UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996 Commission file number 1-9700
THE CHARLES SCHWAB CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 94-3025021
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
101 Montgomery Street, San Francisco, CA 94104
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (415) 627-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
175,172,568 shares of $.01 par value Common Stock
Outstanding on November 1, 1996
<PAGE>
THE CHARLES SCHWAB CORPORATION
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 1996
Index
Page
----
Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements:
Statement of Income 1
Balance Sheet 2
Statement of Cash Flows 3
Notes 4-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-16
Part II - Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16-17
Signature 18
FORWARD-LOOKING STATEMENTS In addition to the historical information
contained throughout this interim report, there are forward-looking
statements that reflect management's expectations for the future. These
statements relate to the Company's strategy, sources of liquidity and
capital expenditures. Many factors could cause actual results to differ
materially from these statements. These factors include, but are not
limited to: management's decisions regarding the amount or timing of
anticipated investments by the Company; the effect of customer trading
patterns on Company revenues; changes in technology, which can result in
obsolescence of existing equipment and/or significant investments in new
technology; evolving industry regulation; pricing, product and service
decisions by competitors; and changes in revenue due to cyclical securities
markets and interest rates. The Company disclaims any obligation to update
its forward-looking statements.
<PAGE>
<TABLE>
Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
THE CHARLES SCHWAB CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Commissions $ 210,110 $ 206,831 $ 712,172 $ 537,023
Mutual fund service fees 80,295 58,745 224,514 156,585
Interest revenue, net of interest expense(1) 63,966 55,180 185,315 150,867
Principal transactions 57,403 51,985 192,156 148,020
Other 18,265 12,820 54,446 32,637
- -----------------------------------------------------------------------------------------------------------------
Total 430,039 385,561 1,368,603 1,025,132
- -----------------------------------------------------------------------------------------------------------------
Expenses Excluding Interest
Compensation and benefits 171,656 161,456 567,845 423,801
Communications 40,170 34,214 127,470 90,674
Occupancy and equipment 33,177 28,233 96,270 79,062
Commissions, clearance and floor brokerage 18,695 22,877 60,001 57,728
Depreciation and amortization 24,231 17,773 72,335 46,465
Advertising and market development 16,464 10,888 56,511 34,081
Professional services 10,761 10,666 34,406 26,515
Other 18,388 21,396 58,899 52,080
- -----------------------------------------------------------------------------------------------------------------
Total 333,542 307,503 1,073,737 810,406
- -----------------------------------------------------------------------------------------------------------------
Income before taxes on income 96,497 78,058 294,866 214,726
Taxes on income 39,429 30,837 120,760 84,710
- -----------------------------------------------------------------------------------------------------------------
Net Income $ 57,068 $ 47,221 $ 174,106 $ 130,016
=================================================================================================================
Weighted-average number of common and
common equivalent shares outstanding(2) 179,588 179,688 179,244 178,001
=================================================================================================================
Primary/Fully Diluted Earnings per Share $ .32 $ .26 $ .97 $ .73
=================================================================================================================
Dividends Declared per Common Share $ .05 $ .04 $ .13 $ .10
=================================================================================================================
(1) Interest revenue is presented net of interest expense. Interest expense for the three months ended
September 30, 1996 and 1995 was $107,522 and $94,039, respectively. Interest expense for the nine
months ended September 30, 1996 and 1995 was $307,683 and $260,908, respectively.
(2) Amounts shown are used to calculate primary earnings per share.
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 1 -
<PAGE>
<TABLE>
THE CHARLES SCHWAB CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
<CAPTION>
September 30, December 31,
1996 1995
---- ----
(Unaudited)
-----------
<S> <C> <C>
Assets
Cash and equivalents $ 664,585 $ 454,996
Cash and investments required to be segregated under
Federal or other regulations (including resale agreements
of $4,946,546 in 1996 and $4,409,869 in 1995) 6,219,276 5,426,619
Receivable from brokers, dealers and clearing organizations 170,496 141,916
Receivable from customers - net 4,495,467 3,946,295
Securities owned - at market value 147,965 113,522
Equipment, office facilities and property - net 289,153 243,472
Intangible assets - net 72,346 80,863
Other assets 87,917 144,325
- -------------------------------------------------------------------------------------------------------------
Total $ 12,147,205 $ 10,552,008
=============================================================================================================
Liabilities and Stockholders' Equity
Drafts payable $ 153,909 $ 212,961
Payable to brokers, dealers and clearing organizations 875,963 581,226
Payable to customers 9,692,231 8,551,996
Accrued expenses and other 316,973 326,785
Long-term debt (including current maturities) 293,965 246,146
- -------------------------------------------------------------------------------------------------------------
Total liabilities 11,333,041 9,919,114
- -------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock - 9,940,000 shares authorized; $.01 par value
per share; none issued
Common stock - 500,000,000 shares authorized in 1996 and 200,000,000
shares authorized in 1995; $.01 par value per share; 178,459,416
shares issued in 1996 and 1995 1,785 1,785
Additional paid-in capital 195,661 180,302
Retained earnings 672,006 520,532
Treasury stock - 3,108,149 shares in 1996 and 4,427,255 shares in 1995,
at cost (39,580) (50,968)
Unearned ESOP shares (5,318) (9,397)
Unamortized restricted stock compensation (8,571) (7,074)
Foreign currency translation adjustment (1,819) (2,286)
- -------------------------------------------------------------------------------------------------------------
Total stockholders' equity 814,164 632,894
- -------------------------------------------------------------------------------------------------------------
Total $ 12,147,205 $ 10,552,008
=============================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 2 -
<PAGE>
<TABLE>
THE CHARLES SCHWAB CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 174,106 $ 130,016
Noncash items included in net income:
Depreciation and amortization 72,335 46,465
Deferred income taxes (2,425) (3,310)
Other 19,703 15,275
Change in securities owned - at market value (34,443) (42,071)
Change in other assets 58,871 28,840
Change in accrued expenses and other 3,851 76,211
- ---------------------------------------------------------------------------------------------------------
Net cash provided before change in customer-related balances 291,998 251,426
- ---------------------------------------------------------------------------------------------------------
Change in customer-related balances (excluding the effects of
businesses acquired):
Payable to customers 1,137,124 1,113,323
Receivable from customers (550,237) (616,895)
Drafts payable (60,080) 36,723
Payable to brokers, dealers and clearing organizations 294,213 142,047
Receivable from brokers, dealers and clearing organizations (27,352) (19,934)
Cash and investments required to be segregated under
Federal or other regulations (789,611) (672,478)
- ---------------------------------------------------------------------------------------------------------
Net change in customer-related balances 4,057 (17,214)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 296,055 234,212
- ---------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Purchase of equipment, office facilities and property - net (110,642) (94,087)
Cash payments for businesses acquired, net of cash received (3,709) (68,113)
- ---------------------------------------------------------------------------------------------------------
Net cash used by investing activities (114,351) (162,200)
- ---------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from long-term debt 64,000 40,000
Repayment of long-term debt (16,000)
Dividends paid (22,740) (17,261)
Other 2,701 7,110
- ---------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 27,961 29,849
- ---------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and equivalents (76) (654)
- ---------------------------------------------------------------------------------------------------------
Increase in cash and equivalents 209,589 101,207
Cash and equivalents at beginning of period 454,996 401,031
- ---------------------------------------------------------------------------------------------------------
Cash and equivalents at end of period $ 664,585 $ 502,238
=========================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 3 -
<PAGE>
THE CHARLES SCHWAB CORPORATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
include The Charles Schwab Corporation (CSC) and its subsidiaries
(collectively referred to as the Company). CSC is a holding company engaged,
through its subsidiaries, in securities brokerage and related investment
services. CSC's principal operating subsidiary, Charles Schwab & Co., Inc.
(Schwab), is a securities broker-dealer with a network of 235 branch offices
and four regional customer telephone service centers. Another subsidiary,
Mayer & Schweitzer, Inc. (M&S), a market maker in Nasdaq securities, provides
trade execution services to broker-dealers, including Schwab, and
institutional customers.
These financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC) and, in the
opinion of management, reflect all adjustments necessary to present fairly
the financial position, results of operations and cash flows for the periods
presented in conformity with generally accepted accounting principles. All
adjustments were of a normal recurring nature. All material intercompany
balances and transactions have been eliminated. These financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's 1995 Annual Report to Stockholders,
which are incorporated by reference in the Company's 1995 Annual Report on
Form 10-K, and the Company's Quarterly Reports on Form 10-Q for the periods
ended March 31, 1996 and June 30, 1996.
Prior periods' financial statements have been reclassified to conform
to the 1996 presentation.
Statement of Financial Accounting Standards No. 121
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121 - Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of. The new standard
requires that long-lived assets and certain identifiable intangibles to be
held and used by or disposed of by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The adoption of the new standard
did not have an effect on the Company's financial position, results of
operations, earnings per share or cash flows.
Statement of Financial Accounting Standards No. 123
Effective January 1, 1996, the Company adopted SFAS No. 123 -
Accounting for Stock-Based Compensation. The new standard establishes
accounting and disclosure requirements using a fair value-based method of
accounting for stock-based employee compensation plans. Under the new
standard, the Company may either adopt the new fair value-based accounting
method or continue using the intrinsic value-based method under Accounting
Principles Board (APB) Opinion No. 25 and provide pro forma disclosures of
net income and earnings per share as if the accounting provision of the new
standard had been adopted. The Company elected to continue to follow APB
Opinion No. 25 and implement the disclosure requirements of the new standard.
Such adoption did not have an effect on the Company's results of operations,
earnings per share or cash flows.
Statement of Financial Accounting Standards No. 125
On June 28, 1996, the Financial Accounting Standards Board issued SFAS
No. 125 - Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, effective for transfers of financial assets
made after December 31, 1996. The new standard provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. The adoption of the new standard will not
have an effect on the Company's financial position, results of operations,
earnings per share or cash flows.
Commitments and Contingencies
In the normal course of its margin lending activities, Schwab may be
liable for the margin requirement of customer margin securities transactions.
M&S has been named as one of thirty-three defendant market-making firms
in a consolidated class action which is pending in Federal District Court in
the Southern District of New York pursuant to an order of the Judicial Panel
on Multidistrict Litigation. On December 16, 1994, the plaintiffs filed a
consolidated amended complaint purportedly on behalf of certain persons who
purchased or sold Nasdaq securities during the period May 1, 1989 through May
27, 1994. A second consolidated amended complaint was filed
- 4 -
<PAGE>
on August 22, 1995. The consolidated complaint does not set forth any
specific conduct by M&S and does not request any specific amount of damages,
although it requests that the actual damages be trebled where permitted by
statute. The consolidated complaint generally alleges an illegal
combination and conspiracy among the defendant market makers to fix and
maintain the spreads between the bid and ask prices of Nasdaq securities.
The ultimate outcome of this consolidated action cannot currently be
determined.
Between August 12, 1993 and November 17, 1995, Schwab was named as a
defendant in eleven class action lawsuits, seven of which are still pending
in state courts in Illinois, New York, Louisiana, Texas and California.
The class actions purport to be brought on behalf of customers of Schwab who
purchased or sold securities for which Schwab received payments from the
market maker, stock dealer or other third party who executed the transaction.
The complaints generally allege that Schwab failed to disclose and remit
such payments to members of the class, and generally seek damages equal to
the payments received by Schwab. On June 30, 1995, a class was certified
in Civil District Court for the Parish of Orleans in Louisiana for Louisiana
residents who purchased or sold securities through Schwab between February 1,
1985 and February 1, 1995 for which Schwab received monetary payments from
the market maker or stock dealer who executed the transaction. The class
certification was affirmed by the Louisiana Court of Appeals on February 29,
1996. On August 16, 1995, another class was certified in Civil District
Court for the Parish of Natchitoches in Louisiana for residents of all
states who purchased or sold securities through Schwab since 1985 for which
Schwab received monetary payments from the market maker or other third party
who executed the transaction. Schwab has appealed this class certification
to the Louisiana Court of Appeals. On October 17, 1996, the class action
filed in New York state court was dismissed by the New York Court of Appeals
on the ground that the claims asserted were preempted by federal law. The
ultimate outcome of the remaining actions cannot currently be determined.
There are other various lawsuits pending against the Company which,
in the opinion of management, will be resolved with no material impact on
the Company's financial position or results of operations.
Regulatory Requirements
Schwab and M&S are subject to the SEC's Uniform Net Capital Rule and each
compute net capital under the alternative method permitted by this Rule, which
requires the maintenance of minimum net capital, as defined, of the greater of
2% of aggregate debit balances arising from customer transactions or a minimum
dollar amount, which is based on the type of business conducted by the broker-
dealer. The minimum dollar amount for both Schwab and M&S is $1 million.
Under the alternative method, a broker-dealer may not repay subordinated
borrowings, pay cash dividends, or make any unsecured advances or loans to its
parent or employees if such payment would result in net capital of less than
5% of aggregate debit balances or less than 120% of its minimum dollar amount
requirement. At September 30, 1996, Schwab's net capital was $548 million
(12% of aggregate debit balances), which was $454 million in excess of its
minimum required net capital and $313 million in excess of 5% of aggregate
debit balances. At September 30, 1996, M&S' net capital was $11 million
(391% of aggregate debit balances), which was $10 million in excess of its
minimum required net capital.
Schwab and ShareLink Limited, a subsidiary of ShareLink Investment
Services plc, had portions of their cash and investments segregated for the
exclusive benefit of customers at September 30, 1996, in accordance with
applicable regulations. M&S had no such cash reserve requirement at
September 30, 1996.
Cash Flow Information
Certain information affecting the cash flows of the Company follows (in
thousands):
Nine Months
Ended
September 30,
1996 1995
---- ----
Income taxes paid $106,249 $ 61,895
======== ========
Interest paid:
Customer cash balances $266,695 $234,381
Long-term debt (including
current maturities) 16,733 11,221
Other 22,979 13,687
-------- --------
Total interest paid $306,407 $259,289
======== ========
- 5 -
<PAGE>
Subsequent Events
On November 1, 1996, the SEC declared effective CSC's registration
statement covering the issuance of up to an additional $150 million in Senior
or Senior Subordinated Medium-Term Notes, Series A, bringing the aggregate
principal amount of such notes available to be issued to $196 million.
From October 15, 1996 through November 5, 1996, the Company repurchased
and recorded as treasury stock a total of 700,000 shares of its common
stock for $17 million.
- 6 -
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The Charles Schwab Corporation (CSC) and its subsidiaries (collectively
referred to as the Company) provide brokerage and related investment services
to customers with 3.9 million active(a) accounts and assets that totaled
$231.6 billion at September 30, 1996. CSC's principal subsidiary, Charles
Schwab & Co., Inc. (Schwab), is a securities broker-dealer with a network of
235 branch offices in 46 states, the Commonwealth of Puerto Rico and the United
Kingdom. Mayer & Schweitzer, Inc. (M&S), a market maker in Nasdaq securities,
provides trade execution services to broker-dealers and institutional
customers.
The Company remains focused on achieving profitable growth within several
areas of the financial services industry - retail brokerage, mutual funds,
support services for independent investment managers, equity securities
market-making, electronic brokerage and 401(k) defined contribution plans.
The Company faces heavy competitive pressure in these areas from full
commission and discount brokerage firms, as well as from mutual fund
companies. Increasingly, competition has also come from banks, software
development companies, insurance companies and others as they expand their
product lines. The Company's strategy for increasing stockholder value while
operating in this competitive environment includes several key elements, all
of which reflect a focus on providing value to customers.
First, the Company offers a broad range of products and services at
prices that management believes represent superior value to customers. The
Company uses varying levels of discount pricing, such as with its Mutual Fund
OneSource (registered trademark) service, to enhance the value of its
products and services, and support its efforts to gain market share.
Management expects to continue aggressive use of discount pricing in the
marketing of new products and services. Second, the Company's products and
services are delivered through diverse and complementary customer service
delivery systems including the branch office network, Schwab's regional
customer telephone service centers and electronic brokerage channels.
The electronic brokerage channels include the SchwabLink (registered
trademark) service for financial advisors, TeleBroker (registered trademark) -
Schwab's touchtone telephone trading service - and PC-based online services
such as StreetSmart (registered trademark), e.Schwab (trademark) and
SchwabNOW! (trademark) - Internet trading via Schwab's World Wide Web site.
Third, the Company is broadening the ways in which it helps investors
achieve their goals by using the branch office network to assist newer
investors in developing asset allocation strategies and narrowing down their
investment choices. Branch staff are also matching investors that need
additional guidance with independent fee-based investment managers through
the Schwab AdvisorSource (trademark) service.
Another key element is the Company's ongoing investment in technology to
provide fast and consistent customer service, and reduce processing costs.
The Company is a forerunner in placing technology in the hands of customers.
A few examples include TeleBroker, e.Schwab, SchwabNOW! and VoiceBroker
(trademark). VoiceBroker was introduced in the third quarter of 1996 as the
first telephone-based service that uses voice recognition technology to
provide individual investors with real-time quotes. Finally, the Company's
nationwide advertising and marketing programs are designed to distinguish the
Schwab brand as well as the Company's products and services. Management
expects to continue to invest in these areas in order to position the
- -----
(a) Accounts with balances or activity within the preceding twelve months.
- 7 -
<PAGE>
Company for future expansion, and to enable customers to choose the type and
level of service most appropriate to their investing activity.
The Company's business, like that of other securities brokerage firms, is
directly affected by the fluctuations in securities trading volumes and price
levels that occur in fundamentally cyclical financial markets. Transaction-
based revenues continue to represent a majority of the Company's revenues.
Since these revenues are heavily influenced by fluctuations in the volume of
securities transactions, it is not unusual for the Company to experience
significant variations in quarterly revenue levels.
The Company adjusts its expenses in anticipation of and in response to
changes in financial market conditions and customer trading patterns. Certain
of the Company's expenses, including variable compensation, portions of
communications, and commissions, clearance and floor brokerage vary directly
with changes in financial performance or customer trading activity. Expenses
relating to the level of temporary employees, contractors and overtime hours,
professional services, advertising and market development, and travel and
entertainment are adjustable over the short term to help the Company achieve
its financial objectives. Additionally, developmental spending (e.g., branch
openings, product and service rollouts, and technology enhancements) is
discretionary and can be altered to reflect market conditions. However, a
significant portion of the Company's expenses such as salaries and wages,
occupancy and equipment, and depreciation and amortization do not vary
directly, at least in the short term, with fluctuations in revenue or
securities trading volumes. Given the nature of the Company's revenues
and expenses, and the environmental factors discussed above, the Company's
earnings and common stock price may be subject to significant volatility.
The Company's results for any interim period are not necessarily indicative
of results for a full year.
In addition to the historical information contained throughout this
interim report, the preceding forward-looking statements relating to the
Company's strategy, as well as those that follow concerning sources of
liquidity and capital expenditures, reflect management's expectations for the
future. Many factors could cause actual results to differ materially from
these statements. These factors include, but are not limited to:
management's decisions regarding the amount or timing of anticipated
investments by the Company; the effect of customer trading patterns on
Company revenues; changes in technology, which can result in obsolescence
of existing equipment and/or significant investments in new technology;
evolving industry regulation; pricing, product and service decisions by
competitors; and changes in revenue due to cyclical securities markets and
interest rates. The Company disclaims any obligation to update its forward-
looking statements.
Three Months Ended September 30, 1996
Compared To Three Months Ended
September 30, 1995
Summary
Net income for the third quarter of 1996 totaled $57 million, up 21%
from third quarter 1995 net income of $47 million. Earnings per share for
the third quarter of 1996 increased 23% to $.32 per share from $.26 per share
for the third quarter of 1995.
Third quarter 1996 revenues were $430 million, up 12% from $386 million
for the third quarter of 1995, mainly due to increases in asset-based
revenues such as mutual fund service fees and net interest revenue. The
Company's strategy of placing technology in the hands of customers and
providing diverse service delivery systems has facilitated growth in
electronic trading at Schwab. During the third quarter of 1996, customers
averaged a total of 31,600 trades per day through electronic brokerage
channels, an
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<PAGE>
increase of 36% from the 23,300 average trades per day for the same period
last year. Trades executed via TeleBroker (registered trademark) and
SchwabLink (registered trademark) averaged 11,500 and 8,400 per day,
respectively, during the third quarter of 1996, compared to average daily
trades of 10,900 and 5,700, respectively, for the same period last year.
Assets in customer accounts totaled $231.6 billion at September 30, 1996,
an increase of $62.0 billion, or 37%, from a year ago. Customers' equity
securities increased $23.0 billion to $93.1 billion, and customer assets in
Schwab's Mutual Fund Marketplace (registered trademark) increased $22.7
billion to $69.2 billion. In addition, customer assets in cash and money
market funds increased $9.9 billion to $45.3 billion. Schwab added 217,000
new customer accounts during the third quarter of 1996, an increase of 32%
from the 164,000 new accounts added during the third quarter of 1995.
Total operating expenses excluding interest during the third quarter of
1996 were $334 million, up 8% from $308 million for the third quarter of
1995, primarily resulting from additional staff to support the Company's
growth and expansion, as well as investments in technology and advertising.
The after-tax profit margin for the third quarter of 1996 was 13%, up
from 12% for the third quarter of 1995. The annualized return on
stockholders' equity for the third quarter of 1996 was 29%, down from 32%
for the third quarter of 1995.
Commissions
Commission revenues for the Company were $210 million for the third
quarter of 1996, up $3 million, or 2%, from the third quarter of 1995.
Schwab earns commissions when acting as an agent as opposed to principal
transaction revenues when acting as a principal or a market maker.
Commissions earned on retail agency trades, which exclude commissions
from institutional customers such as corporations and specialists, constituted
96% of Schwab's total commissions, and were $194 million for both the third
quarter of 1996 and 1995. The daily average retail agency trades were 45,000
in the third quarter of 1996, compared with 41,100 for the comparable period
in 1995. Although Schwab's customer base continued to grow and customer
accounts in general were more active, total retail agency commission revenues
were essentially unchanged due to a decline in average commission per
transaction, as detailed in the table below. Average commission per
transaction declined due to a higher proportion of trades placed through
electronic channels, which provide additional commission discounts from
Schwab's standard rates, and a decrease in the average principal
value per transaction.
- -----------------------------------------------------------------------------
Three Months
Ended
Retail Agency September 30, Percent
Commission Revenues 1996 1995 Change
- -----------------------------------------------------------------------------
Number of customer
accounts that traded (in thousands) 773 720 7%
Average transactions per account that traded 3.73 3.59 4
Total number of transactions (in thousands) 2,883 2,588 11
Average commission per transaction $67.46 $74.85 (10)
Total commission revenues (in millions) $ 194 $ 194 0
=============================================================================
Note: The above table excludes customer transactions in Schwab's Mutual Fund
OneSource (registered trademark) service.
Mutual Fund Service Fees
Mutual fund service fees increased $22 million, or 37%, to $80 million
in the third quarter of 1996 from the comparable period in 1995. The
increase was primarily attributable to significant increases in customer
assets in funds purchased through Schwab's Mutual Fund OneSource (registered
trademark) service, and customer assets in Schwab's proprietary funds,
collectively referred to as the SchwabFunds (registered trademark).
Most of these fees are earned for record keeping and shareholder services
- 9 -
<PAGE>
provided to funds in the Mutual Fund OneSource (registered trademark)
service, and for transfer agent, shareholder and investment management
services provided to proprietary money market funds.
Customer assets held by Schwab that have been purchased through the
Mutual Fund OneSource service, excluding SchwabFunds (registered trademark),
totaled $36.1 billion at September 30, 1996, compared to $21.8 billion at
September 30, 1995, a 66% increase. Customer assets invested in the
SchwabFunds increased 33% to $39.2 billion at September 30, 1996 from $29.5
billion at September 30, 1995.
Interest Revenue, Net of Interest Expense
Interest revenue, net of interest expense, increased $9 million, or 16%,
to $64 million from the prior year's third quarter as shown in the following
table (in millions):
- ---------------------------------------------------------------------------
Three Months Ended
September 30,
1996 1995
- ---------------------------------------------------------------------------
Interest Revenue
Investments, customer-related $ 76 $ 76
Margin loans to customers 87 68
Other 9 5
- ---------------------------------------------------------------------------
Total 172 149
- ---------------------------------------------------------------------------
Interest Expense
Customer cash balances 94 84
Long-term debt (including current maturities) 5 3
Other 9 7
- ---------------------------------------------------------------------------
Total 108 94
- ---------------------------------------------------------------------------
Interest Revenue, Net of Interest Expense $ 64 $ 55
===========================================================================
The increase in interest revenue, net of interest expense, from the prior
year's third quarter was primarily due to higher levels of interest-earning
assets - a $1.3 billion, or 39%, increase in average margin loans to
customers and a $.5 billion, or 10%, increase in average investment balances,
partially offset by a higher level of funding sources - a $1.6 billion, or
23%, increase in interest-bearing customer cash balances, and a decrease in
average net interest margin.
Customer-related daily average balances, interest rates and average net
interest margin for the third quarters of 1996 and 1995 are summarized in the
following table (dollars in millions):
- ---------------------------------------------------------------------------
Three Months Ended
September 30,
1996 1995
- ---------------------------------------------------------------------------
Interest-Earning Assets (customer-related):
Investments:
Average balance outstanding $5,693 $5,188
Average interest rate 5.30% 5.95%
Margin loans to customers:
Average balance outstanding $4,603 $3,306
Average interest rate 7.55% 8.31%
Average yield on interest-earning assets 6.30% 6.86%
Funding Sources (customer-related and other):
Interest-bearing customer cash balances:
Average balance outstanding $8,493 $6,891
Average interest rate 4.39% 4.95%
Other interest-bearing sources:
Average balance outstanding $ 747 $ 497
Average interest rate 4.51% 4.65%
Average noninterest-bearing portion $1,056 $1,106
Average interest rate on funding sources 3.95% 4.29%
Summary:
Average yield on interest-earning assets 6.30% 6.86%
Average interest rate on funding sources 3.95% 4.29%
- ---------------------------------------------------------------------------
Average net interest margin 2.35% 2.57%
===========================================================================
Principal Transactions
During the third quarter of 1996, principal transaction revenues
increased $5 million, or 10%, from the comparable period in 1995 to $57
million. This increase was primarily due to higher average revenue per
principal transaction from market-making activities in Nasdaq securities
handled by M&S, a significant participant in the Nasdaq market. This
increase in average revenue per principal transaction was partially offset
by a decrease in M&S' trading
- 10 -
<PAGE>
volume. Nasdaq's daily average share volume during the third quarter of 1996
was 502 million shares, of which M&S handled approximately 7%, down from 8%
during the third quarter of 1995.
During 1994, the Department of Justice (DOJ) and the Securities and
Exchange Commission (SEC) commenced investigations related to the activities
of broker-dealers, including M&S, who act as market makers in Nasdaq
securities. On July 16, 1996, M&S and twenty-three other Nasdaq market
makers entered into a Stipulation and Order resolving a civil complaint filed
by the DOJ alleging violations of the federal antitrust laws in connection with
certain customs and practices. Under the Stipulation, the parties agreed that
the defendants would not engage in certain types of market-making activities and
would take specific steps to assure compliance with the agreement. No fines or
damages were assessed. The Stipulation and Order is subject to approval by the
United States District Court of the Southern District of New York, following a
public hearing, and if that Court approves the Order, the complaint will be
dismissed. On August 8, 1996, the SEC issued a report of its investigation and
filed proceedings against the National Association of Securities Dealers, Inc.
(NASD) for allegedly failing to enforce compliance with its rules and the
federal securities laws. Simultaneously, the NASD agreed to settle the
proceedings, without admitting or denying the SEC's findings, by consenting to
a censure and to certain remedial undertakings. No market makers in Nasdaq
securities, including M&S, were named as parties in the proceedings, although
the SEC has stated that further enforcement proceedings are not precluded.
