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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to SectionPROXY STATEMENT PURSUANT TO SECTION 14(a) of the Securities Exchange Act ofOF THE SECURITIES
EXCHANGE ACT OF 1934
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)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c)Rule 14a-11(c) or sec. 240.14a-12Rule 14a-12
The Charles Schwab Corporation
- -----------------------------------------------------------------------------------------------------------------------------------------------------------
(Name of Registrant as Specified in itsIts Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Feefiling fee (Check the appropriate box)
[X]:
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
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N/A
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: N/A
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4)0-11 (Set forth the amount on which the filing
fee was calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
N/A
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5)---------------------------------------------------------------------------
(5)Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
1)(1) Amount Previously Paid:
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[THE================================================================================
WE ARE BUILDING
A BROKERAGE FIRM
LIKE NO OTHER
THE CHARLES SCHWAB CORPORATION LOGO]
March 21, 1997
Dear Stockholder:
You are1999 PROXY STATEMENT
================================================================================
3
LETTER TO STOCKHOLDERS
[Photo of Charles R. Schwab
and David S. Pottruck]
MARCH 31, 1999
DEAR FELLOW STOCKHOLDERS:
We cordially invitedinvite you to attend our 1999 Annual Meeting of Stockholders,
whichStockholders. The
meeting will be held on Monday, May 12, 199717, 1999 at 2:00 p.m. inat the Grand Ballroom ofYerba Buena
Center for the ANA
Hotel, located at 50 ThirdArts Theater, 700 Howard Street, (between Market and Mission Streets) in San Francisco, California.
The meeting will provide an opportunity for you to hear a report on 1996
operations, to meet your directors and executive officers, and to participate in
a question and answer session. At the meeting, we will:
- elect four directors,
- vote on a proposal to increase the number of authorized shares of
common stock, and
- vote on a proposal to increase the annual, automatic stock option
grant to non-employee directors.
We will also report on our performance in 1998 and answer your questions. Our
products and services exhibit will be open before and after the meeting.
We are pleased that our Board recently elected Mark Pulido, President and Chief
Executive Officer of McKesson HBOC, Inc., and Arun Sarin, President and Chief
Operating Officer of AirTouch Communications, Inc., as members of the Board. We
are also pleased that Dr. Condoleezza Rice, Provost of Stanford University and a
distinguished professor of political science, will join our Board in July 1999.
Each year, we try to make it easier for stockholders to vote. This year, all
stockholders may vote on the Internet. Simply follow the instructions on your
proxy card. We encourage you to vote on the Internet. It is the least expensive
way for us to process your vote.
Next year, we plan to make our proxy statement and annual report widely
available over the Internet. If you vote on the Internet, you will be askedhave the
option at that time to elect three
directors, eachenroll in Internet delivery. We encourage you to enroll
in Internet delivery. It is the least expensive way for a term of three years or until their successors are elected,us to approve amendments to the Company's 1992 Stock Incentive Plan and to consider
a stockholder proposal requesting that the Board of Directors amend the
Certificate of Incorporation.
The matters expected to be acted upon 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 enclosedsend you proxy
and return it promptly in the envelope
provided. You may revoke your proxy at any time before it is voted.materials.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Charles R. Schwab /s/ David S. Pottruck
CHARLES R. SCHWAB DAVID S. POTTRUCK
CHAIRMAN OF THE BOARD AND PRESIDENT AND
CO-CHIEF EXECUTIVE OFFICER CO-CHIEF EXECUTIVE OFFICER
[side bar]
EACH YEAR, WE TRY TO
MAKE IT EASIER FOR
STOCKHOLDERS TO VOTE.
THIS YEAR, ALL STOCK-
HOLDERS MAY VOTE ON
THE INTERNET.
1
4
TABLE OF CONTENTS
/s/ David S. Pottruck
/s/ Charles R. Schwab /s/ Lawrence J. Stupski DAVID S. POTTRUCK
CHARLES R. SCHWAB LAWRENCE J. STUPSKI PresidentNOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS.......................... 3
PROXY STATEMENT........................................................ 4
Questions and ChairmanAnswers............................................. 5
Proposals To Be Voted On.......................................... 10
The Board of theDirectors............................................ 13
Board and Vice ChairmanCommittee Meetings...................................... 18
Compensation Committee Interlocks and Insider Participation....... 19
Director Compensation............................................. 20
Principal Stockholders............................................ 22
Performance Graph................................................. 25
Summary Compensation Table........................................ 26
Option Grants..................................................... 29
Options Exercised................................................. 31
Compensation Committee Report..................................... 33
Other Information................................................. 41
Certain Transactions........................................... 41
Section 16(a) Beneficial Ownership Reporting Compliance........ 41
Independent Certified Public Accountants....................... 41
Stockholder Proposals.......................................... 42
Costs of the Board Chief Operating Officer
Chief Executive OfficerProxy Solicitation.................................... 42
Incorporation by Reference..................................... 42
TICKETS TO THE ANNUAL MEETING.......................................... 43
APPENDIX A - - EMPLOYMENT AND SEVERANCE AGREEMENTS..................... 44
APPENDIX B - - DESCRIPTION OF THE 1992 STOCK INCENTIVE PLAN............ 48
2
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THE CHARLES SCHWAB CORPORATION
------------------------5
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 1997
------------------------
The 1999 Annual Meeting of Stockholders of The Charles Schwab Corporation a
Delaware corporation (the "Company"), will
be held on Monday, May 12, 199717, 1999 at 2:00 p.m. inat the Grand Ballroom ofYerba Buena Center for the
ANA Hotel, located at 50 ThirdArts Theater, 700 Howard Street,
(between Market and Mission Streets) in San Francisco, California forto conduct the
following purposes:items of business:
1. Electing threeElect four directors to serve pursuant to the Company's bylaws for three-year terms,
or until their successors are elected.
2. Voting on an amendmentAmend the Certificate of Incorporation to increase the number of
authorized shares of common stock,
3. Amend the 1992 Stock Incentive Plan.
3. Voting on a stockholder proposal requesting thatPlan to increase the Board of Directors
amend the Certificate of Incorporation.annual,
automatic stock option grant to non-employee directors, and
4. Transacting suchTransact other business as may properly comecoming before the meeting, and all adjournments and postponements thereof.
The Board has fixedmeeting.
Stockholders who owned shares of our stock at the close of business on March 13, 1997 as the record
date for the determination of stockholders18,
1999 are entitled to notice of,attend and to vote at the Annual Meeting.meeting. A complete list of suchthese
stockholders of record will be available at 101 Montgomeryour principal executive offices at 120 Kearny
Street, San Francisco, California 94104, prior to the Annual Meeting.meeting.
By Order of the Board of Directors,
/s/ Mary B. Templeton
MARY B. TEMPLETON
Corporate Secretary
March 21, 1997
- --------------------------------------------------------------------------------
TO ENSURE THAT YOUR SHARES ARE REPRESENTEDCarrie E. Dwyer
CARRIE E. DWYER
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND
CORPORATE SECRETARY
[side bar]
THE 1999 ANNUAL
MEETING OF
STOCKHOLDERS WILL BE
HELD ON MONDAY,
MAY 17, 1999 AT
2:00 P.M. AT THE
MEETING, PLEASE COMPLETE
AND PROMPTLY MAIL YOUR PROXYVERBA BUENA CENTER
FOR THE ARTS THEATRE
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.
- --------------------------------------------------------------------------------
4
THE CHARLES SCHWAB CORPORATION
101 MONTGOMERY STREET SAN FRANCISCO,
CALIFORNIA 94104
------------------------CALIFORNIA.
3
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PROXY STATEMENT
------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of DirectorsAs a stockholder of The Charles Schwab Corporation, you have a Delaware
corporation (the "Company"),right to vote on
certain matters affecting the company. This proxy statement discusses the
proposals you are voting on this year. Please read it carefully because it
contains important information for use atyou to consider when deciding how to vote.
Your vote is important.
In this proxy statement, we refer to The Charles Schwab Corporation as the
Annual Meeting"Company." We also refer to this proxy statement, the proxy card and our 1998
annual report as the "proxy materials."
The Board of Stockholders (the
"Annual Meeting")Directors is sending proxy materials to be held on May 12, 1997. This Proxy Statementyou and form of
proxy are being mailed toall other
stockholders on or about March 24, 1997.
At31, 1999. The Board is asking you to vote your
shares by completing and returning the Annual Meeting, holdersproxy card.
Unless we state otherwise, all information in this proxy statement concerning
Company common stock reflects the three-for-two stock split that occurred on
December 11, 1998.
This proxy statement includes summary information on the Company's financial
performance. This information is historical and is not predictive of future
results.
[side bar]
STOCKHOLDERS OWNING
COMPANY SHARES AT THE
CLOSE OF BUSINESS ON
MARCH 18, 1999 ARE
ENTITLED TO ATTEND AND
VOTE AT THE MEETING.
4
7
QUESTIONS AND ANSWERS
Q: WHO CAN VOTE AT THE ANNUAL MEETING?
A: Stockholders who owned Company common stock on March 18, 1999 may attend and
vote at the annual meeting. Each share is entitled to one vote. There were
406,353,252 shares of Company common stock outstanding on March 18, 1999.
Q: WHY AM I RECEIVING THIS PROXY STATEMENT?
A: This proxy statement describes proposals on which we would like you, as a
stockholder, to vote. It also gives you information on these proposals, as well
as other information, so that you can make an informed decision.
Q: WHAT IS THE PROXY CARD?
A: The proxy card enables you to appoint Charles R. Schwab and David S. Pottruck
as your representatives at the annual meeting. By completing and returning the
proxy card, you are authorizing Mr. Schwab and Mr. Pottruck to vote your shares
at the meeting, as you have instructed them on the proxy card. This way, your
shares will be voted whether or not you attend the meeting. Even if you plan to
attend the meeting, it is a good idea to complete and return your proxy card
before the meeting date just in case your plans change.
If a proposal comes up for vote at the meeting that is not on the proxy card,
Mr. Schwab and Mr. Pottruck will vote your shares, under your proxy, according
to their best judgment.
Q: WHAT AM I VOTING ON?
A: We are asking you to vote on:
- the election of four directors,
- an amendment to the Certificate of Incorporation to increase the number of
authorized shares of common stock, and
- an amendment to the 1992 Stock Incentive Plan to increase the annual,
automatic stock option grant to non-employee directors.
The section appearing later entitled "Proposals To Be Voted On" gives you more
information on the nominees for election to our Board and the proposed
amendments to the Certificate of Incorporation and the 1992 Stock Incentive
Plan.
Q: HOW DO I VOTE?
A: YOU MAY VOTE BY MAIL.
You do this by completing and signing your proxy card and mailing it in the
enclosed, prepaid and addressed envelope. If you mark your voting instructions
on the proxy card, your shares will be voted as you instruct.
If you do not mark your voting instructions on the proxy card, your shares will
be voted:
- for the four named nominees for directors,
- for the proposed amendment to the Certificate of Incorporation to
[side bar]
WHO CAN VOTE AT THE
ANNUAL MEETING?
WHY AM I RECEIVING THIS PROXY STATEMENT?
WHAT IS THE PROXY CARD?
WHAT AM I VOTING ON?
HOW DO I VOTE?
5
8
QUESTIONS AND ANSWERS
increase the number of authorized shares of common stock, and
- for the proposed amendment to the 1992 Stock Incentive Plan to increase
the annual, automatic stock option grant to non-employee directors.
YOU MAY VOTE BY TELEPHONE.
You do this by following the "Vote by Telephone" instructions that came with
your proxy statement. If you vote by telephone, you do not have to mail in your
proxy card.
YOU MAY VOTE ON THE INTERNET.
You do this by following the "Vote by Internet" instructions that came with your
proxy statement. If you vote on the Internet, you do not have to mail in your
proxy card.
YOU MAY VOTE IN PERSON AT THE MEETING.
We will pass out written ballots to anyone who wants to vote at the meeting.
However, if you hold your shares in street name, you must request a proxy from
your stockbroker in order to vote at the meeting. Holding shares in "street
name" means you hold them in an account at a brokerage firm.
Q: HOW DO I VOTE MY DIVIDEND REINVESTMENT PLAN SHARES?
A: If you participate in the Dividend Reinvestment and Stock Purchase Plan
managed by our transfer agent, Norwest Bank Minnesota, N.A., the proxy card you
receive from Norwest will include your shares held under that plan.
If you participate in our Dividend Reinvestment and Stock Purchase Plan through
the Company's brokerage firm, Charles Schwab & Co., Inc., the proxy card you
receive from that firm will include Company shares held in your brokerage
account and under that plan.
We encourage you to examine your proxy card closely to make sure you are voting
all of your Company shares.
Q: HOW DO I VOTE MY RETIREMENT PLAN SHARES?
A: The proxy card you receive from our transfer agent will include your shares
held under The SchwabPlan Retirement Savings and Investment Plan (formerly The
Charles Schwab Profit Sharing and Employee Stock Ownership Plan). By completing
and returning your proxy card, you provide voting instructions:
- - to the transfer agent for shares you hold in your individual name at Norwest
Bank Minnesota, N.A., and
- - to the plan's purchasing agent for shares you hold through the plan.
If you hold Company shares in an account with Charles Schwab & Co., Inc., you
will receive a separate proxy card from that brokerage firm specifically for
voting the shares in that account.
[side bar]
HOW DO I VOTE MY
DIVIDEND REINVESTMENT
PLAN SHARES?
HOW DO I VOTE MY
RETIREMENT PLAN SHARES?
6
9
QUESTIONS AND ANSWERS
Q: WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
A: It means that you have multiple accounts at the transfer agent or with
stockbrokers. Please complete and return all proxy cards to ensure that all your
shares are voted.
Unless you need multiple accounts for specific purposes, we recommend you
consolidate as many of your transfer agent or brokerage accounts as possible
under the same name and address. By doing so, you should receive better customer
service.
Q: WHAT IF I CHANGE MY MIND AFTER I RETURN MY PROXY?
A: You may revoke your proxy and change your vote at any time before the polls
close at the meeting. You may do this by:
- - signing another proxy with a later date,
- - voting by telephone or on the Internet (your latest telephone or Internet
vote is counted), or
- - voting at the meeting.
Q: WILL MY SHARES BE VOTED IF I DO NOT RETURN MY PROXY CARD?
A: If your shares are held in street name, your brokerage firm, under certain
circumstances, may vote your shares.
Brokerage firms have authority under New York Stock Exchange rules to vote
customers' unvoted shares on some "routine" matters. The New York Stock Exchange
has determined that all three of our proposals described later under "Proposals
To Be Voted On" are routine matters.
If you do not give a proxy to vote your shares, your brokerage firm may either:
- - vote your shares on routine matters, or
- - leave your shares unvoted.
As a brokerage firm, Charles Schwab & Co., Inc. may vote its customers' unvoted
shares on routine matters. But, because our brokerage firm is voting on Company
proposals, it must follow a stricter set of New York Stock Exchange rules.
Specifically, our brokerage firm can vote unvoted Company shares held in
brokerage accounts only in the same proportion as all other stockholders vote.
When a brokerage firm votes its customers' unvoted shares on routine matters,
these shares are counted to determine if a quorum exists to conduct business at
the meeting. A brokerage firm cannot vote customers' unvoted shares on
non-routine matters. These shares are considered not entitled to vote on
non-routine matters, rather than as a vote against the matters.
We encourage you to provide instructions to your brokerage firm by giving your
proxy. This ensures your shares will be voted at the meeting.
[side bar]
WHAT DOES IT MEAN IF I
RECEIVE MORE THAN ONE
PROXY CARD?
WHAT IF I CHANGE MY
MIND AFTER I RETURN
MY PROXY?
WILL MY SHARES BE VOTED
IF I DO NOT RETURN MY
PROXY CARD?
7
10
QUESTIONS AND ANSWERS
You may have granted to your stockbroker discretionary voting authority over
your account.
Your stockbroker may be able to vote your shares depending on the terms of the
agreement you have with your stockbroker.
A purchasing agent under a retirement plan may be able to vote a participant's
unvoted shares. If you are a participant in The SchwabPlan Retirement Savings
and Investment Plan, the plan's purchasing agent, under certain circumstances,
can vote your shares.
The purchasing agent can vote shares you hold under the plan if the purchasing
agent does not receive voting instructions from you. The purchasing agent will
vote your unvoted shares in the same proportion as all other plan participants
vote their shares.
Similarly, the purchasing agent will vote shares under the Employee Stock
Ownership Plan ("ESOP") component of the overall plan that have not yet been
allocated to the ESOP accounts of individual participants. However, the
purchasing agent can only vote these shares in the same proportion as all other
participants in the overall plan vote their shares (unless the purchasing agent
receives specific instructions from a plan fiduciary that has the power to
direct the purchasing agent).
Q: HOW MANY SHARES MUST BE PRESENT TO HOLD THE MEETING?
A: To hold the meeting and conduct business, a majority of the Company's
Common Stock, par value
$0.01 per share ("Common Stock"),outstanding shares as of March 13, 1997,18, 1999 must be present at the record date,meeting. This is
called a quorum.
Shares are counted as present at the meeting if the stockholder either:
- - is present and votes in person at the meeting, or
- - has properly submitted a proxy card.
Q: HOW MANY VOTES MUST THE NOMINEES HAVE TO BE ELECTED AS DIRECTORS?
A: We use the phrase "yes vote" to mean a vote for a proposal.
The four nominees receiving the highest number of yes votes will be askedelected as
directors. This number is called a plurality.
Q: WHAT HAPPENS IF A NOMINEE IS UNABLE TO STAND FOR ELECTION?
A: The Board may reduce the number of directors or select a substitute nominee.
In the latter case, if you have completed and returned your proxy card, Charles
R. Schwab and David S. Pottruck can vote your shares for a substitute nominee.
They cannot vote for more than four nominees.
[side bar]
HOW MANY SHARES MUST
BE PRESENT TO HOLD THE
MEETING?
HOW MANY VOTES MUST
THE NOMINEES HAVE TO
BE ELECTED AS DIRECTORS?
WHAT HAPPENS IF A
NOMINEE IS UNABLE TO
STAND FOR ELECTION?
8
11
QUESTIONS AND ANSWERS
Q: HOW MANY VOTES MUST THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION HAVE TO
PASS?
A: To pass, the amendment must receive a yes vote of a majority of the Company's
shares outstanding as of March 18, 1999.
Q: HOW MANY VOTES MUST THE AMENDMENT TO THE 1992 STOCK INCENTIVE PLAN HAVE TO
PASS?
A: To pass, the amendment must receive a yes vote of a majority of the shares
present at the meeting in person or by proxy.
Q: HOW ARE VOTES COUNTED?
A: You may vote either "for" or "against" each nominee. You may vote "for,"
"against" or "abstain" on the proposals to elect threeamend the Certificate of
Incorporation and the 1992 Stock Incentive Plan.
If you abstain from voting on either amendment, it has the same effect as a vote
against.
If you give your proxy without voting instructions, your shares will be counted
as a yes vote for each nominee and for each amendment.
Voting results are tabulated and certified by our transfer agent, Norwest Bank
Minnesota, N.A.
Q: IS MY VOTE KEPT CONFIDENTIAL?
A: Proxies, ballots and voting tabulations identifying stockholders are kept
confidential and will not be disclosed except as may be necessary to meet legal
requirements.
Q: WHERE DO I FIND THE VOTING RESULTS OF THE MEETING?
A: We will announce preliminary voting results at the meeting. We will publish
the final results in our quarterly report on Form 10-Q for the second quarter of
1999. We will file that report with the Securities and Exchange Commission, and
you can get a copy by contacting our Investor Relations Hotline at (415)
627-8786 or the SEC at (800) SEC-0330 for the location of its nearest public
reference room. You can also get a copy on the Internet through the SEC's
electronic data system called EDGAR at www.sec.gov.
[side bar]
HOW MANY VOTES
MUST THE AMENDMENT
TO THE CERTIFICATE OF
INCORPORATION HAVE
TO PASS?
HOW MANY VOTES MUST
THE AMENDMENT TO THE
1992 STOCK INCENTIVE
PLAN HAVE TO PASS?
HOW ARE VOTES COUNTED?
IS MY VOTE KEPT
CONFIDENTIAL?
WHERE DO I FIND THE
VOTING RESULTS OF
THE MEETING?
9
12
PROPOSALS TO BE VOTED ON
1. ELECTION OF DIRECTORS
Nominees for directors this year are Frank C. Herringer, Stephen T. McLin,
Charles R. Schwab, and Roger O. Walther.
The Board recommends a vote for these nominees.
Each nominee is presently a director of the Company and has consented to serve a
new three-year term.
2. AMENDMENT TO THE CERTIFICATE OF INCORPORATION
We are asking stockholders to approve an amendment to the Certificate of
Incorporation to increase the number of authorized shares of common stock from
500 million to 2 billion. As of December 31, 1998, 452 million of the 500
million authorized shares had been used or reserved for use as follows:
- - 402 million issued and outstanding shares;
- - 33 million shares under stock options that have been granted; and
- - 17 million shares reserved for future grants under incentive plans.
Accordingly, the Company is now limited to issuing 48 million shares of common
stock under the current authorized number of shares.
Increasing the number of authorized shares of common stock will give the Company
greater flexibility for:
- - stock splits and stock dividends,
- - grants under employee benefit and employee stock incentive plans,
- - financings, corporate mergers and acquisitions of property,
- - issuance of shares under the Company's Dividend Reinvestment and Stock
Purchase Plan, and
- - other general corporate purposes.
Having this additional authorized capital stock available for future use will
allow the Company to issue additional shares of common stock without the expense
and delay of a special meeting of stockholders.
The additional authorized shares will:
- - be part of the existing class of common stock,
- - not affect the terms of the common stock or until their successorsthe rights of the holders of
common stock, and
- - have the same rights and privileges as the shares of common stock presently
outstanding.
Stockholders' current ownership of common stock will not give them automatic
rights to purchase any of the additional authorized shares.
Any future issuance of additional authorized shares of common stock may, among
other things, have a dilutive effect on earnings per share of common stock and
on the equity and voting rights of those holding common stock at the time the
additional authorized shares are elected,issued.
Although not a factor in the Board's decision to propose the amendment to the
Certificate of Incorporation, one of
[side bar]
ELECTION OF DIRECTORS
- - FRANK C. HERRINGER
- - STEPHEN T. MCLIN
- - CHARLES R. SCHWAB
- - ROGER O. WALTHER
AMENDMENT TO THE
CERITIFCATE OF
INCORPORATION
10
13
PROPOSALS TO BE VOTED ON
the effects of the amendment may be to enable the Board to make more difficult
or to discourage an attempt to obtain control of the Company by means of a
merger, tender offer, proxy contest or otherwise, and as a result protect the
continuity of present management.
The Company is not presently negotiating with anyone concerning the issuance or
use of any of the additional authorized shares of common stock, and the Company
has no present arrangements, understandings or plans concerning the issuance or
use of the additional authorized shares.
The Board recommends a vote for the amendment to the Company's Certificate of
Incorporation.
