SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x][ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ][x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
The Charles Schwab Corporation
- --------------------------------------------------------------------------------
(Name or Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applied:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee was calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
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The Charles Schwab Corporation 2001 Proxy Statement
LETTER TO STOCKHOLDERS
Photo of Charles R. Schwab and David S. Pottruck
March 26, 2001
Dear Fellow Stockholders:
We cordially invite you to attend our 2001 Annual Meeting of Stockholders. The
meeting will be held on Monday, May 7, 2001, at 2:00 p.m., Pacific time, at the
Palace Hotel, 2 New Montgomery Street, San Francisco, California.
At the meeting we will:
* elect four directors for three-year terms,
* vote on a proposal to amend the Certificate of Incorporation to increase
the number of authorized shares of common stock,
* vote on a proposal to approve the 2001 Stock Incentive Plan,
* vote on a proposal to approve the Annual Executive Individual Performance
Plan, as amended, and
* transact any other business properly coming before the meeting.
We also will report on our performance in 2000 and answer your questions. [Our
products and services exhibit will be open before and after the meeting.]
In view of your interest in the webcast of last year's annual meeting, we will
offer a webcast of this year's meeting.
We are continuing to make our proxy statement and annual report available over
the Internet. Also, all stockholders again will be able to vote on the Internet.
WE ENCOURAGE YOU ONCE AGAIN TO TAKE ADVANTAGE OF INTERNET VOTING. 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 enroll in
Internet delivery. WE ENCOURAGE STOCKHOLDERS WHO HAVE NOT YET DONE SO TO ENROLL
IN INTERNET DELIVERY. IT IS THE LEAST EXPENSIVE AND QUICKEST WAY FOR US TO SEND
PROXY MATERIALS TO YOU.
We want to express our appreciation to Dr. Condoleezza Rice who, after 18 months
of valued service, resigned from our Board of Directors in January 2001, after
which time she began serving as the National Security Advisor of the United
States. While performing this governmental service, Dr. Rice is on leave from
Stanford University as a Senior Fellow at the Hoover Institution and
distinguished Professor of Political Science.
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/ CHARLES R. SCHWAB /s/ DAVID S. POTTRUCK
- --------------------- ---------------------
CHARLES R. SCHWAB DAVID S. POTTRUCK
CHAIRMAN OF THE BOARD AND PRESIDENT AND
CO-CHIEF EXECUTIVE OFFICER CO-CHIEF EXECUTIVE OFFICER
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[PHOTO OF CHARLES R. SCHWAB AND DAVID S. POTTRUCK]
TABLE OF CONTENTS
NOTICE OF 2001 ANNUAL MEETING OF STOCKHOLDERS..................................3
PROXY STATEMENT................................................................4
Questions and Answers.......................................................5
Proposals To Be Voted On...................................................10
The Board of Directors.....................................................13
Board and Committee Meetings...............................................16Meetings...............................................17
Compensation Committee Interlocks and Insider Participation................17Participation................18
Director Compensation......................................................18Compensation......................................................19
Principal Stockholders.....................................................19Stockholders.....................................................20
Performance Graph..........................................................21Graph..........................................................22
Summary Compensation Table.................................................22Table.................................................23
Option Grants..............................................................25Grants..............................................................26
Options Exercised..........................................................26Exercised..........................................................27
Compensation Committee Report..............................................27Report..............................................28
Audit Committee Report.....................................................31Report.....................................................34
Auditor Independence.......................................................32Independence.......................................................35
Other Information..........................................................33Information..........................................................36
Certain Transactions..................................................33Transactions..................................................36
Section 16(a) Beneficial Ownership Reporting Compliance...............33Compliance...............37
Stockholder Proposals.................................................33Proposals.................................................37
Costs of Proxy Solicitation...........................................33Solicitation...........................................37
Incorporation by Reference............................................34Reference............................................37
TICKETS AND INTERNET ACCESS TO THE ANNUAL MEETING.............................35MEETING.............................38
APPENDIX A - - DESCRIPTION OF EMPLOYMENT AND LICENSE AGREEMENTS...............36AGREEMENTS...............39
APPENDIX B - - DESCRIPTION OF THE 2001 STOCK INCENTIVE PLAN...................38PLAN...................42
APPENDIX C - - DESCRIPTION OF THE ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE
PLAN...........................................................43
PLAN...........................................................47
APPENDIX D - - NEW PLAN BENEFITS TABLE........................................44TABLE........................................49
APPENDIX E - - AUDIT COMMITTEE CHARTER........................................45CHARTER........................................50
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NOTICE OF 2001 ANNUAL MEETING OF STOCKHOLDERS
The 2001 Annual Meeting of Stockholders of The Charles Schwab Corporation will
be held on Monday, May 7, 2001, at 2:00 p.m., Pacific time, at the Palace Hotel,
2 New Montgomery Street, San Francisco, California, to conduct the following
items of business:
* elect four directors for three-year terms,
* vote on a proposal to amend the Certificate of Incorporation to increase
the number of authorized shares of common stock,
* vote on a proposal to approve the 2001 Stock Incentive Plan,
* vote on a proposal to approve the Annual Executive Individual Performance
Plan, as amended, and
* transact any other business properly coming before the meeting.
Stockholders who owned shares of our common stock at the close of business on
March 8, 2001 are entitled to attend and vote at the meeting. A complete list of
registered stockholders will be available prior to the meeting at our principal
executive offices at 120 Kearny Street, San Francisco, California 94108.
By Order of the Board of Directors,
/s/ CARRIE E. DWYER
- -------------------
CARRIE E. DWYER
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND
CORPORATE SECRETARY
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THE 2001 ANNUAL
MEETING OF
STOCKHOLDERS WILL BE
HELD ON MONDAY, MAY 7,
2001, AT 2:00 P.M., AT
THE PALACE HOTEL
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 2000
annual report as the "proxy materials."
The Board of Directors is sending proxy materials to you and all other
stockholders on or about March 26, 2001. 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 on page ____pages 5 and 6 of 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 May 2000 three-for-two stock split.
This proxy statement includes summary information on the Company's financial
performance. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
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STOCKHOLDERS OWNING
COMPANY SHARES AT
THE CLOSE OF BUSINESS
ON MARCH 8, 2001 ARE
ENTITLED TO ATTEND
AND VOTE AT
THE MEETING.
QUESTIONS AND ANSWERS
Q: WHO CAN VOTE AT THE ANNUAL MEETING?
A: Stockholders who owned Company common stock on March 8, 2001 may attend and
vote at the annual meeting. Each share is entitled to one vote. There were
________________1,386,965,389 shares of Company common stock outstanding on March 8, 2001.
Q: WHAT IS IN THIS PROXY STATEMENT?
A: This proxy statement describes the proposals on which we would like you, as
a stockholder, to vote. It also gives you information on the proposals, as well
as other information, so that you can make an informed decision.
Q: WHAT IS THE PROXY CARD?
A: The proxy card enables you to appoint Charles R. Schwab and David S. Pottruck
as your representatives at the annual meeting. By completing and returning the
proxy card, you are authorizing Mr. Schwab and Mr. Pottruck to vote your shares
at the meeting as you have instructed them on the proxy card. This way, your
shares will be voted whether or not you attend the meeting. Even if you plan to
attend the meeting, it is a good idea to complete and return your proxy card
before the meeting date just in case your plans change.
Q: WHAT AM I VOTING ON?
A: We are asking you to vote on:
* the election of four directors for terms of three years,
* a proposal to amend the Certificate of Incorporation to increase the
number of authorized shares of common stock,
* a proposal to approve the 2001 Stock Incentive Plan, and
* a proposal to approve the Annual Executive Individual Performance Plan,
as amended.
The section entitled "Proposals To Be Voted On," beginning on page ___,10, gives you
more information on these matters.
Q: HOW DO I VOTE?
A: YOU MAY VOTE BY MAIL.
You do this by completing and signing your proxy card and mailing it in the
enclosed, prepaid and addressed envelope. If you mark your voting instructions
on the proxy card, your shares will be voted:
* as you instruct, and
* according to the 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.
If you do not mark your voting instructions on the proxy card, your shares will
be voted:
* FOR the four named nominees for directors,
* FOR approval of the amendment to the Certificate of Incorporation to
increase the number of authorized shares of common stock,
* FOR approval of the 2001 Stock Incentive Plan,
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* FOR approval of the Annual Executive Individual Performance Plan, as
amended, and
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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
* according to the 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. If you vote by telephone, you do not have to mail in your
proxy card.
YOU MAY VOTE ON THE INTERNET.
You do this by following the "Vote by Internet" instructions that came with your
proxy statement. If you vote on the Internet, you do not have to mail in your
proxy card.
YOU MAY VOTE IN PERSON AT THE MEETING.
We will pass out written ballots to anyone who wants to vote in person at the
meeting. However, if you hold your shares in street name, you must request a
proxy from your stockbroker in order to vote at the meeting. Holding shares in
"street name" means you hold them 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 AND STOCK PURCHASE PLAN SHARES?
A: If you participate in the Dividend Reinvestment and Stock Purchase Plan
managed by our transfer agent, Wells Fargo Bank Minnesota, N.A., the proxy card
you receive from Wells Fargo will include your Company shares held under that
plan.
If you participate in our Dividend Reinvestment and Stock Purchase Plan through
the Company's principal brokerage subsidiary, Charles Schwab & Co., Inc., the
proxy card you receive from that firm will include Company shares held in your
brokerage account and under that plan.
If you hold Company shares through the U.S. Trust Corporation Employee Stock
Purchase Plan, the proxy card you receive from Wells Fargo will include those
shares.
WE ENCOURAGE YOU TO EXAMINE YOUR PROXY CARD AND VOTING INSTRUCTIONS CLOSELY TO
MAKE SURE YOU ARE VOTING ALL OF YOUR COMPANY SHARES.
Q: HOW DO I VOTE MY RETIREMENT PLAN SHARES?
A: The proxy card you receive from our transfer agent will include your Company
shares, if any, held under The SchwabPlan Retirement Savings and Investment Plan.Plan
and under the 401(k) Plan and ESOP of United States Trust Company of New York
and Affiliated Companies. By completing and returning your proxy card, you
provide voting instructions:
* to the transfer agent for shares you hold in your individual name at Wells
Fargo Bank Minnesota, N.A., and
* to the plan'sthese plans' purchasing agentagents for shares you hold through the plan.
If you hold Company shares in an account with Charles Schwab & Co., Inc., you
will receive a separate proxy card from that brokerage firm specifically for
voting the shares in that account.
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these plans.
Q: WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
A: It means that you have multiple accounts at the transfer agent or with
stockbrokers. Please complete and return all proxy cards to ensure that all your
shares are voted.
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HOW DO I VOTE MY
DIVIDEND REINVESTMENT
AND STOCK PURCHASE
PLAN SHARES?
HOW DO I VOTE MY
RETIREMENT PLAN
SHARES?
WHAT DOES IT MEAN IF I
RECEIVE MORE THAN ONE
PROXY CARD?
QUESTIONS AND ANSWERS
Unless 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.
Q: WHAT IF I CHANGE MY MIND AFTER I RETURN MY PROXY?
A: You may revoke your proxy and change your vote by:
* signing another proxy card with a later date and returning it before the
polls close at the meeting,
* voting by telephone or on the Internet before 12:00 p.m., Central time, on
May 4, 2001 (your LATEST telephone or Internet vote is counted), or
* voting at the meeting.
Q: WILL MY SHARES BE VOTED IF I DO NOT RETURN MY PROXY?
A: IF YOUR SHARES ARE HELD IN STREET NAME, YOUR BROKERAGE FIRM, UNDER CERTAIN
CIRCUMSTANCES, MAY VOTE YOUR SHARES.
Brokerage firms have authority under New York Stock Exchange rules to vote
customers' unvoted shares on some "routine" matters. The New York Stock Exchange
has determined that ____________________________ ___________________except for the proposal to approve the 2001 Stock Incentive
Plan, all of the proposals described under "Proposals To Be Voted On," beginning
on page ___ ,10, are considered routine matters [determine which proposals are routine].matters.
If you do not give a proxy to vote your shares, your brokerage firm may either:
* vote your shares on routine matters, or
* leave your shares unvoted.
As a brokerage firm, Charles Schwab & Co., Inc. may vote its customers' unvoted
shares on routine matters. When our brokerage firmHowever, as the Company's subsidiary, when it is
voting on Company proposals, however, it must follow a stricter set of New York Stock
Exchange rules. Specifically, our brokerage firmsubsidiary can vote unvoted Company
shares held in brokerage accounts only in the same proportion as all other
stockholders vote.
When a brokerage firm votes its customers' unvoted shares on routine matters,
these shares are counted to determine if a quorum exists to conduct business at
the meeting. A brokerage firm cannot vote customers' unvoted shares on
non-routine matters. These shares are considered not entitled to vote on
non-routine matters,rather than ashaving the effect of a vote against the matters.
We encourage you to provide instructions to your brokerage firm by giving your
proxy. This ensures your shares will be voted at the meeting.
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.
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A PURCHASING AGENT UNDER A RETIREMENT PLAN MAY BE ABLE TO VOTE A PARTICIPANT'S
UNVOTED SHARES. FOR EXAMPLE, IF YOU ARE A PARTICIPANT IN THE SCHWABPLAN RETIREMENTRETIRE-
MENT SAVINGS AND INVESTMENT PLAN, THE PLAN'S PURCHASING AGENT, UNDER CERTAIN
CIRCUMSTANCES, CAN VOTE YOUR SHARES.
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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
Specifically, the purchasing agent canwill vote shares you hold under the Employee
Stock Ownership Plan ("ESOP") component of the overall planThe SchwabPlan Retirement Savings and
Investment Plan if the purchasing agent does not receive voting instructions
from you. The purchasing agent will vote your unvoted shares held under the ESOP
component of the overall plan in the same proportion as all other plan participantspartici-
pants vote their shares held under the ESOP component of the overall plan.
Similarly, the purchasing agent will vote shares under the ESOP component of the
overall plan that have not yet been allocated to the ESOP accounts of individual
participants. However, the purchasing agent can only vote these shares in the
same proportion as all other participants in the ESOP component of the overall
plan vote their shares (unless the purchasing agent receives specific
instructions from a plan fiduciary that has the power to direct the purchasing
agent).
Q: HOW MANY SHARES MUST BE PRESENT TO HOLD THE MEETING?
A: To hold the meeting and conduct business, a majority of the Company's out-
standing shares as of March 8, 2001 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 (including voting by telephone or over the
Internet).
Q: HOW MANY VOTES MUST THE NOMINEES HAVERECEIVE TO BE ELECTED AS DIRECTORS?
A: The four nominees receiving the highest number of votes FOR election will be
elected as directors. This number is called a plurality.
Q: HOW MANY VOTES MUST THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION
RECEIVE TO BE APPROVED?
A: The amendment will be approved if a majority of the Company's shares out-
standing as of March 8, 2001 vote FOR approval.
Q: HOW MANY VOTES MUST THE 2001 STOCK INCENTIVE PLAN RECEIVE TO BE APPROVED?
A: The 2001 Stock Incentive Plan will be approved if a majority of the shares
present at the meeting in person or by proxy vote FOR approval.
