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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 (Amendment No. )
Filed by the Registrant / /[x]
Filed by a partyParty other than the Registrant / /[ ]
Check the appropriate box:
/ /[x] 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 Section 240.14a-11(c)Rule 14a-11(c) or Section
240.14a-12Rule 14a-12
The Charles Schwab Corporation
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(Name of Registrant as Specified Inin Its Charter)
Merrill Corporation
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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
/ /required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-110-11.
(1) Title of each class of securities to which transaction applies:
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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 (set(Set forth the amount on which the filing
fee iswas calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ /---------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
/ /---------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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1998 NOTICE OF ANNUAL
STOCKHOLDERS MEETING
AND PROXY STATEMENT
THE CHARLES SCHWAB CORPORATION
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WE ARE BUILDING
A BROKERAGE FIRM
LIKE NO OTHER
The Charles Schwab Corporation 1999 Proxy Statement
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LETTER TO STOCKHOLDERS
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[PHOTO]
THIS YEAR, WE HAVE SIMPLIFIED THE PROXY STATEMENT TO MAKE IT EASIER TO
UNDERSTAND.
MARCH 23, 1998
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DEAR FELLOW STOCKHOLDERS:3
Letter to Stockholders
[Photo of Charles R. Schwab
and David S. Pottruck]
March 31, 1999
Dear Fellow Stockholders:
We cordially invite you to attend our 19981999 Annual Meeting of Stockholders. The
meeting will be held on Monday, May 11, 199817, 1999 at 2:00 p.m. at the Yerba Buena
Center for the Arts Theater, 700 Howard Street, San Francisco, California.
At the meeting, we willwill:
- elect twofour directors,
- vote on an amendmenta proposal to increase the 1992
Stock Incentive Plan,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 19971998 and answer your questions. Our
products and services exhibit will be open before and after the meeting.
Lawrence J. Stupski, Vice ChairmanWe are pleased that our Board recently elected Mark Pulido, President and Chief
Executive Officer of the Board, is retiring after the Annual
Meeting. He assumed that role in July of 1992, after having served asMcKesson HBOC, Inc., and Arun Sarin, President and Chief
Operating Officer for more thanof AirTouch Communications, Inc., as members of the Board. We
are also pleased that Dr. Condoleezza Rice, Provost of Stanford University and a
decade. In recent years, Larry has
spearheaded the Company's renowned philanthropic and civic efforts.
Specifically, he established the School-to-Careers Program, a nationally
recognized exampledistinguished professor of leadershippolitical science, will join our Board in career development for youth. We want to
express our deep appreciation to Larry for his valuable contribution to our
Company.
ThisJuly 1999.
Each year, we have simplified the Proxy Statementtry to make it easier for shareholders to understand. The Securitiesvote. 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 Exchange Commissionannual report available over
the Internet. We have included enrollment information with your proxy materials.
We encourage you to enroll in Internet delivery. It is encouraging companiesthe least expensive way
for us to write documents for investors in plain English, and we support this effort.
Clear communication with our stockholders and customers is vital to our goal of
building the most useful and ethical financial services company in the world.send you proxy materials.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Charles R. Schwab /s/ David S. Pottruck
CHARLESCharles R. SCHWAB DAVIDSchwab David S. POTTRUCK
CHAIRMAN OF THE BOARD AND PRESIDENT,
CO-CHIEF EXECUTIVE OFFICER CO-CHIEF EXECUTIVE OFFICER AND
CHIEF OPERATING OFFICERPottruck
Chairman of the Board and President and
Co-Chief Executive Officer Co-Chief Executive Officer
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TABLE OF CONTENTS
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NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS. . . . . . . . . . . . . . . . .3
PROXY STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
QUESTIONS AND ANSWERS . . . . . . . . . . . . . . . . . . . . . . . . . . .5
PROPOSALS TO BE VOTED ON. . . . . . . . . . . . . . . . . . . . . . . . . .10
THE BOARD OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . .11
NUMBER OF DIRECTORS AND TERMS . . . . . . . . . . . . . . . . . . . . . . .13
BOARD AND COMMITTEE MEETINGS. . . . . . . . . . . . . . . . . . . . . . . .14
DIRECTOR COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . .15
PRINCIPAL STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . .16
PERFORMANCE GRAPH . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . .20
EMPLOYMENT AND SEVERANCE AGREEMENTS . . . . . . . . . . . . . . . . . . . .27
SUMMARY COMPENSATION TABLE. . . . . . . . . . . . . . . . . . . . . . . . .30
OPTION GRANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
OPTIONS EXERCISED . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
CERTAIN TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .35
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . .35
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. . . . . . . . . . . . . . . . . .35
STOCKHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . .35
COSTS OF PROXY SOLICITATION . . . . . . . . . . . . . . . . . . . . . . . .36
TICKETS TO THE ANNUAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . .36
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .374
Table of Contents
Notice of 1999 Annual Meeting of Stockholders.......................... 3
Proxy Statement........................................................ 4
Questions and Answers.................................................. 5
Proposals To Be Voted On............................................... 8
The Board of Directors................................................. 10
Board and Committee Meetings........................................... 13
Compensation Committee Interlocks and Insider Participation............ 14
Director Compensation.................................................. 15
Principal Stockholders................................................. 16
Performance Graph...................................................... 18
Summary Compensation Table............................................. 19
Option Grants.......................................................... 22
Options Exercised...................................................... 24
Compensation Committee Report.......................................... 25
Other Information...................................................... 30
Certain Transactions................................................ 30
Section 16(a) Beneficial Ownership Reporting Compliance............. 30
Independent Certified Public Accountants............................ 30
Stockholder Proposals............................................... 30
Costs of Proxy Solicitation......................................... 30
Incorporation by Reference.......................................... 30
Tickets to the Annual Meeting.......................................... 31
Appendix A - - Employment and Severance Agreements..................... 32
Appendix B - - Description of the 1992 Stock Incentive Plan............ 34
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NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
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THE 1998 ANNUAL MEETING OF STOCKHOLDERS WILL BE HELD ON MAY 11, 1998 AT 2:00
P.M. AT THE YERBA BUENA CENTER FOR THE ARTS THEATRE IN SAN FRANCISCO,
CALIFORNIA.5
Notice of 1999 Annual Meeting of Stockholders
The 19981999 Annual Meeting of Stockholders of The Charles Schwab Corporation will
be held on Monday, May 11, 199817, 1999 at 2:00 p.m. at the Yerba Buena Center for the
Arts Theater, 700 Howard Street, San Francisco, California forto conduct the
following purposes:items of business:
1. To elect twoElect four directors for three-year terms,
2. To amendAmend the Certificate of Incorporation to increase the number of
authorized shares of common stock,
3. Amend the 1992 Stock Incentive Plan to increase the annual,
automatic stock option grant to non-employee directors, and
3. To transact4. Transact other business properly coming before the meeting.
Stockholders owning Companywho owned shares of our stock at the close of business on March 12, 199818,
1999 are entitled to attend and vote at the meeting. A complete list of these
stockholders will be available at the Company'sour principal executive offices at 101 Montgomery120 Kearny
Street, San Francisco, California 94104, prior to the meeting.
By Order of the Board of Directors,
/s/ Carrie E. Dwyer
CARRIECarrie E. DWYER
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND
CORPORATE SECRETARYDwyer
Executive Vice President,
General Counsel and
Corporate Secretary
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PROXY STATEMENT
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STOCKHOLDERS OWNING COMPANY SHARES AT THE CLOSE OF BUSINESS ON MARCH 12, 1998
ARE ENTITLED TO ATTEND AND VOTE AT THE MEETING.
Our Board6
Proxy Statement
As a stockholder of Directors is soliciting proxies forThe Charles Schwab Corporation, you have a right to vote on
certain matters affecting the 1998 Annual Meeting of
Stockholders.company. This Proxy Statementproxy statement discusses the
proposals you are voting on this year. Please read it carefully because it
contains important information for you to consider when deciding how to vote.
Your vote onis important.
In this proxy statement, we refer to The Charles Schwab Corporation as the
matters brought before"Company." We also refer to this proxy statement, the meeting.
PLEASE READ IT CAREFULLY.proxy card and our 1998
annual report as the "proxy materials."
The Board setof Directors is sending proxy materials to you and all other
stockholders on or about March 12, 1998 as31, 1999. The Board is asking you to vote your
shares by completing and returning the record date forproxy card.
Unless we state otherwise, all information in this proxy statement concerning
Company common stock reflects the meeting.three-for-two stock split that occurred on
December 11, 1998.
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Questions and Answers
Q: Who can vote at the annual meeting?
A: Stockholders who owned Company common stock on that date are entitled toMarch 18, 1999 may attend and
vote at and attend
the meeting, with eachannual meeting. Each share is entitled to one vote. There were 267,742,421_____
shares of Company common stock outstanding on the record date.
Voting materials, which include the Proxy Statement,March 18, 1999.
Q: Why am I receiving this proxy card and 1997 Annual
Report, will be mailed to stockholders on or about March 23, 1998.
In this Proxy Statement:
- "we" and "Company" mean The Charles Schwab Corporation,
- "Schwab" means Charles Schwab & Co. Inc., the primary operating
subsidiary of the Company,
- "Profit Sharing Plan" and "Plan" mean the Charles Schwab Profit
Sharing and Employee Stock Ownership Plan,
- "1992 Plan" means the 1992 Stock Incentive Plan, and
- holding shares in "street name" means your Company shares are held in
an account at a brokerage firm.
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QUESTIONS AND ANSWERS
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WHY AM I RECEIVING THIS PROXY STATEMENT AND PROXY CARD?
WHAT AM I VOTING ON?
HOW DO I VOTE?
Q: WHY AM I RECEIVING THIS PROXY STATEMENT AND PROXY CARD?statement?
A: You are receiving a Proxy Statement andThis proxy card from us because you own
shares of common stock in The Charles Schwab Corporation. This Proxy Statementstatement describes issuesproposals on which we would like you, as a
stockholder, to vote. It also gives you information on these issuesproposals, as well
as other information, so that you can make an informed decision.
When you signQ: 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 willto vote your shares
at the meeting, as you have instructed them on the proxy card, at the
meeting.card. This way, your
shares will be voted whether or not you attend the Annual Meeting.meeting. Even if you plan to
attend the meeting, it is a good idea to complete sign and return your proxy card
in advance ofbefore the meeting date just in case your plans change.
If an issuea 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, in accordance
withaccording
to their best judgment.
Q: WHAT AMWhat am I VOTING ON?voting on?
A: YouWe are being askedasking you to vote onon:
- the election of twofour directors,
and- an amendment to ourthe Certificate of Incorporation to increase the number of
authorized shares of common stock, and
- an amendment to the 1992 Plan.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 Plan amendment.Stock Incentive
Plan.
Q: HOW DOHow do I VOTE?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 return a signed card but do not providemark your voting instructions on the proxy card, your shares will
be voted:
- - FORfor the twofour named nominees for directors,
- for the proposed amendment to the Certificate of Incorporation to increase
the number of authorized shares of common stock, and
- - FORfor the proposed amendment to the 1992 Plan.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.proxy statement. If you vote by telephone, you do not have to mail in your
proxy card.
Some stockholders may not be able to vote by telephone.
YOU MAY VOTE ON THE INTERNET.
Stockholders who hold Company shares in street name may vote on the Internet.
You do this by following the "Vote by Internet" instructions that came with your
Proxy Statement.proxy statement. If you vote on the Internet, you do not have to mail in your
proxy card. Some stockholders may not be able to vote on the Internet.
YOU MAY VOTE IN PERSON AT THE MEETING.
We will pass out written ballots to anyone who wants to vote at the meeting.
IfHowever, if you hold your shares in street name, you must request a legal proxy from
your stockbroker in order to vote at the meeting. 5
QUESTIONS AND ANSWERS
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HOW DOHolding 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?
HOW DO I VOTE MY PROFIT SHARING PLAN SHARES?
WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
WHAT IF I CHANGE MY MIND AFTER I RETURN MY PROXY?
Q: HOW DO I VOTE MY DIVIDEND REINVESTMENT PLAN SHARES?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 Dividend Reinvestment Plan shares.shares under that plan.
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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 Schwabthat firm will include Company shares held in your Schwabbrokerage
account and under the Schwab Dividend Reinvestment Plan.
WE ENCOURAGE YOU TO EXAMINE YOUR PROXY CARD CLOSELY TO MAKE SURE YOU ARE VOTING
ALL OF YOUR SHARES IN THE COMPANY.that plan.
We encourage you to examine your proxy card closely to make sure you are voting
all of your Company shares.
Q: HOW DOHow do I VOTE MY PROFIT SHARING PLAN SHARES?vote my retirement plan shares?
A: The proxy card you receive from theour transfer agent will include your shares
held under The SchwabPlan Retirement Savings and Investment Plan shares.(formerly The
Charles Schwab Profit Sharing and Employee Stock Ownership Plan). By completing
thisand 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'splan's purchasing agent for shares you hold through the Profit
Sharing Plan.plan.
If you hold Company shares in aan account with Charles Schwab account,& Co., Inc., you
will receive a separate proxy card from Schwab which you must vote separately.that brokerage firm specifically for
voting the shares in that account.
Q: WHAT DOES IT MEAN IFWhat does it mean if I RECEIVE MORE THAN ONE PROXY CARD?receive more than one proxy card?
A: It means that you have multiple accounts at the transfer agent and/or with
stockbrokers. Please signcomplete and return all proxy cards to ensure that all your
shares are voted.
FOR BETTER CUSTOMER SERVICE, WE RECOMMEND CONSOLIDATION OF AS MANY TRANSFER
AGENT OR BROKERAGE ACCOUNTS AS POSSIBLE UNDER THE SAME NAME AND ADDRESS.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 IFWhat if I CHANGE MY MIND AFTERchange my mind after I RETURN MY PROXY?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
proxyvote is counted), or
- - voting again at the meeting.
Q: WILL MY SHARES BE VOTED IFWill my shares be voted if I DO NOT SIGN AND RETURN MY PROXY CARD?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.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 certain
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QUESTIONS AND ANSWERS
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WILL MY SHARES BE VOTED IF I DO NOT SIGN AND RETURN MY PROXY CARD?some "routine" matters, includingmatters. The election of directors.directors
will be considered a routine matter.
If you do not give a proxy to vote your proxy,shares, your brokerage firm may either:
- - vote your shares on routine matters, or
- - leave your shares unvoted.
We encourage you to provide instructions to your brokerage firm by voting your
proxy. This ensures your shares will be voted at the meeting.
As a brokerage firm, Charles Schwab & Co., Inc. may vote its customers' unvoted
shares on routine matters. But, because Schwabour brokerage firm is voting on Company
proposals, it must follow a more strictstricter set of New York Stock Exchange rules.
Specifically, our brokerage firm can vote unvoted Company shares held in
Schwabbrokerage accounts may only be voted by Schwab in the same proportion as the Company's shares are voted by all other stockholders.stockholders vote.
When a brokerage firm votes its customers' unvoted shares on routine matters,
these shares are counted for purposes of establishingto determine if a quorum exists to conduct business at
the meeting. A brokerage firm cannot vote customers' unvoted shares on
non-routine matters. Accordingly, theseThese shares are considered not entitled to vote on
non-routine matters, rather than as a vote against the matter.
YOU MAY HAVE GRANTED TO YOUR STOCKBROKER DISCRETIONARY VOTING AUTHORITY OVER
YOUR ACCOUNT.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.
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.
IF YOU ARE A PARTICIPANT IN THE COMPANY'S PROFIT SHARING PLAN, THE PLAN'S
PURCHASING AGENT, UNDER CERTAIN CIRCUMSTANCES, MAY VOTE YOUR SHARES.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 maycan vote shares you hold under the Company's Profit Sharing
Planplan if the purchasing
agent does not receive voting instructions from you. YourThe
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purchasing agent will vote your unvoted shares will be voted in the same proportion as all
other plan participants vote their shares.
Similarly, the shares voted by
Profit Sharing Plan participants.
Similarly,purchasing agent will vote shares under the Employee Stock
Ownership Plan ("ESOP") component of the Company's Profit Sharing Planoverall plan that have not yet been
allocated to the ESOP accounts of individual participants will be voted byparticipants. However, the
purchasing agent can only vote these shares in the same proportion as all other
participants in the overall plan vote their shares voted by Profit Sharing Plan participants.