3. AMENDMENT TO THE 1992 STOCK INCENTIVE PLAN
We are asking you to approve an amendment to the 1992 Stock Incentive Plan to
increase by 1,000 the number of shares covered by stock option grants to
non-employee directors under the annual, automatic option grant.
Each year, our non-employee directors receive an automatic grant of options to
purchase Company common stock.
Currently, each non-employee director receives options on:
- - 1,500 shares if the option exercise price is $35 or more, or
- - 2,500 shares if the option exercise price is less than $35.
The amendment to the plan would increase the grant to options on:
- - 2,500 shares if the option exercise price is $35 or more, or
- - 3,500 shares if the option exercise price is less than $35.
STOCKHOLDER APPROVAL IS NOT REQUIRED BY THE PLAN OR LAW. HOWEVER, THE BOARD
WOULD LIKE TO GIVE STOCKHOLDERS THE OPPORTUNITY TO VOTE ON THE AMENDMENT. THE
AMENDMENT WILL BECOME EFFECTIVE ONLY IF IT IS APPROVED BY THE STOCKHOLDERS.
The Company compensates its directors with both cash and to
consider a stockholder proposal requestingstock option grants and
believes that the Board of Directors amend the
Certificate of Incorporation.stock option grants help to align directors' and stockholders'
interests.
The Board of Directors knows of no other business
for consideration atrecently reviewed non-employee directors' compensation, which included
a comparison to peer group companies. The disinterested directors approved an
increase in the Annual Meeting. If any other matters are properly
presented atnon-employee directors' fees beginning in 1999. They also
recommended an increase in the Annual Meeting or any adjournment or postponement thereof, it
isannual, automatic stock option grant to our
non-employee directors. The Company believes that this increase in the intentionsize of
the persons namedoption grant will better align our non-employee directors' compensation with
stockholders' interests and peer group compensation.
The Board had last reviewed the directors' compensation program in the proxy to vote, or otherwise to act,
on your behalf in accordance with their judgment on such matters.
As used1995.
Our non-employee directors have an interest in this Proxy Statement, "Schwab" means Charles Schwab & Co., Inc.
RECORD DATE AND VOTE REQUIRED
At the close of business on March 13, 1997, there were 176,254,174 shares
of Common Stock outstanding and entitled toamendment.
[side bar]
AMENDMENT TO THE 1992
STOCK INCENTIVE PLAN
11
14
PROPOSALS TO BE VOTED ON
The Board recommends a vote at the Annual Meeting. 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. A majority of all shares issued and outstanding, whether represented in
person or by proxy at the Annual Meeting, constitutes a quorum for the
transaction of business at the meeting. Of the total votes represented at the
Annual Meeting, the affirmative vote of a plurality is necessary for the
election of directors and the affirmative vote of a majority is necessary to
pass the amendment to the 1992 Stock Incentive Plan.
PROPOSAL NO. 1 -- ELECTIONIf you would like more information about the 1992 Stock Incentive Plan, a
summary of its terms is included as Appendix B to this proxy statement.
OTHER BUSINESS
THE BOARD KNOWS OF NO OTHER BUSINESS TO BE CONSIDERED AT THE MEETING. HOWEVER,
IF:
- - OTHER MATTERS ARE PROPERLY PRESENTED AT THE MEETING, OR FOR ANY ADJOURNMENT
OR POSTPONEMENT OF THE MEETING, AND
- - YOU HAVE COMPLETED AND RETURNED YOUR PROXY CARD,
THEN CHARLES R. SCHWAB AND DAVID S. POTTRUCK WILL, WITH YOUR PROXY, VOTE YOUR
SHARES ON THOSE MATTERS ACCORDING TO THEIR BEST JUDGMENT.
[side bar]
OTHER BUSINESS
12
15
THE BOARD OF DIRECTORS
The Certificate of Incorporation of the Company provides that the Board of
Directors shall be divided
into three classes, as nearly equal in number as possible, with staggered
three-year terms. Each of the three nominees for the class to be elected this
year is at present a member of the Board of Directors. The remaining seven
directors will continue to serve for the terms set forth below. The directors
elected at the Annual
1
5
Meeting will hold office until either the Annual Meeting of Stockholders to be
held in the year 2000 or until their successors are elected and qualified.
The persons named in the proxy intend to vote for the election of the
nominees named below. The three nominees receiving the greatest number of votes
will be elected directors of the Company for the terms discussed above. Should
any nominee become unavailable to serve as a director, the proxies will be voted
for such other person as the Board of Directors may designate, or the number of
authorized directors may be reduced.
The Board of Directors has nominated and recommends the election of David
S. Pottruck, NancyNANCY H. Bechtle and C. Preston Butcher as directors of the
Company.
Certain information concerning the current directors, including the
nominees to be elected at this meeting, is set forth below.
NOMINEES FOR ELECTION OF DIRECTORS IN 1997
(TERM EXPIRING IN 2000)
David S. Pottruck, age 48, became the Chief Operating Officer and a
director of the Company in March 1994 and has been President of the Company and
Chief Executive Officer of Schwab since July 1992. In the last five years Mr.
Pottruck has served as an Executive Vice President of the Company (March 1987 to
July 1992) and has been President and a director of Schwab (since July 1988).
Nancy H.BECHTLE
DIRECTOR SINCE 1992
Ms. Bechtle, age 59, has been a director of the Company and has served
as a member of the Audit Committee and Customer Quality Assurance Committee
since September 1992 and the Compensation Committee since January 1996. Ms.
Bechtle61, 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, age 58,Ms. Bechtle also has beenserved as Chairman and Chief Executive Officer
of Sugar Bowl Ski Resort, and as a director of Sugar Bowl Corporation, since
February 1998. Ms. Bechtle's term expires in the year 2000.
C. PRESTON BUTCHER
DIRECTOR SINCE 1988
Mr. Butcher, age 60, is Chairman and Chief Executive Officer of the newly formed
Legacy Partners (formerly Lincoln Property Company since
October 1988N.C., Inc.), a real estate
development and hasmanagement firm. Mr. Butcher 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 1992 to
September 1992. Mr. Butcher has been the President, Chief
Executive Officer and Regional Partner of Lincoln Property Company N.C., Inc., a real estate
development and management firm, since
from 1967 and is a director of BRE
Properties, Inc., a real estate investment trust.
DIRECTORS WHOSE TERMS DO NOT EXPIRE THIS YEAR
(TERMS EXPIRING IN 1998)
Lawrence J. Stupski, age 51, 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
2
6
the Company (November 1986 to March 1994) and President of the Company (November
1986 to July 1992).until 1998. Mr. Stupski was a director of Schwab from September 1981 to
February 1995 andButcher's term expires in the last five years also has served as Chief Operating
Officer (September 1981 to July 1992), Chief Executive Officer (Julyyear 2000.
DONALD G. FISHER
DIRECTOR SINCE 1988
to
July 1992), and Vice Chairman (July 1992 to August 1994) of Schwab.
Donald G.Mr. Fisher, age 68, has been a director of the Company since January
1988. He has served as a member of the Customer Quality Assurance Committee
since February 1989 and as a member of the Audit Committee since September 1992.
He previously served as a member of the Audit Committee from March 1988 to May
1992, and as a member of the Compensation Committee from February 1988 to
September 1992. Mr. Fisher70, is the Chairman of the Board of The Gap, Inc., a nationwide
specialty retail clothing chain. Mr. FisherHe was also Chief Executive Officer of The Gap,
Inc. and a director from 1969 to November 1995. Mr. Fisher also is currently a
director of AirTouch Communications.
AnthonyCommunications, Inc., a wireless telecommunications
services company, and Cornerstone Properties, Inc., a real estate development
company. Mr. Fisher's term expires in the year 2001.
ANTHONY M. FRANK
DIRECTOR SINCE 1993
Mr. Frank, age 65,67, has been a director of the Company and has served
as a member of the Audit Committee and Customer Quality Assurance Committee
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 Belvedere Capital Partners, a
general partner of aan investment fund specializing in financial institutions,
investment fund.since 1993. From March 1988 until March 1992, Mr. Frank served as Postmaster General of the
United States. From April 1993 until November 1993, Mr. Frank was Chairman of
the Board of Independent Bancorp of Arizona, Inc., a registered bank holding
company. Mr. Frank also is currently a director of Bedford Property Investors; Living CentersTemple-Inland, Inc., a maker of America Temple-Inland, Inc.;containers
and cardboard and building products and a provider of financial services;
General American Investors, a closed-end investment company; and Bedford
Properties Investors, Irvine Apartment Communities and Crescent Real Estate
Equities, bothall real estate investment trusts. (TERMS EXPIRING IN 1999)Mr. Frank served as a director of
the Company from April 1987 until February 1988 and from March 1992 until April
1993. He rejoined the Board in December 1993. Mr. Frank's term expires in the
year 2001.
[side bar]
BIOGRAPHIES
- - NANCY H. BECHTLE
- - C. PRESTON BUTCHER
- - DONALD G. FISHER
- - ANTHONY M. FRANK
13
16
THE BOARD OF DIRECTORS
FRANK C. HERRINGER
DIRECTOR SINCE 1996
Mr. Herringer, age 56, is Chairman of the Board, Chief Executive Officer and
President of Transamerica Corporation, a life insurance and financial services
company. At Transamerica, he has been Chairman since 1996, Chief Executive
Officer since 1991 and President since 1986. Mr. Herringer is also a director of
Unocal Corporation, an oil company. Mr. Herringer is a nominee for election this
year.
STEPHEN T. MCLIN
DIRECTOR SINCE 1988
Mr. McLin, age 52, has been Chairman and Chief Executive Officer of STM Holdings
LLC, which offers merger and acquisition advice for the financial services
industry, since 1998. From 1987 until 1998, he was the President and Chief
Executive Officer of America First Financial Corporation, a finance and
investment banking firm. Mr. McLin is a director of Bay View Capital
Corporation, which conducts a savings bank business and offers commercial and
consumer financing. Mr. McLin is a nominee for election this year.
DAVID S. POTTRUCK
DIRECTOR SINCE 1994
Mr. Pottruck, age 50, is the President and Co-Chief Executive Officer of the
Company. He became the President in 1992, and the Co-Chief Executive Officer in
January 1998. He was also the Company's Chief Operating Officer from 1994 until
September 1998. He became the Chief Executive Officer of Charles Schwab & Co.,
Inc. in 1992. Mr. Pottruck is currently a director of McKesson HBOC, Inc., the
world's largest healthcare services company; Intel Corporation, a maker of
microcomputer components and related products; and Preview Travel, Inc., an
online travel services provider. In 1998, he was named to the Federal Advisory
Commission on Electronic Commerce. Mr. Pottruck's term expires in the year 2000.
[side bar]
BIOGRAPHIES
- - FRANK C. HERRINGER
- - STEPHEN T. McLIN
- - DAVID S. POTTRUCK
14
17
THE BOARD OF DIRECTORS
MARK A. PULIDO
DIRECTOR SINCE DECEMBER 1998
Mr. Pulido, age 46, is President and Chief Executive Officer of McKesson HBOC,
Inc., which was formed from the merger of McKesson Corporation and HBO & Company
in January 1999. He served as Chief Executive Officer of McKesson Corporation
from April 1997 until the merger; President from April 1996 until the merger;
and Chief Operating Officer from April 1996 to April 1997. Between 1992 and
1994, Mr. Pulido held the positions of Chairman, President and Chief Executive
Officer of Red Line Healthcare Corporation, an affiliate of Sandoz International
Ltd., the nation's largest provider of medical supplies and reimbursement
services to the long-term care industry. In 1994, he became Chief Operating
Officer of Sandoz Pharmaceuticals Corporation, and in 1996, he became Chief
Executive Officer. Mr. Pulido's term expires in the year 2001.
ARUN SARIN
DIRECTOR SINCE DECEMBER 1998
Mr. Sarin, age 44, is President and Chief Operating Officer of AirTouch
Communications, Inc. Prior to his appointment to these positions in 1997, Mr.
Sarin was President and Chief Executive Officer of AirTouch International. Mr.
Sarin joined AirTouch (formerly Pacific Telesis Group) in 1984 and held a
variety of positions, including Vice President and General Manager, Vice
President - Chief Financial Officer and Controller, and Vice President of
Corporate Strategy. Mr. Sarin is a member of the board of directors of AirTouch
Communications; PrimeCo Personal Communications, L.P., a wireless
telecommunications services company; and Cisco Systems, Inc., a computer
networking company. Mr. Sarin's term expires in the year 2001.
CHARLES R. SCHWAB
DIRECTOR SINCE 1986
Mr. Schwab, age 59,61, was a founder of Charles Schwab & Co., Inc. 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 also served as the Chief Executive Officer
from 1986 until January 1998, when he has been a member of the Customer Quality Assurance Committee of the
Board of Directors.and David S. Pottruck became Co-Chief
Executive Officers. Mr. Schwab currently serves asis a director of The Gap, Inc., Transamerica
Corporation, AirTouch Communications, Inc. and Siebel Systems, Inc., a company
that provides support for software systems, and
as a trustee of The Charles Schwab
Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity
Portfolios, all registered investment companies. Frank C. Herringer,Mr. Schwab is a nominee for
election this year.
[side bar]
BIOGRAPHIES
- - MARK A. PULIDO
- - ARUN SARIN
- - CHARLES R. SCHWAB
15
18
THE BOARD OF DIRECTORS
GEORGE P. SHULTZ
DIRECTOR SINCE 1997
Dr. Shultz, age 54,78, is Professor Emeritus of International Economics at the
Graduate School of Business at Stanford University, and a Distinguished Fellow
at the Hoover Institution. He has beenheld government positions as the Secretary of
Labor (1969-1970), Director of the Office of Management and Budget (1970-1972),
Secretary of the Treasury (1972-1974) and Secretary of State (1982-1989). In
1989, he was awarded the Medal of Freedom, the nation's highest civilian honor.
Dr. Shultz is a director of the CompanyAirTouch Communications, Inc.; Bechtel Group, Inc.,
a provider of engineering, construction and related management services;
Gulfstream Aerospace Corporation, a membermaker of the Customer Quality Assurance Committeeintercontinental business jet
aircraft; and Audit Committee since October
1996. Mr. HerringerGilead Sciences, Inc., a developer of treatments for viral
diseases. He is also Chairman of the Board, Chief Executive Officer andJ.P. Morgan's International Advisory Council.
He was President of Transamerica Corporation. At Transamerica, he has been Chairman
since January 1, 1996, Chief Executive Officer since 1991 and President since
1986.Bechtel Group, Inc. from 1974 to 1982. Dr. Shultz's term
expires in the year 2000.
ROGER O. WALTHER
DIRECTOR SINCE 1989
Mr. Herringer is also a director of Pacific Telesis Group and Unocal
Corporation.
3
7
Stephen T. McLin,Walther, age 50, has been a director of the Company and63, 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 FinancialTusker Corporation, a financereal estate and investment banking firm. Mr. McLin is also Chairman of the Board of EurekaBank,
a federal savings bank.
Roger O. Walther, age 61, has been a director of the Company and a member
of the Customer Quality Assurance Committeebusiness management company, since April 1989 and hasAugust
1997. He 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 been the Chairman and Chief Executive Officer of ELS Educational
Services, Inc., the largest provider of English as a second language courses in
the United States.States, from April 1992 through August 1997. Mr. Walther was
President, Chief Executive Officer and a director of AIFS, Inc., which designs
and markets educational and cultural programs internationally, from 1964 to
February 1993. Since 1985, Mr. Walther has served as Chairman and has been a
director of First Republic Bancorp,Bank. Mr. Walther is a bank holding company.
INFORMATION ABOUTnominee for election this
year.
[side bar]
BIOGRAPHIES
- - GEORGE P. SHULTZ
- - ROGER O. WALTHER
16
19
THE BOARD OF DIRECTORS
NUMBER OF DIRECTORS AND COMMITTEES OF THE BOARD
During 1996,TERMS
The Company currently has twelve directors. Four directors are nominees for
election this year. The remaining eight directors will continue to serve the
terms described in their biographies.
Our directors serve staggered terms. This is accomplished as follows:
- each director serves a three-year term,
- the directors are divided into three classes,
- the classes are as nearly equal in number as possible, and
- the term of each class begins on a staggered schedule.
CONDOLEEZZA RICE
Based on discussions between Board members and Dr. Condoleezza Rice, an
understanding exists between the Board and Dr. Rice that she will join the Board
in July 1999. Biographical information on Dr. Rice appears below.
Dr. Rice, age 44, has been Provost of DirectorsSanford University since 1993, and a
professor of political science at Stanford since 1981. In 1984, she was the
recipient of the Walter J. Gores Award for Excellence in Teaching, and in 1993,
she was awarded the School of Humanities and Sciences Dean's Award for
Distinguished Teaching. Dr. Rice is a member of the board of directors of the
Chevron Corporation, Transamerica Corporation, the William and Flora Hewlett
Foundation, the University of Notre Dame, J.P. Morgan's International Advisory
Council and the San Francisco Symphony Board of Governors.
[side bar]
NUMBER OF DIRECTORS
AND TERMS
BIOGRAPHY
- - CONDOLEEZZA RICE
17
20
BOARD AND COMMITTEE MEETINGS
The Board held eight regular meetings in 1998. Each director, except Donald G.
Fisher and one
special meeting. During 1996, each of the directors, except Mr. Fisher,Roger O. Walther, attended at least 75% of all Board and applicable
committee meetings ofduring 1998. This table describes the Board of Directors and the Committees on
which they served.Board's committees. The
Board of Directors has an Audit Committee, a Compensation
Committee, and a Customer Quality Assurance Committee. The Board of Directors does not have a nominating committee or anya committee serving a similar
function.
The Audit Committee, among other things, confers with the Company's
independent accountants and internal auditors regarding the scope of their
respective
NAME OF COMMITTEE FUNCTIONS NUMBER OF
AND MEMBERS OF THE COMMITTEE MEETINGS IN 1998
- -----------------------------------------------------------------------------------------------
AUDIT - confers with independent 4
accountants and internal
Nancy H. Bechtle auditors regarding scope of
C. Preston Butcher examinations
Donald G. Fisher - reviews reports of the Company's independent
accountants and internal auditors, and reviews recommendations concerning
internal controls. The Audit Committee reports of independent
Anthony M. Frank accountants and internal
Frank C. Herringer auditors
Stephen T. McLin * - reviews recommendations about
Mark A. Pulido ** internal controls
Arun Sarin ** - recommends selection of
independent accountants to the
Board
- -----------------------------------------------------------------------------------------------
COMPENSATION - determines the compensation of 8
the Co-Chief Executive Officers
Nancy H. Bechtle - reviews and approves:
C. Preston Butcher - compensation philosophy
Stephen T. McLin - programs for annual and
George P. Shultz long-term executive
Roger O. Walther * compensation
- has authority to grant options
and other equity awards under
stock incentive plans and
bonus awards under cash-based
incentive plans
- -----------------------------------------------------------------------------------------------
CUSTOMER - monitors service quality 2
QUALITY - assesses customer satisfaction
ASSURANCE and reviews results of Charles
Schwab & Co., Inc. customer
Nancy H. Bechtle surveys
Donald G. Fisher - proposes initiatives to
Anthony M. Frank* research service quality
Frank C. Herringer
Charles R. Schwab
George P. Shultz
Roger O. Walther
* Chairperson
** Elected to the Boardcommittee in January 1999
[side bar]
THIS TABLE DESCRIBES
THE BOARD'S COMMITTEES.
18
21
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998:
- - none of Directors with
respect to such matters and recommends the selection of independent auditors.
The Audit Committee held four meetings during 1996.
The Compensation Committee reviews and approves the Company's compensation
philosophy, all programs that govern annual and long term compensation of
executive officers, and material employee benefit plans. In addition, the
Compensation Committee has the authority to grant options or make equity grants
to members of the Board Compensation Committee was an officer (or
former officer) or employee of Directors and key employees underthe Company or any of its subsidiaries;
- - none of the members of the Board Compensation Committee entered into (or
agreed to enter into) any transaction or series of transactions with the
Company or any of its subsidiaries in which the amount involved exceeds
$60,000;
- - none of the Company's stock
option plans. Theexecutive officers served on the compensation committee
(or another board committee with similar functions or, if there was no
committee like that, the entire board of directors) of another entity where
one of that entity's officers served on the Company's Board Compensation
Committee held seven meetings in 1996.
The Customer Quality Assurance Committee monitors service qualityCommittee;
- - none of the Company's executive officers was a director of another entity
where one of that entity's officers served on the Company's Board
Compensation Committee; and
customer satisfaction. The Customer Quality Assurance Committee proposes
initiatives to research service quality and reviews- - none of the resultsCompany's executive officers served on the compensation committee
(or another board committee with similar functions or, if there was no
committee like that, the entire board of Schwab
customer surveys. The Customer Quality Assurance Committee held two meetings in
1996.
4directors) of another entity where
one of that entity's executive officers served as a director on the Company's
Board.
[side bar]
DURING 1998, OUR
BOARD COMPENSATION
COMMITTEE CONSISTED
OF ALL NON-EMPLOYEE
MEMBERS, AND WE
DID NOT HAVE ANY
COMPENSATION
COMMITTEE INTERLOCKS.
19
822
DIRECTOR COMPENSATION
DirectorsWe do not pay directors who are also officers of the Company or its subsidiaries do not
receive any additional
compensation for their servicesservice as directors. In 1996,1998, compensation for
non-employee directors receivedincluded the following:
- an annual retainer of $25,000,
- $1,500 for each Board meeting attended,
- $300 for each Board committee meeting attended either
immediately prior to or followingon the same day as a Board
meeting, and $1,000 for each other Board committee meeting otherwise attended,
and are reimbursed for their expenses of
attendance at such meetings. In 1996, committee chairpersons received- an
additional annual retainer of $3,000.$3,000 to committee chairpersons, and
- expenses of attending Board and committee meetings.
Non-employee directors may participate in the Directors' Deferred Compensation
Plan, under whichPlan. This plan permits non-employee directors may elect to defer receipt of all or a
portion of their directors' fees and receive either:
- a grant of stock options which have:
- a grant value equal to the amount of the deferred fees (as determined
under an appropriate options valuation method), and
- an option exercise price equal to the fair market value of Company
common stock on the date the deferred fee amount would have been paid,
- or -
- upon ceasing to serve as a director, the amount that would have resulted
from investing the deferred amountsfee amount in the Company's Common Stock.Company common stock.
In addition, the
Company's non-employee directors receive an annual, automatic grant of options1998, under the 1992 Stock Incentive Plan, non-employee directors were
entitled to an annual, automatic grant of either:
- options on 1,500 shares of Common Stock (2,500Company common stock if the fair market value
of the stock on the grant date was $35 or more, or
- options on 2,500 shares of Common StockCompany common stock if the exercise price isfair market value
of the stock on the grant date was less than $35).$35.
"Fair market value" is defined in the 1992 Stock Incentive Plan as the closing
price of Company common stock on the date the option is granted.
