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As filed with the Securities and Exchange Commission on February 27, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_______________________
THE CHARLES SCHWAB CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 6211 94-3025021
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104
(415) 627-7000
_________________________
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CHRISTOPHER V. DODDS
SENIOR VICE PRESIDENT AND CORPORATE CONTROLLER
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
_________________________
COPIES TO:
SCOTT P. SPECTOR, ESQ.
FENWICK & WEST LLP
TWO PALO ALTO SQUARE
PALO ALTO, CA 94306
(650) 494-0600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
_________________________
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
_________________________
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PRICE PER SHARE (1) OFFERING PRICE (1) REGISTRATION FEE
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Common Stock, $.01 par value per
share 35,995,806 $38.656 $550,848,000 $162,500.16(2)
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(1) Based on the average of the high and low sale prices on the New York Stock
Exchange on February 25, 1998.
(2) Represents the filing fee for 14,250,000 shares. Fees previously paid
in connection with the registration of 21,745,806 shares (calculated after
stock splits) on Forms S-8, and remaining unsold thereunder, are transferred
to this registration statement in payment of the applicable filing fee
pursuant to Rule 429(b).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
Subject to Completion, Dated February 27, 1998
THE CHARLES SCHWAB CORPORATION
35,995,806 SHARES OF COMMON STOCK
________________________________________
This Prospectus relates to up to 35,995,806 shares (the "Shares") of Common
Stock, $.01 par value per share (the "Common Stock"), of The Charles Schwab
Corporation (the "Company") that may be offered and sold to participants and
Approved Transferees (as defined below) of certain participants in the Company's
1992 Stock Incentive Plan, as amended as of October 22, 1997 (the "1992 Plan"),
the Company's 1987 Stock Option Plan, as amended as of October 22, 1997 (the
"1987 Plan"), and the Company's 1987 Executive Officer Stock Option Plan, as
amended as of October 22, 1997 (the "1987 Executive Plan" and, together with the
1992 Plan and the 1987 Plan, collectively, the "Plans") upon the exercise of
nonqualified stock options granted to such participants under the Plans that
have been or may be transferred by such participants (each a "Participant
Transferor") to Approved Transferees ("Transferred Options"), upon the exercise
of incentive stock options granted, as permitted, to participants under the
Plans (together with the Transferred Options, the "Stock Options"), and upon the
issuance of restricted stock ("Restricted Share Awards") or performance shares
("Performance Share Awards" and, together with the Stock Options and the
Restricted Share Awards, the "Awards"), all in accordance with the terms of the
respective Plans and the documents specifying the terms and conditions of such
Stock Options, Restricted Share Awards or Performance Share Awards,
respectively. "Approved Transferees" means bona fide trusts or partnerships by
and of which the trustee or general partner is the participant and the
transferees are the participant's children, grandchildren, spouse, siblings or
parents.
The Company will sell the Shares to Plan participants in accordance with
the terms of the Stock Options, the Transferred Options, Restricted Share Awards
and the Performance Share Awards, and to Approved Transferees in accordance with
the terms of the Transferred Options. The exercise price of each Stock Option
and each Transferred Option has been or will be determined by the Board of
Directors of the Company or the Committee (as defined herein).
The Common Stock is traded on the New York Stock Exchange ("NYSE") under
the symbol SCH. On February 25, 1998 the closing sale price of the Common Stock
on the NYSE was $38.25 per share.
________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT WE
HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO PURCHASE THE SHARES OFFERED BY THIS PROSPECTUS IN ANY JURISDICTION IN
WHICH, OR TO OR FROM ANY PERSON TO OR FROM WHOM, IT IS UNLAWFUL TO MAKE SUCH AN
OFFER, OR SOLICITATION OF AN OFFER.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION OF THE SHARES
OFFERED PURSUANT TO THIS PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS PROSPECTUS OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
The date of this Prospectus is February 27, 1998.
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TABLE OF CONTENTS
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PAGE
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Available Information.............................................. 2
Incorporation of Certain Information by Reference.................. 2
The Company........................................................ 3
Use of Proceeds.................................................... 3
Determination of Offering Price.................................... 3
Information Relating to the Plans and the Awards................... 4
Certain Federal Income Tax Consequences Relating to the Plans...... 10
Information Relating to the Transferred Options.................... 13
Certain Federal Income Tax Consequences Relating to the
Transferred Options.............................................. 14
Plan of Distribution............................................... 15
Legal Matters...................................................... 15
Experts............................................................ 15
</TABLE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities
and Exchange Commission (the "Commission"). Reports, proxy statements and
the information filed by the Company with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 or at the
Commission's Regional Offices located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a Website (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission through the Electronic Data Gathering,
Analysis and Retrieval system. The Company's Common Stock, par value $.01
per share (the "Common Stock"), is listed on the New York Stock Exchange
("NYSE") and the Pacific Stock Exchange ("PSE"). Reports, proxy statements
and other information concerning the Company can be inspected at the offices
of the NYSE, 20 Broad Street, New York, New York 10005 and the PSE, 301 Pine
Street, San Francisco, California 94104 or 618 South Spring Street, Los
Angeles, California 90014.
The Prospectus constitutes a part of a Registration Statement on Form
S-3 (the "Registration Statement") filed by the Company with the Commission
under the Securities Act of 1933, as amended (the "Securities Act"). This
Prospectus omits certain of the information contained in the Registration
Statement in accordance with the rules and regulations of the Commission.
Reference is hereby made to the Registration Statement and related exhibits
for further information with respect to the Company and the Shares.
Statements contained herein concerning the provisions of any document are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety
by such reference.
INCORPORATION OF DOCUMENTS BY REFERENCE
The Company has filed with the Commission (File No. 1-9700) its Annual
Report on Form 10-K for the year ended December 31, 1996 and its Quarterly
Reports on Form 10-Q for the quarters ended March 31, June 30 and September
30, 1997 and its Current Report on Form 8-K dated December 24, 1997, which
are incorporated herein by reference.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Shares shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
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Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
Copies of the above documents (excluding exhibits) and any other
materials deemed to be part of this Prospectus, may be obtained upon request
by persons to whom this Prospectus is delivered, without charge, upon written
or oral request, by contacting the Office of the Corporate Secretary, The
Charles Schwab Corporation, 101 Montgomery Street, San Francisco, CA 94104,
telephone (415) 636-1336.
THE COMPANY
The Charles Schwab Corporation (the "Company"), through its principal
operating subsidiary, Charles Schwab & Co., Inc. ("Schwab"), provides
brokerage and related investment services to approximately 4,800,000 active
investor accounts through over 270 offices nationwide. The Company provides
similar services to British investors through its United Kingdom subsidiary,
Charles Schwab Europe (formerly known as ShareLink Investment Services plc).
Mayer & Schweitzer, Inc. ("M&S"), a market maker in Nasdaq securities,
provides trade execution services to institutions and broker-dealer clients.
The Company was incorporated in Delaware in November 1986. Schwab was
incorporated in California in 1971 and merged in 1983 with a subsidiary of
BankAmerica Corporation. The Company acquired Schwab in a management-led
leveraged buyout in March 1987 and became a publicly held company in
September 1987. Its principal executive offices are located at 101
Montgomery Street, San Francisco, CA 94104 (telephone number (415) 627-7000).
USE OF PROCEEDS
The net proceeds from the sale of the Shares will be used for general
corporate purposes, which may include additions to working capital, investing
in or extending credit to subsidiaries, capital expenditures, stock
repurchases, repayment of indebtedness or acquisitions.
DETERMINATION OF OFFERING PRICE
The Company will sell the Shares to Plan participants in accordance with
the terms of the Stock Options (including the Transferred Options), the
Restricted Share Awards and the Performance Share Awards and to Approved
Transferees in accordance with the terms of the Transferred Options. The
exercise price of each Stock Option and each Transferred Option has been or
will be determined by the Board of Directors of the Company or the Committee
(as defined herein).
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INFORMATION RELATING TO THE PLANS AND THE AWARDS
Information relating to the exercise of Stock Options by Plan
participants and the related federal income tax consequences is described in
the written information regarding the applicable Plan under which such Stock
Options were issued, copies of which have been furnished to Plan
participants. Copies of such information will be furnished promptly without
charge to Plan participants and Approved Transferees upon written or oral
request.
This Prospectus covers 35,995,806 shares of the Company's Common Stock,
$.01 par value ("Common Stock"), offered for sale to certain non-employee
directors and key employees under (a) the Company's 1992 Stock Incentive
Plan, as amended as of October 22, 1997 (the "1992 Plan"), (b) the Company's
1987 Stock Option Plan (the "1987 Plan") as amended as of October 22, 1997
and (c) the Company's 1987 Executive Officer Stock Option Plan (the "1987
Executive Plan") as amended as of October 22, 1997 (collectively, the
"Plans") either pursuant to the exercise of options to purchase a specified
number of shares or in the form of performance shares or restricted stock.
This Prospectus contains information concerning the Plan and the Company and
will be distributed to participating non-employee directors and key employees
of the Company and its subsidiaries pursuant to the Securities Act. A
registration statement on Form S-3 with respect to such Common Stock (the
"Registration Statement") has been filed with the Commission. The terms and
conditions of the offer and sale of the Common Stock, including the price of
the shares, are governed by the provisions of the Plan and the agreements
thereunder between the Company and each participating non-employee director
and key employee.
Additional information about the Plan and its administration can be
obtained by contacting the Compensation Administration Department, The
Charles Schwab Corporation, 101 Montgomery Street, San Francisco, CA 94104,
telephone (415) 627-8539.
DESCRIPTION OF THE PLANS
1992 PLAN
In March 1992, the Board of Directors of the Company adopted the 1992
Plan covering 2,500,000 shares of Common Stock. The 1992 Plan was amended
and restated as of January 1, 1994, and the limitation on the number of
shares of Common Stock reserved for issuance pursuant to the 1992 Plan was
increased by 2,800,000, as approved by the stockholders of the Company on May
9, 1994. The limitation on shares of Common Stock reserved for issuance
under the 1992 Plan was increased by 9,500,000 as approved by the
stockholders of the Company in 1997. The 1992 Plan was subsequently amended
on October 22, 1997. The 1992 Plan covers 43,725,000 shares as adjusted for
stock splits through September 1997. Under the 1992 Plan, non-employee
directors of the Company and key employees of the Company and its
subsidiaries are eligible to receive awards in the form of options to
purchase Common Stock, performance shares (shares of Common Stock issuable
upon the satisfaction of specified conditions) or restricted stock. The
aggregate of such awards must not exceed the 43,725,000 shares of Common
Stock reserved for issuance pursuant to the 1992 Plan (subject to certain
adjustments described in "Adjustment Provisions" below). Options granted
under the 1992 Plan may be designated to qualify as incentive stock options,
as defined under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"). Unless so designated, options will generally be referred to
herein as "nonstatutory" or "nonqualified."
