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 June 30, 1997 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.
176,422,461* shares of $.01 par value Common Stock
Outstanding on July 18, 1997
* Excludes the effects of the three-for-two common stock split declared July 16,
1997, payable September 15, 1997.
<PAGE>
THE CHARLES SCHWAB CORPORATION
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 1997
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 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
FORWARD-LOOKING STATEMENTS In addition to historical information, this interim
report contains forward-looking statements that reflect management's
expectations. These statements relate to, among other things, Company
contingencies, strategy, revenues, profit margin, sources of liquidity and
capital expenditures. Achievement of the expressed expectations is subject to
certain risks and uncertainties that could cause actual results to differ
materially from those expectations. See "Description of Business" in
Management's Discussion and Analysis of Financial Condition and Results of
Operations in this interim report for a discussion of important factors that may
cause such differences.
<PAGE>
THE CHARLES SCHWAB CORPORATION
Part 1 - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
THE CHARLES SCHWAB CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----- ----- ----- ----
<CAPTION>
Revenues
<S> <C> <C> <C> <C>
Commissions $ 261,396 $ 261,149 $ 536,315 $ 502,062
Mutual fund service fees 101,824 75,384 196,522 144,219
Principal transactions 63,598 73,119 132,733 134,753
Interest revenue, net of interest expense(1) 82,485 62,405 159,208 121,349
Other 21,481 19,726 41,660 36,181
- ----------------------------------------------------------------------------------------------------
Total 530,784 491,783 1,066,438 938,564
- ----------------------------------------------------------------------------------------------------
Expenses Excluding Interest
Compensation and benefits 224,119 200,481 444,957 396,189
Communications 45,511 44,346 91,212 87,300
Occupancy and equipment 38,490 33,117 73,904 63,093
Depreciation and amortization 29,686 23,353 57,459 48,104
Advertising and market development 25,954 17,844 61,789 40,047
Commissions, clearance and floor brokerage 22,217 21,773 44,661 41,306
Professional services 16,573 10,210 30,454 23,645
Other 22,491 21,960 45,939 40,511
- ----------------------------------------------------------------------------------------------------
Total 425,041 373,084 850,375 740,195
- ----------------------------------------------------------------------------------------------------
Income before taxes on income 105,743 118,699 216,063 198,369
Taxes on income 41,781 48,604 85,366 81,331
- ----------------------------------------------------------------------------------------------------
Net Income $ 63,962 $ 70,095 $ 130,697 $ 117,038
====================================================================================================
Weighted-average number of common and
common equivalent shares outstanding(2, 3) 181,091 179,250 180,959 179,069
====================================================================================================
Primary/Fully Diluted Earnings Per Share(3) $ .35 $ .39 $ .72 $ .65
====================================================================================================
Dividends Declared Per Common Share(3) $ .05 $ .04 $ .10 $ .08
====================================================================================================
</TABLE>
(1) Interest revenue is presented net of interest expense. Interest
expense for the three months ended June 30, 1997 and 1996 was
$133,126 and $101,152, respectively. Interest expense for the six
months ended June 30, 1997 and 1996 was $256,256 and $200,161,
respectively.
(2) Amounts shown are used to calculate primary earnings per share.
(3) Excludes the effects of the three-for-two common stock split
declared July 16, 1997, payable September 15, 1997.
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
THE CHARLES SCHWAB CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
June 30, December 31,
1997 1996
---- ----
<CAPTION>
Assets
<S> <C> <C>
Cash and cash equivalents $ 733,454 $ 633,317
Cash and investments required to be segregated under Federal or other
regulations (including resale agreements of $5,125,028 in 1997
and $6,069,930 in 1996) 7,034,650 7,235,971
Receivable from brokers, dealers and clearing organizations 295,623 230,943
Receivable from customers -- net 5,911,678 5,012,815
Securities owned -- at market value 189,979 127,866
Equipment, office facilities and property -- net 332,664 315,376
Intangible assets -- net 61,943 68,922
Other assets 118,307 153,558
- --------------------------------------------------------------------------------------------------------
Total $ 14,678,298 $ 13,778,768
========================================================================================================
Liabilities and Stockholders' Equity
Drafts payable $ 209,317 $ 225,136
Payable to brokers, dealers and clearing organizations 1,053,450 877,742
Payable to customers 11,768,347 11,176,836
Accrued expenses and other 365,240 360,683
Borrowings 289,180 283,816
- --------------------------------------------------------------------------------------------------------
Total liabilities 13,685,534 12,924,213
- --------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock -- 9,940 shares authorized; $.01 par value
per share; none issued
Common stock -- 500,000 shares authorized; $.01 par value per share;
178,459 shares issued in 1997 and 1996* 1,785 1,785
Additional paid-in capital 227,557 200,857
Retained earnings 836,211 723,085
Treasury stock -- 2,137 shares in 1997 and 3,391 shares in 1996,
at cost* (55,065) (60,277)
Unearned ESOP shares (3,483) (5,517)
Unamortized restricted stock compensation (15,870) (8,658)
Foreign currency translation adjustment 1,629 3,280
- --------------------------------------------------------------------------------------------------------
Total stockholders' equity 992,764 854,555
- --------------------------------------------------------------------------------------------------------
Total $ 14,678,298 $ 13,778,768
========================================================================================================
</TABLE>
* Excludes the effects of the three-for-two common stock split declared
July 16, 1997, payable September 15, 1997.
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
THE CHARLES SCHWAB CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
Six Months Ended
June 30,
1997 1996
----- ----
<CAPTION>
Cash flows from operating activities
<S> <C> <C>
Net income $ 130,697 $ 117,038
Noncash items included in net income:
Depreciation and amortization 57,459 48,104
Deferred income taxes (8,553) (1,844)
Stock compensation 13,300 10,774
Other 1,643 2,877
Change in securities owned--at market value (62,113) (22,090)
Change in other assets 43,710 57,168
Change in accrued expenses and other 25,785 15,949
- -----------------------------------------------------------------------------------------
Net cash provided before change in customer-related balances 201,928 227,976
- -----------------------------------------------------------------------------------------
Change in customer-related balances:
Payable to customers 595,674 503,871
Receivable from customers (900,557) (719,446)
Drafts payable (15,871) (56,688)
Payable to brokers, dealers and clearing organizations 176,030 29,387
Receivable from brokers, dealers and clearing organizations (66,250) (11,214)
Cash and investments required to be segregated under
Federal or other regulations 197,937 259,392
- -----------------------------------------------------------------------------------------
Net change in customer-related balances (13,037) 5,302
- -----------------------------------------------------------------------------------------
Net cash provided by operating activities 188,891 233,278
- -----------------------------------------------------------------------------------------
Cash flows from investing activities
Purchase of equipment, office facilities and property--net (69,621) (78,976)
Cash payments for business acquired (3,709)
- -----------------------------------------------------------------------------------------
Net cash used by investing activities (69,621) (82,685)
- -----------------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from borrowings 10,000 54,000
Purchase of treasury stock (15,702) (1,024)
Dividends paid (17,571) (13,983)
Other 3,590 2,894
- -----------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (19,683) 41,887
- -----------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 550 (84)
- -----------------------------------------------------------------------------------------
Increase in cash and cash equivalents 100,137 192,396
Cash and cash equivalents at beginning of period 633,317 454,996
- -----------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 733,454 $ 647,392
=========================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<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 financial services. CSC's
principal subsidiary, Charles Schwab & Co., Inc. (Schwab), is a securities
broker-dealer with 254 branch offices in 47 states, the Commonwealth of Puerto
Rico and the United Kingdom, and four regional telephone service centers.
Another subsidiary, Mayer & Schweitzer, Inc. (M&S), is a market maker in Nasdaq
securities that provides trade execution services to broker-dealers, including
Schwab, and institutional customers. ShareLink, a subsidiary located in the
United Kingdom, is a retail discount securities brokerage firm.
These financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission 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 1996 Annual Report to Stockholders, which are
incorporated by reference in the Company's 1996 Annual Report on Form 10-K, and
the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1997.
Prior periods' financial statements have been reclassified to conform to
the 1997 presentation.
New Accounting Standards
Statement of Financial Accounting Standards (SFAS) No. 125 -- Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, was adopted by the Company effective January 1, 1997, except for
certain financial assets for which the effective date has been delayed until
1998 by SFAS No. 127 -- Deferral of the Effective Date of Certain Provisions of
FASB Statement No. 125. SFAS No. 125 provides accounting and reporting standards
for transfers and servicing of financial assets and extinguishments of
liabilities. The adoption of this statement did not have an effect on the
Company's financial position, results of operations, earnings per share or cash
flows.
SFAS No. 128 -- Earnings per Share, was issued by the Financial Accounting
Standards Board (FASB) in February 1997. The Company is required to adopt this
statement at December 31, 1997.
This statement replaces current earnings per share (EPS) reporting
requirements and requires a dual presentation of basic and diluted EPS. Basic
EPS excludes dilution and is computed by dividing net income by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
If this statement had been in effect during the current and prior year
periods, basic EPS would have been $.37 and $.41 for the quarters ended June 30,
1997 and 1996, respectively and $.75 and $.68 for the six-month periods ended
June 30, 1997 and 1996, respectively. Diluted EPS would have been the same as
primary and fully diluted EPS currently reported for the periods.
SFAS No. 129 -- Disclosure of Information about Capital Structure, was
issued by the FASB in February 1997. The Company is required to adopt this
statement at December 31, 1997. This statement establishes standards for
disclosing information about the Company's capital structure. The adoption of
this statement will not have an effect on the Company's financial position,
results of operations, earnings per share or cash flows.
SFAS No. 130 -- Reporting Comprehensive Income, and SFAS No. 131 --
Disclosures about Segments of an Enterprise and Related Information, were issued
by the FASB in June 1997 and are effective for fiscal years beginning after
December 15, 1997. SFAS No. 130 establishes standards for the reporting and
display of comprehensive income, which includes net income and changes in equity
except those resulting from investments by, or distributions to, stockholders.
SFAS No. 131 establishes standards for disclosures related to business operating
segments. The adoption of these statements will not have an effect on the
Company's financial position, results of operations, earnings per share or cash
flows.
Commitments and Contingencies
M&S has been named as one of thirty-five defendant market-making firms in
a consolidated class action, In re: Nasdaq Market-Makers Antitrust Litigation,
which is pending in the United States District Court for 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. On August 22,
1995, a second consolidated amended class action complaint was filed. On
November 26, 1996, a plaintiff class consisting of retail investors was
certified by the Court. On April 14, 1997, a plaintiff class consisting of
institutional investors was also certified. 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 certain Nasdaq
securities. The consolidated complaint seeks damages based upon joint and
several liability, as well as injunctive and declaratory relief and attorneys
fees, but does not set forth any specific amount of damages, although it
requests that the actual damages be trebled where permitted by statute.
Pre-trial discovery is ongoing. Between April 9, 1997 and June 6, 1997,
plaintiffs reached proposed settlements with three defendants and motions to
approve those settlements are pending before the Court. Although the ultimate
outcome of this consolidated action cannot be determined at this time and the
results of legal proceedings cannot be predicted with certainty, it is the
opinion of management, after consultation with outside legal counsel, that the
resolution of this action will not have a material adverse impact on the
financial condition of the Company; however, there could be a material adverse
impact on operating results in future periods, depending in part on the results
for such periods.
On July 16, 1996, the Department of Justice filed a civil action in the
United States District Court for the Southern District of New York, United
States of America v. Alex Brown & Sons, Inc., et al., against M&S and
twenty-three other market makers in Nasdaq securities alleging violations of the
federal antitrust laws in connection with certain customs and practices. On July
16, 1996, the twenty-four market-maker defendants, including M&S, entered into a
Stipulation and Order resolving the civil action. 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. On April 23, 1997, the Court
approved the Stipulation and Order. Certain objecting parties have appealed the
Court's approval of the Stipulation and Order to the United States Court of
Appeals for the Second Circuit, which has not yet set a date for hearing the
appeal. If the Stipulation and Order is finally approved, after all periods for
appeal have passed, the civil action will be dismissed.
Between August 12, 1993 and November 17, 1995, Schwab was named as a
defendant in eleven class action lawsuits in seven states. One of the actions
was voluntarily dismissed and four have been resolved favorably to Schwab on the
grounds that the claims asserted are preempted by federal law. The remaining six
cases are still pending in state courts in Texas, Illinois, California and
Louisiana. The class actions all 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 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. The action in Texas has been stayed. The actions in
Illinois and California have been dismissed on the grounds that the claims
asserted are preempted by federal law. Plaintiffs have filed appeals in both
cases.
On June 30, 1995, the action in Civil District Court for the Parish of
Orleans in Louisiana was certified on behalf of a class of 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. The action is
currently on appeal, by order of the Louisiana Supreme Court, from the trial
Court's denial of Schwab's motion to dismiss on the grounds of federal
preemption.
On August 16, 1995, the action in Civil District Court for the Parish of
Natchitoches in Louisiana was certified on behalf of a class of residents of all
states who purchased or sold securities through Schwab since 1985 for which
Schwab received monetary payments from the market maker or the third party who
executed the transaction. The class certification was affirmed by the Louisiana
Court of Appeals on December 2, 1996. The Natchitoches action is currently set
for trial on September 22, 1997, although Schwab has filed a motion to dismiss
on the grounds of federal preemption. Should the case go to trial, it
potentially could result in an adverse judgment against Schwab, in a material
amount, that would be subject to appeal. Although the results of legal
proceedings cannot be predicted with certainty, it is the opinion of management,
after consultation with outside legal counsel, that the ultimate outcome of
these actions will not have a material adverse impact on the financial condition
of the Company or its results of operations.
There are various other 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 Uniform Net Capital Rule under the
Securities Exchange Act of 1934 (the 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 June 30, 1997, Schwab's net
capital was $624 million (10% of aggregate debit balances), which was $500
million in excess of its minimum required net capital and $315 million in excess
of 5% of aggregate debit balances. At June 30, 1997, M&S' net capital was $8
million (331% of aggregate debit balances), which was $7 million in excess of
its minimum required net capital.
Schwab and ShareLink had portions of their cash and investments segregated
for the exclusive benefit of customers at June 30, 1997, in accordance with
applicable regulations. M&S had no such cash reserve requirement at June 30,
1997.
Cash Flow Information
Certain information affecting the cash flows of the Company follows (in
thousands):
Six Months
Ended
June 30,
1997 1996
---- ----
Income taxes paid $ 67,961 $ 52,811
========== ==========
Interest paid:
Customer cash balances $ 221,877 $ 173,213
Stock-lending activities 16,929 11,031
Borrowings 9,144 7,673
Other 4,102 3,964
---------- ----------
Total interest paid $ 252,052 $ 195,881
========== ==========
Subsequent Event
On July 16, 1997, the Board of Directors approved a three-for-two split of
the Company's common stock, which will be effected in the form of a 50% stock
dividend. The stock dividend is payable September 15, 1997 to stockholders of
record August 14, 1997. Share and per share data have not been restated to
reflect this transaction.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Description of Business
The Charles Schwab Corporation (CSC) and its subsidiaries (collectively
referred to as the Company) provide securities brokerage and related financial
services for over 4.4 million active customer accounts(a). Customer assets
totaled $306.3 billion at June 30, 1997. CSC's principal subsidiary, Charles
Schwab & Co., Inc. (Schwab), is a securities broker-dealer with 254 branch
offices in 47 states, the Commonwealth of Puerto Rico and the United Kingdom.
Another subsidiary, Mayer & Schweitzer, Inc. (M&S), a market maker in Nasdaq
securities, provides trade execution services to broker-dealers and
institutional customers. ShareLink, a subsidiary located in the United Kingdom,
is a retail discount securities brokerage firm.
In May 1997, the Company was added to the Standard & Poor's 500 Index
under the investment banking/brokerage industry group.
The Company's strategy is to attract and retain customer assets by
focusing on a number of areas within 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. To pursue its strategy and its objective of long-term
profitable growth, the Company plans to continue to leverage its competitive
advantages. These advantages include advertising and marketing programs that
have created a national brand, a broad range of products and services, diverse
delivery systems and an ongoing investment in technology.
The Company's nationwide advertising and marketing programs are designed
to distinguish the Schwab brand as well as its products and services. These
programs helped the Company open 290,000 new customer accounts and gather $11.1
billion in net new customer assets during the second quarter of 1997.
The Company offers a broad range of products and services to meet
customers' investment and financial needs at prices that management believes
represent superior value. The Company's branch office network assists investors
in developing asset allocation strategies and evaluating their investment
choices. Branch staff also refer investors who desire additional guidance to
independent fee-compensated investment managers through the Schwab
AdvisorSource(trademark) service. The Company is continuing to enhance and
broaden the Mutual Fund OneSource(registered trademark) service, which provides
customers with the ability to invest in 750 mutual funds from 106 fund families
without incurring transaction fees. During the second quarter of 1997, the
Company began to offer futures and commodities trading to certain of its most
active customers.
The Company invests in diverse delivery systems that support the Company's
customer service standards. During the second quarter of 1997, the Company
opened 15 new domestic branch offices, and established new subsidiaries in the
Cayman Islands and Hong Kong. In addition to its branch office network, the
Company maintains four regional telephone service centers as well as electronic
brokerage channels that provide customers with online and telephonic access.
Online channels include PC-based services such as SchwabLink(registered
trademark) -- a service for investment managers, StreetSmart(registered
trademark) -- Schwab's desktop trading software, e.Schwab(trademark) -- an
online investing account, and SchwabNOW!(trademark) -- which provides
information and trading services through Schwab's World Wide Web site.
Telephonic channels include TeleBroker(registered trademark) -- Schwab's
touch-tone telephone trading service, and VoiceBroker(trademark) -- Schwab's
service that uses voice recognition technology to provide individual investors
with real-time quotes.
- --------
(a) Accounts with balances or activity within the preceding twelve months.
The Company's ongoing investment in technology is a key element in
providing fast and consistent customer service, and reducing processing costs.
The Company is a forerunner in placing technology in the hands of customers.
During the second quarter of 1997, Schwab enhanced VoiceBroker(trademark) to
provide real-time quotes on equity options. Also during the second quarter of
1997, Schwab added features to SchwabPlan(registered trademark), its
comprehensive 401(k) retirement plan offering, allowing plan participants access
to their accounts through the Internet.
The Company faces significant competition from full commission and
discount brokerage firms, as well as mutual fund companies. Increasingly,
competition has come from banks, software development companies, insurance
companies and others as they expand their product lines. Some of these
competitors have significantly greater resources than the Company. A general
trend of consolidation in financial services has attracted new competitors and
strengthened existing ones. This competition may negatively impact the Company's
revenue growth and profit margin.
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. Since
transaction-based revenues continue to represent a majority of the Company's
revenues, the Company may experience significant variations in revenues from
period to period.
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, overtime hours,
professional services, and advertising and market development 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 in
response to 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 revenues or securities trading volumes. Given the nature of the
Company's revenues and expenses, and the economic and competitive factors
discussed above, the Company's earnings and common stock price may be subject to
significant volatility from period to period. The Company's results for any
interim period are not necessarily indicative of results for a full year.
In addition to historical information, this interim report contains
forward-looking statements that reflect management's expectations. These
statements relate to, among other things, Company contingencies (see
"Commitments and Contingencies" note in the Notes to Condensed Consolidated
Financial Statements, and Principal Transactions), strategy (see Description of
Business), revenues (see Principal Transactions), profit margin (see Principal
Transactions), sources of liquidity (see Liquidity and Capital
Resources-Liquidity) and capital expenditures (see Liquidity and Capital
Resources-Cash Flows and Capital Resources). Achievement of the expressed
expectations is subject to certain risks and uncertainties that could cause
actual results to differ materially from those expectations. Important factors
that may cause such differences are noted throughout this interim report and
include, but are not limited to: the effect of customer trading patterns on
Company revenues and earnings; changes in technology; the effects of
competitors' pricing, product and service decisions and intensified competition;
evolving regulation and changing industry customs and practices adversely
affecting the Company; the uncertainties of litigation; changes in revenues and
profit margin due to cyclical securities markets and interest rates; and a
significant downturn in the securities markets over a short period of time or a
sustained decline in securities prices and trading volumes.
Three Months Ended June 30, 1997
Compared To Three Months Ended
June 30, 1996
Financial Overview
Net income for the second quarter of 1997 totaled $64 million, down 9%
from second quarter 1996 net income of $70 million. Earnings per share for the
second quarter of 1997 decreased 10% to $.35 per share from $.39 per share for
the second quarter of 1996. Share and per share data have not been restated to
reflect the effects of the three-for-two common stock split declared July 16,
1997, payable September 15, 1997.
Second quarter 1997 revenues were $531 million, up 8% from $492 million
for the second quarter of 1996, as mutual fund service fees and interest
revenue, net of interest expense (referred to as net interest revenue), each
increased by more than 30%, primarily due to an increase in customer assets.
These increases were partially offset by lower principal transaction revenues.
Second quarter 1997 commission revenues were unchanged. During the second
quarter of 1997, total daily average trades, which include revenue trades and
Mutual Fund OneSource(registered trademark) trades, totaled 96,500, up 12% from
86,400 daily average trades for the same period last year. The Company's
strategy of placing technology in the hands of customers and providing diverse
delivery systems has facilitated growth in electronic trading at Schwab. A total
of 36,800 daily average trades were generated through online brokerage channels
during the second quarter of 1997, up 88% from 19,600 daily average trades for
the same period last year. Additionally, a total of 12,700 daily average trades
were generated through TeleBroker(registered trademark) during the second
quarter of 1997, down 15% from 14,900 daily average trades for the same period
last year, reflecting the higher proportion of trades placed through online
brokerage channels.
Assets in Schwab customer accounts totaled $306.3 billion at June 30,
1997, an increase of $89.6 billion, or 41%, from a year ago as shown in the
table below. This $89.6 billion increase resulted from a $54.2 billion net
inflow of Schwab customer assets and net market gains of $35.4 billion.
- --------------------------------------------------------------------------------
Assets in Schwab
Customer Accounts June 30, Percent
(in billions) 1997 1996 Change
- --------------------------------------------------------------------------------
Cash and equivalents:
SchwabFunds(registered trademark) money
market funds $ 43.8 $ 33.5 31%
Schwab One(registered trademark) and other
cash equivalents 11.1 8.7 28
Net securities:
Mutual Fund Marketplace(registered trademark) (1):
Mutual Fund OneSource(registered trademark) 49.5 33.5 48
All other 42.9 31.5 36
- --------------------------------------------------------------------------------
Total Mutual Fund
Marketplace 92.4 65.0 42
Equity and other securities (1) 130.4 87.0 50
SchwabFunds equity and
bond funds 5.4 2.8 93
Fixed income securities 29.3 24.3 21
Margin loans outstanding (6.1) (4.6) 33
- --------------------------------------------------------------------------------
Total assets in Schwab
customer accounts $ 306.3 $ 216.7 41
================================================================================
(1) Excludes money market funds and all of Schwab's proprietary money market,
equity and bond funds.
Total operating expenses excluding interest during the second quarter of
1997 were $425 million, up 14% from $373 million for the second quarter of 1996,
primarily resulting from additional staff to support the Company's growth and
expansion, as well as an increase in advertising and market development
spending.
The after-tax profit margin for the second quarter of 1997 was 12.1%, down
from 14.3% for the second quarter of 1996. The annualized return on
stockholders' equity for the second quarter of 1997 was 27%, down from 39% for
the second quarter of 1996, reflecting the Company's higher equity base in the
second quarter of 1997.
Commissions
Commission revenues for the Company were $261 million for both the second
quarter of 1997 and of 1996. The Company earns commissions when acting as an
agent and principal transaction revenues when acting as a principal or a market
maker.
Commissions earned on customer revenue trades, excluding commissions on
trades with specialists, were $260 million for both the second quarter of 1997
and of 1996. Daily average revenue trades were 64,000 in the second quarter of
1997, compared to 57,500 for the comparable period in 1996. The Company's total
revenue trades have increased as its customer base has continued to grow.
However, this increase was offset by a decline in average commission per revenue
trade. Average commission per revenue trade declined due to a higher proportion
of trades placed through electronic brokerage channels, which provide additional
commission discounts from the Company's standard rates.
- ------------------------------------------------------------
Three Months
Commissions Earned Ended
on Customer Revenue June 30, Percent
Trades 1997 1996 Change
- ------------------------------------------------------------
Customer accounts that
traded during the quarter
(in thousands) 1,000 937 7%
Average customer
revenue trades
per account 4.09 3.86 6
Total revenue
trades (in thousands) 4,091 3,620 13
Average commission
per revenue trade $63.59 $71.79 (11)
Commissions earned
on customer revenue
trades (in millions) $ 260 $ 260 ---
============================================================
Attracting new customer accounts is important in generating commission
revenues. Schwab added 290,000 new customer accounts during the second quarter
of 1997, an increase of 10% from the 264,000 new accounts added during the
second quarter of 1996.
Mutual Fund Service Fees
Mutual fund service fees increased $26 million, or 35%, to $102 million in
the second quarter of 1997 from the comparable period in 1996. This increase was
primarily attributable to significant increases in customer assets in funds
purchased through Schwab's Mutual Fund OneSource(registered trademark) service,
and in customer assets in Schwab's proprietary funds, collectively referred to
as the SchwabFunds(registered trademark) (see Assets in Schwab Customer Accounts
table above). Fees are earned for record keeping and shareholder services
provided to funds in the Mutual Fund OneSource service, and for transfer agent
services, shareholder services, administration and investment management
provided to the SchwabFunds.
Principal Transactions
Principal transaction revenues decreased $10 million, or 13%, to $64
million in the second quarter of 1997 from the comparable period in 1996. This
decrease was primarily due to lower average revenue per principal transaction
(see discussion below) and lower trading volume handled by M&S.
In August 1996, the Securities and Exchange Commission (SEC) adopted
certain new rules and rule amendments, known as the Order Handling Rules, which
significantly alter the manner in which orders related to both Nasdaq and listed
securities are handled. These rules became effective on January 20, 1997, with
respect to exchange-listed securities and a limited number of Nasdaq securities,
and are being phased in with respect to additional Nasdaq securities during
1997.
Additionally, in June 1997, most major U.S. securities markets, including
Nasdaq and the New York Stock Exchange, began quoting and trading securities in
increments of one-sixteenth dollar per share instead of one-eighth dollar per
share for most securities, and these markets are currently considering a further
change to decimal pricing. Mainly as a result of these regulatory changes and
changes in industry customs and practices, average revenue per principal
transaction declined during the second quarter of 1997 as compared to the second
quarter of 1996. These and future regulatory changes and changes in industry
customs and practices are expected to result in further significant declines in
average revenue per principal transaction, and are expected to have a material
adverse impact on M&S' revenues and profit margin.
During 1994, the SEC commenced an investigation into the Nasdaq market and
the activities of broker-dealers, including M&S, who act as market makers in
Nasdaq securities. M&S has provided documents and testimony and is cooperating
with the SEC investigation, which the SEC has stated is continuing.
See "Commitments and Contingencies" note in the Notes to Condensed
Consolidated Financial Statements regarding certain civil litigation relating to
various principal transaction activities.
Net Interest Revenue
Net interest revenue increased $20 million, or 32%, to $82 million in the
second quarter of 1997 from the comparable period in 1996 as shown in the
following table (in millions):
- ------------------------------------------------------------
Three Months
Ended
June 30,
1997 1996
- ------------------------------------------------------------
Interest Revenue
Margin loans to customers $ 111 $ 84
Investments, customer-related 96 74
Other 8 5
- ------------------------------------------------------------
Total 215 163
- ------------------------------------------------------------
Interest Expense
Customer cash balances 116 87
Stock-lending activities 10 7
Borrowings 5 5
Other 2 2
- ------------------------------------------------------------
Total 133 101
- ------------------------------------------------------------
Net Interest Revenue $ 82 $ 62
============================================================
Customer-related daily average balances, interest rates and average net
interest margin for the second quarters of 1997 and 1996 are summarized in the
following table (dollars in millions):
- -----------------------------------------------------------------
Three Months Ended
June 30,
1997 1996
- -----------------------------------------------------------------
Interest-Earning Assets (customer-related):
Investments:
Average balance outstanding $ 7,193 $5,655
Average interest rate 5.36% 5.24%
Margin loans to customers:
Average balance outstanding $ 5,774 $4,483
Average interest rate 7.73% 7.54%
Average yield on interest-earning assets 6.42% 6.26%
Funding Sources (customer-related
and other):
Interest-bearing customer cash balances:
Average balance outstanding $10,406 $8,079
Average interest rate 4.47% 4.32%
Other interest-bearing sources:
Average balance outstanding $ 1,108 $ 778
Average interest rate 4.56% 4.31%
Average noninterest-bearing portion $ 1,453 $1,281
Average interest rate on funding sources 3.98% 3.77%
Summary:
Average yield on interest-earning assets 6.42% 6.26%
Average interest rate on funding sources 3.98% 3.77%
- -----------------------------------------------------------------
Average net interest margin 2.44% 2.49%
=================================================================
The increase in net interest revenue from the prior year's second quarter
was primarily due to higher levels of average earning assets.
Expenses Excluding Interest
Compensation and benefits expense for the second quarter of 1997 increased
$24 million, or 12%, to $224 million from the prior year's second 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 second quarters of 1997 and 1996, variable compensation represented
20% and 31%, respectively, of total compensation and benefits expense. At June
30, 1997, the Company had full-time, part-time and temporary employees, and
persons employed on a contract basis that represented the equivalent of
approximately 11,200 full-time employees, compared to approximately 9,400 at
June 30, 1996. Compensation for temporary employees, contractors and overtime
hours accounted for $33 million and $20 million of total compensation and
benefits expense during the second quarters of 1997 and 1996, respectively.
Advertising and market development expense increased $8 million, or 45%, to
$26 million from the prior year's second quarter primarily due to increased
media, print and direct mail advertisements relating to campaigns covering
Mutual Fund OneSource(registered trademark) and online investing services, as
well as new product and service offerings.
The Company's effective income tax rate for the second quarter of 1997 was
39.5% compared to 40.9% for the comparable period in 1996.
Six Months Ended June 30, 1997
Compared To Six Months Ended
June 30, 1996
Financial Overview
Net income for the first half of 1997 totaled $131 million, up 12% from
first half 1996 net income of $117 million. Earnings per share for the first
half of 1997 increased 11% to $.72 per share from $.65 per share for the first
half of 1996.
Revenues for the first six months of 1997 were $1,066 million, up 14% from
$939 million for the first six months of 1996, due to increases in all revenue
categories except for a decline in principal transaction revenues. During the
first half of 1997, total daily average trades, which include revenue trades and
Mutual Fund OneSource trades, totaled 100,400, up 20% from 83,500 daily average
trades for the same period last year. A total of 34,800 daily average trades
were generated through online brokerage channels during the first half of 1997,
up 83% from 19,000 daily average trades for the same period last year. A total
of 13,300 daily average trades were generated through TeleBroker(registered
trademark) during the first half of 1997, down 6% from 14,100 daily average
trades for the same period last year.
Total operating expenses excluding interest during the first half of 1997
were $850 million, up 15% from $740 million for the first half of 1996,
primarily resulting from additional staff to support the Company's growth and
expansion, as well as an increase in advertising and market development
spending.
The after-tax profit margin for the first half of 1997 was 12.3%, down
from 12.5% for the first half of 1996. The annualized return on stockholders'
equity for the first half of 1997 was 28%, down from 34% for the first half of
1996, reflecting the Company's higher equity base in the first half of 1997.
Commissions
Commission revenues for the Company were $536 million for the first half
of 1997, up $34 million, or 7%, from the first half of 1996. Commissions earned
on customer revenue trades, excluding commissions on trades with specialists,
were $533 million for the first half of 1997, compared to $498 million for the
first half of 1996. Daily average revenue trades were 66,000 in the first half
of 1997, compared to 55,600 for the comparable period in 1996. The Company's
total revenue trades have increased as its customer base has continued to grow.
However, this increase was partially offset by a decline in average commission
per revenue trade. Average commission per revenue trade declined due to a higher
proportion of trades placed through electronic brokerage channels, which provide
additional commission discounts from the Company's standard rates.
- ------------------------------------------------------------
Six Months
Commissions Earned Ended
on Customer Revenue June 30, Percent
Trades 1997 1996 Change
- ------------------------------------------------------------
Customer accounts that
traded during the period
(in thousands) 1,541 1,352 14%
Average customer
revenue trades
per account 5.35 5.18 3
Total revenue
trades (in thousands) 8,251 7,009 18
Average commission
per revenue trade $64.57 $71.11 (9)
Commissions earned
on customer revenue
trades (in millions) $ 533 $ 498 7
============================================================
Schwab added a record 587,000 new customer accounts during the first half
of 1997, an increase of 15% from the 509,000 new accounts added during the first
half of 1996.
Mutual Fund Service Fees
Mutual fund service fees increased $52 million, or 36%, to $197 million in
the first half of 1997 from the comparable period in 1996. This increase between
the six-month periods is generally attributable to the factors described in the
comparison between the three-month periods.
Principal Transactions
Principal transaction revenues decreased $2 million, or 1%, to $133
million in the first half of 1997 from the comparable period in 1996. This
decrease was primarily due to lower average revenue per principal transaction
mainly due to the impact of regulatory changes and changes in industry customs
and practices (see discussion in the comparison between the three-month
periods), partially offset by higher trading volume handled by M&S.
Net Interest Revenue
Net interest revenue increased $38 million, or 31%, to $159 million in the
first half of 1997 from the comparable period in 1996 as shown in the following
table (in millions):
- ------------------------------------------------------------
Six Months
Ended
June 30,
1997 1996
- ------------------------------------------------------------
Interest Revenue
Margin loans to customers $210 $161
Investments, customer-related 190 149
Other 15 11
- ------------------------------------------------------------
Total 415 321
- ------------------------------------------------------------
Interest Expense
Customer cash balances 225 173
Stock-lending activities 18 12
Borrowings 9 9
Other 4 6
- ------------------------------------------------------------
Total 256 200
- ------------------------------------------------------------
Net Interest Revenue $159 $121
============================================================
Customer-related daily average balances, interest rates and average net
interest margin for the first six months of 1997 and 1996 are summarized in the
following table (dollars in millions):
- ------------------------------------------------------------------
Six Months Ended
June 30,
1997 1996
- ------------------------------------------------------------------
Interest-Earning Assets (customer-related):
Investments:
Average balance outstanding $ 7,211 $5,646
Average interest rate 5.32% 5.32%
Margin loans to customers:
Average balance outstanding $ 5,563 $4,255
Average interest rate 7.62% 7.60%
Average yield on interest-earning assets 6.32% 6.30%
Funding Sources (customer-related
and other):
Interest-bearing customer cash balances:
Average balance outstanding $10,253 $7,935
Average interest rate 4.42% 4.39%
Other interest-bearing sources:
Average balance outstanding $ 1,043 $ 713
Average interest rate 4.47% 4.37%
Average noninterest-bearing portion $ 1,478 $1,253
Average interest rate on funding sources 3.91% 3.83%
Summary:
Average yield on interest-earning assets 6.32% 6.30%
Average interest rate on funding sources 3.91% 3.83%
- ------------------------------------------------------------------
Average net interest margin 2.41% 2.47%
==================================================================
The increase in net interest revenue from the prior year's first half was
primarily due to higher levels of average earning assets.
Expenses Excluding Interest
Compensation and benefits expense for the first half of 1997 increased $49
million, or 12%, to $445 million from the prior year's first half 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
first six months of 1997 and 1996, variable compensation represented 21% and
28%, respectively, of total compensation and benefits expense. Compensation for
temporary employees, contractors and overtime hours accounted for $64 million
and $43 million of total compensation and benefits expense during the first six
months of 1997 and 1996, respectively.
Advertising and market development expense increased $22 million, or 54%,
to $62 million from the prior year's first half. This increase between the
six-month periods is generally attributable to the factors described in the
comparison between the three-month periods.
The Company's effective income tax rate for the first half of 1997 was
39.5% compared to 41.0% for the comparable period in 1996.
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 $11.4 billion and $10.9 billion at June 30, 1997 and December 31, 1996,
respectively. 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 $220 million was outstanding at June 30, 1997. At quarter end, Schwab
also had outstanding $25 million in fixed-rate subordinated term loans from CSC
maturing in 1999. Borrowings under these subordinated lending arrangements
qualify as regulatory capital for Schwab.
For use in its brokerage operations, Schwab maintained uncommitted,
unsecured bank credit lines totaling $550 million at June 30, 1997. Schwab used
such borrowings for six days during the first six months of 1997, with the daily
amounts borrowed averaging $54 million. These lines were unused at June 30,
1997.
M&S
M&S' liquidity needs are generally met through earnings generated by its
operations. Most of M&S' assets are liquid, consisting primarily of receivables
from brokers, dealers and clearing organizations, marketable securities, and
cash and cash equivalents. M&S may borrow up to $35 million under a subordinated
lending arrangement with CSC. Borrowings under this arrangement qualify as
regulatory capital for M&S. This facility was unused at June 30, 1997.
CSC
CSC's liquidity needs are generally met through cash generated by its
subsidiaries, as well as cash provided by external financing. 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 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 June 30, 1997, Schwab had $624 million of net
capital (10% of aggregate debit balances), which was $500 million in excess of
its minimum required net capital. At June 30, 1997, M&S had $8 million of net
capital (331% of aggregate debit balances), which was $7 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 1997 to 2005
and fixed interest rates ranging from 5.32% to 7.72% with interest payable
semiannually. The Medium-Term Notes are rated A3 by Moody's Investors Service
and BBB+ by Standard & Poor's Ratings Group.
As of June 30, 1997, CSC had a prospectus supplement on file with the SEC
enabling CSC to issue up to $196 million in Senior or Senior Subordinated
Medium-Term Notes, Series A. At June 30, 1997, $186 million of these notes
remained unissued.
CSC may borrow under its $350 million committed, unsecured credit facility
with a group of 11 banks through June 1998. The funds are available for general
corporate purposes for which 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 was not used in the first half of 1997.
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 $188 million for the
first six months of 1997, up 14% from $165 million for the first six months of
1996. Depreciation and amortization expense related to equipment, office
facilities and property totaled $52 million for the first half of 1997, as
compared to $42 million for the same period in the prior year. Amortization
expense related to intangible assets totaled $5 million and $6 million for the
first six-month periods of 1997 and 1996, respectively.
During the first six months of 1997, the Company's capital expenditures
totaled $70 million for equipment and office facilities relating to continued
enhancements of its data processing and telecommunications systems. In addition,
the Company opened 19 new branch offices during the first six months of 1997,
compared to eight branch offices opened during the comparable period in 1996. As
has been the case recently, capital expenditures will vary from period to period
as business conditions change.
The Company issued $10 million in Medium-Term Notes during the first half
of 1997.
During the first six months of 1997, the Company repurchased and recorded
as treasury stock a total of 500,000 shares of its common stock for
approximately $16 million. As of June 30, 1997, authorization granted by the
Company's Board of Directors allowed for the repurchase of an additional 871,000
shares.
In July 1997, the Board of Directors approved a three-for-two split of the
Company's common stock, which will be effected in the form of a 50% stock
dividend. The stock dividend is payable September 15, 1997 to stockholders of
record August 14, 1997. Share and per share data have not been restated to
reflect this transaction.
During the first six months of 1997, the Company paid common stock cash
dividends totaling $18 million, up from $14 million paid during the first six
months of 1996.
The Company monitors both the relative composition and absolute level of
its capital structure. The Company's stockholders' equity at June 30, 1997
totaled $993 million. In addition, the Company had borrowings of $289 million
that bear interest at a weighted-average rate of 6.50%. These borrowings,
together with the Company's equity, provided total financial capital of $1,282
million at June 30, 1997, up $143 million, or 13% from the December 31, 1996
level of $1,139 million.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The discussion of legal proceedings 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., is 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
At the Company's Annual Meeting of Stockholders held on May 12, 1997, its
stockholders voted upon the following proposals (share amounts have not been
restated to reflect the effects of the three-for-two common stock split declared
July 16, 1997, payable September 15, 1997):
Proposal No. 1 - Election of Three Directors:
Shares Shares
For Against
------ -------
David S. Pottruck 158,419,665 4,031,996
Nancy H. Bechtle 161,418,632 1,033,029
C. Preston Butcher 158,574,611 3,877,050
There were no abstentions or broker non-votes with respect to the election
of directors.
Proposal No. 2 - Amendment to the 1992 Stock Incentive Plan -- Amendment to the
1992 Stock Incentive Plan to increase the total number of shares under this
Plan.
