<PAGE> 1
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
THE CHARLES SCHWAB CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
THE CHARLES SCHWAB CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE> 2
[LOGO]
April 8, 1994
DEAR STOCKHOLDER:
You are cordially invited to attend our Annual Meeting of Stockholders
which will be held Monday, May 9, 1994 at 2 p.m. in the Grand Ballroom of the
Hyatt Regency Hotel, located at Embarcadero Center # 5 at the corner of Drumm
and Market Streets in San Francisco, California.
The meeting will provide an opportunity for you to hear a report on 1993
operations, to meet your directors and executive officers, and to participate in
the meeting. The matters expected to be acted upon are listed in the enclosed
Notice of Meeting and are more fully described in the Proxy Statement which
follows.
To ensure that your shares are represented at the meeting, please complete,
sign and date the enclosed proxy and return it promptly in the envelope
provided. You may revoke your proxy at any time before it is voted.
We look forward to seeing you at the meeting.
Sincerely,
[SIG]
<TABLE>
<S> <C>
CHARLES R. SCHWAB LAWRENCE J. STUPSKI
Chairman of the Board and Vice Chairman
Chief Executive Officer
</TABLE>
<PAGE> 3
THE CHARLES SCHWAB CORPORATION
------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 9, 1994
------------------------------------------
The Annual Meeting of Stockholders of The Charles Schwab Corporation, a
Delaware corporation (the "Company"), will be held on Monday, May 9, 1994 at 2
p.m. in the Grand Ballroom of the Hyatt Regency Hotel, located at Embarcadero
Center #5 at the corner of Drumm and Market Streets in San Francisco,
California, for the following purposes:
1. To elect ten directors to serve pursuant to the Company's bylaws
for the ensuing year.
2. To approve the Annual Executive Bonus Plan.
3. To approve Charles Schwab & Co., Inc.'s Long-Term Incentive Plan
III, as amended.
4. To approve amendments to the 1992 Stock Incentive Plan.
5. To consider and act upon such other business as may properly come
before the meeting, and all adjournments and postponements thereof.
The Board has fixed the close of business on March 11, 1994 as the record
date for the determination of stockholders entitled to notice of, and to vote
at, the Annual Meeting. A complete list of such stockholders of record will be
available at 101 Montgomery Street, San Francisco, California, prior to the
Annual Meeting.
By Order of the Board of Directors,
[SIG]
MARY B. TEMPLETON, Corporate
Secretary
April 8, 1994
TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING, PLEASE COMPLETE AND
PROMPTLY MAIL YOUR PROXY IN THE RETURN POSTAGE PREPAID ENVELOPE PROVIDED. THIS
WILL NOT PREVENT YOU FROM REQUESTING A TICKET TO ATTEND THE MEETING AND VOTING
IN PERSON, SHOULD YOU SO DESIRE.
<PAGE> 4
THE CHARLES SCHWAB CORPORATION
101 MONTGOMERY STREET
SAN FRANCISCO, CALIFORNIA 94104
------------------------------------
PROXY STATEMENT
------------------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of The Charles Schwab Corporation, a Delaware
corporation (the "Company"), for use at the Annual Meeting of Stockholders (the
"Annual Meeting") to be held on May 9, 1994. This Proxy Statement and form of
proxy are being mailed to stockholders on or about April 8, 1994.
Shares represented by a properly executed proxy received by the Company in
time to permit its use at the Annual Meeting will be voted as indicated on the
proxy. Stockholders may revoke the authority granted by their proxies at any
time before the exercise of the powers conferred thereby by notice in writing
delivered to the Secretary of the Company; by submitting a subsequently dated
proxy; or by attending the Annual Meeting, withdrawing the proxy and voting in
person.
It is proposed that action will be taken at the Annual Meeting to elect ten
directors to hold office in accordance with the Company's bylaws for the ensuing
year, to approve the Company's Annual Executive Bonus Plan, to approve Schwab's
Long-Term Incentive Plan III, as amended, and to approve amendments to the
Company's 1992 Stock Incentive Plan. The Board of Directors knows of no other
business to come before the Annual Meeting. If any other matters are properly
presented at the Annual Meeting or any adjournment or postponement thereof, it
is the intention of the persons named in the proxy to vote, or otherwise to act,
in accordance with their judgment on such matters.
The expense of this proxy solicitation will be borne by the Company. In
addition to solicitation by mail, proxies may be solicited in person or by
telephone, telegraph or other means by employees of the Company or its
subsidiaries without additional compensation. The Company will reimburse
brokerage firms and other nominees, custodians and fiduciaries for costs
incurred by them in mailing proxy materials to the beneficial owners of shares
held of record by such persons.
The Company was incorporated in November 1986 and acquired its principal
subsidiary, Charles Schwab & Co., Inc., a California corporation incorporated in
1971 and merged in 1983 with a subsidiary of BankAmerica Corporation, in a
management-led leveraged buyout in March 1987. The Company became a publicly
held company in September 1987 through an initial public offering of its common
stock, $0.01 par value (the "Common Stock"). As used in this Proxy Statement,
"Schwab" means Charles Schwab & Co., Inc.
All share and per share figures in this Proxy Statement have been adjusted
to reflect a three-for-two split of the Common Stock in 1993 effected in the
form of a 50 percent stock dividend.
1
<PAGE> 5
VOTING
At the close of business on March 11, 1994 there were outstanding and
entitled to vote at the Annual Meeting 57,215,482 shares of Common Stock. Each
share of Common Stock outstanding on that date entitles the stockholder of
record on that date to one vote on each matter to be voted upon at the Annual
Meeting, except that voting for the election of directors may be cumulative. A
majority of all shares represented in person or by proxy at the Annual Meeting
constitutes a quorum for the transaction of business at the meeting. Under
applicable Delaware law, abstentions are considered as shares present and
entitled to vote and therefore will have the same effect as a vote against a
matter presented at the meeting. Brokers (other than Schwab) who hold shares in
street name for customers have the authority under applicable New York Stock
Exchange rules to vote on the election of directors. Schwab is entitled to vote
such shares only in the same proportion as shares represented by votes from all
record holders. With respect to all other matters presented for a vote, shares
as to which brokers do not have discretionary voting authority from their
customers or authority under the New York Stock Exchange rules to vote on a
particular matter are considered under Delaware law as shares not entitled to
vote with respect to such matter, but are counted toward the establishment of a
quorum.
The Company's certificate of incorporation contains a provision for
cumulative voting for the election of directors. A stockholder intending to
cumulate votes for the election of directors must notify the Company of such
intention prior to the commencement of the voting for directors by so indicating
on the proxy or by attending the meeting. If any stockholder has given such
notice, every stockholder may cumulate votes for candidates placed in nomination
prior to the voting. Cumulative voting rights entitle a stockholder to cast a
number of votes equal to the number of directors to be elected multiplied by the
number of votes to which that stockholder's shares are entitled without
cumulative voting, and all such votes may be cast for a single candidate or may
be distributed among any or all of the candidates. The persons named in the
proxy will, unless authority to do so is withheld, exercise their discretion
with respect to the cumulative voting of shares represented by proxy in order to
assure the election of as many of the nominees of the Board of Directors as
possible.
Participants in the Charles Schwab Profit Sharing and Employee Stock
Ownership Plan (the "Profit Sharing Plan") are entitled to instruct the
purchasing agent of the Profit Sharing Plan on how to vote all shares of Common
Stock which are allocated to participants' individual accounts under the
Employee Stock Ownership Plan ("ESOP") component of the Profit Sharing Plan, as
well as participants' proportionate interest in shares of Common Stock held for
the benefit of participants under the Profit Sharing and Salary Deferral
components of the Profit Sharing Plan ("non-ESOP components") and will receive
individual proxies for the voting of such shares. If the purchasing agent does
not receive voting instructions from participants with respect to all such
shares, such shares will not be voted unless the purchasing agent is required to
exercise its discretion in voting such shares pursuant to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Shares held by the
Profit Sharing Plan under the ESOP component that have not yet been allocated to
the ESOP accounts of individual participants will be voted by the purchasing
agent in the same proportion as the votes cast by all shares voted by Profit
Sharing Plan participants, unless the purchasing agent is required to exercise
its discretion in voting such shares pursuant to ERISA.
2
<PAGE> 6
A proxy given by any stockholder participating in the Company's Dividend
Reinvestment and Stock Purchase Plan will govern the voting of all shares of
Common Stock held for such stockholder's account under that plan.
As of March 11, 1994, the current directors of the Company and senior
officers of the Company and its subsidiaries owned an aggregate of 19,068,244
shares, including 1,734,620 shares which certain senior officers and directors
may acquire upon the exercise of stock options which were exercisable on March
11, 1994 or within 60 days thereafter. The preceding number of shares owned,
excluding unexercised options, together with an aggregate of 423,111 shares
allocated to the ESOP accounts or held for the benefit of such senior officers
as participants in the non-ESOP components of the Profit Sharing Plan,
represents approximately 31% of the shares entitled to vote at the Annual
Meeting. The Profit Sharing Plan also holds an aggregate of 4,887,678 shares
that have been allocated to the ESOP accounts, or held in the non-ESOP
components for the benefit of other Profit Sharing Plan participants and an
aggregate of 901,636 unallocated shares that will be voted at the Annual Meeting
in the same proportion as the votes cast by all shares voted by Profit Sharing
Plan participants, subject to the requirements of ERISA. As a consequence, it is
highly likely that the current directors, senior officers and the Profit Sharing
Plan participants will be able to elect the Board of Directors of the Company
and approve the proposals contained herein.
ELECTION OF DIRECTORS
The Board of Directors has nominated and recommends the election of each of
the nominees set forth below as a director of the Company to serve until the
next annual meeting of stockholders or until his or her successor is elected and
qualified. The persons named in the proxy intend, unless authorization to do so
is withheld, to vote for the election of the nominees named below. The ten
nominees receiving the greatest number of votes will be elected as directors of
the Company. Should any nominee become unavailable to serve as a director, the
proxies will be voted for such other person as the Board of Directors may
designate or the number of authorized directors may be reduced.
The information below is provided with respect to each nominee for election
as a director of the Company, each of whom is currently serving as a director.
There are no family relationships among any directors or executive officers of
the Company.
Charles R. Schwab, age 56, was a founder of Schwab in 1971, and has been
its Chairman since 1978. He has been the Chairman and Chief Executive Officer
and a director of the Company since its incorporation in November 1986. Since
February 1989, he has been a member of the Customer Quality Assurance Committee
of the Board of Directors. Mr. Schwab has also served as Chief Executive Officer
of Schwab (1978 to July 1988). Mr. Schwab currently serves as a director of The
Gap, Inc., Transamerica Corporation, and AirTouch Communications, formerly
PacTel Corporation, and as a trustee of The Charles Schwab Family of Funds,
Schwab Investments, Schwab Capital Trust, and Schwab Annuity Portfolios, all
registered investment companies. Mr. Schwab currently serves as
Governor-at-Large of the National Association of Securities Dealers, Inc. and is
sole director and president of The Charles Schwab Corporation Foundation, a
member of the Board of Trustees of Stanford University and a member of the Board
of the National Park Foundation.
3
<PAGE> 7
Lawrence J. Stupski, age 48, has been the Vice Chairman of the Company
since July 1992, and a director of the Company since its incorporation in
November 1986. Mr. Stupski has been a director of Schwab since 1981. In the last
five years, he also has served as Chief Operating Officer of the Company
(November 1986 to March 1994), President of the Company (November 1986 to July
1992), Chief Financial Officer of the Company (April 1987 to March 1988),
President of Schwab (1981 to July 1988), Chief Operating Officer of Schwab (1981
to July 1992), and Chief Executive Officer of Schwab (July 1988 to July 1992).
From January 1990 to December 1991, Mr. Stupski was a member of the board of
directors of the Chicago Board Options Exchange.
David S. Pottruck, age 45, became the Chief Operating Officer and a
director of the Company in March 1994 and has been President of the Company and
Chief Executive Officer of Schwab (since July 1992) and President and a director
of Schwab (since July 1988). In the last five years, Mr. Pottruck has served as
an Executive Vice President of the Company (March 1987 until July 1992) and
Executive Vice President -- Marketing and Branch Management of Schwab (April
1984 until July 1988).
Nancy H. Bechtle, age 56, has been a director of the Company and has served
as a member of the Audit and Customer Quality Assurance Committees since
September 1992. Ms. Bechtle has been a director and Chief Financial Officer of
J.R. Bechtle & Co., an international consulting firm, since 1979. She has been
the President and Chief Executive Officer of the San Francisco Symphony since
1987, and has served as a member of the San Francisco Symphony Board of
Governors since 1984. Ms. Bechtle also holds a variety of Board positions with
non-profit organizations.
C. Preston Butcher, age 55, has been a director of the Company since
October 1988 and has served as a member of the Audit Committee since February
1989 and a member of the Compensation Committee since September 1992. He served
as a member of the Customer Quality Assurance Committee from May 1992 to
September 1992. Mr. Butcher has been the President and Regional Partner of
Lincoln Property Company, N.C., Inc., a real estate development firm, since
1967, and is also a director of BRE Properties, Inc., a real estate investment
trust.
Donald G. Fisher, age 65, has been a director of the Company since January
1988. He has served as a member of the Customer Quality Assurance Committee
since February 1989 and as a member of the Audit Committee since September 1992.
He previously served as a member of the Audit Committee from March 1988 to May
1992, and as a member of the Compensation Committee from February 1988 to
September 1992. Since 1969, Mr. Fisher has been the Chairman, Chief Executive
Officer and a director of The Gap, Inc., and also serves as a director of Ross
Stores, Inc., both of which are nationwide specialty retail clothing chains. Mr.
Fisher also serves as a director of AirTouch Communications, formerly PacTel
Corporation.
Anthony M. Frank, age 62, has been a director of the Company and has served
as a member of the Audit and Customer Quality Assurance Committees since
December 1993. He is the current chairman of the Customer Quality Assurance
Committee. Mr. Frank is Chairman of the Board of Acrogen, Inc., a biotechnology
firm. From March 1988 until March 1992, Mr. Frank served as Postmaster General
of the United States. From September 1974 until March 1988, Mr. Frank was
Chairman of the Board, Chief Executive Officer, and President of First
Nationwide Bank. From April 1993 until November 1993, Mr. Frank was Chairman of
the Board and President of Independent Bancorp of Arizona, Inc., a registered
bank holding
4
<PAGE> 8
company. He also served as a director of the Company from April 1987 until
February 1988 and from March 1992 until April 1993. Mr. Frank is also currently
a director of Adia Services, Inc., Bedford Property Investors, Living Centers of
America, Temple-Inland, Inc., General American Investors, a closed-ended
investment company, and Irvine Apartment Communities, a real estate investment
trust.
James R. Harvey, age 59, has been a director of the Company and has served
as a member of the Audit Committee since February 1989 and a member of the
Customer Quality Assurance Committee since September 1992. He served as a member
of the Compensation Committee from February 1989 to September 1992. Mr. Harvey
joined Transamerica Corporation in 1965 and has been its Chairman since 1983. He
also served as Transamerica's Chief Executive Officer from 1981 to 1991 and as
President from 1979 until 1986. Transamerica Corporation provides selected
financial services to individuals and organizations. Mr. Harvey has been a
director of Transamerica Corporation since 1975, and also serves as a director
of Pacific Telesis Group, McKesson Corporation, and AirTouch Communications,
formerly PacTel Corporation.