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QUESTIONS AND ANSWERS
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HOW MANY VOTES DO YOU NEED TO HOLD THE MEETING?
HOW MANY VOTES MUST THE NOMINEES HAVE TO BE ELECTED?
WHAT HAPPENS IF EITHER NOMINEE IS UNABLE TO STAND FOR RE-ELECTION?
HOW MANY VOTES MUST THE AMENDMENT TO THE 1992 PLAN HAVE TO PASS?
HOW ARE VOTES COUNTED?
WHERE DO I FIND THE VOTING RESULTS OF THE MEETING?(unless the purchasing agent
receives specific instructions from a plan fiduciary that has the power to
direct the purchasing agent).
Q: HOW MANY VOTES DO YOU NEED TO HOLD THE MEETING?How many shares must be present to hold the meeting?
A: To hold the meeting and conduct business, a majority of the Company's
outstanding shares as of March 18, 1999 must be present at the 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.
A majority ofQ: How many votes must the Company's outstanding sharesnominees have to be elected as of the record date must be
present at the meeting in order to hold the meeting and conduct business. This
is called a quorum.
Q: HOW MANY VOTES MUST THE NOMINEES HAVE TO BE ELECTED?directors?
A: We use the phrase "yes vote" to mean a vote for a director.proposal.
The twofour nominees receiving the highest number of yes votes will be elected as
directors. This number is called a plurality.
Q: WHAT HAPPENS IF EITHER NOMINEE IS UNABLE TO STAND FOR RE-ELECTION?What happens if a nominee is unable to stand for election?
A: The Board may by resolution, provide for a lesserreduce the number of directors or designateselect a substitute nominee.
In the latter event,case, if you have completed and returned your proxy card, Charles
R. Schwab and David S. Pottruck can vote your shares represented by
proxies may be voted for a substitute nominee.
ProxiesThey cannot be votedvote for more than twofour nominees.
Q: HOW MANY VOTES MUST THE AMENDMENT TO THEHow 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 PLAN HAVE TO PASS?Stock Incentive Plan have to
pass?
A: TheTo pass, the amendment must receive a yes vote of a majority of the shares
present at the meeting to pass.in person or by proxy.
Q: HOW ARE VOTES COUNTED?How are votes counted?
A: You may vote either "for" or "against" each nominee. You may vote "for,"
"against,""against" or "abstain" on the proposals to amend the Certificate of
Incorporation and the 1992 Plan amendment.Stock Incentive Plan.
If you abstain from voting on the 1992 Planeither amendment, it has the same effect as a vote
against.
If you just signgive your proxy card with no furtherwithout voting instructions, your shares will be counted
as a yes vote FORfor each directornominee and FOR the amendment to the 1992 Plan.for each amendment.
Voting results are tabulated and certified by our transfer agent, Norwest Bank
Minnesota, N.A.
Q: WHERE DOWhere do I FIND THE VOTING RESULTS OF THE MEETING?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
1998.1999. 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 Securities and Exchange CommissionSEC at (800) SEC-0330 for the location of theits nearest public
reference room, orroom. You can also get a copy on the Internet through the SEC's
electronic data system called EDGAR system at WWW.SEC.GOV.
8www.sec.gov.
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QUESTIONS AND ANSWERS
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WHY IS THE COMPANY AMENDING THE 1992 PLAN?
Q: WHY IS THE COMPANY AMENDING THE 1992 PLAN?
A: The amendment is necessary to ensure that the Company will:
- - CONTINUE TO BE ABLE TO OFFER A STOCK INCENTIVE PLAN THAT ATTRACTS AND
RETAINS KEY EMPLOYEES IN AN EXTREMELY COMPETITIVE MARKET BY OFFERING
SUCH EMPLOYEES APPROPRIATE EQUITY INCENTIVES, AND
- - RETAIN CORPORATE TAX DEDUCTIONS THAT RESULT FROM THESE AWARDS.
Currently, the 1992 Plan limits the maximum number of shares granted to any one
employee in any one year to:
- - 500,000 shares subject to options,
- - 200,000 shares as Restricted Shares, and
- - 200,000 shares as Performance Share Awards.
The Company recommends increasing these limits:
- - from 500,000 to 2,250,000 for shares subject to options,
- - from 200,000 to 900,000 shares as Restricted Shares, and
- - from 200,000 to 900,000 shares as Performance Share Awards.
The current individual award limits were approved by the stockholders at the
Stockholders Annual Meeting in 1994, and have never been adjusted for stock
splits. The proposed amendment adjusts these limits for the cumulative effect of
stock splits since 1994, which is 4.5 times the original limit.
The Company is also amending the 1992 Plan to allow annual limits on stock
option grants, Restricted Shares and Performance Share Awards to be
automatically adjusted for any future stock splits, stock dividends and other
similar events.
Stockholder approval of the 1992 Plan amendment is necessary for tax purposes.
Federal tax law generally limits to $1 million the Company's deductions of
amounts paid to certain executive officers in a year. The Company may not deduct
amounts in excess of $1 million paid to them unless the compensation qualifies
for an exemption under federal tax laws. One exemption is for "performance
based" compensation. To qualify for this exemption, our stockholders must
approve the maximum number of shares to be awarded in a year to any one person
under the 1992 Plan. Loss of this deduction could result in increased expense to
the Company.
Because the Company's officers and employee directors are eligible to
participate in the 1992 Plan, they have an interest in the amendment.
The 1992 Plan was adopted by the Board of Directors and approved by the
stockholders at the 1992 Annual Stockholders Meeting. Amendments to the 1992
Plan were approved at the Annual Stockholders Meetings in 1994, 1996 and 1997.
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PROPOSALS TO BE VOTED ON
- --------------------------------------------------------------------------------
RE-ELECTION OF DIRECTORS
- - DONALD G. FISHER
- - ANTHONY M. FRANK
AMENDMENT TO THE 1992 PLAN
OTHER BUSINESS
1. RE-ELECTION OF DIRECTORSElection of Directors
Nominees for re-electiondirectors this year are Donald G. FisherFrank C. Herringer, Stephen T. McLin,
Charles R. Schwab, and Anthony M. Frank.
THE BOARD RECOMMENDS A VOTE FOR THESE NOMINEES.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 1992 PLAN
Currently,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 the 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 issued.
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
limitsWe are asking you to approve an amendment to the maximum1992 Stock Incentive Plan to
increase by 1,000 the number of shares that may be granted
to any one employee in any one year to:
- - 500,000 shares subject to options,
- - 200,000 shares as Restricted Shares, and
- - 200,000 shares as Performance Share Awards.
The amendment would:
- - increase to 2,250,000 the maximum number of shares subject to options that
may be granted to any employee in any one year,
- - increase to 900,000 the maximum number of Restricted Shares that may be
granted to any employee in any one year,
- - increase to 900,000 the maximum number of Performance Share Awards that may
be granted to any employee in any one year, and
- - permit automatic adjustment of annual limits in the 1992 Plan oncovered by stock option grants Restricted Sharesto
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.
8
11
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 Performance Share Awardsstock option grants and
believes that the stock option grants help to reflect
any futurealign directors' and stockholders'
interests.
The Board recently reviewed non-employee directors' compensation, which included
a comparison to peer group companies. The disinterested directors approved an
increase in the non-employee directors' fees beginning in 1999. They also
recommended an increase in the annual, automatic stock splits, stock dividendsoption grant to our
non-employee directors. The Company believes that this increase in the size of
the option grant will better align our non-employee directors' compensation with
stockholders' interests and other similar events.
Since their adoptionpeer group compensation.
The Board had last reviewed the directors' compensation program in 1994, the individual grant limits1995.
Our non-employee directors have not been adjusted
for stock splits.an interest in this amendment.
The proposed individual grant limits are adjustedBoard recommends a vote for the cumulative effect of stock splits since 1994, which is 4.5 timesamendment to the original
limit.
THE BOARD RECOMMENDS A VOTE FOR THE AMENDMENT TO THE 1992 PLAN.Stock Incentive Plan.
If you would like more information about the 1992 Stock Incentive Plan, a
summary of its terms is included as an Appendix B to this Proxy Statement.
OTHER BUSINESSproxy statement.
Other Business
The Board knows of no other business for considerationto be considered at the meeting. IfHowever,
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 or otherwise act,your
shares on your behalf in accordance withthose matters according to their judgment on such
matters.
10best judgment.
9
THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
BIOGRAPHIES
- - NANCY12
The Board of Directors
Nancy H. BECHTLE
- - C. PRESTON BUTCHER
- - DONALD G. FISHER
- - ANTHONY M. FRANK
NANCY H. BECHTLE
DIRECTOR SINCEBechtle
Director since 1992
Ms. Bechtle, age 60,61, has been a director and Chief Financial Officer of J.R.
Bechtle & Co., an international consulting firm, since 1979. She has been the
President and Chief Executive Officer of the San Francisco Symphony since 1987,
and has served as a member of the San Francisco Symphony Board of Governors
since 1984. Ms. Bechtle also has served 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 SINCEPreston Butcher
Director since 1988
Mr. Butcher, age 59, has been60, is Chairman and Chief Executive Officer of the newly formed
Legacy Partners (formerly Lincoln Property Company N.C., Inc. Western Region), a
real estate development and management firm. Mr. Butcher served as President,
Chief Executive Officer and Regional Partner of Lincoln Property Company N.C.,
Inc., a real estate development and
management firm, since 1967. Mr. Butcher is a director of BRE Properties, Inc.,
a real estate investment trust. from 1967 until 1998. Mr. Butcher's term expires in the year 2000.
DONALDDonald G. FISHER
DIRECTOR SINCEFisher
Director since 1988
Mr. Fisher, age 69,70, is the Chairman of the Board of The Gap, Inc., a nationwide
specialty retail clothing chain. He was also Chief Executive Officer of The Gap,
Inc. and a director from 1969 to November 1995. Mr. Fisher is currently a
director of AirTouch Communications, Inc., a wireless telecommunications
services company, and Cornerstone Properties, Inc., a real estate development
company. Mr. Fisher is a nominee for re-election this year.
ANTHONYFisher's term expires in the year 2001.
Anthony M. FRANK
DIRECTOR SINCEFrank
Director since 1993
Mr. Frank, age 66,67, has been the Chairman of Belvedere Capital Partners, a
general partner of an investment fund specializing in financial institutions,
since 1993. From 1988 until 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 is a director of Bedford Property Investors; Temple-Inland, Inc.;, a maker of 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. Mr. Frank served as a director of
the Company director 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.
Frank is a nominee for re-election this year.
11
THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
BIOGRAPHIES
- - FRANK C. HERRINGER
- - STEPHEN T. MCLIN
- - DAVID S. POTTRUCK
- - CHARLES R. SCHWAB
FRANK C. HERRINGER
DIRECTOR SINCEHerringer
Director since 1996
Mr. Herringer, age 55,56, 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.Corporation, an oil company. Mr. Herringer's term expires in 1999.
STEPHENHerringer is a nominee for election this
year.
Stephen T. MCLIN
DIRECTOR SINCEMcLin
Director since 1988
Mr. McLin, age 51,52, 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, since 1987.firm. Mr. McLin is a director of BayviewBay View Capital
Corporation.Corporation, which conducts a savings bank business and offers commercial and
consumer financing. Mr. McLin's term expires
in 1999.
DAVIDMcLin is a nominee for election this year.
10
13
David S. POTTRUCK
DIRECTOR SINCEPottruck
Director since 1994
Mr. Pottruck, age 49,50, is the President and Co-Chief Executive Officer and Chief
Operating Officer of the
Company. He became the President in 1992, and the Co-Chief Executive Officer in
January 1998,1998. He was also the Company's Chief Operating Officer infrom 1994 and the President in 1992.until
September 1998. He
also became the Chief Executive Officer of Charles Schwab & Co.,
Inc. in 1992. In 1997, Mr. Pottruck was namedis currently a director of McKesson Corporation, Decibel Instruments,HBOC, Inc., the
world's largest healthcare services company; Intel Corporation, a manufacturermaker of
acoustic products,microcomputer components and related products; and Preview Travel, Inc., an
on-lineonline 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.
CHARLESMark 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 SINCESchwab
Director since 1986
Mr. Schwab, age 60,61, was a founder of Charles Schwab & Co., Inc. in 1971, and has
been its Chairman since 1978. He has been Chairman and a director of the Company
since its incorporation in 1986. He also has served as the Chief Executive Officer
from 1986 until January 1998, when he and David S. Pottruck became Co-Chief
Executive Officers. Mr. Schwab is a director of The Gap, Inc., Transamerica
Corporation, AirtouchAirTouch Communications, Inc. and Siebel Systems, Inc., a company
that provides support for software systems, and a trustee of theThe Charles Schwab
Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity
Portfolios, all registered investment companies. Mr. Schwab's
term expires in 1999.
12
THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
BIOGRAPHIES
- - GEORGESchwab is a nominee for
election this year.
George P. SHULTZ
- - ROGER O. WALTHER
[PHOTO]
LAWRENCE J. STUPSKI, VICE CHAIRMAN OF THE BOARD, IS RETIRING AFTER THE MEETING.
HE INTENDS TO DEVOTE HIS FULL-TIME EFFORTS TO K-12 EDUCATION AND OTHER YOUTH
DEVELOPMENT ISSUES.
GEORGE P. SHULTZ
DIRECTOR SINCEShultz
Director since 1997
Dr. Shultz, age 77,78, is Professor Emeritus of International Economics at the
Graduate School of Business at Stanford University, and a distinguishedDistinguished Fellow
at the Hoover Institution. He has held 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 AirTouch Communications, Inc.; Bechtel Group, Inc.,
a provider of engineering, construction and related management services;
Gulfstream Aerospace Corporation, AirTouch Communications, Inc.maker of intercontinental business jet
aircraft; and Gilead Sciences, Inc., a developer of treatments for viral
diseases. He is also Chairman of J.P. Morgan's International Advisory Council.
He was President of Bechtel Group, Inc. from 1974 to 1982. Dr. Shultz's term
expires in the year 2000.
ROGER11
14
Roger O. WALTHER
DIRECTOR SINCEWalther
Director since 1989
Mr. Walther, age 62,63, has beenserved as the Chairman and Chief Executive Officer of
Tusker Corporation, a real estate and business management company, since August
1997. He served as Chairman and Chief Executive Officer of ELS Educational
Services, Inc., the largest provider of English as a second language courses in
the United States, since 1992.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. Mr. Walther's term expires in 1999.
NUMBER OF DIRECTORS AND TERMSnominee for election this
year.
Number of Directors and Terms
The Company currently has eleventwelve directors. Lawrence J. Stupski, a director of
the Company since 1986, is retiring from the Board after the meeting and,
therefore, is not standing for re-election this year. TwoFour directors are nominees for
re-electionelection 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, - each director serves a three-year term, and
- the termsterm of each class begins on a staggered schedule.
Dr. 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 45, has been Provost of Sanford University since 1993, and a
professor of political science at Stanford since 1981. In 1984, she was the
recipient of the classes are staggered.
13Walter 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.
12
BOARD AND COMMITTEE MEETINGS
- --------------------------------------------------------------------------------
THIS TABLE DESCRIBES THE BOARD'S COMMITTEES.15
Board and Committee Meetings
The Board held eight regular meetings in 1997.1998. Each director, except Dr. Shultz,Donald G.
Fisher and Roger O. Walther, attended at least 75% of all Board and applicable
committee meetings during 1997.1998. This table describes the Board's committees. The
Board does not have a Nominating Committeenominating committee or a committee serving a similar
function.
