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/[X]
Filed by a Party other than the Registrant / /[_]
Check the appropriate box:
/ /[_] Preliminary Proxy Statement / / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)[_]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 Section (S)240.14a-11(c) or Section
(S)240.14a-12
THE CHARLES SCHWAB CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)(1) or
Item 22(a)(2) of Schedule 14A.
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6(i)(3).
/ /[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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LOGO
---------------[LOGO OF THE CHARLES SCHWAB CORPORATION APPEARS HERE]
March 24, 199522, 1996
Dear Stockholder:
You are cordially invited to attend our Annual Meeting of Stockholders which
will be held Monday, May 8, 19956, 1996 at 2 p.m. in the Grand Ballroom of the ANA Hotel,
located at 50 Third Street (between Market and Mission Streets) in San
Francisco, California.
The meeting will provide an opportunity for you to hear a report on 19941995
operations, to meet your directors and executive officers, and to participate
in the meeting.
At the meeting you will be asked 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.
You will also be asked to vote upon important proposed amendments to 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 ability of the Board to effectively negotiate on behalf of the
stockholders on issues of corporate control.
The matters expected to be acted upon are listed in the enclosed
Notice of Meeting and are more fully described in the Proxy
Statement which follows.
To ensure that your shares are represented at the meeting, please complete,
sign and date the enclosed proxy and return it promptly in the envelope
provided. You may revoke your proxy at any time before it is voted.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Charles R. Schwab /s/ Lawrence J. Stupski /s/ David S. Pottruck
CHARLES R. SCHWAB LAWRENCE J. STUPSKI CHAIRMAN OF THE BOARD AND VICE CHAIRMAN OF THE BOARD
CHIEF EXECUTIVE OFFICER DAVID S. POTTRUCK
PRESIDENT AND CHIEF OPERATING OFFICERChairman of the Board
and Vice Chairman of the Board President and Chief Operating
Chief Executive Offi-
cer Officer
THE CHARLES SCHWAB CORPORATION
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 8, 1995
------------------------6, 1996
----------------
The Annual Meeting of Stockholders of The Charles Schwab Corporation, a
Delaware corporation (the "Company"), will be held on Monday, May 8, 19956, 1996 at 2
p.m. in the Grand Ballroom of the ANA Hotel, located at 50 Third Street
(between Market and Mission Streets) in San Francisco, California, for the
following purposes:
1. To elect ten directors to serve pursuant to the Company's bylaws for the
ensuing year.until their successors are elected.
2. To approveincrease the Employment Agreement between The Charles Schwab
Corporation and Charles R. Schwab effective March 31, 1995.authorized number of shares of Common Stock.
3. To approve amendmentsan amendment to the Corporate Executive Bonus1992 Stock Incentive Plan.
4. 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 such other business as may properly come before
the meeting, and all adjournments and postponements thereof.
The Board has fixed the close of business on March 10, 19958, 1996 as the record date
for the determination of stockholders entitled to notice of, and to vote at,
the Annual Meeting. A complete list of such stockholders of record will be
available at 101 Montgomery Street, San Francisco, California, prior to the
Annual Meeting.
By Order of the Board of Directors,
/s/ Mary B. Templeton
MARY B. TEMPLETON
CORPORATE SECRETARYCorporate Secretary
March 24, 199522, 1996
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TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING, PLEASE COMPLETE
AND PROMPTLY MAIL YOUR PROXY IN THE RETURN POSTAGE PREPAID ENVELOPE PROVIDED.
THIS WILL NOT PREVENT YOU FROM REQUESTING A TICKET TO ATTEND THE MEETING AND
VOTING IN PERSON, SHOULD YOU SO DESIRE.
- --------------------------------------------------------------------------------
THE CHARLES SCHWAB CORPORATION
101 MONTGOMERY STREET
SAN FRANCISCO, CALIFORNIA 94104
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PROXY STATEMENT
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This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of The Charles Schwab Corporation, a Delaware
corporation (the "Company"), for use at the Annual Meeting of Stockholders (the
"Annual Meeting") to be held on May 8, 1995.6, 1996. This Proxy Statement and form of
proxy are being mailed to stockholders on or about March 24, 1995.22, 1996.
Shares represented by a properly executed proxy received by the Company in
time to permit its use at the Annual Meeting will be voted as indicated on the
proxy. Stockholders may revoke the authority granted by their proxies at any
time before the exercise of the powers conferred thereby by notice in writing
delivered to the Secretary of the Company; by submitting a subsequently dated
proxy; or by attending the Annual Meeting, withdrawing the proxy and voting in
person.
It is proposed that action will be taken at the Annual Meeting to elect ten
directors, to hold office in accordance withincrease the Company's bylaws for the ensuing
year,authorized number of shares of Common Stock, to
approve an amendment to the Employment Agreement between The Charles Schwab Corporation
and Charles R. Schwab,1992 Stock Incentive Plan and to approve amendments toamending
the Company's Corporate
Executive Bonus Plan.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. The Board of Directors knows of no other business to come
beforefor
consideration at the Annual Meeting. If any other matters are properly
presented at the Annual Meeting or any adjournment or postponement thereof, it
is the intention of the persons named in the proxy to vote, or otherwise to
act, in accordance with their judgment on such matters.
The expense of this proxy solicitation will be borne by the Company. In
addition to solicitation by mail, proxies may be solicited in person or by
telephone, telegraph or other means by employees of the Company or its
subsidiaries without additional compensation. The Company will reimburse
brokerage firms and other nominees, custodians and fiduciaries for costs
incurred by them in mailing proxy materials to the beneficial owners of shares
held of record by such persons.
The Company became a publicly held company in September, 1987 through an
initial public offering of its common stock, $0.01 par value (the "Common
Stock"). As used in this Proxy Statement, "Schwab" means
1
Charles Schwab & Co., Inc. All share and per share figures and all share and per share(including market
valuesvalues) in this Proxy Statement have been adjusted to reflect a three-for-twotwo-for-one
split of the Common Stock payable on MarchSeptember 1, 1995, effected in the form of
a 50100 percent stock dividend.
1
VOTING
At the close of business on March 10, 19958, 1996 there were outstanding and
entitled to vote at the Annual Meeting 85,695,322174,823,199 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) who hold shares in
street name for customers have the authority under applicable New York Stock
Exchange rules to vote on the election of directors. Schwab is entitled to vote
such shares only in the same proportion as the Company's shares representedare voted by votes from
all record holders. With respect to all other matters presented for a vote,
shares as to which brokers do not have discretionary voting authority from
their customers or authority under the New York Stock Exchange rules to vote on
a particular matter are considered under Delaware law as shares not entitled to
vote with respect to such matter, but are counted toward the establishment of a
quorum.
The Company's certificateCertificate of incorporationIncorporation 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 commencement of the voting for directors by so
indicating on the proxy or by attending the meeting. If any stockholder has
given such notice, every stockholder may cumulate votes for candidates placed
in nomination prior to the voting. Cumulative voting rights entitle a
stockholder to cast a number of votes equal to the number of directors to be
elected multiplied by the number of votes to which that stockholder's shares
are entitled without cumulative voting, and all such votes may be cast for a
single candidate or may be distributed among any or all of the candidates. The
persons named in the proxy will, unless authority to do so is withheld,
exercise their discretion with respect to the cumulative voting of shares
represented by proxy in order to assure the election of as many of the nominees
of the Board of Directors as possible.
Participants in the Charles Schwab Profit Sharing and Employee Stock
Ownership Plan (the "Profit Sharing Plan") are entitled to instruct the
purchasing agent of the Profit Sharing Plan how to vote all shares of Common
Stock which are allocated to participants' individual accounts under the
Employee Stock Ownership Plan ("ESOP") component of the Profit Sharing Plan, as
well as participants' proportionate interest in shares of Common Stock held for
the benefit of participants under the Profit Sharing and Salary Deferral
components of the Profit Sharing Plan ("non-ESOP components") and. Participants
will receive individual proxies for the voting of such shares. If the
purchasing agent does not receive voting instructions
2
from participants with respect to all such shares, suchthe unvoted shares will not be
voted in the same proportion as the shares for which voting instructions were
received 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 under the ESOP component that have not yet been
allocated to the ESOP accounts of individual participants will be voted by 2
the
purchasing agent in the same proportion as the votes cast by all shares voted
by Profit Sharing Plan participants, unless the purchasing agent is required to
exercise its discretion in voting such shares pursuant to ERISA. A proxy given
by any stockholdershareholder participating in the Company's Dividend Reinvestment and
Stock Purchase Plan will govern the voting of all shares of Common Stock held
for such stockholder's account under that plan.Plan.
As of March 10, 1995,8, 1996, the current directors of the Company, executive
officers, and senior officers of the Company and its subsidiaries owned and
have the right to vote an aggregate of 24,755,77346,924,369 shares, which, together with
an aggregate of 611,4221,193,869 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 30%28% of the
shares entitled to vote at the Annual Meeting. TheAs of March 8, 1996, the Profit
Sharing Plan also holdsheld an aggregate of 7,813,77116,287,366 shares that have been
allocated to the ESOP accounts or held in the non-ESOP components for the
benefit of other Profit Sharing Plan participants, and an aggregate of
736,3511,365,508 unallocated shares that will be voted at the Annual Meeting in the
same proportion as the votes cast by all shares voted by Profit Sharing Plan
participants, subject to the requirements of ERISA. As a consequence, it is
highly likely that the current directors, executive officers, senior officers
and the Profit Sharing Plan participants will be able to elect the Board of
Directors of the Company and approve the proposals contained herein.
ELECTION OF DIRECTORS
The Board of Directors has nominated and recommends the election of each of
the nominees set forth below as a director of the CompanyCompany. If the proposed
amendments to servethe Certificate of Incorporation concerning classification of the
Board are adopted, three directors will be elected for a term expiring at the
Annual Meeting in 1997, three directors will be elected 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 the
next annual meeting of stockholders or until his or her successor istheir
respective successors are elected and qualified.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 so is withheld, to vote for the election of
the nominees named below. The ten nominees receiving the greatest number of
votes will be elected directors of the Company.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.
CHARLESCharles R. SCHWAB,Schwab, age 57,58, 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.
3
LAWRENCELawrence J. STUPSKI,Stupski, age 49,50, 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.
DAVIDDavid S. POTTRUCK,Pottruck, age 46,47, 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).
NANCYNancy H. BECHTLE,Bechtle, age 57,58, has been a director of the Company and has served
as a member of the Audit and Customer Quality Assurance Committees since
September 1992.1992 and the Compensation Committee since January 1996. Ms. Bechtle
has been a director and Chief Financial Officer of J.R. Bechtle & Co., an
international consulting firm, since 1979. She has been the President and Chief
Executive Officer of the San Francisco Symphony since 1987, and has served as a
member of the San Francisco Symphony Board of Governors since 1984.
C. PRESTON BUTCHER,Preston Butcher, age 56,57, 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 and Regional Partner
of Lincoln Property Company N.C., Inc., a real estate development and
management firm, since 1967, and also has beenis a director of BRE Properties, Inc., a real
estate investment trust.
DONALDDonald G. FISHER,Fisher, age 66,67, 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. Since 1969, Mr. Fisher has beenis the Chairman Chief Executive
Officer and a directorof the Board of The Gap, Inc., a
nationwide specialty retail clothing chain. Mr. Fisher 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 and
Ross Stores, Inc.
ANTHONYCommunications.
Anthony M. FRANK,Frank, age 63,64, has been a director of the Company and has served
as a member of the Audit and Customer Quality Assurance Committees since
December 1993. He is the current chairman of the Customer Quality Assurance
Committee. He also served as a director of the Company from April 1987 until
February 1988 and from March 1992 until April 1993. Mr. Frank is Chairman of
the Board of Acrogen, Inc., a biotechnology firm. From March 1988 until March
1992,l992, 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 4
director of Bedford Property Investors,Investors; Living
Centers of America Temple-Inland, Inc.,; General American Investors, a closed-endedclosed-
ended investment company,company; and Irvine Apartment Communities and Crescent Real
Estate Equities, both real estate investment trusts.
JAMESJames R. HARVEY,Harvey, age 60,61, has been 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 1992.1992 and
since January 1996. Mr. Harvey
has served as Chairman of Transamerica Corporation
sincefrom 1983 to 1996 and served as Transamerica's Chief Executive Officer from 1981 until
1991. Transamerica Corporation provides selected financial services to
individuals and organizations. Mr. Harvey has been a director of Transamerica
Corporation since 1975, and also serves as a director of McKesson Corporation
and AirTouch Communications.
STEPHENStephen T. MCLIN,McLin, age 48,49, 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. McLin has been the President
and Chief Executive Officer of America First Financial Corporation, a finance
and investment banking firm. Mr. McLin is also Chairman of the Board of
EurekaBank, a federal savings bank.
ROGERRoger O. WALTHER,Walther, age 59,60, has been a director of the Company and a member of
the Customer Quality Assurance Committee since April 1989 and has served as a
member of the Compensation Committee since May 1989. He is the current chairman
of the Compensation Committee. Since May 1992, Mr. Walther has
5
been the Chairman and Chief Executive Officer of ELS Educational Services,
Inc., the largest teacher in the United States of English as a second language.
Mr. Walther was a
director, President, and Chief Executive Officer 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 BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors held eightseven regular meetings and one special meeting
during 1994.1995. The Board of Directors has an Audit Committee, a Compensation
Committee, and a Customer Quality Assurance Committee. The Board of Directors
does not have a nominating committee or any committee serving a similar
function.
The Audit Committee, among other things, confers with the Company's
independent accountants and internal auditors regarding the scope of their
respective examinations, reviews reports of the Company's independent
accountants and internal auditors, and reviews recommendations concerning
internal controls. The Audit Committee reports to the Board of Directors with
respect to such matters and recommends the selection of independent auditors.
The Audit Committee held four meetings during 1994.1995.
The Compensation Committee reviews and approves the Company's compensation
philosophy, all programs that govern annual and long-termlong term compensation of
executive officers, and material employee
5
benefit plans. In addition, the
Compensation Committee has the authority to grant options or make equity grants
to members of the Board of Directors and key employees under the Company's
stock option plans. The Compensation Committee held eight meetings in 1994.1995.
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
1994.1995.
