SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OFProxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]/ /
Filed by a Partyparty other than the Registrant [_]/ /
Check the appropriate box:
[_]/ / Preliminary Proxy Statement
[_]CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X]/X/ Definitive Proxy Statement
[_]/ / Definitive Additional Materials
[_]/ / Soliciting Material Pursuant to (S)Section 240.14a-11(c) or (S)Section
240.14a-12
THE CHARLES SCHWAB CORPORATION
-----------------------------------------------------Charles Schwab Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------Merrill Corporation
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(1) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_]/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)(1)
and 0-11.0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange ActRuleAct Rule 0-11 (Set(set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
[X]------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
[_]/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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[LOGO- --------------------------------------------------------------------------------
1998 NOTICE OF ANNUAL
STOCKHOLDERS MEETING
AND PROXY STATEMENT
THE CHARLES SCHWAB CORPORATION
APPEARS HERE]
March 22, 1996
Dear Stockholder:
You are- --------------------------------------------------------------------------------
LETTER TO STOCKHOLDERS
- --------------------------------------------------------------------------------
[PHOTO]
THIS YEAR, WE HAVE SIMPLIFIED THE PROXY STATEMENT TO MAKE IT EASIER TO
UNDERSTAND.
MARCH 23, 1998
- --------------------------------------------------------------------------------
DEAR FELLOW STOCKHOLDERS:
We cordially invitedinvite you to attend our 1998 Annual Meeting of Stockholders whichStockholders. The
meeting will be held on Monday, May 6, 199611, 1998 at 22:00 p.m. inat the Grand Ballroom ofYerba Buena
Center for the ANA Hotel,
located at 50 ThirdArts Theater, 700 Howard Street, (between Market and Mission Streets) in San Francisco, California.
The meeting will provide an opportunity for you to hear a report on 1995
operations, to meet your directors and executive officers, and to participate
in the meeting.
At the meeting, youwe will be askedelect two directors, vote on an amendment to elect ten directors to serve until their
successors are elected, to increase the authorized number of shares of Common
Stock and to approve amendments to the Company's 1992
Stock Incentive Plan.
YouPlan, report on our performance in 1997 and answer your
questions. Our products and services exhibit will also be asked to vote upon important proposed amendments toopen before and after the
Company's Certificate of Incorporation, which may have the effect of supporting
incumbent directors and management and rendering the accomplishment of certain
transactions involving a potential change in control of the Company more
difficult. We believe, however, that the resulting continuity will enhance the
experience and expertise of your directors and will facilitate long term
planning, strategy and policy. We also believe adoption of these amendments
will enhance the abilitymeeting.
Lawrence J. Stupski, Vice Chairman of the Board, is retiring after the Annual
Meeting. He assumed that role in July of 1992, after having served as President
and Chief Operating Officer for more than a decade. In recent years, Larry has
spearheaded the Company's renowned philanthropic and civic efforts.
Specifically, he established the School-to-Careers Program, a nationally
recognized example of leadership in career development for youth. We want to
effectively negotiate on behalf of the
stockholders on issues of corporate control.
The matters expectedexpress our deep appreciation to be acted upon are more fully described inLarry for his valuable contribution to our
Company.
This year, we have simplified the Proxy Statement which follows.
To ensure that your shares are represented atto make it easier to
understand. The Securities and Exchange Commission is encouraging companies to
write documents for investors in plain English, and we support this effort.
Clear communication with our stockholders and customers is vital to our goal of
building the meeting, please complete,
signmost useful and date the enclosed proxy and return it promptlyethical financial services company in the envelope
provided. You may revoke your proxy at any time before it is voted.world.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Charles R. Schwab /s/ Lawrence J. Stupski /s/ David S. Pottruck
CHARLES R. SCHWAB LAWRENCE J. STUPSKI DAVID S. POTTRUCK
Chairman of the Board
and Vice Chairman of the Board President and Chief Operating
Chief Executive Offi-
cer OfficerCHAIRMAN OF THE BOARD AND PRESIDENT,
CO-CHIEF EXECUTIVE OFFICER CO-CHIEF EXECUTIVE OFFICER AND
CHIEF OPERATING OFFICER
1
THE CHARLES SCHWAB CORPORATION
----------------TABLE OF CONTENTS
- --------------------------------------------------------------------------------
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS. . . . . . . . . . . . . . . . .3
PROXY STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
QUESTIONS AND ANSWERS . . . . . . . . . . . . . . . . . . . . . . . . . . .5
PROPOSALS TO BE VOTED ON. . . . . . . . . . . . . . . . . . . . . . . . . .10
THE BOARD OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . .11
NUMBER OF DIRECTORS AND TERMS . . . . . . . . . . . . . . . . . . . . . . .13
BOARD AND COMMITTEE MEETINGS. . . . . . . . . . . . . . . . . . . . . . . .14
DIRECTOR COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . .15
PRINCIPAL STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . .16
PERFORMANCE GRAPH . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . .20
EMPLOYMENT AND SEVERANCE AGREEMENTS . . . . . . . . . . . . . . . . . . . .27
SUMMARY COMPENSATION TABLE. . . . . . . . . . . . . . . . . . . . . . . . .30
OPTION GRANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
OPTIONS EXERCISED . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
CERTAIN TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .35
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . .35
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. . . . . . . . . . . . . . . . . .35
STOCKHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . .35
COSTS OF PROXY SOLICITATION . . . . . . . . . . . . . . . . . . . . . . . .36
TICKETS TO THE ANNUAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . .36
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
2
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
TO- --------------------------------------------------------------------------------
THE 1998 ANNUAL MEETING OF STOCKHOLDERS WILL BE HELD ON MAY 6, 1996
----------------11, 1998 AT 2:00
P.M. AT THE YERBA BUENA CENTER FOR THE ARTS THEATRE IN SAN FRANCISCO,
CALIFORNIA.
The 1998 Annual Meeting of Stockholders of The Charles Schwab Corporation
a
Delaware corporation (the "Company"), will be held on Monday, May 6, 199611, 1998 at 22:00 p.m. inat the Grand Ballroom ofYerba Buena Center for the ANA Hotel, located at 50 ThirdArts
Theater, 700 Howard Street,
(between Market and Mission Streets) in San Francisco, California for the following
purposes:
1. To elect tentwo directors to serve until their successors are elected.for three-year terms,
2. To increase the authorized number of shares of Common Stock.
3. To approve an amendment toamend the 1992 Stock Incentive Plan.
4.Plan, and
3. To approve amending the Certificate of Incorporation to (a) classify the
Board of Directors into three classes; (b) provide that directors may be
removed only for cause and only with the approval of the holders of at
least 80% of the voting power of the Company; (c) provide that any
vacancy on the Board shall be filled by the remaining directors then in
office, even if the remaining directors constitute less than a quorum;
(d) require that stockholder action be taken only at a duly called
annual meeting or special meeting of stockholders and prohibit
stockholder action by written consent; (e) provide that advance notice
of stockholder nominations for the election of directors and the
introduction of business to be considered at a meeting shall be given as
set forth in the Bylaws; (f) eliminate cumulative voting; and (g)
require the concurrence of the holders of at least 80% of the voting
power of the Company to alter, amend or repeal, or to adopt any
provision inconsistent with, the foregoing amendments.
5. To consider and act upon suchtransact other business as may properly comecoming before the meeting, and all adjournments and postponements thereof.
The Board has fixedmeeting.
Stockholders owning Company shares at the close of business on March 8, 1996 as the record date
for the determination of stockholders12, 1998
are entitled to notice of,attend and to vote at the Annual Meeting.meeting. A complete list of suchthese
stockholders of record will be available at the Company's principal executive offices at
101 Montgomery Street, San Francisco, California 94104, prior to the Annual Meeting.meeting.
By Order of the Board of Directors,
/s/ Mary B. Templeton
MARY B. TEMPLETON
Corporate Secretary
March 22, 1996Carrie E. Dwyer
CARRIE E. DWYER
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND
CORPORATE SECRETARY
3
PROXY STATEMENT
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TO ENSURE THAT YOURSTOCKHOLDERS OWNING COMPANY SHARES ARE REPRESENTED AT THE MEETING, PLEASE COMPLETE
AND PROMPTLY MAIL YOUR PROXY IN THE RETURN POSTAGE PREPAID ENVELOPE PROVIDED.
THIS WILL NOT PREVENT YOU FROM REQUESTING A TICKETCLOSE OF BUSINESS ON MARCH 12, 1998
ARE ENTITLED TO ATTEND AND VOTE AT THE MEETING AND
VOTING IN PERSON, SHOULD YOU SO DESIRE.
- --------------------------------------------------------------------------------
THE CHARLES SCHWAB CORPORATION
101 MONTGOMERY STREET
SAN FRANCISCO, CALIFORNIA 94104
----------------
PROXY STATEMENT
----------------MEETING.
Our Board of Directors is soliciting proxies for the 1998 Annual Meeting of
Stockholders. This Proxy Statement is furnished in connectioncontains important information for you to
consider when deciding how to vote on the matters brought before the meeting.
PLEASE READ IT CAREFULLY.
The Board set March 12, 1998 as the record date for the meeting. Stockholders
who owned Company common stock on that date are entitled to vote at and attend
the meeting, with each share entitled to one vote. There were 267,742,421 shares
of Company common stock outstanding on the solicitation of
proxies byrecord date.
Voting materials, which include the Board of Directors of The Charles Schwab Corporation, a Delaware
corporation (the "Company"), for use at the Annual Meeting of Stockholders (the
"Annual Meeting") to be held on May 6, 1996. This Proxy Statement, proxy card and form of
proxy are being1997 Annual
Report, will be mailed to stockholders on or about March 22, 1996.
Shares represented by a properly executed proxy received by23, 1998.
In this Proxy Statement:
- "we" and "Company" mean The Charles Schwab Corporation,
- "Schwab" means Charles Schwab & Co. Inc., the primary operating
subsidiary of the Company,
in
time to permit its use at- "Profit Sharing Plan" and "Plan" mean the Annual Meeting will be voted as indicated on the
proxy. Stockholders may revoke the authority granted by their proxies at any
time before the exercise of the powers conferred thereby by notice in writing
delivered to the Secretary of the Company; by submitting a subsequently dated
proxy; or by attending the Annual Meeting, withdrawing the proxyCharles Schwab Profit
Sharing and voting in
person.
It is proposed that action will be taken at the Annual Meeting to elect ten
directors, to increase the authorized number of shares of CommonEmployee Stock to
approve an amendment toOwnership Plan,
- "1992 Plan" means the 1992 Stock Incentive Plan, and
- holding shares in "street name" means your Company shares are held in
an account at a brokerage firm.
4
QUESTIONS AND ANSWERS
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WHY AM I RECEIVING THIS PROXY STATEMENT AND PROXY CARD?
WHAT AM I VOTING ON?
HOW DO I VOTE?
Q: WHY AM I RECEIVING THIS PROXY STATEMENT AND PROXY CARD?
A: You are receiving a Proxy Statement and proxy card from us because you own
shares of common stock in The Charles Schwab Corporation. This Proxy Statement
describes issues on which we would like you, as a stockholder, to approve amendingvote. It also
gives you information on these issues so that you can make an informed decision.
When you sign the Company's Certificate of Incorporation to (a) classifyproxy card, you appoint Charles R. Schwab and David S.
Pottruck as your representatives at the Board of
Directors into three classes; (b) provide that directors may be removed only
for causemeeting. Mr. Schwab and only with the approval of the holders of at least 80% of the
voting power of the Company; (c) provide that any vacancyMr. Pottruck
will vote your shares, as you have instructed them on the Board shallproxy card, at the
meeting. This way, your shares will be filled by the remaining directors then in office, even if the remaining
directors constitute less than a quorum; (d) require that stockholder action be
taken only at a duly called annual meetingvoted whether or special meeting of stockholders
and prohibit stockholder action by written consent; (e) provide that advance
notice of stockholder nominations for the election of directors and the
introduction of business to be considered at a meeting shall be given as set
forth in the Bylaws; (f) eliminate cumulative voting; and (g) require the
concurrence of the holders of at least 80% of the voting power of the Company
to alter, amend or repeal, or to adopt any provision inconsistent with, the
foregoing amendments. The Board of Directors knows of no other business for
consideration atnot you attend the
Annual Meeting. Even if you plan to attend the meeting, it is a good idea to
complete, sign and return your proxy card in advance of the meeting just in case
your plans change.
If any other matters are properly
presentedan issue comes up for vote at the Annual Meeting or any adjournment or postponement thereof, itmeeting that is the intention of the persons named innot on the proxy tocard, Mr.
Schwab and Mr. Pottruck will vote or otherwise to
act,your shares, under your proxy, in accordance
with their judgmentbest judgment.
Q: WHAT AM I VOTING ON?
A: You are being asked to vote on such matters.the election of two directors and an
amendment to our 1992 Plan. The expense ofsection entitled "Proposals To Be Voted On"
gives you more information on the nominees for election to our Board and the
proposed 1992 Plan amendment.
Q: HOW DO I VOTE?
A: YOU MAY VOTE BY MAIL.
You do this by signing your proxy solicitationcard and mailing it in the enclosed, prepaid
and addressed envelope. If you mark your voting instructions on the proxy card,
your shares will be bornevoted as you instruct.
If you return a signed card but do not provide voting instructions, your shares
will be voted:
- - FOR the two named nominees, and
- - FOR the proposed amendment to the 1992 Plan.
YOU MAY VOTE BY TELEPHONE.
You do this by following the Company. In
addition to solicitation"Vote by mail, proxies may be solicited in person orTelephone" instructions that came with
your Proxy Statement. If you vote by telephone, telegraph or other meansyou do not have to mail in your
proxy card. Some stockholders may not be able to vote by employees oftelephone.
YOU MAY VOTE ON THE INTERNET.
Stockholders who hold Company shares in street name may vote on the Company or its
subsidiaries without additional compensation. The CompanyInternet.
You do this by following the "Vote by Internet" instructions that came with your
Proxy Statement. If you vote on the Internet, you do not have to mail in your
proxy card. Some stockholders may not be able to vote on the Internet.
YOU MAY VOTE IN PERSON AT THE MEETING.
We will reimburse
brokerage firms and other nominees, custodians and fiduciaries for costs
incurred by them in mailing proxy materialspass out written ballots to the beneficial owners of shares
held of record by such persons.
The Company became a publicly held company in September, 1987 through an
initial public offering of its common stock, $0.01 par value (the "Common
Stock"). As used in this Proxy Statement, "Schwab" means
1
Charles Schwab & Co., Inc. All share and per share figures (including market
values) in this Proxy Statement have been adjusted to reflect a two-for-one
split of the Common Stock payable on September 1, 1995, effected in the form of
a 100 percent stock dividend.
VOTING
At the close of business on March 8, 1996 there were outstanding and
entitledanyone who wants to vote at the Annual Meeting 174,823,199 shares of Common Stock. Each
share of Common Stock outstanding on that date entitles the stockholder of
record on that date to one vote on each matter to be voted upon at the Annual
Meeting, except that voting for the election of directors may be cumulative. A
majority of all shares represented in person or by proxy at the Annual Meeting
constitutes a quorum for the transaction of business at the meeting. Under
applicable Delaware law, abstentions are considered as shares present and
entitled to vote and therefore will have the same effect as a vote against a
matter presented at the meeting. Brokers (other than Schwab) whoIf
you hold your shares in street name, you must request a legal proxy from your
stockbroker in order to vote at the meeting.
5
QUESTIONS AND ANSWERS
- --------------------------------------------------------------------------------
HOW DO I VOTE MY DIVIDEND REINVESTMENT PLAN SHARES?
HOW DO I VOTE MY PROFIT SHARING PLAN SHARES?
WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
WHAT IF I CHANGE MY MIND AFTER I RETURN MY PROXY?
Q: HOW DO I VOTE MY DIVIDEND REINVESTMENT PLAN SHARES?
A: If you participate in the Dividend Reinvestment Plan managed by our
transfer agent, Norwest Bank Minnesota, N.A., the proxy card you receive from
Norwest will include your Dividend Reinvestment Plan shares.
If you participate in our Dividend Reinvestment Plan through Schwab, the proxy
card you receive from Schwab will include Company shares held in your Schwab
account and under the Schwab Dividend Reinvestment Plan.
WE ENCOURAGE YOU TO EXAMINE YOUR PROXY CARD CLOSELY TO MAKE SURE YOU ARE VOTING
ALL OF YOUR SHARES IN THE COMPANY.
Q: HOW DO I VOTE MY PROFIT SHARING PLAN SHARES?
A: The proxy card you receive from the transfer agent will include your Plan
shares. By completing this proxy, you provide voting instructions:
- - to the transfer agent for customersshares you hold in your individual name at
Norwest, and
- - to the Plan's purchasing agent for shares you hold through the Profit
Sharing Plan.
If you hold Company shares in a Schwab account, you will receive a proxy card
from Schwab which you must vote separately.
Q: WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
A: It means that you have multiple accounts at the transfer agent and/or with
stockbrokers. Please sign and return all proxy cards to ensure that all your
shares are voted.
FOR BETTER CUSTOMER SERVICE, WE RECOMMEND CONSOLIDATION OF AS MANY TRANSFER
AGENT OR BROKERAGE ACCOUNTS AS POSSIBLE UNDER THE SAME NAME AND ADDRESS.
Q: WHAT IF I CHANGE MY MIND AFTER I RETURN MY PROXY?
A: You may revoke your proxy and change your vote at any time before the polls
close at the meeting. You may do this by:
- - signing another proxy with a later date,
- - voting by telephone or on the Internet (your latest telephone or
Internet proxy is counted), or
- - voting again at the meeting.
Q: WILL MY SHARES BE VOTED IF I DO NOT SIGN AND RETURN MY PROXY CARD?
A: IF YOUR SHARES ARE HELD IN STREET NAME, YOUR BROKERAGE FIRM, UNDER CERTAIN
CIRCUMSTANCES, MAY VOTE YOUR SHARES.
Brokerage firms have authority under applicable New York Stock Exchange rules to vote
customers' unvoted shares on thecertain
6
QUESTIONS AND ANSWERS
- --------------------------------------------------------------------------------
WILL MY SHARES BE VOTED IF I DO NOT SIGN AND RETURN MY PROXY CARD?
"routine" matters, including election of directors.
If you do not vote your proxy, your brokerage firm may either:
- - vote your shares on routine matters, or
- - leave your shares unvoted.
We encourage you to provide instructions to your brokerage firm by voting your
proxy. This ensures your shares will be voted at the meeting.
As a brokerage firm, Schwab may vote its customers' unvoted shares on routine
matters. But, because Schwab is entitled to vote
suchvoting on Company proposals, it must follow a
more strict set of New York Stock Exchange rules. Specifically, unvoted Company
shares held in Schwab accounts may only be voted by Schwab in the same
proportion as the Company's shares are voted by all record holders. With respectother stockholders.
When a brokerage firm votes its customers' unvoted shares on routine matters,
these shares are counted for purposes of establishing a quorum to all other matters presented for aconduct
business at the meeting. A brokerage firm cannot vote customers' shares as to which brokers do not have discretionary voting authority from
their customers or authority under the New York Stock Exchange rules to vote on
a particular matternon-routine matters. Accordingly, these shares are considered under Delaware law as shares not entitled to
vote with respecton non-routine matters, rather than as a vote against the matter.
YOU MAY HAVE GRANTED TO YOUR STOCKBROKER DISCRETIONARY VOTING AUTHORITY OVER
YOUR ACCOUNT.
Your stockbroker may be able to such matter, but are counted towardvote your shares depending on the establishment of a
quorum.
The Company's Certificate of Incorporation currently contains a provision for
cumulative voting for the election of directors. A stockholder intending to
cumulate votes for the election of directors must notify the Company of such
intention prior to the commencementterms of the
voting for directors by so
indicating on the proxy or by attending the meeting. If any stockholder has
given such notice, every stockholder may cumulate votes for candidates placed
in nomination prior to the voting. Cumulative voting rights entitle a
stockholder to cast a number of votes equal to the number of directors to be
elected multiplied by the number of votes to which that stockholder's shares
are entitled without cumulative voting, and all such votes may be cast for a
single candidate or may be distributed among any or all of the candidates.agreement you have with your stockbroker.
IF YOU ARE A PARTICIPANT IN THE COMPANY'S PROFIT SHARING PLAN, THE PLAN'S
PURCHASING AGENT, UNDER CERTAIN CIRCUMSTANCES, MAY VOTE YOUR SHARES.
The
persons named in the proxy will, unless authority to do so is withheld,
exercise their discretion with respect to the cumulative voting of shares
represented by proxy in order to assure the election of as many of the nominees
of the Board of Directors as possible.
Participants in the Charles Schwab Profit Sharing and Employee Stock
Ownership Plan (the "Profit Sharing Plan") are entitled to instruct the purchasing agent ofmay vote shares you hold under the Company's Profit Sharing
Plan how to vote all shares of Common
Stock which are allocated to participants' individual accounts under the
Employee Stock Ownership Plan ("ESOP") component of the Profit Sharing Plan, as
well as participants' proportionate interest in shares of Common Stock held for
the benefit of participants under the Profit Sharing and Salary Deferral
components of the Profit Sharing Plan ("non-ESOP components"). Participants
will receive individual proxies for the voting of such shares. Ifif the purchasing agent does not receive voting instructions 2
from participants with respect to all such shares, theyou. Your
unvoted shares will be voted in the same proportion as the shares for which voting instructions were
receivedvoted by the purchasing agent, unless the purchasing agent is required to
exercise its discretion in voting such shares pursuant to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Shares held by
the
Profit Sharing Plan participants.
Similarly, shares under the ESOPEmployee Stock Ownership Plan ("ESOP") component of
the Company's Profit Sharing Plan that have not yet been allocated to the ESOP
accounts of individual participants will be voted by the purchasing agent in the
same proportion as the votes cast by all shares voted by Profit Sharing Plan participants, unlessparticipants.
7
QUESTIONS AND ANSWERS
- --------------------------------------------------------------------------------
HOW MANY VOTES DO YOU NEED TO HOLD THE MEETING?
HOW MANY VOTES MUST THE NOMINEES HAVE TO BE ELECTED?
WHAT HAPPENS IF EITHER NOMINEE IS UNABLE TO STAND FOR RE-ELECTION?
HOW MANY VOTES MUST THE AMENDMENT TO THE 1992 PLAN HAVE TO PASS?
HOW ARE VOTES COUNTED?
WHERE DO I FIND THE VOTING RESULTS OF THE MEETING?
Q: HOW MANY VOTES DO YOU NEED TO HOLD THE MEETING?
A: Shares are counted as present at the purchasing agentmeeting if the stockholder either:
- - is required to
exercise its discretionpresent and votes in voting such shares pursuant to ERISA.person at the meeting, or
- - has properly submitted a proxy card.
A proxy given
by any shareholder participating inmajority of the Company's Dividend Reinvestment and
Stock Purchase Plan will govern the voting of alloutstanding shares of Common Stock held
for such stockholder's account under that Plan.
As of March 8, 1996, the current directorsas of the Company, executive
officers,record date must be
present at the meeting in order to hold the meeting and senior officersconduct business. This
is called a quorum.
Q: HOW MANY VOTES MUST THE NOMINEES HAVE TO BE ELECTED?
A: We use the phrase "yes vote" to mean a vote for a director.
The two nominees receiving the highest number of yes votes will be elected as
directors. This number is called a plurality.
Q: WHAT HAPPENS IF EITHER NOMINEE IS UNABLE TO STAND FOR RE-ELECTION?
A: The Board may, by resolution, provide for a lesser number of directors or
designate a substitute nominee. In the Company and its subsidiaries owned and
have the right tolatter event, shares represented by
proxies may be voted for a substitute nominee. Proxies cannot be voted for more
than two nominees.
Q: HOW MANY VOTES MUST THE AMENDMENT TO THE 1992 PLAN HAVE TO PASS?
A: The amendment must receive a yes vote an aggregate of 46,924,369 shares, which, together with
an aggregate of 1,193,869 shares allocated to the ESOP accounts or held for the
benefit of such executive and senior officers as participants in the non-ESOP
components of the Profit Sharing Plan, represents approximately 28%a majority of the shares entitled to votepresent
at the Annual Meeting. As of March 8, 1996,meeting to pass.
Q: HOW ARE VOTES COUNTED?
A: You may vote either "for" or "against" each nominee. You may vote "for,"
"against," or "abstain" on the Profit
Sharing1992 Plan also held an aggregate of 16,287,366amendment. If you abstain from voting
on the 1992 Plan amendment, it has the same effect as a vote against. If you
just sign your proxy card with no further instructions, your shares that have been
allocatedwill be
counted as a yes vote FOR each director and FOR the amendment to the ESOP accounts or held1992 Plan.