Stephen T. McLin, age 47, has been a director of the Company and has served
as a member of the Audit Committee since July 1988 and a member of the
Compensation Committee since February 1989. Mr. McLin is the current chairman of
the Audit Committee. Since January 1987, Mr. McLin has been the President and
Chief Executive Officer of America First Financial Corporation, a finance and
investment banking firm. He was a Senior Vice President from June 1981 to August
1985, and an Executive Vice President from August 1985 until January 1987, of
both BankAmerica Corporation, a bank holding company, and Bank of America,
NT&SA. Mr. McLin is also Chairman of the Board of EurekaBank, a federal savings
bank.
Roger O. Walther, age 58, has been a director of the Company and a member
of the Customer Quality Assurance Committee since April 1989 and has served as a
member of the Compensation Committee since May 1989. He is the current chairman
of the Compensation Committee. Since May 1992, Mr. Walther has been the Chairman
and Chief Executive Officer of ELS Educational Services, Inc., the largest
teacher of English as a second language in the United States. Mr. Walther was a
director, President and Chief Executive Officer of AIFS, Inc., which designs and
markets educational and cultural programs internationally, from 1964 to February
1993. Mr. Walther has also served from 1980 to 1984 as Chairman of San Francisco
Bancorp and since 1985 as Chairman of First Republic Bancorp, both of which are
bank holding companies. Mr. Walther is a director of First Republic Bancorp.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors held seven meetings during 1993. (Each of the
directors, except Donald G. Fisher, attended at least 75% of the aggregate of
all meetings of the Board of Directors and the Committees on which he or she
served, if any, which were held during such director's tenure in 1993.) The
Board of Directors has an Audit Committee, a Compensation Committee, and a
Customer Quality Assurance Committee. The Board of Directors does not have a
nominating committee or any committee serving a similar function.
The Audit Committee, among other things, confers with the Company's
independent accountants and internal auditors regarding the scope of their
respective examinations, reviews reports of the Company's independent
accountants and internal auditors and obtains recommendations concerning
internal controls. The
5
<PAGE> 9
Audit Committee reports to the Board of Directors with respect to such matters
and recommends the selection of independent auditors. The Audit Committee held
three meetings during 1993.
The Compensation Committee reviews and approves the Company's compensation
philosophy, all programs that govern annual and long-term compensation of
executive officers, and material employee benefit plans. In addition, the
Compensation Committee has the authority to grant options to members of the
Board of Directors and key employees under the Company's stock option plans. The
Compensation Committee held six meetings in 1993.
Directors who are also officers of the Company or its subsidiaries do not
receive any additional compensation for their services as directors.
Non-employee directors receive an annual retainer of $20,000, $1,000 for each
Board meeting attended, $300 for each Board committee meeting attended either
immediately prior to or following a Board meeting, and $1,000 for each Board
committee meeting otherwise attended, and are reimbursed for their expenses of
attendance at such meetings. Committee chairmen receive an additional annual
retainer of $3,000. In addition, the Company's non-employee directors as a group
have been and continue to be eligible to be granted options under the Company's
stock option plans. In 1993, each member of the Board was granted an option to
purchase 1,500 shares of Common Stock of the Company at the fair market value on
May 17, 1993, $20.75 per share (as adjusted for the 3-for-2 stock split).
APPROVAL OF EXECUTIVE OFFICER COMPENSATION PLANS AND
AMENDMENTS TO THE 1992 STOCK INCENTIVE PLAN
The Compensation Committee of the Board of Directors (the "Committee") on
March 24, 1994 adopted resolutions recommending that the Board of Directors
present to stockholders proposals to approve the Company's Annual Executive
Bonus Plan, Schwab's Long-Term Incentive Plan III, as amended ("LTIP"), and
amendments to the 1992 Stock Incentive Plan (collectively, the "Plans"). The
proposals to approve the Plans, all of which are existing plans, are generally
in response to changes in the federal tax laws. The persons named in the proxy
intend, unless authorization to do so is withheld, to vote for the proposals
concerning the Plans.
If any one or more of the Plans are approved by the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock present in
person or by proxy at the Annual Meeting and entitled to vote thereon, and the
Company complies with certain other requirements set forth in Section 162(m) of
the Internal Revenue Code of 1986 (the "Code"), payments to executive officers
pursuant to Plans that are so approved will qualify for deduction under Section
162(m) of the Code. If the stockholders do not vote to approve the proposals
concerning any one or more of the Plans, any payments or portions of payments to
any "named executive officers" (as defined in the Code) pursuant to Plans not so
approved may not qualify for deduction under Section 162(m) to the extent the
total compensation paid to any such named executive officer in any calendar year
exceeds $1,000,000. In such event, the Company may not be able to deduct for tax
purposes all compensation paid to named executive officers under the Plans.
Payments to all executive officers other than named executive officers pursuant
to the Plans will continue to qualify for deduction under the Code. A discussion
of each Plan follows. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR THE PROPOSALS CONCERNING THE PLANS.
6
<PAGE> 10
APPROVAL OF THE ANNUAL EXECUTIVE BONUS PLAN
The Company's Annual Executive Bonus Plan was approved by the Committee on
March 1, 1994 and amended on March 24, 1994 and March 31, 1994. The plan
provides for the payment of annual cash bonuses to executive officers of the
Company, based solely upon the Company's attainment of certain performance
targets. The plan rewards executive management for the Company's attainment of
annual revenue growth and profitability goals.
The participants in the plan are the Chairman, Vice Chairman, President,
Senior Executive Vice Presidents, Executive Vice Presidents, and from time to
time, certain other officers having comparable positions, currently thirteen
(13) executives. The plan specifies a target bonus for each executive officer,
which is expressed as a percentage (between 25% and 100%) of that executive's
annual base salary and depends upon that executive officer's roles and
responsibilities. The amount of base salary included in the computation of the
target bonus amount for each executive officer in any year may not exceed 250%
of the base salary, determined as of March 31, 1994, payable to the executive
officer holding the same or substantially similar position on March 31, 1994.
The amount of the target bonus is then multiplied by a percentage, which can
range from 0% to 200%, which is determined by the Company's performance for the
year relative to its goals of net revenue growth of 20% and after-tax profit
margin of 10%.
Payments under the plan are made quarterly based on the Company's
year-to-date performance. The fourth quarter payment is adjusted upward or
downward to reflect the Company's performance for the entire year. In the event
an overpayment should occur, the plan provides for recovery of any amount
overpaid either through direct payment by the executive officer or by Company
setoffs of the overpayment against amounts otherwise payable to the executive
officer.
Amounts payable pursuant to the plan are generally paid in the year in
which they are earned or during the following year; however, a recipient may
elect to defer receipt of all or any portion of the amounts payable under the
plan until a specified date certain, or until termination of employment,
provided that deferrals will be paid immediately upon a change in control.
Deferrals may be credited with growth rates, based on applicable interest rates,
or, if the Committee so determines, increases or decreases in value with
reference to the total return that would be derived from an investment of the
amount deferred in the Schwab 1000 Fund(R), a registered investment company.
The plan is administered by the Committee, which makes all decisions
regarding the operation of the plan and payments thereunder. The Committee may
amend or terminate the plan at any time and for any reason.
LONG-TERM INCENTIVE PLAN III
The Long-Term Incentive Plan III ("LTIP") was initially adopted effective
as of January 1, 1991 and was amended by the Committee on March 1, 1994 and
March 31, 1994. LTIP provides for the payment of cash bonuses to certain
designated key employees of the Company, excluding the Chairman, calculated
based upon the Company's performance during the four-year period ending December
31, 1994.
7
<PAGE> 11
The Company believes that the LTIP constitutes a binding contract under
Section 162(m) of the Code. Section 162(m) provides an exclusion such that
payments made to named executive officers pursuant to binding contracts entered
into on or before February 17, 1993 may continue to qualify for deduction under
the Code without stockholder approval or compliance with requirements that
otherwise would apply. As such, the Company believes that, with respect to
awards to named executive officers employed on or before February 17, 1993, all
payments to such named executive officers should qualify for deduction under
Section 162(m) without stockholder approval. Nevertheless, because certain
awards were made to employees who joined the Company after February 17, 1993 and
because the rules promulgated pursuant to Section 162(m) are unclear and not in
final form, the Committee determined to present the LTIP to stockholders for
approval to maximize the amount of LTIP payments that may qualify for deduction
under Section 162(m).
The Committee, upon the recommendation of the Chairman and the Vice
Chairman, determines the individuals eligible to participate in LTIP and the
number of units to be awarded (subject to a total maximum of 1,500,000 units in
the LTIP and a limit of 100,000 units per participant). As of December 31, 1993,
approximately 290 officers and employees of the Company and its subsidiaries
were LTIP participants. As originally adopted, LTIP provides for a cash
distribution to each participant equal to the value of such participant's vested
units on the relevant valuation date less the value of such units on the date of
grant. Units in LTIP vest at the rate of 20% per year from the date the unit is
issued and fully vest on December 31, 1994. LTIP originally provided for payment
of a participant's vested amount within a reasonable time after the earlier of
December 31, 1994 or the date of the participant's termination of employment.
Units at the inception of LTIP had an initial value of $0. Units awarded after
the inception of LTIP are valued as of the last valuation date prior to the date
of grant. Unit valuation dates are January 1 and July 1 of each year.
The value of an LTIP unit as of any valuation date is determined by
dividing the total plan-to-date LTIP funding amount by 1,500,000. The
plan-to-date LTIP funding amount is equal to a percentage, which varies based on
the return on equity ("ROE") achieved and which appears in the column titled
"Funding Rate" on the table that follows, of the Company's pre-tax, pre-LTIP
earnings for the period from January 1, 1991 through the valuation date. The
Company records compensation expense accruals in each period to reflect the
plan-to-date LTIP funding amount which is expected to be paid in 1995 unless
payment is deferred.
LONG-TERM INCENTIVE PLAN III
UNIT VALUATION SCHEDULE(1)
<TABLE>
<CAPTION>
CUMULATIVE PRETAX
PRE-LTIP INCOME
(IN MILLIONS) RETURN ON EQUITY(2) FUNDING RATE
- ----------------- ------------------- ------------
<S> <C> <C>
More than $349.7 18.3% 8.0%
$317.9 17.4% 7.0%
$244.8 14.6% 6.0%
</TABLE>
- ---------------
(1) Unit Value = Cumulative Pretax Pre-LTIP Income times the Funding Rate
divided by the 1.5 million units in the LTIP.
(2) ROE assumes beginning equity basis of $160 million.
8
<PAGE> 12
As amended, LTIP will allow recipients to elect to defer receipt of all or
a portion of payments that otherwise would be made during 1995 until the earlier
of a specified date certain or the date of the participant's termination of
employment, provided that deferrals will be paid immediately upon a change in
control. Deferred amounts may accrue interest based on applicable interest
rates, or, if the Committee so determines, increase or decrease in value with
reference to the total return that would be derived from an investment of the
amount deferred in the Schwab 1000 Fund(R), a registered investment company.
The plan is administered by the Committee, which makes all decisions with
respect to the operation of the plan and interpretation of the plan documents.
The Committee may amend or terminate the plan at any time and for any reason.
AMENDMENTS TO THE 1992 STOCK INCENTIVE PLAN
The 1992 Stock Incentive Plan (the "1992 Plan") was originally adopted by
the Board of Directors and approved by the stockholders in 1992. Originally, the
stockholders authorized the issuance of 3,750,000 shares of Common Stock of the
Company (adjusted for the 3-for-2 stock split) under the 1992 plan. Since the
1992 Plan was adopted, the Company has used equity incentives to attract, retain
and properly motivate key employees. Although sufficient shares remain available
to permit the Company to award grants currently projected through 1995, the
Board has adopted the amendments to the 1992 Plan to meet projected needs in
1996 and thereafter and to respond to changes in the federal tax laws. The
amendment to increase the number of shares of Common Stock that may be issued
under the 1992 Plan will become effective upon stockholder approval.
Increase in Number of Shares Subject to the 1992 Plan. Under the
amendment, the total number of shares of Restricted Common Stock, Performance
Share Awards and options that may be granted pursuant to the 1992 Plan,
exclusive of shares related to previous grants, would be increased by 2,800,000.
Maximum Number of Options. Under the amendment, a limitation of 500,000
would be placed on the number of options and a limitation of 200,000 would be
placed on the number of shares of Restricted Stock and Performance Share Awards
that could be issued to any participant in any year.
Tandem Grants of Options and Performance Units. Under the amendment, the
1992 Plan would permit the issuance of options to certain participants (other
than executive officers) in tandem with performance unit awards payable in cash,
whereby a participant, at the end of the performance unit cycle, would have the
right either (i) to exercise and receive the cash value of the performance unit,
which would result in cancellation of the related option (subject to the proviso
that a participant who subsequent to the grant had become an executive officer
could not exercise the performance unit), or (ii) to retain the option, which
would result in cancellation of the related performance unit.
GENERAL DESCRIPTION OF THE 1992 PLAN.
Purpose. The 1992 Plan permits the granting of stock options, Restricted
Common Stock or Performance Share Awards (or a combination thereof) to key
employees and directors of the Company. The purpose of the 1992 Plan is to
promote the long-term success of the Company and the creation of incremental
9
<PAGE> 13
stockholder value by (a) encouraging non-employee directors and key employees to
focus on long-range objectives, (b) encouraging the attraction and retention of
non-employee directors and key employees with exceptional qualifications, and
(c) linking the interests of non-employee directors and key employees directly
to stockholder interests.
Eligibility to Receive Awards. Key employees of the Company and its
subsidiaries, including directors who are also employees, are eligible for
awards under the 1992 Plan. Non-employee directors are eligible for an annual
grant of a nonqualified statutory option each year. Approximately 404 persons
are currently recipients of awards under the 1992 Plan.
Types of Awards. Awards under the 1992 Plan may take the form of
Restricted Common Stock, Performance Share Awards and options to acquire common
stock of the Company. Options in turn may include nonqualified stock options
("NSOs") and incentive stock options ("ISOs") intended to qualify for special
tax treatment. Any award under the 1992 Plan may include one of these elements
or a combination of several elements except that non-employee directors will
only be eligible to receive NSOs. No payment is required upon the grant of any
award, except that the recipient of Restricted Common Stock must pay the par
value thereof. Upon exercise of an option, the optionee must pay the exercise
price thereof to the Company. On March 11, 1994, the fair market value of the
Company's Common Stock was $28.375.
The total number of shares of Restricted Common Stock, Performance Share
Awards and options that may be granted under the 1992 Plan, amended as proposed,
exclusive of previous grants, will be limited to 3,109,890 (subject to
antidilution provisions), determined as of March 11, 1994. If any Restricted
Common Stock, Performance Share Awards or options are forfeited, or if any
Performance Share Awards terminate for any other reason without the associated
common shares being issued, or if options terminate for any other reason prior
to exercise, then they again become available for awards.
Administration, Amendment and Termination. The 1992 Plan is administered
by the Committee. The Committee, upon advice of the Company's executive
management, selects the key employees who will receive awards; determines the
amount, vesting requirements, performance criteria, if any, and other conditions
of each award; interprets the provisions of the 1992 Plan; and makes all other
decisions regarding the operation of the 1992 Plan. The grant of NSOs to
non-employee directors is made annually, and the Committee has no discretion
with respect to those awards.
The 1992 Plan will remain in effect until it is discontinued by the Board
of Directors. ISOs may be granted under the 1992 Plan only within 10 years from
date of adoption of the 1992 Plan. The Committee may amend or terminate the 1992
Plan at any time and for any reason; provided, however, that any amendment of
the Plan shall be subject to the approval of the Company's stockholders to the
extent required by applicable laws, regulations or rules.
