UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
May 19, 2005
Date of Report (Date of earliest event reported)
THE CHARLES SCHWAB CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware 1-9700 94-3025021
(State or other jurisdiction Commission (I.R.S. Employer
of incorporation or organization) File Number Identification Number)
120 Kearny Street, San Francisco, CA 94108
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (415) 627-7000
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
|_| Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
THE CHARLES SCHWAB CORPORATION
Item 1.01 Entry into a Material Definitive Agreement
Peter K. Scaturro Offer Letter
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On May 19, 2005, the Compensation Committee (the "Committee") of the Board of
Directors of The Charles Schwab Corporation ("Schwab") approved an offer letter
to Peter K. Scaturro dated May 4, 2005 containing the terms of Mr. Scaturro's
employment (the "Offer Letter") as Chief Executive Officer of U.S. Trust
Corporation ("U.S. Trust"), a wholly owned subsidiary of Schwab. Under the Offer
Letter, a copy of which is attached as Exhibit 10.275 to this current report on
Form 8-K, Schwab and Mr. Scaturro agreed to the following material terms and
conditions:
- Mr. Scaturro will receive an initial annual salary of $500,000. During
2005, he will be eligible for an annual target bonus of 400% of his
annual salary, based on achievement of pre-determined performance
objectives.
- Mr. Scaturro will be granted options to purchase 500,000 shares of Schwab
common stock, at an exercise price per share equal to the closing price
of Schwab stock on the date of grant. The option will vest over four
years, with 50% vesting on each of the third and fourth anniversary of
the grant date. Mr. Scaturro also will be granted $2 million in
restricted shares of Schwab common stock (valued on the grant date of May
19, 2005) that vest on the earlier of (1) the 5th anniversary of the
grant date; or (2) March 15, 2008, provided that for each of the fiscal
years 2005, 2006 and 2007, U.S. Trust achieves certain performance
targets related to revenue growth, pre-tax profit margin, and net new
assets. These awards were granted by the Committee at the same meeting at
which the offer letter was approved.
- Mr. Scaturro is entitled to participate in Schwab's long-term incentive
program ("LTIP") for officers with a target grant in the range of
$1 million to $1.25 million.
- Mr. Scaturro is guaranteed to receive at least $2.5 million in cash
compensation (salary and bonus) during the first 12 months of his
employment ("Guarantee"). The Guarantee will not be paid if Mr. Scaturro
resigns or is terminated for cause (the term "cause" is defined in the
Offer Letter). The Guarantee is paid if Mr. Scaturro is terminated by
Schwab without cause.
- During the first 24 months of his employment, if Mr. Scaturro is
terminated without cause or resigns for good reason (the term "good
reason" is defined in the Offer Letter), Mr. Scaturro is entitled to one
year's salary and bonus, and vesting of his initial stock option and
restricted stock awards based on years of service already completed plus
one additional year of service. In the event of the sale or merger of
U.S. Trust, if Mr. Scaturro is not employed by the surviving entity, Mr.
Scaturro is entitled to two years' salary and bonus, and vesting of his
initial stock option and restricted stock awards based on years of
service already completed plus two additional years of service. If Mr.
Scaturro accepts an offer with the surviving entity, then Mr. Scaturro
will be entitled to one year's salary and bonus and vesting of his
initial stock option and restricted stock awards based on years of
service already completed plus one additional year of service. Any amount
paid under the Guarantee will not be taken into account in determining
any payments made in any of the above cases. Payment of any severance
benefits is in lieu of benefits under any other Schwab severance
arrangement and is subject to execution of a severance agreement that
includes, among other post-termination obligations, a release of claims.
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THE CHARLES SCHWAB CORPORATION
The foregoing description of the Offer Letter is qualified in its entirety by
reference to the provisions of the Offer Letter attached as Exhibit 10.275 to
this current report on Form 8-K, which are incorporated by reference herein.
Alan J. Weber Separation Agreement
----------------------------------
On May 19, 2005, the Committee approved the following key terms of a separation
agreement with Alan J. Weber in connection with his retirement as Chairman and
Chief Executive Officer of U.S. Trust:
- Mr. Weber is deemed to have retired as a Schwab officer and from any and
all U.S. Trust and Schwab directorships he holds, effective as of May 19,
2005.
- Mr. Weber is entitled to cash lump sum payments totaling $1.4 million.