Directors who are also officers of the Company or its subsidiaries do not
receive any additional compensation for their services as directors. Non-employeeIn 1995,
non-employee directors receivereceived an annual retainer of $20,000, $1,000 for each
Board meeting attended, $300 for each Board committee meeting attended either
immediately prior to or following a Board meeting, and $1,000 for each Board
committee meeting otherwise attended, and are reimbursed for their expenses of
attendance at such meetings. CommitteeIn 1995, committee chairmen receivereceived an additional
annual retainer of $3,000. In addition, the Company's non-employee directors as
a group receive annual, automatic grants of options under the 1992 Stock
Incentive Plan. In 1994, eachEach member of the Board was granted an option to purchase
1,5001,000 shares of Common Stock of the Company pursuant to the Stock Incentive
Plan on May 15, 1995 at the fair market value on May 16, 1994, $19.67of $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
EMPLOYMENT AGREEMENT BETWEEN
THE CHARLES SCHWAB CORPORATION AND CHARLES R. SCHWAB
On DecemberNUMBER 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, 19941996, 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 Compensation Committeecurrent 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 (the "Committee") adopted resolutions recommending thatmay
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 present a proposalbelieves it is desirable to stockholders to approve a new Employment Agreement withenhance the Company's Chairman, Charles R. Schwab (the "New Employment Agreement"). Mr.
Schwab's previous employment agreement expires on March 31, 1995 (see
"Employment Agreementflexibility in
connection with possible future actions, such as use in employee benefit plans,
stock splits, stock dividends, financings, corporate mergers, acquisitions of
property, and Name Assignment").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 Board decidedCompany 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 present the
New Employment Agreementpurchase any shares of Common Stock.
DESCRIPTION OF THE PROPOSED AMENDMENT
The proposed amendment to the stockholders for approval generallyCertificate provides that the number of
authorized shares of Common Stock be increased to respond500,000,000, and that the
aggregate number of authorized shares be increased from 209,940,000 to
requirements of509,940,000.
7
VOTE REQUIRED FOR ADOPTION OF PROPOSED AMENDMENT
Under the federal tax laws, which authorize deduction for
compensation in excess of $1 million payable to "named executive officers" (as
defined in the Internal Revenue Code of 1986Delaware General Corporation Law (the "Code""DGCL")) only where such
compensation is based on performance and is approved by stockholders. The
persons named in the proxy intend, unless authorization to do so is withheld, to
vote for the proposal concerning the New Employment Agreement.
If the New Employment Agreement is approved by the, an affirmative vote
of the holders of a majority of the outstanding shares of Common Stock present in
person or by proxy atis
required to adopt the Annual Meeting and entitled to vote thereon, and the
Company complies with certain other requirements set forth in Section 162(m) of
the Code, payments of bonuses to Mr. Schwab pursuantamendment to the Employment Agreement
will qualify for deduction under Section 162(m)Certificate to increase the number of
the Code.authorized shares of Common Stock.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL
CONCERNINGADOPTION OF
THE NEW EMPLOYMENT AGREEMENT.
6
PROPOSED AMENDMENTS TO THE NEW EMPLOYMENT AGREEMENT -- TERMS AND CONDITIONS
UnderCERTIFICATE 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 New Employment Agreement, Mr. SchwabBoard 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 employed for a five yearto
promote the long term commencing March 31, 1995success of the Company and willthe 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, base salaryautomatic option grant covering 2,500 shares
of $800,000, subject to annual increases based on increases inCommon Stock. If, however, the Consumer Price
Index ("CPI") (provided that CPI adjustments cannot cause annual salary plus
bonus to exceed $12 million). Mr. Schwabexercise price, determined as of the grant
date, is $35 or more, the automatic option grant will participate in all compensation
and fringe benefit programs made available to other senior executives, includingcover 1,500 shares of
Common Stock. Exhibit A sets forth the Company's stock incentive plans, except that, in lieufull text of participating in
the executive bonus plans, Mr. Schwab's annual bonus, if any, will be a multiple
of his base salary, and will be based solely on the Company's performance for
the year relative to its targets of net revenue growth and pre-tax profit
margin.
Under the New Employment Agreement, the amount of Mr. Schwab's annual bonus
is determined based on a performance matrix, adopted from time to time by the
Committee, that establishes the relationship between Mr. Schwab's bonus and
specified levels of Company performance. If the Company were to match its 1994
rate of net revenue growth and pre-tax profit margin in 1995, its net revenues
would increase $110,000,000 to $1,175,000,000, and its pretax profit would
increase $22,400,000 to $246,750,000. In that event, Mr. Schwab would receive a
bonus of $4,171,000. On the other hand, if the Company's pre-tax profit margin
were the same in 1995 as in 1994, 21 percent, and the net revenue declined by
more than 5 percent, Mr. Schwab would receive no bonus at all.
The New Employment Agreement also provides that certain compensation and
benefits will be paid or provided to Mr. Schwab (or his immediate family or
estate) in the event his employment is terminated involuntarily, other than for
cause, priorproposed amendment to
the expiration of the New Employment Agreement. For these
purposes, "cause" is defined as the commission of a felonious act, or willful
and gross negligence or misconduct that results in material harm to the Company.
Mr. Schwab's resignation following a material change in his capacities or duties
at Schwab or the Company is included in the definition of "involuntary
termination." If an involuntary termination is for reasons other than death,
disability or for "cause," Mr. Schwab will be entitled to receive for a period
of thirty-six (36) months all compensation and to which he would have been
entitled had he not been terminated, including his base salary and participation
in all bonus, incentive and other compensation benefit plans for which he was or
would have been eligible (but excluding additional grants under the Company's
stock incentive plans). In addition, all outstanding, unvested awards under the
Company's stock incentive plans will vest fully on the effective date of the
termination. If an involuntary termination is by reason of disability, Mr.
Schwab will be entitled to receive his base salary, less any payments under the
Company's long term disability plan, and benefits (but not bonuses or other
incentive compensation) for a period of thirty-six (36) months from such
termination, and shall also receive a pro rated portion of any bonus or
incentive payments payable with respect to the year in which the disability
occurs. If an involuntary termination is by reason of death, a lump sum payment
will be made to Mr. Schwab's estate equal to five times his then base salary. If
Mr. Schwab should voluntarily resign his
7
employment within twenty-four (24) months of a change in control of the Company,
he shall be entitled to receive a pro rated portion of any bonus or incentive
payments payable with respect to the year in which the resignation occurs.
In addition, if Mr. Schwab's employment should terminate on account of any
voluntary resignation, or on account of an involuntary termination occurring
within twenty-four (24) months of a change in control of the Company, Mr. Schwab
shall have the right (but not the obligation) to enter into a consulting
arrangement under which he would provide certain consulting services to the
Company for a period of five years, in exchange for an annual payment equal to
the lesser of $1 million or 75% of his then base salary.
The New Employment Agreement provides that as of each March 31, the term of
the Employment Agreement automatically will be extended by an additional year,
subject to the same terms and conditions, unless either party provides notice to
the other, by that date, of an intention not to so extend the New Employment
Agreement. The New Employment Agreement also precludes Mr. Schwab from becoming
associated with any business competing with the Company for a period of five
years following a voluntary resignation of employment (except that such covenant
would not apply to a resignation of employment occurring within 24 months of a
change in control of the Company).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 CORPORATE EXECUTIVE BONUS PLAN
On February 23, 1995COMPANY'S CERTIFICATE
OF INCORPORATION
SUMMARY
The Company's Board of Directors has unanimously determined that amending the
Committee adopted resolutions recommendingCertificate 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 presentinto 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, even 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 proposalmeeting 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 approvevote
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 Corporate Executive Bonus PlanBylaws to implement,
and conform the Bylaws to, the above amendments to the Certificate (the
"Plan," formerly known"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 Annual Executive Bonus Plan)proposed amendments to the Certificate and are described below in
"Description of the Proposed Amendments". The Plan providesIn 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
stability of the Company's business and affairs by making it more difficult and
time-consuming to change majority control of 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
paymentstockholders, will not impede a takeover or other transaction that is approved
by the directors of cash bonusesthe Company. They will, however, have the overall effect of
making it more difficult and time-consuming to executive officersacquire and exercise control of
the Company based solely uponand to remove incumbent directors, and to benefit from certain
transactions which are opposed by the Company's attainmentincumbent 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 annual revenue growththis
Proxy Statement, which describe these amendments and profitability objectives. The Board decided to
presenttheir purposes and effects,
and Exhibits B, C and D hereto, which set forth the Planfull 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 amendments 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 problem 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 approvalcause 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 respondbe 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 federal tax laws, which authorize deductionsDGCL
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 compensationdiscussion 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 time 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 excessall future
elections of $1 million payablethe Board of Directors, commencing with the Annual Meeting to "named executive officers" (as
definedbe
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 Code) only wherebest
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 compensation is basedacquisition without assurance of the ability to place a
representative on performancethe 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 persons namedproposed 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 or the removal 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 effect of discouraging
such actions, even though stockholders might feel that such 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 market price of or price volatility in the proxy intend, unless
authorizationCompany's
stock, stockholders could be deprived of certain opportunities to do sosell their
shares at a temporarily higher price.
The Board, however, feels that the benefits 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
withheld,fair to voteall 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.
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 concerningto acquire the Plan.
IfCompany. While not preventing
acquisition of control of the PlanCompany 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
outstanding shares of Common Stock present in person or by proxystock of the Company entitled to notice of and to vote at the Annual
Meeting and entitledis required to vote thereon, andadopt the Company complies with
certain other requirements set forth in Section 162(m)proposed amendments to the Certificate. Each
of the Code, payments to
executive officers pursuantBylaw 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 PlanCertificate. The Other
Related Bylaw Amendments will qualify for deduction under Section
162(m)become effective on May 6, 1996 regardless of
whether the Code. If the stockholders do not vote to approve the proposal
concerning the Plan, any payments or portions of payments to any "named
executive officers" pursuantamendments to the Plan may not qualify for deduction under
Section 162(m) to the extent certain compensation paid to any such named
executive officer in any calendar year exceeds
8
$1,000,000. In such event, the Company may not be able to deduct for tax
purposes all compensation paid to "named executive officers" under the Plan.Certificate are approved.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL CONCERNINGADOPTION OF
THE PLAN.
DESCRIPTION OFPROPOSED AMENDMENTS TO THE CORPORATE EXECUTIVE BONUS PLAN
The participants in the Plan include the Vice Chairman, President, Executive
Vice Presidents and, from time to time, certain other officers having comparable
positions, and currently number ten (10) executives. The Plan specifies a target
bonus for each executive officer, which is expressed as a percentage of that
executive's annual base salary, and which depends upon an assessment of that
executive officer's roles and responsibilities. The Committee sets target
bonuses in the first quarter of each year, based upon the recommendation of the
Chairman and, where appropriate, the President. The President and Vice Chairman
receive all of their annual incentive compensation under the Plan and have
target bonus percentages of up to 300% and up to 100% of their annual base
salaries, respectively. The other participants, who also participate in the
Company's Annual Executive Individual Performance Plan, which pays additional
annual bonuses based on the achievement of individual performance goals, have
target bonus percentages under the Plan of up to 50% of their annual base
salaries.
The amount of the target bonus is then multiplied by a percentage, which is
derived from a matrix fixed by the Committee in advance, and which can range
from 0% to 500% for the President and from 0% to 300% for the remaining
executive officers. The matrix establishes the relationship between the
percentage and the Company's performance for the year relative to its targets of
net revenue growth and pre-tax profit margin. In the case of the President, the
Committee has discretion during the year, subject to the foregoing percentage
limits, to change the amount of any payment otherwise required pursuant to the
Plan. In any event, the amount of base salary included in the computation of the
target bonus amount for each participant in any year may not exceed 250% of the
base salary, determined as of March 31, 1995, payable to the participant holding
the same or substantially similar position on March 31, 1995.
Payments under the Plan are made quarterly based on the Company's
year-to-date performance, except that payments to the President are made
annually within a reasonable time after the end of the year. Amounts payable
pursuant to the Plan are generally paid in the year in which they are earned or
during the following year; however, a recipient may elect to defer receipt of
all or any portion of the amounts payable under the Plan until a specified date
certain, or until termination of employment, provided that deferrals will be
paid immediately upon a change in control. Deferrals may be credited with growth
rates, determined by the total return that would be derived from investments in
certain registered investment companies selected from time to time by the
Company, the allocation among which is determined by the participant.
The Plan is administered by the Committee, which makes all decisions
regarding the operation of the Plan and payments thereunder. The Committee may
amend or terminate the Plan at any time and for any reason.
9
The following table identifies the amounts that would be payable under the
Corporate Executive Bonus Plan, as amended, for 1995 if the Company were to
match its 1994 rate of net revenue growth and pre-tax profit margin. In that
event, the Company's net revenues would increase $110,000,000 to $1,175,000,000,
and its pretax profit would increase $22,400,000 to $246,750,000. On the other
hand, if the Company's pre-tax profit margin in 1995 were the same as in 1994,
21 percent, and net revenue declined by more than 5 percent, no bonuses would be
payable under the Plan.
The table also identifies all other bonuses payable in 1995 to executive
officers, including bonuses payable to Charles R. Schwab under the New
Employment Agreement, determined in the same manner.
NEW PLAN BENEFITS
TOTAL AMOUNTS
AMOUNTS PAYABLE PAYABLE UNDER
CORPORATE UNDER ALL OTHER ALL ANNUAL
EXECUTIVE BONUS ANNUAL EXECUTIVE EXECUTIVE BONUS
PLAN (3) BONUS PLANS PLANS
---------------- ---------------- ----------------
NAME AND POSITION DOLLAR VALUE ($) DOLLAR VALUE ($) DOLLAR VALUE ($)
------------------------------------------------------------ ---------------- ---------------- ----------------
N/A $4,171,000(4) $ 4,171,000
Charles R. Schwab...........................................
Chairman and Chief Executive Officer (1)
$2,790,251 $ 0 $ 2,790,251
David S. Pottruck...........................................
President and Chief Operating Officer
$ 568,943 $ 0 $ 568,943
Lawrence J. Stupski.........................................
Vice Chairman
$ 55,500 $ 603,500(5)(6) $ 659,000
Ronald W. Readmond..........................................