1987 PLAN
Effective March 24, 1987, the Board of Directors of the Company adopted
the 1987 Plan covering 1,616,000 shares of Common Stock. The 1987 Plan was
subsequently amended on July 29, 1987, April 17, 1989, September 17, 1996,
February 26, 1997 and October 22, 1997. The 1987 Plan covers 16,362,000
shares as adjusted for stock splits through September 1997. Under the 1987
Plan, certain key employees of the Company and its subsidiaries are eligible
to receive awards in the form of options to purchase Common Stock,
performance shares (shares of Common Stock issuable upon the satisfaction of
specified conditions) or restricted stock. The aggregate of such awards must
not exceed the 16,362,000 shares of Common Stock reserved for issuance
pursuant to the 1987 Plan (subject to certain adjustments described in
"Adjustment Provisions" below). Options granted under the 1987 Plan may be
designated to qualify as incentive stock options, as defined under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"). Unless so
designated, options will generally be referred to herein as "nonstatutory" or
"nonqualified."
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1987 EXECUTIVE PLAN
Effective March 24, 1987, the Board of Directors of the Company adopted
the 1987 Executive Plan covering 1,284,000 shares of Common Stock. The 1987
Executive Plan was subsequently amended on September 17, 1996, February 26,
1997 and October 22, 1997. The 1987 Executive Plan covers 13,000,500 shares
as adjusted for stock splits through September 1997. Under the 1987
Executive Plan, certain key employees of the Company and its subsidiaries are
eligible to receive awards in the form of options to purchase Common Stock,
performance shares (shares of Common Stock issuable upon the satisfaction of
specified conditions) or restricted stock. The aggregate of such awards must
not exceed the 13,000,500 shares of Common Stock reserved for issuance
pursuant to the 1987 Executive Plan (subject to certain adjustments described
in "Adjustment Provisions" below). Options will generally be referred to
herein as "nonstatutory" or nonqualified".
PURPOSE
The purpose of the Plans 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) enabling the Company and its subsidiaries to attract and retain
non-employee directors and key employees with exceptional qualifications, and
(c) linking non-employee directors and key employees directly with
stockholder interests.
ADMINISTRATION
The Plans are administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"). The
Committee includes two or more "non-employee" directors (as that term is
defined in the Plans) appointed, and subject to removal, by the Board.
Members of the Committee serve no specified term.
The Committee has the authority to select the key employees and
nonemployee directors who are to receive awards under the Plans, and to
determine the amount, vesting requirements and other conditions of such
awards. The Committee also has the power to construe and interpret the
Plans, to make all other decisions relating to the Plans' operation, and,
subject to the provisions of the Plans, to adopt, amend and revoke rules and
guidelines for the Plans' administration. Such interpretations are binding.
DURATION, AMENDMENT AND TERMINATION
The Committee may amend or terminate the Plans, subject to applicable
laws, regulations and rules, without stockholder approval or ratification, at
any time or from time to time. The Plans have no fixed termination date.
However, no incentive stock options may be granted under the 1992 Plan after
May 7, 2002, and no grants may be made under the 1987 Plan or the 1987
Executive Plan after March 24, 1997. Termination of the Plans will not
impair or alter any options previously granted under the Plans without the
consent of the person to whom such options or award were granted.
ELIGIBILITY
The Plans provide that options, restricted share awards and performance
share awards may be granted to key employees and, in the case of the 1992
Plan, non-employee directors, of the Company and its subsidiaries, selected
by the Committee in its sole discretion. In addition, nonstatutory stock
options covering 2,500 shares (1,500 shares if the price per share is $35 or
more on the grant date) are automatically granted under the 1992 Plan to each
non-employee director as of May 15 each year.
STOCK SUBJECT TO THE PLANS
Up to 43,725,000 shares (the "Shares") of the Company's Common Stock are
authorized for issuance under the 1992 Plan. Up to 16,362,000 Shares of the
Company's Common Stock are authorized for issuance under the 1987 Plan. Up to
13,000,500 Shares of the Company's Common Stock are authorized for issuance
under the 1987 Executive Plan. These figures are subject to certain adjustments
as described in "Adjustment Provisions" below. Common Stock subject to the
Plans may be unissued Shares or reacquired Shares. If options granted under the
Plans expire or otherwise terminate without being exercised, or if awards of
performance shares or restricted stock expire or otherwise
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terminate prior to the satisfaction of the conditions to the grant of Shares
or vesting called for thereunder, the Shares not purchased under such options
or issued under such awards again become available for issuance under the
respective Plans. If Shares are forfeited to, or are repurchased by, the
Company pursuant to the provisions of an applicable stock option agreement or
stock award agreement as discussed more fully below, those Shares again
become eligible for issuance under the Plans.
TERMS OF OPTIONS UNDER THE PLANS
OPTION AGREEMENTS
Each option granted under the Plans will be evidenced by a stock option
agreement between the optionee and the Company in such form as the Committee
deems appropriate, consistent with the Plans. Each such agreement must state
the number of Shares covered by the option, the exercise prices of such
Shares and whether or not the option is an incentive stock option, all as
determined by the Committee. Effective as of January 1, 1994, the 1992 Plan
limits to 500,000 the number of Shares that may be granted subject to an
Option to any one participant in any year.
TERM AND EXERCISE OF OPTIONS
Each stock option agreement must specify the date when all or any
installment of the option granted thereby vests (i.e., is to become
exercisable). In the discretion of the Committee, all or a portion of the
option may vest immediately upon grant, or only at some future date or dates.
However, nonstatutory stock options granted under the 1992 Plan to
non-employee directors of the Company pursuant to automatic annual grants
will be fully exercisable immediately upon grant.
The Committee, in its sole discretion, may determine, at the time of
granting an option, that the option will become fully vested as to all Shares
called for thereunder upon the occurrence of certain events deemed to be a
change in control of the Company as specified in the Plans. Upon a key
employee's retirement, all options will vest, except for any options issued
within two years of the individual's retirement date. For this purpose,
"retirement" means any termination of employment after the key employee has
reached age 50 and has completed seven years of service with the Company.
The duration of the period for exercising an option granted to a key
employee is also subject to determination by the Committee and must be stated
in the stock option agreement pursuant to which the option is granted.
Nonstatutory stock options granted to non-employee directors will terminate
ten years after the date of grant, subject to earlier termination if the
director ceases to provide services to the Company or its subsidiaries.
An option granted under the Plans may be exercised by giving written
notice of exercise to the Company, specifying the number of full Shares to be
purchased and tendering payment of the purchase price to the Company.
OPTION EXERCISE PRICE
The exercise price of options granted to key employees under the Plans
may not be less than the fair market value of the Common Stock on the date
the option is granted. The exercise price of nonstatutory stock options
granted to non-employee directors will be equal to the fair market value of
the Common Stock on the date of each such grant.
An optionee may pay the exercise price by check or other immediately
available funds at the time the option is exercised. If permitted by the
Committee at the time such payment is due, the holder of a nonstatutory stock
option may instead elect to make all or a portion of such payment either (1)
by delivering shares of the Company's Common Stock that have been held for at
least six months and that have an aggregate fair market value on the date of
exercise equal to the exercise price (or applicable portion thereof), (2) by
delivering to Charles Schwab & Co., Inc., a wholly-owned subsidiary of the
Company, an irrevocable direction to sell shares of Common Stock (including
Shares to be issued upon exercise of the option) and to deliver all or part
of the sales proceeds to the Company as payment for such exercise price (or
applicable portion thereof), or (3) any combination of the foregoing payment
methods. The holder of an incentive stock option also may pay the exercise
price by either or a combination of the foregoing methods, if specifically
provided for in the applicable stock option agreement. If permitted by the
Committee, the holder of a nonstatutory option may elect to satisfy any tax
withholding obligations to the Company upon exercise of the option by
surrendering to the Company already-owned shares of Common Stock that have
been held for at least six months or by
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having the Company withhold a portion of the Shares that otherwise are to be
issued to the participant. (See "Federal Income Tax Consequences Relating to
the Plan - Tax Withholding" below.)
ISSUANCE IN TANDEM WITH PERFORMANCE UNITS
The Plans permit the issuance of nonqualified stock options in "tandem"
with "Performance Units" (the terms of which will be set forth in the option
agreement entered into between the optionee and the Company) entitling the
recipient to receive certain cash payments from the Company. If an option is
issued in tandem with such a Performance Unit, the exercise of either an
option or a Performance Unit will result in the forfeiture of the Performance
Unit or option (as the case may be) associated therewith. Performance Units
will not be issued to members of the Company's executive management, and in
the event that an employee to whom a Performance Unit has been issued is
promoted into executive management (i.e., Executive Vice President or
higher), the Performance Unit will cease to be exercisable.
REPLACEMENT OPTIONS
Except in the case of options granted to a non-employee director, a
stock option agreement, in the discretion of the Committee, may provide that
effective upon the exercise of options covered thereby, "replacement options"
will be granted to the optionee in the event the optionee uses shares of
Common Stock to pay the exercise price of the original options (or tax
withholding obligation of the Company, as described above), provided that the
number of such replacement options will be limited to the number of shares
used for such purpose. Subject to the following limitations, the terms of
such replacement options will be set forth in the stock option agreement.
The exercise price of replacement options will be no less than the fair
market value of the Common Stock of the Company on the effective date of the
grant of such options. No replacement options may be incentive stock
options, regardless of whether the original options were designated as such.
Replacement options may not be granted if the original options are exercised
after the termination of the optionee's employment with the Company, and will
expire no later than the expiration date of the original options.
VOTING RIGHTS AND DIVIDENDS
Optionees will have no voting, dividend or other rights as stockholders
of the Company until such time as the issuance of the stock certificate for
the Common Stock covered thereby, at which time they will have the same
voting, dividend and other rights as the Company's other stockholders.
OTHER PROVISIONS
An option agreement under the Plans may contain such other terms,
provisions and conditions as may be determined by the Committee, consistent
with the Plans.
TERMS OF SHARE AWARDS UNDER THE PLANS
In addition to options, the Committee may grant to key employees awards
of Shares subject to certain restrictions described below ("Restricted Share
Awards") and awards that take the form of a right to acquire Shares upon the
satisfaction of certain specified conditions ("Performance Share Awards").