Grants of Options to Non-Employee Directors. Under the 1992 Plan, each
non-employee director receives an annual grant of an option on 1,000 shares of
Common Stock. This grant is made on and as of May 15 of each year, and if May 15
is not a business day, then the grant is made on and as of the next succeeding
business day. The exercise price is the fair market value of Common Stock on the
date of each annual grant, and options generally must be exercised while the
optionee is a director. (For purposes of the 1992 Plan, "fair market value" is
defined as the closing price of a share of Common Stock as reported by the
10
<PAGE> 14
New York Stock Exchange Composite Transactions Index for date of grant or award,
as the case may be.) Options so granted to non-employee directors will otherwise
be subject to all the terms and conditions of the 1992 Plan.
Restricted Common Stock and Performance Share Awards. Restricted Common
Stock has the same voting and dividend rights as Common Stock, but is subject to
forfeiture in the event that the applicable vesting conditions are not
satisfied. It is nontransferable prior to vesting.
A Performance Share Award is an obligation of the Company to issue and
deliver in the future one share of Common Stock in the event that the applicable
issuance conditions are satisfied. Performance Share Awards are nontransferable,
and the recipient has no voting or dividend rights until such time as the
associated shares of Common Stock are issued, at which time the recipient will
have the same voting, dividend and other rights as the Company's other
stockholders.
When granting an award, the Committee determines the number of Performance
Share Awards or shares of Restricted Common Stock to be included in the award as
well as the vesting or issuance conditions. The vesting or issuance conditions
may be based on the employee's service, his or her individual performance, the
Company's performance or other appropriate criteria. Vesting or issuance may be
accelerated in the event of the employee's death, disability or retirement or in
the event of a change in control, as defined below. The Committee may permit the
recipient of Restricted Common Stock or Performance Share Awards to satisfy tax
withholding requirements relating to the awards with Common Stock rather than
cash.
Terms of Stock Options. The exercise price of an option must be equal to
or greater than the fair market value of Common Stock on the date of grant.
Similarly, the exercise price of NSOs granted to non-employee directors shall be
equal to the fair market value of Common Stock on the date of grant. The term of
an ISO cannot exceed 10 years, and all options are nontransferable prior to the
optionee's death.
Vesting conditions are established by the Committee at the time an option
is granted. Vesting may be accelerated in the event of the optionee's death,
disability or retirement or in the event of a change in control, as defined
below. The Committee may also impose forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions on shares
issued under the 1992 Plan.
Concurrently with the grant of any options to an employee, the Committee
may authorize the grant of replacement options. A replacement option is an
option that is granted when an optionee uses Common Stock held, or to be
acquired, by the optionee to exercise an option and/or to satisfy tax
withholding requirements incident to the exercise of an option. The Committee
may establish such other terms and conditions for replacement options as it
deems appropriate.
Payment of Option Price. The exercise price of an option may be paid in
cash or, at the discretion of the Committee, by the surrender of shares of
Common Stock or Restricted Common Stock already owned by the optionee. The
Committee may also permit an optionee to pay the exercise price of an option by
giving "exercise/sale" directions. If exercise/sale directions are given, a
sufficient number of option shares to pay the exercise price and any withholding
taxes are issued directly to Schwab which, in turn, sells these shares in the
open market. Schwab remits to the Company the proceeds from the sale of these
shares, and the optionee receives the remaining option shares. The Committee may
also permit optionees to satisfy their withholding tax obligation upon exercise
of an NSO by surrendering a portion of their option shares to the Company.
11
<PAGE> 15
Change in Control. For the purposes of the 1992 Plan, the term "change in
control" means, after the effective date of the 1992 Plan, (1) any change in
control which would have to be disclosed in the Company's next proxy statement
under the rules of the Securities and Exchange Commission, (2) any person's
becoming the beneficial owner, directly or indirectly, of at least 20% of the
combined voting power of the Company's outstanding securities, except by reason
of a repurchase by the Company of its own securities, or (3) a change in the
composition of the Board of Directors as a result of which fewer than two-thirds
of the incumbent directors are directors who either had been directors of the
Company 24 months earlier or were elected or nominated with the approval of at
least a majority of the directors who had been directors of the Company 24
months earlier and who were still in office at the time of the election or
nomination.
OUTSTANDING OPTIONS
The following table sets forth the number of shares with respect to which
options are outstanding under the Plan for the following individuals as of March
11, 1994:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS RESTRICTED SHARES OF
RECEIVED UNDER THE COMMON STOCK
NAME PLAN AS OF 3/11/94 AWARDED AS OF 3/11/94
------------------------------------------ ------------------- ----------------------
<S> <C> <C>
Charles R. Schwab......................... 337,500 0
Lawrence J. Stupski....................... 237,375 0
David S. Pottruck......................... 318,000 0
Ronald W. Readmond........................ 168,000 0
A. John Gambs............................. 204,000 0
All current executive officers............ 1,987,125 300
All current directors who are not
executive officers...................... 18,000 0
Nancy H. Bechtle.......................... 1,500 0
C. Preston Butcher........................ 3,000 0
Donald G. Fisher.......................... 3,000 0
Anthony M. Frank.......................... 1,500 0
James R. Harvey........................... 3,000 0
Stephen T. McLin.......................... 3,000 0
Roger O. Walther.......................... 3,000 0
All employees, other than executive
officers................................ 1,311,413 25,600
</TABLE>
FEDERAL TAX CONSEQUENCES
Under current federal income tax laws, the federal income tax consequences
of awards under the Plan can be summarized as follows:
Options. At the time the options are granted, the award of stock options
will have no federal income tax consequences to the Company or the optionee.
12
<PAGE> 16
With respect to NSOs, upon exercise of the option, the optionee generally
will recognize ordinary income in an amount equal to the excess of the fair
market value of the optioned shares at the time of exercise over the exercise
price. Such ordinary income will be subject to withholding tax, and the amount
of ordinary income recognized by the optionee generally will be deductible for
tax purposes by the Company in the same year that the income is recognized by
the optionee. Upon any subsequent disposition of the shares, any additional gain
or loss recognized by the holder generally will be capital gain or loss.
In contrast, the exercise of ISOs will not result in any regular taxable
income to the optionee at that time; nor will the Company be entitled to any
deduction. However, the excess of the fair market value of the optioned shares
at the time of exercise over the exercise price will be an item of tax
preference for purposes of computing alternative minimum taxable income. If the
optionee holds the optioned shares after exercise for the requisite statutory
period, the difference between the sales proceeds and the exercise price
generally will be taxed as capital gain or loss. If the optionee fails to hold
the shares for the requisite statutory period, the optionee generally will
recognize ordinary income at the time of such early disposition in an amount
equal to the excess of the fair market value of the shares at exercise (or if
less, the sales proceeds) over the exercise price, and the Company generally
will be entitled to a deduction in that same amount. Any additional gain on the
disposition generally will be taxed as capital gain.
Restricted Common Stock. Unless the recipient of a Restricted Common Stock
award elects to be taxed at the time of the issuance, there will be no federal
income tax consequences to the recipient or to the Company for as long as the
shares are subject to vesting restrictions. If and when such shares become
vested, the recipient will recognize ordinary income in an amount equal to the
excess of the fair market value of the shares on such date over any amount paid
for the shares. Such income will be subject to withholding tax at that time. The
Company generally will be entitled to a corresponding deduction in the same
amount that the recipient recognizes as income, except to the extent that the
amount of such income, when added to certain other compensation paid by the
Company to any individual who is a named executive officer at the end of the
fiscal year, exceeds $1,000,000. Upon any subsequent disposition of the shares,
any additional gain or loss recognized by the holder generally will be capital
gain or loss. To date, no shares of Restricted Common Stock have been issued to
named executive officers under the 1992 Plan.
Performance Share Awards. The grant of Performance Share Awards will have
no federal income tax consequences to the Company or the recipient at the time
of the grant. When any Common Stock is delivered to a recipient pursuant to the
terms of the Performance Share Award, the recipient generally will recognize as
ordinary income the excess of the fair market value of the shares over any
amount paid therefor. Such income will be subject to withholding tax at the
time, and the Company generally will be entitled to a corresponding deduction in
the same amount that the recipient recognizes as income, except to the extent
that the amount of such income, when added to certain other compensation paid by
the Company to any individual who is a named executive officer at the end of the
fiscal year, exceeds $1,000,000. Upon any subsequent disposition of the shares,
any additional gain or loss recognized by the holder generally will be capital
gain or loss. To date, no Performance Share Awards have been granted under the
1992 Plan.
13
<PAGE> 17
NEW PLAN BENEFITS
The following table identifies the amounts that were payable under the
Annual Executive Bonus Plan for 1993, the compensation expense accruals that
have been made pursuant to LTIP for the fiscal year ending December 31, 1993,
and the number of options granted under the 1992 Stock Incentive Plan during
1993:
<TABLE>
<CAPTION>
ANNUAL 1992 STOCK
EXECUTIVE LONG-TERM INCENTIVE
BONUS PLAN INCENTIVE PLAN
(2)(3) PLAN(2) -----------
------------ -------------------------- OPTIONS
DOLLAR VALUE DOLLAR VALUE NUMBER OF GRANTED IN
NAME AND POSITION ($) ($) UNITS 1993 (#)
- -------------------------------------------- ------------ ------------ --------- -----------
<S> <C> <C> <C> <C>
Charles R. Schwab........................... $1,179,921 N/A N/A 0
Chairman and Chief Executive Officer (1)
Lawrence J. Stupski......................... $938,802 $758,924 67,400 0
Vice Chairman
David S. Pottruck........................... $846,462 $472,920 42,000 0
President and Chief Operating Officer
Ronald W. Readmond.......................... $513,000 $315,280 28,000 0
Senior Executive Vice President
A. John Gambs............................... $389,030 $315,280 28,000 0
Executive Vice President and Chief Financial
Officer
All current executive officers.............. $5,358,446 $2,965,884 263,400 275,250
All current directors who are not executive
officers.................................. N/A N/A N/A 9,000
All current employees, other than executive
officers.................................. N/A $13,383,066 1,224,560 329,962
</TABLE>
- ---------------
(1) Mr. Schwab does not participate in LTIP.
(2) Non-employee directors are not eligible to participate in the Annual
Executive Bonus Plan or in LTIP.
(3) Only executive officers are eligible to participate in the Annual Executive
Bonus Plan. On March 31, 1994, the base salaries of Messrs. Schwab, Stupski,
Pottruck, Readmond and Gambs were $800,000; $650,000; $695,000; $416,000;
and $370,000, respectively. No other executive officer had a base salary
higher than Mr. Schwab.
14
<PAGE> 18
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 11, 1994 by each person who
is known by the Company to own beneficially more than 5% of the Common Stock,
each executive officer named in the Summary Compensation Table, each of the
Company's directors and each nominee for election as a director, and all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
OF BENEFICIALLY OUTSTANDING
NAME OF BENEFICIAL OWNER (1) OWNED(2) COMMON STOCK
------------------------------------------------- ---------------- ------------
<S> <C> <C>
Charles R. Schwab (3)............................ 13,942,613 24.3%
Charles Schwab Profit Sharing and Employee Stock
Ownership Plan (4)............................. 6,212,425 10.9%
+A. John Gambs (5).............................
+Robert W. Clegg (5)...........................
+Evelyn S. Dilsaver (5)........................
+Thomas N. Lawrie (5)..........................
+Thomas W. Matchett, Jr. (5)...................
+Mary G. Stuard (5)............................
Lawrence J. Stupski (6).......................... 1,914,075 3.3%
David S. Pottruck (7)............................ 932,264 1.6%
Nancy H. Bechtle (8)............................. 25,500 *
C. Preston Butcher (9)........................... 63,750 *
Donald G. Fisher (10)............................ 97,250 *
Anthony M. Frank (11)............................ 150,266 *
James R. Harvey (12)............................. 55,500 *
Stephen T. McLin (13)............................ 30,119 *
Roger O. Walther (14)............................ 17,062 *
Ronald W. Readmond (15).......................... 281,648 *
A. John Gambs (16)............................... 293,298 *
All executive officers and directors as a group
(20 persons) (17).............................. 24,202,857 41.5%
</TABLE>
- ---------------
* Less than 1%.
+ Members of the Administrative Committee for the Profit Sharing Plan. For
information regarding shares beneficially owned by such persons, see Note 5
below.
(1) All information with respect to beneficial ownership of the shares is
based upon filings made by the respective beneficial owners with the
Securities and Exchange Commission (the "SEC") or information provided by
such beneficial owners to the Company. Except as otherwise indicated in
the notes to this table, the address of each beneficial owner of more than
5% of the Common Stock is c/o The Charles Schwab Corporation, 101
Montgomery Street, San Francisco, California 94104.
15
<PAGE> 19
(2) The persons named in the table have sole voting and investment power (or
voting and investment power shared with a spouse) with respect to all
shares of Common Stock shown as beneficially owned by them, subject to the
information contained in the notes to this table. Shares issuable upon
exercise of options to acquire Common Stock that are exercisable within 60
days of March 11, 1994 are treated as beneficially owned in the table.
(3) This amount includes 78,981 shares, held by the Trustee of the Profit
Sharing Plan and allocated to Mr. Schwab's individual ESOP account, as to
which Mr. Schwab has sole voting power; 84,375 shares that Mr. Schwab has
the right to acquire upon exercise of options granted under the 1992 Plan;
546,500 shares held by The Charles and Helen Schwab Foundation, a nonprofit
public benefit corporation, as to which Mr. Schwab and his wife, as two of
three directors, have shared voting and investment power but disclaim
beneficial ownership; 240,000 shares held by The Charles and Helen Schwab
Family Foundation, a nonprofit public benefit corporation as to which Mr.
Schwab and his wife, as two of three directors, have shared voting and
investment power, but disclaim beneficial ownership; 1,500,000 shares held
by Mr. Schwab and his wife as trustees of the Charles and Helen Schwab
Living Trust; 224 shares held by Mr. Schwab as custodian for his children;
and 1,350 shares held by Mr. Schwab as trustee of the Schwab Inter-Vivos
Trust with respect to which he disclaims beneficial ownership. This amount
does not include 2,276,739 shares held by Mr. Schwab's brother-in-law,
Joseph I. O'Neill, III, under the will of Catherine C. O'Neill, FBO Helen
O'Neill Schwab, Mr. Schwab's wife; 1,125 shares held by Joseph I. O'Neill,
III, as trustee of The Michael Bray Schwab 1991 Trust FBO Michael Bray
Schwab, Mr. Schwab's minor son; nor 1,125 shares held by Joseph I. O'Neill,
III, as trustee of The Catherine Eaton Schwab 1991 Trust FBO Catherine
Eaton Schwab, Mr. Schwab's minor daughter.
(4) The Trustee of the Profit Sharing Plan is The Charles Schwab Trust Company,
120 Kearny Street, San Francisco, CA 94104 and the purchasing agent of the
Profit Sharing Plan is Bankers Trust Company of California, N.A., 400 S.
Hope Street, Los Angeles, CA 90071. The shares held by the Trustee of the
Profit Sharing Plan include an aggregate of 5,310,789 shares which, as of
March 11, 1994, had been allocated to the accounts of individual ESOP
participants or held for the benefit of Profit Sharing Plan participants,
including officers of the Company, in the non-ESOP components of the Profit
Sharing Plan, and which are voted at the direction of such participants.
The purchasing agent has sole voting power with respect to 901,636 of the
shares held by the Trustee that have not yet been allocated to the accounts
of individual ESOP participants. The purchasing agent intends to vote all
shares under its control in a specified manner. See "Voting." The 901,636
unallocated shares held by the Trustee of the Profit Sharing Plan, and the
voting rights attributable to those shares, will be allocated to the
accounts of individual ESOP participants in the future.
(5) Mr. Gambs, Mr. Clegg, Ms. Dilsaver, Mr. Lawrie, Mr. Matchett, and Ms.
