schedule. The projected
payment schedule includes all noncontingent payments as well as a projected
amount for each contingent payment. Appropriate adjustments are made to account
for any difference between the projected amount of a contingent payment and the
actual amount of the payment. The projected amounts are, in effect, treated as
fixed, and interest accrual is required based on these projected amounts whether
or not the amount of any payment is fixed or determinable in the taxable year.
Thus, the noncontingent bond method may result in recognition of income prior to
the receipt of cash. Prospective investors should consult their own tax advisors
with respect to the application of the contingent payment debt instrument
provisions to Floating Rate Notes.
Short-Term Notes
Notes that have a fixed maturity of one year or less (i.e., Short-Term
Notes) generally will be deemed to have been issued with original issue discount
(generally, the excess of the Short-Term Note's principal amount, plus all
interest payable on the Note, over the Note's purchase price). In general, an
individual or other cash method U.S. holder is not required to accrue original
issue discount on a Short-Term Note unless the holder elects to do so. If no
election is made, any gain recognized by the U.S. holder on a taxable
disposition (including the maturity) of a Short-Term Note will be ordinary
income to the extent of the original issue discount accrued on a straight-line
basis, or upon election on a constant yield method (based on daily compounding)
through the date of sale or maturity, and a portion of the deductions otherwise
allowable to the U.S. holder for interest on borrowings allocable to a
Short-Term Note will be deferred until a corresponding amount of income is
realized. U.S. holders who report income for federal income tax purposes under
the accrual method, and certain other holders, including banks and dealers in
securities, are required to accrue original issue discount on a Short-Term Note
(unless the holder elects to accrue "acquisition discount" in lieu of original
issue discount) on such Note. "Acquisition discount" is the excess of the
remaining stated redemption price at maturity of the Short-Term Note over the
holder's tax basis in the Short-Term Note at the time of the acquisition. In the
case of a holder who is not required and does not elect to accrue original issue
discount on a Short-Term Note, any gain realized on the sale, exchange or
retirement of a Short-Term Note will be ordinary income to the extent of the
original issue discount accrued through the date of sale, exchange or
retirement. Such a holder will be required to defer, until the Short-Term Note
is sold or otherwise disposed of, the deduction of a portion of the interest
expense on any indebtedness incurred or continued to purchase or carry the
Short-Term Note. Original issue discount or acquisition discount on a Short-Term
Note accrues on a straight-line basis unless an election is made to use the
constant yield method (based on daily compounding).
Market Discount
If a U.S. holder purchases a Note, other than a Discount Note, for an
amount that is less than its issue price or, in the case of a Discount Note, for
an amount that is less than its adjusted issue price as of the purchase date,
i.e. revised issue price, the amount of the difference will be treated as
"market discount" for United States federal income tax purposes, unless the
difference is less than a specified de minimis amount. Under the market discount
rules of the Internal Revenue Code, a U.S. holder will be required to treat any
gain on the sale, exchange, retirement or other taxable disposition of a Note as
ordinary income to the extent that any market discount has accrued with respect
to the Note and was not previously included in income by the U.S. holder
(pursuant to an election by the U.S. holder to include any market discount in
income as it accrues) at the time of such disposition. Market discount is
accrued on a straight-line basis unless the U.S. holder elects to accrue market
discount under a constant yield method. If the Note is disposed of in a
nontaxable transaction (other than a nonrecognition transaction described in
Section 1276(c) of the Internal Revenue Code of 1986, a U.S. holder will include
any accrued market discount in ordinary income (generally, as interest) as if
the U.S. holder had sold the Note at its then fair market value. In addition,
the U.S. holder may be required to defer, until the maturity of the Note or its
earlier disposition in a taxable transaction,
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deductions for all or a portion of the interest expense on any indebtedness
incurred or maintained to purchase or carry the Note, unless the U.S. holder
elects to include market discount in income currently as it accrues. If an
election were made to include market discount in income currently as it accrues,
that election would apply to all debt instruments with market discount acquired
by the U.S. holder on or after the first day of the first taxable year to which
the election applies and may not be revoked without the consent of the IRS.
In February 2000, the Clinton administration issued revenue proposals
including one that would require U.S. holder's that use an accrual method of
accounting to include market discount in income on a constant-yield basis as it
accrues. A U.S. holder's yield for purposes of determining and accruing market
discount would be limited to the greater of:
- the original yield-to-maturity of the Note plus five percentage points or
- the applicable federal rate at the time the U.S. holder acquired the Note
plus five percentage points.
This proposal would be effective for Notes acquired on or after the date of
enactment.
Acquisition Premium; Amortizable Bond Premium
A U.S. holder who purchases a Discount Note for an amount that is greater
than its adjusted issue price but equal to or less than its stated redemption
price at maturity (generally, the sum of all amounts payable on the Note after
the purchase date other than payments of qualified stated interest) will be
considered to have purchased the Note at an "acquisition premium." Under the
acquisition premium rules, the amount of original issue discount which the U.S.
holder must include in its gross income with respect to the Note for any taxable
year will be reduced by the portion of the acquisition premium properly
allocable to the taxable year.
A U.S. holder who purchases a Note for an amount in excess of the Note's
stated redemption price at maturity (or earlier call date as applicable) will be
considered to have purchased the Note at a "premium". A U.S. holder generally
may elect to amortize this premium over the remaining term of the Note (or until
the earlier call date) on a constant yield method with a corresponding decrease
in its tax basis in the Note. The amount amortized in any taxable year will be
treated as a reduction of the U.S. holder's interest income from the Note. If a
U.S. holder does not make this election, the amount of such premium will
decrease the gain or increase the loss otherwise recognized on a taxable
disposition of the Note.
Treasury Regulations effective for bonds acquired on or after March 2, 1998
clarify the treatment of bond premium, i.e., the bond premium Treasury
Regulations. Among the provisions contained in the bond premium Treasury
Regulations is a provision that generally provides that premium may be amortized
to offset interest income only as a U.S. holder takes the qualified stated
interest into account under the U.S. holder's regular accounting method.
Moreover, the bond premium Treasury Regulations generally provide that in the
case of instruments that provide for alternative payments schedules, bond
premium is calculated by assuming that both the issuer and the U.S. holder will
exercise or not exercise options in a manner that maximizes the U.S. holder's
yield. If a U.S. holder elects to amortize bond premium for a specific taxable
year, the bond premium Treasury Regulations would apply to all the U.S. holder's
debt instruments held on or after the first day of that taxable year. U.S.
holders should consult their own tax advisors as to the calculation of premium,
if any, and the maturity date or earlier call date, as applicable, for
determining and amortizing the premium.
Election to Treat All Interest as Original Issue Discount
Under the OID Regulations, a U.S. holder may elect to treat all interest on
any Note as original issue discount and calculate the amount includable in gross
income under the constant yield method. For the purposes of this election,
interest includes stated interest, acquisition discount, original issue
discount, de minimis original issue discount, market discount, de minimis market
discount and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium. If a U.S. holder makes this election for a Note with market
discount or amortizable bond premium, the election is treated as an election
under the market discount or amortizable bond premium provisions, described
above, and the electing U.S. holder will be required to amortize bond premium or
include market discount in income currently for all of the U.S.
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holder's other debt instruments with market discount or amortizable bond
premium. The election is to be made for the taxable year in which the U.S.
holder acquired the Note, and may not be revoked without the consent of the IRS.
U.S. holders should consult with their own tax advisors about this election.
Disposition of a Note
Except as discussed above, upon the sale, exchange or retirement of a Note,
a U.S. holder generally will recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange or retirement of
the Note and the U.S. holder's adjusted tax basis in the Note. A U.S. holder's
adjusted tax basis in a Note generally will equal the U.S. holder's initial
investment in the Note increased by any original issue discount included in
income (and accrued market discount, if any, if the U.S. holder has elected to
include market discount in income) and decreased by the amount of any payments
made with respect to the Notes, other than payments of qualified stated
interest, and the amount of any amortizable bond premium offset against
qualified stated interest with respect to the Note. Except as described above,
the gain or loss generally will be long term capital gain or loss if the Note is
held for more than one year.
NON-U.S. HOLDERS
Interest Payments and Withholding Tax
A non-U.S. holder will not be subject to United States federal income or
withholding taxes on payments of interest or principal (including original issue
discount, if any) on a Note, unless income from the Note is effectively
connected with the conduct by the non-U.S. holder of a trade or business within
the United States, or unless the non-U.S. holder is:
- a direct or indirect 10% or greater shareholder of the corporation that
issued the Note,
- a controlled foreign corporation related to the corporation that issued
the Note, or
- A bank described in section 881(c)(3)(A) of the Internal Revenue Code of
1986.
To qualify for the "portfolio interest" exemption described above, the last
United States payor (i.e., the withholding agent) in the chain of payment prior
to payment to a non-U.S. holder must have received in the year in which a
payment of interest or principal occurs, or in either of the two preceding
calendar years, a statement that (1) is signed by the beneficial owner of the
Note under penalties of perjury, (2) certifies that the owner is not a U.S.
holder and (3) provides the name and address of the beneficial owner. The
statement may be made on an IRS Form W-8 or W-8BEN or a substantially similar
form, and the beneficial owner must inform the withholding agent of any change
in the information on the statement within 30 days of the change. If a Note is
held through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the withholding agent. However, in that case, the signed statement must be
accompanied by a copy of the IRS Form W-8 or W-8BEN or the substitute form
provided by the beneficial owner to the organization or institution. The
Treasury Department is considering implementation of further certification
requirements aimed at determining whether the issuer of a debt obligation is
related to holders thereof.
Sale, Retirement or Disposition of a Note
Generally, a non-U.S. holder will not be subject to United States federal
income or withholding taxes on any amount of capital gain recognized by the
non-U.S. holder upon a sale, retirement or disposition of a Note, provided:
- the capital gain is not effectively connected with the conduct of a trade
or business in the United States by the non-U.S. holder, and
- in the case of an individual, the non-U.S. holder is not present in the
United States for 183 days or more in the taxable year in which the sale,
retirement or disposition takes place or certain other conditions are not
met.
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Interest Income Effectively Connected with the Conduct of a U.S. Trade or
Business
If a non-U.S. holder is engaged in a trade or business in the United
States, and if premium or interest (including original issue discount) on the
Note is effectively connected with the conduct of that trade or business, the
non-U.S. holder, although exempt from the withholding tax discussed in the
preceding paragraphs by reason of the delivery of a properly completed IRS Form
4224 or IRS Form W-8ECI, will generally be subject to regular United States
income tax on interest (including original issue discount) and on any gain
realized on the sale, exchange or disposition of a Note in the same manner as if
it were a U.S. holder. See "U.S. Holders" above. In lieu of the certificate
described above in "Interest Payments and Withholding Tax," the non-U.S. holder
will be required to provide to the withholding agent a properly executed IRS
Form W-8ECI to claim an exemption from withholding tax. In addition, if the
non-U.S. holder is a foreign corporation, it may be subject to a 30% branch
profits tax for the taxable year, subject to certain adjustments. For purposes
of the branch profits tax, interest (including original issue discount) or any
gain recognized on the sale, exchange or other disposition of a Note will be
included in the effectively connected earnings and profits of the non-U.S.
holder if the interest or gain, as the case may be, is effectively connected
with the conduct by the non-U.S. holder of a trade or business in the United
States.
New Withholding Tax Treasury Regulations
Treasury Regulations were issued in October 1997 and May 2000 (i.e., the
new withholding tax Treasury Regulations) which alter the rules described above
in certain respects. For example, with respect to the Notes held by a foreign
partnership, under current law, the Form W-8 IMY may be provided by the foreign
partnership. However, for interest (including original issue discount) and
disposition proceeds paid with respect to a Note after December 31, 2000, unless
the foreign partnership has entered into a withholding agreement with the IRS, a
foreign partnership will be required, in addition to providing an intermediary
Form W-8IMY, to attach an appropriate certification from each partner rather
than the partnership.
Additionally, the new withholding tax Treasury Regulations unify current
certification procedures and forms and clarify reliance standards. Generally,
those persons currently required to file IRS Form W-8 or IRS Form 1001 (to claim
tax treaty benefits) will be required to file new IRS Form W-8BEN or IRS Form
W-8IMY (in the case of foreign intermediaries, partnerships and look-through
entities), while those persons currently required to file IRS Form 4224 will be
required to file new IRS Form W-8ECI. The new withholding tax Treasury
Regulations generally will be effective with respect to payments made after
December 31, 2000, regardless of the issue date of the instrument with respect
to which the payments are made. Prospective investors, including foreign
partnerships and their partners, should consult their tax advisors concerning
the requirements imposed by the new withholding tax Treasury Regulations and
their effect on the holding of the Notes.
United States Estate Tax Considerations
The Notes will not be includible in the estate of a non-U.S. holder unless
the individual is a direct or indirect 10% or greater shareholder of the
Corporation or, at the time of the individual's death, payments in respect of
the Notes would have been effectively connected with the conduct by the
individual of a trade or business in the United States.
FOREIGN CURRENCY NOTES
Cash Basis Holder
A holder who uses the cash method of accounting and who receives a payment
of interest (including qualified stated interest) in foreign currency with
respect to a Note (other than with respect to a Discount Note, except to the
extent any qualified stated interest is received) will be required to include in
income the U.S. dollar value of the foreign currency payment (determined based
on the "spot" exchange rate in effect on the date the payment is received)
regardless of whether the payment is in fact converted to U.S. dollars at that
time, and the U.S. dollar value will be the holder's tax basis in the foreign
currency.
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Accrual Basis Holders
A holder who uses the accrual method of accounting will be required to
include in income the U.S. dollar value of the amount of interest income
(including original issue discount) that has accrued and is otherwise required
to be taken into account with respect to a Single Foreign Currency Note during
an accrual period. The U.S. dollar value of the accrued interest income will be
determined by translating that income at the average rate of exchange for the
accrual period or, with respect to an interest accrual period that spans two
taxable years, at the average rate for the partial period within the taxable
year. The average rate of exchange for the interest accrual period (or partial
period) is the simple average of the "spot" exchange rates for each business day
of the period or other average exchange rate for the period if the rate is
reasonably derived and consistently applied by the taxpayer. The amount of
ordinary income or loss recognized on the date such interest is actually
received will equal the difference between the U.S. dollar value of the foreign
currency payments received (determined by using the "spot" exchange rate in
effect on the date the payment is received) in respect of the accrual period and
the U.S. dollar value of the interest income that has accrued during the accrual
period as determined by using the convention described above or the spot rate
convention election method described below.
Spot Rate Convention Election
A holder may elect to translate accrued interest, into U.S. dollars at the
"spot rate" on the last day of an accrual period for interest, or, in the case
of an accrual period that spans two taxable years, at the "spot rate" on the
last day of the taxable year. Additionally, if a payment of original issue
discount or interest is actually received within five business days of the last
day of the accrual period or partial accrual period within the taxable year, an
electing U.S. holder may instead translate the original issue discount or
accrued interest into U.S. dollars at the exchange rate in effect on the date of
the receipt. Any election will apply to all debt instruments held by the U.S.
holder at the beginning of the first taxable year to which the election applies
or thereafter acquired by the U.S. holder, and will be irrevocable without the
consent of the IRS.
For purposes of this discussion, the "spot rate" generally means a rate
that reflects a fair market rate of exchange available to the public for
currency under a "spot contract" in a free market and involving representative
amounts. A "spot contract" is a contract to buy or sell a currency on or before
two business days following the date of the execution of the contract. If such a
spot rate cannot be demonstrated, the IRS has the authority to determine the
spot rate.
Tax Basis and Tax Character of Gain or Loss on Sale
A holder will have a tax basis in any foreign currency received on the
sale, exchange or retirement of a Single Foreign Currency Note equal to the U.S.
dollar value of the foreign currency, determined by using the "spot" exchange
rate in effect at the time of the sale, exchange or retirement. Any gain or loss
realized by a holder on a sale or other disposition of foreign currency
(including its exchange for U.S. dollars or its use to purchase Single Foreign
Currency Notes) will be ordinary income or loss.
A holder's tax basis in a Single Foreign Currency Note, and the amount of
any subsequent adjustment to the holder's tax basis, will be the U.S. dollar
value of the foreign currency amount paid for the Single Foreign Currency Note,
or of the foreign currency amount of the adjustment, determined on the date of
the purchase or adjustment. A holder who converts U.S. dollars to a foreign
currency and immediately uses that currency to purchase a Single Foreign
Currency Note denominated in the same currency ordinarily will not recognize
gain or loss in connection with the conversion and purchase. However, a holder
who purchases a Single Foreign Currency Note with previously owned foreign
currency will recognize ordinary income or loss in an amount equal to the
difference, if any, between the holder's tax basis in the foreign currency and
the U.S. dollar fair market value of the Single Foreign Currency Note on the
date of purchase.
Gain or loss realized with respect to principal upon the sale, exchange or
retirement of a Single Foreign Currency Note will be ordinary income or loss to
the extent it is attributable to fluctuations in currency exchange rates. Gain
or loss attributable to fluctuations in exchange rates will equal the difference
between the U.S. dollar value of the foreign currency principal amount of the
Note, determined by using the "spot"
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exchange rate in effect on the date the payment is received or the Note is
disposed of and the U.S. dollar value of the foreign currency principal amount
of the Note, determined by using the "spot" exchange rate in effect on the date
the holder acquired the Note. The foreign currency principal amount of a Single
Foreign Currency Note generally equals the issue price in foreign currency of
the Note. The foreign currency gain or loss will be recognized only to the
extent of the total gain or loss recognized by a holder on the sale, exchange or
retirement of the Single Foreign Currency Note. The source of exchange gain or
loss will be determined by reference to the residence of the holder or the
"qualified business unit" of the holder on whose books the Note is properly
reflected. Any gain or loss recognized by the holder in excess of the foreign
currency gain or loss will be capital gain or loss (except in the case of an
original issue Discount Note, to the extent of any accrued original issue
discount), and generally will be long-term capital gain or loss if the holding
period of the Single Foreign Currency Note exceeds one year.
Any gain or loss which is treated as ordinary income or loss, as described
above, generally will not be treated as interest income or expense except to the
extent provided by administrative pronouncements of the IRS.