Q: HOW MANY VOTES MUST THE ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN RECEIVE
TO BE APPROVED?
A: The Annual Executive Individual Performance Plan, as amended, will be
approved if a majority of the shares present at the meeting in person or by
proxy vote FOR approval.
Q: WHAT HAPPENS IF A DIRECTOR NOMINEE IS UNABLE TO STAND FOR ELECTION?
A: The Board may reduce the number of directors or select a substitute nominee.
In the latter case, if you have completed and returned your proxy card, Charles
R. Schwab and David S. Pottruck can vote your shares for a substitute nominee.
They cannot vote for more than four nominees.
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HOW MANY SHARES
MUST BE PRESENT TO
HOLD THE MEETING?
HOW MANY VOTES MUST
THE NOMINEES RECEIVE TO
BE ELECTED AS
DIRECTORS?
HOW MANY VOTES MUST
THE AMENDMENT TO THE
CERTIFICATE OF
INCORPORATION RECEIVE
TO BE APPROVED?
HOW MANY VOTES MUST
THE 2001 STOCK
INCENTIVE PLAN RECEIVE
TO BE APPROVED?
HOW MANY VOTES MUST
THE ANNUAL EXECUTIVE
INDIVIDUAL
PERFORMANCE PLAN
RECEIVE TO BE
APPROVED?
WHAT HAPPENS IF A
DIRECTOR NOMINEE IS
UNABLE TO STAND FOR
ELECTION?
QUESTIONS AND ANSWERS
Q: HOW ARE VOTES COUNTED?
A: You may vote either "for" each director nominee or withhold your vote from
any one or more of the nominees.
You may vote "for" or "against" or "abstain" from voting on each of the other
three proposals. If you abstain from voting on any proposal, it will have the
same effect as a vote "against" the proposal.
If you give your proxy without voting instructions, your shares will be counted
as a vote FOR each director nominee and FOR each of the other three proposals.
Voting results are tabulated and certified by our transfer agent, Wells Fargo
Bank Minnesota, N.A.
Q: IS MY VOTE KEPT CONFIDENTIAL?
A: Proxies, ballots and voting tabulations identifying stockholders are kept
confidential by the Company's transfer agent 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
2001. We will file that report with the Securities and Exchange Commission in
mid-August, and you can get a copy by contacting our Investor Relations Hotline
at (415) 636-2787 or the SEC at (800) SEC-0330 for the location of its nearest
public reference room. You can also get a copy on the Internet at WWW.SCHWAB.COM
by clicking on "About Schwab" or through the SEC's electronic data system called
EDGAR at WWW.SEC.GOV.
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HOW ARE VOTES
COUNTED?
IS MY VOTE KEPT
CONFIDENTIAL?
HOW DO I ACCESS THE
ANNUAL MEETING ON THE
INTERNET?
WHERE DO I FIND THE
VOTING RESULTS OF THE
MEETING?
PROPOSALS TO BE VOTED ON
1. ELECTION OF DIRECTORS
Nominees for directors this year are Donald G. Fisher, Anthony M. Frank, Jeffrey
S. Maurer and Arun Sarin.
Each nominee is presently a director of the Company and has consented to serve a
new three-year term.
THE BOARD RECOMMENDS A VOTE FOR THESE NOMINEES.
2. APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION
We are asking stockholders to approve an amendment to the Company's Certificate
of Incorporation to increase the number of authorized shares of common stock
from 2 billion to 3 billion. As of December 31, 2000, 1.507 billion of the 2
billion authorized shares had been used or reserved for use as follows:
* 1.386 billion issued and outstanding shares,
* 97 million shares reserved for stock options that have been granted,
* 22 million shares reserved for future grants under incentive plans, and
* 2 million shares required for other purposes.
Therefore, there are 493 million remaining available authorized shares of common
stock.
Increasing the number of authorized shares of common stock will give the Company
greater flexibility for:
* stock splits and stock dividends,
* grants under employee benefit and employee stock incentive plans,
* financings, corporate mergers and acquisitions,
* issuance of shares under the Company's Dividend Reinvestment and Stock
Purchase Plan, and
* other general corporate purposes.
Having this additional authorized capital stock available for future use will
allow the Company to issue additional shares of common stock without the expense
of a special meeting of stockholders.
The additional authorized shares will:
* be part of the existing class of common stock,
* not affect the terms of the common stock or the rights of the holders of
common stock, and
* have the same rights and privileges as the shares of common stock
presently outstanding.
Stockholders' current ownership of common stock will not give them automatic
rights to purchase any of the additional authorized shares.
Any future issuance of additional authorized shares of common stock will
decrease the existing stockholders' equity ownership and depending upon the
price at which they are issued, may have a dilutive
effect on earnings per share of common stock and on the equity and voting rights
of those holding common stock at the time the additional authorized shares are
issued.
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Although not a factor in the Board's decision to propose the amendment to the
Certificate of Incorporation, one of the effects of the amendment may be to
enable
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ELECTION OF DIRECTORS
o DONALD G. FISHER
o ANTHONY M. FRANK
o JEFFREY S. MAURER
o ARUN SARIN
APPROVAL OF
AMENDMENT TO
CERTIFICATE OF
INCORPORATION
PROPOSALS TO BE VOTED ON
the Board to make more difficult or to discourage an attempt to obtain control
of the Company by means of a merger, tender offer, proxy contest or otherwise,
and as a result protect the continuity of present management. The Company is not
aware of any effort to accumulate its securities or obtain control of the
Company by means of a tender offer, proxy contest or otherwise.
The Company is not presently negotiating with anyone concerning the issuance or
use of any material amount of shares of common stock. Furthermore, except for
the 119 million shares reserved to cover past and future grants under existing
incentive plans (as identified above), the Company has no present arrangements,
understandings or plans concerning the issuance or use of a material amount of
shares of common stock.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION.
3. APPROVAL OF 2001 STOCK INCENTIVE PLAN
We are asking stockholders to approve the 2001 Stock Incentive Plan. This new
plan has been approved by the Board but will become effective only upon
stockholder approval. The new plan will replace the 1992 Stock Incentive Plan,
which expires in March 2002 (before the next annual meeting of stockholders).
The new plan, which has a maximum ten-year term, is substantially the same as
the 1992 plan, as amended. Stockholders approved the 1992 plan at the 1992
annual meeting of stockholders and approved various amendments to the 1992 plan
in 1994, 1996, 1997, 1998 and 1999.
If stockholders approve the new plan, we will be able to issue up to 70 million
shares of common stock under the new plan.
Non-employee directors and key employees will participate in the new plan. The
purpose of the new plan is to promote the long-term success of the Company and
increase stockholder value by:
* linking the interests of participantsnon-employee directors and key employees directly
to stockholder interests,
* encouraging themnon-employee directors and key employees to focus on long-term
objectives, and
* attracting and retaining participantsnon-employee directors and key employees with
exceptional qualifications.
For more information about the new plan, see the description of its terms in
Appendix B. See also the table in Appendix D for the amount of stock-based
compensation that would have been awarded under the new plan in 2000, based on
certain assumptions, had the new plan been in effect in 2000.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE 2001 STOCK INCENTIVE PLAN.
4. APPROVAL OF ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN
We are asking stockholders to approve the Annual Executive Individual
Performance Plan, as amended. This bonus plan which covers certain executive officers
other thanofficer
participants selected by the Board Compensation Committee, but Co-Chief
Executive Officers Charles R. Schwab and David S.
11
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APPROVAL OF 2001
STOCK INCENTIVE PLAN
APPROVAL OF ANNUAL
EXECUTIVE INDIVIDUAL
PERFORMANCE PLAN
PROPOSALS TO BE VOTED ON
Pottruck are not eligible to participate. The plan was originally adopted in
1995. In February 2001, the Board approved amendments to the plan to meet
certain tax requirements, as explained below. We will be able to achieve the
desired tax results for certain bonus payments under the amended plan only if
stockholders approve it.
Section 162 (m)162(m) of the Internal Revenue Code authorizes tax deductions for
certain executive compensation in excess of $1 million only if, among other
things, such compensation is based on performance and the plan under which it is
paid is approved by stockholders. The aggregate amount of bonuses payable to
executive officers, as a group, under the Individual Performance Plan has always
been based strictly on our corporate performance. However, because the bonuses
of each executive within the group have been based on a subjective
determination, those bonuses have not qualified for deduction under Section
162(m). To meet certain requirements of Section 162(m), the amendments to the
plan approved by the Board establish objective performance-based criteria (I.E.,
net revenue growth and pre-tax operating profit margin) for bonus amounts
payable to each executive officer.
11
If stockholders approve the Individual Performance Plan, as amended, and the
Company complies with certain other requirements of Section 162(m), payments to
executive officers under the plan will qualify for deduction under Section
162(m). If stockholders do not approve the amended plan, the amendments will not
become effective and bonus payments made 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 any calendar year exceeds $1
million. In that case, the Company would not be permitted a tax deduction for
certain compensation paid to the affected executive officers.
Under the Individual Performance Plan, as amended, the Board'sBoard Compensation
Committee will continue to have the authority to amend the plan without
stockholder approval in ways that could increase the cost of the plan or change
the allocation of benefits among the participants.
For more information about the Individual Performance Plan, as amended, see the
description of its terms in Appendix C. See also the table in Appendix D for the
bonus amounts that would have been payable under the amended plan in 2000, based
on certain assumptions, had the amended plan been in effect in 2000.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE ANNUAL EXECUTIVE INDIVIDUAL
PERFORMANCE 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 vote your shares on those
matters according to their best judgment.
12
[side bar]
OTHER BUSINESS
THE BOARD OF DIRECTORS
NANCY H. BECHTLE
DIRECTOR SINCE 1992
Ms. Bechtle, age 63, has been 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. She was a director and Chief Financial
Officer of J.R. Bechtle & Co., an international consulting firm, from 1979 to
1998. Ms. Bechtle also has served as Chairman and Chief Executive Officer of
Sugar Bowl Ski Resort, and as a director of Sugar Bowl Corporation, since 1998.
Ms. Bechtle's term expires in 2003.
C. PRESTON BUTCHER
DIRECTOR SINCE 1988
Mr. Butcher, age 62, 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. from 1967 until 1998. Mr. Butcher's term expires in 2003.
DONALD G. FISHER
DIRECTOR SINCE 1988
Mr. Fisher, age 72, is Chairman of the Board of Gap, Inc., a nationwide
specialty retail clothing chain. He was also Chief Executive Officer of Gap,
Inc. from 1969 to November 1995. Mr. Fisher is a nominee for election this year.
ANTHONY M. FRANK
DIRECTOR SINCE 1993
Mr. Frank, age 69, has been Founding 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 Temple-Inland, Inc., a maker of containers,con-
tainers, cardboard products and building products and a provider of financial
services; Cotelligent, Inc., an information technology services company; and
Bedford Properties Investors and Crescent Real Estate Equities, both real estate
investment trusts. Mr. Frank previously served as a director of the Company from
April 1987 until February 1988 and from March 1992 until April 1993. He rejoined
the Board in December 1993. Mr. Frank is a nominee for election this year.
FRANK C. HERRINGER
DIRECTOR SINCE 1996
Mr. Herringer, age 58, is Chairman of the Board of Transamerica Corporation, a
financial services company. 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. From the date of the
acquisition until May 2000, Mr. Herringer served on the Executive Board of Aegon
N.V. and as Chairman of the
13
[side bar]
BIOGRAPHIES
o NANCY H. BECHTLE
o C. PRESTON BUTCHER
o DONALD G. FISHER
o ANTHONY M. FRANK
o FRANK C. HERRINGER
THE BOARD OF DIRECTORS
Board of Aegon U.S.A. Mr. Herringer is also a director of Unocal Corporation, an
oil company; and Mirapoint, Inc., an Internet message infrastructure equipment
developer; and uMogul, Inc., a financial
services firm focused on the entertainment industry.developer. Mr. Herringer's term expires in 2002.
JEFFREY S. MAURER
DIRECTOR SINCE May 2000
Mr. Maurer, age 53, has been an Executive Vice President of the Company since
May 2000. He also is Chief Executive Officer of U.S. Trust Corporation and
United States Trust Company of New York (each of which is a subsidiary of the
Company) 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 became Senior Vice President in November 1980,
Executive Vice President in May 1986, President in February 1990, Chief
Operating Officer in December 1994, and Chief Executive Officer in January 1,
2001.
Mr. Maurer is also a director of Forbes.com, an Internet media company; and the
Greater New York Mutual Insurance Companies, a property and casualty insurance
company. Mr. Maurer is a nominee for election this year.
13
STEPHEN T. MCLIN
DIRECTOR SINCE 1988
Mr. McLin, age 54, 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
wholly-owned by Microsoft Corporation,Corporation; 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 52, 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,subsidiary, in 1992. Mr. Pottruck is currently
a director of U.S. Trust Corporation (aand United States Trust Company of New York
(each of which is a subsidiary of the Company); Intel Corporation, a maker of
microcomputer components and related products; McKesson HBOC, Inc., a healthcare
services company; Dovebid, Inc., a provider of online business-to-business
capital asset auctions and valuation services; and Epoch Partners, Inc., an
online investment banking firm owned in part by the Company. He serves on the
Board of Governors of both the National Association of Securities Dealers, Inc.,
and the Nasdaq Stock Market, andMarket. He was a member of the Federal Advisory Commission
on Electronic Commerce from 1998 until 1999. Mr. Pottruck's term expires in
2003.
14
[side bar]
BIOGRAPHIES
o JEFFREY S. MAURER
o STEPHEN T. McLIN
o DAVID S. POTTRUCK
THE BOARD OF DIRECTORS
ARUN SARIN
DIRECTOR SINCE December 1998
Mr. Sarin, age 46, was Chief Executive Officer of Infospace, Inc., a provider of
Internet infrastructure services, between April 2000 and January 2001. From July
1999 until April 2000, he was Chief Executive Officer of USA/Asia Pacific Region
of Vodafone Group Plc, a wireless telecommunications services company. He served
as President and Chief Operating Officer of AirTouch Communications, Inc. from
1997 until July 1999, and prior to his appointment to these positions in 1997,
Mr. Sarin was President and Chief Executive Officer of AirTouch International.
Mr. Sarin joined AirTouch (formerly Pacific Telesis Group) in 1984 and held a
variety of positions, including Vice President and General Manager, Vice
President - Chief Financial Officer and Controller, and Vice President of
Corporate Strategy. Mr. Sarin is a member of the board of directorsdirector of Vodafone Group Plc; and Cisco
Systems, Inc., a computer networking company. Mr. Sarin is a nominee for
election this year.
CHARLES R. SCHWAB
DIRECTOR SINCE 1986
Mr. Schwab, age 63, 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 served as 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 U.S. Trust Corporation (aand United States
Trust Company of New York (each of which is a subsidiary of the Company); Gap,
Inc.; Vodafone Group Plc; AudioBase, Inc., a company that provides music and voice to Internet
publishers, advertisers and marketers; Siebel Systems, Inc., a company that
provides support for software systems; and Xign, Inc., a developer of electronic
payment systems using digitally signed electronic check technology. He is also a
trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab
Capital Trust and Schwab Annuity Portfolios, all registered investment
companies. Mr. Schwab's term expires in 2002.
