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As filed with the Securities and Exchange Commission on November 30, 2015

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

 

(Exact name of registrant as specified in its charter)

 

 

 

Ohio		6021		34-6542451
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

127 Public Square

Cleveland, Ohio 44114

(216) 689-3000

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

Paul N. Harris

Secretary and General Counsel

127 Public Square

Cleveland, Ohio 44114

(216) 689-3000

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

 

Copies to:

 

Lee A. Meyerson Elizabeth A. Cooper Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 Phone: (212) 455-2000		Kristy Berner First Niagara Financial Group, Inc. 726 Exchange Street, Suite 618 Buffalo, New York 14210 Phone: (716) 819-5500		H. Rodgin Cohen C. Andrew Gerlach Sullivan & Cromwell LLP 125 Broad Street New York, New York 10004 Phone: (212) 558-4000

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement becomes effective and upon completion of the merger.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box:  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer		x		Accelerated filer		¨
Non-accelerated filer		¨ (Do not check if a smaller reporting company)		Smaller reporting company		¨

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If applicable, place an x in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ¨

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ¨

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

CALCULATION OF REGISTRATION FEE

 

Title of each class of securities to be registered		Amount to be registered		Proposed maximum offering price per unit		Proposed maximum aggregate offering price		Amount of registration fee
Common Shares, par value $1.00 per share		248,473,506(1)		N/A		$3,051,108,495.25(2)		$307,246.63(3)
Fixed-to-Floating Rate Perpetual Noncumulative Preferred Stock, Series C, par value $1.00 per share		14,000,000(4)		N/A		$380,100,000(5)		$38,276.07(3)

(1)

Based on the maximum number of common shares, par value $1.00 per share (“KeyCorp common shares”), of the registrant (“KeyCorp”) estimated to be issued in connection with the merger described herein (the “merger”). This number is based on the product of (a) the sum of (i) 355,577,829, the aggregate number of shares of common stock, par value $0.01 per share (“First Niagara common stock”), of First Niagara Financial Group, Inc. (“First Niagara”), outstanding as of November 20, 2015, except for shares of First Niagara common stock owned by First Niagara as treasury stock or otherwise owned by First Niagara or KeyCorp (in each case other than shares of First Niagara common stock (A) held in any First Niagara benefit plan or related trust accounts, managed accounts, mutual funds and the like, or otherwise held in a fiduciary or agent capacity and (B) shares held, directly or indirectly, in respect of debts previously contracted), which number includes 824,469 shares of First Niagara common stock granted in respect of outstanding First Niagara restricted stock awards and First Niagara restricted stock awards that may be granted in the future pursuant to the terms of the merger agreement between KeyCorp and First Niagara described herein (the “merger agreement”), plus (ii) 3,737,744, the aggregate number of shares of First Niagara common stock reserved for issuance upon the exercise of stock options outstanding as of November 20, 2015 and that may be issued in the future pursuant to the terms of the merger agreement, plus (iii) 6,086,642, the aggregate number of shares of First Niagara common stock reserved for issuance upon the settlement of First Niagara restricted stock unit awards outstanding as of November 20, 2015 and that may be issued in the future pursuant to the terms of the merger agreement, and (b) an exchange ratio of 0.680 KeyCorp common shares for each share of First Niagara common stock.

(2)

Pursuant to Rules 457(c), 457(f)(1) and 457(f)(3) promulgated under the Securities Act and solely for the purpose of calculating the registration fee, the proposed maximum aggregate offering price is an amount equal to (a) $3,891,533,589.75, calculated as the product of (i) 365,402,215 shares of First Niagara common stock, the estimated maximum number of shares of First Niagara common stock that may be canceled in the merger and exchanged for KeyCorp common shares (calculated as shown in subsection (a) of note (1) above), and (ii) $10.65, the average of the high and low trading prices of the First Niagara common stock on November 24, 2015 (within five business days prior to the date of this Registration Statement), minus (b) $840,425,094.50, the estimated aggregate amount of cash to be paid by KeyCorp to First Niagara stockholders in the merger, calculated as a product of (i) 365,402,215 shares of First Niagara common stock, the estimated maximum number of shares of First Niagara common stock that may be canceled in the merger and exchanged for KeyCorp common shares (calculated as shown in subsection (a) of note (1) above), and (ii) $2.30, the cash portion of the merger consideration.

(3)	Calculated pursuant to Rule 457 of the Securities Act by multiplying the proposed maximum aggregate offering price of securities to be registered by 0.0001007.

(4)

Represents the maximum number of shares of KeyCorp Fixed-to-Floating Rate Perpetual Noncumulative Preferred Stock, Series C (“KeyCorp preferred stock”) estimated to be issuable in connection with the merger, and is based on the product of (x) 1, the exchange ratio for such shares in the merger and (y) 14,000,000, which is the number of shares of First Niagara Fixed-to-Floating Rate Perpetual Noncumulative Preferred Stock, Series B (“First Niagara preferred stock”) issued and outstanding as of November 20, 2015.

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(5)

Pursuant to Rules 457(c), 457(f)(1) and 457(f)(3) promulgated under the Securities Act and solely for the purpose of calculating the registration fee, the proposed aggregate maximum offering price is the product of (x) $27.15, the average of the high and low trading prices of the First Niagara preferred stock on November 24, 2015 (within five business days prior to the date of this Registration Statement) and (y) 14,000,000, the estimated maximum number of shares of First Niagara preferred stock that may be exchanged for the KeyCorp preferred stock.

 

 

 

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Information contained herein is subject to completion or amendment. A registration statement relating to the KeyCorp common shares and preferred stock to be issued in the merger has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This joint proxy statement/prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale is not permitted or would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

 

PRELIMINARY PROXY STATEMENT/PROSPECTUS

DATED NOVEMBER 30, 2015, SUBJECT TO COMPLETION

 

Dear Shareholder:

On October 30, 2015, KeyCorp entered into an Agreement and Plan of Merger, or the merger agreement, to acquire First Niagara Financial Group, Inc., or First Niagara, in a stock and cash transaction. If the merger agreement is approved and the merger is subsequently completed, First Niagara will merge with and into KeyCorp, with KeyCorp surviving the merger.

In the merger, each outstanding share of First Niagara common stock (other than shares owned by First Niagara as treasury stock or otherwise owned by First Niagara or KeyCorp and any dissenting shares) will be automatically converted into the right to receive 0.680 KeyCorp common shares and $2.30 in cash, which we refer to as the merger consideration. Additionally, each share of First Niagara Fixed-to-Floating Rate Perpetual Noncumulative Preferred Stock, Series B, or the First Niagara preferred stock, will be automatically converted in the merger into a share of a newly-created series of KeyCorp preferred stock designated Fixed-to-Floating Rate Perpetual Non-Cumulative Preferred Stock, Series C, or the new KeyCorp preferred stock, that will have rights, preferences, privileges and voting powers, and limitations and restrictions, that are not materially less favorable to the holder thereof than the rights, preferences, privileges and voting powers of the First Niagara preferred stock.

Based on the closing price of KeyCorp’s common shares on the New York Stock Exchange, or the NYSE, on October 29, 2015, the last trading day before public announcement of the merger, the value of the per share merger consideration payable to holders of First Niagara common stock would be $11.40. Based on the closing price of KeyCorp’s common shares on the NYSE on [●], 2015, the last practicable trading date before the date of this joint proxy statement/prospectus, the value of the per share merger consideration payable to holders of First Niagara common stock would be [●]. Based on the number of shares of First Niagara common stock outstanding and the number of shares of First Niagara common stock issuable pursuant to outstanding First Niagara stock options, restricted stock awards and restricted stock unit awards, in each case as of [●], 2015, the total number of KeyCorp common shares expected to be issued in connection with the merger is approximately [●] million. In addition, based on the number of issued and outstanding KeyCorp common shares and First Niagara common stock on [●], 2015, and based on the exchange ratio of 0.680, holders of shares of First Niagara common stock as of immediately prior to the closing of the merger will hold, in the aggregate, approximately [●]% of the issued and outstanding KeyCorp common shares immediately following the closing of the merger (without giving effect to any KeyCorp common shares held by First Niagara stockholders prior to the merger). Based on the number of shares of First Niagara preferred stock outstanding as of [●], 2015, the total number of shares of new KeyCorp preferred stock expected to be issued in connection with the merger is approximately [●] million.

KeyCorp and First Niagara will each hold a special meeting of shareholders to consider the proposed merger and related matters. KeyCorp and First Niagara cannot complete the proposed merger unless their respective shareholders vote to adopt the merger agreement and KeyCorp’s shareholders vote to approve the amendment to KeyCorp’s articles of incorporation to modify the voting rights associated with KeyCorp’s preferred stock so that the voting rights associated with the new KeyCorp preferred stock are not materially less favorable to the holders thereof than the voting rights associated with the First Niagara preferred stock. KeyCorp and First Niagara are sending you this joint proxy statement/prospectus to ask you to vote in favor of these and other matters described in this joint proxy statement/prospectus.

The special meeting of KeyCorp’s shareholders will be held on [●], at [●] local time, on [●]. The special meeting of First Niagara’s stockholders will be held on [●], at [●] local time, on [●].

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF KEYCORP COMMON SHARES OR SHARES OF FIRST NIAGARA COMMON STOCK YOU OWN. To ensure your representation at the KeyCorp or First Niagara special meeting, as applicable, please complete and return the enclosed proxy card or submit your proxy by following the instructions contained in this joint proxy statement/prospectus and on your proxy card. Please vote promptly whether or not you expect to attend your special meeting. Submitting a proxy now will NOT prevent you from being able to vote in person at your special

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meeting. If you hold your shares in “street name,” you should instruct your broker, bank or other nominee how to vote in accordance with the voting instruction form you receive from your broker, bank or other nominee.

The KeyCorp Board of Directors has unanimously approved the merger agreement and the transactions contemplated thereby and recommends that you vote “FOR” the adoption of the merger agreement and “FOR” the other matters to be considered at the KeyCorp special meeting.

The First Niagara Board of Directors has unanimously approved the merger agreement and the transactions contemplated thereby and recommends that you vote “FOR” the adoption of the merger agreement and “FOR” the other matters to be considered at the First Niagara special meeting.

This joint proxy statement/prospectus provides you with detailed information about the proposed merger. It also contains or references information about KeyCorp and First Niagara and certain related matters. You are encouraged to read this joint proxy statement/prospectus carefully. In particular, you should read the “Risk Factors” section beginning on page 26 for a discussion of the risks you should consider in evaluating the proposed merger and how it will affect you.

If you have any questions regarding the accompanying joint proxy statement/prospectus, you may contact Innisfree M&A Incorporated, KeyCorp’s proxy solicitor, by calling toll-free at (877) 800 - 5190, or [●], First Niagara’s proxy solicitor, by calling toll-free at [●].

Sincerely,

 

Beth E. Mooney Chairman of the Board and Chief Executive Officer		Gary M. Crosby President and Chief Executive Officer

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the merger, the issuance of KeyCorp common shares or the new KeyCorp preferred stock in connection with the merger or the other transactions described in this joint proxy statement/prospectus, or passed upon the adequacy or accuracy of the disclosure in this joint proxy statement/prospectus. Any representation to the contrary is a criminal offense.

The securities to be issued in connection with the merger are not savings accounts, deposits or other obligations of any bank or savings association and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

This joint proxy statement/prospectus is dated [●], 2015, and is first being mailed to shareholders of KeyCorp and First Niagara on or about [●].

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WHERE YOU CAN FIND MORE INFORMATION

Both KeyCorp and First Niagara file annual, quarterly and special reports, proxy statements and other business and financial information with the Securities and Exchange Commission (the “SEC”). You may read and copy any materials that either KeyCorp or First Niagara files with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549, at prescribed rates. Please call the SEC at (800) SEC-0330 ((800) 732-0330) for further information on the public reference room. In addition, KeyCorp and First Niagara file reports and other business and financial information with the SEC electronically, and the SEC maintains a website located at www.sec.gov containing this information. You will also be able to obtain these documents, free of charge, from KeyCorp at www.key.com under the “About Key” link and then under the heading “Investor Relations” and then “SEC Filings,” or from First Niagara by accessing First Niagara’s website at www.firstniagara.com under the “Investor Relations” link and then under the heading “Documents” and then “SEC Filings.”

KeyCorp has filed a registration statement on Form S-4 of which this joint proxy statement/prospectus forms a part. As permitted by SEC rules, this joint proxy statement/prospectus does not contain all of the information included in the registration statement or in the exhibits or schedules to the registration statement. You may obtain a free copy of the registration statement, including any amendments, schedules and exhibits at the addresses set forth below. Statements contained in this joint proxy statement/prospectus as to the contents of any contract or other documents referred to in this joint proxy statement/prospectus are not necessarily complete. In each case, you should refer to the copy of the applicable contract or other document filed as an exhibit to the registration statement. This joint proxy statement/prospectus incorporates by reference documents that KeyCorp and First Niagara have previously filed with the SEC. These documents contain important information about the companies and their financial condition. See “Incorporation of Certain Documents by Reference” beginning on page 144. These documents are available without charge to you upon written or oral request to the applicable company’s principal executive offices. The respective addresses and telephone numbers of such principal executive offices are listed below.

 

KeyCorp 127 Public Square Cleveland, Ohio 44114 Attention: Paul N. Harris, Secretary (216) 689-3000		First Niagara Financial Group, Inc. 726 Exchange Street, Suite 618 Buffalo, New York 14210 Attention: Kristy Berner, Corporate Secretary (716) 819-5500

To obtain timely delivery of these documents, you must request the information no later than [●], 2015 in order to receive them before KeyCorp’s special meeting of shareholders and no later than [●], 2015 in order to receive them before First Niagara’s special meeting of stockholders.

KeyCorp common shares are traded on the New York Stock Exchange under the symbol “KEY,” and First Niagara common stock is traded on the Nasdaq Global Select Market under the symbol “FNFG.”

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NOTICE OF THE SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON [●]

NOTICE IS HEREBY GIVEN that a special meeting of the shareholders of KeyCorp will be held on [●], at [●] local time, on [●], for the following purposes:

 

1.

To adopt the Agreement and Plan of Merger, dated as of October 30, 2015 (which we refer to as the “merger agreement”), by and between First Niagara Financial Group, Inc. (which we refer to as “First Niagara”) and KeyCorp (which we refer to as the “merger proposal”);

 

2.

To approve the amendments to KeyCorp’s amended and restated articles of incorporation set forth on Appendix D-1 to this joint proxy statement/prospectus, which modify the voting rights associated with KeyCorp’s preferred stock so that the voting rights associated with the new KeyCorp preferred stock are not materially less favorable to the holders thereof than the voting rights associated with the First Niagara preferred stock (which we refer to as the “articles amendment proposal”);

 

3.

To approve an amendment to KeyCorp’s amended and restated regulations set forth on Appendix E-1 to this joint proxy statement/prospectus in order to increase the maximum size of the KeyCorp Board of Directors from sixteen to seventeen members (which we refer to as the “regulations amendment proposal”); and

 

4.

To approve one or more adjournments of the KeyCorp special meeting, if necessary or appropriate to permit further solicitation of proxies in favor of the merger proposal and the articles amendment proposal (which we refer to as the “KeyCorp adjournment proposal”).

The affirmative vote of the holders of shares entitling them to exercise a majority of the voting power of KeyCorp is required to approve each of the merger proposal, the articles amendment proposal and the regulations amendment proposal. Assuming a quorum is present, the affirmative vote of a majority of the KeyCorp common shares present in person or represented by proxy at the KeyCorp special meeting is required to approve the KeyCorp adjournment proposal. KeyCorp will transact no other business at the special meeting, except for business properly brought before the special meeting or any adjournment or postponement thereof.

KeyCorp shareholders must approve the merger proposal and the articles amendment proposal in order for the merger to occur. If KeyCorp shareholders fail to approve either the merger proposal or the articles amendment proposal, the merger will not occur. The joint proxy statement/prospectus accompanying this notice explains the merger agreement and the transactions contemplated thereby, as well as the proposals to be considered at the KeyCorp special meeting. Please review the joint proxy statement/prospectus carefully.

The KeyCorp Board of Directors has set [●] as the record date for the KeyCorp special meeting. Only holders of record of KeyCorp common shares at the close of business on [●] will be entitled to notice of and to vote at the KeyCorp special meeting and any adjournments or postponements thereof. Any shareholder entitled to attend and vote at the KeyCorp special meeting is entitled to appoint a proxy to attend and vote on such shareholder’s behalf. Such proxy need not be a holder of KeyCorp common shares.

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF KEYCORP COMMON SHARES YOU OWN. Whether or not you plan to attend the KeyCorp special meeting, please complete, sign, date and mail the enclosed proxy card in the postage-paid envelope provided at your earliest convenience. You may also submit a proxy by telephone or via the Internet by following the instructions printed on your proxy card. If you hold your shares through a broker, bank or other nominee, you should direct the vote of your shares in accordance with the voting instruction form received from your broker, bank or other nominee.

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The KeyCorp Board of Directors has unanimously approved the merger agreement and the transactions contemplated thereby and recommends that you vote “FOR” the merger proposal, “FOR” the articles amendment proposal, “FOR” the regulations amendment proposal and “FOR” the KeyCorp adjournment proposal (if necessary or appropriate).

If you have any questions or need assistance with voting, please contact our proxy solicitor, Innisfree M&A Incorporated, toll-free at (877) 800 - 5190.

If you plan to attend the KeyCorp special meeting, you will be required to bring certain documents with you to be admitted to the meeting. Please read carefully the sections in the joint proxy statement/prospectus regarding attending and voting at the special meeting to ensure that you comply with these requirements.

BY ORDER OF THE BOARD OF DIRECTORS

 

Paul N. Harris

Secretary and General Counsel

Cleveland, Ohio

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NOTICE OF THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON [●]

NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of First Niagara will be held on [●], at [●] local time, on [●], for the following purposes:

 

1.

To adopt the Agreement and Plan of Merger, dated as of October 30, 2015 (which we refer to as the “merger agreement”), by and between KeyCorp and First Niagara (which we refer to as the “merger proposal”);

 

2.

To approve, on a non-binding, advisory basis, the compensation to be paid to First Niagara’s named executive officers that is based on or otherwise relates to the merger, discussed under the section entitled “The Merger—Interests of First Niagara Directors and Executive Officers in the Merger” beginning on page 83 (which we refer to as the “merger-related compensation proposal”); and

 

3.

To approve one or more adjournments of the First Niagara special meeting, if necessary or appropriate to permit further solicitation of proxies in favor of the merger proposal (which we refer to as the “First Niagara adjournment proposal”).

The affirmative vote of a majority of the outstanding shares of First Niagara common stock entitled to vote thereon is required to approve the merger proposal. Assuming a quorum is present, the affirmative vote of a majority of the votes present in person or represented by proxy and cast at the First Niagara special meeting is required to approve, on a non-binding, advisory basis, the merger-related compensation proposal and to approve the First Niagara adjournment proposal. First Niagara will transact no other business at the special meeting, except for business properly brought before the special meeting or any adjournment or postponement thereof.

First Niagara stockholders must approve the merger proposal in order for the merger to occur. The merger proposal is not conditioned on the merger-related compensation proposal. The joint proxy statement/prospectus accompanying this notice explains the merger agreement and the transactions contemplated thereby, as well as the proposals to be considered at the First Niagara special meeting. Please review the joint proxy statement/prospectus carefully.

The First Niagara Board of Directors has set [●] as the record date for the First Niagara special meeting. Only holders of record of First Niagara common stock at the close of business on [●] will be entitled to notice of and to vote at the First Niagara special meeting and any adjournments or postponements thereof. Any stockholder entitled to attend and vote at the First Niagara special meeting is entitled to appoint a proxy to attend and vote on such stockholder’s behalf. Such proxy need not be a holder of First Niagara common stock.

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES OF FIRST NIAGARA COMMON STOCK YOU OWN. Whether or not you plan to attend the First Niagara special meeting, please complete, sign, date and mail the enclosed proxy card in the postage-paid envelope provided at your earliest convenience. You may also submit a proxy by telephone or via the Internet by following the instructions printed on your proxy card. If you hold your shares through a broker, bank or other nominee, you should direct the vote of your shares in accordance with the voting instruction form received from your broker, bank or other nominee.

The First Niagara Board of Directors has unanimously approved the merger agreement and the transactions contemplated thereby and recommends that you vote “FOR” the merger proposal, “FOR” the merger-related compensation proposal and “FOR” the First Niagara adjournment proposal (if necessary or appropriate).

If you have any questions or need assistance with voting, please contact our proxy solicitor, [●], toll-free at [●].

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If you plan to attend the First Niagara special meeting in person, please RSVP by marking the appropriate box on the proxy card, or via email to investor@fnfg.com with RSVP as the subject line. Also, if you are a registered stockholder and will be attending the meeting in person, please bring valid photo identification. Stockholders that hold their shares in street name are required to bring valid photo identification and proof of stock ownership in order to attend the meeting, and a legal proxy from their broker, bank or other nominee to vote their shares.

 

Buffalo, New York

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TABLE OF CONTENTS

 

		Page
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETINGS			1
SUMMARY			10
SELECTED HISTORICAL FINANCIAL DATA FOR KEYCORP			18
SELECTED HISTORICAL FINANCIAL DATA FOR FIRST NIAGARA			20
SUMMARY UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL INFORMATION			22
UNAUDITED COMPARATIVE PER COMMON SHARE DATA			23
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION			24
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS			25
RISK FACTORS			26
Risks Related to the Merger			26
Additional Risks Relating to the New KeyCorp Preferred Stock			31
Additional Risks Relating to KeyCorp and First Niagara After the Merger			32
FIRST NIAGARA SPECIAL MEETING OF STOCKHOLDERS			33
Date, Time and Place			33
Purpose of First Niagara Special Meeting			33
Recommendation of the First Niagara Board of Directors			33
First Niagara Record Date and Quorum			33
Required Vote			34
Treatment of Abstentions; Failure to Vote			34
Voting on Proxies; Incomplete Proxies			34
Shares Held in Street Name			35
Revocability of Proxies and Changes to a First Niagara Stockholder’s Vote			35
Solicitation of Proxies			35
Attending the First Niagara Special Meeting			36
FIRST NIAGARA PROPOSALS			37
Merger Proposal			37
Merger-Related Compensation Proposal			38
First Niagara Adjournment Proposal			39
KEYCORP SPECIAL MEETING OF SHAREHOLDERS			40
Date, Time and Place			40
Purpose of KeyCorp Special Meeting			40
Recommendation of the KeyCorp Board of Directors			40
KeyCorp Record Date and Quorum			40
Required Vote			41
Treatment of Abstentions; Failure to Vote			41
Voting on Proxies; Incomplete Proxies			41
Shares Held in Street Name			42
Revocability of Proxies and Changes to a KeyCorp Shareholder’s Vote			42
Solicitation of Proxies			42
Attending the KeyCorp Special Meeting			43

 

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		Page
KEYCORP PROPOSALS			44
Merger Proposal			44
Articles Amendment Proposal			45
Regulations Amendment Proposal			46
KeyCorp Adjournment Proposal			47
INFORMATION ABOUT THE COMPANIES			48
THE MERGER			50
Terms of the Merger			50
Conversion of Shares; Exchange and Payment Procedures			50
Background of the Merger			51
Recommendation of the First Niagara Board of Directors and Reasons for the Merger			58
Certain First Niagara Financial Forecasts			60
Opinion of First Niagara’s Financial Advisor			62
Recommendation of the KeyCorp Board of Directors and Reasons for the Merger			72
Opinion of KeyCorp’s Financial Advisor			74
Management and Board of Directors of KeyCorp After the Merger			83
Interests of First Niagara Directors and Executive Officers in the Merger			83
Merger-Related Compensation for First Niagara’s Named Executive Officers			87
REGULATORY APPROVALS REQUIRED FOR THE MERGER			90
ACCOUNTING TREATMENT			92
PUBLIC TRADING MARKETS			93
RESALE OF KEYCORP COMMON SHARES AND NEW KEYCORP PREFERRED STOCK			94
THE MERGER AGREEMENT			95
Effects of the Merger; Merger Consideration			95
Closing and Effective Time of the Merger			95
Treatment of First Niagara Stock Options and Other Equity Awards			96
Covenants and Agreements			96
Representations and Warranties			103
Conditions to the Merger			105
Termination; Termination Fee			106
Effect of Termination			107
Amendments, Extensions and Waivers			107
Stock Market Listing			108
Fees and Expenses			108
LITIGATION RELATED TO THE MERGER			109
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER			110
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL INFORMATION			113
COMPARISON OF SHAREHOLDERS’ RIGHTS			121
General			121
Comparison of Shareholders’ Rights			121

 

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		Page
DESCRIPTION OF KEYCORP CAPITAL STOCK			131
General			131
Preferred Stock			131
Common Shares			133
EXPERTS			134
LEGAL OPINIONS			135
HOUSEHOLDING OF PROXY MATERIALS			136
OTHER MATTERS			137
FIRST NIAGARA ANNUAL MEETING STOCKHOLDER PROPOSALS			138
KEYCORP ANNUAL MEETING SHAREHOLDER PROPOSALS			139
APPRAISAL RIGHTS			140
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE			144
APPENDIX A—AGREEMENT AND PLAN OF MERGER			A-1
APPENDIX B—OPINION OF J.P. MORGAN SECURITIES LLC			B-1
APPENDIX C—OPINION OF MORGAN STANLEY & CO. LLC			C-1
APPENDIX D-1—PROPOSED AMENDMENTS TO ARTICLE IV, PART A, SECTION 2 OF THE AMENDED AND RESTATED ARTICLES OF INCORPORATION OF KEYCORP			D-1-1
APPENDIX D-2—FORM OF SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION OF KEYCORP			D-2-1
APPENDIX E-1—PROPOSED AMENDMENT TO ARTICLE II, SECTION 1 OF THE AMENDED AND RESTATED REGULATIONS OF KEYCORP			E-1-1
APPENDIX E-2—FORM OF SECOND AMENDED AND RESTATED REGULATIONS OF KEYCORP			E-2-1
APPENDIX F—SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE			F-1

 

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETINGS

The following are answers to certain questions that you may have regarding the merger and the special meetings. We urge you to read carefully the remainder of this joint proxy statement/prospectus because the information in this section may not provide all the information that might be important to you in determining how to vote. Additional important information is also contained in the appendices to, and the documents incorporated by reference in, this joint proxy statement/prospectus.

 

Q:	WHAT IS THE MERGER?

 

A:

KeyCorp, an Ohio corporation (which we refer to as “KeyCorp”), and First Niagara Financial Group, Inc., a Delaware corporation (which we refer to as “First Niagara”) have entered into an Agreement and Plan of Merger, dated as of October 30, 2015, as it may be amended from time to time (which we refer to as the “merger agreement”), pursuant to which First Niagara will merge with and into KeyCorp, with KeyCorp continuing as the surviving company (which we refer to as the “merger”).

KeyCorp and First Niagara will hold separate special meetings of their shareholders to obtain the required approvals, and you are receiving this joint proxy statement/prospectus in connection with those special meetings. See “The Merger Agreement” beginning on page 95. In addition, a copy of the merger agreement is attached to this joint proxy statement/prospectus as Appendix A. We urge you to read carefully this joint proxy statement/prospectus and the merger agreement in their entirety.

 

Q:	WHY AM I RECEIVING THIS DOCUMENT?

 

A:

Each of KeyCorp and First Niagara is sending this joint proxy statement/prospectus to its shareholders to help them decide how to vote their KeyCorp common shares or shares of First Niagara common stock, as the case may be, with respect to the merger and other matters to be considered at the special meetings.

The merger cannot be completed unless each of KeyCorp’s and First Niagara’s shareholders adopt the merger agreement, and KeyCorp’s shareholders approve the proposed amendment (which we refer to as the “articles amendment”) to KeyCorp’s amended and restated articles of incorporation (which we refer to as the “articles”) set forth on Appendix D-1 to this joint proxy statement/prospectus, which modify the voting rights associated with KeyCorp’s preferred stock so that the voting rights associated with the new KeyCorp preferred stock (described below) are not materially less favorable to the holder thereof than the voting rights associated with the First Niagara preferred stock (described below). Information about these special meetings, the merger and the other business to be considered by shareholders at each of the special meetings is contained in this joint proxy statement/prospectus.

This document constitutes both a joint proxy statement of KeyCorp and First Niagara and a prospectus of KeyCorp. It is a joint proxy statement because each of the Boards of Directors of KeyCorp and First Niagara is soliciting proxies using this document from their respective shareholders. It is a prospectus because KeyCorp, in connection with the merger, is offering (i) its common shares in partial exchange for the outstanding shares of First Niagara common stock and (ii) its newly-created series of preferred stock designated Fixed-To-Floating Rate Perpetual Noncumulative Preferred Stock, Series C (which we refer to as the “new KeyCorp preferred stock”) in exchange for the outstanding shares of First Niagara’s Fixed-to-Floating Rate Perpetual Noncumulative Preferred Stock, Series B (which we refer to as the “First Niagara preferred stock”), which newly-created series of preferred stock will have rights, preferences, privileges and voting powers, and limitations and restrictions, that are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers of the First Niagara preferred stock.

 

Q:	WHAT WILL FIRST NIAGARA COMMON STOCKHOLDERS RECEIVE IN THE MERGER?

 

A:

If the merger is completed, each share of First Niagara common stock issued and outstanding immediately prior to the effective time of the merger (other than shares owned by First Niagara as treasury stock or otherwise owned by First Niagara or KeyCorp and any dissenting shares), will be converted into the right to

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receive 0.680 KeyCorp common shares (which we refer to as the “exchange ratio”) and $2.30 in cash. KeyCorp will not issue any fractional KeyCorp common shares in the merger. Instead, a First Niagara stockholder who otherwise would have received a fraction of a KeyCorp common share will receive an amount in cash (rounded to the nearest cent) determined by multiplying (i) the fraction of a KeyCorp common share to which the holder would otherwise be entitled by (ii) the volume weighted average price of KeyCorp common shares on the New York Stock Exchange (which we refer to as the “NYSE”) for the five trading days ending on the day prior to the effective time of the merger.

 

Q:	WHAT WILL FIRST NIAGARA PREFERRED STOCKHOLDERS RECEIVE IN THE MERGER?

 

A:	If the merger is completed, each share of First Niagara preferred stock issued and outstanding immediately prior to the effective time of the merger will automatically be converted into a share of the new KeyCorp preferred stock.

 

Q:	WHEN WILL THE MERGER BE COMPLETED?

 

A:

The parties currently expect that the merger will be completed during the third quarter of 2016. However, neither KeyCorp nor First Niagara can assure you of when or if the merger will be completed, and it is possible that factors outside of the control of both companies, including whether and when the required regulatory approvals will be received, could result in the merger being completed at a different time or not at all. KeyCorp and First Niagara must first obtain the approval of their respective shareholders for the merger and KeyCorp’s shareholders must approve the articles amendment proposal (described below), and KeyCorp and First Niagara must also first obtain certain necessary regulatory approvals and satisfy other closing conditions. See “The Merger Agreement—Conditions to the Merger” beginning on page 105.

 

Q:	WHAT AM I BEING ASKED TO VOTE ON AND WHY IS THIS APPROVAL NECESSARY?

 

A:	First Niagara stockholders are being asked to vote on the following proposals:

 

1.

to adopt the merger agreement, a copy of which is attached as Appendix A to this joint proxy statement/prospectus (which we refer to as the “merger proposal”);

 

2.

to approve, on a non-binding, advisory basis, the compensation to be paid to First Niagara’s named executive officers that is based on or otherwise relates to the merger, discussed under the section entitled “The Merger—Interests of First Niagara Directors and Executive Officers in the Merger” beginning on page 83 (which we refer to as the “merger-related compensation proposal”); and

 

3.

to approve one or more adjournments of the First Niagara special meeting, if necessary or appropriate to permit further solicitation of proxies in favor of the merger proposal (which we refer to as the “First Niagara adjournment proposal”).

KeyCorp shareholders are being asked to vote on the following proposals:

 

1.

to adopt the merger agreement, a copy of which is attached as Appendix A to this joint proxy statement/prospectus (which we refer to as the “merger proposal”);

 

2.

to approve the amendments to KeyCorp’s articles set forth on Appendix D-1 to this joint proxy statement/prospectus, which modify the voting rights associated with KeyCorp’s preferred stock so that the voting rights associated with the new KeyCorp preferred stock are not materially less favorable to the holders thereof than the voting rights associated with the First Niagara preferred stock (which we refer to as the “articles amendment proposal”);

 

3.

to approve an amendment to KeyCorp’s amended and restated regulations (which we refer to as the “regulations”) set forth on Appendix E-1 to this joint proxy statement/prospectus in order to increase

 

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the maximum size of the KeyCorp Board of Directors from sixteen to seventeen members (which we refer to as the “regulations amendment proposal”); and

 

4.

to approve one or more adjournments of the KeyCorp special meeting, if necessary or appropriate to permit further solicitation of proxies in favor of the merger proposal and the articles amendment proposal (which we refer to as the “KeyCorp adjournment proposal”).

 

Q:	WHAT CONSTITUTES A QUORUM AT EACH SPECIAL MEETING?

 

A:	The presence, in person or represented by proxy, of at least a majority of the total number of outstanding shares of First Niagara common stock entitled to vote is necessary in order to constitute a quorum at the First Niagara special meeting.

The presence, in person or represented by proxy, of at least a majority of KeyCorp’s outstanding common shares is necessary in order to constitute a quorum at the KeyCorp special meeting.

 

Q:	WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL AT THE FIRST NIAGARA SPECIAL MEETING?

 

A:

The Merger Proposal: The affirmative vote of a majority of the outstanding shares of First Niagara common stock entitled to vote thereon is required to approve the merger proposal. First Niagara stockholders must approve the merger proposal in order for the merger to occur. If First Niagara stockholders fail to approve the merger proposal, the merger will not occur.

The Merger-Related Compensation Proposal: Assuming a quorum is present, the affirmative vote of a majority of votes present in person or represented by proxy and cast on the merger related compensation proposal at the First Niagara special meeting is required to approve the merger-related compensation proposal, which is an advisory vote, and therefore is not binding on First Niagara or on KeyCorp or the Boards of Directors or the compensation committees of First Niagara or KeyCorp. Since compensation and benefits to be paid or provided in connection with the merger are based on contractual arrangements with the named executive officers, the outcome of this advisory vote will not affect the obligation to make these payments. First Niagara is seeking this non-binding advisory stockholder approval pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and Rule 14a-21(c) of the Securities Exchange Act of 1934, as amended (which we refer to as the “Exchange Act”), which requires First Niagara to provide its stockholders with the opportunity to vote to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to First Niagara’s named executive officers in connection with the merger. The merger-related compensation proposal gives First Niagara’s stockholders the opportunity to express their views on the merger-related compensation of First Niagara’s named executive officers. First Niagara stockholders are not required to approve the merger-related compensation proposal in order for the merger to occur. If First Niagara stockholders fail to approve the merger-related compensation proposal, but approve the merger proposal, the merger may nonetheless occur.

The First Niagara Adjournment Proposal: Assuming a quorum is present, the affirmative vote of a majority of the votes present in person or represented by proxy and cast on the First Niagara adjournment proposal at the First Niagara special meeting is required to approve the First Niagara adjournment proposal.

 

Q:	WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL AT THE KEYCORP SPECIAL MEETING?

 

A:

The Merger Proposal: The affirmative vote of the holders of shares entitling them to exercise a majority of the voting power of KeyCorp is required to approve the merger proposal. KeyCorp shareholders must approve the merger proposal in order for the merger to occur. If KeyCorp shareholders fail to approve the merger proposal, the merger will not occur.

 

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The Articles Amendment Proposal: The affirmative vote of the holders of shares entitling them to exercise a majority of the voting power of KeyCorp is required to approve the articles amendment proposal. KeyCorp shareholders must approve the articles amendment proposal in order for the merger to occur. If KeyCorp shareholders fail to approve the articles amendment proposal, the merger will not occur.

The Regulations Amendment Proposal: The affirmative vote of the holders of shares entitling them to exercise a majority of the voting power of KeyCorp is required to approve the regulations amendment proposal. KeyCorp shareholders are not required to approve the regulations amendment proposal in order for the merger to occur. If KeyCorp shareholders fail to approve the regulations amendment proposal, but approve the merger proposal and the articles amendment proposal, the merger may nonetheless occur.