NAME OF COMMITTEE FUNCTIONS NUMBER OF
AND MEMBERS OF THE COMMITTEE MEETINGS IN 1997Name of Committee Functions Number of
and Members of the Committee Meetings in 1998
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
AUDITAudit - confers with independent 4
accountants 3 and internal
Nancy H. Bechtle auditors regarding scope Nancy H. Bechtle of examinations
C. Preston Butcher Anthony M. Frankexaminations
Donald G. Fisher - reviews reports of independent
Donald G. FisherAnthony M. Frank accountants and internal
auditors
Frank C. Herringer auditors
Stephen T. McLin*McLin * - reviews recommendations about
Mark A. Pulido ** internal controls
Arun Sarin ** - recommends selection of
independent accountants to the
Board
- ----------------------------------------------------------------------------------------------------
COMPENSATION-----------------------------------------------------------------------------------------------
Compensation - determines the compensation of 8
the 9 Co-Chief Executive Officers
Nancy H. Bechtle - reviews and approves:
C. Preston Butcher - reviews and approves:compensation philosophy
Stephen T. McLin
George P. Shultz - compensation philosophy
Roger O. Walther* - programs for annual and
George P. Shultz long-term executive
Roger O. Walther * compensation
- material employee benefit plans
- has authority to grant options
and other equity awards under
stock incentive plans and
bonus awards under cash-based
incentive plans
- ----------------------------------------------------------------------------------------------------
CUSTOMER-----------------------------------------------------------------------------------------------
Customer - monitors service quality 2
QUALITY
ASSURANCEQuality - assesses customer satisfaction
Assurance and reviews results of Charles
Schwab & Co., Inc. customer
Nancy H. Bechtle customer surveys
Donald G. Fisher Anthony M. Frank* - proposes initiatives to
Anthony M. Frank* research service quality
Frank C. Herringer service quality
Charles R. Schwab
George P. Shultz
Roger O. Walther
* Chairperson
** Elected to the committee in January 1999
13
16
Compensation Committee Interlocks and Insider Participation
During 1998:
- - none of the members of the Board Compensation Committee was an officer (or
former officer) or employee of the Company or any of its subsidiaries;
- - none of the members of the Board Compensation Committee has 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 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 directors) of another entity where
one of that entity's officers served on the Company's Compensation Committee;
- - 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
- - none of the Company'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 directors) of another entity where
one of that entity's executive officers served as a director on the Company's
Board.
14
DIRECTOR COMPENSATION
- --------------------------------------------------------------------------------
SINCE THE INITIAL DIVIDEND IN 1989, THE COMPANY HAS PAID 35 CONSECUTIVE
QUARTERLY DIVIDENDS AND HAS INCREASED THE DIVIDEND 10 TIMES. SINCE 1989
DIVIDENDS HAVE GROWN AT A 41% COMPOUNDED ANNUAL RATE.17
Director Compensation
We do not pay directors who are also officers of the Company additional
compensation for their service as directors. In 1997,1998, compensation for
non-employee directors included 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 attended,
- an annual retainer of $3,000 to committee chairpersons, and
- expenses of attending Board and committee meetings.
Non-employee directors may participate in the Directors' Deferred Compensation
Plan. This Planplan permits non-employee directors to defer receipt of all or a
portion of their directordirectors' 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'sCompany common stock.
UnderIn 1998, under the 1992 Stock Incentive Plan, non-employee directors receivewere
entitled to an annual, automatic grant of either:
- options on 1,500 shares of Company common stock if the fair market value
of the Company's common stock on the grant date iswas $35 or more, or
- options on 2,500 shares of Company common stock if the fair market value
of the Company's common stock on the grant date iswas less than $35.
"Fair market value" is defined in the 1992 Stock Incentive Plan as the closing
price of the
Company'sCompany common stock on the date the option is granted.
The annual, automatic option grant to non-employee directors of 1,500 shares of
common stock was made on May 15, 1997,1998 at an exercise price of $35.87$36.44 per share.
AfterAs a result of the September 15, 1997,December 11, 1998 three-for-two stock split, this stock grant
was automatically adjusted to 2,250 shares atwith an exercise price of $23.92.$24.29.
If the amendment to the 1992 Stock Incentive Plan being voted on at the annual
meeting is approved, non-employee directors will become entitled to an annual,
automatic grant of either:
- options on 2,500 shares of Company common stock if the option exercise
price is $35 or more, or
- options on 3,500 shares of Company common stock if the option exercise
price is less than $35.
(See "Proposals To Be Voted On" discussed earlier in this Proxy Statement.")
15
PRINCIPAL STOCKHOLDERS
- --------------------------------------------------------------------------------
IN DECEMBER OF 1997, THE COMPANY MADE A GRANT OF 100 STOCK OPTIONS TO ALL
NON-OFFICER EMPLOYEES. ACTIVE PART-TIME STAFF RECEIVED A PRO-RATED STOCK OPTION
GRANT. APPROXIMATELY 11,000 EMPLOYEES BELOW THE LEVEL OF VICE PRESIDENT
PARTICIPATED IN THE PROGRAM.18
Principal Stockholders
This table shows how much Company common stock is owned by the directors,
certain executive officers and owners of more than 5% of the Company's
outstanding common stock, as of March 12, 1998.18, 1999.
Amount and Nature of Shares Beneficially Owned
AMOUNT AND NATURE OF SHARES BENEFICIALLY OWNED
NUMBER PERCENT OF
OF SHARES RIGHT TO RESTRICTED OUTSTANDING
NAME OWNED(1) ACQUIRE(2) STOCK(3) SHARESNumber of Right To Restricted Percent of
Shares Acquire (2) Stock (3) Outstanding
Owned (1) Shares
Name
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CHARLESCharles R. SCHWAB(4) 52,107,980 1,893,750 -- 20.2
CHARLES SCHWAB PROFIT SHARING AND
EMPLOYEE STOCK OWNERSHIP PLAN(5) 23,135,020 -- -- 8.6
TRANSAMERICA CORPORATION AND
TRANSAMERICA INVESTMENT SERVICES, INC.Schwab(4)
SchwabPlan Retirement Savings and
Investment Plan (5)
Transamerica Corporation and Transamerica
Investment Services, Inc.(6)
14,044,286 -- -- 5.2
LAWRENCE J. STUPSKI(7) 5,370,069 19,085 -- 2.0
DAVIDDavid S. POTTRUCK(8) 1,500,172 2,028,073 -- 1.3
NANCYPottruck(7)
Nancy H. BECHTLE(9) 11,250 121,500 --Bechtle *
C. PRESTON BUTCHER(10) 232,991 27,000 --Preston Butcher(8) *
DONALDDonald G. FISHER(11) 724,125 27,000 --Fisher(9) *
ANTHONYAnthony M. FRANK(12) 211,947 83,400 --Frank *
FRANKFrank C. HERRINGER(13) 22,275 17,250 --Herringer(10) *
STEPHENStephen T. MCLIN 33,622 27,000 --McLin *
GEORGEMark A. Pulido(11) *
Arun Sarin(12) *
George P. SHULTZ 15,000 15,000 --Shultz *
ROGERRoger O. WALTHER(14) 29,893 27,000 --Walther(13) *
TIMOTHYJohn Coghlan *
Linnet F. MCCARTHY 12,719 18,294 44,250Deily *
TOM D. SEIP(15) 159,996 270,823 20,250Luis E. Valencia *
DAWN G. LEPORE(16) 67,603 360,625 60,250Steven L. Scheid *
DIRECTORS AND EXECUTIVE OFFICERS
AS A GROUP (23 PERSONS)(17) 60,715,292 6,419,915 643,050 25.3
- ------------------------------------------------------------------------------------------------------------Directors and Executive Officers as a Group
(24 Persons) (14)
*Less than 1%
(1) Adjusted for the December 11, 1998 three-for-two stock split of Company
common stock. Includes shares for which the named person:
- has sole voting and investment power,
- has shared voting and investment power with his or her spouse, or
- holds in a Profit Sharingan account under The SchwabPlan Retirement Savings and
Investment Plan, account,
unless otherwise indicated in the footnotes.
Excludes shares that:
- are restricted stock holdings, or
- may be acquired through stock option exercises.exercises, or
16
PRINCIPAL STOCKHOLDERS19
- --------------------------------------------------------------------------------
SINCE 1988, THE SHARE PRICE OF SCHWAB COMMON STOCK HAS GROWN AT A COMPOUNDED
ANNUAL RATE OF 58%. THIS INCREASE EQUALS $11 BILLION IN STOCKHOLDER WEALTH.are restricted stock holdings.
(2) Shares that can be acquired through stock option exercises through May 11, 1998.17,
1999.
(3) Shares subject to a vesting schedule, forfeiture risk and other
restrictions.
(4) Includes 1,837,502_________ shares held by Mr. Schwab's spouse and children.
Includes the following shares for which Mr. Schwab disclaims beneficial
ownership:
- 3,476,597_________ shares held by non-profit public benefit
corporations.
- 25,610_________ shares held in trusts for which Mr. Schwab acts as
trustee.
Includes the following shares for which Mr. Schwab may be deemed to have
shared voting and investment power, but disclaims beneficial ownership:
- 175,703_________ shares held by investment companies and managed by a
wholly-owned subsidiary of the Company.
Mr. Schwab's address is c/o The Charles Schwab Corporation, 101
Montgomery120 Kearny
Street, San Francisco, California 94104.
(5) As of March 12, 1998, the Profit Sharing18, 1999, The SchwabPlan Retirement Services and Investment
Plan held a total of 23,135,020_____________ shares of which:
- 22,546,329__________ shares were held by participants under the Plan,plan,
and
- 588,691__________ unallocated shares were held under the ESOPEmployee
Stock Ownership Plan ("ESOP") component of the Plan.plan.
Participants direct the voting and disposition of shares held for their
benefit or allocated to their Planplan accounts. The Plan's purchasing agent votes
Planand disposes of plan participants' unvoted shares and unallocated shares
held under the ESOP component of the Plan.plan. The plan's purchasing agent may
only vote or dispose of these unvoted and unallocated shares in the same
proportion as shares voteddirected by Planplan participants.
The address of the Charles Schwab Profit SharingThe SchwabPlan Retirement Services and Employee Stock
OwnershipInvestment Plan is
c/o The Charles Schwab Corporation, 101 Montgomery Street, San Francisco,
California 94104.
(6) The "Number of Shares Owned" is basedBased on information contained in a report on Schedule 13-G filed by Transamerica Corporation with the
Securities and Exchange CommissionSEC on February 17, 1998._______. The address of Transamerica Corporation is 600 Montgomery
Street, San Francisco, California 94111 and the address of Transamerica
Investment Services, Inc. is 1150 South Olive Street, Los Angeles,
California 90015.
(7) Includes 372,500 shares held by a non-profit public benefit corporation
for which Mr. Stupski disclaims beneficial ownership.
(8) Includes 9,471______ shares held by Mr. Pottruck's spouse and a family member.children.
Includes the following shares for which Mr. Pottruck disclaims beneficial
ownership:
- 135,280__________ shares held in trusts for which Mr. Pottruck acts
as trustee.
- 75,075__________ shares held by a non-profit public benefit
corporation.
17
PRINCIPAL STOCKHOLDERS
- --------------------------------------------------------------------------------
A FUNDAMENTAL TENET OF THE COMPANY'S COMPENSATION POLICY IS THAT SIGNIFICANT
EQUITY PARTICIPATION CREATES A VITAL LONG TERM PARTNERSHIP BETWEEN MANAGEMENT
AND OTHER STOCKHOLDERS.
(9)(8) Includes 2,250 shares held by Ms. Bechtle's spouse.
(10) Includes 63,116_____ shares held by Mr. Butcher's spouse.
(11)(9) Includes 612,750_____ shares held in certain charitable remainder trusts by Mr.
Fisher and his spouse.
(12)(10) Includes 36,947 shares held by a family member for which Mr. Frank shares
investment power, but disclaims beneficial ownership.
(13) Includes 11,250_____ shares held by Mr. Herringer's spouse.
(14)(11) Mr. Pulido became a director in December 1998.
(12) Mr. Sarin became a director in December 1998.
(13) Includes 5,893_____ shares held by Mr. Walther's spouse.
(15) Includes 2,022 shares held by Mr. Seip's spouse.
(16) Includes 4,636 shares held by Ms. Lepore's spouse.
(17) Messrs. Schwab, Stupski, Pottruck, Butcher, Fisher, Frank, Herringer,
McLin, Shultz, Walther, McCarthy(14) In addition to the officers and Seip, and Ms. Lepore and Ms.
Bechtle, and ninedirectors named in this table, eight other
executive officers are members of the group.
In prior Proxy Statements, all shares held by the Plan were included in
this total because certain executive officers of the Company were members
of the Administrative Committee of the Plan. The Administrative Committee
is no longer deemed to have sole or shared voting or investment power
over Plan shares. Consequently, Plan shares, other than shares allocated
to executive officers' accounts, are not included in this total.
1817
PERFORMANCE GRAPH
- --------------------------------------------------------------------------------
ON A DIVIDEND REINVESTED BASIS, THE VALUE OF OUR STOCK INCREASED 98% IN 1997
ALONE, COMPARED WITH AN INCREASE OF 82% FOR THE DOW JONES SECURITIES BROKERAGE
GROUP INDEX AND AN INCREASE OF 33% FOR THE STANDARD & POOR'S 500 INDEX.20
Performance Graph
The following graph shows a five-year comparison of cumulative total returns for
the Company'sCompany common stock, the Standard & Poor's 500 Index and the Dow Jones Securities Brokerage Group Index and the
Standard & Poor's 500 Index, each of which assumes an initial value of $100 and
reinvestment of dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
[GRAPH]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]
12/92
12/93 12/94 12/95 12/96 12/97 12/98
THE CHARLES SCHWAB $100 $187 $204 $355 $569 $1,124
CORPORATION
DOW JONES SECURITIES $100 $129 $114 $156 $235 $427
BROKERAGE GROUP INDEX
STANDARDThe 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 $100 $110 $112 $153 $189 $252Poor's 500 INDEXIndex $ 100 $ 101 $ 139 $ 171 $ 229 $ 294
* Information presented is as of the end of each fiscal year ended December 31.
1918
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
IN THIS SECTION, WE DESCRIBE THE COMPENSATION WE PAY OUR CHIEF EXECUTIVE OFFICER
AND THE NEXT FOUR MOST HIGHLY COMPENSATED EXECUTIVE OFFICERS.
In this section, we describe21
Summary Compensation Table
This table shows, for the last three fiscal years, compensation we pay our Chiefinformation for
the Company's Co-Chief Executive OfficerOfficers and the next four most highly
compensated executive officers. It
consists of:
- -We refer to each of these officers as a report by the"named
executive officer."
Summary Compensation Committee on executive compensation,
- - a detailed table showing compensation for the years 1997, 1996, and 1995,
and
- - information about stock options.
This section also includes descriptions of:
- - agreements between the CompanyTable
ANNUAL COMPENSATION LONG-TERM COMPENSATION
AWARDS
- -------------------------------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS ($)(1) OTHER RESTRICTED SECURITIES ALL OTHER
($) ANNUAL STOCK UNDERLYING COMPENSATION
COMPEN- AWARDS ($) OPTIONS (#) ($) (5)
SATION (3) (4)
($) (2)
(4)
- -------------------------------------------------------------------------------------------------------------------------------
CHARLES R. 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 0 $16,601
Officer
1996 $800,004 $9,387,225 0 0 0 $18,280
DAVID S. POTTRUCK 1998 $800,004 $6,145,225 0 0 2,850,000 $19,472
President and Co-Chief Executive 1997 $695,004 $4,319,225 0 0 0 $16,601
Officer
1996 $695,004 $6,436,225 0 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 $ 534,541 0 0 0 $18,280
LINNET F. DEILY (6) 1998 $369,167 $ 800,225 $ 542 $1,373,747 97,501 $19,472
Executive Vice President 1997 $313,334 $ 479,637 $ 201 $ 117,374 53,250 $14,389
1996 $ 62,500 $ 80,265 0 $ 244,998 112,500 0
LUIS E. VALENCIA 1998 $391,667 $ 765,225 $406,640 $1,569,996 97,501 $19,472
Enterprise President - 1997 $368,334 $ 752,000 $ 79,889 0 78,751 $16,601
International
1996 $329,167 $ 938,084 0 0 0 $18,280
STEVEN L. SCHEID 1998 $379,167 $ 775,225 $ 620 $1,569,996 112,501 $19,472
Executive Vice President and 1997 $345,833 $ 749,945 0 0 67,500 $16,601
Chief Financial Officer (7) 1996 $189,583 $ 504,499 0 0 157,500 $ 6,644
(1) For Mr. Schwab, relating toincludes amounts paid under his employment agreement dated
March 31, 1995. (See "Employment Agreement and Name Assignment" in
Appendix A.)
19
22
(2) "Other Annual Compensation" includes payments, not properly categorized as
salary or bonus, to the usenamed executive officers. The following chart
further explains these payments, which started in 1997.
