-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SD8oFOk9S0G1K9f64I+wuJRbIvU2FOyyLJndklf0E/5X047q/0GsG2VnMtSuMWyY 9f9T6DVPeZM72b2g7SQuKA== 0000316709-96-000019.txt : 19960816 0000316709-96-000019.hdr.sgml : 19960816 ACCESSION NUMBER: 0000316709-96-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCHWAB CHARLES CORP CENTRAL INDEX KEY: 0000316709 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 943025021 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09700 FILM NUMBER: 96611789 BUSINESS ADDRESS: STREET 1: 101 MONTGOMERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94104 BUSINESS PHONE: 4156277000 MAIL ADDRESS: STREET 1: 101 MONTGOMERY ST CITY: SAN FRANCISCO STATE: CA ZIP: 94104 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 Commission file number 1-9700 THE CHARLES SCHWAB CORPORATION (Exact name of Registrant as specified in its charter) Delaware 94-3025021 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 101 Montgomery Street, San Francisco, CA 94104 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (415) 627-7000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 175,165,934 shares of $.01 par value Common Stock Outstanding on August 6, 1996 THE CHARLES SCHWAB CORPORATION Quarterly Report on Form 10-Q For the Quarter Ended June 30, 1996 Index Page ---- Part I - Financial Information Item 1. Condensed Consolidated Financial Statements: Statement of Income 1 Balance Sheet 2 Statement of Cash Flows 3 Notes 4-6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-15 Part II - Other Information Item 1. Legal Proceedings 15 Item 2. Changes in Securities 15 Item 3. Defaults Upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15-16 Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 16 Signature 17 FORWARD-LOOKING STATEMENTS In addition to the historical information contained throughout this interim report, there are forward-looking statements that reflect management's expectations for the future. These statements relate to the Company's strategy, sources of liquidity and capital expenditures. Many factors could cause actual results to differ materially from these statements. These factors include: the actions of both current and potential new competitors, changes in the amount or timing of anticipated investments by the firm, fundamentally cyclical financial markets, the nature of the Company's revenues and expenses, evolving industry regulation, rapid changes in technology, customer trading patterns, and the myriad domestic and international political and economic factors that affect securities markets and therefore may influence the behavior of the individual investor. Part I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements THE CHARLES SCHWAB CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME (In thousands, except per share amounts) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 1996 1995 1996 1995 ---- ---- ---- ---- Revenues Commissions $261,149 $179,245 $502,062 $330,192 Mutual fund service fees 75,384 51,601 144,219 97,840 Interest revenue, net of interest expense(1) 62,405 49,639 121,349 95,687 Principal transactions 73,119 52,739 134,753 96,035 Other 19,726 9,494 36,181 19,817 - ------------------------------------------------------------------------------------------------------------------- Total 491,783 342,718 938,564 639,571 - ------------------------------------------------------------------------------------------------------------------- Expenses Excluding Interest Compensation and benefits 200,481 139,184 396,189 262,345 Communications 44,346 30,097 87,300 56,460 Occupancy and equipment 33,117 27,309 63,093 50,829 Commissions, clearance and floor brokerage 21,773 19,252 41,306 34,851 Depreciation and amortization 23,353 14,558 48,104 28,692 Advertising and market development 17,844 12,295 40,047 23,193 Professional services 10,210 10,202 23,645 15,849 Other 21,960 16,534 40,511 30,684 - ------------------------------------------------------------------------------------------------------------------- Total 373,084 269,431 740,195 502,903 - ------------------------------------------------------------------------------------------------------------------- Income before taxes on income 118,699 73,287 198,369 136,668 Taxes on income 48,604 28,868 81,331 53,873 - ------------------------------------------------------------------------------------------------------------------- Net Income $ 70,095 $ 44,419 $117,038 $ 82,795 =================================================================================================================== Weighted-average number of common and common equivalent shares outstanding(2) 179,250 178,127 179,069 177,144 =================================================================================================================== Per Share Primary Earnings per Share $ .39 $ .25 $ .65 $ .47 =================================================================================================================== Fully Diluted Earnings per Share $ .39 $ .25 $ .65 $ .47 =================================================================================================================== Dividends Declared per Common Share $ .040 $ .030 $ .080 $ .060 =================================================================================================================== (1) Interest revenue is presented net of interest expense. Interest expense for the three months ended June 30, 1996 and 1995 was $101,152 and $87,666, respectively. Interest expense for the six months ended June 30, 1996 and 1995 was $200,161 and $166,869, respectively. (2) Amounts shown are used to calculate primary earnings per share. See Notes to Condensed Consolidated Financial Statements.
- 1 - THE CHARLES SCHWAB CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (In thousands, except share data)
June 30, December 31, 1996 1995 ---- ---- (Unaudited) ----------- Assets Cash and equivalents (including resale agreements of $27,000 in 1996 and $250,000 in 1995) $ 615,236 $ 429,298 Cash and investments required to be segregated under Federal or other regulations (including resale agreements of $4,126,464 in 1996 and $4,384,298 in 1995) 5,168,759 5,426,619 Receivable from brokers, dealers and clearing organizations 153,538 141,916 Receivable from customers (less allowance for doubtful accounts of $4,401 in 1996 and $3,700 in 1995) 4,665,322 3,946,295 Securities owned - at market value 135,612 113,522 Equipment, office facilities and property (less accumulated depreciation and amortization of $239,699 in 1996 and $212,035 in 1995) 279,768 243,472 Intangible assets (less accumulated amortization of $168,600 in 1996 and $162,358 in 1995) 74,602 80,863 Other assets 121,163 170,023 - ------------------------------------------------------------------------------------------------------------------------ Total $11,214,000 $10,552,008 ======================================================================================================================== Liabilities and Stockholders' Equity Drafts payable $ 157,082 $ 212,961 Payable to brokers, dealers and clearing organizations 610,790 581,226 Payable to customers 9,057,056 8,551,996 Accrued expenses and other 331,724 326,785 Long-term debt (including current maturities) 300,084 246,146 - ------------------------------------------------------------------------------------------------------------------------ Total liabilities 10,456,736 9,919,114 - ------------------------------------------------------------------------------------------------------------------------ Stockholders' equity: Preferred stock - 9,940,000 shares authorized; $.01 par value per share; none issued Common stock - 500,000,000 shares authorized in 1996 and 200,000,000 shares authorized in 1995; $.01 par value per share; 178,459,416 shares issued in 1996 and 1995 1,785 1,785 Additional paid-in capital 191,291 180,302 Retained earnings 623,696 520,532 Treasury stock - 3,367,825 shares in 1996 and 4,427,255 shares in 1995, at cost (41,948) (50,968) Unearned ESOP shares (6,589) (9,397) Unamortized restricted stock compensation (8,604) (7,074) Foreign currency translation adjustment (2,367) (2,286) - ------------------------------------------------------------------------------------------------------------------------ Total stockholders' equity 757,264 632,894 - ------------------------------------------------------------------------------------------------------------------------ Total $11,214,000 $10,552,008 ======================================================================================================================== See Notes to Condensed Consolidated Financial Statements.
- 2 - THE CHARLES SCHWAB CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) (Unaudited)
Six Months Ended June 30, 1996 1995 ---- ---- Cash flows from operating activities Net income $ 117,038 $ 82,795 Noncash items included in net income: Depreciation and amortization 48,104 28,692 Deferred income taxes (1,844) (236) Other 13,651 10,242 Change in securities owned - at market value (22,090) (29,707) Change in other assets 50,710 17,021 Change in accrued expenses and other 15,949 35,994 - ----------------------------------------------------------------------------------------------------------------- Net cash provided before change in customer-related balances 221,518 144,801 - ----------------------------------------------------------------------------------------------------------------- Change in customer-related balances (excluding the effects of business acquired): Payable to customers 503,871 731,510 Receivable from customers (719,446) (40,154) Drafts payable (56,688) 12,026 Payable to brokers, dealers and clearing organizations 29,387 135,551 Receivable from brokers, dealers and clearing organizations (11,214) (22,004) Cash and investments required to be segregated under Federal or other regulations 259,392 (832,058) - ----------------------------------------------------------------------------------------------------------------- Net change in customer-related balances 5,302 (15,129) - ----------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 226,820 129,672 - ----------------------------------------------------------------------------------------------------------------- Cash flows from investing activities Purchase of equipment, office facilities and property - net (78,976) (42,879) Cash payments for business acquired (3,709) (48,292) - ----------------------------------------------------------------------------------------------------------------- Net cash used by investing activities (82,685) (91,171) - ----------------------------------------------------------------------------------------------------------------- Cash flows from financing activities Proceeds from long-term debt 54,000 20,000 Purchase of treasury stock (1,024) Dividends paid (13,983) (10,296) Other 2,894 6,372 - ----------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 41,887 16,076 - ----------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and equivalents (84) (492) - ----------------------------------------------------------------------------------------------------------------- Increase in cash and equivalents 185,938 54,085 Cash and equivalents at beginning of period 429,298 380,616 - ----------------------------------------------------------------------------------------------------------------- Cash and equivalents at end of period $ 615,236 $ 434,701 ================================================================================================================= See Notes to Condensed Consolidated Financial Statements.
- 3 - THE CHARLES SCHWAB CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Basis of Presentation The accompanying unaudited condensed consolidated financial statements include The Charles Schwab Corporation (CSC) and its subsidiaries (collectively referred to as the Company). CSC is a holding company engaged, through its subsidiaries, in securities brokerage and related investment services. CSC's principal operating subsidiary, Charles Schwab & Co., Inc. (Schwab), is a securities broker-dealer with a network of over 230 branch offices and four regional customer telephone service centers. Another subsidiary, Mayer & Schweitzer, Inc. (M&S), a market maker in Nasdaq securities, provides trade execution services to broker- dealers, including Schwab, and institutional customers. These financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and, in the opinion of management, reflect all adjustments necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles. All adjustments were of a normal recurring nature. All material intercompany balances and transactions have been eliminated. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1995 Annual Report to Stockholders, which are incorporated by reference in the Company's 1995 Annual Report on Form 10-K and the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1996. Prior periods' financial statements have been reclassified to conform to the 1996 presentation. Statement of Financial Accounting Standard No. 121 Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 121 - Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of. The statement requires that long-lived assets and certain identifiable intangibles to be held and used by or disposed of by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The adoption of the new standard did not have an effect on the Company's financial position, results of operations, earnings per share or cash flows. SFAS No. 123 Effective January 1, 1996, the Company adopted SFAS No. 123 - Accounting for Stock-Based Compensation. The new standard establishes accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. Under the new standard, the Company may either adopt the new fair value-based accounting method or continue using the intrinsic value-based method under Accounting Principles Board (APB) Opinion No. 25 and provide pro forma disclosures of net income and earnings per share as if the accounting provision of the new standard had been adopted. The Company elected to continue to follow APB Opinion No. 25 and implement the disclosure requirements of the new standard. Such adoption did not have an effect on the Company's results of operations, earnings per share or cash flows. SFAS No. 125 On June 28, 1996, the Financial Accounting Standards Board issued SFAS No. 125 - Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, effective for transfers of financial assets made after December 31, 1996. This new statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. Earlier adoption or retroactive application of this statement is not permitted. The Company believes that the effect of the adoption of SFAS No. 125 will not have a material effect on its financial position, results of operations, earnings per share or cash flows. Commitments and Contingencies In the normal course of its margin lending activities, Schwab may be liable for the margin requirement of customer margin securities transactions. M&S has been named as one of thirty-three defendant market- making firms in a consolidated class action which is pending in Federal District Court in the Southern District of New York pursuant to an order of the Judicial Panel on Multidistrict Litigation. On December 16, 1994, the plaintiffs filed a consolidated amended complaint purportedly on behalf of certain persons who purchased or sold Nasdaq securities during the period May 1, 1989 through May 27, 1994. A second consolidated amended complaint was filed on August 22, 1995. The consolidated complaint does not set forth any specific conduct by M&S and does - 4 - not request any specific amount of damages, although it requests that the actual damages be trebled where permitted by statute. The consolidated complaint generally alleges an illegal combination and conspiracy among the defendant market makers to fix and maintain the spreads between the bid and ask prices of Nasdaq securities. The ultimate outcome of this consolidated action cannot currently be determined. Schwab has been named as a defendant in eleven class action lawsuits filed in state courts in Minnesota, Illinois, New York, Louisiana, Texas, Florida and California. The class actions were filed between August 12, 1993 and November 17, 1995, and purport to be brought on behalf of customers of Schwab who purchased or sold securities for which Schwab received payments from the market maker, stock dealer or other third party who executed the transaction. The complaints generally allege that Schwab failed to disclose and remit such payments to members of the class, and generally seek damages equal to the payments received by Schwab. On June 30, 1995, a class was certified in Civil District Court for the Parish of Orleans in Louisiana for Louisiana residents who purchased or sold securities through Schwab between February 1, 1985 and February 1, 1995 for which Schwab received monetary payments from the market maker or stock dealer who executed the transaction. The class certification was affirmed by the Louisiana Court of Appeals on February 29, 1996. On August 16, 1995, another class was certified in Civil District Court for the Parish of Natchitoches in Louisiana for residents of all states who purchased or sold securities through Schwab since 1985 for which Schwab received monetary payments from the market maker or other third party who executed the transaction. Schwab has appealed this class certification to the Louisiana Court of Appeals. On October 11, 1995, the action filed in the Fifteenth Judicial Circuit Court in and for Palm Beach County, Florida, was voluntarily dismissed by plaintiff. On April 19, 1996, the Minnesota Supreme Court unanimously upheld the dismissal of the three class actions filed against Schwab in the Fourth Judicial District Court, Hennepin County, Minnesota, finding that the claims asserted were preempted by federal law. The ultimate outcome of the remaining actions cannot currently be determined. There are other various lawsuits pending against the Company which, in the opinion of management, will be resolved with no material impact on the Company's financial position or results of operations. Regulatory Requirements Schwab and M&S are subject to the SEC's Uniform Net Capital Rule and each compute net capital under the alternative method permitted by this Rule, which requires the maintenance of minimum net capital, as defined, of the greater of 2% of aggregate debit balances arising from customer transactions or a minimum dollar amount, which is based on the type of business conducted by the broker-dealer. The minimum dollar amount for both Schwab and M&S is $1 million. Under the alternative method, a broker-dealer may not repay subordinated borrowings, pay cash dividends, or make any unsecured advances or loans to its parent or employees if such payment would result in net capital of less than 5% of aggregate debit balances or less than 120% of its minimum dollar amount requirement. At June 30, 1996, Schwab's net capital was $509 million (11% of aggregate debit balances), which was $413 million in excess of its minimum required net capital and $269 million in excess of 5% of aggregate debit balances. At June 30, 1996, M&S' net capital was $15 million (523% of aggregate debit balances), which was $14 million in excess of its minimum required net capital. Schwab and ShareLink Limited, a subsidiary of ShareLink Investment Services plc, had portions of their cash and investments segregated for the exclusive benefit of customers at June 30, 1996, in accordance with applicable regulations. M&S had no such cash reserve requirement at June 30, 1996. Cash Flow Information Certain information affecting the cash flows of the Company follows (in thousands):
Six Months Ended June 30, 1996 1995 ---- ---- Income taxes paid $ 52,811 $ 43,111 ======== ======== Interest paid: Customer cash balances $173,213 $151,147 Long-term debt (including current maturities) 7,673 5,406 Other 14,995 8,429 -------- -------- Total interest paid $195,881 $164,982 ======== ========
- 5 - Subsequent Events On July 16, 1996, M&S and twenty-three other Nasdaq market makers entered into a Stipulation and Order resolving a civil complaint filed by the Department of Justice alleging violations of the federal antitrust laws in connection with certain customs and practices. Under the Stipulation, the parties agreed that the defendants would not engage in certain types of market making activities and would take specific steps to assure compliance with the agreement. No fines or damages were assessed. The Stipulation and Order is subject to approval by the United States District Court of the Southern District of New York, following a public hearing, and if that Court approves the Order, the complaint will be dismissed. On July 17, 1996, the Board of Directors increased the quarterly cash dividend from $.04 per share to $.05 per share payable August 15, 1996 to stockholders of record August 1, 1996. - 6 - Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The Charles Schwab Corporation (CSC) and its subsidiaries (collectively referred to as the Company) provide brokerage and related investment services to customers with 3.8 million active(a) accounts and assets that totaled $216.7 billion at June 30, 1996. With a network of over 230 branch offices, the Company's principal subsidiary, Charles Schwab & Co., Inc. (Schwab), is physically represented in 46 states, the Commonwealth of Puerto Rico and the United Kingdom. Mayer & Schweitzer, Inc. (M&S), a market maker in Nasdaq securities, provides trade execution services to broker- dealers and institutional customers. The Company remains focused on achieving profitable growth within several markets of the financial services industry - retail brokerage, mutual funds, support services for independent investment managers, equity securities market making, electronic brokerage and 401(k) defined contribution plans. The Company faces heavy competitive pressure in these markets from full commission and discount brokerage firms, as well as from mutual fund companies. Increasingly, competition has also come from banks, software development companies, insurance companies and others as they expand their product lines. The Company's strategy for increasing stockholder value while operating in this competitive environment includes several key elements, all of which reflect a focus on providing value to customers. First, Schwab continues to offer a broad range of products and services at prices that management believes represent superior value to customers. The Company has historically used varying levels of discount pricing, such as with its Mutual Fund OneSource (registered trademark) service, to enhance the value of its products and services and support its efforts to gain market share. Management expects to continue aggressive use of discount pricing in the marketing of new products and services. Second, the Company's products and services are delivered through diverse and complementary customer service delivery systems including the branch office network, Schwab's regional customer telephone service centers, and electronic brokerage channels such as the SchwabLink(registered trademark) service for financial advisors, Telebroker(registered trademark) - Schwab's touchtone telephone trading service, and PC-based online services such as StreetSmart (registered trademark), e.Schwab(trademark) and SchwabNOW!(trademark) - Internet trading via Schwab's World Wide Web site. Another key element is the firm's ongoing investment in technology to provide fast and consistent customer service and reduce processing costs. The Company has traditionally been willing to be a forerunner in placing technology, such as Telebroker, e.Schwab and SchwabNOW!, in the hands of customers. Finally, the Company's nationwide advertising and marketing programs are designed to distinguish the Schwab brand as well as the Company's products and services. Management expects to continue to invest in all of these areas in order to position the Company for future expansion, and to enable customers to choose the type and level of service most appropriate to their investing activity. The Company's business, like that of other securities brokerage firms, is directly affected by the fluctuations in volumes and price levels that occur in fundamentally cyclical financial markets. Transaction-based revenues continue to represent a majority of the Company's revenues. Since these revenues are heavily influenced by fluctuations in the volume of securities transactions, it is not unusual for the Company to experience significant variations in quarterly revenue levels. (a) Accounts with balances or activity within the preceding twelve months. - 7 - The Company actively manages its expenses in anticipation of and in response to changes in financial market conditions and customer trading patterns. Certain of the Company's expenses, including variable compensation, portions of communications, and commissions, clearance and floor brokerage vary directly with changes in financial performance or customer trading activity. Expenses relating to the level of temporary employees, contractors and overtime hours, professional services, advertising and market development, and travel and entertainment can be and are adjusted over the short term to help the Company achieve its financial objectives. Additionally, developmental spending (e.g., branch openings, product and service rollouts and technology enhancements) is discretionary and can be altered to reflect market conditions. Finally, certain expenses such as salaries and wages, occupancy and equipment, and depreciation and amortization do not vary directly, at least in the short term, with fluctuations in revenue or securities trading volumes. Given the nature of the Company's revenues and expenses, and the environmental factors discussed above, the Company's earnings and common stock price may be subject to significant volatility. The Company's results for any interim period are not necessarily indicative of results for a full year. In addition to the historical information contained throughout this interim report, the preceding forward-looking statements relating to the Company's strategy, as well as those that follow concerning sources of liquidity and capital expenditures, reflect management's expectations for the future. Many factors could cause actual results to differ materially from these statements. These factors include: the competitive environment, changes in the amount or timing of anticipated investments by the firm, fundamentally cyclical financial markets, the nature of the Company's revenues and expenses, evolving industry regulation, rapid changes in technology, customer trading patterns, and the myriad domestic and international political and economic factors that affect securities markets and therefore may influence the behavior of the individual investor. Three Months Ended June 30, 1996 Compared To Three Months Ended June 30, 1995 Summary Net income for the second quarter of 1996 totaled $70 million, up 58% from second quarter 1995 net income of $44 million. Earnings per share for the second quarter of 1996 increased 56% to $.39 per share from $.25 per share for the second quarter of 1995. Second quarter 1996 revenues were $492 million, up 43% from $343 million for the second quarter of 1995, due to increases in all revenue categories primarily resulting from higher trading volume and an increase in customer assets. The Company's ongoing strategy of placing technology in the hands of customers and providing customers with diverse delivery systems has facilitated the growth in electronic trading at Schwab. During the second quarter of 1996, customers averaged a total of 34,600 trades per day through electronic brokerage channels, an increase of 77% from the 19,500 average trades per day for the same period last year. Trades executed via Telebroker(registered trademark) and SchwabLink (registered trademark)averaged 14,900 and 7,800 per day, respectively, during the second quarter of 1996, compared to average daily trades of 8,900 and 5,000, respectively, for the same period last year. Assets in customer accounts totaled $216.7 billion at June 30, 1996, an increase of $63.6 billion, or 42%, from a year ago primarily due to increases in customers' equity securities of $25.1 billion, or 41%, to $87.0 billion, and increases in customer assets in Schwab's Mutual Fund Marketplace(registered trademark) of $24.6 billion, or 61%, to $65.0 billion. Customer assets in cash and money market funds at June 30, 1996 increased - 8 - $9.0 billion, or 27%, over the year-ago level to $42.2 billion. Schwab added 264,000 new customer accounts during the second quarter of 1996, an increase of 48% from the 178,800 new accounts added during the second quarter of 1995. Total operating expenses excluding interest during the second quarter of 1996 were $373 million, up 38% from $269 million for the second quarter of 1995, reflecting the Company's continued growth in staff, capacity expansion and investments in technology and advertising. The after-tax profit margin for the second quarter of 1996 was 14%, up from 13% for the second quarter of 1995. The annualized return on stockholders' equity for the second quarter of 1996 was 39%, up from 33% for the second quarter of 1995. Commissions Commission revenues for the Company were $261 million for the second quarter of 1996, up $82 million, or 46%, from the second quarter of 1995. Schwab earns commissions when acting as an agent as opposed to principal transaction revenues when acting as a principal or a market maker. Commissions earned on retail agency trades, which exclude commissions from institutional customers such as corporations and specialists, comprised 97% and 96% of Schwab's total commissions for the second quarter of 1996 and 1995, respectively, and totaled $246 million on a daily average retail agency trade level of 54,100 in the second quarter of 1996, compared with commission revenues of $172 million on a daily average retail agency trade level of 36,200 for the comparable period in 1995. Schwab's total retail agency commission revenues increased 43% from the second quarter of 1995 as its customer base continued to grow and customer accounts in general were more active, as detailed in the following table:
- ------------------------------------------------------------------- Three Months Ended Retail Agency June 30, Percent Commission Revenues 1996 1995 Change - ------------------------------------------------------------------- Number of customer accounts that traded (in thousands) 849 709 20% Average transactions per account 4.02 3.32 21 Total number of transactions (in thousands) 3,409 2,352 45 Average commission per transaction $72.23 $73.08 (1) Total commission revenues (in millions) $ 246 $ 172 43 ================================================================== Note: The above table excludes customer transactions in Schwab's Mutual Fund OneSource(registered trademark) service.
