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:
/ /[ ] Preliminary Proxy Statement
/ /[ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/[x] Definitive Proxy Statement
/ /[ ] Definitive Additional Materials
/ /[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12Under Rule 14a-12
The Charles Schwab Corporation
- --------------------------------------------------------------------------------
(Name ofor Registrant as Specified Inin Its Charter)
Merrill Corporation
- --------------------------------------------------------------------------------
(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:
------------------------------------------------------------------------- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------applied:
- --------------------------------------------------------------------------------
(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):
------------------------------------------------------------------------- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------- --------------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ /- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
/ /materials:
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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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
- --------------------------------------------------------------------------------2000 Proxy Statement
LETTER TO STOCKHOLDERS
- --------------------------------------------------------------------------------
[PHOTO]
THIS YEAR, WE HAVE SIMPLIFIED THE PROXY STATEMENT TO MAKE IT EASIER TO
UNDERSTAND.
MARCH 23, 1998
- --------------------------------------------------------------------------------27, 2000
DEAR FELLOW STOCKHOLDERS:
We cordially invite you to attend our 19982000 Annual Meeting of Stockholders. The
meeting will be held on Monday,Wednesday, May 11, 19983, 2000, at 2:00 p.m., Pacific time, at
the Yerba BuenaSan Francisco War Memorial and Performing Arts Center, for the ArtsHerbst Theater, 700 Howard Street,401
Van Ness Avenue, San Francisco, California.
At the meeting we willwill:
- elect twofour directors for three-year terms,
- vote on an amendmenta proposal to re-approve the 1992
Stock IncentiveCorporate Executive Bonus Plan, as
amended, and
- transact any other business properly coming before the meeting.
We also will report on our performance in 19971999 and answer your questions. Our
products and services exhibit will be open before and after the meeting.
Lawrence J. Stupski, Vice Chairman of the Board, is retiring after the Annual
Meeting. He assumedWe are pleased that role in July 1999 our Board appointed Dr. Condoleezza Rice as a
director. She is a Senior Fellow at the Hoover Institution and a distinguished
Professor of 1992, after having served as PresidentPolitical Science at Stanford University. Formerly, she was Provost
of Stanford.
We continue our efforts to make the proxy and Chief Operating Officerannual meeting process more
convenient for more than a decade. In recent years, Larry has
spearheaded the Company's renowned philanthropic and civic efforts.
Specifically, he established the School-to-Careers Program, a nationally
recognized example of leadership in career development for youth. We want to
express our deep appreciation to Larry for his valuable contribution to our
Company.stockholders. This year, we are pleased to announce that we are
broadcasting our annual meeting over the Internet for the first time. In doing
so, we join just a small number of companies who have simplifiedutilized technology for
this purpose.
Again this year, we will make our proxy statement and annual report available
over the Proxy StatementInternet. This year, these materials will reach more stockholders over
the Internet because more of you are now enrolled in Internet delivery. Also,
all stockholders again will be able to make it easier to
understand. The Securities and Exchange Commission is encouraging companies to
write documents for investors in plain English, and we support this effort.
Clear communication withvote on the Internet. Last year, a
significant number of our stockholders and customers is vitaltook advantage of Internet voting. WE
ENCOURAGE YOU TO VOTE ON THE INTERNET. IT IS A SIMPLE PROCESS AND THE LEAST
EXPENSIVE WAY FOR US TO PROCESS YOUR VOTE. Furthermore, if you vote on the
Internet, you will have the option at that time to our goal of
building the most useful and ethical financial services companyenroll in the world.Internet delivery.
WE ENCOURAGE STOCKHOLDERS WHO HAVE NOT YET DONE SO TO ENROLL IN INTERNET
DELIVERY. IT IS THE LEAST EXPENSIVE WAY FOR US TO SEND PROXY MATERIALS TO YOU.
We look forward to seeing you at the meeting. If you cannot attend the meeting
in person, we encourage you to join us via the Internet broadcast.
Sincerely,
/s/ CharlesCHARLES R. SchwabSCHWAB /s/ DavidDAVID S. PottruckPOTTRUCK
CHARLES R. SCHWAB DAVID S. POTTRUCK
CHAIRMAN OF THE BOARD AND PRESIDENT,
CO-CHIEF EXECUTIVE OFFICER CO-CHIEF EXECUTIVE OFFICER AND
CHIEF OPERATING OFFICERChairman of the Board and President and
Co-Chief Executive Officer Co-Chief Executive Officer
1
[side bar]
[Photo of Charles R. Schwab and David S. Pottruck appears here]
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
NOTICE OF 19982000 ANNUAL MEETING OF STOCKHOLDERS. . . . . . . . . . . . . . . . .3STOCKHOLDERS..................................3
PROXY STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
QUESTIONSSTATEMENT................................................................4
Questions and Answers.......................................................5
Proposals To Be Voted On...................................................10
The Board of Directors.....................................................12
Board and Committee Meetings...............................................17
Compensation Committee Interlocks and Insider Participation................18
Director Compensation......................................................19
Principal Stockholders.....................................................20
Performance Graph..........................................................22
Summary Compensation Table.................................................23
Option Grants..............................................................26
Options Exercised..........................................................27
Compensation Committee Report..............................................28
Other Information..........................................................34
Certain Transactions..................................................34
Section 16(a) Beneficial Ownership Reporting Compliance...............34
Independent Auditors..................................................34
Stockholder Proposals.................................................34
Costs of Proxy Solicitation...........................................35
Incorporation by Reference............................................35
TICKETS 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
TICKETSINTERNET ACCESS TO THE ANNUAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . .36MEETING.............................35
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37A
Description of Employment and Severance Agreements....................36
APPENDIX B
Description of the Corporate Executive Bonus Plan.....................39
2
NOTICE OF 19982000 ANNUAL MEETING OF STOCKHOLDERS
- --------------------------------------------------------------------------------
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.
The 19982000 Annual Meeting of Stockholders of The Charles Schwab Corporation will
be held on Wednesday, May 11, 19983, 2000, at 2:00 p.m., Pacific time, at the Yerba BuenaSan
Francisco War Memorial and Performing Arts Center, for the ArtsHerbst Theater, 700 Howard Street,401 Van Ness
Avenue, San Francisco, California, forto conduct the following purposes:
1. Toitems of business:
- elect twofour directors for three-year terms,
2. To amend- vote on a proposal to re-approve the 1992 Stock IncentiveCorporate Executive Bonus Plan, as
amended, and
3. To- transact any other business properly coming before the
meeting.
Stockholders owning Companywho owned shares of our stock at the close of business on March 12, 19986,
2000 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 94104,94108, prior to the meeting.
By Order of the Board of Directors,
/s/ Carrie E. Dwyer
CARRIE E. DWYER
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSELCARRIE E. DWYER
Executive Vice President,
General Counsel and
Corporate Secretary
3
[side bar]
THE 2000 ANNUAL
MEETING OF
STOCKHOLDERS WILL BE
HELD ON WEDNESDAY
MAY 3, 2000 AT 2:00 P.M.
AT THE SAN FRANCISCO
WAR MEMORIAL AND
CORPORATE SECRETARY
3PERFORMING ARTS
CENTER, HERBST THEATER,
IN SAN FRANCISCO,
CALIFORNIA.
PROXY STATEMENT
As a stockholder of The Charles Schwab Corporation, you have a right to vote on
certain matters affecting the company. This proxy statement discusses the
proposals you are voting on this year. Please read this proxy statement
carefully because it contains important information for you to consider when
deciding how to vote. YOUR VOTE IS IMPORTANT.
In this proxy statement, we refer to The Charles Schwab Corporation as the
"Company." We also refer to this proxy statement, the proxy card and our 1999
annual report as the "proxy materials."
The Board of Directors is sending proxy materials to you and all other
stockholders on or about March 27, 2000. The Board is asking you to vote your
shares by completing and returning the proxy card or otherwise submitting your
vote in a manner described later in this proxy statement under "Questions and
Answers - --------------------------------------------------------------------------------How Do I Vote?"
Unless we state otherwise, all information in this proxy statement concerning
Company common stock reflects the July 1, 1999 two-for-one stock split.
This proxy statement includes summary information on the Company's financial
performance. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
4
[side bar]
STOCKHOLDERS OWNING
COMPANY SHARES AT THE
CLOSE OF BUSINESS ON
MARCH 12, 19986, 2000 ARE
ENTITLED TO ATTEND AND
VOTE AT
THE MEETING.
Our Board of Directors is soliciting proxies for the 1998 Annual Meeting of
Stockholders. This Proxy Statement contains important information for you to
consider when deciding how to vote on the matters brought before the meeting.
PLEASE READ IT CAREFULLY.
The Board set March 12, 1998 as the record date for the meeting.
QUESTIONS AND ANSWERS
Q: WHO CAN VOTE AT THE ANNUAL MEETING?
A: Stockholders who owned Company common stock on that date are entitled toMarch 6, 2000 may attend and
vote at and attend
the meeting, with eachannual meeting. Each share is entitled to one vote. There were
267,742,421837,201,644 shares of Company common stock outstanding on the record date.
Voting materials, which include the Proxy Statement, 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.
4
QUESTIONS AND ANSWERS
- --------------------------------------------------------------------------------
WHY AM I RECEIVING6, 2000.
Q: WHAT IS IN 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 issuesthe proposals on which we would like you, as a
stockholder, to vote. It also gives you information on these issuesthe proposals, as well as
other information, so that you can make an informed decision.
When you sign theQ: 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 issue 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
with their best judgment.
Q: WHAT AM I VOTING ON?
A: YouWe are being askedasking you to vote onon:
- the election of twofour directors for a term of three years, and
an
amendment- a proposal to our 1992 Plan.re-approve the Corporate Executive Bonus Plan, as amended.
The section appearing later entitled "Proposals To Be Voted On" gives you more
information on thedirector nominees for election to our Board and the proposed 1992 Plan amendment.Corporate Executive Bonus Plan.
Q: HOW DO I VOTE?
A: YOU MAY VOTE BY MAIL.
You do this by completing and signing your proxy card and mailing it in the
enclosed, prepaid and addressed envelope. If you mark your voting instructions
on the proxy card, your shares will be votedvoted:
- as you instruct.instruct, and
- according to the best judgment of Mr. Schwab and Mr. Pottruck if a propo-
sal comes up for a vote at the meeting that is not on the proxy card.
If you return a signed card but do not providemark your voting instructions on the proxy card, your shares
will be voted:
- FOR the four named nominees for directors,
- FOR re-approval of the two named nominees,Corporate Executive Bonus Plan, as amended, and
- - FOR the proposed amendmentaccording to the 1992 Plan.best judgment of Mr. Schwab and Mr. Pottruck if a
proposal comes up for a vote at the meeting that is not on the proxy
card.
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.5
[side bar]
WHO CAN VOTE AT THE
ANNUAL MEETING?
WHAT IS IN THIS PROXY
STATEMENT?
WHAT IS THE PROXY
CARD?
WHAT AM I VOTING ON?
HOW DO I VOTE?
QUESTIONS AND ANSWERS
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 in person 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
- --------------------------------------------------------------------------------
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?Holding shares in
"street name" means you hold them through a brokerage firm, bank or other
nominee, and therefore the shares are not held in your individual name.
Q: HOW DO I VOTE MY DIVIDEND REINVESTMENT PLAN SHARES?
A: If you participate in the Dividend Reinvestment and Stock Purchase Plan
managed by our transfer agent, Norwest Bank Minnesota, N.A., the proxy card you
receive from Norwest will include your Dividend Reinvestment Plan shares.shares held under that plan.
If you participate in our Dividend Reinvestment and Stock Purchase Plan through
the Company's principal 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.that plan.
WE ENCOURAGE YOU TO EXAMINE YOUR PROXY CARD AND VOTING INSTRUCTIONS CLOSELY TO
MAKE SURE YOU ARE VOTING ALL OF YOUR SHARES IN THE COMPANY.COMPANY SHARES.
Q: HOW DO I VOTE MY PROFIT SHARINGRETIREMENT 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 IF I RECEIVE MORE THAN ONE PROXY CARD?
A: It means that you have multiple accounts at the transfer agent and/or with stockbrokers.stock-
brokers. 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 NAMEUnless you need multiple accounts for specific purposes, it may be less
confusing if you consolidate as many of your transfer agent or brokerage
accounts as possible under the same name and address.
6
[side bar]
HOW DO I VOTE MY
DIVIDEND REINVESTMENT
PLAN SHARES?
HOW DO I VOTE MY
RETIREMENT PLAN
SHARES?
WHAT DOES IT MEAN IF I
RECEIVE MORE THAN ONE
PROXY CARD?
QUESTIONS AND ADDRESS.ANSWERS
Q: WHAT IF I CHANGE MY MIND AFTER I RETURN MY PROXY?
A: You may revoke your proxy and change your vote at any timeby:
- signing another proxy card with a later date and returning it before the
polls close at the meeting. You may do this by:
- - signing another proxy with a later date,
-meeting,
- voting by telephone or on the Internet before 12:00 p.m., Central time,
on May 2, 2000 (your latestLATEST telephone or Internet proxyvote is counted), or
- - voting again at the meeting.
Q: WILL MY SHARES BE VOTED IF I DO NOT SIGN AND RETURN MY PROXY CARD?PROXY?
A: IF YOUR SHARES ARE HELD IN STREET NAME, YOUR BROKERAGE FIRM, UNDER CERTAIN
CIRCUMSTANCES, MAY VOTE YOUR SHARES.
Brokerage firms have authority under New York Stock Exchange rules to vote
customers' unvoted shares on certain
6
QUESTIONS AND ANSWERS
- --------------------------------------------------------------------------------
WILL MY SHARES BE VOTED IF I DO NOT SIGN AND RETURN MY PROXY CARD?some "routine" matters, including electionmatters. The New York Stock Exchange
has determined that both of directors.our proposals described later under "Proposals To Be
Voted On" are considered routine matters.
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 SchwabWhen our brokerage firm is voting on Company
proposals, however, 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.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.
A PURCHASING AGENT UNDER A RETIREMENT PLAN MAY BE ABLE TO VOTE A PARTICIPANT'S
UNVOTED SHARES. IF YOU ARE A PARTICIPANT IN THE COMPANY'S PROFIT SHARINGSCHWABPLAN RETIREMENT SAVINGS
AND INVESTMENT PLAN, THE PLAN'S PURCHASING AGENT, UNDER CERTAIN CIRCUMSTANCES,
MAYCAN VOTE YOUR SHARES.
TheSpecifically, the purchasing agent maycan vote shares you hold under the Company's Profit SharingEmployee
Stock Ownership Plan ("ESOP") component of the overall plan if the purchasing
agent does not receive voting instructions from you. YourThe purchasing agent will
vote your unvoted shares will be votedheld under the ESOP component of the overall plan in
the same proportionpro-
7
[side bar]
WHAT IF I CHANGE MY
MIND AFTER I RETURN
MY PROXY?
WILL MY SHARES BE
VOTED IF I DO NOT
RETURN MY PROXY?
QUESTIONS AND ANSWERS
portion as theall other plan participants vote their shares voted by
Profit Sharing Plan participants.
Similarly, sharesheld under the Employee Stock Ownership Plan ("ESOP")ESOP
component of the Company's Profit Sharing Planoverall plan.
Similarly, the purchasing agent will vote shares held under the ESOP component
of the overall 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 ESOP component of
the overall plan vote their shares voted by Profit Sharing Plan participants.
7
QUESTIONS AND ANSWERS
- --------------------------------------------------------------------------------(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 NEEDSHARES MUST BE PRESENT TO HOLD THE MEETING?
HOW MANY VOTES MUST THE NOMINEES HAVE TO BE ELECTED?
WHAT HAPPENS IF EITHER NOMINEE IS UNABLE TO STAND FOR RE-ELECTION?
HOW MANY VOTES MUST THE AMENDMENT TO THE 1992 PLAN HAVE TO PASS?
HOW ARE VOTES COUNTED?
WHERE DO I FIND THE VOTING RESULTS OF THE MEETING?
