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SCHEDULE 14A INFORMATION
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
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
THE CHARLES SCHWAB CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $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:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / 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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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------------------------
LOGO
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March 24, 1995
Dear Stockholder:
You are cordially invited to attend our Annual Meeting of Stockholders which
will be held Monday, May 8, 1995 at 2 p.m. in the Grand Ballroom of the ANA
Hotel, located at 50 Third Street (between Market and Mission Streets) in San
Francisco, California.
The meeting will provide an opportunity for you to hear a report on 1994
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,
CHARLES R. SCHWAB LAWRENCE J. STUPSKI
CHAIRMAN OF THE BOARD AND VICE CHAIRMAN OF THE BOARD
CHIEF EXECUTIVE OFFICER DAVID S. POTTRUCK
PRESIDENT AND CHIEF OPERATING OFFICER
<PAGE>
THE CHARLES SCHWAB CORPORATION
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 8, 1995
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The Annual Meeting of Stockholders of The Charles Schwab Corporation, a
Delaware corporation (the "Company"), will be held on Monday, May 8, 1995 at 2
p.m. in the Grand Ballroom of the ANA Hotel, located at 50 Third Street (between
Market and Mission 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 Employment Agreement between The Charles Schwab
Corporation and Charles R. Schwab effective March 31, 1995.
3. To approve amendments to the Corporate Executive Bonus Plan.
4. 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 10, 1995 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,
MARY B. TEMPLETON
CORPORATE SECRETARY
March 24, 1995
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>
THE CHARLES SCHWAB CORPORATION
101 MONTGOMERY STREET
SAN FRANCISCO, CALIFORNIA 94104
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PROXY STATEMENT
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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 8, 1995. This Proxy Statement and form of
proxy are being mailed to stockholders on or about March 24, 1995.
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 Employment Agreement between The Charles Schwab Corporation
and Charles R. Schwab, and to approve amendments to the Company's Corporate
Executive Bonus 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 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 and all share and per share market values
in this Proxy Statement have been adjusted to reflect a three-for-two split of
the Common Stock on March 1, 1995, effected in the form of a 50 percent stock
dividend.
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VOTING
At the close of business on March 10, 1995 there were outstanding and
entitled to vote at the Annual Meeting 85,695,322 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 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
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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.
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 10, 1995, the current directors of the Company and senior
officers of the Company and its subsidiaries owned and have the right to vote an
aggregate of 24,755,773 shares, which, together with an aggregate of 611,422
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 30% of the shares entitled to vote at the Annual
Meeting. The Profit Sharing Plan also holds an aggregate of 7,813,771 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
736,351 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 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 57, was a founder of Schwab in 1971, and has been its
Chairman since 1978. He has been the Chairman, 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 currently serves as a director of The Gap, Inc.,
Transamerica Corporation, and AirTouch Communications, and as a trustee of The
Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and
Schwab Annuity Portfolios, all registered investment companies.
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LAWRENCE J. STUPSKI, age 49, has been the Vice Chairman of the Company since
July 1992, and a director of the Company since its incorporation in November
1986. He also has served as Chief Operating Officer of the Company (November
1986 to March 1994) and President of the Company (November 1986 to July 1992).
Mr. Stupski has been a director of Schwab since 1981 and in the last five years
also has served as Chief Operating Officer (1981 to July 1992), Chief Executive
Officer (July 1988 to July 1992), and Vice Chairman (July 1992 to August 1994)
of Schwab.
DAVID S. POTTRUCK, age 46, 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. In the last five years Mr. Pottruck
has served as an Executive Vice President of the Company (March 1987 to July
1992) and has been President and a director of Schwab (since July 1988).
NANCY H. BECHTLE, age 57, 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.
C. PRESTON BUTCHER, age 56, 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 also has been a
director of BRE Properties, Inc., a real estate investment trust.
DONALD G. FISHER, age 66, 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., a nationwide specialty retail clothing
chain. Mr. Fisher also is currently a director of AirTouch Communications and
Ross Stores, Inc.
ANTHONY M. FRANK, age 63, 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. 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 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 April 1993
until November 1993, Mr. Frank was Chairman of the Board and President of
Independent Bancorp of Arizona, Inc., a registered bank holding company. Mr.
Frank also is currently a
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director of Bedford Property Investors, Living Centers of America,
Temple-Inland, Inc., General American Investors, a closed-ended investment
company, and Irvine Apartment Communities and Crescent Real Estate Equities,
both real estate investment trusts.
JAMES R. HARVEY, age 60, 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
has served as Chairman of Transamerica Corporation since 1983 and served as
Transamerica's Chief Executive Officer from 1981 until 1991. 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 McKesson Corporation and AirTouch
Communications.
STEPHEN T. MCLIN, age 48, 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. Mr. McLin is also Chairman of the Board of EurekaBank,
a federal savings bank.
ROGER O. WALTHER, age 59, 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 in the United States of English as a second language. 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. Since 1985, Mr. Walther has served as Chairman and has been a director of
First Republic Bancorp, a bank holding company.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors held eight meetings during 1994. 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 reviews recommendations concerning
internal controls. The Audit Committee reports to the Board of Directors with
respect to such matters and recommends the selection of independent auditors.
The Audit Committee held four meetings during 1994.
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
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benefit plans. In addition, the Compensation Committee has the authority to
grant options or make equity grants to members of the Board of Directors and key
employees under the Company's stock option plans. The Compensation Committee
held eight meetings in 1994.
The Customer Quality Assurance Committee monitors service quality and
customer satisfaction. The Customer Quality Assurance Committee proposes
initiatives to research service quality and reviews the results of surveys of
Schwab customers. The Customer Quality Assurance Committee held one meeting in
1994.
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
receive annual, automatic grants of options under the 1992 Stock Incentive Plan.
In 1994, each member of the Board was granted an option to purchase 1,500 shares
of Common Stock of the Company pursuant to the Stock Incentive Plan at the fair
market value on May 16, 1994, $19.67 per share.
APPROVAL OF THE EMPLOYMENT AGREEMENT BETWEEN
THE CHARLES SCHWAB CORPORATION AND CHARLES R. SCHWAB
On December 8, 1994 the Compensation Committee of the Board of Directors
(the "Committee") adopted resolutions recommending that the Board of Directors
present a proposal to stockholders to approve a new Employment Agreement with
the Company's Chairman, Charles R. Schwab (the "New Employment Agreement"). Mr.
Schwab's previous employment agreement expires on March 31, 1995 (see
"Employment Agreement and Name Assignment"). The Board decided to present the
New Employment Agreement to the stockholders for approval generally to respond
to requirements of the federal tax laws, which authorize deduction for
compensation in excess of $1 million payable to "named executive officers" (as
defined in the Internal Revenue Code of 1986 (the "Code")) only where such
compensation is based on performance and is approved by stockholders. The
persons named in the proxy intend, unless authorization to do so is withheld, to
vote for the proposal concerning the New Employment Agreement.
If the New Employment Agreement is 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 Code, payments of bonuses to Mr. Schwab pursuant to the Employment Agreement
will qualify for deduction under Section 162(m) of the Code. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL
CONCERNING THE NEW EMPLOYMENT AGREEMENT.
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THE NEW EMPLOYMENT AGREEMENT -- TERMS AND CONDITIONS
Under the New Employment Agreement, Mr. Schwab is employed for a five year
term commencing March 31, 1995 and will receive an annual base salary of
$800,000, subject to annual increases based on increases in the Consumer Price
Index ("CPI") (provided that CPI adjustments cannot cause annual salary plus
bonus to exceed $12 million). Mr. Schwab will participate in all compensation
and fringe benefit programs made available to other senior executives, including
the Company's stock incentive plans, except that, in lieu of participating in
the executive bonus plans, Mr. Schwab's annual bonus, if any, will be a multiple
of his base salary, and will be based solely on the Company's performance for
the year relative to its targets of net revenue growth and pre-tax profit
margin.