Mutual Fund Service Fees Mutual fund service fees increased $24 million, or 46%, to $75 million in the second quarter of 1996 from the comparable period in 1995. The increase was primarily attributable to significant increases in customer assets in funds purchased through Schwab's Mutual Fund OneSource(registered trademark) service, and customer assets in Schwab's proprietary funds, collectively referred to as the SchwabFunds(registered trademark). Most of these fees are earned for record keeping and shareholder services provided to funds in the Mutual Fund OneSource service, and for transfer agent, shareholder and investment management services provided to proprietary money market funds. Customer assets held by Schwab that have been purchased through the Mutual Fund OneSource service, excluding SchwabFunds, totaled $33.5 billion at June 30, 1996, compared to $18.1 billion at June 30, 1995, an 85% increase. Customer assets invested in the SchwabFunds, substantially all of which are in money market funds, increased 32% to $36.3 billion at June 30, 1996 from $27.5 billion at June 30, 1995. - 9 - Interest Revenue, Net of Interest Expense Interest revenue, net of interest expense, increased $12 million, or 26%, to $62 million from the prior year's second quarter as shown in the following table (in millions):
- ----------------------------------------------------------------- Three Months Ended June 30, 1996 1995 - ----------------------------------------------------------------- Interest Revenue Investments, customer-related $ 74 $ 71 Margin loans to customers 84 61 Other 5 5 - ----------------------------------------------------------------- Total 163 137 - ----------------------------------------------------------------- Interest Expense Customer cash balances 87 79 Long-term debt (including current maturities) 5 2 Other 9 6 - ----------------------------------------------------------------- Total 101 87 - ----------------------------------------------------------------- Interest Revenue, Net of Interest Expense $ 62 $ 50 =================================================================
The increase in interest revenue, net of interest expense, from the prior year's second quarter was primarily due to higher levels of interest-earning assets - a $1.5 billion, or 53%, increase in average margin loans to customers and a $1.0 billion, or 22%, increase in average investment balances, partially offset by a higher level of funding sources - a $1.9 billion, or 31%, increase in interest-bearing customer cash balances, and a decrease in average net interest margin. Customer-related daily average balances, interest rates and average net interest margin for the second quarters of 1996 and 1995 are summarized in the following table (dollars in millions):
- ----------------------------------------------------------------------------------------- Three Months Ended June 30, 1996 1995 - ----------------------------------------------------------------------------------------- Interest-Earning Assets (customer-related): Investments: Average balance outstanding $5,655 $4,640 Average interest rate 5.24% 6.11% Margin loans to customers: Average balance outstanding $4,483 $2,939 Average interest rate 7.54% 8.38% Average yield on interest-earning assets 6.26% 6.99% Funding Sources (customer-related and other): Interest-bearing customer cash balances: Average balance outstanding $8,079 $6,167 Average interest rate 4.32% 5.13% Other interest-bearing sources: Average balance outstanding $ 721 $ 411 Average interest rate 4.11% 4.27% Average noninterest-bearing portion $1,338 $1,001 Average interest rate on funding sources 3.74% 4.40% Summary: Average yield on interest-earning assets 6.26% 6.99% Average interest rate on funding sources 3.74% 4.40% - ----------------------------------------------------------------------------------------- Average net interest margin 2.52% 2.59% =========================================================================================
Principal Transactions During the second quarter of 1996, principal transaction revenues increased $20 million, or 39%, from the comparable period in 1995 to $73 million. This increase was primarily due to higher trading volume handled by M&S, a significant participant in the Nasdaq market. Nasdaq's daily average share volume during the second quarter of 1996 was 603 million shares, of which M&S handled approximately 8%. During 1994, the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) commenced investigations related to the activities of broker-dealers, including M&S, who act as market makers in Nasdaq securities. The DOJ investigation has concluded (See Part I - Financial Information, Item 1., Subsequent Events note). On August 8, 1996, the SEC issued a report of its investigation and filed proceedings against the National Association of Securities Dealers, Inc. (NASD) for allegedly failing to enforce compliance with its rules and the federal - 10 - securities laws. Simultaneously, the NASD agreed to settle the proceedings, without admitting or denying the SEC's findings, by consenting to a censure and to certain remedial undertakings. No market makers in Nasdaq securities, including M&S, were named as parties in the proceedings, although the SEC has stated that further enforcement proceedings are not precluded. In addition, beginning in 1994, both the SEC and the NASD issued for comment certain proposed rules, which, if adopted, would alter the manner in which orders related to Nasdaq securities are processed and would introduce new market-wide order handling systems. The forgoing rulemaking proposals, if approved, together with other potential regulatory actions and improvements in technology, could impact the manner in which business is currently conducted in the Nasdaq market. These changes in market customs and practices could have a material adverse impact on M&S' revenues from principal transactions. Expenses Excluding Interest Total operating expenses excluding interest for the second quarter of 1996 were $373 million, up 38% from $269 million for the second quarter of 1995. Compensation and benefits expense for the second quarter of 1996 increased $61 million, or 44%, to $200 million from the prior year's second quarter primarily due to increases in the number of employees and variable compensation. During the second quarters of 1996 and 1995, variable compensation represented 31% and 28%, respectively, of total compensation and benefits. At June 30, 1996, the Company had full-time, part-time and temporary employees, and persons employed on a contract basis that represented the equivalent of approximately 9,400 full-time employees, compared to approximately 7,300 at June 30, 1995. Compensation associated with temporary employees, contractors and overtime hours accounted for $20 million and $14 million of total compensation and benefits during the second quarters of 1996 and 1995, respectively. Communications expense increased $14 million, or 47%, to $44 million from the prior year's second quarter primarily due to higher customer trading and call volumes, which contributed to higher telephone, postage, and financial news and securities quotation services expenses. Depreciation and amortization expense increased $9 million, or 60%, to $23 million from the prior year's second quarter primarily due to the depreciation on recently acquired data processing equipment and the amortization of related software. In addition, a portion of the 1996 increase was due to the amortization of goodwill and other intangibles resulting from businesses acquired during the second half of 1995. The Company's effective income tax rate for the second quarter of 1996 was 40.9% compared to 39.4% for the comparable period in 1995. Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995 Summary Net income for the first half of 1996 totaled $117 million, up 41% from first half of 1995 net income of $83 million. Earnings per share for the first half of 1996 increased 38% to $.65 per share from $.47 per share for the first half of 1995. Revenues for the first half of 1996 were $939 million, up 47% from $640 million for the first half of 1995, due to increases in all revenue categories primarily resulting from higher trading volume and an increase in customer assets. The Company's ongoing strategy of placing technology in the hands of customers and providing customers with diverse delivery systems has facilitated the growth in electronic trading at Schwab. During the first half of 1996, customers averaged a total of 33,400 trades per day through electronic brokerage channels, an increase of 81% from 18,500 average trades per day for the same period last year. Trades executed via Telebroker(registered trademark) - 11 - and SchwabLink(registered trademark) averaged 14,100 and 8,300 per day, respectively, during the first half of 1996, compared to average daily trades of 8,100 and 5,300, respectively, for the same period last year. Total operating expenses excluding interest during the first half of 1996 were $740 million, up 47% from $503 million for the first half of 1995, primarily resulting from additional staff to support the Company's continued growth and expansion, higher variable compensation and higher transaction-related expenses. The decrease in the after-tax profit margin from 13% for the first half of 1995 to 12% for the first half of 1996 reflects the Company's investment in ShareLink Investment Services plc and development of the Company's 401(k) defined contribution plan offering to corporations. The annualized return on stockholders' equity for the first half of 1996 was 34%, up from 32% for the first half of 1995. Commissions Commission revenues for the Company were $502 million for the first half of 1996, up $172 million, or 52%, from the first half of 1995. Commissions earned on retail agency trades, which exclude commissions from institutional customers such as corporations and specialists, comprised 97% and 96% of Schwab's total commissions for the first half of 1996 and 1995, respectively, and totaled $472 million on a daily average retail agency trade level of 52,300 in the first half of 1996, compared with commission revenues of $317 million on a daily average retail agency trade level of 35,400 for the comparable period in 1995. Total retail agency commission revenues increased 49% from the first half of 1995 as Schwab's customer base continued to grow and customer accounts in general were more active, as detailed in the following table:
- -------------------------------------------------------------------- Six Months Ended Retail Agency June 30, Percent Commission Revenues 1996 1995 Change - -------------------------------------------------------------------- Number of customer accounts that traded (in thousands) 1,267 1,044 21% Average transactions per account that traded 5.21 4.23 23 Total number of transactions (in thousands) 6,596 4,420 49 Average commission per transaction $71.58 $71.68 0 Total commission revenues (in millions) $ 472 $ 317 49 ==================================================================== Note: The above table excludes customer transactions in Schwab's Mutual Fund OneSource(registered trademark) service.
During the first half of 1996, the Company added 509,000 new accounts, an increase of 48% from 344,000 new accounts added in the first half of 1995. Interest Revenue, Net of Interest Expense Interest revenue, net of interest expense, increased $25 million, or 27%, to $121 million from the prior year's first six months as shown in the following table (in millions):
- ----------------------------------------------------------------- Six Months Ended June 30, 1996 1995 - ----------------------------------------------------------------- Interest Revenue Investments, customer-related $149 $133 Margin loans to customers 161 120 Other 11 10 - ----------------------------------------------------------------- Total 321 263 - ----------------------------------------------------------------- Interest Expense Customer cash balances 173 151 Long-term borrowings 9 5 Other 18 11 - ----------------------------------------------------------------- Total 200 167 - ----------------------------------------------------------------- Interest Revenue, Net of Interest Expense $121 $ 96 =================================================================
- 12 - The increase in interest revenue, net of interest expense, for the first half of 1996 was primarily due to higher levels of interest-earning assets - a $1.4 billion, or 47%, increase in average margin loans to customers and a $1.2 billion, or 27%, increase in average investment balances, partially offset by a higher level of funding sources - a $1.9 billion or 32% increase in interest-bearing customer cash balances, and a decrease in average net interest margin. Customer-related daily average balances, interest rates, and average net interest margin for the first six months of 1996 and 1995 are summarized in the following table (dollars in millions):
- ----------------------------------------------------------------------------------------- Six Months Ended June 30, 1996 1995 - ----------------------------------------------------------------------------------------- Earning Assets (customer-related): Investments: Average balance outstanding $5,646 $4,459 Average interest rate 5.32% 6.03% Margin loans to customers: Average balance outstanding $4,255 $2,904 Average interest rate 7.60% 8.32% Average yield on earning assets 6.30% 6.93% Funding Sources (customer-related and other): Interest-bearing customer cash balances: Average balance outstanding $7,935 $6,025 Average interest rate 4.39% 5.04% Other interest-bearing sources: Average balance outstanding $ 660 $ 377 Average interest rate 4.18% 4.23% Average noninterest-bearing portion $1,306 $ 961 Average interest rate on funding sources 3.80% 4.34% Summary: Average yield on earning assets 6.30% 6.93% Average interest rate on funding sources 3.80% 4.34% - ----------------------------------------------------------------------------------------- Average net interest margin 2.50% 2.59% =========================================================================================
Principal Transactions Principal transaction revenues increased $39 million, or 40%, from prior year's first half to $135 million. This increase was due to higher trading volume handled by M&S and higher revenues relating to specialist posts. Mutual Fund Service Fees The changes in mutual fund service fees between the six-month periods are generally attributable to the changes described in the comparisons between the three-month periods. Expenses Excluding Interest The changes in expenses excluding interest between the six-month periods are generally attributable to the changes described in the comparisons between the three-month periods, except for the fluctuations in advertising and market development expense. This expense increased $17 million, or 73%, to $40 million from the prior year's first half primarily due to increased print, direct mail and media advertisements relating to campaigns covering Mutual Fund OneSource(registered trademark). Additionally, IRA product offerings, as well as new product and service offerings such as e.Schwab(trademark) and the Company's rollout of the 401(k) defined contribution plan offering to corporations also contributed to the increase. The Company's effective income tax rate for the first half of 1996 was 41.0% compared to 39.4% for the same period in 1995. Liquidity and Capital Resources Liquidity Schwab Liquidity needs relating to customer trading and margin borrowing activities are met primarily through cash balances in customer accounts, which totaled $8.8 billion at June 30, 1996, up 5% from the December 31, 1995 level of $8.4 billion. Earnings from Schwab's operations are the primary source of liquidity for capital expenditures and investments in new services, marketing and technology. Management believes that customer cash balances and operating earnings will continue - 13 - to be the primary sources of liquidity for Schwab in the future. To manage Schwab's regulatory capital position, CSC provides Schwab with a $250 million subordinated revolving credit facility maturing in September 1997, of which $215 million was outstanding at June 30, 1996. At quarter end, Schwab also had outstanding $25 million in fixed-rate subordinated term loans from CSC maturing in 1998. Borrowings under these subordinated lending arrangements qualify as regulatory capital for Schwab. For use in its brokerage operations, Schwab maintains uncommitted unsecured bank credit lines totaling $495 million. Schwab used such borrowings for five days during the first six months of 1996, with the daily amounts borrowed averaging $52 million. These lines were unused at June 30, 1996. M&S M&S' liquidity needs are generally met through earnings generated by its operations. Most of M&S' assets are liquid, consisting primarily of receivables from brokers, dealers and clearing organizations, cash and equivalents, and marketable securities. M&S may borrow up to $35 million under a subordinated lending arrangement with CSC. At quarter end, M&S had outstanding borrowings of $4 million under this facility. These borrowings mature in December 1997. Borrowings under this arrangement qualify as regulatory capital for M&S. CSC CSC's liquidity needs are generally met through cash generated by its subsidiaries. Schwab and M&S are subject to regulatory requirements that are intended to ensure the general financial soundness and liquidity of broker-dealers. These regulations would prohibit Schwab and M&S from repaying subordinated borrowings to CSC, paying cash dividends, or making any unsecured advances or loans to their parent or employees if such payment would result in net capital of less than 5% of their aggregate debit balances or less than 120% of their minimum dollar amount requirement of $1 million. At June 30, 1996, Schwab had $509 million of net capital (11% of aggregate debit balances), which was $413 million in excess of its minimum required net capital. At June 30, 1996, M&S had $15 million of net capital (523% of aggregate debit balances), which was $14 million in excess of its minimum required net capital. Management believes that funds generated by the operations of CSC's subsidiaries will continue to be the primary funding source in meeting CSC's liquidity needs and maintaining Schwab's and M&S' net capital. CSC has individual liquidity needs that arise from its issued and outstanding $294 million Senior Medium-Term Notes, Series A (Medium-Term Notes), as well as from the funding of cash dividends, common stock repurchases and acquisitions. The Medium-Term Notes have maturities ranging from 1996 to 2005 and fixed interest rates ranging from 4.95% to 7.72% with interest payable semiannually. CSC has a prospectus supplement covering the issuance of up to $140 million in Senior or Senior Subordinated Medium-Term Notes, Series A pursuant to a registration statement filed with the SEC. At June 30, 1996, $56 million in securities remained unissued under this registration statement. In June 1996, CSC renewed its $250 million committed unsecured credit facility with a group of nine banks to June 1997. The funds are available for general corporate purposes. CSC pays a commitment fee on the unused balance. The terms of this facility require CSC to maintain a minimum level of stockholders' equity and Schwab and M&S to maintain minimum levels of net capital, as defined. This facility has never been used. See "Commitments and Contingencies" note in Part I - Financial Information, Item 1., Notes to Condensed Consolidated Financial Statements. - 14 - Cash Flows and Capital Resources Net income plus depreciation and amortization was $165 million for the first six months of 1996, up 48% from $111 million for the first six months of 1995. During the first six months of 1996, the Company invested $79 million in various capital expenditures, including $33 million for an office building to be used for the expansion of its operations and $46 million for equipment and office facilities relating to the continued enhancement of data processing and telecommunications systems and the opening of eight new branch offices. As has been the case recently, capital expenditures will vary from period to period as business conditions change. The Company issued $54 million in Medium-Term Notes during the first six months of 1996. During the first six months of 1996, the Company paid common stock cash dividends totaling $14 million, up from $10 million paid during the first six months of 1995. In July 1996, the Board of Directors increased the quarterly cash dividend from $.04 per share to $.05 per share. The Company monitors both the relative composition and absolute level of its financial capital. The Company's stockholders' equity at June 30, 1996 totaled $757 million. In addition, the Company had long-term debt (including current maturities) of $300 million that bears interest at a weighted-average rate of 6.32%. These borrowings, together with the Company's equity, provided total financial capital of $1.1 billion at June 30, 1996, up $178 million, or 20% from the December 31, 1995 level of $879 million. PART II - OTHER INFORMATION Item 1. Legal Proceedings The legal proceedings discussed in Notes to Condensed Consolidated Financial Statements, under "Commitments and Contingencies" and "Subsequent Events" in Part I - Financial Information, Item 1., as well as in "Principal Transactions" in Management's Discussion and Analysis in Part I, Item 2., are incorporated herein by reference. Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders At the Company's Annual Meeting of Stockholders held on May 6, 1996, its stockholders voted upon the following proposals:
Proposal I - Election of Ten Directors: - -------------------------------------- Shares Shares For Against --- ------- Charles R. Schwab 156,488,063 5,420,026 Lawrence J. Stupski 156,495,193 5,412,896 David S. Pottruck 156,263,068 5,645,021 Nancy H. Bechtle 156,495,148 5,412,941 C. Preston Butcher 156,495,073 5,413,016 Donald G. Fisher 156,512,840 5,395,249 Anthony M. Frank 156,481,307 5,426,782 James R. Harvey 156,503,980 5,404,109 Stephen T. McLin 156,486,019 5,422,070 Roger O. Walther 156,459,539 5,448,550
There were no abstentions or broker non-votes with respect to the election of directors. - 15 - Proposal II - Increase in the authorized number of shares of Common - ------------------------------------------------------------------- Stock - Approval of the increase in the number of authorized shares - ----- of common stock from 200 million to 500 million.
Shares Shares Broker For Against Abstentions Non-Votes --- ------- ----------- --------- 136,097,689 24,995,328 752,072 63,000
Proposal III - Amendment to the 1992 Stock Incentive Plan - Approval - --------------------------------------------------------- of Amendment to the 1992 Stock Incentive Plan to provide that each nonemployee director receive an annual, automatic option grant covering (a) 2,500 shares of common stock if the exercise price, determined as of the grant date, is less than $35, or (b) 1,500 shares of common stock if the exercise price, determined as of the grant date, is $35 or more.
Shares Shares Broker For Against Abstentions Non-Votes --- ------- ----------- --------- 148,657,578 11,188,420 1,399,091 663,000
Proposal IV - Amendments to the Certificate of Incorporation - - ------------------------------------------------------------------- Approval of Amendments to the Certificate of Incorporation to (a) classify the Board of Directors into three classes; (b) provide that directors may be removed only for cause and only with approval of the holders of at least 80% of the voting power of the Company; (c) provide that any vacancy on the Board shall be filled by the remaining directors then in office, even if the remaining directors constitute less than a quorum; (d) require that stockholder action be taken only at a duly called annual meeting or special meeting of stockholders and prohibit stockholder action by written consent; (e) provide that advance notice of stockholder nominations for the election of directors and the introduction of business to be considered at a meeting shall be given as set forth in the Bylaws; (f) eliminate cumulative voting; and (g) require the concurrence of the holders of at least 80% of the voting power of the Company to alter, amend or repeal, or to adopt any provision inconsistent with, the foregoing amendments.
