Exhibit 10.1

 

 

THE CHARLES SCHWAB CORPORATION

2004 STOCK INCENTIVE PLAN

(Adopted by the Board on March 10, 2004)

(Approved by Stockholders on May 17, 2004)

(Amended by the Board on March 14, 2007)

(Amendment Approved by Stockholders on May 17, 2007)

(Amended and Restated December 12, 2007)

(Amended and Restated December 10, 2009)

(Amended and Restated January 27, 2011)

(Amended and Restated May 5, 2011)

(Approved by Stockholders on May [XX], 2011)

 

 

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TABLE OF CONTENTS

 

     Page  

SECTION 1. ESTABLISHMENT AND PURPOSE

     1   

SECTION 2. ADMINISTRATION

     1   

(a) Committee Composition

     1   

(b) Committee Administration

     1   

SECTION 3. PARTICIPANTS

     2   

(a) General Rule

     2   

(b) Non-Employee Directors

     2   

SECTION 4. STOCK SUBJECT TO PLAN

     3   

(a) Basic Limitation

     3   

(b) Share Usage

     3   

(c) Participant Limits

     4   

(d) Adjustments

     4   

SECTION 5. AWARDS

     4   

(a) General

     4   

(b) Stock Options

     4   

(c) Stock Appreciation Rights

     5   

(d) Restricted Stock and Restricted Stock Units

     5   

(e) Performance Stock

     6   

(f) Other Stock or Cash Awards

     6   

(g) Performance Goals

     6   

SECTION 6. ADJUSTMENT OF SHARES

     7   

(a) Adjustments

     7   

(b) Corporate Transactions

     8   

(c) Substitution and Assumption of Benefits

     8   

(d) Reservation of Rights

     8   

SECTION 7. TERMS OF AWARDS

     8   

(a) Transferability

     8   

(b) Change in Control

     8   

(c) Taxes

     9   

(d) Effective Date, Amendment and Termination

     10   

(e) Fair Market Value

     10   

(f) Dividend Equivalents

     10   

(g) Other Provisions

     10   

(h) Non-U.S. Employees

     10   

(i) Governing Law

     11   

(j) Section 409A

     11   

SECTION 8. PAYMENT OF DIRECTORS’ FEES DEFERRALS IN SECURITIES

     11   

SECTION 9. DEFERRAL OF AWARDS

     11   

SECTION 10. DEFINED TERMS

     12   

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THE CHARLES SCHWAB CORPORATION

2004 STOCK INCENTIVE PLAN

SECTION 1. ESTABLISHMENT AND PURPOSE.

The Plan was adopted by the Board of Directors on March 10, 2004, subject to
stockholder approval, which was obtained on May 17, 2004 (the “Effective Date”).
The purposes of The Charles Schwab Corporation 2004 Stock Incentive Plan (the
“Plan”) are to promote the long-term success of The Charles Schwab Corporation
(“Schwab” or the “Company”) and the creation of incremental stockholder value by
(i) encouraging non-employee directors, employees and consultants to focus on
long-range objectives, (ii) encouraging the attraction and retention of
non-employee directors, employees and consultants with exceptional
qualifications and (iii) linking non-employee directors, employees and
consultants directly to stockholder interests by providing them stock options
and other stock and cash incentives.

This Plan is a successor to The Charles Schwab Corporation 2001 Stock Incentive
Plan, The Charles Schwab Corporation 1992 Stock Incentive Plan and The Charles
Schwab Corporation Employee Stock Incentive Plan (the “Prior Plans”). As of the
Effective Date, no further awards shall be made under the Prior Plans. However,
unless a contrary rule is stated, the provisions of the Prior Plans shall
continue to apply to awards granted to a participant under the Prior Plans prior
to the Effective Date. In the event that this Plan is not approved by
stockholders, awards shall continue to be made under the Prior Plans in
accordance with their terms.

SECTION 2. ADMINISTRATION.

(a) Committee Composition. The Plan will be administered by a Committee (the
“Committee”) of the Schwab Board of Directors (the “Board”) consisting of two or
more directors as the Board may designate from time to time. The composition of
the Committee shall satisfy such requirements as:

(i) the Securities and Exchange Commission may establish for administrators
acting under plans intended to qualify for exemption under Rule 16b-3 or its
successor under the Securities Exchange Act of 1934 (the “Exchange Act”);

(ii) may be established by the stock exchange or stock market on which Schwab’s
common stock may be listed pursuant to the rule-making authority of such stock
exchange or stock market; and

(iii) the Internal Revenue Service may establish for outside directors acting
under plans intended to qualify for exemption under section 162(m) of the
Internal Revenue Code of 1986, as amended (the “Code”).