Under the New Employment Agreement, the amount of Mr. Schwab's annual bonus
is determined based on a performance matrix, adopted from time to time by the
Committee, that establishes the relationship between Mr. Schwab's bonus and
specified levels of Company performance. If the Company were to match its 1994
rate of net revenue growth and pre-tax profit margin in 1995, its net revenues
would increase $110,000,000 to $1,175,000,000, and its pretax profit would
increase $22,400,000 to $246,750,000. In that event, Mr. Schwab would receive a
bonus of $4,171,000. On the other hand, if the Company's pre-tax profit margin
were the same in 1995 as in 1994, 21 percent, and the net revenue declined by
more than 5 percent, Mr. Schwab would receive no bonus at all.
The New Employment Agreement also provides that certain compensation and
benefits will be paid or provided to Mr. Schwab (or his immediate family or
estate) in the event his employment is terminated involuntarily, other than for
cause, prior to the expiration of the New Employment Agreement. For these
purposes, "cause" is defined as the commission of a felonious act, or willful
and gross negligence or misconduct that results in material harm to the Company.
Mr. Schwab's resignation following a material change in his capacities or duties
at Schwab or the Company is included in the definition of "involuntary
termination." If an involuntary termination is for reasons other than death,
disability or for "cause," Mr. Schwab will be entitled to receive for a period
of thirty-six (36) months all compensation and 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 (but excluding additional grants under the Company's
stock incentive plans). In addition, all outstanding, unvested awards under the
Company's stock incentive plans will vest fully on the effective date of the
termination. If an involuntary termination is by reason of disability, Mr.
Schwab will be entitled to receive his base salary, less any payments under the
Company's long term disability plan, and benefits (but not bonuses or other
incentive compensation) for a period of thirty-six (36) months from such
termination, and shall also receive a pro rated portion of any bonus or
incentive payments payable with respect to the year in which the disability
occurs. If an involuntary termination is by reason of death, a lump sum payment
will be made to Mr. Schwab's estate equal to five times his then base salary. If
Mr. Schwab should voluntarily resign his
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employment within twenty-four (24) months of a change in control of the Company,
he shall be entitled to receive a pro rated portion of any bonus or incentive
payments payable with respect to the year in which the resignation occurs.
In addition, if Mr. Schwab's employment should terminate on account of any
voluntary resignation, or on account of an involuntary termination occurring
within twenty-four (24) months of a change in control of the Company, Mr. Schwab
shall have the right (but not the obligation) to enter into a consulting
arrangement under which he would provide certain consulting services to the
Company for a period of five years, in exchange for an annual payment equal to
the lesser of $1 million or 75% of his then base salary.
The New Employment Agreement provides that as of each March 31, the term of
the Employment Agreement automatically will be extended by an additional year,
subject to the same terms and conditions, unless either party provides notice to
the other, by that date, of an intention not to so extend the New Employment
Agreement. The New Employment Agreement also precludes Mr. Schwab from becoming
associated with any business competing with the Company for a period of five
years following a voluntary resignation of employment (except that such covenant
would not apply to a resignation of employment occurring within 24 months of a
change in control of the Company).
APPROVAL OF AMENDMENTS TO
THE CORPORATE EXECUTIVE BONUS PLAN
On February 23, 1995 the Committee adopted resolutions recommending that the
Board of Directors present to stockholders a proposal to approve amendments to
the Company's Corporate Executive Bonus Plan (the "Plan," formerly known as the
Annual Executive Bonus Plan). The Plan provides for the payment of cash bonuses
to executive officers of the Company, based solely upon the Company's attainment
of annual revenue growth and profitability objectives. The Board decided to
present the Plan amendments to the stockholders for approval generally to
respond to requirements of the federal tax laws, which authorize deductions for
compensation in excess of $1 million payable to "named executive officers" (as
defined in the Code) only where such compensation is based on performance and is
approved by stockholders. The persons named in the proxy intend, unless
authorization to do so is withheld, to vote for the proposal concerning the
Plan.
If the Plan is 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 Code, payments to
executive officers pursuant to the Plan will qualify for deduction under Section
162(m) of the Code. If the stockholders do not vote to approve the proposal
concerning the Plan, any payments or portions of payments to any "named
executive officers" pursuant to the Plan may not qualify for deduction under
Section 162(m) to the extent certain compensation paid to any such named
executive officer in any calendar year exceeds
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$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 Plan. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
PROPOSAL CONCERNING THE PLAN.
DESCRIPTION OF AMENDMENTS TO THE CORPORATE EXECUTIVE BONUS PLAN
The participants in the Plan include the Vice Chairman, President, Executive
Vice Presidents and, from time to time, certain other officers having comparable
positions, and currently number ten (10) executives. The Plan specifies a target
bonus for each executive officer, which is expressed as a percentage of that
executive's annual base salary, and which depends upon an assessment of that
executive officer's roles and responsibilities. The Committee sets target
bonuses in the first quarter of each year, based upon the recommendation of the
Chairman and, where appropriate, the President. The President and Vice Chairman
receive all of their annual incentive compensation under the Plan and have
target bonus percentages of up to 300% and up to 100% of their annual base
salaries, respectively. The other participants, who also participate in the
Company's Annual Executive Individual Performance Plan, which pays additional
annual bonuses based on the achievement of individual performance goals, have
target bonus percentages under the Plan of up to 50% of their annual base
salaries.
The amount of the target bonus is then multiplied by a percentage, which is
derived from a matrix fixed by the Committee in advance, and which can range
from 0% to 500% for the President and from 0% to 300% for the remaining
executive officers. The matrix establishes the relationship between the
percentage and the Company's performance for the year relative to its targets of
net revenue growth and pre-tax profit margin. In the case of the President, the
Committee has discretion during the year, subject to the foregoing percentage
limits, to change the amount of any payment otherwise required pursuant to the
Plan. In any event, the amount of base salary included in the computation of the
target bonus amount for each participant in any year may not exceed 250% of the
base salary, determined as of March 31, 1995, payable to the participant holding
the same or substantially similar position on March 31, 1995.
Payments under the Plan are made quarterly based on the Company's
year-to-date performance, except that payments to the President are made
annually within a reasonable time after the end of the year. 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, determined by the total return that would be derived from investments in
certain registered investment companies selected from time to time by the
Company, the allocation among which is determined by the participant.
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.
9
<PAGE>
The following table identifies the amounts that would be payable under the
Corporate Executive Bonus Plan, as amended, for 1995 if the Company were to
match its 1994 rate of net revenue growth and pre-tax profit margin. In that
event, the Company's net revenues would increase $110,000,000 to $1,175,000,000,
and its pretax profit would increase $22,400,000 to $246,750,000. On the other
hand, if the Company's pre-tax profit margin in 1995 were the same as in 1994,
21 percent, and net revenue declined by more than 5 percent, no bonuses would be
payable under the Plan.
The table also identifies all other bonuses payable in 1995 to executive
officers, including bonuses payable to Charles R. Schwab under the New
Employment Agreement, determined in the same manner.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
TOTAL AMOUNTS
AMOUNTS PAYABLE PAYABLE UNDER
CORPORATE UNDER ALL OTHER ALL ANNUAL
EXECUTIVE BONUS ANNUAL EXECUTIVE EXECUTIVE BONUS
PLAN (3) BONUS PLANS PLANS
---------------- ---------------- ----------------
NAME AND POSITION DOLLAR VALUE ($) DOLLAR VALUE ($) DOLLAR VALUE ($)
------------------------------------------------------------ ---------------- ---------------- ----------------
<S> <C> <C> <C>
N/A $4,171,000(4) $ 4,171,000
Charles R. Schwab...........................................
Chairman and Chief Executive Officer (1)
$2,790,251 $ 0 $ 2,790,251
David S. Pottruck...........................................
President and Chief Operating Officer
$ 568,943 $ 0 $ 568,943
Lawrence J. Stupski.........................................
Vice Chairman
$ 55,500 $ 603,500(5)(6) $ 659,000
Ronald W. Readmond..........................................
Executive Vice President
$ 152,305 $ 284,027(6) $ 436,332
A. John Gambs...............................................
Executive Vice President and Chief Financial Officer
All current executive officers.............................. $4,417,098 $6,643,848 $11,060,945
All current directors who are not executive officers (2).... N/A N/A N/A
All current employees, other than executive officers........ N/A N/A N/A
<FN>
------------------------
(1) Mr. Schwab does not participate in the Corporate Executive Bonus Plan.