Shares Shares Broker For Against Abstentions Non-Votes --- ------- ----------- --------- 104,012,051 33,923,515 1,112,959 22,859,564
A total of 161,908,089 shares were present in person or by proxy at the Annual Meeting. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are filed as part of this quarterly report on Form 10-Q. Exhibit Number Exhibit - ------ ------- 3.5 Restated Certificate of Incorporation, as amended May 6, 1996, of the Registrant. 3.6 Bylaws, as amended May 6, 1996, of the Registrant. 10.158 Credit Agreement dated June 28, 1996 between the Registrant and the banks listed therein. 11.1 Computation of Earnings per Share. 12.1 Computation of Ratio of Earnings to Fixed Charges. 27.1 Financial Data Schedule (electronic only). (b) Reports on Form 8-K None. -16 - 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: August 13, 1996 /s/ Steven L. Scheid --------------- -------------------------------- Steven L. Scheid Executive Vice President and Chief Financial Officer -17 - EX-3 2 EXHIBIT 3.5 RESTATED CERTIFICATE OF INCORPORATION OF THE CHARLES SCHWAB CORPORATION (Originally incorporated on November 25, 1986, under the name CL Acquisition Corporation) FIRST. The name of this corporation (hereinafter called the "Corporation") is THE CHARLES SCHWAB CORPORATION. SECOND. The address of the registered office of this Corporation in the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle, and its registered agent at that address is CORPORATION SERVICE COMPANY. THIRD. The purpose of this Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH. (A) This Corporation is authorized to issue two classes of stock, preferred stock and common stock. The authorized number of shares of capital stock is Five Hundred Nine Million, Nine Hundred Forty Thousand (509,940,000) shares, of which the authorized number of shares of preferred stock is Nine Million, Nine Hundred Forty Thousand (9,940,000) and the authorized number of shares of common stock is Five Hundred Million (500,000,000). The stock, whether preferred stock or common stock, shall have a par value of one cent ($0.01) per share. (B) Shares of preferred stock may be issued from time to time in one or more series. The Board of Directors of this Corporation is hereby authorized to fix or alter the voting rights, powers, preferences and privileges, and the relative, participating, optional or other rights, if any, and the qualifications, limitations or restrictions thereof, of any wholly unissued series of preferred stock; and to fix the number of shares constituting any such series and the designation thereof; and to increase or decrease the number of shares of any series of preferred stock (but not below the number of shares thereof then outstanding). FIFTH. The Bylaws of the Corporation may be made, altered, amended, or repealed, and new Bylaws may be adopted, by the Board of Directors at any regular or special meeting by the affirmative vote of a majority of those directors present at any meeting of the directors; subject, however, to the right of the stockholders to alter, amend or repeal any Bylaws made or amended by the directors. Notwithstanding the foregoing, after the 1996 Annual Meeting of Stockholders, Sections 2.06, 2.10, 3.02, 3.05, 3.06 and 8.04 of the Corporation's Bylaws may not be amended, altered or repealed, nor may any provision inconsistent with such Sections be adopted, except by the affirmative vote of the holders of no less than 80% of the total voting power of all shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class. SIXTH. (A) Number, Election and Terms. Except as otherwise fixed by or pursuant to the provisions of Article FOURTH hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect, additional directors under specified circumstances, the number of the directors of the Board of the Corporation shall be fixed from time to time exclusively pursuant to a resolution adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies. Commencing with the 1996 annual meeting of stockholders, the directors, other than those who may be elected by the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as is reasonably possible, one class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1997, the second class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1998, and the third class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1999, with each director to hold office until his or her successor is duly elected and qualified. At each annual meeting of the stockholders of the Corporation, commencing with the 1997 annual meeting, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election, with each director to hold office until his or her director shall have been duly elected and qualified. (B) Stockholder nomination of director candidates. Advance notice of stockholder nominations for the election of directors shall be given in the manner provided in the Bylaws of the Corporation. (C) Vacancies. Subject to applicable law and except as otherwise provided for or fixed by or pursuant to the provisions of Article FOURTH hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, and unless the Board of Directors otherwise determines, vacancies resulting from death, resignation, retirement, disqualification, removal from office or other cause, and newly created directorships resulting from any increase in the authorized number of directors, may be filled only by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board of Directors, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires and until such director's successor shall have been duly elected and qualified. No decrease in the number of authorized directors constituting the Board of Directors of the Corporation shall shorten the term of any incumbent director. (D) Removal. Subject to the rights of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, any director may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of 80% of the combined voting power of the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class. SEVENTH. Elections of directors shall be by written ballot. EIGHTH. No director of this Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this Article EIGHTH shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. NINTH. No stockholder shall be entitled to cumulate votes (i.e., cast for any nominee for election to the Board of Directors of the Corporation a number of votes greater than the number of the stockholder's shares). TENTH. (A) In addition to any affirmative vote required by law, by this Restated Certificate of Incorporation, by a certificate filed under Section 151(g) of the General Corporation Law of the State of Delaware, or by the Bylaws, and except as otherwise expressly permitted in paragraph (B) of this Article TENTH, a Business Combination (as hereafter defined) with, for, or on behalf of, any Interested Stockholder (as hereafter defined) or any Affiliate or Associate (as hereafter defined) of such Interested Stockholder shall require the affirmative vote of at least 80% of the votes entitled to be cast by the holders of all the then outstanding Voting Stock (as hereafter defined), voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage of a separate class vote may otherwise be specified, by law or by any agreement between this Corporation and any national securities exchange or otherwise. (B) The provisions of paragraph (A) of this Article TENTH shall not be applicable to any particular Business Combination, and such Business Combination shall require only such vote, if any, as is required by law, or by any other provisions of this Restated Certificate of Incorporation, or by a certificate filed under Section 151(g) of the General Corporation Laws of the State of Delaware, or by the Bylaws, or by any agreement between this Corporation and any national securities exchange if (i) such Business Combination shall have been specifically approved by a majority of the Disinterested Directors (as hereafter defined) at the time or (ii) all the conditions specified in each of the following subparagraphs (1), (2), (3), (4), (5) and (6) are satisfied. (1) The aggregate amount of cash and the Fair Market Value (as hereafter defined) as of the Consummation Date (as hereafter defined) of any consideration other than cash to be received per share by holders of Voting Stock in such Business Combination, shall be at least equal to the highest amount determined under clauses (a) and (b) below: (a) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of such Interested Stockholder for any share of Voting Stock in connection with the acquisition by the Interested Stockholder of Beneficial Ownership (as hereafter defined) of shares of Voting Stock (i) within the five-year period immediately prior to the Announcement Date (as hereafter defined) or (ii) in the transaction or series of transactions in which it became an Interested Stockholder, whichever is higher, in either case adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to Voting Stock; or (b) the Fair Market Value per share of Voting Stock on the Announcement Date or the Determination Date (as hereafter defined), whichever is higher, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to Voting Stock. (2) The consideration to be received by holders of a particular class of series of outstanding Voting Stock shall be in cash or in the same form as previously has been paid by or on behalf of the Interested Stockholder in connection with its direct or indirect acquisition of Beneficial Ownership of shares of such class or series of Voting Stock. If the consideration so paid for share of any class or series of Voting Stock varied as to form, the form of consideration for such class or series of Voting Stock shall either be cash or the form used to acquire Beneficial Ownership of the largest number of shares of such class or series of Voting Stock acquired by the Interested Stockholder during the five-year period prior to the Announcement Date. If non-cash consideration is to be paid, the Fair Market Value of such non-cash consideration shall be determined on and as of the Consummation Date. (3) After the Determination Date and prior to the Consummation Date there shall have been (a) no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) payable in accordance with the terms of any outstanding Voting Stock; (b) no reduction in the annual rate of dividends paid on the Voting Stock (except as necessary to reflect any split or subdivision of the Voting Stock), except as approved by a majority of the Disinterested Directors; (c) an increase in such annual rate of dividends (as necessary to prevent any such reduction) in the event of any reclassification (including any reverse stock split or combination of shares), recapitalization, reorganization or any similar transaction that has the effect of reducing the number of outstanding shares of the Voting Stock, unless the failure so to increase such annual rate is approved by a majority of the Disinterested Directors; and (d) no transaction by which such Interested Stockholder has become the Beneficial Owner of any additional shares of Voting Stock except as part of the transaction that results in the Interested Stockholder becoming an Interested Stockholder and except in a transaction that, after giving effect thereto, would not result in any increase in the Interested Stockholder's percentage Beneficial Ownership of any class or series of Voting Stock. (4) After the Determination Date, such Interest Stockholder shall not have received the benefit, directly or indirectly (except as a stockholder of this Corporation, in proportion to its stockholding), of any loans, advances, guarantees or similar financial assistance or any tax credits or tax advantages provided by this Corporation (collectively, "Financial Assistance"), whether in anticipation of or in connection with such Business Combination or otherwise. (5) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act, rules or regulations, or subsequent provisions). The proxy or information statement shall contain on the first page thereof, in a prominent location, any statement as to the advisability or inadvisability of the Business Combination that the Disinterested Directors, or any of them, may desire to make, and, if deemed advisable by a majority of the Disinterested Directors, the proxy or information statement shall contain the opinion of an independent investment banking firm selected by a majority of the Disinterested Directors as to the fairness or lack of fairness of the terms of the Business Combination from a financial point of view to the holders of the outstanding shares of Voting Stock other than the Interested Stockholder and its Affiliates or Associates, such investment banking firm to be paid a reasonable fee for its services by this Corporation. (6) Such Interested Stockholder shall not have made any major change in this Corpeffect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. NINTH. No stockholder shall be entitled to cumulate votes (i.e., cast for any nominee for election to the Board of Directors of the Corporation a number of votes greater than the number of the stockholder's shares). TENTH. (A) In addition to any affirmative vote required by law, by this Restated Certificate of Incorporation, by a certificate filed under Section 151(g) of the General Corporation Law of the State of Delaware, or by the Bylaws, and except as otherwise expressly permitted in paragraph (B) of this Article TENTH, a Business Combination (as hereinafter defined) with, for, or on behalf of, any Interested Stockholder (as hereafter defined) or any Affiliate or Associate (as hereafter defined) of such Interested Stockholder shall require the affirmative vote of at least 80% of the votes entitled to be cast by the holders of all the then outstanding Voting Stock (as hereafter defined), voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage of a separate class vote may otherwise be specified, by law or by any agreement between this Corporation and any national securities exchange or otherwise. (B) The provisions of paragraph (A) of this Article TENTH shall not be applicable to any particular Business Combination, and such Business Combination shall require only such vote, if any, as is required by law, or by any other provisions of this Restated Certificate of Incorporation, or by a certificate filed under Section 151(g) of the General Corporation Laws of the State of Delaware, or by the Bylaws, or by any agreement between this Corporation and any national securities exchange if (i) such Business Combination shall have been specifically approved by a majority of the Disinterested Directors (as hererafter defined) at the time or (ii) all the conditions specified in each of the following subparagraphs (1), (2), (3), (4), (5) and (6) are satisfied. (1) The aggregate amount of cash and the Fair Market Value (as hereafter defined) as of the Consummation Date (as hereafter defined) of any consideration other than cash to be received per share by holders of Voting Stock in such Business Combination, shall be at least equal to the highest amount determined under clauses (a) and (b) below: (a) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of such Interested Stockholder for any share of Voting Stock in connection with the acquisition by the Interested Stockholder of Beneficial Ownership (as hereafter defined) of shares of Voting Stock (i) within the five-year period immediately prior to the Announcement Date (as hereafter defined) or (ii) in the trnasaction or series of transactions in which it became an Interested Stockholder, whichever is higher, in either case adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to Voting Stock; or (b) the Fair Market Value per share of Voting Stock on the Announcement Date or the Determination Date (as hereafter defined), whichever is higher, as adjusted for any subsequent stock split, stock dividend, subdivision or relcassification with respect to Voting Stock. (2) The consideration to be received by holders of a particular class of series of outstanding Voting Stock shall be in cash or in the same form as previously has been paid by or on behalf of the Interested Stockholder in connection with its direct or indirect acquisition of Beneficial Ownership of shares of such class or series of Voting Stock. If the consideration so paid for share of any class or series of Voting Stock varied as to form, the form of consideration for such class or series of Voting Stock shall either be cash or the form used to acquire Beneficial Ownership of the largest number of shares of such class or series of Voting Stock acquired by the Interested Stockholder during the five-year period prior to the Announcement Date. If non-cash consideration is to be paid, the Fair Market Value of such non-cash consideration shall be determined on and as of the Consummation Date. (3) After the Determination Date and prior to the Consummation Date there shall have been (a) no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) payable in accordance with the terms of any outstanding Voting Stock; (b) no reduction in the annual rate of dividends paid on the Voting Stock (except as necessary to reflect any split or subdivision of the Voting Stock), except as approved by a majority of the Disinterested Directors; (c) an increase in such annual rate of dividends (as necessary to prevent any such reduction) in the event of any reclassification (including any reverse stock split or combination of shares), recapitalization, reorganization or any similar transaction that has the effect of reducing the number of outstanding shares of the Voting Stock, unless the failure so to increase such annual rate is approved by a majority of the Disinterested Directors; and (d) no transaction by which such Interested Stockholder has become the Beneficial Owner of any additional shares of Voting Stock except as part of the transaction that results in the Interested Stockholder becoming an Interested Stockholder and except in a transaction that, after giving effect thereto, would not result in any increase in the Interested Stockholder's percentage Beneficial Ownership of any class or series of Voting Stock. (4) After the Determination Date, such Interest Stockholder shall not have received the benefit, directly or indirectly (except as a stockholder of this Corporation, in proporation to its stockholding), of any loans, advances, guarantees or similar financial assistance or any tax credits or tax advantages provided by this Corporation (collectively, "Financial Assistance"), whether in anticipation of or in connection with such Business Combination or otherwise. (5) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to stockholders of the Corporation at least 30 days prior to the consummation of such Business Combinaton (whether or not such proxy or information statement is required to be mailed pursuant to such Act, rules or regulations, or subsequent provisions). The proxy or information statement shall contain on the first page thereof, in a prominent location, any statement as to the advisability or inadvisability of the Business Combination that the Disinterested Directors, or any of them, may desire to make, and, if deemed advisable by a majority of the Disinterested Directors, the proxy or information statement shall contain the opinion of an independent investment banking firm selected by a majority of the Disinterested Directors as to the fairness or lack of fairness of the terms of the Business Combination from a financial point of view to the holders of the outstanding shares of Voting Stock other than the Interested Stockholder and its Affiliates or Associates, such investment banking firm to be paid a reasonable fee for its services by this Corporation. (6) Such Interested Stockholder shall not have made any major change in this Corporation's business or equity capital structure without the approval of a majority of the Disinterested Directors. (C) The following definitions shall apply with respect to this Article TENTH: (1) The terms "Affiliate" and "Associate" shall have the respective meanings ascribed to those terms in Rule 12-b2 under the Securities Exchange Act of 1934, as amended, and as in effect on the date that this provision of the Restated Certificate of Incorporation of this Corporation is approved by the stockholders (the term "registrant" in said Rule 12b-2 meaning in this case the Corporation). (2) The term "Announcement Date" with respect to any Business Combination means the date of the first public announcement of the proposal of such Business Combination. (3) A person shall be a "Beneficial Owner" of, or have "Beneficial Ownership" of, or "Beneficially Own," any Voting Stock over which such person or any of its Affiliates or Associates, directly or indirectly, through any contract, arrangement, understanding or relationship, has or shares or, upon the exercise of any conversion right, exchange right, warrant, option or similar interest (whether or not then exercisable) would have or share, either (a) voting power (including the power to vote or to direct the voting) of such security or (b) investment power (including the power to dispose or direct the disposition) of such security. For the purposes of determining whether a person is an Interested Stockholder, the number of shares of Voting Stock deemed to be outstanding shall include any shares Beneficially Owned by such person even thought not actually outstanding, but shall not include any other shares of Voting Stock which are not outstanding but which may be issuable to other persons pursuant to any agreement, arrangement or understanding, or upon exercise of any conversion right, exchange right, warrant, option or similar interest. (4) The term "Business Combination" shall mean: (a) any merger or consolidation of this Corporation or any Subsidiary (as hereafter defined) with (i) any Interested Stockholder (as hereafter defined) or (ii) any other corporation (whether or not itself an Interested Stockholder) which after such merger or consolidation would be an Affiliate or Associate of an Interested Stockholder; or (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition on or security agreement, investment, loan, advance, guarantee, agreement to purchase, agreement to pay, extension of credit, joint venture participation or other arrangement (in one transaction or a series of related transactions) with or for the benefit of any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder, involving any assets, securities, or commitments of this Corporation, any Subsidiary or any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder which, together with all other such arrangements (including all contemplated future events) have an aggregate Fair Market Value as hereafter defined) and/or involve aggregate commitments of $5,000,000 or more; or (c) the issuance or transfer by this Corporation or any Subsidiary (in one transaction or a series of related transactions) to an Interested Stockholder or Associate or Affiliate of an Interested Stockholder of any securities of this Corporation or any Subsidiary in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value as of the Announcement Date of $5,000,000 or more, other than the issuance of securities upon the conversion or exchange of securities of this Corporation or in exchange for securities of any Subsidiary which were acquired by an Interested Stockholder from this Corporation or a Subsidiary in a Business Combination which was approved by a vote of the shareholders pursuant to this Article TENTH; or (d) the adoption of any plan or proposal for the liquidation or dissolution of this Corporation; or (e) any reclassification of any securities of this Corporation (including any reverse stock split), any recapitalization of the Voting Stock of this Corporation, any merger or consolidation of this Corporation with or into any of its Subsidiaries, or any other transaction (whether or not with or otherwise involving any Interested Stockholder) that has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of Voting Stock or series thereof of the Corporation or of any Subsidiary Beneficially Owned by any Interested Stockholder or Associate or Affiliate of any Interested Stockholder or as a result of which the stockholders of the Corporation would cease to be stockholders of a corporation having, as part of its certificate of incorporation, provisions to the same effect as this Article TENTH and the provisions of Article ELEVENTH of this Restated Certificate of Incorporation relating to the provisions of this Article TENTH; or (f) any agreement, contract, or other arrangement providing for one or more of the actions specified in the foregoing paragraphs (a) through (e), or any series of transactions which, if taken together, would constitute one or more of the actions specified in the foregoing paragraphs (a) through (e). (5) The term "Consummation Date" means the date of the consummation of a Business Combination. (6) The term "Determination Date" in respect to an Interested Stockholder means the date on which such Interested Stockholder first became an Interested Stockholder. (7) The term "Disinterested Director" with respect to a Business Combination means any member of the Board of Directors of this Corporation who is not an Interested Stockholder or an Affiliate or Associate of, and was not directly or indirectly a nominee of, any Interested Stockholder involved in such Business Combination or any Affiliate or Associate of such Interested Stockholder and who either (a) was a member of the Board of Directors prior to the time that such Interested Stockholder became an Interested Stockholder, or (b) is a successor of a Disinterested Director and was nominated to succeed a Disinterested Director by a majority of the Disinterested Directors at the time of his nomination. Any reference to "Disinterested Directors" shall refer to a single Disinterested Director if there be but one. Any matter referred to as requiring approval of, or having been approved by, a majority of the Disinterested Directors shall mean the matter requires the approval of, or has been approved by, the Board without giving effect to the vote of any Director who is not a Disinterested Director and with the affirmative vote of a majority of the Disinterested Directors. (8) The term "Fair Market Value" as of any particular date means: (a) in the case of cash, the amount of such cash; (b) in the case of stock (including Voting Stock), the highest closing price per share of such stock during the thirty-day period immediately preceding the date in question on the largest United States securities exchange registered under the Securities Exchange Act of 1934, as amended, on which such stock is listed or, if such stock is not listed on any such exchange, the highest last sales price as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") during the thirty-day period immediately preceding the date in question if the stock is a National Market System security or, if such stock is not a National Market System security, the highest reported closing bid quotation for a share of such stock during the thirty-day period preceding the date in question on NASDAQ or any successor quotation reporting system or, if quotations are not available in such system, as furnished by the National Quotation Bureau Incorporated or any similar organization furnishing quotations, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a majority of the Disinterested Directors in good faith; and (c) in the case of stock of any class or series which is not traded on any securities exchange or in the over-the-counter market, or in the case of property other than cash or stock, or in the case of Financial Assistance, the fair market value of such stock, property or Financial Assistance, as the case may be, on the date in question as determined by a majority of the Disinterested Directors in good faith. (9) The term "Interested Stockholder" shall mean any person, other than this Corporation, any Subsidiary or any employee benefit plan of this Corporation or any Subsidiary, who or which: (a) is, or has announced or publicly disclosed a plan or intention to become, the Beneficial Owner, directly or indirectly, of shares of Voting Stock representing 15% or more of the total votes which all of the then-outstanding shares of Voting Stock are entitled to cast in the election of directors; or (b) is an Affiliate or Associate of any person described in Subparagraph 9(a) at any time during the five-year period immediately preceding the date in question; or (c) acts with any other person as a partnership, limited partnership, syndicate, or other group for the purpose of acquiring, holding or disposing of securities of this Corporation, and such group is the Beneficial Owner, directly or indirectly, of shares of Voting Stock representing 15% or more of the total votes which all of the then-outstanding share of Voting Stock are entitled to cast in the election of directors. Any reference to a particular Interested Stockholder involved in a Business Combination shall also refer to any Affiliate or Associate thereof, any predecessor thereto and any other person acting as a member of a partnership, limited partnership, syndicate group with such particular Interested Stockholder within the meaning of the foregoing clause (c) of this subparagraph (9). (10) A "person" shall mean any individual, firm, company, corporation, (which shall include a business trust), partnership, joint venture, trust or estate, association or other entity. (11) The term "Subsidiary" in respect of this Corporation means any corporation or partnership of which a majority of any class of its equity securities is owned, directly or indirectly, by this Corporation. (12) The term "Voting Stock" shall mean all shares of capital stock that entitle the holder to vote for the election of directors, including, without limitation, this Corporation's common stock. (D) A majority of the