Q: HOW MANY VOTES DO YOU NEED TO HOLD THE MEETING?
A: To hold the meeting and conduct business, a majority of the Company's out-
standing shares as of March 6, 2000 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 of(including by voting by telephone or over
the Company's outstanding shares 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.Internet).
Q: HOW MANY VOTES MUST THE NOMINEES HAVE TO BE ELECTED?ELECTED AS DIRECTORS?
A: We use the phrase "yes vote" to mean a vote for a director.
The twofour nominees receiving the highest number of yes votes FOR election will be
elected as directors. This number is called a plurality.
Q: WHAT HAPPENS IF EITHER NOMINEE IS UNABLE TO STAND FOR RE-ELECTION?
A: The Board may, by resolution, provide for a lesser number of directors or
designate a substitute nominee. In the latter event, shares represented by
proxies may be voted for a substitute nominee. Proxies cannot be voted for more
than two nominees.
Q: HOW MANY VOTES MUST THE AMENDMENTCORPORATE EXECUTIVE BONUS PLAN RECEIVE TO THE 1992 PLAN HAVE TO PASS?BE
RE-APPROVED?
A: The amendment must receive a yes vote ofCorporate Executive Bonus Plan, as amended, will be re-approved if a
majority of the shares present at the meeting to pass.in person or by proxy vote FOR
re-approval.
Q: WHAT HAPPENS IF A NOMINEE IS UNABLE TO STAND FOR ELECTION?
A: The Board may reduce the number of directors or select a substitute nominee.
In the latter case, if you have completed and returned your proxy, Charles R.
Schwab and David S. Pottruck can vote your shares for a substitute nominee. They
cannot vote for more than four nominees.
Q: HOW ARE VOTES COUNTED?
A: You may vote either "for" each director nominee or "against" each nominee.withhold your vote
from any one or more of the nominees.
You may vote "for,"
"against,""for" or "against" the proposal to re-approve the Corporate
Executive Bonus Plan, as amended, or "abstain" from voting on the 1992 Plan amendment.proposal. If
you abstain from voting, on the 1992 Plan amendment, it haswill have the same effect as a vote against."against" the
proposal.
If you just signgive your proxy card with no furtherwithout voting instructions, your shares will
be counted as a yes vote FOR each director nominee and FOR the amendment toproposal on the 1992Bonus
Plan.
Voting results are tabulated and certified by our transfer agent, Norwest Bank
Minnesota, N.A.
8
[side bar]
HOW MANY SHARES MUST
BE PRESENT TO HOLD THE
MEETING?
HOW MANY VOTES MUST
THE NOMINEES HAVE TO
BE ELECTED AS
DIRECTORS?
HOW MANY VOTES MUST
THE CORPORATE
EXECUTIVE BONUS PLAN
RECEIVE TO BE RE-
APPROVED?
WHAT HAPPENS IF A
NOMINEE IS UNABLE TO
STAND FOR ELECTION?
HOW ARE VOTES
COUNTED?
QUESTIONS AND ANSWERS
Q: IS MY VOTE KEPT CONFIDENTIAL?
A: Proxies, ballots and voting tabulations identifying stockholders are kept
confidential and will not be disclosed except as may be necessary to meet legal
requirements.
Q: HOW DO I ACCESS THE ANNUAL MEETING ON THE INTERNET?
A: For information on how to receive the real-time broadcast of the annual
meeting over the Internet, go to WWW.SCHWABEVENTS.COM.
Q: WHERE DO I FIND THE VOTING RESULTS OF THE MEETING?
A: We will announce preliminary voting results at the meeting. We will publish
the final results in our quarterly report on Form 10-Q for the second quarter of
1998.2000. 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)
627-8786636-2787 or the Securities and Exchange CommissionSEC at (800) SEC-0330 for the location of theits nearest public
reference room,room. You can also get a copy on the Internet at WWW.SCHWAB.COM by
clicking on "About Schwab" or through the SEC's electronic data system called
EDGAR system at WWW.SEC.GOV.
8
QUESTIONS AND ANSWERS
- --------------------------------------------------------------------------------
WHY9
[side bar]
IS MY VOTE KEPT
CONFIDENTIAL?
HOW DO I ACCESS THE
COMPANY AMENDINGANNUAL MEETING ON THE
1992 PLAN?
Q: WHY ISINTERNET?
WHERE DO I FIND THE
COMPANY AMENDINGVOTING RESULTS
OF 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.
9MEETING?
PROPOSALS TO BE VOTED ON
- --------------------------------------------------------------------------------
RE-ELECTION OF DIRECTORS
- - DONALD G. FISHER
- - ANTHONY M. FRANK
AMENDMENT TO THE 1992 PLAN
OTHER BUSINESS
1. RE-ELECTIONELECTION OF DIRECTORS
Nominees for re-electiondirectors this year are Donald G. FisherNancy H. Bechtle, C. Preston Butcher,
David S. Pottruck and Anthony M. Frank.
THE BOARD RECOMMENDS A VOTE FOR THESE NOMINEES.George P. Shultz.
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, the 1992 Plan limits the maximum number of shares that may be granted
to any one employee in any one year to:
- - 500,000 shares subject to options,
- - 200,000 shares as Restricted Shares, and
- - 200,000 shares as Performance Share Awards.
The amendment would:
- - increase to 2,250,000 the maximum number of shares subject to options that
may be granted to any employee in any one year,
- - increase to 900,000 the maximum number of Restricted Shares that may be
granted to any employee in any one year,
- - increase to 900,000 the maximum number of Performance Share Awards that may
be granted to any employee in any one year, and
- - permit automatic adjustment of annual limits in the 1992 Plan on stock
option grants, Restricted Shares and Performance Share Awards to reflect
any future stock splits, stock dividends and other similar events.
Since their adoption in 1994, the individual grant limits have not been adjusted
for stock splits. The proposed individual grant limits are adjusted for the
cumulative effect of stock splits since 1994, which is 4.5 times the original
limit.
THE BOARD RECOMMENDS A VOTE FOR THE AMENDMENT TO THE 1992 PLAN.
If you would likeTHESE NOMINEES.
2. RE-APPROVAL OF CORPORATE EXECUTIVE BONUS PLAN, AS AMENDED
We are asking stockholders to re-approve the Corporate Executive Bonus Plan, as
amended. Stockholders last approved the Bonus Plan at the Annual Meeting of
Stockholders in 1995. To meet certain tax law requirements, as explained below,
the Bonus Plan must now be re-approved by stockholders. The Bonus Plan has been
amended since the 1995 annual meeting, so we are asking for re-approval of the
Bonus Plan, as amended.
The Bonus Plan provides for the payment of bonuses to the Company's executive
officers, based solely on the Company's attainment of annual revenue growth and
profitability objectives. For more information about the 1992Bonus Plan, a summarysee the
description of its terms is included as anin Appendix toB of this Proxy Statement.
OTHER BUSINESS
The Board knows of no other business for consideration at the meeting. If other
matters are properly presented at the meeting, or for any adjournment or
postponementproxy statement.
Section 162(m) of the meeting, Charles R. SchwabInternal Revenue Code authorizes tax deductions for
certain executive compensation in excess of $1 million only if such compensation
is based on performance and David S. Pottruckthe plan under which it is paid is approved by
stockholders. Furthermore, stockholders must re-approve a plan that pays
performance-based compensation at least every five years in order for such
compensation to continue to qualify for a tax deduction. Because stockholders
last approved the Corporate Executive Bonus Plan five years ago, we are seeking
re-approval now.
If stockholders re-approve the Bonus Plan, as amended, and the Company complies
with certain other requirements set forth in Section 162(m), payments to
executive officers under the Bonus Plan will vote,qualify for deduction under Section
162(m). If stockholders do not re-approve the Bonus Plan, as amended, bonus
payments or otherwise act, on your behalfportions of bonus payments to certain executive officers may not
qualify for deduction under Section 162(m) to the extent that certain
compensation paid to any such executive officer in accordanceany calendar year exceeds $1
million. In that case, the Company may not be able to deduct for tax purposes
all compensation paid to the affected executive officers.
The most significant amendments to the Bonus Plan:
- allow the Company to pay some or all of the compensation earned under
the Bonus Plan in Company stock or other equity-based awards;
- increase both the maximum bonus target, as a percentage of base salary,
permitted by the Bonus Plan and the maximum amount by which the target
bonus amount can be multiplied to reflect the Company's financial
performance; and
- change certain dates to those highlighted below, with their judgment on such
matters.the result that the
10
THE BOARD[side bar]
ELECTION OF DIRECTORS
- --------------------------------------------------------------------------------
BIOGRAPHIES
- - NANCY H. BECHTLE
- - C. PRESTON BUTCHER
- - DONALD G. FISHERDAVID S. POTTRUCK
- - ANTHONY M. FRANKGEORGE P. SHULTZ
RE-APPROVAL OF
CORPORATE EXECUTIVE
BONUS PLAN,
AS AMENDED
PROPOSALS TO BE VOTED ON
amount of base salary to be included in the computation of the
target bonus amount for each participant in any year may not exceed 250%
of the base salary, determined as of MARCH 31, 2000 (instead of
March 31, 1995), payable to the participant holding the same or sub-
stantially similar position on MARCH 31, 2000 (instead of
March 31, 1995).
The Company believes that the changes to the Bonus Plan are necessary to
maintain the Bonus Plan's competitiveness with executive compensation paid by
other companies, and that the changes are consistent with the Company's
compensation philosophy of emphasizing variable compensation based on the
Company's financial performance.
Currently, the Board's Compensation Committee has the authority to amend the
Bonus Plan without stockholders' approval in ways that could increase the cost
of the Bonus Plan or change the allocation of benefits among the participants.
See the table at the end of Appendix B (Description of the Corporate Executive
Bonus Plan) for amounts that would be payable under the Bonus Plan in 2000,
based on certain assumptions.
THE BOARD RECOMMENDS A VOTE FOR RE-APPROVAL OF THE CORPORATE EXECUTIVE BONUS
PLAN, AS AMENDED.
OTHER BUSINESS
The Board knows of no other business to be considered at the meeting. However,
if:
- other matters are properly presented at the meeting, or for any adjourn-
ment or postponement of the meeting, and
- you have properly submitted your proxy,
then Charles R. Schwab and David S. Pottruck will, with your proxy, vote your
shares on those matters according to their best judgment.
11
[side bar]
OTHER BUSINESS
THE BOARD OF DIRECTORS
NANCY H. BECHTLE
DIRECTOR SINCEDirector since 1992
Ms. Bechtle, age 60, has been62, was a director and Chief Financial Officer of J.R. Bechtle
& Co., an international consulting firm, since 1979.from 1979 to 1998. She has been the
President and Chief Executive Officer of the San Francisco Symphony since 1987,
and has served as a member of the San Francisco Symphony Board of Governors
since 1984. Ms. Bechtle's term expires in the year 2000.Bechtle also has served as Chairman and Chief Executive Officer
of Sugar Bowl Ski Resort, and as a director of Sugar Bowl Corporation, since
1998. Ms. Bechtle is a nominee for election this year.
C. PRESTON BUTCHER
DIRECTOR SINCEDirector since 1988
Mr. Butcher, age 59,61, has been Chairman and Chief Executive Officer of Legacy
Partners (formerly Lincoln Property Company N.C., Inc.), a real estate
development and management firm, since 1998. 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. from 1967 until 1998. Mr. Butcher is a director of BRE Properties, Inc.,
a real estate investment trust. Mr. Butcher's term expires in the year 2000.nominee for election this year.
DONALD G. FISHER
DIRECTOR SINCEDirector since 1988
Mr. Fisher, age 69,71, is 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 Vodafone
AirTouch Communications,Plc, a wireless telecommunications services company, and Wilson
Cornerstone Properties, Inc., a real estate development company. Mr. Fisher is a nominee for re-election this year.Fisher's
term expires in 2001.
ANTHONY M. FRANK
DIRECTOR SINCEDirector since 1993
Mr. Frank, age 66,68, has been theFounding 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,
cardboard products and building products and a provider of financial services;
General American Investors, a closed-end investment company; and Irvine
Apartment CommunitiesBedford
Properties Investors and Crescent Real Estate Equities, both 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 is a nominee for re-election this year.
11Frank's term expires in 2001.
12
[side bar]
BIOGRAPHIES
- - NANCY H. BECHTLE
- - C. PRESTON BUTCHER
- - DONALD G. FISHER
- - ANTHONY M. FRANK
THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------FRANK C. HERRINGER
Director since 1996
Mr. Herringer, age 57, is Chairman of the Board of both Transamerica Corporation
and Aegon U.S.A., and a member of the Executive Board of Aegon N.V., a life
insurance, pensions and related savings and investment products company
headquartered in The Netherlands. At Transamerica, he has been Chairman since
1996, and he was Chief Executive Officer from 1991 to 1999 and President from
1986 to 1999, when Transamerica was acquired by Aegon N.V. Mr. Herringer is also
a director of Unocal Corporation, an oil company. Mr. Herringer's term expires
in 2002.
STEPHEN T. MCLIN
Director since 1988
Mr. McLin, age 53, has been Chairman and Chief Executive Officer of STM Holdings
LLC, which offers merger and acquisition advice for technology companies, since
1998. From 1987 until 1998, he was President and Chief Executive Officer of
America First Financial Corporation, a finance and investment banking firm. Mr.
McLin is a director of Tuttle Decision Systems, a technology company which is
20% owned by Microsoft, and Your:)Bank.com, a wholly-owned subsidiary of Gateway
2000, Inc., a computer company. Mr. McLin's term expires in 2002.
DAVID S. POTTRUCK
Director since 1994
Mr. Pottruck, age 51, is President and Co-Chief Executive Officer of the
Company. He became President in 1992, and Co-Chief Executive Officer in January
1998. He was also the Company's Chief Operating Officer from 1994 until
September 1998. He became Chief Executive Officer of Charles Schwab & Co., Inc.,
the Company's principal brokerage firm, in 1992. Mr. Pottruck is currently a
director of Intel Corporation, a maker of microcomputer components and related
products; Preview Travel, Inc., an online travel services provider; and Epoch
Partners, Inc., an online investment banking firm owned in part by the Company.
In July 1999, he was elected to the Board of Governors of the National
Association of Securities Dealers, Inc. In 1998, he was named to the Federal
Advisory Commission on Electronic Commerce. Mr. Pottruck is a nominee for
election this year.
CONDOLEEZZA RICE
Director since July 1999
Dr. Rice, age 45, is currently a Senior Fellow at the Hoover Institution and
Professor of Political Science at Stanford University, where she has taught
political science since 1981. She was also Provost at Stanford from 1993 until
1999, a post in which she served as the University's chief budget officer. From
1989 to 1991, Dr. Rice was Special Assistant to the President of the United
States for National Security Affairs. Dr. Rice is a member of the
13
[side bar]
BIOGRAPHIES
- - FRANK C. HERRINGER
- - STEPHEN T. MCLIN
- - DAVID S. POTTRUCK
- - CHARLES R. SCHWAB
FRANK C. HERRINGER
DIRECTOR SINCE 1996
Mr. Herringer, age 55, is ChairmanCONDOLEEZZA RICE
THE BOARD OF DIRECTORS
board of directors of the Chevron Corporation, an oil company, and the William
and Flora Hewlett Foundation. She is also a member of the University of Notre
Dame Board of Trustees, J.P. Morgan's International Advisory Council and the San
Francisco Symphony Board of Governors. Dr. Rice's term expires in 2001.
ARUN SARIN
Director since December 1998
Mr. Sarin, age 45, is Chief Executive Officer USA/Asia Pacific Region of
Vodafone AirTouch Plc. Until July 1999, he was President and PresidentChief Operating
Officer 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.AirTouch Communications, Inc. Prior to his appointment to these
positions in 1997, Mr. Herringer is also a director of
Unocal Corporation. Mr. Herringer's term expires in 1999.