(2) Non-employee directors are not eligible to participate in the Corporate
Executive Bonus Plan.
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
(3) Only executive officers are eligible to participate in the Corporate
Executive Bonus Plan. On March 31, 1995, the base salaries of Messrs.
Schwab, Stupski, Pottruck, Readmond and Gambs were $800,000; $390,000;
$695,000; $300,000; and $370,000, respectively. No other executive officer
had a base salary higher than Mr. Schwab.
(4) Consists solely of amounts payable to Mr. Schwab pursuant to the New
Employment Agreement. See "Approval of the Employment Agreement Between The
Charles Schwab Corporation and Charles R. Schwab."
(5) Includes amounts payable pursuant to an individual bonus plan under which
Mr. Readmond may become entitled to additional bonuses, irrespective of
Company performance, dependent upon Mr. Readmond's satisfaction of certain
specific business goals.
(6) Includes annual bonuses payable under the Company's Annual Executive
Individual Performance Plan which pays bonuses to the Company's executive
officers other than the Chairman, Vice Chairman and President based on both
Company performance and individual performance. For purposes of this table,
the amounts payable are based on an assumption that each participant meets
all individual performance objectives and receives 100% of target payouts
under the Individual Performance Plan.
</TABLE>
11
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 10, 1995 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)(4)(5).................................................... 19,983,437 23.3%
Charles Schwab Profit Sharing and Employee
Stock Ownership Plan (6)(7)................................................... 9,161,544 10.7%
+Luis E. Valencia............................................................
+Evelyn S. Dilsaver..........................................................
+A. John Gambs...............................................................
+Thomas N. Lawrie............................................................
+Thomas W. Matchett, Jr......................................................
+Harvey A. Rowen.............................................................
Lawrence J. Stupski (4)........................................................ 2,619,805 3.1%
David S. Pottruck (3)(4)(8).................................................... 1,520,495 1.8%
Nancy H. Bechtle (3)........................................................... 41,250 *
C. Preston Butcher (3)(9)...................................................... 98,625 *
Donald G. Fisher (3)(10)....................................................... 147,375 *
Anthony M. Frank (3)(11)....................................................... 215,649 *
James R. Harvey (3)(12)........................................................ 84,750 *
Stephen T. McLin (3)(13)....................................................... 46,742 *
Roger O. Walther (3)(14)....................................................... 27,094 *
Ronald W. Readmond (3)(4)...................................................... 335,998 *
A. John Gambs (3)(4)........................................................... 517,021 *
All executive officers and directors as a group (18 persons) (15).............. 35,097,089 39.9%
<FN>
------------------------
* Less than 1%.
+ Members of the Administrative Committee for the Profit Sharing Plan. For
information regarding shares beneficially owned by such persons, see Note 7
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
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
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.
(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.
(3) Shares issuable upon exercise of options to acquire Common Stock that are
exercisable within 60 days of March 10, 1995 are treated as beneficially
owned as follows: Mr. Schwab 253,124 shares; Mr. Pottruck 407,250 shares;
Ms. Bechtle 37,500 shares; Mr. Butcher 39,750 shares; Mr. Fisher 39,750
shares; Mr. Frank 55,500 shares; Mr. Harvey 39,750 shares; Mr. McLin 39,750
shares; Mr. Walther 17,250 shares; Mr. Readmond 330,375 shares; and Mr.
Gambs 507,375 shares.
(4) Includes amounts held by the Trustee of the Profit Sharing Plan and
allocated to the individual ESOP accounts or held for the benefit of the
named executives in the non-ESOP components of the Profit Sharing Plan as
follows: Mr. Schwab 120,774 shares; Mr. Stupski 54,668 shares; Mr. Pottruck
80,208 shares; Mr. Readmond 5,623 shares; and Mr. Gambs 9,646 shares.
(5) This amount includes 1,149,399 shares held by nonprofit public benefit
corporations, as to which Mr. Schwab and his spouse, as two of three
directors, have shared voting and investment power but disclaim beneficial
ownership; 2,250,000 shares held by Mr. Schwab and his spouse as trustees
of a living trust; 336 shares held by Mr. Schwab as custodian for his
children; and 2,399 shares held by Mr. Schwab as trustee of various trusts
with respect to which he disclaims beneficial ownership. This amount does
not include 3,418,482 shares held by Mr. Schwab's brother-in-law, as
trustee of various trust accounts for the benefit of Mr. Schwab's spouse
and children.
(6) 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 8,425,193 shares which, as of
March 10, 1995, 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 736,351 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 736,351
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.
(7) Mr. Valencia, Ms. Dilsaver, Mr. Gambs, Mr. Lawrie, Mr. Matchett, and Mr.
Rowen 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 9,161,544 shares held by the
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
Trustee of the Profit Sharing Plan. For information with respect to shares
held by Mr. Gambs, see
Footnotes 3 and 4 above. Mr. Valencia, Ms. Dilsaver, Mr. Lawrie, Mr.
Matchett and Mr. Rowen each also have sole voting power with respect to the
0; 2,884; 2,349; 1,476; and 1,219 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; the 750; 903; 15,244; 450 and 600 shares,
respectively, held by each directly; and, the 12,000; 14,062; 112; 2,250
and 0 shares, respectively, which each has the right to acquire under
options which are exercisable within 60 days of March 10, 1995. As a
result, the members of the Administrative Committee are deemed to be the
beneficial owners of outstanding Common Stock, as follows: Mr. Valencia
10.7%; Ms. Dilsaver 10.7%; Mr. Gambs 11.2%; Mr. Lawrie 10.7%; Mr. Matchett
10.7%; and Mr. Rowen 10.7%.
(8) This amount includes 5,061 shares held by Mr. Pottruck as custodian for his
children; 45,000 shares held by Mr. Pottruck as trustee of trusts held for
the benefit of his brothers; 24,000 shares held by a nonprofit public
benefit corporation as to which Mr. Pottruck, as sole director, has voting
and investment power, but disclaims beneficial ownership; and a total of
19,892 shares held by Mr. Pottruck's family members, as to which he shares
investment power but disclaims beneficial ownership.
(9) This amount includes 56,625 shares held by Mr. Butcher and his spouse as
joint tenants, and 2,250 shares held by Mr. Butcher's spouse as her
separate property.
(10) This amount includes 104,250 shares held by Mr. Fisher and his spouse as
trustees of a charitable remainder trust.
(11) This amount includes 25,149 shares held by Mr. Frank's daughter, as to
which he shares investment power but disclaims beneficial ownership.
(12) This amount includes 45,000 shares held by Mr. Harvey and his spouse as
trustees of a family trust.
(13) This amount includes 6,992 shares held under the Company's Dividend
Reinvestment and Stock Purchase Plan.
(14) This amount includes 93 shares held for a trust account under the Company's
Dividend Reinvestment and Stock Purchase Plan and 7,798 shares held by Mr.
Walther as trustee of that same trust.
(15) 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 9,161,544 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 450,749 shares that six 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 10, 1995, an
aggregate of 368,190 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.
</TABLE>
14
<PAGE>
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 shareholders also are required by rules promulgated by the SEC
to furnish the Company with copies of all Section 16(a) forms they file.
During 1994, Charles R. Schwab, Chairman and Chief Executive Officer, failed
to file with the SEC on a timely basis one required report involving two
transactions in the Company's Common Stock, because of an administrative
oversight. The form was filed immediately after the oversight was noted and
within 70 days of the required reporting date.