Disinterested Directors shall have the power and duty to determine, on the basis of information known to them after reasonably inquiry, all facts necessary to determine compliance with this Article TENTH, including, without limitation (1) whether a person is an Interested Stockholder, (2) the number of shares of Voting Stock Beneficially Owned by any person, (3) whether a person is an Affiliate or Associate of another person, (4) whether the requirements of paragraph (B) of this Article TENTH have been met with respect to any Business Combination, (5) whether the proposed transaction is with, or proposed by, or on behalf of an Interested Stockholder or an Affiliate or Associate of an Interested Stockholder, and (6) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by this Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $5,000,000 or more. The good faith determination of a majority of the Disinterested Directors on such matters shall be conclusive and binding for all purposes of this Article TENTH. (E) Nothing contained in this Article TENTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. (F) The fact that any Business Combination complies with paragraph (B) of this Article TENTH shall not be construed to impose any fiduciary duty, obligation or responsibility on the Board of Directors, or any member thereof, to approve such Business Combination or recommend its adoption or approval to the stockholders of this Corporation, nor shall such compliance limit, prohibit or otherwise restrict in any manner the Board, or any member thereof, with respect to evaluations of or actions and responses taken with respect to such Business Combination. (G) For purposes of this Article TENTH, a Business Combination or any proposal to amend, repeal or adopt any provision of this Restated Certificate of Incorporation inconsistent with this Article TENTH (collectively, "Proposed Action") is presumed to have been proposed by, or on behalf of, an Interested Stockholder or an Affiliate or Associate of an Interested Stockholder or a person who thereafter would become such if (1) after the Interested Stockholder became such, the Proposed Action is proposed following the election of any director of this Corporation who, with respect to such Interested Stockholder, would not qualify to serve as a Disinterested Director or (2) such Interested Stockholder, Affiliate, Associate or person votes for or consents to the adoption of any such Proposed Action, unless as to such Interested Stockholder, Affiliate, Associate or person, a majority of the Disinterested Directors makes a good faith determination that such Proposed Action is not proposed by or on behalf of such Interested Stockholder, Affiliate, Associate or person, based on information known to them after reasonably inquiry. ELEVENTH. Except as otherwise fixed by or pursuant to the provisions of Article FOURTH hereof relating to the rights of holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation with respect to such class or series of stock, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such stockholders. TWELFTH. (A) This Corporation reserves the right at any time and from time to time to amend, alter, change or repeal any provisions contained herein, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law, and all rights, preferences, and privileges of whatsoever nature conferred upon shareholders, directors, or any other person whomsoever by or pursuant to the Restated Certificate of Incorporation in its present form or as hereafter are granted, subject to the rights reserved in this Article TWELFTH. (B) In addition to any requirements of law and any other provisions hereof (and notwithstanding the fact that approval by a lesser vote may be permitted by law or any other provision hereof), the affirmative vote of the holders of 80% or more of the combined voting power of the then-outstanding shares of Voting Stock, voting together as a single class, shall be required to amend, alter or repeal, or adopt any provision inconsistent with, this Article TWELFTH or Articles FIFTH, SIXTH, NINTH, TENTH and ELEVENTH hereof. IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which only restates and integrates and does not further amend the provisions of the Certificate of Incorporation of this Corporation as heretofore amended or supplemented or restated, there being no discrepancies between those provisions and the provisions of this Restated Certificate of Incorporation, and it having been duly adopted by the Corporation's Board of Directors in accordance with Section 245 of the General Corporation Law of the State of Delaware, has been executed by its duly authorized officers on this 29th day of July, 1987. EX-3 3 EXHIBIT 3.6 AMENDED AND RESTATED BYLAWS OF THE CHARLES SCHWAB CORPORATION ARTICLE I OFFICES Section 1.01. Registered Office. The registered office of The Charles Schwab Corporation (the "Corporation") in the State of Delaware shall be at 1209 Orange Street, Wilmington, Delaware, and the name of the registered agent at that address shall be the Corporation Trust Company. Section 1.02. Principal Office. The principal office for the transaction of the business of the Corporation shall be at 101 Montgomery Street, San Francisco, California. The Board of Directors (hereafter called the "Board") is hereby granted full power and authority to change said principal office from one location to another. Section 1.03. Other Offices. The Corporation may also have an office or offices at such other place or places, either within or without the State of Delaware, as the Board may from time to time determine or as the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 2.01. Annual Meetings. Annual meetings of the stockholders of the Corporation for the purpose of electing directors and for the transaction of such other proper business as may come before such meetings shall be held each year on a date and at a time designated by the Board. Section 2.02. Special Meetings. Special meetings of the stockholders for any purpose or purposes may be called by the Chairman of the Board, the Board or a committee of the Board which has been duly designated by the Board and whose powers and authority, as provided in a resolution of the Board or in these Bylaws, include the power to call such meetings. Unless otherwise prescribed by statute, the Certificate of Incorporation or these Bylaws, special meetings may not be called by any other person or persons. No business may be transacted at any special meeting of stockholders other than such business as may be designated in the notice calling such meeting. Section 2.03. Place of Meeting. The Board of Directors, the Chairman of the Board, or a committee of the Board, as the case may be, may designate the place of meeting for any annual meeting or for any special meeting of the stockholders called by the Board of Directors, the Chairman of the Board, or a committee of the Board. If no designation is so made, the place of meeting shall be the principal office of the Corporation. Section 2.04. Notice of Meeting. Written or printed notice, stating the place, day and hour of the meeting and the purpose or purposes for which the meeting is called, shall be delivered by the Corporation not less than ten (10) days nor more than sixty (60) days before the date of the meeting, either personally or by mail, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail with postage thereon prepaid, addressed to the stockholder at his address as it appears on the stock transfer books of the Corporation. Such further notice shall be given as may be required by law. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Meetings may be held without notice if all stockholders entitled to vote are present, or if notice is waived by those not present in accordance with Section 8.02 of these Bylaws. Any previously scheduled meeting of the stockholders may be postponed, and (unless the Certificate of Incorporation otherwise provides) any special meeting of the stockholders may be canceled, by resolution of the Board upon public notice given prior to the date previously scheduled for such meeting of stockholders. Section 2.05. Quorum and Adjournment. Except in the case of any meeting for the election of directors summarily ordered as provided by law, the holders of record of a majority in voting interest of the shares of stock of the Corporation entitled to be voted thereat, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of the stockholders of the Corporation or any adjournment thereof. Where a separate vote by a class or classes is required, a majority of the outstanding shares of such class or classes, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter and the affirmative vote of the majority of the shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class. In the absence of a forum at any meeting or any adjournment thereof, a majority in voting interest of the shareholders present in person or by proxy and entitled to vote thereat or, in the absence therefrom of all stockholders, any officer entitled to preside at, or to act as secretary of such meeting may adjourn such meeting from time to time. The Chairman of the meeting or a majority of the shares so represented may adjourn the meeting from time to time, whether or not there is such a quorum. No notice of the time and place of adjourned meetings need be given except as required by law. No business may be transacted at a meeting in the absence of a quorum other than the adjournment of such meeting, except that if a quorum is present at the commencement of a meeting, business may be transacted until the meeting is adjourned even though the withdrawal of stockholders results in less than a quorum. Section 2.06. Notice of Stockholder Business and Nominations. (a) Annual Meetings of Stockholders. (i) Nominations of persons for election to the Board and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (A) pursuant to the Corporation's notice of meeting, (B) by or at the direction of the Board or (C) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this Bylaw, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Bylaw. (ii) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (C) of paragraph (a)(i) of this Bylaw, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 60th day nor earlier than the close of business on the 90th day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth (A) as to each person whom the stockholder proposes to nominate for election or re-election as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (1) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner and (2) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner. (iii) Notwithstanding anything in the second sentence of paragraph (a)(ii) of this Bylaw to the contrary, in the event that the number of directors to be elected to the Board of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board at least 70 days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Bylaw shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. (b) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation's notice of meeting (i) by or at the direction of the Board or (ii) provided that the Board has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Bylaw, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Bylaw. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation's notice of meeting, if the stockholder's notice required by paragraph (a)(ii) of this Bylaw shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a stockholder's notice as described above. (c) General. (i) Only such persons who are nominated in accordance with the procedures set forth in this Bylaw shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Bylaw. Except as otherwise provided by law, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Bylaw and, if any proposed nomination or business is not in compliance with this Bylaw, to declare that such defective proposal or nomination shall be disregarded. (i) For purposes of this Bylaw, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (ii) Notwithstanding the foregoing provisions of this Bylaw, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights (A) of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (B) of the holders of any series of Preferred Stock to elect directors under specified circumstances. Section 2.07. Voting. (a) Each stockholder shall, at each meeting of the stockholders, be entitled to vote in person or by proxy each share or fractional share of the stock of the Corporation having voting rights on the matter in question and which shall have been held by him and registered in his name on the books of the Corporation: (i) on the date fixed pursuant to Section 6.05 of these Bylaws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting, or (ii) if no such record date shall have been so fixed, then (a) at the close of business on the day next preceding the day on which notice of the meeting shall be given or (b) if notice of the meeting shall be waived, at the close of business on the day next preceding the day on which the meeting shall be held. (b) Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors in such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. Nothing in this section shall be construed as limiting the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. Persons holding stock of the Corporation in a fiduciary capacity shall be entitled to vote such stock. Persons whose stock is pledging shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation he shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent such stock and vote thereon. Stock having voting power standing of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or with respect to which two or more persons have the same fiduciary relationship, shall be voted in accordance with the provisions of the General Corporation Law of the State of Delaware. (c) Any such voting rights may be exercised by the stockholder entitled thereto in person or by his proxy appointed by an instrument in writing, subscribed by such stockholder or by his attorney thereunto authorized and delivered to the secretary of the meeting; provided, however, that no proxy shall be voted or acted upon after three years from its date unless said proxy shall provide for a longer period. The attendance at any meeting of a stockholder who may theretofore have given a proxy shall not have the effect of revoking the same unless he shall in writing so notify the secretary of the meeting prior to the voting of the proxy. At any meeting of the stockholders all matters, except as otherwise provided in the Certificate of Incorporation, in these Bylaws or by law, shall be decided by the vote of a majority of the shares present in person or by proxy and entitled to vote thereat and thereon, a quorum being present. The vote at any meeting of the stockholders on any questions shall be by ballot and each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and it shall state the number of shares voted. The chairman of the meeting shall fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting. Section 2.08. List of Stockholders. The Secretary of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the duration thereof, and may be inspected by any stockholder who is present. Section 2.09. Inspectors of Election. The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to act at the meeting. If no inspector or alternative is able to act at a meeting of stockholders, the chairman of such meeting shall appoint one or more inspectors to act at the meeting. Each inspector so appointed shall first sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall ascertain the number of shares outstanding and the voting power of each, determine the shares represented at a meeting and the validity of proxies and ballots, count all votes and ballots, determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. Reports of the inspectors shall be in writing and subscribed and delivered by them to the Secretary of the Corporation. The inspectors may appoint or retain other persons or entities to assist them in the performance of their duties as inspectors. The inspectors need not be stockholders of the Corporation, and any officer of the Corporation may be an inspector on any question other than a vote for or against a proposal in which he shall have a material interest. Section 2.10. No Stockholder Action by Written Consent. Except as otherwise fixed by or pursuant to the provisions of Article FOURTH of the Certificate of Incorporation relating to the rights of holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation with respect to such class or series of stock, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such stockholders. ARTICLE III BOARD OF DIRECTORS Section 3.01. General Powers. The property, business and affairs of the Corporation shall be managed by or under the direction of the Board. Section 3.02. Number, Election and Terms. Except as otherwise fixed by or pursuant to the provisions of Article FOURTH of the Certificate of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, the number of the directors of the Board of the Corporation shall be fixed from time to time exclusively pursuant to a resolution adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies. Commencing with the 1996 annual meeting of stockholders, the directors, other than those who may be elected by the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as is reasonably possible, one class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1997, the second class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1998, and the third class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1999, with each director to hold office to hold office until his or her successor is duty elected and qualified. At each annual meeting of the stockholders of the Corporation, commencing with the 1997 annual meeting, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election, with each director to hold office until his or her director shall have been duly elected and qualified. Section 3.03. Procedure for Election of Directors; Required Vote. Election of directors at all meetings of the stockholders at which directors are to be elected shall be by ballot, and, except as otherwise fixed by or pursuant to the provisions of Article FOURTH of the Certificate of Incorporation relating to the rights to the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, a plurality of the votes cast thereat shall elect directors. Section 3.04. Resignations. Any director of the Corporation may resign at any time by giving written notice to the Board or to the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time be not specified, it shall take effect immediately upon its receipt; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 3.05. Removal. Subject to the rights of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, any director may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of 80% of the combined voting power of the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class. Section 3.06. Vacancies. Subject to applicable law and except as otherwise provided for or fixed by or pursuant to the provisions of Article FOURTH of the Certificate of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, and unless the Board of Directors otherwise determines, vacancies resulting from death, resignation, retirement, disqualification, removal from office or other cause, and newly created directorships resulting from any increase in the authorized number of directors, may be filled only by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board of Directors, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires and until such director's successor shall have been duly elected and qualified. No decrease in the number of authorized directors constituting the Board of Directors of the Corporation shall shorten the term of any incumbent director. Section 3.07. Place of Meeting, Etc. The Board may hold any of its meetings at such place or places within or without the State of Delaware as the Board may from time to time by resolution designate or as shall be designated by the person or persons calling the meeting or in the notice or a waiver of notice of any such meeting. Directors may participate in any regular or special meeting of the Board by means of conference telephone or similar communications equipment pursuant to which all persons participating in the meeting of the Board can hear each other, and such participation shall constitute presence in person at such meeting. Section 3.08. First Meeting. The Board shall meet as soon as practicable after each annual election of directors and notice of such first meeting shall not be required. Section 3.09. Regular Meetings. Regular meetings of the Board may be held at such times as the Board shall from time to time by resolution determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting shall be held at the same hour and place on the next succeeding business day not a legal holiday. Except as provided by law, notice of regular meetings need not be given. Section 3.10. Special Meetings. Special meetings of the Board may be called by the Chairman of the Board of Directors or the President. Notice of any special meeting of directors shall be given to each director at his business or residence in writing by hand delivery, first-class or overnight mail or courier service, telegram or facsimile transmission, or orally by telephone. If mailed by first-class mail, such notice shall be deemed adequately delivered when deposited in the United States mails so addressed, with postage thereon prepaid, at least five (5) days before such meeting. If by telegram, overnight mail or courier service, such notice shall be deemed adequately delivered when the telegram is delivered to the telegraph company or the notice is delivered to the overnight mail or courier service company at least twenty-four (24) hours before such meeting. If by facsimile transmission, such notice shall be deemed adequately delivered when the notice is transmitted at least twelve (12) hours before such meeting. If by telephone or by hand delivery, the notice shall be given at least twelve (12) hours prior to the time set for the meeting. Such notice may be waived by any director and any meeting shall be a legal meeting without notice having been given if all the directors shall be present thereat or if those not present shall, either before or after the meeting, sign a written waiver of notice of, or a consent to, such meeting or shall after the meeting sign the approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or be made a part of the minutes of the meeting. Section 3.11. Quorum and Manner of Acting. Except as otherwise provided in the Certificate of Incorporation or these Bylaws or by law, the presence of a majority of the total number of directors then in office shall be required to constitute a quorum for the transaction of business at any meeting of the Board. Except as otherwise provided in the Certificate of Incorporation or these Bylaws or by law, all matters shall be decided at any such meeting, a quorum being present, by the affirmative votes of a majority of the directors present. In the absence of a quorum, a majority of directors present at any meeting may adjourn the same from time to time until a quorum shall be present. Notice of any adjourned meeting need not be given. The directors shall act only as a Board, and the individual directors shall have no power as such. Section 3.12. Action by Consent. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee. Section 3.13. Compensation. The directors shall receive only such compensation for their services as directors as may be allowed by resolution of the Board. The Board may also provide that the Corporation shall reimburse each such director for any expense incurred by him on account of his attendance at any meetings of the Board or Committees of the Board. Neither the payment of such compensation nor the reimbursement of such expenses shall be construed to preclude any director from serving the Corporation or its subsidiaries in any other capacity and receiving compensation therefor. Section 3.14. Executive Committee. There may be an Executive Committee of two or more directors appointed by the Board, who may meet at stated times, or in notice to all by any of their own number, during the intervals between the meetings of the Board; they shall advise and aid the officers of the Corporation in all matters concerning its interest and the management of its business, and generally perform such duties and exercise such powers as may be directed or delegated by the Board from time to time. The Board of Directors may also designate, if it desires, other directors as alternate members who may replace any absent or disqualified member of the Executive Committee at any meeting thereof. To the full extent permitted by law, the Board may delegate to such committee authority to exercise all the powers of the Board while the Board is not in session. Vacancies in the membership of the committee shall be filled by the Board at a regular meeting or at a special meeting for that purpose. In the absence or disqualification of any member of the Executive Committee and any alternate member in his or her place, the member or members of the Executive Committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may, by unanimous vote, appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. The Executive Committee shall keep written minutes of its meeting and report the same to the Board when required. The provisions of Sections 3.09, 3.10, 3.11 and 3.12 of these Bylaws shall apply, mutatis mutandis, to any Executive Committee of the Board. Section 3.15. Other Committees. The Board may, by resolution passed by a majority of the whole Board, designate one or more other committees, each such committee to consist of one or more of the directors of the Corporation. The Board of Directors may also designate, if it desires, other directors as alternate members who may replace any absent or disqualified member of any such committee at any meeting thereof. To the full extent permitted by law, any such committee shall have and may exercise such powers and authority as the Board may designate in such resolution. Vacancies in the membership of a committee shall be filled by the Board at a regular meeting or a special meeting for that purpose. Any such committee shall keep written minutes of its meeting and report the same to the Board when required. In the absence or disqualification of any member of any such committee and any alternate member or members of any such committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may, by unanimous vote, appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. The provisions of Section 3.09, 3.10, 3.11 and 3.12 of these Bylaws shall apply, mutatis mutandis, to any such committee of the Board. ARTICLE IV OFFICERS Section 4.01. Number. The officers of the Corporation shall be a Chairman of the Board, a President, one or more Vice Presidents, a Secretary and a Treasurer. The Chief Executive Officer of the corporation shall be such officer as the Board shall from time to time designate. The Board may also elect one or more Assistant Secretaries and Assistant Treasurers. A person may hold more than one office providing the duties thereof can be consistently performed by the same person. Section 4.02. Other Officers. The Board may appoint such other officers as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. Section 4.03. Election. Each of the officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 4.02 or Section 4.05 of this Article, shall be chosen annually by the Board and shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified. Section 4.04. Salaries. The salaries of all executive officers of the Corporation shall be fixed by the Board or by such committee of the Board as may be designated from time to time by a resolution adopted by a majority of the Board. Section 4.05. Removal; Vacancies. Subject to the express provisions of a contract authorized by the Board, any officer may be removed, either with or without cause, at any time by the Board or by any officer upon whom such power of removal may be conferred by the Board. Any vacancy occurring in any office of the Corporation shall be filled by the Board. Section 4.06. The Chairman of the Board. The Chairman of the Board shall preside at all meetings of the stockholders and directors and shall have such other powers and duties as may be prescribed by the Board or by applicable law. He shall be an ex-officio member of standing committees, if so provided in the resolutions of the Board appointing the members of such committees. Section 4.07. The President. The President shall be the managing officer of the Corporation. Subject to the control of the Board, the President shall have general supervision, control and management of the affairs and business of the Corporation, and general charge and supervision of all offices, agents and employees of the Corporation; shall see that all orders and resolutions of the Board are carried into effect; shall, in the absence of the Chairman of the Board, preside at all meetings of the stockholders and Board; and in general shall exercise all powers and perform all duties incident to President and managing officer of the Corporation and such other powers and duties as may from time to time be assigned to him by the Board or as may be prescribed in these Bylaws. The President may execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board to some other officer or agent of the Corporation. The President shall be an ex-officio member of standing committees, if so provided in the resolutions of the Board appointing the members of such committees. Section 4.08. The Vice Presidents. In the absence of the President or in the event of his inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents shall perform such other duties and have such other powers as the Board may from time to time prescribe. Section 4.09. The Secretary and Assistant Secretary. The Secretary shall attend all meetings of the Board and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the Board in a book to be kept for that purpose and shall perform like duties for the standing and special committees of the Board when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board, and shall perform such other duties as may be prescribed by the Board or President, under whose supervision he shall act. He shall have custody of the corporate seal of the Corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and, when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The Board may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the Board (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his inability or his refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board may from time to time prescribe. Section 4.10. The Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board. He shall disburse the funds of the Corporation as may be ordered by the Board, making proper vouchers for such disbursements, and shall render to the President and the Board, at its regular meetings, or when the Board so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation. If required by the Board , he shall give the Corporation a bond (which shall be renewed every six (6) years) in such sum and with such surety or sureties as shall be satisfactory to the Board for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 4.11. The Assistant Treasurer. The Assistant Treasurer, or if there be more than one, the assistant treasurers in the order determined by the Board (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board may from time to time prescribe. ARTICLE V CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. Section 5.01. Checks, Drafts, Etc. All checks, drafts or other orders for payment of money, notes or other evidence of indebtedness payable by the Corporation and all contracts or agreements shall be signed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board. Each such person or persons shall give such bond, if any, as the Board may require. Section 5.02. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board may select, or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. For the purpose of deposit and for the purpose of collection for the account of the Corporation, the President, any Vice President or the Treasurer (or any other officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation who shall from time to time be determined by the Board) may endorse, assign and deliver checks, drafts and other orders for the payment of money which are payable to the order of the Corporation. Section 5.03. General and Special Bank Accounts. The Board may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as the Board may select or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. The Board may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these Bylaws, as it may deem expedient. ARTICLE VI SHARES AND THEIR TRANSFER Section 6.01. Certificates for Stock. Every owner of stock of the Corporation shall be entitled to have a certificate or certificates, to be in such form as the Board shall prescribe, certifying the number and class of shares of the stock of the Corporation owned by him. The certificates representing shares of such stock shall be numbered in the order in which they shall be issued and shall be signed in the name of the Corporation by the Chairman, Vice Chairman or President or a Vice President, and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer. Any of or all of the signatures on the certificates may be a facsimile. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon, any such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the Corporation with the same effect as though the person who signed such certificate, or whose facsimile signature shall have been placed thereupon, were such officer, transfer agent or registrar at the date of issue. A record shall be kept of the respective names of the persons, firms or corporations owning the stock represented by such certificates, the number and class of shares represented by such certificates, respectively, and the respective dates thereof, and in case of cancellation, the respective dates of cancellation. Every certificate surrendered to the Corporation for exchange or transfer shall be canceled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so canceled, except in cases provided for in Section 6.04. Section 6.02. Transfers of Stock. Transfers of shares of stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary, or with a transfer clerk or a transfer agent appointed as provided in Section 6.03, and upon surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact shall be so expressed in the entry of transfer if, when the certificate or certificates shall be presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. Section 6.03. Regulations. The Board may make such rules and regulations as it may deem expedient, not inconsistent with these Bylaws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer clerks or one or more transfer agents and one or more registrars, and may require all certificates for stock to bear the signature or signatures of any of them. Section 6.04. Lost, Stolen, Destroyed, and Mutilated Certificates. In any case of loss, theft, destruction or mutilation of any certificate of stock, another may be issued in its place upon proof of such loss, theft, destruction or mutilation and upon the giving of a bond of indemnity to the Corporation in such form and in such sum as the Board may direct; provided, however, that a new certificate may be issued without requiring any bond when, in the judgment of the Board, it is proper so to do. Section 6.05. Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders, or to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action except for consenting to corporate action in writing without a meeting, the Board of Directors may fix a record date, which shall not precede the date the resolution fixing the record date is adopted and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of any meeting of stockholders, nor more than sixty (60) days prior to the time for such other action as herein before described; provided, however, that if no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held and, for determining stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock or any other lawful action except for consenting to corporate action in writing without a meeting, the record date shall be the close of business on the day on which the Board of Directors adopts a resolution relating thereto. For purposes of determining the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted, as of which shall be determined the stockholders of record entitled to consent to corporate action in writing without a meeting. If no record date has been fixed by the Board of Directors and no prior action by the Board of Directors is required by the Delaware General Corporation Law, the record date shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation in the manner prescribed in Section 2.09 hereof. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by the Delaware General Corporation Law with respect to the proposed action, the record date for determining stockholders entitled to consent to corporate action writing shall be the close of business on the day in which the Board of Directors adopts the resolutions taking such prior action. ARTICLE VII INDEMNIFICATION Section 7.01. Indemnification of Officers, Directors, Employees and Agents; Insurance. (a) Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitees in connection therewith and such indemnification shall continue as to an indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the indemnitee's heirs, executors and administrators; provided, however, that except as provided in paragraph (c) hereof with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized or is subsequently ratified by the Board of Directors of the Corporation. (b) Right to Advancement of Expenses. The right to indemnification conferred in paragraph (a) of this Section shall include the right to be paid by the Corporation the expenses (including attorneys' fees) incurred in defending any proceeding for which such right to indemnification is applicable in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that, if the Delaware General Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this Section or otherwise. (c) Right of Indemnitee to Bring Suit. The rights to indemnification and to the advancement of expenses conferred in paragraphs (a) and (b) of this Section shall be a contract between the Corporation and each director or officer of the Corporation who serves or served in such capacity at any time while this Article VII is in effect. Any repeal or modification of this Article VII or any repeal or modification of relevant provisions of the Delaware General Corporation Law or any other applicable laws shall not in any way diminish any rights to indemnification of such director or officer or the obligations of the Corporation hereunder. If a claim under paragraph (a) or (b) of this Section is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) in any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its board of directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Section or otherwise shall be on the Corporation. (d) Non-Exclusivity of Rights. The rights to indemnification and to the advancement of expenses conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Corporation's certificate of incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. (e) Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law, provided that such insurance is available on acceptable terms, which determination shall be made by the Board of Directors or by a committee thereof. (f) Indemnification of Employees and Agents of the Corporation. The Corporation may, to the extent and in accordance with the terms authorized from time to time by the board of directors, grant rights to indemnification, and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Section with respect to the indemnification and advancement of expenses of directors and officers of he Corporation. (g) For purposes of this Section, references to "the Corporation" shall include, in addition to the Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Section with respect to the Corporation as he would have with respect to such constituent corporation if its separate existence had continued. (h) For purposes of this Section, references to "serving at the request of the Corporation" shall include any service as director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Section. (i) Notwithstanding anything else in this Article VII, in the event that the express provisions of the Delaware General Corporation Law relating to indemnification of, or advancement of expenses by the Corporation to, persons eligible for indemnification or advancement of expenses under this Article VII are amended to permit broader indemnification or advancement of expenses, then the Corporation will provide such indemnification and advancement of expenses to the maximum extent permitted by the Delaware General Corporation Law. (j) If this Article VII or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each indemnitee of the Corporation as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Article VII that shall not have been invalidated and to the full extent permitted by applicable law. (k) Notwithstanding anything else in this Article VII, at any and all times at which the Corporation is subject to the provisions of the California Corporations Code by virtue of the operation of Section 2115 thereof or otherwise, the indemnification and advancement of expenses provided by, or granted pursuant to, this Article VII shall be in all respects limited by the provisions of the California Corporations Code made applicable by such Section 2115 (or such other provision of California law). ARTICLE VIII MISCELLANEOUS Section 8.01. Seal. The Board shall provide a corporate seal, which shall be in the form of a circle and shall bear the name of the Corporation and words and figures showing that the Corporation was incorporated in the State of Delaware and the year of incorporation. Section 8.02. Waiver of Notices. Whenever notice is required to be given by these Bylaws or the Certificate of Incorporation or by law, the person entitled to said notice may waive such notice in writing, either before or after the time stated therein, and such waiver shall be deemed equivalent to notice. Section 8.03. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board. Section 8.04. Amendments. These Bylaws may be altered, amended or repealed at any meeting of the Board or of the stockholders, provided notice of the proposed change was given in the notice of the meeting and, in the case of a meeting of the Board, in a notice given not less than two days prior to the meeting; provided, however, that, in the case of amendments by stockholders, notwithstanding any other provisions of these Bylaws or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the capital stock of the Corporation required by law, the Certificate of Incorporation of these Bylaws, the affirmative vote of the holders of at least 80% of the total voting power of all the then outstanding shares of Voting Stock of the Corporation, voting together as a single class, shall be required to alter, amend or repeal this Section 8.04 or any provision of Sections 2.06, 2.10, 3.02, 3.05 and 3.06 of these Bylaws. Section 8.05. Voting Stock. Any person so authorized by the Board, and in the absence of such authorization, the Chairman of the Board, the President or any Vice President, shall have full power and authority on behalf of the Corporation to attend and to act and vote at any meeting of the stockholders of any corporation in which the Corporation may hold stock and at any such meeting shall possess and may exercise any and all rights and powers which are incident to the ownership of such stock and which as the owner thereof the Corporation might have possessed and exercised if present. The Board by resolution from time to time may confer like powers upon any other person or persons. EX-10 4 EXHIBIT 10.158 CREDIT AGREEMENT dated as of June 28, 1996 THE CHARLES SCHWAB CORPORATION CREDIT AGREEMENT THIS CREDIT AGREEMENT ("this Agreement") is entered into as of June 28, 1996, between The Charles Schwab Corporation, a Delaware corporation (the "Borrower"), and the Bank named on the signature page hereto (the "Bank"). WHEREAS, the Bank is willing to make revolving credit loans to the Borrower from time to time through June 27, 1997 on the terms and subject to the conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows: 1. DEFINITIONS Assessment Rate: For any Interest Period for any Advance for which the CD Rate has been selected, the assessment rate per annum (adjusted upward, if necessary, to the nearest 1/100 of 1%) determined by the Confirming Bank on the first day of such Interest Period for determining the then current annual assessment payable by the Bank to the Federal Deposit Insurance Corporation (or any successor thereto) for such Corporation's (or successor's) insuring U.S. dollar time deposits of the Bank in the United States. The CD Rate shall be adjusted automatically on and as of the effective date of any change in the Assessment Rate. Banking Day: Any Monday, Tuesday, Wednesday, Thursday or Friday, other than a day on which banks are authorized or required to be closed in California or New York. Borrowing Advice: A written request made by the Borrower with respect to an Advance specifying the information required in Paragraph 2.2 hereof and executed by the Borrower from time to time. Borrowing Agreement: Any of those separate credit agreements (so long as the Credit (as defined herein) thereunder has not been terminated) between the Borrower and any of the Banks referred to in Schedule I hereto (other than the Bank) and having terms substantially similar to those contained in this Agreement. Such Schedule I may from time to time be amended by the Borrower by Borrower's delivery to each Bank (including the Bank) of a new Schedule I, and each such new Schedule I delivered by the Borrower to each Bank (including the Bank) shall replace and supersede the then- existing Schedule I and shall be the Schedule I referred to in this Agreement; provided, however, that no such newly delivered Schedule I shall amend or otherwise change the name, address, or amount of Credit applicable to the Bank on the initial Schedule I hereto without the prior written consent of the Bank or as otherwise permitted in accordance with the terms of this Agreement. Each such newly delivered Schedule I shall include all of the then- existing credit agreements between the Borrower and any Bank having terms substantially similar to those contained in this Agreement so long as the Credit (as defined herein) thereunder has not been terminated. Broker Subsidiary: Charles Schwab & Co., Inc., a California corporation, and its successors and assigns. CD Banking Day: Any Banking Day on which dealings in bank certificates of deposit are conducted by New York City certificate of deposit dealers. CD Rate: For any Interest Period for any Advance for which the CD Rate has been selected or is applicable, the sum of: (a) the Assessment Rate for the Interest Period, plus (b) the rate per annum obtained by dividing (i) the rate of interest per annum determined by the Confirming Bank to be (aa) the average (adjusted upward, if necessary, to the nearest 1/16 of 1%) rate per annum at which bids are received by the CD Reference Banks for their certificates of deposit as at 11:00 a.m. New York City time (or as soon as practicable thereafter), on the first day of an Interest Period from two or more New York City certificate of deposit dealers of recognized standing selected by the Confirming Bank for the purchase at face value of such certificates of deposit in an amount comparable to the Advance for which the CD Rate has been selected and having a maturity comparable to such Interest Period or (bb) in the event the Confirming Bank cannot, without undue effort, obtain rates from such CD Reference Banks, the certificate of deposit rate as reported for the date of the Borrowing Advice in "Federal Reserve Statistical Release--Selected Interest Rates-- H.15(519)," published by the Board of Governors of the Federal Reserve System, or any successor publication, under the caption "CDs (Secondary Market)" having a maturity most closely approximating the conclusion of such Interest Period, by (ii) a percentage (expressed as a decimal) equal to 1.00 minus the CD Rate Reserve Percentage. CD Rate Reserve Percentage: For any Interest Period for any Advance for which the CD Rate has been selected or is applicable, the percentage (expressed as a decimal) as calculated by the Confirming Bank that is in effect on the first day of such Interest Period, as prescribed by the Board of Governors of the Federal Reserve System (or any successor), for determining the maximum reserve requirements (including, without limitation, basic, supplemental, marginal and emergency reserves) for a bank with deposits exceeding five billion dollars that is a member of the Federal Reserve System, in respect of new non-personal time deposits in U.S. dollars in the United States having a maturity comparable to the applicable Interest Period for said Advance for which the CD Rate has been selected (such bank's reserve ratio on such time deposits in effect on June , 1996 was 0%). The CD Rate shall be adjusted automatically on and as of the effective date of any change in the CD Rate Reserve Percentage. CD Reference Banks: Bank of America Illinois Citibank, N.A. Change in Law Affecting Cost: The occurrence of any one of the following events: (a) the imposition, modification or application of any reserve, capital adequacy requirement, special deposit or similar requirement against assets held by, or deposits in or for the account of, or commitments, advances or loans by, or any other acquisition of funds by, the Bank (other than such requirements described in the Eurodollar Rate Reserve Percentage section hereof), or the imposition upon the Bank of any other condition with respect to the London interbank market or to this Agreement or any borrowing hereunder, (b) a change in the basis of taxation of payments to the Bank of principal, interest or any other amount payable hereunder (except for changes in Federal, state or local income tax rates and their equivalents), or (c) the adoption or enactment of any applicable law, treaty, regulation or directive, or any change therein or in the interpretation or application thereof, or compliance by the Bank with any request (whether or not having the force of law) of any relevant government or corporation entity. Closing Date: June 28, 1996 Confirming Bank: Bank of America Illinois Confirming Bank Agreement: The Confirming Bank Agreement between the Borrower and Bank of America Illinois dated June 28, 1996, in substantially the form attached as Exhibit B to the Credit Agreement, as the same may be amended from time to time. Controlled Subsidiary: Any corporation 80% of whose voting stock (except for any qualifying shares) is owned directly or indirectly by the Borrower. Federal Funds Effective Rate: For any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Banking Day, for the next preceding Banking Day) by the Federal Reserve Bank of New York; or, if such rate is not published for any day which is a Banking Day, an interest rate per annum equal to the arithmetic mean of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, received by each Reference Rate Reference Bank from three Federal funds brokers of recognized standing selected by each Reference Rate Reference Bank in its sole discretion. Interest Period: Any period specified in accordance with Paragraph 2.3 hereof. Intermediate Parent: Schwab Holdings, Inc. and its successors and assigns. Eurodollar Banking Day: Any Banking Day on which dealings in dollar deposits are conducted by and among banks in the London Eurodollar Market, or such other Eurodollar Market as may from time to time be selected by the Bank with the approval of the Borrower. Eurodollar Rate: The rate obtained by dividing (i) the average rate per annum at which deposits of U.S. dollars for the selected Interest Period and in the amount of the Advance for which the Eurodollar Rate has been selected are offered (a) if at least two such offered rates appear on the Reuters Screen LIBO Page as at 11:00 a.m. (London time) two Eurodollar Banking Days prior to the commencement of the relevant Interest Period, the arithmetic mean (adjusted upward, if necessary, to the nearest 1/16 of 1%), of such offered rates as determined in accordance with the provisions of the Confirming Bank Agreement or (b) if fewer than two offered rates appear, in immediately available funds to the Eurodollar Rate Reference Banks in the London interbank market (adjusted upward, if necessary, to the nearest 1/16 of 1%) as at 11:00 a.m. (London time) two Eurodollar Banking Days prior to the commencement of the relevant Interest Period, determined in accordance with the provisions of the Confirming Bank Agreement, by (ii) a percentage (expressed as a decimal) equal to 1.00 minus the Eurodollar Rate Reserve Percentage. Eurodollar Rate Reserve Percentage: For any Interest Period for any Advance for which the Eurodollar Rate has been selected or is applicable, the percentage (expressed as a decimal) as calculated by the Confirming Bank that is in effect on the first day of such Interest Period, as prescribed by the Board of Governors of the U.S. Federal Reserve System (or any successor), for determining reserve requirements to be maintained by the Bank under Regulation D (or any successor regulation thereof) as amended to the date hereof (including such reserve requirements as become applicable to the Bank pursuant to phase-in or other similar requirements of Regulation D at any time subsequent to the date hereof) in respect of "Eurocurrency liabilities" (as defined in Regulation D). The Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Eurodollar Rate Reserve Percentage. Eurodollar Rate Reference Banks: Bank of Tokyo Trust Company The Bank of New York Minimum Stockholder's Equity: As of the last day of September 1996, and the last day of each fiscal quarter thereafter, the greater of: (a) $350 million, or (b) $350 million plus 40% of the sum of cumulative Net Earnings of the Borrower and its Subsidiaries beginning with July 1, 1996. MSI: Mayer & Schweitzer, Inc., a New Jersey corporation, and its successors and assigns. Net Capital Ratio: As of the date of determination, that percentage of net capital to aggregate debit items of any entity subject to the Net Capital Rule 15c3-1 promulgated by the Securities Exchange Commission pursuant to the Securities Exchange Act of 1934 and any successor or replacement rule or regulation therefor. Net Earnings: With respect to any fiscal period, the consolidated net income of the Borrower and its Subsidiaries, after taking into account all extraordinary items, taxes and other proper charges and reserves for the applicable period, determined in accordance with U.S. generally accepted accounting principles, consistently applied. Reference Rate: For any Interest Period for any Advance for which the Reference Rate has been selected (or for any post-Interest Period period covered by clause (ii) of Paragraph 2.6 hereof), the average daily per annum rate of interest calculated by the Confirming Bank during such Interest Period or period, with the rate on each day being equal to the higher of (i) the highest per annum rate of interest (adjusted upward, if necessary, to the nearest 1/16 of 1%) publicly announced by any of the Reference Rate Reference Banks on such day as its "prime rate," "prime commercial lending rate," "reference rate," or "base rate," as the case may be, and (ii) the highest per annum Federal Funds Effective Rate available to any Reference Rate Reference Bank, plus 1/2 of 1%. Reference Rate Reference Banks: The First National Bank of Chicago Chemical Bank Stockholder's Equity: As of any date of determination, Stockholders' Equity of Borrower and its Subsidiaries as of that date determined in accordance with U.S. generally accepted accounting principles, consistently applied. Subsidiary: Any corporation or other entity of which a sufficient number of voting securities or other interests having power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower. 2. THE REVOLVING CREDIT FACILITY The Bank agrees that consistent with the terms and conditions set forth in this Article 2, it will lend to the Borrower sums which, in the aggregate principal amount outstanding at any one time, shall not exceed the dollar amount of the Bank's commitment as specified in Schedule I hereto. Such amount, as it may from time to time be reduced pursuant to Paragraph 2.10 hereof, shall be referred to as the "Credit." 2.1 The Advances. The Credit shall be a revolving credit, such that from time to time commencing on June 28, 1996 and ending on June 27, 1997, the Borrower may borrow, repay at the end of any Interest Period (or otherwise as permitted by Paragraph 3.2 hereof) and reborrow amounts during the continuation of the Credit, as the Borrower may see fit, subject to the applicable provisions of this Agreement. Each such revolving credit loan made hereunder (an "Advance") shall be in the amount of $1,000,000 or integral multiples thereof and shall become due and payable on the last day of the Interest Period for such Advance. The obligation of the Borrower to repay the aggregate unpaid principal amount of the Advances shall be evidenced by a promissory note of the Borrower (the "Revolving Note") in substantially the form attached hereto as Exhibit A, with the blanks appropriately completed, payable to the order of the Bank, bearing interest as hereinafter specified. The Revolving Note shall be dated, and shall be delivered to the Bank, on the date of the execution and delivery of this Agreement by the Borrower. The Bank shall, and is hereby authorized by the Borrower to, endorse on the schedule contained on the Revolving Note, or on a continuation of such schedule attached thereto and made a part thereof, appropriate notations regarding the Advances evidenced by the Revolving Note as specifically provided therein; provided, however, that the failure to make, or error in making, any such notation shall not limit or otherwise affect the obligations of the Borrower hereunder or under the Revolving Note. 2.2 Making of Advances; Notice. Whenever the Borrower desires the Bank to make an Advance, it shall give the Bank at least one Banking Day's prior irrevocable notice for Reference Rate Advances, one CD Banking Day's prior irrevocable notice for CD Rate Advances, or three Eurodollar Banking Days' prior irrevocable notice for Eurodollar Rate Advances (each such notice to be in the form of a Borrowing Advice in substantially the form attached hereto as Exhibit C) setting forth the following information: (a) The date, which shall be either a Banking Day, a CD Banking day, or a Eurodollar Banking Day, on which such Advance is to be made; (b) The Interest Period selected in accordance with Paragraph 2.3 hereof; (c) The interest rate option selected in accordance with Paragraph 2.4 hereof; and (d) The aggregate principal amount of the Advance to which such Interest Period and interest rate shall apply. Notice of each Borrowing Advice indicating the selection of an Interest Period and whether the interest calculation is to be based on the Eurodollar Rate, the CD Rate or the Reference Rate shall simultaneously be given to the Confirming Bank by the Borrower. Any notice required pursuant to this Paragraph 2.2 shall be given no later than 12:00 noon (New York City time) on the date such notice is required to be given. With respect to any Advance having an Interest Period ending on or before June 27, 1997, if prior to the last day of the Interest Period for such Advance the Borrower fails timely to provide a new Borrowing Advice in accordance with this Paragraph 2.2, such Advance shall, on the last day of the then-existing Interest Period for such Advance, automatically convert into a new Reference Rate Advance with an Interest Period of thirty (30) days (or, in the event that there are fewer than thirty (30) days remaining to June 27, 1997, an Interest Period of the number of days remaining to June 27, 1997). In the event of any such automatic conversion, the Borrower on the date of such conversion shall be deemed to make a representation and warranty to the Bank that, to the best of the Borrower's knowledge, (i) neither the Broker Subsidiary nor MSI is in violation of minimum net capital requirements as described in Paragraph 7.1, (ii) the Borrower's Stockholders' Equity is not below the Minimum Stockholders' Equity as described in Paragraph 7.2, and (iii) no amount owing with respect to any Commitment Fee, any outstanding Advance, or any interest thereon, or any other amount hereunder, is due and unpaid. Each Advance to the Borrower under this Agreement shall be made by 12:00 noon (New York City time) on the date the Advance is to be made, and shall be in immediately available funds credited to the account of Borrower with the Bank or wired to the Borrower's account at Citibank, N.A. (Account 4055-4016) or such other account as may be designated by the Borrower. The Bank, by notice to the Borrower (to be given not later than two Banking Days prior to the initial Advance hereunder) may request that Advances made hereunder for which the interest calculation is to be based on the Eurodollar Rate be evidenced by separate Revolving Notes substantially in the form of Exhibit A hereto, payable to the order of such Bank for the account of its office, branch or affiliate it may designate as its Eurodollar lending office. Each reference to the Bank in Paragraph 2.5(b) and 3.5 shall include the Bank's designated Eurodollar lending office; all notices given to the Bank in accordance with this Agreement shall be deemed to have been given to such Eurodollar lending office. 