Filed Pursuant to Rule 424(b)(2) of the
Rules and Regulations Under the Securities
Act of 1933 Registration Statement Nos.
333-88934 and 333-88934-03.
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 12, 2002)
[LOGO]
7,000,000 Trust Preferred Securities
KeyCorp Capital V
5.875% Trust Preferred Securities (TRUPS(R))
(Liquidation amount $25 per trust preferred security)
Fully and unconditionally guaranteed, to the extent described herein, by
KeyCorp
-------------
The 5.875% trust preferred securities (TRUPS(R)) will be issued by KeyCorp
Capital V, a Delaware statutory trust, which is referred to as the "Issuer
Trust." KeyCorp, an Ohio corporation, will own all of the outstanding trust
common securities of the Issuer Trust and will fully and unconditionally
guarantee, on a subordinated basis, payment of amounts due on the trust
preferred securities to the extent described in this prospectus supplement. The
Issuer Trust will use the proceeds received in connection with the sale of the
trust preferred securities and trust common securities to purchase 5.875%
junior subordinated debentures due July 30, 2033 issued by KeyCorp.
Distributions on the trust preferred securities will be cumulative from the
date of original issuance and will be payable quarterly in arrears on January
15, April 15, July 15 and October 15 of each year, commencing October 15, 2003.
The trust preferred securities may be redeemed, in whole or in part, at any
time on or after July 21, 2008 at a redemption price equal to the total
liquidation amount plus accumulated and unpaid distributions to the date of
redemption. In addition, we may redeem the trust preferred securities, in whole
but not in part, at any time if an event occurs that results in an adverse
consequence for the tax or Tier 1 regulatory capital treatment of the trust
preferred securities, or for the investment company status of the Issuer Trust.
One possible type of regulatory capital event that would permit us to redeem
the trust preferred securities is a change in the Tier 1 regulatory capital
treatment of trust preferred securities that the Federal Reserve Board could
adopt in light of certain recent accounting changes addressing the criteria for
consolidation of the Issuer Trust and the appropriate balance sheet
classification of trust preferred securities, as discussed in this prospectus
supplement.
The trust preferred securities are expected to be approved for listing on
the New York Stock Exchange, subject to official notice of issuance. We expect
trading in the trust preferred securities on the New York Stock Exchange to
begin within 30 days after the original issue date.
Investing in the trust preferred securities involves risks. See "Risk
Factors" beginning on page S-6.
-------------
PRICE $25 PER TRUST PREFERRED SECURITY
-------------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus supplement or the accompanying prospectus. Any
representation to the contrary is a criminal offense.
These securities are not insured by the Federal Deposit Insurance
Corporation or any other governmental agency. These securities are not savings
accounts or deposits.
-------------
Per Trust
Preferred Security Total
------------------ ------------
Public offering price/(1)/ $ 25 $175,000,000
Underwriting commissions to be paid by KeyCorp/(2)/ $ 0.7875 $ 5,512,500
Proceeds (before expenses) to KeyCorp Capital V $ 25 $175,000,000
--------
(1) Plus accrued distributions from July 21, 2003, if settlement occurs after
that date.
(2) Because KeyCorp Capital V will use all of the proceeds from the sale of the
trust preferred securities and its trust common securities to purchase
junior subordinated debentures of KeyCorp, KeyCorp will pay all
underwriting discounts and commissions.
-------------
The underwriters expect to deliver the trust preferred securities in
book-entry form only through the facilities of The Depository Trust Company
against payment in New York, New York on or about July 21, 2003.
This prospectus supplement and the accompanying prospectus may be used by
the underwriters, including by our broker-dealer affiliate, McDonald
Investments Inc., in connection with offers and sales of the trust preferred
securities in market-making transactions, at negotiated prices related to
prevailing market prices at the time of sale or otherwise. The underwriters,
including our broker-dealer affiliate, McDonald Investments Inc., may act as
principal or agent in such transactions.
"TRUPS(R)" is a registered service mark of Citigroup Global Markets Inc.
Sole Book-Runner Joint Lead Manager
Citigroup McDonald Investments Inc.
-------------
Merrill Lynch & Co.
Morgan Stanley
UBS Investment Bank
-------------
Bear, Stearns & Co. Inc.
Credit Suisse First Boston
Goldman, Sachs & Co.
The date of this prospectus supplement is July 14, 2003
TABLE OF CONTENTS
Prospectus Supplement
Page
----
Summary of Offering.................................................................................... S-1
Keycorp................................................................................................ S-5
Risk Factors........................................................................................... S-6
Consolidated Earnings Ratios........................................................................... S-11
Accounting Treatment; Regulatory Capital............................................................... S-12
Use of Proceeds........................................................................................ S-13
Capitalization......................................................................................... S-14
Selected Financial Data................................................................................ S-15
The Issuer Trust....................................................................................... S-16
Description of the Trust Preferred Securities.......................................................... S-18
Description of the Junior Subordinated Debentures...................................................... S-31
Description of Guarantee............................................................................... S-37
Relationship Among the Trust Preferred Securities, the Junior Subordinated Debentures and the Guarantee S-38
Supplemental U.S. Federal Income Tax Considerations.................................................... S-39
Supplemental ERISA Considerations...................................................................... S-40
Underwriting........................................................................................... S-41
Validity of Securities................................................................................. S-43
Experts................................................................................................ S-44
Prospectus
Page
----
About This Document.................................................................................... 1
Where You Can Find More Information.................................................................... 2
Summary of Offering.................................................................................... 3
Consolidated Earnings Ratios........................................................................... 8
Forward-Looking Statements............................................................................. 9
Risk Factors........................................................................................... 10
KeyCorp................................................................................................ 14
Use of Proceeds........................................................................................ 15
Regulatory Considerations.............................................................................. 16
The Issuer Trusts...................................................................................... 17
Capital Securities and Related Instruments............................................................. 19
Junior Subordinated Debentures...................................................................... 30
Guarantees and Expense Agreements................................................................... 43
Relationship Among the Capital Securities and the Related Instruments............................... 46
Issuance of Global Securities.......................................................................... 48
Plan of Distribution................................................................................... 50
U.S. Federal Income Tax Considerations................................................................. 52
ERISA Considerations................................................................................... 56
Validity of Securities................................................................................. 57
Experts................................................................................................ 57
-------------
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not, and the underwriters have not, authorized any person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus supplement, the accompanying
prospectus and the documents incorporated by reference is accurate only as of
their respective dates. KeyCorp's business, financial condition, results of
operations and prospects may have changed since such dates. If there is any
inconsistency between the information in this prospectus supplement and the
accompanying prospectus, you should rely on the information in this prospectus
supplement.
Unless otherwise indicated or unless the context requires otherwise, all
references in this prospectus supplement to "we," "us," "our" or similar
references mean KeyCorp.
FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus may contain or
incorporate "forward-looking statements" about issues like anticipated
earnings, anticipated levels of net loan charge-offs and nonperforming assets
and anticipated improvement in profitability and competitiveness, among others.
These statements usually can be identified by the use of forward-looking
language such as "our goal," "our objective," "our plan," "will likely result,"
"will be," "are expected to," "as planned," "is anticipated," "intends to," "is
projected," or similar words. Forward-looking statements by their nature are
subject to assumptions, risks and uncertainties. For a variety of reasons,
including the following, actual results could differ materially from those
contained in or implied by the forward-looking statements.
. Interest rates could change more quickly or more significantly than we
expect, which may have an adverse effect on our financial results.
. If the economy or segments of the economy fail to recover or decline, the
demand for new loans and the ability of borrowers to repay outstanding
loans may decline.
. The stock and bond markets could suffer declines or disruptions, which
may have adverse effects on our financial condition and that of our
borrowers, and on our ability to raise money by issuing new securities.
. It could take us longer than we anticipate to implement strategic
initiatives designed to increase revenues or manage expenses; we may be
unable to implement certain initiatives; or the initiatives may be
unsuccessful.
. Acquisitions and dispositions of assets, business units or affiliates
could adversely affect us in ways that management has not anticipated.
. We may become subject to new legal obligations, or the resolution of
pending litigation may have an adverse effect on our financial results.
. Terrorist activities or military actions could disrupt the economy and
the general business climate, which may have an adverse effect on our
financial results or condition and that of our borrowers.
. We may become subject to new accounting, tax or regulatory practices or
requirements.
You should refer to our periodic and current reports filed with the
Securities and Exchange Commission (and incorporated by reference herein) for
further information on other factors that could cause actual results to be
significantly different from those expressed or implied by these
forward-looking statements. See "Where You Can Find More Information" in the
accompanying prospectus.
SUMMARY OF OFFERING
This summary highlights information contained in this prospectus supplement
and the accompanying prospectus. This summary is not complete and does not
contain all the information that you should consider before investing in trust
preferred securities, which are referred to as "capital securities" in the
accompanying prospectus. You should read this entire prospectus supplement and
the accompanying prospectus carefully, especially the risks of investing in the
trust preferred securities discussed under "Risk Factors" beginning on page S-6.
Issuer Trust.................. KeyCorp Capital V is a Delaware statutory
trust created solely for the purpose of
issuing trust preferred securities to
investors and trust common securities to us
and investing the aggregate proceeds in an
equivalent amount of our junior subordinated
debentures. The junior subordinated debentures
will be the sole assets of the Issuer Trust.
KeyCorp Capital V has its principal office and
mailing address at c/o KeyCorp, 127 Public
Square, Cleveland, Ohio 44114-1306, and its
telephone number is (216) 689-6300.
The Offering.................. The Issuer Trust is offering 7,000,000 trust
preferred securities for $25 per trust
preferred security. Each trust preferred
security will represent an undivided
beneficial interest in the assets of the
Issuer Trust. The Issuer Trust will use the
proceeds from the sale of its trust preferred
securities and the trust common securities to
purchase the junior subordinated debentures
from KeyCorp. The Issuer Trust will pass
through to you as distributions the interest
payments it receives from KeyCorp on the
junior subordinated debentures. The diagram to
the left outlines a simplified form of the
relationship among investors in the trust
preferred securities, the Issuer Trust, the
junior subordinated debentures, KeyCorp and
the subordinated guarantee of the trust
preferred securities by KeyCorp. As shown to
the left:
. KeyCorp Capital V issues the trust preferred
securities.
. KeyCorp Capital V uses the proceeds from the
trust preferred securities and the trust
common securities to purchase junior
subordinated debentures issued by KeyCorp.
. KeyCorp makes quarterly payments on the
junior subordinated debentures.
. KeyCorp Capital V uses the quarterly
interest payments it receives from KeyCorp
to pay the quarterly distributions to the
holders of the trust preferred securities.
. KeyCorp will guarantee, on a subordinated
basis, payments of amounts due on the trust
preferred securities to the extent provided
under "Description of Guarantee".
See "Relationship Among the Trust Preferred
Securities, the Junior Subordinated Debentures
and the Guarantee."
S-1
Liquidation Amount............ $25 per trust preferred security.
Distributions................. Distributions on the trust preferred
securities will be cumulative from the date
they are issued and will be payable quarterly
in arrears at the annual rate of 5.875% on
January 15, April 15, July 15 and October 15
of each year, beginning October 15, 2003. The
amount of distributions payable for any period
will be computed on the basis of a 360-day
year consisting of twelve 30-day months.
Deferral of Distributions;
Certain Tax Consequences.... We may, on one or more occasions, defer
interest payments on the junior subordinated
debentures for up to 20 consecutive quarterly
periods provided that we do not declare or pay
any dividends on, or redeem, purchase,
acquire, make a liquidation payment or
guarantee payment with respect to, any shares
that rank junior to or pari passu with the
trust preferred securities, unless an event of
default under the junior indenture has
occurred and is continuing. If we defer
interest payments, the Issuer Trust also will
defer the payment of distributions on the
trust preferred securities. During any
extension period, your distributions will
continue to accrue, and interest on the unpaid
distributions will continue to compound
quarterly. However, a deferral of interest
payments cannot extend beyond the maturity
date of the junior subordinated debentures,
which is July 30, 2033. During any extension
period, you will be required to accrue
interest income and include it in your gross
income for U.S. federal income tax purposes,
even if you are a cash basis taxpayer.
Ranking....................... Except as described below under "Description
of the Trust Preferred Securities--General,"
the trust preferred securities of the Issuer
Trust will rank (i) equally, and payments on
them will be made pro rata, with the trust
common securities of the Issuer Trust, (ii)
junior to all of our senior debt and (iii)
senior to our common stock. However, the trust
preferred securities will rank senior to the
trust common securities as to payment if and
so long as we fail to make a principal or
interest payment on the junior subordinated
debentures when due. Neither the trust
preferred securities, the junior subordinated
debentures or the guarantee will contain any
terms that will limit our ability to incur
additional indebtedness, including
indebtedness that would rank senior in
priority of payment to the junior subordinated
debentures and the guarantee.
Optional Redemption........... We may redeem the trust preferred securities,
in whole or in part, at any time on or after
July 21, 2008 at a redemption price equal to
the total liquidation amount of the trust
preferred securities to be redeemed plus
accumulated and unpaid distributions to the
redemption date.
S-2
Special Event Redemption...... We may elect to redeem the trust preferred
securities, in whole but not in part, at any
time upon the occurrence of:
. changes in U.S. federal income tax laws or
regulations that could have adverse tax
consequences for us or the Issuer Trust,
. changes (including a potential change in
Federal Reserve Board guidelines that could
be adopted in light of recent accounting
changes affecting the consolidation of
variable interest entities and the financial
reporting treatment of trust preferred
securities) that could prevent us from
treating an amount equal to the liquidation
amount of the trust preferred securities as
"Tier 1" regulatory capital for purposes of
the applicable Federal Reserve Board capital
adequacy guidelines, or
. changes in laws or regulations that pose
more than an insubstantial risk that the
Issuer Trust will be required to register as
an "investment company" under the Investment
Company Act of 1940, as amended,
in each case, for a redemption price equal to
the total liquidation amount of the trust
preferred securities to be redeemed plus
accumulated and unpaid distributions to the
redemption date.
Liquidation Distribution...... We may dissolve the Issuer Trust at any time
with the prior approval of the Federal Reserve
Board, if then required. If we dissolve the
Issuer Trust, the Issuer Trust will distribute
the junior subordinated debentures to you in
exchange for the trust preferred securities.
Under certain circumstances, the holders of
trust preferred securities may be entitled to
receive an amount equal to the aggregate of
the liquidation amount plus any accrued and
unpaid distributions. In all cases, however,
distributions will be made only to the extent
of the Issuer Trust's assets that are
available after satisfaction of all
liabilities to creditors, if any.
Junior Subordinated Debentures The junior subordinated debentures will have
interest rate, distribution, redemption and
liquidation amount terms that correspond to
those terms of the trust preferred securities.
The junior subordinated debentures will mature
on July 30, 2033.
Guarantee..................... The guarantee agreement executed by us for the
benefit of the holders of the trust preferred
securities will be subordinated with respect
to the trust preferred securities but will not
guarantee payment of distributions or amounts
payable on redemption or liquidation of such
trust preferred securities when the Issuer
Trust does not have funds available to make
such payments. See "Capital Securities and
Related Instruments--Guarantees and Expense
Agreements" in the accompanying prospectus for
further details.
S-3
Use of Proceeds............... The Issuer Trust will use the proceeds from
this offering to purchase the junior
subordinated debentures issued by us. We
expect to use the net proceeds from the sale
of the junior subordinated debentures to the
Issuer Trust for general corporate purposes.
See "Use of Proceeds."
Book-Entry Issuance Only...... The trust preferred securities will be
represented by a global security that will be
deposited with and registered in the name of
The Depository Trust Company or its nominee.
This means that, except in limited
circumstances, you will not receive a physical
certificate for the trust preferred securities.
Voting Rights................. Holders of the trust preferred securities will
have only limited voting rights and, except
upon the occurrence of certain events
described in this prospectus supplement or the
accompanying prospectus, will not be entitled
to vote.
Listing....................... We intend to list the trust preferred
securities on the New York Stock Exchange and
expect trading in the trust preferred
securities on the New York Stock Exchange to
begin within 30 days after the original issue
date.
ERISA Considerations.......... If you are a fiduciary of a pension,
profit-sharing or other employee benefit plan
subject to Title 1 of the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), or section 4975 of the Internal
Revenue Code of 1986, as amended (the "Code"),
you should consider the requirements of ERISA
and the Code in the context of the plan's
particular circumstances and ensure the
availability of an applicable exemption before
authorizing an investment in the trust
preferred securities. See "Supplemental ERISA
Considerations" in this prospectus supplement.
S-4
KEYCORP
KeyCorp, organized in 1958 under the laws of the state of Ohio, is
headquartered in Cleveland, Ohio. We are a bank holding company and have
elected to be regulated as a financial holding company under the Bank Holding
Company Act of 1956, as amended. At March 31, 2003, we were one of the nation's
largest bank-based financial services companies with consolidated total assets
of $86.5 billion. Our subsidiaries provide a wide range of retail and
commercial banking, commercial leasing, investment management, consumer finance
and investment banking products and services to individual, corporate and
institutional clients through three major business groups: Consumer Banking,
Corporate and Investment Banking and Investment Management Services. As of
March 31, 2003, these services were provided across much of the country through
subsidiaries operating 911 full-service banking offices, a telephone banking
call center services group and a network of 2,179 ATMs in 16 states. We and our
subsidiaries had 20,221 full-time equivalent employees as of March 31, 2003.
In addition to the customary banking services of accepting deposits and
making loans, our bank and trust company subsidiaries provide specialized
services, including personal and corporate trust services, personal financial
services, customer access to mutual funds, cash management services, investment
banking and capital markets products, and international banking services.
Through our subsidiary banks and trust company and registered investment
adviser subsidiaries, we provide investment management services to individual
and institutional clients, including large corporate and public retirement
plans, foundations and endowments, high-net-worth individuals and Taft-Hartley
plans (i.e., multiemployer trust funds established for providing pension,
vacation or other benefits to employees).
We provide other financial services both inside and outside of our primary
banking markets through our nonbank subsidiaries. These services include
accident and health insurance on loans made by subsidiary banks, principal
investing, community development financing, securities underwriting and
brokerage and other financial services. We are an equity participant in a joint
venture with Key Merchant Services, LLC, which provides merchant services to
businesses.
Our principal office and mailing address is 127 Public Square, Cleveland,
Ohio 44114-1306. Our telephone number is (216) 689-6300.
S-5
RISK FACTORS
An investment in the trust preferred securities involves a number of risks,
some of which relate to the terms of the trust preferred securities or the
junior subordinated debentures and others of which relate to KeyCorp and its
business. You should carefully review the following information about these
risks together with other information contained in this prospectus supplement
and the accompanying prospectus and in documents incorporated by reference in
this prospectus supplement and the accompanying prospectus before deciding
whether this investment is suitable for you.
You are making an investment decision with regard to the junior subordinated
debentures as well as the trust preferred securities. The Issuer Trust will
rely on the payments it receives on the junior subordinated debentures to fund
all payments on the trust preferred securities. In addition, the Issuer Trust
may distribute the junior subordinated debentures in exchange for the trust
preferred securities upon its dissolution and liquidation. Accordingly, you
should carefully review the information in this prospectus supplement and the
accompanying prospectus regarding both of these securities.
The following discussion of some of the more important risks of investing in
the trust preferred securities supercedes the discussion under "Risk Factors"
in the accompanying prospectus.
Payments on the trust preferred securities are dependent on our payments on
the junior subordinated debentures.
The ability of the Issuer Trust to pay distributions on the trust preferred
securities and to pay the liquidation amount is dependent upon our making the
related payments on the junior subordinated debentures when due.
If we default on our obligation to pay principal of or interest on the
junior subordinated debentures, the Issuer Trust will not have sufficient funds
to pay distributions or the liquidation amount. As a result, you will not be
able to rely upon the guarantee for payment of these amounts because our
guarantee will not guarantee payment of distributions or amounts payable on
redemption or liquidation of such trust preferred securities when the Issuer
Trust does not have sufficient funds available to make such payments. You or
the property trustee of the Issuer Trust may, however, sue us to enforce the
rights of the Issuer Trust under the junior subordinated debentures. For more
information, please refer to "Description of the Trust Preferred
Securities--Payment of Distributions" and "--Events of Default Under the
Amended and Restated Trust Agreement" in this prospectus supplement and
"Capital Securities and Related Instruments--Junior Subordinated
Debentures--Enforcement of Certain Rights by Holders of Capital Securities" and
"--Relationship Among the Capital Securities and the Related
Instruments--Enforcement Rights of Holders of Capital Securities" in the
accompanying prospectus.
Our obligations will be deeply subordinated, and we will pay our other debt
obligations before we pay you.
Our obligations under the guarantee and under the junior subordinated
debentures will be unsecured and rank subordinate and junior in right of
payment to all of our senior indebtedness. As of March 31, 2003, our senior
indebtedness was approximately $17.2 billion. For further information regarding
our existing indebtedness, see "Description of the Junior Subordinated
Debentures--Subordination" in this prospectus supplement and "Capital
Securities and Related Instruments--Junior Subordinated
Debentures--Subordination of Junior Subordinated Debentures" in the
accompanying prospectus.
Because we are a holding company, our right to participate in any
distribution of the assets of our banking or nonbanking subsidiaries, upon a
subsidiary's dissolution, winding-up, liquidation or reorganization or
otherwise, and thus your ability to benefit indirectly from such distribution,
is subject to the prior claims of creditors of that subsidiary, except to the
extent that we may be a creditor of that subsidiary and our claims are
recognized. There are legal limitations on the extent to which some of our
subsidiaries may extend credit, pay
S-6
dividends or otherwise supply funds to, or engage in transactions with, us or
some of our other subsidiaries. Accordingly, the junior subordinated debentures
and the guarantee will be effectively subordinated to all existing and future
liabilities of our subsidiaries, and holders of junior subordinated debentures
and the guarantee should look only to our assets for payments on the junior
subordinated debentures and the guarantee.
Neither the junior indenture governing the junior subordinated debentures
nor the amended and restated trust agreement and the guarantee relating to the
trust preferred securities will place any limitation on the nature or amount of
additional indebtedness that we, or our subsidiaries, may incur in the future.
We may redeem the trust preferred securities if certain adverse consequences
occur as a result of certain tax, regulatory capital or investment company
law events.
If adverse changes in the tax laws, investment company laws or applicable
banking laws and regulations affecting the Tier 1 regulatory capital treatment
of trust preferred securities occur, we may redeem the junior subordinated
debentures, in whole but not in part, within 90 days following the occurrence
of the event, subject to any required approval from the Federal Reserve Board.
We may also redeem the junior subordinated debentures at our option in whole or
in part on one or more occasions at any time on or after July 21, 2008, subject
to any required approval from the Federal Reserve Board.
If the junior subordinated debentures are redeemed, the trust preferred
securities will also be redeemed at a redemption price equal to the total
liquidation amount of $25 per trust preferred security plus accumulated and
unpaid distributions to the redemption date.
Under current United States federal income tax law, the redemption of the
trust preferred securities would be a taxable event to you.
In addition, you may not be able to reinvest the money you receive upon
redemption at a rate that is equal to or higher than the rate of return you
would have received on the trust preferred securities.
For further information on redemption, see "Description of the Trust
Preferred Securities--Redemption" and "Description of the Junior Subordinated
Debentures--Redemption" in this prospectus supplement and "Capital Securities
and Related Instruments--Junior Subordinated Debentures--Redemption" and
"--Conversion or Exchange" in the accompanying prospectus.
Recent accounting changes may give rise to a future regulatory capital
treatment event that would entitle us to redeem the trust preferred
securities and may also reduce our consolidated capital ratios.
In January 2003, the Financial Accounting Standards Board (the "FASB")
issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities
("FIN 46"), that addresses the consolidation rules to be applied to "variable
interest entities." FIN 46 has raised questions about whether variable interest
entities similar to the Issuer Trust should be treated as consolidated
subsidiaries of the companies that use them to issue trust preferred
securities. The FASB also recently issued Statement of Financial Accounting
Standards No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity ("FAS 150"), which provides
accounting guidance for the appropriate financial reporting balance sheet
classification of trust preferred securities. Traditionally, issuer trusts used
for issuing trust preferred securities have been consolidated by their parent
companies and trust preferred securities have been treated as eligible for
"Tier 1" regulatory capital treatment by bank holding companies under Federal
Reserve Board rules and regulations. Accordingly, KeyCorp has consolidated its
existing issuer trusts in preparing its consolidated financial statements in
the past and its outstanding trust preferred securities have been treated as
Tier 1 regulatory capital by KeyCorp. Further, KeyCorp has classified its
existing outstanding trust preferred securities as liabilities on its
consolidated balance sheet in the past.
S-7
If we conclude, in light of an interpretation of FIN 46 as applied to our
issuer trusts, that our issuer trusts should no longer be consolidated by us in
preparing our financial statements in accordance with generally accepted
accounting principles, then we would be required to make certain adjustments to
our financial statements during the third quarter of 2003 to reflect the
deconsolidation. Moreover, if deconsolidation is required under FIN 46 (or FAS
150 is construed as requiring a general change in the financial reporting
classification of trust preferred securities), there could be a change to the
regulatory capital treatment of trust preferred securities issued by U.S. bank
holding companies. Specifically, it is possible that the Federal Reserve Board
may conclude that trust preferred securities should no longer be treated as
Tier 1 regulatory capital. If Tier 1 treatment were disallowed, then:
. we would be able to redeem the trust preferred securities (and any other
outstanding trust preferred securities we may have outstanding at that
time) pursuant to the special "capital treatment event" redemption
described just above and, in more detail, elsewhere is this prospectus
supplement, and
. there would be a reduction in KeyCorp's consolidated capital ratios
(although we believe that we would remain "well capitalized" under
Federal Reserve Board guidelines). See "Description of the Trust
Preferred Securities--Redemption" in this prospectus supplement.
Distributions on the trust preferred securities could be deferred; you may
have to include interest in your taxable income before you receive cash.
We may defer the payment of interest on the junior subordinated debentures
at any time for up to 20 consecutive quarterly periods, provided that (1) no
extension period may extend beyond the stated maturity date and (2) we are not
in default under the junior indenture governing the junior subordinated
debentures. If there is a deferral, the Issuer Trust also will defer
distributions on the trust preferred securities. During an extension period,
your distributions will continue to accrue, and interest on the unpaid
distributions will compound quarterly.
At the end of any extension period and the payment of all interest then
accrued and unpaid, we may elect to begin a new extension period. There is no
limitation on the number of extension periods. For further information on our
option to defer payments, see "Description of the Trust Preferred
Securities--Deferral of Distributions" in this prospectus supplement and
"Capital Securities and Related Instruments--Junior Subordinated
Debentures--Option to Defer Interest Payments" in the accompanying prospectus.
During an extension period, you may be required to accrue interest income
for U.S. federal income tax purposes on your proportionate share of the junior
subordinated debentures held by the Issuer Trust, even if you are a cash basis
taxpayer. As a result, you may need to include this income in your gross income
for U.S. federal income tax purposes in advance of the receipt of cash. You
also may receive the cash related to any accrued and unpaid interest income
from the Issuer Trust if you dispose of the trust preferred securities prior to
the record date for the payment of distributions. For further information, see
"U.S. Federal Income Tax Considerations--Interest Income and Original Issue
Discount" and "--Sale or Redemption of Capital Securities" in the accompanying
prospectus.
The market price of the trust preferred securities may not reflect unpaid
interest, and, as a result, you may suffer a loss if you sell them while
interest remains unpaid.
Because of our right to defer interest payments on the junior subordinated
debentures, the market price of the trust preferred securities may be more
volatile than the market prices of similar securities that do not have this
feature. If we exercise our right to defer, the market price of the trust
preferred securities may decline. Accordingly, the trust preferred securities
that you purchase, whether in the offering made pursuant to this prospectus
supplement or in the secondary market, or the junior subordinated debentures
that you may receive on liquidation of the Issuer Trust, may trade at a
discount to the price that you paid.
If you dispose of your trust preferred securities before the record date for
the payment of a distribution, then you will not receive that distribution.
However, you will be required to include accrued but unpaid interest on the
S-8
junior subordinated debentures through the date of the sale as ordinary income
for U.S. federal income tax purposes and to add the amount of the accrued but
unpaid interest to your tax basis in the trust preferred securities. Your
increased tax basis in the trust preferred securities will increase the amount
of any capital loss that you may have otherwise realized on the sale. For
further information on tax consequences, see "U.S. Federal Income Tax
Considerations--Sale or Redemption of Capital Securities" in the accompanying
prospectus.
Under certain circumstances, the Issuer Trust may distribute the junior
subordinated debentures in exchange for the trust preferred securities, which
could affect the market price and could be a taxable event.
We may dissolve the Issuer Trust at any time. After satisfying its
liabilities to its creditors, if any, the Issuer Trust may distribute the
junior subordinated debentures to the holders of the trust preferred securities
and trust common securities. We will not dissolve the Issuer Trust without the
prior approval of the Federal Reserve Board, if then required under applicable
Federal Reserve Board capital guidelines or policies. For further information,
see "Description of the Trust Preferred Securities--Distribution of Junior
Subordinated Debentures" in this prospectus supplement and "Description of
Capital Securities--Liquidation Distribution Upon Dissolution" in the
accompanying prospectus.
We cannot predict the market price for the junior subordinated debentures
that may be distributed in exchange for the trust preferred securities.
Accordingly, the trust preferred securities, or the junior subordinated
debentures that you may receive on liquidation of the Issuer Trust, may trade
at a discount to the price that you paid to purchase the trust preferred
securities.
Under current U.S. federal income tax law and assuming, as we expect, that
the amended and restated trust agreement will contain substantially identical
terms as the form of amended and restated trust agreement attached as an
exhibit to our registration statement filed with the SEC, and the Issuer Trust
will not be classified as an association taxable as a corporation, you should
not be taxed if we dissolve the Issuer Trust and the Issuer Trust distributes
junior subordinated debentures to you. However, if the Issuer Trust were to
become taxed on the income received or accrued on the junior subordinated
debentures due to a tax event, both you and the Issuer Trust might be taxed on
a distribution of the junior subordinated debentures by the Issuer Trust. For
further information, see "U.S. Federal Income Tax Considerations--Distribution
of Junior Subordinated Debentures to Holders of Capital Securities Upon
Liquidation of the Issuer Trusts" in the accompanying prospectus.
Investors will have only limited voting rights.
We will hold all of the trust common securities of the Issuer Trust. These
securities give us the right to control nearly all aspects of the
administration, operation or management of the Issuer Trust, including
selection and removal of the administrative trustees. The trust preferred
securities will generally have no voting rights. You will be able to vote only
on matters relating to the modification of the terms of the trust preferred
securities or the junior subordinated debentures, the acceleration of payments
and other matters described in this prospectus supplement and the accompanying
prospectus. For further information, see "Description of the Trust Preferred
Securities--Voting Rights; Amendment of the Amended and Restated Trust
Agreement" in this prospectus supplement and "Capital Securities and Related
Instruments--Voting Rights; Amendment of Each Trust Agreement" in the
accompanying prospectus.
Listing of the trust preferred securities does not guarantee their liquidity
or full value.
Although we expect the trust preferred securities to be approved for listing
on the New York Stock Exchange, you should be aware that an active trading
market may not develop. Although we expect the underwriters to make a market in
the trust preferred securities prior to commencement of trading on the New
S-9
York Stock Exchange, they are not obligated to do so. They may also discontinue
these market-making activities at any time without notice. We cannot assure the
liquidity of the trading market for the trust preferred securities.
The trust preferred securities may trade at prices that do not fully reflect
the value of accrued and unpaid interest with respect to the junior
subordinated debentures. See "U.S. Federal Income Tax Considerations--Interest
Income and Original Issue Discount" and "--Sale or Redemption of Capital
Securities" in the accompanying prospectus for a discussion of the United
States federal income tax consequences that may result from a taxable
disposition of the trust preferred securities.
The market value of the trust preferred securities may be influenced by
unpredictable factors.
The market value of your trust preferred securities may fluctuate between
the date you purchase them and the date on which you sell them or they are
redeemed. Several factors, many of which are beyond our control, will influence
the market value of the trust preferred securities. Factors that may influence
the market value of the trust preferred securities include:
. the creditworthiness of KeyCorp and the level of its regulatory capital
from time to time;
. whether distributions have been and are likely to be paid on the trust
preferred securities from time to time;
. supply and demand for the trust preferred securities; and
. economic, financial, geopolitical, regulatory or judicial events that
affect KeyCorp or the financial markets generally.
Accordingly, if you sell your trust preferred securities in the secondary
market, you may not be able to obtain a price equal to the face amount of the
trust preferred securities or the price that you paid for your trust preferred
securities.