Stuard are officers of the Company or one of its subsidiaries and members
of the Profit Sharing Plan Administrative Committee. As such, they have
shared investment power with respect to all of the 6,212,425 shares held by
the Trustee of the Profit Sharing Plan. For information with respect to
shares held by Mr. Gambs, see Note 16 below. Mr. Clegg, Ms. Dilsaver, Mr.
Lawrie, Mr. Matchett and Ms. Stuard each also have sole voting power with
respect to the 11,708; 1,518; 1,187; 73 and 10,219 shares, respectively,
held by the Trustee of the Profit Sharing Plan and allocated to their
individual ESOP accounts or otherwise held for their benefit in the
non-ESOP components of the Profit Sharing Plan. Mr. Clegg also owns 4,800
shares directly and has the right to acquire 40,125 shares upon exercise of
options granted under the 1987 Stock
16
<PAGE> 20
Option Plan and the 1992 Plan. Ms. Dilsaver also owns 601 shares directly
and has the right to acquire 4,687 shares upon exercise of options granted
under the 1992 Plan. Mr. Lawrie also owns 753 shares directly and has the
right to acquire 4,687 shares upon exercise of options granted under the
1992 Plan. Mr. Matchett also owns 300 shares directly and has the right to
acquire 1,500 shares upon exercise of options granted under the 1992 Plan.
Ms. Stuard also owns 11,887 shares directly and has the right to acquire
11,625 shares upon exercise of options granted under the 1987 Stock Option
Plan and the 1992 Plan. As a result, the members of the Administrative
Committee are deemed to be the beneficial owners of outstanding Common
Stock, as follows: Mr. Gambs -- 11.3%; Mr. Clegg -- 10.9%; Ms. Dilsaver --
10.9%; Mr. Lawrie -- 10.9%, Mr. Matchett -- 10.9%; and Ms. Stuard -- 10.9%.
(6) This amount includes 35,650 shares held by the Trustee of the Profit
Sharing Plan and allocated to Mr. Stupski's individual ESOP account, as to
which Mr. Stupski has sole voting power.
(7) This amount includes 49,751 shares held by the Trustee of the Profit
Sharing Plan and allocated to Mr. Pottruck's individual ESOP account or
held for his benefit in the non-ESOP components of the Profit Sharing Plan;
192,000 shares that Mr. Pottruck has the right to acquire upon exercise of
options granted under the Company's 1987 Stock Option Plan and the 1992
Plan; 3,375 shares held by Mr. Pottruck as custodian for his children;
10,000 shares held by Mr. Pottruck as trustee of the Garry Pottruck Grantor
Retained Annuity Trust; 10,000 shares held by Mr. Pottruck as trustee of
the Jeffrey Pottruck Grantor Retained Annuity Trust; 10,000 shares held by
Mr. Pottruck as trustee of the Roy Pottruck Grantor Retained Annuity Trust;
6,000 shares held by The David S. Pottruck Foundation, a nonprofit public
benefit corporation as to which Mr. Pottruck, as sole director, has voting
and investment power, but disclaims beneficial ownership; and 10,487 shares
held by Mr. Pottruck's parents, Leonard and Thelma Pottruck, 450 shares
held by his father, and 2,625 shares held by his brother Jeffrey Pottruck,
as to each of which he shares investment power but disclaims beneficial
ownership.
(8) This amount includes 24,000 shares that Ms. Bechtle has the right to
acquire upon exercise of options granted under the Company's 1987 Stock
Option Plan and the 1992 Plan.
(9) This amount includes 36,750 shares held by Mr. Butcher and his wife,
Carolyn F. Butcher, as joint tenants, 25,500 shares that Mr. Butcher has
the right to acquire upon exercise of options granted under the Company's
1987 Stock Option Plan and the 1992 Plan, and 1,500 shares held by Mrs.
Butcher as her separate property.
(10) This amount includes 69,500 shares held by Mr. Fisher and his wife, Doris
F. Fisher, as trustees of the Donald G. Fisher 1991 Charitable Remainder
Trust No. 1 and 25,500 shares that Mr. Fisher has the right to acquire upon
exercise of options granted under the Company's 1987 Stock Option Plan and
the 1992 Plan.
(11) This amount includes 16,766 shares held by Mr. Frank's daughter, Tracy
Frank, as to which he shares investment power but disclaims beneficial
ownership, and 36,000 shares that Mr. Frank has the right to acquire upon
exercise of options granted under the Company's Executive Officer Stock
Option Plan (1987), the 1987 Stock Option Plan and the 1992 Plan.
(12) This amount includes 30,000 shares held by Mr. Harvey and his wife,
Charlene C. Harvey, as trustees of the Harvey Family Trust, and 25,500
shares that Mr. Harvey has the right to acquire upon exercise of options
granted under the Company's 1987 Stock Option Plan and the 1992 Plan.
17
<PAGE> 21
(13) This amount includes 4,619 shares held under the Company's Dividend
Reinvestment and Stock Purchase Plan, and 25,500 shares that Mr. McLin has
the right to acquire upon exercise of options granted under the Company's
1987 Stock Option Plan and the 1992 Plan.
(14) This amount includes 35 shares held for Mr. Walther and 26 shares held for
the Roger O. Walther SP Trust under the Company's Dividend Reinvestment and
Stock Purchase Plan, 5,199 shares held by Mr. Walther as trustee of the
Roger O. Walther SP Trust, and 10,500 shares that Mr. Walther has the right
to acquire upon exercise of options granted under the Company's 1987 Stock
Option Plan and the 1992 Plan.
(15) This amount includes 3,398 shares held by the Trustee of the Profit Sharing
Plan and allocated to Mr. Readmond's individual ESOP account, and 278,250
shares that Mr. Readmond has the right to acquire upon exercise of options
granted under the Company's Executive Officer Stock Option Plan (1987), the
1987 Stock Option Plan, and the 1992 Plan.
(16) This amount includes 6,048 shares held by the Trustee of the Profit Sharing
Plan and allocated to Mr. Gambs' individual ESOP account, and 287,250
shares that Mr. Gambs has the right to acquire upon exercise of options
granted under the Company's Executive Officer Stock Option Plan (1987), the
1987 Stock Option Plan and the 1992 Plan.
(17) Messrs. Schwab, Stupski, Pottruck, Butcher, Fisher, Frank, Harvey, McLin,
Walther, Readmond and Gambs and Ms. Bechtle are members of the group and
their beneficially owned shares, including the 6,212,425 shares held by the
Trustee of the Profit Sharing Plan, are included in the total number of
shares shown on this line. The total number of shares shown on this line
also includes an aggregate of 281,288 shares that eight other executive
officers of the Company have the right to acquire upon exercise of options
granted under the Company's stock option plans. As of March 11, 1994, an
aggregate of 226,668 shares held by the Trustee of the Profit Sharing Plan
had been allocated to the individual ESOP accounts or held for the benefit
of the executive officers as a group in the non-ESOP components of the
Profit Sharing Plan.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 ("Section 16(a)"), as
amended, requires the Company's officers and directors, and persons who own more
than ten percent of a registered class of the Company's equity securities, to
file reports of securities ownership and changes in such ownership with the
Securities and Exchange Commission (the "SEC"). Officers, directors and greater
than ten-percent stockholders also are required by rules promulgated by the SEC
to furnish the Company with copies of all Section 16(a) forms they file.
During 1993, John P. Coghlan, an executive officer of the Company,
inadvertently failed to file with the SEC on a timely basis one required report
of transactions in the Company's Common Stock relating to intra-plan transfers
in the non-ESOP components of the Profit Sharing Plan. As a consequence of
changes in the allocation of their accounts among the various investment options
available under the Profit Sharing Plan, the beneficial interests of Mr. Coghlan
and his wife, Patricia Coghlan, increased by 1 share and 145 shares of Common
Stock of the Company, respectively.
18
<PAGE> 22
EXECUTIVE COMPENSATION
The following table shows specific compensation information for the
Company's Chief Executive Officer and the next four most highly compensated
executive officers for fiscal years ending December 31, 1993, 1992 and 1991.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------- ALL OTHER
----------------------- STOCK COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS(#)(2) ($)(3)(4)
- ----------------------------------------- ---- --------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Charles R. Schwab, 1993 $690,012 $2,500,225 -0- $23,861
Chairman and Chief Executive Officer 1992 $665,632 $2,500,525 337,500 $20,438
1991 $640,000 $2,500,485 -0- $22,132
Lawrence J. Stupski, 1993 $610,008 $939,027 -0- $23,861
Vice Chairman 1992 $587,295 $840,946 316,500 $20,438
1991 $560,000 $1,213,686 -0- $22,732
David S. Pottruck, 1993 $550,008 $846,687 -0- $23,861
President and Chief Operating Officer 1992 $476,881 $626,595 318,000 $20,135
1991 $410,000 $738,048 -0- $22,077
Ronald W. Readmond, 1993 $400,008 $513,225 -0- $23,861
Senior Executive Vice President 1992 $352,087 $392,232 168,000 $19,528
1991 $258,083 $615,490 -0- $21,448
A. John Gambs, 1993 $350,004 $389,255 -0- $23,861
Executive Vice President and Chief 1992 $310,629 $321,561 204,000 $19,604
Financial Officer 1991 $275,000 $428,915 -0- $21,922
</TABLE>
- ---------------
(1) Includes, with respect to Mr. Schwab, amounts paid pursuant to his
Employment Agreement with the Company dated March 31, 1987 ("Employment
Agreement"). See "Employment Agreement and Name Assignment."
(2) Share figures are adjusted to reflect a three-for-two split of the Common
Stock effected in the form of a 50 percent stock dividend in 1993.
(3) Represents employer contributions to the Profit Sharing Plan for 1993 in the
amount of $23,861 for the benefit of each of Messrs. Schwab, Stupski,
Pottruck, Readmond and Gambs.
(4) The disclosure rules of the Securities and Exchange Commission provide for
disclosure of compensation relating to long-term incentive plans ("LTIPs")
only when LTIP compensation awards are made and when they are paid out.
There were no awards or payouts of LTIP compensation during 1993 for the
named executives; however, compensation expense accruals were made with
respect to previous grants under Schwab's LTIP. The New Plan Benefits table,
above, sets forth the increase in value during 1993 for LTIP units held by
the named executives. In the Company's proxy statement dated April 7, 1992,
the expense accruals made pursuant to the LTIP with respect to 1991
performance were included in the cash compensation table. Actual payouts
under the LTIP will vary based upon the Company's cumulative pre-tax income
as defined in the plan over the four-year period ending December 31, 1994.
19
<PAGE> 23
STOCK OPTION TABLES
There were no options granted to the individuals named in the Summary
Compensation Table above during the fiscal year ended December 31, 1993.
The following table shows information concerning the value of unexercised
stock options held by the individuals named in the Summary Compensation Table
above as of December 31, 1993.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT 12/31/93 AT 12/31/93(2)
SHARES ------------------- --------------------
ACQUIRED ON VALUE EXERCISABLE EXERCISABLE
NAME EXERCISE REALIZED(1) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------- ----------- ----------- ------------------- --------------------
<S> <C> <C> <C> <C>
Charles R. Schwab.................... -- -- 84,375 $1,627,734
253,125 $4,883,203
Lawrence J. Stupski.................. 79,125 $ 1,842,953 0 0
237,375 $4,579,359
David S. Pottruck.................... -- -- 192,000 $4,832,125
238,500 $4,601,063
Ronald W. Readmond................... -- -- 278,250 $6,870,719
126,000 $2,430,750
A. John Gambs........................ -- -- 287,250 $7,875,594
153,000 $2,951,625
</TABLE>
- ---------------
(1) The amount in this column reflects the difference between the average of the
high and low market prices on the date of exercise and the option exercise
price and may not represent amounts actually realized by the named
individual.
(2) The value of unexercised options is calculated by multiplying the number of
options outstanding by the difference between the option exercise price and
the December 31, 1993 closing price of $32.375 per share of the Company's
common stock as reported on the New York Stock Exchange Composite
Transactions Index.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") of the Company's Board of
Directors is comprised of three directors who are not employees of the Company
or of any of its subsidiaries and has overall responsibility for the Company's
executive compensation policies and practices. The Committee determines the
Chairman's compensation and, upon recommendation of the Chairman and the Vice
Chairman, reviews and approves all executive officers' compensation, including
salary, payments under the annual executive bonus plans, awards under long-term
cash incentive plans and awards under stock option and stock incentive plans.
The Committee has provided the following report on the Chairman's compensation,
the compensation
20
<PAGE> 24
policies of the Company as they apply to its executive officers and the
relationship of Company performance to executive compensation.
COMPENSATION POLICIES
The Company's compensation policies are designed to address a number of
objectives, including to reward financial performance and to motivate executive
officers to achieve significant returns for stockholders. The Company's policies
rely on two principles. First, a significant portion of executive officers'
total compensation should be in the form of stock and stock-based incentives.
Second, a large portion of their cash compensation should depend upon meeting
stated financial objectives. The Committee believes that compensation paid to
executive officers generally should qualify for deduction under Section 162(m)
of the Internal Revenue Code ("Code"). To comply with the requirements of the
Code, the Committee recommended to the Board of Directors that the Annual
Executive Bonus Plan, the LTIP, as amended, and certain amendments to the 1992
Stock Incentive Plan be presented to the stockholders for approval.
Nevertheless, because the Committee also believes that it is important to
compensate executive officers for individual performance, the Committee intends
in appropriate circumstances to grant awards under the plans or to authorize
payment of compensation that does not qualify for deduction under Section
162(m).
THE IMPORTANCE OF OWNERSHIP
A fundamental tenet of the Company's compensation policy is that
significant equity participation creates a vital long-term partnership between
management/owners and other stockholders. Through the Profit Sharing Plan and
various stock incentive plans, the benefits of equity ownership are extended to
executive officers and employees of the Company and its subsidiaries. As of
March 11, 1994, the directors of the Company and executive officers and other
senior officers of the Company and its subsidiaries owned an aggregate of
17,333,624 shares, and had the right to acquire an additional 1,734,620 shares
upon the exercise of employee stock options which were exercisable on March 11,
1994 or within sixty days thereafter. In addition, the Profit Sharing Plan held
6,212,425 shares. These interests, exclusive of outstanding options, represent
in the aggregate 41% of the outstanding capital stock of the Company. The
Company intends to continue its strategy of encouraging its employees to become
stockholders.
The chart which follows this report compares changes in the Company's
cumulative total returns with those of the S&P 500 Index and the Dow Jones
Securities Brokers Industry Group Index. From December 31, 1988 through December
31, 1993, the cumulative total return of the Company's stock was 1,024 percent.
By comparison, in the same period the S&P 500 Index grew 97 percent and the Dow
Jones Securities Brokers Industry Group Index grew 196 percent. The Committee
believes that the executive officers' equity participation in the Company is a
meaningful factor contributing to the Company's success.
COMPANY PERFORMANCE OBJECTIVES
The Company has established three corporate performance objectives, based
on net revenue growth, after-tax profit margins and return on stockholders'
equity ("ROE"), which determine the size of payments under the Company's
variable compensation plans. The Company's performance objectives are to achieve
over the long-term 20 percent annual net revenue growth, 10 percent after-tax
profit margin and 20 percent ROE.
21
<PAGE> 25
The Company's success in achieving these performance objectives is not only
dependent upon effective management, but is also influenced by a broad range of
factors, including competition, market growth, trading levels, industry trends
and economic conditions. To achieve, on average, 20 percent annual growth in net
revenue, the Company must focus on its customers, their needs and expectations,
and deliver innovative products and services that compete effectively in the
marketplace. The Company believes that to maintain, on average, 10 percent
after-tax profit margins, it must offer quality products and services and
control expenses. Whether the Company is able to achieve, on average, 20 percent
ROE depends in part on whether its executive officers are successful in the
development and execution of strategic long-term investments.