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 name "Schwab"shares.
** Includes payment by the Company of the par value of restricted stock
awarded to the named executive officer under the 1992 Stock Incentive
Plan.
(3) 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 following chart shows the number
and year-end value of all shares 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 Company common stock on that date ($56.1875):
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.
RESTRICTED STOCK - - ORIGINAL VESTING SCHEDULE. The restricted shares,
when originally issued, vested over a five-year period, with:
- 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.
20
23
Some of the restricted shares vest more slowly or not at all, depending on
certain stock performance criteria. Thus, it is possible that a
substantial number of the restricted shares will not vest.
RESTRICTED STOCK - certain severance arrangements- AMENDED VESTING SCHEDULE. Effective January 1, 1997,
the Board Compensation Committee shortened the vesting period to four
years for all restricted stock granted after December 31, 1993. The
following vesting schedule applies to restricted stock granted between
January, 1, 1994 and December 31, 1996:
- 10% of the shares vest two years after the grant date,
- an additional 40% of the shares vest three years after the
grant date, and
- the remaining 50% of the shares vest four years after the
grant date.
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 with pre-existing stock performance
conditions remained subject to those conditions.
(4) Adjusted for the December 11, 1998 three-for-two stock split of Company
common stock.
(5) Represents Company contributions under The SchwabPlan Retirement Savings
and Investment Plan.
(6) Ms. Deily joined the Company in October 1996.
(7) Mr. Scheid joined the Company in June 1996.
21
24
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) Options granted 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
other executives.
Filings made50% incentive stock options (except as limited by tax law),
- are granted at an exercise price equal to 100% of the fair
market value of the common stock on the date of grant,
- expire ten years from the date of grant, unless otherwise
earlier terminated because of certain events related to
termination of employment, and
- vest in 25% increments on each anniversary date of the grant,
subject to the terms and conditions of the plan.
22
25
(2) Options with exercise prices of:
- $26.1667 were granted on February 23, 1998.
- $26.7917 were granted on July 24, 1998; and
- $23.1250 were granted on May 11, 1998, except as noted in
footnote 4.
(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
estimate or projection of the future 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 $23.1250 on the May 11,
1998 grant date. One-sixth of Mr. Pottruck's premium price options vest
each year beginning in the year 2000.
23
26
Options Exercised
This table shows stock option exercises and the value of unexercised stock
options held by the named executive officers during the last fiscal year.
AGGREGATED OPTION EXERCISES IN 1998
AND FISCAL YEAR-END OPTION VALUES(1)
SHARES ACQUIRED VALUE NO. OF SECURITIES VALUE OF UNEXERCISED
ON EXERCISE (#) REALIZED UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
($)(2) AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(3)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -----------------------------------------------------------------------------------------------------------------------------------
Charles R. Schwab 1,500,000 $31,971,546 1,621,875 1,331,250 $ 81,177,316 $48,272,137
David S. Pottruck 0 0 3,405,540 3,053,461 $179,747,114 $61,018,943
John Coghlan 95,625 $ 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 0 95,625 241,876 $ 4,293,932 $ 9,031,037
(1) Adjusted for the December 11, 1998 three-for-two stock split of Company
withCommon stock.
(2) This number is calculated as follows:
- if upon exercising the Securitiesstock options, the named executive officer
kept the shares he or she acquired, then by averaging the high and
low market prices of Company stock on the 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 executive officers.
(3) This number is calculated by:
- subtracting the option exercise price from the Company's December
31, 1998 average market price ($56.9063 per share, as reported in
the New York Stock Exchange Commission
sometimes "incorporate informationComposite Transactions Index) to get the
"average value per option," and
- multiplying the average value per option by reference." This means the Company is
referring you to informationnumber of
exercisable and unexercisable options.
The amounts in this column may not represent amounts that has previously been filed withwill actually be
realized by the Securities
and Exchange Commission, and that this information should be considered as part
of the filing you are reading. The Performance Graph andnamed executive officers.
24
27
Compensation Committee Report
on Executive Compensation inIn this Proxy Statement are specifically not
incorporated by reference into any other filings withsection, we describe our executive compensation policies and practices,
including the Securities and
Exchange Commission.
This Proxy Statement is being sent to stockholders as part of the voting
material for the Annual Meeting. The Proxy Statement is not to be considered
material for soliciting the purchase or sale of Company stock.
For all of 1997, Mr. Schwab was the Chief Executive Officer and Mr. Pottruck was
the President of the Company. In January of 1998, Mr. Schwab and Mr. Pottruck
becamecompensation we pay our Co-Chief Executive Officers ofand the Company. For purposes of the following
report, Mr. Schwab is the Chiefnext
four most highly compensated executive officers.
Board Compensation Committee Report On Executive Officer and Mr. Pottruck is the
President.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATIONCompensation
During 1997,1998, 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, Mr.Stephen T.
McLin and Dr.George P. Shultz. No member of the Committeeour committee during 19971998 was an
employee of the Company or any of its subsidiaries. Each member meets the definition ofqualifies as a
"non-employee director" under Rule 16b-3 of the Securities Exchange Act of 1934
as amended, and isas an "outside director" within the meaning ofunder Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
20
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
COMPENSATION POLICIES
The CommitteeCode.
Our committee has overall responsibility for the Company's executive
compensation policies and practices. The Committee'sOur committee's functions include:
-
- determining the compensation of the ChiefCo-Chief Executive Officer of the Company,Officers,
Charles R. Schwab and David S. Pottruck,
- - uponon recommendation of the ChiefCo-Chief Executive Officer and the President,Officers, reviewing and
approving 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 Company's executive
compensation policies, of
the Company as they apply to its executive officers, the relationship of Companythe Company's performance to
executive compensation, and the ChiefCo-Chief Executive Officer'sOfficers' compensation.
COMPENSATION POLICIESCompensation 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.
CompaniesOur 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. Not all of these criteria
will necessarily be satisfied in any particular case. The CommitteeOur committee includes in
its review companies other than those included in the Dow Jones Securities
Brokerage Group Index because the Company frequently recruits executives 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
21
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
THE IMPORTANCE OF OWNERSHIP
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 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
25
28
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 Chief Executive Officer, and
with respect tocase of executive officers other than
the Chief Executive OfficerMr. Schwab and the President, the CommitteeMr. Pottruck, our committee places considerable weight uponon the
recommendations of the Chief Executive OfficerMr. Schwab and the President.
THE IMPORTANCE OF OWNERSHIPMr. 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
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 12,
1998,18, 1999, the directors and executive officers of the
Company owned an aggregate of 61,358,342________ shares (including restricted shares) and
had the right to acquire an additional 6,419,915_________ shares upon the exercise (on or
before May 17, 1999) of employee stock options (exercisable on or before May 11, 1998).
The Profit SharingSchwabPlan Retirement Savings and Investment Plan held 22,546,329_______ shares which
were allocated to participants' accounts on March 12, 1998.18, 1999. The Company intends
to continue its strategy of encouraging its employees to become stockholders.
The chart precedingperformance graph on page ____ of this reportproxy statement compares changes in
the Company's cumulative total returns with those of the Standard & Poor's 500 Index and the Dow Jones Securities
Brokerage Group Index and the Standard & Poor's 500 Index. From December 31,
19921993 through December 31, 19971998, the cumulative total return of the Company's
stock was 1,024%1,111%. By comparison, in the same period the Dow Jones Securities
Brokerage Group Index grew 327%277% and the Standard & Poor's 500 Index grew 152%194%.
The CommitteeOur committee believes employees' equity participation in the Company is a
meaningful factor contributing to the Company's success.
22
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
ANNUAL BASE SALARY
VARIABLE COMPENSATIONS
ANNUAL BASE SALARYAnnual 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 (seereviews. (See "Compensation Policies" earlier in
this report.).
VARIABLE COMPENSATION
CORPORATE EXECUTIVE BONUS PLAN.
Variable Compensation
Corporate Executive Bonus 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 Chief Executive Officer, whobased on corporate performance. (Mr. Schwab
is covered under an employment agreement with the Company) basedCompany. See "Co-Chief
Executive Officers' Compensation" later in this report.) Depending on the Company's performance
(see "Chief Executive Officer's Compensation"). Depending upon the
Company's pre-tax profit margin and net revenue growth, the Bonus Planbonus plan is paid
out at a percentage of each participant's bonus target. Targets are expressed as
a percentage of base salary, which are determined by the 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 Chief Executive Officer 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 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, who also participate in the Annual Executive Individual
Performance Plan (discussed below)later in this report), the target bonuses can be up
to 50% of base salary.
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.bonus. 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 1997,1998, the
Company achieved a pre-tax profit margin of 19.5%21% and net revenue growth of 24.2%19%.
26
29
Based on this performance, executive officers received bonuses in excess ofexceeding their
target bonus amounts in 1997.
ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN.1998.
Annual Executive Individual Performance Plan.
The Annual Executive Individual Performance Plan (the "Individual Performance
Plan") pays bonuses to executive
officers other than the Chief Executive OfficerMr. Schwab and PresidentMr. Pottruck based on a subjective
determination of each such officer's individual contribution
23
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
VARIABLE COMPENSATION to the attainment of
the Company'scorporate performance objectives. The CommitteeOur committee makes this determination based
on the recommendationrecommendations of the Chief Executive OfficerMr. Schwab and the President.Mr. Pottruck. In general, suchtheir
recommendations are based in significant part uponon 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 pre-tax profit margin and net revenue growth.
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.
1992 STOCK INCENTIVE PLAN.Stock Incentive Plan.
In 1992, the Board of Directors approved 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 grantsoptions and restricted
stock awards are made 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 optionsoption
and restricted stock awards to executive officers, supplemented with smaller
annual grants. The CommitteeOur committee believes that an emphasis on large, but infrequent,
awards provides 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 1997,1998, 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 companies of comparable size, rates of growth,
and/or financial returns, as well as the
value of outstanding unvested stock optionsreturns.
Co-Chief Executive Officers' Compensation
Mr. Schwab, Chairman and restricted stock awards held by
the individual.
24
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
CHIEF EXECUTIVE OFFICER'S COMPENSATION
TAX LAW LIMITS ON EXECUTIVE COMPENSATION
CHIEF EXECUTIVE OFFICER'S COMPENSATION
The Company's ChiefCo-Chief Executive Officer, Charles R. Schwab, is compensated based on an
employment agreement that was entered into between the Company and Mr. Schwab
and approved by the stockholders, effective as of March 31, 1995 (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'sour
corporate pre-tax profit margin and net revenue growth for the year, and is
determined under a matrix adopted by the Committee. The Committeeour committee. Our committee has the
authority to adjust the matrix from time to time (provided that for any year the
matrixwe
may not be changedchange 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. Specifically, the Committeeour committee believes that:
- - MR. SCHWAB PROVIDES THE COMPANY WITH THE LEADERSHIP, VISION AND INSPIRATION
FOR INNOVATION THAT HAS GENERATED THE COMPANY'S GROWTH AND SUPERIOR
PERFORMANCE,Mr. Schwab provides the leadership, vision and inspiration for innovation
that has generated corporate growth and superior performance,
- - THE COMPANY'S OVERALL STRATEGIC DIRECTION AS DEVELOPED BY MR. SCHWAB IS
CRITICAL TO ENHANCING THE FUTURE LONG TERM VALUE OF THE COMPANY FOR ITS
STOCKHOLDERS, ANDThe overall strategic direction developed by Mr. Schwab is critical to
enhancing the future long-term value of the Company for its stockholders,
and
- - MR. SCHWAB'S LEADERSHIP HAS ENABLED THE COMPANY TO SUBSTANTIALLY OUTPERFORM
BOTH THE STANDARDMr. Schwab's leadership has enabled the Company to substantially
outperform both the Dow Jones Securities Brokerage Group Index and the
Standard & POOR'SPoor's 500 INDEX AND THE DOW JONES SECURITIES BROKERAGE
GROUP INDEX OVER THE PAST FIVE-YEAR PERIOD.
Based uponIndex over the Company's attainment in 1997 ofpast five-year period.
Because the Company attained a pre-tax profit margin of 19.5%21% and net revenue
growth of 24.2%,19% in 1998, which resulted in pre-tax profit of over $447$577 million, the
amount of Mr. Schwab's annual bonus for 1997,1998, calculated pursuantaccording to the
matrix, was $6,362,000.
TAX LAW LIMITS ON EXECUTIVE COMPENSATION$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
27
30
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.
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,
- - 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.
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
stockholders have approved the compensation 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
28
31
approved by the stockholders in 1994 and 1995, and the Company's
Employment Agreement with Mr. SchwabSchwab's employment
agreement was approved by the stockholders in 1995
(see1995. (See "Employment
25
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
TAX LAW LIMITS ON EXECUTIVE COMPENSATION Agreement
and Name Assignment" below).
The Committeein Appendix A.)
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 payprovide compensation
under which payments may not be 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 DIRECTORSCompensation Committee of
the Board of Directors
Roger O. Walther, Chairman
Nancy H. Bechtle
C. Preston Butcher
Stephen T. McLin
George P. Shultz
2629
EMPLOYMENT AND SEVERANCE AGREEMENTS32
Other Information
Certain Transactions
Directors and executive officers may maintain margin trading accounts with
Charles Schwab & Co., Inc. Extensions of credit in such accounts:
- --------------------------------------------------------------------------------
EMPLOYMENT AGREEMENT AND NAME ASSIGNMENT
EMPLOYMENT AGREEMENT AND NAME ASSIGNMENT- 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 initial
beneficial ownership report. The Company filed that report on Mr. Pulido's
behalf following his election to the Board on December 16, 1998. Although that
report was filed on time, it inadvertently omitted shares of Company common
stock held indirectly by Mr. Pulido. However, those shares were included in a
report filed in February 1999.
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.
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 Corporate Secretary at our principal
executive office no later than November ___, 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 procedures contained in our bylaws, please contact:
Assistant Corporate Secretary
The Charles Schwab Corporation
101 Montgomery Street (88/5)
San Francisco, California 94104
(415) 636-1406
Costs of Proxy Solicitation
The Company is paying for distributing and soliciting proxies. As a part of this
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 Company 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 the filing you are reading. Based on the SEC's rules, the performance
graph on page ____ of this proxy statement and the "Board Compensation Committee
Report on Executive Compensation" on page ____ 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.
30
33
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
31
34
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 and Mr. Schwab entered into an employment agreement 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 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'sour corporate pre-tax profit margin and net revenue growth for the
year, and is determined under a matrix adopted by the Board Compensation
Committee. The Compensation Committeecommittee has the authority to adjust the matrix from time to time (provided that for any year,periodically
(except the matrixcommittee may not be changedchange the matrix more than 90 days after the
beginning of theany 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.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":
- - 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.
27
EMPLOYMENT AND SEVERANCE AGREEMENTS
- --------------------------------------------------------------------------------
EMPLOYMENT AGREEMENT AND NAME ASSIGNMENTtermination 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'scorporate 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 prorated 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, Mr. Schwab shallhe will have the right (but not the obligation) to enter into a
consulting arrangement with the Company. Under this agreement,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
32
35
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.)
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 todirector[s]. Under 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.
Beginning immediately after any termination of his employment, Mr. Schwab will
be entitled to use his likeness in the financial services business 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). Beginning two years
28
EMPLOYMENT AND SEVERANCE AGREEMENTS
- --------------------------------------------------------------------------------
CERTAIN SEVERANCE ARRANGEMENTS after any termination of his employment, Mr.
Schwab may use his likeness for all other purposes, as long as that use does not
cause confusion about 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 assignees and licensees that use the name or likeness. These
payments may not, however, exceed $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.
CERTAIN SEVERANCE ARRANGEMENTSCertain Severance Arrangements
The Company has a Change in Control Severance Plan, (the "Severance Plan"), which covers certain
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 Severance Plan,plan, within such three yearthat 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.
29severance arrangements.
33
SUMMARY COMPENSATION TABLE36
APPENDIX B - --------------------------------------------------------------------------------
This table shows, for the last three fiscal years, compensation information for
the Company's Chief Executive Officer and the next four most highly compensated
executive officers. We refer to all of these officers as the "Named Executive
Officers."