Executive Vice President
$ 152,305 $ 284,027(6) $ 436,332
A. John Gambs...............................................
Executive Vice President and Chief Financial Officer
All current executive officers.............................. $4,417,098 $6,643,848 $11,060,945
All current directors who are not executive officers (2).... N/A N/A N/A
All current employees, other than executive officers........ N/A N/A N/A
------------------------
(1) Mr. Schwab does not participate in the Corporate Executive Bonus Plan.
(2) Non-employee directors are not eligible to participate in the Corporate
Executive Bonus Plan.
10
(3) Only executive officers are eligible to participate in the Corporate
Executive Bonus Plan. On March 31, 1995, the base salaries of Messrs.
Schwab, Stupski, Pottruck, Readmond and Gambs were $800,000; $390,000;
$695,000; $300,000; and $370,000, respectively. No other executive officer
had a base salary higher than Mr. Schwab.
(4) Consists solely of amounts payable to Mr. Schwab pursuant to the New
Employment Agreement. See "Approval of the Employment Agreement Between The
Charles Schwab Corporation and Charles R. Schwab."
(5) Includes amounts payable pursuant to an individual bonus plan under which
Mr. Readmond may become entitled to additional bonuses, irrespective of
Company performance, dependent upon Mr. Readmond's satisfaction of certain
specific business goals.
(6) Includes annual bonuses payable under the Company's Annual Executive
Individual Performance Plan which pays bonuses to the Company's executive
officers other than the Chairman, Vice Chairman and President based on both
Company performance and individual performance. For purposes of this table,
the amounts payable are based on an assumption that each participant meets
all individual performance objectives and receives 100% of target payouts
under the Individual Performance Plan.
11CERTIFICATE.
17
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 10, 19958, 1996 by each person who
is known byto 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).................................................... 19,983,437 23.3%..................... 37,965,666 21.7%
Charles R. Schwab Profit Sharing and Employee
Stock Ownership Plan (6)(7)................................................... 9,161,544 10.7%.................... 17,652,874 10.1%
+Luis E. Valencia............................................................Valencia..............................
+Evelyn S. Dilsaver..........................................................Dilsaver............................
+A. John Gambs...............................................................Gambs.................................
+Thomas N. Lawrie............................................................Lawrie..............................
+Thomas W. Matchett, Jr......................................................
+Harvey A. Rowen.............................................................Jr........................
+Wayne W. Fieldsa..............................
+Susanne D. Lyons..............................
+Walter W. Bettinger...........................
Lawrence J. Stupski (3)(4)........................................................ 2,619,805 3.1%...................... 4,749,362 2.7%
David S. Pottruck (3)(4)(8).................................................... 1,520,495 1.8%..................... 2,958,312 1.7%
Nancy H. Bechtle (3)........................................................... 41,250............................ 84,500 *
C. Preston Butcher (3)(9)...................................................... 98,625....................... 199,250 *
Donald G. Fisher (3)(10)....................................................... 147,375........................ 496,750 *
Anthony M. Frank (3)(11)....................................................... 215,649........................ 307,898 *
James R. Harvey (3)(12)........................................................ 84,750......................... 131,500 *
Stephen T. McLin (3)(13)....................................................... 46,742........................ 45,584 *
Roger O. Walther (3)(14)....................................................... 27,094........................ 33,730 *
Ronald W. ReadmondJohn P. Coghlan (3)(4)...................................................... 335,998.......................... 443,643 *
A. John GambsTom D. Seip (3)(4)........................................................... 517,021.............................. 370,789 *
Luis E. Valencia (3)(4)......................... 70,444 *
All executive officers and directors as a group
(18 persons) (15).............. 35,097,089 39.9%
------------------------
* Less............................... 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
1218
provided by such beneficial owners to the Company. Except as otherwise
indicated in the notes to this table, the address of each beneficial owner
of more than 5% of the Common Stock is c/o The Charles Schwab Corporation,
101 Montgomery Street, San Francisco, California 94104.
(2) The persons named in the table have sole voting and investment power (or
voting and investment power shared with a spouse) with respect to all
shares of Common Stock shown as beneficially owned by them, subject to the
information contained in the notes to this table.
(3) Shares issuable upon exercise of options to acquire Common Stock that are
exercisable within 60 days of March 10, 1995 are treated as beneficially
owned as follows: Mr. Schwab 253,124 shares; Mr. Pottruck 407,250 shares;
Ms. Bechtle 37,500 shares; Mr. Butcher 39,750 shares; Mr. Fisher 39,750
shares; Mr. Frank 55,500 shares; Mr. Harvey 39,750 shares; Mr. McLin 39,750
shares; Mr. Walther 17,250 shares; Mr. Readmond 330,375 shares; and Mr.
Gambs 507,375 shares.
(4) Includes amounts held by the Trustee of the Profit Sharing Plan and
allocated to the individual ESOP accounts or held for the benefit of the
named executives in the non-ESOP components of the Profit Sharing Plan as
follows: Mr. Schwab 120,774 shares; Mr. Stupski 54,668 shares; Mr. Pottruck
80,208 shares; Mr. Readmond 5,623 shares; and Mr. Gambs 9,646 shares.
(5) This amount includes 1,149,399 shares held by nonprofit public benefit
corporations, as to which Mr. Schwab and his spouse, as two of three
directors, have shared voting and investment power but disclaim beneficial
ownership; 2,250,000 shares held by Mr. Schwab and his spouse as trustees
of a living trust; 336 shares held by Mr. Schwab as custodian for his
children; and 2,399 shares held by Mr. Schwab as trustee of various trusts
with respect to which he disclaims beneficial ownership. This amount does
not include 3,418,482provided by such beneficial owners to the Company. Except as otherwise
indicated in the notes to this table, the address of each beneficial owner
of more than 5% of the Common Stock is c/o The Charles Schwab Corporation,
101 Montgomery Street, San Francisco, California 94104.
(2) The persons named in the table have sole voting and investment power (or
voting and investment power shared with a spouse) with respect to all
shares of Common Stock shown as beneficially owned by them, subject to the
information contained in the notes to this table.
(3) Shares issuable upon exercise of options to acquire Common Stock that are
exercisable within 60 days of March 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 of the Profit Sharing Plan and
allocated to the individual ESOP accounts or held for the benefit of the
named executives in the non-ESOP components of the Profit Sharing Plan as
follows: Mr. Schwab 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 8,425,193 shares which, as of
March 10, 1995, had been allocated to the accounts of individual ESOP
participants or held for the benefit of Profit Sharing Plan participants,
including officers of the Company, in the non-ESOP components of the Profit
Sharing Plan, and which are voted at the direction of such participants.
The purchasing agent has sole voting power with respect to 736,351 of the
shares held by the Trustee that have not yet been allocated to the accounts
of individual ESOP participants. The purchasing agent intends to vote all
shares under its control in a specified manner. See "Voting." The 736,351
unallocated shares held by the Trustee of the Profit Sharing Plan, and the
voting rights attributable to those shares, will be allocated to the
accounts of individual ESOP participants in the future.
(7) Mr. Valencia, Ms. Dilsaver, Mr. Gambs, Mr. Lawrie, Mr. Matchett, and Mr.
Rowen are officers of the Company or one of its subsidiaries and members of
the Profit Sharing Plan Administrative Committee. As such, they have shared
investment power with respect to all of the 9,161,544 shares held by the
13Trustee 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, and the voting rights attributable
to those shares, will be allocated to the accounts of individual ESOP
participants in the future.
(7) Mr. Valencia, Ms. Dilsaver, Mr. Gambs, Mr. Lawrie, Mr. Matchett, 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
Trustee of the Profit Sharing Plan. For information with respect to shares
held by Mr. Gambs, see
Footnotes 3 and 4 above. Mr. Valencia, Ms. Dilsaver, Mr. Lawrie, Mr.
Matchett and Mr. Rowen each also have sole voting power with respect to the
0; 2,884; 2,349; 1,476; and 1,219 shares, respectively, held by the Trustee
of the Profit Sharing Plan and allocated to their individual ESOP accounts
or otherwise held for their benefit in the non-ESOP components of the
Profit Sharing Plan; the 750; 903; 15,244; 450 and 600 shares,
respectively, held by each directly; and, the 12,000; 14,062; 112; 2,250
and 0 shares, respectively, which each has the right to acquire under
options which are exercisable within 60 days of March 10, 1995. As a
result, the members of the Administrative Committee are deemed to be the
beneficial owners of outstanding Common Stock, as follows: Mr. Valencia
10.7%; Ms. Dilsaver 10.7%; Mr. Gambs 11.2%; Mr. Lawrie 10.7%; Mr. Matchett
10.7%; and Mr. Rowen 10.7%.
(8) This amount includes 5,061 shares held by Mr. Pottruck as custodian for his
children; 45,000 shares held by Mr. Pottruck as trustee of trusts held for
the benefit of his brothers; 24,000 shares held by a nonprofit public
benefit corporation as to which Mr. Pottruck, as sole director, has voting
and investment power, but disclaims beneficial ownership; and a total of
19,892 shares held by Mr. Pottruck's family members, as to which he shares
investment power but disclaims beneficial ownership.
(9) This amount includes 56,625 shares held by Mr. Butcher and his spouse as
joint tenants, and 2,250 shares held by Mr. Butcher's spouse as her
separate property.
(10) This amount includes 104,250 shares held by Mr. Fisher and his spouse as
trustees of a charitable remainder trust.
(11) This amount includes 25,149 shares held by Mr. Frank's daughter, as to
which he shares investment power but disclaims beneficial ownership.
(12) This amount includes 45,000 shares held by Mr. Harvey and his spouse as
trustees of a family trust.
(13) This amount includes 6,992 shares held under the Company's Dividend
Reinvestment and Stock Purchase Plan.
(14) This amount includes 93 shares held for a trust account under the Company's
Dividend Reinvestment and Stock Purchase Plan and 7,798 shares held by Mr.
Walther as trustee of that same trust.
(15) Messrs. Schwab, Stupski, Pottruck, Butcher, Fisher, Frank, Harvey, McLin,
Walther, Readmond and Gambs and Ms. Bechtle are members of the group and
their beneficially owned shares, including the 9,161,544 shares held by the
Trustee of the Profit Sharing Plan, are included in the total number of
shares shown on this line. The total number of shares shown on this line
also includes an aggregate of 450,749 shares that six other executive
officers of the Company have the right to acquire upon exercise of options
granted under the Company's stock option plans. As of March 10, 1995, an
aggregate of 368,190Gambs, 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 in the non-ESOP components of the Profit
Sharing Plan; the 10,000; 1,810; 0; 27,399; 900; 20,000; 24,900; and 40,201
shares, respectively, held by each directly; 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 days 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; 38,050 shares held by a nonprofit public
benefit corporation as to which Mr. Pottruck, as a director, has voting
and investment power; but disclaims beneficial ownership; and a total of
36,734 shares held by Mr. Pottruck's family members, as to which he shares
investment power but disclaims beneficial ownership.
(9) This amount includes 113,250 shares held by Mr. Butcher and his spouse as
joint tenants, and 4,500 shares held by Mr. Butcher's spouse as her
separate property.
(10) This amount includes 408,500 shares held by Mr. Fisher and his spouse as
trustees of a charitable remainder trust.
(11) This amount includes 46,298 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 his spouse.
(15) Messrs. Schwab, Stupski, Pottruck, Butcher, Fisher, Frank, Harvey, McLin,
Walther, Coghlan, Seip and Valencia and Ms. Bechtle are members of the
group and their beneficially owned shares, including the 17,652,874 shares
held by the Trustee of the Profit Sharing Plan, are included in the total
number of shares shown on this line. The total number of shares shown on
this line also includes an aggregate of 506,125 shares that 5 other
executive officers of the Company have the right to acquire upon exercise
of options granted under the Company's stock option plans. As of March 8,
1996, an aggregate of 16,287,366 shares held by the Trustee of the Profit
Sharing Plan had been allocated to the individual ESOP accounts or held
for the benefit of the executive officers as a group in the non-ESOP
components of the Profit Sharing Plan.
14
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 ("Section 16(a)"), as
amended, requires the Company's officers and directors, and persons who own more
than ten percent of a registered class of the Company's equity securities, to
file reports of securities ownership and changes in such ownership with the
Securities and Exchange Commission (the "SEC"). Officers, directors and greater
than ten-percent shareholders also are required by rules promulgated by the SEC
to furnish the Company with copies of all Section 16(a) forms they file.
During 1994, Charles R. Schwab, Chairman and Chief Executive Officer, failed
to file with the SEC on a timely basis one required report involving two
transactions in the Company's Common Stock, because of an administrative
oversight. The form was filed immediately after the oversight was noted and
within 70 days of the required reporting date.
1520
EXECUTIVE COMPENSATION
The following table shows specific compensation information for the Company's
Chief Executive Officer and the next four most highly compensated executive
officers in 1995 for fiscal years ending December 31, 1995, 1994, 1993, and 1992.1993.
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) ($)(6)
- ------------------ ---- -------- ---------- ---------- ---------- ----------- ------------
AWARDS
------------- PAYOUTS
ANNUAL COMPENSATION SECURITIES ----------- ALL OTHER
-------------------------- UNDERLYING LTIP COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) OPTIONS (#) PAYOUTS (2) ($)(3)
---------------------------------------- --------- ----------- ------------- ------------- ----------- -------------
Charles R. Schwab, 1994 $ 772,506 $ 2,500,225 -0- $ -0- $ 18,8901995 $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- $ 23,861
1992 $ 665,632 $ 2,500,525 506,250 -0- $ 20,438
Lawrence J. Stupski, 1994 $ 479,130 $ 461,659 -0- $2,532,892 $ 18,890
Vice Chairman 1993 $ 610,008 $ 939,027 -0- -0- $ 23,861
1992 $ 587,295 $ 840,946 474,750 -0- $ 20,438$690,012 $2,500,225 0 0 0 $23,861
David S. Pottruck, 1994 $ 658,755 $ 662,543 150,000 $1,578,360 $ 18,8901995 $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$550,008 $ 846,687 -0- -0- $ 23,861
1992 $ 476,881 $ 626,595 477,000 -0- $ 20,135
Ronald W. Readmond, 1994 $ 412,005 $ 310,859 -0- $1,052,240 $ 18,8900 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 $ 400,008293,657 0 0 0 $23,861
John P. Coghlan, 1995 $341,667 $ 513,225 -0- -0-767,750 $384,375 75,000 0 $24,699
Executive Vice
President 1994 $259,376 $ 23,861
1992229,163 0 150,000 $ 352,087601,280 $18,890
1993 $240,006 $ 392,232 252,000 -0-267,349 0 0 0 $23,861
Luis E. Valencia, 1995 $295,000 $ 19,528
A. John Gambs, 1994 $ 365,007 $ 278,984 -0- $1,052,240 $ 18,890762,695 $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 $ 350,004 $ 389,255 -0- -0- $ 23,861
Financial Officer 1992 $ 310,629 $ 321,561 306,000 -0- $ 19,604
------------------------------
(1) Includes, with respect to Mr. Schwab, amounts paid pursuant to the
Corporate Executive Bonus Plan and his Employment Agreement with the
Company dated March 31, 1987 ("Employment Agreement"). See "Employment
Agreement and Name Assignment."