VARIABLE COMPENSATION
Annual Bonus Plans. The Annual Executive Bonus Plan, which was reviewed and
approved by the Committee on March 1, 1994 and amended on March 24, 1994 and
March 31, 1994, pays bonuses to executive officers based primarily on the
Company's performance. If the Company's net revenue growth and profit margin
objectives are achieved, the bonus plan is paid out at 100 percent of all
participants' bonus targets. Targets are expressed as a percentage of base
salary, and are based on each executive officer's role and responsibilities. To
the extent the Company's actual performance varies from the objectives, bonus
plan payments are adjusted upward, to a maximum of 200 percent of participants'
targets, or downward. In general, a percentage change in after-tax profit margin
from the stated goal will tend to have a greater impact on the determination of
bonus payments than will a percentage change in the net revenue growth rate. In
1993, the Company achieved an after-tax profit margin of 12 percent versus its
10 percent goal and net revenue growth of 29 percent versus its goal of 20
percent. Accordingly, executive officers received bonuses in excess of 100
percent of their target bonus amounts.
Mr. Schwab's payment under the Annual Executive Bonus Plan for 1993 was
$1,179,921. This amount was determined, as with all executive officers, by
applying the plan rate to Mr. Schwab's target bonus. In addition, under the
terms of his Employment Agreement (see "Employment Agreement and Name
Assignment"), Mr. Schwab received an additional bonus of $1,320,079. The
Employment Agreement provides that the aggregate value of all cash bonuses paid
to Mr. Schwab with respect to any fiscal year shall not exceed the lesser of
$2.5 million or 4 percent of the pre-tax net income of the Company. Since 1991,
the limit on Mr. Schwab's bonus payments has been $2.5 million, which has been a
declining percentage of pre-tax net income of the Company.
The Committee amended the Annual Executive Bonus Plan on March 24, 1994 to
provide that payments under the plan in 1994 will be based solely on the
Company's performance. The Committee also reduced by one half the individual
targets of all executive officers other than the Chairman, Vice Chairman and
President and adopted a new plan, the Annual Executive Individual Performance
Plan, under which the Committee intends to pay discretionary bonuses to
executive officers (other than the Chairman, Vice Chairman and President) based
on their individual contribution to the attainment of the Company's performance
objectives. Such payments will be determined by the Committee upon the
recommendation of the Chairman, Vice Chairman and President. The amount
available for payments under the new plan will be equal to 105% of the aggregate
bonuses payable under the Annual Executive Bonus Plan to all executive officers
other than the Chairman, Vice Chairman and President. Consequently, although
individual bonuses under the plan may vary
22
<PAGE> 26
in recognition of individual achievements, executive officer bonuses in the
aggregate under the plan are based on the Company's performance relative to its
stated goals.
The Committee recognizes that the payment of individual performance bonuses
may not, in certain circumstances, qualify for deduction under Section 162(m) of
the Code. The Committee nevertheless believes that, to properly motivate
executive management, it is important to allocate bonuses based on individual
achievements.
Long-Term Incentive Plan. In 1991, the Compensation Committee adopted an
LTIP which provides for a cash distribution equal to a percent, that varies
based on the ROE level achieved, of cumulative pre-tax, pre-LTIP Company
earnings for the four-year period ending December 31, 1994. The amounts accrued
by the Company for 1993, determined on the basis of plan-to-date performance
levels, with respect to anticipated LTIP payments for executive officers whose
compensation is reported in the Summary Compensation Table, are set forth in the
New Plan Benefits table above.
Eligibility to participate in the LTIP is determined by the Committee upon
the recommendation of the Chairman and the Vice Chairman. At Mr. Schwab's
request, he does not participate in the LTIP and all of his long-term
compensation, therefore, is received in the form of equity participation.
The Committee has determined that, upon the expiration of LTIP on December
31, 1994, the Company will not adopt a renewed cash-based LTIP. Instead, the
Committee, consistent with its policy, intends that the Company will rely solely
on stock-based incentives to serve as a long-term incentive for its executive
officers. Because executive officers provide the leadership, vision, long-term
planning and growth initiatives needed to sustain the Company's financial
success, the Committee determined that executive officer long-term compensation
should consist exclusively of equity-based incentives. Certain employees below
the level of executive management, in the future, may receive long-term
incentive compensation in the form of additional stock options, or, in some
cases, in the form of a combination of stock-based incentives and performance
unit awards that would be payable in cash.
The Committee also determined that it is in the best interests of the
Company and its employees to amend LTIP to allow participants, including
executive officers, to defer receipt of the amounts payable under LTIP which
otherwise would be payable in 1995. Individuals who defer receipt of LTIP
payments may receive at a designated time in the future the amount payable,
increased by appropriate growth factors based on applicable interest rates, or
an amount equal to the total return that would be derived from an investment of
the amount deferred in the Schwab 1000 Fund(R), a registered investment company.
Under certain Internal Revenue Service transition rules and proposed regulations
addressing changes in the Code affecting deductibility of compensation paid to
named executive officers, the Committee believes that future payouts from LTIP
awards made to the named executive officers should not be subject to the
limitations of Section 162(m). Consequently, the Committee believes the Company
generally will be entitled to a corresponding deduction in the year in which the
named executive officer recognizes income and in an amount equal to the LTIP
payout. Credits on any deferral of LTIP may not qualify for deduction under
Section 162(m); however, the Company's deferral plan permits the Company to
exercise discretion and withhold payment of any such amounts that would
otherwise not qualify for deduction under Section 162(m) in the year in which it
is first payable.
23
<PAGE> 27
1992 Stock Incentive Plan. In 1992, the Board of Directors approved a stock
incentive plan (the "1992 Plan") which was approved by the stockholders of the
Company at the 1992 Annual Meeting and became effective on May 8, 1992, and
issued stock option grants to executive officers based on a review of data
obtained from an independent consultant on levels of long-term compensation for
executive officers of selected financial services companies and companies of
comparable size, rates of growth, and financial returns. The companies which the
Committee reviews include, but are not limited to, certain of the companies
included in the Dow Jones Securities Brokerage Group Index. Companies outside
the financial services industry that are included in the review generally
possess financial growth and performance characteristics similar to those of the
Company. The Committee believes it is necessary to include in its review
companies other than those included in the Dow Jones Securities Brokerage Group
Index because the Company frequently recruits employees from outside the
financial services industry, depending upon the specific skills required for the
position. In addition, the Company seeks employees who have experience in high
growth companies and who demonstrate the entrepreneurial spirit that
characterizes the Company's management style.
Because the stock options granted in 1992 were intended to serve as a
long-term incentive, no additional stock option grants were made to executive
officers in 1993. However, stock option grants were made to certain executive
officers who were hired or promoted into executive management during 1993.
As discussed above, the Committee intends that, following the expiration of
LTIP on December 31, 1994, stock-based incentives will be the sole long-term
incentives payable to executive officers. Accordingly, the Committee has
approved an amendment to the 1992 Plan that will, among other provisions,
increase the number of shares available for grants under the 1992 Plan by an
additional 2,800,000 shares, resulting in a total of 3,109,890 shares available
for grant (exclusive of previous grants), determined as of March 11, 1994. The
Committee understands that the increase in the number of shares available for
grant will have a dilutive effect on earnings per share of the Company's Common
Stock, but believes that any dilution is likely to be offset by improved
performance derived from an effective incentive program. The Committee also
believes that the increase in the number of shares available for grant under the
1992 Plan is necessary to provide a long-term incentive to other Company
employees following the expiration of LTIP on December 31, 1994.
The Committee believes that long-term compensation programs should not
reward past service but should focus on future Company performance. For this
reason, awards are calculated such that similarly situated officers have similar
incentives. The Committee also has adopted a policy to grant infrequent and
large stock option awards to executive officers rather than annual, smaller
grants. The Committee believes that large, but infrequent awards provide a more
powerful incentive to executive officers to achieve sustained growth over the
long term.
ANNUAL BASE SALARY
In addition to the variable compensation programs, executive officers
receive an annual base salary. The Company believes that base salary is
frequently a significant factor in attracting, motivating and retaining
competent and skilled executive officers. The Committee reviews base salaries of
executive officers annually and compares them to salary levels of selected
financial services companies and other companies of comparable size, rates of
growth, and financial returns. To maintain a competitive advantage, the
Committee generally sets the base salary of its executive officers at or near
the median of the levels paid by the other
24
<PAGE> 28
companies it reviews. The Committee reviews the same companies to assess both
long-term incentives and annual cash compensation of executive officers. See
discussion, 1992 Stock Incentive Plan, above.
The Committee also reviews Mr. Schwab's base compensation annually. Under
the terms of his Employment Agreement, Mr. Schwab receives a base salary which
is adjusted upward as the Board deems appropriate, consistent with Mr. Schwab's
position and performance and the Company's policies for compensating senior
management generally. At December 31, 1993, Mr. Schwab's base salary was
$690,012, which was above the median of companies reviewed and which was
determined by the Committee in the same manner as for other executive officers
of the Company.
With respect to the impact of Section 162(m) of the Code, which disallows
the deduction of certain compensation in excess of $1,000,000 to named executive
officers, the Committee notes that the regulations are proposed but not yet in
final form. While the Committee has reviewed its compensation policies with
reference to the proposed regulations, it is possible that the regulations when
issued in final form may embody substantive and material changes from those
proposed. Accordingly, the Committee intends to assess the new regulations when
they are issued in final form and make such adjustments as it deems appropriate.
The Company and the Committee also will continue to evaluate the Company's
compensation programs with a view to maintaining the proper balance between
fixed and variable compensation, short-term and long-term incentives, and cash
and stock-based incentive programs.
Compensation Committee of the Board of
Directors
Roger O. Walther, Chairman
C. Preston Butcher
Stephen T. McLin
25
<PAGE> 29
PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total
returns for the Company's Common Stock, the Standard & Poor's 500 Stock Index
and the Dow Jones Securities Brokers Industry Group Index, each of which assumes
an initial investment of $100 and reinvestment of dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* AMONG
THE CHARLES SCHWAB CORPORATION, S&P 500 INDEX AND
DOW JONES SECURITIES BROKERAGE GROUP INDEX OVER FIVE YEAR PERIOD ENDED
DECEMBER 31, 1993**
<TABLE>
<CAPTION>
DOW JONES
THE SECURITIES
MEASUREMENT PERIOD CHARLES SCHWAB S&P 500 BROKERAGE
(FISCAL YEAR COVERED) CORPORATION INDEX GROUP INDEX
<S> <C> <C> <C>
12/88 100 100 100
12/89 207 132 111
12/90 171 128 103
12/91 692 166 222
12/92 600 179 230
12/93 1124 230 296
</TABLE>
* Total return assumes reinvestment of dividends.
** Information presented as of the end of each fiscal year ended December 31.
26
<PAGE> 30
EMPLOYMENT AGREEMENT AND NAME ASSIGNMENT
As a condition to making the $150 million loan for the Company's leveraged
acquisition of Schwab in March of 1987, the Company's senior bank lenders
required that Mr. Schwab enter into an employment agreement with the Company and
assign to the Company certain rights to use his name and likeness. The resulting
Employment Agreement, which was ratified in March 1988 by the Company's
non-employee directors, has an eight-year term expiring on March 31, 1995, and
provides that Mr. Schwab will receive an annual base salary of not less than
$450,000, subject to upward adjustment by the Company's Board of Directors and
to be reviewed at least annually by the Board; will participate in all
compensation and fringe benefit programs made available to other senior
executives; and may participate in other fringe benefits and a supplemental cash
bonus plan as approved by the Board in its discretion. The annual supplemental
cash bonus may not exceed the lesser of $2.5 million or four percent of the
pre-tax income of the Company computed on a consolidated basis. The compensation
and other benefits may not be less than those being received by Mr. Schwab on
March 31, 1987 (excluding compensation paid or accrued under Schwab's Long-Term
Incentive Plans I and II, which were terminated in 1987) and also may not be
less than those received during the term of the agreement by other persons
rendering comparable services to the Company or Schwab.
The Employment Agreement further provides that certain continuing
compensation and benefits will be paid or provided to Mr. Schwab or his
immediate family or estate in the event that his employment is terminated
involuntarily, other than for cause, prior to March 31, 1995. For these
purposes, "cause" is defined as a substantial breach of the express terms of the
employment agreement or willful engaging by Mr. Schwab in gross misconduct
materially and demonstrably injurious to the Company. Mr. Schwab's resignation
following a material change, attempted or actually made without Mr. Schwab's
consent, in his capacities or duties at Schwab or the Company is included in the
definition of "involuntary termination." If the involuntary termination is for
reasons other than death, disability or cause, Mr. Schwab will be entitled to
receive, through the term of the agreement, all compensation and benefits to
which he would have been entitled had he not been terminated, including his base
salary and participation in all bonus, incentive and other compensation benefit
plans for which he was or would have been eligible (subject to the minimums
described in the preceding paragraph). If the involuntary termination is by
reason of death or disability, compensation and benefits, other than base salary
and health and other insurance, are to be paid only to the extent accrued
through the date of termination, without reduction for any vesting requirement.
The Company and Schwab also are parties to an Assignment and License
agreement with Mr. Schwab (the "Name Assignment") that was approved in July 1987
by the Company's non-employee director. Pursuant to the Name Assignment, Mr.
Schwab has assigned to the Company all service mark, trademark, and trade name
rights in and to Mr. Schwab's name (and variations thereon) and likeness,
subject to Mr. Schwab's perpetual, exclusive, irrevocable right to use his name
and likeness for any activity other than the financial services business. In
addition, Mr. Schwab will be entitled to use his likeness in the financial
services business, beginning immediately after any termination of his employment
for some purposes (specifically, the sale, distribution, broadcast and promotion
of books, videotapes, lectures, radio programs and television programs, and also
financial planning, provided in the case of financial planning only that it may
not be in direct competition with any business in which the Company is then
engaged or plans to enter within three months) and beginning two years after any
termination of his employment for all other purposes,
27
<PAGE> 31
provided that Mr. Schwab may not use his likeness in a way that causes confusion
as to whether the Company is involved with goods or services actually marketed
by Mr. Schwab or by third parties unrelated to the Company. Subject to the same
prohibition against actual confusion of customers, Mr. Schwab at all times will
be able to use his own name to identify himself but not as a service mark,
trademark or trade name in the financial services business. The "financial
services business" is defined in the Name Assignment as the business in which
Schwab is currently engaged and any additional and related businesses in which
the Company or Schwab is permitted to engage under rules and regulations of
applicable regulatory agencies. The Company's right to assign or license the
right to use Mr. Schwab's name and likeness are severely constrained during Mr.
Schwab's lifetime.
No cash consideration is to be paid to Mr. Schwab for the Name Assignment
while he is employed by the Company or, after that employment terminates, while
he is receiving compensation pursuant to an employment agreement with the
Company. Beginning when all such compensation ceases, and continuing for a
period of 15 years, Mr. Schwab or his estate will receive three tenths of one
percent (0.3%) of the aggregate net revenues of the Company (on a consolidated
basis) and those of its unconsolidated assignees and licensees that use the name
or likeness. These payments may not, however, exceed $2,000,000 per year,
adjusted up or down to reflect changes from the cost of living prevailing in the
San Francisco Bay Area during specified months in 1987, and they will terminate
if the Company and its subsidiaries cease using the name and likeness.