Shares Shares Broker
For Against Abstentions Non-Votes
------ ------- ----------- ---------
125,805,463 17,034,932 908,315 18,702,951
Proposal No. 3 - Stockholder Proposal Requesting that the Board of Directors
Amend the Certificate of Incorporation -- Stockholder proposal requesting that
the Board of Directors amend the Certificate of Incorporation to reinstate
stockholder rights to act by written consent and to call special meetings.
Shares Shares Broker
For Against Abstentions Non-Votes
------ ------- ----------- -----------
31,336,211 110,559,664 1,399,828 19,155,958
A total of 162,451,661 shares were present in person or by proxy at the
Annual Meeting.
Item 5. Other Information
On July 16, 1997, George P. Schultz, former U.S. Secretary of State, was
elected to the Company's Board of Directors, expanding it to 11 members.
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
- --------------------------------------------------------------------------------
10.116 Second Amendment to the Trust Agreement for the
Charles Schwab Profit Sharing and Employee Stock
Ownership Plan effective July 1, 1992, dated
June 30, 1992.
10.168 Charles Schwab Profit Sharing and Employee Stock
Ownership Plan, as amended through December 13, 1996 (supersedes
Exhibit 10.152 to the Registrant's Form 10-Q for the quarter ended
June 30, 1995).
10.169 Third Amendment to the Trust Agreement for the
Charles Schwab Profit Sharing and Employee Stock
Ownership Plan effective January 1, 1996, dated
May 8, 1996.
10.170 The Charles Schwab Corporation 1992 Stock Incentive Plan Restated as
of May 12, 1997 (supersedes Exhibit 10.141 to the Registrant's Form
10-Q for the quarter ended September 30, 1994).
10.171 Form of Restricted Shares Award Agreement of The
Charles Schwab Corporation 1992 Stock Incentive
Plan (supersedes Exhibit 4.6 to the Registrant's
Registration Statement No. 33-54701 on Form S-8).
10.172 Form of Nonstatutory Stock Option Agreement of The Charles Schwab
Corporation 1992 Stock Incentive Plan (supersedes Exhibit 10.143 to
the Registrant's Form 10-Q for the quarter ended September 30,
1994).
10.173 Form of Nonstatutory Stock Option and
Performance Unit Agreement of The Charles Schwab
Corporation 1992 Stock Incentive Plan.
10.174 Form of Incentive Stock Option Agreement of The Charles Schwab
Corporation 1992 Stock Incentive Plan (supersedes Exhibit 10.144 to
the Registrant's Form 10-Q for the quarter ended September 30,
1994).
10.175 Form of Restricted Shares Award Agreement with performance vesting
conditions of The Charles Schwab Corporation 1992 Stock Incentive
Plan (supersedes Exhibit 10.155 to the Registrant's Form 10-Q for
the quarter ended September 30, 1995).
10.176 Form of Nonstatutory Stock Option Agreement of The Charles Schwab
Corporation 1987 Stock Option Plan (supersedes Form of Non-Qualified
Stock Option Agreement in Exhibit 10.167 to the Registrant's Form
10-Q for the quarter ended March 31, 1997).
10.177 Form of Incentive Stock Option Agreement of
The Charles Schwab Corporation 1987 Stock Option
Plan.
10.178 Form of Restricted Shares Award Agreement of
The Charles Schwab Corporation 1987 Stock Option
Plan.
10.179 Form of Nonstatutory Stock Option Agreement of The Charles Schwab
Corporation 1987 Executive Officer Stock Option Plan (supersedes
Form of Non-Qualified Stock Option Agreement in Exhibit 10.166 to
the Registrant's Form 10-Q for the quarter ended March 31, 1997).
10.180 Form of Restricted Shares Award Agreement of The
Charles Schwab Corporation 1987 Executive
Officer Stock Option Plan.
11.1 Computation of Earnings Per Share.
12.1 Computation of Ratio of Earnings to Fixed
Charges.
27.1 Financial Data Schedule (electronic only).
-------------------------------------------------------------------------------
(b) Reports on Form 8-K
None.
<PAGE>
THE CHARLES SCHWAB CORPORATION
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: July 29, 1997 /s/ Steven L. Scheid
------------- -----------------------------
Steven L. Scheid
Executive Vice President and
Chief Financial Officer
Exhibit 10.116
SECOND AMENDMENT TO THE TRUST AGREEMENT
FOR THE CHARLES SCHWAB
PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN
The Trust Agreement for the Charles Schwab Profit Sharing and Employee
Stock Ownership Plan ("Plan"), which was amended and restated in its entirety
effective November 1, 1990, and further amended effective January 1, 1992, is
hereby further amended effective July 1, 1992, to reflect the appointment of The
Charles Schwab Trust Company to act as successor trustee under the Plan and
Trust Agreement, and as follows:
1. Each reference to "Security Pacific National Bank" is replaced by "The
Charles Schwab Trust Company."
2. The last two sentences of Section 5.05(a) are revised to read as follows:
Investment in such Employer Securities shall be made from time to time
by a direct issue of such Employer Securities from the Employer (in the
event of Employer Securities used to fund the employee stock ownership
plan only) or by purchase through a Purchasing Agent designated by the
Trustee to effect all purchases of Employer Securities. The Purchasing
Agent shall not in any event be The Charles Schwab Corporation or any
of its affiliates or subsidiaries. The Purchasing Agent shall invest
such funds as are paid over to the Purchasing Agent from time to time
in Employer Securities at the time, in the amount, in the manner and at
the price determined by the Purchasing Agent in its sole discretion,
provided such price shall be the fair market value of such securities
on the open market. The Purchasing Agent shall hold such assets as an
agent of the Trustee and shall be a fiduciary to the Plan, but only
with respect to those assets under its management and control and only
with respect to its determinations as to the timing, price and amount
of purchases of Employer Securities and the selection of the broker,
but the Purchasing Agent shall have no discretion as to whether or not
purchases of Employer Securities shall be made. The Purchasing Agent
shall sell shares of Employer Securities at the direction of the
Trustee, but at the time, in the manner and at the price determined by
the Purchasing Agent, provided such price shall be the fair market
value of such securities on the open market. The Trustee shall instruct
the Purchasing Agent to sell shares of Employer Securities only if the
Plan Administrator has directed the Trustee to arrange for such sale
and only if such sale is previously approved by the Board of Directors
to the extent required under Section 10.01 of the Plan.
3. Section 5.05(b) is amended to read as follows:
(b) The Trustee shall pay over all contributions to the employee stock
ownership plan, and such contributions and assets of the profit sharing
plan that are to be invested in Employer Securities, to the Purchasing
Agent for investment in Employer Securities.
4. Section 5.05(c) is amended to read as follows:
Cash dividends received on any Employer Securities held as part of the
profit sharing plan shall be paid over to the Purchasing Agent and
invested as soon as practicable in additional shares of Employer
Securities. Cash dividends received on any Employer Securities
allocated to a Participant's Account and held as part of the employee
stock ownership plan shall be paid over to the Purchasing Agent and
invested as soon as practicable in additional shares of Employer
Securities. Cash dividends received on Employer Securities held in the
suspense account (e.g., unallocated shares of Employer Securities held
as part of the employee stock ownership plan) shall be used as provided
in Section 10.08 of the Plan.
5. Section 5.05(d) is amended to read as follows:
The Purchasing Agent shall invest funds awaiting investment in Employer
Securities in short-term obligations, including obligations of the
United States of America or any agency or instrumentality thereof,
trust and participation certificates, beneficial interests in any trust
and such other short-term obligations as the Purchasing Agent deems to
be appropriate for such interim investment purposes, provided however
that the Purchasing Agent may hold in cash without liability for
interest such portion of the assets under its control that in its
discretion shall be reasonable under the circumstances, pending
investments, or payment of expenses, or the distribution of benefits.
The Purchasing Agent is authorized to invest in any common, collective
or pooled fund maintained by the Purchasing Agent as provided in
Section 7.03.
6. Section 5.05(f) is amended to read as follows:
Voting or proxy or other rights with respect to Employer Securities
shall be disposed of as provided in this Section. With respect to
Employer Securities that are allocated to Participants' Accounts, each
Participant shall be entitled to direct the Purchasing Agent as to the
manner in which such Employer Securities then allocated to his Account
shall be voted. Such directions may be achieved through the use of
proxy or similar statements delivered by the Purchasing Agent to the
Participants with respect to the Employer Securities allocated to their
Accounts. The Plan Administrator shall provide any information
requested by the Purchasing Agent that is necessary or convenient in
connection with obtaining and preserving the confidentiality of the
Participants' directions. Any allocated Employer Securities with
respect to which Participants are entitled to issue directions pursuant
to the foregoing and for which such directions are not received by the
Purchasing Agent shall not be voted by the Purchasing Agent. All
unallocated Employer Securities shall be voted by the Purchasing Agent,
provided however that the Purchasing Agent shall vote such unallocated
Employer Securities in the same proportion as the shares of Employer
Securities for which Participant voting instructions have been received
as provided in the agreement between the Employer and the New York
Stock Exchange.
7. Article XI is amended by the addition of the following sections at the end:
Section 11.09 Disclosure. The Trustee is authorized to disclose such
information as is necessary to the operation and administration of the
trust fund to any of its affiliates, and to such other persons and
organizations that the Trustee determines have a legitimate business
reason for obtaining such information.
Section 11.10 Recording. The Trustee is authorized to record
conversations between itself and the Plan Administrator, an Investment
Manager, the Employer and other persons acting on behalf of the Plan.
Section 11.11 Affiliates. The Trustee is authorized to contract or make
other arrangements with The Charles Schwab Corporation and any of its
affiliates, subsidiaries, successors and assigns, and any other
organizations affiliated with, or subsidiaries of, the Trustee or
related entities, for the provision of services to the Plan and trust
fund.
Section 11.12 Trades. The Trustee is authorized to place securities
orders, settle securities trades, hold securities in custody and
perform related activities on behalf of the trust fund through or by
Charles Schwab & Co., Inc. to the extent that the Trustee may select
the broker-dealer. Trades and related activities effected through
Charles Schwab & Co., Inc. shall not be subject to fees and commissions
established by Charles Schwab & Co., Inc. Transactions effected by
Schwab shall be subject to Schwab's trading rules and policies as
modified or amended from time to time, together with the applicable
rules, regulations, customs and usages of any exchange, market,
clearing house or self-regulatory organization and the applicable
federal and state laws, rules and regulations.
Section 11.13 Mutual Funds. The Trustee is authorized to invest in
shares of regulated investment companies (or other investment vehicles)
advised by affiliates of The Charles Schwab Corporation and any of its
affiliates, subsidiaries, successors and assigns, and any other
organizations affiliated with, or subsidiaries of, the Trustee or
related entities, or by the Trustee itself.
Section 11.14 Lien. The Trustee shall have a lien on the trust fund for
compensation and for any reasonable expenses incurred by the Trustee,
including counsel, appraisal or accounting fees as provided in Section
4.04, and such amounts may be withdrawn from the trust fund if not paid
by the Employer within a reasonable time after the Trustee mails a
written billing.
Executed this 30th day of June 1992.
CHARLES SCHWAB & CO., INC.
By /s/ Charles R. Schwab
CHARLES SCHWAB TRUST COMPANY
By /s/ Harvey A. Rowen
Exhibit 10.168
CHARLES SCHWAB
PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN
AMENDED through December 13th, 1996,
CHARLES SCHWAB
PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN
AMENDED through December 13th, 1996,
Table of Contents
Section Page
1 Introduction and Purpose......................................... 1
2 Definitions...................................................... 2
3 Participation.................................................... 15
4 Employer Contributions........................................... 17
5 Salary Reduction Agreements and Rollover Contributions........... 25
6 Allocation of Contributions...................................... 31
7 Special ESOP Provisions.......................................... 32
8 Investment of Contributions, Valuations and Participants' Cash
Contribution Accounts.......................................... 39
9 Retirement Dates................................................. 41
10 Eligibility for Payment of Accounts and Vested Interests........ 42
11 Method of Payment of Accounts and Withdrawals.................... 46
12 Maximum Amount of Allocation..................................... 57
13 Voting Rights.................................................... 59
14 Designation of Beneficiaries..................................... 63
15 Administration of the Plan....................................... 64
16 Expenses......................................................... 69
17 Employer Participation........................................... 70
18 Amendment or Termination of the Plan............................. 73
19 Top-Heavy Plan Requirements...................................... 76
20 General Limitations and Provisions............................... 82
21 Application to Puerto Rico Employees............................. 91
CHARLES SCHWAB
PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN
AMENDED through December 13th, 1996
SECTION 1. INTRODUCTION AND PURPOSE
1.1 The Plan Sponsor has established and maintains the Plan to enable each
Participant to benefit, in accordance with the terms of the Plan, from
contributions made by the Employer and from any increases in the value of the
Plan assets through investment of such assets. The Plan is comprised of three
parts: (i) a Section 401(k) plan, (ii) a profit sharing plan and (iii) an
employee stock ownership plan. The purpose of the employee stock ownership plan
portion of the Plan is to align Employees' interests with the interests of
shareholders. It is anticipated that Employer contributions to the employee
stock ownership plan will be invested primarily or entirely in Shares of The
Charles Schwab Corporation, that the employee stock ownership plan may acquire
such Shares of The Charles Schwab Corporation from time to time with the
proceeds of one or more Exempt Loans, the repayment of which may be secured in
part by a pledge of the Shares of The Charles Schwab Corporation acquired with
those loan proceeds, and that Employer contributions to the employee stock
ownership plan may be used in full or in substantial part to the payment of
interest on, and retirement of principal of, such Exempt Loans.
This Plan is a restatement of the Charles Schwab Profit Sharing and
Employee Stock Ownership Plan, which was initially effective as of October 1,
1983. The effective date of this restatement is December 13, 1996. The rights of
any person who terminated employment or who retired on or before the effective
date of this restated Plan or any provision hereof, including his or her
eligibility for benefits and the time and form in which benefits, if any, will
be paid, shall be determined solely under the terms of the Plan provisions as in
effect on the date of his or her termination of employment or retirement, unless
such person is thereafter reemployed and again becomes a Participant. The rights
of any other person shall be determined solely under the terms of this restated
Plan, except as may otherwise be required by law.
The Plan and Trust are intended to qualify as a plan and trust which are
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code.
The Plan is intended to qualify in part as a profit sharing plan (as defined in
Section 401(a)(27) of the Code) and in part as a stock bonus plan and an
employee stock ownership plan (as defined by Section 4975(e)(7) of the Code and
Section 407(d)(6) of the Act) designed to invest primarily in shares of stock of
the Employer which meet the requirements for "qualifying employer securities"
under Section 4975(e)(8) of the Code and Section 407(d)(5) of the Act. All
provisions of the Plan and Trust shall be construed accordingly.
All Trust Fund assets acquired under the Plan as a result of debt incurred
to purchase Shares, Employer contributions, income and other additions to the
Trust Fund shall be administered, distributed, forfeited and otherwise governed
by the provisions of the Plan. It is intended that the Trust associated with the
Plan be exempt from federal income taxation pursuant to the provisions of
Section 501(a) of the Code. Subject to the provisions of Section 16 of the Plan,
the assets of the Plan shall be applied exclusively for the purposes of
providing benefits to Participants and Beneficiaries under the Plan and for
defraying expenses incurred in the administration of the Plan and its
corresponding Trust.
SECTION 2. DEFINITIONS
When used herein the following terms shall have the following meanings:
2.1 "Account" means the account or accounts established and maintained on
behalf of a Participant pursuant to (i) Section 6.1 with respect to the
Participant's Cash Contribution Account and (ii) Section 7.1 with respect to the
Participant's ESOP Account.
2.2 "Act" means the Employee Retirement Income Security Act of 1974, as now
in effect or as hereafter amended.
2.3 "Actual Deferral Percentage" means the average of the ratios
(calculated separately for each Employee) for each Plan Year of (a) the amount
of Elective Contributions and Matching Contributions or Qualified Nonelective
Contributions (if the Committee determines to take such Matching Contributions
or such Qualified Nonelective Contributions into account when calculating Actual
Deferral Percentage) on behalf of each Employee for such Plan Year to (b) the
Employee's compensation (as defined in Treasury Regulation 1.415-2(d)(10)) while
a Participant for such Plan Year.
2.4 "Affiliated Employer" means any corporation which is included in a
controlled group of corporations (within the meaning of Section 414(b) of the
Code) which includes the Plan Sponsor, any trade or business (whether or not
incorporated) which is under common control with the Plan Sponsor (within the
meaning of Section 414(c) of the Code), any organization included in the same
affiliated service group (within the meaning of Section 414(m) of the Code) as
the Plan Sponsor and any other entity required to be aggregated with the Plan
Sponsor pursuant to the Regulations under Section 414(o) of the Code; except
that for purposes of applying the provisions of Sections 12 and 19 with respect
to the limitations on contributions, Section 415(h) of the Code shall apply.
2.5 "Beneficiary" means the beneficiary or beneficiaries designated by a
Participant pursuant to Section 14 to receive the amount, if any, payable under
the Plan upon the death of such Participant.
2.6 "Board of Directors" means the board of directors of Charles Schwab &
Co., Inc.
2.7 "Break in Service" means a Plan Year (or for purposes of determining
membership in the Plan pursuant to Section 3, the Computation Period) during
which an individual has not completed more than 500 Hours of Service, as
determined by the Committee in accordance with the Regulations. A Break in
Service shall be deemed to have commenced on the first day of the Plan Year in
which it occurs. Solely for purposes of determining whether a Break in Service
has occurred, an individual shall be credited with the Hours of Service which
such individual would have completed but for a maternity or paternity absence,
as determined by the Committee in accordance with this Section 2.7 and the Code
and Regulations; provided, however, that the total Hours of Service so credited
shall not exceed 501 Hours of Service and that the individual shall timely
provide the Committee with such information as it shall require. Hours of
Service credited for a maternity or paternity absence shall be credited at eight
Hours of Service per day and shall be credited entirely (i) in the Plan Year or
Computation Period in which the absence began if such Hours of Service are
necessary to prevent a Break in Service in such Plan Year, or (ii) in the
following Plan Year or Computation Period. For purposes of this Section 2.7,
maternity or paternity absence shall mean an absence from work by reason of the
individual's pregnancy, the birth of the individual's child or the placement of
a child with the individual in connection with adoption of the child by such
individual, or for purposes of caring for a child for the period immediately
following such birth or adoption.
2.8 "Cash Contribution Account" means the account or accounts established
and maintained on behalf of a Participant pursuant to Section 6.1 with respect
to the Participant's Elective Contributions, Matching Contributions, Profit
Sharing Contributions, Qualified Nonelective Contributions or Rollover
Contributions.
2.9 "Code" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended. All citations to sections of the Code are to such sections as
they may from time to time be amended or renumbered.
2.10 "Committee" means the Administrative Committee of the Employer
provided for in Section 15. For purposes of the Act, the Employer shall be the
"named fiduciary" (with respect to the matters for which it is hereby
responsible under the Plan) of the Plan, and the Employer shall be the "plan
administrator" of the Plan within the meaning of Section 3(16)(A) of the Act.
2.11 "Compensation" means a Participant's W-2 compensation related to
services rendered to the Employer, excluding (i) living allowances, (ii) travel
or commuting allowances, (iii) reimbursements for financial planning, (iv)
amounts that are paid as a result of participation in the Employer's Long-Term
Incentive Plan, (v) employee referral awards, (vi) special incentive awards
(other than regular bonus programs), (vii) reimbursements for relocation
expenses, (viii) commissions (other than "dual commissions", commissions based
on trading results that are paid to traders who are also salaried and
commissions where the Participant's only form of remuneration is commissions),
(ix) income items attributable to the taxable portion of employee benefits and
any cash payments made as a result of an Employee's election not to receive
insured benefits pursuant to the Company's Pre-Tax Contribution Plan, (x)
amounts paid as short term disability benefits, (xi) any income items reflecting
grants in aid, and (xii) compensation in excess of $150,000 (adjusted for cost
of living to the extent permitted by Section 401(a)(17) of the Code and
Regulations). For purposes of determining the whole percentage of Compensation
for which a Participant may make a Salary Reduction Agreement, and not for any
other purposes, subparagraph (ix) hereof shall be disregarded. Compensation
shall be determined prior to reduction for any contributions pursuant to such
Participant's election under Section 5.1, and any elective contributions made by
the Employer on behalf of the Participant in the Plan Year that are not
includable in gross income under Section 125 of the Code. Any Compensation paid
to any Participant who is a member of the family of a five percent (5% ) owner
or one of the ten most Highly Compensated Participants, as defined in Section
414(q)(6) of the Code, shall be treated as if it were paid to or on behalf of
such five percent (5%) owner or Highly Compensated Participant. For purposes of
the previous sentence, the term "family" means the Participant's spouse and any
of the Participant's lineal descendants who have not attained age 19 before the
end of the Plan Year.
2.12 "Computation Period" means a 12 consecutive month period beginning on
the day an individual first performs an Hour of Service or first performs an
Hour of Service following a Break in Service. Thereafter, the Computation Period
shall be the Plan Year, commencing with the Plan Year that includes the day
immediately following the last day of the Computation Period determined pursuant
to the first sentence hereof.
2.13 "Contribution Percentage" means the average of the ratios (calculated
separately for each Participant for each Plan Year) of (a)(i) Matching
Contributions, if any, made by the Employer on behalf of a Participant and (ii)
Elective Contributions, (if the Committee elects to take into account Elective
Contributions when calculating the Contribution Percentage) to (b) the
Employee's compensation while a Participant (as defined in Section
1.415-2(d)(10) of the Regulations) for such Plan Year.
2.14 "Deferred Retirement Date" shall have the meaning set forth in Section
9.2.
2.15 "Disability" means the inability to engage in any substantial gainful
activity considering the Participant's age, education and work experience by
reason of any medically determined physical or mental impairment that has
continued without interruption for a period of at least six months and that can
be expected to be of long, continued and indefinite duration. The determination
of the Committee as to whether a Participant has a Disability shall be final,
binding and conclusive.
2.16 "Effective Date" means October 1, 1983.
2.17 "Elective Contributions" means contributions made to the Trust Fund
pursuant to a Participant's Salary Reduction Agreement entered into pursuant to
Section 5.1, and which are considered tax deferred under Section 401(k) of the
Code.
2.18 "Elective Contribution Subaccount" means the account established and
maintained on behalf of a Participant pursuant to Section 6.2(a) with respect to
his or her Elective Contributions and Qualified Nonelective Contributions.
2.19 "Employee" means any "regular employee" of the Employer, excluding (i)
any person covered by any other pension, profit sharing or retirement plan to
which any Employer or Affiliated Employer is required to contribute either
directly or indirectly, (ii) any nonresident alien individual who received no
earned income (within the meaning of Section 911(d)(2)) from the Employer which
constitutes income from sources within the United States and (iii) any employee
who is included in a unit of employees covered by a negotiated collective
bargaining agreement which does not provide for his or her membership in the
Plan. A director of the Employer is not eligible for membership in the Plan
unless such director is also an Employee. A leased employee (within the meaning
of Section 414(n) of the Code) is not eligible for membership in the Plan unless
the Employer designates such individual as eligible for membership in the Plan.
2.20 "Employer" means Charles Schwab & Co., Inc. and any Participating
Employer which adopts this Plan subject to the approval of the Board of
Directors.
2.21 "ESOP Account" means the account established and maintained on behalf
of a Participant pursuant to Section 7.1 with respect to his or her ESOP
Contributions.
2.22 "ESOP Contributions" means the Employer contributions, if any, made to
the Plan on behalf of a Participant pursuant to Section 4.2(c).
2.23 "ESOP/Profit Sharing Entry Date" means January 1 and July 1 of each
calendar year.
2.24 "Exempt Loan" means any loan to the Plan or Trust not prohibited by
Section 4975(c) of the Code and Section 406 of the Act because the loan meets
the requirements set forth in Section 4975(d)(3) of the Code, Section 408(b)(3)
of the Act and the Regulations promulgated thereunder, the proceeds of which
loan are used within a reasonable time after receipt by the Trust Fund only for
any or all of the following purposes: (a) to acquire Shares; (b) to repay the
same Exempt Loan; or (c) to repay any previous Exempt Loan.
2.25 "Highly Compensated Participant" means any Participant who, during the
relevant period is treated as a highly compensated employee under Section 414(q)
of the Code. For purposes of determining which Employee is a Highly Compensated
Participant, the look-back determination shall be made on the basis of the
calendar year and the simplified method of Section 414(q)(12) of the Code shall
be used by the Employer to the extent permissible under the Code. The Plan shall
comply with the procedures of Treasury Regulation 1.401(k)-1(f) to the extent
applicable. For purposes of determining which Employee is a Highly Compensated
Participant:
(A) Highly Compensated Participant means a Participant who performs Service
during the determination year and is described in one or more of the following
groups:
(1) An Employee who is a five percent (5%) owner, as defined in
Section 416(i)(1)(A)(iii) of the Code, at any time during the
determination year or the look-back year.
(2) An Employee who receives compensation in excess of $75,000
(indexed in accordance with Section 415(d) of the Code) during the
look-back year.
(3) An Employee who receives compensation in excess of $50,000
(indexed in accordance with Section 415(d) of the Code) during the
look-back year and is a Participant of the "top-paid" group for the
look-back year.
(4) An Employee who is an officer, within the meaning of Section
416(i) of the Code, during the look-back year and who receives
compensation in the look-back year greater than fifty percent (50%) of
the dollar limitation in effect under Section 415(b)(1)(A) for the
calendar year in which the look-back year begins.
(5) An Employee who is both described in subparagraphs 2, 3, or 4
above when these paragraphs are modified to substitute the
determination year for the look-back year and one of the 100 employees
who receive the most compensation from the Employer during the
determination year.
(B) For purposes of this Section:
(1) The determination year is the Plan Year for which the
determination of who is a Highly Compensated Participant is being
made.
(2) The look-back year is the calendar year ending with or within
the determination year.
(3) The "top-paid" group consists of the top twenty percent (20%)
of Employees ranked on the basis of compensation received during the
past calendar year. For purposes of determining the number of
Employees in the top-paid group, Employees described in Section
414(q)(8) of the Code and Q & A 9(b) of Section 1.414(q)-1T of the
Regulations are excluded.
(4) The number of officers is limited to 50 (or, if lesser, the
greater of 3 Employees or ten percent (10%) of Employees) excluding
those Employees who may be excluded in determining the top-paid group.
(5) When no officer has compensation in excess of fifty percent
(50%) of the Section 415(b)(1)(A) limit, the highest paid officer is
treated as highly compensated.
(6) For purposes of this Section 2.25, the term "compensation"
means compensation as defined in Section 415(c)(3) of the Code and
Treasury Regulation Section 1.415-2(d)(10), determined without
reduction for any elective or salary reduction contributions to a
cafeteria plan or cash or deferred arrangement.
(7) Employers aggregated under Section 414(b), (c), (m), or (o)
of the Code are treated as a single employer.
(8) Highly Compensated Participants include a former Employee who
had a separation year prior to the determination year and who was a
Highly Compensated Participant for either (A) the determination year
in which the Employee separated from Service or (B) any determination
year ending on or after the Employee's 55th birthday. With respect to
an Employee who separated from Service before January 1, 1987, an
Employee will be included as a Highly Compensated Participant only if
the Employee was a five percent (5%) owner or received Compensation in
excess of $50,000 during (1) the determination year in which the
Employee separated from Service (or the year preceding such separation
year) or (2) any year ending on or after such Employee's 55th birthday
(or the last year ending before such Employee's 55th birthday).
2.26 "Hours of Service" means hours during the applicable Computation
Period in which an individual performs Service or is treated as performing
Service and, except in the case of military service or as otherwise determined
by the Committee, for which the Participant is directly or indirectly entitled
to payment. For all purposes under the Plan, (i) an individual scheduled to work
more than twenty hours per week shall be credited (under rules determined by the
Committee, uniformly applicable to all individuals similarly situated and in
accordance with the Regulations) with 190 Hours of Service for each calendar
month in which the individual would otherwise be credited with one or more Hours
of Service and (ii) an individual who is scheduled to work less than twenty
hours per week shall be credited with Hours of Service for the applicable period
in which such Hours of Service accrue in accordance with Labor Department
Regulation 29 CFR ss. 2530.200b-2(c), which regulation is incorporated herein by
reference. Hours of Service for reasons other than the performance of duties
shall be credited in accordance with Labor Department Regulation 29 CFR ss.
2530.200b-2(b), which regulation is incorporated herein by reference.
The term "Service" includes performance of duties (or periods which are
treated as the performance of duties) for the Employer or for any Affiliated
Employer (under rules determined by the Committee, uniformly applicable to all
individuals similarly situated and in accordance with the Regulations) for which
an individual is entitled to receive credit for "Service", including (i)
vacation, (ii) holiday, (iii) absence authorized by the Employer for sickness or
incapacity (including disability or leave of absence), (iv) layoff, (v) jury
duty, (vi) if and to the extent required by the Military Selective Service Act,
as amended or any other federal law, service in the Armed Forces of the United
States and (vii) an approved leave of absence granted by the Employer to an
individual on or after August 5, 1993 pursuant to the Family Medical Leave Act,
but only if such individual returns to work for the Employer at the end of such
approved leave. Service also includes periods of time for which back pay,
irrespective of mitigation of damages, is awarded or agreed to by the Employer
or any Affiliated Employer; provided that such award or agreement is not already
credited as Service under either of the preceding two sentences. Service may
also include any period of a Participant's prior employment by an organization
upon such terms and conditions as the Committee may approve and subject to any
required IRS approval. Notwithstanding the foregoing, (i) Hours of Service
credited with respect to an individual's service with BankAmerica Corporation or
a related corporation between January 11, 1983 and March 31, 1987 shall be
considered Service only if such individual was employed by the Employer prior to
November 24, 1993, (ii) Hours of Service credited with respect to an
individual's service with BankAmerica Corporation or a related corporation prior
to January 11, 1983 shall be considered Service, but only if such individual was
employed by the Employer prior to April 1, 1987, (iii) Hours of Service credited
with respect to service with Mayer & Schweitzer, Inc. prior to July 1, 1991
shall be considered Service, and (iv) Service shall include service with The
Rose Company prior to April 1, 1989, service with Performance Technologies, Inc.
prior to August 31, 1994, service with TrustMark, Inc. prior to July 31, 1995,
and service with Hampton Pension Services, Inc. prior to November 6, 1995.
2.27 "IRS" means the United States Internal Revenue Service.
2.28 "Labor Department" means the United States Department of Labor.
2.29 "Matching Contribution" means any Employer contribution, if any, made
to the Plan on behalf of a Participant pursuant to Section 4.2(a).
2.30 "Matching Contribution Subaccount" means the account established and
maintained on behalf of a Participant pursuant to Section 6.2(b) with respect to
the Participant's Matching Contributions.
2.31 "Normal Retirement Date" shall have the meaning set forth in Section
9.1.
2.32 "Participant" means any Employee who has satisfied the eligibility
requirements of Section 3 below.
2.33 "Participating Employer" means Charles Schwab & Co., Inc. or any other
Affiliated Employer, the board of directors or equivalent governing body of
which shall adopt the Plan and Trust Agreement by appropriate action with the
written consent of the Board of Directors. By its adoption of this Plan, a
Participating Employer shall be deemed to appoint Charles Schwab, & Co., Inc.,
the Committee and the Trustee its exclusive agent to exercise on its behalf all
of the power and authority conferred by this Plan upon the Employer. The
authority of Charles Schwab & Co., Inc., the Committee and the Trustee to act as
such agent shall continue until the Plan is terminated as to the Participating
Employer and the relevant Trust Fund assets have been distributed by the Trustee
as provided in Section 17 of this Plan.
2.34 "Plan" means this Charles Schwab Profit Sharing and Employee Stock
Ownership Plan as the same is stated herein and as it may be amended from time
to time.
2.35 "Plan Sponsor" means The Charles Schwab Corporation.
2.36 "Plan Year" means the calendar year.
2.37 "Profit Sharing Contribution" means the Employer contribution, if any,
made to the Plan on behalf of a Participant pursuant to Section 4.2(b)(ii).
2.38 "Profit Sharing Subaccount" means the account established and
maintained on behalf of a Participant pursuant to Section 6.2(c) with respect to
the Participant's Profit Sharing Contributions.
2.39 "Purchasing Agent" means the agent designated by the Trustee to enter
into certain transactions with respect to Shares hereunder.
2.40 "Qualified Nonelective Contribution" means the Employer contribution,
if any, made to the Plan on behalf of a Participant pursuant to Section
4.2(b)(i).
2.41 "Regulations" means the applicable regulations issued under the Code
or the Act by the IRS, the Labor Department or any other governmental authority
and any temporary rules or releases promulgated by such authorities pending the
issuance of such regulations.
2.42 "Restated Effective Date" shall mean January 1, 1994.
2.43 "Retirement Date" means the Participant's Normal or Deferred
Retirement Date which has become effective pursuant to Section 9 below.
2.44 "Rollover Subaccount" means the account established and maintained on
behalf of a Participant pursuant to Section 6.2(d) with respect to the
Participant's Rollover Contributions.
2.45 "Rollover Contribution" means any contribution made by an Employee
pursuant to Section 5.6.
2.46 "Salary Reduction Agreement" means an agreement between a Participant
and the Employer entered into pursuant to Section 5.1.
2.47 "Section 401(k) Entry Date" means April 1 and October 1 of each
calendar year.
2.48 "Shares" means (i) with respect to Plan assets acquired with the
proceeds of an Exempt Loan, the common stock issued by The Charles Schwab
Corporation or any successor corporation thereto meeting the requirements of
both Section 4975(e)(8) of the Code and Section 407(d)(5) of the Act for
"qualifying employer securities," and (ii) with respect to Plan assets other
than those acquired with the proceeds of an Exempt Loan, stock issued by The
Charles Schwab Corporation or any successor corporation thereto, of any type,
kind or class meeting the requirements of Section 407(d)(5) of the Act for
"qualifying employer securities". All valuations of Shares, where such Shares
are not readily tradable on an established securities market and where such
valuations relate to activities carried on by the Plan, shall be made by one or
more independent appraisers retained by the Committee, who meet the
requirements, if any, of the Code and Regulations. To the extent and in the
manner required by the Code and Regulations, all independent appraisers, if any,
making appraisals pursuant to the foregoing sentence shall be registered with
the IRS.
2.49 "Surviving Spouse" means the survivor of a Participant to whom such
Participant was legally married on the date of the Participant's death.
2.50 "Suspense Subfund" means the subfund established under Section 7.3.
2.51 "Taxable Compensation" means the W-2 compensation paid to an
individual for Service during any period under consideration.
2.52 "Taxable Year" means the calendar year.
2.53 "Total Break in Service" means a period of five or more consecutive
Computation Periods in which a Participant incurs a Break in Service, with
respect to a Participant who did not have a nonforfeitable right to any portion
of his or her Profit Sharing Subaccount or ESOP Account prior to the beginning
of the first such Computation Period.
2.54 "Trustee" means the Trustee selected by the Employer to hold the funds
contributed by the Employer to provide benefits under the Plan or any successor
or substitute.
2.55 "Trust Agreement" means the Charles Schwab Profit Sharing and Employee
Stock Ownership Plan Trust Agreement, as it may from time to time be amended,
and such additional and successor trust agreements as may be executed.
2.56 "Trust Fund" means the funds held by the Trustee from which payments
to the Trustee are made to provide benefits under the Plan.
2.57 "Valuation Date" means the last day of each Plan Year or such interim
periods as the Committee may designate from time to time.
2.58 "Vested Interest" means the portion of a Participant's Account which
has become nonforfeitable pursuant to Section 10.3 below.
2.59 "Year of Eligibility Service" means a Computation Period during which
an Employee completes at least 1,000 Hours of Service.
2.60 "Year of Service" means a Computation Period during which an
individual completed at least 1,000 Hours of Service or satisfied any
alternative requirement, as determined by the Committee from time to time in
accordance with the Regulations.
SECTION 3. PARTICIPATION
3.1 Commencement of Participation.
(a) An Employee who is a Participant as of the date immediately preceding
the Restated Effective Date shall continue to be a Participant of the Plan as of
the Restated Effective Date.
(b) An Employee who is not a Participant on the Restated Effective Date and
who (A) is in Service on the Restated Effective Date or (B) commences Service on
or after the Restated Effective Date shall be eligible to become a Participant
of the Plan for purposes of:
(i) Elective Contributions, Matching Contributions and
Qualified Nonelective Contributions on the first Section 401(k)
Entry Date coincident with or next following his or her
commencement of Service; and
(ii) Profit Sharing Contributions and ESOP Contributions on
the first ESOP/Profit Sharing Entry Date coincident with or next
following the date on which he or she completes a Year of
Eligibility Service.
(c) An Employee who is eligible to become a Participant, but declines to
participate in the Plan, may become a Participant as of any subsequent Section
401(k) Entry Date or ESOP/Profit Sharing Entry Date.
(d) An Employee who satisfies the requirements of Section 3.1(b)(ii) for
participation but who terminates Service prior to becoming a Participant in the
Plan and subsequently becomes an Employee again prior to incurring a Break in
Service will become a Participant in the Plan for all purposes as of the first
day on which such individual again becomes an Employee.
3.2 Cessation of Participation. A Participant shall cease to be a
Participant upon the earliest to occur of (i) the Participant's retirement on
his or her Retirement Date, (ii) the Participant's death or Disability or (iii)
the Participant's termination of Service prior to his or her Retirement Date
followed by a Break in Service. A Participant who, without any Break in Service,
ceases to be an Employee for any reason, shall not cease to be a Participant,
provided that, notwithstanding any other provision of the Plan, and except as
provided in Section 4.3, no contribution shall be made for the benefit of such
Participant, no contributions under the Plan shall be allocated, added or
otherwise credited to the Account of such Participant, and no contributions,
forfeitures or Shares released from a Suspense Subfund shall be allocated, added
or otherwise credited to the Account of such Participant on or after the date on
which such Participant ceases to be an Employee and before the first day of the
Plan Year coincident with or preceding the date, if any, on which such
Participant again resumes Service as an Employee.
3.3 Readmission After Cessation of Participation. A Participant who has
incurred a Total Break in Service and subsequently returns to Service shall be
treated as a new Employee for all purposes of the Plan. In all other cases, a
former Participant who returns to Service following a Break in Service shall
again become a Participant as of the first date of such former Participant's
return to Service, except that (i) such Participant shall not be eligible to
commence Elective Contributions until the first Section 401(k) Entry Date or
ESOP/Profit Sharing Entry Date coincident with or next following the date the
Participant returns to Service, and (ii) if such former Participant is not then
an Employee, such former Participant shall again become a Participant as of the
first day on which such former Participant again becomes an Employee.
3.4 Waiver of Participation. An individual who has satisfied the
requirements for participation set forth in Section 3.1 may permanently waive
participation in the Plan, but only if such individual is on temporary transfer
of employment to a Participating Employer from an Affiliated Employer that is
not a Participating Employer.
SECTION 4. EMPLOYER CONTRIBUTIONS
4.1 Elective Contributions. The Employer shall, subject to the limitations
of Sections 5 and 12, contribute to the Trust Fund for each Plan Year on behalf
of all Participants the total amount of Elective Contributions designated to be
contributed pursuant to Salary Reduction Agreements under Section 5.1. Such
contributions shall be paid in cash by the Employer to the Trustee as soon as
practicable, but in no event later than 90 days from the date on which such
amounts otherwise would have been payable to the Participant in cash.
4.2 Employer Contributions.
(a) Subject to the limitations of Section 12, the Employer shall contribute
Matching Contributions to the Trust Fund on behalf of all Participants for whom
Elective Contributions have been made equal to a percentage of such Elective
Contributions made for each such Participant. The percentage (and, if desired, a
maximum dollar amount) of Matching Contributions shall be determined from time
to time by the Board of Directors and communicated to the Participants.
(b) Subject to the limitations of Section 12, for any Plan Year, the Board
of Directors may designate (i) a percentage of the aggregate Compensation of all
Participants or a fixed dollar amount to be contributed to the Plan as Qualified
Nonelective Contributions on behalf of certain Participants who are not Highly
Compensated Participants and may designate (ii) a percentage of the aggregate
Compensation of all Participants or a fixed dollar amount to be contributed to
the Plan as Profit Sharing Contributions on behalf of all Employees who are or
would be Participants but for their election not to make Elective Contributions.
Provided, however, that effective as of January 1, 1995, no further Profit
Sharing Contributions shall be made to the Plan.