S-10
CONSOLIDATED EARNINGS RATIOS
The following table shows our consolidated ratios of earnings to fixed
charges and preferred stock dividends for each of the years in the five-year
period ended December 31, 2002, and for each of the three-month periods ended
March 31, 2003 and 2002.
For the purpose of calculating the ratio of earnings to fixed charges and
preferred stock dividends, we divided consolidated income, before income taxes
and the cumulative effect of accounting changes, plus fixed charges by fixed
charges. Fixed charges consist of:
. consolidated interest expense, excluding or including interest on
deposits, as the case may be; and
. that portion of rental expense that is deemed representative of the
interest factor, net of income from subleases.
Three Months
Ended
March 31, Years Ended December 31,
------------ ------------------------
2003 2002 2002 2001 2000 1999 1998
---- ---- ---- ---- ---- ---- ----
Ratios of earnings to fixed charges
Excluding deposit interest................... 2.84 2.52 2.76 1.19 1.83 2.02 1.97
Including deposit interest................... 1.84 1.67 1.80 1.09 1.42 1.57 1.51
Ratios of earnings to combined fixed charges and
preferred stock dividends
Excluding deposit interest................... 2.84 2.52 2.76 1.19 1.83 2.02 1.97
Including deposit interest................... 1.84 1.67 1.80 1.09 1.42 1.57 1.51
S-11
ACCOUNTING TREATMENT; REGULATORY CAPITAL
As discussed above under "Risk Factors--Recent accounting changes may give
rise to a future regulatory capital treatment event that would entitle us to
redeem the trust preferred securities and may also reduce our consolidated
capital ratios," FIN 46 has raised questions about whether variable interest
entities similar to the Issuer Trust should be treated as consolidated
subsidiaries of the companies that use them to issue trust preferred
securities. In addition, FAS 150 provides accounting guidance for the
appropriate financial reporting balance sheet classification of trust preferred
securities. Traditionally, issuer trusts used for issuing trust preferred
securities have been consolidated by their parent companies. Accordingly, we
have consolidated our issuer trusts in preparing our consolidated financial
statements in the past and our previously issued trust preferred securities
have been treated as "Tier 1" regulatory capital for bank regulatory purposes
by us. Further, we have classified our existing outstanding trust preferred
securities as liabilities on our consolidated balance sheet in the past and we
believe this classification is consistent with new FAS 150.
If we conclude in light of an interpretation of FIN 46 as applied to our
issuer trusts that our issuer trusts should no longer be consolidated by us,
then we would be required to make certain adjustments to our financial
statements during the third quarter of 2003 to reflect the deconsolidation. We
do not believe that such adjustments would have a material effect on our
financial condition or results of operations as presented in our consolidated
financial statements.
In addition, if deconsolidation is required under FIN 46 (or FAS 150 is
construed as requiring a general change in the financial reporting
classification of trust preferred securities), there could be a change to the
regulatory capital treatment of trust preferred securities issued by U.S. bank
holding companies. Specifically, it is possible that the Federal Reserve Board
may conclude that trust preferred securities are no longer to be treated as
Tier 1 regulatory capital. If Tier 1 treatment were disallowed, then there
would be a reduction in KeyCorp's consolidated capital ratios. We nonetheless
believe that we would remain "well capitalized" under existing Federal Reserve
Board guidelines.
As of March 31, 2003, on a pro forma basis, after giving effect to the
offering of the trust preferred securities and the repurchase of some of our
outstanding trust preferred securities after March 31, 2003, we had
approximately $1.40 billion in outstanding trust preferred securities that we
treated as Tier 1 regulatory capital for bank regulatory purposes. If all the
outstanding trust preferred securities issued by KeyCorp were not treated as
Tier 1 regulatory capital at that time, including those offered hereby, our
Tier 1 capital ratio would have declined from 8.22% to 6.88%, our risk adjusted
total capital ratio would have declined from 12.62% to 11.28%, and our leverage
ratio would have declined from 8.12% to 6.80%, each on a pro forma basis using
figures reported as of March 31, 2003. These reduced pro forma capital ratios
would continue to meet the applicable Federal Reserve Board requirements for
"well capitalized" status. See "Capitalization" in this prospectus supplement.
S-12
USE OF PROCEEDS
We expect to use the net proceeds from the sale of the junior subordinated
debentures for general corporate purposes, which may include:
. reducing or refinancing existing debt;
. repurchasing outstanding trust preferred securities;
. investments at the holding company level;
. investing in, or extending credit to, our operating subsidiaries;
. possible acquisitions or other business combinations; and
. stock repurchases.
Pending such use, we may temporarily invest the net proceeds. The precise
amounts and timing of the application of proceeds will depend upon our funding
requirements and the availability of other funds. Allocations of the proceeds
to specific purposes have not been made at the date of this prospectus
supplement.
S-13
CAPITALIZATION
The following table sets forth the consolidated capitalization of KeyCorp as
of March 31, 2003, and as adjusted to give effect to (i) the issuance and sale
of the trust preferred securities and the application of the proceeds thereof
and (ii) the repurchase of some of KeyCorp's outstanding trust preferred
securities after March 31, 2003. You should read the following table together
with our consolidated financial statements and notes thereto incorporated by
reference into this prospectus supplement and the accompanying prospectus.
March 31, 2003
-------------------
Actual As Adjusted
------- -----------
(in millions)
Long-term debt......................................................... $16,269 $16,269
Outstanding trust preferred securities................................. 1,250 1,250
Outstanding trust preferred securities repurchased after March 31, 2003 -- (15)
5.875% trust preferred securities offered hereby....................... -- 175
Shareholders' equity:
Common stock, par value $1.00 per share............................. 492 492
Capital surplus..................................................... 1,449 1,449
Retained earnings................................................... 6,536 6,536
Treasury stock...................................................... (1,621) (1,621)
Accumulated other comprehensive income.............................. 42 42
------- -------
Total shareholders' equity...................................... 6,898 6,898
------- -------
Total........................................................... $24,417 $24,577
======= =======
The regulatory capital treatment of the trust preferred securities is
discussed elsewhere in this prospectus supplement (see "Accounting Treatment;
Regulatory Capital") and in documents incorporated by reference; see in
particular note 13 to our consolidated financial statements contained in our
most recent annual report on Form 10-K for the year ended December 31, 2002
filed with the SEC and incorporated by reference herein.
S-14
SELECTED FINANCIAL DATA
The following selected consolidated financial data for and as of the years
ended December 31, 1998 through December 31, 2002 are derived from our
consolidated financial statements for those years, which have been audited by
Ernst & Young LLP. The selected financial data for the three months ended March
31, 2002 and 2003 have been derived from our unaudited financial statements
and, in our opinion, reflect all adjustments (consisting of normal accruals)
necessary to present fairly the data for those periods. Our results of
operations for the three months ended March 31, 2003 may not be indicative of
results that may be expected for the full year. You should read the table below
in conjunction with the applicable "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and KeyCorp's consolidated
financial statements and notes thereto, each incorporated by reference in this
prospectus supplement and the accompanying prospectus.
Three Months
Ended March 31, Year Ended December 31,
------------------ ------------------------------------------------
2003 2002 2002 2001 2000 1999 1998
-------- -------- -------- -------- -------- -------- --------
(Dollars in millions, except per share data)
For the Period:
Interest income.................................... $ 1,021 $ 1,092 $ 4,366 $ 5,627 $ 6,277 $ 5,695 $ 5,525
Interest expense................................... 340 438 1,617 2,802 3,547 2,908 2,841
Net interest income................................ 681 654 2,749 2,825 2,730 2,787 2,684
Provision for loan losses.......................... 130 136 553 1,350 490 348 297
Noninterest income................................. 397 443 1,769 1,725 2,194 2,315 1,600
Noninterest expense................................ 657 661 2,653 2,941 2,917 3,070 2,508
Income before income taxes and cumulative effect of
accounting changes................................ 291 300 1,312 259 1,517 1,684 1,479
Income before cumulative effect of accounting
changes........................................... 217 240 976 157 1,002 1,107 996
Net income......................................... 217 240 976 132 1,002 1,107 996
Net income applicable to common shares............. 217 240 976 132 1,002 1,107 996
Per Common Share Data:
Income before cumulative effect of accounting
changes........................................... $ 0.51 $ 0.56 $ 2.29 $ 0.37 $ 2.32 $ 2.47 $ 2.25
Income before cumulative effect of accounting
changes--assuming dilution........................ 0.51 0.56 2.27 0.37 2.30 2.45 2.23
Net income......................................... 0.51 0.56 2.29 0.31 2.32 2.47 2.25
Net income--assuming dilution...................... 0.51 0.56 2.27 0.31 2.30 2.45 2.23
Cash dividends paid................................ 0.305 0.30 1.20 1.18 1.12 1.04 0.94
Book value at period end........................... 16.32 15.05 16.12 14.52 15.65 14.41 13.63
Weighted average common shares (000)............... 425,275 424,855 425,451 424,275 432,617 448,168 441,895
Weighted average common shares and potential
common shares (000)............................... 428,090 430,019 430,703 429,573 435,573 452,363 447,437
At Period End:
Loans.............................................. $ 62,719 $ 63,956 $ 62,457 $ 63,309 $ 66,905 $ 64,222 $ 62,012
Earning assets..................................... 75,113 72,382 73,635 71,672 77,316 73,733 70,240
Total assets....................................... 86,490 81,359 85,202 80,938 87,270 83,395 80,020
Deposits........................................... 50,455 43,233 49,346 44,795 48,649 43,233 42,583
Long-term debt..................................... 16,269 15,256 15,605 14,554 14,161 15,881 12,967
Capital securities................................. 1,250 1,273 1,260 1,288 1,243 1,243 997
Total shareholders' equity......................... 6,898 6,402 6,835 6,155 6,623 6,389 6,167
Performance Ratios:
Return on average total assets..................... 1.05% 1.20% 1.19% 0.16% 1.19% 1.37% 1.32%
Return on average equity........................... 12.91 15.53 14.96 2.01 15.39 17.68 17.97
Net interest margin (taxable equivalent)........... 3.86 3.93 3.97 3.81 3.69 3.93 4.08
Capital Ratios at Period End:
Equity to assets................................... 7.98% 7.87% 8.02% 7.60% 7.59% 7.66% 7.71%
Tangible equity to tangible assets................. 6.71 6.57 6.73 6.29 6.12 6.03 5.93
Tier 1 risk-based capital.......................... 8.22 7.92 8.09 7.43 7.72 7.68 7.21
Total risk-based capital........................... 12.62 12.02 12.51 11.41 11.48 11.66 11.69
Tier 1 leverage.................................... 8.12 8.13 8.15 7.65 7.71 7.77 6.95
Asset Quality Data:
Nonperforming loans................................ $ 904 $ 973 $ 943 $ 910 $ 650 $ 447 $ 384
Nonperforming assets............................... 968 1,012 993 947 672 473 423
Allowance for loan losses.......................... 1,421 1,607 1,452 1,677 1,001 930 900
Net loan charge-offs............................... 161 206 780 673 414 318 297
Nonperforming loans to period-end loans............ 1.44% 1.52% 1.51% 1.44% 0.97% 0.70% 0.62%
Nonperforming assets to period-end loans plus OREO
and other nonperforming assets.................... 1.54 1.58 1.59 1.49 1.00 0.74 0.68
Allowance for loan losses to nonperforming loans... 157.19 165.16 153.98 184.29 154.00 208.05 234.38
Allowance for loan losses to period-end loans...... 2.27 2.51 2.32 2.65 1.50 1.45 1.45
Net loan charge-offs to average loans.............. 1.04 1.32 1.23 1.02 0.63 0.51 0.52
S-15
THE ISSUER TRUST
KeyCorp Capital V is a statutory trust created under Delaware law pursuant
to:
. a trust agreement executed as of August 6, 1999 by us, as depositor of
the Issuer Trust, and the Delaware trustee of the Issuer Trust; and
. a certificate of trust filed with the Delaware Secretary of State on
August 6, 1999.
The Issuer Trust will offer to the public trust preferred securities
representing undivided beneficial interests in the asset of the Issuer Trust.
In addition to trust preferred securities offered to the public, the Issuer
Trust will sell to KeyCorp common securities representing common beneficial
interests in the Issuer Trust. All of the trust common securities of the Issuer
Trust will be owned by us. The trust common securities and the trust preferred
securities are also referred to together as the "trust securities."
The total pro forma capitalization of KeyCorp Capital V, as adjusted to give
effect to the offering of the trust preferred securities offered hereby and the
issuance of the trust common securities to KeyCorp, will be $180,412,325, which
consists of trust common securities representing shareholders' equity of
$5,412,500 and trust preferred securities with an aggregate liquidation
preference of $175,000,000, issuable in denominations of $25 per trust
preferred security.
Before the trust preferred securities are issued, the trust agreement for
the Issuer Trust will be amended and restated in its entirety substantially in
the form filed with our SEC registration statement. The amended and restated
trust agreement will be qualified as an indenture under the Trust Indenture Act
of 1939.
The Issuer Trust exists for the exclusive purposes of:
. issuing and selling its trust preferred securities;
. using the proceeds from the sale of these trust preferred securities to
acquire the junior subordinated debentures from us; and
. engaging in only those other activities necessary or incidental to these
purposes (for example, registering the transfer of the trust preferred
securities).
The payment terms of the junior subordinated debentures will be virtually
the same as the terms of the Issuer Trust's trust preferred securities.
The Issuer Trust will use the funds to make any cash payments due to holders
of its trust preferred securities.
The Issuer Trust will also be a party to an expense agreement with KeyCorp.
Under the terms of the expense agreement, the Issuer Trust will have the right
to be reimbursed by us for certain expenses with the interest payments on the
junior subordinated debentures it receives.
The trust common securities of the Issuer Trust will rank equally, and
payments on them will be made pro rata, with the trust preferred securities of
the Issuer Trust, except that upon the occurrence and continuance of an event
of default under the amended and restated trust agreement resulting from an
event of default under the junior indenture, our rights, as holder of the trust
common securities, to payment in respect of distributions and payments upon
liquidation or redemption will be subordinated to the rights of the holders of
the trust preferred securities of the Issuer Trust. See "Capital Securities and
Related Instruments--Subordination of Trust Common Securities" in the
accompanying prospectus. We will acquire trust common securities in an
aggregate liquidation amount greater than or equal to 3% of the total capital
of the Issuer Trust.
Under certain circumstances, we may redeem the junior subordinated
debentures that we sold to the Issuer Trust. If this happens, the Issuer Trust
will redeem a like amount of the trust preferred securities that it sold to the
public and the trust common securities that it sold to us on a pro rata basis.
Under certain circumstances, we may dissolve the Issuer Trust and cause the
junior subordinated debentures to be distributed to the holders of the trust
preferred securities. If this happens, holders of the trust preferred
S-16
securities will no longer have any interest in such Issuer Trust and will only
own the junior subordinated debentures issued by us.
Generally, we will need the approval of the Federal Reserve Board to redeem
the junior subordinated debentures or to dissolve the Issuer Trust. A more
detailed description is provided under the heading "Description of the Trust
Preferred Securities--Mandatory Redemption" in this prospectus supplement and
"Capital Securities and Related Instruments--Liquidation Distribution Upon
Dissolution" in the accompanying prospectus.
Pursuant to the amended and restated trust agreement:
. the Issuer Trust will have a term of approximately 30 years from the date
it issues the trust preferred securities, but may terminate earlier as
provided in the amended and restated trust agreement;
. the Issuer Trust's business and affairs will be conducted by its trustees;
. the trustees will be appointed by us as holder of the trust common
securities;
. the trustees for the Issuer Trust will be Deutsche Bank Trust Company
Americas, as property trustee, and Deutsche Bank Trust Company Delaware,
as Delaware trustee, and two individual administrative trustees who are
employees or officers of or affiliated with KeyCorp. These trustees are
also referred to as the "Issuer Trust trustees." Deutsche Bank Trust
Company Americas, as property trustee, will act as sole indenture trustee
under the amended and restated trust agreement for purposes of compliance
with the Trust Indenture Act of 1939. Deutsche Bank Trust Company
Americas will also act as a trustee under the guarantee and the junior
indenture. See "Capital Securities and Related Instruments--Guarantees
and Expense Agreements" and "--Junior Subordinated Debentures" in the
accompanying prospectus;
. if an event of default under the amended and restated trust agreement
resulting from an event of default under the junior indenture for the
Issuer Trust has occurred and is continuing, the holders of a majority in
liquidation amount of the trust preferred securities will be entitled to
appoint, remove or replace the property trustee and/or the Delaware
trustee for the Issuer Trust;
. under all circumstances, only the holder of the trust common securities
has the right to vote to appoint, remove or replace the administrative
trustees;
. the duties and obligations of each Issuer Trust trustee are governed by
the amended and restated trust agreement; and
. we will pay all fees and expenses related to the Issuer Trust and the
offering of the trust preferred securities and will pay, directly or
indirectly, all ongoing costs, expenses and liabilities of the Issuer
Trust.
The principal executive office of the Issuer Trust is 127 Public Square,
Cleveland, Ohio 44114-1306, and its telephone number is (216) 689-6300.
S-17
DESCRIPTION OF THE TRUST PREFERRED SECURITIES
The trust preferred securities will be issued pursuant to the amended and
restated trust agreement. The amended and restated trust agreement will be
qualified as an indenture under the Trust Indenture Act of 1939. The terms of
the trust preferred securities will include those in the amended and restated
trust agreement and those made part of the amended and restated trust agreement
by the Trust Indenture Act of 1939. The following summary of the material terms
and provisions of the trust preferred securities is not intended to be
complete. You should read the following description together with the amended
and restated trust agreement to help you understand the terms of the trust
preferred securities. A form of the amended and restated trust agreement has
been filed as an exhibit to the registration statement of which the
accompanying prospectus forms a part.
General
The amended and restated trust agreement authorizes the administrative
trustees to issue the trust preferred securities and the trust common
securities. The Issuer Trust's only assets will be the junior subordinated
debentures. The trust preferred securities and trust common securities
represent undivided beneficial interests in the Issuer Trust's assets. All of
the trust common securities will be owned, directly or indirectly, by KeyCorp.
The trust common securities rank equally, and payments will be made on the
trust common securities on a pro rata basis, with the trust preferred
securities. If an event of default under the amended and restated trust
agreement exists, however, the rights of the holders of the trust common
securities to receive distributions and payments upon liquidation, redemption
and otherwise will be subordinated to the rights of the holders of the trust
preferred securities. The amended and restated trust agreement does not permit
the Issuer Trust to issue any securities other than the trust preferred
securities and trust common securities or to incur any debt.
Distributions
Distributions on the trust preferred securities will be cumulative and will
accrue from July 21, 2003 at the annual rate of 5.875% of the liquidation
amount of each trust preferred security. Distributions will be payable
quarterly in arrears on January 15, April 15, July 15 and October 15 of each
year, beginning on October 15, 2003, to holders of the trust preferred
securities. Distributions not paid when due for more than one quarterly payment
period will themselves accumulate interest at the annual rate of 5.875%
compounded quarterly. The Issuer Trust will compute the amount of distributions
payable for any period on the basis of a 360-day year consisting of twelve
30-day months. The amount of distributions payable for any partial period will
be computed on the basis of the actual number of days elapsed per 30-day month.
If distributions are payable on a date that is not a business day, then the
Issuer Trust will pay the distributions payable on that date on the next
succeeding day that is a business day, without making any additional
distributions or other payments because of the delay. However, if the next
business day falls in the next calendar year, the Issuer Trust will make the
payment on the immediately preceding business day. A "business day" means any
day other than:
. a day on which banking institutions in The City of New York are
authorized or required by law or executive order to remain closed, or
. a day on which the corporate trust office of the property trustee or the
junior trustee is closed for business. See "Description of the Junior
Subordinated Debentures--General" in this prospectus supplement for a
description of the junior trustee.
The term "distributions" includes any quarterly payments made on the trust
preferred securities and trust common securities, any deferred distribution and
any payments that accumulate on distributions not paid on the applicable
distribution date, all as further described below and in the accompanying
prospectus.
S-18
Deferral of Distributions
If we are not in default under the junior indenture, we may, on one or more
occasions, defer the payment of interest on the junior subordinated debentures
for up to 20 consecutive quarterly periods, which we refer to in each case as
an "extension period." Because interest payments on the junior subordinated
debentures fund distributions on the trust preferred securities, quarterly
distributions on the trust preferred securities will be deferred during any
extension period. During an extension period, the amount of distributions due
to you on the trust preferred securities will accumulate and these deferred
distributions will accrue additional distributions at the annual rate of 5.875%
compounded quarterly from the relevant payment date for the distributions.
We may not defer interest payments for any period of time:
. that exceeds 20 consecutive quarterly periods with respect to each
extension period; or
. that extends beyond the maturity date of the junior subordinated
debentures on July 30, 2033.
During any extension period, neither we nor any of our subsidiaries may:
. declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of our capital
stock; or
. make any payment of principal of, or premium or interest on, or repay,
repurchase, or redeem any of our debt securities that rank equal or
junior to the junior subordinated debentures; or
. make any guarantee payment regarding any guarantee by us of debt
securities of any of our subsidiaries if such guarantee ranks equal or
junior to the junior subordinated debentures, other than:
. dividends, distributions, redemptions, purchases or acquisitions made
by us by way of issuance of our capital stock (or options, warrants or
other rights to subscribe for our capital stock),
. dividends declared in connection with implementing a shareholders'
rights plan, issuing stock under the plan or redeeming or repurchasing
rights pursuant to the plan,
. payments under the guarantee, which is described under "Capital
Securities and Related Instruments--Guarantees and Expense
Agreements--The Guarantee" in the accompanying prospectus,
. the purchase of fractional shares resulting from a reclassification of
our capital stock,
. the purchase of fractional shares of our capital stock pursuant to the
conversion or exchange provisions of such capital stock or the
security being converted or exchanged,
. purchases of common stock related to the issuance of common stock or
rights under any of our benefit plans for its directors, officers or
employees, and
. obligations under any of our dividend reinvestment or stock purchase
plans.
Prior to the termination of any extension period, we may further extend the
payment of interest provided that the extension period complies with the
conditions above. Upon the termination of an extension period and the payment
of all amounts then due under the junior indenture, we may elect to begin a new
extension period as long as we comply with the above conditions. There may be
more than one extension period prior to the maturity of the junior subordinated
debentures. Deferral of interest payments is not an event of default under the
junior indenture.
If we elect to defer interest payments as described above, you will receive
notice as described under "Description of the Junior Subordinated
Debentures--Option to Extend Interest Payment Date" in this prospectus
supplement. There is no limitation on the number of times that we may elect to
defer interest payments and begin an extension period. If we elect to defer
interest payments, you will be required to accrue and recognize income (in the
form of original issue discount) for U.S. federal income tax purposes
regardless of your actual receipt of the distributions, subject to any changes
in the United States federal income tax laws.
S-19
Payment of Distributions
Distributions on the trust preferred securities will be payable to holders
named on the securities register of the Issuer Trust on the relevant record
date. As long as the trust preferred securities are represented by a global
security, the record date for the payment of distributions will be one business
day before the relevant payment date. If the trust preferred securities are
ever issued in certificated form, the record dates for the junior subordinated
debentures will be the first day of the month in which the relevant interest
payment date occurs.
As long as the trust preferred securities are represented by a global
security, payments on the trust preferred securities will be made in
immediately available funds to DTC, the depositary for the trust preferred
securities. If the trust preferred securities are ever issued in physical
certificated form, payment of distributions on the trust preferred securities
will be made by check mailed on or before the due date to the holders of trust
preferred securities on the relevant record date.
The Issuer Trust's only source of income is the payments we will make on the
junior subordinated debentures. If we do not make payments on the junior
subordinated debentures, the Issuer Trust will not have funds available to make
payments on the trust preferred securities. Although we will guarantee payment
of distributions on the trust preferred securities under the guarantee, we will
only be obligated to make a payment under the guarantee if the Issuer Trust has
the funds available to make the payment but fails to do so.
Redemption
The trust preferred securities have no stated maturity but must be redeemed
upon the maturity of the junior subordinated debentures or their earlier
redemption. The junior subordinated debentures will mature on July 30, 2033.
The redemption price per trust preferred security will equal the total
liquidation amount of $25 per trust preferred security plus accumulated and
unpaid distributions to the redemption date. We may also redeem the junior
subordinated debentures before their maturity at a redemption price equal to
100% of the principal amount, plus accrued and unpaid interest to the date of
redemption:
. in whole, or in part, at any time on or after July 21, 2008; and
. in whole, but not in part, at any time within 90 days upon the occurrence
of a Tax Event, Investment Company Event or Capital Treatment Event.
If less than all of the junior subordinated debentures are to be redeemed or
repaid, then the aggregate liquidation amount of the trust preferred securities
to be redeemed will be allocated approximately 3% to the trust common
securities and 97% to the trust preferred securities, except in the case of an
event of default as a result of any failure by us to make any principal or
interest payments under the junior subordinated debentures when due. See
"Capital Securities and Related Instruments -- Subordination of Trust Common
Securities" in the accompanying prospectus.
We will obtain regulatory approval to redeem the junior subordinated
debentures, if then required in order to obtain Tier 1 regulatory capital
treatment for the trust preferred securities under Federal Reserve Board
guidelines at that time. As explained above, owing to recent accounting
developments, it is possible that the trust preferred securities will become
ineligible for Tier 1 regulatory capital treatment.
Upon the repayment or redemption of some or all of the junior subordinated
debentures, the Issuer Trust will use the cash it receives to redeem the trust
preferred securities and, unless an event of default under the amended and
restated trust agreement then exists, the trust common securities on a pro rata
basis, with an aggregate liquidation amount equal to the principal amount of
the junior subordinated debentures to be repaid or redeemed. It will redeem the
trust preferred securities and trust common securities (if applicable) at a
price equal to the total redemption price for a like amount of junior
subordinated debentures plus accumulated and unpaid distributions to the
redemption date.
S-20
The Issuer Trust cannot redeem less than all of the trust preferred
securities unless all accrued and unpaid distributions on the trust preferred
securities and trust common securities have been paid on or before the
redemption date.
"Tax Event" means that the Issuer Trust has received an opinion of counsel
experienced in such matters to the effect that, as a result of any:
(1) amendment to, or change, including any announced prospective change,
in the laws or regulations of the United States or any political subdivision
or taxing authority; or
(2) any official administrative pronouncement, including any private
letter ruling, technical advice memorandum, field service advice, regulatory
procedure, notice or announcement, including any notice or announcement of
intent to adopt any procedures or regulations, or action or judicial
decision interpreting or applying such laws or regulations, whether or not
the pronouncement or decision is issued to or in connection with a
proceeding involving us or the Issuer Trust or is subject to review or
appeal, where such change or amendment becomes effective, or such
pronouncement, action or decision is announced or occurs on or after the
date of this prospectus supplement, there is more than an insubstantial risk
that:
. the Issuer Trust is or, within 90 days of the date of such opinion, would
be subject to U.S. federal income tax with respect to interest accrued or
received on the junior subordinated debentures;
. interest payable by us on the junior subordinated debentures is not or,
within 90 days of the date of such opinion, would not be deductible by us
in whole or in part for U.S. federal income tax purposes; or
. the Issuer Trust is or, within 90 days of the date of such opinion, would
be subject to more than a minimal amount of other taxes, duties or other
governmental charges.
"Investment Company Event" means that the Issuer Trust has received an
opinion of counsel experienced in such matters that states that, as a result of
the occurrence of an amendment to, or change, including any announced
prospective change, in the laws or regulations of the U.S. or any political
subdivision or other governmental agency or regulatory authority, there is more
than an insubstantial risk that the Issuer Trust is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act of 1940, as amended, which change in laws becomes effective on or
after the date of this prospectus supplement.
"Capital Treatment Event" means our determination, based on an opinion of
counsel experienced in such matters (who may be an employee of KeyCorp or any
of its affiliates), that, as a result of:
(1) any amendment to, or change, including any announced prospective
change, in the laws or any rules or regulations of the United States or any
political subdivision or other governmental agency or regulatory authority
that is effective or is announced on or after the date of this prospectus
supplement; or
(2) any official administrative pronouncement or action or judicial
decision interpreting or applying such laws or regulations that is effective
or is announced on or after the date of this prospectus supplement,
there is more than an insubstantial risk that we will not be entitled to treat
an amount equal to the liquidation amount of the trust preferred securities as
"Tier 1" regulatory capital for purposes of the applicable Federal Reserve
Board capital adequacy guidelines.
A Capital Treatment Event would include the potential change in Federal
Reserve Board guidelines on the eligibility of trust preferred securities to
qualify as Tier 1 regulatory capital in light of recent accounting changes
affecting the criteria for consolidation of variable interest entities such as
the Issuer Trust (as described in FIN 46) and the appropriate financial
reporting balance sheet classification of trust preferred securities more
generally (as described in FAS 150).
S-21
Redemption Procedures
You will receive at least 30 days, but not more than 60 days, written notice
before any redemption of trust preferred securities. If there are accumulated
and unpaid distributions on the trust preferred securities that have not been
paid on or before the redemption date, the Issuer Trust cannot redeem less than
all of the trust preferred securities.
If (1) the Issuer Trust gives an irrevocable notice of redemption of the
trust preferred securities, and (2) we have paid to the property trustee a
sufficient amount of cash in connection with the related redemption or maturity
of the junior subordinated debentures, then on the redemption date, the
property trustee will irrevocably deposit with DTC funds sufficient to pay the
redemption price for the trust preferred securities being redeemed. See
"--Book-Entry Only Issuance--The Depository Trust Company" in this prospectus
supplement. The Issuer Trust will also give DTC irrevocable instructions and
authority to pay the redemption amount in immediately available funds to the
beneficial owners of the global securities representing the trust preferred
securities. Distributions to be paid on or before the redemption date for any
trust preferred securities called for redemption will be payable to the holders
on the record dates for the related dates of distribution.
Once notice of redemption is given and funds are irrevocably deposited,
distributions on the trust preferred securities will cease to accumulate
immediately prior to the close of business on the redemption date and all
rights of the holders of the trust preferred securities called for redemption
will cease, except for the right to receive the redemption amount (but without
interest on such redemption amount).
If any redemption date is not a business day, then the redemption amount
will be payable on the next business day (and without any interest or other
payment in respect of any such delay). However, if payment on the next business
day causes payment of the redemption amount to be in the next calendar year,
then payment will be on the preceding business day.
If payment of the redemption amount for any trust preferred securities
called for redemption is improperly withheld or refused and not paid either by
the Issuer Trust or by us under the guarantee, distributions on the trust
preferred securities will continue to accumulate at the applicable rate from
the original redemption date scheduled to the actual date of payment. In this
case, the actual payment date will be considered the redemption date for
purposes of calculating the redemption amount.
If less than all of the trust preferred securities are redeemed, the trust
preferred securities will be redeemed pro rata in accordance with DTC's
internal procedures. See "--Book-Entry Only Issuance--The Depository Trust
Company" in this prospectus supplement.
In compliance with applicable law, including the U.S. federal securities
laws, we or our affiliates may, at any time, repurchase outstanding trust
preferred securities by tender, in the open market, by private agreement or
otherwise.
Events of Default Under the Amended and Restated Trust Agreement
An event of default under the junior indenture, which we refer to as a
"debenture event of default," constitutes an event of default under the amended
and restated trust agreement, which we refer to as a "trust event of default."
Notwithstanding the foregoing, the holder of the trust common securities will
be deemed to have waived any trust event of default with respect to the trust
common securities until all trust events of default with respect to the trust
preferred securities have been cured, waived or otherwise eliminated. Until
such trust event of default with respect to the trust preferred securities has
been cured, waived or otherwise eliminated, the property trustee will be deemed
to be acting solely on behalf of the holders of the trust preferred securities,
and only the holders of the trust preferred securities will have the right to
direct the property trustee with respect to certain matters under the amended
and restated trust agreement, and therefore the junior indenture.
S-22
If the property trustee fails to enforce its rights under the junior
subordinated debentures, any holder of trust preferred securities may directly
institute a legal proceeding against us to enforce these rights without first
suing the property trustee or any other person or entity. If a trust event of
default exists and is attributable to the failure of us to pay interest or
principal on the junior subordinated debentures when otherwise payable, or in
the case of redemption, the redemption date, then a holder of trust preferred
securities may also bring a direct action. This means that a holder may
directly sue for enforcement of payment to such holder of the principal of or
interest on the junior subordinated debentures having a principal amount equal
to the aggregate liquidation amount of the trust preferred securities of such
holder on or after the respective due date specified in the junior subordinated
debentures. Such holder need not first (1) direct the property trustee to
enforce the terms of the junior subordinated debentures or (2) sue us to
enforce the property trustee's rights under the junior subordinated debentures.