[side bar]
THE COMPANY
COMPENSATES ITS
DIRECTORS WITH CASH
AND STOCK OPTION
GRANTS.
20
23
DIRECTOR COMPENSATION
The annual, automatic option grant to non-employee directors of 2,5001,500 shares of
Common Stockcommon stock was made on May 15, 19961998 at an exercise price of $36.44 per share.
As a fair market value (as defined inresult of the December 11, 1998 three-for-two stock split, this stock
option grant was adjusted to 2,250 shares with an exercise price of $24.29.
If the amendment to the 1992 Stock Incentive Plan) of $24.625 per share.
PROPOSAL NO. 2 -- AMENDMENT TO THE 1992 STOCK INCENTIVE PLAN
SUMMARY
The 1992 Stock Incentive Plan (the "1992 Plan") was adopted bybeing voted on at the Board of
Directors andannual
meeting is approved, by the stockholders in 1992. Originally, the stockholders
authorized the issuance of 11,250,000 shares of Common Stock of the Company
(adjusted for stock splits occurring since 1992) under the 1992 Plan. In 1994,
the stockholders approved an amendment to increase the number of shares
available for 1992 Plan awards by 8,400,000 (adjusted for stock splits occurring
since May 1994). Since the 1992 Plan was adopted, the Company has used equity
incentives to attract, retain and properly motivate key employees. Absent the
amendment, shares would not be available for the award of grants after 1997. As
of December 31, 1996, there were 2,259,199 shares remaining for issuance under
the 1992 Plan. The amendment to increase the number of shares of Common Stock
that may be issued under the 1992 Plannon-employee directors will become effective upon stockholder
approval.
DESCRIPTION OF PROPOSED AMENDMENT TO THE 1992 PLAN
The amendment would increase by 9,500,000 shares the total number of shares
that may be granted under the 1992 Plan as Restricted Common Stock, Performance
Share Awards and options.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ADOPTION
OF THE PROPOSED AMENDMENT TO THE 1992 PLAN.
5
9
GENERAL DESCRIPTION OF THE 1992 PLAN
Purpose. The 1992 Plan permits the granting of Restricted Common Stock,
Performance Share Awards or options (or a combination thereof)entitled to key employees
and directors of the Company. The purpose of the 1992 Plan is to promote the
long-term success of the Company and the creation of incremental stockholder
value by (a) encouraging non-employee directors and key employees to focus on
long-range objectives, (b) encouraging the attraction and retention of
non-employee directors and key employees with exceptional qualifications, and
(c) linking the interests of non-employee directors and key employees directly
to stockholder interests.
Eligibility to Receive Awards. Key employees of the Company and its
subsidiaries, including directors who are also employees, are eligible for
awards under the 1992 Plan. Non-employee directors are eligible for an annual,
automatic grant of nonqualifiedeither:
- options each year. Ason 2,500 shares of December 31, 1996,
approximately 1,324 persons were recipients of awards underCompany common stock if the 1992 Plan.
Types of Awards. Awards under the 1992 Plan may take the form of
Restricted Common Stock, Performance Share Awards and options to acquire Common
Stock of the Company. Options in turn may include nonqualified stock options
("NSOs") and incentive stock options ("ISOs") intended to qualify for special
tax treatment. Any award under the 1992 Plan may include one of these elements
or a combination of several elements except that non-employee directors will
only be eligible to receive NSOs. No payment is required upon the grant of any
award, except that the recipient of Restricted Common Stock must pay the par
value thereof. Upon exercise of an option the optionee must pay the exercise
price thereof to the Company. On March 13, 1997, the closing price of the
Company's Common Stock was $36.00 per share.
If the amendment is adopted, a total of 11,534,593 shares (subject to
antidilution provisions) will be issuable as Restricted Common Stock,$35 or pursuant to Performance Share Awards andmore, or
- options under the 1992 Plan, exclusive
of grants made prior to March 13, 1997. If any Restricted Common Stock,
Performance Share Awards or options are forfeited, or if any Performance Share
Awards terminate for any other reason without the associated Common Stock being
issued, or if options terminate for any other reason prior to exercise, then the
underlying shares again become available for awards.
Administration, Amendment and Termination. The 1992 Plan is administered
by the Compensation Committee of the Board of Directors (the "Committee"). The
Committee, upon advice of the Company's executive management, selects the key
employees who will receive awards; determines the amount, vesting requirements,
performance criteria, if any, and other conditions of each award; interprets the
provisions of the 1992 Plan; and makes all other decisions regarding the
operation of the 1992 Plan. The grant of NSOs to non-employee directors is made
annually, and the Committee has no discretion with respect to those awards.
The 1992 Plan will remain in effect until it is discontinued by the Board
of Directors. ISOs may be granted under the 1992 Plan only within 10 years from
date of adoption of the 1992 Plan. The Committee may amend or terminate the 1992
Plan at any time and for any reason; provided, however, that any amendment of
6
10
the 1992 Plan shall be subject to the approval of the Company's stockholders to
the extent required by applicable laws, regulations or rules.
Grants of Options to Non-Employee Directors. Under the 1992 Plan, each
non-employee director receives an annual, automatic grant of options to purchase
1,500on 3,500 shares of Common Stock (2,500 shares of Common StockCompany common stock if the option exercise
price is less than $35).$35.
(See "Proposals To Be Voted On" discussed earlier in this proxy statement.")
[side bar]
SINCE THE INITIAL CASH
DIVIDEND IN 1989, THE
COMPANY HAS PAID 39
CONSECUTIVE QUARTERLY
CASH DIVIDENDS AND
HAS INCREASED THE
CASH DIVIDEND 11 TIMES.
SINCE 1989, CASH DIVI-
DENDS HAVE GROWN AT
A 38% COMPOUNDED
ANNUAL RATE.
21
24
PRINCIPAL STOCKHOLDERS
This granttable shows how much Company common stock is made on and as of May 15 of each year, and if
May 15 is not a business day, then the grant is made on and as of the next
succeeding business day. The exercise price is the closing price of the
Company's Common Stock on the date of each annual grant, and options generally
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 New York Stock Exchange Composite Transactions Index
for date of grant or award, as the case may be.) Options so granted to
non-employee directors will otherwise be subject to all the terms and conditions
of the 1992 Plan.
Restricted Common Stock and Performance Share Awards. Restricted Common
Stock has the same voting and dividend rights as Common Stock, but is subject to
forfeiture in the event that the applicable vesting conditions are not
satisfied. It is nontransferable prior to vesting.
A Performance Share Award is an obligation of the Company to issue and
deliver in the future one share of Common Stock in the event that the applicable
issuance conditions are satisfied. Performance Share Awards are nontransferable,
and the recipient has no voting or dividend rights until such time as the
associated shares of Common Stock are issued, at which time the recipient will
have the same voting, dividend and other rights as the Company's other
stockholders.
When granting an award, the Committee determines the number of Performance
Share Awards or shares of Restricted Common Stock to be included in the award as
well as the vesting or issuance conditions. No more than 200,000 shares of
Restricted Common Stock or Performance Share Awards may be granted to any
participant in any calendar year. The vesting or issuance conditions may be
based on the employee's service, his or her individual performance, the
Company's performance or other appropriate criteria. Where Company performance
is used as a vesting or issuance condition, performance goals are based on
business criteria specified by the Committee, selected from one or more of the
following: return on net assets, net income, earnings per share, return on
equity, return on investment, pretax income, operating income, cash flow,
stockholder return, revenue and revenue growth. Vesting or issuance may be
accelerated in the event of the employee's death, disability or retirement or in
the event of a change in control, as defined below. Recipients of Restricted
Common Stock or Performance Share Awards may satisfy tax withholding
requirements relating to the awards with Common Stock rather than cash.
Terms of Stock Options. 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.
Similarly, the exercise price of NSOs granted to non-employee directors must be
equal to the fair market value of Common Stock on the date of grant. The term of
an ISO cannot exceed 10 years, and all options are nontransferable prior to the
optionee's death.
7
11
Vesting conditions are established by the Committee at the time an option
is granted. Vesting may be accelerated in the event of the optionee's death,
disability or retirement or in the event of a change in control, as defined
below. The Committee may also impose forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions on shares
issued under the 1992 Plan.
Concurrently with the grant of any options to an employee, the Committee
may authorize the grant of replacement options. A replacement option is an
option that is granted when an optionee uses Common Stock held, or to be
acquired, by the optionee to exercise an option and/or to satisfy tax
withholding requirements incident to the exercise of an option. The Committee
may establish such other terms and conditions for replacement options as it
deems appropriate.
Tandem Grants of Options and Performance Units. The 1992 Plan permits the
issuance of options to certain participants (other than executive officers) in
tandem with Performance Unit Awards payable in cash, whereby a participant, at
the end of the performance unit cycle, has the right either (i) to exercise and
receive the cash value of the Performance Unit, which would result in
cancellation of the related option (subject to the proviso that a participant
who subsequent to the grant has become an executive officer may not exercise the
Performance Unit), or (ii) to retain the option, which results in cancellation
of the related Performance Unit.
Payment of Option Price. The exercise price of an option may be paid in
cash or by the surrender of shares of Common Stock already owned by the optionee. An optionee may also pay the exercise pricedirectors,
certain executive officers and owners 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. Optionees may also satisfy their
withholding tax obligation upon exercise of an NSO by surrendering a portion of
their option shares to the Company.
Change in Control. For the purposes of the 1992 Plan, the term "change in
control" means (1) any change in control which would have to be disclosed in the
Company's next proxy statement under the rules of the Securities and Exchange
Commission ("SEC"), (2) any person's becoming the beneficial owner, directly or
indirectly, of at least 20% of the combined voting power of the Company's
outstanding securities, except by reason of a repurchase by the Company of its
own securities, or (3) a change in the composition of the Board of Directors as
a result of which fewer than two-thirds of the incumbent directors are directors
who either had been directors of the Company 24 months earlier or were elected
or nominated with the approval of at least a majority of the directors who had
been directors of the Company 24 months earlier and who were still in office at
the time of the election or nomination.
8
12
FEDERAL TAX CONSEQUENCES
Under current federal income tax laws, the federal income tax consequences
of awards under the 1992 Plan can be summarized as follows:
Options. At the time the options are granted, the award of stock options
will have no federal income tax consequences to the Company or the optionee.
With respect to NSOs, upon exercise of the option, the optionee generally
will recognize ordinary income in an amount equal to the excess of the fair
market value of the optioned shares 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 for
tax purposes by the Company in the same year that the income is recognized by
the optionee. Upon any subsequent disposition of the shares, any additional gain
or loss recognized by the holder generally will be capital gain or loss.
In contrast, the exercise of ISOs will not result in any regular taxable
income to the optionee at that time; nor will the Company be entitled to any
deduction. However, the excess of the fair market value of the optioned shares
at the time of exercise over the exercise price will be an item of tax
preference for purposes of computing alternative minimum taxable income. If the
optionee holds the optioned shares after exercise for the requisite statutory
period, the difference between the sale price and the exercise price generally
will be taxed as capital gain or loss. If the optionee fails to hold the shares
for the requisite statutory period, the optionee generally will recognize
ordinary income at the time of such early disposition in an amount equal to the
excess of the fair market value of the shares at exercise (or if less, the sales
proceeds) over the exercise price, and the Company generally will be entitled to
a deduction in that same amount. Any additional gain on the disposition
generally will be taxed as capital gain.
Restricted Common Stock. Unless the recipient of a Restricted Common Stock
award elects to be taxed at the time of the issuance, there will be no federal
income tax consequences to the recipient or to the Company for as long as the
shares are subject to vesting restrictions. If and when such shares become
vested, the recipient will recognize ordinary income in an amount equal to the
excess of the fair market value of the shares on such date over any amount paid
for the shares. Such income will be subject to withholding tax at that time. The
Company generally will be entitled to a corresponding deduction in the same
amount that the recipient recognizes as income, except to the extent that the
amount of such income, when added to certain other compensation paid by the
Company to any individual who is a named executive officer at the end of the
fiscal year, exceeds $1,000,000. Upon any subsequent disposition of the shares,
any additional gain or loss recognized by the holder generally will be capital
gain or loss.
Performance Share Awards. The grant of Performance Share Awards will have
no federal income tax consequences to the Company or the recipient at the time
of the grant. When any Common Stock is delivered to a recipient pursuant to the
terms of the Performance Share Award, the recipient generally will recognize as
ordinary income the excess of the fair market value of the shares over any
amount paid therefor. Such income will be subject to withholding tax, and the
Company generally will be entitled to a corresponding deduction in
9
13
the same amount that the recipient recognizes as income, except to the extent
that the amount of such income, when added to certain other compensation paid by
the Company to any individual who is a named executive officer at the end of the
fiscal year, exceeds $1,000,000. Upon any subsequent disposition of the shares,
any additional gain or loss recognized by the holder generally will be capital
gain or loss. To date, no Performance Share Awards have been granted under the
1992 Plan.
OPTIONS AND RESTRICTED SHARES GRANTED UNDER THE 1992 PLAN
The following table sets forth the number of shares with respect to which
options and Restricted Common Stock have been granted under the 1992 Plan for
the following individuals as of December 31, 1996:
NUMBER OF OPTIONS RESTRICTED SHARES OF
RECEIVED COMMON STOCK
NAME AS OF 12/31/96 AWARDED AS OF 12/31/96
- -------------------------------------------------------- ------------------ ----------------------
Charles R. Schwab....................................... 1,512,500 0
David S. Pottruck....................................... 1,604,000 0
Lawrence J. Stupski..................................... 969,500 0
Tom D. Seip............................................. 597,000 15,000
Timothy F. McCarthy..................................... 100,000 15,000
Luis E. Valencia........................................ 300,000 10,000
All current executive officers.......................... 6,552,000 100,900
All current directors who are not executive officers.... 100,000 0
Nancy H. Bechtle........................................ 12,000 0
C. Preston Butcher...................................... 16,500 0
Donald G. Fisher........................................ 16,500 0
Anthony M. Frank........................................ 12,000 0
Frank C. Herringer...................................... 10,000 0
Stephen T. McLin........................................ 16,500 0
Roger O. Walther........................................ 16,500 0
All employees, other than executive officers............ 11,452,257 862,300
10
14
NEW PLAN BENEFITS
1992
STOCK INCENTIVE PLAN
------------------------
DOLLAR NUMBER OF
NAME VALUE UNITS(1)
- --------------------------------------------------------------------- ------ -------------
Non-Employee Directors............................................... * 10,500/17,500
- -------------------------------
* The Dollar Value of stock option grants are determined on the grant date.
(1) The 1992 Plan is administered by the Compensation Committee of the Board of
Directors, but the Compensation Committee has no discretion with respect to
the annual, automatic grant of NSOs to non-employee directors. Under the
1992 Plan, each non-employee director receives an annual grant of options to
purchase 1,500 shares of Common Stock (2,500 shares of Common Stock if the
exercise price is less than $35).
PROPOSAL NO. 3 -- STOCKHOLDER PROPOSAL REQUESTING THAT THE BOARD OF DIRECTORS
AMEND THE CERTIFICATE OF INCORPORATION
STOCKHOLDER PROPOSAL TO REINSTATE STOCKHOLDER RIGHT TO ACT BY WRITTEN CONSENT
AND TO CALL SPECIAL MEETINGS
BE IT RESOLVED, that the stockholders of the Company request that the Board
of Directors amend the Certificate of Incorporation to reinstate the rights of
the stockholders to take action by written consent and to call special meetings.
STATEMENT IN SUPPORT
The rights of the stockholders to take action by written consent and to
call special meetings should not be abridged.
The Company's elimination of these rights, in our opinion, effectively
removes important processes by which stockholders can act expeditiously to
protect their investment interests.
For example, the right of stockholders to act to remove incumbent directors
for egregious conduct should not be limited to the annual meeting. Also,
stockholders should not be prevented from giving timely consideration to a
bidder's proposal to acquire control of the Company, or a dissident
stockholder's slate of nominees for election of the Board of Directors, because
such proposals are required to be presented only at the annual meeting.
BOARD OF DIRECTORS RECOMMENDATION AGAINST AND COMMENTS ON THE STOCKHOLDER
PROPOSAL
The Board of Directors, after consideration of this proposal, recommends
that the stockholders vote AGAINST it because it is not in the best interests of
the Company.
11
15
At the 1996 Annual Stockholders Meeting the stockholders approved certain
amendments to the Company's Certificate of Incorporation. Also during 1996, the
Board of Directors adopted related amendments to the Company's bylaws. All of
these amendments were intended to help assure the continuity and stability of
the Company's business and affairs. The stockholder proposal would ask the Board
of Directors to cancel two of the amendments approved last year, thereby
allowing stockholders to act by written consent and allowing stockholders
holding at least 25% of the voting power of the outstanding capital stock of the
Company to call special meetings. As detailed below, the Board of Directors does
not believe that allowing stockholders to take such actions is in the best
interest of the Company.
The current provision in the Certificate of Incorporation prohibiting
stockholder action by written consent gives all the stockholders of the Company
the opportunity to participate in determining any proposed action. This
provision allows the opportunity for discussion at a meeting and increases the
ability of minority stockholders to have their views considered by preventing
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 current bylaw provision allowing the Board of Directors, the Chairman
or a duly designated committee of the Board of Directors to call special
meetings of stockholders provides for the orderly conduct of all Company affairs
at the annual meeting of stockholders or at a special meeting. Accordingly, a
stockholder cannot force consideration of a proposal over the opposition of the
Board of Directors by calling a special meeting of stockholders prior to such
time that the Board of Directors believes such consideration to be appropriate.
As a result, the Board of Directors will have the opportunity to adequately
evaluate and inform all stockholders of any matters to be considered.
For the foregoing reasons, the Board of Directors believes that the
stockholder proposal is not in the best interests of the Company and strongly
recommends that you vote AGAINST the proposal.
12
16
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock, as of March 13, 1997, by each person
who is known to the Company to own beneficially more than 5% of the Common
Stock, each executive officer named in the Summary Compensation Table, eachCompany's
outstanding common stock, as 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.March 18, 1999.
AMOUNT AND NATURE OF SHARES BENEFICIALLY OWNED
NUMBER OF SHARESRIGHT TO RESTRICTED PERCENT OF
OF BENEFICIALLYSHARES ACQUIRE (2) STOCK (3) OUTSTANDING
OWNED (1) SHARES
NAME
OF BENEFICIAL OWNER(1) OWNED(2) COMMON STOCK
- ---------------------------------------------------------------- ---------------- -------------------------------------------------------------------------------------------------------------------------------
Charles R. Schwab(3)(4)(5)...................................... 36,662,535 20.8%
Charles Schwab Profit SharingSchwab(4) 74,653,296 1,106,250 -- 18.6
SchwabPlan Retirement Savings and
Employee Stock Ownership
Plan(6)(7).................................................... 16,459,957 9.3%
+Luis E. Valencia
+Walter W. Bettinger III
+Evelyn S. Dilsaver
+Wayne W. Fieldsa
+Thomas N. Lawrie
+Susanne D. Lyons
+Thomas W. Matchett, Jr.Investment Plan (5) 29,921,306 -- -- 7.4
Transamerica Corporation and Transamerica
Investment Services, Inc.(8)....................................................... 9,096,350 5.2%
Lawrence J. Stupski(3)(4)....................................... 4,725,926 2.7%(6) 21,455,829 -- -- 5.3
David S. Pottruck(3)(4)(9)...................................... 3,247,957 1.8%Pottruck(7) 2,229,251 3,368,040 -- 1.4
Nancy H. Bechtle(3)............................................. 80,250Bechtle 9,760 144,500 -- *
C. Preston Butcher(3)(10)....................................... 171,750Butcher(8) 349,784 42,750 -- *
Donald G. Fisher(3)(11)......................................... 499,250Fisher(9) 1,086,187 42,750 -- *
Anthony M. Frank(3)(12)......................................... 301,798Frank 202,500 40,625 -- *
Frank C. Herringer(3)(13)....................................... 24,850Herringer(10) 33,412 28,125 -- *
Stephen T. McLin(3)(14)......................................... 39,037McLin(11) 50,612 42,750 -- *
Mark A. Pulido(12) 1,950 10,000 -- *
Arun Sarin(13) 1,000 10,000 -- *
George P. Shultz 22,500 24,750 -- *
Roger O. Walther(3)(15)......................................... 36,339Walther(14) 44,997 17,625 -- *
Tom D. Seip(3)(4)............................................... 520,314John Coghlan 207,045 1,183,104 69,375 *
TimothyLinnet F. McCarthy(3)(4)....................................... 40,000Deily 15,014 69,752 79,500 *
Luis E. Valencia(3)(4).......................................... 204,777Valencia 102,095 158,417 71,250 *
All executive officersSteven L. Scheid 573 133,125 60,000 *
Directors and directorsExecutive Officers as a group (18
persons)(16).................................................. 63,788,182 36.2%Group
(22 Persons) (15) 79,538,865 7,286,687 781,125 21.2
- -------------------------------
* Less*Less than 1%.
+ Members of
(1) Includes shares for which the Administrative Committee for the Profit Sharing Plan. For
information regarding shares beneficially owned by such persons, see Note 7
below.
(1) All informationnamed person:
- has sole voting and investment power,
- has shared voting and investment power with respect to beneficial ownership of the shares is based
upon filings made by the respective beneficial owners with the SEChis or information provided by such beneficial owners to the
13
17
Company. Except asher spouse, or
- holds in an account under The SchwabPlan Retirement Savings and
Investment Plan,
unless otherwise indicated in the notesfootnotes.
[side bar]
NET INCOME FOR
1998 WAS $348 MILLION,
A 29% INCREASE
OVER 1997.
22
25
PRINCIPAL STOCKHOLDERS
Excludes shares that:
- may be acquired through stock option exercises, or
- are restricted stock holdings.
(2) Shares that can be acquired through stock option exercises through May 17,
1999.
(3) Shares subject to this table,a vesting schedule, forfeiture risk and other
restrictions.
(4) Includes 2,755,806 shares held by Mr. Schwab's spouse and children.
Includes the following shares for which Mr. Schwab disclaims beneficial
ownership:
- 5,251,895 shares held by non-profit public benefit
corporations.
- 32,915 shares held in trusts for which Mr. Schwab acts as
trustee.
Includes the following shares for which Mr. Schwab may be deemed to have
shared voting and investment power, but disclaims beneficial ownership:
- 453,329 shares held by investment companies and managed by a
wholly-owned subsidiary of the Company.
Mr. Schwab's address is c/o The Charles Schwab Corporation, 120 Kearny
Street, San Francisco, California 94104.
(5) As of March 18, 1999, The SchwabPlan Retirement Savings and Investment
Plan held a total of 29,921,306 shares of which:
- 29,564,853 shares were held by participants under the plan,
and
- 356,453 unallocated shares were held under the Employee
Stock Ownership Plan ("ESOP") component of the plan.
Participants direct the voting and disposition of shares held for their
benefit or allocated to their plan accounts. The purchasing agent votes
and disposes of plan participants' unvoted shares and unallocated shares
held under the ESOP component of the plan. The plan's purchasing agent may
only vote or dispose of these unvoted and unallocated shares in the same
proportion as shares directed by plan participants.
