-----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, AVcJZ79VdNHVbEU0CsA1zyEECIVYYFTIHKds40CUl7fzUpX9zjBgH+oh3quqtj1M BuD8DhLSfBltyh1uvZHnIA== 0000929624-98-001266.txt : 19980720 0000929624-98-001266.hdr.sgml : 19980720 ACCESSION NUMBER: 0000929624-98-001266 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980717 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980717 SROS: NYSE SROS: PCX 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: 8-K SEC ACT: SEC FILE NUMBER: 001-09700 FILM NUMBER: 98667886 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 8-K 1 CURRENT REPORT FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: July 17, 1998 THE CHARLES SCHWAB CORPORATION (Exact name of registrant as specified in its charter) Delaware 1-9700 94-3025021 - ------------------------------ ----------- ---------------------- (State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File Number) Identification Number) 101 Montgomery Street San Francisco, California 94104 ------------------------------- (Address of principal executive offices) (415) 627-7000 -------------- (Registrant's telephone number, including area code) Item 5. Other Events. Attached hereto and incorporated herein by ------------ reference are (i) Distribution Agreement, dated July 13, 1998 by and among The Charles Schwab Corporation (the "Company"), Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., Credit Suisse First Boston Corporation, and Charles Schwab & Co., Inc., relating to the issuance and sale from time to time by the Company of up to $150,000,000 aggregate public offering price of such Medium-Term Notes pursuant to Registration Statement No. 333-54001 (the "Offering"); (ii) forms of Senior and Senior Subordinated Medium-Term Notes, Series A, relating to the Offering; (iii) Credit Agreement (364-Day Commitment), between the Company and each of the banks listed therein, dated as of June 26, 1998; and (iv) Credit Agreement (3-Year Commitment), between the Company and each of the banks listed therein, dated as of June 26, 1998. Item 7(c). Exhibits -------- 1.3 Distribution Agreement, dated July 13, 1998. 4.3 Form of Senior Medium-Term Note, Series A (Fixed Rate). 4.4 Form of Senior Medium-Term Note, Series A (Floating Rate). 4.5 Form of Senior Subordinated Medium-Term Note, Series A (Fixed Rate). 4.6 Form of Senior Subordinated Medium-Term Note, Series A (Floating Rate). 10.1 Credit Agreement (364-Day Commitment), between the Company and each of the banks listed therein, dated as of June 26, 1998. 10.2 Credit Agreement (3-Year Commitment), between the Company and each of the banks listed therein, dated as of June 26, 1998. SIGNATURES 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. Dated: July 17, 1998 THE CHARLES SCHWAB CORPORATION By: /s/ Steven L. Scheid ------------------------- Name: Steven L. Scheid Title: Executive Vice President and Chief Financial Officer EX-1.3 2 DISTRIBUTION AGREEMENT, DATED JULY 13 1998 EXHIBIT 1.3 THE CHARLES SCHWAB CORPORATION Medium-Term Notes, Series A Due More than 9 Months from Date of Issue DISTRIBUTION AGREEMENT July 13, 1998 Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 Goldman, Sachs & Co. 85 Broad Street New York, New York 10004 Charles Schwab & Co., Inc. 101 Montgomery Street San Francisco, California 94104 Credit Suisse First Boston Corporation 11 Madison Avenue New York, New York 10010 Dear Ladies/Gentlemen: The Charles Schwab Corporation, a Delaware corporation (the "Company"), confirms its agreement with each of you with respect to the issue and sale from time to time by the Company of such aggregate initial public offering price of its Medium-Term Notes, Series A, due more than 9 months from date of issue, as at such time (a) has been duly authorized for issuance and sale by the Board of Directors of the Company and (b) is covered by one or more registration statements that have become effective under the Securities Act of 1933, as amended (the "Notes"). The Notes may be issued as senior indebtedness (the "Senior Notes") or as senior subordinated indebtedness (the "Senior Subordinated Notes") of the Company. The Senior Notes will be issued pursuant to the provisions of a senior indenture dated as of July 15, 1993 (the "Senior Debt Indenture") between the Company and The Chase Manhattan Bank (formerly Chemical Bank), as trustee (the "Trustee"). The Senior Subordinated Notes will be issued pursuant to the provisions of a senior -1- subordinated indenture dated as of July 15, 1993 (the "Senior Subordinated Debt Indenture") between the Company and the Trustee. The Senior Debt Indenture and the Senior Subordinated Debt Indenture are sometimes hereinafter referred to individually as an "Indenture" and collectively as the "Indentures." The Notes will have the maturities, interest rates, redemption provisions, if any, and other terms as set forth in supplements to the Basic Prospectus referred to below. Subject to the terms and conditions stated herein, and subject to the reservation by the Company of the right to appoint additional Agents who will agree to be subject to the terms hereof pursuant to Section 12 hereof and to sell Notes directly on its own behalf at any time and to any person in those jurisdictions where such offering by the Company is authorized, the Company hereby appoints Morgan Stanley & Co. Incorporated ("Morgan Stanley"), Goldman, Sachs & Co. ("Goldman, Sachs"), Charles Schwab & Co., Inc. ("Charles Schwab"), and Credit Suisse First Boston Corporation("CS First Boston") (individually, an "Agent" and collectively, the "Agents") as its exclusive agents for the purpose of soliciting and receiving offers to purchase Notes from the Company by others and, on the basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth, each Agent agrees to use reasonable efforts to solicit and receive offers to purchase Notes upon terms acceptable to the Company at such times and in such amounts as the Company shall from time to time specify. In addition, any Agent may also purchase Notes as principal pursuant to the terms of a terms agreement relating to such sale (a "Terms Agreement") in accordance with the provisions of Section 2(b) hereof. Each Agent acknowledges that, in the case of any sale of Notes by the Company not resulting from a solicitation made or an offer to purchase received by such Agent, or arising in connection with a purchase by such Agent as principal, no commission shall be payable to such Agent with respect to such sale. Each Agent further acknowledges that in acting under this Agreement and in connection with the sale of any Notes by the Company (other than Notes sold to such Agent as principal), such Agent is acting solely as agent of the Company and does not assume any obligation towards or relationship of agency or trust with any purchaser of Notes. The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement, including a prospectus, and may in the future file one or more additional registration statements, in each case including a prospectus, relating to the Notes. The term -2- "Registration Statement," as used herein, means, at any time, such of the foregoing registration statements, including the exhibits thereto, as are being used to offer Notes at such time. The Company proposes to file with the Commission from time to time, pursuant to Rule 424 under the Securities Act of 1933, as amended (the "Securities Act"), supplements to the prospectus included in the Registration Statement that will describe certain terms of the Notes. The prospectus in the form in which it appears in the Registration Statement is hereinafter referred to as the "Basic Prospectus." The term "Prospectus" means the Basic Prospectus together with the prospectus supplement or supplements (each a "Prospectus Supplement") specifically relating to Notes, as filed with, or transmitted for filing to, the Commission pursuant to Rule 424. As used herein, the terms "Basic Prospectus" and "Prospectus" shall include in each case the documents, if any, incorporated by reference therein. The terms "supplement," "amendment" and "amend" as used herein shall include all documents deemed to be incorporated by reference in the Prospectus that are filed subsequent to the date of the Basic Prospectus by the Company with the Commission pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"). If the Company has filed an abbreviated registration statement to register additional Debt Securities pursuant to Rule 462(b) under the Securities Act (the "Rule 462 Registration Statement"), then any reference herein to the term "Registration Statement" shall be deemed to include such Rule 462 Registration Statement. 1. Representations and Warranties. The Company represents and ------------------------------ warrants to and agrees with each Agent as of the Commencement Date, as of each date on which an Agent solicits offers to purchase Notes, as of each date on which the Company accepts an offer to purchase Notes (including any purchase by an Agent pursuant to a Terms Agreement), as of each date the Company issues and delivers Notes and as of each date the Registration Statement or the Basic Prospectus is amended or supplemented, as follows (it being understood that such representations, warranties and agreements shall be deemed to relate to the Registration Statement, the Basic Prospectus and the Prospectus, each as amended or supplemented to each such date): (a) The Registration Statement has become effective; no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or threatened by the Commission. -3- (b) (i) Each document, if any, filed or to be filed pursuant to the Exchange Act and incorporated by reference in the Prospectus complied or will comply when so filed in all material respects with the Exchange Act and the applicable rules and regulations of the Commission thereunder, (ii) each part of the Registration Statement, when such part became effective, did not contain, and each such part, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (iii) the Registration Statement and the Prospectus comply, and, as amended or supplemented, if applicable, will comply in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder and (iv) the Prospectus does not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that (1) the representations and warranties set forth in this Section 1(b) do not apply (A) to statements or omissions in the Registration Statement or the Prospectus based upon information relating to an Agent furnished to the Company in writing by such Agent expressly for use therein or (B) to that part of the Registration Statement that constitutes the Statement of Eligibility (Form T-1) under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), of the Trustee and (2) the representations and warranties set forth in clauses (iii) and (iv) above, when made as of the Commencement Date or as of any date on which an Agent solicits offers to purchase Notes or on which the Company accepts an offer to purchase Notes, shall be deemed not to cover information concerning an offering of particular Notes to the extent such information will be set forth in a supplement to the Basic Prospectus. (c) The Company is a duly incorporated, validly existing corporation in good standing under the laws of the State of Delaware, has the corporate power and authority to own its property and conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole. -4- (d) Each of Schwab Holdings, Inc. ("Holdings"), Charles Schwab, and each other subsidiary of the Company that is a "significant subsidiary" within the meaning of Rule 1-02 of Regulation S-X of the Commission (each, a "Significant Subsidiary" and collectively, the "Significant Subsidiaries") is a duly incorporated, validly existing corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole. (e) Each of this Agreement and any applicable Written Terms Agreement (as hereinafter defined) has been duly authorized, executed and delivered by the Company. (f) Each Indenture has been duly qualified under the Trust Indenture Act and has been duly authorized, executed and delivered by the Company and is a valid and binding agreement of the Company, enforceable in accordance with its terms except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. (g) The forms of Notes have been duly authorized and, when the Notes have been executed and authenticated in accordance with the provisions of the relevant Indenture and delivered to and duly paid for by the purchasers thereof, the Notes will be entitled to the benefits of such Indenture and will be valid and binding obligations of the Company, enforceable in accordance with their respective terms except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. (h) The execution and delivery by the Company of this Agreement, the Notes, the Indentures and any applicable Written Terms Agreement, and the performance by the Company of its obligations under this Agreement, the Notes, the Indentures and any applicable Terms Agreement will not contravene any provision of applicable law or the certificate -5- of incorporation or by-laws of the Company or Charles Schwab or any agreement or other instrument binding upon the Company or any of its subsidiaries that is material to the Company and its subsidiaries, taken as a whole, or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any subsidiary, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under this Agreement, the Notes, the Indentures and any applicable Terms Agreement, or for the performance by Charles Schwab of its obligations under this Agreement and any applicable Terms Agreement, except such as have been obtained, and such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Notes; provided, however, that no representation is made as to whether the purchase of the Offered Securities constitutes a "prohibited transaction" under Section 406 of the Employee Retirement Income Security Act of 1974, as amended, or Section 4975 of the Internal Revenue Code of 1986, as amended. (i) There has not occurred any material adverse change, or any development which could reasonably be expected to result in a material adverse change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Prospectus. (j) There are no legal or governmental proceedings pending or threatened to which the Company or any of its subsidiaries is a party or to which any of the properties of the Company or any of its subsidiaries is subject that are required to be described in the Registration Statement or the Prospectus and are not so described or any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed or incorporated by reference as exhibits to the Registration Statement that are not described, filed or incorporated as required. (k) The Company is not an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. (l) Each of the Company and its Significant Subsidiaries has all necessary consents, authorizations, approvals, orders, certificates and permits of and from, and has made all declarations and filings with, all federal, state, local and other governmental authorities, all -6- self-regulatory organizations and all courts and other tribunals, to own, lease, license and use its properties and assets and to conduct its business in the manner described in the Prospectus, except to the extent that the failure to obtain or file would not have a material adverse effect on the Company and its subsidiaries, taken as a whole. (m) Each of the Company and its Significant Subsidiaries is duly registered as a broker-dealer, municipal securities broker or dealer, investment adviser, or transfer agent, as the case may be, in each jurisdiction wherein the conduct of its business requires such registration, and each of the Company and its Significant Subsidiaries is in compliance in all material respects with all applicable laws, rules, regulations, orders, by-laws and similar requirements in connection with such registrations, except to the extent that the failure to be so registered or be in compliance would not have a material adverse effect on the Company and its subsidiaries, taken as a whole. (n) Charles Schwab is a member in good standing of the associations and exchanges indicated in the Prospectus and is registered as a broker-dealer with the Commission and in all 50 states, the District of Columbia and Puerto Rico, except to the extent that the failure to be in good standing or be so registered would not have a material adverse effect on the Company and its subsidiaries, taken as a whole. 2. Solicitations as Agent; Purchases as Principal. ------------------------------------ --------- (a) Solicitations as Agent. In connection with an Agent's actions as ---------------------- agent hereunder, such Agent agrees to use reasonable efforts to solicit offers to purchase Notes upon the terms and conditions set forth in the Prospectus as then amended or supplemented. The Company reserves the right, in its sole discretion, to instruct the Agents to suspend at any time, for any period of time or permanently, the solicitation of offers to purchase Notes. Upon receipt of at least one business day's prior notice from the Company, the Agents will forthwith suspend solicitations of offers to purchase Notes from the Company until such time as the Company has advised the Agents that such solicitation may be resumed. While such solicitation is suspended, the Company shall not be required to deliver any certificates, opinions or letters in accordance with Sections 5(a), 5(b) and 5(c); provided, however, that if the Registration Statement or Prospectus is -------- ------- amended or supplemented during the period of suspension -7- (other than by an amendment or supplement providing solely for a change in the interest rates, redemption provisions, amortization schedules or maturities offered on the Notes or for a change the Agents deem to be immaterial), no Agent shall be required to resume soliciting offers to purchase Notes until the Company has delivered such certificates, opinions and letters as such Agent may request. The Company agrees to pay to each Agent, as consideration for the sale of each Note resulting from a solicitation made or an offer to purchase received by such Agent, a commission in the form of a discount from the purchase price of such Note equal to the percentage set forth below of the purchase price of such Note: Term Commission Rate ---- --------------- From 9 months to less than 12 months .125% From 12 months to less than 18 months .150% From 18 months to less than 2 years .200% From 2 years to less than 3 years .250% From 3 years to less than 4 years .350% From 4 years to less than 5 years .450% From 5 years to less than 6 years .500% From 6 years to less than 7 years .550% From 7 years to less than 10 years .600% From 10 years to less than 15 years .625% From 15 years to less than 20 years .700% From 20 years to 30 years .750% More than 30 years .875% Each Agent shall communicate to the Company, orally or in writing, each offer to purchase Notes received by such Agent as agent that in its judgment should be considered by the Company. The Company shall have the sole right to accept offers to purchase Notes and may reject any offer in whole or in part. Each Agent shall have the right to reject any offer to purchase Notes that it considers to be unacceptable, and any such rejection shall not be deemed a breach of its agreements contained herein. The procedural details relating to the issue and delivery of Notes sold by the Agents as agents and the payment therefor shall be as set forth in the Administrative Procedures (as hereinafter defined). (b) Purchases as Principal. Each sale of Notes to an Agent as ---------------------- principal shall be made in accordance with the terms of this Agreement. In connection with each such sale, the Company will enter into a Terms Agreement that will provide for the sale of such Notes to and the purchase thereof by such Agent. Each Terms Agreement will take the -8- form of either (i) a written agreement between such Agent and the Company, which may be substantially in the form of Exhibit A hereto (a "Written Terms Agreement"), or (ii) an oral agreement between such Agent and the Company, which may be confirmed in writing by such Agent to the Company. An Agent's commitment to purchase Notes as principal pursuant to a Terms Agreement shall be deemed to have been made on the basis of the representations and warranties of the Company herein contained and shall be subject to the terms and conditions herein set forth. Each Terms Agreement shall specify the principal amount of Notes to be purchased by such Agent pursuant thereto, the maturity date of such Notes, the price to be paid to the Company for such Notes, the interest rate and interest rate formula, if any, applicable to such Notes and any other terms of such Notes. Each such Terms Agreement may also specify any requirements for officers' certificates, opinions of counsel and letters from the independent auditors of the Company pursuant to Section 4 hereof. A Terms Agreement may also specify certain provisions relating to the reoffering of such Notes by such Agent. Each Terms Agreement shall specify the time and place of delivery of and payment for such Notes. Unless otherwise specified in a Terms Agreement, the procedural details relating to the issue and delivery of Notes purchased by an Agent as principal and the payment therefor shall be as set forth in the Administrative Procedures. Each date of delivery of and payment for Notes to be purchased by an Agent pursuant to a Terms Agreement is referred to herein as a "Settlement Date." Unless otherwise specified in a Terms Agreement, if an Agent is purchasing Notes as principal such Agent may resell such Notes to other dealers. Any such sales may be at a discount, which shall not exceed the amount set forth in the Prospectus Supplement relating to such Notes. (c) Administrative Procedures. The Agents and the Company agree to ------------------------- perform the respective duties and obligations specifically provided to be performed in the Medium-Term Notes, Series A, Administrative Procedures (attached hereto as Exhibit B) (the "Administrative Procedures"), as amended from time to time. The Administrative Procedures may be amended only by written agreement of the Company and the Agents. (d) Delivery. The documents required to be delivered by Section 4 of -------- this Agreement as a condition -9- precedent to each Agent's obligation to begin soliciting offers to purchase Notes as an agent of the Company shall be delivered at the office of Howard, Rice, Nemerovski, Canady, Falk & Rabkin, A Professional Corporation, counsel for the Company, not later than 1:00 p.m., California time, on the date hereof, or at such other time and/or place as the Agents and the Company may agree upon in writing, but in no event later than the day prior to the earlier of (i) the date on which the Agents begin soliciting offers to purchase Notes and (ii) the first date on which the Company accepts any offer by an Agent to purchase Notes pursuant to a Terms Agreement. The date of delivery of such documents is referred to herein as the "Commencement Date." (e) Obligations Several. The Company acknowledges that the ------------------- obligations of the Agents under this Agreement are several and not joint. 