In connection with such direct action, we will be subrogated to the rights
of such holder of trust preferred securities under the amended and restated
trust agreement to the extent of any payment made by us to such holder of trust
preferred securities in such direct action. This means that we will be entitled
to payment of amounts that a holder of trust preferred securities receives in
respect of an unpaid distribution that resulted in the bringing of a direct
action to the extent that the holder receives or has already received full
payment relating to such unpaid distribution from us. Holders of trust
preferred securities may not exercise directly any other remedy available to
the holders of the junior subordinated debentures.
Upon the occurrence of a trust event of default, the property trustee will
have the right under the junior indenture to declare the principal of and
interest on the junior subordinated debentures to be immediately due and
payable.
Distribution of Junior Subordinated Debentures
We will have the right at any time to cause the dissolution of the Issuer
Trust and cause the junior subordinated debentures to be distributed pro rata
to the holders of the trust preferred securities and trust common securities.
Prior to such dissolution, we will obtain any required regulatory approval. If
the junior subordinated debentures are distributed to the holders of the trust
preferred securities, we will use our best efforts to cause the junior
subordinated debentures to be listed on any exchange that the trust preferred
securities are then listed.
After the date for any distribution of junior subordinated debentures upon
dissolution of the Issuer Trust:
. the trust preferred securities will no longer be deemed to be outstanding,
. DTC or its nominee, as record holder of the trust preferred securities,
will receive a registered global certificate or certificates representing
the junior subordinated debentures to be delivered upon such
distribution, and
. any certificates representing trust preferred securities or trust common
securities not held by DTC or its nominee will be deemed to represent
junior subordinated debentures having an aggregate principal amount equal
to the aggregate liquidation amount of, with an interest rate identical
to the distribution rate of, and accumulated and unpaid interest equal to
accumulated and unpaid distributions on, such trust preferred securities
until such certificates are presented to the Issuer Trust or its agent
for transfer or reissuance.
There can be no assurance as to the market prices for either the trust
preferred securities or the junior subordinated debentures that may be
distributed in exchange for the trust preferred securities if the Issuer Trust
were to dissolve or liquidate. This means that the trust preferred securities
that an investor may purchase, whether in connection with this offering or in
the secondary market, or the junior subordinated debentures that an investor
may receive if the Issuer Trust were to dissolve or liquidate, may trade at a
discount to the price that the
S-23
investor paid to purchase the trust preferred securities in this offering or in
the secondary market. See "Risk Factors--Under certain circumstances, the
Issuer Trust may distribute the junior subordinated debentures in exchange for
the trust preferred securities, which could affect the market price and could
be a taxable event."
Liquidation Distribution Upon Dissolution
Pursuant to the amended and restated trust agreement, the Issuer Trust will
dissolve upon the earliest of:
. July 30, 2033, the expiration of its term,
. certain events of bankruptcy, dissolution or liquidation of the holder of
the trust common securities,
. the distribution of a like amount of the junior subordinated debentures
to the holders of its trust preferred securities, if we have given
written direction to the property trustee to terminate the Issuer Trust
(subject to KeyCorp's having received prior approval of the Federal
Reserve Board if then required under applicable capital guidelines or
policies). Such written direction by us is optional and solely within our
discretion,
. redemption of all of the trust preferred securities as described under
"--Redemption", or
. the entry of an order for the dissolution of the Issuer Trust by a court
of competent jurisdiction.
We refer to any of these events as a "dissolution event."
Upon the occurrence of a dissolution event, the holders of trust preferred
securities will be entitled to receive out of the Issuer Trust's assets, after
satisfaction of liabilities to creditors, if any, distributions in an amount
equal to the aggregate of the liquidation amount of $25 per trust preferred
security plus accumulated and unpaid distributions thereon to the payment date.
However, such holders will not receive this distribution if the Issuer Trust
instead distributes on a ratable basis to the holders of the trust preferred
securities junior subordinated debentures in an aggregate principal amount
equal to the aggregate liquidation amount of, with an interest rate equal to
the distribution rate of, and bearing accrued and unpaid interest in an amount
equal to accrued and unpaid distributions on, such trust preferred securities.
If this distribution can be paid only in part because the Issuer Trust has
insufficient assets available to pay in full the aggregate distribution, then
the amounts payable directly by the Issuer Trust on the trust preferred
securities will be paid on a ratable basis. The holder of the trust common
securities will be entitled to receive distribution upon any such dissolution
event on a ratable basis with the holders of the trust preferred securities,
except that if a trust event of default has occurred and is continuing, the
trust preferred securities will have a preference over the trust common
securities with regard to such distributions.
Voting Rights; Amendment of the Amended and Restated Trust Agreement
Except as provided below and under "Capital Securities and Related
Instruments--Guarantees and Expense Agreements--Amendments and Assignment" in
the accompanying prospectus and as otherwise required by law and the amended
and restated trust agreement, the holders of the trust preferred securities
will have no voting rights or the right in any manner to control the
administration, operation or management of the Issuer Trust.
We may (but, for the avoidance of any doubt, we are not required to) amend
the amended and restated trust agreement from time to time, without the consent
of the holders of the trust preferred securities:
. to cure any ambiguity, correct or supplement any provisions in the
amended and restated trust agreement that may be inconsistent with any
other provision, or to make any other provisions with respect to matters
or questions arising under the amended and restated trust agreement,
which will not be inconsistent with the other provisions of the amended
and restated trust agreement; or
S-24
. to modify, eliminate or add to any provisions of the amended and restated
trust agreement as necessary to ensure that the Issuer Trust:
. will be classified for U.S. federal income tax purposes as a grantor
trust or as other than an association taxable as a corporation at all
times that any trust preferred securities are outstanding,
. will not be required to register as an "investment company" under the
Investment Company Act of 1940, as amended, or
. will satisfy the criteria for consolidation in our consolidated
balance sheet and/or treatment of the trust preferred securities as
Tier 1 regulatory capital under then prevailing Federal Reserve Board
rules and regulations,
provided that:
. no such amendment will adversely affect in any material respect the
rights of the holders of the trust preferred securities; and
. any such amendment will become effective when notice of the amendment is
given to the holders of the trust preferred securities.
The amended and restated trust agreement may be amended by us with:
. the consent of holders representing at least a majority (based upon
liquidation amounts) of the outstanding trust preferred securities; and
. receipt by the Issuer Trust trustees of an opinion of counsel to the
effect that the amendment or the exercise of any power granted to the
Issuer Trust trustees in accordance with the amendment will not cause the
Issuer Trust to be taxable as a corporation or affect the Issuer Trust's
status as a grantor trust for U.S. federal income tax purposes or the
Issuer Trust's exemption from status as an "investment company" under the
Investment Company Act of 1940, as amended,
provided that, without the consent of each holder of trust preferred
securities, the amended and restated trust agreement may not be amended to:
. change the amount or timing of any distribution on the trust securities
or otherwise adversely affect the amount of any distribution required to
be made in respect of the trust preferred securities as of a specified
date; or
. restrict the right of a holder of trust preferred securities to institute
suit for the enforcement of any such payment on or after such date.
So long as the junior subordinated debentures are held by the Issuer Trust,
the property trustee will not:
. direct the time, method and place of conducting any proceeding for any
remedy available to the junior trustee, or executing any trust or power
conferred on the property trustee with respect to the junior subordinated
debentures;
. waive any past default that is waivable under the junior indenture;
. exercise any right to rescind or annul a declaration that the principal
of all the junior subordinated debentures will be due and payable; or
. consent to any amendment, modification or termination of the junior
indenture or the junior subordinated debentures, where this consent is
required, without, in each case, obtaining the prior approval of the
holders of a majority in aggregate liquidation amount of all outstanding
trust preferred securities;
S-25
provided, however, that where a consent under the junior indenture would
require the consent of each holder of junior subordinated debentures affected,
no such consent will be given by the property trustee without the prior consent
of each holder of the related trust preferred securities. The Issuer Trust
trustees will not revoke any action previously authorized or approved by a vote
of the holders of the trust preferred securities except by subsequent vote of
the holders of the trust preferred securities. The property trustee will notify
each holder of trust preferred securities of any notice of default with respect
to the junior subordinated debentures. In addition to obtaining the foregoing
approvals of the holders of the trust preferred securities, prior to taking any
of the foregoing actions, the property trustee will obtain an opinion of
counsel to the effect that:
. the Issuer Trust will not be classified as an association taxable as a
corporation for U.S. federal income tax purposes on account of the
action; and
. the action would not cause the Issuer Trust to be classified as other
than a grantor trust for U.S. federal income tax purposes.
Any required approval of holders of trust preferred securities may be given
at a meeting of holders of trust preferred securities convened for that purpose
or pursuant to written consent. The administrative trustees or, at the written
request of the administrative trustees, the property trustee will cause a
notice of any meeting at which holders of trust preferred securities are
entitled to vote, to be given to each holder of record of trust preferred
securities in the manner set forth in the amended and restated trust agreement.
No vote or consent of the holders of trust preferred securities will be
required for the Issuer Trust to redeem and cancel the trust preferred
securities in accordance with the amended and restated trust agreement.
Notwithstanding that holders of trust preferred securities are entitled to
vote or consent under any of the circumstances described above, any of the
trust preferred securities that are owned by us, the Issuer Trust trustees or
any affiliate of us or the Issuer Trust trustees, will, for purposes of that
vote or consent, be treated as if they were not outstanding.
Removal of Issuer Trust Trustee
Unless a debenture event of default has occurred and is continuing, any
Issuer Trust trustee may be removed at any time by the holder of the trust
common securities. If a debenture event of default has occurred and is
continuing, the property trustee and the Delaware trustee may be removed by the
holders of a majority in liquidation amount of the outstanding trust preferred
securities. In no event will the holders of the trust preferred securities have
the right to vote to appoint, remove or replace the administrative trustees.
Such voting rights are vested exclusively in us as the holder of the trust
common securities. No resignation or removal of an Issuer Trust trustee and no
appointment of a successor trustee will be effective until the acceptance of
appointment by the successor trustee in accordance with the provisions of the
amended and restated trust agreement.
Mergers, Consolidations or Amalgamations
The Issuer Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any corporation or other body except as
described below. The Issuer Trust may, with the consent of the holders of a
majority in liquidation amount of the trust preferred securities, consolidate,
amalgamate, merge with or into, or be replaced by, or convey, transfer or lease
its properties and assets substantially as an entirety to, a trust organized as
such under the laws of any State; provided, that:
(1) such successor entity either:
. expressly assumes all of the Issuer Trust's obligations under the
trust preferred securities and trust common securities; or
S-26
. substitutes for the trust preferred securities and trust common
securities other successor securities having substantially the same
terms as the trust preferred securities and trust common securities,
so long as the successor securities rank the same as the trust
preferred securities and trust common securities rank regarding
distributions and payments upon liquidation, redemption and otherwise;
(2) we expressly appoint a trustee of such successor entity possessing
the same powers and duties as the property trustee in its capacity as the
holder of the junior subordinated debentures;
(3) the trust preferred securities or any successor securities are
listed, or any successor securities will be listed upon notification of
issuance, on any national securities exchange or with another organization
on which the trust preferred securities are then listed or quoted;
(4) such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not cause the trust preferred securities, including
any successor securities, to be downgraded by any nationally recognized
statistical rating organization;
(5) such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences and
privileges of the holders of the trust preferred securities and trust common
securities, including any successor securities, in any material respect,
other than in connection with any dilution of the holders' interest in the
new entity;
(6) such successor entity has a purpose substantially identical to the
Issuer Trust's purpose;
(7) prior to such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, we have received an opinion from counsel to
the Issuer Trust to the effect that:
. such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the trust preferred securities,
including any successor securities, in any material respect; and
. following such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, neither the Issuer Trust nor such
successor entity will be required to register as an "investment
company" under the Investment Company Act of 1940, as amended; and
(8) we or any permitted successor or assignee owns all of the successor
trust common securities of the successor entity and guarantees the
obligations of the successor entity under the successor securities at least
to the extent provided by the guarantee.
Despite the foregoing, the Issuer Trust will not, except with the consent of
holders of 100% in liquidation amount of the trust preferred securities,
consolidate, amalgamate, merge with or into, or be replaced by or convey,
transfer or lease its properties and assets substantially as an entirety to any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it, if such consolidation, amalgamation, merger,
replacement, conveyance, transfer or lease would cause the Issuer Trust or its
successor entity to be classified as other than a grantor trust for U.S.
federal income tax purposes.
Book-Entry Only Issuance--The Depository Trust Company
The trust preferred securities will be book-entry securities. Upon issuance,
all book-entry securities will be represented by one or more fully registered
global trust preferred securities, without distribution coupons. Each global
trust preferred security will be deposited with, or on behalf of, The
Depository Trust Company, a securities depositary, and will be registered in
the name of DTC or a nominee of DTC. DTC will thus be the only registered
holder of these trust preferred securities and will be considered the sole
owner of the trust preferred securities for purposes of the amended and
restated trust agreement.
Purchasers of trust preferred securities may only hold interests in the
global trust preferred securities through DTC if they are a participant in the
DTC system. Purchasers may also hold interests through securities intermediary
banks, brokerage houses and other institutions that maintain securities
accounts for customers that
S-27
have an account with DTC or its nominee. DTC will maintain accounts showing the
trust preferred security holdings of its participants, and these participants
will in turn maintain accounts showing the trust preferred security holdings of
their customers. Some of these customers may themselves be securities
intermediaries holding trust preferred securities for their customers. Thus,
each beneficial owner of a book-entry trust preferred security will hold that
trust preferred security indirectly through a hierarchy of intermediaries, with
DTC at the "top" and the beneficial owner's own securities intermediary at the
"bottom."
The trust preferred securities of each beneficial owner of a book-entry
security will be evidenced solely by entries on the books of the beneficial
owner's securities intermediary. The actual purchaser of the trust preferred
securities will generally not be entitled to have the trust preferred
securities represented by the global securities registered in its name and will
not be considered the owner under the amended and restated trust agreement. In
most cases, a beneficial owner will also not be able to obtain a paper
certificate evidencing the holder's ownership of trust preferred securities.
The book-entry system for holding trust preferred securities eliminates the
need for physical movement of certificates and is the system through which most
publicly traded securities are held in the United States. However, the laws of
some jurisdictions require some purchasers of securities to take physical
delivery of their securities in definitive form. These laws may impair the
ability to transfer book-entry securities.
A beneficial owner of book-entry securities represented by a global trust
preferred security may exchange the securities for definitive (paper) trust
preferred securities only if:
. DTC is unwilling or unable to continue as depositary for such global
trust preferred security and we are unable to find a qualified
replacement for DTC within 90 days;
. at any time DTC ceases to be a clearing agency registered under the
Securities Exchange Act of 1934;
. the administrative trustees elect after consultation with us to terminate
the book-entry system through DTC with respect to the trust preferred
securities; or
. a debenture event of default relating to the junior subordinated
debentures then exists.
Any global trust preferred security that is exchangeable will be
exchangeable in whole for definitive trust preferred securities in registered
form, with the same terms and of an equal aggregate liquidation amount, in
denominations of $25 and whole multiples of $25.
Definitive trust preferred securities will be registered in the name or
names of the person or persons specified by DTC in a written instruction to the
registrar of the securities. DTC may base its written instruction upon
directions it receives from its participants.
In this prospectus supplement, for book-entry trust preferred securities,
references to actions taken by trust preferred security holders will mean
actions taken by DTC upon instructions from its participants, and references to
payments and notices of redemption to trust preferred security holders will
mean payments and notices of redemption to DTC as the registered holder of the
trust preferred securities for distribution to participants in accordance with
DTC's procedures.
DTC is a limited purpose trust company organized under the laws of the State
of New York, a "banking organization" within the meaning of the New York
banking law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered under Section 17A of the Exchange Act. The rules applicable
to DTC and its participants are on file with the SEC.
KeyCorp and the Issuer Trust trustees will not have any responsibility or
liability for any aspect of the records relating to, or payments made on
account of, beneficial ownership interest in the book-entry securities or for
maintaining, supervising or reviewing any records relating to the beneficial
ownership interests.
S-28
DTC may discontinue providing its services as securities depositary with
respect to the trust preferred securities at any time by giving reasonable
notice to us. Under such circumstances, in the event that a successor
securities depositary is not obtained, trust preferred securities certificates
are required to be printed and delivered. Additionally, the administrative
trustees, with the consent of KeyCorp, may decide to discontinue use of the
system of book-entry transfers through DTC or any successor depositary with
respect to the trust preferred securities. In that event, certificates for the
trust preferred securities will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to be reliable, but we do not
take responsibility for the accuracy thereof.
Information Concerning the Property Trustee
Prior to the occurrence of an event of default, the property trustee
undertakes to perform only such duties as are specifically set forth in the
amended and restated trust agreement. After such a default, the property
trustee will exercise the same degree of care as a prudent individual would
exercise in the conduct of his or her own affairs. The property trustee is
under no obligation to exercise any of the powers vested in it by the amended
and restated trust agreement at the request of any holder of trust preferred
securities unless offered reasonable indemnity by such holder against the
costs, expenses and liabilities that might be incurred thereby. If no event of
default has occurred and is continuing and the property trustee is required to
decide between alternative causes of action, construe ambiguous provisions in
the amended and restated trust agreement or is unsure of the application of any
provision in the amended and restated trust agreement, and the matter is not
one on which holders of the trust preferred securities are entitled under the
amended and restated trust agreement to vote, then the property trustee will
take such action as is directed by us and if not so directed, will take such
action as it deems advisable and in the best interests of the holders of the
trust preferred securities and will have no liability except for its own bad
faith, negligence or willful misconduct. The property trustee also serves as
the trustee under the guarantee and as the trustee under the junior indenture.
Registrar, Transfer Agent and Paying Agent
The property trustee will act as registrar, transfer agent and paying agent
for the trust preferred securities. If the trust preferred securities do not
remain in book-entry only form, one or more additional paying agents may be
appointed if so required by any rule or regulation of any securities exchange
upon which the trust preferred securities may be listed at such time. The
paying agent may resign as paying agent upon 30 days' written notice to the
Issuer Trust trustees. In the event that the property trustee is no longer the
paying agent, the property trustee will appoint a successor to act as paying
agent, which must be a bank or trust company acceptable to the administrative
trustees.
Registration of transfers of trust preferred securities will be made without
charge by the Issuer Trust or its agents, but the transferor must pay any tax
or other governmental charges that may be imposed in relation to the transfer,
together with any indemnity that the relevant Issuer Trust, KeyCorp or the
transfer agent may require.
The Issuer Trust will not be required to register or cause to be registered
the transfer of trust preferred securities after such trust preferred
securities have been called for redemption.
Governing Law
The amended and restated trust agreement and the trust preferred securities
will be governed by, and construed in accordance with, the laws of the State of
Delaware.
S-29
Miscellaneous
The administrative trustees are authorized and directed to operate the
Issuer Trust in such a way so that the Issuer Trust will not be required to
register as an "investment company" under the Investment Company Act of 1940,
as amended, or be characterized as other than a grantor trust for U.S. federal
income tax purposes. KeyCorp is authorized and directed to conduct its affairs
so that the junior subordinated debentures will be treated as indebtedness of
KeyCorp for U.S. federal income tax purposes. In this connection, KeyCorp and
the administrative trustees are authorized to take any action, not inconsistent
with applicable law, the Issuer Trust's certificate of trust or the certificate
of incorporation of KeyCorp, that each of KeyCorp and the administrative
trustees determine in their discretion to be necessary or desirable to achieve
such end, as long as such action does not adversely affect the interests of the
holders of the trust preferred securities or vary the terms of the trust
preferred securities.
Holders of the trust preferred securities have no preemptive rights.
S-30
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
The junior subordinated debentures will be issued pursuant to the junior
indenture. The junior indenture is qualified under the Trust Indenture Act of
1939. The terms of the junior subordinated debentures will include those in the
amended and restated trust agreement and those made part of the junior
indenture by the Trust Indenture Act of 1939. The following summary of the
material terms and provisions of the junior subordinated debentures is not
intended to be complete. You should read the following description together
with the junior indenture to help you understand the terms of the junior
subordinated debentures. A copy of the junior indenture has been filed as an
exhibit to the registration statement of which the accompanying prospectus
forms a part. This description is qualified in its entirety by reference to the
junior indenture and the Trust Indenture Act of 1939. Whenever particular
defined terms of the junior indenture (as supplemented or amended from time to
time) are referred to in this prospectus supplement, those defined terms are
incorporated in this prospectus supplement by reference.
General
The junior subordinated debentures will be issued as unsecured debt under
the Junior Subordinated Indenture, dated as of December 4, 1996, as
supplemented from time to time, between KeyCorp and Bankers Trust Company (now
known as Deutsche Bank Trust Company Americas), as trustee. This indenture is
referred to as the "junior indenture" and the related trustee is referred to as
the "junior trustee". The junior subordinated debentures will be limited in
aggregate principal amount to approximately $180,412,500. This amount is the
sum of the aggregate stated liquidation amount of the trust preferred
securities and the trust common securities. The entire principal amount of the
junior subordinated debentures will mature and become due and payable, together
with any accrued and unpaid interest thereon, and additional interest (as
defined below), if any, on July 30, 2033.
If junior subordinated debentures are distributed to holders of trust
preferred securities in liquidation of such holders' interests in the Issuer
Trust, the junior subordinated debentures will initially be issued in the form
of one or more global securities (as described below). As described in this
prospectus supplement, under limited circumstances, junior subordinated
debentures may be issued in certificated form in exchange for a global
security. In the event that junior subordinated debentures are issued in
certificated form, the junior subordinated debentures will be in denominations
of $25 and integral multiples thereof and may be transferred or exchanged at
the offices described below. Payments on junior subordinated debentures issued
as a global security will be made to DTC, to a successor depositary or, in the
event that no depositary is used, to a paying agent for the junior subordinated
debentures. If junior subordinated debentures are issued in certificated form,
principal and interest will be payable, the transfer of the junior subordinated
debentures will be registrable and junior subordinated debentures will be
exchangeable for junior subordinated debentures of other denominations of a
like aggregate principal amount at the corporate trust office of the junior
trustee in New York, New York. Payment of interest may be made at our option by
check mailed to the address of the person entitled thereto or by transfer to an
account maintained by the person entitled thereto.
We have the right to dissolve the Issuer Trust and cause the junior
subordinated debentures to be distributed to the holders of the trust preferred
securities and the trust common securities.
The junior indenture does not contain provisions that would afford holders
of junior subordinated debentures protection in the event of a sudden and
dramatic decline in our credit quality resulting from any highly leveraged
transaction, reorganization, restructuring, merger or similar transaction
involving us that may adversely affect such holders.
Interest Rate and Maturity
The junior subordinated debentures will mature on July 30, 2033 and will
bear interest, at a per annum rate equal to 5.875% of their principal amount,
payable quarterly in arrears on January 15, April 15, July 15 and
S-31
October 15 of each year, beginning October 15, 2003. So long as the junior
subordinated debentures are represented by a global security, the applicable
record date shall be one business day before the relevant payment date. If the
junior subordinated debentures are ever issued in certificated form (unless
held by the property trustee), applicable record dates for each interest
payment will be the first day of the month in which the relevant interest
payment date occurs, even if that day is not a business day. Interest payments
not paid when due will themselves accrue additional interest at the annual rate
of 5.875%. When we refer to any payment of interest, interest includes such
additional interest and any additional amounts. Each date on which interest is
paid is called an "interest payment date." The interest payment provisions for
the junior subordinated debentures correspond to the distribution provisions
for the trust preferred securities. The junior subordinated debentures do not
have a sinking fund. This means that we are not required to make any principal
payments prior to maturity of the junior subordinated debentures.
Subordination
The junior subordinated debentures are unsecured and will rank junior to all
of our senior indebtedness. We may not make payments of principal, including
redemption payments, or interest on the junior subordinated debentures if we
default on a payment of our senior indebtedness. As a result, in the event of a
distribution of our assets to creditors upon any liquidation, dissolution,
winding-up, reorganization, assignment for the benefit of creditors,
marshalling of assets or liabilities or any bankruptcy, insolvency or similar
proceedings, all principal, premium, if any, interest due or to become due on
all of our senior indebtedness must be paid in full before the holders of the
junior subordinated debentures are entitled to receive any payment.
Neither the junior subordinated debentures nor the guarantee will limit our
ability to incur any additional indebtedness including indebtedness that ranks
senior to the junior subordinated debentures and the guarantee. At March 31,
2003, we would have had senior indebtedness of approximately $17.2 billion
outstanding. In addition, because we are a holding company, the junior
subordinated debentures will effectively rank junior to all existing and future
debt and other liabilities of KeyCorp's subsidiaries. See "Capitalization" and
"Use of Proceeds" in this prospectus supplement.
As used in this section, the term "senior indebtedness" means:
. "senior debt", which means any of our obligations to our creditors,
whether now outstanding or incurred in the future, other than (1) any
obligation as to which, in the instrument creating or evidencing the
obligation or under which the obligation is outstanding, it is provided
that the obligation is not senior debt and (2) trade accounts payable and
accrued liabilities arising in the ordinary course of business; and
. the amounts necessary to pay all principal of, and premium, if any, and
interest, if any, on "senior subordinated debt" in full less, if
applicable, any portion of such amounts that would have been paid to, and
retained by, the holders of such senior subordinated debt but for the
fact that such senior subordinated debt is subordinate, pari passu or
junior in right of payment to trade accounts payable or accrued
liabilities arising in the ordinary course of business.
"Senior subordinated debt" means any of our obligations to our creditors,
whether now outstanding or incurred in the future, where the instrument
creating or evidencing the obligation or under which the obligation is
outstanding provides that it is subordinate and junior in right of payment to
senior debt. Senior subordinated debt includes our outstanding subordinated
debt securities and any subordinated debt securities issued in the future with
substantially similar subordinated terms, but does not include:
. the junior subordinated debentures described in this prospectus
supplement and the accompanying prospectus;
. our 7.826% Junior Subordinated Deferrable Interest Debentures issued to a
subsidiary trust on December 4, 1996;
. our 8.250% Junior Subordinated Deferrable Interest Debentures issued to a
subsidiary trust on December 30, 1996;
S-32
. our Floating Rate Junior Subordinated Deferrable Interest Debentures
issued to a subsidiary trust on June 25, 1998;
. our 6.875% Junior Subordinated Deferrable Interest Debentures issued to a
subsidiary trust on March 17, 1999;
. our 7.750% Junior Subordinated Deferrable Interest Debentures issued to a
subsidiary trust on July 15, 1999; or
. any subordinated debt securities issued in the future with substantially
similar subordinated terms.
Senior indebtedness does not include senior subordinated debt or the junior
subordinated debentures.
In the event of:
. any insolvency, bankruptcy, receivership, liquidation, reorganization,
readjustment, composition or other similar proceeding relating to us, our
creditors or our property;
. any proceeding for the liquidation, dissolution or other winding-up of
KeyCorp, voluntary or involuntary, whether or not involving insolvency or
bankruptcy proceedings;
. any assignment by us for the benefit of creditors; or
. any other marshaling of our assets,
then all senior indebtedness (including any interest accruing after the
commencement of any of the proceedings described above) must first be paid in
full before any payment or distribution, whether in cash, securities or other
property, may be made on account of the junior subordinated debentures. Any
payment or distribution on account of the junior subordinated debentures,
whether in cash, securities or other property, that would otherwise (but for
the subordination provisions) be payable or deliverable in respect of the
junior subordinated debentures will be paid or delivered directly to the
holders of senior indebtedness in accordance with the priorities then existing
among those holders until all senior indebtedness (including any interest
accruing after the commencement of any such proceedings) has been paid in full.
In the event of any of the proceedings described above, after payment in
full of all senior indebtedness, the holders of junior subordinated debentures,
together with the holders of any of our obligations ranking on a parity with
the junior subordinated debentures, will be entitled to be paid from our
remaining assets the amounts at the time due and owing on the junior
subordinated debentures and the other obligations before any payment or other
distribution, whether in cash, property or otherwise, will be made on account
of any of our capital stock or obligations ranking junior to the junior
subordinated debentures. If any payment or distribution on account of the
junior subordinated debentures of any character or any security, whether in
cash, securities or other property, is received by any holder of any junior
subordinated debentures in contravention of any of the terms described above
and before all the senior indebtedness has been paid in full, that payment or
distribution or security will be received in trust for the benefit of, and must
be paid over or delivered and transferred to, the holders of the senior
indebtedness at the time outstanding in accordance with the priorities then
existing among those holders for application to the payment of all senior
indebtedness remaining unpaid to the extent necessary to pay all senior
indebtedness in full. Because of this subordination, in the event of our
insolvency, holders of senior indebtedness may receive more, ratably, and
holders of the junior subordinated debentures may receive less, ratably, than
our other creditors. Such subordination will not prevent the occurrence of any
event of default under the junior indenture.
The junior indenture places no limitation on the amount of additional senior
indebtedness that may be incurred by us. We expect from time to time to incur
additional senior indebtedness. As of March 31, 2003, we had approximately
$17.2 billion of senior indebtedness outstanding.
S-33
Option to Extend Interest Payment Date
If no debenture event of default has occurred or is continuing with respect
to the junior subordinated debentures, we may, on one or more occasions, defer
interest payments on the junior subordinated debentures for up to 20
consecutive quarterly periods, referred to as an "extension period." An
extension period may not extend beyond the maturity of the junior subordinated
debentures on July 30, 2033 and may not end on a date other than an interest
payment date. No interest will be due and payable on the junior subordinated
debentures until the end of the extension period unless the junior subordinated
debentures are redeemed prior to such time.
If the property trustee is the only registered holder of the junior
subordinated debentures, we will give the administrative trustees, the property
trustee and the junior trustee notice if we decide to defer interest payments
on the junior subordinated debentures as specified in the terms of the junior
subordinated debentures. The administrative trustees will then notify you of
our decision to defer interest payments on the junior subordinated debentures.
If the property trustee is not the only registered holder of the junior
subordinated debentures, we will notify holders of the junior subordinated
debentures and the junior trustee of our election to defer interest payments on
the junior subordinated debentures. There is no limitation on the number of
times that we may elect to begin an extension period, so long as we are not in
default under the junior indenture. For more information on our option to
extend any interest payment period on the junior subordinated debentures and
the relation of such extension to payment of distributions on the trust
preferred securities, see "Description of the Trust Preferred
Securities--Deferral of Distributions" in this prospectus supplement.
Redemption
We may redeem the junior subordinated debentures before their maturity:
. in whole, or in part, on or after July 21, 2008, or
. in whole, but not in part, within 90 days upon the occurrence of a Tax
Event, Investment Company Event or Capital Treatment Event (each as
defined above under "Description of the Trust Preferred
Securities--Redemption"),
in each case at a redemption price equal to 100% of the principal amount of the
junior subordinated debentures to be redeemed plus accrued and unpaid interest,
including any additional interest as described below, to the redemption date.
We will obtain regulatory approval to redeem the junior subordinated
debentures, if then required to do so in order to obtain "Tier 1" capital
treatment for the trust preferred securities under Federal Reserve Board
guidelines.
In the event of a Tax Event, we will pay any and all taxes, duties,
assessments or governmental charges that may be owed by the Issuer Trust to the
United States or any other taxing authority.
Additional Interest
If a tax event has occurred while the property trustee holds any junior
subordinated debentures and the Issuer Trust is required to pay any taxes,
duties, assessments or governmental charges of whatever nature, other than
withholding taxes, imposed by the United States, or any other taxing authority,
then we will be required to pay additional interest on the junior subordinated
debentures. The amount of any additional interest will be an amount sufficient
so that the net amounts received and retained by the Issuer Trust after paying
any such taxes, duties, assessments or other governmental charges will be not
less than the amounts the Issuer Trust would have received had no such taxes,
duties, assessments or other governmental charges been imposed. This means that
the Issuer Trust will be in the same position it would have been if it did not
have to pay such taxes, duties, assessments or other charges.
S-34
Book-Entry and Settlement
If the junior subordinated debentures are distributed to holders of trust
preferred securities in connection with the involuntary or voluntary
dissolution, winding-up or liquidation of the Issuer Trust as a result of the
occurrence of a tax event, investment company event or capital treatment event,
the junior subordinated debentures will be issued in the form of one or more
global certificates registered in the name of the depositary or its nominee.
Each global certificate is referred to as a "global security". Except under the
limited circumstances described below, junior subordinated debentures
represented by a global security will not be exchangeable for, and will not
otherwise be issuable as, junior subordinated debentures in definitive form.
The global securities described above may not be transferred except by the
depositary to a nominee of the depositary or by a nominee of the depositary to
the depositary or another nominee of the depositary or to a successor
depositary or its nominee.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of such securities in definitive form. These laws may
impair the ability to transfer beneficial interests in such a global security.