(b) Committee Administration. The Committee shall have discretionary authority
to construe and interpret the Plan and any benefits granted under the Plan, to
establish, interpret and amend rules for Plan administration, to change the
terms and conditions of options and other benefits at or after grant, and to
make all other determinations which it deems necessary or advisable for the
administration of the Plan. The determinations of the Committee shall be made in
accordance with its judgment as to the best interests of Schwab and its
stockholders and in accordance with the purposes of the Plan, and shall be final
and conclusive on all persons. A majority of the members of the Committee shall
constitute a quorum, and all determinations of the Committee shall be made by a
majority of its members in person or by telephone. Any determination of the
Committee under the Plan may be made without notice or meeting of the Committee,
and shall be made in writing signed by all the Committee members. The Committee
may authorize one or more officers of the Company to select employees to
participate in the Plan and to determine the number of option shares and other
rights to be granted to such participants (other than to the officer making such
determination), except with respect to awards to officers subject to section 16
of the Exchange Act or officers who are or may become “covered employees” within
the meaning of section 162(m) of the Code (“Covered Employees”) and any
reference in the Plan to the Committee shall include such officer or officers.
Subject to the requirements of applicable law, the Committee may also authorize
one or more officers of the Company to administer claims under the Plan. No
member of the Committee shall be liable

 

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for any action that such member has taken or failed to take in good faith with
respect to the Plan or any award under the Plan.

SECTION 3. PARTICIPANTS.

(a) General Rule. Participants may consist of all employees and consultants of
Schwab and its subsidiaries, non-employee directors of the Board of Directors of
Schwab (“Non-Employee Directors”) and non-employee directors of any subsidiary
as determined by the Committee. Any corporation or other entity in which a 50%
or greater interest is at the time directly or indirectly owned by Schwab shall
be a subsidiary for purposes of the Plan. Designation of a participant in any
year shall not require the Committee to designate that person to receive a
benefit in any other year or to receive the same type or amount of benefit as
granted to the participant in any other year or as granted to any other
participant in any year. The Committee shall consider all factors that it deems
relevant in selecting participants and in determining the type and amount of
their respective benefits.

(b) Non-Employee Directors. In addition to any awards that may be granted to
them under Section 3(a), each Non-Employee Director shall receive an automatic
equity grant, subject to the terms of subparagraph (iv) below, as follows:

(i) For each calendar year for which he or she serves as a Non-Employee Director
following the year in which the Non-Employee Director begins service, each
Non-Employee Director shall receive an equity grant with an aggregate value
equal to $125,000, consisting of 50 percent Stock Options and 50 percent
Restricted Stock Units covering shares of Schwab common stock. The number of
Stock Options granted shall be determined by dividing $62,500 by the binomial
value of a share of Schwab common stock on the date of grant and the number of
Restricted Stock Units shall be determined by dividing $62,500 by the fair
market value (defined as the average of the high and low price) of a share of
Schwab common stock on the date of grant.

(ii) In the first calendar year upon joining the Board, each Non-Employee
Director shall receive an automatic equity grant calculated in the manner
specified in Section 3(b)(i), except that the value of the grant shall be equal
to $125,000 multiplied by the number of months remaining in the calendar year
during which the Non-Employee Director will first serve as a Non-Employee
Director divided by twelve.

(iii) The awards described in subparagraph (i) for a particular calendar year
will be granted to each Non-Employee Director on the second business day
following each regular annual meeting of the Company’s stockholders, provided
that the Non-Employee Director continues to serve as a Non-Employee Director
through the date of such annual meeting. Otherwise, no award shall be granted
with respect to such calendar year. The awards described in subparagraph
(ii) for a particular calendar year will be granted to each Non-Employee
Director either (A) on the second business day following the regular annual
meeting of the Company’s stockholders for the calendar year in which the
Non-Employee Director is first appointed or elected to the Board, if the
Non-Employee Director is elected or appointed to the Board on or before the date
of such annual meeting or (B) on the date of the first meeting of the Board
following the date the Non-Employee Director is first appointed or elected to
the Board, if the Non-Employee Director is elected or appointed to the Board
after the date of the regular annual meeting of the Company’s stockholders.

(iv) Each stock option shall be subject to the following terms and conditions:

(A) Each stock option shall be designated as a non-qualified stock option that
is not intended to meet the specific requirements set forth in section 422 of
the Code (“Nonqualified Stock Option”);

(B) The term of each Nonqualified Stock Option shall be 10 years; provided,
however, that any unexercised Nonqualified Stock Option shall expire on the
earlier of (I) the date 10 years after the date of grant; or (II) three
(3) months following the date that the participant ceases to be a Non-Employee
Director or an employee for any reason other than retirement (as defined in
subparagraph (v) below), death or disability. If a participant ceases to be a
Non-Employee Director or employee on account of death or disability, any
unexercised

 

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Nonqualified Stock Option 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 if a participant ceases to be a Non-Employee Director or employee
on account of retirement, any unexercised Nonqualified Stock Option shall expire
on the earlier of the date 10 years after the date of grant or two years after
the date of retirement of such Non-Employee Director; and

(C) The exercise price under each Nonqualified Stock Option shall be equal to
the fair market value on the date of grant as determined by the Committee.

(v) The awards described in subparagraphs (i) and (ii) shall become vested and
exercisable in accordance with the following schedule

 

          Cumulative Vesting Percentage of  Award

1st anniversary of grant date

      25%

2nd anniversary of grant date

      50%

3rd anniversary of grant date

      100%

Notwithstanding the foregoing, the awards described in subparagraphs (i) and
(ii) shall be fully vested on the Non-Employee Director’s death, disability (as
such term is defined in the applicable award agreement) or retirement from the
Board. For purposes of this Section 3(b), “retirement” shall mean a Non-Employee
Director’s resignation or removal from the Board at any time after he or she has
either attained age 70 or completed five years of service as a Non-Employee
Director.

