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SCHEDULE 14A
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EXCHANGE ACT OF 1934
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KeyCorp Logo
127 PUBLIC SQUARE
CLEVELAND, OHIO 44114
March 30, 1998
DEAR SHAREHOLDER:
You are cordially invited to attend the 1998 Annual Meeting of Shareholders
of KeyCorp which will be held at the Waetjen Auditorium, Music and Communication
Center, Cleveland State University, 2001 Euclid Avenue, Cleveland, Ohio 44115,
on Thursday, May 7, 1998, at 8:30 a.m., local time.
All holders of record of KeyCorp Common Shares as of March 16, 1998, are
entitled to vote at the 1998 Annual Meeting.
As described in the accompanying Notice and Proxy Statement, you will be
asked to elect six directors for three-year terms expiring in 2001, to consider
a proposal to amend KeyCorp's Articles of Incorporation, to consider a proposal
submitted by a KeyCorp shareholder and to ratify the appointment of Ernst &
Young LLP as independent auditors for 1998.
KeyCorp's Annual Report for the year ended December 31, 1997, is included
herein.
Your proxy card is enclosed. Please indicate your voting instructions and
sign, date, and mail this proxy card promptly in the return envelope.
Sincerely,
/s/ Robert W. Gillespie
ROBERT W. GILLESPIE
Chairman of the Board
and Chief Executive Officer
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KeyCorp Logo
127 PUBLIC SQUARE
CLEVELAND, OHIO 44114
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 7, 1998
The 1998 Annual Meeting of Shareholders of KeyCorp will be held at the
Waetjen Auditorium, Music and Communication Center, Cleveland State University,
2001 Euclid Avenue, Cleveland, Ohio 44115, on Thursday, May 7, 1998, at 8:30
a.m., local time, for the following purposes:
1. To elect six directors to serve for terms expiring in 2001;
2. To amend the Articles of Incorporation of KeyCorp to increase the
authorized number of Common Shares and to modify the description of
Preferred Stock;
3. To consider and act upon a shareholder proposal requesting
necessary steps to cause annual election of all directors;
4. To ratify the appointment by the Board of Directors of Ernst &
Young LLP as independent auditors for KeyCorp for the fiscal year ending
December 31, 1998; and
5. To transact such other business as may properly come before the
meeting or any postponement or adjournment thereof.
Only holders of KeyCorp Common Shares of record as of the close of business
on March 16, 1998, have the right to receive notice of and to vote at the Annual
Meeting and any postponement or adjournment thereof.
By Order of the Board of Directors
/s/ Thomas C. Stevens
THOMAS C. STEVENS
Secretary
March 30, 1998
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YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, DATE, SIGN, AND MAIL THE ENCLOSED
PROXY CARD AT YOUR EARLIEST CONVENIENCE. PLEASE USE THE RETURN ENVELOPE ENCLOSED
WITH THE PROXY CARD FOR THAT PURPOSE.
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TABLE OF CONTENTS
PAGE
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NOTICE OF ANNUAL MEETING
PROXY STATEMENT............................................. 1
ISSUE ONE -- Election of Directors.......................... 1
Nominees for Terms Expiring in 2001....................... 2
Continuing Directors Whose Terms Expire in 1999........... 4
Continuing Directors Whose Terms Expire in 2000........... 6
The Board of Directors and Its Committees................. 8
ISSUE TWO -- Proposal to Amend Articles of Incorporation to
Increase the Authorized Number of Common Shares and to
Modify Description of Preferred Stock..................... 11
ISSUE THREE -- Shareholder Proposal Requesting Necessary
Steps to Cause Annual Election of All Directors........... 12
ISSUE FOUR -- Independent Auditors.......................... 14
Executive Officers.......................................... 14
Compensation of Executive Officers.......................... 17
Section 16(a) Beneficial Ownership Reporting Compliance..... 21
Employment and Change of Control Agreements................. 22
Compensation and Organization Committee Report on Executive
Compensation.............................................. 27
KeyCorp Stock Price Performance............................. 32
Share Ownership and Phantom Stock Units..................... 33
1999 Shareholder Proposals.................................. 34
General..................................................... 34
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KeyCorp Logo
127 PUBLIC SQUARE
CLEVELAND, OHIO 44114
PROXY STATEMENT
This Proxy Statement is furnished commencing on or about March 30, 1998, in
connection with the solicitation on behalf of the Board of Directors of KeyCorp
of proxies to be voted at the 1998 Annual Meeting of Shareholders on May 7,
1998, and at all postponements and adjournments thereof. All holders of record
of KeyCorp Common Shares at the close of business on March 16, 1998, are
entitled to vote. On that date there were 438,778,932 KeyCorp Common Shares
outstanding and entitled to vote at the meeting, and each such share is entitled
to one vote on each matter to be considered. At the meeting, a majority of the
outstanding KeyCorp Common Shares shall constitute a quorum.
ISSUE ONE
ELECTION OF DIRECTORS
In accordance with KeyCorp's current Regulations, the Board of Directors of
KeyCorp (also sometimes referred to herein as the "Board") has established the
size of the Board at 19 members, divided into one class of seven members and two
classes of six members each. The terms of these classes as of the 1998 Annual
Meeting will expire in 1999, 2000, and 2001, respectively. Six nominees for
directors for terms expiring in 2001 are listed below. All properly executed and
returned proxy cards will be voted for these nominees unless contrary
specifications are properly made in writing directly on the proxy card in the
space indicated for that purpose, in which case the proxy will be voted or
withheld in accordance with such specifications. The nominees are all current
members of the Board. Mr. Meyer is currently a director in the class of
directors whose terms expire in 2000. He is standing for election at this time
for a term expiring in 2001 in order to rebalance the classes of directors. Upon
his election at the 1998 Annual Meeting to the class of 2001, he will cease to
be a member of the class whose terms expire in 2000. Should any nominee become
unable to accept nomination or election, the proxy cards will be voted for the
election of such person, if any, as shall be recommended by the Board, or for
holding a vacancy to be filled by the Board at a later date. The Board has no
reason to believe that the persons listed as nominees will be unable to serve.
At the election of directors, the properly nominated candidates receiving the
greatest number of votes shall be elected.
Pursuant to rules promulgated under the Securities Exchange Act of 1934
(the "Exchange Act"), the following information lists, as of January 15, 1998,
as to nominees for director and directors whose terms of office will continue
after the 1998 Annual Meeting, the principal occupation or employment, age, the
year in which each first became a director of KeyCorp, and directorships in
registered investment companies or companies having securities which are
registered pursuant to, or which are subject to certain provisions of, the
Exchange Act. KeyCorp was formed as a result of the merger on March 1, 1994 (the
"Merger") of the former
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KeyCorp, a New York corporation ("Old Key"), into Society Corporation, an Ohio
corporation ("Society"), whereupon Society changed its name to KeyCorp. In the
case of nominees or continuing directors who were directors of Old Key, the year
in which such individual became a director of Old Key is also included in the
following information. Except as otherwise indicated, each nominee or continuing
director has had the same principal occupation or employment during the past
five years.
NOMINEES FOR TERMS EXPIRING IN 2001
CECIL D. ANDRUS
Since 1995, Chairman, Andrus Center for Public
CECIL D. ANDRUS PHOTO Policy-Boise State University (non-profit educational
center). Previously, Governor, State of Idaho. Age 66.
KeyCorp director since 1996. Director, Albertson's,
Inc. and Coeur d'Alene Mines Corp.
THOMAS A. COMMES
President and Chief Operating Officer, The
THOMAS A. COMMES PHOTO Sherwin-Williams Company (paints and painting supplies
manufacture and distribution). Age 55. KeyCorp director
since 1987. Director, The Sherwin-Williams Company.
STEPHEN R. HARDIS
Since 1995, Chairman and Chief Executive Officer, Eaton
STEPHEN R. HARDIS PHOTO Corporation (diversified manufacturing company).
Previously, Vice Chairman and Chief Financial and
Administrative Officer, Eaton Corporation. Age 62.
KeyCorp director since 1985. Director, Eaton
Corporation, Lexmark International, Inc., Nordson Cor-
poration, and Progressive Corporation.
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DOUGLAS J. MCGREGOR
Since 1997, Chairman and Chief Executive Officer, M.A.
DOUGLAS J. McGREGOR Hanna Company (specialty chemicals). Previously,
PHOTO President and Chief Operating Officer, M.A. Hanna
Company. Age 57. KeyCorp director since 1995. Director,
M.A. Hanna Company and Vulcan Materials Company.
HENRY L. MEYER III
Since 1997, President and Chief Operating Officer,
HENRY L. MEYER III KeyCorp. Previously, Vice Chairman of the Board and
PHOTO Chief Operating Officer (1996-1997), KeyCorp; Senior
Executive Vice President and Chief Operating Officer
(1995-1996), KeyCorp; Senior Executive Vice President
and Chief Banking Officer (1994-1995), KeyCorp; Vice
Chairman of the Board and Chief Banking Officer,
Society. Age 48. KeyCorp director since 1996. Director,
Lincoln Electric Company.
PETER G. TEN EYCK, II
President, Indian Ladder Farms (commercial orchard).
PETER G. TEN EYCK, II Age 59. KeyCorp director since 1994 (Old Key director
PHOTO since 1979).
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CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 1999
ALBERT C. BERSTICKER
Since 1996, Chairman and Chief Executive Officer, Ferro
ALBERT C. BERSTICKER Corporation (industrial specialty chemicals).
PHOTO Previously, President and Chief Executive Officer,
Ferro Corporation. Age 63. KeyCorp director since 1991.
Director, Ferro Corporation, Brush Wellman Inc., and
Oglebay Norton Company.
KENNETH M. CURTIS
Since 1994, Senior Member, Curtis, Thaxter, Stevens,
KENNETH M. CURTIS PHOTO Broder & Micoleau LLC (law firm). Previously,
President, Maine Maritime Academy (ocean-oriented
college). Age 66. KeyCorp director since 1994 (Old Key
director since 1993). Director, Bowater Incorporated.
JOHN C. DIMMER
President, Firs Management Corporation (real estate and
JOHN C. DIMMER PHOTO investment company). Age 69. KeyCorp director since
1994 (Old Key director since 1993).
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CHARLES R. HOGAN
Co-Owner and Chief Executive Officer, C.R.H.
CHARLES R. HOGAN PHOTO Investments, Inc. (shopping center and real estate
development). Age 60. KeyCorp director since 1994 (Old
Key director since 1993).
M. THOMAS MOORE
Since 1997, Retired Chairman and Chief Executive
M. THOMAS MOORE PHOTO Officer, Cleveland-Cliffs Inc (iron ore producer).
Previously, Chairman, President and Chief Executive
Officer, Cleveland-Cliffs Inc. Age 63. KeyCorp director
since 1992. Director, Cleveland-Cliffs Inc, The LTV
Corporation, and The Lubrizol Corporation.
RICHARD W. POGUE
Since 1994, Senior Advisor, Dix & Eaton (public
RICHARD W. POGUE PHOTO relations). Previously, Senior Partner (1993-1994),
Jones, Day, Reavis & Pogue (law firm); Managing
Partner, Jones, Day, Reavis & Pogue. Age 69. KeyCorp
director since 1992. Director, Continental Airlines,
Inc., Derlan Industries Ltd., LAI, Inc., M.A. Hanna
Company, OHM Corporation, Rotek Incorporated, and TRW
Inc.
DENNIS W. SULLIVAN
Executive Vice President, Parker-Hannifin Corporation
DENNIS W. SULLIVAN (industrial and aerospace motion control components and
PHOTO systems). Age 59. KeyCorp director since 1993.
Director, Parker-Hannifin Corporation and Ferro
Corporation.
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CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 2000
WILLIAM G. BARES
Since 1996, Chairman, President and Chief Executive
WILLIAM G. BARES PHOTO Officer, The Lubrizol Corporation (chemicals for use in
lubricants and fuels). Previously, President and Chief
Executive Officer (1996), The Lubrizol Corporation;
President and Chief Operating Officer, The Lubrizol
Corporation. Age 56. KeyCorp director since 1987.