The address of each beneficial owner of more than 5% of the Common StockThe SchwabPlan Retirement Savings and Investment Plan 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(6) Based on information contained in a report on Schedule 13-G filed with the
notes to this table.
(3) Shares issuable upon exercise of options to acquire Common Stock that are
exercisable within 60 days of March 13, 1997 are treated as beneficially
owned as follows: Mr. Schwab 1,137,499 shares; Mr. Stupski 234,748 shares;
Mr. Pottruck 1,190,524 shares; Ms. Bechtle 72,750 shares; Mr. Butcher
16,500 shares; Mr. Fisher 16,500 shares; Mr. Frank 70,500 shares; Mr.
Herringer 10,000 shares; Mr. McLin 16,500 shares; Mr. Walther 16,500
shares; Mr. Seip 397,274 shares; Mr. McCarthy 25,000 shares; and Mr.
Valencia 194,024 shares.
(4) Includes amounts held by the Trustee of the Profit Sharing Plan and
allocated to the individual Employee Stock Ownership Plan ("ESOP") accounts
or held for the benefit of the named executives under the Profit Sharing
and Salary Deferral Components of the Profit Sharing Plan ("non-ESOP
components") as follows: Mr. Schwab 245,509 shares; Mr. Stupski 78,228
shares; Mr. Pottruck 165,061 shares; Mr. Seip 61,393 shares; Mr. McCarthy 0
shares; and Mr. Valencia 753 shares.
(5) This amount includes 2,384,398 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; 3,482 shares held by Mr. Schwab as custodian for his
children; 1,500 shares held by Mr. Schwab as trustee of a trust with
respect to which he disclaims beneficial ownership; and 48,880 shares held
by the Schwab 1000 Fund and managed by Charles Schwab Investment
Management, Inc., which is a wholly-owned subsidiary of the Company, as to
which shares Mr. Schwab may be deemed to have shared voting and investment
power but 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, California 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 15,662,770 shares which,
as of March 13, 1997 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 797,187 of the
shares held by the Trustee that have not yet been allocated to the accounts
of individual ESOP participants. The purchasing agent is required to vote
all shares under its control in a specified manner. See "Voting." The
797,187 unallocated shares held by the
14
18
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, Mr. Bettinger, Ms. Dilsaver, Mr. Fieldsa, Mr. Lawrie, Ms.
Lyons and Mr. Matchett 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 16,459,957 shares held by the Trustee of the Profit Sharing Plan.
Mr. Valencia, Mr. Bettinger, Ms. Dilsaver, Mr. Fieldsa, Mr. Lawrie, Ms.
Lyons and Mr. Matchett each also have sole voting power with respect to the
753; 393; 7,059; 306; 5,569; 2,911; and 1,687 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; 90,762; 900; 25,101;
7,867; 25,100; and 920 shares, respectively, held by each directly; and
194,024; 2,000; 65,250; 5,191; 2,250; 65,800; and 0 shares, respectively,
which each has the right to acquire under options which are exercisable
within 60 days of March 13, 1997. As a result, the members of the
Administrative Committee are deemed to be the beneficial owners of
outstanding Common Stock, as follows: Mr. Valencia 9.5%; Mr. Bettinger
9.4%; Ms. Dilsaver 9.4%; Mr. Fieldsa 9.4%; Mr. Lawrie 9.3%; Ms. Lyons 9.4%;
and Mr. Matchett 9.3%.
(8)SEC on February 16, 1999. The address of Transamerica Corporation ("Transamerica") is 600
Montgomery Street, San Francisco, California 94111 and the address of
Transamerica Investment Services, Inc. ("TIS") is 1150 South Olive Street, Los
Angeles, California 90015.
This disclosure is based on information contained in a
report on Schedule 13-G filed with the SEC. TIS is a wholly-owned
subsidiary of Transamerica, and the listed shares include shares held by
Transamerica and shares held for the benefit of investment advisory clients
of TIS, including other subsidiaries of Transamerica.
(9) This amount includes 11,362 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; 75,050 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 35,442(7) Includes 30,288 shares held by Mr. Pottruck's family members, as tospouse and children.
Includes the following shares for which he shares
investment power butMr. Pottruck disclaims beneficial
ownership.
(10) This amount includes 113,250ownership:
- 203,634 shares held in trusts for which Mr. Pottruck acts
as trustee.
- 115,312 shares held by Mr. Butcher and his spouse as
joint tenants, and 42,000a non-profit public benefit
corporation.
(8) Includes 94,972 shares held by Mr. Butcher's spouse as her
separate property.
(11) This amount includes 408,500spouse.
[side bar]
SINCE 1998, THE SHARE
PRICE OF THE COMPANY'S
COMMON STOCK
HAS GROWN AT A
COMPOUNDED ANNUAL
RATE OF 62%. THIS
INCREASE CREATED
$22 BILLION IN
STOCKHOLDER WEALTH
23
26
PRINCIPAL STOCKHOLDERS
(9) Includes 919,125 shares held in certain charitable remainder trusts by Mr.
Fisher and his spouse as
trustees of a charitable remainder trust.
(12) This amount includes 41,298spouse.
(10) Includes 16,875 shares held by Mr. Frank's daughter, as to
which heHerringer's spouse.
(11) Includes 4,567 shares investment power but disclaims beneficial ownership.held by a non-profit public benefit corporation
established by Mr. McLin.
(12) Mr. Pulido became a director in December 1998.
(13) This amount includes 3,750Mr. Sarin became a director in December 1998.
(14) Includes 8,870 shares held by Mr. Herringer as custodian for
his children.
(14) This amount includes 22,312 shares held by Mr. McLin underWalther's spouse.
(15) In addition to the Company's
Dividend Reinvestmentofficers and Stock Purchase Plan.
(15) This amount includes 15,928 shares held by Mr. Walther for a trust account
under the Company's Dividend Reinvestment and Stock Purchase Plan and 3,911
shares held by his spouse.
15
19
(16) Messrs. Schwab, Stupski, Pottruck, Butcher, Fisher, Frank, Herringer,
McLin, Walther, Seip, McCarthy, and Valencia, Ms. Bechtle and fivedirectors named in this table, six other
executive officers are members of the group.
[side bar]
A FUNDAMENTAL TENET
OF THE COMPANY'S
COMPENSATION POLICY
IS THAT SIGNIFICANT
EQUITY PARTICIPATION
CREATES A VITAL
LONG-TERM PARTNERSHIP
BETWEEN MANAGEMENT
AND OTHER
STOCKHOLDERS.
24
27
PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total numberreturns for
Company common stock, the Dow Jones Securities Brokerage Group Index and the
Standard & Poor's 500 Index, each of shares
shown on this line includes the group's direct share holdings (except
individual Profit Sharing Plan holdings)which assumes an initial value of $100 and
shares issuable upon exercisereinvestment of options within 60 days of March 13, 1997. The 15,662,770 allocated and
797,187 unallocated shares held by the Trusteedividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN *
- -- THE CHARLES SCHWAB CORPORATION
- -- DOW JONES SECURITIES BROKERAGE GROUP INDEX
- -- STANDARD & POOR'S 500 INDEX
[Graph Appears Here]
12/93 12/94 12/95 12/96 12/97 12/98
THE CHARLES SCHWAB CORPORATION $ 100 $ 109 $ 190 $ 304 $ 600 $1,211
DOW JONES SECURITIES BROKERAGE GROUP INDEX $ 100 $ 88 $ 121 $ 182 $ 332 $ 377
STANDARD & POOR'S 500 INDEX $ 100 $ 101 $ 139 $ 171 $ 229 $ 294
* Information presented is as of the Profit Sharing Plan
are also included in this total numberend of shares.
16each fiscal year ended December 31.
[side bar]
ON A DIVIDEND REIN-
VESTED BASIS, THE
VALUE OF OUR COMMON
STOCK INCREASED
102% IN 1998,
COMPARED WITH AN
INCREASE OF 14%
FOR THE DOW JONES
SECURITIES BROKERAGE
GROUP INDEX AND AN
INCREASE OF 29%
FOR THE STANDARD &
POOR'S 500 INDEX.
25
20
EXECUTIVE28
SUMMARY COMPENSATION The followingTABLE
This table shows, specificfor the last three fiscal years, compensation information for
the Company's ChiefCo-Chief Executive OfficerOfficers and the next four most highly
compensated executive officers. We refer to each of these officers in 1996 for fiscal years ending December 31, 1996, 1995, and
1994.as a "named
executive officer."
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
AWARDS
----------------------------------------
AWARDS
ANNUAL ------------------------ PAYOUTS
COMPENSATION RESTRICTED SECURITIES -------------
------------ STOCK UNDERLYING LTIP ALL OTHER- -------------------------------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY($SALARY BONUS ($)(1) BONUS($OTHER RESTRICTED SECURITIES ALL OTHER
($) ANNUAL STOCK UNDERLYING COMPENSATION
COMPEN- AWARDS ($) OPTIONS (#) ($) (6)
SATION (4)(5) (5)
($) (2)
AWARDS($)(3)
OPTIONS(#) PAYOUTS($)(4) COMPENSATION($)(5)
- ------------------------------ ---- ------------ ----------- ----------- ---------- ------------- -------------------------------------------------------------------------------------------------------------------------------------------------
CharlesCHARLES R. Schwab,............SCHWAB 1998 $800,004 $6,145,225 - 0 1,050,000 $19,472
CHAIRMAN AND CO-CHIEF EXECUTIVE 1997 $800,004 $6,362,225 - 0 0 $16,601
OFFICER
1996 $800,004 $9,387,225 - 0 0 $18,280
DAVID S. POTTRUCK 1998 $800,004 $6,145,225 - 0 $ 18,810
Chairman and 1995 $800,004 $8,606,225 0 500,000 0 $ 24,699
Chief Executive Officer 1994 $772,506 $2,500,2252,850,000 $19,472
PRESIDENT AND CO-CHIEF EXECUTIVE 1997 $695,004 $4,319,225 - 0 0 0 $ 18,890
David S. Pottruck,............$16,601
OFFICER
1996 $695,004 $6,436,225 - 0 0 $18,280
JOHN COGHLAN 1998 $387,000 $ 790,225 $609,308 $1,406,559 97,501 $19,472
EXECUTIVE VICE PRESIDENT 1997 $381,667 $ 714,120 $119,834 0 33,751 $16,601
1996 $362,500 $ 18,810
President and 1995 $695,004 $5,898,225 0 350,000 0 $ 24,699
Chief Operating Officer 1994 $658,755 $ 662,543 0 300,000 $ 1,578,360 $ 18,890
Tom D. Seip,.................. 1996 $408,333 $1,395,572534,541 - 0 0 $18,280
LINNET F. DEILY (7) 1998 $369,167 $ 800,225 $ 59,957 $1,373,747 97,501 $19,472
EXECUTIVE VICE PRESIDENT 1997 $313,334 $ 479,637 $243,155 $ 117,374 53,250 $14,389
1996 $ 62,500 $ 80,265 - $ 244,998 112,500 0
LUIS E. VALENCIA 1998 $391,667 $ 18,810
Executive Vice President 1995 $366,668 $1,046,288765,225 $406,464 $1,569,996 97,501 $19,472
EXECUTIVE VICE PRESIDENT 1997 $368,334 $ 384,375 75,000752,000 $ 79,889 0 $ 24,699
1994 $306,258 $ 264,309 0 180,000 $ 751,600 $ 18,890
Timothy F. McCarthy,.......... 1996 $343,751 $1,111,485 $ 246,250 0 0 $ 6,805
Executive Vice President 1995 $108,336 $ 254,174 $ 128,125 100,000 0 $ 6,118
1994 N/A N/A N/A N/A N/A N/A
Luis E. Valencia,.............78,751 $16,601
1996 $329,167 $ 938,084 - 0 0 $18,280
STEVEN L. SCHEID(8) 1998 $379,167 $ 775,225 $ 620 $1,569,996 112,501 $19,472
EXECUTIVE VICE PRESIDENT AND 1997 $345,833 $ 749,945 132,597 0 67,500 $16,601
CHIEF FINANCIAL OFFICER 1996 $189,583 $ 18,810
Executive Vice President and 1995 $295,000504,499 - 0 157,500 $ 762,695 $ 256,250 60,000 0 $ 24,699
Chief Administrative Officer 1994 $228,750 $ 182,546 0 240,000 0 $ 2,0006,644
- -------------------------------
(1) Mr. McCarthy joined the Company in September of 1995, and Mr. Valencia
joined the Company in February of 1994.
(2) Includes, with respect toFor Mr. Schwab, includes amounts paid pursuant tounder his Employment Agreement with the Companyemployment agreement dated
March 31, 1995. See(See "Employment Agreement and Name Assignment."Assignment" in
Appendix A.)
26
29
SUMMARY COMPENSATION TABLE
(2) "Other Annual Compensation" includes payments, not properly categorized as
salary or bonus, to the named executive officers. The following chart
explains payments, which started in 1997, arising out of certain
restricted stock grants.
CASH PAYMENT BASED ON PAR VALUE PAYMENT ON
SCHWAB PERFORMANCE* RESTRICTED STOCK** TOTAL
1998 1997 1998 1997 1998 1997
MR. SCHWAB 0 0 0 0 0 0
MR. POTTRUCK 0 0 0 0 0 0
MR. COGHLAN $608,766 $119,602 $542 $232 $609,308 $119,834
MS. DEILY 0 0 $542 $201 $ 542 $ 201
MR. VALENCIA $405,844 $ 79,734 $620 $155 $406,464 $ 79,889
MR. SCHEID 0 0 $620 0 $ 620 0
* Some executive officers received cash payments based on the return on
Company stock (including price appreciation and dividend reinvestment)
outperforming, by a specified margin, the return on the Standard & Poor's
500 Index. These payments are intended to encourage executives to continue
holding Company stock after vesting by helping them satisfy the income tax
liability resulting from the vesting of the shares.
** Consists of payment by the Company of the par value of restricted stock
awarded to named executive officers.
(3) "Other Annual Compensation" includes relocation expenses and related tax
gross-up payments (explained below), in addition to other perquisites, as
shown in the following chart.
RELOCATION TAX GROSS-UP OTHER
EXPENSES PAYMENTS PERQUISITES TOTAL
1998 1997 1998 1997 1998 1997 1998 1997
----------- ------------ ------------- ---------------
MS. DEILY $21,277 $163,252 $2,059 $42,032 $36,079 $37,670 $59,415 $242,954
MR. SCHEID -- $ 93,943 -- $ 8,962 -- $29,692 -- $132,597
SEC regulations exclude from proxy statement reporting requirements a
named executive officer's perquisites if their value in any year does not
exceed the lesser of (a) $50,000 or (b) 10% of the total of the named
executive officer's annual salary and bonus for that year. Based on these
regulations, we have reported perquisites only for Ms. Deily for 1997 and
1998 and Mr. Scheid for 1997.
Ms. Deily's expenses were for relocation from Houston, Texas to San
Francisco, California, and Mr. Scheid's expenses were for relocation from
Scottsdale, Arizona to San Francisco. Because some of the relocation
expense payments were considered taxable income, Ms. Deily and Mr. Scheid
received tax gross-up payments to cover the taxes on that income.
[side bar]
DURING 1998, THE
COMPANY ACHIEVED ITS
NINTH CONSECUTIVE
YEAR OF RECORD
REVENUES AND EIGHTH
CONSECUTIVE YEAR OF
RECORD EARNINGS.
27
30
SUMMARY COMPENSATION TABLE
(4) RESTRICTED STOCK - - DATE OF GRANT VALUE. This column shows the market
value of restricted stock awards on date of grant.
RESTRICTED STOCK - - YEAR-END VALUE. The year endfollowing chart shows the number
and year-end value of Messrs. Seip, McCarthy and Valencia'sall shares were $480,000, $480,000 and $320,000, respectively,of unvested restricted stock held by
named executive officers on December 31, 1998. The year-end value is based
on the closing sale price of the Company's Common StockCompany common stock on December 31, 1996that date ($32.00). This
per share price does not reflect any additional diminution in value
resulting from the restrictions placed on such shares. The holders56.1875):
NUMBER OF YEAR-END VALUE
SHARES
MR. SCHWAB 0 0
MR. POTTRUCK 0 0
MR. COGHLAN 69,375 $3,898,008
MS. DEILY 79,500 $4,466,906
MR. VALENCIA 71,250 $4,003,359
MR. SCHEID 60,000 $3,371,250
RESTRICTED STOCK - - RIGHTS. Restricted stockholders have voting and
dividend rights with respect to the restricted shares.rights.
RESTRICTED STOCK - - ORIGINAL VESTING SCHEDULE. The restricted shares,
when originally issued, vested over a five-year period, withwith:
- 10% of the shares vesting two years after the grant date,
- an additional 10% of the shares vesting three years after the
grant date,
- an additional 15% of the shares vesting four years after the
grant date, and
- the remaining 65% of the shares vesting five years after the
grant date.
Some of the restricted shares were issued subject to restrictions that would cause them
to vest more slowly or not at all, ifdepending on
certain stock performance criteria are
not met.criteria. Thus, it is possible that a
substantial number of the restricted shares will not vest.
However, because certain
17
21
percentages of the restricted shares would vest upon reaching each of the
specified return to shareholders targets (price appreciation plus
dividends), all, none or part of the restricted stock could vest in five
years from the date that the restricted shares were awarded. In 1996, and
effectiveRESTRICTED STOCK - - AMENDED VESTING SCHEDULE. Effective January 1, 1997,
the Board Compensation Committee of the Board of
Directors shortened the vesting period to four
years for all restricted grants madestock granted after December 31, 19931993. The
following vesting schedule applies to four years. The restricted shares outstanding onstock granted between
January, 1, 1994 and December 31, 1996 now have a vesting schedule with1996:
- 10% of the shares vestingvest two years after the grant date,
- an additional 40% of the shares vestingvest three years after the
grant date, and
- the remaining 50% of the shares vest four years after the
grant date.
For restricted stock granted after December 31, 1996, the following
vesting schedule applies:
- 50% of the shares vest three years after the grant date, and
- the remaining 50% of the shares vest four years after the
grant date.
Any restricted shares granted subject towith pre-existing stock performance
criteria remainconditions remained subject to those conditions.
(4)(5) Adjusted for the December 11, 1998 three-for-two stock split of Company
common stock.
(6) Represents Company contributions under The disclosure rulesSchwabPlan Retirement Savings
and Investment Plan.
(7) Ms. Deily joined the Company in October 1996.
(8) Mr. Scheid joined the Company in June 1996.
[side bar]
AT YEAR-END 1998,
CUSTOMER ASSETS
INVESTED IN
SCHWABFUNDS*,
MUTUAL FUND
ONESOURCE* AND
OTHER MUTUAL FUND
MARKETPLACE* FUNDS
TOTALED $210.6
BILLION, UP 31% OVER
YEAR-END 1997.
28
31
OPTION GRANTS
This table shows stock option grants to the named executive officers during the
last fiscal year.
OPTIONS GRANTED IN 1998
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
TERM (3)
NAME NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
GRANTED (#) FISCAL YEAR ($/SH) (2) DATE 5% 10%
(1)
- --------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 1,050,000 10.43% $23.1250 5/11/2008 $15,448,509 $38,981,751
DAVID S. POTTRUCK (4) 1,050,000 10.43% $23.1250 5/11/2008 $15,448,509 $38,981,751
300,000 2.98% $33.3333 5/11/2008 $ 1,351,360 $ 8,075,143
300,000 2.98% $40.0000 5/11/2008 0 $ 6,075,143
300,000 2.98% $46.6667 5/11/2008 0 $ 4,075,143
300,000 2.98% $53.3333 5/11/2008 0 $ 2,075,143
300,000 2.98% $60.0000 5/11/2008 0 $75,143
300,000 2.98% $66.6667 5/11/2008 0 0
JOHN COGHLAN 97,501 0.97% $26.7917 7/24/2008 $ 1,573,330 $ 4,052,565
LINNET F. DEILY 97,501 0.97% $26.1667 2/23/2008 $ 1,581,323 $ 4,029,197
LUIS E. VALENCIA 97,501 0.97% $26.1667 2/23/2008 $ 1,581,323 $ 4,029,197
STEVEN L. SCHEID 112,501 1.12% $26.1667 2/23/2008 $ 1,824,601 $ 4,649,067
(1) Option grants in 1998 were made under the 1992 Stock Incentive Plan. The
grants have been adjusted for the December 11, 1998 three-for-two stock
split of Company common stock. Except as noted in footnote 4, these
options:
- are generally granted as 50% non-qualified stock options and
50% incentive stock options (except as limited by tax law),
- are granted at an exercise price equal to 100% of the SEC 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
thefair
market value of such participant's units on December 31, 1994 less the value of
such unitscommon stock 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 ongrant,
- expire ten years from the date of grant. Participants at the
executive officer level were permittedgrant, unless otherwise
earlier terminated because of certain events related to
defer receipttermination of all or a portion
of their LTIP cash bonuses until the earlier of a specified date certain or
theemployment, and
- vest in 25% increments on each anniversary date of the participant's termination of employment, provided that
deferrals will be paid immediately upon a change of control.
(5) Represents employer contributionsgrant,
subject to the retirement plans forterms and conditions of the years
1994, 1995,plan.
(2) Options with exercise prices of:
- $26.1667 were granted on February 23, 1998.
- $26.7917 were granted on July 24, 1998; and
1996.
18- $23.1250 were granted on May 11, 1998, except as noted in
footnote 4.
29
22
STOCK32
OPTION TABLES
There were no grants to purchaseGRANTS
(3) Based on the SEC's rules, we use a 5% and 10% assumed rate of appreciation
over the ten-year option term. This does not represent the Company's
Common Stock toestimate or projection of the personsfuture common stock price. If the Company
common stock does not appreciate above the exercise prices, the named
executive officers will receive no benefit from the options.
(4) 1,800,000 of Mr. Pottruck's options were premium price options. This means
they were options with a series of escalating exercise prices that
exceeded the Company common stock closing price of $23.1250 on the May 11,
1998 grant date. One-sixth of Mr. Pottruck's premium price options vest
each year beginning in the Summary Compensation Table during the fiscal year ended December
31, 1996.
The following2000.
[side bar]
OUR BOARD
COMPENSATION
COMMITTEE BELIEVES THAT
AN EMPHASIS ON
LARGE, BUT INFREQUENT,
AWARDS PROVIDES
A MORE POWERFUL
INCENTIVE TO
EXECUTIVE OFFICERS.
30
33
OPTIONS EXERCISED
This table shows information concerning the exercise of stock options during 1996option exercises and the value of unexercised stock
options held by the individuals named inexecutive officers during the Summary Compensation Table above as of December 31,
1996.
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUESlast fiscal year.