3. Agreements. The Company agrees with each Agent that: ---------- (a) Prior to the termination of the offering of the Notes pursuant to this Agreement or any Terms Agreement, the Company will not file any Prospectus Supplement relating to the Notes or any amendment to the Registration Statement unless the Company has previously furnished to the Agents copies thereof for their review and will not file any such proposed supplement or amendment to which the Agents reasonably object; provided, however, that (i) the foregoing -------- ------- requirement shall not apply to any of the Company's periodic filings with the Commission required to be filed pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, copies of which filings the Company will cause to be delivered to the Agents promptly after being transmitted for filing with the Commission and (ii) any Prospectus Supplement that merely sets forth the terms or a description of particular Notes shall only be reviewed and approved by the Agent or Agents offering such Notes. Subject to the foregoing sentence, the Company will promptly cause each Prospectus Supplement to be filed with or transmitted for filing to the Commission in accordance with Rule 424(b) under the Securities Act. The Company will promptly advise the Agents (i) of the filing of any amendment or supplement to the Basic Prospectus (except that notice of the filing of an amendment or supplement to the Basic Prospectus that merely sets forth the terms or a description of particular Notes shall only be given to the Agent or Agents offering such Notes), (ii) of the filing and effectiveness of any amendment to the Registration Statement, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to -10- the Basic Prospectus or for any additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or threatening of any proceeding for that purpose and (v) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Notes for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose. The Company will use reasonable efforts to prevent the issuance of any such stop order or notice of suspension of qualification and, if issued, to obtain as soon as possible the withdrawal thereof. If the Basic Prospectus is amended or supplemented as a result of the filing under the Exchange Act of any document incorporated by reference in the Prospectus, no Agent shall be obligated to solicit offers to purchase Notes so long as it is not reasonably satisfied with such document. (b) If, at any time when a prospectus relating to the Notes is required to be delivered under the Securities Act, any event occurs or condition exists as a result of which the Prospectus, as then amended or supplemented, would include an untrue statement of a material fact, or omit to state any material fact necessary to make the statements therein, in the light of the circumstances when the Prospectus, as then amended or supplemented, is delivered to a purchaser, not misleading, or if, in the opinion of the Agents or in the opinion of the Company, it is necessary at any time to amend or supplement the Prospectus, as then amended or supplemented, to comply with applicable law, the Company will immediately notify the Agents by telephone (with confirmation in writing) to suspend solicitation of offers to purchase Notes and, if so notified by the Company, the Agents shall forthwith suspend such solicitation and cease using the Prospectus, as then amended or supplemented. If the Company shall decide to amend or supplement the Registration Statement or Prospectus, as then amended or supplemented, it shall so advise the Agents promptly by telephone (with confirmation in writing) and, at its expense, shall prepare and cause to be filed promptly with the Commission an amendment or supplement to the Registration Statement or Prospectus, as then amended or supplemented, satisfactory in all respects to the Agents, that will correct such statement or omission or effect such compliance and will supply such amended or supplemented Prospectus to the Agents in such quantities as they may reasonably request. If any documents, certificates, opinions and letters furnished to the Agents pursuant to paragraph (f) below and Sections 5(a), 5(b) and 5(c) in connection with the preparation and filing of such amendment or supplement are satisfactory in all respects to -11- the Agents, upon the filing with the Commission of such amendment or supplement to the Prospectus or upon the effectiveness of an amendment to the Registration Statement, the Agents will resume the solicitation of offers to purchase Notes hereunder. Notwithstanding any other provision of this Section 3(b), until 180 days after the date any Agent has purchased Notes as principal from the Company, if any event described above in this paragraph (b) occurs, the Company will, at its own expense, forthwith prepare and cause to be filed promptly with the Commission an amendment or supplement to the Registration Statement or Prospectus, as then amended or supplemented, satisfactory in all respects to such Agent, will supply such amended or supplemented Prospectus to such Agent in such quantities as it may reasonably request and shall furnish to such Agent pursuant to paragraph (f) below and Sections 5(a), 5(b) and 5(c) such documents, certificates, opinions and letters as it may request in connection with the preparation and filing of such amendment or supplement. (c) The Company will make generally available to its security holders and to the Agents as soon as practicable earning statements that satisfy the provisions of Section 11(a) of the Securities Act and the rules and regulations of the Commission thereunder covering twelve month periods beginning, in each case, not later than the first day of the Company's fiscal quarter next following the "effective date" (as defined in Rule 158 under the Securities Act) of the Registration Statement with respect to each sale of Notes. If such fiscal quarter is the last fiscal quarter of the Company's fiscal year, such earning statement shall be made available not later than 90 days after the close of the period covered thereby and in all other cases shall be made available not later than 45 days after the close of the period covered thereby. (d) The Company will furnish to each Agent, without charge, a signed copy of the Registration Statement, including exhibits and all amendments thereto, and as many copies of the Prospectus, any documents incorporated by reference therein and any supplements and amendments thereto as such Agent may reasonably request. (e) The Company will endeavor to qualify the Notes for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Agents shall reasonably request and to maintain such qualification for as long as the Agents shall reasonably request. -12- (f) The Company shall furnish to the Agents such relevant documents and certificates of officers of the Company relating to the business, operations and affairs of the Company, the Registration Statement, the Basic Prospectus, any amendments or supplements thereto, the Indentures, the Notes, this Agreement, the Administrative Procedures, any Terms Agreement and the performance by the Company of its obligations hereunder or thereunder as the Agents may from time to time reasonably request. (g) The Company shall notify the Agents promptly in writing of any downgrading, or of its receipt of any notice of any intended or potential downgrading or of any review for possible change that does not indicate the direction of the possible change, in the rating accorded any of the Company's securities by any "nationally recognized statistical rating organization," as such term is defined for purposes of Rule 436(g)(2) under the Securities Act. (h) The Company will, whether or not any sale of Notes is consummated, pay all expenses incident to the performance of its obligations under this Agreement and any Terms Agreement, including: (i) the preparation and filing of the Registration Statement and the Prospectus and all amendments and supplements thereto, (ii) the preparation, issuance and delivery of the Notes, (iii) the fees and disbursements of the Company's counsel and accountants and of the Trustee and its counsel, (iv) the qualification of the Notes under securities or Blue Sky laws in accordance with the provisions of Section 3(e), including filing fees and the fees and disbursements of counsel for the Agents in connection therewith and in connection with the preparation of any Blue Sky or Legal Investment Memoranda, (v) the printing and delivery to the Agents in quantities as hereinabove stated of copies of the Registration Statement and all amendments thereto and of the Prospectus and any amendments or supplements thereto, (vi) the printing and delivery to the Agents of copies of any Blue Sky or Legal Investment Memoranda, (vii) any fees charged by rating agencies for the rating of the Notes, (viii) the fees and expenses, if any, incurred with respect to any filing with the National Association of Securities Dealers, Inc., (ix) the reasonable fees and disbursements of counsel for the Agents incurred in connection with the offering and sale of the Notes, including any opinions to be rendered by such counsel hereunder, and (x) any reasonable out-of-pocket expenses incurred by the Agents; provided that any advertising expenses incurred -------- by the Agents shall have been approved by the Company. -13- (i) Between the date of any Terms Agreement and the Settlement Date with respect to such Terms Agreement, the Company will not, without the prior consent of the Agent under such Term Agreement, offer, sell, contract to sell or otherwise dispose of any debt securities of the Company substantially similar to the Notes that are to be sold pursuant to such Terms Agreement (other than (i) such Notes, (ii) Notes previously agreed to be sold by the Company and (iii) commercial paper issued in the ordinary course of business), except as may otherwise be provided in such Terms Agreement. 4. Conditions of the Obligations of the Agents. Each Agent's ------------------------------------------- obligation to solicit offers to purchase Notes as agent of the Company, each Agent's obligation to purchase Notes pursuant to any Terms Agreement and the obligation of any other purchaser to purchase Notes will be subject to the accuracy of the representations and warranties on the part of the Company herein, to the accuracy of the statements of the Company's officers made in each certificate furnished pursuant to the provisions hereof and to the performance and observance by the Company of all covenants and agreements herein contained on its part to be performed and observed (in the case of an Agent's obligation to solicit offers to purchase Notes, at the time of such solicitation, and, in the case of an Agent's or any other purchaser's obligation to purchase Notes, at the time the Company accepts the offer to purchase such Notes and at the time of issuance and delivery) and (in each case) to the following additional conditions precedent when and as specified: (a) Prior to such solicitation or purchase, as the case may be: (i) there shall not have occurred any change, or any development which could reasonably be expected to result in a change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Prospectus, as amended or supplemented at the time of such solicitation or at the time such offer to purchase was made, that, in the judgment of the relevant Agent, is material and adverse and that makes it, in the judgment of such Agent, impracticable to market the Notes on the terms and in the manner contemplated by the Prospectus, as so amended or supplemented; (ii) there shall not have occurred any (A) suspension or material limitation of trading -14- generally on or by, as the case may be, the New York Stock Exchange, the American Stock Exchange or the National Association of Securities Dealers, Inc., (B) suspension of trading of any securities of the Company on any exchange or in any over-the-counter market, (C) declaration of a general moratorium on commercial banking activities in New York by either Federal or New York State authorities or (D) any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in the judgment of the relevant Agent, is material and adverse and, in the case of any of the events described in clauses (ii)(A) through (D), such event, singly or together with any other such event, makes it, in the judgment of such Agent, impracticable to market the Notes on the terms and in the manner contemplated by the Prospectus, as amended or supplemented at the time of such solicitation or at the time such offer to purchase was made; and (iii) there shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded any of the Company's securities by any "nationally recognized statistical rating organization," as such term is defined for purposes of Rule 436(g)(2) under the Securities Act; (A) except, in each case described in paragraph (i), (ii) or (iii) above, as disclosed to the relevant Agent in writing by the Company prior to such solicitation or, in the case of a purchase of Notes, as disclosed to the relevant Agent before the offer to purchase such Notes was made or (B) unless in each case described in (ii) above, the relevant event shall have occurred and been known to the relevant Agent before such solicitation or, in the case of a purchase of Notes, before the offer to purchase such Notes was made. (b) On the Commencement Date and, if called for by any Terms Agreement, on the corresponding Settlement Date, the relevant Agents shall have received: (i) The opinion, dated as of such date, of Howard, Rice, Nemerovski, Canady, Falk & Rabkin, A Professional Corporation, counsel for the Company to the effect that: (A) Charles Schwab is a duly incorporated, validly existing corporation in good standing under -15- the laws of the jurisdiction of its incorporation and has the corporate power and authority to own its property and conduct its business as described in the Prospectus, as then amended or supplemented; (B) each of this Agreement and any applicable Written Terms Agreement has been duly authorized, executed and delivered by the Company; (C) each Indenture has been duly qualified under the Trust Indenture Act and has been duly authorized, executed and delivered by the Company and is a valid and binding agreement of the Company, enforceable in accordance with its terms except as enforcement thereof (a) may be limited by bankruptcy, insolvency, fraudulent transfer or conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally, (b) is subject to general principles of equity, regardless of whether codified by statute and regardless of whether enforcement is considered in a proceeding in equity or at law, and (c) is subject to certain additional customary exceptions; (D) the forms of Notes have been duly authorized by the Company, and if the terms of a particular Note and its issuance and sale are duly established in conformity with the relevant Indenture, and if such Note is duly executed by the Company and the Trustee and completed and authenticated in accordance with the terms of the relevant Indenture and delivered to and paid for by the purchasers thereof in accordance with this Agreement and any applicable Terms Agreement on the date of such opinion, such Note would be entitled to the benefits of such Indenture and would be valid and binding obligations of the Company, enforceable in accordance with their respective terms except as enforcement thereof (a) may be limited by bankruptcy, insolvency, fraudulent transfer or conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally, (b) is subject to general principles of equity, regardless of whether codified by statute and regardless of whether enforcement is considered in a proceeding in equity or at law, and (c) is subject to certain additional customary exceptions; (E) (1) the execution and delivery by the Company of this Agreement, the Indentures and any -16- applicable Written Terms Agreement, and the performance by the Company of its obligations under this Agreement, the Indentures and any applicable Terms Agreement, as of the Commencement Date (or Settlement Date, if applicable) did not contravene, and (2) the execution and delivery by the Company of the Notes, assuming such Notes were executed, issued and delivered in accordance with this Agreement and the Indentures as of the Commencement Date (or Settlement Date, if applicable) would not contravene, (a) any provision of applicable law (other than the securities or Blue Sky laws of the various states as to which such counsel need express no opinion), or (b) the certificate of incorporation or by-laws of the Company or Charles Schwab, or constitute a default under the Revolving Credit Facility, consisting of (i) a separate but substantially identical Credit Agreement (364- Day Commitment), between the Company and the banks listed therein, dated as of June 26, 1998, as amended, and the Promissory Notes issued pursuant thereto, and (ii) a separate but substantially identical Credit Agreement (3-Year Commitment), between the Company and the banks listed therein, dated as of June 26, 1998, as amended, and the Promissory Notes issued pursuant thereto, or to the best knowledge of such counsel, after reasonable investigation, any other instrument or agreement binding upon the Company or any subsidiary and evidencing or related to indebtedness for borrowed money, except such instruments and other agreements relating to capitalized lease obligations and installment purchase agreements for the acquisition of fixed assets, indebtedness pursuant to which does not in the aggregate exceed $15 million; and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under this Agreement, the Notes (assuming such Notes were executed, issued and delivered in accordance with this Agreement and the Indentures as of the Commencement Date or Settlement Date, if applicable), the Indentures and any applicable Terms Agreement, or for the performance by Charles Schwab of its obligations under this Agreement and any applicable Terms Agreement, except such as are specified and have been obtained, and such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Notes; -17- provided, however, that such counsel need not express an opinion as to whether the purchase of the Offered Securities constitutes a "prohibited transaction" under Section 406 of the Employee Retirement Income Security Act of 1974, as amended, or Section 4975 of the Internal Revenue Code of 1986, as amended; (F) the statements (1) in the Prospectus, as then amended or supplemented, under the captions "Description of Notes" (in the Prospectus Supplement), "Description of Debt Securities" (in the Basic Prospectus), "Plan of Distribution" (in the Prospectus Supplement and in the Basic Prospectus), and (2) in the Registration Statement, as then amended or supplemented, under Item 15, in each case insofar as such statements constitute summaries of the legal matters, documents or proceedings referred to therein, fairly present the information called for with respect to such legal matters, documents and proceedings and fairly summarize the matters referred to therein; (G) such counsel is of the opinion ascribed to it in the Prospectus, as then amended or supplemented, under the caption "Certain United States Federal Income Tax Consequences"; (H) (1) such counsel is of the opinion that each document, if any, filed by the Company pursuant to the Exchange Act and incorporated by reference in the Prospectus, as then amended or supplemented (except for financial statements and schedules and other financial and statistical data included therein, and except for any proxy statement of the Company, as to which such counsel need not express any opinion), complied when so filed as to form in all material respects with the Exchange Act and the applicable rules and regulations of the Commission thereunder, (2) no facts have come to the attention of such counsel to lead them to believe that (except for financial statements and schedules and other financial and statistical data as to which such counsel need not express any belief and except for that part of the Registration Statement that constitutes the Form T-1 heretofore referred to and except for any proxy statement of the Company) any part of the Registration Statement, as then amended, if applicable, as of the date such opinion is -18- delivered, contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (3) such counsel is of the opinion that the Registration Statement and Prospectus, as then amended or supplemented, if applicable (except for financial statements and schedules and other financial and statistical data included therein and except for any proxy statement of the Company, as to which such counsel need not express any opinion) comply as to form in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder and (4) no facts have come to the attention of such counsel to lead them to believe that (except for financial statements and schedules and other financial and statistical data and except for any proxy statement of the Company, as to which such counsel need not express any belief) the Prospectus, as then amended or supplemented, if applicable, as of the date such opinion is delivered, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that in the case of an -------- opinion delivered on the Commencement Date or pursuant to Section 5(b), the opinion and belief set forth in clauses (3) and (4) above shall be deemed not to cover information concerning an offering of particular Notes to the extent such information will be set forth in a supplement to the Basic Prospectus. (ii) The opinion, dated as of such date, of the Office of Corporate Counsel of the Company to the effect that: (A) the Company is a duly incorporated, validly existing corporation in good standing under the laws of the State of Delaware, has the corporate power and authority to own its property and conduct its business as described in the Prospectus, as then amended or supplemented, and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse -19- effect on the Company and its subsidiaries, taken as a whole; (B) each of Holdings and the Company's Significant Subsidiaries is a duly incorporated, validly existing corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and conduct its business as described in the Prospectus, as then amended or supplemented, and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole; (C) each of the Company and its Significant Subsidiaries has all necessary consents, authorizations, approvals, orders, certificates and permits of and from, and has made all declarations and filings with, all federal, state, local and other governmental authorities, all self-regulatory organizations and all courts and other tribunals, to own, lease, license and use its properties and assets and to conduct its business in the manner described in the Prospectus, as amended or supplemented, except to the extent that the failure to obtain or file would not have a material adverse effect on the Company and its subsidiaries, taken as a whole; (D) the statements (1) in "Item 3 - Legal Proceedings" of the Company's most recent annual report on Form 10-K incorporated by reference in the Prospectus, as then amended or supplemented and (2) in "Item 1 - Legal Proceedings" of Part II of the Company's quarterly reports on Form 10-Q, if any, filed since such annual report, and (3) under the caption "Employment Agreement and Name Assignment" in the Company's Proxy Statement for its Annual Meeting of Stockholders immediately succeeding the filing of the Company's most recent annual report on Form 10-K incorporated by reference in the Prospectus, in each case insofar as such statements constitute summaries of the legal matters, documents or proceedings referred to therein, fairly present the information called for -20- with respect to such legal matters, documents and proceedings and fairly summarize the matters referred to therein; (E) after due inquiry, such counsel does not know of any contracts or other documents that are required to be described in the Registration Statement or the Prospectus, as then amended or supplemented, or to be filed or incorporated by reference as exhibits to such Registration Statement that are not described, filed or incorporated as required; (F) each of the Company and its Significant Subsidiaries is duly registered as a broker-dealer, municipal securities broker or dealer, investment