Director, The Lubrizol Corporation, Applied Industrial
Technologies (Bearings), Inc., and Oglebay Norton
Company.
DR. CAROL A. CARTWRIGHT
President, Kent State University (state university).
CAROL A. CARTWRIGHT Age 56. KeyCorp Director since 1997. Director,
PHOTO FirstEnergy Corp., M.A. Hanna Company, and Republic
Engineered Steels, Inc.
ROBERT W. GILLESPIE
Since 1997, Chairman and Chief Executive Officer,
ROBERT W. GILLESPIE KeyCorp. Previously, Chairman, President and Chief
PHOTO Executive Officer (1996-1997), KeyCorp; President and
Chief Executive Officer (1995-1996), KeyCorp; President
and Chief Operating Officer (1994-1995), KeyCorp;
Chairman, President and Chief Executive Officer,
Society. Age 53. KeyCorp director since 1982.
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HENRY S. HEMINGWAY
President, Town & Country Life Insurance Company (life
HENRY S. HEMINGWAY insurance). Age 44. KeyCorp director since 1994 (Old
PHOTO Key director since 1987).
STEVEN A. MINTER
Executive Director and President, The Cleveland
STEVEN A. MINTER PHOTO Foundation (philanthropic foundation). Age 59. KeyCorp
director since 1987. Director, Consolidated Natural Gas
Company, Goodyear Tire and Rubber Company, and
Rubbermaid, Inc.
RONALD B. STAFFORD
Partner, Stafford, Trombley, Purcell, Owens & Curtin,
RONALD B. STAFFORD P. C. (law firm); member of the New York State Senate
PHOTO since 1966. Age 62. KeyCorp director since 1994 (Old
Key director since 1983).
Messrs. Curtis and Stafford, directors of KeyCorp, are members of law firms
that KeyCorp utilizes for legal services.
Some of KeyCorp's executive officers and directors were customers of one or
more of KeyCorp's subsidiary banks or other subsidiaries during 1997 and had
transactions with such banks in the ordinary course of business. In addition,
some of the directors are officers of, or have a relationship with, corporations
or are members of partnerships which were customers of such banks during 1997
and had transactions with such banks in the ordinary course of business. All
loans included in such transactions were made on substantially the same terms,
including rates and collateral, as those prevailing at the time for comparable
transactions with other persons, and did not involve more than normal risks of
collectibility or present other unfavorable features. Similar transactions
continue to be effected during 1998.
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THE BOARD OF DIRECTORS AND ITS COMMITTEES*
Board of Directors. During the year ended December 31, 1997, there were six
meetings of KeyCorp's Board of Directors. Each continuing member of KeyCorp's
Board other than Mr. Commes attended at least 75% of the aggregate of the
meetings held by KeyCorp's Board of Directors and the meetings held by the
committees of the Board on which such member served during 1997.
KeyCorp's Board of Directors currently exercises certain of its powers
through its Audit, Compensation and Organization, Executive and Finance
Committees.
Audit Committee. Messrs. Bares (Chair), Hemingway, Hogan, Minter, Pogue,
Stafford, Sullivan, Ten Eyck and Ms. Veeder are the current members of KeyCorp's
Audit Committee. The functions of this Committee include review of the adequacy
of internal administrative, operating, and accounting policies and controls of
KeyCorp and its affiliates, review of the financial information provided to
shareholders and regulatory authorities, recommendation of the appointment of
KeyCorp's independent auditors, review of services and fees of the independent
public accountants, review with KeyCorp's management and its independent public
accountants the basis for annual reports, management's report concerning
internal controls, and the independent auditors' report relating thereto as
required by the Federal Deposit Insurance Corporation Improvement Act of 1991,
review of KeyCorp's credit review activities as they relate to examinations for
compliance with credit and related policies, review of the examinations of
KeyCorp and its affiliates conducted by federal and state regulatory and
supervisory authorities, service as the audit committee of KeyCorp's banking
subsidiaries, review of the audit plans of the internal audit and credit review
staff and of the independent auditors and the results and effectiveness of their
audits, and supervision and direction of any special projects or investigations
considered necessary. KeyCorp's Audit Committee met six times in 1997.
Compensation and Organization Committee. Messrs. Bersticker, Commes,
Curtis, Hardis (Chair) and McGregor are the current members of KeyCorp's
Compensation and Organization Committee. The functions of this Committee include
review and approval of KeyCorp's salary administration programs, determination
of the compensation and terms of employment of senior management, determination
of participants and awards under executive incentive compensation plans and
supplemental compensation plans, approval of (or amendments to) employee and
officer retirement, compensation and benefit plans, review and recommendation of
director compensation plans, review of organization structure and staffing, and
review of management structure, development, and succession planning. KeyCorp's
Compensation and Organization Committee met seven times in 1997.
The Compensation and Organization Committee has formed the Equity Based
Compensation Subcommittee. Messrs. Bersticker, Commes, Hardis (Chair) and
McGregor are the current members of the Subcommittee. The functions of the
Subcommittee include approval of (or amendments to) KeyCorp's equity based
compensation plans including any excess benefit or deferred compensation plan
with an equity based compensation component and plans under which "qualified
performance-based compensation" is to be paid, determination of participants and
awards under KeyCorp's equity based compensation plans, and the granting of
stock options. The Equity Based Compensation Subcommittee was established in May
of 1997 and met three times in 1997.
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* Ms. Veeder is retiring as a director as of the Annual Meeting. She is,
however, included in the description of KeyCorp's current Board of Directors
and its committees.
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The Compensation and Organization Committee identifies and reviews the
qualifications of prospective directors and recommends candidates for election
as directors. Nominations for the election of directors by KeyCorp's Board of
Directors may only be made by the affirmative vote of a majority of the
directors then in office. The Committee will consider shareholder suggestions
concerning qualified candidates for election as directors that are forwarded to
such Committee. Any shareholder recommendation for a director nominee should
contain background information concerning the recommended nominee, including,
(a) the name, age, business, and residence address of such person; (b) the
principal occupation or employment of such person for the last five years; (c)
the class and number of shares of capital stock of KeyCorp that are beneficially
owned by such person; (d) all positions of such person as a director, officer,
partner, employee, or controlling shareholder of any corporation or other
business entity; (e) any prior position as a director, officer, or employee of a
depository institution or any company controlling a depository institution; and
(f) a statement of whether such individual would be willing to serve if
nominated or elected. Any shareholder recommendation should also include, as to
the shareholder giving the written notice, (a) a representation that the
shareholder is a holder of record of shares of KeyCorp entitled to vote at such
meeting and (b) a description of all arrangements or understandings between the
shareholder and such recommended person and any other person or persons (naming
such person or persons).
Executive Committee. Messrs. Bares, Curtis, Gillespie (Chair), Hardis,
Meyer, Moore, Pogue, and Ms. Veeder are the current members of KeyCorp's
Executive Committee. The functions of the Executive Committee are to exercise
the authority of the Board of Directors, to the extent permitted by law, on any
matter requiring Board or Board committee action between Board or Board
committee meetings. KeyCorp's Executive Committee met three times in 1997.
Finance Committee. Messrs. Andrus, Dimmer, Meyer, Moore (Chair) and Ms.
Cartwright are the current members of KeyCorp's Finance Committee. The functions
of the Finance Committee include the review and oversight of KeyCorp's capital
structure and capital management strategies, the exercise of the authority of
the Board of Directors in connection with the authorization, sale and issuance
by KeyCorp of debt and equity securities, the making of recommendations to the
Board of Directors with respect to KeyCorp's dividend policy, the review and
oversight of KeyCorp's asset/liability management policies and strategies, the
review and oversight of compliance with regulatory capital requirements of
KeyCorp and its bank subsidiaries, and the review and oversight of KeyCorp's
capital expenditure process. The Finance Committee was established in May of
1997 and met three times in 1997.
Director Compensation. Directors (other than Messrs. Gillespie and Meyer
who receive no director fees) receive fees consisting of a $27,000 annual
retainer, payable in quarterly installments, and $1,500 for attendance at each
Board or committee meeting. Outside directors who serve as committee
chairpersons receive additional compensation of $2,500 per quarter. Under the
KeyCorp Director Deferred Compensation Plan, directors are given the opportunity
to defer payment of director fees for future distribution. All such deferred
payments are invested in either an interest bearing account (at an interest rate
equal to 1/2% higher than the effective annual yield of the Moody's Average
Corporate Bond Yield Index) or a KeyCorp Common Share account (which is a
phantom stock account in which the directors' deferred compensation earns a
yield based on the amount of dividends that would have been payable on an equal
number of KeyCorp Common Shares and the increase or decrease in the market price
of KeyCorp Common Shares, in both cases during the
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period that the deferred fees are invested in the KeyCorp Common Share account).
All payments to the directors under the Director Deferred Compensation Plan are
in the form of cash.
Under KeyCorp's Directors' Stock Option Plan (the "Directors' Plan"), each
of the non-employee directors is automatically granted, on an annual basis,
options to purchase KeyCorp Common Shares. The option awarded to each director
in 1997 covered 7,000 KeyCorp Common Shares (adjusted to reflect the two-
for-one split of KeyCorp Common Shares, effective March 6, 1998). Commencing in
1998, the annual option grant to each director will have a value (determined on
a formula basis) on the grant date equal to 2.75 times the annual cash retainer
payable to a director. Messrs. Gillespie and Meyer were not eligible to
participate in the Directors' Plan during 1997 because they were employees of
KeyCorp. All options granted under the Directors' Plan are non-qualified stock
options. Options generally expire ten years after grant. The purchase price of
the option shares is equal to their fair market value on the date of grant and
may be paid in cash or by the surrender of previously acquired KeyCorp Common
Shares.
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ISSUE TWO
PROPOSAL TO AMEND ARTICLES OF INCORPORATION
TO INCREASE THE AUTHORIZED NUMBER OF COMMON SHARES
AND TO MODIFY DESCRIPTION OF PREFERRED STOCK
KeyCorp's Amended and Restated Articles of Incorporation ("Articles")
presently authorize the issuance of 900,000,000 Common Shares. The Board of
Directors recommends an increase in the number of authorized Common Shares from
900,000,000 to 1,400,000,000 Common Shares.
As of March 12, 1998 (after the two-for-one split of KeyCorp Common Shares
effective March 6, 1998), there were 438,846,833 Common Shares issued and
outstanding and 26,457,845 Common Shares were reserved for issuance in
connection with employee and director stock option plans. In addition, under the
KeyCorp Rights Agreement, KeyCorp is required to reserve and keep available
sufficient Common Shares to permit the exercise of all outstanding Rights, which
requires a reservation of 438,846,833 Common Shares as of March 12, 1998. If all
options were exercised, and taking into account the Common Shares required to be
reserved under the Rights Agreement, KeyCorp would have an insufficient number
of Common Shares.
The Board of Directors believes that it is advisable to have additional
Common Shares authorized for issuance in connection with existing option grants
and in order to enable KeyCorp to take advantage of favorable market conditions
or attractive business opportunities, and to facilitate future financings,
employee benefit plans, stock dividends or splits, and other distributions.
Having such additional authorized shares available will give KeyCorp greater
flexibility by permitting such shares to be issued without the delay and expense
incident to holding a special meeting of shareholders.
The subsequent issuance by KeyCorp of Common Shares, including the
additional shares that would be authorized if this proposed amendment to the
Articles is adopted, may dilute the present equity ownership position of current
holders of Common Shares. KeyCorp has no current plans, understandings or
agreements for issuing the additional shares that are to be authorized by the
proposed amendment. Holders of Common Shares do not have pre-emptive rights with
respect to the issuance of additional shares by KeyCorp.
The proposal to increase the authorized number of Common Shares could be
viewed as having an anti-takeover effect. Authorized but unissued and unreserved
Common Shares could be issued by the Board of Directors to make a change in
control of KeyCorp more difficult by diluting the stock ownership of those
seeking to obtain control of KeyCorp. For example, such shares could be sold in
a private placement to purchasers who might oppose a change in control.