The KeyCorp Adjournment Proposal: Assuming a quorum is present, the affirmative vote of a majority of the KeyCorp common shares present in person or represented by proxy at the KeyCorp special meeting is required to approve the KeyCorp adjournment proposal.

 

Q:	WHAT DO I NEED TO DO NOW?

 

A:

After carefully reading and considering the information contained in this joint proxy statement/prospectus, please vote your shares as soon as possible so that your shares will be represented at your respective company’s special meeting. Please follow the instructions set forth on the proxy card or on the voting instruction form provided by your broker, bank or other nominee if your shares are held in the name of your broker, bank or other nominee.

 

Q:	HOW DO I VOTE?

 

A:	If you are a shareholder of record of KeyCorp as of [●] (which we refer to as the “KeyCorp record date”) you may submit your proxy before the KeyCorp special meeting in any of the following ways:

 

•

use the toll-free number shown on your proxy card;

 

•

visit the website shown on your proxy card to vote via the Internet; or

 

•

complete, sign, date and return the enclosed proxy card in the enclosed postage-paid envelope.

If you are a stockholder of record of First Niagara as of [●] (which we refer to as the “First Niagara record date”), you may submit your proxy before the First Niagara special meeting in any of the following ways:

 

•

use the toll-free number shown on your proxy card;

 

•

visit the website shown on your proxy card to vote via the Internet; or

 

•

complete, sign, date and return the enclosed proxy card in the enclosed postage-paid envelope; or

 

•

scan the QR Code on your proxy card with your mobile device.

If you are a shareholder of record of KeyCorp as of the KeyCorp record date or a stockholder of record of First Niagara as of the First Niagara record date, you may also cast your vote in person at your respective company’s special meeting.

If your shares are held in “street name” through a broker, bank or other nominee, your broker, bank or other nominee will send you separate instructions describing the procedure for voting your shares. “Street name” shareholders who wish to vote at the special meeting will need to obtain a proxy form from their broker, bank or other nominee.

 

Q:	WHEN AND WHERE ARE THE KEYCORP AND FIRST NIAGARA SPECIAL MEETINGS?

 

A:	The special meeting of KeyCorp shareholders will be held on [●], at [●] local time, on [●]. All KeyCorp shareholders as of the KeyCorp record date, or their duly appointed proxies, may attend the KeyCorp special

 

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meeting. Since seating is limited, admission to the meeting will be on a first-come, first-served basis. Registration and seating will begin at [●], local time.

The special meeting of First Niagara stockholders will be held at the [●] at [●] local time, on [●]. All First Niagara stockholders as of the First Niagara record date, or their duly appointed proxies, may attend the First Niagara special meeting. Since seating is limited, admission to the meeting will be on a first-come, first-served basis. Registration and seating will begin at [●] local time.

 

Q:	IF MY SHARES ARE HELD IN “STREET NAME” BY A BROKER, BANK OR OTHER NOMINEE, WILL MY BROKER, BANK OR OTHER NOMINEE VOTE MY SHARES FOR ME?

 

A:

If your shares are held in “street name” in a stock brokerage account or by a broker, bank or other nominee, you must provide the record holder of your shares with instructions on how to vote your shares. Please follow the voting instructions provided by your broker, bank or other nominee. Please note that you may not vote shares held in street name by returning a proxy card directly to KeyCorp or First Niagara or by voting in person at your respective company’s special meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank or other nominee. In addition to such legal proxy, if you plan to attend the First Niagara special meeting, but are not a stockholder of record because you hold your shares in “street name,” please bring evidence of your beneficial ownership of your shares (e.g., a copy of a recent brokerage statement showing the shares) and valid photo identification with you to the First Niagara special meeting. If you plan to attend the KeyCorp special meeting and you hold shares in “street name,” please bring photo identification and a recent brokerage statement or a letter from your broker, bank or other nominee showing your holdings of KeyCorp common shares as proof of ownership.

Under the rules of the NYSE and the Nasdaq Global Select Market (which we refer to as “NASDAQ”), brokers who hold shares in street name for a beneficial owner of those shares typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are not permitted to exercise their voting discretion with respect to the approval of matters that the NYSE or the NASDAQ determines to be “non-routine” without specific instructions from the beneficial owner. It is expected that all proposals to be voted on at the KeyCorp special meeting and the First Niagara special meeting are “non-routine” matters. Broker non-votes occur when a broker or nominee is not instructed by the beneficial owner of shares to vote on a particular proposal for which the broker does not have discretionary voting power.

If you are a First Niagara stockholder holding your shares in “street name” and you do not instruct your broker, bank or other nominee on how to vote your shares:

 

•

your broker, bank or other nominee will not vote your shares on the merger proposal, which broker non-votes will have the same effect as a vote “AGAINST” such proposal; and

 

•

your broker, bank or other nominee will not vote your shares on the merger-related compensation proposal or the First Niagara adjournment proposal, which broker non-votes will have no effect on the vote count for these proposals.

If you are a KeyCorp shareholder holding your shares in “street name” and you do not instruct your broker, bank or other nominee on how to vote your shares:

 

•

your broker, bank or other nominee will not vote your shares on the merger proposal, the articles amendment proposal or the regulations amendment proposal, which broker non-votes will have the same effect as a vote “AGAINST” these proposals; and

 

•

your broker, bank or other nominee will not vote your shares on the KeyCorp adjournment proposal, which broker non-votes will have no effect on the vote count for this proposal.

 

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Q:	WHAT IF I ATTEND THE MEETING AND ABSTAIN OR DO NOT VOTE?

 

A:	For purposes of each of the KeyCorp special meeting and the First Niagara special meeting, an abstention occurs when a shareholder attends the applicable special meeting in person and does not vote or returns a proxy with an “abstain” vote.

If you are a First Niagara or KeyCorp shareholder, you attend your special meeting in person and you fail to vote on the applicable merger proposal, your failure to vote will have the same effect as a vote cast “AGAINST” the applicable merger proposal. If you respond with an “abstain” vote on the applicable merger proposal, your proxy will have the same effect as a vote cast “AGAINST” the applicable merger proposal.

If you are a KeyCorp shareholder, you attend your special meeting in person and you fail to vote on the articles amendment proposal or the regulations amendment proposal, your failure to vote in each case will have the same effect as a vote cast “AGAINST” such proposals. If you respond to the articles amendment proposal or the regulations amendment proposal with an “abstain” vote, your proxy will have the same effect as a vote cast “AGAINST” such proposals.

If you are a KeyCorp shareholder, you attend your special meeting in person and you fail to vote on the KeyCorp adjournment proposal, your failure to vote will have the same effect as a vote cast “AGAINST” such proposal. If you respond with an “abstain” vote, your proxy will have the same effect as a vote cast “AGAINST” the KeyCorp adjournment proposal.

If you are a First Niagara stockholder, you attend your special meeting in person and you fail to vote or respond with an “abstain” vote on the merger-related compensation proposal or the First Niagara adjournment proposal, such abstention or failure to vote will have no effect on the outcome of such proposals. For each of these proposals, abstentions are not treated as votes cast and will have no effect on the outcome of the vote, although abstentions are counted towards establishing a quorum.

 

Q:	WHAT WILL HAPPEN IF I RETURN MY PROXY CARD WITHOUT INDICATING HOW TO VOTE?

If you sign and return your proxy card without indicating how to vote on any particular proposal, the KeyCorp common shares represented by your proxy will be voted as recommended by the KeyCorp Board of Directors with respect to that proposal or the First Niagara common stock represented by your proxy will be voted as recommended by the First Niagara Board of Directors with respect to that proposal, as the case may be.

 

Q:	MAY I CHANGE MY VOTE AFTER I HAVE DELIVERED MY PROXY OR VOTING INSTRUCTION CARD?

Yes. You may change your vote at any time before your proxy is voted at the KeyCorp or First Niagara special meeting. You may do this in one of three ways:

 

•

filing a notice with the Corporate Secretary of KeyCorp or First Niagara, as applicable;

 

•

filing a new, subsequently dated proxy (whether by proxy card, online, telephone, or, in the case of the First Niagara proxy, QR Code); or

 

•

by attending the KeyCorp or First Niagara special meeting and electing to vote your shares in person.

If you are a shareholder of record of either KeyCorp or First Niagara and you choose to send a written notice or to mail a new proxy, you must submit your notice of revocation or your new proxy to, in the case of KeyCorp, KeyCorp, Attention: Secretary, 127 Public Square, Cleveland, Ohio 44114, or, in the case of First Niagara, First Niagara Financial Group, Inc., Attention: Corporate Secretary, 726 Exchange Street, Suite 618, Buffalo, New York 14210, and it must be received at any time before the vote is taken at the KeyCorp or the First Niagara special meeting, as applicable. Any proxy that you submitted may also be

 

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revoked by submitting a new proxy by mail, online, by telephone, or in the case of the First Niagara proxy, QR Code, not later than [●] on [●], or by voting in person at the meeting. If you have instructed a broker, bank or other nominee to vote your KeyCorp common shares or shares of First Niagara common stock, as applicable, you must follow the directions you receive from your broker, bank or other nominee in order to change or revoke your vote.

 

Q:	ARE FIRST NIAGARA STOCKHOLDERS ENTITLED TO APPRAISAL RIGHTS?

 

A:

Yes, First Niagara stockholders are entitled to appraisal rights under Section 262 of the General Corporation Law of the State of Delaware (which we refer to as the DGCL), provided they satisfy the special criteria and conditions set forth in Section 262 of the DGCL. More information regarding these appraisal rights is provided in this joint proxy statement/prospectus, and the provisions of the DGCL that grant appraisal rights and govern such procedures are attached as Appendix F to this joint proxy statement/prospectus. You should read these provisions carefully and in their entirety. See “Appraisal Rights” beginning on page 140.

 

Q:	WHAT ARE THE MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO FIRST NIAGARA STOCKHOLDERS?

 

A:	The obligation of KeyCorp and First Niagara to complete the merger is conditioned upon the receipt of legal opinions from their respective counsel to the effect that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code.

If the merger qualifies as a reorganization for United States federal income tax purposes, (1) U.S. holders of First Niagara common stock who receive a combination of KeyCorp common shares and cash, other than cash instead of a fractional KeyCorp common share, in exchange for their First Niagara common stock, will recognize gain (but not loss) in an amount equal to the lesser of (x) the amount by which the sum of the fair market value of the KeyCorp common shares and cash (other than cash received instead of a fractional KeyCorp common share) received by such holder in exchange for its shares of First Niagara common stock exceeds the holder’s adjusted basis in its shares of First Niagara common stock, and (y) the amount of cash (other than cash received instead of fractional KeyCorp common shares) received by such holder in exchange for its shares of First Niagara common stock; and (2) U.S. holders of First Niagara preferred shares who receive solely new KeyCorp preferred stock in the merger will not recognize any gain or loss. Generally, any gain recognized upon the exchange will be capital gain, and any such capital gain will be long-term capital gain if the holding period for such shares of First Niagara common stock is more than one year. Depending on certain facts specific to you, gain could instead be characterized as ordinary dividend income.

For a more detailed discussion of the material United States federal income tax consequences of the transaction, see “Material United States Federal Income Tax Consequences of the Merger” beginning on page 110.

The consequences of the merger to any particular shareholder will depend on that shareholder’s particular facts and circumstances. Accordingly, you are urged to consult your tax advisor to determine your tax consequences from the merger.

 

Q:	WHAT HAPPENS IF THE MERGER IS NOT COMPLETED?

 

A:

If the merger is not completed, First Niagara stockholders will not receive any consideration for their shares of First Niagara common stock and will not receive shares of new KeyCorp preferred stock for their shares of First Niagara preferred stock in connection with the merger. Instead, First Niagara will remain an independent public company and its common stock will continue to be listed and traded on the NASDAQ. Under specified circumstances, First Niagara may be required to pay to KeyCorp a fee with respect to the termination of the merger agreement. See “The Merger Agreement—Termination; Termination Fee” beginning on page 106.

 

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Q:	SHOULD FIRST NIAGARA STOCKHOLDERS SEND IN THEIR STOCK CERTIFICATES NOW?

 

A:

No. First Niagara stockholders SHOULD NOT send in any stock certificates now. If the merger is approved, transmittal materials, with instructions for their completion, will be provided under separate cover to First Niagara stockholders who hold physical stock certificates and the stock certificates should be sent at that time in accordance with such instructions.

 

Q:	WHAT IS THE ARTICLES AMENDMENT PROPOSAL AND WHY ARE KEYCORP SHAREHOLDERS BEING ASKED TO APPROVE IT?

 

A:

KeyCorp is asking its shareholders to approve the articles amendment set forth on Appendix D-1 to this joint proxy statement/prospectus, which modifies the voting rights associated with KeyCorp’s preferred stock so that the voting rights associated with the new KeyCorp preferred stock are not materially less favorable to the holder thereof than the voting rights associated with the First Niagara preferred stock.

The articles amendment will (i) provide that KeyCorp is not required to call a special meeting of preferred shareholders for the election of directors in certain circumstances if KeyCorp’s annual meeting will be held less than 90 days from the date a request for such special meeting is received from preferred shareholders; (ii) allow any holder of KeyCorp preferred stock to call such a special meeting at KeyCorp’s expense if the meeting is not called by KeyCorp within 20 days of receiving such a request (and, solely for the purpose of calling such special meeting, such preferred shareholder will have access to KeyCorp’s stock ledger); (iii) provide that KeyCorp’s preferred shareholders must approve any amendment of KeyCorp’s articles or regulations that would adversely affect the voting powers, rights or preferences of KeyCorp’s preferred shareholders (or any class thereof); and (iv) provide that KeyCorp’s preferred shareholders must approve any combination, majority share acquisition (each as defined by Ohio law), merger or consolidation of KeyCorp with another entity unless, in each case, (A) KeyCorp’s preferred stock remains outstanding or is converted into preference securities of the surviving or resulting corporation or a corporation controlling such corporation (in each case, which is an entity organized in the United States) and (B) the shares of preferred stock remaining outstanding or such new preference securities, as the case may be, have voting powers, rights, privileges and preferences that are not materially less favorable to the holders thereof than the voting powers, rights, privileges and preferences of the holders of KeyCorp’s preferred stock. In accordance with KeyCorp’s articles, KeyCorp’s Board of Directors has designated the remaining terms and rights of the new KeyCorp preferred stock. See “Description of KeyCorp Capital Stock” for a summary of the material terms of the new KeyCorp preferred stock and the form of second amended and restated articles of incorporation of KeyCorp (which we refer to as the “amended articles”) set forth on Appendix D-2 to this joint proxy statement/prospectus.

The immediately preceding paragraph is a summary of the material provisions of the articles amendment and is not intended to be complete or to provide a comprehensive discussion of the articles amendment. This summary is qualified in its entirety by reference to the modifications to the articles set forth on Appendix D-1 and to the form of amended articles set forth on Appendix D-2 to this joint proxy statement/prospectus. We encourage you to read Appendix D-1 and Appendix D-2 carefully and in their entirety.

Upon approval of the articles amendment set forth on Appendix D-1 to this joint proxy statement/prospectus by KeyCorp shareholders, which has been approved by KeyCorp’s Board of Directors, KeyCorp would be authorized to file with the Secretary of State of the State of Ohio the amended articles as set forth on Appendix D-2 to this joint proxy statement/prospectus, and the articles amendment will thereafter become effective upon such filing. Except as contemplated by the articles amendment set forth on Appendix D-1 to this joint proxy statement/prospectus and the designation of the new KeyCorp preferred stock by KeyCorp’s Board of Directors in accordance with the articles, the provisions of the articles would remain unchanged.

KeyCorp shareholders must approve the articles amendment proposal in order for the merger to occur. If KeyCorp shareholders fail to approve the articles amendment proposal, the merger will not occur. Accordingly, KeyCorp is asking KeyCorp shareholders to vote to approve the articles amendment proposal, either by attending the KeyCorp special meeting and voting in person or by submitting a proxy.

 

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Q:	WHAT IS THE REGULATIONS AMENDMENT PROPOSAL AND WHY ARE KEYCORP SHAREHOLDERS BEING ASKED TO APPROVE IT?

 

A:	KeyCorp is asking its shareholders to approve an amendment (which we refer to as the “regulations amendment”) to its regulations set forth on Appendix E-1 to this joint proxy statement/prospectus in order to increase the maximum size of its Board of Directors from sixteen to seventeen members.

Pursuant to the merger agreement, KeyCorp will add three current members of First Niagara’s Board of Directors selected by First Niagara and reasonably acceptable to KeyCorp (including its Nominating and Corporate Governance Committee) to KeyCorp’s Board of Directors. As of the date of this joint proxy statement/prospectus, KeyCorp’s Board of Directors consisted of fourteen members. The regulations provide that KeyCorp’s Board of Directors must consist of no fewer than twelve and no more than sixteen members. In order to add First Niagara’s director nominees to KeyCorp’s existing Board of Directors, KeyCorp intends to amend the regulations to increase the maximum size of its Board of Directors from sixteen to seventeen members.

Upon approval of the regulations amendment as set forth on Appendix E-1 to this joint proxy statement/prospectus by KeyCorp’s shareholders, which has been approved by KeyCorp’s Board of Directors, KeyCorp’s regulations would be amended in its entirety as set forth on Appendix E-2 to this joint proxy statement/prospectus. Except as contemplated by the regulations amendment set forth on Appendix E-1 to this joint proxy statement/prospectus, the provisions of KeyCorp’s regulations would remain unchanged.

Approval of the regulations amendment proposal is not a condition to completion of the merger. If KeyCorp shareholders fail to approve the regulations amendment proposal, but approve the merger proposal and the articles amendment proposal, the merger may nonetheless occur. It is important, however, that KeyCorp shareholders vote to approve the regulations amendment proposal, either by attending the KeyCorp special meeting and voting in person or by submitting a proxy.

 

Q:	WHOM SHOULD I CONTACT IF I HAVE ANY QUESTIONS ABOUT THE PROXY MATERIALS OR VOTING?

 

A:

If you have any questions about the proxy materials or if you need assistance submitting your proxy or voting your shares or need additional copies of this joint proxy statement/prospectus or the enclosed proxy card, you should contact the proxy solicitation agent for the company in which you hold shares.

If you are a KeyCorp shareholder, you should contact Innisfree M&A Incorporated (which we refer to as “Innisfree”), the proxy solicitation agent for KeyCorp, toll-free at (877) 800-5190. If you are a First Niagara stockholder, you should contact [●], the proxy solicitation agent for First Niagara, toll-free at [●].

 

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RISK FACTORS

In addition to the other information contained in or incorporated by reference into this joint proxy statement/prospectus, including the matters addressed under the caption “Forward-Looking Statements,” you should carefully consider the following risk factors in deciding how to vote on the proposals presented in this joint proxy statement/prospectus. See “Where You Can Find More Information” in the forepart of this joint proxy statement/prospectus and “Incorporation of Certain Documents by Reference” beginning on page 144.

Risks Related to the Merger

Because the Market Price of KeyCorp Common Shares Will Fluctuate, First Niagara Stockholders Cannot Be Sure of the Value of the Merger Consideration They Will Receive.

Upon completion of the merger, each share of First Niagara common stock will be converted into the per share merger consideration consisting of KeyCorp common shares and cash pursuant to the terms of the merger agreement. The stock portion of the merger consideration that First Niagara stockholders will receive is a fixed number of KeyCorp common shares; it is not a number of shares with a particular fixed market value. See “The Merger—Terms of the Merger” beginning on page 50. The market value of KeyCorp common shares and First Niagara common stock at the effective time of the merger may vary significantly from their respective values on the date the merger agreement was executed or at other dates, including the date on which First Niagara stockholders vote on the adoption of the merger agreement. Because the exchange ratio relating to the stock portion of the merger consideration is fixed at 0.680 and will not be adjusted to reflect any changes in the market value of KeyCorp common shares or First Niagara common stock, the market value of the KeyCorp common shares issued in connection with the merger and the First Niagara common stock converted in connection with the merger may be higher or lower than the values of those shares on earlier dates, and may be higher or lower than the value used to determine the exchange ratio. Accordingly, at the time of the First Niagara special meeting, First Niagara stockholders will not know or be able to calculate the market value of the KeyCorp common shares they would receive upon the completion of the merger. Stock price changes may result from a variety of factors, including changes in the business, operations or prospects of KeyCorp or First Niagara, regulatory considerations, and general business, market, industry or economic conditions. Many of these factors are outside of the control of KeyCorp and First Niagara.

First Niagara Stockholders Will Have a Reduced Ownership and Voting Interest After the Merger and Will Exercise Less Influence Over Management.

First Niagara stockholders currently have the right to vote in the election of the First Niagara Board of Directors and on other matters requiring stockholder approval under Delaware law and First Niagara’s charter and bylaws. Upon the completion of the merger, each First Niagara stockholder will become a shareholder of KeyCorp with a percentage ownership of KeyCorp that is smaller than such stockholder’s percentage ownership of First Niagara. Additionally, only three out of the expected seventeen members of the KeyCorp Board of Directors after the completion of the merger will be designated by First Niagara upon the completion of the merger. Based on the number of issued and outstanding KeyCorp common shares and shares of First Niagara common stock on [●], 2015, and based on the exchange ratio of 0.680, stockholders of First Niagara, as a group, will receive shares in the merger constituting approximately [●]% of KeyCorp common shares expected to be outstanding immediately after the merger (without giving effect to any KeyCorp common shares held by First Niagara stockholders prior to the merger). Because of this, current First Niagara stockholders, as a group, will have less influence on the Board of Directors, management and policies of KeyCorp (as the combined company following the merger) than they now have on the Board of Directors, management and policies of First Niagara.

 

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The Market Price of KeyCorp Common Shares After the Merger May be Affected by Factors Different from Those Currently Affecting the Prices of KeyCorp Common Shares and First Niagara Common Stock.

Upon completion of the merger, holders of First Niagara common stock will become holders of KeyCorp common shares. KeyCorp’s businesses differ from those of First Niagara, and accordingly the results of operations of KeyCorp will be affected by some factors that are different from those currently affecting the results of operations of First Niagara. For example, KeyCorp operates in certain states of the United States, including Alaska, Colorado, Idaho, Indiana, Maine, Michigan, Ohio, Oregon, Utah, Vermont and Washington, where First Niagara does not. Accordingly, the results of operations of KeyCorp will be affected by business and other developments in those areas of the country to a larger extent than those of First Niagara. Furthermore, KeyCorp operates a significant segment called Key Corporate Bank, which includes a broker-dealer, KeyBanc Capital Markets Inc., while First Niagara does not. Key Corporate Bank is a full-service corporate and investment bank focused principally on serving the needs of middle market clients in seven industry sectors: consumer, energy, healthcare, industrial, public sector, real estate, and technology. Key Corporate Bank delivers a broad product suite of banking and capital markets products to its clients, including syndicated finance, debt and equity capital markets, commercial payments, equipment finance, commercial mortgage banking, derivatives, foreign exchange, financial advisory, and public finance. Key Corporate Bank is also a significant servicer of commercial mortgage loans and a significant special servicer of commercial mortgage-backed securities. Accordingly, the results of operations of KeyCorp will be affected by the business of the corporate bank, unlike the results of operations of First Niagara. See “Where You Can Find More Information” in the forepart of this joint proxy statement/prospectus and “Incorporation of Certain Documents by Reference” beginning on page 144.

KeyCorp May Fail to Realize the Anticipated Benefits of the Merger.

KeyCorp and First Niagara have operated and, until the completion of the merger, will continue to operate, independently. The success of the merger, including anticipated benefits and cost savings, will depend on, among other things, KeyCorp’s ability to combine the businesses of KeyCorp and First Niagara in a manner that permits growth opportunities, including, among other things, enhanced revenues and revenue synergies, an expanded market reach and operating efficiencies, and does not materially disrupt the existing customer relationships of KeyCorp or First Niagara nor result in decreased revenues due to any loss of customers. If KeyCorp is not able to successfully achieve these objectives, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected. Failure to achieve these anticipated benefits could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy and could have an adverse effect on the surviving corporation’s business, financial condition, operating results and prospects.

Certain employees may not be employed by KeyCorp after the merger. In addition, employees that KeyCorp wishes to retain may elect to terminate their employment as a result of the merger, which could delay or disrupt the integration process. It is possible that the integration process could result in the disruption of KeyCorp’s or First Niagara’s ongoing businesses or cause inconsistencies in standards, controls, procedures and policies that adversely affect the ability of KeyCorp or First Niagara to maintain relationships with customers and employees or to achieve the anticipated benefits of the merger.

Among the factors considered by the Boards of Directors of KeyCorp and First Niagara in connection with their respective approvals of the merger agreement were the benefits that could result from the merger. There can be no assurance that these benefits will be realized within the time periods contemplated or at all.

Regulatory Approvals May Not Be Received, May Take Longer than Expected or May Impose Conditions that Are Not Presently Anticipated or Cannot Be Met.

Before the transactions contemplated in the merger agreement can be completed, various approvals must be obtained from the bank regulatory and other governmental authorities. In deciding whether to grant antitrust or regulatory clearances, the relevant governmental entities will consider a variety of factors, including the

 

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regulatory standing of each of the parties and the effect of the merger on competition within their relevant jurisdiction. An adverse development in either party’s regulatory standing or other factors could result in an inability to obtain one or more of the required regulatory approvals or delay their receipt. The terms and conditions of the approvals that are granted may impose requirements, limitations or costs, or place restrictions on the conduct of the combined company’s business or require branch divestitures. The level of divestitures required by the relevant governmental entities might be unacceptable to the parties, or could delay the closing of the merger or diminish the anticipated benefits of the merger. KeyCorp and First Niagara believe that the merger should not raise significant regulatory concerns and that KeyCorp will be able to obtain all requisite regulatory approvals in a timely manner. If required by regulatory authorities, KeyCorp will divest branches in certain areas in a manner sufficient to eliminate such regulatory authorities’ competitive concerns. Despite the parties’ commitments to use their reasonable best efforts to comply with conditions imposed by regulatory entities, under the terms of the merger agreement, KeyCorp and First Niagara will not be required to take actions that would be more likely than not to have a material and adverse effect on KeyCorp and its subsidiaries, taken as a whole, giving effect to the merger (measured on a scale relative to First Niagara and its subsidiaries, taken as a whole). There can be no assurance that regulators will not impose conditions, terms, obligations or restrictions and that such conditions, terms, obligations or restrictions will not have the effect of delaying the completion of the merger, imposing additional material costs on or materially limiting the revenues of the combined company following the merger or otherwise reduce the anticipated benefits of the merger if the merger were consummated successfully within the expected timeframe. In addition, neither KeyCorp nor First Niagara can provide assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the merger. Additionally, the completion of the merger is conditioned on the absence of certain orders, injunctions or decrees by any court or regulatory agency of competent jurisdiction that would prohibit or make illegal the completion of the merger. See “Regulatory Approvals Required for the Merger” beginning on page 90.

The Merger Agreement May Be Terminated in Accordance with Its Terms and the Merger May Not Be Completed.

The merger agreement is subject to a number of conditions which must be fulfilled in order to complete the merger. Those conditions include: approval of the merger agreement by First Niagara and KeyCorp shareholders, as well as approval of the amendment to KeyCorp’s articles by KeyCorp’s shareholders, receipt of certain requisite regulatory approvals, absence of orders prohibiting completion of the merger, effectiveness of the registration statement of which this joint proxy statement/prospectus is a part, approval of the KeyCorp common shares and the new KeyCorp preferred stock to be issued to First Niagara common and preferred stockholders, as applicable, for listing on the NYSE, the accuracy of the representations and warranties by both parties (subject to the materiality standards set forth in the merger agreement) and the performance by both parties of their covenants and agreements, and the receipt by both parties of legal opinions from their respective tax counsels. These conditions to the closing of the merger may not be fulfilled in a timely manner or at all, and, accordingly, the merger may not be completed. In addition, the parties can mutually decide to terminate the merger agreement at any time, before or after shareholder approval, or KeyCorp or First Niagara may elect to terminate the merger agreement in certain other circumstances. See “The Merger Agreement—Termination; Termination Fee” beginning on page 106.

Termination of the Merger Agreement Could Negatively Impact First Niagara.

If the merger is not completed for any reason, including as a result of First Niagara stockholders or KeyCorp shareholders declining to approve the merger agreement, the ongoing business of First Niagara may be adversely impacted and, without realizing any of the anticipated benefits of completing the merger, First Niagara would be subject to a number of risks, including the following:

 

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First Niagara may experience negative reactions from the financial markets, including negative impacts on its stock price (including to the extent that the current market price reflects a market assumption that the merger will be completed);

 

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First Niagara may experience negative reactions from its customers, vendors and employees;

 

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First Niagara will have incurred substantial expenses and will be required to pay certain costs relating to the merger, whether or not the merger is completed;

 

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the merger agreement places certain restrictions on the conduct of First Niagara’s businesses prior to completion of the merger. Such restrictions, the waiver of which is subject to the consent of KeyCorp (not to be unreasonably withheld, conditioned or delayed), may prevent First Niagara from making certain acquisitions or taking certain other specified actions during the pendency of the merger (see the section entitled “The Merger Agreement—Covenants and Agreements” beginning on page 96 of this joint proxy statement/prospectus for a description of the restrictive covenants applicable to First Niagara); and

matters relating to the merger (including integration planning) will require substantial commitments of time and resources by First Niagara management, which would otherwise have been devoted to other opportunities that may have been beneficial to First Niagara as an independent company.

If the merger agreement is terminated and First Niagara’s Board of Directors seeks another merger or business combination, First Niagara stockholders cannot be certain that First Niagara will be able to find a party willing to offer equivalent or more attractive consideration than the consideration KeyCorp has agreed to provide in the merger, or that such other merger or business combination will be completed. If the merger agreement is terminated under certain circumstances, First Niagara may be required to pay a termination fee of $137.5 million to KeyCorp. See “The Merger Agreement—Termination; Termination Fee” on page 106.

First Niagara Will Be Subject to Business Uncertainties and Contractual Restrictions While the Merger Is Pending.

Uncertainty about the effect of the merger on employees and customers may have an adverse effect on First Niagara and consequently on KeyCorp. These uncertainties may impair First Niagara’s ability to attract, retain and motivate key personnel until the merger is completed, and could cause customers and others that deal with First Niagara to seek to change existing business relationships with First Niagara. Retention of certain employees may be challenging during the pendency of the merger, as certain employees may experience uncertainty about their future roles. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the business, KeyCorp’s business following the merger could be negatively impacted. In addition, the merger agreement restricts First Niagara from making certain acquisitions and taking other specified actions without the consent of KeyCorp until the merger occurs. These restrictions may prevent First Niagara from pursuing attractive business opportunities that may arise prior to the completion of the merger. See “The Merger Agreement—Covenants and Agreements” beginning on page 96.

First Niagara Directors and Officers May Have Interests in the Merger Different From the Interests of First Niagara Stockholders.

The interests of some of the directors and executive officers of First Niagara may be different from those of First Niagara stockholders, and directors and officers of First Niagara may be participants in arrangements that are different from, or are in addition to, those of First Niagara stockholders. See “The Merger—Interests of First Niagara Directors and Executive Officers in the Merger” beginning on page 83.

The Merger Agreement Contains Provisions that May Discourage Other Companies from Trying to Acquire First Niagara for Greater Merger Consideration.

The merger agreement contains provisions that may discourage a third party from submitting a business combination proposal to First Niagara that might result in greater value to First Niagara’s stockholders than the merger or may result in a potential competing acquirer proposing to pay a lower per share price to acquire First

 

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Niagara than it might otherwise have proposed to pay absent such provisions. These provisions include a general prohibition on First Niagara from soliciting, or, subject to certain exceptions relating to the exercise of fiduciary duties by First Niagara’s Board of Directors, entering into discussions with any third party regarding any acquisition proposal or offers for competing transactions. First Niagara also has an unqualified obligation to submit the proposal to approve the merger to a vote by its stockholders, even if First Niagara receives an alternative acquisition proposal that its Board of Directors believes is superior to the merger, unless the merger agreement has been terminated in accordance with its terms. In addition, First Niagara may be required to pay KeyCorp a termination fee of $137.5 million upon termination of the merger agreement in certain circumstances involving acquisition proposals for competing transactions. See “The Merger Agreement—Termination; Termination Fee” beginning on page 106.

The Unaudited Pro Forma Combined Condensed Consolidated Financial Information Included in This Joint Proxy Statement/Prospectus Is Preliminary and the Actual Financial Condition and Results of Operations After the Merger May Differ Materially.

The unaudited pro forma financial information included in this joint proxy statement/prospectus is presented for illustrative purposes only and is not necessarily indicative of what the combined company’s actual financial position or results of operations would have been had the merger been completed on the date(s) indicated. The preparation of the pro forma financial information is based upon available information and certain assumptions and estimates that KeyCorp and First Niagara currently believe are reasonable. The unaudited pro forma financial information reflects adjustments, which are based upon preliminary estimates, to allocate the purchase price to First Niagara’s net assets. The purchase price allocation reflected in this joint proxy statement/prospectus is preliminary, and the final allocation of the purchase price will be based upon the actual purchase price and the fair value of the assets and liabilities of First Niagara as of the date of the completion of the merger. In addition, following the completion of the merger, there may be further refinements of the purchase price allocation as additional information becomes available. Accordingly, the final purchase accounting adjustments may differ materially from the pro forma adjustments reflected in this joint proxy statement/prospectus. See “Unaudited Pro Forma Combined Condensed Consolidated Financial Information” beginning on page 113.

The Opinions of First Niagara’s and KeyCorp’s Financial Advisors Will Not Reflect Changes in Circumstances Between the Signing of the Merger Agreement and the Completion of the Merger.

First Niagara and KeyCorp have not obtained updated opinions from their respective financial advisors as of the date of this joint proxy statement/prospectus. Changes in the operations and prospects of First Niagara or KeyCorp, general market and economic conditions and other factors that may be beyond the control of First Niagara or KeyCorp, and on which First Niagara’s and KeyCorp’s financial advisors’ opinions were based, may significantly alter the value of First Niagara or the prices of the KeyCorp common shares or shares of First Niagara common stock by the time the merger is completed. The opinions do not speak as of the time the merger will be completed or as of any date other than the date of such opinions. Because First Niagara and KeyCorp do not currently anticipate asking their respective financial advisors to update their opinions, the opinions will not address the fairness of the merger consideration from a financial point of view at the time the merger is completed. See “The Merger—Opinion of First Niagara’s Financial Advisor” beginning on page 62 and “The Merger—Opinion of KeyCorp’s Financial Advisor” beginning on page 74.

KeyCorp and First Niagara Will Incur Transaction and Integration Costs in Connection with the Merger.

Each of KeyCorp and First Niagara has incurred and expects that it will incur significant, non-recurring costs in connection with consummating the merger. In addition, KeyCorp will incur integration costs following the completion of the merger as KeyCorp integrates the businesses of the two companies, including facilities and systems consolidation costs and employment-related costs. There can be no assurances that the expected benefits and efficiencies related to the integration of the businesses will be realized to offset these transaction and integration costs over time. See the risk factor entitled “—KeyCorp May Fail to Realize the Anticipated Benefits

 

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of the Merger” above. KeyCorp and First Niagara may also incur additional costs to maintain employee morale and to retain key employees. KeyCorp and First Niagara will also incur significant legal, financial advisor, accounting, banking and consulting fees, fees relating to regulatory filings and notices, SEC filing fees, printing and mailing fees and other costs associated with the merger. Some of these costs are payable regardless of whether the merger is completed. See “The Merger Agreement—Fees and Expenses” beginning on page 108.

First Niagara Stockholders Will Become Shareholders of an Ohio Corporation and Will Have Their Rights As Shareholders Governed by KeyCorp’s Organizational Documents and Ohio Law.

As a result of the completion of the merger, holders of shares of First Niagara common stock, First Niagara stock options, First Niagara restricted stock awards, First Niagara restricted stock unit awards and First Niagara preferred stock will become holders of KeyCorp common shares, KeyCorp stock options, KeyCorp restricted stock awards, KeyCorp restricted stock unit awards and new KeyCorp preferred stock, which will be governed by KeyCorp’s organizational documents and the Ohio General Corporation Law. As a result, there will be differences between the rights currently enjoyed by First Niagara stockholders and the rights they expect to have as shareholders of the combined company. See “Comparison of Shareholders’ Rights” beginning on page 121.

Pending Litigation Against First Niagara and KeyCorp Could Result in an Injunction Preventing the Completion of the Merger or a Judgment Resulting in the Payment of Damages.