Voting results are tabulated and certified by our transfer agent, Norwest Bank
Minnesota, N.A.
Q: WHERE DO I FIND THE VOTING RESULTS OF THE MEETING?
A: We will announce preliminary voting results at the meeting. We will publish
the final results in the non-ESOP componentsour quarterly report on Form 10-Q for the benefitsecond quarter of
other Profit Sharing1998. We will file that report with the Securities and Exchange Commission, and
you can get a copy by contacting our Investor Relations Hotline at (415)
627-8786 or the Securities and Exchange Commission at (800) SEC-0330 for the
location of the nearest public reference room, or through the EDGAR system at
WWW.SEC.GOV.
8
QUESTIONS AND ANSWERS
- --------------------------------------------------------------------------------
WHY IS THE COMPANY AMENDING THE 1992 PLAN?
Q: WHY IS THE COMPANY AMENDING THE 1992 PLAN?
A: The amendment is necessary to ensure that the Company will:
- - CONTINUE TO BE ABLE TO OFFER A STOCK INCENTIVE PLAN THAT ATTRACTS AND
RETAINS KEY EMPLOYEES IN AN EXTREMELY COMPETITIVE MARKET BY OFFERING
SUCH EMPLOYEES APPROPRIATE EQUITY INCENTIVES, AND
- - RETAIN CORPORATE TAX DEDUCTIONS THAT RESULT FROM THESE AWARDS.
Currently, the 1992 Plan participants,limits the maximum number of shares granted to any one
employee in any one year to:
- - 500,000 shares subject to options,
- - 200,000 shares as Restricted Shares, and
an aggregate of
1,365,508 unallocated- - 200,000 shares that will be votedas Performance Share Awards.
The Company recommends increasing these limits:
- - from 500,000 to 2,250,000 for shares subject to options,
- - from 200,000 to 900,000 shares as Restricted Shares, and
- - from 200,000 to 900,000 shares as Performance Share Awards.
The current individual award limits were approved by the stockholders at the
Stockholders Annual Meeting in 1994, and have never been adjusted for stock
splits. The proposed amendment adjusts these limits for the same proportion ascumulative effect of
stock splits since 1994, which is 4.5 times the votes cast by alloriginal limit.
The Company is also amending the 1992 Plan to allow annual limits on stock
option grants, Restricted Shares and Performance Share Awards to be
automatically adjusted for any future stock splits, stock dividends and other
similar events.
Stockholder approval of the 1992 Plan amendment is necessary for tax purposes.
Federal tax law generally limits to $1 million the Company's deductions of
amounts paid to certain executive officers in a year. The Company may not deduct
amounts in excess of $1 million paid to them unless the compensation qualifies
for an exemption under federal tax laws. One exemption is for "performance
based" compensation. To qualify for this exemption, our stockholders must
approve the maximum number of shares voted by Profit Sharing Plan
participants, subjectto be awarded in a year to any one person
under the 1992 Plan. Loss of this deduction could result in increased expense to
the requirements of ERISA. As a consequence, it is
highly likely thatCompany.
Because the current directors, executive officers, seniorCompany's officers and employee directors are eligible to
participate in the Profit Sharing1992 Plan, participants will be able to electthey have an interest in the amendment.
The 1992 Plan was adopted by the Board of Directors ofand approved by the
Company and approvestockholders at the proposals contained herein.
ELECTION OF DIRECTORS
The Board of Directors has nominated and recommends the election of each of
the nominees set forth below as a director of the Company. If the proposed
amendments1992 Annual Stockholders Meeting. Amendments to the Certificate of Incorporation concerning classification of the
Board are adopted, three directors will be elected for a term expiring1992
Plan were approved at the Annual MeetingStockholders Meetings in 1997, three directors will be elected1994, 1996 and 1997.
9
PROPOSALS TO BE VOTED ON
- --------------------------------------------------------------------------------
RE-ELECTION OF DIRECTORS
- - DONALD G. FISHER
- - ANTHONY M. FRANK
AMENDMENT TO THE 1992 PLAN
OTHER BUSINESS
1. RE-ELECTION OF DIRECTORS
Nominees for a term expiring at
the Annual Meeting in 1998 and four directors will be elected for a term
expiring at the Annual Meeting in 1999 (or, in all cases, until their
respective successorsre-election this year are elected and qualified). If those amendments are not
adopted, all ten directors will be elected for a term expiring at the Annual
Meeting in 1997 (or until their respective successors are elected and
qualified). Unless otherwise indicated on any proxy, the persons named on the
enclosed proxy intend to vote the shares it represents for all of the nominees
whose biographical sketches appear below for either the following terms if the
amendments to the Articles of Incorporation are adopted: David S. Pottruck,
Nancy H. Bechtle and C. Preston Butcher for a term expiring at the Annual
Meeting in 1997; Lawrence J. Stupski, Donald G. Fisher and Anthony M. Frank for
a term expiring at the Annual Meeting in 1998; Charles R. Schwab, James R.
Harvey, Stephen T. McLin and Roger O. Walther for a term expiring at the Annual
Meeting in 1999; or for a term expiring for all nominees at the Annual Meeting
in 1997 if the amendments to
3
the Articles of Incorporation are not adopted. The persons named in the proxy
intend, unless authorization to do soFrank.
THE BOARD RECOMMENDS A VOTE FOR THESE NOMINEES.
Each nominee is withheld, to vote for the election of
the nominees named below. The ten nominees receiving the greatest number of
votes will be elected directors of the Company for the terms discussed above.
Should any nominee become unavailable to serve as a director, the proxies will
be voted for such other person as the Board of Directors may designate, or the
number of authorized directors may be reduced.
The information below is provided with respect to each nominee for election
as a director of the Company, each of whom is currently serving as a director.
There are no family relationships among any directors or executive officers of
the Company.
Charles R. Schwab, age 58, was a founder of Schwab in 1971, and has been its
Chairman since 1978. He has been the Chairman, Chief Executive Officer and a
director of the Company since its incorporation in November 1986. Since
February 1989, he has been a member of the Customer Quality Assurance Committee
of the Board of Directors. Mr. Schwab currently serves as a director of The
Gap, Inc., Transamerica Corporation, and AirTouch Communications, and as a
trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab
Capital Trust and Schwab Annuity Portfolios, all registered investment
companies.
Lawrence J. Stupski, age 50, has been the Vice Chairman of the Company since
July 1992, and a director of the Company since its incorporation in November
1986. He also has served as Chief Operating Officer of the Company (November
1986 to March 1994) and President of the Company (November 1986 to July 1992).
Mr. Stupski has been a director of Schwab since 1981 and in the last five years
also has served as Chief Operating Officer (1981 to July 1992), Chief Executive
Officer (July 1988 to July 1992), and Vice Chairman (July 1992 to August 1994)
of Schwab.
David S. Pottruck, age 47, became the Chief Operating Officer and a director
of the Company in March 1994 and has been President of the Company and Chief
Executive Officer of Schwab since July 1992. In the last five years Mr.
Pottruck has served as an Executive Vice President of the Company (March 1987
to July 1992) and has been President and a director of Schwab (since July
1988).
Nancy H. Bechtle, age 58, has beenpresently a director of the Company and has servedconsented to serve a
three-year term.
2. AMENDMENT TO THE 1992 PLAN
Currently, the 1992 Plan limits the maximum number of shares that may be granted
to any one employee in any one year to:
- - 500,000 shares subject to options,
- - 200,000 shares as Restricted Shares, and
- - 200,000 shares as Performance Share Awards.
The amendment would:
- - increase to 2,250,000 the maximum number of shares subject to options that
may be granted to any employee in any one year,
- - increase to 900,000 the maximum number of Restricted Shares that may be
granted to any employee in any one year,
- - increase to 900,000 the maximum number of Performance Share Awards that may
be granted to any employee in any one year, and
- - permit automatic adjustment of annual limits in the 1992 Plan on stock
option grants, Restricted Shares and Performance Share Awards to reflect
any future stock splits, stock dividends and other similar events.
Since their adoption in 1994, the individual grant limits have not been adjusted
for stock splits. The proposed individual grant limits are adjusted for the
cumulative effect of stock splits since 1994, which is 4.5 times the original
limit.
THE BOARD RECOMMENDS A VOTE FOR THE AMENDMENT TO THE 1992 PLAN.
If you would like more information about the 1992 Plan, a membersummary of its terms
is included as an Appendix to this Proxy Statement.
OTHER BUSINESS
The Board knows of no other business for consideration at the meeting. If other
matters are properly presented at the meeting, or for any adjournment or
postponement of the Auditmeeting, Charles R. Schwab and Customer Quality Assurance Committees since
SeptemberDavid S. Pottruck will vote,
or otherwise act, on your behalf in accordance with their judgment on such
matters.
10
THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
BIOGRAPHIES
- - NANCY H. BECHTLE
- - C. PRESTON BUTCHER
- - DONALD G. FISHER
- - ANTHONY M. FRANK
NANCY H. BECHTLE
DIRECTOR SINCE 1992
and the Compensation Committee since January 1996. Ms. Bechtle, age 60, has been a director and Chief Financial Officer of J.R.
Bechtle & Co., an international consulting firm, since 1979. She has been the
President and Chief Executive Officer of the San Francisco Symphony since 1987,
and has served as a member of the San Francisco Symphony Board of Governors
since 1984. Ms. Bechtle's term expires in the year 2000.
C. PrestonPRESTON BUTCHER
DIRECTOR SINCE 1988
Mr. Butcher, age 57,59, has been a director of the Company since October
1988 and has served as a member of the Audit Committee since February 1989 and
as a member of the Compensation Committee since September 1992. He served as a
member of the Customer Quality Assurance Committee from May
4
1992 to September 1992. Mr. Butcher has been the President, Chief Executive Officer and Regional
Partner of Lincoln Property Company N.C., Inc., a real estate development and
management firm, since 1967, and1967. Mr. Butcher is a director of BRE Properties, Inc.,
a real estate investment trust. DonaldMr. Butcher's term expires in the year 2000.
DONALD G. FISHER
DIRECTOR SINCE 1988
Mr. Fisher, age 67, has been a director of the Company since January
1988. He has served as a member of the Customer Quality Assurance Committee
since February 1989 and as a member of the Audit Committee since September
1992. He previously served as a member of the Audit Committee from March 1988
to May 1992, and as a member of the Compensation Committee from February 1988
to September 1992. Mr. Fisher69, is the Chairman of the Board of The Gap, Inc., a nationwide
specialty retail clothing chain. Mr. FisherHe was also Chief Executive Officer of The Gap,
Inc. and a director from 1969 to November 1995. Mr. Fisher
also is currently a director of
AirTouch Communications.
AnthonyCommunications, Inc. Mr. Fisher is a nominee for re-election this year.
ANTHONY M. FRANK
DIRECTOR SINCE 1993
Mr. Frank, age 64,66, has been a director of the Company and has served
as a member of the Audit and Customer Quality Assurance Committees since
December 1993. He is the current chairman of the Customer Quality Assurance
Committee. He also served as a director of the Company from April 1987 until
February 1988 and from March 1992 until April 1993. Mr. Frank is Chairman of the BoardBelvedere Capital Partners, a
general partner of Acrogen, Inc., a biotechnology firm.an investment fund specializing in financial institutions,
since 1993. From March 1988 until March
l992,1992, Mr. Frank served as Postmaster General of the
United States. From April 1993 until November 1993, Mr. Frank was Chairman of
the Board and President of Independent Bancorp of Arizona, Inc., a registered bank holding
company. Mr. Frank also is currently a director of Bedford Property Investors; Living
Centers of America Temple-Inland,
Inc.; General American Investors, a closed-
endedclosed-end investment company; and Irvine
Apartment Communities and Crescent Real Estate Equities, both real estate
investment trusts. JamesMr. Frank served as a Company director from April 1987 until
February 1988 and from March 1992 until April 1993. He rejoined the Board in
December 1993. Mr. Frank is a nominee for re-election this year.
11
THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
BIOGRAPHIES
- - FRANK C. HERRINGER
- - STEPHEN T. MCLIN
- - DAVID S. POTTRUCK
- - CHARLES R. Harvey,SCHWAB
FRANK C. HERRINGER
DIRECTOR SINCE 1996
Mr. Herringer, age 61,55, is Chairman of the Board, Chief Executive Officer and
President of Transamerica Corporation, a life insurance and financial services
company. At Transamerica, he has been Chairman since 1996, Chief Executive
Officer since 1991 and President since 1986. Mr. Herringer is also a director of
the Company and has served as
a member of the Audit Committee since February 1989 and as a member of the
Customer Quality Assurance Committee since September 1992. He served as a
member of the Compensation Committee from February 1989 to September 1992 and
since January 1996.Unocal Corporation. Mr. Harvey served as Chairman of Transamerica Corporation
from 1983 to 1996 and as Transamerica's Chief Executive Officer from 1981 until
1991. Transamerica Corporation provides selected financial services to
individuals and organizations.Herringer's term expires in 1999.
STEPHEN T. MCLIN
DIRECTOR SINCE 1988
Mr. Harvey has been a director of Transamerica
Corporation since 1975, and also serves as a director of McKesson Corporation
and AirTouch Communications.
Stephen T. McLin, age 49, has been a director of the Company and has served
as a member of the Audit Committee since July 1988 and as a member of the
Compensation Committee since February 1989. Mr. McLin is the current chairman
of the Audit Committee. Since January 1987, Mr. McLin51, has been the President and Chief Executive Officer of America
First Financial Corporation, a finance and investment banking firm.firm, since 1987.
Mr. McLin is also Chairmana director of Bayview Capital Corporation. Mr. McLin's term expires
in 1999.
DAVID S. POTTRUCK
DIRECTOR SINCE 1994
Mr. Pottruck, age 49, is the President, Co-Chief Executive Officer and Chief
Operating Officer of the BoardCompany. He became the Co-Chief Executive Officer in
January 1998, the Chief Operating Officer in 1994 and the President in 1992. He
also became the Chief Executive Officer of EurekaBank,Schwab in 1992. In 1997, Mr. Pottruck
was named a federal savings bank.
Roger O. Walther,director of McKesson Corporation, Decibel Instruments, Inc., a
manufacturer of acoustic products, and Preview Travel, Inc., an on-line travel
services provider. Mr. Pottruck's term expires in the year 2000.
CHARLES R. SCHWAB
DIRECTOR SINCE 1986
Mr. Schwab, age 60, was a founder of Schwab in 1971, and has been its Chairman
since 1978. He has been Chairman and a director of the Company and a member of
the Customer Quality Assurance Committee since April 1989 andits
incorporation in 1986. He also has served as the Chief Executive Officer from
1986 until January 1998, when he and David S. Pottruck became Co-Chief Executive
Officers. Mr. Schwab is a memberdirector of The Gap, Inc., Transamerica Corporation,
Airtouch Communications, Inc. and Siebel Systems, Inc., and a trustee of the
Compensation Committee since May 1989.Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and
Schwab Annuity Portfolios, all registered investment companies. Mr. Schwab's
term expires in 1999.
12
THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
BIOGRAPHIES
- - GEORGE P. SHULTZ
- - ROGER O. WALTHER
[PHOTO]
LAWRENCE J. STUPSKI, VICE CHAIRMAN OF THE BOARD, IS RETIRING AFTER THE MEETING.
HE INTENDS TO DEVOTE HIS FULL-TIME EFFORTS TO K-12 EDUCATION AND OTHER YOUTH
DEVELOPMENT ISSUES.
GEORGE P. SHULTZ
DIRECTOR SINCE 1997
Dr. Shultz, age 77, is Professor Emeritus of International Economics at the
Graduate School of Business at Stanford University, and a distinguished Fellow
at the Hoover Institution. He ishas held government positions as the current chairmanSecretary of
Labor (1969-1970), Director of the Compensation Committee. Since May 1992,Office of Management and Budget (1970-1972),
Secretary of the Treasury (1972-1974) and Secretary of State (1982-1989). In
1989, he was awarded the Medal of Freedom, the nation's highest civilian honor.
Dr. Shultz is a director of Bechtel Group, Inc., Gulfstream Aerospace
Corporation, AirTouch Communications, Inc. and Gilead Sciences, Inc. He was
President of Bechtel Group, Inc. from 1974 to 1982. Dr. Shultz's term expires in
the year 2000.
ROGER O. WALTHER
DIRECTOR SINCE 1989
Mr. Walther, age 62, has 5
been the Chairman and Chief Executive Officer of ELS
Educational Services, Inc., the largest teacher in the United Statesprovider of English as a second language.language
courses in the United States, since 1992. Mr. Walther was President, Chief
Executive Officer and a director of AIFS, Inc., which designs and markets
educational and cultural programs internationally, from 1964 to February 1993. Since
1985, Mr. Walther has served as Chairman and has been a director of First
Republic Bancorp, a bank holding company. INFORMATION ABOUT THE BOARDMr. Walther's term expires in 1999.
NUMBER OF DIRECTORS AND COMMITTEES OFTERMS
The Company currently has eleven directors. Lawrence J. Stupski, a director of
the Company since 1986, is retiring from the Board after the meeting and,
therefore, is not standing for re-election this year. Two directors are nominees
for re-election this year. The remaining eight directors will continue to serve
the terms described in their biographies.
Our directors serve staggered terms. This is accomplished as follows:
- the directors are divided into three classes,
- the classes are as nearly equal in number as possible,
- each director serves a three-year term, and
- the terms of the classes are staggered.
13
BOARD AND COMMITTEE MEETINGS
- --------------------------------------------------------------------------------
THIS TABLE DESCRIBES THE BOARDBOARD'S COMMITTEES.
The Board of Directors held seveneight regular meetings in 1997. Each director, except Dr. Shultz,
attended at least 75% of all Board and one special meetingapplicable committee meetings during
1995.1997. This table describes the Board's committees. The Board of Directors has an Audit Committee, a Compensation
Committee, and a Customer Quality Assurance Committee. The Board of Directors does not have a
nominating committeeNominating Committee or anya committee serving a similar function.
The Audit Committee, among other things, confers with the Company's
independent accountants and internal auditors regarding the scope of their
respective examinations, reviews reports of the Company's independent
accountants and internal auditors, and reviews recommendations concerning
internal controls. The Audit Committee reports to the Board of Directors with
respect to such matters and recommends the selection of independent auditors.
The Audit Committee held four meetings during 1995.
The Compensation Committee reviews and approves the Company's compensation
philosophy, all programs that govern annual and long term compensation of
executive officers, and material employee benefit plans. In addition, the
Compensation Committee has the authority to grant options or make equity grants
to members of the Board of Directors and key employees under the Company's
stock option plans. The Compensation Committee held eight meetings in 1995.
The Customer Quality Assurance Committee monitors service quality and
customer satisfaction. The Customer Quality Assurance Committee proposes
initiatives to research service quality and reviews the results of surveys of
Schwab customers. The Customer Quality Assurance Committee held one meeting in
1995.
Directors
NAME OF COMMITTEE FUNCTIONS NUMBER OF
AND MEMBERS OF THE COMMITTEE MEETINGS IN 1997
- ----------------------------------------------------------------------------------------------------
AUDIT - confers with independent accountants 3
and internal auditors regarding scope
Nancy H. Bechtle of examinations
C. Preston Butcher
Anthony M. Frank - reviews reports of independent
Donald G. Fisher accountants and internal auditors
Frank C. Herringer
Stephen T. McLin* - reviews recommendations about
internal controls
- recommends selection of independent
accountants to the Board
- ----------------------------------------------------------------------------------------------------
COMPENSATION - determines the compensation of the 9
Co-Chief Executive Officers
Nancy H. Bechtle
C. Preston Butcher - reviews and approves:
Stephen T. McLin
George P. Shultz - compensation philosophy
Roger O. Walther*
- programs for annual and long-term
executive compensation
- material employee benefit plans
- has authority to grant options and
other equity awards under stock
incentive plans and bonus awards
under cash-based incentive plans
- ----------------------------------------------------------------------------------------------------
CUSTOMER - monitors service quality 2
QUALITY
ASSURANCE - assesses customer satisfaction
and reviews results of Schwab
Nancy H. Bechtle customer surveys
Donald G. Fisher
Anthony M. Frank* - proposes initiatives to research
Frank C. Herringer service quality
Charles R. Schwab
George P. Shultz
Roger O. Walther
* Chairperson
14
DIRECTOR COMPENSATION
- --------------------------------------------------------------------------------
SINCE THE INITIAL DIVIDEND IN 1989, THE COMPANY HAS PAID 35 CONSECUTIVE
QUARTERLY DIVIDENDS AND HAS INCREASED THE DIVIDEND 10 TIMES. SINCE 1989
DIVIDENDS HAVE GROWN AT A 41% COMPOUNDED ANNUAL RATE.
We do not pay directors who are also officers of the Company or its subsidiaries do not
receive any additional
compensation for their servicesservice as directors. In 1995,1997, compensation for
non-employee directors receivedincluded the following:
- an annual retainer of $20,000, $1,000$25,000,
- $1,500 for each Board meeting attended,
- $300 for each Board committee meeting attended either immediately
prior to or following a Board meeting, and $1,000 for each other Board
committee meeting otherwise attended,
and are reimbursed for their expenses of
attendance at such meetings. In 1995, committee chairmen received- an additional annual retainer of $3,000. In addition,$3,000 to committee chairpersons, and
- expenses of attending Board and committee meetings.
Non-employee directors may participate in the Directors' Deferred Compensation
Plan. This Plan permits non-employee directors to defer receipt of all or a
portion of their director fees and receive, upon ceasing to serve as a director,
the amount that would have resulted from investing the deferred amounts in the
Company's common stock.
Under the 1992 Plan, non-employee directors as
a group receive an annual, automatic grantsgrant
of either:
- options under the 1992 Stock
Incentive Plan. Each member of the Board was granted an option to purchase
1,000on 1,500 shares of Common Stock of the Company pursuant to the Stock Incentive
Plan on May 15, 1995 atcommon stock if the fair market value of
$36.125 per share. After the
September 1, 1995 stock split, this stock option grant was automatically
adjusted to 2,000 shares at an exercise price of $18.0625.
6
APPROVAL OF AN INCREASE IN THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
SUMMARY
The Board of Directors of the Company has approved and recommends the
approval of an amendment to the Company's Restated Certificate of Incorporation
(the "Certificate") to increase the number of authorized shares of Common
Stock. Currently, the Company has 209,940,000 authorized shares, consisting of
200,000,000 shares of Common Stock having a par value of $0.01 per share and
9,940,000 shares of preferred stock having a par value of $0.01 per share
("Preferred Stock"). At March 8, 1996, no shares of Preferred Stock were issued
and outstanding, 174,823,199 shares of Common Stock were issued and
outstanding, 14,677,535 options on Common Stock have been granted and remain
outstanding, and 3,896,665 shares of Common Stock were reserved for future
grants under incentive plans. Accordingly, only 6,602,601 shares of Common
Stock are issuable under the current authorized number of shares of Common
Stock. The Company's authorized but unissued Preferred Stock may be issued with
such rights, preferences, and limitations as the Board of Directors may
determine from time to time.
The Company has no present plans, understandings, or agreements for the
issuance or use of the additional shares of Common Stock. However, the Board of
Directors believes it is desirable to enhance the Company's flexibility in
connection with possible future actions, such as use in employee benefit plans,
stock splits, stock dividends, financings, corporate mergers, acquisitions of
property, and other general corporate purposes. Having such authorized capital
stock available for issuance in the future will allow additional shares of
Common Stock to be issued without the expense and delay of a special meeting of
stockholders. Eliminating this delay will better enable the Company to engage
in financial transactions and acquisitions which take full advantage of
changing market conditions. The Company is not presently engaged in any
negotiations concerning the issuance of any shares of the additional authorized
Common Stock, and there are no present arrangements, understandings or plans
concerning the issuance of such shares.
The proposed shares of Common Stock for which authorization is sought will be
part of the existing class of such stock and will increase the number of shares
of Common Stock available for issuance by the Company, but will have no effect
upon the terms of the Common Stock or the rights of the holders of Common
Stock. If and when issued, the proposed authorized shares of Common Stock would
have the same rights and privileges as the shares of Common Stock presently
outstanding. Holders of existing Common Stock would not have preemptive rights
to purchase any shares of Common Stock.
DESCRIPTION OF THE PROPOSED AMENDMENT
The proposed amendment to the Certificate provides that the number of
authorized shares of Common Stock be increased to 500,000,000, and that the
aggregate number of authorized shares be increased from 209,940,000 to
509,940,000.