Either Restricted Share Awards or Performance Share Awards may be made alone
or in combination with one another and in such amounts as the Committee may
determine from time to time. Such awards also may be made by the Committee
in conjunction with nonstatutory options, and any such awards may provide
that the Restricted Share Awards or Performance Share Awards are subject to
forfeiture upon the exercise of the related options. Effective as of January
1, 1994, the 1992 Plan limits to 200,000 the total number of Restricted Share
Awards and Performance Share Awards that may be granted to any one
participant in any year.
STOCK AWARD AGREEMENTS
Each Restricted Share Award and Performance Share Award will be
evidenced by an agreement (a "Stock Award Agreement") between the Company and
the award recipient in such form as the Committee deems appropriate,
consistent with the Plan. The Committee, exercising its discretion from time
to time, will establish conditions that must be satisfied for Shares to
become vested (i.e., no longer subject to certain transfer restrictions and
rights of the
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Company to repurchase the Shares at less than the fair market value thereof),
in the case of a Restricted Share Award, or for the issuance of Shares, in
the case of a Performance Share Award. Such conditions, if any, will be
specified in each Stock Award Agreement, and may include the participant's
continued service to the Company, the participant's performance, the
Company's performance or such other criteria as the Committee may adopt.
RESTRICTED SHARES
A Stock Award Agreement for a Restricted Share Award may provide that
its vesting conditions with respect to the Shares set forth in such Agreement
will be satisfied either all at once or on two or more occasions over a
specified period of time. Such Agreements shall provide for accelerated
vesting of Shares in the event of a participant's death or disability.
Moreover, at the time of making a Restricted Share Award, the Committee may
determine that such vesting conditions will be waived if there is a change in
control of the Company as specified in the Plans. Restricted Share Awards
will vest upon a recipient's retirement (as defined earlier), except for any
Restricted Shares awarded within two years of the individual's retirement
date.
The holders of Restricted Shares have the same voting, dividend and
other rights as the Company's other stockholders.
PERFORMANCE SHARES
A Stock Award Agreement for a Performance Share Award may provide that
its conditions to issuance of the maximum number of Shares called for
thereunder will be satisfied, and such Shares will be issued, either all at
once or on two or more occasions over a specified period of time. Such
Agreements also may provide for accelerated issuance of Shares in the event
of a participant's death, disability or retirement. Moreover, at the time of
making a Performance Share Award, the Committee may determine that such
conditions to issuance of Shares will be waived if there is a change in
control of the Company as specified in the Plan.
Any Shares that are to be issued pursuant to a Performance Share Award
after the recipient's death will be delivered or distributed to the
beneficiary or beneficiaries, as designated by the award recipient. At any
time before the award recipient's death, he or she may change a beneficiary
designation by filing the prescribed form with the Company. If the recipient
fails to designate a beneficiary, or no designated beneficiary survives the
recipient, then any Shares that are to be issued pursuant to a Performance
Share Award after the recipient's death will be delivered or distributed to
the recipient's estate. The Committee has the sole discretion to determine
the form and timing of any such distribution to a recipient's beneficiary or
estate.
The recipients of Performance Share Awards will have no voting, dividend
or other rights as stockholders of the Company until such time as the
issuance of the Shares covered thereby, at which time they will have the same
voting, dividend and other rights as the Company's other stockholders.
ADJUSTMENT PROVISIONS
If the Common Stock is changed by a stock split, reverse stock split,
recapitalization, or other change in the capital structure of the Company, or
if the Company increases the number of outstanding shares of Common Stock by
paying a stock dividend, the Committee will make appropriate adjustments in
(a) the number of Shares of Common Stock available for issuance pursuant to
future options, Restricted Share Awards and Performance Share Awards granted
under the Plans, (b) the number of Shares covered by each outstanding
Performance Share Award that has not been settled and/or (c) the number of
Shares covered by each outstanding unexercised option, and the exercise price
thereof. However, the Committee is not required to make any such adjustments
because of the Company's issuance or sale of stock or any class of securities
convertible into or exchangeable for stock of any class.
If the Company is a party to an agreement of merger or other
reorganization, all outstanding options, restricted shares and Performance
Share Awards will be subject to that agreement. Such an agreement may, but
need not, provide for (a) the assumption by the surviving corporation (or its
parent) of outstanding options and other awards made under the Plans if the
Company is not the surviving corporation as a result of such merger or other
reorganization, (b) continuation of such options and other awards by the
Company if it is the surviving corporation, (c) accelerated vesting, or (d)
settlement in cash.
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LIENS ON FUNDS OR PROPERTY
Under the provisions of the Plan, no person has or may create a lien on
any funds, securities or other property held thereunder except to the extent
permitted by the law of descent and distribution.
ERISA AND OTHER QUALIFICATIONS
The Company is not aware of any provisions of the Employee Retirement
Income Security Act of 1974, as amended, to which the Plans are subject. The
Plans are not qualified stock bonus, pension or profit-sharing plans under
Section 401(a) of the Code.
ISSUANCE OF SHARES
Shares may only be issued, either in connection with a Restricted Share
Award or Performance Share Award, or upon exercise of options granted under
the Plans in compliance with all applicable federal and state laws, including
securities laws, as well as listing requirements of the New York Stock
Exchange and any other securities exchange upon which the Common Stock may
then be listed.
The Company's typical forms of stock option agreement or Stock Award
Agreement may require Plan participants, as a condition of acquiring Shares
pursuant to an option or other award granted under the Plans, to give certain
written assurances to the Company necessary to ensure the availability of
exemptions from certain registration requirements relating to the acquisition
of such Shares. The Company does not currently intend to require such
assurances so long as the Registration Statement of which this Prospectus is
a part remains effective.
NO EMPLOYMENT RIGHTS
An award granted under the Plans do not impose any obligation whatsoever
upon Plan participants or the Company to continue the Plan participant's
employment relationship with the Company. Such relationship is terminable at
will at any time by the Plan participant or the Company.
TERMINATION OF EMPLOYMENT
In the event that a Plan participant's employment with the Company is
terminated, the extent to which the Plan participant will continue to have
the right to exercise options granted under the Plans will be governed by the
terms of the participant's stock option agreement.
RESTRICTIONS ON RESALES BY AFFILIATES
Participants who are, at the time they wish to sell Shares acquired
under the Plans, officers, directors or other "affiliates" (as that term is
defined under the Securities Act) of the Company, may only do so pursuant to
Rule 144 under the Securities Act, unless there exists an effective
registration statement under the Securities Act covering the resale of such
Shares or unless another exemption from registration for such resale is
available. Resales or reoffers may not be made pursuant to this Prospectus
or the Registration Statement of which this Prospectus is a part.
Purchases and sales of the Company's equity securities by officers,
directors and 10% Stockholders (collectively, "Section 16 Holders") are
subject to the provisions of Section 16 of the Exchange Act that, among other
things, generally impose on Section 16 Holders certain obligations to file
with the Commission initial and annual reports as well as reports regarding
changes of beneficial ownership. Questions about these reporting obligations
should be directed to the Office of the Corporate Secretary of the Company.
Section 16 Holders generally are subject to the provisions of Section
16(b) of the Exchange Act, which provides in effect that any profit realized
as a result of matching purchases and sales, or sales and purchases, of the
Company's stock in any six-month period belongs to the Company. It is
important to know that the six-month period is calculated from the date of
any transaction, and may be carried backward as well as forward.
Pursuant to Commission regulations governing the application of Section 16,
neither the grant nor the exercise of an option under the Plans will generally
be considered a "purchase" for purposes of applying the provisions of
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Section 16. As a result, the grant or exercise of an option under the Plans
generally will not subject a Section 16 Holder to potential liability under
Section 16, even if the Section 16 Holder has sold shares within six months
of the grant or exercise. However, a sale of shares acquired pursuant to the
exercise of an option under the Plans (including a "same day sale") is
considered a "sale" for purposes of applying the rules of Section 16, and
accordingly could result in liability under Section 16 if the sale occurs
within six months of a "matchable" purchase.
Similarly, neither a grant nor the vesting of a Restricted Share Award
or a Performance Share Award under the Plan is considered a "purchase" for
purposes of applying Section 16. As a result, the grant of a Restricted
Share Award or a Performance Share Award under the Plan generally will not
subject a Section 16 Holder to potential liability under Section 16, even if
the Section 16 Holder has sold shares within six months of the award.
However, a sale of shares acquired as a result of a grant of a Restricted
Share Award or Performance Share Award could result in liability under
Section 16 if the sale occurs within six months of a "matchable" purchase.
No stockholder of the Company, including participants in the Plans, may
sell Shares while they are in possession of material, nonpublic information
relating to the Company. The Company has certain procedures governing the times
and circumstances under which directors and executive officers may buy or sell
Company securities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE PLANS
The following summarizes certain of the federal income tax consequences
associated with the grant of options, Restricted Share Awards and Performance
Share Awards under the Plans. The discussion is based on federal income tax
laws and regulations currently in effect, and the administrative and judicial
interpretations thereof, all of which are subject to change. Furthermore, the
following discussion does not purport to address all aspects of the potentially
applicable federal income tax consequences nor does it address any state or
local taxes that may be applicable. Participants in the Plans should consult
with their own tax advisers as to any specific transaction that they contemplate
undertaking.
NONSTATUTORY STOCK OPTIONS
GRANT OF NONSTATUTORY STOCK OPTION
The grant of a nonstatutory stock option normally has no tax effect on
the Company or on the optionee to whom it is granted at the time of grant,
assuming (as is the case with those that may be granted pursuant to the
Plans) that the option itself does not have a readily ascertainable fair
market value at the time it is granted.
EXERCISE OF NONSTATUTORY STOCK OPTION
Upon exercise of a nonstatutory option, the optionee will recognize
ordinary income on the measurement date (described below) in the amount by
which the fair market value of the Shares, determined as of the measurement
date, exceeds the exercise price. For key employees, such ordinary income is
subject to withholding tax. Generally, the amount of ordinary income
recognized by the optionee is deductible by the Company in the year that the
income is recognized.
For Shares that, when issued, are not subject to restrictions on
transfer and a substantial risk of forfeiture within the meaning of Code
Section 83 and the regulations thereunder (including, for example, the
Company's right to repurchase the Shares at less than fair market value), the
measurement date is the date the nonstatutory stock option is exercised.
Accordingly, the optionee will recognize ordinary income on the date of
exercise in an amount equal to the excess of the fair market value of such
Shares, determined as of the date of exercise, over the exercise price.
For those Shares received, upon exercise of a nonstatutory option, that
are subject to restrictions on transfer and a substantial risk of forfeiture,
the measurement date will be the date on which the transfer restrictions
lapse or the risk of forfeiture terminates, whichever occurs earlier, unless
the optionee elects (pursuant to Code Section 83(b)) within 30 days of the
date of exercise, to have the income determined and recognized as of the date
of exercise.