NUMBERAGGREGATED OPTION EXERCISES IN 1998
AND FISCAL YEAR-END OPTION VALUES(1)
SHARES ACQUIRED VALUE NO. OF SECURITIES VALUE OF UNEXERCISED
ON EXERCISE (#) REALIZED UNDERLYING IN-THE-MONEY UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
($)(2) AT 12/31/96FISCAL YEAR-END (#) AT 12/31/96(1)(2)YEAR-END ($)(3)
------------------- ---------------------
SHARES
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(4) REALIZEDEXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------- ----------- -------- ------------------- --------------------------------------------------------------------------------------------------------------------------------------------------------
Charles
CHARLES R. Schwab......................SCHWAB 1,500,000 $31,971,546 1,621,875 1,331,250 $ 81,177,316 $48,272,137
DAVID S. POTTRUCK 0 N/A 1,137,499 $28,781,244
375,0010 3,405,540 3,053,461 $179,747,114 $61,018,943
JOHN COGHLAN 95,625 $ 2,390,631
David S. Pottruck......................2,580,066 1,174,668 171,585 $ 62,326,615 $ 6,115,324
LINNET F. DEILY 28,123 $ 425,557 41,440 193,688 $ 1,755,164 $ 6,968,084
LUIS E. VALENCIA 223,524 $ 4,551,777 430,831 196,898 $ 21,634,478 $ 7,071,101
STEVEN L. SCHEID 0 N/A 1,190,524 $30,100,341
413,4760 95,625 241,876 $ 4,860,909
Tom D. Seip............................ 0 N/A 420,024 $10,576,365
149,4764,293,932 $ 2,327,316
Timothy F. McCarthy.................... 0 N/A 25,000 $ 159,375
75,000 $ 478,125
Luis E. Valencia....................... 0 N/A 134,024 $ 2,709,403
165,976 $ 2,913,0979,031,037
(1) Adjusted for the December 11, 1998 three-for-two stock split of Company
Common stock.
(2) This number is calculated as follows:
- -------------------------------
(1) The amount in this column reflectsif upon exercising the difference betweenstock options, the average ofnamed executive officer
kept the shares he or she acquired, then by averaging the high and
low market prices of Company stock on December 31, 1996 andthe date of exercise to get
the "market price," or
- if upon exercising the stock options, the named executive officer
sold the shares he or she acquired, then by using the sale price as
the "market price,"
- then subtracting the option exercise price from the market price to
get the "value realized per share," and
- then multiplying the value realized per share by the number of
options exercised.
The amounts in this column may not represent amounts actually realized by
the named individual.
(2) All options are granted at 100% of the fair market value (as defined in the
1992 Plan) of the Common Stock on the date of grant. The options expire
eight or ten years from the date of grant, unless they expire earlier on
account of certain events related to termination of employment. The options,
when originally granted, were subject to the vesting schedule of either the
1987 Stock Option Plan, the 1987 Executive Officer Stock Option Plan
(collectively, the "1987 Plans") or the 1992 Plan. Those granted from the
1987 Plans are subject to a five year vesting schedule with vesting
occurring in 10% increments every six months after the grant date. The
options granted from the amended 1992 Plan were subject to a five year
vesting schedule, with vesting occurring in increments of 10% and 15%, on
the first and second
19
23
anniversary dates of the grant, and 25% each year on the third, fourth and
fifth anniversary dates of the grant. Effective January 1, 1997, the 1992
Plan was further amended by the Compensation Committee of the Board of
Directors to retroactively shorten the vesting period for all option grants
made after December 31, 1993 to four years. The options subject to this
amendment now have a vesting schedule that allows vesting in 25% increments
on each anniversary date of the grant, so that 100% of the options are
vested after four years, subject to the terms and conditions of the 1992
Plan.executive officers.
(3) The value of unexercised optionsThis number is calculated by multiplying the number of
options outstanding by the difference betweenby:
- subtracting the option exercise price andfrom the Company's December
31, 1996 closing1998 average market price of $32.00($56.9063 per share, of the Company's
Common Stock as reported onin
the New York Stock Exchange Composite Transactions Index,Index) to get the
"average value per option," and
31
34
OPTIONS EXERCISED
- multiplying the average value per option by the number of
exercisable and unexercisable options.
The amounts in this column may not represent amounts that will actually be
realized by the named individual.
(4) No named individual exercised stock options in 1996.
20executive officers.
[side bar]
ON A DIVIDEND REIN-
VESTED BASIS, FROM
DECEMBER 31, 1993
THROUGH DECEMBER 31,
1998, THE CUMULATIVE
TOTAL RETURN OF THE
COMPANY'S STOCK WAS
1,111%, COMPARED TO
277% FOR THE DOW JONES
SECURITIES BROKERAGE
GROUP INDEX AND 194%
FOR THE STANDARD &
POOR'S 500 INDEX.
32
2435
COMPENSATION COMMITTEE REPORT
In this section, we describe our executive compensation policies and practices,
including the compensation we pay our Co-Chief Executive Officers and the next
four most highly compensated executive officers.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During 1996,1998, the Compensation Committee (the "Committee") of the Company's Board of Directors
consisted of Mr.Roger O. Walther, Ms.Nancy H. Bechtle, Mr.C. Preston Butcher, Stephen T.
McLin and Mr.
McLin. In addition, Mr. James Harvey was aGeorge P. Shultz. No member of the Committee until June of
1996. All members of the Committeeour committee during 1996 were not employees1998 was an
employee of the Company or any of its subsidiaries. The CommitteeEach member qualifies as a
"non-employee director" under Rule 16b-3 of the Securities Exchange Act of 1934
and as an "outside director" under Section 162(m) of the Internal Revenue Code.
Our committee has overall responsibility for the Company's executive
compensation policies and practices. Each member satisfies
the applicable requirements of Section 16 of the Securities Exchange Act of
1934, as amended, and is an "outside director" within the meaning of Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The
Committee determinesOur committee's functions include:
- determining the compensation of the Chairman of the CompanyCo-Chief Executive Officers,
Charles R. Schwab and uponDavid S. Pottruck,
- on recommendation of the ChairmanCo-Chief Executive Officers, reviewing and
the President, reviews and approvesapproving all executive officers' compensation, including salary and
payments under the annual executive bonus plans, and
- granting awards under stock option andthe Company's stock incentive plans.
The Committee has providedOur committee is providing the following report on the Chairman'sCompany's executive
compensation the compensation policies, of the Company as they apply to its executive officers
and the relationship of Companythe Company's performance to
executive compensation, and the Co-Chief Executive Officers' compensation.
COMPENSATION POLICIES
The Company's executive compensation policies are designed to address a number
of objectives, including rewarding financial performance and motivating
executive officers to achieve significant returns for stockholders. The
Company's policies rely on two principles.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 uponon meeting stated financial objectives.
When establishing salaries, bonus levels and stock-based awards for executive
officers, the Committeeour 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 CommitteeOur
committee reviews companies of similarwhose size, rates of growth and financial returns
are similar to the Company,Company's, including but not limited to, some of the companies included in the Dow Jones
Securities Brokerage Group Index.
Companies[side bar]
IN THIS SECTION,
WE DESCRIBE THE
COMPENSATION WE PAY
OUR CO-CHIEF EXECUTIVE
OFFICERS AND THE NEXT
FOUR MOST HIGHLY
COMPENSATED EXECUTIVE
OFFICERS.
COMPENSATION POLICIES
33
36
COMPENSATION COMMITTEE REPORT
Our committee selects companies outside the financial services industry are selected for
inclusion in the review based uponon the extent to which they satisfy a list of
selection criteria, which includesincluding size, growth rates, similar financial performance,
leadership status in their industry, reputation for innovation, and the extent
to which they compete with the Company for executives, notexecutives. Not all of whichthese criteria
will necessarily be satisfied in any particular case. The Committee believes it is
necessary to includeOur committee includes in
its review companies other than those included in the Dow Jones Securities
Brokerage Group Index because the Company frequently recruits employeesexecutives from
outside the financial services industry, depending uponon the specific skills
required for the position.
The CommitteeOur committee uses comparative data to set compensation targets that will
provide executive officers with total compensation thatthat:
- exceeds the average amounts paid to similar executives of comparable
companies in years in which the Company achieves superior
performance, and
with compensation- falls below the average of amounts paid to similar executives of
comparable companies in years in 21
25
which the Company fails to achieve
superior performance.
However, the Committeeour committee also makes discretionary and subjective determinations of
appropriate compensation amounts to reflect, for example, the Company's
philosophy of compensating executives for the success they achieve in managing
specific enterprises.
In theMr. Pottruck's case, of the compensation of the President, the Committeeour committee places considerable weight on the
recommendations of Mr. Schwab, and in the Chairman, and with
respect tocase of executive officers other than
the ChairmanMr. Schwab and the President, the
CommitteeMr. Pottruck, our committee places considerable weight uponon the
recommendations of the ChairmanMr. Schwab and the President.Mr. Pottruck.
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/ownersmanagement
and other stockholders. Through the Profit SharingThe SchwabPlan Retirement Savings and Investment
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 13, 1997,18, 1999, the directors executive officers and other seniorexecutive officers of the
Company and its subsidiaries owned an aggregate of 44,885,17380,319,990 shares (including restricted shares)
and had the right to acquire an additional 5,955,9757,286,687 shares upon the exercise
(on or before May 17, 1999) of employee stock optionsoptions.
[side bar]
THE IMPORTANCE OF
OWNERSHIP
34
37
COMPENSATION COMMITTEE REPORT
The SchwabPlan Retirement Savings and Investment Plan held 29,564,853 shares
which were exercisableallocated to participants' accounts on March 13, 1997 or within sixty
days thereafter. In addition, the Profit Sharing Plan held 16,459,957 shares.
These interests, exclusive of other outstanding options, represented in the
aggregate 38.2% of the outstanding capital stock of the Company.18, 1999. The Company
intends to continue its strategy of encouraging its employees to become
stockholders.
The chart which followsperformance graph on page 25 of this reportproxy statement compares changes in
the Company's cumulative total returns with those of the S&P 500 Index and the Dow Jones Securities
Brokerage Group Index and the Standard & Poor's 500 Index. From December 31,
19911993 through December 31, 19961998, the cumulative total return of the Company's
stock was 394%1,111%. By comparison, in the same period the Dow Jones Securities
Brokerage Group Index grew 143%277% and the S&PStandard & Poor's 500 Index grew 103%194%.
The CommitteeOur committee believes that the executive officers'employees' equity participation in the Company is a
meaningful factor contributing to the Company's success.
ANNUAL BASE SALARY
The Company believes that base salary is frequently a significant factor in
attracting, motivating and retaining skilled executive officers. Accordingly,
the Committeeour 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."Policies" earlier in
this report.)
VARIABLE COMPENSATION
Corporate Executive Bonus Plan.Plan
The Corporate Executive Bonus Plan ("the
Bonus Plan")covers all executive officers except Mr.
Schwab, and pays bonuses each year to executive officers (other than the
Chairman, whobased on corporate performance. (Mr. Schwab
is covered under an employment agreement with the Company, see
"Chairman'sCompany. See "Co-Chief
Executive Officers' Compensation" below) basedlater in this report.) Depending on the
Company's performance. Depending
upon the Company'spre-tax profit margin and net revenue growth, and pre-tax profit margin, the Bonus Planbonus plan is paid
out at a percentage of each participant's bonus target. Targets are expressed as
a percentage of base salary, which are
22
26
determined by the Committeeour committee determines based on the factors
discussed above (seeearlier in this report. (See "Compensation Policies"Policies."). The Committee
Our committee sets target bonuses in the first quarter of each year based uponon the
recommendations of Mr. Schwab and Mr. Pottruck (except that Mr. Pottruck's
target bonus is based on the recommendation of the Chairman and, where
appropriate, the President.Mr. Schwab only). In the case of
the President,Mr. Pottruck, who receives all of his annual incentive compensation under the Bonus Plan, thethis
bonus plan, our committee determined that it would be appropriate to set a
target bonus can be
upfor 1998 that would result in an annual bonus payment to 300% of base salary.Mr.
Pottruck equal
[side bar]
ANNUAL BASE SALARY
VARIABLE COMPENSATION
35
38
COMPENSATION COMMITTEE REPORT
to the annual bonus payable to Mr. Schwab under his employment agreement,
depending on our corporate performance. (See "Co-Chief Executive Officers'
Compensation" later in this report.) In the case of the remaining executive
officers, whothe target bonuses under this bonus plan can be up to 50% of base
salary. These remaining executive officers also participate in the Annual
Executive Individual Performance Plan (discussed below), the target bonuses can be up to 50% of base salary.later in this report).
The target bonus is adjusted upward or downward, in accordance withaccording to a payout matrix
our committee adopted by the
Committee at the timewhen we set the target bonus is established, resultingbonus. This results in a payout of
a multiple (or fraction) of the target bonus depending upon the Company'son our corporate
performance. The factors determining bonuses in the matrix are pre-tax profit
margin and net revenue growth. In general, a given percentage change in pre-tax
profit margin will have a greater impact on the determination of bonus payments
than the same percentage change in the net revenue growth rate. In 1996,1998, the
Company achieved a pre-tax profit margin of 21.3%21% and net revenue growth of 30.4%19%.
Based on this performance, executive officers received bonuses in excess
of 100% ofexceeding their
target bonus amounts in 1996.1998.
Annual Executive Individual Performance Plan.Plan
The Annual Executive Individual Performance Plan (the "Individual Performance Plan") pays bonuses to executive
officers other than the Chairman, Vice ChairmanMr. Schwab and PresidentMr. Pottruck based on a subjective
determination of each such officer's individual contribution to the attainment of
corporate performance objectives. Our committee makes this determination based
on the Company's performance objectives, made by the Committee upon
the recommendationrecommendations of the ChairmanMr. Schwab and the President.Mr. Pottruck. In general, suchtheir
recommendations are based in significant part upon suchon the officer's success in
achieving specific goals identified in suchthe officer's business plan.
The amount available for payments under the Individual Performanceindividual performance plan is
generally calculated by multiplying the amounts payable to the participants
(other than Mr. Pottruck) under the Corporate Executive Bonus Plan is determined in
accordance withby a matrix, adopted by the Committee in its discretion, in advance
from time to time, that generates a funding amount based upon the level of the
Company's net revenue growth and pre-tax profit margin. Although individualfixed
amount. Individual bonuses under the Individual Performance Planindividual performance plan may vary,
in recognition ofdepending on individual achievements,achievements. However, the aggregate amount of executive officer bonuses
payable to executive officers, as a group, under the Individual Performance Planindividual performance plan
is based strictly on the Company'sour corporate performance.
[side bar]
VARIABLE COMPENSATION
36
39
COMPENSATION COMMITTEE REPORT
1992 Stock Incentive Plan.Plan
In 1992, the Board of Directors approved a
stock incentive plan (the "1992 Plan"),the 1992 Stock Incentive Plan, which was approved by
the Company's stockholders
of the Company at the 1992 Annual Meetingannual meeting and became effective on
May 8, 1992. Under the 1992 Plan,plan our committee grants stock option grants are madeoptions and restricted
stock to executive officers, by the
Committee, based uponon the factors discussed above (seeearlier in this
report. (See "Compensation Policies"Policies.").
The Committee
Our committee has adopted a policy of granting infrequent and large stock option
and restricted stock awards to executive officers, rather thansupplemented with smaller
annual smaller grants. The
CommitteeOur committee believes that an emphasis on large, but infrequent,
awards provideprovides a more powerful incentive to executive officers to achieve
sustained growth over the long term. The CommitteeOur committee intends that stock-based
incentives will be the sole long-term incentives payable to executive officers.
During 1996,1998, our committee granted stock option grants were madeoptions to certaineach of the Company's
executive officers. In addition, certain of the Company'sour committee granted restricted shares to each
executive officers
received grants of restricted shares.officer (except Mr. Schwab and Mr. Pottruck). To determine the size of
the grants, the
Companyour committee reviewed and presented to the Committee data obtained from an independent consultant
concerning levels of long termlong-term compensation for executive officers of selected
financial services companies and 23
27
companies of comparable size, rates of growth,
and/or financial returns, as well
as the value of outstanding non-vested options held by the individual.
CHAIRMAN'Sreturns.
CO-CHIEF EXECUTIVE OFFICERS' COMPENSATION
The Company's Chairman,
Charles R. Schwab
Mr. Schwab, Chairman and Co-Chief Executive Officer, 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 (see1995. (See "Employment
Agreement and Name Assignment" in Appendix A.). Under the terms of his Employment
Agreement,employment
agreement, Mr. Schwab receives a base salary of $800,000. Mr. Schwab's annual
bonus, if any, is a multiple of his base salary. The multiple is based on the
Company's performanceour
corporate pre-tax profit margin and net revenue growth for the year, relative to net revenue growth and pre-tax
profit margin, and is
determined under a matrix adopted by the Committee whichour committee. Our committee has the
authority to adjust the matrix from time to time (in advance)(provided that for any year we
may not change the matrix more than 90 days after the beginning of the year).
The CommitteeOur committee believes that Mr. Schwab's leadership is a vital factor in the Company'sour
corporate success. The CommitteeSpecifically, our committee believes thatthat:
- - Mr. Schwab provides the
Company with the leadership, vision and inspiration for innovation
that has generated the Company'scorporate growth and superior performance,
and that the Company's- - The overall strategic direction as developed by Mr. Schwab is critical to
enhancing the future long termlong-term value of the Company for its stockholders.stockholders,
and
[side bar]
CO-CHIEF EXECUTIVE
OFFICERS' COMPENSATION
37
40
COMPENSATION COMMITTEE REPORT
- - Mr. Schwab's leadership has enabled the Company to substantially
outperform both the S&P 500
Index and the Dow Jones Securities Brokerage Group Index and the
Standard & Poor's 500 Index over the past five yearfive-year period.
Based uponBecause the Company's attainment in 1996 ofCompany attained a pre-tax profit margin of 21.3%21% and net revenue
growth of 30.4%,19% in 1998, which resulted in pre-tax profit of over $394,000,000,$577 million, the
amount of Mr. Schwab's annual bonus for 1996,1998, calculated pursuantaccording to the
matrix, was $9,387,000.$6,145,000.
During 1998, our committee approved a grant to Mr. Schwab of 700,000 stock
options (which resulted in 1,050,000 stock options after being adjusted for the
three-for-two stock split which occurred in December 1998), with a term of ten
years, exercisable at a price equal to the closing price of the stock of the
Company on the date the options were granted. In determining the size of the
grant, our committee applied the same considerations that we apply generally in
determining the size of grants to executive officers. (See "1992 Stock Incentive
Plan" discussed earlier in this report.)
In making the grant to Mr. Schwab, our committee also took account of Mr.
Schwab's leadership over the past six years and the Company's superior
performance compared to the Dow Jones Securities Brokerage Group Index and the
Standard & Poors 500 Index. The grant also reflects our committee's desire to
provide Mr. Schwab with incentives which are comparable to similarly situated
executives.
David S. Pottruck
Mr. Pottruck, President and Co-Chief Executive Officer, is compensated in the
form of a base salary and an annual bonus payable under the Corporate Executive
Bonus Plan that is dependent on our corporate pre-tax profit margin and net
revenue growth. (See "Corporate Executive Bonus Plan" earlier in this report.)
For 1998, our committee determined that, based on the relative responsibilities
of Mr. Schwab and Mr. Pottruck, it was appropriate for Mr. Pottruck to receive a
base salary equal to the base salary payable to Mr. Schwab under his employment
agreement. For the same reason we determined it to be appropriate to set a
target bonus for Mr. Pottruck under the Corporate Executive Bonus Plan that
would cause Mr. Pottruck to receive an annual bonus equal to the annual bonus
payable to Mr. Schwab under his employment agreement, depending on our corporate
performance. Specifically, our committee believes that:
- - Mr. Pottruck provides strategic and day-to-day leadership that has
contributed and continues to contribute significantly to the Company's
growth and superior performance,
[side bar]
CO-CHIEF EXECUTIVE
OFFICERS' COMPENSATION
38
41
COMPENSATION COMMITTEE REPORT
- - Mr. Pottruck guides the Company in the delivery of highly competitive
products and services to its customers, and this ability to compete is
imperative to building future long-term value for stockholders, and
- - Over the past six years, the combination of Mr. Pottruck's and Mr.
Schwab's leadership has enabled the Company to substantially outperform
both the Dow Jones Securities Brokerage Group Index and the Standard &
Poor's 500 Index.
During 1998, our committee approved a grant to Mr. Pottruck of 700,000 stock
options (which resulted in 1,050,000 stock options after being adjusted for the
three-for-two stock split which occurred in December 1998), with a term of ten
years, exercisable at a price equal to the closing price of the stock of the
Company on the date the options were granted. In determining the size of this
grant, our committee applied the same considerations that we apply generally in
determining the size of the grants to the executive officers. (See "1992 Stock
Incentive Plan" discussed earlier in this report.)
During 1998, our committee also approved a special recognition grant to Mr.
Pottruck of 1,200,000 additional stock options (which resulted in 1,800,000
additional stock options after being adjusted for the three-for-two stock split
which occurred in December 1998). We granted these additional stock options with
a term of ten years, but in contrast with other option grants approved by our
committee, these options have a series of escalating exercise prices that were
all set higher than the closing price of the stock of the Company on the date
the options were granted. One-sixth of these options will vest each year,
beginning in the year 2000. In approving this special recognition grant with
significant hurdles before any value would be realized by Mr. Pottruck, we
intended to provide Mr. Pottruck with the incentive to produce superior
long-term performance, and to reward Mr. Pottruck only if those long-term
performance goals were achieved.
In making both grants to Mr. Pottruck, our committee also took account of Mr.
Pottruck's leadership over the past six years and the Company's superior
performance compared to the Dow Jones Securities Brokerage Group Index and the
Standard & Poor's 500 Index.
[side bar]
CO-CHIEF EXECUTIVE
OFFICERS' COMPENSATION
39
42
COMPENSATION COMMITTEE REPORT
TAX LAW LIMITS ON EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code limits tax deductions for certain
executive compensation in excess ofover $1 million. Certain types of compensation are
deductible only if performance criteria are specified in detail, and
payments
are contingent on stockholder approval ofstockholders have approved the compensation arrangement.arrangements. The Company believes
that while it is generally in the best interests of its stockholders to
structure compensation plans to achieve deductibilityso that compensation is deductible under Section
162(m), except wherethere may be times when the benefit of such deductibility isthe deduction would be outweighed
by other corporate objectives, such as the need for flexibility or the attainment of other corporate objectives.flexibility. Accordingly,
the Company's Corporate Executive Bonus Plan and 1992 Stock Incentive Plan were
approved by the stockholders in 1994 amendments to the Company's Corporate
Executive Bonus Plan were approved by the stockholders inand 1995, and the
Company'sMr. Schwab's employment
agreement with Mr. Schwab was approved by the stockholders in 1995 (see1995. (See "Employment Agreement
and Name Assignment" in Appendix A.). The Committee
Our committee will continue to monitor issues concerning the tax deductibility
of executive compensation and will take appropriate action if and whenwe believe it is
warranted. Since corporate objectives may not always be consistent with the
requirements for full deductibility, the Committeeour committee is prepared, if we believe it
deemsis appropriate, to enter into compensation arrangements or provide compensation
under which payments may not be 24
28
deductible under Section 162(m);. Tax
deductibility will not be the sole factor used
by the Committeewe consider in ascertainingdetermining appropriate
levels or modestypes of compensation.
