Exhibit 10.2
September 1, 2004
Mr. Stephen E. Yates
9226 Pony Express
San Antonio, TX 78255
Dear Steve:
On behalf of KeyCorp, I am delighted to extend you our offer of employment as
the Executive Vice President and Chief Information Officer reporting directly to
me. In this role you will be a member of the Company's Management Committee as
well as the Executive Council.
Subject to the approval of the Compensation Committee (this letter has already
been approved by the Chair of the Compensation Committee), I am pleased to
extend to you the following employment terms, effective with your start date on
September 2, 2004:
- BASE SALARY: $500,000 per annum, payable semi-monthly. Please note
that we are transitioning to a bi-weekly payroll cycle beginning in
2005.
- CASH INCENTIVE TARGET: Your annual incentive target award is
$500,000. Your actual award will be funded based 50% on overall
KeyCorp corporate performance and 50% on the performance of Key
Technology Services (as it may be renamed in the future). Your
individual award will be based on the evaluation of your
contribution and performance by the Compensation Committee, the
Chief Executive Officer and the Chief Administrative Officer.
Depending on the performance of Key Technology and overall KeyCorp
corporate performance, these awards can range from 0% to 300% of
target. Our annual incentives are paid in mid-March. For 2004, your
target will be prorated based on your start date.
Any incentive compensation that is payable to you over $100,000,
will be subject to the terms and conditions of KeyCorp's Automatic
Deferral Plan, then in place. A copy of that Plan has been sent to
you.
- LONG TERM: You will be a participant in the Company's Long Term
Incentive Compensation (LTIC) plan. Your target award will be
$800,000, which is delivered 50% in Performance-Based Restricted
Stock and 50% as Stock Options. The Restricted Stock portion of the
award is delivered in February and the Stock Option portion is
granted in July. The Performance-Based Restricted Stock will vest,
depending on KeyCorp's performance, from 50% to 150% of the award,
with performance below the 50% threshold resulting in a total
forfeiture. Our current stock option value is based at $7.70 per
share. Stock Option shares will vest one-third per year (fully
vested in three years) from the date of grant.
As you and I have discussed, the timeframe that you expect to be at
Key is 3-5 years. In the event that you leave the Company either (a)
prior to the end of the fifth year of your employment and with the
consent of the Compensation Committee based upon you having achieved
your Employment Objectives (as hereinafter defined), or (b) after
your fifth year of employment, any Performance-Based Restricted
Stock awards that have been granted to you, which are not fully
vested, will continue to be in effect as if you were an active
employee through the balance of the vesting period. Additionally, if
either of the events specified in (a) or (b) of the preceding
sentence occurs, all stock options that have been granted to you
will vest, to the extent not already vested. All options that vest
will be exercisable for three years following your employment
termination date, but in no event for a period beyond the options'
term. You will have achieved your "Employment Objectives" at such
time as KeyCorp's Compensation Committee, upon the recommendation of
KeyCorp's CEO, determines that Key Technology Services (as it may be
renamed in the future) has been transformed into a top tier, high
performing, cost effective technology and information organization
that closely supports Key's lines of business and that strong
successor management is in place and ready to assume leadership of
Key Technology Services (as it may be renamed in the future). The
determination of the Compensation Committee and KeyCorp's CEO as to
whether you have achieved your Employment Objectives shall be final
and conclusive. You will not ask KeyCorp's Compensation Committee or
CEO to determine that you have achieved your Employment Objectives
prior to the end of the third year of your employment unless you
believe that family considerations warrant you making the request.
All Performance-Based Restricted Stock and Stock Option awards are
discretionary, subject to the approval of the Compensation Committee
of KeyCorp's Board of Directors and are presently granted in
accordance with KeyCorp's 2004 Equity Compensation Plan, which
includes a so-call claw-back provision for harmful activity. Please
note that the Restricted Stock award is contingent upon your
acceptance of the terms and conditions of the KeyCorp Award of
Restricted Stock Agreement, which includes restrictions relating to
non-public information, intellectual property and non-hire and
non-contact (respectively) of Key's employees and customers.
- SPECIAL SIGNING BONUS: You will receive a special signing bonus,
which is comprised of two components. First, effective on the date
the Compensation Committee approves this letter, you will be granted
a signing bonus of $400,000. This award will be denominated in
phantom common shares and will vest 1/3 upon approval of this letter
by the Compensation Committee, 1/3 on the first anniversary of the
date of this letter, and the final 1/3 on the second anniversary of
the date of this letter. Unless you have elected to defer payment,
the phantom shares will be payable to you in KeyCorp Common Shares
upon vesting; provided, further, concurrent with this letter you
have elected to defer payment under KeyCorp's Voluntary Deferral
Plan of the initial 1/3 installment.. Second, you will also receive
a special Stock Option grant of 100,000 shares. These options will
vest 1/3 each on the same dates as the phantom common shares above.
The price of these options will be based on the price of KeyCorp
stock (the average of the high and the low) on the date the
Compensation Committee approves this letter.