(c) Subject to the limitations of Section 12, and the provisions of any
applicable loan or contribution agreement, the Employer shall contribute to the
Trust Fund for each Plan Year as ESOP Contributions such sum as the Board of
Directors may, in its sole discretion, determine, which sum may be zero. All or
any part of the contributions made under this Section 4.2(c) may be applied to
repay any outstanding Exempt Loan. The Committee may, subject to any pledge or
similar agreement, direct or determine the proportions of such contributions
which are applied to repay each such Exempt Loan and, with respect to any
particular Exempt Loan, the proportion of such contribution to be applied to
repay principal and interest on such Exempt Loan.
4.3 Allocation of Matching Contributions, Profit Sharing Contributions and
ESOP Contributions. Matching Contributions shall only be allocated to those
Participants employed on the last day of the Plan Year. Profit Sharing
Contributions and ESOP Contributions shall only be allocated to Participants who
are members of the Allocation Group for the Plan Year. For purposes of Sections
4 and 7, the term "Allocation Group" means the group consisting of (i) each
Participant who completed at least One Thousand (1,000) Hours of Service during
the Plan Year and is employed by the Employer as of the last day of the Plan
Year, and (ii) each Participant whose employment with the Employer terminated
during the Plan Year by reason of Disability, death or retirement on or after
the Participant's Retirement Date. Profit Sharing Contributions and ESOP
Contributions shall be allocated among the Accounts of Participants who are
members of the Allocation Group for the Plan Year in the same proportion that a
Participant's Compensation during the Plan Year bears to the total Compensation
during the Plan Year of all Participants who are members of the Allocation Group
for such Plan Year. For purposes of the preceding sentence, Compensation earned
by a Participant prior to the Participant's entry into the Plan pursuant to
Section 3.1(b)(ii) shall not be taken into account.
4.4 Timing of Employer Contributions.
(a) Any Profit Sharing Contributions, Qualified Nonelective Contributions
and ESOP Contributions shall be deemed made on account of a Taxable Year if (i)
the Board of Directors determines the amount of such contribution by appropriate
action and announces the amount in writing to its Employees within 30 days after
the end of such Taxable Year, (ii) the Employer designates such amount in
writing as payment on account of such Taxable Year or (iii) the Employer claims
such amount as a deduction on its federal tax return for such Taxable Year.
(b) Profit Sharing Contributions, Matching Contributions, and, subject to
the provisions of any Exempt Loan, ESOP Contributions for any particular Taxable
Year may be paid to the Trustee in installments, but in any event such
contributions shall be paid no later than the due date for the Employer's
federal income tax return for such Taxable Year. The Employer may, during any
Taxable Year, make advance payments toward its contributions for such Taxable
Year. Any income, earnings or appreciation earned by any amount contributed by
the Employer prior to the end of the Plan Year shall be treated as part of the
Profit Sharing Contributions, Matching Contributions, or ESOP Contributions, as
the case may be, for such Plan Year. On or about the date of such payment the
Committee shall be advised of the amount of such payment upon which its
allocation pursuant to Section 4.3 is to be calculated.
4.5 Forfeitures. Forfeitures of Profit Sharing Contributions arising during
the Plan Year pursuant to Section 10 shall be used to reduce the amount of
Matching Contributions made for such Plan Year pursuant to Section 4.2(a).
Forfeitures of Shares attributable to ESOP Contributions (or ESOP Contributions)
arising during the Plan Year pursuant to Section 10 shall be reallocated as ESOP
Contributions on the last day of the Plan Year in which such forfeiture occurs
to all Participants entitled to receive Shares attributable to ESOP
Contributions (or ESOP Contributions), in the same proportion as contributions
are allocated pursuant to Sections 4.3 and 7.2. Provided, in either case, that
forfeitures shall first be used to fund adjustments to Participants' Accounts
required to correct operational errors, to the extent directed by the Committee,
or to fund any amounts to be recredited to a Participant's Account pursuant to
Section 10.5.
4.6 Contribution Percentage Test.
(a) Participants' Contribution Percentages must satisfy at least one of the
following tests:
(1) The Contribution Percentage for the Highly Compensated
Participants shall not exceed the Contribution Percentage of all
other Participants multiplied by 1.25; or
(2) (a) The excess of the Contribution Percentage for the
Highly Compensated Participants over the Contribution Percentage
of all other Participants shall not be more than two percentage
points and (b) the Contribution Percentage for Highly Compensated
Participants shall not be more than the Contribution Percentage
for all other Participants multiplied by 2.
(b) All Matching Contributions and Elective Contributions that are made
under two or more plans that are aggregated for purposes of Sections 401(a)(4)
and 410(b) of the Code (other than Section 410(b)(2)(a)(ii)) are to be treated
as made under a single plan; and if two or more plans are permissively
aggregated such plans shall satisfy Sections 401(a)(4) and 410(b) as though they
were a single plan in accordance with Section 401(m) of the Code and Section
1.401(m)-1 of the Regulations. For purposes of this Section 4.6, Matching
Contributions are taken into account for a Plan Year only if (i) made on account
of the Participant's Elective Contributions for the Plan Year, (ii) allocated to
the Participant's Account during the Plan Year and (iii) paid to the Trust Fund
prior to the end of the twelfth month following the close of the Plan Year. For
purposes of determining whether the test of this Section 4.6 and Section 5.3 of
this Plan are satisfied, the Actual Deferral Percentage and the Contribution
Percentage shall be determined with reference to Section 1.401(m)-2(b) of the
Regulations. Any excess over the amount permitted by Section 1.401(m)-2(b) of
the Regulations shall be reduced by treating such excess as an excess Elective
Contribution and by refunding excess Elective Contributions in the manner set
forth in Section 5.5 hereof, but only for all those Highly Compensated
Participants who are eligible for contributions pursuant to Section 4 and
Section 5 hereof.
(c) In applying the tests set forth in subsections (a) and (b) of this
Section 4.6, the following rules shall apply.
(1) In the case of an Employee who receives no Matching
Contributions, the Matching Contributions that are to be included
in determining the Participant's Contribution Percentage are
zero;
(2) In the case of a Highly Compensated Participant who is
either a five percent (5%) owner or one of the ten most Highly
Compensated Participants and is thereby subject to the family
aggregation rules of Section 414(q)(6) of the Code, the
Contribution Percentage for the "family" (which is treated as one
Highly Compensated Participant) is the Contribution Percentage
determined by combining the contributions and Compensation of all
eligible family members. Except to the extent taken into account
in the preceding sentence, the contributions and Compensation of
all family members are disregarded in determining the
Contribution Percentages for the Highly Compensated Participants
and non-highly compensated Participants. For purposes of this
Section 4.6, the term "family" means the spouse, lineal
ascendants and descendants (and the spouses of such lineal
ascendants and descendants).
(3) The availability of Matching Contributions shall not
discriminate in favor of Highly Compensated Participants.
(4) In the case of a Highly Compensated Participant whose
Contribution Percentage is determined under the family
aggregation rules, the determination of the amount of excess
aggregate contributions shall be reduced in accordance with the
"leveling" method described in Section 1.401(m)-1(e)(2) of the
Regulations and the excess aggregate contributions shall be
allocated among the family members in proportion to the
contributions of each family member.
(5) The distribution of excess aggregate contributions will
include the income allocable thereto and shall be made on the
basis of the respective portions of such amounts attributable to
each Highly Compensated Participant. The income allocable to the
excess aggregate contributions includes income for the Plan Year
for which the excess aggregate contributions were made in
accordance with Section 1.401(m) - 1(e)(3)(ii) of the
Regulations.
(6) A Participant shall include any Employee who is directly
or indirectly eligible to receive an allocation of Matching
Contributions and includes (i) an Employee who would be a
Participant but for the failure to make required contributions
and (ii) a Participant whose right to receive Matching
Contributions has been suspended because of an election (other
than certain one-time elections) not to participate.
4.7 Distribution of Excess Aggregate Contributions.
(a) The Committee shall determine as of the end of the Plan Year, and at
such other time or times in its discretion, whether one of the Contribution
Percentages of Section 4.6 is satisfied for such Plan Year. If neither of the
tests set forth in Section 4.6 is satisfied, the Committee shall distribute the
excess aggregate contributions in the manner described in this Section 4.7. For
purposes of this Section 4.7, "excess aggregate contributions" means, with
respect to any Plan Year and with respect to any Participant, the excess of the
aggregate amount of (i) Matching Contributions (and any earnings and losses
allocable thereto prior to distribution) and (ii) the Elective Contributions (if
the Regulations permit and the Committee elects to take into account Elective
Contributions when calculating the Participant's Contribution Percentage) of
Highly Compensated Participants for such Plan Year, over the maximum amount of
such contributions that could be made on behalf of Participants without
violating the requirements of Section 4.6. The amount of each Highly Compensated
Participant's excess aggregate contributions shall be determined by reducing the
Matching Contributions of all Highly Compensated Participants whose Contribution
Percentage as adjusted by this Section 4.7 are at the highest percentage rate
for the Plan Year on a pro rata basis by one hundredth of one percent (0.01%).
The Committee shall continue to utilize this procedure until one of the tests of
Section 4.6 is satisfied.
(b) If the Committee is required to distribute excess aggregate
contributions for any Highly Compensated Participant for a Plan Year in order to
satisfy the requirements of Section 4.6, then the Committee shall distribute
such excess aggregate contributions with respect to such Highly Compensated
Participants to the extent practicable before April 15th of the Plan Year next
following the Plan Year for which such excess aggregate contributions were made,
but in no event later than the end of the Plan Year following such Plan Year.
For each of such Participants, the amounts so distributed shall be made in the
following order of priority:
(i) by distributing Matching Contributions and earnings
thereon, to the extent necessary; and
(ii) by distributing Elective Contributions (to the extent
such amounts are included in the Contribution Percentage), and
earnings thereon.
All such distributions shall be made to Highly Compensated Participants on
the basis of the respective portions of such amounts attributable to each such
Highly Compensated Participant. No spousal consent shall be required of any
married Participant who receives a refund of excess aggregate contributions.
4.8 Aggregate Limit for Contribution Percentage and Actual Deferral
Percentage.
(a) The sum of the Contribution Percentage and the Actual Deferral
Percentage for Highly Compensated Participants for the Plan Year shall not
exceed the "aggregate limit" defined in this Section 4.8.
(b) The term "aggregate limit" means the greater of (1) or (2) below:
(1) The sum of (a) the greater of the Actual Deferral
Percentage for all Participants other than the Highly Compensated
Participants or the Contribution Percentage for all Participants
other than the Highly Compensated Participants, for the Plan Year
multiplied by 1.25 and (b) the lesser of such Actual Deferral
Percentage or Contribution Percentage plus 2, but not greater
than 2 multiplied by the lesser of such Actual Deferral
Percentage or Contribution Percentage.
(2) The sum of (a) the lesser of the Actual Deferral
Percentage for all Participants other than the Highly Compensated
Participants or the Contribution Percentage for all Participants
other than the Highly Compensated Participants, for the Plan Year
multiplied by 1.25 and (b) the greater of such Actual Deferral
Percentage or Contribution percentage plus 2, but not greater
than 2 multiplied by the greater of such Actual Deferral
Percentage or Contribution Percentage.
(c) If the aggregate limit is exceeded, the Committee shall determine
whether to: (i) make Qualified Nonelective Contributions to permit the
satisfaction of the test set forth in subsection (a) hereof; (ii) reduce the
Contribution Percentage of the Highly Compensated Participants as set forth in
Section 4.7; or (iii) reduce the Actual Deferral Percentage of the Highly
Compensated Participants as set forth in Section 5.5.
SECTION 5. SALARY REDUCTION AGREEMENTS
AND ROLLOVER CONTRIBUTIONS
5.1 Salary Reduction Agreements.
(a) A Participant may elect to make Elective Contributions in any Plan Year
by entering into a written Salary Reduction Agreement with the Employer. Each
Salary Reduction Agreement shall provide that a portion of the Participant's
Compensation shall be paid through payroll deduction to the Trust Fund as an
Elective Contribution pursuant to Section 4.1 rather than paid currently to the
Participant. The Salary Reduction Agreement shall provide for Elective
Contributions equal to any whole percentage between one percent (1%) and fifteen
percent (15%) of a Participant's Compensation in any payroll period, not to
exceed the limitation set forth in Section 402(g) of the Code (adjusted
automatically for increases in accordance with the Regulations). Notwithstanding
the foregoing provisions of this Section 5.1, the Committee may, but need not,
adopt a procedure to enable Participants to make lump sum Elective Contributions
under the Plan through payroll deductions. No Salary Reduction Agreement shall
be effective unless the Participant has filed a written investment direction
pursuant to Section 8.3.
(b) A Salary Reduction Agreement will be taken into account for any Plan
Year only if it relates to Compensation that would have been received by the
Participant in the Plan Year (but for the deferral election).
(c) In the event that the aggregate amount of Elective Contributions by a
Participant exceeds the limitation described in subsection (a) of this Section
5.1, the amount of such excess, increased by any income and decreased by any
losses attributable thereto, shall be refunded to the Participant no later than
the April 15th of the calendar year following the calendar year for which the
Elective Contributions were made. If a Participant also participates, in any
calendar year, in any other plans subject to the limitations set forth in
Section 402(g) of the Code and has made excess deferrals under this Plan when
combined with the other plans subject to such limits, to the extent the
Participant designates, in writing submitted to the Committee no later than the
March 1 of the calendar year next following the calendar year for which the
Elective Contributions were made, any Elective Contributions under this Plan as
excess deferrals, the amount of such designated excess, increased by any income
and decreased by any losses attributable thereto, shall be refunded to the
Participant no later than the April 15 of the calendar year next following the
calendar year for which the Elective Contributions were made.
5.2 Change or Suspension of Salary Reduction Agreements. Subject to Section
5.1, a Participant may enter into or change his or her Salary Reduction
Agreement on each Section 401(k) Entry Date, effective as of the first day of
the Section 401(k) Entry Date, in accordance with rules determined by the
Committee. In addition, a Participant may also suspend his or her Salary
Reduction Agreement at any time, in accordance with rules determined by the
Committee. A Participant who suspends his or her Salary Reduction Agreement in
accordance with this Section 5.2 may enter into a new Salary Reduction Agreement
effective as of the next succeeding Section 401(k) Plan Entry Date.
A Participant's most recent Salary Reduction Agreement shall continue
unchanged from year to year unless the Participant notifies the Committee in
writing of a change in such Salary Reduction Agreement in accordance with the
rules determined by the Committee.
5.3 Actual Deferral Percentage Test.
(a) Participants' Elective Contributions must satisfy at least one of the
following tests:
(1) The Actual Deferral Percentage for the Highly
Compensated Participants shall not exceed the Actual Deferral
Percentage of all other Participants multiplied by 1.25; or
(2) (A) The excess of the Actual Deferral Percentage for the
Highly Compensated Participants over the Actual Deferral
Percentage of all other Participants shall not be more than two
percentage points, and (B) the Actual Deferral Percentage for the
Highly Compensated Participants shall not be more than the Actual
Deferral Percentage for all other Participants multiplied by 2.
(b) All Elective Contributions that are made under two or more plans that
are aggregated for purposes of Sections 401(a)(4) and 410(b) of the Code (other
than Section 410(b)(2)(A)(ii)) are to be treated as made under a single plan;
and if two or more plans are permissively aggregated, such plans shall satisfy
Sections 401(a)(4) and 410(b) as though they were a single plan in accordance
with Section 401(k) and Section 1.401(k)-1 of the Regulations.
(c) In applying the tests set forth in subsections (a) and (b) of this
Section 5.3, the following rules shall apply:
(1) In the case of a Participant who makes no Elective
Contributions, the Elective Contributions that are to be included
in determining the Participant's Actual Deferral Percentage are
zero;
(2) In the case of a Highly Compensated Participant who is
either a five percent (5%) owner or one of the ten most Highly
Compensated Participants and is thereby subject to the family
aggregation rules of Section 414(q)(6) of the Code, the Actual
Deferral Percentage for the "family" (which is treated as one
Highly Compensated Participant) is the greater of (1) the Actual
Deferral Percentage determined by combining the contributions and
Compensation of all eligible family members who are highly
compensated without regard to family aggregation, and (2) the
Actual Deferral Percentage determined by combining the
contributions and Compensation of all eligible family members.
Except to the extent taken into account in the preceding
sentence, the contributions and Compensation of all family
members are disregarded in determining the Actual Deferral
Percentages for the Highly Compensated Participants and
non-highly compensated Participants. For purposes of this Section
5.3, the term "family" means the spouse, lineal ascendants and
descendants (and the spouses of such lineal ascendants and
descendants).
(3) In the case of a Highly Compensated Participant whose
Actual Deferral Percentage is determined under the family
aggregation rules, the determination of the amount of excess
contributions shall be reduced in accordance with the "leveling"
method described in Section 1.401(k)-1(f)(2) of the Regulations
and the excess aggregate contributions shall be allocated among
the family members in proportion to the contributions of each
family member.
(4) The distribution of excess contributions will include
the income attributable thereto and shall be made on the basis of
the respective portions of such amounts attributable to each
Highly Compensated Participant. The income allocable to the
excess contributions includes income for the Plan Year for which
the excess contributions were made in accordance with 1.401(k) -
1(f)(4)(ii) of the Regulations.
5.4 Amendment or Revocation of Salary Reduction Agreement by Committee. The
Committee shall determine as of the end of the Plan Year, and at such other time
or times in its discretion, whether one of the Actual Deferral Percentage tests
of Section 5.3 will be satisfied for such Plan Year. In the event that neither
of such Actual Deferral Percentage Tests is satisfied, the Committee may amend
or revoke the Salary Reduction Agreement of any Participant at any time if it
determines that such an amendment or revocation is necessary to ensure that at
least one of the Actual Deferral Percentage tests of Section 5.3 will be
satisfied for any Plan Year. The determination of whether it is necessary to
amend or revoke any Salary Reduction Agreement shall be made pursuant to Section
5.3 and the procedure for such amendment or revocation shall be determined
pursuant to Section 5.5(a).
5.5 Distribution of Excess Contributions.
(a) If neither of the tests set forth in Section 5.3 are satisfied, the
Committee shall in its discretion, to the extent permissible under the Code and
the Regulations, refund the excess contributions in the manner described in
Section 5.5(b). For purposes of this Section 5.5, "excess contributions" means,
with respect to any Plan Year, the excess of the aggregate amount of Elective
Contributions (and any earnings and losses allocable thereto prior to
distribution) made by Highly Compensated Participants for such Plan Year, over
the maximum amount of such Elective Contributions that could be made by such
Highly Compensated Participants without violating the requirements of Section
5.3.
(b) If required in order to comply with the provisions of Subsection 5.3
and the Code, the Committee shall refund excess contributions for a Plan Year.
The distribution of such excess contributions shall be made to Highly
Compensated Participants, to the extent practicable, before the March 15th of
the Plan Year next following the Plan Year for which such excess contributions
were made, but in no event later than the end of the Plan Year next following
such Plan Year. Any such distribution shall be made to each Highly Compensated
Participant by reducing the Elective Contributions of all Highly Compensated
Participants whose Elective Contributions, as amended by this Section 5.5, are
at the highest percentage rate for the Plan Year on a pro rata basis by one
hundredth of one percent (0.01%). The Committee shall continue to utilize this
procedure until one of the tests of Section 5.3 is satisfied. Matching
Contributions attributable to Elective Contributions returned to a Participant
shall be distributed as provided in Section 4.6.
5.6 Rollover Contributions.
(a) A Participant may make a Rollover Contribution to the Plan in
accordance with rules established by the Committee uniformly applied consisting
of an eligible rollover distribution, as defined in Section 11.8(b), from a plan
qualified under Section 401(a) of the Code or an individual retirement account
qualified under Section 408(a) of the Code (no part of which is attributable to
any source other than an eligible rollover distribution from a qualified plan
under Section 401(a) of the Code); provided such eligible rollover distribution
is in cash and contributed to the Plan on or before the 60th day after the day
in which such Participant received such eligible rollover distribution. If a
Participant elects to make a Rollover Contribution, the Committee may require
such evidence, assurances, opinions and certifications, including a statement
from the previous plan that such plan was a qualified plan, that the Committee
may deem necessary to establish to its satisfaction that the amounts to be
contributed qualify as an eligible rollover distribution and will not affect the
qualification of the Plan or the tax-exempt status of the Trust under Sections
401(a) and 501(a) of the Code, respectively. Except as otherwise permitted by
Section 5.7, in no event shall any assets be transferred to this Plan from any
profit sharing, pension or retirement plan that would cause this Plan to become
a "transferee" plan (within the meaning set forth in Section 401(a)(11)(B) of
the Code).
(b) Any Rollover Contribution shall be allocated to the appropriate
Participant's Rollover Contribution Subaccount which shall be established and
separately accounted for. A Participant shall have at all times a nonforfeitable
right in the amount credited to his or her Rollover Contribution Subaccount.
(c) Each request by a Participant to make a Rollover Contribution shall be
subject to review by the Committee which shall make a case by case determination
that each Rollover Contribution meets the requirements set forth in Section
5.6(a), and such other requirements or conditions as the Committee may, from
time to time and in its sole discretion, impose; provided, however, that any
determination made by the Committee pursuant to this Section 5.6 shall not have
the effect of discriminating in favor of Participants who are officers,
shareholders or who are Highly Compensated Participants.
5.7 Trustee-to-Trustee Transfer of Assets. Notwithstanding anything in
Section 5.6 to the contrary, in the event of an acquisition by the Employer or
the Plan Sponsor of a company which maintains a plan and trust which are
qualified under Sections 401(a) and 501(a) of the Code, respectively, the Board
of Directors may (but shall not be required to) authorize a "trustee-to-trustee"
transfer of assets from such qualified plan into the Plan and Trust Fund. The
Trustee may require such evidence, assurances, opinions and certifications,
including a statement from the acquired company's plan that such plan and trust
are qualified under Sections 401(a) and 501(a) of the Code, which the Trustee
may deem necessary to establish to its satisfaction that the amounts to be
transferred will not affect the qualification of the Plan or the tax-exempt
status of the Trust under Sections 401(a) and 501(a) of the Code, respectively.
SECTION 6. ALLOCATION OF CONTRIBUTIONS
6.1 Establishment of Cash Contribution Account. The Committee shall
establish and maintain or cause to be established and maintained with respect to
each Participant a Cash Contribution Account showing his or her interest under
the Plan and in the Trust Fund and all relevant data pertaining thereto. Each
Participant shall be furnished with a written statement of his or her Cash
Contribution Account at least once annually and upon any distribution to him or
her. In maintaining the Cash Contribution Accounts under the Plan, the Committee
can conclusively rely on the valuations of the Trust Fund in accordance with the
Plan. The establishment and maintenance of, or allocations and credits to, the
Cash Contribution Account of any Participant shall not vest in any Participant
any right, title or interest in and to any Plan assets or benefits, except at
the time or times and upon the terms and conditions and to the extent expressly
set forth in the Plan and in accordance with the terms of the Trust Fund.
6.2 Establishment of Subaccounts. Each Participant's Cash Contribution
Account shall contain each of the following applicable subaccounts therein:
(a) All Elective Contributions on behalf of a Participant under Section 4.1
and Qualified Nonelective Contributions on behalf of a Participant under Section
4.2(b)(i) shall be credited to the Participant's Elective Contribution
Subaccount.
(b) All Matching Contributions on behalf of a Participant under Section
4.2(a) shall be allocated and credited to the Participant's Matching
Contribution Subaccount.
(c) All Profit Sharing Contributions on behalf of a Participant under
Section 4.2(b)(ii) shall be allocated and credited to the Participant's Profit
Sharing Subaccount.
(d) All Rollover Contributions on behalf of a Participant under Section 5.6
shall be allocated and credited to the Participant's Rollover Contribution
Subaccount.
SECTION 7. SPECIAL ESOP PROVISIONS
7.1 Investment of ESOP Accounts. The ESOP Accounts of all Participants
shall be invested exclusively in Shares, except for cash or cash equivalent
investments held (a) for the limited purpose of making Plan distributions to
Participants and Beneficiaries, (b) pending the investment by the Purchasing
Agent of contributions or other cash receipts in Shares, (c) pending use to
repay an Exempt Loan, (d) for purposes of paying, under the terms described in
the Plan or Trust Agreement, fees and expenses incurred with respect to the Plan
or Trust and not paid for by the Participating Employers or (e) in the form of
de minimis cash balances. Neither any Participating Employer nor the Purchasing
Agent, the Committee or the Trustee shall have any responsibility or duty to
time any transaction involving Shares in order to anticipate market conditions
or changes in stock value, nor shall any such person have any responsibility or
duty to sell Shares held in the ESOP Accounts (or otherwise to provide
investment management for Shares held in the ESOP Accounts) in order to maximize
return or minimize loss. Participating Employer contributions made in cash, and
other cash received by the Trustee, may be used by the Purchasing Agent to
acquire Shares from shareholders of the Employer or directly from the Employer.
7.2 Allocation to ESOP Accounts.
(a) Subject to the provisions of Section 4, the ESOP Account maintained for
each Participant will be credited as of the last day of each Plan Year with the
Participant's allocable share of:
(i) Shares purchased by the Purchasing Agent using cash
contributed by or on behalf of the Participating Employer
employing such Participant (or contributed directly to the Trust
Fund) and (ii) Shares released from the Suspense Subfund pursuant
to Section 7.3 and allocable to the contribution made by or on
behalf of such Participating Employer pursuant to Section 7.4.
(b) Shares attributable to ESOP Contributions shall be allocated among the
Accounts of Participants who are members of the Allocation Group for the Plan
Year in the same proportion that a Participant's Compensation during the Plan
Year bears to the total Compensation during the Plan Year of all Participants
who are members of the Allocation Group for such Plan Year. For purposes of the
preceding sentence, Compensation earned by a Participant prior to the
Participant's entry into the Plan pursuant to Section 3.1(b)(ii) shall not be
taken into account.
(c) Shares contributed directly to the Trust Fund for a Plan Year shall be
allocated under Section 7.2(a)(i) in the same proportion as Shares purchased by
the Trust Fund and allocated under Section 7.2(b).
7.3 Suspense Subfund for ESOP Accounts. Shares acquired by the
Participants' ESOP Accounts through an Exempt Loan shall be added to and
maintained in the Suspense Subfund and shall thereafter be released from the
Suspense Subfund and allocated to Participants' ESOP Accounts as provided in
Sections 7.3 and 7.4. Shares acquired for the Trust Fund with the proceeds of an
Exempt Loan shall be released from the Suspense Subfund as the Exempt Loan is
repaid, in accordance with the provisions of this Section 7.3.
(a) For each Plan Year until the Exempt Loan is fully repaid, the number of
Shares released from the Suspense Subfund shall equal the number of unreleased
Shares immediately before such release for the current Plan Year multiplied by
the "Release Fraction." As used herein, the term "Release Fraction" shall mean a
fraction, the numerator of which is the amount of principal and interest paid on
the Exempt Loan for such current Plan Year and the denominator of which is the
sum of the numerator plus the principal and interest to be paid on such Exempt
Loan for all future years during the term of such Exempt Loan (determined
without reference to any possible extensions or renewals thereof). For purposes
of computing the denominator of the Release Fraction, if the interest rate on
the Exempt Loan is variable, the interest to be paid in subsequent Plan Years
shall be calculated by assuming that the interest rate in effect as of the end
of the applicable Plan Year will be the interest rate in effect for the
remainder of the term of the Exempt Loan.
Notwithstanding the foregoing, in the event such Exempt Loan shall be
repaid with the proceeds of a subsequent Exempt Loan (the "Substitute Loan"),
such repayment shall not operate to release all such Shares in the Suspense
Subfund, but, rather, such release shall be effected pursuant to the foregoing
provisions of this Section 7.3(a) on the basis of payments of principal and
interest on such Substitute Loan.
(b) If required by any pledge or similar agreement, or if permitted by such
pledge or agreement and required by the Committee pursuant to a one-time,
irrevocable designation (which shall be made, if at all, in connection with the
making of an Exempt Loan) by the Committee, then, in lieu of applying the
provisions of Section 7.3(a) hereof with respect to an Exempt Loan, Shares shall
be released from the Suspense Subfund as the principal amount of such Exempt
Loan is repaid (without regard to interest payments), provided the following
three conditions are satisfied:
(i) The Exempt Loan shall provide for annual payments of
principal and interest at a cumulative rate that is not less
rapid at any time than level annual payments of such amounts for
ten years;
(ii) The interest portion of any payment shall be
disregarded only to the extent it would be treated as interest
under standard loan amortization tables; and
(iii) If the Exempt Loan is renewed, extended or refinanced,
the sum of the expired duration of the Exempt Loan and the
renewal, extension or new Exempt Loan period shall not exceed ten
years.
(c) If at any time there is more than one Exempt Loan outstanding, then
separate accounts may be established under the Suspense Subfund for each such
Exempt Loan. Each Exempt Loan for which a separate account is maintained may be
treated separately for purposes of the provisions governing the release of
Shares from the Suspense Subfund under this Section 7.3 (including for purposes
of determining whether Section 7.3(a) or Section 7.3(b) governs the release of
Shares from any particular Suspense Subfund) and for purposes of the provisions
governing the application of Participating Employer contributions to repay an
Exempt Loan under Section 4.2.
(d) All Shares released from the Suspense Subfund during any Plan Year
shall be allocated among Participants as prescribed by Section 7.4.
7.4 Disposition of Shares Released from Suspense Subfund.
(a) Shares released from the Suspense Subfund for a Plan Year in accordance
with Section 7.3 shall be held in the Trust Fund on an unallocated basis until
allocated by the Committee as of last day of the Plan Year. Shares released from
the Suspense Subfund on account of a payment for a Plan Year of principal or
interest on an Exempt Loan, to the extent payment is made with contributions for
such Plan Year, shall be allocated under Section 7.2(a)(ii) in the same
proportion as Shares purchased with contributions under Section 7.2(b).
(b) (i) Shares released from the Suspense Subfund on account of the payment
for a Plan Year of principal or interest on an Exempt Loan to the extent such
payment is made with dividends paid on Shares allocated to ESOP Accounts, shall
be allocated in the same proportion as dividends used to pay principal or
interest on such Exempt Loan would have been allocated under Section 7.9(b) had
such dividends not been so used; and
(ii) Subject to Section 4.2, Shares released from the Suspense Subfund
on account of the payment of principal or interest on an Exempt Loan, to
the extent such payment is made with dividends on Shares not allocated to
Accounts, shall be allocated to those ESOP Accounts and in the same
proportion as Shares released pursuant to Section 7.4(b)(i); provided that
Shares so released shall be otherwise allocated if necessary to satisfy the
requirements of the Code (other than Section 404(k)) and any Regulations
thereunder.
(c) All Shares in the Trust Fund, other than the Shares held in the
Suspense Subfund as of the last day of any Plan Year, must be allocated to ESOP
Accounts as of the last day of any Plan Year.
7.5 Limitations on Allocations to ESOP Accounts. Notwithstanding the
foregoing provisions of this Section 7:
(a) If more than one-third of all ESOP Contributions for a Plan Year which
are deductible only under Section 404(a)(9) of the Code would be allocated, in
the aggregate, to Participants described in Section 414(q) of the Code, then the
Committee may reduce such allocations pro rata in an amount sufficient to ensure
that such ESOP Contributions will be deductible with respect to such Plan Year;
and
(b) Any contributions which are prevented from being allocated due to the
restriction contained in Section 7.5(a) shall be allocated as of the last day of
the Plan Year pursuant to Sections 7.2 and 7.4 as though those Participants
described in Section 414(q) of the Code did not participate in the Plan.
7.6 Acquisition of Shares.
(a) Notwithstanding the foregoing provisions of this Section 7, in the
event that Shares are acquired in a transaction to which Section 1042 of the
Code applies, then, in accordance with the Regulations, such Shares shall not be
allocated, directly or indirectly, to prohibited individuals as defined in
Section 409(n)(1) of the Code for the duration of the nonallocation period (as
defined in Section 409(n)(3)(C) of the Code).
(b) If Shares are prevented from being allocated due to the prohibition
contained in Section 7.6(a), the allocation of Shares attributable to ESOP
Contributions (or ESOP Contributions) otherwise provided under Section 7.2 shall
be adjusted to reflect such result.
7.7 Effect of Change in Plan Sponsor's Capitalization. Any Shares received
by the Trustee as a result of a stock split, dividend, conversion, or as a
result of a reorganization or other recapitalization of the Plan Sponsor shall
be allocated as of the day on which the Shares are received by the Trustee in
the same manner as the Shares to which they are attributable are then allocated.
7.8 Trustee and Committee Discretion to Engage in Transactions in Shares.
Neither the Purchasing Agent, the Trustee nor the Committee shall be required to
engage in any transaction, including, without limitation, directing the purchase
or sale of Shares, which it determines in its sole discretion may subject
itself, its Participants, the Plan, any Participating Employer, or any
Participant to liability under federal or other state laws.
7.9 Valuation of ESOP Accounts.
(a) Subject to the requirements of Section 7.9(b), the fair market value of
the assets of the ESOP Accounts shall be determined as of each Valuation Date,
in accordance with generally accepted valuation methods and practices including,
but not limited to, in the case of Shares, the use of one or more independent
appraisers.
(b) The value of a Participant's ESOP Account as of any Valuation Date
shall equal the sum of:
(i) The aggregate value (as determined under Section 7.9(a))
of all Shares and dividends on Shares previously allocated to
such Participant's ESOP Account as of such Valuation Date; and
(ii) Subject to Section 7.9(c), the aggregate value (as
determined under Section 7.10(a)) of dividends, if any, received
during the Plan Year on Shares allocated to such Participant's
ESOP Account.
(iii) Such Participant's allocable portion (determined in
accordance with the rules set forth in Section 7.4 for
determining Participant's allocable portion of Shares released
from the Suspense Subfund) of the earnings, if any, on all
amounts contributed to the Trust Fund for purposes other than the
repayment of an Exempt Loan.
(c) Except as provided in Section 7.7, dividends payable, if any, with
respect to Shares held by the Participant's ESOP Account will be, in the
discretion of the Committee and in conformity with the terms of the Shares on
which such dividends are paid, (i) used for the purpose of repaying one or more
Exempt Loans, (ii) distributed from the Trust Fund to Participants or their
Beneficiaries not later than 90 days after the close of the Plan Year in which
they are paid to the Trust Fund, (iii) paid directly to such Participants or
their Beneficiaries, (iv) retained in the Trust Fund and allocated pursuant to
Section 7.9(b), or (v) paid or utilized in a combination of any or all of the
foregoing four options.
(d) The Committee shall establish accounting procedures for the purpose of
making the allocations, valuations and adjustments to Participant's ESOP
Accounts in accordance with the provisions of the Plan. From time to time, the
Committee may modify its accounting procedures for the purpose of achieving
equitable and nondiscriminatory allocations among the ESOP Accounts of
Participants in accordance with the provisions of the Plan.
7.10 Role of Purchasing Agent.
(a) All purchases of Shares made by the Trust Fund shall be made by the
Purchasing Agent. The Trustee shall forward to the Purchasing Agent all amounts
contributed to the employee stock ownership plan, and all amounts to be invested
in Shares pursuant to participant investment directions given pursuant to
Sections 8.3, 8.4 and 8.5. Amounts to be invested in Shares shall be invested in
Shares in the amount, in the manner and at the price determined by the
Purchasing Agent in its sole discretion, provided such price shall be the fair
market value of such Shares at the time of purchase. The Purchasing Agent shall
in its sole discretion select the broker-dealer through which the purchase of
such Shares shall be executed. The Purchasing Agent shall also invest any cash
dividends received on any Shares which are allocated to Participants' Accounts
and held as part of the Plan as provided in Section 5.05(c) of the Trust
Agreement.
(b) The Purchasing Agent shall sell Shares only at the direction of the
Trustee, which shall issue such instructions only at the direction of the
Committee; provided that such Committee direction shall not be required for any
sales of Shares required pursuant to the participant investment directions given
pursuant to Sections 8.3, 8.4 or 8.5, or pursuant to the provisions of Section
13.5 or 13.6.
SECTION 8. INVESTMENT OF CONTRIBUTIONS, VALUATIONS
AND PARTICIPANTS' CASH CONTRIBUTION ACCOUNTS
8.1 Delivery of Contributions to Trust Fund. All monies, securities or
other property contributed to Participants' Cash Contribution Accounts shall be
delivered to the Trustee under the Trust Fund, to be managed, invested,
reinvested and distributed in accordance with the Plan and the Trust Fund.
8.2 Participants' Right to Select Investments. Each Participant shall have
the right to invest his or her Cash Contribution Account among one or more
investment funds selected by the Company, which may include a fund established
for investment in Shares.
8.3 Participant Investment Election. As of any date permitted by the
Committee, a Participant may, in accordance with the rules of the Committee
uniformly applied, specify the percentage (in minimum multiples as may be
determined from time to time by the Committee) of contributions which are made
to the Participant's Cash Contribution Account that shall be invested in
investment funds selected by the Committee. An investment election may be made
separately with respect to (i) the aggregate of the Participant's Elective
Contribution Subaccount, Matching Contribution Subaccount, and Rollover
Contribution Subaccount and (ii) the Participant's Profit Sharing Subaccount.
8.4 Change in Investment Election for Future Contributions. Any investment
direction specified by a Participant shall be deemed to be a continuing
direction until changed. A Participant may change an investment direction as to
future contributions made by such Participant or on his or her behalf to the
subaccounts of his or her Cash Contribution Account as of any day permitted by
the Committee in accordance with the rules of the Committee uniformly applied.
8.5 Change in Investment Election for Prior Contributions. As of any date
permitted by the Committee, a Participant may change the percentages (in minimum
multiples as may be determined from time to time by the Committee) in which the
investment of the portion of his or her Cash Contribution Account attributable
to prior contributions shall be allocated among the funds maintained by the
Trustee. Such changes of investment allocation may be made separately with
respect to (i) the aggregate of the Participant's Elective Contribution
Subaccount, Matching Contribution Subaccount, and Rollover Contribution
Subaccount, and (ii) the Participant's Profit Sharing Subaccount.
8.6 Valuation of Cash Contribution Accounts.
(a) As of each Valuation Date, Participants' Cash Contribution Accounts
shall be valued pursuant to the terms of the Plan. Such valuation shall be
conclusive and binding upon all persons having an interest in the Trust Fund.
(b) The Committee shall adjust the value of each Elective Contribution
Subaccount, Matching Contribution Subaccount, Profit Sharing Subaccount, or
Rollover Contribution Subaccount, as the case may be, maintained under
Participants' Cash Contribution Accounts as of each Valuation Date to reflect
the effect of income received and accrued, realized and unrealized profits and
losses, and all other transactions of the preceding period. Such adjustments
shall be made with respect to the period since the next preceding Valuation Date
by (i) deducting from each such Subaccount the total of all payments made from
such Subaccount during such period, (ii) adding to or deducting from, as the
case may be, each such Subaccount such proportion of each item of income, profit
or loss as the amount in such Subaccount as of the next preceding Valuation Date
bears to the total of the amounts in all of such Participants' Elective
Contribution Subaccount, Matching Contribution Subaccount, Profit Sharing
Subaccount, or Rollover Contribution Subaccount, as the case may be, as of the
preceding Valuation Date and (iii) adding contributions to each such Elective
Contribution Subaccount, Matching Contribution Subaccount, Profit Sharing
Subaccount, or Rollover Contribution Subaccount, as the case may be, pursuant to
Sections 4 and 5 of the Plan. In making such allocations, the Committee can
conclusively rely on the valuations of the Subaccounts by the Trustee in
accordance with the Plan and the Trust.
SECTION 9. RETIREMENT DATES
9.1 Normal Retirement Date. The Normal Retirement Date of a Participant
shall be his or her 65th birthday. Upon attainment of his or her Normal
Retirement Date, a Participant shall have a nonforfeitable right to 100% of his
or her Account.
9.2 Deferred Retirement Date. A Participant who remains in Service after
his or her Normal Retirement Date may retire on a Deferred Retirement Date which
shall be the first day of the month coincident with or next following his or her
termination of Service or as specified in a written application to the
Committee.
SECTION 10. ELIGIBILITY FOR PAYMENT OF ACCOUNTS
AND VESTED INTERESTS
10.1 Participants' Right to Account Upon Termination Due to Retirement,
Death or Disability.
(a) A Participant shall have a nonforfeitable right to his or her Account
upon the occurrence of any of the following events while employed by the
Employer:
(i) attainment of his or her Retirement Date;
(ii) his or her death; or
(iii) his or her Disability.
(b) Upon the termination of Service of any Participant on or after his or
her Retirement Date or by reason of his or her death or Disability ("Terminated
Participant"), the Terminated Participant (or, in the event of the Participant's
death, his or her Beneficiary) shall be entitled to an amount equal to the
Terminated Participant's Account, including any subsequent contribution
allocated to the Terminated Participant's Account pursuant to Sections 6 or 7
with respect to the Plan Year in which the Participant's Service is terminated.