adviser, or transfer agent, as the case may be, in each jurisdiction wherein the conduct of its business requires such registration, and each of the Company and its Significant Subsidiaries is in compliance in all material respects with all applicable laws, rules, regulations, orders, by-laws and similar requirements in connection with such registrations, except to the extent that the failure to be so registered or be in compliance would not have a material adverse effect on the Company and its subsidiaries, taken as a whole; (G) Charles Schwab is a member in good standing of the associations and exchanges indicated in the Prospectus, as then amended or supplemented, and is registered as a broker-dealer with the Commission and in all 50 states, the District of Columbia and Puerto Rico, except to the extent that the failure to be in good standing or be so registered would not have a material adverse effect on the Company and its subsidiaries, taken as a whole; and (H) (1) the execution and delivery by the Company of the Agreement, the Indentures and any applicable Written Terms Agreement, and the performance by the Company of its obligations under the Agreement, the Indentures and any applicable Terms Agreement, as of the Commencement Date (or Settlement Date, if applicable), did not violate, and (2) the execution and delivery by the Company of the Notes, assuming such Notes were executed, issued and delivered in accordance with this Agreement and the Indentures as of the Commencement -21- Date (or Settlement Date, if applicable), would not violate, to such counsel's best knowledge, after reasonable investigation, any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any subsidiary (except for such contravention that would not have a material adverse effect on the Company and its subsidiaries, taken as a whole). (I) After due inquiry, such counsel does not know of any legal or governmental proceedings pending or threatened to which the Company or any of its subsidiaries is a party or to which any of the properties of the Company or any of its subsidiaries is subject that are required to be described in the Registration Statement or the Prospectus, as then amended or supplemented, and are not so described or of any statutes or regulations that are required to be described in the Registration Statement or the Prospectus, as then amended or supplemented, that are not described as required. (J) (1) Such counsel is of the opinion that the proxy statement most recently filed by the Company pursuant to the Exchange Act and incorporated by reference in the Prospectus, as then amended or supplemented, (except for financial statements and schedules and other financial and statistical data included therein, as to which such counsel need not express an opinion), complied when so filed as to form in all material respects with the Exchange Act and the applicable rules and regulations of the Commission thereunder, (2) no facts have come to the attention of such counsel to lead them to believe that (except for financial statements and schedules and other financial and statistical data, as to which such counsel need not express any belief) the proxy statement most recently filed pursuant to the Exchange Act by the Company and incorporated by reference in the Prospectus, when such part of Registration Statement became effective, and as of the date such opinion is delivered, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading. -22- (iii) The opinion, dated as of such date, of Davis Polk & Wardwell, counsel for the Agents, covering the matters in subparagraphs (B), (C), (D) and (F) (with respect to statements in the Prospectus, as then amended or supplemented, under the captions "Description of Notes" (in the Prospectus Supplement), "Description of Debt Securities" (in the Basic Prospectus) and "Plan of Distribution" (in the Prospectus Supplement and in the Basic Prospectus)), and clauses (2), (3) and (4) of subparagraph (H) in paragraph (b)(i) above. In giving the opinions referred to in paragraph (i) hereof, Howard, Rice, Nemerovski, Canady, Falk & Rabkin, A Professional Corporation, may rely on the opinion of Davis Polk & Wardwell as to any matters governed by the laws of New York, and in giving the opinion referred to in paragraph (iii) hereof, Davis Polk & Wardwell may rely on the opinion of Howard, Rice, Nemerovski, Canady, Falk & Rabkin, A Professional Corporation, as to any matters governed by laws of California. With respect to subparagraph (H) of paragraph (b)(i) above, Howard, Rice, Nemerovski, Canady, Falk & Rabkin, A Professional Corporation, may state that their opinion and belief are based upon their participation in the preparation of the Registration Statement and Prospectus and any amendments or supplements thereto (but not including documents incorporated therein by reference) and review and discussion of the contents thereof (including documents incorporated therein by reference), but are without independent check or verification, except as specified. With respect to clauses (2), (3) and (4) of subparagraph (H) of paragraph (b)(i) above, Davis Polk & Wardwell may state that their opinion and belief are based upon their participation in the preparation of the Registration Statement and Prospectus and any amendments or supplements thereto (but not including documents incorporated therein by reference) and review and discussion of the contents thereof (including documents incorporated therein by reference), but are without independent check or verification, except as specified. The opinion of Howard, Rice, Nemerovski, Canady, Falk & Rabkin, A Professional Corporation, described in paragraph (b)(i) above shall be rendered to the Agents at the request of the Company and shall so state therein. The opinion of the Office of Corporate Counsel of the Company described in paragraph (b)(ii) above shall -23- be rendered to the Agents at the request of the Company and shall so state therein. (c) On the Commencement Date and, if called for by any Terms Agreement, on the corresponding Settlement Date, the relevant Agents shall have received a certificate, dated the Commencement Date or such Settlement Date, as the case may be, signed by an executive officer of the Company to the effect set forth in subparagraph (a)(iii) above and to the effect that the representations and warranties of the Company contained herein are true and correct as of such date and that the Company has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied on or before such date. The officer signing and delivering such certificate may rely upon the best of his or her knowledge as to proceedings threatened. (d) On the Commencement Date and, if called for by any Terms Agreement, on the corresponding Settlement Date, the Company's independent auditors shall have furnished to the relevant Agents a letter or letters, dated as of the Commencement Date or such Settlement Date, as the case may be, in form and substance satisfactory to such Agents containing statements and information of the type ordinarily included in accountant's "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in or incorporated by reference into the Prospectus, as then amended or supplemented. (e) On the Commencement Date and on each Settlement Date, the Company shall have furnished to the relevant Agents such appropriate further information, certificates and documents as they may reasonably request. 5. Additional Agreements of the Company. ------------------------------------ (a) Each time the Registration Statement or Prospectus is amended or supplemented (other than by an amendment or supplement providing solely for a change in the interest rates, redemption provisions, amortization schedules or maturities offered on the Notes or for a change the Agents deem to be immaterial), the Company will deliver or cause to be delivered forthwith to each Agent a certificate signed by an executive officer of the Company, dated the date of such amendment or supplement, as the case may be, in form reasonably satisfactory to the Agents, of the same tenor as the certificate referred to in Section 4(c) relating to the -24- Registration Statement or the Prospectus as amended or supplemented to the time of delivery of such certificate. (b) Each time the Company furnishes a certificate pursuant to Section 5(a), the Company will furnish or cause to be furnished forthwith to each Agent written opinions of (i) independent counsel for the Company and (ii) the Office of Corporate Counsel for the Company. All such opinions shall be dated the date of such amendment or supplement, as the case may be, shall be in a form satisfactory to the Agents and shall be of the same tenor as the opinions referred to in Sections 4(b)(i) and (ii), but modified to relate to the Registration Statement and the Prospectus as amended and supplemented to the time of delivery of such opinions. In lieu of such opinions, counsel last furnishing such an opinions to an Agent may furnish to each Agent a letter to the effect that such Agent may rely on such last opinions to the same extent as though it were dated the date of such letter (except that statements in such last opinions will be deemed to relate to the Registration Statement and the Prospectus as amended or supplemented to the time of delivery of such letter.) (c) Each time the Registration Statement or the Prospectus is amended or supplemented to set forth amended or supplemental financial information or such amended or supplemental information is incorporated by reference in the Prospectus, the Company shall cause its independent public accountants forthwith to furnish each Agent with a letter, dated the date of such amendment or supplement, as the case may be, in form satisfactory to the Agents, of the same tenor as the letter referred to in Section 4(d), with regard to the amended or supplemental financial information included or incorporated by reference in the Registration Statement or the Prospectus as amended or supplemented to the date of such letter. 6. Indemnification and Contribution. -------------------------------- (a) The Company agrees to indemnify and hold harmless each Agent and each person, if any, who controls such Agent within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred by any Agent or any such controlling person in connection with investigating or defending any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof or the -25- Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to such Agent furnished to the Company in writing by such Agent expressly for use therein. (b) Each Agent agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to such Agent, but only with reference to information relating to such Agent furnished to the Company in writing by such Agent expressly for use in the Registration Statement or the Prospectus or any amendments or supplements thereto. (c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to either paragraph (a) or (b) above, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in -26- addition to any local counsel) for all such indemnified parties and that all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by Morgan Stanley or, if Morgan Stanley is not an indemnified party and is not reasonably likely to become an indemnified party, by the Agents that are indemnified parties, in the case of parties indemnified pursuant to paragraph (a) above, and by the Company, in the case of parties indemnified pursuant to paragraph (b) above. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. (d) To the extent the indemnification provided for in paragraph (a) or (b) of this Section 6 is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein in connection with any offering of Notes, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and each Agent on the other hand from the offering of such Notes or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in -27- clause (i) above but also the relative fault of the Company on the one hand and each Agent on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and each Agent on the other hand in connection with the offering of such Notes shall be deemed to be in the same respective proportions as the total net proceeds from the offering of such Notes (before deducting expenses) received by the Company bear to the total discounts and commissions received by each Agent in respect thereof. The relative fault of the Company on the one hand and of each Agent on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by such Agent and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Each Agent's obligation to contribute pursuant to this Section 6 shall be several (in the proportion that the principal amount of the Notes the sale of which by or through such Agent gave rise to such losses, claims, damages or liabilities bears to the aggregate principal amount of the Notes the sale of which by or through any Agent gave rise to such losses, claims, damages or liabilities) and not joint. (e) The Company and the Agents agree that it would not be just or equitable if contribution pursuant to this Section 6 were determined by pro rata --- ---- allocation (even if the Agents were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 6, no Agent shall be required to contribute any amount in excess of the amount by which the total price at which the Notes referred to in paragraph (d) above that were offered and sold to the public through such Agent exceeds the amount of any damages that such Agent has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be -28- entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 6 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. 7. Position of the Agents. In acting under this Agreement and in ---------------------- connection with the sale of any Notes by the Company (other than Notes sold to an Agent as principal pursuant to a Terms Agreement), each Agent is acting solely as agent of the Company and does not assume any obligation towards or relationship of agency or trust with any purchaser of Notes. An Agent shall make reasonable efforts to assist the Company in obtaining performance by each purchaser whose offer to purchase Notes has been solicited by such Agent and accepted by the Company, but such Agent shall not have any liability to the Company in the event any such purchase is not consummated for any reason. If the Company shall default in its obligations to deliver Notes to a purchaser whose offer it has accepted, the Company shall hold the relevant Agent harmless against any loss, claim, damage or liability arising from or as a result of such default and shall, in particular, pay to such Agent the commission it would have received had such sale been consummated. 8. Termination. This Agreement may be terminated at any time by the ----------- Company or, as to any Agent, by the Company or such Agent upon the giving of written notice of such termination to the other parties hereto, but without prejudice to any rights, obligations or liabilities of any party hereto accrued or incurred prior to such termination. The termination of this Agreement shall not require termination of any Terms Agreement, and the termination of any such Terms Agreement shall not require termination of this Agreement. If this Agreement is terminated, the provisions of the third paragraph of Section 2(a), Section 2(e), the last sentence of Section 3(b) and Sections 3(c), 3(h), 6, 7, 9, 11 and 14 shall survive; provided that if at the time of termination an offer -------- to purchase Notes has been accepted by the Company but the time of delivery to the purchaser or its agent of such Notes has not occurred, the provisions of Sections 2(b), 2(c), 3(a), 3(e), 3(f), 3(g), 3(i), 4 and 5 shall also survive until such delivery has been made. 9. Representations and Indemnities to Survive. The respective ------------------------------------------ indemnity and contribution agreements, representations, warranties and other statements of the Company, its officers and the Agents set forth in or made pursuant to this Agreement or any Terms Agreement will remain -29- in full force and effect, regardless of any termination of this Agreement or any such Terms Agreement, any investigation made by or on behalf of an Agent or the Company or any of the officers, directors or controlling persons referred to in Section 6 and delivery of and payment for the Notes. 10. Notices. All communications hereunder will be in writing and ------- effective only on receipt, and, if sent to Morgan Stanley, will be mailed, delivered or telefaxed and confirmed to Morgan Stanley at 1585 Broadway, 2nd Floor, New York, New York 10036, Attention: Manager--Continuously Offered Products (telefax number: 212-761-0780), with a copy to Morgan Stanley at 1585 Broadway, 34th Floor, New York, New York 10036, Attention: Investment Banking Information Center (telefax number: 212-761-0260), if sent to Goldman, Sachs, will be mailed, delivered or telefaxed and confirmed to Goldman, Sachs at 85 Broad Street, New York, New York 10004, Attention: Credit Department, Medium- Term Notes (telefax number: 212-357-8680), if sent to Charles Schwab, will be mailed, delivered or telefaxed and confirmed to Charles Schwab at 101 Montgomery Street, San Francisco, California 94104, Attention: Chief Financial Officer (telefax number: 415-627-8188), if sent to CS First Boston, will be mailed, delivered or telefaxed and confirmed to CS First Boston at 11 Madison Avenue, 5th Floor, New York, NY 10010, Attention: Helena Wilner (telefax number: 212- 325-8183) or, if sent to the Company, will be mailed, delivered or telefaxed and confirmed to the Company at 101 Montgomery Street, San Francisco, California 94104, Attention: Chief Financial Officer. 11. Successors. This Agreement and any Terms Agreement will inure to ---------- the benefit of and be binding upon the parties hereto and their respective successors and the officers, directors and controlling persons referred to in Section 6 and the purchasers of Notes (to the extent expressly provided in Section 4), and no other person will have any right or obligation hereunder. 12. Amendments. This Agreement may be amended or supplemented if, ---------- but only if, such amendment or supplement is in writing and is signed by the Company and each Agent; provided that the Company may from time to time, on -------- seven days prior written notice to the Agents but without the consent of any Agent, amend this Agreement to add as a party hereto one or more additional firms registered under the Exchange Act, whereupon each such firm shall become an Agent hereunder on the same terms and conditions as the other Agents that are parties hereto. The Agents shall sign any -30- amendment or supplement giving effect to the addition of any such firm as an Agent under this Agreement. 13. Counterparts. This Agreement may be signed in any number of ------------ counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 14. Applicable Law. This Agreement shall be governed by and -------------- construed in accordance with the internal laws of the State of New York. 15. Headings. The headings of the sections of this Agreement have -------- been inserted for convenience of reference only and shall not be deemed a part of this Agreement. -31- If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your acceptance shall represent a binding agreement between the Company and each of you. Very truly yours, THE CHARLES SCHWAB CORPORATION By /s/ Steven L. Scheid --------------------------- Print Name: Steven L. Scheid Title: Executive Vice President and Chief Financial Officer The foregoing Agreement is hereby confirmed and accepted as of the date first above written. MORGAN STANLEY & CO. INCORPORATED By /s/ Harold J. Hendershot III -------------------------------- Print Name: Harold J. Hendershot Title: Vice President GOLDMAN SACHS & CO. By /s/ Goldman Sachs & Co. -------------------------------- Print Name: Title: CHARLES SCHWAB & CO., INC. By /s/ Steven L. Scheid -------------------------------- Print Name: Steven L. Scheid Title: Executive Vice President and Chief Financial Officer CREDIT SUISSE FIRST BOSTON CORPORATION By /s/ Helena M. Willner -------------------------------- Print Name: Helena M. Willner Title: Vice President -32- EX-4.3 3 FORM OF SR MED-TERM NOTE SERIES A (FIXED RATE) EXHIBIT 4.3 FACE OF SECURITY Fixed Rate Senior Note REGISTERED REGISTERED No. FXR U.S. $ [PRINCIPAL AMOUNT] CUSIP:* Unless this certificate is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein.* THE CHARLES SCHWAB CORPORATION SENIOR MEDIUM-TERM NOTE, SERIES A (Fixed Rate) ORIGINAL INITIAL REDEMPTION INTEREST RATE: ISSUE DATE: DATE: MATURITY INTEREST INITIAL REDEMPTION DATE: ACCRUAL DATE: PERCENTAGE: OPTIONAL APPLICABILITY ANNUAL REDEMPTION REPAYMENT OF ANNUAL PERCENTAGE DATE(S): INTEREST REDUCTION: PAYMENTS: - ------------------------ /*/ Applies only if this Note is a Registered Global Security. The Charles Schwab Corporation, a Delaware corporation (together with its successors and assigns, the "Issuer"), for value received, hereby promises to pay to , or registered assignees, the principal sum of U.S. $ , on the Maturity Date specified above (except to the extent previously redeemed or repaid) and to pay interest thereon at the Interest Rate per annum specified above from the Interest Accrual Date specified above until the principal hereof is paid or duly made available for payment (except as provided below), semiannually in arrears on the first day of March and September in each year (each such date an "Interest Payment Date") commencing on the Interest Payment Date next succeeding the Interest Accrual Date specified above, and at maturity (or on any redemption or repayment date); provided, however, that if -------- ------- the Interest Accrual Date occurs between a Record Date, as defined below, and the next succeeding Interest Payment Date, interest payments will commence on the second Interest Payment Date succeeding the Interest Accrual Date to the registered holder of this Note on the Record Date with respect to such second Interest Payment Date; and provided, further, that if this Note is subject to -------- ------- "Annual Interest Payments," interest payments shall be made annually in arrears and the term "Interest Payment Date" shall be deemed to mean the first day of March in each year. Interest on this Note will accrue from and including the most recent Interest Payment Date to which interest has been paid or duly provided for, or, if no interest has been paid or duly provided for, from and including the Interest Accrual Date, until the principal hereof has been paid or duly made available for payment (except as provided below). The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, subject to certain exceptions described herein, be paid to the person in whose name this Note (or one or more predecessor Notes) is registered at the close of business on the date 15 calendar days prior to such Interest Payment Date (whether or not a Business Day) (each such date a "Record Date"); provided, however, that -------- ------- interest payable at maturity (or on any redemption or repayment date) will be payable to the person to whom the principal hereof shall be payable. As used herein, "Business Day" means any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions are 2 authorized or required by law or regulation to close in The City of New York. Payment of the principal of this Note, any premium and the interest due at maturity (or on any redemption or repayment date) will be made in immediately available funds upon surrender of this Note at the office or agency of the Paying Agent, as defined on the reverse hereof, maintained for that purpose in the Borough of Manhattan, The City of New York, or at such other paying agency as the Issuer may determine. Payments of interest, other than interest due at maturity or on any date of redemption or repayment, will be made by check mailed to the address of the person entitled thereto as such address shall appear in the Note register; provided, however, that if the registered -------- ------- holder of this Note is (i) Cede & Co. or (ii) a holder of U.S. $10,000,000 or more in aggregate principal amount of Notes having the same Interest Payment Date, such holder will be entitled to receive payments of interest, other than interest due at maturity or on any date of redemption or repayment, by wire transfer of immediately available funds if appropriate wire transfer instructions have been received by the Paying Agent in writing not less than 15 calendar days prior to the applicable Interest Payment Date. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefit under the Senior Indenture, as defined on the reverse hereof, or be valid or obligatory for any purpose. 3 IN WITNESS WHEREOF, the Issuer has caused this Note to be duly executed under its corporate seal. DATED: THE CHARLES SCHWAB CORPORATION By ___________________________ Chairman and Chief Executive Officer TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Notes referred to in the within-mentioned Senior Indenture. CHEMICAL BANK, as Trustee By _____________________________ Authorized Officer 4 REVERSE OF SECURITY This Note is one of a duly authorized issue of Senior Medium-Term Notes, Series A, having maturities more than nine months from the date of issue (the "Notes") of the Issuer. The Notes are issuable under a Senior Indenture, dated as of July 15, 1993 (the "Senior Indenture"), between the Issuer and Chemical Bank, as Trustee (the "Trustee," which term includes any successor trustee under the Senior Indenture), to which Senior Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities of the Issuer, the Trustee and holders of the Notes and the terms upon which the Notes are, and are to be, authenticated and delivered. The Issuer has appointed Chemical Bank at its corporate trust office in The City of New York as the paying agent (the "Paying Agent," which term includes any additional or successor Paying Agent appointed by the Issuer) with respect to the Notes. The terms of individual Notes may vary with respect to interest rates, interest rate formulas, issue dates, maturity dates, or otherwise, all as provided in the Senior Indenture. To the extent not inconsistent herewith, the terms of the Senior Indenture are hereby incorporated by reference herein. This Note will not be subject to any sinking fund and, unless otherwise provided on the face hereof in accordance with the provisions of the following two paragraphs, will not be redeemable or subject to repayment at the option of the holder prior to maturity. If so indicated on the face of this Note, this Note may be redeemed in whole or in part at the option of the Issuer on or after the Initial Redemption Date specified on the face hereof on the terms set forth on the face hereof, together with interest accrued and unpaid hereon to the date of redemption (except as provided below). If this Note is subject to "Annual Redemption Percentage Reduction," the Initial Redemption Percentage indicated on the face hereof will be reduced on each anniversary of the Initial Redemption Date by the Annual Redemption Percentage Reduction specified on the face hereof until the redemption price of this Note is 100% of the principal amount hereof, together with interest accrued and unpaid hereon to the date of redemption (except as provided below). Notice of redemption shall be mailed, not less than 30 nor more than 60 days prior to the date fixed for redemption, to the registered holders of the Notes designated for redemption at their addresses as the same shall appear on the Note 5 register, subject to all the conditions and provisions of the Senior Indenture. In the event of redemption of this Note in part only, a new Note or Notes for the amount of the unredeemed portion hereof shall be issued in the name of the holder hereof upon the cancellation hereof. If so indicated on the face of this Note, this Note will be subject to repayment at the option of the holder on the Optional Repayment Date or Dates specified on the face hereof on the terms set forth herein. On any Optional Repayment Date, this Note will be repayable in whole or in part in increments of $1,000 (provided that any remaining principal amount hereof shall not be less than the minimum authorized denomination hereof) at the option of the holder hereof at a price equal to 100% of the principal amount to be repaid, together with interest accrued and unpaid hereon to the date of repayment (except as provided below). For this Note to be repaid at the option of the holder hereof, the Paying Agent must receive at its corporate trust office in the Borough of Manhattan, The City of New York, at least 15 but not more than 30 days prior to the date of repayment, (i) this Note with the form entitled "Option to Elect Repayment" below duly completed or (ii) a telegram, telex, facsimile transmission or a letter from a member of a national securities exchange or the National Association of Securities Dealers, Inc. or a commercial bank or a trust company in the United States setting forth the name of the holder of this Note, the principal amount hereof, the certificate number of this Note or a description of this Note's tenor and terms, the principal amount hereof to be repaid, a statement that the option to elect repayment is being exercised thereby and a guarantee that this Note, together with the form entitled "Option to Elect Repayment" duly completed, will be received by the Paying Agent not later than the third Business Day after the date of such telegram, telex, facsimile transmission or letter; provided, that such telegram, telex, facsimile -------- transmission or letter shall only be effective if this Note and form duly completed are received by the Paying Agent by such third Business Day. Exercise of such repayment option by the holder hereof shall be irrevocable. In the event of repayment of this Note in part only, a new Note or Notes for the amount of the unpaid portion hereof shall be issued in the name of the holder hereof upon the cancellation hereof. Interest payments on this Note will include interest accrued to but excluding the Interest Payment Dates or the Maturity Date (or any earlier redemption or repayment date), as the case may be. Interest payments for this Note will be computed and paid on the basis of a 360-day year of twelve 30-day months. 6 In the case where the Interest Payment Date or the Maturity Date (or any redemption or repayment date) does not fall on a Business Day, payment of interest, premium, if any, or principal otherwise payable on such date need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or on the Maturity Date (or any redemption or repayment date), and no interest on such payment shall accrue for the period from and after the Interest Payment Date or the Maturity Date (or any redemption or repayment date) to such next succeeding Business Day. This Note and all the obligations of the Issuer hereunder are direct, unsecured obligations of the Issuer and rank without preference or priority among themselves and pari passu with all other existing and future unsecured and ---- ----- unsubordinated indebtedness of the Issuer, subject to certain statutory exceptions in the event of liquidation upon insolvency. This Note, and any Note or Notes issued upon transfer or exchange hereof, is issuable only in fully registered form, without coupons, in denominations of U.S. $1,000 and any integral multiple of U.S. $1,000 in excess thereof. The Trustee has been appointed registrar for the Notes, and the Trustee will maintain at its office in The City of New York a register for the registration and registration of transfer of Notes. The transfer of this Note may be registered at the aforesaid office of the Trustee by surrendering this Note for cancellation, accompanied by a written instrument of transfer in form satisfactory to the Trustee and duly executed by the registered holder hereof in person or by the holder's attorney duly authorized in writing, and thereupon the Trustee shall issue in the name of the transferee or transferees, in exchange herefor, a new Note or Notes having identical terms and provisions and having a like aggregate principal amount in authorized denominations, subject to the terms and conditions set forth herein; provided, however, that the Trustee will -------- ------- not be required (i) to register the transfer of or exchange any Note that has been called for redemption in whole or in part, except the unredeemed portion of Notes being redeemed in part, (ii) to register the transfer of or exchange any Note if the holder thereof has exercised his right, if any, to require the Issuer to repurchase such Note in whole or in part, except the portion of such Note not required to be repurchased, or (iii) to register the transfer of or exchange Notes to the extent and 7 during the period so provided in the Senior Indenture with respect to the redemption of Notes. Notes are exchangeable at said office for other Notes of other authorized denominations of equal aggregate principal amount having identical terms and provisions. All such exchanges and registrations of transfer of Notes will be free of charge, but the Issuer may require payment of a sum sufficient to cover any tax or other governmental charge in connection therewith. All Notes surrendered for exchange shall be accompanied by a written instrument of transfer in form satisfactory to the Trustee and executed by the registered holder in person or by the holder's attorney duly authorized in writing. The date of registration of any Note delivered upon any exchange or transfer of Notes shall be such that no gain or loss of interest results from such exchange or registration of transfer. In case any Note shall at any time become mutilated, defaced or be destroyed, lost or stolen and such Note or evidence of the loss, theft or destruction thereof (together with the indemnity hereinafter referred to and such other documents or proof as may be required in the premises) shall be delivered to the Trustee, a new Note of like tenor will be issued by the Issuer in exchange for the Note so mutilated or defaced, or in lieu of the Note so destroyed or lost or stolen, but, in the case of any destroyed or lost or stolen Note, only upon receipt of evidence satisfactory to the Trustee and the Issuer that such Note was destroyed or lost or stolen and, if required, upon receipt also of indemnity satisfactory to each of them. All expenses and reasonable charges associated with procuring such indemnity and with the preparation, authentication and delivery of a new Note shall be borne by the owner of the Note mutilated, defaced, destroyed, lost or stolen. The Senior Indenture provides that, (a) if an Event of Default (as defined in the Senior Indenture) due to the default in payment of principal of, premium, if any, or interest on, any series of debt securities issued under the Senior Indenture, including the series of Senior Medium-Term Notes of which this Note forms a part, or due to the default in the performance or breach of any other covenant or warranty of the Issuer applicable to the debt securities of such series but not applicable to all outstanding debt securities issued under the Senior Indenture shall have occurred and be continuing, either the Trustee or the holders of not less than 25% in principal amount of the debt securities of each affected series (voting as a single class) may then declare the principal of all debt securities of all such series and interest accrued thereon to be due 8 and payable immediately and (b) if an Event of Default due to a default in the performance of any other of the covenants or agreements in the Senior Indenture applicable to all outstanding debt securities issued thereunder, including this Note, or due to certain events of bankruptcy, insolvency and reorganization of the Issuer, shall have occurred and be continuing, either the Trustee or the holders of not less than 25% in principal amount of all debt securities issued under the Senior Indenture then outstanding (treated as one class) may declare the principal of all such debt securities and interest accrued thereon to be due and payable immediately, but upon certain conditions such declarations may be annulled and past defaults may be waived (except a continuing default in payment of principal (or premium, if any) or interest on such debt securities) by the holders of a majority in principal amount of the debt securities of all affected series then outstanding. The Trustee also acts as trustee under a Senior Subordinated Indenture, dated as of July 15, 1993 (the "Senior Subordinated Indenture" and, together with the Senior Indenture, the "Indentures"), between the Issuer and the Trustee, with respect to certain other debt securities of the Issuer. The Senior Indenture provides that, should a default occur with respect to either the debt securities issued under the Senior Indenture or the debt securities issued under the Senior Subordinated Indenture, the Trustee would be required to resign as trustee under one of the Indentures within 90 days of such default unless such default were cured, duly waived or otherwise eliminated. The Senior Indenture permits the Issuer and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the debt securities of all series issued under the Senior Indenture then outstanding and affected (voting as one class), to execute supplemental indentures adding any provisions to or changing in any manner the rights of the holders of each series so affected; provided that the Issuer and the Trustee may -------- not, without the consent of the holder of each outstanding debt security affected thereby, (a) extend the final maturity of any such debt security, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any amount payable on redemption or repayment thereof, or change the currency of payment thereof, or impair or affect the rights of any holder to institute suit for the payment thereof without the consent of the holder of each debt security so affected; or (b) reduce the aforesaid percentage in principal amount of debt securities the consent of the holders of which is required for any such supplemental 9 indenture, without the consent of the holders of each debt security so affected. So long as this Note shall be outstanding, the Issuer will cause to be maintained an office or agency for the payment of the principal of and premium, if any, and interest on this Note as herein provided in the Borough of Manhattan, The City of New York, and an office or agency in said Borough of Manhattan for the registration, registration of transfer and exchange as aforesaid of the Notes. The Issuer may designate other agencies for the payment of said principal, premium and interest at such place or places (subject to applicable laws and regulations) as the Issuer may decide. So long as there shall be such an agency, the Issuer shall keep the Trustee advised of the names and locations of such agencies, if any are so designated. With respect to moneys paid by the Issuer and held by the Trustee or any Paying Agent for payment of the principal of or interest or premium, if any, on any Notes that remain unclaimed at the end of two years after such principal, interest or premium shall have become due and payable (whether at maturity or upon call for redemption or otherwise), (i) the Trustee or such Paying Agent shall notify the holders of such Notes that such moneys shall be repaid to the Issuer and any person claiming such moneys shall thereafter look only to the Issuer for payment thereof and (ii) such moneys shall be so repaid to the Issuer. Upon such repayment all liability of the Trustee or such Paying Agent with respect to such moneys shall thereupon cease, without, however, limiting in any way any obligation that the Issuer may have to pay the principal of or interest or premium, if any, on this Note as the same shall become due. No provision of this Note or of the Senior Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Note at the time, place, and rate, and in the coin or currency, herein prescribed unless otherwise agreed between the Issuer and the registered holder of this Note. Prior to due presentment of this Note for registration of transfer, the Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the holder in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note be overdue, and none of the Issuer, the Trustee or any such agent shall be affected by notice to the contrary. 10 No recourse shall be had for the payment of the principal of, premium, if any, or the interest on this Note, for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Senior Indenture or any indenture supplemental thereto, against any incorporator, shareholder, officer or director, as such, past, present or future, of the Issuer or of any successor corporation, either directly or through the Issuer or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. This Note shall for all purposes be governed by, and construed in accordance with, the laws of the State of California. All terms used in this Note which are defined in the Senior Indenture and not otherwise defined herein shall have the meanings assigned to them in the Senior Indenture. 11 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM-as tenants in common TEN ENT-as tenants by the entireties JT TEN-as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT-...........Custodian.............. (Cust) (Minor) Under Uniform Gifts to Minors Act................... (State) Additional abbreviations may also be used though not in the above list. __________ 12 FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto [PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE] - --------------------------------------- | | - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [PLEASE PRINT OR TYPE NAME AND ADDRESS INCLUDING ZIP CODE, OF ASSIGNEE] - -------------------------------------------------------------------------------- the within Note and all rights thereunder, hereby irrevocably - -------------------------------------------------------------------------------- constituting and appointing such person attorney to transfer - -------------------------------------------------------------------------------- such note on the books of the Issuer, with full power of - -------------------------------------------------------------------------------- substitution in the premises. Dated:_____________________ NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within Note in every particular without alteration or enlargement or any change whatsoever. 13 OPTION TO ELECT REPAYMENT The undersigned hereby irrevocably requests and instructs the Issuer to repay the within Note (or portion thereof specified below) pursuant to its terms at a price equal to the principal amount thereof, together with interest to the Optional Repayment Date, to the undersigned at - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Please print or typewrite name and address of the undersigned) If less than the entire principal amount of the within Note is to be repaid, specify the portion thereof which the holder elects to have repaid: __________________; and specify the denomination or denominations (which shall not be less than the minimum authorized denomination) of the Notes to be issued to the holder for the portion of the within Note not being repaid (in the absence of any such specification, one such Note will be issued for the portion not being repaid): ____________________________. Dated:_____________ ___________________________________ NOTICE: The signature on this Option to Elect Repayment must correspond with the name as written upon the face of the within instrument in every particular without alteration or enlargement. 14 EX-4.4 4 FORM OF SR MED-TERM NOTE SERIES A (FLOATING RATE) EXHIBIT 4.4 FACE OF SECURITY FLOATING RATE SENIOR NOTE REGISTERED REGISTERED NO. FLR U.S. $ [PRINCIPAL AMOUNT] CUSIP:* Unless this certificate is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein.* - ------------------------------- * Applies only if this Note is a Registered Global Security. THE CHARLES SCHWAB CORPORATION SENIOR MEDIUM-TERM NOTE, SERIES A (FLOATING RATE)
================================================================================ BASE RATE: ORIGINAL ISSUE DATE: MATURITY DATE: - ------------------------------------------------------------------------------- INDEX MATURITY: INTEREST ACCRUAL DATE: INTEREST PAYMENT DATE(S): - ------------------------------------------------------------------------------- SPREAD (PLUS OR MINUS): INITIAL INTEREST RATE: INTEREST PAYMENT PERIOD: - ------------------------------------------------------------------------------- ALTERNATE RATE EVENT INITIAL INTEREST RESET INTEREST RESET PERIOD: SPREAD: DATE: - ------------------------------------------------------------------------------- SPREAD MULTIPLIER: MAXIMUM INTEREST RATE: INTEREST RESET DATE(S): - ------------------------------------------------------------------------------- REPORTING SERVICE: MINIMUM INTEREST RATE: CALCULATION AGENT: - ------------------------------------------------------------------------------- INDEX CURRENCY: INITIAL REDEMPTION DATE: SPECIFIED CURRENCY: - ------------------------------------------------------------------------------- EXCHANGE RATE AGENT: INITIAL REDEMPTION TOTAL AMOUNT OF OID: PERCENTAGE: - ------------------------------------------------------------------------------- OTHER PROVISIONS: ANNUAL REDEMPTION ORIGINAL YIELD TO PERCENTAGE REDUCTION: MATURITY: - ------------------------------------------------------------------------------- OPTIONAL REPAYMENT INITIAL ACCRUAL PERIOD OID: DATE(S): - ------------------------------------------------------------------------------- DESIGNATED CMT TELERATE PAGE: - ------------------------------------------------------------------------------- DESIGNATED CMT MATURITY INDEX: ================================================================================