In connection with the merger, several putative class action lawsuits have been filed by purported First Niagara stockholders alleging claims against First Niagara, the members of the First Niagara’s Board of Directors, and KeyCorp. Among other remedies, the purported plaintiffs seek to enjoin the merger. The outcome of any such litigation is uncertain. If the cases are not resolved, these lawsuits could prevent or delay the completion of the merger and result in significant costs to First Niagara and/or KeyCorp, including any costs associated with the indemnification of directors and officers. Plaintiffs may file additional lawsuits against KeyCorp, First Niagara and/or the directors and officers of either company in connection with the merger. The defense or settlement of any lawsuit or claim that remains unresolved at the time the merger is completed may adversely affect KeyCorp’s business, financial condition, results of operations and cash flows. See “Litigation Related to the Merger” on page 109.

Additional Risks Relating to the New KeyCorp Preferred Stock

KeyCorp’s Creditworthiness May Affect the Market Value of the New KeyCorp Preferred Stock.

The value of the new KeyCorp preferred stock will be affected, among other things, by KeyCorp’s general creditworthiness. For a discussion and analysis of known material trends and events, and risks or uncertainties that are reasonably expected to have a material effect on KeyCorp’s business, financial condition or results of operations, you should review the KeyCorp documents incorporated by reference into this joint proxy statement/prospectus. See “Incorporation of Certain Documents by Reference” beginning on page 144.

Changes in Credit Ratings May Affect the Market Value of the New KeyCorp Preferred Stock.

Real or anticipated changes in credit ratings on KeyCorp or the new KeyCorp preferred stock may affect the market value of the new KeyCorp preferred stock. In addition, real or anticipated changes in credit ratings can affect the cost at which KeyCorp can transact or obtain funding, and thereby affect KeyCorp’s liquidity, business, financial condition or results of operations.

In the Event of KeyCorp’s Insolvency, the New KeyCorp Preferred Stock Will Rank Junior to Other Securities.

In the event of KeyCorp’s insolvency, any new KeyCorp preferred stock issued and outstanding will rank equally with KeyCorp’s other outstanding series of preferred stock. If KeyCorp becomes insolvent or is wound up, its assets must be used to pay its deposit liabilities and other debt, including subordinated debt, before payments may be made on KeyCorp’s preferred stock, including the new KeyCorp preferred stock.

 

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Yields on Similar Securities Will Affect the Market Value of the New KeyCorp Preferred Stock.

Prevailing yields on securities similar to the new KeyCorp preferred stock will affect the market value of the new KeyCorp preferred stock. Assuming all other factors remain unchanged, the market value of the new KeyCorp preferred stock will decline as prevailing yields for similar securities rise, and will increase as prevailing yields for similar securities decline.

Additional Risks Relating to KeyCorp and First Niagara After the Merger

KeyCorp’s and First Niagara’s businesses are, and will continue to be, subject to the risks described in (i) Part I, Item 1A in KeyCorp’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and (ii) Part I, Item 1A in First Niagara’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, in each case, as such risks may be updated or supplemented in each company’s subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K, all of which are filed with the SEC and incorporated by reference in this joint proxy statement/prospectus. See “Incorporation of Certain Documents by Reference” beginning on page 144.

 

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FIRST NIAGARA SPECIAL MEETING OF STOCKHOLDERS

Date, Time and Place

The special meeting of First Niagara stockholders will be held on [●], at [●] local time, on [●]. On or about [●], First Niagara commenced mailing this joint proxy statement/prospectus and the enclosed form of proxy to its stockholders entitled to vote at the First Niagara special meeting.

Purpose of First Niagara Special Meeting

At the First Niagara special meeting, First Niagara stockholders will be asked to vote on the following proposals:

 

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to adopt the merger agreement, a copy of which is attached as Appendix A to this joint proxy statement/prospectus;

 

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to approve, on a non-binding, advisory basis, the compensation to be paid to First Niagara’s named executive officers that is based on or otherwise relates to the merger, discussed under the section entitled “The Merger—Interests of First Niagara Directors and Executive Officers in the Merger” beginning on page 83; and

 

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to approve one or more adjournments of the First Niagara special meeting, if necessary or appropriate to permit further solicitation of proxies in favor of the merger proposal.

Recommendation of the First Niagara Board of Directors

The First Niagara Board of Directors recommends that you vote “FOR” the merger proposal, “FOR” the merger-related compensation proposal and “FOR” the First Niagara adjournment proposal (if necessary or appropriate). See “The Merger—Recommendation of the First Niagara Board of Directors and Reasons for the Merger” beginning on page 58.

First Niagara Record Date and Quorum

The First Niagara Board of Directors has fixed the close of business on [●] as the record date for determining the holders of First Niagara common stock entitled to receive notice of and to vote at the First Niagara special meeting.

As of the First Niagara record date, there were [●] shares of First Niagara common stock outstanding and entitled to vote at the First Niagara special meeting held by [●] holders of record. Each share of First Niagara common stock entitles the holder thereof to one vote at the First Niagara special meeting on each proposal to be considered at the First Niagara special meeting.

To transact business at the First Niagara special meeting, a majority of the total number of outstanding shares of First Niagara common stock entitled to vote at the First Niagara special meeting must be present in person or represented by proxy. Abstentions and broker non-votes will be treated as present at the First Niagara special meeting for purposes of determining the presence or absence of a quorum for the transaction of all business. In the event that a quorum is not present at the First Niagara special meeting, the holders of a majority of the voting shares represented at the special meeting, in person or by proxy, may adjourn the meeting from time to time to another time and/or place until a quorum is so present or represented.

As of the First Niagara record date, directors and executive officers of First Niagara and their affiliates owned and were entitled to vote [●] shares of First Niagara common stock, representing approximately [●]% of the First Niagara common stock outstanding on that date. First Niagara currently expects that its directors and executive officers will vote their shares in favor of the merger proposal, the merger-related compensation proposal and the First Niagara adjournment proposal (if necessary or appropriate), although none of them has entered into any agreements obligating them to do so. As of the record date, KeyCorp did not beneficially hold any shares of First Niagara common stock.

 

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Required Vote

Merger Proposal

The affirmative vote of a majority of the outstanding shares of First Niagara common stock entitled to vote is required to approve the merger proposal.

Merger-Related Compensation Proposal and First Niagara Adjournment Proposal

Assuming a quorum is present, the affirmative vote of a majority of the votes present in person or represented by proxy and cast on the merger-related compensation proposal and the First Niagara adjournment proposal at the First Niagara special meeting is required to approve each such proposal.

Treatment of Abstentions; Failure to Vote

For purposes of the First Niagara special meeting, an abstention occurs when a First Niagara stockholder attends the First Niagara special meeting, either in person or by proxy, but abstains from voting.

 

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For the merger proposal, an abstention or failure to vote in person at the First Niagara special meeting will have the same effect as a vote cast “AGAINST” this proposal.

 

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For the merger-related compensation proposal and the First Niagara adjournment proposal, an abstention or failure to vote in person at the First Niagara special meeting will have no effect on the outcome of the vote. For each of these proposals, abstentions are not treated as votes cast and will have no effect on the outcome of the vote, though abstentions are counted towards establishing a quorum.

Voting on Proxies; Incomplete Proxies

Giving a proxy means that a First Niagara stockholder authorizes the persons named in the enclosed proxy card to vote its shares of First Niagara common stock at the First Niagara special meeting in the manner it directs. A First Niagara stockholder may vote by proxy or in person at the First Niagara special meeting. If you hold your shares of First Niagara common stock in your name as a stockholder of record, to submit a proxy, you, as a First Niagara stockholder, may use one of the following methods:

 

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By telephone: Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a week. Call [●] and then follow the voice instructions. Please have your proxy card and your social security number or tax identification number available when you call.

 

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Through the Internet: Use the Internet to vote your proxy 24 hours a day, 7 days a week. Follow the instructions as prompted by the menu found at [●] to obtain your records and submit an electronic ballot. Please have your proxy card and your social security number or tax identification number available when you access this voting site.

 

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By mail: Complete and return the proxy card in the enclosed envelope. The envelope requires no additional postage if mailed in the United States.

 

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By QR Code: Use the QR Code to vote your proxy 24 hours a day, 7 days a week. Scan the QR Code on your proxy card with your mobile device.

First Niagara requests that First Niagara stockholders vote by telephone, over the Internet, by QR Code or by completing and signing the accompanying proxy and returning it to First Niagara as soon as possible in the enclosed postage-paid envelope. When the accompanying proxy is returned properly executed prior to the First Niagara special meeting, the shares of First Niagara common stock represented by it will be voted at the First Niagara special meeting in accordance with the instructions contained on the proxy card. If any proxy is returned without indication as to how to vote, the shares of First Niagara common stock represented by the proxy will be voted as recommended by the First Niagara Board of Directors.

 

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If a First Niagara stockholder’s shares are held in “street name” by a broker, bank or other nominee, the stockholder should check the voting form used by that firm to determine whether it may vote by telephone or the Internet.

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES OF FIRST NIAGARA COMMON STOCK YOU OWN. Accordingly, each First Niagara stockholder should sign, date and return the enclosed proxy card, or vote via the Internet, by telephone or by QR Code, whether or not the First Niagara stockholder plans to attend the First Niagara special meeting in person.

Shares Held in Street Name

If you are a First Niagara stockholder and your shares are held in “street name” through a bank, broker or other holder of record, you must provide the record holder of your shares with instructions on how to vote the shares. Please follow the voting instructions provided by the bank or broker. You may not vote shares held in street name by returning a proxy card directly to First Niagara or by voting in person at the First Niagara special meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank or other nominee. Further, brokers, banks or other nominees who hold shares of First Niagara common stock on behalf of their customers may not give a proxy to First Niagara to vote those shares with respect to any of the proposals without specific instructions from their customers, as brokers, banks and other nominees do not have discretionary voting power on these matters. Therefore, if you are a First Niagara stockholder and you do not instruct your broker, bank or other nominee on how to vote your shares:

 

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your broker, bank or other nominee will not vote your shares on the merger proposal, which broker non-votes will have the same effect as a vote cast “AGAINST” this proposal; and

 

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your broker, bank or other nominee will not vote your shares on the merger-related compensation proposal or the First Niagara adjournment proposal, which broker non-votes will have no effect on the vote count for these proposals.

Revocability of Proxies and Changes to a First Niagara Stockholder’s Vote

If you have submitted your proxy and would like to revoke it, you may do so before your shares are voted at the First Niagara special meeting by: (i) filing a notice with the Corporate Secretary of First Niagara revoking your proxy, (ii) filing a new, subsequently dated proxy (whether by proxy card, online, by telephone or by QR Code) or (iii) by attending the First Niagara special meeting and electing to vote your shares in person. Your presence at the First Niagara special meeting alone will not revoke your proxy. If you have instructed a broker, bank or other nominee to vote your shares of First Niagara common stock, you must follow the directions you receive from your broker, bank or other nominee in order to change or revoke your vote.

First Niagara stockholders retain the right to revoke their proxies or change their voting instructions in the manner described above. Unless so revoked, the shares represented by such proxies or voting instructions will be voted at the First Niagara special meeting and all adjournments or postponements of the First Niagara special meeting. Proxies solicited on behalf of the First Niagara Board of Directors will be voted in accordance with the directions given on the proxy card or voting instructions. Where no instructions are indicated, the shares of First Niagara common stock represented by the proxy will be voted as recommended by the First Niagara Board of Directors.

Solicitation of Proxies

The cost of solicitation of proxies for the First Niagara special meeting will be borne by First Niagara. First Niagara will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy materials to the beneficial owners of common stock. First Niagara has retained [●] to assist in the solicitation of proxies for a fee of approximately $[●] plus related fees for any

 

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additional services and reasonable out-of-pocket expenses. In addition to solicitations by mail, First Niagara’s directors, officers and regular employees may solicit proxies personally or by telephone without additional compensation.

Attending the First Niagara Special Meeting

All First Niagara stockholders as of the record date, or their duly appointed proxies, may attend the First Niagara special meeting. Since seating is limited, admission to the First Niagara special meeting will be on a first-come, first-served basis. Registration and seating will begin at [●], local time.

If you plan to attend the First Niagara special meeting in person, please RSVP by marking the appropriate box on the proxy card, or via email to investor@fnfg.com with RSVP as the subject line. Also, if you are a registered stockholder and will be attending the meeting in person, please bring valid photo identification.

If your shares of First Niagara common stock are held in “street name” in a stock brokerage account or by a bank or nominee and you wish to attend the First Niagara special meeting, please bring evidence of your beneficial ownership of your shares (e.g., a copy of a recent brokerage statement showing the shares) and valid photo identification with you to the First Niagara special meeting. If you intend to vote in person at the First Niagara special meeting and you own your shares in street name, you also are required to bring to the First Niagara special meeting a legal proxy from your broker, bank or other intermediary.

 

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FIRST NIAGARA PROPOSALS

Merger Proposal

As discussed elsewhere in this joint proxy statement/prospectus, First Niagara stockholders will consider and vote on a proposal to adopt the merger agreement. First Niagara stockholders must adopt the merger agreement in order for the merger to occur. If First Niagara stockholders fail to adopt the merger agreement, the merger will not occur.

Accordingly, First Niagara is asking First Niagara stockholders to vote to approve the adoption of the merger agreement, either by attending the First Niagara special meeting and voting in person or by submitting a proxy. You should carefully read this joint proxy statement/prospectus in its entirety for more detailed information concerning the merger agreement and the transactions contemplated thereby. In particular, you are urged to read the merger agreement in its entirety, which is attached as Appendix A to this joint proxy statement/prospectus.

First Niagara stockholders must approve the merger proposal in order for the merger to occur. The affirmative vote of a majority of the outstanding shares of First Niagara common stock entitled to vote thereon is required to approve the merger proposal. If First Niagara stockholders fail to approve the merger proposal, the merger will not occur. For the merger proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN.” If you abstain or if your shares are not present at the First Niagara special meeting, it will have the same effect as a vote “AGAINST” the adoption of the merger agreement. If you hold your First Niagara common stock through a broker, bank or other nominee and you do not instruct your broker, bank or other nominee on how to vote your shares on the merger proposal, your broker, bank or other nominee will not vote your shares on the merger proposal, which broker non-votes will have the same effect as a vote “AGAINST” such proposal.

The First Niagara Board of Directors unanimously recommends that First Niagara stockholders vote “FOR” the merger proposal.

 

 

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Merger-Related Compensation Proposal

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and Rule 14a-21(c) of the Exchange Act, First Niagara is seeking non-binding, advisory stockholder approval of the compensation of First Niagara’s named executive officers that is based on or otherwise relates to the merger as disclosed in “The Merger—Merger-Related Compensation for First Niagara’s Named Executive Officers” beginning on page 87. The proposal gives First Niagara’s stockholders the opportunity to express their views on the merger-related compensation of First Niagara’s named executive officers. Accordingly, First Niagara is requesting stockholders to adopt the following resolution, on a non-binding, advisory basis:

“RESOLVED, that the compensation that may be paid or become payable to First Niagara’s named executive officers, in connection with the merger, and the agreements or understandings pursuant to which such compensation may be paid or become payable, in each case as disclosed pursuant to Item 402(t) of Regulation S-K in “The Merger— Merger-Related Compensation for First Niagara’s Named Executive Officers,” are hereby APPROVED.”

The vote on this proposal is a vote separate and apart from the vote to approve the merger proposal. Accordingly, you may vote not to approve this proposal on merger-related compensation and benefits to be paid or provided to named executive officers of First Niagara and vote to approve the merger proposal and vice versa. The vote is advisory in nature and, therefore, is not binding on First Niagara or on KeyCorp or the Boards of Directors or the compensation committees of First Niagara or KeyCorp, regardless of whether the merger proposal is approved. Approval of the non-binding, advisory proposal with respect to the compensation that may be received by First Niagara’s named executive officers in connection with the merger is not a condition to completion of the merger, and failure to approve this advisory matter will have no effect on the vote to approve the merger proposal. The merger-related compensation to be paid to named executive officers in connection with the merger is based on contractual arrangements with the named executive officers and accordingly the outcome of this advisory vote will not affect the obligation to make these payments.

For the merger-related compensation proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN.” If your shares are not present at the First Niagara special meeting, it will have no effect on the merger-related compensation proposal (assuming a quorum is present). If you abstain, your abstention will have no effect on the merger-related compensation proposal, although it will be counted toward establishing a quorum. If you hold your First Niagara common stock through a broker, bank or other nominee and you do not instruct your broker, bank or other nominee on how to vote your shares on the merger-related compensation proposal, your broker, bank or other nominee will not vote your shares on the merger-related compensation proposal, which broker non-votes will have no effect on the vote count for such proposal.

The First Niagara Board of Directors recommends that First Niagara stockholders vote “FOR” the merger-related compensation proposal.

 

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First Niagara Adjournment Proposal

The First Niagara special meeting may be adjourned to another time or place, if necessary or appropriate, to permit further solicitation of proxies in favor of the merger proposal.

If, at the First Niagara special meeting, the number of shares of First Niagara common stock present in person or represented by proxy and voting in favor of the merger proposal is insufficient to approve the merger proposal, First Niagara intends to move to adjourn the First Niagara special meeting in order to enable the First Niagara Board of Directors to solicit additional proxies for the approval of the merger proposal.

In the First Niagara adjournment proposal, First Niagara is asking its stockholders to authorize the holder of any proxy solicited by the First Niagara Board of Directors to vote in favor of granting discretionary authority to the proxy holders, and each of them individually, to adjourn the First Niagara special meeting to another time and/or place for the purpose of soliciting additional proxies. If the First Niagara stockholders approve the First Niagara adjournment proposal, First Niagara could adjourn the First Niagara special meeting and any adjourned session of the First Niagara special meeting and use the additional time to solicit additional proxies, including the solicitation of proxies from First Niagara stockholders who have previously voted. First Niagara does not intend to call a vote on adjournment of the special meeting to solicit additional proxies if the merger proposal is approved at the special meeting. Pursuant to the merger agreement, First Niagara is required to adjourn the special meeting to solicit additional proxies twice.

For the First Niagara adjournment proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN.” If your shares are not present at the First Niagara special meeting, it will have no effect on the First Niagara adjournment proposal (assuming a quorum is present). If you abstain, your abstention will have no effect on the First Niagara adjournment proposal, although it will be counted toward establishing a quorum. If you hold your First Niagara common stock through a broker, bank or other nominee and you do not instruct your broker, bank or other nominee on how to vote your shares on the First Niagara adjournment proposal, your broker, bank or other nominee will not vote your shares on the First Niagara adjournment proposal, which broker non-votes will have no effect on the vote count for such proposal.

The First Niagara Board of Directors unanimously recommends that First Niagara stockholders vote “FOR” the First Niagara adjournment proposal (if necessary or appropriate).

 

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KEYCORP SPECIAL MEETING OF SHAREHOLDERS

Date, Time and Place

The special meeting of KeyCorp shareholders will be held on [●], at [●] local time, on [●]. On or about [●], KeyCorp commenced mailing this joint proxy statement/prospectus and the enclosed form of proxy to its shareholders entitled to vote at the KeyCorp special meeting.

Purpose of KeyCorp Special Meeting

At the KeyCorp special meeting, KeyCorp shareholders will be asked to vote on the following proposals:

 

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to adopt the merger agreement, a copy of which is attached as Appendix A to this joint proxy statement/prospectus;

 

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to approve the amendments to KeyCorp’s articles set forth on Appendix D-1 to this joint proxy statement/prospectus, which modify the voting rights associated with KeyCorp’s preferred stock so that the voting rights associated with the new KeyCorp preferred stock are not materially less favorable to the holders thereof than the voting rights associated with the First Niagara preferred stock;

 

•

to approve an amendment to KeyCorp’s regulations set forth on Appendix E-1 to this joint proxy statement/prospectus in order to increase the maximum size of the KeyCorp Board of Directors from sixteen to seventeen members; and

 

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to approve one or more adjournments of the KeyCorp special meeting, if necessary or appropriate to permit further solicitation of proxies in favor of the merger proposal and the articles amendment proposal.

Recommendation of the KeyCorp Board of Directors

The KeyCorp Board of Directors recommends that you vote “FOR” the merger proposal, “FOR” the articles amendment proposal, “FOR” the regulations amendment proposal and “FOR” the KeyCorp adjournment proposal (if necessary or appropriate). See “The Merger—Recommendation of the KeyCorp Board of Directors and Reasons for the Merger” beginning on page 72.

KeyCorp Record Date and Quorum

The KeyCorp Board of Directors has fixed the close of business on [●] as the record date for determining the holders of KeyCorp common shares entitled to receive notice of and to vote at the KeyCorp special meeting.

As of the KeyCorp record date, there were [●] KeyCorp common shares outstanding and entitled to vote at the KeyCorp special meeting held by [●] holders of record. Each KeyCorp common share entitles the holder thereof to one vote at the KeyCorp special meeting on each proposal to be considered at the KeyCorp special meeting.

To transact business at the KeyCorp special meeting, a majority of KeyCorp’s outstanding common shares must be present in person or represented by proxy. Abstentions will be treated as present at the KeyCorp special meeting for purposes of determining the presence or absence of a quorum for the transaction of all business. Because there can be no broker non-votes at the KeyCorp special meeting, failure to provide instructions to your broker, bank or other nominee on how to vote will result in your shares not being counted as present at the meeting. In the event that a quorum is not present at the KeyCorp special meeting, the holders of a majority of the voting shares represented at the special meeting, in person or represented by proxy, may adjourn the meeting from time to time to another time and/or place until a quorum is so present or represented.

As of the KeyCorp record date, directors and executive officers of KeyCorp and their affiliates owned and were entitled to vote [●] KeyCorp common shares, representing approximately [●]% of the KeyCorp common shares

 

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outstanding on that date. KeyCorp currently expects that its directors and executive officers will vote their shares in favor of the merger proposal, the articles amendment proposal, the regulations amendment proposal and the KeyCorp adjournment proposal (if necessary or appropriate), although none of them has entered into any agreements obligating them to do so. As of the record date, First Niagara did not beneficially hold any KeyCorp common shares.

Required Vote

Merger Proposal, Articles Amendment Proposal and Regulations Amendment Proposal

The affirmative vote of the holders of shares entitling them to exercise a majority of the voting power of KeyCorp is required to approve each of the merger proposal, the articles amendment proposal and the regulations amendment proposal.

KeyCorp Adjournment Proposal

Assuming a quorum is present, the affirmative vote of a majority of the KeyCorp common shares present in person or represented by proxy at the KeyCorp special meeting is required to approve the KeyCorp adjournment proposal.

Treatment of Abstentions; Failure to Vote

For purposes of the KeyCorp special meeting, an abstention occurs when a KeyCorp shareholder attends the KeyCorp special meeting, either in person or represented by proxy, but abstains from voting.

 

•

With respect to the merger proposal, the articles amendment proposal and the regulations amendment proposal, an abstention or failure to vote in person at the KeyCorp special meeting will have the same effect as a vote cast “AGAINST” these proposals.

 

•

With respect to the KeyCorp adjournment proposal, if a KeyCorp shareholder present in person at the KeyCorp special meeting abstains from voting, or responds by proxy with an “abstain” vote, it will have the same effect as a vote cast “AGAINST” this proposal. If a KeyCorp shareholder is not present in person at the KeyCorp special meeting and does not respond by proxy, it will have no effect on the outcome of the vote for the KeyCorp adjournment proposal.

Voting on Proxies; Incomplete Proxies

Giving a proxy means that a KeyCorp shareholder authorizes the persons named in the enclosed proxy card to vote its shares at the KeyCorp special meeting in the manner it directs. A KeyCorp shareholder may vote by proxy or in person at the KeyCorp special meeting. If you hold your KeyCorp common shares in your name as a shareholder of record, to submit a proxy, you, as a KeyCorp shareholder, may use one of the following methods:

 

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By telephone: Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a week. Have your proxy card handy when you call. You will be prompted to enter your control number(s) located on your proxy card, and then follow the directions given.

 

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Through the Internet: Use the Internet to vote your proxy 24 hours a day, 7 days a week. Have your proxy card handy when you access the website. You will be prompted to enter your control number(s) located on your proxy card to create and submit an electronic ballot.

 

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By mail: Complete and return the proxy card in the enclosed envelope. The envelope requires no additional postage if mailed in the United States.

KeyCorp requests that KeyCorp shareholders vote by telephone, over the Internet or by completing and signing the accompanying proxy and returning it to KeyCorp as soon as possible in the enclosed postage-paid envelope.

 

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When the accompanying proxy is returned properly executed, the KeyCorp common shares represented by it will be voted at the KeyCorp special meeting in accordance with the instructions contained on the proxy card. If any proxy is returned without indication as to how to vote, the KeyCorp common shares represented by the proxy will be voted as recommended by the KeyCorp Board of Directors.

If a KeyCorp shareholder’s shares are held in “street name” by a broker, bank or other nominee, the shareholder should check the voting form used by such broker, bank or other nominee to determine whether it may vote by telephone or the Internet.

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF KEYCORP COMMON SHARES YOU OWN. Accordingly, each KeyCorp shareholder should sign, date and return the enclosed proxy card, or vote via the Internet or by telephone, whether or not the KeyCorp shareholder plans to attend the KeyCorp special meeting in person.

Shares Held in Street Name

If you are a KeyCorp shareholder and your shares are held in “street name” through a broker, bank or other nominee, your broker, bank or other nominee’s ability to vote your shares for you is governed by the rules of the NYSE. Without your specific instruction, a broker, bank or other nominee may only vote your shares on routine proposals. As such, your broker, bank or other nominee will submit a proxy card on your behalf as to routine proposals but leave your shares unvoted on non-routine proposals—this is known as a “broker non-vote.” The merger proposal, the articles amendment proposal, the regulations amendment proposal and the KeyCorp adjournment proposal are regarded as non-routine matters and your broker, bank or other nominee will not vote on these matters without instructions from you. Therefore, if you are a KeyCorp shareholder holding your shares in “street name” and you do not instruct your broker, bank or other nominee on how to vote your shares:

 

•

your broker, bank or other nominee will not vote your shares on the merger proposal, the articles amendment proposal or the regulations amendment proposal, which will have the same effect as a vote cast “AGAINST” these proposals; and

 

•

your broker, bank or other nominee will not vote your shares on the KeyCorp adjournment proposal, which broker non-votes will have no effect on the outcome of the vote for this proposal.

Revocability of Proxies and Changes to a KeyCorp Shareholder’s Vote

If you have submitted your proxy and would like to revoke it, you may do so before your shares are voted at the KeyCorp special meeting by: (i) filing a notice with the Secretary of KeyCorp revoking your proxy, (ii) filing a new, subsequently dated proxy (whether by proxy card, online or telephone) or (iii) by attending the KeyCorp special meeting and electing to vote your shares in person. Your presence at the KeyCorp special meeting alone will not revoke your proxy. If you are a KeyCorp shareholder of record and you choose to send a written notice or to mail a new proxy, you must submit your notice of revocation or your new proxy to KeyCorp, Attention: Secretary, 127 Public Square, Cleveland, Ohio 44114, and it must be received at any time before the vote is taken at the KeyCorp special meeting. Any proxy that you submitted may also be revoked by submitting a new proxy via the Internet or by telephone, not later than [●] on [●], or by voting in person at the meeting. If you have instructed a broker, bank or other nominee to vote your KeyCorp common shares, you must follow the directions you receive from your broker, bank or other nominee in order to change or revoke your vote.

Solicitation of Proxies

KeyCorp is soliciting proxies for the KeyCorp special meeting from KeyCorp shareholders. KeyCorp will bear all of the costs of soliciting proxies from KeyCorp shareholders, other than certain costs related to the production and distribution of this joint proxy statement/prospectus. KeyCorp has retained Innisfree to assist in the solicitation of proxies for the special meeting for a fee of approximately $25,000, plus reimbursement of

 

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reasonable out-of-pocket expenses. Directors, officers and employees of KeyCorp and its subsidiaries may also solicit the return of proxies, but will not receive additional compensation for these efforts. KeyCorp will request that banks, brokers and other nominees send proxy materials to all beneficial owners and upon request will reimburse them for their expenses. Solicitations may be made by mail, telephone or other means.

Attending the KeyCorp Special Meeting

If you attend the KeyCorp special meeting in person, you will be asked to present photo identification (such as a state-issued driver’s license) and proof that you own KeyCorp common shares before entering the meeting. If you are a holder of record, the top half of your proxy card is your admission ticket. If you hold shares in “street name” (through a broker, bank or other nominee), a recent brokerage statement or a letter from your broker, bank or other nominee showing your holdings of KeyCorp common shares is proof of ownership. If you want to vote shares that you hold in “street name” at the KeyCorp special meeting, you must bring a legal proxy in your name from the broker, bank or other nominee that holds your shares.

 

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KEYCORP PROPOSALS

Merger Proposal

As discussed elsewhere in this joint proxy statement/prospectus, KeyCorp shareholders will consider and vote on a proposal to adopt the merger agreement. KeyCorp shareholders must adopt the merger agreement in order for the merger to occur. If KeyCorp shareholders fail to adopt the merger agreement, the merger will not occur.

Accordingly, KeyCorp is asking KeyCorp shareholders to vote to approve the adoption of the merger agreement, either by attending the KeyCorp special meeting and voting in person or by submitting a proxy. You should carefully read this joint proxy statement/prospectus in its entirety for more detailed information concerning the merger agreement and the transactions contemplated thereby. In particular, you are urged to read the merger agreement in its entirety, which is attached as Appendix A to this joint proxy statement/prospectus.

KeyCorp shareholders must approve the merger proposal in order for the merger to occur. If KeyCorp shareholders fail to approve the merger proposal, the merger will not occur. For the merger proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN.” If you abstain or if your shares are not present at the KeyCorp special meeting, it will have the same effect as a vote “AGAINST” the adoption of the merger agreement. If you hold your KeyCorp common shares through a broker, bank or other nominee and you do not instruct your broker, bank or other nominee on how to vote your shares on the merger proposal, your broker, bank or other nominee will not vote your shares on the merger proposal, which broker non-votes will have the same effect as a vote “AGAINST” such proposal.

The KeyCorp Board of Directors unanimously recommends that KeyCorp shareholders vote “FOR” the merger proposal.

 

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Articles Amendment Proposal

KeyCorp is asking its shareholders to approve the articles amendment set forth on Appendix D-1 to this joint proxy statement/prospectus, which modifies the voting rights associated with KeyCorp’s preferred stock so that the voting rights associated with the new KeyCorp preferred stock are not materially less favorable to the holder thereof than the voting rights associated with the First Niagara preferred stock.

The articles amendment will (i) provide that KeyCorp is not required to call a special meeting of preferred shareholders for the election of directors in certain circumstances if KeyCorp’s annual meeting will be held less than 90 days from the date a request for such special meeting is received from preferred shareholders; (ii) allow any holder of KeyCorp preferred stock to call such a special meeting at KeyCorp’s expense if the meeting is not called by KeyCorp within 20 days of receiving such a request (and, solely for the purpose of calling such special meeting, such preferred shareholder will have access to KeyCorp’s stock ledger); (iii) provide that KeyCorp’s preferred shareholders must approve any amendment of KeyCorp’s articles or regulations that would adversely affect the voting powers, rights or preferences of KeyCorp’s preferred shareholders (or any class thereof); and (iv) provide that KeyCorp’s preferred shareholders must approve any combination, majority share acquisition (each as defined by Ohio law), merger or consolidation of KeyCorp with another entity unless, in each case, (A) KeyCorp’s preferred stock remains outstanding or is converted into preference securities of the surviving or resulting corporation or a corporation controlling such corporation (in each case, which is an entity organized in the United States) and (B) the shares of preferred stock remaining outstanding or such new preference securities, as the case may be, have voting powers, rights, privileges and preferences that are not materially less favorable to the holders thereof than the voting powers, rights, privileges and preferences of the holders of KeyCorp’s preferred stock. In accordance with KeyCorp’s articles, KeyCorp’s Board of Directors has designated the remaining terms and rights of the new KeyCorp preferred stock. See “Description of KeyCorp Capital Stock” for a summary of the material terms of the new KeyCorp preferred stock and the form of amended articles set forth on Appendix D-2 to this joint proxy statement/prospectus.

The immediately preceding paragraph is a summary of the material provisions of the articles amendment and is not intended to be complete or to provide a comprehensive discussion of the articles amendment. This summary is qualified in its entirety by reference to the modifications to the articles set forth on Appendix D-1 and to the form of amended articles set forth on Appendix D-2 to this joint proxy statement/prospectus. We encourage you to read Appendix D-1 and Appendix D-2 carefully and in their entirety.

Upon approval of the articles amendment set forth on Appendix D-1 to this joint proxy statement/prospectus by KeyCorp shareholders, which has been approved by KeyCorp’s Board of Directors, KeyCorp would be authorized to file with the Secretary of State of the State of Ohio the amended articles as set forth on Appendix D-2 to this joint proxy statement/prospectus, and the articles amendment will thereafter become effective upon such filing. Except as contemplated by the articles amendment set forth on Appendix D-1 to this joint proxy statement/prospectus and the designation of the new KeyCorp preferred stock by KeyCorp’s Board of Directors in accordance with the articles, the provisions of the articles would remain unchanged.

KeyCorp shareholders must approve the articles amendment proposal in order for the merger to occur. If KeyCorp shareholders fail to approve the articles amendment proposal, the merger will not occur. Accordingly, KeyCorp is asking KeyCorp shareholders to vote to approve the articles amendment proposal, either by attending the KeyCorp special meeting and voting in person or by submitting a proxy. For the articles amendment proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN.” If you abstain or if your shares are not present at the KeyCorp special meeting, it will have the same effect as a vote “AGAINST” the articles amendment proposal. If you hold your KeyCorp common shares through a broker, bank or other nominee and you do not instruct your broker, bank or other nominee on how to vote your shares on the articles amendment proposal, your broker, bank or other nominee will not vote your shares on the articles amendment proposal, which broker non-votes will have the same effect as a vote “AGAINST” such proposal.

The KeyCorp Board of Directors unanimously recommends that KeyCorp shareholders vote “FOR” the articles amendment proposal.

 

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Regulations Amendment Proposal

KeyCorp is asking its shareholders to approve an amendment to its regulations set forth on Appendix E-1 of this joint proxy statement/prospectus in order to increase the maximum size of its Board of Directors from sixteen to seventeen members.

Pursuant to the merger agreement, KeyCorp will add three current members of First Niagara’s Board of Directors selected by First Niagara and reasonably acceptable to KeyCorp (including its Nominating and Corporate Governance Committee) to KeyCorp’s Board of Directors. As of the date of this joint proxy statement/prospectus, KeyCorp’s Board of Directors consisted of fourteen members. The regulations provide that KeyCorp’s Board of Directors must consist of no fewer than twelve and no more than sixteen members. In order to add First Niagara’s director nominees to KeyCorp’s existing Board of Directors, KeyCorp intends to amend the regulations to increase the maximum size of its Board of Directors from sixteen to seventeen members.

Upon approval of the regulations amendment as set forth on Appendix E-1 to this joint proxy statement/prospectus by KeyCorp’s shareholders, which has been approved by KeyCorp’s Board of Directors, KeyCorp’s regulations would be amended as set forth on Appendix E-2 to this joint proxy statement/prospectus. Except as contemplated by the regulations amendment, the provisions of KeyCorp’s regulations would remain unchanged.

KeyCorp shareholders are not required to approve the regulations amendment proposal in order for the merger to occur. If KeyCorp shareholders fail to approve the regulations amendment proposal, the merger may nonetheless occur. It is important, however, that KeyCorp shareholders vote to approve the regulations amendment proposal, either by attending the KeyCorp special meeting and voting in person or by submitting a proxy.

For the regulations amendment proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN.” If you abstain or if your shares are not present at the KeyCorp special meeting, it will have the same effect as a vote “AGAINST” the regulations amendment proposal. If you hold your KeyCorp common shares through a broker, bank or other nominee and you do not instruct your broker, bank or other nominee on how to vote your shares on the regulations amendment proposal, your broker, bank or other nominee will not vote your shares on the regulations amendment proposal, which broker non-votes will have the same effect as a vote “AGAINST” such proposal.

The KeyCorp Board of Directors unanimously recommends that KeyCorp shareholders vote “FOR” the regulations amendment proposal.

 

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KeyCorp Adjournment Proposal

The KeyCorp special meeting may be adjourned to another time or place, if necessary or appropriate to permit further solicitation of proxies in favor of the merger proposal and the articles amendment proposal.