(2) The disclosure rules of the Securities and Exchange Commission currently in
effect provide for disclosure of compensation relating to long-term
incentive plans only when compensation awards are made and when they are
paid out. The Long-Term Incentive Plan III ("LTIP"), which was adopted
effective as of January 1, 1991 and was amended on March 1, 1994, paid cash
bonuses to certain designated key employees of the Company, calculated
based upon the Company's performance during the four-year period ending
December 31, 1994. Mr. Schwab did not participate in or earn any cash bonus
pursuant to LTIP. Each participant's cash bonus was equal to the value of
such participant's units on December 31, 1994 less the value of such units
on the date of grant. Units at the inception of LTIP had an initial value
of $0. Units awarded after the inception of LTIP were valued as of the last
business day of the month prior to date of grant. Participants were
permitted to defer receipt of all or a portion of their LTIP cash bonuses
until the earlier of a specified date certain or the date of the
participant's termination of employment, provided that deferrals will be
paid immediately upon a change of control. The Company recorded
compensation expense accruals in the years 1991, 1992, 1993 and 1994 with
respect to anticipated payments to the named executives of $830,308;
$1,384,398; $1,862,404; and $2,138,622; respectively.
(3) Represents employer contributions to the Profit Sharing Plan for 1994 in
the amount of $18,890 for the benefit of each of Messrs. Schwab, Stupski,
Pottruck, Readmond and Gambs.N/A N/A N/A N/A N/A N/A
16- ----------------------
(1) Mr. Valencia joined the Company in February of 1994.
(2) Includes, with respect to Mr. Schwab, amounts paid pursuant to his
Employment Agreement and Name Assignment with the Company dated March 31,
1987 and March 31, 1995. See "Employment Agreement and Name Assignment."
(3) This column shows 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 rights 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 covered 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 $0, respectively.
(6) Represents employer contributions to the retirement plans for the years
1993, 1994, and 1995.
22
STOCK OPTION TABLES
The following table shows information concerning stock options granted to the
individuals named in the Summary Compensation Table above during the fiscal
year ended December 31, 1994.1995.
OPTIONS GRANTED IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM (2)
---------------------------------------------- ------------------------------
NUMBER OF
SECURITIES % OF TOTAL STOCK PRICE APPRECIATIONEXERCISE
UNDERLYING OPTIONS GRANTED EXERCISE OR FOR OPTION TERM (2)BASE
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION --------------------------
NAME (#)(1) FISCAL YEAR ($/SH) DATE 5% 10%
--------------------------------- ----------- ----------------- ----------- ----------- ------------ ------------- ---- ---------- --------------- -------- ---------- -------------- ---------------
(1) Charles R. Schwab................ -0- -- -- --
Lawrence J. Stupski.............. -0- -- -- --Schwab... 500,000 19.02% $25.625 10/17/05 $ 8,057,712 $ 20,419,825
(2) David S. Pottruck................ 150,000 8.12%Pottruck... 350,000 13.32% $25.625 10/17/05 $ 21.585,640,399 $ 14,293,878
(3) Tom D. Seip......... 75,000 2.85% $25.625 10/18/0417/05 $ 2,036,0461,208,657 $ 5,159,741
Ronald W. Readmond............... -0- -- -- --
A.3,062,974
(4) John Gambs.................... -0- -- -- --
------------------------
(1) Options granted in 1994P. 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), the Company provided the maximum number of incentive stock
options that can vest each year and issued the balance in non-statutory
stock options, except that Mr. Schwab received all non-statutory stock options and 50% incentive stock options
that were granted at 100% of the fair market value of the Common Stock on
the date of grant. The options expire ten years from the date of grant,
unless otherwise earlier terminated in certain events related to
termination of employment. The options vest pro rata over a period of five
years, with the first 10% increment vesting on the first anniversary of the
option grant date. Additional vesting of the right to exercise the options
ceases when the optionee's employment terminates.
(2) The 5% and the 10% assumed rates of appreciation applied to the option
exercise price over the ten-year option term are prescribed by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price. If the Company's
Common Stock does not appreciate, the named executive officer will receive
no benefit from the options.
17All 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,
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 projection of the future Common Stock price. If the Company's
Common Stock does not appreciate, the named executive officer will receive
no benefit from the option.
23
The following table shows information concerning the exercise of stock
options during 19941995 and the value of unexercised stock options held by the
individuals named in the Summary Compensation Table above as of December 31,
1994.1995.
AGGREGATED OPTION EXERCISESEXERCISED IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING VALUE OF SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT 12/31/95 AT 12/31/94 12/31/94 (2)95
-------------------- --------------------
SHARES ------------------- -------------------VALUE
ACQUIRED ON VALUEREALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED (1) UNEXERCISABLE UNEXERCISABLE
-------------------------------------------- ---- ----------- ------------ ------------------- ----------------------------- -------------------- --------------------
(1) Charles R. Schwab..........................Schwab... -- -- 253,124759,375 $11,970,703
753,125 $ 3,677,329
253,126 $ 3,677,358
Lawrence J. Stupski........................ 118,687 $ 1,506,672 0 0
237,374 $ 3,448,5173,990,234
(2) David S. Pottruck..........................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.... -- -- 407,25024,000 $ 7,044,563
388,500239,000
276,000 $ 3,714,875
Ronald W. Readmond......................... 150,000 $ 2,181,944 330,375 $ 5,649,649
126,000 $ 1,830,500
A. John Gambs.............................. -- -- 507,375 $ 9,705,094
153,000 $ 2,222,750
------------------------
(1) The amount in this column reflects the difference between the average of
the high and low market prices on the date of exercise and the option
exercise price and may not represent amounts actually realized by the named
individual.
(2) The value of unexercised options is calculated by multiplying the number of
options outstanding by the difference between the option exercise price and
the December 31, 1994 closing price of $23.252,151,000
- ----------------------
(1) The amount in this column reflects the difference between the average of
the high and low market prices on the date of exercise and the option
exercise price and may not represent amounts actually realized by the named
individual.
(2) The value of unexercised options is calculated by multiplying the number of
options outstanding by the difference between the option exercise price and
the December 31, 1995 closing price of $20.125 per share of the Company's
common stock as reported on the New York Stock Exchange Composite
Transactions Index, and may not represent amounts actually realized by the
named individual.
1824
BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
TheDuring 1995 the Compensation Committee (the "Committee") of the Company's
Board of Directors iswas comprised of three directors who are not employees of
the Company or of any of its subsidiaries andsubsidiaries. The Committee has overall
responsibility for the Company's executive compensation policies and practices.
Each member is a "disinterested director" within the meaning of Section 16 of
the Securities Exchange Act of 1934, as amended, and an "outside director"
within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"). The Committee determines the Chairman's compensation and,
upon recommendation of the Chairman and the President, reviews and approves all
executive officers' compensation, including salary, payments under the annual
executive bonus plans, awards under long-termlong term cash incentive plans and awards
under stock option and stock incentive plans. The Committee has provided the
following report on the Chairman's compensation, the compensation policies of
the Company as they apply to its executive officers and the relationship of
Company performance to executive compensation.
COMPENSATION POLICIES
The Company's compensation policies are designed to address a number of
objectives, including to rewardrewarding financial performance and to motivatemotivating executive
officers to achieve significant returns for stockholders. The Company's
policies rely on two principles. First, a significant portion of executive
officers' total compensation should be in the form of stock and stock-based
incentives. Second, a large portion of their cash compensation should be at
risk and vary, depending upon meeting stated financial objectives.
When establishing salaries, bonus levels and stock-based awards for executive
officers, the Committee considers the individual's role, responsibilities and
performance during the past year, and the amount of compensation paid to
executive officers in similar positions of comparable companies, based on
periodic reviews of competitive data obtained from independent consultants. The
Committee reviews companies of similar size, rates of growth and financial
returns to the Company, including, but not limited to, some of the companies
included in the Dow Jones Securities Brokerage Group Index. Companies outside
the financial services industry are selected for inclusion in the review based
upon the extent to which they satisfy a list of selection criteria, which
includes size, growth rates, similar financial performance, leadership status
in their industry, and reputation for innovation, not all of which will be
satisfied in any particular case. The Committee believes it is necessary to
include in its review companies other than those included in the Dow Jones
Securities Brokerage Group Index because the Company frequently recruits
employees from outside the financial services industry, depending upon the
specific skills required for the position. The Committee uses comparative data
to set compensation targets that will provide executive officers with
compensation that exceeds the average amounts paid to similar executives of
comparable companies in years in which the Company achieves superior
performance, and in the payment of compensation below the average of amounts
paid to similar executives of comparable companies in years in which the
Company fails to achieve superior performance. However, in certain cases the
Committee also may make discretionary and subjective
25
determinations of the
appropriate compensation amounts, under the circumstances, to reflect, for example,
the Company's philosophy of relying oncompensating executives for the success they
achieve in managing specific executive officers to direct
specific customer enterprises. With respect to
19
executive officers
other than the Chairman, the Committee places considerable weight upon the
recommendations of the Chairman and, where appropriate, the President.
THE IMPORTANCE OF OWNERSHIP
A fundamental tenet of the Company's compensation policy is that significant
equity participation creates a vital long-termlong term partnership between
management/owners and other stockholders. Through the Profit Sharing Plan and
various stock incentive plans, the benefits of equity ownership are extended to
executive officers and employees of the Company and its subsidiaries. As of
March 10, 1995,8, 1996, the directors, of the Company and executive officers and other senior officers of
the Company and its subsidiaries owned an aggregate of 24,755,77346,924,369 shares and
had the right to acquire an additional 2,743,5754,190,871 shares upon the exercise of
employee stock options which were exercisable on March 10,
19958, 1996 or within sixty
days thereafter. In addition, the Profit Sharing Plan held 9,161,54417,652,874 shares.
These interests, exclusive of outstanding options, representrepresented in the aggregate
40%37% of the outstanding capital stock of the Company. The Company intends to
continue its strategy of encouraging its employees to become stockholders.
The chart which follows this report compares changes in the Company's
cumulative total returns with those of the S&P 500 Index and the Dow Jones
Securities Brokers IndustryBrokerage Group Index. From December 31, 19891990 through December 31,
1994,1995 the cumulative total return of the Company's stock was 4911,145 percent. By
comparison, in the same period the Dow Jones Securities Brokers IndustryBrokerage Group Index
grew 134249 percent and the S&P 500 Index grew 52115 percent. The Committee believes
that the executive officers' equity participation in the Company is a
meaningful factor contributing to the Company's success.
COMPANY PERFORMANCE OBJECTIVES
The Company has established three corporate performance objectives, based on
net revenue growth, profit margins and return on stockholders' equity ("ROE"),
which determine the size of payments under the Company's variable compensation
plans. The Company's performance objectives in 1994 were to achieve over the
long-term 20 percent annual net revenue growth, 10 percent after-tax profit
margin and 20 percent ROE.
The Company's success in achieving these performance objectives is not only
dependent upon effective management, but is also influenced by a broad range of
factors, including competition, market growth, trading levels, industry trends
and economic conditions. To achieve, on average, 20 percent annual growth in net
revenue, the Company must focus on its customers, their needs and expectations,
and deliver innovative products and services that compete effectively in the
marketplace. The Company believes that to maintain, on average, 10 percent
after-tax profit margins, it must offer quality products and services and
control expenses. Whether the Company is able to achieve, on average, 20 percent
ROE depends in part on whether its executive officers are successful in the
development and execution of strategic long-term investments.
ANNUAL BASE SALARY
The Company believes that base salary is frequently a significant factor in
attracting, motivating and retaining competent and skilled executive officers.
To maintain a competitive advantage, the Committee reviews base salaries of
executive officers annually and generally sets the base salary of its executive
officers at or near the average of the levels paid by the other companies it
reviews. (See "Compensation Policies.")
20
VARIABLE COMPENSATION
CORPORATE EXECUTIVE BONUS PLAN. The
Corporate Executive Bonus Plan, which
was formerly known as the AnnualPlan. The Corporate Executive Bonus Plan pays
bonuses each year to executive officers (other than the Chairman, who is
covered under an employment agreement with the Company, see "Chairman's
Compensation" below) based on the Company's performance. IfDepending upon the
Company's net revenue growth and pre-tax profit margin, objectives are achieved, the bonus plan is paid
out at 100 percenta percentage of all participants'each participant's bonus targets.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"). ToThe Committee sets
26
target bonuses in the extentfirst quarter of each year based upon the recommendation
of the Chairman and, where appropriate, the President. In the case of the
President and the Vice Chairman, who receive all of their annual incentive
compensation under the Plan, the target bonuses can be up to 300% and 100% of
base salary, respectively. 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 result in a
payout of a multiple (or fraction) of the target bonus depending upon the
Company's actual performance varies fromperformance. The factors determining bonuses in the objectives, bonus plan paymentsmatrix are adjusted upward, to a maximum of 200 percent of participants' targets, or
downward.pre-
tax profit margin and net revenue growth. In general, a given percentage change
in after-taxpre-tax profit margin from the
stated objective will have a greater impact on the determination of
bonus payments than will athe same percentage change in the net revenue growth rate.
In 1994,1995, the Company achieved an after-taxa pre-tax profit margin of 1320 percent versus its 10
percent objective and net
revenue growth of 10 percent versus its objective of
2033 percent. Based on attainment of these objectives,this performance, executive officers
received bonuses in excess of 100 percent of their target bonus amounts in
1994. The
Committee has adopted amendments to this plan, which are subject to the approval
of Stockholders, and which will affect the compensation of executive officers in
1995 and thereafter. (See "Approval of Amendments to the Corporate1995.