In order to effect an increase in the number of authorized Common Shares,
the first paragraph of Article IV of the Articles would be amended to read as
set forth in Appendix A to this Proxy Statement.
Second, the Board of Directors recommends that a technical correction be
made to the terms of the Preferred Stock as set forth in Article IV, Part A of
the Articles. No Preferred Stock is currently outstanding.
The first sentence of Section 2(b) of Article IV, Part A reads as follows:
(b) 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
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and set apart for payment or until non-cumulative dividends have been paid
regularly for at least one full year.
The proposal is to delete the italicized word "cumulative" as the ninth
word of the above sentence and to substitute the word "and" for the italicized
words "or until" in the above sentence. The italicized word "cumulative" was
inadvertently placed in the Articles that were adopted in 1994. The effect of
the addition of the word "cumulative" in this instance may result in
non-cumulative Preferred Stock, when and if issued, not having voting rights to
elect two directors in the event KeyCorp fails to pay dividends for six
quarterly dividend periods when there is no cumulative Preferred Stock
outstanding. This result was not intended. To the contrary, the original intent
was to provide the election rights to any series of Preferred Stock in the event
of a dividend default for six quarterly dividend periods.
Vote required. Pursuant to Article VI of the Articles, the affirmative
vote of a majority of the outstanding Common Shares is required to adopt this
proposal to amend the Articles to increase the authorized number of Common
Shares and to make the above technical correction to the terms of the Preferred
Stock.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" ADOPTION OF THIS
AMENDMENT OF THE ARTICLES TO INCREASE THE AUTHORIZED NUMBER OF COMMON SHARES OF
KEYCORP AND TO CORRECT THE DESCRIPTION OF THE PREFERRED STOCK AS SET FORTH
ABOVE.
ISSUE THREE
SHAREHOLDER PROPOSAL REQUESTING NECESSARY STEPS TO CAUSE
ANNUAL ELECTION OF ALL DIRECTORS
The following proposal was submitted for inclusion in this Proxy Statement
by Mr. Gerald R. Armstrong, 910 Fifteenth Street, #754, Denver, Colorado
80202-2924. Mr. Armstrong owns over 10,040 (20,080 after adjusting for the
two-for-one stock split) KeyCorp Common Shares.
Shareholder Proposal. "Resolved: That the shareholders of KeyCorp,
assembled in person and by proxy in an annual meeting, now request that the
Board of Directors take those steps necessary to cause annual elections for
all directors by providing that at future elections in annual meetings, all
directors be elected annually and not by classes as is now provided and
that on the expiration of the present terms their subsequent election shall
also be on an annual basis."
Supporting Statement. In last year's annual meeting, KeyCorp's
shareholders voted 62,230,927 (124,461,854 after adjusting for the
two-for-one stock split) shares in favor of this proposal -- a significant
increase over the votes received in 1996.
It is noteworthy that shareholders of Chase Manhattan received one
year terms for their directors upon merging with Chemical Bank.
Recently, Ameritech, Time-Warner, Lockheed-Martin, Campbell Soups,
Atlantic Richfield, Pacific Enterprise, Westinghouse, and other
corporations have replaced three year terms with the annual election of all
directors.
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Occidental Petroleum Corporation stated in its 1997 proxy statement in
support of replacing three year terms with one year terms for its
directors:
"the current Board of Directors. . . .does recognize that under
current views of corporate governance a classified board is believed to
offer less protection against unfriendly takeover attempts than previously
assumed while frustrating stockholders in their exercise of oversight of
the board. The Board of Directors believes that the best interests of the
stockholders are not currently served by maintaining a classified board. .
. ."
These actions have increased shareholder voting rights by 300% -- and,
at no cost to the shareholders.
The proponent believes the current system produces only a facade of
continuity which should be displaced; and accountability and performance be
substituted as the basis for re-election to our board of directors.
At KeyCorp, this procedure will allow shareholders an opportunity to
register annually their reviews of the performance of the board
collectively and of each director, individually. Concern that annual
elections of all directors would leave KeyCorp without experienced
directors is unfounded.
If you agree, please vote FOR this proposal. If your proxy card is
unmarked on this issue, your shares will be automatically voted "AGAINST"
this proposal.
Board of Directors Recommendation and Statement. THE BOARD OF DIRECTORS
RECOMMENDS THAT SHAREHOLDERS VOTE AGAINST THIS PROPOSAL FOR THE FOLLOWING
REASONS.
KeyCorp's Board of Directors is divided into three classes of directors,
each of which serve for staggered three year terms. These staggered terms are an
effort to balance two very important concerns, those being the need for
shareholders to express their opinion about the Board's performance each year
and the need for KeyCorp's directors to focus on KeyCorp's long-term success.
The Board believes that KeyCorp's success in producing long-term
shareholder value, as reflected in dividend growth and stock price appreciation,
requires long-term strategic planning, capital commitments and careful and
consistent application of financial and other resources.
In the opinion of KeyCorp's Board, a classified board of directors
facilitates continuity and stability of leadership and policy by assuring that
experienced individuals familiar with the corporation and its business will be
on the board of directors at all times. A classified board of directors is also
intended to prevent precipitous changes in the composition of the board and,
thereby, serves to moderate corresponding precipitous changes in the
corporation's policies, business strategies and operations. As current newspaper
headlines demonstrate, no company, regardless of its size, is immune to a
take-over attempt. Board classification is intended to encourage any person
seeking to acquire control of KeyCorp to initiate such an action through
arm's-length negotiations with the Board of Directors so as to benefit the
Corporation's shareholders.
Election of directors by classes is a common practice that has been adopted
by many companies and currently exists at approximately sixty percent of the 500
companies comprising the 1997 Standard & Poor's Stock Price Index.
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This proposal requests the Board to take all steps necessary to cause
annual elections of all directors. One of those steps would be to amend
KeyCorp's Regulations. Under KeyCorp's Regulations, the provisions providing for
a classified Board may only be amended, repealed or altered by the affirmative
vote of the holders of shares entitling them to exercise three-quarters of the
voting power of KeyCorp on such proposal unless such amendment, repeal, or
alteration is recommended by two-thirds of the Board of Directors, in which case
the amendment, repeal or alteration would require the affirmative vote of the
holders of shares entitling them to exercise a majority of the voting power of
KeyCorp on such proposal. Because the Board of Directors is recommending a vote
"AGAINST" this proposal and has not recommended a repeal or amendment of the
provisions in KeyCorp's Regulations providing for a classified Board,
implementation of this proposal would involve management submitting at a future
shareholder's meeting an appropriate amendment to KeyCorp's Regulations and such
amendment would require the affirmative vote of three-quarters of KeyCorp's
Common Shares. A vote in favor of this proposal is an advisory recommendation to
the Board of Directors.
Vote Required. Approval of this proposal will require the affirmative vote
of a majority of the KeyCorp Common Shares represented in person or by proxy at
the Annual Meeting.
ISSUE FOUR
INDEPENDENT AUDITORS
The Board of Directors of KeyCorp, acting upon the recommendation of its
Audit Committee, has appointed Ernst & Young LLP as its independent auditors to
examine the financial statements of KeyCorp and its subsidiaries for the year
1998. Ernst & Young LLP has conducted the annual audit of KeyCorp's financial
statements since 1959. The Board of Directors recommends ratification of the
appointment of Ernst & Young LLP. The favorable vote of the holders of a
majority of the KeyCorp Common Shares represented in person or by proxy at the
Annual Meeting will be required for such ratification.
A representative of Ernst & Young LLP will be present at the meeting with
an opportunity to make a statement if such representative desires to do so and
to respond to appropriate questions.
Although shareholder approval of this appointment is not required by law or
binding on the Board, the Board believes that shareholders should be given the
opportunity to express their views. If the shareholders do not ratify the
appointment of Ernst & Young LLP as KeyCorp's independent auditors, the Board
will consider this vote in determining whether or not to continue the engagement
of Ernst & Young LLP.
EXECUTIVE OFFICERS
The executive officers of KeyCorp are principally responsible for making
policy for KeyCorp, subject to the supervision and direction of KeyCorp's Board
of Directors. All officers are subject to annual election at the annual
organizational meeting of the directors. Under KeyCorp's Regulations, all
executive officers hold their respective office or offices for such term as may
be prescribed by the Board (generally, officers are elected annually) and until
such persons' successors have been chosen. Messrs. Gillespie, Meyer, and Allen
have employment agreements with KeyCorp. All executive officers other than
Messrs. Gillespie and Meyer have change of control agreements with KeyCorp.
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There are no family relationships among directors, nominees or executive
officers. Other than Messrs. Helfrich, Somers and Stevens, all have been
employed in officer capacities with KeyCorp, Old Key, or their subsidiaries for
at least the past five years.
Set forth below are the names and ages of the executive officers of KeyCorp
as of January 15, 1998, positions held by them during the past five years and
the year from which held, and, in parentheses, the year they first became
executive officers of either KeyCorp or Old Key.
GARY R. ALLEN (49)
1994 to present: Senior Executive Vice President and Chief Banking Officer,
KeyCorp; 1993-1994: Executive Vice President and Chief Banking Officer, Old Key;
1991-1993: President and Chief Executive Officer, Key Bank of New York (former
subsidiary of KeyCorp); 1988-1993: Chief Executive Officer, Key Bank of Western
New York (former subsidiary of KeyCorp). (1993)
JAMES S. BINGAY (54)
1990 to present: Executive Vice President, KeyCorp. (1990)
JAMES A. FISHELL (46)
1997 to present: Executive Vice President, KeyCorp; 1997: Chairman and
President, Key Corporate Capital Inc. (subsidiary of KeyCorp); 1989-1996:
Executive Vice President, KeyBank National Association (formerly known as
Society National Bank). (1997)
ROBERT W. GILLESPIE (53)
1996 to present: Chairman and Chief Executive Officer, KeyCorp; 1995-1996:
Chief Executive Officer and President, KeyCorp; 1994-1995: President and Chief
Operating Officer, KeyCorp; 1988-1994: Chairman, Chief Executive Officer, and
President, Society. (1981)
ALLEN J. GULA, JR. (43)
1994 to present: Executive Vice President, KeyCorp; 1992-1994: Executive
Vice President and Group Executive, Information Technology and Operations,
Society. (1992)
R. B. HEISLER, JR. (49)
1996 to present: Executive Vice President, KeyCorp; 1995-1996: Chief
Executive Officer and President, KeyBank National Association (formerly known as
Society National Bank); 1993-1995: Executive Vice President, KeyCorp. (1996)
THOMAS E. HELFRICH (47)
1995 to present: Executive Vice President, KeyCorp; 1986-1995: Senior Vice
President-Human Resources, The Travelers Inc. (insurance and financial services
company). (1995)
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LEE IRVING (49)
1995 to present: Executive Vice President and Chief Accounting Officer,
KeyCorp; 1994-1995: Executive Vice President, Treasurer, and Chief Accounting
Officer, KeyCorp; 1986-1994: Senior Vice President and Treasurer, Old Key.
(1986)
HENRY L. MEYER III (48)
1997 to present: President and Chief Operating Officer, KeyCorp; 1996-1997:
Vice Chairman of the Board and Chief Operating Officer, KeyCorp; 1995-1996:
Senior Executive Vice President and Chief Operating Officer, KeyCorp; 1994-1995:
Senior Executive Vice President and Chief Banking Officer, KeyCorp; 1991-1994:
Vice Chairman of the Board and Chief Banking Officer, Society. (1987)
K. BRENT SOMERS (49)
1996 to present: Senior Executive Vice President and Chief Financial
Officer, KeyCorp; 1994-1995: Executive Vice President and Chief Financial
Officer, The United States Shoe Corporation (manufacturing); 1990-1994: Vice
President and Chief Financial Officer, The United States Shoe Corporation.