H. MARSHALL SCHWARZ
DIRECTOR SINCE MAY 2000
Mr. Schwarz, age 64, has been an Executive Vice President of the Company since
May 2000. He also is Chairman of the Board of U.S. Trust Corporation and United
States Trust Company of New York (each of which is a subsidiary of the Company).
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 elected 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 stepped down as Chief Executive Officer on December 31, 2000.
15
[side bar]
BIOGRAPHIES
o ARUN SARIN
o CHARLES R. SCHWAB
o H. MARSHALL SCHWARZ
THE BOARD OF DIRECTORS
Mr. Schwarz is also a director of Atlantic Mutual Companies, a property and
casualty insurance company,company; and Bowne & Co., Inc., a financial printer and
information and document management company. Mr. Schwarz' term expires in 2002.
14
GEORGE P. SHULTZ
DIRECTOR SINCE 1997
Dr. Shultz, age 80, is Professor Emeritus of International Economics at the
Graduate School of Business at Stanford University, and a Distinguished Fellow
at the Hoover Institution. He has held United States government positions as
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., a provider of
engineering, construction and related management services; Fremont Group, Inc.,
an investment company; Gilead Sciences, Inc., a biotechnology company; and
UNext, a distance learning company.provider of business education and training over the Internet. He is
also Chairman of J.P. Morgan Chase's International Advisory Council and Chairman
of the Advisory Board of Infrastructure World, an Internet-based intermediary in
infrastructure projects. He was President of Bechtel Group, Inc. from 1974 to
1982. Dr. Shultz' term expires in 2003.
ROGER O. WALTHER
DIRECTOR SINCE 1989
Mr. Walther, age 65, has served 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., a provider in the United States of courses in English as a
second language, 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 Bank. Mr. Walther's term expires in 2002.
NUMBER OF DIRECTORS AND TERMS
The Company currently has thirteen directors. Four directors are nominees for
election this year. The remaining nine 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, and
* the term of each class begins on a staggered schedule.
1516
[side bar]
BIOGRAPHIES
o GEORGE P. SHULTZ
o ROGER O. WALTHER
NUMBER OF DIRECTORS
AND TERMS
BOARD AND COMMITTEE MEETINGS
The Board held eight regular meetings and three special meetings in 2000. Each
director attended at least 75% of all Board and applicable committee meetings
during 2000, except Donald G. Fisher who had a 71% attendance record. 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 2000
- -------------------------------------------------------------------------------------------------
AUDIT * reviews the integrity of the financial 4
reporting process
Nancy H. Bechtle * reviews the adequacy of internal controls
C. Preston Butcher * reviews the audit process, including the
Donald G. Fisher independence and performance of internal
Anthony M. Frank and external auditors
Frank C. Herringer * recommends to the Board the selection of
Stephen T. McLin * independent auditors
Arun Sarin
- -------------------------------------------------------------------------------------------------
COMPENSATION * determines the compensation of the Co-Chief 9
Executive Officers
Nancy H. Bechtle * reviews and approves:
C. Preston Butcher * executive compensation philosophy
Stephen T. McLin * programs for annual and long-term executive
George P. Shultz compensation
Roger O. Walther * * other executive programs
* has authority to grant options
and other equity awards under
stock incentive plans and bonus
awards under executive incentive plans
- -------------------------------------------------------------------------------------------------
CUSTOMER * monitors service quality 2
QUALITY * assesses customerclient satisfaction and reviews
ASSURANCE results of Charles Schwab & Co., Inc.
customerclient surveys
Nancy H. Bechtle * proposes initiatives to research service
Donald G. Fisher quality
Anthony M. Frank*
Frank C. Herringer
Jeffrey S. Maurer
Arun Sarin
Charles R. Schwab
H. Marshall Schwarz
George P. Shultz
Roger O. Walther
* Chairperson
1617
[side bar]
THIS TABLE DESCRIBES
THE BOARD'S
COMMITTEES.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2000:
* 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 or otherwise served on the
Company's Board; and
* 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.
1718
[side bar]
DURING 2000, OUR
BOARD COMPENSATION
COMMITTEE CONSISTED
OF ALL NON-EMPLOYEE
DIRECTORS, AND WE DID
NOT HAVE ANY
COMPENSATION
COMMITTEE INTERLOCKS.
DIRECTOR COMPENSATION
We do not pay directors who are also officers of the Company additional
compensation for their service as directors.
In 2000, compensation for non-employee directors included the following:
* an annual retainer of $35,000,
* $2,000 for each Board meeting attended,
* $500 for each Board committee meeting attended on 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. Since January 2000, this plan has allowed non-employee directors to defer
receipt of all or a portion of their directors' fees and, at their election,
either:
* receive 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 grant and generally expire ten years after the
grant date,
- or -
* invest the amount of the deferred fees 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.
Each of the directors has elected to convert fees that were deferred before
January 1, 2000 (except for deferred fees already invested in stock options)
into Company stock to be held in the trust and distributed as described
immediately above.
In 2000, under the 1992 Stock Incentive Plan, non-employee directors were
entitled to an annual, automatic grant of either:
* options on 2,500 shares of Company common stock if the fair market value
of the stock on the grant date was $35 or more, or
* options on 3,500 shares of Company common stock if the fair market value
of the stock on the grant date was less than $35.
"Fair market value" is defined in the 1992 Stock Incentive Plan as the closing
price of Company common stock on the date the option is granted.
The annual, automatic option grant to non-employee directors of 2,500 shares of
common stock was made on May 15, 2000 at an exercise price of $43.3750 per
share. As a result of the May 2000 three-for-two stock split, this stock option
grant was adjusted to 3,750 shares with an exercise price of $28.9167.
If the 2001 Stock Incentive Plan is approved by stockholders, the number of
options non-employee directors will receive in the annual, automatic grant will
be determined by dividing $150,000 by the closing price of Company common stock
on the grant date. 18(See "Proposals To Be Voted On," beginning on page 10, and
Appendix B.)
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 47
CONSECUTIVE QUARTERLY
CASH DIVIDENDS AND
HAS INCREASED THE
CASH DIVIDEND 12 TIMES.
SINCE 1989, CASH
DIVIDENDS HAVE
INCREASED BY A 32%
COMPOUNDED ANNUAL
GROWTH RATE.
THIS PROXY STATEMENT
INCLUDES ADDITIONAL
SUMMARY INFORMATION
ON THE COMPANY'S
FINANCIAL
PERFORMANCE. PLEASE
REMEMBER THAT PAST
PERFORMANCE IS NOT
PREDICTIVE OF FUTURE
RESULTS.
PRINCIPAL STOCKHOLDERS
This table shows how much Company common stock is beneficially owned by the
directors, certain executive officers and owners of 5% or more than 5% of the Company's
outstanding common stock, as of March 8, 2001.
AMOUNT AND NATURE OF SHARES BENEFICIALLY OWNED
NUMBER OF
SHARES RIGHT TO RESTRICTED PERCENT OF
OWNED ACQUIRE STOCK OUTSTANDING
NAME (#) (1) (#) (2) (#) (3) SHARES
- -----------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB(4) -261,528,402 3,855,000 0 19.1%
SCHWABPLAN RETIREMENT SAVINGS AND - -68,946,155 0 0 5.0%
INVESTMENT PLAN (5)
DAVID S. POTTRUCK(6) -6,500,108 6,840,981 0 1.0%
NANCY H. BECHTLE -207,405 117,193 0 *
C. PRESTON BUTCHER(7) -1,026,066 170,173 0 *
DONALD G. FISHER(8) -4,560,561 7,500 0 *
ANTHONY M. FRANK -547,500 98,082 0 *
FRANK C. HERRINGER(9) -100,236 116,114 0 *
JEFFREY S. MAURER(10)MAURER 638,034 0 22,500 *
STEPHEN T. MCLIN(11) -MCLIN(10) 152,271 91,946 0 *
ARUN SARIN -3,000 46,529 0 *
H. MARSHALL SCHWARZ(12)SCHWARZ(11) 555,277 0 0 *
GEORGE P. SHULTZ -67,500 100,484 0 *
ROGER O. WALTHER (13) -(12) 135,380 95,472 0 *
JOHN PHILIP COGHLAN 1,308,021 987,796 150,866 *
STEVEN L. SCHEID 239,365 610,257 90,000 *
DAWN G. LEPORE(14)LEPORE(13) 697,258 903,027 90,000 *
LINNET F. DEILY 240,469 290,499 78,750 *
LON GORMAN 226,109 369,816 106,875 *
DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
(22 PERSONS) (15)(14) 280,981,746 16,274,472 553,125 21.2%
- -----------------------------------------------------------------------------------------------------
*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 or the 401K
Plan and ESOP of United States Trust Company of New York and Affiliated Companies,
unless otherwise indicated in the footnotes.
19
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 7, 2001.
(3) Shares subject to a vesting schedule, forfeiture risk and other restrictions.
20
[side bar]
OPERATING INCOME
FOR 2000 WAS
$849 MILLION,
A 27% INCREASE
OVER 1999.
OPERATING INCOME
REPRESENTS AN
ADJUSTED OPERATING
INCOME MEASURE WHICH
IN 2000 EXCLUDES
MERGER- AND
ACQUISITION-RELATED
CHARGES.
PRINCIPAL STOCKHOLDERS
(4) Includes __________7,977,765 shares held by Mr. Schwab's spouse.
Includes ____________45,203,958 shares held by a limited liability company.
Includes the following shares for which Mr. Schwab disclaims beneficial ownership:
* _____________15,455,685 shares held by non-profit public benefit corporations.
* _____________87,120 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:
* __________1,831,229 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 8, 2001, The SchwabPlan Retirement Savings and Investment Plan held a total of ____________68,946,155
shares, all of which:
* _____________ shareswhich were held byallocated to participants under the plan, and
* _____________ unallocated shares were held under the Employee Stock
Ownership Plan ("ESOP") component of the overall 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 ofwill vote
any 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.plan.
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 _______74,578 shares held by Mr. Pottruck's spouse and children.
Includes the following shares for which Mr. Pottruck disclaims beneficial ownership:
* _______612,658 shares held in trusts for which Mr. Pottruck acts as trustee.
* _______360,936 shares held by a non-profit public benefit corporation.
(7) Includes _______273,630 shares held by Mr. Butcher's spouse.
(8) Includes _______780,000 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:
* ______390,000 shares held by a non-profit public benefit corporation established by Mr. Fisher.corporation.
(9) Includes ______50,625 shares held by Mr. Herringer's spouse.
(10) (11) Includes ______13,740 shares held by a non-profit public benefit corporation established by Mr. McLin.
(11) Includes 56,385 shares held by a non-profit public benefit corporation established by Mr. Schwarz.
(12) (13) Includes ______26,687 shares held by Mr. Walther's spouse.
(14)(13) Includes ______20,994 shares held by Ms. Lepore's spouse.
(15)(14) In addition to the officers and directors named in this table, four other executive officers
are members of the group.
2021
[side bar]
FROM YEAR-END 1990
THROUGH YEAR-END 2000,
THE MARKET PRICE PER
SHARE OF COMPANY
COMMON STOCK HAS
GROWN AT A
COMPOUNDED ANNUAL
RATE OF 61%. THIS
INCREASE CREATED
$39 BILLION IN
STOCKHOLDER WEALTH.
A FUNDAMENTAL TENET
OF THE COMPANY'S
COMPENSATION POLICY IS
THAT SIGNIFICANT EQUITY
PARTICIPATION CREATES A
VITAL LONG-TERM
PARTNERSHIP BETWEEN
MANAGEMENT AND
OTHER STOCKHOLDERS.
PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total returns for
Company common stock, the Dow Jones Securities Brokerage Group Index and the
Standard & Poor's 500 Index, each of which assumes an initial investment of $100
and reinvestment of dividends.
Comparison of Five-Year Cumulative Total Return
- -- The Charles Schwab Corporation
- -- Dow Jones Securities Brokerage Group Index
- -- Standard & Poor's 500 Index
Graph hereGRAPH APPEARS HERE
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
The Charles Schwab Corporation $100 $160 $316 $639 $871 $970
Dow Jones Securities Brokerage Group Index $100 $151 $275 $322 $501 $622
Standard & Poor's 500 Index $100 $123 $164 $211 $255 $232
2122
[side bar]
ON A DIVIDEND-
REINVESTED BASIS, FROM
DECEMBER 31, 1995
THROUGH DECEMBER 31,
2000, THE CUMULATIVE
TOTAL RETURN FOR
COMPANY COMMON
STOCK WAS 870%
COMPARED TO 522% FOR
THE DOW JONES
SECURITIES BROKERAGE
GROUP INDEX AND
132% FOR THE
STANDARD & POOR'S
500 INDEX.
SUMMARY COMPENSATION TABLE
This table shows, for the last three fiscal years, compensation information for
the Company's Co-Chief Executive Officers and the next five most highly
compensated executive officers. We refer to each of these officers as a "named
executive officer."
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
NAME ANNUAL COMPENSATION AWARDS
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER RESTRICTED
NAME AND PRINCIPAL POSITION ANNUAL STOCK SECURITIESECURITIES ALL OTHER
YEAR SALARY BONUS ($) COMPENSATION AWARDS ($) UNDERLYING COMPENSATION
($) (1) ($) (2) (3) (4)(5) OPTIONS (#)(5) ($)(6)
- ----------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 2000 $800,004 $8,101,000 - 0 300,000 $ 9,894
CHAIRMAN AND CO-CHIEF EXECUTIVE 1999 $800,004 $8,200,225 - 0 0 $14,759
OFFICER
1998 $800,004 $6,145,225 - 0 2,100,000 $19,472
DAVID S. POTTRUCK 2000 $800,004 $8,101,000 - 0 300,000 $ 9,894
PRESIDENT AND CO-CHIEF EXECUTIVE 1999 $800,004 $8,200,225 - 0 0 $14,759
OFFICER
1998 $800,004 $6,145,225 - 0 5,700,000 $19,472
JOHN PHILIP COGHLAN 2000 $481,666 $1,678,464 - 0 220,001 $ 9,894
VICE CHAIRMAN AND EXECUTIVE VICE 1999 $439,167 $1,786,777 $1,433,320 0 90,000 $14,759
PRESIDENT
1998 $379,167 $775,225 $609,308 $1,569,996$1,406,559 225,002 $19,472
STEVEN L. SCHEID 2000 $501,282 $1,656,922 - 0 220,001 $ 9,894
VICE CHAIRMAN AND EXECUTIVE VICE 1999 $439,167 $1,786,777 - 0 90,000 $14,759
PRESIDENT
1998 $379,167 $775,225 $620 $1,569,996 225,002 $19,472
DAWN G. LEPORE 2000 $521,667 $1,620,408 - 0 220,001 $ 9,894
VICE CHAIRMAN, EXECUTIVE VICE 1999 $475,000 $1,830,537 $1,433,320 0 90,000 $14,759
PRESIDENT AND CHIEF
INFORMATION OFFICER 1998 $385,833 $650,225 $609,386 $1,569,996 225,002 $19,472
LINNET F. DEILY 2000 $510,833 $1,623,138 - 0 220,001 $ 9,894
VICE CHAIRMAN AND EXECUTIVE VICE 1999 $452,500 $1,802,943 - 0 90,000 $14,759
PRESIDENT
1998 $369,167 $800,225 $59,957 $1,373,747 195,002 $19,472
LON GORMAN 2000 $474,782 $1,659,189 - 0 220,001 $ 9,894
VICE CHAIRMAN AND EXECUTIVE VICE 1999 $399,933 $1,763,537 - 0 90,000 $14,759
PRESIDENT
1998 $340,000 $810,225 $629 $1,569,996 225,002 $19,472
22
(1) For Mr. Schwab, includes amounts paid under his employment agreement
dated March 31, 1995. (See "Employment Agreement and Name Assignment"
in Appendix A.)