The Participant's Account shall be distributable, in accordance with the methods
and rules of distribution described in Section 11, as soon as practicable
following the Participant's termination of Service. The value of the
Participant's Account shall be determined as of the Valuation Date coincident
with or immediately preceding the date of distribution of the Participant's
Account.
10.2 Participants' Right to Account Upon Other Termination of Service. Upon
the termination of Service of any Participant prior to his or her Retirement
Date for any reason other than death or Disability, the Terminated Participant
shall be entitled to receive an amount equal to the sum of (i) 100% of the
Participant's Elective Contribution Subaccount, Matching Contribution
Subaccount, and Rollover Contribution Subaccount and (ii) the Participant's
Vested Interest in his or her Profit Sharing Subaccount and ESOP Account,
including the Participant's Vested Interest in any subsequent contribution
allocated to the Participant's Account pursuant to Sections 6 or 7 with respect
to the Plan Year in which the Participant's Service terminated. The
Participant's Account shall be distributable, in accordance with the methods and
rules of distribution described in Section 11, as soon as practicable following
the Valuation Date immediately following the Participant's termination of
Service. The value of the Participant's Account shall be determined as of the
Valuation Date coincident with or immediately preceding the date of distribution
of the Participant's Account. If such Terminated Participant's Vested Interest
is less than 100 percent, the non-vested balance of such Participant's Profit
Sharing Subaccount and ESOP Account shall be forfeited and reallocated pursuant
to Section 4.5 as of the last day of the earlier of (i) the Plan Year in which
the Participant's Account is distributed, or (ii) the Plan Year in which the
Participant incurs a Total Break in Service.
10.3 Vesting Schedule for Determining Vested Interests. For all purposes of
this Plan, a Participant's Vested Interest in his or her Profit Sharing
Subaccount and ESOP Account shall consist of (i) the Participant's percentage of
his or her Profit Sharing Subaccount and (ii) the percentage of the
Participant's ESOP Account, both as determined from the following vesting
schedule on the basis of the number of Years of Service which the Participant
has completed as of the date of the Participant's termination of Service.
VESTING SCHEDULE
Years of Service Percentage
---------------- ----------
Less than three years.................................... 0%
Three years but less than four years..................... 20%
Four years but less than five years...................... 40%
Five years but less than six years....................... 60%
Six years but less than seven years...................... 80%
Seven years or more ..................................... 100%
10.4 Breaks in Service. If a Participant's Service is terminated prior to
his or her Retirement Date for any reason other than the Participant's death or
Disability prior to completing three Years of Service, and such Participant
incurs a Total Break in Service, such Participant shall not be entitled to any
benefit attributable to amounts allocated to the Participant's Profit Sharing
Subaccount or ESOP Account prior to such Total Break in Service. If a
Participant returns to Service, Years of Service before such return shall be
counted, in addition to Years of Service following such return, in determining
the Participant's Vested Interest in the amount credited to the Participant's
Profit Sharing Subaccount or ESOP Account subsequent to the Participant's return
to Service. If such Participant does not complete one Year of Service following
his or her return, then the Participant shall not be entitled to any further
benefit under the Plan and the non-vested balance of any Profit Sharing
Contribution or ESOP Contributions credited or recredited to such Participant's
Profit Sharing Subaccount or ESOP Account subsequent to the Participant's return
shall be forfeited and reallocated pursuant to Section 4.5 upon the
Participant's termination of Service. All forfeitures shall occur in conformity
with the ordering rules of Section 54.4975-11(d) of the Regulations.
10.5 Participant's Right to Restoration of Account Upon Return to Service.
If a Terminated Participant who had a vested interest in such Participant's
Profit Sharing Subaccount or ESOP Account returns to Service prior to incurring
a Total Break in Service, the non-vested balance of the Terminated Participant's
Account, if any, forfeited pursuant to Section 10.2 shall be recredited to such
Participant's Account, provided that, not later than the fifth anniversary of
the first date on which the Participant is subsequently employed, such
Participant repays the full amount of any distribution made to the Participant
upon his or her prior termination of Service. Any amount so repaid, together
with any non-vested portion of such Participant's Account recredited pursuant to
this Section 10.5, shall be invested in the Trust Fund. If such Participant
fails to make a repayment of any distributed amounts pursuant to this Section
10.5, the non-vested portion of such Participant's Account, if any, shall not be
recredited.
10.6 Participant's Right to Account Upon Death After Termination of
Service. Subject to the provisions of Section 10, if a Terminated Participant
dies before payment of the full value of his or her Account from the Trust Fund,
an amount equal to the current value of the unpaid portion of the Participant's
Vested Interest in his or her Account, including any subsequent contribution
allocated to the Terminated Participant's Account pursuant to Sections 6 or 7
with respect to the Plan Year in which the Participant's Service is terminated,
shall be distributable, in accordance with the methods and rules of distribution
described in Section 11, as soon as practicable following the Participant's
death. The value of the Participant's Account shall be determined as of the
Valuation Date coincident with or immediately preceding the date of distribution
of the Participant's Account.
10.7 Amendment of Vesting Schedule. If the vesting schedule contained in
Section 10.3 is amended, each Participant who has completed at least three (3)
Years of Service may elect, during the election period specified in this
Section, to have his or her vested percentage determined without regard to such
amendment. For purposes of this Section, the election period shall begin as of
the date on which the amendment changing the vesting schedule is adopted, and
shall end on the latest of the following dates: (i) the date occurring sixty
(60) days after the Plan amendment is adopted; (ii) the date which is sixty (60)
days after the day on which the Plan amendment becomes effective; (iii) the date
which is sixty (60) days after the day the Participant is issued written notice
of the Plan amendment by the Committee; or (iv) such later date as may be
specified by the Committee. The election provided for in this Section shall be
made in writing and shall be irrevocable when made.
SECTION 11. METHOD OF PAYMENT OF ACCOUNTS
AND WITHDRAWALS
11.1 Methods of Payment. Any benefit payable under the Plan, except as
otherwise provided in Section 11.2 shall be payable as soon as practicable
following the last day of the calendar month in which falls a Participant's
termination of Service (or other event requiring a distribution under the Plan),
in one lump sum payment from the Trust Fund, provided that the Participant may
elect to direct the Committee to directly transfer all or any portion of his or
her "eligible rollover distribution" (as defined in Section 11.8 below) to
another tax-qualified plan pursuant to Section 401(a)(31) of the Code. A
Participant who has no Vested Interest in his or her Account upon his or her
termination of Service will be deemed to have received a full distribution of
his or her Account as of such date. A Participant may also elect to receive a
distribution of his or her Account as soon as practicable following the first
anniversary of the last day of the calendar month in which occurs such
termination of Service (or other event requiring a distribution under the Plan),
or as soon as practicable following the Participant's Normal Retirement Date.
11.2 Commencement of Payment. Notwithstanding any other provision of the
Plan to the contrary, (i) if a Participant has a Vested Interest in his or her
Account with a value of $3,500 or less it shall be distributed in one lump sum
as soon as is administratively feasible following the last day of the calendar
month in which such Participant's termination of employment occurs, and (ii) if
a Participant has a Vested Interest in his or her Account with a value of more
than $3,500 it shall not commence to be distributed without the consent of the
Participant before the Participant's Normal Retirement Date.
In the absence of receipt of such consent by the Committee, payment of the
benefit to such Participant shall commence as soon as practicable after the
Participant's attainment of his or her Normal Retirement Date, which benefit
shall be in an amount equal to the value of the Participant's distributable
Account as of the Valuation Date coincident with or immediately following the
Participant's attainment of his or her Normal Retirement Date. In any case where
distribution of any benefit amount from the Participant's Cash Contribution
Account is to be deferred, the Committee shall either (i) establish or cause to
be established a special account for the benefit of the former Participant, to
be invested by the Trustee in a fixed investment account established by the
Trustee or (ii) cause all amounts in the Participant's Cash Contribution Account
deferred by the Participant to be invested at the Participant's election in the
same manner as the normal Cash Contribution Accounts maintained for Participants
under to the Plan.
11.3 Special Rules For Distribution of Shares.
(a) Distribution of a Participant's Vested Interest from his or her Account
which is invested in Shares will be made entirely in whole Shares, with the
value of any fractional interest in Shares paid in cash. Any cash or other
property in a Participant's ESOP Account will be used by the Purchasing Agent to
acquire Shares, valued as of the last day of the calendar month in which occurs
(i) the Participant's election to receive a distribution of his or her Account
pursuant to Section 11.1, (ii) the Participant's termination of Service, in the
case of a distribution pursuant to Section 11.2(i), or (iii) the Participant's
Normal Retirement Date (or the Participant's death, if earlier), in the case of
a distribution pursuant to Section 11.2(ii) to a Participant who failed to
consent to a distribution prior to his or her Normal Retirement Date (the "Share
Conversion Date"). Notwithstanding the foregoing, if applicable corporate
charter or bylaw provisions restrict ownership of substantially all outstanding
Shares to Employees or to a plan or trust described in Section 401(a) of the
Code, then any distribution of a Participant's Vested Interest in the
Participant's ESOP Account shall be in cash. When a distribution consists in
whole or in part of Shares, and if such Shares consists of more than one class
of securities, the distribution of such Shares shall consist of substantially
the same proportion of each such class of Shares as such classes of Shares
represent proportions of the Participant's Account. If the record date for
dividends payable with respect to Shares distributable to a Participant occurs
following the Share Conversion Date, such dividends shall not be considered
attributable to such Shares, but shall be considered as earnings of the Fund and
allocated among Participants' Accounts pursuant to Section 8.6(b).
(b) Notwithstanding anything in Section 11 to the contrary, in the
discretion of the Committee, Section 11.1 may not apply to Shares held in a
Participant's ESOP Account until the close of the Plan Year in which any Exempt
Loan used to acquire such Shares is repaid in full.
(c) If at the time of distribution, Shares distributed from the
Trust Fund that were acquired with the proceeds of an Exempt Loan are not
treated as "readily tradable on an established market" within the meaning of
Section 409(h) of the Code and Regulations, such Shares shall be subject to a
put option in the hands of a Qualified Holder by which such Qualified Holder may
sell all or any part of such Shares to the Trust. Should the Trust decline to
purchase all or any part of such Shares, the Employer shall purchase those
Shares that the Trust declines to purchase. The put option shall be subject to
the following conditions:
(i) The term "Qualified Holder" shall mean the Participant
or Beneficiary receiving the distribution of such Shares, any
other party to whom the Shares are transferred by gift or reason
of death, or any trustee of an individual retirement account (as
defined under Code Section 408) to which all or any portion of
the distributed Shares is transferred pursuant to a tax-free
"rollover" transaction satisfying the requirements of Sections
402 and 408 of the Code.
(ii) During the 60-day period following any distribution of
such Shares, a Qualified Holder shall have the right to require
the Trust or the Employer to purchase all or a portion of the
distributed Shares held by the Qualified Holder. The purchase
price to be paid for any such Shares shall be their fair market
value determined as of the Valuation Date coinciding with or
immediately preceding the exercise of the put option under this
Section 11.3(c)(ii), provided that in the case of a transaction
between the Plan and a "disqualified person" within the meaning
of Section 4975(e)(2) of the Code, such fair market value shall
be determined as of the date of the transaction.
(iii) If a Qualified Holder shall fail to exercise such put
option, the put option shall temporarily lapse upon the
expiration of the 60-day period. As soon as practicable following
the last day of the Plan Year in which the 60-day option period
expires, the Employer shall notify the non-electing Qualified
Holder (if he or she is then a shareholder of record) of the
valuation of the Shares as of that date. During the 60-day period
immediately following receipt of such valuation notice, the
Qualified Holder shall again have the right to require the
Employer to purchase all or any portion of the distributed
Shares. The purchase price to be paid therefor shall be based on
the valuation of the Shares as of the Valuation Date coinciding
with or immediately preceding the exercise of the option under
this Section 11.3(c)(iii), provided that in the case of a
transaction between the Plan and a "disqualified person" within
the meaning of Section 4975(e)(2) of the Code, such fair market
value shall be determined as of the date of the transaction.
(iv) The foregoing put options under Section 11.3(c)(ii) and
(iii) hereof shall be effective solely against the Employer and
shall not obligate the Plan or Trust in any manner.
(v) Except as otherwise required or permitted by the Code,
the put options under this Section 11.3(c) shall satisfy the
requirements of Section 54.4975-7(b) of the Treasury Regulations
to the extent, if any, that such requirements apply to such put
options.
If a Qualified Holder exercises a put option under this Section 11.3(c),
payment for the Shares shall be made in substantially equal annual payments over
a period beginning not later than 30 days after the exercise of the put option
and not exceeding five years (provided that adequate security and reasonable
interest are provided with respect to unpaid amounts).
Except as provided in this Section 11.3(c) or in Section 11.2, no shares
acquired with the proceeds of an Exempt Loan may be subject to a put, call or
other option, or buy-sell or similar arrangement while held by or distributed
from the Plan. The rights and protections set forth in this Section 11.3(c)
shall be non-terminable.
11.4 Payments to Surviving Spouse or Beneficiary. If a Participant or
former Participant dies before the commencement of his or her benefits under the
Plan, such Participant's or former Participant's Vested Interest in his or her
Account is payable in full to his or her Surviving Spouse. If such Participant
has no Surviving Spouse, he or she may designate a Beneficiary pursuant to
Section 14. A Participant may with the written consent of his or her spouse
elect to designate a Beneficiary other than or in addition to his or her spouse.
The written consent of the spouse must acknowledge the effect of such election
and must be witnessed by a representative of the Plan or a notary public. Any
such election may not be changed without spousal consent. Such an election or
revocation must be made in accordance with the procedures developed by the
Committee in accordance with the Code and Regulations.
11.5 Latest Date for Commencement of Benefits.
(a) Payments will commence no later than 60 days following the latest of
the close of the Plan Year in which:
(i) the Participant attains his or her Normal Retirement
Date,
(ii) occurs the 10th anniversary of the year in which the
Participant commenced participation in the Plan, or
(iii) the Participant terminates his or her Service with the
Employer.
(b) Notwithstanding the provisions of the foregoing sentence, if the amount
payable cannot be ascertained, or, subject to the provisions of Section 20.6,
the Participant cannot be located after reasonable efforts, a payment
retroactive to the date determined under the foregoing sentence may be made not
later than 60 days after the earliest date on which the amount of such payment
can be ascertained under the Plan or the date on which the Participant is
located (whichever is applicable).
(c) Notwithstanding any other provision of the Plan, benefits payable to a
Participant shall commence no later than the later of April 1st of the calendar
year following the calendar year in which such Participant attains age 70 1/2.
(d) If a Participant dies before benefits have commenced, distributions to
any Surviving Spouse or Beneficiary shall be made as soon as administratively
feasible, but not later than five years after such Participant's death. In the
event that payment is made to the Participant's Surviving Spouse, such
distribution shall not commence later than the date on which such Participant
would have attained age 70 1/2 (or, in either case, on any later date prescribed
by Regulations). If the Participant's Surviving Spouse dies after such
Participant's death but before distribution has been made to such Surviving
Spouse, this Section 11.5(d) shall be applied to require payment of any benefits
as if such Surviving Spouse were the Participant.
(e) Pursuant to Regulations, any benefit paid to a child shall be treated
as if paid to a Participant's Surviving Spouse if such amount would become
payable to such Surviving Spouse on the child's attaining majority, or other
designated event permitted by Regulations.
11.6 Redirection of Investment of ESOP Account. Effective March 1, 1990,
upon both attaining age 50 and completing five Years of Service, a Participant
shall be permitted to direct the Plan to transfer all or any portion of the
Vested Interest in the Participant's ESOP Account to the Participant's Cash
Contribution Account. Under rules prescribed by the Committee, such directions
shall be permitted during semi-annual periods, to be determined by the
Committee, effective as soon as administratively feasible, but not later than 30
days from the date on which such direction is given, and shall be made in ten
percent (10%) increments of the Participant's Vested Interest in his or her ESOP
Account. In the event that the Participant's Account does not provide at least
three investment options to the Participant other than investment in Shares, the
Committee shall provide diversification options to any Participant required to
be given such diversification options under Section 401(a)(28)(B) of the Code in
a manner consistent with the Code. Notwithstanding the foregoing, the ability to
make transfers may be restricted by the Committee to the extent necessary to
comply with any applicable federal securities laws (including Rule 144);
provided, however, that in no event shall a Participant be prevented from
transferring any amount necessary in order to meet the diversification
requirements set forth in Section 401(a)(28)(B) of the Code.
11.7 Hardship Withdrawals.
(a) A Participant who is an Employee may elect to withdraw all or any
portion of the Vested Interest in his or her Cash Contribution Account
attributable to Elective Contributions (but excluding any earnings on Elective
Contributions accruing after December 31, 1988), Profit Sharing Contributions
(if, and only if, the withdrawal is occasioned by a life threatening illness to
the Participant) by giving written notice thereof to the Committee specifying
such date, which shall not be less than 30 days following the date such notice
is given to the Committee. Such notice shall designate that the hardship
withdrawal shall be withdrawn from the investment funds in which the Participant
has directed investment of the Participant's Cash Contribution Account.
(b) The Committee may authorize a hardship withdrawal only for:
(i) medical expenses described in Section 213(d) of the Code
incurred or immediately anticipated by the Participant, the
Participant's spouse, or any dependents of the Participant (as
defined in Section 152 of the Code);
(ii) the purchase (excluding mortgage payments) of a
principal residence of the Participant;
(iii) the payment of tuition and related educational fees
for the next 12 months of post-secondary education for the
Participant or the Participant's spouse, children, or dependents;
or (iv) the need to prevent the eviction of the Participant from
the Participant's principal residence or foreclosure on the
mortgage of the Participant's principal residence.
(c) A hardship withdrawal may be authorized only to the extent necessary to
satisfy the hardship. A distribution will be deemed to be necessary to satisfy
the hardship only if the distribution is not in excess of the amount of the
immediate and heavy financial need of the Participant and such Participant's tax
obligations as a result of such distribution and the Employee certifies in
writing that such a hardship exists (and the Committee has no knowledge to the
contrary); provided that the Committee may set stricter standards for making
such determination on a nondiscriminatory basis; and provided further that the
Participant must obtain the written consent of his or her spouse to the extent
required by law. The Committee's decision shall be final and binding on the
Participant.
(d) In the event that a Participant's Vested Interest is less than 100% at
the time of making a withdrawal from his Profit Sharing Subaccount pursuant to
Section 11.7(a), the Participant's Vested Interest in his or her Profit Sharing
Subaccount at any relevant time thereafter shall be equal to an amount ("X")
determined by the following formula: X = P [AB + (R x D)] - (R x D). For
purposes of applying the formula: P is the Participant's Vested Interest at the
relevant time, AB is the balance of the Participant's Profit Sharing Subaccount
at the relevant time; D is the amount distributed to the Participant pursuant to
Section 11.7(a); and R is the ratio of the Participant's Profit Sharing
Subaccount balance at the relevant time to the Participant's Profit Sharing
Subaccount balance immediately after the distribution pursuant to Section
11.7(a).
11.8 Direct Rollovers to Another Qualified Plan or IRA.
(a) This Section 11.8 applies to distributions made on or after January 1,
1993. Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under this Section 11.8, a distributee
may elect, at the time and in the manner prescribed by the Committee, to have
any portion of an eligible rollover distribution paid directly to an eligible
retirement plan specified by the distributee in a direct rollover.
(b) An eligible rollover distribution is any distribution of all or any
portion of the balance to the credit of the distributee, except that an eligible
rollover distribution does not include: any distribution that is one of a series
of substantially equal periodic payments (not less frequently than annually)
made for the life (or life expectancy) of the distributee or the joint lives (or
joint life expectancies) of the distributee and the distributee's designated
Beneficiary, or for a specified period of ten years or more; any distribution to
the extent such distribution is required under Section 401(a)(9) of the Code;
and the portion of any distribution that is not includable in gross income
(determined without regard to the exclusion for net unrealized appreciation with
respect to employer securities).
(c) An eligible retirement plan is an individual retirement account
described in section 408(a) of the Code, an individual retirement annuity
described in section 408(b) of the Code, an annuity plan described in section
403(a) of the Code or a qualified trust described in section 401(a) of the Code,
that accepts the distributee's eligible rollover distribution. However, in the
case of an eligible rollover distribution to the surviving spouse, an eligible
retirement plan is an individual retirement account or individual retirement
annuity.
(d) A distributee includes a Participant or former Participant. In
addition, the Participant's or former Participant's Surviving Spouse and the
Participant's or former Participant's spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as defined in
Section 414(p) of the Code, are distributees with regard to the interest of the
Surviving Spouse, spouse or former spouse.
(e) A direct rollover is a payment by the Plan to the eligible retirement
plan specified by the distributee.
(f) If a distribution is one to which Sections 401(a)(11) and 417 of the
Code do not apply, such distribution may commence less than 30 days after the
notice required under Section 1.411(a)-11(c) of the Regulations is given,
provided that:
(1) the Committee clearly informs the Participant that the
Participant has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or not
to elect a distribution (and, if applicable, a particular
distribution option), and
(2) the Participant, after receiving the notice,
affirmatively elects a distribution.
11.9 Certain Securities Law Restrictions. Any distribution of Shares
pursuant to this Section 11 shall be subject to all applicable laws, rules and
regulations and to such approvals by stock exchanges or governmental agencies as
may be deemed necessary or appropriate by the Board of Directors. Each
distributee may be required to give the Employer a written representation that
such distributee will not be involved in a violation of state or federal
securities laws, including the Securities Act of 1933, as amended; the form of
such written representation will be prescribed by the Board of Directors.
11.10 Participant Loans.
(a) Upon a Participant's written request the Committee may direct the
Trustee to make a loan to such Participant from such Participant's Account.
Loans to Participants pursuant to this Section 11.10 shall be administered by
the Committee and shall be subject to a Participant Loan Policy and such other
procedures as may be adopted from time to time by the Committee. The Company
shall not have the discretion to refuse a loan request, so long as the terms of
the loan comply with the requirements of this Section 11.10 and the Participant
Loan Policy. The terms of the loan shall be determined by the Committee, subject
to the limits set forth in this Section, and shall be evidenced by the
Participant's promissory note. Loans shall be held in a segregated Account of
the Trust.
(b) The aggregate outstanding balance of all loans to a Participant from
this Plan and all other qualified plans maintained by the Employer, when added
to any principal repayments on any participant loans made within the
twelve-month period preceding the date on which the loan is made, may not exceed
the lesser of (i) $50,000 or (ii) 50% of the vested interest in the
Participant's Account as of the day of making the loan.
(c) Principal and interest shall be repaid in level, periodic installments
by payroll deductions not less frequent than quarterly over a definite period of
time not to exceed five (5) years, provided, however, that in the case of a loan
the proceeds of which are used by the Participant to acquire a principal
residence of the Participant, the loan may be repayable over a reasonable period
of time in excess of five (5) years as determined by the Committee.
(d) All loans shall be secured by a lien on the Participant's interest in
the trust. The amount of the loan may not exceed fifty percent (50%) of the
value of the Participant's vested Account balance at the time the loan is made.
The Committee may determine that any distribution made pursuant to the Plan
shall be reduced by an amount up to the outstanding principal and interest
balance of the loan.
(e) Any loan made pursuant to this Section 11.10 must not constitute a
prohibited transaction as defined in Section 4975 of the Code.
(f) Loan repayments will be suspended under the Plan as permitted under
Section 414(u)(4) of the Code.
SECTION 12. MAXIMUM AMOUNT OF ALLOCATION
12.1 Section 415 Limitations. Annual additions to a Participant's Account
with respect to any Plan Year may not exceed the limitations set forth in
Section 415 of the Code, which are incorporated herein by reference. For these
purposes, (i) "annual additions" shall have the meaning set forth in Section
415(c)(2) of the Code, as modified elsewhere in the Code and the Regulations,
(ii) the limitation year shall mean the Plan Year unless any other twelve
consecutive month period is designated pursuant to a written resolution adopted
by the Employer, (iii) "compensation" shall have the meaning set forth in
Section 1.415-2(d)(11)(ii), and (iv) "annual additions" shall include annual
additions under all other defined contribution plans maintained by the Employer
or any affiliated Employer. If the requirements of Section 7.5(a) are satisfied,
the term "annual additions" shall not include any amounts credited to the
Participant's Account (i) resulting from rollover contributions, (ii) due to
Participating Employer contributions relating to interest payments on an Exempt
Loan deductible under Section 404(a)(9)(B) of the Code, or (iii) attributable to
a forfeiture of Shares acquired with the proceeds of an Exempt Loan.
If a Participant in the Plan also participates in any defined benefit plan
(as defined in Sections 414(j) and 415(k) of the Code) maintained by the
Employer or any Affiliated Employer, in the event that in any Plan Year the sum
of the Participant's Defined Benefit Fraction (as defined in Section 415(e)(2)
of the Code) and the Participant's Defined Contribution Fraction (as defined in
Section 415(e)(3) of the Code) exceed 1.0, the benefit under such defined
benefit plan or plans shall be reduced in accordance with the provisions of that
plan or those plans, so that the sum of such fractions with respect to the
Participant will not exceed 1.0. If this reduction does not ensure that the
limitation set forth in this Section 12.1 is not exceeded, then the Annual
Addition to any defined contribution plan, other than the Plan, shall be reduced
in accordance with the provisions of that plan but only to the extent necessary
to ensure that such limitation is not exceeded.
12.2 Refund or Forfeiture of Amounts in Excess of Section 415 Limits.
(a) In the event that amounts which would otherwise be allocated to a
Participant's Account under the Plan must be reduced by reason of the
limitations of Section 12.1, then such reduction shall be made in the following
order or priority, but only to the extent necessary:
(i) first the Participant's Profit Sharing Contributions
shall be forfeited and reallocated pursuant to this Section 12.2;
and then
(ii) the Participant's Matching Contributions shall be
forfeited and reallocated pursuant to this Section 12.2; and then
(iii) the Participant's Elective Contributions shall be
refunded to the Participant; and then
(iv) Shares allocated to the Participant's Account
attributable to ESOP Contributions shall be forfeited and
reallocated pursuant to this Section 12.2.
(b) Forfeitures arising under the Plan and allocable to such Participant in
respect of such Plan Year shall be reallocated to the Accounts of other
Participants as of the end of the Plan Year for which such reduction is made in
the manner provided under Section 4.5 above.
(c) If, with respect to any Plan Year, there is an excess contribution on
account of the limitations contained in this Section 12.2, and such excess
cannot be fully allocated in accordance with Section 12.2(b) because of the
limitations prescribed in this Section 12, the amount of such excess which
cannot be so allocated shall be held in suspense and allocated in the succeeding
Plan Year prior to any other contributions by the Employer for such Plan Year.
SECTION 13. VOTING RIGHTS
13.1 Voting of Shares in General. Except as otherwise required by the Act,
the Code and the Regulations, all voting rights of Shares held in Participants'
Accounts shall be exercised by the Purchasing Agent only as directed by the
Participants or their Beneficiaries in accordance with the provisions of this
Section 13.
13.2 Voting of Allocated Shares.
(a) If any Participating Employer has a registration-type class of
securities (as defined in Section 409(e)(4) of the Code or any successor statute
thereto), then, with respect to all corporate matters submitted to shareholders,
all Shares (including fractional interests in Shares) allocated and credited to
the Accounts of Participants shall be voted only in accordance with the
directions of such Participants as given to the Purchasing Agent. Any allocated
Shares with respect to which Participants are entitled to vote pursuant to this
Section 13.2 and for which such directions are not received by the Purchasing
Agent shall not be voted by the Purchasing Agent.
(b) If no Participating Employer has a registration-type class of
securities (as defined in Section 409(e)(4) of the Code or any successor statute
thereto), then, only with respect to corporate matters relating to a corporate
merger or consolidation, recapitalization, reclassification, liquidation,
dissolution, sale of substantially all assets of a trade or business, or such
other similar transaction that Regulations require, all Shares allocated and
credited to the Accounts of Participants shall be voted only in accordance with
the directions of such Participants as given to the Purchasing Agent. Any
allocated Shares with respect to which Participants are entitled to vote
pursuant to this Section 13.2 and for which such directions are not received by
the Purchasing Agent shall not be voted by the Purchasing Agent. The Purchasing
Agent shall vote all Shares held in the Trust Fund allocated to the Accounts of
Participants from whom voting instructions are not required to be solicited
under Section 13.2 only as the Purchasing Agent directs in the Purchasing
Agent's sole discretion in accordance with the Act, after the Purchasing Agent
determines such action to be in the best interests of the Participants and their
Beneficiaries.
13.3 Mechanics of Voting Allocated Shares. If Participants are entitled
under Section 13.2 to direct the vote with respect to allocated Shares, then, at
least 30 days before each annual or special shareholders' meeting of the
Employer (or, if such schedule cannot be met, as early as practicable before
such meeting), the Committee shall furnish to each Participant a copy of the
proxy solicitation material sent generally to shareholders, together with a form
requesting confidential instructions concerning the manner in which the Shares
allocated to such Participant's Account (including fractional Shares to 1/1000th
of a Share) are to be voted. Upon timely receipt of such instructions, the
Purchasing Agent (after combining votes of fractional Shares to give effect to
the greatest extent possible to Participants' instructions) shall vote the
Shares as instructed. The instructions received by the Purchasing Agent from
each Participant shall be held by the Purchasing Agent in strict confidence and
shall not be divulged or released to any person, including, without limitation,
any officers or Employees of any Participating Employer, or of any other
Employer. The Trustee, the Employer, the Purchasing Agent and the Committee
shall not make recommendations to Participants on whether to vote or how to
vote.
13.4 Voting of Unallocated Shares and Unvoted Allocated Shares. With
respect to unallocated shares held in the Trust Fund and allocated shares held
in the Trust Fund for which no voting instructions are received, the Purchasing
Agent shall vote such Shares in the same proportions as the Shares for which
Participant voting instructions have been received.
13.5 Tender or Exchange of Allocated Shares. The Committee shall notify
each Participant of each tender or exchange offer for the Shares and utilize its
best efforts to distribute or cause to be distributed to each Participant in a
timely manner all information distributed to shareholders of the Employer in
connection with any such tender or exchange offer. Each Participant shall have
the right from time to time with respect to the Shares allocated to the
Participant's Account (including fractional Shares to 1/1000th of a Share) to
instruct the Purchasing Agent in writing as to the manner in which to respond to
any tender or exchange offer which shall be pending or which may be made in the
future for all Shares or any portion thereof. A Participant's instructions shall
remain in force until superseded in writing by the Participant. The Purchasing
Agent shall tender or exchange whole Shares only as and to the extent so
instructed. If the Purchasing Agent does not receive instructions from a
Participant regarding any tender or exchange offer for Shares, the Purchasing
Agent shall have no discretion in such matter and shall not tender or exchange
any such Shares in response thereto. Unless and until Shares are tendered or
exchanged, the individual instructions received by the Purchasing Agent from
Participants shall be held by the Purchasing Agent in strict confidence and
shall not be divulged or released to any person, including, without limitation,
any officers or Employees of any Participating Employer, or of any other
Employer; provided, however, that the Purchasing Agent shall advise the
Employer, at any time upon request, of the total number of Shares not subject to
instructions to tender or exchange.
13.6 Tender or Exchange of Unallocated Shares. The Purchasing Agent shall
tender unallocated Shares held in the Trust Fund in proportion to the ratio that
(A) the number of Shares with respect to which Participant instructions in favor
of the tender have been received bears to (B) the number of shares with respect
to which Participant instructions for or against the tender have been received,
provided the Purchasing Agent determines that such action is consistent with its
fiduciary obligations under the Act. Neither the Purchasing Agent, the Committee
nor the Trustee shall have the discretion or power to sell, convey or transfer
any unallocated Shares held in the Participant's Accounts in response to a
tender or exchange offer unless a court of competent jurisdiction determines
that the Purchasing Agent is authorized to sell, convey or transfer any
unallocated Shares held in the Accounts in response to any tender or exchange
offer. In exercising any discretion or power, the Purchasing Agent shall
consider, to the extent permitted by applicable law, including the Regulations,
not only the potential increase in value, if any, in the Accounts of the
Participants as a result of a tender or exchange of the unallocated Shares, but
also the impact of any change in the management or control of the Employer in
the long run, including but not limited to whether Participants will receive
larger or smaller employee benefits than at present under the Plan.
13.7 Voting of Deceased Participant's Shares. If this Section 13 applies to
Shares allocated to the Account of a deceased Participant, such Participant's
Beneficiary shall be entitled to direct the manner in which to respond to any
tender or exchange offer as if such Beneficiary were the Participant.
SECTION 14. DESIGNATION OF BENEFICIARIES
14. Designation of Beneficiary. Each Participant shall file with the
Committee a written designation of one or more persons as the Beneficiary who
shall be entitled to receive the amount, if any, payable under the Plan upon his
or her death. A Participant may from time to time revoke or change his or her
Beneficiary designation without the consent of any prior Beneficiary by filing a
new designation with the Committee. The last such designation received by the
Committee shall be controlling; provided, however, that no designation, or
change or revocation thereof, shall be effective unless received by the
Committee prior to the Participant's death, and in no event shall it be
effective as of a date prior to such receipt. A Participant's Beneficiary
designation shall not be effective to the extent that payments to the Surviving
Spouse are required pursuant to Section 11, and in no event shall it be
effective as of a date prior to such receipt.
14.2 Failure to Designate Beneficiary. If no such Beneficiary designation
is in effect at the time of a Participant's death, or if no designated
Beneficiary survives the Participant, the payment of the amount, if any, payable
under the Plan upon his or her death shall be made to the Participant's
Surviving Spouse, if any; or if the Participant has no Surviving Spouse, then to
the Participant's children, if any, in equal shares; or if the Participant has
no children, to the Participant's parents, if any, in equal shares; or if the
Participant has no parents, to the Participant's brothers and sisters, if any,
in equal shares. If the Participant has no brothers or sisters, payment shall be
made to the Participant's estate. If the Committee is in doubt as to the right
of any person to receive such amount, the Committee may direct the Trustee to
retain such amount, without liability for any interest thereon, until the rights
thereto are determined, or the Committee may direct the Trustee to pay such
amount into any court of appropriate jurisdiction and such payment shall be a
complete discharge of the liability of the Plan and the Trust Fund therefor.
SECTION 15. ADMINISTRATION OF THE PLAN
15.1 The Committee. The Committee shall have general responsibility for the
administration, interpretation and construction of the Plan. The Committee shall
be responsible for establishing and maintaining Plan records, including
responsibility for compliance with the Actual Deferral Percentage and Actual
Contribution Percentage tests described in Sections 4.6 and 5.3, and the
Committee shall be responsible for complying with the reporting and disclosure
requirements of the Act. The Committee shall report to the Board of Directors,
or to a committee of the Board of Directors designated for that purpose,
periodically as shall be specified by the Board of Directors or such designated
committee, with regard to the matters for which it is responsible under the
Plan.
15.2 The Trustee. Except as otherwise provided in the Trust Agreement or
the Plan, the Trustee may act only as directed by the Committee, the Employer or
any other party, as applicable. The Trustee shall have responsibility under the
Plan for the management and control of the assets of the Plan. The Committee
shall periodically review the performance and methods of the Trustee. The
Employer or the Committee shall have the power to appoint, remove or change the
Trustee and, to the extent that the Trust Fund is invested in assets other than
Shares, shall have the power to appoint or remove one or more investment
advisers and to delegate to such adviser authority and discretion to manage
(including the power to acquire and dispose of) the assets of the Plan, provided
that (i) such adviser with such authority and discretion shall be either a bank
or a registered investment adviser under the Investment Advisers Act of 1940,
and shall acknowledge in writing that it is a fiduciary with respect to the Plan
and (ii) the Committee shall periodically review the investment performance and
methods of each adviser(s) with such authority and discretion. The Committee
shall establish investment standards and policies and communicate the same to
the Trustee. If annuities are to be purchased under the Plan, the Committee
shall determine what contracts should be made available to terminated
Participants or purchased by the Trust Fund.
15.3 Committee's Responsibility for Entering into Exempt Loans and
Valuation of Shares. The Committee shall have responsibility for directing the
Trustee as to whether and under what terms it shall enter into an Exempt Loan
and for directing the Purchasing Agent whether and under what terms it shall
purchase or otherwise dispose of Shares. In the event that there is no generally
recognized market for Shares, the Committee shall be the named fiduciary with
responsibility for determining the fair market value of the Shares, provided,
that any such determination shall be in accordance with applicable Regulations,
if any, and the Committee shall, in making such determination, retain an
independent appraiser to make such valuation on behalf of the Committee in
accordance with Section 7.9.
15.4 Committee's Power to Engage Outside Experts. The Committee may arrange
for the engagement of such legal counsel, who may be counsel for the Employer,
and make use of such agents and clerical or other personnel as they each shall
require or may deem advisable for purposes of the Plan. The Committee may rely
upon the written opinion of such counsel and the accountants engaged by the
Committee and may delegate to any such agent of said Committee its authority to
perform any act hereunder, including without limitation, those matters involving
the exercise of discretion, provided that such delegation shall be subject to
revocation at any time at the discretion of said Committee. The Committee shall
engage such certified public accountants, who may be accountants for the
Employer, as it shall require or may deem advisable for purposes of the Plan.
15.5 Composition of Committee. The Committee shall consist of at least
three members, each of whom shall be appointed by, shall remain in office at the
will of, and may be removed, with or without cause, by the Board of Directors.
Any member of said Committee may resign at any time. No member of said Committee
shall be entitled to act on or decide any matter relating solely to himself or
any of his or her rights or benefits under the Plan. The members of the
Committee shall not receive any special compensation for serving in their
capacities as members of such Committee but shall be reimbursed for any
reasonable expenses incurred in connection therewith. Except as otherwise
required by the Act, no bond or other security need be required of the Committee
or any member thereof in any jurisdiction. Any member of the Committee, or any
agent to whom said Committee delegates any authority, and any other person or
group of persons, may serve in more than one fiduciary capacity (including
service both as a Trustee and administrator) with respect to the Plan.
15.6 Actions of Committee. The Committee shall elect or designate its own
chairman, establish its own procedures and the time and place for its meetings
and provide for the keeping of minutes of all meetings. A majority of the
members of the Committee shall constitute a quorum for the transaction of
business at a meeting of the Committee. Any action of the Committee may be taken
upon the affirmative vote of a majority of the members of the Committee at a
meeting or, at the direction of its Chairman, without a meeting, by mail,
telephone or facsimile, provided that all of the members of the Committee are
informed by mail or telephone of their right to vote on the proposal and of the
outcome of the vote thereon.
15.7 Disbursement of Plan Funds. The Committee shall cause to be kept full
and accurate accounts of receipts and disbursements of the Plan, shall cause to
be deposited all funds of the Plan to the name and credit of the Plan in such
depositories as may be designated by the Committee, shall cause to be disbursed
the monies and funds of the Plan when so authorized by the Committee and shall
generally perform such other duties as may be assigned to them from time to time
by the Committee.
15.8 Application for Benefits. Each Participant or Beneficiary believing
himself eligible for benefits under the Plan shall apply for such benefits by
completing and filing with the Committee an application for benefits on a form
supplied by the Committee. Before the date on which benefit payments commence,
each such application must be supported by such information and data as the
Committee deems relevant and appropriate. Evidence of age, marital status (and,
in the appropriate instances, health, death or disability) and location of
residence shall be require of all applicants for benefits. All claims for
benefits under the Plan shall, within a reasonable period of time, be decided by
one or more persons designated in writing by the chairman of the Committee.
15.9 Denied Claims for Benefits. In the event that any claim for benefits
is denied in whole or in part, the Participant or Beneficiary whose claim has
been so denied shall be notified of such denial in writing by the Committee. The
notice advising of the denial shall specify the reason or reasons for denial,
make specific reference to pertinent Plan provisions, describe any additional
material or information necessary for the claimant to perfect the claim
(explaining why such material or information is needed) and shall advise the
Participant or Beneficiary, as the case may be, of the procedure for the appeal
of such denial. All appeals shall be made by the following procedure:
(a) The Participant or Beneficiary whose claim has been denied shall file
with the Committee a notice of desire to appeal the denial. Such notice shall be
filed within sixty (60) days of notification by the Committee of claim denial,
shall be made in writing and shall set forth all of the facts upon which the
appeal is based. Appeals not timely filed shall be barred.
(b) The Committee shall, within thirty (30) days of receipt of the
Participant's or Beneficiary's notice of appeal, establish a hearing date on
which the Participant or Beneficiary may make an oral presentation to the
Committee in support of his or her appeal. The Participant or Beneficiary shall
be given not less than ten (10) days' notice of the date set for the hearing.