(vi) Each Restricted Stock Unit represents the right to receive a share of
Schwab common stock subject to the conditions set forth in the applicable award
agreement. If Schwab pays cash dividends on shares of Schwab common stock, each
Restricted Stock Unit shall receive a dividend equivalent payment equal to the
dividend paid per share of Schwab common stock multiplied by the number of
unvested Restricted Stock Units. Each such payment shall be made as soon as
practicable following the payment of the actual dividend, but in no event beyond
March 15th of the year following the year the actual dividend is paid.

SECTION 4. STOCK SUBJECT TO PLAN.

(a) Basic Limitation. There is hereby reserved for issuance under the Plan an
aggregate of:

(i) 90 million shares of Schwab common stock; plus

(ii) any shares of Schwab common stock subject to outstanding awards under the
Prior Plans as of the Effective Date that on or after the Effective Date cease
for any reason to be subject to such awards (other than by reason of exercise or
settlement of the awards to the extent they are exercised for or settled in
shares); plus

(iii) any shares of Schwab common stock that were issued under the Prior Plans
and are reacquired by Schwab after the Effective Date.

The aggregate maximum number of shares of Schwab common stock available under
subparagraphs (ii) and (iii) is 150 million. To the extent an award is paid in
cash, it shall not reduce the limits of this Section 4(a).

(b) Share Usage. If there is a lapse, expiration, termination or cancellation of
any stock option issued under the Plan prior to the issuance of shares under the
Plan or if shares of common stock are issued under the Plan and thereafter are
reacquired by Schwab, the shares subject to those options and the reacquired
shares shall be added to the shares available for benefits under the Plan.
Shares covered by a benefit granted

 

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under the Plan or a Prior Plan shall not be counted as issued unless and until
they are actually issued and delivered to a participant. Any shares covered by a
Stock Appreciation Right shall be counted as issued only to the extent shares
are actually issued to the participant upon exercise of the right. In addition,
any shares of common stock exchanged by a participant as full or partial payment
to Schwab of the exercise price under any Stock Option exercised under the Plan
or a Prior Plan, any shares retained by Schwab pursuant to a participant’s tax
withholding election, and any shares covered by a benefit which is settled in
cash shall be added to the shares available for benefits under the Plan. All
shares issued under the Plan may be authorized and unissued shares, issued
shares reacquired by Schwab or other shares that are treasury shares.

(c) Participant Limits. Under the Plan, no participant may be granted in any
fiscal year of the Company:

(i) Stock Options or SARs relating to more than 5 million shares of Schwab
common stock in the aggregate, and

(ii) Restricted Stock, Restricted Stock Units, Performance Stock, Performance
Units denominated in shares of Schwab common stock, or Other Stock Awards that
are subject to the attainment of Performance Criteria described in Section 5(g)
relating to more than 1 million shares of Schwab common stock in the aggregate,
and

(iii) Performance Units denominated in cash or Other Cash Awards that are
subject to the attainment of Performance Criteria described in Section 5(g) that
could entitle the participant to more than $10 million in the aggregate from
that year’s awards (considering for this purpose the maximum that could be
payable, including for above-target performance).

With respect to any Stock Option or SAR granted to a participant who is a
Covered Employee that is canceled, the number of shares of Schwab common stock
originally subject to such Stock Option or SAR shall continue to count against
the limit specified in subparagraph (i) above in accordance with Section 162(m)
of the Code.

(d) Adjustments. The shares reserved for issuance and the limitations set forth
in this Section 4 shall be subject to adjustment in accordance with Section 6.

SECTION 5. AWARDS.

(a) General. Benefits under the Plan shall consist of Stock Options, Stock
Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance
Stock, Performance Units, and Other Stock or Cash Awards, all as described
below. Each award under the Plan shall be evidenced by a written award agreement
in paper or electronic form approved by the Committee. Such agreement shall be
subject to and incorporate the express terms and conditions, if any, required
under the Plan or as required by the Committee for the form of award granted and
such other terms and conditions as the Committee may specify.

(b) Stock Options. Stock Options may be granted to participants at any time as
determined by the Committee. The Committee shall determine the number of shares
subject to each option and whether the option is an incentive stock option
described in section 422(b) of the Code (an “Incentive Stock Option”); provided
that only a common-law employee shall be eligible for the grant of an Incentive
Stock Option. No participant may be granted Incentive Stock Options (under this
Plan or any other Incentive Stock Option plan of the Company and its affiliates)
which are first exercisable in any calendar year for shares of Schwab common
stock having an aggregate fair market value (determined as of the date an option
is granted) that exceeds $100,000; any Stock Option granted under the Plan that
exceeds this limit shall be a Nonqualified Stock Option. The option price for
each option shall be determined by the Committee but shall not be less than 100%
of the fair market value of Schwab’s common stock on the date the option is
granted (110% in the case of an Incentive Stock Option granted to an individual
who, at the time of grant, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company (a “10%
Stockholder”). Each option shall expire at such time as the Committee shall
determine at the time of