7
VOTE REQUIRED FOR ADOPTION OF PROPOSED AMENDMENT
Under the Delaware General Corporation Law (the "DGCL"), an affirmative vote
of the holders of a majority of the outstanding shares of Common Stock is
required to adopt the amendment to the Certificate to increase the number of
authorized shares of Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ADOPTION OF
THE PROPOSED AMENDMENTS TO THE CERTIFICATE TO INCREASE THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK.
APPROVAL OF AMENDMENT TO THE 1992 STOCK INCENTIVE PLAN
SUMMARY
On January 17, 1996, the Board of Directors of the Company adopted a
resolution approving an amendment to the Company's 1992 Stock Incentive Plan
(the "1992 Plan"), which permits the granting of stock options, restricted
common stock or performance shares awards (or a combination thereof) to key
employees and directors of the Company. The purpose of the 1992 Plan is to
promote the long term success of the Company and the creation of incremental
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.
DESCRIPTION OF PROPOSED AMENDMENT TO THE 1992 PLAN
The proposed amendment to the 1992 Plan provides that each non-employee
director shall receive an annual, automatic option grant covering 2,500 shares
of Common Stock. If, however, the exercise price, determined as of the grant date is $35 or more, the automatic option grant will cover 1,500or
- options on 2,500 shares of Common Stock. Exhibit A sets forth the full text of the proposed amendment to
the 1992 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ADOPTION OF
THE PROPOSED AMENDMENT TO THE 1992 PLAN.
APPROVAL OF AMENDMENTS TO THE COMPANY'S CERTIFICATE
OF INCORPORATION
SUMMARY
The Company's Board of Directors has unanimously determined that amending the
Certificate in the manner described below is advisable and recommends that the
Company's stockholders adopt the amendments. Stockholders are urged to read
carefully the materials that follow as they involve matters of particular
importance.
The proposed amendments to the Certificate would (a) classify the Board of
Directors into three classes, as nearly equal in number as possible, each of
which, after an interim realignment period, will serve for three
8
years, with one class being elected each year; (b) provide that directors may
be removed only for cause and only with the approval of the holders of at least
80% of the voting power of the Company entitled to vote generally in the
election of directors; (c) provide that any vacancy on the Board shall be
filled by the remaining directors then in office, evencommon stock if the remaining
directors constitute less than a quorum; (d) require that stockholder action be
taken at a duly called annual meeting or special meeting of stockholders and
prohibit stockholder action by written consent; (e) provide that advance notice
of stockholder nominations for the election of directors and the introduction
of business to be considered at a meeting shall be given as set forth in the
Bylaws; (f) eliminate cumulative voting; and (g) require the concurrence of the
holders of at least 80% of the voting power of the Company entitled to vote
generally in the election of directors to alter, amend or repeal, or to adopt
any provision inconsistent with, the foregoing amendments. The Board also has
unanimously approved certain amendments to the Company's Bylaws to implement,
and conform the Bylaws to, the above amendments to the Certificate (the
"Conforming Bylaw Amendments"). If the proposed amendments to the Certificate
are approved, the Conforming Bylaw Amendments will become effective at the same
time as the proposed amendments to the Certificate and are described below in
"Description of the Proposed Amendments". In addition, the Board has
unanimously approved other related amendments to the Bylaws (the "Other Related
Bylaw Amendments"), described in "Other Related Bylaw Amendments", which will
become effective on May 6, 1996, regardless of whether the proposed amendments
to the Certificate are approved.
As more fully discussed below, the Board of Directors believes these proposed
amendments, taken together, would, if adopted, help assure the continuity and
stabilityfair market value of
the Company's business and affairs by making it more difficult and
time-consuming to change majority control ofcommon stock on the Board of Directors. In
addition, the Board of Directors believes that these amendments would assist in
providing the Board with sufficient time to review any unsolicited proposal for
an extraordinary corporate transaction (such as a merger or liquidation) and to
consider appropriate alternatives. These amendments, if adopted by the
stockholders, will not impede a takeover or other transaction thatgrant date is approved
by the directors of the Company. They will, however, have the overall effect of
making it more difficult and time-consuming to acquire and exercise control of
the Company and to remove incumbent directors, and to benefit from certain
transactions which are opposed by the incumbent Board.
THE PROPOSALS ARE NOT BEING RECOMMENDED IN RESPONSE TO ANY SPECIFIC EFFORT OF
WHICH THE COMPANY IS AWARE TO OBTAIN CONTROL OF THE COMPANY, BUT RATHER ARE
BEING RECOMMENDED IN ORDER TO ASSURE FAIR TREATMENT OF THE COMPANY'S
STOCKHOLDERS. IN ADDITION, WHILE THE COMPANY MAY FROM TIME TO TIME CONSIDER
PROPOSALS WHICH MAY BE CONSIDERED TO HAVE ANTI-TAKEOVER IMPLICATIONS, IT IS NOT
CURRENTLY CONSIDERING THE ADOPTION OF OTHER SUCH AMENDMENTS.
Stockholders are urged to read carefully the following sections of this
Proxy Statement, which describe these amendments and their purposes and effects,
and Exhibits B, C and D hereto, which set forth the full text of the proposed
amendments to the Certificate, the Conforming Bylaw Amendments and the Other
Related Bylaw Amendments, respectively, before voting on these proposed
amendments to the Certificate.
9
The description herein of these amendmentsless than $35.
"Fair market value" is qualified in its entirety by the
complete text of such amendments attached hereto as Exhibits B, C and D.
DESCRIPTION OF THE PROPOSED AMENDMENTS
Classification of the Board of Directors. Directors are currently elected to
the Company's Board of Directors annually for a term of one year. Paragraph A
of proposed Article SIXTH of the Certificate and the proposed Section 3.02 of
the Bylaws provide that the Board shall be divided into three classes of
directors, each class to be as nearly equal in number of directors as possible.
If the proposed amendments are adopted, the Company's directors will be divided
into three classes and three directors will be elected for a term expiring at
the 1997 Annual Meeting of Stockholders, three directors will be elected for a
term expiring at the 1998 Annual Meeting of Stockholders and the remaining four
directors will be elected for a term expiring at the 1999 Annual Meeting of
Stockholders (or, in each case, until their respective successors are duly
elected and qualified). Starting with the 1997 Annual Meeting of Stockholders,
one class of directors will be elected each year for a three-year term. If the
proposed amendments are not adopted, all ten directors will be elected for a
term expiring at the 1997 Annual Meeting of Stockholders or until their
successors are duly elected and qualified.
The classification of directors will have the effect of making it more
difficult to change the composition of the Board of Directors. At least two
stockholder meetings, instead of one, will be required to effect a change in a
majority of the Board. Although there has been no problemdefined in the past with the
continuity or stability of the Board, the Board believes that the longer time
required to elect a majority of a classified Board will help to assure the
continuity and stability of the Company's directors and policies in the future,
since a majority of the directors at any given time will have prior experience
as directors of the Company. The classified board provision would also help
ensure that the Board, if confronted with an unsolicited proposal for an
extraordinary corporate transaction from a third party, will have sufficient
time to review the proposal and alternatives. It should also be noted that the
classification provision will apply to every election of directors, regardless
of whether a change in the Board might arguably be beneficial to the Company
and its stockholders and whether or not a majority of the Company's
stockholders believes that such a change would be desirable.
Removal of Directors; Filling Vacancies on the Board of Directors. Proposed
Paragraph D of Article SIXTH of the Certificate and Section 3.05 of the Bylaws
if adopted would provide that a director may be removed from office at any time
but only for cause and only by the affirmative vote of the holders of at least
80% of the voting power of the shares entitled to vote generally in the
election of directors. Currently, a director may be removed with or without
cause by the affirmative vote of a majority of the voting power of the shares
entitled to be voted for the election of directors.
Section 3.06 of the Bylaws now provides that a vacancy on the Board,
including as a result of newly created directorships, may be filled by a vote
of the majority of the remaining directors, although less than a quorum, and
that the stockholders may elect a director at any time to fill any vacancy not
filled by the directors. In addition, the Bylaws currently provide that if,
after the filling of any vacancy by the directors,
10
the directors then in office who have been elected by the stockholders
constitute less than a majority of the directors, any holder of an aggregate of
5% or more of the total number of shares then entitled to vote at an election
of directors may call a special election of stockholders to elect the entire
Board. The proposed Paragraph C of Article SIXTH to the Certificate and the
proposed Section 3.06 of the Bylaws retain the provisions that a vacancy,
including one resulting from newly created directorships on the Board, may be
filled by the remaining directors, but does not permit stockholders to fill
vacancies. In addition, the amendment provides that any new director elected to
fill a vacancy on the Board will serve for the remainder of the full term of
the class in which the vacancy occurred. It also provides that no decrease in
the number of directors shall shorten the term of any incumbent.
The provisions of the proposed amendments relating to the removal of
directors and the filling of vacancies on the Board will preclude a third party
from removing incumbent directors without cause and simultaneously gaining
control of the Board by filling the vacancies with its own nominees. Moreover,
the provision that newly created directorships are to be filled by the Board
would prevent a third party seeking majority representation on the Board of
Directors from obtaining such representation simply by enlarging the Board and
filling the new directorships created thereby with its own nominees.
Notice of Stockholder Business and Nominations. Proposed Paragraph B of
Article SIXTH of the Certificate provides that nominations for the election of
directors and proposals of business to be considered at a meeting of
stockholders must be made as provided in the Bylaws. The amendment to Section
2.06 of the Bylaws, which will become effective on May 6, 1996, provides that
advance notice of stockholder nominations for the election of directors and the
introduction of business to be considered at a meeting shall be given and that
certain information be provided with respect to such stockholder nominees and
proposals. See "Other Related Bylaw Amendments--Notice of Stockholder Business
and Nominations."
The advance notice requirement, by regulating stockholder nominations and the
introduction of business at any meeting of stockholders, affords the Board of
Directors the opportunity to consider the qualifications of the proposed
nominees and, to the extent deemed necessary or desirable by the Board, inform
stockholders about the merits of such proposals and qualifications. Although
this Section does not give the Board of Directors any power to approve or
disapprove of stockholder nominations for election of directors, it may have
the effect of precluding a contest for the election of directors if the
procedures established by it are not followed and may discourage or deter a
third party from conducting a solicitation of proxies to elect its own slate of
directors, without regard to whether this might be harmful or beneficial to the
Company and its stockholders.
Certain Stockholder Actions. Pursuant to the DGCL, unless otherwise provided
in a corporation's Certificate of Incorporation, any action required or
permitted to be taken by stockholders of the corporation may be taken without a
meeting and without a stockholder vote if a written consent setting forth the
action to be taken is signed by the holders of shares of outstanding stock
having the requisite number of votes that would be necessary to authorize such
action at a meeting of stockholders. The Company's Certificate currently does
not include an alternate provision; therefore, if the requirements of the DGCL
are fulfilled,
11
the Company's stockholders may act by written consent. Proposed Article
ELEVENTH of the Certificate and the related Section 2.10 of the Bylaws would
require that stockholder action be taken at a duly called annual or special
meeting of stockholders and would prohibit stockholder action by written
consent. Stockholders would not be permitted to call a special meeting of
stockholders or to require that the Board call a special meeting.
The provisions prohibiting stockholder action by written consent would give
all the stockholders of the Company the opportunity to participate in
determining any proposed action and would prevent the holders of a simple
majority of the voting power of the Company from using the written consent
procedure to take stockholder action without a meeting. The ability of holders
of a simple majority of the voting stock of the Company to take action without
the opportunity for discussion at a meeting decreases the ability of minority
stockholders to have their views considered. Moreover, a stockholder could not
force stockholder consideration of a proposal over the opposition of the Board
of Directors by calling a special meeting of stockholders prior to such time1992 Plan as the Board believes such consideration to be appropriate. If adopted, the
proposed amendment would tend to support incumbent directors and management and
make it more difficult for stockholders to effect certain actions even if such
actions are desired by the holders of a majority of the outstanding shares.
Elimination of Cumulative Voting. Proposed Article NINTH of the Certificate
would eliminate cumulative voting. Cumulative voting entitles each stockholder
to cast a number of votes that is equal to the number of voting shares held by
such stockholder multiplied by the total number of directors to be elected, and
to cast all such votes for one nominee or distribute such votes among up to as
many candidates as there are positions to be filled. Without cumulative voting,
a stockholder or group of stockholders must hold a majority of the voting
shares to cause the election of one or more nominees. Cumulative voting may
enable a minority stockholder or group of stockholders to elect at least one
representative to the Board. If the amendment is adopted, in all future
elections of the Board of Directors, commencing with the Annual Meeting to be
held in 1997, the holders of a majority of the shares actually voted (assuming
that a quorum is present) will be guaranteed the right to elect all of the
directors being elected at that time.
The Board of Directors believes that each director elected to the Board
should represent the interests of all stockholders. The elimination of
cumulative voting should help ensure that each director acts in the best
interests of all stockholders, because stockholders holding a majority of the
voting shares will have the power to elect every director to be elected at any
annual meeting.
The elimination of cumulative voting will, however, make it more difficult
for a minority stockholder or group of stockholders to elect a representative
to the Board of Directors. It may also under certain circumstances discourage
or render more difficult a merger, tender offer or proxy contest; discourage
the acquisition of large blocks of the Company's shares by persons who would
not make such acquisition without assurance of the ability to place a
representative on the Board of Directors; deter or delay the assumption of
control by a holder of a large block of the Company's shares; or render more
difficult the replacement of incumbent directors and management.
12
Increased Stockholder Vote for Alteration, Amendment or Repeal of Proposed
Amendments. Under the DGCL, amendments to a certificate of incorporation
require the approval of the holders of a majority of the outstanding stock
entitled to vote on the amendment and of a majority of the outstanding stock of
each class entitled to vote on the amendment as a class. The DGCL also permits
provisions in a certificate of incorporation which require a greater vote than
the vote otherwise required by law for any corporate action. With respect to a
provision of a certificate of incorporation requiring a vote greater than a
majority vote, the DGCL requires that any alteration, amendment or repeal
thereof be approved by an equally large stockholder vote. If this amendment is
approved by the stockholders, alteration, amendment or repeal of, or the
adoption of any provision inconsistent with, the proposed amendments to the
Certificate discussed above would require the concurrence of the holders of at
least 80% of the voting power of the Company entitled to vote generally in the
election of directors. In addition, under proposed Article FIFTH of the
Certificate none of the Bylaw amendments related to the proposed amendments to
the Certificate may be altered, amended or repealed, nor may any provision
inconsistent therewith be adopted, without the concurrence of the holders of at
least 80% of the voting power of the Company.
Stockholders should consider that obtaining a greater than majority vote
can be difficult. The percentages of outstanding shares of Common Stock entitled
to vote represented by directors, executive officers and senior officers and
their ESOP and Profit Sharing Plan holdings as of March 8, 1996 and at the last
three annual meetings of stockholders of the Company were 28%, 30%, 31% and 33%,
respectively.
The requirement of an increased stockholder vote is designed to prevent a
stockholder with a majority of the voting power of the Company from avoiding
the requirements of the proposed amendments by simply repealing them.
OTHER RELATED BYLAW AMENDMENTS
The following amendments to the Company's Bylaws have been unanimously
approved by the Board and will become effective on May 6, 1996.
Elimination of the Ability of Stockholders to Call a Special Meeting. The
Bylaws currently provide that special meetings can be called by stockholders
who hold at least 25% of the voting power of the outstanding capital stock of
the Company entitled to vote generally in the election of directors. The
amendment to Section 2.02 of the Bylaws will eliminate this provision and thus
will provide for the orderly conduct of all Company affairs at the annual
meeting of stockholders or a special meeting called by the Board, the Chairman
or a duly designated committee of the Board. Accordingly, a stockholder could
not force stockholder consideration of a proposal over the opposition of the
Board by calling a special meeting of stockholders prior to such time that the
Board believed such consideration to be appropriate. As a result, the Board
will have the opportunity to adequately inform other stockholders of the
matters to be considered.
Postponement and Adjournment of Stockholder Meetings. The Board is not
expressly given the power to postpone a meeting or to cancel a special meeting
nor is the chairman of the meeting given the power to adjourn under the current
Bylaws. Sections 2.04 and 2.05 of the Bylaws, as amended, will give the Board
and the chairman of a meeting, respectively, such power.
13
Stockholder Voting. As amended, Section 2.07(c) of the Bylaws provides that
stockholder voting at meetings will be by ballot and that the chairman of the
meeting will fix and announce at the meeting the date and time of the opening
and the closing of the polls for each matter upon which the stockholders will
vote. The reason for these provisions is to ensure orderly meetings.
Meetings of the Board of Directors. Section 3.10 of the Bylaws, as amended,
will provide for notice for special meetings of directors by overnight mail or
by facsimile transmission. Adding such forms of notice would increase the
flexibility of the Company in responding to new developments. In addition,
Section 3.18 as amended will provide that only the Chairman or President of the
Company could call a special board meeting.
Notice of Stockholder Business and Nominations. Section 2.06 of the Bylaws,
as amended, will provide that nominations for the election of directors and the
proposal of business to be considered by stockholders may be made (a) pursuant
to the Company's notice of meeting, (b) by or at the direction of the Board or
(c) by any stockholder of the Company who was a stockholder of record at the
time of giving of notice, who is entitled to vote at the meeting and who
complies with the notice procedures set forth below. Under the proposed
amendments, a stockholder's notice, to be timely, generally must be delivered
not later than the close of business on the 60th day nor earlier than the close
of business on the 90th day prior to the first anniversary of the preceding
year's annual meeting. The amendment also provides that, if the Company calls a
special meeting of stockholders for the purpose of electing one or more
directors to the Board, any stockholder may nominate a person for election if
the stockholder's notice is delivered to the Company not earlier than the close
of business on the 90th day prior to such special meeting and not later than
the close of business on the later of (a) the 60th day prior to such special
meeting, or (b) the 10th day following the day on which public announcement is
first made of the date of the special meeting. The amendment also provides that
such stockholder's notice must set forth certain information concerning such
stockholder and his nominees, including such information as would be required
to be included in a proxy statement soliciting proxies for the election of the
nominees of such stockholder. As to any other business that the stockholder
proposes to bring before the meeting, the stockholder must provide a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest
in such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made.
The advance notice requirement, by regulating stockholder nominations and the
introduction of business at any meeting of stockholders, affords the Board of
Directors the opportunity to consider the qualifications of the proposed
nominees and, to the extent deemed necessary or desirable by the Board, inform
stockholders about the merits of such proposals and qualifications. Although
this Section does not give the Board of Directors any power to approve or
disapprove of stockholder nominations for election of directors, it may have
the effect of precluding a contest for the election of directors if the
procedures established by it are not followed and may discourage or deter a
third party from conducting a solicitation of proxies to elect its own slate of
directors, without regard to whether this might be harmful or beneficial to the
Company and its stockholders.
14
PURPOSE AND POSSIBLE EFFECTS OF THE PROPOSED AMENDMENTS
The purpose of the proposed amendments to the Certificate is to help assure
the continuity and stability of the Company's business strategies and policies
and to reduce the vulnerability of the Company to an unsolicited proposal for
the takeover of the Company or for the restructuring or sale of all or part of
the Company.
The Board of Directors of the Company believes that the imminent threat of
removal of the Company's Board and management in the face of an unsolicited
proposal regarding an extraordinary corporate transaction would severely
curtail the Company's ability to negotiate effectively with such persons on
behalf of all other stockholders. Management and the Board would be deprived of
the time and information necessary to evaluate the unsolicited proposal and to
study alternatives and ensure that the best price is obtained in any
transaction involving the Company which may ultimately be undertaken. The
amendments are designed to make it more time-consuming to change majority
control of the Board and thus reduce the Company's vulnerability.
Takeovers or changes in management of the Company which are proposed and
effected without prior consultation and negotiation with the Company's
management are not necessarily detrimental to the Company and its stockholders.
The proposed amendments will make more difficult or discourage a proxy contest
or the assumption of control by a holder of a substantial block of the
Company's stock oron the removaldate the option is granted.
The annual, automatic option grant to non-employee directors of the incumbent Board and could thus increase
the likelihood that incumbent directors will retain their positions. The
amendments, if they are adopted, could also have the effect1,500 shares of
discouraging
such actions, even though stockholders might feel that suchcommon stock was made on May 15, 1997, at an attempt might be
beneficial to them or the Company. In addition, since the amendments may
discourage tender offers, open market purchases in anticipation of tender
offers, and other investment and speculative market activity that may have the
effect of increasing the marketexercise price of or price volatility in$35.87 per share.
After the Company'sSeptember 15, 1997, three-for-two stock stockholders could be deprived of certain opportunitiessplit, this stock grant was
automatically adjusted to sell their2,250 shares at a temporarily higher price.
The Board, however, feels that the benefitsan exercise price of seeking to protect its ability
to negotiate with the proponent of an unfriendly or unsolicited proposal to
takeover or restructure the Company outweigh the disadvantages of discouraging
such proposals. The proposed amendments are intended to encourage persons
seeking to acquire control of the Company to initiate such an acquisition
through arm's-length negotiations with the Company's management and Board of
Directors who would then be in a position to negotiate a transaction which is
fair to all stockholders.
RELATIONSHIP WITH CERTAIN PRESENT PROVISIONS
If adopted the proposed amendments may have the effect of tending to make it
more difficult for stockholders to take certain actions without support of the
Board of Directors even though holders of a majority of the Company's shares
may be in favor of such action. These factors should be considered together
with certain other features of the Company's Certificate, Bylaws and the DGCL
which also may have anti-takeover effects.$23.92.
15
Preferred Stock. The Certificate authorizes the issuance of up to 9,940,000
shares of Preferred Stock of the Company by action of the Board of Directors
without further action by the stockholders. Thus, the Board of Directors could
authorize the issuance of shares of the Preferred Stock with special voting and
other rights which could deter, or hinder the completion of, any proposed
tender offer, merger or other attempt to gain control of the Company which is
not approved by the Board of Directors, to the extent permissible under
applicable law. Issuance of such Preferred Stock could make removal of
incumbent management more difficult, even if such removal were viewed as in the
best interests of stockholders of the Company, for example, in circumstances in
which a block of newly issued preferred shares were to be placed with a
stockholder supporting present management or who enters into a voting agreement
with respect to the preferred shares. In addition, the Board of Directors could
authorize the adoption of a rights plan and the issuance of rights thereunder
which, as part of their terms, could include provisions that would cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Board of Directors. The Company has no present
plans to adopt such a plan and has no commitments, agreements or plans with
respect to such issuances of any shares of Preferred Stock.
Fair Price Provision. Article TENTH of the Certificate (the "Fair Price
Provision") requires the approval by the holders of 80% of the voting stock of
the Company as a condition for mergers and certain other business combinations
involving the Company and any holder of more than 15% of such voting stock (an
"interested stockholder," for purposes of the Fair Price Provision). Such
approval is not required if (a) the transaction is either approved by a
majority of the members of the Board who are unaffiliated with the "interested
stockholder" and who were directors before the "interested stockholder" became
an "interested stockholder" (or any successors thereof nominated by a majority
of such other directors at such time) or (b) certain minimum price and
procedural requirements are met. The Fair Price Provision may make it more
difficult to accomplish certain transactions which are opposed by the incumbent
Board and which may be beneficial to stockholders.
Transactions with an Interested Stockholder. Section 203 of the DGCL
regulates certain transactions, including mergers, other business combinations
and similar transactions between the Company and an "interested stockholder"
("owners" of 15% or more of the Company's outstanding voting stock, for
purposes of this provision of the DGCL) and may have the effect of discouraging
a non-negotiated bid or proposal to acquire the Company. While not preventing
acquisition of control of the Company by third parties, Section 203 may inhibit
the ability to exercise such control and delay or make such transactions more
difficult except when such acquisition of control is approved in advance by the
board of directors (provided that the restrictions of Section 203 do not apply
if the "interested stockholder" will own at least 85% of a corporation's
outstanding voting stock, excluding certain shares, upon consummation of the
transaction that results in such person becoming an "interested stockholder").
Section 203 is designed to permit an acquirer to make a fairly-priced tender
offer for all of a corporation's shares, since an offeror who can obtain an
ownership level of 85% of the corporation's voting stock in the same
transaction that takes it over 15% is not restricted by the statute. However,
as of December 31, 1995, the Profit Sharing Plan held approximately 10% of the
outstanding Common Stock so that it may be more difficult for an acquirer to
reach 85%.