Compensation Committee of
the Board of Directors
Roger O. Walther, Chairman
Nancy H. Bechtle
C. Preston Butcher
Stephen T. McLin
25George P. Shultz
[side bar]
TAX LAW LIMITS ON
EXECUTIVE COMPENSATION
40
29
PERFORMANCE GRAPH43
OTHER INFORMATION
CERTAIN TRANSACTIONS
Directors and executive officers may maintain margin trading accounts with
Charles Schwab & Co., Inc. Extensions of credit in such accounts:
- - are made in the ordinary course of business,
- - are made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions
with unaffiliated persons, and
- - do not involve more than the normal risk of collectibility or present
other unfavorable features.
Employees and directors of the Company who engage in brokerage transactions at
Charles Schwab & Co., Inc. receive a 20% discount from its standard commission
rates for brokerage transactions.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that during 1998, all filings with the SEC by its officers,
directors and 10% stockholders complied with requirements for reporting
ownership and changes in ownership of Company common stock under Section 16(a)
of the Securities Exchange Act of 1934, except for Mark A. Pulido's and Gideon
Sasson's initial beneficial ownership reports. The Company filed the initial
report on Mr. Pulido's behalf following graph shows a five-year comparisonhis election to the Board in December
1998. The Company filed the initial report on Mr. Sasson's behalf following his
appointment as an executive officer in November 1997. Although the reports
were filed on time, they inadvertently omitted shares of cumulative total
returnsCompany common stock
held indirectly by Mr. Pulido and Mr. Sasson.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Our Board has selected Deloitte & Touche LLP as the Company's independent public
accountants for the current fiscal year. They have served as accountants for
Charles Schwab & Co., Inc. or the Company since 1976. We expect representatives
of Deloitte & Touche LLP to attend the meeting in order to respond to questions
from stockholders, and they will have the opportunity to make a statement.
[side bar]
CERTAIN TRANSACTIONS
SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING
COMPLIANCE
INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
41
44
OTHER INFORMATION
STOCKHOLDER PROPOSALS
If you want us to consider including a proposal in our proxy statement next
year, you must deliver it to the Company's Common Stock,Corporate Secretary at our principal
executive office no later than December 2, 1999. The Company's bylaws contain
specific procedural requirements regarding a stockholder's ability to nominate a
director or submit a proposal to be considered at a meeting of stockholders. If
you would like a copy of the S&P 500 Index and the Dow Jones
Securities Brokerage Group Index, each of which assumes an initial investment of
$100 and reinvestment of dividends.
[CHART]
Comparison of Five Year Cumulative Total Return* Amongprocedures contained in our bylaws, please contact:
Assistant Corporate Secretary
The Charles Schwab Corporation
S&P 500 Index101 Montgomery Street (88/5)
San Francisco, California 94104
(415) 636-1406
COSTS OF PROXY SOLICITATION
The Company is paying for distributing and Dow Jones Securities Brokerage Group Index Over Five Year Period Ended
December 31, 1996**
Dow Jones
The Charles Securities S & P
Schwab Corporation Brokerage Group Index 500 Index
Dec-91 100 100 100
Dec-92 87 103 108
Dec-93 162 133 118
Dec-94 177 118 120
Dec-95 308 161 165
Dec-96 494 243 203
- -------------------------------
* Total return assumes reinvestmentsoliciting proxies. As a part of dividends.
** Information presented asthis
process, the Company reimburses brokers, nominees, fiduciaries and other
custodians reasonable fees and expenses in forwarding proxy materials to
stockholders. The Company is not using an outside proxy solicitation firm this
year, but employees of the endCompany or its subsidiaries may solicit proxies
through mail, telephone or other means. Employees do not receive additional
compensation for soliciting proxies.
INCORPORATION BY REFERENCE
The Company's filings with the SEC sometimes "incorporate information by
reference." This means that the Company is referring you to information that has
previously been filed with the SEC, so the information should be considered as
part of each fiscal year ended December 31.
26the filing you are reading. Based on the SEC's rules, the performance
graph on page 25 of this proxy statement and the "Board Compensation Committee
Report on Executive Compensation" on page 33 specifically are not incorporated
by reference into any other filings with the SEC.
You are receiving this proxy statement as part of the proxy materials for the
annual meeting of stockholders. You may not consider this proxy statement as
material for soliciting the purchase or sale of Company stock.
[side bar]
STOCKHOLDER PROPOSALS
COSTS OF PROXY
SOLICITATION
INCORPORATION BY
REFERENCE
42
3045
TICKETS TO THE ANNUAL MEETING
TICKETS TO THE ANNUAL MEETING
Seating is limited and therefore, admission is by ticket only on a first-come,
first-served basis.
Please complete and return to us the ticket request postcard included with your
proxy materials. When we receive your postcard, we will mail you a ticket.
If you did not receive a ticket request postcard and would like to attend the
annual meeting, please contact:
Assistant Corporate Secretary
The Charles Schwab Corporation
101 Montgomery Street (88/5)
San Francisco, CA 94104
(415) 636-1406
By Order of the Board of Directors,
/s/ Carrie E. Dwyer
CARRIE E. DWYER
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND
CORPORATE SECRETARY
MARCH 31, 1999
SAN FRANCISCO, CALIFORNIA
[side bar]
ADMISSION IS BY TICKET
ONLY ON A FIRST-COME,
FIRST-SERVED BASIS.
43
46
APPENDIX A - - EMPLOYMENT AND SEVERANCE AGREEMENTS
This Appendix A includes descriptions of:
- - agreements between the Company and Charles R. Schwab relating to his
employment and the use of the name "Schwab" by The Charles Schwab
Corporation, and
- - certain severance arrangements between the Company and other executives.
EMPLOYMENT AGREEMENT AND NAME ASSIGNMENT
The Company hasand Mr. Schwab entered into an employment agreement with Mr. Schwab,
effective March
31, 1995 (the "Employment Agreement"), which was1995. Stockholders approved by the
Company's stockholders and replaced an earlier employment agreement. The
Employment AgreementIt has an initial term
of five years, and provides that as of each March 31, the term of the Employment Agreementemployment
agreement is automatically extended by an additional year, subject tounder the same terms
and conditions, unless beforehand either party provides notice to the other by that date, of
an intention not to extend the agreement.it.
The Employment Agreementemployment agreement provides for an annual base salary of $800,000 and
provides that Mr. Schwab will participate in all compensation and fringe benefit
programs made available to other executive officers, including the Company's
stock
incentive plans. In lieuInstead of participating in the executive bonus plans, Mr.
Schwab's annual bonus, if any, is a multiple of his base salary. This multiple
is based on the Company's performanceour corporate pre-tax profit margin and net revenue growth for the
year, relative to net
revenue growth and pre-tax profit margin, and is determined under a matrix adopted by the Committee whichBoard Compensation
Committee. The committee has the authority to adjust the matrix from time
to time (in advance)periodically
(except the committee may not change the matrix more than 90 days after the
beginning of any year). The matrix is also subject to annual, automatic adjustmentadjusted automatically each year,
based on increases in the Consumer Price Index.
The Employment Agreementemployment agreement also provides that certain compensation and benefits
will be paid or provided to Mr. Schwab (or his immediate family or estate) in the eventif
his employment is terminated involuntarily, other thanexcept for cause, prior tobefore the
expiration of the Employment Agreement. For these purposes,
"cause"employment agreement. "Cause" is defined as the commission of
a felonious act,felony, or willful and gross negligence, or misconduct that results in
material harm to the Company.
"Involuntary termination" includes 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."or Charles Schwab & Co., Inc.
If an involuntary termination is for reasons other thannot due to death, disability or for "cause,""cause":
[side bar]
EMPLOYMENT AGREEMENT
AND NAME ASSIGNMENT
44
47
APPENDIX A -- EMPLOYMENT AND SEVERANCE AGREEMENTS
- - Mr. Schwab will be entitled to receive for a period of 36 months all
compensation to which he would have been entitled had he not been
terminated, including his base salary and participation in all bonus,
incentive and other compensation benefit plans for which he was or would
have been eligible (but excluding additional grants under the Company's stock incentive
plans). In addition,, and
- - all his outstanding, unvested awards under the
Company's stock incentive plans will vest
fully on the effective date of the
termination.termination date.
If an involuntary termination is by reason ofdue to disability, Mr. Schwab will be entitled
to receivereceive:
- - his base salary, less any payments under the Company's long termcorporate long-term
disability plan, and benefits (but not bonuses or other incentive
compensation) for a period of 36 months from suchthe termination date, and
shall also receive- - a pro-ratedprorated portion of any bonus or incentive payments payable with respect tofor the year in
which the disability occurs.
If an involuntary termination is by reason ofdue to 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 resignresigns his employment within 24 months of a change in
control of the Company, he shallwill be entitled to receive a pro-ratedprorated portion of any
bonus or incentive payments payable with respect tofor the year in which the resignation
occurs. In addition, if Mr. Schwab'sSchwab voluntarily resigns his employment, should terminate on account of any
voluntary resignation, or on account of an involuntary termination occurringhis
employment is involuntarily terminated within 24 months of a change in control
of the Company, 27
31
Mr. Schwab shallhe will have the right (but not the obligation) to enter into a
consulting arrangement under which hewith the Company. Under that arrangement Mr. Schwab would
provide certain consulting services to the Company for a period of five years
in exchange for an annual payment equal to the lesser of $1 million or 75% of his then base salary.salary,
whichever is less.
The Employment
Agreement precludesemployment agreement prohibits Mr. Schwab from becoming associated with any
business competing with the Company for a period of five years following a
voluntary resignation of employment (exceptemployment. (However, that such covenantrestriction would not apply
in the
event of a resignation ofif Mr. Schwab resigns his employment occurring within 24 months of a change in control of
the Company).Company.)
[side bar]
EMPLOYMENT AGREEMENT
AND NAME ASSIGNMENT
45
48
APPENDIX A -- EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company and Charles Schwab & Co., Inc. also are parties to an Assignment and
License agreement with Mr. Schwab (the "Name Assignment") that was approved in July 1987 by the
Company's non-employee director. Pursuant toUnder the Name Assignment,agreement, Mr. Schwab has assigned to
the Company all service mark, trademark, and trade name rights in and to Mr. Schwab's
name (and variations thereon)on the name) and likeness,
subject tolikeness. However, Mr. Schwab'sSchwab has retained
the perpetual, exclusive, irrevocable right to use his name and likeness for any
activity other than the financial services business.
In
addition,Beginning immediately after any termination of his employment, Mr. Schwab will
be entitled to use his likeness in the financial services business beginning immediately after any termination of his
employment, for some
purposes (specifically, the sale, distribution, broadcast and promotion of
books, videotapes, lectures, radio and television programs, and also any
financial planning services that aredo not in direct competitiondirectly compete with any business in
which the Company or its subsidiaries are then engaged or plan to enter within
three months), and beginning. Beginning two years after any termination of his employment, Mr.
Schwab may use his likeness for all other purposes, providedas long as that Mr. Schwab mayuse does not
use his
likeness in a way that causescause confusion as toabout whether the Company is involved with goods or services
actually marketed by Mr. Schwab or by third parties unrelated to the Company.
Subject to the same prohibition againstSo long as Mr. Schwab does not cause actual confusion ofamong customers, Mr. Schwabhe will
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
Assignment and License agreement defines the "financial services business" is defined in the
Name Assignment as
the business in which Charles Schwab & Co., Inc. is currently engaged and any
additional and related businesses in which that firm or the Company or Schwab is permitted
to engage under rules and regulations of applicable regulatory agencies. The
Company's rightability to assign or license the right to use Mr. Schwab's name and
likeness areis severely constrainedlimited during Mr. Schwab's lifetime.
No cash consideration is to be paid to Mr. Schwab for the Name Assignmentname assignment while
he is employed by the Company or, after that employment terminates, while he is
receiving compensation pursuant tounder 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 tenthsthree-tenths of one percent (0.3%) of the
aggregate net revenues of the Company (on a consolidated basis) and those of its
unconsolidated
[side bar]
EMPLOYMENT AGREEMENT
AND NAME ASSIGNMENT
46
49
APPENDIX A -- EMPLOYEE AND SEVERANCE AGREEMENTS
assignees and licensees that use the name or likeness. These payments may not,
however, exceed $2,000,000$2 million per year, adjusted up or down to reflect changes from
the cost of living prevailing in the San Francisco Bay Area during specified
months in 1987, and they will terminate if the Company and its subsidiaries
cease using the name and likeness.
28
32
CERTAIN SEVERANCE ARRANGEMENTS
The Company has a Change in Control Severance Plan, (the "Severance Plan"),
which covers thecertain
executive officers, including those named in the Summary Compensation Table
(except Mr. Schwab). The Severance Planplan provides that ifif:
- the executive is terminated other than for cause within three years
after a change in control of the Company, or
if- the executive terminates his or her employment for good reason, as
defined in the plan, within suchthat three-year period, or
- the executive voluntarily resigns during the thirty-day period
following the first anniversary of the change in control,
then the executive is entitled to receivereceive:
- a lump sum severance payment equal to three times the sum of the
executive's base salary and highest annual bonus,
together with- certain other payments and benefits, including continuation of
employee welfare benefits. Anbenefits, and
- an additional payment is required to compensate the executivehim or her for any excise taxes
imposed uponon payments under the agreements.severance arrangements.
[side bar]
CERTAIN TRANSACTIONS
Certain directors and executive officers maintain margin trading accounts
with Schwab. Extensions of credit in such accounts are made in the ordinary
course of Schwab's business, are made on substantially the same terms including
interest rates and collateral, as those prevailing at the time for comparable
transactions with unaffiliated persons, and do not involve more than the normal
risk of collectibility or present other unfavorable features. To the extent any
employees of the Company wish to purchase common 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.
Schwab provides administrative services to Transamerica Occidental Life
Insurance Company and First Transamerica Life Insurance Company, both of which
are indirect subsidiaries of Transamerica Corporation ("Transamerica"), in
connection with certain life insurance and annuity products. Schwab received
approximately $381,000 in payment for these services in 1996. Transamerica
beneficially owns more than 5% of the outstanding Common Stock of the Company.
VOTING
Each stockholder may exercise his or her right to vote either in person or
by properly executed proxy. 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, unless such proxy has previously been revoked.
If no instructions are indicated on the proxy, such shares will be voted for the
Board of Directors' nominees to the Board of Directors of the Company, for the
amendments to the 1992 Plan and against the stockholder proposal requesting that
the Board of Directors amend the Certificate of Incorporation. 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.
29SEVERANCE
ARRANGEMENTS
47
33
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.
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 are voted by all record holders. With respect
to all other matters presented for a vote, shares as to which brokers do not
cast a vote pursuant to discretionary voting authority from their customers or
authority under the New York Stock Exchange rules to vote on a particular matter
are regarded as broker non-votes. Broker non-votes 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.
Participants in the Profit Sharing Plan are entitled to instruct the
purchasing agent of the Profit Sharing Plan how to vote all shares of Common
Stock that are allocated to participants' individual accounts under the ESOP
component of the Profit Sharing Plan, as well as participants' proportionate
interest in shares of Common Stock held for the benefit of participants in
non-ESOP components. Participants will receive individual proxies for the voting
of such shares. If the purchasing agent does not receive voting instructions
from participants with respect to all such shares, the unvoted shares will be
voted in the same proportion as the shares for which voting instructions were
received by the purchasing agent. Similarly, 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 the purchasing agent in the
same proportion as the votes cast by all shares voted by Profit Sharing Plan
participants. A proxy given by any stockholder participating through the
transfer agent 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.
APPOINTMENT50
APPENDIX B - - DESCRIPTION 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.
ADDITIONAL INFORMATION
The Company will pay all costs of distribution and solicitation of proxies.
Brokers, nominees, fiduciaries and other custodians will be reimbursed their
reasonable fees and expenses incurred in forwarding proxy materials to
beneficial owners. MacKenzie Partners, Inc. has been retained at an estimated
cost of $12,000 to
30
34
assist in the solicitation of proxies. In addition, proxies may be solicited by
employees of the Company or its subsidiaries without additional compensation.
The solicitations may be by mail, telephone and other means.
STOCKHOLDER PROPOSALS
In order for a stockholder's proposal to be considered for inclusion in the
Company's proxy statement for the 1998 Annual Meeting of Stockholders, such
proposal must be delivered to the attention of the Secretary of the Company and
received at the Company's principal executive office no later than November 23,
1997.
If a stockholder wants to nominate a person for election to the Board of
Directors, or bring other business before an annual meeting which has not been
submitted to the Company as a stockholder proposal for inclusion in the proxy
statement, the stockholder must follow procedures outlined in the Company's
bylaws. One of the procedural requirements in the bylaws is timely written
notice to the Secretary of the Company. A copy of these procedures is available
upon request from the Secretary of the Company, 101 Montgomery Street, San
Francisco, California 94104.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Mary B. Templeton
Mary B. Templeton
Corporate Secretary
March 21, 1997
San Francisco, California
31
35
NOTICE
OF
ANNUAL
STOCKHOLDERS
MEETING
AND
PROXY
STATEMENT
--------------------------------------
1997
[THE CHARLES SCHWAB CORPORATION LOGO]
36
PROXY THE CHARLES SCHWAB CORPORATION PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON MAY 12, 1997
The undersigned hereby appoints Charles R. Schwab and Lawrence J. Stupski,
or either of them, proxies with full power of substitution and revocation in
each, to represent the undersigned and to vote, in accordance with the
instructions set forth in this Proxy, the number of shares of Common Stock of
The Charles Schwab Corporation set forth on the reverse side, which shares the
undersigned has the power to vote at the Annual Meeting of Stockholders to be
held on May 12, 1997 or at any adjournment or postponement thereof. The proxies
are authorized in their discretion to vote upon such other business as may
properly come before the meeting.
THIS PROXY ALSO RELATES TO SHARES HELD UNDER THE CHARLES SCHWAB
CORPORATION DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN.
YOUR VOTE IS IMPORTANT! PLEASE SIGN AND DATE ON THE REVERSE AND RETURN
PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE OR OTHERWISE TO P. O. BOX 2702,
CHICAGO, IL 60690-9402 SO THAT YOUR SHARES CAN BE REPRESENTED AT THE MEETING.
The shares covered by this proxy will be voted in accordance with the
directions made on the reverse side. If no direction is given, this proxy will
be voted "FOR" all listed nominees for director (Proposal No. 1) and the
amendment to the 1992 Stock Incentive Plan (Proposal No. 2) and "AGAINST" the
stockholder proposal requesting that the Board of Directors amend the
Certificate of Incorporation (Proposal No. 3).
37
THE CHARLES SCHWAB CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
The Board of Directors recommends a vote "FOR" the following proposals.
1. Election of Directors-
Nominees: David S. Pottruck, Nancy H. Bechtle and C. Preston Butcher
For Withhold For All
All All Except those whose names(s) appear below.
____ ____ ____ ______________________________________________
2. Approval of Amendment to the 1992 Stock Incentive Plan.
For Against Abstain
____ ____ ____
The Board of Directors recommends a vote "AGAINST" the following proposal.
3. Stockholder proposal requesting that the Board of Directors amend the
Certificate of Incorporation.
For Against Abstain
____ ____ ____
This Proxy will be voted as directed. The Board of Directors proposes and
recommends a vote "FOR" Proposal No. 1 and Proposal No. 2 and a vote "AGAINST"
Proposal No. 3. If no direction is made, this proxy will be voted in accordance
with the Board of Directors' recommendation.
Dated: ________________________________, 1997
Signature(s)____________________________________________________________________
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.
38
THE CHARLES SCHWAB CORPORATION 1992 STOCK INCENTIVE PLAN
(RESTATED TO INCLUDE AMENDMENTS THROUGH SEPTEMBER 17, 1996)
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board of Directors on March 26, 1992.GENERAL DESCRIPTION OF THE 1992 STOCK INCENTIVE PLAN
Purpose
The purpose of the 1992 Stock Incentive Plan is to promote the long-term success
of the Company and the
creation of incrementalincrease stockholder value by (a)by:
- - encouraging Non-Employee
Directorsnon-employee directors and Key Employeeskey employees to focus on
long-range objectives,
(b) encouraging
the attraction- - attracting and retention of Non-Employee Directorsretaining non-employee directors and Key Employeeskey employees with
exceptional qualifications, and
(c)- - linking Non-Employee Directorsthe interests of non-employee directors and Key
Employeeskey employees directly
to stockholder interests.
Eligibility to Receive Awards
Key employees of the Company and its subsidiaries, including directors who are
also employees, are eligible for awards under the plan. Non-employee directors
are eligible for an annual, automatic grant of non-qualified stock options.
As of December 31, 1998, approximately 3,132 persons had received awards under
the plan.
Limits on Awards
The following are the limits on the number of shares that may be granted to any
one participant in any one year:
- 3,375,000 shares under options,
- 1,350,000 restricted shares, and
- 1,350,000 performance share awards.
These annual limits are adjusted automatically for any stock split, declaration
of a stock dividend or other similar event.
Types of Awards
Awards under the 1992 Stock Incentive Plan seeks to achieve this
purpose by providing for Awards inmay take the form of restricted
shares, performance share awards and options to acquire the Company's common
stock.
- - Restricted Shares,shares are similar to common stock in that they have the same
voting and dividend rights, but the recipient will forfeit the restricted
shares if the applicable vesting conditions are not satisfied.
- - Performance Share Awards orshare awards are obligations of the Company to issue and
deliver in the future shares of common stock if the applicable conditions
are satisfied.
- - Options which may constituteare the rights to acquire common stock at an exercise price at
least equal to the fair market value of the Company's stock on the date of
grant. Options include non-qualified stock options and incentive stock
options. Incentive stock options are intended to qualify for special tax
treatment. Options vest according to a schedule.
An award under the plan may consist of one or nonstatutorymore of these grant types, except
that non-employee directors will only be eligible to receive non-qualified stock
options.
The Plan shall be governed by, and construed in
accordance with,[side bar]
GENERAL DESCRIPTION
OF THE 1992 STOCK
INCENTIVE PLAN
48
51
APPENDIX B--DESCRIPTION OF THE 1992 STOCK INCENTIVE PLAN
No payment is required on the lawsgrant of any award, except for payment of the State$.01
per share par value of Delaware.
ARTICLE 2. ADMINISTRATION.
2.1 The Committee. The Plan shallthe stock awarded. Upon exercise of an option, the option
holder must pay the option exercise price to the Company. On March 18, 1999, the
closing price of the Company's common stock was $89.69 per share.
As of December 31, 1998, a total of 13,577,385 shares could be administered by the Committee. The
Committee shall consist of two or more Non-Employee Directors, who shall be
appointed by the Board.