Optionees who, upon exercise of an option, receive Shares that are subject
to restrictions on transfer and a substantial risk of forfeiture should consult
with their own tax advisers regarding the advisability of making an election
10
<PAGE>
under Code Section 83(b). The election, if made, must be filed with the
Internal Revenue Service within 30 days of the date the option is exercised,
and a copy of the election must be provided to the Company, as well as filed
with the optionee's income tax return for the year in which the exercise
occurred.
DISPOSITION OF NONSTATUTORY STOCK OPTION SHARES
For purposes of determining the amount of taxable gain or loss upon a
subsequent disposition of Shares acquired pursuant to the exercise of a
nonstatutory option, the optionee's tax basis for the Shares will be the fair
market value of the Shares on the measurement date, as described above. The
measurement date will also be the date on which the optionee's holding period
for the Shares commences for purposes of determining whether any capital gain
or loss on the ultimate sale of the Shares will be short-term, mid-term or
long-term. The Shares must be held for more than eighteen months following
the measurement date to qualify for long-term capital gain treatment. The
Shares must be held for more than one year but not more than eighteen months
following the measurement date to qualify for mid-term capital gain treatment.
There are no tax consequences to the Company when optionees dispose of
Shares they acquired upon exercise of a nonqualified stock option.
INCENTIVE STOCK OPTIONS
GRANT OF INCENTIVE STOCK OPTION
The grant of an incentive stock option has no tax effect on the Company
or on the employee to whom it is granted at the time of grant.
EXERCISE OF INCENTIVE STOCK OPTION
In contrast to the exercise of a nonstatutory stock option, the exercise
of an incentive stock option will not cause the optionee to recognize taxable
income for regular income tax purposes, nor will the Company be entitled to
any compensation deduction. However, in calculating alternative minimum tax
liability, the incentive stock option is treated as if it were a nonstatutory
stock option. Thus, the excess of the fair market value of the Shares on the
measurement date (as described above in connection with the exercise of
nonstatutory stock options) over the exercise price will be included in the
calculation of alternative minimum taxable income. Optionees would then be
required to pay the greater of their regular or alternative minimum tax
liability as computed for such year.
DISPOSITION OF INCENTIVE STOCK OPTION SHARES
For purposes of determining the amount of taxable gain or loss upon a
subsequent disposition of Shares acquired pursuant to the exercise of an
incentive stock option, the optionee's tax basis for regular tax purposes
will be the amount paid for the Shares upon exercise of such option. For
alternative minimum tax purposes, the optionee's tax basis may be increased
to equal the amount that was included in calculating alternative minimum
taxable income upon exercise (as discussed above).
If an optionee holds the Shares acquired upon exercise of an incentive
stock option for a minimum of two years from the date of the grant of such
option, and for at least one year after such exercise, any gain or loss
recognized by the optionee on the subsequent sale or exchange of such Shares
generally would be treated as a capital gain or loss, taxed at a rate that
depends on the holding period of the Shares. Shares held for more than 18
months are generally taxable at long-term capital gains rates. The maximum
long-term capital gains rate is 20%. Shares held for more than one year but
not for more than eighteen months are generally taxable at mid-term capital
gains rates. The maximum mid-term capital gains rate is 28%. If the Shares
are sold or otherwise disposed of prior to the expiration of such periods (a
"disqualifying disposition"), then a portion of any gain recognized by the
employee which would otherwise be characterized as capital gain would instead
be taxable as ordinary compensation income, and the Company will be entitled
to a deduction in that same amount. The amount of such gain which would be
characterized as ordinary income would not exceed an amount equal to the
excess of (i) the fair market value of such Shares as of the date the option
was exercised over (ii) the amount paid for such Shares.
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<PAGE>
NON-CASH EXERCISES OF STOCK OPTIONS
The foregoing discussion presumes that the optionee pays the exercise
price for any option Shares with cash. If an optionee pays the exercise
price for an option, in whole or in part, with previously acquired shares of
the Company's Common Stock, complex rules will govern the determination of
the optionee's taxable income upon exercise, or other measurement date, with
respect to nonstatutory stock options, as well as the optionee's basis and
holding period in the new Shares. If an optionee uses the proceeds from the
sale of Shares that are to be acquired upon exercise of an option to pay all
or a portion of the exercise price for that option, there generally will be
no increase or decrease in the taxable income (if any) recognized by the
optionee upon exercise of the option, and the net Shares acquired will have
the same tax basis that they would have had if the exercise price had been
paid in full in cash. Optionees should consult with their own tax advisers
before using Common Stock to pay for option Shares.
RESTRICTED SHARE AWARDS
GRANT AND VESTING OF RESTRICTED SHARES
A recipient of Restricted Shares will recognize ordinary income in an
amount equal to the excess of the fair market value of the Shares on the
measurement date (described below) over the amount paid for the Shares. Such
ordinary income is subject to withholding tax, and the amount of ordinary
income recognized by the recipient is deductible by the Company in the year
that the income is recognized, except to the extent that the amount of such
income, when added to certain other compensation paid by the Company to any
individual who is a "named executive officer" of the Company (within the
meaning of Section 162(m) of the Code) at the end of the Company's fiscal
year, exceeds $1,000,000.
For Restricted Shares that are subject to transfer restrictions and a
substantial risk of forfeiture, the measurement date will be the date on
which the transfer restrictions lapse or the risk of forfeiture terminates,
whichever occurs earlier, unless the recipient elects (pursuant to Code
Section 83(b)) within 30 days of the date the Shares are issued, to have the
income determined and recognized as of the date of issuance.
Recipients of Restricted Shares should consult with their own tax
advisers regarding the advisability of making an election under Code Section
83(b). The election, if made, must be filed with the Internal Revenue
Service within 30 days of the date the Shares are acquired, and a copy of the
election must be provided to the Company, as well as filed with the
recipient's income tax return for the year in which the Shares are issued.
DISPOSITION OF RESTRICTED SHARES
For purposes of determining the amount of taxable gain or loss upon a
subsequent disposition of the Shares, the recipient's tax basis for the
Shares will be the fair market value of the Shares on the measurement date,
as described above. The measurement date will also be the date on which the
recipient's holding period for the Shares commences for purposes of
determining whether any capital gain or loss on the ultimate sale of the
Shares will be short-term, mid-term or long-term. The Shares must be held
for more than eighteen months following the measurement date to qualify for
long-term capital gain treatment. The Shares must be held for more than one
year but not for more than eighteen months from the measurement date to
qualify for mid-term capital gain treatment.
PERFORMANCE SHARE AWARDS
GRANT OF PERFORMANCE SHARE AWARD
The grant of Performance Share Awards will have no federal income tax
consequences to the Company or the recipient at the time of the grant.
ISSUANCE OF SHARES PURSUANT TO PERFORMANCE SHARE AWARD
The recipient of any Shares issued pursuant to the terms of a
Performance Share Award will recognize ordinary income in an amount equal to
the excess of the fair market value of the Shares on the measurement date
(described below) over the amount, if any, paid for the Shares. Such
ordinary income is subject to withholding tax, and the amount of ordinary
income recognized by the recipient generally is deductible by the Company in
the year that the
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<PAGE>
income is recognized, except to the extent that the amount of such income,
when added to certain other compensation paid by the Company to any
individual who is a "named executive officer" of the Company (within the
meaning of Section 162(m) of the Code) at the end of the Company's fiscal
year, exceeds $1,000,000.
For Shares that are not subject to restrictions on transfer or
substantial risk of forfeiture, the measurement date is the date the Shares
are issued. For Shares that are subject to any transfer restrictions or risk
of forfeiture, the measurement date will be the date on which the transfer
restrictions lapse or the risk of forfeiture terminates, whichever occurs
earlier, unless the recipient elects (pursuant to Code Section 83(b)) within
30 days of the date the Shares are issued, to have the income determined and
recognized as of the date of issuance.
DISPOSITION OF SHARES ACQUIRED PURSUANT TO PERFORMANCE SHARE AWARD
For purposes of determining the amount of taxable gains or loss upon a
subsequent disposition of the Shares, the recipient's tax basis for the
Shares will be the fair market value of the Shares on the measurement date,
as described above. The measurement date will also be the date on which the
recipient's holding period for the Shares commences for purposes of
determining whether any capital gain or loss on the ultimate sale of the
Shares will be short-term, mid-term or long-term. The Shares must be held
for more than eighteen months following the measurement date to qualify for
long-term capital gain treatment. The Shares must be held for more than one
year but not for more than eighteen months from the measurement date to
qualify for mid-term capital gains treatment.
TAX WITHHOLDING
To comply with federal income tax withholding requirements, the Company
will require Plan participants who are key employees to pay to the Company
the required federal income tax withholding simultaneously with the exercise
(or other measurement date) of any nonstatutory stock options, the vesting of
Restricted Shares, or the issuance (or other measurement date) of Shares
issued pursuant to Performance Share Awards, unless other provision has
previously been made for satisfying the withholding requirements. In this
regard, Section 16 Holders should note that the use of Shares to satisfy tax
withholding requirements may be considered a sale of the Shares for purposes
of applying the Section 16 rules.
INFORMATION RELATING TO THE TRANSFERRED OPTIONS
TYPE OF OPTIONS
Transferred Options granted under the Plans are or will be nonqualified
stock options.
TRANSFERABILITY
Under the Plans, options are transferable only by will, by the laws of
descent and distribution or pursuant to a qualified domestic relations order;
provided that options may be transferred by the participant to an Approved
Transferee of the option holder in accordance with the provisions outlined
below.
Upon transfer to an Approved Transferee, the Transferred Option
continues to be governed by and subject to the terms and limitations of the
respective Plan and the relevant grant, and the Approved Transferee is
required to abide by the Company's then current stock option transfer
guidelines and is entitled to the same rights thereunder as the Participant
Transferor, as if no transfer had taken place. Accordingly, the rights of the
Approved Transferee are subject to the terms and limitations of the original
grant to the Participant Transferor, including provisions relating to
expiration date, exercisability, exercise price and forfeiture upon
termination of the Participant Transferor's employment with the Company.
EXERCISE OF TRANSFERRED OPTIONS BY APPROVED TRANSFEREES
A Transferred Option may be exercised by an Approved Transferee at any
time until the close of business on the expiration date of the Transferred
Option (as may be affected by the Participant Transferor's employment status
as described below).
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The purchase price of the shares as to which Transferred Options are
exercised shall be paid to the Company at the time of exercise in the manner
described above.
Upon exercise of a Transferred Option by an Approved Transferee, any
federal, state or local withholding taxes arising from the exercise are the
obligation of the Participant Transferor or the Participant Transferor's
estate, as applicable.