16
VOTE REQUIRED FOR ADOPTION OF PROPOSED AMENDMENTS
Under the DGCL, the affirmative vote of the holders of a majority of the
shares of stock of the Company entitled to notice of and to vote at the Annual
Meeting is required to adopt the proposed amendments to the Certificate. Each
of the Bylaw amendments have been approved by the Board and none require
shareholder approval. The Conforming Bylaw Amendments will become effective
only upon the effectiveness of the amendments to the Certificate. The Other
Related Bylaw Amendments will become effective on May 6, 1996 regardless of
whether the amendments to the Certificate are approved.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ADOPTION OF
THE PROPOSED AMENDMENTS TO THE CERTIFICATE.
17
PRINCIPAL STOCKHOLDERS
The following- --------------------------------------------------------------------------------
IN DECEMBER OF 1997, THE COMPANY MADE A GRANT OF 100 STOCK OPTIONS TO ALL
NON-OFFICER EMPLOYEES. ACTIVE PART-TIME STAFF RECEIVED A PRO-RATED STOCK OPTION
GRANT. APPROXIMATELY 11,000 EMPLOYEES BELOW THE LEVEL OF VICE PRESIDENT
PARTICIPATED IN THE PROGRAM.
This table sets forthshows how much Company common stock is owned by the directors,
certain information regarding beneficial
ownership of the Company's Common Stock as of March 8, 1996 by each person who
is known to the Company to own beneficially more than 5% of the Common Stock,
each executive officer named in the Summary Compensation Table, each of the
Company's directors and each nominee for election as a director, and all
directors and executive officers of the Company as a group.
NUMBER OF SHARES PERCENT OF
OF BENEFICIALLY OUTSTANDING
NAME OF BENEFICIAL OWNER (1) OWNED (2) COMMON STOCK
- ---------------------------- ---------------- ------------
Charles R. Schwab (3)(4)(5)..................... 37,965,666 21.7%
Charles R. Schwab Profit Sharing and Employee
Stock Ownership Plan (6)(7).................... 17,652,874 10.1%
+Luis E. Valencia..............................
+Evelyn S. Dilsaver............................
+A. John Gambs.................................
+Thomas N. Lawrie..............................
+Thomas W. Matchett, Jr........................
+Wayne W. Fieldsa..............................
+Susanne D. Lyons..............................
+Walter W. Bettinger...........................
Lawrence J. Stupski (3)(4)...................... 4,749,362 2.7%
David S. Pottruck (3)(4)(8)..................... 2,958,312 1.7%
Nancy H. Bechtle (3)............................ 84,500 *
C. Preston Butcher (3)(9)....................... 199,250 *
Donald G. Fisher (3)(10)........................ 496,750 *
Anthony M. Frank (3)(11)........................ 307,898 *
James R. Harvey (3)(12)......................... 131,500 *
Stephen T. McLin (3)(13)........................ 45,584 *
Roger O. Walther (3)(14)........................ 33,730 *
John P. Coghlan (3)(4).......................... 443,643 *
Tom D. Seip (3)(4).............................. 370,789 *
Luis E. Valencia (3)(4)......................... 70,444 *
All executive officers and directors as a group
(18 persons) (15)............................... 66,338,745 38%
- ----------------------
*Less than 1%.
+ Members of the Administrative Committee for the Profit Sharing Plan. For
information regarding shares beneficially owned by such persons, see Note 7
below.
(1) All information with respect to beneficial ownership of the shares is
based upon filings made by the respective beneficial owners with the
Securities and Exchange Commission (the "SEC") or information
18
provided by such beneficial owners to the Company. Except as otherwise
indicated in the notes to this table, the address of each beneficial owner of more than 5% of the Common StockCompany's
outstanding common stock, as of March 12, 1998.
AMOUNT AND NATURE OF SHARES BENEFICIALLY OWNED
NUMBER PERCENT OF
OF SHARES RIGHT TO RESTRICTED OUTSTANDING
NAME OWNED(1) ACQUIRE(2) STOCK(3) SHARES
- ------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB(4) 52,107,980 1,893,750 -- 20.2
CHARLES SCHWAB PROFIT SHARING AND
EMPLOYEE STOCK OWNERSHIP PLAN(5) 23,135,020 -- -- 8.6
TRANSAMERICA CORPORATION AND
TRANSAMERICA INVESTMENT SERVICES, INC.(6) 14,044,286 -- -- 5.2
LAWRENCE J. STUPSKI(7) 5,370,069 19,085 -- 2.0
DAVID S. POTTRUCK(8) 1,500,172 2,028,073 -- 1.3
NANCY H. BECHTLE(9) 11,250 121,500 -- *
C. PRESTON BUTCHER(10) 232,991 27,000 -- *
DONALD G. FISHER(11) 724,125 27,000 -- *
ANTHONY M. FRANK(12) 211,947 83,400 -- *
FRANK C. HERRINGER(13) 22,275 17,250 -- *
STEPHEN T. MCLIN 33,622 27,000 -- *
GEORGE P. SHULTZ 15,000 15,000 -- *
ROGER O. WALTHER(14) 29,893 27,000 -- *
TIMOTHY F. MCCARTHY 12,719 18,294 44,250 *
TOM D. SEIP(15) 159,996 270,823 20,250 *
DAWN G. LEPORE(16) 67,603 360,625 60,250 *
DIRECTORS AND EXECUTIVE OFFICERS
AS A GROUP (23 PERSONS)(17) 60,715,292 6,419,915 643,050 25.3
- ------------------------------------------------------------------------------------------------------------
*Less than 1%
(1) Includes shares for which the named person:
- has sole voting and investment power,
- has shared voting and investment power with his or her spouse, or
- holds in a Profit Sharing Plan account,
unless otherwise indicated in the footnotes.
Excludes shares that:
- are restricted stock holdings, or
- may be acquired through stock option exercises.
16
PRINCIPAL STOCKHOLDERS
- --------------------------------------------------------------------------------
SINCE 1988, THE SHARE PRICE OF SCHWAB COMMON STOCK HAS GROWN AT A COMPOUNDED
ANNUAL RATE OF 58%. THIS INCREASE EQUALS $11 BILLION IN STOCKHOLDER WEALTH.
(2) Shares that can be acquired through stock option exercises through
May 11, 1998.
(3) Shares subject to a vesting schedule, forfeiture risk and other
restrictions.
(4) Includes 1,837,502 shares held by Mr. Schwab's spouse and children.
Includes the following shares for which Mr. Schwab disclaims beneficial
ownership:
- 3,476,597 shares held by non-profit public benefit corporations.
- 25,610 shares held in trusts for which Mr. Schwab acts as trustee.
Includes the following shares for which Mr. Schwab may be deemed to have
shared voting and investment power, but disclaims beneficial ownership:
- 175,703 shares held by investment companies and managed by a
wholly-owned subsidiary of the Company.
Mr. Schwab's address is c/o The Charles Schwab Corporation, 101
Montgomery Street, San Francisco, California 94104.
(2) The persons named in the table have sole voting and investment power (or
voting and investment power shared with a spouse) with respect to all
shares of Common Stock shown as beneficially owned by them, subject to the
information contained in the notes to this table.
(3) Shares issuable upon exercise of options to acquire Common Stock that are
exercisable within 60 days(5) As of March 8, 1996 are treated as beneficially
owned as follows: Mr. Schwab 759,375 shares; Mr. Stupski 77,373 shares;
Mr. Pottruck 745,500 shares; Ms. Bechtle 77,000 shares; Mr. Butcher 81,500
shares; Mr. Fisher 14,000 shares; Mr. Frank 71,600 shares; Mr. Harvey
14,000 shares; Mr. McLin 31,500 shares; Mr. Walther 14,000 shares; Mr.
Coghlan 391,314 shares; Mr. Seip 247,000 shares; and Mr. Valencia 60,000
shares.
(4) Includes amounts held by the Trustee of12, 1998, the Profit Sharing Plan held a total of 23,135,020
shares of which:
- 22,546,329 shares were held by participants under the Plan, and
allocated to- 588,691 unallocated shares were held under the individual ESOP accounts or held for the benefitcomponent of
the named executives in the non-ESOP components of the Profit Sharing Plan as
follows: Mr. Schwab 243,613 shares; Mr. Stupski 110,515 shares; Mr.
Pottruck 163,688 shares; Mr. Seip 60,691 shares; Mr. Coghlan 31,520
shares; and Mr. Valencia 444 shares.
(5) This amount includes 2,187,398 shares held by nonprofit public benefit
corporations, as to which Mr. Schwab and his spouse, as two of three
directors, have shared voting and investment power but disclaim beneficial
ownership; 4,320,000 shares held by Mr. Schwab and his spouse as trustees
of a living trust; 2,672 shares held by Mr. Schwab as custodian for his
children; and 5,298 shares held by Mr. Schwab as trustee of various trusts
with respect to which he disclaims beneficial ownership. This amount does
not include 6,836,964 shares held by Mr. Schwab's brother-in-law, as
trustee of various trust accounts for the benefit of Mr. Schwab's spouse
and children.
(6) The Trustee of the Profit Sharing Plan is The Charles Schwab Trust
Company, 120 Kearny Street, San Francisco, CA 94104 and the purchasing
agent of the Profit Sharing Plan is Bankers Trust Company of California,
N.A., 400 S. Hope Street, Los Angeles, CA 90071. The shares held by the
Trustee of the Profit Sharing Plan include an aggregate of 16,287,366
shares which, as of March 8, 1996 had been allocated to the accounts of
individual ESOP participants or held for the benefit of Profit Sharing
Plan participants, including officers of the Company, in the non-ESOP
components of the Profit Sharing Plan, and which are voted at the
direction of such participants. The purchasing agent has sole voting power
with respect to 1,365,508 of the shares held by the Trustee that have not
yet been allocated to the accounts of individual ESOP participants. The
purchasing agent intends to vote all shares under its control in a
specified manner. See "Voting." The 1,365,508 unallocated shares held by
the Trustee of the Profit Sharing Plan, andPlan.
Participants direct the voting rights attributable
to thoseof shares will be allocated to the accounts of individual ESOP
participants in the future.
(7) Mr. Valencia, Ms. Dilsaver, Mr. Gambs, Mr. Lawrie, Mr. Matchett, Mr.
Fieldsa, Ms. Lyons and Mr. Bettinger are officers of the Company or one of
its subsidiaries and members of the Profit Sharing Plan Administrative
Committee. As such, they have shared investment power with respect to all
of the 17,652,874 shares held by the Trustee of the Profit Sharing Plan.
Mr. Valencia, Ms. Dilsaver, Mr.
19
Gambs, Mr. Lawrie, Mr. Matchett, Mr. Fieldsa, Ms. Lyons and Mr. Bettinger
each also have sole voting power with respect to the 444; 6,598; 19,866;
5,229; 3,418; 0; 2,587; and 86 shares, respectively, held by the Trustee of
the Profit Sharing Plan and allocated to their individual ESOP accounts or
otherwise held for their benefit or
allocated to their Plan accounts. The Plan's purchasing agent votes Plan
participants' unvoted shares and unallocated shares held under the ESOP
component of the Plan. The purchasing agent may only vote these shares in
the non-ESOP componentssame proportion as shares voted by Plan participants.
The address of the Charles Schwab Profit Sharing Plan;and Employee Stock
Ownership Plan is c/o The Charles Schwab Corporation, 101 Montgomery
Street, San Francisco, California 94104.
(6) The "Number of Shares Owned" is based on information contained in a
report on Schedule 13-G filed by Transamerica Corporation with the
10,000; 1,810; 0; 27,399; 900; 20,000; 24,900;Securities and 40,201
shares, respectively, held by each directly;Exchange Commission on February 17, 1998.
The address of Transamerica Corporation is 600 Montgomery Street, San
Francisco, California 94111 and 60,000; 43,687; 117,750;
18,787; 0; 0; 37,350; and 0 shares, respectively, which each has the right
to acquire under options which are exercisable within 60 daysaddress of March 8,
1996. As a result, the members of the Administrative Committee are deemed
to be the beneficial owners of outstanding Common Stock, as follows: Mr.
Valencia 10.1%; Ms. Dilsaver 10.1%: Mr. Gambs 10.2%; Mr. Lawrie 10.1%; Mr.
Matchett 10.1%; Mr. Fieldsa 10.1%; Ms. Lyons 10.1%; and Mr. Bettinger
10.1%.
(8) This amount includes 11,762 shares held by Mr. Pottruck as custodian for
his children; 90,000 shares held by Mr. Pottruck as trustee of trusts held
for the benefit of his brothers; 38,050Transamerica Investment
Services, Inc. is 1150 South Olive Street, Los Angeles, California 90015.
(7) Includes 372,500 shares held by a nonprofitnon-profit public benefit corporation
as tofor which Mr. Pottruck, as a director, has voting
and investment power; butStupski disclaims beneficial ownership; and a total of
36,734ownership.
(8) Includes 9,471 shares held by Mr. Pottruck's spouse and a family members,member.
Includes the following shares for which Mr. Pottruck disclaims beneficial
ownership:
- 135,280 shares held in trusts for which Mr. Pottruck acts as
totrustee.
- 75,075 shares held by a non-profit public benefit corporation.
17
PRINCIPAL STOCKHOLDERS
- --------------------------------------------------------------------------------
A FUNDAMENTAL TENET OF THE COMPANY'S COMPENSATION POLICY IS THAT SIGNIFICANT
EQUITY PARTICIPATION CREATES A VITAL LONG TERM PARTNERSHIP BETWEEN MANAGEMENT
AND OTHER STOCKHOLDERS.
(9) Includes 2,250 shares held by Ms. Bechtle's spouse.
(10) Includes 63,116 shares held by Mr. Butcher's spouse.
(11) Includes 612,750 shares held in charitable remainder trusts by Mr. Fisher
and his spouse.
(12) Includes 36,947 shares held by a family member for which heMr. Frank shares
investment power, but disclaims beneficial ownership.
(9) This amount includes 113,250(13) Includes 11,250 shares held by Mr. Butcher and his spouse as
joint tenants, and 4,500Herringer's spouse.
(14) Includes 5,893 shares held by Mr. Butcher's spouse as her
separate property.
(10) This amount includes 408,500Walther's spouse.
(15) Includes 2,022 shares held by Mr. Fisher and his spouse as
trustees of a charitable remainder trust.
(11) This amount includes 46,298Seip's spouse.
(16) Includes 4,636 shares held by Mr. Frank's daughter, as to
which he shares investment power but disclaims beneficial ownership.
(12) This amount includes 117,500 shares held by Mr. Harvey and his spouse as
trustees of a family trust.
(13) This amount includes 14,084 shares held under the Company's Dividend
Reinvestment and Stock Purchase Plan.
(14) This amount includes 15,824 shares held for a trust account under the
Company's Dividend Reinvestment and Stock Purchase Plan and 3,906 shares
held by hisMs. Lepore's spouse.
(15)(17) Messrs. Schwab, Stupski, Pottruck, Butcher, Fisher, Frank, Harvey,Herringer,
McLin, Shultz, Walther, Coghlan,McCarthy and Seip, and ValenciaMs. Lepore and Ms.
Bechtle, and nine other executive officers are members of the group and their beneficially owned shares, including the 17,652,874group.
In prior Proxy Statements, all shares held by the Trustee of the Profit Sharing Plan arewere included in
thethis total number of shares shown on this line. The total number of shares shown on
this line also includes an aggregate of 506,125 shares that 5 otherbecause certain executive officers of the Company were members
of the Administrative Committee of the Plan. The Administrative Committee
is no longer deemed to have the rightsole or shared voting or investment power
over Plan shares. Consequently, Plan shares, other than shares allocated
to acquire upon exerciseexecutive officers' accounts, are not included in this total.
18
PERFORMANCE GRAPH
- --------------------------------------------------------------------------------
ON A DIVIDEND REINVESTED BASIS, THE VALUE OF OUR STOCK INCREASED 98% IN 1997
ALONE, COMPARED WITH AN INCREASE OF 82% FOR THE DOW JONES SECURITIES BROKERAGE
GROUP INDEX AND AN INCREASE OF 33% FOR THE STANDARD & POOR'S 500 INDEX.
The following graph shows a five-year comparison of options granted undercumulative total returns for
the Company's common stock, option plans. Asthe Standard & Poor's 500 Index and the Dow Jones
Securities Brokerage Group Index, each of March 8,
1996,which assumes an aggregateinitial value of 16,287,366 shares held by the Trustee$100
and reinvestment of dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
[GRAPH]
12/92 12/93 12/94 12/95 12/96 12/97
THE CHARLES SCHWAB $100 $187 $204 $355 $569 $1,124
CORPORATION
DOW JONES SECURITIES $100 $129 $114 $156 $235 $427
BROKERAGE GROUP INDEX
STANDARD & POOR'S $100 $110 $112 $153 $189 $252
500 INDEX
* Information presented is as of the Profit
Sharing Plan had been allocated to the individual ESOP accounts or held
for the benefitend of the executive officers as a group in the non-ESOP
components of the Profit Sharing Plan.
20each fiscal year ended December 31.
19
EXECUTIVE COMPENSATION
The following table shows specific- --------------------------------------------------------------------------------
IN THIS SECTION, WE DESCRIBE THE COMPENSATION WE PAY OUR CHIEF EXECUTIVE OFFICER
AND THE NEXT FOUR MOST HIGHLY COMPENSATED EXECUTIVE OFFICERS.
In this section, we describe the compensation information for the Company'swe pay our Chief Executive Officer
and the next four most highly compensated executive officers inofficers. It
consists of:
- - a report by the Compensation Committee on executive compensation,
- - a detailed table showing compensation for the years 1997, 1996, and 1995,
for fiscal years ending December 31, 1995, 1994, and
1993.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS
---------------------------------
ANNUAL COMPENSATION AWARDS AWARDS PAYOUTS
------------------- ---------- ---------- -----------
SECURITIES
RESTRICTED UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS STOCK OPTIONS LTIP COMPENSATION
POSITION YEAR ($)(1) ($)(2) ($)(3) (#)(3)(4) PAYOUTS (5) ($)(6)
- ------------------ ---- -------- ---------- ---------- ---------- ----------- ------------
Charles R. Schwab, 1995 $800,004 $8,606,225 0 500,000 0 $24,699
Chairman and Chief
Executive Officer 1994 $772,506 $2,500,225 0 0 0 $18,890
1993 $690,012 $2,500,225 0 0 0 $23,861
David S. Pottruck, 1995 $695,004 $5,898,225 0 350,000 0 $24,699
President and Chief
Operating Officer 1994 $658,755 $ 662,543 0 300,000 $1,578,360 $18,890
1993 $550,008 $ 846,687 0 0 0 $23,861
Tom D. Seip, 1995 $366,668 $1,046,288 $384,375 75,000 0 $24,699
Executive Vice
President 1994 $306,258 $ 264,309 0 180,000 $ 751,600 $18,890
1993 $250,008 $ 293,657 0 0 0 $23,861
John P. Coghlan, 1995 $341,667 $ 767,750 $384,375 75,000 0 $24,699
Executive Vice
President 1994 $259,376 $ 229,163 0 150,000 $ 601,280 $18,890
1993 $240,006 $ 267,349 0 0 0 $23,861
Luis E. Valencia, 1995 $295,000 $ 762,695 $256,250 60,000 0 $24,699
Executive Vice
President and Chief 1994 $228,750 $ 182,546 0 240,000 0 $ 2,000
Administrative Officer 1993 N/A N/A N/A N/A N/A N/A
- ----------------------
(1) Mr. Valencia joined- information about stock options.
This section also includes descriptions of:
- - agreements between the Company in February of 1994.
(2) Includes, with respect toand Mr. Schwab amounts paid pursuantrelating to his Employment Agreementemployment
and Name Assignment withthe use of the name "Schwab" by the Company, dated March 31,
1987 and
March 31, 1995. See "Employment Agreement- - certain severance arrangements between the Company and Name Assignment."
(3) This column showsother executives.
Filings made by the market value of restricted stock awards on date of
grant. There were no aggregated restricted stock holdings from prior years
for the individuals listed in this table. The year end value of Messrs.
Seip, Coghlan and Valencia's shares were $301,875, $301,875 and $201,250,
respectively, based on the closing sale price of the Company's Common Stock
on December 31, 1995 ($20.125). This per share price does not reflect any
additional diminution in value resulting from the restrictions placed on
such shares. The holders have voting and dividend rightsCompany with respect to
the restricted shares. The restricted shares vest on a scheduled basis over
the executive officer's career, with 10% of the units vesting two years
after the grant date, an additional 10% of the shares vesting three
21
years after the grant date, an additional 15% of the shares vesting four
years after the grant date and the remaining 65% of the shares vesting five
years after the grant date. Restricted shares may vest more slowly or not at
all if certain stock performance criteria are not met. Thus, it is possible
that a substantial number of the restricted shares will not vest. However,
because certain percentages of the restricted shares would vest upon
reaching each of the specified return to shareholders targets (price
appreciation plus dividends), all or part of the restricted stock could vest
in five years from the date that the restricted shares were awarded.
(4) Stock option awards have been adjusted for the March 1995 three-for-two
common stock split and the September 1995 two-for-one common stock split.
(5) The disclosure rules of the Securities and Exchange Commission
currently in
effect provide for disclosure of compensation relating to long-term
incentive plans only when compensation awards are made and when they are
paid out. The Long-Term Incentive Plan III ("LTIP"), which was adopted
effective as of January 1, 1991, was terminated as of December 31, 1994.
Mr. Schwab did not participate in or earn any cash bonuses pursuant to
LTIP. Each participant's final cash bonus was equal to the value of such
participant's units on December 31, 1994 less the value of such units on
the date of grant. Units at the inception of LTIP had an initial value of
$0. Units awarded after the inception of LTIP were valued as of either June
30 or December 31 of each year during the four year period coveredsometimes "incorporate information by the
LTIP, depending on the date of grant. Participants at the executive officer
level were permitted to defer receipt of all or a portion of their LTIP
cash bonuses until the earlier of a specified date certain or the date of
the participant's termination of employment, provided that deferrals will
be paid immediately upon a change of control. The Company recorded
compensation expense accruals in the years 1991, 1992, 1993, 1994, and 1995
with respect to anticipated payments to the named executives of $391,560;
$652,860; $878,280; $1,008,540 and $0, respectively.
(6) Represents employer contributions to the retirement plans for the years
1993, 1994, and 1995.
22
STOCK OPTION TABLES
The following table shows information concerning stock options granted to the
individuals named in the Summary Compensation Table above during the fiscal
year ended December 31, 1995.
OPTIONS GRANTED IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM (2)
---------------------------------------------- ------------------------------
NUMBER OF
SECURITIES % OF TOTAL EXERCISE
UNDERLYING OPTIONS GRANTED OR BASE
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION
NAME (#)(1) FISCAL YEAR ($/SH) DATE 5% 10%
- ---- ---------- --------------- -------- ---------- -------------- ---------------
(1) Charles R. Schwab... 500,000 19.02% $25.625 10/17/05 $ 8,057,712 $ 20,419,825
(2) David S. Pottruck... 350,000 13.32% $25.625 10/17/05 $ 5,640,399 $ 14,293,878
(3) Tom D. Seip......... 75,000 2.85% $25.625 10/17/05 $ 1,208,657 $ 3,062,974
(4) John P. Coghlan..... 75,000 2.85% $25.625 10/17/05 $ 1,208,657 $ 3,062,974
(5) Luis E. Valencia.... 60,000 2.28% $25.625 10/17/05 $ 966,925 $ 2,450,379
- ----------------------
(1) Options granted in 1995 were pursuant to the 1992 Stock Incentive Plan. The
options are 50% non-statutory stock options and 50% incentive stock
options, subject to the limitation of $100,000 maximum face value of
incentive stock options that may vest for an individual in any one year.
For individuals subject to this limitation (which is all of the above
officers),reference." This means the Company provided the maximum number of incentive stock
optionsis
referring you to information that can vest each year and issued the balance in non-statutory
stock options, except that Mr. Schwab received all non-statutory options.
All options were granted at 100% of the fair market value of the Common
Stock on the date of grant. The options expire ten years from the date of
grant, unless otherwise earlier terminated in certain events related to
termination of employment. The options vest over a period of five years,has previously been filed with the first 10% increment vesting on the first anniversary of the option
grant date, an additional 15% increment vesting on the second anniversary
of the option grant date and the remaining options vesting pro-rata over
the remainder of the five year period. Additional vesting of the right to
exercise the options ceases upon termination of the optionee's employment.
(2) The 5% and the 10% assumed rates of appreciation applied to the option
exercise price over the ten-year option term are prescribed by the rules of the Securities
and Exchange Commission, and do not represent the Company's
estimate or projectionthat this information should be considered as part
of the future Common Stock price. If the Company's
Common Stock does not appreciate, the named executive officer will receive
no benefit from the option.