2.2 Committee Responsibilities. The Committee shall select the Key
Employees who are to receive Awardsissued under the
Plan, determineplan as restricted shares, or under performance share awards and options. This
number adjusts automatically for any stock split, declaration of a stock
dividend or other similar event.
Under the amount,
vesting requirements and other conditions of such Awards, may interpret the
Plan, and make all other decisions relating to the operationterms of the Plan. The
Committee may adopt such rulesplan, if:
- - the recipient forfeits any restricted shares, performance share awards or
guidelines as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be final
and binding on all persons.
ARTICLE 3. LIMITATION ON AWARDS.
The aggregate number of Restricted Shares, Performance Share Awards and
Options awarded under the Plan shall not exceed 6,550,000 (including those
shares awarded prior to the amendment of the Plan). Ifoptions,
- - any Restricted Shares,
Performance Share Awards or Options are forfeited, or if any Performance Share
Awardsperformance share awards terminate for any other reason without the
associated Common Sharescommon stock being issued, or
if any Options- - options terminate for any other reason before being exercised,exercise,
then such Restricted Shares, Performance Share Awards or Options shallthe underlying shares again become available for Awards under the Plan.awards.
Administration, Amendment and Termination
The limitation of this Article 3
shall be subject to adjustment pursuant to Article 10. Any Common Shares issued
pursuant to the1992 Stock Incentive Plan may be authorized but unissued shares or treasury shares.
39
Subject to the overall limit on the aggregate shares set forth above,
the following limitations shall apply: (a) The maximum number of Common Shares
which may be granted subject to an Option to any one Participant in any one
fiscal year shall be 500,000; and (b) The maximum number of Restricted Shares or
Performance Share Awards which may be granted to any one Participant in any one
fiscal year shall be 200,000.
ARTICLE 4. ELIGIBILITY.
4.1 General Rule. Key Employees and Non-Employee Directors shall be
eligible for designation as Participantsis administered by the Board Compensation
Committee. 4.2 Non-Employee Directors. In additionThe committee, on advice of the Company's executive management,
- - selects the key employees who will receive awards,
- - determines the amount, vesting requirements, performance criteria, if any,
and other conditions of each award,
- - interprets the provisions of the plan, and
- - makes all other decisions regarding the operation of the plan.
The grant of non-qualified stock options to any awards pursuant to
Section 4.1, Non-Employee Directors shall be entitled to receivenon-employee directors is made
annually, and the automatic
NSOs described in this Section 4.2.
(a) Each Non-Employee Director shall receive a Non-Officer Stock Option
covering 2,500 Common Shares for each Award Yearcommittee has no discretion with respect to which he or she serves as athose awards.
Grants of Options to Non-Employee Director onDirectors
Under the 1992 Stock Incentive Plan, each non-employee director receives an
annual, automatic grant date
described in subsection (b) below; provided that the Non-Officer
Stock Option shall coverof options to purchase 1,500 shares of common stock
(2,500 shares if the Exercise Price
determined as of theoption exercise price is less than $35). This grant date, is $35 or more;
(b) The NSO for a particular Award Year shall be granted to each
Non-Employee Director as ofmade
on May 15 of each Award Year, andyear, but if May 15 is not a business day, then the grant shall beis
made on and as of the next succeeding business day;
(c) Each NSO shall be exercisable in full at all times during its
term;
(d) The term of each NSO shall be 10 years; provided, however, that
any unexercised NSO shall expire onday.
If the date thatstockholders approve the Optionee ceases
to be a Non-Employee Director or a Key Employee for any reason other
than death or disability. If an Optionee ceases to be a Non-Employee
Director or Key Employee on account of death or disability, any
unexercised NSO shall expire on the earlier of the date 10 years
after the date of grant or one year after the date of death or
disability of such Director; and
(e) The Exercise Price under each NSO shall be equalproposed amendment to the Fair
Market Value on the dateplan, each
non-employee director will receive an annual, automatic grant of grant and shall be payable in anyoptions to
purchase an additional 1,000 shares of the
forms described in Article 6.
4.3 Ten-Percent Stockholders. A Key Employee who owns more than 10
percent ofcommon stock, bringing the total combined voting powerto 2,500
shares (3,500 if the option exercise price is less than $35).
[side bar]
GENERAL DESCRIPTION
OF THE 1992 STOCK
INCENTIVE PLAN
49
52
APPENDIX B -- DESCRIPTION OF THE 1992 STOCK INCENTIVE PLAN
In addition, a non-employee director who elects to defer directors' fees under
the Directors' Deferred Compensation Plan can elect to receive, instead of all classes of outstanding stock
of the Company or any of its Subsidiaries shall not be eligible for thefees,
a grant of an ISO unless (a) the Exercise price under such ISO is at least 110 percent of
the Fair Market Value ofoptions:
- - with a Common Share on the date of grant and (b) such ISO by
its terms is not exercisable after the expiration of five years from the date of
grant.
40
4.4 Attribution Rules. For purposes of Section 4.3, in determining
stock ownership, a Key Employee shall be deemed to own the stock owned, directly
or indirectly, by or for his or her brothers, sisters, spouse, ancestors or
lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its stockholders, partners or beneficiaries. Stock
with respect to which the Key Employee holds an option shall not be counted.
4.5 Outstanding Stock. For purposes of Section 4.3, "outstanding stock"
shall include all stock actually issued and outstanding immediately after the
grant of the ISO to the Key Employee. "Outstanding stock" shall not include
treasury shares or shares authorized for issuance under outstanding options held
by the Key Employee or by any other person.
ARTICLE 5. OPTIONS.
5.1 Stock Option Agreement. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms and conditions of
the Plan, and may be subject to any other terms and conditions which are not
inconsistent with the Plan and which the Committee deems appropriate for
inclusion in a Stock Option Agreement. The provisions of the various Stock
Option Agreements entered into under the Plan need not be identical. The
Committee may designate all or any part of an Option as an ISO (or, in the case
of a Key Employee who is subject to the tax laws of a foreign jurisdiction, as
an option qualifying for favorable tax treatment under the laws of such foreign
jurisdiction), except for Options granted to Non-Employee Directors under
Section 4.2.
5.2 Options Nontransferability. No Option granted under the Plan shall
be transferable by the Optionee other than by will or the laws of descent and
distribution. An Option may be exercised during the lifetime of the Optionee
only by him or her. No Option or interest therein may be transferred, assigned,
pledged or hypothecated by the Optionee during his or her lifetime, whether by
operation of law or otherwise, or be made subject to execution, attachment or
similar process.
5.3 Number of Shares. Each Stock Option Agreement shall specify the
number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 10. Each Stock Option
Agreement shall also specify whether the Option is an ISO or an NSO.
5.4 Exercise Price. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price under an Option shall not be less than 100
percent of the Fair Market Value of a Common Share on the date of grant, except
as otherwise provided in Section 4.3. Subject to the preceding sentence, the
Exercise Price under any Option shall be determined by the Committee. The
Exercise Price shall be payable in accordance with Article 6.
41
5.5 Exercisability and Term. Each Stock Option Agreement shall specify
the date when all or any installment of the Option is to become exercisable. The
Stock Option Agreement shall also specify the term of the Option. The term of an
ISO shall in no event exceed 10 years from the date of grant, and Section 4.3
may require a shorter term. Subject to the preceding sentence, the Committee
shall determine when all or any part of an Option is to become exercisable and
when such Option is to expire; provided that, in appropriate cases, the Company
shall have the discretion to extend the term of an Option or the time within
which, following termination of employment, an Option may be exercised, or to
accelerate the exercisability of an Option. A Stock Option Agreement may provide
for accelerated exercisability in the event of the Participant's death,
disability, Retirement, or other termination of employment and may provide for
expiration prior to the end of its term in the event of the termination of the
Optionee's employment; provided that upon an Optionee's Retirement, the
exercisability of all outstanding Options shall be accelerated, other than any
Options that had been granted within two years of the date of the Optionee's
Retirement. Except as provided in Section 4.2, NSOs may also be awarded in
combination with Restricted Shares, and such an Award may provide that the NSOs
will not be exercisable unless the related Restricted Shares are forfeited. In
addition, NSOs granted under this Section 5 may be granted subject to forfeiture
provisions which provide for forfeiture of the Option upon the exercise of
tandem awards, the terms of which are established in other programs of the
Company.
5.6 Limitation on Amount of ISOs. The aggregate fair market value (determined at the time the ISO is granted) of the Common Shares with respect to
which ISOs are exercisable for the first time by the Optionee during any
calendar year (under all incentive stock option plans of the Company) shall not
exceed $100,000; provided, however, that all or any portion ofunder an Option which
cannot be exercised as an ISO because of such limitation shall be treated as an
NSO.
5.7 Effect of Change in Control. The Committee (in its sole discretion)
may determine, at the time of granting an Option, that such Option shall become
fully exercisable as to all Common Shares subject to such Option immediately
preceding any Change in Control with respectappropriate options
valuation method) equal to the Company.
5.8 Restrictions on Transfer of Common Shares. Any Common Shares issued
upondeferred fees, and
- - with an option exercise of an Option shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other transfer
restrictions as the Committee may determine. Such restrictions shall be set
forth in the applicable Stock Option Agreement and shall apply in addition to
any general restrictions that may apply to all holders of Common Shares.
5.9 Authorization of Replacement Options. Concurrently with the grant
of any Option to a Participant (other than NSOs granted pursuant to Section
4.2), the Committee may authorize the grant of Replacement Options. If
Replacement Options have been authorized by the Committee with respect to a
particular award of Options (the "Underlying Options"), the Option Agreement
with respectprice equal to the Underlying Options shall so state, and the terms and
conditionsfair market value of the Replacement Options shall be provided therein. The grant of
any Replacement Options shall be effective only upon the exercise of the
Underlying Options through the use of Common
42
Shares pursuant to Section 6.2 or Section 6.3. The number of Replacement Options
shall equal the number of Common Shares used to exercise the Underlying Options,
and, if the Option Agreement so provides, the number of Common Shares used to
satisfy any tax withholding requirements incident to the exercise of the
Underlying Options in accordance with Section 13.2. Upon the exercise of the
Underlying Options, the Replacement Options shall be evidenced by an amendment
to the Underlying Option Agreement. Notwithstanding the fact that the Underlying
Option may be an ISO, a Replacement Option is not intended to qualify as an ISO.
The Exercise Price of a Replacement Option shall be no less than the Fair Market
Value of a Common ShareCompany
common stock on the date the grant of the Replacement Option becomes
effective. The term of each Replacement Option shall be equal to the remaining
term of the Underlying Option. No Replacement Options shall be granted to
Optionees when Underlying Options are exercised pursuant to the terms of the
Plan and the Underlying Option Agreement following termination of the Optionee's
employment. The Committee, in its sole discretion, may establish such other
terms and conditions for Replacement Options as it deems appropriate.
5.10 Options Granted to Non-United States Key Employees. In the case of
Key Employees who are subject to the tax laws of a foreign jurisdiction, the
Company may issue Options to such Key Employees that contain terms required to
conform with any requirements for favorable tax treatment imposed by the laws of
such foreign jurisdiction, or as otherwise may be required by the laws of such
foreign jurisdiction. The terms of any such Options shall be governed by the
Plan, subject to the terms of any Addendum to the Plan specifically applicable
to such Options.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 General Rule. The entire Exercise Price of Common Shares issued
upon exercise of Options shall be payable in cash at the time when such Common
Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall be
made only pursuant to the express provisions of the applicable Stock
Option Agreement. However, the Committee may specify in the Stock
Option Agreement that payment may be made pursuant to Section 6.2 or
6.3.
(b) In the case of an NSO, the Committee may at any time accept
payment pursuant to Section 6.2 or 6.3.
6.2 Surrender of Stock. To the extent that this Section 6.2 is
applicable, payment for all or any part of the Exercise Price may be made with
Common Shares which are surrendered to the Company. Such Common Shares shall be
valued at their Fair Market Value on the date when the new Common Shares are
purchased under the Plan. In the event that the Common Shares being surrendered
aredeferred fees would have been paid.
Restricted Shares that have not yet become vested, the same restrictions
shall be imposed upon the new Common Shares being purchased.
43
6.3 Exercise/Sale. To the extent this Section 6.3 is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to Charles Schwab & Co., Inc. to sell Common Shares
(including the Common Shares to be issued upon exercise of the Options) and to
deliver all or part of the sales proceeds to the Company in payment of all or
part of the Exercise Price and any withholding taxes.
ARTICLE 7. RESTRICTED SHARES AND PERFORMANCE SHARE AWARDS.
7.1 Time, Amount and Form of Awards. The Committee may grant Restricted
Shares or Performance Share Awards
with respectRecipients of restricted shares cannot transfer them before they vest (except
that the recipient can transfer them by gift to an Award Year during such
Award Year or at any time thereafter. Each such Award shall be evidenced by a
Stock Award Agreement betweencertain trusts and partnerships
formed for the Award recipientbenefit of family members).
Recipients of performance share awards cannot transfer them, and the Company. The amountrecipients
have no voting or dividend rights until the associated shares of each Award of Restricted Shares or Performance Share Awards shall be determined
bycommon stock
are issued. At that time the Committee. Awards under the Plan may be granted in the form of Restricted
Shares or Performance Share Awards or in any combination thereof, as the
Committee shall determine at its sole discretion at the time of the grant.
Restricted Shares or Performance Share Awards may also be awarded in combination
with NSOs, and such an Award may provide that the Restricted Shares or
Performance Share Awardsrecipients will be forfeited in the event that the related NSOs
are exercised.
7.2 Payment for Restricted Share Awards. To the extent that an Award is
granted in the form of Restricted Shares, the Award recipient, as a condition to
the grant of such Award, shall be required to pay the Company in cash an amount
equal to the par value of such Restricted Shares.
7.3 Vesting or Issuance Conditions. Each Award of Restricted Shares
shall become vested, in full or in installments, upon satisfaction of the
conditions specified in the Stock Award Agreement. Common Shares shall be issued
pursuant to Performance Share Awards in full or in installments upon
satisfaction of the issuance conditions specified in the Stock Award Agreement.
The Committee shall select the vesting conditions in the case of Restricted
Shares, or issuance conditions in the case of Performance Share Awards, which
may be based upon the Participant's service, the Participant's performance, the
Company's performance or such other criteria as the Committee may adopt. A Stock
Award Agreement may also provide for accelerated vesting or issuance, as the
case may be, in the event of the Participant's death, disability or retirement.
The Committee, in its sole discretion, may determine, at the time of making an
Award of Restricted Shares, that such Award shall become fully vested in the
event that a Change in Control occurs with respect to the Company. The
Committee, in its sole discretion, may determine, at the time of making a
Performance Share Award, that the issuance conditions set forth in such Award
shall be waived in the event that a Change in Control occurs with respect to the
Company.
The Committee shall have the discretion to adjust the payouts
associated with Awards downward. Unless and until (i) the rules set forth under
Code Section 162(m) permit discretionary adjustments to increase payouts; or
(ii) the Committee determines that compliance
44
with Code Section 162(m) is not desired with respect to some or all Named
Executive Officers, no payout associated with an Award held by a Named Executive
Officer shall be discretionarily adjusted upward in a manner that would
eliminate the ability of the Award to satisfy the "performance-based" exception
under Treasury Regulation Section 1.162 - 27(e)(2).
7.4 Form of Settlement of Performance Share Awards. Settlement of
Performance Share Awards shall only be made in the form of Common Shares. Until
a Performance Share Award is settled, the number of Performance Share Awards
shall be subject to adjustment pursuant to Article 10.
7.5 Death of Recipient. Any Common Shares that are to be issued
pursuant to a Performance Share Award after the recipient's death shall be
delivered or distributed to the recipient's beneficiary or beneficiaries. Each
recipient of a Performance Share Award under the Plan shall designate one or
more beneficiaries for this purpose by filing the prescribed form with the
Company. A beneficiary designation may be changed by filing the prescribed form
with the Company at any time before the Award recipient's death. If no
beneficiary was designated or if no designated beneficiary survives the Award
recipient, then any Common Shares that are to be issued pursuant to a
Performance Share Award after the recipient's death shall be delivered or
distributed to the recipient's estate. The Committee, in its sole discretion,
shall determine the form and time of any distribution(s) to a recipient's
beneficiary or estate.
ARTICLE 8. CLAIMS PROCEDURES.
Claims for benefits under the Plan shall be filed in writing with the
Committee on forms supplied by the Committee. Written notice of the disposition
of a claim shall be furnished to the claimant within 90 days after the claim is
filed. If the claim is denied, the notice of disposition shall set forth the
specific reasons for the denial, citations to the pertinent provisions of the
Plan, and, where appropriate, an explanation as to how the claimant can perfect
the claim. If the claimant wishes further consideration of his or her claim, the
claimant may appeal a denied claim to the Committee (or to a person designated
by the Committee) for further review. Such appeal shall be filed in writing with
the Committee on a form supplied by the Committee, together with a written
statement of the claimant's position, no later than 90 days following receipt by
the claimant of written notice of the denial of his or her claim. If the
claimant so requests, the Committee shall schedule a hearing. A decision on
review shall be made after a full and fair review of the claim and shall be
delivered in writing to the claimant no later than 60 days after the Committee's
receipt of the notice of appeal, unless special circumstances (including the
need to hold a hearing) require an extension of time for processing the appeal,
in which case a written decision on review shall be delivered to the claimant as
soon as possible but not later than 120 days after the Committee's receipt of
the appeal notice. The claimant shall be notified in writing of any such
extension of time. The written decision on review shall include specific reasons
for the decision, written in a manner calculated to be understood by the
claimant, and shall specifically refer to the pertinent Plan provisions on which
it is based. All determinations of the Committee shall be final and binding on
Participants and their beneficiaries.
45
ARTICLE 9. VOTING RIGHTS AND DIVIDENDS.
9.1 Restricted Shares.
(a) All holders of Restricted Shares who are not Named Executive
Officers shall have the same voting, dividend and
other rights as the Company's other stockholders.
(b) DuringGenerally, vesting of restricted shares and performance share awards is
accelerated if the periodrecipient dies, becomes disabled, or retires, and may be
accelerated if a "change in control" occurs. (We explain that term later in this
Appendix B under "Change in Control.")
When granting an award, the Board Compensation Committee determines the number
of restriction, Named Executive Officers
holding Restricted Shares granted hereunder shallperformance share awards or restricted shares to be credited with
all regular cash dividends paid with respect to all Restricted Shares
while they are so held. If a dividend is paidincluded in the form of cash,
such cash dividend shall be credited to Named Executive Officers
subject to the same restrictions on transferability and
forfeitabilityaward as
well as the Restricted Shares with respect to which they
were paid. If any dividendsvesting or distributions are paid in shares of
Common Stock,issuance conditions. The vesting or issuance conditions
may be based on:
- - the shares of Common Stock shall be subject toemployee's individual performance,
- - the same
restrictions on transferability and forfeitabilityCompany's performance, or
- - other appropriate criteria.
When the committee uses the Company's performance as the Restricted
Shares with respect to which they were paid. Subject to the
succeeding paragraph, and to the restrictions on vesting and the
forfeiture provisions, all dividends credited to a Named Executive
Officer shall be paid to the Named Executive Officer within
forty-five (45) days following the full vesting of the Restricted
Shares with respect to which such dividends were earned.
In the event that any dividend constitutes a "derivative
security" or an "equity security" pursuant to Rule 16(a) under the
Exchange Act, such dividend shall be subject to a vesting period
equal to the longer of: (i) the remaining vesting period of the
Restricted Shares with respect to which the dividend is paid; or (ii)
six (6) months. The Committee shall establish procedures for the
application of this provision.
Named Executive Officers holding Restricted Shares shall have
the same voting rights as the Company's other stockholders.
9.2 Performance Share Awards. The holders of Performance Share Awards
shall have no voting or dividend rights until such time as any Common Shares are
issued pursuant thereto, at which time they shall have the same voting, dividend
and other rights as the Company's other stockholders.
ARTICLE 10. PROTECTION AGAINST DILUTION; ADJUSTMENT OF AWARDS.
10.1 General. In the event of a subdivision of the outstanding Common
Shares, a declaration of a dividend payable in Common Shares, a declaration of a
dividend payable in a form other than Common Shares, a combination or
consolidation of the outstanding Common Shares (by reclassification or
otherwise) into a lesser number of Common Shares, a recapitalization, a spinoff
or a similar occurrence, the Committee shall make appropriate adjustments inissuance
condition, it establishes performance goals based on one or more of (a) the
numberfollowing business criteria:
- - pretax income,
- - operating income,
- - cash flow,
- - stockholder return,
- - revenue,
- - revenue growth,
- - return on net assets,
- - net income,
- - earnings per share,
- - return on equity, or
- - return on investment.
[side bar]
GENERAL DESCRIPTION
OF THE 1992 STOCK
INCENTIVE PLAN
50
53
APPENDIX B -- DESCRIPTION OF THE 1992 STOCK INCENTIVE PLAN
Terms of Stock Options
Restricted Shares and Performance Share
Awards available for future Awards under Article 3, (b) the number of
Performance Share Awards included in any prior Award which has not yet been
settled, (c) the number of Common
46
Shares covered by each outstanding Option or (d) the Exercise Price under each
outstanding Option.
10.2 Reorganizations. In the event that the Company is a party to a
merger or other reorganization, outstanding Options, Restricted Shares and
Performance Share Awards shall be subject to the agreement of merger or
reorganization. Such agreement may provide, without limitation, for the
assumption of outstanding Awards by the surviving corporation or its parent, for
their continuation by the Company (if the Company is a surviving corporation),
for accelerated vesting or for settlement in cash.
10.3 Reservation of Rights. Except as provided in this Article 10, a
Participant shall have no rights by reason of any subdivision or consolidation
of shares of stock of any class, the paymentThe exercise price of any stock dividend or any other
increase or decrease in the number of shares of stock of any class. Any issue by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or Exercise Price of Common
Shares subject to an Option. The grant of an Award pursuant to the Plan shall
not affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.
ARTICLE 11. LIMITATION OF RIGHTS.
11.1 Employment Rights. Neither the Plan nor any Awardoption granted under the Plan shallplan must be deemedequal to
give any individual a right to remain employed byor greater than the Company or any Subsidiary. The Company and its Subsidiaries reservefair market value of the right to terminate the employment of any employee at any time, with or without
cause, subject only to a written employment agreement (if any).
11.2 Stockholders' Rights. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the issuance of aCompany's common stock certificate for
such Common Shares. No adjustment shall be made for cash dividends or other
rights for which the record date is prior toon the date
when such certificate is
issued, exceptof grant. The 1992 Stock Incentive Plan defines "fair market value" as expressly provided in Articles 7, 9 and 10.
11.3 Creditors' Rights. A holder of Performance Share Awards shall have
no rights other than those of a general creditorthe
closing price of the Company. Performance
Share Awards represent unfunded and unsecured obligations of the Company,
subject to the terms and conditions of the applicable Stock Award Agreement.