A Transferred Option will be deemed exercised on the date the Company
has received a copy of the option exercise notice, completed in all respects
and signed by the Approved Transferee (accompanied by payment of the exercise
price). The Transferred Option shares will generally be transferred to the
Approved Transferee as of the day following the date that (i) the above
conditions have been met, (ii) the funds and/or shares of Common Stock paid
by the Approved Transferee in satisfaction of the exercise price have been
received by the Company free and clear of all restrictions, and (iii) the
Company has received confirmation that the Participant Transferor's tax
withholding obligations have been satisfied.
Once the exercise is completed as described above, stock certificates
for the appropriate number of shares will be delivered to the Approved
Transferee or his or her estate or beneficiaries, or otherwise delivered in
such manner as the person(s) entitled thereto may direct.
TERMINATION
Because Stock Options transferred to Approved Transferees continue to be
governed by the terms of the respective Plan and the original grant, their
exercisability continues to be affected by the Participant Transferor's
employment status. In addition to terminating upon exercise and upon
expiration of the stated term of the option, each option shall terminate upon
termination of a participant's employment as set forth below.
Under the Plans, all previously unexercised options terminate and are
forfeited automatically upon the termination of the Participant Transferor's
employment with the Company, unless the Committee or the Board of Directors
specifies otherwise. However, if a Participant Transferor dies at a time when
an Approved Transferee is entitled to exercise an option, then the portion
formerly exercisable by the Approved Transferee may be exercised by the
Approved Transferee within one year of the death of the Participant
Transferor.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE TRANSFERRED OPTIONS
The following does not purport to address the possible estate and gift
tax consequences of transferring a Stock Option. Accordingly, prior to
making a transfer of a Stock Option, a participant should consult with his or
her personal tax advisors concerning the possible federal and state gift,
estate, inheritance, and generation skipping tax consequences of such a
transfer, as well as state and local income tax consequences which are not
addressed herein. The discussion of federal income tax consequences for the
Participant Transferor and the Approved Transferee set forth below assumes
that the Transferred Option does not have a readily ascertainable fair market
value at the date of grant and that the transfer of a Stock Option during a
participant's lifetime is made by way of gift and no consideration is
received therefor.
FEDERAL INCOME TAX CONSEQUENCES FOR PARTICIPANT TRANSFERORS
A Participant Transferor who transfers a Stock Option by way of gift to
an Approved Transferee or a trust for the benefit of an Approved Transferee
will not recognize income at the time of the transfer. Instead, at the time
the Approved Transferee exercises the Transferred Option, the Participant
Transferor will generally recognize ordinary compensation income in an amount
equal to the excess of the fair market value of the shares purchased over the
exercise price. (Special rules may apply to participants subject to potential
liability under Section 16(b) of the Exchange Act, which may defer the
recognition of compensation income.) Moreover, such income will be subject to
payment and withholding of income and FICA taxes. Normally, Participant
Transferors may satisfy the withholding obligation by writing a check to the
Company or by another method permitted by the Company. Subject to certain
limitations, the Company will generally be entitled to claim a federal income
tax deduction at such time and in the same amount that the Participant
Transferor recognizes as ordinary income. In the event the Approved
Transferee exercises the Transferred Option after the death of the
Participant Transferor, any such ordinary income will generally be recognized
by the Participant Transferor's estate.
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FEDERAL INCOME TAX CONSEQUENCES FOR APPROVED TRANSFEREES
An Approved Transferee will not recognize income at the time of the
transfer of a Stock Option. As described in the preceding paragraph, the
Participant Transferor (or the estate of the Participant Transferor, as the
case may be) and not the Approved Transferee will generally recognize
ordinary compensation income at the time the Approved Transferee exercises
the Transferred Option. An Approved Transferee who chooses to exercise a
Transferred Option in whole or in part by delivery of other shares of Common
Stock already owned by the Approved Transferee should consult with his or her
own tax advisor concerning the tax consequences of such a transaction.
FEDERAL INCOME TAX CONSEQUENCES ON SUBSEQUENT SALE OF STOCK
If shares acquired upon exercise of a Transferred Option are later sold
or exchanged, then the difference between the sale price and the Approved
Transferee's tax basis for the shares will generally be taxable as long-term,
mid-term or short-term capital gain or loss (if the stock is a capital asset
of the Approved Transferee) depending upon how long the stock has been held
after the exercise date. If the stock has been held for more than eighteen
months, the difference will generally be taxable as long-term capital gain.
If the stock has been held for more than one year but not more than eighteen
months, the difference will generally be taxable as mid-term capital gain.
The tax basis for the shares in the hands of the Approved Transferee would be
the exercise price for the Transferred Option plus the amount of the income
recognized by the Participant Transferor (or the estate of the Participant
Transferor, as the case may be) at the time of exercise.
PLAN OF DISTRIBUTION
The Shares are being registered to permit the sale by the Company of
such Shares to Approved Transferees upon the exercise of Transferred Options.
The Company has agreed, among other things, to bear all expenses in
connection with the Registration Statement and the sale of the Shares covered
by this Prospectus. The Shares may be sold from time to time in one or more
transactions at offering prices determined in accordance with the terms of
the Transferred Options.
The Common Stock is listed for trading on the New York Stock Exchange
and the Pacific Stock Exchange, and the Shares have been approved for listing
on the New York Stock Exchange.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Shares offered
hereby will be passed upon for the Company by Fenwick & West LLP, Palo Alto,
California.
EXPERTS
The consolidated financial statements and the related consolidated
financial statement schedules incorporated in this Prospectus by reference from
the company's Annual Report on Form 10-K, for the year ended December 31, 1996,
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports which is incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with
the issuance of the securities being registered. All of the amounts shown are
estimates except the Commission registration fee. Such expenses will be borne
by the Company:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Registration Fee $ 100
Legal Fees and Expenses $ 5,000
Printing Fees $
Miscellaneous $
-------
Total $
-------
-------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Restated Certificate of Incorporation provides that,
pursuant to Delaware law, its directors will not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty
as a director, with specified exceptions. The exceptions relate to (i) any
breach of a director's duty of loyalty of the Company or its stockholders,
(ii) acts or omissions that are not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) approval by a director of
certain unlawful dividend payments, distributions or stock redemptions or
repurchases or (iv) engaging in a transaction from which a director derives
an improper personal benefit. Among the types of breaches for which
directors will not be liable are those resulting from negligent or grossly
negligent behavior.
The Company's Amended and Restated Bylaws also provides for the
indemnification of both its directors and officers within the limitations
permitted by Delaware law. Section 145 of the Delaware General Corporation
Law authorizes indemnification of directors and officers for actions taken in
good faith and in a manner such person reasonably believed to be in, or not
opposed to, the best interests of the Company. This provision is
sufficiently broad to permit indemnification under certain circumstances for
liabilities (and for reimbursement of expenses incurred) arising under the
Securities Act of 1933, as amended. The Company has entered into indemnity
agreements with its directors that contain provisions that are in some
respects broader that the specified indemnification provisions contained in
Delaware law.
The Company has obtained directors' and officers' liability and
corporate reimbursement insurance covering all officers and directors of the
Company and its subsidiaries and providing for the reimbursement of amounts
paid by the Company or its subsidiaries to directors and officers pursuant to
indemnification arrangements, subject to certain deductibles and coinsurance
provisions.
ITEM 16. EXHIBITS
The following exhibits are either filed herewith or incorporated by
reference to documents previously filed as indicated below:
3.1 Third Restated Certificate of Incorporation, as amended as of December 1,
1988, of the Registrant, filed as Exhibit 3.7 to the Registrant's Form 10-Q
for the period ending September 30, 1996 and incorporated herein by
reference.
4.1 Amended and Restated Bylaws of the Registrant, filed as Exhibit 3.8 to the
Registrant's Form 10-Q for the period ending September 30, 1996, and
incorporated herein by reference.
5.1 Opinion of Fenwick & West LLP.
II-1
<PAGE>
10.1 Executive Officer Stock Option Plan (1987), as restated and amended as of
October 22, 1997.
10.2 1987 Stock Option Plan, as restated and amended as of October 22, 1997.
10.3 The Charles Schwab Corporation 1992 Stock Incentive Plan, as restated and
amended as of October 22, 1997.
23.1 Consent of Fenwick & West LLP (included with Exhibit 5.1 hereof).
23.2 Consent of Deloitte & Touche LLP.
24.1 Powers of Attorney (contained on the signature pages of this Registration
Statement).
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to include
any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change to
such information in the Registration Statement;
(2) That, for the purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered herein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) The undersigned Registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is
sent or given, the latest annual report, to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to be
presented by Article 3 of Regulation S-X is not set forth in the prospectus,
to deliver, or cause to be delivered to each person to whom the prospectus is
sent or given, the latest quarterly report that is specifically incorporated
by reference in the prospectus to provide such interim financial information.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Francisco, State of California
on the twentieth day of January 1998.
THE CHARLES SCHWAB CORPORATION
By: /S/ STEVEN L. SCHEID
--------------------------------
Steven L. Scheid,
Executive Vice President - Finance
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on
behalf of the Company in the capacities indicated and on January 20, 1998.
SIGNATURE TITLE
--------- -----
/S/ CHARLES R. SCHWAB
- -------------------------------- Chairman, Co-Chief Executive Officer and
Charles R. Schwab* Director (principal executive officer)
/S/ DAVID S. POTTRUCK
- -------------------------------- President, Co-Chief Executive Officer,
David S. Pottruck* Chief Operating Officer and Director
/S/ LAWRENCE J. STUPSKI
- -------------------------------- Vice Chairman and Director
Lawrence J. Stupski*
/S/ STEVEN L. SCHEID Executive Vice President - Finance and Chief
- -------------------------------- Financial Officer (principal financial and
Steven L. Scheid accounting officer)
/S/ NANCY H. BECHTLE
- -------------------------------- Director
Nancy H. Bechtle*
/S/ C. PRESTON BUTCHER
- ------------------------------- Director
C. Preston Butcher*
/S/ DONALD G. FISHER
- ------------------------------- Director
Donald G. Fisher*
/S/ ANTHONY M. FRANK
- ------------------------------- Director
Anthony M. Frank*
/S/ FRANK C. HERRINGER
- ------------------------------- Director
Frank C. Herringer*
/S/ STEPHEN T. MCLIN
- ------------------------------- Director
Stephen T. McLin*
/S/ GEORGE P. SHULTZ
- ------------------------------- Director
George P. Shultz*
/S/ ROGER O. WALTHER
- ------------------------------- Director
Roger O. Walther*
*By /S/ STEVEN L. SCHEID
----------------------------
Steven L. Scheid
Attorney-in-Fact
II-3
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below (each, a "Signatory"), being a member of the Board of Directors
and/or an officer of The Charles Schwab Corporation (the "Company"),
constitutes and appoints Charles R. Schwab, David S. Pottruck and Steven L.