STEPHEN T. MCLIN
DIRECTOR SINCE 1988
Mr. McLin, age 51, has been theSarin was President and Chief Executive Officer of
America
FirstAirTouch 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 Corporation, a financeOfficer and investment banking firm, since 1987.Controller, and
Vice President of Corporate Strategy. Mr. McLinSarin is a directormember of Bayview Capital Corporation.the board of
directors of Vodafone AirTouch Plc; PrimeCo Personal Communications, L.P., a
wireless telecommunications services company; and Cisco Systems, Inc., a
computer networking company. Mr. McLin'sSarin's term expires in 1999.
DAVID S. POTTRUCK
DIRECTOR SINCE 1994
Mr. Pottruck, age 49, is the President, Co-Chief Executive Officer and Chief
Operating Officer of the Company. He became the Co-Chief Executive Officer in
January 1998, the Chief Operating Officer in 1994 and the President in 1992. He
also became the Chief Executive Officer of Schwab in 1992. In 1997, Mr. Pottruck
was named a director of McKesson Corporation, Decibel Instruments, Inc., a
manufacturer of acoustic products, and Preview Travel, Inc., an on-line travel
services provider. Mr. Pottruck's term expires in the year 2000.2001.
CHARLES R. SCHWAB
DIRECTOR SINCEDirector since 1986
Mr. Schwab, age 60,62, 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.; Vodafone AirTouch Plc;
AudioBase, Inc., Transamerica Corporation,
Airtouch Communications, Inc.a company that provides music and voice to Internet publishers,
advertisers and marketers; and Siebel Systems, Inc., anda company that provides
support for software systems. He is also 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
- -2002.
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 SINCEDirector since 1997
Dr. Shultz, age 77,79, 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 United States 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 Bechtel Group, Inc., Gulfstream Aerospace
Corporation, AirTouch Communications,a provider of
engineering, construction and related management services; Fremont Group, Inc.,
an investment company; and Gilead Sciences, Inc., a biotechnology
14
[side bar]
BIOGRAPHIES
- - ARUN SARIN
- - CHARLES R. SCHWAB
- - GEORGE P. SHULTZ
THE BOARD OF DIRECTORS
company. 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.Shultz is a
nominee for election this year.
ROGER O. WALTHER
DIRECTOR SINCEDirector since 1989
Mr. Walther, age 62,64, has beenserved as 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 largesta 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, a bank holding company.Bank. Mr. Walther's term expires in 1999.2002.
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 who is elected at an annual meeting of stockholders 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.
AGREEMENT TO APPOINT TWO DIRECTORS
In connection with its proposed acquisition of U.S. Trust Corporation, a bank
holding company whose principal businesses are personal wealth management
services and institutional services, the Company has agreed that if the
contemplated transaction closes, the Board of Directors will be expanded to 14
members and the following persons will be appointed to serve on the Board of
Directors:
H. MARSHALL SCHWARZ
Mr. Schwarz, age 63, currently serves as Chairman of the classes are staggered.
13
BOARD AND COMMITTEE MEETINGS
- --------------------------------------------------------------------------------
THIS TABLE DESCRIBES THE BOARD'S COMMITTEES.
The Board held eight regular meetings in 1997. Each director, except Dr. Shultz,
attended at least 75% of all Board and Chief
Executive Officer of U.S. Trust Corporation and United States Trust Company of
New York. Mr. Schwarz joined United States Trust Company in 1967 after a
seven-year association with Morgan Stanley & Co., Incorporated, an investment
banking firm. In 1972, he was elect-
15
[side bar]
BIOGRAPHIES
- - ROGER O. WALTHER
NUMBER OF DIRECTORS
AND TERMS
AGREEMENT TO APPOINT
TWO DIRECTORS
BIOGRAPHIES
- - H. MARSHALL SCHWARZ
THE BOARD OF DIRECTORS
ed a Senior Vice President and head of the Banking Division. He was elected
Executive Vice President and Chief Operating Officer of United States Trust
Company's Bank Group in 1977 and Chief Operating Officer of the Asset Management
Group in 1979. Mr. Schwarz served as President of U.S. Trust Corporation and
United States Trust Company from June 1986 through January 1990 and became
Chairman and Chief Executive Officer effective February 1, 1990. He is also a
director of Atlantic Mutual Companies, a property and casualty insurance
company, and Bowne & Co., Inc., a financial printer and information and document
management company. Mr. Schwarz is a trustee and former Chairman of the Board of
the American Red Cross in Greater New York, a trustee of Teachers
College-Columbia University and the Camille and Henry Dreyfus Foundation, Inc.,
and President of the Board of Trustees of Milton Academy.
JEFFREY S. MAURER
Mr. Maurer, age 52, currently serves as President of U.S. Trust Corporation and
United States Trust Company of New York and is a director of both companies. Mr.
Maurer joined United States Trust Company in 1970 and was made manager of the
Asset Management and Private Banking Group in 1978. He was elected Senior Vice
President in November 1980, Executive Vice President in May 1986, President
effective February 1990 and Chief Operating Officer in December of 1994. Mr.
Maurer is also a director of the Greater New York Mutual Insurance Companies, a
property and casualty insurance company. He is a trustee of Alfred University, a
director and Treasurer of The Children's Health Fund, a director of The Hebrew
Home for the Aged and the Riverdale Terrance Housing Fund Developmental Company,
Inc., a director of Roundabout Theatre Co., a member of the Advisory Board of
The Salvation Army of Greater New York, and a director of the North Shore Long
Island Jewish Health System.
Mr. Schwarz will be appointed to the class of directors whose term expires in
2002, and Mr. Maurer will be appointed to the class of directors whose term
expires in 2001. These appointments will be made only if the proposed
acquisition of U.S. Trust Corporation is completed.
16
[side bar]
BIOGRAPHIES
- - JEFFREY S. MAURER
BOARD AND COMMITTEE MEETINGS
- ---------------------------------------------------------------------------------------------------------------
The Board held eight regular meetings in 1999. Each director attended at least
75% of all Board and applicable committee meetings during 1999. This table
describes the Board's committees. The Board does not have a nominating committee meetings during
1997. This table describes the Board's committees. The Board does not have a
Nominating Committee
or a committee serving a similar function.
NAME OF COMMITTEE FUNCTIONS NUMBER OF
AND MEMBERS OF THE COMMITTEE MEETINGS IN 19971999
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
AUDIT - confers with independent accountants 3auditors and 4
internal auditors regarding scope of audits
Nancy H. Bechtle of examinations
C. Preston Butcher
Anthony M. Frank - reviews reports of independent auditors and
C. Preston Butcher internal auditors
Donald G. Fisher accountants and internal auditors
Frank C. Herringer
Stephen T. McLin* - reviews recommendations about internal
Anthony M. Frank controls
Frank C. Herringer - recommends selection of independent accountantsauditors
Stephen T. McLin * to the Board
Arun Sarin
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
COMPENSATION - determines the compensation of the 9
Co-Chief 8
Executive Officers
Nancy H. Bechtle - reviews and approves:
C. Preston Butcher - reviews and approves:executive compensation philosophy
Stephen T. McLin
George P. Shultz - compensation philosophy
Roger O. Walther* - programs for annual and long-term executive
Condoleezza Rice compensation
George P. Shultz - material employee benefit plansother executive programs
Roger O. Walther* - has authority to grant options and other
equity awards under stock incentive
plans and bonus awards under cash-basedexecutive
incentive plans
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CUSTOMER - monitors service quality 2
QUALITY ASSURANCE - assesses customer satisfaction and reviews
ASSURANCE results of Charles Schwab & Co., Inc.
customer surveys
Nancy H. Bechtle customer surveys
Donald G. Fisher
Anthony M. Frank* - proposes initiatives to research service
Donald G. Fisher quality
Anthony M. Frank*
Frank C. Herringer
service qualityCondoleezza Rice
Charles R. Schwab
George P. Shultz
Roger O. Walther
* Chairperson
- ---------------------------------------------------------------------------------------------------------------
* Chairperson
1417
[side bar]
THIS TABLE DESCRIBES
THE BOARD'S
COMMITTEES.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999:
- 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 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 executive officers served on the
Company's Board Compensation Committee;
- none of the Company's executive officers was a director of another entity
where one of that entity's executive 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.
18
[side bar]
DURING 1999, OUR BOARD
COMPENSATION
COMMITTEE CONSISTED
OF ALL NON-EMPLOYEE
MEMBERS, AND WE DID
NOT HAVE ANY
COMPENSATION
COMMITTEE INTERLOCKS.
DIRECTOR COMPENSATION
- --------------------------------------------------------------------------------
SINCE THE INITIAL DIVIDEND IN 1989, THE COMPANY HAS PAID 35 CONSECUTIVE
QUARTERLY DIVIDENDS AND HAS INCREASED THE DIVIDEND 10 TIMES. SINCE 1989
DIVIDENDS HAVE GROWN AT A 41% COMPOUNDED ANNUAL RATE.
We do not pay directors who are also officers of the Company additional
compensation for their service as directors. In 1997,1999, compensation for
non-employee directors included the following:
- an annual retainer of $25,000,$35,000,
- $1,500$2,000 for each Board meeting attended,
- $300$500 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 Plan permitsUnder this plan, in 1999, non-employee directors tocould defer receipt of
all or a portion of their directordirectors' fees and, at their election, receive
either:
- a grant of stock options which:
- have a fair value on the grant date equal to the amount of the deferred
fees (as determined under an appropriate options valuation method),
- have 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,
and
- vest immediately upon ceasing to serve as a director,grant and generally expire ten years after the
grant date,
- or -
- upon leaving the Board, the amount that would have resulted from investing
the deferred amountsfee amount in the
Company'sCompany common stock.
UnderDeferral of fees made after January 1, 2000 (other than deferred fees invested
in stock options) will be invested in shares of Company common stock, to be held
in a trust and distributed to the director (in shares) when the director leaves
the Board. Distributions of previously deferred fees (other than those invested
in stock options) will also be made in shares if a director so consents.
In 1999, under the 1992 Stock Incentive Plan, non-employee directors receivewere
entitled to an annual, automatic grant of either:
- options on 1,5002,500 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 2,5003,500 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 1,5002,500 shares of
common stock was made on May 15, 1997,17, 1999 at an exercise price of $35.87$114.1875 per
share. AfterAs a result of the September 15, 1997, three-for-twoJuly 1, 1999 two-for-one stock split, this stock
option grant was automatically adjusted to 2,2505,000 shares atwith an exercise price of $23.92.
15$57.09375.
19
[side bar]
THE COMPANY
PAYS ITS DIRECTORS
WITH CASH AND EQUITY-
BASED COMPENSATION.
SINCE THE INITIAL CASH
DIVIDEND IN 1989, THE
COMPANY HAS PAID 43
CONSECUTIVE QUARTERLY
CASH DIVIDENDS AND
HAS INCREASED THE
CASH DIVIDEND 11 TIMES.
SINCE 1989, CASH DIVI-
DENDS HAVE INCREASED
BY A 34% COMPOUNDED
ANNUAL GROWTH RATE.
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.
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, 1998.6, 2000.
AMOUNT AND NATURE OF SHARES BENEFICIALLY OWNED
NUMBER PERCENT OF OF
SHARES RIGHT TO RESTRICTED OUTSTANDING
NAME OWNED(1) ACQUIRE(2) STOCK(3)OWNED (#)(1) ACQUIRE (#)(2) STOCK (#)(3) SHARES
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB(4) 52,107,980 1,893,750 -- 20.2
CHARLES SCHWAB PROFIT SHARING175,968,614 2,375,000 - 21.2
SCHWABPLAN RETIREMENT SAVINGS
AND EMPLOYEE STOCK OWNERSHIPINVESTMENT PLAN(5) 23,135,020 -- -- 8.6
TRANSAMERICA CORPORATION AND
TRANSAMERICA INVESTMENT SERVICES, INC.(6) 14,044,286 -- -- 5.2
LAWRENCE J. STUPSKI(7) 5,370,069 19,085 -- 2.050,209,123 - - 6.0
DAVID S. POTTRUCK(8) 1,500,172 2,028,073 -- 1.3POTTRUCK(6) 4,476,674 4,558,654 - 1.1
NANCY H. BECHTLE(9) 11,250 121,500 --BECHTLE 39,520 217,211 - *
C. PRESTON BUTCHER(10) 232,991 27,000 --BUTCHER(7) 683,789 108,897 - *
DONALD G. FISHER(11) 724,125 27,000 --FISHER(8) 2,952,374 90,500 - *
ANTHONY M. FRANK(12) 211,947 83,400 --FRANK 405,000 61,723 - *
FRANK C. HERRINGER(13) 22,275 17,250 --HERRINGER(9) 66,824 73,042 - *
STEPHEN T. MCLIN 33,622 27,000 --MCLIN(10) 101,354 100,574 - *
CONDOLEEZZA RICE 900 11,196 - *
ARUN SARIN 2,000 26,729 - *
GEORGE P. SHULTZ 15,000 15,000 --45,000 62,405 - *
ROGER O. WALTHER(14) 29,893 27,000 -- *
TIMOTHY F. MCCARTHY 12,719 18,294 44,250 *
TOM D. SEIP(15) 159,996 270,823 20,250WALTHER (11) 90,111 58,946 - *
DAWN G. LEPORE(16) 67,603 360,625 60,250LEPORE(12) 317,874 885,454 120,000 *
LINNET F. DEILY 25,918 157,876 134,250 *
STEVEN L. SCHEID 39,431 329,413 120,000 *
LON GORMAN 15,764 174,044 156,000 *
DIRECTORS AND EXECUTIVE OFFICERS
AS A GROUP (23(27 PERSONS)(17) 60,715,292 6,419,915 643,050 25.3(13) 187,699,213 14,179,121 1,410,000 23.9
*Less than 1%
(1) Includes shares for which the named person:
- ------------------------------------------------------------------------------------------------------------has sole voting and investment power,
- has shared voting and investment power with his or her spouse, or
- holds in an account under The SchwabPlan Retirement Savings and Investment Plan, unless otherwise indicated in the footnotes.
Excludes shares that:
- may be acquired through stock option exercises, or
- are restricted stock holdings.
(2) Shares that can be acquired through stock option exercises through May 5, 2000.
(3) Shares subject to a vesting schedule, forfeiture risk and other restrictions.
(4) Includes 5,493,977 shares held by Mr. Schwab's spouse.
Includes 30,135,972 shares held by a limited liability company.
20
[side bar]
NET INCOME FOR
1999 WAS $589 MILLION,
A 69% INCREASE
OVER 1998.
PRINCIPAL STOCKHOLDERS
Includes the following shares for which Mr. Schwab disclaims beneficial
ownership:
- 10,340,790 shares held by non-profit public benefit corporations.
- 63,080 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:
- 1,065,658 shares held by investment companies and managed by a wholly-owned subsidiary of the Company.
Mr. Schwab's address is c/o The Charles Schwab Corporation, 120 Kearny Street, San Francisco, California 94108.
(5) As of March 6, 2000, The SchwabPlan Retirement Savings and Investment Plan held a total of 50,209,123 shares of which:
- 49,581,990 shares were held by participants under the plan, and
- 627,133 unallocated shares were held under the Employee Stock Ownership Plan ("ESOP") component of the plan.
Participants direct the voting and disposition of shares held for their benefit or allocated to their plan accounts. The
purchasing agent votes and disposes of plan participants' unvoted shares and unallocated shares held under the ESOP component
of the overall plan. The plan's purchasing agent may only vote or dispose of these unvoted and unallocated shares held in the
ESOP component of the overall plan, in the same proportion as shares directed by participants in the ESOP component of the
overall plan, unless the purchasing agent receives specific instructions from a plan fiduciary that has power to direct the
purchasing agent.
The address of The SchwabPlan Retirement Savings and Investment Plan is c/o The Charles Schwab Corporation, 101 Montgomery
Street, San Francisco, California 94104.
(6) Includes 66,567 shares held by Mr. Pottruck's spouse and children.
Includes the following shares for which Mr. Pottruck disclaims beneficial ownership:
- 407,795 shares held in trusts for which Mr. Pottruck acts as trustee.