11.4 Government Regulations. Any other provision of the Plan
notwithstanding, the obligations of the Company with respect to Common Shares to
be issued pursuant to the Plan shall be subject to all applicable laws, rules
and regulations, and such approvalsCompany's stock as reported by any governmental agencies as may be
required. The Company reserves the right to restrict, in whole or in part, the
delivery of Common Shares pursuant to any Award until such time as:
47
(a) Any legal requirements or regulations have been met relating to
the issuance of such Common Shares or to their registration,
qualification or exemption from registration or qualification under
the Securities Act of 1933, as amended, or any applicable state
securities laws; and
(b) Satisfactory assurances have been received that such Common
Shares, when issued, will be duly listed on the New York Stock Exchange
Composite Transactions Index for the date of grant.
The term of an incentive stock option cannot exceed 10 years. The Board
Compensation Committee establishes vesting conditions when it grants an option.
Generally vesting is accelerated if the recipient dies, becomes disabled, or
any other securities exchange on which Common Shares are
then listed.
ARTICLE 12. LIMITATION OF PAYMENTS.
12.1 Basic Rule. Any provision of the Plan to the contrary
notwithstanding,retires, and may be accelerated if a "change in control" occurs. (We explain
that term in the event that the independent auditors most recently
selected by the Board (the "Auditors"following section of this Appendix B.)
determine that any payment orRecipients may transfer in
the nature of compensationoptions (other than incentive stock options, which must
be nontransferable to orqualify as incentive stock options) to certain trusts and
partnerships formed for the benefit of a Participant, whether paidfamily members.
Change in Control
Under the 1992 Stock Incentive Plan the term "change in control" means:
- - the Company undergoes any change in control which would have to be
disclosed in the Company's next proxy statement under SEC rules,
- - any person becomes the beneficial owner, directly or payable (or transferred or transferable) pursuant to the termsindirectly, of this Plan
or otherwise (a "Payment"), would be nondeductible for federal income tax
purposes becauseat
least 20% of the provisions concerning "excess parachute payments" in
section 280Gcombined voting power of the Code, then the aggregate present value of all Payments shall
be reduced (but not below zero) to the Reduced Amount; provided, however, that
the Committee, at the time of making an Award under this Plan or at any time
thereafter, may specify in writing that such Award shall not be so reduced and
shall not be subject to this Article 12. For purposes of this Article 12, the
"Reduced Amount" shall be the amount, expressed asCompany's outstanding
securities, except from a present value, which
maximizes the aggregate present value of the Payments without causing any
Payment to be nondeductiblerepurchase by the Company because of section 280G of the Code.
12.2 Reduction of Payments. If the Auditors determine that any Payment
would be nondeductible because of section 280G of the Code, then the Company
shall promptly give the Participant notice to that effect and a copy of the
detailed calculation thereof and of the Reduced Amount, and the Participant may
then elect, in hisits own securities,
or
her sole discretion, which and how much of the Payments
shall be eliminated or reduced (as long as after such election, the aggregate
present value of the Payments equals the Reduced Amount) and shall advise the
Company in writing of his or her election within 10 days of receipt of notice.
If no such election is made by the Participant within such 10-day period, then
the Company may elect which and how much of the Payments shall be eliminated or
reduced (as long as after such election the aggregate present value of the
Payments equals the Reduced Amount) and shall notify the Participant promptly of
such election. For purposes of this Article 12, present value shall be
determined in accordance with section 280G(d)(4) of the Code. All determinations
made by the Auditors under this Article 12 shall be binding upon the Company and
the Participant and shall be made within 60 days of the date when a Payment
becomes payable or transferable. As promptly as practicable following such
determination and the elections hereunder, the Company shall pay or transfer to
or for the benefit of the Participant such amounts as are then due to him or her
under the Plan, and shall promptly pay or transfer to or for the benefit of the
Participant in the future such amounts as become due to him or her under the
Plan.
48
12.3 Overpayments and Underpayments. As a result of uncertainty in the
application of section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Company which should not have been made (an "Overpayment") or that
additional Payments which will not have been made by the Company could have been
made (an "Underpayment"), consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which he or she shall repay to the
Company on demand, together with interest at the applicable federal rate
provided in section 7872(f)(2) of the Code; provided, however, that no amount
shall be payable by the Participant to the Company if and to the extent that
such payment would not reduce the amount which is subject to taxation under
section 4999 of the Code. In the event that the Auditors determine that an
Underpayment has occurred, such Underpayment shall promptly be paid or
transferred by the Company to or for the benefit of the Participant, together
with interest at the applicable federal rate provided in section 7872(f)(2) of
the Code.
12.4 Related Corporations. For purposes of this Article 12, the term
"Company" shall include affiliated corporations to the extent determined by the
Auditors in accordance with section 280G(d)(5) of the Code.
ARTICLE 13. WITHHOLDING TAXES.
13.1 General. To the extent required by applicable federal, state,
local or foreign law, the recipient of any payment or distribution under the
Plan shall make arrangements satisfactory to the Company for the satisfaction of
any withholding tax obligations that arise by reason of such payment or
distribution. The Company shall not be required to make such payment or
distribution until such obligations are satisfied.
13.2 Nonstatutory Options, Restricted Shares or Performance Share
Awards. The Committee may permit an Optionee who exercises NSOs, or who receives
Awards of Restricted Shares, or who receives Common Shares pursuant to the terms
of a Performance Share Award, to satisfy all or part of his or her withholding
tax obligations by having the Company withhold a portion of the Common Shares
that otherwise would be issued to him or her under such Awards. Such Common
Shares shall be valued at their Fair Market Value on the date when taxes
otherwise would be withheld in cash. The payment of withholding taxes by
surrendering Common Shares to the Company, if permitted by the Committee, shall
be subject to such restrictions as the Committee may impose, including any
restrictions required by rules of the Securities and Exchange Commission.
ARTICLE 14. ASSIGNMENT OR TRANSFER OF AWARD.
Any Award granted under the Plan shall not be anticipated, assigned,
attached, garnished, optioned, transferred or made subject to any creditor's
process, whether voluntarily, involuntarily or by operation of law. However,
this Article 14 shall not preclude (i) a Participant from
49
designating a beneficiary to succeed, after the Participant's death, to those of
the Participant's Awards (including without limitation, the right to exercise
any unexercised Options) as may be determined by the Company from time to time
in its sole discretion, or (ii) a transfer of any Award hereunder by will or the
laws of descent or distribution.
ARTICLE 15. FUTURE OF PLANS.
15.1 Term of the Plan. The Plan, as set forth herein, shall become
effective on May 8, 1992. The Plan shall remain in effect until it is terminated
under Section 15.2, except that no ISOs shall be granted after May 7, 2002.
15.2 Amendment or Termination. The Committee may, at any time and for
any reason, amend or terminate the Plan; provided, however, that any amendment
of the Plan shall be subject to the approval of the Company's stockholders to
the extent required by applicable laws, regulations or rules.
15.3 Effect of Amendment or Termination. No Award shall be made under
the Plan after the termination thereof. The termination of the Plan, or any
amendment thereof, shall not affect any Option, Restricted Share or Performance
Share Award previously granted under the Plan.
ARTICLE 16. DEFINITIONS.
16.1 "Award" means any award of an Option, a Restricted Share or a
Performance Share Award under the Plan.
16.2 "Award Year" means a fiscal year beginning January 1 and ending
December 31 with respect to which an Award may be granted.
16.3 "Board" means the Company's Board of Directors, as constituted
from time to time.
16.4 "Change in Control" means the occurrence of any of the following
events after the effective date of the Plan as set out in Section 15.1:
(a) A change in control required to be reported pursuant to Item 6(e)
of Schedule 14A of Regulation 14A under the Exchange Act;
(b) A change in- - the composition of the Board of Directors changes, and as a result of which fewer
than two-thirds of the incumbent directors are directors who
either (i)directors:
- had been directors of the Company 24 months prior to such
changeearlier, or
(ii) were- had been elected or nominated for election, to the Board
with the affirmative votesapproval of at least a
majority of the directors who had been directors of the Company 24
months prior to such changeearlier and who were still in officedirectors at the time of the
incumbent directors' election or nomination;
50
(c) Any "person" (as such termnomination.
FEDERAL TAX CONSEQUENCES
The following is used in sections 13(d) and 14(d)a summary of the Exchange Act)federal income tax consequences of awards
under the 1992 Stock Incentive Plan.
Options
When the options are granted, there are no federal income tax consequences to
the Company or the option holder.
On the exercise of a non-qualified stock option, the option holder generally
will have ordinary income. The amount of the income will be equal to:
- - the fair market value of the shares on the exercise date, minus
- - the option exercise price.
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FEDERAL TAX
CONSEQUENCES
51
54
APPENDIX B -- DESCRIPTION OF THE 1992 STOCK INCENTIVE PLAN
The income will be subject to tax withholding. Generally, in the same year that
the option holder has income from the option exercise the Company will be able
to take a deduction in the amount of that income.
On any subsequent disposition of the shares, any additional gain or loss
recognized by the holder generally will be capital gain or loss.
In contrast, the exercise of incentive stock options will not normally result in
any taxable income to the option holder at that time; nor will the Company be
entitled to any tax deduction. However, the exercise will result in an amount
that is taken into account in computing the option holder's alternative minimum
taxable income. This amount will be equal to:
- - the fair market value of the shares on the exercise date, minus
- - the option exercise price.
If the option holder exercises the options, holds the shares for the period
required by law, and then sells the shares, the difference between the sale
price and the exercise price generally will be taxed as capital gain or loss.
If the option holder does not hold the shares for the period required by law, he
or she generally will have ordinary income at the time of the early disposition.
The amount of the income will be equal to:
- - the fair market value of the shares on the exercise date (or, if less, the
sale price), minus
- - the option exercise price.
The Company generally will be entitled to a tax deduction in that same amount.
Any additional gain upon the disposition generally will be taxed as capital
gain.
Restricted Shares
Unless the recipient of restricted shares elects to be taxed when the shares are
granted, there will be no federal income tax consequences to the recipient or to
the Company while the shares have vesting restrictions. Upon vesting, the
recipient will have ordinary income. The amount of the income will be equal to:
- - the fair market value of the shares on the vesting date, minus
- - the amount paid for the shares.
The income will be subject to tax withholding. The Company generally will be
entitled to a tax deduction in the amount of the recipient's income. Upon any
subsequent disposition of the shares, any additional gain or loss recognized by
the holder generally will be capital gain or loss.
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FEDERAL TAX
CONSEQUENCES
52
55
APPENDIX B -- DESCRIPTION OF THE 1992 STOCK INCENTIVE PLAN
Performance Share Awards
The grant of performance share awards will have no federal income tax
consequences to the Company or the recipient at the time of the grant. When a
recipient becomes entitled to receive any common stock under the beneficial owner, directlyterms of the
performance share award, the recipient generally will have ordinary income. The
amount of the income will be equal to:
- - the fair market value of the shares on that date, minus
- - any amount paid for the shares.
The income will be subject to tax withholding. The Company generally will be
entitled to a tax deduction in the amount the recipient's income. Upon any
subsequent disposition of the shares, any additional gain or indirectly,loss recognized by
the holder generally will be capital gain or loss.
To date, no performance share awards have been granted under the 1992 Stock
Incentive Plan.
Options and Restricted Shares Granted Under the 1992 Stock Incentive Plan
As of securitiesDecember 31, 1998, current executive officers have received options and
restricted shares representing a total of 17,080,367 shares of the Company
representing 20 percent or
more of the combined voting power of the Company's then outstanding
securities ordinarily (and apart from rights accruing under special
circumstances) having the right to vote at elections of directors
(the "Base Capital Stock"); provided, however, that any change in the
relative beneficial ownership of securities of any person resulting
solely from a reduction in the aggregate number of outstanding shares
of Base Capital Stock, and any decrease thereafter in such person's
ownership of securities, shall be disregarded until such person
increases in any manner, directly or indirectly, such person's
beneficial ownership of any securities of the Company.
16.5 "Code" means the Internal Revenue Code of 1986, as amended.
16.6 "Committee" means the Compensation Committee of the Board, as
constituted from time to time.
16.7 "Common Share" means one share of the common stock of the Company.
16.8 "Company" meansas follows:
CHARLES R. SCHWAB 4,453,125
DAVID S. POTTRUCK 6,459,001
JOHN COGHLAN 1,432,503
LINNET F. DEILY 345,001
LUIS E. VALENCIA 933,753
STEVEN L. SCHEID 397,501
OTHER SIX EXECUTIVE
OFFICERS AS A GROUP 3,059,483
Of shares granted under options or as restricted shares:
- - 309,125 shares have been granted to non-employee directors, and
- - 40,174,485 shares have been granted to employees other than executive
officers.
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FEDERAL TAX
CONSEQUENCES
53
56
THE CHARLES SCHWAB CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
MONDAY, MAY 17, 1999
2:00 P.M.
YERBA BUENA CENTER FOR THE ARTS THEATER
700 HOWARD STREET
SAN FRANCISCO, CALIFORNIA
[LOGO]
The Charles Schwab Corporation a Delaware
corporation.
16.9 "ERISA" means the Employee Retirement Income Security ActPROXY
101 Montgomery Street
San Francisco, CA 94104
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON MAY 17, 1999.
The shares of 1974,stock you hold in your account, as amended.
16.10 "Exchange Act" means the Securities Exchange Act of 1934,well as amended.
16.11 "Exercise Price" means the amount for which one Common Share may
be purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.
16.12 "Fair Market Value" means the market price of a Common Share,
determined by the committee as follows:
(a) If the Common Share was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing
price reported by the applicable composite-transactions report for
such date;
(b) If the Common Share was traded over-the-counter on the date in
question and was classified as a national market issue, then the Fair
Market Value shall be equal to the last transaction price quoted by
the NASDAQ system for such date;
(c) If the Common Share was traded over-the-counter on the date in
question but was not classified as a national market issue, then the
Fair Market Value shall be equal to the
51
mean between the last reported representative bid and asked prices
quoted by the NASDAQ system for such date; and
(d) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith on
such basis as it deems appropriate.
16.13 "ISO" means an incentive stock option described in section 422(b)
of the Code.
16.14 "Key Employee" means a key common-law employee of the Company or
any Subsidiary, as determined by the Committee.
16.15 "Named Executive Officer" means a Participant who, as of the date
of vesting of an Award is one of a group of "covered employees," as defined in
the Regulations promulgatedshares you hold
under Code Section 162(m), or any successor statute.
16.16 "Non-Employee Director" means a member of the Board who is not a
common-law employee.
16.17 "NSO" means an employee stock option not described in sections
422 through 424 of the Code.
16.18 "Option" means an ISO or NSO or, in the case of a Key Employee
who is subject to the tax laws of a foreign jurisdiction, an option qualifying
for favorable tax treatment under the laws of such jurisdiction, including a
Replacement Option, granted under the Plan and entitling the holder to purchase
one Common Share.
16.19 "Optionee" means an individual, or his or her estate, legatee or
heirs at law that holds an Option.
16.20 "Participant" means a Non-Employee Director or Key Employee who
has received an Award.
16.21 "Performance Share Award" means the conditional right to receive
in the future one Common Share, awarded to a Participant under the Plan.
16.22 "Plan" means this 1992 Stock Incentive Plan of The Charles Schwab Corporation as it may be amended from time to time.
16.23 "Replacement Option" means an Option that is granted when a
Participant uses a Common Share held or to be acquired by the Participant to
exercise an OptionDividend Reinvestment and Stock Purchase
Plan and/or The SchwabPlan Retirement Savings and Investment Plan, will be voted
as you specify below.
IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED "FOR" ITEMS 1, 2 AND 3.
By signing the proxy, you revoke all prior proxies and appoint Charles R. Schwab
and David S. Pottruck, and each of them, with full power of substitution, to
satisfy tax withholding requirements incidentvote your shares on the matters shown on the reverse side and any other matters
which may come before the Annual Meeting and all adjournments.
57
Company #
Control #
THERE ARE THREE WAYS TO VOTE YOUR PROXY
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR
SHARES IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
VOTE BY PHONE -- TOLL FREE - 1-800-240-6326 - QUICK *** EASY *** IMMEDIATE
- - Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days
a week.
- - You will be prompted to enter your 3-digit Company Number and your
7-digit Control Number which are located above.
- - Follow the simple instructions the voice provides you.
VOTE BY INTERNET - http://www.eproxy.com/sch/ - QUICK *** EASY *** IMMEDIATE
- - Use the Internet to vote your shares 24 hours a day, 7 days a week.
- - You will be prompted to enter your 3-digit Company Number and your
7-digit Control Number which are located above to obtain your records
and create an electronic ballot.
- - You will have the option to receive all future materials via the
Internet.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to The Charles Schwab Corporation, c/o Shareowner
Services (SM), P.O. Box 64873, St. Paul, MN 55164-0873.
IF YOU VOTE BY PHONE OR INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD.
- Please detach here -
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
1. Election of directors: 01 Frank C. Herringer 02 Stephen T. McLin
03 Charles R. Schwab 04 Roger O. Walther
/ / Vote FOR all nominees
/ / Vote WITHHELD from all nominees
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY
INDICATED NOMINEE, WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE / /
BOX PROVIDED TO THE RIGHT.)
2. Approval of amendment to the exerciseCertificate of an Option.
16.24 "Restricted Share" means a Common Share awardedIncorporation to a Participant
underincrease the
Plan.
52
16.25 "Stock Award Agreement" means the agreement between the Company
and the recipientnumber of a Restricted Share or Performance Share Award which
contains the terms, conditions and restrictions pertaining to such Restricted
Share or Performance Share Award.
16.26 "Stock Option Agreement" means the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions pertaining
to his or her option.
16.27 "Subsidiary" means any corporation, if the Company and/or one or
more other Subsidiaries own not less than 50 percentauthorized shares of the total combined
voting powercommon stock.
/ / For / / Against / / Abstain
3. Approval of all classes of outstanding stock of such corporation. A
corporation that attains the status of a Subsidiary on a date after the adoption
of the Plan shall be considered a Subsidiary commencing as of such date.
16.28. "Retirement" shall mean any termination of employment of an
Optionee for any reason other than death at any time after the Optionee has
attained fifty (50), but only if, at the time of such termination, the
Participant has been credited with at least seven (7) Years of Service under the
Charles Schwab Profit Sharing and Employee Stock Ownership Plan. The foregoing
definition shall apply to all Stock Option Agreements entered into pursuantamendment to the Plan, irrespective of any definition to the contrary contained1992 Stock Incentive Plan.
/ / For / / Against / / Abstain
WHEN THIS PROXY IS PROPERLY EXECUTED YOUR SHARES WILL BE VOTED AS DIRECTED, OR,
IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
Address Change? Mark Box / / Date ______________________
Indicate changes below:
58
/ /
Signature(s) in any such
Stock Option Agreement.
53
ADDENDUM A
The provisions of the Plan,Box
Please sign exactly as amended by the terms of this
Addendum A, shall apply to the grant of Approved Options to Key U.K. Employees.
1. For purposes of this Addendum A, the following definitions
shall apply in addition to those set out in section 16 of the Plan:
APPROVED OPTION Means a stock option designed to qualify as an
approved executive share option under the Taxes Act;
INLAND REVENUE means the Board of the Inland Revenue in the
United Kingdom.
KEY U.K. EMPLOYEE means a designated employee of Sharelink
Investment Services plc or any subsidiary (as that term is
defined in the Companies Act 1985 of the United Kingdom, as
amended) of which Sharelink Investment Services plc has
control for the purposes of section 840 of the Taxes Act;
TAXES ACT means the Income and Corporation Taxes Act 1988 of
the United Kingdom.
2. An Approved Option may only be granted to a Key U.K.
Employee who:
(i) is employed on a full-time basis; and
(ii) does not fall within the provisions of paragraph 8 of
Schedule 9 to the Taxes Act.
For purposes of this section 2(i) of Addendum A, "full-time"
shall mean an employee who is required to work 20 hours per week, excluding meal
breaks.
3. No Approved Option may be granted to a Key U.K. Employee if
it would cause the aggregate of the exercise price of all subsisting Approved
Options granted to such employee under the Plan, or any other subsisting options
granted to such employee under any other share option scheme approved under
Schedule 9 of the Taxes Act and established by the Company or an associated
company, to exceed the higher of (a) one hundred thousand pounds sterling and
(b) four times such employee's relevant emoluments for the current or preceding
year of assessment (whichever is greater); but where there were no relevant
emoluments for the previous year of
54
assessment, the limit shall be the higher of one hundred thousand pounds
sterling) or four times such employee's relevant emoluments for the period of
twelve months beginning with the first day during the current year of assessment
in respect of which there are relevant emoluments. For the purpose of this
section 3 of Addendum A, "associated company" means an associated company within
the meaning of section 416 of the Taxes Act; "relevant emoluments" has the
meaning given by paragraph 28(4) of Schedule 9 to the Taxes Act and "year of
assessment" means a year beginning on any April 6 and endingyour name(s)
appear on the following
April 5.
4. Common Shares issued pursuant toproxy card. If held in
joint tenancy, all persons must
sign. Trustees, administrators,
etc., should include title and
authority. Corporations should
provide full name of corporation and
title of authorized officer signing
the exercise of Approved
Options must satisfy the conditions specified in paragraphs 10 to 14 of Schedule
9 to the Taxes Act.
5. Notwithstanding the provisions of Section 5.4 of the Plan,
the exercise price of an Approved Option shall not be less than 100 percent of
the closing price of a Common Share as reported in the New York Stock Exchange
Composite Index on the date of grant.
6. No Approved Option may be exercised at any time by a Key
U.K. Employee when that Key U.K. Employee falls within the provisions of
paragraph 8 of Schedule 9 to the Taxes Act. If at any time the shares under an
Approved Option cease to comply with the conditions in paragraphs 10 to 14 of
Schedule 9 to the Taxes Act, then all Approved Options then outstanding shall
lapse and cease to be exercisable from the date of the shares ceasing so to
comply, and no optionee shall have any cause of action against the Company,
Sharelink Investment Services plc or any subsidiary of the Company or any other
person in respect thereof.
7. An Approved Option may contain such other terms, provisions
and conditions as may be determined by the Committee consistent with the Plan,
provided that the approved option otherwise complies with the requirements for
approved executive option schemes specified in Schedule 9 of the Taxes Act.
8. In relation to an Approved Option, notwithstanding the
terms of section 10.1 of the Plan, no adjustment shall be made pursuant to
section 10.1 of the Plan to any outstanding Approved Options without the prior
approval of the Inland Revenue.
9. In relation to an Approved Option any Key U.K. Employee
shall make arrangements satisfactory to the Company for the satisfaction of any
tax withholding or deduction -- at -- source obligations that arise by reason of
the grant to him or her of such option, or its subsequent exercise.
55
10. In relation to an Approved Option, in addition to the
provisions set out in section 15.2 of the Plan, no amendment which affects any
of the provisions of the Plan relating to Approved Options shall be effective
until approved by the Inland Revenue, except for such amendment as are required
to obtain and maintain the approval of Inland Revenue pursuant to Schedule 9 to
the Taxes Act.proxy.