(c) The Committee shall consider the merits of the claimant's written and
oral presentations, the merits of any facts or evidence in support of the denial
of benefits and such other facts and circumstances as the Committee shall deem
relevant. If the claimant elects not to make an oral presentation, such election
shall not be deemed adverse to the claimant's interest, and the Committee shall
proceed as set forth below as though an oral presentation of the contents of the
claimant's written presentation had been made.
(d) The Committee shall render a determination upon the appealed claim
which determination shall be accompanied by a written statement as to the
reasons therefor. The determination so rendered shall be binding on all parties.
(e) For all purposes under the Plan, such decisions on claims (where no
review is requested) and decisions on review (where review is requested) shall
be final, binding and conclusive on all interested persons as to participation
and benefit eligibility, the Employee's amount of Compensation and any other
matter of fact or interpretation relating to the Plan.
15.10 Indemnification. To the maximum extent permitted by law, no member of
the Committee shall be personally liable by reason of any contract or other
instrument executed by such member of the Committee or on his or her behalf in
the Committee member's capacity as a member of such Committee nor for any
mistake of judgment made in good faith, and the Employer shall indemnify and
hold harmless, directly from its own assets (including the proceeds of any
insurance policy the premiums of which are paid from the Employer's own assets),
each member of the Committee and each other officer, employee or director of the
Employer to whom any duty or power relating to the administration or
interpretation of the Plan or to the management and control of the assets of the
Plan may be delegated or allocated, against any cost or expense (including
counsel fees) or liability (including any sum paid in settlement of a claim with
the approval of the Employer) arising out of any act or omission to act in
connection with the Plan unless arising out of such person's own fraud or
willful misconduct. The Employer shall advance funds for legal expenses to the
extent permitted by the Act.
15.11 Agent for Service of Process. The Committee or such other person as
may from time to time be designated by the Committee shall be the agent for
service of process under the Plan.
SECTION 16. EXPENSES
16.1 Payment of Plan Expenses. The expenses incurred in the management and
administration of the Plan shall be paid from the Trust Fund, except to the
extent the Employer, in its sole discretion, may choose to pay such expenses
from time to time; provided that any Trustee expenses paid to The Charles Schwab
Trust Company shall be payable solely by the Employer. Such expenses shall
include (i) the fees and expenses of any employee and of the Trustee for the
performance of their duties under the Plan and Trust Fund (including but not
limited to obtaining investment advice, record keeping services and legal
services), (ii) the expenses incurred by the members of the Committee in the
performance of their duties under the Plan (including reasonable compensation
for any legal counsel, certified public accountants, consultants and agents, and
cost of services rendered with respect to the Plan) and (iii) all other proper
charges and disbursements of the Trustee or the members of the Committee
(including settlements of claims or legal actions approved by counsel to the
Plan).
16.2 Expenses Attributable to Investment of Plan Assets and Taxes.
Brokerage fees, transfer taxes and any other expenses incident to the purchase
or sale of securities by the Trustee shall be deemed to be part of the cost of
such securities, or deducted in computing the proceeds therefrom, as the case
may be. Expenses attributable to investments of the Trust Fund shall be paid out
of the Trust Fund, except to the extent the Employer, in its sole discretion,
may choose to pay such expenses from time to time; provided that expense
entirely attributable to any one investment or to any one investment fund shall
be allocated pro rata in accordance with Account balances among Accounts
invested in such investment or investment fund. Taxes, if any, of any and all
kinds whatsoever which are levied or assessed on any assets held or income
received by the Trustee shall be paid out of the Trust Fund.
SECTION 17. EMPLOYER PARTICIPATION
17. Adoption of Plan by Affiliated Employer. Any Affiliated Employer may
adopt the Plan and the Trust Fund by resolution of its board of directors or
equivalent governing body provided that (i) the Board of Directors has not
expressly disallowed participation by such Affiliated Employer in the Plan; (ii)
the Affiliated Employer has not previously expressly declined to participate in
the Plan; or (iii) the Affiliated Employer is not precluded from participating
in the Plan by a legally binding written document that precludes such
participation; and provided further that the Board of Directors consents to such
adoption. Any Affiliated Employer which so adopts the Plan shall be deemed to
appoint Charles Schwab & Co., Inc., the Committee and the Trustee its exclusive
agents to exercise on its behalf all of the power and authority conferred under
the Plan or the Trust Agreement. This authority shall continue until the Plan is
terminated and the relevant Trust Fund assets have been distributed.
17.2 Termination of Participation by Participating Employer. A
Participating Employer may terminate its participation in the Plan by giving the
Committee prior written notice specifying a termination date which shall be the
last day of a month at least 60 days subsequent to the date such notice is
received by the Committee. The Board of Directors may terminate any
Participating Employer's participation in the Plan, as of any termination date
specified by the Committee, for the failure of the Participating Employer to
make proper contributions or to comply with any other provision of the Plan.
17.3 Effect of Termination of Participation by Participating Employer. Upon
termination of the Plan as to any Participating Employer, such Participating
Employer shall not make any further contributions under the Plan and no amount
shall thereafter be payable under the Plan to or with respect to any
Participants then employed by such Participating Employer, except as provided in
this Section 17. To the maximum extent permitted by the Act, any rights of
Participants no longer employed by such Participating Employer and of former
Participants and their Beneficiaries and Surviving Spouses and other eligible
survivors under the Plan shall be unaffected by such termination and any
transfer, distribution or other disposition of the assets of the Plan as
provided in this Section 17 shall constitute a complete discharge of all
liabilities under the Plan with respect to such Participating Employer's
participation in the Plan and any Participant then employed by such
Participating Employer.
The interest of each such Participant who is in Service with such
Participating Employer as of the termination date is the amount, if any,
credited to his or her Account after payment of or provision for expenses and
charges and appropriate adjustment of the Accounts of all such Participants for
expenses and charges as described in Section 16, and all forfeitures shall be
nonforfeitable as of the termination date, and upon receipt by the Committee of
IRS approval of such termination, the full current value of such amount shall be
paid from the Trust Fund in the manner described in Section 17.4 or transferred
to a successor employee benefit plan which is qualified under Section 401(a) of
the Code; provided, however, that in the event of any transfer of assets to a
successor employee benefit plan the provisions of Section 17.4 will apply. No
advances against such payments shall be made prior to such receipt of approval,
but after such receipt the Committee, in its sole discretion, may direct the
Trustee to make one or more advances in accordance with Section 11.1.
All determinations, approvals and notifications referred to above shall be
in form and substance and from a source satisfactory to the Committee. To the
maximum extent permitted by the Act, the termination of the Plan as to any
Participating Employer shall not in any way affect any other Participating
Employer's participation in the Plan.
17.4 Limitations on Transfer of Plan Assets to Successor Plan. No transfer
of the Plan's assets and liabilities to a successor employee benefit plan
(whether by merger or consolidation with such successor plan or otherwise) shall
be made unless each Participant would, if either the Plan or such successor plan
then terminated, receive a benefit immediately after such transfer which (after
taking account of any distributions or payments to such Participants as part of
the same transaction) is equal to or greater than the benefit such Participant
would have been entitled to receive immediately before such transfer if the Plan
had then been terminated. The Committee may also request appropriate
indemnification from the employer or employers maintaining such successor plan
before making such a transfer.
17.5 Shares Allocated to Suspense Fund Excluded from Transfer of Plan
Assets to Successor Plan. Notwithstanding any provision of this Section 17 to
the contrary, any Shares allocated to a Suspense Subfund shall not be
transferred to a successor employee benefit plan except as is required or
permitted by the Committee in accordance with the terms of an Exempt Loan and
the Regulations.
SECTION 18. AMENDMENT OR TERMINATION OF THE PLAN
18.1 Amendment, Suspension or Termination of Plan.
(a) Subject to the provisions of Section 18.1(b) and (c) hereof, the board
of directors of the Plan Sponsor reserves the right at any time to suspend or
terminate the Plan, any contributions thereunder, or any other agreement or
arrangement forming a part of the Plan, in whole or in part and for any reason,
and to adopt any amendment or modification thereto, all without the consent of
any Participating Employer, Participant, Beneficiary, Surviving Spouse or other
eligible survivor. Subject to the provisions of Section 18.1(b) and (c) hereof,
the Board of Directors reserves the right at any time to amend or modify the
Plan. Each Participating Employer by its adoption of the Plan shall be deemed to
have delegated this authority to the Board of Directors.
(b) The Board of Directors shall not make any amendment or modification
which would (i) retroactively impair any rights to any benefit under the Plan
which any Participant, Beneficiary, Surviving Spouse or other eligible survivor
would otherwise have had at the date of such amendment by reason of the
contributions theretofore made or (ii) make it possible for any part of the
funds of the Plan (other than such part as is required to pay taxes, if any, and
administration expenses as provided in Section 16) to be used for or diverted to
any purposes other than for the exclusive benefit of Participants and their
Beneficiaries and Surviving Spouses and other eligible survivors under the Plan
prior to the satisfaction of all liabilities with respect thereto.
18.2 Power to Retroactively Amend, Suspend or Terminate Plan Provisions.
Subject to the provisions of Section 18.1, any amendment, modification,
suspension or termination of any provision of the Plan may be made retroactively
if necessary or appropriate to qualify or maintain the Plan as a plan meeting
the requirements of Sections 401(a) of the Code or any other applicable
provision of law (including the Act) as now in effect or hereafter amended or
adopted and the Regulations issued thereunder.
18.3 Notice of Amendment, Suspension or Termination. Notice of any
amendment, modification, suspension or termination of the Plan shall be given by
the Board of Directors or the board of directors of the Plan Sponsor, as the
case may be, to the Trustee and all Participating Employers.
18.4 Effect of Termination of Plan. Upon termination of the Plan, no
Participating Employer shall make any further contributions under the Plan and
no amount shall thereafter be payable under the Plan to or with respect to any
Participant except as provided in this Section 18, and to the maximum extent
permitted by the Act, transfers or distributions of the assets of the Plan as
provided in this Section 18 shall constitute a complete discharge of all
liabilities under the Plan. The provisions of the Plan which are necessary for
the operation of the Plan and the distribution or transfer of the assets of the
Plan shall remain in force.
Upon receipt by the Committee of IRS approval of such termination, the full
current value of such adjusted amount, and the full value of each account
described in Sections 6.2 and 7.1 above, shall be paid from the Trust Fund to
each Participant and former Participant (or, in the event of the death of a
Participant or former Participant, to the Surviving Spouse or Beneficiary
thereof) in any manner of distribution specified in Section 11 above, including
payments which are deferred until the Participant's termination of Service, as
the Committee shall determine. Without limiting the foregoing, any such
distribution may be made in cash or in property, or both, as the Committee in
its sole discretion may direct.
All determinations, approvals and notifications referred to above shall be
in form and substance and from a source satisfactory to the Committee.
18.5 Partial Termination of Plan. In the event that any governmental
authority, including without limitation the IRS, determines that a partial
termination (within the meaning of the Act) of the Plan has occurred or if there
is a complete discontinuance of Employer contributions then (i) the interest of
each Participant affected thereby in his or her Account shall become
nonforfeitable as of the date of such partial termination or complete
discontinuance of contributions and (ii) the provisions of Sections 18.2, 18.3
and 18.4 above, which in the opinion of the Committee are necessary for the
execution of the Plan and the allocation and distribution of the assets of the
Plan, shall apply.
18.6 Trust for Exclusive Benefit of Participant. In no event shall any part
of the Trust Fund (other than such part as is required to pay taxes, if any, and
administration expenses as provided in Section 16 above) be used for or diverted
to any purposes other than for the exclusive benefit of Participants and their
Beneficiaries and Surviving Spouses under the Plan.
SECTION 19. TOP-HEAVY PLAN REQUIREMENTS
19. Top-Heavy Plan - In General. For any Plan Year for which this Plan is a
Top-Heavy Plan, the provisions of this Section 19 shall apply notwithstanding
any other provisions of the Plan.
19.2 Effect of Top-Heavy Status. Each Participant who (i) is a Non-Key
Employee and (ii) is employed on the last day of the Plan Year, shall be
entitled to have contributions allocated to his or her Account of not less than
three percent (3%) of the Participant's Compensation (the "Minimum Contribution
Percentage") regardless of (i) whether such Non-Key Employee has completed a
Year of Service, and (ii) the amount of such Non-Key Employee's Compensation;
provided, however, that the minimum contribution percentage for any Plan Year
shall not exceed the percentage at which contributions are made under the Plan
for the Plan Year for the Key Employee for whom such percentage is the highest
for such Plan Year. For this purpose, such percentage shall be determined by
dividing the contributions made for such Key Employee by so much of his or her
Compensation (which solely for this purpose includes Elective Contributions made
by the Employer for the Key Employee) for the Plan Year as does not exceed
$150,000 (adjusted automatically for increases in accordance with the
Regulations).
Contributions taken into account under this Section 19.2 shall include
contributions under this Plan and under all other defined contribution plans (as
defined in Section 414(i) of the Code) required to be included in an Aggregation
Group; provided, however, that such contributions shall not include (i)
contributions to any defined contribution plan in the required aggregation group
if such contributions enable such a defined contribution plan to meet the
requirements of Sections 401(a)(4) or 410 of the Code or (ii) contributions
under the Social Security Act or any other federal or state law.
19.3 Maintenance of Defined Benefit Plan in Addition to Plan. In the event
that the Plan is a Top-Heavy Plan for any Plan Year and the Employer also
maintains a defined benefit plan (within the meaning of Section 414 of the Code)
which provides benefits on behalf of Participants, then one of the two following
provisions shall apply:
(1) If the Plan is a Top-Heavy Plan for any Plan Year but would
not be a "Top-Heavy Plan" for the Plan Year if "90 percent" were
substituted for "60 percent" in Section 19.4(a), then Section 19.2
shall be applied for such Plan Year by substituting "four percent" for
"three percent."
(2) If a Top-Heavy Plan would continue to be a "Top-Heavy Plan"
for the Plan Year if "90 percent" were substituted for "60 percent",
then the denominator of the defined contribution plan fraction shall
be calculated for such Plan Year by substituting "1.0" for "1.25",
except with respect to any Participant who is not entitled to an
allocation of Employer contributions and does not receive any accruals
under any defined benefit plan (within the meaning of Section 414(j)
of the Code) maintained by the Employer.
In the event that another defined contribution plan or a defined benefit
plan maintained by the Employer provides contributions or benefits on behalf of
Participants, the Committee shall take such other plan into account as a part of
this Plan to the extent required by the Code and in accordance with the
Regulations.
In addition, in the event that the Plan is a Top-Heavy Plan (irrespective
of whether (1) or (2) applies), all contributions shall be vested according to
the following vesting schedule:
Years of Service.. Percentage
Less than two years ........................................ 0%
At least two years but less than three years................ 20%
At least three years but less four years.................... 40%
At least four years but less than five years................ 60%
At least five years but less six years...................... 80%
Six years or more........................................... 100%
19.4 Definitions.
(a) "Top-Heavy Plan" means this Plan for any Plan Year if, as of the
Determination Date, (i) the present value of the Accounts of all Participants
who are Key Employees (excluding former Key Employees) exceeds 60 percent of the
present value of all Participants' Accounts (excluding former Key Employees) or
(ii) the Plan is required to be in an Aggregation Group which for such Plan Year
is a Top-Heavy Group. In determining whether the Plan constitutes a Top-Heavy
Plan, the Committee shall make the following adjustments:
(i) When more than one plan is aggregated, the Committee shall
determine separately for each plan as of any Determination Date, the
present value of accrued benefits of all Participants and the value of
Accounts of all Participants.
(ii) Any such determination shall include the present value of
distributions made to former Participants under the applicable plan
(including a terminated plan) during the five-year period ending on
the Determination Date, unless reflected in the value of the accrued
benefits or the Accounts of such former Participants as of the
Determination Date.
(iii) Any such determination shall include any Rollover
Contribution from any other plan as follows:
(A) If the Rollover Contribution is initiated by the
Employee and made to or from a plan maintained by a
corporation which is not an Affiliated Employer, the plan
providing the distribution shall include such distribution
in the value of such accrued benefit or Account.
(B) If the Rollover Contribution is not initiated by
the Employee or made from a plan maintained by an Affiliated
Employer, the plan accepting the distribution shall include
such distribution in the value of such accrued benefit or
Account.
(b) "Determination Date" means for any Plan Year the last day of the next
preceding Plan Year.
(c) "Aggregation Group" means all plans maintained by the Employer or any
Affiliated Employer which are required to be aggregated or permitted to be
aggregated. For purposes of this Section 19.4(c),
(i) The group of plans that are required to be aggregated (the
"required aggregation group") includes each plan of the Employer or
any Affiliated Employer in which a Key Employee is a Participant, and
each other plan of the Employer or any Affiliated Employer which
enables a plan in which a Key Employee is a Participant to meet the
requirements of Sections 401(a)(4) or 410 of the Code; and
(ii) The group of plans that are permitted to be aggregated (the
"permissive aggregation group") includes the required aggregation
group plus one or more plans of the Employer or any Affiliated
Employer that is not part of the required aggregation group and that
the Committee certifies as constituting a plan within the permissive
aggregation group. Such plan or plans may be added to the permissive
aggregation group only if the permissive aggregation group would
continue to meet the requirements of Sections 401(a)(4) and 410 of the
Code.
(d) "Top Heavy Group" means the Aggregation Group, if as of any
Determination Date, the sum of (i) the present value of the accrued benefits of
all Participants who are Key Employees under all defined benefit plans (within
the meaning of Section 414(j) of the Code) included in the Aggregation Group
plus (ii) the aggregate value of the Accounts of all Participants who are Key
Employees under all defined contribution plans (within the meaning of Section
414(i) of the Code) included in the Aggregation Group exceeds 60 percent of the
sum of (i) the present value of the accrued benefits for all Participants
(excluding former Key Employees), under all such defined benefit plans plus (ii)
the aggregate value of the Accounts of all Participants (excluding former Key
Employees) under all such defined contribution plans. If the Aggregation Group
that is a Top-Heavy Group is a required aggregation group, each plan in the
Aggregation Group will be a Top-Heavy Plan. If the Aggregation Group that is a
Top-Heavy Group is a permissive aggregation group, only those plans that are
part of the required aggregation group will be treated as a Top-Heavy Plan. If
the Aggregation Group is not a Top-Heavy Group, no plan within such Aggregation
Group will be a Top-Heavy Plan.
For purposes of Section 19.4(a), the present value of accrued benefits
under any defined benefit plan and the value of Accounts under any defined
contribution plan shall be determined as of the Valuation Date that is
coincident with the Determination Date in accordance with the Regulations.
(e) "Key Employee" means any Employee or former Employee who, at any time
during the Plan Year preceding the Determination Date or during any of the four
preceding Plan Years, is or was one of the following:
(i) An officer of the Employer or any Affiliated Employer having
annual compensation (within the meaning of Section 414(q)(7)) greater
than 50 percent of the amount in effect under Section 415(b)(1)(A) of
the Code for any Plan Year (as adjusted for increases in the cost of
living in accordance with the Regulations). For purposes of the
preceding sentence there shall be treated as officers for any such
Plan Year no more than the lesser of:
(A) 50 Employees, or
(B) the greater of three Employees or 10 percent of the
Employees of the Employer or any Affiliated Employer;
(ii) One of the ten Employees owning (or considered as owning
within the meaning of Section 318 of the Code) more than a five
percent (5%) interest and one of the largest interests in the Employer
or any Affiliated Employer. An Employee will not be considered such an
owner for any Plan Year if the Employee's compensation (within the
meaning of Section 414(q)(7)) is less than $30,000 (as adjusted for
increases in the cost of living in accordance with the Regulations);
for purposes of determining ownership pursuant to Section 19.4(e)(ii)
the aggregation rules of Section 4.14(b), (c) and (m) of the Code
apply.
(iii) Any person who owns (or considered as owning within the
meaning of Section 318 of the Code) more than a five percent interest
in the Employer;
(iv) Any person having compensation (within the meaning of
Section 414(q)(7)) of more than $150,000, and owning (or considered as
owning within the meaning of Section 318 of the Code) more than a one
percent interest in the Employer. For purposes of this Section
19.4(e), a Beneficiary of a Key Employee shall be treated as a Key
Employee and the interests inherited by such Beneficiary shall be
treated the same as if owned by the Key Employee.
(f) "Non-Key Employee" means any "Non-Key Employee" as defined in Section
416(i)(2) of the Code and the Regulations promulgated thereunder.
SECTION 20. GENERAL LIMITATIONS AND PROVISIONS
20.1 Exclusive Benefit of Participants and Beneficiaries. In no event shall
any part of the funds of the Plan be used for or diverted to any purposes other
than for the exclusive benefit of Participants and their Beneficiaries under the
Plan except as permitted under Section 403(c) of the Act. Upon the transfer by a
Participating Employer of any money to the Trustee, all interest of the
Participating Employer therein shall cease and terminate.
20.2 No Rights to Continued Employment. Nothing contained in the Plan shall
give any employee the right to be retained in the employment of the Employer or
any Affiliated Employer or affect the right of the Employer or any Affiliated
Employer to dismiss any employee. The adoption and maintenance of the Plan shall
not constitute a contract between the Employer and any employee or be
consideration for, or an inducement to or condition of, the employment of any
employee.
20.3 Trust Sole Source of Benefits. The Trust Fund shall be the sole source
of benefits under the Plan and, except as otherwise required by the Act, the
Employer and the Committee assume no liability or responsibility for payment for
such benefits, and each Participant, Surviving Spouse, Beneficiary or other
person who shall claim the right to any payment under the Plan shall be entitled
to look only to the Trust Fund for such payment and shall not have any right,
claim or demand therefor against the Employer, the Committee, or any Participant
thereof, or any employee or director of the Employer.
20.4 Risk of Decrease in Assets. Each Participant, Beneficiary and
Surviving Spouse shall assume all risk in connection with any decrease in the
value of the assets of the Trust Fund and the Participants' Accounts or special
accounts and neither the Employer nor the Committee shall be liable or
responsible therefor.
20.5 Incapacity of Participant or Beneficiary. If the Committee shall find
that any person to whom any amount is payable under the Plan is unable to care
for his or her affairs because of illness or accident, or is a minor, or has
died, then any payment due such person or his or her estate shall be made to his
or her duly appointed legal representative. Any such payment shall be a complete
discharge of the liability of the Plan and the Trust Fund therefor.
20.6 Antialienation; Qualified Domestic Relations Orders.
(a) Except insofar as may otherwise be required by law or pursuant to the
terms of a Qualified Domestic Relations Order, as set forth in this Section
20.5, no amount payable at any time under the Plan and the Trust Fund shall be
subject in any manner to alienation by anticipation, sale, transfer, assignment,
bankruptcy, pledge, attachment, charge or encumbrance of any kind nor in any
manner be subject to the debts or liabilities of any person, and any attempt to
so alienate or subject any such amount, whether presently or thereafter payable,
shall be void. If any person shall attempt to, or shall, alienate, sell,
transfer, assign, pledge, attach, charge or otherwise encumber any amount
payable under the Plan and Trust Fund, or any part thereof, or if by reason of
his or her bankruptcy or other event happening at any such time such amount
would be made subject to his or her debts or liabilities or would otherwise not
be enjoyed by such person, then the Committee, if it so elects, may direct that
such amount be withheld and that the same or any part thereof be paid or applied
to or for the benefit of such person.
(b) Upon receipt of notification of any judgment, decree or order
(including approval of a property settlement agreement) which relates to the
provision of child support, alimony payments, or marital property rights of a
spouse, former spouse, child, or other dependent of a Participant and which is
made pursuant to a state domestic relations law (including a community property
law) (herein referred to as a "domestic relations order"), the Committee shall
(i) notify the Participant and any prospective Alternate Payee named in the
order of the receipt and date of receipt of such domestic relations order and of
the Plan's procedures for determining the status of the domestic relations order
as a Qualified Domestic Relations Order, and (ii) within a reasonable period
after receipt of such order, determine whether it constitutes a Qualified
Domestic Relations Order. The Plan's procedures for the determination of whether
a domestic relations order constitutes a Qualified Domestic Relations Order
shall be set forth by the Committee in writing, shall provide for the
notification of each person specified in that order as entitled to payment of
benefits under the Plan (at the address included in the domestic relations
order) of such procedures promptly upon receipt by the Committee of such
domestic relations order, and shall permit the prospective Alternate Payee to
designate a representative for receipt of copies of notices that are sent to the
prospective Alternate Payee with respect to a domestic relations order.
(c) During any period in which the issue of whether a domestic relations
order is a Qualified Domestic Relations Order is being determined (by the
Committee, by a court of competent jurisdiction, or otherwise), including the
period beginning on the date of the Committee's receipt of the order, the
Committee shall segregate in a separate account in the Plan or in an escrow
account held by a Trustee the amounts, if any, which would have been payable to
the Alternate Payee during such period if the order had been determined to
constitute a Qualified Domestic Relations Order, provided that if no payments
would otherwise be made under the Plan to the Alternate Payee or to the
Participant or a Beneficiary of the Participant while the status of the order as
a Qualified Domestic Relations Order is being determined, no segregation into a
separate or escrow account shall be required. If a domestic relations order is
determined to be a Qualified Domestic Relations Order within eighteen (18)
months of the date of its receipt by the Committee (or from the beginning of any
other period during which the issue of its being a Qualified Domestic Relations
Order is being determined by the Committee) the Committee shall cause to be paid
to the persons entitled thereto the amounts, if any, held in the separate or
escrow account referred to above in one lump sum. If a domestic relations order
is determined not be a Qualified Domestic Relations Order, or if the status of
the domestic relations order as a Qualified Domestic Relations Order is not
finally resolved within such eighteen month period, the Committee shall cause
the separate account or escrow account balance to be returned, with interest
thereon, to the Participant's Account or to be paid to the person or persons to
whom such amount would have been paid if there had been no such domestic
relations order, whichever shall apply. Any subsequent determination that such
domestic relations order is a Qualified Domestic Relations Order shall be
prospective in effect only.
(d) (i) Benefits payable to an Alternate Payee shall be payable in one lump
sum and in no event shall such benefits continue beyond the lifetime of the
Alternate Payee. Such payment may be made at the time specified in the Qualified
Domestic Relations Order irrespective of whether the Participant has attained
the "earliest retirement age" (within the meaning of Section 414(p)(4)(B) of the
Code). In particular, no Alternate Payee shall have the right with respect to
any benefit payable by reason of a Qualified Domestic Relations Order to (A)
designate a beneficiary with respect to amounts becoming payable under the Plan,
(B) elect a method of benefit distribution providing for benefits continuing
beyond the Alternate Payee's lifetime, (C) provide survivorship benefits to a
spouse or dependent of such Alternate Payee or to any other person, spouse,
dependent or other person, or (D) transfer rights under the Qualified Domestic
Relations Order by will or by state law of intestacy.
(ii) None of the payments, benefits or rights of any Alternate Payee
shall be subject to any claim of any creditor, and, in particular, to the
fullest extent permitted by law, all such payments, benefits and rights
shall be free from attachment, garnishment, trustee's process, or any other
legal or equitable process available to any creditor of such Alternate
Payee. No Alternate Payee shall have the right to alienate, anticipate,
commute, pledge, encumber or assign any of the benefits or payments which
he or she may expect to receive, contingently or otherwise, under the Plan.
(iii) Alternate Payees shall not have any right to (A) borrow money
under any Participant loan provisions under the Plan, (B) exercise any
Participant investment direction rights or privileges under the Plan, (C)
exercise any other election, privilege, option or direction rights of the
Participant under the Plan except as specifically provided in the Qualified
Domestic Relations Order, or (D) receive communications with respect to the
Plan except as specifically provided by law, regulation or the Qualified
Domestic Relations Order.
(iv) Each Alternate Payee shall advise the Committee in writing of
each change of his or her name, address or marital status, and of each
change in the provisions of the Qualified Domestic Relations Order or any
circumstance set forth therein which may be material to the Alternate
Payee's entitlement to benefits thereunder or the amount thereof. Until
such written notice has been provided to the Committee, the Committee shall
be (A) fully protected in not complying with, and in conducting the affairs
of the Plan in a manner inconsistent with, the information set forth in the
notice, and (B) required to act with respect to such notice prospectively
only, and then only to the extent provided for in the Qualified Domestic
Relations Order. The Committee shall not be required to modify or reverse
any payment, transaction or application of funds occurring before the
receipt of any notice that would have affected such payment, transaction or
application of funds, nor shall the Committee or any other party be liable
for any such payment, transaction or application of funds.
(v) Except as specifically provided for in the Qualified Domestic
Relations Order, an Alternate Payee shall have no right to interfere with
the exercise by the Participant or by any Beneficiary of their respective
rights, privileges and obligations under the Plan.
(e) For purposes of this Plan, a Qualified Domestic Relations Order means
any judgment, decree, or order (including approval of a property settlement
agreement) which has been determined by the Committee in accordance with
procedures established under the Plan, to constitute a qualified domestic
relations order within the meaning of Section 414(p)(1) of the Code and
Alternate Payee means any person entitled to current or future payment of
benefits under the Plan pursuant to a Qualified Domestic Relations Order.
20.7 Inability to Locate Participant or Beneficiary. If the Committee
cannot ascertain the whereabouts of any person to whom a payment is due under
the Plan, and if, after five years from the date such payment is due, a notice
of such payment due is mailed to the last known address of such person, as shown
on the records of the Committee or the Employer, and within three months after
such mailing such person has not made written claim therefor, the Committee, if
it so elects, may direct that such payment and all remaining payments otherwise
due to such person be canceled on the records of the Plan and the amount thereof
applied to reduce the contributions of the Employer, and upon such cancellation,
the Plan and the Trust Fund shall, to the maximum extent permitted by the Act,
have no further liability therefor except that, in the event such person later
notifies the Committee of his or her whereabouts and requests the payment or
payments due to such person under the Plan, the amount so applied shall be paid
to him or her as provided in Section 11. All elections, designations, requests,
notices, instructions, and other communications from the Employer, a
Participant, Beneficiary, Surviving Spouse or other person to the Committee
required or permitted under the Plan shall be in such form as is prescribed from
time to time by the Committee, shall be mailed or delivered to such location as
shall be specified by the Committee, and shall be deemed to have been given and
delivered only upon actual receipt thereof by the Committee at such location.
20.8 Failure to Receive IRS Approval. Notwithstanding any other provision
herein, if this Plan shall not be approved by the IRS under the provisions of
the Code and the Regulations for any reason (including failure to comply with
any condition for such approval imposed by the IRS) contributions made after the
restatement of this Plan and prior to such denial shall be returned, without any
liability to any person, within one year after the date of denial of such
approval.
20.9 Contributions Conditioned on Deductibility. Notwithstanding any other
provision herein, all contributions to the Trust Fund are expressly conditioned
upon their deductibility under Section 404 of the Code and the Regulations, and
in the event of the final disallowance of the deduction for any contribution, in
whole or in part, then such contribution (to the extent the deduction is
disallowed) shall upon direction of the Committee, which shall be given in
conformity with the provisions of the Act, be returned, without liability to any
person, within one year after such final disallowance.
20.10 Mistake of Fact. Notwithstanding any other provisions herein, if any
contribution is made by a mistake of fact, such contribution shall upon the
direction of the Committee, which shall be given in conformity with the
provisions of the Act, be returned, without liability to any person, within one
year after the payment of such contribution.
20.11 Communications with Committee. All elections, designations, requests,
notices, instructions, and other communications from the Employer, a
Participant, Beneficiary, Surviving Spouse or other person to the Committee
required or permitted under the Plan shall be in such form as is prescribed from
time to time by such Committee, shall be mailed by first-class mail or delivered
to such location as shall be specified by such Committee, and shall be deemed to
have been given and delivered only upon actual receipt thereof by such Committee
at such location.
20.12 Communications with Participants and Beneficiaries. All notices,
statements, reports and other communications from the Employer or the Committee
to any Employee, Participant, Surviving Spouse, Beneficiary or other person
required or permitted under the Plan shall be deemed to have been duly given
when delivered to, or when mailed by first-class mail, postage prepaid and
addressed to, such Employee, Participant, Surviving Spouse, Beneficiary or other
person at his or her address last appearing on the records of the Committee.
20.13 Prior Service Credit. Upon such terms and conditions as the Committee
may approve, and subject to any required IRS approval, benefits may be provided
under the Plan to a Participant with respect to any period of the Participant's
prior employment by any organization, and such benefits (and any Service
credited with respect to such period of employment under Section 2.25) may be
provided for, in whole or in part, by funds transferred, directly or indirectly
(including a rollover from an individual retirement account), to the Trust Fund
from an employee benefit plan of such organization which qualified under Section
401(a) of the Code.
20.14 Gender and Number. Except where otherwise required by the context,
whenever used in the Plan the masculine gender includes the feminine and the
singular shall include the plural.
20.15 Headings. The captions preceding the Sections of the Plan have been
inserted solely as a matter of convenience and in no way define or limit the
scope or intent of any provisions of the Plan.
20.16 Governing Law. The Plan and all rights thereunder shall be governed
by and construed in accordance with the Act and, to the extent not inconsistent
therewith, the laws of the State of California.
20.17 Severability of Provisions. If any provision of the Plan shall be
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and the Plan shall be construed and enforced
as if such provisions had not been included.
20.18 Heirs, Assigns and Personal Representatives. The Plan shall be
binding upon the heirs, executors, administrators, successors and assigns of the
parties, including each Participant and Beneficiary, present and future and all
persons for whose benefit there exists any QDRO with respect to any Participant
(except that no successor to the Plan Sponsor shall be considered a Plan Sponsor
unless that successor adopts the Plan).
20.19 Reliance on Data and Consents. The Plan Sponsor, the Employer, each
participating Employer, the Board of Directors, the Committee, the Trustee, all
fiduciaries with respect to the Plan, and all other persons or entities
associated with the operation of the Plan, the management of its assets, and the
provision of benefits thereunder, may reasonably rely on the truth, accuracy and
completeness of all data provided by any Participant, Surviving Spouse,
Beneficiary, and Alternate Payee, including, without limitation, data with
respect to age, health and marital status. Furthermore, the Plan Sponsor, the
Employer, each participating Employer, the Board of Directors, the Committee,
the Trustee, and all fiduciaries with respect to the Plan may reasonably rely on
all consents, elections and designations filed with the Plan or those associated
with the operation of the Plan and its corresponding Trust by any Participant,
Surviving Spouse, Beneficiary, Alternate Payee, or any representative of any
such person, without duty to inquire into the genuineness of any such consent,
election or designation. None of the aforementioned persons or entities
associated with the operation of the Plan, its assets and the benefits provided
under the Plan shall have any duty to inquire into any such data, and all may
rely on such data being current to the date of reference, it being the duty of
the Participants, Surviving Spouses, Beneficiaries and Alternate Payees to
advise the appropriate parties of any change in such data.
20.20 Qualified Military Service. Notwithstanding any provision of this
Plan to the contrary, contributions, benefits and service credit with respect to
qualified military service will be provided in accordance with Section 414(u) of
the Code.
SECTION 21. APPLICATION TO PUERTO RICO EMPLOYEES
21.1 Modifications Applicable to Puerto Rico. The provisions of this
Section shall govern the application of the provisions of the Plan to
Participants who are employed by the Company in and are residents of the
Commonwealth of Puerto Rico ("Puerto Rico Participants"):
(a) Notwithstanding Section 2.25, the definition of "Highly Compensated
Participant" shall be a Puerto Rico Participant employed by the Company who
receives Compensation that exceeds the Compensation paid to two thirds of the
Puerto Rico Participants, as provided in Section 165(e) of the Puerto Rico
Income Tax Act;
(b) The following shall apply in lieu of the second sentence of Section
5.1(a) hereof: The Salary Reduction Agreement shall provide for Elective
Contributions equal to any whole percentage between one percent (1%) and ten
Percent (10%) of a Participant's Compensation in any payroll period, not to
exceed $7,500 (reduced by any contributions made by the Participant to an IRA)
in any calendar year;
(c) The Actual Deferral Percentage Test set forth in Section 5.3 shall be
applied separately with respect to Puerto Rico Participants. For purposes of
applying the Actual Deferral Percentage Test to Puerto Rico Participants, the
definition of Highly Compensated Employee contained in subparagraph (a) hereof
shall be used; and
(d) For purposes of applying subparagraphs (b) and (c) of this Section
21.1, the definition of Compensation contained in Section 2.11 shall be applied
without regard to clause (xii) thereof.
In all other respects, the terms of this Plan shall apply to Puerto Rico
Participants.
Exhibit 10.169
THIRD AMENDMENT TO THE TRUST AGREEMENT
FOR THE CHARLES SCHWAB
PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN
The Trust Agreement for the Charles Schwab Profit Sharing and Employee
Stock Ownership Plan ("Plan"), which was amended and restated in its entirety
effective November 1, 1990, and further amended effective January 1, 1992 and
July 1, 1992, is hereby amended as follows, effective as of January 1, 1996:
The fifth sentence of Section 5.05(f) is amended to read as follows:
Any allocated Employer Securities with respect to which
Participants are entitled to issue directions pursuant to the foregoing and for
which such directions are not received by the Purchasing Agent shall be voted by
the Purchasing Agent in the same proportion as the shares of Employer Securities
for which Participant voting instructions have been received.
CHARLES SCHWAB & CO., INC.
By: /s/ Luis E. Valencia
Its: CAO
Date: May 8, 1996
THE CHARLES SCHWAB TRUST COMPANY
By: /s/ Richard R. Tinervin
Its: President and CEO
Date: May 3, 1996
Exhibit 10.170
THE CHARLES SCHWAB CORPORATION
1992 STOCK INCENTIVE PLAN
(Restated to include Amendments through May 12, 1997)
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 Non-Employee Directors, who shall be
appointed by the Board.
2.2 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 29,150,000 (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. Key Employees and Non-Employee Directors shall be
eligible for designation as Participants by the Committee.
4.2 Non-Employee Directors. In addition to any awards pursuant to Section
4.1, Non-Employee Directors shall be entitled to receive the automatic NSOs
described in this Section 4.2.
(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 Participant'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; provided that upon an Optionee's Retirement, the
exercisability of all outstanding Options shall be accelerated, other than any
Options that had been granted within two years of the date of the Optionee's
Retirement. 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. 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.
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 or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the issuance of such Common Shares, whether
by issuance of a certificate, book entry or other procedure. 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.
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.
16.28. "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.
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 10.171
THE CHARLES SCHWAB CORPORATION
1992 STOCK INCENTIVE PLAN
RESTRICTED SHARES AWARD AGREEMENT
THIS AGREEMENT is entered into between The Charles Schwab Corporation, a
Delaware corporation (the "Company") and ____ (the "Employee").
WITNESSETH:
WHEREAS, the Company has adopted The Charles Schwab Corporation 1992 Stock
Incentive Plan (the "Plan"), which provides for the granting of restricted
shares of Common Stock of the Company ("Restricted Shares") to key employees of
the Company and its Subsidiaries; and
WHEREAS, the Compensation Committee of the Board of Directors of the
Company (the "Committee"), which is responsible for the administration of the
Plan, has authorized the granting of an award of Restricted Shares to the
Employee, effective as of _____________________; and
WHEREAS, this Agreement is prepared in conjunction with and pursuant to the
terms of the Plan and, although all of the terms of the Plan and the definitions
used in this Plan have not been set forth herein, such terms and definitions are
incorporated herein and made a part hereof by reference, and, except as
otherwise expressly stated herein, the provisions of the Plan shall govern any
interpretation of this Agreement; and
WHEREAS, the Employee has accepted the grant of Restricted Shares and
agreed to the terms and conditions hereinafter stated;
NOW, THEREFORE, the Employee and the Company agree to the provisions set
forth in the Agreement. The Employee signifies agreement with all of the terms
and conditions of this Agreement by failing to provide written objection to the
Company to any of the terms hereunder within 30 days of receipt of this
Agreement, and in any event by accepting any dividends paid with respect to the
Restricted Shares granted hereunder.
1. Grant of Restricted Shares. The Company hereby grants to the Employee,
as a separate incentive in connection with his or her employment and not in lieu
of any salary or other cash compensation for his or her services, an award of
____ Restricted Shares, effective_____________, subject to all the terms and
conditions in this Agreement and the Plan.