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
- -------------------------------------------------------------------------------------------------------------------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL COMPENSATION STOCK AWARDS UNDERLYING LTIP PAYOUTS COMPENSATION
POSITION YEAR SALARY ($) BONUS ($)(2) ($)(3) ($)(4) OPTIONS (#) ($)(5) ($)(6)
- -------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 1997 $800,004 $6,362,225 -- 0 0 0 $16,601
CHAIRMAN AND 1996 $800,004 $9,387,225 -- 0 0 0 $18,810
CHIEF EXECUTIVE 1995 $800,004 $8,606,225 -- 0 750,000 0 $24,699
OFFICER
DAVID S. POTTRUCK 1997 $695,004 $4,319,225 -- 0 0 0 $16,601
PRESIDENT AND CHIEF 1996 $695,004 $6,436,225 -- 0 0 0 $18,810
OPERATING OFFICER 1995 $695,004 $5,898,225 -- 0 525,000 $1,578,360 $24,699
TIMOTHY F. MCCARTHY 1997 $420,833 $1,243,015 $40,332 $686,250 75,000 0 $16,601
FIRST EXECUTIVE 1996 $343,751 $1,211,485 -- $246,250 0 0 $6,805
VICE PRESIDENT (1) 1995 $108,336 $354,174 -- $128,125 150,000 0 $6,118
TOM D. SEIP 1997 $465,000 $1,037,707 $119,834 0 60,000 0 $16,601
EXECUTIVE VICE 1996 $408,333 $1,395,572 -- 0 0 0 $18,810
PRESIDENT 1995 $366,668 $1,046,288 -- $384,375 112,500 $751,600 $24,699
DAWN G. LEPORE 1997 $372,500 $839,730 $119,839 0 52,500 0 $16,601
EXECUTIVE VICE 1996 $325,833 $900,372 -- 0 0 0 $18,810
PRESIDENT AND 1995 $275,001 $765,933 -- $384,375 97,500 $526,120 $24,699
CHIEF INFORMATION
OFFICER
(1) Mr. McCarthy joined the Company in September of 1995.
(2) Includes, with respect to Mr. Schwab, amounts paid pursuant to his
Employment Agreement with the Company dated March 31, 1995 (see "Employment
Agreement and Name Assignment").
(3) "Other Annual Compensation" includes payments, not properly categorized as
salary or bonus, to the Named Executive Officers. The following chart
further explains these payments.
30
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
DURING 1997, THE COMPANY ACHIEVED ITS EIGHTH CONSECUTIVE YEAR OF RECORD REVENUES
AND SEVENTH CONSECUTIVE YEAR OF RECORD EARNINGS.
CASH PAYMENT BASED PAR VALUE PAYMENT
ON COMPANY ON RESTRICTED
PERFORMANCE* STOCK** TOTAL
Charles R. Schwab $0 $0 $0
David S. Pottruck $0 $0 $0
Timothy F. McCarthy $39,867 $465 $40,332
Tom D. Seip $119,602 $232 $119,834
Dawn G. Lepore $119,602 $237 $119,839
* Certain executive officers received cash payments based on the return
on Company stock (including price appreciation and dividend
reinvestment) outperforming, by a specified margin, the return on the
Standard & Poor's 500 Index. These payments encourage executives to
continue holding Company shares after vesting by helping them meet the
income tax liability resulting from the vesting of the shares.
** Includes payment by the Company of the par value of restricted stock
awarded to the Named Executive Officer under the 1992 Plan.
(4) DATE OF GRANT VALUE. This column shows the market value of restricted stock
awards on date of grant.
YEAR-END VALUES. The year-end value of the restricted stock awards for
Mr. McCarthy, Mr. Seip and Ms. Lepore were $1,887,188; $943,594; and
$943,594, respectively, based on the closing sale price of the Company's
common stock on December 31, 1997 ($41.94).
RIGHTS. Restricted stockholders have voting and dividend rights.
ORIGINAL VESTING SCHEDULE. The restricted shares, when originally issued,
vested over a five-year period, with:
- 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 vest more slowly or not at all, depending
upon certain stock performance criteria. Thus, it is possible that a
substantial number of the restricted shares will not vest.
AMENDED VESTING SCHEDULE. In 1996, and effective January 1, 1997, the
Compensation Committee shortened the vesting period to four years for all
restricted grants made after December 31, 1993. These restricted shares
have the following vesting schedule:
- 10% of the shares vest two years after the grant date,
- an additional 40% of the shares vest three years after the grant
date, and
- the remaining 50% of the shares vest four years after the grant
date.
31
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
IN 1997, TOTAL CUSTOMER ASSETS INVESTED IN SCHWAB'S MUTUAL FUND
MARKETPLACE-Registered Trademark- (INCLUDING MUTUAL FUND ONESOURCE-Registered
Trademark-), PASSED $100 BILLION, AND IN ADDITION TOTAL CUSTOMER ASSETS INVESTED
IN SCHWAB'S PROPRIETARY SCHWABFUNDS-Registered Trademark- PASSED $50 BILLION.
Any restricted shares granted subject to pre-existing stock performance
criteria remained subject to those conditions.
(5) The Long Term Incentive Plan ("LTIP") was terminated as of December 31,
1994.
VALUATION OF UNITS. Participants' final cash bonus under LTIP was
determined by:
- valuing the participants' units on December 31, 1994,
- subtracting the initial or date of grant value of such units, and
- multiplying this net unit value by the total number of units held
by the participant.
Units at the inception of LTIP had an initial value of $0, but subsequent
units were valued as of the grant date (either June 30 or December 31 of
each year).
PAYMENT OPTIONS. Participants at the executive level received payment upon:
- the date designated in LTIP,
- a deferred date requested by the executive,
- termination of employment with the Company, or
- immediately upon a change of control.
(6) Represents Company contributions under the PROFIT SHARING PLAN.
32
OPTION GRANTS
- --------------------------------------------------------------------------------
This table shows stock option grants to the Named Executive Officers during the
last fiscal year.
OPTIONS GRANTED IN 1997
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE APPRECIATION
FOR OPTION TERM (3)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR
OPTIONS EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED (#) (1) IN FISCAL YEAR ($/SH) (2) DATE 5% ($) 10% ($)
- ------------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 0 0% N/A -- N/A N/A
DAVID S. POTTRUCK 0 0% N/A -- N/A N/A
TIMOTHY F. MCCARTHY 30,000 0.74% $26.0833 2/26/2007 $465,641 $1,204,955
30,000 0.74% $30.9583 2/26/2007 $575,941 $1,467,220
15,000 0.37% $30.5000 7/16/2007 $284,665 $724,274
TOM D. SEIP 30,000 0.74% $26.0833 2/26/2007 $465,641 $1,204,955
30,000 0.74% $30.9583 2/26/2007 $575,941 $1,467,220
DAWN G. LEPORE 26,250 0.65% $26.0833 2/26/2007 $407,435 $1,054,336
26,250 0.65% $30.9583 2/26/2007 $503,949 $1,283,817
(1) Options granted in 1997 were made under the 1992 Plan. These options are:
- generally granted as 50% non-statutory stock options and 50%
incentive stock options (subject to limitation imposed by tax
law),
- granted at an exercise price equal to 100% of the fair market value
of the common stock on the date of grant,
- expire ten years from the date of grant, unless otherwise earlier
terminated in certain events related to termination of employment,
and
- vest in 25% increments on each anniversary date of the grant,
subject to the terms and conditionsDescription of the 1992 Plan.
(2) Options with exercise prices of:
- $26.0833 were granted on February 26, 1997,
- $30.9583 were granted on August 1, 1997, and
- $30.5000 were granted on July 16, 1997.
(3) We are required by the Securities and Exchange Commission to use a 5% and
10% assumed rate of appreciation over the ten-year option term. This does
not represent the Company's estimate or projectionStock Incentive Plan
General Description of the future common
stock price. If the Company's common stock does not appreciate, the Named
Executive Officers will receive no benefit from the options.
33
OPTIONS EXERCISED
- --------------------------------------------------------------------------------
This table shows stock option exercises and the value of unexercised stock
options held by the Named Executive Officers during the last fiscal year.
AGGREGATED OPTION EXERCISES IN 1997
AND FISCAL YEAR-END OPTION VALUES
NO. OF SECURITIES
VALUE UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES ACQUIRED REALIZED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
ON EXERCISE (#) ($)(1) YEAR-END (#) AT YEAR-END ($)(2)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -----------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB -- -- 1,893,750 375,000 $68,774,816 $9,355,469
DAVID S. POTTRUCK -- -- 2,028,073 377,927 $74,219,449 $10,540,989
TIMOTHY F. MCCARTHY -- -- 75,000 150,000 $1,871,094 $2,854,688
TOM D. SEIP 37,500 $881,347 690,073 186,677 $25,289,903 $4,638,451
DAWN G. LEPORE 45,000 $1,015,417 367,500 101,250 $12,564,014 $1,925,508
(1) This number is calculated by:
- averaging the high and low market prices on the date of exercise
to get the "average market price,"
- subtracting the option exercise price from the average market
price to get the "average value realized per share," and
- multiplying the average value realized per share by the number of
options exercised.
The amounts in this column may not represent amounts actually realized by
the Named Executive Officers.
(2) This number is calculated by:
- subtracting the option exercise price from the Company's December
31, 1997 average market price ($42.03 per share, as reported on
the New York1992 Stock Exchange Composite Transactions Index) to get
the "average value per option," and
- multiplying the average value per option by the number of
exercisable and unexercisable options.
The amounts in this column may not represent amounts actually realized by
the Named Executive Officers.
34
OTHER INFORMATION
- --------------------------------------------------------------------------------
CERTAIN TRANSACTIONS
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
STOCKHOLDER PROPOSALS
CERTAIN TRANSACTIONS
Certain directors and executive officers maintain margin trading accounts with
Schwab. Extensions of credit in such accounts are made in the ordinary course of
Schwab's business, are made on substantially the same terms including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unaffiliated persons, and do not involve more than the normal
risk of collectibility or present other unfavorable features.
Employees and directors of the Company who engage in brokerage transactions at
Schwab receive a 20% discount on its standard commission rates for brokerage
transactions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that during 1997, all filings with the Securities and
Exchange Commission of its officers, directors and 10% stockholders complied
with requirements for reporting ownership and changes in ownership of Company
common stock pursuant to Section 16(a) of the Securities Exchange Act of 1934,
except that Susanne D. Lyons and Lawrence J. Stupski each filed one late report.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Our Board has selected Deloitte & Touche LLP as the Company's independent public
accountants for the current fiscal year. They have served as accountants for the
Company or Schwab since 1976. Representatives of Deloitte & Touche LLP are
expected to attend the meeting in order to respond to questions from
stockholders and will have the opportunity to make a statement.
STOCKHOLDER PROPOSALS
If you want us to consider including a proposal in our 1999 Proxy Statement, you
must deliver it to the Company's Corporate Secretary at our principal executive
office no later than November 23, 1998. The Company's bylaws contain specific
procedural requirements regarding a stockholder's ability to nominate a director
or submit a proposal to be considered at a meeting of stockholders. If you would
like a copy of the procedures contained in our bylaws, please contact:
Assistant Corporate Secretary
The Charles Schwab Corporation
101 Montgomery Street (88/5)
San Francisco, California 94104
(415) 636-1406
35
OTHER INFORMATION
- --------------------------------------------------------------------------------
COSTS OF PROXY SOLICITATION
TICKETS TO THE ANNUAL MEETING
COSTS OF PROXY SOLICITATION
The Company pays for distributing and soliciting proxies and reimburses brokers,
nominees, fiduciaries and other custodians reasonable fees and expenses in
forwarding proxy materials to stockholders. The Company is not using an outside
proxy solicitation firm this year, but employees of the Company or its
subsidiaries may solicit proxies through mail, telephone or other means.
Employees do not receive additional compensation for soliciting proxies.
TICKETS TO THE ANNUAL MEETING
SEATING IS LIMITED AND THEREFORE, ADMISSION IS BY TICKET ONLY ON A
FIRST-COME, FIRST-SERVED BASIS.
Please complete and return to us the ticket request postcard included in your
voting materials. When we receive your postcard, we will mail you a ticket.
If you did not receive a ticket request postcard and would like to attend the
Annual Meeting, please contact:
Assistant Corporate Secretary
The Charles Schwab Corporation
101 Montgomery Street (88/5)
San Francisco, California 94104
(415) 636-1406
By Order of the Board of Directors,
/s/ Carrie E. Dwyer
CARRIE E. DWYER
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND
CORPORATE SECRETARY
MARCH 23, 1998
SAN FRANCISCO, CALIFORNIA
36
APPENDIX
- --------------------------------------------------------------------------------
GENERAL DESCRIPTION OF THE 1992 PLAN
GENERAL DESCRIPTION OF THE 1992 PLAN
PURPOSE.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:
- - encouraging non-employee directors and key employees to focus on
long-range objectives,
- - encouraging the attractionattracting and extention ofretaining non-employee directors and key employees with
exceptional qualifications, and
- - linking the interests of non-employee directors and key employees directly
to stockholder interests.
ELIGIBILITY TO RECEIVE AWARDS.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.plan. Non-employee directors
are eligible for an annual, automatic grant of nonqualifiednon-qualified stock options each
year.
As of December 31, 1997,1998, approximately 3,0783,132 persons had received awards under
the 1992 Plan.
LIMITS ON AWARDS.
Ifplan.
Limits on Awards.
The following are the amendment is approved,limits on the maximum number of shares that may be granted to any
one participant in any one year will be increased:year:
- - from 500,000 to 2,250,000 for3,375,000 shares subject tounder options,
- - from 200,000 to 900,0001,350,000 restricted shares, as Restricted Shares, and
- - from 200,000 to 900,000 shares as Performance Share Awards.
If the amendment is approved, these1,350,000 performance share awards.
These annual limits will be subject to automatic
adjustment to reflectare adjusted automatically for any future stock splits,split, declaration
of a stock dividendsdividend or other similar events.
TYPES OF AWARDS.event.
Types of Awards.
Awards under the 1992 Stock Incentive Plan may take the form of Restricted Shares, Performance
Share Awardsrestricted
shares, performance share awards and options to acquire the Company's common
stock of the Company.stock.
- - Restricted Sharesshares are similar to common stock in that they have the same
voting and dividend rights, but Restricted Shares are subject to forfeiture
in the event thatrecipient will forfeit the restricted
shares if the applicable vesting conditions are not satisfied.
- - A Performance Share Award is an obligationshare awards are obligations of the Company to issue and
deliver in the future shares of common stock in the event thatif the applicable conditions
are satisfied.
- - An option isOptions are the rightrights to acquire common stock at an exercise price at
least equal to the fair market value price of Companythe Company's stock on the date of
grant. Options include nonqualifiednon-qualified stock options ("NSOs") and incentive stock
options. Incentive stock options ("ISOs"). ISOs are intended to qualify for special tax
treatment. Options are subjectvest according to a vesting schedule.
37
APPENDIX
- --------------------------------------------------------------------------------
GENERAL DESCRIPTION OF THE 1992 PLAN
AnyAn award under the 1992 Planplan may includeconsist of one or more of these grant types or a
combination of several grant types, except
that non-employee directors will only be eligible to receive NSOs.non-qualified stock
options.
No payment is required uponon the grant of any award, except for paymentthat the recipient of
restricted stock must pay the $.01 per share par value of any Restricted Sharesthe stock awarded.
Upon exercise of an option, the optioneeoption holder must pay the option exercise price thereof
to the Company. On[On March 12, 1998,18, 1999, the closing price of the Company's common
stock was $39.19$_____ per share.]
As of December 31, 1997,1998, a total of 14,281,35317,380,631 shares (subject to antidilution
provisions) were issuable as Restricted Shares, or pursuant to Performance Share
Awards and optionscould be issued under the
1992 Plan.plan 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 terms of the 1992 Plan,plan, if:
- - the recipient forfeits any Restricted Shares, Performance Share Awardsrestricted shares, performance share awards or
options, are forfeited,
- - any Performance Share Awardsperformance share awards terminate for any other reason without the
associated common stock being issued, or
- - options terminate for any other reason prior tobefore exercise,
then the underlying shares again become available for awards.
ADMINISTRATION, AMENDMENT AND TERMINATION.34
37
Administration, Amendment and Termination.