2 The Charles Schwab Corporation, a Delaware corporation (together with its successors and assigns, the "ISSUER"), for value received, hereby promises to pay to , or registered assignees, the principal sum of U.S. $ , on the Maturity Date specified above (except to the extent redeemed or repaid prior to the Maturity Date) and to pay interest thereon, from the Interest Accrual Date specified above at a rate per annum equal to the Initial Interest Rate specified above until the Initial Interest Reset Date specified above, and thereafter at a rate per annum determined in accordance with the provisions specified on the reverse hereof until the principal hereof is paid or duly made available for payment. The Issuer will pay interest in arrears monthly, quarterly, semiannually or annually as specified above as the Interest Payment Period on each Interest Payment Date (as specified above), commencing with the first Interest Payment Date next succeeding the Interest Accrual Date specified above, and on the Maturity Date (or any redemption or repayment date); provided, however, that if the Interest Accrual Date occurs between a Record Date, as defined below, and the next succeeding Interest Payment Date, interest payments will commence on the second Interest Payment Date succeeding the Interest Accrual Date to the registered holder of this Note on the Record Date with respect to such second Interest Payment Date; and provided, further, that, subject to the next succeeding sentence, if an Interest Payment Date would fall on a day that is not a Business Day, as defined on the reverse hereof, such Interest Payment Date shall be postponed to the following day that is a Business Day, except that if the Base Rate specified above is LIBOR and such next Business Day falls in the next calendar month, the Interest Payment Date shall be the immediately preceding day that is a Business Day. If the Maturity Date or redemption or repayment date would fall on a day that is not a Business Day, the payment of principal and interest will be made on the next succeeding Business Day, and no interest on such payment shall accrue for the period from and after such Maturity Date or redemption or repayment date, as the case may be. Interest on this Note will accrue from the most recent date to which interest has been paid or duly provided for, or, if no interest has been paid or duly provided for, from the Interest Accrual Date, until the principal hereof has been paid or duly made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, subject to certain exceptions described herein, be paid to the person in whose name this Note (or one or more predecessor Notes) is registered at the close of business on the date 15 calendar days prior to such Interest Payment Date (whether or not a Business Day) (each such date a "RECORD DATE"); provided, however, that interest payable on the Maturity Date (or any redemption or repayment date) will be payable to the person to whom the principal hereof shall be payable. Payment of the principal of this Note, any premium and the interest due at the Maturity Date (or any redemption or repayment date) will be made in immediately available funds upon surrender of this Note at the office or agency of the Paying Agent, as defined on the reverse hereof, maintained for that purpose in the Borough of Manhattan, The City of New York, or at such other paying agency as the Issuer may determine. Payments of interest, other than interest due at maturity or any date of redemption or repayment, will be made by check mailed to the address of the person entitled thereto as such address shall appear in the Note register; provided, however, that if the registered holder of this Note is (i) Cede & Co. or (ii) a holder of U.S. $10,000,000 or more in aggregate principal amount of Notes having the same Interest Payment Date, such holder will be entitled to receive 3 payments of interest, other than interest due at maturity or any date of redemption or repayment, by wire transfer of immediately available funds if appropriate wire transfer instructions have been received by the Paying Agent in writing not less than 15 calendar days prior to the applicable Interest Payment Date. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefit under the Senior Indenture, as defined on the reverse hereof, or be valid or obligatory for any purpose. 4 IN WITNESS WHEREOF, the Issuer has caused this Note to be duly executed under its corporate seal. DATED: THE CHARLES SCHWAB CORPORATION By ______________________________ Chairman and Chief Executive Officer TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Notes referred to in the within-mentioned Senior Indenture. THE CHASE MANHATTAN BANK, as Trustee By ______________________________ Authorized Officer 5 REVERSE OF SECURITY This Note is one of a duly authorized issue of Senior Medium-Term Notes, Series A, having maturities more than nine months from the date of issue (the "NOTES") of the Issuer. The Notes are issuable under a Senior Indenture, dated as of July 15, 1993 (the "SENIOR INDENTURE"), between the Issuer and The Chase Manhattan Bank (formerly Chemical Bank), as Trustee (the "TRUSTEE," which term includes any successor trustee under the Senior Indenture), to which Senior Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities of the Issuer, the Trustee and holders of the Notes and the terms upon which the Notes are, and are to be, authenticated and delivered. The Issuer has appointed The Chase Manhattan Bank (formerly Chemical Bank) at its corporate trust office in The City of New York as the paying agent (the "PAYING AGENT," which term includes any additional or successor Paying Agent appointed by the Issuer) with respect to the Notes. The terms of individual Notes may vary with respect to interest rates, interest rate formulas, issue dates, maturity dates, or otherwise, all as provided in the Senior Indenture. To the extent not inconsistent herewith, the terms of the Senior Indenture are hereby incorporated by reference herein. This Note will not be subject to any sinking fund and, unless otherwise provided on the face hereof in accordance with the provisions of the following two paragraphs, will not be redeemable or subject to repayment at the option of the holder prior to maturity. If so indicated on the face of this Note, this Note may be redeemed in whole or in part at the option of the Issuer on or after the Initial Redemption Date specified on the face hereof on the terms set forth on the face hereof, together with interest accrued and unpaid hereon to the date of redemption. If this Note is subject to "Annual Redemption Percentage Reduction," the Initial Redemption Percentage indicated on the face hereof will be reduced on each anniversary of the Initial Redemption Date by the Annual Redemption Percentage Reduction specified on the face hereof until the redemption price of this Note is 100% of the principal amount hereof, together with interest accrued and unpaid hereon to the date of redemption. Notice of redemption shall be mailed, not less than 30 nor more than 60 days prior to the date fixed for redemption, to the registered holders of the Notes designated for redemption at their addresses as the same shall appear on the Note register, subject to all the conditions and provisions of the Senior Indenture. In the event of redemption of this Note in part only, a new Note or Notes for the amount of the unredeemed portion hereof shall be issued in the name of the holder hereof upon the cancellation hereof. If so indicated on the face of this Note, this Note will be subject to repayment at the option of the holder on the Optional Repayment Date or Dates specified on the face hereof on the terms set forth herein. On any Optional Repayment Date, this Note will be repayable in whole or in part in increments of $1,000 (provided that any remaining principal amount hereof shall not be less than the minimum authorized denomination hereof) at the option of the holder hereof at a price equal to 100% of the principal amount to be repaid, together with interest accrued and unpaid hereon to the date of repayment. For this Note to be repaid at the option of the holder hereof, the Paying Agent must receive at its corporate trust office in the Borough of Manhattan, The City of New York, at least 15 but not more than 30 days prior to the date of repayment, (i) this Note with the form entitled "Option 6 to Elect Repayment" below duly completed or (ii) a telegram, telex, facsimile transmission or a letter from a member of a national securities exchange or the National Association of Securities Dealers, Inc. or a commercial bank or a trust company in the United States setting forth the name of the holder of this Note, the principal amount hereof, the certificate number of this Note or a description of this Note's tenor and terms, the principal amount hereof to be repaid, a statement that the option to elect repayment is being exercised thereby and a guarantee that this Note, together with the form entitled "Option to Elect Repayment" duly completed, will be received by the Paying Agent not later than the fifth Business Day after the date of such telegram, telex, facsimile transmission or letter; provided, that such telegram, telex, facsimile transmission or letter shall only be effective if this Note and form duly completed are received by the Paying Agent by such fifth Business Day. Exercise of such repayment option by the holder hereof shall be irrevocable. In the event of repayment of this Note in part only, a new Note or Notes for the amount of the unpaid portion hereof shall be issued in the name of the holder hereof upon the cancellation hereof. This Note will bear interest at the rate determined in accordance with the applicable provisions below by reference to the Base Rate shown on the face hereof based on the Index Maturity, if any, shown on the face hereof (i) plus or minus the Spread, if any, and/or (ii) multiplied by the Spread Multiplier, if any, specified on the face hereof. Commencing with the Initial Interest Reset Date specified on the face hereof, the rate at which interest on this Note is payable shall be reset as of each Interest Reset Date (as used herein, the term "Interest Reset Date" shall include the Initial Interest Reset Date). The Interest Reset Dates will be the Interest Reset Dates specified on the face hereof; provided, however, that (i) the interest rate in effect for the period from the Interest Accrual Date to the Initial Interest Reset Date will be the Initial Interest Rate and (ii) the interest rate in effect hereon for the 10 days immediately prior to the Maturity Date hereof (or, with respect to any principal amount to be redeemed or repaid, any redemption or repayment date) shall be that in effect on the tenth calendar day preceding the Maturity Date hereof or such date of redemption or repayment, as the case may be. If any Interest Reset Date would otherwise be a day that is not a Business Day, such Interest Reset Date shall be postponed to the next succeeding day that is a Business Day, except that if the Base Rate specified on the face hereof is LIBOR and such Business Day is in the next succeeding calendar month, such Interest Reset Date shall be the immediately preceding Business Day. As used herein, "BUSINESS DAY" means any day, other than a Saturday or Sunday, and that is neither a legal holiday nor a day on which banking institutions are authorized or required by law or regulation to close in The City of New York and, with respect to Notes bearing interest calculated by reference to LIBOR, is also a London Banking Day (as defined below). The Interest Determination Date pertaining to an Interest Reset Date for Notes bearing interest calculated by reference to the CD Rate, Commercial Paper Rate, Federal Funds Rate, Prime Rate and CMT Rate will be the second Business Day preceding such Interest Reset Date. The Interest Determination Date pertaining to an Interest Reset Date for Notes bearing interest calculated by reference to LIBOR shall be the second London Banking Day preceding such Interest Reset Date. As used herein, "LONDON BANKING DAY" means any day on which dealings in deposits in U.S. dollars are transacted in the London interbank market. The Interest Determination Date pertaining to an Interest Reset Date for Notes bearing interest calculated by reference to the Treasury Rate shall be the day of the week in which such Interest Reset Date falls on which Treasury bills normally would 7 be auctioned; provided, however, that if as a result of a legal holiday an auction is held on the Friday of the week preceding such Interest Reset Date, the related Interest Determination Date shall be such preceding Friday; and provided, further, that if an auction shall fall on any Interest Reset Date, then the Interest Reset Date shall instead be the first Business Day following the date of such auction. The "CALCULATION DATE" pertaining to any Interest Determination Date will be the earlier (i) of the tenth calendar day after such Interest Determination Date or, if such day is not a Business Day, the next succeeding Business Day or (ii) the Business Day preceding the applicable Interest Payment Date or maturity, as the case may be. Determination of CD Rate. If the Base Rate specified on the face hereof is the CD Rate, the CD Rate with respect to this Note shall be determined on each Interest Determination Date and shall be the rate on such date for negotiable certificates of deposit having the Index Maturity specified on the face hereof as published by the Board of Governors of the Federal Reserve System in "Statistical Release H.15(519), Selected Interest Rates," or any successor publication of the Board of Governors of the Federal Reserve System ("H.15(519)"), under the heading "CDs (Secondary Market)," or, if not so published by 9:00 A.M., New York City time, on the Calculation Date pertaining to such Interest Determination Date, the CD Rate will be the rate on such Interest Determination Date for negotiable certificates of deposit of the Index Maturity specified on the face hereof as published by the Federal Reserve Bank of New York in its daily statistical release "Composite 3:30 P.M. Quotations for U.S. Government Securities" ("COMPOSITE QUOTATIONS") under the heading "Certificates of Deposit." If neither of such rates is published by 3:00 P.M., New York City time, on such Calculation Date, then the CD Rate on such Interest Determination Date will be calculated by the Calculation Agent referred to on the face hereof and will be the arithmetic mean of the secondary market offered rates as of 10:00 A.M., New York City time, on such Interest Determination Date for certificates of deposit in the denomination of U.S. $5,000,000 with a remaining maturity closest to the Index Maturity specified on the face hereof of three leading nonbank dealers in negotiable U.S. dollar certificates of deposit in The City of New York selected by the Calculation Agent for negotiable certificates of deposit of major United States money center banks in the market for negotiable certificates of deposit; provided, however, that if the dealers selected as aforesaid by the Calculation Agent are not quoting as mentioned in this sentence, the rate of interest in effect for the applicable period will be the same as the CD Rate for the immediately preceding Interest Reset Period (or, if there was no such Interest Reset Period, the rate of interest payable hereon shall be the Initial Interest Rate). Determination of Commercial Paper Rate. If the Base Rate specified on the face hereof is the Commercial Paper Rate, the Commercial Paper Rate with respect to this Note shall be determined on each Interest Determination Date and shall be the Money Market Yield (as defined herein) of the rate on such date for commercial paper having the Index Maturity specified on the face hereof, as such rate shall be published in H.15(519) under the heading "Commercial Paper," or if not so published prior to 9:00 A.M., New York City time, on the Calculation Date pertaining to such Interest Determination Date, the Commercial Paper Rate shall be the Money Market Yield of the rate on such Interest Determination Date for commercial paper of the Index Maturity specified on the face hereof as published in Composite Quotations under the heading "Commercial Paper." If neither of 8 such rates is published by 3:00 P.M., New York City time, on such Calculation Date, then the Commercial Paper Rate shall be the Money Market Yield of the arithmetic mean of the offered rates as of 11:00 A.M., New York City time, on such Interest Determination Date of three leading dealers in commercial paper in The City of New York selected by the Calculation Agent for commercial paper of the Index Maturity specified on the face hereof, placed for an industrial issuer whose bond rating is "AA," or the equivalent, from a nationally recognized rating agency; provided, however, that if the dealers selected as aforesaid by the Calculation Agent are not quoting as mentioned in this sentence, the rate of interest in effect for the applicable period will be the same as the Commercial Paper Rate for the immediately preceding Interest Reset Period (or, if there was no such Interest Reset Period, the rate of interest payable hereon shall be the Initial Interest Rate). "MONEY MARKET YIELD" shall be the yield calculated in accordance with the following formula: D x 360 Money Market Yield = _________________ x 100 360 - (D x M) where "D" refers to the applicable per annum rate for commercial paper quoted on a bank discount basis and expressed as a decimal and "M" refers to the actual number of days in the period for which interest is being calculated. Determination of Federal Funds Rate. If the Base Rate specified on the face hereof is the Federal Funds Rate, the Federal Funds Rate with respect to this Note shall be determined on each Interest Determination Date and shall be the rate on such date for Federal Funds as published in H.15(519) under the heading "Federal Funds (Effective)," or, if not so published by 9:00 A.M., New York City time, on the Calculation Date pertaining to such Interest Determination Date, the Federal Funds Rate will be the rate on such Interest Determination Date as published in Composite Quotations under the heading "Federal Funds/Effective Rate." If neither of such rates is published by 3:00 P.M., New York City time, on such Calculation Date, the Federal Funds Rate for such Interest Determination Date will be calculated by the Calculation Agent and will be the arithmetic mean of the rates for the last transaction in overnight Federal funds as of 9:00 A.M., New York City time, on such Interest Determination Date arranged by three leading brokers in Federal funds transactions in The City of New York selected by the Calculation Agent; provided, however, that if the brokers selected as aforesaid by the Calculation Agent are not quoting as mentioned in this sentence, the rate of interest in effect for the applicable period will be the same as the Federal Funds Rate for the immediately preceding Interest Reset Period (or, if there was no such Interest Reset Period, the rate of interest payable hereon shall be the Initial Interest Rate). Determination of LIBOR. If the Base Rate specified on the face hereof is LIBOR, LIBOR with respect to this Note shall be determined as follows: 9 (i) With respect to a LIBOR Interest Determination Date, LIBOR will be, as specified on the face hereof, either: (a) the arithmetic mean of the offered rates for deposits in U.S. dollars having the Index Maturity specified on the face hereof, commencing on the second London Banking Day immediately following the LIBOR Interest Determination Date, that appear on the Reuters Screen LIBO Page as of 11:00 A.M., London time, on that LIBOR Interest Determination Date, if at least two such offered rates appear on the Reuters Screen LIBO Page ("LIBOR REUTERS"), or (b) the rate for deposits in U.S. dollars having the Index Maturity specified on the face hereof, commencing on the second London Banking Day immediately following that LIBOR Interest Determination Date, that appears on the Telerate Page 3750 as of 11:00 A.M., London time, on that LIBOR Interest Determination Date ("LIBOR TELERATE"). "Reuters Screen LIBO Page" means the display designated as page "LIBO" on the Reuters Monitor Money Rates Service (or such other page as may replace the LIBO page on that service for the purpose of displaying London interbank offered rates of major banks). "Telerate Page 3750" means the display designated as page "3750" on the Telerate Service (or such other page as may replace the 3750 page on that service or such other service or services as may be nominated by the British Bankers' Association for the purpose of displaying London interbank offered rates for U.S. dollar deposits). If neither LIBOR Reuters nor LIBOR Telerate is specified on the face hereof, LIBOR will be determined as if LIBOR Telerate had been specified. If fewer than two offered rates appear on the Reuters Screen LIBO Page, or if no rate appears on the Telerate Page 3750, as applicable, LIBOR in respect of that LIBOR Interest Determination Date will be determined as if the parties had specified the rate described in (ii) below. (ii) With respect to a LIBOR Interest Determination Date on which fewer than two offered rates appear on the Reuters Screen LIBO Page, as specified in (i)(a) above, or on which no rate appears on Telerate Page 3750, as specified in (i)(b) above, as applicable, LIBOR will be determined on the basis of the rates at which deposits in U.S. dollars having the Index Maturity specified on the face hereof are offered at approximately 11:00 A.M., London time, on that LIBOR Interest Determination Date by four major banks in the London interbank market selected by the Calculation Agent ("REFERENCE BANKS") to prime banks in the London interbank market commencing on the second London Banking Day immediately following that LIBOR Interest Determination Date and in a principal amount equal to an amount of not less than $1,000,000 that is representative for a single transaction in such market at such time. The Calculation Agent will request the principal London office of each of the Reference Banks to provide a quotation of its rate. If at least two such quotations are provided, LIBOR in respect of that LIBOR Interest Determination Date will be the arithmetic mean of such quotations. If fewer than two quotations are provided, LIBOR in respect of that LIBOR Interest Determination Date will be the arithmetic mean of the rates quoted at approximately 11:00 A.M., New York City time, on that LIBOR Interest Determination Date by three major banks in The City of New York selected by the Calculation Agent for loans in U.S. dollars to leading European banks having the Index Maturity specified on the face hereof commencing on the second London Banking Day immediately following that LIBOR Interest Determination Date and in a principal amount equal to an amount of not less than 10 $1,000,000 that is representative for a single transaction in such market at such time; provided, however, that if the banks selected as aforesaid by the Calculation Agent are not quoting as mentioned in this sentence, LIBOR with respect to such LIBOR Interest Determination Date will be the rate of LIBOR in effect on such date. Determination of Prime Rate. If the Base Rate specified on the face hereof is the Prime Rate, the Prime Rate with respect to this Note shall be determined on each Interest Determination Date and shall be the rate set forth in H.15(519) for such date opposite the caption "Bank Prime Loan." If such rate is not yet published by 9:00 A.M., New York City time, on the Calculation Date pertaining to such Interest Determination Date, the Prime Rate for such Interest Determination Date will be the arithmetic mean of the rates of interest publicly announced by each bank named on the Reuters Screen USPRIME 1 Page (as defined below) as such bank's prime rate or base lending rate as in effect for such Interest Determination Date as quoted on the Reuters Screen USPRIME 1 Page on such Interest Determination Date, or, if fewer than four such rates appear on the Reuters Screen USPRIME 1 Page for such Interest Determination Date, the rate shall be the arithmetic mean of the prime rates quoted on the basis of the actual number of days in the year divided by 360 as of the close of business on such Interest Determination Date by at least two of the three major money center banks in The City of New York selected by the Calculation Agent from which quotations are requested. If fewer than two quotations are provided, the Prime Rate shall be calculated by the Calculation Agent and shall be determined as the arithmetic mean on the basis of the prime rates in The City of New York by the appropriate number of substitute banks or trust companies organized and doing business under the laws of the United States, or any State thereof, in each case having total equity capital of at least U.S. $500 million and being subject to supervision or examination by Federal or State authority, selected by the Calculation Agent to quote such rate or rates; provided, however, that if the substitute banks or trust companies selected as aforesaid are not quoting as mentioned in this sentence, the Prime Rate for such Interest Reset Period will be the Prime Rate in effect for the immediately preceding Interest Reset Period (or, if there is no such Interest Reset Period, the Initial Interest Rate). "Reuters Screen USPRIME 1 Page" means the display designated as Page "USPRIME 1" on