Except as provided below, owners of beneficial interests in such a global
security will not be entitled to receive physical delivery of junior
subordinated debentures in definitive form and will not be considered the
holders, as defined in the junior indenture, of such global security for any
purpose under the junior indenture. A global security representing junior
subordinated debentures is only exchangeable for another global security
of like denomination and tenor to be registered in the name of the depositary
or its nominee or to a successor depositary or its nominee. This means that
each beneficial owner must rely on the procedures of the depositary, or if such
person is not a participant, on the procedures of the participant through which
such person owns its interest, to exercise any rights of a holder under the
junior indenture.
The Depositary
If the junior subordinated debentures are distributed to holders of the
trust preferred securities in liquidation of such holders' interests in the
Issuer Trust, DTC will act as securities depositary for the junior subordinated
debentures. As of the date of this prospectus supplement, the description in
this prospectus supplement of DTC's book-entry system and DTC's practices as
they relate to purchases, transfers, notices and payments relating to the trust
preferred securities apply in all material respects to any debt obligations
represented by one or more global securities held by DTC. KeyCorp may appoint a
successor to DTC or any successor depositary in the event DTC or such successor
depositary is unable or unwilling to continue as a depositary for the global
securities. For a description of DTC and the specific terms of the depositary
arrangements, see "Description of the Trust Preferred Securities--Book-Entry
Only Issuance--The Depository Trust Company" in this prospectus supplement.
None of the Issuer Trust, we, the junior trustee, any paying agent or any
other agent of KeyCorp or the junior trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in a global security for such junior
subordinated debentures or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Discontinuance of the Depositary's Services
A global security will be exchangeable for junior subordinated debentures
registered in the names of persons other than the depositary or its nominee
only if:
. the depositary notifies KeyCorp that it is unwilling or unable to
continue as a depositary for such global security and no successor
depositary has been appointed;
. the depositary, at any time, ceases to be a clearing agency registered
under the Exchange Act at which time the depositary is required to be so
registered to act as such depositary and no successor depositary has been
appointed;
S-35
. KeyCorp, in its sole discretion, determines that such global security
shall be so exchangeable; or
. a debenture event of default relating to the junior subordinated
debentures then exists.
Any global security that is exchangeable pursuant to the preceding sentence
shall be exchangeable for junior subordinated debentures registered in such
names as the depositary shall direct. It is expected that such instructions
will be based upon directions received by the depositary from its participants
relating to ownership of beneficial interests in such global security.
Miscellaneous
The junior indenture provides that we will pay all fees and expenses related
to:
. the offering of the trust preferred securities, trust common securities
and the junior subordinated debentures;
. the organization, maintenance and dissolution of the Issuer Trust;
. the retention of the Issuer Trust trustees; and
. the enforcement by the property trustee of the rights of the holders of
the trust preferred securities.
S-36
DESCRIPTION OF GUARANTEE
The following, together with "Capital Securities and Related
Instruments--Guarantees and Expense Agreements" in the accompanying prospectus,
is a description of the material terms of the guarantee. If the description of
the guarantee set forth in this prospectus supplement differs in any way from
the description set forth in the accompanying prospectus, you should rely on
the description set forth in this prospectus supplement.
The following payments on the trust preferred securities (the "guarantee
payments"), if not fully paid by the Issuer Trust, will be paid by KeyCorp
under the guarantee, without duplication:
. any accumulated and unpaid distributions required to be paid on the trust
preferred securities, to the extent the Issuer Trust has funds available
to make the payment;
. the redemption price for any trust preferred securities called for
redemption, to the extent the Issuer Trust has funds available to make
the payment; and
. upon a voluntary or involuntary dissolution, winding-up or liquidation of
the Issuer Trust, other than in connection with a distribution of the
junior subordinated debentures to the holders of the trust preferred
securities, the lesser of:
(1) the aggregate of the $25 liquidation amount and all accumulated and
unpaid distributions on the trust preferred securities to the date of
payment, to the extent the Issuer Trust has funds available to make
the payment; and
(2) the amount of assets of the Issuer Trust remaining available for
distribution to holders of the trust preferred securities upon
liquidation of the Issuer Trust.
KeyCorp's obligation to make a guarantee payment may be satisfied by direct
payment of the required amounts by KeyCorp to the holders of the trust
preferred securities or by causing the Issuer Trust to pay the amounts to the
holders.
If KeyCorp does not make a required payment on the junior subordinated
debentures, the Issuer Trust will not have sufficient funds to make the related
payment on the trust preferred securities. The guarantee does not cover
payments on the trust preferred securities when the Issuer Trust does not have
sufficient funds to make these payments. If KeyCorp does not pay any amounts on
the junior subordinated debentures when due, holders of the trust preferred
securities will have to rely on the enforcement by the property trustee of the
trustee's rights as registered holder of the junior subordinated debentures, or
proceed directly against KeyCorp for payment of any amounts due on the trust
preferred securities. KeyCorp's obligations under the guarantee are unsecured
and are subordinated to and junior in right of payment to all of KeyCorp's
secured and senior debt, and rank on a parity with all other similar guarantees
issued by KeyCorp.
S-37
RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES,
THE JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
KeyCorp will guarantee payments of distributions and redemption and
liquidation payments due on the trust preferred securities to the extent the
Issuer Trust has funds available for such payment, as described under
"Description of Guarantee" above. No single document executed by KeyCorp will
provide for the full, irrevocable and unconditional guarantee of the trust
preferred securities. It is only the combined operation of the guarantee, the
amended and restated trust agreement and the junior indenture that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Issuer Trust's obligations under the trust preferred securities.
As long as KeyCorp pays interest and other payments when due on the junior
subordinated debentures, those payments will be sufficient to cover
distributions and redemption and liquidation payments due on the trust
preferred securities, primarily because:
. the aggregate principal amount of the junior subordinated debentures will
be equal to the sum of the aggregate liquidation amount of the trust
preferred securities and the trust common securities;
. the interest rate and interest and other payment dates on the junior
subordinated debentures will match the distribution rate and distribution
and other payment dates for the trust preferred securities;
. KeyCorp will pay for any and all costs, expenses and liabilities of the
Issuer Trust, except withholding taxes and the Issuer Trust's obligations
to holders of the trust preferred securities and the trust common
securities; and
. the amended and restated trust agreement provides that the Issuer Trust
will not engage in any activity that is not consistent with the limited
purposes of the Issuer Trust.
A default or event of default under any senior debt of KeyCorp would not
necessarily constitute a default or event of default under the trust preferred
securities. However, if certain events of bankruptcy, insolvency or
reorganization occur, the junior indenture provides that no payments may be
made on the junior subordinated debentures until the senior debt has been paid
in full. See "Description of the Junior Subordinated Debentures--Subordination"
in this prospectus supplement. See also "Capital Securities and Related
Instruments--Relationship Among the Capital Securities and the Related
Instruments" in the accompanying prospectus.
S-38
SUPPLEMENTAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following supplements the discussion under "U.S. Federal Income Tax
Considerations" in the accompanying prospectus.
Under recently enacted legislation, capital gain recognized by a
non-corporate U.S. holder prior to January 1, 2009 is generally taxed at a
maximum rate of 15% where the property is held for more than one year. Payments
that constitute dividends for U.S. federal income tax purposes are also subject
to a lower rate of tax (generally 15%) than other ordinary income for certain
individual U.S. holders as a result of this legislation. Because income on the
trust preferred securities will constitute interest or OID, U.S. holders of the
trust preferred securities will not be entitled to the preferential tax rate
generally applicable to payments of dividends.
S-39
SUPPLEMENTAL ERISA CONSIDERATIONS
The following supplements the discussion under "ERISA Considerations" in the
accompanying prospectus.
If you are a fiduciary of a pension, profit-sharing or other employee
benefit plan subject to the Employee Retirement Income Security Act ("ERISA"),
you should review the fiduciary standards of ERISA and the plan's particular
circumstances before deciding to invest in the trust preferred securities. You
should consider whether the investment would satisfy the prudence and
diversification requirements of ERISA and whether the investment would be
consistent with the terms of the plan and the other agreements which apply to
plan investments.
A fiduciary of a plan subject to ERISA, as well as a person investing on
behalf of an individual retirement account or a pension or profit-sharing plan
for one or more self-employed persons, should also consider whether an
investment in the trust preferred securities could result in a prohibited
transaction. ERISA and the Code, prohibit plans and individual retirement
accounts from engaging in certain transactions involving plan assets with
persons who are parties in interest under ERISA or disqualified persons under
the Code with respect to the plan or individual retirement account. A violation
of these rules may result in a substantial excise tax under the Code and other
liabilities under ERISA. Employee benefit plans that are governmental plans,
foreign plans or church plans generally are not subject to the prohibited
transaction rules or the fiduciary standards of ERISA.
The assets of the Issuer Trust would not be deemed to be "plan assets" of
investing plans if the trust preferred securities are "publicly-offered
securities"--that is, they are:
. widely held, i.e., owned by more than 100 investors independent of the
Issuer Trust and of each other;
. freely transferable; and
. sold to a plan as part of an offering pursuant to an effective
registration statement under the Securities Act and then timely
registered under Section 12(b) or 12(g) of the Exchange Act.
KeyCorp expects that the trust preferred securities will meet the criteria
of "publicly-offered securities" above, although no assurance can be given in
this regard. The underwriters expect that the trust preferred securities will
be held by at least 100 independent investors at the conclusion of the offering
and that the trust preferred securities will be freely transferable. The trust
preferred securities will be sold as part of an offering under an effective
registration statement under the Securities Act, and then will be timely
registered under the Exchange Act.
S-40
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
relating to the trust preferred securities, the Issuer Trust has agreed to sell
to each of the underwriters listed below, and each of the underwriters has
severally agreed to purchase from the Issuer Trust, the respective number of
trust preferred securities shown opposite its name below:
Number of Trust
Underwriters Preferred Securities
------------ --------------------
Citigroup Global Markets Inc...................... 1,100,000
McDonald Investments Inc.......................... 1,100,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated 1,045,000
Morgan Stanley & Co. Incorporated................. 1,045,000
UBS Securities LLC................................ 1,045,000
Bear, Stearns & Co. Inc........................... 125,000
Credit Suisse First Boston LLC.................... 125,000
Goldman, Sachs & Co............................... 125,000
A.G. Edwards & Sons, Inc.......................... 75,000
ABN AMRO Incorporated............................. 75,000
Banc of America Securities LLC.................... 75,000
J.P. Morgan Securities Inc........................ 75,000
D.A. Davidson & Co................................ 75,000
Legg Mason Wood Walker, Incorporated.............. 75,000
Keefe, Bruyette & Woods, Inc...................... 75,000
Deutsche Bank Securities Inc...................... 75,000
RBC Dain Rauscher Inc............................. 75,000
Putnam Lovell NBF Securities Inc.................. 75,000
Fahnestock & Co. Inc.............................. 75,000
Charles Schwab & Co., Inc......................... 75,000
H&R Block Financial Advisors, Inc................. 75,000
TD Waterhouse Capital Markets LLC................. 75,000
Guzman & Company.................................. 40,000
Hoefer & Arnett Inc............................... 40,000
Sandler O'Neill & Partners, L.P................... 40,000
The Williams Capital Group, L.P................... 40,000
Janney Montgomery Scott LLC....................... 40,000
Raymond James & Associates, Inc................... 40,000
---------
Total.......................................... 7,000,000
=========
The underwriting agreement provides that the obligations of the underwriters
to purchase the trust preferred securities are subject to certain conditions
and that, if any trust preferred securities are purchased by the underwriters
under the underwriting agreement, all of the trust preferred securities agreed
to be purchased by the underwriters under the underwriting agreement must be so
purchased.
We have been advised by the underwriters that they intend to offer the trust
preferred securities initially at the public offering price set forth on the
cover page of this prospectus supplement, and to certain selected dealers (who
may include the underwriters) at such public offering price less a concession
not in excess of $0.50 per trust preferred security. The underwriters or such
selected dealers may reallow a commission to certain other dealers not to
exceed $0.35 per trust preferred security. After the initial public offering,
the public offering price, the concession to selected dealers and the
reallowance to other dealers may be changed by the underwriters.
S-41
The following table summarizes the commissions to be paid by KeyCorp to the
underwriters in connection with this offering.
Per
Trust Preferred
Security Total
--------------- ------------
Public offering price............................. $ 25 $175,000,000
Underwriting commissions to be paid by KeyCorp.... $0.7875 $ 5,512,500
Proceeds (before expenses) to KeyCorp Capital V... $ 25 $175,000,000
Prior to this offering, there has been no public market for the trust
preferred securities. We intend to apply to list the trust preferred securities
on the New York Stock Exchange. If approved, trading of the trust preferred
securities on the New York Stock Exchange is expected to commence within a
30-day period after the original issue date. In order to meet one of the
requirements for listing the trust preferred securities on the New York Stock
Exchange, the underwriters have agreed to sell the trust preferred securities
to a minimum of 400 beneficial owners.
In order to facilitate the offering of the trust preferred securities, the
underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the trust preferred securities. Specifically, the
underwriters may over-allot in connection with the offering, creating a short
position in the trust preferred securities for their own account. The
underwriters can close out a short position by purchasing trust preferred
securities in the open market. As an additional means of facilitating the
offering of trust preferred securities, the underwriters may bid for and
purchase these trust preferred securities in the open market to stabilize the
price of these trust preferred securities. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or dealer for
distributing the trust preferred securities in the offering, if the syndicate
repurchases previously distributed trust preferred securities in transactions
to cover syndicate short positions, in stabilization transactions or otherwise.
Any of these activities may stabilize or maintain the market price of the trust
preferred securities above independent market levels or prevent or retard a
decline in the market price of the trust preferred securities. The underwriters
are not required to engage in these activities, and may end any of these
activities at any time.
It is expected that delivery of the trust preferred securities will be made
against payment therefor on or about the date specified in the second to last
paragraph of the cover page of this prospectus supplement, which will be the
fifth business day following the date of the pricing of the trust preferred
securities. Under Rule 15(c)(6)(1) of the Exchange Act, trades in the secondary
market generally are required to settle in three business days, unless the
parties to any such trade expressly agree otherwise. Accordingly, purchasers
who wish to trade trust preferred securities on the day of pricing or the next
succeeding business day will be required, by virtue of the fact that the trust
preferred securities initially will settle in T+5, to specify alternative
settlement arrangements to prevent a failed settlement.
To the extent permitted by applicable law and regulations, this prospectus
supplement and the accompanying prospectus may be used by broker-dealer
affiliates of KeyCorp, including, without limitation, McDonald Investments
Inc., in connection with offers and sales of the trust preferred securities or
in market-making transactions, including block positioning and block trades, at
negotiated prices related to the prevailing market price at the time of sale,
whether acting as principal or agent in such transactions. None of KeyCorp's
broker-dealer affiliates, including, without limitation, McDonald Investments
Inc., have any obligation to make a market in the trust preferred securities
and any such affiliate may discontinue any market-making activities at any time
without notice, at its sole discretion. Broker-dealers purchasing trust
preferred securities from affiliates of KeyCorp, including, without limitation,
McDonald Investments Inc., may be deemed to be underwriters as that term is
defined in the Securities Act and subject to applicable prospectus delivery
requirements.
We have been advised by the underwriters that certain underwriters presently
intend to make a market in the trust preferred securities; however, none of the
underwriters is obligated to do so. Any such market-making may be discontinued
at any time, for any reason and without notice. If any of the underwriters
ceases to act as a
S-42
market-maker for the trust preferred securities for any reason, there can be no
assurance that another firm or person will make a market in the trust preferred
securities. There can be no assurance that an active market for the trust
preferred securities will develop or, if a market does develop, at what prices
the trust preferred securities will trade.
We estimate that our total expenses for this offering will be approximately
$375,000.
Certain underwriters or their affiliates have from time to time provided
investment banking and/or financial advisory services to KeyCorp and its
affiliates in the ordinary course of business, for which they have received
customary fees, and they may continue to do so in the future. One of the
underwriters, McDonald Investments Inc., is a wholly owned broker-dealer
subsidiary of KeyCorp.
Because the NASD views the trust preferred securities as interests in a
direct participation program, the offering is being made in compliance with
Rule 2810 of the NASD's Conduct Rules. The underwriters may not confirm sales
to any discretionary account without the prior specific written approval of a
customer.
A prospectus supplement and accompanying prospectus in electronic format may
be made available on the web sites maintained by one or more of the
underwriters. The representatives may agree to allocate a number of trust
preferred securities to underwriters for sale to their online brokerage account
holders. The representatives will allocate trust preferred securities to
underwriters that may make Internet distributions on the same basis as other
allocations. In addition, trust preferred securities may be sold by the
underwriters to securities dealers who resell trust preferred securities to
online brokerage account holders.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of such
liabilities.
VALIDITY OF SECURITIES
Richards, Layton & Finger, P.A., special Delaware counsel to us and the
Issuer Trust, will pass upon certain matters of Delaware law relating to the
validity of the trust preferred securities, the enforceability of the amended
and restated trust agreement and the creation of the Issuer Trust. Our
Associate General Counsel and Sullivan & Cromwell LLP, New York, New York,
counsel for the underwriters, will each pass upon the validity of the guarantee
and the junior subordinated debentures. Our Associate General Counsel will rely
upon the opinion of Sullivan & Cromwell LLP as to matters of New York law and
upon the opinion of Richards, Layton & Finger, P.A. as to matters of Delaware
law. Sullivan & Cromwell LLP will rely upon the opinion of our Associate
General Counsel as to matters of Ohio law and upon the opinion of Richards,
Layton & Finger, P.A. as to matters of Delaware law. Sullivan & Cromwell LLP
regularly performs legal services for us and our subsidiaries.
Sullivan & Cromwell LLP, as special tax counsel to us and the Issuer Trust,
will pass upon certain matters relating to U.S. federal income tax
considerations.
S-43
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our annual report on Form 10-K for the year
ended December 31, 2002, as set forth in their report, which is incorporated by
reference in this prospectus supplement, in the accompanying prospectus and
elsewhere in the registration statement. Our consolidated financial statements
are incorporated by reference in reliance on Ernst & Young LLP's report, given
on their authority as experts in accounting and auditing.
With respect to the unaudited condensed consolidated interim financial
information for the three-month periods ended March 31, 2003 and 2002,
incorporated by reference in this prospectus supplement and in the accompanying
prospectus, Ernst & Young LLP have reported that they have applied limited
procedures in accordance with professional standards for a review of such
information. However, their separate report, included in our quarterly report
on Form 10-Q for the quarter ended March 31, 2003, and incorporated by
reference, states that they did not audit and they do not express an opinion on
that interim financial information. Accordingly, the degree of reliance on
their report on such information should be restricted considering the limited
nature of the review procedures applied. The independent auditors are not
subject to the liability provisions of Section 11 of the Securities Act of 1933
for their report on the unaudited interim financial information because that
report is not a "report" or a "part" of the registration statement prepared or
certified by the auditors within the meaning of Sections 7 and 11 of the
Securities Act of 1933.
S-44
127 Public Square
Cleveland, Ohio 44114-1306
(216) 689-6300
[LOGO]
KEYCORP
$250,000,000
Capital Securities
of
KEYCORP CAPITAL V
KEYCORP CAPITAL VI
KEYCORP CAPITAL VII
Guaranteed as described herein by
KEYCORP
The Issuer Trusts may offer and sell the capital securities listed above, in
one or more offerings, up to a total dollar amount of $250,000,000 (or the
equivalent in foreign currency or currency units). Capital securities are
preferred securities representing preferred beneficial interests in the
applicable Issuer Trust. We will describe specific terms of the capital
securities in supplements to this prospectus. You should read this prospectus
and the applicable prospectus supplement carefully before you invest.
KeyCorp's common stock is traded on the New York Stock Exchange under the
symbol "KEY".
See "Risk Factors" beginning on Page 8 for risks related to an investment
in the Capital Securities.
These securities have not been approved or disapproved by the SEC or any
state securities commission nor have these organizations determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
These securities will not be savings accounts, deposits or other obligations
of any bank and are not insured by the Federal Deposit Insurance Corporation,
the Bank Insurance Fund or any other governmental agency.
-----------------
This prospectus is dated June 12, 2002.
TABLE OF CONTENTS
Page
----
About This Document...................................................... 1
Where You Can Find More Information...................................... 2
Summary of Offering...................................................... 3
Consolidated Earnings Ratios............................................. 8
Forward-Looking Statements............................................... 9
Risk Factors............................................................. 10
KeyCorp.................................................................. 14
Use of Proceeds.......................................................... 15
Regulatory Considerations................................................ 16
The Issuer Trusts........................................................ 17
Capital Securities and Related Instruments............................... 19
Junior Subordinated Debentures........................................ 30
Guarantees and Expense Agreements..................................... 43
Relationship Among the Capital Securities and the Related Instruments. 46
Issuance of Global Securities............................................ 48
Plan of Distribution..................................................... 50
U.S. Federal Income Tax Considerations................................... 52
ERISA Considerations..................................................... 56
Validity of Securities................................................... 57
Experts.................................................................. 57
i
ABOUT THIS DOCUMENT
This document is called a "prospectus", and it provides you with a general
description of the capital securities the Issuer Trusts may offer. Each time an
Issuer Trust sells capital securities we will provide a prospectus supplement
containing specific information about the terms of the securities being
offered. That prospectus supplement may include a discussion of any risk
factors or other special considerations that apply to those securities. The
prospectus supplement may also add, update or change the information in this
prospectus. If there is any inconsistency between the information in this
prospectus and any prospectus supplements, you should rely on the information
in that prospectus supplement. You should read both this prospectus and any
prospectus supplement together with additional information described under the
heading "Where You Can Find More Information".
Where appropriate, the applicable prospectus supplement will describe any
special U.S. federal income tax considerations relevant to the securities being
offered.
KeyCorp, an Ohio corporation, and KeyCorp Capital V, KeyCorp Capital VI and
KeyCorp Capital VII, each a statutory business trust created under the laws of
the State of Delaware (separately each trust is also referred to as an "Issuer
Trust" and together as the "Issuer Trusts"), have filed a registration
statement with the SEC using a "shelf" registration or continuous offering
process. Under this shelf process, the Issuer Trusts may offer and sell the
capital securities described in this prospectus, in one or more offerings, up
to a total dollar amount of $250,000,000 (or the equivalent in foreign
currencies or currency units).
Unless otherwise indicated or unless the context requires otherwise, all
references in this prospectus to "we", "us", "our", or similar references mean
KeyCorp.
Our SEC registration statement containing this prospectus, including
exhibits, provides additional information about us and the securities offered
under this prospectus. The registration statement can be read at the SEC's web
site or at the SEC's office. The SEC's web site and street address are provided
under the heading "Where You Can Find More Information".
When acquiring capital securities, you should rely only on the information
provided in this prospectus and in the related prospectus supplement, including
any information incorporated by reference. No one is authorized to provide you
with different information. We are not offering the capital securities in any
state where the offer is prohibited. You should not assume that the information
in this prospectus, any prospectus supplement or any document incorporated by
reference is truthful or complete for any date other than the date indicated on
the cover page of these documents.
The Issuer Trusts may sell capital securities to underwriters who will in
turn sell the securities to the public on terms fixed at the time of sale. In
addition, the capital securities may be sold by an Issuer Trust directly or
through dealers or agents designated from time to time, which agents may be our
affiliates. If KeyCorp, directly or through agents, solicits offers to purchase
the capital securities, KeyCorp reserves the sole right to accept and, together
with our agents, to reject, in whole or in part, any of those offers.
A prospectus supplement will contain the names of the underwriters, dealers
or agents, if any, together with the terms of offering, the compensation of
those underwriters and the net proceeds to each Issuer Trust. Any underwriters,
dealers or agents participating in the offering may be deemed "underwriters"
within the meaning of the Securities Act of 1933.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room. In addition, our SEC filings are available to the public at the
SEC's web site at http://www.sec.gov.
In this prospectus, as permitted by law, we "incorporate by reference"
information from other documents that we file with the SEC. This means that we
can disclose important information to you by referring you to those documents.
The information incorporated by reference is considered to be a part of this
prospectus and should be read with the same care. When we update the
information contained in documents that have been incorporated by reference by
making future filings with the SEC, the information incorporated by reference
in this prospectus is considered to be automatically updated and superseded. In
other words, in case of a conflict or inconsistency between information
contained in this prospectus and information incorporated by reference into
this prospectus, you should rely on the information contained in the document
that was filed later.
We incorporate by reference the documents listed below and any documents we
file with the SEC in the future under Section 13(a), 13(c), 14, or 15(d) of the
Securities Exchange Act of 1934 until our offering is completed:
. Annual Report on Form 10-K for the year ended December 31, 2001;
. Quarterly Report on Form 10-Q for the period ended March 31, 2002;
. Current Report on Form 8-K dated April 17, 2002;
. Current Report on Form 8-K dated January 16, 2002; and
. Proxy Statement on Schedule 14A dated April 10, 2002.
You may request a copy of any of these filings, other than an exhibit to a
filing unless that exhibit is specifically incorporated by reference into that
filing, at no cost, by writing to or telephoning us at the following address:
KeyCorp
127 Public Square
Cleveland, Ohio 44114-1306
Attention: Investor Relations
(216) 689-6300
No separate financial statements of any Issuer Trust are included in this
prospectus. KeyCorp and the Issuer Trusts do not consider that such financial
statements would be material to holders of the capital securities because each
Issuer Trust is a special purpose entity, has no operating history or
independent operations and is not engaged in and does not propose to engage in
any activity other than holding as trust assets the corresponding junior
subordinated debentures (as defined under the heading "The Issuer Trusts") of
KeyCorp and issuing the trust securities. Furthermore, taken together,
KeyCorp's obligations under each series of corresponding junior subordinated
debentures, the junior indenture under which the corresponding junior
subordinated debentures will be issued, the related trust agreement, the
related expense agreement and the related guarantee provide, in the aggregate,
a full, irrevocable and unconditional guarantee of payments of distributions
and other amounts due on the related capital securities of an Issuer Trust. For
a more detailed discussion, see "The Issuer Trusts", "Capital Securities and
Related Instruments", "Capital Securities and Related Instruments--Junior
Subordinated Debentures--Corresponding Junior Subordinated Debentures" and
"Capital Securities and Related Instruments--Guarantees and Expense
Agreements". In addition, KeyCorp does not expect any of the Issuer Trusts to
file reports under the Exchange Act with the SEC.
2
SUMMARY OF OFFERING
This summary highlights information contained in this prospectus. This
summary is not complete and does not contain all the information that you
should consider before investing in the capital securities. You should read the
entire prospectus and any prospectus supplement carefully, especially the risks
of investing in the capital securities discussed under "Risk Factors" beginning
on page 8.
KeyCorp....................... We are a bank holding company engaged primarily
in the business of commercial and retail banking.
We are one of the nation's largest bank-based
financial services companies, with consolidated
total assets of $81.4 billion at March 31, 2002.
Our subsidiaries provide a wide range of retail
and commercial banking, commercial leasing,
investment management, consumer finance and
investment banking products and financial
services to corporate, individual and
institutional clients through three major
business groups: Key Consumer Banking, Key
Corporate Finance and Key Capital Partners. These
services are provided across much of the country
through full-service banking offices in 12
states, a telephone banking call center services
group and more than 2,300 automated teller
machines (ATMs) at March 31, 2002.
Our principal office and mailing address is at
127 Public Square, Cleveland, Ohio 44114-1306.
Our telephone number is (216) 689-6300.
Issuer Trusts................. Each Issuer Trust is a Delaware statutory
business trust created solely for the purpose of
issuing capital securities to investors and trust
common securities to us and investing the
proceeds in an equivalent amount of our junior
subordinated debentures. The corresponding junior
subordinated debentures will be the sole assets
of each Issuer Trust. Each Issuer Trust has its
principal office and mailing address at c/o
KeyCorp,127 Public Square, Cleveland, Ohio,
44114-1306, and the telephone number for each is
(216) 689-6300.
Capital Securities Offered.... The Issuer Trusts may offer and sell capital
securities, in one or more offerings, up to a
total dollar amount of $250,000,000. Capital
securities represent
preferred beneficial interests in the Issuer
Trust that sold them. The specific terms of the
capital securities will be set forth in
supplements to this prospectus.
Liquidation Amount............ $1,000 per capital security, or such other amount
as set forth in the applicable prospectus
supplement.
3
Distributions................. Distributions on the capital securities will be
payable at a rate specified in the applicable
prospectus supplement, and will be payable on the
dates specified in the applicable prospectus
supplement. The amount of distributions payable
for any period will be computed on the basis of a
360-day year of twelve 30 day months unless
otherwise specified in the applicable prospectus
supplement. The revenue available for each Issuer
Trust for distribution to holders of its capital
securities will be limited to payments under the
corresponding junior subordinated debentures,
which the Issuer Trust will acquire with the
proceeds from the issuance and sale of its trust
securities.
Deferral of distributions..... We may defer interest payments on the junior
subordinated debentures for up to the number of
consecutive periods specified in the applicable
prospectus supplement. If we defer interest
payments, the Issuer Trust also will defer the
payment of distributions on the capital
securities. During any extension period, your
distributions will continue to accrue, and
interest on the unpaid distributions will
compound quarterly. During any extension period,
you will be required to accrue interest income
and include it in your gross income for U.S.
federal income tax purposes, even if you are a
cash basis taxpayer.
Ranking....................... Except as described below under "Capital
Securities and Related Instruments--Subordination
of Trust Common Securities," the capital
securities of an Issuer Trust will rank on a
parity, and payments on them will be made pro
rata, with the trust common securities of that
Issuer Trust. Legal title to the corresponding
junior subordinated debentures will be held and
administered by the property trustee in trust for
the benefit of the holders of the related capital
securities and trust common securities.
Redemption.................... Each Issuer Trust must redeem the capital
securities and trust common securities:
(1) in whole or in part, upon the repayment or
redemption, in whole or in part, of any
corresponding junior subordinated debentures,
whether at maturity or upon earlier redemption as
provided in the junior indenture, except as
provided in the prospectus or the applicable
prospectus supplement; and
4
(2) in whole (but not in part) if we elect to
redeem the corresponding junior subordinated
debentures in whole (but not in part) at any time
upon the occurrence of:
. changes in U.S federal income tax laws or
regulations that could have adverse tax
consequences for us or the Issuer Trust, or
. changes that could prevent us from treating
an amount equal to the liquidation amount
of the capital securities as "Tier 1"
capital for purposes of the applicable
Federal Reserve capital adequacy
guidelines, or
. changes that would require the Issuer Trust
to be registered as an "investment company"
under the
. Investment Company Act.
In either case, the redemption price for the
capital securities will equal the total
liquidation amount of the capital securities
being redeemed plus accumulated but unpaid
distributions on the capital securities being
redeemed. If less than all of any series of
corresponding junior subordinated debentures are
to be repaid or redeemed on a redemption date,
then the proceeds from the repayment or
redemption will be allocated to the redemption
pro rata of the related capital securities and
the trust common securities, based upon the
relative liquidation rights of these classes.
Capital securities redeemed on each redemption
date will be redeemed at the redemption price
with the applicable proceeds from the
contemporaneous redemption of the corresponding
junior subordinated debentures. The redemption
price will be payable on each redemption date
only to the extent that the Issuer Trust has
funds then on hand and available in the payment
account for the payment of the redemption price.
See "Capital Securities and Related
Instruments--Redemption or Exchange" and "Capital
Securities and Related Instruments--Redemption
Procedures" for further information relating your
rights upon redemption of the corresponding
junior subordinated debentures.
5
Liquidation distribution...... We may dissolve any Issuer Trust at any time with
the prior approval of the Federal Reserve, if
then required. If we dissolve an Issuer Trust,
the Issuer Trust will distribute the junior
subordinate debentures to you in exchange for the
capital securities. If the exchange is determined
by the property trustee not to be practical, the
holders of capital securities will be entitled to
receive an amount equal to the aggregate of the
liquidation amount plus any accrued and unpaid
distributions. In all cases, however,
distributions will be made only to the extent of
the Issuer Trust's assets that are available
after satisfaction of all liabilities to
creditors.
Guarantee..................... Each guarantee agreement executed by us for the
benefit of the holders of an Issuer Trust's
capital securities will be a guarantee on a
subordinated basis with respect to the related
capital securities but will not guarantee payment
of distributions or amounts payable on redemption
or liquidation of such capital securities when
the related Issuer Trust does not have funds on
hand available to make such payments. See
"Capital Securities and Related
Instruments--Guarantees and Expense Agreements"
for further detail.
Use of proceeds............... Each Issuer Trust will use the proceeds from any
offering to purchase the junior subordinated
debentures issued by us. We expect to use the net
proceeds from the sale of the junior subordinated
debentures to the Issuer Trusts for general
corporate purposes, which may include: reducing
or refinancing existing debt;
. repurchasing existing capital securities;
. investments at the holding company level;
. investing in, or extending credit to, our
operating subsidiaries;
. possible acquisitions;
. stock repurchases; and
. other purposes as described in any
prospectus supplement.