 

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grant. Options shall be exercisable at such time and subject to such terms and
conditions as the Committee shall determine; provided, however, that no option
shall be exercisable later than the tenth anniversary of its grant (five years
in the case of an Incentive Stock Option granted to a 10% Stockholder). The
option price, upon exercise of any option, shall be payable to Schwab in full
by:

(i) cash payment or its equivalent;

(ii) surrendering, or attesting to the ownership of, shares of Schwab stock that
are already owned by the participant;

(iii) delivery of a properly executed exercise notice, together with irrevocable
instructions to a broker to promptly deliver to Schwab the amount of sale
proceeds from the option shares or loan proceeds to pay the exercise price and
any withholding taxes due to Schwab; and

(iv) such other methods of payment as the Committee, at its discretion, deems
appropriate; provided, however, that no method of payment will be permitted if
it would result in a violation of applicable law, as determined by the Committee
in its sole discretion.

In no event shall the Committee cancel any outstanding Stock Option for the
purpose of reissuing the option to the participant at a lower exercise price or
reduce the option price of an outstanding option.

Notwithstanding anything in this Section 5(b) to the contrary, Stock Options may
be granted only to individuals who provide direct services on the date of grant
of the Stock Option to the Company or another entity in a chain of entities in
which the Company or another such entity has a controlling interest within the
meaning of Treasury Regulation section 1.409A-1(b)(iii)(E) in each entity in the
chain.

(c) Stock Appreciation Rights. Stock Appreciation Rights (“SARs”) may be granted
to participants at any time as determined by the Committee. An SAR may be
granted in tandem with a Stock Option granted under this Plan or on a
free-standing basis. The Committee also may, in its discretion, substitute SARs
for outstanding Stock Options. The grant price of a tandem or substitute SAR
shall be equal to the option price of the related option. The grant price of a
free-standing SAR shall be equal to the fair market value of Schwab’s common
stock on the date of its grant. An SAR may be exercised upon such terms and
conditions and for such term as the Committee in its sole discretion determines;
provided, however, that the term shall not exceed the option term in the case of
a tandem or substitute SAR or ten years in the case of a free-standing SAR and
the terms and conditions applicable to a substitute SAR shall be substantially
the same as those applicable to the Stock Option which it replaces. Upon
exercise of an SAR, the participant shall be entitled to receive payment from
Schwab in an amount determined by multiplying the excess of the fair market
value of a share of Schwab common stock on the date of exercise over the grant
price of the SAR by the number of shares with respect to which the SAR is
exercised. The payment may be made in cash or stock, at the discretion of the
Committee. Notwithstanding anything in this Section 5(c) to the contrary, SARs
may be granted only to individuals who provide direct services on the date of
grant of the SAR to the Company or another entity in a chain of entities in
which the Company or another such entity has a controlling interest within the
meaning of Treasury Regulation section 1.409A-1(b)(iii)(E) in each entity in the
chain.

(d) Restricted Stock and Restricted Stock Units. Restricted Stock and Restricted
Stock Units may be awarded or sold to participants under such terms and
conditions as shall be established by the Committee. Restricted Stock and
Restricted Stock Units shall be subject to such restrictions as the Committee
determines, including, without limitation, any of the following (i) a
prohibition against sale, assignment, transfer, pledge, hypothecation or other
encumbrance for a specified period; or (ii) a requirement that the holder
forfeit (or in the case of shares or units sold to the participant resell to
Schwab at cost) such shares or units in the event of termination of employment
during the period of restriction. All restrictions shall expire at such times as
the Committee shall specify. Settlement of vested Restricted Stock Units may be
made in the form of (a) cash, (b) shares of Schwab common stock or (c) any
combination of both, as determined by the Committee. Restricted Stock Units may
be settled in a lump sum or in installments as specified in the applicable award
agreement. The distribution may occur or commence when all vesting conditions

 

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applicable to the Restricted Stock Units have been satisfied or have lapsed, or
it may be deferred to any later date in accordance with Section 9, as provided
for in the applicable award agreement.

(e) Performance Stock. The Committee shall designate the participants to whom
long-term performance stock (“Performance Stock”) or long-term performance units
(“Performance Units”) are to be awarded and determine the number of shares or
units, the length of the performance period and the other terms and conditions
of each such award. Each award of Performance Stock or Performance Units shall
entitle the participant to a payment in the form of shares of common stock or
cash (as provided in the award agreement) upon the attainment of performance
goals and other terms and conditions specified by the Committee pursuant to
Section 5(g) below. The Committee may, in its discretion, make a cash payment
equal to the fair market value of shares of common stock otherwise required to
be issued to a participant pursuant to a Performance Stock award.

(f) Other Stock or Cash Awards. In addition to the incentives described in
paragraphs (b) through (e) of this Section 5, the Committee may grant other
incentives payable in cash or in common stock under the Plan as it determines to
be in the best interests of Schwab and subject to such other terms and
conditions as it deems appropriate.

(g) Performance Goals.