15
<PAGE>
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, 1994, 1993, and 1992.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
--------------------------
<S> <C> <C> <C> <C> <C> <C>
AWARDS
------------- PAYOUTS
ANNUAL COMPENSATION SECURITIES ----------- ALL OTHER
-------------------------- UNDERLYING LTIP COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) OPTIONS (#) PAYOUTS (2) ($)(3)
---------------------------------------- --------- ----------- ------------- ------------- ----------- -------------
Charles R. Schwab, 1994 $ 772,506 $ 2,500,225 -0- $ -0- $ 18,890
Chairman and Chief Executive Officer 1993 $ 690,012 $ 2,500,225 -0- -0- $ 23,861
1992 $ 665,632 $ 2,500,525 506,250 -0- $ 20,438
Lawrence J. Stupski, 1994 $ 479,130 $ 461,659 -0- $2,532,892 $ 18,890
Vice Chairman 1993 $ 610,008 $ 939,027 -0- -0- $ 23,861
1992 $ 587,295 $ 840,946 474,750 -0- $ 20,438
David S. Pottruck, 1994 $ 658,755 $ 662,543 150,000 $1,578,360 $ 18,890
President and Chief Operating Officer 1993 $ 550,008 $ 846,687 -0- -0- $ 23,861
1992 $ 476,881 $ 626,595 477,000 -0- $ 20,135
Ronald W. Readmond, 1994 $ 412,005 $ 310,859 -0- $1,052,240 $ 18,890
Executive Vice President 1993 $ 400,008 $ 513,225 -0- -0- $ 23,861
1992 $ 352,087 $ 392,232 252,000 -0- $ 19,528
A. John Gambs, 1994 $ 365,007 $ 278,984 -0- $1,052,240 $ 18,890
Executive Vice President and Chief 1993 $ 350,004 $ 389,255 -0- -0- $ 23,861
Financial Officer 1992 $ 310,629 $ 321,561 306,000 -0- $ 19,604
<FN>
------------------------------
(1) Includes, with respect to Mr. Schwab, amounts paid pursuant to the
Corporate Executive Bonus Plan and his Employment Agreement with the
Company dated March 31, 1987 ("Employment Agreement"). See "Employment
Agreement and Name Assignment."
(2) The disclosure rules of the Securities and Exchange Commission currently in
effect provide for disclosure of compensation relating to long-term
incentive plans only when compensation awards are made and when they are
paid out. The Long-Term Incentive Plan III ("LTIP"), which was adopted
effective as of January 1, 1991 and was amended on March 1, 1994, paid cash
bonuses to certain designated key employees of the Company, calculated
based upon the Company's performance during the four-year period ending
December 31, 1994. Mr. Schwab did not participate in or earn any cash bonus
pursuant to LTIP. Each participant's cash bonus was equal to the value of
such participant's units on December 31, 1994 less the value of such units
on the date of grant. Units at the inception of LTIP had an initial value
of $0. Units awarded after the inception of LTIP were valued as of the last
business day of the month prior to date of grant. Participants were
permitted to defer receipt of all or a portion of their LTIP cash bonuses
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 of control. The Company recorded
compensation expense accruals in the years 1991, 1992, 1993 and 1994 with
respect to anticipated payments to the named executives of $830,308;
$1,384,398; $1,862,404; and $2,138,622; respectively.
(3) Represents employer contributions to the Profit Sharing Plan for 1994 in
the amount of $18,890 for the benefit of each of Messrs. Schwab, Stupski,
Pottruck, Readmond and Gambs.
</TABLE>
16
<PAGE>
STOCK OPTION TABLES
The following table shows information concerning stock options granted to
the individuals named in the Summary Compensation Table above during the fiscal
year ended December 31, 1994.
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR FOR OPTION TERM (2)
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION --------------------------
NAME (#)(1) FISCAL YEAR ($/SH) DATE 5% 10%
--------------------------------- ----------- ----------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Charles R. Schwab................ -0- -- -- --
Lawrence J. Stupski.............. -0- -- -- --
David S. Pottruck................ 150,000 8.12% $ 21.58 10/18/04 $ 2,036,046 $ 5,159,741
Ronald W. Readmond............... -0- -- -- --
A. John Gambs.................... -0- -- -- --
<FN>
------------------------
(1) Options granted in 1994 were pursuant to the 1992 Stock Incentive Plan. The
options are 50% non-statutory stock options and 50% incentive stock options
that were granted at 100% of the fair market value of the Common Stock on
the date of grant. The options expire ten years from the date of grant,
unless otherwise earlier terminated in certain events related to
termination of employment. The options vest pro rata over a period of five
years, with the first 10% increment vesting on the first anniversary of the
option grant date. Additional vesting of the right to exercise the options
ceases when the optionee's employment terminates.
(2) The 5% and the 10% assumed rates of appreciation applied to the option
exercise price over the ten-year option term are prescribed by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price. If the Company's
Common Stock does not appreciate, the named executive officer will receive
no benefit from the options.
</TABLE>
17
<PAGE>
The following table shows information concerning the exercise of stock
options during 1994 and the value of unexercised stock options held by the
individuals named in the Summary Compensation Table above as of December 31,
1994.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT 12/31/94 12/31/94 (2)
SHARES ------------------- -------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED (1) UNEXERCISABLE UNEXERCISABLE
------------------------------------------- ----------- ------------ ------------------- -------------------
<S> <C> <C> <C> <C>
Charles R. Schwab.......................... -- -- 253,124 $ 3,677,329
253,126 $ 3,677,358
Lawrence J. Stupski........................ 118,687 $ 1,506,672 0 0
237,374 $ 3,448,517
David S. Pottruck.......................... -- -- 407,250 $ 7,044,563
388,500 $ 3,714,875
Ronald W. Readmond......................... 150,000 $ 2,181,944 330,375 $ 5,649,649
126,000 $ 1,830,500
A. John Gambs.............................. -- -- 507,375 $ 9,705,094
153,000 $ 2,222,750
<FN>
------------------------
(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, 1994 closing price of $23.25 per share of the Company's
common stock as reported on the New York Stock Exchange Composite
Transactions Index, and may not represent amounts actually realized by the
named individual.
</TABLE>
18
<PAGE>
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. Each member is a "disinterested
director" within the meaning of Section 16 of the Securities Exchange Act of
1934, as amended, and an "outside director" within the meaning of Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code"). The Committee
determines the Chairman's compensation and, upon recommendation of the Chairman
and the President, 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 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 be at risk and vary,
depending upon meeting stated financial objectives.
When establishing salaries, bonus levels and stock-based awards for
executive officers, the Committee considers the individual's role,
responsibilities and performance during the past year, and the amount of
compensation paid to executive officers in similar positions of comparable
companies, based on periodic reviews of competitive data obtained from
independent consultants. The Committee reviews companies of similar size, rates
of growth and financial returns to the Company, including, but not limited to,
some of the companies included in the Dow Jones Securities Brokerage Group
Index. Companies outside the financial services industry are selected for
inclusion in the review based upon the extent to which they satisfy a list of
selection criteria, which includes size, growth rates, similar financial
performance, leadership status in their industry, and reputation for innovation,
not all of which will be satisfied in any particular case. 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. The Committee uses
comparative data to set compensation targets that will provide executive
officers with compensation that exceeds the average amounts paid to similar
executives of comparable companies in years in which the Company achieves
superior performance, and in the payment of compensation below the average of
amounts paid to similar executives of comparable companies in years in which the
Company fails to achieve superior performance. However, in certain cases the
Committee also may make discretionary and subjective determinations of the
appropriate amounts under the circumstances, to reflect, for example, the
Company's philosophy of relying on specific executive officers to direct
specific customer enterprises. With respect to
19
<PAGE>
executive officers other than the Chairman, the Committee places considerable
weight upon the recommendations of the Chairman and, where appropriate, the
President.
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 10, 1995, the directors of the Company and executive officers and other
senior officers of the Company and its subsidiaries owned an aggregate of
24,755,773 shares, and had the right to acquire an additional 2,743,575 shares
upon the exercise of employee stock options which were exercisable on March 10,
1995 or within sixty days thereafter. In addition, the Profit Sharing Plan held
9,161,544 shares. These interests, exclusive of outstanding options, represent
in the aggregate 40% 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, 1989 through December
31, 1994, the cumulative total return of the Company's stock was 491 percent. By
comparison, in the same period the Dow Jones Securities Brokers Industry Group
Index grew 134 percent and the S&P 500 Index grew 52 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, 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 in 1994 were to achieve over the
long-term 20 percent annual net revenue growth, 10 percent after-tax profit
margin and 20 percent ROE.
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.
ANNUAL BASE SALARY
The Company believes that base salary is frequently a significant factor in
attracting, motivating and retaining competent and skilled executive officers.