- Mr. Weber will be treated as a retiree for purposes of all of his
previously granted long-term awards, including stock options, restricted
stock and cash LTIP units. Accordingly, all such long-term awards granted
more than 2 years ago will be 100% vested and, in the case of stock
options, will be fully exercisable. Mr. Weber will have 2 years after his
separation date to exercise vested nonqualified stock options.
- Schwab's obligations to provide the foregoing benefits and payments to
Mr. Weber pursuant to the separation agreement are subject to the
satisfaction by Mr. Weber of certain post-termination obligations
including a release and waiver of claims.
Grant of Restricted Stock and Stock Options to U.S. Trust Non-Employee Director
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On May 19, 2005, the Committee approved the following awards under Schwab's 2004
Stock Incentive Plan to Mr. Robert N. Wilson for prior services during 2003 and
2004 as a non-employee director of U.S. Trust (these awards are equivalent to
the value received by other U.S. Trust non-employee directors for such service):
(1) 2,640 restricted shares with 50% vesting on the grant date and 50% vesting
on the 1st anniversary of the grant date; (2) 2,620 restricted shares with 25%
vesting on the grant date, 25% vesting on the 1st anniversary of the grant date
and 50% vesting on the 2nd anniversary of the grant date; (3) an option to
purchase 2,900 shares of Schwab common stock with 50% vesting on the grant date
and 50% vesting on the 1st anniversary of the grant date; (4) an option to
purchase 3,050 shares of Schwab common stock with 25% vesting on the grant date,
25% vesting on the 1st anniversary of the grant date and 50% vesting on the 2nd
anniversary of the grant date. Each option has a term of 10 years and an
exercise price per share equal to the closing price of Schwab stock on the date
of grant. Mr. Wilson also serves as a non-employee director on Schwab's Board of
Directors.
Approval of an Amendment to the 2004 Stock Incentive Plan
---------------------------------------------------------
At Schwab's 2005 Annual Meeting of Stockholders on May 19, 2005, the
stockholders approved an amendment to Schwab's 2004 Stock Incentive Plan (the
"2004 Plan"). The amendment provides that non-employee directors will receive an
initial grant of options on 10,000 shares of Schwab common stock and that the
annual, automatic grants to non-employee directors will consist of (1) options
on 5,000 shares of Schwab common stock, and (2) a number of restricted shares of
Schwab common stock determined by dividing $60,000 by the fair market value of a
share of Schwab common stock on the grant date.
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THE CHARLES SCHWAB CORPORATION
Approval of an Amendment to the Corporate Executive Bonus Plan
--------------------------------------------------------------
At Schwab's 2005 Annual Meeting of Stockholders on May 19, 2005, the
stockholders approved an amendment to Schwab's Corporate Executive Bonus Plan
(the "CEBP"). The CEBP, as amended, provides as follows:
- Bonuses to executive officers will be based on attainment of certain
performance objectives. Performance criteria may be measured on a
corporate, subsidiary, enterprise or business unit basis, or a
combination thereof. Performance criteria may reflect absolute entity
performance or a relative comparison of entity performance to the
performance of a peer group of entities or other external measure of the
selected performance criteria. Performance criteria include pre-tax
operating profit margin, pre-tax reported profit margin, after-tax
operating profit margin, after-tax reported profit margin, pre-tax
operating profits, pre-tax reported profits, cash flow, revenues, revenue
growth, operating revenue growth, client net new asset growth, return on
assets, return on equity, return on investment, stockholder return and/or
value, earnings per share, conversions of and/or increase in client
assets, sales (of products, offers, or services) and changes between
years or periods that are determined with respect to any of these
performance criteria.
- The maximum award that may be paid to any participant (other than the
Chief Executive Officer) under the CEBP for any calendar year cannot
exceed $8 million. The maximum award that may be paid to the Chief
Executive Officer under the CEBP for any calendar year cannot exceed
$15 million.
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THE CHARLES SCHWAB CORPORATION
Exhibit Index
10.275 Peter K. Scaturro Offer Letter
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THE CHARLES SCHWAB CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE CHARLES SCHWAB CORPORATION
(Registrant)
Date: May 25, 2005 /s/ Christopher V. Dodds
----------------- -----------------------------
Christopher V. Dodds
Executive Vice President and
Chief Financial Officer
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