CERTAIN TRANSACTIONS
From time to time, the Company retains third party vendors and service
providers to assist in planning, arranging, producing meetings and meeting
consultation follow-up for retreats and conferences that the Company sponsors
for its employees and customers. One such service provider is Pringle
Associates, a company controlled by Mr. Stupski's spouse, Joyce Pringle. In
1993, the Company or Schwab retained Pringle Associates to provide such services
and paid $96,499 in connection therewith.
In December 1993, the Company made a contribution in the amount of
$1,000,000 to The Charles Schwab Corporation Foundation (the "Foundation"). The
Foundation is a California tax-exempt nonprofit public benefit corporation, of
which Mr. Schwab is the sole director and president. The purpose of the
Foundation is to engage in an active program of philanthropy, by making
contributions to other charitable organizations, which will be selected in a
manner to be determined by the Foundation's board of directors.
Certain directors and executive officers maintain margin trading accounts
with Schwab. Extensions of credit in such accounts were made in the ordinary
course of Schwab's business, were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unaffiliated persons, and did not involve more than
the normal risk of collectibility or present other unfavorable features. To the
extent any employees of the Company wish to purchase Common Stock in brokerage
transactions, they ordinarily are required to do so through Schwab. Schwab
offers its employees a 20% discount on its standard commission rates for all
brokerage transactions.
28
<PAGE> 32
APPOINTMENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has selected Deloitte & Touche as the Company's
independent certified public accountants for the current fiscal year. Through
its predecessor, Deloitte Haskins & Sells, Deloitte & Touche has served as the
accountants for the Company or Schwab since 1976. Representatives of Deloitte &
Touche are expected to be present at the Annual Meeting to respond to
appropriate questions from stockholders and will have the opportunity to make a
statement.
STOCKHOLDER PROPOSALS
Any stockholder proposal submitted to be included in the proxy materials
distributed by the Company in connection with the 1995 Annual Meeting of
Stockholders must be received by the Company at its principal executive office
no later than December 9, 1994.
By Order of the Board of Directors
MARY B. TEMPLETON
Corporate Secretary
April 8, 1994
San Francisco, California
29
<PAGE> 33
DIRECTION TO PURCHASING AGENT, CHARLES SCHWAB PROFIT SHARING
AND EMPLOYEE STOCK OWNERSHIP PLAN
To: Bankers Trust Company of California, N.A.
I direct you as Purchasing Agent of the Charles Schwab Profit Sharing
and Employee Stock Ownership Plan to vote (in person or by proxy) as I have
indicated on the reverse side all shares of The Charles Schwab Corporation
stock allocated to my ESOP account or in which I have a proportionate interest
under my Profit Sharing and/or Salary Deferral 401(k) accounts at the Annual
Meeting of Stockholders of The Charles Schwab Corporation on May 9, 1994. You
may vote according to your discretion (or that of your proxy holder) on any
matter that may properly come before the meeting.
Your vote is important! Please sign and
date on the reverse and return promptly
in the enclosed postage-paid envelope
to Bankers Trust Company, Box 1997
G.P.O., New York, N.Y. 10116-1997 so
that your shares can be represented at
the meeting.
(Continued and to be signed and dated on reverse side.)
<PAGE> 34
(Continued from reverse side)
/X/ Please mark votes as in this example.
I have checked the appropriate boxes below. If I return this card without
marking my specific choice in the boxes below, you will vote ''FOR'' the
proposals. The Board of Directors recommends a vote ''FOR'' the following
proposals.
1. Election of Directors.
Nominees: Charles R. Schwab, Lawrence J. Stupski, David S. Pottruck, Nancy H.
Bechtle, C. Preston Butcher, Donald G. Fisher, Anthony M. Frank,
James R. Harvey, Stephen T. McLin, and Roger O. Walther.
/ / FOR / / WITHHELD / / FOR, except vote withheld
all nominees from all nominees from the following nominee(s):
________________________________________________________________________________
2. Approval of the Annual Executive Bonus Plan.
/ / FOR / / AGAINST / / ABSTAIN
3. Approval of the Charles Schwab & Co., Inc. Long-Term Incentive Plan III, as
amended.
/ / FOR / / AGAINST / / ABSTAIN
4. Approval of the amendments to the 1992 Stock Incentive Plan.
/ / FOR / / AGAINST / / ABSTAIN
Dated ______________________,1994
_________________________________
Signature
Please sign exactly as name appears hereon.
<PAGE> 35
PROXY PROXY
THE CHARLES SCHWAB CORPORATION
This Proxy is Solicited on Behalf of the Board of Directors
for the Annual Meeting of Stockholders on May 9, 1994
The undersigned hereby appoints Charles R. Schwab and Lawrence J.
Stupski, or either of them, proxies with full power of substitution in each, to
represent and to vote, in accordance with the instructions set forth in this
Proxy, the number of shares of common stock of The Charles Schwab Corporation
set forth on the reverse side, which shares the undersigned has the power to
vote at the Annual Meeting of Stockholders to be held on May 9, 1994 or at any
adjournment thereof. The proxies are authorized in their discretion to vote
upon such other business as may properly come before the meeting.
THIS PROXY ALSO RELATES TO SHARES HELD UNDER THE CHARLES SCHWAB
CORPORATION DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN.
Your vote is important! Please sign and date on the reverse and return
promptly in the enclosed postage-paid envelope or otherwise to P.O. Box 830,
Chicago, IL 60690-9972 so that your shares can be represented at the meeting.
<PAGE> 36
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. ///
This Proxy will be voted as directed. If no direction is made, it will be voted
''FOR'' the proposals set forth below. The Board of Directors recommends a vote
''FOR'' the proposals.
1. Election of Directors--
Nominees: Charles R. Schwab, Lawrence J. Stupski, David S. Pottruck, Nancy
H. Bechtle, C. Preston Butcher, Donald G. Fisher, Anthony M.
Frank, James R. Harvey, Stephen T. McLin, and Roger O. Walther.
/ / FOR / / WITHHOLD / / FOR ALL (Except Nominee(s) written below)
____________________________________________
2. Approval of the Annual Executive Bonus Plan.
/ / FOR / / WITHHOLD / / ABSTAIN
3. Approval of the Charles Schwab & Co., Inc. Long-Term Incentive Plan III, as
amended.
/ / FOR / / WITHHOLD / / ABSTAIN
4. Approval of the amendments to the 1992 Stock Incentive Plan.
/ / FOR / / WITHHOLD / / ABSTAIN
Dated: ______________________________, 1994
Signature(s) ______________________________
___________________________________________
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as a fiduciary or for an estate, trust, corporation or
partnership, your title or capacity should be stated.
<PAGE> 37
[BUSINESS REPLY U.S. POSTCARD]
ANNUAL MEETING TICKET REQUEST
DEAR STOCKHOLDER:
Please provide your name and address below or call (415) 627-7533, if you plan
to attend the Annual Meeting in San Francisco on May 9, 1994, and an admission
ticket will be sent to you.
________________________________________________________________________________
NAME
________________________________________________________________________________
ADDRESS
________________________________________________________________________________
CITY STATE ZIP
To help us address your questions at the Annual Meeting, please write them in
the space below and return this postcard back to us by April 30, 1994.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
<PAGE> 38
[ LOGO ]
April 8, 1994
Dear Plan Participant:
As an owner of The Charles Schwab Corporation (the ""Company'') through
the Charles Schwab Profit Sharing and Employee Stock Ownership Plan (the
''Plan''), you have an interest in the Company's Annual Meeting of Stockholders
to be held on May 9, 1994.
You have the opportunity to direct the Plan Trustee's Purchasing Agent
to vote the shares of common stock allocated to your ESOP account and/or in
which you have a proportionate interest under your Profit Sharing and/or Salary
Deferral 401(k) accounts (the ''Plan shares''). Enclosed are a Proxy Statement
describing the proposals under consideration and a Direction to Purchasing
Agent with respect to the voting of your Plan Shares. The Company's Board of
Directors recommends that you vote ''FOR'' the proposals.
Please complete, sign, and return the enclosed Direction to Purchasing
Agent in the envelope provided. If you sign and return it without making any
specific voting directions, your Plan shares will be voted in accordance with
the Board of Directors' recommendations. The Direction to Purchasing Agent also
gives the Purchasing Agent the authority to vote on your behalf at its
discretion (or that of the Purchasing Agent's proxy holder) on any other
matters which may properly come before the meeting.
If you don't sign and return your Direction to Purchasing Agent, your
Plan shares will not be voted unless the Purchasing Agent is required by
applicable law to exercise its discretion to vote such shares.
Participants who own shares of the Company's common stock by means
other than the Plan will receive a separate proxy for voting of those shares.
To ensure that your Plan shares are represented and voted at the
meeting, your signed Direction to Purchasing Agent must be received by May 5,
1994.
We urge you to exercise your voting rights. If you have questions about
your stockholder's rights or the Direction to Purchasing Agent, please call
Pamela Herlich at (415) 627-7533.
Sincerely,
/s/ ED VALENCIA
Luis E. Valencia
Executive Vice President, Human Resources
<PAGE> 39
EXHIBIT TO PROXY STATEMENT DATED APRIL 8, 1994 AND FILED BY
THE CHARLES SCHWAB CORPORATION IN CONNECTION WITH THE ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON MONDAY, MAY 9, 1994
The following is submitted pursuant to Instruction 3 of Item 10 of Schedule 14A
and is not a part of the Proxy Statement and has not been delivered to
Stockholders with the Proxy. This exhibit consists of the plan documents for
Charles Schwab & Co., Inc.'s Long Term Incentive Plan III, which has been
presented to Stockholders for approval, and The Charles Schwab Corporation's
1992 Stock Incentive Plan, amendments to which have been presented to
Stockholders for approval. The Annual Executive Bonus Plan has also been
presented to Stockholders for approval but is not included in this exhibit
because it is not in the form of a written document. The Annual Executive
Bonus Plan is described in the proxy statement to which this exhibit is
attached and is described in an exhibit attached to the Form 10K filed by the
Company on March 30, 1994.
<PAGE> 40
Exhibit 10.131
THE CHARLES SCHWAB CORPORATION
1992 STOCK INCENTIVE PLAN
(AS AMENDED ON SEPTEMBER 16, 1992,
AND AMENDED AND RESTATED ON JANUARY 1, 1994)
Article 1. Introduction.
The Plan was adopted by the Board of Directors on March 26, 1992. The
purpose of the Plan is to promote the long-term success of the Company and the
creation of incremental stockholder value by (a) encouraging Non-Employee
Directors and Key Employees to focus on long-range objectives, (b) encouraging
the attraction and retention of Non-Employee Directors and Key Employees with
exceptional qualifications and (c) linking Non-Employee Directors and Key
Employees directly to stockholder interests. The Plan seeks to achieve this
purpose by providing for Awards in the form of Restricted Shares, Performance
Share Awards or Options, which may constitute incentive stock options or
nonstatutory stock options. The Plan shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
Article 2. Administration.
2.1 The Committee. The Plan shall be administered by the Committee.
The Committee shall consist of two or more disinterested directors of the
Company, who shall be appointed by the Board. A member of the Committee shall
not be eligible to receive any award under the Plan, other than Options granted
under Section 4.2.
2.2 Disinterested Directors. A member of the Board shall be deemed
to be "disinterested" only if he or she satisfies such requirements as the
Securities and Exchange Commission may establish for disinterested
administrators acting under plans intended to qualify for exemption under Rule
16b-3 (or its successor) under the Exchange Act.
2.3 Committee Responsibilities. The Committee shall select the Key
Employees who are to receive Awards under the Plan, determine the amount,
vesting requirements and other conditions of such Awards, may interpret the
Plan, and make all other decisions relating to the operation of the Plan. The
Committee may adopt such rules or guidelines as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be
final and binding on all persons.
Article 3. Limitation on Awards.
The aggregate number of Restricted Shares, Performance Share Awards
and Options awarded under the Plan shall not exceed 6,550,000 (including those
shares awarded prior to the amendment of the Plan). If any Restricted Shares,
Performance Share Awards or Options are forfeited, or if any Performance Share
Awards terminate for any other reason without the associated Common Shares
being issued, or if any Options terminate for any other reason before being
exercised, then such Restricted Shares, Performance Share Awards or Options
shall again become available for Awards under the Plan. The limitation of this
Article 3 shall be subject to adjustment pursuant to Article 10. Any Common
Shares issued pursuant to the Plan may be authorized but unissued shares or
treasury shares.
<PAGE> 41
Subject to the overall limit on the aggregate shares set forth above,
the following limitations shall apply: (a) The maximum number of Common Shares
which may be granted subject to an Option to any one Participant in any one
fiscal year shall be 500,000; and (b) The maximum number of Restricted Shares
or Performance Share Awards which may be granted to any one Participant in any
one fiscal year shall be 200,000.
Article 4. Eligibility.
4.1 General Rule. Except as provided in Section 4.2, only Key
Employees shall be eligible for designation as Participants by the Committee.
4.2 Non-Employee Directors. Non-Employee Directors shall be entitled
to receive the NSOs described in this Section 4.2 (and no other Awards).
(a) Each Non-Employee Director shall receive an NSO covering 1,000
Common Shares for each Award Year with respect to which he or
she serves as a Non-Employee Director on the grant date
described in subsection (b) below;
(b) The NSO for a particular Award Year shall be granted to each
Non-Employee Director as of May 15 of each Award Year, and if
May 15 is not a business day, then the grant shall be made on
and as of the next succeeding business day;
(c) Each NSO shall be exercisable in full at all times during its
term;
(d) The term of each NSO shall be 10 years; provided, however,
that any unexercised NSO shall expire on the date that the
Optionee ceases to be a Non-Employee Director or a Key
Employee for any reason other than death or disability. If an
Optionee ceases to be a Non-Employee Director or Key Employee
on account of death or disability, any unexercised NSO shall
expire on the earlier of the date 10 years after the date of
grant or one year after the date of death or disability of
such Director; and
(e) The Exercise Price under each NSO shall be equal to the Fair
Market Value on the date of grant and shall be payable in any
of the forms described in Article 6.
4.3 Ten-Percent Stockholders. A Key Employee who owns more than 10
percent of the total combined voting power of all classes of outstanding stock
of the Company or any of its Subsidiaries shall not be eligible for the grant
of an ISO unless (a) the Exercise price under such ISO is at least 110 percent
of the Fair Market Value of a Common Share on the date of grant and (b) such
ISO by its terms is not exercisable after the expiration of five years from the
date of grant.
4.4 Attribution Rules. For purposes of Section 4.3, in determining
stock ownership, a Key Employee shall be deemed to own the stock owned,
directly or indirectly, by or for his or her brothers, sisters, spouse,
ancestors or lineal descendants. Stock owned, directly or indirectly, by or
for a corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its stockholders, partners or beneficiaries. Stock
with respect to which the Key Employee holds an option shall not be counted.
2
<PAGE> 42
4.5 Outstanding Stock. For purposes of Section 4.3, "outstanding
stock" shall include all stock actually issued and outstanding immediately
after the grant of the ISO to the Key Employee. "Outstanding stock" shall not
include treasury shares or shares authorized for issuance under outstanding
options held by the Key Employee or by any other person.
Article 5. Options.
5.1 Stock Option Agreement. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms and conditions
of the Plan, and may be subject to any other terms and conditions which are not
inconsistent with the Plan and which the Committee deems appropriate for
inclusion in a Stock Option Agreement. The provisions of the various Stock
Option Agreements entered into under the Plan need not be identical. The
Committee may designate all or any part of an Option as an ISO, except for
Options granted to Non-Employee Directors under Section 4.2.
5.2 Options Nontransferability. No Option granted under the Plan
shall be transferable by the Optionee other than by will or the laws of descent
and distribution. An Option may be exercised during the lifetime of the
Optionee only by him or her. No Option or interest therein may be transferred,
assigned, pledged or hypothecated by the Optionee during his or her lifetime,
whether by operation of law or otherwise, or be made subject to execution,
attachment or similar process.