To maintain a competitive advantage, the Committee reviews base salaries of
executive officers annually and generally sets the base salary of its executive
officers at or near the average of the levels paid by the other companies it
reviews. (See "Compensation Policies.")
20
<PAGE>
VARIABLE COMPENSATION
CORPORATE EXECUTIVE BONUS PLAN. The Corporate Executive Bonus Plan, which
was formerly known as the Annual Executive Bonus Plan, pays bonuses each year to
executive officers based 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, which are determined by the Committee based on the
factors discussed above (see "Compensation Policies"). 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 objective will have a greater impact on the determination of bonus
payments than will a percentage change in the net revenue growth rate. In 1994,
the Company achieved an after-tax profit margin of 13 percent versus its 10
percent objective and net revenue growth of 10 percent versus its objective of
20 percent. Based on attainment of these objectives, executive officers received
bonuses in excess of 100 percent of their target bonus amounts in 1994. The
Committee has adopted amendments to this plan, which are subject to the approval
of Stockholders, and which will affect the compensation of executive officers in
1995 and thereafter. (See "Approval of Amendments to the Corporate Executive
Bonus Plan.")
ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN. The Annual Executive
Individual Performance Plan pays bonuses to executive officers other than the
Chairman, Vice Chairman and President based on a subjective determination of
each such officer's individual contribution to the attainment of the Company's
performance objectives, made by the Committee upon the recommendation of the
Chairman and President. In general, such recommendations are based in
significant part upon such officer's success in achieving specific goals
identified in such officer's business plan. The amount available for payments
under the plan is equal to 110% of the aggregate bonuses payable under the
Corporate Executive Bonus Plan to all executive officers other than the
Chairman, Vice Chairman and President. Consequently, although individual bonuses
under the plan may vary in recognition of individual achievements, executive
officer bonuses in the aggregate under the plan are based strictly on the
Company's performance relative to its objectives as stated in the Corporate
Executive Bonus Plan.
LONG-TERM INCENTIVE PLAN ("LTIP"). In 1991, the Compensation Committee
adopted an LTIP which provides for a cash distribution equal to a percentage,
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. Eligibility
to participate in the LTIP and the number of participation units awarded to each
participant were determined by the Committee upon the recommendation of the
Chairman and, where appropriate, the then President. The total amounts payable
under LTIP on account of the full four year LTIP period to the named executive
officers are reported in the Summary Compensation Table.
The Committee has determined not to adopt a renewed cash-based LTIP in 1995.
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-
21
<PAGE>
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.
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. Under
the 1992 Plan, stock option grants are made to executive officers by the
Committee, based upon the factors discussed above (see "Compensation Policies").
The Committee has adopted a policy of granting 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.
As discussed above, the Committee intends that, following the expiration of LTIP
on December 31, 1994, stock-based incentives will be the only long-term
incentives payable to executive officers.
Because the stock options granted in 1992 were intended to serve as a
long-term incentive, additional stock options were not generally granted to
executive officers in 1994. However, stock option grants were made to certain
executive officers who were hired or promoted into executive management or
promoted within executive management during 1994, or to reflect significant
increases in an executive officer's responsibilities. During 1994, the Committee
awarded additional stock options to the Company's President and Chief Operating
Officer, David S. Pottruck, to reflect the increased responsibilities assumed by
Mr. Pottruck in March, 1994. The Committee granted these options to Mr. Pottruck
to make his long term compensation (including the options that had been granted
to Mr. Pottruck in 1992) more comparable with amounts payable to officers with
similar responsibilities at comparable companies.
CHAIRMAN'S COMPENSATION
The Company's Chairman, Charles R. Schwab, is compensated based on an
employment agreement that was entered into between the Company and Mr. Schwab
(see "Employment Agreement and Name Assignment"), which expires on March 31,
1995. Under the terms of his Employment Agreement, Mr. Schwab receives a base
salary which is adjusted upward as the Board deems appropriate, consistent with
its policies for setting base salaries generally (see "Annual Base Salary").
Effective as of April 1, 1994, Mr. Schwab's annual base salary was increased to
$800,000, which was determined by the Committee to be appropriate in light of
Mr. Schwab's significant contributions to the Company's success.
Mr. Schwab's payment under the Corporate Executive Bonus Plan for 1994 was
$826,581. This amount was determined, as with all executive officers, by
applying the plan rate to Mr. Schwab's target bonus, which target bonus was
determined by the Committee based on the factors discussed above (see
"Compensation Policies"). In addition, under the terms of Mr. Schwab's
Employment Agreement, Mr. Schwab received an additional bonus of $1,673,419. 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
22
<PAGE>
has been $2.5 million, which has been a declining percentage of pre-tax net
income of the Company. 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. Mr. Schwab did not receive a grant of stock options
during 1994.
The Committee believes that it would be in the best interests of the Company
and its stockholders to renew and renegotiate Mr. Schwab's employment agreement
with the Company, and has approved a revised employment agreement that would
take effect March 31, 1995, subject to approval of the Company's stockholders.
Under the new employment agreement, the amount of cash bonuses payable to Mr.
Schwab would depend upon the Company's achievement of specified performance
targets based on net revenue growth and pretax profit margin. Thus, the basis on
which such bonuses are paid to Mr. Schwab would be similar in nature to the
basis on which bonuses are payable to the Company's executive officers
generally. See "Approval of Employment Agreement Between The Charles Schwab
Corporation and Charles R. Schwab."
TAX LAW LIMITS ON EXECUTIVE COMPENSATION
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the
Code, which limits deductions for certain executive compensation in excess of $1
million. Certain types of compensation are deductible only if performance
criteria are specified in detail, and payments are contingent on stockholder
approval of the compensation arrangement. The Company believes that it is in the
best interests of its stockholders to structure compensation plans to achieve
deductibility under Section 162(m), except where the benefit of such
deductibility is outweighed by the need for flexibility or the attainment of
other corporate objectives. Accordingly, the Company's Corporate Executive Bonus
Plan, Long Term Incentive Plan, as amended, and 1992 Stock Incentive Plan were
approved by the stockholders in 1994, and the Company is currently seeking
stockholder approval of amendments to its Corporate Executive Bonus Plan. (See
"Approval of Amendments to the Corporate Executive Bonus Plan.") The Committee
will continue to monitor issues concerning the deductibility of executive
compensation and will take appropriate action if and when it is warranted. Since
corporate objectives may not always be consistent with the requirements for full
deductibility, the Committee is prepared, if it deems appropriate, to enter into
compensation arrangements under which payments may not be deductible under
Section 162(m); deductibility will not be the sole factor used by the Committee
in ascertaining appropriate levels or modes of compensation.
Compensation Committee of the Board of
Directors
Roger O. Walther, CHAIRMAN
C. Preston Butcher
Stephen T. McLin
23
<PAGE>
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 Brokerage 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, 1994**
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DEC-89 DEC-90 DEC-91 DEC-92 DEC-93 DEC-94
<S> <C> <C> <C> <C> <C> <C>
The Charles Schwab Corporation 100 83 334 290 543 591
Dow Jones Securities Brokerage Group Index 100 92 199 206 265 234
S&P 500 Index 100 97 126 136 150 152
</TABLE>
<TABLE>
<S> <C>
<FN>
------------------------
* Total return assumes reinvestment of dividends.
** Information presented as of the end of each fiscal year ended December 31.
</TABLE>
24
<PAGE>
EMPLOYMENT AGREEMENT AND NAME ASSIGNMENT
As a condition to making the $150 million loan for the Company's leveraged
acquisition of Schwab in March 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 net 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 has determined that it would be in its best interests to renew
its Employment Agreement with Mr. Schwab, and accordingly has entered into a New
Employment Agreement, effective March 31, 1995, subject to approval by the
stockholders. (See "Approval of The Employment Agreement Between The Charles
Schwab Corporation and Charles R. Schwab.")
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,
25
<PAGE>
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, 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.
The Name Assignment is not affected by the provisions of Mr. Schwab's New
Employment Agreement.
CERTAIN TRANSACTIONS
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.
26
<PAGE>
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 1996 Annual Meeting of
Stockholders must be received by the Company at its principal executive office
no later than November 24, 1995.