In addition, you will be eligible for the following:
CHANGE OF CONTROL AGREEMENT: You will be provided with a Change of Control
Agreement of the type generally given to other KeyCorp senior officers, a draft
copy you have already received.
EXECUTIVE PERQUISITES: You will be eligible for the following:
- Membership in one luncheon club in Cleveland. The Company will pay
any initiation fees (grossed-up for any taxes) and your monthly dues
and any assessments. Reimbursement for monthly expenses will
automatically be made through payroll and will be grossed-up for tax
purposes.
- Initiation fees in a personal country club, if you desire, which
shall be grossed-up for tax purposes. Any subsequent expenses (i.e.,
monthly dues, assessments, personal expenses, annual fees) will be
paid by you. Business related expenses, of course, may be reimbursed
through our expense reimbursement process.
RELOCATION
A copy of your relocation summary has already been provided to you. All of the
services will be grossed-up for Federal, state, local and FICA taxes. If you
voluntarily terminate your employment with KeyCorp within one year of your hire
date, you will be responsible for repayment of 100% of the total relocation
expense incurred by KeyCorp. If you voluntarily terminate after one-year, but
within two years of your hire date, you will be responsible for
repayment of one-half of the total relocation expense. Our relocation firm will
be in touch with you shortly to discuss relocation arrangements with you. We
agree that the move will be an "executive level" move - which would include such
services as crating artwork and antiques, transporting automobiles and
motorcycles, and otherwise trying to assure that all property is moved in a
careful way, designed to avoid damage.
We also agree that as part of your relocation we will make the following
exceptions. First, we will provide temporary living arrangements in Cleveland
for a maximum of one year, if required. Second, during that year, we will
provide recurring travel to home city or comparable location. Third, we will
pay, up to a maximum of $100,000, for you to relocate, following the conclusion
of your employment with KeyCorp, to a location designated by you.
As an employee you are also eligible for the following company benefits:
- Participation in the 401(k) and cash balance and the excess 401(k)
and cash balance plans in accordance with plan documents. In the
event that you leave the Company prior to the end of the fifth year
of your employment with the consent of the Compensation Committee
based upon you having achieved your Employment Objectives, the
Company will pay to you in a lump sum (within 30 days after your
employment termination date) an amount equal to the accrued balance
credited to your account under the cash balance and excess cash
balance pension plans to the extent such accrued balance would be
forfeited upon your employment termination date because you had not
achieved five years of vesting service pursuant to the plans. In the
event that you leave the Company prior to the end of the third year
of your employment with the consent of the Compensation Committee
based upon you having achieved your Employment Objectives, the
Company will pay to you in a lump sum (within 30 days of your
employment termination date) an amount equal to the unvested Company
match under the excess 401(k) plan (together with the earnings
thereon) to the extent such unvested Company match would be
forfeited upon your employment termination date because you had not
achieved three years of vesting service pursuant to the plan.
- Enrollment in Medical, Dental, Life Insurance and other insurance
coverage according to company policy and coverage limits (coverage
begins the first of the month following employment).
- In accordance with policy, beginning in 2005, you will be eligible
for 25 days of paid time off (PTO). Your PTO allowance for 2004 will
be prorated based on your start date.
- These and additional benefits are outlined in the New Employee
Resources Guide, which you have received. (The Company reserves the
right to revise benefits at any time to comply with regulatory
changes and/or changes in Company policies, but at no time during
your employment will the total value of these benefits be reduced
unless the total value of these benefits is similarly reduced for
other senior executives; provided, however, if you believe that the
aggregate value of all benefits has been reduced by more than $5,000
in value on an annual basis and you so notify KeyCorp in writing
(through the head of Human Resources), KeyCorp will determine the
value of the annual reduction and pay you in cash (grossed up for
federal, state, local and FICA taxes) any amount of reduction in
excess of $5,000.)
You will be KeyCorp's representative to BITS, which is part of the Financial
Services Roundtable. You currently are a member of the Board of Directors of
Applied Industrial Technologies. We generally permit our senior executives to be
a member of one corporate board. Of course, we reserve the right to require you
to resign from any Board if we determine that there is a conflict or potential
conflict of interest with KeyCorp or it is otherwise undesirable, in our
opinion, for you to continue the Board membership.
This employment offer and the compensation payable to you as set forth above are
contingent upon satisfactory completion of the following in KeyCorp's judgment:
- Application for employment and related documents.
- Review of references, a pre-employment drug screen and a background
investigation.
- A review for FDIC prohibited offenses which includes
fingerprints taken on or about the first day of
employment and which can take up to six months to
process.
- KeyCorp reserves the right to withdraw its offer of
employment or to terminate your employment (if you
become employed at KeyCorp) if the results of the
applicant review are unsatisfactory in KeyCorp's
judgment.
Steve, we are very excited about the prospect of you joining Key and look
forward to a mutually beneficial and rewarding relationship.
Sincerely,
Thomas C. Stevens
AGREED TO: ____________________________
Stephen E. Yates
Dated: ________________________________