In August 1996, the SEC adopted certain new rules and rule amendments which
will alter the manner in which orders related to both Nasdaq and listed
securities will be handled. These rules are scheduled to become effective
in January 1997, and could have a material adverse impact on M&S' revenues
from principal transactions. In addition, the SEC has also issued for
comment certain proposed rules by the NASD which, if adopted, would introduce
a new system for processing orders in the Nasdaq market. The proposed NASD
rules, if adopted, and other potential regulatory actions and improvements in
technology, could impact the manner in which business is currently conducted
in the Nasdaq market. These changes in market customs and practices could
have a material adverse impact on M&S' revenues from principal transactions.
Expenses Excluding Interest
The only expense category that had a significant dollar fluctuation for
the third quarter of 1996 as compared to the third quarter of 1995 was
compensation and benefits expense as described below.
Compensation and benefits expense for the third quarter of 1996
increased $10 million, or 6%, to $172 million from the prior year's third
quarter primarily due to an increase in salaries and wages resulting from a
larger number of employees, partially offset by a decrease in variable
compensation. During the third quarters of 1996 and 1995, variable
compensation represented 24% and 28%, respectively, of total compensation and
benefits. At September 30, 1996, the Company had full-time, part-time and
temporary employees, and persons employed on a contract basis that
represented the equivalent of approximately 9,600 full-time employees,
compared to approximately 8,400 at September 30, 1995. Compensation for
temporary employees, contractors and overtime hours accounted for $19 million
and $20 million of total compensation and benefits during the third quarters of
1996 and 1995, respectively.
The Company's effective income tax rate for the third quarter of 1996
was 40.9% compared to 39.5% for the comparable period in 1995.
- 11 -
<PAGE>
Nine Months Ended September 30, 1996
Compared to Nine Months Ended
September 30, 1995
Summary
Net income for the first nine months of 1996 totaled $174 million, up
34% from the first nine months of 1995 net income of $130 million. Earnings
per share for the first nine months of 1996 increased 33% to $.97 per share
from $.73 per share for the first nine months of 1995.
Revenues for the first nine months of 1996 were $1.4 billion, up 34%
from $1.0 billion for the first nine months of 1995, due to increases in all
revenue categories primarily resulting from higher trading volume and an
increase in customer assets.
During the first nine months of 1996, customers averaged a total of
32,800 trades per day through electronic brokerage channels, an increase of
63% from the 20,100 average trades per day for the same period last year.
Trades executed via TeleBroker (registered trademark) and SchwabLink
(registered trademark) averaged 13,200 and 8,300 per day, respectively,
during the first nine months of 1996, compared to average daily trades of
9,000 and 5,400, respectively, for the same period last year.
Total operating expenses excluding interest during the first nine months
of 1996 were $1.1 billion, up 32% from $810 million for the first nine months
of 1995, primarily resulting from additional staff to support the Company's
growth and expansion, investments in technology and advertising, and higher
communications expense.
For the first nine months of both 1996 and 1995, the after-tax profit
margin and annualized return on stockholders' equity were 13% and 32%,
respectively.
Commissions
Commission revenues for the Company were $712 million for the first
nine months of 1996, up $175 million, or 33%, from the first nine months
of 1995.
Commissions earned on retail agency trades constituted 96% of Schwab's
total commissions for the first nine months of 1996 and 1995, and totaled
$667 million on a daily average retail agency trade level of 49,900 in the
first nine months of 1996, compared with commission revenues of $510 million
on a daily average retail agency trade level of 36,700 for the comparable
period in 1995.
Total retail agency commission revenues increased 31% from the first
nine months of 1995 as Schwab's customer base continued to grow and customer
accounts in general were more active. These factors were partially offset by
a decline in average commission per transaction, as detailed in the table
below. Average commission per transaction declined due to a higher
proportion of trades placed through electronic channels, which provide
additional commission discounts from Schwab's standard rates.
- -----------------------------------------------------------------------------
Nine Months
Ended
Retail Agency September 30, Percent
Commission Revenues 1996 1995 Change
- -----------------------------------------------------------------------------
Number of customer
accounts that traded (in thousands) 1,550 1,326 17%
Average transactions per account that traded 6.12 5.29 16
Total number of transactions (in thousands) 9,479 7,008 35
Average commission per transaction $70.33 $72.81 (3)
Total commission revenues (in millions) $ 667 $ 510 31
=============================================================================
Note: The above table excludes customer transactions in Schwab's Mutual Fund
OneSource (registered trademark) service.
During the first nine months of 1996, Schwab added 726,000 new customer
accounts, an increase of 43% from the 508,000 new accounts added in the first
nine months of 1995.
- 12 -
<PAGE>
Interest Revenue, Net of Interest Expense
Interest revenue, net of interest expense, increased $34 million, or 23%,
to $185 million from the prior year's first nine months as shown in the
following table (in millions):
- ---------------------------------------------------------------------------
Nine Months
Ended
September 30,
1996 1995
- ---------------------------------------------------------------------------
Interest Revenue
Investments, customer-related $ 225 $ 209
Margin loans to customers 248 188
Other 20 15
- ---------------------------------------------------------------------------
Total 493 412
- ---------------------------------------------------------------------------
Interest Expense
Customer cash balances 267 235
Long-term debt (including current maturities) 14 9
Other 27 17
- ---------------------------------------------------------------------------
Total 308 261
- ---------------------------------------------------------------------------
Interest Revenue, Net of Interest Expense $ 185 $ 151
===========================================================================
The increase in interest revenue, net of interest expense, for the first
nine months of 1996 was primarily due to higher levels of interest-earning
assets - a $1.3 billion, or 44%, increase in average margin loans to customers
and a $1.0 billion, or 20%, increase in average investment balances,
partially offset by a higher level of funding sources - a $1.8 billion, or
29%, increase in interest-bearing customer cash balances, and a decrease in
average net interest margin.
Customer-related daily average balances, interest rates and average net
interest margin for the first nine months of 1996 and 1995 are summarized in
the following table (dollars in millions):
- ---------------------------------------------------------------------------
Nine Months Ended
September 30,
1996 1995
- ---------------------------------------------------------------------------
Interest-Earning Assets (customer-related):
Investments:
Average balance outstanding $5,662 $4,701
Average interest rate 5.31% 6.00%
Margin loans to customers:
Average balance outstanding $4,371 $3,038
Average interest rate 7.58% 8.31%
Average yield on interest-earning assets 6.30% 6.91%
Funding Sources (customer-related and other):
Interest-bearing customer cash balances:
Average balance outstanding $8,122 $6,312
Average interest rate 4.39% 5.01%
Other interest-bearing sources:
Average balance outstanding $ 725 $ 446
Average interest rate 4.42% 4.51%
Average noninterest-bearing portion $1,186 $ 981
Average interest rate on funding sources 3.87% 4.35%
Summary:
Average yield on interest-earning assets 6.30% 6.91%
Average interest rate on funding sources 3.87% 4.35%
- ----------------------------------------------------------------------------
Average net interest margin 2.43% 2.56%
============================================================================
Principal Transactions
Principal transaction revenues increased $44 million, or 30%, from prior
year's first nine months to $192 million. This increase was due to higher
trading volume handled by M&S and higher revenues relating to specialist
posts.
Mutual Fund Service Fees
The change in mutual fund service fees between the nine-month periods is
generally attributable to the change described in the comparison between the
three-month periods.
Expenses Excluding Interest
Compensation and benefits expense increased $144 million, or 34%, to
$568 million from the prior year's first nine months primarily due to an
increase in salaries and wages resulting from a larger number of employees,
and an increase in variable compensation.
- 13 -
<PAGE>
Communications expense increased $37 million, or 41%, to $127 million
from the prior year's first nine months primarily due to higher trading and
call volumes, which contributed to higher telephone, financial news and
securities quotation services expenses, and postage expense. Total trades
for the first nine months of 1996 were 16 million, up 41% from the same
period last year.
Depreciation and amortization expense increased $26 million, or 56%,
to $72 million from the prior year's first nine months primarily due to
depreciation on recently acquired data processing equipment and the
amortization of related software.
Advertising and market development expense increased $22 million,
or 66%, to $57 million from the prior year's first nine months primarily
due to increased direct mail, print and media advertisements relating to
campaigns covering Mutual Fund OneSource (registered trademark).
Additionally, IRA product offerings, as well as new product and service
offerings such as e.Schwab (trademark) and the Company's rollout of the
401(k) defined contribution plan offering to corporations also contributed
to the increase.
The Company's effective income tax rate for the first nine months
of 1996 was 41.0% compared to 39.5% for the same period in 1995.
Liquidity and Capital Resources
Liquidity
Schwab
Liquidity needs relating to customer trading and margin borrowing
activities are met primarily through cash balances in customer accounts,
which totaled $9.5 billion at September 30, 1996, up 13% from the
December 31, 1995 level of $8.4 billion. Earnings from Schwab's operations
are the primary source of liquidity for capital expenditures and investments
in new services, marketing and technology. Management believes that customer
cash balances and operating earnings will continue to be the primary sources
of liquidity for Schwab in the future.
To manage Schwab's regulatory capital position, CSC provides Schwab
with a $250 million subordinated revolving credit facility maturing in
September 1998, of which $215 million was outstanding at September 30, 1996.
At quarter end, Schwab also had outstanding $25 million in fixed-rate
subordinated term loans from CSC maturing in 1998. Borrowings under these
subordinated lending arrangements qualify as regulatory capital for Schwab.
For use in its brokerage operations, Schwab maintains uncommitted
unsecured bank credit lines totaling $515 million. Schwab used such
borrowings for five days during the first nine months of 1996, with the
daily amounts borrowed averaging $52 million. These lines were unused at
September 30, 1996.
M&S
M&S' liquidity needs are generally met through earnings generated by its
operations. The majority of M&S' assets are liquid, consisting primarily of
marketable securities, receivables from brokers, dealers and clearing
organizations, and cash and equivalents. M&S may borrow up to $35 million
under a subordinated lending arrangement with CSC. At quarter end, M&S had
outstanding borrowings of $4 million under this facility. These borrowings
mature in December 1997. Borrowings under this arrangement qualify as
regulatory capital for M&S.
CSC
CSC's liquidity needs are generally met through cash generated by its
subsidiaries. Schwab and M&S are subject to regulatory requirements that are
intended to ensure the general financial soundness and liquidity of broker-
dealers. These regulations would prohibit Schwab and M&S from repaying
subordinated
- 14 -
<PAGE>
borrowings to CSC, paying cash dividends, or making any unsecured advances or
loans to their parent or employees if such payment would result in net capital
of less than 5% of their aggregate debit balances or less than 120% of their
minimum dollar amount requirement of $1 million. At September 30, 1996,
Schwab had $548 million of net capital (12% of aggregate debit balances),
which was $454 million in excess of its minimum required net capital. At
September 30, 1996, M&S had $11 million of net capital (391% of aggregate
debit balances), which was $10 million in excess of its minimum required net
capital. Management believes that funds generated by the operations of CSC's
subsidiaries will continue to be the primary funding source in meeting CSC's
liquidity needs and maintaining Schwab's and M&S' net capital.
CSC has individual liquidity needs that arise from its issued and
outstanding $288 million Senior Medium-Term Notes, Series A (Medium-Term
Notes), as well as from the funding of cash dividends, common stock
repurchases and acquisitions. The Medium-Term Notes have maturities ranging
from 1996 to 2005 and fixed interest rates ranging from 4.95% to 7.72% with
interest payable semiannually.
At September 30, 1996, $46 million in Senior or Senior Subordinated
Medium-Term Notes, Series A, remained unissued under CSC's registration
statement with respect to such securities. On November 1, 1996, the SEC
declared effective CSC's registration statement covering the issuance of up
to an additional $150 million in Senior or Senior Subordinated Medium-Term
Notes, Series A, bringing the aggregate principal amount of such notes
available to be issued to $196 million.
CSC may borrow under its $250 million committed unsecured credit
facility with a group of nine banks through June 1997. The funds are
available for general corporate purposes. CSC pays a commitment fee
on the unused balance. The terms of this facility require CSC to maintain
a minimum level of stockholders' equity and Schwab and M&S to maintain
minimum levels of net capital, as defined. This facility has never been
used.
See "Commitments and Contingencies" note in Part I - Financial
Information, Item 1., Notes to Condensed Consolidated Financial Statements.
Cash Flows and Capital Resources
Net income plus depreciation and amortization was $246 million for the
first nine months of 1996, up 40% from $176 million for the first nine months
of 1995. During the first nine months of 1996, the Company invested $111
million in various capital expenditures, including $43 million for an office
building to be used for the expansion of its operations and $68 million for
equipment and office facilities relating to the continued enhancement of data
processing and telecommunications systems and the opening of nine new branch
offices. As has been the case recently, capital expenditures will vary from
period to period as business conditions change.
The Company issued $64 million and repaid $16 million in Medium-Term Notes
during the first nine months of 1996.
From October 15, 1996 through November 5, 1996, the Company repurchased
and recorded as treasury stock a total of 700,000 shares of its common stock
for $17 million. Currently, authorization granted by the Company's Board of
Directors allows for the repurchase of an additional 200,000 shares.
During the first nine months of 1996, the Company paid common stock cash
dividends totaling $23 million, up from $17 million paid during the first nine
months of 1995. In July 1996, the Board of Directors increased the quarterly
cash dividend from $.04 per share to $.05 per share.
The Company monitors both the relative composition and absolute level of
its financial capital. The Company's stockholders' equity at September 30,
1996 totaled $814 million. In
- 15 -
<PAGE>
addition, the Company had long-term debt (including current maturities) of
$294 million that bears interest at a weighted-average rate of 6.39%. These
borrowings, together with the Company's equity, provided total financial
capital of $1.1 billion at September 30, 1996, up $229 million, or 26% from
the December 31, 1995 level of $879 million.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The legal proceedings discussed in Notes to Condensed Consolidated
Financial Statements, under "Commitments and Contingencies" in Part I -
Financial Information, Item 1., as well as in "Principal Transactions"
in Management's Discussion and Analysis in Part I, Item 2., are
incorporated herein by reference.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Mr. James R. Harvey, who had been a member of the Company's Board of
Directors since 1989, passed away on June 6, 1996. On October 24, 1996,
Mr. Frank C. Herringer was elected to the Company's Board of Directors to
fill the vacancy created by Mr. Harvey's death. Mr. Herringer will be
considered for re-election by the stockholders at the 1999 Annual Meeting,
along with the other directors holding three-year terms.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this quarterly report on
Form 10-Q.
- ----------------------------------------------------------------------------
Exhibit
Number Exhibit
- ----------------------------------------------------------------------------
3.7 Third Restated Certificate of Incorporation, as amended on
May 6, 1996, of the Registrant.
3.8 Second Restated Bylaws, as amended on July 17, 1996, of the
Registrant.
10.159 The Charles Schwab Corporation Executive Officer Stock Option
Plan (1987), as amended September 17, 1996, with form of
Non-Qualified Stock Option Agreement (Executive Officer Stock
Option Plan (1987)) attached (supersedes Exhibit 10.9 to
Registrant's Registration Statement No. 33-16192 on Form S-1).
10.160 The Charles Schwab Corporation 1987 Stock Option Plan, as
amended September 17, 1996, with form of Non-Qualified Stock
Option Agreement (General Management Plan) attached (supersedes
Exhibit 4.1 to Registrant's Registration Statement No. 33-21582
on Form S-8).
10.161 The Charles Schwab Corporation 1992 Stock Incentive Plan, as
amended September 17, 1996 (supersedes Exhibit 10.141
to Registrant's Form 10-Q for the quarter ended
September 30, 1994).
10.162 The Charles Schwab Corporation Deferred Compensation Plan, as
amended September 17, 1996 (supersedes Exhibit 10.142 to
Registrant's Form 10-Q for the quarter ended September 30, 1994).
11.1 Computation of Earnings per Share.
12.1 Computation of Ratio of Earnings to Fixed Charges.
27.1 Financial Data Schedule (electronic only).
- ----------------------------------------------------------------------------
- 16 -
<PAGE>
(b) Reports on Form 8-K
On November 8, 1996, the Registrant filed a Current Report on Form 8-K
relating to up to $196 million aggregate principal amount of debt
securities issuable by the Registrant pursuant to Registration Statement
Numbers 333-12727 and 33-61943 declared effective by the SEC on
November 1, 1996 and August 18, 1995, respectively. Certain exhibits
relating to Medium-Term Notes, Series A, issuable pursuant to the
Registration Statements are contained in the Current Report.
- 17 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE CHARLES SCHWAB CORPORATION
(Registrant)
Date: November 13, 1996 /s/ Steven L. Scheid
-------------------- -------------------------------
Steven L. Scheid
Executive Vice President and
Chief Financial Officer
- 18 -
<PAGE>
EXHIBIT 3.7
THIRD RESTATED CERTIFICATE OF INCORPORATION
OF
THE CHARLES SCHWAB CORPORATION
(Originally incorporated on November 25, 1986,
under the name CL Acquisition Corporation)
FIRST. The name of this corporation (hereinafter called the
"Corporation") is THE CHARLES SCHWAB CORPORATION.
SECOND. The address of the registered office of this Corporation in
the State of Delaware is 1209 Orange Street, in the City of Wilmington, County
of New Castle, and its registered agent at that address is THE CORPORATION
TRUST COMPANY.
THIRD. The purpose of this Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH.
(A) This Corporation is authorized to issue two classes of stock,
preferred stock and common stock. The authorized number of shares of capital
stock is Five Hundred Nine Million, Nine Hundred Forty Thousand (509,940,000)
shares, of which the authorized number of shares of preferred stock is Nine
Million, Nine Hundred Forty Thousand (9,940,000) and the authorized number
of shares of common stock is Five Hundred Million (500,000,000). The stock,
whether preferred stock or common stock, shall have a par value of one cent
($0.01) per share.
(B) Shares of preferred stock may be issued from time to time in one
or more series. The Board of Directors of this Corporation is hereby
authorized to fix or alter the voting rights, powers, preferences and
privileges, and the relative, participating, optional or other rights, if any,
and the qualifications, limitations or restrictions thereof, of any wholly
unissued series of preferred stock; and to fix the number of shares
constituting any such series and the designation thereof; and to increase or
decrease the number of shares of any series of preferred stock (but not
below the number of shares thereof then outstanding).
FIFTH. The Bylaws of the Corporation may be made, altered, amended, or
repealed, and new Bylaws may be adopted, by the Board of Directors at any
regular or special meeting by the affirmative vote of a majority of those
directors present at any meeting of the directors; subject, however, to the
right of the stockholders to alter, amend or repeal any Bylaws made or
amended by the directors. Notwithstanding the foregoing, after the 1996 Annual
Meeting of Stockholders, Sections 2.06, 2.10, 3.02, 3.05, 3.06 and 8.04 of
the Corporation's Bylaws may not be amended, altered or repealed, nor may any
provision inconsistent with such Sections be adopted, except by the
affirmative vote of the holders of no less than 80% of the total voting power
of all shares of the Corporation entitled to vote generally in the election
of directors, voting together as a single class.
SIXTH.
(A) Number, Election and Terms. Except as otherwise fixed by or
pursuant to the provisions of Article FOURTH hereof relating to the rights of
the holders of any class or series of stock having a preference over the
Common Stock as to dividends or upon liquidation to elect, additional directors
under specified circumstances, the number of the directors of the Board of
the Corporation shall be fixed from time to time exclusively pursuant to a
resolution adopted by a majority of the total number of directors which the
Corporation would have if there were no vacancies. Commencing with the 1996
annual meeting of stockholders, the directors, other than those who may be
elected by the holders of any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation, shall be classified,
with respect to the time for which they severally hold office, into three
classes, as nearly equal in number as is reasonably possible, one class to be
originally elected for a term expiring at the annual meeting of stockholders
to be held in 1997, the second class to be originally elected for a term
expiring at the annual meeting of stockholders to be held in 1998, and the
third class to be originally elected for a term expiring at the annual meeting
of stockholders to be held in 1999, with each director to hold office until
his or her successor is duly elected and qualified. At each annual meeting
of the stockholders of the Corporation, commencing with the 1997 annual
meeting, the successors of the class of directors whose term expires at that
meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election, with each director to hold office until his or her director shall
have been duly elected and qualified.
(B) Stockholder nomination of director candidates. Advance notice of
stockholder nominations for the election of directors shall be given in the
manner provided in the Bylaws of the Corporation.
(C) Vacancies. Subject to applicable law and except as otherwise
provided for or fixed by or pursuant to the provisions of Article FOURTH hereof
relating to the rights of the holders of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation to elect
directors under specified circumstances, and unless the Board of Directors
otherwise determines, vacancies resulting from death, resignation, retirement,
disqualification, removal from office or other cause, and newly created
directorships resulting from any increase in the authorized number of
directors, may be filled only by the affirmative vote of a majority of the
remaining directors, though less than a quorum of the Board of Directors, and
directors so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of office of the class to which they have
been elected expires and until such director's successor shall have been duly
elected and qualified. No decrease in the number of authorized directors
constituting the Board of Directors of the Corporation shall shorten the term
of any incumbent director.
(D) Removal. Subject to the rights of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation
to elect directors under specified circumstances, any director may be
removed from office at any time, but only for cause and only by the
affirmative vote of the holders of 80% of the combined voting power of the then
outstanding shares of stock entitled to vote generally in the election of
directors, voting together as a single class.
SEVENTH. Elections of directors shall be by written ballot.
EIGHTH. No director of this Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director. Notwithstanding the foregoing sentence, a
director shall be liable to the extent provided by applicable law (i) for any
breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) pursuant to Section
174 of the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit. No
amendment to or repeal of this Article EIGHTH shall apply to or have any
effect on the liability or alleged liability of any director of the Corporation
for or with respect to any acts or omissions of such director occurring prior
to such amendment or repeal.
NINTH. No stockholder shall be entitled to cumulate votes (i.e., cast
for any nominee for election to the Board of Directors of the Corporation
a number of votes greater than the number of the stockholder's shares).
TENTH.
(A) In addition to any affirmative vote required by law, by this
Restated Certificate of Incorporation, by a certificate filed under Section
151(g) of the General Corporation Law of the State of Delaware, or by the
Bylaws, and except as otherwise expressly permitted in paragraph (B) of this
Article TENTH, a Business Combination (as hereafter defined) with, for, or
on behalf of, any Interested Stockholder (as hereafter defined) or any
Affiliate or Associate (as hereafter defined) of such Interested Stockholder
shall require the affirmative vote of at least 80% of the votes entitled to
be cast by the holders of all the then outstanding Voting Stock (as hereafter
defined), voting together as a single class. Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that a
lesser percentage of a separate class vote may otherwise be specified, by
law or by any agreement between this Corporation and any national securities
exchange or otherwise.
(B) The provisions of paragraph (A) of this Article TENTH shall not
be applicable to any particular Business Combination, and such Business
Combination shall require only such vote, if any, as is required by law, or by
any other provisions of this Restated Certificate of Incorporation, or by a
certificate filed under Section 151(g) of the General Corporation Laws of
the State of Delaware, or by the Bylaws, or by any agreement between this
Corporation and any national securities exchange if (i) such Business
Combination shall have been specifically approved by a majority of the
Disinterested Directors (as hereafter defined) at the time or (ii) all the
conditions specified in each of the following subparagraphs (1), (2), (3),
(4), (5) and (6) are satisfied.
(1) The aggregate amount of cash and the Fair Market Value (as
hereafter defined) as of the Consummation Date (as hereafter defined) of any
consideration other than cash to be received per share by holders of Voting
Stock in such Business Combination, shall be at least equal to the highest
amount determined under clauses (a) and (b) below:
(a) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid by
or on behalf of such Interested Stockholder for any share of Voting Stock in
connection with the acquisition by the Interested Stockholder of Beneficial
Ownership (as hereafter defined) of shares of Voting Stock (i) within the
five-year period immediately prior to the Announcement Date (as hereafter
defined) or (ii) in the transaction or series of transactions in which it
became an Interested Stockholder, whichever is higher, in either case
adjusted for any subsequent stock split, stock dividend, subdivision or
reclassification with respect to Voting Stock; or
(b) the Fair Market Value per share of Voting Stock on the
Announcement Date or the Determination Date (as hereafter defined), whichever
is higher, as adjusted for any subsequent stock split, stock dividend,
subdivision or reclassification with respect to Voting Stock.
(2) The consideration to be received by holders of a particular
class of series of outstanding Voting Stock shall be in cash or in the same
form as previously has been paid by or on behalf of the Interested
Stockholder in connection with its direct or indirect acquisition of
Beneficial Ownership of shares of such class or series of Voting Stock. If
the consideration so paid for share of any class or series of Voting Stock
varied as to form, the form of consideration for such class or series of Voting
Stock shall either be cash or the form used to acquire Beneficial Ownership
of the largest number of shares of such class or series of Voting Stock
acquired by the Interested Stockholder during the five-year period prior to
the Announcement Date. If non-cash consideration is to be paid, the Fair
Market Value of such non-cash consideration shall be determined on and as of
the Consummation Date.
(3) After the Determination Date and prior to the Consummation Date
there shall have been (a) no failure to declare and pay at the regular date
therefor any full quarterly dividends (whether or not cumulative) payable in
accordance with the terms of any outstanding Voting Stock; (b) no reduction in
the annual rate of dividends paid on the Voting Stock (except as necessary
to reflect any split or subdivision of the Voting Stock), except as approved
by a majority of the Disinterested Directors; (c) an increase in such annual
rate of dividends (as necessary to prevent any such reduction) in the event
of any reclassification (including any reverse stock split or combination of
shares), recapitalization, reorganization or any similar transaction that has
the effect of reducing the number of outstanding shares of the Voting Stock,
unless the failure so to increase such annual rate is approved by a majority of
the Disinterested Directors; and (d) no transaction by which such Interested
Stockholder has become the Beneficial Owner of any additional shares of Voting
Stock except as part of the transaction that results in the Interested
Stockholder becoming an Interested Stockholder and except in a transaction
that, after giving effect thereto, would not result in any increase in the
Interested Stockholder's percentage Beneficial Ownership of any class or series
of Voting Stock.
(4) After the Determination Date, such Interest Stockholder shall
not have received the benefit, directly or indirectly (except as a
stockholder of this Corporation, in proportion to its stockholding), of any
loans, advances, guarantees or similar financial assistance or any tax credits
or tax advantages provided by this Corporation (collectively, "Financial
Assistance"), whether in anticipation of or in connection with such Business
Combination or otherwise.
(5) A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities Exchange
Act of 1934 and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations) shall be mailed to
stockholders of the Corporation at least 30 days prior to the consummation of
such Business Combination (whether or not such proxy or information statement
is required to be mailed pursuant to such Act, rules or regulations, or
subsequent provisions). The proxy or information statement shall contain on
the first page thereof, in a prominent location, any statement as to the
advisability or inadvisability of the Business Combination that the
Disinterested Directors, or any of them, may desire to make, and, if deemed
advisable by a majority of the Disinterested Directors, the proxy or
information statement shall contain the opinion of an independent investment
banking firm selected by a majority of the Disinterested Directors as to the
fairness or lack of fairness of the terms of the Business Combination from a
financial point of view to the holders of the outstanding shares of Voting
Stock other than the Interested Stockholder and its Affiliates or Associates,
such investment banking firm to be paid a reasonable fee for its services by
this Corporation.
(6) Such Interested Stockholder shall not have made any major
change in this Corporation's business or equity capital structure without the
approval of a majority of the Disinterested Directors.
(C) The following definitions shall apply with respect to this
Article TENTH:
(1) The terms "Affiliate" and "Associate" shall have the respective
meanings ascribed to those terms in Rule 12b-2 under the Securities Exchange
Act of 1934, as amended, and as in effect on the date that this provision of
the Restated Certificate of Incorporation of this Corporation is approved
by the stockholders (the term "registrant" in said Rule 12b-2 meaning in
this case the Corporation).
(2) The term "Announcement Date" with respect to any Business
Combination means the date of the first public announcement of the proposal of
such Business Combination.