23
SUMMARY COMPENSATION TABLE
(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.
CASH PAYMENT BASED ON PAR VALUE PAYMENT ON RESTRICTED TOTAL
NAME YEAR SCHWAB PERFORMANCE* STOCK**
----------------------------------------------------------------------------------------------------------------
MR. COGHLAN 2000 0 0 0
1999 $1,433,320 0 $1,433,320
1998 $608,766 $542 $609,308
MR. SCHEID 2000 0 0 0
1999 0 0 0
1998 0 $620 $620
MS. LEPORE 2000 0 0 0
1999 $1,433,320 0 $1,433,320
1998 $608,766 $542 $609,308
MR. SCHEID$620 $609,386
MS. DEILY 2000 0 0 0
1999 0 0 0
1998 0 $620 $620
MS. LEPORE 2000 0 0 0
1999 $1,433,320 0 $1,433,320
1998 $608,766 $620 $609,386
MS. DEILY$542 $542
MR. GORMAN 2000 0 0 0
1999 0 0 0
1998 0 $542 $542
MR. GORMAN 2000 0 0 0
1999 0 0 0
1998 0 $629 $629
* Some executive officers received cash payments based on the Company's
common stock (including price appreciation and dividend reinvestment)
outperforming, by a specified margin, the return on the Company's
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 shares.
** Consistspar value of payment byrestricted 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 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.
23
RELOCATION TAX GROSS-UP OTHER TOTAL
EXPENSES PAYMENTS PERQUISITES
NAME 1998 1998 1998 1998
- ---------------------------------------------------------------------------------------------------------------------------
MS. DEILY $21,277 $2,059 $36,079 $59,415
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 1998.
Ms. Deily's expenses were for relocation from Houston, Texas to San
Francisco, California. Because some of the relocation expense payments
were considered taxable income, Ms. Deily received tax gross-up
payments to cover the taxes on that income.
24
[side bar]
IN 2000, THE COMPANY
ACHIEVED ITS ELEVENTH
CONSECUTIVE YEAR OF
RECORD REVENUES.
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, 2000 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 ($28.375).
NUMBER OF YEAR-END
NAME SHARES VALUE
----------------------------------------------
MR. COGHLAN 150,866 $4,280,823
MR. SCHEID 180,000 $5,107,500
MS. LEPORE 180,000 $5,107,500
MS. DEILY 167,625 $4,756,359
MR. GORMAN 217,125 $6,160,922
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 May 2000 three-for-two stock split of Company common
stock.
(6) Represents Company contributions under The SchwabPlan Retirement
Savings and Investment Plan.
2425
[side bar]
THE COMPANY AND ITS
SUBSIDIARIES PROVIDE
SECURITIES BROKERAGE
AND RELATED FINANCIAL
SERVICES FOR 7.5 MILLION
ACTIVE CLIENT
ACCOUNTS. CLIENT
ASSETS IN THESE
ACCOUNTS TOTALED
$871.7 BILLION AT
DECEMBER 31, 2000, UP
3% OVER YEAR-END 1999.
OPTION GRANTS
This table shows stock option grants to the named executive officers during the
last fiscal year.
OPTIONS GRANTED IN 2000
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
TERM (2)
NAME NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION DATE
GRANTED (#) FISCAL YEAR ($/SH) 5% ($) 10% ($)
(1)
- --------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 300,000 1.14% $26.375 2/23/2010 $4,650,350 $12,091,738
DAVID S. POTTRUCK 300,000 1.14% $26.375 2/23/2010 $4,650,350 $12,091,738
JOHN PHILIP COGHLAN 120,001 0.46% $26.375 2/23/2010 $1,860,155 $4,836,736
100,000 0.38% $28.750 12/15/2010 $1,772,440 $4,525,271
STEVEN L. SCHEID 120,001 0.46% $26.375 2/23/2010 $1,860,155 $4,836,736
100,000 0.38% $28.750 12/15/2010 $1,772,440 $4,525,271
DAWN G. LEPORE 120,001 0.46% $26.375 2/23/2010 $1,860,155 $4,836,736
100,000 0.38% $28.750 12/15/2010 $1,772,440 $4,525,271
LINNET F. DEILY 120,001 0.46% $26.375 2/23/2010 $1,860,155 $4,836,736
100,000 0.38% $28.750 12/15/2010 $1,772,440 $4,525,271
LON GORMAN 120,001 0.46% $26.375 2/23/2010 $1,860,155 $4,836,736
100,000 0.38% $28.750 12/15/2010 $1,772,440 $4,525,271
(1) These options were granted in February and December 2000 under the 1992
Stock Incentive Plan. The February grants have been adjusted for the May
2000 three-for-two stock split of Company common stock. These options:
* were generally granted as 50% non-qualified stock options and 50%
incentive stock options (except as limited by tax law and except
that the options granted in December were all non-qualified
stock options),
* were granted at an exercise price equal to 100% of the fair market
value of the common stock on the date of grant, and
* expire ten years from the date of grant, unless otherwise earlier
terminated because of certain events related to termination of
employment.
The options granted in February generally vest in 25% increments on each of
the first four anniversaries of the date of grant, and the options granted
in December vest in 50% increments on the third anniversary and fourth
anniversary of the date of grant.
(2) Based on the SEC's rules, we use a 5% and 10% assumed rate of appreciation
over the ten-year option term. 25
This does not represent the Company's
estimate or projection of the future common stock price. If the Company
common stock does not appreciate above the exercise price, the named
executive officers will receive no benefit from the options.
26
OPTIONS EXERCISED
This table shows stock option exercises and the value of unexercised stock
options held by the named executive officers during the last fiscal year.
AGGREGATED OPTION EXERCISES IN 2000
AND FISCAL YEAR-END OPTION VALUES(1)
SHARES ACQUIRED VALUE NUMBER OF SECURITIES VALUE OF UNEXERCISED
ON EXERCISE (#) REALIZED UNDERLYING UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
($)(2) FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(3)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 750,000 $19,122,628 3,600,000 1,875,000 $84,121,876 $34,087,501
DAVID S. POTTRUCK 2,239,500 $63,404,959 6,585,981 6,375,000 $156,323,283 $84,025,000
JOHN PHILIP COGHLAN 1,188,216 $34,411,973 898,738 492,812 $21,905,730 $4,363,008
STEVEN L. SCHEID 310,368 $8,973,712 411,508 540,628 $8,461,076 $5,417,461
DAWN G. LEPORE 632,337 $20,159,180 695,844 549,065 $15,545,069 $5,607,609
LINNET F. DEILY 207,500 $5,620,216 141,816 507,437 $2,564,070 $4,679,461
LON GORMAN 209,560 $6,149,763 221,691 506,879 $4,202,979$4,202,779 $4,649,438
(1) Adjusted for the May 2000 three-for-two stock split of Company common stock.
(2) This number isThe amounts in this column are 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) These numbersThe amounts in this column are calculated by:
* subtracting the option exercise price from the Company's December 31, 2000
average market price ($28.875) 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
or unexercisable options, as applicable.
The amounts in this column may not represent amounts that will actually be
realized by the named executive officers.
2627
[side bar]
THE COMPANY'S
REVENUES WERE
$5.788 BILLION IN 2000,
UP 29% OVER 1999.
COMPENSATION COMMITTEE REPORT
In this section, we describe our executive compensation policies and practices,
including the compensation we pay our Co-Chief Executive Officers and the next
five most highly compensated executive officers.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During 2000, the Compensation Committee of the Company's Board of Directors
consisted of Roger O. Walther, Nancy H. Bechtle, C. Preston Butcher, Stephen T.
McLin, Condoleezza Rice (who resigned as a director effective in January 2001)
and George P. Shultz. No member of our committee during 2000 was an employee of
the Company or any of its subsidiaries. Each member qualifies as a "non-employee
director" under Rule 16b-3 of the Securities Exchange Act of 1934 and as an
"outside director" under Section 162(m) of the Internal Revenue Code.
Our committee has overall responsibility for the Company's executive
compensation policies and practices. Our committee's functions include:
* determining the compensation of the Co-Chief Executive Officers, Charles R.
Schwab and David S. Pottruck,
* on recommendation of the Co-Chief Executive Officers, reviewing and
approving the other executive officers' compensation, including salary
and payments under the annual executive bonus plans, and
* granting awards under the Company's stock incentive plans.
Our committee is providing the following report on the Company's executive
compensation policies, the relationship of the Company's performance to
executive compensation, and the Co-Chief Executive Officers' compensation.
COMPENSATION POLICIES
The Company's executive compensation policies are designed to address a number
of objectives, including rewarding financial performance and motivating
executive officers to achieve significant returns for stockholders. The
Company's policies rely on two principles:
* first, a significant portion of executive officers' total compensation
should be in the form of stock and stock-based incentives, and
* second, a large portion of their cash compensation should be at risk and
vary, depending on meeting stated financial objectives.
When establishing salaries, bonus levels and stock-based awards for executive
officers, our 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. Our
committee reviews companies whose size, rates of growth and financial returns
are similar to the Company's, including some of the companies in the Dow Jones
Securities Brokerage Group Index.
Our committee selects companies outside the financial services industry for
inclusion
28
[side bar]
IN THIS SECTION, WE
DESCRIBE THE
COMPENSATION WE PAY
OUR CO-CHIEF EXECUTIVE
OFFICERS AND THE NEXT
FIVE MOST HIGHLY
COMPENSATED
EXECUTIVE OFFICERS.
COMPENSATION POLICIES
COMPENSATION COMMITTEE REPORT
in the review based on the extent to which they satisfy a list of selection
criteria, including 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. Our 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 on the specific skills
required for the position.
Our committee uses comparative data to set compensation targets that will
provide executive officers with total compensation that:
* exceeds the average amounts paid to similar executives of comparable
companies in years in which the Company achieves superior performance, and
* falls below the average of amounts paid to similar executives of comparable
companies in years in which the Company fails to achieve superior
performance.
27
However, our 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 Mr. Pottruck's case, our committee places considerable weight on the
recommendations of Mr. Schwab, and in the case of executive officers other than
Mr. Schwab and Mr. Pottruck, our committee places considerable weight on the
recommendations of Mr. Schwab and Mr. Pottruck.
THE IMPORTANCE OF OWNERSHIP
A fundamental tenet of the Company's compensation policy is that significant
equity participation creates a vital long-term partnership between management
and other stockholders. Through various stock incentive plans, and The SchwabPlan
Retirement Savings and Investment Plan, and the 401(k) Plan and ESOP of United
States Trust Company of New York and Affiliated Companies, the benefits of
equity ownership are extended to non-employee directors, executive officers and
employees of the Company and its subsidiaries. As of March 8, 2001, the
directors and executive officers of the Company owned an aggregate of
______281,534,871 shares (including restricted shares) and had the right to acquire an
additional _____16,274,472 shares upon the exercise (on or before May 7, 2001) of employee
stock options.
As of March 8, 2001, The SchwabPlan Retirement Savings and Investment Plan and
the 401(k) Plan and ESOP of United States Trust Company of New York and
Affiliated Companies held ______an aggregate of 82,881,145 shares that had been
allocated to participants' accounts. The Company intends to continue its
strategy of encouraging its employees to become stockholders.
29
[side bar]
THE IMPORTANCE OF
OWNERSHIP
COMPENSATION COMMITTEE REPORT
The performance graph on page ____22 of this proxy statement compares changes in the
Company's cumulative total returns with those of the Dow Jones Securities
Brokerage Group Index and the Standard & Poor's 500 Index. From December 31,
1995 through December 31, 2000, the cumulative total return for Company stock
was 870%. By comparison, in the same period the Dow Jones Securities Brokerage
Group Index grew 522% and the Standard & Poor's 500 Index grew 132%. Our
committee believes employees' equity participation in the Company is a
meaningful factor contributing to the Company's success.
ANNUAL BASE SALARY
The Company believes that base salary is frequently a significant factor in
attracting, motivating and retaining skilled executive officers. Accordingly,
our committee reviews base salaries of executive officers annually and generally
sets the base salary of executive officers at or near the average of the levels
paid by the other companies it reviews. (See "Compensation Policies" earlier in
this report.)
VARIABLE COMPENSATION
CORPORATE EXECUTIVE BONUS PLAN
The Corporate Executive Bonus Plan covers allcertain executive officers exceptofficer participants
selected by our committee, but Mr. Schwab and pays bonuses each year based on corporate performance.is not eligible to participate. (Mr.
Schwab is covered under an employment agreement with the Company. See "Co-Chief
Executive Officers' Compensation" later in this report.) This bonus plan pays
bonuses each year based on corporate performance. Depending on the Company's
pre-tax operating profit margin and net revenue growth, thethis bonus plan is paid
out at a percentage of each participant's bonus target. (The pre-tax operating
profit margin represents an adjusted operating income measure which in 2000
excludes mergermerger- and acquisition relatedacquisition-related charges.) Targets are expressed as a
percentage of base salary, which our committee determines based on the factors
discussed earlier in this report. (See "Compensation Policies.")
Our committee sets target bonuses in the first quarter of each year based on the
recommendations of Mr. Schwab and Mr. Pottruck (except that Mr. Pottruck's
target bonus is based on the recommendation of Mr. Schwab only). In the case of
Mr. Pottruck, who receives all of his annual incentive compensation under this
bonus plan, our committee determined that it would be appropriate to set a
target bonus for 2000 that would result in an annual bonus payment to 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 whoparticipate in this bonus plan, the target bonuses for
2000 under this bonus plan could be up to 100% of base salary. These remaining
executive officers also participate in the Annual Executive Individual
Performance Plan (discussed later in this report).
28
The target bonus is adjusted upward or downward, according to a payout matrix
our committee adopted when we set the target bonus. This results in a payout of
a
30
[side bar]
ANNUAL BASE SALARY
VARIABLE COMPENSATION
COMPENSATION COMMITTEE REPORT
multiple (or fraction) of the target bonus depending on our corporate
performance. The factors determining bonuses in the matrix are pre-tax operating
profit margin and net revenue growth. In general, a given percentage change in
pre-tax operating 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 2000, the Company achieved a pre-tax operating profit margin of 24% and
net revenue growth of 29%. Based on this performance, executive officers who
participate in this bonus plan received bonuses exceeding their target bonus
amounts in 2000.
ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN
The Annual Executive Individual Performance Plan pays bonuses tocovers certain executive
officers other thanofficer participants selected by our committee, but Mr. Schwab and Mr. Pottruck
are not eligible to participate. The Individual Performance Plan presently pays
bonuses based on a subjective determination of each officer's individual
contribution to the attainment of corporate performance objectives. Our
committee makes this determination based on the recommendations of Mr. Schwab
and Mr. Pottruck. In general, their recommendations are based in significant
part on the officer's success in achieving specific goals identified in the
officer's business plan.
The amount available for payments under the individual performance planIndividual Performance Plan is
generally calculated by multiplying the amounts payable to the participants
under the Corporate Executive Bonus Plan by a fixed amount. Individual bonuses
under the individual performance planIndividual Performance Plan may vary, depending on individual
achievements. However, the aggregate amount of bonuses payable to executive
officers, as a group, under the individual performance planIndividual Performance Plan is based strictly on
our corporate performance.
1992 STOCK INCENTIVE PLAN
In 1992, the Board approved the 1992 Stock Incentive Plan, which was approved by
the Company's stockholders at the 1992 annual meeting and became effective on
May 8, 1992. Under the plan our committee grants stock options and restricted
stock to executive officers, based on the factors discussed earlier in this
report. (See "Compensation Policies.") Our Committeecommittee has a policy of granting
annual stock options and occasional restricted stock awards to executive
officers, because of our belief that an emphasis on annual awards provides a
powerful incentive to executive officers to obtain superior performance results.
Our committee intends that stock-based incentives will be the sole long-term
incentives payable to executive officers.
During 2000, our committee granted stock options to each of the Company's
executive officers. To determine the size of the grants, our committee reviewed
data obtained from an independent consultant concerning levels of long-term
compensation for executive officers of selected financial services companies and
companies of comparable size, rates of growth, and/or financial returns.
31
[side bar]
VARIABLE COMPENSATION
COMPENSATION COMMITTEE REPORT
CO-CHIEF EXECUTIVE OFFICERS' COMPENSATION
CHARLES R. SCHWAB
Mr. Schwab, Chairman and Co-Chief Executive Officer, is compensated based on an
employment agreement that was entered into between the Company and Mr. Schwab
and approved by the stockholders, effective March 31, 1995. (See "Employment
Agreement and Name Assignment" in Appendix A.) Under the terms of his employment
agreement, Mr. Schwab receives a base salary of $800,004. Mr. Schwab's annual
bonus, if any, is a multiple of his base salary. The multiple is based on our
corporate pre-tax operating profit margin and net revenue growth for the year,
and is determined under a matrix adopted by our committee. Our committee has the
authority to adjust the matrix from time to time (provided that for any year we
may not change the matrix more than 90 days after the beginning of the year).
Our committee believes that Mr. Schwab's leadership is a vital factor in our
corporate success. Specifically, our committee believes that:
* MR. SCHWAB PROVIDES THE LEADERSHIP, VISION AND INSPIRATION FOR INNOVATION
THAT HAS GENERATED CORPORATE GROWTH AND SUPERIOR PERFORMANCE,
* THE OVERALL STRATEGIC DIRECTION DEVELOPED BY MR. SCHWAB IS CRITICAL TO
ENHANCING THE FUTURE LONG-TERM VALUE OF THE COMPANY FOR ITS STOCKHOLDERS,
AND
* MR. SCHWAB'S LEADERSHIP HAS ENABLED THE COMPANY, ON THE WHOLE, TO
SUBSTANTIALLY OUTPERFORM BOTH THE DOW JONES SECURITIES BROKERAGE GROUP
INDEX AND THE STANDARD & POOR'S 500 INDEX OVER THE PAST FIVE YEARS.
29
The Company attained a pre-tax operating profit margin of 24% and net revenue
growth of 29% in 2000, [, which resulted in pre-tax operating profit of $1.388
billion.] The amount of the annual bonus for 2000 paid to Mr. Schwab under his
employment agreement was $8,100,000.
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 operating profit margin
and net revenue growth. (See "Corporate Executive Bonus Plan" earlier in this
report.) For 2000, our committee determined that, based on the relative
responsibilities of Mr. Schwab and Mr. Pottruck, it was appropriate for Mr.
Pottruck to receive a base salary equal to the base salary payable to Mr. Schwab
under his employment agreement. For the same reason, we determined it to be
appropriate to set a target bonus for Mr. Pottruck under the Corporate Executive
Bonus Plan that would cause Mr. Pottruck to receive an annual bonus equal to the
annual bonus payable to Mr. Schwab under his employment agreement, depending on
our corporate performance. Specifically, our committee believes that:
* MR. POTTRUCK PROVIDES STRATEGIC AND DAY-TO-DAY LEADERSHIP THAT HAS CONTRI-
BUTED AND CONTINUES TO CONTRIBUTE SIGNIFICANTLY TO THE COMPANY'S GROWTH AND
SUPERIOR PERFORMANCE,
32
[side bar]
CO-CHIEF EXECUTIVE
OFFICERS' COMPENSATION
COMPENSATION COMMITTEE REPORT
* MR. POTTRUCK GUIDES THE COMPANY IN THE DELIVERY OF HIGHLY COMPETITIVE PRO-
DUCTS AND SERVICES TO ITS CUSTOMERS,CLIENTS, 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 SUBSTANTIALLY
OUTPERFORM BOTH THE DOW JONES SECURITIES BROKERAGE GROUP INDEX AND THE
STANDARD & POOR'S 500 INDEX.
TAX LAW LIMITS ON EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code limits tax deductions for certain
executive compensation over $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 so that compensation is deductible under Section 162(m).
Accordingly, the Company's Corporate Executive Bonus Plan, 1992 Stock Incentive
Plan, and Mr. Schwab's employment agreement have been approved by stockholders.
(See "Employment Agreement and Name Assignment" in Appendix A.) In addition, stockholders are being asked to approve the 2001 Stock Incentive
Plan and the Annual Executive Individual Performance Plan, as amended, at this
year's annual meeting of stockholders. (See "Proposals To Be Voted On,"
beginning on page 10, and Appendices B and C.)
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 we believe it is
warranted. Since corporate objectives may not always be consistent with the
requirements for full deductibility, our committee is prepared, if we believe it
is appropriate, to enter into compensation arrangements or provide compensation
under which payments may not be deductible under Section 162(m). Tax
deductibility will not be the sole factor we consider in determining appropriate
levels or types of compensation.
COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS
Roger O. Walther, Chairman
Nancy H. Bechtle
C. Preston Butcher
Stephen T. McLin
George P. Shultz
3033
[side bar]
TAX LAW LIMITS ON
EXECUTIVE
COMPENSATION
AUDIT COMMITTEE REPORT
The Audit Committee of the Company's Board of Directors consists of seven
directors who are not employees of the Company or any of its subsidiaries. The
Board believes that all of the members of our committee are "independent
directors" as defined under applicable listing standards.
The Board of Directors has adopted a written Audit Committee Charter. A copy of
the Charter is attached as Appendix E.
Our committee has met and held discussions with management and the independent
auditors. As part of this process, we have:
* reviewed and discussed the audited financial statements with management,
* discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61 (Communication with
Audit Committees), and
* received the written disclosures and the letter from the independent
auditors required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and discussed with the
independent auditors the independent auditors' independence.
Based on the review and discussions referred to above, our committee recommended
to the Board of Directors that the audited financial statements be included in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2000, for filing with the SEC.
AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS
Stephen T. McLin, Chairman
Nancy H. Bechtle
C. Preston Butcher
Donald G. Fisher
Anthony M. Frank
Frank C. Herringer
Arun Sarin
3134
[side bar]
BOARD AUDIT COMMITTEE
REPORT
AUDITOR INDEPENDENCE
SELECTION
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 to attend the meeting in order to respond to questions from
stockholders, and they will have the opportunity to make a statement.
AUDIT FEES
The aggregate fees for professional services rendered by Deloitte & Touche in
connection with their audit of our consolidated financial statements and reviews
of the consolidated financial statements included in our quarterly reports on
Form 10-Q for the fiscal year ended December 31, 2000 were $3.7 million.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
The aggregate fees for information technology services rendered by Deloitte &
Touche relating to financial information systems design and implementation for
the fiscal year ended December 31, 2000 were $0.7 million.
ALL OTHER FEES
The aggregate fees for all other services rendered by Deloitte & Touche for the
fiscal year ended December 31, 2000 were $6.0 million and can be sub-categorized
as follows:
ATTESTATION FEES
The aggregate fees for attestation services for matters such as SEC regis-
tration statements, comfort letters, Statement on Auditing Standards No.70
reports, employee benefit plan audits, and agreed-upon procedures were
$1.0 million.
OTHER FEES
The aggregate fees for all other services, including due diligence related
to acquisitions, business and operational process improvement, tax
consulting and regulatory matters, were $5.0 million.
REVIEW OF AUDITOR INDEPENDENCE
The Board Audit Committee has considered whether the provision of non-audit
services by Deloitte & Touche, as described above in "Financial Information
Systems Design and Implementation Fees" and "All Other Fees," is compatible with
maintaining Deloitte & Touche's independence as the Company's principal auditor.
3235
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SELECTION
AUDIT FEES
FINANCIAL INFORMATION
SYSTEMS DESIGN AND
IMPLEMENTATION FEES
ALL OTHER FEES
REVIEW OF AUDITOR
INDEPENDENCE
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.
In addition, as of March 16, 2001, the executive officers listed below havehad
outstanding loans made by the Company, as specified below. The Company made
these loans to encourage the executives to continue holding shares of Company
restricted stock after vesting by providing funds to satisfy the income tax
liability resulting from the vesting of the shares. These loans do not bear
interest. However, under Internal Revenue Code regulations, the executives will
be taxed on imputed income in amounts based on required IRS interest rates.
These loans were made in the fiscal year which began January 1, 2001.
LARGEST AMOUNT AMOUNT
OUTSTANDING OUTSTANDING AS OF
NAME AND TITLE AT ANY TIME 3/12/16/01
-------------- -------------- -----------------
Linnet F. Deily $638,499 $638,499
Vice Chairman and Executive Vice President
Lon Gorman $813,564 $813,564
Vice Chairman and Executive Vice President
Daniel O. Leemon $566,713 $566,713
Executive Vice President and Chief Strategy Officer
Dawn G. Lepore $647,672 $647,672
Vice Chairman, Executive Vice President and
Chief Information Officer
Steven L. Scheid $647,672 $647,672
Vice Chairman and Executive Vice President
36
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CERTAIN TRANSACTIONS
OTHER INFORMATION
SECTION 16(A)16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that during 2000 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 that Karen Chang'sthe January 2000 transaction
of Karen Chang, Executive Vice President, was inadvertently reported late. The
transaction involved only the exercise of stock options. Ms. Chang did not sell
the shares of common stock acquired in the exercise. The report, which was due
in February 2000, was filed in March 2000.
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 26, 2001. 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
For next year's annual meeting of stockholders, the persons appointed by proxy
to vote stockholders' shares will vote those shares according to their best
judgment on any stockholder proposal the Company receives after FebruaryMarch 8, 2002.
33
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, the "Compensation Committee Report
on Executive Compensation"Report" on
page ____,28-33, the "Audit Committee Report" on page ____34, and the "Audit Committee
Charter" (Appendix E) on pages ___ and ___specifically50-52 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.
3437
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SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING
COMPLIANCE
STOCKHOLDER
PROPOSALS
COSTS OF PROXY
SOLICITATION
INCORPORATION BY
REFERENCE
TICKETS AND INTERNET ACCESS TO THE ANNUAL MEETING
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.(415) 636-1337.
We also 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
MARCHMarch 26, 2001
San Francisco, California
3538
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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 LICENSE AGREEMENTS
This Appendix A contains descriptions of agreements between the Company and
Charles R. Schwab relating to his employment and the use of the name "Schwab" by
The Charles Schwab Corporation.
EMPLOYMENT AGREEMENT AND NAME ASSIGNMENT
The Company and Mr. Schwab entered into an employment agreement effective March
31, 1995. Stockholders approved the employment agreement. It has an initial term
of five years, and provides that as of each March 31, the term of the employment
agreement is automatically extended by an additional year, under the same terms
and conditions, unless beforehand either party provides notice to the other of
an intention not to extend it.
The employment agreement provides for an annual base salary of $800,004 and
provides that Mr. Schwab will participate in all compensation and fringe benefit
programs made available to other executive officers, including the stock
incentive plans. Instead 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 our corporate pre-tax operating profit margin and net revenue growth
for the year, and is determined under a matrix adopted by the Board Compensation
Committee. The committee has the authority to adjust the matrix periodically
(except the committee may not change the matrix more than 90 days after the
beginning of any year). The matrix is also adjusted automatically each year,
based on increases in the Consumer Price Index.
The employment agreement also provides that certain compensation and benefits
will be paid or provided to Mr. Schwab (or his immediate family or estate) if
his employment is terminated involuntarily, except for cause, before the
expiration of the employment agreement. "Cause" is defined as the commission of
a 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 the Company or Charles Schwab & Co., Inc.
If an involuntary termination is not due to death, disability or "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 stock incentive
plans), and
* all his outstanding, unvested awards under stock incentive plans will vest
fully on the termination date.
If an involuntary termination is due to disability, Mr. Schwab will be entitled
to receive:
* his base salary, less any payments under the corporate long-term disability
plan, and benefits (but not bonuses or other incentive compensation) for a
period of 36 months from the termination date, and
39
[side bar]
EMPLOYMENT AGREEMENT
AND NAME ASSIGNMENT
APPENDIX A DESCRIPTION OF EMPLOYMENT AND LICENSE AGREEMENTS
* a prorated portion of any bonus or incentive payments for the year in which
the disability occurs.
If an involuntary termination is due 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 voluntarily resigns his employment within 24 months of a change in
control of the Company, he will be entitled to receive a prorated portion of any
bonus or incentive payments payable for the year in which the resignation
occurs. In addition, if Mr. Schwab voluntarily resigns his employment, or his
employment is involuntarily terminated, within 24 months of a change in control
of the Company, he will have the right (but not the obligation) to enter into a
consulting arrangement with the Company. Under that arrangement Mr. Schwab would
provide certain consulting services to the Company for a period of five years
for an annual payment equal to $1 million or 75% of his then base salary,
whichever is less.
36
The employment 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. (However, that restriction does not apply
if Mr. Schwab resigns his employment within 24 months of a change in control of
the Company.)
The Company and Charles Schwab & Co., Inc. also are parties to an Assignment and
License agreement with Mr. Schwab that was approved in July 1987 by the
Company's non-employee directors. Under the agreement, Mr. Schwab has assigned
to the Company all service mark, trademark, and trade name rights to Mr.
Schwab's name (and variations on the name) and likeness. However, Mr. Schwab 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 do not directly compete with any business in
which the Company or its subsidiaries are then engaged or plan to enter within
three months). Beginning two years 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.
So long as Mr. Schwab does not cause actual confusion among customers, he will
at all times be able to use his own name to identify himself, but not as a
service mark, trademark or trade name in the financial services business. The
Assignment and License agreement defines the "financial services business" 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 is permitted
to engage under
40
[side bar]
EMPLOYMENT AGREEMENT
AND NAME ASSIGNMENT
APPENDIX A DESCRIPTION OF EMPLOYMENT AND LICENSE AGREEMENTS
rules and regulations of applicable regulatory agencies. The Company's ability
to assign or license the right to use Mr. Schwab's name and likeness is severely
limited during Mr. Schwab's lifetime.