The 1992 Stock Incentive Plan is administered by the Board Compensation
Committee of the Board of
Directors (the "Committee").Committee. The Committee, uponcommittee, 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 1992 Plan,plan, and
- - makes all other decisions regarding the operation of the 1992 Plan.plan.
The grant of NSOsnon-qualified stock options to non-employee directors is made
annually, and the Committeecommittee has no discretion with respect to those awards.
GRANTS OF OPTIONS TO NON-EMPLOYEE DIRECTORS.Grants of Options to Non-Employee Directors.
Under the 1992 Stock Incentive Plan, each non-employee director receives an
annual, automatic grant of options to purchase 1,500 shares of common stock
(2,500 shares of
common stock if the option exercise price is less than $35). This grant is made
on and
as of May 15 of each year, andbut if May 15 is not a business day, then the grant is
made on and as of the next succeeding business day.
RESTRICTED SHARES AND PERFORMANCE SHARE AWARDS.If the stockholders approve the proposed amendment to the plan, each
non-employee director will receive an annual, automatic grant of options to
purchase an additional 1,000 shares of common stock, bringing the total to 2,500
shares (3,500 if the option exercise price is less than $35).
In addition, a non-employee director who elects to defer directors' fees under
the Directors' Deferred Compensation Plan can elect to receive, instead of fees,
a grant of options:
- - with a fair market value (determined under an appropriate options
valuation method) equal to the deferred fees, and
- - with an option exercise price equal to the fair market value of Company
common stock on the date the deferred fees would have been paid.
Restricted Shares are nontransferable prior to vesting, exceptand Performance Share Awards.
Recipients of restricted shares cannot transfer them before they vest (except
that they may be
transferredthe recipient can transfer them by gift to certain trusts and partnerships
that have been formed
38
APPENDIX
- --------------------------------------------------------------------------------
GENERAL DESCRIPTION OF THE 1992 PLAN for the benefit of family members. Vestingmembers). Generally, vesting is accelerated inif
the event of the
optionee's death, disability,recipient dies, becomes disabled, or retirement,retires, and may be accelerated if a
"change in the eventcontrol" occurs. (We explain that term later in this Appendix B under
"Change in Control.")
Recipients of a change in control, as defined below.
Performance Share Awards are nontransferable,performance share awards cannot transfer them, and the recipient hasrecipients
have no voting or dividend rights until such time as the associated shares of common stock
are issued, at whichissued. At that time the recipientrecipients will have the same voting, dividend and
other rights as the Company's other stockholders.
When granting an award, the Board Compensation Committee determines the number
of Performance Share
Awardsperformance share awards or Restricted Sharesrestricted shares to be included in the award as
well as the vesting or issuance[or issuance] conditions. The vesting or issuance[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 CompanyWhen the committee uses the Company's performance is used as a vesting or issuance[or issuance]
condition, it establishes performance goals are based on business criteria specified by the Committee,
selected from one or more of the
following:following 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,
- - pretax income,
- - operating income,
- - cash flow,
- - stockholder return,
- - revenue, or
- - revenue growth.
TERMS OF STOCK OPTIONS.investment.
Terms of Stock Options.
The exercise price of anany stock option granted under the plan must be equal to
or greater than the fair market value of the Company's 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. For purposes of theThe 1992 Stock Incentive Plan defines "fair market value" is defined as the
closing price of the Company's stock as reported by the New York Stock Exchange
Composite Transactions Index for
35
38
the date of grant or
award.grant.
The term of an ISOincentive stock option cannot exceed 10 years. VestingThe Board
Compensation Committee establishes vesting conditions are established by
the Committee at the timewhen it grants an option is granted. Vestingoption.
Generally vesting is accelerated inif the event of the optionee's death, disability,recipient dies, becomes disabled, or
retirement,retires, and may be accelerated if a "change in control" occurs. (We define that
term in the eventfollowing section of a change in control, as defined below.
Participantsthis Appendix B.)
Recipients may transfer options (other than ISOs,incentive stock options, which must
be nontransferable in order to qualify as ISOs)incentive stock options) to certain trusts and
partnerships
that have been formed for the benefit of family members.
39
APPENDIX
- --------------------------------------------------------------------------------
GENERAL DESCRIPTION OF THEChange in Control.
Under the 1992 PLAN
CHANGE IN CONTROL.
For the purposes of the 1992Stock 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 theSEC rules, of the Securities and Exchange
Commission,
- - any person becomingbecomes the beneficial owner, directly or indirectly, of at
least 20% of the combined voting power of the Company's outstanding
securities, except by reason offrom a repurchase by the Company of its own securities,
or
- - 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:directors:
- had been directors of the Company 24 months earlier, or
- werehad been 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 officedirectors at the time of the
incumbent directors' election or nomination.
FEDERAL TAX CONSEQUENCES
Under current federal income tax laws,Federal Tax Consequences
The following is a summary of the federal income tax consequences of awards
under the 1992 Plan can be summarized as follows:
OPTIONS.
At the timeStock Incentive Plan.
Options
When the options are granted, the award of stock options will havethere are no federal income tax consequences to
the Company or the optionee.
With respect to NSOs, uponoption holder.
On the exercise of a non-qualified stock option, the option the optioneeholder generally
will recognizehave ordinary income. The amount of the income in an amountwill be equal to the excess ofto:
- - the fair market value of the optioned shares overon the exercise price, atdate, minus
- - the time of exercise.
Such ordinaryoption exercise price.
The 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 Companywithholding. Generally, in the same year that the
option holder has income is recognized byfrom the optionee. Uponoption 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 ISOsincentive stock options will not normally result in
any regular taxable income to the optioneeoption holder at that time; nor will the Company be
entitled to any tax deduction. However, the excess ofexercise 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 optioned shares at the time
of exercise overon the exercise price will be an item of tax preference for
purposes of computing alternative minimum taxable income.date, minus
- - the option exercise price.
If the optioneeoption holder exercises the options, holds the optioned shares after exercise for the requisite statutory 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 optionee fails tooption holder does not hold the shares for the requisite statutory period the
optioneerequired by law, he
or she generally will recognizehave ordinary income at the time of suchthe early 40
APPENDIXdisposition.
The amount of the income will be equal to:
- --------------------------------------------------------------------------------
GENERAL DESCRIPTION OF THE 1992 PLAN
disposition in an amount equal to the excess of- the fair market value of the shares aton the exercise date (or, if less, the
sales proceeds) oversale price), minus
- - the option exercise price, and
theprice.
The Company generally will be entitled to a tax deduction in that same amount.
Any additional gain onupon the disposition generally will be taxed as capital
gain.
RESTRICTED SHARES.Restricted Shares
Unless the recipient of Restricted Sharesrestricted shares elects to be taxed atwhen the time of the
issuance,shares are
granted, there will be no 39
federal income tax consequences to the recipient or to the Company for as long aswhile the
shares are subject tohave vesting restrictions. If
and when such shares become vested,Upon vesting, the recipient will recognizehave ordinary
income. The amount of the income in an amountwill be equal to the excess ofto:
- - the fair market value of the shares on suchthe vesting date, over anyminus
- - the amount paid for the shares.
SuchThe income will be subject to withholding tax at that time.withholding. The Company generally will be
entitled to a correspondingtax deduction in the same amount thatof the recipient recognizes asrecipient's income. Upon any
subsequent disposition of the shares, any additional gain or loss recognized by
the holder generally will be a capital gain or loss.
PERFORMANCE SHARE AWARDS.Performance Share Awards
The grant of Performance Share Awardsperformance 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 is delivered to a recipient pursuant tounder the terms of the
Performance Share Award,performance share award, the recipient generally will recognize ashave ordinary income. The
amount of the income the excess ofwill be equal to:
- - the fair market value of the shares overon that date, minus
- - any amount paid.
Suchpaid for the shares.
The income will be subject to withholding tax, and thewithholding. The Company generally will be
entitled to a correspondingtax deduction in the same amount that the recipient
recognizes asrecipient'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.
To date, no Performance Share Awardsperformance share awards have been granted under the 1992 Stock
Incentive Plan.
OPTIONS AND RESTRICTED SHARES GRANTED UNDER THEOptions and Restricted Shares Granted Under the 1992 PLAN.Stock Incentive Plan
As of December 31, 1997,1998, current executive officers have received options and
restricted shares representing a total of 9,717,90017,080,367 shares have beenof the Company
common stock as 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 eight executive
officers as a group [3,301,983]
Of shares granted subject
tounder options or as Restricted Shares to current executive officers. Of these,
2,271,000 shares have been granted to Charles R. Schwab; 2,406,000 to David S.
Pottruck; 270,000 to Timothy F. McCarthy; 978,000 to Tom D. Seip; and 590,100 to
Dawn G. Lepore.
Of shares granted subject to options or as Restricted Shares:restricted shares:
- - 180,750309,125 shares have been granted to non-employee directors, and
- - 13,509,320 shares[39,751,985 shares] have been granted to employees other than executive
officers.
4137
40
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
The Charles Schwab Corporation -PROXY
101 Montgomery Street
San Francisco, CA 94104
(415) 627-7000 www.schwab.com NYSEThis proxy is solicited by the Board of Directors for use at the annual meeting
on May 17, 1999.
The shares of stock you hold in your account, as well as any shares you hold
under The Charles Schwab Corporation Dividend Reinvestment and Stock Symbol: SCH
TF5538 (3/98)
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 11, 1998
I/We herebyPurchase
Plan and/or The SchwabPlan Retirement Savings and Investment Plan, will be voted
as you specify below.
If no choice is specified, your shares 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, or eitherand each of them, proxies (each having thewith full power of substitution, and revocation) to
represent me/us and to
vote as instructed in this Proxy,your shares on the number of shares
of common stock of the Corporation set forthmatters shown on the reverse side and any other matters
which shares
I/we have the power to vote at the Annual Meeting of Stockholders to be held
on May 11, 1998. This Proxy also conveys the powers listed in the prior
sentence for any adjournment or postponement of the meeting. The Proxies are
authorized in their discretion to vote upon such business as may properly come before the meeting.
THIS PROXY MAY ALSO RELATE TO SHARES HELD UNDER THE CHARLES SCHWAB
CORPORATION DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN, THE CHARLES SCHWAB
CORPORATION PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN, AND/OR THE
CHARLES SCHWAB CORPORATION 401(k) PLAN.
The shares covered by this proxy will be voted in accordance with the
directions made on the reserve side. The Board of Directors proposesannual meeting and recommends aall adjournments.
41
Company #
Control #
There are three ways to vote "FOR" the election of each nominee for director and the
amendment to the 1992 Stock Incentive Plan. IF THIS PROXY CARD IS SIGNED, BUT
NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR" ALL LISTED NOMINEES FOR
DIRECTOR AND THE AMENDMENT TO THE 1992 STOCK INCENTIVE PLAN.
(CONTINUED, AND TO BE SIGNED AND DATED, ON THE REVERSE SIDE)
-----------------
VOTE BY TELEPHONE COMPANY #
CALL TOLL FREE *** ON A TOUCH TONE TELEPHONE CONTROL #
1-800-240-6326 -- ANYTIME -----------------
- --------------------------------------------------------------------------------your shares:
Your telephone or Internet vote authorizes the named proxies (Charles R. Schwab
and David S. Pottruck) to vote your shares in the same manner as if you marked,
signed and returned your proxy card.
VOTE BY PHONE -- TOLL FREE - 9-999-999-9999 - QUICK *** EASY *** IMMEDIATE
- - Use any touch-tone telephone 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.
- - Follow the simple instructions the voice provides you.
VOTE ON THE INTERNET - www.????.com - 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.
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 deadline for telephone voting is noon (ET), one business day prior to the
annual meeting date. By votingCharles Schwab Corporation, c/o Shareowner
Services,SM P.O. Box 64873, St. Paul, MN 55164-9397.
If you vote by phone you authorize each of the proxies to
vote, in their discretion, upon any items of business in addition to the
proposals described below as may properly come before the meeting.
1. Using a touch-tone telephone, dial 1-800-240-6326. You may dial this toll
free number ator Internet, please do not mail your convenience 7 days/week, 24 hrs/day.
2. When prompted, enter the 3 digit Company Number located in the box in the
upper right hand corner.
3. When prompted, enter your 7 digit numeric Control Number below the company
number.
OPTION #1: To vote as THE CHARLES SCHWAB CORPORATION Board of Directors
recommends on ALL proposals: Press 1
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1 -- THANK YOU
FOR VOTING
OPTION #2: If you choose to vote on each proposal separately, Press 0. You
will hear these instructions:
PROPOSAL 1: To vote FOR ALL nominees, press 1; to WITHHOLD
AUTHORITY TO VOTE FOR ALL nominees, press 9; to
WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL nominee,
press 0 and listen to the instructions.
PROPOSAL 2: To vote FOR Proposal 2, press 1; to vote AGAINST
Proposal 2, press 9; to ABSTAIN, press 0.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1 -- THANK YOU FOR VOTING
IF YOU VOTE BY TELEPHONE, DO NOT MAIL BACK YOUR PROXY
-- PLEASE DETACH HERE --
- --------------------------------------------------------------------------------proxy card.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSALS.FOR ITEMS 1, 2 AND 3
1. Election of Directors-- / / For All / / Withhold All / / For All
Nominees: Donald G. Fisher and EXCEPT THOSE WHOSE NAME(S) APPEAR BELOW
Anthony M.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 / / For / / Against / / Abstain
the 1992 Stock Incentive Plan.
The Board of Directors proposes and recommends a vote "FOR" the Proposals.
This Proxy will be voted as directed. If the proxy card is signed and no
direction is given, this proxy will be voted in accordance with the Board of
Directors' recommendation.
Dated:____________________________, 1998
________________________________________
(Signature)
________________________________________
(Signature)
NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS
HEREON. JOINT OWNERS SHOULD EACH SIGN.
WHEN SIGNING AS A FIDUCIARY OR FOR AN
ESTATE, TRUST, CORPORATION OR
PARTNERSHIP, YOUR TITLE OR CAPACITY
SHOULD BE STATED.
THE CHARLES SCHWAB CORPORATION
1992 STOCK INCENTIVE PLAN
(RESTATED TO INCLUDE AMENDMENTS
APPROVED BY THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS THROUGH MARCH 1998)
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board of Directors on March 26, 1992. The
purpose of the Plan is to promote the long-term success of the Company and the
creation of incremental stockholder value by (a) encouraging Non-Employee
Directors and Key Employees to focus on long-range objectives, (b) encouraging
the attraction and retention of Non-Employee Directors and Key Employees with
exceptional qualifications and (c) linking Non-Employee Directors and Key
Employees directly to stockholder interests. The Plan seeks to achieve this
purpose by providing for Awards in the form of Restricted Shares, Performance
Share Awards or Options, which may constitute incentive stock options or
nonstatutory stock options. The Plan shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
ARTICLE 2. ADMINISTRATION.
2.1 THE COMMITTEE. The Plan shall be administered by the Committee. The
Committee shall consist of two or more Non-Employee Directors, who shall be
appointed by the Board.
2.2 COMMITTEE RESPONSIBILITIES. The Committee shall select the Key
Employees who are to receive Awards under the Plan, determine the amount,
vesting requirements and other conditions of such Awards, may interpret the
Plan, and make all other decisions relating to the operation of the Plan. The
Committee may adopt such rules or guidelines as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be final
and binding on all persons.
ARTICLE 3. LIMITATIONS ON AWARDS.
The aggregate number of Restricted Shares, Performance Share Awards and
Options awarded under the Plan shall not exceed 29,150,000 (including those
shares awarded prior to the amendment of the Plan). If any Restricted Shares,
Performance Share Awards or Options are forfeited, or if any Performance Share
Awards terminate for any other reason without the associated Common Shares being
issued, or if any Options terminate for any other reason before being exercised,
then such Restricted Shares, Performance Share Awards or Options shall again
become available for Awards under the Plan.
Subject to the overall limit on the aggregate shares set forth above, the
following 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 2,250,000; and (b) The
maximum number of Restricted Shares or Performance Share Awards which may be
granted to any one Participant in any one fiscal year shall be 900,000.
The limitations of this Article 3 shall each be subject to adjustment
pursuant to Article 10. Any Common Shares issued pursuant to the Plan may be
authorized by unissued shares or treasury shares.
ARTICLE 4. ELIGIBILITY.