(i) Awards of Restricted Stock, Restricted Stock Units, Performance Stock,
Performance Units and Other Stock or Cash Awards under the Plan may be made
subject to the attainment of performance goals for a specified period of time (a
“Performance Period”). In the case of an award that is intended to satisfy the
performance-based exception to the deductibility limitation of Section 162(m) of
the Code (the “Performance-Based Exception”), the categories of permissible
performance goals include: income; operating income; pre-tax income; after-tax
income; profit; pre-tax operating profits; pre-tax reported profits; pre-tax
operating profit margin; pre-tax reported profit margin; after-tax operating
profit margin; after-tax reported profit margin; revenue; revenue growth;
operating revenue growth; cash flow; stockholder return; net income; client net
new assets; levels of client assets or sales (of products, offers or services);
earnings per share; return on stockholders’ equity; return on investment;
earnings; earnings before interest and taxes (EBIT); earnings before interest,
taxes, depreciation and amortization (EBITDA); consolidated pre-tax earnings;
net earnings; operating cash flow; free cash flow; free cash flow per share;
cash flow return; economic value added; market value added; total stockholder
return; debt/capital ratio; return on total capital; market share of assets;
return on assets; return on net assets; return on capital employed; cost
control; Schwab common stock price; capital expenditures; price/earnings growth
ratio; sales; sales volume; and book value per share; cost of capital; cost of
equity; and changes between years or periods that are determined with respect to
any of the above-listed performance criteria (“Performance Criteria”). The
Committee may establish other performance measures for awards that are not
intended to qualify under the Performance-Based Exception. A performance goal
may be measured relative to the performance of the Company as a whole or any
business unit, department, division region or function of the Company or any
subsidiary in which the participant is employed and may be measured relative to
a peer group or index. If more than one performance goal is specified by the
Committee for a Performance Period, the Committee shall also specify, in
writing, whether one, all or some other number of such performance goals must be
attained in order for the performance goals to be satisfied for the applicable
award. Notwithstanding satisfaction of any performance goals, the number of
shares issued or amounts paid under awards may be adjusted by the Committee on
the basis of such further consideration as the Committee in its sole discretion
shall determine, subject to the provisions of Section 5(g)(ii)(B) below.

(ii) For an award that is intended to qualify for the Performance-Based
Exception:

(A) Not later than the 90th day of the Performance Period (or, in the event that
a Performance Period is expected to be less than 12 months, not later than the
date when 25% of the Performance Period has elapsed), the Committee shall select
the participants for such period and establish in writing (I) the objective
performance goals for each participant for that period

 

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based on one or more of the Performance Criteria, (II) the definition of each
applicable performance goal, (III) the maximum amount payable under the award
for attainment of the performance goals and the threshold level of attainment
below which no amount will be paid under the award, in all cases subject to the
per-participant limits described in Section 4, (IV) the method by which such
amounts will be calculated, and (V) how performance will be measured against a
goal to reflect the impact of extraordinary items and any other unusual or
non-recurring items as specified in Section 5(g)(iii) below.

(B) The Committee may not in any event increase the amount of compensation
payable to a Covered Employee upon the attainment of a performance goal. The
Committee shall determine and certify in writing, for each participant, the
extent to which the performance goals have been met and the amount of the award,
if any, to be made. The Committee has the absolute and unrestricted discretion
to reduce the amount of the award that otherwise would be payable in connection
with the attainment of the performance goals applicable to the award. It is
expressly permissible to reduce the amount otherwise payable to zero.

(iii) In determining whether any performance goals have been satisfied, the
Committee may exclude any or all extraordinary items (as determined under U.S.
generally accepted accounting principles), and any other unusual or
non-recurring items, including but not limited to, charges or costs associated
with restructurings of the Company, discontinued operations and the cumulative
effects of accounting changes. In addition, the Committee may adjust any
performance goal for a year as it deems equitable to recognize unusual or
non-recurring events affecting the Company, changes in tax laws or accounting
procedures, mergers and acquisitions and any other factors as the Committee may
determine. In the case of an award that is intended to qualify for the
Performance-Based Exception, such exclusions and adjustments may only apply to
the extent the Committee specifies in writing (not later than the time the
performance targets are required to be established) which exclusions and
adjustment the Committee will apply to determine whether a performance goal has
been satisfied, as well as an objective manner for applying them, or to the
extent that the Committee determined that they may apply without adversely
affecting the award’s qualification for the Performance-Based Exception. To the
extent that a performance goal is based on Schwab common stock, then in the
event of any stock dividend, stock split, spin-off, split-off, spin-out,
recapitalization or other change in the capital structure of the Company,
merger, consolidation, reorganization, combination of shares, partial or
complete liquidation or other distribution of assets (other than a normal cash
dividend), issuance of rights or warrants to purchase securities or any other
corporate transaction having an effect similar to any of the foregoing, the
Committee shall make or provide for such adjustments in performance goals as the
Committee in its sole discretion may in good faith determine to be equitably
required in order to prevent dilution or enlargement of the rights of
participants. In the case of an award intended to qualify for the
Performance-Based Exception, this shall apply only to the extent the Committee
determined it will not adversely affect such qualification.

SECTION 6. ADJUSTMENT OF SHARES.