the Reuters Monitor Money Rates Service (or such other page as may replace the USPRIME 1 Page on that service for the purpose of displaying prime rates or base lending rates of major United States banks). Determination of Treasury Rate. If the Base Rate specified on the face hereof is the Treasury Rate, the Treasury Rate with respect to this Note shall be determined on each Interest Determination Date and shall be the rate for the auction held on such date of direct obligations of the United States ("TREASURY BILLS") having the Index Maturity specified on the face hereof, as published in H.15(519) under the heading "Treasury Bills--auction average (investment)," or if not so published by 9:00 A.M., New York City time, on the Calculation Date pertaining to such Interest Determination Date, the auction average rate on such Interest Determination Date (expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as applicable, and applied on a daily basis) as otherwise announced by the United States Department of the Treasury. In the event that the results of the auction of Treasury Bills having the Index Maturity specified on the face hereof are not published or reported as provided above by 3:00 P.M., New York City time, on such Calculation Date or if no such auction is held on such Interest Determination Date, then the Treasury Rate shall be calculated by the Calculation Agent and shall be a yield to maturity (expressed as a bond equivalent, on the basis of a 11 year of 365 or 366 days, as applicable, and applied on a daily basis) calculated using the arithmetic mean of the secondary market bid rates, as of approximately 3:30 P.M., New York City time, on such Interest Determination Date, of three leading primary United States government securities dealers selected by the Calculation Agent for the issue of Treasury Bills with a remaining maturity closest to the Index Maturity specified on the face hereof; provided, however, that if the dealers selected as aforesaid by the Calculation Agent are not quoting as mentioned in this sentence, the Treasury Rate for such Interest Reset Date will be the same as the Treasury Rate for the immediately preceding Interest Reset Period (or, if there was no such Interest Reset Period, the rate of interest payable hereon shall be the Initial Interest Rate). Determination of CMT Rate. If the Base Rate specified on the face hereof is the CMT Rate, the CMT Rate with respect to this Note shall be determined on each Interest Determination Date and shall be the rate displayed for the Index Maturity specified on the face hereof on the Designated CMT Telerate Page (as defined below) under the caption ". . . Treasury Constant Maturities . . . Federal Reserve Board Release H.15," under the column for the Designated CMT Maturity Index (as defined below) for (i) if the Designated CMT Telerate Page is 7055, the rate on such Interest Determination Date and (ii) if the Designated CMT Telerate Page is 7052, the week or the month, as applicable, ended immediately preceding the week in which the related Interest Determination Date occurs. If such rate is no longer displayed on the relevant page, or is not displayed by 3:00 p.m., New York City time, on the Calculation Date pertaining to such Interest Determination Date, then the CMT Rate for such Interest Determination Date will be such Treasury Constant Maturity rate for the Designated CMT Maturity Index as published in the relevant H.15(519). If such rate is no longer published, or is not published by 3:00 p.m., New York City time, on the related Calculation Date, then the CMT Rate for such Interest Determination Date will be such Treasury Constant Maturity rate for the Designated CMT Maturity Index (or other United States Treasury rate for the Designated CMT Maturity Index) for the Interest Determination Date with respect to the related Interest Reset Date as may then be published by either the Board of Governors of the Federal Reserve System or the United States Department of the Treasury that the Calculation Agent determines to be comparable to the rate formerly displayed on the Designated CMT Telerate Page and published in the relevant H.15(519). If such information is not provided by 3:00 p.m., New York time, on the related Calculation Date, then the CMT Rate for the Interest Determination Date will be calculated by the Calculation Agent and will be a yield to maturity, based on the arithmetic mean of the secondary market closing offer side prices as of approximately 3:30 p.m., New York City time, on the Interest Determination Date reported, according to their written records, by three leading primary United States government securities dealers (each, a "REFERENCE DEALER") in The City of New York (which may include affiliates of the Issuer) selected by the Calculation Agent (from five such Reference Dealers selected by the Calculation Agent, after consultation with the Issuer, and eliminating the highest quotation (or, in the event of equality, one of the highest) and the lowest quotation (or, in the event of equality, one of the lowest)), for the most recently issued direct noncallable fixed rate obligations of the United States ("TREASURY NOTES") with an original maturity of approximately the Designated CMT Maturity Index and remaining term to maturity of not less than such Designated CMT Maturity Index minus one year. If the Calculation Agent cannot obtain three such Treasury Notes quotations, the CMT Rate for such Interest Determination Date will be calculated by the Calculation Agent and will be a yield to maturity based on the arithmetic mean of the secondary 12 market offer side prices as of approximately 3:30 p.m., New York City time, on the Interest Determination Date of three Reference Dealers in The City of New York (from five such Reference Dealers selected by the Calculation Agent, after consultation with the Issuer, and eliminating the highest quotation (or, in the event of equality, one of the highest) and the lowest quotation (or, in the event of equality, one of the lowest)), for Treasury Notes with an original maturity of the number of years that is the next highest to the Designated CMT Maturity Index and a remaining term to maturity closest to the Designated CMT Maturity Index and in an amount of at least $100,000,000. If three or four (and not five) of such Reference Dealers are quoting as described above, then the CMT Rate will be based on the arithmetic mean of the offer prices obtained and neither the highest nor the lowest of such quotes will be eliminated; provided, however, that if fewer than three Reference Dealers selected by the Calculation Agent are quoting as described herein, the CMT Rate for such Interest Reset Date will be the same as the CMT Rate for the immediately preceding Interest Reset Period (or, if there was no such Interest Reset Period, the rate of interest payable hereon shall be the Initial Interest Rate). If two Treasury Notes with an original maturity as described in the second preceding sentence have remaining terms to maturity equally close to the Designated CMT Maturity Index, the quotes for the Treasury note with the shorter remaining term to maturity will be used. "DESIGNATED CMT TELERATE PAGE" means the display on the Dow Jones Telerate Service specified on the face hereof (or any other page as may replace such page on that service for the purpose of displaying Treasury Constant Maturities as reported in H.15(519)), for the purpose of displaying Treasury Constant Maturities as reported in H.15(519). If no such page is specified on the face hereof, the Designated CMT Telerate Page shall be 7052, for the most recent week. "DESIGNATED CMT MATURITY INDEX" shall be the original period to maturity of the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years) specified on the face hereof with respect to which the CMT Rate will be calculated. If no such maturity is specified on the face hereof, the Designated CMT Maturity Index shall be two years. Notwithstanding the foregoing, the interest rate hereon shall not be greater than the Maximum Interest Rate, if any, or less than the Minimum Interest Rate, if any, specified on the face hereof. The Calculation Agent shall calculate the interest rate hereon in accordance with the foregoing on or before each Calculation Date. At the request of the holder hereof, the Calculation Agent will provide to the holder hereof the interest rate hereon then in effect and, if determined, the interest rate that will become effective as of the next Interest Reset Date. Interest payments on this Note will include interest accrued to but excluding the Interest Payment Dates or the Maturity Date (or any earlier redemption or repayment date), as the case may be; provided, however, that if the Interest Reset Period with respect to this Note is daily or weekly, interest payable on any Interest Payment Date, other than interest payable on any date on which principal hereof is payable, will include interest accrued through and including the Record Date next preceding the applicable Interest Payment Date. Accrued interest hereon shall be an amount calculated by multiplying the face amount hereof by an accrued interest factor. Such accrued interest 13 factor shall be computed by adding the interest factor calculated for each day in the period for which interest is being paid. The interest factor for each such date shall be computed by dividing the interest rate applicable to such day by 360 if the Base Rate is CD Rate, Commercial Paper Rate, Federal Funds Rate, Prime Rate or LIBOR, as specified on the face hereof, or by the actual number of days in the year if the Base Rate is the Treasury Rate or the CMT Rate, as specified on the face hereof. All percentages resulting from any calculation of the rate of interest on this Note will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point (.0000001), with five one- millionths of a percentage point rounded upward, and all dollar amounts used in or resulting from such calculation on this Note will be rounded to the nearest cent (with one-half cent rounded upward). The interest rate in effect on any Interest Reset Date will be the applicable rate as reset on such date. The interest rate applicable to any other day is the interest rate from the immediately preceding Interest Reset Date (or, if none, the Initial Interest Rate). This Note and all the obligations of the Issuer hereunder are direct, unsecured obligations of the Issuer and rank without preference or priority among themselves and pari passu with all other existing and future unsecured and unsubordinated indebtedness of the Issuer, subject to certain statutory exceptions in the event of liquidation upon insolvency. This Note, and any Note or Notes issued upon transfer or exchange hereof, is issuable only in fully registered form, without coupons, in denominations of U.S. $1,000 and any integral multiple of U.S. $1,000 in excess thereof. The Trustee has been appointed registrar for the Notes, and the Trustee will maintain at its office in The City of New York a register for the registration and registration of transfer of Notes. The transfer of this Note may be registered at the aforesaid office of the Trustee by surrendering this Note for cancellation, accompanied by a written instrument of transfer in form satisfactory to the Trustee and duly executed by the registered holder hereof in person or by the holder's attorney duly authorized in writing, and thereupon the Trustee shall issue in the name of the transferee or transferees, in exchange herefor, a new Note or Notes having identical terms and provisions and having a like aggregate principal amount in authorized denominations, subject to the terms and conditions set forth herein; provided, however, that the Trustee will not be required (i) to register the transfer of or exchange any Note that has been called for redemption in whole or in part, except the unredeemed portion of Notes being redeemed in part, (ii) to register the transfer of or exchange any Note if the holder thereof has exercised his right, if any, to require the Issuer to repurchase such Note in whole or in part, except the portion of such Note not required to be repurchased, or (iii) to register the transfer of or exchange Notes to the extent and during the period so provided in the Senior Indenture with respect to the redemption of Notes. Notes are exchangeable at said office for other Notes of other authorized denominations of equal aggregate principal amount having identical terms and provisions. All such exchanges and registrations of transfer of Notes will be free of charge, but the Issuer may require payment of a sum sufficient to cover any tax or other governmental charge in connection therewith. All Notes surrendered for exchange shall be accompanied by a written instrument of transfer in form satisfactory to the Trustee and executed by the registered holder in person or by the holder's attorney duly authorized in writing. The date of registration of any Note 14 delivered upon any exchange or transfer of Notes shall be such that no gain or loss of interest results from such exchange or registration of transfer. In case any Note shall at any time become mutilated, defaced or be destroyed, lost or stolen and such Note or evidence of the loss, theft or destruction thereof (together with the indemnity hereinafter referred to and such other documents or proof as may be required in the premises) shall be delivered to the Trustee, a new Note of like tenor will be issued by the Issuer in exchange for the Note so mutilated or defaced, or in lieu of the Note so destroyed or lost or stolen, but, in the case of any destroyed or lost or stolen Note, only upon receipt of evidence satisfactory to the Trustee and the Issuer that such Note was destroyed or lost or stolen and, if required, upon receipt also of indemnity satisfactory to each of them. All expenses and reasonable charges associated with procuring such indemnity and with the preparation, authentication and delivery of a new Note shall be borne by the owner of the Note mutilated, defaced, destroyed, lost or stolen. The Senior Indenture provides that, (a) if an Event of Default (as defined in the Senior Indenture) due to the default in payment of principal of, premium, if any, or interest on, any series of debt securities issued under the Senior Indenture, including the series of Senior Medium-Term Notes of which this Note forms a part, or due to the default in the performance or breach of any other covenant or warranty of the Issuer applicable to the debt securities of such series but not applicable to all outstanding debt securities issued under the Senior Indenture shall have occurred and be continuing, either the Trustee or the holders of not less than 25% in principal amount of the debt securities of each affected series (voting as a single class) may then declare the principal of all debt securities of all such series and interest accrued thereon to be due and payable immediately and (b) if an Event of Default due to a default in the performance of any other of the covenants or agreements in the Senior Indenture applicable to all outstanding debt securities issued thereunder, including this Note, or due to certain events of bankruptcy, insolvency and reorganization of the Issuer, shall have occurred and be continuing, either the Trustee or the holders of not less than 25% in principal amount of all debt securities issued under the Senior Indenture then outstanding (treated as one class) may declare the principal of all such debt securities and interest accrued thereon to be due and payable immediately, but upon certain conditions such declarations may be annulled and past defaults may be waived (except a continuing default in payment of principal (or premium, if any) or interest on such debt securities) by the holders of a majority in principal amount of the debt securities of all affected series then outstanding. The Trustee also acts as trustee under a Senior Subordinated Indenture, dated as of July 15, 1993 (the "SENIOR SUBORDINATED INDENTURE" and, together with the Senior Indenture, the "INDENTURES"), between the Issuer and the Trustee, with respect to certain other debt securities of the Issuer. The Senior Indenture provides that, should a default occur with respect to either the debt securities issued under the Senior Indenture or the debt securities issued under the Senior Subordinated Indenture, the Trustee would be required to resign as trustee under one of the Indentures within 90 days of such default unless such default were cured, duly waived or otherwise eliminated. 15 The Senior Indenture permits the Issuer and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the debt securities of all series issued under the Senior Indenture then outstanding and affected (voting as one class), to execute supplemental indentures adding any provisions to or changing in any manner the rights of the holders of each series so affected; provided that the Issuer and the Trustee may not, without the consent of the holder of each outstanding debt security affected thereby, (a) extend the final maturity of any such debt security, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any amount payable on redemption or repayment thereof, or change the currency of payment thereof, or impair or affect the rights of any holder to institute suit for the payment thereof without the consent of the holder of each debt security so affected; or (b) reduce the aforesaid percentage in principal amount of debt securities the consent of the holders of which is required for any such supplemental indenture, without the consent of the holders of each debt security so affected. So long as this Note shall be outstanding, the Issuer will cause to be maintained an office or agency for the payment of the principal of and premium, if any, and interest on this Note as herein provided in the Borough of Manhattan, The City of New York, and an office or agency in said Borough of Manhattan for the registration, registration of transfer and exchange as aforesaid of the Notes. The Issuer may designate other agencies for the payment of said principal, premium and interest at such place or places (subject to applicable laws and regulations) as the Issuer may decide. So long as there shall be such an agency, the Issuer shall keep the Trustee advised of the names and locations of such agencies, if any are so designated. With respect to moneys paid by the Issuer and held by the Trustee or any Paying Agent for payment of the principal of or interest or premium, if any, on any Notes that remain unclaimed at the end of two years after such principal, interest or premium shall have become due and payable (whether at maturity or upon call for redemption or otherwise), (i) the Trustee or such Paying Agent shall notify the holders of such Notes that such moneys shall be repaid to the Issuer and any person claiming such moneys shall thereafter look only to the Issuer for payment thereof and (ii) such moneys shall be so repaid to the Issuer. Upon such repayment all liability of the Trustee or such Paying Agent with respect to such moneys shall thereupon cease, without, however, limiting in any way any obligation that the Issuer may have to pay the principal of or interest or premium, if any, on this Note as the same shall become due. No provision of this Note or of the Senior Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Note at the time, place, and rate, and in the coin or currency, herein prescribed unless otherwise agreed between the Issuer and the registered holder of this Note. Prior to due presentment of this Note for registration of transfer, the Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the holder in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note be overdue, and none of the Issuer, the Trustee or any such agent shall be affected by notice to the contrary. 16 No recourse shall be had for the payment of the principal of, premium, if any, or the interest on this Note, for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Senior Indenture or any indenture supplemental thereto, against any incorporator, shareholder, officer or director, as such, past, present or future, of the Issuer or of any successor corporation, either directly or through the Issuer or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. This Note shall for all purposes be governed by, and construed in accordance with, the laws of the State of California. All terms used in this Note which are defined in the Senior Indenture and not otherwise defined herein shall have the meanings assigned to them in the Senior Indenture. 17 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM as tenants in common TEN ENT as tenants by the entireties JT TEN as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT - Custodian ------------------- (Minor) (Cust) Under Uniform Gifts to Minors Act ------------------------- (State) Additional abbreviations may also be used though not in the above list. -------------------- 18 FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto - --------------------------------------- [PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE] the within Note and all rights thereunder, hereby irrevocably constituting and appointing such person attorney to transfer such note on the books of the Issuer, with full power of substitution in the premises. Dated: ----------------- NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within Note in every particular without alteration or enlargement or any change whatsoever. 19 OPTION TO ELECT REPAYMENT The undersigned hereby irrevocably requests and instructs the Issuer to repay the within Note (or portion thereof specified below) pursuant to its terms at a price equal to the principal amount thereof, together with interest to the Optional Repayment Date, to the undersigned at - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Please print or typewrite name and address of the undersigned) If less than the entire principal amount of the within Note is to be repaid, specify the portion thereof which the holder elects to have repaid: ______________________; and specify the denomination or denominations (which shall not be less than the minimum authorized denomination) of the Notes to be issued to the holder for the portion of the within Note not being repaid (in the absence of any such specification, one such Note will be issued for the portion not being repaid): ______________________. Dated: -------------------------------------------------- NOTICE: The signature on this Option to Elect Repayment must correspond with the name as written upon the face of the within instrument in every particular without alteration or enlargement. 20 EX-4.5 5 FORM OF SR SUB MED-TERM NOTE SERIES A (FIXED RATE) EXHIBIT 4.5 FACE OF SECURITY Fixed Rate Senior Subordinated Note REGISTERED REGISTERED No. FXR U.S. $ [PRINCIPAL AMOUNT] CUSIP:* Unless this certificate is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein.* THE CHARLES SCHWAB CORPORATION SENIOR SUBORDINATED MEDIUM-TERM NOTE, SERIES A (Fixed Rate) ORIGINAL INITIAL REDEMPTION INTEREST RATE: ISSUE DATE: DATE: MATURITY INTEREST INITIAL REDEMPTION DATE: ACCRUAL DATE: PERCENTAGE: OPTIONAL APPLICABILITY ANNUAL REDEMPTION REPAYMENT OF ANNUAL PERCENTAGE DATE(S): INTEREST REDUCTION: PAYMENTS: - ------------- * Applies only if this Note is a Registered Global Security. The Charles Schwab Corporation, a Delaware corporation (together with its successors and assigns, the "Issuer"), for value received, hereby promises to pay to , or registered assignees, the principal sum of U.S. $ , on the Maturity Date specified above (except to the extent previously redeemed or repaid) and to pay interest thereon at the Interest Rate per annum specified above from the Interest Accrual Date specified above until the principal hereof is paid or duly made available for payment (except as provided below), semiannually in arrears on the first day of March and September in each year (each such date an "Interest Payment Date") commencing on the Interest Payment Date next succeeding the Interest Accrual Date specified above, and at maturity (or on any redemption or repayment date); provided, however, that if the -------- ------- Interest Accrual Date occurs between a Record Date, as defined below, and the next succeeding Interest Payment Date, interest payments will commence on the second Interest Payment Date succeeding the Interest Accrual Date to the registered holder of this Note on the Record Date with respect to such second Interest Payment Date; and provided, further, that if this Note is subject to -------- ------- "Annual Interest Payments," interest payments shall be made annually in arrears and the term "Interest Payment Date" shall be deemed to mean the first day of March in each year. Interest on this Note will accrue from and including the most recent Interest Payment Date to which interest has been paid or duly provided for, or, if no interest has been paid or duly provided for, from and including the Interest Accrual Date, until the principal hereof has been paid or duly made available for payment (except as provided below). The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, subject to certain exceptions described herein, be paid to the person in whose name this Note (or one or more predecessor Notes) is registered at the close of business on the date 15 calendar days prior to such Interest Payment Date (whether or not a Business Day) (each such date a "Record Date"); provided, however, that -------- ------- interest payable at maturity (or on any redemption or repayment date) will be payable to the person to whom the principal hereof shall be payable. As used herein, "Business Day" means any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions are 2 authorized or required by law or regulation to close in The City of New York. Payment of the principal of this Note, any premium and the interest due at maturity (or on any redemption or repayment date) will be made in immediately available funds upon surrender of this Note at the office or agency of the Paying Agent, as defined on the reverse hereof, maintained for that purpose in the Borough of Manhattan, The City of New York, or at such other paying agency as the Issuer may determine. Payments of interest, other than interest due at maturity or on any date of redemption or repayment, will be made by check mailed to the address of the person entitled thereto as such address shall appear in the Note register; provided, however, that if the registered -------- ------- holder of this Note is (i) Cede & Co. or (ii) a holder of U.S. $10,000,000 or more in aggregate principal amount of Notes having the same Interest Payment Date, such holder will be entitled to receive payments of interest, other than interest due at maturity or on any date of redemption or repayment, by wire transfer of immediately available funds if appropriate wire transfer instructions have been received by the Paying Agent in writing not less than 15 calendar days prior to the applicable Interest Payment Date. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place, including, without limitation, the provisions relating to the subordination of this Note to the Issuer's Senior Indebtedness, as defined on the reverse hereof. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefit under the Senior Subordinated Indenture, as defined on the reverse hereof, or be valid or obligatory for any purpose. 3 IN WITNESS WHEREOF, the Issuer has caused this Note to be duly executed under its corporate seal. DATED: THE CHARLES SCHWAB CORPORATION By __________________________ Chairman and Chief Executive Officer TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Notes referred to in the within-mentioned Senior Subordinated Indenture. CHEMICAL BANK, as Trustee By _____________________________ Authorized Officer 4 REVERSE OF SECURITY This Note is one of a duly authorized issue of Senior Subordinated Medium-Term Notes, Series A, having maturities more than nine months from the date of issue (the "Notes") of the Issuer. The Notes are issuable under a Senior Subordinated Indenture, dated as of July 15, 1993 (the "Senior Subordinated Indenture"), between the Issuer and Chemical Bank, as Trustee (the "Trustee," which term includes any successor trustee under the Senior Subordinated Indenture), to which Senior Subordinated Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities of the Issuer, the Trustee and holders of the Notes and the terms upon which the Notes are, and are to be, authenticated and delivered. The Issuer has appointed Chemical Bank at its corporate trust office in The City of New York as the paying agent (the "Paying Agent," which term includes any additional or successor Paying Agent appointed by the Issuer) with respect to the Notes. The terms of individual Notes may vary with respect to interest rates, interest rate formulas, issue dates, maturity dates, or otherwise, all as provided in the Senior Subordinated Indenture. To the extent not inconsistent herewith, the terms of the Senior Subordinated Indenture are hereby incorporated by reference herein. This Note will not be subject to any sinking fund and, unless otherwise provided on the face hereof in accordance with the provisions of the following two paragraphs, will not be redeemable or subject to repayment at the option of the holder prior to maturity. If so indicated on the face of this Note, this Note may be redeemed in whole or in part at the option of the Issuer on or after the Initial Redemption Date specified on the face hereof on the terms set forth on the face hereof, together with interest accrued and unpaid hereon to the date of redemption (except as provided below). If this Note is subject to "Annual Redemption Percentage Reduction," the Initial Redemption Percentage indicated on the face hereof will be reduced on each anniversary of the Initial Redemption Date by the Annual Redemption Percentage Reduction specified on the face hereof until the redemption price of this Note is 100% of the principal amount hereof, together with interest accrued and unpaid hereon to the date of redemption (except as provided below). Notice of redemption shall be mailed, not less than 30 nor more than 60 days prior to the date fixed for redemption, to the registered holders of the Notes designated for redemption at 5 their addresses as the same shall appear on the Note register, subject to all the conditions and provisions of the Senior Subordinated Indenture. In the event of redemption of this Note in part only, a new Note or Notes for the amount of the unredeemed portion hereof shall be issued in the name of the holder hereof upon the cancellation hereof. If so indicated on the face of this Note, this Note will be subject to repayment at the option of the holder on the Optional Repayment Date or Dates specified on the face hereof on the terms set forth herein. On any Optional Repayment Date, this Note will be repayable in whole or in part in increments of $1,000 (provided that any remaining principal amount hereof shall not be less than the minimum authorized denomination hereof) at the option of the holder hereof at a price equal to 100% of the principal amount to be repaid, together with interest accrued and unpaid hereon to the date of repayment (except as provided below). For this Note to be repaid at the option of the holder hereof, the Paying Agent must receive at its corporate trust office in the Borough of Manhattan, The City of New York, at least 15 but not more than 30 days prior to the date of repayment, (i) this Note with the form entitled "Option to Elect Repayment" below duly completed or (ii) a telegram, telex, facsimile transmission or a letter from a member of a national securities exchange or the National Association of Securities Dealers, Inc. or a commercial bank or a trust company in the United States setting forth the name of the holder of this Note, the principal amount hereof, the certificate number of this Note or a description of this Note's tenor and terms, the principal amount hereof to be repaid, a statement that the option to elect repayment is being exercised thereby and a guarantee that this Note, together with the form entitled "Option to Elect Repayment" duly completed, will be received by the Paying Agent not later than the third Business Day after the date of such telegram, telex, facsimile transmission or letter; provided, that such telegram, telex, facsimile -------- transmission or letter shall only be effective if this Note and form duly completed are received by the Paying Agent by such third Business Day. Exercise of such repayment option by the holder hereof shall be irrevocable. In the event of repayment of this Note in part only, a new Note or Notes for the amount of the unpaid portion hereof shall be issued in the name of the holder hereof upon the cancellation hereof. Interest payments on this Note will include interest accrued to but excluding the Interest Payment Dates or the Maturity Date (or any earlier redemption or repayment date), as the case may be. Interest payments for this Note will be computed and paid on the basis of a 360-day year of twelve 30-day months. 6 In the case where the Interest Payment Date or the Maturity Date (or any redemption or repayment date) does not fall on a Business Day, payment of interest, premium, if any, or principal otherwise payable on such date need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or on the Maturity Date (or any redemption or repayment date), and no interest on such payment shall accrue for the period from and after the Interest Payment Date or the Maturity Date (or any redemption or repayment date) to such next succeeding Business Day. This Note and all other obligations of the Issuer hereunder will constitute part of the senior subordinated debt of the Issuer, will be issued under the Senior Subordinated Indenture and will be subordinate and junior in right of payment, to the extent and in the manner set forth in the Senior Subordinated Indenture, to all "Senior Indebtedness" of the Issuer. The Senior Subordinated Indenture defines "Senior Indebtedness" as the principal of and premium, if any, and interest on (a) indebtedness of the Issuer, whether outstanding on the date of the Senior Subordinated Indenture or thereafter created, that is (i) for money borrowed by the Issuer (including, without limitation, capitalized lease obligations), (ii) for money borrowed by others and guaranteed, directly or indirectly, by the Issuer or (iii) constituting purchase money indebtedness, or indebtedness secured by property at the time of the acquisition of such property by the Issuer, for the payment of which the Issuer is directly or contingently liable, and (b) all deferrals, renewals, extensions and refundings of and amendments, modifications and supplements to (whether outstanding on the date of the Senior Subordinated Indenture or thereafter created), any such indebtedness, unless by the terms of the instrument creating or evidencing any such indebtedness referred to in clause (a) or clause (b) above it is expressly provided that such indebtedness is not superior in right of payment to the Notes and/or it is expressly provided that such indebtedness is itself subordinated to any other indebtedness of the Issuer. As used in the preceding sentence, the term "purchase money indebtedness" means indebtedness evidenced by a note, debenture, bond or other instrument (whether or not secured by any lien or other security interest) issued or assumed as all or a part of the consideration for the acquisition of property, whether by purchase, merger, consolidation or otherwise. The term Senior Indebtedness shall not include (i) indebtedness of the Issuer to a subsidiary of the Issuer for money borrowed or advances from a subsidiary of the Issuer or (ii) the Notes. 7 This Note, and any Note or Notes issued upon transfer or exchange hereof, is issuable only in fully registered form, without coupons, in denominations of U.S. $1,000 and any integral multiple of U.S. $1,000 in excess thereof. The Trustee has been appointed registrar for the Notes, and the Trustee will maintain at its office in The City of New York a register for the registration and registration of transfer of Notes. The transfer of this Note may be registered at the aforesaid office of the Trustee by surrendering this Note for cancellation, accompanied by a written instrument of transfer in form satisfactory to the Trustee and duly executed by the registered holder hereof in person or by the holder's attorney duly authorized in writing, and thereupon the Trustee shall issue in the name of the transferee or transferees, in exchange herefor, a new Note or Notes having identical terms and provisions and having a like aggregate principal amount in authorized denominations, subject to the terms and conditions set forth herein; provided, however, that the Trustee will -------- ------- not be required (i) to register the transfer of or exchange any Note that has been called for redemption in whole or in part, except the unredeemed portion of Notes being redeemed in part, (ii) to register the transfer of or exchange any Note if the holder thereof has exercised his right, if any, to require the Issuer to repurchase such Note in whole or in part, except the portion of such Note not required to be repurchased, or (iii) to register the transfer of or exchange Notes to the extent and during the period so provided in the Senior Subordinated Indenture with respect to the redemption of Notes. Notes are exchangeable at said office for other Notes of other authorized denominations of equal aggregate principal amount having identical terms and provisions. All such exchanges and registrations of transfer of Notes will be free of charge, but the Issuer may require payment of a sum sufficient to cover any tax or other governmental charge in connection therewith. All Notes surrendered for exchange shall be accompanied by a written instrument of transfer in form satisfactory to the Trustee and executed by the registered holder in person or by the holder's attorney duly authorized in writing. The date of registration of any Note delivered upon any exchange or transfer of Notes shall be such that no gain or loss of interest results from such exchange or registration of transfer. In case any Note shall at any time become mutilated, defaced or be destroyed, lost or stolen and such Note or evidence of the loss, theft or destruction thereof (together with the indemnity hereinafter referred to and such other documents or proof as may be required in the premises) shall be delivered to the Trustee, a new Note of 8 like tenor will be issued by the Issuer in exchange for the Note so mutilated or defaced, or in lieu of the Note so destroyed or lost or stolen, but, in the case of any destroyed or lost or stolen Note, only upon receipt of evidence satisfactory to the Trustee and the Issuer that such Note was destroyed or lost or stolen and, if required, upon receipt also of indemnity satisfactory to each of them. All expenses and reasonable charges associated with procuring such indemnity and with the preparation, authentication and delivery of a new Note shall be borne by the owner of the Note mutilated, defaced, destroyed, lost or stolen. The Senior Subordinated Indenture provides that, (a) if an Event of Default (as defined in the Senior Subordinated Indenture) due to the default in payment of principal of, premium, if any, or interest on, any series of debt securities issued under the Senior Subordinated Indenture, including the series of Senior Subordinated Medium-Term Notes of which this Note forms a part, or due to the default in the performance or breach of any other covenant or warranty of the Issuer applicable to the debt securities of such series but not applicable to all outstanding debt securities issued under the Senior Subordinated Indenture shall have occurred and be continuing, either the Trustee or the holders of not less than 25% in principal amount of the debt securities of each affected series (voting as a single class) may then declare the principal of all debt securities of all such series and interest accrued thereon to be due and payable immediately and (b) if an Event of Default due to a default in the performance of any other of the covenants or agreements in the Senior Subordinated Indenture applicable to all outstanding debt securities issued thereunder, including this Note, or due to certain events of bankruptcy, insolvency and reorganization of the Issuer, shall have occurred and be continuing, either the Trustee or the holders of not less than 25% in principal amount of all debt securities issued under the Senior Subordinated Indenture then outstanding (treated as one class) may declare the principal of all such debt securities and interest accrued thereon to be due and payable immediately, but upon certain conditions such declarations may be annulled and past defaults may be waived (except a continuing default in payment of principal (or premium, if any) or interest on such debt securities) by the holders of a majority in principal amount of the debt securities of all affected series then outstanding. The Trustee also acts as trustee under a Senior Indenture, dated as of July 15, 1993 (the "Senior Indenture" and, together with the Senior Subordinated Indenture, the "Indentures"), between the Issuer and the Trustee, with 9 respect to certain other debt securities of the Issuer. The Senior Subordinated Indenture provides that, should a default occur with respect to either the debt securities issued under the Senior Subordinated Indenture or the debt securities issued under the Senior Indenture, the Trustee would be required to resign as trustee under one of the Indentures within 90 days of such default unless such default were cured, duly waived or otherwise eliminated. The Senior Subordinated Indenture permits the Issuer and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the debt securities of all series issued under the Senior Subordinated Indenture then outstanding and affected (voting as one class), to execute supplemental indentures adding any provisions to or changing in any manner the rights of the holders of each series so affected; provided that the -------- Issuer and the Trustee may not, without the consent of the holder of each outstanding debt security affected thereby, (a) extend the final maturity of any such debt security, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any amount payable on redemption or repayment thereof, or change the currency of payment thereof, or impair or affect the rights of any holder to institute suit for the payment thereof without the consent of the holder of each debt security so affected; or (b) reduce the aforesaid percentage in principal amount of debt securities the consent of the holders of which is required for any such supplemental indenture, without the consent of the holders of each debt security so affected; provided, -------- however, that neither this Note nor the Senior Subordinated Indenture may be - ------- amended to alter the subordination provisions hereof or thereof without the written consent of each holder of Senior Indebtedness then outstanding that would be adversely affected thereby. So long as this Note shall be outstanding, the Issuer will cause to be maintained an office or agency for the payment of the principal of and premium, if any, and interest on this Note as herein provided in the Borough of Manhattan, The City of New York, and an office or agency in said Borough of Manhattan for the registration, registration of transfer and exchange as aforesaid of the Notes. The Issuer may designate other agencies for the payment of said principal, premium and interest at such place or places (subject to applicable laws and regulations) as the Issuer may decide. So long as there shall be such an agency, the Issuer shall keep the Trustee advised of the names and locations of such agencies, if any are so designated. With respect to moneys paid by the Issuer and held by the Trustee or any Paying Agent for payment of the principal of or interest or premium, if any, on any Notes 10 that remain unclaimed at the end of two years after such principal, interest or premium shall have become due and payable (whether at maturity or upon call for redemption or otherwise), (i) the Trustee or such Paying Agent shall notify the holders of such Notes that such moneys shall be repaid to the Issuer and any person claiming such moneys shall thereafter look only to the Issuer for payment thereof and (ii) such moneys shall be so repaid to the Issuer. Upon such repayment all liability of the Trustee or such Paying Agent with respect to such moneys shall thereupon cease, without, however, limiting in any way any obligation that the Issuer may have to pay the principal of or interest or premium, if any, on this Note as the same shall become due. No provision of this Note or of the Senior Subordinated Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Note at the time, place, and rate, and in the coin or currency, herein prescribed unless otherwise agreed between the Issuer and the registered holder of this Note. Prior to due presentment of this Note for registration of transfer, the Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the holder in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note be overdue, and none of the Issuer, the Trustee or any such agent shall be affected by notice to the contrary. No recourse shall be had for the payment of the principal of, premium, if any, or the interest on this Note, for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Senior Subordinated Indenture or any indenture supplemental thereto, against any incorporator, shareholder, officer or director, as such, past, present or future, of the Issuer or of any successor corporation, either directly or through the Issuer or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. This Note shall for all purposes be governed by, and construed in accordance with, the laws of the State of California. All terms used in this Note which are defined in the Senior Subordinated Indenture and not otherwise defined herein shall have the meanings assigned to them in the Senior Subordinated Indenture. 11 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM-as tenants in common TEN ENT-as tenants by the entireties JT TEN-as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT-...........Custodian.............. (Cust) (Minor) Under Uniform Gifts to Minors Act................... (State) Additional abbreviations may also be used though not in the above list. __________ 12 FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto [PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE] _________________________________________ | ________________________________________________________________________________ ________________________________________________________________________________ [PLEASE PRINT OR TYPE NAME AND ADDRESS INCLUDING ZIP CODE, OF ASSIGNEE] ________________________________________________________________________________ the within Note and all rights thereunder, hereby irrevocably ________________________________________________________________________________ constituting and appointing such person attorney to transfer ________________________________________________________________________________ such note on the books of the Issuer, with full power of ________________________________________________________________________________ substitution in the premises. Dated: ____________________ NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within Note in every particular without alteration or enlargement or any change whatsoever. 