Pending such use, we may temporarily invest the
net proceeds. The precise amounts and timing of
the application of proceeds will depend upon our
funding requirements and the availability of
other funds. Except as indicated in a prospectus
supplement, allocations of the proceeds to
specific purposes will not have been made at the
date of that prospectus supplement.
6
Book-entry issuance only...... The capital securities will be represented by a
global security that will be deposited with and
registered in the name of The Depository Trust
Company or its nominee.
This means that, except in limited circumstances,
you will not receive a certificate for the
capital securities.
Listing....................... We intend to list the capital securities on the
New York Stock Exchange. If listed, trading of
the capital securities on the New York Stock
Exchange is expected to commence within 30 days
of the initial delivery of the capital securities.
7
CONSOLIDATED EARNINGS RATIOS
The following table shows our consolidated ratios of earnings to fixed
charges and preferred stock dividends for each of the years in the five-year
period ended December 31, 2001 and for each of the three-month periods ended
March 31, 2002 and 2001.
For the purpose of calculating the ratio of earnings to fixed charges and
preferred stock dividends, we divided consolidated income, before income taxes
and extraordinary items, plus fixed charges by fixed charges. Fixed charges
consist of:
. consolidated interest expense, excluding or including interest on
deposits, as the case may be; and
. that portion of rental expense which is deemed representative of the
interest factor, net of income from subleases.
Three Months
Ended
March 31, Years Ended December 31,
----------- -----------------------------
2002 2001 2001 2000 1999 1998 1997
----- ----- ----- ----- ----- ----- -----
Ratios of earnings to fixed charges
Excluding deposit interest................... 2.52x 1.78x 1.19x 1.83x 2.02x 1.97x 2.24x
Including deposit interest................... 1.67x 1.38x 1.09x 1.42x 1.57x 1.51x 1.53x
Ratios of earnings to combined fixed charges and
preferred stock dividends
Excluding deposit interest................... 2.52x 1.78x 1.19x 1.83x 2.02x 1.97x 2.24x
Including deposit interest................... 1.67x 1.38x 1.09x 1.42x 1.57x 1.51x 1.53x
8
FORWARD-LOOKING STATEMENTS
This prospectus and each prospectus supplement contains or incorporates
statements that we believe are "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. These statements
relate to our financial condition, results of operations, plans, objectives,
future performance or business. They usually can be identified by the use of
forward-looking language such as "will likely result", "may", "are expected
to", "is anticipated", "estimate", "forecast", "projected", "intends to" or
other similar words. You should not place undue reliance on these statements,
as they are subject to risks and uncertainties, including but not limited to
those described in this prospectus, the prospectus supplement or the documents
incorporated by reference. When considering these forward-looking statements,
you should keep in mind these risks and uncertainties, as well as any
cautionary statements we may make. Moreover, you should treat these statements
as speaking only as of the date they are made and based only on information
then actually known to us.
Our actual results, performance or achievements could be significantly
different from the results expressed in or implied by any forward-looking
statements. Factors that might cause such a difference include, but are not
limited to: (1) competitive pressures on financial institutions may increase
significantly; (2) changes in the interest rate environment may reduce interest
margins; (3) prepayment speeds, loan sale volumes, charge-offs and loan loss
provisions are inherently uncertain; (4) general economic conditions, either
national or in the states in which we do business, may be less favorable than
expected; (5) political developments, wars or other hostilities may cause
disruption or movements in securities markets or other economic conditions; (6)
legislative or regulatory changes may adversely affect the businesses in which
we are engaged; and (7) changes and trends in the securities markets. You
should refer to our periodic and current reports filed with the SEC for further
information on other factors which could cause actual results to be
significantly different from those expressed or implied by these
forward-looking statements. See "Where You Can Find More Information".
9
RISK FACTORS
An investment in the capital securities involves a number of risks, some of
which relate to the terms of the capital securities or the junior subordinated
debentures and others of which relate to KeyCorp and its business. You should
carefully review the following information about these risks together with
other information contained in this prospectus and in documents incorporated by
reference in this prospectus before deciding whether this investment is
suitable for you.
You are making an investment decision with regard to the junior subordinated
debentures as well as the capital securities.
Each Issuer Trust will rely on the payments it receives on the corresponding
junior subordinated debentures to fund all payments on the capital securities.
In addition, each Issuer Trust may distribute the corresponding junior
subordinated debentures in exchange for the capital securities upon its
dissolution and liquidation. Accordingly, you should carefully review the
information in this prospectus regarding both of these securities.
Payments on the capital securities are dependent on our payments on the junior
subordinated debentures.
The ability of the Issuer Trusts timely to pay distributions on the capital
securities and to pay the liquidation amount is dependent upon our making the
related payments on the junior subordinated debentures when due.
If we default on our obligation to pay principal of or interest on the
junior subordinated debentures, the Issuer Trusts will not have sufficient
funds to pay distributions or the liquidation amount. As a result, you will not
be able to rely upon the guarantee for payment of these amounts. You or the
property trustee of the Issuer Trust may, however, sue us to enforce the rights
of such trust under the corresponding junior subordinated debentures. For more
information, please refer to "Capital Securities and Related
Instruments--Junior Subordinated Debentures--Enforcement of Certain Rights by
Holders of Capital Securities" and "Capital Securities and Related
Instruments--Relationship Among the Capital Securities and the Related
Instruments--Enforcement Rights of Holders of Capital Securities".
Our obligations will be deeply subordinated, and we will pay our other debt
obligations before we pay you.
Our obligations under the guarantee and under the junior subordinated
debentures will be unsecured and rank subordinate and junior in right of
payment to all of our senior indebtedness, which includes nearly all of our
existing indebtedness, other than a total of approximately $1.27 billion of
junior subordinated debentures previously issued to our other subsidiary
trusts. For further information regarding our existing indebtedness, see
"Capital Securities and Related Instruments--Junior Subordinated
Debentures--Subordination of Junior Subordinated Debentures".
Because we are a holding company, our right to participate in any
distribution of the assets of our banking or nonbanking subsidiaries, upon a
subsidiary's dissolution, winding-up, liquidation or reorganization or
otherwise, and thus your ability to benefit indirectly from such distribution,
is subject to the prior claims of creditors of that subsidiary, except to the
extent that we may be a creditor of that subsidiary and our claims are
recognized. There are legal limitations on the extent to which some of our
subsidiaries may extend credit, pay dividends or otherwise supply funds to, or
engage in transactions with, us or some of our other subsidiaries. Accordingly,
the junior subordinated debentures and the guarantee will be effectively
subordinated to all existing and future liabilities of our subsidiaries, and
holders of junior subordinated debentures and the guarantee should look only to
our assets for payments on the junior subordinated debentures and the guarantee.
Neither the junior indenture governing the junior subordinated debentures
nor the amended trust agreement and the guarantee relating to the capital
securities will place any limitation on the nature or amount of additional
indebtedness that we, or our subsidiaries, may incur in the future.
10
You will not receive timely distributions if we elect to defer payments.
Unless otherwise provided in the applicable prospectus supplement, we may
defer the payment of interest on the junior subordinated debentures at any time
up to a number of consecutive interest periods that is specified in the
applicable prospectus supplement, provided that (1) no extension period may
extend beyond the stated maturity date and (2) we are not in default under the
junior indenture governing the junior subordinated debentures. If there is a
deferral, the Issuer Trust also will defer distributions on the capital
securities. During an extension period, your distributions will continue to
accrue, and interest on the unpaid distributions will compound quarterly.
At the end of any extension period and the payment of all interest then
accrued and unpaid, we may elect to begin a new extension period. There is no
limitation on the number of extension periods. For further information on our
option to defer payments, see "Capital Securities and Related
Instruments--Junior Subordinated Debentures--Option to Defer Interest Payments".
If we elect to defer interest payments, you will have to include interest in
your taxable income before you receive the money.
During an extension period, you would be required to accrue interest income
for U.S. federal income tax purposes on your proportionate share of the junior
subordinated debentures held by an Issuer Trust, even if you are a cash basis
taxpayer. As a result, you would need to include this income in your gross
income for U.S. federal income tax purposes in advance of the receipt of cash.
You also would not receive the cash related to any accrued and unpaid interest
income from the trust if you dispose of the capital securities prior to the
record date for the payment of distributions. For further information, see
"U.S. Federal Income Tax Considerations--Interest Income and Original Issue
Discount" and "--Sale or Redemption of Capital Securities".
The market price of the capital securities may not reflect unpaid interest, and
you may suffer a loss if you sell them while interest remains unpaid.
Because of our right to defer interest payments on the junior subordinated
debentures, the market price of the capital securities may be more volatile
than the market prices of similar securities that do not have this feature. If
we exercise our right to defer, the market price of the capital securities may
decline. Accordingly, the capital securities that you purchase, whether in an
offering made pursuant to a prospectus supplement or in the secondary market,
or the junior subordinated debentures that you may receive on liquidation of
the trust, may trade at a discount to the price that you paid.
If you dispose of your capital securities before the record date for the
payment of a distribution, then you will not receive that distribution.
However, you will be required to include accrued but unpaid interest on the
junior subordinated debentures through the date of the sale as ordinary income
for U.S. federal income tax purposes and to add the amount of the accrued but
unpaid interest to your tax basis in the capital securities. Your increased tax
basis in the capital securities will increase the amount of any capital loss
that you may have otherwise realized on the sale. In general, an individual
taxpayer may offset only $3,000 of capital losses against ordinary income
during any year. For further information on tax consequences, see "U.S. Federal
Income Tax Considerations--Sale or Redemption of Capital Securities".
We may redeem the junior subordinated debentures upon the occurrence of
specified tax or regulatory events.
We may redeem the junior subordinated debentures in whole at any time within
90 days following the occurrence of specified tax or regulatory events,
including:
. any change in tax laws or regulations that poses a substantial risk that
the capital securities might lose their special tax treatment; and
11
. any change in laws or regulations that poses a substantial risk that we
will not be able to treat the capital securities as "Tier 1" capital for
purposes of the Federal Reserve capital adequacy guidelines; and
. any change in laws or regulations that poses a substantial risk that the
Issuer Trust is or will be considered an "investment company" that is
required to be registered under the Investment Company Act.
If we redeem the junior subordinated debentures, the Issuer Trust will be
required to redeem the capital securities.
We will need the prior approval of the Federal Reserve to make a redemption,
if then required under applicable Federal Reserve capital guidelines or
policies. For further information on redemption, see "Capital Securities and
Related Instruments--Junior Subordinated Debentures--Redemption" and
"--Conversion or Exchange".
Each Issuer Trust may distribute the junior subordinated debentures in exchange
for the capital securities, which could affect the market price and could be a
taxable event.
We may dissolve any Issuer Trust at any time. After satisfying its
liabilities to its creditors, the Issuer Trust may distribute the junior
subordinated debentures to the holders of the capital securities. We will not
dissolve any Issuer Trust without the prior approval of the Federal Reserve, if
then required under applicable Federal Reserve capital guidelines or policies.
For further information, see "Description of Capital Securities--Liquidation
Distribution Upon Dissolution".
We cannot predict the market prices for capital securities or for junior
subordinated debentures that may be
distributed in exchange for capital securities. Accordingly, the capital
securities, or the junior subordinated debentures that you may receive on
liquidation of an Issuer Trust, may trade at a discount to the price that you
paid to purchase the capital securities.
Under current U.S. federal income tax law and assuming, as we expect, that
the amended and restated trust agreement will contain substantially identical
terms as the form of amended and restated trust agreement attached as an
exhibit to this prospectus, and each Issuer Trust will not be classified as an
association taxable as a corporation, you should not be taxed if we dissolve
the trust and the trust distributes junior subordinated debentures to you.
However, if an Issuer Trust were to become taxed on the income received or
accrued on the junior subordinated debentures due to a tax event, both you and
the Issuer Trust might be taxed on a distribution of the junior subordinated
debentures by the trust. For further information, see "U.S. Federal Income Tax
Considerations--Distribution of Junior Subordinated Debentures to Holders of
Capital Securities Upon Liquidation of the Issuer Trusts".
Investors will not control the administration of the Issuer Trusts and will
have limited voting rights.
We will hold all the common securities of each Issuer Trust. These
securities give us the right to control nearly all aspects of the
administration, operation or management of the Issuer Trust, including
selection and removal of the administrative trustees. The capital securities,
on the other hand, will generally have no voting rights. You will be able to
vote only on matters relating to the modification of the terms of the capital
securities or the junior subordinated debentures, the acceleration of payments
and other matters described in this prospectus. For further information, see
"Capital Securities and Related Instruments--Voting Rights; Amendment of Each
Trust Agreement".
12
Listing of the capital securities does not guarantee their liquidity or full
value.
We intend to apply to list the capital securities on the NYSE. If listed,
trading of the capital securities on the NYSE is expected to commence within 30
days of the initial delivery of the capital securities. Although we expect the
underwriters to make a market in the capital securities prior to commencement
of trading on the NYSE, they are not obligated to do so. They may also
discontinue these market-making activities at any time without notice. We
cannot assure the liquidity of the trading market for the capital securities.
The capital securities may trade at prices that do not fully reflect the
value of accrued and unpaid interest with respect to the junior subordinated
debentures. See "U.S. Federal Income Tax Considerations--Interest Income and
Original Issue Discount" and "--Sale or Redemption of Capital Securities" for a
discussion of the United States federal income tax consequences that may result
from a taxable disposition of the capital securities.
13
KEYCORP
KeyCorp, organized in 1958 under the laws of the state of Ohio, is
headquartered in Cleveland, Ohio. We have elected to be a bank holding company
and a financial holding company under the Bank Holding Company Act of 1956, as
amended. At March 31, 2002, we were one of the nation's largest bank-based
financial services companies with consolidated total assets of $81.4 billion.
Our subsidiaries provide a wide range of retail and commercial banking,
commercial leasing, investment management, consumer finance and investment
banking products and services to individual, corporate and institutional
clients through three major business groups: Key Consumer Banking, Key
Corporate Finance and Key Capital Partners. As of March 31, 2002, these
services were provided across much of the country through subsidiaries
operating 911 full-service banking offices in 12 states, a telephone banking
call center services group and more than 2,300 ATMs. We and our subsidiaries
had 21,076 full-time equivalent employees as of March 31, 2002.
In addition to the customary banking services of accepting deposits and
making loans, our bank and trust company subsidiaries provide specialized
services, including personal and corporate trust services, personal financial
services, customer access to mutual funds, cash management services, investment
banking and capital markets products, and international banking services.
Through our subsidiary banks, trust company and registered investment adviser
subsidiaries, we provide investment management services to individual and
institutional clients, including large corporate and public retirement plans,
foundations and endowments, high-net-worth individuals and Taft-Hartley plans
(i.e., multiemployer trust funds established for providing pension, vacation or
other benefits to employees).
We provide other financial services both inside and outside of our primary
banking markets through our nonbank subsidiaries. These services include
accident and health insurance on loans made by subsidiary banks, venture
capital, community development financing, securities underwriting and brokerage
and other financial services. We are an equity participant in a joint venture
with Key Merchant Services, LLC, which provides merchant services to businesses.
14
USE OF PROCEEDS
We expect to use the net proceeds from the sale of the junior subordinated
debentures for general corporate purposes, which may include:
. reducing or refinancing existing debt;
. repurchasing outstanding capital securities;
. investments at the holding company level;
. investing in, or extending credit to, our operating subsidiaries;
. possible acquisitions;
. stock repurchases; and
. other purposes as described in any prospectus supplement.
Pending such use, we may temporarily invest the net proceeds. The precise
amounts and timing of the application of proceeds will depend upon our funding
requirements and the availability of other funds. Except as indicated in a
prospectus supplement, allocations of the proceeds to specific purposes will
not have been made at the date of that prospectus supplement.
We continually evaluate possible business combination opportunities. As a
result, future business combinations involving cash, debt or equity securities
may occur. Any future business combination or series of business combinations
that we might undertake may be material, in terms of assets acquired,
liabilities assumed or otherwise, to our financial condition.
Based upon our historical and anticipated future growth and our financial
needs, we may engage in additional financings of a character and amount that we
determine as the need arises.
15
REGULATORY CONSIDERATIONS
We are extensively regulated under both federal and state law. As a bank
holding company, KeyCorp is subject to regulation, supervision and examination
by the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") under the BHCA. Under the BHCA, bank holding companies may not, in
general, directly or indirectly acquire the ownership or control of more than
5% of the voting shares, or substantially all of the assets, of any bank,
without the prior approval of the Federal Reserve Board. In addition, bank
holding companies are generally prohibited under the BHCA from engaging in
commercial or industrial activities. KeyCorp's banking subsidiaries are also
subject to extensive regulation, supervision and examination by applicable
Federal banking agencies. KeyCorp operates two full-service, FDIC-insured
national bank subsidiaries, KeyBank National Association ("KeyBank") and Key
Bank USA, National Association ("KeyBank USA"), and one national bank
subsidiary whose activities are limited to those of a fiduciary. All of
KeyCorp's national bank subsidiaries and their subsidiaries are subject to
regulation, supervision and examination by the Office of the Comptroller of the
Currency (the "OCC"). Because the deposits in KeyBank and KeyBank USA are
insured (up to applicable limits) by the FDIC, the FDIC also has certain
regulatory and supervisory authority over both banking subsidiaries.
KeyCorp also has other financial services subsidiaries that are subject to
regulation, supervision and examination by the Federal Reserve Board, as well
as other applicable state and federal regulatory agencies and self-regulatory
organizations. For example, KeyCorp's brokerage and asset management
subsidiaries are subject to supervision and regulation by the Securities and
Exchange Commission (the "SEC"), the National Association of Securities
Dealers, Inc. or the New York Stock Exchange and state securities regulators;
KeyCorp's insurance subsidiaries are subject to regulation by the insurance
regulatory authorities of the various states. Other nonbank subsidiaries of
KeyCorp are subject to other laws and regulations of both the federal
government and the various states in which they are authorized to do business.
Our earnings are also affected by general economic conditions, our
management policies and legislative action. In addition, there are numerous
governmental requirements and regulations that affect our business activities.
A change in applicable statutes, regulations or regulatory policy may have a
material effect on our business.
16
THE ISSUER TRUSTS
The following description summarizes the formation, purposes and material
terms of each Issuer Trust. This description is followed by descriptions of:
. the capital securities to be issued by each Issuer Trust;
. the junior subordinated debentures to be issued by us to each Issuer
Trust, and the junior indenture under which they will be issued;
. our guarantees for the benefit of the holders of the capital securities;
and
. the relationship among the capital securities, the corresponding junior
subordinated debentures, the expense agreements and the guarantees.
Each Issuer Trust is a statutory business trust created under Delaware law
pursuant to:
. a trust agreement executed by us, as depositor of the Issuer Trust, and
the Delaware trustee of such Issuer Trust; and
. a certificate of trust filed with the Delaware Secretary of State.
Before trust securities are issued, the trust agreement for the relevant Issuer
Trust will be amended and restated in its entirety substantially in the form
filed with our SEC registration statement. The trust agreements will be
qualified as indentures under the Trust Indenture Act of 1939.
Each Issuer Trust may offer to the public, from time to time, preferred
securities representing preferred beneficial interests in the applicable Issuer
Trust, which we call "capital securities". In addition to capital securities
offered to the public, each Issuer Trust will sell common securities
representing common beneficial interests in such Issuer Trust to KeyCorp, which
we call "trust common securities". All of the trust common securities of each
Issuer Trust will be owned by us. The trust common securities and the capital
securities are also referred to together as the "trust securities".
Each Issuer Trust exists for the exclusive purposes of:
. issuing and selling its trust securities;
. using the proceeds from the sale of these trust securities to acquire
corresponding junior subordinated debentures from us; and
. engaging in only those other activities necessary or incidental to these
purposes (for example, registering the transfer of the trust securities).
When any Issuer Trust sells trust securities, it will use the money it receives
to buy a series of our junior subordinated debentures, which we call the
"corresponding junior subordinated debentures". The payment terms of the
corresponding junior subordinated debentures will be virtually the same as the
terms of that Issuer Trust's capital securities, which we call the "related
capital securities".
Each Issuer Trust will own only the applicable series of corresponding
junior subordinated debentures. The only source of funds for each Issuer Trust
will be the payments it receives from us on the corresponding junior
subordinated debentures. Each Issuer Trust will use these funds to make any
cash payments due to holders of its capital securities.
Each Issuer Trust will also be a party to an expense agreement with KeyCorp.
Under the terms of the expense agreement, the Issuer Trust will have the right
to be reimbursed by us for certain expenses.
The trust common securities of an Issuer Trust will rank equally, and
payments on them will be made pro rata, with the capital securities of that
Issuer Trust, except that upon the occurrence and continuance of an event
17
of default under a trust agreement resulting from an event of default under the
junior indenture, our rights, as holder of the trust common securities, to
payment in respect of distributions and payments upon liquidation or redemption
will be subordinated to the rights of the holders of the capital securities of
that Issuer Trust. See "Capital Securities and Related
Instruments--Subordination of Trust Common Securities". We will acquire trust
common securities in an aggregate liquidation amount greater than or equal to
3% of the total capital of each Issuer Trust. The prospectus supplement
relating to any capital securities will contain the details of the cash
distributions to be made periodically.
Under certain circumstances, we may redeem the corresponding junior
subordinated debentures that we sold to an Issuer Trust. If this happens, the
Issuer Trust will redeem a like amount of the capital securities which it sold
to the public and the trust common securities which it sold to us.
Under certain circumstances, we may dissolve an Issuer Trust and cause the
corresponding junior subordinated debentures to be distributed to the holders
of the related capital securities. If this happens, owners of the related
capital securities will no longer have any interest in such Issuer Trust and
will only own the corresponding junior subordinated debentures we issued to the
Issuer Trust.
Generally, we need the approval of the Federal Reserve Board to redeem the
corresponding junior subordinated debentures or to dissolve one or more of the
Issuer Trusts. A more detailed description is provided under the heading
"Capital Securities and Related Instruments--Liquidation Distribution Upon
Dissolution".
Unless otherwise specified in the applicable prospectus supplement:
. each Issuer Trust will have a term of approximately 31 years from the
date it issues its trust securities, but may terminate earlier as
provided in the applicable trust agreement;
. each Issuer Trust's business and affairs will be conducted by its
trustees;
. the trustees will be appointed by us as holder of the trust common
securities;
. the trustees for each Issuer Trust will be Deutsche Bank Trust Company
Americas, as property trustee and Deutsche Bank Trust Company Delaware,
as Delaware trustee, and two individual administrative trustees who are
employees or officers of or affiliated with KeyCorp. These trustees are
also referred to as the "Issuer Trust trustees". Deutsche Bank Trust
Company Americas, as property trustee, will act as sole indenture trustee
under each trust agreement for purposes of compliance with the Trust
Indenture Act. Deutsche Bank Trust Company Americas will also act as
trustee under the guarantees and the junior indenture. See "Capital
Securities and Related Instruments--Guarantees and Expense Agreements"
and "Capital Securities and Related Instruments--Junior Subordinated
Debentures";
. if an event of default under the trust agreement for an Issuer Trust has
occurred and is continuing, the holders of a majority in liquidation
amount of the related capital securities will be entitled to appoint,
remove or replace the property trustee and/or the Delaware trustee for
such Issuer Trust;
. under all circumstances, only the holder of the trust common securities
has the right to vote to appoint, remove or replace the administrative
trustees;
. the duties and obligations of each Issuer Trust trustee are governed by
the applicable trust agreement; and
. we will pay all fees and expenses related to each Issuer Trust and the
offering of the capital securities and will pay, directly or indirectly,
all ongoing costs, expenses and liabilities of each Issuer Trust.
The principal executive office of each Issuer Trust is 127 Public Square,
Cleveland, Ohio 44114-1306, and its telephone number is (216) 689-6300.
18
CAPITAL SECURITIES AND RELATED INSTRUMENTS
The following description summarizes the material provisions of the capital
securities and trust agreements. This description is not complete and is
subject to, and is qualified in its entirety by reference to, each trust
agreement, which is incorporated as an exhibit to our SEC registration
statement, and the Trust Indenture Act. The specific terms of the capital
securities will be described in the applicable prospectus supplement, and may
differ from the general description of the terms presented below. The
applicable prospectus supplement will set forth the title of the capital
securities. Whenever particular defined terms of a trust agreement are referred
to in this prospectus or in a prospectus supplement, those defined terms are
incorporated in this prospectus or such prospectus supplement by reference.
General
Pursuant to the terms of the trust agreement for each Issuer Trust, each
Issuer Trust will sell capital securities to the public and trust common
securities to us. The capital securities represent preferred beneficial
interests in the Issuer Trust that sold them. Holders of the capital securities
will be entitled to receive distributions and amounts payable on redemption or
liquidation ahead of holders of the trust common securities. A more complete
discussion appears under the heading "--Subordination of Trust Common
Securities". Holders of the capital securities will also be entitled to other
benefits as described in the corresponding trust agreement.
Each of the Issuer Trusts is a legally separate entity and the assets of one
are not available to satisfy the obligations of any of the others.
The capital securities of an Issuer Trust will rank on a parity, and
payments on them will be made pro rata, with the trust common securities of
that Issuer Trust except as described under "--Subordination of Trust Common
Securities". Legal title to the corresponding junior subordinated debentures
will be held and administered by the property trustee in trust for the benefit
of the holders of the related capital securities and trust common securities.
The trustees for each Issuer Trust will be Deutsche Bank Trust Company
Americas, as property trustee and Deutsche Bank Trust Company Delaware, as
Delaware trustee, and two individual administrative trustees who are employees
or officers of or affiliated with KeyCorp.
Each guarantee agreement executed by us for the benefit of the holders of an
Issuer Trust's capital securities will be a guarantee on a subordinated basis
with respect to the related capital securities but will not guarantee payment
of distributions or amounts payable on redemption or liquidation of such
capital securities when the related Issuer Trust does not have funds on hand
available to make such payments. See "Capital Securities and Related
Instruments--Guarantees and Expense Agreements".
Distributions
Distributions on the capital securities will be cumulative, will accumulate
from the date of original issuance (unless otherwise specified in the
applicable prospectus supplement) and will be payable on the dates specified in
the applicable prospectus supplement. In the event that any date on which
distributions are payable is not a business day, payment of that distribution
will be made on the next business day (and without any interest or other
payment in connection with this delay) except that, if the next business day
falls in the next calendar year, payment of the distribution will be made on
the immediately preceding business day, in either case with the same force and
effect as if made on the original distribution date. Each date on which
distributions are payable in accordance with the previous sentence is referred
to as a "distribution date". A "business day" means any day other than a
Saturday or a Sunday, or a day on which banking institutions in The City of New
York are authorized or required by law or executive order to remain closed or a
day on which the corporate trust office of the property trustee or the junior
trustee is closed for business.
19
Each Issuer Trust's capital securities represent preferred beneficial
interests in the applicable Issuer Trust, and the distributions on each capital
security will be payable at a rate specified in the applicable prospectus
supplement. The amount of distributions payable for any period will be computed
on the basis of a 360-day year of twelve 30-day months and the actual number of
days elapsed in a partial month in a period unless otherwise specified in the
applicable prospectus supplement. Distributions to which holders of capital
securities are entitled will accumulate additional distributions at the rate
per annum if and as specified in the applicable prospectus supplement. The term
"distributions" as used in this summary includes these additional distributions
unless otherwise stated.
If an extension period occurs with respect to the corresponding junior
subordinated debentures, distributions on the related capital securities will
be correspondingly deferred (but would continue to accumulate additional
distributions at the rate per annum set forth in the prospectus supplement for
the capital securities). See "Capital Securities and Related
Instruments--Junior Subordinated Debentures--Option to Defer Interest Payments".
The revenue of each Issuer Trust available for distribution to holders of
its capital securities will be limited to payments under the corresponding
junior subordinated debentures which the Issuer Trust will acquire with the
proceeds from the issuance and sale of its trust securities. See "Capital
Securities and Related Instruments--Junior Subordinated
Debentures--Corresponding Junior Subordinated Debentures". If we do not make
interest payments on the corresponding junior subordinated debentures, the
property trustee will not have funds available to pay distributions on the
related capital securities. The payment of distributions (if and to the extent
the Issuer Trust has funds legally available for the payment of distributions
and cash sufficient to make payments) is guaranteed by us on a limited basis as
described under the heading "Capital Securities and Related
Instruments--Guarantees and Expense Agreements".
Distributions on the capital securities will be payable to the holders of
capital securities as they appear on the register of the Issuer Trust at the
close of business on the relevant record dates, which, as long as the capital
securities remain in book-entry form, will be one business day prior to the
relevant distribution date. Subject to any applicable laws and regulations and
the provisions of the applicable trust agreement, each such payment will be
made as described under the heading "Issuance of Global Securities". In the
event any capital securities are not in book-entry form, the relevant record
date for such capital securities will be the date at least 15 days prior to the
relevant distribution date, as specified in the applicable prospectus
supplement.
Redemption or Exchange
Mandatory Redemption. Upon the repayment or redemption, in whole or in part,
of any corresponding junior subordinated debentures, whether at maturity or
upon earlier redemption as provided in the junior indenture, the proceeds from
the repayment or redemption will be applied by the property trustee to redeem a
like amount (as defined below) of the trust securities, upon not less than 30
nor more than 60 days notice, at a redemption price equal to the aggregate
liquidation amount of such trust securities plus accumulated but unpaid
distributions to the date of redemption and the related amount of the premium,
if any, paid by us upon the concurrent redemption of the corresponding junior
subordinated debentures. See "Capital Securities and Related
Instruments--Junior Subordinated Debentures--Redemption". If less than all of
any series of corresponding junior subordinated debentures are to be repaid or
redeemed on a redemption date, then the proceeds from the repayment or
redemption will be allocated to the redemption pro rata of the related capital
securities and the trust common securities based upon the relative liquidation
amounts of these classes. The amount of premium, if any, paid by us upon the
redemption of all or any part of any series of any corresponding junior
subordinated debentures to be repaid or redeemed on a redemption date will be
allocated to the redemption pro rata of the related capital securities and the
trust common securities. The redemption price will be payable on each
redemption date only to the extent that the Issuer Trust has funds then on hand
and available in the payment account for the payment of the redemption price.
20
We will have the right to redeem any series of corresponding junior
subordinated debentures:
. on or after such date as may be specified in the applicable prospectus
supplement, in whole at any time or in part from time to time;
. at any time, in whole (but not in part), upon the occurrence of a tax
event, an investment company event or capital treatment event; or
. as may be otherwise specified in the applicable prospectus supplement,
in each case subject to receipt of prior approval by the Federal Reserve Board
if then required under applicable Federal Reserve capital guidelines or
policies.
Distribution of Corresponding Junior Subordinated Debentures. Subject to our
having received prior approval of the Federal Reserve Board to do so if such
approval is then required under applicable capital guidelines or policies of
the Federal Reserve Board, we have the right at any time to dissolve any Issuer
Trust and, after satisfaction of the liabilities of creditors of the Issuer
Trust as provided by applicable law, cause the corresponding junior
subordinated debentures in respect of the capital securities and trust common
securities issued by the Issuer Trust to be distributed to the holders of the
capital securities and trust common securities in liquidation of the Issuer
Trust.
Tax Event, Investment Company Event or Capital Treatment Event Redemption.
If a tax event, investment company event or capital treatment event in respect
of a series of capital securities and trust common securities has occurred and
is continuing, we have the right to redeem the corresponding junior
subordinated debentures in whole (but not in part) and thereby cause a
mandatory redemption of the capital securities and trust common securities in
whole (but not in part) at the redemption price within 90 days following the
occurrence of the tax event, investment company event or capital treatment
event. If a tax event, investment company event or capital treatment event has
occurred and is continuing in respect of a series of capital securities and
trust common securities and we do not elect to redeem the corresponding junior
subordinated debentures and thereby cause a mandatory redemption of the capital
securities or to dissolve and liquidate the related Issuer Trust and cause the
corresponding junior subordinated debentures to be distributed to holders of
the capital securities and trust common securities in liquidation of the Issuer
Trust as described above, such capital securities will remain outstanding and
additional sums (as defined below) may be payable on the corresponding junior
subordinated debentures.
The term "additional sums" means the additional amounts as may be necessary
in order that the amount of distributions then due and payable by an Issuer
Trust on the outstanding capital securities and trust common securities of the
Issuer Trust will not be reduced as a result of any additional taxes, duties
and other governmental charges to which the Issuer Trust has become subject as
a result of a tax event.