BY ORDER OF THE BOARD OF DIRECTORS
MARY B. TEMPLETON
CORPORATE SECRETARY
March 24, 1995
San Francisco, California
27
<PAGE>
PROXY THE CHARLES SCHWAB CORPORATION PROXY
This Proxy is Solicited on Behalf of the Board of Directors
for the Annual Meeting of Stockholders on May 8, 1995
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 8, 1995, 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>
THE CHARLES SCHWAB CORPORATION
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 Employment Agreement between The Charles Schwab Corporation
and Charles R. Schwab.
/ / FOR / / WITHHOLD / / ABSTAIN
3. Approval of the Amendments to the Annual Executive Bonus Plan.
/ / FOR / / WITHHOLD / / ABSTAIN
Dated: ,1995
-----------------------------
Signatures:
-----------------------------
----------------------------------------
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>
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 8, 1995. You may vote
according to your discretion (or that of your proxy holder) on any other 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>
(Continued from reverse side)
/X/ Please mark vote 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 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 Employment Agreement between The Charles Schwab Corporation
and Charles R. Schwab.
/ / FOR / / WITHHOLD / / ABSTAIN
3. Approval of the Amendments to the Annual Executive Bonus Plan.
/ / FOR / / WITHHOLD / / ABSTAIN
Dated: ,1995
------------------------
------------------------------
Signature
Please sign exactly as name appears hereon.
<PAGE>
[BUSINESS REPLY U.S. POSTCARD]
ANNUAL MEETING TICKET REQUEST
DEAR STOCKHOLDER:
Please provide your name and address below or call (415) 296-5153, if you plan
to attend the Annual Meeting in San Francisco on May 8, 1995, 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, 1995.
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
<PAGE>
[LOGO]
March 24, 1995
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 8, 1995.
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 4, 1995.
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) 296-5153.
Sincerely,
/s/ ED VALENCIA
Luis E. Valencia
Executive Vice President, Human Resources
<PAGE>
EXHIBIT TO PROXY STATEMENT DATED MARCH 24, 1995 AND FILED BY THE CHARLES SCHWAB
CORPORATION IN CONNECTION WITH THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
MONDAY, MAY 8, 1995
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 of the
Employment Agreement between The Charles Schwab Corporation and Charles R.
Schwab, which has been submitted to Stockholders for approval, and the Corporate
Executive Bonus Plan, amendments to which have been presented to Stockholders
for approval.
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is made and entered into as of March 31, 1995 by and between
The Charles Schwab Corporation, a Delaware Corporation (hereinafter referred to
as the "Company"), and Charles R. Schwab, an individual hereinafter referred to
as the "Executive") effective March 31, 1995.
WITNESSETH:
WHEREAS, the Company desires to reward the Executive for his continuing
contribution to the Company and provide additional security for the Executive
and to provide an inducement to the Executive to remain with the Company and not
to engage in competition with it.
NOW THEREFORE, in consideration of the mutual obligations herein contained,
the parties hereto, intending to be legally bound hereby, covenant and agree as
follows:
1. EMPLOYMENT
(a) The Company hereby employs the Executive to render services to the
Company in the positions of Chairman of the Board and Chief Executive Officer,
in the capacity defined in the By-laws of the Company, as may be amended from
time to time. The Executive shall perform such duties commensurate with his
position and shall have full authority and responsibility, subject to the
control of the Board of Directors, for the overall strategic direction,
management, and leadership of the Company.
(b) Throughout the term of this Agreement, the Executive shall devote his
full business time and undivided attention to the business and affairs of the
Company and its subsidiaries, except for reasonable vacations and except for
illness or incapacity, but nothing in the Agreement shall preclude the Executive
from devoting reasonable periods required for serving, as appropriate, on Boards
of Directors of other companies, and from engaging in charitable and public
service activities provided such activities do not materially interfere with the
performance of his duties and responsibilities under this Agreement.
2. TERM
This Agreement shall commence on March 31, 1995, and shall continue through
March 31, 2000, subject to the terms and conditions herein set forth. Beginning
on March 31, 1996, and on each subsequent anniversary of this date, one year
shall be added to the term of the Agreement, unless, prior to such anniversary,
the Company or the Executive has notified the other party hereto that such
extension will not become effective.
3. COMPENSATION
For services rendered by the Executive during the term of this Agreement, and
<PAGE>
for his performance of all additional obligations of employment, the Company
agrees to pay the Executive and the Executive agrees to accept the following
salary, other compensation, and benefits:
(a) Base Salary. During the term of this Agreement, the Company shall pay
the Executive in periodic installments, a base salary at the annual rate of
$800,000, such base salary to be reviewed on March 31, 1996, and on each
subsequent anniversary, taking into account, among other things, individual
performance, competitive practice, and general business conditions.
(b) Annual Incentive. In addition to the base salary provided in Section
3(a) above, the Executive shall be eligible to receive an annual incentive award
based upon the Company's attainment of pre-established performance targets
relative to specified performance standards. The performance standards upon
which annual incentive payments will be earned shall be defined to include
consolidated pretax profit margin (defined as net income before taxes, divided
by net revenue) and annual net revenue percentage growth of the Company.
For each fiscal year during the term of this Agreement, the Executive's
incentive opportunity shall be computed as the amount of total cash compensation
earned pursuant to the formula-based matrix, which shall be adopted each year by
the Compensation Committee of the Board of Directors of the Company, minus the
Executive's actual base salary paid during that year. For the 1995 fiscal year,
the target total annual cash compensation amount (including base salary) is
$3,500,000; therefore, the incentive target is $2,700,000 for achieving
specified pretax profit margin and revenue growth objectives.
The formula-based matrix, as amended at the sole discretion of the Board of
Directors, shall be the sole basis for determining the Executive's annual
incentive award. For each calendar year for which this Agreement is in effect,
beginning with the calendar year 1996, the interior values in the formula-based
matrix shall be increased by a fraction, based on the U.S. Consumer Price Index
(for all consumers, as published by the Bureau of Labor Statistics); provided
that no interior value shall be increased above $12 million. The fractional
increase shall be the CPI for that year divided by the CPI for calendar year
1995. The Compensation Committee of the Board shall annually review and approve
the performance standards and targets with respect to the Executive's incentive
opportunity, which review and approval shall be completed no later than the 90th
day of the Company's fiscal year for which such incentive opportunity may be
earned.
(c) Long-Term Incentive. The Executive will be considered for stock
options in accordance with the Company's 1992 Stock Incentive Plan, as amended,
or any successor thereto ("Stock Option Program") and any other long-term
incentives offered to other executives of the Company from time to time during
the term of this Agreement.
(d) Benefits. The Executive shall be entitled to participate, as long as
he is an employee of the Company, in any and all of the Company's
<PAGE>
present or future employee benefit plans, including without limitation pension
plans, thrift and savings plans, insurance plans, and other benefits that are
generally applicable to the Company's executives; provided, however, that the
accrual and/or receipt by the Executive of benefits under and pursuant to any
such present or future employee benefit plan shall be determined by the
provisions of such plan.
(e) Perquisites. The Executive will be provided such additional
perquisites as are customary for senior level executives of the Company provided
that each perquisite is approved by the Board of Directors.
(f) Business Expenses. The Executive will be reimbursed for all
reasonable expenses incurred in connection with the conduct of the Company's
business upon presentation of evidence of such expenditures, including but not
limited to travel expenses incurred by the Executive in the performance of his
duties, security for the Executive, his family, and principal residence,
professional organization dues, and club initiation fees, dues and expenses.
(g) Any annual incentive award earned by Executive under this Section 3
shall be paid as soon as reasonably practical after the end of the Company's
fiscal year end; provided, however, that if any such payment would be
nondeductible to the Company under Internal Revenue Code Section 162(m), then
any nondeductible amounts shall be deferred from year to year until the payment
of such amounts is deductible by the Company.
4. TERMINATION OF EMPLOYMENT
(a) Resignation. Notwithstanding Section 2 hereof, this Agreement may be
terminated by the Executive at any time upon six (6) months written notice of
resignation by the Executive to the Company, and in such event any payments
pursuant to Section 3 and 4 of this Agreement shall automatically terminate
(except for the Company's obligations relating to voluntary termination under
its compensation and benefit plans, as specified in the various plan documents,
and the Executive's obligations set forth in Section 5). Subsequent payments
may be made to the Executive as provided pursuant to Section 6 of this
Agreement.