Scheid (each, an "Agent," and collectively, "Agents") and each or any of
them, his or her true and lawful attorney-in-fact and agent, each with full
power of substitution and resubstitution, for and in his or her name, place
and stead, in any and capacities, to sign the Company's Registration
Statement on Form S-3, any and all amendments (including post-effective
amendments) thereto, and any Registration Statement relating to the same
offering pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, and to file the same, with all exhibits thereto, and all other
documents in connection therewith and with such Registration Statements, with
the Securities and Exchange Commission. Each Signatory further grants to the
Agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary, in the judgment of such Agent,
to be done in connection with any such signing and filing, as full to all
intents and purposes as he or she might or could do in person, and hereby
ratifies and confirms all that said Agents, or any of them, or their or his
or her other substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
January 20, 1998
/S/ CHARLES R. SCHWAB
--------------------------------
Charles R. Schwab
/S/ DAVID S. POTTRUCK
--------------------------------
David S. Pottruck
--------------------------------
Lawrence J. Stupski
/S/ STEVEN L. SCHEID
--------------------------------
Steven L. Scheid
/S/ NANCY H. BECHTLE
--------------------------------
Nancy H. Bechtle
/S/ C. PRESTON BUTCHER
-------------------------------
C. Preston Butcher
-------------------------------
Donald G. Fisher
-------------------------------
Anthony M. Frank
-------------------------------
Frank C. Herringer
/S/ STEPHEN T. MCLIN
-------------------------------
Stephen T. McLin
/S/ GEORGE P. SHULTZ
-------------------------------
George P. Shultz
-------------------------------
Roger O. Walther
II-4
<PAGE>
INDEX TO EXHIBITS
The following exhibits are either filed herewith or incorporated by
reference to documents previously filed as indicated below:
3.1 Third Restated Certificate of Incorporation, as amended as of December 1,
1988, of the Registrant, filed as Exhibit 3.7 to the Registrant's Form 10-Q
for the period ending September 30, 1996 and incorporated herein by
reference.
4.1 Amended and Restated Bylaws of the Registrant, filed as Exhibit 3.8 to the
Registrant's Form 10-Q for the period ending September 30, 1996, and
incorporated herein by reference.
5.1 Opinion of Fenwick & West LLP.
10.1 Executive Officer Stock Option Plan (1987), as restated and amended as of
October 22, 1997.
10.2 1987 Stock Option Plan, as restated and amended as of October 22, 1997.
10.3 The Charles Schwab Corporation 1992 Stock Incentive Plan, as restated and
amended as of October 22, 1997.
23.1 Consent of Fenwick & West LLP (included with Exhibit 5.1 hereof).
23.2 Consent of Deloitte & Touche LLP.
24.1 Powers of Attorney (contained on the signature pages of this Registration
Statement).
<PAGE>
EXHIBIT 5.1
February 27, 1998
The Charles Schwab Corporation
101 Montgomery Street
San Francisco, California 94104
Gentlemen:
At your request, we have examined the Registration Statement on Form S-3 to
be filed by you with the Securities and Exchange Commission (the "COMMISSION")
on February 27, 1998 (the "REGISTRATION STATEMENT") in connection with the
registration under the Securities Act of 1933, as amended, of an aggregate of up
to 35,995,806 shares of your Common Stock (the "STOCK"), of which up to
34,854,916 shares are reserved for issuance pursuant to your 1992 Stock
Incentive Plan (the "1992 PLAN"), up to 915,090 shares are reserved for issuance
pursuant to your 1987 Stock Option Plan (the "1987 PLAN") and 225,800 are
reserved for issuance pursuant to your 1987 Executive Officer Stock Option Plan
(the "1987 EXECUTIVE OFFICER PLAN" and collectively, the "PLANS").
In rendering this opinion, we have examined the following:
(1) the Registration Statement, together with the exhibits filed as a part
thereof;
(2) the prospectus prepared in connection with the Registration Statement;
(3) the Plans and related forms of grant and exercise agreements;
(4) Third Restated Certificate of Incorporation of The Charles Schwab
Corporation (filed as Exhibit 3.7 to Form 10-Q for the period ending
September 30, 1996);
(5) Second Restated Bylaws of The Charles Schwab Corporation (filed as
Exhibit 3.8 to Form 10-Q for the period ending September 30, 1996);
(6) minutes of meetings of the Compensation Committee of the Board of
Directors of The Charles Schwab Corporation, dated September 16, 1992,
September 7, 1994, October 18, 1994, December 7, 1995, January 17,
1996, September 17, 1996, February 26, 1997 and October 22, 1997;
(7) CL Acquisition Corporation resolutions adopted by unanimous written
consent, dated March 24, 1987 (and approving adoption of the 1987 Plan
and the 1987 Executive Officer Plan);
(8) Exhibit F to CL Acquisition Corporation resolutions adopted by
unanimous written consent, dated March 24, 1987;
<PAGE>
The Charles Schwab Corporation
February 27, 1998
Page 2
(9) Exhibit H to CL Acquisition Corporation resolutions adopted by
unanimous written consent, dated March 24, 1987;
(10) copy of resolution of The Charles Schwab Corporation regarding name
change, dated April 22, 1987;
(11) copy of 1992 Notice of Annual Meeting and Proxy Statement (for
stockholder approval of 1992 Stock Incentive Plan), dated April 7,
1992;
(12) copy of the Company's Form 10-Q for the quarter ended June 30, 1992
(for vote on stockholder approval of 1992 Stock Incentive Plan);
(13) The Charles Schwab Corporation Common Stock Summary dated
January 31, 1998;
(14) letter from Norwest Bank dated February 23, 1998 indicating total
number of shares outstanding as of January 31, 1998; and
(15) a Management Certificate addressed to us and dated of even date
herewith executed by the Company containing certain factual
representations.
In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies, the lack of any undisclosed terminations, modifications, waivers or
amendments to any documents reviewed by us and the due execution and delivery
of all documents where due execution and delivery are prerequisites to the
effectiveness thereof. We have confirmed the continued effectiveness of the
Company's registration under the Securities Exchange Act of 1934, as amended,
by a telephone call to the offices of the Securities and Exchange Commission.
As to matters of fact relevant to this opinion, we have relied solely
upon our examination of the documents referred to above and have assumed the
current accuracy and completeness of the information included in the
documents referred to above. We have made no independent investigation or
other attempt to verify the accuracy of any of such information or to
determine the existence or non-existence of any other factual matters;
HOWEVER, we are not aware of any facts that would lead us to believe that the
opinion expressed herein is not accurate.
Based upon the foregoing, it is our opinion that the up to 34,854,916
shares of the Stock that are reserved for issuance pursuant to your 1992
Plan, up to 915,090 shares of the Stock that are reserved for issuance
pursuant to your 1987 Plan, and up to 225,800 shares of the Stock that
are reserved for issuance pursuant to your 1987 Executive Officer Plan, when
issued and sold in the manner referred to in the applicable Plan and the
Prospectus, will be validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement.
This opinion speaks only as of its date and is intended solely for your use
as an exhibit to the Registration Statement for the purpose of the above sale of
the Stock and is not to be relied upon for any other purpose.
Very truly yours,
FENWICK & WEST LLP
<PAGE>
EXHIBIT 10.1
THE CHARLES SCHWAB CORPORATION
1987 EXECUTIVE OFFICER STOCK OPTION PLAN
(RESTATED TO INCLUDE AMENDMENTS THROUGH OCTOBER 22, 1997)
ARTICLE 1. INTRODUCTION.
The purpose of the 1987 Executive Stock Option Plan, as Amended and
Restated (the "Plan") is to enable The Charles Schwab Corporation and its
subsidiaries to attract and retain directors, officers, and other key employees
and to provide such persons with additional incentive to advance the interests
of the Company. The Plan was initially adopted on March 24, 1987, and was
amended on September 17, 1996 and October 22, 1997. The Plan is hereby restated
and amended as of October 22, 1997, and the terms of this Restatement shall
apply to all awards granted under the Plan on or after such date. The Plan
shall terminate not more than ten (10) years from the date the Plan initially
was adopted. The Plan will provide Awards in the form of Restricted Shares,
Performance Share Awards or 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 1,284,000 (including those
shares awarded prior to the amendment of the Plan). If any Restricted Shares,
Performance Share Awards or Options are forfeited, or if any Performance Share
Awards terminate for any other reason without the associated Common Shares being
issued, or if any Options terminate for any other reason before being exercised,
then such Restricted Shares, Performance Share Awards or Options shall again
become available for Awards under the Plan. The limitation of this Article 3
shall be subject to adjustment pursuant to Article 10. Any Common Shares issued
pursuant to the Plan may be authorized but unissued shares or treasury shares.
<PAGE>
ARTICLE 4. ELIGIBILITY.
4.1 GENERAL RULE. Key Employees shall be eligible for designation as
Participants by the Committee.
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.
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.
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.
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. 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 expiration prior to the end of its term
in the event of the termination of the Optionee's employment and shall provide
for the suspension of vesting when an employee is on a leave of absence for a
period in excess of six months in appropriate cases, as determined by the
Company; provided that the exercisability of Options shall be accelerated in the
event of the Participant's death or Disability and, in the case of 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. Options may also be
2
<PAGE>
awarded in combination with Restricted Shares, and such an Award may provide
that the Options will not be exercisable unless the related Restricted Shares
are forfeited. In addition, Options 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 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.
5.7 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.
5.8 AUTHORIZATION OF REPLACEMENT OPTIONS. Concurrently with the grant of
any Option to a Participant, 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 12.2. Upon the exercise of the Underlying Options,
the Replacement Options shall be evidenced by an amendment to the Underlying
Option Agreement. The Exercise Price of a Replacement Option shall be no less
than the Fair Market Value of a Common Share on the date the grant of the
Replacement Option becomes effective. The term of each Replacement Option shall
be equal to the remaining term of the Underlying Option. No Replacement Options
shall be granted to Optionees when Underlying Options are exercised pursuant to
the terms of the Plan and the Underlying Option Agreement following termination
of the Optionee's employment. The Committee, in its sole discretion, may
establish such other terms and conditions for Replacement Options as it deems
appropriate.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 GENERAL RULE. The entire Exercise Price of Common Shares issued upon
exercise of Options shall be payable in cash at the time when such Common Shares
are purchased, except that 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
3
<PAGE>
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 Options, and such an Award may provide that the Restricted Shares or
Performance Share Awards will be forfeited in the event that the related Options
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; provided that, in the case of
an Award of Restricted Shares where vesting is based entirely on the
Participant's service, (i) vesting shall be accelerated in the event of the
Participant's death or Disability; (ii) in the case of Retirement, vesting shall
be accelerated for all Restricted Shares that had been granted more than two
years prior to the date of the Participant's Retirement; and (iii) vesting shall
be suspended when an employee is on a leave of absence for a period in excess of
six months in appropriate cases, as determined by the Company. 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,
4
<PAGE>
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.