(3) A person shall be a "Beneficial Owner" of, or have "Beneficial
Ownership" of, or "Beneficially Own," any Voting Stock over which such
person or any of its Affiliates or Associates, directly or indirectly,
through any contract, arrangement, understanding or relationship, has or
shares or, upon the exercise of any conversion right, exchange right,
warrant, option or similar interest (whether or not then exercisable) would
have or share, either (a) voting power (including the power to vote or to
direct the voting) of such security or (b) investment power (including the
power to dispose or direct the disposition) of such security. For the
purposes of determining whether a person is an Interested Stockholder, the
number of shares of Voting Stock deemed to be outstanding shall include any
shares Beneficially Owned by such person even though not actually
outstanding, but shall not include any other shares of Voting Stock which
are not outstanding but which may be issuable to other persons pursuant to
any agreement, arrangement or understanding, or upon exercise of any
conversion right, exchange right, warrant, option or similar interest.
(4) The term "Business Combination" shall mean:
(a) any merger or consolidation of this Corporation or any
Subsidiary (as hereafter defined) with (i) any Interested Stockholder (as
hereafter defined) or (ii) any other corporation (whether or not itself an
Interested Stockholder) which after such merger or consolidation would be an
Affiliate or Associate of an Interested Stockholder; or
(b) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition on or security agreement, investment, loan, advance, guarantee,
agreement to purchase, agreement to pay, extension of credit, joint venture
participation or other arrangement (in one transaction or a series of related
transactions) with or for the benefit of any Interested Stockholder or any
Affiliate or Associate of any Interested Stockholder, involving any assets,
securities, or commitments of this Corporation, any Subsidiary or any
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder which, together with all other such arrangements (including all
contemplated future events) have an aggregate Fair Market Value as hereafter
defined) and/or involve aggregate commitments of $5,000,000 or more; or
(c) the issuance or transfer by this Corporation or any Subsidiary
(in one transaction or a series of related transactions) to an Interested
Stockholder or Associate or Affiliate of an Interested Stockholder of any
securities of this Corporation or any Subsidiary in exchange for cash,
securities or other property (or a combination thereof) having an aggregate
Fair Market Value as of the Announcement Date of $5,000,000 or more, other than
the issuance of securities upon the conversion or exchange of securities of
this Corporation or in exchange for securities of any Subsidiary which were
acquired by an Interested Stockholder from this Corporation or a Subsidiary
in a Business Combination which was approved by a vote of the shareholders
pursuant to this Article TENTH; or
(d) the adoption of any plan or proposal for the liquidation or
dissolution of this Corporation; or
(e) any reclassification of any securities of this Corporation
(including any reverse stock split), any recapitalization of the Voting Stock
of this Corporation, any merger or consolidation of this Corporation with
or into any of its Subsidiaries, or any other transaction (whether or not with
or otherwise involving any Interested Stockholder) that has the effect,
directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of Voting Stock or series thereof of the
Corporation or of any Subsidiary Beneficially Owned by any Interested
Stockholder or Associate or Affiliate of any Interested Stockholder or as a
result of which the stockholders of the Corporation would cease to be
stockholders of a corporation having, as part of its certificate of
incorporation, provisions to the same effect as this Article TENTH and the
provisions of Article ELEVENTH of this Restated Certificate of Incorporation
relating to the provisions of this Article TENTH; or
(f) any agreement, contract, or other arrangement providing for one or
more of the actions specified in the foregoing paragraphs (a) through (e),
or any series of transactions which, if taken together, would constitute one
or more of the actions specified in the foregoing paragraphs (a) through (e).
(5) The term "Consummation Date" means the date of the consummation
of a Business Combination.
(6) The term "Determination Date" in respect to an Interested
Stockholder means the date on which such Interested Stockholder first became an
Interested Stockholder.
(7) The term "Disinterested Director" with respect to a Business
Combination means any member of the Board of Directors of this Corporation who
(a) is not an Interested Stockholder involved in such Business Combination;
(b) is not an Affiliate or Associate of such Interested Stockholder;
(c) is not a party to any agreement or arrangement with such Interested
Stockholder to act in concert with such Interested Stockholder to direct the
management or policies of this Corporation; and (d) either (i) was a member
of the Board of Directors prior to the time that such Interested Stockholder
became an Interested Stockholder, or (ii) is a successor of a Disinterested
Director and was nominated to succeed a Disinterested Director by a majority
of the Disinterested Directors at the time of his nomination; provided,
however, that any member of the Board of Directors may be a Disinterested
Director with respect to a Business Combination involving an Interested
Stockholder who was an Interested Stockholder on the date that the second
Restated Certificate of Incorporation of this Corporation filed by the
Secretary of State of the State of Delaware was so filed, notwithstanding the
failure of such member to satisfy the conditions set forth in clause (d)
above. Any reference to "Distinterested Directors" shall refer to a single
Disinterested Director if there be but one. Any matter referred to as
requiring approval of, or having been approved by, a majority of the
Disinterested Directors shall mean the matter requires the approval of, or
has been approved by, the Board of Directors of this Corporation without giving
effect to the vote of any Director who is not a Disinterested Director and
with the affirmative vote of a majority of the Disinterested Directors."
(8) The term "Fair Market Value" as of any particular date means:
(a) in the case of cash, the amount of such cash; (b) in the case of stock
(including Voting Stock), the highest closing price per share of such stock
during the thirty-day period immediately preceding the date in question on the
largest United States securities exchange registered under the Securities
Exchange Act of 1934, as amended, on which such stock is listed or, if such
stock is not listed on any such exchange, the highest last sales price as
reported by the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ") during the thirty-day period immediately
preceding the date in question if the stock is a National Market System
security or, if such stock is not a National Market System security, the
highest reported closing bid quotation for a share of such stock during the
thirty-day period preceding the date in question on NASDAQ or any successor
quotation reporting system or, if quotations are not available in such
system, as furnished by the National Quotation Bureau Incorporated or any
similar organization furnishing quotations, or if no such quotations are
available, the fair market value on the date in question of a share of such
stock as determined by a majority of the Disinterested Directors in good faith;
and (c) in the case of stock of any class or series which is not traded on
any securities exchange or in the over-the-counter market, or in the case of
property other than cash or stock, or in the case of Financial Assistance,
the fair market value of such stock, property or Financial Assistance, as the
case may be, on the date in question as determined by a majority of the
Disinterested Directors in good faith.
(9) The term "Interested Stockholder" shall mean any person, other
than this Corporation, any Subsidiary or any employee benefit plan of this
Corporation or any Subsidiary, who or which:
(a) is, or has announced or publicly disclosed a plan or intention
to become, the Beneficial Owner, directly or indirectly, of shares of
Voting Stock representing 15% or more of the total votes which all of the then-
outstanding shares of Voting Stock are entitled to cast in the election of
directors; or
(b) is an Affiliate or Associate of any person described in
Subparagraph 9(a) at any time during the five-year period immediately
preceding the date in question; or
(c) acts with any other person as a partnership, limited
partnership, syndicate, or other group for the purpose of acquiring, holding
or disposing of securities of this Corporation, and such group is the
Beneficial Owner, directly or indirectly, of shares of Voting Stock
representing 15% or more of the total votes which all of the then-outstanding
share of Voting Stock are entitled to cast in the election of directors.
Any reference to a particular Interested Stockholder involved in a
Business Combination shall also refer to any Affiliate or Associate thereof,
any predecessor thereto and any other person acting as a member of a
partnership, limited partnership, syndicate group with such particular
Interested Stockholder within the meaning of the foregoing clause (c) of
this subparagraph (9).
(10) A "person" shall mean any individual, firm, company,
corporation, (which shall include a business trust), partnership, joint
venture, trust or estate, association or other entity.
(11) The term "Subsidiary" in respect of this Corporation means any
corporation or partnership of which a majority of any class of its equity
securities is owned, directly or indirectly, by this Corporation.
(12) The term "Voting Stock" shall mean all shares of capital stock
that entitle the holder to vote for the election of directors, including,
without limitation, this Corporation's common stock.
(D) A majority of the Disinterested Directors shall have the power
and duty to determine, on the basis of information known to them after
reasonably inquiry, all facts necessary to determine compliance with this
Article TENTH, including, without limitation (1) whether a person is an
Interested Stockholder, (2) the number of shares of Voting Stock Beneficially
Owned by any person, (3) whether a person is an Affiliate or Associate of
another person, (4) whether the requirements of paragraph (B) of this Article
TENTH have been met with respect to any Business Combination, (5) whether the
proposed transaction is with, or proposed by, or on behalf of an Interested
Stockholder or an Affiliate or Associate of an Interested Stockholder, and
(6) whether the assets which are the subject of any Business Combination
have, or the consideration to be received for the issuance or transfer of
securities by this Corporation or any Subsidiary in any Business Combination
has, an aggregate Fair Market Value of $5,000,000 or more. The good faith
determination of a majority of the Disinterested Directors on such matters
shall be conclusive and binding for all purposes of this Article TENTH.
(E) Nothing contained in this Article TENTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
(F) The fact that any Business Combination complies with paragraph
(B) of this Article TENTH shall not be construed to impose any fiduciary duty,
obligation or responsibility on the Board of Directors, or any member thereof,
to approve such Business Combination or recommend its adoption or approval to
the stockholders of this Corporation, nor shall such compliance limit,
prohibit or otherwise restrict in any manner the Board, or any member
thereof, with respect to evaluations of or actions and responses taken with
respect to such Business Combination.
(G) For purposes of this Article TENTH, a Business Combination or
any proposal to amend, repeal or adopt any provision of this Restated
Certificate of Incorporation inconsistent with this Article TENTH
(collectively, "Proposed Action") is presumed to have been proposed by, or on
behalf of, an Interested Stockholder or an Affiliate or Associate of an
Interested Stockholder or a person who thereafter would become such if
(1) after the Interested Stockholder became such, the Proposed Action is
proposed following the election of any director of this Corporation who,
with respect to such Interested Stockholder, would not qualify to serve as a
Disinterested Director or (2) such Interested Stockholder, Affiliate,
Associate or person votes for or consents to the adoption of any such Proposed
Action, unless as to such Interested Stockholder, Affiliate, Associate or
person, a majority of the Disinterested Directors makes a good faith
determination that such Proposed Action is not proposed by or on behalf of
such Interested Stockholder, Affiliate, Associate or person, based on
information known to them after reasonably inquiry.
ELEVENTH. Except as otherwise fixed by or pursuant to the provisions
of Article FOURTH hereof relating to the rights of holders of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation with respect to such class or series of stock, any action
required or permitted to be taken by the stockholders of the Corporation
must be effected at a duly called annual or special meeting of such holders and
may not be effected by any consent in writing by such stockholders.
TWELFTH.
(A) This Corporation reserves the right at any time and from time
to time to amend, alter, change or repeal any provisions contained herein, and
other provisions authorized by the laws of the State of Delaware at the time
in force may be added or inserted, in the manner now or hereafter prescribed by
law, and all rights, preferences, and privileges of whatsoever nature
conferred upon shareholders, directors, or any other person whomsoever by or
pursuant to the Restated Certificate of Incorporation in its present form or
as hereafter are granted, subject to the rights reserved in this Article
TWELFTH.
(B) In addition to any requirements of law and any other provisions
hereof (and notwithstanding the fact that approval by a lesser vote may be
permitted by law or any other provision hereof), the affirmative vote of the
holders of 80% or more of the combined voting power of the then-outstanding
shares of Voting Stock, voting together as a single class, shall be required
to amend, alter or repeal, or adopt any provision inconsistent with, this
Article TWELFTH or Articles FIFTH, SIXTH, NINTH, TENTH and ELEVENTH
hereof.
This Third Restated Certificate of Incorporation of The Charles Schwab
Corporation amends and restates the prior Certificate of Incorporation of The
Charles Schwab Corporation pursuant to Sections 242 and 245 of the Delaware
Corporation Law.
/s/ Cynthia K. Holbrook
Cynthia K. Holbrook
Assistant Corporate Secretary
EXHIBIT 3.8
SECOND RESTATED BYLAWS OF
THE CHARLES SCHWAB CORPORATION
ARTICLE I
OFFICES
Section 1.01. Registered Office. The registered office of The Charles
Schwab Corporation (the "Corporation") in the State of Delaware shall be at
1209 Orange Street, Wilmington, Delaware, and the name of the registered
agent at that address shall be the Corporation Trust Company.
Section 1.02. Principal Office. The principal office for the
transaction of the business of the Corporation shall be at 101 Montgomery
Street, San Francisco, California. The Board of Directors (hereafter called
the "Board") is hereby granted full power and authority to change said
principal office from one location to another.
Section 1.03. Other Offices. The Corporation may also have an
office or offices at such other place or places, either within or without
the State of Delaware, as the Board may from time to time determine or as
the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.01. Annual Meetings. Annual meetings of the stockholders
of the Corporation for the purpose of electing directors and for the
transaction of such other proper business as may come before such meetings
shall be held each year on a date and at a time designated by the Board.
Section 2.02. Special Meetings. Special meetings of the
stockholders for any purpose or purposes may be called by the Chairman of the
Board, the Board or a committee of the Board which has been duly designated
by the Board and whose powers and authority, as provided in a resolution of
the Board or in these Bylaws, include the power to call such meetings.
Unless otherwise prescribed by statute, the Certificate of Incorporation or
these Bylaws, special meetings may not be called by any other person or
persons. No business may be transacted at any special meeting of stockholders
other than such business as may be designated in the notice calling such
meeting.
Section 2.03. Place of Meeting. The Board of Directors, the
Chairman of the Board, or a committee of the Board, as the case may be, may
designate the place of meeting for any annual meeting or for any special
meeting of the stockholders called by the Board of Directors, the Chairman of
the Board, or a committee of the Board. If no designation is so made, the
place of meeting shall be the principal office of the Corporation.
Section 2.04. Notice of Meeting. Written or printed notice,
stating the place, day and hour of the meeting and the purpose or purposes for
which the meeting is called, shall be delivered by the Corporation not less
than ten (10) days nor more than sixty (60) days before the date of the
meeting, either personally or by mail, to each stockholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to
be delivered when deposited in the United States mail with postage thereon
prepaid, addressed to the stockholder at his address as it appears on the stock
transfer books of the Corporation. Such further notice shall be given as
may be required by law. Only such business shall be conducted at a special
meeting of stockholders as shall have been brought before the meeting pursuant
to the Corporation's notice of meeting. Meetings may be held without notice
if all stockholders entitled to vote are present, or if notice is waived by
those not present in accordance with Section 8.02 of these Bylaws. Any
previously scheduled meeting of the stockholders may be postponed, and (unless
the Certificate of Incorporation otherwise provides) any special meeting of
the stockholders may be canceled, by resolution of the Board upon public notice
given prior to the date previously scheduled for such meeting of stockholders.
Section 2.05. Quorum and Adjournment. Except in the case of any
meeting for the election of directors summarily ordered as provided by law, the
holders of record of a majority in voting interest of the shares of stock of
the Corporation entitled to be voted thereat, present in person or by proxy,
shall constitute a quorum for the transaction of business at any meeting of
the stockholders of the Corporation or any adjournment thereof. Where a
separate vote by a class or classes is required, a majority of the
outstanding shares of such class or classes, present in person or represented
by proxy, shall constitute a quorum entitled to take action with respect to
that vote on that matter and the affirmative vote of the majority of the
shares of such class or classes present in person or represented by proxy
at the meeting shall be the act of such class. In the absence of a forum at
any meeting or any adjournment thereof, a majority in voting interest of the
shareholders present in person or by proxy and entitled to vote thereat or, in
the absence therefrom of all stockholders, any officer entitled to preside
at, or to act as secretary of such meeting may adjourn such meeting from
time to time. The Chairman of the meeting or a majority of the shares so
represented may adjourn the meeting from time to time, whether or not there
is such a quorum. No notice of the time and place of adjourned meetings need
be given except as required by law. No business may be transacted at a
meeting in the absence of a quorum other than the adjournment of such
meeting, except that if a quorum is present at the commencement of a meeting,
business may be transacted until the meeting is adjourned even though the
withdrawal of stockholders results in less than a quorum.
Section 2.06. Notice of Stockholder Business and Nominations.
(a) Annual Meetings of Stockholders.
(i) Nominations of persons for election to the Board and
the proposal of business to be considered by the stockholders may be made at an
annual meeting of stockholders (A) pursuant to the Corporation's notice of
meeting, (B) by or at the direction of the Board or (C) by any stockholder of
the Corporation who was a stockholder of record at the time of giving of notice
provided for in this Bylaw, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this Bylaw.
(ii) For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to clause (C) of
paragraph (a)(i) of this Bylaw, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation and such other
business must otherwise be a proper matter for stockholder action. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 60th day nor earlier than the close of business on the 90th day
prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
more than 30 days before or more than 60 days after such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than
the close of business on the 90th day prior to such annual meeting and not
later than the close of business on the later of the 60th day prior to such
annual meeting or the 10th day following the day on which public announcement
of the date of such meeting is first made by the Corporation. In no event
shall the public announcement of an adjournment of an annual meeting commence
a new time period for the giving of a stockholder's notice as described above.
Such stockholder's notice shall set forth (A) as to each person whom the stock
holder proposes to nominate for election or re-election as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or
is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule
14a-11 thereunder (including such person's written consent to being named
in the proxy statement as a nominee and to serving as a director if elected);
(B) as to any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (C) as to the
stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (1) the name and address of such
stockholder, as they appear on the Corporation's books, and of such
beneficial owner and (2) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
(iii) Notwithstanding anything in the second sentence
of paragraph (a)(ii) of this Bylaw to the contrary, in the event that the
number of directors to be elected to the Board of the Corporation is
increased and there is no public announcement by the Corporation naming all of
the nominees for director or specifying the size of the increased Board at
least 70 days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this Bylaw shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement
is first made by the Corporation.
(b) Special Meetings of Stockholders. Only such business shall
be conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting.
Nominations of persons for election to the Board may be made at a special
meeting of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (i) by or at the direction of the Board or
(ii) provided that the Board has determined that directors shall be elected
at such meeting, by any stockholder of the Corporation who is a stockholder of
record at the time of giving of notice provided for in this Bylaw, who shall
be entitled to vote at the meeting and who complies with the notice procedures
set forth in this Bylaw. In the event the Corporation calls a special
meeting of stockholders for the purpose of electing one or more directors to
the Board, any such stockholder may nominate a person or persons (as the
case may be), for election to such position(s) as specified in the
Corporation's notice of meeting, if the stockholder's notice required by
paragraph (a)(ii) of this Bylaw shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the close of
business on the 90th day prior to such special meeting and not later than
the close of business on the later of the 60th day prior to such special
meeting or the 10th day following the day on which public announcement is
first made of the date of the special meeting and of the nominees proposed
by the Board to be elected at such meeting. In no event shall the public an
nouncement of an adjournment of a special meeting commence a new time period
for the giving of a stockholder's notice as described above.
(c) General. (i) Only such persons who are nominated in
accordance with the procedures set forth in this Bylaw shall be eligible to
serve as directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Bylaw. Except as otherwise provided by
law, the Chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the
meeting was made or proposed, as the case may be, in accordance with the
procedures set forth in this Bylaw and, if any proposed nomination or
business is not in compliance with this Bylaw, to declare that such
defective proposal or nomination shall be disregarded.
(i) For purposes of this Bylaw, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(ii) Notwithstanding the foregoing provisions of this
Bylaw, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Bylaw. Nothing in this Bylaw shall be deemed to
affect any rights (A) of stockholders to request inclusion of proposals in
the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act
or (B) of the holders of any series of Preferred Stock to elect directors
under specified circumstances.
Section 2.07. Voting.
(a) Each stockholder shall, at each meeting of the stockholders,
be entitled to vote in person or by proxy each share or fractional share of
the stock of the Corporation having voting rights on the matter in question
and which shall have been held by him and registered in his name on the books
of the Corporation:
(i) on the date fixed pursuant to Section 6.05 of these
Bylaws as the record date for the determination of stockholders entitled to
notice of and to vote at such meeting, or
(ii) if no such record date shall have been so fixed,
then (a) at the close of business on the day next preceding the day on which
notice of the meeting shall be given or (b) if notice of the meeting shall
be waived, at the close of business on the day next preceding the day on which
the meeting shall be held.
(b) Shares of its own stock belonging to the Corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors in such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be
counted for quorum purposes. Nothing in this section shall be construed as
limiting the right of the Corporation to vote stock, including but not
limited to its own stock, held by it in a fiduciary capacity. Persons
holding stock of the Corporation in a fiduciary capacity shall be entitled to
vote such stock. Persons whose stock is pledging shall be entitled to vote,
unless in the transfer by the pledgor on the books of the Corporation he shall
have expressly empowered the pledgee to vote thereon, in which case only the
pledgee, or his proxy, may represent such stock and vote thereon. Stock having
voting power standing of record in the names of two or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety or otherwise, or with respect to which two or more
persons have the same fiduciary relationship, shall be voted in accordance with
the provisions of the General Corporation Law of the State of Delaware.
(c) Any such voting rights may be exercised by the stockholder
entitled thereto in person or by his proxy appointed by an instrument in
writing, subscribed by such stockholder or by his attorney thereunto authorized
and delivered to the secretary of the meeting; provided, however, that no
proxy shall be voted or acted upon after three years from its date unless said
proxy shall provide for a longer period. The attendance at any meeting of a
stockholder who may theretofore have given a proxy shall not have the effect
of revoking the same unless he shall in writing so notify the secretary of the
meeting prior to the voting of the proxy. At any meeting of the
stockholders all matters, except as otherwise provided in the Certificate of
Incorporation, in these Bylaws or by law, shall be decided by the vote of a
majority of the shares present in person or by proxy and entitled to vote
thereat and thereon, a quorum being present. The vote at any meeting of the
stockholders on any questions shall be by ballot and each ballot shall be
signed by the stockholder voting, or by his proxy, if there be such proxy,
and it shall state the number of shares voted. The chairman of the meeting
shall fix and announce at the meeting the date and time of the opening and
the closing of the polls for each matter upon which the stockholders will vote
at a meeting.
Section 2.08. List of Stockholders. The Secretary of the
Corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for
a period of at least ten (10) days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the duration thereof, and may be
inspected by any stockholder who is present.
Section 2.09. Inspectors of Election. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act
at the meeting and make a written report thereof. The Corporation may
designate one or more persons as alternate inspectors to act at the meeting.
If no inspector or alternative is able to act at a meeting of stockholders,
the chairman of such meeting shall appoint one or more inspectors to act at the
meeting. Each inspector so appointed shall first sign an oath faithfully to
execute the duties of inspector at such meeting with strict impartiality and
according to the best of his ability. The inspectors shall ascertain the
number of shares outstanding and the voting power of each, determine the shares
represented at a meeting and the validity of proxies and ballots, count all
votes and ballots, determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors,
and certify their determination of the number of shares represented at the
meeting and their count of all votes and ballots. Reports of the inspectors
shall be in writing and subscribed and delivered by them to the Secretary of
the Corporation. The inspectors may appoint or retain other persons or
entities to assist them in the performance of their duties as inspectors. The
inspectors need not be stockholders of the Corporation, and any officer of
the Corporation may be an inspector on any question other than a vote for or
against a proposal in which he shall have a material interest.
Section 2.10. No Stockholder Action by Written Consent. Except as
otherwise fixed by or pursuant to the provisions of Article FOURTH of the
Certificate of Incorporation relating to the rights of holders of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation with respect to such class or series of stock, any action
required or permitted to be taken by the stockholders of the Corporation
must be effected at a duly called annual or special meeting of such holders
and may not be effected by any consent in writing by such stockholders.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01. General Powers. The property, business and affairs
of the Corporation shall be managed by or under the direction of the Board.
Section 3.02. Number, Election and Terms. Except as otherwise
fixed by or pursuant to the provisions of Article FOURTH of the Certificate of
Incorporation relating to the rights of the holders of any class or series
of stock having a preference over the Common Stock as to dividends or upon
liquidation to elect additional directors under specified circumstances,
the number of the directors of the Board of the Corporation shall be fixed from
time to time exclusively pursuant to a resolution adopted by a majority of
the total number of directors which the Corporation would have if there were no
vacancies. Commencing with the 1996 annual meeting of stockholders, the
directors, other than those who may be elected by the holders of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation, shall be classified, with respect to the time for which they
severally hold office, into three classes, as nearly equal in number as is
reasonably possible, one class to be originally elected for a term expiring at
the annual meeting of stockholders to be held in 1997, the second class to
be originally elected for a term expiring at the annual meeting of stockholders
to be held in 1998, and the third class to be originally elected for a term
expiring at the annual meeting of stockholders to be held in 1999, with each
director to hold office to hold office until his or her successor is duty
elected and qualified. At each annual meeting of the stockholders of the
Corporation, commencing with the 1997 annual meeting, the successors of the
class of directors whose term expires at that meeting shall be elected to hold
office for a term expiring at the annual meeting of stockholders held in the
third year following the year of their election, with each director to hold
office until his or her director shall have been duly elected and qualified.
Section 3.03. Procedure for Election of Directors; Required Vote.
Election of directors at all meetings of the stockholders at which directors
are to be elected shall be by ballot, and, except as otherwise fixed by or
pursuant to the provisions of Article FOURTH of the Certificate of
Incorporation relating to the rights to the holders of any class or series
of stock having a preference over the Common Stock as to dividends or upon
liquidation to elect directors under specified circumstances, a plurality
of the votes cast thereat shall elect directors.
Section 3.04. Resignations. Any director of the Corporation may
resign at any time by giving written notice to the Board or to the Secretary of
the Corporation. Any such resignation shall take effect at the time
specified therein, or, if the time be not specified, it shall take effect
immediately upon its receipt; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 3.05. Removal. Subject to the rights of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation to elect directors under specified circumstances, any
director may be removed from office at any time, but only for cause and only by
the affirmative vote of the holders of 80% of the combined voting power of
the then outstanding shares of stock entitled to vote generally in the election
of directors, voting together as a single class.
Section 3.06. Vacancies. Subject to applicable law and except as
otherwise provided for or fixed by or pursuant to the provisions of Article
FOURTH of the Certificate of Incorporation relating to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation to elect directors under specified
circumstances, and unless the Board of Directors otherwise determines,
vacancies resulting from death, resignation, retirement, disqualification,
removal from office or other cause, and newly created directorships resulting
from any increase in the authorized number of directors, may be filled only
by the affirmative vote of a majority of the remaining directors, though less
than a quorum of the Board of Directors, and directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which
the term of office of the class to which they have been elected expires and
until such director's successor shall have been duly elected and qualified. No
decrease in the number of authorized directors constituting the Board of
Directors of the Corporation shall shorten the term of any incumbent director.
Section 3.07. Place of Meeting, Etc. The Board may hold any of its
meetings at such place or places within or without the State of Delaware as the
Board may from time to time by resolution designate or as shall be designated
by the person or persons calling the meeting or in the notice or a waiver of
notice of any such meeting. Directors may participate in any regular or
special meeting of the Board by means of conference telephone or similar
communications equipment pursuant to which all persons participating in the
meeting of the Board can hear each other, and such participation shall
constitute presence in person at such meeting.
Section 3.08. First Meeting. The Board shall meet as soon as
practicable after each annual election of directors and notice of such first
meeting shall not be required.
Section 3.09. Regular Meetings. Regular meetings of the Board may
be held at such times as the Board shall from time to time by resolution
determine. If any day fixed for a regular meeting shall be a legal holiday
at the place where the meeting is to be held, then the meeting shall be held at
the same hour and place on the next succeeding business day not a legal
holiday. Except as provided by law, notice of regular meetings need not be
given.