- 240,624 shares held by a non-profit public benefit corporation.
(7) Includes 182,165 shares held by Mr. Butcher's spouse.
(8) Includes 2,358,250 shares held in certain charitable remainder trusts by Mr. Fisher and his spouse.
Includes the following shares for which Mr. Fisher has shared voting and investment power, but disclaims beneficial ownership:
- 260,000 shares held by a non-profit public benefit corporation established by Mr. Fisher.
(9) Includes 33,750 shares held by Mr. Herringer's spouse.
(10)Includes 9,145 shares held by a non-profit public benefit corporation established by Mr. McLin.
(11)Includes 17,763 shares held by Mr. Walther's spouse.
(12)Includes 13,974 shares held by Ms. Lepore's spouse.
(13)In addition to the officers and directors named in this table, 11 other executive officers are members of the group.
21
*Less than 1%
(1) Includes shares for which the named person:
- has sole voting and investment power,
- has shared voting and investment power with his or her spouse, or
- holds in a Profit Sharing Plan account,
unless otherwise indicated in the footnotes.
Excludes shares that:
- are restricted stock holdings, or
- may be acquired through stock option exercises.
16
PRINCIPAL STOCKHOLDERS
- --------------------------------------------------------------------------------[side bar]
SINCE 1988,YEAR-END 1989,
THE MARKET PRICE PER
SHARE PRICE OF SCHWABCOMPANY
COMMON STOCK HAS
GROWN AT A
COMPOUNDED ANNUAL
RATE OF 58%56%. THIS
INCREASE EQUALS $11CREATED
$31 BILLION IN
STOCKHOLDER WEALTH.
(2) Shares that can be acquired through stock option exercises through
May 11, 1998.
(3) Shares subject to a vesting schedule, forfeiture risk and other
restrictions.
(4) Includes 1,837,502 shares held by Mr. Schwab's spouse and children.
Includes the following shares for which Mr. Schwab disclaims beneficial
ownership:
- 3,476,597 shares held by non-profit public benefit corporations.
- 25,610 shares held in trusts for which Mr. Schwab acts as trustee.
Includes the following shares for which Mr. Schwab may be deemed to have
shared voting and investment power, but disclaims beneficial ownership:
- 175,703 shares held by investment companies and managed by a
wholly-owned subsidiary of the Company.
Mr. Schwab's address is c/o The Charles Schwab Corporation, 101
Montgomery Street, San Francisco, California 94104.
(5) As of March 12, 1998, the Profit Sharing Plan held a total of 23,135,020
shares of which:
- 22,546,329 shares were held by participants under the Plan, and
- 588,691 unallocated shares were held under the ESOP component of
the Plan.
Participants direct the voting of shares held for their benefit or
allocated to their Plan accounts. The Plan's purchasing agent votes Plan
participants' unvoted shares and unallocated shares held under the ESOP
component of the Plan. The purchasing agent may only vote these shares in
the same proportion as shares voted by Plan participants.
The address of the Charles Schwab Profit Sharing and Employee Stock
Ownership Plan is c/o The Charles Schwab Corporation, 101 Montgomery
Street, San Francisco, California 94104.
(6) The "Number of Shares Owned" is based on information contained in a
report on Schedule 13-G filed by Transamerica Corporation with the
Securities and Exchange Commission 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.
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 TERMLONG-TERM
PARTNERSHIP BETWEEN
MANAGEMENT AND OTHER
STOCKHOLDERS.
(9) Includes 2,250 shares held by Ms. Bechtle's spouse.
(10) Includes 63,116 shares held by Mr. Butcher's spouse.
(11) Includes 612,750 shares held in charitable remainder trusts by Mr. Fisher
and his spouse.
(12) Includes 36,947 shares held by a family member for which Mr. Frank shares
investment power, but disclaims beneficial ownership.
(13) Includes 11,250 shares held by Mr. Herringer's spouse.
(14) 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 and Seip, and Ms. Lepore and Ms.
Bechtle, and nine 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.
18
PERFORMANCE GRAPH
- --------------------------------------------------------------------------------
ON A DIVIDEND REINVESTED BASIS, THE VALUE OF OUR STOCK INCREASED 98% IN 1997
ALONE, COMPARED WITH AN INCREASE OF 82% FOR THE DOW JONES SECURITIES BROKERAGE
GROUP INDEX AND AN INCREASE OF 33% FOR THE STANDARD & POOR'S 500 INDEX.
The following graph shows a five-year comparison of 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 valueinvestment of $100
and reinvestment of dividends.
COMPARISON OF FIVE YEARFIVE-YEAR CUMULATIVE TOTAL RETURN*
[GRAPH]RETURN
- -- The Charles Schwab Corporation
- -- Dow Jones Securities Brokerage Group Index
- -- Standard & Poor's 500 Index
[Graph appears here]
12/92 12/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- -------------------------------------------------------------------------------------------------------------------------
THE CHARLES SCHWAB CORPORATION $100 $187 $204 $355 $569 $1,124
CORPORATION$174 $279 $552 $1,114 $1,519
DOW JONES SECURITIES $100 $129 $114 $156 $235 $427
BROKERAGE GROUP INDEX $100 $137 $207 $376 $428 $663
STANDARD & POOR'S 500 INDEX $100 $110 $112 $153 $189 $252
500$138 $169 $226 $290 $351
22
[side bar]
ON A DIVIDEND-
REINVESTED BASIS, FROM
DECEMBER 31, 1994
THROUGH DECEMBER 31,
1999, THE CUMULATIVE
TOTAL RETURN FOR
COMPANY COMMON
STOCK WAS 1,419%,
COMPARED TO 563% FOR
THE DOW JONES
SECURITIES BROKERAGE
GROUP INDEX
* Information presented is as ofAND 251%
FOR THE STANDARD
& POOR'S 500 INDEX.
SUMMARY COMPENSATION TABLE
This table shows, for the end of eachlast three fiscal year ended December 31.
19
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
IN THIS SECTION, WE DESCRIBE THE COMPENSATION WE PAY OUR CHIEF EXECUTIVE OFFICER
AND THE NEXT FOUR MOST HIGHLY COMPENSATED EXECUTIVE OFFICERS.
In this section, we describeyears, compensation information for
the compensation we pay our ChiefCompany's Co-Chief Executive OfficerOfficers and the next four most highly
compensated executive officers. It
consists of:
- -We refer to each of these officers as a report"named
executive officer."
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND COMPENSATION STOCK AWARDS UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) ($)(2)(3) ($)(4)(5) OPTIONS(#)(5) ($)(6)
- ------------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 1999 $800,004 $8,200,225 - 0 0 $14,759
Chairman and Co-Chief Executive 1998 $800,004 $6,145,225 - 0 2,100,000 $19,472
Officer 1997 $800,004 $6,362,225 - 0 0 $16,601
DAVID S. POTTRUCK 1999 $800,004 $8,200,225 - 0 0 $14,759
President and Co-Chief Executive 1998 $800,004 $6,145,225 - 0 5,700,000 $19,472
1997 $695,004 $4,319,225 - 0 0 $16,601
DAWN G. LEPORE 1999 $475,000 $1,830,537 $1,433,320 0 90,000 $14,759
Vice Chairman, Executive Vice 1998 $385,833 $650,225 $609,686 $1,569,996 225,002 $19,472
President and Chief 1997 $372,500 $839,730 $119,839 0 157,502 $16,601
Information Officer
LINNET F. DEILY 1999 $452,500 $1,802,943 - 0 90,000 $14,759
Vice Chairman and Executive Vice 1998 $369,167 $800,225 $59,957 $1,373,747 195,002 $19,472
President 1997 $313,334 $479,637 $243,155 $117,375 106,500 $14,389
STEVEN L. SCHEID 1999 $439,167 $1,786,777 - 0 90,000 $14,759
Vice Chairman and Executive Vice 1998 $379,167 $775,225 $620 $1,569,996 225,002 $19,472
President 1997 $345,833 $749,945 $132,597 0 135,000 $16,601
LON GORMAN 1999 $399,933 $1,763,537 - 0 90,000 $14,759
Vice Chairman and Executive Vice 1998 $340,000 $810,225 $629 $1,569,996 225,002 $19,472
President 1997 $318,666 $492,569 $173 $463,500 45,000 $16,601
(1) For Mr. Schwab, includes amounts paid under his employment agreement dated March 31, 1995. (See "Employment Agreement and
Name Assignment" in Appendix A.)
(2) "Other Annual Compensation" includes payments that are not properly categorized as salary or bonus. The following chart
explains payments to the named executive officers listed below arising out of certain restricted stock grants.
23
SUMMARY COMPENSATION TABLE
CASH PAYMENT BASED ON PAR VALUE PAYMENT TOTAL
NAME YEAR SCHWAB PERFORMANCE* ON RESTRICTED STOCK**
--------------------------------------------------------------------------------------------
MS. LEPORE 1999 $1,433,320 0 $1,433,320
1998 $608,766 $620 $609,386
1997 $119,602 $237 $119,839
MS. DEILY 1999 0 0 0
1998 0 $542 $542
1997 0 $201 $201
MR. SCHEID 1999 0 0 0
1998 0 $620 $620
1997 0 0 0
MR. GORMAN 1999 0 0 0
1998 0 $629 $629
1997 0 $173 $173
* Some executive officers received cash payments based on Company common stock (including
price appreciation and dividend reinvestment) outperforming, by a specified margin, the
return on the Standard & Poor's 500 Index. These payments are intended to encourage
executives to continue holding Company stock after vesting by helping them satisfy the
income tax liability resulting from the vesting of the shares.
** Consists of payment by the Company of the par value of restricted stock awarded to named
executive officers.
(3) "Other Annual Compensation" includes relocation expenses and related tax gross-up payments
(explained below), in addition to other perquisites, as shown in the following chart.
RELOCATION TAX GROSS-UP
EXPENSES PAYMENTS OTHER PERQUISITES TOTAL
1998 1997 1998 1997 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
MS. DEILY $21,277 $163,252 $2,059 $42,032 $36,079 $37,670 $59,415 $242,954
MR. SCHEID -- $93,943 -- $8,962 -- $29,692 -- $132,597
SEC regulations exclude from proxy statement reporting requirements a named executive officer's perquisites if their
value in any year does not exceed the lesser of (a) $50,000 or (b) 10% of the total of the named executive officer's
annual salary and bonus for that year. Based on these regulations, we have reported perquisites only for Ms. Deily
for 1997 and 1998 and Mr. Scheid for 1997.
Ms. Deily's expenses were for relocation from Houston, Texas to San Francisco, California, and Mr. Scheid's expenses were
for relocation from Scottsdale, Arizona to San Francisco. Because some of the relocation expense payments were considered
taxable income, Ms. Deily and Mr. Scheid received tax gross-up payments to cover the taxes on that income.
24
[side bar]
IN 1999, THE
COMPANY ACHIEVED ITS
TENTH CONSECUTIVE
YEAR OF RECORD
REVENUES AND NINTH
CONSECUTIVE YEAR OF
RECORD EARNINGS.
SUMMARY COMPENSATION TABLE
(4) RESTRICTED STOCK - - DATE OF GRANT VALUE. This column shows the market value of restricted stock awards on
date of grant.
RESTRICTED STOCK - - YEAR-END VALUE. The following chart shows the number and year-end value of all shares of
unvested restricted stock held on December 31, 1999 by named executive officers (except for Mr. Schwab and
Mr. Pottruck, who held none). The year-end value is based on the closing sale price of Company common stock on
that date ($38.25).
NUMBER OF YEAR-END
NAME SHARES VALUE
--------------------------------------------
MS. LEPORE 120,000 $4,590,000
MS. DEILY 141,000 $5,393,250
MR. SCHEID 120,000 $4,590,000
MR. GORMAN 169,500 $6,483,375
RESTRICTED STOCK - - RIGHTS. Restricted stockholders have voting and dividend rights.
RESTRICTED STOCK - - VESTING SCHEDULE.
- 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.
(5) Adjusted for the July 1, 1999 two-for-one stock split of Company common stock.
(6) Represents Company contributions under The SchwabPlan Retirement Savings and Investment Plan.
25
[side bar]
THE COMPANY AND ITS
SUBSIDIARIES PROVIDE
SECURITIES BROKERAGE
AND RELATED FINANCIAL
SERVICES FOR 6.6 MILLION
ACTIVE CUSTOMER
ACCOUNTS. CUSTOMER
ASSETS IN THESE
ACCOUNTS TOTALED
$725.2 BILLION AT
DECEMBER 31, 1999, UP
48% OVER YEAR-END
1998.
OPTION GRANTS
This table shows stock option grants to the named executive officers during the
last fiscal year.
OPTIONS GRANTED IN 1999
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
TERM (2)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#)(1) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- -------------------------------------------------------------------------------------------------------- ------------------
CHARLES R. SCHWAB 0 0 - - 0 0
DAVID S. POTTRUCK 0 0 - - 0 0
DAWN G. LEPORE 90,000 .72% $34.9688 2/25/2009 $1,883,043 $4,862,613
LINNET F. DEILY 90,000 .72% $34.9688 2/25/2009 $1,883,043 $4,862,613
STEVEN L. SCHEID 90,000 .72% $34.9688 2/25/2009 $1,883,043 $4,862,613
LON GORMAN 90,000 .72% $34.9688 2/25/2009 $1,883,043 $4,862,613
(1) These options were granted in February 1999 under the 1992 Stock Incentive Plan. The grants have been adjusted for the
July 1, 1999 two-for-one stock split of Company common stock. These options:
- were generally granted as 50% non-qualified stock options and 50% incentive stock options (except as limited by tax law),
- were granted at an exercise price equal to 100% of the fair market value of the common stock on the date of grant,
- expire ten years from the date of grant, unless otherwise earlier terminated because of certain events related to
termination of employment, and
- vest in 25% increments on each anniversary date of the grant, subject to the terms and conditions of the plan.
(2) Based on the SEC's rules, we use a 5% and 10% assumed rate of appreciation over the ten-year option term. This does not
represent the Company's estimate or projection of the future common stock price. If Company common stock does not appreciate
above the exercise price, the named executive officers will receive no benefit from the options.
26
OPTIONS EXERCISED
This table shows stock option exercises and the value of unexercised stock
options held by the Compensation Committeenamed executive officers during the last fiscal year.
- ------------------------------------------------------------------------------------------------------------------------------------
AGGREGATED OPTION EXERCISES IN 1999
AND FISCAL YEAR-END OPTION VALUES(1)
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS AT IN-THE-MONEY OPTIONS
ON EXERCISE VALUE REALIZED FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(3)
NAME (#) ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 1,956,250 $60,095,761 2,375,000 1,575,000 $74,238,716 $42,032,813
DAVID S. POTTRUCK 2,984,348 $118,900,210 7,744,654 5,175,000 $274,115,659 $89,732,812
DAWN G. LEPORE 252,676 $11,596,064 767,328 337,500 $25,526,001 $6,805,696
LINNET F. DEILY 135,755 $5,186,405 78,751 383,637 $2,091,283 $8,507,475
STEVEN L. SCHEID 70,000 $2,477,906 290,000 405,002 $8,842,031 $9,081,144
LON GORMAN 119,670 $3,553,607 232,537 462,539 $7,305,075 $11,156,584
(1) Adjusted for the July 1, 1999 two-for-one stock split of Company common stock.
(2) This number is calculated as follows:
- if upon exercising the stock 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 shares acquired upon exercise.
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, 1999 average market price ($38.25 per share, as
reported in the New York Stock Exchange Composite Transactions Index) to get the "average value per option," and
- then multiplying the average value per option by the number of exercisable and unexercisable options.
The amounts in this column may not represent amounts that will actually be realized by the named executive officers.
27
[side bar]
THE COMPANY'S
REVENUES WERE
$3.945 BILLION IN 1999,
UP 44% OVER 1998.
COMPENSATION COMMITTEE REPORT
In this section, we describe our executive compensation - - a detailed table showingpolicies and practices,
including the compensation for the years 1997, 1996, and 1995,
and
- - information about stock options.