If, at the KeyCorp special meeting, the number of KeyCorp common shares present in person or represented by proxy and voting in favor of the merger proposal and/or the articles amendment proposal is insufficient to approve the merger proposal and/or the articles amendment proposal, KeyCorp intends to move to adjourn the KeyCorp special meeting in order to enable the KeyCorp Board of Directors to solicit additional proxies for the approval of the merger proposal and/or the articles amendment proposal, as applicable.

In the KeyCorp adjournment proposal, KeyCorp is asking its shareholders to authorize the holder of any proxy solicited by the KeyCorp Board of Directors to vote in favor of granting discretionary authority to the proxy holders, and each of them individually, to adjourn the KeyCorp special meeting to another time and/or place for the purpose of soliciting additional proxies. If the KeyCorp shareholders approve the KeyCorp adjournment proposal, KeyCorp could adjourn the KeyCorp special meeting and any adjourned session of the KeyCorp special meeting and use the additional time to solicit additional proxies, including the solicitation of proxies from KeyCorp shareholders who have previously voted. KeyCorp does not intend to call a vote on adjournment of the special meeting to solicit additional proxies if both the merger proposal and the articles amendment proposal are approved at the special meeting. Pursuant to the merger agreement, KeyCorp is required to adjourn the special meeting to solicit additional proxies twice.

For the KeyCorp adjournment proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN.” An abstention will have the same effect as a vote “AGAINST” the KeyCorp adjournment proposal. If your shares are not present at the KeyCorp special meeting, it will have no effect on the KeyCorp adjournment proposal (assuming a quorum is present). If you hold your KeyCorp common shares through a broker, bank or other nominee and you do not instruct your broker, bank or other nominee on how to vote your shares on the KeyCorp adjournment proposal, your broker, bank or other nominee will not vote your shares on the KeyCorp adjournment proposal, which broker non-votes will have no effect on the vote count for such proposal.

The KeyCorp Board of Directors unanimously recommends that KeyCorp shareholders vote “FOR” the KeyCorp adjournment proposal (if necessary or appropriate).

 

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INFORMATION ABOUT THE COMPANIES

KeyCorp

127 Public Square

Cleveland, Ohio 44114

Phone: (216) 689-3000

KeyCorp is an Ohio business corporation that is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended. KeyCorp was organized in 1958. As of December 31, 2014, KeyCorp had consolidated total assets of $93.8 billion, deposits of $72 billion and shareholders’ equity of $10.5 billion. KeyCorp and its subsidiaries had an average of 13,853 full-time equivalent employees for 2014.

KeyCorp is the parent holding company for KeyBank, its principal subsidiary, through which most of its banking services are provided. Through KeyBank and certain other subsidiaries, KeyCorp provides a wide range of retail and commercial banking, commercial leasing, investment management, consumer finance, commercial mortgage servicing and special servicing, and investment banking products and services to individual, corporate, and institutional clients through two major business segments: Key Community Bank and Key Corporate Bank. Key Community Bank serves individuals and small to mid-sized businesses by offering a variety of deposit, investment, lending, credit card, and personalized wealth management products and business advisory services. These products and services are provided through relationship managers and specialists working in a 12-state branch network, which is organized into eight internally defined geographic regions: Pacific, Rocky Mountains, Indiana, Western Ohio and Michigan, Eastern Ohio, Western New York, Eastern New York, and New England. Key Corporate Bank is a full-service corporate and investment bank focused principally on serving the needs of middle market clients in seven industry sectors: consumer, energy, healthcare, industrial, public sector, real estate, and technology. Key Corporate Bank delivers a broad product suite of banking and capital markets products to its clients, including syndicated finance, debt and equity capital markets, commercial payments, equipment finance, commercial mortgage banking, derivatives, foreign exchange, financial advisory, and public finance. Key Corporate Bank is also a significant servicer of commercial mortgage loans and a significant special servicer of commercial mortgage-backed securities. Key Corporate Bank delivers many of its product capabilities to clients of Key Community Bank.

First Niagara Financial Group, Inc.

726 Exchange Street, Suite 618

Buffalo, New York 14210

Phone: (716) 819-5500

First Niagara Financial Group, Inc. is a Delaware corporation and a bank holding company, subject to supervision and regulation by the Federal Reserve Board, serving both retail and commercial customers through its bank subsidiary, First Niagara Bank. At December 31, 2014, First Niagara had $38.6 billion of assets, $27.8 billion of deposits and $4.1 billion of stockholders’ equity.

First Niagara Bank was organized in 1870, and is a nationally chartered regional bank providing financial services to individuals, families and businesses. In November 2002, First Niagara Bank was converted from a New York State chartered savings bank to a federal charter and in April 2010, First Niagara Bank became a national bank subject to supervision and regulation by the Office of the Comptroller of the Currency. First Niagara Bank is positioned as a leading regional bank, with its footprint reaching across New York, Western and Eastern Pennsylvania, Connecticut and Western Massachusetts, providing retail consumer and business customers with banking services including residential and commercial real estate loans, commercial business loans, consumer loans, wealth management products, as well as retail and commercial deposit products. As of December 31, 2014, First Niagara Bank consolidated with its subsidiaries had $38.5 billion of assets, $28.0 billion of deposits, and $4.4 billion of stockholder’s equity, employed over 5,700 people, and operated through 411 branches and several financial services subsidiaries.

 

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First Niagara Bank’s subsidiaries provide a range of financial services to individuals and companies: First Niagara Funding, Inc. and First Niagara Business Trust, each a real estate investment trust which primarily originate and hold some commercial real estate and business loans, certain residential mortgages, and home equity loans; First Niagara Realty, Inc., which holds commercial other real estate owned; First Niagara Servicing Company, which owns and partially services loans that are collateralized by property in Connecticut; and First Niagara Risk Management, Inc., a full service insurance agency, which sells insurance products, including business and personal insurance, surety bonds, life, disability and long-term care coverage. First Niagara Risk Management also provides risk management advisory services such as alternative risk and self-insurance, claims investigation and adjusting services, and third-party administration of self-insured workers’ compensation plans.

 

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THE MERGER

The following is a discussion of the merger and the material terms of the merger agreement between KeyCorp and First Niagara. You are urged to read carefully the merger agreement in its entirety, a copy of which is attached as Appendix A to this joint proxy statement/prospectus and incorporated by reference herein. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. We encourage you to read the merger agreement carefully and in its entirety. This section is not intended to provide you with any factual information about KeyCorp or First Niagara. Such information can be found elsewhere in this joint proxy statement/prospectus and in the public filings KeyCorp and First Niagara make with the SEC. See “Where You Can Find More Information” in the forepart of this joint proxy statement/prospectus.

Terms of the Merger

Transaction Structure

KeyCorp’s and First Niagara’s Boards of Directors have approved the merger agreement. The merger agreement provides for the acquisition of First Niagara by KeyCorp through the merger of First Niagara with and into KeyCorp, with KeyCorp continuing as the surviving corporation.

Pursuant to the merger agreement, KeyCorp and First Niagara may at any time change the method of effecting the combination of KeyCorp and First Niagara if and to the extent both parties mutually deem such a change to be desirable. However, no such change may (i) alter or change the amount or kind of the merger consideration, (ii) impede or delay the consummation of the merger or (iii) adversely affect the tax treatment of the merger with respect to First Niagara stockholders.

Merger Consideration

Each share of First Niagara common stock issued and outstanding immediately prior to the effective time of the merger (other than shares owned by First Niagara as treasury stock or otherwise owned by First Niagara or KeyCorp and any dissenting shares), will be converted into the right to receive 0.680 KeyCorp common shares and $2.30 in cash. Each share of First Niagara preferred stock issued and outstanding immediately prior to the effective time of the merger will automatically be converted into a share of the new KeyCorp preferred stock.

Conversion of Shares; Exchange and Payment Procedures

At or prior to the closing, KeyCorp will deposit or cause to be deposited with an exchange agent designated by KeyCorp and reasonably acceptable to First Niagara, for the benefit of the holders of shares of First Niagara common stock, sufficient cash and KeyCorp common shares to be exchanged in accordance with the merger agreement, including the merger consideration and payment of cash in lieu of fractional shares.

The conversion of First Niagara common stock into the right to receive the merger consideration and the conversion of the First Niagara preferred stock into the new KeyCorp preferred stock will occur automatically at the effective time of the merger. As promptly as practicable after the effective time of the merger, the exchange agent will exchange certificates representing shares of First Niagara common stock for merger consideration to be received in the merger pursuant to the terms of the merger agreement.

Letters of Transmittal

As promptly as practicable after the effective time of the merger, but in any event within ten days thereafter, the exchange agent will send a letter of transmittal to only those persons who were First Niagara stockholders immediately prior to the effective time of the merger. This mailing will contain instructions on how to surrender shares of First Niagara common stock in exchange for the merger consideration the holder is entitled to receive

 

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under the merger agreement. From and after the effective time, First Niagara stockholders who properly surrender their certificates or book entry shares to the exchange agent, together with a properly completed and duly executed letter of transmittal, and such other documents as may be required pursuant to such instructions, will receive for each share of First Niagara common stock 0.680 KeyCorp common shares, $2.30 in cash plus any cash payable in lieu of any fractional shares of KeyCorp common shares, and any dividends or distributions such holder has the right to receive pursuant to the merger agreement. No interest will be paid or accrue on any merger consideration or cash in lieu of fractional shares.

Dividends and Distributions

Until First Niagara common stock certificates or book entry shares are surrendered for exchange, any dividends or other distributions with a record date after the effective time of the merger with respect to KeyCorp common shares into which shares of First Niagara common stock may have been converted will accrue but will not be paid. KeyCorp will pay to former First Niagara stockholders any unpaid dividends or other distributions, without interest, only after they have duly surrendered their First Niagara stock certificates or book entry shares. After the effective time of the merger, there will be no transfers on the stock transfer books of First Niagara of any shares of First Niagara common stock. If certificates representing shares of First Niagara common stock or book entry shares are presented for transfer after the effective time of the merger, they will be cancelled and exchanged for the merger consideration into which the shares of First Niagara common stock represented by that certificate or book entry share have been converted.

Dissenting Shares

Shares held by First Niagara stockholders who have perfected and not lost their right to demand dissenters’ rights of appraisal in accordance with the procedures and requirements of Delaware law will not be converted into the right to receive the merger consideration, and such First Niagara stockholders will instead be entitled only to the rights granted by Delaware law. If any such First Niagara stockholder withdraws or loses his or her right to dissent under Delaware law at or prior to the effective time of the merger, the shares of First Niagara common stock held by such First Niagara stockholder will be converted into the right to receive the merger consideration.

Lost, Stolen or Destroyed Stock Certificates

If a certificate for First Niagara common stock has been lost, stolen or destroyed, the exchange agent will issue the merger consideration properly payable under the merger agreement upon receipt of appropriate evidence as to that loss, theft or destruction, appropriate evidence as to the ownership of that certificate by the claimant, and appropriate and customary indemnification.

Background of the Merger

As part of First Niagara’s continuous efforts to increase value for stockholders and other constituencies, the First Niagara Board of Directors and executive management regularly review and assess First Niagara’s business plans and strategic opportunities and challenges. In recent years, these strategic discussions have been set against a backdrop of, among other things, business performance, the impact of low interest rates and the challenging regulatory, compliance and competitive environments facing financial institutions generally, and First Niagara in particular. The First Niagara Board of Directors and executive management routinely reviewed strategic and investment alternatives including, among others, increased investment in First Niagara’s technology infrastructure, selling branches in different geographies, divesting or acquiring specific lines of business, and a multitude of balance sheet restructuring and de-levering opportunities. In addition, the First Niagara Board of Directors and executive management have evaluated the expected current and future earnings impact of the various strategic alternatives in the context of its capital position, risk appetite, asset and deposit acquisition capabilities and multiple interest rate scenarios in the “low for longer” interest rate environment. From time to time, the First Niagara Board of Directors has discussed inquiries received from third parties regarding potential strategic transactions.

 

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In the second quarter of 2015, the First Niagara Board of Directors selected J.P. Morgan Securities LLC (which we refer to as “J.P. Morgan”) to work with First Niagara’s management team to review First Niagara’s strategic alternatives.

On July 29, 2015, the First Niagara Board of Directors met to consider and discuss management’s and J.P. Morgan’s analyses. Representatives of First Niagara’s management team and representatives from J.P. Morgan and Sullivan & Cromwell LLP (which we refer to as “Sullivan & Cromwell”), First Niagara’s outside counsel, were also in attendance. Representatives from management and J.P. Morgan discussed with the First Niagara Board of Directors the financial aspects of First Niagara continuing on a standalone basis. J.P. Morgan also discussed the recent performance of the banking industry, recent merger transactions in the industry, and a potential acquisition of First Niagara by certain likely interested transaction partners. Executive management discussed a range of future business strategies and financial outcomes in the context of current and possible future interest rate scenarios. Representatives of Sullivan & Cromwell then discussed the First Niagara Board of Directors’ fiduciary duties in general in connection with its evaluation of strategic alternatives, the regulatory requirements for approvals of bank acquisition transactions and the regulatory environment for banks in general and for bank acquisition transactions in particular. Following discussion regarding the advantages and disadvantages of continuing to pursue First Niagara’s standalone strategic plan versus a potential sale of First Niagara, the First Niagara Board of Directors authorized and directed management to work with J.P. Morgan to begin to explore a potential sale transaction, including by authorizing J.P. Morgan to solicit initial indications of interest with respect to a potential transaction, based solely on First Niagara’s publicly available information, from three financial institutions, consisting of KeyCorp and two other financial institutions which we refer to as “Party A” and “Party B.” The three financial institutions were selected based on likelihood of interest, financial capacity, perceived business and cultural fit and perceived potential to obtain required regulatory approvals.

J.P. Morgan then contacted the three financial institutions on First Niagara’s behalf and engaged in preliminary, exploratory discussions regarding a potential acquisition of First Niagara with representatives of such institutions. Each of KeyCorp, Party A and Party B expressed interest in a potential transaction and provided oral initial indications of interest to J.P. Morgan on August 27, 2015, which indications implied, in the aggregate, a range of indicative values of $10.00 to $11.50 per share of First Niagara common stock at such time.

On September 9, 2015, the First Niagara Board of Directors held a special meeting to review and consider the indications of interest. Representatives of J.P. Morgan provided an overview of the process conducted to date and reviewed with the First Niagara Board of Directors each of the financial institutions that had submitted initial indications of interest and the terms of such indications of interest. At the conclusion of the meeting, the First Niagara Board of Directors authorized management to populate an electronic due diligence data room and authorized J.P. Morgan to invite KeyCorp, Party A and Party B, as well as one additional financial institution that was invited to participate in the bid process after expressing interest in a potential transaction with First Niagara (which we refer to as “Party C”), to engage in a two-round bid process. The First Niagara Board of Directors also authorized the formation of a transaction committee of the First Niagara Board of Directors comprised of three independent directors, Nathaniel Woodson, Austin Adams and Carl Florio, which we refer to as the “Transaction Committee.” The purpose of the Transaction Committee was to provide guidance to management and J.P. Morgan as they solicited and evaluated indications of interest and, if ultimately appropriate, to recommend action to the full First Niagara Board of Directors with respect to any potential strategic transaction. The First Niagara Board of Directors believed that the formation of the Transaction Committee comprised of a smaller number of directors would allow for more timely and efficient feedback to First Niagara management and J.P. Morgan in carrying out the First Niagara Board of Directors’ directives.

During the week of September 13, 2015, KeyCorp and two other bidders, Party A and Party C, executed confidentiality agreements with customary and waivable standstill provisions with First Niagara and were given access to an electronic data room with non-public information regarding First Niagara’s lines of business, current balance sheet information, including loan and deposit data, credit quality information, contract and vendor information, and recent financial operating performance. Over the course of the next several weeks, representatives of First

 

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Niagara management, J.P. Morgan and Sullivan & Cromwell worked with representatives of the bidders and their respective advisors to facilitate their respective due diligence investigations of First Niagara, including through face-to-face meetings and conference calls between the senior executive management teams of First Niagara and each of KeyCorp, Party A and Party C.

On September 15, 2015, KeyCorp engaged Morgan Stanley & Co. LLC (which we refer to as “Morgan Stanley”) to serve as its financial advisor in connection with the possible transaction with First Niagara.

Also on September 15, 2015, First Niagara management began conducting weekly conference calls with the Transaction Committee, during which First Niagara management provided updates on the bid process to the Transaction Committee. The weekly calls continued until the execution of the merger agreement.

On September 17, 2015, at a regularly scheduled meeting of the KeyCorp Board of Directors, KeyCorp management presented an overview of the potential transaction with First Niagara and transaction considerations.

On September 19, 2015, J.P. Morgan received an oral initial indication of interest from Party C, based on publicly available information about First Niagara and the due diligence conducted by Party C to date, which implied an indicative valuation range of $10.50 to $11.50 per share of First Niagara common stock at such time.

On or about September 22, 2015, Party B, one of the three parties that submitted an initial indication of interest on August 27, 2015, informed J.P. Morgan that Party B had decided to withdraw its initial indication of interest and not to participate further in the bid process. Party B had not executed a confidentiality agreement with First Niagara prior to such withdrawal.

Late in the afternoon on September 22, 2015, various media sources reported that an industry publication had reported that First Niagara was working with J.P. Morgan to evaluate strategic alternatives. Following these reports, the closing stock price of First Niagara’s common stock on the Nasdaq Global Select Market on September 23, 2015, increased to $10.26, from a closing stock price of $8.96 on September 22, 2015. No additional financial institutions that were not already involved in the bid process contacted First Niagara or J.P. Morgan regarding a potential transaction with First Niagara following the reports.

On September 29, 2015, the KeyCorp Board of Directors met, with representatives of Morgan Stanley in attendance, to discuss a potential transaction with First Niagara. During the meeting, KeyCorp management described the discussions, meetings and activities relating to the potential transaction to date, including due diligence findings and meetings, and provided the KeyCorp Board of Directors with a high level overview of First Niagara. The KeyCorp Board of Directors agreed that KeyCorp should continue a comprehensive due diligence review and work towards a potential transaction with First Niagara.

On September 30, 2015, the First Niagara Board of Directors discussed the potential for a transaction at a regularly scheduled meeting. Representatives of J.P. Morgan updated the First Niagara Board of Directors on the status of the process, described the three parties with which First Niagara had executed confidentiality agreements and reviewed with the First Niagara Board of Directors the financial aspects of the initial indications of interest received from KeyCorp and Party A on August 27, 2015 and Party C on September 19, 2015, as applicable. Members of First Niagara’s senior management team provided an overview of the due diligence conducted by each of the three bidders. Senior management also discussed the timeline for First Niagara’s reverse due diligence investigation of the three bidders, and representatives of Sullivan & Cromwell discussed the process with respect to obtaining information regarding the bidders’ respective abilities to complete a transaction with First Niagara on a timely basis. The First Niagara Board of Directors discussed the potential for a transaction and its expected impact on First Niagara and its stockholders, employees and the communities in which it operates, and the risks associated with execution of a transaction and its integration. They also discussed First Niagara’s historical financial, operating and market price performance relative to its peers and the potential strategic fit and benefits of a business combination with each of the bidders. After an extensive discussion of this information, the First Niagara Board of Directors authorized its management team to continue with the bid process.

 

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On October 1, 2015, First Niagara engaged a nationally recognized, third party consultant (which we refer to as the “Consultant”) to perform an estimated analytically-derived valuation of First Niagara on a standalone basis using information provided by First Niagara, publicly available information and the Consultant’s business judgment. The Consultant utilized various methodologies and analyses in order to estimate a range of First Niagara’s valuation as a standalone entity. The Consultant also assessed, based upon previous merger transactions in the industry, potential share price volatility if the First Niagara Board of Directors were to publicly announce that First Niagara would remain independent. The Consultant additionally reviewed certain strategic initiatives previously evaluated by First Niagara management and presented other potential balance sheet restructuring and strategic actions that First Niagara could take to improve its earnings. The Consultant was independent and its compensation was based on the advisory work completed, and not on the outcome of any transaction.

The KeyCorp Board of Directors held a meeting on October 2, 2015, which was attended by KeyCorp management and representatives of Morgan Stanley, and a meeting on October 5, 2015, which was attended by KeyCorp management, representatives of Morgan Stanley and a representative from Simpson Thacher & Bartlett LLP (which we refer to as “Simpson Thacher”), counsel to KeyCorp. During these meetings, KeyCorp management updated the KeyCorp Board of Directors on the status of discussions with First Niagara regarding a potential transaction and reviewed with the KeyCorp Board of Directors the preliminary results of its continued due diligence with respect to First Niagara to date. Also during the meetings, representatives of Morgan Stanley provided to the KeyCorp Board of Directors their preliminary review of the financial aspects of a potential transaction. The KeyCorp Board of Directors discussed the proposed business combination and authorized management to continue to work towards a potential transaction. During the October 5, 2015 meeting, KeyCorp management presented to the KeyCorp Board of Directors a draft of a non-binding indication of interest with respect to the potential transaction, and the KeyCorp Board of Directors authorized management to submit such indication of interest to First Niagara.

On October 6, 2015, each of KeyCorp, Party A and Party C submitted an updated, non-binding indication of interest to J.P. Morgan and First Niagara. KeyCorp’s proposal included merger consideration payable 80% in the form of KeyCorp common shares and 20% in cash, while the offers from Party A and Party C provided for merger consideration consisting 100% of common stock. Specifically, KeyCorp’s proposal provided for a fixed aggregate consideration of $784 million in cash and 235.875 million KeyCorp common shares based on 356.225 million shares of First Niagara common stock outstanding on a fully diluted basis, which implied a per share consideration of approximately 0.662 KeyCorp common shares and $2.20 in cash for each share of outstanding First Niagara common stock, representing an indicative value of $11.00 per share based on KeyCorp’s closing stock price of $13.29 as of October 5, 2015. The closing stock price of First Niagara’s common stock on that day was $10.55. KeyCorp’s proposal also provided, among other things, that First Niagara’s outstanding preferred stock would be converted into preferred stock of KeyCorp with substantially the same terms and that all First Niagara’s outstanding equity awards would be converted into equity awards based on KeyCorp common shares. It also noted that KeyCorp would honor existing commitments of the First Niagara Foundation and intended to make a meaningful contribution to the First Niagara Foundation. Party A’s proposal provided for merger consideration with an indicative value of $9.75 to $10.50 per share of First Niagara common stock based on Party A’s closing stock price as of October 5, 2015, and Party C’s proposal provided for merger consideration with an indicative value of $10.50 to $11.50 per share of First Niagara common stock based on Party C’s closing stock price as of October 5, 2015.

The Transaction Committee met on October 7, 2015 and October 9, 2015 to discuss the proposals, followed by a meeting of the full First Niagara Board of Directors on October 12, 2015. At the meeting of the First Niagara Board of Directors, representatives of J.P. Morgan discussed information about each of the three bidders and the financial terms of their respective proposals. The Consultant presented to the First Niagara Board of Directors regarding the Consultant’s estimated valuation and related analyses. The First Niagara Board of Directors took into account a range of considerations, including the Consultant’s analyses, and determined that First Niagara’s estimated standalone valuation was likely to be materially lower than any of the proposals from the bidders, and

 

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that the potential decline in share price upon an announcement that First Niagara would remain independent was likely to be immediate and material. Representatives of Sullivan & Cromwell reviewed again with the First Niagara Board of Directors its fiduciary duties in connection with a potential strategic business combination transaction and the regulatory requirements for the transaction. They reviewed the potential for each bidder to obtain regulatory approval in a timely manner and other aspects of the regulatory approval process, including the potential that regulators would require branch divestitures in various geographic areas in order to approve a transaction, and described the significant terms of a draft merger agreement to be circulated to the bidders selected by the First Niagara Board of Directors to continue to the second round of the bid process. The First Niagara Board of Directors instructed J.P. Morgan to invite all three bidders to continue to the second round of the bid process. That evening, J.P. Morgan sent a draft merger agreement prepared by Sullivan & Cromwell to each of the three bidders.

On October 15, 2015, Party C informed First Niagara and J.P. Morgan that it had decided to withdraw its proposal and not to participate further in the bid process.

On October 16, 2015, the KeyCorp Board of Directors participated in a telephonic conference call with KeyCorp management and representatives of Morgan Stanley during which KeyCorp management reviewed the status of KeyCorp’s due diligence performed to date with respect to First Niagara.

Also on October 16, 2015, KeyCorp provided a revised draft of the merger agreement to First Niagara.

Thereafter, discussions between First Niagara, KeyCorp and Party A and their respective advisors continued, and the parties began to negotiate the terms of the potential transaction. These terms included, among other items, the structure of the potential transaction, post-closing governance matters and the treatment of, and compensation and benefits to, continuing employees of the surviving company. In connection with these discussions, on October 21, 2015, Party A’s counsel delivered a revised draft of the merger agreement to J.P. Morgan, and Sullivan & Cromwell provided further revised drafts of the merger agreement to counsel to KeyCorp and Party A on October 22, 2015 and October 23, 2015, respectively. First Niagara also began to conduct a formal reverse due diligence investigation of KeyCorp and Party A, including through face-to-face meetings and conference calls between the senior management teams of First Niagara and the two bidders and through review of materials in electronic due diligence data rooms for each of the two parties established for reverse due diligence purposes.

On October 23, 2015, the KeyCorp Board of Directors participated in a telephonic conference call with KeyCorp management and representatives of Morgan Stanley during which KeyCorp management updated the KeyCorp Board of Directors on the status of KeyCorp’s due diligence findings with respect to First Niagara and provided a summary of KeyCorp’s acquisition and integration plans.

Members of First Niagara’s senior management met with Gary M. Crosby, First Niagara’s Chief Executive Officer, on October 24, 2015 to provide a detailed review of the results of the reverse due diligence and also met with the Transaction Committee on October 25, 2015 to discuss such results.

On October 25, 2015, the KeyCorp Board of Directors, members of KeyCorp management and representatives of Morgan Stanley and Simpson Thacher met and reviewed the current terms of the merger agreement for the proposed transaction based on recent negotiations with First Niagara. KeyCorp management updated the KeyCorp Board of Directors on the meetings between management teams regarding the potential transaction with First Niagara. KeyCorp management presented to the KeyCorp Board of Directors a draft of a final non-binding indication of interest with respect to the transaction, and the KeyCorp Board of Directors authorized management to submit such indication of interest to First Niagara and continue negotiations to reach a definitive agreement.

Also on October 25, 2015, following separate discussions between Sullivan & Cromwell and counsel to each of KeyCorp and Party A, respectively, each of KeyCorp and Party A delivered to Sullivan & Cromwell a revised draft of the merger agreement to be considered with each of the proposals to be submitted by KeyCorp and Party

 

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A on the following day. The draft provided by KeyCorp included requirements for KeyCorp to add three current members of the First Niagara Board of Directors reasonably acceptable to KeyCorp (including its Nominating and Corporate Governance Committee) to the KeyCorp Board of Directors, to contribute $20 million to the First Niagara Foundation upon the closing of the merger and to use commercially reasonable efforts to support a meaningful employee presence in Western New York.

On October 26, 2015, KeyCorp and Party A each submitted a final non-binding indication of interest to J.P. Morgan and First Niagara. KeyCorp increased its offer from its previous proposal and provided for merger consideration consisting of a fixed exchange ratio of 0.680 KeyCorp common shares and $2.30 in cash for each share of outstanding First Niagara common stock based on 356.272 million shares of First Niagara common stock outstanding on a fully diluted basis, which represented an indicative value of $11.49 per share based on KeyCorp’s closing stock price of $13.52 as of October 23, 2015. The closing price of First Niagara’s common stock on that day was $10.64. In addition to KeyCorp’s proposed treatment of First Niagara’s preferred stock and equity awards (which was also included in KeyCorp’s previous indication of interest described above), the proposal noted that KeyCorp had completed its due diligence investigation of First Niagara and that it believed it could announce a transaction quickly. Party A had also increased its offer from the range provided in its previous proposal, which increased offer was in the form of 100% Party A common stock and provided for merger consideration representing an indicative value of $11.05 per share based on Party A’s closing stock price as of October 23, 2015.

On the afternoon of October 26, 2015, the Transaction Committee held a meeting to consider the status of the proposed transaction and the final offers from KeyCorp and Party A. Representatives of J.P. Morgan discussed the financial aspects of each of the proposals, observing that the proposal from KeyCorp reflected the higher implied value per share of First Niagara common stock at that time. Representatives from KeyCorp and Party A then made presentations to the Transaction Committee regarding their proposals.

On the evening of October 26, 2015, the First Niagara Board of Directors held a meeting to consider the status of the proposed transaction and the final offers from KeyCorp and Party A. The Transaction Committee discussed with the First Niagara Board of Directors the presentations made by KeyCorp and Party A to the Transaction Committee earlier that day and recommended to the full First Niagara Board of Directors that First Niagara continue negotiations with KeyCorp. After discussion of a proposed transaction, the status of discussions with KeyCorp and Party A and the risks inherent in a transaction with either party (including the potential that regulators would require branch divestitures in order to approve a transaction), the First Niagara Board of Directors determined to continue negotiations with KeyCorp. In making its determination, the First Niagara Board of Directors considered the higher indicative value at the time of the proposal from KeyCorp, as compared to Party A’s proposal, the perceived cultural and strategic fit of a potential combination with KeyCorp, the outlook for KeyCorp common shares, the potential that KeyCorp would be able to obtain regulatory approvals for the transaction on a timely basis, and other factors, including the factors described under “—Recommendation of the First Niagara Board of Directors and Reasons for the Merger,” beginning on page 58.

On October 27, 2015, the First Niagara Board of Directors met to review the proposed transaction and meet with senior executives of KeyCorp. Representatives from J.P. Morgan reviewed with the First Niagara Board of Directors various financial aspects of the proposed transaction, which included the proposed exchange ratio and the implied value of the transaction to First Niagara stockholders. First Niagara’s senior management presented the results of the reverse due diligence review of KeyCorp to the First Niagara Board of Directors. Finally, Beth Mooney, the Chief Executive Officer of KeyCorp, and Don Kimble, the Chief Financial Officer of KeyCorp, joined the meeting, presented KeyCorp’s proposal and its vision of the combined company, and engaged in dialogue with the First Niagara Board of Directors regarding the proposed transaction. Thereafter, the First Niagara Board of Directors determined to continue its transaction process with KeyCorp, and authorized management to continue negotiations to reach a definitive agreement with KeyCorp. First Niagara then informed Party A that First Niagara was pursuing a transaction with another party, and discussions between First Niagara and Party A with respect to a potential transaction ceased.

 

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Over the course of the next few days, Sullivan & Cromwell and Simpson Thacher continued to engage in negotiations to finalize the terms of the proposed transaction.

On October 29, 2015, the KeyCorp Board of Directors held a special meeting to consider approval of the merger agreement and the transactions contemplated by the merger agreement, including the merger. At the meeting, the KeyCorp Board of Directors received an update from the KeyCorp management team on the status of negotiations with First Niagara and information regarding the proposed merger and the combined business, and reviewed the terms of the proposed transaction and the strategic rationale and anticipated benefits of the proposed transaction to KeyCorp’s shareholders. Representatives of Morgan Stanley reviewed the financial analyses performed by Morgan Stanley in connection with its evaluation of the consideration to be paid by KeyCorp in connection with the merger, including discussing the various financial methodologies used in its analysis. Morgan Stanley then rendered an oral opinion (which was subsequently confirmed in writing by delivery of Morgan Stanley’s written opinion dated October 29, 2015) to the effect that, as of October 29, 2015, and based upon and subject to the various assumptions, considerations, qualifications and limitations stated in its opinion, the merger consideration to be paid by KeyCorp pursuant to the merger agreement was fair, from a financial point of view, to KeyCorp. See “—Opinion of KeyCorp’s Financial Advisor,” beginning on page 74. A representative from Simpson Thacher reviewed the terms of the merger agreement. After considering the proposed terms of the merger agreement and the presentation of its financial advisor, and taking into consideration the matters discussed during that meeting and during prior meetings of the KeyCorp Board of Directors, including the factors described under “—Recommendation of the KeyCorp Board of Directors and Reasons for the Merger,” beginning on page 72, the KeyCorp Board of Directors unanimously determined that the merger with First Niagara was advisable and in the best interests of KeyCorp and KeyCorp’s shareholders and voted unanimously to approve and adopt the merger agreement and the transactions contemplated thereby and recommended that KeyCorp’s shareholders approve the merger agreement. The KeyCorp Board of Directors then directed KeyCorp’s management to finalize and execute a definitive merger agreement on the terms reviewed at the Board meeting.

On the evening of October 29, 2015, the First Niagara Board of Directors met with members of First Niagara’s management team and its financial and legal advisors to further review the proposed transaction. First Niagara’s management team apprised the First Niagara Board of Directors of its most recent discussions with regulators concerning the proposed transaction. Members of First Niagara’s management team and representatives of Sullivan & Cromwell updated the First Niagara Board of Directors on the progression of negotiations with KeyCorp and certain changes to the terms of the merger agreement since the last meeting of the First Niagara Board of Directors. Representatives of J.P. Morgan updated its presentation on the financial aspects of the proposed transaction, and delivered its oral opinion to the First Niagara Board of Directors, subsequently confirmed in writing, that as of such date and based upon and subject to the various factors, assumptions and limitations set forth in its opinion, the merger consideration to be paid to the holders of First Niagara common stock in the proposed transaction with KeyCorp was fair, from a financial point of view, to such holders. See “—Opinion of First Niagara’s Financial Advisor,” beginning on page 62. Sullivan & Cromwell reviewed the key terms of the draft merger agreement delivered by Simpson Thacher to Sullivan & Cromwell on October 25, 2015 and reviewed the regulatory requirements for a transaction with KeyCorp. Following these discussions, and extensive review and discussion among First Niagara’s directors, including consideration of the factors described under “—Recommendation of the First Niagara Board of Directors and Reasons for the Merger,” beginning on page 58, and consideration of the above referenced presentations, the First Niagara Board of Directors unanimously approved and adopted the merger agreement and the transactions contemplated thereby, and declared the merger and other transactions contemplated by the merger agreement to be advisable and in the best interests of First Niagara and its stockholders. The First Niagara Board of Directors then directed management and its advisors to finalize and execute a definitive merger agreement on the terms reviewed at the Board meeting. The First Niagara Board of Directors directed that the merger agreement be submitted to First Niagara stockholders for approval and recommended that First Niagara’s stockholders approve and adopt the merger agreement.

 

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Following the meeting of the First Niagara Board of Directors on October 29, 2015, and after finalizing the merger agreement, First Niagara and KeyCorp executed the merger agreement early in the morning of October 30, 2015. The transaction was announced in the morning of October 30, 2015 before the opening of the stock markets in New York.