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.
5
<PAGE>
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
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Shares covered by each outstanding Option or (d) the Exercise Price under
each outstanding Option.
10.2 REORGANIZATIONS. In the event that the Company is a party to a merger
or other reorganization, outstanding Options, Restricted Shares and Performance
Share Awards shall be subject to the agreement of merger or reorganization. Such
agreement may provide, without limitation, for the assumption of outstanding
Awards by the surviving corporation or its parent, for their continuation by the
Company (if the Company is a surviving corporation), for accelerated vesting or
for settlement in cash.
10.3 RESERVATION OF RIGHTS. Except as provided in this Article 10, a
Participant shall have no rights by reason of any subdivision or consolidation
of shares of stock of any class, the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class. Any issue by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or Exercise Price of Common
Shares subject to an Option. The grant of an Award pursuant to the Plan shall
not affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.
ARTICLE 11. LIMITATION OF RIGHTS.
11.1 EMPLOYMENT RIGHTS. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain employed by the
Company or any Subsidiary. The Company and its Subsidiaries reserve the right to
terminate the employment of any employee at any time, with or without cause,
subject only to a written employment agreement (if any).
11.2 STOCKHOLDERS' RIGHTS. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the issuance of a stock certificate for
such Common Shares. No adjustment shall be made for cash dividends or other
rights for which the record date is prior to the date when such certificate is
issued, except as expressly provided in Articles 7, 9 and 10.
11.3 CREDITORS' RIGHTS. A holder of Performance Share Awards shall have no
rights other than those of a general creditor of the Company. Performance Share
Awards represent unfunded and unsecured obligations of the Company, subject to
the terms and conditions of the applicable Stock Award Agreement.
11.4 GOVERNMENT REGULATIONS. Any other provision of the Plan
notwithstanding, the obligations of the Company with respect to Common Shares to
be issued pursuant to the Plan shall be subject to all applicable laws, rules
and regulations, and such approvals by any governmental agencies as may be
required. The Company reserves the right to restrict, in whole or in part, the
delivery of Common Shares pursuant to any Award until such time as:
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(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. WITHHOLDING TAXES.
12.1 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.
12.2 NONSTATUTORY OPTIONS, RESTRICTED SHARES OR PERFORMANCE SHARE AWARDS.
The Committee may permit an Optionee who exercises Options, 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 13. ASSIGNMENT OR TRANSFER OF AWARD.
13.1 GENERAL RULE. 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, except to the extent specifically permitted by Section 13.2.
13.2 EXCEPTIONS TO GENERAL RULE. Notwithstanding Section 13.1, this Plan
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,
(ii) a transfer of any Award hereunder by will or the laws of descent or
distribution, or (iii) a voluntary transfer of an Award to a trust or
partnership for the exclusive benefit of one or more members of the
Participant's family, but only if the Participant has sole investment control
over such trust or partnership.
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ARTICLE 14. FUTURE OF PLANS.
14.1 TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on February 26, 1997. The Plan shall remain in effect until it is
terminated under Section 14.2, except that no Awards shall be granted after
March 24, 1997.
14.2 AMENDMENT OR TERMINATION. The Board may at any time terminate this
Plan, and the Board or the Committee make such modifications of the Plan as it
shall deem advisable; 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.
14.3 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 15. DEFINITIONS.
15.1 "Award" means any award of an Option, a Restricted Share or a
Performance Share Award under the Plan.
15.2 "Award Year" means a fiscal year beginning January 1 and ending
December 31 with respect to which an Award may be granted.
15.3 "Board" means the Company's Board of Directors, as constituted
from time to time.
15.4 "Change in Control" means the occurrence of any of the following
events after the effective date of the Plan as set out in Section 14.1:
(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
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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.
15.5 "Code" means the Internal Revenue Code of 1986, as amended.
15.6 "Committee" means the Compensation Committee of the Board, as
constituted from time to time.
15.7 "Common Share" means one share of the common stock of the
Company.
15.8 "Company" means The Charles Schwab Corporation, a Delaware
corporation.
15.9 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
15.10 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
15.11 "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.
15.12 "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.
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15.13 "Key Employee" means a key common-law employee of the Company or
any Subsidiary, as determined by the Committee.
15.14 "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.
15.15 "Non-Employee Director" means a member of the Board who is not a
common-law employee.
15.16 "Option" means an employee stock option not described in sections
422 through 424 of the Code, including a Replacement Option, granted under the
Plan and entitling the holder to purchase one Common Share.
15.17 "Optionee" means an individual, or his or her estate, legatee or
heirs at law that holds an Option.
15.18 "Participant" means a Non-Employee Director or Key Employee who
has received an Award.
15.19 "Performance Share Award" means the conditional right to receive
in the future one Common Share, awarded to a Participant under the Plan.
15.20 "Plan" means this 1987 Executive Stock Option Plan of The Charles
Schwab Corporation, as it may be amended from time to time.
15.21 "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.
15.22 "Restricted Share" means a Common Share awarded to a Participant
under the Plan.
15.23 "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.
15.24 "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.
15.25 "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.
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15.26. "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.
15.27 "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. All
determinations as to whether a Participant has incurred a Disability shall be
made by the Employee Benefits Administration Committee of the Company, the
findings of which shall be final, binding and conclusive.
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NON-QUALIFIED STOCK OPTION AGREEMENT
(Executive Officer Stock Option Plan (1987))
THIS AGREEMENT made as of this ____ day of _________, 19____, by and
between The Charles Schwab Corporation, a Delaware corporation ("Company") and
______________________________ ("Optionee").
WITNESSETH:
WHEREAS, there has been granted to Optionee, effective as of __________,
19___, a non-qualified stock option under the Executive Officer Stock Option
Plan (1987) of the Company ("Option Plan");
NOW THEREFORE, it is mutually agreed as follows:
1. The Optionee shall have a non-qualified stock option to acquire
________ shares of common stock of the company (the "Shares"), at a price of
$_______ per share.
2. Except as provided in paragraphs 3 and 4 below, the other terms of this
option shall be the same as all of those provided for in the Option Plan, which
include, without limitation, vesting of Shares, limitations on exercise and
transfer, and other restrictions. The Option Plan is attached hereto as Exhibit
A and is incorporated herein by this reference. Optionee has read the Option
Plan and, other than as provided in paragraphs 3 and 4 below, agrees to be bound
by its terms. Without limitation, Optionee specifically acknowledges the
representations, warranties and agreements contained in paragraph 6(e) of the
Option Plan.
3. Notwithstanding paragraph 6(b) of the Option Plan, in the event
Optionee's employment or service as a director with or for the Company and
its subsidiaries terminates by reason of Optionee's death or permanent
disability, all Shares then not deemed to be Vested thereupon will be deemed
immediately Vested. For this purpose, "permanent disability" will mean the
reasonable determination by a qualified physician acceptable to the company
that the Optionee has an illness or incapacity that has disabled, or will
disable, the Optionee from rendering his or her normal services to the
Company and its subsidiaries for a period of more than six (6) consecutive
months in any consecutive twelve (12) month period.
4. Upon exercise of this Option, the Company will extend to the Optionee
rights under that certain Registration Rights and Stock Restriction Agreement
dated as of March 31, 1987, as amended, subject to the Optionee's agreement to
be bound by the terms thereof.
5. Any notice to be given by the Optionee under the terms of the Option
Plan shall be deemed to have been duly given, and effective upon the receipt,
if sent by Certified Mail, postage and certification prepaid, to The Charles
Schwab Corporation, 101 Montgomery, San Francisco, California 94104,
Attention: Corporate Secretary, except as superseded by a different address
noticed to Optionee.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the day and year referred to above.
THE CHARLES SCHWAB CORPORATION ("Company")
By:
---------------------------------------------
-------------------------------------------------
"Optionee"
Attachment (1) Spousal Consent
(2) Exhibit A: 1987 Stock Option Plan
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THE CHARLES SCHWAB CORPORATION
1987 STOCK OPTION PLAN
(RESTATED TO INCLUDE AMENDMENTS THROUGH OCTOBER 22, 1997)
ARTICLE 1. INTRODUCTION.
The purpose of the 1987 Stock Option Plan, as Amended and Restated (the
"Plan") is to enable The Charles Schwab Corporation and its subsidiaries to
attract and retain directors, officers, and other key employees and to provide
such persons with additional incentive to advance the interests of the Company.
The Plan was initially adopted on March 24, 1987, and was amended on
July 29, 1987, April 17, 1989, September 17, 1996 and October 22, 1997. The
Plan is hereby restated and amended as of October 22, 1997, and the terms of
this Restatement shall apply to all awards granted under the Plan on or after
such date. The Plan shall terminate not more than ten (10) years from the date
the Plan initially was adopted. The Plan will provide 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 1,616,000 (including those
shares awarded prior to the amendment of the Plan). If any Restricted Shares,
Performance Share Awards or Options are forfeited, or if any Performance Share
Awards terminate for any other reason without the associated Common Shares being
issued, or if any Options terminate for any other reason before being exercised,
then such Restricted Shares, Performance Share Awards or Options shall again
become available for Awards under the Plan. The limitation of this Article 3
shall be subject to adjustment pursuant to Article 10. Any Common Shares issued
pursuant to the Plan may be authorized but unissued shares or treasury shares.
<PAGE>
ARTICLE 4. ELIGIBILITY.
4.1 GENERAL RULE. Key Employees shall be eligible for designation as
Participants by the Committee.
4.2 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.
4.3 ATTRIBUTION RULES. For purposes of Section 4.2, 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.
4.4 OUTSTANDING STOCK. For purposes of Section 4.2, "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. 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).
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.
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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 4.2. 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
4.2 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 expiration prior to the end of its term in the event
of the termination of the Optionee's employment and shall provide for the
suspension of vesting when an employee is on a leave of absence for a period in
excess of six months in appropriate cases, as determined by the Company;
provided that the exercisability of Options shall be accelerated in the event of
the Participant's death or Disability and, in the case of 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. 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.