(b) Termination by the Company Other Than for Cause. Termination of the
Executive by the Company other than for Cause, as defined in Section 4(c) below,
shall cause the Company to make payments to the Executive hereunder pursuant to
the provisions of this Section 4(b). Such a termination shall require at least
sixty (60) business days' prior notice and must be signed by at least
three-fourths (3/4) of all the non-employee members of the Board of Directors.
Notwithstanding anything to the contrary contained in the Stock Option Program
or any agreement or document related thereto, the Executive's total outstanding
and unvested shares and/or options under the Stock Option Plan shall at the date
of termination be deemed to be 100% vested. No further grants of stock or
options shall be made under the Plan after such termination.
<PAGE>
With respect to base salary and annual incentive compensation, the Company's
obligation shall be to pay the Executive, according to the terms of this
Agreement and for a period of thirty-six (36) months, an amount equal to the
annual salary and incentive paid to the Executive [at the bonus level for the
year prior to which such termination occurs unless performance of the Company as
defined in the matrix referenced in Section 3(b) is better in the year of
termination, in which event such bonus shall be based on the matrix calculation
as described in Section 3(b)], such annual amounts to be paid in equal monthly
installments.
During the 36-month severance payment period, the Executive shall be entitled
to all payments, benefits and perquisites as provided for in this Agreement, and
office space and secretarial support comparable to that provided to the
Executive during his employment by the Company. The Executive shall be
entitled to all payments and benefits as provided for in this Section for a
period of thirty-six (36) months.
If the Board of Directors fails to reelect the Executive to a position
comparable to that described in Section 1(a) of this Agreement or, without
terminating the Executive's employment, removes the Executive from his position
for reasons other than Cause, substantively reduces the Executive's duties and
responsibilities, reduces his pay and/or benefits, forces relocation, or
requires excessive travel, then the Executive may, by notice to the Company,
treat such action or removal as a termination of the Executive by the Company
pursuant to this Section 4(b).
In the event of the Executive's death before the completion of the payments
pursuant to this Section 4(b), the remaining payments hereunder shall be made to
the beneficiary or beneficiaries designated by the Executive to the Company in
writing or, absent such a designation, to his estate.
(c) Termination by the Company for Cause. The Company may terminate the
Executive's employment for Cause if the Executive has committed a felonious act,
or the Executive, in carrying out his duties hereunder has been willfully and
grossly negligent or has committed willful and gross misconduct resulting, in
either case, in material harm to the Company. An act or omission shall be
deemed "willful" only if done, or omitted to be done, in bad faith and without
reasonable belief that it was in the best interest of the Company. In the event
of termination of the Executive by the Company for Cause, the Executive shall no
longer be entitled to receive any payments or any other rights or benefits under
this Agreement.
(d) Disability. In the event the Executive's employment terminates due to
total and permanent disability (for the purposes of this Agreement "disability"
shall have the same meaning as applies under the Company's Long-Term Disability
Plan), he will continue to receive the same base salary and benefits which he
was receiving prior to such disability for 36 months, offset by payments under
the Company's Long-Term Disability Plan. In addition, he shall receive a
pro-rated annual incentive payment for the year in which his
<PAGE>
employment is terminated, based on the formula described in Section 3(b).
(e) Death. In the event of the death of the Executive during the term of
this Agreement, the rights and benefits under employee benefit plans and
programs of the Company, including life insurance, will be determined in
accordance with the terms and conditions of such plans and programs as in effect
on his date of death. In such event, the Company shall pay in a lump sum to the
Executive's estate an amount equal to five times the then current rate of the
Executive's base salary, and no further payments shall be required pursuant to
this Agreement.
(f) Change in Control. In the event of a change in control of the
Company, as set forth below, the Executive may at any time and in his complete
discretion during a 24-month period following a change in control, elect to
terminate his employment with the Company. For purposes of this Agreement, a
"change in control" shall mean a change in ownership of the Company that would
be required to be reported in response to Item 1(a) of a Current Report on Form
8-K pursuant to the Securities and Exchange Act of 1934 ("Exchange Act"), as in
effect on the date hereof, except that any merger, consolidation or corporate
reorganization in which the owners of the capital stock entitled to vote in the
election of directors of the Employer or the Company ("Voting Stock") prior to
said combination, own 75% or more of the resulting entity's Voting Stock shall
not be considered a change in control for the purposes of this Agreement;
provided that, without limitation, such a change in control shall be deemed to
have occurred if (i) any "person" (as that term is used in Sections 13(d) and
14(d)(2) of the Exchange Act), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company is or becomes the
beneficial owners (as that is used in Section 13(d) of the Exchange Act),
directly or indirectly, of 30% or more of the Voting Stock of the Company or its
successor; or (ii) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of Directors of the Company
("Incumbent Board") cease for any reason to constitute at least a majority
thereof; provided, however, that any person becoming a director of the Company
after the beginning of the period whose election was approved by a vote of at
least three-quarters of the directors comprising the incumbent Board shall, for
the purposes hereof, be considered as though he were a member of the incumbent
Board; or (iii) there shall occur the sale of all or substantially all of the
assets of the Company. Notwithstanding anything in the foregoing to the
contrary, no change in control of the Company shall be deemed to have occurred
for purposes of this Agreement by virtue of any transaction which results in the
Executive, or a group of persons which includes the Executive acquiring,
directly or indirectly, more than 30 percent of the combined voting power of the
Company's outstanding securities. If any of the events constituting a change in
control shall have occurred during the term hereof, the Executive shall be
entitled to the privilege provided in subparagraph (f) herein to terminate his
employment. Any termination by the Executive pursuant to this Section shall be
communicated by a written "Notice of Termination."
If, following a change in control, the Executive shall for any reason
<PAGE>
voluntarily terminate his employment during the 24-month period following a
change in control, then the Company shall pay base salary up to the date of
termination and a prorated annual incentive award based on the calculated bonus
for the year in which termination occurred, as defined in Section 3(b), in a
lump sum on the thirtieth (30th) day following the Date of Termination.
5. COVENANT NOT TO COMPETE
(a) As a material inducement to the Company's entering into this
Agreement, the Executive agrees that during the term of this Agreement, he will
not become associated with, render service to or engage in any other business
competitive with any existing or contemplated business of the Company or its
subsidiaries, except that the Executive may serve as a member of the board of
directors of other companies or organizations, provided that he provides written
notice to the Board of each significant activity, and that he will do nothing
inconsistent with his duties and responsibilities to the Company.
(b) If the Executive voluntarily resigns from the employ of the Company
prior to the expiration of the term of this Agreement, he specifically agrees
that for a period of five (5) years commencing with the date of his voluntary
resignation he will not engage in or perform any services either on a full-time
or a part-time or on a consulting or advisory basis for any business
organization that is in competition with the Company at the time such services
are being performed by Executive, with the exception that this Section 5(b)
shall not apply in the event the Executive resigns voluntarily following a
change in control of the Company as defined in Section 4(f).
(c) The Executive will not at any time, whether while employed by the
Company or after voluntary or involuntary termination or after retirement,
reveal to any person, firm or entity any trade or business secrets or
confidential, secret, or privileged information about the business of the
Company or its subsidiaries or affiliates except as shall be required in the
proper conduct of the Company's business.
6. CONSULTING ARRANGEMENT
Following a voluntary termination of employment pursuant to Section 4(a) and
4(f), or an involuntary termination subsequent to a change in control of the
Company, for any reason but during a 24-month period following a change in
control as defined in Section 4(f), after the Executive ceases to render
services as the Chief Executive Officer, he may in his sole discretion elect to
act as a consultant to the Company for a period of five (5) years. During this
period of consulting services, the Executive shall, at reasonable times and
places, taking into account any other employment or activities he may then have,
hold himself available to consult with and advise the officers, directors, and
other representatives of the Company. As compensation therefore, the Executive
shall be entitled to receive, and Company shall pay, an annual amount equal to
seventy-five percent (75%) of his annual base salary rate in effect immediately
prior to his termination of employment, but in no
<PAGE>
event an annual amount to exceed $1,000,000, for each year of such period,
payable in equal monthly installments.