Section 3.10. Special Meetings. Special meetings of the Board may be
called by the Chairman of the Board of Directors or the President. Notice of
any special meeting of directors shall be given to each director at his
business or residence in writing by hand delivery, first-class or overnight
mail or courier service, telegram or facsimile transmission, or orally by
telephone. If mailed by first-class mail, such notice shall be deemed
adequately delivered when deposited in the United States mails so addressed,
with postage thereon prepaid, at least five (5) days before such meeting. If
by telegram, overnight mail or courier service, such notice shall be deemed
adequately delivered when the telegram is delivered to the telegraph company
or the notice is delivered to the overnight mail or courier service company
at least twenty-four (24) hours before such meeting. If by facsimile
transmission, such notice shall be deemed adequately delivered when the notice
is transmitted at least twelve (12) hours before such meeting. If by
telephone or by hand delivery, the notice shall be given at least twelve (12)
hours prior to the time set for the meeting. Such notice may be waived by
any director and any meeting shall be a legal meeting without notice having
been given if all the directors shall be present thereat or if those not
present shall, either before or after the meeting, sign a written waiver of
notice of, or a consent to, such meeting or shall after the meeting sign the
approval of the minutes thereof. All such waivers, consents or approvals
shall be filed with the corporate records or be made a part of the minutes of
the meeting.
Section 3.11. Quorum and Manner of Acting. Except as otherwise
provided in the Certificate of Incorporation or these Bylaws or by law, the
presence of a majority of the total number of directors then in office shall
be required to constitute a quorum for the transaction of business at any
meeting of the Board. Except as otherwise provided in the Certificate of
Incorporation or these Bylaws or by law, all matters shall be decided at any
such meeting, a quorum being present, by the affirmative votes of a majority
of the directors present. In the absence of a quorum, a majority of directors
present at any meeting may adjourn the same from time to time until a quorum
shall be present. Notice of any adjourned meeting need not be given. The
directors shall act only as a Board, and the individual directors shall have
no power as such.
Section 3.12. Action by Consent. Any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be
taken without a meeting if a written consent thereto is signed by all
members of the Board or of such committee, as the case may be, and such written
consent is filed with the minutes of proceedings of the Board or committee.
Section 3.13. Compensation. The directors shall receive only such
compensation for their services as directors as may be allowed by resolution
of the Board. The Board may also provide that the Corporation shall reimburse
each such director for any expense incurred by him on account of his attendance
at any meetings of the Board or Committees of the Board. Neither the payment
of such compensation nor the reimbursement of such expenses shall be
construed to preclude any director from serving the Corporation or its
subsidiaries in any other capacity and receiving compensation therefor.
Section 3.14. Executive Committee. There may be an Executive
Committee of two or more directors appointed by the Board, who may meet at
stated times, or in notice to all by any of their own number, during the
intervals between the meetings of the Board; they shall advise and aid the
officers of the Corporation in all matters concerning its interest and the
management of its business, and generally perform such duties and exercise
such powers as may be directed or delegated by the Board from time to time.
The Board of Directors may also designate, if it desires, other directors as
alternate members who may replace any absent or disqualified member of the
Executive Committee at any meeting thereof. To the full extent permitted by
law, the Board may delegate to such committee authority to exercise all the
powers of the Board while the Board is not in session. Vacancies in the
membership of the committee shall be filled by the Board at a regular meeting
or at a special meeting for that purpose. In the absence or disqualification
of any member of the Executive Committee and any alternate member in his or
her place, the member or members of the Executive Committee present at the
meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may, by unanimous vote, appoint another member of the
Board of Directors to act at the meeting in the place of the absent or
disqualified member. The Executive Committee shall keep written minutes of its
meeting and report the same to the Board when required. The provisions of
Sections 3.09, 3.10, 3.11 and 3.12 of these Bylaws shall apply, mutatis
mutandis, to any Executive Committee of the Board.
Section 3.15. Other Committees. The Board may, by resolution passed
by a majority of the whole Board, designate one or more other committees, each
such committee to consist of one or more of the directors of the Corporation.
The Board of Directors may also designate, if it desires, other directors as
alternate members who may replace any absent or disqualified member of any such
committee at any meeting thereof. To the full extent permitted by law, any
such committee shall have and may exercise such powers and authority as the
Board may designate in such resolution. Vacancies in the membership of a
committee shall be filled by the Board at a regular meeting or a special
meeting for that purpose. Any such committee shall keep written minutes of its
meeting and report the same to the Board when required. In the absence or
disqualification of any member of any such committee and any alternate member
or members of any such committee present at the meeting and not disqualified
from voting, whether or not he or she or they constitute a quorum, may, by
unanimous vote, appoint another member of the Board of Directors to act at
the meeting in the place of the absent or disqualified member. The provisions
of Section 3.09, 3.10, 3.11 and 3.12 of these Bylaws shall apply, mutatis
mutandis, to any such committee of the Board.
ARTICLE IV
OFFICERS
Section 4.01. Number. The officers of the Corporation shall be a
Chairman of the Board, a President, one or more Vice Presidents, a Secretary
and a Treasurer. The Chief Executive Officer of the corporation shall be such
officer as the Board shall from time to time designate. The Board may also
elect one or more Assistant Secretaries and Assistant Treasurers. A person
may hold more than one office providing the duties thereof can be consistently
performed by the same person.
Section 4.02. Other Officers. The Board may appoint such other
officers as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board.
Section 4.03. Election. Each of the officers of the Corporation,
except such officers as may be appointed in accordance with the provisions of
Section 4.02 or Section 4.05 of this Article, shall be chosen annually by
the Board and shall hold his office until he shall resign or shall be removed
or otherwise disqualified to serve, or his successor shall be elected and
qualified.
Section 4.04. Salaries. The salaries of all executive officers of
the Corporation shall be fixed by the Board or by such committee of the Board
as may be designated from time to time by a resolution adopted by a majority
of the Board.
Section 4.05. Removal; Vacancies. Subject to the express provisions
of a contract authorized by the Board, any officer may be removed, either with
or without cause, at any time by the Board or by any officer upon whom such
power of removal may be conferred by the Board. Any vacancy occurring in any
office of the Corporation shall be filled by the Board.
Section 4.06. The Chairman of the Board. The Chairman of the Board
shall preside at all meetings of the stockholders and directors and shall have
such other powers and duties as may be prescribed by the Board or by
applicable law. He shall be an ex-officio member of standing committees, if so
provided in the resolutions of the Board appointing the members of such
committees.
Section 4.07. The President. The President shall be the managing
officer of the Corporation. Subject to the control of the Board, the President
shall have general supervision, control and management of the affairs and
business of the Corporation, and general charge and supervision of all offices,
agents and employees of the Corporation; shall see that all orders and
resolutions of the Board are carried into effect; shall, in the absence of the
Chairman of the Board, preside at all meetings of the stockholders and Board;
and in general shall exercise all powers and perform all duties incident to
President and managing officer of the Corporation and such other powers and
duties as may from time to time be assigned to him by the Board or as may be
prescribed in these Bylaws.
The President may execute bonds, mortgages and other contracts requiring a
seal, under the seal of the Corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the Board to some other
officer or agent of the Corporation.
The President shall be an ex-officio member of standing committees, if
so provided in the resolutions of the Board appointing the members of such
committees.
Section 4.08. The Vice Presidents. In the absence of the President
or in the event of his inability or refusal to act, the Vice President (or in
the event there be more than one Vice President, the Vice Presidents in the
order designated, or in the absence of any designation, then in the order of
their election) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions
upon the President. The Vice Presidents shall perform such other duties
and have such other powers as the Board may from time to time prescribe.
Section 4.09. The Secretary and Assistant Secretary. The Secretary
shall attend all meetings of the Board and all meetings of the stockholders and
record all the proceedings of the meetings of the Corporation and of the Board
in a book to be kept for that purpose and shall perform like duties for the
standing and special committees of the Board when required. He shall give,
or cause to be given, notice of all meetings of the stockholders and special
meetings of the Board, and shall perform such other duties as may be prescribed
by the Board or President, under whose supervision he shall act. He shall have
custody of the corporate seal of the Corporation and he, or an assistant
secretary, shall have authority to affix the same to any instrument requiring
it and, when so affixed, it may be attested by his signature or by the
signature of such assistant secretary. The Board may give general authority to
any other officer to affix the seal of the Corporation and to attest the
affixing by his signature.
The assistant secretary, or if there be more than one, the assistant
secretaries in the order determined by the Board (or if there be no such
determination, then in the order of their election), shall, in the absence
of the Secretary or in the event of his inability or his refusal to act,
perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as the Board may from
time to time prescribe.
Section 4.10. The Treasurer. The Treasurer shall have the custody
of the corporate funds and securities and shall keep full and accurate accounts
of receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board.
He shall disburse the funds of the Corporation as may be ordered by the
Board, making proper vouchers for such disbursements, and shall render to the
President and the Board, at its regular meetings, or when the Board so
requires, an account of all his transactions as Treasurer and of the financial
condition of the Corporation.
If required by the Board , he shall give the Corporation a bond (which
shall be renewed every six (6) years) in such sum and with such surety or
sureties as shall be satisfactory to the Board for the faithful performance of
the duties of his office and for the restoration to the Corporation, in case of
his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession
or under his control belonging to the Corporation.
Section 4.11. The Assistant Treasurer. The Assistant Treasurer, or
if there be more than one, the assistant treasurers in the order determined by
the Board (or if there be no such determination, then in the order of their
election), shall, in the absence of the Treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of
the Treasurer and shall perform such other duties and have such other powers as
the Board may from time to time prescribe.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
Section 5.01. Checks, Drafts, Etc. All checks, drafts or other
orders for payment of money, notes or other evidence of indebtedness payable by
the Corporation and all contracts or agreements shall be signed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the Board. Each such person or persons shall give such
bond, if any, as the Board may require.
Section 5.02. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board may select,
or as may be selected by any officer or officers, assistant or assistants,
agent or agents, or attorney or attorneys of the Corporation to whom such
power shall have been delegated by the Board. For the purpose of deposit and
for the purpose of collection for the account of the Corporation, the
President, any Vice President or the Treasurer (or any other officer or
officers, assistant or assistants, agent or agents, or attorney or attorneys of
the Corporation who shall from time to time be determined by the Board) may
endorse, assign and deliver checks, drafts and other orders for the payment of
money which are payable to the order of the Corporation.
Section 5.03. General and Special Bank Accounts. The Board may from
time to time authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the Board
may select or as may be selected by any officer or officers, assistant or
assistants, agent or agents, or attorney or attorneys of the Corporation to
whom such power shall have been delegated by the Board. The Board may make
such special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of these Bylaws, as it may deem expedient.
ARTICLE VI
SHARES AND THEIR TRANSFER
Section 6.01. Certificates for Stock. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, to be in
such form as the Board shall prescribe, certifying the number and class of
shares of the stock of the Corporation owned by him. The certificates
representing shares of such stock shall be numbered in the order in which
they shall be issued and shall be signed in the name of the Corporation by the
Chairman, Vice Chairman or President or a Vice President, and by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer. Any of
or all of the signatures on the certificates may be a facsimile. In case any
officer, transfer agent or registrar who has signed, or whose facsimile
signature has been placed upon, any such certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued,
such certificate may nevertheless be issued by the Corporation with the same
effect as though the person who signed such certificate, or whose facsimile
signature shall have been placed thereupon, were such officer, transfer agent
or registrar at the date of issue. A record shall be kept of the respective
names of the persons, firms or corporations owning the stock represented by
such certificates, the number and class of shares represented by such
certificates, respectively, and the respective dates thereof, and in case of
cancellation, the respective dates of cancellation. Every certificate
surrendered to the Corporation for exchange or transfer shall be canceled,
and no new certificate or certificates shall be issued in exchange for any
existing certificate until such existing certificate shall have been so
canceled, except in cases provided for in Section 6.04.
Section 6.02. Transfers of Stock. Transfers of shares of stock of
the Corporation shall be made only on the books of the Corporation by the
registered holder thereof, or by his attorney thereunto authorized by power
of attorney duly executed and filed with the Secretary, or with a transfer
clerk or a transfer agent appointed as provided in Section 6.03, and upon
surrender of the certificate or certificates for such shares properly endorsed
and the payment of all taxes thereon. The person in whose name shares of
stock stand on the books of the Corporation shall be deemed the owner thereof
for all purposes as regards the Corporation. Whenever any transfer of
shares shall be made for collateral security, and not absolutely, such fact
shall be so expressed in the entry of transfer if, when the certificate or
certificates shall be presented to the Corporation for transfer, both the
transferor and the transferee request the Corporation to do so.
Section 6.03. Regulations. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with these Bylaws,
concerning the issue, transfer and registration of certificates for shares
of the stock of the Corporation. It may appoint, or authorize any officer
or officers to appoint, one or more transfer clerks or one or more transfer
agents and one or more registrars, and may require all certificates for stock
to bear the signature or signatures of any of them.
Section 6.04. Lost, Stolen, Destroyed, and Mutilated Certificates. In
any case of loss, theft, destruction or mutilation of any certificate of stock,
another may be issued in its place upon proof of such loss, theft, destruction
or mutilation and upon the giving of a bond of indemnity to the Corporation in
such form and in such sum as the Board may direct; provided, however, that a
new certificate may be issued without requiring any bond when, in the
judgment of the Board, it is proper so to do.
Section 6.05. Fixing Date for Determination of Stockholders of
Record. In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders, or to receive
payment of any dividend or other distribution or allotment of any rights or to
exercise any rights in respect of any change, conversion or exchange of
stock or for the purpose of any other lawful action except for consenting to
corporate action in writing without a meeting, the Board of Directors may fix a
record date, which shall not precede the date the resolution fixing the record
date is adopted and which record date shall not be more than sixty (60) nor
less than ten (10) days before the date of any meeting of stockholders, nor
more than sixty (60) days prior to the time for such other action as herein
before described; provided, however, that if no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day preceding the day on which notice is given or, if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held and, for determining stockholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or to
exercise any rights in respect of any change, conversion or exchange of
stock or any other lawful action except for consenting to corporate action in
writing without a meeting, the record date shall be the close of business on
the day on which the Board of Directors adopts a resolution relating thereto.
For purposes of determining the stockholders entitled to consent to
corporate action in writing without a meeting, the Board of Directors may fix a
record date, which shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted, as of which shall be determined the
stockholders of record entitled to consent to corporate action in writing
without a meeting. If no record date has been fixed by the Board of Directors
and no prior action by the Board of Directors is required by the Delaware
General Corporation Law, the record date shall be the first date on which a
signed written consent setting forth the action taken or proposed to be
taken is delivered to the Corporation in the manner prescribed in Section 2.09
hereof. If no record date has been fixed by the Board of Directors and
prior action by the Board of Directors is required by the Delaware General
Corporation Law with respect to the proposed action, the record date for
determining stockholders entitled to consent to corporate action writing shall
be the close of business on the day in which the Board of Directors adopts
the resolutions taking such prior action.
ARTICLE VII
INDEMNIFICATION
Section 7.01. Indemnification of Officers, Directors, Employees and
Agents; Insurance.
(a) Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she is or was a director or officer of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or
agent or in any other capacity while serving as a director, officer, employee
or agent, shall be indemnified and held harmless by the Corporation to the
fullest extent authorized by the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than permitted prior thereto), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by such indemnitees in connection therewith and such
indemnification shall continue as to an indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; provided, however, that
except as provided in paragraph (c) hereof with respect to proceedings to
enforce rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was authorized or is
subsequently ratified by the Board of Directors of the Corporation.
(b) Right to Advancement of Expenses. The right to
indemnification conferred in paragraph (a) of this Section shall include the
right to be paid by the Corporation the expenses (including attorneys' fees)
incurred in defending any proceeding for which such right to indemnification is
applicable in advance of its final disposition (hereinafter an "advancement
of expenses"); provided, however, that, if the Delaware General Corporation Law
requires, an advancement of expenses incurred by an indemnitee in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
Corporation of an undertaking (hereinafter an "undertaking"), by or on
behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise.
(c) To obtain indemnification under this Bylaw, a claimant shall
submit to the Corporation a written request, including therein or therewith
such documentation and information as is reasonably available to the claimant
and is reasonably necessary to determine whether and to what extent the
claimant is entitled to indemnification. Upon written request by a claimant
for indemnification pursuant to the first sentence of this paragraph (c), a
determination, if required by applicable law, with respect to the claimant's
entitlement thereto shall be made as follows: (1) if requested by the
claimant, by Independent Counsel (as hereinafter defined), or (2) if no request
is made by the claimant for a determination by Independent Counsel, (i) by the
Board by a majority vote of a quorum consisting of Disinterested Directors (as
hereinafter defined), or (ii) if a quorum of the Board consisting of
Disinterested Directors is not obtainable or, even if obtainable, such quorum
of Disinterested Directors so directs, by Independent Counsel in a written
opinion to the Board, a copy of which shall be delivered to the claimant, or
(iii) if a quorum of Disinterested Directors so directs, by the stockholders
of the Corporation. In the event the determination of entitlement to
indemnification is to be made by Independent Counsel at the request of the
claimant, the Independent Counsel shall be selected by the Board unless there
shall have occurred within two years prior to the date of the commencement of
the action, suit or proceeding for which indemnification is claimed a "Change
of Control" as defined in the Senior Executive Severance Policy, in which case
the Independent Counsel shall be selected by the claimant unless the claimant
shall request that such selection be made by the Board. If is so determined
that the claimant is entitled to indemnification, payment to the claimant shall
be made within 10 days after such determination.
(d) Right of Indemnitee to Bring Suit. The rights to
indemnification and to the advancement of expenses conferred in paragraphs (a)
and (b) of this Section shall be a contract between the Corporation and each
director or officer of the Corporation who serves or served in such capacity at
any time while this Article VII is in effect. Any repeal or modification of
this Article VII or any repeal or modification of relevant provisions of the
Delaware General Corporation Law or any other applicable laws shall not in any
way diminish any rights to indemnification of such director or officer or
the obligations of the Corporation hereunder. If a claim under paragraph (a)
or (b) of this Section is not paid in full by the Corporation within sixty (60)
days after a written claim pursuant to paragraph (c) of the Bylaw has been
received by the Corporation, except in the case of a claim for an advancement
of expenses, in which case the applicable period shall be twenty (20) days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in
any such suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the
Corporation shall be entitled to recover such expenses upon a final
adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither
the failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to
the commencement of such suit that indemnification of the indemnitee is
proper in the circumstances because the indemnitee has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor
an actual determination by the Corporation (including its board of directors,
independent legal counsel, or its stockholders) that the indemnitee has not
met such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any
suit brought by the indemnitee to enforce a right to indemnification or to
an advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden
of proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Section or otherwise shall be on the
Corporation.
(e) Non-Exclusivity of Rights. The rights to indemnification
and to the advancement of expenses conferred in this Section shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, the Corporation's certificate of incorporation, by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
(f) Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law, provided that
such insurance is available on acceptable terms, which determination shall be
made by the Board of Directors or by a committee thereof.
(g) Indemnification of Employees and Agents of the Corporation.
The Corporation may, to the extent and in accordance with the terms authorized
from time to time by the board of directors, grant rights to indemnification,
and to the advancement of expenses to any employee or agent of the Corporation
to the fullest extent of the provisions of this Section with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
(h) For purposes of this Section, references to "the
Corporation" shall include, in addition to the Corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under this Section with respect to
the Corporation as he would have with respect to such constituent corporation
if its separate existence had continued.
(i) For purposes of this Section, references to "serving at the
request of the Corporation" shall include any service as director, officer,
employee or agent of the Corporation which imposes duties on, or involves
services by, such director, officer, employee or agent with respect to an
employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the Corporation" as referred to in this Section.
(j) Notwithstanding anything else in this Article VII, in the
event that the express provisions of the Delaware General Corporation Law
relating to indemnification of, or advancement of expenses by the Corporation
to, persons eligible for indemnification or advancement of expenses under this
Article VII are amended to permit broader indemnification or advancement of
expenses, then the Corporation will provide such indemnification and
advancement of expenses to the maximum extent permitted by the Delaware General
Corporation Law.
(k) If this Article VII or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each indemnitee of the Corporation
as to costs, charges and expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement with respect to any action, suit or
proceeding, whether civil, criminal, administrative or investigative, including
an action by or in the right of the Corporation, to the full extent permitted
by any applicable portion of this Article VII that shall not have been
invalidated and to the full extent permitted by applicable law.
(l) Notwithstanding anything else in this Article VII, at any
and all times at which the Corporation is subject to the provisions of the
California Corporations Code by virtue of the operation of Section 2115 thereof
or otherwise, the indemnification and advancement of expenses provided by,
or granted pursuant to, this Article VII shall be in all respects limited by
the provisions of the California Corporations Code made applicable by such
Section 2115 (or such other provision of California law).
(m) If a determination shall have been made pursuant to
paragraph (c) of this Bylaw that the claimant is entitled to indemnification,
the Corporation shall be bound by such determination in any judicial proceeding
commenced pursuant to paragraph (d) of this Bylaw.
(n) The Corporation shall be precluded from asserting in any
judicial proceeding commenced pursuant to paragraph (d) of this Bylaw that the
procedures and presumptions are not valid, binding and enforceable and shall
stipulate in such proceeding that the Corporation is bound by all the provisions
of this Bylaw.
(o) For purposes of this Bylaw:
(i) "Disinterested Director" means a director of the
Corporation who is not and was not a party to the matter in respect of which
indemnification is sought by the claimant.
(ii) "Independent Counsel" means a law firm, a member of
a law firm, or and independent practitioner, that is experienced in matters of
corporation law and shall include any person who, under the applicable
standards of professional conduct then prevailing, would not have a conflict
of interest in representing either the Corporation or the claimant in an action
to determine the claimant's rights under this Bylaw.
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Seal. The Board shall provide a corporate seal, which
shall be in the form of a circle and shall bear the name of the Corporation and
words and figures showing that the Corporation was incorporated in the State of
Delaware and the year of incorporation.
Section 8.02. Waiver of Notices. Whenever notice is required to be
given by these Bylaws or the Certificate of Incorporation or by law, the person
entitled to said notice may waive such notice in writing, either before or
after the time stated therein, and such waiver shall be deemed equivalent to
notice.
Section 8.03. Fiscal Year. The fiscal year of the Corporation shall
be fixed by resolution of the Board.
Section 8.04. Amendments. These Bylaws may be altered, amended or
repealed at any meeting of the Board or of the stockholders, provided notice of
the proposed change was given in the notice of the meeting and, in the case
of a meeting of the Board, in a notice given not less than two days prior to
the meeting; provided, however, that, in the case of amendments by
stockholders, notwithstanding any other provisions of these Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but
in addition to any affirmative vote of the holders of any particular class or
series of the capital stock of the Corporation required by law, the
Certificate of Incorporation of these Bylaws, the affirmative vote of the
holders of at least 80% of the total voting power of all the then outstanding
shares of Voting Stock of the Corporation, voting together as a single class,
shall be required to alter, amend or repeal this Section 8.04 or any
provision of Sections 2.06, 2.10, 3.02, 3.05 and 3.06 of these Bylaws.
Section 8.05. Voting Stock. Any person so authorized by the Board,
and in the absence of such authorization, the Chairman of the Board, the
President or any Vice President, shall have full power and authority on
behalf of the Corporation to attend and to act and vote at any meeting of the
stockholders of any corporation in which the Corporation may hold stock and
at any such meeting shall possess and may exercise any and all rights and
powers which are incident to the ownership of such stock and which as the
owner thereof the Corporation might have possessed and exercised if present.
The Board by resolution from time to time may confer like powers upon any
other person or persons.
EXHIBIT 10.159
THE CHARLES SCHWAB CORPORATION
EXECUTIVE OFFICER STOCK OPTION PLAN (1987)
1. Purpose.
The purpose of the 1987 Stock Option Plan (the "Option Plan") is to enable
The Charles Schwab Corporation (the "Company") and its subsidiaries to
attract and retain directors, officers, and other key employees and to provide
such persons with additional incentive to advance the interests of the Company.
2. Administration.
(a) This Option Plan shall be administered by the Board of Directors
(the "Board"), or by a committee of Directors (the "Committee") selected by
the Board, provided that the Committee may not include any Director who is an
employee of the Company.
(b) The Board or the Committee shall have the power, subject to the
express provisions of this Option Plan:
(1) To determine the recipients of options under this
Options Plan, the time of grant of the options, and the number of shares
covered by the grant.
(2) To prescribe the terms and provisions of each option
granted (which need not be identical).
(3) To construe and interpret this Option Plan and options, to
establish, amend, and revoke rules and regulations for this Option Plan's
administration, and to make all other determinations necessary or advisable
for the administration of this Option Plan.
3. Shares Subject to this Option Plan.
Subject to the provisions of Paragraph 8 (relating to the adjustment
upon changes in stock), a total of up to 1,284,000 shares of the Common Stock
(the "Shares") of the Company may be issued pursuant to options granted
under this Option Plan. The Shares may be unissued Shares or reacquired
Shares. If any options granted under this Option Plan shall for any reason
terminate or expire without having been exercised in full, the Shares not
purchased under such options shall be available again for the purposes of this
Option Plan.
4. Eligibility.
Options under this Option Plan may be granted only to directors,
officers, and other employees of the Company and/or of its subsidiaries who
qualify as "accredited investors" under Regulation D as promulgated by the
Securities and Exchange Commission ("Regulation D"). Persons to whom options
to purchase Shares are granted are hereinafter referred to as "Optionee(s)".
Subject to the provisions of Paragraph 3 of this Option Plan, there is no
limitation on the number of options that may be granted to an Optionee.
5. Terms of Option Agreements.
Options granted pursuant to this Option Plan shall be evidenced by
agreements specifying the number of Shares covered thereby, in such form as the
Board or Committee shall from time to time establish, which agreements may
incorporate all or any of the terms hereof by reference and shall comply with
and be subject to the following terms and conditions:
(1) Options under this Option Plan will be exercisable, subject to
the other provisions of this Option Plan, only at such times as the Company has
satisfied itself that the Optionee is in possession of information concerning
the Company in full satisfaction of Rule 10b-5 of the Securities and
Exchange Commission and such exercise is in compliance with all applicable
federal and state securities laws; provided that the Company may place such
restriction on exercise, resale or otherwise as it deems appropriate in
order to satisfy applicable securities laws. In no event shall an option be
exercisable after the expiration of eight years from the date it is granted.
(2) The exercise price shall not be less than the fair market
value (computed as provided in Paragraph 6(g)) of the Shares of the Company on
the date of granting of the option.
(3) To the extent that options are exercisable hereunder, options
may be exercised by written notice to the Company, stating the number of Shares
being purchased and accompanied by the payment in full of the option price
for such Shares. Such payment shall be made in cash or, subject to the
Company's discretion, in fully paid shares of the outstanding common stock
of the Company or a combination of cash and such common stock. If shares of
common stock are used in part or full payment for the Shares to be acquired
upon exercise of the option, such shares shall be valued for the purpose of
such exchange by the Board of Directors of the Company as of the date of
exercise of the option. Any certificates for shares of outstanding common
stock used to pay the option price shall be accompanied by stock powers duly
endorsed in blank by the registered holder of the certificate (with the
signature thereon guaranteed). In the event the certificates tendered by the
optionee in such payment cover more Shares than are required for such
payment, the certificates shall also be accompanied by instructions from the
optionee to the Company's transfer agent with regard to disposition of the
balance of the Shares covered thereby.
(4) The Company at all times shall keep available the number of
Shares required to satisfy options granted under this Option Plan.
(5) The Company may require any person to whom an option is granted,
his or her legal representative, heir, legatee, or distributees, as a condition
of exercising any option granted hereunder, to give written assurance
satisfactory to the Company to the effect that such person is acquiring the
Shares subject to the option for his or her own account for investment and
not with any present intention of selling or otherwise distributing the same,
and that such person is an "accredited investor" within the meaning of
Regulation D. The Company reserves the right to place a legend on any Share
certificate issued pursuant to this Option Plan to ensure compliance with
this paragraph.
(6) Neither a person to whom an option is granted, nor such person's
legal representative, heir, legatee, or distributees, shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any Shares
subject to such option unless and until such person has exercised his or her
option pursuant to the terms thereof.
(7) Options shall be transferable only by will or by the laws of
descent and distribution, and during the lifetime of the person to whom they
are granted such person alone may exercise them.