2.3 Interest Periods. The Borrower may select the Interest Period (as defined in the next sentence) for each Advance, it being understood that the Borrower may request multiple Advances on the same day and may select a different Interest Period for each such Advance; provided, however, that each such Advance shall be in the amount of $1,000,000 or an integral multiple thereof. With respect to any Advance, an Interest Period shall be each period, as selected by the Borrower in accordance with the terms of this Agreement, beginning on the day such Advance is made under this Agreement, and ending on the day specified by the Borrower: (a) Not more than 180 days thereafter, in the case of any Interest Period for which the interest is to be based on the Reference Rate, provided that if the last day of an Interest Period would be a day that is not a Banking Day, such Interest Period shall be extended to the next succeeding Banking Day; (b) either 30, 60, 90 or 180 days thereafter, in the case of any Interest Period for which the interest is to be based on the CD Rate, provided that if the last day of an Interest Period would be a day that is not a CD Banking Day, such Interest Period shall be extended to the next succeeding CD Banking Day; or (c) not less than 7 nor more than 180 days thereafter, in the case of any Interest Period that is to be based on the Eurodollar Rate, provided that if the last day of an Interest Period would be a day that is not a Eurodollar Banking Day, such Interest Period shall be extended to the next succeeding Eurodollar Banking Day, unless such next succeeding Eurodollar Banking Day is in a different calendar month, in which case such interest period shall end on the next preceding Eurodollar Banking Day; provided, however, that no Interest Period applicable to any Advance shall extend beyond September 25, 1997. 2.4 Interest Rates. Each Advance, while outstanding, shall bear interest, payable on the last day of each Interest Period applicable thereto (provided that (i) if any Advance is based on the Reference Rate, interest attributable thereto also shall be payable on the last day of each calendar quarter that occurs before the last day of the applicable Interest Period, or (ii) if the Interest Period is longer than 90 days, interest with respect thereto also shall be payable on the Banking Day following the 90th day from the commencement of the Interest Period) at a rate per annum (based on a 360- day year and actual days elapsed for Eurodollar Rate and CD Rate Advances, and a 365-day year and actual days elapsed for Reference Rate Advances, counting the first day but not the last day of any Interest Period) that shall be equal to one of the following as selected by the Borrower: (a) Eurodollar Rate, plus 3/8 of 1% per annum, (b) CD Rate, plus 1/2 of 1% per annum, or (c) Reference Rate. 2.5 Substitute Rates. If upon receipt by the Bank of a Borrowing Advice relating to an Advance: (a) the Confirming Bank shall determine in accordance with the provisions of the Confirming Bank Agreement that by reason of changes affecting the New York City certificate of deposit market and/or the London interbank market, adequate and reasonable means do not exist for ascertaining the applicable CD Rate and/or Eurodollar Rate, respectively, with respect to any Interest Period; or (b) the Bank shall determine that by reason of any change since the date hereof in any applicable law or governmental regulation (other than any such change in the regulations described in the definition of Eurodollar Rate Reserve Percentage in Article I hereof), guideline or order (or any interpretation thereof), the adoption or enactment of any new law or governmental regulation or order or any other circumstance affecting the Bank or the New York City certificate of deposit market and/or the London interbank market, the CD Rate and/or Eurodollar Rate, determined in accordance with the Confirming Bank Agreement shall no longer represent the effective cost to the Bank of certificates of deposit and/or of U.S. dollar deposits, respectively, in the relevant amount and for the relevant period; or (c) the Confirming Bank or the Bank shall determine that, as a result of any change since the date hereof in any applicable law or governmental regulation or as a result of the adoption of any new applicable law or governmental regulation, the applicable CD Rate and/or Eurodollar Rate, would be unlawful; then, and in any such event, the Bank and the Borrower shall agree upon a rate of interest applicable to the Advance that is reasonably judged by them to be the nearest equivalent of the selected rate; provided, however, that if no such rate is judged by them to be equivalent to the selected rate, the basis for determining the rate of interest and the Interest Period shall be the Reference Rate for an Interest Period of 30 days. 2.6 Interest Upon Default. After the principal amount of any Advance, accrued interest upon such Advance, Commitment Fee, or any other amount hereunder shall have become due and payable by acceleration, or otherwise, it shall thereafter (until paid) bear interest, payable on demand, (i) until the end of the Interest Period with respect to such Advance at a rate per annum equal to 1% per annum in excess of the rate or rates in effect with respect to such Advance and (ii) thereafter, at a rate per annum equal to 1% per annum in excess of the Reference Rate. 2.7 Commitment Fee. Through June 27, 1997, the Borrower will pay to the Bank a credit commitment fee (the "Commitment Fee") for each calendar quarter at a rate per annum (based on a 360 day year and actual days elapsed) of 100/1000 of 1% of the average daily unused principal amount of the Credit in effect during such quarter payable on the first Banking Day after the end of such quarter (or portion of such quarter, if applicable), and upon termination of the Credit; provided, however, that any such payment upon termination of the Credit during any calendar quarter shall be in lieu of (and not in addition to) the payment otherwise due for such portion of such quarter on the first Banking Day after the end of such quarter. 2.8 Facility Fee. On June 28, 1996, Borrower shall pay a facility fee to the Bank in an amount equal to 50/1000 of 1% of the Bank's commitment as specified in Schedule I. 2.9 Confirming Bank Fee. On June 28, 1996, the Borrower shall pay to the Confirming Bank a fee of $10,000. 2.10 Reduction of Credit. The Borrower, from time to time, upon at least three Banking Days' written notice to the Bank, may permanently reduce any then-unutilized portion of the Credit in units of $1,000,000 without penalty or premium; thereafter, during the continuation of the Credit, the computation of the Commitment Fee and the Bank's obligations for Advances shall be based upon such reduced Credit. The Borrower, from time to time, upon at least three Banking Days' written notice to the Bank, may permanently reduce all or any part of the then-utilized portion of the Credit by making payment to the Bank on such utilized portion pursuant to Paragraph 2.1 or Paragraph 3.2 hereof, and thereafter, during the continuation of the Credit, the computation of the Commitment Fee and the Bank's obligations for Advances shall be based upon such reduced Credit; provided, however, that in order for a payment to result in a permanent reduction of the Credit under this paragraph, the written notice required under this paragraph must expressly provide that the payment is being tendered pursuant to this paragraph and is intended to result in a permanent reduction of the Credit. Any written notice delivered pursuant to either of the foregoing two sentences shall be irrevocable unless the Bank consents in writing to its revocation. In the event the Credit shall be reduced to zero pursuant to this paragraph, the Credit shall be deemed terminated, and any Commitment Fee or any other amount payable hereunder then accrued shall become immediately payable. Such termination of the Credit shall terminate the Borrower's obligations with respect to the Commitment Fee to the extent not theretofore accrued and shall terminate the Bank's obligations to make any further Advances under this Agreement. 3. PAYMENT 3.1 Method of Payment. All payments hereunder and under the Revolving Note shall be payable in lawful money of the United States of America and in immediately available funds not later than 12:00 noon (New York City time) on the date when due at the principal office of the Bank or at such other place as the Bank may, from time to time, designate in writing to the Borrower. 3.2 Optional Prepayment. The Borrower shall be entitled to prepay the Revolving Note in whole or in part (such part being in integral multiples of $1,000,000) without premium or penalty. In the case of each such prepayment (i) the Borrower shall give to the Bank at least three Banking Days' prior irrevocable notice of the aggregate principal amount of any such prepayment, (ii) at the time of prepayment, the Borrower shall pay all unpaid interest accrued on the amount prepaid, and (iii) the Borrower shall pay the Bank any amount payable to the Bank in accordance with Paragraph 3.4 hereof as a result of such prepayment. 3.3 Net Payments. All payments by Borrower hereunder and under the Revolving Note shall be made without set-off or counterclaim and in such amounts as may be necessary in order that all such payments, after deduction or withholding for or on account of any present or future taxes, levies, imposts, duties or other charges of whatsoever nature imposed by any government or any political subdivision or taxing authority thereof (collectively, "Taxes"), shall not be less than the amounts otherwise specified to be paid under this Agreement. Notwithstanding the foregoing, the Borrower shall not be liable for the payment of any tax on or measured by the net income of the Bank pursuant to the laws of the jurisdiction where an office of the Bank making any loan hereunder is located or does business. The Borrower shall pay all Taxes when due and shall promptly send to the Bank original tax receipts or copies thereof certified by the relevant taxing authority together with such other documentary evidence with respect to such payments as may be required from time to time by the Bank. If the Borrower fails to pay any Taxes to the appropriate taxing authorities when due or fails to remit to the Bank any such original tax receipts or certified copies thereof as aforesaid or other required documentary evidence, the Borrower shall indemnify the Bank for any taxes, interest or penalties that may become payable by the Bank as a result of such failure. 3.4 Indemnity for Losses. The Borrower shall indemnify the Bank for any loss or expense (including, without limitation, any interest paid by the Bank to lenders of funds borrowed by it to make or maintain any Advance and any loss incurred by the Bank in connection with the reemployment of funds obtained by the Bank for the purpose of making or maintaining any Advance hereunder) which the Bank may sustain as a result of (i) any payment or prepayment of any Advance on a date other than the last day of any Interest Period, (ii) any failure of the Borrower to borrow on a date specified in a Borrowing Advice furnished hereunder or (iii) any failure by the Borrower to prepay any amount on the date and in the amount specified in a notice furnished by the Borrower in accordance with the terms hereof. A certificate as to any amounts payable pursuant to the foregoing submitted by the Bank to the Borrower shall, in the absence of manifest error, be conclusive. 3.5 Change in Law. In the event that the Bank shall become subject to any increased cost (including, but not limited to, taxes, increases in reserves and reductions in amounts receivable by the Bank) with respect to this Agreement or making or maintaining any borrowing hereunder as a result of any Change in Law Affecting Cost, then as soon as practicable thereafter, the Bank shall give the Borrower notice of such Change in Law Affecting Cost and a certificate containing the amount and basis of demand, and the Borrower shall pay to the Bank additional amounts that will compensate the Bank for such increased cost or reduced amount receivable and, at the option of the Borrower on notice to the Bank, the Borrower may either elect to (i) change the basis for determining interest on outstanding indebtedness for the remainder of the applicable Interest Period in accordance with Paragraph 2.4 hereof, or (ii) prepay the principal amount outstanding with accrued interest thereon to the date of prepayment. If such change or prepayment is made on a day that is not the last day of an Interest Period, the Borrower shall pay the Bank, upon request, such amount or amounts as will compensate the Bank for any loss or expense incurred by the Bank in the redeployment of funds obtained by the Bank for the purpose of making or maintaining the Advances provided for herein. A certificate as to any additional amounts payable pursuant to the foregoing sentence submitted by the Bank to the Borrower shall, in the absence of manifest error, be conclusive. 4. CONDITIONS 4.1 Conditions Precedent to the Effectiveness of this Agreement. The Borrower shall deliver to the Bank the following documents concurrently with the execution of this Agreement: (a) A written opinion, dated the date hereof, of counsel for the Borrower, in the form of Exhibit D. (b) A copy of a resolution or resolutions adopted by the Board of Directors or Executive Committee of the Borrower, certified by the Secretary or an Assistant Secretary of the Borrower as being in full force and effect on the date hereof, authorizing the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, and a copy of the Certificate of Incorporation and the By-Laws of the Borrower, similarly certified. (c) A certificate, signed by the Secretary or an Assistant Secretary of the Borrower and dated the date hereof, as to the incumbency of the person or persons authorized to execute and deliver this Agreement. (d) A certificate signed by the Chief Financial Officer of the Borrower that, as of the date hereof, there has been no material adverse change in its consolidated financial condition since December 31, 1995 not reflected on its Quarterly Reports on Form 10-Q filed with the SEC for the period ending March 31, 1996. (e) A certificate, signed by the Secretary or an Assistant Secretary of the Borrower and dated the date hereof, as to the persons authorized to execute and deliver a Borrowing Advice and the Revolving Note. The Bank may rely on such certificate with respect to the Advances hereunder unless and until it shall have received an up-dated certificate and, after receipt of such up-dated certificate, similarly may rely thereon. 4.2 Conditions Precedent to Advances. The Bank shall not be required to make any Advance pursuant to Article 2 hereof: (a) when the Credit has been terminated; or (b) when any of the representations or warranties of the Borrower set forth in Article 5 hereof shall prove to have been untrue in any material respect when made, or when any Event of Default or any event that, upon lapse of time or notice or both, would become an Event of Default as defined in Article 8, has occurred; or (c) when the Broker Subsidiary or MSI is in violation of minimum net capital requirements as described in Paragraph 7.1; or (d) when the Borrower's Stockholder's Equity is below the Minimum Stockholders' Equity as described in Paragraph 7.2.; or (e) when any amount owing with respect to any Commitment Fee or any outstanding Advance or any interest thereon or any other amount payable hereunder is due and unpaid. Each Borrowing Advice given by the Borrower shall be deemed to be a representation and warranty by the Borrower to the Bank, effective on and as of the date of the Advance covered thereby, that (i) the representations and warranties set forth in Article 5 hereof are true and correct as of such date, and (ii) no Event of Default, and no event which with the lapse of time or notice or both would become an Event of Default, has occurred and is continuing. 5. REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants, as of the date of delivery of this Agreement and as of the date of any Advance, as follows: 5.1 The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware and has full power, authority and legal right and has all governmental licenses, authorizations, qualifications and approvals required to own its property and assets and to transact the business in which it is engaged; and all of the outstanding shares of capital stock of Borrower have been duly authorized and validly issued, are fully paid and non-assessable. 5.2 The Borrower has full power, authority and legal right to execute and deliver, and to perform its obligations under, this Agreement, and to borrow hereunder, and has taken all necessary corporate and legal action to authorize the borrowings hereunder on the terms and conditions of this Agreement and to authorize the execution and delivery of this Agreement, and the performance of the terms thereof. 5.3 This Agreement has been duly authorized and executed by the Borrower, and when delivered to the Bank will be a legal, valid and binding agreement of the Borrower, enforceable against the Borrower in accordance with its terms, except, in each case, as enforcement thereof may be limited by bankruptcy, insolvency or other laws relating to or affecting enforcement of creditors' rights or by general equity principles. 5.4 The execution and delivery of this Agreement by the Borrower and the performance of the terms hereof will not violate any provision of any law or regulation or any judgment, order or determination of any court or governmental authority or of the charter or by-laws of, or any securities issued by, the Borrower or any provision of any mortgage, indenture, loan or security agreement, or other instrument, to which the Borrower is a party or which purports to be binding upon it or any of its assets in any respect that reasonably could be expected to have a material adverse effect on the Borrower and its Subsidiaries taken as a whole on a consolidated basis; nor will the execution and the delivery of this Agreement by the Borrower and the performance of the terms hereof result in the creation of any lien or security interest on any assets of the Borrower pursuant to the provisions of any of the foregoing. 5.5 Except as disclosed in writing by Borrower, no consents of others (including, without limitation, stockholders and creditors of the Borrower) nor any consents or authorizations of, exemptions by, or registrations, filings or declarations with, any governmental authority are required to be obtained by the Borrower in connection with this Agreement. 5.6 The consolidated financial statements of the Borrower contained in the documents previously delivered to the Bank have been prepared in accordance with U.S. generally accepted accounting principles and present fairly the consolidated financial position of the Borrower. 5.7 The Broker Subsidiary possesses all material licenses, permits and approvals necessary for the conduct of its business as now conducted and as presently proposed to be conducted as required by law or the applicable rules of the SEC and the National Association of Securities Dealers, Inc. 5.8 The Broker Subsidiary is registered as a broker-dealer under the Securities Exchange Act of 1934, as amended. 5.9 The Broker Subsidiary is not in arrears with respect to any assessment made upon it by the Securities Investor Protection Corporation, except for any assessment being contested by Broker Subsidiary in good faith by appropriate proceedings and with respect to which adequate reserves or other provisions are being maintained to the extent required by U.S. generally accepted accounting principles. 5.10 The Borrower has paid and discharged or caused to be paid and discharged all taxes, assessments, and governmental charges prior to the date on which the same would have become delinquent, except to the extent that such taxes, assessments or charges are being contested in good faith and by appropriate proceedings by or on behalf of the Borrower and with respect to which adequate reserves or other provisions are being maintained to the extent required by U.S. generally accepted accounting principles. 5.11 The Borrower is in compliance with the provisions of and regulations under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the Internal Revenue Code of 1986, as amended, applicable to any pension or other employee benefit plan established or maintained by the Borrower or to which contributions are made by the Borrower (the "Plans"). The Borrower has met all of the funding standards applicable to each of its Plans, and there exists no event or condition that would permit the institution of proceedings to terminate any of the Plans under Section 4042 of ERISA. The estimated current value of the benefits vested under each of the Plans does not, and upon termination of any of the Plans will not, exceed the estimated current value of any such Plan's assets. The Borrower has not, with respect to any of the Plans, engaged in a prohibited transaction set forth in Section 406 of ERISA or Section 4975(c) of the Internal Revenue Code of 1986. 5.12 The Borrower will not use any amounts advanced to it under this Agreement to remedy a default under any mortgage, indenture, agreement or instrument under which there may be issued any indebtedness of the Borrower to any bank or bank holding company, or their respective assignees, for borrowed money. Further, the Borrower will not use any amounts advanced to it under this Agreement for the immediate purpose of acquiring a company where the Board of Directors or other governing body of the entity being acquired has made (and not rescinded) a public statement opposing such acquisition. 5.13 This Agreement contains terms no less favorable to the Bank than the terms of any Borrowing Agreement. 5.14 The Borrower will not use the proceeds of any loan provided hereby in such a manner as to result in a violation of Regulations G, T, U or X of the Board of Governors of the Federal Reserve System. 5.15 The persons named for such purpose in the certificates delivered pursuant to Paragraph 4.1(e) hereof are authorized to execute Borrowing Advices. 5.16 Borrower is not in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any material contract, indenture, mortgage, loan agreement, note or lease to which the Borrower is a party or by which it may be bound. 5.17 There is no action, suit or proceeding pending against, or to the knowledge of the Borrower, threatened against or affecting, the Borrower or any of its Subsidiaries before any court, arbitrator, governmental body, agency or official in which there is a significant probability of an adverse decision which could materially adversely affect the business or the financial position of the Borrower. 5.18 The Borrower is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 6. AFFIRMATIVE COVENANTS The Borrower covenants and agrees that so long as the Credit shall continue or any Advance by the Bank remains outstanding and until full payment of all amounts due to the Bank hereunder, it will, unless and to the extent the Bank waives compliance in writing: 6.1 Give prompt notice to the Bank, no later than three Banking Days after becoming aware thereof, of any Event of Default or any event that, upon lapse of time or notice or both, would become an Event of Default. 6.2 Deliver to the Bank, within ten Banking Days of the filing thereof with the SEC, a copy of each registration statement filed under the Securities Act of 1933, a copy of each filing (including exhibits) made by the Borrower with the SEC under the Securities Exchange Act of 1934, as amended (but, in the event the Borrower requests an extension of any such filing from the SEC, promptly (but not later than the second Banking Day following the filing of such request) deliver a copy of such request to the Bank). 6.3 Maintain and keep in force in adequate amounts such insurance as is usual in the business carried on by the Borrower. 6.4 Maintain adequate books, accounts and records and prepare all financial statements required hereunder in accordance with U.S. generally accepted accounting principles and practices and in compliance with the regulations of any governmental regulatory body having jurisdiction thereof. 6.5 Advise the Bank, in a timely manner, of material changes to the nature of business of the Borrower or its Broker Subsidiary as at present conducted. The Broker Subsidiary is at present engaged in the business of providing financial services, primarily to individual investors and/or their advisors. 6.6 With respect to each and any Advance requested by the Borrower under this Agreement (a "primary Advance"), the Borrower will concurrently request an Advance under each of the Borrowing Agreements (each such other Advance under each of the Borrowing Agreements being hereinafter individually referred to as an "other Advance" and collectively referred to as the "other Advances"), with each such other Advance being requested in an amount equal to the same percentage of the Credit under the applicable Borrowing Agreement as the primary Advance constitutes as a percentage of the Credit under this Agreement. As an illustration of the application of this Section 6.6 and by way of example only, if the Borrower requests an Advance under this Agreement that is in an amount equal to 10% of the Credit under this Agreement, the Borrower shall simultaneously seek an other Advance under each of the Borrowing Agreements, each of which other Advances shall be requested in an amount equal to 10% of the Credit under the applicable Borrowing Agreement. 7. NEGATIVE COVENANTS The Borrower covenants and agrees that so long as the Credit shall continue or any Advance by the Bank remains outstanding and until full payment of all amounts due to the Bank hereunder, unless and to the extent the Bank waives compliance in writing: 7.1 The Borrower will not permit the Broker Subsidiary to allow (i) the average of two consecutive month-end Net Capital Ratios to be less than 7%, or (ii) any month-end Net Capital Ratio to be less than 5%. The Borrower similarly will not permit MSI to allow (i) the average of two consecutive month-end Net Capital Ratios to be less than 7%, or (ii) any month-end Net Capital Ratio to be less than 5%. 7.2 The Borrower will not allow Stockholder's Equity to fall below the Minimum Stockholders' Equity. 7.3 The Borrower will not (i) permit either Broker Subsidiary or Intermediate Parent to (a) merge or consolidate, unless the surviving company is a Controlled Subsidiary, or (b) convey or transfer its properties and assets substantially as an entirety except to one or more Controlled Subsidiaries; or, (ii) except as permitted by (i) immediately preceding, sell, transfer or otherwise dispose of any voting stock of Broker Subsidiary or Intermediate Parent, or permit either Broker Subsidiary or Intermediate Parent to issue, sell or otherwise dispose of any of its voting stock, unless, after giving effect to any such transaction, Broker Subsidiary or Intermediate Parent, as the case may be, remains a Controlled Subsidiary. 