Annual Executive BonusIndividual Performance Plan.")
ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN. The Annual Executive Individual
Performance Plan pays bonuses to executive officers other than the Chairman,
Vice Chairman and President based on a subjective determination of each such
officer's individual contribution to the attainment of the Company's
performance objectives, made by the Committee upon the recommendation of the
Chairman and the President. In general, such recommendations are based in
significant part upon such officer's success in achieving specific goals
identified in such officer's business plan. The amount available for payments
under the plan is equaldetermined in accordance with a matrix, adopted by the
Committee in its discretion, in advance from time to 110%time, that generates a
funding amount based upon the level of the aggregate bonuses payable under the
Corporate Executive Bonus Plan to all executive officers other than the
Chairman, Vice ChairmanCompany's net revenue growth and
President. Consequently, althoughpretax profit margin. Although individual bonuses under the plan may vary in
recognition of individual achievements, the aggregate amount of executive
officer bonuses in the aggregatepayable under the plan areis based strictly on the Company's
performance relative to its objectives as stated in the Corporate
Executive Bonusperformance.
1992 Stock Incentive Plan.
LONG-TERM INCENTIVE PLAN ("LTIP"). In 1991, the Compensation Committee
adopted an LTIP which provides for a cash distribution equal to a percentage,
that varies based on the ROE level achieved, of cumulative pre-tax, pre-LTIP
Company earnings for the four-year period ending December 31, 1994. Eligibility
to participate in the LTIP and the number of participation units awarded to each
participant were determined by the Committee upon the recommendation of the
Chairman and, where appropriate, the then President. The total amounts payable
under LTIP on account of the full four year LTIP period to the named executive
officers are reported in the Summary Compensation Table.
The Committee has determined not to adopt a renewed cash-based LTIP in 1995.
Instead, the Committee, consistent with its policy, intends that the Company
will rely solely on stock-based incentives to serve as a long-term incentive for
its executive officers. Because executive officers provide the leadership,
vision, long-
21
term planning and growth initiatives needed to sustain the Company's financial
success, the Committee determined that executive officer long-term compensation
should consist exclusively of equity-based incentives.
1992 STOCK INCENTIVE PLAN. In 1992, the Board of Directors approved a stock
incentive plan (the "1992 Plan"), which was approved by the stockholders of the
Company at the 1992 Annual Meeting and became effective on May 8, 1992. Under
the 1992 Plan, stock option grants are made to executive officers by the
Committee, based upon the factors discussed above (see "Compensation
Policies").
The Committee has adopted a policy of granting infrequent and large stock
option awards to executive officers rather than annual, smaller grants. The
Committee believes that large, but infrequent awards provide a more powerful
incentive to executive officers to achieve sustained growth over the long term.
As discussed above, theThe Committee intends that following the expiration of LTIP
on December 31, 1994, stock-based incentives will be the only long-termsole long term
incentives payable to executive officers.
Because the stock options granted in 1992 were intended to serve as a
long-term incentive, additional stock options were not generally granted to
executive officers in 1994. However,During 1995, stock option grants were made to certain of the Company's
executive officers. In addition, certain of the Company's executive officers
who were hired or promoted into executive management or
promoted within executive management during 1994, orreceived grants of restricted shares. To determine the size of the grants, the
Company reviewed and presented to reflect significant
increases in an executive officer's responsibilities. During 1994, the Committee awarded additional stock options to the Company's President and Chief Operating
Officer, David S. Pottruck, to reflect the increased responsibilities assumed by
Mr. Pottruck in March, 1994. The Committee granted these options to Mr. Pottruck
to make hisdata obtained from an
independent consultant
27
concerning levels of long term compensation (includingfor executive officers of selected
financial services companies and companies of comparable size, rates of growth,
and/or financial returns, as well as the options that had been grantedvalue of prior outstanding nonvested
options. In approving an option grant of 500,000 shares to Mr. Pottruck in 1992) more comparable with amounts payable toSchwab, the
Committee considered data provided by an independent consultant on long term
compensation for chief executive officers with
similar responsibilities at comparable companies.and used the same methodology as for
other executive officers.
CHAIRMAN'S COMPENSATION
The Company's Chairman, Charles R. Schwab, is compensated based on an
employment agreement that was entered into between the Company and Mr. Schwab
and approved by the stockholders, effective as of March 31, 1995 (see
"Employment Agreement and Name Assignment"), which expires on March 31,
1995.. Under the terms of his Employment
Agreement, Mr. Schwab receives a base salary of $800,000, subject to 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 adjusted upward as the Board deems appropriate, consistent with
its policies for setting base salaries generally (see "Annual Base Salary").
Effective asa multiple
of April 1, 1994, Mr. Schwab's annualhis base salary, was increasedcalculated pursuant to $800,000, which was determineda matrix adopted by the Committee,
in advance from time to be appropriate in lighttime, that relates the amount of Mr. Schwab's significant contributionsthe bonus to the
Company's success.
Mr. Schwab's payment underperformance for the Corporate Executive Bonus Plan for 1994 was
$826,581. This amount was determined, as with all executive officers, by
applying the plan rateyear relative to Mr. Schwab's target bonus, which target bonus was
determined by the Committee based on the factors discussed above (see
"Compensation Policies"). In addition, under the terms of Mr. Schwab's
Employment Agreement, Mr. Schwab received an additional bonus of $1,673,419. The
Employment Agreement provides that the aggregate value of all cash bonuses paid
to Mr. Schwab with respect to any fiscal year shall not exceed the lesser of
$2.5 million or 4 percent of thenet revenue growth and pre-tax
net income of the Company. Since 1991,
the limit on Mr. Schwab's bonus payments
22
has been $2.5 million, which has been a declining percentage of pre-tax net
income of the Company. At Mr. Schwab's request, he does not participate in the
LTIP and all of his long-term compensation, therefore, is received in the form
of equity participation. Mr. Schwab did not receive a grant of stock options
during 1994.profit margin.
The Committee believes that it would beMr. Schwab's leadership is a vital factor in
the best interestsCompany's success. 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 andfor its stockholders to renew and renegotiatestockholders. Mr. Schwab's
employment agreement
withleadership has enabled the Company to substantially outperform both the S&P 500
Index and the Dow Jones Securities Brokerage Group over the past five year
period, and has approvedenabled the Company to achieve a revised employment agreement that would
take effect March 31, 1995, subject to approval ofprice-earnings multiple
greater than the S&P 500 Index. Based upon the Company's stockholders.
Under the new employment agreement,attainment in 1995 of
a pre-tax profit margin of 20 percent and net revenue growth of 33 percent,
which resulted in pre-tax profit for 1995 of over $277,000,000, the amount of
cash bonuses payableMr. Schwab's annual bonus for 1995, calculated pursuant to the matrix, was
$8,606,000. During 1995, Mr. Schwab would depend uponalso received a stock option grant of
500,000 shares at $25.625, the Company's achievement of specified performance
targets basedmarket price on net revenue growth and pretax profit margin. Thus, the basis on
which such bonuses are paid to Mr. Schwab would be similar in nature to the
basis on which bonuses are payable to the Company's executive officers
generally. See "Approval of Employment Agreement Between The Charles Schwab
Corporation and Charles R. Schwab."grant date.
TAX LAW LIMITS ON EXECUTIVE COMPENSATION
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the
Code, which limits deductions for certain executive compensation in excess of
$1 million. Certain types of compensation are deductible only if performance
criteria are specified in detail, and payments are contingent on stockholder
approval of the compensation arrangement. The Company believes that it is in
the best interests of its stockholders to structure compensation plans to
achieve deductibility under Section 162(m), except where the benefit of such
deductibility is outweighed by the need for flexibility or the attainment of
other corporate objectives. Accordingly, the Company's Corporate Executive
Bonus Plan Long Term Incentive Plan, as amended, and 1992 Stock Incentive Plan were approved by the stockholders in
1994, and the Company is currently seeking
stockholder approval of amendments to itsthe Company's Corporate Executive Bonus Plan. (See
"Approval of Amendments toPlan were approved
by the Corporate Executive Bonus Plan.")stockholders in 1995, and the Company's employment agreement with Mr.
Schwab was
28
approved by the stockholders in 1995. The Committee will continue to monitor
issues concerning the deductibility of executive compensation and will take
appropriate action if and when it is warranted. Since corporate objectives may
not always be consistent with the requirements for full deductibility, the
Committee is prepared, if it deems appropriate, to enter into compensation
arrangements under which payments may not be deductible under Section 162(m);
deductibility will not be the sole factor used by the Committee in ascertaining
appropriate levels or modes of compensation.
Compensation Committee of the Board of
Directors
Roger O. Walther, CHAIRMANChairman
C. Preston Butcher
Stephen T. McLin
2329
PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total returns
for the Company's Common Stock, the Standard & Poor'sS&P 500 Stock 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,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
DECEMBERIndex and
Dow Jones Securities Brokerage Group Index Over Five Year Period Ended
December 31, 1994*1995**
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC[GRAPH APPEARS HERE]
DEC-89 DEC-90 DEC-91 DEC-92 DEC-93 DEC-94- --------------------------------------------------------------------------------
12/90 12/91 12/92 12/93 12/94 12/95
- --------------------------------------------------------------------------------
The Charles Schwab Corporation 100 83 334 290 543 591$100 $404 $350 $656 $714 $1,245
- --------------------------------------------------------------------------------
Dow Jones Securities Brokerage Group Index 100 92 199 206 265 234$100 $216 $224 $288 $255 $349
- --------------------------------------------------------------------------------
S&P 500 Index 100 97 126 136 150 152$100 $130 $140 $155 $157 $215
- --------------------------------------------------------------------------------
------------------------- ----------------------
* Total return assumes reinvestment of dividends.
** Information presented as of the end of each fiscal year ended December 31.
2430
EMPLOYMENT AGREEMENT AND NAME ASSIGNMENT
As a condition to making the $150 million loan for the Company's leveraged
acquisition of Schwab in March 1987, the Company's senior bank lenders required
that Mr. Schwab enterThe Company has entered into an employment agreement, effective March 31,
1995, with the CompanyMr. Schwab, which replaced an earlier employment agreement that
expired on that date, and assign
to the Company certain rights to use his name and likeness. The resulting
Employment Agreement, which was ratified in March 1988approved by the Company's non-employee directors,stockholders. The
Employment Agreement has an eight-yeara term expiring on March 31, 1995,of five years, and provides that Mr. Schwab:as of each
March 31, the term of the Employment Agreement automatically will receivebe 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.
The Employment Agreement provides for an annual base salary of not less than
$450,000,$800,000,
subject to upwardannual adjustment bybased on increases in the Company's Board of DirectorsConsumer Price Index,
and to be reviewed at least annually by the Board;provides that Mr. Schwab will participate in all compensation and fringe
benefit programs made available to other senior executives;executives, including the
Company's stock incentive plan, except that, in lieu of participating in the
executive bonus plans, Mr. Schwab's annual bonus, if any, will be a multiple of
his base salary, and may participate in other fringe benefitswill be based solely on the Company's performance for the
year relative to net revenue growth and pre-tax profit margin, based on a
supplemental cash
bonus plan as approvedmatrix, adopted by the BoardCommittee from time to time in its discretion. The annual supplemental
cash bonus may not exceed the lesser of $2.5 million or four percent of the
pre-tax net income of the Company computed on a consolidated basis. The
compensation and other benefits may not be less than those being received by Mr.
Schwab on March 31, 1987 (excluding compensation paid or accrued under Schwab's
Long-Term Incentive Plans I and II, which were terminated in 1987) and also may
not be less than those received during the term of the agreement by other
persons rendering comparable services to the Company or Schwab.advance.
The Employment Agreement furtheralso provides that certain continuing compensation and benefits
will be paid or provided to Mr. Schwab or(or his immediate family or estateestate) in
the event that his employment is terminated involuntarily, other than for cause,
prior to March 31, 1995.the expiration of the Employment Agreement. For these purposes,
"cause" is defined as the commission of a substantial breach of the express terms of the
Employment Agreementfelonious act, or willful engaging by Mr. Schwaband gross
negligence or misconduct that results in gross misconduct
materially and demonstrably injuriousmaterial harm to the Company. Mr.
Schwab's resignation following a material change attempted or actually made without Mr. Schwab's
consent, in his capacities or duties at
Schwab or the Company is included in the definition of "involuntary
termination." If thean involuntary termination is for reasons other than death,
disability or cause,for "cause," Mr. Schwab will be entitled to receive through the termfor a period
of the Agreement,thirty-six (36) months all compensation and benefits to which he would have been entitled
had he not been terminated, including his base salary and participation in all
bonus, incentive and other compensation benefit plans for which he was or would
have been eligible (subject(but excluding additional grants under the Company's stock
incentive plan). In addition, all outstanding, unvested awards under the
Company's stock incentive plan will vest fully on the effective date of the
termination. If an involuntary termination is by reason of disability, Mr.
Schwab will be entitled to receive his base salary, less any payments under the
Company's long term disability plan, and benefits (but not bonuses or other
incentive compensation) for a period of thirty-six (36) months from such
termination, and shall also receive a pro-rated portion of any bonus or
incentive payments payable with respect to the minimums
describedyear in which the preceding paragraph).disability
occurs. If thean 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)
months of a change in control of the Company, he shall be entitled to receive a
pro-rated portion of any bonus or disability, compensation and benefits, other than base salary
and health and other insurance, are to be paid onlyincentive payments payable with respect to
the extent accrued
throughyear in which the dateresignation occurs.
In addition, if Mr. Schwab's employment should terminate on account of any
voluntary resignation, or on account of an involuntary termination without reduction for any vesting requirement.
Theoccurring
within twenty-four (24) months of a change in control of
31
the Company, has determined that it would be in its best interests to renew
its Employment Agreement with Mr. Schwab and accordingly has enteredshall have the right (but not the obligation) to enter
into a New
Employment Agreement, effective March 31, 1995, subjectconsulting arrangement under which he would provide certain consulting
services to approval by the stockholders. (See "ApprovalCompany 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 Between The Charlesprecludes Mr. Schwab Corporation and Charles R. Schwab.")from becoming associated with any
business competing with the Company for a period of five years following a
voluntary resignation of employment (except that such covenant would not apply
to a resignation of employment occurring within 24 months of a change in
control of the Company).