(a) Adjustments. If Schwab shall at any time change the number of issued shares
of common stock by stock dividend, stock split, spin-off, split-off, spin-out,
recapitalization, or other change in the capital structure of the Company,
merger, consolidation, reorganization, combination, exchange of shares, partial
or complete liquidation or other distribution of assets (other than a normal
cash dividend), issuance of rights or warrants to purchase securities or any
other corporate transaction having an effect similar to any of the foregoing,
then, in order to prevent unintended dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, the Committee
shall equitably adjust, as it determines to be necessary and appropriate, the
total number of shares reserved for issuance under the Plan, the maximum number
of shares that may be made subject to an award in any fiscal year, and the
number of shares covered by each outstanding award and the price therefor, if
any. Any such adjustment to an Incentive Stock Option shall be made in a manner
that permits the Incentive Stock Option to continue to meet the requirements of
Section 422 of the Code. The Committee shall also adjust the terms and
conditions of, and the criteria included in, awards in recognition of unusual or
nonrecurring events (including, without limitation, the

 

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events described in the first sentence of this Section 6(a)) affecting the
Company or the financial statements of the Company or of changes in applicable
laws, regulations, or accounting principles, whenever the Committee determines
that such adjustments are needed to prevent unintended dilution or enlargement
of the benefits or potential benefits intended to be made available under the
Plan. The determination of the Committee as to the foregoing adjustments, if
any, shall be conclusive and binding on all participants under the Plan.

(b) Corporate Transactions. In the event that the Schwab is a party to a merger
or other reorganization, outstanding awards shall be subject to the agreement of
merger or reorganization. Such agreement shall provide for (i) the continuation
of the outstanding awards by Schwab, if Schwab is a surviving corporation,
(ii) the assumption of the outstanding awards by the surviving corporation or
its parent or subsidiary, (iii) the substitution by the surviving corporation or
its parent or subsidiary of its own awards for the outstanding awards under this
Plan, (iv) full exercisability or vesting and accelerated expiration of the
outstanding awards or (v) settlement of the full value of the outstanding awards
in cash or cash equivalents followed by cancellation of such awards.

(c) Substitution and Assumption of Benefits. Without affecting the number of
shares reserved or available hereunder, the Board or the Committee may authorize
the issuance of benefits under this Plan in connection with the assumption of,
or substitution for, outstanding benefits previously granted to individuals who
become employees of Schwab or any subsidiary as a result of any merger,
consolidation, acquisition of property or stock, or reorganization, upon such
terms and conditions as the Committee may deem appropriate, including but not
limited to a Stock Option exercise price or SAR grant price that is less than
fair market value, so long as such exercise price or grant price is determined
in a manner that complies with the applicable requirements of Section 409A and
Section 424 of the Code.

(d) Reservation of Rights. Except as provided in this Section 6, a participant
shall have no rights by reason of any subdivision or consolidation of shares of
stock of any class, the payment of any dividend or any other increase or
decrease in the number of shares of stock of any class. Any issue by Schwab of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number, kind or exercise price of shares subject to a Stock
Option or other award. 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 (or to undertake any other corporate
action described in Section 6(a) above).

SECTION 7. TERMS OF AWARDS.

(a) Transferability. Except as otherwise determined by the Committee in the case
of benefits other than Incentive Stock Options or SARs granted in tandem with
Incentive Stock Options, each benefit granted under the Plan shall not be
assigned, transferred, pledged or encumbered, either voluntarily or by operation
of law, other than by will or the laws of descent and distribution and each
Stock Option and SAR shall be exercisable during the participant’s lifetime only
by the participant or, in the event of disability, by the participant’s personal
representative. In the event of the death of a participant, the exercise of any
benefit or payment with respect to any benefit shall be made only by or to the
executor or administrator of the estate of the deceased participant or the
person or persons to whom the deceased participant’s rights under the benefit
shall pass by will or the laws of descent and distribution.

(b) Change in Control. The Committee (in its sole discretion) may determine at
the time of (or at any time after) the grant of an award, that upon a Change in
Control of Schwab, that any outstanding Stock Option or SAR shall become vested
and exercisable; all restrictions on any Restricted Stock or Restricted Stock
Unit shall lapse; all performance goals shall be deemed achieved at target
levels and all other terms and conditions met; Performance Stock shall be
delivered; a Performance Unit and Restricted Stock Unit shall be paid out as
promptly as practicable; and any Other Stock or Cash Award shall be delivered or
paid; provided, however, that this Section 7(b) shall not apply to awards
pursuant to which a deferral election has been made in accordance with
Section 9. A “Change in Control” shall mean the occurrence of any of the
following events:

 

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(i) Upon consummation of a reorganization, merger or consolidation (a “Business
Combination”), in each case, unless, following such Business Combination:

(A) the individuals and entities who were the beneficial owners, respectively,
of the then outstanding shares of Common Stock of the Company (the “Outstanding
Common Stock”) and the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the “Outstanding Voting
Securities”) immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding Common Stock
and Outstanding Voting Securities, as the case may be; and

(B) no Person (as defined in subparagraph (iii) below) (excluding any
corporation resulting from such Business Combination or any employee benefit
plan (or related trust) sponsored or maintained by the Company or such other
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation, except to the extent that such ownership of
Outstanding Common Stock or Outstanding Voting Securities existed prior to the
Business Combination; and