The amount of original issue discount on a Foreign Currency Note is
determined in the relevant foreign currency. The amount of original issue
discount that is taken into account currently under general rules applicable to
Notes other than Single Foreign Currency Notes is to be determined for any
accrual period in the relevant foreign currency and then translated into U.S.
dollars on the basis of the average exchange rate in effect during the accrual
period (or, with respect to an accrual period that spans two taxable years, the
partial period within the taxable year) unless the holder elects to use the
alternative method, as described above under "Spot Rate Convention Election."
BACKUP WITHHOLDING AND INFORMATION REPORTING
Backup withholding of United States federal income tax may apply at a rate
of 31% to payments of principal, premium, if any, and interest (including
original issue discount), made in respect of the Notes and to certain payments
of proceeds of the sale or retirement of a Note to holders who are not "exempt
recipients" and who fail to provide and certify certain identifying information
(e.g., the holder's taxpayer identification number) in the required manner.
Generally, individuals are not exempt recipients, whereas corporations and
certain other entities generally are exempt recipients. Payments made in respect
of the Notes to a U.S. holder must be reported to the IRS, unless the U.S.
holder establishes that it is an exempt recipient or otherwise establishes an
exemption. Compliance with the identification procedures described under
"Non-U.S. Holders" generally would establish an exemption from backup
withholding for non-U.S. holders who are not exempt recipients, provided, in
each case, that the Corporation or its paying agent, as the case may be, does
not have actual knowledge that the payee is a United States person.
Under current Treasury Regulations, payments on the sale, exchange or other
disposition of a Note made to or through a foreign office of a broker generally
will not be subject to backup withholding. However, if a broker is a United
States person, a controlled foreign corporation for United States federal income
tax purposes, a foreign person 50% or more of whose gross income is effectively
connected with a United States trade or business for a specified three-year
period or (in the case of payments made after December 31, 2000) a foreign
partnership with certain connections to the United States, then information
reporting will be required unless the broker has in its records documentary
evidence that the beneficial owner otherwise establishes an exemption. Backup
withholding may apply to any payment that the broker is required to report if
the broker has actual knowledge that the payee is a United States person.
Payments to or through the United States office of a broker will be subject to
backup withholding and information reporting unless the holder certifies, under
penalties of perjury, that it is not a United States person or otherwise
establishes an exemption.
Non-U.S. holders of Notes should consult their tax advisors regarding the
application of information reporting and backup withholding in their particular
situations, the availability of an exemption therefrom, and the procedure for
obtaining an exemption, if available. Any amounts withheld under the backup
withholding rules from a payment to a beneficial owner would be allowed as a
refund or a credit against the beneficial
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owner's United States federal income tax provided the required information is
furnished to the IRS in a timely manner.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING
THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
PLAN OF DISTRIBUTION
KeyCorp is offering the Notes on a continuous basis through Salomon Smith
Barney Inc., Chase Securities Inc., Credit Suisse First Boston Corporation,
Goldman, Sachs & Co. and J.P. Morgan Securities Inc. (the "Agents"). The Agents
have agreed to use their reasonable efforts to solicit orders. KeyCorp has the
right to accept orders or reject proposed purchases in whole or in part. The
Agents also have the right, using their reasonable discretion, to reject any
proposed purchase of the Notes in whole or in part. With respect to Notes with a
stated maturity of from nine months to 30 years from date of issue, KeyCorp will
pay an Agent a commission ranging from .125% to .750% of the principal amount of
the Notes sold. The exact commission paid will be determined by the stated
maturity of the Notes sold. With respect to Notes with a stated maturity that is
longer than 30 years from the date of issue sold through an Agent, the rate of
commission will be negotiated at the time of sale and specified in the
applicable pricing supplement.
KeyCorp may also sell the Notes to an Agent or other person, as principal,
for resale or other distribution by such Agent or person at varying prices
related to prevailing market prices as will be determined by such Agent or
person at the time of such resale or other distribution, which prices may be
higher or lower than the price to the public set forth herein, or if specified
in the applicable pricing supplement, at a fixed offering price. KeyCorp
reserves the right to sell Notes directly to investors on its own behalf. Unless
otherwise agreed by KeyCorp and the Agents, KeyCorp will have the sole right to
accept offers to purchase Notes and may reject any proposed purchase of the
Notes in whole or in part. Unless otherwise specified in the applicable pricing
supplement, any Note sold to an Agent or other person, as principal, will be
purchased by such Agent or other person at a price equal to 100% of the
principal amount thereof and KeyCorp will pay to such Agent or other person an
underwriting commission equal to or less than the commission applicable to any
agency sale of a Note of identical maturity.
In addition, an Agent may resell any Note purchased by it as principal to
another broker-dealer at prices determined by the Agent at the time of resale
and, unless otherwise specified in the applicable pricing supplement, may pay
such broker-dealer a discount not in excess of the discount received by the
Agent from KeyCorp.
The Agents or persons purchasing the Notes as principal may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended.
KeyCorp and the Agents have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that they may be required to make in connection with such
indemnification. KeyCorp has also agreed to reimburse the Agents for certain
expenses, including the fees and expenses of counsel.
The Notes will not have an established trading market when issued. Also,
the Notes will not be listed on any national securities exchange. The Agents or
other persons purchasing the Notes as principal may make a market in the Notes,
but are not obligated to do so and may discontinue any market-making at any time
without notice. There can be no assurance that a secondary market for any Notes
will develop or be maintained.
Unless specified otherwise in the applicable pricing supplement, you will
be required to pay the purchase price of the Notes in immediately available
funds in the specified currency in The City of New York on the date of
settlement. See "Description of the Notes - General."
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35
In connection with an offering of Notes purchased by one or more Agents or
other persons as principal on a fixed-price basis, such Agent(s) or other person
will be permitted to engage in certain transactions that stabilize the price of
such Notes. Such transactions may consist of bids or purchases for the purpose
of stabilizing or maintaining the price of such Notes. If the Agent(s) or other
person creates or create, as the case may be, a short position in such Notes,
(i.e., if it sells or they sell Notes in an aggregate principal amount exceeding
that set forth in the applicable pricing supplement), such Agent(s) or other
person may reduce that short position by purchasing Notes in the open market. In
general purchases of Notes for the purpose of stabilization or to reduce a short
position could cause the price of the Notes to be higher than it might be in the
absence of such purchases.
Neither KeyCorp nor any of the Agents or other persons purchasing the Notes
as principal make any representation or prediction as to the direction or
magnitude of any effect that the transactions described in the immediately
preceding paragraph may have on the price of the Notes. In addition, neither
KeyCorp nor any of the Agents or other persons purchasing the Notes as principal
make any representation that the Agents or such other persons will engage in any
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
In the ordinary course of their business, the Agents and their affiliates
have engaged, and may in the future engage, in investment and commercial banking
transactions with KeyCorp and certain of its affiliates.
VALIDITY OF THE NOTES
The validity of the Notes will be passed on for KeyCorp by any Associate
General Counsel to KeyCorp authorized to render an opinion in the State of Ohio,
and for the Agents by Shearman & Sterling, New York, New York. Such Associate
General Counsel to KeyCorp will rely as to all matters of New York law upon the
opinion of Shearman & Sterling. Shearman & Sterling will rely as to all matters
of Ohio law upon the opinion of such Associate General Counsel to KeyCorp.
Thompson Hine & Flory LLP will pass on certain tax matters related to the Notes.
See "United States Tax Considerations."
The opinion of such Associate General Counsel to KeyCorp and Shearman &
Sterling will be conditioned upon, and subject to certain assumptions regarding,
future action required to be taken by KeyCorp and the Trustee in connection with
the issuance and sale of Notes, the specific terms of Notes and other matters
which may affect the validity of Notes but which cannot be ascertained on the
date of such opinions. As of May 31, 2000, attorneys at Thompson Hine & Flory
LLP owned an aggregate of approximately 70,840 common shares of KeyCorp. In
addition, as of May 31, 2000, an Associate General Counsel to KeyCorp currently
authorized to render the opinion on behalf of KeyCorp owned approximately 30,750
common shares of KeyCorp, including stock options which were immediately
exercisable, or exercisable within 60 days from June 21, 2000.
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37
PROSPECTUS
KEYCORP
DEBT SECURITIES DEBT WARRANTS
PREFERRED STOCK PREFERRED STOCK WARRANTS
DEPOSITARY SHARES DEPOSITARY SHARE WARRANTS
COMMON SHARES COMMON SHARE WARRANTS
CAPITAL SECURITIES
KeyCorp, an Ohio corporation (the "Corporation"), intends to issue from time
to time, either separately or together, (i) one or more series of its unsecured
debt securities, which may be either senior debentures, notes, bonds and/or
other evidences of indebtedness (the "Senior Debt Securities") or subordinated
debentures, notes, bonds and/or other evidences of indebtedness which may be
convertible at the option of a holder or the Corporation into Capital Securities
(as described herein) of the Corporation (the "Subordinated Debt Securities"
and, together with the Senior Debt Securities, the "Debt Securities"), (ii)
warrants to purchase Debt Securities (the "Debt Warrants"), (iii) shares of
Preferred Stock, with a par value of $1 each (the "Preferred Stock") which may
be convertible, at the option of the holder, into Common Shares or any other
class or series of Capital Securities of the Corporation or convertible at the
option of the Corporation into Capital Securities or other debt securities of
the Corporation, (iv) shares of Preferred Stock represented by depositary shares
("Depositary Shares"), (v) warrants to purchase shares of Preferred Stock (the
"Preferred Stock Warrants"), (vi) warrants to purchase Depositary Shares (the
"Depositary Share Warrants"), (vii) Common Shares, with a par value of $1 each
(the "Common Shares"), together with the related rights to purchase Common
Shares (the "Rights") and (viii) warrants to purchase Common Shares, together
with the Rights (the "Common Share Warrants," and together with the Debt
Warrants, the Preferred Stock Warrants, and the Depositary Share Warrants, being
collectively referred to herein as the "Securities Warrants"), in amounts, at
prices, and on terms to be determined at the time of the offering. The Debt
Securities, Securities Warrants, Preferred Stock, Depositary Shares, and Common
Shares offered hereby, together with the Capital Securities, are collectively
referred to herein as the "Securities."
The Securities offered pursuant to this Prospectus may be offered separately
or together in one or more series up to an aggregate initial public offering
price of $1,261,500,000 or the equivalent thereof in one or more foreign
currencies or units of one or more foreign currencies or composite currencies
(such as European Currency Units), at individual prices and on terms to be set
forth in one or more supplements to this Prospectus (each, a "Prospectus
Supplement"). The particular terms of the Securities offered by any Prospectus
Supplement will be described in the Prospectus Supplement relating to such
Securities (an "Applicable Prospectus Supplement").
The Senior Debt Securities, when issued, will rank equally with all other
unsubordinated and unsecured indebtedness of the Corporation. The Subordinated
Debt Securities will be subordinate to all existing and future Senior
Indebtedness (as defined herein) of the Corporation and, in certain events
involving the insolvency of the Corporation, to Other Senior Obligations (as
defined herein) of the Corporation. See "Description of Debt
Securities -- Subordination of Subordinated Debt Securities." The Debt
Securities of any series may be issued with Securities Warrants, and, in the
case of the Subordinated Debt Securities, may be convertible into Capital
Securities of the Corporation. Unless otherwise indicated in a Prospectus
Supplement, the maturity of the Subordinated Debt Securities will be subject to
acceleration only in the event of certain events of bankruptcy, insolvency, or
reorganization of the Corporation or upon receivership of a Major Bank (as
defined herein). See "Description of Debt Securities -- Subordination of
Subordinated Debt Securities."
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in a Prospectus Supplement and, among other
things, will include, where applicable, (i) in the case of Debt Securities, the
specific designation, aggregate principal amount, currency, denomination,
maturity, priority, premium, if any, rate of interest (which may be variable or
fixed), time of payment of interest, terms for optional redemption or repayment
by the Corporation or any holder and for sinking fund payments, terms for
conversion, the initial public offering price, any special provisions related to
Debt Securities denominated in a foreign currency or issued as medium-term
notes, original issue discount securities, or with other special terms, and the
designation of any applicable trustee, security registrar, or paying agent, (ii)
in the case of shares of Preferred Stock, the specific title and stated value,
number of shares or fractional interests therein, any dividend, liquidation,
redemption, voting, and other rights, the terms for conversion, the initial
public offering price, and whether such shares are to be issued as Depositary
Shares, and, if so, the fraction of a share to be represented by each Depositary
Share and the designation of the Depositary (as defined herein), (iii) in the
case of Common Shares, the aggregate number of shares offered and the initial
offering price, and (iv) in the case of Securities Warrants, where applicable,
the applicable type and amount of securities covered thereby, and, where
applicable, the aggregate amount, duration, offering price, exercise price, and
detachability.
A Prospectus Supplement will also contain information, where applicable,
about certain U.S. Federal income tax, accounting, and other considerations
relating to, and any listing on a securities exchange of, the Securities covered
by the Prospectus Supplement.
THE SECURITIES WILL BE OBLIGATIONS OF THE CORPORATION, ARE NOT AND WILL NOT
BE SAVINGS ACCOUNTS, DEPOSITS, OR OTHER OBLIGATIONS OF ANY BANK OR NONBANK
SUBSIDIARY OF THE CORPORATION, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION
INSURANCE FUND, OR ANY OTHER GOVERNMENT AGENCY OR INSTRUMENTALITY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE
------------------
The Securities may be sold to underwriters pursuant to the terms of the
offering fixed at the time of sale, directly by the Corporation, or through
dealers or agents designated from time to time by the Corporation, which agents
may be affiliates of the Corporation. Each Prospectus Supplement will set forth
the names of the underwriters, dealers or agents, if any, and any applicable
fees, commissions or discounts and the net proceeds to the Corporation from such
sale together with the terms of the offering. The Corporation may also issue
contracts under which the counterparty may be required to purchase Debt
Securities, Preferred Stock, or Depositary Shares. Such contracts would be
issued with the Debt Securities, Preferred Stock, Depositary Shares and/or
Securities Warrants in amounts, at prices, and on terms to be set forth in a
Prospectus Supplement. See "Plan of Distribution."
THE DATE OF THIS PROSPECTUS IS JUNE 30, 2000.
38
WHERE YOU CAN FIND MORE INFORMATION
KeyCorp files annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy any document that KeyCorp
files at the SEC's public reference room at 450 Fifth Street, NW, 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.
KeyCorp has 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 KeyCorp files in the future with the SEC and incorporated
by reference in this prospectus will automatically update and replace the
information. KeyCorp incorporates by reference the documents listed below and
any future filings made by it 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 securities are sold in this offering:
- annual report on Form 10-K for the year ended December 31, 1999;
- quarterly report on Form 10-Q for the quarter ended March 31, 2000; and
- current reports on Form 8-K filed on January 20 and April 21, 2000.
You may request a copy of these filings at no cost by writing or
telephoning KeyCorp at the following address:
KeyCorp
127 Public Square
Cleveland, OH 44114-1306
Attention: Investor Relations
(216) 689-6300
You should rely only on the information incorporated by reference or
provided in this prospectus. KeyCorp has not authorized anyone else to provide
you with different information. KeyCorp is not 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 document incorporated by
reference in this prospectus.
Unless otherwise indicated, currency amounts in this prospectus and any
prospectus supplement are stated in U.S. dollars ("$," "dollars," "U.S.
dollars," or "U.S.$").
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THE CORPORATION
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. At March 31, 2000, KeyCorp was one of the largest integrated
multiline financial services companies in the United States with consolidated
total assets of $83.5 billion. Its subsidiaries provide a wide range of
investment management, retail and commercial banking, consumer finance and
investment banking products and services to corporate, individual and
institutional clients through four lines of business: Key Retail Banking, Key
Specialty Finance, Key Corporate Capital and Key Capital Partners.
As of March 31, 2000, these services were provided across much of the
country through subsidiaries operating 937 full-service banking offices in 13
states, a 24-hour banking call center services group and 2,505 ATMs. At March
31, 2000, KeyCorp, together with its subsidiaries, had 23,474 full-time
equivalent employees.
KeyCorp is a legal entity separate and distinct from its banking and other
subsidiaries. Accordingly, its rights and the rights of its security holders and
creditors to participate in any distribution of the assets or earnings of its
banking and other subsidiaries is necessarily subject to the prior claims of the
respective creditors of its banking and other subsidiaries, except to the extent
that its claims in its capacity as a creditor of its banking and other
subsidiaries may be recognized.
KeyCorp's principal executive office is located at 127 Public Square,
Cleveland, Ohio 44114-1306. KeyCorp's telephone number is (216) 689-6300.
SUBSIDIARIES
KeyCorp's largest banking subsidiaries are:
- KeyBank National Association, headquartered in Cleveland, Ohio -- the
12th largest bank in the United States at December 31, 1999, based on
asset size. At March 31, 2000, KeyBank has $75.3 billion in total assets
and 937 full-service banking offices in Alaska, Colorado, Idaho, Indiana,
Maine, Michigan, New Hampshire, New York, Ohio, Oregon, Utah, Vermont and
Washington; and
- Key Bank USA, National Association, headquartered in Cleveland, Ohio,
with total assets of $5.0 billion at March 31, 2000. Key Bank USA is
involved in consumer loan activities.
In addition to the customary banking services of accepting deposits and
making loans, KeyCorp's bank and trust company subsidiaries provide specialized
services, including personal and corporate trust services, personal financial
services, customer access to mutual funds, cash management services, investment
banking and capital markets products and international banking services. Through
its subsidiary banks, trust companies and registered investment adviser
subsidiaries, KeyCorp provides investment management services to individual and
institutional clients, including large corporate and public retirement plans,
foundations and endowments, high net worth individuals and Taft-Hartley plans
(i.e., multiemployer trust funds established under applicable law). In addition,
investment management subsidiaries serve as investment advisers to proprietary
mutual funds offered by other KeyCorp affiliates.
MAJOR LINES OF BUSINESS
A description of each of KeyCorp's and its subsidiaries' (collectively,
"Key") major lines of business as of March 31, 2000, is as follows:
Key Retail Banking. Key Retail Banking delivers a complete line of
branch-based financial products and services to small businesses and consumers.
These products and services are delivered through 937 KeyCenters, a 24-hour
telephone banking call center services group, 2,505 ATMs that access 13
different
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networks (resulting in one of the largest ATM networks in the United States),
and a core team of relationship management professionals.