This section also includes descriptions of:
- - agreements between the Company and Mr. Schwab relating to his employment
and the use of the name "Schwab" by the Company, and
- - certain severance arrangements between the Company and other executives.
Filings made by the Company with the Securities and Exchange Commission
sometimes "incorporate information by reference." This means the Company is
referring you to information that has previously been filed with the Securities
and Exchange Commission, and that this information should be considered as part
of the filing you are reading. The Performance Graph and Compensation Committee
Report on Executive Compensation in this Proxy Statement are specifically not
incorporated by reference into any other filings with 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
becamewe pay our Co-Chief Executive Officers ofand the Company. For purposes of the following
report, Mr. Schwab is the Chief Executive Officer and Mr. Pottruck is the
President.next
four most highly compensated executive officers.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During 1997,1999, 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, Condoleezza Rice and Dr.George P. Shultz. No member of the Committeeour committee during
19971999 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 allthe other 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 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. First,principles:
- first, a significant portion of executive officers' total compensation
should be in the form of stock and stock-based incentives.
Second,incentives, and
- 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
28
[side bar]
IN THIS SECTION, WE
DESCRIBE THE
COMPENSATION WE PAY
OUR CO-CHIEF EXECUTIVE
OFFICERS AND THE NEXT
FOUR MOST HIGHLY
COMPENSATED
EXECUTIVE OFFICERS.
COMPENSATION POLICIES
COMPENSATION COMMITTEE REPORT
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 comparablecompar-
able 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 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.Mr. Pottruck.
THE IMPORTANCE OF OWNERSHIP
A fundamental tenet of the Company's compensation policy is that significant
equity participation creates a vital long termlong-term partnership between management
and other stockholders. Through the Profit Sharing Plan and various stock incentive plans and The SchwabPlan
Retirement Savings and Investment Plan, the benefits of equity ownership are
extended to executive officers and employees of the Company and its
subsidiaries. As of March 12,
1998,6, 2000, the directors and executive officers of the
Company owned an aggregate of 61,358,342189,109,213 shares (including restricted shares)
and had the right to acquire an additional 6,419,91514,179,121 shares upon the exercise
(on or before May 5, 2000) of employee stock options (exercisable on or before May 11, 1998).options.
The Profit SharingSchwabPlan Retirement Savings and Investment Plan held 22,546,32949,581,990 shares
which were allocated to participants' accounts on March 12, 1998.6, 2000. The Company
intends to continue its strategy of encouraging its employees to become
stockholders.
The chart precedingperformance graph on page 22 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,
19921994 through December 31, 19971999, the cumulative total return of the Company'sfor Company common
stock was 1,024%1,419%. By comparison,
29
[side bar]
THE IMPORTANCE OF
OWNERSHIP
COMPENSATION COMMITTEE REPORT
in the same period the Dow Jones Securities Brokerage Group Index grew 327%563% and
the Standard & Poor's 500 Index grew 152%251%. 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 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.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 1999 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, whothe target bonuses for 1999 under this bonus plan can be up
to 50% of base salary. These remaining executive officers also participate in
the Annual Executive Individual Performance Plan (discussed below), the target bonuses can be up to 50% of base salary.later in this
report).
The target bonus is adjusted upward or downward, in accordance withaccording to a payout matrix
our committee adopted by the Committee at the timewhen we set the target bonus is established.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 1997,1999, the
Company achieved a pre-tax profit margin of 19.5%24.6% and net revenue growth of 24.2%44%.
Based on this performance, executive officers
30
[side bar]
ANNUAL BASE SALARY
VARIABLE COMPENSATION
COMPENSATION COMMITTEE REPORT
received bonuses in excess ofexceeding their target bonus amounts in 1997.1999.
ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN.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
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.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 adoptedhad a policy of granting infrequent and large stock optionsoption and
restricted stock awards to executive officers, supplemented with smaller annual
grants. The Committee believesgrants, because of our belief 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 1997,1999, our committee granted stock option grants were madeoptions to certain of the Company's executive
officers. In addition, certaineach of the Company's
executive officers received
grants of restricted shares.(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
CHARLES R. SCHWAB
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.
31
[side bar]
VARIABLE COMPENSATION
CO-CHIEF EXECUTIVE
OFFICERS' COMPENSATION
COMPENSATION COMMITTEE REPORT
Schwab receives a base salary of $800,000.$800,004. 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'SCORPORATE GROWTH AND SUPERIOR PERFORMANCE,
- - THE COMPANY'S OVERALL STRATEGIC DIRECTION AS DEVELOPED BY MR. SCHWAB IS CRITICAL TO
ENHANCING THE FUTURE LONG TERMLONG-TERM VALUE OF THE COMPANY FOR ITS STOCKHOLDERS,
AND
- - MR. SCHWAB'S LEADERSHIP HAS ENABLED THE COMPANY, ON THE WHOLE, TO
SUBSTANTIALLY OUTPERFORM BOTH THE STANDARD & POOR'S 500 INDEX AND THE DOW JONES SECURITIES BROKERAGE GROUP
INDEX AND THE STANDARD & POOR'S 500 INDEX OVER THE PAST FIVE-YEAR PERIOD.
Based upon the Company's attainment in 1997 ofFIVE YEARS.
The Company attained a pre-tax profit margin of 19.5%24.6% and net revenue growth of
24.2%,44% in 1999, which resulted in pre-tax profit of over $447
million, the$971 million. The amount of Mr.
Schwab's annual bonus for 1997, calculated pursuant1999 was $8,200,000.
DAVID S. POTTRUCK
Mr. Pottruck, President and Co-Chief Executive Officer, is compensated in the
form of a base salary and an annual bonus payable under the Corporate Executive
Bonus Plan that is dependent on our corporate pre-tax profit margin and net
revenue growth. (See "Corporate Executive Bonus Plan" earlier in this report.)
For 1999, 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 matrix, was $6,362,000.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 FIVE YEARS, THE COMBINATION OF MR. POTTRUCK'S AND
MR. SCHWAB'S LEADERSHIP HAS ENABLED THE COMPANY, ON THE WHOLE, TO SUBSTAN-
TIALLY OUTPERFORM BOTH THE DOW JONES SECURITIES BROKERAGE GROUP INDEX AND
THE STANDARD & POOR'S 500 INDEX.
32
[side bar]
CO-CHIEF EXECUTIVE
OFFICERS' COMPENSATION
COMPENSATION COMMITTEE REPORT
TAX LAW LIMITS ON EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code limits tax deductions for certain
executive compensation in excess ofover $1 million. Certain types of compensation are
deductible only if performance criteria are specified in detail, and
stockholders have approved the compensation arrangements. The Company believes
that 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 where the benefit of such deductibility is
outweighed by the need for flexibility or the attainment of other corporate
objectives..
Accordingly, the Company's Corporate Executive Bonus Plan and 1992 Stock
Incentive Plan were approved by the stockholders in 1994 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.) However, the Company
believes that there may be times when the benefit of the deduction would be
outweighed by other corporate objectives, such as the need for flexibility.
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 DIRECTORS
Roger O. Walther, Chairman
Nancy H. Bechtle
C. Preston Butcher
Stephen T. McLin
Condoleezza Rice
George P. Shultz
2633
[side bar]
TAX LAW LIMITS ON
EXECUTIVE
COMPENSATION
OTHER INFORMATION
CERTAIN TRANSACTIONS
Directors and executive officers may maintain margin trading accounts with
Charles Schwab & Co., Inc. Extensions of credit in such accounts:
- are made in the ordinary course of business,
- are made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions
with unaffiliated persons, and
- do not involve more than the normal risk of collectibility or present
other unfavorable features.
Employees and directors of the Company who engage in brokerage transactions at
Charles Schwab & Co., Inc. receive a 20% discount from its standard commission
rates for brokerage transactions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that during 1999, 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 with respect to Elizabeth G.
Sawi's initial beneficial ownership report and John Coghlan's report concerning
his December 1999 transactions. The Company filed both reports on behalf of Ms.
Sawi and Mr. Coghlan. Although Ms. Sawi's report was filed on time, it
inadvertently omitted shares of Company common stock held for her account in the
Employee Stock Ownership Plan (ESOP) component of The SchwabPlan Retirement
Savings and Investment Plan. Mr. Coghlan's report was also filed on time, but it
inadvertently omitted two gifts of shares of Company common stock made by Mr.
Coghlan.
INDEPENDENT AUDITORS
Our Board has selected Deloitte & Touche LLP as the Company's independent
auditors for the current fiscal year. They have served as auditors 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 27, 2000. 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) 636-1337
34
[side bar]
CERTAIN TRANSACTIONS
SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING
COMPLIANCE
INDEPENDENT AUDITORS
STOCKHOLDER
PROPOSALS
OTHER INFORMATION
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 22 of this proxy statement and the "Board Compensation Committee
Report on Executive Compensation" on page 28 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.
TICKETS AND INTERNET ACCESS TO THE ANNUAL MEETING
Seating is limited and, therefore, admission to the annual meeting is by ticket
only on a first-come, first-served basis. To request a ticket, you may either:
- go to WWW.SCHWABEVENTS.COM,
- write the Assistant Corporate Secretary at this address:
Assistant Corporate Secretary
The Charles Schwab Corporation
101 Montgomery Street (88/5)
San Francisco, CA 94104
- or -
- call the Assistant Corporate Secretary at 415-636-1337.
We will also broadcast the annual meeting over the Internet. For information on
how to receive the real-time webcast, go to WWW.SCHWABEVENTS.COM.
By Order of the Board of Directors,
/s/ CARRIE E. DWYER
- -------------------------
CARRIE E. DWYER
Executive Vice President,
General Counsel and
Corporate Secretary
MARCH 27, 2000
San Francisco, California
35
[side bar]
COSTS OF PROXY
SOLICITATION
INCORPORATION BY
REFERENCE
ADMISSION TO THE
ANNUAL MEETING IS BY
TICKET ONLY ON A FIRST-
COME, FIRST SERVED
BASIS. YOU MAY ALSO
JOIN US VIA THE REAL-
TIME WEBCAST OF THE
ANNUAL MEETING.
APPENDIX A DESCRIPTION OF EMPLOYMENT AND SEVERANCE AGREEMENTS
This Appendix A includes descriptions of:
- --------------------------------------------------------------------------------
EMPLOYMENT AGREEMENT AND NAME ASSIGNMENTagreements 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$800,004 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 disabilitydisabi-
lity plan,
36
[side bar]
EMPLOYMENT AGREEMENT
AND NAME ASSIGNMENT
APPENDIX A DESCRIPTION OF EMPLOYMENT AND SEVERANCE AGREEMENTS
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 competing with the Company for a period of five years following a
voluntary resignation of employment (exceptemployment. (However, that such covenant wouldrestriction does 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 todirectors. 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
37
[side bar]
EMPLOYMENT AGREEMENT
AND NAME ASSIGNMENT
APPENDIX A DESCRIPTION OF EMPLOYMENT AND SEVERANCE AGREEMENTS
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 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'sexecu-
tive'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.
38
[side bar]
EMPLOYMENT AGREEMENT
AND NAME ASSIGNMENT
CERTAIN SEVERANCE
AGREEMENTS
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
This table shows,APPENDIX B DESCRIPTION OF THE CORPORATE EXECUTIVE BONUS PLAN
GENERAL DESCRIPTION OF THE CORPORATE EXECUTIVE BONUS PLAN
PLAN PARTICIPANTS
The participants in the Corporate Executive Bonus Plan, as amended, include the
President and Co-Chief Executive Officer, Vice Chairmen, Executive Vice
Presidents and, from time to time, certain other officers having comparable
positions. Currently, 17 executives participate in the Plan.
DETERMINATION OF BONUS AMOUNTS
The Plan specifies a target bonus for each executive officer, which is expressed
as a percentage of that executive's annual base salary, and which depends upon
an assessment of that executive's roles and responsibilities. The Board's
Compensation Committee sets target bonuses in the last three fiscal years, compensation information forfirst quarter of each year,
based upon the Company's Chiefrecommendations of the Chairman and Co-Chief Executive Officer
and, where appropriate, the next four most highly compensated
executive officers. We refer toPresident and Co-Chief Executive Officer. The
President and Co-Chief Executive Officer receives all of these officers ashis annual incentive
compensation under the "NamedPlan. The other 16 executives also participate in the
Company's Annual 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 paymentsIndividual Performance Plan, which pays additional
annual bonuses based on the return
on Company stock (including price appreciationachievement of individual performance goals. The
target bonus percentages under the Corporate Executive Bonus Plan, as amended,
are:
- up to 500% of the President and dividend
reinvestment) outperforming,Co-Chief Executive Officer's annual base
salary, and
- up to 100% of the annual base salaries of the other 16 executives.
The amount of the target bonus is then multiplied by a specified margin,percentage, which is
derived from a matrix fixed by the return onCompensation Committee in advance, and which
can range from:
- 0% to 500% for the Standard & Poor's 500 Index. These payments encourage executivesPresident and Co-Chief Executive Officer, and
- 0% to continue holding Company shares after vesting by helping them meet400% for the income tax liability resulting fromother 16 executives.
The matrix establishes the vestingrelationship between the percentage and the Company's
performance for the year relative to its targets of net revenue growth and
pre-tax profit margin. In the case of the shares.
** IncludesPresident and Co-Chief Executive
Officer, the Compensation Committee has discretion, subject to the percentage
limits mentioned above, to reduce the amount of any payment byotherwise required
under the CompanyPlan. In any event, the amount of base salary included in the
computation of the par valuetarget bonus amount for each participant in any year may not
exceed 250% of restricted stock
awardedthe base salary, determined as of March 31, 2000, payable to the
Named Executive Officerparticipant holding the same or substantially similar position on March 31,
2000.
BONUS PAYMENTS
Payments 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 awardsPlan for Mr. McCarthy, Mr. Seip and Ms. Lepore were $1,887,188; $943,594; and
$943,594, respectively,any year are made quarterly based on the closing sale priceCompany's
year-to-date performance for that year, except that payments to the President
and Co-Chief Executive Officer are made annually within a reasonable time after
the end of that year. Payments are generally made in cash, except that the
Compensation Committee may decide to
39
[side bar]
GENERAL DESCRIPTION OF
THE CORPORATE
EXECUTIVE BONUS PLAN
APPENDIX B DESCRIPTION OF THE CORPORATE EXECUTIVE BONUS PLAN
make all or a portion of the payments in Company stock or other equity-based
awards (including stock options or restricted stock) with equivalent value.
However, not more than 0.5% of the Company's common stock on December 31, 1997 ($41.94)outstanding shares may be issued in
any year under the Plan (combined with any such shares issued under the Annual
Executive Individual Performance Plan).
RIGHTS. Restricted stockholders have voting and dividend rights.
ORIGINAL VESTING SCHEDULE. The restricted shares, when originally issued,
vested overAmounts payable under the Plan are generally paid in the year in which they are
earned or during the following year. However, a five-year period, with:
- 10%recipient may elect to defer
receipt of all or any portion of the shares vesting two years afteramounts payable under the grantPlan until a
specified 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,
-until termination of employment, with the Company, or
-but deferrals will be paid
immediately upon a change of control. (6) RepresentsDeferrals may be credited with growth
rates, determined by the total return that would result from investments in
certain registered investment companies selected from time to time by the
Company, contributionsthe allocation among which is determined by the participant.
PLAN ADMINISTRATION
The Compensation Committee administers the Plan and makes all decisions
regarding the operation of the Plan and payments under it. The Compensation
Committee may amend or terminate the Plan at any time and for any reason.
PLAN BENEFITS TABLE
The table on the next page identifies the amounts that would be payable under
the PROFIT SHARING PLAN.
32Corporate Executive Bonus Plan, as amended, for 2000, based on:
- 1999 base salaries and target bonuses (except that the 2000 base salary
and target bonus is used for an executive officer who joined the Company
in February 2000), and
- the Company's 1999 net revenue growth of 44% and pre-tax profit margin of
24.6%.