Recommendation of the First Niagara Board of Directors and Reasons for the Merger

In reaching its decision to approve and adopt the merger agreement, the merger and the other transactions contemplated by the merger agreement, and to recommend that its stockholders approve the merger proposal, the First Niagara Board of Directors consulted with First Niagara management, as well as its financial and legal advisors, and considered a number of factors, including the following factors:

 

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the extensive review undertaken by the First Niagara Board of Directors and management, with the assistance of financial and legal advisors, with respect to the strategic alternatives available to First Niagara;

 

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the challenges facing First Niagara as an independent institution and the First Niagara Board of Directors’ belief that combining with a larger financial institution would benefit First Niagara’s stockholders, customers and communities;

 

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the fact that the implied value of the merger consideration as of October 28, 2015 of about $11.75 for each share of First Niagara common stock, based on KeyCorp’s closing stock price of $13.90 on that date, represented a 8.4% premium over the closing price of First Niagara’s common stock on October 28, 2015, and a 31.2% premium over the closing price of its common stock on September 22, 2015 (the last trading day before the September 2015 press reports);

 

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each of First Niagara’s and KeyCorp’s business, operations, financial condition, asset quality, earnings and prospects;

 

•

the anticipated pro forma impact of the merger on the combined company, including the expected impact on financial metrics including earnings and on regulatory capital levels;

 

•

the current and prospective environment in which First Niagara and KeyCorp operate, including national and local economic conditions, the interest rate environment, the competitive and regulatory environments for financial institutions generally, and the likely effect of these factors on First Niagara both with and without the merger;

 

•

the capital and earnings available to First Niagara as an independent company, at the time and as expected in the future, to pursue various business and strategic initiatives;

 

•

the historical performance of KeyCorp common shares, the KeyCorp common shares’ liquidity in terms of average daily trading volume and the level of future cash dividends anticipated to be received by First Niagara’s stockholders;

 

•

the fact that 80% of the merger consideration would be in stock and with a fixed exchange ratio, which would allow First Niagara’s stockholders to participate in the future performance of the combined company;

 

•

the terms of the merger agreement, including the fixed cash and stock consideration, the expected tax treatment of the merger as a “reorganization” for United States federal income tax purposes and the size of the termination fee in relation to the overall transaction size;

 

•

the complementary nature of the business strategies, customers, cultures, geographic areas and business lines of the two companies, which management believes should provide the opportunity to mitigate integration risks and increase potential returns including that:

 

•

the geographic scope of the two companies contains overlap, enabling cost savings and achievement of synergies;

 

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•

the nature of the business strategies, customers and geographic areas of the two companies would enable First Niagara to achieve goals it would have independently attempted to pursue in connection with its strategic plan (including greater cross-selling opportunities based on complementary product sets); and

 

•

the similarities in the two companies’ community bank operating model and culture, and KeyCorp’s commitment to supporting the local communities it serves;

 

•

KeyCorp’s record of performance over a substantial period of time and throughout various economic cycles, including its earnings record;

 

•

the written opinion of J.P. Morgan, First Niagara’s financial advisor, dated as of October 29, 2015, delivered to the First Niagara Board of Directors to the effect that, as of such date, and based upon and subject to the various factors, assumptions and limitations set forth in its opinion, the merger consideration to be paid to the holders of First Niagara common stock in the proposed transaction with KeyCorp was fair, from a financial point of view, to such holders, as more fully described below under “Opinion of First Niagara’s Financial Advisor;”

 

•

KeyCorp’s record of service to its communities as exemplified by its “Outstanding” Community Reinvestment Act examination rating for several years;

 

•

the superior nature of the proposal (including indicative value and other elements) from KeyCorp as compared to the proposals by Party A and other parties that previously had expressed interest in a transaction with First Niagara;

 

•

the fact that, in the current regulatory environment, many institutions would not be able to obtain regulatory approval for a strategic transaction with First Niagara in a timely manner or at all;

 

•

the fact that the merger agreement provides that First Niagara may take certain actions in response to an unsolicited bona fide written acquisition proposal under specific circumstances, including the First Niagara Board of Directors’ determination (in accordance with the merger agreement and after consultation with First Niagara’s outside legal counsel and financial advisor) that the failure to take such actions would reasonably be expected to violate its fiduciary duties under applicable law;

 

•

its review and discussions with First Niagara’s management and financial and legal advisors concerning the due diligence examination of KeyCorp;

 

•

the potential risks associated with successfully integrating First Niagara’s business, operations and workforce with those of KeyCorp, including the costs and risks of successfully integrating the two companies;

 

•

the potential risk of diverting management attention and resources from the operation of First Niagara’s and KeyCorp’s business and towards the completion of the merger and the integration of the two companies;

 

•

the regulatory and other approvals required in connection with the merger, consideration of the relevant factors expected to be assessed by the regulators for the approvals and the parties’ evaluations of those factors, the expected likelihood that such approvals could be received in a reasonably timely manner and without the imposition of unacceptable conditions and the possibility that regulators may impose certain restrictions on the combined operations of First Niagara and KeyCorp (including branch divestitures) in order to grant the required approvals;

 

•

the First Niagara Board of Directors’ consideration, consistent with the First Niagara charter, of KeyCorp’s commitment in the merger agreement to:

 

•

provide continuing employees of First Niagara with annual base salary or wages, annual incentive opportunities and long-term incentive compensation opportunities that are no less favorable than those in effect for such employees immediately prior to the effective time of the merger, in each case, for a period of one year following the effective time of the merger;

 

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•

use commercially reasonable efforts to support a continued meaningful employee presence in Western New York; and

 

•

contribute $20 million to the First Niagara Foundation on the closing date of the merger that would allow for the continued support of local non-profit organizations in the communities served by the combined entity.

The foregoing discussion of the information and factors considered by the First Niagara Board of Directors is not intended to be exhaustive, but includes the material factors considered by the First Niagara Board of Directors. In reaching its decision to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, the First Niagara Board of Directors did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. The First Niagara Board of Directors considered all these factors as a whole, including discussions with First Niagara’s management and First Niagara’s financial and legal advisors, and overall considered the factors to be favorable to, and to support, its determination.

The foregoing discussion of the information and factors considered by the First Niagara Board of Directors is forward-looking in nature. This information should be read in light of the factors described under the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 25.

For the reasons set forth above, the First Niagara Board of Directors unanimously determined that the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of First Niagara and its stockholders, and unanimously approved and adopted the merger agreement and the transactions contemplated thereby. The First Niagara Board of Directors unanimously recommends that the First Niagara stockholders vote “FOR” the merger proposal, “FOR” the merger-related compensation proposal and “FOR” the First Niagara adjournment proposal, if necessary or appropriate to solicit additional proxies.

Certain First Niagara Financial Forecasts

First Niagara does not, as a matter of course, publicly disclose forecasts or internal projections as to its future performance, earnings or other results due to, among other reasons, the uncertainty of the underlying assumptions and estimates. However, First Niagara management provided J.P. Morgan with certain nonpublic unaudited prospective financial information prepared by First Niagara management that was considered by J.P. Morgan for the purpose of preparing its fairness opinion, as described in this joint proxy statement/prospectus under the heading “—Opinion of First Niagara’s Financial Advisor” beginning on page 62. This nonpublic unaudited prospective financial information was prepared as part of First Niagara’s overall process of analyzing various strategic initiatives, and was not prepared for the purposes of, or with a view toward, public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information, published guidelines of the SEC regarding forward-looking statements or GAAP. A summary of certain significant elements of this information is set forth below, and is included in this joint proxy statement/prospectus solely because such information was made available to J.P. Morgan in connection with the preparation of its fairness opinion. The information included below does not comprise all of the prospective financial information provided by First Niagara to J.P. Morgan.

The financial forecasts set forth below were presented to the Board of Directors of First Niagara in October 2015. Although presented with numeric specificity, the financial forecasts reflect numerous estimates and assumptions of First Niagara management made at the time they were prepared, including based on management’s expectation of “lower-for-longer” interest rates and low-growth economic environment, and assume execution of various strategic initiatives that First Niagara is no longer pursuing in light of the proposed merger. These and the other estimates and assumptions underlying the financial forecasts involve judgments with respect to, among other

 

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things, the future interest rate environment and other economic, competitive, regulatory and financial market conditions and future business decisions that may not be realized and that are inherently subject to significant business, economic, competitive and regulatory uncertainties and contingencies, including, among other things, the inherent uncertainty of the business and economic conditions affecting the industry in which First Niagara operates, and the risks and uncertainties described under “Risk Factors,” beginning on page 26, “Cautionary Statement Regarding Forward-Looking Statements,” beginning on page 25, and in the reports that First Niagara files with the SEC from time to time, all of which are difficult to predict and many of which are outside the control of First Niagara and will be beyond the control of the combined company. There can be no assurance that the underlying assumptions would prove to be accurate or that the projected results would be realized, and actual results likely would differ materially from those reflected in the financial forecasts, whether or not the merger is completed. Further, these assumptions do not include all potential actions that management could or might have taken during these time periods. The inclusion in this joint proxy statement/prospectus of the unaudited prospective financial information below should not be regarded as an indication that First Niagara, KeyCorp, their respective Boards of Directors, or J.P. Morgan considered, or now consider, these projections and forecasts to be a reliable predictor of future results. The financial forecasts are not fact and should not be relied upon as being necessarily indicative of future results, and this information should not be relied on as such. In addition, this information represents First Niagara management’s evaluation at the time it was prepared of certain measures of First Niagara’s expected future financial performance on a standalone basis, assuming execution of certain strategic initiatives, including a continued investment in the company’s risk and technology infrastructure and balance sheet and capital optimization actions, and without reference to the proposed merger or transaction-related costs or benefits. No assurances can be given that these financial forecasts and the underlying assumptions are reasonable or that, if they had been prepared as of the date of this joint proxy statement/prospectus, similar assumptions would be used. In addition, the financial forecasts may not reflect the manner in which KeyCorp would operate the First Niagara business after the merger.

The financial forecasts summarized in this section were prepared by and are the responsibility of the management of First Niagara. KPMG LLP (First Niagara’s independent registered public accounting firm) has not examined, compiled or otherwise performed any procedures with respect to the prospective financial information contained in these financial forecasts and, accordingly, KPMG LLP has not expressed any opinion or given any other form of assurance with respect thereto and they assume no responsibility for the prospective financial information. The reports of the independent registered public accounting firms either incorporated by reference or included in this joint proxy statement/prospectus relate to the historical financial information of KeyCorp and First Niagara, respectively. Such reports do not extend to the financial forecasts and should not be read to do so. No independent registered public accounting firm has examined, compiled or otherwise performed any procedures with respect to the prospective financial information contained in these financial forecasts and, accordingly, no independent registered public accounting firm has expressed any opinion or given any other form of assurance with respect thereto and no independent registered public accounting firm assumes any responsibility for the prospective financial information.

By including in this joint proxy statement/prospectus a summary of certain financial forecasts, neither KeyCorp nor First Niagara nor any of their respective representatives has made or makes any representation to any person regarding the ultimate performance of First Niagara or KeyCorp compared to the information contained in the financial forecasts. Neither First Niagara, KeyCorp nor, after completion of the merger, the combined company undertakes any obligation to update or otherwise revise the financial forecasts or financial information to reflect circumstances existing since their preparation or to reflect the occurrence of subsequent or unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error, or to reflect changes in general economic or industry conditions.

The financial forecasts summarized in this section are not being included in this joint proxy statement/prospectus in order to induce any First Niagara stockholder to vote in favor of the merger proposal or any of the other proposals to be voted on at the First Niagara special meeting or to induce any KeyCorp shareholder to vote in favor of the merger proposal or any of the other proposals to be voted on at the KeyCorp special meeting.

 

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The following table presents select unaudited prospective financial data for the fiscal years ending December 31, 2015 through December 31, 2019 prepared by First Niagara’s management.

Income Statement Data*

(Dollars in millions)

 

		At or for the Year Ended
		December 31, 2015				December 31, 2016				December 31, 2017				December 31, 2018				December 31, 2019
Total revenue		$	1,401			$	1,446			$	1,501			$	1,580			$	1,655
Loan loss provision			(87	)			(99	)			(111	)			(124	)			(133	)
Noninterest expense			(984	)			(1,017	)			(1,036	)			(1,069	)			(1,089	)
Income before income tax expense		$	331			$	331			$	355			$	385			$	433
Income tax expense			(93	)			(95	)			(106	)			(119	)			(134	)
Net income (operating)**		$	238			$	236			$	248			$	266			$	299

Balance Sheet Data*

(Dollars in millions)

 

		At or for the Year Ended
		December 31, 2015				December 31, 2016				December 31, 2017				December 31, 2018				December 31, 2019
Total assets		$	39,160			$	39,610			$	39,178			$	40,718			$	40,926
Common Equity Tier 1			8.7	%			9.0	%			9.0	%			8.8	%			9.0	%

 

*	Amounts are rounded.

**	Excludes Preferred Dividend and restructuring charges.

Opinion of First Niagara’s Financial Advisor

First Niagara retained J.P. Morgan as its financial advisor in connection with the merger pursuant to an engagement letter effective as of July 29, 2015.

At the meeting of the First Niagara Board of Directors on October 29, 2015, J.P. Morgan rendered its oral opinion to the First Niagara Board of Directors (which was subsequently confirmed in writing by delivery of J.P. Morgan’s written opinion dated the same date) that, as of such date and based upon and subject to the various factors, assumptions and limitations set forth in such opinion, the merger consideration to be paid to the holders of First Niagara common stock in the merger was fair, from a financial point of view, to such holders. The J.P. Morgan written opinion, dated October 29, 2015, is sometimes referred to herein as the J.P. Morgan opinion.

The full text of the J.P. Morgan opinion which sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken in rendering its opinion, is attached as Appendix B to this joint proxy statement/prospectus and is incorporated herein by reference. The summary of J.P. Morgan’s opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of the opinion. First Niagara stockholders should read this opinion carefully and in its entirety. J.P. Morgan’s written opinion is addressed to the First Niagara Board of Directors, is directed only to the fairness, from a financial point of view, of the merger consideration to be paid to the holders of First Niagara common stock in the merger and does not constitute a recommendation to any holder of shares of First Niagara common stock as to

 

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how such stockholder should vote with respect to the merger or any other matter at the First Niagara special meeting or whether to take any other action with respect to the merger. The issuance of the J.P. Morgan opinion was approved by a fairness opinion committee of J.P. Morgan. J.P. Morgan provided its opinion to the First Niagara Board of Directors (in its capacity as such) in connection with and for the purpose of its evaluation of the merger. The merger consideration to be paid to the holders of shares of First Niagara common stock was determined in negotiations between KeyCorp and First Niagara, and the decision to approve and recommend the transactions contemplated by the merger agreement to First Niagara’s stockholders was made independently by the First Niagara Board of Directors. J.P. Morgan’s opinion and financial analyses were among the many factors considered by the First Niagara Board of Directors in its evaluation of the transactions contemplated by the merger agreement and should not be viewed as determinative of the views of the First Niagara Board of Directors or management with respect to the merger consideration or the transactions contemplated by the merger agreement.

In arriving at its opinion, J.P. Morgan, among other things:

 

•

reviewed a draft of the merger agreement dated October 29, 2015;

 

•

reviewed certain publicly available business and financial information concerning First Niagara and KeyCorp and the industries in which they operate;

 

•

compared the proposed financial terms of the merger with the publicly available financial terms of certain transactions involving companies J.P. Morgan deemed relevant and the consideration paid for such companies;

 

•

compared the financial and operating performance of First Niagara and KeyCorp with publicly available information concerning certain other companies J.P. Morgan deemed relevant and reviewed the current and historical market prices of First Niagara common stock and KeyCorp common shares and certain publicly traded securities of such other companies;

 

•

reviewed certain financial analyses and forecasts prepared by or at the direction of the management of First Niagara relating to the respective businesses of First Niagara and KeyCorp, as well as the estimated amount and timing of the cost savings and related expenses and synergies expected to result from the merger as directed by First Niagara management; and

 

•

performed such other financial studies and analyses and considered such other information as J.P. Morgan deemed appropriate for the purposes of its opinion.

J.P. Morgan also held discussions with certain members of the management of First Niagara and KeyCorp with respect to certain aspects of the merger, the past and current business operations of First Niagara and KeyCorp, the financial condition, future prospects and operations of First Niagara and KeyCorp, the expected effects of the merger on the financial condition and future prospects of First Niagara and KeyCorp, and certain other matters J.P. Morgan believed necessary or appropriate to its inquiry.

J.P. Morgan relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with J.P. Morgan by First Niagara or KeyCorp or otherwise reviewed by or for J.P. Morgan, and J.P. Morgan did not independently verify (nor did it assume responsibility or liability for independently verifying) any such information or its accuracy or completeness. J.P. Morgan did not conduct and was not provided with any valuation or appraisal of any assets or liabilities of First Niagara or KeyCorp, nor did J.P. Morgan conduct any review of individual credit files of First Niagara or KeyCorp or evaluate the solvency of First Niagara or KeyCorp under any state or federal laws relating to bankruptcy, insolvency or similar matters. J.P. Morgan is not an expert in the evaluation of loan and lease portfolios or assessing the adequacy of the allowances for losses with respect thereto and, accordingly, J.P. Morgan did not make an independent evaluation of the adequacy of the allowance for loan and lease losses of First Niagara or KeyCorp, and J.P. Morgan assumed, with the consent of First Niagara, that the respective allowances for loan and lease losses for both First Niagara and KeyCorp, respectively, are adequate to cover such losses and will be adequate

 

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on a pro forma basis for the combined entity. In relying on financial analyses and forecasts provided to J.P. Morgan or derived therefrom (including the synergies referred to above), J.P. Morgan assumed that they were reasonably prepared based on assumptions reflecting the best then-available estimates and judgments by management as to the expected future results of operations and financial condition of First Niagara and KeyCorp to which such analyses or forecasts relate. J.P. Morgan expressed no view as to such analyses or forecasts (including the synergies referred to above) or the assumptions on which they were based. J.P. Morgan also assumed that the merger and the other transactions contemplated by the merger agreement will qualify as a tax-free reorganization for United States federal income tax purposes and will be consummated as described in the merger agreement. J.P. Morgan also assumed that the definitive merger agreement would not differ in any material respects from the draft furnished to it, that the representations and warranties made by First Niagara and KeyCorp in the merger agreement and the related agreements are and will be true and correct in all respects material to J.P. Morgan’s analysis, and that the covenants and agreements contained in the merger agreement will be performed in all respects material to its analysis. J.P. Morgan is not a legal, regulatory or tax expert and relied on the assessments made by advisors to First Niagara with respect to such issues. J.P. Morgan further assumed that all material governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on First Niagara or KeyCorp or on the contemplated benefits of the merger.

The J.P. Morgan opinion was based on economic, market and other conditions as in effect on, and the information made available to J.P. Morgan as of, the date of the J.P. Morgan opinion. Subsequent developments may affect the J.P. Morgan opinion, and J.P. Morgan does not have any obligation to update, revise or reaffirm its opinion. The J.P. Morgan opinion is limited to the fairness, from a financial point of view, of the merger consideration to be paid to the holders of First Niagara common stock in the merger, and J.P. Morgan expressed no opinion as to the fairness of any consideration paid in connection with the merger to the holders of any other class of securities, creditors or other constituencies of First Niagara or as to the underlying decision by First Niagara to engage in the merger. J.P. Morgan expressed no opinion with respect to the amount or nature of any compensation to any officers, directors, or employees of any party to the merger, or any class of such persons relative to the merger consideration to be paid to the holders of First Niagara common stock pursuant to the merger agreement or with respect to the fairness of any such compensation. J.P. Morgan expressed no opinion as to the price at which First Niagara common stock or KeyCorp common shares will trade at any future time.

In accordance with customary investment banking practice, J.P. Morgan employed generally accepted valuation methods in reaching its opinion. The following is a summary of the material financial analyses undertaken by J.P. Morgan in connection with rendering the J.P. Morgan opinion. The following summary, however, does not purport to be a complete description of the financial analyses performed by J.P. Morgan. Some of the summaries of the financial analyses include information presented in tabular format. The tables are not intended to stand alone, and in order to more fully understand the financial analyses used by J.P. Morgan, the tables must be read together with the full text of each summary. Considering the data described below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of J.P. Morgan’s financial analyses.

Certain of the financial analyses are presented on an equity value per share basis. In arriving at equity value per share for First Niagara and KeyCorp, the share count in all cases when J.P. Morgan derived an equity value per share was based, in the case of First Niagara, on First Niagara management’s estimate of First Niagara’s fully diluted shares outstanding as of September 30, 2015 of approximately 354.8 million and, in the case of KeyCorp, on KeyCorp management’s estimate of KeyCorp’s fully diluted shares outstanding as of September 30, 2015 of approximately 836.3 million with diluted share count in each case calculated using the treasury stock method of net share settlement for outstanding options.

 

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First Niagara Public Trading Multiples Analysis

Using publicly available information, J.P. Morgan compared selected financial and market data of First Niagara with similar data for a number of companies, including the following selected companies:

 

•

Webster Bank, N.A.;

 

•

First Horizon National Corporation;

 

•

Zions Bancorporation;

 

•

Associated Banc-Corp;

 

•

M&T Bank Corporation;

 

•

Cullen/Frost Bankers, Inc.;

 

•

Comerica, Inc.; and

 

•

BOK Financial Corporation.

Multiples were based on closing stock prices on October 28, 2015, and for First Niagara also as of September 22, 2015, the last full day of trading prior to the media reports that First Niagara was working with J.P. Morgan to evaluate strategic alternatives. See “—Background of the Merger” beginning on page 51. For each of the following analyses performed by J.P. Morgan, financial and market data and earnings per share estimates for the selected companies were based on the selected companies’ public filings and information J.P. Morgan obtained from SNL Financial and FactSet Research Systems, as well as Institutional Brokers’ Estimate System (I/B/E/S) consensus estimates. The multiples and ratios for each of the selected companies were based on the most recent publicly available information.

With respect to the selected companies, the information J.P. Morgan presented included:

 

•

multiple of price to estimated earnings per share for the fiscal year 2016 (Price / 2016E EPS);

 

•

multiple of price to tangible book value per share (Price / TBV); and

 

•

the 2016 estimated return on average tangible common equity (2016E ROATCE).

In the case of M&T, the financial information was pro forma for pending acquisitions. Results of the analysis were presented for the selected companies, as indicated in the following table:

 

Selected Companies’ Median

First Niagara (October 28, 2015)

First Niagara (September 22, 2015)

Price / 2016E EPS

14.8x

18.1x

14.9x

Price / TBV

1.6x

1.6x

1.3x

2016E ROATCE

10.7%

9.8%

9.8%

J.P. Morgan also performed a regression analysis to review, for the selected companies identified above, the relationship between (i) Price / TBV and (ii) the 2016E ROATCE based on available estimates obtained from public filings, SNL Financial and FactSet Research Systems and First Niagara management projections. Based on this analysis, J.P. Morgan derived a reference range for the implied Price / TBV multiple of First Niagara common stock of 1.22x to 1.38x.

Based on the above analysis, J.P. Morgan then applied a multiple reference range of 14.0x to 16.0x for Price / 2016E EPS and 1.22x to 1.38x for Price / TBV to First Niagara’s management estimate of First Niagara’s earnings per share for the fiscal year 2016 and First Niagara’s tangible book value per share, respectively. The analysis indicated the following equity values per share of First Niagara common stock, as compared to the implied merger consideration of $11.75 per share of First Niagara common stock (the “Assumed

 

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Consideration”), which was calculated based on the sum of (x) the cash merger consideration of $2.30 plus (y) the stock portion at the fixed exchange ratio of 0.680 multiplied by a closing stock price of KeyCorp common shares of $13.90 on October 28, 2015:

 

		Equity Value Per Share
Price / 2016E EPS		$	8.08 – $9.24
Price / TBV		$	8.26 – $9.33

First Niagara Dividend Discount Analysis

J.P. Morgan calculated a range of implied values for First Niagara common stock by discounting to present value estimates of First Niagara’s future dividend stream and terminal value. In performing its analysis, J.P. Morgan utilized, among others, the following assumptions, which were reviewed and approved by First Niagara management:

 

•

December 31, 2015 valuation date, which was discounted to October 28, 2015;

 

•

a terminal value based on 2026 net income and a multiple range of 12.0x to 14.0x;

 

•

earnings and asset assumptions based on First Niagara management long-term projections for 2015-2019 and on management provided or directed growth rates thereafter;

 

•

cost of excess capital of 2.0% (pre-tax);

 

•

35% marginal tax rate;

 

•

dividends per share held constant;

 

•

discount rates from 8.5% to 9.5%;

 

•

target Tier 1 common equity ratio of 9.0%; and

 

•

mid year convention.

These calculations resulted in a range of implied values of $7.80 to $9.29 per share of First Niagara common stock, as compared to the Assumed Consideration of $11.75 per share of First Niagara common stock, as illustrated by the following table:

 

Discount Rate		Terminal Multiple
			12.0x				13.0x				14.0x
8.5%		$	8.42			$	8.86			$	9.29
9.0%			8.10				8.52				8.93
9.5%			7.80				8.20				8.59

Sensitivity of First Niagara Dividend Discount Analysis to Variations in Target Tier 1 Common Equity Ratio

J.P. Morgan also performed a dividend discount analysis to determine the sensitivity of First Niagara’s equity value to variations in First Niagara’s target Tier 1 common equity ratio upward and downward from the assumed ratio of 9.0% referred to above. The analysis was based on a discount rate of 9.0% and indicated a range of equity values by varying the target Tier 1 common ratio from 8.5% to 9.5%. The analysis indicated the following equity values per share of First Niagara common stock, as compared to the Assumed Consideration of $11.75 per share:

 

Tier 1 Common Target		Terminal Multiple
			12.0x				13.0x				14.0x
8.5%		$	8.49			$	8.90			$	9.31
9.0%			8.10				8.52				8.93
9.5%			7.72				8.14				8.56

 

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Precedent Transactions Analysis

Using publicly available information, J.P. Morgan examined a number of bank transactions over $1 billion after December 31, 2011, including the following selected transactions:

 

Announcement Date		Buyer		Target
8/17/2015		BB&T Corporation		National Penn Bancshares, Inc.
11/12/2014		BB&T Corporation		Susquehanna Bancshares, Inc.
7/22/2014		CIT Group Inc.		OneWest Bank Group LLC
9/11/2013		Umpqua Holdings Corporation		Sterling Financial Corporation
7/22/2013		PacWest Bancorp		CapitalSource, Inc.
3/12/2012		Mitsubishi UFG Financial Group, Inc.		Pacific Capital Bancorp

For each of the precedent transactions, J.P. Morgan examined, among other things, the multiple of the implied transaction price to next twelve months earnings per share (NTM EPS), based on First Niagara management’s projections in the case of First Niagara and I/B/E/S in the case of the other transactions.

In examining the data related to the selected transactions described above, J.P. Morgan observed a transaction price to NTM EPS multiple mean of 17.7x and a multiple median of 17.5x, compared to the KeyCorp-First Niagara transaction price to NTM EPS multiple of 20.3x.

Based on the above analysis, J.P. Morgan then applied a multiple reference range of 16.0x to 20.0x to First Niagara management’s estimate of NTM EPS of $0.58 and derived a range of equity values per share of First Niagara common stock of $9.27 to $11.59, as compared to the Assumed Consideration of $11.75 per share.

KeyCorp Public Trading Multiples Analysis

Using publicly available information, J.P. Morgan compared selected financial and market data of KeyCorp with similar data for the following companies:

 

•

Zions First National Bank;

 

•

M&T Bank Corporation;

 

•

Comerica, Inc.;

 

•

Citizens Financial Group, Inc.;

 

•

Huntington Bancshares, Inc.;

 

•

BB&T Corporation;

 

•

SunTrust Banks, Inc.;

 

•

Regions Financial Corporation; and

 

•

Fifth Third Bancorp.

Multiples were based on closing stock prices on October 28, 2015. For each of the following analyses performed by J.P. Morgan, financial and market data and earnings per share estimates for the selected companies were based on the selected companies’ public filings and information J.P. Morgan obtained from SNL Financial and FactSet Research Systems, as well as I/B/E/S consensus estimates. The multiples and ratios for each of the selected companies were based on the most recent publicly available information.

 

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With respect to the selected companies, the information J.P. Morgan presented included:

 

•

Price / 2016E EPS;

 

•

Price / TBV; and

 

•

2016E ROATCE.

In the cases of M&T and BB&T, the financial information was pro forma for pending acquisitions. Results of the analysis were presented for the selected companies, as indicated in the following table:

 

		Selected Companies’ Median		KeyCorp
Price / 2016E EPS		12.6x		11.5x
Price / TBV		1.3x		1.2x
2016E ROATCE		10.8%		10.6%

J.P. Morgan also performed a regression analysis to review, for the selected companies identified above, the relationship between (i) Price / TBV and (ii) the 2016E ROATCE based on available estimates obtained from public filings, SNL Financial and FactSet Research Systems and extrapolations of KeyCorp IBES median analyst estimates as directed by First Niagara management. Based on this analysis, J.P. Morgan derived a reference range for the implied Price / TBV multiple of KeyCorp common shares of 1.26x to 1.53x.

Based on the above analysis, J.P. Morgan then applied a multiple reference range of 12.0x to 14.0x for Price / 2016E EPS and 1.26x to 1.53x for Price / TBV to First Niagara’s management estimate of KeyCorp’s earnings per share for the fiscal year 2016 and KeyCorp’s tangible book value per share, respectively. The analysis indicated the following equity values per KeyCorp common share, as compared to the closing price of KeyCorp common shares of $13.90 on October 28, 2015:

 

		Equity Value Per Share
Price / 2016E EPS		$	14.47 – $16.88
Price / TBV		$	14.12 – $17.07

KeyCorp Dividend Discount Analysis

J.P. Morgan calculated a range of implied values for KeyCorp common shares by discounting to present value estimates of KeyCorp’s future dividend stream and terminal value. In performing its analysis, J.P. Morgan utilized, among others, the following assumptions, which were reviewed and approved by First Niagara management:

 

•

December 31, 2015 valuation date, which was discounted to October 28, 2015;

 

•

a terminal value based on 2026 net income and a multiple of 11.0x to 13.0x;

 

•

earnings and asset assumptions as provided or directed by First Niagara management;

 

•

cost of excess capital of 2.0% (pre-tax);

 

•

35% marginal tax rate;

 

•

dividends per share of $0.29 in 2015, $0.32 in 2016, $0.35 in 2017 and $0.38 in 2018 and constant 25% dividend payout thereafter;

 

•

discount rates from 9.0% to 10.0%;

 

•

target Tier 1 common equity ratio of 10.0%, reduced by 0.25% annually beginning in 2020 to 9.0%; and

 

•

mid year convention.

 

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These calculations resulted in a range of implied values of $15.70 to $18.28 per KeyCorp common share, as compared to the closing price of KeyCorp common shares of $13.90 on October 23, 2015 as illustrated by the following table:

 

Discount Rate		Terminal Multiple
			11.0x				12.0x				13.0x
9.0%		$	16.79			$	17.53			$	18.28
9.5%			16.23				16.94				17.66
10.0%			15.70				16.38				17.06

Sensitivity of KeyCorp Dividend Discount Analysis to Variations in Target Tier 1 Common Equity Ratio

J.P. Morgan also performed a dividend discount analysis to determine the sensitivity of KeyCorp’s equity value to variations in KeyCorp’s target beginning Tier 1 common equity ratio upward and downward from the assumed beginning ratio of 10.0% referred to above. The analysis used a discount rate of 9.5% and indicated a range of equity values by varying the target beginning Tier 1 common ratio from 9.5% to 10.5%. The analysis indicated the following equity values per KeyCorp common share:

 

Beginning Tier 1 Common Target		Terminal Multiple
			11.0x				12.0x				13.0x
9.5%		$	16.81			$	17.52			$	18.24
10.0%			16.23				16.94				17.66
10.5%			15.64				16.36				17.08

Relative Valuation Analysis

Based upon the implied valuations for each of First Niagara and KeyCorp as derived above under “First Niagara Public Trading Multiples Analysis,” “First Niagara Dividend Discount Analysis,” “KeyCorp Public Trading Multiples Analysis” and “KeyCorp Dividend Discount Analysis,” J.P. Morgan calculated a range of implied exchange ratios of a share of First Niagara common stock to a KeyCorp common share, and then compared that range of implied exchange ratios to an assumed all stock exchange ratio for the merger of 0.845x (the “Assumed Exchange Ratio”) determined by assuming the $2.30 per share cash portion of the merger consideration was paid in KeyCorp common shares using the closing price of KeyCorp common shares of $13.90 on October 28, 2015, to convert the cash portion of the merger consideration to stock, and adding such additional per share amount of KeyCorp common shares (0.165x) to the exchange ratio for the stock portion of the merger consideration of 0.680x.

For each of the analyses referred to above, J.P. Morgan calculated the ratio implied by dividing the low end of each range of implied equity values of First Niagara by the high end of each range of implied equity values of KeyCorp. J.P. Morgan also calculated the ratio implied by dividing the high end of each range of implied equity values of First Niagara by the low end of each range of implied equity values of KeyCorp.

In each case, the implied exchange ratios were compared to the Assumed Exchange Ratio of 0.845x and did not include any synergies. This analysis indicated the following implied exchange ratios:

 

Comparison		Range of Implied Exchange Ratios
Public Trading Multiple Analysis
Price / 2016E EPS			0.479 – 0.639
Price / TBV			0.452 – 0.699
Dividend Discount Analysis			0.427 – 0.592

 

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Contribution Analysis

J.P. Morgan analyzed the contribution of each of First Niagara and KeyCorp to the pro forma combined company with respect to market capitalization (in the case of First Niagara as of September 22, 2015, the date of a rumor of a potential merger, and in the case of KeyCorp as of October 28, 2015). In addition, J.P. Morgan analyzed the contribution of each of First Niagara and KeyCorp to the pro forma combined company with respect to estimated net income for fiscal years 2016 and 2017 (based on First Niagara management projections or as directed by First Niagara management) and tangible common equity. For purposes of the contribution analysis, J.P. Morgan assumed no share repurchases would be effected by First Niagara during the periods measured.

The analyses yielded the following pro forma contributions to the combined company with percentage ownership of First Niagara stockholders ranging from a low of 17.0% ownership to a high of 22.7% ownership, in each case compared to a percentage ownership of 26.6% (based on the Assumed Consideration payable 100% in the form of stock consideration and assuming a value for the KeyCorp common shares equal to the closing stock price of KeyCorp common shares of $13.90 on October 28, 2015):

 

First Niagara Stockholders’ Percentage of Ownership
Market Capitalization
Market capitalization as of September 22, 2015 for First Niagara and October 28, 2015 for KeyCorp			21.5	%
Income Statement
2016E Net Income			17.3	%
2017E Net Income			17.0	%
Balance Sheet
Tangible Common Equity			20.5	%
Ownership based on 100% Stock Consideration			26.6	%

Historical Exchange Ratio Analysis

J.P. Morgan compared the historical average exchange ratio between First Niagara common stock and KeyCorp common shares during different periods between October 28, 2014 and October 28, 2015. The historical average exchange ratios were calculated by dividing the daily closing price per share of First Niagara common stock by the daily closing price per KeyCorp common share for each trading day in the indicated periods and then calculating the average for such period. This analysis assumed the merger consideration would be paid 100% in stock (using the Assumed Exchange Ratio) and, for the period after September 22, 2015, the date of the media reports that First Niagara was working with J.P. Morgan to evaluate strategic alternatives, a price per share of First Niagara stock of $8.96, the price on September 22, 2015. The table below sets forth the average exchange ratios for the time periods indicated:

 

Time Period		Average Exchange Ratio
5-day			0.665x
20-day			0.678x
1-month			0.680x
3-month			0.674x
6-month			0.647x
9-month			0.641x
12-month			0.630x
YTD			0.638x

 

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Value Creation Analysis

At First Niagara management’s direction and based on First Niagara management’s projections, First Niagara and KeyCorp public filings, SNL Financial and Factset, and extrapolations at KeyCorp, IBES medium analyst estimates as directed by First Niagara management. J.P. Morgan prepared a value creation analysis that compared the equity value of First Niagara (based on the dividend discount analysis) to the First Niagara stockholders’ portion of the pro forma combined company equity value plus the aggregate cash consideration to be paid to First Niagara shareholders. J.P. Morgan determined the pro forma combined company equity value by calculating (x) the sum of (i) the equity value of KeyCorp derived using the midpoint value determined in J.P. Morgan’s dividend discount analysis described above in “KeyCorp Dividend Discount Analysis,” (ii) the equity value of First Niagara derived using the midpoint value determined in J.P. Morgan’s dividend discount analysis described above in “First Niagara Dividend Discount Analysis” (the “Standalone Value”) and (iii) the estimated present value of expected synergies, net of restructuring charges (using synergy net of restructuring charges amounts reviewed and approved by First Niagara management, the midpoint of a discount rate range of 8.5-9.5% and the midpoint of an exit multiple range of 12.0x-14.0x), less (y) the aggregate cash consideration to be paid to First Niagara stockholders in the merger. There can be no assurance that the synergies and transaction-related expenses will not be substantially greater or less than the estimate described above. The value creation analysis, at the exchange ratio of 0.680x, $2.30 cash per share of First Niagara common stock and cost savings of 40% of annualized most recent quarter noninterest expense, yielded accretion to the holders of First Niagara common stock of 70.2% or $2.1 billion in aggregate, as compared to the Standalone Value.

Certain Other Information

J.P. Morgan also reviewed and presented other information, solely for reference purposes, including:

 

•

historical trading prices of First Niagara common stock during the one-year period ended October 28, 2015, noting that the low and high closing prices during such period were $7.21 and $10.84, respectively;

 

•

analyst share price targets for First Niagara common stock in recently published, publicly available research analysts’ reports, noting that the low and high share price targets ranged from $9.00 to $12.00;

 

•

historical trading prices of KeyCorp common shares during the one-year period ended October 28, 2015, noting that the low and high closing prices during such period were $12.04 and $15.70, respectively;

 

•

analyst share price targets for KeyCorp common shares in recently published, publicly available research analysts’ reports, noting that the low and high share price targets ranged from $13.00 to $17.50.