The term "like amount" means:
. with respect to a redemption of any series of trust securities, trust
securities of that series having a liquidation amount (as defined below)
equal to the principal amount of corresponding junior subordinated
debentures to be contemporaneously redeemed in accordance with the junior
indenture, the proceeds of which will be used to pay the redemption price
of the trust securities; and
. with respect to a distribution of corresponding junior subordinated
debentures to holders of any series of trust securities in connection
with a dissolution or liquidation of the related Issuer Trust,
corresponding junior subordinated debentures having a principal amount
equal to the liquidation amount of the trust securities in respect of
which the distribution is made.
The term "liquidation amount" means the stated amount per trust security of
$1,000 (or another stated amount set forth in the applicable prospectus
supplement).
21
After the liquidation date fixed for any distribution of corresponding
junior subordinated debentures for any series of related capital securities:
. the series of related capital securities will no longer be deemed to be
outstanding;
. The Depository Trust Company, commonly referred to as DTC (for a more
detailed explanation of DTC, see "Issuance of Global Securities") or its
nominee, as the record holder of the related capital securities, will
receive a registered global certificate or certificates representing the
corresponding junior subordinated debentures to be delivered upon the
distribution; and
. any certificates representing the related capital securities not held by
DTC or its nominee will be deemed to represent the corresponding junior
subordinated debentures having a principal amount equal to the stated
liquidation amount of the related capital securities, and bearing accrued
and unpaid interest in an amount equal to the accrued and unpaid
distributions on the related capital securities until the certificates
are presented to the administrative trustees or their agent for transfer
or reissuance.
Any distribution of corresponding junior subordinated debentures to holders
of related capital securities will be made to the applicable recordholders as
they appear on the register for the related capital securities on the relevant
record date, which will be one business day prior to the liquidation date. In
the event that any related capital securities are not in book-entry form, the
relevant record date will be a date at least 15 days prior to the liquidation
date, as specified in the applicable prospectus supplement.
There can be no assurance as to the market prices for the related capital
securities or the corresponding junior subordinated debentures that may be
distributed in exchange for related capital securities if a dissolution and
liquidation of an Issuer Trust were to occur. Accordingly, the related capital
securities that an investor may purchase, or the corresponding junior
subordinated debentures that the investor may receive on dissolution and
liquidation of an Issuer Trust, may trade at a discount to the price that the
investor paid to purchase the related capital securities being offered in
connection with this prospectus.
Redemption Procedures
Capital securities redeemed on each redemption date will be redeemed at the
redemption price with the applicable proceeds from the contemporaneous
redemption of the corresponding junior subordinated debentures. Redemptions of
the capital securities will be made and the redemption price will be payable on
each redemption date only to the extent that the related Issuer Trust has funds
on hand available for the payment of the redemption price. See also
"--Subordination of Trust Common Securities".
If the property trustee gives a notice of redemption in respect of any
capital securities, then, while such capital securities are in book-entry form,
by 12:00 noon, New York City time, on the redemption date, to the extent funds
are available, the property trustee will deposit irrevocably with DTC funds
sufficient to pay the applicable redemption price and will give DTC irrevocable
instructions and authority to pay the redemption price to the holders of the
capital securities. See "Issuance of Global Securities". If the capital
securities are no longer in book-entry form, the property trustee, to the
extent funds are available, will irrevocably deposit with the paying agent for
the capital securities funds sufficient to pay the applicable redemption price
and will give the paying agent irrevocable instructions and authority to pay
the redemption price to the holders upon surrender of their certificates
evidencing the capital securities. Notwithstanding the above, distributions
payable on or prior to the redemption date for any capital securities called
for redemption will be payable to the holders of the capital securities on the
relevant record dates for the related distribution dates. If notice of
redemption has been given and funds deposited as required, then upon the date
of the deposit, all rights of the holders of the capital securities so called
for redemption will cease, except the right of the holders of the capital
securities to receive the redemption price and any distribution payable in
respect of the capital securities on or prior to the redemption date, but
without interest on the redemption price, and the capital securities will cease
to be outstanding. In the event that any date fixed for redemption of capital
securities is not a business day, then payment of the
22
redemption price will be made on the next business day (and without any
interest or other payment in connection with this delay) except that, if the
next business day falls in the next calendar year, the redemption payment will
be made on the immediately preceding business day, in either case with the same
force and effect as if made on the original date. In the event that payment of
the redemption price in respect of capital securities called for redemption is
improperly withheld or refused and not paid either by an Issuer Trust or by us
pursuant to the related guarantee as described under "Capital Securities and
Related Instruments--Guarantees and Expense Agreements", distributions on the
capital securities will continue to accumulate at the then applicable rate from
the redemption date originally established by the Issuer Trust for the capital
securities to the date the redemption price is actually paid, in which case the
actual payment date will be the date fixed for redemption for purposes of
calculating the redemption price.
Subject to applicable law (including, without limitation, U.S. federal
securities law), we or our subsidiaries may at any time and from time to time
purchase outstanding capital securities by tender, in the open market or by
private agreement.
Payment of the redemption price on the capital securities and any
distribution of corresponding junior subordinated debentures to holders of
capital securities will be made to the applicable record holders as they appear
on the register for the capital securities on the relevant record date, which,
as long as the capital securities remain in book-entry form, will be one
business day prior to the relevant redemption date or liquidation date, as
applicable; provided, however, that in the event that the capital securities
are not in book-entry form, the relevant record date for the capital securities
will be a date at least 15 days prior to the redemption date or liquidation
date, as applicable, as specified in the applicable prospectus supplement.
If less than all of the capital securities and trust common securities
issued by an Issuer Trust are to be redeemed on a redemption date, then the
aggregate liquidation amount of the capital securities and trust common
securities to be redeemed will be allocated pro rata to the capital securities
and the trust common securities based upon the relative liquidation amounts of
these classes. The particular capital securities to be redeemed will be
selected on a pro rata basis not more than 60 days prior to the redemption date
by the property trustee from the outstanding capital securities not previously
called for redemption, by a customary method that the property trustee deems
fair and appropriate and which may provide for the selection for redemption of
portions (equal to $1,000 or an integral multiple of $1,000, unless a different
amount is specified in the applicable prospectus supplement) of the liquidation
amount of capital securities of a denomination larger than $1,000 (or another
denomination as specified in the applicable prospectus supplement). The
property trustee will promptly notify the securities registrar in writing of
the capital securities selected for redemption and, in the case of any capital
securities selected for partial redemption, the liquidation amount to be
redeemed. For all purposes of each trust agreement, unless the context
otherwise requires, all provisions relating to the redemption of capital
securities will relate, in the case of any capital securities redeemed or to be
redeemed only in part, to the portion of the aggregate liquidation amount of
capital securities which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of trust securities to be
redeemed at its registered address. Unless we default in payment of the
redemption price on the corresponding junior subordinated debentures, on and
after the redemption date interest will cease to accrue on the junior
subordinated debentures or portions thereof (and distributions will cease to
accrue on the related capital securities or portions thereof) called for
redemption.
Subordination of Trust Common Securities
Payment of distributions on, and the redemption price of, each Issuer
Trust's capital securities and trust common securities, as applicable, will be
made pro rata based on the liquidation amount of the capital securities and
trust common securities; provided, however, that if on any distribution date,
redemption date or liquidation date a debenture event of default has occurred
and is continuing as a result of any failure by us to pay any
23
amounts in respect of the junior subordinated debentures when due, no payment
of any distribution on, or redemption price of, or liquidation distribution in
respect of, any of the Issuer Trust's trust common securities, and no other
payment on account of the redemption, liquidation or other acquisition of the
trust common securities, will be made unless payment in full in cash of all
accumulated and unpaid distributions on all of the Issuer Trust's outstanding
capital securities for all distribution periods terminating on or prior to that
date, or in the case of payment of the redemption price the full amount of the
redemption price on all of the Issuer Trust's outstanding capital securities
then called for redemption, or in the case of payment of the liquidation
distribution the full amount of the liquidation distribution on all outstanding
capital securities, has been made or provided for, and all funds available to
the property trustee must first be applied to the payment in full in cash of
all distributions on, or redemption price of, the Issuer Trust's capital
securities then due and payable.
In the case of any event of default under the applicable trust agreement
resulting from a debenture event of default, we as holder of the Issuer Trust's
trust common securities will have no right to act with respect to the event of
default until the effect of all events of default with respect to such capital
securities have been cured, waived or otherwise eliminated. Until any events of
default under the applicable trust agreement with respect to the capital
securities have been cured, waived or otherwise eliminated, the property
trustee will act solely on behalf of the holders of the capital securities and
not on behalf of us as holder of the Issuer Trust's trust common securities,
and only the holders of the capital securities will have the right to direct
the property trustee to act on their behalf.
Liquidation Distribution Upon Dissolution
Pursuant to each trust agreement, each Issuer Trust will dissolve on the
first to occur of:
. the expiration of its term;
. certain events of bankruptcy, dissolution or liquidation of the holder of
the trust common securities;
. the distribution of a like amount of the corresponding junior
subordinated debentures to the holders of its trust securities, if we
have given written direction to the property trustee to terminate the
Issuer Trust (subject to KeyCorp's having received prior approval of the
Federal Reserve if then required under applicable capital guidelines or
policies). Such written direction by us is optional and solely within our
discretion;
. redemption of all of such Issuer Trust's capital securities as described
under "--Redemption or Exchange--Mandatory Redemption"; and
. the entry of an order for the dissolution of such Issuer Trust by a court
of competent jurisdiction.
If an early termination occurs as described in the first, second, third and
fifth bullet points above, the relevant Issuer Trust will be liquidated by the
related Issuer Trust trustees as expeditiously as the Issuer Trust trustees
determine to be possible by distributing, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, to the holders of
the trust securities a like amount of the corresponding junior subordinated
debentures in exchange for their trust securities, unless the distribution is
determined by the property trustee not to be practical, in which event the
holders will be entitled to receive out of the assets of the Issuer Trust
available for distribution to holders, after satisfaction of liabilities to
creditors of such Issuer Trust as provided by applicable law, an amount equal
to, in the case of holders of capital securities, the aggregate of the
liquidation amount plus accrued and unpaid distributions to the date of payment
(an amount referred to as the "liquidation distribution"). If the liquidation
distribution can be paid only in part because the Issuer Trust has insufficient
assets available to pay in full the aggregate liquidation distribution, then
the amounts payable directly by the Issuer Trust on its capital securities will
be paid on a pro rata basis. The holder of the Issuer Trust's trust common
securities will be entitled to receive distributions upon any liquidation pro
rata with the holders of its capital securities, except that if a debenture
event of default has occurred and is continuing as a result of any failure by
us to pay any amounts in respect of the junior subordinated debentures when
due, the capital securities will have a priority over the trust common
securities.
24
Events of Default; Notice
The following events will be "events of default" with respect to capital
securities issued under each trust agreement:
. any debenture event of default (see "Capital Securities and Related
Instruments--Junior Subordinated Debentures--Events of Default");
. default for 30 days by the Issuer Trust in the payment of any
distribution;
. default by the Issuer Trust in the payment of any redemption price of any
trust security;
. failure by the Issuer Trust trustees for 60 days in performing any other
covenant or warranty in the trust agreement after the holders of at least
25% in aggregate liquidation amount of the outstanding capital securities
of the applicable Issuer Trust give written notice to us and the Issuer
Trust trustees; or
. bankruptcy, insolvency or reorganization of the property trustee and the
failure by us to appoint a successor property trustee within 90 days.
Within five business days after the occurrence of any event of default
actually known to the property trustee, the property trustee will transmit
notice of the event of default to the holders of the Issuer Trust's capital
securities, the administrative trustees and us, as depositor, unless the event
of default has been cured or waived.
We, as depositor, and the administrative trustees are required to file
annually with the property trustee a certificate as to whether or not they are
in compliance with all the conditions and covenants applicable to them under
each trust agreement.
If a debenture event of default has occurred and is continuing, the capital
securities will have a preference over the trust common securities as described
above. See "--Liquidation Distribution Upon Dissolution". The existence of an
event of default does not entitle the holders of capital securities to
accelerate the maturity of the capital securities.
Removal of Issuer Trust Trustees
Unless a debenture event of default has occurred and is continuing, any
Issuer Trust trustee may be removed at any time by the holder of the trust
common securities. If a debenture event of default has occurred and is
continuing, the property trustee and the Delaware trustee may be removed by the
holders of a majority in liquidation amount of the outstanding capital
securities. In no event will the holders of the capital securities have the
right to vote to appoint, remove or replace the administrative trustees. Such
voting rights are vested exclusively in us as the holder of the trust common
securities. No resignation or removal of an Issuer Trust trustee and no
appointment of a successor trustee will be effective until the acceptance of
appointment by the successor trustee in accordance with the provisions of the
applicable trust agreement.
Co-Trustees and Separate Property Trustee
Unless an event of default has occurred and is continuing, at any time or
from time to time, for the purpose of meeting the legal requirements of the
Trust Indenture Act or of any jurisdiction in which any part of the trust
property may at the time be located, we, as the holder of the trust common
securities, and the administrative trustees will have power to appoint one or
more persons either to act as a co-trustee, jointly with the property trustee,
of all or any part of the trust property, or to act as separate trustee of any
trust property, in either case with the powers specified in the instrument of
appointment, and to vest in the person or persons in this capacity any
property, title, right or power deemed necessary or desirable, subject to the
provisions of the applicable trust agreement. In case a debenture event of
default has occurred and is continuing, the property trustee alone will have
power to make this appointment.
25
Merger or Consolidation of Issuer Trust Trustees
Any person into which the property trustee, the Delaware trustee or any
administrative trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any person resulting from any merger,
conversion or consolidation to which the trustee will be a party, or any person
succeeding to all or substantially all the corporate trust business of the
trustee, will automatically become the successor of the trustee under each
trust agreement, provided the person is otherwise qualified and eligible.
Mergers, Consolidations, Amalgamations or Replacements of the Issuer Trusts
An Issuer Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other person, except as
described below or as described under "--Liquidation Distribution Upon
Dissolution". An Issuer Trust may, at our request, with the consent of the
holders of a majority in liquidation amount of the related capital securities,
merge with or into, consolidate, amalgamate, or be replaced by or convey,
transfer or lease its properties and assets substantially as an entirety to a
trust organized under the laws of any state, provided that:
. the successor entity either:
. expressly assumes all of the obligations of the Issuer Trust with
respect to the capital securities; or
. substitutes for the capital securities other securities having
substantially the same terms as the capital securities (referred to as
the "successor securities") so long as the successor securities rank
the same as the capital securities in priority with respect to
distributions and payments upon liquidation, redemption and otherwise;
. we expressly appoint a trustee of the successor entity possessing the
same powers and duties as the property trustee as the holder of the
corresponding junior subordinated debentures;
. the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not cause the capital securities to be downgraded
by any nationally recognized statistical rating organization which
assigns ratings to the capital securities;
. the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences and
privileges of the holders of the capital securities (including any
successor securities) in any material respect;
. the successor entity has a purpose substantially identical to that of the
Issuer Trust;
. prior to the merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, we have received an opinion from counsel
to the Issuer Trust to the effect that:
. the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the capital securities (including any
successor securities) in any material respect; and
. following the merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, neither the Issuer Trust nor the
successor entity will be required to register as an investment company
under the Investment Company Act of 1940, as amended; and
. we or any permitted successor or assignee owns all of the trust common
securities of the successor entity and guarantees the obligations of the
successor entity under the successor securities at least to the extent
provided by the related guarantee.
Notwithstanding the foregoing, an Issuer Trust will not, except with the
consent of holders of 100% in liquidation amount of the related capital
securities, consolidate, amalgamate, merge with or into, or be replaced by or
convey, transfer or lease its properties and assets substantially as an
entirety to any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
26
amalgamation, merger, replacement, conveyance, transfer or lease would cause
the Issuer Trust or the successor entity to be classified as an association
taxable as a corporation or as other than a grantor trust for U.S. federal
income tax purposes.
There are no provisions that afford holders of any capital securities
protection in the event of a sudden and dramatic decline in our credit quality
resulting from any highly leveraged transaction, takeover, merger,
recapitalization or similar restructuring or change in control of KeyCorp, nor
are there any provisions that require the repurchase of any capital securities
upon a change in control of KeyCorp.
Voting Rights; Amendment of Each Trust Agreement
Except as provided below and under "Capital Securities and Related
Instruments--Guarantees and Expense Agreements--Amendments and Assignment" and
as otherwise required by law and the applicable trust agreement, the holders of
the capital securities will have no voting rights or the right to in any manner
otherwise control the administration, operation or management of the relevant
Issuer Trust.
Each trust agreement may be amended from time to time by us, without the
consent of the holders of the capital securities:
. to cure any ambiguity, correct or supplement any provisions in the trust
agreement that may be inconsistent with any other provision, or to make
any other provisions with respect to matters or questions arising under
the trust agreement, which will not be inconsistent with the other
provisions of the trust agreement; or
. to modify, eliminate or add to any provisions of the trust agreement as
necessary to ensure that the relevant Issuer Trust:
. will be classified for U.S. federal income tax purposes as a grantor
trust or as other than an association taxable as a corporation at all
times that any trust securities are outstanding; or
. will not be required to register as an "investment company" under the
Investment Company Act,
provided that:
. no such amendment will adversely affect in any material respect the
rights of the holders of the capital securities; and
. any such amendment will become effective when notice of the amendment is
given to the holders of trust securities.
Each trust agreement may be amended by us with:
. the consent of holders representing at least a majority (based upon
liquidation amounts) of the outstanding trust securities; and
. receipt by the Issuer Trust trustees of an opinion of counsel to the
effect that the amendment or the exercise of any power granted to the
Issuer Trust trustees in accordance with the amendment will not cause the
Issuer Trust to be taxable as a corporation or affect the Issuer Trust's
status as a grantor trust for U.S. federal income tax purposes or the
Issuer Trust's exemption from status as an "investment company" under the
Investment Company Act,
provided that, without the consent of each holder of trust securities, the
trust agreement may not be amended to:
. change the amount or timing of any distribution on the trust securities
or otherwise adversely affect the amount of any distribution required to
be made in respect of the trust securities as of a specified date; or
. restrict the right of a holder of trust securities to institute suit for
the enforcement of any such payment on or after such date.
27
So long as any corresponding junior subordinated debentures are held by the
property trustee, the related Issuer Trust trustees will not:
. direct the time, method and place of conducting any proceeding for any
remedy available to the junior trustee, or executing any trust or power
conferred on the property trustee with respect to the corresponding
junior subordinated debentures;
. waive any past default that is waivable under the junior indenture;
. exercise any right to rescind or annul a declaration that the principal
of all the junior subordinated debentures will be due and payable; or
. consent to any amendment, modification or termination of the junior
indenture or the corresponding junior subordinated debentures, where this
consent is required, without, in each case, obtaining the prior approval
of the holders of a majority in aggregate liquidation amount of all
outstanding capital securities;
provided, however, that where a consent under the junior indenture would
require the consent of each holder of corresponding junior subordinated
debentures affected, no such consent will be given by the property trustee
without the prior consent of each holder of the related capital securities. The
Issuer Trust trustees will not revoke any action previously authorized or
approved by a vote of the holders of the capital securities except by
subsequent vote of the holders of those capital securities. The property
trustee will notify each holder of capital securities of any notice of default
with respect to the corresponding junior subordinated debentures. In addition
to obtaining the foregoing approvals of the holders of the capital securities,
prior to taking any of the foregoing actions, the Issuer Trust trustees will
obtain an opinion of counsel to the effect that:
. the Issuer Trust will not be classified as an association taxable as a
corporation for U.S. federal income tax purposes on account of the
action; and
. the action would not cause the Issuer Trust to be classified as other
than a grantor trust for U.S. federal income tax purposes.
Any required approval of holders of capital securities may be given at a
meeting of holders of capital securities convened for that purpose or pursuant
to written consent. The administrative trustees or, at the written request of
the administrative trustees, the property trustee will cause a notice of any
meeting at which holders of capital securities are entitled to vote, to be
given to each holder of record of capital securities in the manner set forth in
each trust agreement.
No vote or consent of the holders of capital securities will be required for
an Issuer Trust to redeem and cancel its capital securities in accordance with
the applicable trust agreement.
Notwithstanding that holders of capital securities are entitled to vote or
consent under any of the circumstances described above, any of the capital
securities that are owned by us, the Issuer Trust trustees or any affiliate of
us or any Issuer Trust trustees, will, for purposes of that vote or consent, be
treated as if they were not outstanding.
Global Capital Securities
Unless otherwise set forth in a prospectus supplement, any capital
securities will be represented by fully registered global certificates issued
as global capital securities that will be deposited with, or on behalf of, a
depositary with respect to that series instead of paper certificates issued to
each individual holder. The depositary arrangements that will apply, including
the manner in which principal of and premium, if any, and interest on capital
securities and other payments will be payable are discussed in more detail
under the heading "Issuance of Global Securities".
28
Payment and Paying Agency
Payments in respect of capital securities will be made to DTC as described
under "Issuance of Global Securities". If any capital securities are not
represented by global certificates, payments will be made by check mailed to
the address of the holder entitled to them as it appears on the register.
Unless otherwise specified in the applicable prospectus supplement, the paying
agent will initially be the property trustee and any co-paying agent chosen by
the property trustee and reasonably acceptable to the administrative trustees
and us. The paying agent will be permitted to resign as paying agent upon 30
days' written notice to the property trustee and us. In the event that the
property trustee is no longer the paying agent, the administrative trustees
will appoint a successor (which will be a bank or trust company acceptable to
the administrative trustees and us) to act as paying agent.
Registrar and Transfer Agent
Unless otherwise specified in the applicable prospectus supplement, the
property trustee will act as registrar and transfer agent for the capital
securities.
Registration of transfers of capital securities will be effected without
charge by or on behalf of each Issuer Trust, but upon payment of any tax or
other governmental charges that may be imposed in connection with any transfer
or exchange. The Issuer Trusts will not be required to register or cause to be
registered the transfer of their capital securities after the capital
securities have been called for redemption.
Information Concerning the Property Trustee
The property trustee, other than during the occurrence and continuance of an
event of default, undertakes to perform only those duties specifically set
forth in each trust agreement and, after an event of default, must exercise the
same degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to this provision, the property
trustee is under no obligation to exercise any of the powers vested in it by
the applicable trust agreement at the request of any holder of capital
securities unless it is offered reasonable indemnity against the costs,
expenses and liabilities that might be incurred as a result. If no event of
default has occurred and is continuing and the property trustee is required to
decide between alternative causes of action, construe ambiguous provisions in
the applicable trust agreement or is unsure of the application of any provision
of the applicable trust agreement, and the matter is not one on which holders
of capital securities are entitled under the trust agreement to vote, then the
property trustee will take such action as is directed by us and if not so
directed, will take such action as it deems advisable and in the best interests
of the holders of the trust securities and will have no liability except for
its own bad faith, negligence or willful misconduct.
Miscellaneous
The administrative trustees are authorized and directed to conduct the
affairs of and to operate the Issuer Trusts in such a way that no Issuer Trust
will be (1) deemed to be an "investment company" required to be registered
under the Investment Company Act or (2) classified as an association taxable as
a corporation or as other than a grantor trust for U.S. federal income tax
purposes and so that the corresponding junior subordinated debentures will be
treated as indebtedness of KeyCorp for U.S. federal income tax purposes. In
addition, we and the administrative trustees are authorized to take any action
not inconsistent with applicable law, the certificate of trust of each Issuer
Trust or each trust agreement, that we and the administrative trustees
determine in their discretion to be necessary or desirable for such purposes as
long as such action does not materially adversely affect the interests of the
holders of the related capital securities.
Holders of the capital securities have no preemptive or similar rights.
No Issuer Trust may borrow money or issue debt or mortgage or pledge any of
its assets.
29
Junior Subordinated Debentures
The following description summarizes the material provisions of the junior
indenture and the junior subordinated debentures to be issued under this
indenture. This description is not complete and is qualified in its entirety by
reference to the junior indenture and the Trust Indenture Act. The specific
terms of any series of junior subordinated debentures will be described in the
applicable prospectus supplement, and may differ from the general description
of the terms presented below. The junior indenture is qualified under the Trust
Indenture Act and has been filed as an exhibit to our SEC registration
statement. Whenever particular defined terms of the junior indenture (as
supplemented or amended from time to time) are referred to in this prospectus
or a prospectus supplement, those defined terms are incorporated in this
prospectus or such prospectus supplement by reference.
General
The junior subordinated debentures are to be issued in one or more series
under a Junior Subordinated Indenture, dated as of December 4, 1996, as
supplemented from time to time, between KeyCorp and Bankers Trust Company (now
known as Deutsche Bank Trust Company Americas), as trustee. This indenture is
referred to as the "junior indenture" and the related trustee is referred to as
the "junior trustee". Each series of junior subordinated debentures will rank
equally with all other series of junior subordinated debentures and will be
unsecured and subordinate and junior in right of payment to the extent and in
the manner set forth in the junior indenture to all of our senior debt,
including the senior debt securities and the subordinated debt securities. See
"--Subordination of Junior Subordinated Debentures". We are a non-operating
holding company and almost all of the operating assets of KeyCorp and its
consolidated subsidiaries are owned by such subsidiaries. We rely primarily on
dividends from such subsidiaries to meet our obligations. Because we are a
holding company and a legal entity separate and distinct from our subsidiaries,
our rights to participate in any distribution of assets of a subsidiary upon
its liquidation, reorganization or otherwise, and the holders of junior
subordinated debentures' ability to benefit indirectly from that distribution,
would be subject to prior creditor's claims, except to the extent we may
ourselves be recognized as a creditor of that subsidiary. Accordingly, the
junior subordinated debentures will be effectively subordinated to all existing
and future liabilities of our subsidiaries, and holders of junior subordinated
debentures should look only to the assets of KeyCorp for payments on the junior
subordinated debentures. Except as otherwise provided in the applicable
prospectus supplement, the junior indenture does not limit the incurrence or
issuance of other secured or unsecured debt of KeyCorp, including senior debt,
whether under the junior indenture, any other existing indenture or any other
indenture that we may enter into in the future or otherwise. See
"--Subordination of Junior Subordinated Debentures" and the prospectus
supplement relating to any offering of capital securities or junior
subordinated debentures.
The junior subordinated debentures will be issuable in one or more series
pursuant to an indenture supplemental to the junior indenture or a resolution
of our board of directors or a committee thereof.
The particular terms of any junior subordinated debentures will be contained
in a prospectus supplement. The prospectus supplement will describe the
following terms of the junior subordinated debentures:
. the title of the junior subordinated debentures;
. any limit upon the aggregate principal amount of the junior subordinated
debentures;
. the date or dates on which the principal of the junior subordinated
debentures must be paid;
. the interest rate or rates, if any, applicable to the junior subordinated
debentures;
. the dates on which any such interest will be payable;
. our right, if any, to defer or extend an interest payment date;
. the record dates for any interest payable on any interest payment date or
the method by which any of the foregoing will be determined;
30
. the place or places where the principal of and premium, if any, and
interest on the junior subordinated debentures will be payable and where,
subject to the terms of the junior indenture as described below under
"--Denominations, Registration and Transfer", the junior subordinated
debentures may be presented for registration of transfer or exchange and
the place or places where notices and demands to or upon us in respect of
the junior subordinated debentures and the junior indenture may be made;
. any period or periods within which or date or dates on which, the price
or prices at which and the terms and conditions upon which junior
subordinated debentures may be redeemed, in whole or in part, at our
option;
. the obligation or the right, if any, of KeyCorp to redeem, purchase or
repay the junior subordinated debentures and the period or periods within
which, the price or prices at which, the currency or currencies
(including currency unit or units) in which and the other terms and
conditions upon which the junior subordinated debentures will be
redeemed, repaid or purchased, in whole or in part, pursuant to that
obligation;
. the denominations in which any junior subordinated debentures will be
issued, if other than denominations of $100,000 and any integral multiple
of $1,000 in excess thereof;
. if other than in U.S. dollars, the currency or currencies (including
currency unit or units) in which the principal of (and premium, if any)
and interest and additional interest, if any, on the junior subordinated
debentures will be payable, or in which the junior subordinated
debentures will be denominated;
. any additions, modifications or deletions in the events of default under
the junior indenture or covenants of KeyCorp specified in the junior
indenture with respect to the junior subordinated debentures;
. if other than the principal amount, the portion of the junior
subordinated debentures' principal amount that will be payable upon
declaration of acceleration of the maturity thereof;
. any additions or changes to the junior indenture with respect to a series
of junior subordinated debentures that are necessary to permit or
facilitate the issuance of such series in bearer form, registrable or not
registrable as to principal, and with or without interest coupons;
. any index or indices used to determine the amount of payments of
principal of and premium, if any, on the junior subordinated debentures
and the manner in which such amounts will be determined;
. the terms and conditions relating to the issuance of a temporary global
security representing all of the junior subordinated debentures of such
series and the exchange of such temporary global security for definitive
junior subordinated debentures of such series;
. whether the junior subordinated debentures of the series will be issued
in whole or in part in the form of one or more global securities and, in
such case, the depositary for such global securities;
. the appointment of any paying agent or agents;
. the terms and conditions of any obligation or right of us or a holder to
convert or exchange the junior subordinated debentures into other
securities or property of KeyCorp;
. the form of trust agreement, amended and restated trust agreement,
guarantee agreement and expense agreement, if applicable;
. the relative degree, if any, to which such junior subordinated debentures
of the series will be senior to or be subordinated to other series of
such junior subordinated debentures or other indebtedness of KeyCorp in
right of payment, whether such other series of junior subordinated
debentures or other indebtedness are outstanding or not; and
. any other terms of the junior subordinated debentures not inconsistent
with the provisions of the junior indenture.
31
Unless otherwise described in the applicable prospectus supplement,
principal, premium, if any, and interest, if any, on the junior subordinated
debentures will be payable, and the junior subordinated debentures will be
transferable, at the office of the junior trustee, except that interest may be
paid at our option by check mailed to the address of the holder entitled to it
as it appears on the security register.
Junior subordinated debentures may be sold at a substantial discount below
their stated principal amount bearing no interest or interest at a rate which
at the time of issuance is below market rates. Federal income tax consequences
and other special considerations applicable to any such junior subordinated
debentures will be summarized in the applicable prospectus supplement.
If the purchase price of any of the junior subordinated debentures is
payable in whole or in part in any currency other than U.S. dollars or if any
junior subordinated debentures are denominated in whole or in part in any
currency other than U.S. dollars, if the principal of, premium, if any, or
interest on the junior subordinated debentures are to be payable in one or more
foreign currencies or currency units, or if any index is used to determine the
amount of payments of principal of, premium, if any, or interest on any series
of the junior subordinated debentures, or if any junior subordinated debentures
are issued in bearer form, mature more than 30 years after the issue date,
contain any obligation or right of us or a holder to convert or exchange the
junior subordinated debentures into other securities or property of KeyCorp, or
contain any obligation or right of KeyCorp to redeem, purchase or repay the
junior subordinated debentures (other than a redemption of 100% of the
outstanding junior subordinated debentures then outstanding following the
occurrence of a tax event, capital treatment event or investment company
event), then the restrictions, elections, material U.S. federal income tax
consequences, specific terms and other information with respect to that series
of junior subordinated debentures and the foreign currencies or currency units
will be described in the applicable prospectus supplement.
The junior indenture does not contain any provisions that would provide
protection to holders of the junior subordinated debentures against any highly
leveraged or other transaction involving us that may adversely affect holders
of the junior subordinated debentures.
The junior indenture allows us to merge or consolidate with another company,
or to sell all or substantially all of our assets to another company. If these
events occur, the other company will be required to assume our responsibilities
relating to the junior subordinated debentures, and we will be released from
all liabilities and obligations. See "--Consolidation, Merger, Sale of Assets
and Other Transactions" below for a more detailed discussion. The junior
indenture provides that we and the junior trustee may change certain of our
obligations or certain of your rights concerning the junior subordinated
debentures of that series. However, to change the amount or timing of
principal, interest or other payments under the junior subordinated debentures,
every holder in the series must consent. See "--Modification of the Junior
Indenture" below for a more detailed discussion.
Denominations, Registration and Transfer
Unless otherwise described in the applicable prospectus supplement, the
junior subordinated debentures will be issued only in registered form, without
coupons, in denominations of $100,000 and any integral multiple of $1,000 in
excess thereof. See "Issuance of Global Securities". Subject to restrictions
relating to junior subordinated debentures represented by global securities,
junior subordinated debentures of any series will be exchangeable for other
junior subordinated debentures of the same issue and series, of any authorized
denominations, of a like aggregate principal amount, of the same original issue
date and stated maturity and bearing the same interest rate.
Subject to restrictions relating to junior subordinated debentures
represented by global securities, junior subordinated debentures may be
presented for exchange as provided above, and may be presented for registration
of transfer (with the form of transfer endorsed thereon, or a satisfactory
written instrument of transfer, duly executed) at the office of the appropriate
securities registrar or at the office of any transfer agent designated by us
for such purpose with respect to any series of junior subordinated debentures
and referred to in the applicable
32
prospectus supplement, without service charge and upon payment of any taxes and
other governmental charges as described in the junior indenture. We will
appoint the junior trustee as securities registrar under the junior indenture.