5.3 Number of Shares. Each Stock Option Agreement shall specify the
number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 10. Each Stock Option
Agreement shall also specify whether the Option is an ISO or an NSO.
5.4 Exercise Price. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price under an Option shall not be less than 100
percent of the Fair Market Value of a Common Share on the date of grant, except
as otherwise provided in Section 4.3. Subject to the preceding sentence, the
Exercise Price under any Option shall be determined by the Committee. The
Exercise Price shall be payable in accordance with Article 6.
5.5 Exercisability and Term. Each Stock Option Agreement shall
specify the date when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of the
Option. The term of an ISO shall in no event exceed 10 years from the date of
grant, and Section 4.3 may require a shorter term. Subject to the preceding
sentence, the Committee shall determine when all or any part of an Option is to
become exercisable and when such Option is to expire. A Stock Option Agreement
may provide for accelerated exercisability in the event of the Optionee's
death, disability or retirement and may provide for expiration prior to the end
of its term in the event of the termination of the Optionee's employment.
Except as provided in Section 4.2, NSOs may also be awarded in combination with
Restricted Shares, and such an Award may provide that the NSOs will not be
exercisable unless the related Restricted Shares are forfeited. In addition,
NSOs granted under this Article 5 may be granted subject to forfeiture
provisions which provide for forfeiture of the Option upon the exercise of
tandem awards, the terms of which are established in other programs of the
Company.
3
<PAGE> 43
5.6 Limitation on Amount of ISOs. The aggregate fair market value
(determined at the time the ISO is granted) of the Common Shares with respect
to which ISOs are exercisable for the first time by the Optionee during any
calendar year (under all incentive stock option plans of the Company) shall not
exceed $100,000; provided, however, that all or any portion of an Option which
cannot be exercised as an ISO because of such limitation shall be treated as an
NSO.
5.7 Effect of Change in Control. The Committee (in its sole
discretion) may determine, at the time of granting an Option, that such Option
shall become fully exercisable as to all Common Shares subject to such Option
immediately preceding any Change in Control with respect to the Company.
5.8 Restrictions on Transfer of Common Shares. Any Common Shares
issued upon exercise of an Option shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other transfer
restrictions as the Committee may determine. Such restrictions shall be set
forth in the applicable Stock Option Agreement and shall apply in addition to
any general restrictions that may apply to all holders of Common Shares.
5.9 Authorization of Replacement Options. Concurrently with the
grant of any Option to a Participant (other than NSOs granted pursuant to
Section 4.2), the Committee may authorize the grant of Replacement Options. If
Replacement Options have been authorized by the Committee with respect to a
particular award of Options (the "Underlying Options"), the Option Agreement
with respect to the Underlying Options shall so state, and the terms and
conditions of the Replacement Options shall be provided therein. The grant of
any Replacement Options shall be effective only upon the exercise of the
Underlying Options through the use of Common Shares pursuant to Section 6.2 or
Section 6.3. The number of Replacement Options shall equal the number of
Common Shares used to exercise the Underlying Options, and, if the Option
Agreement so provides, the number of Common Shares used to satisfy any tax
withholding requirements incident to the exercise of the Underlying Options in
accordance with Section 13.2. Upon the exercise of the Underlying Options, the
Replacement Options shall be evidenced by an amendment to the Underlying Option
Agreement. Notwithstanding the fact that the Underlying Option may be an ISO,
a Replacement Option is not intended to qualify as an ISO. The Exercise Price
of a Replacement Option shall be no less than the Fair Market Value of a Common
Share on the date the grant of the Replacement Option becomes effective. The
term of each Replacement Option shall be equal to the remaining term of the
Underlying Option. No Replacement Options shall be granted to Optionees when
Underlying Options are exercised pursuant to the terms of the Plan and the
Underlying Option Agreement following termination of the Optionee's employment.
The Committee, in its sole discretion, may establish such other terms and
conditions for Replacement Options as it deems appropriate.
Article 6. Payment for Option Shares.
6.1 General Rule. The entire Exercise Price of Common Shares issued
upon exercise of Options shall be payable in cash at the time when such Common
Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall be
made only pursuant to the express provisions of the applicable
Stock Option Agreement. However, the Committee may specify in
the Stock Option Agreement that payment may be made pursuant
to Section 6.2 or 6.3.
4
<PAGE> 44
(b) In the case of an NSO, the Committee may at any time accept
payment pursuant to Section 6.2 or 6.3.
6.2 Surrender of Stock. To the extent that this Section 6.2 is
applicable, payment for all or any part of the Exercise Price may be made with
Common Shares which are surrendered to the Company; provided, however, that
such Common Shares which are surrendered must have been beneficially owned by
the Participant for at least six (6) months prior to the date such shares are
surrendered. Such Common Shares shall be valued at their Fair Market Value on
the date when the new Common Shares are purchased under the Plan. In the event
that the Common Shares being surrendered are Restricted Shares that have not
yet become vested, the same restrictions shall be imposed upon the new Common
Shares being purchased.
6.3 Exercise/Sale. To the extent this Section 6.3 is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to Charles Schwab & Co., Inc. to sell Common Shares
(including the Common Shares to be issued upon exercise of the Options) and to
deliver all or part of the sales proceeds to the Company in payment of all or
part of the Exercise Price and any withholding taxes; provided, however, that
certain restrictions may be imposed by the Committee on persons who are
considered a director or officer of the Company, to the extent required by
Section 16 of the Exchange Act or any rule thereunder.
Article 7. Restricted Shares and Performance Share Awards.
7.1 Time, Amount and Form of Awards. The Committee may grant
Restricted Shares or Performance Share Awards with respect to an Award Year
during such Award Year or at any time thereafter. Each such Award shall be
evidenced by a Stock Award Agreement between the Award recipient and the
Company. The amount of each Award of Restricted Shares or Performance Share
Awards shall be determined by the Committee. Awards under the Plan may be
granted in the form of Restricted Shares or Performance Share Awards or in any
combination thereof, as the Committee shall determine at its sole discretion at
the time of the grant. Restricted Shares or Performance Share Awards may also
be awarded in combination with NSOs, and such an Award may provide that the
Restricted Shares or Performance Share Awards will be forfeited in the event
that the related NSOs are exercised.
7.2 Payment for Restricted Share Awards. To the extent that an Award
is granted in the form of Restricted Shares, the Award recipient, as a
condition to the grant of such Award, shall be required to pay the Company in
cash an amount equal to the par value of such Restricted Shares.
7.3 Vesting or Issuance Conditions. Each Award of Restricted Shares
shall become vested, in full or in installments, upon satisfaction of the
conditions specified in the Stock Award Agreement. Common Shares shall be
issued pursuant to Performance Share Awards in full or in installments upon
satisfaction of the issuance conditions specified in the Stock Award Agreement.
The Committee shall select the vesting conditions in the case of Restricted
Shares, or issuance conditions in the case of Performance Share Awards, which
may be based upon the Participant's service, the Participant's performance, the
Company's performance or such other criteria as the Committee may adopt. A
Stock Award Agreement may also provide for accelerated vesting or issuance, as
the case may be, in the event of the Participant's death, disability or
retirement. The Committee, in its sole discretion, may determine, at the time
of making an Award of Restricted
5
<PAGE> 45
Shares, that such Award shall become fully vested in the event that a Change in
Control occurs with respect to the Company. The Committee, in its sole
discretion, may determine, at the time of making a Performance Share Award,
that the issuance conditions set forth in such Award shall be waived in the
event that a Change in Control occurs with respect to the Company.
The Committee shall have the discretion to adjust the payouts
associated with Awards downward. Unless and until (i) the rules set forth
under Code Section 162(m) permit discretionary adjustments to increase payouts;
or (ii) the Committee determines that compliance with Code Section 162(m) is
not desired with respect to some or all Named Executive Officers, no payout
associated with an Award held by a Named Executive Officer shall be
discretionarily adjusted upward in a manner that would eliminate the ability of
the Award to satisfy the "performance-based" exception under Treasury
Regulation Section 1.162-27(e)(2).
7.4 Form of Settlement of Performance Share Awards. Settlement of
Performance Share Awards shall only be made in the form of Common Shares.
Until a Performance Share Award is settled, the number of Performance Share
Awards shall be subject to adjustment pursuant to Article 10.
7.5 Death of Recipient. Any Common Shares that are to be issued
pursuant to a Performance Share Award after the recipient's death shall be
delivered or distributed to the recipient's beneficiary or beneficiaries. Each
recipient of a Performance Share Award under the Plan shall designate one or
more beneficiaries for this purpose by filing the prescribed form with the
Company. A beneficiary designation may be changed by filing the prescribed
form with the Company at any time before the Award recipient's death. If no
beneficiary was designated or if no designated beneficiary survives the Award
recipient, then any Common Shares that are to be issued pursuant to a
Performance Share Award after the recipient's death shall be delivered or
distributed to the recipient's estate. The Committee, in its sole discretion,
shall determine the form and time of any distribution(s) to a recipient's
beneficiary or estate.
Article 8. Claims Procedures.
Claims for benefits under the Plan shall be filed in writing with the
Committee on forms supplied by the Committee. Written notice of the
disposition of a claim shall be furnished to the claimant within 90 days after
the claim is filed. If the claim is denied, the notice of disposition shall set
forth the specific reasons for the denial, citations to the pertinent
provisions of the Plan, and, where appropriate, an explanation as to how the
claimant can perfect the claim. If the claimant wishes further consideration
of his or her claim, the claimant may appeal a denied claim to the Committee
(or to a person designated by the Committee) for further review. Such appeal
shall be filed in writing with the Committee on a form supplied by the
Committee, together with a written statement of the claimant's position, no
later than 90 days following receipt by the claimant of written notice of the
denial of his or her claim. If the claimant so requests, the Committee shall
schedule a hearing. A decision on review shall be made after a full and fair
review of the claim and shall be delivered in writing to the claimant no later
than 60 days after the Committee's receipt of the notice of appeal, unless
special circumstances (including the need to hold a hearing) require an
extension of time for processing the appeal, in which case a written decision
on review shall be delivered to the claimant as soon as possible but not later
than 120 days after the Committee's receipt of the appeal notice. The claimant
shall be notified in writing of any such extension of time. The written
decision on review shall include specific reasons for the decision, written in
a manner calculated to be understood by the claimant, and shall specifically
refer to the pertinent
6
<PAGE> 46
Plan provisions on which it is based. All determinations of the Committee
shall be final and binding on Participants and their beneficiaries.
Article 9. Voting Rights and Dividends.
9.1 Restricted Shares.
(a) All holders of Restricted Shares who are not Named Executive
Officers shall have the same voting, dividend, and other
rights as the Company's other stockholders.
(b) During the period of restriction, Named Executive Officers
holding Restricted Shares granted hereunder shall be credited
with all regular cash dividends paid with respect to all
Restricted Shares while they are so held. If a dividend is
paid in the form of cash, such cash dividend shall be credited
to Named Executive Officers subject to the same restrictions
on transferability and forfeitability as the Restricted Shares
with respect to which they were paid. If any dividends or
distributions are paid in shares of Common Stock, the shares
of Common Stock shall be subject to the same restrictions on
transferability and forfeitability as the Restricted Shares
with respect to which they were paid. Subject to the
succeeding paragraph, and to the restrictions on vesting and
the forfeiture provisions, all dividends credited to a Named
Executive Officer shall be paid to the Named Executive Officer
within forty-five (45) days following the full vesting of the
Restricted Shares with respect to which such dividends were
earned.
In the event that any dividend constitutes a "derivative
security" or an "equity security" pursuant to Rule 16(a) under
the Exchange Act, such dividend shall be subject to a vesting
period equal to the longer of: (i) the remaining vesting
period of the Restricted Shares with respect to which the
dividend is paid; or (ii) six (6) months. The Committee shall
establish procedures for the application of this provision.
Named Executive Officers holding Restricted Shares shall have
the same voting rights as the Company's other stockholders.
9.2 Performance Share Awards. The holders of Performance Share
Awards shall have no voting or dividend rights until such time as any Common
Shares are issued pursuant thereto, at which time they shall have the same
voting, dividend and other rights as the Company's other stockholders.
Article 10. Protection Against Dilution; Adjustment of Awards.
10.1 General. In the event of a subdivision of the outstanding
Common Shares, a declaration of a dividend payable in Common Shares, a
declaration of a dividend payable in a form other than Common Shares, a
combination or consolidation of the outstanding Common Shares (by
reclassification or otherwise) into a lesser number of Common Shares, a
recapitalization, a spinoff or a similar occurrence, the Committee shall make
appropriate adjustments in one or more of (a) the number of Options, Restricted
Shares and Performance Share Awards available for future Awards under Article
3, (b) the number of Performance Share Awards included in any prior Award which
has not yet been settled, (c) the number of Common Shares covered by each
outstanding Option or (d) the Exercise Price under each outstanding Option.
7
<PAGE> 47
10.2 Reorganizations. In the event that the Company is a party to a
merger or other reorganization, outstanding Options, Restricted Shares and
Performance Share Awards shall be subject to the agreement of merger or
reorganization. Such agreement may provide, without limitation, for the
assumption of outstanding Awards by the surviving corporation or its parent,
for their continuation by the Company (if the Company is a surviving
corporation), for accelerated vesting or for settlement in cash.
10.3 Reservation of Rights. Except as provided in this Article 10, a
Participant shall have no rights by reason of any subdivision or consolidation
of shares of stock of any class, the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class. Any issue
by the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or Exercise Price of Common
Shares subject to an Option. The grant of an Award pursuant to the Plan shall
not affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.
Article 11. Limitation of Rights.
11.1 Employment Rights. Neither the Plan nor any Award granted under
the Plan shall be deemed to give any individual a right to remain employed by
the Company or any Subsidiary. The Company and its Subsidiaries reserve the
right to terminate the employment of any employee at any time, with or without
cause, subject only to a written employment agreement (if any).
11.2 Stockholders' Rights. A Participant shall have no dividend
rights, voting rights or other rights as a stockholder with respect to any
Common Shares covered by his or her Award prior to the issuance of a stock
certificate for such Common Shares. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to the date when
such certificate is issued, except as expressly provided in Articles 7, 9 and
10.
11.3 Creditors' Rights. A holder of Performance Share Awards shall
have no rights other than those of a general creditor of the Company.
Performance Share Awards represent unfunded and unsecured obligations of the
Company, subject to the terms and conditions of the applicable Stock Award
Agreement.
11.4 Government Regulations. Any other provision of the Plan
notwithstanding, the obligations of the Company with respect to Common Shares
to be issued pursuant to the Plan shall be subject to all applicable laws,
rules and regulations, and such approvals by any governmental agencies as may
be required. The Company reserves the right to restrict, in whole or in part,
the delivery of Common Shares pursuant to any Award until such time as:
(a) Any legal requirements or regulations have been met relating
to the issuance of such Common Shares or to their
registration, qualification or exemption from registration or
qualification under the Securities Act of 1933, as amended, or
any applicable state securities laws; and
8
<PAGE> 48
(b) Satisfactory assurances have been received that such Common
Shares, when issued, will be duly listed on the New York Stock
Exchange or any other securities exchange on which Common
Shares are then listed.
Article 12. Limitation of Payments.