(8) In no event may an option be exercised by anyone after the
expiration of the term of the option established pursuant to Subparagraph 5(l)
hereof.
6. Restriction as to the Shares.
(a) Share Certificates; Escrow. Share certificates issued for Shares
purchased upon exercise of options granted pursuant to this Option Plan will
bear all legends required by law and necessary to effectuate this Option
Plan's provisions. For purposes of facilitating the enforcement of the
provisions of this Option Plan, the Optionee, at the Company's option, will
deliver the certificate(s) for his or her Shares with a stock power executed by
him or her and by his or her spouse (if required for transfer), in blank, to
the Secretary of the Company or his or her designee, to hold said
certificate(s) and stock power(s) in escrow and to take all such actions and
to effectuate all such transfers and/or releases as are in accordance with the
terms of this Option Plan. The certificates may be held in escrow so long
as the Shares whose ownership they evidence are subject to any right of
repurchase under this Option Plan. Each Optionee, by exercising an option,
thereby acknowledges that the Secretary of the Company (or his or designee)
is so appointed as the escrow holder with the foregoing authorities as a
material inducement to the grant of an Optionee under this Option Plan, that
the appointment is coupled with an interest, and that it accordingly will be
irrevocable. The escrow holder will not be liable to any party to this
Option Plan (or to any other party) for any actions or omissions unless the
escrow holder is grossly negligent relative thereto. The escrow holder
may rely upon any letter, notice or other document executed by any signature
purported to be genuine.
(b) Vested and Unvested Shares. As of the date of the grant of any
option granted under this Option Plan, all Shares underlying the option will be
deemed "Unvested." Except as otherwise provided in the stock option agreement
executed by the Optionee, Shares purchased upon the exercise of any option will
be or become "Vested" according to the following schedule: at the end of each
six (6) month period after the date of grant of any option, one tenth (1/10) of
the Shares underlying such option will be deemed "Vested". Upon the
termination of Optionee's employment (in the case of employees) or service as a
director (in the case of directors) with or for the Company (including any
subsidiary of the Company) for any reason whatsoever (whether by reason of
death, disability, voluntary resignation, involuntary termination, or any other
reason), all Unvested Shares will remain Unvested Shares and no further
Shares will become Vested. Notwithstanding the foregoing, and irrespective of
any provision in a Stock Option Agreement to the contrary, upon an Optionee's
Retirement, all outstanding Options that had been granted more than two years
before the date of the Optionee's Retirement shall become immediately Vested.
For purposes of the preceding sentence, "Retirement" shall mean any termination
of employment of an Optionee for any reason other than death at any time
after the Optionee has attained fifty (50), but only if, at the time of such
termination, the Participant has been credited with at least seven (7) Years
of Service under the Charles Schwab Profit Sharing and Employee Stock Ownership
Plan. The foregoing definition shall apply to all Stock Option Agreements
entered into pursuant to the Plan, irrespective of any definition to the
contrary contained in any such Stock Option Agreement.
(c) Restrictions on Transfer.
(1) Definitions. As used in this Option Plan, the term
"Transfer" will include, but not be limited to, a voluntary or involuntary
sale, assignment, transfer, pledge hypothecation, encumbrance, disposal,
loan, gift, attachment or levy of Shares. A Transfer will be considered
"Involuntary" for purposes of this Option Plan if it occurs pursuant to any
assignment of Shares for the benefit of creditors or any Transfer by
operation of law, including (but not limited to) any Transfer by will or under
the laws of intestate succession; any execution of judgment against the
Shares or the acquisition of record or beneficial ownership of Shares by a
lender or creditor; any Transfer pursuant to any decree of divorce,
dissolution or separate maintenance, any property settlement, any separation
agreement or any other agreement under which a part or all of any Shares are
Transferred or awarded to the spouse of Optionee or are required to be sold;
or any Transfer resulting from the filing by Optionee of a petition for relief,
or the filing of any involuntary petition against Optionee, under the
bankruptcy laws of the United State or of any other nation.
(2) General Prohibition on Transfer. Except as expressly
provided in this Option Plan, or as expressly provided otherwise in the stock
option agreement executed by any Optionee, Shares may not be Transferred in
any manner, Voluntarily or Involuntarily.
(3) Required Undertaking. Any Transfer that would otherwise
be permitted under the terms of this Option Plan is prohibited unless the
transferee executes such documents as the Company may reasonably require to
ensure that the Company's rights under this Option Plan are adequately
protected with respect to the Shares Transferred. Such agreements may include
(but are not limited to) the transferee's agreement to be bound by all of
the terms of this Option Plan as if he or she were the original Optionee,
except that the Vesting of Shares under Paragraph 6(b) hereof and the
Company's right of repurchase upon termination under paragraph 6(d) hereof will
continue to be determined with reference to the employment (or other service)
of the original Optionee.
(4) Permissible Transfer of Shares. Subject to any limitation
on Transfer imposed by any applicable state or federal securities laws, and
subject to the requirements of paragraph 6 (c) (3) hereof:
(i) Shares may be Transferred by will or by the laws of
intestate succession;
(ii) Shares may be Transferred to Optionee's ancestors,
descendants, or spouse, or to a trust, partnership, custodianship or other
fiduciary account for his, her, or their benefit; and
(iii) Vested Shares may be Transferred. All other Transfers
of Shares are expressly prohibited.
(5) Effect of Prohibited Transfer. Any prohibited Transfer,
whether Voluntary or Involuntary, is void and of no effect. Should such a
Transfer purport to occur, the Company may refuse to carry out the Transfer on
its books, attempt to set aside the Transfer, enforce any undertaking required
under paragraph 6(c)(3), or exercise any other legal remedy.
(d) Company's Right To Purchase Unvested Shares Upon Termination.
(1) Definitions. For purposes of this section, neither a
transfer of Optionee from the Company to one of its subsidiaries or vice versa,
or from one of its subsidiaries to another, or to a successor to the business
of the Company or that subsidiary, or a leave of absence duly authorized by
the Company, will be deemed a termination of employment or service. If
Optionee is a director of the Company but not an employee when Shares are
purchased upon exercise of an option granted under this Option Plan, then
for definitional purposes of this Option Plan only, Optionee will be
deemed to be employed by the Company so long as he or she is a director or
employee of the Company.
(2) Scope of Right. Should Optionee cease to be employed by
the Company and its subsidiaries for any reason whatsoever (whether due to
death, voluntary resignation, involuntary termination, disability or any
other reason), the Company will have an assignable right (but not an
obligation) to repurchase any Unvested Shares owned by Optionee at the time of
termination for a price per share equal to Optionee's original cost per
share, subject to appropriate adjustment pursuant to paragraph 8. If the
Company assigns its right under this subparagraph, the assignee, upon
exercise of its right to purchase the Unvested Shares, will pay the Company
cash in the amount equal to the difference between the fair market value
per share at the time of exercise and the Optionee's original cost per share,
subject to appropriate adjustment pursuant to paragraph 8. The fair market
value at the time of exercise will be determined by the Board of Directors.
(3) Mechanics and Notice. The Company's right to repurchase
may be exercised by written notice to Optionee or his or her personal
representative at any time not more than sixty (60) days after the Optionee's
employment with or service to the Company and its subsidiaries terminates. The
Shares will be repurchased at the Company's principal executive offices on
the sixtieth day (or, if that day is not a regular business day for the
Company, on the Company's first regular business day thereafter) following the
termination of employment or service. The repurchase price will be paid in
cash at that time.
(e) Additional Restriction on Transfer. By accepting options
and/or Shares under this Option Plan, Optionee represents, warrants and agrees
as follows:
(1) Accredited Investors. Optionee is an "accredited investor"
within the meaning of Regulation D by reason of Optionee's income, net worth,
service as a director to the Company and/or service as an "executive officer"
(as defined in Regulation D) to the Company.
(2) Securities Act of 1933. Optionee further understands that
the options and Shares have not been registered under the Securities Act of
1933, as amended (the "Act"), and that the options and Shares, when and if
obtained are not freely tradable and must be held indefinitely unless
registered under the Act or an exemption from such registration is available.
Optionee understands that the Company is under no obligation to register the
options or Shares except as expressly set forth herein. Optionee further
understands that although an exemption from registration may be available
pursuant to Rule 144 promulgated under the Act by the Securities and
Exchange Commission, satisfaction of a number of conditions is required to make
a sale under that exemption, and that, even if Rule 144 is applicable in
whole or in part, in no event may Optionee sell the Shares to the public
under such Rule prior to the expiration of a two-year period after purchase,
that any such sales must be limited in amount and that sales can only be
made in full compliance with the provisions of the Rule. Optionee understands
that Rule 144 contains specific requirements that there be available to the
public certain information with respect to the Company's business and financial
affairs, and that the Company does not presently comply with the information
requirements of the Rule. Optionee acknowledges that there is no assurance
that the requirements will be met at the time Optionee may want to make
sales pursuant to the Rule.
Optionee represents that Optionee is purchasing the Shares for
Optionee's own account and not with a view to distribution within the meaning
of the Act, other than as may be effected in compliance with the Act and
rules and regulations promulgated thereunder. No one else has any beneficial
interest in the Shares. Optionee has no present intention of disposing of the
Shares at any particular time or for any particular price and is not aware
of any particular occasion, event or circumstance upon the occurrence of which
Optionee intends to dispose of the Shares. Optionee understands that the
Company is relying upon the truth and accuracy of these representations in
issuing the Shares without first registering them under the Act.
(3) Legends and Stop Order. The Company may affix to the
certificates representing the Shares legends substantially as follows:
These securities have not been registered under the Securities Act of
1933, as amended, and have been taken by the issuee for his or her own
account and not with a view to their distribution. Said securities
may not be sold or transferred unless (a) they have been registered
under said Act, or (b) the transfer agent (or the Company, if it is
then acting as its own transfer agent) is presented with either a
written opinion of counsel satisfactory to the Company or a "no-action"
letter of the Securities and Exchange Commission to the effect that
such registration is not required under the circumstances of such sale
or transfer.
This security may not be voluntarily or involuntarily sold, assigned,
transferred, pledged, hypothecated, encumbered or disposed of, except
under limited circumstances. It is also subject to optional repurchase
under certain circumstances. These restrictions and repurchase
provisions are set forth in full in the 1987 Stock Option Plan, a copy of
which is on file at the principal offices of the Company.
The Company may place a "stop transfer" order against the Shares until
all restrictions and conditions set forth in this Option Plan and in the
legends referred to in this subparagraph have been complied with.
(f) Compliance with Law. Despite anything else herein, Shares
may be sold pursuant to this Option Plan or by Optionee only after there has
been compliance with all applicable federal and state securities laws, and
all offers will be subject to this overriding condition. The Company will not
be required to register or qualify Shares with the Securities and Exchange
Commission or any State agency.
(g) Fair Market Value. If the Shares of the Company are not
publicly traded as of a particular date, fair market value may be computed by
any method the Board or Committee believes in good faith will reflect the
fair market value of the Shares on such day. During such time as such Shares
are publicly traded but not listed upon an established stock exchange, the
fair market value per Share shall be the last sale price on the relevant date
as reported on the National Market System or, if such Shares are not then
reported on the National Market System but quotations are reported on the
National Association of Securities Dealers Automated Quotations System, the
average of the bid and asked prices on the relevant date, in either event as
such price quotes are listed in The Wall Street Journal, Western Edition (or if
not so reported in The Wall Street Journal any other listing service or
publication known to the Board). If the Shares are listed upon an established
stock exchange or exchanges, such fair market value shall be deemed to be
the closing price of the Shares on the largest such stock exchange upon which
such Shares are listed on the relevant date.
7. Use of Proceeds from Shares.
Proceeds from the sale of shares pursuant to options granted under the
Option Plan shall be used for general corporate purposes.
8. Adjustment Upon Changes in Shares.
(a) In the event that the Common Stock of the Company is changed
by a stock split, reverse stock split, recapitalization, or other change in the
capital structure of the Company, or in the event that the outstanding number
of shares of stock of the Company is increased through payment of a stock
dividend, appropriate proportionate adjustments will be made in the number and
class of shares of stock subject to this Option Plan, and the exercise price of
any rights of repurchase under this Option Plan. Any such adjustment will be
made by the Board, whose determination will be conclusive. If there is any
other change in the number or kind of the outstanding shares of stock of the
Company, or of any other security into which that stock has been changed or for
which it has been exchanged, and if the Board, in its sole discretion,
determines that this change requires any adjustment in the restrictions on
Transfer or rights of repurchase in Shares then subject to this Option Plan,
such an adjustment will be made in accordance with the determination of the
Board. No adjustments will be required by reason of the issuance or sale by
the Company for cash or other consideration of additional shares of its stock
or securities convertible into or exchangeable for shares of its stock.
(b) If, as a result of a stock split, stock dividend, or exchange
for other securities in the Company or in another corporation by
reclassification, reorganization, merger, consolidation, recapitalization or
otherwise, Optionee (or his or her successor or assignee), as the owner of
Shares subject to restrictions on Transfer or rights of repurchase hereunder,
is entitled to new, additional or different securities, then, at the option and
in the sole discretion of the Board, those new, additional, or different
securities may be distributed subject to all, some, or none of the restrictions
on Transfer or rights of repurchase to which the original Shares were
subject. The certificate or certificates for, or other evidences of, such new
or additional or different securities, together with a stock power or other
instrument of transfer appropriately endorsed, as appropriate, also will be
imprinted with such legends as may be required by law or necessary to
effectuate the rights or restrictions imposed, and will be deposited in escrow,
as provided in Paragraph 6(a).
(c) In the event of a dissolution or liquidation of the Company, the
Board shall have discretion and power to shorten the time over which an
option may be exercised or the time over which Shares are deemed "Vested" under
Paragraph 6(b) herein, notwithstanding the provisions of the option agreement
or this Option Plan.
(d) In the event of a merger or consolidation or other
reorganization in which the Company is not the surviving corporation, or in
which the Company becomes a subsidiary of another corporation, the
successor corporation shall agree to assume the outstanding options or
substitute comparable options therefor, or, if the successor corporation is
unwilling to do so, the outstanding options shall be exercisable only prior
to such merger, consolidation, or other reorganization and any Shares purchased
upon exercise shall be deemed fully "Vested" prior to such merger or
consolidation or other reorganization.
9. Rights as an Employee.
Nothing in this Option Plan or in any rights awarded hereunder shall
confer upon any employee any right to continue in the employ of the Company or
of any of its subsidiaries or interfere in any way with the right of the
Company or any such subsidiary to terminate such employee's employment at any
time.
10. Withholding Tax.
There shall be deducted from the compensation of any employee holding
options under this Option Plan the amount of any tax required by any
governmental authority to be withheld and paid over by the Company to such
governmental authority for the account of the person with respect to such
options.
11. Termination and Amendment of Option Plan.
The Board of Directors may at any time terminate this Option Plan, or
make such modifications of the Option Plan as it shall deem advisable.
12. Effective Date of the Option Plan.
The Option Plan shall become effective on March 24, 1987. Any options
granted under this Option Plan must be exercised within eight (8) years of the
date of grant. The Option Plan shall terminate not more than ten (10) years
from the date the Option Plan is adopted or the date the Option Plan is
approved by the shareholders, whichever is earlier but such termination will
not affect any options then outstanding.
13. Indemnification.
In addition to such other rights of indemnification as they may have as
directors, the members of the Board of Directors administering the Option Plan
shall be indemnified by the Company against the reasonable expenses,
including attorneys' fees actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with any
appeal therein, to which they or any of them may be a party by reason of any
action taken or failure to act under or in connection with the Option Plan or
any option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding that such member is liable for
negligence or misconduct in the performance of his duties; provided that
within 60 days after institution of any such action, suit or proceeding, the
member shall in writing offer the Company the opportunity, at its own
expense, to handle and defend the same.
<PAGE>
NON-QUALIFIED STOCK OPTION AGREEMENT
(Executive Officer Stock Option Plan (1987))
THIS AGREEMENT made as of this ____ day of _________, 19____, by and
between The Charles Schwab Corporation, a Delaware corporation ("Company") and
______________________________ ("Optionee").
WITNESSETH:
WHEREAS, there has been granted to Optionee, effective as of __________,
19___, a non-qualified stock option under the Executive Officer Stock Option
Plan (1987) of the Company ("Option Plan");
NOW THEREFORE, it is mutually agreed as follows:
1. The Optionee shall have a non-qualified stock option to acquire
________ shares of common stock of the company (the "Shares"), at a price of
$_______ per share.
2. Except as provided in paragraphs 3 and 4 below, the other terms of
this option shall be the same as all of those provided for in the Option Plan,
which include, without limitation, vesting of Shares, limitations on
exercise and transfer, and other restrictions. The Option Plan is attached
hereto as Exhibit A and is incorporated herein by this reference. Optionee
has read the Option Plan and, other than as provided in paragraphs 3 and 4
below, agrees to be bound by its terms. Without limitation, Optionee
specifically acknowledges the representations, warranties and agreements
contained in paragraph 6(e) of the Option Plan.
3. Notwithstanding paragraph 6(b) of the Option Plan, in the event
Optionee's employment or service as a director with or for the Company and its
subsidiaries terminates by reason of Optionee's death or permanent
disability, all Shares then not deemed to be Vested thereupon will be deemed
immediately Vested. For this purpose, "permanent disability" will mean the
reasonable determination by a qualified physician acceptable to the company
that the Optionee has an illness or incapacity that has disabled, or will
disable, the Optionee from rendering his or her normal services to the
Company and its subsidiaries for a period of more than six (6) consecutive
months in any consecutive twelve (12) month period.
4. Upon exercise of this Option, the Company will extend to the
Optionee rights under that certain Registration Rights and Stock Restriction
Agreement dated as of March 31, 1987, as amended, subject to the Optionee's
agreement to be bound by the terms thereof.
5. Any notice to be given by the Optionee under the terms of the
Option Plan shall be deemed to have been duly given, and effective upon the
receipt, if sent by Certified Mail, postage and certification prepaid, to
The Charles Schwab Corporation, 101 Montgomery, San Francisco, California
94104, Attention: Corporate Secretary, except as superseded by a different
address noticed to Optionee.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year referred to above.
THE CHARLES SCHWAB CORPORATION ("Company")
By: ___________________________________
________________________________________
"Optionee"
Attachment(1) Spousal Consent
(2) Exhibit A: 1987 Stock Option Plan
EXHIBIT 10.160
THE CHARLES SCHWAB CORPORATION
1987 Stock Option Plan,
as Amended on September 17, 1996
1. Purpose.
The purpose of the 1987 Stock Option Plan, as Amended and Restated (the
"Option Plan") is to enable The Charles Schwab Corporation (formerly known as
CL Acquisition Corporation) (the "Company") and its subsidiaries to attract
and retain directors, officers, and other key employees and to provide such
persons with additional incentive to advance the interests of the Company.
Options qualifying as incentive stock options under Section 422A of the
Internal Revenue Code of 1954, as amended, and other forms of options may be
granted under this Option Plan.
2. Administration.
(a) This Option Plan shall be administered by the Board of
Directors (the "Board"), or by a committee of Directors (the "Committee")
selected by the Board, provided that the Committee may not include any
Director who is an employee of the Company.
(b) The Board or the Committee shall have the power, subject to the
express provisions of this Option Plan:
(1) To determine the recipients of options under this Option
Plan, the time of grant of the options, and the number of shares covered by the
grant.
(2) To prescribe the terms and provisions of each option
granted (which need not be identical).
(3) To construe and interpret this Option Plan and options, to
establish, amend, and revoke rules and regulations for this Option Plan's
administration, and to make all other determinations necessary or advisable
for the administration of this Option Plan.
3. Shares Subject to this Option Plan.
Subject to the provisions of Paragraph 8 (relating to the adjustment upon
changes in stock), a total of up to 1,616,000 shares of the Common Stock (the
"Shares") of the Company may be issued pursuant to options granted under
this Option Plan. The Shares may be unissued Shares or reacquired Shares. If
any options granted under this Option Plan shall for any reason terminate or
expire without having been exercised in full, the Shares not purchased under
such options shall be available again for the purposes of this Option Plan.
4. Eligibility.
Options under this Option Plan may be granted only to directors,
officers, and other employees of the Company and/or of its subsidiaries who do
now own stock possessing more than ten percent of the total combined voting
power or value of all classes of stock of the Company or any of its
subsidiaries. Persons to whom options to purchase Shares are granted are
hereinafter referred to as "Optionee(s)." Subject to the provisions of
Paragraphs 3 and 5, and this Paragraph 4, of this Option Plan, there is no
limitation on the number of options that may be granted to an Optionee.
Notwithstanding the foregoing provisions of this Paragraph 4, options may
not be granted under this Plan for the purchase of an aggregate of more than
100,000 Shares to persons who, at the time of the grant of the option(s), are
members of the Board but not employees of the Company and/or of its
subsidiaries, and options to purchase no more than 10,000 Shares may be granted
to any single such director in any calendar year. If any option granted to
any such director shall for any reason terminate or expire without having been
exercised in full, the Shares not purchased under such option shall be
available again for the purpose of granting options to such directors (as
well as any other eligible participant) under this Option Plan.
5. Terms of Option Agreements.
(a) All Option Agreements. Options granted pursuant to this Option
Plan shall be evidenced by agreements specifying the number of Shares covered
thereby, in such form as the Board or Committee shall from time to time
establish, which agreements may incorporate all or any of the terms hereof by
reference and shall comply with and be subject to the following terms and
conditions:
(1) options under this Option Plan will be exercisable,
subject to the other provisions of this option Plan, only at the following
times:
(i) from and after the effective date of registration
pursuant to the Securities Act of 1933, as amended (the "Act"), of the common
shares underlying the options granted pursuant to this Option Plan, provided
that such exercise is in compliance with all applicable securities laws; or
(ii) at such times (if at all) and with such conditions
as the Company, in its sole discretion, may determine, provided that the
Company may place such restrictions on exercise, resale or otherwise as it
deems appropriate in order to satisfy applicable securities laws; provided,
however, that an option issued to a member of the Board shall not be
exercisable prior to the later to occur of the satisfaction of (i) or (ii)
above and the termination of a one year period from the date of the grant of
such option. The Company covenants to effect the registration described in
paragraph (1)(i), above, contemporaneously with, or a reasonable time after,
the effectiveness of the initial public offering of equity securities of the
Company provided that: (i) in no event will the Company be obligated to effect
such registration earlier than 180 days after such initial public offering;
and (ii) in no event will the Company be obligated to effect such registration
at any time as such registration would constitute or cause a breach of any
then existing contract to which the Company is a party. In no event shall an
option be exercisable after the expiration of eight years from the date it
is granted.
(2) Except as provided in Paragraph 5(b)(2) below, the exercise
price shall not be less than the fair market value (computed as provided in
Paragraph 6(g)) of the Shares on the date of granting of the option, provided
that, in addition to the foregoing limitation contained in this sentence, prior
to September 30, 1987 the exercise price shall not be less than one dollar
and twenty-seven cents ($1.27).
(3) To the extent that options are exercisable hereunder,
options may be exercised by written notice to the Company, stating the number
of Shares being purchased and accompanied by the payment in full of the
option price for such Shares. Such payment shall be made in cash or, subject
to the Company's discretion, in fully paid shares of the outstanding common
stock of the Company or a combination of cash and such common stock. If shares
of common stock are used in part or full payment for the Shares to be
acquired upon exercise of the option, such shares shall be valued for the
purpose of such exchange by the Board of Directors of the Company as of the
date of exercise of the option. Any certificates for shares of outstanding
common stock used to pay the option price shall be accompanied by stock powers
duly endorsed in blank by the registered holder of the certificate (with the
signature thereon guaranteed). In the event the certificates tendered by the
optionee in such payment cover more Shares than are required for such
payment, the certificates shall also be accompanied by instructions from the
optionee to the Company's transfer agent with regard to disposition of the
balance of the Shares covered thereby.
(4) The Company at all times shall keep available the number of
Shares required to satisfy options granted under this Option Plan.
(5) The Company may require any person to whom an option is
granted, or his or her legal representative, heir, legatee, or distributees, as
a condition of exercising any option granted hereunder, to give written
assurance satisfactory to the Company to the effect that such person is
acquiring the Shares subject to the option for his or her own account for
investment and not with any present intention of selling or otherwise
distributing the same. The Company reserves the right to place a legend on any
Share certificate issued pursuant to this Option Plan to ensure compliance
with this paragraph. Unless a Registration Statement under the Act is in
effect with respect to the Shares issuable upon exercise of the option, the
exercise of any option shall be conditioned upon the approval of the Company.
(6) Neither a person to whom an option is granted, nor such
person's legal representative, heir, legatee, or distributees, shall be deemed
to be the holder of, or to have any of the rights of a holder with respect
to, any Shares subject to such option unless and until such person has
exercised his or her option pursuant to the terms thereof.
(7) Options shall be transferable only by will or by the laws
of descent and distribution, and during the lifetime of the person to whom they
are granted such person alone may exercise them.
(8) In no event may an option be exercised by anyone after the
expiration of the term of the option established pursuant to Subparagraph
5(a)(1) hereof.
(9) Each option granted pursuant to this Option Plan shall specify
whether it is a non-qualified (i.e., non-statutory) or an incentive stock
option or other form of stock option.
(b) Incentive Stock Options. In addition to the terms and
conditions specified above, incentive stock options granted under this Option
Plan shall be subject to the following terms and conditions:
(1) The aggregate value (determined as of the time the option
is granted) of the Shares with respect to which incentive stock options are
exercisable for the first time by an Optionee during any calendar year
shall not exceed $100,000.
(2) As to individuals otherwise eligible under this Option
Plan who own at the time of the grant of an option more than 10% of the
total combined voting power of all classes of stock of the Company and its
parent and subsidiary corporations, incentive stock options can be granted
under this Option Plan to any such individual only if at the time such option
is granted the option price is at least 110% of the fair market value (as
defined in paragraph 6(g) below) of the Shares subject to the option and such
option by its terms is not exercisable after the expiration of five years
from the date such option is granted.
(3) An option shall terminate and may not be exercised if the
person to whom it is granted ceases to be employed by the Company or by a
subsidiary of the Company (unless such person continues as an employee of
the Company or another subsidiary of the Company), with the following
exceptions:
(i) If the employment is terminated for any reason other
than the person's death or disability, he or she may exercise the option if
otherwise exercisable under this Option Plan not later than three months
after such termination, but only to the extent that it was exercisable by
such person on the date of such termination, or
(ii) If such person dies or becomes permanently disabled
while in the employ of the Company or of a subsidiary, his or her option, if
otherwise exercisable under this Option Plan, may be exercised by his or her
personal representatives, heirs or legatees not later than twelve (12) months
following the date of death or permanent disability, but only to the extent
such option was exercisable by such person on the date of death or permanent
disability.
6. Restrictions as to the Shares.
(a) Share Certificates; Escrow. Share certificates issued for Shares
purchased upon exercise of options granted pursuant to this Option Plan will
bear all legends required by law and necessary to effectuate this Option
Plan's provisions. For purposes of facilitating the enforcement of the
provisions of this Option Plan, the Optionee, at the Company's option, will
deliver the certificate(s) for his or her Shares with a stock power executed by
him or her and by his or her spouse (if required for transfer), in blank, to
the Secretary of the Company, or the Secretary's designee, to hold said
certificate(s) and stock power(s) in escrow and to take all such actions and
to effectuate all such transfers and/or releases as are in accordance with
the terms of this Option Plan. The certificates may be held in escrow so long
as the Shares whose ownership they evidence are subject to any right of
repurchase under this Option Plan. Each Optionee, by exercising an option,
thereby acknowledges that the Secretary of the Company (or his or her designee)
is so appointed as the escrow holder with the foregoing authorities as a
material inducement to the grant of an Option under this Option Plan, that the
appointment is coupled with an interest, and that it accordingly will be
irrevocable. The escrow holder will not be liable to any party to this Option
Plan (or to any other party) for any actions or omissions unless the escrow
holder is grossly negligent relative thereto. The escrow holder may rely upon
any letter, notice or other document executed by any signature purported to
be genuine.