2. Restriction on Transfer. The Restricted Shares awarded pursuant to this
Agreement shall be issued in the name of The Employee and held by the Secretary
of the Company as escrow agent (the "Escrow Agent"), and shall not be sold,
transferred, otherwise disposed of, pledged or otherwise hypothecated until the
date such Restricted Shares become vested pursuant to paragraph 3 hereof (the
"Restriction on Transfer"). The Company may instruct the transfer agent for its
Common Stock to place a legend on the certificates representing the Restricted
Shares or otherwise note its records as to the restrictions on transfer set
forth in this Agreement and the Plan. The certificate or certificates
representing such shares shall be delivered by the Escrow Agent to The Employee
only after the shares become vested on the date specified in paragraph 3 and
after all other terms and conditions in this Agreement have been satisfied.
3. Vesting of Shares. The Restricted Shares awarded by this Agreement shall
become vested as follows: Effective as of the date hereof (the "Grant Date"),
the Restricted Shares shall be 0% vested. If the Employee is employed for a
continuous period beginning on the date hereof and ending on the third
anniversary of the Grant Date, 50% of the Restricted Shares shall become vested.
If the Employee shall continue to be employed for a continuous period ending on
the fourth anniversary of the Grant Date, an additional 50% of the Restricted
Shares shall become vested, so that at such time all of the Restricted Shares
subject to this Agreement shall be then vested. Notwithstanding the foregoing,
in the event of the Employee's Retirement after the second anniversary of the
Grant Date, 100% of the Restricted Shares shall be then vested. For purposes of
this Agreement, Retirement shall mean a termination of employment of the
Employee at any time after the Employee (i) has attained fifty (50) years of
age, and (ii) has completed seven (7) years of service, as determined pursuant
to the terms of the Charles Schwab Profit Sharing and Employee Stock Ownership
Plan. Notwithstanding the foregoing, however, the accrual of vesting pursuant to
this paragraph is contingent upon the Employee's satisfactory job performance,
and the Company may, in its sole discretion, upon notice to the Employee,
suspend or delay the vesting of the Restricted Shares hereunder for any period
of time in the event that the Company determines, within its sole discretion,
that the Employee's performance is unsatisfactory. Upon the vesting of
Restricted Shares hereunder, the certificate or certificates representing such
Restricted Shares shall be delivered to the Employee.
4. Change in Control. Upon the determination of the Committee that a Change
in Control of the Company has occurred, or in the event of the liquidation or
dissolution of the Company, the Restricted Shares shall become fully vested and
the Restriction on Transfer shall be lifted, notwithstanding any other provision
of this Agreement, and the certificate or certificates representing such
Restricted Shares shall be delivered to the Employee.
5. Discretion of Committee. The Committee may decide, in its absolute
discretion, to lift at any time the Restriction on Transfer or to accelerate the
vesting of the Restricted Shares, and the certificate or certificates
representing such Restricted Shares shall be delivered to the Employee.
6. Delivery of Shares to Estate of Deceased Employee. Any distribution or
delivery to be made to the Employee under this Agreement shall, if the Employee
is then deceased, be made to the Employee's estate in accordance with the terms
of Section 7.5 of the Plan.
7. Conditions to Issuance of Shares. The Restricted Shares deliverable to
the Employee may be either previously authorized but unissued shares or issued
shares which have been reacquired by the Company. The Company shall not be
required to issue any certificate or certificates for Restricted Shares
hereunder prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed;
(b) The completion of any registration or other qualification of such
shares under any State or federal law or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental
regulatory body, which the Committee shall, in its absolute discretion,
deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any State or
federal governmental agency, which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The lapse of such reasonable period of time following the date of
the grant of the Restricted Shares as the Committee may establish from time
to time for reasons of administrative convenience.
Neither the Employee nor any person claiming under or through the
Employee shall be, or have any of the rights or privileges of, a
stockholder of the Company in respect of any Restricted Shares deliverable
hereunder unless and until certificates representing such shares shall have
been issued, recorded on the records of the Company or its transfer agents
or registrars, and delivered to the Employee or the Escrow Agent. Except as
provided in paragraph 8, after such issuance, recordation and delivery, the
Employee shall have all rights of a stockholder of the Company with respect
to voting such Restricted Shares and receipt of dividends and distributions
on such Restricted Shares.
8. Certain Adjustments to Shares. In the event that as a result of a stock
dividend, stock split, reclassification, recapitalization, combination of shares
or the adjustment in capital stock of the Company or otherwise, or as a result
of a merger, consolidation, spin-off or other reorganization, the Company's
Common Stock shall be increased, reduced or otherwise changed, and by virtue of
any such change the Employee shall in his or her capacity as owner of Restricted
Shares which have been awarded to him or her (the "Prior Shares") be entitled to
new or additional or different shares or securities (other than rights or
warrants to purchase securities), such new or additional or different shares or
securities shall thereupon be considered to be Restricted Shares and shall be
subject to all of the conditions and restrictions which were applicable to the
Prior Shares pursuant to the Plan. If the Employee receives rights or warrants
with respect to any Prior Shares, such rights or warrants may be held or
exercised by the Employee, provided that until such exercise any such rights or
warrants and after such exercise any shares or other securities acquired by the
exercise of such rights or warrants shall be considered to be Restricted Shares
and shall be subject to all of the conditions and restrictions which were
applicable to the Prior Shares pursuant to the Plan. The Committee in its
absolute discretion at any time may lift the Restriction on Transfer of all or
any portion of such new or additional shares of stock or securities, rights or
warrants to purchase securities or shares or other securities acquired by the
exercise of such rights or warrants.
9. Contribution of Par Value to Capital of the Company. Notwithstanding the
provisions of Section 7.2 of the Plan, the Company will contribute to the
capital of the Company on behalf of the Employee, as an Award recipient, an
amount equal to the par value of the Restricted Shares issued to the Employee
hereunder.
10. Tax Withholding. To the extent required by applicable federal, state,
local or foreign law, the Employee shall make arrangements satisfactory to the
Company for the satisfaction of any withholding tax obligations that arise by
reason of the awarding or vesting of the Restricted Shares hereunder, or by
reason of any election made by the Employee pursuant to Section 83(b) of the
Internal Revenue Code, and no Share certificates shall be issued to the Employee
unless such obligation is satisfied.
11. Plan Shall Control. This Agreement is subject to all the terms and
provisions of the Plan. In the event of a conflict between any provisions of
this Agreement and any provisions of the Plan, the provisions of the Plan shall
govern. Terms used in this Agreement that are not defined in this Agreement
shall have the meaning set forth in the Plan.
12. Powers of the Committee. The Committee shall have the power to
interpret and construe the Plan and this Agreement and to adopt such rules for
the administration, interpretation and application of the Plan as are consistent
therewith and to interpret or revoke any such rules. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon the Employee, the Employee's estate, the Company and all
other interested persons. No member of the Committee shall be personally liable
for any action, determination or interpretation made in good faith with respect
to the Plan or this Agreement.
13. No Effect on Other Benefit Plans. Nothing herein contained shall affect
the Employee's right to participate in and receive benefits under and in
accordance with the then current provisions of any pension, insurance or other
Employee welfare plan or program of the Company or any Subsidiary.
14. Nonassignability. So long as the Restriction on Transfer is in effect,
the Restricted Shares herein granted and the rights and privileges conferred
hereby shall not be transferred, assigned, pledged or hypothecated in any way
(whether by operation or law or otherwise) and shall not be subject to sale
under execution, attachment or similar process. Upon any attempt to transfer,
assign, pledge, hypothecate or otherwise dispose of such award or any right or
privilege conferred hereby, contrary to the provisions hereof, or upon any
attempted sale under any execution, attachment or similar process upon the
rights and privileges conferred hereby, such award and the rights and privileges
conferred hereby shall immediately become null and void.
15. Successors and Assigns. Subject to the limitation on the
transferability of the Restricted Shares contained herein, this Agreement shall
be binding upon and inure to the benefit of the heirs, legatees, legal
representatives, successor and assigns of the Employee and the Company.
16. Notices. Any notice to be given to the Company under the terms of this
Agreement shall be addressed to the Company, in care of its Secretary, at 101
Montgomery Street, San Francisco, California 94104, or at such other address as
the Company may hereafter designate in writing. Any notice to be given to the
Employee shall be addressed to the Employee at the address set forth beneath the
Employee's signature hereto, or at such other address as the Employee may
hereafter designate in writing. Any such notice shall be deemed to have been
duly given if and when enclosed in a properly sealed envelope, addressed as
aforesaid, registered or certified and deposited, postage and registry fee
prepaid, in a United States post office.
17. Severability. In the event that any provision of this Agreement shall
be held invalid or unenforceable, such provision shall be severable from, and
such invalidity or unenforceability shall not be construed to have any effect
on, the remaining provisions of this Agreement.
18. Governing Law. This Agreement shall be construed in accordance with the
laws of the State of California.
Exhibit 10.172
THE CHARLES SCHWAB CORPORATION
1992 STOCK INCENTIVE PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into as of ______________________ between THE
CHARLES SCHWAB CORPORATION, a Delaware corporation (the "Company"), and ______
(the "Optionee").
W I T N E S S E T H:
WHEREAS, the Board has adopted and the stockholders of the Company have
approved The Charles Schwab Corporation 1992 Stock Incentive Plan, as amended
(the "Plan") in order to provide selected Key Employees and Non-Employee
Directors with an opportunity to acquire Common Shares; and
WHEREAS, the Committee has determined that the Optionee is a Key Employee
and that it would be in the best interests of the Company and its stockholders
to grant the stock option described in this Agreement (the "Option") to the
Optionee as an inducement to enter into or remain in the service of the Company
or its subsidiaries and as an incentive for extraordinary efforts during such
service:
NOW, THEREFORE, the Optionee and the Company agree to the provisions set
forth in this Agreement. The Optionee signifies agreement with all of the terms
and conditions of this Agreement by failing to provide written objection to the
Company to any of the terms hereunder within 30 days of receipt of this
Agreement, and in any event by exercising an Option granted hereunder.
SECTION 1. GRANT OF OPTION.
(a) Option. On the terms and conditions stated below, the Company hereby
grants to the Optionee the option to purchase _____ Common Shares for the amount
of $_____ per Common Share (the "Exercise Price"), which is agreed to be 100% of
the Fair Market Value thereof on the Date of Grant. The number of Common Shares
subject to this Option and the Exercise Price shall be subject to adjustment
under certain limited circumstances as provided in Article 10 of the Plan.
(b) 1992 Stock Incentive Plan. This Option is granted pursuant to the Plan,
the provisions of which are incorporated into this Agreement by reference, and a
copy of which is available upon request at no charge to the Optionee from the
Company. In the event of any inconsistency between the provisions of the Plan
and the provisions of this Agreement, the provisions of the Plan shall prevail.
(c) Tax Treatment. This Option is not intended to qualify as an incentive
stock option described in Section 422(b) of the Code.
(d) Expiration Date. Notwithstanding any other provision contained herein,
this Option shall expire not later than the date immediately preceding the tenth
anniversary of the Date of Grant.
SECTION 2. NO TRANSFER OR ASSIGNMENT OF OPTION.
Except as otherwise provided in this Agreement or as permitted by the Plan,
this Option, and any interest therein, shall not be transferred, assigned,
pledged or hypothecated in any way (whether by operation of law or otherwise)
and shall not be subject to sale under execution, attachment or similar process.
SECTION 3. RIGHT TO EXERCISE OPTION.
(a) Vesting. This Option shall become exercisable by the Optionee with
respect to the total number of Common Shares subject to this Option as set forth
under Section 1(a) above (the "Total Award Common Shares"), subject to the
continued employment of the Optionee by the Company or its subsidiaries on each
date either set forth below, and subject to the provisions of Section 3(e)
hereof, in annual increments of the Total Award Common Shares beginning on the
first anniversary of the Date of Grant, such that (i) no portion of this Option
will be exercisable prior to such first anniversary of the Date of Grant; (ii)
upon and after such first anniversary of the Date of Grant, the Optionee may
purchase up to twenty-five percent (25%) of the Total Award Common Shares,
provided the optionee has been continually employed by the Company or its
subsidiaries since the date of grant; (iii) upon and after the second, third and
fourth anniversaries of the Date of Grant, respectively, the Optionee may
purchase an additional twenty-five percent (25%) of the Total Award Common
Shares, provided in each case that the Optionee has been continually employed by
the Company or its subsidiaries since the Date of Grant.
(b) Minimum Number of Shares. This Option shall be exercisable for at least
100 Common Shares (without regard to adjustments to the number of Common Shares
subject to this Option pursuant to Article 10 of the Plan) or, if less, (i) the
number of shares with respect to which this Option has become vested under
Section 3(a) above, or (ii) all of the remaining Common Shares subject to this
Option.
(c) Full Vesting on Change in Control. Notwithstanding subparagraph (a)
hereof, this Option shall become fully exercisable as to the Total Award Common
Shares immediately preceding any Change in Control with respect to the Company.
In the event that the Committee determines that a Change in Control is likely to
occur, the Company shall so advise the Optionee, and the provisions of this
subparagraph (c) shall take effect as of the date ten (10) days prior to the
anticipated date of such Change in Control.
(d) Accelerated Vesting on Retirement in Certain Cases. Notwithstanding
subparagraph (a) hereof, if the Optionee terminates employment with the Company
and its subsidiaries on account of Retirement, all options granted hereunder
shall become fully exerciseable, but only if such retirement occurs at least two
(2) years after the date of grant.
(e) Vesting Contingent on Satisfactory Performance. Notwithstanding
subparagraph (a) hereof, the continued accrual of vesting pursuant to
subparagraph (a) is contingent upon the Optionee's satisfactory job performance,
and the Company may, in its sole discretion, upon notice to the Optionee suspend
or delay the vesting of Options hereunder for any period of time in the event
that the Company determines, within its sole discretion, that the Optionee's
performance is unsatisfactory.
SECTION 4. EXERCISE OF OPTION.
(a) Notice of Exercise. The Optionee or the Optionee's representative may
exercise this Option by giving written notice to the Company (or its designee)
pursuant to Section 9(d). The notice shall specify the election to exercise this
Option, the date of exercise, the number of Common Shares for which it is being
exercised and the form of payment. The notice shall be signed by the person or
persons exercising this Option. In the event that this Option is being exercised
by the representative of the Optionee, the notice shall be accompanied by proof
satisfactory to the Company of the representative's right to exercise this
Option. The Purchase Price for Common Shares shall be paid in a form that
conforms to Sections 6.1 through 6.3 of the Plan at the time such notice is
given.
(b) Issuance of Shares. After receiving a proper notice of exercise, the
Company shall cause to be issued a certificate or certificates for the Common
Shares so purchased, registered in the name of the person exercising this
Option. The Company shall cause such certificate or certificates to be delivered
to or upon the order of the person exercising this Option.
SECTION 5. TERM.
(a) Basic Term. This Option shall in any event expire on the date specified
in Section 1(d).
(b) Termination of Employment. Subject only to the provisions of Section
3(d), upon the Optionee's termination of employment with the Company and its
subsidiaries for any reason, whether as a result of death, Permanent Disability
or any other involuntary or voluntary event of termination of employment
(including a termination of employment as may be provided for or determined
under an employment contract, if any, entered into between the Company or its
subsidiary and the Optionee) (each, a "Termination Event"), no unvested portion
of the Total Award Common Shares thereafter shall vest or become exercisable.
With respect to the vested or exercisable portion of the Total Award Common
Shares as of the date of such a Termination Event, this Option shall expire on
the earlier of (i) the expiration date specified in Section 1(d) or (ii)
whichever of the following is applicable: (A) in the case of a Termination Event
resulting from death or Permanent Disability, the date one year following such
Termination Event; (B) in the case of a Termination Event resulting from
Retirement, the date two years following such Termination Event; or (C) in all
other cases, the date three (3) months following such Termination Event.
(c) Divestment of Options. Notwithstanding anything to the contrary
contained herein, this Option shall immediately become forfeited and expire in
the event that the Company terminates the Optionee's employment on account of
conduct inimical to the best interests of the Company, including, without
limitation, conduct constituting a violation of law or Company policy, fraud,
theft, conflict of interest, dishonesty or harassment. The determination whether
the Optionee's employment has been terminated on account of conduct inimical to
the best interests of the Company shall be made by the Company in its sole
discretion.
SECTION 6. LEGALITY OF INITIAL ISSUANCE.
No Common Shares shall be issued upon the exercise of this Option unless
and until the Company has determined that:
(a) A registration statement for the Common Shares is effective under
the Securities Act or an exemption from the registration requirements
thereof has been perfected;
(b) Any applicable listing requirement of any stock exchange on which
Common Shares are listed has been satisfied; and
(c) Any other applicable provisions of state or federal law have been
satisfied.
SECTION 7. NO REGISTRATION RIGHTS.
The Company may, but shall not be obligated to, register or qualify the
Common Shares for resale or other disposition by the Optionee under the
Securities Act or any other applicable law.
SECTION 8. RESTRICTIONS ON TRANSFER OF SHARES.
(a) Restrictions. Regardless of whether the offering and sale of Common
Shares under the Plan have been registered under the Securities Act or have been
registered or qualified under the securities laws of any state, the Company may
impose restrictions upon the sale, pledge or other transfer of such Common
Shares (including the placement of appropriate legends on stock certificates)
if, in the judgment of the Company and its counsel, such restrictions are
necessary or desirable in order to achieve compliance with the provisions of the
Securities Act, the securities laws of any state or any other law.
(b) Investment Intent at Exercise. If the Common Shares under the Plan are
not registered under the Securities Act but an exemption is available which
requires an investment representation or other representation, the Optionee
shall represent and agree at the time of exercise that the Common Shares being
acquired upon exercising this Option are being acquired for investment, and not
with a view to the sale or distribution thereof, and shall make such other
representations as are deemed necessary or appropriate by the Company and its
counsel.
(c) Administration. Any determination by the Company and its counsel in
connection with any of the matters set forth in this Section 8 shall be
conclusive and binding on the Optionee and all other persons.
SECTION 9. MISCELLANEOUS PROVISIONS.
(a) Withholding Taxes. To the extent required by applicable federal, state,
local or foreign law, the Optionee shall make arrangements satisfactory to the
Company for the satisfaction of any withholding tax obligations that arise by
reason of the exercise of an Option hereunder, and no Option may be exercised
unless such obligation is satisfied.
(b) Rights as a Stockholder. Neither the Optionee nor the Optionee's
representative shall have any rights as a stockholder with respect to any Common
Shares subject to this Option until certificates for such Common Shares have
been issued in the name of the Optionee or the Optionee's representative.
(c) No Employment Rights. Nothing in this Agreement shall be construed as
giving the Optionee the right to be retained as an employee of the Company or
its subsidiaries. The Company reserves the right to terminate the Optionee's
employment at any time for any reason, subject only to the terms of any written
employment contract entered into between the Company and the Optionee.
(d) Notice. Any notice required by the terms of this Agreement shall be
given in writing and shall be deemed effective upon personal delivery or upon
deposit with the appropriate postal service, by registered or certified mail
with postage and fees prepaid and addressed to the party entitled to such notice
at the address shown below such party's signature on this Agreement, or at such
other address as such party may designate by ten (10) days advance written
notice to the other party to this Agreement. Notwithstanding the foregoing, no
notice of exercise, as required by Section 4(a), shall be effective until actual
receipt thereof by the Company or its designee.
(e) Entire Agreement. This Agreement and the Plan constitute the entire
agreement between the parties hereto with regard to the subject matter hereof;
provided, however, that in the event of any inconsistency or conflict between
any provision hereof and the terms of the Plan, the terms of the Plan shall
control.
(f) Choice of Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California, as such laws are applied
to contracts entered into and performed in such State.
SECTION 10. DEFINITIONS.
(a) Capitalized terms defined in the Plan shall have the same meaning when
used in this Agreement.
(b) "Change in Control" shall mean the occurrence of any of the following
events after the effective date of the Plan as set out in Section 15.1 of the
Plan:
(1) A change in control required to be reported pursuant to Item 6(e)
of Schedule 14A of Regulation 14A under the Securities Exchange Act of
1934, as amended (the "Exchange Act");
(2) A change in the composition of the Company's Board of Directors
(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;
(3) 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.
(c) "Common Share" shall mean one share of the common stock of the Company.
(d) "Date of Grant" shall mean the date of this Agreement, which is the
date first written above.
(e) "Fair Market Value" shall mean the market price of a Common Share,
determined by the Committee as follows:
(1) 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;
(2) 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;
(3) 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
(4) 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.
(f) "Permanent Disability" shall mean that the Optionee is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which has lasted, or can be expected to last, for
a continuous period of not less than twelve (12) months or which can be expected
to result in death.
(g) "Purchase Price" shall mean the Exercise Price multiplied by the number
of Common Shares with respect to which this Option is being exercised.
(h) "Retirement" shall mean a termination of employment of the Optionee
occurring at any time after the Optionee (i) has attained fifty (50) years of
age, and (ii) completed seven (7) years of service, as determined pursuant to
the terms of the Charles Schwab Profit Sharing and Employee Stock Ownership
Plan.
(i) "Securities Act" shall mean the Securities Act of 1933, as amended.
Exhibit 10.173
THE CHARLES SCHWAB CORPORATION
1992 STOCK INCENTIVE PLAN
NONSTATUTORY STOCK OPTION AND PERFORMANCE UNIT AGREEMENT
THIS AGREEMENT is entered into as of ______________________ between THE
CHARLES SCHWAB CORPORATION, a Delaware corporation (the "Company"), and _______
(the "Optionee").
W I T N E S S E T H:
WHEREAS, the Board has adopted and the stockholders of the Company have
approved The Charles Schwab Corporation 1992 Stock Incentive Plan, as amended
(the "Plan") in order to provide selected Key Employees and Non-Employee
Directors with an opportunity to acquire Common Shares; and
WHEREAS, the Committee has determined that the Optionee is a Key Employee
and that it would be in the best interests of the Company and its stockholders
to grant the stock option described in this Agreement (the "Option") and the
Performance Units described in this Agreement (the "Performance Units") to the
Optionee as an inducement to enter into or remain in the service of the Company
or its subsidiaries and as an incentive for extraordinary efforts during such
service:
NOW, THEREFORE, the Optionee and the Company agree to the provisions set
forth in this Agreement. The Optionee signifies agreement with all of the terms
and conditions of this Agreement by failing to provide written objection to the
Company to any of the terms hereunder within 30 days of receipt of this
Agreement, and in any event by exercising an Option or a Performance Unit
granted hereunder.
SECTION 1. GRANT OF OPTION AND PERFORMANCE UNITS.
(a) Option. On the terms and conditions stated below, the Company hereby
grants to the Optionee the option to purchase _____ Common Shares for the amount
of $_____ per Common Share (the "Exercise Price"), which is agreed to be 100% of
the Fair Market Value thereof on the Date of Grant. The number of Common Shares
subject to this Option and the Exercise Price shall be subject to adjustment
under certain limited circumstances as provided in Article 10 of the Plan.
(b) Performance Units. On the terms and conditions stated below, the
Company hereby grants to the Optionee ___ Performance Units, as defined herein.
Each Performance Unit shall entitle the Optionee to a cash payment, equal to the
Net Performance Unit Value, determined as of the most recent valuation. Net
Performance Unit Value shall be determined on an annual basis (or at more
frequent intervals as the Company may determine from time to time in its sole
discretion), and shall be communicated to the Optionee within a reasonable time
following the determination of such value.
(c) Tandem Issuance of Option and Performance Units. Each Performance Unit
shall be issued in tandem with an Option to acquire one share hereunder, so that
the exercise of a Performance Unit will result in the cancellation of the Option
associated with such Performance Unit, and the exercise of an Option will result
in the cancellation of the Performance Unit associated with such Option.
Performance Units will expire on the date three (3) months following the fifth
anniversary of the date the Performance Unit was granted. Upon the expiration of
a Performance Unit, the Option associated with such Performance Unit shall
remain exercisable until such Option otherwise expires pursuant to the terms of
this Agreement.
(d) 1992 Stock Incentive Plan. This Option is granted pursuant to the Plan,
the provisions of which are incorporated into this Agreement by reference, and a
copy of which is available upon request at no charge to the Optionee from the
Company. In the event of any inconsistency between the provisions of the Plan
and the provisions of this Agreement, the provisions of the Plan shall prevail.
(e) Tax Treatment. This Option is not intended to qualify as an incentive
stock option described in Section 422(b) of the Code.
(f) Expiration Date. Notwithstanding any other provision contained herein,
this Option shall expire not later than the date immediately preceding the tenth
anniversary of the Date of Grant.
SECTION 2. NO TRANSFER OR ASSIGNMENT OF OPTION.
Except as otherwise provided in this Agreement or as permitted by the Plan,
this Option, and any interest therein, shall not be transferred, assigned,
pledged or hypothecated in any way (whether by operation of law or otherwise)
and shall not be subject to sale under execution, attachment or similar process.
SECTION 3. RIGHT TO EXERCISE OPTION AND PERFORMANCE UNITS.
(a) Vesting. This Option shall become exercisable by the Optionee with
respect to the total number of Common Shares subject to this Option as set forth
under Section 1(a) above (the "Total Award Common Shares"), subject to the
continued employment of the Optionee by the Company or its subsidiaries on each
date either set forth below, and subject to the provisions of Section 3(e)
hereof, in annual increments of the Total Award Common Shares beginning on the
first anniversary of the Date of Grant, such that (i) no portion of this Option
will be exercisable prior to such first anniversary of the Date of Grant; (ii)
upon and after such first anniversary of the Date of Grant, the Optionee may
purchase up to twenty-five percent (25%) of the Total Award Common Shares,
provided the optionee has been continually employed by the Company or its
subsidiaries since the date of grant; (iii) upon and after the second, third and
fourth anniversaries of the Date of Grant, respectively, the Optionee may
purchase an additional twenty-five percent (25%) of the Total Award Common
Shares, provided in each case that the Optionee has been continually employed by
the Company or its subsidiaries since the Date of Grant.
(b) Minimum Number of Shares and Performance Units. This Option shall be
exercisable for at least 100 Common Shares (without regard to adjustments to the
number of Common Shares subject to this Option pursuant to Article 10 of the
Plan) or, if less, (i) the number of shares with respect to which this Option
has become vested under Section 3(a) above, or (ii) all of the remaining Common
Shares subject to this Option. Performance Units shall be exercisable in minimum
increments of 100 or, if less, (i) the number of Performance Units which have
become vested under Section 3(a) above or (ii) all of the remaining Performance
Units granted hereunder.
(c) Full Vesting on Change in Control. Notwithstanding subparagraph (a)
hereof, this Option shall become fully exercisable as to the Total Award Common
Shares, and all Performance Units granted hereunder shall become fully
exercisable, immediately preceding any Change in Control with respect to the
Company. In the event that the Committee determines that a Change in Control is
likely to occur, the Company shall so advise the Optionee, and the provisions of
this subparagraph (c) shall take effect as of the date ten (10) days prior to
the anticipated date of such Change in Control.
(d) Accelerated Vesting on Retirement in Certain Cases. Notwithstanding
subparagraph (a) hereof, if the Optionee terminates employment with the Company
and its subsidiaries on account of Retirement, all options and Performance Units
granted hereunder shall become fully exerciseable, but only if such retirement
occurs at least two (2) years after the date of grant.
(e) Vesting Contingent on Satisfactory Performance. Notwithstanding
subparagraph (a) hereof, the continued accrual of vesting pursuant to
subparagraph (a) is contingent upon the Optionee's satisfactory job performance,
and the Company may, in its sole discretion, upon notice to the Optionee suspend
or delay the vesting of Options and Performance Shares hereunder for any period
of time in the event that the Company determines, within its sole discretion,
that the Optionee's performance is unsatisfactory.
SECTION 4. EXERCISE OF OPTION AND PERFORMANCE UNITS.
(a) Notice of Exercise. The Optionee or the Optionee's representative may
exercise this Option or any Performance Units by giving written notice to the
Company or its designee pursuant to Section 9(d). The notice shall specify the
election to exercise this Option and/or Performance Units (as the case may be),
the date of exercise, the number of Common Shares for which the Option is being
exercised, the number of Performance Units being exercised, and the form of
payment (if this Option is being exercised). The notice shall be signed by the
person or persons exercising this Option or Performance Units. In the event that
this Option or Performance Units are being exercised by the representative of
the Optionee, the notice shall be accompanied by proof satisfactory to the
Company of the representative's right to exercise this Option. The Purchase
Price for Common Shares shall be paid in a form that conforms to Sections 6.1
through 6.3 of the Plan at the time such notice is given.
(b) Issuance of Shares. After receiving a proper notice of exercise of an
Option, the Company shall cause to be issued a certificate or certificates for
the Common Shares so purchased, registered in the name of the person exercising
this Option. The Company shall cause such certificate or certificates to be
delivered to or upon the order of the person exercising this Option.
(c)Exercise of Performance Unit. After receiving a proper notice of
exercise of Performance Units, the Company shall cause to be paid to the
Optionee, within one month of exercise, an amount equal to the Net Performance
Unit Value for each Performance Unit so exercised, less any applicable tax
withholdings.
SECTION 5. TERM.
(a) Basic Term. This Option shall in any event expire on the date specified
in Section 1(f).
(b) Termination of Employment. Subject only to the provisions of Section
3(d), upon the Optionee's termination of employment with the Company and its
subsidiaries for any reason, whether as a result of death, Permanent Disability
or any other involuntary or voluntary event of termination of employment
(including a termination of employment as may be provided for or determined
under an employment contract, if any, entered into between the Company or its
subsidiary and the Optionee) (each, a "Termination Event"), no unvested portion
of the Total Award Common Shares or Performance Units thereafter shall vest or
become exercisable. With respect to the vested or exercisable portion of the
Total Award Common Shares or Performance Units as of the date of such a
Termination Event, this Option shall expire on the earlier of (i) the expiration
date specified in Section 1(f) or (ii) whichever of the following is applicable:
(A) in the case of a Termination Event resulting from death or Permanent
Disability, the date one year following such Termination Event; (B) in the case
of a Termination Event resulting from Retirement, the date two years following
such Termination Event; or (C) in all other cases, the date three (3) months
following such Termination Event.
(c) Divestment of Options. Notwithstanding anything to the contrary
contained herein, this Option and all Performance Units shall immediately become
forfeited and expire in the event that the Company terminates the Optionee's
employment on account of conduct inimical to the best interests of the Company,
including, without limitation, conduct constituting a violation of law or
Company policy, fraud, theft, conflict of interest, dishonesty or harassment.
The determination whether the Optionee's employment has been terminated on
account of conduct inimical to the best interests of the Company shall be made
by the Company in its sole discretion.
SECTION 6. LEGALITY OF INITIAL ISSUANCE.
No Common Shares shall be issued upon the exercise of this Option unless
and until the Company has determined that:
(a) A registration statement for the Common Shares is effective
under the Securities Act or an exemption from the registration
requirements thereof has been perfected;
(b) Any applicable listing requirement of any stock exchange on
which Common Shares are listed has been satisfied; and
(c) Any other applicable provisions of state or federal law have
been satisfied.
SECTION 7. NO REGISTRATION RIGHTS.
The Company may, but shall not be obligated to, register or qualify the
Common Shares for resale or other disposition by the Optionee under the
Securities Act or any other applicable law.
SECTION 8. RESTRICTIONS ON TRANSFER OF SHARES.
(a) Restrictions. Regardless of whether the offering and sale of Common
Shares under the Plan have been registered under the Securities Act or have been
registered or qualified under the securities laws of any state, the Company may
impose restrictions upon the sale, pledge or other transfer of such Common
Shares (including the placement of appropriate legends on stock certificates)
if, in the judgment of the Company and its counsel, such restrictions are
necessary or desirable in order to achieve compliance with the provisions of the
Securities Act, the securities laws of any state or any other law.
(b) Investment Intent at Exercise. If the Common Shares under the Plan are
not registered under the Securities Act but an exemption is available which
requires an investment representation or other representation, the Optionee
shall represent and agree at the time of exercise that the Common Shares being
acquired upon exercising this Option are being acquired for investment, and not
with a view to the sale or distribution thereof, and shall make such other
representations as are deemed necessary or appropriate by the Company and its
counsel.
(c) Administration. Any determination by the Company and its counsel in
connection with any of the matters set forth in this Section 8 shall be
conclusive and binding on the Optionee and all other persons.
SECTION 9. MISCELLANEOUS PROVISIONS
(a) Withholding Taxes. To the extent required by applicable federal, state,
local or foreign law, the Optionee shall make arrangements satisfactory to the
Company for the satisfaction of any withholding tax obligations that arise by
reason of the exercise of an Option hereunder, and no Option may be exercised
unless such obligation is satisfied.
(b) Rights as a Stockholder. Neither the Optionee nor the Optionee's
representative shall have any rights as a stockholder with respect to any Common
Shares subject to this Option until certificates for such Common Shares have
been issued in the name of the Optionee or the Optionee's representative.
(c) No Employment Rights. Nothing in this Agreement shall be construed as
giving the Optionee the right to be retained as an employee of the Company or
its subsidiaries. The Company reserves the right to terminate the Optionee's
employment at any time for any reason, subject only to the terms of any written
employment contract entered into between the Company and the Optionee.
(d) Notice. Any notice required by the terms of this Agreement shall be
given in writing and shall be deemed effective upon personal delivery or upon
deposit with the appropriate postal service, by registered or certified mail
with postage and fees prepaid and addressed to the party entitled to such notice
at the address shown below such party's signature on this Agreement, or at such
other address as such party may designate by ten (10) days advance written
notice to the other party to this Agreement. Notwithstanding the foregoing, no
notice of exercise, as required by Section 4(a), shall be effective until actual
receipt thereof by the Company or its designee.
(e) Entire Agreement. This Agreement and the Plan constitute the entire
agreement between the parties hereto with regard to the subject matter hereof;
provided, however, that in the event of any inconsistency or conflict between
any provision hereof and the terms of the Plan, the terms of the Plan shall
control.
(f) Choice of Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California, as such laws are applied
to contracts entered into and performed in such State.
SECTION 10. DEFINITIONS.
(a) Capitalized terms defined in the Plan shall have the same meaning when
used in this Agreement.
(b) "Change in Control" shall mean the occurrence of any of the following
events after the effective date of the Plan as set out in Section 15.1 of the
Plan:
(1) A change in control required to be reported pursuant to Item
6(e) of Schedule 14A of Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act");
(2) A change in the composition of the Company's Board of
Directors (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; and
(3) 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.
(c) "Common Share" shall mean one share of the common stock of the Company.
(d) "Date of Grant" shall mean the date of this Agreement, which is the
date first written above.
(e) "Fair Market Value" shall mean the market price of a Common Share,
determined by the Committee as follows:
(1) 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;
(2) 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;
(3) 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
(4) 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.
(f) "Net Performance Unit Value" shall mean the difference between the
Performance Unit Value and the Cost Basis, determined as follows:
(1) Performance Unit Value shall mean (A) the difference between
the After Tax Net Income and the Targeted Return on Stockholders'
Equity, multiplied by (B) the Grant Funding Rate;
(2) Cost Basis shall mean the Performance Unit Value as of the
end of the fiscal quarter immediately preceding the Date of Grant;
(3) After Tax Net Income shall mean the cumulative after tax net
income (determined without reduction for accrued obligations pursuant
to Performance Units), as measured from January 1 of the year of the
Date of Grant, and otherwise subject to such adjustments as may be
determined by the Company in its sole discretion;
(4) Targeted Return on Stockholders' Equity shall mean a
cumulative 20% annual targeted level of return on stockholders'
equity, measured from January 1 of the year of the Date of Grant.
Targeted Return on Stockholders' Equity is increased on a quarterly
basis during the term of the Performance Unit by adding to the prior
quarter's Targeted Return on Stockholders' Equity an amount equal to
5% of the ending actual consolidated stockholder's equity balance
(determined as of the end of the preceding fiscal year); and
(5) Grant Funding Rate shall mean a percentage, determined from
time to time by the Company, to provide a level of funding for the
Plan. While the Company generally intends that the Grant Funding Rate
will remain fixed for the five year term of each Performance Unit, the
Company reserves the right, within its sole discretion, to change the
Grant Funding Rate at any time.
(g) "Permanent Disability" shall mean that the Optionee is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which has lasted, or can be expected to last, for
a continuous period of not less than twelve (12) months or which can be expected
to result in death.
(h) "Purchase Price" shall mean the Exercise Price multiplied by the number
of Common Shares with respect to which this Option is being exercised.
(i) "Retirement" shall mean a termination of employment of the Optionee
occurring at any time after the Optionee (i) has attained fifty (50) years of
age, and (ii) completed seven (7) years of service, as determined pursuant to
the terms of the Charles Schwab Profit Sharing and Employee Stock Ownership
Plan.
(j) "Securities Act" shall mean the Securities Act of 1933, as amended.
Exhibit 10.174
THE CHARLES SCHWAB CORPORATION
1992 STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into as of _____________________ between THE
CHARLES SCHWAB CORPORATION, a Delaware corporation (the "Company"), and
___________ (the "Optionee").
W I T N E S S E T H:
WHEREAS, the Board has adopted and the stockholders of the Company have
approved The Charles Schwab Corporation 1992 Stock Incentive Plan, as amended
(the "Plan") in order to provide selected Key Employees and Non-Employee
Directors with an opportunity to acquire Common Shares; and
WHEREAS, the Committee has determined that the Optionee is a Key Employee
and that it would be in the best interests of the Company and its stockholders
to grant the stock option described in this Agreement (the "Option") to the
Optionee as an inducement to enter into or remain in the service of the Company
or its subsidiaries and as an incentive for extraordinary efforts during such
service:
NOW, THEREFORE, the Optionee and the Company agree to the provisions set
forth in this Agreement. The Optionee signifies agreement with all of the terms
and conditions of this Agreement by failing to provide written objection to the
Company to any of the terms hereunder within 30 days of receipt of this
Agreement, and in any event by exercising an Option granted hereunder.
SECTION 1. GRANT OF OPTION.
(a) Option. On the terms and conditions stated below, the Company hereby
grants to the Optionee the option to purchase _____ Common Shares for the amount
of $_____ per Common Share (the "Exercise Price"), which is agreed to be 100% of
the Fair Market Value thereof on the Date of Grant. The number of Common Shares
subject to this Option and the Exercise Price shall be subject to adjustment
under certain limited circumstances as provided in Article 10 of the Plan.
(b) 1992 Stock Incentive Plan. This Option is granted pursuant to the Plan,
the provisions of which are incorporated into this Agreement by reference, and a
copy of which is available upon request at no charge to the Optionee from the
Company. In the event of any inconsistency between the provisions of the Plan
and the provisions of this Agreement, the provisions of the Plan shall prevail.
(c) Tax Treatment. This Option is intended to qualify as an incentive stock
option described in Section 422(b) of the Code.
(d) Expiration Date. Notwithstanding any other provision contained herein,
this Option shall expire not later than the date immediately preceding the tenth
anniversary of the Date of Grant.
SECTION 2. NO TRANSFER OR ASSIGNMENT OF OPTION.
Except as otherwise provided in this Agreement or as permitted by the Plan,
this Option, and any interest therein, shall not be transferred, assigned,
pledged or hypothecated in any way (whether by operation of law or otherwise)
and shall not be subject to sale under execution, attachment or similar process.
SECTION 3. RIGHT TO EXERCISE OPTION.
(a) Vesting. This Option shall become exercisable by the Optionee with
respect to the total number of Common Shares subject to this Option as set forth
under Section 1(a) above (the "Total Award Common Shares"), subject to the
continued employment of the Optionee by the Company or its subsidiaries on each
date either set forth below, and subject to the provisions of Section 3(e)
hereof, in annual increments of the Total Award Common Shares beginning on the
first anniversary of the Date of Grant, such that (i) no portion of this Option
will be exercisable prior to such first anniversary of the Date of Grant; (ii)
upon and after such first anniversary of the Date of Grant, the Optionee may
purchase up to twenty-five percent (25%) of the Total Award Common Shares,
provided the optionee has been continually employed by the Company or its
subsidiaries since the date of grant; (iii) upon and after the second, third and
fourth anniversaries of the Date of Grant, respectively, the Optionee may
purchase an additional twenty-five percent (25%) of the Total Award Common
Shares, provided in each case that the Optionee has been continually employed by
the Company or its subsidiaries since the Date of Grant.
(b) Minimum Number of Shares. This Option shall be exercisable for at least
100 Common Shares (without regard to adjustments to the number of Common Shares
subject to this Option pursuant to Article 10 of the Plan) or, if less, (i) the
number of shares with respect to which this Option has become vested under
Section 3(a) above, or (ii) all of the remaining Common Shares subject to this
Option.
(c) Full Vesting on Change in Control. Notwithstanding subparagraph (a)
hereof, this Option shall become fully exercisable as to the Total Award Common
Shares immediately preceding any Change in Control with respect to the Company.