(1996)
THOMAS C. STEVENS (48)
1997 to present: Senior Executive Vice President, General Counsel and
Secretary, KeyCorp; 1996-1997: Executive Vice President, General Counsel and
Secretary, KeyCorp; 1991-1996: Managing Partner, Thompson Hine & Flory LLP (law
firm). (1996)
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COMPENSATION OF EXECUTIVE OFFICERS
Summary. The following table sets forth the compensation paid by KeyCorp
and its subsidiaries for each of the previous three years to the individual who
served as KeyCorp's Chief Executive Officer during 1997 and each of the
remaining four highest paid executive officers of KeyCorp at December 31, 1997.
SUMMARY COMPENSATION TABLE
All Other
Annual Compensation Long-Term Compensation Compensation
------------------------------------ ------------------------------- ----------------
Awards Payouts
------------------- ---------
Securities Long-Term
OTHER ANNUAL Underlying Incentive
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION Options/SARs(#)(5) Payouts
- --------------------------- ---- ------ ----- ------------ ------------------ ---------
Robert W. Gillespie 1997 $885,000 $1,200,000(2) -- (3) 400,000 $408,072(6) $186,265(8)
Chairman of the Board 1996 830,000 520,000(2) -- (3) 130,000 378,909(6) 122,063(9)
and Chief Executive 1995 754,167 404,000(2) -- (3) 80,000 407,451(7) 109,974(10)
Officer
Henry L. Meyer III 1997 540,000 725,000(2) -- (3) 320,000 200,325(6) 95,396(11)
President and Chief 1996 470,250 215,000(2) -- (3) 50,000 182,526(6) 59,187(12)
Operating Officer 1995 435,750 187,000(2) -- (3) 40,000 244,112(7) 58,793(13)
Gary R. Allen 1997 476,250 400,000(2) -- (3) 200,000 180,577(6) 58,215(14)
Senior Executive Vice 1996 459,000 190,000(2) -- (3) 50,000 178,638(6) 56,543(15)
President and Chief 1995 435,750 187,000(2) -- (3) 71,736 -- 44,310(16)
Banking Officer
K. Brent Somers 1997 434,375 400,000(2) -- (3) 200,000 -- 60,585(17)
Senior Executive Vice 1996 386,586(1) 172,000(2) 58,408(4) 100,000 -- 35,705(18)
President and Chief
Financial Officer
Thomas C. Stevens 1997 383,250 320,000(2) -- (3) 120,000 -- 51,066(19)
Senior Executive Vice 1996 186,298(1) 140,000(2) 41,650(4) 40,000 -- 120,359(20)
President, General
Counsel
and Secretary
- ---------------
(1) Messrs. Somers and Stevens commenced employment at KeyCorp on February 5,
1996 and July 1, 1996, respectively.
(2) Amounts awarded under KeyCorp's Short Term Incentive Compensation Plan for
the respective fiscal years, whether paid in cash or deferred.
(3) Other annual compensation received in the respective fiscal years was in
the form of perquisites, the amount of which did not exceed the lesser of
$50,000 or 10% of the total annual salary and bonus reported for the
executive.
(4) Each perquisite or other personal benefit which exceeds 25% of the total
perquisites and other personal benefits received by Messrs. Somers and
Stevens are as follows: Mr. Somers (1996) -- $35,663 (moving allowance),
$22,745 (tax gross-up on moving allowance); Mr. Stevens (1996) -- $24,610
(club initiation fees), $13,222 (tax gross-up on club initiation fees).
(5) The information in this column has been adjusted to reflect the two-for-one
split of KeyCorp Common Shares which was effected by a 100% stock dividend,
effective March 6, 1998.
(6) Amounts awarded under the KeyCorp Long Term Cash Incentive Compensation
Plan for the three year cycle ending in respective fiscal years, whether
paid in cash or deferred.
(7) Amounts awarded under the Society Corporation Long Term Incentive
Compensation Plan for the three year cycle ending in fiscal year 1995,
whether paid in cash or deferred.
(8) $9,500 (amounts contributed under the KeyCorp 401(k) Savings Plan);
$157,521 (amounts contributed under the KeyCorp Excess 401(k) Savings Plan
and KeyCorp Deferred Compensation Plan); $19,244 (universal life insurance
premiums).
(9) $9,000 (amounts contributed under the KeyCorp 401(k) Savings Plan); $94,735
(amounts contributed under the KeyCorp Excess 401(k) Savings Plan); $18,328
(universal life insurance premiums).
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(10) $9,000 (amounts contributed under the KeyCorp 401(k) Savings Plan); $84,937
(amounts contributed under the KeyCorp Excess 401(k) Savings Plan); $16,037
(universal life insurance premiums).
(11) $9,500 (amounts contributed under the KeyCorp 401(k) Savings Plan); $78,420
(amounts contributed under the KeyCorp Excess 401(k) Savings Plan and
KeyCorp Deferred Compensation Plan); $7,476 (universal life insurance
premiums).
(12) $9,000 (amounts contributed under the KeyCorp 401(k) Savings Plan); $43,067
(amounts contributed under the KeyCorp Excess 401(k) Savings Plan); $7,120
(universal life insurance premiums).
(13) $9,000 (amounts contributed under the KeyCorp 401(k) Savings Plan); $43,012
(amounts contributed under the KeyCorp Excess 401(k) Savings Plan); $6,781
(universal life insurance premiums).
(14) $9,500 (amounts contributed under the KeyCorp 401(k) Savings Plan); $41,910
(amounts contributed under the KeyCorp Excess 401(k) Savings Plan); $6,805
(split-dollar life insurance premiums).
(15) $9,000 (amounts contributed under the KeyCorp 401(k) Savings Plan); $40,658
(amounts contributed under the KeyCorp Excess 401(k) Savings Plan); $6,885
(split-dollar life insurance premiums).
(16) $9,000 (amounts contributed under the KeyCorp 401(k) Savings Plan); $28,365
(amounts contributed under the KeyCorp Excess 401(k) Savings Plan); $6,945
(split-dollar life insurance premiums).
(17) $9,500 (amounts contributed under the KeyCorp 401(k) Savings Plan); $40,563
(amounts contributed under the KeyCorp Excess 401(k) Savings Plan); $10,522
(universal life insurance premiums).
(18) $9,000 (amounts contributed under the KeyCorp 401(k) Savings Plan); $24,515
(amounts contributed under the KeyCorp Excess 401(k) Savings Plan); $2,190
(universal life insurance premiums).
(19) $9,500 (amounts contributed under the KeyCorp 401(k) Savings Plan); $32,695
(amounts contributed under the KeyCorp Excess 401(k) Savings Plan); $8,871
(universal life insurance premiums).
(20) $9,000 (amounts contributed under the KeyCorp 401(k) Savings Plan); $10,578
(amounts contributed under the KeyCorp Excess 401(k) Savings Plan); $781
(universal life insurance premiums); $100,000 (signing bonus).
Option Grants. The following table provides information regarding grants of
stock options made during the year ended December 31, 1997, to each of the
executive officers named in the Summary Compensation Table. The information in
the following table has been adjusted to reflect the two-for-one stock split of
KeyCorp Common Shares which was effected by a 100% stock dividend, effective
March 6, 1998.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR TEN YEAR OPTION TERM
OPTIONS EMPLOYEES OR BASE EXPIRATION ----------------------------
NAME GRANTED(#) IN FISCAL YEAR PRICE DATE 5% 10%
---- ---------- -------------- ($/SH)-- ---------- ----------- ------------
Robert W. Gillespie 400,000(1) 5.6% $26.156(2) 1/15/07 $6,579,747 $16,674,371
Henry L. Meyer III 320,000(1) 4.5% 26.156(2) 1/15/07 5,263,798 13,339,497
Gary R. Allen 200,000(1) 2.8% 26.156(2) 1/15/07 3,289,874 8,337,186
K. Brent Somers 200,000(1) 2.8% 26.156(2) 1/15/07 3,289,874 8,337,186
Thomas C. Stevens 120,000(1) 1.7% 26.156(2) 1/15/07 1,973,924 5,002,311
- ---------------
(1) These are Performance Options granted under the Amended and Restated 1991
Equity Compensation Plan with a specially designed vesting provision. This
vesting provision has been designed to provide an exceptional reward to the
executives if, and only if, other KeyCorp shareholders have been rewarded by
performance of KeyCorp's stock price and if KeyCorp's financial performance
is strong. The Performance Options vest if the market value of KeyCorp
Common Shares exceeds $37.00 per share for seven consecutive trading dates
by December 31, 2000, $41.00 per share for seven consecutive trading dates
by December 31, 2001, or $45.00 per share for seven consecutive trading
dates by December 31, 2002 and KeyCorp's basic earnings per share equal or
exceed $2.60 for the year 1999 or any year prior thereto or $2.92 per share
for the year 2000. The options also vest upon certain changes of control as
set forth in the option agreement.
(2) The exercise price equals the market price of a KeyCorp Common Share on the
date of the option grant as adjusted for the two-for-one stock split on
March 6, 1998.
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The options reported in the preceding table were granted on January 15,
1997, at an exercise price equal to the market price of KeyCorp Common Shares on
that date, which was, after adjustment for the two-for-one stock split on March
6, 1998, $26.156. Based on this adjusted stock price, the market value of
KeyCorp Common Shares at the end of the ten year option period using 5% and 10%
compounded annual returns would be $42.605 and $67.842, respectively.
Option Exercises and Values. The following table provides information
regarding exercises of stock options during the year ended December 31, 1997, by
the executive officers named in the Summary Compensation Table, and the value of
such officers' unexercised stock options as of December 31, 1997. The
information in the following table has been adjusted to reflect the two-for-one
stock split of KeyCorp Common Shares which was effected by a 100% stock
dividend, effective March 6, 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/ IN-THE-MONEY OPTIONS/
SHARES SARS AT FY-END (#) SARS AT FY-END
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED UNEXERCISABLE UNEXERCISABLE(1)
---- ------------ -------- ------------------ ---------------------
Robert W. Gillespie 72,000 $1,313,250 843,334/486,666 $ 17,708,835/5,246,454
Henry L. Meyer III 82,484 1,501,975 512,668/353,332 11,390,923/3,541,835
Gary R. Allen 5,000 98,856 118,472/233,332 2,543,431/2,441,177
K. Brent Somers 0 0 16,668/283,332 283,617/3,252,328
Thomas C. Stevens 0 0 40,000/120,000 631,876/1,100,658
- ---------------
(1) Based on a December 31, 1997 mean between high and low prices for KeyCorp
Common Shares which equaled $35.328 after adjustment for the two-for-one
stock split in KeyCorp Common Shares effective March 6, 1998.
Long Term Incentive Compensation. During 1997, KeyCorp's Compensation and
Organization Committee selected participants in the KeyCorp Long Term Cash
Incentive Compensation Plan for the 1997-1999 three-year compensation period.
Messrs. Gillespie, Meyer, Allen, Somers, and Stevens were included as
participants. The Committee has determined objective criteria by which KeyCorp's
financial performance should be judged and distributions under the Plan should
be made. These criteria were based on the Committee's judgment of a range of
return on common equity that would warrant satisfactory to excellent results for
KeyCorp for the compensation period. Based on KeyCorp's 1997 job grade market
points (i.e., average salaries for executives in the marketplace in similar
positions) upon which payments under the Plan will be based (which may change by
the time the awards are actually determined), the officers in the Summary
Compensation Table would be eligible to receive the following payments for the
compensation periods indicated.
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LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS
PERFORMANCE --------------------------------------------
NAME PERIOD THRESHOLD(1) TARGET MAXIMUM
---- ----------- ------------ -------- --------
Robert W. Gillespie 1997-1999 $64,125 $256,500 $641,250
Henry L. Meyer III 1997-1999 41,250 165,000 412,500
Gary R. Allen 1997-1999 27,313 109,250 273,125
K. Brent Somers 1997-1999 27,313 109,250 273,125
Thomas C. Stevens 1997-1999 22,500 90,000 225,000
- ---------------
(1) If the threshold is not met, no payouts will be made.
These executives are participants in the KeyCorp Long Term Cash Incentive
Compensation Plan for the 1996-1998 compensation period and, with the exception
of Messrs. Somers and Stevens, are also participants for the 1995-1997
compensation period. Payouts under the 1995-1997 compensation period are
reflected in the Summary Compensation Table on page 17 of this Proxy Statement
under the heading "Long-Term Incentive Payouts."