(b) Vested and Unvested Shares. As of the date of the grant of any
option granted under this Option Plan, all Shares underlying the option will be
deemed "Unvested." Except as may be otherwise provided in the stock option
agreement executed by an optionee who is not a member of the Board, Shares
purchased upon the exercise of any option will be or become "Vested"
according to the following schedule: at the end of each six (6) month period
after the date of grant of any option, one tenth (1/10) of the Shares
underlying such option will be deemed "Vested." Unless otherwise provided in
the stock option agreement executed by an Optionee, upon the termination of
Optionee's employment (in the case of employees), service as a director (in
the case of directors), or provision of independent contractor services (in the
case of independent contractors) with or for the Company (including any
subsidiary of the Company) for any reason whatsoever (whether by reason of
death, disability, voluntary resignation, involuntary termination, or any
other reason), all Unvested Shares will remain Unvested Shares and no further
Shares will become Vested. Notwithstanding the foregoing, and irrespective
of any provision in a Stock Option Agreement to the contrary, upon an
Optionee's Retirement, all outstanding Options that had been granted more
than two years before the date of the Optionee's Retirement shall become
immediately Vested. For purposes of the preceding sentence, "Retirement"
shall mean any termination of employment of an Optionee for any reason other
than death at any time after the Optionee has attained fifty (50), but only
if, at the time of such termination, the Participant has been credited with
at least seven (7) Years of Service under the Charles Schwab Profit Sharing and
Employee Stock Ownership Plan. The foregoing definition shall apply to all
Stock Option Agreements entered into pursuant to the Plan, irrespective of any
definition to the contrary contained in any such Stock Option Agreement.
(c) Restrictions on Transfer.
(1) Definitions. As used in this Option Plan, the term
"Transfer" will include, but not be limited to, a voluntary or involuntary
sale, assignment, transfer, pledge hypothecation, encumbrance, disposal, loan,
gift, attachment or levy of Shares. A Transfer will be considered
"Involuntary" for purposes of this Option Plan if it occurs pursuant to any
assignment of Shares for the benefit of creditors or any Transfer by
operation of law, including (but not limited to) any Transfer by will or under
the laws of intestate succession; any execution of judgment against the
Shares or the acquisition of record or beneficial ownership of Shares by a
lender or creditor; any Transfer pursuant to any decree of divorce,
dissolution or separate maintenance, any property settlement, any separation
agreement or any other agreement under which a part or all of any Shares are
Transferred or awarded to the spouse of Optionee or are required to be sold;
or any Transfer resulting from the filing by Optionee of a petition for relief,
or the filing of an involuntary petition against Optionee, under the bankruptcy
laws of the United States or of any other nation.
(2) General Prohibition on Transfer. Except as expressly
provided in this Option Plan, or as expressly provided otherwise in the stock
option agreement executed by any Optionee, Shares may not be Transferred in
any manner, Voluntarily or Involuntarily.
(3) Required Undertaking. Any Transfer that would otherwise
be permitted under the terms of this Option Plan is prohibited unless the
transferee executes such documents as the Company may reasonably require to
ensure that the Company's rights under this Option Plan are adequately
protected with respect to the Shares Transferred. Such agreements may include
(but are not limited to) the transferee's agreement to be bound by all of
the terms of this Option Plan as if he or she were the original Optionee,
except that the Vesting of Shares under Paragraph 6(b) hereof and the
Company's right of repurchase upon termination under paragraph 6(d) hereof will
continue to be determined with reference to the employment (or other service)
of the original Optionee.
(4) Permissible Transfer of Shares. Subject to any limitations
on Transfer imposed by any applicable state or federal securities laws, and
subject to the requirements of paragraph 6(c)(3) hereof:
(i) Shares may be Transferred by will or by the laws of
intestate succession;
(ii) Shares may be Transferred to Optionee's ancestors,
descendants, or spouse, or to a trust, partnership, custodianship or other
fiduciary account for his, her, or their benefit; and
(iii) Vested Shares may be Transferred. All other
Transfers of Shares are expressly prohibited.
(5) Effect of Prohibited Transfer. Any prohibited Transfer,
whether Voluntary or Involuntary, is void and of no effect. Should such a
Transfer purport to occur, the Company may refuse to carry out the Transfer
on its books, attempt to set aside the Transfer, enforce any undertaking
required under paragraph 6(c)(3), or exercise any other legal remedy.
(d) Company's Right To Purchase Unvested Shares Upon Termination.
(1) Definitions. For purposes of this section, neither a
transfer of Optionee from the Company to one of its subsidiaries or vice versa,
or from one of its subsidiaries to another, or to a successor to the
business of the Company or any of its subsidiaries by way of merger,
consolidation or purchase of substantially all the assets of the Company or
that subsidiary, or a leave of absence duly authorized by the Company, will
be deemed a termination of employment or service. If Optionee is a director of
the Company but not an employee when Shares are purchased upon exercise of
an option granted under this Option Plan, then for definitional purposes of
this Option Plan only, Optionee will be deemed to be employed by the Company so
long as he or she is a director or employee of the Company.
(2) Scope of Right. Should Optionee cease to be employed by
the Company and its subsidiaries for any reason whatsoever (whether due to
death, voluntary resignation, involuntary termination, disability or any
other reason), the Company will have an assignable right (but not an
obligation) to repurchase any Unvested Shares owned by Optionee at the time of
termination for a price per share equal to Optionee's original cost per
share, subject to appropriate adjustment pursuant to paragraph 8. If the
Company assigns its right under this subparagraph, the assignee, upon
exercise of its right to purchase the Unvested Shares, will pay the Company
cash in the amount equal to the difference between the fair market value per
share at the time of exercise and the Optionee's original cost per share,
subject to appropriate adjustment pursuant to paragraph 8. The fair market
value at the time of exercise will be determined by the Board of Directors.
(3) Mechanics and Notice. The Company's right to repurchase
may be exercised by written notice to Optionee or his or her personal
representative at any time not more than sixty (60) days after the Optionee's
employment with or service to the Company and its subsidiaries terminates.
Except as otherwise agreed upon by the Company and the Optionee, the Shares
will be repurchased at the Company's principal executive offices on the
sixtieth day (or, if that day is not a regular business day for the Company, on
the Company's first regular business day thereafter) following the
termination of employment or service. The repurchase price will be paid in
cash at the tine of the repurchase.
(e) Additional Restrictions on Transfer. By accepting options
and/or Shares under this option Plan Optionee represents, warrants and
agrees as follows:
(1) Commissioner of Corporations. Optionee understands that
Transfer of the Shares may be restricted in accordance with Section 260.141.11
of the rules of the California Commissioner of Corporations (to the extent
applicable), a copy of which is attached hereto.
(2) Securities Act of 1933. Optionee further understands that
the options and Shares may not have been registered under the Act and that the
options and Shares, when and if obtained are not freely tradeable and must
be held indefinitely unless registered under the Act or an exemption from such
registration is available. Optionee understands that the Company is under
no obligation to register the options or Shares except as expressly set
forth herein. Optionee further understands that although an exemption from
registration may be available pursuant to Rule 144 promulgated under the Act
by the Securities and Exchange Commission, satisfaction of a number of
conditions is required to make a sale under that exemption, and that, even
if Rule 144 is applicable in whole or in part, in no event may Optionee sell
the Shares to the public under such Rule prior to the expiration of a
two-year period after purchase, that any such sales must be limited in amount
and that sales can only be made in full compliance with the provisions of
the Rule. Optionee understands that Rule 144 contains specific requirements
that there be available to the public certain information with respect to
the Company's business and financial affairs, and that the Company may not be
in compliance with the information requirements of the Rule at any given time.
Optionee acknowledges that there is no assurance that the requirements will
be met at the time Optionee may want to make sales pursuant to the Rule.
Optionee represents that Optionee is purchasing the Shares for
Optionee's own account and not with a view to distribution within the meaning
of the Act, other than as may be effected in compliance with the Act and
rules and regulations promulgated thereunder. No one else has any beneficial
interest in the Shares. Optionee has no present intention of disposing of the
Shares at any particular time or for any particular price and is not aware of
any particular occasion, event or circumstance upon the occurrence of which
Optionee intends to dispose of the Shares. Optionee understands that the
Company is relying upon the truth and accuracy of these representations in
issuing the Shares without first registering them under the Act.
(3) Legends and Stop Order. The Company may affix to the
certificates representing the Shares such legends as it deems necessary or
appropriate to give effect to the terms of this Option Plan or as are
required to comply with any federal or state securities laws. The Company
may place a "stop transfer" order against the Shares until all restrictions
and conditions set forth in this Option Plan and in the legends referred to
in this subparagraph have been complied with.
(f) Compliance with Law. Despite anything else herein, Shares may
be sold pursuant to this Option Plan or by Optionee only after there has been
compliance with all applicable federal and state securities laws, and all
offers will be subject to this overriding condition. The Company will not be
required to register or qualify Shares with the Securities and Exchange
Commission or any State agency except that the Company will obtain any required
permit from the California Commissioner of Corporations authorizing the
original issuance of the Shares.
(g) Fair Market Value. If the Shares of the Company are not
publicly traded as of a particular date, fair market value may be computed by
any method the Board or Committee believes in good faith will reflect the
fair market value of the Shares on such day. During such time as such Shares
are publicly traded but not listed upon an established stock exchange, the
fair market value per Share shall be the last sale price on the relevant date
as reported on the National Market System, or, if such Shares are not then
reported on the National Market System but quotations are reported on the
National Association of Securities Dealers Automated Quotations System, the
average of the bid and asked prices on the relevant date, in either event as
such price quotes are listed in The Wall Street Journal, Western Edition (or if
not so reported in The Wall Street Journal any other listing service or
publication known to the Board). If the Shares are listed upon an established
stock exchange or exchanges, such fair market value shall be deemed to be
the closing price of the Shares on the largest such stock exchange upon which
such Shares are listed on the relevant date.
7. Use of Proceeds from Shares.
Proceeds from the sale of shares pursuant to options granted under the
Option Plan shall be used for general corporate purposes.
8. Adjustment Upon Changes in Shares.
(a) In the event that the Common Stock of the Company is changed by
a stock split, reverse stock split, recapitalization, or other change in the
capital structure of the Company, or in the event that the outstanding number
of shares of stock of the company is increased through payment of a stock
dividend, appropriate proportionate adjustments will be made in the number and
class of shares of stock subject to this Option Plan, and the exercise price of
the rights of purchase or repurchase under this Option Plan. Any such
adjustment will be made by the Board, whose determination will be conclusive.
If there is any other change in the number or kind of the outstanding shares
of stock of the Company, or of any other security into which that stock has
been changed or for which it has been exchanged, and if the Board, in its
sole discretion, determines that this change requires any adjustment in the
restrictions on Transfer or rights of repurchase in Shares then subject to
this Option Plan, such an adjustment will be made in accordance with the
determination of the Board. No adjustments will be required by reason of
the issuance or sale by the Company for cash or other consideration of
additional shares of its stock or securities convertible into or exchangeable
for shares of its stock.
(b) If, as a result of a stock split, stock dividend, or exchange
for other securities in the Company or in another corporation by
reclassification, reorganization, merger, consolidation, recapitalization or
otherwise, Optionee (or his or her successor or assignee), as the owner of
Shares subject to restrictions on Transfer or rights of repurchase hereunder,
is entitled to new, additional or different securities, then, at the option and
in the sole discretion of the Board, those new, additional, or different
securities may be distributed subject to all, some, or none of the restrictions
on Transfer or rights of repurchase to which the original shares were
subject. The certificate or certificates for, or other evidences of, such new
or additional or different securities, together with a stock power or other
instrument of transfer appropriately endorsed, as appropriate, also will be
imprinted with such legends as may be required by law or necessary to
effectuate the rights or restrictions imposed, and will be deposited in escrow,
as provided in Paragraph 6(a).
(c) In the event of a dissolution or liquidation of the Company, the
Board shall have discretion and power to shorten the time over which an option
may be exercised or the time over which Shares are deemed "Vested" under
Paragraph 6(b) herein, notwithstanding the provisions of the option agreement
or this Option Plan.
(d) In the event of a merger or consolidation or other
reorganization in which the Company is not the surviving corporation, or in
which the Company becomes a subsidiary of another corporation, the successor
corporation shall agree to assume the outstanding options or substitute
comparable options therefor or, if the successor corporation is unwilling to
do so, the outstanding options shall be exercisable only prior to such
merger, consolidation, or other reorganization and any Shares purchased upon
exercise shall be deemed fully "Vested" prior to such merger or consolidation
or other reorganization.
9. Rights as an Employee.
Nothing in this Option Plan or in any rights awarded hereunder shall
confer upon any employee any right to continue in the employ of the Company or
of any of its subsidiaries or interfere in any way with the right of the
Company or any such subsidiary to terminate such employee's employment at
any time.
10. Withholding Tax.
There shall be deducted from the compensation of any employee holding
options under this Option Plan the amount of any tax required by any
governmental authority to be withheld and paid over by the Company to such
governmental authority for the account of the person with respect to such
options.
11. Termination and Amendment of Option Plan.
The Board of Directors may at any time terminate this Option Plan, or
make such modifications of the Option Plan as it shall deem advisable.
12. Effective Date of the Option Plan.
The Option Plan was initially adopted on March 24, 1987, and was amended
on July 29, 1987. The Option Plan, as amended and restated herein, shall be
effective as of April 17, 1989. Any options granted under this Option Plan
must be exercised within eight (8) years of the date of grant. The Option Plan
shall terminate not more than ten (10) years from the date the Option Plan
initially was adopted, but such termination will not affect any options then
outstanding.
13. Indemnification.
In addition to such other rights of indemnification as they may have as
directors, the members of the Board of Directors administering the Option Plan
shall be indemnified by the Company against the reasonable expenses,
including attorneys' fees actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with any
appeal therein, to which they or any of them may be a party by reason of any
action taken or failure to act under or in connection with the Option Plan or
any option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a
judgment in any such action, suit or proceeding that such member is liable for
negligence or misconduct in the performance of his duties; provided that
within 60 days after institution of any such action, suit or proceeding, the
member shall in writing offer the Company the opportunity, at its own
expense, to handle and defend the same.
<PAGE>
NON-OUALIFIED STOCK OPTION AGREEMENT
(1987 Stock Option Plan, as first amended)
THIS AGREEMENT, made as of this _____ of _________, 19__, by and between
The Charles Schwab Corporationp a Delaware corporation ("Company"), and
_______________ ("Optionee").
WITNESSETH:
WHEREAS, there has been granted to Optionee, effective as of
__________ __, 19____, a non-qualified stock option under the 1987 Stock
Option Plan, as first amended, of the Company ("Option Plan");
NOW, THEREFORE, it is mutually agreed as follows:
1. The Optionee shall have a non-qualified stock option to acquire
_____ shares of common stock of the Company (the "Shares"), at a price of
$_______ per share.
2. Optionee acknowledges that paragraph 5(a) of the Option Plan
imposes significant restrictions on Optionee's ability to exercise this option.
3. This is a non-statutory stock option and the provisions of
paragraph 5(b) of the Option Plan are inapplicable to this Option. With that
exception and except as provided in paragraph 4, 5 and 6 below, the other terms
of this option shall be the same as without limitation, vesting of Shares,
limitations on exercise and transfer, and other restrictions. The Option Plan
is attached hereto as Exhibit A and is incorporated herein by this reference.
Optionee has read the Option Plan and, other than for the provisions of
paragraph 5(b) of the Option Plan and as provided in paragraphs 4, 5 and 6
below, agrees to be bound by its terms. Without limitation, Optionee
specifically acknowledges the representations, warranties and agreements
contained in paragraph 6(e) of the Option Plan.
4. Notwithstanding paragraph 6(b) of the Option Plan, in the event
Optionee's employment, service as a director or provision of independent
contractor services with or for the Company and its subsidiaries terminates
by reason of Optionee's death or permanent disability, all shares then not
deemed to be Vested thereupon will be deemed immediately Vested. For this
purpose, "permanent disability" will mean the reasonable determination by a
qualified physician acceptable to the Company that the Optionee has an
illness or incapacity that has disabled, or will disable, the Optionee from
rendering his or her normal services to the company and its subsidiaries for a
period of more than six (6) consecutive months in any consecutive twelve
(12) month period.
5. If the Company fails to timely exercise its right to repurchase
Unvested Shares, those Shares will be treated as Vested Shares. Options
underlying Unvested Shares may not be exercised once vesting ceases.
6. Any notice to be given by the Optionee under the terms of the
Option Plan shall be deemed to have been duly given, and effective upon
receipt, if sent by Certified Mail, postage and certification prepaid, to
The Charles Schwab Corporation, 101 Montgomery Street, San Francisco,
California 94104, Attention: Corporate Secretary, except as superseded by a
different address noticed to Optionee.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year referred to above.
BY:
on Behalf of
The Charles Schwab Corporation
("Company")
Optionee
Attachments: (1) Spousal Consent
(2) Exhibit A: 1987 Stock Option
Plan, as first amended.
<PAGE>
EXHIBIT 10.161
THE CHARLES SCHWAB CORPORATION
1992 STOCK INCENTIVE PLAN
(Restated to include Amendments through September 17, 1996)
Article 1. Introduction.
The Plan was adopted by the Board of Directors on March 26, 1992. The
purpose of the Plan is to promote the long-term success of the Company and the
creation of incremental stockholder value by (a) encouraging Non-Employee
Directors and Key Employees to focus on long-range objectives, (b) encouraging
the attraction and retention of Non-Employee Directors and Key Employees with
exceptional qualifications and (c) linking Non-Employee Directors and Key
Employees directly to stockholder interests. The Plan seeks to achieve this
purpose by providing for Awards in the form of Restricted Shares, Performance
Share Awards or Options, which may constitute incentive stock options or
nonstatutory stock options. The Plan shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
Article 2. Administration.
2.1 The Committee. The Plan shall be administered by the Committee.
The Committee shall consist of two or more disinterested directors of the
Company, who shall be appointed by the Board. A member of the Committee
shall not be eligible to receive any award under the Plan, other than Options
granted under Section 4.2.
2.2 Disinterested Directors. A member of the Board shall be deemed
to be "disinterested" only if he or she satisfies such requirements as the
Securities and Exchange Commission may establish for disinterested
administrators acting under plans intended to qualify for exemption under
Rule 16b-3 (or its successor) under the Exchange Act.
2.3 Committee Responsibilities. The Committee shall select the Key
Employees who are to receive Awards under the Plan, determine the amount,
vesting requirements and other conditions of such Awards, may interpret the
Plan, and make all other decisions relating to the operation of the Plan. The
Committee may adopt such rules or guidelines as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be
final and binding on all persons.
Article 3. Limitation on Awards.
The aggregate number of Restricted Shares, Performance Share Awards and
Options awarded under the Plan shall not exceed 6,550,000 (including those
shares awarded prior to the amendment of the Plan). If any Restricted Shares,
Performance Share Awards or Options are forfeited, or if any Performance Share
Awards terminate for any other reason without the associated Common Shares
being issued, or if any Options terminate for any other reason before being
exercised, then such Restricted Shares, Performance Share Awards or Options
shall again become available for Awards under the Plan. The limitation of this
Article 3 shall be subject to adjustment pursuant to Article 10. Any Common
Shares issued pursuant to the Plan may be authorized but unissued shares or
treasury shares.
Subject to the overall limit on the aggregate shares set forth above,
the following limitations shall apply: (a) The maximum number of Common Shares
which may be granted subject to an Option to any one Participant in any one
fiscal year shall be 500,000; and (b) The maximum number of Restricted Shares
or Performance Share Awards which may be granted to any one Participant in
any one fiscal year shall be 200,000.
Article 4. Eligibility.
4.1 General Rule. Except as provided in Section 4.2, only Key
Employees shall be eligible for designation as Participants by the Committee.
4.2 Non-Employee Directors. Non-Employee Directors shall be
entitled to receive the NSOs described in this Section 4.2 (and no other
Awards).
(a) Each Non-Employee Director shall receive a Non-Officer Stock
Option covering 2,500 Common Shares for each Award Year with
respect to which he or she serves as a Non-Employee Director
on the grant date described in subsection (b) below; provided
that the Non-Officer Stock Option shall cover 1,500 shares if
the Exercise Price determined as of the grant date, is $35 or
more;
(b) The NSO for a particular Award Year shall be granted to each
Non-Employee Director as of May 15 of each Award Year, and if
May 15 is not a business day, then the grant shall be made on
and as of the next succeeding business day;
(c) Each NSO shall be exercisable in full at all times during its
term;
(d) The term of each NSO shall be 10 years; provided, however, that
any unexercised NSO shall expire on the date that the Optionee
ceases to be a Non-Employee Director or a Key Employee for any
reason other than death or disability. If an Optionee ceases
to be a Non-Employee Director or Key Employee on account of
death or disability, any unexercised NSO shall expire on the
earlier of the date 10 years after the date of grant or one
year after the date of death or disability of such Director; and
(e) The Exercise Price under each NSO shall be equal to the Fair
Market Value on the date of grant and shall be payable in any
of the forms described in Article 6.
4.3 Ten-Percent Stockholders. A Key Employee who owns more than 10
percent of the total combined voting power of all classes of outstanding stock
of the Company or any of its Subsidiaries shall not be eligible for the
grant of an ISO unless (a) the Exercise price under such ISO is at least 110
percent of the Fair Market Value of a Common Share on the date of grant and
(b) such ISO by its terms is not exercisable after the expiration of five years
from the date of grant.
4.4 Attribution Rules. For purposes of Section 4.3, in determining
stock ownership, a Key Employee shall be deemed to own the stock owned,
directly or indirectly, by or for his or her brothers, sisters, spouse,
ancestors or lineal descendants. Stock owned, directly or indirectly, by or
for a corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its stockholders, partners or beneficiaries. Stock
with respect to which the Key Employee holds an option shall not be counted.
4.5 Outstanding Stock. For purposes of Section 4.3, "outstanding
stock" shall include all stock actually issued and outstanding immediately
after the grant of the ISO to the Key Employee. "Outstanding stock" shall
not include treasury shares or shares authorized for issuance under outstanding
options held by the Key Employee or by any other person.
Article 5. Options.
5.1 Stock Option Agreement. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms and conditions
of the Plan, and may be subject to any other terms and conditions which are not
inconsistent with the Plan and which the Committee deems appropriate for
inclusion in a Stock Option Agreement. The provisions of the various Stock
Option Agreements entered into under the Plan need not be identical. The
Committee may designate all or any part of an Option as an ISO, except for
Options granted to Non-Employee Directors under Section 4.2. The Committee
may designate all or any part of an Option as an ISO (or, in the case of a
Key Employee who is subject to the tax laws of a foreign jurisdiction, as an
option qualifying for favorable tax treatment under the laws of such foreign
jurisdiction), except for Options granted to Non-Employee Directors under
section 4.2.
5.2 Options Nontransferability. No Option granted under the Plan
shall be transferable by the Optionee other than by will or the laws of descent
and distribution. An Option may be exercised during the lifetime of the
Optionee only by him or her. No Option or interest therein may be transferred,
assigned, pledged or hypothecated by the Optionee during his or her lifetime,
whether by operation of law or otherwise, or be made subject to execution,
attachment or similar process.
5.3 Number of Shares. Each Stock Option Agreement shall specify
the number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 10. Each Stock Option
Agreement shall also specify whether the Option is an ISO or an NSO.
5.4 Exercise Price. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price under an Option shall not be less than
100 percent of the Fair Market Value of a Common Share on the date of grant,
except as otherwise provided in Section 4.3. Subject to the preceding sentence,
the Exercise Price under any Option shall be determined by the Committee.
The Exercise Price shall be payable in accordance with Article 6.
5.5 Exercisability and Term. Each Stock Option Agreement shall
specify the date when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of the
Option. The term of an ISO shall in no event exceed 10 years from the date of
grant, and Section 4.3 may require a shorter term. Subject to the preceding
sentence, the Committee shall determine when all or any part of an Option is to
become exercisable and when such Option is to expire; provided that, in
appropriate cases, the Company shall have the discretion to extend the term of
an Option or the time within which, following termination of employment, an
Option may be exercised, or to accelerate the exercisability of an Option. A
Stock Option Agreement may provide for accelerated exercisability in the
event of the Optionee's death, disability, retirement, or other termination of
employment and may provide for expiration prior to the end of its term in
the event of the termination of the Optionee's employment. Except as provided
in Section 4.2, NSOs may also be awarded in combination with Restricted
Shares, and such an Award may provide that the NSOs will not be exercisable
unless the related Restricted Shares are forfeited. In addition, NSOs
granted under this Section 5 may be granted subject to forfeiture provisions
which provide for forfeiture of the Option upon the exercise of tandem awards,
the terms of which are established in other programs of the Company.
5.6 Limitation on Amount of ISOs. The aggregate fair market value
(determined at the time the ISO is granted) of the Common Shares with respect
to which ISOs are exercisable for the first time by the Optionee during any
calendar year (under all incentive stock option plans of the Company) shall not
exceed $100,000; provided, however, that all or any portion of an Option which
cannot be exercised as an ISO because of such limitation shall be treated as an
NSO.
5.7 Effect of Change in Control. The Committee (in its sole
discretion) may determine, at the time of granting an Option, that such Option
shall become fully exercisable as to all Common Shares subject to such
Option immediately preceding any Change in Control with respect to the Company.
5.8 Restrictions on Transfer of Common Shares. Any Common Shares
issued upon exercise of an Option shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other transfer
restrictions as the Committee may determine. Such restrictions shall be set
forth in the applicable Stock Option Agreement and shall apply in addition to
any general restrictions that may apply to all holders of Common Shares.
5.9 Authorization of Replacement Options. Concurrently with the
grant of any Option to a Participant (other than NSOs granted pursuant to
Section 4.2), the Committee may authorize the grant of Replacement Options. If
Replacement Options have been authorized by the Committee with respect to a
particular award of Options (the "Underlying Options"), the Option Agreement
with respect to the Underlying Options shall so state, and the terms and
conditions of the Replacement Options shall be provided therein. The grant of
any Replacement Options shall be effective only upon the exercise of the
Underlying Options through the use of Common Shares pursuant to Section 6.2 or
Section 6.3. The number of Replacement Options shall equal the number of Common
Shares used to exercise the Underlying Options, and, if the Option Agreement so
provides, the number of Common Shares used to satisfy any tax withholding
requirements incident to the exercise of the Underlying Options in accordance
with Section 13.2. Upon the exercise of the Underlying Options, the
Replacement Options shall be evidenced by an amendment to the Underlying
Option Agreement. Notwithstanding the fact that the Underlying Option may be an
ISO, a Replacement Option is not intended to qualify as an ISO. The Exercise
Price of a Replacement Option shall be no less than the Fair Market Value of a
Common Share on the date the grant of the Replacement Option becomes
effective. The term of each Replacement Option shall be equal to the remaining
term of the Underlying Option. No Replacement Options shall be granted to
Optionees when Underlying Options are exercised pursuant to the terms of the
Plan and the Underlying Option Agreement following termination of the
Optionee's employment. The Committee, in its sole discretion, may establish
such other terms and conditions for Replacement Options as it deems
appropriate.
5.10 Options Granted to Non-United States Key Employees. In the
case of Key Employees who are subject to the tax laws of a foreign
jurisdiction, the Company may issue Options to such Key Employees that contain
terms required to conform with any requirements for favorable tax treatment
imposed by the laws of such foreign jurisdiction, or as otherwise may be
required by the laws of such foreign jurisdiction. The terms of any such
Options shall be governed by the Plan, subject to the terms of any Addendum
to the Plan specifically applicable to such Options."
Article 6. Payment for Option Shares.
6.1 General Rule. The entire Exercise Price of Common Shares
issued upon exercise of Options shall be payable in cash at the time when such
Common Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall be
made only pursuant to the express provisions of the applicable Stock
Option Agreement. However, the Committee may specify in the Stock
Option Agreement that payment may be made pursuant to Section 6.2 or 6.3.