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- employeenon-employee director. Pursuant to the Name Assignment,
Mr. Schwab has assigned to the Company all service mark, trademark,
25
and trade
name rights in and to Mr. Schwab's name (and variations thereon) and likeness,
subject to Mr. Schwab's perpetual, exclusive, irrevocable right to use his name
and likeness for any activity other than the financial services business. In
addition, Mr. Schwab will be entitled to use his likeness in the financial
services business, beginning immediately after any termination of his
employment for some purposes (specifically, the sale, distribution, broadcast
and promotion of books, videotapes, lectures, radio programs and television
programs, and also financial planning, provided in the case of financial
planning only that it may not be in direct competition with any business in
which the Company isor its subsidiaries are then engaged or plansplan to enter within
three months) and beginning two years after any termination of his employment
for all other purposes, provided that Mr. Schwab may not use his likeness in a
way that causes confusion as to whether the Company is involved with goods or
services actually marketed by Mr. Schwab or by third parties unrelated to the
Company. Subject to the same prohibition against actual confusion of customers,
Mr. Schwab at all times will be able to use his own name to identify himself
but not as a service mark, trademark or trade name in the financial services
business. The "financial services business" is defined in the Name Assignment
as the business in which Schwab is currently engaged and any additional and
related businesses in which the Company or Schwab is permitted to engage under
rules and regulations of applicable regulatory agencies. The Company's right to
assign or license the right to use Mr. Schwab's name and likeness are severely
constrained during Mr. Schwab's lifetime.
No cash consideration is to be paid to Mr. Schwab for the Name Assignment
while he is employed by the Company or, after that employment terminates, while
he is receiving compensation pursuant to an employment agreement with the
Company. Beginning when all such compensation ceases, and continuing for a
period of 15 years, Mr. Schwab or his estate will receive three tenths of one
percent (0.3%) of the aggregate net revenues of the Company (on a consolidated
basis) and those of its unconsolidated assignees and licensees that use the
name or likeness. These payments may not, however, exceed $2,000,000 per year,
adjusted up or down to reflect changes from the cost of living prevailing in
the San Francisco Bay Area during specified months in 1987, and they will
terminate if the Company and its subsidiaries cease using the name and
likeness.
32
CERTAIN SEVERANCE ARRANGEMENTS
The Name AssignmentCompany has a Change in Control Severance Plan (the "Severance Plan"),
which covers the executive officers 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
within such three-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 her 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
Under the 1992 Stock Incentive Plan, non-employee directors of the Company
receive an annual, automatic option grant covering shares of the Company's
Common Stock. The Company has submitted for stockholder approval a proposal
which increases the annual, automatic option grant to the non-employee
directors of the Company. The proposal increases the option grant from 1,000
shares of Common Stock to either (a) 1,500 shares of Common Stock if the
exercise price, determined as of the grant date, is $35.00 or more, or (b)
2,500 shares of Common Stock if the exercise price, determined as of the grant
date, is less than $35.00.
The following table shows information relating to the proposed increase in
the automatic option grants 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 on the grant date.
33
(1) The 1992 Plan is administered by the Compensation Committee of the Board of
Directors, but the Committee has no discretion with respect to the grant of
nonqualified stock options ("NSOs") to non-employee directors. Under the
1992 Plan, each non-employee director receives an annual grant of an option
on shares of Common Stock. This grant is made on and as of May 15 of each
year, and if May 15 is not affecteda business day, then the grant is made on and as
of the next succeeding business day. The exercise price is 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 purposes of the 1992 Plan,
"fair market value" is defined as the closing price of a share of Common
Stock as reported by the provisionsNew York Stock Exchange Composite Transactions
Index for date of Mr. Schwab's New
Employment Agreement.grant or award, as the case may be.) Options so granted
to non-employee directors are otherwise subject to all the terms and
conditions of the 1992 Plan. The exercise price of an option must be equal
to or greater than the fair market value of Common 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 pay the exercise price of 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 shares in the open market. Schwab remits to the Company the
proceeds from the sale of these shares, and the optionee receives 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.
Under the current federal income tax laws, the federal income tax
consequences of awards under the Plan can be summarized as follows:
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.
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 at the time of exercise over the exercise
price. Such ordinary income will be subject to withholding tax, and the
amount of ordinary income recognized by the optionee generally will be
deductible 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 director will receive an annual, automatic option grant
of either (a) 1,500 shares of Common Stock if the exercise price,
determined as of the grant date, is $35 or more, or (b) 2,500 shares of
Common Stock if the exercise price, determined as of 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 in the ordinary
course of Schwab's business, were made on substantially the same terms
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unaffiliated persons, and did not involve more
than the normal risk of collectibility or present other unfavorable features.
To the extent any employees of the Company wish to purchase Common Stockcommon stock in
brokerage transactions, they ordinarily are required to do so through Schwab.
Schwab offers its employees a 20% discount on its standard commission rates for
all brokerage transactions.
26
APPOINTMENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has selected Deloitte & Touche LLP as the Company's
independent certified public accountants for the current fiscal year. Through
its predecessor, Deloitte Haskins & Sells, Deloitte & Touche LLP has served as
the accountants for the Company or Schwab since 1976. Representatives of
Deloitte & Touche LLP are expected to be present at the Annual Meeting to
respond to appropriate questions from stockholders and will have the
opportunity to make a statement.
STOCKHOLDER PROPOSALS
Any stockholder proposal submittedDirector nominations, proposals and other business which stockholders wish to
be included inpresent at the proxy materials
distributed by the Company in connection with the 19961997 Annual Meeting of Stockholders must be received by the
Company at its principal executive office
no later than November 24, 1995.March 7, 1997.
BY ORDER OF THE BOARD OF DIRECTORS
MARY/s/ Mary B. TEMPLETON
CORPORATE SECRETARYTempleton
Mary B. Templeton
Corporate Secretary
March 24, 199522, 1996
San Francisco, California
2735
PROXYEXHIBIT A
AMENDMENT TO THE CHARLES SCHWAB CORPORATION PROXY
This Proxy1992 STOCK INCENTIVE PLAN
The Compensation Committee of the Company has adopted the following amendment
to Section 4.2(a) of the 1992 Stock Incentive Plan, effective upon approval of
this amendment by the stockholders the Annual Meeting.
Each Non-Employee Director shall receive an NSO covering 2,500 Common
Shares for each Award Year with respect to which he or she serves as a Non-
Employee Director on the grant date described in subsection (b) below;
provided that the NSO shall cover 1,500 shares if the Exercise Price,
determined as of the grant date, is Solicited on Behalf of the$35 or more;
EXHIBIT B
AMENDMENT TO THE ARTICLES OF INCORPORATION
The Board of Directors forhas adopted the following amendments to Articles
FOURTH, FIFTH, SIXTH, SEVENTH, NINTH, ELEVENTH and TWELFTH in the Articles of
Incorporation, effective upon approval by the stockholders at the Annual
MeetingMeeting:
1. By deleting paragraph A of Stockholders on May 8, 1995
The undersigned hereby appoints Charles R. SchwabArticle FOURTH and Lawrence J. Stupski,
or either of them, proxies with full power of substitution in each to represent
and to vote, in accordancereplacing it with the
instructions set forth in this proxy,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 Bylaws of the Corporation may be made, altered, amended, or
repealed, and new Bylaws may be adopted, by the Board of Directors at any
regular or special meeting by the affirmative vote of a majority of those
directors present at any meeting of the directors; subject, however, to the
right of the stockholders to alter, amend or repeal any Bylaws made or
amended by the directors. Notwithstanding the foregoing, after the 1996
Annual Meeting of Stockholders, Sections 2.06, 2.10, 3.02, 3.05, 3.06 and
8.04 of the Corporation's Bylaws may not be amended, altered or repealed,
nor may any provision inconsistent with such Sections be adopted, except by
the affirmative vote of the holders of no less than 80% of the total voting
power of all shares of the Corporation entitled to vote generally in the
election of directors, voting together as a single class.
4. By deleting Article SIXTH and replacing it with the following:
SIXTH.
(A) Number, Election and Terms. Except as otherwise fixed by or pursuant
to the provisions of Article FOURTH hereof relating to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation to elect additional directors
under specified circumstances, the number of the directors of the Board of
the Corporation shall be fixed from time to time exclusively pursuant to a
resolution adopted by a majority of the total number of directors which the
Corporation would have if there were no vacancies. Commencing with the 1996
annual meeting of stockholders, the directors, other than those who may be
elected by the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation, shall be
classified, with respect to the time for which they severally hold office,
into three classes, as nearly
equal in number as is reasonably possible, one class to be originally
elected for a term expiring at the annual meeting of stockholders to be
held in 1997, the second class to be originally elected for a term expiring
at the annual meeting of stockholders to be held in 1998, and the third
class to be originally elected for a term expiring at the annual meeting of
stockholders to be held in 1999, with each director to hold office until
his or her successor is duly elected and qualified. At each annual meeting
of the stockholders of the Corporation, commencing with the 1997 annual
meeting, the successors of the class of directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the
annual meeting of stockholders held in the third year following the year of
their election, with each director to hold office until his or her
successor shall have been duly elected and qualified.
(B) Stockholder nomination of director candidates. Advance notice of
stockholder nominations for the election of directors shall be given in the
manner provided in the Bylaws of the Corporation.
(C) Vacancies. Subject to applicable law and except as otherwise provided
for in or fixed by or pursuant to the provisions of Article FOURTH hereof
relating to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon
liquidation to elect directors under specified circumstances, and unless
the Board of Directors otherwise determines, vacancies resulting from
death, resignation, retirement, disqualification, removal from office or
other cause, and newly created directorships resulting from any increase in
the authorized number of directors, may be filled only by the affirmative
vote of a majority of the remaining directors, though less than a quorum of
the Board of Directors, and directors so chosen shall hold office for a
term expiring at the annual meeting of stockholders at which the term of
office of the class to which they have been elected expires and until such
director's successor shall have been duly elected and qualified. No
decrease in the number of authorized directors constituting the Board of
Directors of the Corporation shall shorten the term of any incumbent
director.
(D) Removal. Subject to the rights of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation to
elect directors under specified circumstances, any director may be removed
from office at any time, but only for cause and only by the affirmative
vote of the holders of 80% of the combined voting power of the then
outstanding shares of stock entitled to vote generally in the election of
directors, voting together as a single class.
5. By deleting Article SEVENTH and replacing it with the following:
SEVENTH. Elections of directors 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 for
any nominee for election to the Board of Directors of the Corporation a
number of votes greater than the number of the stockholder's shares).
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 directors of the Board of the Corporation shall be fixed
from time to time exclusively pursuant to a resolution adopted by a
majority of the total number of directors which the Corporation would have
if there were no vacancies. Commencing with the 1996 annual meeting of
stockholders, the directors, other than those who may be elected by the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, shall be classified, with
respect to the time for which they severally hold office, into three
classes, as nearly equal in number as is reasonably possible, one class to
be originally elected for a term expiring at the annual meeting of
stockholders to be held in 1997, the second class to be originally elected
for a term expiring at the annual meeting of stockholders to be held in
1998, and the third class to be originally elected for a term expiring at
the annual meeting of stockholders to be held in 1999, with each director
to hold office to hold office until his or her successor is duty elected
and qualified. At each annual meeting of the stockholders of the
Corporation, commencing with the 1997 annual meeting, the successors of the
class of directors whose term expires at that meeting shall be elected to
hold office for a term expiring at the annual meeting of stockholders held
in the third year following the year of their election, with each director
to hold office until his or her director shall have been duly elected and
qualified.
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 of The Charles
Schwab Corporation set forth(the "Corporation") in the State of Delaware shall be at
1209 Orange Street, Wilmington, Delaware, and the name of the registered
agent at that address shall be the Corporation Trust Company.
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, 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
reverse side, whichstock 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 undersigned hasmeeting from time to time, whether or not there is such a
quorum. No notice of the powertime 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 Annual Meeting of Stockholdersmeeting and who
complies with the notice procedures set forth in this Bylaw.
(ii) For nominations or other business to be held on May 8, 1995, or at any adjournment
thereof. The proxies are authorizedproperly 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 their discretionwriting to vote uponthe 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 may properly comedescribed 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 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); (B) as to any other business that
the stockholder proposes to bring before the meeting.
THIS PROXY ALSO RELATES TO SHARES HELD UNDER THE CHARLES SCHWAB CORPORATION
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN.
Your votemeeting, a brief
description of the
2
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 important! Please signmade; and date(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 reverseCorporation's books, and return
promptlyof such
beneficial owner and (2) the class and number of shares of the
Corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.
(iii) Notwithstanding anything in the enclosed postage-paid envelopesecond sentence of paragraph
(a)(ii) of this Bylaw to the contrary, in the event that the number of
directors to be elected to the Board of the Corporation is increased
and there is no public announcement by the Corporation naming all of
the nominees for director or otherwisespecifying the size of the increased Board
at least 70 days prior to P. O. Box 830,
Chicago, IL 60690-9972 so that your shares canthe first anniversary of the preceding year's
annual meeting, a stockholder's notice required by this Bylaw shall
also be representedconsidered timely, but only with respect to nominees for any
new positions created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the Corporation not
later than the close of business on the 10th day following the day on
which such public announcement is first made by the Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been
brought before the meeting pursuant to the Corporation's notice of
meeting.
THE CHARLES SCHWAB CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. / /
This Proxy willNominations of persons for election to the Board may be voted as directed. If nomade
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 made, it willa stockholder of record at the
time of giving of notice provided for in this Bylaw, who shall be
voted
"FOR"entitled to vote at the proposalsmeeting and who complies with the notice
procedures set forth below. Thein 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 Directors recommendsmeeting, 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 announcement of an
adjournment of a special meeting commence a new time period for the
giving of a stockholder's notice as described above.
(c) General. (i) Only such persons who are nominated in accordance
with the procedures set forth in this Bylaw shall be eligible to serve
as directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in
accordance with the procedures set forth in this Bylaw. Except as
otherwise provided by law, the Chairman of the
3
meeting shall have the power and duty to determine whether a nomination
or any business proposed to be brought before the meeting was made or
proposed, as the case may be, in accordance with the procedures set
forth in this Bylaw and, if any proposed nomination or business is not
in compliance with this Bylaw, to declare that such defective proposal
or nomination shall be disregarded.