12.1 Basic Rule. Any provision of the Plan to the contrary
notwithstanding, in the event that the independent auditors most recently
selected by the Board (the "Auditors") determine that any payment or transfer
in the nature of compensation to or for the benefit of a Participant, whether
paid or payable (or transferred or transferable) pursuant to the terms of this
Plan or otherwise (a "Payment"), would be nondeductible for federal income tax
purposes because of the provisions concerning "excess parachute payments" in
Section 280G of the Code, then the aggregate present value of all Payments
shall be reduced (but not below zero) to the Reduced Amount; provided, however,
that the Committee, at the time of making an Award under this Plan or at any
time thereafter, may specify in writing that such Award shall not be so reduced
and shall not be subject to this Article 12. For purposes of this Article 12,
the "Reduced Amount" shall be the amount, expressed as a present value, which
maximizes the aggregate present value of the Payments without causing any
Payment to be nondeductible by the Company because of Section 280G of the Code.
12.2 Reduction of Payments. If the Auditors determine that any
Payment would be nondeductible because of Section 280G of the Code, then the
Company shall promptly give the Participant notice to that effect and a copy of
the detailed calculation thereof and of the Reduced Amount, and the Participant
may then elect, in his or her sole discretion, which and how much of the
Payments shall be eliminated or reduced (as long as after such election, the
aggregate present value of the Payments equals the Reduced Amount) and shall
advise the Company in writing of his or her election within 10 days of receipt
of notice. If no such election is made by the Participant within such 10-day
period, then the Company may elect which and how much of the Payments shall be
eliminated or reduced (as long as after such election the aggregate present
value of the Payments equals the Reduced Amount) and shall notify the
Participant promptly of such election. For purposes of this Article 12,
present value shall be determined in accordance with section 280G(d)(4) of the
Code. All determinations made by the Auditors under this Article 12 shall be
binding upon the Company and the Participant and shall be made within 60 days
of the date when a Payment becomes payable or transferable. As promptly as
practicable following such determination and the elections hereunder, the
Company shall pay or transfer to or for the benefit of the Participant such
amounts as are then due to him or her under the Plan, and shall promptly pay or
transfer to or for the benefit of the Participant in the future such amounts as
become due to him or her under the Plan.
12.3 Overpayments and Underpayments. As a result of uncertainty in
the application of Section 280G of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that Payments will have
been made by the Company which should not have been made (an "Overpayment") or
that additional Payments which will not have been made by the Company could
have been made (an "Underpayment"), consistent in each case with the
calculation of the Reduced Amount hereunder. In the event that the Auditors,
based upon the assertion of a deficiency by the Internal Revenue Service
against the Company or the Participant which the Auditors believe has a high
probability of success, determine that an Overpayment has been made, such
Overpayment shall be treated for all purposes as a loan to the Participant
which he or she shall repay to the Company on demand, together with interest at
the applicable federal rate
9
<PAGE> 49
provided in Section 7872(f)(2) of the Code; provided, however, that no amount
shall be payable by the Participant to the Company if and to the extent that
such payment would not reduce the amount which is subject to taxation under
Section 4999 of the Code. In the event that the Auditors determine that an
Underpayment has occurred, such Underpayment shall promptly be paid or
transferred by the Company to or for the benefit of the Participant, together
with interest at the applicable federal rate provided in section 7872(f)(2) of
the Code.
12.4 Related Corporations. For purposes of this Article 12, the term
"Company" shall include affiliated corporations to the extent determined by the
Auditors in accordance with Section 280G(d)(5) of the Code.
Article 13. Withholding Taxes.
13.1 General. To the extent required by applicable federal, state,
local or foreign law, the recipient of any payment or distribution under the
Plan shall make arrangements satisfactory to the Company for the satisfaction
of any withholding tax obligations that arise by reason of such payment or
distribution. The Company shall not be required to make such payment or
distribution until such obligations are satisfied.
13.2 Nonstatutory Options, Restricted Shares or Performance Share
Awards. The Committee may permit an Optionee who exercises NSOs, or who
receives Awards of Restricted Shares, or who receives Common Shares pursuant to
the terms of a Performance Share Award, to satisfy all or part of his or her
withholding tax obligations by having the Company withhold a portion of the
Common Shares that otherwise would be issued to him or her under such Awards.
Such Common Shares shall be valued at their Fair Market Value on the date when
taxes otherwise would be withheld in cash. The payment of withholding taxes by
surrendering Common Shares to the Company, if permitted by the Committee, shall
be subject to such restrictions as the Committee may impose, including any
restrictions required by rules of the Securities and Exchange Commission.
Article 14. Assignment or Transfer of Award.
Any Award granted under the Plan shall not be anticipated, assigned,
attached, garnished, optioned, transferred or made subject to any creditor's
process, whether voluntarily, involuntarily or by operation of law. Any act in
violation of this Article 14 shall be void. However, this Article 14 shall not
preclude (i) a Participant from designating a beneficiary who will receive any
undistributed Awards in the event of the Participant's death, or (ii) a
transfer by will or the laws of descent and distribution.
Article 15. Future of Plans.
15.1 Term of the Plan. The Plan, as set forth herein, shall become
effective on May 8, 1992. The Plan shall remain in effect until it is
terminated under Section 15.2, except that no ISOs shall be granted after May
7, 2002.
15.2 Amendment or Termination. The Committee may, at any time and
for any reason, amend or terminate the Plan; provided, however, that any
amendment of the Plan shall be subject to the approval of the Company's
stockholders to the extent required by applicable laws, regulations or rules;
and provided further, that Section 4.2 shall not be amended more than once
every six months, other than to comport with changes in the Code or ERISA, or
the rules thereunder.
10
<PAGE> 50
15.3 Effect of Amendment or Termination. No Award shall be made
under the Plan after the termination thereof. The termination of the Plan, or
any amendment thereof, shall not affect any Option, Restricted Share or
Performance Share Award previously granted under the Plan.
Article 16. Definitions.
16.1 "Award" means any award of an Option, a Restricted Share or a
Performance Share Award under the Plan.
16.2 "Award Year" means a fiscal year beginning January 1 and ending
December 31 with respect to which an Award may be granted.
16.3 "Board" means the Company's Board of Directors, as constituted
from time to time.
16.4 "Change in Control" means the occurrence of any of the following
events after the effective date of the Plan as set out in Section 15.1:
(a) A change in control required to be reported pursuant to Item
6(e) of Schedule 14A of Regulation 14A under the Exchange Act;
(b) A change in the composition of the Board, as a result of which
fewer than two-thirds of the incumbent directors are directors
who either (i) had been directors of the Company 24 months
prior to such change or (ii) were elected, or nominated for
election, to the Board with the affirmative votes of at least
a majority of the directors who had been directors of the
Company 24 months prior to such change and who were still in
office at the time of the election or nomination;
(c) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act) becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 20
percent or more of the combined voting power of the Company's
then outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote
at elections of directors (the "Base Capital Stock");
provided, however, that any change in the relative beneficial
ownership of securities of any person resulting solely from a
reduction in the aggregate number of outstanding shares of
Base Capital Stock, and any decrease thereafter in such
person's ownership of securities, shall be disregarded until
such person increases in any manner, directly or indirectly,
such person's beneficial ownership of any securities of the
Company.
16.5 "Code" means the Internal Revenue Code of 1986, as amended.
11
<PAGE> 51
16.6 "Committee" means the Compensation Committee of the Board,
as constituted from time to time.
16.7 "Common Share" means one share of the common stock of the
Company.
16.8 "Company" means The Charles Schwab Corporation, a Delaware
corporation.
16.9 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
16.10 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
16.11 "Exercise Price" means the amount for which one Common Share
may be purchased upon exercise of an Option, as specified by the Committee in
the applicable Stock Option Agreement.
16.12 "Fair Market Value" means the market price of a Common Share,
determined by the committee as follows:
(a) If the Common Share was traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the
closing price reported by the applicable composite-
transactions report for such date;
(b) If the Common Share was traded over-the-counter on the date in
question and was classified as a national market issue, then
the Fair Market Value shall be equal to the last transaction
price quoted by the NASDAQ system for such date;
(c) If the Common Share was traded over-the-counter on the date in
question but was not classified as a national market issue,
then the Fair Market Value shall be equal to the mean between
the last reported representative bid and asked prices quoted
by the NASDAQ system for such date; and
(d) If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good
faith on such basis as it deems appropriate.
16.13 "ISO" means an incentive stock option described in section
422(b) of the Code.
16.14 "Key Employee" means a key common-law employee of the Company
or any Subsidiary, as determined by the Committee.
16.15 "Named Executive Officer" means a Participant who, as of the
date of vesting of an Award is one of a group of "covered employees," as
defined in the Regulations promulgated under Code Section 162(m), or any
successor statute.
16.16 "Non-Employee Director" means a member of the Board who is not
a common-law employee.
12
<PAGE> 52
16.17 "NSO" means an employee stock option not described in sections
422 through 424 of the Code.
16.18 "Option" means an ISO or NSO, including a Replacement Option,
granted under the Plan and entitling the holder to purchase one Common Share.
16.19 "Optionee" means an individual, or his or her estate, legatee
or heirs at law that holds an Option.
16.20 "Participant" means a Non-Employee Director or Key Employee who
has received an Award.
16.21 "Performance Share Award" means the conditional right to
receive in the future one Common Share, awarded to a Participant under the
Plan.
16.22 "Plan" means this 1992 Stock Incentive Plan of The Charles
Schwab Corporation, as it may be amended from time to time.
16.23 "Replacement Option" means an Option that is granted when a
Participant uses a Common Share held or to be acquired by the Participant to
exercise an Option and/or to satisfy tax withholding requirements incident to
the exercise of an Option.
16.24 "Restricted Share" means a Common Share awarded to a
Participant under the Plan.
16.25 "Stock Award Agreement" means the agreement between the Company
and the recipient of a Restricted Share or Performance Share Award which
contains the terms, conditions and restrictions pertaining to such Restricted
Share or Performance Share Award.
16.26 "Stock Option Agreement" means the agreement between the
Company and an Optionee which contains the terms, conditions and restrictions
pertaining to his or her option.
16.27 "Subsidiary" means any corporation, if the Company and/or one
or more other Subsidiaries own not less than 50 percent of the total combined
voting power of all classes of outstanding stock of such corporation. A
corporation that attains the status of a Subsidiary on a date after the
adoption of the Plan shall be considered a Subsidiary commencing as of such
date.
13
<PAGE> 53
Exhibit 10.132
CHARLES SCHWAB & CO., INC.
LONG-TERM INCENTIVE PLAN III, AS AMENDED
1. Purpose
The purpose of the Charles Schwab & Co. Inc. Long-Term Incentive Plan III, as
amended (the "LTIP") is to provide contingent financial incentives to selected
management employees to contribute to the long-term success of Charles Schwab &
Co., Inc. and its affiliated companies ("the Company").
2. Objectives
The specific objectives of the LTIP are to:
o Encourage participants to work to maximize the financial
success of the Company and its stockholders over the long-term.
o Recognize high potential managers based on their current
individual contribution.
o Provide an opportunity for managers to share in the Company's
growth and increased value.
o Encourage continued employment with the Company.
3. Administration
a. The LTIP will be administered by the Compensation Committee of
the Board of Directors (the "Committee") of The Charles Schwab
Corporation.
b. Subject to the provisions of the LTIP, the Committee will have
authority to interpret the LTIP, to prescribe, amend and
rescind rules and regulations relating to the LTIP, and to
make all other determinations deemed necessary or advisable in
administering the LTIP.
c. The Committee will determine grants to all executive officers.
d. The Committee may designate the Chairman and President of The
Charles Schwab Corporation to select participants at or below
the Senior Vice President level.
e. Any determinations made by a majority of the Committee on all
matters referred to in the LTIP, except those subject to the
approval of the entire Board of Directors, will be conclusive
and binding.
<PAGE> 54
4. Eligibility
a. Participation in this LTIP is limited to selected management
employees whose responsibilities have a significant effect on
the long-term performance of the Company, as determined by the
Committee in its sole discretion.
b. Participants shall normally be selected at the beginning of
the LTIP term.
1.) Participants may be added to the LTIP, provided they
will complete at least two (2) consecutive calendar
quarters during the LTIP term; and/or additional
units may be awarded to LTIP participants on January
1 or July 1 of each LTIP year by the Committee in its
sole discretion.
2.) Units granted after January 1, 1991, shall have a
"cost basis" equal to the value of a unit on the
valuation date immediately preceding the grant.
5. Plan Term
a. The plan term shall consist of four consecutive calendar years.
b. The effective date of this LTIP is January 1, 1991.
c. The LTIP shall continue in effect for four years unless it is
terminated earlier by the Committee.
6. Award Units
a. A maximum of 1.5 million units may be granted during the plan
term. No participant may be granted more than 100,000 units.
Any forfeited units will be returned to the LTIP.
b. An award unit shall entitle the holder thereof to receive a
payment equal to the cash value of the unit determined in
accordance with the schedule incorporated into this document
as Exhibit I, less the cost basis at the time of the grant.
Unit values falling between those shown on Exhibit I shall be
calculated according to the following formula: Unit Value =
Cumulative Pretax Pre-LTIP Income times the Funding Rate
divided by 1.5 million units.
c. The Compensation Department will calculate and publish a unit
price every six months during the plan term. The first
valuation date shall be July 1, 1991.
d. The Committee may, in its sole discretion, adjust the
performance goals at any time during the plan term to reflect
the impact of unusual unforeseen events such as a corporate
restructuring or change in tax law or other regulations
affecting the Company's business.
<PAGE> 55
7. Unit Vesting
a. Units will vest at a rate of twenty (20) percent every twelve
months following the date of the grant.
b. All remaining units will vest on December 31, 1994.
8. Payment of Awards
Payment of awards will be by check, unless deferred as provided in
Paragraph C, below, as soon as practicable after the end of the plan
term, but not prior to certification of the Company's results by its
independent auditors for all years of the plan term.
a. The Company will withhold from payments applicable taxes as
required by law.
b. Payment of actual tax liabilities is the responsibility of the
participant.
c. Notwithstanding the foregoing, awards may be deferred pursuant
to an eligible participant's election to defer receipt of
payment under The Charles Schwab Corporation Deferred
Compensation Plan.
9. Termination of Employment
If a participant's employment is terminated for any reason during the
plan term after the participant has vested in any units, the
participant shall be entitled to a cash payment equal to the most
recent published value of units less the price of the participant's
units (if any) multiplied times the number of vested units. All units
are 100% vested as of December 31, 1994.
a. Such award will be paid in one lump sum as soon as possible
following termination.
b. Awards made of behalf of a deceased participant shall be paid
to the participant's heirs or estate in the same manner as
unpaid salary.
10. Employment Rights
Designation of an employee as a participant for any performance cycle
or the receipt of an award shall not give any employee any right to
continued employment by the Company, and the right to dismiss any
employee is specifically reserved by the Company.
11. Amendment and Termination
The Committee may terminate, modify or amend this LTIP at any time,
provided that such action shall not affect the rights of any LTIP
participants to awards that were granted prior to the date of such
termination, modification or amendment.
<PAGE> 56
12. Governing Law
The LTIP shall be construed and its provisions enforced and
administered in accordance with the laws of the State of California.
<PAGE> 57
EXHIBIT I
CHARLES SCHWAB & CO., INC.
LONG-TERM INCENTIVE PLAN III, AS AMENDED
UNIT VALUATION SCHEDULE (1)
<TABLE>
<CAPTION>
CUMULATIVE
PRETAX
PRE-LTIP
INCOME (IN MILLIONS) RETURN ON EQUITY (2) FUNDING RATE
- -------------------- -------------------- ------------
<S> <C> <C>
MORE THAN $349.7 18.3% 8.0%
317.9 17.4% 7.0%
244.8 14.6% 6.0%
</TABLE>
(1) Unit Value = Cumulative Pretax Pre-LTIP Income times the Funding Rate
divided by the 1.5 million units in the LTIP.
(2) ROE assumes beginning equity basis of $160 million.