23
filing you are reading. The following table shows information concerning the exercise of stock
options during 1995Performance Graph and the value of unexercised stock options held by the
individuals named in the Summary Compensation Table above as of December 31,
1995.
AGGREGATED OPTION EXERCISED IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT 12/31/95 AT 12/31/95
-------------------- --------------------
SHARES VALUE
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (1) UNEXERCISABLE UNEXERCISABLE
- ---- ----------- ---------- -------------------- --------------------
(1) Charles R. Schwab... -- -- 759,375 $11,970,703
753,125 $ 3,990,234
(2) David S. Pottruck... 337,500 $5,401,562 745,500 $11,559,063
858,500 $ 6,279,687
(3) John P. Coghlan..... 6,750 $ 159,969 391,314 $ 6,408,224
288,750 $ 2,501,406
(4) Tom D. Seip......... 50,000 $ 631,944 240,250 $ 3,612,462
329,250 $ 2,940,906
(5) Luis E. Valencia.... -- -- 24,000 $ 239,000
276,000 $ 2,151,000
- ----------------------
(1) The amountCommittee
Report on Executive Compensation in this column reflectsProxy Statement are specifically not
incorporated by reference into any other filings with the difference between the averageSecurities and
Exchange Commission.
This Proxy Statement is being sent to stockholders as part of the highvoting
material for the Annual Meeting. The Proxy Statement is not to be considered
material for soliciting the purchase or sale of Company stock.
For all of 1997, Mr. Schwab was the Chief Executive Officer and low market prices onMr. Pottruck was
the date of exercise and the option
exercise price and may not represent amounts actually realized by the named
individual.
(2) The value of unexercised options is calculated by multiplying the number of
options outstanding by the difference between the option exercise price and
the December 31, 1995 closing price of $20.125 per sharePresident of the Company's
common stock as reported onCompany. In January of 1998, Mr. Schwab and Mr. Pottruck
became Co-Chief Executive Officers of the New York Stock Exchange Composite
Transactions Index,Company. For purposes of the following
report, Mr. Schwab is the Chief Executive Officer and may not represent amounts actually realized byMr. Pottruck is the
named individual.
24
President.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During 19951997, the Compensation Committee (the "Committee") of the Company's Board
of Directors consisted of Mr. Walther, Ms. Bechtle, Mr. Butcher, Mr. McLin and
Dr. Shultz. No member of the Committee during 1997 was comprised of three directors who are not employeesan employee of the
Company or of any of its subsidiaries. The Committee has overall
responsibility for the Company's executive compensation policies and practices.
Each member is a "disinterestedmeets the definition of
"non-employee director" within the meaning of Section 16under Rule 16b-3 of the Securities Exchange Act of 1934,
as amended, and is an "outside director" within the meaning of Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code").
20
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
COMPENSATION POLICIES
The Committee determineshas overall responsibility for the Chairman'sCompany's executive
compensation policies and practices. The Committee's functions include:
- - determining the compensation of the Chief Executive Officer of the Company,
- - upon recommendation of the ChairmanChief Executive Officer and the President,
reviewsreviewing and approvesapproving all executive officers' compensation, including
salary and payments under the annual
executive bonus plans, awards under long term cash incentive plans and
- - granting awards under stock option and stock incentive plans.
The Committee has provided the following report on the Chairman's compensation, the compensation policies of
the Company as they apply to its executive officers, and the relationship of Company
performance to executive compensation and the Chief Executive Officer's
compensation.
COMPENSATION POLICIES
The Company's compensation policies are designed to address a number of
objectives, including rewarding financial performance and motivating executive
officers to achieve significant returns for stockholders. The Company's policies
rely on two principles. First, a significant portion of executive officers'
total compensation should be in the form of stock and stock-based incentives.
Second, a large portion of their cash compensation should be at risk and vary,
depending upon meeting stated financial objectives.
When establishing salaries, bonus levels and stock-based awards for executive
officers, the Committee considers the individual's role, responsibilities and
performance during the past year, and the amount of compensation paid to
executive officers in similar positions of comparable companies, based on
periodic reviews of competitive data obtained from independent consultants. The
Committee reviews companies of similar size, rates of growth and financial
returns to the Company, including, but not limited to, some of the companies
included in the Dow Jones Securities Brokerage Group Index.
Companies outside the financial services industry are selected for inclusion in
the review based upon the extent to which they satisfy a list of selection
criteria, which includes size, growth rates, similar financial performance,
leadership status in their industry, and reputation for innovation, notand the extent
to which they compete with the Company for executives. Not all of whichthese criteria
will be satisfied in any particular case. The Committee believes it is necessary to
includeincludes in its review
companies other than those included in the Dow Jones Securities Brokerage Group
Index because the Company frequently recruits employeesexecutives from outside the
financial services industry, depending upon the specific skills required for the
position.
The Committee uses comparative data to set compensation targets that will
21
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
THE IMPORTANCE OF OWNERSHIP
provide executive officers with compensation that exceeds the average amounts
paid to similar executives of comparable companies in years in which the Company
achieves superior performance, and in the payment ofwith compensation below the average of
amounts paid to similar executives of comparable companies in years in which the
Company fails to achieve superior performance. However, in certain cases the Committee also may makemakes
discretionary and subjective
25
determinations of appropriate compensation amounts
to reflect, for example, the Company's philosophy of compensating executives for
the success they achieve in managing specific enterprises.
WithIn the case of the compensation of the President, the Committee places
considerable weight on the recommendations of the Chief Executive Officer, and
with respect to executive officers other than the Chairman,Chief Executive Officer and
the President, the Committee places considerable weight upon the recommendations
of the ChairmanChief Executive Officer and where appropriate, the President.
THE IMPORTANCE OF OWNERSHIP
A fundamental tenet of the Company's compensation policy is that significant
equity participation creates a vital long term partnership between management/ownersmanagement
and other stockholders. Through the Profit Sharing Plan and various stock
incentive plans, the benefits of equity ownership are extended to executive
officers and employees of the Company and its subsidiaries. As of March 8, 1996,12,
1998, the directors executive officers and other seniorexecutive officers of the Company and its subsidiaries owned an aggregate of
46,924,36961,358,342 shares (including restricted shares) and had the right
to acquire an additional 4,190,8716,419,915 shares upon the exercise of employee stock
options which were exercisable(exercisable on March 8, 1996 or within sixty
days thereafter. In addition, thebefore May 11, 1998).
The Profit Sharing Plan held 17,652,874 shares.
These interests, exclusive of outstanding options, represented in the aggregate
37% of the outstanding capital stock of the Company.22,546,329 shares which were allocated to
participants' accounts on March 12, 1998. The Company intends to continue its
strategy of encouraging its employees to become stockholders.
The chart which followspreceding this report compares changes in the Company's cumulative
total returns with those of the S&PStandard & Poor's 500 Index and the Dow Jones
Securities Brokerage Group Index. From December 31, 19901992 through December 31,
19951997 the cumulative total return of the Company's stock was 1,145 percent.1,024%. By
comparison, in the same period the Dow Jones Securities Brokerage Group Index
grew 249 percent327% and the S&PStandard & Poor's 500 Index grew 115 percent.152%. The Committee believes
that the executive officers'employees' equity participation in the Company is a meaningful factor
contributing to the Company's success.
22
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
ANNUAL BASE SALARY
VARIABLE COMPENSATIONS
ANNUAL BASE SALARY
The Company believes that base salary is frequently a significant factor in
attracting, motivating and retaining competent and skilled executive officers. To maintain a competitive advantage,Accordingly,
the Committee reviews base salaries of executive officers annually and generally
sets the base salary of its executive officers at or near the average of the
levels paid by the other companies it reviews. (Seereviews (see "Compensation Policies."Policies").
VARIABLE COMPENSATION
Corporate Executive Bonus Plan.CORPORATE EXECUTIVE BONUS PLAN.
The Corporate Executive Bonus Plan (the "Bonus Plan") pays bonuses each year to
executive officers (other than the Chairman,Chief Executive Officer, who is covered under
an employment agreement with the Company, see "Chairman's
Compensation" below)Company) based on the Company's performance.performance
(see "Chief Executive Officer's Compensation"). Depending upon the Company's
pre-tax profit margin and net revenue growth, and pre-tax profit margin, the bonus planBonus Plan is paid out at a
percentage of each participant's bonus target. Targets are expressed as a
percentage of base salary, which are determined by the Committee based on the
factors discussed above (see "Compensation Policies").
The Committee sets 26
target bonuses in the first quarter of each year based upon
the recommendation of the ChairmanChief Executive Officer and, where appropriate, the
President. In the case of the President, and the Vice Chairman, who receivereceives all of theirhis annual
incentive compensation under the Bonus Plan, the target bonusesbonus can be up to 300%
and 100% of base salary, respectively.salary. In the case of the remaining executive officers, who also
participate in the Annual Executive Individual Performance Plan (discussed
below), the target bonuses can be up to 50% of base salary.
The target bonus is adjusted upward or downward, in accordance with a payout
matrix adopted by the Committee at the time the target bonus is established, that will resultestablished.
This results in a payout of a multiple (or fraction) of the target bonus
depending upon the Company's performance. The factors determining bonuses in the
matrix are pre-
taxpre-tax profit margin and net revenue growth. In general, a given
percentage change in pre-tax profit margin will have a greater impact on the
determination of bonus payments than the same percentage change in the net
revenue growth rate. In 1995,1997, the Company achieved a pre-tax profit margin of
20 percent19.5% and net revenue growth of 33 percent.24.2%. Based on this performance, executive
officers received bonuses in excess of 100 percent of their target bonus amounts in 1995.
Annual Executive Individual Performance Plan.1997.
ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN.
The Annual Executive Individual Performance Plan (the "Individual Performance
Plan") pays bonuses to executive officers other than the Chairman,
Vice ChairmanChief Executive Officer
and President based on a subjective determination of each such officer's
individual contribution
23
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
VARIABLE COMPENSATION
to the attainment of the Company's performance objectives, made by theobjectives. The Committee uponmakes
this determination based on the recommendation of the ChairmanChief Executive Officer
and the President. In general, such recommendations are based in significant
part upon suchthe officer's success in achieving specific goals identified in such
officer's business plan.
The amount available for payments under the planIndividual Performance Plan is
determined in accordance with a matrix, adopted by the Committee in its
discretion, in advance from time to time, that generates a funding amount based
upon the level of the Company's pre-tax profit margin and net revenue growth and
pretax profit margin.growth.
Although individual bonuses under the planIndividual Performance Plan may vary in
recognition of individual achievements, the aggregate amount of executive
officer bonuses payable under the planIndividual Performance Plan is based strictly
on the Company's performance.
1992 Stock Incentive Plan.STOCK INCENTIVE PLAN.
In 1992, the Board of Directors approved a stock
incentive plan (the "1992 Plan"),the 1992 Plan, which was approved by
the stockholders of the Company at the 1992 Annual Meeting and became effective
on May 8, 1992. Under the 1992 Plan, stock option grants and restricted stock
awards are made to executive officers by the Committee, based upon the factors
discussed above (see "Compensation Policies").
The Committee has adopted a policy of granting infrequent and large stock
optionoptions and restricted stock awards to executive officers, rather thansupplemented with
smaller annual smaller grants. The Committee believes that an emphasis on large, but
infrequent awards provideprovides a more powerful incentive to executive officers to
achieve sustained growth over the long term. The Committee intends that
stock-based incentives will be the sole long termlong-term incentives payable to
executive officers.
During 1995,1997, stock option grants were made to certain of the Company's executive
officers. In addition, certain of the Company's executive officers received
grants of restricted shares. To determine the size of the grants,
the Company reviewed and presented to the Committee data obtained from an
independent consultant 27
concerning levels of long term compensation for executive
officers of selected financial services companies and companies
of comparable size, rates of growth, and/or financial returns, as well as the
value of prior outstanding nonvested
options. In approving an option grant of 500,000 shares to Mr. Schwab,unvested stock options and restricted stock awards held by
the Committee considered data provided by an independent consultant on long term
compensation for chief executive officers and used the same methodology as for
other executive officers.
CHAIRMAN'Sindividual.
24
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
CHIEF EXECUTIVE OFFICER'S COMPENSATION
TAX LAW LIMITS ON EXECUTIVE COMPENSATION
CHIEF EXECUTIVE OFFICER'S COMPENSATION
The Company's Chairman,Chief Executive Officer, Charles R. Schwab, is compensated based
on an employment agreement that was entered into between the Company and Mr.
Schwab and approved by the stockholders, effective as of March 31, 1995 (see
"Employment Agreement and Name Assignment"). Under the terms of his Employment
Agreement, Mr. Schwab receives a base salary of $800,000, subject to$800,000. Mr. Schwab's annual
increases based on increases in the Consumer Price Index. Mr. Schwab is also
entitled to receive an annual bonus, the amount of which, if any, is a multiple of his base salary, calculated pursuant tosalary. The multiple is based on the
Company's pre-tax profit margin and net revenue growth for the year, and is
determined under a matrix adopted by the Committee. The Committee in advancehas the
authority to adjust the matrix from time to time (provided that relatesfor any year the
amountmatrix may not be changed more than 90 days after the beginning of the bonus to the
Company's performance for the year relative to net revenue growth and pre-tax
profit margin.year).
The Committee believes that Mr. Schwab's leadership is a vital factor in the
Company's success. TheSpecifically, the Committee believes that Mr. Schwab provides the
Company with the leadership, vision and inspiration for innovation that has
generated the Company's growth and superior performance, and that the Company's
overall strategic direction as developed by Mr. Schwab is critical to enhancing
the future long term value of the Company for its stockholders. Mr. Schwab's
leadership has enabled the Company to substantially outperform both the S&Pthat:
- - MR. SCHWAB PROVIDES THE COMPANY WITH THE LEADERSHIP, VISION AND INSPIRATION
FOR INNOVATION THAT HAS GENERATED THE COMPANY'S GROWTH AND SUPERIOR
PERFORMANCE,
- - THE COMPANY'S OVERALL STRATEGIC DIRECTION AS DEVELOPED BY MR. SCHWAB IS
CRITICAL TO ENHANCING THE FUTURE LONG TERM VALUE OF THE COMPANY FOR ITS
STOCKHOLDERS, AND
- - MR. SCHWAB'S LEADERSHIP HAS ENABLED THE COMPANY TO SUBSTANTIALLY OUTPERFORM
BOTH THE STANDARD & POOR'S 500 Index and the Dow Jones Securities Brokerage Group over the past five year
period, and has enabled the Company to achieve a price-earnings multiple
greater than the S&P 500 Index.INDEX AND THE DOW JONES SECURITIES BROKERAGE
GROUP INDEX OVER THE PAST FIVE-YEAR PERIOD.
Based upon the Company's attainment in 19951997 of a pre-tax profit margin of 20 percent19.5%
and net revenue growth of 33 percent,24.2%, which resulted in pre-tax profit for 1995 of over $277,000,000,$447
million, the amount of Mr. Schwab's annual bonus for 1995,1997, calculated pursuant
to the matrix, was $8,606,000. During 1995, Mr. Schwab also received a stock option grant of
500,000 shares at $25.625, the market price on the grant date.$6,362,000.
TAX LAW LIMITS ON EXECUTIVE COMPENSATION
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) toof the Code which limits deductions for certain executive compensation
in excess of $1 million. Certain types of compensation are deductible only if
performance criteria are specified in detail, and payments are contingent on stockholder
approval ofstockholders have approved the
compensation arrangement.arrangements. The Company believes that it is in the best interests
of its stockholders to structure compensation plans to achieve deductibility
under Section 162(m), except where the benefit of such deductibility is
outweighed by the need for flexibility or the attainment of other corporate
objectives. Accordingly, the Company's Corporate Executive Bonus Plan and 1992
Stock Incentive Plan were approved by the stockholders in 1994 amendments toand 1995, and the Company's
Corporate Executive Bonus Plan wereEmployment Agreement with Mr. Schwab was approved by the stockholders in 1995
(see "Employment
25
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
TAX LAW LIMITS ON EXECUTIVE COMPENSATION
Agreement and the Company's employment agreement with Mr.
Schwab was
28
approved by the stockholders in 1995.Name Assignment" below).
The Committee will continue to monitor issues concerning the deductibility of
executive compensation and will take appropriate action if and when it is
warranted. Since corporate objectives may not always be consistent with the
requirements for full deductibility, the Committee is prepared, if it deems
appropriate, to enter into compensation arrangements or pay compensation under
which payments may not be deductible under Section 162(m); deductibility will
not be the sole factor used by the Committee in ascertaining appropriate levels
or modes of compensation.
Compensation Committee of the Board of
DirectorsCOMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS
Roger O. Walther, Chairman
Nancy H. Bechtle
C. Preston Butcher
Stephen T. McLin
29George P. Shultz
26
PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total returns
for the Company's Common Stock, the S&P 500 Index and the Dow Jones Securities
Brokerage Group Index, each of which assumes an initial investment of $100 and
reinvestment of dividends.
Comparison of Five Year Cumulative Total Return* Among
The Charles Schwab Corporation, S&P 500 Index and
Dow Jones Securities Brokerage Group Index Over Five Year Period Ended
December 31, 1995**
[GRAPH APPEARS HERE]
- --------------------------------------------------------------------------------
12/90 12/91 12/92 12/93 12/94 12/95
- --------------------------------------------------------------------------------
The Charles Schwab Corporation $100 $404 $350 $656 $714 $1,245
- --------------------------------------------------------------------------------
Dow Jones Securities Brokerage Group Index $100 $216 $224 $288 $255 $349
- --------------------------------------------------------------------------------
S&P 500 Index $100 $130 $140 $155 $157 $215EMPLOYMENT AND SEVERANCE AGREEMENTS
- --------------------------------------------------------------------------------
- ----------------------
* Total return assumes reinvestment of dividends.
** Information presented as of the end of each fiscal year ended December 31.
30
EMPLOYMENT AGREEMENT AND NAME ASSIGNMENT
EMPLOYMENT AGREEMENT AND NAME ASSIGNMENT
The Company hasand Mr. Schwab entered into an employment agreement effective March 31,
1995 with Mr. Schwab, which replaced an earlier employment agreement that
expired on that date, and(the "Employment Agreement"), which was approved by the Company's
stockholders.stockholders and replaced an earlier employment agreement. The Employment
Agreement has aan initial term of five years, and provides that as of each March
31, the term of the Employment Agreement is automatically will be extended by an
additional year, subject to the same terms and conditions, unless either party
provides notice to the other, by that date, of an intention not to so
extend the agreement.it.
The Employment Agreement provides for an annual base salary of $800,000
subject to annual adjustment based on increases in the Consumer Price Index, and
provides that Mr. Schwab will participate in all compensation and fringe benefit
programs made available to other senior executives,executive officers, including the Company's
stock incentive plan, except that, inplans. In lieu of participating in the executive bonus plans,
Mr. Schwab's annual bonus, if any, will beis a multiple of his base salary, and will besalary. This
multiple is based solely on the Company's performancepre-tax profit margin and net revenue growth
for the year, relative to net revenue growth and pre-tax profit margin, based onis determined under a matrix adopted by the Compensation
Committee. The Compensation Committee has the authority to adjust the matrix
from time to time (provided that for any year, the matrix may not be changed
more than 90 days after the beginning of the year). The matrix is also subject
to annual, automatic adjustment based on increases in advance.the Consumer Price Index.
The Employment Agreement also provides that certain compensation and benefits
will be paid or provided to Mr. Schwab (or his immediate family or estate) in
the event his employment is terminated involuntarily, other than for cause,
prior to the expiration of the Employment Agreement. For these purposes,
"cause""Cause" is defined as the
commission of a felonious act, or willful and gross negligence or misconduct
that results in material harm to the Company.
Mr. Schwab's resignation following a material change in his capacities or duties
at Schwab or the Company is included in the definition of "involuntary
termination." If an involuntary termination is for reasons other than death,
disability or for "cause," Mr. Schwab will be entitled to receive for a period
of thirty-six (36)36 months all compensation to which he would have been entitled had he not
been terminated, including his base salary and participation in all bonus,
incentive and other compensation benefit plans for which he was or would have
been eligible (but excluding additional grants under the Company's stock
incentive plan)plans). In addition, all outstanding, unvested awards under the
Company's stock incentive planplans will vest fully on the effective date of the
termination.
27
EMPLOYMENT AND SEVERANCE AGREEMENTS
- --------------------------------------------------------------------------------
EMPLOYMENT AGREEMENT AND NAME ASSIGNMENT
If an involuntary termination is by reason of disability, Mr. Schwab will be
entitled to receive his base salary, less any payments under the Company's
long termlong-term disability plan, and benefits (but not bonuses or other incentive
compensation) for a period of thirty-six (36)36 months from such termination, and shall also
receive a pro-ratedprorated portion of any bonus or incentive payments payable with
respect to the year in which the disability occurs. If an involuntary
termination is by reason of death, a lump sum payment will be made to Mr.
Schwab's estate equal to five times his then base salary.
If Mr. Schwab should voluntarily resign his employment within twenty-four (24)24 months of a
change in control of the Company, he shall be entitled to receive a pro-rated
portion of any bonus or incentive payments payable with respect to the year in
which the resignation occurs. In addition, if Mr. Schwab's employment should
terminate on account of any voluntary resignation, or on account of an
involuntary termination occurring within twenty-four (24)24 months of a change in control of
31
the
Company, Mr. Schwab shall have the right (but not the obligation) to enter into
a consulting arrangement under which hewith the Company. Under this agreement, Mr. Schwab
would provide certain consulting services to the Company for a period of five
years, in exchange for an annual payment equal to the lesser of $1 million or
75% of his then base salary.
The Employment Agreement precludes Mr. Schwab from becoming associated with any
business competing with the Company for a period of five years following a
voluntary resignation of employment (except that such covenant would not apply
toin the event of a resignation of employment occurring within 24 months of a
change in control of the Company).
The Company and Schwab also are parties to an Assignment and License agreement
with Mr. Schwab (the "Name Assignment") that was approved in July 1987 by the
Company's non-employee director. Pursuant to the Name Assignment, Mr. Schwab has
assigned to the Company all service mark, trademark, and trade name rights in
and to Mr. Schwab's name (and variations thereon) and likeness, subject to Mr.
Schwab's perpetual, exclusive, irrevocable right to use his name and likeness
for any activity other than the financial services business.
In
addition,Beginning immediately after any termination of his employment, Mr. Schwab will
be entitled to use his likeness in the financial services business beginning immediately after any termination of his
employment for some
purposes (specifically, the sale, distribution, broadcast and promotion of
books, videotapes, lectures, radio programs and television programs, and also any
financial planning provided in the case of financial
planning onlyservices that it mayare not be in direct competition with any business
in which the Company or its subsidiaries are then engaged or plan to enter
within three months) and beginning. Beginning two years
28
EMPLOYMENT AND SEVERANCE AGREEMENTS
- --------------------------------------------------------------------------------
CERTAIN SEVERANCE ARRANGEMENTS
after any termination of his employment, Mr. Schwab may use his likeness for all
other purposes, providedas long as that Mr. Schwab mayuse does not use his likeness in a
way that causescause confusion as toabout whether the
Company is involved with goods or services actually marketed by Mr. Schwab or by
third parties unrelated to the Company.
Subject to the same prohibition against actual confusion of customers, Mr.
Schwab at all times will be able to use his own name to identify himself, but
not as a service mark, trademark or trade name in the financial services
business. The "financial services business" is defined in the Name Assignment as
the business in which Schwab is currently engaged and any additional and related
businesses in which the Company or Schwab is permitted to engage under rules and
regulations of applicable regulatory agencies. The Company's right to assign or
license the right to use Mr. Schwab's name and likeness are severely constrained
during Mr. Schwab's lifetime.
No cash consideration is to be paid to Mr. Schwab for the Name Assignment while
he is employed by the Company or, after that employment terminates, while he is
receiving compensation pursuant to an employment agreement with the Company.
Beginning when all such compensation ceases, and continuing for a period of 15
years, Mr. Schwab or his estate will receive three tenths of one percent (0.3%)
of the aggregate net revenues of the Company (on a consolidated basis) and those
of its unconsolidated assignees and licensees that use the name or likeness.
These payments may not, however, exceed $2,000,000$2 million per year, adjusted up or down
to reflect changes from the cost of living prevailing in the San Francisco Bay
Area during specified months in 1987, and they will terminate if the Company and
its subsidiaries cease using the name and likeness.