On that basis, the Company's net revenues would increase by approximately $1.7
billion to $5.6 billion, and its pre-tax profit would increase by approximately
$420 million to $1.4 billion. On the other hand, if the Company's pre-tax profit
margin in 2000 were 15%, and net revenue declined by more than 5%, no bonuses
would be payable under the Plan.
40
[side bar]
GENERAL DESCRIPTION OF
THE CORPORATE
EXECUTIVE BONUS PLAN
OPTION GRANTS
- --------------------------------------------------------------------------------
This table shows stock option grants to the Named Executive Officers during the
last fiscal year.APPENDIX B DESCRIPTION OF THE CORPORATE EXECUTIVE BONUS PLAN
OPTIONS GRANTED IN 1997
INDIVIDUAL GRANTS POTENTIAL REALIZABLEPLAN BENEFITS
CORPORATE EXECUTIVE
BONUS PLAN (3)
NAME DOLLAR VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE APPRECIATION
FOR OPTION TERM (3)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR
OPTIONS EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED (#) (1) IN FISCAL YEAR ($/SH) (2) DATE 5% ($) 10% ($)
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 0 0% N/A
-- N/A N/AChairman and Co-Chief Executive Officer (1)
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$11,200,000
President and Co-Chief Executive Officer
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$555,156
Vice Chairman, Executive Vice President and Chief Information Officer
LINNET F. DEILY $528,859
Vice Chairman and Executive Vice President
STEVEN L. SCHEID $513,276
Vice Chairman and Executive Vice President
LON GORMAN $461,656
Vice Chairman and Executive Vice President
ALL CURRENT PARTICIPATING EXECUTIVE OFFICERS, AS A GROUP (17 PERSONS) $17,804,345
ALL CURRENT DIRECTORS WHO ARE NOT EXECUTIVE OFFICERS, AS A GROUP(2) N/A
ALL CURRENT EMPLOYEES, OTHER THAN EXECUTIVE OFFICERS, AS N/A
A GROUP(2)
(1) Mr. Schwab does not participate in the Corporate Executive Bonus Plan.
(2) Only executive officers are eligible to participate in the Corporate Executive Bonus Plan.
(3) The following chart lists the 1999 base salaries used in calculating the bonuses shown in the above table for the named
executive officers who participate in the Corporate Executive Bonus Plan. These options are:
- generally granted as 50% non-statutory stock options and 50%
incentive stock options (subject to limitation imposed by tax
law),
- granted at an exercise price equal to 100% of the fair market value
of the common stock on the date of grant,
- expire ten years from the date of grant, unless otherwise earlier
terminated in certain events related to termination of employment,
and
- vest in 25% increments on each anniversary date of the grant,
subject to the terms and conditions of the 1992 Plan.
(2) Options with exercise prices of:
- $26.0833 were granted on February 26, 1997,
- $30.9583 were granted on August 1, 1997, and
- $30.5000 were granted on July 16, 1997.
(3) We are required by the Securities and Exchange Commission to use a 5% and
10% assumed rate of appreciation over the ten-year option term. This does
not represent the Company's estimate or projection of the future common
stock price. If the Company's common stock does not appreciate, the Named
Executive Officers will receive no benefit from the options.
33
OPTIONS EXERCISED
- --------------------------------------------------------------------------------
This table shows stock option exercises and the value of unexercised stock
options held by the Named Executive Officers during the last fiscal year.
AGGREGATED OPTION EXERCISES IN 1997
AND FISCAL YEAR-END OPTION VALUES
NO. OF SECURITIES
VALUE UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES ACQUIRED REALIZED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
ON EXERCISE (#) ($)(1) YEAR-END (#) AT YEAR-END ($)(2)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -----------------------------------------------------------------------------------------------------------------------------BASE SALARY
---------------------------------------
CHARLES R. SCHWAB -- -- 1,893,750 375,000 $68,774,816 $9,355,469
DAVID S.MR. 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.$800,004
MS. LEPORE 45,000 $1,015,417 367,500 101,250 $12,564,014 $1,925,508$475,000
MS. DEILY $452,500
MR. SCHEID $439,167
MR. GORMAN $399,933
No executive officer had a 1999 base salary higher than Mr. Pottruck's.
(1) This number is calculated by:
- averaging the high and low market prices41
[side bar]
PLAN BENEFITS TABLE
WWW.SCHWAB.COM
THE CHARLES SCHWAB CORPORATION 101 MONTGOMERY STREET SAN FRANCISCO, CA 94104
415.627.7000 NYSE STOCK SYMBOL: SCH
[Recycled symbol appears here] PRINTED ON RECYCLED PAPER.
MKT3902-1 (3/00)
THE CHARLES SCHWAB CORPORATION
CORPORATE EXECUTIVE BONUS PLAN
(AMENDED AND RESTATED, EFFECTIVE JANUARY 1, 2000)
I. PURPOSES
The purposes of this Corporate Executive Bonus Plan (the "Plan") are:
(a) to provide greater incentive for key executives continually to
exert their best efforts on the datebehalf of exercise
to get the "average market price,"
- subtracting the option exercise price from the average market
price to get the "average value realized per share," and
- multiplying the average value realized per share by the number of
options exercised.
The amounts in this column may not represent amounts actually realized by
the Named Executive Officers.
(2) This number is calculated by:
- subtracting the option exercise price from the Company's December
31, 1997 average market price ($42.03 per share, as reported on
the New York Stock Exchange Composite Transactions Index) to get
the "average value per option," and
- multiplying the average value per option by the number of
exercisable and unexercisable options.
The amounts in this column may not represent amounts actually realized by
the Named Executive Officers.
34
OTHER INFORMATION
- --------------------------------------------------------------------------------
CERTAIN TRANSACTIONS
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
STOCKHOLDER PROPOSALS
CERTAIN TRANSACTIONS
Certain directors and executive officers maintain margin trading accounts with
Schwab. Extensions of credit in such accounts are made in the ordinary course of
Schwab's business, are made on substantially the same terms including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unaffiliated persons, and do not involve more than the normal
risk of collectibility or 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(the "Company") by rewarding them for distributingservices rendered with
compensation that is in addition to their regular salaries; (b) to
attract and soliciting proxies and reimburses brokers,
nominees, fiduciaries and other custodians reasonable fees and expensesto retain in forwarding proxy materials to stockholders. The Company is not using an outside
proxy solicitation firm this year, but employeesthe employ 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 completepersons of
outstanding competence; and return(c) to usfurther 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 Orderidentity of interests of
such employees with those 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 DESCRIPTIONCompany's stockholders through a
strong performance-based reward system.
II. FORM OF THE 1992 PLAN
GENERAL DESCRIPTION OF THE 1992 PLAN
PURPOSE.
The purpose of the 1992 Plan is to promote the long-term success of the Company
and the creation of incremental stockholder value by:
- - encouraging non-employee directors and key employees to focus on long-range
objectives,
- - encouraging the attraction and extention of non-employee directors and key
employees with exceptional qualifications, and
- - linking the interests of non-employee directors and key employees directly
to stockholder interests.
ELIGIBILITY TO RECEIVE AWARDS.
Key employees of the Company and its subsidiaries, including directors who are
also employees, are eligible forAWARDS
1. Incentive compensation awards under this Plan shall be generally
granted in cash, less any applicable withholding taxes; provided
that the 1992 Plan. Non-employee
directors are eligible forCommittee may determine, from time to time, that all or
a portion of any award may be paid in the form of an annual, automatic grantequity based
incentive, including without limitation stock options, restricted
shares, or outright grants of nonqualified options
each year. As of December 31, 1997, approximately 3,078 persons had received
awards under the 1992 Plan.
LIMITS ON AWARDS.
If the amendment is approved, the maximumCompany stock. The number of shares
that may beand stock options granted
to any one participant in any one year, will be increased:
- - from 500,000when added to 2,250,000the number
of shares and stock options granted for shares subjectsuch year pursuant to options,
- - from 200,000 to 900,000the
Company's Annual Executive Individual Performance Plan, shall in
no event exceed .5% of the outstanding shares as Restricted Shares, and
- - from 200,000 to 900,000 shares as Performance Share Awards.
If the amendment is approved, these annual limits will be subject to automatic
adjustment to reflect any future stock splits, stock dividends or other similar
events.
TYPES OF AWARDS.
Awards under the 1992 Plan may take the form of Restricted Shares, Performance
Share Awards and options to acquire common stock of the Company.
- - Restricted Shares are similar to common stock in that they haveIII. DETERMINATION OF AWARDS
1. Incentive awards for participants other than the same
voting and dividend rights, but Restricted Shares are subject to forfeiture
in the event that the applicable vesting conditions are not satisfied.
- - A Performance Share Award is an obligation of the Company to issue and
deliver in the future shares of common stock in the event that the
applicable conditions are satisfied.
- - An option is the right to acquire common stock at an exercise price at
least equal to the fair market value price of Company stock on the date of
grant. Options include nonqualified stock options ("NSOs") and incentive
stock options ("ISOs"). ISOs are intended to qualify for special tax
treatment. Options are subjectPresident/
Co-Chief Executive Officer shall be determined quarterly
according to a vesting schedule.
37
APPENDIX
- --------------------------------------------------------------------------------
GENERAL DESCRIPTION OF THE 1992 PLAN
Any award underCorporate Performance Payout Matrix that shall
be adopted at the 1992 Plan may include onebeginning of these grant types or a
combination of several grant types, except that non-employee directors will only
be eligible to receive NSOs.
No payment is required upon the grant of any award, except for payment of the
par value of any Restricted Shares awarded. Upon exercise of an option, the
optionee must pay the exercise price thereof to the Company. On March 12, 1998,
the closing price of the Company's common stock was $39.19 per share.
As of December 31, 1997, a total of 14,281,353 shares (subject to antidilution
provisions) were issuable as Restricted Shares, or pursuant to Performance Share
Awards and options under the 1992 Plan. Under the terms of the 1992 Plan, if:
- - any Restricted Shares, Performance Share Awards or options are forfeited,
- - any Performance Share Awards terminate for any other reason without the
associated common stock being issued, or
- - options terminate for any other reason prior to exercise,
then the underlying shares again become available for awards.
ADMINISTRATION, AMENDMENT AND TERMINATION.
The 1992 Plan is administeredeach year by the Compensation
Committee of the Board of Directors (the "Committee"). The
Management Committee upon adviceCorporate Performance Payout Matrix shall
use net revenue growth and consolidated pretax profit margin
as the financial performance criteria to determine awards.
Awards shall be defined by reference to a target percentage of
base salary determined, from time to time, by the Committee.
Payouts described in this subsection shall be calculated and paid
on a quarterly basis, based on year-to-date performance
compared with the comparable period in the preceding year.
2. With respect to payments made pursuant to Section III.1, the
amount of base salary included in the computation of incentive
awards shall not exceed 250% of the base salary in effect for the
officer holding the same or substantially similar position on
March 31, 2000. In addition, for all participants other than the
President/Co-Chief Executive Officer, (i) the maximum target
incentive percentage shall be 100% of base salary and (ii) the
maximum award shall be 400% of the participant's target award.
3. Incentive awards for the President/Co-Chief Executive Officer
shall be determined in accordance with a Corporate Performance
Payout Matrix that shall be adopted at the beginning of each year
by the Committee. The Committee shall determine the
President/Co-Chief Executive Officer's award each year, up to the
maximum amount defined by the matrix for a given level of
performance. This matrix may, if the Committee deems appropriate,
differ from that described in Subsection III.1. However, the
performance criteria shall be the same as referred to above.
Payouts for the President/Co-Chief Executive Officer shall be
made on an annual basis, based on the Company's results for the
full year.
4. The maximum award payable for the President/Co-Chief Executive
Officer under this plan shall be no more than 500% of his target
incentive award. The target incentive amount shall be determined
each year by the Committee, but may not exceed 500% of base
salary. The amount of base salary taken into account for purposes
of computing the target incentive award may not exceed 250% of the
President/Co-Chief Executive Officer's base salary as of March 31,
2000.
5. Notwithstanding anything to the contrary contained in this Plan,
the Committee shall have the power, in its sole discretion, to
reduce the amount payable to any Participant (or to determine that
no amount shall be payable to such Participant) with respect to
any award prior to the time the amount otherwise would have become
payable hereunder. In the event of such a reduction, the amount of
such reduction shall not increase the amounts payable to other
participants under the Plan.
IV. ADMINISTRATION
1. Except as otherwise specifically provided, the Plan shall be
administered by the Committee. The Committee members shall be
appointed pursuant to the Bylaws of the Company, and the members
thereof shall be ineligible for awards under this Plan for
services performed while serving on said Committee.
2. The decision of the Committee with respect to any questions
arising as to interpretation of the Plan, including the
severability of any and all of the provisions thereof, shall be,
in its sole and absolute discretion, final, conclusive and
binding.
V. ELIGIBILITY FOR AWARDS
1. Awards under the Plan may be granted by the Committee to those
employees who have contributed the most in a general way to the
Company's success by their ability, efficiency, and loyalty,
consideration being given to ability to succeed in more important
managerial responsibility in the Company. This is intended to
include the President/Co-Chief Executive Officer, Vice Chairmen,
Executive Vice Presidents, and from time to time, certain other
officers having comparable positions.
No award may be granted to a member of the Company's executive management,
- - selects the key employees who will receive awards,
- - determines the amount, vesting requirements, performance criteria, if any,
and other conditionsBoard of
each award,
- - interprets the provisionsDirectors except for services performed as an employee of the
1992 Plan, and
- - makes all other decisions regarding the operation of the 1992 Plan.
The grant of NSOs to non-employee directors is made annually, and the Committee
has no discretion with respect to those awards.
GRANTS OF OPTIONS TO NON-EMPLOYEE DIRECTORS.
Under the 1992 Plan, each non-employee director receives an annual, automatic
grant of options to purchase 1,500 shares of common stock (2,500 shares of
common stock if the exercise price is less than $35). This grant is made on and
as of May 15 of each year, and if May 15 is not a business day, then the grant
is made on and as of the next succeeding business day.
RESTRICTED SHARES AND PERFORMANCE SHARE AWARDS.
Restricted Shares are nontransferable prior to vesting, except that they may be
transferred by gift to certain trusts and partnerships that have been formed
38Company.
APPENDIX
- --------------------------------------------------------------------------------
GENERAL DESCRIPTION OF THE 1992 PLAN
for the benefit of family members. Vesting is accelerated2. Except in the event of the
optionee'sretirement, death, or disability, or retirement, and mayto be
accelerated in the event
of a change in control, as defined below.
Performance Share Awards are nontransferable, and the recipient has no voting or
dividend rights until such time as the associated shares of common stock are
issued, at which time the recipient will have the same voting, dividend and
other rights as the Company's other stockholders.
When grantingeligible for an award an employee shall be employed by the
Committee determinesCompany as of the number of Performance Share
Awards or Restricted Shares to be included in the award as well as the vesting
or issuance conditions. The vesting or issuance conditions may be based on:
- - the employee's service,
- - his or her individual performance,
- - the Company's performance, or
- - other appropriate criteria.
Where Company performance is used as a vesting or issuance condition,
performance goalsdate awards are based on business criteria specifiedcalculated and approved by the
Committee selected from oneunder this Plan.
3. For purposes of this Plan, the term "employee" shall include an
employee of a corporation or other business entity in which this
Company shall directly or indirectly own 50% or more of the
following:
- - return on net assets,
- - net income,
- - earnings per share,
- - return on equity,
- - return on investment,
- - pretax income,
- - operating income,
- - cash flow,
- - stockholder return,
- - revenue,outstanding voting stock or - - revenue growth.
TERMS OF STOCK OPTIONS.other ownership interest.
VI. AWARDS
1. The exercise price of an option mustCommittee shall determine each year the payments, if any, to
be equal to or greatermade under the Plan. Awards for any calendar year shall be
granted not later than the fair market
valueend of common stock on the datefirst quarter of grant. Similarly, the
exercise price of
NSOs granted to non-employee directors must be equalcalendar year, and payments pursuant to the fair market valuePlan shall be made as
soon as practicable after the close of common stock oneach calendar quarter (or,
in the date of grant. For purposescase of the 1992 Plan, "fair market
value" is definedPresident/Co-Chief Executive Officer, as soon
as practicable after the closing priceclose of each calendar year).