Miscellaneous

The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by J.P. Morgan. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. J.P. Morgan believes that the foregoing summary and its analyses must be considered as a whole and that selecting portions of the foregoing summary and these analyses, without considering all of its analyses as a whole, could create an incomplete view of the processes underlying the analyses and its opinion. In arriving at its opinion, J.P. Morgan did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or negative), considered in isolation, supported or failed to support its opinion. Rather, J.P. Morgan considered the totality of the factors and analyses performed in determining its opinion. Analyses based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or made by J.P. Morgan are not necessarily indicative of actual future results, which may be significantly more or

 

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less favorable than suggested by those analyses. Moreover, J.P. Morgan’s analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be bought or sold. None of the selected companies nor selected transactions reviewed is identical to First Niagara or KeyCorp, or the merger, as the case may be. However, such companies selected were chosen by J.P. Morgan because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan’s analysis, may be considered similar to those of First Niagara or KeyCorp, as applicable. The transactions selected were similarly chosen by J.P. Morgan because their participants, size and other factors may be considered similar to the merger. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies compared to First Niagara, KeyCorp or the transactions compared to the merger, as applicable.

As a part of its investment banking business, J.P. Morgan and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements, and valuations for estate, corporate and other purposes. J.P. Morgan was selected to advise First Niagara with respect to the merger on the basis of such experience and its familiarity with First Niagara.

For financial advisory services rendered in connection with the merger, First Niagara has agreed to pay J.P. Morgan a fee of 0.75% of the total consideration in the merger, which includes the cash consideration and stock consideration to be paid to holders of First Niagara common stock at the consummation of the merger. Based on the closing stock price of KeyCorp shares on October 28, 2015, the J.P. Morgan fee would be approximately $31 million, of which $5 million was payable at the time J.P. Morgan delivered its opinion to the First Niagara Board of Directors and the remainder of which will become payable if the merger is consummated. In addition, First Niagara has agreed to reimburse J.P. Morgan for certain expenses incurred in connection with its services, including the fees and disbursements of counsel, and will indemnify J.P. Morgan for certain liabilities, including liabilities arising under the federal securities laws.

During the two years preceding the date of this letter, J.P. Morgan and its affiliates have not had any other material financial advisory or other material commercial or investment banking relationships with First Niagara. During the two years preceding the date of this letter, J.P. Morgan and its affiliates have had commercial or investment banking relationships with KeyCorp, for which J.P. Morgan and such affiliates have received customary compensation in the amount of approximately $7.25 million. Such services during such period have included acting as a joint bookrunner on KeyCorp’s bond offerings in September of 2015, three bond offerings in May of 2015, February of 2015, November of 2014, and two bond offerings in November of 2013. In addition, J.P. Morgan’s commercial banking affiliate is an agent bank and a lender under outstanding credit facilities of First Niagara, for which it receives customary compensation or other financial benefits, and J.P. Morgan or its affiliates owned on a proprietary basis on October 29, 2015 0.12% of First Niagara’s outstanding common stock and 0.05% of the KeyCorp’s common shares. In the ordinary course of their businesses, J.P. Morgan and its affiliates may actively trade the debt and equity securities of First Niagara or KeyCorp for its or their own accounts or for the accounts of customers and, accordingly, J.P. Morgan and its affiliates may at any time hold long or short positions in such securities.

Recommendation of the KeyCorp Board of Directors and Reasons for the Merger

After careful consideration, the KeyCorp Board of Directors, at a special meeting held on October 29, 2015, unanimously determined that the merger agreement and the transactions contemplated by the merger agreement, including the articles amendment and regulations amendment, are in the best interests of KeyCorp and its shareholders. Accordingly, the KeyCorp Board of Directors approved the merger agreement, the articles amendment and the regulations amendment and unanimously recommends that KeyCorp shareholders vote “FOR” the adoption of the merger agreement, “FOR” the approval of the articles amendment and the regulations amendment and “FOR” the KeyCorp adjournment proposal (if necessary or appropriate).

 

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In reaching its decision to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, including the articles amendment and regulations amendment, and to recommend that KeyCorp’s shareholders adopt the merger agreement and approve the articles amendment and the regulations amendment, the KeyCorp Board of Directors consulted with KeyCorp management, as well as its financial and legal advisors, and considered a number of factors, including the following material factors:

 

•

each of KeyCorp’s and First Niagara’s business, operations, financial condition, asset quality, earnings and prospects. In reviewing these factors, the KeyCorp Board of Directors considered the following:

 

•

that shareholders of KeyCorp and First Niagara would benefit from expected annual cost savings in excess of $400 million from maximizing efficiencies of technology infrastructure, procurement savings across the combined organization and optimizing overlapping branches, as described in “Unaudited Pro Forma Combined Condensed Consolidated Financial Information” beginning on page 113 of this joint proxy statement/prospectus;

 

•

its view that First Niagara’s business and operations complement those of KeyCorp (including by driving revenue synergies as a result of a broader suite of products deployed to clients and by strengthening its core operating and financial metrics);

 

•

that the merger would leverage KeyCorp’s commercial and corporate banking expertise with First Niagara’s community banking and residential mortgage expertise to create a more balanced franchise across consumer and commercial businesses;

 

•

that the merger would diversify KeyCorp’s loan portfolio, strengthen its core retail deposit franchise and provide expanded scale;

 

•

that the merger would create a leading regional bank with enhanced scale to serve three million clients across diverse markets in the Northeast (including Upstate New York, Pennsylvania, Massachusetts and Connecticut), Mid-Atlantic, Midwest and Pacific Northwest;

 

•

the anticipated pro forma impact of the transaction on the combined company, including the expected impact on financial metrics (including earnings per share, return on invested capital, return on tangible common equity and cash efficiency ratio) and on capital ratios; and

 

•

the impact of the merger on certain of KeyCorp’s financial metrics, including its dilutive impact on KeyCorp’s tangible book value per share.

 

•

its understanding of the current and prospective environment in which KeyCorp and First Niagara operate, including national and local economic conditions, the competitive environment for financial institutions generally, and the likely effect of these factors on KeyCorp both with and without the proposed transaction;

 

•

its review and discussions with KeyCorp’s management and its legal and financial advisors concerning the due diligence review of First Niagara;

 

•

the expectation of KeyCorp management that KeyCorp will maintain its strong capital ratios upon completion of the transaction;

 

•

the compatible nature of the cultures of the two companies, which KeyCorp management believes should facilitate integration and implementation of the transaction, and the complementary nature of the products, customers and markets of the two companies, which KeyCorp management believes should provide the opportunity to mitigate integration risks and increase potential returns;

 

•

the financial and other terms of the merger agreement, including the fixed exchange ratio for the stock portion of the merger consideration, the expected tax treatment and the deal protection and termination fee provisions, which it reviewed with its outside financial and legal advisors;

 

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•

the opinion, dated October 29, 2015, of Morgan Stanley to the KeyCorp Board of Directors to the effect that, as of the date of the opinion, and based upon and subject to the various assumptions, considerations, qualifications and limitations set forth therein, the merger consideration to be paid by KeyCorp pursuant to the merger agreement was fair, from a financial point of view, to KeyCorp. The opinion and the related financial analyses presented by Morgan Stanley to the KeyCorp Board of Directors are more fully described under “The Merger—Opinion of KeyCorp’s Financial Advisor” beginning on page 74;

 

•

the fact that KeyCorp’s and First Niagara’s shareholders will have an opportunity to vote on the adoption of the merger agreement;

 

•

the right of the First Niagara Board of Directors under the merger agreement to withdraw its recommendation to the First Niagara stockholders that they adopt the merger agreement in certain circumstances, as more fully described under “The Merger Agreement—Covenants and Agreements” beginning on page 96, and the right of the First Niagara Board of Directors to terminate the merger agreement in certain circumstances, as more fully described under “The Merger Agreement—Termination; Termination Fee” beginning on page 106;

 

•

the potential risks associated with achieving anticipated cost synergies and savings and successfully integrating First Niagara’s business, operations and workforce with those of KeyCorp, including the costs and risks of successfully integrating the differing business models of the two companies;

 

•

the nature and amount of payments and other benefits to be received by First Niagara management in connection with the merger pursuant to existing First Niagara plans and compensation arrangements and the merger agreement;

 

•

the potential risk of diverting management attention and resources from the operation of KeyCorp’s business and towards the completion of the merger and the integration of the two companies; and

 

•

the regulatory and other approvals required in connection with the merger and the expected likelihood that such regulatory approvals will be received in a reasonably timely manner and without the imposition of unacceptable conditions.

The foregoing discussion of the information and factors considered by the KeyCorp Board of Directors is not intended to be exhaustive, but KeyCorp believes it addresses the material information and factors considered by the KeyCorp Board of Directors in its consideration of the merger and the other transactions contemplated by the merger agreement, including factors that may support the merger as well as factors that may weigh against it. In view of the variety of factors and the amount of information considered, the KeyCorp Board of Directors did not find it practicable to quantify or otherwise assign any relative weights to, and did not make specific assessments of, the factors considered in reaching its determination, and individual members of the KeyCorp Board of Directors may have given different weights to different factors. The above factors are not listed in any particular order of priority. The KeyCorp Board of Directors did not reach any specific conclusion with respect to any of the factors or reasons considered and considered all these factors as a whole, including discussions with, and questioning of, KeyCorp’s management and KeyCorp’s financial and legal advisors, and overall considered the factors to be favorable to, and to support, its determination.

It should be noted that this explanation of the KeyCorp Board of Directors’ reasoning and all other information presented in this section is forward-looking in nature, and therefore should be read in light of the factors discussed under the heading “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 25.

Opinion of KeyCorp’s Financial Advisor

KeyCorp retained Morgan Stanley to provide it with financial advisory services in connection with a possible acquisition of First Niagara, and, if requested by KeyCorp, a financial opinion with respect thereto. KeyCorp selected Morgan Stanley to act as its financial advisor based on Morgan Stanley’s qualifications, expertise and

 

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reputation and its knowledge of the business and affairs of KeyCorp. Morgan Stanley rendered to the KeyCorp Board of Directors at its special meeting on October 29, 2015 its oral opinion, subsequently confirmed by delivery of a written opinion dated October 29, 2015, that, as of such date, and based upon and subject to the various assumptions, considerations, qualifications and limitations set forth therein, the merger consideration to be paid by KeyCorp pursuant to the merger agreement was fair, from a financial point of view, to KeyCorp.

The full text of the written opinion of Morgan Stanley, dated October 29, 2015, is attached as Appendix C and incorporated by reference into this joint proxy statement/prospectus. The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion. Shareholders are urged to, and should, read the opinion carefully and in its entirety. Morgan Stanley’s opinion is directed to the KeyCorp Board of Directors and addresses only the fairness, from a financial point of view, to KeyCorp of the merger consideration to be paid by KeyCorp pursuant to the merger agreement as of the date of the opinion. Morgan Stanley’s opinion does not address any other aspect of the transactions contemplated by the merger agreement and does not constitute a recommendation to shareholders of KeyCorp or shareholders of First Niagara as to how to vote at any shareholders meetings held with respect to the merger or any other matter or whether to take any other action with respect to the merger. The summary of Morgan Stanley’s opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of the opinion. In addition, the opinion does not in any manner address the price at which KeyCorp common shares will trade following the consummation of the merger or at any time.

For purposes of rendering its opinion, Morgan Stanley, among other things:

 

•

reviewed certain publicly available financial statements and other business and financial information of KeyCorp and First Niagara, respectively;

 

•

reviewed certain internal financial statements and other financial and operating data concerning KeyCorp and First Niagara, respectively;

 

•

reviewed Institutional Brokers’ Estimate System (“IBES”) consensus estimates relating to KeyCorp;

 

•

reviewed IBES consensus estimates relating to First Niagara that were adjusted pursuant to guidance from management of KeyCorp;

 

•

discussed the past and current operations and financial condition and the prospects of First Niagara with senior executives of First Niagara;

 

•

discussed the past and current operations and financial condition and the prospects of KeyCorp, including information relating to certain strategic, financial and operational benefits anticipated from the merger, with senior executives of KeyCorp;

 

•

reviewed the pro forma impact of the merger on KeyCorp’s earnings per share (“EPS”), cash flow, consolidated capitalization and financial ratios;

 

•

reviewed the reported prices and trading activity for First Niagara’s common stock and KeyCorp’s common shares;

 

•

compared the financial performance of First Niagara and KeyCorp and the prices and trading activity of First Niagara common stock and KeyCorp common shares with that of certain other publicly-traded companies comparable with First Niagara and KeyCorp, respectively, and their securities;

 

•

reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions;

 

•

participated in certain discussions and negotiations among representatives of First Niagara and KeyCorp and their financial and legal advisors;

 

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•

reviewed the merger agreement and certain related documents; and

 

•

performed such other analyses, reviewed such other information and considered such other factors as Morgan Stanley deemed appropriate.

In arriving at its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to it by KeyCorp and First Niagara, and formed a substantial basis for its opinion. With respect to adjustments made pursuant to guidance from management of KeyCorp to the IBES consensus estimates relating to First Niagara, Morgan Stanley assumed that such adjustments had been reasonably prepared on bases reflecting the best then currently available estimates and judgments of the management of KeyCorp of the future financial performance of First Niagara. In addition, Morgan Stanley assumed that the merger will be consummated in accordance with the terms set forth in the merger agreement without any waiver, amendment or delay of any terms or conditions that were material to its analysis, and that the merger agreement would not differ in any material respects from the drafts thereof furnished to Morgan Stanley. Morgan Stanley assumed that in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the proposed merger, no delays, limitations, conditions or restrictions would be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the proposed merger. Morgan Stanley is not an expert in the evaluation of allowance for loan losses, and it has neither made an independent evaluation of the adequacy of the allowance for loan losses at First Niagara, nor has it examined any individual loan credit files of First Niagara or been requested to conduct such a review. Morgan Stanley has relied upon, without independent verification, the assessments by the management of KeyCorp of the estimated loan losses of First Niagara. Morgan Stanley is not a legal, tax, or regulatory advisor. Morgan Stanley is a financial advisor only and has relied upon, without independent verification, the assessment of KeyCorp and First Niagara and their respective legal, tax, or regulatory advisors with respect to legal, tax, or regulatory matters. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of KeyCorp or First Niagara, nor was it furnished with any such valuations or appraisals. Morgan Stanley’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to it, as of October 29, 2015. Events occurring after such date may affect Morgan Stanley’s opinion and the assumptions used in preparing it, and Morgan Stanley did not assume any obligation to update, revise or reaffirm its opinion.

Summary of Financial Analyses of Morgan Stanley

The following is a summary of the material financial analyses performed by Morgan Stanley in connection with its oral opinion and the preparation of its written opinion letter dated October 29, 2015. The various financial analyses summarized below were based on closing prices for the common shares of KeyCorp as of October 28, 2015, the last full trading day preceding the day of the special meeting of KeyCorp’s Board of Directors to consider, approve, adopt and authorize the merger agreement. Some of these summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Furthermore, mathematical analysis (such as determining the average or median) is not in itself a meaningful method of using the data referred to below.

First Niagara Public Trading Multiples Analysis

Morgan Stanley performed a public trading multiples analysis, which is designed to provide an implied trading value of a company by comparing it to selected companies with similar characteristics to the company. Morgan Stanley selected the banks used in this analysis based upon the following criteria: region of operation, bank size and certain operational models and characteristics. Morgan Stanley compared certain financial information of First Niagara with publicly available information for the selected companies. The selected banks were chosen based on Morgan Stanley’s knowledge of the industry and because these banks have businesses that may be

 

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considered similar to First Niagara’s. Although none of these banks are identical or directly comparable to First Niagara, these banks are all publicly traded U.S. banks with assets between $20 billion and $50 billion, excluding banks headquartered on the West Coast or in Texas and banks with branch-light models. The selected banks included:

 

•

New York Community Bancorp, Inc.

 

•

People’s United Financial, Inc.

 

•

BOK Financial Corporation

 

•

Investors Bancorp, Inc.

 

•

Commerce Bancshares, Inc.

 

•

Synovus Financial Corp.

 

•

BankUnited, Inc.

 

•

Webster Financial Corporation

 

•

First Horizon National Corporation

 

•

FirstMerit Corporation

 

•

Associated Banc-Corp

 

•

First Citizens BancShares, Inc.

 

•

Wintrust Financial Corporation

 

•

Hancock Holding Company

In all instances, multiples were based on closing stock prices on October 28, 2015. For each of the following analyses performed by Morgan Stanley, financial and market data for the selected companies were based on the most recent publicly available information.

With respect to the selected companies, the information Morgan Stanley presented included:

 

•

multiple of price to estimated earnings per share for 2016, or Price / 2016E EPS; and

 

•

multiple of price to tangible book value per share, or Price / Tangible Book Value

 

Selected Companies’ Median

Selected Companies’ Average

First Niagara on September 22, 2015 (Unaffected)

First Niagara on October 28, 2015

Price / 2016E EPS

16.0x

16.1x

14.5x

17.5x

Price / Tangible Book Value

1.6x

1.7x

1.3x

1.6x

Based on the analysis of the relevant metrics for each of the selected banks, Morgan Stanley selected a range of multiples and applied this range of multiples to the relevant financial statistics for First Niagara. For purposes of this analysis, Morgan Stanley utilized IBES 2016 EPS estimate of $0.61 and tangible book value per share of First Niagara common stock of $6.77 as of September 30, 2015.

Morgan Stanley estimated the implied trading value per share of First Niagara’s common stock as of October 28, 2015, as follows:

 

First Niagara Metric

Multiple Statistic Range

Implied Value Per Share of First Niagara Common Stock

Price / 2016E EPS

$0.61

14x – 16x

$8.54 – $9.76

Price / Tangible Book Value

$6.77

1.3x – 1.5x

$8.80 – $10.16

 

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Morgan Stanley noted that the consideration to be paid by KeyCorp pursuant to the merger agreement was $11.46 per share of First Niagara common stock, consisting of $2.30 in cash and 0.680 KeyCorp common shares. The implied purchase price per share is based on the five trading day average KeyCorp closing share price of $13.48 from October 22, 2015 through October 28, 2015, assuming First Niagara has 356.272 million shares outstanding on a fully diluted basis.

No company in the public trading multiples analysis is identical to First Niagara. In evaluating the group of selected companies, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of First Niagara, such as the impact of competition on the business of First Niagara or the industry generally, industry growth and the absence of any material adverse change in the financial condition and prospects of First Niagara or the industry or in the financial markets in general. Mathematical analysis, such as determining the average or median, is not in itself a meaningful method of using peer group data.

First Niagara Historical Relative Stock Performance Analysis

Morgan Stanley reviewed the relative stock performance of First Niagara common stock for the last three years and during various periods ending on October 28, 2015 (the last trading day prior to the meeting of the KeyCorp Board of Directors approving the merger). Morgan Stanley noted that First Niagara’s common stock increased 31% while the common stock price of the above listed selected companies with similar characteristics to First Niagara increased 47% over the three-year period ending October 28, 2015. Additionally, Morgan Stanley noted that the low and high closing prices during the prior 52-week period ending on September 22, 2015 (the day prior to news reports of a potential sale of First Niagara) was 128% and 90%, respectively, of the unaffected closing price of First Niagara as of September 22, 2015, which was $8.96.

First Niagara Discounted Cash Flow Analysis

Morgan Stanley performed a discounted cash flow analysis to determine a range of potential per share values for First Niagara on a standalone basis and on a pro forma basis. Morgan Stanley calculated a range of implied prices per share of First Niagara common stock based on the sum of the discounted after-tax net present values of (i) annual free cash flows that First Niagara is estimated to generate for the fiscal years ending December 31, 2016 through December 31, 2020, assuming a Common Equity Tier 1 ratio target level of 9.5% and (ii) a projected terminal value of First Niagara common stock as of December 31, 2020. Morgan Stanley then discounted the cash flows back to September 30, 2015.

First Niagara Discounted Cash Flow Analysis without Synergies

For the implied value range of First Niagara on a standalone basis, Morgan Stanley used IBES estimates for fiscal years 2016 and 2017 and applied a long-term EPS growth rate of 5% thereafter to determine First Niagara’s EPS during fiscal years 2016 through 2021. To determine implied value per share, Morgan Stanley considered a range of discount rates from 8% to 10% and a range of terminal values based on a multiple of estimated net income in 2021 of 14x to 16x. Utilizing the range of discount rates and terminal value multiples, Morgan Stanley derived an implied valuation range of present value indications per share of First Niagara common stock ranging from $7.68 to $9.58.

First Niagara Discounted Cash Flow Analysis with Synergies

For the implied value range of First Niagara on a pro forma basis, Morgan Stanley used IBES earnings and, with the permission of KeyCorp, Morgan Stanley relied on assumptions made by KeyCorp regarding merger synergies, the impact and timing of cost savings, balance sheet repositioning and other transaction adjustments that were assumed by management of KeyCorp. To determine implied value per share, Morgan Stanley considered a range of discount rates from 9% to 11% and a range of terminal values based on a multiple of

 

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estimated net income in 2021 of 11x to 13x. Utilizing the range of discount rates and terminal value multiples, Morgan Stanley derived an implied valuation range of present value indications per share of First Niagara common stock ranging from $10.58 to $13.96.

The discounted cash flow analysis is not necessarily indicative of actual values or future results. The results of the discounted cash flow analysis are highly dependent on the assumptions being made, including earnings growth rates, asset growth rates, target tangible common equity ratios, dividend payout amounts, terminal values and discount rates.

Select Precedent M&A Transactions Analysis

Using publicly available information, Morgan Stanley reviewed the terms of selected precedent transactions, including transactions with a deal value greater than $500 million announced since January 1, 2013, in which the targets were banks that operate in and/or were exposed to similar lines of business as First Niagara. For each of these transactions, Morgan Stanley reviewed the price paid and calculated the multiple of price to tangible book value and the multiple of price to forward EPS. The following table sets forth the selected transactions considered, including their respective dates of announcement:

Select Precedent M&A Transactions

 

Buyer/Target		Announcement Date
Bank of the Ozarks, Inc./ Community & Southern Holdings, Inc.			10/19/15
BB&T Corporation/ National Penn Bancshares, Inc.			08/17/15
PacWest Bancorp/ Square 1 Financial, Inc.			03/02/15
Royal Bank of Canada/ City National Corporation			01/22/15
BB&T Corporation/ Susquehanna Bancshares, Inc.			11/12/14
Sterling Bancorp/ Hudson Valley Holding Corp.			11/05/14
Banner Corporation/ Starbuck Bancshares, Inc.			11/05/14
CIT Group Inc./ IMB HoldCo LLC			07/22/14
Umpqua Holdings Corporation/ Sterling Financial Corporation			09/11/13
PacWest Bancorp/ CapitalSource Inc.			07/22/13
MB Financial, Inc./ Taylor Capital Group, Inc.			07/15/13

Morgan Stanley reviewed for each of the transactions listed above, among other things, total assets and transaction values, 1-day market premiums and 30-day market premiums, the multiple of price to tangible book value, the multiple of price to forward EPS, and core deposit premiums (calculated as the quotient of (i) the transaction value less the target’s tangible common equity, divided by (ii) the target’s core deposits (calculated as total deposits less time deposits greater than $100,000)). Financial data of the selected transactions was based on publicly available research analysts’ estimates, public filings and other publicly available information at the time of announcement of the relevant transaction. Based on the analysis of the relevant metrics for each of the selected transactions, Morgan Stanley selected a range of multiples and premiums and applied these ranges of multiples and premiums to the relevant financial statistics for First Niagara. For purposes of this analysis, Morgan Stanley utilized IBES 2016 EPS estimate of $0.61, a tangible book value per share of First Niagara common stock of $6.77 as of September 30, 2015 and First Niagara’s stock price of $8.96, which is the unaffected closing price as of September 22, 2015 (the day prior to news reports of First Niagara’s potential sale).

 

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Morgan Stanley estimated the implied value per share of First Niagara’s common stock as of October 28, 2015, as follows:

 

		First Niagara Metric				Multiple Statistic Range				Implied Value Per Share of First Niagara Common Stock
Price / Forward Earnings		$	0.61				17x – 20x			$	10.37 – $12.20
Price / Tangible Book Value		$	6.77				1.7x – 1.9x			$	11.51 – $12.86
Premium to Stock Price		$	8.96				20% – 30%			$	10.75 – $11.65

Morgan Stanley noted that the consideration to be paid by KeyCorp pursuant to the merger agreement was $11.46 per share of First Niagara common stock, consisting of $2.30 in cash and 0.680 KeyCorp common shares. The implied purchase price per share is based on the five trading day average KeyCorp closing stock price of $13.48 from October 22, 2015 through October 28, 2015, assuming First Niagara has 356.272 million shares outstanding on a fully diluted basis.

No company or transaction utilized as a comparison in the selected precedent transactions analysis is identical to First Niagara or KeyCorp; nor are the transactions identical to the transactions contemplated by the merger agreement. In evaluating the transactions listed above, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of KeyCorp and First Niagara, such as the impact of competition on the business of KeyCorp and First Niagara or the industry generally, industry growth and the absence of any adverse material change in the financial condition and prospects of First Niagara or the industry or in the financial markets in general, which could affect the public trading value of the companies and the aggregate value of the transactions to which they are being compared. Accordingly, mathematical analysis, such as determining the average or median, is not in itself a meaningful method of using comparable transaction data.

KeyCorp Public Trading Multiples Analysis

Morgan Stanley performed a public trading multiples analysis, which is designed to provide an implied trading value of a company by comparing it to selected companies with similar characteristics to the company. Morgan Stanley selected the companies used in this analysis based upon the following criteria: region of operation, company size and certain operational models and characteristics. Morgan Stanley compared certain financial information of KeyCorp with publicly available information for the selected companies. The selected banks were chosen based on Morgan Stanley’s knowledge of the industry and because these banks have businesses that may be considered similar to KeyCorp’s. Although none of these banks are identical or directly comparable to KeyCorp, these include certain banks set forth in KeyCorp’s proxy statement as KeyCorp’s peer group with the addition of Citizens Financial Group, Inc. The selected banks included:

 

•

U.S. Bancorp

 

•

PNC Financial Services Group, Inc.

 

•

BB&T Corporation

 

•

SunTrust Banks, Inc.

 

•

M&T Bank Corporation

 

•

Fifth Third Bancorp

 

•

Citizens Financial Group, Inc.

 

•

Regions Financial Corporation

 

•

Huntington Bancshares Incorporated

 

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•

Comerica Incorporated

 

•

Zions Bancorporation

In all instances, multiples were based on closing stock prices on October 28, 2015. For each of the following analyses performed by Morgan Stanley, financial and market data for the selected companies were based on the most recent publicly available information.

With respect to the selected companies, the information Morgan Stanley presented included:

 

•

multiple of price to estimated earnings per share for 2016, or Price / 2016E EPS; and

 

•

multiple of price to tangible book value per share, or Price / Tangible Book Value

 

Selected Companies’ Median

Selected Companies’ Average

KeyCorp

Price / 2016E EPS

12.6x

12.8x

11.5x

Price / Tangible Book Value

1.4x

1.5x

1.2x

Based on the analysis of the relevant metrics for each of the selected banks, Morgan Stanley selected a range of multiples and applied this range of multiples to the relevant financial statistics for KeyCorp. For purposes of this analysis, Morgan Stanley utilized IBES financial forecasts for KeyCorp at the direction of KeyCorp’s management for Morgan Stanley’s use in its analysis. KeyCorp’s metric represents a 2016 EPS estimate of $1.21 per IBES and tangible book value per KeyCorp common share of $11.17 as of September 30, 2015.

Morgan Stanley estimated the implied trading value per share of KeyCorp’s common shares as of October 28, 2015, as follows:

 

		KeyCorp Metric				Multiple Statistic Range				Implied Value Per KeyCorp Common Share
Price / 2016E EPS		$	1.21				11x – 13x			$	13.31 – $15.73
Price / Tangible Book Value		$	11.17				1.1x – 1.3x			$	12.29 – $14.52

No company in the public trading multiples analysis is identical to KeyCorp. In evaluating the group of selected companies, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of KeyCorp, such as the impact of competition on the business of KeyCorp or the industry generally, industry growth and the absence of any material adverse change in the financial condition and prospects of KeyCorp or the industry or in the financial markets in general. Mathematical analysis, such as determining the average or median, is not in itself a meaningful method of using peer group data.

KeyCorp Historical Relative Stock Performance Analysis

Morgan Stanley reviewed the relative stock performance of KeyCorp common shares for the last three years and during various periods ending on October 28, 2015 (the last trading day prior to the meeting of KeyCorp’s Board of Directors approving the merger). Morgan Stanley noted that per share price of KeyCorp’s common shares increased 66% while the common stock price of the above listed selected companies with similar characteristics to KeyCorp increased 39% over the three-year period ending October 28, 2015. Additionally, Morgan Stanley noted that the low and high closing prices during the prior 52-week period ending on October 28, 2015, as a percentage of KeyCorp’s common share closing price on October 28, 2015 was 115% and 89%, respectively.

KeyCorp Discounted Cash Flow Analysis

Morgan Stanley performed a discounted cash flow analysis to determine a range of potential per share values for KeyCorp on a standalone basis. Morgan Stanley calculated a range of implied prices per KeyCorp common share

 

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based on the sum of the discounted after-tax net present values of (i) annual free cash flows that KeyCorp is estimated to generate for the fiscal years ending December 31, 2016 through December 31, 2020, assuming a Common Equity Tier 1 ratio target level reduced from the then-current level, which was approximately 10.5%, to 9.5% over time and (ii) a projected terminal value of KeyCorp common shares as of December 31, 2020. Morgan Stanley then discounted the cash flows back to September 30, 2015.

For the implied value range of KeyCorp on a standalone basis, Morgan Stanley reviewed publicly available filings and IBES estimates on KeyCorp for 2016 and 2017 and a 5% long-term EPS growth rate thereafter to determine EPS during fiscal years 2016 through 2021. To determine implied value per share, Morgan Stanley considered a range of discount rates from 9% to 11% and a range of terminal values based on a multiple of estimated net income in 2021 of 11x to 13x. Utilizing the range of discount rates and terminal value multiples, Morgan Stanley derived an implied valuation range of present value indications per KeyCorp common share ranging from $13.19 to $16.30.

General

In connection with the review of the merger by KeyCorp’s Board of Directors, Morgan Stanley performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor it considered. Morgan Stanley believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley’s view of the actual value of KeyCorp or First Niagara. In performing its analyses, Morgan Stanley made numerous assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters which are beyond the control of KeyCorp or First Niagara. Any estimates contained in Morgan Stanley’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.

Morgan Stanley conducted the analyses described above solely as part of its analysis of the fairness, from a financial point of view, to KeyCorp of the merger consideration to be paid by KeyCorp pursuant to the merger agreement, and in connection with the delivery of its oral opinion, and its subsequent written opinion, to KeyCorp’s Board of Directors. These analyses do not purport to be appraisals or to reflect the prices at which common shares of KeyCorp or shares of common stock of First Niagara might actually trade.

The consideration was determined through arm’s-length negotiations between KeyCorp and First Niagara and was approved by KeyCorp’s Board of Directors. Morgan Stanley provided advice to KeyCorp during these negotiations but did not, however, recommend any specific merger consideration to KeyCorp, or that any specific merger consideration constituted the only appropriate merger consideration for the merger.

Morgan Stanley’s opinion and its presentation to KeyCorp’s Board of Directors was one of many factors taken into consideration by KeyCorp’s Board of Directors in deciding to approve, adopt and authorize the merger agreement. Consequently, the analyses as described above should not be viewed as determinative of the opinion of KeyCorp’s Board of Directors with respect to the merger consideration or of whether KeyCorp’s Board of Directors would have been willing to agree to a different merger consideration. Morgan Stanley’s opinion was approved by a committee of Morgan Stanley investment banking and other professionals in accordance with its customary practice.

 

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KeyCorp’s Board of Directors retained Morgan Stanley based upon Morgan Stanley’s qualifications, experience and expertise. Morgan Stanley is an internationally recognized investment banking and advisory firm. Morgan Stanley is a global financial services firm engaged in the securities, investment management and individual wealth management business. Its securities business is engaged in securities underwriting, trading and brokerage activities, foreign exchange, commodities and derivatives trading, prime brokerage, as well as providing investment banking, financing and financial advisory services. Morgan Stanley, its affiliates, directors and officers may at any time invest on a principal basis or manage funds that invest, hold long or short positions, finance positions, and may trade or otherwise structure and effect transactions, for their own account or the accounts of its customers, in debt or equity securities or loans of KeyCorp, First Niagara or any other company, or any currency or commodity, that may be involved in this transaction, or any related derivative instrument.

As compensation for its services relating to the merger, KeyCorp has agreed to pay Morgan Stanley a fee of $16 million in the aggregate, $3 million of which was payable upon the rendering of its opinion and $13 million of which is contingent upon the consummation of the merger. KeyCorp has also agreed to reimburse Morgan Stanley for its reasonable expenses incurred in performing its services. In addition, KeyCorp has agreed to indemnify Morgan Stanley and its affiliates, their respective directors, officers, agents and employees and each person, if any, controlling Morgan Stanley or any of its affiliates against certain liabilities and expenses, including certain liabilities under the federal securities laws, related to or arising out of Morgan Stanley’s engagement. During the two years preceding the date of delivery of Morgan Stanley’s written opinion, Morgan Stanley and its affiliates have provided financial advisory and financing services to KeyCorp, for which Morgan Stanley and its affiliates have received fees of approximately $13.3 million from KeyCorp. During the same two year period, Morgan Stanley and its affiliates have not provided financial advisory or financing services to First Niagara for which Morgan Stanley or its affiliates have received fees. Morgan Stanley may also seek to provide financial advisory and financing services to KeyCorp or First Niagara in the future and would expect to receive fees for the rendering of those services.

Management and Board of Directors of KeyCorp After the Merger

Pursuant to the merger agreement, KeyCorp has agreed to appoint to its Board of Directors, as of the effective time of the merger, three current members of the First Niagara Board of Directors selected by First Niagara. Such directors must be reasonably acceptable to KeyCorp (including its Nominating and Corporate Governance Committee). As of the date of this joint proxy statement/prospectus, First Niagara has not selected any members of its Board of Directors for appointment to the KeyCorp Board of Directors. Information regarding current directors of KeyCorp and First Niagara, including biographical information, compensation and stock ownership, can be found in each of KeyCorp’s and First Niagara’s proxy statements for their respective 2015 annual meetings of shareholders, which are filed with the SEC and incorporated by reference into this joint proxy statement/prospectus. See “Where You Can Find More Information” in the forepart of this joint proxy statement/prospectus.

Interests of First Niagara Directors and Executive Officers in the Merger

In considering the recommendations of the First Niagara Board of Directors, First Niagara stockholders should be aware that certain directors and executive officers of First Niagara have interests in the merger that may be different from, or in addition to, the interests of First Niagara stockholders generally. These interests are described below. The First Niagara Board of Directors was aware of these interests and considered them, among other matters, in approving the merger agreement and in recommending that First Niagara stockholders approve the merger proposal. For purposes of all First Niagara agreements and plans described below, the completion of the transactions contemplated by the merger agreement will constitute a change of control, change in control or term of similar meaning.

Board Membership. Under the merger agreement, KeyCorp will appoint three current directors of First Niagara to the KeyCorp Board of Directors. KeyCorp will also invite other members of the First Niagara Board of Directors to serve as members of one or more regional advisory boards in accordance with KeyCorp’s customary

 

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practice. In markets in which KeyCorp has regional advisory boards, such boards advise KeyCorp regarding deposit and lending activities and assist KeyCorp with maintaining and developing customer relationships. Members of regional advisory boards typically serve without remuneration.

Indemnification and Insurance. Under the merger agreement and following the effective time, KeyCorp will indemnify each present and former director, officer, and employee of First Niagara and its subsidiaries, as well as any fiduciary of First Niagara or its subsidiaries under their respective benefit plans, to the fullest extent permitted by applicable law against claims (i) arising out of any such person’s role as a director, officer, employee, or fiduciary, or (ii) existing at or prior to the effective time. KeyCorp will advance expenses incurred by any such person in connection with any threatened or actual proceeding, subject to such person’s undertaking to repay such advances if it is later determined that he or she is not entitled to indemnification. The merger agreement further provides that, for a period of six years following the effective time, KeyCorp shall maintain First Niagara’s director and officer liability insurance, or provide comparable director and officer liability insurance, with respect to claims against present and former officers and directors of First Niagara or its subsidiaries arising from facts or events occurring before the effective time.