Key Corporate Capital. Key Corporate Capital offers a complete range of
financing, transaction processing and financial advisory services to
corporations throughout the United States, and operates one of the largest
bank-affiliated equipment leasing companies in the world with operations in the
United States, Europe and Asia. Based on total transaction volume, Key Corporate
Capital is one of the leading cash management providers in the United States.
Key Corporate Capital's business units are organized around six specialized
industry client segments: commercial banking, commercial real estate, lease
financing, structured finance, healthcare and media/telecommunications. These
targeted client segments can receive a number of specialized services, including
international banking, cash management and corporate finance advisory services.
Key Corporate Capital also provides investment banking, capital markets, 401(k)
and trust custody products in cooperation with Key Capital Partners.
Key Specialty Finance. Key Specialty Finance provides indirect,
non-branch-based consumer loan products, including automobile loans and leases,
home equity loans, education loans, and marine and recreational vehicle loans.
As of December 31, 1999, based on the volume of loans generated, Key Specialty
Finance was one of the nation's leading providers of financing for education
loans, automobile loans and leases, and purchases of marine and recreational
vehicles.
Key Capital Partners. Key Capital Partners provides asset management,
wealth management, private banking, brokerage, investment banking, capital
markets and insurance expertise. This line of business, which generates a
substantial amount of Key's fee income, comprises three major business groups.
One group, operating under the name McDonald Investments Inc., 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 group, referred to as Key
Asset Management, includes asset management, mutual funds, institutional asset
services, wealth management and insurance. The third group, known as Key
Principal Partners, includes equity capital, mezzanine finance and alliance
funds. The future growth and success of Key Capital partners depend heavily on
its ability to capitalize on the corporate and retail banking distribution
channels and client relationships that other Key lines of business have already
developed.
KeyCorp provides other financial services both inside and outside of its
primary banking markets through its nonbank subsidiaries. These services include
accident and health insurance on loans made by subsidiary banks, venture
capital, community development financing, securities underwriting and brokerage,
automobile financing and other financial services. KeyCorp is also an equity
participant in a joint venture with Key Merchant Services L.L.C., which provides
merchant services to businesses.
YEAR 2000
During 1999, Key continued to modify its computer systems to operate
properly in the Year 2000 and beyond. The failure to address the so-called Year
2000 problem could have affected anything from complex computer systems to
telephone systems, ATMs and elevators. To address this issue, Key developed an
extensive plan in 1995 and formed an implementation team comprising internal
personnel and third-party experts.
Key completed all phases of the plan by the end of 1999. At the turn of the
millennium and through the first quarter of 2000, Key did not experience any
operational problems. However, Key will continue to monitor its systems to
ensure they continue to operate properly and will make modifications, if
necessary.
Key has not detected any meaningful credit quality issues arising from
client difficulties with Year 2000 conversions. Nonetheless, it is possible that
such issues may arise over an extended period of time. Key will continue to
monitor its loan portfolio for potential situations in need of special
attention.
Further, Key did not experience a significant increase in consumer
withdrawals of deposits in anticipation of the millennium. As a result, there
was no material impact on Key's funding costs.
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Management was prepared for the possibility that some of the third parties
that Key deals with (such as foreign banks, governmental agencies, clearing
houses, telephone companies and other service providers) would suffer from Year
2000 computer problems. Key has not been advised that any third party that
provides material products or services to Key has had significant problems with
its systems.
The cumulative cost of implementing Key's Year 2000 plan and mitigating the
adverse effects of potential Year 2000 problems was $50 million as of December
31, 1999; no additional costs are anticipated.
USE OF PROCEEDS
Unless otherwise set forth in the Applicable Prospectus Supplement, the
Corporation intends to use the net proceeds from the sale of the Securities for
general corporate purposes, including investments in and advances to the
Corporation's banking and nonbanking subsidiaries, reduction of short-term
borrowings, investments, and financing possible future acquisitions including,
without limitation, the acquisition of banking and nonbanking companies and
financial assets and liabilities. All or a portion of the net proceeds from the
sale of the Securities may also be used to finance, in whole or in part, the
repurchase by the Corporation of shares of its outstanding common stock pursuant
to the Corporation's stock repurchase program authorized in January 2000 and
described in the Annual Report on Form 10-K for the year ended December 31, 1999
and filed with the Commission, which is incorporated herein by reference (see
"Where You Can Find More Information"), and additional share repurchases
undertaken from time to time in connection with the Corporation's acquisition of
banking and nonbanking companies.
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DESCRIPTION OF DEBT SECURITIES
The Senior Debt Securities are to be issued under an Indenture, dated as of
June 10, 1994 (the "Senior Indenture"), between the Corporation and Bankers
Trust Company, as Trustee. The Subordinated Debt Securities are to be issued
under an Indenture, dated as of June 10, 1994 (the "Subordinated Indenture"),
also between the Corporation and Bankers Trust Company, as Trustee. Copies of
the Senior Indenture and the Subordinated Indenture have been filed with the
Commission as exhibits to the Registration Statement of which this Prospectus is
a part. The Senior Indenture and the Subordinated Indenture are sometimes
referred to collectively herein as the "Indentures." Bankers Trust Company is
hereinafter referred to as the "Senior Trustee" when referring to it in its
capacity as trustee under the Senior Indenture, as the "Subordinated Trustee"
when referring to it in its capacity as trustee under the Subordinated
Indenture, and as the "Trustee" when referring to it in its capacity as trustee
under both of the Indentures. The following summaries of certain provisions of
the Senior Debt Securities, the Subordinated Debt Securities, and the Indentures
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all the provisions of the Debt Securities and the
Indenture applicable to a particular series of Debt Securities (the "Applicable
Indenture"), including the definitions therein of certain terms. Wherever
particular Sections, Articles or defined terms of the Applicable Indenture are
referred to, it is intended that such Sections, Articles or defined terms shall
be incorporated herein by reference. Article and Section references used herein
are references to the Applicable Indenture. Capitalized terms not otherwise
defined herein shall have the meaning given to them in the Applicable Indenture.
The following sets forth certain general terms and provisions of the Debt
Securities offered hereby.
GENERAL TERMS
The Indentures provide that the Debt Securities issued thereunder may be
issued without limit as to aggregate principal amount and provide that Debt
Securities may be issued thereunder from time to time in one or more series. The
Senior Debt Securities will rank equally with all other unsecured and
unsubordinated indebtedness of the Corporation which is not accorded a priority
under applicable law. The Subordinated Debt Securities will rank equally with
all other unsecured indebtedness of the Corporation, but, as described below,
will be subordinated in right of payment to the prior payment in full of the
Senior Indebtedness of the Corporation and, in certain events involving the
insolvency of the Corporation, Other Senior Obligations of the Corporation. The
Debt Securities will be unsecured obligations of the Corporation.
Unless otherwise indicated in the Applicable Prospectus Supplement,
principal of (and premium, if any), or interest, if any, on the Debt Securities
will be payable, and the transfer of the Debt Securities will be registrable, at
the office or agency of the Corporation in the Borough of Manhattan, The City of
New York, maintained for such purpose and at any other office or agency
maintained by the Corporation for such purpose, except that, at the option of
the Corporation, interest may be paid by mailing a check to the address of the
person entitled thereto as it appears on the register for the Debt Securities or
by transfer to an account maintained with a bank located in the United States.
(Sections 301, 305, and 1002) Debt Securities of a series may be issuable solely
as Registered Securities, solely as Bearer Securities or as both Registered
Securities and Bearer Securities (both as defined in the Indentures). Unless
otherwise provided in the Applicable Prospectus Supplement, Debt Securities
denominated in U.S. dollars are issuable in denominations of $1,000 and integral
multiples of $1,000 (in the case of Registered Securities) and in denominations
of $5,000 (in the case of Bearer Securities). The Indentures also provide that
Debt Securities of a series may be issuable in global form, which may be of any
denomination. See "Book-Entry Procedures." Unless otherwise indicated in the
Applicable Prospectus Supplement, Bearer Securities will have interest coupons
attached. (Sections 201 and 302) No service charge will be made for any
registration of transfer or exchange of the Debt Securities, but the Corporation
may require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection therewith. (Section 305)
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The Applicable Prospectus Supplement will describe the following terms of
the Debt Securities offered thereby:
(1) The title of such Debt Securities and whether such Debt Securities
will be Senior Debt Securities or Subordinated Debt Securities.
(2) The aggregate principal amount of such Debt Securities and any
limit on the aggregate principal amount of Debt Securities of such series.
(3) If other than the principal amount thereof, the portion of the
principal amount thereof payable upon declaration of acceleration of the
maturity thereof or the method by which such portion shall be determined.
(4) The date or dates, or the method by which such date or dates will
be determined or extended, on which the principal of such Debt Securities
will be payable.
(5) The rate or rates at which such Debt Securities will bear
interest, if any, or the method by which such rate or rates will be
determined, the calculation agent, if any, the date or dates from which any
interest will accrue or the method by which such date or dates will be
determined, the date or dates on which such interest, if any, will be
payable and the regular record date or dates, if any, for the interest
payable on any registered security on any interest payment date, or the
method by which any such date will be determined, and the basis upon which
interest will be calculated if other than that of a 360-day year of twelve
30-day months.
(6) The period or periods within which, the price or prices at which,
the currency or currencies, currency unit or units or composite currency or
currencies in which, and the other terms and conditions upon which, such
Debt Securities may be redeemed in whole or in part at the option of the
Corporation, if the Corporation is to have that option.
(7) The obligation, if any, of the Corporation to redeem, repay or
purchase such Debt Securities in whole or in part, pursuant to any sinking
fund or analogous provision or at the option of a holder thereof and the
period or periods within which or the date or dates on which, the price or
prices at which, the currency or currencies, currency unit or units or
composite currency or currencies in which, and the other terms and
conditions upon which, such Debt Securities will be so redeemed, repaid or
purchased.
(8) Whether such Debt Securities are to be issuable as Registered
Securities, Bearer Securities or both, any restrictions applicable to the
offer, sale or delivery of Bearer Securities and the terms, if any, upon
which Bearer Securities of the series may be exchanged for Registered
Securities of the series and vice versa (if permitted by applicable laws
and regulations), whether such Debt Securities will be issuable initially
in temporary global form, whether any such Debt Securities will be issuable
in permanent global form with or without coupons and, if so, whether
beneficial owners of interests in any such permanent global security may
exchange such interests for Debt Securities of such series and of like
tenor of any authorized form and denomination and the circumstances under
which any such exchanges may occur, if other than in the manner provided in
the Applicable Indenture, and, if Registered Securities are to be issuable
as a global security, the identity of the depository for such Debt
Securities.
(9) If other than U.S. dollars, the currency or currencies, currency
unit or units or composite currency or currencies in which payments of the
principal of (and premium, if any) or interest, if any, on such Debt
Securities will be payable or in which such Debt Securities will be
denominated.
(10) Whether the amount of payments of principal of (and premium, if
any) and/or interest, if any, on such Debt Securities may be determined
with reference to an index, formula, or other method and the manner in
which such amounts will be determined.
(11) Whether the Corporation or a holder may elect payment of the
principal of (and premium, if any), or interest, if any, on such Debt
Securities in one or more currency or currencies, currency unit or units or
composite currency or currencies, other than that in which such Debt
Securities are denominated or stated to be payable, the period or periods
within which, and the terms and conditions upon which,
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such election may be made, and the time and manner of determining the
exchange rate between the currency or currencies, currency unit or units or
composite currency or currencies in which such Debt Securities are
denominated or stated to be payable and the currency or currencies in which
such Debt Securities are to be so payable.
(12) The place or places, if any, other than or in addition to The
City of New York, where the principal of (and premium, if any) or interest,
if any, on such Debt Securities will be payable, where any Registered
Securities may be surrendered for registration of transfer, where Debt
Securities may be surrendered for conversion and where notices or demands
to or upon the Corporation in respect of such Debt Securities and the
Applicable Indenture may be served.
(13) The denomination or denominations in which such Debt Securities
will be issuable, if other than $1,000 or any integral multiple thereof in
the case of Registered Securities and $5,000 or any integral multiple
thereof in the case of Bearer Securities.
(14) If other than the applicable Trustee, the identity of each
Security Registrar and/or Paying Agent.
(15) The date as of which any Bearer Securities of the series and any
temporary Debt Security issued in global form representing outstanding
Securities of the series will be dated if other than the date of original
issuance of the first Debt Security of the series to be issued.
(16) The applicability, if at all, to such Debt Securities of the
provisions of Article Thirteen of the respective Indenture described under
"Defeasance and Covenant Defeasance" and any provisions in modification of,
in addition to or in lieu of any of the provisions of such Article.
(17) The person to whom any interest on any Registered Security of the
series shall be payable, if other than the person in whose name such
Registered Security (or one or more predecessor securities) is registered
at the close of business on the Regular Record Date for such interest, the
manner in which, or the person to whom, any interest on any Bearer Security
of the series will be payable, if otherwise than upon presentation and
surrender of the coupons appertaining thereto as they severally mature, and
the extent to which, or the manner in which, any interest payable on a
temporary Debt Security issued in global form will be paid in other than in
the manner provided in the applicable Indenture.
(18) If such Debt Securities are to be issuable in definitive form
(whether upon original issue or upon exchange of a temporary Debt Security
of such series) only upon receipt of certain certificates or other
documents or satisfaction of other conditions, the form and/or terms of
such certificates, documents or conditions.
(19) If such Debt Securities will be issuable upon the conversion of
other Securities or upon the exercise of Debt Warrants, the time, manner,
and place for such Debt Securities to be authenticated and delivered.
(20) The provisions, if any, granting special rights to the holders of
such Debt Securities upon the occurrence of such events as may be
specified.
(21) Any deletions from, modifications of or additions to the Events
of Default and, in the case of the Subordinated Debt Securities, the
Defaults or covenants of the Corporation with respect to such Debt
Securities, whether or not such Events of Default, Defaults or covenants
are consistent with the Events of Default, Defaults or covenants set forth
in the general provisions of the Applicable Indenture.
(22) The designation of the initial Exchange Rate Agent, if any.
(23) Whether such Subordinated Debt Securities will be convertible
into Capital Securities of the Corporation and, if so, the terms and
conditions upon which such Subordinated Debt Securities will be so
convertible.
(24) Any other terms of such Debt Securities not inconsistent with the
provisions of the Applicable Indenture.
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The Corporation may be required to pay Additional Amounts, as contemplated
by Section 1004 of each Indenture, to any holder of Debt Securities who is not a
U.S. person (including any modification to the definition of such term as
contained in the Applicable Indenture as originally executed) in respect of
certain taxes, assessments, or governmental charges and, if so, the Corporation
may have the option to redeem such Debt Securities rather than pay such
Additional Amounts (and the terms of any such option). The Indentures provide
that "Additional Amounts" means any additional amounts which are required by the
Debt Securities or by or pursuant to a resolution of the Board of Directors to
be paid by the Corporation in respect of certain taxes imposed on such non-U.S.
persons and which are owing to such holders. If the terms of any series of Debt
Securities provide that the Corporation must pay Additional Amounts in respect
thereof, for purposes of this Prospectus, any reference to the payment of (or
premium, if any, on) or interest, if any, on such Debt Securities will be deemed
to include mention of the payment of Additional Amounts provided for by the
terms of such Debt Securities.
Debt Securities may provide for an amount less than the entire principal
amount thereof to be due and payable upon declaration of acceleration of the
maturity thereof ("Original Issue Discount Securities"). (Section 101) Certain
Federal income tax and other considerations pertaining to any such Original
Issue Discount Securities will be described in the Applicable Prospectus
Supplement.
The Debt Securities may be issued under the Indentures as Original Issue
Discount Securities to be offered and sold at a substantial discount from the
principal amount thereof and may also be issued under the Indentures upon
exercise of Debt Warrants issued by the Corporation. See "Description of
Securities Warrants."
Unless otherwise indicated in the Applicable Prospectus Supplement, the
covenants contained in the Indentures and the Debt Securities will not afford
holders protection in the event of a sudden decline in credit rating that might
result from a recapitalization, restructuring, or other highly leveraged
transaction.
BOOK-ENTRY PROCEDURES
Upon issuance, the Debt Securities may be issued in the form of one or more
fully registered global securities (the "Global Securities"). Each such Global
Security will be deposited with, or on behalf of, The Depository Trust Company,
as depository (the "Depository"), and registered in the name of the Depository
or a nominee thereof. Unless and until it is exchanged in whole or in part for
Debt Securities in definitive form, no Global Security may be transferred except
as a whole by the Depository to a nominee of such Depository or by a nominee of
such Depository to such Depository.
The Depository has advised the Corporation as follows: The Depository is a
limited-purpose trust company organized under the Banking Law of the State of
New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depository was created to hold securities of its participating
organizations ("Participants") and to facilitate the clearance and settlement of
transactions among its Participants in such securities through electronic
book-entry changes in accounts of the Participants, thereby eliminating the need
for physical movement of securities certificates. The Depository's Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations, some of which (and/or their
representatives) own the Depository. Access to the Depository's book-entry
system is also available to others, such as banks, brokers, dealers, and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. The rules applicable to the
Depository and its Participants are on file with the Commission.
Ownership of beneficial interests in the Debt Securities will be limited to
Participants or persons that may hold interests through Participants
("Beneficial Owners"). The Depository has advised the Corporation that upon the
issuance of Global Securities representing the Debt Securities, the Depository
will credit, on its book-entry registration and transfer system, the
Participants' accounts with the respective principal amounts of the Debt
Securities beneficially owned by such Participants. Ownership of beneficial
interests in the Debt Securities represented by such Global Securities will be
shown on, and the transfer of such ownership interests
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will be effected only through, records maintained by the Depository (with
respect to interests of Participants) and on the records of Participants (with
respect to interests of Beneficial Owners). The laws of some states may require
that certain purchasers of securities take physical delivery of such securities
in definitive form. Such laws may impair the ability to own, transfer, or pledge
beneficial interests in Debt Securities represented by Global Securities.