32
CERTAIN SEVERANCE ARRANGEMENTS
The Company has a Change in Control Severance Plan (the "Severance Plan"), which
covers thecertain executive officers, including those named in the Summary
Compensation Table (except Mr. Schwab), and also covers other key executives.. The Severance Plan provides that if the
executive is terminated other than for cause (as defined
in the Severance Plan) within three years after a change
in control of the Company or if the executive terminates his or her employment
for good reason, as defined in the Severance Plan, within such three-yearthree year period
or voluntarily during the thirty-day period following the first anniversary of
the change in control, the executive is entitled to receive a lump sum severance
payment equal to three times the sum of his or herthe executive's base salary and highest
annual bonus, together with certain other payments and benefits, including
continuation of employee welfare benefits. An additional payment is required to
compensate the executive for any excise taxes imposed upon payments under the
agreements.
1992 STOCK INCENTIVE PLAN
Under29
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
This table shows, for the last three fiscal years, compensation information for
the Company's Chief Executive Officer and the next four most highly compensated
executive officers. We refer to all of these officers as the "Named Executive
Officers."
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
- -------------------------------------------------------------------------------------------------------------------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL COMPENSATION STOCK AWARDS UNDERLYING LTIP PAYOUTS COMPENSATION
POSITION YEAR SALARY ($) BONUS ($)(2) ($)(3) ($)(4) OPTIONS (#) ($)(5) ($)(6)
- -------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 1997 $800,004 $6,362,225 -- 0 0 0 $16,601
CHAIRMAN AND 1996 $800,004 $9,387,225 -- 0 0 0 $18,810
CHIEF EXECUTIVE 1995 $800,004 $8,606,225 -- 0 750,000 0 $24,699
OFFICER
DAVID S. POTTRUCK 1997 $695,004 $4,319,225 -- 0 0 0 $16,601
PRESIDENT AND CHIEF 1996 $695,004 $6,436,225 -- 0 0 0 $18,810
OPERATING OFFICER 1995 $695,004 $5,898,225 -- 0 525,000 $1,578,360 $24,699
TIMOTHY F. MCCARTHY 1997 $420,833 $1,243,015 $40,332 $686,250 75,000 0 $16,601
FIRST EXECUTIVE 1996 $343,751 $1,211,485 -- $246,250 0 0 $6,805
VICE PRESIDENT (1) 1995 $108,336 $354,174 -- $128,125 150,000 0 $6,118
TOM D. SEIP 1997 $465,000 $1,037,707 $119,834 0 60,000 0 $16,601
EXECUTIVE VICE 1996 $408,333 $1,395,572 -- 0 0 0 $18,810
PRESIDENT 1995 $366,668 $1,046,288 -- $384,375 112,500 $751,600 $24,699
DAWN G. LEPORE 1997 $372,500 $839,730 $119,839 0 52,500 0 $16,601
EXECUTIVE VICE 1996 $325,833 $900,372 -- 0 0 0 $18,810
PRESIDENT AND 1995 $275,001 $765,933 -- $384,375 97,500 $526,120 $24,699
CHIEF INFORMATION
OFFICER
(1) Mr. McCarthy joined the Company in September of 1995.
(2) Includes, with respect to Mr. Schwab, amounts paid pursuant to his
Employment Agreement with the Company dated March 31, 1995 (see "Employment
Agreement and Name Assignment").
(3) "Other Annual Compensation" includes payments, not properly categorized as
salary or bonus, to the Named Executive Officers. The following chart
further explains these payments.
30
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
DURING 1997, THE COMPANY ACHIEVED ITS EIGHTH CONSECUTIVE YEAR OF RECORD REVENUES
AND SEVENTH CONSECUTIVE YEAR OF RECORD EARNINGS.
CASH PAYMENT BASED PAR VALUE PAYMENT
ON COMPANY ON RESTRICTED
PERFORMANCE* STOCK** TOTAL
Charles R. Schwab $0 $0 $0
David S. Pottruck $0 $0 $0
Timothy F. McCarthy $39,867 $465 $40,332
Tom D. Seip $119,602 $232 $119,834
Dawn G. Lepore $119,602 $237 $119,839
* Certain executive officers received cash payments based on the return
on Company stock (including price appreciation and dividend
reinvestment) outperforming, by a specified margin, the return on the
Standard & Poor's 500 Index. These payments encourage executives to
continue holding Company shares after vesting by helping them meet the
income tax liability resulting from the vesting of the shares.
** Includes payment by the Company of the par value of restricted stock
awarded to the Named Executive Officer under the 1992 Stock Incentive Plan, non-employee directorsPlan.
(4) DATE OF GRANT VALUE. This column shows the market value of restricted stock
awards on date of grant.
YEAR-END VALUES. The year-end value of the Company
receive an annual, automatic option grant covering sharesrestricted stock awards for
Mr. McCarthy, Mr. Seip and Ms. Lepore were $1,887,188; $943,594; and
$943,594, respectively, based on the closing sale price of the Company's
Common Stock.common stock on December 31, 1997 ($41.94).
RIGHTS. Restricted stockholders have voting and dividend rights.
ORIGINAL VESTING SCHEDULE. The Company has submitted for stockholder approvalrestricted shares, when originally issued,
vested over a proposal
which increases the annual, automatic option grant to the non-employee
directorsfive-year period, with:
- 10% of the Company.shares vesting two years after the grant date,
- an additional 10% of the shares vesting three years after the
grant date,
- an additional 15% of the shares vesting four years after the
grant date, and
- the remaining 65% of the shares vesting five years after the
grant date.
Some of the restricted shares vest more slowly or not at all, depending
upon certain stock performance criteria. Thus, it is possible that a
substantial number of the restricted shares will not vest.
AMENDED VESTING SCHEDULE. In 1996, and effective January 1, 1997, the
Compensation Committee shortened the vesting period to four years for all
restricted grants made after December 31, 1993. These restricted shares
have the following vesting schedule:
- 10% of the shares vest two years after the grant date,
- an additional 40% of the shares vest three years after the grant
date, and
- the remaining 50% of the shares vest four years after the grant
date.
31
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
IN 1997, TOTAL CUSTOMER ASSETS INVESTED IN SCHWAB'S MUTUAL FUND
MARKETPLACE-Registered Trademark- (INCLUDING MUTUAL FUND ONESOURCE-Registered
Trademark-), PASSED $100 BILLION, AND IN ADDITION TOTAL CUSTOMER ASSETS INVESTED
IN SCHWAB'S PROPRIETARY SCHWABFUNDS-Registered Trademark- PASSED $50 BILLION.
Any restricted shares granted subject to pre-existing stock performance
criteria remained subject to those conditions.
(5) The proposal increasesLong Term Incentive Plan ("LTIP") was terminated as of December 31,
1994.
VALUATION OF UNITS. Participants' final cash bonus under LTIP was
determined by:
- valuing the optionparticipants' units on December 31, 1994,
- subtracting the initial or date of grant from 1,000
sharesvalue of Common Stock to either (a) 1,500 sharessuch units, and
- multiplying this net unit value by the total number of Common Stock ifunits held
by the exercise price, determinedparticipant.
Units at the inception of LTIP had an initial value of $0, but subsequent
units were valued as of the grant date (either June 30 or December 31 of
each year).
PAYMENT OPTIONS. Participants at the executive level received payment upon:
- the date designated in LTIP,
- a deferred date requested by the executive,
- termination of employment with the Company, or
- immediately upon a change of control.
(6) Represents Company contributions under the PROFIT SHARING PLAN.
32
OPTION GRANTS
- --------------------------------------------------------------------------------
This table shows stock option grants to the Named Executive Officers during the
last fiscal year.
OPTIONS GRANTED IN 1997
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE APPRECIATION
FOR OPTION TERM (3)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR
OPTIONS EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED (#) (1) IN FISCAL YEAR ($/SH) (2) DATE 5% ($) 10% ($)
- ------------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 0 0% N/A -- N/A N/A
DAVID S. POTTRUCK 0 0% N/A -- N/A N/A
TIMOTHY F. MCCARTHY 30,000 0.74% $26.0833 2/26/2007 $465,641 $1,204,955
30,000 0.74% $30.9583 2/26/2007 $575,941 $1,467,220
15,000 0.37% $30.5000 7/16/2007 $284,665 $724,274
TOM D. SEIP 30,000 0.74% $26.0833 2/26/2007 $465,641 $1,204,955
30,000 0.74% $30.9583 2/26/2007 $575,941 $1,467,220
DAWN G. LEPORE 26,250 0.65% $26.0833 2/26/2007 $407,435 $1,054,336
26,250 0.65% $30.9583 2/26/2007 $503,949 $1,283,817
(1) Options granted in 1997 were made under the 1992 Plan. These options are:
- generally granted as 50% non-statutory stock options and 50%
incentive stock options (subject to limitation imposed by tax
law),
- granted at an exercise price equal to 100% of the fair market value
of the common stock on the date of grant,
- expire ten years from the date of grant, unless otherwise earlier
terminated in certain events related to termination of employment,
and
- vest in 25% increments on each anniversary date of the grant,
subject to the terms and conditions of the 1992 Plan.
(2) Options with exercise prices of:
- $26.0833 were granted on February 26, 1997,
- $30.9583 were granted on August 1, 1997, and
- $30.5000 were granted on July 16, 1997.
(3) We are required by the Securities and Exchange Commission to use a 5% and
10% assumed rate of appreciation over the ten-year option term. This does
not represent the Company's estimate or projection of the future common
stock price. If the Company's common stock does not appreciate, the Named
Executive Officers will receive no benefit from the options.
33
OPTIONS EXERCISED
- --------------------------------------------------------------------------------
This table shows stock option exercises and the value of unexercised stock
options held by the Named Executive Officers during the last fiscal year.
AGGREGATED OPTION EXERCISES IN 1997
AND FISCAL YEAR-END OPTION VALUES
NO. OF SECURITIES
VALUE UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES ACQUIRED REALIZED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
ON EXERCISE (#) ($)(1) YEAR-END (#) AT YEAR-END ($)(2)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -----------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB -- -- 1,893,750 375,000 $68,774,816 $9,355,469
DAVID S. POTTRUCK -- -- 2,028,073 377,927 $74,219,449 $10,540,989
TIMOTHY F. MCCARTHY -- -- 75,000 150,000 $1,871,094 $2,854,688
TOM D. SEIP 37,500 $881,347 690,073 186,677 $25,289,903 $4,638,451
DAWN G. LEPORE 45,000 $1,015,417 367,500 101,250 $12,564,014 $1,925,508
(1) This number is $35.00calculated by:
- averaging the high and low market prices on the date of exercise
to get the "average market price,"
- subtracting the option exercise price from the average market
price to get the "average value realized per share," and
- multiplying the average value realized per share by the number of
options exercised.
The amounts in this column may not represent amounts actually realized by
the Named Executive Officers.
(2) This number is calculated by:
- subtracting the option exercise price from the Company's December
31, 1997 average market price ($42.03 per share, as reported on
the New York Stock Exchange Composite Transactions Index) to get
the "average value per option," and
- multiplying the average value per option by the number of
exercisable and unexercisable options.
The amounts in this column may not represent amounts actually realized by
the Named Executive Officers.
34
OTHER INFORMATION
- --------------------------------------------------------------------------------
CERTAIN TRANSACTIONS
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
STOCKHOLDER PROPOSALS
CERTAIN TRANSACTIONS
Certain directors and executive officers maintain margin trading accounts with
Schwab. Extensions of credit in such accounts are made in the ordinary course of
Schwab's business, are made on substantially the same terms including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unaffiliated persons, and do not involve more than the normal
risk of collectibility or more,present other unfavorable features.
Employees and directors of the Company who engage in brokerage transactions at
Schwab receive a 20% discount on its standard commission rates for brokerage
transactions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that during 1997, all filings with the Securities and
Exchange Commission of its officers, directors and 10% stockholders complied
with requirements for reporting ownership and changes in ownership of Company
common stock pursuant to Section 16(a) of the Securities Exchange Act of 1934,
except that Susanne D. Lyons and Lawrence J. Stupski each filed one late report.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Our Board has selected Deloitte & Touche LLP as the Company's independent public
accountants for the current fiscal year. They have served as accountants for the
Company or (b)
2,500Schwab since 1976. Representatives of Deloitte & Touche LLP are
expected to attend the meeting in order to respond to questions from
stockholders and will have the opportunity to make a statement.
STOCKHOLDER PROPOSALS
If you want us to consider including a proposal in our 1999 Proxy Statement, you
must deliver it to the Company's Corporate Secretary at our principal executive
office no later than November 23, 1998. The Company's bylaws contain specific
procedural requirements regarding a stockholder's ability to nominate a director
or submit a proposal to be considered at a meeting of stockholders. If you would
like a copy of the procedures contained in our bylaws, please contact:
Assistant Corporate Secretary
The Charles Schwab Corporation
101 Montgomery Street (88/5)
San Francisco, California 94104
(415) 636-1406
35
OTHER INFORMATION
- --------------------------------------------------------------------------------
COSTS OF PROXY SOLICITATION
TICKETS TO THE ANNUAL MEETING
COSTS OF PROXY SOLICITATION
The Company pays for distributing and soliciting proxies and reimburses brokers,
nominees, fiduciaries and other custodians reasonable fees and expenses in
forwarding proxy materials to stockholders. The Company is not using an outside
proxy solicitation firm this year, but employees of the Company or its
subsidiaries may solicit proxies through mail, telephone or other means.
Employees do not receive additional compensation for soliciting proxies.
TICKETS TO THE ANNUAL MEETING
SEATING IS LIMITED AND THEREFORE, ADMISSION IS BY TICKET ONLY ON A
FIRST-COME, FIRST-SERVED BASIS.
Please complete and return to us the ticket request postcard included in your
voting materials. When we receive your postcard, we will mail you a ticket.
If you did not receive a ticket request postcard and would like to attend the
Annual Meeting, please contact:
Assistant Corporate Secretary
The Charles Schwab Corporation
101 Montgomery Street (88/5)
San Francisco, California 94104
(415) 636-1406
By Order of the Board of Directors,
/s/ Carrie E. Dwyer
CARRIE E. DWYER
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND
CORPORATE SECRETARY
MARCH 23, 1998
SAN FRANCISCO, CALIFORNIA
36
APPENDIX
- --------------------------------------------------------------------------------
GENERAL DESCRIPTION OF THE 1992 PLAN
GENERAL DESCRIPTION OF THE 1992 PLAN
PURPOSE.
The purpose of the 1992 Plan is to promote the long-term success of the Company
and the creation of incremental stockholder value by:
- - encouraging non-employee directors and key employees to focus on long-range
objectives,
- - encouraging the attraction and extention of non-employee directors and key
employees with exceptional qualifications, and
- - linking the interests of non-employee directors and key employees directly
to stockholder interests.
ELIGIBILITY TO RECEIVE AWARDS.
Key employees of the Company and its subsidiaries, including directors who are
also employees, are eligible for awards under the 1992 Plan. Non-employee
directors are eligible for an annual, automatic grant of nonqualified options
each year. As of December 31, 1997, approximately 3,078 persons had received
awards under the 1992 Plan.
LIMITS ON AWARDS.
If the amendment is approved, the maximum number of shares that may be granted
to any one participant in any one year will be increased:
- - from 500,000 to 2,250,000 for shares subject to options,
- - from 200,000 to 900,000 shares as Restricted Shares, and
- - from 200,000 to 900,000 shares as Performance Share Awards.
If the amendment is approved, these annual limits will be subject to automatic
adjustment to reflect any future stock splits, stock dividends or other similar
events.
TYPES OF AWARDS.
Awards under the 1992 Plan may take the form of Restricted Shares, Performance
Share Awards and options to acquire common stock of the Company.
- - Restricted Shares are similar to common stock in that they have the same
voting and dividend rights, but Restricted Shares are subject to forfeiture
in the event that the applicable vesting conditions are not satisfied.
- - A Performance Share Award is an obligation of the Company to issue and
deliver in the future shares of Common Stock ifcommon stock in the event that the
applicable conditions are satisfied.
- - An option is the right to acquire common stock at an exercise price at
least equal to the fair market value price of Company stock on the date of
grant. Options include nonqualified stock options ("NSOs") and incentive
stock options ("ISOs"). ISOs are intended to qualify for special tax
treatment. Options are subject to a vesting schedule.
37
APPENDIX
- --------------------------------------------------------------------------------
GENERAL DESCRIPTION OF THE 1992 PLAN
Any award under the 1992 Plan may include one of these grant types or a
combination of several grant types, except that non-employee directors will only
be eligible to receive NSOs.
No payment is required upon the grant of any award, except for payment of the
par value of any Restricted Shares awarded. Upon exercise of an option, the
optionee must pay the exercise price determined asthereof to the Company. On March 12, 1998,
the closing price of the grant
date, is less than $35.00.
The following table shows information relatingCompany's common stock was $39.19 per share.
As of December 31, 1997, a total of 14,281,353 shares (subject to antidilution
provisions) were issuable as Restricted Shares, or pursuant to Performance Share
Awards and options under the proposed increase in1992 Plan. Under the automatic option grantsterms of the 1992 Plan, if:
- - any Restricted Shares, Performance Share Awards or options are forfeited,
- - any Performance Share Awards terminate for any other reason without the
associated common stock being issued, or
- - options terminate for any other reason prior to non-employee directors.
NEW PLAN BENEFITS
1992
STOCK INCENTIVE
PLAN (1)
------------------
DOLLAR NUMBER OF
NAME VALUE UNITS (2)
- ---- ------ -----------
Nancy H. Bechtle............................................. * 1,500/2,500
C. Preston Butcher........................................... * 1,500/2,500
Donald G. Fisher............................................. * 1,500/2,500
Anthony M. Frank............................................. * 1,500/2,500
James R. Harvey.............................................. * 1,500/2,500
Stephen T. McLin............................................. * 1,500/2,500
Roger O. Walter.............................................. * 1,500/2,500
- ----------------------
*The dollar value of stock option grants are determined onexercise,
then the grant date.
33
(1)underlying shares again become available for awards.
ADMINISTRATION, AMENDMENT AND TERMINATION.
The 1992 Plan is administered by the Compensation Committee of the Board of
Directors but(the "Committee"). The Committee, upon advice of the Company's
executive management,
- - selects the key employees who will receive awards,
- - determines the amount, vesting requirements, performance criteria, if any,
and other conditions of each award,
- - interprets the provisions of the 1992 Plan, and
- - makes all other decisions regarding the operation of the 1992 Plan.
The grant of NSOs to non-employee directors is made annually, and the Committee
has no discretion with respect to the grant of
nonqualified stock options ("NSOs") to non-employee directors.those awards.
GRANTS OF OPTIONS TO NON-EMPLOYEE DIRECTORS.
Under the 1992 Plan, each non-employee director receives an annual, automatic
grant of an option
onoptions to purchase 1,500 shares of Common Stock.common stock (2,500 shares of
common stock if the exercise price is less than $35). This grant is made on and
as of May 15 of each year, and if May 15 is not a business day, then the grant
is made on and as of the next succeeding business day.
The exercise priceRESTRICTED SHARES AND PERFORMANCE SHARE AWARDS.
Restricted Shares are nontransferable prior to vesting, except that they may be
transferred by gift to certain trusts and partnerships that have been formed
38
APPENDIX
- --------------------------------------------------------------------------------
GENERAL DESCRIPTION OF THE 1992 PLAN
for the benefit of family members. Vesting is accelerated in the fair market
value of Common Stock on the date of each annual grant, and options must be
exercised while the optionee is a director. (For purposesevent of the
1992 Plan,
"fair market value" isoptionee's death, disability, or retirement, and may be accelerated in the event
of a change in control, as defined below.
Performance Share Awards are nontransferable, and the recipient has no voting or
dividend rights until such time as the closing priceassociated shares of common stock are
issued, at which time the recipient will have the same voting, dividend and
other rights as the Company's other stockholders.
When granting an award, the Committee determines the number of Performance Share
Awards or Restricted Shares to be included in the award as well as the vesting
or issuance conditions. The vesting or issuance conditions may be based on:
- - the employee's service,
- - his or her individual performance,
- - the Company's performance, or
- - other appropriate criteria.
Where Company performance is used as a share of Common
Stock as reportedvesting or issuance condition,
performance goals are based on business criteria specified by the New York Stock Exchange Composite Transactions
Index for date of grantCommittee,
selected from one or award, as the case may be.) Options so granted
to non-employee directors are otherwise subject to all the terms and
conditionsmore of the 1992 Plan.following:
- - return on net assets,
- - net income,
- - earnings per share,
- - return on equity,
- - return on investment,
- - pretax income,
- - operating income,
- - cash flow,
- - stockholder return,
- - revenue, or
- - revenue growth.
TERMS OF STOCK OPTIONS.
The exercise price of an option must be equal to or greater than the fair market
value of Common Stockcommon stock on the date of grant. All options are nontransferable prior to the optionee's death. Each
NSO is exercisable in full at all times during its term, which is 10 years
from date of grant. The exercise price of an option may be paid in cash or,
at the discretion of the Committee, by the surrender of shares of Common
Stock or Restricted Common Stock already owned by the optionee. The
Committee may also permit an optionee to paySimilarly, the exercise price of
NSOs granted to non-employee directors must be equal to the fair market value of
common stock on the date of grant. For purposes of the 1992 Plan, "fair market
value" is defined as the closing price of the Company's stock as reported by the
New York Stock Exchange Composite Transactions Index for the date of grant or
award.
The term of an ISO cannot exceed 10 years. Vesting conditions are established by
the Committee at the time an option by giving "exercise/sale" directions. If exercise/sale directions
are given, a sufficient number of option shares to pay the exercise price
and any withholding taxes are issued directly to Schwab which, in turn,
sells these sharesis granted. Vesting is accelerated in the
open market. Schwab remitsevent of the optionee's death, disability, or retirement, and may be accelerated
in the event of a change in control, as defined below.
Participants may transfer options (other than ISOs, which must be
nontransferable in order to qualify as ISOs) to certain trusts and partnerships
that have been formed for the benefit of family members.
39
APPENDIX
- --------------------------------------------------------------------------------
GENERAL DESCRIPTION OF THE 1992 PLAN
CHANGE IN CONTROL.
For the purposes of the 1992 Plan, the term "change in control" means:
- - any change in control which would have to be disclosed in the Company's
next proxy statement under the rules of the Securities and Exchange
Commission,
- - any person becoming the beneficial owner, directly or indirectly, of at
least 20% of the combined voting power of the Company's outstanding
securities, except by reason of a repurchase by the Company of its own
securities, or
- - a change in the proceeds fromcomposition of the saleBoard of these shares,Directors as a result of which
fewer than two-thirds of the incumbent directors are directors who either:
- had been directors of the Company 24 months earlier, or
- were elected or nominated with the approval of at least a majority of
the directors who had been directors of the Company 24 months earlier
and who were still in office at the optionee receivestime of the remaining option shares. The Committee may also permit optionees to satisfy
their withholding tax obligation upon exercise of an NSO by surrendering a
portion of their option shares to the Company.election or
nomination.
FEDERAL TAX CONSEQUENCES
Under the current federal income tax laws, the federal income tax consequences of
awards under the 1992 Plan can be summarized as follows:
OPTIONS.
At the time the options are granted, the award of stock options will have no
federal income tax consequences to the Company or the optionee.
UponWith respect to NSOs, upon exercise of the option, the optionee generally will
recognize ordinary income in an amount equal to the excess of the fair market
value of the optioned shares over the exercise price, at the time of exercise over the exercise
price.exercise.
Such ordinary income will be subject to withholding tax, and the amount of
ordinary income recognized by the optionee generally will be deductible for tax
purposes by the Company in the same year that the income is recognized by the
optionee. Upon any subsequent disposition of the shares, any additional gain or
loss recognized by the holder generally will be capital gain or loss.
(2) Each non-employee directorIn contrast, the exercise of ISOs will receive an annual, automatic option grantnot result in any regular taxable income
to the optionee at that time; nor will the Company be entitled to any deduction.
However, the excess of either (a) 1,500the fair market value of the optioned shares at the time
of Common Stock ifexercise over the exercise price determined aswill be an item of tax preference for
purposes of computing alternative minimum taxable income. If the grant date, is $35 or more, or (b) 2,500optionee holds
the optioned shares of
Common Stock ifafter exercise for the requisite statutory period, the
difference between the sale price and the exercise price determinedgenerally will be taxed
as ofcapital gain or loss.
If the grant date, is
less than $35.