2. Upon the Company's stock as reported by the
New York Stock Exchange Composite Transactions Index for the date of grant or
award.
The term of an ISO cannot exceed 10 years. Vesting conditions are established by
the Committee at the time an option is granted. Vesting is accelerated in the
event of the optionee's death, disability, or retirement, and may be accelerated
in the event of a change in control, as defined below.
Participants may transfer options (other than ISOs, which must be
nontransferable in order to qualify as ISOs) to certain trusts and partnerships
that have been formed for the benefit of family members.
39
APPENDIX
- --------------------------------------------------------------------------------
GENERAL DESCRIPTION OF THE 1992 PLAN
CHANGE IN CONTROL.
For the purposes of the 1992 Plan, the term "change in control" means:
- - any change in control which would have to be disclosed in the Company's
next proxy statement under the rules of the Securities and Exchange
Commission,
- - any person becoming the beneficial owner, directly or indirectly, of at
least 20% of the combined voting power of the Company's outstanding
securities, except by reason of a repurchase by the Company of its own
securities, or
- - a change in the composition of the Board of Directors as a result of which
fewer than two-thirds of the incumbent directors are directors who either:
- had been directors of the Company 24 months earlier, or
- were elected or nominated with the approval of at least a majority of
the directors who had been directors of the Company 24 months earlier
and who were still in office at the time of the election or
nomination.
FEDERAL TAX CONSEQUENCES
Under current federal income tax laws, the federal income tax consequencesgranting of awards under the 1992this Plan, caneach participant
shall be summarized as follows:
OPTIONS.
At the time the options are granted, theinformed of his or her award of stock options will have no
federal income tax consequencesby his or her direct
manager and that such award is subject to the Company or the optionee.
With respectapplicable
provisions of this Plan.
VII. DEFERRAL OF AWARDS
1. A participant in this Plan who is also eligible to NSOs, upon exercise of the option, the optionee generally will
recognize ordinary incomeparticipate in
an amount equalThe Charles Schwab Corporation Deferred Compensation Plan may
elect to the excess of the fair market
value of the optioned shares over the exercise price, at the time of exercise.
Such ordinary income will be subject to withholding tax, and the amount of
ordinary income recognized by the optionee generally will be deductible for tax
purposes by the Company in the same year that the income is recognized by the
optionee. Upon any subsequent disposition of the shares, any additional gain or
loss recognized by the holder generally will be capital gain or loss.
In contrast, the exercise of ISOs will not result in any regular taxable income
to the optionee at that time; nor will the Company be entitled to any deduction.
However, the excess of the fair market value of the optioned shares at the time
of exercise over the exercise price will be an item of tax preference for
purposes of computing alternative minimum taxable income. If the optionee holds
the optioned shares after exercise for the requisite statutory period, the
difference between the sale price and the exercise price generally will be taxed
as capital gain or loss.
If the optionee fails to hold the shares for the requisite statutory period, the
optionee generally will recognize ordinary income at the time of such early
40
APPENDIX
- --------------------------------------------------------------------------------
GENERAL DESCRIPTION OF THE 1992 PLAN
disposition in an amount equal to the excess of the fair market value of the
shares at exercise (or if less, the sales proceeds) over the exercise price, and
the Company generally will be entitled to a deduction in that same amount. Any
additional gain on the disposition generally will be taxed as capital gain.
RESTRICTED SHARES.
Unless the recipient of Restricted Shares elects to be taxed at the time of the
issuance, there will be no federal income tax consequences to the recipient or
to the Company for as long as the shares are subject to vesting restrictions. If
and when such shares become vested, the recipient will recognize ordinary income
in an amount equal to the excess of the fair market value of the shares on such
date over any amount paid for the shares. Such income will be subject to
withholding tax at that time. The Company generally will be entitled to a
corresponding deduction in the same amount that the recipient recognizes as
income. 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.
The grant of Performance Share Awards will have no federal income tax
consequences to the Company or the recipient at the time of the grant. When any
common stock is delivered to a recipientdefer payments pursuant to the terms of that plan.
VIII. RECOMMENDATIONS AND GRANTING OF AWARDS
1. Recommendations for awards shall be made to the Performance Share Award,Committee by the
recipient generally will recognize as ordinary
incomeCo-Chief Executive Officers, except that, with respect to the
excessPresident/Co-Chief Executive Officer, recommendations for awards
shall be made solely by the Chairman/Co-Chief Executive Officer.
2. Any award shall be made in the sole discretion of the fair market value ofCommittee,
which shall take final action on any such award. No person shall
have a right to an award under this Plan until final action has
been taken granting such award.
IX. AMENDMENTS AND EXPIRATION DATE
While it is the shares over any amount paid.
Such income will be subject to withholding tax, and the Company generally will
be entitled to a corresponding deduction in the same amount that the recipient
recognizes as income. Upon any subsequent disposition of the shares, any
additional gain or loss recognized by the holder generally will be capital gain
or loss. To date, no Performance Share Awards have been granted under the 1992
Plan.
OPTIONS AND RESTRICTED SHARES GRANTED UNDER THE 1992 PLAN.
As of December 31, 1997, a total of 9,717,900 shares have been granted subject
to options or as Restricted Shares to current executive officers. Of these,
2,271,000 shares have been granted to Charles R. Schwab; 2,406,000 to David S.
Pottruck; 270,000 to Timothy F. McCarthy; 978,000 to Tom D. Seip; and 590,100 to
Dawn G. Lepore.
Of shares granted subject to options or as Restricted Shares:
- - 180,750 shares have been granted to non-employee directors, and
- - 13,509,320 shares have been granted to employees other than executive
officers.
41
The Charles Schwab Corporation - 101 Montgomery Street, San Francisco, CA 94104
(415) 627-7000 www.schwab.com NYSE Stock Symbol: SCH
TF5538 (3/98)
PROXY THE CHARLES SCHWAB CORPORATION PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON MAY 11, 1998
I/We hereby appoint Charles R. Schwab and David S. Pottruck, or either of
them, proxies (each having the full power of substitution and revocation) to
represent me/us and to vote as instructed in this Proxy, the number of shares
of common stock of the Corporation set forth on the reverse side, which shares
I/we have the power to vote at the Annual Meeting of Stockholders to be held
on May 11, 1998. This Proxy also conveys the powers listed in the prior
sentence for any adjournment or postponement of the meeting. The Proxies are
authorized in their discretion to vote upon such business as may properly come
before the meeting.
THIS PROXY MAY ALSO RELATE TO SHARES HELD UNDER THE CHARLES SCHWAB
CORPORATION DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN, THE CHARLES SCHWAB
CORPORATION PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN, AND/OR THE
CHARLES SCHWAB CORPORATION 401(k) PLAN.
The shares covered by this proxy will be voted in accordance with the
directions made on the reserve side. The Board of Directors proposes and
recommends a vote "FOR" the election of each nominee for director and the
amendment to the 1992 Stock Incentive Plan. IF THIS PROXY CARD IS SIGNED, BUT
NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR" ALL LISTED NOMINEES FOR
DIRECTOR AND THE AMENDMENT TO THE 1992 STOCK INCENTIVE PLAN.
(CONTINUED, AND TO BE SIGNED AND DATED, ON THE REVERSE SIDE)
-----------------
VOTE BY TELEPHONE COMPANY #
CALL TOLL FREE *** ON A TOUCH TONE TELEPHONE CONTROL #
1-800-240-6326 -- ANYTIME -----------------
- --------------------------------------------------------------------------------
Your telephone vote authorizes the named proxies to vote your shares in the
same manner as if you marked, signed and returned your proxy card. The
deadline for telephone voting is noon (ET), one business day prior to the
annual meeting date. By voting by phone, you authorize each of the proxies to
vote, in their discretion, upon any items of business in addition to the
proposals described below as may properly come before the meeting.
1. Using a touch-tone telephone, dial 1-800-240-6326. You may dial this toll
free number at your convenience 7 days/week, 24 hrs/day.
2. When prompted, enter the 3 digit Company Number located in the box in the
upper right hand corner.
3. When prompted, enter your 7 digit numeric Control Number below the company
number.
OPTION #1: To vote as THE CHARLES SCHWAB CORPORATION Board of Directors
recommends on ALL proposals: Press 1
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1 -- THANK YOU
FOR VOTING
OPTION #2: If you choose to vote on each proposal separately, Press 0. You
will hear these instructions:
PROPOSAL 1: To vote FOR ALL nominees, press 1; to WITHHOLD
AUTHORITY TO VOTE FOR ALL nominees, press 9; to
WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL nominee,
press 0 and listen to the instructions.
PROPOSAL 2: To vote FOR Proposal 2, press 1; to vote AGAINST
Proposal 2, press 9; to ABSTAIN, press 0.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1 -- THANK YOU FOR VOTING
IF YOU VOTE BY TELEPHONE, DO NOT MAIL BACK YOUR PROXY
-- PLEASE DETACH HERE --
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSALS.
1. Election of Directors-- / / For All / / Withhold All / / For All
Nominees: Donald G. Fisher and EXCEPT THOSE WHOSE NAME(S) APPEAR BELOW
Anthony M. Frank
_______________________________________
2. Approval of Amendment to / / For / / Against / / Abstain
the 1992 Stock Incentive Plan.
The Board of Directors proposes and recommends a vote "FOR" the Proposals.
This Proxy will be voted as directed. If the proxy card is signed and no
direction is given, this proxy will be voted in accordance with the Board of
Directors' recommendation.
Dated:____________________________, 1998
________________________________________
(Signature)
________________________________________
(Signature)
NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS
HEREON. JOINT OWNERS SHOULD EACH SIGN.
WHEN SIGNING AS A FIDUCIARY OR FOR AN
ESTATE, TRUST, CORPORATION OR
PARTNERSHIP, YOUR TITLE OR CAPACITY
SHOULD BE STATED.
THE CHARLES SCHWAB CORPORATION
1992 STOCK INCENTIVE PLAN
(RESTATED TO INCLUDE AMENDMENTS
APPROVED BY THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS THROUGH MARCH 1998)
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board of Directors on March 26, 1992. The
purpose of the Plan is to promote the long-term successpresent intention of the Company andto grant awards
annually, the creationCommittee reserves the right to modify this Plan from
time to time or to repeal the Plan entirely, or to direct the
discontinuance of incremental stockholder value by (a) encouraging Non-Employee
Directors and Key Employeesgranting awards either temporarily or permanently;
provided, however, that no modification of this plan shall operate to
focus on long-range objectives, (b) encouragingannul, without the attraction and retentionconsent 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 formbeneficiary, an award already granted hereunder; provided, also,
that no modification without approval of Restricted Shares, Performance
Share Awards or Options,the stockholders shall in-
crease the maximum amount which may constitute incentive stock options or
nonstatutory stock options. Thebe awarded as hereinabove provided.
X. MISCELLANEOUS
All expenses and costs in connection with the operation of this Plan
shall be governedborne by the Company and no part thereof shall be charged
against the awards anticipated by the Plan. Nothing contained herein
shall be construed as a guarantee of continued employment of any
participant hereunder. This Plan shall be construed and governed in
accordance with the laws of the State of Delaware.
ARTICLE 2. ADMINISTRATION.
2.1California.
THE COMMITTEE.CHARLES SCHWAB CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
WEDNESDAY, MAY 3, 2000
2:00 P.M.
SAN FRANCISCO WAR MEMORIAL AND
PERFORMING ARTS CENTER
HERBST THEATER
401 VAN NESS AVENUE
SAN FRANCISCO, CALIFORNIA
THIS YEAR, THE ANNUAL MEETING OF STOCKHOLDERS WILL BE BROADCAST
OVER THE INTERNET. FOR INFORMATION ABOUT THE REAL-TIME
WEBCAST, VISIT WWW.SCHWABEVENTS.COM
[THE
CHARLES
SCHWAB
CORPORATION THE CHARLES SCHWAB CORPORATION
LOGO APPEARS 101 MONTGOMERY STREET
HERE] SAN FRANCISCO, CA 94104 PROXY
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON MAY 3, 2000.
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.
2
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 intended to qualify as an ISO. The Exercise Price of a Replacement Option
shall be no less than the Fair Market Value of a Common Share on the date the
grant of the Replacement Option becomes effective. The term of each
Replacement Option shall be equal to the remaining term of the Underlying
Option. No Replacement Options shall be granted to Optionees when Underlying
Options are exercised pursuant to the terms of the Plan and the Underlying
Option Agreement following termination of the Optionee's employment. The
Committee, in its sole discretion, may establish such other terms and
conditions for Replacement Options as it deems appropriate.
5.10 OPTIONS GRANTED TO NON-UNITED STATES KEY EMPLOYEES. In the case of
Key Employees who are subject to the tax laws of a foreign jurisdiction, the
Company may issue Options to such Key Employees that contain terms required to
conform with any requirements for favorable tax treatment imposed by the laws of
such foreign jurisdiction, or as otherwise may be required by the laws of such
foreign jurisdiction. The terms of any such Options shall be governed by the
Plan, subject to the terms of any Addendum to the Plan specifically applicable
to such Options.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 GENERAL RULE. The entire Exercise Price of Common Shares issued upon
exercise of Options shall be payable in cash at the time when such Common Shares
are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall be
made only pursuant to the express provisions of the applicable Stock
Option Agreement. However, the Committee may specify in the Stock
Option Agreement that payment may be made pursuant to Section 6.2
or 6.3.
(b) In the case of an NSO, the Committee may at any time accept
payment pursuant to Section 6.2 or 6.3.
6.2 SURRENDER OF STOCK. To the extent that this Section 6.2 is
applicable, payment for all or any part of the Exercise Price may be made with
Common Shares which are surrendered to the Company. Such Common Shares shall be
valued at their Fair Market Value on the date when the new Common Shares are
purchased under the Plan. In the event that the Common Shares being surrendered
are Restricted Shares that have not yet become vested, the same restrictions
shall be imposed upon the new Common Shares being purchased.
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, the number of Performance Share Awards
shall be subject to adjustment pursuant to Article 10.
7.5 DEATH OF RECIPIENT. Any Common Shares that are to be issued pursuant
to a Performance Share Award after the recipient's death shall be delivered or
distributed to the recipient's beneficiary or beneficiaries. Each recipient of a
Performance Share Award under the Plan shall designate one or more beneficiaries
for this purpose by filing the prescribed form with the Company. A beneficiary
designation may be changed by filing the prescribed form with the Company at any
time before the Award recipient's death. If no beneficiary was designated or if
no designated beneficiary survives the Award recipient, then any Common Shares
that are to be issued pursuant to a Performance Share Award after the
recipient's death shall be delivered or distributed to the recipient's estate.
The Committee, in its sole discretion, shall determine the form and time of any
distribution(s) to a recipient's beneficiary or estate.
ARTICLE 8. CLAIMS PROCEDURES.
Claims for benefits under the Plan shall be filed in writing with the
Committee on forms supplied by the Committee. Written notice of the disposition
of a claim shall be furnished to the claimant within 90 days after the claim is
filed. If the claim is denied, the notice of disposition shall set forth the
specific reasons for the denial, citations to the pertinent provisions of the
Plan, and, where appropriate, an explanation as to how the claimant can perfect
the claim. If the claimant wishes further consideration of his or her claim, the
claimant may appeal a denied claim to the Committee (or to a person designated
by the Committee) for further review. Such appeal shall be filed in writing with
the Committee on a form supplied by the Committee, together with a written
statement of the claimant's position, no later than 90 days following receipt by
the claimant of written notice of the denial of his or her claim. If the
claimant so requests, the Committee shall schedule a hearing. A decision on
review shall be made after a full and fair review of the claim and shall be
delivered in writing to the claimant no later than 60 days after the Committee's
receipt of the notice of appeal, unless special circumstances (including the
need to hold a hearing) require an extension of time for processing the appeal,
in which case a written decision on review shall be delivered to the claimant as
soon as possible but not later than 120 days after the Committee's receipt of
the appeal notice. The claimant shall be notified in writing of any such
extension of time. The written decision on review shall include specific reasons
for the decision, written in a manner calculated to be understood by the
claimant, and shall specifically refer to the pertinent Plan provisions on which
it is based. All determinations of the Committee shall be final and binding on
Participants and their beneficiaries.