So long as the Depository, or its nominee, is the registered owner of a
Global Security, the Depository or its nominee, as the case may be, will be
considered the sole owner or holder of the Debt Securities represented by such
Global Security for all purposes under the Applicable Indenture. Except as
provided below, Beneficial Owners will not be entitled to have the Debt
Securities represented by Global Securities registered in their names, will not
receive or be entitled to receive physical delivery of the Debt Securities in
definitive form, and will not be considered the owners or holders thereof under
the Applicable Indenture. Accordingly, each Participant must rely on the
procedures of the Depository and, if such person is a Beneficial Owner, on the
procedures of the Participant through which such Beneficial Owner owns its
interest, to exercise any rights of a holder under the Applicable Indenture. The
Corporation understands that under existing industry practices, in the event
that the Corporation requests any action of holders, or a Beneficial Owner
desires to give or take any action which a holder is entitled to give or take
under the Applicable Indenture, the Depository would authorize the Participants
holding the relevant beneficial interests to give or take such action, and such
Participants would authorize Beneficial Owners owning through such Participants
to give or take such action or would otherwise act upon the instructions of
Beneficial Owners holding through them.
Payment of principal of (and premium, if any) and interest, if any, owing
on Debt Securities registered in the name of the Depository or its nominee will
be made to the Depository or its nominee, as the case may be, as the holder of
such Debt Securities represented by the Global Securities. None of the
Corporation, the Trustee, or any other agent of the Corporation or agent of the
Trustee will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests or for
supervising or reviewing any records relating to such beneficial ownership
interests. The Corporation expects that the Depository, upon receipt of any
payment of principal, premium, if any, or interest in respect of Debt Securities
represented by Global Securities, will credit the accounts of the Participants
with payment in amounts proportionate to their respective beneficial interests
in the Debt Securities represented by such Global Securities as shown on the
records of the Depository. The Corporation also expects that payments by
Participants to Beneficial Owners will be governed by standing customer
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such Participants subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
principal (and premium, if any) and interest to the Depository is the
responsibility of the Corporation, disbursement of such payments to Participants
is the responsibility of the Depository, and disbursement of such payments to
the Beneficial Owners is the responsibility of the Participants.
If (a) the Depository notifies the Corporation that it is at any time
unwilling or unable to continue as depository for the Global Securities or the
Depository ceases to be a clearing agency registered under the Exchange Act, (b)
the Corporation executes and delivers to the Trustee an order of the Corporation
to the effect that the Global Securities shall be transferable and exchangeable
or (c) an Event of Default has occurred and is continuing with respect to the
Debt Securities, or any event which after notice or lapse of time, or both,
would constitute an Event of Default has occurred and is continuing, the Global
Securities will be transferable or exchangeable for Debt Securities in
definitive form of like tenor and of an equal aggregate principal amount, in
denominations of $1,000 and integral multiples thereof. Such definitive Debt
Securities shall be registered in such name or names as the Depository shall
instruct the Trustee. It is expected that such instructions may be based upon
directions received by the Depository from Participants with respect to
ownership of beneficial interests in Debt Securities represented by such Global
Securities.
In the event of an issuance of Global Securities, procedures for initial
settlement and secondary trades will be set forth in the Applicable Prospectus
Supplement.
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SUBORDINATION OF SUBORDINATED DEBT SECURITIES
Unless otherwise indicated in the Applicable Prospectus Supplement, the
following provisions shall apply to the Subordinated Debt Securities and the
Subordinated Indenture.
In 1992, the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") issued an interpretation of its capital adequacy regulations,
and a clarification of such interpretation (collectively, the "Interpretation"),
that imposed additional restrictions on subordinated debt securities in order
for such securities to qualify as Tier II capital and which provided that
subordinated debt of bank holding companies issued on or after September 4, 1992
cannot qualify as Tier II capital unless the subordination of the debt meets
certain criteria, the subordinated debt is not subject to covenants and other
provisions inconsistent with safe and sound banking practices and the
subordinated debt may be accelerated only upon the bankruptcy of the bank
holding company or the receivership of a major banking subsidiary. The
Corporation's Subordinated Indenture entered into as of June 10, 1994 permits
the Corporation to issue Subordinated Debt Securities that qualify as Tier II
capital, subject to certain limits, in accordance with the Interpretation. Since
the Federal Reserve Board issued the Interpretation, the Corporation has issued
$467.5 million principal amount of such Subordinated Debt Securities, consisting
of $250.0 million of 7.50% Subordinated Notes due June 15, 2006, $200.0 million
of 6 3/4% Subordinated Notes due March 15, 2006 and $17.5 million of
Subordinated Medium-Term Notes, Series B, due November 7, 2005. In addition to
the Corporation's aforementioned Subordinated Debt Securities, as of March 31,
2000, all of the Old KeyCorp Subordinated Indebtedness (as defined below) and
the Society Subordinated Indebtedness (as defined below), which was incurred by
old KeyCorp and Society, respectively, prior to the issuance of the
Interpretation, continued to constitute, and be treated by the Corporation as,
Tier II capital.
The Subordinated Debt Securities will be direct unsecured subordinated
obligations of the Corporation and the indebtedness evidenced by the
Subordinated Debt Securities and the payment of the principal of, premium, if
any, and interest, if any, on the Subordinated Debt Securities will be
subordinated in right of payment to the extent described below to the prior
payment in full of all Senior Indebtedness. (Section 1601) In addition, no
payments shall be made by the Corporation on account of the Subordinated Debt
Securities if there shall have occurred and be continuing a default in any
payment with respect to any Senior Indebtedness, or an event of default with
respect to any Senior Indebtedness permitting the holders thereof to accelerate
the maturity thereof, or if any judicial proceeding shall be pending with
respect to any such default or event of default. (Section 1603) In certain
circumstances relating to an insolvency, bankruptcy, reorganization or similar
proceedings of or relating to the Corporation, or any liquidation, dissolution
or winding-up, or any assignment for the benefit of creditors or marshalling of
assets and liabilities, of the Corporation (an "insolvency event"), the payment
of the principal of, premium, if any, and interest, if any, on the Subordinated
Debt Securities also will be subordinated in right of payment to the extent
described below to the prior payment in full of all Other Senior Obligations (as
defined below). (Section 1614)
The Subordinated Indenture provides that "Senior Indebtedness" shall mean
the principal of (and premium, if any) and interest on (a) all indebtedness of
the Corporation for money borrowed, whether outstanding on the date of execution
of the Subordinated Indenture or thereafter created, assumed, incurred or
guaranteed, except (i) indebtedness on account of all Subordinated Debt
Securities issued under the Subordinated Indenture, indebtedness on account of
all Existing Subordinated Indebtedness (as defined below) and all indebtedness
which specifically by its terms ranks equally with and not prior to the
Subordinated Debt Securities or the Existing Subordinated Indebtedness in right
of payment upon an insolvency event and (ii) indebtedness which specifically by
its terms ranks junior to and not equally with or prior to indebtedness referred
to in clause (i) above in right of payment upon an insolvency event and (b) any
renewals, extensions, modifications and refundings of any such Senior
Indebtedness. The term "indebtedness of the Corporation for money borrowed"
shall mean the principal of (and premium, if any) and interest, if any, on all
(a) indebtedness of the Corporation (including indebtedness of others guaranteed
by the Corporation), whether outstanding on the date of the Subordinated
Indenture or thereafter created, incurred, assumed or guaranteed, which is for
money borrowed and (b) any renewals, extensions, modifications and refundings of
any such indebtedness. (Section 101) As of March 31, 2000, the Corporation had
outstanding approximately $321 million aggregate principal amount of Senior
Indebtedness.
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The Subordinated Indenture provides that "Other Senior Obligations" shall
mean any obligation of the Corporation to its creditors, whether outstanding on
the date of execution of the Subordinated Indenture or thereafter created,
assumed, incurred or guaranteed, except (i) Senior Indebtedness, (ii)
indebtedness on account of all Subordinated Debt Securities issued under the
Subordinated Indenture, indebtedness on account of all Existing Subordinated
Indebtedness and all indebtedness which specifically by its terms ranks equally
with and not prior to the Subordinated Debt Securities or the Existing
Subordinated Indebtedness in right of payment upon the happening of an
insolvency event and (iii) indebtedness which specifically by its terms ranks
junior to and not equally with or prior to indebtedness referred to in clause
(ii) above in right of payment upon any insolvency event. (Section 101) As of
March 31, 2000, the Corporation had $338 million of Other Senior Obligations
outstanding.
The Subordinated Indenture does not limit or prohibit the incurrence of
additional Senior Indebtedness or Other Senior Obligations, and additional
Senior Indebtedness may include indebtedness of the Corporation for money
borrowed that is senior to the Subordinated Debt Securities, but subordinate to
other obligations of the Corporation. The Senior Debt Securities, if issued,
will constitute Senior Indebtedness.
The Subordinated Indenture provides that "Existing Subordinated
Indebtedness" shall include all indebtedness for borrowed money of the
Corporation under its 8.125% Subordinated Notes due June 15, 2002 (originally
issued by Society), 8.00% Subordinated Notes due July 1, 2004 (originally issued
by old KeyCorp and assumed by the Corporation), Medium-Term Notes Series IV due
2000, 2002, and 2003 (originally issued by old KeyCorp and assumed by the
Corporation), and any renewals, extensions, modifications and refundings of any
such indebtedness. All of the Existing Subordinated Indebtedness originally
issued by old KeyCorp and assumed by the Corporation as a result of the merger
on March 1, 1994 is referred to herein as "Old KeyCorp Subordinated
Indebtedness" and all of the Existing Subordinated Indebtedness originally
issued by Society is referred to herein as "Society Subordinated Indebtedness."
As of March 31, 2000, the Corporation had outstanding $440 million aggregate
principal amount of Existing Subordinated Indebtedness, which included $240
million aggregate principal amount of Old KeyCorp Subordinated Indebtedness and
$200 million aggregate principal amount of Society Subordinated Indebtedness.
As of March 31, 2000, the Corporation also had outstanding $468 million of
Subordinated Debt Securities, consisting of $250 million of 7.50% Subordinated
Notes due June 15, 2006, $200 million of 6.75% Subordinated Notes due March 15,
2006 and $18 million of Subordinated Medium-Term Notes, Series B, due November
7, 2005, all of which constitute Subordinated Debt Securities under the
Subordinated Indenture and as described herein, and none of which constitute
Existing Subordinated Indebtedness under the Subordinated Indenture.
The Society Subordinated Indebtedness is subordinated and subject in right
of payment, by its terms, to the prior payment in full of all "senior
indebtedness" (as defined in the indenture relating to the Society Subordinated
Indebtedness, generally, as indebtedness of the Corporation whenever created,
guaranteed, incurred, or assumed, for borrowed money, but excluding the Society
Subordinated Indebtedness and any other indebtedness as to which it is provided
in the instrument evidencing or creating such indebtedness that such
indebtedness is not superior in right of payment to the Society Subordinated
Indebtedness). The Old KeyCorp Subordinated Indebtedness is subordinate and
junior in right of payment, by its terms, to all "senior indebtedness" (as
defined in the indentures relating to the Old KeyCorp Subordinated Indebtedness,
generally, as any obligations of the Corporation to its creditors, whenever
incurred, other than Old KeyCorp Subordinated Indebtedness and any obligation as
to which, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is provided that such obligation is not "senior
indebtedness"). Because the Old KeyCorp Subordinated Indebtedness and the
Society Subordinated Indebtedness were issued by old KeyCorp and Society,
respectively, prior to the merger of old KeyCorp and Society, the relationship
between the Old KeyCorp Subordinated Indebtedness and the Society Subordinated
Indebtedness is not expressly provided for in the respective indentures relating
to such indebtedness.
The Subordinated Indenture excludes Existing Subordinated Indebtedness from
the definition of Senior Indebtedness and, accordingly, the Subordinated Debt
Securities will not be subordinated in right of payment to Existing Subordinated
Indebtedness. The Subordinated Indenture also provides that the Subordinated
Debt
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Securities are not superior in right of payment to any of the Existing
Subordinated Indebtedness and do not constitute "senior indebtedness" as defined
in the indentures governing the Society Subordinated Indebtedness and the Old
KeyCorp Subordinated Indebtedness and, accordingly, the Subordinated Debt
Securities will not have the benefit of the subordination provisions contained
in such indentures.
Upon any payment or distribution of assets to creditors upon an insolvency
event relating to the Corporation, the holders of all Senior Indebtedness will
first be entitled to receive payment in full of all amounts due on or in respect
of all Senior Indebtedness before the holders of the Subordinated Debt
Securities will be entitled to receive any payment on account of the principal
of, premium, if any, or interest, if any, on the Subordinated Debt Securities
(Section 1602) or before the holders of Existing Subordinated Indebtedness will
be entitled to receive any payment on account of the principal of and interest
on such Existing Subordinated Indebtedness. In addition, upon any payment or
distribution of assets to creditors upon an insolvency event, the holders of all
Other Senior Obligations will first be entitled to receive payment in full of
all amounts due on or in respect of such Other Senior Obligations before the
holders of the Old KeyCorp Subordinated Indebtedness will be entitled to receive
any payment on account of the principal of and interest on the Old KeyCorp
Subordinated Indebtedness. If upon any such payment or distribution of assets to
creditors, after giving effect to such subordination provisions applicable to
the Subordinated Debt Securities and the Existing Subordinated Indebtedness in
favor of the holders of Senior Indebtedness and also, in the case of the Old
KeyCorp Subordinated Indebtedness, in favor of the holders of Other Senior
Obligations, there remain any amounts of cash, property, or securities available
for payment or distribution in respect of Subordinated Debt Securities ("Excess
Proceeds") and if, at such time, any Entitled Persons (as defined below) in
respect of Other Senior Obligations have not received payment in full of all
amounts due on or in respect of such Other Senior Obligations, then such Excess
Proceeds shall first be applied to pay or provide for the payment in full of
such Other Senior Obligations before any payment or distribution may be made in
respect of the Subordinated Debt Securities. (Section 1614) "Entitled Persons"
means persons who are entitled to payment pursuant to the terms of Other Senior
Obligations. (Section 101)
By reason of the subordination of the Subordinated Debt Securities in favor
of the holders of Senior Indebtedness and Other Senior Obligations, in the event
of a distribution of assets upon an insolvency event involving the Corporation,
the holders of the Subordinated Debt Securities may recover less than the
holders of Senior Indebtedness and the holders of Other Senior Obligations, and
as a result of the differences among the subordination provisions applicable to
the Society Subordinated Indebtedness, the Old KeyCorp Subordinated Indebtedness
and the Subordinated Debt Securities, including differences in the definitions
of senior indebtedness in the various indentures, in an insolvency event
involving the Corporation, any distribution of assets among the holders of
Society Subordinated Indebtedness, Old KeyCorp Subordinated Indebtedness and the
Subordinated Debt Securities may not be ratable.
OWNERSHIP OF VOTING STOCK OF SIGNIFICANT BANKS
The Senior Indenture provides that the Corporation will not sell or
otherwise dispose of, or grant a security interest in, or permit a Significant
Bank (as defined below) to issue, any shares of voting stock of such Significant
Bank (as defined below), unless the Corporation will own free of any security
interest at least 80% of the issued and outstanding voting stock of such
Significant Bank; provided, however, that the foregoing will not apply to (i)
any sale or disposition where the proceeds are invested, within 90 days thereof,
in any subsidiary (including any corporation which upon such investment becomes
a subsidiary) engaged in a banking business or any business legally permissible
for bank holding companies; provided, however, that if the proceeds are so
invested in any subsidiary engaged in a business legally permissible for bank
holding companies other than a banking business, the Corporation shall be
prohibited from selling or otherwise disposing of, or granting a security
interest in, or permitting such subsidiary to issue, any shares of voting stock
of such subsidiary to the same extent as if such subsidiary were a Significant
Bank if, upon making such investment, the assets of or held for the account of
such subsidiary constitutes 10% or more of the consolidated assets of the
Corporation, or (ii) any disposition in exchange for stock of any bank. (Section
1009) The term "Significant Bank" is defined in the Senior Indenture as any
directly or indirectly owned banking subsidiary of
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the Corporation the assets of which constitute 10% or more of the consolidated
assets of the Corporation (currently, KeyBank National Association.) (Section
101)
The Subordinated Indenture does not contain a similar restriction on the
Corporation's ability to sell or otherwise dispose of or grant a security
interest in, or permit a Significant Bank to issue any shares of voting stock of
any Significant Bank because inclusion of such a provision, under the
Interpretation, would result in the Subordinated Debt Securities issued
thereunder not qualifying as Tier II capital. The holders of Society
Subordinated Indebtedness have the benefit of a covenant in the subordinated
indenture relating thereto substantially similar to the covenant described above
and the holders of Old KeyCorp Subordinated Indebtedness have the benefit of a
covenant in the subordinated indentures relating thereto that restricts the
sale, issuance or disposition of shares of stock of, or mergers or asset sales
involving, certain banking subsidiaries. In order to conform to the
Interpretation, the Subordinated Indenture does not contain either such
covenant.