Treatment of Outstanding Stock Options. At the effective time, each outstanding and unexercised option granted by First Niagara to purchase shares of First Niagara common stock will be converted into an option to purchase, on the same terms and conditions, including vesting, as were applicable prior to the merger, a number of KeyCorp common shares (rounded down to the nearest whole share) equal to the product of (a) the number of shares of First Niagara common stock subject to such option and (b) the KeyCorp equity award exchange ratio, with an exercise price per KeyCorp common share (rounded up to the nearest whole cent) equal to the quotient obtained by dividing (x) the exercise price per share of First Niagara common stock of such First Niagara stock option by (y) the KeyCorp equity award exchange ratio.

Treatment of Restricted Stock Awards. At the effective time, each outstanding First Niagara restricted stock award will be converted into the number of whole KeyCorp common shares (rounded down to the nearest whole share) equal to the product of (a) the number of shares of First Niagara common stock underlying such award and (b) the KeyCorp equity award exchange ratio, subject to the same terms and conditions, including vesting, as were applicable to such awards prior to the merger. It is anticipated that no First Niagara restricted stock awards will be outstanding on the effective date.

Treatment of Restricted Stock Unit Awards. At the effective time, each outstanding First Niagara restricted stock unit will be converted into a restricted stock unit for a number of whole KeyCorp common shares (rounded down to the nearest whole share) equal to the product of (a) the number of shares of First Niagara common stock subject to such award and (b) the KeyCorp equity award exchange ratio, subject to the same terms and conditions, including vesting, as were applicable to such awards prior to the merger, plus a pro rata share of the merger consideration with respect to any fractional shares of First Niagara common stock subject to a First Niagara restricted stock unit. With respect to First Niagara restricted stock unit awards subject to a performance vesting condition, in whole or in part, such vesting condition shall be deemed satisfied at the target performance level.

Change in Control Severance Plans. First Niagara has adopted the First Niagara Bank Change in Control Severance Plan (which we refer to the as the “First Niagara Bank CIC Plan”) and First Niagara Bank Executive Change in Control Severance Plan (which we refer to as the “First Niagara Bank Executive CIC Plan,” and, together with the First Niagara Bank CIC Plan, the “First Niagara CIC Plans”) for certain of its employees, including its executive officers. The First Niagara CIC Plans provide that each covered executive will be entitled to certain severance payments and benefits if, within a 24-month period following a change of control, either (i) First Niagara terminates the executive’s employment without cause (as defined below) or (ii) the executive resigns from First Niagara for good reason (as defined below), including:

 

•

salary and fringe benefits through the executive’s termination date;

 

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•

any unpaid annual short-term incentive for a prior period;

 

•

payment of accrued but unused vacation;

 

•

benefits under any tax-qualified retirement plans in which the executive participates, in accordance with the terms of such plans;

 

•

100% (300% for First Niagara’s CEO and 200% for all other participants in the First Niagara Bank Executive CIC Plan) of the executive’s yearly base salary, as in effect in the year of termination, payable in one lump sum;

 

•

lump-sum payment in an amount equal to 100% (300% for First Niagara’s CEO and 200% for all other participants in the First Niagara Bank Executive CIC Plan) of the executive’s targeted annual short-term incentive amount, as in effect in the year of the termination of employment;

 

•

payment of pro-rated annual short-term incentive amounts for the year of the termination of employment, to the extent permitted by, and in accordance with the terms of, the executive’s applicable annual incentive plan;

 

•

medical and health insurance, group term life insurance, automobile allowance, and club membership benefits for a period of 12 months (36 months for First Niagara’s CEO and 24 months for all other participants in the First Niagara Executive Bank CIC Plan), with continued dependent health and medical benefits for the balance of the applicable period in the event of the executive’s death;

 

•

lump-sum payment in an amount equal to the value of the executive’s unvested, accrued benefits under any tax-qualified retirement plan maintained by First Niagara or First Niagara Bank in which the executive participates;

 

•

up to $15,000 in outplacement services during the 12 month period following the termination of employment; and

 

•

accelerated vesting of all outstanding equity grant awards.

Executives participating in the First Niagara CIC Plans are subject to a non-solicitation covenant for a period of 12 months (for participants in the First Niagara Bank CIC Plan) or 24 months (for participants in the First Niagara Executive CIC Plan) after their termination following a change of control. Generally, a covered executive will forfeit his or her right to severance payments and benefits if, within the applicable period, such executive (i) solicits, offers employment to, or takes any other action intended to cause an officer or employee of First Niagara or its subsidiaries to accept employment with a competing business, or (ii) solicits, provides information, or takes any other action intended to cause any customer of First Niagara or its subsidiaries to terminate an existing business or commercial relationship with First Niagara or its subsidiaries.

In addition, an executive participating in the First Niagara CIC Plans will generally forfeit his or her right to severance payments and benefits if, at any time after a termination following a change of control, the executive (i) disparages First Niagara or its subsidiaries or (ii) reveals or uses confidential information of First Niagara or its subsidiaries in any way except in the best interests of First Niagara or its subsidiaries.

For purposes of the First Niagara CIC Plans, “good reason” generally means (i) a material change in the participating executive’s function, duties or responsibilities, which change would cause the executive’s position to become one of lesser responsibility, importance, or scope, without the consent of the executive; (ii) a material reduction in the executive’s base compensation without the consent of the executive; (iii) a relocation of the executive’s principal place of employment by more than 50 miles from its location at the time immediately prior to the relocation without the consent of the executive; or (iv) liquidation or dissolution of First Niagara or First Niagara Bank, other than liquidations or dissolutions that are caused by reorganizations that do not affect the status of the executive.

 

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For purposes of the First Niagara CIC Plans, “cause” generally means (i) a willful and continued failure substantially by the executive to perform his duties (other than as a result of disability) that is not or cannot be cured within 30 days; (ii) a willful commission by the executive of a criminal or other act that, in the judgment of the First Niagara Bank Board of Directors, will likely cause substantial economic damage to First Niagara or its subsidiaries or substantial injury to the business reputation of First Niagara or its subsidiaries; (iii) a willful act or omission by the executive constituting dishonesty, fraud, or other malfeasance, and any act or omission by the executive constituting immoral conduct; (iv) an indictment of the executive for a felony offense under the laws of the United States or any state; (v) a breach by the executive of First Niagara’s Code of Conduct, First Niagara’s Code of Ethics for Senior Financial Officers, or any restrictive covenant, non-competition, confidentiality or non-solicitation, or other similar agreement of policy of First Niagara applicable to the executive; or (vi) an issuance of an order of a federal or state regulatory agency or a court of competent jurisdiction requiring the termination of the executive’s service with First Niagara.

For an estimate of the amounts payable in connection with a qualifying termination of employment following the merger to First Niagara’s named executive officers, see “—Merger-Related Compensation for First Niagara’s Named Executive Officers,” below.

Based on current compensation levels, and assuming a qualifying termination of employment on October 1, 2016, the assumed date of the merger solely for purposes of this section, the amount of cash severance and pro-rata bonuses (including the lump sum payment of unvested accrued benefits under tax-qualified retirement plans) that would be payable to all other executive officers, as a group, is $5,729,596, and the aggregate estimated value of the continued welfare and fringe benefits (including outplacement services) provided under these arrangements to such group is $233,930. Based on unvested equity awards as of October 1, 2016, and assuming a stock price of $10.70 at the time of a qualifying termination of employment, the aggregate cash value of the unvested equity awards held by the other executive officers, as a group, is $2,459,216.

Long-Term Incentive Plans. First Niagara has granted equity awards to its directors and officers under the 2012 Equity Incentive Plan (which we refer to as the “First Niagara 2012 Plan”). The First Niagara 2012 Plan provides that in the event of an involuntary termination of employment following a change in control (per the terms of the applicable option agreements, so long as such termination occurs during the 12-month period following such change in control, if such termination is without cause or during the 14-month period following such change in control, if such termination is for good reason), all outstanding stock options shall become immediately vested in full and may be exercised anytime during the one-year period following termination or until the applicable stock option expiration date, if earlier; and all performance-based restricted stock awards and time-based restricted stock unit awards shall become fully earned and vested immediately, and the performance-based restricted stock unit awards will be paid at target. Under the First Niagara 2012 Plan, an involuntary termination includes a termination for “good reason” (as defined below) or a termination without “cause” (as defined below).

For purposes of the First Niagara 2012 Plan, “good reason” generally means a resignation from the employ of First Niagara or any of its subsidiaries upon the occurrence of any of the following: (i) a material diminution in the participant’s base compensation; (ii) a material diminution in the participant’s authority, duties, or responsibilities; (iii) a requirement that the participant must report to a corporate officer or employee, instead of reporting directly to the First Niagara Board; (iv) a material diminution in the budget over which the participant retains authority; (v) a change in the geographic location at which the participant must perform his duties that is more than 50 miles from the location of the participant’s principal workplace, or (vi) any other action or inaction that constitutes a material breach by First Niagara of the First Niagara 2012 Plan.

For purposes of the First Niagara 2012 Plan, “cause” generally means (i) the conviction of, or plea of guilty or no contest of the executive to a felony or any lesser criminal offense involving moral turpitude or immoral conduct (as determined by the First Niagara Compensation Committee) other than for actions related to operation of motor vehicles which does not involve operation of a motor vehicle while intoxicated or impaired; (ii) the willful commission by the executive of a criminal or other act that, in the judgment of the First Niagara Compensation Committee, will likely cause substantial economic damage to First Niagara or any of its subsidiaries or substantial injury to the business reputation of First Niagara or any of its subsidiaries; (iii) the commission by the

 

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executive of an act or omission involving dishonesty, fraud, or other malfeasance or misfeasance in the performance of his duties on behalf of First Niagara or any of its subsidiaries; (iv) the continuing willful failure of the executive to perform his duties to First Niagara or any of its subsidiaries (other than any such failure resulting from the executive’s incapacity due to physical or mental illness) after written notice thereof; (v) breach by the executive of First Niagara’s Code of Conduct, any restrictive covenant, non-competition, confidentiality or non-solicitation, or other similar agreement which is applicable to the executive; or (vi) an order of a federal or state regulatory agency or a court of competent jurisdiction requiring the termination of the executive’s employment with First Niagara.

Nonqualified Deferred Compensation Plan. Certain employees of First Niagara Bank are eligible to participate in the First Niagara Bank Nonqualified Deferred Compensation Plan (which we refer to as the “First Niagara Deferred Compensation Plan”), under which participants accumulate benefits based on voluntary deferral elections. The First Niagara Deferred Compensation Plan provides that within 15 days following the date of a change in control, First Niagara must make an irrevocable contribution to a Rabbi trust in an amount that is sufficient to pay each participant and beneficiary the benefits to which they would be entitled under the plan as of the date of the change in control.

Future Compensation Actions. In addition to the payments and benefits above, under the terms of the merger agreement, First Niagara may take certain compensation actions prior to the completion of the merger that will affect First Niagara’s directors and executive officers, although determinations related to such actions have not been made as of the date of this joint proxy statement/prospectus and the impact of such actions is not reflected in the amounts estimated above unless specifically disclosed. Among other actions, First Niagara may provide for the pro-rata payment of annual incentives based on target performance prior to the closing date of the merger, make certain long-term incentive grants to its employees and directors under the First Niagara 2012 Plan on terms and conditions substantially similar to those grants made by First Niagara in 2015, take certain actions to mitigate adverse tax consequences under Sections 280G or 4999 of the Code and establish a cash retention program.

Merger-Related Compensation for First Niagara’s Named Executive Officers

The following table and the related footnotes provide information about the compensation to be paid to First Niagara’s named executive officers that is based on or otherwise relates to the merger. The compensation shown in this table and described in the footnote to the table is the subject of a non-binding, advisory vote of the First Niagara stockholders at the First Niagara special meeting, as described in “First Niagara Proposals—Merger-Related Compensation Proposal” beginning on page 38. The figures in the table are estimated based on current compensation levels and an assumed effective date of October 1, 2016 for both the merger and termination of the executive’s employment. The amounts reported below are estimates based on multiple assumptions that may or may not actually occur or be accurate on the relevant date, including assumptions described in this joint proxy statement/prospectus, and do not reflect the value arising from certain compensation actions that will likely occur before the completion of the merger (such as the grant of annual awards of equity compensation in 2016), as described in “—Interests of First Niagara Directors and Executive Officers in the Merger—Future Compensation Actions” beginning on page 87. Receipt of severance payments and benefits pursuant to the First Niagara Bank Executive Change in Control Severance Plan is conditioned upon the named executive officer’s compliance with post-termination restrictions on actions including solicitation of customers and use of confidential information, as described in “—Interests of First Niagara Directors and Executive Officers in the Merger—Change in Control Severance Plans” beginning on page 84. As required by applicable SEC rules, all amounts below determined using the per share value of First Niagara common stock have been calculated based on a per share price of First Niagara common stock of $10.70 (the average closing market price of First Niagara common stock over the first five business days following the public announcement of the merger on October 30, 2015). As a result of the foregoing assumptions, the actual amounts, if any, to be received by a named executive officer may materially differ from the amounts set forth below.

 

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GOLDEN PARACHUTE COMPENSATION

 

Name		Cash ($)(1)				Equity ($)(2)				Perquisites/ Benefits ($)(3)				Total ($)
Gary M. Crosby		$	6,584,589			$	2,229,613			$	101,026			$	8,915,228
Gregory W. Norwood		$	2,283,138			$	1,951,301			$	83,384			$	4,317,823
Richard M. Barry		$	1,902,452			$	1,149,088			$	62,225			$	3,113,765
Mark R. Rendulic		$	1,695,065			$	1,059,401			$	62,960			$	2,817,426
Joseph V. Saffire		$	2,101,370			$	908,986			$	91,942			$	3,102,298

 

1.

These amounts represent the aggregate value of cash severance related to base salary, target annual bonus, pro rata bonuses and lump sum payment for unvested, accrued benefits under any tax-qualified retirement plan payable upon a qualifying termination under the First Niagara CIC Plan, as described in “—Interests of First Niagara Directors and Executive Officers in the Merger” beginning on page 83. The following table lists the respective portions of the amount set forth in this column that are attributable to the base salary severance payment, target annual bonus severance payment and pro-rata target bonus. It is anticipated that none of First Niagara’s named executive officers will receive a lump sum payment for unvested, accrued benefits under any tax-qualified retirement plan.

 

Name		Base Salary Severance				Target Annual Bonus Severance				Pro-Rata Bonuses
Gary M. Crosby		$	2,925,000			$	2,925,000			$	734,589
Gregory W. Norwood		$	1,086,500			$	869,200			$	327,438
Richard M. Barry		$	936,000			$	702,000			$	264,452
Mark R. Rendulic		$	863,200			$	604,240			$	227,625
Joseph V. Saffire		$	1,000,000			$	800,000			$	301,370

 

2.

These amounts represent the aggregate value of unvested equity awards payable upon a qualifying termination under the First Niagara CIC Plan or the First Niagara Long-Term Incentive Plans, as described in “—Interests of First Niagara Directors and Executive Officers in the Merger.” Mr. Crosby is currently retirement eligible. The existing terms of Mr. Crosby’s stock option and time-vested restricted stock unit awards provide for accelerated vesting on a voluntary retirement at any time; therefore, the table above does not reflect the value of such outstanding unvested stock options and time-based restricted stock unit awards. The following table sets forth the values of unvested First Niagara restricted stock awards and restricted stock unit awards and the aggregate spread value in the unvested options.

 

Name		Performance-Based Restricted Stock Units				Time-Based Restricted Stock Units				Stock Options
Gary M. Crosby		$	2,229,613			$	0			$	0
Gregory W. Norwood		$	837,938			$	1,075,425			$	37,938
Richard M. Barry		$	487,524			$	637,592			$	23,972
Mark R. Rendulic		$	449,443			$	587,847			$	22,111
Joseph V. Saffire		$	360,269			$	548,717			$	0

It is anticipated that none of First Niagara’s named executive officers will have outstanding unvested restricted stock awards on October 1, 2016, the assumed effective date of the merger solely for purposes of this section. Because this section assumes an effective date of October 1, 2016, the table above does not reflect the value arising from equity awards that would vest between October 30, 2015, and October 1, 2016. For purposes of the foregoing table and the amounts identified above vesting prior to October 1, 2016: (i) stock options are valued at the excess of $10.70, the assumed price per share of First Niagara common stock for purposes of this section, over the applicable per share exercise price, (ii) time-based restricted stock units are valued at $10.70 multiplied by each outstanding unvested unit, and (iii) and performance-

 

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based restricted stock units are valued at $10.70 multiplied by each outstanding unvested unit (performance being based on the target level solely for purposes of estimating the value of awards in this section, even though actual performance for the applicable periods may differ from the target performance).

 

3.

These amounts represent the aggregate value of continuing welfare and fringe benefits (including outplacement services) to which First Niagara executives are entitled under the First Niagara CIC Plan and other change in control agreements, as described in “—Interests of First Niagara Directors and Executive Officers in the Merger” beginning on page 83. The following table sets forth the values of continuing welfare and fringe benefits and outplacement services.

 

Name		Outplacement Services				Welfare and Fringe Benefits
Gary M. Crosby		$	15,000			$	86,026
Gregory W. Norwood		$	15,000			$	68,384
Richard M. Barry		$	15,000			$	47,225
Mark R. Rendulic		$	15,000			$	47,960
Joseph V. Saffire		$	15,000			$	76,942

Dividends/Distributions

From and after the date of the merger agreement, October 30, 2015, First Niagara may not, and may not permit its subsidiaries to, without the prior written consent of KeyCorp, make any dividend payments or distributions other than (i) regular quarterly cash dividends by First Niagara at a rate not in excess of $0.08 per share of First Niagara common stock, (ii) required dividends on the First Niagara preferred stock, (iii) dividends paid by any of First Niagara’s subsidiaries to First Niagara or any of First Niagara’s wholly owned subsidiaries and (iv) required dividends on the preferred and common stock of First Niagara’s subsidiaries.

The merger agreement provides that KeyCorp and First Niagara must coordinate with one another with respect to the declaration of dividends in respect of KeyCorp common shares and First Niagara common stock, and the record dates and payment dates with respect thereto, with the intention that the holders of First Niagara common stock should not receive two dividends, or fail to receive a dividend, in any quarter with respect to their shares of First Niagara common stock and any KeyCorp common shares they receive in exchange therefor in the merger.

After the effective time, no dividends or other distributions declared or made with respect to KeyCorp common shares will be paid to the holder of any unsurrendered certificate or book entry share that evidenced ownership of shares of First Niagara common stock until such holder properly surrenders such shares. See “—Conversion of Shares; Exchange and Payment Procedures” beginning on page 50.

 

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REGULATORY APPROVALS REQUIRED FOR THE MERGER

Completion of the merger is subject to the receipt of all approvals required to complete the transactions contemplated by the merger agreement (i) from the Federal Reserve Board, (ii) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (which we refer to as the “HSR Act”) and (iii) any other regulatory approval the failure of which to obtain would reasonably be expected to have a material adverse effect on KeyCorp or First Niagara (which the parties currently expect to be none), and the expiration of any applicable statutory waiting periods, in each case, without the imposition of a materially burdensome regulatory condition. Notifications and/or applications requesting approval may also be submitted to various other federal and state regulatory authorities and self-regulatory organizations, including certain state insurance departments. KeyCorp and First Niagara have agreed to use their reasonable best efforts to obtain all required regulatory approvals. KeyCorp, First Niagara and/or their respective subsidiaries have filed, or are in the process of filing, applications and notifications to obtain these regulatory approvals.

Although we currently believe we should be able to obtain all required regulatory approvals in a timely manner, we cannot be certain when or if we will obtain them or, if obtained, whether they will contain terms, conditions or restrictions not currently contemplated that will be detrimental to KeyCorp after the completion of the merger or will contain a materially burdensome regulatory condition.

Federal Reserve Board. Completion of the merger is subject, among other things, to approval by the Federal Reserve Board pursuant to Section 3 of the Bank Holding Company Act of 1956, as amended (which we refer to as the “BHC Act”). In considering the approval of an application under Section 3 of the BHC Act, the Federal Reserve Board reviews certain factors, including: (1) the financial and managerial resources of the companies involved, including pro forma capital ratios of the combined company (both in terms of absolute capital ratios and capital ratios relative to peer groups determined by the regulators) (2) the effect of the proposal on competition, (3) the risk to the stability of the United States banking or financial system, (4) the convenience and needs of the communities to be served and (5) the effectiveness of the companies in combatting money laundering.

The Federal Reserve Board also reviews the records of performance of the relevant insured depository institutions under the Community Reinvestment Act of 1977 (which we refer to as the “CRA”) and considers the concentration of deposits on a nationwide basis. In their most recent respective CRA examinations, KeyBank received an overall “outstanding” CRA performance rating and First Niagara Bank received an overall “satisfactory” CRA performance rating.

Furthermore, the BHC Act and Federal Reserve Board regulations require published notice of, and the opportunity for public comment on, the applications to the Federal Reserve Board, and authorize the Federal Reserve Board to hold a public hearing or meeting if the Federal Reserve Board determines that a hearing or meeting would be appropriate. The Federal Reserve Board takes into account the views of third party commenters, particularly on the subject of the merging parties’ CRA performance and record of service to their communities, and any hearing, meeting or comments provided by third parties could prolong the period during which the application is under review by the Federal Reserve Board. KeyCorp intends to file its application to the Federal Reserve Board under the BHC Act on or before November 30, 2015.

In addition to the Federal Reserve Board, the Antitrust Division of the Department of Justice (which we refer to as the “DOJ”) conducts a concurrent competitive review of the merger to analyze the transaction’s competitive effects and determine whether the transaction would result in a violation of the antitrust laws. After the Federal Reserve Board approves the transaction, the parties generally must wait at least 30 days to complete the transaction, during which time the DOJ may bring a court action challenging the transaction on antitrust grounds. With the approval of the Federal Reserve Board and the concurrence of the DOJ, the waiting period may be reduced to no less than 15 days. The commencement of an antitrust action would stay the effectiveness of such an approval unless a court specifically ordered otherwise. In reviewing the antitrust aspects of the transaction, the

 

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DOJ generally analyzes the competitive effects of the transaction differently than the Federal Reserve Board, and thus it is possible that the DOJ could reach a different conclusion than the Federal Reserve Board does regarding the merger’s effects on competition. A determination by the DOJ not to object to the merger may not prevent the filing of antitrust actions by private persons or state attorneys general. If the DOJ concludes that the transaction is likely to result in anticompetitive effects, the DOJ often attempts to remedy its concerns by requiring the parties to divest branches of the target institution to a competitively suitable purchaser. The level of divestitures that the Federal Reserve Board or the DOJ may require in order to approve the merger might be unacceptable to KeyCorp and First Niagara, or could delay the closing of the merger or diminish the benefits of the merger. KeyCorp and First Niagara believe that the merger should not raise significant regulatory concerns and that KeyCorp will be able to obtain all requisite regulatory approvals in a timely manner if required by regulators. KeyCorp will divest branches in certain areas in a manner sufficient to eliminate such regulatory authorities’ competitive concerns. However, there can be no assurance if and when DOJ clearance will be obtained, or as to the conditions or limitations that such DOJ approval may contain or impose.

Additional Regulatory Approvals and Notices. While portions of the transaction are exempt from the reporting requirements under the HSR Act, certain other aspects of the transaction relating to the non-bank operations of the parties are separately reportable under the HSR Act. Under the HSR Act, KeyCorp cannot complete the non-bank aspects of the First Niagara acquisition until KeyCorp and First Niagara have notified the DOJ and the U.S. Federal Trade Commission (which we refer to as the “FTC”) of the transaction and furnished them with certain information and materials relating to the acquisition and the applicable waiting period has terminated or expired. KeyCorp and First Niagara intend to file the required notifications with the DOJ and the FTC on or before November 30, 2015.

Following the completion of the merger, KeyCorp intends to merge First Niagara Bank with and into KeyBank (which we refer to as the “bank merger”). The bank merger will be subject to approval by the Office of the Comptroller of the Currency (which we refer to as the “OCC”) under Section 18(c) of the Federal Deposit Insurance Act. KeyBank intends to file an application with the OCC seeking this approval in the near future. The OCC’s approval of the bank merger is not a condition to either party’s obligation to complete the merger of KeyCorp and First Niagara.

There can be no assurances that the regulatory approvals discussed above will be received on a timely basis, or as to the ability of KeyCorp and First Niagara to obtain the approvals on satisfactory terms or the absence of litigation challenging such approvals. In recent similar transactions, the Federal Reserve Board has taken a longer time to render a decision on applications than the typical time period for approval set forth in the Federal Reserve Board’s regulations. There can likewise be no assurances that U.S. federal or state regulatory authorities will not attempt to challenge the merger on antitrust grounds or for other reasons, or, if such a challenge is made, as to the result of such challenge.

 

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ACCOUNTING TREATMENT

In accordance with current accounting guidance, the merger will be accounted for using the acquisition method. As a result, the recorded assets and liabilities of KeyCorp will be carried forward at their recorded amounts, the historical operating results will be unchanged for the prior periods being reported on and the assets and liabilities of First Niagara will be adjusted to fair value at the date of the merger. In addition, all identified intangible assets will be recorded at fair value and included as part of the net assets acquired. To the extent that the purchase price, consisting of cash plus the number of KeyCorp common shares and shares of new KeyCorp preferred stock to be issued to former First Niagara stockholders, option holders and holders of restricted stock awards, restricted stock unit awards and the First Niagara preferred stock, as applicable, at fair value, exceeds the fair value of the net assets including identified intangible assets of First Niagara on the date the merger is completed, such amount will be reported as goodwill. In accordance with current accounting guidance, goodwill will not be amortized but will be evaluated for impairment annually. Identified finite life intangible assets will be amortized over their estimated lives. Further, the acquisition method of accounting will result in the operating results of First Niagara being included in the operating results of KeyCorp beginning from the date of completion of the merger.

 

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PUBLIC TRADING MARKETS

KeyCorp common shares are listed on the NYSE under the symbol “KEY.” First Niagara common stock is listed on the NASDAQ under the symbol “FNFG.” Upon completion of the merger, First Niagara common stock will be delisted from the NASDAQ and thereafter will be deregistered under the Exchange Act and First Niagara will no longer be required to file periodic reports with the SEC with respect to the First Niagara common stock. The KeyCorp common shares and the new KeyCorp preferred stock issuable in the merger will be listed on the NYSE.

 

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RESALE OF KEYCORP COMMON SHARES AND NEW KEYCORP PREFERRED STOCK

All KeyCorp common shares and the new KeyCorp preferred stock received by First Niagara stockholders in the merger will be freely tradable for purposes of the Securities Act of 1933, as amended (which we refer to as the “Securities Act”) and the Exchange Act, except for KeyCorp common shares received by any First Niagara stockholder who becomes an “affiliate” of KeyCorp after completion of the merger. This joint proxy statement/prospectus does not cover resales of KeyCorp common shares or the new KeyCorp preferred stock received by any person upon completion of the merger, and no person is authorized to make any use of this joint proxy statement/prospectus in connection with any resale.

 

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THE MERGER AGREEMENT

This section describes the material terms of the merger agreement. The description in this section and elsewhere in this joint proxy statement/prospectus is qualified in its entirety by reference to the complete text of the merger agreement, a copy of which is attached as Appendix A and is incorporated by reference into this joint proxy statement/prospectus. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. You are encouraged to read the merger agreement carefully and in its entirety. This section is not intended to provide you with any factual information about KeyCorp or First Niagara. Such information can be found elsewhere in this proxy statement/prospectus and in the public filings KeyCorp and First Niagara make with the SEC, as described in the section entitled “Where You Can Find More Information” in the forepart of this joint proxy statement/prospectus.

Effects of the Merger; Merger Consideration

As a result of the merger, First Niagara will merge with and into KeyCorp with KeyCorp surviving the merger. The articles and the regulations of KeyCorp, each as amended as described in this joint proxy statement/prospectus, as in effect immediately prior to the merger will be the articles and regulations of the surviving company.

Each share of First Niagara common stock issued and outstanding immediately prior to the effective time of the merger (other than shares owned by First Niagara as treasury stock or otherwise owned by First Niagara or KeyCorp and any dissenting shares), will be converted into the right to receive 0.680 KeyCorp common shares and $2.30 in cash. Each share of First Niagara preferred stock issued and outstanding immediately prior to the effective time of the merger will automatically be converted into a share of the new KeyCorp preferred stock. KeyCorp will not issue any fractional KeyCorp common shares in the merger. Instead, a First Niagara stockholder who otherwise would have received a fraction of a KeyCorp common share will receive an amount in cash (rounded to the nearest cent) determined by multiplying the fraction of the KeyCorp common share to which the holder would otherwise be entitled by the volume weighted average price of KeyCorp common shares on the NYSE for the five trading days ending on the day prior to the effective time of the merger.

Closing and Effective Time of the Merger

Unless the parties otherwise mutually agree, the closing of the merger will occur no later than three business days after the satisfaction or waiver of all the closing conditions, including the receipt of all regulatory and shareholder approvals and after the expiration of all regulatory waiting periods. See “The Merger Agreement—Conditions to the Merger” beginning on page 105 for a more complete description of the conditions that must be satisfied prior to closing.

On the closing date, the surviving corporation will effect the merger legally by filing the certificates of merger with the Secretary of State of the State of Delaware and the Secretary of State of the State of Ohio. The merger will become effective as of the date and time specified in such certificates of merger. The time at which the merger becomes effective is sometimes referred to in this joint proxy statement/prospectus as the “effective time.”

As of the date of this joint proxy statement/prospectus, the parties expect that the merger will be effective during the third calendar quarter of 2016. However, there can be no assurance as to when or if the merger will occur.

If the merger is not completed by the close of business on October 30, 2016, the merger agreement may be terminated by either KeyCorp or First Niagara, unless the failure of the closing to occur by such date is due to the failure of the party seeking to terminate the merger agreement to perform or observe the covenants and agreements of such party set forth in the merger agreement. See “The Merger Agreement—Termination; Termination Fee” beginning on page 106.

 

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Treatment of First Niagara Stock Options and Other Equity Awards

First Niagara Stock Options. At the effective time of the merger, each outstanding and unexercised option to purchase shares of First Niagara common stock, whether vested or unvested, will be converted into an option to purchase KeyCorp common shares (rounded down to the nearest whole share), on the same terms and conditions, including vesting, as were applicable to such option prior to the merger, equal to the product of (i) the number of shares of First Niagara common stock subject to such First Niagara stock option multiplied by (ii) the sum of (a) the exchange ratio and (b) the KeyCorp equity award exchange ratio, with an exercise price per KeyCorp common share (rounded up to the nearest whole cent) equal to the quotient obtained by dividing (x) the exercise price per share of First Niagara common stock of such First Niagara stock option by (y) the KeyCorp equity award exchange ratio.

First Niagara Restricted Stock Awards. At the effective time of the merger, each First Niagara restricted stock award will be converted into a number of KeyCorp common shares (rounded down to the nearest whole share) equal to the product of (a) the number of shares of First Niagara common stock underlying such award multiplied by (b) the KeyCorp equity award exchange ratio, and will be subject to the same terms and conditions, including vesting, as were applicable to such restricted stock awards prior to the merger.

First Niagara Restricted Stock Unit Awards. At the effective time of the merger, each First Niagara restricted stock unit award will be converted into a restricted stock unit award for a number of (with any performance-based vesting conditions applicable to such restricted stock unit awards immediately prior to the effective time of the merger being deemed satisfied at target level) KeyCorp common shares (rounded down to the nearest whole share) equal to the product of (a) the number of shares of First Niagara common stock underlying such award multiplied by (b) the KeyCorp equity award exchange ratio, and will be subject to the same terms and conditions, including vesting, as were applicable to such awards prior to the merger, plus a pro rata share of the merger consideration with respect to any fractional KeyCorp common shares subject to each restricted stock unit award.

Covenants and Agreements

Conduct of Businesses Prior to the Completion of the Merger. First Niagara has agreed that, prior to the effective time of the merger, it will conduct its businesses, and cause its subsidiaries to conduct their respective businesses, in the ordinary course in all material respects and use commercially reasonable efforts to maintain and preserve intact its business organization and advantageous business relationships. First Niagara and KeyCorp have each agreed not to knowingly take any action that is intended to or would reasonably be likely to prevent, materially impede or materially delay the ability of First Niagara, KeyCorp or their respective subsidiaries to obtain any necessary regulatory approvals required for the merger or perform their respective covenants and agreements under the merger agreement or to consummate the transactions contemplated thereby.

In addition to the general covenants above, First Niagara has agreed that prior to the effective time of the merger, subject to specified exceptions, it will not, and will not permit its subsidiaries to, without the prior written consent of KeyCorp (which will not be unreasonably withheld, conditioned or delayed):

 

•

other than in the ordinary course of business, incur any indebtedness for borrowed money (other than indebtedness of First Niagara or any of its wholly owned subsidiaries to First Niagara or any of its subsidiaries), assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other person (other than a subsidiary of First Niagara);

 

•

(i) adjust, split, combine or reclassify any capital stock; (ii) make, declare or pay any dividend, or make any other distribution on, or directly or indirectly redeem, purchase or otherwise acquire, any shares of its capital stock or any securities or obligations convertible (whether currently convertible or convertible only after the passage of time or the occurrence of certain events) into or exchangeable for any shares of its capital stock (except (A) regular quarterly cash dividends by First Niagara on the First

 

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Niagara common stock at a rate not in excess of $0.08 per share of First Niagara common stock, and any associated dividend equivalents for First Niagara equity awards, (B) required dividends on the First Niagara preferred stock, (C) dividends paid by any of First Niagara’s subsidiaries to First Niagara or any of First Niagara’s wholly owned subsidiaries, (D) the acceptance of shares of First Niagara common stock as payment for the exercise price of First Niagara stock options or for withholding taxes incurred in connection with the exercise of First Niagara stock options or the vesting or settlement of First Niagara equity awards and dividend equivalents thereon, if any, in each case in accordance with past practice and the terms of the applicable award agreements, (E) required dividends on the preferred stock of any of First Niagara’s subsidiaries or (F) required dividends on the common stock of any subsidiary of First Niagara); (iii) grant any stock options, stock appreciation rights, performance shares, restricted stock unit awards, restricted shares or other equity-based awards or interests, or grant any individual, corporation or other entity any right to acquire any shares of its capital stock, except in the ordinary course of business and consistent with past practice, 2016 annual equity grants to employees and directors consistent with 2015 annual grants and new hire equity grants to employees, in each case, subject to certain specified limits; or (iv) issue, sell or otherwise permit to become outstanding any additional shares of capital stock or securities convertible or exchangeable into, or exercisable for, any shares of its capital stock or any options, warrants, or other rights of any kind to acquire any shares of capital stock, except for the issuance of shares upon the exercise of First Niagara stock options or the vesting or settlement of First Niagara equity awards (and dividend equivalents thereon, if any);

 

•

sell, transfer, mortgage, encumber or otherwise dispose of any of its material properties or assets to any individual, corporation or other entity other than a wholly owned subsidiary, or cancel, release or assign any material indebtedness to any such person or any claims held by any such person, in each case other than in the ordinary course of business;

 

•

except for transactions in the ordinary course of business (including by way of foreclosure or acquisitions of control in a fiduciary or similar capacity or in satisfaction of debts previously contracted in good faith), make any material investment either by purchase of stock or securities, contributions to capital, property transfers, or purchase of any property or assets of any other individual, corporation or other entity, other than in a wholly owned subsidiary of First Niagara;

 

•

(i) terminate, materially amend, or waive any material provision of, any specified First Niagara material contract (as agreed among the parties), or make any material change in any instrument or agreement governing the terms of any of its securities, other than normal renewals in the ordinary course of business or (ii) enter into any contract that would constitute a material contract if it were in effect on the date of the merger agreement;

 

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except as required under applicable law or the terms of any plan or arrangement existing as of the date of the merger agreement, (i) enter into, adopt or terminate any employee benefit or compensation plan, program, policy or arrangement for the benefit or welfare of any current or former employee, officer, director or consultant, (ii) amend any employee benefit or compensation plan, program, policy or arrangement for the benefit or welfare of any current or former employee, officer, director or individual consultant other than amendments in the ordinary course of business consistent with past practice that do not materially increase the cost of maintaining such plan, program policy or arrangement, (iii) increase the annual base salary or rate of pay or benefits payable to any current or former employee, officer, director or individual consultant, except for merit-based or promotion-based increases in annual base salary or wage rate for employees, in the ordinary course of business consistent with past practice, that do not exceed, in the aggregate, two and one half percent (2.5%) per annum of the aggregate cost of all employee annual base salaries and wages in effect as of the merger agreement, (iv) grant or accelerate the vesting of any equity-based awards or other compensation, except for those grants specifically permitted by the merger agreement, (v) enter into any new, or amend any existing, employment, collective bargaining agreement or similar agreement or arrangement (other than agreements and arrangements with employees being hired or promoted to replace a terminating employee, where the arrangements entered into with any such replacement employee are

 

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materially consistent in amount as compared to the amounts provided under arrangements with the terminating employee), or (vi) hire any officer, employee, independent contractor or individual consultant (who is a natural person) who has annual base salary or wage rate greater than $150,000;

 

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settle any material claim, suit, action or proceeding, except in the ordinary course of business, in an amount and for consideration not in excess of $2,500,000 individually or $5,000,000 in the aggregate and that would not impose any material restriction on the business of First Niagara or its subsidiaries or the surviving company or any of its affiliates;

 

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take any action or knowingly fail to take any action where such action or failure to act could reasonably be expected to prevent the merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code;

 

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amend its charter or bylaws or the comparable governing documents of its subsidiaries;

 

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merge or consolidate itself or any of its “significant subsidiaries” (as such term is defined in Rule 1-02 of Regulation S-X promulgated under the Exchange Act with any other person, or restructure, reorganize or completely or partially liquidate or dissolve it or any of its significant subsidiaries;

 

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materially restructure or materially change its investment securities or derivatives portfolios or its interest rate exposure, or, other than in the ordinary course of business, increase its non-agency and non-government securities above the amount included in First Niagara’s investment portfolio as of the date of the merger agreement, through purchases, sales or otherwise, or the manner in which the portfolio is classified or reported, except as may be required by applicable laws, regulations, guidelines or policies imposed by certain specified regulatory agencies;

 

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implement or adopt any change in its accounting principles, practices or methods, other than as may be required by GAAP or by applicable laws, regulations, guidelines or policies imposed by any governmental entity;

 

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enter into any material new line of business or change in any material respect its lending, investment and underwriting management and other banking and operating policies, except as required by such policies or applicable law, regulation or as requested or imposed by certain specified regulatory agencies;

 

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make, or commit to make, any capital expenditures in excess of $10,000,000 in the aggregate;

 

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make, change or revoke any material tax election, change an annual tax accounting period, adopt or change any material tax accounting method, file any amended tax return with respect to a material amount of taxes, enter into any closing agreement with respect to a material amount of taxes, or settle any material tax claim, audit, assessment or dispute or surrender any right to claim a refund of a material amount of taxes;

 

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make application for the opening, relocation or closing of any, or open, relocate or close any, branch office, loan production office or other significant office or operations facility of it or its subsidiaries; or

 

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agree to take, make any commitment to take, or adopt any resolutions of its Board of Directors or similar governing body in support of the foregoing actions.