(ii) For purposes of this Bylaw, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(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 "FOR"by ballot" from the proposals.
1.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--
Nominees: Charles R. Schwab, Lawrence J. Stupski, David S. Pottruck, Nancy
H. Bechtle, C. Preston Butcher, Donald G. Fisher, Anthony M. Frank, James R.
Harvey, Stephen T. McLin, and Roger O. Walther.
/ / FOR / / WITHHOLD / / FOR ALL (Except Nominee(s) written below)
------------------------------------------------------
2. ApprovalDirectors; Required Vote.
Election of directors at all meetings of the Employment Agreement betweenstockholders 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 meeting of the Board or of the stockholders, provided notice of the
proposed change was given in the notice of the meeting and, in the case of
a meeting of the Board, in a notice given not less than two days prior to
the meeting; provided, however, that, in the case of amendments by
stockholders, notwithstanding any other provisions of these Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but
in addition to any affirmative vote of the holders of any particular class
or series of the capital stock of the Corporation required by law, the
Certificate of Incorporation of these Bylaws, the affirmative vote of the
holders of at least 80% of the total voting power of all the then
outstanding shares of Voting Stock of the Corporation, voting together as a
single class, shall be required to alter, amend or repeal this Section 8.04
or any provision of Sections 2.06, 2.10, 3.02, 3.05 and 3.06 of these
Bylaws.
5
NOTICE
OF
ANNUAL
STOCKHOLDERS
MEETING
AND
PROXY
STATEMENT
---------
1996
-----------
The
Charles
Schwab
Corporation
and Charles R. Schwab.
/ / FOR / / WITHHOLD / / ABSTAIN
3. Approval of the Amendments to the Annual Executive Bonus Plan.
/ / FOR / / WITHHOLD / / ABSTAIN
Dated: ,1995
-----------------------------
Signatures:
-----------------------------
----------------------------------------
NOTE: Please sign exactly as
name appears hereon. Joint
owners should each sign. When
signing as a fiduciary or for
an estate, trust, corporation
or partnership, your title or
capacity should be stated.-----------
CRS 10377 (3/96)
DIRECTION TO PURCHASING AGENT, CHARLES SCHWAB PROFIT SHARING
AND EMPLOYEE STOCK OWNERSHIP PLAN
To: Bankers Trust Company of California, N.A.
I direct you as Purchasing Agent of the Charles Schwab Profit Sharing and
Employee Stock Ownership Plan to vote (in person or by proxy) as I have
indicated on the reverse side all shares of The Charles Schwab Corporation stock
allocated to my ESOP account or in which I have a proportionate interest under
my Profit Sharing and/or Salary Deferral 401(k) accounts at the Annual Meeting
of Stockholders of The Charles Schwab Corporation on May 8, 1995.6, 1996. You may vote
according to your discretion (or that of yourthe proxy holder) on any other matter
that may properly come before the meeting.
Your vote is important! Please sign and
date on the reverse and return promptly
in the enclosed postage-
paidpostage-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/[X] Please mark votevotes 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""For" the
proposals. The Board of Directors recommends a vote "FOR" the following
proposals.
1. Election of Directors--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 all nominees from all nominees from the following nominee(s):
---------------------------------------------------------------------------------------------------------------------------------------------------------
2. Approval of an increase in the Employment Agreement between The Charles Schwab Corporation
and Charles R. Schwab.
/ /authorized number of shares of
Common Stock.
[ ] FOR / / WITHHOLD / /[ ] AGAINST [ ] ABSTAIN
3. Approval of Amendment to the 1992 Stock Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Approval of Amendments to the Annual Executive Bonus Plan.
/ /Certificate of Incorporation.
[ ] FOR / / WITHHOLD / /[ ] AGAINST [ ] ABSTAIN
Dated: ,1995
------------------------
------------------------------Dated , 1996
----------------------
----------------------------------
Signature
Please sign exactly as name
appears hereon.
[BUSINESS REPLY U.S. POSTCARD]
ANNUAL MEETING TICKET REQUEST
DEAR STOCKHOLDER:
Please provide your name and address below or call (415) 296-5153, if you plan
to attend the Annual Meeting in San Francisco on May 8, 1995, and an admission
ticket will be sent to you.
---------------------------------------------------------------------------
NAME
---------------------------------------------------------------------------
ADDRESS
---------------------------------------------------------------------------
CITY STATE ZIP
To help us address your questions at the Annual Meeting, please write them in
the space below and return this postcard back to us by April 30, 1995.
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
[LOGO]
March 24, 1995
Dear Plan Participant:
As an owner of The Charles Schwab Corporation (the "Company") through the
Charles Schwab Profit Sharing and Employee Stock Ownership Plan (the "Plan"),
you have an interest in the Company's Annual Meeting of Stockholders to be held
on May 8, 1995.
You have the opportunity to direct the Plan Trustee's Purchasing Agent to
vote the shares of common stock allocated to your ESOP account and/or in which
you have a proportionate interest under your Profit Sharing and/or Salary
Deferral 401(k) accounts (the "Plan Shares"). Enclosed are a Proxy Statement
describing the proposals under consideration and a Direction to Purchasing Agent
with respect to the voting of your Plan Shares. The Company's Board of
Directors recommends that you vote "FOR" the proposals.
Please complete, sign and return the enclosed Direction to Purchasing Agent
in the envelope provided. If you sign and return it without making any specific
voting directions, your Plan Shares will be voted in accordance with the Board
of Directors' recommendations. The Direction to Purchasing Agent also gives the
Purchasing Agent the authority to vote on your behalf at its discretion (or that
of the Purchasing Agent's proxy holder) on any other matters which may properly
come before the meeting.
If you don't sign and return your Direction to Purchasing Agent, your Plan
Shares will not be voted unless the Purchasing Agent is required by applicable
law to exercise its discretion to vote such shares.
Participants who own shares of the Company's common stock by means other
than the Plan will receive a separate proxy for voting of those shares.
To ensure that your Plan shares are represented and voted at the meeting,
your signed Direction to Purchasing Agent must be received by May 4, 1995.
We urge you to exercise your voting rights. If you have questions about
your stockholder's rights or the Direction to Purchasing Agent, please call
Pamela Herlich at (415) 296-5153.
Sincerely,
/s/ ED VALENCIA
Luis E. Valencia
Executive Vice President, Human Resources
EXHIBIT TO PROXY STATEMENT DATED MARCH 24, 1995 AND FILED BY THE CHARLES SCHWAB
CORPORATION IN CONNECTION WITH THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
MONDAY, MAY 8, 1995
The following is submitted pursuant to Instruction 3 of Item 10 of Schedule 14A
and is not a part of the Proxy Statement and has not been delivered to
Stockholders with the Proxy. This exhibit consists of the plan documents of the
Employment Agreement between The Charles Schwab Corporation and Charles R.
Schwab, which has been submitted to Stockholders for approval, and the Corporate
Executive Bonus Plan, amendments to which have been presented to Stockholders
for approval.
EMPLOYMENT AGREEMENT
This Agreement is made and entered into as of March 31, 1995 by and between
The Charles Schwab Corporation, a Delaware Corporation (hereinafter referred to
as the "Company"), and Charles R. Schwab, an individual hereinafter referred to
as the "Executive") effective March 31, 1995.
WITNESSETH:
WHEREAS, the Company desires to reward the Executive for his continuing
contribution to the Company and provide additional security for the Executive
and to provide an inducement to the Executive to remain with the Company and not
to engage in competition with it.
NOW THEREFORE, in consideration of the mutual obligations herein contained,
the parties hereto, intending to be legally bound hereby, covenant and agree as
follows:
1. EMPLOYMENT
(a) The Company hereby employs the Executive to render services to the
Company in the positions of Chairman of the Board and Chief Executive Officer,
in the capacity defined in the By-laws of the Company, as may be amended from
time to time. The Executive shall perform such duties commensurate with his
position and shall have full authority and responsibility, subject to the
control of the Board of Directors, for the overall strategic direction,
management, and leadership of the Company.
(b) Throughout the term of this Agreement, the Executive shall devote his
full business time and undivided attention to the business and affairs of the
Company and its subsidiaries, except for reasonable vacations and except for
illness or incapacity, but nothing in the Agreement shall preclude the Executive
from devoting reasonable periods required for serving, as appropriate, on Boards
of Directors of other companies, and from engaging in charitable and public
service activities provided such activities do not materially interfere with the
performance of his duties and responsibilities under this Agreement.
2. TERM
This Agreement shall commence on March 31, 1995, and shall continue through
March 31, 2000, subject to the terms and conditions herein set forth. Beginning
on March 31, 1996, and on each subsequent anniversary of this date, one year
shall be added to the term of the Agreement, unless, prior to such anniversary,
the Company or the Executive has notified the other party hereto that such
extension will not become effective.
3. COMPENSATION
For services rendered by the Executive during the term of this Agreement, and
for his performance of all additional obligations of employment, the Company
agrees to pay the Executive and the Executive agrees to accept the following
salary, other compensation, and benefits:
(a) Base Salary. During the term of this Agreement, the Company shall pay
the Executive in periodic installments, a base salary at the annual rate of
$800,000, such base salary to be reviewed on March 31, 1996, and on each
subsequent anniversary, taking into account, among other things, individual
performance, competitive practice, and general business conditions.
(b) Annual Incentive. In addition to the base salary provided in Section
3(a) above, the Executive shall be eligible to receive an annual incentive award
based upon the Company's attainment of pre-established performance targets
relative to specified performance standards. The performance standards upon
which annual incentive payments will be earned shall be defined to include
consolidated pretax profit margin (defined as net income before taxes, divided
by net revenue) and annual net revenue percentage growth of the Company.
For each fiscal year during the term of this Agreement, the Executive's
incentive opportunity shall be computed as the amount of total cash compensation
earned pursuant to the formula-based matrix, which shall be adopted each year by
the Compensation Committee of the Board of Directors of the Company, minus the
Executive's actual base salary paid during that year. For the 1995 fiscal year,
the target total annual cash compensation amount (including base salary) is
$3,500,000; therefore, the incentive target is $2,700,000 for achieving
specified pretax profit margin and revenue growth objectives.
The formula-based matrix, as amended at the sole discretion of the Board of
Directors, shall be the sole basis for determining the Executive's annual
incentive award. For each calendar year for which this Agreement is in effect,
beginning with the calendar year 1996, the interior values in the formula-based
matrix shall be increased by a fraction, based on the U.S. Consumer Price Index
(for all consumers, as published by the Bureau of Labor Statistics); provided
that no interior value shall be increased above $12 million. The fractional
increase shall be the CPI for that year divided by the CPI for calendar year
1995. The Compensation Committee of the Board shall annually review and approve
the performance standards and targets with respect to the Executive's incentive
opportunity, which review and approval shall be completed no later than the 90th
day of the Company's fiscal year for which such incentive opportunity may be
earned.
(c) Long-Term Incentive. The Executive will be considered for stock
options in accordance with the Company's 1992 Stock Incentive Plan, as amended,
or any successor thereto ("Stock Option Program") and any other long-term
incentives offered to other executives of the Company from time to time during
the term of this Agreement.
(d) Benefits. The Executive shall be entitled to participate, as long as
he is an employee of the Company, in any and all of the Company's
present or future employee benefit plans, including without limitation pension
plans, thrift and savings plans, insurance plans, and other benefits that are
generally applicable to the Company's executives; provided, however, that the
accrual and/or receipt by the Executive of benefits under and pursuant to any
such present or future employee benefit plan shall be determined by the
provisions of such plan.
(e) Perquisites. The Executive will be provided such additional
perquisites as are customary for senior level executives of the Company provided
that each perquisite is approved by the Board of Directors.
(f) Business Expenses. The Executive will be reimbursed for all
reasonable expenses incurred in connection with the conduct of the Company's
business upon presentation of evidence of such expenditures, including but not
limited to travel expenses incurred by the Executive in the performance of his
duties, security for the Executive, his family, and principal residence,
professional organization dues, and club initiation fees, dues and expenses.
(g) Any annual incentive award earned by Executive under this Section 3
shall be paid as soon as reasonably practical after the end of the Company's
fiscal year end; provided, however, that if any such payment would be
nondeductible to the Company under Internal Revenue Code Section 162(m), then
any nondeductible amounts shall be deferred from year to year until the payment
of such amounts is deductible by the Company.
4. TERMINATION OF EMPLOYMENT
(a) Resignation. Notwithstanding Section 2 hereof, this Agreement may be
terminated by the Executive at any time upon six (6) months written notice of
resignation by the Executive to the Company, and in such event any payments
pursuant to Section 3 and 4 of this Agreement shall automatically terminate
(except for the Company's obligations relating to voluntary termination under
its compensation and benefit plans, as specified in the various plan documents,
and the Executive's obligations set forth in Section 5). Subsequent payments
may be made to the Executive as provided pursuant to Section 6 of this
Agreement.
(b) Termination by the Company Other Than for Cause. Termination of the
Executive by the Company other than for Cause, as defined in Section 4(c) below,
shall cause the Company to make payments to the Executive hereunder pursuant to
the provisions of this Section 4(b). Such a termination shall require at least
sixty (60) business days' prior notice and must be signed by at least
three-fourths (3/4) of all the non-employee members of the Board of Directors.
Notwithstanding anything to the contrary contained in the Stock Option Program
or any agreement or document related thereto, the Executive's total outstanding
and unvested shares and/or options under the Stock Option Plan shall at the date
of termination be deemed to be 100% vested. No further grants of stock or
options shall be made under the Plan after such termination.
With respect to base salary and annual incentive compensation, the Company's
obligation shall be to pay the Executive, according to the terms of this
Agreement and for a period of thirty-six (36) months, an amount equal to the
annual salary and incentive paid to the Executive [at the bonus level for the
year prior to which such termination occurs unless performance of the Company as
defined in the matrix referenced in Section 3(b) is better in the year of
termination, in which event such bonus shall be based on the matrix calculation
as described in Section 3(b)], such annual amounts to be paid in equal monthly
installments.
During the 36-month severance payment period, the Executive shall be entitled
to all payments, benefits and perquisites as provided for in this Agreement, and
office space and secretarial support comparable to that provided to the
Executive during his employment by the Company. The Executive shall be
entitled to all payments and benefits as provided for in this Section for a
period of thirty-six (36) months.