EVENTS OF DEFAULT
The Senior Indenture. The Senior Indenture defines an "Event of Default"
(with respect to any series of Senior Debt Securities) as any one of the
following events: (a) default in the payment of any interest upon any Senior
Debt Security when such interest becomes due and payable, and continuance of
such default for a period of 30 days; (b) default in the payment of the
principal of (or premium, if any, on) any Senior Debt Security when due and
payable at its maturity; (c) default in the deposit of any sinking fund payment
when and as due; (d) failure to perform, or default in the performance or breach
of, any other covenant, warranty, or agreement of the Corporation in the Senior
Indenture (other than a default in the performance or breach of a covenant or
warranty or agreement included in the Senior Indenture solely for the benefit of
a series of Senior Debt Securities thereunder other than that series) and
continuance of such default or breach for a period of 60 days after the holders
of at least 25% in principal amount of the outstanding Senior Debt Securities of
such series have given written notice as provided in the Senior Indenture; (e)
acceleration of any indebtedness for borrowed money in an aggregate principal
amount exceeding $20 million of the Corporation or a Significant Bank if such
acceleration is not annulled within 10 days after written notice is given by the
holders of at least 25% in principal amount of the outstanding Senior Debt
Securities of such series requiring the Corporation to cause such acceleration
to be annulled as provided in the Senior Indenture; (f) certain events involving
the bankruptcy, insolvency, or reorganization of the Corporation or the
receivership or conservatorship of any Significant Bank, and (g) any other Event
of Default with respect to Senior Debt Securities of that series. (Section 501)
Under certain circumstances not involving a default in the payment of principal
of (premium, if any), or interest, if any, owing on the Senior Debt Securities
of any series, or in the payment of any sinking fund installment, the Senior
Trustee shall be protected in withholding notice to the holders of the Senior
Debt Securities of such series of a default if the Senior Trustee in good faith
determines that the withholding of such notice is in the interests of such
holders and the Senior Trustee shall withhold such notice for certain defaults
for a period of 60 calendar days. (Section 601)
If an Event of Default described in clauses (a), (b), (c), (d), (e) or (g)
above with respect to Senior Debt Securities of any series at the time
outstanding occurs and is continuing, either the Senior Trustee or the holders
of at least 25% in principal amount of the outstanding Senior Debt Securities of
that series may declare the principal amount (or, if the Senior Debt Securities
of that series are Original Issue Discount Debt Securities or Indexed
Securities, such portion of the principal amount as may be specified in the
terms thereof) of all the Senior Debt Securities of that series to be due and
payable immediately. If an Event of Default described in clause (f) above occurs
and is continuing, either the Senior Trustee or the holders of at least 25% in
principal amount of all outstanding Senior Debt Securities then outstanding may
declare the principal amount (or, if the Senior Debt Securities of any series
are Original Issue Discount Debt Securities or Indexed Securities, such portion
of the principal amount as may be specified in the terms thereof) of all the
Senior Debt Securities to be due and payable immediately. At any time after a
declaration of acceleration with respect to Senior Debt Securities of any series
has been made and before a judgment or decree for payment of the money due has
been obtained, the holders of a majority in principal amount of outstanding
Senior Debt Securities of that series may, under certain circumstances, rescind
and annul such acceleration. (Section 502)
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The Subordinated Indenture. The Subordinated Indenture defines an "Event
of Default" (with respect to any series of Subordinated Debt Securities) as
certain (a) events involving the bankruptcy, insolvency, or reorganization of
the Corporation or the receivership of a Major Bank (as defined below) and (b)
any other Event of Default provided with respect to Subordinated Debt Securities
of that series. (Section 501) The term "Major Bank" is defined in the
Subordinated Indenture as any directly or indirectly owned banking subsidiary of
the Corporation, the consolidated assets of which constitute 75% or more of the
consolidated assets of the Corporation. As of the date of this Prospectus, no
banking subsidiary of the Corporation constitutes a Major Bank. If an Event of
Default described in clause (a) above occurs and is continuing, either the
Subordinated Trustee or the holders of not less than 25% in principal amount of
the outstanding Subordinated Debt Securities may declare the principal amount
(or, if the Subordinated Debt Securities of any series are Original Issue
Discount Debt Securities or Indexed Securities, such portion of the principal
amount as may be specified in the terms of that series) of all Subordinated Debt
Securities to be due and payable immediately. If an Event of Default described
in clause (b) above with respect to Subordinated Debt Securities of any series
at the time outstanding occurs and is continuing, either the Subordinated
Trustee or the holders of not less than 25% in principal amount of the
outstanding Subordinated Debt Securities of that series may declare the
principal amount (or, if the Subordinated Debt Securities of that series are
Original Issue Discount Debt Securities or Indexed Securities, such portion of
the principal amount as may be specified in the terms of that series) of all
Subordinated Debt Securities of that series to be due and payable immediately.
At any time after a declaration of acceleration with respect to Subordinated
Debt Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained, the holders of a majority in
principal amount of the outstanding Subordinated Debt Securities of that series
may, under certain circumstances, rescind and annul such acceleration. (Section
502)
Unless otherwise provided in the terms of a series of Subordinated Debt
Securities, there will be no right of acceleration of the payment of principal
of a series of Subordinated Debt Securities upon a default in the payment of
principal of (premium, if any), or interest, if any, owing on, or in the
performance of any covenant or agreement in, the Subordinated Debt Securities of
the particular series, or in the Subordinated Indenture.
In case a Default (as defined below) shall occur and be continuing, the
Subordinated Trustee may in its discretion proceed to protect and enforce its
rights and the rights of the holders of Subordinated Debt Securities by
appropriate judicial proceeding as the Subordinated Trustee deems most
effective. The Subordinated Indenture defines a "Default" (with respect to any
series of Subordinated Debt Securities) as any one of the following events: (a)
an Event of Default; (b) default in the payment of any installment of interest,
if any, on any Subordinated Debt Security when such interest becomes due and
payable, and the continuance of such default for a period of 30 calendar days
(whether or not such payment is prohibited by the subordination provisions); (c)
default in payment of principal of (or premium, if any, on) any Subordinated
Debt Security at its maturity (whether or not such payment is prohibited by the
subordination provisions); (d) failure to deposit any sinking fund payment when
due; (e) failure to perform any other covenants or warranties of the Corporation
in the Subordinated Indenture (other than a covenant or warranty included in the
Subordinated Indenture solely for the benefit of a series of Subordinated Debt
Securities other than that series) continued for a period of 60 calendar days
after holders of at least 25% in principal amount of outstanding Subordinated
Debt Securities have given written notice as provided in the Subordinated
Indenture; and (f) any other Default specified in the Subordinated Indenture
with respect to Subordinated Debt Securities of that series. (Section 503) Under
certain circumstances not involving a default in the payment of principal of
(premium, if any), or interest, if any, owing on the Subordinated Debt
Securities of any series, or in the payment of any sinking fund installment, the
Subordinated Trustee shall be protected in withholding notice to the holders of
the Subordinated Debt Securities of such series of a default if the Subordinated
Trustee in good faith determines that the withholding of such notice is in the
interests of such holders and the Subordinated Trustee shall withhold such
notice for certain defaults for a period of 60 calendar days. (Section 601)
In comparison to the Events of Default provided for in the Subordinated
Indenture and the subordinated indenture relating to the Old Key Subordinated
Indebtedness, the holders of Society Subordinated Indebtedness have the benefit
of broader events of default and related acceleration rights in the subordinated
indenture
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relating thereto, including, without limitation, any one of the following
"events of default" as defined in the subordinated indenture: (a) default in the
payment of any interest upon the Society Subordinated Indebtedness when such
interest becomes due and payable; (b) default in the payment of principal of (or
premium, if any, on) any Society Subordinated Indebtedness when due and payable
at its maturity; (c) default in the performance, or breach, of any covenant or
warranty of the Corporation; and (d) acceleration of any indebtedness for
borrowed money of the Corporation or a principal bank (as defined in such
subordinated indenture). In order to conform to the Interpretation, the
Subordinated Indenture does not contain any of such events of default or
acceleration rights.
Senior and Subordinated Indentures. Subject to the duty of the Trustee
during default to act with the required standard of care, under both the Senior
Indenture and the Subordinated Indenture, the applicable Trustee will be under
no obligation to exercise any of the rights or powers vested in it by the
Applicable Indenture at the request or direction of any of the holders of Debt
Securities of any series, unless such holders shall have offered to the Trustee
security or indemnity reasonably satisfactory to the Trustee. (Section 602)
Subject to such provisions for the indemnification of the Trustee and to certain
other conditions, the holders of a majority in aggregate principal amount of
outstanding Senior Debt Securities or outstanding Subordinated Debt Securities
of any series will have the right, subject to certain limitations, to direct the
time, method, and place of conducting any proceeding for any remedy available to
the Senior Trustee or Subordinated Trustee, respectively, or exercising any
trust or power conferred on the Senior Trustee or Subordinated Trustee,
respectively. (Section 512)
No holder of any series of Debt Securities will have any right to institute
any proceeding with respect to the Applicable Indenture, or for the appointment
of a receiver or trustee, or for any remedy thereunder, unless such holder shall
have previously given to the Trustee under the Applicable Indenture written
notice of a continuing Event of Default (in the case of Senior Debt Securities)
or a continuing Event of Default or Default (in the case of Subordinated Debt
Securities) and unless the holders of not less than 25% in principal amount of
the outstanding Debt Securities of that series shall have made written request,
and offered security or indemnity reasonably satisfactory to the Trustee, to
such Trustee to institute such proceeding as trustee, and such Trustee shall not
have received from the holders of a majority in aggregate principal amount of
the outstanding Debt Securities of that series a direction inconsistent with
such request and shall have failed to institute such proceeding within 60
calendar days. (Section 507) However, such limitations do not apply to a suit
instituted by a holder of a Debt Security for enforcement of payment of the
principal of (premium, if any) or subject to certain conditions, or interest, if
any, on or after the respective due dates expressed in such Debt Security.
(Section 508)
The Corporation is required to furnish to the Trustee annually a statement
as to the performance by the Corporation of certain of its obligations under the
Indentures and as to any default in such performance. (Section 1005)
MODIFICATION AND WAIVER
Modifications and amendments of each of the Senior Indenture and the
Subordinated Indenture may be made by the Corporation and the Trustee under the
Applicable Indenture with the consent of the holders of not less than 66 2/3% in
principal amount of the outstanding Debt Securities of each series issued under
such Indenture and affected by the modification or amendment; provided, however,
that no such modification or amendment may, without the consent of the holders
of each outstanding Debt Security of the series affected thereby, (1) change the
stated maturity of any principal of (or premium, if any), or any installment of
principal of or interest, if any, on, any Debt Security of such series; (2)
reduce the principal amount of, the rate of interest on, or any premium payable
upon the redemption of any, Debt Security of such series; (3) change any
obligation of the Corporation to pay Additional Amounts in respect of any Debt
Security of such series; (4) reduce the portion of principal of an Original
Issue Discount Security or Indexed Security that would be due and payable upon a
declaration of acceleration of the maturity thereof or provable in bankruptcy;
(5) adversely affect any right of repayment at the option of the holder of any
Debt Security of such series; (6) change the place or currency or currencies of
payment of principal of or any premium or interest on any Debt Security of such
series; (7) impair the right to institute suit for the enforcement of any such
payment on
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or after the Stated Maturity thereof (or, in the case of redemption or
repayment, on or after any Redemption Date or Repayment Date, as the case may
be); (8) adversely affect the right to convert any Debt Security of such series
as may be provided pursuant to the Applicable Indenture; (9) in the case of the
Subordinated Indenture, modify the subordination provisions in a manner adverse
to the holders of the Subordinated Debt Securities of such series; (10) reduce
the percentage in principal amount of the outstanding Debt Securities, the
consent of whose holders is required for modification or amendment of the
Indenture or for waiver of compliance with certain provisions of the Indentures
or for waiver of certain defaults; (11) reduce the requirements for voting or
quorum relating to Bearer Securities; or (12) modify any of the provisions
relating to supplemental indentures requiring the consent of holders, relating
to the waiver of past defaults or relating to the waiver of certain covenants,
except to increase the percentage of such Outstanding Securities required for
such actions or to provide that certain other provisions of such Indenture
cannot be modified or waived without the consent of the holder of each
Outstanding Security affected thereby. (Section 902)
In addition, under the Subordinated Indenture, no modification or amendment
thereof may adversely affect the rights of any holder of Senior Indebtedness or
Other Senior Obligations under Article Sixteen of such Indenture (described
under the caption "Subordination of Subordinated Debt Securities") without the
consent of such holder of Senior Indebtedness or Other Senior Obligations.
(Subordinated Indenture Section 907)
The holders of at least 66 2/3% in principal amount of the outstanding
Senior Debt Securities of any series or outstanding Subordinated Debt Securities
of any series may, on behalf of all holders of the outstanding Senior Debt
Securities of that series or outstanding Subordinated Debt Securities of that
series, respectively, waive compliance by the Corporation with certain
restrictive provisions of the Applicable Indenture. (Senior Indenture Section
1010; Subordinated Indenture Section 1009) The holders of not less than 66 2/3%
in aggregate principal amount of the outstanding Senior Debt Securities of any
series or the outstanding Subordinated Debt Securities of any series may, on
behalf of all holders of the outstanding Senior Debt Securities of that series
or the outstanding Subordinated Debt Securities of that series, respectively,
waive any past default under the Applicable Indenture, except a default in the
payment of principal (or premium, if any), or interest, if any, or in the
performance of certain covenants. (Section 513)
SATISFACTION AND DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Corporation may discharge certain obligations to holders of Debt
Securities of a series that have not already been delivered to the applicable
Trustee for cancellation and that either have become due and payable or are by
their terms due and payable within one year (or scheduled for redemption within
one year) by irrevocably depositing with the applicable Trustee, in trust, funds
in an amount sufficient to pay the entire indebtedness on such Debt Securities
for principal (and premium, if any) and interest, with respect thereto, to the
date of such deposit (if such Debt Securities have become due and payable) or to
the Stated Maturity or Redemption Date, as the case may be. (Section 401)
Each Indenture provides that, if the provisions of Article Thirteen are
made applicable to the Debt Securities of or within a series pursuant to Section
301 thereunder, the Corporation may elect either (i) to defease and be
discharged from any and all obligations with respect to such Debt Securities
(except for the obligations to pay Additional Amounts, if any; to register the
transfer or exchange of such Debt Securities; to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities; to maintain one or more offices or
agencies in respect of such Debt Securities; and to hold moneys for payment in
trust) ("defeasance") or (ii) to be released (a) in the case of any such Debt
Securities that are Senior Debt Securities, from its obligations under Section
1009 of such Indenture or (b) in the case of any such Debt Securities (whether
they are Senior Debt Securities or Subordinated Debt Securities), if so provided
in the Applicable Prospectus Supplement, from its obligations with respect to
any other covenant and, in the case of either (a) or (b) above, any omission to
comply with such obligations will not constitute a Default or an Event of
Default with respect to such Debt Securities ("covenant defeasance"), in either
case upon the irrevocable deposit by the Corporation with the applicable Trustee
(or other qualifying trustee), in trust, of (1) an amount, in the currency or
currencies in which such Debt Securities are then specified as payable at Stated
Maturity, (2) Government Obligations (as defined in the Indenture) applicable to
such Debt Securities (with such
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applicability being determined on the basis of the currency in which such Debt
Securities are then specified as payable at Stated Maturity) that, through the
payment of principal and interest in accordance with their terms, will provide
money in an amount or (3) a combination thereof in an amount, sufficient to pay
the principal of (and premium, if any, on) and interest, if any, on such Debt
Securities, and any mandatory sinking fund or analogous payments thereon, on the
scheduled due dates therefor.
Such a trust may only be established if, among other things, the
Corporation has delivered to the applicable Trustee an opinion of counsel to the
effect that the holders of such Debt Securities to be defeased will not
recognize income, gain or loss for U.S. Federal income tax purposes as a result
of such defeasance or covenant defeasance and will be subject to U.S. Federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance or covenant defeasance had not
occurred, and such opinion of counsel, in the case of defeasance under clause
(i) above, must refer to and be based upon a ruling of the Internal Revenue
Service or a change in applicable U.S. Federal income tax law occurring after
the date of the Applicable Indenture. (Article Thirteen)
Unless otherwise provided in the Applicable Prospectus Supplement, if,
after the Corporation has deposited funds, Government Obligations, or both to
effect defeasance or covenant defeasance with respect to Debt Securities of a
series, (a) the holder of a Debt Security of such series is entitled to, and
does, elect pursuant to the terms of such Debt Security to receive payment in a
currency or currency unit other than that in which such deposit has been made in
respect of such Debt Security or (b) a Currency Conversion Event (as defined in
the applicable Indenture) occurs, then the indebtedness represented by such Debt
Security will be deemed to have been, and will be, fully discharged and
satisfied through the payment of the principal of (and premium, if any) and
interest, if any, on such Debt Security as they become due out of the proceeds
yielded by converting the amount so deposited in respect of such Debt Security
into the currency in which such Debt Security becomes payable as a result of
such election or such Currency Conversion Event based on the applicable Market
Exchange Rate. (Section 1305) Unless otherwise provided in the Applicable
Prospectus Supplement, all payments of principal of (and premium, if any) and
interest, if any, on any Debt Security that is payable in a foreign currency
with respect to which a Currency Conversion Event occurs shall be made in U.S.
dollars. (Section 312)
In the event the Corporation effects covenant defeasance with respect to
any Debt Securities and such Debt Securities are declared due and payable
because of the occurrence of any Event of Default other than the Event of
Default described in clause (d) under "Events of Default" with respect to the
obligations described under "Ownership of Voting Stock of Significant Banks"
above (which obligations would no longer be applicable to such Debt Securities)
or described in clause (d) or (g) under "Events of Default" with respect to any
other covenant with respect to which there has been defeasance, the amount in
such currency in which such Debt Securities are payable, and Government
Obligations on deposit with the applicable Trustee will be sufficient to pay
amounts due on such Debt Securities at the time of their Stated Maturity but may
not be sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such Event of Default. However, the Corporation
would remain liable to make payment of such amounts due at the time of
acceleration.
If the applicable Trustee or any Paying Agent is unable to apply any money
in accordance with the applicable Indenture by reason of any order or judgment
of any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Corporation's obligations under such
Indenture and such Debt Securities shall be revived and reinstated as though no
deposit had occurred pursuant to such Indenture, until such time as such Trustee
or Paying Agent is permitted to apply all such money in accordance with such
Indenture; provided, however, that, if the Corporation makes any payment of
principal of (or premium, if any) or interest on any such Debt Security or
coupon following the reinstatement of its obligations, the Corporation shall be
subrogated to the rights of the holders of such Debt Securities to receive such
payment from the money held by such Trustee or Paying Agent.
The Applicable Prospectus Supplement may further describe the provisions,
if any, permitting defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series and any related coupons.