Pension Plan. Substantially all officers and employees of KeyCorp and
participating subsidiaries are participants in the KeyCorp Cash Balance Pension
Plan (the "Pension Plan"). Certain officers, including all executives named in
the Summary Compensation Table on page 17 of this Proxy Statement, also
participate in related supplemental and excess retirement plans. The Pension
Plan is a cash balance plan that provides a pension based upon a hypothetical
account balance maintained for the participant to which accruals are made equal
to a percentage of the participant's compensation and to which interest is
credited.
Certain officers (including Messrs. Gillespie, Meyer, and Allen) have
retirement benefits under the Pension Plan and related supplemental and excess
plans. Such retirement benefits, for purposes of the supplemental plans, are
based on the participant's years of participation in the relevant plan and
average annual compensation for either the five highest consecutive years during
the last ten years of employment for former Society employees or the three
highest consecutive years during the last five years of employment for former
Old Key employees. For purposes of the excess plan, benefits are based on the
participant's compensation in excess of the compensation limits imposed under
the Pension Plan by Section 401(a)(17) of the Internal Revenue Code. The
following table sets forth the estimated maximum annual benefits payable under
the Pension Plan and related supplemental or excess plans to participants who
(1) have such retirement benefits, and are participants in a supplemental or
excess plan, (2) attained the Social Security retirement age on December 31,
1997, and (3) elect to receive a straight lifetime annuity.
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ESTIMATED ANNUAL RETIREMENT BENEFITS
WITH INDICATED YEARS OF PARTICIPATION
AVERAGE FINAL --------------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ------------- ---------- ---------- ---------- ---------- ----------
$ 400,000 $ 220,000 $ 260,000 $ 300,000 $ 300,000 $ 300,000
600,000 330,000 390,000 450,000 450,000 450,000
800,000 440,000 520,000 600,000 600,000 600,000
1,000,000 550,000 650,000 750,000 750,000 750,000
1,200,000 660,000 780,000 900,000 900,000 900,000
1,400,000 770,000 910,000 1,050,000 1,050,000 1,050,000
1,600,000 880,000 1,040,000 1,200,000 1,200,000 1,200,000
1,800,000 990,000 1,170,000 1,350,000 1,350,000 1,350,000
2,000,000 1,100,000 1,300,000 1,500,000 1,500,000 1,500,000
2,400,000 1,320,000 1,560,000 1,800,000 1,800,000 1,800,000
2,600,000 1,430,000 1,690,000 1,950,000 1,950,000 1,950,000
2,800,000 1,540,000 1,820,000 2,100,000 2,100,000 2,100,000
3,000,000 1,650,000 1,950,000 2,250,000 2,250,000 2,250,000
All benefit amounts are subject to the annual pension limitations imposed
by the Internal Revenue Code for qualified plans; however, the extent of any
reduction will vary according to the limits existing at the time pension
payments commence. Amounts under the Pension Plan reduced by Internal Revenue
Code limitation may be paid under a supplemental or excess plan. The benefits
are not subject to any deduction for social security or any other offset.
Compensation for purposes of computing benefits under the Pension Plan and
excess and supplemental plans is total base pay and incentive compensation paid
during a calendar year, plus amounts deducted for the 401(k) and flexible
benefits plans during such year, but does not include amounts attributable to
stock options or receipt of non-cash remuneration that is included in the
participant's income for Federal income tax purposes. Compensation for purposes
of the Pension Plan and excess and supplemental plans is substantially the same
as shown in the Summary Compensation Table after excluding stock options, "all
other compensation," and "other annual compensation." Normal retirement age is
65. The Pension Plan requires 5 years of service for vesting. The excess and
supplemental plans require 5 years of service for vesting for the former Old Key
employees, including Mr. Allen, and 10 years of service and the attainment of
age 55 for former Society employees, including Messrs. Gillespie and Meyer.
Messrs. Gillespie, Meyer, Allen, Somers, and Stevens were credited under the
excess or supplemental plans with 28, 24, 24, 1, and 1 years service,
respectively.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, KeyCorp's directors and
certain officers are required to report their ownership and changes in ownership
of KeyCorp Common Shares to the SEC. The SEC has established certain due dates
for these reports. The Corporation knows of no person who failed to timely file
any such report during 1997.
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EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
KeyCorp is a party to employment agreements and change of control
agreements with Mr. Gillespie and certain of its other executive officers.
Employment Agreement With Mr. Gillespie. KeyCorp and Mr. Gillespie are
parties to an employment agreement pursuant to which Mr. Gillespie is to be
employed by KeyCorp as Chairman of the Board and Chief Executive Officer through
May 31, 2000. Under the employment agreement, Mr. Gillespie is to be paid a base
salary of not less than $840,000 per year and is entitled to participate in all
KeyCorp executive incentive compensation plans including KeyCorp's short and
long term incentive compensation plans. The employment agreement provides for an
additional two years of compensation and benefits to Mr. Gillespie (through May
31, 2002) if, in 2000, the employment agreement is not mutually extended or a
new employment agreement is not entered into.
Under the employment agreement, Mr. Gillespie may terminate his employment
for good reason (and receive post-termination benefits) under certain
circumstances whether or not a change of control of KeyCorp occurs. Those
circumstances that will constitute good reason under the employment agreement
whether or not a change of control occurs include (a) demotion or removal of Mr.
Gillespie from either of his executive positions (i.e., Chairman of the Board
and Chief Executive Officer); (b) a reduction in Mr. Gillespie's base salary or
participation in benefit plans; (c) a good faith determination by Mr. Gillespie
that his responsibilities, duties, and authority have been materially reduced
from those contemplated by the employment agreement; or (d) relocation of Mr.
Gillespie's principal place of employment outside the Cleveland metropolitan
area. Those circumstances that will constitute good reason under the employment
agreement after a change of control of KeyCorp occurs also include any reduction
in Mr. Gillespie's incentive compensation or a good faith determination by Mr.
Gillespie that his responsibilities or duties have been materially reduced from
their level before the change of control or that he is unable to carry out the
responsibilities of his positions as a result of the change of control.
Under the employment agreement, if Mr. Gillespie's employment with KeyCorp
is terminated before his 65th birthday for any reason other than voluntary
resignation by Mr. Gillespie (without good reason) before May 2000 or
termination by KeyCorp for cause, and Mr. Gillespie (or his estate or designated
beneficiary) is entitled to receive retirement benefits under any KeyCorp
retirement plan after March 26, 1999 (Mr. Gillespie's 55th birthday), KeyCorp
will pay a supplemental retirement benefit in an amount sufficient to provide
Mr. Gillespie the same aggregate benefit that he would have received if he had
continued in the employ of KeyCorp through his 65th birthday (by eliminating any
reduction because he started receiving benefits before his 65th birthday and
giving him credit for additional years of service for the period after his
termination date and before his 65th birthday). Under the employment agreement,
KeyCorp will have "cause" to terminate Mr. Gillespie's employment before a
change of control if he commits a felony, acts dishonestly in a way that is
materially inimical to the best interests of KeyCorp, competes with KeyCorp, or
totally abandons his duties and responsibilities. KeyCorp will have "cause" to
terminate Mr. Gillespie's employment after a change of control if he is
convicted of a felony, acts dishonestly and feloniously in a way that is
materially inimical to the best interests of KeyCorp, or competes with KeyCorp.
If a change of control occurs while Mr. Gillespie is employed under the
employment agreement and an exercise by him of the right referred to in this
paragraph would not conflict with the treatment for accounting
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purposes of any transaction entered into in connection with the change of
control as a pooling of interests, Mr. Gillespie will be entitled to surrender
his rights in any outstanding KeyCorp stock options (whether or not then
exercisable) in return for a payment equal to the spread on those options.
If any amount of compensation otherwise payable to Mr. Gillespie as earned
would not be deductible by KeyCorp by reason of the disallowance rules of
Section 162(m) of the Internal Revenue Code (which rules generally disallow
deductions for certain compensation paid to any of certain "covered employees"
of a publicly held corporation in excess of $1,000,000 per year), but would be
deductible if it were deferred until a later year, that amount of compensation
will be so deferred until the earlier of the first date on which the
compensation can be paid without disallowance of the deduction to KeyCorp or
April 15 of the year immediately following the year in which Mr. Gillespie
ceases to be a covered employee of KeyCorp. Upon payment of any such deferred
amounts of compensation, KeyCorp will pay to Mr. Gillespie an additional amount
for interest on the deferred amounts.
Under the employment agreement, Mr. Gillespie is entitled to continuing
indemnification to the fullest extent permitted by Ohio law for actions against
him by reason of his being or having been a director or officer of KeyCorp or
any related entity; to payment of certain legal fees incurred in enforcing his
rights under his employment agreement; to ancillary benefits incident to the
performance of his duties under that agreement; and to a special supplemental
death benefit if he dies while employed by KeyCorp and he is survived by his
wife. The special supplemental death benefit, if payable, would consist of
monthly installments to Mr. Gillespie's wife (or to her estate), for her life
or, if longer, through the 15th anniversary of Mr. Gillespie's death. Each
monthly payment would be in an amount that, when added to the monthly survivor
benefits, if any, payable to Mr. Gillespie's wife under all KeyCorp retirement
plans, equals one third of Mr. Gillespie's monthly compensation (base salary and
incentive compensation). The employment agreement also provides that if Mr.
Gillespie's employment is terminated for any reason other than cause, voluntary
resignation before May 2000, death, or disability, KeyCorp is to provide to Mr.
Gillespie a furnished office, amenities, and secretarial support, appropriate to
his status as a former Chairman of the Board and Chief Executive Officer,
through May 31, 2007.
Events Constituting a Change of Control. Under the employment agreement
with Mr. Gillespie as well as under the employment agreement with Mr. Meyer and
the change of control agreements with certain other executive officers that are
described below, a change of control will be deemed to have occurred (a) if
KeyCorp merges with another corporation and either (i) KeyCorp shareholders
receive less than 65 percent of the outstanding voting securities of the
surviving corporation or (ii) directors of KeyCorp cease to constitute at least
51% of the directors of the surviving corporation; (b) a person becomes the
beneficial owner of 35% or more of KeyCorp's outstanding stock or files a report
disclosing the acquisition of that amount of such stock; (c) there is a sale,
lease, exchange, or other transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of KeyCorp, or (d)
without the prior approval of the Board of Directors of KeyCorp, an announcement
is made of an intention to engage in a transaction that, if consummated, would
result in a "change event," or to solicit proxies in connection with a proposal
that is not approved or recommended by the Board of Directors or to engage in an
election contest relating to the election of directors of KeyCorp and at any
time within 24 months after the announcement, individuals who constituted the
directors of KeyCorp when the announcement was made (the "incumbent directors")
cease to constitute at least a majority thereof unless both all new directors
have been approved by at least 2/3 of the incumbent
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directors in office at the time of nomination of each new director and the
incumbent directors determine that the change in composition of the Board that
results in incumbent directors no longer being a majority of the Board was not
attributable to any change event. For these purposes, a "change event" includes
the making of a tender offer for 25% or more of the outstanding voting stock of
KeyCorp, any person becoming the beneficial owner of 25% or more of the
outstanding voting stock of KeyCorp, or the filing of any report disclosing the
acquisition of 25% or more of the outstanding voting stock of KeyCorp; a merger
of KeyCorp with another corporation in a transaction that results in less than
50% of the outstanding voting securities of the surviving corporation having
been issued in exchange for voting securities of KeyCorp or less than 51% of the
directors of the surviving corporation being individuals who were directors of
KeyCorp immediately before the transaction; or a sale or other transfer (in one
transaction or in a series of related transactions) of all or substantially all
the assets of KeyCorp.
Employment Agreement with Mr. Meyer. KeyCorp and Mr. Meyer are parties to
an employment agreement pursuant to which Mr. Meyer is employed by KeyCorp as
its President for a constantly renewing two year term at a base salary of not
less than $550,000 per annum plus full participation in all incentive and other
compensatory plans available generally to KeyCorp's senior officers. If Mr.