(C) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the Board
at the time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or

(ii) If individuals who, as of the Effective Date, constitute the Board (the
“Incumbent Board”) cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company’s
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of (A) an actual or threatened election contest with respect to the
election or removal of directors; (B) an actual or threatened solicitation of
proxies or consents; or (C) any other actual or threatened action by, or on
behalf of, any Person other than the Board; or

(iii) Upon the acquisition after the Effective Date by any individual, entity or
group (within the meaning of section 13(d)(3) or 14(d)(2) of the Exchange Act (a
“Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (A) the then Outstanding Common
Stock or (B) the combined voting power of the Outstanding Voting Securities;
provided, however, that the following acquisitions shall not be deemed to be
covered by this subparagraph (iii): (x) any acquisition of Outstanding Common
Stock or Outstanding Voting Securities by the Company, (y) any acquisition of
Outstanding Common Stock or Outstanding Voting Securities by any employee
benefit plan (or related trust) sponsored or maintained by the Company or
(z) any acquisition of Outstanding Common Stock or Outstanding Voting Securities
by any corporation pursuant to a transaction which complies with clauses (A),
(B) and (C) of subparagraph (i) above; or

(iv) The consummation of the sale of all or substantially all of the assets of
the Company or approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.

(c) Taxes. Schwab shall be entitled to withhold the amount of any tax
attributable to any amounts payable or shares deliverable under the Plan, after
giving the person entitled to receive such payment or delivery notice and Schwab
may defer making payment or delivery as to any award, if any such tax is

 

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payable until indemnified to its satisfaction. A participant may pay all or a
portion of Schwab’s minimum statutory withholding obligation arising in
connection with the exercise of a Stock Option or SAR or the receipt or vesting
of shares hereunder by electing to have Schwab withhold shares of common stock
having a fair market value equal to such amount. The Committee may permit a
participant to pay the withholding obligation applicable to an award by delivery
to the Company of shares of Schwab common stock owned by the participant having
a fair market value equal to the amount of such taxes or permit cashless
exercise.

(d) Effective Date, Amendment and Termination. The Plan is effective on the
Effective Date and shall automatically terminate one day before the 10th
anniversary of the date on which the Board adopted the Plan. The Board or the
Committee may amend the Plan from time to time or terminate the Plan at any
time. However, no such action shall reduce the amount of any existing award or
change the terms and conditions thereof without the participant’s consent unless
such action is necessary or desirable (i) for the continued validity of the Plan
or its compliance with Rule 16b-3 of the Exchange Act or any other applicable
law, rule or regulation or pronouncement, or (ii) to avoid any adverse
consequences under Section 162(m) of the Code, Section 409A of the Code or any
requirement of a securities exchange or association or regulation or
self-regulatory body. Stockholder approval shall be obtained for any Plan
amendment to the extent necessary or desirable to comply with applicable laws,
regulations or rules.

(e) Fair Market Value. The fair market value of a share of Schwab common stock
on a given determination date shall equal:

(i) The closing sales price of a share as reported on the New York Stock
Exchange (NYSE) on the applicable determination date (except in the case of a
share of Restricted Stock or a Restricted Stock Unit, which shall be the average
of the high and low price of a share as reported on NYSE on the applicable
determination date), or

(ii) If no sales of shares are reported for such date, the mean between the bid
and asked price of a share on NYSE at the close of the market on such date, or

(iii) In the event that the method for determining fair market value described
in clauses (i) and (ii) is not practicable, as determined by the Committee in
its discretion, the fair market value of a share determined in accordance with
any other reasonable method as the Committee, in its discretion, may deem
equitable, or as required by applicable law or regulation, which method shall be
one that is deemed to constitute fair market value for purposes of Section 409A
of the Code to the extent it is used with respect to a Stock Option or SAR.

(f) Dividend Equivalents. Any participant selected by the Committee, in its sole
discretion, may be granted dividend equivalents based on the dividends declared
on shares that are subject to any award, to be credited as of dividend payment
dates, during the period between the date the award is granted and the date the
award is exercised, vests or expires, as determined by the Committee. Such
dividend equivalents shall be converted to cash or additional shares by such
formula and at such time and subject to such limitations as may be determined by
the Committee. Notwithstanding the foregoing, no dividend equivalents will be
paid contingent on the exercise of a Stock Option or SAR.

(g) Other Provisions. The award of any benefit under the Plan may also be
subject to other provisions (whether or not applicable to the benefit awarded to
any other participant) as the Committee determines appropriate, including
provisions intended to comply with applicable securities laws and stock exchange
or stock market requirements, understandings or conditions as to the
participant’s employment, requirements or inducements for continued ownership of
common stock after exercise or vesting of benefits, forfeiture of awards in the
event of termination of employment shortly after exercise or vesting, or breach
of noncompetition or confidentiality agreements following termination of
employment, or provisions permitting the deferral of the receipt of a benefit
for such period and upon such terms as the Committee shall determine.

(h) Non-U.S. Employees. In the event any benefit under this Plan is granted to
an employee who is employed or providing services outside the United States and
who is not compensated from a payroll maintained in the United States, the
Committee may, in its sole discretion, modify the provisions of the Plan as they
pertain to such individuals to comply with applicable law, regulation or
accounting rules.