7. WITHHOLDING
All amounts payable hereunder which are or may become subject to withholding
under pertinent provisions of law or regulation shall be reduced for applicable
income and/or employment taxes required to be withheld.
8. MISCELLANEOUS
(a) This Agreement supersedes any prior agreements or understandings, oral
or written, with respect to employment of the Executive and constitutes the
entire Agreement with respect thereto; provided, however, that nothing contained
herein shall supersede that certain Assignment and License Agreement entered
into as of March 31, 1987, as amended. This Agreement cannot be altered or
terminated orally and may be amended only by a subsequent written agreement
executed by both of the parties hereto or their legal representatives, and any
material amendment must be approved by a majority of the voting shareholders of
the Company.
(b) This Agreement shall be governed by and construed in accordance with
the laws of the State of California.
(c) This Agreement shall be binding upon and shall inure to the benefit of
the Company and its successors and assigns. In that this constitutes a personal
service agreement, it may not be assigned by the Executive and any attempted
assignment by the Executive in violation of this covenant shall be null and
void.
(d) For the purpose of this Agreement, the phrase "designated beneficiary
or beneficiaries" shall include the estates of such beneficiaries in the event
of their death before the receipt of all payments under this Agreement and shall
also include any alternate or successor beneficiaries designated in writing to
the Company by the Executive.
(e) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provisions, which
shall remain in full force and effect.
(f) The Section and Paragraph headings contained herein are for reference
purposes only and shall not in any way affect the meanings or interpretation of
this Agreement.
(g) Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of arbitrators in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrators award in
any court having jurisdiction. The expense of such arbitration shall be borne
by the Company.
<PAGE>
(h) Any notices, requests or other communications provided for by this
Agreement shall be sufficient if in writing and if sent by registered or
certified mail to the Executive at the last address he has filed in writing with
the Company or, in the case of the Company, at its principal offices.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
Company:
ATTEST THE CHARLES SCHWAB CORPORATION
By: /s/ Mary B. Templeton By: /s/ Luis E. Valencia
------------------------- -------------------------
Corporate Secretary
Title: Executive Vice President --
Human Resources
---------------------------
Executive: /s/ Charles R. Schwab
---------------------------
Charles R. Schwab
<PAGE>
THE CHARLES SCHWAB CORPORATION
CORPORATE EXECUTIVE BONUS PLAN
<PAGE>
THE CHARLES SCHWAB CORPORATION
CORPORATE EXECUTIVE BONUS PLAN
I. Purposes
The purposes of this Corporate Executive Bonus Plan (the "Plan") are: (a) to
provide greater incentive for key executives continually to exert their best
efforts on behalf of The Charles Schwab Corporation (the "Company") by rewarding
them for services rendered with compensation that is in addition to their
regular salaries; (b) to attract and to retain in the employ of the Company
persons of outstanding competence; and (c) to further the identity of interests
of such employees with those of the Company's shareholders through a strong
performance-based reward system.
II. Form of Awards
1. Incentive compensation awards under this Plan shall be granted in cash,
less any applicable withholding taxes.
III. Determination of Awards
1. Incentive awards for participants other than the President shall be
determined quarterly according to a Corporate Performance Payout Matrix that
shall be adopted at the beginning of each year by the Compensation Committee of
the Board of Directors (the "Committee"). The Management Committee Corporate
Performance Payout Matrix shall use net revenue growth and consolidated pretax
profit margin as the financial performance criteria to determine awards. Awards
shall be defined by reference to a target percentage of base salary determined,
from time to time, by the Committee. Payouts described in this subsection shall
be calculated and paid on a quarterly basis, based on year-to-date performance
compared with the comparable period in the preceding year.
2. With respect to payments made pursuant to Section III.1, the amount of base
salary included in the computation of incentive awards shall not exceed 250% of
the base salary in effect for the officer holding the same or substantially
similar position on March 31, 1995. In addition, the maximum target incentive
percentage shall be 100% of base salary for the Vice Chairman and 50% of base
salary for the remaining participants (other than the President), and the
maximum award for such individuals shall be 300% of the
<PAGE>
individual's target award.
3. Incentive awards for the President shall be determined in accordance with a
Corporate Performance Payout Matrix that shall be adopted at the beginning of
each year by the Committee. The Committee shall determine the President's award
each year, up to the maximum amount defined by the matrix for a given level of
performance. This matrix may, if the Committee deems appropriate, differ from
that described in Subsection III.1. However, the performance criteria shall be
the same as referred to above. Payouts for the President shall be made on an
annual basis, based on the Company's results for the full year.
4. The maximum award payable for the President under this plan shall be no
more than 500% of his target incentive award. The target incentive amount shall
be determined each year by the Committee, but may not exceed 300% of base
salary. The amount of base salary taken into account for purposes of computing
the target incentive award may not exceed 250% of the President's base salary as
of March 31, 1995.
IV. Administration
1. Except as otherwise specifically provided, the Plan shall be administered
by the Committee. The Committee members shall be appointed pursuant to the
Bylaws of the Company, and the members thereof shall be ineligible for awards
under this Plan for services performed while serving on said Committee.
2. The decision of the Committee with respect to any questions arising as to
interpretation of the Plan, including the severability of any and all of the
provisions thereof, shall be, in its sole and absolute discretion, final,
conclusive and binding.
V. Eligibility for Awards
1. Awards under the Plan may be granted by the Committee to those employees
who have contributed the most in a general way to the Company's success by their
ability, efficiency, and loyalty, consideration being given to ability to
succeed in more important managerial responsibility in the Company. This is
intended to include the President and Chief Operating Officer, Vice Chairman,
Executive Vice Presidents, and from time to time, certain other officers having
comparable positions.
No award may be granted to a member of the Company's Board of Directors except
for services performed as an employee of the Company.
<PAGE>
2. Except in the event of retirement, death, or disability, to be eligible for
an award an employee shall be employed by the Company as of the date awards are
calculated and approved by the Committee under this Plan.
3. For purposes of this Plan, the term "employee" shall include an employee of
a corporation or other business entity in which this Company shall directly or
indirectly own 50% or more of the outstanding voting stock or other ownership
interest.
VI. Awards
1. The Committee shall determine each year the payments, if any, to be made
under the Plan. Awards for any calendar year shall be granted not later than
the end of the first quarter of the calendar year, and payments pursuant to the
Plan shall be made as soon as practicable after the close of each calendar
quarter (or, in the case of the President, as soon as practicable after the
close of each calendar year).
2. Upon the granting of awards under this Plan, each participant shall be
informed of his or her award by his or her direct manager and that such award is
subject to the applicable provisions of this Plan.
VII. Deferral of Awards
1. A participant in this Plan who is also eligible to participate in The
Charles Schwab Corporation Deferred Compensation Plan may elect to defer
payments pursuant to the terms of that plan.
VIII. Recommendations and Granting of Awards
1. Recommendations for awards shall be made to the Committee by the Chief
Executive Officer and, with respect to participants other than the President and
Vice Chairman, the President.
2. Any award shall be made in the sole discretion of the Committee, which
shall take final action on any such award. No person shall have a right to an
award under this Plan until final action has been taken granting such award.
IX. Amendments and Expiration Date
While it is the present intention of the Company to grant awards annually, the
Committee reserves the right to modify this Plan from time to time or to repeal
the Plan entirely, or to direct the discontinuance of granting awards either
temporarily or permanently; provided, however, that no modification of
<PAGE>
this plan shall operate to annul, without the consent of the beneficiary, an
award already granted hereunder; provided, also, that no modification without
approval of the stockholders shall increase the maximum amount which may be
awarded as hereinabove provided.
X. Miscellaneous
All expenses and costs in connection with the operation of this Plan shall be
borne by the Company and no part thereof shall be charged against the awards
anticipated by the Plan. Nothing contained herein shall be construed as a
guarantee of continued employment of any participant hereunder. This Plan shall
be construed and governed in accordance with the laws of the State of
California.