If the applicable prospectus supplement refers to any transfer agents (in
addition to the securities registrar) initially designated by us for any series
of junior subordinated debentures, we may at any time rescind the designation
of any of these transfer agents or approve a change in the location through
which any of these transfer agents acts, provided that we maintain a transfer
agent in each place of payment for that series. We may at any time designate
additional transfer agents for any series of junior subordinated debentures.
In the event of any redemption, neither we nor the junior trustee will be
required to:
. issue, register the transfer of or exchange junior subordinated
debentures of any series during the period beginning at the opening of
business 15 days before the day of selection for redemption of junior
subordinated debentures of that series and ending at the close of
business on the day of mailing of the relevant notice of redemption; and
. transfer or exchange any junior subordinated debentures so selected for
redemption, except, in the case of any junior subordinated debentures
being redeemed in part, any portion thereof not being redeemed.
Option to Defer Interest Payments
If provided in the applicable prospectus supplement, so long as no debenture
event of default (as defined below) has occurred and is continuing, we will
have the right at any time and from time to time during the term of any series
of junior subordinated debentures to defer payment of interest for up to the
number of consecutive interest payment periods that is specified in the
applicable prospectus supplement, referred to as an "extension period", subject
to the terms, conditions and covenants, if any, specified in the prospectus
supplement, provided that the extension period may not extend beyond the stated
maturity of the applicable series of junior subordinated debentures.
As a consequence of any such deferral, distributions on the capital
securities would be deferred (but would continue to accumulate additional
distributions at the rate per annum described in the prospectus supplement for
the capital securities) by the Issuer Trust of the capital securities during
the extension period. During any applicable extension period, we may not, and
may not permit any subsidiary to:
. declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of our capital
stock; or
. make any payment of principal of or interest or premium, if any, on or
repay, repurchase or redeem any of our debt securities that rank on a
parity in all respects with or junior in interest to the corresponding
junior subordinated debentures other than:
. repurchases, redemptions or other acquisitions of shares of our
capital stock in connection with any employment contract, benefit plan
or other similar arrangement with or for the benefit of one or more
employees, officers, directors or consultants, in connection with a
dividend reinvestment or stockholder stock purchase plan or in
connection with the issuance of our capital stock (or securities
convertible into or exercisable for our capital stock) as
consideration in an acquisition transaction entered into prior to the
applicable extension period;
. as a result of any exchange or conversion of any class or series of
our capital stock (or any capital stock of a subsidiary of KeyCorp)
for any class or series of our capital stock or of any class or series
of our indebtedness for any class or series of our capital stock;
. the purchase of fractional interests in shares of our capital stock in
accordance with the conversion or exchange provisions of such capital
stock or the security being converted or exchanged;
33
. any declaration of a dividend in connection with any stockholders'
rights plan, or the issuance of rights, stock or other property under
any stockholders' rights plan, or the redemption or repurchase of
rights in accordance with any stockholders' rights plan; or
. any dividend in the form of stock, warrants, options or other rights
where the dividend stock or the stock issuable upon exercise of the
warrants, options or other rights is the same stock as that on which
the dividend is being paid or ranks on a parity with or junior to such
stock.
Prior to the termination of any applicable extension period, we may further
defer the payment of interest.
This covenant will also apply if:
. we have actual knowledge of an event that with the giving of notice or
the lapse of time, or both, would constitute an event of default under
the junior indenture with respect to the junior subordinated debentures
and we have not taken reasonable steps to cure the event, and
. if the junior subordinated debentures are held by an Issuer Trust, we are
in default with respect to its payment of any obligations under the
guarantee related to the related capital securities.
Redemption
Unless otherwise indicated in the applicable prospectus supplement, junior
subordinated debentures will not be subject to any sinking fund.
Unless otherwise indicated in the applicable prospectus supplement, we may,
at our option and subject to receipt of prior approval by the Federal Reserve
Board if such approval is then required under applicable capital guidelines or
policies, redeem the junior subordinated debentures of any series in whole at
any time or in part from time to time. If the junior subordinated debentures of
any series are so redeemable only on or after a specified date or upon the
satisfaction of additional conditions, the applicable prospectus supplement
will specify this date or describe these conditions. Unless otherwise indicated
in the form of security for such series, each junior subordinated debenture may
be redeemed in part but only in the amount of $1,000 or integral multiples
thereof. Except as otherwise specified in the applicable prospectus supplement,
the redemption price for any junior subordinated debenture will equal any
accrued and unpaid interest (including additional interest) to the redemption
date, plus 100% of the principal amount.
Except as otherwise specified in the applicable prospectus supplement, if a
tax event (as defined below) in respect of a series of junior subordinated
debentures, an investment company event (as defined below) or a capital
treatment event (as defined below) has occurred and is continuing, we may, at
our option and subject to receipt of prior approval by the Federal Reserve
Board if such approval is then required under applicable capital guidelines or
policies, redeem that series of junior subordinated debentures in whole (but
not in part) at any time within 90 days following the occurrence of the tax
event, capital treatment event or investment company event, at a redemption
price equal to 100% of the principal amount of the junior subordinated
debentures then outstanding plus accrued and unpaid interest to the date fixed
for redemption, except as otherwise specified in the applicable prospectus
supplement.
A "capital treatment event" means our determination, based on an opinion of
counsel experienced in such matters (who may be an employee of KeyCorp or any
of its affiliates), that as a result of:
. any amendment to or change, including any announced prospective change,
in the laws, or any rules or regulations under the laws, of the United
States or of any political subdivision of or in the United States, if the
amendment or change is effective on or after the date the capital
securities are issued; or
. any official or administrative pronouncement or action or any judicial
decision interpreting or applying such laws or regulations, if the
pronouncement, action or decision is announced on or after the date the
capital securities are issued,
34
there is more than an insubstantial risk that we will not be entitled to treat
the liquidation amount of the capital securities as "Tier 1 Capital" for
purposes of the applicable Federal Reserve capital adequacy guidelines as then
in effect.
An "investment company event" means the receipt by the Issuer Trust of an
opinion of counsel experienced in such matters to the effect that, as a result
of the occurrence of a change in law or regulation or a written change,
including any announced prospective change, in interpretation or application of
law or regulation by any legislative body, court, governmental agency or
regulatory authority, there is more than an insubstantial risk that the Issuer
Trust is or will be considered an "investment company" that is required to be
registered under the Investment Company Act, which change or prospective change
becomes effective or would become effective, as the case may be, on or after
the date of the issuance of the capital securities.
A "tax event" means the receipt by us and the Issuer Trust of an opinion of
independent counsel, experienced in tax matters, to the following effect that,
as a result of any tax change, there is more than an insubstantial risk that
any of the following will occur:
. the Issuer Trust is, or will be within 90 days after the date of the
opinion of counsel, subject to U.S. federal income tax on income received
or accrued on the corresponding junior subordinated debentures;
. interest payable by us on the corresponding junior subordinated
debentures is not, or within 90 days after the opinion of counsel will
not be, deductible by us, in whole or in part, for U.S. federal income
tax purposes; or
. the Issuer Trust is, or will be within 90 days after the date of the
opinion of counsel, subject to more than a de minimis amount of other
taxes, duties or other governmental charges.
As used above, the term "tax change" means any of the following:
. any amendment to or change, including any announced prospective change,
in the laws or any regulations under the laws of the United States or of
any political subdivision or taxing authority of or in the United States,
if the amendment or change is enacted, promulgated or announced on or
after the date the capital securities are issued; or
. any official administrative pronouncement, including any private letter
ruling, technical advice memorandum, field service advice, regulatory
procedure, notice or announcement, including any notice or announcement
of intent to adopt any procedures or regulations, or any judicial
decision interpreting or applying such laws or regulations, whether or
not the pronouncement or decision is issued to or in connection with a
proceeding involving us or the trust or is subject to review or appeal,
if the pronouncement or decision is enacted, promulgated or announced on
or after the date of the issuance of the capital securities.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of junior subordinated
debentures to be redeemed at its registered address. Unless we default in
payment of the redemption price, on and after the redemption date interest will
cease to accrue on the junior subordinated debentures or portions thereof
called for redemption.
Modification of the Junior Indenture
We may modify or amend the junior indenture with the consent of the junior
trustee, in some cases without obtaining the consent of security holders.
Certain modifications and amendments also require the consent of the holders of
at least a majority in principal amount of the outstanding junior subordinated
debentures of each series issued under the junior indenture that would be
affected by the modification or amendment. Further, without the
35
consent of the holder of each outstanding junior subordinated debenture issued
under the junior indenture that would be affected, we may not:
. change the stated maturity of the principal, or any installment of
principal or interest, on any outstanding junior subordinated debenture;
. reduce any principal amount, premium or interest, on any outstanding
junior subordinated debenture, including in the case of an original issue
discount security the amount payable upon acceleration of the maturity of
that security;
. change the place of payment where, or the coin or currency or currency
unit in which, any principal, premium or interest, on any junior
subordinated debenture is payable;
. impair the right to institute suit for the enforcement of any payment on
or after the stated maturity or, in the case of redemption, on or after
the redemption date;
. reduce the above-stated percentage of outstanding junior subordinated
debentures necessary to modify or amend the applicable indenture; or
. modify the above requirements or reduce the percentage of aggregate
principal amount of outstanding junior subordinated debentures of any
series required to be held by holders seeking to waive compliance with
certain provisions of the relevant indenture or seeking to waive certain
defaults,
and provided that, in the case of corresponding junior subordinated debentures,
so long as any of the related capital securities remain outstanding,
. no modification may be made that adversely affects the holders of such
capital securities in any material respect, and no termination of the
junior indenture may occur, and no waiver of any event of default or
compliance with any covenant under the junior indenture may be effective,
without the prior consent of the holders of at least a majority of the
aggregate liquidation amount of all outstanding related capital
securities affected unless and until the principal of the corresponding
junior subordinated debentures and all accrued and unpaid interest have
been paid in full and certain other conditions have been satisfied, and
. where a consent under the junior indenture would require the consent of
each holder of corresponding junior subordinated debentures, no such
consent will be given by the property trustee without the prior consent
of each holder of related capital securities.
We may, with the junior trustee's consent, execute, without the consent of
any holder of junior subordinated debentures, any supplemental indenture for
the purpose of creating any new series of junior subordinated debentures.
Events of Default
The following events will be "debenture events of default" with respect to
each series of junior subordinated debentures:
. default for 30 days in interest payment of any security of that series,
including any additional interest (subject to the deferral of any
interest payment in the case of an extension period);
. default in any principal or premium payment on any security of that
series at maturity;
. failure by us for 90 days in performing any other covenant or warranty in
the junior indenture after:
. we are given written notice by the junior trustee; or
. the holders of at least 25% in aggregate principal amount of the
outstanding securities of that series give written notice to us and
the junior trustee;
36
. our bankruptcy, insolvency or reorganization; or
. any other event of default provided for that series.
The holders of a majority in aggregate outstanding principal amount of
junior subordinated debentures of each series affected have the right to direct
the time, method and place of conducting any proceeding for any remedy
available to the junior trustee. The junior trustee or the holders of at least
25% in aggregate outstanding principal amount of junior subordinated debentures
of each series affected may declare the principal (or, if the junior
subordinated debentures of such series are discount securities, the portion of
the principal amount specified in a prospectus supplement) due and payable
immediately upon a debenture event of default. In the case of corresponding
junior subordinated debentures, should the junior trustee fail to make this
declaration, the holders of at least 25% in aggregate liquidation amount of the
related capital securities will have the right to make this declaration. The
holders of a majority of the outstanding junior subordinated debentures may
annul the declaration and waive the default, provided all defaults have been
cured and all payment obligations have been made current. In the case of
corresponding junior subordinated debentures, should the holders of a majority
of the outstanding junior subordinated debentures fail to annul the declaration
and waive the default, the holders of a majority in aggregate liquidation
amount of the related capital securities will have the right to do so. In the
event of our bankruptcy, insolvency or reorganization, junior subordinated
debentures holders' claims would fall under the broad equity power of a federal
bankruptcy court, and to that court's determination of the nature of those
holders' rights.
The holders of a majority in aggregate outstanding principal amount of each
series of junior subordinated debentures affected may, on behalf of the holders
of all the junior subordinated debentures of that series, waive any default,
except a default in the payment of principal or interest (including any
additional interest) (unless the default has been cured and a sum sufficient to
pay all matured installments of interest (including any additional interest)
and principal due otherwise than by acceleration has been deposited with the
junior trustee) or a default in respect of a covenant or provision which under
the junior indenture cannot be modified or amended without the consent of the
holder of each outstanding junior subordinated debenture of that series. In the
case of corresponding junior subordinated debentures, should the holders of
such corresponding junior subordinated debentures fail to waive the default,
the holders of a majority in aggregate liquidation amount of the related
capital securities will have the right to do so. We are required to file
annually with the junior trustee a certificate as to whether or not we are in
compliance with all the conditions and covenants applicable to us under the
junior indenture.
Enforcement of Certain Rights by Holders of Capital Securities
If a debenture event of default with respect to a series of corresponding
junior subordinated debentures has occurred and is continuing and the event is
attributable to our failure to pay interest or principal on the corresponding
junior subordinated debentures on the date the interest or principal is due and
payable, a holder of the related capital securities may institute a legal
proceeding directly against us for enforcement of payment to that holder of the
principal of or interest (including any additional interest) on corresponding
junior subordinated debentures having a principal amount equal to the aggregate
liquidation amount of the related capital securities of that holder (a "direct
action"). We may not amend the junior indenture to remove this right to bring a
direct action without the prior written consent of the holders of all of the
related capital securities outstanding. If the right to bring a direct action
is removed, the applicable Issuer Trust may become subject to reporting
obligations under the Exchange Act. We will have the right under the junior
indenture to set-off any payment made to the holder of the related capital
securities by us in connection with a direct action.
The holders of related capital securities will not be able to exercise
directly any remedies other than those set forth in the preceding paragraph
available to the holders of the junior subordinated debentures unless there has
occurred an event of default under the trust agreement. See "Capital Securities
and Related Instruments--Events of Default; Notice".
37
Consolidation, Merger, Sale of Assets and Other Transactions
The junior indenture provides that we may not consolidate with or merge into
another corporation or transfer our properties and assets substantially as an
entirety to another person unless:
. the entity formed by the consolidation or into which we merge, or to
which we transfer our properties and assets (1) is a corporation,
partnership or trust organized and existing under the laws of the United
States, any state of the United States or the District of Columbia and
(2) expressly assumes by supplemental indenture the payment of any
principal, premium or interest on the junior subordinated debentures, and
the performance of our other covenants under the junior indenture; and
. immediately after giving effect to this transaction, no debenture event
of default, and no event which, after notice or lapse of time or both,
would become a debenture event of default, will have occurred and be
continuing under the relevant indenture.
The general provisions of the junior indenture do not afford holders of the
junior subordinated debentures protection in the event of a highly leveraged or
other transaction involving us that may adversely affect holders of the junior
subordinated debentures.
Satisfaction and Discharge
The junior indenture provides that when, among other things, all junior
subordinated debentures not previously delivered to the junior trustee for
cancellation:
. have become due and payable;
. will become due and payable at their stated maturity within one year; or
. are to be called for redemption within one year under arrangements
satisfactory to the junior trustee for the giving of notice of redemption
by the junior trustee;
and we deposit or cause to be deposited with the junior trustee funds, in
trust, for the purpose and in an amount in the currency or currencies in which
the junior subordinated debentures are payable sufficient to pay and discharge
the entire indebtedness on the junior subordinated debentures not previously
delivered to the junior trustee for cancellation, for the principal, premium,
if any, and interest (including any additional interest) to the date of the
deposit or to the stated maturity, as the case may be, then the junior
indenture will cease to be of further effect (except as to our obligations to
pay all other sums due under the junior indenture and to provide the officers'
certificates and opinions of counsel described therein), and we will be deemed
to have satisfied and discharged the junior indenture.
Conversion or Exchange
If and to the extent indicated in the applicable prospectus supplement, a
series of junior subordinated debentures may be convertible or exchangeable
into junior subordinated debentures of another series or into capital
securities of another series. The specific terms on which series may be
converted or exchanged will be described in the applicable prospectus
supplement. These terms may include provisions for conversion or exchange,
whether mandatory, at the holder's option, or at our option, in which case the
number of shares of capital securities or other securities the junior
subordinated debenture holder would receive would be calculated at the time and
manner described in the applicable prospectus supplement.
If at any time KeyCorp or its affiliate is the owner or holder of any
capital securities, then effective on any distribution date, KeyCorp or such
affiliate will have the right to deliver to the property trustee all or a
portion of the capital securities in exchange for a corresponding amount of
junior subordinated debentures.
38
Subordination of Junior Subordinated Debentures
The junior subordinated debentures will be subordinate in right of payment,
to the extent set forth in the junior indenture, to all our senior indebtedness
(as defined below). If we default in the payment of any principal, premium, if
any, or interest, if any, or any other amount payable on any senior
indebtedness when it becomes due and payable, whether at maturity or at a date
fixed for redemption or by declaration of acceleration or otherwise, then,
unless and until the default has been cured or waived or has ceased to exist or
all senior indebtedness has been paid, no direct or indirect payment (in cash,
property, securities, by set-off or otherwise) may be made or agreed to be made
on the junior subordinated debentures, or in respect of any redemption,
repayment, retirement, purchase or other acquisition of any of the junior
subordinated debentures.
As used in this section, the term "senior indebtedness" means:
. "senior debt", which means any of our obligations to our creditors,
whether now outstanding or incurred in the future, other than (1) any
obligation as to which, in the instrument creating or evidencing the
obligation or under which the obligation is outstanding, it is provided
that the obligation is not senior debt and (2) trade accounts payable and
accrued liabilities arising in the ordinary course of business; and
. the amounts necessary to pay all principal of, and premium, if any, and
interest, if any, on "senior subordinated debt" in full less, if
applicable, any portion of such amounts which would have been paid to,
and retained by, the holders of such senior subordinated debt but for the
fact that such senior subordinated debt is subordinate, pari passu or
junior in right of payment to trade accounts payable or accrued
liabilities arising in the ordinary course of business.
"Senior subordinated debt" means any of our obligations to our creditors,
whether now outstanding or incurred in the future, where the instrument
creating or evidencing the obligation or under which the obligation is
outstanding, provides that it is subordinate and junior in right of payment to
senior debt. Senior subordinated debt includes our outstanding subordinated
debt securities and any subordinated debt securities issued in the future with
substantially similar subordinated terms, but does not include:
. the junior subordinated debentures described in this prospectus;
. our 7.826% Junior Subordinated Deferrable Interest Debentures issued to a
subsidiary trust on December 4, 1996;
. our 8.250% Junior Subordinated Deferrable Interest Debentures issued to a
subsidiary trust on December 30, 1996;
. our Floating Rate Junior Subordinated Deferrable Interest Debentures
issued to a subsidiary trust on June 25, 1998;
. our 6.875% Junior Subordinated Deferrable Interest Debentures issued to a
subsidiary trust on March 17, 1999;
. our 7.750% Junior Subordinated Deferrable Interest Debentures issued to a
subsidiary trust on July 15, 1999; or
. any subordinated debt securities issued in the future with substantially
similar subordinated terms.
Senior indebtedness does not include senior subordinated debt or the junior
subordinated debentures.
In the event of:
. any insolvency, bankruptcy, receivership, liquidation, reorganization,
readjustment, composition or other similar proceeding relating to us, our
creditors or our property;
. any proceeding for the liquidation, dissolution or other winding up of
KeyCorp, voluntary or involuntary, whether or not involving insolvency or
bankruptcy proceedings;
39
. any assignment by us for the benefit of creditors; or
. any other marshaling of our assets,
then all senior indebtedness (including any interest accruing after the
commencement of any of the proceedings described above) must first be paid in
full before any payment or distribution, whether in cash, securities or other
property, may be made on account of the junior subordinated debentures. Any
payment or distribution on account of the junior subordinated debentures,
whether in cash, securities or other property, that would otherwise (but for
the subordination provisions) be payable or deliverable in respect of the
junior subordinated debentures will be paid or delivered directly to the
holders of senior indebtedness in accordance with the priorities then existing
among those holders until all senior indebtedness (including any interest
accruing after the commencement of any such proceedings) has been paid in full.
In the event of any of the proceedings described above, after payment in
full of all senior indebtedness, the holders of junior subordinated debentures,
together with the holders of any of our obligations ranking on a parity with
the junior subordinated debentures, will be entitled to be paid from our
remaining assets the amounts at the time due and owing on the junior
subordinated debentures and the other obligations before any payment or other
distribution, whether in cash, property or otherwise, will be made on account
of any of our capital stock or obligations ranking junior to the junior
subordinated debentures. If any payment or distribution on account of the
junior subordinated debentures of any character or any security, whether in
cash, securities or other property, is received by any holder of any junior
subordinated debentures in contravention of any of the terms described above
and before all the senior indebtedness has been paid in full, that payment or
distribution or security will be received in trust for the benefit of, and must
be paid over or delivered and transferred to, the holders of the senior
indebtedness at the time outstanding in accordance with the priorities then
existing among those holders for application to the payment of all senior
indebtedness remaining unpaid to the extent necessary to pay all senior
indebtedness in full. Because of this subordination, in the event of our
insolvency, holders of senior indebtedness may receive more, ratably, and
holders of the junior subordinated debentures may receive less, ratably, than
our other creditors. Such subordination will not prevent the occurrence of any
event of default under the junior indenture.
The junior indenture places no limitation on the amount of additional senior
indebtedness that may be incurred by us. We expect from time to time to incur
additional senior indebtedness. As of March 31, 2002, we had approximately
$17.6 billion of senior indebtedness outstanding.
Trust Expenses
Pursuant to the expense agreement for each series of corresponding junior
subordinated debentures, we, as holder of the trust common securities, will
irrevocably and unconditionally agree with each Issuer Trust that holds junior
subordinated debentures that we will pay to the Issuer Trust, and reimburse the
Issuer Trust for, the full amounts of any costs, expenses or liabilities of the
Issuer Trust, other than obligations of the Issuer Trust to pay to the holders
of any capital securities or other similar interests in the Issuer Trust the
amounts due such holders pursuant to the terms of the capital securities or
such other similar interests, as the case may be. This payment obligation will
include any costs, expenses or liabilities of the Issuer Trust that are
required by applicable law to be satisfied in connection with a termination of
the Issuer Trust.
Governing Law
The junior indenture and the junior subordinated debentures will be governed
by and construed in accordance with the laws of the State of New York.
40
Information Concerning the Junior Trustee
The junior trustee will have, and be subject to, all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to these provisions, the junior trustee is under no
obligation to exercise any of the powers vested in it by the junior indenture
at the request of any holder of junior subordinated debentures, unless offered
reasonable indemnity by that holder against the costs, expenses and liabilities
which might be incurred thereby. The junior trustee is not required to expend
or risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the junior trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
Corresponding Junior Subordinated Debentures
The corresponding junior subordinated debentures may be issued in one or
more series of junior subordinated debentures under the junior indenture with
terms corresponding to the terms of a series of related capital securities. In
that event, concurrently with the issuance of each Issuer Trust's capital
securities, the Issuer Trust will invest the proceeds thereof and the
consideration paid by us for the trust common securities of the Issuer Trust in
such series of corresponding junior subordinated debentures issued by us to the
Issuer Trust. Each series of corresponding junior subordinated debentures will
be in the principal amount equal to the aggregate stated liquidation amount of
the related capital securities and the trust common securities of the Issuer
Trust and will rank on a parity with all other series of junior subordinated
debentures. Holders of the related capital securities for a series of
corresponding junior subordinated debentures will have the rights in connection
with modifications to the junior indenture or upon occurrence of debenture
events of default, as described under "--Modification of the Junior Indenture"
and "--Events of Default", unless provided otherwise in the prospectus
supplement for such related capital securities.
Unless otherwise specified in the applicable prospectus supplement, if a tax
event, capital treatment event or investment company event in respect of an
Issuer Trust has occurred and is continuing, we may, at our option and subject
to prior approval of the Federal Reserve Board if then required under
applicable capital guidelines or policies, redeem the corresponding junior
subordinated debentures at any time within 90 days of the occurrence of such
tax event, capital treatment event or investment company event, in whole but
not in part, subject to the provisions of the junior indenture and whether or
not the corresponding junior subordinated debentures are then otherwise
redeemable at our option. Unless provided otherwise in the applicable
prospectus supplement, the redemption price for any corresponding junior
subordinated debentures will be equal to 100% of the principal amount of the
corresponding junior subordinated debentures then outstanding plus accrued and
unpaid interest to the date fixed for redemption. For so long as the applicable
Issuer Trust is the holder of all the outstanding corresponding junior
subordinated debentures, the proceeds of any redemption will be used by the
Issuer Trust to redeem the corresponding trust securities in accordance with
their terms. In lieu of such redemption, we have the right to dissolve the
applicable Issuer Trust and to distribute the corresponding junior subordinated
debentures to the holders of the related series of trust securities in
liquidation of the Issuer Trust. See "Capital Securities and Related
Instruments--Redemption or Exchange--Distribution of Corresponding Junior
Subordinated Debentures" for a more detailed discussion. We may not redeem a
series of corresponding junior subordinated debentures in part unless all
accrued and unpaid interest has been paid in full on all outstanding
corresponding junior subordinated debentures of that series for all interest
periods terminating on or prior to the redemption date.
We have agreed in the junior indenture, as to each series of corresponding
junior subordinated debentures, that if and so long as:
. the Issuer Trust of the related series of trust securities is the holder
of all the corresponding junior subordinated debentures;
. a tax event in respect of such Issuer Trust has occurred and is
continuing; and
. we elect, and do not revoke that election, to pay additional sums in
respect of the trust securities,
41
we will pay to the Issuer Trust these additional sums (as defined under
"Capital Securities and Related Instruments--Redemption or Exchange"). We also
have agreed, as to each series of corresponding junior subordinated debentures:
. to maintain directly or indirectly 100% ownership of the trust common
securities of the Issuer Trust to which the corresponding junior
subordinated debentures have been issued, provided that certain
successors which are permitted under the junior indenture may succeed to
our ownership of the trust common securities; or
. not to voluntarily terminate, wind up or liquidate any Issuer Trust,
except:
. in connection with a distribution of corresponding junior subordinated
debentures to the holders of the capital securities in exchange for
their capital securities upon liquidation of the Issuer Trust; or
. in connection with certain mergers, consolidations or amalgamations
permitted by the related trust agreement,
in either such case, if specified in the applicable prospectus supplement
upon prior approval of the Federal Reserve, if then required under
applicable Federal Reserve capital guidelines or policies; and
. to use its reasonable efforts, consistent with the terms and provisions
of the related trust agreement, to cause the Issuer Trust to be
classified as a grantor trust and not as an association taxable as a
corporation for U.S. federal income tax purposes.
42
Guarantees and Expense Agreements
The following description summarizes the material provisions of the
guarantees and the agreements as to expenses and liabilities. This description
is not complete and is subject to, and is qualified in its entirety by
reference to, all of the provisions of each guarantee and each expense
agreement, including the definitions therein, and the Trust Indenture Act. The
form of the guarantee and the expense agreement has been filed as an exhibit to
our SEC registration statement. Reference in this summary to capital securities
means the capital securities issued by the related Issuer Trust to which a
guarantee or expense agreement relates. Whenever particular defined terms of
the guarantees or expense agreements are referred to in this prospectus or in a
prospectus supplement, those defined terms are incorporated in this prospectus
or the prospectus supplement by reference.
The Guarantees
A guarantee will be executed and delivered by us at the same time each
Issuer Trust issues its capital securities. Each guarantee is for the benefit
of the holders from time to time of the capital securities. Deutsche Bank Trust
Company Americas will act as indenture trustee (referred to below as the
"guarantee trustee") under each guarantee for the purposes of compliance with
the Trust Indenture Act and each guarantee will be qualified as an indenture
under the Trust Indenture Act. The guarantee trustee will hold each guarantee
for the benefit of the holders of the related Issuer Trust's capital securities.
We will irrevocably and unconditionally agree to pay in full on a
subordinated basis, to the extent described below, the guarantee payments (as
defined below) to the holders of the capital securities, as and when due,
regardless of any defense, right of set-off or counterclaim that the Issuer
Trust may have or assert other than the defense of payment. The following
payments or distributions with respect to the capital securities, to the extent
not paid by or on behalf of the related Issuer Trust (referred to as the
"guarantee payments"), will be subject to the related guarantee:
. any accumulated and unpaid distributions required to be paid on the
capital securities, to the extent that the Issuer Trust has funds legally
and immediately available to pay them;
. any redemption price required to be paid on the capital securities, to
the extent that the Issuer Trust has funds legally and immediately
available to pay it; and
. upon a voluntary or involuntary termination, winding up or liquidation of
the Issuer Trust (unless the corresponding junior subordinated debentures
are distributed to holders of such capital securities in exchange for
their capital securities), the lesser of:
. the liquidation distribution for the capital securities; and
. the amount of assets of the Issuer Trust remaining available for
distribution to holders of capital securities after satisfaction of
liabilities to creditors of the Issuer Trust as required by applicable
law.
Our obligation to make a guarantee payment may be satisfied by direct
payment of the required amounts by us to the holders of the applicable capital
securities or by causing the Issuer Trust to pay these amounts to the holders.
Each guarantee will be an irrevocable and unconditional guarantee on a
subordinated basis of the related Issuer Trust's obligations under the capital
securities, but will apply only to the extent that the related Issuer Trust has
funds sufficient to make such payments, and is not a guarantee of collection.
See "--Status of the Guarantees".
If and to the extent we do not make payments on the corresponding junior
subordinated debentures held by the Issuer Trust, the Issuer Trust will not be
able to make payments on the capital securities and will not have funds
available to do so. Each guarantee constitutes an unsecured obligation of ours
and will rank subordinate
43
and junior in right of payment to all of our senior debt. See "--Status of the
Guarantees". Because we are a holding company, our right to participate in any
distribution of assets of any subsidiary upon such subsidiary's liquidation or
reorganization or otherwise is subject to the prior claims of creditors of that
subsidiary, except to the extent we may ourselves be recognized as a creditor
of that subsidiary. Accordingly, our obligations under the guarantees will be
effectively subordinated to all existing and future liabilities of our
subsidiaries, and claimants should look only to our assets for payments. Except
as otherwise provided in the applicable prospectus supplement, the guarantees
do not limit the incurrence or issuance of other secured or unsecured debt of
ours, including senior debt, whether under the junior indenture, any other
existing indenture or any other indenture that we may enter into in the future
or otherwise. See the applicable prospectus supplement relating to any offering
of capital securities.
We have, through the applicable guarantee, the applicable trust agreement,
the applicable series of corresponding junior subordinated debentures, the
junior indenture and the applicable expense agreement, taken together, fully,
irrevocably and unconditionally guaranteed all of the Issuer Trust's
obligations under the related capital securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes a guarantee. It is only the combined operation of these documents
that has the effect of providing a full, irrevocable and unconditional
guarantee of an Issuer Trust's obligations under its related capital
securities. See "Capital Securities and Related Instruments--Relationship Among
the Capital Securities and the Related Instruments".
Status of the Guarantees
Each guarantee will constitute an unsecured obligation of ours and will be
subordinated in right of payment to all of our senior debt in the same manner
as corresponding junior subordinated debentures.
Each guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
us to enforce its rights under the guarantee without first instituting a legal
proceeding against any other person or entity). Each guarantee will be held for
the benefit of the holders of the related capital securities. Each guarantee
will not be discharged except by payment of the guarantee payments in full to
the extent not paid by the Issuer Trust or upon distribution to the holders of
the capital securities of the corresponding junior subordinated debentures.
None of the guarantees places a limitation on the amount of additional senior
debt that may be incurred by us. We expect from time to time to incur
additional indebtedness constituting senior debt.
Because we are a holding company, our obligations under each guarantee, like
our obligations under the corresponding junior subordinated debentures, will
also be effectively subordinated to all existing and future liabilities of our
bank subsidiaries and any other subsidiaries we may have. See "Capital
Securities and Related Instruments--Junior Subordinated
Debentures--Subordination of Junior Subordinated Debentures".
Amendments and Assignment
Except with respect to any changes which do not materially adversely affect
the material rights of holders of the related capital securities (in which case
no vote of the holders will be required), no guarantee may be amended without
the prior approval of the holders of a majority of the related outstanding
capital securities. The manner of obtaining any such approval will be as
described under "Capital Securities and Related Instruments--Voting Rights;
Amendment of Each Trust Agreement". All guarantees and agreements contained in
each guarantee will bind our successors, assigns, receivers, trustees and
representatives and will inure to the benefit of the holders of the related
capital securities then outstanding. We may not assign our obligations under
the guarantees except in connection with a consolidation, merger or
amalgamation involving us that is permitted under the terms of the junior
indenture.