No cash consideration is to be paid to Mr. Schwab for the name assignment while
he is employed by the Company or, after that employment terminates, while he is
receiving compensation under an employment agreement with the Company. Beginning
when all such compensation ceases, and continuing for a period of 15 years, Mr.
Schwab or his estate will receive three-tenths of one percent (0.3%) of the
aggregate net revenues of the Company (on a consolidated basis) and those of its
unconsolidated assignees and licensees that use the name or likeness. These
payments may not, however, exceed $2 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.
3741
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EMPLOYMENT AGREEMENT
AND NAME ASSIGNMENT
APPENDIX B DESCRIPTION OF THE 2001 STOCK INCENTIVE PLAN
GENERAL DESCRIPTION OF THE 2001 STOCK INCENTIVE PLAN
ELIGIBILITY TO RECEIVE AWARDS
Key employees of the Company and its subsidiaries, including directors who are
also employees, are eligible for awards under the plan. Non-employee directors
are eligible for an annual, automatic grant of non-qualified stock options.
As of December 31,In 2000, approximately 3,0001,350 persons had received awards under the 1992 Stock
Incentive Plan, which is to be replaced by the 2001 Stock Incentive Plan. WeBased
on the current number and classes of employees within the Company and current
stock-based award practices, we expect to have a comparable number of
participants under the 2001 Stock Incentive Plan.Plan on an annual basis.
LIMITS ON AWARDS
The following are the limits on the number of shares that may be granted to any
one participant in any one year:
* [3,375,000]5 million shares under options,
* [1,350,000]1 million restricted shares, and
* [1,350,000]1 million performance share awards.
These annual limits are adjusted automatically for any stock split, declaration
of a stock dividend or other similar event.
TYPES OF AWARDS
Awards under the 2001 Stock Incentive Plan may take the form of restricted
shares, performance share awards and options to acquire the Company's common
stock, as described below.
* Restricted shares are similar to common stock in that they have the same
voting and dividend rights, but the recipient will forfeit the restricted
shares if the applicable vesting conditions are not satisfied.
* Performance share awards are obligations of the Company to issue and
deliver in the future shares of common stock if the applicable conditions
are satisfied.
* Options are the rights to acquire common stock at an exercise price at
least equal to the fair market value of the Company's stock on the date of
grant. Options include non-qualified stock options and incentive stock
options. Incentive stock options are intended to qualify for special tax
treatment. Options vest according to a schedule.
* An award under the plan may consist of one or more of these grant types,
except that non-employee directors will only be eligible to receive
non-qualified stock options.
No payment is required on the grant of any award, except (in the case of
restricted shares and performance shares) payment of the $.01 per share par
value of the stock awarded. Upon exercise of an option, the option holder must
pay the option exercise price to the Company. On March 8,16, 2001, the closing
price of the Company'sCompany common stock was $$16.49 per share.
A total of 70 million shares may be issued under the plan under options and
performance share awards and as restricted
42
[side bar]
GENERAL DESCRIPTION
OF THE 2001 STOCK
INCENTIVE PLAN
APPENDIX B DESCRIPTION OF THE 2001 STOCK INCENTIVE PLAN
shares. This number adjusts automatically for any stock split, declaration of a
stock dividend or other similar event.
As of January 31,February 28, 2001, the number of remaining shares under the 1992 Stock
Incentive Plan was 13,061,529,6,896,430, and the number of remaining shares under all other
Company stock incentive plans was 9,156,781.9,225,145. The Company will continue to make
grants under the 1992 Stock Incentive Plan until all the remaining shares have
been used or until thethat plan expires in 2002, whichever is sooner.
Under the terms of the 2001 Stock Incentive Plan, if:
* the recipient forfeits any restricted shares, performance share awards or
options,
* any performance share awards terminate for any
other reason without the associated common stock being issued, or
* options terminate for any other reason before exercise,
then the underlying shares again become available for awards.
ADMINISTRATION, AMENDMENT AND TERMINATION
The 2001 Stock Incentive Plan is administered by the Board Compensation
Committee. The committee, on advice of the Company's executive management,
38
* selects the key employees who will receive awards,
* determines the amount, vesting requirements, performance criteria, if any,
and other conditions of each award,
* interprets the provisions of the plan, and
* makes all other decisions regarding the operation of the plan.
The grant of non-qualified stock options to 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 2001 Stock Incentive Plan, each new director receives a grant of
options to purchase a total of 10,000 shares of Company common stock. Also, each
non-employee director receives an annual, automatic grant of options. The number
of options in the grant is determined by dividing $150,000 by the closing price
of Company common stock on the grant date. This grant is made on May 15 of each
year, but if May 15 is not a business day, then the grant is made on the next
business day.
In addition, a non-employee director who elects to defer directors' fees under
the Directors' Deferred Compensation Plan can, instead of receiving fees, elect
either to:
* receive 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 grant and generally expire ten years after the
grant date,
- or -
43
[side bar]
GENERAL DESCRIPTION
OF THE 2001 STOCK
INCENTIVE PLAN
APPENDIX B DESCRIPTION OF THE 2001 STOCK INCENTIVE PLAN
* invest the amount of the deferred fees 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.
RESTRICTED SHARES AND PERFORMANCE SHARE AWARDS
Recipients of restricted shares cannot transfer them before they vest (except
that the recipient can transfer them by gift to certain trusts and partnerships
formed for the benefit of family members).
Recipients of performance share awards cannot transfer them, and the recipients
have no voting or dividend rights until the associated shares of common stock
are issued. At that time the recipients will have the same voting, dividend and
other rights as the Company's other stockholders.
Generally, vesting of all or a portion of restricted shares and performance
share awards is accelerated if the recipient dies, becomes disabled, or retires,
and may be accelerated if a "change in control" occurs. (We explain that term
later in this Appendix B under "Change in Control.")
When granting an award, the Board Compensation Committee determines the number
of 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 individual performance,
* the Company's performance, or
* other appropriate criteria.
When the committee uses the Company's performance as a vesting or issuance
condition, it establishes performance goals based on one or more of the
following business criteria:
* pre-tax income,
* operating income,
* cash flow,
* stockholder return,
* revenue,
39
* revenue growth,
* return on net assets,
* net income,
* net new assets,
* earnings per share,
* return on equity, or
* return on investment.
40
TERMS OF STOCK OPTIONS
The exercise price of any stock option granted under the plan must be equal to
or greater than the fair market value of the Company's common stock on the date
of grant. The 2001 Stock Incentive Plan defines "fair market value" as the
closing price of the Company's stock as reported by the New York Stock Exchange
compositeComposite Transactions Index for the date of grant.
The term of an incentive stock option cannot exceed 10ten years. The Board
Compensation Committee establishes vesting conditions when it grants an option.
Generally vesting is accelerated if the recipient dies, becomes disabled, or
retires, and may be accelerated if a "change
44
[side bar]
GENERAL DESCRIPTION
OF THE 2001 STOCK
INCENTIVE PLAN
APPENDIX B DESCRIPTION OF THE 2001 STOCK INCENTIVE PLAN
in control" occurs. (We explain that term in the following section of this
Appendix B.)
Recipients may transfer options (other than incentive stock options, which must
be nontransferable to qualify as incentive stock options) to certain trusts and
partnerships formed for the benefit of family member.members.
CHANGE IN CONTROL
Under the 2001 Stock Incentive Plan, the term "change in control" means:
* the Company undergoes any change in control which would have to be
disclosed in the Company's next proxy statement under SEC rules, or
* any person becomes the beneficial owner, directly or indirectly, of
aat least 20% of the combined voting power of the Company's outstanding
securities, except as a result of a repurchase by the Company of its
own securities, or
* the composition of the Board of Directors changes, and as a result fewer
than two-thirds of the incumbent directors:
* had been directors of the Company 24 months earlier, or
* had been elected or nominated with the approval of at least a majority
of the directors who had been directors of the Company 24 months earlier
and who were still directors at the time of the incumbent directors'
election or nomination.
FEDERAL TAX CONSEQUENCES
The following is a summary of the federal income tax consequences of awards
under the 2001 Stock Incentive Plan.
OPTIONS
When the options are granted, there are no federal income tax consequences to
the Company or the option holder.
On the exercise of a non-qualified stock option, the option holder generally
will have ordinary income. The amount of the income will be equal to:
* the fair market value of the shares on the exercise date, minus
* the option exercise price.
The income will be subject to tax withholding. Generally, in the same year that
the option holder has income from the option exercise, the Company will be able
to take a tax deduction in the amount of that income.
On any subsequent disposition of the shares, any additional gain or loss
recognized by the holder generally will be capital gain or loss.
In contrast, the exercise of incentive stock options will not normally result in
any taxable income to the option holder at that time; nor will the Company be
entitled to any tax deduction. However, the exercise will result in an amount
that is taken into account in computing the option holder's alternative minimum
taxable income. This amount will be equal to:
* the fair market value of the shares on the exercise date, minus
* the option exercise price.
If the option holder exercises the options, holds the shares for the period
required by law, and then sells the shares, the difference
45
[side bar]
FEDERAL TAX
CONSEQUENCES
APPENDIX B DESCRIPTION OF THE 2001 STOCK INCENTIVE PLAN
between the sale price and the exercise price generally will be taxed as capital
gain or loss.
41
If the option holder does not hold the shares for the period required by law, he
or she generally will have ordinary income at the time of the early disposition.
The amount of the income will be equal to:
* the fair market value of the shares on the exercise date (or, if less, the
sale price), minus
* the option exercise price.
The Company generally will be entitled to a tax deduction in that same amount.
Any additional gain upon the disposition generally will be taxed as capital
gain.
RESTRICTED SHARES
Unless the recipient of restricted shares elects to be taxed when the shares are
granted, there will be no federal income tax consequences to the recipient or to
the Company while the shares have vesting restrictions. Upon vesting the
recipient will have ordinary income. The amount of the income will be equal to:
* the fair market value of the shares on the vesting date, minus
* the amount paid for the shares.
The income will be subject to tax withholding. The Company generally will be
entitled to a tax deduction in the amount of the recipient's income. Upon any
subsequent disposition of the shares, any additional gain or loss recognized by
the holder generally will be capital gain or loss.
PERFORMANCE SHARE AWARDS
The grant of performance share awards will have no federal income tax
consequence to the Company or the recipient at the time of the grant. When a
recipient becomes entitled to receive any common stock under the terms of the
performance share award, the recipient generally will have ordinary income. The
amount of the income will be equal to:
o* the fair market value of the shares on that date, minus
o* any amount paid for the shares.
The income will be subject to tax withholding. The Company generally will be
entitled to a tax deduction in the amount of the recipient's income. Upon any
subsequent disposition of the shares, any additional gain or loss recognized by
the holder generally will be capital gain or loss.
4246
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FEDERAL TAX
CONSEQUENCES
APPENDIX C DESCRIPTION OF THE ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN
GENERAL DESCRIPTION OF THE ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN
PLAN PARTICIPANTS
The participants in the Annual Executive Individual Performance Plan, as
amended, include the Vice Chairmen, Executive Vice Presidents and, from time to
time, certain other officers having comparable positions.positions, in each case as
selected for participation by the Board Compensation Committee. Currently, 9
executivesnine
executive officers participate in the Individual Performance Plan.
DETERMINATION OF BONUS AMOUNTS
The Individual Performance Plan specifies a maximum bonus for each participant,
which is 160% of the amount of the executive's bonus computed under the
Corporate Executive Bonus Plan. Participants in the Individual Performance Plan
may receive some, all, or none of their maximum bonus under the plan, depending
upon an assessment of their achievement of individual performance goals, which
is made by the Compensation Committee. The following paragraph describes how an
executive's bonus is computed under the Corporate Executive Bonus Plan.
To determine the bonus payable to an executive under the Corporate Executive
Bonus Plan, the Compensation Committee first determines a target bonus for each
executive, which is expressed as a percentage of the executive's annual base
salary, and depends upon an assessment of the executive's roles and
responsibilities. The Committee sets target bonuses in the first quarter of each
year, based upon the recommendations of the Chairman and Co-Chief Executive
Officer and, where appropriate, the President and Co-Chief Executive Officer.
For the executives who participate in the Individual Performance Plan, the
target bonus percentages under the Corporate Executive Bonus Plan can be up to
100% of the executive's annual base salary. The amount of the target bonus is
then multiplied by a payout percentage, which is derived from a matrix fixed by
the Compensation Committee in advance, and which can range from 0% to 400% for
the executives who participate in the Individual Performance Plan. The matrix
establishes the relationship between the payout percentage and the Company's
performance for the year relative to its targets of net revenue growth and
pre-tax operating profit margin. In any event, the amount of base salary
included in the computation of the target bonus amount for each participant in
any year may not exceed 250% of the base salary, determined as of March 31,
2000, payable to the participant holding the same or substantially similar
position on March 31, 2000.
The amount so derived from multiplying the executive's target bonus by the
payout percentage determined pursuant to the matrix is the amount of the bonus
payable under the Corporate Executive Bonus Plan. This latter amount is then
multiplied by 160% to determine the maximum bonus payable to the executive under
the Individual Performance Plan.
47
[side bar]
GENERAL DESCRIPTION OF
THE ANNUAL EXECUTIVE
INDIVIDUAL
PERFORMANCE PLAN
APPENDIX C DESCRIPTION OF THE ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN
BONUS PAYMENTS
Payments are generally made in cash, except that the Compensation Committee may
decide to 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 outstanding
shares may be issued in any year under the Individual Performance Plan (combined
with any such shares issued under the Corporate Executive Bonus Plan).
Amounts payable under the Individual Performance Plan are generally paid within
a reasonable time after the end of the year in which they are earned. However, a
recipient may elect to defer receipt of all or any portion of the amounts
payable under the plan until a specified date, or until termination of
employment, but deferrals will be paid immediately if the Company undergoes a
change in control. Deferrals 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, the allocation
among which is determined by the participant.
PLAN ADMINISTRATION
The Compensation Committee administers the Individual Performance 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.