 

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(i) Governing Law. The Plan and any actions taken in connection herewith shall
be governed by and construed in accordance with the laws of the state of
Delaware (without regard to applicable Delaware principles of conflict of laws).

(j) Section 409A. At all times, this Plan shall be interpreted and operated
(i) with respect to awards subject to Section 409A of the Code (“Section 409A”),
in accordance with the requirements of Section 409A and the regulatory guidance
thereunder unless an exemption from Section 409A is available and applicable,
(ii) to maintain the exemptions from Section 409A of Stock Options, SARs and
Restricted Stock and any awards designed to meet the short-deferral exception
under Section 409A, and (iii) to preserve the status of deferrals of
compensation that were earned and vested prior to January 1, 2005 as exempt from
Section 409A, i.e., to preserve the grandfathered status of such deferrals. To
the extent there is a conflict between the provisions of the Plan relating to
compliance with Section 409A and the provisions of any award agreement issued
under the Plan, the provisions of the Plan control. Moreover, any discretionary
authority that the Committee may have pursuant to the Plan shall not be
applicable to an award that is subject to Section 409A to the extent such
discretionary authority would conflict with Section 409A. In addition, to the
extent required to avoid a violation of the applicable rules under Section 409A
by reason of Section 409A(a)(2)(B)(i), any payment under an award shall be
delayed until the earliest date of payment that will result in compliance with
the rules of Section 409A(a)(2)(B)(i) (regarding the required six-month delay
for distributions to specified employees that are related to a separation from
service). In the event that any award shall be deemed not to comply with
Section 409A, then neither the Company, the Board, the Committee nor its or
their designees or agents, nor any of their affiliates, assigns or successors
(each a “protected party”) shall be liable to any award recipient or other
person for actions, inactions, decisions, indecisions or any other role in
relation to the Plan by a protected party if made or undertaken in good faith or
in reliance on the advice of counsel (who may be counsel for the Company), or
made or undertaken by someone other than a protected party.

SECTION 8. PAYMENT OF DIRECTORS’ FEES DEFERRALS IN SECURITIES.

In the event a Non-Employee Director elects pursuant to and in accordance with
the terms of Schwab’s Directors’ Deferred Compensation Plan II (or any
predecessor or successor to such plan) to defer receipt of the payment of his or
her annual cash retainer from Schwab in the form of Restricted Stock Units,
Nonqualified Stock Options, Restricted Stock, Other Stock Awards or a
combination thereof, such Nonqualified Stock Options, Restricted Stock Units,
Restricted Stock, and Other Stock Awards shall be issued under this Plan. For
purposes of this Section 8, the term “Non-Employee Director” shall also include
a non-employee director of any Subsidiary, if the Committee has approved
participation by such non-employee director in Schwab’s deferred compensation
plan for directors. The number and form of each award to be granted to
Non-Employee Directors pursuant to this Section 8 in connection with a deferral
election under the Directors’ Deferred Compensation Plan II (or any predecessor
or successor to such plan) shall be determined in accordance with the provisions
of that plan, but the terms of each such award shall be determined by the
Committee or its delegate in accordance with the provisions of this Plan.

SECTION 9. DEFERRAL OF AWARDS.

Subject to the requirements of Section 409A, the Committee (in its sole
discretion) may permit or require a participant to have cash or shares that
otherwise would be paid to such participant as a result of the settlement of a
restricted stock unit or performance unit award credited to a deferred
compensation account established for such participant by the Committee as an
entry on Schwab’s books. A deferred compensation account may be credited with
interest or other forms of investment return, as determined by the Committee. A
participant for whom such an account is established shall have no rights other
than those of a general creditor of Schwab. Such an account shall represent an
unfunded and unsecured obligation of Schwab and shall be subject to the terms
and conditions of the applicable agreement between such participant and Schwab.
If the deferral or conversion of awards is permitted or required, the Committee
(in its sole discretion) may, consistent with the requirements of Section 409A,
establish rules, procedures and forms pertaining to such awards, including
(without limitation) the settlement of deferred compensation accounts
established under this Section 9 and such rules and procedures shall be set
forth in detail in the applicable stock award agreement or other deferral
agreement.

 

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SECTION 10. DEFINED TERMS.

 

“10% Stockholder”

     5   

“Board”

     1   

“Business Combination”

     9   

“Change in Control”

     9   

“Code”

     1   

“Committee”

     1   

“Company”

     1   

“Covered Employees”

     2   

“Effective Date”

     1   

“Exchange Act”

     1   

“Incentive Stock Option”

     5   

“Incumbent Board”

     10   

“Non-Employee Directors”

     2   

“Nonqualified Stock Option”

     3   

“Outstanding Common Stock”

     9   

“Outstanding Voting Securities”

     9   

“Performance Criteria”

     7   

“Performance Period”

     6   

“Performance Stock”

     6   

“Performance Units”

     6   

“Performance-Based Exception”

     6   

“Person”

     10   

“Plan”

     1   

“Prior Plans”

     1   

“SARs”

     5   

“Schwab”

     1   

“Section 409A”

     11   

 

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