(b) In the case of an NSO, the Committee may at any time accept
payment pursuant to Section 6.2 or 6.3.
6.2 Surrender of Stock. To the extent that this Section 6.2 is
applicable, payment for all or any part of the Exercise Price may be made with
Common Shares which are surrendered to the Company; provided, however, that
such Common Shares which are surrendered must have been beneficially owned by
the Participant for at least six (6) months prior to the date such shares
are surrendered. Such Common Shares shall be valued at their Fair Market Value
on the date when the new Common Shares are purchased under the Plan. In the
event that the Common Shares being surrendered are Restricted Shares that have
not yet become vested, the same restrictions shall be imposed upon the new
Common Shares being purchased.
6.3 Exercise/Sale. To the extent this Section 6.3 is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to Charles Schwab & Co., Inc. to sell Common Shares
(including the Common Shares to be issued upon exercise of the Options) and to
deliver all or part of the sales proceeds to the Company in payment of all
or part of the Exercise Price and any withholding taxes; provided, however,
that certain restrictions may be imposed by the Committee on persons who are
considered a director or officer of the Company, to the extent required by
Section 16 of the Exchange Act or any rule thereunder.
Article 7. Restricted Shares and Performance Share Awards.
7.1 Time, Amount and Form of Awards. The Committee may grant
Restricted Shares or Performance Share Awards with respect to an Award Year
during such Award Year or at any time thereafter. Each such Award shall be
evidenced by a Stock Award Agreement between the Award recipient and the
Company. The amount of each Award of Restricted Shares or Performance Share
Awards shall be determined by the Committee. Awards under the Plan may be
granted in the form of Restricted Shares or Performance Share Awards or in
any combination thereof, as the Committee shall determine at its sole
discretion at the time of the grant. Restricted Shares or Performance Share
Awards may also be awarded in combination with NSOs, and such an Award may
provide that the Restricted Shares or Performance Share Awards will be
forfeited in the event that the related NSOs are exercised.
7.2 Payment for Restricted Share Awards. To the extent that an
Award is granted in the form of Restricted Shares, the Award recipient, as a
condition to the grant of such Award, shall be required to pay the Company
in cash an amount equal to the par value of such Restricted Shares.
7.3 Vesting or Issuance Conditions. Each Award of Restricted
Shares shall become vested, in full or in installments, upon satisfaction of
the conditions specified in the Stock Award Agreement. Common Shares shall
be issued pursuant to Performance Share Awards in full or in installments
upon satisfaction of the issuance conditions specified in the Stock Award
Agreement. The Committee shall select the vesting conditions in the case of
Restricted Shares, or issuance conditions in the case of Performance Share
Awards, which may be based upon the Participant's service, the Participant's
performance, the Company's performance or such other criteria as the
Committee may adopt. A Stock Award Agreement may also provide for accelerated
vesting or issuance, as the case may be, in the event of the Participant's
death, disability or retirement. The Committee, in its sole discretion, may
determine, at the time of making an Award of Restricted Shares, that such Award
shall become fully vested in the event that a Change in Control occurs with
respect to the Company. The Committee, in its sole discretion, may determine,
at the time of making a Performance Share Award, that the issuance
conditions set forth in such Award shall be waived in the event that a Change
in Control occurs with respect to the Company.
The Committee shall have the discretion to adjust the payouts associated
with Awards downward. Unless and until (i) the rules set forth under Code
Section 162(m) permit discretionary adjustments to increase payouts; or
(ii) the Committee determines that compliance with Code Section 162(m) is not
desired with respect to some or all Named Executive Officers, no payout
associated with an Award held by a Named Executive Officer shall be
discretionarily adjusted upward in a manner that would eliminate the ability of
the Award to satisfy the "performance-based" exception under Treasury
Regulation Section 1.162-27(e)(2).
7.4 Form of Settlement of Performance Share Awards. Settlement of
Performance Share Awards shall only be made in the form of Common Shares. Until
a Performance Share Award is settled, the number of Performance Share Awards
shall be subject to adjustment pursuant to Article 10.
7.5 Death of Recipient. Any Common Shares that are to be issued
pursuant to a Performance Share Award after the recipient's death shall be
delivered or distributed to the recipient's beneficiary or beneficiaries.
Each recipient of a Performance Share Award under the Plan shall designate one
or more beneficiaries for this purpose by filing the prescribed form with
the Company. A beneficiary designation may be changed by filing the prescribed
form with the Company at any time before the Award recipient's death. If no
beneficiary was designated or if no designated beneficiary survives the Award
recipient, then any Common Shares that are to be issued pursuant to a
Performance Share Award after the recipient's death shall be delivered or
distributed to the recipient's estate. The Committee, in its sole discretion,
shall determine the form and time of any distribution(s) to a recipient's
beneficiary or estate.
Article 8. Claims Procedures.
Claims for benefits under the Plan shall be filed in writing with the
Committee on forms supplied by the Committee. Written notice of the disposition
of a claim shall be furnished to the claimant within 90 days after the claim
is filed. If the claim is denied, the notice of disposition shall set forth the
specific reasons for the denial, citations to the pertinent provisions of
the Plan, and, where appropriate, an explanation as to how the claimant can
perfect the claim. If the claimant wishes further consideration of his or
her claim, the claimant may appeal a denied claim to the Committee (or to a
person designated by the Committee) for further review. Such appeal shall
be filed in writing with the Committee on a form supplied by the Committee,
together with a written statement of the claimant's position, no later than 90
days following receipt by the claimant of written notice of the denial of
his or her claim. If the claimant so requests, the Committee shall schedule a
hearing. A decision on review shall be made after a full and fair review of
the claim and shall be delivered in writing to the claimant no later than 60
days after the Committee's receipt of the notice of appeal, unless special
circumstances (including the need to hold a hearing) require an extension of
time for processing the appeal, in which case a written decision on review
shall be delivered to the claimant as soon as possible but not later than 120
days after the Committee's receipt of the appeal notice. The claimant shall
be notified in writing of any such extension of time. The written decision on
review shall include specific reasons for the decision, written in a manner
calculated to be understood by the claimant, and shall specifically refer to
the pertinent Plan provisions on which it is based. All determinations of
the Committee shall be final and binding on Participants and their
beneficiaries.
Article 9. Voting Rights and Dividends.
9.1 Restricted Shares.
(a) All holders of Restricted Shares who are not Named Executive
Officers shall have the same voting, dividend, and other rights as
the Company's other stockholders.
(b) During the period of restriction, Named Executive Officers
holding Restricted Shares granted hereunder shall be credited with
all regular cash dividends paid with respect to all Restricted
Shares while they are so held. If a dividend is paid in the form
of cash, such cash dividend shall be credited to Named Executive
Officers subject to the same restrictions on transferability
and forfeitability as the Restricted Shares with respect to
which they were paid. If any dividends or distributions are paid
in shares of Common Stock, the shares of Common Stock shall be
subject to the same restrictions on transferability and
forfeitability as the Restricted Shares with respect to which
they were paid. Subject to the succeeding paragraph, and to the
restrictions on vesting and the forfeiture provisions, all
dividends credited to a Named Executive Officer shall be paid to
the Named Executive Officer within forty-five (45) days following
the full vesting of the Restricted Shares with respect to which
such dividends were earned.
In the event that any dividend constitutes a "derivative security"
or an "equity security" pursuant to Rule 16(a) under the Exchange
Act, such dividend shall be subject to a vesting period equal to the
longer of: (i) the remaining vesting period of the Restricted
Shares with respect to which the dividend is paid; or (ii) six (6)
months. The Committee shall establish procedures for the
application of this provision.
Named Executive Officers holding Restricted Shares shall have the
same voting rights as the Company's other stockholders.
9.2 Performance Share Awards. The holders of Performance Share
Awards shall have no voting or dividend rights until such time as any Common
Shares are issued pursuant thereto, at which time they shall have the same
voting, dividend and other rights as the Company's other stockholders.
Article 10. Protection Against Dilution; Adjustment of Awards.
10.1 General. In the event of a subdivision of the outstanding
Common Shares, a declaration of a dividend payable in Common Shares, a
declaration of a dividend payable in a form other than Common Shares, a
combination or consolidation of the outstanding Common Shares (by
reclassification or otherwise) into a lesser number of Common Shares, a
recapitalization, a spinoff or a similar occurrence, the Committee shall
make appropriate adjustments in one or more of (a) the number of Options,
Restricted Shares and Performance Share Awards available for future Awards
under Article 3, (b) the number of Performance Share Awards included in any
prior Award which has not yet been settled, (c) the number of Common Shares
covered by each outstanding Option or (d) the Exercise Price under each
outstanding Option.
10.2 Reorganizations. In the event that the Company is a party to
a merger or other reorganization, outstanding Options, Restricted Shares and
Performance Share Awards shall be subject to the agreement of merger or
reorganization. Such agreement may provide, without limitation, for the
assumption of outstanding Awards by the surviving corporation or its parent,
for their continuation by the Company (if the Company is a surviving
corporation), for accelerated vesting or for settlement in cash.
10.3 Reservation of Rights. Except as provided in this Article 10,
a Participant shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class, the payment of any stock
dividend or any other increase or decrease in the number of shares of stock of
any class. Any issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Common Shares subject to an Option. The grant of an Award
pursuant to the Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes of
its capital or business structure, to merge or consolidate or to dissolve,
liquidate, sell or transfer all or any part of its business or assets.
Article 11. Limitation of Rights.
11.1 Employment Rights. Neither the Plan nor any Award granted
under the Plan shall be deemed to give any individual a right to remain
employed by the Company or any Subsidiary. The Company and its Subsidiaries
reserve the right to terminate the employment of any employee at any time, with
or without cause, subject only to a written employment agreement (if any).
11.2 Stockholders' Rights. A Participant shall have no dividend
rights, voting rights or other rights as a stockholder with respect to any
Common Shares covered by his or her Award prior to the issuance of a stock
certificate for such Common Shares. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to the date
when such certificate is issued, except as expressly provided in Articles 7, 9
and 10.
11.3 Creditors' Rights. A holder of Performance Share Awards shall
have no rights other than those of a general creditor of the Company.
Performance Share Awards represent unfunded and unsecured obligations of the
Company, subject to the terms and conditions of the applicable Stock Award
Agreement.
11.4 Government Regulations. Any other provision of the Plan
notwithstanding, the obligations of the Company with respect to Common Shares
to be issued pursuant to the Plan shall be subject to all applicable laws,
rules and regulations, and such approvals by any governmental agencies as may
be required. The Company reserves the right to restrict, in whole or in part,
the delivery of Common Shares pursuant to any Award until such time as:
(a) Any legal requirements or regulations have been met relating to
the issuance of such Common Shares or to their registration, qualification
or exemption from registration or qualification under the Securities Act
of 1933, as amended, or any applicable state securities laws; and
(b) Satisfactory assurances have been received that such Common
Shares, when issued, will be duly listed on the New York Stock Exchange or
any other securities exchange on which Common Shares are then listed.
Article 12. Limitation of Payments.
12.1 Basic Rule. Any provision of the Plan to the contrary
notwithstanding, in the event that the independent auditors most recently
selected by the Board (the "Auditors") determine that any payment or transfer
in the nature of compensation to or for the benefit of a Participant, whether
paid or payable (or transferred or transferable) pursuant to the terms of
this Plan or otherwise (a "Payment"), would be nondeductible for federal income
tax purposes because of the provisions concerning "excess parachute payments"
in section 280G of the Code, then the aggregate present value of all Payments
shall be reduced (but not below zero) to the Reduced Amount; provided,
however, that the Committee, at the time of making an Award under this Plan or
at any time thereafter, may specify in writing that such Award shall not be
so reduced and shall not be subject to this Article 12. For purposes of this
Article 12, the "Reduced Amount" shall be the amount, expressed as a present
value, which maximizes the aggregate present value of the Payments without
causing any Payment to be nondeductible by the Company because of section
280G of the Code.
12.2 Reduction of Payments. If the Auditors determine that any
Payment would be nondeductible because of section 280G of the Code, then the
Company shall promptly give the Participant notice to that effect and a copy
of the detailed calculation thereof and of the Reduced Amount, and the
Participant may then elect, in his or her sole discretion, which and how
much of the Payments shall be eliminated or reduced (as long as after such
election, the aggregate present value of the Payments equals the Reduced
Amount) and shall advise the Company in writing of his or her election within
10 days of receipt of notice. If no such election is made by the Participant
within such 10-day period, then the Company may elect which and how much of
the Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
notify the Participant promptly of such election. For purposes of this
Article 12, present value shall be determined in accordance with section
280G(d)(4) of the Code. All determinations made by the Auditors under this
Article 12 shall be binding upon the Company and the Participant and shall
be made within 60 days of the date when a Payment becomes payable or
transferable. As promptly as practicable following such determination and the
elections hereunder, the Company shall pay or transfer to or for the benefit of
the Participant such amounts as are then due to him or her under the Plan, and
shall promptly pay or transfer to or for the benefit of the Participant in
the future such amounts as become due to him or her under the Plan.
12.3 Overpayments and Underpayments. As a result of uncertainty in
the application of section 280G of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that Payments will have
been made by the Company which should not have been made (an "Overpayment")
or that additional Payments which will not have been made by the Company could
have been made (an "Underpayment"), consistent in each case with the
calculation of the Reduced Amount hereunder. In the event that the Auditors,
based upon the assertion of a deficiency by the Internal Revenue Service
against the Company or the Participant which the Auditors believe has a high
probability of success, determine that an Overpayment has been made, such
Overpayment shall be treated for all purposes as a loan to the Participant
which he or she shall repay to the Company on demand, together with interest at
the applicable federal rate provided in section 7872(f)(2) of the Code;
provided, however, that no amount shall be payable by the Participant to the
Company if and to the extent that such payment would not reduce the amount
which is subject to taxation under section 4999 of the Code. In the event
that the Auditors determine that an Underpayment has occurred, such
Underpayment shall promptly be paid or transferred by the Company to or for
the benefit of the Participant, together with interest at the applicable
federal rate provided in section 7872(f)(2) of the Code.
12.4 Related Corporations. For purposes of this Article 12, the
term "Company" shall include affiliated corporations to the extent determined
by the Auditors in accordance with section 280G(d)(5) of the Code.
Article 13. Withholding Taxes.
13.1 General. To the extent required by applicable federal, state,
local or foreign law, the recipient of any payment or distribution under the
Plan shall make arrangements satisfactory to the Company for the satisfaction
of any withholding tax obligations that arise by reason of such payment or
distribution. The Company shall not be required to make such payment or
distribution until such obligations are satisfied.
13.2 Nonstatutory Options, Restricted Shares or Performance Share
Awards. The Committee may permit an Optionee who exercises NSOs, or who
receives Awards of Restricted Shares, or who receives Common Shares
pursuant to the terms of a Performance Share Award, to satisfy all or part of
his or her withholding tax obligations by having the Company withhold a portion
of the Common Shares that otherwise would be issued to him or her under such
Awards. Such Common Shares shall be valued at their Fair Market Value on the
date when taxes otherwise would be withheld in cash. The payment of
withholding taxes by surrendering Common Shares to the Company, if permitted by
the Committee, shall be subject to such restrictions as the Committee may
impose, including any restrictions required by rules of the Securities and
Exchange Commission.
Article 14. Assignment or Transfer of Award.
Any Award granted under the Plan shall not be anticipated, assigned,
attached, garnished, optioned, transferred or made subject to any creditor's
process, whether voluntarily, involuntarily or by operation of law. However,
this Article 14 shall not preclude (i) a Participant from designating a
beneficiary to succeed, after the Participant's death, to those of the
Participant's Awards (including without limitation, the right to exercise any
unexercised Options) as may be determined by the Company from time to time in
its sole discretion, or (ii) a transfer of any Award hereunder by will or
the laws of descent or distribution.
Article 15. Future of Plans.
15.1 Term of the Plan. The Plan, as set forth herein, shall become
effective on May 8, 1992. The Plan shall remain in effect until it is
terminated under Section 15.2, except that no ISOs shall be granted after
May 7, 2002.
15.2 Amendment or Termination. The Committee may, at any time and
for any reason, amend or terminate the Plan; provided, however, that any
amendment of the Plan shall be subject to the approval of the Company's
stockholders to the extent required by applicable laws, regulations or rules;
and provided further, that Section 4.2 shall not be amended more than once
every six months, other than to comport with changes in the Code or ERISA, or
the rules thereunder.
15.3 Effect of Amendment or Termination. No Award shall be made
under the Plan after the termination thereof. The termination of the Plan, or
any amendment thereof, shall not affect any Option, Restricted Share or
Performance Share Award previously granted under the Plan.
Article 16. Definitions.
16.1 "Award" means any award of an Option, a Restricted Share or a
Performance Share Award under the Plan.
16.2 "Award Year" means a fiscal year beginning January 1 and
ending December 31 with respect to which an Award may be granted.
16.3 "Board" means the Company's Board of Directors, as constituted
from time to time.
16.4 "Change in Control" means the occurrence of any of the
following events after the effective date of the Plan as set out in Section
15.1:
(a) A change in control required to be reported pursuant to Item
6(e) of Schedule 14A of Regulation 14A under the Exchange Act;
(b) A change in the composition of the Board, as a result of which
fewer than two-thirds of the incumbent directors are directors who
either (i) had been directors of the Company 24 months prior to such
change or (ii) were elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of the directors who
had been directors of the Company 24 months prior to such change and
who were still in office at the time of the election or nomination;
(c) Any "person" (as such term is used in sections 13(d) and 14(d)
of the Exchange Act) becomes the beneficial owner, directly or indirectly,
of securities of the Company representing 20 percent or more of the
combined voting power of the Company's then outstanding securities
ordinarily (and apart from rights accruing under special circumstances)
having the right to vote at elections of directors (the "Base Capital
Stock); provided, however, that any change in the relative beneficial
ownership of securities of any person resulting solely from a reduction
in the aggregate number of outstanding shares of Base Capital Stock,
and any decrease thereafter in such person's ownership of securities,
shall be disregarded until such person increases in any manner, directly
or indirectly, such person's beneficial ownership of any securities of the
Company.
16.5 "Code" means the Internal Revenue Code of 1986, as amended.
16.6 "Committee" means the Compensation Committee of the Board, as
constituted from time to time.
16.7 "Common Share" means one share of the common stock of the
Company.
16.8 "Company" means The Charles Schwab Corporation, a Delaware
corporation.
16.9 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
16.10 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
16.11 "Exercise Price" means the amount for which one Common Share
may be purchased upon exercise of an Option, as specified by the Committee in
the applicable Stock Option Agreement.
16.12 "Fair Market Value" means the market price of a Common
Share, determined by the committee as follows:
(a) If the Common Share was traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the closing
price reported by the applicable composite-transactions report for
such date;
(b) If the Common Share was traded over-the-counter on the date in
question and was classified as a national market issue, then the Fair
Market Value shall be equal to the last transaction price quoted by the
NASDAQ system for such date;
(c) If the Common Share was traded over-the-counter on the date in
question but was not classified as a national market issue, then the Fair
Market Value shall be equal to the mean between the last reported
representative bid and asked prices quoted by the NASDAQ system for such
date; and
(d) If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good faith on
such basis as it deems appropriate.
16.13 "ISO" means an incentive stock option described in section
422(b) of the Code.
16.14 "Key Employee" means a key common-law employee of the Company
or any Subsidiary, as determined by the Committee.
16.15 "Named Executive Officer" means a Participant who, as of the
date of vesting of an Award is one of a group of "covered employees," as
defined in the Regulations promulgated under Code Section 162(m), or any
successor statute.
16.16 "Non-Employee Director" means a member of the Board who is
not a common-law employee.
16.17 "NSO" means an employee stock option not described in
sections 422 through 424 of the Code.
16.18 "Option" means an ISO or NSO or, in the case of a Key
Employee who is subject to the tax laws of a foreign jurisdiction, an option
qualifying for favorable tax treatment under the laws of such jurisdiction,
including a Replacement Option, granted under the Plan and entitling the holder
to purchase one Common Share.
16.19 "Optionee" means an individual, or his or her estate,
legatee or heirs at law that holds an Option.
16.20 "Participant" means a Non-Employee Director or Key Employee
who has received an Award.
16.21 "Performance Share Award" means the conditional right to
receive in the future one Common Share, awarded to a Participant under the
Plan.
16.22 "Plan" means this 1992 Stock Incentive Plan of The Charles
Schwab Corporation, as it may be amended from time to time.
16.23 "Replacement Option" means an Option that is granted when a
Participant uses a Common Share held or to be acquired by the Participant to
exercise an Option and/or to satisfy tax withholding requirements incident
to the exercise of an Option.
16.24 "Restricted Share" means a Common Share awarded to a
Participant under the Plan.
16.25 "Stock Award Agreement" means the agreement between the
Company and the recipient of a Restricted Share or Performance Share Award
which contains the terms, conditions and restrictions pertaining to such
Restricted Share or Performance Share Award.
16.26 "Stock Option Agreement" means the agreement between the
Company and an Optionee which contains the terms, conditions and restrictions
pertaining to his or her option.
16.27 "Subsidiary" means any corporation, if the Company and/or
one or more other Subsidiaries own not less than 50 percent of the total
combined voting power of all classes of outstanding stock of such
corporation. A corporation that attains the status of a Subsidiary on a date
after the adoption of the Plan shall be considered a Subsidiary commencing as
of such date.
<PAGE>
ADDENDUM A
The provisions of the Plan, as amended by the terms of this
Addendum A, shall apply to the grant of Approved Options to Key U.K. Employees.
1. For purposes of this Addendum A, the following definitions
shall apply in addition to those set out in section 16 of the Plan:
Approved Option Means a stock option designed to qualify as an approved
executive share option under the Taxes Act;
Inland Revenue means the Board of the Inland Revenue in the United
Kingdom.
Key U.K. Employee means a designated employee of Sharelink Investment
Services plc or any subsidiary (as that term is defined in the Companies
Act 1985 of the United Kingdom, as amended) of which Sharelink
Investment Services plc has control for the purposes of section 840 of
the Taxes Act;
Taxes Act means the Income and Corporation Taxes Act 1988 of the United
Kingdom.
2. An Approved Option may only be granted to a Key U.K.
Employee who:
(i) is employed on a full-time basis; and
(ii) does not fall within the provisions of paragraph 8
of Schedule 9 to the Taxes Act.
For purposes of this section 2(i) of Addendum A, "full-time" shall
mean an employee who is required to work 20 hours per week, excluding meal
breaks.
3. No Approved Option may be granted to a Key U.K. Employee if
it would cause the aggregate of the exercise price of all subsisting Approved
Options granted to such employee under the Plan, or any other subsisting
options granted to such employee under any other share option scheme approved
under Schedule 9 of the Taxes Act and established by the Company or an
associated company, to exceed the higher of (a) one hundred thousand pounds
sterling and (b) four times such employee's relevant emoluments for the current
or preceding year of assessment (whichever is greater); but where there were
no relevant emoluments for the previous year of assessment, the limit shall be
the higher of one hundred thousand pounds sterling) or four times such
employee's relevant emoluments for the period of twelve months beginning with
the first day during the current year of assessment in respect of which
there are relevant emoluments. For the purpose of this section 3 of
Addendum A, "associated company" means an associated company within the meaning
of section 416 of the Taxes Act; "relevant emoluments" has the meaning given
by paragraph 28(4) of Schedule 9 to the Taxes Act and "year of assessment"
means a year beginning on any April 6 and ending on the following April 5.
4. Common Shares issued pursuant to the exercise of Approved
Options must satisfy the conditions specified in paragraphs 10 to 14 of
Schedule 9 to the Taxes Act.
5. Notwithstanding the provisions of Section 5.4 of the Plan,
the exercise price of an Approved Option shall not be less than 100 percent of
the closing price of a Common Share as reported in the New York Stock
Exchange Composite Index on the date of grant.
6. No Approved Option may be exercised at any time by a Key
U.K. Employee when that Key U.K. Employee falls within the provisions of
paragraph 8 of Schedule 9 to the Taxes Act. If at any time the shares
under an Approved Option cease to comply with the conditions in paragraphs 10
to 14 of Schedule 9 to the Taxes Act, then all Approved Options then
outstanding shall lapse and cease to be exercisable from the date of the shares
ceasing so to comply, and no optionee shall have any cause of action against
the Company, Sharelink Investment Services plc or any subsidiary of the
Company or any other person in respect thereof.
7. An Approved Option may contain such other terms, provisions
and conditions as may be determined by the Committee consistent with the Plan,
provided that the approved option otherwise complies with the requirements
for approved executive option schemes specified in Schedule 9 of the Taxes Act.
8. In relation to an Approved Option, notwithstanding the
terms of section 10.1 of the Plan, no adjustment shall be made pursuant to
section 10.1 of the Plan to any outstanding Approved Options without the
prior approval of the Inland Revenue.
9. In relation to an Approved Option any Key U.K. Employee
shall make arrangements satisfactory to the Company for the satisfaction of any
tax withholding or deduction -- at -- source obligations that arise by
reason of the grant to him or her of such option, or its subsequent exercise.
10. In relation to an Approved Option, in addition to the
provisions set out in section 15.2 of the Plan, no amendment which affects any
of the provisions of the Plan relating to Approved Options shall be
effective until approved by the Inland Revenue, except for such amendment as
are required to obtain and maintain the approval of Inland Revenue pursuant to
Schedule 9 to the Taxes Act.
EXHIBIT 10.162
THE CHARLES SCHWAB CORPORATION
DEFERRED COMPENSATION PLAN
(RESTATED TO INCLUDE AMENDMENTS
THROUGH SEPTEMBER 17, 1996)
<PAGE>
THE CHARLES SCHWAB CORPORATION
DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
Section Page
Article I. Purpose
1.1 Establishment of the Plan 2
1.2 Purpose of the Plan 2
Article II. Definitions
2.1 Definitions 3
2.2 Gender and Number 4
Article III. Administration
3.1 Committee and Administrator 5
Article IV. Participants
4.1 Participants 6
Article V. Deferrals
5.1 Salary Deferrals 7
5.2 Deferrals of Bonuses and
Other Cash Incentive Compensation 7
5.3 Deferral Procedures 8
5.4 Election of Time and Manner of Payment 8
5.5 Accounts and Earnings 10
5.6 Maintenance of Accounts 11
5.7 Change in Control 11
5.8 Payment of Deferred Amounts 14
5.9 Acceleration of Payment 14
Article VI. General Provisions
6.1 Unfunded Obligation 15
6.2 Informal Funding Vehicles 15
6.3 Beneficiary 16
6.4 Incapacity of Participant or Beneficiary 17
6.5 Nonassignment 17
6.6 No Right to Continued Employment 17
6.7 Tax Withholding 17
6.8 Claims Procedure and Arbitration 17
6.9 Termination and Amendment 19
6.10 Applicable Law 19
<PAGE>
THE CHARLES SCHWAB CORPORATION
DEFERRED COMPENSATION PLAN
Article I. Purpose
1.1 Establishment of the Plan. Effective as of July 1, 1994, The
Charles Schwab Corporation (hereinafter, the "Company") hereby establishes The
Charles Schwab Corporation Deferred Compensation Plan (the "Plan"), as set
forth in this document.
1.2 Purpose of the Plan. The Plan permits participating employees
to defer the payment of certain cash compensation that they may earn. The
opportunity to elect such deferrals is provided in order to help the Company
attract and retain key employees. This Plan is unfunded and is maintained
primarily for the purpose of providing deferred compensation for a select
group of management or highly compensated employees. It is accordingly
intended to be exempt from the participation, vesting, funding, and fiduciary
requirements set forth in Title I of the Employee Retirement Income Security
Act of 1974.
<PAGE>
Article II. Definitions
2.1 Definitions. The following definitions are in addition to any
other definitions set forth elsewhere in the Plan. Whenever used in the Plan,
the capitalized terms in this section shall have the meanings set forth
below unless otherwise required by the context in which they are used:
(a) "Administrator" the administrator described in section 3.1 that
is selected by the Committee to assist in the administration of
the Plan.