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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, 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 12.2. 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,
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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
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criteria as the Committee may adopt; provided that, in the case of
an Award of Restricted Shares where vesting is based entirely on the
Participant's service, (i) vesting shall be accelerated in the event of the
Participant's death or Disability; (ii) in the case of Retirement, vesting shall
be accelerated for all Restricted Shares that had been granted more than two
years prior to the date of the Participant's Retirement; and (iii) vesting shall
be suspended when an employee is on a leave of absence for a period in excess of
six months in appropriate cases, as determined by the Company. 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.
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
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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
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form other than Common Shares, a combination or consolidation of the
outstanding Common Shares (by reclassification or otherwise) into a lesser
number of Common Shares, a recapitalization, a spinoff or a similar
occurrence, the Committee shall make appropriate adjustments in one or more
of (a) the number of Options, Restricted Shares and Performance Share Awards
available for future Awards under Article 3, (b) the number of Performance
Share Awards included in any prior Award which has not yet been settled, (c)
the number of Common Shares covered by each outstanding Option or (d) the
Exercise Price under each outstanding Option.
10.2 REORGANIZATIONS. In the event that the Company is a party to a merger
or other reorganization, outstanding Options, Restricted Shares and Performance
Share Awards shall be subject to the agreement of merger or reorganization. Such
agreement may provide, without limitation, for the assumption of outstanding
Awards by the surviving corporation or its parent, for their continuation by the
Company (if the Company is a surviving corporation), for accelerated vesting or
for settlement in cash.
10.3 RESERVATION OF RIGHTS. Except as provided in this Article 10, a
Participant shall have no rights by reason of any subdivision or consolidation
of shares of stock of any class, the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class. Any issue by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or Exercise Price of Common
Shares subject to an Option. The grant of an Award pursuant to the Plan shall
not affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.
ARTICLE 11. LIMITATION OF RIGHTS.
11.1 EMPLOYMENT RIGHTS. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain employed by the
Company or any Subsidiary. The Company and its Subsidiaries reserve the right to
terminate the employment of any employee at any time, with or without cause,
subject only to a written employment agreement (if any).
11.2 STOCKHOLDERS' RIGHTS. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the issuance of a stock certificate for
such Common Shares. No adjustment shall be made for cash dividends or other
rights for which the record date is prior to the date when such certificate is
issued, except as expressly provided in Articles 7, 9 and 10.
11.3 CREDITORS' RIGHTS. A holder of Performance Share Awards shall have no
rights other than those of a general creditor of the Company. Performance Share
Awards represent unfunded and unsecured obligations of the Company, subject to
the terms and conditions of the applicable Stock Award Agreement.
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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. WITHHOLDING TAXES.
12.1 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.
12.2 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 13. ASSIGNMENT OR TRANSFER OF AWARD.
13.1 GENERAL RULE. 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, except to the extent specifically permitted by Section 13.2.
13.2 EXCEPTIONS TO GENERAL RULE. Notwithstanding Section 13.1, this Plan
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
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unexercised Options) as may be determined by the Company from time to time in
its sole discretion, (ii) a transfer of any Award hereunder by will or the
laws of descent or distribution, or (iii) a voluntary transfer of an Award
(other than an ISO) to a trust or partnership for the exclusive benefit of
one or more members of the Participant's family, but only if the Participant
has sole investment control over such trust or partnership.
ARTICLE 14. FUTURE OF PLANS.
14.1 TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on February 26, 1997. The Plan shall remain in effect until it is
terminated under Section 15.2, except that no Awards shall be made after March
24, 1997.
14.2 AMENDMENT OR TERMINATION. The Board may at any time terminate this
Plan, and the Board or the Committee make such modifications of the Plan as it
shall deem advisable; 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.
14.3 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 15. DEFINITIONS.
15.1 "Award" means any award of an Option, a Restricted Share or a
Performance Share Award under the Plan.
15.2 "Award Year" means a fiscal year beginning January 1 and ending
December 31 with respect to which an Award may be granted.
15.3 "Board" means the Company's Board of Directors, as constituted
from time to time.
15.4 "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;
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(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.
15.5 "Code" means the Internal Revenue Code of 1986, as amended.
15.6 "Committee" means the Compensation Committee of the Board, as
constituted from time to time.
15.7 "Common Share" means one share of the common stock of the
Company.
15.8 "Company" means The Charles Schwab Corporation, a Delaware
corporation.
15.9 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
15.10 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
15.11 "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.
15.12 "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
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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.
15.13 "ISO" means an incentive stock option described in section 422(b)
of the Code.
15.14 "Key Employee" means a key common-law employee of the Company or
any Subsidiary, as determined by the Committee.
15.15 "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.
15.16 "Non-Employee Director" means a member of the Board who is not a
common-law employee.
15.17 "NSO" means an employee stock option not described in sections
422 through 424 of the Code.
15.18 "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.
15.19 "Optionee" means an individual, or his or her estate, legatee or
heirs at law that holds an Option.
15.20 "Participant" means a Non-Employee Director or Key Employee who
has received an Award.
15.21 "Performance Share Award" means the conditional right to receive
in the future one Common Share, awarded to a Participant under the Plan.
15.22 "Plan" means this 1987 Stock Option Plan of The Charles Schwab
Corporation, as it may be amended from time to time.
15.23 "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.
15.24 "Restricted Share" means a Common Share awarded to a Participant
under the Plan.
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15.25 "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.
15.26 "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.
15.27 "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.
15.28. "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.
15.29 "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. All
determinations as to whether a Participant has incurred a Disability shall be
made by the Employee Benefits Administration Committee of the Company, the
findings of which shall be final, binding and conclusive.
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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
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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.
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NON-OUALIFIED STOCK OPTION AGREEMENT
(1987 Stock Option Plan, as first amended)
THIS AGREEMENT, made as of this _____ of _________, 19__, by and
between The Charles Schwab Corporation a Delaware corporation ("Company"), and
_______________ ("Optionee").
WITNESSETH:
WHEREAS, there has been granted to Optionee, effective as of _________
__, 19____, a non-qualified stock option under the 1987 Stock Option Plan, as
first amended, of the Company ("Option Plan");
NOW, THEREFORE, it is mutually agreed as follows:
1. The Optionee shall have a non-qualified stock option to acquire
_____ shares of common stock of the Company (the "Shares"), at a price of
$_______ per share.
2. Optionee acknowledges that paragraph 5(a) of the Option Plan
imposes significant restrictions on Optionee's ability to exercise this option.
3. This is a non-statutory stock option and the provisions of
paragraph 5(b) of the Option Plan are inapplicable to this Option. With that
exception and except as provided in paragraph 4, 5 and 6 below, the other terms
of this option shall be the same as without limitation, vesting of Shares,
limitations on exercise and transfer, and other restrictions. The Option Plan
is attached hereto as Exhibit A and is incorporated herein by this reference.
Optionee has read the Option Plan and, other than for the provisions of
paragraph 5(b) of the Option Plan and as provided in paragraphs 4, 5 and 6
below, agrees to be bound by its terms. Without limitation, Optionee
specifically acknowledges the representations, warranties and agreements
contained in paragraph 6(e) of the Option Plan.
4. Notwithstanding paragraph 6(b) of the Option Plan, in the event
Optionee's employment, service as a director or provision of independent
contractor services with or for the Company and its subsidiaries terminates by
reason of Optionee's death or permanent disability, all shares then not deemed
to be Vested thereupon will be deemed immediately Vested. For this purpose,
"permanent disability" will mean the reasonable determination by a qualified
physician acceptable to the Company that the Optionee has an illness or
incapacity that has disabled, or will disable, the Optionee from rendering his
or her normal services to the company and its subsidiaries for a period of more
than six (6) consecutive months in any consecutive twelve (12) month period.
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5. If the Company fails to timely exercise its right to repurchase
Unvested Shares, those Shares will be treated as Vested Shares. Options
underlying Unvested Shares may not be exercised once vesting ceases.
6. Any notice to be given by the Optionee under the terms of the
Option Plan shall be deemed to have been duly given, and effective upon receipt,
if sent by Certified Mail, postage and certification prepaid, to The Charles
Schwab Corporation, 101 Montgomery Street, San Francisco, California 94104,
Attention: Corporate Secretary, except as superseded by a different address
noticed to Optionee.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year referred to above.
BY:
------------------------------
on Behalf of
The Charles Schwab Corporation
("Company")
------------------------------
Optionee
Attachments: (1) Spousal Consent
(2) Exhibit A: 1987 Stock Option Plan, as first amended.
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EXHIBIT 10.3
THE CHARLES SCHWAB CORPORATION
1992 STOCK INCENTIVE PLAN
(RESTATED TO INCLUDE AMENDMENTS THROUGH OCTOBER 22, 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
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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
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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
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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 expiration prior to the end of its
term in the event of the termination of the Optionee's employment and shall
provide for the suspension of vesting when an employee is on a leave of
absence for a period in excess of six months in appropriate cases, as
determined by the Company; provided that the exercisability of Options shall
be accelerated in the event of the Participant's death or Disability and, in
the case of 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.
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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
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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; provided that, in the case of
an Award of Restricted Shares where vesting is based entirely on the
Participant's service, (i) vesting shall be accelerated in the event of the
Participant's death or Disability; (ii) in the case of Retirement, vesting shall
be accelerated for all Restricted Shares that had been granted more than two
years prior to the date of the Participant's Retirement; and (iii) vesting shall
be suspended when an employee is on a leave of absence for a period in excess of
six months in appropriate cases, as determined by the Company. 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.
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
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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.
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(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,
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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
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(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
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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.
14.1 GENERAL RULE. 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, except to the extent specifically permitted by Section 14.2.
14.2 EXCEPTIONS TO GENERAL RULE. Notwithstanding Section 14.1, this Plan
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
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discretion, (ii) a transfer of any Award hereunder by will or the laws of
descent or distribution, or (iii) a voluntary transfer of an Award (other
than an ISO) to a trust or partnership for the exclusive benefit of one or
more members of the Participant's family, but only if the Participant has
sole investment control over such trust or partnership.
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;
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(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
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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.
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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.
16.29 "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. All
determinations as to whether a Participant has incurred a Disability shall be
made by the Employee Benefits Administration Committee of the Company, the
findings of which shall be final, binding and conclusive.
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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
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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.
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
The Charles Schwab Corporation on Form S-3 of our reports dated February 21,
1997, appearing in and incorporated by reference in the Annual Report on Form
10-K of The Charles Schwab Corporation for the year ended December 31, 1996 and
to the reference to us under the heading "Experts" in the Prospectus, which is
part of this Registration Statement.
February 23, 1998
San Francisco, California /s/Deloitte & Touche LLP