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CONSOLIDATION, MERGER, AND SALE OF ASSETS
The Corporation, without the consent of the holders of any of the Debt
Securities under the Indentures, may consolidate with or merge into any other
person, may convey, transfer, or lease its assets substantially as an entirety
to any person, or may permit any person to merge into or consolidate with the
Corporation or convey, transfer or lease its property and assets substantially
as an entirety to the Corporation, provided that: (1) any successor or purchaser
is a corporation organized under the laws of any domestic jurisdiction; (2) any
such successor or purchaser assumes the Corporation's obligations on such Debt
Securities and under the Indentures; (3) after giving effect to the transaction,
with respect to any Senior Debt Securities, no Event of Default and no event
which, after notice of or lapse of time or both would become an Event of Default
or, with respect to any Subordinated Debt Securities, no Default and no event
that, after notice or lapse of time, would become an Event of Default or a
Default, shall have occurred and be continuing; (4) with respect to the Senior
Indenture, if, as a result of any such consolidation or merger or such
conveyance, transfer or lease, shares of voting stock of any Significant Bank
would become subject to a security interest not permitted under the Senior
Indenture, the Corporation or successor, as the case may be, shall take such
steps as shall be necessary effectively to secure the Senior Debt Securities
equally and ratably with (or prior to) all indebtedness secured thereby; and (5)
certain other conditions are met. (Section 801)
CONVERSION
The holders of Subordinated Debt Securities of a specified series that are
convertible into Capital Securities ("Subordinated Convertible Debt Securities")
may be entitled or, if so provided in the Applicable Prospectus Supplement, may
be required at such time or times specified in the Applicable Prospectus
Supplement relating to such Subordinated Convertible Debt Securities, subject to
prior redemption, repayment, or repurchase, to convert any Subordinated
Convertible Debt Securities of such series into Capital Securities, at the
conversion price set forth in such Applicable Prospectus Supplement, subject to
adjustment and to such other terms as are set forth in such Applicable
Prospectus Supplement. No separate consideration will be received for any
Capital Securities issued upon conversion of Subordinated Convertible Debt
Securities.
RISK FACTORS OF DEBT SECURITIES DENOMINATED IN FOREIGN CURRENCIES
Debt Securities denominated or payable in foreign currencies may entail
significant risks. These risks include, without limitation, the possibility of
significant fluctuations in the foreign currency market, the imposition of
foreign exchange controls, and potential illiquidity in the secondary market.
These risks will vary depending upon the currency involved. These risks may be
more fully described in the Applicable Prospectus Supplement.
CONCERNING THE TRUSTEE
Bankers Trust Company is Trustee under both the Senior Indenture and the
Subordinated Indenture. The Corporation and certain of its subsidiaries maintain
deposit accounts and conduct other banking transactions with Bankers Trust
Company in the ordinary course of business. Bankers Trust Company also serves as
trustee under a senior indenture of old KeyCorp.
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DESCRIPTION OF PREFERRED STOCK
The following description of the terms of the shares of Preferred Stock,
which sets forth certain general terms and provisions of the Preferred Stock to
which any Prospectus Supplement may relate, does not purport to summarize any
particular series of Preferred Stock. Certain terms of any offered series of
Preferred Stock will be described in the Applicable Prospectus Supplement
relating to such series of Preferred Stock. If so indicated in the Applicable
Prospectus Supplement, the terms of any series may differ from the terms set
forth below. The description of certain provisions of the Preferred Stock set
forth below does not purport to be complete and is subject to and qualified in
its entirety by reference to the Amended and Restated Articles of Incorporation
(the "Articles") and the Certificate of Amendment of the Amended and Restated
Articles of Incorporation of the Corporation that relates to a particular series
of Preferred Stock (the "Certificate") which will be filed with the Secretary of
State of the State of Ohio at or prior to the time of the sale of the related
series of Preferred Stock and which will be filed as an exhibit to or
incorporated by reference in the Registration Statement.
GENERAL
The Corporation is authorized by its Articles to issue from time to time up
to 25,000,000 shares of Preferred Stock, with a par value of $1 each. All shares
of Preferred Stock must be of equal rank and the express terms thereof must be
identical, except in respect of the terms that may be fixed by the Board of
Directors as described below, and each share of each series shall be identical
with all other shares of such series, except that in the case of a series as to
which dividends are cumulative, the dates from which dividends are cumulative
may vary to reflect differences in the dates of issue. The Preferred Stock will,
when issued against payment therefor, be fully paid and nonassessable. The
Corporation currently has no Preferred Stock issued and outstanding.
The Board of Directors is authorized by the Articles to cause shares of
Preferred Stock to be issued in one or more series and with respect to each such
series to fix: (1) the designation of the series, which may be by distinguishing
number, letter, or title; (2) the authorized number of shares of such series,
which number the Board of Directors may, except to the extent otherwise provided
in the creation of the series, from time to time, increase or decrease, but not
below the number of shares thereof then outstanding; (3) the dividend rate or
rates (which may be fixed or adjustable) of the shares of the series; (4) the
dates on which dividends, if declared, shall be payable and, in the case of
series on which dividends are cumulative, the dates from which dividends shall
be cumulative; (5) the redemption rights and price or prices, if any, for shares
of the series, (6) the amount, terms, conditions, and manner of operation of any
retirement or sinking fund to be provided for the purchase or redemption of
shares of the series; (7) the amounts payable on shares of the series in the
event of any liquidation, dissolution, or winding up of the affairs of the
Corporation; (8) whether the shares of the series shall be convertible into
Common Shares or shares of any other series or class, and, if so, the
specification of such other class or series, the conversion price or prices or
rate or rates, any adjustment thereof, and all other terms and conditions upon
which such conversion may be made; and (9) the restrictions, if any, upon the
issue of any additional shares of the same series or of any other class or
series. The Board of Directors is authorized to amend from time to time the
Articles fixing, with respect to any unissued shares of Preferred Stock, the
matters described in clauses (1) through (9). Each series of Preferred Stock
will be offered on such of the above terms and at such offering price as
specified in the Applicable Prospectus Supplement.
As described under "Depositary Shares" below, the Corporation may, at its
option, elect to offer Depositary Shares (evidenced by depositary receipts)
which will represent a fraction to be specified in the Applicable Prospectus
Supplement relating to the particular series of Preferred Stock of a share of
the particular series of Preferred Stock issued and deposited with the
Depositary (as defined below), in lieu of offering full shares of such series of
the Preferred Stock.
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CERTAIN DEFINITIONS
For the purposes of this Description of Preferred Stock:
Whenever reference is made to shares "ranking prior to the Preferred
Stock," such reference shall mean and include all shares of the Corporation in
respect of which the rights of the holders thereof either as to the payment of
dividends or as to distribution in the event of a liquidation, dissolution, or
winding up of the Corporation are given preference over the rights of the
holders of Preferred Stock.
Whenever reference is made to shares "on a parity with the Preferred
Stock," such reference shall mean and include all shares of the Corporation in
respect of which the rights of the holders thereof as to the payment of
dividends or as to distributions in the event of a liquidation, dissolution, or
winding up of the Corporation rank on an equality or parity with the rights of
the holders of Preferred Stock.
Whenever reference is made to shares "ranking junior to the Preferred
Stock," such reference shall mean and include all shares of the Corporation in
respect of which the rights of the holders thereof as to the payment of
dividends and as to distributions in the event of a liquidation, dissolution, or
winding up of the Corporation are junior or subordinate to the rights of the
holders of Preferred Stock.
DIVIDENDS
The holders of Preferred Stock of each series, in preference to the holders
of Common Shares and of any other class of shares of the Corporation ranking
junior to the Preferred Stock shall be entitled to receive, out of any funds
legally available for the payment of dividends and when and as declared by the
Board of Directors, cash dividends at the rates set forth in the Applicable
Prospectus Supplement, and no more, payable on the dividend payment dates fixed
for such series set forth therein (each, a "Dividend Payment Date"). If any date
specified as a Dividend Payment Date is not a business day, dividends, if
declared, on the Preferred Stock will be paid on the immediately succeeding
business day, without interest. Such rates may be fixed or variable. If
variable, the formula used for determining the dividend rate for each dividend
period will be set forth in the Applicable Prospectus Supplement. Dividends on
the Preferred Stock may be cumulative or non-cumulative as provided in the
Applicable Prospectus Supplement.
No full dividends may be paid upon, declared, or set apart for the payment
of dividends on shares ranking on a parity with or junior to the Preferred Stock
unless dividends shall have been paid or set apart for payment on the Preferred
Stock.
REDEMPTION
A series of Preferred Stock may be redeemable at any time, in whole or in
part, at the option of the Corporation or the holder thereof upon terms and at
the redemption prices set forth in the Applicable Prospectus Supplement relating
to such series.
RIGHTS UPON LIQUIDATION
The holders of shares of Preferred Stock of any series shall, in case of
liquidation, dissolution, or winding up of the Corporation, be entitled to
receive in full out of the assets of the Corporation, including its capital,
before any amount shall be paid or distributed among the holders of Common
Shares or any other shares ranking junior to the Preferred Stock, the amounts
set forth in the Applicable Prospectus Supplement with respect to shares of such
series, plus all accrued and unpaid dividends for such series, in accordance
with the terms set forth in the Applicable Prospectus Supplement.
CONVERSION
The holders of specified series of Preferred Stock may be entitled or, if
so provided in the Applicable Prospectus Supplement, may be required, to convert
such shares into Common Shares or any other class or series of Capital
Securities or, in the case of Preferred Stock that is convertible at the option
of the
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Corporation, other debt securities of the Corporation, at such conversion price
or prices and on such other terms as may be set forth in the Applicable
Prospectus Supplement relating to such series of Preferred Stock.
VOTING RIGHTS
The holders of Preferred Stock shall not be entitled to vote upon matters
presented to the shareholders, except as provided herein or as required by law.
If the Corporation shall fail to pay full cumulative dividends on any
series of Preferred Stock for six quarterly dividend payment periods, whether or
not consecutive, the number of directors will be increased by two, and the
holders of all outstanding series of Preferred Stock, voting as a single class
without regard to series, will be entitled to elect such additional two
directors until full cumulative dividends for all past dividend payment periods
on all series of Preferred Stock have been paid or declared and set apart for
payment or until non-cumulative dividends have been paid regularly for at least
one full year. Such right to vote separately as a class to elect directors
shall, when vested, be subject, always, to the same provisions for the vesting
of such right to elect directors separately as a class in the case of future
dividend defaults. At any time when such right to elect directors separately as
a class shall have so vested, the Corporation may, and upon the written request
of the holders of record of not less than 20% of the total number of shares of
the Preferred Stock of the Corporation then outstanding shall, call a special
meeting of shareholders for the election of such directors. In the case of such
a written request, such special meeting shall be held within 90 days after the
delivery of such request and, in either case, at the place and upon the notice
provided by law and in the Regulations of the Corporation, provided that the
Corporation shall not be required to call such a special meeting if such request
is received less than 120 days before the date fixed for the next ensuing annual
meeting of shareholders of the Corporation. Directors elected as aforesaid shall
serve until the next annual meeting of shareholders of the Corporation or until
their respective successors shall be elected and qualify. If, prior to the end
of the term of any director elected as aforesaid, a vacancy in the office of
such director shall occur during the continuance of a default in dividends on
any series of Preferred Stock by reason of death, resignation, or disability,
such vacancy shall be filled for the unexpired term by the appointment by the
remaining director or directors elected as aforesaid of a new director for the
unexpired term of such former director.
Under existing interpretations of the Federal Reserve Board, if the holders
of any series of Preferred Stock become entitled to vote for the election of
directors because dividends on such series are in arrears, such series may then
be deemed a "class of voting securities" and a holder of 25% or more of such
series (or a holder of 5% or more if such holder otherwise exercises a
"controlling influence" over the Corporation) may then be subject to regulation
as a bank holding company in accordance with the Bank Holding Company Act of
1956, as amended (the "BHCA"). In addition, at such time, (i) any bank holding
company or foreign bank with a United States presence may be required to obtain
the approval of the Federal Reserve Board under the BHCA to acquire or retain 5%
or more of such series and (ii) any person other than a bank holding company may
be required to obtain the approval of the Federal Reserve Board under the Change
in Bank Control Act of 1978 to acquire or retain 10% or more of such series.
The affirmative vote or consent of the holders of at least two-thirds of
the then outstanding shares of Preferred Stock, given in person or by proxy,
either in writing or at a meeting called for the purpose at which the holders of
Preferred Stock shall vote separately as a class, shall be necessary to effect
any amendment, alteration, or repeal of any of the provisions of the
Corporation's Articles or the Regulations of the Corporation which would be
substantially prejudicial to the voting powers, rights, or preferences of the
holders of Preferred Stock (but so far as the holders of Preferred Stock are
concerned, such action may be effected with such vote or consent); provided,
however, that neither the amendment of the Corporation's Articles to authorize
or to increase the authorized or outstanding number of shares of any class
ranking junior to or on a parity with the Preferred Stock, nor the amendment of
the Regulations so as to change the number of directors of the Corporation shall
be deemed to be substantially prejudicial to the voting powers, rights, or
preferences of the holders of Preferred Stock (and any such amendment referred
to in this proviso may be made without the vote or consent of the holders of the
Preferred Stock); and provided further that if such amendment, alteration, or
repeal would be substantially prejudicial to the rights or preferences of one or
more but not all then
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outstanding series of Preferred Stock, the affirmative vote or consent of the
holders of at least two-thirds of the then outstanding shares of the series so
affected shall be required.
The affirmative vote or consent of the holders of at least two-thirds of
the then outstanding shares of Preferred Stock, given in person or by proxy,
either in writing or at a meeting called for the purpose at which the holders of
Preferred Stock shall vote as a single class, shall be necessary to effect any
one or more of the following:
(a) The authorization of, or the increase in the authorized number of,
any shares of any class ranking prior to the Preferred Stock; or
(b) The purchase or redemption for sinking fund purposes or otherwise
of less than all of the then outstanding Preferred Stock except in
accordance with a purchase offer made to all holders of record of Preferred
Stock, unless all dividends on all Preferred Stock then outstanding for all
previous dividend periods shall have been declared and paid or declared and
funds therefor set apart and all accrued sinking fund obligations
applicable thereto shall have been complied with.
PREEMPTIVE RIGHTS
No holder of Preferred Stock is entitled as a matter of right to subscribe
for or purchase any part of any issue of shares of the Corporation, of any class
whatsoever, or any part of any issue of securities convertible into shares of
the Corporation, of any class whatsoever, and whether issued for cash, property,
services, or otherwise.
REPURCHASE OF SHARES
Subject to the express terms of any series of Preferred Stock, the
Corporation, by action of its Board of Directors and without action by its
shareholders, is authorized by its Articles to purchase any shares of any series
of Preferred Stock from time to time in accordance with the provisions of the
Ohio General Corporation Law. Such purchases may be made either in the open
market, or at public or private sales, in such manner and amounts and at such
price as the directors shall, from time to time, determine.
DESCRIPTION OF DEPOSITARY SHARES
The description set forth below and in any Prospectus Supplement of certain
provisions of the Deposit Agreement (as defined below) and of the Depositary
Shares and Depositary Receipts (as defined below) does not purport to be
complete and is subject to, and qualified in its entirety by reference to, the
forms of Deposit Agreement and Depositary Receipt relating to each series of the
Preferred Stock, which are filed with the Commission as exhibits to the
Registration Statement of which this Prospectus is a part, copies of which may
be obtained from the Corporation upon request.
GENERAL
The Corporation may elect to offer fractional shares of Preferred Stock
rather than full shares of Preferred Stock. In such event, the Corporation will
cause depositary receipts ("Depositary Receipts") to be issued for Depositary
Shares, each of which will represent a fraction (to be set forth in the
Applicable Prospectus Supplement relating to a particular series of Preferred
Stock) of a share of a particular series of Preferred Stock as described below.
The shares of any series of Preferred Stock represented by Depositary
Shares will be deposited under a Deposit Agreement (the "Deposit Agreement")
between the Corporation and a bank or trust company selected by the Corporation
having its principal office in the United States and having a combined capital
and surplus of at least $50,000,000, and any successor as depositary (the
"Depositary"). Subject to the terms of the Deposit Agreement, each owner of a
Depositary Share will be entitled, in proportion to the applicable fraction of a
share of Preferred Stock represented by such Depositary Share, to all the
rights, preferences, and
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privileges of the Preferred Stock represented thereby, including any and all
dividend, voting, redemption, conversion, and liquidation rights provided for in
the Certificate.
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the Deposit Agreement. Depositary Receipts will be distributed to
those persons purchasing the fractional shares of Preferred Stock in accordance
with the terms of the offering.
Pending the preparation of definitive Depositary Receipts, the Depositary
will, upon the written order of the Corporation or any holder of Preferred
Stock, execute and deliver temporary Depositary Receipts which are substantially
identical to, and entitle the holders thereof to all the benefits pertaining to,
the definitive Depositary Receipts. Definitive Depositary Receipts will be
prepared thereafter without unreasonable delay, and temporary Depositary
Receipts will be exchangeable for definitive Depositary Receipts upon surrender
of the temporary Depositary Receipts at the Depositary's principal office or
such other office or offices, if any, as the Depositary may designate, at the
Corporation's expense and without charge to the holder.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Depositary will distribute cash dividends or other cash distributions
received in respect of the deposited shares of Preferred Stock, including any
cash received upon redemption of any shares of Preferred Stock, to the record
holders of Depositary Receipts relating to such Preferred Stock in such amounts
as are, as nearly as practicable, in proportion to the numbers of Depositary
Shares evidenced by the Depositary Receipts held by such holders.
In the event of a distribution other than in cash on the deposited shares
of Preferred Stock, the Depositary will distribute property received by it to
the record holders of Depositary Receipts in such amounts as are, as nearly as
practicable, in proportion to the numbers of such Depositary Shares evidenced by
the Depositary Receipts held by such holders, in any manner that the Depositary
and the Corporation may deem equitable and practicable for accomplishing such
distribution. If the Depositary, after consultation with the Corporation,
determines that such distribution cannot be made proportionately or that it is
otherwise not feasible to make such distribution, it may, with the approval of
the Corporation, adopt such method as it deems equitable and practicable for the
purpose of effecting such distribution, including the public or private sale of
the property received. The Depositary will distribute or make available for
distribution the net proceeds of any such sale to the holders entitled thereto.
REDEMPTION OF PREFERRED STOCK
A series of Preferred Stock may be redeemable at any time, in whole or in
part, at the option of the Corporation or the holder thereof, as set forth in
the Applicable Prospectus Supplement relating to such series of Preferred Stock.
Whenever the Corporation elects to redeem shares of Preferred Stock held by the
Depositary, the Depositary will redeem as of the same redemption date the number
of Depositary Shares representing shares of Preferred Stock so redeemed,
provided the Corporation shall have paid in full to the Depositary the
redemption price of the Preferred Stock to be redeemed. In the event of such a
redemption at the option of the Corporation, the Depositary Shares will be
redeemed from the proceeds received by the Depositary resulting from the
redemption of such Preferred Stock held by the Depositary. If fewer than all the
outstanding Depositary Shares are to be redeemed, the Depositary Shares to be
redeemed will be selected by the Depositary by lot or pro rata or by any other
equitable method, in each case as may be determined by the Corporation.