If the Board of Directors fails to reelect the Executive to a position
comparable to that described in Section 1(a) of this Agreement or, without
terminating the Executive's employment, removes the Executive from his position
for reasons other than Cause, substantively reduces the Executive's duties and
responsibilities, reduces his pay and/or benefits, forces relocation, or
requires excessive travel, then the Executive may, by notice to the Company,
treat such action or removal as a termination of the Executive by the Company
pursuant to this Section 4(b).
In the event of the Executive's death before the completion of the payments
pursuant to this Section 4(b), the remaining payments hereunder shall be made to
the beneficiary or beneficiaries designated by the Executive to the Company in
writing or, absent such a designation, to his estate.
(c) Termination by the Company for Cause. The Company may terminate the
Executive's employment for Cause if the Executive has committed a felonious act,
or the Executive, in carrying out his duties hereunder has been willfully and
grossly negligent or has committed willful and gross misconduct resulting, in
either case, in material harm to the Company. An act or omission shall be
deemed "willful" only if done, or omitted to be done, in bad faith and without
reasonable belief that it was in the best interest of the Company. In the event
of termination of the Executive by the Company for Cause, the Executive shall no
longer be entitled to receive any payments or any other rights or benefits under
this Agreement.
(d) Disability. In the event the Executive's employment terminates due to
total and permanent disability (for the purposes of this Agreement "disability"
shall have the same meaning as applies under the Company's Long-Term Disability
Plan), he will continue to receive the same base salary and benefits which he
was receiving prior to such disability for 36 months, offset by payments under
the Company's Long-Term Disability Plan. In addition, he shall receive a
pro-rated annual incentive payment for the year in which his
employment is terminated, based on the formula described in Section 3(b).
(e) Death. In the event of the death of the Executive during the term of
this Agreement, the rights and benefits under employee benefit plans and
programs of the Company, including life insurance, will be determined in
accordance with the terms and conditions of such plans and programs as in effect
on his date of death. In such event, the Company shall pay in a lump sum to the
Executive's estate an amount equal to five times the then current rate of the
Executive's base salary, and no further payments shall be required pursuant to
this Agreement.
(f) Change in Control. In the event of a change in control of the
Company, as set forth below, the Executive may at any time and in his complete
discretion during a 24-month period following a change in control, elect to
terminate his employment with the Company. For purposes of this Agreement, a
"change in control" shall mean a change in ownership of the Company that would
be required to be reported in response to Item 1(a) of a Current Report on Form
8-K pursuant to the Securities and Exchange Act of 1934 ("Exchange Act"), as in
effect on the date hereof, except that any merger, consolidation or corporate
reorganization in which the owners of the capital stock entitled to vote in the
election of directors of the Employer or the Company ("Voting Stock") prior to
said combination, own 75% or more of the resulting entity's Voting Stock shall
not be considered a change in control for the purposes of this Agreement;
provided that, without limitation, such a change in control shall be deemed to
have occurred if (i) any "person" (as that term is used in Sections 13(d) and
14(d)(2) of the Exchange Act), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company is or becomes the
beneficial owners (as that is used in Section 13(d) of the Exchange Act),
directly or indirectly, of 30% or more of the Voting Stock of the Company or its
successor; or (ii) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of Directors of the Company
("Incumbent Board") cease for any reason to constitute at least a majority
thereof; provided, however, that any person becoming a director of the Company
after the beginning of the period whose election was approved by a vote of at
least three-quarters of the directors comprising the incumbent Board shall, for
the purposes hereof, be considered as though he were a member of the incumbent
Board; or (iii) there shall occur the sale of all or substantially all of the
assets of the Company. Notwithstanding anything in the foregoing to the
contrary, no change in control of the Company shall be deemed to have occurred
for purposes of this Agreement by virtue of any transaction which results in the
Executive, or a group of persons which includes the Executive acquiring,
directly or indirectly, more than 30 percent of the combined voting power of the
Company's outstanding securities. If any of the events constituting a change in
control shall have occurred during the term hereof, the Executive shall be
entitled to the privilege provided in subparagraph (f) herein to terminate his
employment. Any termination by the Executive pursuant to this Section shall be
communicated by a written "Notice of Termination."
If, following a change in control, the Executive shall for any reason
voluntarily terminate his employment during the 24-month period following a
change in control, then the Company shall pay base salary up to the date of
termination and a prorated annual incentive award based on the calculated bonus
for the year in which termination occurred, as defined in Section 3(b), in a
lump sum on the thirtieth (30th) day following the Date of Termination.
5. COVENANT NOT TO COMPETE
(a) As a material inducement to the Company's entering into this
Agreement, the Executive agrees that during the term of this Agreement, he will
not become associated with, render service to or engage in any other business
competitive with any existing or contemplated business of the Company or its
subsidiaries, except that the Executive may serve as a member of the board of
directors of other companies or organizations, provided that he provides written
notice to the Board of each significant activity, and that he will do nothing
inconsistent with his duties and responsibilities to the Company.
(b) If the Executive voluntarily resigns from the employ of the Company
prior to the expiration of the term of this Agreement, he specifically agrees
that for a period of five (5) years commencing with the date of his voluntary
resignation he will not engage in or perform any services either on a full-time
or a part-time or on a consulting or advisory basis for any business
organization that is in competition with the Company at the time such services
are being performed by Executive, with the exception that this Section 5(b)
shall not apply in the event the Executive resigns voluntarily following a
change in control of the Company as defined in Section 4(f).
(c) The Executive will not at any time, whether while employed by the
Company or after voluntary or involuntary termination or after retirement,
reveal to any person, firm or entity any trade or business secrets or
confidential, secret, or privileged information about the business of the
Company or its subsidiaries or affiliates except as shall be required in the
proper conduct of the Company's business.
6. CONSULTING ARRANGEMENT
Following a voluntary termination of employment pursuant to Section 4(a) and
4(f), or an involuntary termination subsequent to a change in control of the
Company, for any reason but during a 24-month period following a change in
control as defined in Section 4(f), after the Executive ceases to render
services as the Chief Executive Officer, he may in his sole discretion elect to
act as a consultant to the Company for a period of five (5) years. During this
period of consulting services, the Executive shall, at reasonable times and
places, taking into account any other employment or activities he may then have,
hold himself available to consult with and advise the officers, directors, and
other representatives of the Company. As compensation therefore, the Executive
shall be entitled to receive, and Company shall pay, an annual amount equal to
seventy-five percent (75%) of his annual base salary rate in effect immediately
prior to his termination of employment, but in no
event an annual amount to exceed $1,000,000, for each year of such period,
payable in equal monthly installments.
7. WITHHOLDING
All amounts payable hereunder which are or may become subject to withholding
under pertinent provisions of law or regulation shall be reduced for applicable
income and/or employment taxes required to be withheld.
8. MISCELLANEOUS
(a) This Agreement supersedes any prior agreements or understandings, oral
or written, with respect to employment of the Executive and constitutes the
entire Agreement with respect thereto; provided, however, that nothing contained
herein shall supersede that certain Assignment and License Agreement entered
into as of March 31, 1987, as amended. This Agreement cannot be altered or
terminated orally and may be amended only by a subsequent written agreement
executed by both of the parties hereto or their legal representatives, and any
material amendment must be approved by a majority of the voting shareholders of
the Company.
(b) This Agreement shall be governed by and construed in accordance with
the laws of the State of California.
(c) This Agreement shall be binding upon and shall inure to the benefit of
the Company and its successors and assigns. In that this constitutes a personal
service agreement, it may not be assigned by the Executive and any attempted
assignment by the Executive in violation of this covenant shall be null and
void.
(d) For the purpose of this Agreement, the phrase "designated beneficiary
or beneficiaries" shall include the estates of such beneficiaries in the event
of their death before the receipt of all payments under this Agreement and shall
also include any alternate or successor beneficiaries designated in writing to
the Company by the Executive.
(e) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provisions, which
shall remain in full force and effect.
(f) The Section and Paragraph headings contained herein are for reference
purposes only and shall not in any way affect the meanings or interpretation of
this Agreement.
(g) Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of arbitrators in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrators award in
any court having jurisdiction. The expense of such arbitration shall be borne
by the Company.
(h) Any notices, requests or other communications provided for by this
Agreement shall be sufficient if in writing and if sent by registered or
certified mail to the Executive at the last address he has filed in writing with
the Company or, in the case of the Company, at its principal offices.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
Company:
ATTEST THE CHARLES SCHWAB CORPORATION
By: /s/ Mary B. Templeton By: /s/ Luis E. Valencia
------------------------- -------------------------
Corporate Secretary
Title: Executive Vice President --
Human Resources
---------------------------
Executive: /s/ Charles R. Schwab
---------------------------
Charles R. Schwab
THE CHARLES SCHWAB CORPORATION
CORPORATE EXECUTIVE BONUS PLAN
THE CHARLES SCHWAB CORPORATION
CORPORATE EXECUTIVE BONUS PLAN
I. Purposes
The purposes of this Corporate Executive Bonus Plan (the "Plan") are: (a) to
provide greater incentive for key executives continually to exert their best
efforts on behalf of The Charles Schwab Corporation (the "Company") by rewarding
them for services rendered with compensation that is in addition to their
regular salaries; (b) to attract and to retain in the employ of the Company
persons of outstanding competence; and (c) to further the identity of interests
of such employees with those of the Company's shareholders through a strong
performance-based reward system.
II. Form of Awards
1. Incentive compensation awards under this Plan shall be granted in cash,
less any applicable withholding taxes.
III. Determination of Awards
1. Incentive awards for participants other than the President shall be
determined quarterly according to a Corporate Performance Payout Matrix that
shall be adopted at the beginning of each year by the Compensation Committee of
the Board of Directors (the "Committee"). The Management Committee Corporate
Performance Payout Matrix shall use net revenue growth and consolidated pretax
profit margin as the financial performance criteria to determine awards. Awards
shall be defined by reference to a target percentage of base salary determined,
from time to time, by the Committee. Payouts described in this subsection shall
be calculated and paid on a quarterly basis, based on year-to-date performance
compared with the comparable period in the preceding year.
2. With respect to payments made pursuant to Section III.1, the amount of base
salary included in the computation of incentive awards shall not exceed 250% of
the base salary in effect for the officer holding the same or substantially
similar position on March 31, 1995. In addition, the maximum target incentive
percentage shall be 100% of base salary for the Vice Chairman and 50% of base
salary for the remaining participants (other than the President), and the
maximum award for such individuals shall be 300% of the
individual's target award.
3. Incentive awards for the President shall be determined in accordance with a
Corporate Performance Payout Matrix that shall be adopted at the beginning of
each year by the Committee. The Committee shall determine the President's award
each year, up to the maximum amount defined by the matrix for a given level of
performance. This matrix may, if the Committee deems appropriate, differ from
that described in Subsection III.1. However, the performance criteria shall be
the same as referred to above. Payouts for the President shall be made on an
annual basis, based on the Company's results for the full year.
4. The maximum award payable for the President under this plan shall be no
more than 500% of his target incentive award. The target incentive amount shall
be determined each year by the Committee, but may not exceed 300% of base
salary. The amount of base salary taken into account for purposes of computing
the target incentive award may not exceed 250% of the President's base salary as
of March 31, 1995.
IV. Administration
1. Except as otherwise specifically provided, the Plan shall be administered
by the Committee. The Committee members shall be appointed pursuant to the
Bylaws of the Company, and the members thereof shall be ineligible for awards
under this Plan for services performed while serving on said Committee.
2. The decision of the Committee with respect to any questions arising as to
interpretation of the Plan, including the severability of any and all of the
provisions thereof, shall be, in its sole and absolute discretion, final,
conclusive and binding.
V. Eligibility for Awards
1. Awards under the Plan may be granted by the Committee to those employees
who have contributed the most in a general way to the Company's success by their
ability, efficiency, and loyalty, consideration being given to ability to
succeed in more important managerial responsibility in the Company. This is
intended to include the President and Chief Operating Officer, Vice Chairman,
Executive Vice Presidents, and from time to time, certain other officers having
comparable positions.
No award may be granted to a member of the Company's Board of Directors except
for services performed as an employee of the Company.
2. Except in the event of retirement, death, or disability, to be eligible for
an award an employee shall be employed by the Company as of the date awards are
calculated and approved by the Committee under this Plan.
3. For purposes of this Plan, the term "employee" shall include an employee of
a corporation or other business entity in which this Company shall directly or
indirectly own 50% or more of the outstanding voting stock or other ownership
interest.
VI. Awards
1. The Committee shall determine each year the payments, if any, to be made
under the Plan. Awards for any calendar year shall be granted not later than
the end of the first quarter of the calendar year, and payments pursuant to the
Plan shall be made as soon as practicable after the close of each calendar
quarter (or, in the case of the President, as soon as practicable after the
close of each calendar year).
2. Upon the granting of awards under this Plan, each participant shall be
informed of his or her award by his or her direct manager and that such award is
subject to the applicable provisions of this Plan.
VII. Deferral of Awards
1. A participant in this Plan who is also eligible to participate in The
Charles Schwab Corporation Deferred Compensation Plan may elect to defer
payments pursuant to the terms of that plan.
VIII. Recommendations and Granting of Awards
1. Recommendations for awards shall be made to the Committee by the Chief
Executive Officer and, with respect to participants other than the President and
Vice Chairman, the President.
2. Any award shall be made in the sole discretion of the Committee, which
shall take final action on any such award. No person shall have a right to an
award under this Plan until final action has been taken granting such award.
IX. Amendments and Expiration Date
While it is the present intention of the Company to grant awards annually, the
Committee reserves the right to modify this Plan from time to time or to repeal
the Plan entirely, or to direct the discontinuance of granting awards either
temporarily or permanently; provided, however, that no modification of
this plan shall operate to annul, without the consent of the beneficiary, an
award already granted hereunder; provided, also, that no modification without
approval of the stockholders shall increase the maximum amount which may be
awarded as hereinabove provided.
X. Miscellaneous
All expenses and costs in connection with the operation of this Plan shall be
borne by the Company and no part thereof shall be charged against the awards
anticipated by the Plan. Nothing contained herein shall be construed as a
guarantee of continued employment of any participant hereunder. This Plan shall
be construed and governed in accordance with the laws of the State of
California.