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 ofyou hold in your account, as well as any class, the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class. Any issue by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or Exercise Price of Common
Shares subject to an Option. The grant of an Award pursuant to the Plan shall
not affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.
ARTICLE 11. LIMITATION OF RIGHTS.
11.1 EMPLOYMENT RIGHTS. Neither the Plan nor any Award grantedyou hold
under the
Plan shall be deemed to give any individual a right to remain employed by the
Company or any Subsidiary. The Company and its Subsidiaries reserve the right to
terminate the employment of any employee at any time, with or without cause,
subject only to a written employment agreement (if any).
11.2 STOCKHOLDERS' RIGHTS. A Participant shall have no dividend rights,
voting or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the issuance of such Common Shares, whether
by issuance of a certificate, book entry or other procedure. No adjustment
shall be made for cash dividends or other rights for which the record date is
prior to the date when such certificate is issued, except as expressly provided
in Articles 7, 9 and 10.
11.3 CREDITORS' RIGHTS. A holder of Performance Share Awards shall have no
rights other than those of a general creditor of the Company. Performance Share
Awards represent unfunded and unsecured obligations of the Company, subject to
the terms and conditions of the applicable Stock Award Agreement.
11.4 GOVERNMENT REGULATIONS. Any other provision of the Plan
notwithstanding, the obligations of the Company with respect to Common Shares to
be issued pursuant to the Plan shall be subject to all applicable laws, rules
and regulations, and such approvals by any
9
governmental agencies as may be required. The Company reserves the right to
restrict, in whole or in part, the delivery of Common Shares pursuant to any
Award until such time as:
(a) Any legal requirements or regulations have been met relating to
the issuance of such Common Shares or to their registration,
qualification or exemption from registration or qualification under
the Securities Act of 1933, as amended, or any applicable state
securities laws; and
(b) Satisfactory assurances have been received that such Common
Shares, when issued, will be duly listed on the New York Stock
Exchange or any other securities exchange on which Common Shares are
then listed.
ARTICLE 12. LIMITATION OF PAYMENTS.
12.1 BASIC RULE. Any provision of the Plan to the contrary
notwithstanding, in the event that the independent auditors most recently
selected by the Board (the "Auditors") determine that any payment or transfer in
the nature of compensation to or for the benefit of a Participant, whether paid
or payable (or transferred or transferable) pursuant to the terms of this Plan
or otherwise (a "Payment"), would be nondeductible for federal income tax
purposes because of the provisions concerning "excess parachute payments" in
section 280G of the Code, then the aggregate present value of all Payments shall
be reduced (but not below zero) to the Reduced Amount; provided, however, that
the Committee, at the time of making an Award under this Plan or at any time
thereafter, may specify in writing that such Award shall not be so reduced and
shall not be subject to this Article 12. For purposes of this Article 12, the
"Reduced Amount" shall be the amount, expressed as a present value, which
maximizes the aggregate present value of the Payments without causing any
Payment to be nondeductible by the Company because of section 280G of the Code.
12.2 REDUCTION OF PAYMENTS. If the Auditors determine that any Payment
would be nondeductible because of section 280G of the Code, then the Company
shall promptly give the Participant notice to that effect and a copy of the
detailed calculation thereof and of the Reduced Amount, and the Participant may
then elect, in his or her sole discretion, which and how much of the Payments
shall be eliminated or reduced (as long as after such election, the aggregate
present value of the Payments equals the Reduced Amount) and shall advise the
Company in writing of his or her election within 10 days of receipt of notice.
If no such election is made by the Participant within such 10-day period, then
the Company may elect which and how much of the Payments shall be eliminated or
reduced (as long as after such election the aggregate present value of the
Payments equals the Reduced Amount) and shall notify the Participant promptly of
such election. For purposes of this Article 12, present value shall be
determined in accordance with section 280G(d)(4) of the Code. All determinations
made by the Auditors under this Article 12 shall be binding upon the Company and
the Participant and shall be made within 60 days of the date when a Payment
becomes payable or transferable. As promptly as practicable following such
determination and the elections hereunder, the Company shall pay or transfer to
or for the benefit of the Participant such amounts as are then due to him or her
under the Plan, and shall
10
promptly pay or transfer to or for the benefit of the Participant in the
future such amounts as become due to him or her under the Plan.
12.3 OVERPAYMENTS AND UNDERPAYMENTS. As a result of uncertainty in the
application of section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Company which should not have been made (an "Overpayment") or that
additional Payments which will not have been made by the Company could have been
made (an "Underpayment"), consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which he or she shall repay to the
Company on demand, together with interest at the applicable federal rate
provided in section 7872(f)(2) of the Code; provided, however, that no amount
shall be payable by the Participant to the Company if and to the extent that
such payment would not reduce the amount which is subject to taxation under
section 4999 of the Code. In the event that the Auditors determine that an
Underpayment has occurred, such Underpayment shall promptly be paid or
transferred by the Company to or for the benefit of the Participant, together
with interest at the applicable federal rate provided in section 7872(f)(2) of
the Code.
12.4 RELATED CORPORATIONS. For purposes of this Article 12, the term
"Company" shall include affiliated corporations to the extent determined by the
Auditors in accordance with section 280G(d)(5) of the Code.
ARTICLE 13. WITHHOLDING TAXES.
13.1 GENERAL. To the extent required by applicable federal, state, local
or foreign law, the recipient of any payment or distribution under the Plan
shall make arrangements satisfactory to the Company for the satisfaction of any
withholding tax obligations that arise by reason of such payment or
distribution. The Company shall not be required to make such payment or
distribution until such obligations are satisfied.
13.2 NONSTATUTORY OPTIONS, RESTRICTED SHARES OR PERFORMANCE SHARE AWARDS.
The Committee may permit an Optionee who exercises NSOs, or who receives Awards
of Restricted Shares, or who receives Common Shares pursuant to the terms of a
Performance Share Award, to satisfy all or part of his or her withholding tax
obligations by having the Company withhold a portion of the Common Shares that
otherwise would be issued to him or her under such Awards. Such Common Shares
shall be valued at their Fair Market Value on the date when taxes otherwise
would be withheld in cash. The payment of withholding taxes by surrendering
Common Shares to the Company, if permitted by the Committee, shall be subject to
such restrictions as the Committee may impose, including any restrictions
required by rules of the Securities and Exchange Commission.
11
ARTICLE 14. ASSIGNMENT OR TRANSFER OF AWARD.
14.1 GENERAL RULE. Any Award granted under the Plan shall not be
anticipated, assigned, attached, garnished, optioned, transferred or made
subject to any creditor's process, whether voluntarily, involuntarily or by
operation of law, except to the extent specifically permitted by Section 14.2.
14.2 EXCEPTIONS TO GENERAL RULE. Notwithstanding Section 14.1, this
Plan shall not preclude (i) a Participant from designating a beneficiary to
succeed, after the Participant's death, to those of the Participant's Awards
(including without limitation, the right to exercise any unexercised Options)
as may be determined by the Company from time to time in its sole discretion,
(ii) a transfer of any Award hereunder by will or the laws of descent or
distribution, or (iii) a voluntary transfer of an Award (other than an ISO) to
a trust or partnership for the exclusive benefit of one or more members of the
Participant's family, but only if the Participant has sole investment control
over such trust or partnership.
ARTICLE 15. FUTURE OF PLANS.
15.1 TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on May 8, 1992. The Plan shall remain in effect until it is terminated
under Section 15.2, except that no ISOs shall be granted after May 7, 2002.
15.2 AMENDMENT OR TERMINATION. The Committee may, at any time and for 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:
12
(a) A change in control required to be reported pursuant to Item 6(e)
of Schedule 14A of Regulation 14A under the Exchange Act;
(b) A change in the composition of the Board, as a result
of which fewer than two-thirds of the incumbent directors are
directors who either (i) had been directors of the Company 24
months prior to such change or (ii) were elected, or nominated for
election, to the Board with the affirmative 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 Dividend Reinvestment and Stock Purchase
Plan and/or The SchwabPlan Retirement Savings and Investment Plan, will be voted
as you specify on the reverse side.
IF NO CHOICE IS SPECIFIED, YOUR SHARES WILL BE VOTED "FOR" ITEMS 1 AND 2.
By signing the proxy, you revoke all prior proxies and appoint Charles R. Schwab
and David S. Pottruck, and each of them, with full power of substitution, to
vote your shares on the matters shown on the reverse side and any other matters
which may come before the Annual Meeting and all adjournments.
See reverse for voting instructions.
COMPANY #
CONTROL #
THERE ARE THREE WAYS TO VOTE YOUR SHARES
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES
IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
VOTE BY PHONE - TOLL FREE - 1-800-240-6326 - QUICK *** EASY *** IMMEDIATE
- - Use any touch-tone telephone to vote your proxy 24 hours a Delaware
corporation.
16.9 "ERISA" meansday, 7 days a
week, until 12:00 p.m., Central time, on May 2, 2000.
- - You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above.
- - Follow the Employee Retirement Income Security Act of 1974,
as amended.
16.10 "Exchange Act" meanssimple instructions the Securities Exchange Act of 1934, as
amended.
16.11 "Exercise Price" meansvoice provides you.
VOTE BY INTERNET - HTTP://WWW.EPROXY.COM/SCH - QUICK *** EASY *** IMMEDIATE
- - Use the amount forinternet to vote your shares 24 hours a day, 7 days a week until
12:00 p.m., Central time, on May 2. 2000.
- - You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which one Common Share may be
purchased upon exercise ofare located above to obtain your records and create an
Option, as specified byelectronic proxy.
- - You will have the Committeeoption to receive all future materials via the Internet.
VOTE BY MAIL
Mark, sign and date your proxy card and return it 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:
13
(a) If the Common Share was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equalpostage-paid
envelope we've provided or return it 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.
14
16.22 "Plan" means this 1992 Stock Incentive Plan of The Charles Schwab Corporation, as it may be amended from time to time.
16.23 "Replacement Option" means an Option that is granted when a
Participant uses a Common Share held or to be acquired by the Participant to
exercise an Option and/or to satisfy tax withholding requirements incident to
the exercise of an Option.
16.24 "Restricted Share" means a Common Share awarded to a Participant
under the Plan.
16.25 "Stock Award Agreement" means the agreement between the Company and
the recipient of a Restricted Share or Performance Share Award which contains
the terms, conditions and restrictions pertaining to such Restricted Share or
Performance Share Award.
16.26 "Stock Option Agreement" means the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions
pertaining to his or her option.
16.27 "Subsidiary" means any corporation, if the Company and/or one or
more other Subsidiaries own not less than 50 percent of the total combined
voting power of all classes of outstanding stock of such corporation.c/o
Shareowner Services(SM), P.O. Box 64873, St. Paul, MN 55164-0873
IF YOU VOTE BY PHONE OR INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD.
Please detach here
THE BOARD OF DIRECTORS RECOMMENDS A 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.
15
ADDENDUM A
The provisions of the Plan, as amended by the terms of this Addendum
A, shall apply to the grant of Approved Options to Key U.K. Employees.
1. For purposes of this Addendum A, the following definitions shall
apply in addition to those set out in section 16 of the Plan:
APPROVED OPTION means a stock option designed to qualify as an
approved executive share option under the Taxes Act;
INLAND REVENUE means the Board of the Inland Revenue in the
United Kingdom.
KEY U.K. EMPLOYEE means a designated employee of Sharelink Investment
Services plc or any subsidiary (as that term is defined in the
Companies Act 1985 of the United Kingdom, as amended) of which
Sharelink Investment Services plc has control for the purposes of
section 840 of the Taxes Act;
TAXES ACT means the Income and Corporation Taxes Act 1988 of the
United Kingdom.VOTE FOR ITEMS 1 AND 2.
An Approved Option may only be granted to a Key U.K. Employee who:
(i) is employed on a full-time basis; and
(ii) does not fall within the provisions of paragraph 8 of
Schedule 9 to the Taxes Act.
For purposes of this section 2(i) of Addendum A, "full-time" shall
mean an employee who is required to work 20 hours per week, excluding meal
breaks.
3. No Approved Option may be granted to a Key U.K. Employee if it
would cause the aggregate of the exercise price of all subsisting Approved
Options granted to such employee under the Plan, or any other subsisting
options granted to such employee under any other share option scheme approved
under Schedule 9 of the Taxes Act and established by the Company or an
associated company, to exceed the higher of (a) one hundred thousand pounds
sterling and (b) four times such employee's relevant emoluments for the
current or preceding year of assessment (whichever is greater); but where
there were no relevant emoluments for the previous year of assessment, the
limit shall be the higher of one hundred thousand pounds sterling or four
times such employee's relevant emoluments for the period of twelve months
beginning with the first day during the current year of assessment in respect
of which there are relevant emoluments. For the purpose of this section 3 of
Addendum A, "associated company"
16
means an associated company within the meaning of section 416 of the Taxes
Act; "relevant emoluments" has the meaning given by paragraph 28(4) of
Schedule 9 to the Taxes Act and "year of assessment" means a year beginning on
any April 6 and ending on the following April 5.
4. Common Shares issued pursuant to the exercise of Approved Options
must satisfy the conditions specified in paragraphs 10 to 14 of Schedule 9 to
the Taxes Act.
5. Notwithstanding the provisions of Section 5.4 of the Plan, the
exercise price of an Approved Option shall not be less than 100 percent of the
closing price of a Common Share as reported in the New York Stock Exchange
Composite Index on the date of grant.
6. No Approved Option may be exercised at any time by a Key U.K.
Employee when that Key U.K. Employee falls within the provisions of paragraph 8
of Schedule 9 to the Taxes Act. If at any time the shares under an Approved
Option cease to comply with the conditions in paragraphs 10 to 14 of Schedule 9
to the Taxes Act, then all Approved Options then outstanding shall lapse and
cease to be exercisable from the date of the shares ceasing so to comply, and no
optionee shall have any cause of action against the Company, Sharelink
Investment Services plc or any subsidiary of the Company or any other person in
respect thereof.
7. An Approved Option may contain such other terms, provisions and
conditions as may be determined by the Committee consistent with the Plan,
provided that the approved option otherwise complies with the requirements for
approved executive option schemes specified in Schedule 9 of the Taxes Act.
8. In relation to an Approved Option, notwithstanding the terms of
section 10.1 of the Plan, no adjustment shall be made pursuant to section 10.1
of the Plan to 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.
17
1. Election of directors: 01 Nancy H. Bechtle 02 C. Preston Butcher |_| Vote FOR |_| Vote WITHHELD
03 David S. Pottruck 04 George P. Shultz all nominees from all nominees
(except as marked)
________________________________________
(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. Re-approval Of Corporate Executive Bonus Plan, as amended. |_| For |_| Against |_| Abstain
WHEN THIS PROXY IS PROPERLY EXECUTED YOUR SHARES WILL BE VOTED: (1) AS DIRECTED; (2) FOR EACH PROPOSAL IF NO DIRECTION IS GIVEN;
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AND (3) ACCORDING TO THE BEST JUDGMENT OF CHARLES R. SCHWAB AND DAVID S. POTTRUCK IF ANY OTHER MATTER COMES BEFORE THE ANNUAL
MEETING FOR A VOTE.
Address Change? Mark Box |__|
Indicate changes below: Date ______________________________
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Signature(s) In Box
Please sign exactly as your
name(s) appear on the proxy
card. If held in joint
tenancy, all persons must
sign. Trustees, administrators,
etc., should include title and
authority. Corporations
should provide full name of
corporation and title of
authorized officer signing the
proxy.