In addition, although Depositary Shares, as such, are not redeemable at the
option of the holder of Depositary Receipts evidencing Depositary Shares, such
holder may, if so specified in the Applicable Prospectus Supplement relating to
an offering of Depositary Shares, surrender Depositary Receipts with written
instructions to the Depositary to instruct the Corporation to cause the
redemption of any specified number of whole or fractional shares of Preferred
Stock represented by the Depositary Shares evidenced by such Depositary
Receipts. The Corporation will thereafter cause the redemption of the Preferred
Stock at the redemption price utilizing the same procedures as those provided
for delivery of Preferred Stock to effect such redemption.
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In the event of redemption at the option of either the Corporation or the
holders of Depositary Receipts, the redemption price per Depositary Share will
be equal to the applicable fraction of the redemption price per share paid in
respect of the shares of the deposited Preferred Stock so redeemed, plus any
other money and other property, if any, represented by each such Depositary
Share, including an amount equal to any accrued and unpaid dividends thereon to
the date of such redemption.
Unless the Corporation defaults in the payment of the redemption price of
any Preferred Stock called for redemption by the Corporation or the holder
thereof and unless otherwise specified in the Certificate, (i) from and after
the redemption date, all dividends in respect of the shares of Preferred Stock
called for redemption will cease to accrue, the Depositary Shares so called for
redemption shall no longer be deemed outstanding, and, except as set forth in
clause (ii) below, all rights of holders of such Depositary Shares shall
terminate except for the right to receive the redemption price thereof, and (ii)
in the case of any redemption at the option of the Corporation or at the option
of the holder, any rights of conversion in respect of such shares of Preferred
Stock shall terminate on the close of business on the redemption date.
CONVERSION OF PREFERRED STOCK AT THE OPTION OF THE CORPORATION
The holders of Depositary Shares may be obligated at any time or upon
maturity of the Preferred Stock represented by the Depositary Shares to convert
the Depositary Shares for the number of whole shares of Capital Securities or
other debt securities of the Corporation (as the case may be, in accordance with
the terms of such series of Preferred Stock) in proportion to the number of
shares of Preferred Stock represented by the Depositary Shares. Whenever the
Corporation exercises its option to convert shares of Preferred Stock held by
the Depositary in whole or in part, the Depositary will convert as of the same
conversion date the number of Depositary Shares representing shares of Preferred
Stock so converted provided the Corporation shall have issued and deposited with
the Depositary the Capital Securities or other debt securities for the Preferred
Stock to be converted and paid in full to the Depositary any accrued and unpaid
dividends thereon. In the event of such conversion at the option of the
Corporation, the Depositary Shares will be converted at a conversion rate per
Depositary Share equal to the applicable fraction of the conversion rate per
share then in effect in respect of the shares of deposited Preferred Stock so
converted as such conversion rate may be adjusted from time to time as provided
in the Certificate of Amendment, plus any other money and other property, if
any, represented by each such Depositary Share, including all amounts paid by
the Corporation in respect of dividends which on the conversion date have
accrued on the shares of Preferred Stock to be so converted and have not
theretofore been paid. If fewer than all the outstanding Depositary Shares are
to be converted, the Depositary Shares to be converted will be selected by the
Depositary by lot or pro rata or by any other equitable method, in each case as
may be determined by the Corporation.
From and after the dated fixed for conversion, all dividends in respect of
the shares of Preferred Stock called for conversion shall cease to accrue to the
extent set forth in the Certificate, any rights of conversion or redemption at
the option of the holders of the Depositary Shares represented by Depositary
Receipts evidencing the shares of Preferred Stock called for conversion shall
terminate at the close of business on such conversion date to the extent set
forth in the Certificate, the Depositary Shares called for conversion will no
longer be deemed to be outstanding, and all rights of the holders of the
Depositary Receipts evidencing the Depositary Shares will cease, except the
right to receive the securities payable upon such conversion and any money and
other property, if any, to which the holders of such Depositary Shares were
entitled upon such conversion upon surrender to the Depositary of the Depositary
Receipts evidencing such Depositary Shares.
CONVERSION OF PREFERRED STOCK AT THE OPTION OF THE HOLDER
The Depositary Shares, as such, are not convertible at the option of the
holder thereof into Common Shares or any other securities or property of the
Corporation. Nevertheless, if so specified in the Applicable Prospectus
Supplement relating to an offering of Depositary Shares, any holder of
Depositary Shares representing any series of Preferred Stock which is
convertible at the option of the holder, upon surrender of the Depositary
Receipts therefor and delivery of instructions to the Depositary, may cause the
Corporation to convert any specified number of shares of Preferred Stock
represented by the Depositary Shares evidenced by such Depositary Receipts into
the number of whole Common Shares or whole number of shares of any other
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class or series of Capital Securities of the Corporation (as the case may be, in
accordance with the terms of such series of Preferred Stock) as are issuable, as
provided in the Certificate upon conversion of such shares of Preferred Stock at
the conversion rate (as such term is defined in the Certificate) then in effect,
as such conversion rate may be adjusted by the Corporation from time to time as
provided in the Certificate. In the event that a holder delivers Depositary
Receipts to the Depositary for conversion which in the aggregate are convertible
either into less than one whole Common Share or one whole share of any other
class or series of Capital Securities or into any number of whole Common Shares
or whole shares of any other class or series of Capital Securities plus an
excess constituting less than one whole Common Share or one whole share of any
other class or series of Capital Securities, the holder shall receive payment in
lieu of such fractional Common Shares or fractional shares of such Capital
Securities.
WITHDRAWAL OF PREFERRED STOCK
Any holder of Depositary Receipts may, upon surrender of such Depositary
Receipts therefor to the Depositary (unless the related Preferred Stock has
previously been called for redemption or conversion at the option of the
Corporation), receive the number of whole shares of the related series of
Preferred Stock and any money and other property represented by such Depositary
Receipts. Holders of Depositary Receipts making such withdrawals will be
entitled to receive whole shares of Preferred Stock on the basis set forth in
the Applicable Prospectus Supplement for such series of Preferred Stock, but
holders of such whole shares of Preferred Stock will not thereafter be entitled
to deposit such Preferred Stock under the Deposit Agreement or to receive
Depositary Shares therefor. If the Depositary Shares represented by the
Depositary Receipts surrendered by the holder in connection with such withdrawal
exceed the number of Depositary Shares that represent the number of whole shares
of Preferred Stock to be withdrawn, the Depositary will deliver to such holder
at the same time a new Depositary Receipt evidencing such excess number of
Depositary Shares.
VOTING THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of shares of the
Preferred Stock are entitled to vote, the Depositary will, as soon as
practicable thereafter, mail the information contained in such notice of meeting
to the record holders of the Depositary Receipts representing the Depositary
Shares relating to such Preferred Stock. Each record holder of such Depositary
Receipt on the record date (which will be the same date as the record date of
the Preferred Stock) will be entitled to instruct the Depositary as to the
exercise of the voting rights pertaining to the amount of Preferred Stock
represented by such holder's Depositary Shares. Upon the written request of a
record holder of such Depositary Receipt, the Depositary will, insofar as
practicable, vote or cause to be voted the amount of Preferred Stock represented
by such Depositary Shares evidenced by such Depositary Receipt in accordance
with such instructions, and the Corporation will agree to take all reasonable
actions which may be deemed necessary by the Depositary in order to enable the
Depositary to do so. The Depositary will abstain from voting shares of the
Preferred Stock to the extent it does not receive specific instructions from the
holder of Depositary Receipts evidencing the Depositary Shares representing such
Preferred Stock. The Depositary will not be required to exercise discretion in
voting any Preferred Stock represented by the Depositary Shares evidenced by
such Receipts.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the Deposit Agreement may at any time and from time to time be
amended by agreement between the Corporation and the Depositary in any respect
that they may deem necessary or desirable. However, any amendment which
materially and adversely alters the rights of the holders of Depositary Receipts
or which would be materially and adversely inconsistent with the rights granted
to the holders of the Preferred Stock will not be effective unless such
amendment has been approved by the holders of at least a majority of the
Depositary Shares then outstanding.
The Deposit Agreement automatically terminates if (i) all outstanding
Depositary Shares have been redeemed, converted, or withdrawn; (ii) each share
of Preferred Stock has been converted into Common Shares or shares of any other
class or series of Capital Securities; or (iii) there has been a final
distribution in
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respect of the Preferred Stock in connection with any liquidation, dissolution,
or winding up of the Corporation and such distribution has been distributed to
the holders of Depositary Receipts. The Deposit Agreement also may be terminated
by the Corporation at any time upon not less than 60 days prior written notice
to the Depositary, in which case the Depositary will, upon a date not later than
30 days after the date of such notice, deliver to the record holders, upon
surrender of the Depositary Receipts, such number of whole shares of Preferred
Stock as are represented by such Depositary Receipts. In the event that such
Depositary Receipts represent a fractional number of shares of Preferred Stock,
the Depositary will aggregate all interests in such fractional shares, and, with
the approval of the Corporation, adopt such method as it deems equitable and
practicable for the purpose of effecting the distribution of such interests,
including the public or private sale of the whole number of shares of Preferred
Stock so aggregated, or any part thereof, after which the Depositary will
distribute or make available for distribution to the holders of such Depositary
Receipts, as the case may be, the net proceeds of any such sale.
CHARGES OF DEPOSITARY AND OTHER TAXES AND CHARGES
The Corporation will pay all fees and expenses of the Depositary, and all
charges of the Depositary in connection with the initial deposit of the
Preferred Stock and the initial issuance of the Depositary Shares evidenced by
the Depositary Receipts, all withdrawals of shares of Preferred Stock by holders
of Depositary Shares, any redemption or conversion of the Preferred Stock at the
option of such holder and any redemption or conversion of the Preferred Stock at
the option of the Corporation. The Corporation will pay all transfer and other
taxes and governmental charges arising solely from the existence of the
depositary arrangements. Holders of Depositary Shares will pay such other
transfer and other taxes and governmental charges as are expressly provided in
the Deposit Agreement to be for their accounts.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Depositary may resign at any time by delivering to the Corporation
notice of its election to do so, and the Corporation may at any time remove the
Depositary by notice of such removal delivered to the Depositary, any such
resignation or removal to take effect upon the appointment of a successor
Depositary and its acceptance of such appointment. Such successor Depositary
must be appointed within 60 calendar days after delivery of the notice of
resignation or removal and must be a bank or trust company having its principal
office in the United States and having a combined capital and surplus of at
least $50 million.
MISCELLANEOUS
The Depositary will forward to the holders of Depositary Receipts all
notices, reports and proxy solicitation material from the Corporation which are
delivered to the Depositary in its capacity as holder of Preferred Stock and
which the Corporation is required to furnish to the holders of the Preferred
Stock.
Neither the Depositary nor the Corporation will be liable to any holder of
any Depositary Receipt if it is prevented or delayed by reason of any present or
future law or regulation of the United States or of any other governmental
authority, or by reason of any present or future provision of the Articles or
the Certificate or by any other circumstance beyond its control in performing
its obligations under the Deposit Agreement or by reason of any exercise of, or
failure to exercise, any discretion provided for in the Deposit Agreement. The
obligations and liabilities of the Corporation to holders of Depositary Receipts
and the Depositary under the Deposit Agreement or any Depositary Receipt will be
limited to performance in good faith of such duties as are specifically set
forth in the Deposit Agreement and the Corporation and the Depositary will not
be obligated to appear in, prosecute, or defend any action, suit, or other
proceeding in respect of deposited shares of Preferred Stock, Depositary Shares,
or Depositary Receipts that in its opinion may subject it to expense or
liability unless satisfactory indemnity is furnished. The Depositary and the
Corporation may rely upon the written advice of counsel and the written advice
of and information provided by any accountant, any holders of Depositary
Receipts and any other persons believed by it in good faith to be competent to
give such advice or information and upon documents believed by it to be genuine
and to have been signed or presented by the proper party or parties.
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In the event the Depositary shall receive conflicting claims, requests, or
instructions from any holders of Depositary Receipts, on the one hand, and the
Corporation, on the other hand, the Depositary shall be entitled to act on such
claims, requests, or instructions received from the Corporation.
DESCRIPTION OF COMMON SHARES
The description of certain provisions of the Common Shares set forth below
does not purport to be complete and is subject to and qualified in its entirety
by reference to the Articles and the Regulations (i.e. by-laws) of KeyCorp which
are exhibits to the Registration Statement.
GENERAL
The Corporation's Common Shares as of March 31, 2000 consisted of
1,400,000,000 authorized shares, with a par value of $1 each, of which there
were 437,589,594 shares outstanding (exclusive of treasury shares). The Common
Shares are traded on the New York Stock Exchange. The transfer agent and
registrar for the Common Shares is Harris Trust and Savings Bank.
Common Shares of the Corporation may be issued from time to time, in such
amounts and proportion and for such consideration as may be fixed by the Board
of Directors of the Corporation. No holder of Common Shares has any preemptive
or preferential rights to purchase or to subscribe for any shares of capital
stock or other securities which may be issued by the Corporation. The Common
Shares have no redemption or sinking fund provisions applicable thereto. Common
Shares do not have any conversion rights. The rights of holders of Common Shares
will be subject to, and may be adversely affected by, the rights of holders of
any Preferred Stock that may be issued in the future.
The Corporation may issue authorized but unissued Common Shares in
connection with several employee benefit and stock option and incentive plans
maintained by the Corporation or its subsidiaries, and the Corporation's
Automatic Dividend Reinvestment and Cash Payment Plan.
The outstanding Common Shares are fully paid and non-assessable and future
issuances of Common Shares, when fully paid for, will be non-assessable except
that in both cases Section 1701.95 of the Ohio General Corporation Law provides
that a shareholder who knowingly receives any dividend, distribution, or payment
made contrary to law or the articles of a corporation shall be liable to the
Corporation for the amount received by him that is in excess of the amount that
could have been paid or distributed without violation of law or the articles.
DIVIDENDS
When, as, and if dividends, payable in cash, stock, or other property, are
declared by the Board of Directors of the Corporation out of funds legally
available therefor, the holders of Common Shares are entitled to share equally,
share for share, in such dividends. The payment of dividends on the Common
Shares is subject to the prior payment of dividends on the Preferred Stock.
VOTING
Except as described under "Outstanding Preferred Stock" above, holders of
Common Shares have exclusive voting rights of the Corporation and are entitled
to one vote for each share on all matters voted upon by the shareholders.
Holders of Common Shares do not have the right to cumulate their voting power.
LIQUIDATION
In the event of any liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, the holders of the Common Shares
are entitled to receive, on a share for share basis, any assets or funds of the
Corporation which are distributable to its holders of Common Shares upon such
events, subject to the prior rights of creditors of the Corporation and holders
of the Corporation's outstanding Preferred Stock.
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SHAREHOLDER RIGHTS PLAN
In August 1989, the Corporation's Board of Directors declared a dividend
consisting of Rights to Purchase Common Shares ("Rights"). One of the Rights was
distributed with respect to each Common Share outstanding on September 12, 1989.
Rights have been and will continue to be issued in respect to all Common Shares
that are issued after September 12, 1989 but before the earlier of the
expiration or redemption of the Rights or the occurrence of a Triggering Event
(as defined below), or upon the exercise of any employee stock option granted
prior to a Triggering Event. The description and terms of the Rights are set
forth in the Restated Rights Agreement, dated as of May 15, 1997, between the
Corporation and KeyBank National Association, as Rights Agent, (the "Rights
Agreement", which is filed as an exhibit to the Registration Statement). The
Rights are designed to protect the interests of the Corporation and its
shareholders against coercive takeover tactics. The purpose of the Rights
Agreement is to encourage potential acquirors to negotiate with the
Corporation's Board of Directors prior to attempting a takeover and to give the
Board leverage in negotiating on behalf of all shareholders the terms of any
proposed takeover. The Rights Agreement may, but is not intended to, deter
takeover proposals.
Each of the Rights initially represents the right to purchase one Common
Share for $82.50 (the "Purchase Price"). The Rights will become exercisable
immediately upon the earlier of (1) the commencement of a tender offer or
exchange offer that would result in a person or group becoming an Acquiring
Person (as defined below) or (2) a public announcement that a person or group
has become the beneficial owner of 15% or more of the outstanding Common Shares
(such person or group being an "Acquiring Person").
Until the Rights become exercisable, they will trade with the Common
Shares, and any transfer of Common Shares will also constitute a transfer of the
associated Rights. When the Rights become exercisable, they will begin to trade
separate and apart from the Common Shares. At that time, separate certificates
representing the Rights will be mailed to holders.
When certain events occur ("Flip-in Events"), each of the Rights will
become the right to purchase one Common Share for the then par value per share
(now $1.00 per share), and the Rights beneficially owned by an Acquiring Person
will become void. The Flip-in Events are (1) the beneficial ownership by a
person or group of 15% or more of the outstanding Common Shares, unless the
Common Shares are acquired in a tender or exchange offer for all of the Common
Shares at a price and on other terms approved in advance by the Corporation's
Board of Directors, (2) certain self-dealing transactions between the
Corporation and an Acquiring Person and (3) a reclassification or
recapitalization of the Corporation that has the effect of increasing by more
than 1% the percentage of the Common Shares owned by an Acquiring Person.
If, after a person or group becomes an Acquiring Person, the Corporation is
acquired in a merger or other business combination or 50% or more of its assets
or earning power is sold, each of the Rights will "flip-over" and become the
right to purchase common shares of the acquiror (a "Flip-over Event"). The
holder (other than the Acquiring Person) of each Right would, upon the
occurrence of a Flip-over Event, be entitled to purchase for the then par value
of a Common Share (now $1.00) the number of common shares of the acquiror having
a market price equal to the market price of a Common Share.
The Purchase Price and/or the number of Common Shares (or common shares of
an acquiror) to be purchased upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution in the event the Corporation:
(1) declares a dividend on the Common Shares payable in Common Shares, (2)
subdivides or combines the outstanding Common Shares, (3) issues any shares
other than Common Shares in a reclassification of the Common Shares or (4) makes
a distribution to all holders of Common Shares, of debt securities, subscription
rights, warrants or other assets (except regular cash dividends). With certain
exceptions, no adjustment will be required until a cumulative adjustment of at
least 1% is required. The Corporation is not required to issue fractional shares
and, instead, may make a cash payment based on the market price of the Common
Shares.