In the event that the Committee determines that a Change in Control is likely to
occur, the Company shall so advise the Optionee, and the provisions of this
subparagraph (c) shall take effect as of the date ten (10) days prior to the
anticipated date of such Change in Control.
(d) Accelerated Vesting on Retirement in Certain Cases. Notwithstanding
subparagraph (a) hereof, if the Optionee terminates employment with the Company
and its subsidiaries on account of Retirement, all options granted hereunder
shall become fully exerciseable, but only if such retirement occurs at least two
(2) years after the date of grant.
(e) Vesting Contingent on Satisfactory Performance. Notwithstanding
subparagraph (a) hereof, the continued accrual of vesting pursuant to
subparagraph (a) is contingent upon the Optionee's satisfactory job performance,
and the Company may, in its sole discretion, upon notice to the Optionee suspend
or delay the vesting of Options hereunder for any period of time in the event
that the Company determines, within its sole discretion, that the Optionee's
performance is unsatisfactory.
SECTION 4. EXERCISE OF OPTION.
(a) Notice of Exercise. The Optionee or the Optionee's representative may
exercise this Option by giving written notice to the Company (or its designee)
pursuant to Section 9(d). The notice shall specify the election to exercise this
Option, the date of exercise, the number of Common Shares for which it is being
exercised and the form of payment. The notice shall be signed by the person or
persons exercising this Option. In the event that this Option is being exercised
by the representative of the Optionee, the notice shall be accompanied by proof
satisfactory to the Company of the representative's right to exercise this
Option. The Purchase Price for Common Shares shall be paid in a form that
conforms to Sections 6.1 through 6.3 of the Plan at the time such notice is
given.
(b) Issuance of Shares. After receiving a proper notice of exercise, the
Company shall cause to be issued a certificate or certificates for the Common
Shares so purchased, registered in the name of the person exercising this
Option. The Company shall cause such certificate or certificates to be delivered
to or upon the order of the person exercising this Option.
SECTION 5. TERM.
(a) Basic Term. This Option shall in any event expire on the date specified
in Section 1(d).
(b) Termination of Employment. Subject only to the provisions of Section
3(d), upon the Optionee's termination of employment with the Company and its
subsidiaries for any reason, whether as a result of death, Permanent Disability
or any other involuntary or voluntary event of termination of employment
(including a termination of employment as may be provided for or determined
under an employment contract, if any, entered into between the Company or its
subsidiary and the Optionee) (each, a "Termination Event"), no unvested portion
of the Total Award Common Shares thereafter shall vest or become exercisable.
With respect to the vested or exercisable portion of the Total Award Common
Shares as of the date of such a Termination Event, this Option shall expire on
the earlier of (i) the expiration date specified in Section 1(d) or (ii)
whichever of the following is applicable: (A) in the case of a Termination Event
resulting from death or Permanent Disability, the date one year following such
Termination Event; or (B) in all other cases, the date three (3) months
following such Termination Event.
(c) Divestment of Options. Notwithstanding anything to the contrary
contained herein, this Option shall immediately become forfeited and expire in
the event that the Company terminates the Optionee's employment on account of
conduct inimical to the best interests of the Company, including, without
limitation, conduct constituting a violation of law or Company policy, fraud,
theft, conflict of interest, dishonesty or harassment. The determination whether
the Optionee's employment has been terminated on account of conduct inimical to
the best interests of the Company shall be made by the Company in its sole
discretion.
SECTION 6. LEGALITY OF INITIAL ISSUANCE.
No Common Shares shall be issued upon the exercise of this Option unless
and until the Company has determined that:
(a) A registration statement for the Common Shares is effective under
the Securities Act or an exemption from the registration requirements
thereof has been perfected;
(b) Any applicable listing requirement of any stock exchange on which
Common Shares are listed has been satisfied; and
(c) Any other applicable provisions of state or federal law have been
satisfied.
SECTION 7. NO REGISTRATION RIGHTS.
The Company may, but shall not be obligated to, register or qualify the
Common Shares for resale or other disposition by the Optionee under the
Securities Act or any other applicable law.
SECTION 8. RESTRICTIONS ON TRANSFER OF SHARES.
(a) Restrictions. Regardless of whether the offering and sale of Common
Shares under the Plan have been registered under the Securities Act or have been
registered or qualified under the securities laws of any state, the Company may
impose restrictions upon the sale, pledge or other transfer of such Common
Shares (including the placement of appropriate legends on stock certificates)
if, in the judgment of the Company and its counsel, such restrictions are
necessary or desirable in order to achieve compliance with the provisions of the
Securities Act, the securities laws of any state or any other law.
(b) Investment Intent at Exercise. If the Common Shares under the Plan are
not registered under the Securities Act but an exemption is available which
requires an investment representation or other representation, the Optionee
shall represent and agree at the time of exercise that the Common Shares being
acquired upon exercising this Option are being acquired for investment, and not
with a view to the sale or distribution thereof, and shall make such other
representations as are deemed necessary or appropriate by the Company and its
counsel.
(c) Administration. Any determination by the Company and its counsel in
connection with any of the matters set forth in this Section 8 shall be
conclusive and binding on the Optionee and all other persons.
SECTION 9. MISCELLANEOUS PROVISIONS.
(a) Withholding Taxes. To the extent required by applicable federal, state,
local or foreign law the Optionee shall make arrangements satisfactory to the
Company for the satisfaction of any withholding tax obligations that arise by
reason of the exercise of an Option hereunder and no Option may be exercised
unless such obligation is satisfied.
(b) Rights as a Stockholder. Neither the Optionee nor the Optionee's
representative shall have any rights as a stockholder with respect to any Common
Shares subject to this Option until certificates for such Common Shares have
been issued in the name of the Optionee or the Optionee's representative.
(c) No Employment Rights. Nothing in this Agreement shall be construed as
giving the Optionee the right to be retained as an employee of the Company or
its subsidiaries. The Company reserves the right to terminate the Optionee's
employment at any time for any reason, subject only to the terms of any written
employment contract entered into between the Company and the Optionee.
(d) Notice. Any notice required by the terms of this Agreement shall be
given in writing and shall be deemed effective upon personal delivery or upon
deposit with the appropriate postal service, by registered or certified mail
with postage and fees prepaid and addressed to the party entitled to such notice
at the address shown below such party's signature on this Agreement, or at such
other address as such party may designate by ten (10) days advance written
notice to the other party to this Agreement. Notwithstanding the foregoing, no
notice of exercise, as required by Section 4(a), shall be effective until actual
receipt thereof by the Company or its designee.
(e) Entire Agreement. This Agreement and the Plan constitute the entire
agreement between the parties hereto with regard to the subject matter hereof;
provided, however, that in the event of any inconsistency or conflict between
any provision hereof and the terms of the Plan, the terms of the Plan shall
control.
(f) Choice of Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California, as such laws are applied
to contracts entered into and performed in such State.
SECTION 10. DEFINITIONS.
(a) Capitalized terms defined in the Plan shall have the same meaning when
used in this Agreement.
(b) "Change in Control" shall mean the occurrence of any of the following
events after the effective date of the Plan as set out in Section 15.1 of the
Plan:
(1) A change in control required to be reported pursuant to Item 6(e)
of Schedule 14A of Regulation 14A under the Securities Exchange Act of
1934, as amended (the "Exchange Act");
(2) A change in the composition of the Company's Board of Directors
(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;
(3) 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.
(c) "Common Share" shall mean one share of the common stock of the Company.
(d) "Date of Grant" shall mean the date of this Agreement, which is the
date first written above.
(e) "Fair Market Value" shall mean the market price of a Common Share,
determined by the Committee as follows:
(1) 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;
(2) 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;
(3) 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
(4) 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.
(f) "Permanent Disability" shall mean that the Optionee is unable to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which has lasted, or can be expected to last, for
a continuous period of not less than twelve (12) months or which can be expected
to result in death.
(g) "Purchase Price" shall mean the Exercise Price multiplied by the number
of Common Shares with respect to which this Option is being exercised.
(h) "Retirement" shall mean a termination of employment of the Optionee
occurring at any time after the Optionee (i) has attained fifty (50) years of
age, and (ii) completed seven (7) years of service, as determined pursuant to
the terms of the Charles Schwab Profit Sharing and Employee Stock Ownership
Plan.
(i) "Securities Act" shall mean the Securities Act of 1933, as amended.
Exhibit 10.175
THE CHARLES SCHWAB CORPORATION
1992 STOCK INCENTIVE PLAN
RESTRICTED SHARES AWARD AGREEMENT
THIS AGREEMENT is entered into between The Charles Schwab Corporation,
a Delaware corporation (the "Company") and ______ (the "Employee").
WITNESSETH:
WHEREAS, the Company has adopted The Charles Schwab Corporation 1992
Stock Incentive Plan (the "Plan"), which provides for the granting of restricted
shares of Common Stock of the Company ("Restricted Shares") to key employees of
the Company and its Subsidiaries; and
WHEREAS, the Compensation Committee of the Board of Directors of the
Company (the "Committee"), which is responsible for the administration of the
Plan, has authorized the granting of an award of Restricted Shares to the
Employee, effective as of _______________, (the "Grant Date"); and
WHEREAS, this Agreement is prepared in conjunction with and pursuant to
the terms of the Plan and, although all of the terms of the Plan and the
definitions used in this Plan have not been set forth herein, such terms and
definitions are incorporated herein and made a part hereof by reference, and,
except as otherwise expressly stated herein, the provisions of the Plan shall
govern any interpretation of this Agreement; and
WHEREAS, the Employee has accepted the grant of Restricted Shares and
agreed to the terms and conditions hereinafter stated;
NOW, THEREFORE, the Employee and the Company agree to the provisions
set forth in the Agreement. The Employee signifies agreement with all of the
terms and conditions of this Agreement by failing to provide written objection
to the Company to any of the terms hereunder within 30 days of receipt of this
Agreement, and in any event by accepting any dividends paid with respect to the
Restricted Shares granted hereunder.
1. Grant of Restricted Shares. The Company hereby grants to the
Employee, as a separate incentive in connection with his or her employment and
not in lieu of any salary or other cash compensation for his or her services, an
award of ____ Restricted Shares, effective _______________, subject to all the
terms and conditions in this Agreement and the Plan.
2. Restriction on Transfer. The Restricted Shares awarded pursuant to
this Agreement shall be issued in the name of The Employee and held by the
Secretary of the Company as escrow agent (the "Escrow Agent"), and shall not be
sold, transferred, otherwise disposed of, pledged or otherwise hypothecated
until the date such Restricted Shares become vested pursuant to paragraph 3
hereof (the "Restriction on Transfer"). The Company may instruct the transfer
agent for its Common Stock to place a legend on the certificates representing
the Restricted Shares or otherwise note its records as to the restrictions on
transfer set forth in this Agreement and the Plan. The certificate or
certificates representing such shares shall be delivered by the Escrow Agent to
The Employee only after the shares become vested on the date specified in
paragraph 3 and after all other terms and conditions in this Agreement have been
satisfied.
3. Vesting of Shares. The Restricted Shares awarded by this Agreement
shall become vested as follows:
(I) Effective as of the date hereof (the "Grant Date"), the
Restricted Shares shall be 50% vested.
(II) 50% of the Restricted Shares shall become vested on the
third anniversary of the Grant Date (the "First Vesting Date") if (A)
the Employee is employed for a continuous period beginning on the Grant
Date and ending on the First Vesting Date, and (B) the Compound Annual
Total Shareholder Return exceeds the Market Index Total Shareholder
Return by at least two percentage points for the period beginning on
the Grant Date and ending on the First Vesting Date.
(III) 100% of the Restricted Shares (less any shares which
became vested pursuant to subparagraph (II) above) shall become vested
on the fourth anniversary of the Grant Date (the "Final Vesting Date")
if (A) the Employee is employed for a continuous period beginning on
the Grant Date and ending on the Final Vesting Date, and (B) the
Compound Annual Total Shareholder Return exceeds the Market Index Total
Shareholder Return by at least two percentage points for the period
beginning on the Grant Date and ending on the Final Vesting Date.
(IV) Any Restricted Shares that are not vested on the Final
Vesting Date will revert to the Company.
(V) Notwithstanding the foregoing, in the event of the
Employee's Retirement after the second anniversary of the Grant Date,
100% of the Restricted Shares shall be then vested. For purposes of
this Agreement, Retirement shall mean a termination of employment of
the Employee at any time after the Employee (i) has attained fifty (50)
years of age, and (ii) has completed seven (7) years of service, as
determined pursuant to the terms of the Charles Schwab Profit Sharing
and Employee Stock Ownership Plan.
For purposes of the foregoing, the Compound Annual Total Shareholder
Return for a period shall mean the annualized compound return (consisting of
both stock price appreciation and dividends, and assuming reinvestment of
dividends) to shareholders of the Company, and the Market Index Total
Shareholder Return for a period shall mean the average annualized compound
return (consisting of both stock price appreciation and dividends, and assuming
reinvestment of dividends) to shareholders of corporations comprising the
Standard & Poor's 500.
Notwithstanding the foregoing, however, the accrual of vesting pursuant
to this paragraph is contingent upon the Employee's satisfactory job
performance, and the Company may, in its sole discretion, upon notice to the
Employee, suspend or delay the vesting of the Restricted Shares hereunder for
any period of time in the event that the Company determines, within its sole
discretion, that the Employee's performance is unsatisfactory. Upon the vesting
of Restricted Shares hereunder, the certificate or certificates representing
such Restricted Shares shall be delivered to the Employee.
4. Supplemental Cash Payment. In the event any Restricted Shares become
vested pursuant to Section 3 above, the Employee shall be eligible to receive a
Supplemental Cash Payment on the Vesting Date, in an amount calculated pursuant
to the following table, equal to a multiple of the value of the Restricted
Shares on the Vesting Date, based upon the number of percentage points by which
the Compound Annual Total Shareholder Return exceeds the Market Index Total
Shareholder Return for the period beginning on the Grant Date and ending on the
Vesting Date ("Excess Annual Total Shareholder Return"), as follows:
Excess Annual Total Shareholder Return Multiple
Less than four percentage points 0%
At least four, but less than six percentage points 25%
At least six, but less than eight percentage points 50%
At least eight, but less than ten percentage points 100%
Ten percentage points or more 150%
5. Full Vesting on Change in Control. Upon the determination of the
Committee that a Change in Control of the Company has occurred, or in the event
of the liquidation or dissolution of the Company, the Restricted Shares shall
become fully vested and the Restriction on Transfer shall be lifted,
notwithstanding any other provision of this Agreement, and the certificate or
certificates representing such Restricted Shares shall be delivered to the
Employee.
6. Discretion of Committee. The Committee may decide, in its absolute
discretion, to lift at any time the Restriction on Transfer or to accelerate the
vesting of the Restricted Shares, and the certificate or certificates
representing such Restricted Shares shall be delivered to the Employee.
7. Delivery of Shares to Estate of Deceased Employee. Any distribution
or delivery to be made to the Employee under this Agreement shall, if the
Employee is then deceased, be made to the Employee's estate in accordance with
the terms of Section 7.5 of the Plan.
8. Conditions to Issuance of Shares. The Restricted Shares deliverable
to the Employee may be either previously authorized but unissued shares or
issued shares which have been reacquired by the Company. The Company shall not
be required to issue any certificate or certificates for Restricted Shares
hereunder prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other qualification
of such shares under any State or federal law or under the rulings or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body, which the Committee shall, in its
absolute discretion, deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any
State or federal governmental agency, which the Committee shall, in its
absolute discretion, determine to be necessary or advisable; and
(d) The lapse of such reasonable period of time following the
date of the grant of the Restricted Shares as the Committee may
establish from time to time for reasons of administrative convenience.
Neither the Employee nor any person claiming under or through the
Employee shall be, or have any of the rights or privileges of, a stockholder of
the Company in respect of any Restricted Shares deliverable hereunder unless and
until certificates representing such shares shall have been issued, recorded on
the records of the Company or its transfer agents or registrars, and delivered
to the Employee or the Escrow Agent. Except as provided in paragraph 9, after
such issuance, recordation and delivery, the Employee shall have all rights of a
stockholder of the Company with respect to voting such Restricted Shares and
receipt of dividends and distributions on such Restricted Shares.
9. Certain Adjustments to Shares. In the event that as a result of a
stock dividend, stock split, reclassification, recapitalization, combination of
shares or the adjustment in capital stock of the Company or otherwise, or as a
result of a merger, consolidation, spin-off or other reorganization, the
Company's Common Stock shall be increased, reduced or otherwise changed, and by
virtue of any such change the Employee shall in his or her capacity as owner of
Restricted Shares which have been awarded to him or her (the "Prior Shares") be
entitled to new or additional or different shares or securities (other than
rights or warrants to purchase securities), such new or additional or different
shares or securities shall thereupon be considered to be Restricted Shares and
shall be subject to all of the conditions and restrictions which were applicable
to the Prior Shares pursuant to the Plan. If the Employee receives rights or
warrants with respect to any Prior Shares, such rights or warrants may be held
or exercised by the Employee, provided that until such exercise any such rights
or warrants and after such exercise any shares or other securities acquired by
the exercise of such rights or warrants shall be considered to be Restricted
Shares and shall be subject to all of the conditions and restrictions which were
applicable to the Prior Shares pursuant to the Plan. The Committee in its
absolute discretion at any time may lift the Restriction on Transfer of all or
any portion of such new or additional shares of stock or securities, rights or
warrants to purchase securities or shares or other securities acquired by the
exercise of such rights or warrants.
10. Contribution of Par Value to Capital of the Company.
Notwithstanding the provisions of Section 7.2 of the Plan, the Company will
contribute to the capital of the Company on behalf of the Employee, as an Award
recipient, an amount equal to the par value of the Restricted Shares issued to
the Employee hereunder.
11. Tax Withholding. To the extent required by applicable federal,
state, local or foreign law, the Employee shall make arrangements satisfactory
to the Company for the satisfaction of any withholding tax obligations that
arise by reason of the awarding or vesting of the Restricted Shares hereunder,
or by reason of any election made by the Employee pursuant to Section 83(b) of
the Internal Revenue Code, and no Share certificates shall be issued to the
Employee unless such obligation is satisfied.
12. Plan Shall Control. This Agreement is subject to all the terms and
provisions of the Plan. In the event of a conflict between any provisions of
this Agreement and any provisions of the Plan, the provisions of the Plan shall
govern. Terms used in this Agreement that are not defined in this Agreement
shall have the meaning set forth in the Plan.
13. Powers of the Committee. The Committee shall have the power to
interpret and construe the Plan and this Agreement and to adopt such rules for
the administration, interpretation and application of the Plan as are consistent
therewith and to interpret or revoke any such rules. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon the Employee, the Employee's estate, the Company and all
other interested persons. No member of the Committee shall be personally liable
for any action, determination or interpretation made in good faith with respect
to the Plan or this Agreement.
14. No Effect on Other Benefit Plans. Nothing herein contained shall
affect the Employee's right to participate in and receive benefits under and in
accordance with the then current provisions of any pension, insurance or other
the Employee welfare plan or program of the Company or any Subsidiary.
15. Nonassignability. So long as the Restriction on Transfer is in
effect, the Restricted Shares herein granted and the rights and privileges
conferred hereby shall not be transferred, assigned, pledged or hypothecated in
any way (whether by operation or law or otherwise) and shall not be subject to
sale under execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of such award or any
right or privilege conferred hereby, contrary to the provisions hereof, or upon
any attempted sale under any execution, attachment or similar process upon the
rights and privileges conferred hereby, such award and the rights and privileges
conferred hereby shall immediately become null and void.
16. Successors and Assigns. Subject to the limitation on the
transferability of the Restricted Shares contained herein, this Agreement shall
be binding upon and inure to the benefit of the heirs, legatees, legal
representatives, successor and assigns of the Employee and the Company.
17. Notices. Any notice to be given to the Company under the terms of
this Agreement shall be addressed to the Company, in care of its Secretary, at
101 Montgomery Street, San Francisco, California 94104, or at such other address
as the Company may hereafter designate in writing. Any notice to be given to the
Employee shall be addressed to the Employee at the address set forth beneath the
Employee's signature hereto, or at such other address as the Employee may
hereafter designate in writing. Any such notice shall be deemed to have been
duly given if and when enclosed in a properly sealed envelope, addressed as
aforesaid, registered or certified and deposited, postage and registry fee
prepaid, in a United States post office.
18. Severability. In the event that any provision of this Agreement
shall be held invalid or unenforceable, such provision shall be severable from,
and such invalidity or unenforceability shall not be construed to have any
effect on, the remaining provisions of this Agreement.
19. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of California.
Exhibit 10.176
THE CHARLES SCHWAB CORPORATION
1987 STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into as of ______________________
between THE CHARLES SCHWAB CORPORATION, a Delaware corporation (the "Company"),
and _________ (the "Optionee").
W I T N E S S E T H:
WHEREAS, the Board has adopted and the stockholders of the
Company have approved The Charles Schwab Corporation 1987 Stock Option Plan, as
amended (the "Plan") in order to provide selected Key Employees with an
opportunity to acquire Common Shares; and
WHEREAS, the Committee has determined that the Optionee is a
Key Employee and that it would be in the best interests of the Company and its
stockholders to grant the stock option described in this Agreement (the
"Option") to the Optionee as an inducement to enter into or remain in the
service of the Company or its subsidiaries and as an incentive for extraordinary
efforts during such service:
NOW, THEREFORE, the Optionee and the Company agree to the
provisions set forth in this Agreement. The Optionee signifies agreement with
all of the terms and conditions of this Agreement by failing to provide written
objection to the Company to any of the terms hereunder within 30 days of receipt
of this Agreement, and in any event by exercising an Option granted hereunder.
SECTION 1. GRANT OF OPTION.
(a) Option. On the terms and conditions stated below, the
Company hereby grants to the Optionee the option to purchase _____ Common Shares
for the amount of $24.625 per Common Share (the "Exercise Price"), which is
agreed to be 100% of the Fair Market Value thereof on the Date of Grant. The
number of Common Shares subject to this Option and the Exercise Price shall be
subject to adjustment under certain limited circumstances as provided in Article
10 of the Plan.
(b) 1987 Stock Option Plan. This Option is granted pursuant to
the Plan, the provisions of which are incorporated into this Agreement by
reference, and a copy of which is available upon request at no charge to the
Optionee from the Company. In the event of any inconsistency between the
provisions of the Plan and the provisions of this Agreement, the provisions of
the Plan shall prevail.
(c) Tax Treatment. This Option is not intended to qualify as
an incentive stock option described in Section 422(b) of the Code.
(d) Expiration Date. Notwithstanding any other provision
contained herein, this Option shall expire not later than the date immediately
preceding the tenth anniversary of the Date of Grant.
SECTION 2. NO TRANSFER OR ASSIGNMENT OF OPTION.
Except as otherwise provided in this Agreement or as permitted
by the Plan, this Option, and any interest therein, shall not be transferred,
assigned, pledged or hypothecated in any way (whether by operation of law or
otherwise) and shall not be subject to sale under execution, attachment or
similar process.
SECTION 3. RIGHT TO EXERCISE OPTION.
(a) Vesting. This Option shall become exercisable by the
Optionee with respect to the total number of Common Shares subject to this
Option as set forth under Section 1(a) above (the "Total Award Common Shares"),
subject to the continued employment of the Optionee by the Company or its
subsidiaries on each date either set forth below, and subject to the provisions
of Section 3(e) hereof, in annual increments of the Total Award Common Shares
beginning on the first anniversary of the Date of Grant, such that (i) no
portion of this Option will be exercisable prior to such first anniversary of
the Date of Grant; (ii) upon and after such first anniversary of the Date of
Grant, the Optionee may purchase up to twenty-five percent (25%) of the Total
Award Common Shares, provided the optionee has been continually employed by the
Company or its subsidiaries since the date of grant; (iii) upon and after the
second, third and fourth anniversaries of the Date of Grant, respectively, the
Optionee may purchase an additional twenty-five percent (25%) of the Total Award
Common Shares, provided in each case that the Optionee has been continually
employed by the Company or its subsidiaries since the Date of Grant.
(b) Minimum Number of Shares. This Option shall be exercisable
for at least 100 Common Shares (without regard to adjustments to the number of
Common Shares subject to this Option pursuant to Article 10 of the Plan) or, if
less, (i) the number of shares with respect to which this Option has become
vested under Section 3(a) above, or (ii) all of the remaining Common Shares
subject to this Option.
(c) Full Vesting on Change in Control. Notwithstanding
subparagraph (a) hereof, this Option shall become fully exercisable as to the
Total Award Common Shares immediately preceding any Change in Control with
respect to the Company. In the event that the Committee determines that a Change
in Control is likely to occur, the Company shall so advise the Optionee, and the
provisions of this subparagraph (c) shall take effect as of the date ten (10)
days prior to the anticipated date of such Change in Control.
(d) Accelerated Vesting on Retirement in Certain Cases.
Notwithstanding subparagraph (a) hereof, if the Optionee terminates employment
with the Company and its subsidiaries on account of Retirement, all options
granted hereunder shall become fully exerciseable, but only if such retirement
occurs at least two (2) years after the date of grant.
(e) Vesting Contingent on Satisfactory Performance.
Notwithstanding subparagraph (a) hereof, the continued accrual of vesting
pursuant to subparagraph (a) is contingent upon the Optionee's satisfactory job
performance, and the Company may, in its sole discretion, upon notice to the
Optionee suspend or delay the vesting of Options hereunder for any period of
time in the event that the Company determines, within its sole discretion, that
the Optionee's performance is unsatisfactory.
SECTION 4. EXERCISE OF OPTION.
(a) Notice of Exercise. The Optionee or the Optionee's
representative may exercise this Option by giving written notice to the Company
(or its designee) pursuant to Section 9(d). The notice shall specify the
election to exercise this Option, the date of exercise, the number of Common
Shares for which it is being exercised and the form of payment. The notice shall
be signed by the person or persons exercising this Option. In the event that
this Option is being exercised by the representative of the Optionee, the notice
shall be accompanied by proof satisfactory to the Company of the
representative's right to exercise this Option. The Purchase Price for Common
Shares shall be paid in a form that conforms to Sections 6.1 through 6.3 of the
Plan at the time such notice is given.
(b) Issuance of Shares. After receiving a proper notice of
exercise, the Company shall cause to be issued a certificate or certificates for
the Common Shares so purchased, registered in the name of the person exercising
this Option. The Company shall cause such certificate or certificates to be
delivered to or upon the order of the person exercising this Option.
SECTION 5. TERM.
(a) Basic Term. This Option shall in any event expire on the
date specified in Section 1(d).
(b) Termination of Employment. Subject only to the provisions
of Section 3(d), upon the Optionee's termination of employment with the Company
and its subsidiaries for any reason, whether as a result of death, Permanent
Disability or any other involuntary or voluntary event of termination of
employment (including a termination of employment as may be provided for or
determined under an employment contract, if any, entered into between the
Company or its subsidiary and the Optionee) (each, a "Termination Event"), no
unvested portion of the Total Award Common Shares thereafter shall vest or
become exercisable. With respect to the vested or exercisable portion of the
Total Award Common Shares as of the date of such a Termination Event, this
Option shall expire on the earlier of (i) the expiration date specified in
Section 1(d) or (ii) whichever of the following is applicable: (A) in the case
of a Termination Event resulting from death or Permanent Disability, the date
one year following such Termination Event; (B) in the case of a Termination
Event resulting from Retirement, the date two years following such Termination
Event; or (C) in all other cases, the date three (3) months following such
Termination Event.
(c) Divestment of Options. Notwithstanding anything to the
contrary contained herein, this Option shall immediately become forfeited and
expire in the event that the Company terminates the Optionee's employment on
account of conduct inimical to the best interests of the Company, including,
without limitation, conduct constituting a violation of law or Company policy,
fraud, theft, conflict of interest, dishonesty or harassment. The determination
whether the Optionee's employment has been terminated on account of conduct
inimical to the best interests of the Company shall be made by the Company in
its sole discretion.
SECTION 6. LEGALITY OF INITIAL ISSUANCE.
No Common Shares shall be issued upon the exercise of this
Option unless and until the Company has determined that:
(a) A registration statement for the Common Shares is
effective under the Securities Act or an exemption from the registration
requirements thereof has been perfected;
(b) Any applicable listing requirement of any stock exchange
on which Common Shares are listed has been satisfied; and
(c) Any other applicable provisions of state or federal law
have been satisfied.
SECTION 7. NO REGISTRATION RIGHTS.
The Company may, but shall not be obligated to, register or
qualify the Common Shares for resale or other disposition by the Optionee under
the Securities Act or any other applicable law.
SECTION 8. RESTRICTIONS ON TRANSFER OF SHARES.
(a) Restrictions. Regardless of whether the offering and sale
of Common Shares under the Plan have been registered under the Securities Act or
have been registered or qualified under the securities laws of any state, the
Company may impose restrictions upon the sale, pledge or other transfer of such
Common Shares (including the placement of appropriate legends on stock
certificates) if, in the judgment of the Company and its counsel, such
restrictions are necessary or desirable in order to achieve compliance with the
provisions of the Securities Act, the securities laws of any state or any other
law.
(b) Investment Intent at Exercise. If the Common Shares under
the Plan are not registered under the Securities Act but an exemption is
available which requires an investment representation or other representation,
the Optionee shall represent and agree at the time of exercise that the Common
Shares being acquired upon exercising this Option are being acquired for
investment, and not with a view to the sale or distribution thereof, and shall
make such other representations as are deemed necessary or appropriate by the
Company and its counsel.
(c) Administration. Any determination by the Company and its
counsel in connection with any of the matters set forth in this Section 8 shall
be conclusive and binding on the Optionee and all other persons.
SECTION 9. MISCELLANEOUS PROVISIONS.
(a) Withholding Taxes. To the extent required by applicable
federal, state, local or foreign law, the Optionee shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise by reason of the exercise of an Option hereunder, and no
Option may be exercised unless such obligation is satisfied.
(b) Rights as a Stockholder. Neither the Optionee nor the
Optionee's representative shall have any rights as a stockholder with respect to
any Common Shares subject to this Option until certificates for such Common
Shares have been issued in the name of the Optionee or the Optionee's
representative.
(c) No Employment Rights. Nothing in this Agreement shall be
construed as giving the Optionee the right to be retained as an employee of the
Company or its subsidiaries. The Company reserves the right to terminate the
Optionee's employment at any time for any reason, subject only to the terms of
any written employment contract entered into between the Company and the
Optionee.
(d) Notice. Any notice required by the terms of this Agreement
shall be given in writing and shall be deemed effective upon personal delivery
or upon deposit with the appropriate postal service, by registered or certified
mail with postage and fees prepaid and addressed to the party entitled to such
notice at the address shown below such party's signature on this Agreement, or
at such other address as such party may designate by ten (10) days advance
written notice to the other party to this Agreement. Notwithstanding the
foregoing, no notice of exercise, as required by Section 4(a), shall be
effective until actual receipt thereof by the Company or its designee.
(e) Entire Agreement. This Agreement and the Plan constitute
the entire agreement between the parties hereto with regard to the subject
matter hereof; provided, however, that in the event of any inconsistency or
conflict between any provision hereof and the terms of the Plan, the terms of
the Plan shall control.
(f) Choice of Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, as such laws
are applied to contracts entered into and performed in such State.
SECTION 10. DEFINITIONS.
(a) Capitalized terms defined in the Plan shall have the same
meaning when used in this Agreement.
(b) "Change in Control" shall mean the occurrence of any of
the following events after the effective date of the Plan as set out in Section
14.1 of the Plan:
(1) A change in control required to be
reported pursuant to Item 6(e) of Schedule 14A of Regulation
14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act");
(2) A change in the composition of the
Company's Board of Directors (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;
(3) 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.
(c) "Common Share" shall mean one share of the common stock of
the Company.
(d) "Date of Grant" shall mean the date of this Agreement,
which is the date first written above.
(e) "Fair Market Value" shall mean the market price of a
Common Share, determined by the Committee as follows:
(1) 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;
(2) 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;
(3) 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
(4) 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.
(f) "Permanent Disability" shall mean that the Optionee is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which has lasted, or can be expected
to last, for a continuous period of not less than twelve (12) months or which
can be expected to result in death.
(g) "Purchase Price" shall mean the Exercise Price multiplied
by the number of Common Shares with respect to which this Option is being
exercised.
(h) "Retirement" shall mean a termination of employment of the
Optionee occurring at any time after the Optionee (i) has attained fifty (50)
years of age, and (ii) completed seven (7) years of service, as determined
pursuant to the terms of the Charles Schwab Profit Sharing and Employee Stock
Ownership Plan.
(i) "Securities Act" shall mean the Securities Act of 1933, as
amended.
Exhibit 10.177
THE CHARLES SCHWAB CORPORATION
1987 STOCK OPTION PLAN
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into as of ____________________
between THE CHARLES SCHWAB CORPORATION, a Delaware corporation (the "Company"),
and _________ (the "Optionee").
W I T N E S S E T H:
WHEREAS, the Board has adopted and the stockholders of the
Company have approved The Charles Schwab Corporation 1987 Stock Option Plan, as
amended (the "Plan") in order to provide selected Key Employees with an
opportunity to acquire Common Shares; and
WHEREAS, the Committee has determined that the Optionee is a
Key Employee and that it would be in the best interests of the Company and its
stockholders to grant the stock option described in this Agreement (the
"Option") to the Optionee as an inducement to enter into or remain in the
service of the Company or its subsidiaries and as an incentive for extraordinary
efforts during such service;
NOW, THEREFORE, the Optionee and the Company agree to the
provisions set forth in this Agreement. The Optionee signifies agreement with
all of the terms and conditions of this Agreement by failing to provide written
objection to the Company to any of the terms hereunder within 30 days of receipt
of this Agreement, and in any event by exercising an Option granted hereunder.
SECTION 1. GRANT OF OPTION.
(a) Option. On the terms and conditions stated below, the
Company hereby grants to the Optionee the option to purchase _____ Common Shares
for the amount of $24.625 per Common Share (the "Exercise Price"), which is
agreed to be 100% of the Fair Market Value thereof on the Date of Grant. The
number of Common Shares subject to this Option and the Exercise Price shall be
subject to adjustment under certain limited circumstances as provided in Article
10 of the Plan.
(b) 1987 Stock Option Plan. This Option is granted pursuant to
the Plan, the provisions of which are incorporated into this Agreement by
reference, and a copy of which is available upon request at no charge to the
Optionee from the Company. In the event of any inconsistency between the
provisions of the Plan and the provisions of this Agreement, the provisions of
the Plan shall prevail.
(c) Tax Treatment. This Option is intended to qualify as an
incentive stock option described in Section 422(b) of the Code.
(d) Expiration Date. Notwithstanding any other provision
contained herein, this Option shall expire not later than the date immediately
preceding the tenth anniversary of the Date of Grant.
SECTION 2. NO TRANSFER OR ASSIGNMENT OF OPTION.
Except as otherwise provided in this Agreement or as permitted
by the Plan, this Option, and any interest therein, shall not be transferred,
assigned, pledged or hypothecated in any way (whether by operation of law or
otherwise) and shall not be subject to sale under execution, attachment or
similar process.
SECTION 3. RIGHT TO EXERCISE OPTION.
(a) Vesting. This Option shall become exercisable by the
Optionee with respect to the total number of Common Shares subject to this
Option as set forth under Section 1(a) above (the "Total Award Common Shares"),
subject to the continued employment of the Optionee by the Company or its
subsidiaries on each date either set forth below, and subject to the provisions
of Section 3(e) hereof, in annual increments of the Total Award Common Shares
beginning on the first anniversary of the Date of Grant, such that (i) no
portion of this Option will be exercisable prior to such first anniversary of
the Date of Grant; (ii) upon and after such first anniversary of the Date of
Grant, the Optionee may purchase up to twenty-five percent (25%) of the Total
Award Common Shares, provided the optionee has been continually employed by the
Company or its subsidiaries since the date of grant; (iii) upon and after the
second, third and fourth anniversaries of the Date of Grant, respectively, the
Optionee may purchase an additional twenty-five percent (25%) of the Total Award
Common Shares, provided in each case that the Optionee has been continually
employed by the Company or its subsidiaries since the Date of Grant.
(b) Minimum Number of Shares. This Option shall be exercisable
for at least 100 Common Shares (without regard to adjustments to the number of
Common Shares subject to this Option pursuant to Article 10 of the Plan) or, if
less, (i) the number of shares with respect to which this Option has become
vested under Section 3(a) above, or (ii) all of the remaining Common Shares
subject to this Option.
(c) Full Vesting on Change in Control. Notwithstanding
subparagraph (a) hereof, this Option shall become fully exercisable as to the
Total Award Common Shares immediately preceding any Change in Control with
respect to the Company. In the event that the Committee determines that a Change
in Control is likely to occur, the Company shall so advise the Optionee, and the
provisions of this subparagraph (c) shall take effect as of the date ten (10)
days prior to the anticipated date of such Change in Control.
(d) Accelerated Vesting on Retirement in Certain Cases.
Notwithstanding subparagraph (a) hereof, if the Optionee terminates employment
with the Company and its subsidiaries on account of Retirement, all options
granted hereunder shall become fully exerciseable, but only if such retirement
occurs at least two (2) years after the date of grant.
(e) Vesting Contingent on Satisfactory Performance.
Notwithstanding subparagraph (a) hereof, the continued accrual of vesting
pursuant to subparagraph (a) is contingent upon the Optionee's satisfactory job
performance, and the Company may, in its sole discretion, upon notice to the
Optionee suspend or delay the vesting of Options hereunder for any period of
time in the event that the Company determines, within its sole discretion, that
the Optionee's performance is unsatisfactory.
SECTION 4. EXERCISE OF OPTION.
(a) Notice of Exercise. The Optionee or the Optionee's
representative may exercise this Option by giving written notice to the Company
(or its designee) pursuant to Section 9(d). The notice shall specify the
election to exercise this Option, the date of exercise, the number of Common
Shares for which it is being exercised and the form of payment. The notice shall
be signed by the person or persons exercising this Option. In the event that
this Option is being exercised by the representative of the Optionee, the notice
shall be accompanied by proof satisfactory to the Company of the
representative's right to exercise this Option. The Purchase Price for Common
Shares shall be paid in a form that conforms to Sections 6.1 through 6.3 of the
Plan at the time such notice is given.
(b) Issuance of Shares. After receiving a proper notice of
exercise, the Company shall cause to be issued a certificate or certificates for
the Common Shares so purchased, registered in the name of the person exercising
this Option. The Company shall cause such certificate or certificates to be
delivered to or upon the order of the person exercising this Option.
SECTION 5. TERM.
(a) Basic Term. This Option shall in any event expire on the
date specified in Section 1(d).
(b) Termination of Employment. Subject only to the provisions
of Section 3(d), upon the Optionee's termination of employment with the Company
and its subsidiaries for any reason, whether as a result of death, Permanent
Disability or any other involuntary or voluntary event of termination of
employment (including a termination of employment as may be provided for or
determined under an employment contract, if any, entered into between the
Company or its subsidiary and the Optionee) (each, a "Termination Event"), no
unvested portion of the Total Award Common Shares thereafter shall vest or
become exercisable. With respect to the vested or exercisable portion of the
Total Award Common Shares as of the date of such a Termination Event, this
Option shall expire on the earlier of (i) the expiration date specified in
Section 1(d) or (ii) whichever of the following is applicable: (A) in the case
of a Termination Event resulting from death or Permanent Disability, the date
one year following such Termination Event; or (B) in all other cases, the date
three (3) months following such Termination Event.
(c) Divestment of Options. Notwithstanding anything to the
contrary contained herein, this Option shall immediately become forfeited and
expire in the event that the Company terminates the Optionee's employment on
account of conduct inimical to the best interests of the Company, including,
without limitation, conduct constituting a violation of law or Company policy,
fraud, theft, conflict of interest, dishonesty or harassment. The determination
whether the Optionee's employment has been terminated on account of conduct
inimical to the best interests of the Company shall be made by the Company in
its sole discretion.
SECTION 6. LEGALITY OF INITIAL ISSUANCE.
No Common Shares shall be issued upon the exercise of this
Option unless and until the Company has determined that:
(a) A registration statement for the Common
Shares is effective under the Securities Act or an exemption
from the registration requirements thereof has been perfected;
(b) Any applicable listing requirement of
any stock exchange on which Common Shares are listed has been
satisfied; and
(c) Any other applicable provisions of state
or federal law have been satisfied.
SECTION 7. NO REGISTRATION RIGHTS.
The Company may, but shall not be obligated to, register or
qualify the Common Shares for resale or other disposition by the Optionee under
the Securities Act or any other applicable law.