Meyer's employment is terminated by KeyCorp without cause before the occurrence
of a change of control, he is to be paid an amount equal to two times the sum of
his base salary plus his average incentive compensation in 24 monthly
installments after the termination. If Mr. Meyer's employment is terminated by
KeyCorp without cause after the occurrence of a change of control, he is to be
paid an amount equal to three times the sum of his base salary and his average
annual incentive compensation in a lump sum within 30 days after the
termination, he is to be provided the benefit of continuing participation in all
KeyCorp retirement and savings plans through the third anniversary of the
termination, and his rights in KeyCorp's supplemental retirement plan will be
fully vested whether or not he has attained age 55. If, during a six-month
window period commencing one year after a change of control, Mr. Meyer
voluntarily terminates his employment for good reason, he is to be paid an
amount equal to two times the sum of his base salary and his average annual
incentive compensation in a lump sum within 30 days after the termination, he is
to be provided the benefit of continuing participation in all KeyCorp retirement
and savings plans through the second anniversary of the termination, and his
rights in KeyCorp's supplemental retirement plan will be fully vested whether or
not he has attained age 55.
Under the employment agreement, Mr. Meyer may consider himself
constructively terminated if, at any time, his base salary is reduced other than
in connection with an across-the-board salary reduction applicable to all senior
officers of KeyCorp, he is excluded from full participation in any incentive or
other compensatory plan generally applicable to senior officers of KeyCorp, he
is demoted or removed from office, he is asked to resign when KeyCorp does not
have cause for terminating his employment, or his principal place of employment
is relocated outside of the Cleveland metropolitan area. In addition, Mr. Meyer
may consider himself constructively terminated if, after a change of control,
his base salary is reduced (whether or not in connection with any reductions of
other base salaries), he is excluded from full participation in any incentive or
other compensatory plan in effect during the year before the change of control
unless a substitute plan providing similar benefits is made available, he is
excluded from full participation in any incentive or other compensatory plan
that is generally applicable to senior officers of the surviving entity, or the
headquarters of the surviving entity is outside of the Cleveland metropolitan
region.
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Under the employment agreement, KeyCorp will have "cause" to terminate Mr.
Meyer's employment before a change of control if he commits a felony, acts
dishonestly in a way that is materially inimical to the best interests of
KeyCorp, competes with KeyCorp, or abandons and consistently fails to attempt to
perform his duties or if a bank regulatory agency issues a final order requiring
KeyCorp to terminate or suspend his employment. KeyCorp will have "cause" to
terminate Mr. Meyer's employment after a change of control if he is convicted of
a felony, acts dishonestly and feloniously in a way that is materially inimical
to the best interests of KeyCorp, or competes with KeyCorp or if a bank
regulatory agency issues a final order requiring KeyCorp to terminate or suspend
his employment.
Mr. Meyer will have good reason to terminate his employment during a window
period after a change of control if, following notice by him and an opportunity
for the surviving entity to cure, he determines in good faith that his position,
duties, and responsibilities are materially reduced from those in effect before
the change of control, that his reporting relationships with superior officers
have materially changed from those in effect before the change of control, or
that he is unable to carry out his responsibilities and duties after the change
of control.
If any amount of compensation otherwise payable to Mr. Meyer as earned
would not be deductible by KeyCorp by reason of the disallowance rules of
Section 162(m) of the Internal Revenue Code, but would be deductible if it were
deferred until a later year, that amount of compensation will be so deferred
until the earlier of the first date on which the compensation can be paid
without disallowance of the deduction to KeyCorp or April 15 of the year
immediately following the year in which Mr. Meyer ceases to be a covered
employee of KeyCorp. Upon payment of any such deferred amounts of compensation,
KeyCorp will pay to Mr. Meyer an additional amount for interest on the deferred
amounts.
Under the employment agreement, Mr. Meyer is entitled to continuing
indemnification to the fullest extent permitted by Ohio law for actions against
him by reason of his being or having been a director or officer of KeyCorp or
any related entity and to payment of certain legal fees incurred in enforcing
his rights under his employment agreement.
Amended Employment Agreement With Mr. Allen. KeyCorp and Mr. Allen are
parties to a preexisting employment agreement that was amended in anticipation
of the Merger. In general, as amended, the employment agreement provides for the
employment of Mr. Allen through June 30, 1998. If Mr. Allen's employment is
terminated by KeyCorp without cause at any time before June 30, 1998, Mr. Allen
will be entitled to receive all payment and benefits (including retirement
benefits) to which he would have been entitled had he continued to perform
services under the employment agreement through June 30, 1998. For purposes of
Mr. Allen's amended employment agreement, "cause" includes a material breach of
the agreement by Mr. Allen, misconduct as an executive of KeyCorp, unreasonable
neglect or refusal to perform assigned duties, conviction of a crime involving
moral turpitude, adjudication as a bankrupt, failure to follow reasonable
instructions of superior executive officers, or imposition by a bank regulatory
agency of a final order of suspension or removal for improper conduct.
Agreement With Mr. Stevens. KeyCorp and Mr. Stevens are parties to a 1996
letter agreement that will provide him with benefits if his employment with
KeyCorp is terminated either before July 1, 1999 or at any time within two years
of a change of control of KeyCorp (in either time frame, only if the termination
is other than (i) voluntarily by Mr. Stevens except for good reason or (ii) for
cause by KeyCorp (defined as
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dishonesty or a violation of KeyCorp's Code of Ethics that is materially
inimical to KeyCorp) or (iii) due to death or disability). If such a termination
occurs before July 1, 1999 and not within two years of a change of control,
KeyCorp will pay to Mr. Stevens a lump-sum severance benefit equal to two times
the sum of his base salary plus his target short-term incentive compensation. If
such a termination occurs within two years of a change of control, KeyCorp will
pay to Mr. Stevens a lump-sum severance benefit equal to two and one half times
the sum of his base salary plus his target short-term and long-term incentive
compensation. In addition, in either such case, KeyCorp will maintain medical,
disability, and group life insurance or equivalent benefits for two years after
the termination. For purposes of the letter agreement, Mr. Stevens will have
good reason for voluntarily terminating his employment if his base salary is
reduced other than in connection with an across-the-board salary reduction
applicable to all senior officers of KeyCorp, he is excluded from full
participation in any benefit plan or arrangement maintained for senior
executives of KeyCorp, his principal place of employment for KeyCorp is
relocated outside of the Cleveland metropolitan area, or he is removed from
KeyCorp's Management Committee or from the position of General Counsel and
Secretary of KeyCorp.
New Change of Control Agreements. During 1997, KeyCorp entered into new
change of control agreements with each of its executive officers other than
Messrs. Gillespie and Meyer (including Messrs. Allen, Somers, and Stevens) which
provide that if, at any time within two years after the occurrence of a change
of control, the officer's employment is terminated by KeyCorp (except for cause)
or the officer terminates employment because the officer's base salary is
reduced or relocation is made a condition of the officer's employment, KeyCorp
will pay to the officer a lump sum severance benefit equal to two and one half
years' compensation (base salary and average annual incentive compensation) and
will pay the cost of continuing health benefits until the earlier of the
expiration of the continuation period required by Federal law or the date the
officer secures other employment. Each new change of control agreement also
provides a three-month window period, commencing 15 months after the date of a
change of control, during which the officer may voluntarily resign and receive a
lump sum severance benefit equal to one and one half years' compensation (base
salary and average annual incentive compensation) if, at any time before the
executive's resignation, (a) the executive determines in good faith that the
executive's position, responsibilities, duties, or status with KeyCorp are
materially less than or reduced from those in effect before the change of
control or that the executive's reporting relationships with superior executive
officers have been materially changed from those in effect before the change of
control, (b) the executive is excluded from full participation in any incentive
compensation plan or stock option, stock appreciation, or similar equity based
plan in which similarly situated KeyCorp executives generally participate, or
(c) the headquarters that was the executive's principal place of employment
before the change of control (whether KeyCorp's headquarters or a regional
headquarters) is relocated to a site outside of the greater metropolitan area in
which that headquarters was located before the change of control. For purposes
of the new change in control agreements, "cause" includes conviction of a
felony, dishonesty in the course of employment that constitutes a felony and is
inimical to the best interest of KeyCorp or a subsidiary, imposition by a bank
regulatory agency of a final order of suspension or removal, or competing with
KeyCorp.
Section 280G Excise Tax on Payments. In general, the employment, severance,
and change of control agreements to which KeyCorp is a party provide for a tax
gross-up if any payment exceeds the Section 280G limits so that the officer will
receive the same after-tax payment as would have been the case if Section 280G
did not apply.
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COMPENSATION AND ORGANIZATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
KeyCorp's Board of Directors has delegated to the Compensation and
Organization Committee ("C&O Committee"), including its subcommittee, the Equity
Based Compensation Subcommittee ("EBC Subcommittee")(collectively referred to
herein as "the Committee"), responsibility for executive compensation. The EBC
Subcommittee has responsibility for equity based compensation and compensation
plans with an equity based component, and also plans under which "qualified
performance-based compensation" is to be paid (compensation that is to be
excluded from the restrictions of tax deductibility under Section 162(m) of the
Internal Revenue Code). The C&O Committee has responsibility for all other forms
of executive compensation.
BACKGROUND ON OVERALL PROGRAM
In designing KeyCorp's executive compensation program, KeyCorp and the
Committee concluded that the program should:
- Operate as a primary motivator in driving executive decisions and
activities to enhance shareholder value.
- Pay total compensation that is commensurate with KeyCorp's performance as
compared with other comparable financial institutions.
- Promote a strong pay for performance culture by ensuring that highly
competitive compensation is conditioned on the attainment of challenging
objectives.
- Permit KeyCorp to attract, retain, and motivate the best available
executive talent.
- Encourage substantial share ownership by executives.
The executive compensation program -- including the establishment of job
grades, salary ranges, and market points (the approximate average salary for
executives in similar jobs in the marketplace), and the assignment of senior
executives to job grades based upon their executive responsibilities -- was
designed and implemented with the aid of an independent outside executive
compensation consultant.
Under the compensation program adopted by KeyCorp and the Committee,
executive positions are compensated (on a total compensation basis) by
comparison with comparable positions in peer bank holding companies. The
Committee each year identifies the companies to be included in the peer group.
The peer group includes bank holding companies that, in the Committee's
judgment, have similar characteristics as KeyCorp. The 1997 peer group included
bank holding companies with assets ranging from approximately $22 billion to
$251 billion as of the beginning of 1997. All of the companies in the peer group
were included in the KBW 50 Index (which is used in the stock price performance
graph on page 32 of this Proxy Statement).
KeyCorp has established stock ownership guidelines for its senior
executives which specify that KeyCorp's Chief Executive Officer and KeyCorp's
President should own KeyCorp Common Shares with a value equal to at least five
times in the case of the Chief Executive Officer, and three times in the case of
the President, their respective annual salaries, senior executives on KeyCorp's
Management Committee (included
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among which are Messrs. Allen, Somers, and Stevens) should own KeyCorp Common
Shares with a value equal to at least two times their salary, and all other
senior executives participating in KeyCorp's long term incentive compensation
plan should own KeyCorp Common Shares with a value at least equal to their
salary. Newly hired executives and executives whose stock ownership did not meet
the guidelines at the time established have a reasonable period of time to
achieve the level of ownership set forth in the guidelines. For purposes of
these guidelines, Common Shares includes shares actually owned by the executives
as well as phantom shares owned under KeyCorp's Excess 401(k) Savings Plan and
Deferred Compensation Plan. At December 31, 1997, the senior executives covered
by KeyCorp's stock ownership guidelines owned, in the aggregate, 247% of the
KeyCorp Common Shares established by the guidelines.
In order to facilitate estate planning by senior executives, certain
nonqualified stock options granted to senior executives are transferable by the
executive to family members or trusts for family members. No senior executive
may transfer options to a family member or a trust for a family member unless
the executive is in compliance with KeyCorp's stock ownership guidelines.