34
CERTAIN TRANSACTIONS
Certain directors and executive officers maintain margin trading accounts
with Schwab. Extensions of credit in such accounts were made inoptionee fails to hold the shares for the requisite statutory period, the
optionee generally will recognize ordinary course of Schwab's business, were made on substantially the same terms
including interest rates and collateral, as those prevailingincome at the time for
comparable transactions with unaffiliated persons, and did not involve more
thanof such early
40
APPENDIX
- --------------------------------------------------------------------------------
GENERAL DESCRIPTION OF THE 1992 PLAN
disposition in an amount equal to the normal risk of collectibility or present other unfavorable features.
To the extent any employeesexcess of the fair market value of the
shares at exercise (or if less, the sales proceeds) over the exercise price, and
the Company wishgenerally will be entitled to purchase common stocka deduction in brokerage transactions, they ordinarily are requiredthat same amount. Any
additional gain on the disposition generally will be taxed as capital gain.
RESTRICTED SHARES.
Unless the recipient of Restricted Shares elects to do so through Schwab.
Schwab offers its employees a 20% discount on its standard commission ratesbe taxed at the time of the
issuance, there will be no federal income tax consequences to the recipient or
to the Company for all brokerage transactions.
APPOINTMENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has selected Deloitte & Touche LLPas long as the Company's
independent certified public accountantsshares are subject to vesting restrictions. If
and when such shares become vested, the recipient will recognize ordinary income
in an amount equal to the excess of the fair market value of the shares on such
date over any amount paid for the current fiscal year. Through
its predecessor, Deloitte Haskins & Sells, Deloitte & Touche LLP has servedshares. Such income will be subject to
withholding tax at that time. The Company generally will be entitled to a
corresponding deduction in the same amount that the recipient recognizes as
income. Upon any subsequent disposition of the accountants forshares, any additional gain or
loss recognized by the holder generally will be a capital gain or loss.
PERFORMANCE SHARE AWARDS.
The grant of Performance Share Awards will have no federal income tax
consequences to the Company or Schwab since 1976. Representatives of
Deloitte & Touche LLP are expected to be presentthe recipient at the Annual Meetingtime of the grant. When any
common stock is delivered to responda recipient pursuant to appropriate questions from stockholdersthe terms of the
Performance Share Award, the recipient generally will recognize as ordinary
income the excess of the fair market value of the shares over any amount paid.
Such income will be subject to withholding tax, and the Company generally will
havebe entitled to a corresponding deduction in the opportunity to make a statement.
STOCKHOLDER PROPOSALS
Director nominations, proposals and other business which stockholders wish to
present atsame amount that the 1997 Annual Meetingrecipient
recognizes as income. Upon any subsequent disposition of Stockholders must be receivedthe shares, any
additional gain or loss recognized by the Companyholder generally will be capital gain
or loss. To date, no laterPerformance Share Awards have been granted under the 1992
Plan.
OPTIONS AND RESTRICTED SHARES GRANTED UNDER THE 1992 PLAN.
As of December 31, 1997, a total of 9,717,900 shares have been granted subject
to options or as Restricted Shares to current executive officers. Of these,
2,271,000 shares have been granted to Charles R. Schwab; 2,406,000 to David S.
Pottruck; 270,000 to Timothy F. McCarthy; 978,000 to Tom D. Seip; and 590,100 to
Dawn G. Lepore.
Of shares granted subject to options or as Restricted Shares:
- - 180,750 shares have been granted to non-employee directors, and
- - 13,509,320 shares have been granted to employees other than March 7, 1997.
BY ORDERexecutive
officers.
41
The Charles Schwab Corporation - 101 Montgomery Street, San Francisco, CA 94104
(415) 627-7000 www.schwab.com NYSE Stock Symbol: SCH
TF5538 (3/98)
PROXY THE CHARLES SCHWAB CORPORATION PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
/s/ Mary B. Templeton
Mary B. Templeton
Corporate Secretary
March 22, 1996
San Francisco, California
35
EXHIBIT AFOR THE ANNUAL MEETING OF STOCKHOLDERS ON MAY 11, 1998
I/We hereby appoint Charles R. Schwab and David S. Pottruck, or either of
them, proxies (each having the full power of substitution and revocation) to
represent me/us and to vote as instructed in this Proxy, the number of shares
of common stock of the Corporation set forth on the reverse side, which shares
I/we have the power to vote at the Annual Meeting of Stockholders to be held
on May 11, 1998. This Proxy also conveys the powers listed in the prior
sentence for any adjournment or postponement of the meeting. The Proxies are
authorized in their discretion to vote upon such business as may properly come
before the meeting.
THIS PROXY MAY ALSO RELATE TO SHARES HELD UNDER THE CHARLES SCHWAB
CORPORATION DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN, THE CHARLES SCHWAB
CORPORATION PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN, AND/OR THE
CHARLES SCHWAB CORPORATION 401(k) PLAN.
The shares covered by this proxy will be voted in accordance with the
directions made on the reserve side. The Board of Directors proposes and
recommends a vote "FOR" the election of each nominee for director and the
amendment to the 1992 Stock Incentive Plan. IF THIS PROXY CARD IS SIGNED, BUT
NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR" ALL LISTED NOMINEES FOR
DIRECTOR AND THE AMENDMENT TO THE 1992 STOCK INCENTIVE PLAN.
(CONTINUED, AND TO BE SIGNED AND DATED, ON THE REVERSE SIDE)
-----------------
VOTE BY TELEPHONE COMPANY #
CALL TOLL FREE *** ON A TOUCH TONE TELEPHONE CONTROL #
1-800-240-6326 -- ANYTIME -----------------
- --------------------------------------------------------------------------------
Your telephone vote authorizes the named proxies to vote your shares in the
same manner as if you marked, signed and returned your proxy card. The
deadline for telephone voting is noon (ET), one business day prior to the
annual meeting date. By voting by phone, you authorize each of the proxies to
vote, in their discretion, upon any items of business in addition to the
proposals described below as may properly come before the meeting.
1. Using a touch-tone telephone, dial 1-800-240-6326. You may dial this toll
free number at your convenience 7 days/week, 24 hrs/day.
2. When prompted, enter the 3 digit Company Number located in the box in the
upper right hand corner.
3. When prompted, enter your 7 digit numeric Control Number below the company
number.
OPTION #1: To vote as THE CHARLES SCHWAB CORPORATION Board of Directors
recommends on ALL proposals: Press 1
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1 -- THANK YOU
FOR VOTING
OPTION #2: If you choose to vote on each proposal separately, Press 0. You
will hear these instructions:
PROPOSAL 1: To vote FOR ALL nominees, press 1; to WITHHOLD
AUTHORITY TO VOTE FOR ALL nominees, press 9; to
WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL nominee,
press 0 and listen to the instructions.
PROPOSAL 2: To vote FOR Proposal 2, press 1; to vote AGAINST
Proposal 2, press 9; to ABSTAIN, press 0.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1 -- THANK YOU FOR VOTING
IF YOU VOTE BY TELEPHONE, DO NOT MAIL BACK YOUR PROXY
-- PLEASE DETACH HERE --
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSALS.
1. Election of Directors-- / / For All / / Withhold All / / For All
Nominees: Donald G. Fisher and EXCEPT THOSE WHOSE NAME(S) APPEAR BELOW
Anthony M. Frank
_______________________________________
2. Approval of Amendment to / / For / / Against / / Abstain
the 1992 Stock Incentive Plan.
The Board of Directors proposes and recommends a vote "FOR" the Proposals.
This Proxy will be voted as directed. If the proxy card is signed and no
direction is given, this proxy will be voted in accordance with the Board of
Directors' recommendation.
Dated:____________________________, 1998
________________________________________
(Signature)
________________________________________
(Signature)
NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS
HEREON. JOINT OWNERS SHOULD EACH SIGN.
WHEN SIGNING AS A FIDUCIARY OR FOR AN
ESTATE, TRUST, CORPORATION OR
PARTNERSHIP, YOUR TITLE OR CAPACITY
SHOULD BE STATED.
THE CHARLES SCHWAB CORPORATION
1992 STOCK INCENTIVE PLAN
(RESTATED TO INCLUDE AMENDMENTS
APPROVED BY THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS THROUGH MARCH 1998)
ARTICLE 1. INTRODUCTION.
The Compensation CommitteePlan 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 has adoptedand 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. LIMITATIONS 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.
Subject to the overall limit on the aggregate shares set forth above, the
following amendmentlimitations shall apply: (a) The maximum number of Common Shares which
may be granted subject to an Option to any one Participant in any one fiscal
year shall be 2,250,000; 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 900,000.
The limitations of this Article 3 shall each be subject to adjustment
pursuant to Article 10. Any Common Shares issued pursuant to the Plan may be
authorized by unissued shares or treasury shares.
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
4.2(a) of4.1, Non-Employee Directors shall be entitled to receive the 1992 Stock Incentive Plan, effective upon approval ofautomatic NSOs
described in this amendment by the stockholders the Annual Meeting.Section 4.2.
(a) Each Non-Employee Director shall receive an NSOa Non-Officer Stock
Option covering 2,500 Common Shares for each Award Year with respect
to which he or she serves as a Non-
EmployeeNon-Employee Director on the grant date
described in subsection (b) below; provided that the NSONon-Officer
Stock Option shall cover 1,500 shares if the Exercise Price
determined as of the grant date, is $35 or more;
EXHIBIT B
AMENDMENT TO THE ARTICLES OF INCORPORATION(b) The BoardNSO for a particular Award Year shall be granted to each
Non-Employee Director as of Directors has adoptedMay 15 of each Award Year, and if May
15 is not a business day, then the following amendments to Articles
FOURTH, FIFTH, SIXTH, SEVENTH, NINTH, ELEVENTHgrant shall be made on and TWELFTH in the Articles of
Incorporation, effective upon approval by the stockholders at the Annual
Meeting:
1. By deleting paragraph A of Article FOURTH and replacing it with the
following:
(A) This Corporation is authorized to issue two classes of stock,
preferred stock and common stock. The authorized number of shares of
capital stock is Five Hundred Nine Million, Nine Hundred Forty Thousand
(509,940,000) shares, of which the authorized number of shares of preferred
stock is Nine Million, Nine Hundred Forty Thousand (9,940,000) and the
authorized number of shares of common stock is Five Hundred Million
(500,000,000). The stock, whether preferred stock or common stock, shall
have a par value of one cent ($0.01) per share.
2. By deleting paragraph C of Article FOURTH in its entirety.
3. By deleting Article FIFTH and replacing it with the following:
FIFTH. The Bylawsas of
the Corporation maynext succeeding business day;
(c) Each NSO shall be made, altered, amended,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 repealed, and new Bylaws maya Key Employee for any reason
other than death or disability. If an Optionee ceases to be adopted, bya
Non-Employee Director or Key Employee on account of death or
disability, any unexercised NSO shall expire on the Board of Directors at any
regular or special meeting by the affirmative vote of a majority of those
directors present at any meetingearlier of the
directors; subject, however,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 rightFair
Market Value on the date of grant and shall be payable in any of the
stockholders to alter, amend or repeal any Bylaws made or
amended by the directors. Notwithstanding the foregoing, after the 1996
Annual Meeting of Stockholders, Sections 2.06, 2.10, 3.02, 3.05, 3.06 and
8.04forms described in Article 6.
4.3 TEN-PERCENT STOCKHOLDERS. A Key Employee who owns more than
10 percent of the Corporation's Bylaws may not be amended, altered or repealed,
nor may any provision inconsistent with such Sections be adopted, except by
the affirmative vote of the holders of no less than 80% of the total combined voting power of all sharesclasses of outstanding
stock of the Corporation entitledCompany 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.
2
4.4 ATTRIBUTION RULES. For purposes of Section 4.3, in determining stock
ownership, a Key Employee shall be deemed to vote generallyown the stock owned, directly or
indirectly, by or for his or her brothers, sisters, spouse, ancestors or lineal
descendants. Stock owned, directly or indirectly, by or for a corporation,
partnership, estate or trust shall be deemed to be owned proportionately by or
for its stockholders, partners or beneficiaries. Stock with respect to which the
Key Employee holds an option shall not be counted.
4.5 OUTSTANDING STOCK. For purposes of Section 4.3, "outstanding stock"
shall include all stock actually issued and outstanding immediately after the
grant of the ISO to the Key Employee. "Outstanding stock" shall not include
treasury shares or shares authorized for issuance under outstanding options held
by the Key Employee or by any other person.
ARTICLE 5. OPTIONS.
5.1 STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the Plan,
and may be subject to any other terms and conditions which are not inconsistent
with the Plan and which the Committee deems appropriate for inclusion in a Stock
Option Agreement. The provisions of the various Stock Option Agreements entered
into under the Plan need not be identical. The Committee may designate all or
any part of an Option as an ISO, except for Options granted to Non-Employee
Directors under Section 4.2. The Committee may designate all or any part of an
Option as an ISO (or, in the electioncase of directors, voting together as a single class.
4. By deleting Article SIXTH and replacing it with the following:
SIXTH.
(A) Number, Election and Terms. Except as otherwise fixed by or pursuantKey Employee who is subject to the provisionstax
laws of Article FOURTH hereof relatinga 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 rightsPlan 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 holdersOptionee
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 any classlaw or series of stock having a preference over the Commonotherwise, or be made subject to execution, attachment or
similar process.
5.3 NUMBER OF SHARES. Each Stock as to dividends or upon liquidation to elect additional directors
under specified circumstances,Option Agreement shall specify the
number of Common Shares subject to the directorsOption 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 BoardFair 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.
3
5.5 EXERCISABILITY AND TERM. Each Stock Option Agreement shall specify
the date when all or any installment of the CorporationOption is to become exercisable.
The Stock Option Agreement shall also specify the term of the Option. The term
of an ISO shall in no event exceed 10 years from the date of grant, and Section
4.3 may require a shorter term. Subject to the preceding sentence, the
Committee shall determine when all or any part of an Option is to become
exercisable and when such Option is to expire; provided that, in appropriate
cases, the Company shall have the discretion to extend the term of an Option or
the time within which, following termination of employment, an Option may be
exercised, or to accelerate the exercisability of an Option. A Stock Option
Agreement may provide for 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 fixed from time to time exclusively pursuant to a
resolution adopted by a majorityaccelerated in the event of
the total numberParticipant's death or Disability and, in the case of directors whichRetirement, the
Corporation would have if there were no vacancies. Commencing with the 1996
annual meetingexercisability of stockholders, the directors,all outstanding Options shall be accelerated, other than those whoany
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 electedgranted 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 holdersOptionee during any
calendar year (under all incentive stock option plans of the Company) shall not
exceed $100,000; provided, however, that all or any class or seriesportion of stock having a preference
overan 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 Common Stocktime of granting an Option, that such Option shall become
fully exercisable as to dividends or upon liquidation, shall be
classified,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
4
be effective only upon the exercise of the Underlying Options through the use
of Common Shares pursuant to Section 6.2 or Section 6.3. The number of
Replacement Options shall equal the number of Common Shares used to exercise
the Underlying Options, and, if the Option Agreement so provides, the number
of Common Shares used to satisfy any tax withholding requirements incident to
the exercise of the Underlying Options in accordance with Section 13.2. Upon
the exercise of the Underlying Options, the Replacement Options shall be
evidenced by an amendment to the Underlying Option Agreement. Notwithstanding
the fact that the Underlying Option may be an ISO, a Replacement Option is
not intended to qualify as an ISO. The Exercise Price of a Replacement Option
shall be no less than the Fair Market Value of a Common Share on the date the
grant of the Replacement Option becomes effective. The term of each
Replacement Option shall be equal to the remaining term of the Underlying
Option. No Replacement Options shall be granted to Optionees when Underlying
Options are exercised pursuant to the terms of the Plan and the Underlying
Option Agreement following termination of the Optionee's employment. The
Committee, in its sole discretion, may establish such other terms and
conditions for Replacement Options as it deems appropriate.
5.10 OPTIONS GRANTED TO NON-UNITED STATES KEY EMPLOYEES. In the case of
Key Employees who are subject to the tax laws of a foreign jurisdiction, the
Company may issue Options to such Key Employees that contain terms required to
conform with any requirements for favorable tax treatment imposed by the laws of
such foreign jurisdiction, or as otherwise may be required by the laws of such
foreign jurisdiction. The terms of any such Options shall be governed by the
Plan, subject to the terms of any Addendum to the Plan specifically applicable
to such Options.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 GENERAL RULE. The entire Exercise Price of Common Shares issued upon
exercise of Options shall be payable in cash at the time when such Common Shares
are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall be
made only pursuant to the express provisions of the applicable Stock
Option Agreement. However, the Committee may specify in the Stock
Option Agreement that payment may be made pursuant to Section 6.2
or 6.3.
(b) In the case of an NSO, the Committee may at any time accept
payment pursuant to Section 6.2 or 6.3.
6.2 SURRENDER OF STOCK. To the extent that this Section 6.2 is
applicable, payment for all or any part of the Exercise Price may be made with
Common Shares which they severally hold office,
into three classes, as nearlyare 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.
5
equal in number as6.3 EXERCISE/SALE. To the extent this Section 6.3 is reasonably possible, one classapplicable, 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 originally
electedissued upon exercise of the Options) and to
deliver all or part of the sales proceeds to the Company in payment of all or
part of the Exercise Price and any withholding taxes.
ARTICLE 7. RESTRICTED SHARES AND PERFORMANCE SHARE AWARDS.
7.1 TIME, AMOUNT AND FORM OF AWARDS. The Committee may grant Restricted
Shares or Performance Share Awards with respect to an Award Year during such
Award Year or at any time thereafter. Each such Award shall be evidenced by a
Stock Award Agreement between the Award recipient and the Company. The amount of
each Award of Restricted Shares or Performance Share Awards shall be determined
by the Committee. Awards under the Plan may be granted in the form of Restricted
Shares or Performance Share Awards or in any combination thereof, as the
Committee shall determine at its sole discretion at the time of the grant.
Restricted Shares or Performance Share Awards may also be awarded in combination
with NSOs, and such an Award may provide that the Restricted Shares or
Performance Share Awards will be forfeited in the event that the related NSOs
are exercised.
7.2 PAYMENT FOR RESTRICTED SHARE AWARDS. To the extent that an Award is
granted in the form of Restricted Shares, the Award recipient, as a condition to
the grant of such Award, shall be required to pay the Company in cash an amount
equal to the par value of such Restricted Shares.
7.3 VESTING OR ISSUANCE CONDITIONS. Each Award of Restricted Shares shall
become vested, in full or in installments, upon satisfaction of the conditions
specified in the Stock Award Agreement. Common Shares shall be issued pursuant
to Performance Share Awards in full or in installments upon satisfaction of the
issuance conditions specified in the Stock Award Agreement. The Committee shall
select the vesting conditions in the case of Restricted Shares, or issuance
conditions in the case of Performance Share Awards, which may be based upon the
Participant's service, the Participant's performance, the Company's performance
or such other criteria as the Committee may adopt; 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 term expiringperiod in excess of
six months in appropriate cases, as determined by the Company. The Committee,
in its sole discretion, may determine, at the annual meetingtime of stockholdersmaking 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.
6
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 held in 1997,issued pursuant
to a Performance Share Award after the second classrecipient'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 originally electedissued 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 term expiring
atclaim shall be furnished to the annual meetingclaimant within 90 days after the claim is
filed. If the claim is denied, the notice of stockholdersdisposition shall set forth the
specific reasons for the denial, citations to be held in 1998,the pertinent provisions of the
Plan, and, where appropriate, an explanation as to how the third
class to be originally elected for a term expiring atclaimant can perfect
the annual meetingclaim. If the claimant wishes further consideration of
stockholders to be held in 1999, with each director to hold office until his or her successor is duly elected and qualified. At each annual meetingclaim, 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 stockholdersclaimant's position, no later than 90 days following receipt by
the claimant of written notice of the Corporation, commencing with the 1997 annual
meeting, the successorsdenial of the class of directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the
annual meeting of stockholders held in the third year following the year of
their election, with each director to hold office until his or her successorclaim. 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.
7
ARTICLE 9. VOTING RIGHTS AND DIVIDENDS.
9.1 RESTRICTED SHARES.
(a) All holders of Restricted Shares who are not Named Executive
Officers shall have been duly electedthe same voting, dividend, and qualified.
(B) Stockholder nominationother rights as
the Company's other stockholders.
(b) During the period of director candidates. Advance noticerestriction, 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
stockholder nominationscash, 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 electionapplication of directorsthis 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 maximum number of
Common Shares which may be granted under Article 3 to any one Participant in any
one fiscal year either subject to an Option or as Restricted Shares or
Performance Share Awards, (c) the number of
8
Performance Share Awards included in any prior Award which has not yet been
settled, (d) the number of Common Shares covered by each outstanding Option or
(e) 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 givensubject 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 the
mannercash.
10.3 RESERVATION OF RIGHTS. Except as provided in the Bylawsthis Article 10, a
Participant shall have no rights by reason of the Corporation.
(C) Vacancies. Subject to applicable law and except as otherwise provided
for inany subdivision or fixed by or pursuant to the provisionsconsolidation
of Article FOURTH hereof
relating to the rightsshares of the holdersstock of any class, the payment of any stock dividend or series of stock
having a preference over the Common Stock as to dividendsany other
increase or upon
liquidation to elect directors under specified circumstances, and unless
the Board of Directors otherwise determines, vacancies resulting from
death, resignation, retirement, disqualification, removal from office or
other cause, and newly created directorships resulting from any increase in
the authorized number of directors, may be filled only by the affirmative
vote of a majority of the remaining directors, though less than a quorum of
the Board of Directors, and directors so chosen shall hold office for a
term expiring at the annual meeting of stockholders at which the term of
office of the class to which they have been elected expires and until such
director's successor shall have been duly elected and qualified. No decrease in the number of authorized directors constituting the Boardshares of Directors of the Corporation shall shorten the termstock of any incumbent
director.
(D) Removal. Subject toclass. Any issue by
the rightsCompany of shares of stock of any class, or seriessecurities convertible into
shares of stock havingof 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 preference overright to remain employed by the
Common Stock asCompany or any Subsidiary. The Company and its Subsidiaries reserve the right to
dividends or upon liquidation to
elect directors under specified circumstances,terminate the employment of any director may be removed
from officeemployee 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
9
governmental agencies as may be required. The Company reserves the right to
restrict, in whole or in part, the delivery of Common Shares pursuant to any
Award until such time as:
(a) Any legal requirements or regulations have been met relating to
the issuance of such Common Shares or to their registration,
qualification or exemption from registration or qualification under
the Securities Act of 1933, as amended, or any applicable state
securities laws; and
(b) Satisfactory assurances have been received that such Common
Shares, when issued, will be duly listed on the New York Stock
Exchange or any other securities exchange on which Common Shares are
then listed.
ARTICLE 12. LIMITATION OF PAYMENTS.
12.1 BASIC RULE. Any provision of the Plan to the contrary
notwithstanding, in the event that the independent auditors most recently
selected by the Board (the "Auditors") determine that any payment or transfer in
the nature of compensation to or for the benefit of a Participant, whether paid
or payable (or transferred or transferable) pursuant to the terms of this Plan
or otherwise (a "Payment"), would be nondeductible for federal income tax
purposes because of the provisions concerning "excess parachute payments" in
section 280G of the Code, then the aggregate present value of all Payments shall
be reduced (but not below zero) to the Reduced Amount; provided, however, that
the Committee, at the time of making an Award under this Plan or at any time
thereafter, may specify in writing that such Award shall not be so reduced and
shall not be subject to this Article 12. For purposes of this Article 12, the
"Reduced Amount" shall be the amount, expressed as a present value, which
maximizes the aggregate present value of the Payments without causing any
Payment to be nondeductible by the Company because of section 280G of the Code.
12.2 REDUCTION OF PAYMENTS. If the Auditors determine that any Payment
would be nondeductible because of section 280G of the Code, then the Company
shall promptly give the Participant notice to that effect and a copy of the
detailed calculation thereof and of the Reduced Amount, and the Participant may
then elect, in his or her sole discretion, which and how much of the Payments
shall be eliminated or reduced (as long as after such election, the aggregate
present value of the Payments equals the Reduced Amount) and shall advise the
Company in writing of his or her election within 10 days of receipt of notice.
If no such election is made by the Participant within such 10-day period, then
the Company may elect which and how much of the Payments shall be eliminated or
reduced (as long as after such election the aggregate present value of the
Payments equals the Reduced Amount) and shall notify the Participant promptly of
such election. For purposes of this Article 12, present value shall be
determined in accordance with section 280G(d)(4) of the Code. All determinations
made by the Auditors under this Article 12 shall be binding upon the Company and
the Participant and shall be made within 60 days of the date when a Payment
becomes payable or transferable. As promptly as practicable following such
determination and the elections hereunder, the Company shall pay or transfer to
or for the benefit of the Participant such amounts as are then due to him or her
under the Plan, and shall
10
promptly pay or transfer to or for the benefit of the Participant in the
future such amounts as become due to him or her under the Plan.