4.1 GENERAL RULE. Key Employees and Non-Employee Directors shall be
eligible for designation as Participants by the Committee.
4.2 NON-EMPLOYEE DIRECTORS. In addition to any awards pursuant to Section
4.1, Non-Employee Directors shall be entitled to receive the automatic NSOs
described in this Section 4.2.
(a) Each Non-Employee Director shall receive a Non-Officer Stock
Option covering 2,500 Common Shares for each Award Year with respect
to which he or she serves as a Non-Employee Director on the grant date
described in subsection (b) below; provided that the Non-Officer
Stock Option shall cover 1,500 shares if the Exercise Price
determined as of the grant date, is $35 or more;
(b) The NSO for a particular Award Year shall be granted to each
Non-Employee Director as of May 15 of each Award Year, and if May
15 is not a business day, then the grant shall be made on and as of
the next succeeding business day;
(c) Each NSO shall be exercisable in full at all times during its
term;
(d) The term of each NSO shall be 10 years; provided, however, that
any unexercised NSO shall expire on the date that the Optionee ceases
to be a Non-Employee Director or a Key Employee for any reason
other than death or disability. If an Optionee ceases to be a
Non-Employee Director or Key Employee on account of death or
disability, any unexercised NSO shall expire on the earlier of the
date 10 years after the date of grant or one year after the date of
death or disability of such Director; and
(e) The Exercise Price under each NSO shall be equal to the Fair
Market Value on the date of grant and shall be payable in any of the
forms described in Article 6.
4.3 TEN-PERCENT STOCKHOLDERS. A Key Employee who owns more than
10 percent of the total combined voting power of all classes of outstanding
stock of the Company or any of its Subsidiaries shall not be eligible for the
grant of an ISO unless (a) the Exercise Price under such ISO is at least 110
percent of the Fair Market Value of a Common Share on the date of grant and (b)
such ISO by its terms is not exercisable after the expiration of five years from
the date of grant.
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4.4 ATTRIBUTION RULES. For purposes of Section 4.3, in determining stock
ownership, a Key Employee shall be deemed to own the stock owned, directly or
indirectly, by or for his or her brothers, sisters, spouse, ancestors or lineal
descendants. Stock owned, directly or indirectly, by or for a corporation,
partnership, estate or trust shall be deemed to be owned proportionately by or
for its stockholders, partners or beneficiaries. Stock with respect to which the
Key Employee holds an option shall not be counted.
4.5 OUTSTANDING STOCK. For purposes of Section 4.3, "outstanding stock"
shall include all stock actually issued and outstanding immediately after the
grant of the ISO to the Key Employee. "Outstanding stock" shall not include
treasury shares or shares authorized for issuance under outstanding options held
by the Key Employee or by any other person.
ARTICLE 5. OPTIONS.
5.1 STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the Plan,
and may be subject to any other terms and conditions which are not inconsistent
with the Plan and which the Committee deems appropriate for inclusion in a Stock
Option Agreement. The provisions of the various Stock Option Agreements entered
into under the Plan need not be identical. The Committee may designate all or
any part of an Option as an ISO, except for Options granted to Non-Employee
Directors under Section 4.2. The Committee may designate all or any part of an
Option as an ISO (or, in the case of a Key Employee who is subject to the tax
laws of a foreign jurisdiction, as an option qualifying for favorable tax
treatment under the laws of such foreign jurisdiction), except for Options
granted to Non-Employee Directors under section 4.2.
5.2 OPTIONS NONTRANSFERABILITY. No Option granted under the Plan shall be
transferable by the Optionee other than by will or the laws of descent and
distribution. An Option may be exercised during the lifetime of the Optionee
only by him or her. No Option or interest therein may be transferred, assigned,
pledged or hypothecated by the Optionee during his or her lifetime, whether by
operation of law or otherwise, or be made subject to execution, attachment or
similar process.
5.3 NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 10. Each Stock Option
Agreement shall also specify whether the Option is an ISO or an NSO.
5.4 EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price under an Option shall not be less than 100
percent of the Fair Market Value of a Common Share on the date of grant, except
as otherwise provided in Section 4.3. Subject to the preceding sentence, the
Exercise Price under any Option shall be determined by the Committee. The
Exercise Price shall be payable in accordance with Article 6.
3
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 expiration prior to the end of its term in the event
of the termination of the Optionee's employment and shall provide for the
suspension of vesting when an employee is on a leave of absence for a period in
excess of six months in appropriate cases, as determined by the Company;
provided that the exercisability of Options shall be accelerated in the event of
the Participant's death or Disability and, in the case of Retirement, the
exercisability of all outstanding Options shall be accelerated, other than any
Options that had been granted within two years of the date of the Optionee's
Retirement. Except as provided in Section 4.2, NSOs may also be awarded in
combination with Restricted Shares, and such an Award may provide that the NSOs
will not be exercisable unless the related Restricted Shares are forfeited. In
addition, NSOs granted under this Section 5 may be granted subject to forfeiture
provisions which provide for forfeiture of the Option upon the exercise of
tandem awards, the terms of which are established in other programs of the
Company.
5.6 LIMITATION ON AMOUNT OF ISOs. The aggregate fair market value
(determined at the time the ISO is granted) of the Common Shares with respect to
which ISOs are exercisable for the first time by the Optionee during any
calendar year (under all incentive stock option plans of the Company) shall not
exceed $100,000; provided, however, that all or any portion of an Option which
cannot be exercised as an ISO because of such limitation shall be treated as an
NSO.
5.7 EFFECT OF CHANGE IN CONTROL. The Committee (in its sole discretion)
may determine, at the time of granting an Option, that such Option shall become
fully exercisable as to all Common Shares subject to such Option immediately
preceding any Change in Control with respect to the Company.
5.8 RESTRICTIONS ON TRANSFER OF COMMON SHARES. Any Common Shares issued
upon exercise of an Option shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other transfer
restrictions as the Committee may determine. Such restrictions shall be set
forth in the applicable Stock Option Agreement and shall apply in addition to
any general restrictions that may apply to all holders of Common Shares.
5.9 AUTHORIZATION OF REPLACEMENT OPTIONS. Concurrently with the grant of
any Option to a Participant (other than NSOs granted pursuant to Section 4.2),
the Committee may authorize the grant of Replacement Options. If Replacement
Options have been authorized by the Committee with respect to a particular award
of Options (the "Underlying Options"), the Option Agreement with respect to the
Underlying Options shall so state, and the terms and conditions of the
Replacement Options shall be provided therein. The grant of any Replacement
Options shall
4
be effective only upon the exercise of the Underlying Options through the use
of Common Shares pursuant to Section 6.2 or Section 6.3. The number of
Replacement Options shall equal the number of Common Shares used to exercise
the Underlying Options, and, if the Option Agreement so provides, the number
of Common Shares used to satisfy any tax withholding requirements incident to
the exercise of the Underlying Options in accordance with Section 13.2. Upon
the exercise of the Underlying Options, the Replacement Options shall be
evidenced by an amendment to the Underlying Option Agreement. Notwithstanding
the fact that the Underlying Option may be an ISO, a Replacement Option is
not intendedCertificate of Incorporation to qualify as an ISO. The Exercise Price of a Replacement Option
shall be no less than the Fair Market Value of a Common Share on the date the
grant of the Replacement Option becomes effective. The term of each
Replacement Option shall be equal to the remaining term of the Underlying
Option. No Replacement Options shall be granted to Optionees when Underlying
Options are exercised pursuant to the terms of the Plan and the Underlying
Option Agreement following termination of the Optionee's employment. The
Committee, in its sole discretion, may establish such other terms and
conditions for Replacement Options as it deems appropriate.
5.10 OPTIONS GRANTED TO NON-UNITED STATES KEY EMPLOYEES. In the case of
Key Employees who are subject to the tax laws of a foreign jurisdiction, the
Company may issue Options to such Key Employees that contain terms required to
conform with any requirements for favorable tax treatment imposed by the laws of
such foreign jurisdiction, or as otherwise may be required by the laws of such
foreign jurisdiction. The terms of any such Options shall be governed by the
Plan, subject to the terms of any Addendum to the Plan specifically applicable
to such Options.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 GENERAL RULE. The entire Exercise Price of Common Shares issued upon
exercise of Options shall be payable in cash at the time when such Common Shares
are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall be
made only pursuant to the express provisions of the applicable Stock
Option Agreement. However, the Committee may specify in the Stock
Option Agreement that payment may be made pursuant to Section 6.2
or 6.3.
(b) In the case of an NSO, the Committee may at any time accept
payment pursuant to Section 6.2 or 6.3.
6.2 SURRENDER OF STOCK. To the extent that this Section 6.2 is
applicable, payment for all or any part of the Exercise Price may be made with
Common Shares which are surrendered to the Company. Such Common Shares shall be
valued at their Fair Market Value on the date when the new Common Shares are
purchased under the Plan. In the event that the Common Shares being surrendered
are Restricted Shares that have not yet become vested, the same restrictions
shall be imposed upon the new Common Shares being purchased.
5
6.3 EXERCISE/SALE. To the extent this Section 6.3 is applicable, payment
may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to Charles Schwab & Co., Inc. to sell Common Shares
(including the Common Shares to be issued upon exercise of the Options) and to
deliver all or part of the sales proceeds to the Company in payment of all or
part of the Exercise Price and any withholding taxes.
ARTICLE 7. RESTRICTED SHARES AND PERFORMANCE SHARE AWARDS.
7.1 TIME, AMOUNT AND FORM OF AWARDS. The Committee may grant Restricted
Shares or Performance Share Awards with respect to an Award Year during such
Award Year or at any time thereafter. Each such Award shall be evidenced by a
Stock Award Agreement between the Award recipient and the Company. The amount of
each Award of Restricted Shares or Performance Share Awards shall be determined
by the Committee. Awards under the Plan may be granted in the form of Restricted
Shares or Performance Share Awards or in any combination thereof, as the
Committee shall determine at its sole discretion at the time of the grant.
Restricted Shares or Performance Share Awards may also be awarded in combination
with NSOs, and such an Award may provide that the Restricted Shares or
Performance Share Awards will be forfeited in the event that the related NSOs
are exercised.
7.2 PAYMENT FOR RESTRICTED SHARE AWARDS. To the extent that an Award is
granted in the form of Restricted Shares, the Award recipient, as a condition to
the grant of such Award, shall be required to pay the Company in cash an amount
equal to the par value of such Restricted Shares.
7.3 VESTING OR ISSUANCE CONDITIONS. Each Award of Restricted Shares shall
become vested, in full or in installments, upon satisfaction of the conditions
specified in the Stock Award Agreement. Common Shares shall be issued pursuant
to Performance Share Awards in full or in installments upon satisfaction of the
issuance conditions specified in the Stock Award Agreement. The Committee shall
select the vesting conditions in the case of Restricted Shares, or issuance
conditions in the case of Performance Share Awards, which may be based upon the
Participant's service, the Participant's performance, the Company's performance
or such other criteria as the Committee may adopt; provided that, in the case of
an Award of Restricted Shares where vesting is based entirely on the
Participant's service, (i) vesting shall be accelerated in the event of the
Participant's death or Disability; (ii) in the case of Retirement, vesting shall
be accelerated for all Restricted Shares that had been granted more than two
years prior to the date of the Participant's Retirement; and (iii) vesting shall
be suspended when an employee is on a leave of absence for a period in excess of
six months in appropriate cases, as determined by the Company. The Committee,
in its sole discretion, may determine, at the time of making an Award of
Restricted Shares, that such Award shall become fully vested in the event that a
Change in Control occurs with respect to the Company. The Committee, in its sole
discretion, may determine, at the time of making a Performance Share Award, that
the issuance conditions set forth in such Award shall be waived in the event
that a Change in Control occurs with respect to the Company.
6
7.4 FORM OF SETTLEMENT OF PERFORMANCE SHARE AWARDS. Settlement of
Performance Share Awards shall only be made in the form of Common Shares. Until
a Performance Share Award is settled,increase the
number of Performance Share Awards
shall be subjectauthorized shares of common stock from 500 million 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
distributed2 billion.
3. Approval of an amendment to the recipient's beneficiary or beneficiaries. Each recipient of a
Performance Share Award under the1992 Stock Incentive Plan shall designate one or more beneficiaries
for this purposeto increase 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.
7
ARTICLE 9. VOTING RIGHTS AND DIVIDENDS.
9.1 RESTRICTED SHARES.
(a) All holders of Restricted Shares who are not Named Executive
Officers shall have the same voting, dividend, and other rights as
the Company's other stockholders.
(b) During the period of restriction, Named Executive Officers
holding Restricted Shares granted hereunder shall be credited with
all regular cash dividends paid with respect to all Restricted
Shares while they are so held. If a dividend is paid in the form of
cash, such cash dividend shall be credited to Named Executive
Officers subject to the same restrictions on transferability and
forfeitability as the Restricted Shares with respect to which they
were paid. If any dividends or distributions are paid in shares of
Common Stock, the shares of Common Stock shall be subject to the
same restrictions on transferability and forfeitability as the
Restricted Shares with respect to which they were paid. Subject to
the succeeding paragraph, and to the restrictions on vesting and
the forfeiture provisions, all dividends credited to a Named
Executive Officer shall be paid to the Named Executive Officer
within forty-five (45) days following the full vesting of the
Restricted Shares with respect to which such dividends were earned.
In the event that any dividend constitutes a
"derivative security" or an "equity security" pursuant to Rule
16(a) under the Exchange Act, such dividend shall be subject to a
vesting period equal to the longer of: (i) the remaining vesting
period of the Restricted Shares with respect to which the dividend
is paid; or (ii) six (6) months. The Committee shall establish
procedures for the application of this provision.
Named Executive Officers holding Restricted Shares
shall have the same voting rights as the Company's other
stockholders.
9.2 PERFORMANCE SHARE AWARDS. The holders of Performance Share Awards
shall have no voting or dividend rights until such time as any Common Shares are
issued pursuant thereto, at which time they shall have the same voting, dividend
and other rights as the Company's other stockholders.
ARTICLE 10. PROTECTION AGAINST DILUTION; ADJUSTMENT OF AWARDS.
10.1 GENERAL. In the event of a subdivision of the outstanding Common
Shares, a declaration of a dividend payable in Common Shares, a declaration of a
dividend payable in a form other than Common Shares, a combination or
consolidation of the outstanding Common Shares (by reclassification or
otherwise) into a lesser number of Common Shares, a recapitalization, a spinoff
or a similar occurrence, the Committee shall make appropriate adjustments in one
or more of (a) the number of Options, Restricted Shares and Performance Share
Awards available for future Awards under Article 3, (b) the maximum number of
Common Shares which may be granted under Article 3 to any one Participant in any
one fiscal year either subject to an Option or as Restricted Shares or
Performance Share Awards, (c) the number of
8
Performance Share Awards included in any prior Award which has not yet been
settled, (d) the number of Common Shares covered by each outstanding Option or
(e) the Exercise Price under each outstanding Option.
10.2 REORGANIZATIONS. In the event that the Company is a party to a merger
or other reorganization, outstanding Options, Restricted Shares and Performance
Share Awards shall be subject to the agreement of merger or reorganization. Such
agreement may provide, without limitation, for the assumption of outstanding
Awards by the surviving corporation or its parent, for their continuation by the
Company (if the Company is a surviving corporation), for accelerated vesting or
for settlement in cash.
10.3 RESERVATION OF RIGHTS. Except as provided in this Article 10, a
Participant shall have no rights by reason of any subdivision or consolidation
of shares of stock of any class, the payment of any stock dividend or any other
increase or decrease in1,000 the number of shares ofcovered by 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 respectoption grants to the number or Exercise Price of Common
Shares subject to an Option. The grant of an Award pursuant to the Plan shall
not affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.
ARTICLE 11. LIMITATION OF RIGHTS.
11.1 EMPLOYMENT RIGHTS. Neither the Plan nor any Award grantednon-employee
directors under the Plan shall be deemed to give any individual a right to remain employed by the
Company or any Subsidiary. The Company and its Subsidiaries reserve the right to
terminate the employment of any employee at any time, with or without cause,
subject only to a written employment agreement (if any).
11.2 STOCKHOLDERS' RIGHTS. A Participant shall have no dividend rights,
voting or other rightsannual, automatic option grant.