SECTION 8. RESTRICTIONS ON TRANSFER OF SHARES.
(a) Restrictions. Regardless of whether the offering and sale
of Common Shares under the Plan have been registered under the Securities Act or
have been registered or qualified under the securities laws of any state, the
Company may impose restrictions upon the sale, pledge or other transfer of such
Common Shares (including the placement of appropriate legends on stock
certificates) if, in the judgment of the Company and its counsel, such
restrictions are necessary or desirable in order to achieve compliance with the
provisions of the Securities Act, the securities laws of any state or any other
law.
(b) Investment Intent at Exercise. If the Common Shares under
the Plan are not registered under the Securities Act but an exemption is
available which requires an investment representation or other representation,
the Optionee shall represent and agree at the time of exercise that the Common
Shares being acquired upon exercising this Option are being acquired for
investment, and not with a view to the sale or distribution thereof, and shall
make such other representations as are deemed necessary or appropriate by the
Company and its counsel.
(c) Administration. Any determination by the Company and its
counsel in connection with any of the matters set forth in this Section 8 shall
be conclusive and binding on the Optionee and all other persons.
SECTION 9. MISCELLANEOUS PROVISIONS.
(a) Withholding Taxes. To the extent required by applicable
federal, state, local or foreign law the Optionee shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise by reason of the exercise of an Option hereunder and no
Option may be exercised unless such obligation is satisfied.
(b) Rights as a Stockholder. Neither the Optionee nor the
Optionee's representative shall have any rights as a stockholder with respect to
any Common Shares subject to this Option until certificates for such Common
Shares have been issued in the name of the Optionee or the Optionee's
representative.
(c) No Employment Rights. Nothing in this Agreement shall be
construed as giving the Optionee the right to be retained as an employee of the
Company or its subsidiaries. The Company reserves the right to terminate the
Optionee's employment at any time for any reason, subject only to the terms of
any written employment contract entered into between the Company and the
Optionee.
(d) Notice. Any notice required by the terms of this Agreement
shall be given in writing and shall be deemed effective upon personal delivery
or upon deposit with the appropriate postal service, by registered or certified
mail with postage and fees prepaid and addressed to the party entitled to such
notice at the address shown below such party's signature on this Agreement, or
at such other address as such party may designate by ten (10) days advance
written notice to the other party to this Agreement. Notwithstanding the
foregoing, no notice of exercise, as required by Section 4(a), shall be
effective until actual receipt thereof by the Company or its designee.
(e) Entire Agreement. This Agreement and the Plan constitute
the entire agreement between the parties hereto with regard to the subject
matter hereof; provided, however, that in the event of any inconsistency or
conflict between any provision hereof and the terms of the Plan, the terms of
the Plan shall control.
(f) Choice of Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, as such laws
are applied to contracts entered into and performed in such State.
SECTION 10. DEFINITIONS.
(a) Capitalized terms defined in the Plan shall have the same
meaning when used in this Agreement.
(b) "Change in Control" shall mean the occurrence of any of
the following events after the effective date of the Plan as set out in Section
14.1 of the Plan:
(1) A change in control required to be
reported pursuant to Item 6(e) of Schedule 14A of Regulation
14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act");
(2) A change in the composition of the
Company's Board of Directors (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;
(3) 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.
(c) "Common Share" shall mean one share of the common stock of
the Company.
(d) "Date of Grant" shall mean the date of this Agreement,
which is the date first written above.
(e) "Fair Market Value" shall mean the market price of a
Common Share, determined by the Committee as follows:
(1) 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;
(2) 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;
(3) 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
(4) 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.
(f) "Permanent Disability" shall mean that the Optionee is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which has lasted, or can be expected
to last, for a continuous period of not less than twelve (12) months or which
can be expected to result in death.
(g) "Purchase Price" shall mean the Exercise Price multiplied
by the number of Common Shares with respect to which this Option is being
exercised.
(h) "Retirement" shall mean a termination of employment of the
Optionee occurring at any time after the Optionee (i) has attained fifty (50)
years of age, and (ii) completed seven (7) years of service, as determined
pursuant to the terms of the Charles Schwab Profit Sharing and Employee Stock
Ownership Plan.
(i) "Securities Act" shall mean the Securities Act of 1933, as
amended.
Exhibit 10.178
THE CHARLES SCHWAB CORPORATION
1987 STOCK OPTION PLAN
RESTRICTED SHARES AWARD AGREEMENT
THIS AGREEMENT is entered into between The Charles Schwab Corporation,
a Delaware corporation (the "Company") and ____ (the "Employee").
WITNESSETH:
WHEREAS, the Company has adopted The Charles Schwab Corporation 1987
Stock Option Plan (the "Plan"), which provides for the granting of restricted
shares of Common Stock of the Company ("Restricted Shares") to key employees of
the Company and its Subsidiaries; and
WHEREAS, the Compensation Committee of the Board of Directors of the
Company (the "Committee"), which is responsible for the administration of the
Plan, has authorized the granting of an award of Restricted Shares to the
Employee, effective as of _____________________; and
WHEREAS, this Agreement is prepared in conjunction with and pursuant to
the terms of the Plan and, although all of the terms of the Plan and the
definitions used in this Plan have not been set forth herein, such terms and
definitions are incorporated herein and made a part hereof by reference, and,
except as otherwise expressly stated herein, the provisions of the Plan shall
govern any interpretation of this Agreement; and
WHEREAS, the Employee has accepted the grant of Restricted Shares and
agreed to the terms and conditions hereinafter stated;
NOW, THEREFORE, the Optionee and the Company agree to the provisions
set forth in this Agreement. The Optionee signifies agreement with all of the
terms and conditions of this Agreement by failing to provide written objection
to the Company to any of the terms hereunder within 30 days of receipt of this
Agreement, and in any event by exercising an Option granted hereunder.
1. Grant of Restricted Shares. The Company hereby grants to the
Employee, as a separate incentive in connection with his or her employment and
not in lieu of any salary or other cash compensation for his or her services, an
award of ____ Restricted Shares, effective_____________, subject to all the
terms and conditions in this Agreement and the Plan.
2. Restriction on Transfer. The Restricted Shares awarded pursuant to
this Agreement shall be issued in the name of The Employee and held by the
Secretary of the Company as escrow agent (the "Escrow Agent"), and shall not be
sold, transferred, otherwise disposed of, pledged or otherwise hypothecated
until the date such Restricted Shares become vested pursuant to paragraph 3
hereof (the "Restriction on Transfer"). The Company may instruct the transfer
agent for its Common Stock to place a legend on the certificates representing
the Restricted Shares or otherwise note its records as to the restrictions on
transfer set forth in this Agreement and the Plan. The certificate or
certificates representing such shares shall be delivered by the Escrow Agent to
The Employee only after the shares become vested on the date specified in
paragraph 3 and after all other terms and conditions in this Agreement have been
satisfied.
3. Vesting of Shares. The Restricted Shares awarded by this Agreement
shall become vested as follows: Effective as of the date hereof (the "Grant
Date"), the Restricted Shares shall be 0% vested. If the Employee is employed
for a continuous period beginning on the date hereof and ending on the third
anniversary of the Grant Date, 50% of the Restricted Shares shall become vested.
If the Employee shall continue to be employed for a continuous period ending on
the fourth anniversary of the Grant Date, an additional 50% of the Restricted
Shares shall become vested, so that at such time all of the Restricted Shares
subject to this Agreement shall be then vested. Notwithstanding the foregoing,
in the event of the Employee's Retirement after the second anniversary of the
Grant Date, 100% of the Restricted Shares shall be then vested. For purposes of
this Agreement, Retirement shall mean a termination of employment of the
Employee at any time after the Employee (i) has attained fifty (50) years of
age, and (ii) has completed seven (7) years of service, as determined pursuant
to the terms of the Charles Schwab Profit Sharing and Employee Stock Ownership
Plan. Notwithstanding the foregoing, however, the accrual of vesting pursuant to
this paragraph is contingent upon the Employee's satisfactory job performance,
and the Company may, in its sole discretion, upon notice to the Employee,
suspend or delay the vesting of the Restricted Shares hereunder for any period
of time in the event that the Company determines, within its sole discretion,
that the Employee's performance is unsatisfactory. Upon the vesting of
Restricted Shares hereunder, the certificate or certificates representing such
Restricted Shares shall be delivered to the Employee.
4. Change in Control. Upon the determination of the Committee that a
Change in Control of the Company has occurred, or in the event of the
liquidation or dissolution of the Company, the Restricted Shares shall become
fully vested and the Restriction on Transfer shall be lifted, notwithstanding
any other provision of this Agreement, and the certificate or certificates
representing such Restricted Shares shall be delivered to the Employee.
5. Discretion of Committee. The Committee may decide, in its absolute
discretion, to lift at any time the Restriction on Transfer or to accelerate the
vesting of the Restricted Shares, and the certificate or certificates
representing such Restricted Shares shall be delivered to the Employee.
6. Delivery of Shares to Estate of Deceased Employee. Any distribution
or delivery to be made to the Employee under this Agreement shall, if the
Employee is then deceased, be made to the Employee's estate in accordance with
the terms of Section 7.5 of the Plan.
7. Conditions to Issuance of Shares. The Restricted Shares deliverable
to the Employee may be either previously authorized but unissued shares or
issued shares which have been reacquired by the Company. The Company shall not
be required to issue any certificate or certificates for Restricted Shares
hereunder prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed;
(b) The completion of any registration or other qualification of such
shares under any State or federal law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body,
which the Committee shall, in its absolute discretion, deem necessary or
advisable;
(c) The obtaining of any approval or other clearance from any State or
federal governmental agency, which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The lapse of such reasonable period of time following the date of
the grant of the Restricted Shares as the Committee may establish from time to
time for reasons of administrative convenience.
Neither the Employee nor any person claiming under or through the
Employee shall be, or have any of the rights or privileges of, a stockholder of
the Company in respect of any Restricted Shares deliverable hereunder unless and
until certificates representing such shares shall have been issued, recorded on
the records of the Company or its transfer agents or registrars, and delivered
to the Employee or the Escrow Agent. Except as provided in paragraph 8, after
such issuance, recordation and delivery, the Employee shall have all rights of a
stockholder of the Company with respect to voting such Restricted Shares and
receipt of dividends and distributions on such Restricted Shares.
8. Certain Adjustments to Shares. In the event that as a result of a
stock dividend, stock split, reclassification, recapitalization, combination of
shares or the adjustment in capital stock of the Company or otherwise, or as a
result of a merger, consolidation, spin-off or other reorganization, the
Company's Common Stock shall be increased, reduced or otherwise changed, and by
virtue of any such change the Employee shall in his or her capacity as owner of
Restricted Shares which have been awarded to him or her (the "Prior Shares") be
entitled to new or additional or different shares or securities (other than
rights or warrants to purchase securities), such new or additional or different
shares or securities shall thereupon be considered to be Restricted Shares and
shall be subject to all of the conditions and restrictions which were applicable
to the Prior Shares pursuant to the Plan. If the Employee receives rights or
warrants with respect to any Prior Shares, such rights or warrants may be held
or exercised by the Employee, provided that until such exercise any such rights
or warrants and after such exercise any shares or other securities acquired by
the exercise of such rights or warrants shall be considered to be Restricted
Shares and shall be subject to all of the conditions and restrictions which were
applicable to the Prior Shares pursuant to the Plan. The Committee in its
absolute discretion at any time may lift the Restriction on Transfer of all or
any portion of such new or additional shares of stock or securities, rights or
warrants to purchase securities or shares or other securities acquired by the
exercise of such rights or warrants.
9. Contribution of Par Value to Capital of the Company. Notwithstanding
the provisions of Section 7.2 of the Plan, the Company will contribute to the
capital of the Company on behalf of the Employee, as an Award recipient, an
amount equal to the par value of the Restricted Shares issued to the Employee
hereunder.
10. Tax Withholding. To the extent required by applicable federal,
state, local or foreign law, the Employee shall make arrangements satisfactory
to the Company for the satisfaction of any withholding tax obligations that
arise by reason of the awarding or vesting of the Restricted Shares hereunder,
or by reason of any election made by the Employee pursuant to Section 83(b) of
the Internal Revenue Code, and no Share certificates shall be issued to the
Employee unless such obligation is satisfied.
11. Plan Shall Control. This Agreement is subject to all the terms and
provisions of the Plan. In the event of a conflict between any provisions of
this Agreement and any provisions of the Plan, the provisions of the Plan shall
govern. Terms used in this Agreement that are not defined in this Agreement
shall have the meaning set forth in the Plan.
12. Powers of the Committee. The Committee shall have the power to
interpret and construe the Plan and this Agreement and to adopt such rules for
the administration, interpretation and application of the Plan as are consistent
therewith and to interpret or revoke any such rules. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon the Employee, the Employee's estate, the Company and all
other interested persons. No member of the Committee shall be personally liable
for any action, determination or interpretation made in good faith with respect
to the Plan or this Agreement.
13. No Effect on Other Benefit Plans. Nothing herein contained shall
affect the Employee's right to participate in and receive benefits under and in
accordance with the then current provisions of any pension, insurance or other
Employee welfare plan or program of the Company or any Subsidiary.
14. Nonassignability. So long as the Restriction on Transfer is in
effect, the Restricted Shares herein granted and the rights and privileges
conferred hereby shall not be transferred, assigned, pledged or hypothecated in
any way (whether by operation or law or otherwise) and shall not be subject to
sale under execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of such award or any
right or privilege conferred hereby, contrary to the provisions hereof, or upon
any attempted sale under any execution, attachment or similar process upon the
rights and privileges conferred hereby, such award and the rights and privileges
conferred hereby shall immediately become null and void.
15. Successors and Assigns. Subject to the limitation on the
transferability of the Restricted Shares contained herein, this Agreement shall
be binding upon and inure to the benefit of the heirs, legatees, legal
representatives, successor and assigns of the Employee and the Company.
16. Notices. Any notice to be given to the Company under the terms of
this Agreement shall be addressed to the Company, in care of its Secretary, at
101 Montgomery Street, San Francisco, California 94104, or at such other address
as the Company may hereafter designate in writing. Any notice to be given to the
Employee shall be addressed to the Employee at the address set forth beneath the
Employee's signature hereto, or at such other address as the Employee may
hereafter designate in writing. Any such notice shall be deemed to have been
duly given if and when enclosed in a properly sealed envelope, addressed as
aforesaid, registered or certified and deposited, postage and registry fee
prepaid, in a United States post office.
17. Severability. In the event that any provision of this Agreement
shall be held invalid or unenforceable, such provision shall be severable from,
and such invalidity or unenforceability shall not be construed to have any
effect on, the remaining provisions of this Agreement.
18. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of California.
Exhibit 10.179
THE CHARLES SCHWAB CORPORATION
1987 EXECUTIVE OFFICER STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into as of _________________ between
THE CHARLES SCHWAB CORPORATION, a Delaware corporation (the "Company"), and
__________ (the "Optionee").
W I T N E S S E T H:
WHEREAS, the Board has adopted and the stockholders of the
Company have approved The Charles Schwab Corporation 1987 Executive Officer
Stock Option Plan, as amended (the "Plan") in order to provide selected Key
Employees with an opportunity to acquire Common Shares; and
WHEREAS, the Committee has determined that the Optionee is a
Key Employee and that it would be in the best interests of the Company and its
stockholders to grant the stock option described in this Agreement (the
"Option") to the Optionee as an inducement to enter into or remain in the
service of the Company or its subsidiaries and as an incentive for extraordinary
efforts during such service:
NOW, THEREFORE, the Optionee and the Company agree to the
provisions set forth in this Agreement. The Optionee signifies agreement with
all of the terms and conditions of this Agreement by failing to provide written
objection to the Company to any of the terms hereunder within 30 days of receipt
of this Agreement, and in any event by exercising an Option granted hereunder.
SECTION 1. GRANT OF OPTION.
(a) Option. On the terms and conditions stated below, the
Company hereby grants to the Optionee the option to purchase _____ Common Shares
for the amount of $24.625 per Common Share (the "Exercise Price"), which is
agreed to be 100% of the Fair Market Value thereof on the Date of Grant. The
number of Common Shares subject to this Option and the Exercise Price shall be
subject to adjustment under certain limited circumstances as provided in Article
10 of the Plan.
(b) 1987 Executive Officer Stock Option Plan. This Option is
granted pursuant to the Plan, the provisions of which are incorporated into this
Agreement by reference, and a copy of which is available upon request at no
charge to the Optionee from the Company. In the event of any inconsistency
between the provisions of the Plan and the provisions of this Agreement, the
provisions of the Plan shall prevail.
(c) Tax Treatment. This Option is not intended to qualify as
an incentive stock option described in Section 422(b) of the Code.
(d) Expiration Date. Notwithstanding any other provision
contained herein, this Option shall expire not later than the date immediately
preceding the tenth anniversary of the Date of Grant.
SECTION 2. NO TRANSFER OR ASSIGNMENT OF OPTION.
Except as otherwise provided in this Agreement or as permitted
by the Plan, this Option, and any interest therein, shall not be transferred,
assigned, pledged or hypothecated in any way (whether by operation of law or
otherwise) and shall not be subject to sale under execution, attachment or
similar process.
SECTION 3. RIGHT TO EXERCISE OPTION.
(a) Vesting. This Option shall become exercisable by the
Optionee with respect to the total number of Common Shares subject to this
Option as set forth under Section 1(a) above (the "Total Award Common Shares"),
subject to the continued employment of the Optionee by the Company or its
subsidiaries on each date either set forth below, and subject to the provisions
of Section 3(e) hereof, in annual increments of the Total Award Common Shares
beginning on the first anniversary of the Date of Grant, such that (i) no
portion of this Option will be exercisable prior to such first anniversary of
the Date of Grant; (ii) upon and after such first anniversary of the Date of
Grant, the Optionee may purchase up to twenty-five percent (25%) of the Total
Award Common Shares, provided the optionee has been continually employed by the
Company or its subsidiaries since the date of grant; (iii) upon and after the
second, third and fourth anniversaries of the Date of Grant, respectively, the
Optionee may purchase an additional twenty-five percent (25%) of the Total Award
Common Shares, provided in each case that the Optionee has been continually
employed by the Company or its subsidiaries since the Date of Grant.
(b) Minimum Number of Shares. This Option shall be exercisable
for at least 100 Common Shares (without regard to adjustments to the number of
Common Shares subject to this Option pursuant to Article 10 of the Plan) or, if
less, (i) the number of shares with respect to which this Option has become
vested under Section 3(a) above, or (ii) all of the remaining Common Shares
subject to this Option.
(c) Full Vesting on Change in Control. Notwithstanding
subparagraph (a) hereof, this Option shall become fully exercisable as to the
Total Award Common Shares immediately preceding any Change in Control with
respect to the Company. In the event that the Committee determines that a Change
in Control is likely to occur, the Company shall so advise the Optionee, and the
provisions of this subparagraph (c) shall take effect as of the date ten (10)
days prior to the anticipated date of such Change in Control.
(d) Accelerated Vesting on Retirement in Certain Cases.
Notwithstanding subparagraph (a) hereof, if the Optionee terminates employment
with the Company and its subsidiaries on account of Retirement, all options
granted hereunder shall become fully exerciseable, but only if such retirement
occurs at least two (2) years after the date of grant.
(e) Vesting Contingent on Satisfactory Performance.
Notwithstanding subparagraph (a) hereof, the continued accrual of vesting
pursuant to subparagraph (a) is contingent upon the Optionee's satisfactory job
performance, and the Company may, in its sole discretion, upon notice to the
Optionee suspend or delay the vesting of Options hereunder for any period of
time in the event that the Company determines, within its sole discretion, that
the Optionee's performance is unsatisfactory.
SECTION 4. EXERCISE OF OPTION.
(a) Notice of Exercise. The Optionee or the Optionee's
representative may exercise this Option by giving written notice to the Company
(or its designee) pursuant to Section 9(d). The notice shall specify the
election to exercise this Option, the date of exercise, the number of Common
Shares for which it is being exercised and the form of payment. The notice shall
be signed by the person or persons exercising this Option. In the event that
this Option is being exercised by the representative of the Optionee, the notice
shall be accompanied by proof satisfactory to the Company of the
representative's right to exercise this Option. The Purchase Price for Common
Shares shall be paid in a form that conforms to Sections 6.1 through 6.3 of the
Plan at the time such notice is given.
(b) Issuance of Shares. After receiving a proper notice of
exercise, the Company shall cause to be issued a certificate or certificates for
the Common Shares so purchased, registered in the name of the person exercising
this Option. The Company shall cause such certificate or certificates to be
delivered to or upon the order of the person exercising this Option.
SECTION 5. TERM.
(a) Basic Term. This Option shall in any event expire on the
date specified in Section 1(d).
(b) Termination of Employment. Subject only to the provisions
of Section 3(d), upon the Optionee's termination of employment with the Company
and its subsidiaries for any reason, whether as a result of death, Permanent
Disability or any other involuntary or voluntary event of termination of
employment (including a termination of employment as may be provided for or
determined under an employment contract, if any, entered into between the
Company or its subsidiary and the Optionee) (each, a "Termination Event"), no
unvested portion of the Total Award Common Shares thereafter shall vest or
become exercisable. With respect to the vested or exercisable portion of the
Total Award Common Shares as of the date of such a Termination Event, this
Option shall expire on the earlier of (i) the expiration date specified in
Section 1(d) or (ii) whichever of the following is applicable: (A) in the case
of a Termination Event resulting from death or Permanent Disability, the date
one year following such Termination Event; (B) in the case of a Termination
Event resulting from Retirement, the date two years following such Termination
Event; or (C) in all other cases, the date three (3) months following such
Termination Event.
(c) Divestment of Options. Notwithstanding anything to the
contrary contained herein, this Option shall immediately become forfeited and
expire in the event that the Company terminates the Optionee's employment on
account of conduct inimical to the best interests of the Company, including,
without limitation, conduct constituting a violation of law or Company policy,
fraud, theft, conflict of interest, dishonesty or harassment. The determination
whether the Optionee's employment has been terminated on account of conduct
inimical to the best interests of the Company shall be made by the Company in
its sole discretion.
SECTION 6. LEGALITY OF INITIAL ISSUANCE.
No Common Shares shall be issued upon the exercise of this
Option unless and until the Company has determined that:
(a) A registration statement for the Common
Shares is effective under the Securities Act or an exemption
from the registration requirements thereof has been perfected;
(b) Any applicable listing requirement of
any stock exchange on which Common Shares are listed has been
satisfied; and
(c) Any other applicable provisions of state
or federal law have been satisfied.
SECTION 7. NO REGISTRATION RIGHTS.
The Company may, but shall not be obligated to, register or
qualify the Common Shares for resale or other disposition by the Optionee under
the Securities Act or any other applicable law.
SECTION 8. RESTRICTIONS ON TRANSFER OF SHARES.
(a) Restrictions. Regardless of whether the offering and sale
of Common Shares under the Plan have been registered under the Securities Act or
have been registered or qualified under the securities laws of any state, the
Company may impose restrictions upon the sale, pledge or other transfer of such
Common Shares (including the placement of appropriate legends on stock
certificates) if, in the judgment of the Company and its counsel, such
restrictions are necessary or desirable in order to achieve compliance with the
provisions of the Securities Act, the securities laws of any state or any other
law.
(b) Investment Intent at Exercise. If the Common Shares under
the Plan are not registered under the Securities Act but an exemption is
available which requires an investment representation or other representation,
the Optionee shall represent and agree at the time of exercise that the Common
Shares being acquired upon exercising this Option are being acquired for
investment, and not with a view to the sale or distribution thereof, and shall
make such other representations as are deemed necessary or appropriate by the
Company and its counsel.
(c) Administration. Any determination by the Company and its
counsel in connection with any of the matters set forth in this Section 8 shall
be conclusive and binding on the Optionee and all other persons.
SECTION 9. MISCELLANEOUS PROVISIONS.
(a) Withholding Taxes. To the extent required by applicable
federal, state, local or foreign law, the Optionee shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise by reason of the exercise of an Option hereunder, and no
Option may be exercised unless such obligation is satisfied.
(b) Rights as a Stockholder. Neither the Optionee nor the
Optionee's representative shall have any rights as a stockholder with respect to
any Common Shares subject to this Option until certificates for such Common
Shares have been issued in the name of the Optionee or the Optionee's
representative.
(c) No Employment Rights. Nothing in this Agreement shall be
construed as giving the Optionee the right to be retained as an employee of the
Company or its subsidiaries. The Company reserves the right to terminate the
Optionee's employment at any time for any reason, subject only to the terms of
any written employment contract entered into between the Company and the
Optionee.
(d) Notice. Any notice required by the terms of this Agreement
shall be given in writing and shall be deemed effective upon personal delivery
or upon deposit with the appropriate postal service, by registered or certified
mail with postage and fees prepaid and addressed to the party entitled to such
notice at the address shown below such party's signature on this Agreement, or
at such other address as such party may designate by ten (10) days advance
written notice to the other party to this Agreement. Notwithstanding the
foregoing, no notice of exercise, as required by Section 4(a), shall be
effective until actual receipt thereof by the Company or its designee.
(e) Entire Agreement. This Agreement and the Plan constitute
the entire agreement between the parties hereto with regard to the subject
matter hereof; provided, however, that in the event of any inconsistency or
conflict between any provision hereof and the terms of the Plan, the terms of
the Plan shall control.
(f) Choice of Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, as such laws
are applied to contracts entered into and performed in such State.
SECTION 10. DEFINITIONS.
(a) Capitalized terms defined in the Plan shall have the same
meaning when used in this Agreement.
(b) "Change in Control" shall mean the occurrence of any of
the following events after the effective date of the Plan as set out in Section
14.1 of the Plan:
(1) A change in control required to be
reported pursuant to Item 6(e) of Schedule 14A of Regulation
14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act");
(2) A change in the composition of the
Company's Board of Directors (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;
(3) 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.
(c) "Common Share" shall mean one share of the common stock of
the Company.
(d) "Date of Grant" shall mean the date of this Agreement,
which is the date first written above.
(e) "Fair Market Value" shall mean the market price of a
Common Share, determined by the Committee as follows:
(1) 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;
(2) 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;
(3) 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
(4) 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.
(f) "Permanent Disability" shall mean that the Optionee is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which has lasted, or can be expected
to last, for a continuous period of not less than twelve (12) months or which
can be expected to result in death.
(g) "Purchase Price" shall mean the Exercise Price multiplied
by the number of Common Shares with respect to which this Option is being
exercised.
(h) "Retirement" shall mean a termination of employment of the
Optionee occurring at any time after the Optionee (i) has attained fifty (50)
years of age, and (ii) completed seven (7) years of service, as determined
pursuant to the terms of the Charles Schwab Profit Sharing and Employee Stock
Ownership Plan.
(i) "Securities Act" shall mean the Securities Act of 1933, as
amended.
Exhibit 10.180
THE CHARLES SCHWAB CORPORATION
1987 EXECUTIVE OFFICER STOCK OPTION PLAN
RESTRICTED SHARES AWARD AGREEMENT
THIS AGREEMENT is entered into between The Charles Schwab Corporation,
a Delaware corporation (the "Company") and ____ (the "Employee").
WITNESSETH:
WHEREAS, the Company has adopted The Charles Schwab Corporation 1987
Executive Officer Stock Option Plan (the "Plan"), which provides for the
granting of restricted shares of Common Stock of the Company ("Restricted
Shares") to key employees of the Company and its Subsidiaries; and
WHEREAS, the Compensation Committee of the Board of Directors of the
Company (the "Committee"), which is responsible for the administration of the
Plan, has authorized the granting of an award of Restricted Shares to the
Employee, effective as of _____________________; and
WHEREAS, this Agreement is prepared in conjunction with and pursuant to
the terms of the Plan and, although all of the terms of the Plan and the
definitions used in this Plan have not been set forth herein, such terms and
definitions are incorporated herein and made a part hereof by reference, and,
except as otherwise expressly stated herein, the provisions of the Plan shall
govern any interpretation of this Agreement; and
WHEREAS, the Employee has accepted the grant of Restricted Shares and
agreed to the terms and conditions hereinafter stated;
NOW, THEREFORE, the Employee and the Company agree to the provisions
set forth in this Agreement. The Employee signifies agreement with all of the
terms and conditions of this Agreement by failing to provide written objection
to the Company to any of the terms hereunder within 30 days of receipt of this
Agreement, and in any event by accepting any dividends paid with respect to the
Restricted Shares granted hereunder.
1. Grant of Restricted Shares. The Company hereby grants to the
Employee, as a separate incentive in connection with his or her employment and
not in lieu of any salary or other cash compensation for his or her services, an
award of xxxx Restricted Shares, effective_____________, subject to all the
terms and conditions in this Agreement and the Plan.
2. Restriction on Transfer. The Restricted Shares awarded pursuant to
this Agreement shall be issued in the name of the Employee and held by the
Secretary of the Company as escrow agent (the "Escrow Agent"), and shall not be
sold, transferred, otherwise disposed of, pledged or otherwise hypothecated
until the date such Restricted Shares become vested pursuant to paragraph 3
hereof (the "Restriction on Transfer"). The Company may instruct the transfer
agent for its Common Stock to place a legend on the certificates representing
the Restricted Shares or otherwise note its records as to the restrictions on
transfer set forth in this Agreement and the Plan. The certificate or
certificates representing such shares shall be delivered by the Escrow Agent to
the Employee only after the shares become vested on the date specified in
paragraph 3 and after all other terms and conditions in this Agreement have been
satisfied.
3. Vesting of Shares. The Restricted Shares awarded by this Agreement
shall become vested as follows: Effective as of the date hereof (the "Grant
Date"), the Restricted Shares shall be 0% vested. If the Employee is employed
for a continuous period beginning on the date hereof and ending on the third
anniversary of the Grant Date, 50% of the Restricted Shares shall become vested.
If the Employee shall continue to be employed for a continuous period ending on
the fourth anniversary of the Grant Date, an additional 50% of the Restricted
Shares shall become vested, so that at such time all of the Restricted Shares
subject to this Agreement shall be then vested. Notwithstanding the foregoing,
in the event of the Employee's Retirement after the second anniversary of the
Grant Date, 100% of the Restricted Shares shall be then vested. For purposes of
this Agreement, Retirement shall mean a termination of employment of the
Employee at any time after the Employee (i) has attained fifty (50) years of
age, and (ii) has completed seven (7) years of service, as determined pursuant
to the terms of the Charles Schwab Profit Sharing and Employee Stock Ownership
Plan. Notwithstanding the foregoing, however, the accrual of vesting pursuant to
this paragraph is contingent upon the Employee's satisfactory job performance,
and the Company may, in its sole discretion, upon notice to the Employee,
suspend or delay the vesting of the Restricted Shares hereunder for any period
of time in the event that the Company determines, within its sole discretion,
that the Employee's performance is unsatisfactory. Upon the vesting of
Restricted Shares hereunder, the certificate or certificates representing such
Restricted Shares shall be delivered to the Employee.
4. Change in Control. Upon the determination of the Committee that a
Change in Control of the Company has occurred, or in the event of the
liquidation or dissolution of the Company, the Restricted Shares shall become
fully vested and the Restriction on Transfer shall be lifted, notwithstanding
any other provision of this Agreement, and the certificate or certificates
representing such Restricted Shares shall be delivered to the Employee.
5. Discretion of Committee. The Committee may decide, in its absolute
discretion, to lift at any time the Restriction on Transfer or to accelerate the
vesting of the Restricted Shares, and the certificate or certificates
representing such Restricted Shares shall be delivered to the Employee.
6. Delivery of Shares to Estate of Deceased Employee. Any distribution
or delivery to be made to the Employee under this Agreement shall, if the
Employee is then deceased, be made to the Employee's estate in accordance with
the terms of Section 7.5 of the Plan.
7. Conditions to Issuance of Shares. The Restricted Shares deliverable
to the Employee may be either previously authorized but unissued shares or
issued shares which have been reacquired by the Company. The Company shall not
be required to issue any certificate or certificates for Restricted Shares
hereunder prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other qualification
of such shares under any State or federal law or under the rulings or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body, which the Committee shall, in its
absolute discretion, deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any
State or federal governmental agency, which the Committee shall, in its
absolute discretion, determine to be necessary or advisable; and
(d) The lapse of such reasonable period of time following the
date of the grant of the Restricted Shares as the Committee may
establish from time to time for reasons of administrative convenience.
Neither the Employee nor any person claiming under or through
the Employee shall be, or have any of the rights or privileges of, a stockholder
of the Company in respect of any Restricted Shares deliverable hereunder unless
and until certificates representing such shares shall have been issued, recorded
on the records of the Company or its transfer agents or registrars, and
delivered to the Employee or the Escrow Agent. Except as provided in paragraph
8, after such issuance, recordation and delivery, the Employee shall have all
rights of a stockholder of the Company with respect to voting such Restricted
Shares and receipt of dividends and distributions on such Restricted Shares.
8. Certain Adjustments to Shares. In the event that as a result of a
stock dividend, stock split, reclassification, recapitalization, combination of
shares or the adjustment in capital stock of the Company or otherwise, or as a
result of a merger, consolidation, spin-off or other reorganization, the
Company's Common Stock shall be increased, reduced or otherwise changed, and by
virtue of any such change the Employee shall in his or her capacity as owner of
Restricted Shares which have been awarded to him or her (the "Prior Shares") be
entitled to new or additional or different shares or securities (other than
rights or warrants to purchase securities), such new or additional or different
shares or securities shall thereupon be considered to be Restricted Shares and
shall be subject to all of the conditions and restrictions which were applicable
to the Prior Shares pursuant to the Plan. If the Employee receives rights or
warrants with respect to any Prior Shares, such rights or warrants may be held
or exercised by the Employee, provided that until such exercise any such rights
or warrants and after such exercise any shares or other securities acquired by
the exercise of such rights or warrants shall be considered to be Restricted
Shares and shall be subject to all of the conditions and restrictions which were
applicable to the Prior Shares pursuant to the Plan. The Committee in its
absolute discretion at any time may lift the Restriction on Transfer of all or
any portion of such new or additional shares of stock or securities, rights or
warrants to purchase securities or shares or other securities acquired by the
exercise of such rights or warrants.
9. Contribution of Par Value to Capital of the Company. Notwithstanding
the provisions of Section 7.2 of the Plan, the Company will contribute to the
capital of the Company on behalf of the Employee, as an Award recipient, an
amount equal to the par value of the Restricted Shares issued to the Employee
hereunder.
10. Tax Withholding. To the extent required by applicable federal,
state, local or foreign law, the Employee shall make arrangements satisfactory
to the Company for the satisfaction of any withholding tax obligations that
arise by reason of the awarding or vesting of the Restricted Shares hereunder,
or by reason of any election made by the Employee pursuant to Section 83(b) of
the Internal Revenue Code, and no Share certificates shall be issued to the
Employee unless such obligation is satisfied.
11. Plan Shall Control. This Agreement is subject to all the terms and
provisions of the Plan. In the event of a conflict between any provisions of
this Agreement and any provisions of the Plan, the provisions of the Plan shall
govern. Terms used in this Agreement that are not defined in this Agreement
shall have the meaning set forth in the Plan.
12. Powers of the Committee. The Committee shall have the power to
interpret and construe the Plan and this Agreement and to adopt such rules for
the administration, interpretation and application of the Plan as are consistent
therewith and to interpret or revoke any such rules. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon the Employee, the Employee's estate, the Company and all
other interested persons. No member of the Committee shall be personally liable
for any action, determination or interpretation made in good faith with respect
to the Plan or this Agreement.
13. No Effect on Other Benefit Plans. Nothing herein contained shall
affect the Employee's right to participate in and receive benefits under and in
accordance with the then current provisions of any pension, insurance or other
Employee welfare plan or program of the Company or any Subsidiary.
14. Nonassignability. So long as the Restriction on Transfer is in
effect, the Restricted Shares herein granted and the rights and privileges
conferred hereby shall not be transferred, assigned, pledged or hypothecated in
any way (whether by operation of law or otherwise) and shall not be subject to
sale under execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of such award or any
right or privilege conferred hereby, contrary to the provisions hereof, or upon
any attempted sale under any execution, attachment or similar process upon the
rights and privileges conferred hereby, such award and the rights and privileges
conferred hereby shall immediately become null and void.
15. Successors and Assigns. Subject to the limitation on the
transferability of the Restricted Shares contained herein, this Agreement shall
be binding upon and inure to the benefit of the heirs, legatees, legal
representatives, successor and assigns of the Employee and the Company.
16. Notices. Any notice to be given to the Company under the terms of
this Agreement shall be addressed to the Company, in care of its Secretary, at
101 Montgomery Street, San Francisco, California 94104, or at such other address
as the Company may hereafter designate in writing. Any notice to be given to the
Employee shall be addressed to the Employee at the address set forth beneath the
Employee's signature hereto, or at such other address as the Employee may
hereafter designate in writing. Any such notice shall be deemed to have been
duly given if and when enclosed in a properly sealed envelope, addressed as
aforesaid, registered or certified and deposited, postage and registry fee
prepaid, in a United States post office.
17. Severability. In the event that any provision of this Agreement
shall be held invalid or unenforceable, such provision shall be severable from,
and such invalidity or unenforceability shall not be construed to have any
effect on, the remaining provisions of this Agreement.
18. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of California.
EXHIBIT 11.1
THE CHARLES SCHWAB CORPORATION
Computation of Earnings Per Share
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----- ----- ----- ----
<CAPTION>
<S> <C> <C> <C> <C>
Net Income $ 63,962 $ 70,095 $ 130,697 $ 117,038
============================================================================================================
Shares*
Primary:
Weighted-average number of common shares outstanding 175,619 173,865 175,400 173,584
Common stock equivalent shares related to option plans 5,472 5,385 5,559 5,485
- ------------------------------------------------------------------------------------------------------------
Weighted-average number of common and
common equivalent shares outstanding 181,091 179,250 180,959 179,069
============================================================================================================
Fully Diluted:
Weighted-average number of common shares outstanding 175,619 173,865 175,400 173,584
Common stock equivalent shares related to option plans 5,722 5,414 5,684 5,605
- ------------------------------------------------------------------------------------------------------------
Weighted-average number of common and
common equivalent shares outstanding 181,341 179,279 181,084 179,189
============================================================================================================
Primary/Fully Diluted Earnings Per Share* $ .35 $ .39 $ .72 $ .65
============================================================================================================
</TABLE>
* Excludes the effects of the three-for-two common stock split declared
July 16, 1997, payable September 15, 1997.
EXHIBIT 12.1
THE CHARLES SCHWAB CORPORATION
Computation of Ratio of Earnings to Fixed Charges
(Dollar amounts in thousands, unaudited)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----- ----- ----- ----
<CAPTION>
<S> <C> <C> <C> <C>
Earnings before taxes on income $ 105,743 $ 118,699 $ 216,063 $ 198,369
- -------------------------------------------------------------------------------------------------------------
Fixed charges
Interest expense - customer 116,019 86,815 224,809 173,206
Interest expense - other 17,107 14,337 31,447 26,955
Interest portion of rental expense 6,521 5,834 12,747 11,261
- -------------------------------------------------------------------------------------------------------------
Total fixed charges (A) 139,647 106,986 269,003 211,422
- -------------------------------------------------------------------------------------------------------------
Earnings before taxes on income and fixed charges (B) $ 245,390 $ 225,685 $ 485,066 $ 409,791
=============================================================================================================
Ratio of earnings to fixed charges (B) divided by (A)* 1.8 2.1 1.8 1.9
=============================================================================================================
Ratio of earnings to fixed charges as adjusted** 5.5 6.9 5.9 6.2
=============================================================================================================
</TABLE>
* 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,
borrowings and one-third of rental expense, which is estimated to be
representative of the interest factor.
** 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 excluding customer interest expense reflects the elimination of
such interest expense as a fixed charge.
<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 June 30, 1997, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,643,076
<RECEIVABLES> 6,207,301
<SECURITIES-RESALE> 5,125,028
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 189,979
<PP&E> 332,664
<TOTAL-ASSETS> 14,678,298
<SHORT-TERM> 209,317
<PAYABLES> 12,821,797
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 289,180
0
0
<COMMON> 1,785
<OTHER-SE> 990,979
<TOTAL-LIABILITY-AND-EQUITY> 14,678,298
<TRADING-REVENUE> 132,733
<INTEREST-DIVIDENDS> 415,464
<COMMISSIONS> 536,315
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 196,522
<INTEREST-EXPENSE> 256,256
<COMPENSATION> 444,957
<INCOME-PRETAX> 216,063
<INCOME-PRE-EXTRAORDINARY> 130,697
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 130,697
<EPS-PRIMARY> .72
<EPS-DILUTED> .72
</TABLE>