12.3 OVERPAYMENTS AND UNDERPAYMENTS. As a result of uncertainty in the
application of section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Company which should not have been made (an "Overpayment") or that
additional Payments which will not have been made by the Company could have been
made (an "Underpayment"), consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which he or she shall repay to the
Company on demand, together with interest at the applicable federal rate
provided in section 7872(f)(2) of the Code; provided, however, that no amount
shall be payable by the Participant to the Company if and to the extent that
such payment would not reduce the amount which is subject to taxation under
section 4999 of the Code. In the event that the Auditors determine that an
Underpayment has occurred, such Underpayment shall promptly be paid or
transferred by the Company to or for the benefit of the Participant, together
with interest at the applicable federal rate provided in section 7872(f)(2) of
the Code.
12.4 RELATED CORPORATIONS. For purposes of this Article 12, the term
"Company" shall include affiliated corporations to the extent determined by the
Auditors in accordance with section 280G(d)(5) of the Code.
ARTICLE 13. WITHHOLDING TAXES.
13.1 GENERAL. To the extent required by applicable federal, state, local
or foreign law, the recipient of any payment or distribution under the Plan
shall make arrangements satisfactory to the Company for the satisfaction of any
withholding tax obligations that arise by reason of such payment or
distribution. The Company shall not be required to make such payment or
distribution until such obligations are satisfied.
13.2 NONSTATUTORY OPTIONS, RESTRICTED SHARES OR PERFORMANCE SHARE AWARDS.
The Committee may permit an Optionee who exercises NSOs, or who receives Awards
of Restricted Shares, or who receives Common Shares pursuant to the terms of a
Performance Share Award, to satisfy all or part of his or her withholding tax
obligations by having the Company withhold a portion of the Common Shares that
otherwise would be issued to him or her under such Awards. Such Common Shares
shall be valued at their Fair Market Value on the date when taxes otherwise
would be withheld in cash. The payment of withholding taxes by surrendering
Common Shares to the Company, if permitted by the Committee, shall be subject to
such restrictions as the Committee may impose, including any restrictions
required by rules of the Securities and Exchange Commission.
11
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 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 causeany
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 only byending
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:
12
(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 votevotes of at least a
majority of the holdersdirectors who had been directors of 80%the Company 24
months prior to such change and who were still in office at the
time of the election or nomination;
(c) Any "person" (as such term is used in sections 13(d) and 14(d) of
the Exchange Act) becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 20 percent or
more of the combined voting power of the Company's then outstanding
securities ordinarily (and apart from rights accruing under special
circumstances) having the right to vote at elections of directors
(the "Base Capital Stock"); provided, however, that any change in
the relative beneficial ownership of securities of any person
resulting solely from a reduction in the aggregate number of
outstanding shares of stock entitled to vote generallyBase Capital Stock, and any decrease
thereafter in the electionsuch person's ownership of directors, voting together as a single class.
5. By deleting Article SEVENTH and replacing it with the following:
SEVENTH. Elections of directorssecurities, shall be
by written ballot.
6. By deleting Article NINTH and replacing it with the following:
NINTH. No stockholder shall be entitled to cumulate votes (i.e., cast fordisregarded until such person increases in any nominee for election to the Boardmanner, directly or
indirectly, such person's beneficial ownership of Directorsany securities of
the Corporation a
numberCompany.
16.5 "Code" means the Internal Revenue Code of votes greater than1986, as amended.
16.6 "Committee" means the number of the stockholder's shares).
2
7. By renumbering Article ELEVENTH as Article TWELFTH and adding the
following as Article ELEVENTH:
ELEVENTH. Except as otherwise fixed by or pursuant to the provisions of
Article FOURTH hereof relating to the rights of holders of any class or
series of stock having a preference over the Common Stock as to dividends
or upon liquidation with respect to such class or series of stock, any
action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
such holders and may not be effected by any consent in writing by such
stockholders.
8. By deleting the word "ELEVENTH" from paragraph A of newly renumbered
Article TWELFTH and replacing it with the word "TWELFTH" and by deleting the
phrase "this Article ELEVENTH or Article TENTH" from paragraph B of newly
renumbered Article TWELFTH and replacing it with "this Article TWELFTH or
Articles FIFTH, SIXTH, NINTH, TENTH and ELEVENTH".
RESOLVED FURTHER, that at any time prior to the filing of the amendments with
the Delaware Secretary of State and notwithstanding authorization of the
proposed amendments by the stockholders of the Corporation, the Board may
abandon such proposed amendments without further action by the stockholders.
3
EXHIBIT C
CONFORMING BYLAW AMENDMENTS
The Board of Directors has adopted the following amendments to following
Sections 2.10, 3.02, 3.05 and 3.06 of the Bylaws, effective upon approval of
the Amendments to the Articles of Incorporation by the stockholders at the
Annual Meeting:
1. By deleting newly renumbered Section 2.10 and replacing it with the
following:
Section 2.10. No Stockholder Action by Written Consent. Except as
otherwise fixed by or pursuant to the provisions of Article FOURTH of the
Certificate of Incorporation relating to the rights of holders of any class
or series of stock having a preference over the Common Stock as to
dividends or upon liquidation with respect to such class or series of
stock, any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting
of such holders and may not be effected by any consent in writing by such
stockholders.
2. By deleting Section 3.02 and replacing it with the following:
Section 3.02. Number, Election and Terms. Except as otherwise fixed by or
pursuant to the provisions of Article FOURTH of the Certificate of
Incorporation relating to the rights of the holders of any class or series
of stock having a preference over the Common Stock as to dividends or upon
liquidation to elect additional directors under specified circumstances,
the number of the directorsCompensation Committee of the Board, of the Corporation shall be fixedas
constituted from time to time exclusively pursuant to a resolution adopted by a
majoritytime.
16.7 "Common Share" means one share of the total number of directors which the Corporation would have
if there were no vacancies. Commencing with the 1996 annual meeting of
stockholders, the directors, other than those who may be elected by the
holders of any class or series ofcommon stock having a preference over the Common
Stock as to dividends or upon liquidation, shall be classified, with
respect to the time for which they severally hold office, into three
classes, as nearly equal in number as is reasonably possible, one class to
be originally elected for a term expiring at the annual meeting of
stockholders to be held in 1997, the second class to be originally elected
for a term expiring at the annual meeting of stockholders to be held in
1998, and the third class to be originally elected for a term expiring at
the annual meeting of stockholders to be held in 1999, with each director
to hold office to hold office until his or her successor is duty elected
and qualified. At each annual meeting of the stockholders of the
Corporation, commencing with the 1997 annual meeting, the successors of the
class of directors whose term expires at that meeting shall be elected to
hold office for a term expiring at the annual meeting of stockholders held
in the third year following the year of their election, with each director
to hold office until his or her director shall have been duly elected and
qualified.
3. By deleting Section 3.05 and replacing it with the following:
Section 3.05. Removal. Subject to the rights of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation to elect directors under specified circumstances,
any director may be removed from office at any time, but only for cause and
only by the affirmative vote of the holders of 80% of the combined voting
power of the then outstanding shares of stock entitled to vote generally in
the election of directors, voting together as a single class.
4. By deleting Section 3.06 and replacing it with the following:
Section 3.06. Vacancies. Subject to applicable law and except as
otherwise provided for in or fixed by or pursuant to the provisions of
Article FOURTH of the Certificate of Incorporation relating to the rights
of the holders of any class or series of stock having a preference over the
Common Stock as to dividends or upon liquidation to elect directors under
specified circumstances, and unless the Board of Directors otherwise
determines, vacancies resulting from death, resignation, retirement,
disqualification, removal from office or other cause, and newly created
directorships resulting from any increase in the authorized number of
directors, may be filled only by the affirmative vote of a majority of the
remaining directors, though less than a quorum of the Board of Directors,
and directors so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such director's successor shall
have been duly elected and qualified. No decrease in the number of
authorized directors constituting the Board of Directors of the Corporation
shall shorten the term of any incumbent director.
2
EXHIBIT D
OTHER RELATED BYLAW AMENDMENTS
The Board of Directors has adopted the following amendments to Sections 1.01,
2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 2.09, 3.03, 3.10 and 8.04 of the
Bylaws, effective on May 6, 1996:
1. By deleting Section 1.01 and replacing it with the following:
Section 1.01. Registered Office. The registered office ofCompany.
16.8 "Company" means The Charles Schwab Corporation, (the "Corporation") ina Delaware
corporation.
16.9 "ERISA" means the StateEmployee Retirement Income Security Act of Delaware shall be at
1209 Orange Street, Wilmington, Delaware, and the name of the registered
agent at that address shall be the Corporation Trust Company.
2. By deleting the phrase ", and shall be called by the Chairman of the Board
at the request in writing of a person or persons holding, directly or
indirectly, not less than 25% of the votes entitled to be cast for the election
of directors at the time any such determination is being made" from the first
sentence of Section 2.02.
3. By deleting Section 2.03 and replacing it with the following:
Section 2.03. Place of Meeting. The Board of Directors, the Chairman of
the Board, or a committee of the Board,1974,
as the case may be, may designate
the place of meeting for any annual meeting or for any special meeting of
the stockholders called by the Board of Directors, the Chairman of the
Board, or a committee of the Board. If no designation is so made, the place
of meeting shall be the principal office of the Corporation.
4. By deleting Section 2.04 and replacing it with the following:
Section 2.04. Notice of Meeting. Written or printed notice, stating the
place, day and hour of the meeting and the purpose or purposes for which
the meeting is called, shall be delivered by the Corporation not less than
ten (10) days nor more than sixty (60) days before the date of the meeting,
either personally or by mail, to each stockholder of record entitled to
vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail with postage thereon
prepaid, addressed to the stockholder at his address as it appears on the
stock transfer books of the Corporation. Such further notice shall be given
as may be required by law. Only such business shall be conducted at a
special meeting of stockholders as shall have been brought before the
meeting pursuant to the Corporation's notice of meeting. Meetings may be
held without notice if all stockholders entitled to vote are present, or if
notice is waived by those not present in accordance with Section 8.02 of
these Bylaws. Any previously scheduled meeting of the stockholders may be
postponed, and (unless the Certificate of Incorporation otherwise provides)
any special meeting of the stockholders may be canceled, by resolution of
the Board upon public notice given prior to the date previously scheduled
for such meeting of stockholders.
5. By deleting the title of Section 2.05 and replacing it with the following
title:
Section 2.05. Quorum and Adjournment.
6. By deleting the third sentence of Section 2.05 and replacing it with the
following:
The Chairman of the meeting or a majority of the shares so represented
may adjourn the meeting from time to time, whether or not there is such a
quorum. No notice of the time and place of adjourned meetings need be given
except as required by law.
7. By renumbering Sections 2.06, 2.07, 2.08 and 2.09 as Sections 2.07, 2.08,
2.09 and 2.10 and adding the following after Section 2.05:
Section 2.06. Notice of Stockholder Business and Nominations.
(a) Annual Meetings of Stockholders. (i) Nominations of persons for
election to the Board and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders (A)
pursuant to the Corporation's notice of meeting, (B) by or at the
direction of the Board or (C) by any stockholder of the Corporation who
was a stockholder of record at the time of giving of notice provided
for in this Bylaw, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this Bylaw.
(ii) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (C) of paragraph
(a)(i) of this Bylaw, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such other
business must otherwise be a proper matter for stockholder action. To
be timely, a stockholder's notice shall be delivered to the Secretary
at the principal executive offices of the Corporation not later than
the close of business on the 60th day nor earlier than the close of
business on the 90th day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event
that the date of the annual meeting is more than 30 days before or more
than 60 days after such anniversary date, notice by the stockholder to
be timely must be so delivered not earlier than the close of business
on the 90th day prior to such annual meeting and not later than the
close of business on the later of (a) the 60th day prior to such annual
meeting, or (b) the 10th day following the day on which public
announcement of the date of such meeting is first made by the
Corporation. In no event shall the public announcement of an
adjournment of an annual meeting commence a new time period for the
giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth (A) as to each person whom the stockholder
proposes to nominate for election or re-election as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation
14A underamended.
16.10 "Exchange Act" means the Securities Exchange Act of 1934, as
amended (the
"Exchange Act") and Rule 14a-11 thereunder (including such person's
written consent to being namedamended.
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
proxy statementapplicable Stock Option Agreement.
16.12 "Fair Market Value" means the market price of a Common Share,
determined by the committee as follows:
13
(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 nominee andnational market issue, then the Fair
Market Value shall be equal to servingthe 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 director if elected); (B) asnational market issue, then the
Fair Market Value shall be equal to any other business that
the stockholder proposes to bring beforemean between the meeting, a brief
descriptionlast reported
representative bid and asked prices quoted by the NASDAQ system for
such date; and
(d) If none of the 2
business desired toforegoing provisions is applicable, then the Fair
Market Value shall be brought beforedetermined by the meeting, the reasons for
conductingCommittee in good faith on
such business at the meeting and any material interestbasis as it deems appropriate.
16.13 "ISO" means an incentive stock option described in such business of such stockholder and the beneficial owner, if any, on
whose behalf the proposal is made; and (C) as to the stockholder giving
the notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made (1) the name and address of such
stockholder, as they appear on the Corporation's books, and of such
beneficial owner and (2) the class and number of sharessection 422(b)
of the Corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.
(iii) Notwithstanding anything in the second sentence of paragraph
(a)(ii) of this Bylaw to the contrary, in the event that the number of
directors to be elected to the BoardCode.
16.14 "Key Employee" means a key common-law employee of the Corporation is increased
and there is no public announcementCompany or
any Subsidiary, as determined by the Corporation naming all of
the nominees for director or specifying the size of the increased Board
at least 70 days prior to the first anniversary of the preceding year's
annual meeting,Committee.
16.15 "Named Executive Officer" means a stockholder's notice required by this Bylaw shall
also be considered timely, but only with respect to nominees for any
new positions created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the Corporation not
later than the close of business on the 10th day following the day on
which such public announcement is first made by the Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholdersParticipant who, as shall have been
brought before the meeting pursuant to the Corporation's notice of
meeting. Nominations of persons for election to the Board may be made
at a special meeting of stockholders at which directors are to be
elected pursuant to the Corporation's notice of meeting (i) by or at
the direction of the Board or (ii) provided that the Board has
determined that directors shall be elected at such meeting, by any
stockholder of the Corporation who is a stockholder of record at the
time of giving of notice provided for in this Bylaw, who shall be
entitled to vote at the meeting and who complies with the notice
procedures set forth in this Bylaw. In the event the Corporation calls
a special meeting of stockholders for the purpose of electing one or
more directors to the Board, any such stockholder may nominate a person
or persons (as the case may be), for election to such position(s) as
specified in the Corporation's notice of meeting, if the stockholder's
notice required by paragraph (a)(ii) of this Bylaw shall be delivered
to the Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the 90th day prior to such
special meeting and not later than the close of business on the later
of the 60th day prior to such special meeting or the 10th day following
the day on which public announcement is first made of the date
of the
special meeting and of the nominees proposed by the Board to be elected
at such meeting. In no event shall the public announcementvesting of an adjournmentAward is one of a special meeting commence a new time period forgroup of "covered employees," as defined in
the giving of a stockholder's notice as described above.
(c) General. (i) Only such persons who are nominated in accordance
with the procedures set forth in this Bylaw shall be eligible to serve
as directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in
accordance with the procedures set forth in this Bylaw. Except as
otherwise provided by law, the Chairman of the
3
meeting shall have the power and duty to determine whether a nominationRegulations promulgated under Code Section 162(m), or any business proposed to be brought before the meeting was made or
proposed, as the case may be, in accordance with the procedures set
forth in this Bylaw and, if any proposed nomination or business is not
in compliance with this Bylaw, to declare that such defective proposal
or nomination shall be disregarded.
(ii) For purposes of this Bylaw, "public announcement" shall mean
disclosure insuccessor
statute.
16.16 "Non-Employee Director" means a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Bylaw, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to
the matters set forth in this Bylaw. Nothing in this Bylaw shall be
deemed to affect any rights (A) of stockholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to Rule 14a-8
under the Exchange Act or (B) of the holders of any series of Preferred
Stock to elect directors under specified circumstances.
8. By deleting the phrases "need not be by ballot, unless so directed by the
chairman of the meeting." and "on a vote by ballot" from the fourth and fifth
sentences, respectively, of newly renumbered Section 2.07(c) and replacing such
with "shall be by ballot and".
9. By adding the following to the end of newly renumbered Section 2.07(c):
The chairman of the meeting shall fix and announce at the meeting the
date and time of the opening and the closing of the polls for each matter
upon which the stockholders will vote at a meeting.
10. By deleting Section 3.03 and replacing it with the following:
Section 3.03. Procedure for Election of Directors; Required Vote.
Election of directors at all meetings of the stockholders at which
directors are to be elected shall be by ballot, and, except as otherwise
fixed by or pursuant to the provisions of Article FOURTH of the Certificate
of Incorporation relating to the rights of the holders of any class or
series of stock having a preference over the Common Stock as to dividends
or upon liquidation to elect directors under specified circumstances, a
plurality of the votes cast thereat shall elect directors.
11. By deleting the second sentence of Section 3.10 and replacing it with the
following:
Notice of any special meeting of directors shall be given to each
director at his business or residence in writing by hand delivery, first-
class or overnight mail or courier service, telegram or facsimile
transmission, or orally by telephone. If mailed by first-class mail, such
notice shall be deemed adequately delivered when deposited in the United
States mails so addressed, with postage thereon prepaid, at least five (5)
days before such meeting. If by telegram, overnight mail or courier
service, such notice shall be deemed adequately delivered when the telegram
is delivered to the telegraph company or the notice is
4
delivered to the overnight mail or courier service company at least twenty-
four (24) hours before such meeting. If by facsimile transmission, such
notice shall be deemed adequately delivered when the notice is transmitted
at least twelve (12) hours before such meeting. If by telephone or by hand
delivery, the notice shall be given at least twelve (12) hours prior to the
time set for the meeting.
12. By deleting the words "and shall be called by the President or the
Secretary on the written request of two directors" from the first sentence of
Section 3.10.
13. By deleting Section 8.04 and replacing it with the following:
Section 8.04. Amendments. These Bylaws may be altered, amended or repealed
at any meetingmember of the Board orwho is not a
common-law employee.
16.17 "NSO" means an employee stock option not described in sections 422
through 424 of the stockholders, provided notice of the
proposed change was given in the notice of the meeting and,Code.
16.18 "Option" means an ISO or NSO or, in the case of a meetingKey Employee who
is subject to the tax laws of a foreign jurisdiction, an option qualifying for
favorable tax treatment under the Board,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 notice givenParticipant under the Plan.
14
16.22 "Plan" means this 1992 Stock Incentive Plan of The Charles Schwab
Corporation, as it may be amended from time to time.
16.23 "Replacement Option" means an Option that is granted when a
Participant uses a Common Share held or to be acquired by the Participant to
exercise an Option and/or to satisfy tax withholding requirements incident to
the exercise of an Option.
16.24 "Restricted Share" means a Common Share awarded to a Participant
under the Plan.
16.25 "Stock Award Agreement" means the agreement between the Company and
the recipient of a Restricted Share or Performance Share Award which contains
the terms, conditions and restrictions pertaining to such Restricted Share or
Performance Share Award.
16.26 "Stock Option Agreement" means the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions
pertaining to his or her option.
16.27 "Subsidiary" means any corporation, if the Company and/or one or
more other Subsidiaries own not less than two days prior to
the meeting; provided, however, that, in the case of amendments by
stockholders, notwithstanding any other provisions of these Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but
in addition to any affirmative vote50 percent of the holders of any particular class
or series of the capital stock of the Corporation required by law, the
Certificate of Incorporation of these Bylaws, the affirmative vote of the
holders of at least 80% of the total combined
voting power of all classes of outstanding stock of such corporation. A
corporation that attains the then
outstanding sharesstatus of Voting Stocka Subsidiary on a date after the
adoption of the Corporation, voting together as a
single class,Plan shall be required to alter, amend or repeal this Section 8.04
orconsidered a Subsidiary commencing as of such
date.
16.28 "Retirement" shall mean any provisiontermination of Sections 2.06, 2.10, 3.02, 3.05 and 3.06employment of these
Bylaws.
5
NOTICE
OF
ANNUAL
STOCKHOLDERS
MEETING
AND
PROXY
STATEMENT
---------
1996
-----------
The
Charles
Schwab
Corporation
-----------
CRS 10377 (3/96)
DIRECTION TO PURCHASING AGENT, CHARLES SCHWAB PROFIT SHARING
AND EMPLOYEE STOCK OWNERSHIP PLAN
To: Bankers Trust Companyan
Optionee for any reason other than death at any time after the Optionee has
attained fifty (50), but only if, at the time of California, N.A.
I direct you as Purchasing Agentsuch 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.
15
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"
16
means an associated company within the meaning of section 416 of the Taxes
Act; "relevant emoluments" has the meaning given by paragraph 28(4) of
Schedule 9 to the Taxes Act and "year of assessment" means a year beginning on
any April 6 and ending on the following April 5.
4. Common Shares issued pursuant to the exercise of Approved Options
must satisfy the conditions specified in paragraphs 10 to 14 of Schedule 9 to
the Taxes Act.
5. Notwithstanding the provisions of Section 5.4 of the Plan, the
exercise price of an Approved Option shall not be less than 100 percent of the
closing price of a Common Share as reported in the New York Stock Exchange
Composite Index on the date of grant.
6. No Approved Option may be exercised at any time by a Key U.K.
Employee when that Key U.K. Employee falls within the provisions of paragraph 8
of Schedule 9 to the Taxes Act. If at any time the shares under an Approved
Option cease to comply with the conditions in paragraphs 10 to 14 of Schedule 9
to the Taxes Act, then all Approved Options then outstanding shall lapse and
cease to be exercisable from the date of the shares ceasing so to comply, and no
optionee shall have any cause of action against the Company, Sharelink
Investment Services plc or any subsidiary of the Company or any other person in
respect thereof.
7. An Approved Option may contain such other terms, provisions and
conditions as may be determined by the Committee consistent with the Plan,
provided that the approved option otherwise complies with the requirements for
approved executive option schemes specified in Schedule 9 of the Taxes Act.
8. In relation to an Approved Option, notwithstanding the terms of
section 10.1 of the Plan, no adjustment shall be made pursuant to section 10.1
of the Plan to vote (in person or by proxy) as I have
indicated onany outstanding Approved Options without the reverse side all shares of The Charles Schwab Corporation stock
allocated to my ESOP account or in which I have a proportionate interest under
my Profit Sharing and/or Salary Deferral 401(k) accounts at the Annual Meeting
of Stockholders of The Charles Schwab Corporation on May 6, 1996. You may vote
according to your discretion (or thatprior approval of
the proxy holder) onInland Revenue.
9. In relation to an Approved Option any other matter
that may properly come before the meeting.
Your vote is important! Please sign and
date on the reverse and return promptly
in the enclosed postage-paid envelope
to Bankers Trust Company, Box 1997
G.P.O., New York, N.Y. 10116-1997 so
that your shares can be represented at
the meeting.
(Continued and to be signed and dated on reverse side.)
(Continued from reverse side) [X] Please mark votes as in this example.
I have checked the appropriate boxes below. If I return this card without
marking my specific choice in the boxes below, you will vote "For" the
proposals. The Board of Directors recommends a vote "FOR" the following
proposals.
1. Election of Directors
Nominees: Charles R. Schwab, Lawrence J. Stupski, David S. Pottruck,
Nancy H. Bechtle, C. Preston Butcher, Donald G. Fisher,
Anthony M. Frank, James R. Harvey, Stephen T. McLin, and
Roger O. Walther.
[ ] FOR all nominees [ ] WITHHELD from all nominees
[ ] FOR, except vote withheld from the following nominee(s):
-------------------------------------------------------------------------
2. Approval of an increase in the authorized number of shares of
Common Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of AmendmentKey U.K. Employee shall
make arrangements satisfactory to the 1992 Stock Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. ApprovalCompany for the satisfaction of Amendmentsany 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 Certificateprovisions
set out in section 15.2 of Incorporation.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Dated , 1996
----------------------
----------------------------------
Signature
Please sign exactlythe 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 name
appears hereon.are required to
obtain and maintain the approval of Inland Revenue pursuant to Schedule 9 to the
Taxes Act.
17