KeyCorp has agreed to a more limited set of restrictions on its business prior to the effective time of the merger. Specifically, KeyCorp has agreed that prior to the effective time of the merger, except as expressly contemplated or permitted by the merger agreement or as required by law, it will not, without the prior written consent of First Niagara (which will not be unreasonably withheld, conditioned or delayed):

 

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amend its articles or its regulations in a manner that would materially and adversely affect the economic benefit of the merger to the holders of First Niagara common stock, or adversely affect the holders of First Niagara common stock (upon their acquisition of KeyCorp common shares) relative to other holders of KeyCorp common shares;

 

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•

adjust, split, combine or reclassify the KeyCorp common shares;

 

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make any material investment either by purchase of stock or securities, contributions to capital, property transfers, or purchase of any property or assets of any other individual, corporation or other entity, other than in a wholly owned subsidiary of KeyCorp, except for transactions in the ordinary course of business or in a transaction that, together with such other transactions, is not reasonably likely to prevent, materially impede or materially delay the ability of KeyCorp, First Niagara or their respective subsidiaries to obtain any necessary approvals of any specified regulatory agency or other governmental entity required for the merger or to consummate the transactions contemplated by the merger agreement;

 

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merge or consolidate itself or any of its significant subsidiaries with any other person where it or its significant subsidiary, as applicable, is not the surviving person, or restructure, reorganize or completely or partially liquidate or dissolve it or any of its significant subsidiaries, in any such case where such action is reasonably likely to prevent, materially impede or materially delay the ability of KeyCorp, First Niagara or their respective subsidiaries to obtain any necessary approvals of any specified regulatory agency or other governmental entity required for the merger or to consummate the transactions contemplated by the merger agreement;

 

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take any action or knowingly fail to take any action where such action or failure to act could reasonably be expected to prevent the merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code;

 

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except for communications made in accordance with the merger agreement, make any written communications to the employees of First Niagara or any of its subsidiaries with respect to employment matters without prior review, comment and consent by First Niagara; or

 

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agree to take, make any commitment to take, or adopt any resolutions of its Board of Directors or similar governing body in support of the foregoing actions.

Regulatory Matters. KeyCorp and First Niagara have agreed to promptly (and in any event within 30 days of the date of the merger agreement) prepare and file with the SEC a registration statement on Form S-4, of which this joint proxy statement/prospectus is a part. KeyCorp and First Niagara have agreed to use reasonable best efforts to have the Form S-4 declared effective under the Securities Act as promptly as practicable after such filing, and to mail or deliver the joint proxy statement/prospectus to each of KeyCorp’s and First Niagara’s shareholders. KeyCorp has also agreed to use its reasonable best efforts to obtain all necessary state securities law or “Blue Sky” permits and approvals required to carry out the transactions contemplated by the merger agreement, and First Niagara has agreed to furnish all information concerning First Niagara and the holders of First Niagara common stock as may be reasonably requested in connection with any such action. In addition, KeyCorp has agreed to file an application seeking approval of the merger and/or the bank merger (if applicable) with the Federal Reserve Board no later than 30 days following the date of the merger agreement.

KeyCorp and First Niagara have agreed to cooperate with each other and use their respective reasonable best efforts to promptly prepare and file all necessary documentation, to effect all applications, notices, petitions and filings, to obtain as promptly as practicable all permits, consents, approvals and authorizations of all third parties and governmental entities that are necessary or advisable to consummate the transactions contemplated by the merger agreement.

Additionally, each of KeyCorp and First Niagara have agreed to furnish, upon request, to the other all information concerning itself, its subsidiaries, directors, officers and shareholders and such other matters as may be reasonably necessary or advisable in connection with this joint proxy statement/prospectus, the Form S-4 or any other statement, filing, notice or application made by or on behalf of KeyCorp, First Niagara or any of their respective subsidiaries to any governmental entity in connection with the transactions contemplated by the merger agreement.

 

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KeyCorp and First Niagara have each agreed to use its reasonable best efforts to (i) avoid the entry of, or to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order that would restrain, prevent or delay the closing of the merger and (ii) avoid or eliminate all impediments under applicable law so as to enable the closing of the merger to occur as soon as possible, provided that KeyCorp and First Niagara will not be required to take, or agree to take, any actions or agree to any condition or restriction, in connection with the grant of certain required regulatory approvals, that would be more likely than not to have a material and adverse effect on KeyCorp and its subsidiaries, taken as a whole, giving effect to the merger (measured on a scale relative to First Niagara and its subsidiaries, taken as a whole), with such an effect referred to as a “materially burdensome regulatory condition.”

Stockholder Approval. First Niagara’s Board of Directors has resolved to recommend to the First Niagara stockholders that they approve the merger agreement and to submit to the First Niagara stockholders the merger agreement and any other matters required to be approved by the First Niagara stockholders in order to carry out the intentions of the merger agreement. However, if First Niagara’s Board of Directors, after receiving the advice of its outside counsel and financial advisors, determines in good faith that it would reasonably be expected to violate its fiduciary duties under Delaware law to, or to continue to, recommend the merger agreement, then First Niagara’s Board of Directors may submit the merger agreement to its stockholders without recommendation, or may change its recommendation, provided that First Niagara’s Board of Directors may not withdraw or change its recommendation unless (i) it gives KeyCorp at least five business days’ prior written notice of its intention to do so and a reasonable description of the event or circumstances giving rise to its determination to take such action and (ii) at the end of such notice period, First Niagara’s Board of Directors takes into account any amendment or modification to the merger agreement proposed by KeyCorp and, after receiving the advice of its outside counsel and financial advisors, determines in good faith that it would nevertheless reasonably be expected to violate its fiduciary duties under Delaware law to continue to recommend the merger agreement.

KeyCorp’s Board of Directors has resolved to recommend to the KeyCorp shareholders that they approve the merger proposal and the articles amendment proposal and to submit to the KeyCorp shareholders such proposals and any other matters required to be approved by the KeyCorp shareholders in order to carry out the intentions of the merger agreement.

NYSE Listing. KeyCorp will cause the KeyCorp common shares and new KeyCorp preferred stock to be issued in the merger to be approved for listing on the NYSE, subject to official notice of issuance, prior to the effective time of the merger.

Employee Matters. For a period of one year after the effective time of the merger, KeyCorp must provide each continuing employee of First Niagara with (i) annual base salary or wages, annual incentive opportunities and long-term incentive compensation opportunities that are no less than the annual base salary or wages, annual incentive opportunities and long-term incentive compensation opportunities, in each case, in effect for such employee immediately prior to the effective time of the merger, (ii) defined contribution retirement and employee welfare benefits (including retiree medical) that are substantially comparable in the aggregate to either (x) the defined contribution retirement and employee welfare benefits (including retiree medical) provided by First Niagara and its subsidiaries to such employee immediately prior to the effective time of the merger or (y) to the defined contribution retirement and employee welfare benefits (excluding retiree medical) provided to similarly situated employees of KeyCorp, (iii) a position (A) requiring substantially comparable skills and abilities as the employee’s position immediately prior to the effective time of the merger and (B) that includes a work status (full or part-time) that is not changed from that in effect immediately prior to the effective time of the merger and (iv) certain other agreed severance payments and benefits to each continuing employee of First Niagara and its subsidiaries.

With respect to any employee benefit plans of KeyCorp and its subsidiaries (excluding any retiree medical plan) in which any employees of First Niagara or its subsidiaries become eligible to participate on or after the effective time of the merger (which we refer to as the “new plans”) KeyCorp will: (i) waive all pre-existing conditions,

 

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exclusions and waiting periods with respect to participation and coverage requirements applicable to such employees and their eligible dependents under any new plans, except to the extent such pre-existing conditions, exclusions or waiting periods would apply under the analogous First Niagara benefit plans, (ii) provide each such employee and their eligible dependents with credit for any co-payments or coinsurance and deductibles paid prior to the effective time of the merger under a First Niagara benefit plan (to the same extent that such credit was given under the analogous First Niagara benefit plan prior to the effective time of the merger) in satisfying any applicable deductible, co-payment, coinsurance or maximum out-of-pocket requirements under any new plans and (iii) recognize all service of such employees with First Niagara and its subsidiaries for all purposes in any new plan to the same extent that such service was taken into account under the analogous First Niagara benefit plan prior to the effective time of the merger, including, but not limited to, (A) banking privileges and perquisites applicable to similarly situated employees of KeyCorp and its subsidiaries (both by job classification or status and by geographic location) and (B) for benefit accrual or level of benefits for vacation, paid time off and severance benefits; provided that the foregoing service recognition shall not apply (x) to the extent it would result in duplication of benefits for the same period of services, (y) for purposes of any defined benefit pension plan, or (z) to any benefit plan that is a frozen plan or provides grandfathered benefits.

KeyCorp has agreed to assume and honor all First Niagara benefit plans in accordance with their terms as of the date of the merger agreement or as modified consistent with the terms of the merger agreement, it being understood that KeyCorp and its affiliates may amend or terminate any First Niagara benefit plan if such amendment or termination is permitted by the applicable plan, provided that KeyCorp must honor all deferral elections that have been properly made prior to the effective time of the merger under certain specified First Niagara benefit plans.

Nothing in the merger agreement will confer upon any employee, officer, director or consultant of First Niagara any right to continue in the employ or service of the surviving corporation, or will interfere with or restrict in any way the rights of the surviving corporation to discharge or terminate the services of any employee, officer, director or consultant of First Niagara at any time for any reason whatsoever, with or without cause. Nothing in the merger agreement will be deemed to (i) establish, amend, or modify any benefit or employment plan, program, agreement or arrangement, or (ii) alter or limit the ability of the surviving corporation to amend, modify or terminate any particular benefit or employment plan, program, agreement or arrangement after the merger becomes effective.

Indemnification and Directors’ and Officers’ Insurance. From and after the effective time of the merger, KeyCorp will indemnify and hold harmless, to the fullest extent permitted by applicable law, each present and former director, officer and employee of First Niagara and its subsidiaries or fiduciaries of First Niagara or any of its subsidiaries under any First Niagara employee benefit plan from liabilities incurred in connection with any threatened or actual claim, action, suit, proceeding or investigation, whether arising before or after the effective time of the merger, arising in whole or in part out of, or pertaining to, (i) the fact that such person is or was a director, officer, employee or fiduciary of First Niagara or any of its subsidiaries or (ii) matters existing or occurring at or prior to the effective time of the merger, including matters, acts or omissions occurring in connection with the consideration and approval of the merger agreement and the consummation of the transactions contemplated thereby. KeyCorp has agreed to maintain in effect the current policies of directors’ and officers’ liability insurance maintained by First Niagara or provide substitute directors’ and officers’ liability insurance for the benefit of present and former officers and directors of First Niagara or any of its subsidiaries with respect to claims against such directors and officers arising from facts or events occurring at or before the effective time of the merger for a period of six years following the effective time of the merger. Any such substitute insurance will contain terms and conditions that are not less advantageous than the current coverage provided by First Niagara, except that KeyCorp is not required to incur annual premium expense greater than 300% of First Niagara’s current annual directors’ and officers’ liability insurance premium. In lieu of the foregoing, First Niagara, in consultation with, and with the consent (not to be unreasonably withheld, conditioned or delayed) of, KeyCorp, may obtain a six year “tail” policy at or prior to the effective time of the merger under First Niagara’s existing directors and officers insurance policy on the terms in this paragraph.

 

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No Solicitation. The merger agreement precludes First Niagara and its subsidiaries and their respective officers, directors, agents, advisors and representatives from initiating, soliciting, knowingly encouraging or knowingly facilitating inquiries or proposals with respect to, or engaging or participating in any negotiations concerning, or providing any confidential or nonpublic information or data to, or having or participating in any discussions with any person relating to, or entering into any binding acquisition agreement, merger agreement or other definitive transaction agreement (other than a confidentiality agreement described in this paragraph) relating to, any Acquisition Proposal (defined below). However, if First Niagara receives an unsolicited bona fide written Acquisition Proposal and First Niagara’s Board of Directors concludes in good faith (after receiving the advice of its outside counsel and financial advisors) that such Acquisition Proposal constitutes or is more likely than not to result in a Superior Proposal (defined below), First Niagara may furnish nonpublic information or data and participate in such negotiations or discussions to the extent that the Board of Directors of First Niagara concludes in good faith (after receiving the advice of its outside counsel and financial advisors) that failure to take such actions would reasonably be expected to violate its fiduciary duties under applicable law, provided that prior to providing any such nonpublic information or data, First Niagara will have entered into a confidentiality agreement with such third party on terms, in all material respects, no less favorable to it than the confidentiality agreement between First Niagara and KeyCorp. First Niagara has agreed to, as of the date of the merger agreement, terminate any activities, discussions or negotiations conducted before the date of the merger agreement with any persons other than KeyCorp with respect to any Acquisition Proposal, and to use its reasonable best efforts, subject to applicable law and the fiduciary duties of its Board of Directors, enforce any existing confidentiality, standstill or similar agreement to which it or its subsidiaries is a party relating to an Acquisition Proposal in accordance with its terms. First Niagara has also agreed to advise KeyCorp within 24 hours following receipt of any Acquisition Proposal and the substance thereof (including the identity of the person making such Acquisition Proposal, the latest material terms and conditions of such Acquisition Proposal or any amendment of modification thereof), and to keep KeyCorp apprised within 24 hours of any developments, discussions and negotiations, including any amendments to or revisions of the terms of such Acquisition Proposal.

 

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As used in the merger agreement, “Acquisition Proposal” means (other than the merger agreement) any offer, proposal or third party indication of interest relating to, (i) any acquisition or purchase, direct or indirect, of 20% or more of the consolidated assets of First Niagara and its subsidiaries or 20% or more of any class of equity or voting securities of First Niagara or its subsidiaries whose assets, individually or in the aggregate, constitute 20% or more of the consolidated assets of First Niagara, (ii) any tender offer or exchange offer that, if consummated, would result in such third party beneficially owning 20% or more of any class of equity or voting securities of First Niagara or its subsidiaries whose assets, individually or in the aggregate, constitute 20% or more of the consolidated assets of First Niagara, or (iii) a merger, consolidation, share exchange or other business combination or similar transaction involving First Niagara or its subsidiaries whose assets, individually or in the aggregate, constitute 20% or more of the consolidated assets of First Niagara, except, in each case, any sale of whole loans and securitizations in the ordinary course of business and any bona fide internal reorganization.

 

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As used in the merger agreement, “Superior Proposal” means a bona fide written Acquisition Proposal that First Niagara’s Board of Directors concludes in good faith to be more favorable to its stockholders than the merger and the other transactions contemplated by the merger agreement, (i) after receiving the advice of its financial advisors (who must be a nationally recognized investment banking firm), (ii) after taking into account the likelihood of consummation of such transaction on the terms set forth therein and (iii) after taking into account all legal (with the advice of outside counsel), financial (including the financing terms of any such proposal), regulatory and other aspects of such proposal (including any expense reimbursement provisions and conditions to closing) and any other relevant factors permitted under applicable law; provided, that for purposes of the definition of “Superior Proposal,” the references to “20%” in the definition of Acquisition Proposal shall be deemed to be references to “a majority.”

 

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Representations and Warranties

The merger agreement contains representations and warranties made by First Niagara to KeyCorp relating to a number of matters, including the following:

 

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corporate organization, qualification to do business, good standing, corporate power, and subsidiaries;

 

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capitalization;

 

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requisite corporate authority to enter into the merger agreement and to complete the contemplated transactions;

 

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absence of conflicts with governing documents, applicable laws or certain agreements and instruments as a result of entering into the merger agreement or completing the merger;

 

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required regulatory consents necessary in connection with the merger;

 

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existing or contemplated agreements, orders, memoranda of understanding or similar communications with regulators or other government entities;

 

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proper filing of documents with regulatory agencies and the SEC and the accuracy of information contained in the documents filed with the SEC, and Sarbanes-Oxley certifications;

 

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conformity with U.S. GAAP and SEC requirements of First Niagara’s financial statements filed with the SEC and the absence of undisclosed liabilities;

 

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broker’s and finder’s fees related to the merger;

 

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absence of a material adverse effect since December 31, 2014;

 

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legal proceedings and absence of orders, judgments and regulatory restrictions;

 

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compliance with applicable law;

 

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non-applicability of state takeover laws;

 

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employee compensation and benefits matters;

 

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opinion from financial advisor;

 

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accuracy of First Niagara information provided in this joint proxy statement/prospectus;

 

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legal proceedings;

 

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material contracts;

 

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tax matters;

 

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absence of action or any fact or circumstance that would prevent or impede the merger from qualifying as a reorganization;

 

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environmental matters;

 

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intellectual property;

 

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properties;

 

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insurance;

 

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accounting and internal controls;

 

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derivatives;

 

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labor matters; and

 

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related party transactions.

 

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The merger agreement also contains representations and warranties made by KeyCorp to First Niagara relating to a number of matters, including the following:

 

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corporate organization, qualification to do business, standing and power, and subsidiaries;

 

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capitalization;

 

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requisite corporate authority to enter into the merger agreement and to complete the contemplated transactions;

 

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absence of conflicts with governing documents, applicable laws or certain agreements as a result of entering into the merger agreement or completing the merger;

 

•

required regulatory consents necessary in connection with the merger;

 

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existing or contemplated agreements, orders, memoranda of understanding or similar communications with regulators or other government entities;

 

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proper filing of documents with regulatory agencies and the SEC and the accuracy of information contained in the documents filed with the SEC, and Sarbanes-Oxley certifications;

 

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the conformity with U.S. GAAP and SEC requirements of KeyCorp’s financial statements filed with the SEC and the absence of undisclosed liabilities;

 

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broker’s and finder’s fees related to the merger;

 

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the absence of a material adverse effect since December 31, 2014;

 

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compliance with applicable law;

 

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accuracy of KeyCorp information provided in this joint proxy statement/prospectus;

 

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legal proceedings;

 

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absence of action or circumstances that would impede the merger from qualifying as a reorganization; and

 

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accounting and internal controls.

Certain of these representations and warranties are qualified as to “materiality” or “material adverse effect.” For purposes of the merger agreement, a “material adverse effect” with respect to KeyCorp, First Niagara or the surviving company, as the case may be, means a material adverse effect on (i) the business, properties, assets, liabilities, results of operations or financial condition of such person and its subsidiaries taken as a whole (provided, however, that, with respect to this clause (i), material adverse effect shall not be deemed to include the impact of (A) changes, after the date of the merger agreement, in GAAP or applicable regulatory accounting requirements or interpretations thereof, (B) changes, after the date of the merger agreement, in laws, rules, regulations or agency requirements of general applicability to companies in the industries in which such person and its subsidiaries operate, or interpretations thereof by courts or governmental entities, (C) changes, after the date of the merger agreement, in global, national or regional political conditions (including the outbreak of war or acts of terrorism) or in economic or market conditions affecting the financial services industry generally and not specifically relating to such person or its subsidiaries, including changes in prevailing interest rates and in the credit and securities markets, (D) failure, in and of itself, to meet internal or other estimates, projections or forecasts of revenue, net income or any other measure of financial performance, or changes in the trading prices of such person’s securities, but not, in any such case, including the underlying causes thereof; (E) disclosure or consummation of the transactions contemplated by the merger agreement or actions expressly required by the merger agreement in contemplation of the transactions contemplated by the merger agreement, or (F) actions or omissions taken pursuant to the written consent of KeyCorp, in the case of First Niagara, or First Niagara, in the case of KeyCorp; except, with respect to clauses (A), (B) or (C), to the extent that the effects of such change are materially disproportionately adverse to the business, properties, assets, liabilities, results of operations or

 

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financial condition of such person and its subsidiaries, taken as a whole, as compared to other companies in the industry in which such person and its subsidiaries operate) or (ii) the ability of such person to timely consummate the transactions contemplated by the merger agreement.

The representations and warranties in the merger agreement do not survive the effective time of the merger and, as described below under “—Termination; Termination Fee,” if the merger agreement is validly terminated, there will be no liability under the representations and warranties of the parties, or otherwise under the merger agreement, unless a party engaged in fraud or willfully breached the merger agreement.

This summary and the copy of the merger agreement attached to this joint proxy statement/prospectus as Appendix A are included solely to provide investors with information regarding the terms of the merger agreement. They are not intended to provide factual information about the parties or any of their respective subsidiaries or affiliates. The merger agreement contains representations and warranties by KeyCorp and First Niagara, which were made only for purposes of that agreement and as of specific dates. The representations, warranties and covenants in the merger agreement were made solely for the benefit of the parties to the merger agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the merger agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those generally applicable to investors. Investors are not third-party beneficiaries under the merger agreement, and in reviewing the representations, warranties and covenants contained in the merger agreement or any descriptions thereof in this summary, it is important to bear in mind that such representations, warranties and covenants or any descriptions thereof were not intended by the parties to the merger agreement to be characterizations of the actual state of facts or condition of KeyCorp, First Niagara or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the merger agreement, which subsequent information may or may not be fully reflected in KeyCorp’s and First Niagara’s public disclosures. For the foregoing reasons, the representations, warranties and covenants or any descriptions of those provisions should not be read alone and should instead be read in conjunction with the other information contained in the reports, statements and filings that KeyCorp and First Niagara publicly file with the SEC. See “Incorporation of Certain Documents by Reference” beginning on page 144.

Conditions to the Merger

Conditions to Each Party’s Obligations. The respective obligations of each of KeyCorp and First Niagara to complete the merger are subject to the satisfaction of the following conditions:

 

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receipt of the requisite approval of the KeyCorp shareholders and First Niagara stockholders of the merger agreement and receipt of the requisite approval of the KeyCorp shareholders of the articles amendment;

 

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approval for the listing on the NYSE of the KeyCorp common shares and new KeyCorp preferred stock to be issued in the merger;

 

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the effectiveness of the registration statement on Form S-4, of which this joint proxy statement/prospectus is a part, and the absence of a stop order or proceeding initiated or threatened by the SEC for that purpose;

 

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the absence of any order, injunction, decree, statute, rule, regulation or other legal restraint or prohibition preventing the consummation of, or which prohibits or makes illegal the consummation of, the merger; and

 

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the receipt of all regulatory authorizations, consents, orders or approvals which are necessary to consummate the merger (and the failure of which to be obtained would reasonably be likely to have, individually or in the aggregate, a material adverse effect on the surviving company) and the expiration of all statutory waiting periods without the imposition of any materially burdensome regulatory condition.

 

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Conditions to Obligations of KeyCorp. The obligation of KeyCorp to complete the merger is also subject to the satisfaction, or waiver by KeyCorp, of the following conditions:

 

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the accuracy of the representations and warranties of First Niagara as of the date of the merger agreement and as of the closing date of the merger, other than, in most cases, those failures to be true and correct that would not reasonably be likely to have a material adverse effect on First Niagara or the surviving company;

 

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performance in all material respects by First Niagara of the obligations required to be performed by it at or prior to the closing date of the merger; and

 

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receipt by KeyCorp of an opinion of Simpson Thacher & Bartlett LLP as to certain tax matters.

Conditions to Obligations of First Niagara. The obligation of First Niagara to complete the merger is also subject to the satisfaction or waiver by First Niagara of the following conditions:

 

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the accuracy of the representations and warranties of KeyCorp as of the date of the merger agreement and as of the closing date of the merger, other than, in most cases, those failures to be true and correct that would not reasonably be likely to have a material adverse effect on KeyCorp;

 

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performance in all material respects by KeyCorp of the obligations required to be performed by it at or prior to the closing date of the merger; and

 

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receipt by First Niagara of an opinion of Sullivan  & Cromwell LLP as to certain tax matters.

Termination; Termination Fee

The merger agreement may be terminated at any time prior to the effective time of the merger, whether before or after adoption of the merger agreement by each of KeyCorp’s and First Niagara’s shareholders:

 

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by mutual written consent of KeyCorp and First Niagara;

 

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by either KeyCorp or First Niagara, if a required regulatory approval is denied by final, non-appealable action, or if a governmental entity has issued a final, non-appealable order, injunction or decree permanently enjoining or otherwise prohibiting or making illegal the closing of the merger, unless the failure to obtain a required regulatory approval is due to the failure of the party seeking to terminate the merger agreement to perform or observe the covenants and agreements of such party set forth in the agreement;

 

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by either KeyCorp or First Niagara, if the merger has not closed by the close of business on October 30, 2016, unless the failure to close by such date is due to the failure of the party seeking to terminate the merger agreement to perform or observe the covenants and agreements of such party set forth in the agreement;

 

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by either KeyCorp or First Niagara, if there is a breach by the other party that would, individually or in the aggregate with other breaches by such party, result in the failure of a closing condition, unless the breach is cured by the earlier of October 30, 2016 and 60 days following written notice of the breach (provided that the terminating party is not then in material breach of the merger agreement); or

 

•

by KeyCorp, if, (i) prior to the adoption by First Niagara stockholders of the merger agreement, the First Niagara Board of Directors (A) submits the merger agreement to its stockholders without a recommendation for adoption, or otherwise withdraws or materially and adversely modifies its recommendation for adoption (or publicly discloses an intention to do so), or recommends to its stockholders an Acquisition Proposal other than the merger agreement, or (B) materially breaches its obligation to call a stockholder meeting and recommend to its stockholders, in accordance with the terms of the merger agreement, the adoption of the merger agreement or to refrain from soliciting alternative acquisition proposals or (ii) a tender offer or exchange offer for 20% or more of First

 

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Niagara’s outstanding shares of common stock is commenced (other than by KeyCorp or its subsidiaries) and the First Niagara Board of Directors recommends that First Niagara’s stockholders tender or exchange their shares (or fails to recommend a rejection of such tender or exchange offer within ten business days).

First Niagara must pay KeyCorp a termination fee of $137.5 million in the following circumstances:

 

(1)

prior to the effective time of the merger and after the date of the merger agreement, a bona fide Acquisition Proposal has been made known to senior management of First Niagara or made directly to its stockholders generally or any person has publicly announced (whether or not withdrawn) an Acquisition Proposal with respect to First Niagara and (A) thereafter the merger agreement is terminated by either party because the merger was not consummated on or before October 30, 2016 and First Niagara stockholders did not adopt the merger agreement or (B) thereafter the merger agreement is terminated by KeyCorp because First Niagara has breached the merger agreement in such a way as would prevent certain closing conditions from being obtained and would give KeyCorp the right to terminate the merger agreement and (C) within one year after the termination of the merger agreement, an Acquisition Proposal is consummated or any definitive agreement with respect to an Acquisition Proposal is entered into (provided that for purposes of the foregoing, the term “Acquisition Proposal” shall have the meaning assigned to such term elsewhere in this joint proxy statement/prospectus, except that the references to “20%” in the definition of an “Acquisition Proposal” elsewhere in this joint proxy statement/prospectus shall be deemed to be references to “50%”); or

 

(2)

KeyCorp terminates the merger agreement because (i) prior to the adoption by First Niagara stockholders of the merger agreement, the First Niagara Board of Directors (A) submits the merger agreement to its stockholders without a recommendation for adoption, or otherwise withdraws or materially and adversely modifies its recommendation for adoption (or publicly discloses an intention to do so), or recommends to its stockholders an Acquisition Proposal other than the merger agreement, or (B) materially breaches its obligation to call a stockholder meeting and recommend to its stockholders, in accordance with the terms of the merger agreement, the adoption of the merger agreement or to refrain from soliciting alternative acquisition proposals or (ii) a tender offer or exchange offer for 20% or more of First Niagara’s outstanding shares of common stock is commenced (other than by KeyCorp or its subsidiaries) and the First Niagara Board of Directors recommends that First Niagara’s stockholders tender or exchange their shares (or fails to recommend a rejection of such tender or exchange offer within ten business days).

Effect of Termination

If the merger agreement is validly terminated, the agreement will become void without any liability on the part of any of the parties unless a party fraudulently or willfully breaches the merger agreement. However, the provisions of the merger agreement relating to confidentiality obligations of the parties, the termination fee and certain other technical provisions will continue in effect notwithstanding termination of the merger agreement.

Amendments, Extensions and Waivers

The merger agreement may be amended by the parties, by action taken or authorized by their respective Boards of Directors, at any time before or after approval of the matters presented in connection with the merger by the shareholders of KeyCorp and First Niagara, in writing signed on behalf of each of the parties, provided that after any approval of the transactions contemplated by the merger agreement by the KeyCorp or First Niagara stockholders, there may not be, without further approval of such shareholders, any amendment of the merger agreement that requires further approval under applicable law.

At any time prior to the effective time of the merger, the parties, by action taken or authorized by their respective Boards of Directors, may (a) extend the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties contained in the merger agreement or any document delivered pursuant thereto and (c) waive compliance with any of the agreements or conditions

 

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contained in the merger agreement, provided that after any approval of the transactions contemplated by the merger agreement by the KeyCorp or First Niagara stockholders, there may not be, without further approval of such shareholders, any extension or waiver of the merger agreement or any portion thereof that requires further approval under applicable law. Any agreement on the part of a party to any extension or waiver must be in writing.

Stock Market Listing

Application will be made by KeyCorp to have the KeyCorp common shares and the new KeyCorp preferred stock to be issued in the merger approved for listing on the NYSE, which is the principal trading market for existing shares of KeyCorp common shares and preferred stock. It is a condition to both parties’ obligation to complete the merger that such approval is obtained, subject to official notice of issuance. As promptly as reasonably practicable following the effective time of the merger, First Niagara common stock will be delisted from the NASDAQ and deregistered under the Exchange Act.

Fees and Expenses

Except with respect to (i) costs and expenses of printing and mailing this joint proxy statement/prospectus and all filing and other fees paid to the SEC in connection with the merger, which will be borne equally by KeyCorp and First Niagara, (ii) all filing and other fees in connection with any filing under the HSR Act, which shall be borne by KeyCorp and (iii) the termination fee, as described elsewhere in this joint proxy statement/prospectus, all fees and expenses incurred in connection with the merger agreement, and the transactions contemplated by the merger agreement, will be paid by the party incurring such fees or expenses, whether or not the merger is consummated.

 

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LITIGATION RELATED TO THE MERGER

From November 9, 2015 to November 23, 2015, five purported class action lawsuits were filed in the Supreme Court of the State of New York, Erie County, challenging the merger. These actions, Fegley v. Crosby, et al., Case No. 15-812908 (filed Nov. 9, 2015); Mucha v. First Niagara Financial Group Inc., et al., Case No. 812976/2015 (filed Nov. 10, 2015); Steiner v. Crosby, et al., Case No. 15-813176 (filed Nov. 13, 2015) Bushansky v. First Niagara Financial Group Inc., et al., Case No. 813348/2015 (filed Nov. 18, 2015); and Baczkiewicz v. Crosby, et al., Case No. 813521/2015 (filed Nov. 23, 2015); name First Niagara, the individual members of the First Niagara Board of Directors, and KeyCorp as defendants. On November 17, 2015, an additional purported class action lawsuit was filed in the Delaware Court of Chancery challenging the merger. This lawsuit, Howard L. Grossman Rollover IRA v. First Niagara Financial Group, Inc., et al., Case No. 11710, names First Niagara, the members of the First Niagara Board of Directors, and KeyCorp as defendants. The complaints contain substantially similar allegations, including that members of the First Niagara Board of Directors failed to take appropriate steps to maximize stockholder value and that the merger agreement contains deal protection provisions that are unnecessarily preclusive. The lawsuits further allege that First Niagara and KeyCorp aided and abetted the purported breaches of fiduciary duty. These actions seek a variety of equitable and injunctive relief including, among other things, enjoining the consummation of the merger, rescinding the merger to the extent already implemented, directing the defendants to account to the plaintiffs and the purported class for their damages, and awarding plaintiffs costs and attorneys’ fees. The defendants believe these lawsuits are wholly without merit, and intend to vigorously defend against them.

 

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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

OF THE MERGER

This section describes the anticipated material United States federal income tax consequences of the merger to U.S. holders (as defined below) of: (1) First Niagara common stock who exchange shares of First Niagara common stock for a combination of KeyCorp common shares and cash pursuant to the merger and (2) First Niagara preferred stock (together with First Niagara common stock, “First Niagara stock”) who exchange shares of First Niagara preferred stock for new KeyCorp preferred stock pursuant to the merger.

For purposes of this discussion, a U.S. holder is a beneficial owner of First Niagara stock who for United States federal income tax purposes is:

 

•

a citizen or individual resident of the United States;

 

•

a corporation, or an entity treated as a corporation, created or organized in or under the laws of the United States or any State or the District of Columbia;

 

•

a trust that (1) is subject to (A) the primary supervision of a court within the United States and (B) the authority of one or more United States persons to control all substantial decisions of the trust or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a United States person; or

 

•

an estate that is subject to United States federal income tax on its income regardless of its source.

If a partnership (including for this purpose any entity treated as a partnership for United States federal income tax purposes) holds First Niagara stock, the tax treatment of a partner generally will depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership holding First Niagara stock, you should consult your tax advisor.

This discussion addresses only those First Niagara stockholders that hold their First Niagara stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code, and does not address all the United States federal income tax consequences that may be relevant to particular First Niagara stockholders in light of their individual circumstances or to First Niagara stockholders that are subject to special rules, such as:

 

•

financial institutions;

 

•

investors in pass-through entities;

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