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GENERAL DESCRIPTION OF
THE ANNUAL EXECUTIVE
INDIVIDUAL
PERFORMANCE PLAN
APPENDIX D NEW PLAN BENEFITS TABLE
NEW PLAN BENEFITS
2001 ANNUAL EXECUTIVE INDIVIDUAL
2001
STOCK INCENTIVE PLAN(1) PERFORMANCE PLAN (2)
NUMBER OF SHARES NUMBER OF RESTRICTED DOLLAR VALUE ($)
NAME UNDERLYING OPTIONS(#) AND OTHER SHARES(#)
- -----------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB(3) 300,000 0 N/A
CHAIRMAN AND CO-CHIEF EXECUTIVE OFFICER
DAVID S. POTTRUCK(3) 300,000 0 N/A
PRESIDENT AND CO-CHIEF EXECUTIVE OFFICER
JOHN PHILIP COGHLAN 220,001 0 $ 826,478
VICE CHAIRMAN AND EXECUTIVE VICE PRESIDENT
STEVEN L. SCHEID 220,001 0 $ 843,553
VICE CHAIRMAN AND EXECUTIVE VICE PRESIDENT
DAWN G. LEPORE 220,001 0 $ 821,645
VICE CHAIRMAN, EXECUTIVE VICE PRESIDENT AND CHIEF
INFORMATION OFFICER
LINNET F. DEILY 220,001 0 $ 876,683
VICE CHAIRMAN AND EXECUTIVE VICE PRESIDENT
LON GORMAN 220,001 0 $ 820,345
VICE CHAIRMAN AND EXECUTIVE VICE PRESIDENT
ALL CURRENT EXECUTIVE OFFICERS, AS A GROUP 1,034,9481,034,984 60,000 $6,523,864
(13 PERSONS -- 2001 STOCK INCENTIVE PLAN;
9 PERSONS -- 2001 ANNUAL EXECUTIVE INDIVIDUAL
PERFORMANCE PLAN)(3)
ALL CURRENT DIRECTORS WHO ARE NOT EXECUTIVE OFFICERS, AS 53,283 194 N/A
A GROUP (9 PERSONS) (4)
ALL CURRENT EMPLOYEES, OTHER THAN EXECUTIVE OFFICERS, AS 15,076,861 1,193,500 N/A
A GROUP (4)
(1) This column assumes that had the 2001 Stock Incentive Plan been in effect in 2000, the same number of options and restricted
and other shares would have been granted in 2000 under that plan as were granted in 2000 under the 1992 Stock Incentive Plan.
(2) This column identifies the amounts that would have been payable under the Annual Executive Individual Performance Plan, as
amended, for 2000, had the amended plan been in effect in 2000, based on:
* 2000 base salaries and target bonuses,
* the Company's 2000 net revenue growth of 29% and pre-tax operating profit margin of 24%, and
* an assumption that each executive officer receives his or her full target bonus under the amended planplan.
(3) Mr. Schwab and Mr. Pottruck do not participate in the Annual Executive Individual Performance Plan.
(4) Only executive officers are eligible to participate in the Annual Executive Individual Performance Plan.
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NEW PLAN BENEFITS
TABLE
APPENDIX E AUDIT COMMITTEE CHARTER
PURPOSE
The Audit Committee of the Board of Directors assists the Board in fulfilling
its oversight responsibilities by reviewing (1) the integrity of the Company's
financial reporting process; (2) the adequacy of the Company's internal
controls; (3) the audit process, including the independence and performance of
the Company's internal and external auditors; and (4) such other matters as
directed by the Board or this Charter.
COMPOSITION AND MEMBERSHIP
The Board appoints the members of the Audit Committee. The Audit Committee shall
consist of at least three independent directors, all of whom shall be
financially literate. At least one member of the Audit Committee shall have
accounting or related financial management experience. The term of each member
shall be two years, with alternating dates of expiration so as to provide
continuity to the Audit Committee.
AUTHORITY
The Audit Committee shall have the authority to retain special legal, accounting
or other consultants to advise the Committee. The Audit Committee may request
any officer or employee of the Company or the Company's outside counsel or
independent auditorauditors to attend a meeting of the Committee or to meet with any
members of, or consultants to, the Committee.
MEETINGS
There shall be four regular meetings each year and additional meetings may be
held as circumstances warrant.
RESPONSIBILITIES
The responsibilities of the Audit Committee include, but are not limited, to the
following:
1. Review and reassess the adequacy of this Charter annually and recommend any
proposed changes to the Board for approval.
2. Recommend to the Board the appointment of the independent auditors, which
firm is ultimately accountable to the Audit Committee and the Board.
3. Review the performance of the independent auditors and, if so determined by
the Audit Committee, recommend that the Board replace the independent
auditor.auditors.
4. Review the annual audited financial statements with management,
including major issues regarding accounting and auditing principles and
practices, as well as the adequacy of the internal controls that could
significantly affect the Company's financial statements.
5. Review any analyses prepared by management and/or the independent
auditors of significant financial reporting issues and judgments made in
connection with preparation of the Company's financial statements.
6. Review with the independent auditors any problems or difficulties the
auditors may have encountered and any management letter provided by the
auditors and the Company's response to that letter. Such review should
include any difficulties
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PURPOSE
COMPOSITION AND MEMBERSHIP
AUTHORITY
MEETINGS
RESPONSIBILITIES
APPENDIX E AUDIT COMMITTEE CHARTER
encountered in the course of the audit work, including any restrictions on the
scope of activities or access to required information.
7. Receive written periodic reports from the independent auditors regarding
the auditors' independence, discuss such reports with the auditor,auditors, and if
so determined by the Audit Committee, recommend that the Board take
appropriate action to ensure the independence of the auditors.
8. Review and approve fees for audit services provided by the independent
auditors. Review fees for information technology consulting and all other
services provided by the independent auditors during the fiscal year.
9. Consider whether the provision of non-audit services by the independent
auditors is compatible with maintaining auditor independence.
45
10. Meet with the independent auditors prior to the audit to review the planning
and staffing of the audit.
11. Discuss with the independent auditors matters required to be discussed by
Statement on Auditing Standards No. 61 relating to the conduct of the audit.
12. Discuss, or delegate to the Chairman to discuss, matters communicated by
the independent auditors in connection with interim financial reviews prior
to the filing of interim financial information with a regulatory agency, if
practicable.
13. Review major changes to the Company's accounting principles and
auditing practices as suggested by the independent auditors, internal
auditors or management.
14. Review the appointment and replacement of the senior internal auditing
executive.
15. Review with the independent auditors the internal audit department
responsibilities, budget and staffing, and any changes required in the
planned scope of the internal audit.
16. Review the significant reports to management prepared by the internal audit-
ing department and management's responses.
17. Review with the Company's General Counsel legal matters that may have a
material impact on the financial statements, the Company's compliance
policies and any material reports or inquiresinquiries received from regulators or
governmental agencies.
18. Meet periodically with management to review the Company's major
financial risk exposures and the steps management has taken to monitor and
control such exposures.
19. Maintain communication and, when appropriate, meet separately with the
independent auditors, the Chief Financial Officer, the Senior Vice President
of Internal Audit, and the General Counsel.
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RESPONSIBILITIES
APPENDIX E AUDIT COMMITTEE CHARTER
20. Review and approve disclosures required by the rules of the Securities
and Exchange Commission to be included in the Company's annual proxy
statement.
21. Oversee the process for determining Compliancecompliance with the Company's Code of Corporate
Conduct. Review and approve significant revisions thereto.
22. Request reports from the independent and internal auditors regarding
any areas that may require the Audit Committee's special attention.
23. Report its activities to the full Board on a regular basis.
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the company'sCompany's financial statements are complete and accurate
and are in accordance with accounting principles generally accepted in the
United States of America. This is the responsibility of management and the
independent auditors. Nor is it the duty of the Audit Committee to conduct
investigations, to resolve disagreements, if any, between management and the
independent auditors or to assure compliance with laws and regulations and the
Company's Code of Conduct.
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RESPONSIBILITIES
The Charles Schwab CorporationTHE CHARLES SCHWAB CORPORATION
101 Montgomery Street
San Francisco,MONTGOMERY STREET
SAN FRANCISCO, CA 94104
proxy
________________________________________________________________________________
This proxy is solicited415.627.7000
NYSE Stock Symbol: SCH
www.schwab.com
creating a world of smarter inventors (TM)
CharlesSchwab logo appears here
Printed on recycled paper. LGL-13902-02
THE CHARLES SCHWAB CORPORATION
2001 STOCK INCENTIVE PLAN
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board of Directors on February 28, 2001.
The purpose of this Plan is to promote the long-term success of the Company and
the creation of incremental stockholder value by (a) encouraging Non-Employee
Directors and Key Employees to focus on long-range objectives, (b) encouraging
the attraction and retention of Non-Employee Directors and Key Employees with
exceptional qualifications and (c) linking Non-Employee Directors and Key
Employees directly to stockholder interests. The Plan seeks to achieve this
purpose by providing for useAwards in the form of Restricted Shares, Performance
Share Awards or Options, which may constitute incentive stock options or
nonstatutory stock options. The Plan shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
ARTICLE 2. ADMINISTRATION.
2.1 The Committee. The Plan shall be administered by the
--------------
Committee. The Committee shall consist of two or more 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 70,000,000. 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 5,000,000; 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 1,000,000. The limitations set forth in the preceding
sentence shall be subject to adjustment pursuant to Article 10; and
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 but 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
NQSOs described in this Section 4.2.
(a) Each Non-Employee Director shall receive an NQSO covering a
number of 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, to be calculated by dividing $150,000 by the
Fair Market Value of the Common Shares on the grant date described in
subsection (b) below; and
(b) The NQSO 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 NQSO shall be exercisable in full at all times during its
term;
(d) The term of each NQSO shall be 10 years; provided, however, that
any unexercised NQSO shall expire on the earlier of the date 10 years
after the date of grant or three (3) months following 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 NQSO 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 NQSO 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.
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
2
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.
4.6 Options Issued To Non-Employee Directors In Lieu of Fee
--------------------------------------------------------------
Deferrals. In addition to any awards pursuant to Sections 4.1 and 4.2, a
- ---------
Non-Employee Director who elects to defer the receipt of amounts pursuant to
Section 5.1 of The Charles Schwab Corporation Directors' Deferred Compensation
Plan (the "Directors Deferred Compensation Plan") and elects to receive stock
options in lieu of a Deferral Account balance pursuant to Section 5.4(2) of the
Directors Deferred Compensation Plan, shall be entitled to receive a grant of
NQSOs hereunder on the date the amounts would have been payable to the
Non-Employee Director if the Non-Employee Director had not made such deferral
election. Any NQSOs issued pursuant to this Section shall be issued pursuant to
the terms set forth in subsections (c), (d) and (e) of Section 4.2 hereof.
4.7 Performance Shares Issued To Non-Employee Directors Pursuant
--------------------------------------------------------------
to Fee Deferrals. In addition to any awards pursuant to Sections 4.1 and 4.2, a
- ----------------
Non-Employee Director who elects to defer the receipt of amounts pursuant to
Section 5.1 of The Directors' Deferred Compensation Plan and elects to receive
payment in Shares pursuant to Section 5.4(1) of the Directors Deferred
Compensation Plan, shall be entitled to receive a grant of Performance Shares
hereunder on the date the amounts would have been payable to the Non-Employee
Director if the Non-Employee Director had not made such deferral election. For
purposes of this section, the term Non-Employee Director shall also include
non-employee directors of any Subsidiary, if the Committee has approved
participation in the Directors Deferred Compensation Plan for such Subsidiary's
non-employee directors.
ARTICLE 5. OPTIONS.
5.1 Stock Option Agreement. Each grant of an Option under the Plan
----------------------
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms and conditions of
the Plan, and may be subject to any other terms and conditions which are not
inconsistent with the Plan and which the Committee deems appropriate for
inclusion in a Stock Option Agreement. The provisions of the various Stock
Option Agreements entered into under the Plan need not be identical. The
Committee may designate all or any part of an Option as an ISO (or, in the case
of a Key Employee who is subject to the tax laws of a foreign jurisdiction, as
an option qualifying for favorable tax treatment under the laws of such foreign
jurisdiction), except for Options granted to Non-Employee Directors.
3
5.2 Options Nontransferability. Subject to the provisions of
---------------------------
Section 14.2, 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 NQSO.
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.
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, except to the extent otherwise specified by the
Committee at the Annual Meetingtime of grant, (i) the exercisability of Options shall be
accelerated in the event of the Participant's death or Disability; (ii) 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; 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. Except as provided in Section
4.2, NQSOs may also be awarded in combination with Restricted Shares, and such
an Award may provide that the NQSOs will not be exercisable unless the related
Restricted Shares are forfeited. In addition, NQSOs 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
4
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 NQSO.
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 NQSOs 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 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.
5
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 that the Company 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.
6.3 Exercise/Sale. To the extent this Section 6.3 is applicable,
-------------
payment may be made by the delivery (in a manner 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 NQSOs, and such an Award may provide that the
Restricted Shares or Performance Share Awards will be forfeited in the event
that the related NQSOs 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
6
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
(except to the extent otherwise specified by the Committee at the time of
grant), (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.
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
7
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.
ARTICLE 9. VOTING RIGHTS AND DIVIDENDS.
9.1 Restricted Shares. All holders of Restricted Shares shall have
------------------
the same voting, dividend, and other 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 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. Subject to the provisions of Section 5.7, in
---------------
the event that the Company is a party to a merger or other reorganization,
outstanding Options, Restricted Shares and Performance Share Awards shall be
subject to the agreement of merger or reorganization. Such agreement may
provide, without limitation, for the assumption of outstanding Awards by the
surviving corporation or its parent, for their continuation by the Company (if
the Company is a surviving corporation), for accelerated vesting or for
settlement in cash.
10.3 Reservation of Rights. Except as provided in this Article 10,
---------------------
a Participant shall have no rights by reason of any subdivision or consolidation
of shares of stock of any class, the payment of any stock dividend or any other
increase or decrease 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
8
made with respect to, the number or Exercise Price of Common Shares subject to
an Option. The grant of an Award pursuant to the Plan shall not affect in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
ARTICLE 11. LIMITATION OF RIGHTS.
11.1 Employment Rights. Neither the Plan nor any Award granted
------------------
under the Plan shall be deemed to give any individual a 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 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")
9
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 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
10
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 NQSOs, or who
- ------
receives Awards of Restricted Shares, or who receives Common Shares pursuant to
the terms of a Performance Share Award, to satisfy all or part of his or her
withholding tax obligations by having the Company withhold a portion of the
Common Shares that otherwise would be issued to him or her under such Awards.
Such Common Shares shall be valued at their Fair Market Value on the date when
taxes otherwise would be withheld in cash. The payment of withholding taxes by
surrendering Common Shares to the Company, if permitted by the Committee, shall
be subject to such restrictions as the Committee may impose, including any
restrictions required by rules of the Securities and Exchange Commission.
ARTICLE 14. ASSIGNMENT OR TRANSFER OF AWARD.
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.
11
ARTICLE 15. FUTURE OF PLANS.
15.1 Term of the Plan. The Plan, as set forth herein, shall become
----------------
effective on May 7, 2001. The Plan shall remain in effect until it is terminated
under Section 15.2, except that no ISOs shall be granted after May 6, 2011.
15.2 Amendment or Termination. The Committee may, at any time and
------------------------
for any reason, amend or terminate the Plan; provided, however, that any
amendment of the Plan shall be subject to the approval of the Company's
stockholders to the extent required by applicable laws, regulations or rules.
15.3 Effect of Amendment or Termination. No Award shall be made
-----------------------------------
under the Plan after the termination thereof. The termination of the Plan, or
any amendment thereof, shall not affect any Option, Restricted Share or
Performance Share Award previously granted under the Plan.
ARTICLE 16. DEFINITIONS.
16.1 "Award" means any award of an Option, a Restricted Share or a
Performance Share Award under the Plan.
16.2 "Award Year" means a fiscal year beginning January 1 and
ending December 31 with respect to which an Award may be granted.