(b) "Beneficiary" means a person entitled to receive any benefit
payments that remain to be paid after a Participant's death, as
determined under section 6.3.
(c) "Board" means the Board of Directors of the Company.
(d) "Company" means The Charles Schwab Corporation, a Delaware
corporation.
(e) "Category 1 Participant" and "Category 2 Participant" each
refer to a specific Participant group and have the meaning set
forth in section 4.1.
(f) "Committee" means the Compensation Committee of the Board.
(g) "Deferral Account" means the account representing deferrals of
cash compensation, plus investment adjustments, as described in
sections 5.5 and 5.6.
(h) "Participant" means any employee who meets the eligibility
requirements of the Plan, as set forth in Article 4, and
includes, where appropriate to the context, any former employee
who is entitled to benefits under this Plan.
(i) "Plan" means The Charles Schwab Corporation Deferred
Compensation Plan, as in effect from time to time.
(j) "Plan Year" means the calendar year.
(k) "Retirement" shall mean any termination of employment with the
Company and its Subsidiaries for any reason other than death at
any time after the Participant has attained age fifty (50), but
only if, at the time of such termination, the Participant has
been credited with at least seven (7) Years of Service under
the Charles Schwab Profit Sharing and Employee Stock Ownership
Plan. Provided, however, that with respect to any payments
made on account of a deferral election made prior to November 1,
1994, Retirement shall also mean any termination of employment
with the Company and its Subsidiaries for any reason other than
death after the Participant has attained age 55.
(l) "Subsidiary" means a corporation or other business entity in which
the Company owns, directly or indirectly, securities with more
than 80 percent of the total voting power.
(m) "Valuation Date" means each December 31 and any other date
designated from time to time by the Committee for the purpose
of determining the value of a Participant's Deferral Account
balance pursuant to section 5.5.
2.2 Gender and Number. Except when otherwise indicated by the
context, any masculine or feminine terminology shall also include the neuter
and other gender, and the use of any term in the singular or plural shall
also include the opposite number.
<PAGE>
Article III. Administration
3.1 Committee and Administrator. The Committee shall administer
the Plan and may select one or more persons to serve as the Administrator.
The Administrator shall perform such administrative functions as the
Committee may delegate to it from time to time. Any person selected to serve
as the Administrator may, but need not, be a Committee member or an officer
or employee of the Company. However, if a person serving as Administrator or a
member of the Committee is a Participant, such person may not vote on a
matter affecting his interest as a Participant.
The Committee shall have discretionary authority to construe and
interpret the Plan provisions and resolve any ambiguities thereunder; to
prescribe, amend, and rescind administrative rules relating to the Plan; to
select the employees who may participate and to terminate the future
participation of any such employees; to determine eligibility for benefits
under the Plan; and to take all other actions that are necessary or
appropriate for the administration of the Plan. Such interpretations, rules,
and actions of the Committee shall be final and binding upon all concerned
and, in the event of judicial review, shall be entitled to the maximum
deference allowable by law. Where the Committee has delegated its
responsibility for matters of interpretation and Plan administration to the
Administrator, the actions of the Administrator shall constitute actions of the
Committee.
<PAGE>
Article IV. Participants
4.1 Participants. Officers and other key employees of the Company
and each of its Subsidiaries shall be eligible to participate in this Plan
upon selection by the Committee. To be nominated for participation, an
employee must be highly compensated or have significant responsibility for the
management, direction and/or success of the Company as a whole or a
particular business unit thereof. Directors of the Company who are full-time
employees of the Company shall be eligible to participate in the Plan.
Participating employees of the Company in the position of executive vice
president or above shall be "Category 1 Participants." All other participating
employees shall be "Category 2 Participants."
<PAGE>
Article V. Deferrals
5.1 Salary Deferrals. Each Category 2 Participant selected under
section 4.1 may elect to defer up to 50 percent of his regular base salary
(subject to the provisions of this Article V). Any such election must be made
by entering a deferred compensation agreement with the employer, as evidenced
by a form approved by and filed with the Administrator on or before the
deadline specified by the Committee (which shall be no earlier than one month
prior to the beginning of the election period for which the deferred salary
is to be earned). For this purpose, the election period shall be the calendar
year; provided, however, that during periods in which the Plan is not in
effect for a full calendar year or an employee is not a Participant for a full
calendar year, the election period shall be the portion of the calendar year
during which the Plan is in effect and the employee is an eligible Participant.
Notwithstanding the foregoing, a person who is not a Participant at the
beginning of a calendar year shall not be allowed to elect a deferral of
compensation that takes effect during that year without the consent of the
Committee. Salary deferrals that have been elected shall occur throughout the
election period in equal increments for each payroll period.
5.2 Deferrals of Bonuses and Other Cash Incentive Compensation.
Each Category 1 Participant and each Category 2 Participant may elect to defer
all or any portion (subject to the provisions of this Article V) of any
amount that he subsequently earns under an annual cash bonus program and/or a
long-term cash incentive compensation program of the Company or a
participating Subsidiary. Any such election must be made by entering a
deferred compensation agreement with the employer, as evidenced by a form
approved by the Committee that is filed with the Administrator on or before
the deadline specified by the Committee. For annual cash bonuses, this
deadline shall be no earlier than one month prior to the beginning of year
(or portion thereof) for which the bonus will be earned. For other cash
incentive compensation, this deadline shall be a date no later than six months
before the end of the year or other period for which the incentive compensation
will be earned. Rules similar to those in section 5.1 shall apply in cases
where the Plan is not in existence or an employee is not a Participant for the
full period in which an annual cash bonus or long-term incentive compensation
award is earned.
5.3 Deferral Procedures. Participants eligible to elect salary
deferrals under section 5.1 shall have an opportunity to do so each year.
Participants eligible to elect deferrals under section 5.2 shall have a
separate opportunity to do so for each cash bonus under an annual bonus program
and for each other cash bonus or incentive payment under a long-term
incentive plan that they may earn. Unless the Committee specifies other rules
for the deferrals that may be elected, the minimum deferral shall be 20
percent of the compensation to which a deferral election applies; and, subject
to the maximum percentage allowed under section 5.1 or 5.2, as applicable,
deferrals in excess of the minimum allowable percentage may be made only in
increments of 10 percent.
If a deferral is elected, the election shall be irrevocable with
respect to the particular compensation that is subject to the election.
Deferral elections shall be made on a form prescribed by the Committee or
the Administrator. As provided in section 6.7, any deferral is subject to
appropriate tax withholding measures and may be reduced to satisfy tax
withholding requirements.
5.4 Election of Time and Manner of Payment. At the time a
Participant makes a deferral election under section 5.1 or 5.2, the Participant
shall also designate the manner of payment and the date on which payments
from his or her Deferral Account shall begin, from among the following
options:
(i) a lump sum payable by the end of February of any year that the
Participant specifies;
(ii) a lump sum payable by the end of February in the year
immediately following the Participant's Retirement;
(iii) a series of annual installments, commencing in any year
selected by the Participant and payable each year on or before the end of
February, over a period of four years; or
(iv) a series of annual installments, commencing in the year
following the Participant's Retirement and payable each year on or before the
end of February, over a period of five, ten, or fifteen years, as designated
by the Participant.
However, if a Participant terminates employment for any reason other
than Retirement, the payment of the Participant's entire Deferral Account,
including any unpaid installments pursuant to clause (iii) above, shall be
made in a single lump sum by the end of February in the year next following the
year in which the Participant terminates employment, notwithstanding the
terms of the Participant's election.
Any election of a specified payment date pursuant to clauses (i) or
(iii) shall be subject to any restrictions that the Committee may, in its sole
discretion, choose to establish in order to limit the number of different
payment dates that a Participant may have in effect at one time.
If payment is due in the form of a lump sum, the payment shall equal
the balance of the Deferral Account being paid, determined as of the Valuation
Date coincident with or immediately preceding the payment date. If payment is
due in the form of installments, the amount of each installment payment
shall be equal to the quotient determined by dividing (A) the value of the
portion of the Deferral Account to which the installment payment election
applies (determined as of the Valuation Date coincident with or immediately
preceding the date the payment is to be made), by (B) the number of years over
which the installment payments are to be made, less the number of years in
which prior payments attributable to such installment payment election have
been made.
Notwithstanding the foregoing, however, if earnings or any other amounts
credited to a Participant's Deferral Account are not considered performance-
based compensation, within the meaning of Section 162(m) of the Internal
Revenue Code, and do not otherwise meet Internal Revenue Code conditions
allowing the Company and its Subsidiaries to receive a federal income tax
deduction for such amounts upon paying them at the time provided under the
Participant's election, the payment of such amounts, to the extent in excess
of the amount that would be currently tax deductible, shall automatically be
deferred until the earliest year that the payment can be deducted.
5.5 Accounts and Earnings. The Company shall establish a Deferral
Account for each Participant who has elected a deferral under section 5.1 or
5.2 above, and its accounting records for the Plan with respect to each such
Participant shall include a separate Deferral Account or subaccount for each
deferral election of the Participant that could cause a payment made at a
different time or in a different form from other payments of deferrals elected
by the same Participant. Each Deferral Account balance shall reflect the
Company's obligation to pay a deferred amount to a Participant or
Beneficiary as provided in this Article V. Under procedures approved by the
Committee and communicated to Participants, a Participant's Deferral Account
balance shall be increased periodically (not less frequently than annually)
to reflect an assumed earnings increment, based on an interest rate or other
benchmark selected by the Committee and in effect at the time. Until the
time for determining the amount to be paid to the Participant or Beneficiary,
such assumed earnings shall accrue from each Valuation Date on the Deferral
Account balance as of that date and shall be credited to the account as of the
next Valuation Date.
The rate of earnings may, but need not, be determined with reference to
the actual rate of earnings on assets held under any existing grantor trust
or other informal funding vehicle that is in effect pursuant to section 6.2.
Any method of crediting earnings that is followed from time to time may,
with reasonable advance notice to affected Participants, be revoked or revised
prospectively as of the beginning of any new Plan Year. Earnings that have
been credited for any Plan Year, like deferred amounts that have been
previously credited to a Participant, shall not be reduced or eliminated
retroactively unless they were credited in error. The crediting of assumed
earnings shall not mean that any deferred compensation promise to a Participant
is secured by particular investment assets or that the Participant is
actually earning interest or any other form of investment income under the
Plan.
Consistent with the foregoing authority to exercise flexibility in
establishing a method for crediting assumed earnings on account balances, the
Committee may, but need not, consult with Participants about their
investment preferences and may, but need not, institute a program of assumed
earnings that tracks the investment performance in a Participant's qualified
defined contribution plan account or in an assumed participant-directed
investment arrangement.
5.6 Maintenance of Accounts. The Accounts of each Participant
shall be entered on the books of the Company and shall represent a liability,
payable when due under this Plan, out of the general assets of the Company.
Prior to benefits becoming due hereunder, the Company shall expense the
liability for such accounts in accordance with policies determined
appropriate by the Company's auditors. Except to the extent provided pursuant
to the second paragraph of this section 5.6, the Accounts created for a
Participant by the Company shall not be funded by a trust or an insurance
contract; nor shall any assets of the Company be segregated or identified to
such account; nor shall any property or assets of the Company be pledged,
encumbered, or otherwise subjected to a lien or security interest for payment
of benefits hereunder.
Notwithstanding that the amounts to be paid hereunder to Participants
constitute an unfunded obligation of the Company, the Company may direct that
an amount equal to any portion of the Accounts shall be invested by the
Company as the Company, in its sole discretion, shall determine. The Committee
may in its sole discretion determine that all or any portion of an amount
equal to the Accounts shall be paid into one or more grantor trusts that may
be established by the Company for the purpose of providing a potential
source of funds to pay Plan benefits. The Company may designate an
investment advisor to direct the investment of funds that may be used to pay
benefits, including the investment of the assets of any grantor trusts
hereunder.
5.7 Change in Control. In the event of a Change in Control (as
defined below), the following rules shall apply:
(a) All Participants shall continue to have a fully vested,
nonforfeitable interest in their Deferral Accounts.
(b) Deferrals of amounts for the year that includes the Change in
Control shall cease beginning with the first payroll period
that follows the Change in Control.
(c) A special allocation of earnings on all Deferral Accounts shall
be made under section 5.5 as of the date of the Change in
Control on a basis no less favorable to Participants than the
method being followed prior to the Change in Control.
(d) All payments of deferred amounts following a Change in Control,
whether or not they have previously begun, shall be made in a
cash lump sum no later than 30 days following the Change in
Control and, except as provided in section 5.4 with respect to
installment payments in progress, shall be in an amount equal
to the full Deferral Account balance, as adjusted pursuant to
paragraph (c) above, as of the date of the Change in Control.
(e) Nothing in this Plan shall prevent a Participant from enforcing
any rules in a contract or another plan of the Company or any
Subsidiary concerning the method of determining the amount of a
bonus, incentive compensation, or other form of compensation to
which a Participant may become entitled following a change in
control, or the time at which that compensation is to be paid
in the event of a change in control.
For purposes of this Plan, a "Change in Control" means any of the
following:
(1) Any "person" who, alone or together with all "affiliates" and
"associates" of such person, is or becomes (1) an "acquiring
person" or (2) the "beneficial owner" of 35% of the outstanding
voting securities of the Company (the terms "person",
"affiliates", "associates" and "beneficial owner" are used as
such terms are used in the Securities Exchange Act of 1934 and
the General Rules and Regulations thereunder); provided,
however, that a "Change in Control" shall not be deemed to have
occurred if such "person" is Charles R. Schwab, the Company, any
subsidiary or any employee benefit plan or employee stock plan
of the Company or of any Subsidiary, or any trust or other
entity organized, established or holding shares of such voting
securities by, for or pursuant to, the terms of any such plan;
or
(2) Individuals who at the beginning of any period of two consecutive
calendar years constitute the Board cease for any reason, during
such period, to constitute at least a majority thereof, unless
the election, or the nomination for election by the Company's
Shareholders, of each new Board Member was approved by a vote
of at least three-quarters (3/4) of the Board members then
still in office who were Board members at the beginning of such
period; or
(3) Approval by the shareholders of the Company of:
(A) the dissolution or liquidation of the Company;
(B) the sale or transfer of substantially all of the
Company's business and/or assets to a person or entity
which is not a "subsidiary" (any corporation or other
entity a majority or more of whose outstanding voting
stock or voting power is beneficially owned directly or
indirectly by the Company); or
(C) an agreement to merge or consolidate, or otherwise
reorganize, with one or more entities which are not
subsidiaries (as defined in (B) above), as a result of
which less than 50% of the outstanding voting securities
of the surviving or resulting entity are, or are to be,
owned by former shareholders of the Company; or
(4) The Board agrees by a majority vote that an event has or is about
to occur that, in fairness to the Participants, is tantamount to a
Change in Control.
A Change of Control shall occur on the first day on which any of
the preceding conditions has been satisfied. However,
notwithstanding the foregoing, this section 5.7 shall not apply to
any Participant who alone or together with one or more other
persons acting as a partnership, limited partnership, syndicate,
or other group for the purpose of acquiring, holding or
disposing of securities of the Company, triggers a "Change in
Control" within the meaning of paragraphs (1) and (2) above.
5.8 Payment of Deferred Amounts. A Participant shall have a fully
vested, nonforfeitable interest in his or her Deferral Account balance at all
times. However, vesting does not confer a right to payment other than in the
manner elected by the Participant pursuant to section 5.4 (subject to any
modification that may occur pursuant to section 5.5, 5.7 or 5.9). Upon the
expiration of a deferral period selected by the Participant in one or more
deferral elections, the Company shall pay to such Participant (or to the
Participant's Beneficiary, in the case of the Participant's death) an amount
equal to the balance of the Participant's Account attributable to such
expiring deferral elections, plus assumed earnings (determined by the Company
pursuant to section 5.5) thereon.
5.9 Acceleration of Payment. The Committee, in its discretion,
upon receipt of a written request from a Participant, may accelerate the
payment of all or any portion of the unpaid balance of a Participant's Deferral
Account in the event of the Participant's Retirement, death, permanent
disability, resignation or termination of employment, or upon its
determination that the Participant (or his Beneficiary in the case of his
death) has incurred a severe, unforeseeable financial hardship creating an
immediate and heavy need for cash that cannot reasonably be satisfied from
sources other than an accelerated payment from this Plan. The Committee in
making its determination may consider such factors and require such
information as it deems appropriate.
<PAGE>
Article VI. General Provisions
6.1 Unfunded Obligation. The deferred amounts to be paid to
Participants pursuant to this Plan constitute unfunded obligations of the
Company. Except to the extent specifically provided hereunder, the Company
is not required to segregate any monies from its general funds, to create any
trusts, or to make any special deposits with respect to this obligation.
Title to and beneficial ownership of any investments, including any grantor
trust investments which the Company has determined and directed the
Administrator to make to fulfill obligations under this Plan shall at all times
remain in the Company. Any investments and the creation or maintenance of any
trust or Accounts shall not create or constitute a trust or a fiduciary
relationship between the Administrator or the Company and a Participant, or
otherwise create any vested or beneficial interest in any Participant or his or
her Beneficiary or his or her creditors in any assets of the Company
whatsoever. The Participants shall have no claim for any changes in the
value of any assets which may be invested or reinvested by the Company in an
effort to match its liabilities under this Plan.
6.2 Informal Funding Vehicles. Notwithstanding section 6.1, the
Company may, but need not, arrange for the establishment and use of a
grantor trust or other informal funding vehicle to facilitate the payment of
benefits and to discharge the liability of the Company and participating
Affiliates under this Plan to the extent of payments actually made from such
trust or other informal funding vehicle.
Any investments and any creation or maintenance of memorandum accounts
or a trust or other informal funding vehicle shall not create or constitute a
trust or a fiduciary relationship between the Committee or the Company or an
affiliate and a Participant, or otherwise confer on any Participant or
Beneficiary or his or her creditors a vested or beneficial interest in any
assets of the Company or any Affiliate whatsoever. Participants and
Beneficiaries shall have no claim against the Company or any Affiliate for any
changes in the value of any assets which may be invested or reinvested by the
Company or any Affiliate with respect to this Plan.
6.3 Beneficiary. The term "Beneficiary" shall mean the person or
persons to whom payments are to be paid pursuant to the terms of the Plan in
the event of the Participant's death. A Participant may designate a
Beneficiary on a form provided by the Administrator, executed by the
Participant, and delivered to the Administrator. The Administrator may
require the consent of the Participant's spouse to a designation if the
designation specifies a Beneficiary other than the spouse. Subject to the
foregoing, a Participant may change a Beneficiary designation at any time.
Subject to the property rights of any prior spouse, if no Beneficiary is
designated, if the designation is ineffective, or if the Beneficiary dies
before the balance of the Account is paid, the balance shall be paid to the
Participant's surviving spouse, or if there is no surviving spouse, to the
Participant's estate.
6.4 Incapacity of Participant or Beneficiary. Every person
receiving or claiming benefits under the Plan shall be conclusively presumed to
be mentally competent and of age until the date on which the Administrator
receives a written notice, in a form and manner acceptable to the
Administrator, that such person is incompetent or a minor, for whom a guardian
or other person legally vested with the care of his person or estate has been
appointed; provided, however, that if the Administrator finds that any person
to whom a benefit is payable under the Plan is unable to care for his or her
affairs because of incompetency, or because he or she is a minor, any
payment due (unless a prior claim therefor shall have been made by a duly
appointed legal representative) may be paid to the spouse, a child, a parent, a
brother or sister, or to any person or institution considered by the
Administrator to have incurred expense for such person otherwise entitled to
payment. To the extent permitted by law, any such payment so made shall be
a complete discharge of liability therefor under the Plan.
If a guardian of the estate of any person receiving or claiming
benefits under the Plan is appointed by a court of competent jurisdiction,
benefit payments may be made to such guardian provided that proper proof of
appointment and continuing qualification is furnished in a form and manner
acceptable to the Administrator. In the event a person claiming or receiving
benefits under the Plan is a minor, payment may be made to the custodian of an
account for such person under the Uniform Gifts to Minors Act. To the extent
permitted by law, any such payment so made shall be a complete discharge of any
liability therefor under the Plan.
6.5 Nonassignment. The right of a Participant or Beneficiary to
the payment of any amounts under the Plan may not be assigned, transferred,
pledged or encumbered nor shall such right or other interests be subject to
attachment, garnishment, execution, or other legal process.
6.6 No Right to Continued Employment. Nothing in the Plan shall
be construed to confer upon any Participant any right to continued employment
with the Company, nor shall the Plan interfere in any way with the right of
the Company to terminate the employment of such Participant at any time without
assigning any reason therefor.
6.7 Tax Withholding. Appropriate taxes shall be withheld from cash
payments made to Participants pursuant to the Plan. To the extent tax
withholding is payable in connection with the Participant's deferral of
income rather than in connection with the payment of deferred amounts, such
withholding may be made from other wages and salary currently payable to
the Participant, or, as determined by the Administrator, the amount of the
deferral elected by the Participant may be reduced in order to satisfy
required tax withholding for employment taxes and any other taxes.
6.8 Claims Procedure and Arbitration. The Company shall establish
a reasonable claims procedure consistent with the requirements of the Employee
Retirement Income Security Act of 1974, as amended. Following a Change in
Control of the Company (as determined under section 5.8) the claims procedure
shall include the following arbitration procedure.
Since time will be of the essence in determining whether any payments
are due to the Participant under this Plan following a Change in Control, a
Participant may submit any claim for payment to arbitration as follows: On
or after the second day following the termination of the Participant's
employment or other event triggering a right to payment), the claim may be
filed with an arbitrator of the Participant's choice by submitting the claim in
writing and providing a copy to the Company. The arbitrator must be:
(a) a member of the National Academy of Arbitrators or one who
currently appears on arbitration panels issued by the Federal
Mediation and Conciliation Service or the American Arbitration
Association; or
(b) a retired judge of the State in which the claimant is a
resident who served at the appellate level or higher. The
arbitration hearing shall be held within 72 hours (or as soon
thereafter as possible) after filing of the claim unless the
Participant and the Company agree to a later date. No
continuance of said hearing shall be allowed without the mutual
consent of the Participant and the Company. Absence from or
nonparticipation at the hearing by either party shall not
prevent the issuance of an award. Hearing procedures which
will expedite the hearing may be ordered at the arbitrator's
discretion, and the arbitrator may close the hearing in his or
her sole discretion upon deciding he or she has heard
sufficient evidence to satisfy issuance of an award. In
reaching a decision, the arbitrator shall have no authority to
ignore, change, modify, add to or delete from any provision of
this Plan, but instead is limited to interpreting this Plan.
The arbitrator's award shall be rendered as expeditiously as
possible, and unless the arbitrator rules within seven days
after the close of the hearing, he will be deemed to have ruled
in favor of the Participant. If the arbitrator finds that any
payment is due to the Participant from the Company, the
arbitrator shall order the Company to pay that amount to the
Participant within 48 hours after the decision is rendered.
The award of the arbitrator shall be final and binding upon the
Participant and the Company. Judgment upon the award rendered
by the arbitrator may be entered in any court in any State of
the United States. In the case of any arbitration regarding
this Agreement, the Participant shall be awarded the
Participant's costs, including attorney's fees. Such fee award
may not be offset against the deferred compensation due
hereunder. The Company shall pay the arbitrator's fee and all
necessary expenses of the hearing, including stenographic
reporter if employed.
6.9 Termination and Amendment. The Committee may from time to time
amend, suspend or terminate the Plan, in whole or in part, and if the Plan is
suspended or terminated, the Committee may reinstate any or all of its
provisions. Except as otherwise required by law, the Committee may delegate to
the Administrator all or any of its foregoing powers to amend, suspend, or
terminate the Plan. Any such amendment, suspension, or termination may affect
future deferrals without the consent of any Participant or Beneficiary.
However, with respect to deferrals that have already occurred, no amendment,
suspension or termination may impair the right of a Participant or a designated
Beneficiary to receive payment of the related deferred compensation in
accordance with the terms of the Plan prior to the effective date of such
amendment, suspension or termination, unless the affected Participant or
Beneficiary gives his express written consent to the change.
6.10 Applicable Law. The Plan shall be construed and governed in
accordance with applicable federal law and, to the extent not preempted by such
federal law, the laws of the State of California.
IN WITNESS WHEREOF, The Charles Schwab Corporation has caused its duly
authorized officer to execute this Plan on the ____ day of ___________,
1994.
THE CHARLES SCHWAB CORPORATION
By: ___________________________
Its: _________________________
ATTEST:
By: _________________________
Title: _________________________
<TABLE>
<CAPTION>
EXHIBIT 11.1
THE CHARLES SCHWAB CORPORATION
Computation of Earnings per Share
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Income $ 57,068 $ 47,221 $174,106 $130,016
=======================================================================================================
Shares
Primary:
Weighted-average number of common shares outstanding 174,302 173,332 173,825 171,721
Common stock equivalent shares related to option plans 5,286 6,356 5,419 6,280
- -------------------------------------------------------------------------------------------------------
Weighted-average number of common and
common equivalent shares outstanding 179,588 179,688 179,244 178,001
=======================================================================================================
Fully Diluted:
Weighted-average number of common shares outstanding 174,302 173,332 173,825 171,721
Common stock equivalent shares related to option plans 5,286 6,799 5,499 6,794
- -------------------------------------------------------------------------------------------------------
Weighted-average number of common and
common equivalent shares outstanding 179,588 180,131 179,324 178,515
=======================================================================================================
Primary/Fully Diluted Earnings per Share $ .32 $ .26 $ .97 $ .73
=======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 12.1
THE CHARLES SCHWAB CORPORATION
Computation of Ratio of Earnings to Fixed Charges
(Dollar amounts in thousands, unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Earnings before taxes on income $ 96,497 $ 78,058 $ 294,866 $ 214,726
======================================================================================================================
Fixed charges
Interest expense - customer 93,818 84,162 267,024 234,878
Interest expense - other 13,704 9,877 40,659 26,030
Interest portion of rental expense 5,784 5,023 17,045 15,430
- ----------------------------------------------------------------------------------------------------------------------
Total fixed charges (a) 113,306 99,062 324,728 276,338
- ----------------------------------------------------------------------------------------------------------------------
Earnings before taxes on income and fixed charges (b) $ 209,803 $ 177,120 $ 619,594 $ 491,064
======================================================================================================================
Ratio of earnings to fixed charges (b) divided by (a)(1) 1.9 1.8 1.9 1.8
======================================================================================================================
Ratio of earnings to fixed charges as adjusted(2) 6.0 6.2 6.1 6.2
======================================================================================================================
(1) The ratio of earnings to fixed charges is calculated in a manner consistent with SEC requirements. For such
purposes, "earnings" consist of earnings before taxes on income and fixed charges. "Fixed charges" consist of
interest expense incurred on payables to customers, long-term debt (including current maturities) and one-third
of rental expense, which is estimated to be representative of the interest factor.
(2) Because interest expense incurred in connection with payables to customers is completely offset by interest
revenue on related investments and margin loans, the Company considers such interest to be an operating expense.
Accordingly, the ratio of earnings to fixed charges as adjusted reflects the elimination of such interest expense
as a fixed charge.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Income and Condensed Consolidated Balance
Sheet of the Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1996, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1937315
<RECEIVABLES> 4665963
<SECURITIES-RESALE> 4946546
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 147965
<PP&E> 289153
<TOTAL-ASSETS> 12147205
<SHORT-TERM> 153909
<PAYABLES> 10568194
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 293965
<COMMON> 1785
0
0
<OTHER-SE> 812379
<TOTAL-LIABILITY-AND-EQUITY> 12147205
<TRADING-REVENUE> 192156
<INTEREST-DIVIDENDS> 492998
<COMMISSIONS> 712172
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 224514
<INTEREST-EXPENSE> 307683
<COMPENSATION> 567845
<INCOME-PRETAX> 294866
<INCOME-PRE-EXTRAORDINARY> 174106
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 174106
<EPS-PRIMARY> .97
<EPS-DILUTED> .97
</TABLE>