7.4 The Borrower will not permit the Broker Subsidiary to create, incur or assume any indebtedness other than: (a) indebtedness incurred in the ordinary course of business, including but not necessarily limited to, (i) indebtedness to customers, other brokers or dealers, clearing houses and like institutions, (ii) "broker call" credit, (iii) stock loans, (iv) obligations to banks for disbursement accounts, (v) trade and other accounts payable, (vi) indebtedness incurred for the purchase of tangible property on a non-recourse basis or for the leasing of tangible property under a capitalized lease; and (vii) indebtedness incurred for the purchase, installation or servicing of computer equipment and software; (b) intercompany indebtedness; and (c) other indebtedness in the aggregate not exceeding $50,000,000. 7.5 The Borrower will not, and will not permit any Subsidiary at any time directly or indirectly to create, assume, incur or permit to exist any indebtedness secured by a pledge, lien or other encumbrance (hereinafter referred to as a "lien") on the voting stock of any Subsidiary without making effective provision whereby the Revolving Note shall be secured equally and ratably with such secured indebtedness so long as other indebtedness shall be so secured; provided, however, that the foregoing covenant shall not be applicable to Permitted Liens (as defined in Paragraph 7.6 below). 7.6 The Borrower will not create, incur, assume or suffer to exist any lien or encumbrance upon or with respect to any of its properties, whether now owned or hereafter acquired, except the following (the "Permitted Liens"): (a) liens securing taxes, assessments or governmental charges or levies, or in connection with workers' compensation, unemployment insurance or social security obligations, or the claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons not yet delinquent or which are being contested in good faith by appropriate proceedings with respect to which adequate reserves or other provisions are being maintained to the extent required by U.S. generally accepted accounting principles; (b) liens not for borrowed money incidental to the conduct of its business or the ownership of property that do not materially detract from the value of any item of property; (c) attachment, judgment or other similar liens arising in the connection with court proceedings that do not, in the aggregate, materially detract from the value of its property, materially impair the use thereof in the operation of its businesses and (i) that are discharged or stayed within sixty (60) days of attachment or levy, or (ii) payment of which is covered in full (subject to customary and reasonable deductibles) by insurance or surety bonds; and (d) liens existing at Closing Date provided that the obligations secured thereby are not increased. 8. EVENT OF DEFAULT 8.1 The occurrence of any of the following events shall constitute an "Event of Default": (a) The Borrower shall fail to pay any interest with respect to the Revolving Note or any Commitment Fee in accordance with the terms hereof within 10 days after such payment is due. (b) The Borrower shall fail to pay any principal with respect to the Revolving Note in accordance with the terms thereof on the date when due or shall fail to pay when due (after expiration of any applicable grace periods) any principal or interest with respect to any advance or other loan under any of the Borrowing Agreements. (c) Any representation or warranty made by the Borrower herein or hereunder or in any certificate or other document furnished by the Borrower hereunder shall prove to have been incorrect when made (or deemed made) in any respect that is materially adverse to the interests of the Bank or its rights and remedies hereunder. (d) Except as specified in (a) and (b) above, the Borrower shall default in the performance of, or breach, any covenant of the Borrower with respect to this Agreement, and such default or breach shall continue for a period of thirty days after there has been given, by registered or certified mail, to the Borrower by the Bank a written notice specifying such default or breach and requiring it to be remedied. (e) An event of default as defined under any Borrowing Agreement, or an event of default as defined in any mortgage, indenture, agreement or instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money of the Borrower in a principal amount not less than $30 million, shall have occurred and shall result in such indebtedness becoming or being declared due and payable prior to the date on which it otherwise would become due and payable; provided, however, that if such event of default shall be remedied or cured by the Borrower, or waived by the holders of such indebtedness, within twenty days after the Borrower has received written notice of such event of default and acceleration, then the Event of Default hereunder by reason thereof shall be deemed likewise to have thereupon been remedied, cured or waived without further action upon the part of either the Borrower or the Bank. (f) A court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Borrower or the Broker Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Borrower or Broker Subsidiary or for any substantial part of its respective properties, or ordering the winding-up or liquidation of its affairs, and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days. (g) The Borrower or the Broker Subsidiary shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case under such law, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Borrower or Broker Subsidiary or for any substantial part of its respective properties, or shall make any general assignment for the benefit of creditors, or shall fail generally to pay its respective debts as they become due or shall take any corporate action in furtherance of any of the foregoing. (h) A final judgment or judgments for the payment of money in excess of $25,000,000 in the aggregate shall be entered against the Borrower by a court or courts of competent jurisdiction, and the same shall not be discharged (or provisions shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and the Borrower shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal. 8.2 If an Event of Default occurs and is continuing, then and in every such case the Bank at its option may terminate the Credit and all obligations of the Bank to make any further Advances, and declare the principal, any accrued and unpaid interest, any accrued and unpaid Commitment Fees, or any other amounts payable under the outstanding Revolving Note, to be due and payable immediately, by a notice in writing to the Borrower, and upon such declaration such principal, interest, Commitment Fees, or other amounts payable hereunder accrued thereon shall become immediately due and payable, together with any funding losses that may result as a consequence of such declaration, without presentment, demand, protest or other notice of any kind, all of which are expressly waived by the Borrower; provided, however, that in the case of any of the Events of Default specified in subparagraph (f) or (g) of Paragraph 8.1, automatically without any notice to the Borrower or any other act by the Bank, the Credit and the Bank's obligations to make any further Advances shall thereupon terminate and the outstanding principal of the Revolving Note, any accrued and unpaid interest, any accrued and unpaid Commitment Fees or any other amounts payable hereunder shall become immediately due and payable, together with any funding losses that may result as a consequence thereof, without presentment, demand, protest or other notice of any kind, all of which are expressly waived by the Borrower. 9. MISCELLANEOUS 9.1 Notices. Any communications between the parties hereto or notices provided herein shall be effective upon receipt and shall be, unless otherwise specified, in writing (which may include telex or telecopy transmission) and shall be given to the Bank at the address specified in Schedule I hereto and to the Borrower at The Charles Schwab Corporation, Attn: Treasury Department, 101 Montgomery Street, San Francisco, California 94104, fax number (415) 974-7570, or to such other address as either party shall hereafter have indicated to the other party in writing. In the event the Borrower consents to any assignment by the Bank with respect to this Agreement, upon receiving written notice from the Bank that such assignment has been effected, the Borrower thereafter shall give all notices required to be given under this Agreement to the assignee at the address specified for such assignee by the Bank or such assignee. Notwithstanding the granting of any participation by the Bank with respect to this Agreement as permitted by Paragraph 9.4, all notices required to be given under this Agreement may continue to be given by the Borrower only to the Bank and shall be effective upon delivery to the Bank as though no such participation had been granted. 9.2 Waivers. No delay or omission to exercise any right, power or remedy accruing to the Bank upon any breach or default of the Borrower under this Agreement shall impair any such right, power or remedy of the Bank, nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any amendment, modification, waiver, permit, consent or approval of any kind or character on the part of the Bank of any breach or default under this Agreement, or any waiver on the part of the Bank of any provision or condition of this Agreement, must be in writing signed by the Bank and shall be effective only to the extent specifically set forth in writing. All remedies, either under this Agreement or by law or otherwise afforded to the Bank, shall be cumulative and not alternative. 9.3 Expenses. The Borrower agrees to pay all reasonable out-of- pocket expenses of the Bank (including the reasonable fees and expenses of its counsel) in connection with the negotiation, preparation, execution and delivery of this Agreement, any amendments or modifications of or supplements to any of the foregoing and any and all other documents furnished in connection herewith, as well as, after the occurrence of any event that upon a lapse of time or notice or both, would become an Event of Default, all costs and expenses (including reasonable fees and expenses of counsel who may be employees of Bank) in connection with the enforcement or administration (including, without limitation, actions taken by the Bank in connection with litigation or regulatory proceedings as to which this Agreement becomes relevant) of, or legal advice in respect to the rights and responsibilities or the exercise of any right or remedy under, any provision of this Agreement, the Revolving Note, and any amendments or modifications of or supplements to any of the foregoing. 9.4 Assignment. Except as hereinafter set forth in this Paragraph 9.4, no rights of the Bank hereunder may be assigned, transferred, sold, assigned, pledged or otherwise disposed of, and no lien, charge or other encumbrance may be created or permitted to be created thereon without the prior written consent of the Borrower. (a) Transfers to Affiliated Entities and Federal Reserve Banks. The Bank shall have the right at any time and from time to time, to transfer any loan hereunder to any Federal Reserve Bank or to any parent, subsidiary, affiliate, branch or other related office of the Bank which is not engaged in the securities brokerage business or the investment advisory business, and to grant participations hereunder to any such Federal Reserve Bank, parent, subsidiary, affiliate, branch or other related office of the Bank. In no event shall any such transferee or participant be considered a party to the Agreement, and Bank shall continue to service any loan transferred pursuant to this Paragraph 9.4(a) and shall remain liable for the performance of all of its obligations under this Agreement. Notwithstanding any such transfer or grant of a participation, Borrower shall continue to make payments required under this Agreement to Bank unless and until otherwise notified in writing by Bank, and Bank agrees to indemnify and hold Borrower harmless from and against any claims by any transferee or participant arising out of any payment made to Bank in accordance with this Paragraph 9.4(a). (b) Transfers to Unrelated Entities. Subject to the provisions of this subsection 9.4(b), the Bank may at any time sell to one or more unrelated financial institutions not engaged in the securities brokerage business or the investment advisory business (each a "Participant") participating interests in any Advance, the Revolving Note, the Bank's Credit hereunder or any other interest of the Bank hereunder. In the event of any such sale by the Bank to a Participant, the Bank's obligations under this Agreement shall remain unchanged, the Bank shall remain solely responsible for the performance hereof, the Bank shall remain the holder of the Revolving Note for all purposes under this Agreement, and the Borrower shall continue to deal solely and directly with the Bank in connection with the Bank's rights and obligations under this Agreement. Any agreement pursuant to which Bank may grant a participation shall provide that the Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to declare an acceleration or default hereunder and the right to approve any amendment, modification or waiver of any provision of this Agreement. The Borrower may not assign this Agreement or any of its rights hereunder without the prior written consent of the Bank. The provisions of this Agreement shall be binding upon and inure to the benefit of the Bank and the Borrower and their respective successors and assigns, and the term "Borrower" as used in this Agreement shall include the Borrower and all such successors and assigns. 9.5 Confidentiality. Bank agrees to hold any confidential information that it may receive from Borrower pursuant to this Agreement in confidence, except for disclosure: (a) to legal counsel and accountants for Borrower or Bank; (b) to other professional advisors to Borrower or Bank, provided that the recipient has delivered to the Bank a written confidentiality agreement substantially similar to this Section 9.5; (c) to regulatory officials having jurisdiction over Bank; (d) as required by applicable law or legal process or in connection with any legal proceeding in which Bank and Borrower are adverse parties; and (e) to another financial institution in connection with a disposition or proposed disposition to that financial institution of all or part of Bank's interests hereunder or a participation interest in the Revolving Note, each in accordance with Section 9.4 hereof, provided that the recipient has delivered to Bank a written confidentiality agreement substantially similar to this Section 9.5. Bank further agrees that it will not use such confidential information in any activity or for any purpose other than the administration of credit facilities extended to Borrower and its Subsidiaries and, without limitation, will take such steps as are reasonably appropriate to preclude access to any such confidential information to be obtained by any person employed by Bank, or by an affiliate of Bank, who is not involved in the administration of credit facilities extended to Borrower and its Subsidiaries. For purposes of the foregoing, "confidential information" shall mean any information respecting Borrower or its Subsidiaries reasonably specified by Borrower as confidential, other than (i) information filed with any governmental agency and available to the public, (ii) information published in any public medium from a source other than, directly or indirectly, Bank, and (iii) information disclosed by Borrower to any person not associated with Borrower without a written confidentiality agreement substantially similar to this Section 9.5. Certain of the confidential information pursuant to this Agreement is or may be valuable proprietary information that constitutes a trade secret of Borrower or its Subsidiaries; neither the provision of such confidential information to Bank or the limited disclosures thereof permitted by this Section 9.5 shall affect the status of any such confidential information as a trade secret of Borrower and its Subsidiaries. Bank, and each other person who agrees to be bound by this Section 9.5, acknowledges that any breach of the agreements contained in this Section 9.5 would result in losses that could not be reasonably or adequately compensated by money damages. Accordingly, if Bank or any such other person breaches its obligations hereunder, Bank or such other person recognizes and consents to the right of Borrower, Intermediate Parent, and/or Broker Subsidiary to seek injunctive relief to compel such Bank or other Person to abide by the terms of this Section 9.5. 9.6 Waiver of Jury Trial. The Borrower waives any right it may have to trial by jury in any action or proceeding to enforce or defend any rights or remedies arising under this Agreement and the Revolving Note. 9.7 Entire Agreement. This instrument and the exhibits hereto embody the entire agreement with respect to the subject matter hereof between the Borrower and the Bank. 9.8 Counterparts. This Agreement may be executed in as many counterparts as may be deemed necessary or convenient, and by the different parties hereto on separate counterparts each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. 9.9 Governing Law. This Agreement and the Revolving Note shall be deemed to be contracts under, and for all purposes shall be governed by, and construed and interpreted in accordance with, the laws of the State of California. 9.10 Notice of Modification of Borrowing Agreements. The Borrower shall give prior notice to the Bank of any proposed modification in the terms of any of the Borrowing Agreements and hereby agrees, should the Bank so request, to make identical modifications in the terms of this Agreement. 9.11 No Priority. Nothing in this Agreement is intended, or shall be interpreted, to create any priority of any of the banks listed on Schedule I over any other of such banks with respect to their rights under the Borrowing Agreements. 9.12 Headings. All headings in this Agreement are for convenience of reference only and shall not be construed to limit or interpret the provisions they introduce. IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized officers as of the date first above written. Bank: Borrower [NAME OF BANK] THE CHARLES SCHWAB CORPORATION By By /s/ Christopher V. Dodds Its Christopher V. Dodds Senior Vice President and Treasurer Bank of America Illinois By /s/ Steven W. Kastenholz Steven W. Kastenholz Its Vice President Bank of New York By /s/Lee Stephens III Lee Stephens III Its Vice President Bank of Tokyo-Mitsubishi Trust Company By /s/ Thomas Caruso Thomas Caruso Its Vice President Chemical Bank By /s/ Richard Cassa Richard Cassa Its Vice President Citicorp USA, Inc. By /s/ Michael Mauerstein Michael Mauerstein The First National Bank of Chicago By /s/ James Murray James Murray Its Vice President First Tennessee Bank National Association By /s/ Victor Notaro Victor Notaro Its Vice President Norwest Bank Minnesota, N.A. By /s/ Janet Klein Janet Klein Its Assistant Vice President PNC Bank By /s/ Brenda Peck Brenda Peck Its Vice President SCHEDULE I to Credit Agreement dated as of June 28, 1996 between The Charles Schwab Corporation and the Banks listed below (Dollars in Millions) Amount Bank of America Illinois 40 Attn: Steven W. Kastenholz, Vice President 231 South LaSalle Street Chicago, IL 60697 Bank of New York 35 Attn: Lee Stephens III, Vice President One Wall Street New York, NY 10286 Bank of Tokyo-Mitsubishi Trust Company 20 Attn: Thomas Caruso, Vice President 100 Broadway, Main Floor New York, NY 10005 Chemical Bank 20 Attn: Richard Cassa, Vice President 1 Chase Manhattan Plaza, 21st Floor New York, NY 10081 Citicorp USA, Inc. 40 Attn: Michael Mauerstein 399 Park Avenue, 12th Floor, Zone 11 New York, NY 10043 The First National Bank of Chicago 20 Attn: James Murray, Vice President One First National Plaza Mail Suite 0157 Chicago, IL 60670-0157 First Tennessee Bank National Association 20 Attn: Victor Notaro, Vice President 165 Madison Ave. Memphis, TN 38103 Norwest Bank Minnesota, N.A. 20 Attn: Janet Klein, Assistant Vice President Norwest Center Sixth & Marquette Minneapolis, MN 55479-0085 PNC Bank 35 Attn: Brenda Peck, Vice President Land Title Building Broad & Chestnut Streets Philadelphia, PA 19101 EXHIBIT A REVOLVING NOTE Date: $____________________ For value received, the undersigned The Charles Schwab Corporation ("Schwab") hereby promises to pay to the order of ________________ (the "Bank") at ______________, the principal amount of each Advance made by the Bank to Schwab under the terms of a Credit Agreement between Schwab and the Bank, dated as of June 28, 1996, as amended from time to time (the "Credit Agreement"), as shown in the schedule attached hereto and any continuation thereof, on the last day of the Interest Period (as defined in the Credit Agreement) for such Advance. The undersigned also promises to pay interest on the unpaid principal amount of each Advance from the date of such Advance until such principal amount is paid, at the rates per annum, and payable at such times, as are specified in the Credit Agreement. This Note shall be subject to the Credit Agreement, and all principal and interest payable hereunder shall be due and payable in accordance with the terms of the Credit Agreement. Terms defined in the Credit Agreement are used herein with the same meanings. Principal and interest payments shall be in money of the United States of America, lawful at such times for the satisfaction of public and private debts, and shall be in immediately available funds. Schwab promises to pay costs of collection, including reasonable attorney's fees, if default is made in the payment of this Note. The terms and provisions of this Note shall be governed by the applicable laws of the State of California. IN WITNESS WHEREOF, the undersigned has caused this Note to be executed by its officers or employees thereunto duly authorized and directed by appropriate corporate authority. The Charles Schwab Corporation By: Christopher V. Dodds Senior Vice President and Treasurer EXHIBIT B CONFIRMING BANK AGREEMENT This Agreement is entered into as of June 28, 1996 between The Charles Schwab Corporation (the "Borrower") and Bank of America Illinois (the "Confirming Bank"). WHEREAS, under the terms of separate substantially similar Credit Agreements (the "Credit Agreements") between the Borrower and each of the banks (the "Banks") set forth on Schedule I hereto, the Banks have severally agreed to lend certain amounts to the Borrower on a revolving credit loan basis through June 27, 1997 and maturing no later than September 25, 1997; WHEREAS, the Borrower desires the Confirming Bank to calculate the basis for the rates of interest to be borne by certain of the loans which may be made by the Banks to the Borrower under the Credit Agreements: NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows: 10. Terms defined in the Credit Agreements shall bear the same meanings herein unless the context otherwise requires. 11. Upon the terms and subject to the conditions hereinafter mentioned, the Confirming Bank shall determine the CD Rate (including the Assessment Rate and the CD Rate Reserve Percentage), the Eurodollar Rate (including the Eurodollar Rate Reserve Percentage) or the Reference Rate which is to serve as the basis for the interest rate of certain loans made under any of the Credit Agreements. 12. Simultaneously with the giving of a Borrowing Advice to any of the Banks, the Borrower shall give to the Confirming Bank notice of such Borrowing Advice (such notice being hereinafter referred to as a "Rate Request") which shall specify the Bank to which such Borrowing Advice was given and the principal amount, the Interest Period, and the basis for interest calculation referred to therein. 13. (a) Upon receipt by the Confirming Bank of a Rate Request relating to an Interest Period for which the interest calculation is to be based on the Eurodollar Rate, the Confirming Bank, as soon as practicable, shall (i) calculate the Eurodollar Rate Reserve Percentage for such Interest Period, which shall be the percentage (expressed as a decimal) that is in effect on the first day of such Interest Period, as prescribed by the Board of Governors of the U.S. Federal Reserve System (or any successor), for determining the reserve requirements to be maintained by the Bank under Regulation D (or any successor regulation thereof) as amended to the date hereof (including such reserve requirements as become applicable to the Bank pursuant to phase-in or other similar requirements of Regulation D at any time subsequent to the date hereof) in respect of "Eurocurrency liabilities" (as defined in Regulation D), (ii) (aa) if there appear on the Reuters Screen LIBO Page as at 11:00 A.M. (London time) two Eurodollar Banking Days prior to the commencement of the relevant Interest Period at least two rates at which deposits of U.S. dollars for the selected Interest Period are offered, identify such offered rates and calculate the Eurodollar Rate to be the arithmetic mean (adjusted upward, if necessary, to the nearest 1/16 of 1%) of such offered rates or (bb) if fewer than two offered rates appear, obtain from each of the Eurodollar Rate Reference Banks information with respect to the average rate per annum (adjusted upward, if necessary, to the nearest 1/16 of 1%) at which deposits of U.S. dollars for the selected Interest Period and in the amount specified in the Rate Request are offered in immediately available funds to such Eurodollar Rate Reference Bank (without giving effect to reserve requirements described in the Eurodollar Rate Reserve Percentage section of the Credit Agreement) in the London interbank market as at 11:00 a.m. (London time) two Banking Days prior to the commencement of the relevant Interest Period and shall determine the Eurodollar Rate for the relevant Interest Period to be the average of the rates so obtained, adjusted upward, if necessary, to the nearest 1/16 of 1%, and (iii) determine the Eurodollar Rate for the relevant Interest Period to be (aa) the applicable rate obtained pursuant to paragraph 4(a)(ii)(aa) or (bb) hereof, divided by a percentage (expressed as a decimal) equal to 1.00 minus the Eurodollar Rate Reserve Percentage. The Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Eurodollar Rate Reserve Percentage. In the event that (x) fewer than two offered rates appear on the Reuters Screen LIBO Page as described above and fewer than two Eurodollar Rate Reference Banks shall have provided information with respect to such offered rates to the Confirming Bank, or (y) the Confirming Bank shall have determined (which determination shall be conclusive and binding upon the Borrower and the Banks) that by reason of changes affecting the London interbank market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for the relevant Interest Period, the Confirming Bank shall notify the Borrower and the Bank specified in the Rate Request of such fact as soon as possible (and provide information concerning the basis for any such determination described in (y) above). 1 As soon as possible after the determination of the Eurodollar Rate, the Confirming Bank shall forthwith notify the Borrower and the Bank specified in the Rate Request of such determination by telephone, confirmed by written or telegraphic communication. The Confirming Bank shall simultaneously notify the Borrower and the Bank as to which of the Eurodollar Rate Reference Banks supplied information used in determining the Eurodollar Rate and the information supplied by each such bank. 14. (a) Upon receipt by the Confirming Bank of a Rate Request relating to an Interest Period for which the interest calculation is to be based on the CD Rate, the Confirming Bank, as soon as practicable, shall: (i) estimate the Assessment Rate for such Interest Period, which shall be the assessment rate per annum (adjusted upward, if necessary, to the nearest 1/100 of 1%) on the first day of such Interest Period for determining the then current annual assessment payable by the Bank specified in the Rate Request to the Federal Deposit Insurance Corporation (or any successor thereto) for such Corporation's (or such successor's) insuring U.S. dollar deposits of the Bank specified in the Rate Request in the United States; (b) calculate the CD Rate Reserve Percentage for such Interest Period, which shall be the percentage (expressed as a decimal) that is in effect on the first day of such Interest Period, as prescribed by the Board of Governors of the Federal Reserve System (or any successor), for determining the maximum reserve requirements (including, without limitation, supplemental, marginal and emergency reserves) for a bank with deposits exceeding five billion dollars that is a member of the Federal Reserve System, in respect of new non-personal time deposits in U.S. dollars in the United States in the amount specified in the Rate Request having a maturity comparable to such Interest Period (such bank's reserve ratio on such time deposits in effect on June __, 1996 was 0%); (c) obtain (aa) from each of the CD Reference Banks information with respect to the average rate per annum (adjusted upward, if necessary, to the nearest 1/16 of 1%) at which bids are received by each such CD Reference Bank for its certificates of deposit for the selected Interest Period and in the amount specified in the Rate Request as at 11:00 a.m., New York City time (or as soon as practicable thereafter), on the first day of the relevant Interest Period from two or more New York City certificate of deposit dealers of recognized standing selected by the Confirming Bank for the purchase at face value of such certificates of deposit, and calculate the applicable rate to be the arithmetic mean (adjusted upward, if necessary, to the nearest 1/16 of 1%) of the average rates per annum of the CD Reference Banks, or (bb) in the event the Confirming Bank cannot, without undue effort, obtain rates from such CD Reference Banks the certificate of deposit rate as reported for the date of the Borrowing Advice, in "Federal Reserve Statistical Release--Selected Interest Rates--H.15 (519)" published by the Board of Governors of the Federal Reserve System, or any successor publication, under the caption "CDs (Secondary Market)" having a maturity most closely approximating the conclusion of the Interest Period; and (d) determine the CD Rate for the relevant Interest Period to be the sum of (aa) the Assessment Rate for such Interest Period, plus (bb) the applicable rate obtained pursuant to paragraph 5(a) (iii)(aa) or (bb) hereof (adjusted upward, if necessary, to the nearest 1/16 of 1%) divided by a percentage (expressed as a decimal) equal to 1.00 minus the CD Rate Reserve Percentage. The CD Rate shall be adjusted automatically on and as of the effective date of any change in the Assessment Rate and the CD Rate Reserve Percentage. In the event that (x) fewer than two CD Reference Banks shall have provided information with respect to such offered rates to the Confirming Bank, or (y) the Confirming Bank shall have determined (which determination shall be conclusive and binding upon the Borrower and the Banks) that by reason of changes affecting the New York City certificate of deposit market, adequate and reasonable means do not exist for ascertaining the CD Rate for the relevant Interest Period, the Confirming Bank shall notify the Borrower and the Bank specified in the Rate Request of such fact as soon as possible (and provide information concerning the basis for any such determination described in (y) above). 