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:
42
------------------------------------
------------------------------------
Signature(s) in Box
Please sign exactly as a stockholder with respect to any Common Shares
covered by his or her Award prior to the issuance of such Common Shares, whether
by issuance of a certificate, book entry or other procedure. No adjustment
shall be made for cash dividends or other rights for which the record date is
prior to the date when such certificate is issued, except as expressly provided
in Articles 7, 9 and 10.
11.3 CREDITORS' RIGHTS. A holder of Performance Share Awards shall have no
rights other than those of a general creditor of the Company. Performance Share
Awards represent unfunded and unsecured obligations of the Company, subject to
the terms and conditions of the applicable Stock Award Agreement.
11.4 GOVERNMENT REGULATIONS. Any other provision of the Plan
notwithstanding, the obligations of the Company with respect to Common Shares to
be issued pursuant to the Plan shall be subject to all applicable laws, rules
and regulations, and such approvals by any
9
governmental agencies as may be required. The Company reserves the right to
restrict, in whole or in part, the delivery of Common Shares pursuant to any
Award until such time as:
(a) Any legal requirements or regulations have been met relating to
the issuance of such Common Shares or to their registration,
qualification or exemption from registration or qualification under
the Securities Act of 1933, as amended, or any applicable state
securities laws; and
(b) Satisfactory assurances have been received that such Common
Shares, when issued, will be duly listedyour name(s)
appear on the New York Stock
Exchangeproxy card. If held in
joint tenancy, all persons must
sign. Trustees, administrators,
etc., should include title and
authority. Corporations should
provide full name or any other securities exchange on which Common Shares are
then listed.
ARTICLE 12. LIMITATION OF PAYMENTS.
12.1 BASIC RULE. Any provisioncorporation and
title of authorized officer signing
the Plan to the contrary
notwithstanding, in the event that the independent auditors most recently
selected by the Board (the "Auditors") determine that any payment or transfer in
the nature of compensation to or for the benefit of a Participant, whether paid
or payable (or transferred or transferable) pursuant to the terms of this Plan
or otherwise (a "Payment"), would be nondeductible for federal income tax
purposes because of the provisions concerning "excess parachute payments" in
section 280G of the Code, then the aggregate present value of all Payments shall
be reduced (but not below zero) to the Reduced Amount; provided, however, that
the Committee, at the time of making an Award under this Plan or at any time
thereafter, may specify in writing that such Award shall not be so reduced and
shall not be subject to this Article 12. For purposes of this Article 12, the
"Reduced Amount" shall be the amount, expressed as a present value, which
maximizes the aggregate present value of the Payments without causing any
Payment to be nondeductible by the Company because of section 280G of the Code.
12.2 REDUCTION OF PAYMENTS. If the Auditors determine that any Payment
would be nondeductible because of section 280G of the Code, then the Company
shall promptly give the Participant notice to that effect and a copy of the
detailed calculation thereof and of the Reduced Amount, and the Participant may
then elect, in his or her sole discretion, which and how much of the Payments
shall be eliminated or reduced (as long as after such election, the aggregate
present value of the Payments equals the Reduced Amount) and shall advise the
Company in writing of his or her election within 10 days of receipt of notice.
If no such election is made by the Participant within such 10-day period, then
the Company may elect which and how much of the Payments shall be eliminated or
reduced (as long as after such election the aggregate present value of the
Payments equals the Reduced Amount) and shall notify the Participant promptly of
such election. For purposes of this Article 12, present value shall be
determined in accordance with section 280G(d)(4) of the Code. All determinations
made by the Auditors under this Article 12 shall be binding upon the Company and
the Participant and shall be made within 60 days of the date when a Payment
becomes payable or transferable. As promptly as practicable following such
determination and the elections hereunder, the Company shall pay or transfer to
or for the benefit of the Participant such amounts as are then due to him or her
under the Plan, and shall
10
promptly pay or transfer to or for the benefit of the Participant in the
future such amounts as become due to him or her under the Plan.
12.3 OVERPAYMENTS AND UNDERPAYMENTS. As a result of uncertainty in the
application of section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Company which should not have been made (an "Overpayment") or that
additional Payments which will not have been made by the Company could have been
made (an "Underpayment"), consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which he or she shall repay to the
Company on demand, together with interest at the applicable federal rate
provided in section 7872(f)(2) of the Code; provided, however, that no amount
shall be payable by the Participant to the Company if and to the extent that
such payment would not reduce the amount which is subject to taxation under
section 4999 of the Code. In the event that the Auditors determine that an
Underpayment has occurred, such Underpayment shall promptly be paid or
transferred by the Company to or for the benefit of the Participant, together
with interest at the applicable federal rate provided in section 7872(f)(2) of
the Code.
12.4 RELATED CORPORATIONS. For purposes of this Article 12, the term
"Company" shall include affiliated corporations to the extent determined by the
Auditors in accordance with section 280G(d)(5) of the Code.
ARTICLE 13. WITHHOLDING TAXES.
13.1 GENERAL. To the extent required by applicable federal, state, local
or foreign law, the recipient of any payment or distribution under the Plan
shall make arrangements satisfactory to the Company for the satisfaction of any
withholding tax obligations that arise by reason of such payment or
distribution. The Company shall not be required to make such payment or
distribution until such obligations are satisfied.
13.2 NONSTATUTORY OPTIONS, RESTRICTED SHARES OR PERFORMANCE SHARE AWARDS.
The Committee may permit an Optionee who exercises NSOs, or who receives Awards
of Restricted Shares, or who receives Common Shares pursuant to the terms of a
Performance Share Award, to satisfy all or part of his or her withholding tax
obligations by having the Company withhold a portion of the Common Shares that
otherwise would be issued to him or her under such Awards. Such Common Shares
shall be valued at their Fair Market Value on the date when taxes otherwise
would be withheld in cash. The payment of withholding taxes by surrendering
Common Shares to the Company, if permitted by the Committee, shall be subject to
such restrictions as the Committee may impose, including any restrictions
required by rules of the Securities and Exchange Commission.
11
ARTICLE 14. ASSIGNMENT OR TRANSFER OF AWARD.
14.1 GENERAL RULE. Any Award granted under the Plan shall not be
anticipated, assigned, attached, garnished, optioned, transferred or made
subject to any creditor's process, whether voluntarily, involuntarily or by
operation of law, except to the extent specifically permitted by Section 14.2.
14.2 EXCEPTIONS TO GENERAL RULE. Notwithstanding Section 14.1, this
Plan shall not preclude (i) a Participant from designating a beneficiary to
succeed, after the Participant's death, to those of the Participant's Awards
(including without limitation, the right to exercise any unexercised Options)
as may be determined by the Company from time to time in its sole discretion,
(ii) a transfer of any Award hereunder by will or the laws of descent or
distribution, or (iii) a voluntary transfer of an Award (other than an ISO) to
a trust or partnership for the exclusive benefit of one or more members of the
Participant's family, but only if the Participant has sole investment control
over such trust or partnership.
ARTICLE 15. FUTURE OF PLANS.
15.1 TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on May 8, 1992. The Plan shall remain in effect until it is terminated
under Section 15.2, except that no ISOs shall be granted after May 7, 2002.
15.2 AMENDMENT OR TERMINATION. The Committee may, at any time and for 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:
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(a) A change in control required to be reported pursuant to Item 6(e)
of Schedule 14A of Regulation 14A under the Exchange Act;
(b) A change in the composition of the Board, as a result
of which fewer than two-thirds of the incumbent directors are
directors who either (i) had been directors of the Company 24
months prior to such change or (ii) were elected, or nominated for
election, to the Board with the affirmative votes of at least a
majority of the directors who had been directors of the Company 24
months prior to such change and who were still in office at the
time of the election or nomination;
(c) Any "person" (as such term is used in sections 13(d) and 14(d) of
the Exchange Act) becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 20 percent or
more of the combined voting power of the Company's then outstanding
securities ordinarily (and apart from rights accruing under special
circumstances) having the right to vote at elections of directors
(the "Base Capital Stock"); provided, however, that any change in
the relative beneficial ownership of securities of any person
resulting solely from a reduction in the aggregate number of
outstanding shares of Base Capital Stock, and any decrease
thereafter in such person's ownership of securities, shall be
disregarded until such person increases in any manner, directly or
indirectly, such person's beneficial ownership of any securities of
the Company.
16.5 "Code" means the Internal Revenue Code of 1986, as amended.
16.6 "Committee" means the Compensation Committee of the Board, as
constituted from time to time.
16.7 "Common Share" means one share of the common stock of the Company.
16.8 "Company" means The Charles Schwab Corporation, a Delaware
corporation.
16.9 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
16.10 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
16.11 "Exercise Price" means the amount for which one Common Share may be
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.
16.12 "Fair Market Value" means the market price of a Common Share,
determined by the committee as follows:
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(a) If the Common Share was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing
price reported by the applicable composite-transactions report for
such date;
(b) If the Common Share was traded over-the-counter on the date in
question and was classified as a national market issue, then the Fair
Market Value shall be equal to the last transaction price quoted by
the NASDAQ system for such date;
(c) If the Common Share was traded over-the-counter on the date in
question but was not classified as a national market issue, then the
Fair Market Value shall be equal to the mean between the last reported
representative bid and asked prices quoted by the NASDAQ system for
such date; and
(d) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith on
such basis as it deems appropriate.
16.13 "ISO" means an incentive stock option described in section 422(b)
of the Code.
16.14 "Key Employee" means a key common-law employee of the Company or
any Subsidiary, as determined by the Committee.
16.15 "Named Executive Officer" means a Participant who, as of the date
of vesting of an Award is one of a group of "covered employees," as defined in
the Regulations promulgated under Code Section 162(m), or any successor
statute.
16.16 "Non-Employee Director" means a member of the Board who is not a
common-law employee.
16.17 "NSO" means an employee stock option not described in sections 422
through 424 of the Code.
16.18 "Option" means an ISO or NSO or, in the case of a Key Employee who
is subject to the tax laws of a foreign jurisdiction, an option qualifying for
favorable tax treatment under the laws of such jurisdiction, including a
Replacement Option, granted under the Plan and entitling the holder to
purchase one Common Share.
16.19 "Optionee" means an individual, or his or her estate, legatee or
heirs at law that holds an Option.
16.20 "Participant" means a Non-Employee Director or Key Employee who has
received an Award.
16.21 "Performance Share Award" means the conditional right to receive in
the future one Common Share, awarded to a Participant under the Plan.
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16.22 "Plan" means this 1992 Stock Incentive Plan of The Charles Schwab
Corporation, as it may be amended from time to time.
16.23 "Replacement Option" means an Option that is granted when a
Participant uses a Common Share held or to be acquired by the Participant to
exercise an Option and/or to satisfy tax withholding requirements incident to
the exercise of an Option.
16.24 "Restricted Share" means a Common Share awarded to a Participant
under the Plan.
16.25 "Stock Award Agreement" means the agreement between the Company and
the recipient of a Restricted Share or Performance Share Award which contains
the terms, conditions and restrictions pertaining to such Restricted Share or
Performance Share Award.
16.26 "Stock Option Agreement" means the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions
pertaining to his or her option.
16.27 "Subsidiary" means any corporation, if the Company and/or one or
more other Subsidiaries own not less than 50 percent of the total combined
voting power of all classes of outstanding stock of such corporation. A
corporation that attains the status of a Subsidiary on a date after the
adoption of the Plan shall be considered a Subsidiary commencing as of such
date.
16.28 "Retirement" shall mean any termination of employment of an
Optionee for any reason other than death at any time after the Optionee has
attained fifty (50), but only if, at the time of such termination, the
Participant has been credited with at least seven (7) Years of Service under
the Charles Schwab Profit Sharing and Employee Stock Ownership Plan. The
foregoing definition shall apply to all Stock Option Agreements entered into
pursuant to the Plan, irrespective of any definition to the contrary contained
in any such Stock Option Agreement.
16.29 "Disability" means the inability to engage in any substantial
gainful activity considering the Participant's age, education and work
experience by reason of any medically determined physical or mental impairment
that has continued without interruption for a period of at least six months
and that can be expected to be of long, continued and indefinite duration.
All determinations as to whether a Participant has incurred a Disability shall
be made by the Employee Benefits Administration Committee of the Company, the
findings of which shall be final, binding and conclusive.
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ADDENDUM A
The provisions of the Plan, as amended by the terms of this Addendum
A, shall apply to the grant of Approved Options to Key U.K. Employees.
1. For purposes of this Addendum A, the following definitions shall
apply in addition to those set out in section 16 of the Plan:
APPROVED OPTION means a stock option designed to qualify as an
approved executive share option under the Taxes Act;
INLAND REVENUE means the Board of the Inland Revenue in the
United Kingdom.
KEY U.K. EMPLOYEE means a designated employee of Sharelink Investment
Services plc or any subsidiary (as that term is defined in the
Companies Act 1985 of the United Kingdom, as amended) of which
Sharelink Investment Services plc has control for the purposes of
section 840 of the Taxes Act;
TAXES ACT means the Income and Corporation Taxes Act 1988 of the
United Kingdom.
2. An Approved Option may only be granted to a Key U.K. Employee who:
(i) is employed on a full-time basis; and
(ii) does not fall within the provisions of paragraph 8 of
Schedule 9 to the Taxes Act.
For purposes of this section 2(i) of Addendum A, "full-time" shall
mean an employee who is required to work 20 hours per week, excluding meal
breaks.
3. No Approved Option may be granted to a Key U.K. Employee if it
would cause the aggregate of the exercise price of all subsisting Approved
Options granted to such employee under the Plan, or any other subsisting
options granted to such employee under any other share option scheme approved
under Schedule 9 of the Taxes Act and established by the Company or an
associated company, to exceed the higher of (a) one hundred thousand pounds
sterling and (b) four times such employee's relevant emoluments for the
current or preceding year of assessment (whichever is greater); but where
there were no relevant emoluments for the previous year of assessment, the
limit shall be the higher of one hundred thousand pounds sterling or four
times such employee's relevant emoluments for the period of twelve months
beginning with the first day during the current year of assessment in respect
of which there are relevant emoluments. For the purpose of this section 3 of
Addendum A, "associated company"
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means an associated company within the meaning of section 416 of the Taxes
Act; "relevant emoluments" has the meaning given by paragraph 28(4) of
Schedule 9 to the Taxes Act and "year of assessment" means a year beginning on
any April 6 and ending on the following April 5.
4. Common Shares issued pursuant to the exercise of Approved Options
must satisfy the conditions specified in paragraphs 10 to 14 of Schedule 9 to
the Taxes Act.
5. Notwithstanding the provisions of Section 5.4 of the Plan, the
exercise price of an Approved Option shall not be less than 100 percent of the
closing price of a Common Share as reported in the New York Stock Exchange
Composite Index on the date of grant.
6. No Approved Option may be exercised at any time by a Key U.K.
Employee when that Key U.K. Employee falls within the provisions of paragraph 8
of Schedule 9 to the Taxes Act. If at any time the shares under an Approved
Option cease to comply with the conditions in paragraphs 10 to 14 of Schedule 9
to the Taxes Act, then all Approved Options then outstanding shall lapse and
cease to be exercisable from the date of the shares ceasing so to comply, and no
optionee shall have any cause of action against the Company, Sharelink
Investment Services plc or any subsidiary of the Company or any other person in
respect thereof.
7. An Approved Option may contain such other terms, provisions and
conditions as may be determined by the Committee consistent with the Plan,
provided that the approved option otherwise complies with the requirements for
approved executive option schemes specified in Schedule 9 of the Taxes Act.
8. In relation to an Approved Option, notwithstanding the terms of
section 10.1 of the Plan, no adjustment shall be made pursuant to section 10.1
of the Plan to any outstanding Approved Options without the prior approval of
the Inland Revenue.
9. In relation to an Approved Option any Key U.K. Employee shall
make arrangements satisfactory to the Company for the satisfaction of any tax
withholding or deduction -- at -- source obligations that arise by reason of the
grant to him or her of such option, or its subsequent exercise.
10. In relation to an Approved Option, in addition to the provisions
set out in section 15.2 of the Plan, no amendment which affects any of the
provisions of the Plan relating to Approved Options shall be effective until
approved by the Inland Revenue, except for such amendment as are required to
obtain and maintain the approval of Inland Revenue pursuant to Schedule 9 to the
Taxes Act.
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proxy.