The Corporation's Board of Directors may redeem the Rights for 1/2c each
(the "Redemption Price") at any time before a "Triggering Event" (which is
defined as the occurrence of a Flip-over Event or a Flip-in Event). However, the
Rights may not be redeemed while there exists an Acquiring Person unless (1)
Contin-
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uing Directors, as defined below, constitute a majority of the Board of
Directors and (2) a majority of the Continuing Directors approves the
redemption. "Continuing Directors" are defined as directors who were in office
prior to a person or group becoming an Acquiring Person or whose election to
office was recommended by a majority of the Continuing Directors and who are not
affiliated with the Acquiring Person. The Rights will expire on May 14, 2007,
unless they are redeemed before that date.
Until the Rights are exercised, the holders of the Rights, as such, will
have no rights as shareholders of the Corporation, including the right to vote
or receive dividends. Upon exercise of the Rights, the holder of the Common
Share received upon the exercise thereof will be entitled to all the rights of
any other holder of Common Shares.
The provisions of the Rights Agreement may be amended by the Corporation's
Board of Directors to cure any ambiguity or correct any defect or inconsistency
or, prior to a Triggering Event, to make other changes that the Board of
Directors deems to be desirable and not adverse to the interests of the
Corporation and its shareholders.
DESCRIPTION OF CAPITAL SECURITIES
The following description of Capital Securities is included in this
Prospectus because a Prospectus Supplement may provide that Capital Securities
will be issuable upon conversion at the option of the Corporation of a series of
Subordinated Debt Securities or Preferred Stock. Whenever Capital Securities are
issued upon conversion of Subordinated Debt Securities, the Corporation will be
obligated to deliver Capital Securities with a Market Value (as defined below)
equal to the principal amount of such Subordinated Debt Securities. In addition,
the Corporation will unconditionally undertake to sell the Capital Securities in
a sale (the "Secondary Offering") on behalf of any holders who elect to receive
cash for the Capital Securities in which event the Corporation will bear all
expenses of the Secondary Offering, including underwriting discounts and
commissions. There can be no assurance, however, that there will be a market for
the Capital Securities when issued or at any time thereafter. If the Corporation
fails to deliver any Capital Securities when required to be delivered, the
Trustee may institute judicial proceedings for (i) specific performance, (ii)
money damages equal to the principal amount of the Subordinated Debt Securities
for which Capital Securities were to be converted or (iii) any other proper
remedy. If the Corporation fails to effect the Secondary Offering, it will
deliver to the holders Capital Securities and not cash, upon exchange of the
Subordinated Debt Securities. In such event, the Corporation will have no
specifically enforceable obligation to effect the Secondary Offering, but will
not be relieved of any liability for money damages it would have for breach of
its obligation to effect a Secondary Offering of sufficient amounts of Capital
Securities. The "Market Value" of any Capital Securities means their sale price
in the Secondary Offering. If the Corporation does not effect the Secondary
Offering, the Market Value of such Capital Securities shall be their fair value
when exchanged as determined by three independent nationally recognized
investment banking firms selected by the Corporation.
Whenever Preferred Stock is convertible at the option of the Corporation
into Capital Securities, the Corporation will be obligated to deliver Capital
Securities in an amount either based upon a conversion price or with a required
conversion value. The conversion value will be determined by then market prices,
by an auction or bidding procedure or by such other method as set forth in the
Applicable Prospectus Supplement.
The staff of the Commission has advised that Rules 13e-4 and 14e-1 of the
Commission's rules and regulations relating to tender offers by issuers, as
currently in effect and interpreted, would be applicable to the conversion of
Capital Securities for Subordinated Debt Securities of any series and the
Secondary Offering. If, at the time of the conversion of Capital Securities for
Subordinated Debt Securities of any series and the Secondary Offering, Rule
13e-4 or Rule 14e-1 (or any successor rule or rules) applies to such
transactions, the Corporation will comply with such rule (or any successor rule
or rules) and will afford holders of such Subordinated Securities all rights and
will make all filings required by such rule (or successor rule or rules). Rule
13e-4 and Rule 14e-1 may also be deemed to apply to Preferred Stock that is
convertible at the option of the Corporation.
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The Capital Securities may consist of Common Shares or Preferred Stock. All
Capital Securities which will be issuable upon conversion of Subordinated Debt
Securities or Preferred Stock will, upon issuance, be duly authorized, validly
issued and, if applicable, fully paid and non-assessable.
Any shares of Preferred Stock to be so issued will have such designations,
preferences, dividend, and other rights, qualifications, limitations, and
restrictions as may be determined by the Corporation and approved by the Board
of Directors.
DESCRIPTION OF SECURITIES WARRANTS
The Corporation may issue, separately or together with any Debt Securities,
Preferred Stock, Common Shares, or Depositary Shares, Securities Warrants for
the purchase of other Debt Securities, Preferred Stock, Common Shares, or
Depositary Shares (collectively, the "Underlying Securities"). The Securities
Warrants will be issued under a warrant agreement (a "Securities Warrant
Agreement") to be entered into between the Corporation and a bank or trust
company, as warrant agent (the "Securities Warrant Agent"), all as set forth in
the Applicable Prospectus Supplement relating to the particular issue of
Securities Warrants. The form of Securities Warrant Agreement, including the
form of certificates representing the Securities Warrants ("Securities Warrant
Certificates"), reflecting the alternative provisions to be included in the
Securities Warrant Agreements that will be entered into with respect to
particular offerings of Securities Warrants, is filed as an exhibit to the
Registration Statement. The following summaries of certain provisions of the
Securities Warrant Agreement and the Securities Warrant Certificates, which are
filed as exhibits to the Registration Statement, do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all of
the provisions of the Securities Warrant Agreement and the Securities Warrant
Certificates, respectively, including the definitions therein of certain terms.
Wherever defined terms of the Securities Warrant Agreement are referred to, it
is intended that such defined terms shall be incorporated herein by reference.
GENERAL
The Applicable Prospectus Supplement relating to the particular issue of
Securities Warrants offered thereby will describe the terms of the offered
Securities Warrants, the Securities Warrant Agreement relating to the offered
Securities Warrants, and the Securities Warrant Certificates representing the
offered Securities Warrants, including the following where applicable: (1) if
the Securities Warrants are offered for separate consideration, the offering
price and the currency for which Securities Warrants may be purchased; (2) the
title, aggregate principal amount, currency, and terms of the series of Debt
Securities purchasable upon exercise of the Debt Warrants and the price at which
such Debt Securities may be purchased upon such exercise; (3) the title, number
of shares, stated value, and terms (including, without limitation, liquidation,
dividend, conversion, redemption, and voting rights) of the series of Preferred
Stock purchasable upon exercise of Preferred Stock Warrants and the price at
which such number of shares of Preferred Stock of such series may be purchased
upon such exercise; (4) the number of Common Shares purchasable upon the
exercise of Common Share Warrants and the price at which such number of Common
Shares may be purchased upon such exercise; (5) the number of Depositary Shares
purchasable upon the exercise of Depositary Share Warrants, the terms of the
Preferred Stock which the Depositary Shares represent and the price at which
such number of Depositary Shares may be purchased upon such exercise; (6) the
date, if any, on and after which the offered Securities Warrants and the related
Debt Securities, Preferred Stock, Common Shares and/or Depositary Shares will be
separately transferable; (7) the time or times at which, or period or periods
during which, the offered Securities Warrants may be exercised and the final
date on which the offered Securities Warrants may be exercised (the "Expiration
Date"); (8) a discussion of the specific United States Federal income tax,
accounting, and other considerations applicable to the Securities Warrants; (9)
the location where the offered Securities Warrants represented by the Securities
Warrant Certificates may be transferred and registered; and (10) any other terms
of the offered Securities Warrants.
Securities Warrant Certificates will be exchangeable on the terms specified
in the Applicable Prospectus Supplement for new Securities Warrant Certificates
of different denominations evidencing the same aggregate
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number of Warrants of the same title, and may be transferred in whole or in part
on the terms specified in the Applicable Prospectus Supplement.
Prospective purchasers of Securities Warrants should be aware that special
U.S. federal income tax, accounting and other considerations may be applicable
to instruments such as Securities Warrants. The Applicable Prospectus Supplement
relating to any issue of Securities Warrants will describe such considerations.
EXERCISE OF WARRANTS
Each Securities Warrant will entitle the holder to purchase the principal
amount of or number of Underlying Securities provided for therein, at such
exercise price as shall in each case be set forth in, or be determinable from,
the Applicable Prospectus Supplement relating to the Securities Warrants, by
payment of such exercise price (the "Warrant Price") in full in the currency and
in the manner specified in the Applicable Prospectus Supplement. Securities
Warrants may be exercised at any time at or before 5:00 P.M., New York City time
on the Expiration Date (or such later date to which such Expiration Date may be
extended by the Corporation), and unexercised Securities Warrants will become
void at such time. Securities Warrants may be exercised at the corporate trust
office of the Securities Warrant Agent or any other office indicated in the
Applicable Prospectus Supplement relating to the Securities Warrants.
Upon receipt at the corporate trust office of the Securities Warrant Agent
or any other office indicated in the Applicable Prospectus Supplement of (i)
payment of the Warrant Price and (ii) the form of election to purchase set forth
on the reverse side of the Securities Warrant Certificate properly completed and
duly executed, the Corporation will, as soon as practicable, issue the
Underlying Securities purchasable upon such exercise. If fewer than all of the
Securities Warrants represented by such Securities Warrant Certificate are
exercised, a new Securities Warrant Certificate will be issued for the remaining
number of unexercised Securities Warrants.
MODIFICATIONS
The Warrant Agreement may be supplemented or amended by the Corporation and
the Warrant Agent from time to time, without the approval of any Holder (as
defined in the Warrant Agreement), in order to cure any ambiguity, to correct or
supplement any defective or inconsistent provision contained therein, or to make
any other provision in regard to matters or questions arising thereunder that
the Corporation and the Warrant Agent may deem necessary or desirable and which
will not adversely affect the interests of the Holders.
The Corporation and the Warrant Agent may also modify or amend the Warrant
Agreement and the Securities Warrant Certificates with the consent of the
Holders of not fewer than a majority in number of the then outstanding
unexercised Warrants affected by such modification or amendment, for any
purpose, provided that no such modification or amendment that shortens the
period of time during which the Warrants may be exercised, or otherwise
materially and adversely affects the exercise rights of the Holders or reduces
the percentage of Holders of outstanding Warrants the consent of which is
required for modification or amendment of the Warrant Agreement or the Warrants
may be made without the consent of each Holder affected thereby.
COMMON SHARE WARRANT ADJUSTMENTS
The terms and conditions on which the Warrant Price of and/or the number of
Common Shares covered by a Warrant to purchase Common Shares (a "Common Share
Warrant") are subject to adjustment will be set forth in the Warrant Agreement
and the Applicable Prospectus Supplement. Such terms will include provisions for
adjusting the Warrant Price and/or the number of Common Shares covered by such
Common Share Warrant; the events requiring such adjustment; the events upon
which the Corporation may, in lieu of making such adjustment, make proper
provision so that the holder of such Common Share Warrant, upon exercise
thereof, would be treated as if such holder had exercised such Common Share
Warrant prior to the
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occurrence of such events; and provisions affecting exercise in the event of
certain events affecting the Common Shares.
MERGER, CONSOLIDATION, SALE, OR OTHER DISPOSITIONS
If at any time there shall be a merger, consolidation, sale, conveyance,
transfer, lease, or other disposition of substantially all of the assets of the
Corporation, then the successor or assuming corporation shall succeed to and be
substituted for the Corporation in, and the Corporation will be relieved of any
further obligation under, the Warrant Agreement or the Warrants.
ENFORCEABILITY OF RIGHTS OF HOLDERS
The Warrant Agent will act solely as an agent of the Corporation in acting
under the Warrant Agreement and in connection with any Warrant Certificate. The
Warrant Agent shall have no duty or responsibility in case of any default by the
Corporation in the performance of its covenants or agreements contained in the
Warrant Agreement or in any Warrant Certificate. Each Holder may, without the
consent of the Warrant Agent, enforce by appropriate legal action, on its own
behalf, the Holder's right to exercise its Warrants in the manner provided in
the Warrant Agreement and its Warrant Certificate.
NO RIGHTS AS HOLDERS OF UNDERLYING SECURITIES
Prior to the exercise of any Securities Warrants to purchase Underlying
Securities, holders of such Securities Warrants will not have any of the rights
of holders of the Underlying Securities purchasable upon such exercise,
including, without limitation, the right to receive the payment of principal of,
or premium on, if any, or interest, if any, dividends or distributions of any
kind, if any, on Underlying Securities, the right to enforce any of the
covenants in the Indentures, if applicable, or the right to exercise any voting
rights.
PLAN OF DISTRIBUTION
The Corporation may sell Securities to one or more underwriters for public
or private offering and sale by them or may sell Securities to investors
directly or through agents (which agents may be affiliates of the Corporation)
that solicit or receive offers on behalf of the Corporation or through dealers
or through a combination of any such methods of sale.
The Applicable Prospectus Supplement will set forth the terms of the
offering of the particular series of Securities to which such Applicable
Prospectus Supplement relates, including (i) the name or names of any
underwriters or agents with whom the Corporation has entered into arrangements
with respect to the sale of such series of Securities; (ii) the initial public
offering or purchase price of such series of Securities; (iii) any underwriting
discounts, commissions, and other items constituting underwriters' compensation
from the Corporation and any other discounts, concessions, or commissions
allowed or reallowed or paid by any underwriters to other dealers; (iv) any
commissions paid to any agents; (v) the net proceeds to the Corporation; and
(vi) the securities exchanges, if any, on which such series of Securities will
be listed.
Unless otherwise set forth in the Applicable Prospectus Supplement relating
to a particular series of Securities, the obligations of the underwriters to
purchase such series of Securities will be subject to certain conditions
precedent and each of the underwriters with respect to such series of Securities
will be obligated to purchase all of the Securities of such series allocated to
it if any such Securities are purchased. Any initial public offering price and
any discounts or concessions allowed or reallowed or paid to dealers may be
changed from time to time.
The Securities may be offered and sold by the Corporation directly or
through agents designated by the Corporation from time to time. Unless otherwise
indicated in the Applicable Prospectus Supplement, each such agent will be
acting on a reasonable efforts basis for the period of its appointment. Any
agent participating in the distribution of Securities may be deemed to be an
"underwriter," as that term is defined in the Securities Act, of the Securities
so offered and sold. The Securities also may be sold to dealers at the
applicable price to the public set forth in the Applicable Prospectus Supplement
relating to a particular series
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of Securities who later resell to investors. Such dealers may be deemed to be
"underwriters" within the meaning of the Securities Act.
Underwriters, dealers, and agents may be entitled, under agreements entered
into with the Corporation, to indemnification against and contribution toward
certain civil liabilities, including liabilities under the Securities Act.
The Corporation may also issue contracts under which the counterparty may
be required to purchase Debt Securities, Preferred Stock, or Depositary Shares.
Such contracts would be issued with Debt Securities, Preferred Stock, or
Depositary Shares and/or Securities Warrants in amounts, at prices and on terms
to be set forth in a Prospectus Supplement.
If so indicated in the Applicable Prospectus Supplement, the Corporation
will authorize underwriters, dealers, or agents to solicit offers by certain
institutions to purchase Securities of a series from the Corporation at the
public offering price set forth in the Prospectus Supplement pursuant to delayed
delivery contracts (each, a "Contract") providing for payment and delivery at a
future date. Each Contract will be subject only to those conditions set forth in
the Applicable Prospectus Supplement and the Applicable Prospectus Supplement
will set forth the commission payable for solicitation of such offers.
Any of the underwriters, dealers, and agents of the Corporation and their
associates may be customers of, engage in transactions with, and perform
services for the Corporation in the ordinary course of business.
The place and time of delivery of the Securities will be set forth in the
Applicable Prospectus Supplement.
LEGAL OPINIONS
The validity of the Securities offered hereby will be passed upon for the
Corporation, as shall be indicated in the Applicable Prospectus Supplement, by
either the General Counsel or a Associate General Counsel to the Corporation or
by Thompson Hine & Flory LLP, 3900 Key Tower, 127 Public Square, Cleveland, Ohio
44114-1216, and for the Underwriters by Shearman & Sterling, 599 Lexington
Avenue, New York, New York 10022. Shearman & Sterling will rely as to all
matters of Ohio law on the opinion rendered on behalf of the Corporation. The
General Counsel or a Associate General Counsel to the Corporation or Thompson
Hine & Flory LLP, as the case may be, will rely as to all matters of New York
law on the opinion of Shearman & Sterling. The aggregate number of shares owned
by attorneys at Thompson Hine & Flory LLP or the General Counsel or Associate
General Counsel of the Corporation rendering the opinion referred to above on
behalf of the Corporation will be set forth in the Applicable Prospectus
Supplement.
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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, 1999, as set forth in their report, which is incorporated by
reference in this Prospectus and elsewhere in the Registration Statement. Our
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, 2000 and March 31, 1999,
incorporated by reference in this Prospectus, Ernst & Young LLP have reported
that they have applied limited procedures in accordance with professional
standards for a review of such information. However, their separate report,
included in KeyCorp's Quarterly Report on Form 10-Q for the quarter ended March
31, 2000, and incorporated herein by reference, states that they did not audit
and they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted considering the limited nature of the review procedures applied.
The independent auditors are not subject to the liability provisions of Section
11 of the Securities Act for their report on the unaudited interim financial
information because that report is not a "report" or a "part" of the
Registration Statement prepared or certified by the auditors within the meaning
of Sections 7 and 11 of the Securities Act.
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KEYCORP
$561,500,000
SENIOR MEDIUM-TERM NOTES, SERIES E
SUBORDINATED MEDIUM-TERM NOTES, SERIES D
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
[KEYCORP LOGO]
SALOMON SMITH BARNEY
CHASE SECURITIES INC.
CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
PROSPECTUS SUPPLEMENT
DATED JUNE 30, 2000