2 As soon as possible after the determination of the CD Rate or any adjustment of the CD Rate, the Confirming Bank shall forthwith notify the Borrower and the Bank specified in the Rate Request of such determination by telephone, confirmed by written or telegraphic communication. The Confirming Bank shall simultaneously notify the Borrower and the Bank as to which of the CD Reference Banks supplied information used in determining the CD Rate and the information supplied by each such Bank. 15. (a) Upon receipt by the Confirming Bank of a Rate Request relating to an Interest Period for which the interest calculation is to be based on the Reference Rate, the Confirming Bank shall: (a) determine, on a daily basis during such Interest Period, the higher of (a) the highest per annum rate of interest (adjusted upward, if necessary, to the nearest 1/16 of 1%) publicly announced by any Reference Rate Reference Bank as its "prime rate," "prime commercial lending rate," "reference rate," or "base rate," as the case may be, and (b) the highest per annum Federal Funds Effective Rate available to any Reference Rate Reference Bank, plus 1/2 of 1%; (b) on the last day of each month falling within such Interest Period, determine the Reference Rate for the applicable portion of each month then ending, which shall be equal to the arithmetic mean of the daily rates of interest with the rate on each day being equal to the rate determined under (i) above. 2 At 10:00 a.m. on the first day of the month following each month for which the Reference Rate has been determined, the Confirming Bank shall notify the Borrower and the Bank specified in the Rate Request of such determination by telephone, confirmed by written or telegraphic communication. The Confirming Bank shall immediately notify the Borrower and the Bank as to which of the Reference Rate Reference Banks supplied information used in determining the Reference Rate and the information supplied by each such bank. 16. The determination of the Eurodollar Rate, the CD Rate or the Reference Rate by the Confirming Bank shall be final and binding in the absence of manifest error. 17. The Confirming Bank accepts its obligations herein set forth, upon the terms and conditions hereof, including the following, to all of which the Borrower agrees: 1 The Confirming Bank shall be entitled to the compensation to be agreed upon with the Borrower for all services rendered by the Confirming Bank, and the Borrower agrees promptly to pay such compensation and to reimburse the Confirming Bank for the reasonable out-of-pocket expenses (including reasonable counsel fees) incurred by it in connection with the services rendered by it hereunder. The Borrower also agrees to indemnify the Confirming Bank for, and to hold it harmless against, any loss, liability or expense (including the costs and expenses of defending against any claim of liability) incurred without gross negligence or willful misconduct, arising out of or in connection with its acting as Confirming Bank hereunder. 2 In acting under this Agreement, the Confirming Bank does not assume any obligation or relationship of agency or trust for or with any of the Banks. 3 The Confirming Bank shall be protected and shall incur no liability for or in respect of any action taken or omitted to be taken or anything suffered by it in reliance upon any notice (including any Rate Request), direction, certificate, affidavit, statement or other paper or document reasonably believed by such Confirming Bank to be genuine and to have been passed or signed by the proper parties. Under all circumstances, the Confirming Bank's maximum liability for any error or omission in the performance of its rate determination and notification obligations under this Agreement shall be the difference between (1) any erroneous rate it determined and/or provided notification of in response to a Rate Request from the Borrower, and (2) the corresponding actual rate it should have determined and/or provided notification of pursuant to the provisions of this Agreement. 4 The Confirming Bank, its officers, directors and employees may engage or be interested in any financial or other transaction with the Borrower (including the lending of moneys to the Borrower under one of the Borrowing Agreements), and may act on, or as depositary, trustee or agent for, any committee or body of holders of notes or other obligations of the Borrower, as freely as if it were not the Confirming Bank. 5 The Confirming Bank shall be obligated to perform such duties and only such duties as are herein specifically set forth, and no implied duties or obligations shall be read into this Agreement against the Confirming Bank. 6 The Confirming Bank may consult with counsel satisfactory to it and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, omitted to be taken or suffered by it hereunder in good faith and in accordance with the opinion of such counsel. 7 Any written order, certificate, notice (including any Rate Request), request, direction, or other communication, from the Borrower made or given under any provision of this Agreement shall be sufficient if signed by a person authorized to execute and deliver a Borrowing Advice. 18. (a) The Confirming Bank may at any time resign as such Confirming Bank by giving written notice to the Borrower and the Banks of such intention on its part, specifying the date on which its desired resignation shall become effective; provided, however, that no such resignation shall become effective until a successor Confirming Bank is selected by the Borrower. The Confirming Bank may be removed at any time by the filing with it of an instrument in writing signed on behalf of the Borrower and specifying such removal and the date when it is intended to become effective. Such resignation or removal shall take effect upon the date of the appointment by the Borrower, as hereinafter provided, of a successor Confirming Bank (which shall be acceptable to the Banks) and the acceptance of such appointment by such successor Confirming Bank. Upon its resignation or removal, the Confirming Bank shall be entitled to the payment by the Borrower of its compensation for the services rendered hereunder and to the reimbursement of all out-of-pocket expenses, including reasonable fees of counsel, incurred in connection with the services rendered hereunder by the Confirming Bank. 1 In case at any time the Confirming Bank shall resign, or shall be removed, or shall become incapable of acting, or shall be adjudged bankrupt or insolvent, or shall file a voluntary petition in bankruptcy or make an assignment for the benefit of its creditors or consent to the appointment of a conservator, liquidator or receiver of all or any substantial part of its property, or shall admit in writing its inability to pay or meet its debts as they mature or shall suspend payment thereof, or if an order of any court shall be entered approving any petition filed by or against the Confirming Bank under the provisions of any applicable bankruptcy or insolvency law, or if a liquidator or receiver of it or of all or any substantial part of its property shall be appointed, or if any public officer shall take charge or control of it or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, a successor Confirming Bank (which shall be acceptable to the Banks) may be appointed by the Borrower by an instrument in writing, filed with the successor Confirming Bank. Upon the appointment as aforesaid of a successor Confirming Bank and acceptance by it of such appointment, the Confirming Bank so superseded shall cease, if not previously disqualified by operation of law, to be such Confirming Bank hereunder. 2 Any successor Confirming Bank appointed hereunder shall execute, acknowledge and deliver to its predecessor and to the Borrower (which shall deliver a copy of same to the Banks) an instrument accepting such appointment hereunder, and thereupon such successor Confirming Bank, without any further act, deed or conveyance, shall become vested with all the authority, rights, powers, trusts, immunities, duties and obligations of such predecessor with like effect as if originally named as such Confirming Bank hereunder, and such predecessor, upon payment of its charges and disbursements then unpaid, shall thereupon become obliged to transfer and deliver, and such successor Confirming Bank shall be entitled to receive, copies of any relevant information maintained by such predecessor Confirming Bank. 3 Any corporation or bank into which the Confirming Bank may be merged or converted, or any corporation or bank with which the Confirming Bank may be consolidated, or any corporation or bank resulting from any merger, conversion or consolidation to which the Confirming Bank shall be a party, or any corporation or bank to which the Confirming Bank shall sell or otherwise transfer all or substantially all the assets and business of such Confirming Bank, shall, to the extent permitted by applicable law and provided that it shall be qualified as aforesaid, be the successor Confirming Bank under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto. Notice of any such merger, conversion, consolidation or sale shall forthwith be given to the Borrower and to each of the Banks. 19. The Borrower undertakes that, so long as any Revolving Note is outstanding under any of the Credit Agreements, there shall at all times be two Eurodollar Rate Reference Banks, two CD Reference Banks, and two Reference Rate Reference Banks. The initial Eurodollar Rate Reference Banks, CD Reference Banks and Reference Rate Reference Banks shall be those stated in the Credit Agreements. If any Reference Bank (i.e., any Eurodollar Rate Reference Bank, any CD Reference Bank or any Reference Rate Reference Bank) or office thereof is later unable or unwilling to act as such, the Borrower will appoint another leading bank or office thereof (independent of the Borrower and acceptable to the Banks) engaged in business in the appropriate market for determination of applicable rates to replace such Reference Bank in such capacity. The Borrower shall notify the Confirming Bank and each of the Banks forthwith upon any change in the identity of any of the Reference Banks. Pending receipt of any such notification the Confirming Bank shall be entitled to assume that the Reference Banks are those named in the Credit Agreement as modified by changes of which notification has already been received by the Confirming Bank. 20. Except where telephonic instructions or notices are authorized herein to be given, all notices, demands, instructions and other communications required or permitted to be given or made upon any party hereto shall be in writing and shall be personally delivered or sent by registered or certified mail, postage prepaid, return receipt request, or by prepaid Telex, TWX or telegram (with messenger delivery specified in the case of a telegram), or by telecopier, and shall be deemed to be given for purposes of this Agreement on the day that such writing is delivered to the intended recipient thereof in accordance with the provisions of this paragraph. Unless otherwise specified in a notice sent or delivered in accordance with the foregoing provisions of this paragraph, notices, demands, instructions and other communications in writing shall be given to or made upon the respective parties hereto at their respective addresses (or to their respective Telex, TWX or telecopier numbers) indicated below, and, in the case of telephonic instructions or notices, by calling the telephone number or numbers indicated for such party below: If to the Borrower: The Charles Schwab Corporation 101 Montgomery Street San Francisco, CA 94104 Attn: Treasury Telephone: (415) 974-7579 FAX: (415) 974-7570 If to the Confirming Bank: Bank of America Illinois Attn: Steven W. Kastenholz, Vice President 231 South LaSalle Street Chicago, IL 60697 Telephone: (312) 828-6904 FAX: (312) 828-3359 If to any of the Banks: To the respective address, telephone number or telex number set forth opposite the name of such Bank on Schedule I hereto. 21. Schedule I hereto may be amended from time to time by the Borrower by the Borrower's delivery to the Confirming Bank of a new Schedule I. Each such new Schedule I delivered by the Borrower to the Confirming Bank shall replace and supersede the then-existing Schedule I, and any such newly delivered Schedule I shall be the Schedule I referred to in this Agreement. Each such newly delivered Schedule I shall include all of the then-existing Credit Agreements between the Borrower and any Bank having substantially similar terms to the Credit Agreements listed on the original Schedule I hereto. 22. This Agreement shall be deemed to be a contract under, and for all purposes shall be governed by and construed and interpreted in accordance with, the laws of the State of California. 23. This Agreement may be executed in as many counterparts as may be deemed necessary or convenient, and by the parties hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized officers as of the date first above written. BANK OF AMERICA ILLINOIS THE CHARLES SCHWAB CORPORATION By:_______________________ By: Christopher V. Dodds Its:______________________ Senior Vice President and Treasurer SCHEDULE I to Confirming Bank Agreement dated as of June 28, 1996 between The Charles Schwab Corporation and Bank of America Illinois (Dollars in Millions) Amount Bank of America Illinois 40 Attn: Steven W. Kastenholz, Vice President 231 South LaSalle Street Chicago, IL 60697 Bank of New York 35 Attn: Lee Stephens III, Vice President One Wall Street New York, NY 10286 Bank of Tokyo-Mitsubishi Trust Company 20 Attn: Thomas Caruso, Vice President 100 Broadway, Main Floor New York, NY 10005 Chemical Bank 20 Attn: Richard Cassa, Vice President 1 Chase Manhattan Plaza, 21st Floor New York, NY 10081 Citicorp USA, Inc. 40 Attn: Michael Mauerstein 399 Park Avenue, 12th Floor, Zone 11 New York, NY 10043 The First National Bank of Chicago 20 Attn: James Murray, Vice President One First National Plaza Mail Suite 0157 Chicago, IL 60670-0157 First Tennessee Bank National Association 20 Attn: Victor Notaro, Vice President 165 Madison Ave. Memphis, TN 38103 Norwest Bank Minnesota, N.A. 20 Attn: Janet Klein, Assistant Vice President Norwest Center Sixth & Marquette Minneapolis, MN 55479-0085 PNC Bank 35 Attn: Brenda Peck, Vice President Land Title Building Broad & Chestnut Streets Philadelphia, PA 19101 EXHIBIT C BORROWING ADVICE (a) This Borrowing Advice is executed and delivered by The Charles Schwab Corporation ("Borrower") to [Bank] pursuant to that certain Credit Agreement dated as of June 28, 1996, entered into by Borrower and [Bank] (the "Credit Agreement"). Terms defined in the Credit Agreement and not otherwise defined herein are used herein as defined in the Credit Agreement. (b) Borrower hereby requests that [Bank] make an Advance for the account of Borrower (at _______________, Account No. ________________) pursuant to Paragraph 2.2 of the Credit Agreement as follows: (a) Amount of Advance:_________________ (b) Date of Advance: _________________ (c) Type of Advance (check one only): ________ Reference Rate with ____-day Interest Period ________ CD Rate with _________-day Interest Period ________ Eurodollar Rate with ________-day Interest Period (c) Following this request for Advance, the aggregate amount of all Advances under the Revolving Note will not exceed the Credit amount. (d) This Borrowing Advice is executed on ______________ by the Borrower. BORROWER: THE CHARLES SCHWAB CORPORATION a Delaware Corporation By______________________________ [Printed Name and Title] EXHIBIT D [Howard, Rice Letterhead] [Date] [Bank] Re: Credit Agreement Between The Charles Schwab Corporation and [Bank] Ladies and Gentlemen: This opinion is delivered at the request of The Charles Schwab Corporation to you in your capacity as the Bank under the Credit Agreement dated as of June 28, 1996 (the "Credit Agreement") between you and The Charles Schwab Corporation, a Delaware corporation ("Borrower"). This opinion letter speaks as of close of business on June 28, 1996 (hereafter the "operative date"). We have acted as special counsel to Borrower in connection with the Credit Agreement. In such capacity we have examined originals, or copies represented to us by Borrower to be true copies, of the Credit Agreement and the Confirming Bank Agreement dated as of June 28, 1996 between Borrower and Bank of America Illinois (the "Confirming Bank Agreement"); and we have obtained such certificates of such responsible officials of Borrower and of public officials as we have deemed necessary for purposes of this opinion. We have assumed without investigation the genuineness of all signatures on original documents, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as photostatic copies of originals, and the accuracy and completeness of all corporate records certified to us by the Borrower to be accurate and complete. We have further assumed that the Credit Agreement is binding upon and enforceable against the Bank, and that the Confirming Bank Agreement is binding upon and enforceable against Bank of America Illinois. As to factual matters, we have relied upon the representations and warranties contained in and made pursuant to the Credit Agreement. Capitalized terms not otherwise defined herein have the meanings given for such terms in the Credit Agreement. For the purpose of this opinion, "Loan Documents" as used herein means the Credit Agreement and the Confirming Bank Agreement. Based upon the foregoing and in reliance thereon, and subject to the exceptions and qualifications set forth herein, we are of the opinion that: (e) Borrower is a corporation duly formed, validly existing, and in good standing under the laws of Delaware. (f) Borrower has all requisite corporate power and authority to execute, deliver and perform all of its obligations under the Loan Documents. (g) Each of the two Loan Documents has been duly authorized, executed and delivered by Borrower. Each of the two Loan Documents constitutes the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such validity, binding nature or enforceability may be limited by: (a) the effect of applicable federal or state bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium or other similar laws and court decisions relating to or affecting creditors' rights generally; (b) the effect of legal and equitable principles upon the availability of creditors' remedies, regardless of whether considered in a proceeding in equity or at law; (c) the effect of California judicial decisions involving statutes or principles of equity which have held that certain covenants or other provisions of agreements, including without limitation those providing for the acceleration of indebtedness due under debt instruments upon the occurrence of events therein described, are unenforceable under circumstances where it cannot be demonstrated that the enforcement of such provisions is reasonably necessary for the protection of the lender, has been undertaken in good faith under the circumstances then existing, and is commercially reasonable; (d) the effect of Section 1670.5 of the California Civil Code, which provides that a court may refuse to enforce a contract or may limit the application thereof or any clause thereof which the court finds as a matter of law to have been unconscionable at the time it was made; (e) the unenforceability, under certain circumstances, of provisions purporting to require the award of attorneys' fees, expenses, or costs, where such provisions do not satisfy the requirements of California Civil Code Section 1717 et seq., or in any action where the lender is not the prevailing party; (f) the unenforceability, under certain circumstances, of provisions waiving stated rights or unknown future rights and waiving defenses to obligations, where such waivers are contrary to applicable law or against public policy; (g) the unenforceability, under certain circumstances, of provisions which provide for penalties, late charges, additional interest in the event of a default by the borrower or fees or costs related to such charges; (h) the unenforceability, under certain circumstances, of provisions to the effect that rights or remedies are not exclusive, that every right or remedy is cumulative and may be exercised in addition to or with any other right or remedy, or that the election of some particular remedy or remedies does not preclude recourse to one or another remedy; (i) the unenforceability of provisions prohibiting waivers of provisions of either of the Loan Documents otherwise than in writing to the extent that Section 1698 of the California Civil Code permits oral modifications that have been executed; (j) limitations on the enforceability of release, contribution, exculpatory, or nonliability provisions, under federal or state securities laws, Sections 1542 and 1543 of the California Civil Code, and any other applicable statute or court decisions; and (k) limitations on the enforceability of any indemnity obligations imposed upon or undertaken by the borrower to the extent that such obligations do not satisfy the requirements of Sections 2772 et seq. of the California Civil Code and any judicial decisions thereunder. The foregoing opinions are subject to the following exceptions and qualifications: b. We have not been requested to verify and have not verified the validity, accuracy, or reasonableness of any of the factual representations contained in either or both of the Loan Documents, and we express no opinion with respect to any of such matters. c. We are members of the bar of the State of California and are not admitted to practice in any other jurisdiction. Accordingly, we are opining herein only concerning matters governed by the Federal laws of the United States of America, the laws of the State of California, and the General Corporation Law of the State of Delaware, and only with respect to Borrower. We express no opinion concerning the applicability to either or both of the Loan Documents, or the effect thereon, of the laws of any other jurisdiction. Furthermore, we express no opinion with respect to choice of law or conflicts of law, and none of the opinions stated herein shall be deemed to include or refer to choice of law or conflict of law. d. We express no opinion on any Federal or state securities laws as they may relate to either or both of the Loan Documents. e. We express no opinion as to compliance with the usury laws of any jurisdiction. The opinions set forth herein are given as of the operative date. We disclaim any obligation to notify you or any other person or entity after the operative date if any change in fact and/or law should change our opinion with respect to any matters set forth herein. This opinion letter is rendered to you in your capacity as the Bank under the Credit Agreement and may not be relied upon, circulated or quoted, in whole or in part, by any other person or entity (other than a person or entity who becomes an assignee or successor in interest of the Bank or acquires a participation from the Bank consistent with the terms of the Loan Documents) and shall not be referred to in any report or document furnished to any other person or entity without our prior written consent; provided, however, that the foregoing shall not preclude the Bank from describing or otherwise disclosing the existence or contents of this letter to (i) any bank regulatory authority having jurisdiction over the Bank, as required by such authority, (ii) a person or entity who, in good-faith discussions between the Bank and such person or entity, is proposed to become an assignee or successor in interest of the Bank or to acquire a participation from the Bank consistent with the terms of the Loan Documents, and (iii) counsel to the Bank. Very truly yours, HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN A Professional Corporation By________________________________ JLS/eas EX-11 5 EXHIBIT 11.1 THE CHARLES SCHWAB CORPORATION Computation of Earnings per Share (In thousands, except per share amounts) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 1996 1995 1996 1995 ---- ---- ---- ---- Net Income $ 70,095 $ 44,419 $117,038 $ 82,795 ====================================================================================================== Shares Primary: Weighted-average number of common shares outstanding 173,865 171,951 173,584 170,903 Common stock equivalent shares related to option plans 5,385 6,176 5,485 6,241 - ------------------------------------------------------------------------------------------------------ Weighted-average number of common and common equivalent shares outstanding 179,250 178,127 179,069 177,144 ====================================================================================================== Fully Diluted: Weighted-average number of common shares outstanding 173,865 171,951 173,584 170,903 Common stock equivalent shares related to option plans 5,414 6,760 5,605 6,792 - ------------------------------------------------------------------------------------------------------ Weighted-average number of common and common equivalent shares outstanding 179,279 178,711 179,189 177,695 ====================================================================================================== Per Share Primary earnings per share $ .39 $ .25 $ .65 $ .47 ====================================================================================================== Fully diluted earnings per share $ .39 $ .25 $ .65 $ .47 ======================================================================================================
EX-12 6 EXHIBIT 12.1 THE CHARLES SCHWAB CORPORATION Computation of Ratio of Earnings to Fixed Charges (Dollar amounts in thousands, unaudited)
Three Months Six Months Ended Ended June 30, June 30, 1996 1995 1996 1995 ---- ---- ---- ---- Earnings before taxes on income $118,699 $ 73,287 $198,369 $136,668 - ------------------------------------------------------------------------------------------------------------------ Fixed charges Interest expense - customer 86,815 78,810 173,206 150,716 Interest expense - other 14,337 8,856 26,955 16,153 Interest portion of rental expense 5,834 5,735 11,261 10,408 - ------------------------------------------------------------------------------------------------------------------ Total fixed charges (a) 106,986 93,401 211,422 177,277 - ------------------------------------------------------------------------------------------------------------------ Earnings before taxes on income and fixed charges (b) $225,685 $166,688 $409,791 $313,945 ================================================================================================================== Ratio of earnings to fixed charges (b) divided by (a) (1) 2.1 1.8 1.9 1.8 ================================================================================================================== Ratio of earnings to fixed charges as adjusted (2) 6.9 6.0 6.2 6.1 ================================================================================================================== (1) The ratio of earnings to fixed charges is calculated in a manner consistent with SEC requirements. For such purposes, "earnings" consist of earnings before taxes on income and fixed charges. "Fixed charges" consist of interest expense incurred on payables to customers, long-term debt (including current maturities) and one-third of rental expense, which is estimated to be representative of the interest factor. (2) Because interest expense incurred in connection with payables to customers is completely offset by interest revenue on related investments and margin loans, the Company considers such interest to be an operating expense. Accordingly, the ratio of earnings to fixed charges as adjusted reflects the elimination of such interest expense as a fixed charge.
EX-27 7 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
BD This schedule contains summary financial information extracted from the Condensed Consolidated Statement of Income and Condensed Balance Sheet of the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996, and is qualified in its entirety by reference to such financial statements. 1000 6-MOS DEC-31-1996 JUN-30-1996 1630531 4818860 4153464 0 135612 279768 11214000 157082 9667846 0 0 0 300084 0 0 1785 755479 11214000 134753 134753 321510 502062 0 144219 200161 396189 198369 117038 0 0 117038 .65 .65
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