1997 COMPENSATION
Adjustments to an individual executive's salary are considered annually
using competitive market comparisons and considering the executive's
contribution to KeyCorp's success and accomplishment of individual and unit
goals. Incentive compensation amounts are determined as described in more detail
below.
The Committee has determined that KeyCorp will be better able to attract,
retain and motivate executives to achieve superior financial performance if a
relatively large portion of senior executive compensation is "at risk," i.e.,
subject to incentive compensation plans. Thus, KeyCorp's compensation for senior
executives is designed to provide KeyCorp's senior executives with less total
compensation than that of senior executives of peer companies in periods when
KeyCorp's performance is poorer than performance of peer companies and to
provide superior total compensation when performance is superior to the
performance of such companies.
Under KeyCorp's short term incentive compensation plan applicable for 1997,
after the close of the year the Committee establishes a percentage of the target
pool to be paid out as short term incentive compensation (a range of 0% to 200%
of the target pool). The target pool is the sum of individual incentive targets.
Individual targets range from 10% to 50% of the individual's market point.
Individual payout can range from zero to the greater of (a) 200% of the
individual's target or (b) 150% of the target pool percentage times the
individual's incentive target. In evaluating corporate performance for purposes
of setting the percentage of the target pool to be paid out, the Committee
evaluates KeyCorp's performance as compared with KeyCorp's profit plan for the
year, and evaluates financial results (such as return on average common equity
and return on assets) as compared with companies in the peer group. The
Committee also considers such financial performance over a number of years
(usually a three year period) versus performance by the companies in the peer
group. In establishing the percentage of the target pool to be paid, the
Committee gives most weight to financial results, but also evaluates
nonfinancial accomplishments of KeyCorp and its senior executives during the
year.
In the Committee's judgment, 1997 was a strong year for KeyCorp in which
management made outstanding progress in executing on multiple strategic
initiatives undertaken at the end of 1996. KeyCorp
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achieved its profit plan for 1997. Reported earnings per share for 1997
increased 24% over 1996 reported earnings per share. The efficiency ratio
achieved in 1997 was a 334 basis point improvement over the 1996 efficiency
ratio. Return on average total equity for 1997 was 18.89% as compared to 15.64%
in 1996. In November 1996, KeyCorp announced that it would be consolidating its
community banks into a single nationwide bank (which was accomplished in
mid-1997), would be consolidating approximately 140 KeyCenters with other
KeyCenters (which was completed by the end of 1997), would be selling an
additional 140 KeyCenters (of which 117 have been sold or are under contract for
sale at the end of 1997), and would be reducing its workforce by approximately
10% (which was achieved by October 31, 1997). For 1997, based on return on
equity, KeyCorp ranked in the second quartile of its peer group. While the
Committee had complete discretion in establishing the short term incentive
compensation pool for 1997, it awarded 100 percentage points for KeyCorp
achieving its profit plan for 1997, 60 percentage points for its 1997 financial
performance in comparison to peers, and 25 percentage points for execution
during 1997 on strategic initiatives. As a result, the Committee determined that
the short term incentive compensation pool for 1997 would be 185% of the target
pool. Individual awards were paid or credited in the first quarter of 1998 among
participants in the short term plan based upon individual and group
contributions to the financial and other results of KeyCorp for the year.
Under KeyCorp's long term incentive compensation plan as in effect prior to
January 1998, the Committee establishes objective criteria by which KeyCorp's
financial performance should be judged for each three year cycle. The criteria
is based on the Committee's judgment of a return on average common equity that
will warrant satisfactory to excellent results for the three year period. For
the three year period 1997-1999, the established criteria could result in a
payout that ranges from zero to 250% of target. The maximum amount for the
1997-1999 performance period will be earned if return on average common equity
for such three year period, after adjustments which the Committee deems to be
appropriate, equals or exceeds 20%. An individual executive's target is either
20%, 25%, or 30% of the executive's market point.
Under the criteria established for the three year period 1995-1997, the
payout could range from zero to 231% of target. The average return on common
equity for this three year period was 17.32%. This resulted in a payout of
168.37% of target. The awards were paid or credited to participating executives
in the first quarter of 1998.
The Committee believes that senior executives will be motivated, and their
financial interests will be aligned with those of common shareholders, if stock
options are awarded to senior executives. The EBC Subcommittee determines the
stock option policies and makes the actual grants of options. In general, the
number of options granted to an executive is based on the executive's job grade.
With respect to the Chief Executive Officer and the President and certain senior
executives reporting directly to them, the EBC Subcommittee has determined that
options covering a specific number of shares of KeyCorp should be granted based
on the job position. For other executives the EBC Subcommittee has established a
threshold, targeted, and maximum number of shares to be covered by options for
each job grade. Within these guidelines, the EBC Subcommittee bases grants of
stock options on management's recommendation and other factors the EBC
Subcommittee deems relevant. In determining stock option grants, the EBC
Subcommittee does not feel it relevant and does not take into account options
previously awarded to the executive (whether or not the options remain
outstanding). The aggregate number and vesting terms of options may vary
depending on the
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EBC Subcommittee's judgment of the best form of long term motivation appropriate
under the particular circumstances.
For 1997, the EBC Subcommittee continued its policy established for grants
in 1996 with respect to option grants to certain executive officers. Like the
options granted in 1996, these options vest one-third each year, resulting in
full vesting after three years. However, the EBC Subcommittee determined to vary
the option terms and vesting for 1997 for the Chief Executive Officer, the
President and all executive officers participating in KeyCorp's long term
incentive compensation plan (including Messrs. Allen, Somers and Stevens), plus
selected other executive officers. The reason for this change in policy with
respect to this group of officers is the rapid transformation occurring in the
financial services industry and the need to incent this executive group to
achieve superior financial performance in the near term. Four times the number
of options that would normally be granted to these executives were granted in
the form of performance options, with vesting terms which the EBC Subcommittee
believes establish very high performance objectives. After adjustment for the
two-for-one stock split in KeyCorp Common Shares effective March 6, 1998, these
performance options vest if KeyCorp's basic earnings per share equal or exceed
$2.60 per share for the year 1999 or prior thereto, or equal or exceed $2.92 per
share for the year 2000, and, in addition to this earnings per share test,
KeyCorp's stock price exceeds $37 per share for seven consecutive trading days
by December 31, 2000, exceeds $41 per share for seven consecutive trading days
by December 31, 2001, or exceeds $45 per share for seven consecutive trading
days by December 31, 2002. These options will vest upon a change of control
occurring prior to the time the options have vested under the performance
criteria. For executives who received performance options, these performance
options were granted in lieu of any other options in 1997.
In January of 1997, 675 executives of KeyCorp were awarded options covering
6,770,650 KeyCorp Common Shares (on a post-split basis). Of the options granted
in 1997, options covering 3,658,000 KeyCorp Common Shares (on a post-split
basis), granted to 36 senior executives, were performance options.
KeyCorp has also adopted a program whereby stock options can be granted to
those employees in lower positions identified as exceptional high performers
and/or the future leaders of the organization. Under this program, in January of
1997, 264 of these employees received options covering a total of 276,000
KeyCorp Common Shares (on a post-split basis).
In all instances, the option price was 100% of the market price of the
stock at the time the option was granted.
Salary adjustments for senior executives of KeyCorp, the short term and
long term incentive compensation payments to such executives, and the grant of
stock options are based upon the above methodology. In the case of executives
with employment contracts, the same methodology is applied subject to compliance
with salary minimums specified in such contracts. In the case of executives
other than Mr. Gillespie, the Committee also solicited from Mr. Gillespie an
evaluation of such executive's performance and a compensation recommendation,
which evaluation and recommendation are additional factors considered by the
Committee, in its sole discretion, in applying the above methodology.
Internal Revenue Code Section 162(m), enacted in 1993, precludes a public
corporation from taking an income tax deduction for compensation in excess of $1
million for its chief executive officer or any of its four other highest paid
executive officers. Certain performance-based compensation is specifically
exempted from the limit upon deductibility. (For example, any compensation
derived from the exercise of stock options under
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employee stock option plans of KeyCorp is exempt from this limit.) KeyCorp's
short term and long term incentive compensation plans provide that the
Committee, in its sole discretion, has the authority to require deferral of
payment of all or a portion of awards under any such plan if the Committee
determines that KeyCorp would be denied a deduction for federal income tax
purposes for such award or the portion thereof.
Mr. Gillespie is subject to an employment agreement with KeyCorp (see pages
22-24 of this Proxy Statement).
As of April 1, 1997, the C&O Committee established Mr. Gillespie's base
salary at $900,000 per annum. Under the short term incentive compensation plan,
Mr. Gillespie's target for 1997 was $427,500 and his award could range from zero
to $1,282,500 (if the Committee established a pool of 200% of target). The
Committee determined that $1,200,000 was the appropriate short term incentive
for Mr. Gillespie for 1997 (the maximum individual payout with a target pool
percentage of 185%). As in the case of other senior executives, Mr. Gillespie is
a participant in KeyCorp's long term incentive compensation plan. For the three
year period 1995-1997, his award under the plan was $408,072 (see page 17 of
this Proxy Statement).
In determining Mr. Gillespie's base salary and total compensation, the
Committee reviewed and took into consideration the base salaries and total
compensation paid to chief executive officers of peer companies as well as the
performance of KeyCorp as compared with performance of peer companies and
performance of KeyCorp compared with KeyCorp's plans and strategies. The
Committee also considered Mr. Gillespie's leadership in defining the strategy
and direction of KeyCorp and in executing on that strategy.
Compensation and Organization Committee
Board of Directors
KeyCorp
Albert C. Bersticker
Thomas A. Commes
Kenneth M. Curtis
Stephen R. Hardis (Chair)
Douglas J. McGregor
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KEYCORP STOCK PRICE PERFORMANCE
The following graph compares the stock price performance of KeyCorp's
Common Shares (assuming reinvestment of dividends) with that of the Standard &
Poor's 500 Index and the KBW 50 Index. The Standard & Poor's 500 Index is an
index of 500 stocks designed to measure the performance of the broad domestic
economy. The KBW 50 Index is an index of the stock of fifty banks of the United
States, including all money-center and most major regional banks. KeyCorp's
stock is included in the KBW 50 Index and in the Standard & Poor's 500 Index.
KEYCORP STOCK PERFORMANCE GRAPH* (1992-1997)
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) KEYCORP KBW 50 S&P 500
12/31/92 100 100 100
109 107 104
6/30/93 111 107 105
102 110 108
12/31/93 96 106 110
98 104 106
6/30/94 105 111 106
101 109 112
12/31/94 84 100 112
96 114 122
6/30/95 108 130 134
119 151 145
12/31/95 127 160 153
137 177 162
6/30/96 139 178 169
159 200 174
12/31/96 184 227 189
179 237 194
6/30/97 207 273 228
237 313 245
12/31/97 265 332 252
* This stock price performance is not necessarily indicative of future price
performance. The stock price performance in the graph above for the period
prior to March 1, 1994 is for Society.
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SHARE OWNERSHIP AND PHANTOM STOCK UNITS
Five Percent Beneficial Ownership. To the best of KeyCorp's knowledge, no
person beneficially owns more than 5% of the outstanding KeyCorp Common Shares.
Beneficial Ownership of Common Shares and Investment in Phantom Stock
Units. The following table lists current directors of and nominees for director
of KeyCorp, the executive officers included in the Summary Compensation Table,
and all directors, nominees, and executive officers of KeyCorp as a group. The
table sets forth, as of January 15, 1998, certain information with respect to
(1) the amount and nature of beneficial ownership of KeyCorp Common Shares, (2)
the number of phantom stock units, if any, and (3) total phantom stock units and
beneficial ownership of KeyCorp Common Shares for such current directors,
nominees for director, and executive officers.