44
Events of Default
An event of default under each guarantee will occur upon our failure to
perform any of our payment obligations under the guarantee or to perform any
non-payment obligations if this non-payment default remains unremedied for 30
days. The holders of a majority of the related capital securities then
outstanding have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the guarantee trustee in respect of
the guarantee or to direct the exercise of any trust or power conferred upon
the guarantee trustee under the guarantee.
We, as guarantor, are required to file annually with the guarantee trustee a
certificate as to whether or not we are in compliance with all the conditions
and covenants applicable to it under the guarantee.
Information Concerning the Guarantee Trustee
The guarantee trustee, other than during the occurrence and continuance of a
default by us in performance of any guarantee, undertakes to perform only those
duties specifically set forth in each guarantee and, after default with respect
to any guarantee, must exercise the same degree of care and skill as a prudent
person would exercise or use in the conduct of his or her own affairs. Subject
to this provision, the guarantee trustee is under no obligation to exercise any
of the powers vested in it by any guarantee at the request of any holder of any
capital securities unless it is offered reasonable indemnity against the costs,
expenses and liabilities that might be incurred as a result.
Termination of the Guarantees
Each guarantee will terminate and be of no further force and effect upon:
. the guarantee payments having been paid in full by us, the trust or both;
or
. the distribution of corresponding junior subordinated debentures to the
holders of the related capital securities in exchange for their capital
securities.
Each guarantee will continue to be effective or will be reinstated, as the
case may be, if at any time any holder of the related capital securities must
restore payment of any sums paid under the capital securities or the guarantee.
Governing Law
Each guarantee will be governed by and construed in accordance with the laws
of the State of New York.
The Expense Agreements
Pursuant to the expense agreement that will be entered into by us under each
trust agreement, we will irrevocably and unconditionally guarantee to each
person or entity to whom the Issuer Trust becomes indebted or liable the full
payment of any costs, expenses or liabilities of the Issuer Trust, other than
obligations of the Issuer Trust to pay to the holders of any capital securities
or other similar interests in the Issuer Trust the amounts owed to holders
pursuant to the terms of the capital securities or other similar interests, as
the case may be. The expense agreement will be enforceable by third parties.
Our obligations under each expense agreement will be subordinated in right
of payment to the same extent as each guarantee. Our obligation under each
expense agreement will be subject to provisions regarding amendment,
termination, assignment, succession and governing law similar to those
applicable to each guarantee.
45
Relationship Among the Capital Securities
and the Related Instruments
The following description of the relationship among the capital securities,
the corresponding junior subordinated debentures, the relevant expense
agreement and the relevant guarantee is not complete and is subject to, and is
qualified in its entirety by reference to, each trust agreement, the junior
indenture and the form of guarantee, each of which is incorporated as an
exhibit to our SEC registration statement, and the Trust Indenture Act.
Full and Unconditional Guarantee
Payments of distributions and other amounts due on the capital securities
(to the extent the related Issuer Trust has funds available for the payment of
such distributions) are irrevocably guaranteed by us as described under
"Capital Securities and Related Instruments--Guarantees". Taken together, our
obligations under each series of corresponding junior subordinated debentures,
the junior indenture, the related trust agreement, the related expense
agreement, and the related guarantee provide, in the aggregate, a full,
irrevocable and unconditional guarantee of payments of distributions and other
amounts due on the related capital securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these
documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer Trust's obligations under the related
capital securities. If and to the extent that we do not make payments on any
series of corresponding junior subordinated debentures, the Issuer Trust will
not pay distributions or other amounts due on its related capital securities.
The guarantees do not cover payment of any amounts when the related Issuer
Trust does not have sufficient funds to pay such amounts. In such an event, the
remedy of a holder of any capital securities is to institute a legal proceeding
directly against us pursuant to the terms of the junior indenture for
enforcement of our obligations under the corresponding junior subordinated
debentures. Our obligations under each guarantee are subordinate and junior in
right of payment to all of our senior debt.
If we make payment on the corresponding junior subordinated debentures and
the relevant Issuer Trust has funds available to make payments on its related
capital securities but fails to do so, a holder of such capital securities may
begin a legal proceeding against us to enforce our obligations under the
related guarantee to make these payments or to cause the Issuer Trust to make
these payments. In the event an Issuer Trust receives payments on the
corresponding junior subordinated debentures, but these funds are available for
payment on the related capital securities because of claims made by creditors
of the trust, we would be obligated under the related expense agreement to pay
those claims.
Sufficiency of Payments
As long as payments of interest and other payments are made when due on each
series of corresponding junior subordinated debentures, such payments will be
sufficient to cover distributions and other payments due on the related capital
securities, primarily because:
. the aggregate principal amount of each series of corresponding junior
subordinated debentures will be equal to the sum of the aggregate stated
liquidation amount of the related capital securities and related trust
common securities;
. the interest rate and interest and other payment dates on each series of
corresponding junior subordinated debentures will match the distribution
rate and distribution and other payment dates for the related capital
securities;
. we will pay, under the related expense agreement, for all and any costs,
expenses and liabilities of the Issuer Trust except the Issuer Trust's
obligations to holders of its capital securities under the capital
securities; and
46
. each trust agreement provides that the Issuer Trust will not engage in
any activity that is inconsistent with the limited purposes of such
Issuer Trust.
Notwithstanding anything to the contrary in the junior indenture, we have
the right to set-off any payment we are otherwise required to make under the
junior indenture with a payment we make under the related guarantee.
Enforcement Rights of Holders of Capital Securities
A holder of any related capital security may, to the extent permissible
under applicable law, institute a legal proceeding directly against us to
enforce its rights under the junior indenture or the related guarantee without
first instituting a legal proceeding against the guarantee trustee, the related
Issuer Trust or any other person or entity.
A default or event of default under any of our senior debt would not
constitute a default or event of default with respect to any series of capital
securities or the corresponding junior subordinated debentures. However, in the
event of payment defaults under, or acceleration of, our senior debt, the
subordination provisions of the junior indenture provide that no payments may
be made in respect of the corresponding junior subordinated debentures until
the senior debt has been paid in full or any payment default has been cured or
waived.
Limited Purpose of Issuer Trusts
Each Issuer Trust's capital securities evidence a preferred and undivided
beneficial interest in the Issuer Trust, and each Issuer Trust exists for the
sole purpose of issuing its capital securities and trust common securities and
investing the proceeds thereof in corresponding junior subordinated debentures
and engaging in only those other activities necessary or incidental thereto. A
principal difference between the rights of a holder of a capital security and a
holder of a corresponding junior subordinated debenture is that a holder of a
corresponding junior subordinated debenture is entitled to receive from us the
principal amount of and interest accrued on corresponding junior subordinated
debentures held, while a holder of capital securities is entitled to receive
distributions from the Issuer Trust (or from us under the applicable guarantee)
if and to the extent the Issuer Trust has funds available for the payment of
such distributions.
Rights Upon Dissolution
Upon any voluntary or involuntary dissolution of any Issuer Trust (except in
connection with the redemption of all capital securities), the holders of the
related capital securities will be entitled to receive a like amount of
corresponding junior subordinated debentures in exchange for their capital
securities, subject to prior satisfaction of liabilities to creditors of the
trust. If the property trustee determines that a distribution of junior
subordinated debentures is not practical, the holders of capital securities
will be entitled to receive a liquidation distribution out of the assets held
by the trust after satisfaction of those liabilities. See "Capital Securities
and Related Instruments--Liquidation Distribution Upon Dissolution". Upon any
voluntary or involuntary liquidation or bankruptcy of ours, the property
trustee, as holder of the corresponding junior subordinated debentures, would
be a subordinated creditor of ours, subordinated in right of payment to all
senior debt as set forth in the junior indenture, but entitled to receive
payment in full of principal and interest, before any stockholders of ours
receive payments or distributions. Since we are the guarantor under each
guarantee and have agreed, under the related expense agreement, to pay for all
costs, expenses and liabilities of each Issuer Trust (other than the Issuer
Trust's obligations to the holders of its capital securities), the positions of
a holder of such capital securities and a holder of such corresponding junior
subordinated debentures relative to other creditors and to our stockholders in
the event of our liquidation or bankruptcy are expected to be substantially the
same.
47
ISSUANCE OF GLOBAL SECURITIES
Unless otherwise indicated in the applicable prospectus supplement,
securities will be issued in the form of one or more global certificates, or
"global securities", registered in the name of a depositary or its nominee.
Unless otherwise indicated in the applicable prospectus supplement, the
depositary will be The Depository Trust Company, commonly referred to as DTC.
DTC has informed us that its nominee will be Cede & Co. Accordingly, we expect
Cede & Co. to be the initial registered holder of all securities that are
issued in global form. No person that acquires a beneficial interest in those
securities will be entitled to receive a certificate representing that person's
interest in the securities except as described herein or in the applicable
prospectus supplement. Unless and until definitive securities are issued under
the limited circumstances described below, all references to actions by holders
of securities issued in global form will refer to actions taken by DTC upon
instructions from its participants, and all references to payments and notices
to holders will refer to payments and notices to DTC or Cede & Co., as the
registered holder of these securities.
DTC has informed us that it is a limited-purpose trust company organized
under the New York Banking Law, a "banking organization" within the meaning of
the New York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC holds securities that DTC participants deposit with DTC. DTC
also facilitates the settlement among DTC participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in DTC participants' accounts,
thereby eliminating the need for physical movement of certificates. DTC
participants include securities brokers and dealers, banks, trust companies and
clearing corporations, and may include other organizations. DTC is owned by a
number of its direct participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, LLC and the National Association of Securities
Dealers, Inc. Indirect access to the DTC system also is available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly. The rules applicable to DTC and DTC participants are on file with
the SEC.
Persons that are not participants or indirect participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in,
securities may do so only through participants and indirect participants. Under
a book-entry format, holders may experience some delay in their receipt of
payments, as such payments will be forwarded by our designated agent to Cede &
Co., as nominee for DTC. DTC will forward such payments to its participants,
who will then forward them to indirect participants or holders. Holders will
not be recognized by the relevant registrar, transfer agent, trustee,
depositary or warrant agent as registered holders of the securities entitled to
the benefits of our articles of incorporation or the applicable indenture,
trust agreement, guarantee, deposit agreement or warrant agreement. Beneficial
owners that are not participants will be permitted to exercise their rights
only indirectly through and according to the procedures of participants and, if
applicable, indirect participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations as currently in effect, DTC will be required to make book-entry
transfers of securities among participants and to receive and transmit payments
to participants. DTC rules require participants and indirect participants with
which beneficial securities owners have accounts to make book-entry transfers
and receive and transmit payments on behalf of their respective account holders.
Because DTC can act only on behalf of
. participants, who in turn act only on behalf of participants or indirect
participants and
. certain banks, trust companies and other persons approved by it,
the ability of a beneficial owner of securities issued in global form to pledge
such securities to persons or entities that do not participate in the DTC
system may be limited due to the unavailability of physical certificates for
these securities.
48
DTC has advised us that DTC will take any action permitted to be taken by a
registered holder of any securities under our articles of incorporation or the
relevant indenture, trust agreement, guarantee, deposit agreement or warrant
agreement only at the direction of one or more participants to whose accounts
with DTC such securities are credited.
Unless otherwise indicated in the applicable prospectus supplement, a global
security will be exchangeable for the relevant definitive securities registered
in the names of persons other than DTC or its nominee only if:
. DTC notifies us that it is unwilling or unable to continue as depositary
for that global security or if DTC ceases to be a clearing agency
registered under the Exchange Act when DTC is required to be so
registered;
. we determine, in our discretion, that the global security will be
exchangeable for definitive securities in registered form; or
. there has occurred and is continuing a default in the payment of any
amount due in respect of the securities or, in the case of debt
securities, an event of default or an event that, with the giving of
notice or lapse of time, or both, would constitute an event of default
with respect to these debt securities.
Any global security representing capital securities that is exchangeable
pursuant to the first or second bullet point above will be exchangeable in
whole for definitive capital securities in registered form, of like tenor and
of an equal aggregate principal amount as the global security, in denominations
specified in the applicable prospectus supplement (if other than $25.00 and
integral multiples of $25.00). The definitive capital securities will be
registered by the registrar in the name or names instructed by DTC. Any
distributions and other payments will be payable, the transfer of the
definitive capital securities will be registrable and the definitive capital
securities will be exchangeable at the corporate trust office of property
trustee in New York, New York, provided that such payment may be made at our
option by check mailed to the address of the person entitled to that payment as
of the record date and as shown on the register for the capital securities.
Redemption notices will be sent to Cede & Co. as the registered holder of
the global securities. If less than all of an Issuer Trust's trust securities
are being redeemed, DTC will determine the amount of the interest of each
direct participant to be redeemed in accordance with its then current
procedures.
Except as described above, the global security may not be transferred except
as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another
nominee of DTC or to a successor depositary we appoint. Except as described
above, DTC may not sell, assign, transfer or otherwise convey any beneficial
interest in a global security evidencing all or part of any securities unless
the beneficial interest is in an amount equal to an authorized denomination for
these securities.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we and the Issuer Trusts believe to be
accurate, but we and the Issuer Trusts assume no responsibility for the
accuracy thereof. None of KeyCorp, the trustees, any registrar and transfer
agent, any warrant agent or any depositary, or any agent of any of them, will
have any responsibility or liability for any aspect of DTC's or any
participant's records relating to, or for payments made on account of,
beneficial interests in a global security, or for maintaining, supervising or
reviewing any records relating to such beneficial interests.
Secondary trading in notes and debentures of corporate issuers is generally
settled in clearing-house or next-day funds. In contrast, beneficial interests
in a global security, in some cases, may trade in the DTC's same-day funds
settlement system, in which secondary market trading activity in those
beneficial interests would be required by DTC to settle in immediately
available funds. There is no assurance as to the effect, if any, that
settlement in immediately available funds would have on trading activity in
such beneficial interests. Also, settlement for purchases of beneficial
interests in a global security upon the original issuance of this security may
be required to be made in immediately available funds.
49
PLAN OF DISTRIBUTION
The capital securities described in this document may be sold in public
offerings to or through underwriters, to be designated at various times, or
directly to other purchasers or through agents. The distribution of capital
securities may be effected at various times in one or more transactions at a
fixed price or prices, which may be changed, or at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or at
negotiated prices.
Capital securities will be new issues of securities with no established
trading market. It has not presently been established whether the underwriters,
if any, of these securities will make a market in these securities. If a market
in these securities is made by those underwriters, this market making may be
discontinued at any time without notice. These securities may or may not be
listed on a national securities exchange or the Nasdaq National Market. No
assurance can be given as to the liquidity of the trading market for these
securities.
In facilitating the sale of capital securities, underwriters may receive
compensation from the applicable Issuer Trust or from purchasers of securities
for whom they may act as agents in the form of discounts, concessions or
commissions. Underwriters may sell capital securities to or through dealers,
and these dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters and/or commissions from the
purchasers for whom they may act as agents. Underwriters, dealers and agents
that participate in the distribution of capital securities may be considered
underwriters, and any discounts or commissions received by them from us and/or
the applicable Issuer Trust and any profit on the resale of securities by them
may be considered underwriting discounts and commissions under the Securities
Act. Any such underwriter or agent will be identified, and any such
compensation received from the applicable Issuer Trust will be described, in
the prospectus supplement relating to those securities.
Unless otherwise indicated in the applicable prospectus supplement, the
obligations of any underwriters to purchase the capital securities will be
subject to certain conditions precedent, and each of the underwriters with
respect to a sale of securities will be obligated to purchase all of its
securities if any are purchased. Unless otherwise indicated in the applicable
prospectus supplement, any such agent involved in the offer and sale of the
securities in respect of which this prospectus is being delivered will be
acting on a best efforts basis for the period of its appointment.
In connection with an offering of capital securities, underwriters may
purchase and sell these securities in the open market. These transactions may
include over-allotment and stabilizing transactions and purchases to cover
short positions created by underwriters with respect to the offering.
Stabilizing transactions consist of certain bids or purchases for preventing or
retarding a decline in the market price of the securities; and short positions
created by underwriters involve the sale by underwriters of a greater number of
securities than they are required to purchase from the applicable Issuer Trust
in the offering. Underwriters also may impose a penalty bid, by which selling
concessions allowed to broker-dealers in respect of the securities sold in the
offering may be reclaimed by underwriters if such securities are repurchased by
underwriters in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the securities,
which may be higher than the price that might otherwise prevail in the open
market; and these activities, if commenced, may be discontinued at any time.
Under agreements which we and the Issuer Trusts may enter into,
underwriters, agents and their controlling persons who participate in the
distribution of securities may be entitled to indemnification by us and the
Issuer Trusts against certain liabilities, including liabilities under the
Securities Act.
If so noted in the prospectus supplement relating to any capital securities,
we will authorize dealers or other persons acting as our agents to solicit
offers by certain institutions to purchase any capital securities from the
applicable Issuer Trust under contracts providing for payment and delivery on a
future date. Institutions with which these contracts may be made include
commercial and savings banks, insurance companies, pension funds,
50
investment companies, educational and charitable institutions and others. We
must approve such institutions in all cases. The obligations of any purchaser
under any of these contracts will be subject to the condition that the purchase
of any capital securities will not at the time of delivery be prohibited under
the laws of the jurisdiction to which such purchaser is subject. The
underwriters and such other agents will not have any responsibility in respect
of the validity or performance of such contracts.
If the applicable Issuer Trust offers and sells capital securities directly
to a purchaser or purchasers in respect of which this prospectus is delivered,
purchasers involved in the reoffer or resale of such securities, if these
purchasers may be considered underwriters as that term is defined in the
Securities Act, will be named and the terms of their reoffers or resales will
be described in the applicable prospectus supplement. These purchasers may then
reoffer and resell such securities to the public or otherwise at varying prices
to be determined by such purchasers at the time of resale or as otherwise
described in the applicable prospectus supplement. Purchasers of securities
directly from us may be entitled under agreements that they may enter into with
us and/or the applicable Issuer Trust to indemnification by us and/or the
applicable Issuer Trust against certain liabilities, including liabilities
under the Securities Act, and may engage in transactions with or perform
services for us in the ordinary course of their business or otherwise.
Underwriters or agents and their associates may be customers of (including
borrowers from), engage in transactions with, and/or perform services for,
KeyCorp and its affiliates, or any of the trustees, depositaries, warrant
agents, transfer agents or registrars for securities sold using this
prospectus, in the ordinary course of business.
51
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of the material U.S. federal income tax
consequences to the purchase, ownership and disposition of capital securities
only addresses the tax consequences to a U.S. holder that acquires capital
securities on their original issue date at their original offering price and
holds the capital securities as a capital asset for tax purposes. You are a
U.S. holder if you are a beneficial owner of a capital security that is:
. a citizen or resident of the United States;
. a domestic corporation;
. an estate whose income is subject to U.S. federal income tax regardless
of its source; or
. a trust if a U.S. court can exercise primary supervision over the trust's
administration and one or more U.S. persons have authority to control all
substantial decisions of the trust.
This summary does not apply to you if you are a member of a class of holders
subject to special rules, such as:
. a dealer in securities or currencies;
. a trader in securities that elects to use a mark-to-market method of
accounting;
. a bank;
. an insurance company;
. a thrift institution;
. a regulated investment company;
. a real estate investment trust;
. a tax-exempt organization;
. a person that holds capital securities that are a hedge or that are
hedged against interest rate or currency risks;
. a person that holds capital securities as part of a straddle or
conversion transaction for tax purposes; or
. a person whose functional currency is not the U.S. dollar.
Moreover, this summary also does not apply if the junior subordinated
debentures:
. are issued with more than a de minimis amount of original issue discount;
. mature 1 year or less than or more than 30 years after the issue date;
. are denominated or pay principal, premium, if any, or interest in a
currency other than U.S. dollars;
. pay principal, premium, if any, or interest based on an index or indices;
. allow for deferral of interest for more than 5 years' worth of
consecutive interest periods;
. are issued in bearer form;
. contain any obligation or right of us or a holder to convert or exchange
the junior subordinated debentures into other securities or properties of
KeyCorp;
. contain any obligation or right of KeyCorp to redeem, purchase or repay
the junior subordinated debentures (other than a redemption of 100% of
the outstanding junior subordinated debentures outstanding following a
tax event, a capital treatment event or an investment company event as
52
described in "Capital Securities and as provided in the prospectus and
Related Instruments--Junior Subordinated Debentures--Redemption"); or
. contain any other material provision described only in the prospectus
supplement.
The material U.S. federal income tax consequences of the purchase, ownership
and disposition of capital securities in a trust owning the underlying junior
subordinated debentures that contain these terms will be described in the
applicable prospectus supplement.
The statements of law or legal conclusion set forth in this discussion
constitute the opinion of Sullivan & Cromwell, special tax counsel to us and
each Issuer Trust. This summary is based upon the U.S. Internal Revenue Code of
1986, as amended, its legislative history, existing and proposed regulations
under the Internal Revenue Code, published rulings and court decisions, all as
currently in effect. These laws are subject to change, possibly on a
retroactive basis. The authorities on which this discussion is based are
subject to various interpretations, and it is therefore possible that the
federal income tax treatment of the purchase, ownership and disposition of
capital securities may differ from the treatment described below.
PLEASE CONSULT YOUR OWN TAX ADVISOR CONCERNING THE CONSEQUENCES OF OWNING
THE CAPITAL SECURITIES IN YOUR PARTICULAR CIRCUMSTANCES UNDER THE INTERNAL
REVENUE CODE AND THE LAWS OF ANY OTHER TAXING JURISDICTION.
Classification of the Issuer Trusts
Under current law and assuming full compliance with the terms of an amended
trust agreement substantially in the form attached to this prospectus as an
exhibit and the indenture, each Issuer Trust will not be taxable as a
corporation for U.S. federal income tax purposes. As a result, you will be
required to include in your gross income your proportional share of the
interest income, including original issue discount, paid or accrued on the
junior subordinated debentures described in this prospectus, whether or not the
trust actually distributes cash to you.
Interest Income and Original Issue Discount
Under Treasury regulations, an issuer and the Internal Revenue Service will
ignore a "remote" contingency that stated interest will not be timely paid when
determining whether a junior subordinated debenture is issued with original
issue discount ("OID"). On the date of this prospectus we currently believe
that the likelihood of exercising our option to defer interest payments is
remote because we would be prohibited from making certain distributions on our
capital stock and payments on our indebtedness if we exercise that option.
Accordingly, we currently believe that the junior subordinated debentures will
not be considered to be issued with OID at the time of their original issuance.
However, if our belief changes on the date any capital security is issued, we
will describe the relevant U.S. federal income tax consequences in the
applicable prospectus supplement.
Under these regulations, if we were to exercise our option to defer any
payment of interest, the junior subordinated debentures would at that time be
treated as issued with OID, and all stated interest on the junior subordinated
debentures would thereafter be treated as OID as long as the junior
subordinated debentures remained outstanding. In that event, all of your
taxable interest income on the junior subordinated debentures would be
accounted for as OID on an economic accrual basis regardless of your method of
tax accounting, and actual distributions of stated interest would not be
reported as taxable income. Consequently, you would be required to include OID
in gross income even though we would not make any actual cash payments during
an extension period.
53
These regulations have not been addressed in any rulings or other
interpretations by the Internal Revenue Service, and it is possible that the
Internal Revenue Service could take a position contrary to the interpretation
in this prospectus.
Because income on the capital securities will constitute interest or OID,
corporate U.S. holders of the capital securities will not be entitled to a
dividends-received deduction for any income taken into account on the capital
securities.
In the rest of this discussion, we assume that unless and until we exercise
our option to defer any payment of interest, the junior subordinated debentures
will not be treated as issued with OID, and whenever we use the term interest,
it also includes income in the form of OID.
Distribution of Junior Subordinated Debentures to Holders of Capital Securities
Upon Liquidation of the Issuer Trusts
If the applicable Issuer Trust distributes the junior subordinated
debentures as described under the caption "Capital Securities and Related
Instruments--Liquidation Distribution Upon Dissolution", you will receive
directly your proportional share of the junior subordinated debentures
previously held indirectly through the trust. Under current law, you will not
be taxed on the distribution and your holding period and aggregate tax basis in
your junior subordinated debentures will be equal to the holding period and
aggregate tax basis you had in your capital securities before the distribution.
If, however, the trust were to become taxed on the income received or accrued
on the junior subordinated debentures due to a tax event, the trust might be
taxed on a distribution of junior subordinated debentures to you, and you might
recognize gain or loss as if you had exchanged your capital securities for the
junior subordinated debentures you received upon the liquidation of the trust.
You will include interest in income in respect of junior subordinated
debentures received from the trust in the manner described above under
"--Interest Income and Original Issue Discount".
Sale or Redemption of Capital Securities
If you sell your capital securities, including through a redemption for
cash, you will recognize gain or loss equal to the difference between your
adjusted tax basis in your capital securities and the amount you realize on the
sale of your capital securities. Assuming that we do not exercise our option to
defer payment of interest on the junior subordinated debentures, your adjusted
tax basis in your capital securities generally will be the price you paid for
your capital securities.
If the junior subordinated debentures are deemed to be issued with OID as a
result of an actual deferral of interest payments, your adjusted tax basis in
your capital securities generally will be the price you paid for your capital
securities, increased by OID previously includible in your gross income to the
date of disposition and decreased by distributions or other payments you
received on your capital securities since and including the date of the first
extension period. This gain or loss generally will be a capital gain or loss,
except to the extent any amount that you realize is treated as a payment of
accrued interest on your proportional share of the junior subordinated
debentures required to be included in income. Capital gain of a non-corporate
U.S. holder is generally taxed at a maximum rate of 20% where the property is
held for more than one year and 18% where the property is held for more than
five years.
If we exercise our option to defer any payment of interest on the junior
subordinated debentures, your capital securities may trade at a price that does
not accurately reflect the value of accrued but unpaid interest with respect to
the underlying junior subordinated debentures. If you sell your capital
securities before the record date for the payment of distributions, then you
will not receive payment of a distribution for the period before the sale.
However, you will be required to include accrued but unpaid interest on the
junior subordinated debentures through the date of the sale as ordinary income
for U.S. federal income tax purposes and to add the amount of accrued but
unpaid interest to your tax basis in the capital securities. Your increased tax
basis in the capital
54
securities will increase the amount of any capital loss that you may have
otherwise realized on the sale. In general, an individual taxpayer may offset
only $3,000 of capital losses against regular income during any year.
Backup Withholding Tax and Information Reporting
The amount of interest income paid and OID accrued on your capital
securities will be reported to the Internal Revenue Service unless you are a
corporation or other exempt U.S. holder. Backup withholding will apply to
payments of interest to you unless you are an exempt U.S. holder or you furnish
your taxpayer identification number in the manner prescribed in applicable
regulations, certify that such number is correct, certify as to no loss of
exemption from backup withholding and meet certain other conditions.
Payment of the proceeds from the disposition of capital securities to or
through the U.S. office of a broker is subject to information reporting and
backup withholding unless you establish an exemption from information reporting
and backup withholding.
Any amounts withheld from you under the backup withholding rules will be
allowed as a refund or a credit against your U.S. federal income tax liability,
provided the required information is furnished to the Internal Revenue Service.
It is anticipated that each Issuer Trust or its paying agent will report
income on the capital securities to the Internal Revenue Service and to you on
Form 1099 by January 31 following each calendar year.
55
ERISA CONSIDERATIONS
If you are a fiduciary of a pension, profit-sharing or other employee
benefit plan subject to the Employee Retirement Income Security Act ("ERISA"),
you should review the fiduciary standards of ERISA and the plan's particular
circumstances before deciding to invest in the capital securities. You should
consider whether the investment would satisfy the prudence and diversification
requirements of ERISA and whether the investment would be consistent with the
terms of the plan and the other agreements which apply to plan investments.
A fiduciary of a plan subject to ERISA, as well as a person investing on
behalf of an individual retirement account or a pension or profit sharing plan
for one or more self-employed persons, should also consider whether an
investment in the capital securities could result in a prohibited transaction.
ERISA and the Code prohibit plans and individual retirement accounts from
engaging in certain transactions involving plan assets with persons who are
called parties in interest under ERISA or disqualified persons under the Code
with respect to the plan or individual retirement account. A violation of these
rules may result in a substantial excise tax under the Code and other
liabilities under ERISA. Employee benefit plans which are governmental plans,
foreign plans or church plans generally are not subject to the prohibited
transaction rules or the fiduciary standards of ERISA.
The assets of the trust would be treated as plan assets for purposes of the
prohibited transaction rules under a U.S. Department of Labor regulation if
plans and individual retirement accounts purchase capital securities, unless an
exception under the regulation applies. The regulation provides an exception if
the capital securities are considered to be publicly-offered securities. The
underwriters expect that each series of capital securities will be
publicly-offered securities under the regulation because:
(1) the underwriters expect that each series of capital securities will be
purchased initially by at least 100 persons who are independent of us and
each other;
(2) the capital securities can be transferred freely;
(3) each series of capital securities will be sold through this prospectus,
which is part of an effective registration statement filed with the SEC; and
(4) each series of capital securities will be timely registered with the SEC
under Section 12(b) or 12(g) of the Securities Exchange Act of 1934.
If the foregoing conditions are not met with respect to any particular
series of capital securities, additional ERISA considerations arising as a
result thereof will be described in the applicable prospectus supplement.
If we are a party in interest or a disqualified person with respect to a
plan or individual retirement account which buys capital securities, either
directly or because we own banking or other subsidiaries, the sale could be
treated as a prohibited transaction unless an administrative exemption issued
by the Department of Labor applies. The Department of Labor has issued class
exemptions that may apply to exempt transactions resulting from the purchase or
holding of the capital securities. Among those class exemptions are:
. 96-23, for transactions determined by in-house asset managers;
. 95-60, for transactions involving insurance company general accounts;
. 91-38, for transactions involving bank collective investment funds;
. 90-1, for transactions involving insurance company separate accounts; and
. 84-14, for transactions determined by independent qualified asset
managers.
These rules are very complicated and the penalties that may be imposed upon
persons involved in prohibited transactions can be substantial. This makes it
very important that fiduciaries or other persons considering purchasing the
capital securities on behalf of a benefit plan investor consult with their
lawyer regarding what could happen if the assets of the trust were deemed to be
plan assets and if the investor can use one of the above class exemptions or
another applicable exemption.
56
VALIDITY OF SECURITIES
Unless otherwise indicated in the applicable prospectus supplement and
except as described below, Richards, Layton & Finger, P.A., special Delaware
counsel to us and the trust, will pass upon certain matters of Delaware law
relating to the validity of the capital securities, the enforceability of the
amended trust agreement and the creation of the trust. Our Associate General
Counsel and Sullivan & Cromwell, New York, New York, counsel for the
underwriters, will each pass upon the validity of the guarantee and the junior
subordinated debentures. Our Associate General Counsel will rely upon the
opinion of Sullivan & Cromwell as to matters of New York law and upon the
opinion of Richards, Layton & Finger, P.A. as to matters of Delaware law.
Sullivan & Cromwell will rely upon the opinion of our Associate General Counsel
as to matters of Ohio law and upon the opinion of Richards, Layton & Finger,
P.A., as to matters of Delaware law. Sullivan & Cromwell regularly perform
legal services for us and our subsidiaries.
As of this date, the General Counsel and the Associate General Counsel each
beneficially own, or have the right to acquire under KeyCorp's benefit plans,
an aggregate of less than 1% of KeyCorp's common stock.
Sullivan & Cromwell, as special tax counsel to us and the trust, will pass
upon certain matters relating to U.S. federal income tax considerations.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our annual report on Form 10-K for the year
ended December 31, 2001, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
consolidated financial statements are incorporated by reference in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.
With respect to the unaudited condensed consolidated interim financial
information for the three-month periods ended March 31, 2002 and 2001,
incorporated by reference in this prospectus, Ernst & Young LLP have reported
that they have applied limited procedures in accordance with professional
standards for a review of such information. However, their separate report,
included in our quarterly report on Form 10-Q for the quarter ended March 31,
2002, and incorporated by reference, states that they did not audit and they do
not express an opinion on that interim financial information. Accordingly, the
degree of reliance on their report on such information should be restricted
considering the limited nature of the review procedures applied. The
independent auditors are not subject to the liability provisions of Section 11
of the Securities Act for their report on the unaudited interim financial
information because that report is not a "report" or a "part" of the
registration statement prepared or certified by the auditors within the meaning
of Sections 7 and 11 of the Securities Act.
57
[LOGO]