16.3 "Board" means the Company's Board of Directors, as constituted
from time to time.
16.4 "Change in Control" means the occurrence of any of the
following events after the effective date of the Plan as set out in Section
15.1:
(a) A change in control required to be reported pursuant to Item 6(e)
of Schedule 14A of Regulation 14A under the Exchange Act;
(b) A change in the composition of the Board, 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
12
Stock"); provided, however, that any change in the relative beneficial
ownership of securities of any person resulting solely from a reduction
in the aggregate number of outstanding shares of Base Capital Stock,
and any decrease thereafter in such person's ownership of securities,
shall be disregarded until such person increases in any manner,
directly or indirectly, such person's beneficial ownership of any
securities of the Company.
16.5 "Code" means the Internal Revenue Code of 1986, as amended.
16.6 "Committee" means the Compensation Committee of the Board, as
constituted from time to time.
16.7 "Common Share" means one share of the common stock of the
Company.
16.8 "Company" means The Charles Schwab Corporation, a Delaware
corporation.
16.9 "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.
16.10 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
16.11 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
16.12 "Exercise Price" means the amount for which one Common Share
may be purchased upon exercise of an Option, as specified by the Committee in
the applicable Stock Option Agreement.
16.13 "Fair Market Value" means the market price of a Common Share,
determined by the committee as follows:
(a) If the Common Share was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing
price reported by the applicable composite-transactions report for
such date;
(b) If the Common Share was traded over-the-counter on the date in
question and was classified as a national market issue, then the Fair
Market Value shall be equal to the last transaction price quoted by
the NASDAQ system for such date;
13
(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.
16.14 "ISO" means an incentive stock option described in section 422
(b) of the Code.
16.15 "Key Employee" means (1) a key common-law employee of the
Company or any Subsidiary, as determined by the Committee, or (2) a non-employee
director of any Subsidiary, as determined by the Committee.
16.16 "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.
16.17 "Non-Employee Director" means a member of the Board who is not
a common-law employee.
16.18 "NQSO" means an employee stock option not described in
sections 422 through 424 of the Code.
16.19 "Option" means an ISO or NQSO 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.
16.20 "Optionee" means an individual, or his or her estate, legatee
or heirs at law that holds an Option.
16.21 "Participant" means a Non-Employee Director or Key Employee
who has received an Award.
16.22 "Performance Share Award" means the conditional right to
receive in the future one Common Share, awarded to a Participant under the Plan.
16.23 "Plan" means this 1992 Stock Incentive Plan of The Charles
Schwab Corporation, as it may be amended from time to time.
16.24 "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.
14
16.25 "Restricted Share" means a Common Share awarded to a
Participant under the Plan.
16.26 "Retirement" shall mean any termination of employment of an
Optionee for any reason other than death at any time after the Optionee has
attained Retirement Age. For this purpose, Retirement Age shall mean age 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 SchwabPlan
Retirement Savings and Investment Plan; provided, however, that if at the time
of grant of an Option an Optionee is a Participant in a qualified retirement
plan maintained by a Subsidiary (other than the SchwabPlan Retirement Savings
and Investment Plan), then Retirement Age shall have the same meaning as the
Normal Retirement Date as defined in such plan.
16.27 "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.
16.28 "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.
16.29 "Subsidiary" means any corporation or other entity, 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 (or ownership interest of such other entity). A corporation or other
entity 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.
15
ADDENDUM A
The provisions of the Plan, as amended by the terms of this
Addendum A, shall apply to the grant of Approved Options to Key U.K. Employees.
1. For purposes of this Addendum A, the following
definitions shall apply in addition to those set out in section 16 of the Plan:
APPROVED OPTION Means a stock option designed to qualify as an
approved executive share option under the Taxes Act;
INLAND REVENUE means the Board of the Inland Revenue in the
United Kingdom.
KEY U.K. EMPLOYEE means a designated employee of Sharelink
Investment Services plc or any subsidiary (as that term is
defined in the Companies Act 1985 of the United Kingdom, as
amended) of which Sharelink Investment Services plc has
control for the purposes of section 840 of the Taxes Act;
TAXES ACT means the Income and Corporation Taxes Act 1988 of
the United Kingdom.
2. An Approved Option may only be granted to a Key U.K.
Employee who:
(i) is employed on a full-time basis; and
(ii) does not fall within the provisions of
paragraph 8 of Schedule 9 to the Taxes Act.
For purposes of this section 2(i) of Addendum A, "full-time"
shall mean an employee who is required to work 20 hours per week, excluding meal
breaks.
3. No Approved Option may be granted to a Key U.K. Employee
if it would cause the aggregate of the exercise price of all subsisting Approved
Options granted to such employee under the Plan, or any other subsisting options
granted to such employee under any other share option scheme approved under
Schedule 9 of the Taxes Act and established by the Company or an associated
company, to exceed the higher of (a) one hundred thousand pounds sterling and
(b) four times such employee's relevant emoluments for the current or preceding
year of assessment (whichever is greater); but where there were no relevant
emoluments for the previous year of assessment, the limit shall be the higher of
one hundred thousand pounds sterling or four times such employee's relevant
emoluments for the period of twelve months beginning with the first day during
the current year of assessment in respect of which there are relevant
emoluments. For the purpose of this section 3 of Addendum A, "associated
company"
16
means an associated company within the meaning of section 416 of the Taxes Act;
"relevant emoluments" has the meaning given by paragraph 28(4) of Schedule 9 to
the Taxes Act and "year of assessment" means a year beginning on any April 6 and
ending on the following April 5.
4. Common Shares issued pursuant to the exercise of
Approved Options must satisfy the conditions specified in paragraphs 10 to 14 of
Schedule 9 to the Taxes Act.
5. Notwithstanding the provisions of Section 5.4 of the
Plan, the exercise price of an Approved Option shall not be less than 100
percent of the closing price of a Common Share as reported in the New York Stock
Exchange Composite Index on the date of grant.
6. No Approved Option may be exercised at any time by a Key
U.K. Employee when that Key U.K. Employee falls within the provisions of
paragraph 8 of Schedule 9 to the Taxes Act. If at any time the shares under an
Approved Option cease to comply with the conditions in paragraphs 10 to 14 of
Schedule 9 to the Taxes Act, then all Approved Options then outstanding shall
lapse and cease to be exercisable from the date of the shares ceasing so to
comply, and no optionee shall have any cause of action against the Company,
Sharelink Investment Services plc or any subsidiary of the Company or any other
person in respect thereof.
7. An Approved Option may contain such other terms,
provisions and conditions as may be determined by the Committee consistent with
the Plan, provided that the approved option otherwise complies with the
requirements for approved executive option schemes specified in Schedule 9 of
the Taxes Act.
8. In relation to an Approved Option, notwithstanding the
terms of section 10.1 of the Plan, no adjustment shall be made pursuant to
section 10.1 of the Plan to 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
THE CHARLES SCHWAB CORPORATION
ANNUAL EXECUTIVE INDIVIDUAL PERFORMANCE PLAN
(AMENDED AND RESTATED, EFFECTIVE JANUARY 1, 2001)
I. PURPOSES
The purposes of this Annual Executive Individual Performance Plan (the
"Plan") are: (a) to provide greater incentive for key executives to
continually exert their best efforts on behalf of The Charles Schwab
Corporation (the "Company") by rewarding them for services rendered
with incentive compensation that is in addition to their regular
salaries; (b) to attract and to retain in the employ of the Company
persons of outstanding competence; and (c) to further align the
interests of such employees with those of the Company's stockholders
through a strong performance-based reward system.
II. FORM OF AWARDS
Incentive compensation awards under this Plan shall be generally
granted in cash, less any applicable withholding taxes; provided that
the Committee may determine, from time to time, that all or a portion
of any award may be paid in the form of an equity based incentive,
including without limitation stock options, restricted shares, or
outright grants of Company stock. The number of shares and stock
options granted in any year, when added to the number of shares and
stock options granted for such year pursuant to the Company's Corporate
Executive Bonus Plan, shall in no event exceed .5% of the outstanding
shares of the Company.
III. DETERMINATION OF AWARDS
1. Incentive awards for participants shall be determined annually.
The participants in the Plan shall be the executive officers who
are selected by the Compensation Committee of the Board of
Directors (the "Committee") to participate in the Charles Schwab
Corporate Executive Bonus Plan (the "CEB Plan"), except that the
President and Co-Chief Executive Officer shall not be eligible to
participate in the Plan. Payouts under the CEB Plan are defined
by reference to a target percentage of base salary determined,
from time to time, by the Committee and pursuant to a payout
matrix, adopted from time to time by the Committee, that uses net
revenue growth and consolidated pretax profit margin as the
financial performance criteria to determine awards. Each
participant shall have a bonus target under the Plan equal to
such Participant's bonus target under the CEB Plan, multiplied by
160%. Payouts described in this subsection shall be calculated
and paid on an annual basis.
2. With respect to payments made pursuant to Section III.1, the
amount of base salary included in the computation of incentive
awards pursuant to the CEB Plan 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,
(i) the maximum target incentive percentage pursuant to the CEB
Plan shall be 100% of base salary and (ii) the maximum award
pursuant to the CEB Plan shall be 400% of the participant's
target award.
3. 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 shall be granted by the Committee to those
employees who are eligible to participate in the CEB Plan. This
is intended to include the Vice Chairmen, Executive Vice
Presidents, and other officers having comparable positions.
No award may be granted to a member of the Company's Board of
Directors except for services performed as an employee of the
Company.
2. Except in the event of retirement, death, or disability, to be
eligible for an award an employee must be employed by the Company
as of the date awards are calculated and approved by the
Committee under this Plan.
3. For purposes of this Plan, the term "employee" shall include an
employee of a corporation or other business entity in which this
Company shall directly or indirectly own 50% or more of the
outstanding voting stock or other ownership interest.
VI. AWARDS
1. The Committee shall determine each year the payments, if any, to
be made under the Plan. Awards for any calendar year shall be
granted not later than the end of the first quarter of the
calendar year, and payments pursuant to the Plan shall be made as
soon as practicable after the close of the calendar year.
2. Upon the granting of awards under this Plan, each participant
shall be informed of his or her award by his or her direct
manager and that such award is subject to the applicable
provisions of this Plan.
VII. DEFERRAL OF AWARDS
1. A participant in this Plan who is also eligible to participate in
The Charles Schwab Corporation Deferred Compensation Plan may
elect to defer payments pursuant to the terms of that plan.
VIII. RECOMMENDATIONS AND GRANTING OF AWARDS
1. Recommendations for awards shall be made to the Committee by the
Co-Chief Executive Officers.
2. Any award shall be made in the sole discretion of the Committee,
which shall take final action on any such award. No person shall
have a right to an award under this Plan until final action has
been taken granting such award.
IX. AMENDMENTS AND EXPIRATION DATE
While it is the present intention of the Company to grant awards
annually, the Committee reserves the right to modify this Plan from
time to time or to repeal the Plan entirely, or to direct the
discontinuance of granting awards either temporarily or permanently;
provided, however, that no modification of this plan shall operate to
annul, without the consent of the beneficiary, an award already granted
hereunder; provided, also, that no modification without approval of the
stockholders shall increase the maximum amount which may be awarded as
hereinabove provided.
X. MISCELLANEOUS
All expenses and costs in connection with the operation of this Plan
shall be borne by the Company and no part thereof shall be charged
against the awards anticipated by the Plan. Nothing contained herein
shall be construed as a guarantee of continued employment of any
participant hereunder. This Plan shall be construed and governed in
accordance with the laws of the State of California.
THE CHARLES SCHWAB CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
MONDAY, MAY 7, 2001
2:00 P.M. (PST)
THE PALACE HOTEL
2 NEW MONTGOMERY STREET
SAN FRANCISCO, CALIFORNIA
THE ANNUAL MEETING OF STOCKHOLDERS WILL BE BROADCAST OVER THE INTERNET.
FOR INFORMATION ABOUT THE REAL-TIME WEBCAST, VISIT WWW.SCHWABEVENTS.COM.
- --------------------------------------------------------------------------------
[CHARLES SCHWAB 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 7, 2001.
The shares of stock you hold in your account, as well as any shares you hold
under The Charles Schwab Corporation Dividend Reinvestment and Stock Purchase
Plan, and/or The SchwabPlan Retirement Savings and InvestmentInvest-ment Plan, the 401(k) Plan
and ESOP of United States Trust Company of New York and Affiliated Companies,
and/or the U.S. Trust Corporation Employee Stock Purchase Plan will be voted as
you specify on the reverse side.
If no choice is specified, your shares will be votedIF NO CHOICE IS SPECIFIED, YOUR SHARES WILL BE VOTED "FOR" itemsITEMS 1, 2, 3 andAND 4.
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.SEE REVERSE FOR VOTING INSTRUCTIONS.
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THERE ARE THREE WAYS TO VOTE YOUR SHARES
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE CHARLES SCHWAB CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
Monday, May 7, 2001
2:00 p.m. (PST)
The Palace Hotel
2 New Montgomery Street
San Francisco, California
The Annual Meeting of Stockholders will be broadcast over the Internet. For
information about the real-time webcast, visitwww.schwabevents.com.
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.NAMED PROXIES TO VOTE YOUR
SHARES IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY
CARD.
VOTE BY PHONETELEPHONE -- TOLL FREE -- 1-800-240-6326 -- QUICK **QUICK*** EASY **EASY***IMMEDIATE
*o Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week, until 12:00 p.m., Central time, on May 4, 2001.
*o You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above.
*o Follow the simple instructions the voice provides you.
VOTE BY INTERNET -- http:HTTP://www.eproxy.com/sch/--QUICK **WWW.EPROXY.COM/SCH/ -- QUICK** EASY ***EASY***IMMEDIATE
*o Use the Internet to vote your shares 24 hours a day, 7 days a week, until
12:00 p.m., Central time, on May 4, 2001.
*o You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above to obtain your records and create an
electronic proxy.
*o You will have the option to receive all future materials via the Internet.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to The Charles Schwab Corporation, c/o Shareowner
ServicesSM, P.O. Box 64873, St. Paul, MN 55164-0873.
If you vote by phone or Internet, please do not mail your proxy card.
The Board of Directors Recommends a VoteIF YOU VOTE BY PHONE OR INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD.
Please detach here
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ItemsITEMS 1, 2, 3 andAND 4.
1. Election of directors: 01 Donald G. Fisher 02 Anthony M. Frank
03 Jeffrey S. Maurer
02 Anthony M. Frank 04 Arun Sarin
[ ] Vote FOR all nominees (except as marked)
[ ] Vote WITHHELD from all nominees
(Instructions: To withhold authority to vote for any indicated nominee,
write the number(s) of the nominee(s) in the box provided to the right.(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, ______
WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.)|______|
2. Approval of Amendment to ArticlesCertificate of Incorporation to increase
the number of authorized shares of common stock.
For[ ]For [ ] Against [ ] Abstain
3. Approval of 2001 Stock Incentive Plan.
For[ ]For [ ] Against [ ] Abstain
4. Approval of Annual Executive Individual Performance Plan, as amended.
For[ ]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; 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 ------------------------------------------
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.
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