TOTAL PHANTOM
AMOUNT AND NATURE OF PERCENT OF PHANTOM STOCK UNITS AND
BENEFICIAL OWNERSHIP COMMON SHARES STOCK BENEFICIAL OWNERSHIP
NAME OF COMMON SHARES(1) OUTSTANDING(5) UNITS(6) OF COMMON SHARES
---- -------------------- -------------- -------- --------------------
Gary R. Allen...................... 206,466(2)(3) 5,828 212,294
Cecil D. Andrus.................... 16,000(3) 0 16,000
William G. Bares................... 32,800(3) 13,120 45,920
Albert C. Bersticker............... 32,000(3) 4,166 36,166
Dr. Carol A. Cartwright............ 586(3) 0 586
Thomas A. Commes................... 48,000(3) 0 48,000
Kenneth M. Curtis.................. 16,410(3) 0 16,410
John C. Dimmer..................... 900,706(3) 0 900,706
Robert W. Gillespie................ 1,062,284(2)(3) 78,182 1,140,466
Stephen R. Hardis.................. 48,000(3) 79,320 127,320
Henry S. Hemingway................. 222,666(3)(4) 0 222,666
Charles R. Hogan................... 345,338(3) 0 345,338
Douglas J. McGregor................ 15,588(3) 5,238 20,826
Henry L. Meyer III................. 634,394(2)(3) 21,504 655,898
Steven A. Minter................... 31,558(3) 18,486 50,044
M. Thomas Moore.................... 32,000(3) 9,178 41,178
Richard W. Pogue................... 58,000(3) 0 58,000
K. Brent Somers.................... 37,334(2)(3) 944 38,278
Ronald B. Stafford................. 96,682(3) 0 96,682
Thomas C. Stevens.................. 53,492(2)(3) 1,148 54,640
Dennis W. Sullivan................. 30,400(3) 41,398 71,798
Peter G. Ten Eyck, II.............. 74,718(3) 0 74,718
Nancy B. Veeder.................... 98,144(3) 0 98,144
All directors, nominees and
executive officers as a group
(28)............................. 5,371,496 309,664 5,681,160
- ---------------
(1) The above share ownership table and the following footnotes were adjusted to
reflect the two-for-one stock split in KeyCorp Common Shares which occurred
on March 6, 1998.
(2) With respect to KeyCorp Common Shares beneficially held by these individuals
or other executive officers under the KeyCorp 401(k) Savings Plan, the
shares included are as of December 31, 1997.
(3) Includes options vested as of March 16, 1998. The directors, nominees, and
executive officers listed above hold vested options as follows: Mr.
Allen -- 135,138; Mr. Andrus -- 14,000; Mr. Bares -- 28,000; Mr.
Bersticker -- 28,000; Dr. Cartwright -- 0; Mr. Commes -- 28,000; Mr.
Curtis -- 14,000; Mr. Dimmer -- 37,036; Mr. Gillespie -- 886,668; Mr.
Hardis -- 28,000; Mr. Hemingway -- 46,072; Mr. Hogan -- 37,036; Mr.
McGregor -- 14,000; Mr. Meyer -- 529,334; Mr. Minter -- 28,000; Mr.
Moore -- 28,000; Mr. Pogue -- 24,000; Mr. Somers -- 33,334; Mr.
Stafford -- 84,640; Mr. Stevens -- 40,000; Mr. Sullivan -- 28,000; Mr. Ten
Eyck -- 60,532; Ms. Veeder -- 22,636; all directors, nominees, and executive
officers as a group -- 3,282,962.
(4) Certain of these KeyCorp Common Shares are held in trusts over which Mr.
Hemingway, as a co-trustee, has shared power to vote and dispose of such
Common Shares.
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(5) No director or executive officer beneficially owns more than 1% of the total
of outstanding KeyCorp Common Shares plus options vested as of March 16,
1998.
(6) Investments in phantom stock units by directors are made pursuant to the
KeyCorp Director Deferred Compensation Plan, whereby directors may defer
payment of all or a portion of their directors fees into a Common Share
Account consisting of "phantom stock units." On a quarterly basis, the
Common Share Account is credited with an additional number of phantom stock
units equal to the number of Common Shares that could be purchased at market
value with the sum of the director's deferred fees for the quarter, plus the
amount of quarterly dividends on the phantom stock units in the Common Share
Account during the quarter as if such phantom stock units were Common
Shares. The Common Share Account is distributed only in cash (never in
Common Shares) and, at the time of distribution, each phantom stock unit is
paid based on the market value of the Common Shares as of the last business
day of the preceding calendar quarter.
Investments in phantom stock units by KeyCorp executive officers are made
pursuant to KeyCorp Excess 401(k) Savings Plan (the "Supplemental Plan") and
KeyCorp Deferred Compensation Plan (the "Deferred Plan"). Under both of
those Plans, though contributions to a participant's phantom stock account
are treated if they were invested in KeyCorp Common Shares, a participant's
account balance may only be distributed in cash (never in Common Shares).
No Common Shares are issued in connection with the Director Deferred
Compensation Plan, the Supplemental Plan or the Deferred Plan (i.e. they are
"phantom stock" plans); accordingly, directors and executive officers
participating in these Plans do not have any voting rights or investment
power with respect to or on account of the phantom stock units, and the
phantom stock units do not result in the directors or executive officers
having beneficial ownership of the Common Shares.
1999 SHAREHOLDER PROPOSALS
The deadline for shareholders to submit proposals to be considered for
inclusion in the Proxy Statement for next year's Annual Meeting of Shareholders
is December 8, 1998.
GENERAL
The Board of Directors knows of no other matters which will be presented at
the meeting. However, if other matters properly come before the meeting or any
adjournment, the person or persons voting the proxy cards will vote them in
accordance with their best judgment on such matters.
Certain rules promulgated by the SEC governing proxy disclosure specify the
circumstances under which KeyCorp is required to include in its proxy statement
a shareholder proposal, including the requirement for timely submission of the
proposal to KeyCorp by the shareholder. If a shareholder desires to bring a
proposal before the Annual Meeting of Shareholders which has not been included
in KeyCorp's proxy statement, the shareholder must strictly comply with the
applicable notice and procedural requirements set forth in KeyCorp's
Regulations. A copy of the Regulations is available to any shareholder, without
charge, upon request to the Secretary of KeyCorp. Pursuant to KeyCorp's
Regulations, a shareholder must notify KeyCorp not less than 60 nor more than 90
days prior to the meeting of any business the shareholder proposes to bring
before the meeting for a shareholder vote. These provisions of the Regulations
govern proper submission of items to be put to a shareholder vote and do not
preclude discussion by any shareholder of any business properly brought before
the meeting.
Shareholders may only nominate a person for election as a director of
KeyCorp at a meeting of shareholders if the nominating shareholder has strictly
complied with the applicable notice and procedural requirements set forth in
KeyCorp's Regulations, including, without limitation, timely providing to the
Secretary of KeyCorp the requisite notice of the proposed nominee(s) containing
all the information specified by the Regulations. KeyCorp will provide to any
shareholder, without charge, a copy of the applicable procedures governing
nomination of directors set forth in KeyCorp's Regulations upon request to the
Secretary of KeyCorp.
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KeyCorp will bear the expense of preparing, printing, and mailing this
Proxy Statement. In addition to solicitation by mail, officers and regular
employees of KeyCorp and its subsidiaries may solicit the return of proxies.
KeyCorp has engaged the services of Georgeson & Company Inc. to assist in the
solicitation of proxies at an anticipated cost of $30,000 plus expenses. KeyCorp
will request brokers, banks, and other custodians, nominees, and fiduciaries to
send proxy material to beneficial owners and will, upon request, reimburse them
for their expense in so doing.
You are urged to complete, date, sign, and return your proxy card promptly
in order to make certain your shares are voted at the meeting. KeyCorp Common
Shares represented by properly executed proxy cards will be voted in accordance
with any specification made thereon and, if no specification is made, will be
voted for the election as directors of the nominees named herein (Issue One of
this Proxy Statement), for the proposed amendment to KeyCorp's Articles of
Incorporation (Issue Two of this Proxy Statement), against the shareholder
proposal (Issue Three of this Proxy Statement), and in favor of ratifying the
appointment of Ernst & Young LLP as independent auditors for the fiscal year
ending December 31, 1998 (Issue Four of this Proxy Statement). Abstentions and,
unless a broker's authority to vote on a particular matter is limited, broker
non-votes are counted in determining the votes present at a meeting. A broker's
authority to vote on Issue Three is limited but is not limited as to Issues One,
Two, and Four. As to Issues Two and Four, a broker non-vote has the same effect
as a vote against the proposal and as to Issue Three a broker non-vote is
treated as not being present. As to Issues Two, Three, and Four, an abstention
has the same effect as a vote against the proposal. You may revoke your proxy by
a later proxy received by, or by giving notice to, KeyCorp, or in open meeting,
without affecting any vote previously taken. However, your mere presence at the
meeting will not operate to revoke your proxy.
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APPENDIX A
ARTICLE IV
AUTHORIZED SHARES OF CAPITAL STOCK
The authorized number of shares of the Corporation is 1,425,000,000, of
which 25,000,000 shall be shares of preferred stock, with a par value of $1
each, as described in Part A of this Article IV (hereinafter called "Preferred
Stock"), and 1,400,000,000 shall be Common Shares, with a par value of $1 each,
as described in Part B of this Article IV (hereinafter called "Common Shares").
A-1
41
KEYCORP LOGO
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
P KEYCORP FOR THE ANNUAL MEETING ON MAY 7, 1998
R The undersigned hereby constitutes and appoints Robert W.
O Gillespie, Henry L. Meyer III, and Thomas C. Stevens, and each of
X them, his/her true and lawful agents and proxies with full power of
Y substitution in each to represent the undersigned at the Annual
Meeting of Shareholders of KeyCorp to be held on May 7, 1998, and
at any adjournments or postponements thereof, on all matters
properly coming before said meeting.
1. Election of Directors: The nominees of the Board of (change of address)
Directors to the class whose term of office will expire ------------------------------------
in 2001 are: ------------------------------------
Cecil D. Andrus, Thomas A. Commes, Stephen R. Hardis, -----------------------------------
Douglas J. McGregor, Henry L. Meyer III, Peter G. Ten ------------------------------------
Eyck, II (If you have written in the above
2. Amendment to Articles of Incorporation to increase space, please mark the corresponding
authorized number of shares. box on the reverse side of this
3. Shareholder proposal requesting necessary steps to cause card.)
the annual election of all directors.
4. Proposal to ratify the appointment of Ernst & Young LLP
as independent auditors for the fiscal year ending
December 31, 1998.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE
APPROPRIATE BOXES, SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY
BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATIONS. YOUR SHARES CANNOT BE VOTED UNLESS YOU
SIGN AND RETURN THIS CARD.
SEE REVERSE
SIDE
..............................................................................
DETACH CARD
42
KEYCORP
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
FOR WITHHELD FOR ALL
ALL ALL EXCEPT: FOR AGAINST ABSTAIN
1. Election of Directors -- 2. Amendment to Articles of
(See reverse) Incorporation Increasing
Authorized Shares.
---------------------------
Nominee exception
FOR AGAINST ABSTAIN
3. Shareholder proposal
requesting necessary
steps to cause the annual
election of all directors.
FOR AGAINST ABSTAIN
4. Ratification of
appointment of
independent auditors.
Address Change Requested
Date:
----------------------, 1998
----------------------------
Signature(s)
----------------------------
Signature(s)
NOTE: Please sign exactly as name
appears hereon. Joint owners
should each sign. When signing
as attorney, executor,
administrator, trustee or
guardian, please give full
title as such.
This proxy when properly executed will be
voted in the manner directed herein by the
undersigned shareholder. If no direction is
made, this proxy will be voted FOR the
election of the nominees listed on the
reverse, FOR Issues 2 and 4 and AGAINST Issue
3.
In accordance with their judgment, the
proxies are authorized to vote upon any other
matters that may properly come before the
meeting. The signer hereby revokes all proxies
heretofore given by the signer to vote at said
meeting or any adjournments thereof.
..............................................................................
FOLD AND DETACH HERE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ISSUES 2 AND 4 AND AGAINST ISSUE 3.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY FORM PROMPTLY USING THE ENCLOSED
ENVELOPE.