13 OPTION TO ELECT REPAYMENT The undersigned hereby irrevocably requests and instructs the Issuer to repay the within Note (or portion thereof specified below) pursuant to its terms at a price equal to the principal amount thereof, together with interest to the Optional Repayment Date, to the undersigned at ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Please print or typewrite name and address of the undersigned) If less than the entire principal amount of the within Note is to be repaid, specify the portion thereof which the holder elects to have repaid: __________________; and specify the denomination or denominations (which shall not be less than the minimum authorized denomination) of the Notes to be issued to the holder for the portion of the within Note not being repaid (in the absence of any such specification, one such Note will be issued for the portion not being repaid): ____________________________. Dated: _____________ _________________________________________________ NOTICE: The signature on this Option to Elect Repayment must correspond with the name as written upon the face of the within instrument in every particular without alteration or enlargement. 14 EX-4.6 6 FORM SR SUB MED-TRM NOTE SERIES A (FLOATING RATE) EXHIBIT 4.6 FACE OF SECURITY FLOATING RATE SENIOR SUBORDINATED NOTE REGISTERED REGISTERED NO. FLR [PRINCIPAL AMOUNT] CUSIP: Unless this certificate is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein.* THE CHARLES SCHWAB CORPORATION SENIOR SUBORDINATED MEDIUM-TERM NOTE, SERIES A (FLOATING RATE) - -------------------------------------------------------------------------------- BASE RATE: ORIGINAL ISSUE DATE: MATURITY DATE: - -------------------------------------------------------------------------------- INDEX MATURITY: INTEREST ACCRUAL DATE: INTEREST PAYMENT DATE(S): - -------------------------------------------------------------------------------- SPREAD (PLUS OR MINUS): INITIAL INTEREST RATE: INTEREST PAYMENT PERIOD: - -------------------------------------------------------------------------------- ALTERNATE RATE EVENT INITIAL INTEREST RESET INTEREST RESET PERIOD: SPREAD: DATE: - -------------------------------------------------------------------------------- SPREAD MULTIPLIER: MAXIMUM INTEREST RATE: INTEREST RESET DATES: - -------------------------------------------------------------------------------- REPORTING SERVICE: MINIMUM INTEREST RATE: CALCULATION AGENT: - -------------------------------------------------------------------------------- INITIAL REDEMPTION DATE: SPECIFIED CURRENCY: - -------------------------------------------------------------------------------- EXCHANGE RATE AGENT: INITIAL REDEMPTION TOTAL AMOUNT OF OID: PERCENTAGE: - -------------------------------------------------------------------------------- INDEX CURRENCY: ANNUAL REDEMPTION ORIGINAL YIELD TO PERCENTAGE REDUCTION: MATURITY: - -------------------------------------------------------------------------------- OTHER PROVISIONS: OPTIONAL REPAYMENT INITIAL ACCRUAL PERIOD OID: DATE(S): - -------------------------------------------------------------------------------- DESIGNATED CMT TELERATE DESIGNATED CMT MATURITY PAGE: INDEX: ================================================================================ The Charles Schwab Corporation, a Delaware corporation (together with its successors and assigns, the "ISSUER"), for value received, hereby promises to pay to , or registered assignees, the principal sum of U.S. $ on the Maturity Date specified above (except to the extent redeemed or repaid prior to the Maturity Date) and to pay interest thereon, from the Interest Accrual Date specified above at a rate per annum equal to the Initial Interest Rate specified above until the Initial Interest Reset Date specified above, and thereafter at a rate per annum determined in accordance with the provisions specified on the reverse hereof until the principal hereof is paid or duly made available for payment. The Issuer will pay interest in arrears monthly, quarterly, semiannually or annually as specified above as the Interest Payment Period on each Interest Payment Date (as specified above), commencing with the first Interest Payment Date next succeeding the Interest Accrual Date specified above, and on the Maturity Date (or any redemption or repayment date); provided, however, that if the Interest Accrual Date occurs between a Record Date, as defined below, and the next succeeding Interest Payment Date, interest payments will commence on the second Interest Payment Date succeeding the Interest Accrual Date to the registered holder of this Note on the Record Date with respect to such second Interest Payment Date; and provided, further, that, subject to the next succeeding sentence, if an Interest Payment Date would fall on a day that is not a Business Day, as defined on the reverse hereof, such Interest Payment Date shall be postponed to the following day that is a Business Day, 2 except that if the Base Rate specified above is LIBOR and such next Business Day falls in the next calendar month, the Interest Payment Date shall be the immediately preceding day that is a Business Day. If the Maturity Date or redemption or repayment date would fall on a day that is not a Business Day, the payment of principal and interest will be made on the next succeeding Business Day, and no interest on such payment shall accrue for the period from and after such Maturity Date or redemption or repayment date, as the case may be. Interest on this Note will accrue from the most recent date to which interest has been paid or duly provided for, or, if no interest has been paid or duly provided for, from the Interest Accrual Date, until the principal hereof has been paid or duly made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, subject to certain exceptions described herein, be paid to the person in whose name this Note (or one or more predecessor Notes) is registered at the close of business on the date 15 calendar days prior to such Interest Payment Date (whether or not a Business Day) (each such date a "RECORD DATE"); provided, however, that interest payable on the Maturity Date (or any redemption or repayment date) will be payable to the person to whom the principal hereof shall be payable. Payment of the principal of this Note, any premium and the interest due at the Maturity Date (or any redemption or repayment date) will be made in immediately available funds upon surrender of this Note at the office or agency of the Paying Agent, as defined on the reverse hereof, maintained for that purpose in the Borough of Manhattan, The City of New York, or at such other paying agency as the Issuer may determine. Payments of interest, other than interest due at maturity or any date of redemption or repayment, will be made by check mailed to the address of the person entitled thereto as such address shall appear in the Note register; provided, however, that if the registered holder of this Note is (i) Cede & Co. or (ii) a holder of U.S. $10,000,000 or more in aggregate principal amount of Notes having the same Interest Payment Date, such holder will be entitled to receive payments of interest, other than interest due at maturity or any date of redemption or repayment, by wire transfer of immediately available funds if appropriate wire transfer instructions have been received by the Paying Agent in writing not less than 15 calendar days prior to the applicable Interest Payment Date. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place, including, without limitation, the provisions relating to the subordination of this Note to the Issuer's Senior Indebtedness, as defined on the reverse hereof. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefit under the Senior Subordinated Indenture, as defined on the reverse hereof, or be valid or obligatory for any purpose. 3 IN WITNESS WHEREOF, the Issuer has caused this Note to be duly executed under its corporate seal. DATED: THE CHARLES SCHWAB CORPORATION By ______________________________ Chairman and Chief Executive Officer TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Notes referred to in the within-mentioned Senior Subordinated Indenture. THE CHASE MANHATTAN BANK, as Trustee By ______________________________ Authorized Officer 4 REVERSE OF SECURITY This Note is one of a duly authorized issue of Senior Subordinated Medium-Term Notes, Series A, having maturities more than nine months from the date of issue (the "NOTES") of the Issuer. The Notes are issuable under a Senior Subordinated Indenture, dated as of July 15, 1993 (the "SENIOR SUBORDINATED INDENTURE"), between the Issuer and The Chase Manhattan Bank (formerly Chemical Bank), as Trustee (the "TRUSTEE," which term includes any successor trustee under the Senior Subordinated Indenture), to which Senior Subordinated Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities of the Issuer, the Trustee and holders of the Notes and the terms upon which the Notes are, and are to be, authenticated and delivered. The Issuer has appointed The Chase Manhattan Bank (formerly Chemical Bank) at its corporate trust office in The City of New York as the paying agent (the "PAYING AGENT," which term includes any additional or successor Paying Agent appointed by the Issuer) with respect to the Notes. The terms of individual Notes may vary with respect to interest rates, interest rate formulas, issue dates, maturity dates, or otherwise, all as provided in the Senior Subordinated Indenture. To the extent not inconsistent herewith, the terms of the Senior Subordinated Indenture are hereby incorporated by reference herein. This Note will not be subject to any sinking fund and, unless otherwise provided on the face hereof in accordance with the provisions of the following two paragraphs, will not be redeemable or subject to repayment at the option of the holder prior to maturity. If so indicated on the face of this Note, this Note may be redeemed in whole or in part at the option of the Issuer on or after the Initial Redemption Date specified on the face hereof on the terms set forth on the face hereof, together with interest accrued and unpaid hereon to the date of redemption. If this Note is subject to "Annual Redemption Percentage Reduction," the Initial Redemption Percentage indicated on the face hereof will be reduced on each anniversary of the Initial Redemption Date by the Annual Redemption Percentage Reduction specified on the face hereof until the redemption price of this Note is 100% of the principal amount hereof, together with interest accrued and unpaid hereon to the date of redemption. Notice of redemption shall be mailed, not less than 30 nor more than 60 days prior to the date fixed for redemption, to the registered holders of the Notes designated for redemption at their addresses as the same shall appear on the Note register, subject to all the conditions and provisions of the Senior Subordinated Indenture. In the event of redemption of this Note in part only, a new Note or Notes for the amount of the unredeemed portion hereof shall be issued in the name of the holder hereof upon the cancellation hereof. If so indicated on the face of this Note, this Note will be subject to repayment at the option of the holder on the Optional Repayment Date or Dates specified on the face hereof on the terms set forth herein. On any Optional Repayment Date, this Note will be repayable in whole or in part in increments of $1,000 (provided that any remaining principal amount hereof shall not be less than the minimum authorized denomination hereof) at the option of the holder hereof at a price equal to 100% of the principal amount to be repaid, together with interest accrued and unpaid hereon to the date of repayment. For this Note to be repaid at the option of the holder hereof, the Paying Agent must receive at its corporate trust office in the Borough of Manhattan, The City of New York, at least 15 5 but not more than 30 days prior to the date of repayment, (i) this Note with the form entitled "Option to Elect Repayment" below duly completed or (ii) a telegram, telex, facsimile transmission or a letter from a member of a national securities exchange or the National Association of Securities Dealers, Inc. or a commercial bank or a trust company in the United States setting forth the name of the holder of this Note, the principal amount hereof, the certificate number of this Note or a description of this Note's tenor and terms, the principal amount hereof to be repaid, a statement that the option to elect repayment is being exercised thereby and a guarantee that this Note, together with the form entitled "Option to Elect Repayment" duly completed, will be received by the Paying Agent not later than the third Business Day after the date of such telegram, telex, facsimile transmission or letter; provided, that such telegram, telex, facsimile transmission or letter shall only be effective if this Note and form duly completed are received by the Paying Agent by such third Business Day. Exercise of such repayment option by the holder hereof shall be irrevocable. In the event of repayment of this Note in part only, a new Note or Notes for the amount of the unpaid portion hereof shall be issued in the name of the holder hereof upon the cancellation hereof. This Note will bear interest at the rate determined in accordance with the applicable provisions below by reference to the Base Rate shown on the face hereof based on the Index Maturity, if any, shown on the face hereof (i) plus or minus the Spread, if any, and/or (ii) multiplied by the Spread Multiplier, if any, specified on the face hereof. Commencing with the Initial Interest Reset Date specified on the face hereof, the rate at which interest on this Note is payable shall be reset as of each Interest Reset Date (as used herein, the term "Interest Reset Date" shall include the Initial Interest Reset Date). The Interest Reset Dates will be the Interest Reset Dates specified on the face hereof; provided, however, that (i) the interest rate in effect for the period from the Interest Accrual Date to the Initial Interest Reset Date will be the Initial Interest Rate and (ii) the interest rate in effect hereon for the 10 days immediately prior to the Maturity Date hereof (or, with respect to any principal amount to be redeemed or repaid, any redemption or repayment date) shall be that in effect on the tenth calendar day preceding the Maturity Date hereof or such date of redemption or repayment, as the case may be. If any Interest Reset Date would otherwise be a day that is not a Business Day, such Interest Reset Date shall be postponed to the next succeeding day that is a Business Day, except that if the Base Rate specified on the face hereof is LIBOR and such Business Day is in the next succeeding calendar month, such Interest Reset Date shall be the immediately preceding Business Day. As used herein, "Business Day" means any day, other than a Saturday or Sunday, and that is neither a legal holiday nor a day on which banking institutions are authorized or required by law or regulation to close in The City of New York and, with respect to Notes bearing interest calculated by reference to LIBOR, is also a London Banking Day (as defined below). The Interest Determination Date pertaining to an Interest Reset Date for Notes bearing interest calculated by reference to the CD Rate, Commercial Paper Rate, Federal Funds Rate, Prime Rate and CMT Rate will be the second Business Day preceding such Interest Reset Date. The Interest Determination Date pertaining to an Interest Reset Date for Notes bearing interest calculated by reference to LIBOR shall be the second London Banking Day preceding such Interest Reset Date. As used herein, "London Banking Day" means any day on which dealings in deposits in U.S. dollars are transacted in the London interbank market. The Interest Determination Date pertaining to an Interest Reset Date for Notes bearing interest calculated by reference to the Treasury Rate shall be 6 the day of the week in which such Interest Reset Date falls on which Treasury bills normally would be auctioned; provided, however, that if as a result of a legal holiday an auction is held on the Friday of the week preceding such Interest Reset Date, the related Interest Determination Date shall be such preceding Friday; and provided, further, that if an auction shall fall on any Interest Reset Date, then the Interest Reset Date shall instead be the first Business Day following the date of such auction. The "CALCULATION DATE" pertaining to any Interest Determination Date will be the earlier of (i) the tenth calendar day after such Interest Determination Date or, if such day is not a Business Day, the next succeeding Business Day or (ii) the Business Day preceeding the applicable Interest Payment Date or maturity, as the case may be. Determination of CD Rate. If the Base Rate specified on the face hereof is the CD Rate, the CD Rate with respect to this Note shall be determined on each Interest Determination Date and shall be the rate on such date for negotiable certificates of deposit having the Index Maturity specified on the face hereof as published by the Board of Governors of the Federal Reserve System in "Statistical Release H.15(519), Selected Interest Rates," or any successor publication of the Board of Governors of the Federal Reserve System ("H.15(519)"), under the heading "CDs (Secondary Market)," or, if not so published by 9:00 A.M., New York City time, on the Calculation Date pertaining to such Interest Determination Date, the CD Rate will be the rate on such Interest Determination Date for negotiable certificates of deposit of the Index Maturity specified on the face hereof as published by the Federal Reserve Bank of New York in its daily statistical release "Composite 3:30 P.M. Quotations for U.S. Government Securities" ("Composite Quotations") under the heading "Certificates of Deposit." If neither of such rates is published by 3:00 P.M., New York City time, on such Calculation Date, then the CD Rate on such Interest Determination Date will be calculated by the Calculation Agent referred to on the face hereof and will be the arithmetic mean of the secondary market offered rates as of 10:00 A.M., New York City time, on such Interest Determination Date for certificates of deposit in the denomination of U.S. $5,000,000 with a remaining maturity closest to the Index Maturity specified on the face hereof of three leading nonbank dealers in negotiable U.S. dollar certificates of deposit in The City of New York selected by the Calculation Agent for negotiable certificates of deposit of major United States money center banks in the market for negotiable certificates of deposit; provided, however, that if the dealers selected as aforesaid by the Calculation Agent are not quoting as mentioned in this sentence, the rate of interest in effect for the applicable period will be the same as the CD Rate for the immediately preceding Interest Reset Period (or, if there was no such Interest Reset Period, the rate of interest payable hereon shall be the Initial Interest Rate). Determination of Commercial Paper Rate. If the Base Rate specified on the face hereof is the Commercial Paper Rate, the Commercial Paper Rate with respect to this Note shall be determined on each Interest Determination Date and shall be the Money Market Yield (as defined herein) of the rate on such date for commercial paper having the Index Maturity specified on the face hereof, as such rate shall be published in H.15(519) under the heading "Commercial Paper," or if not so published prior to 9:00 A.M., New York City time, on the Calculation Date pertaining to such Interest Determination Date, the Commercial Paper Rate shall be the Money Market Yield of the rate on such Interest Determination Date for commercial paper of the Index Maturity specified on the face 7 hereof as published in Composite Quotations under the heading "Commercial Paper." If neither of such rates is published by 3:00 P.M., New York City time, on such Calculation Date, then the Commercial Paper Rate shall be the Money Market Yield of the arithmetic mean of the offered rates as of 11:00 A.M., New York City time, on such Interest Determination Date of three leading dealers in commercial paper in The City of New York selected by the Calculation Agent for commercial paper of the Index Maturity specified on the face hereof, placed for an industrial issuer whose bond rating is "AA," or the equivalent, from a nationally recognized rating agency; provided, however, that if the dealers selected as aforesaid by the Calculation Agent are not quoting as mentioned in this sentence, the rate of interest in effect for the applicable period will be the same as the Commercial Paper Rate for the immediately preceding Interest Reset Period (or, if there was no such Interest Reset Period, the rate of interest payable hereon shall be the Initial Interest Rate). "MONEY MARKET YIELD" shall be the yield calculated in accordance with the following formula: D x 360 Money Market Yield = _________________ x 100 360 - (D x M) where "D" refers to the applicable per annum rate for commercial paper quoted on a bank discount basis and expressed as a decimal and "M" refers to the actual number of days in the period for which interest is being calculated. Determination of Federal Funds Rate. If the Base Rate specified on the face hereof is the Federal Funds Rate, the Federal Funds Rate with respect to this Note shall be determined on each Interest Determination Date and shall be the rate on such date for Federal Funds as published in H.15(519) under the heading "Federal Funds (Effective)," or, if not so published by 9:00 A.M., New York City time, on the Calculation Date pertaining to such Interest Determination Date, the Federal Funds Rate will be the rate on such Interest Determination Date as published in Composite Quotations under the heading "Federal Funds/Effective Rate." If neither of such rates is published by 3:00 P.M., New York City time, on such Calculation Date, the Federal Funds Rate for such Interest Determination Date will be calculated by the Calculation Agent and will be the arithmetic mean of the rates for the last transaction in overnight Federal funds as of 9:00 A.M., New York City time, on such Interest Determination Date arranged by three leading brokers in Federal funds transactions in The City of New York selected by the Calculation Agent; provided, however, that if the brokers selected as aforesaid by the Calculation Agent are not quoting as mentioned in this sentence, the rate of interest in effect for the applicable period will be the same as the Federal Funds Rate for the immediately preceding Interest Reset Period (or, if there was no such Interest Reset Period, the rate of interest payable hereon shall be the Initial Interest Rate). Determination of LIBOR. If the Base Rate specified on the face hereof is LIBOR, LIBOR with respect to this Note shall be determined as follows: 8 (i) With respect to a LIBOR Interest Determination Date, LIBOR will be, as specified on the face hereof, either: (a) the arithmetic mean of the offered rates for deposits in U.S. dollars having the Index Maturity specified on the face hereof, commencing on the second London Banking Day immediately following the LIBOR Interest Determination Date, that appear on the Reuters Screen LIBO Page as of 11:00 A.M., London time, on that LIBOR Interest Determination Date, if at least two such offered rates appear on the Reuters Screen LIBO Page ("LIBOR REUTERS"), or (b) the rate for deposits in U.S. dollars having the Index Maturity specified on the face hereof, commencing on the second London Banking Day immediately following that LIBOR Interest Determination Date, that appears on the Telerate Page 3750 as of 11:00 A.M., London time, on that LIBOR Interest Determination Date ("LIBOR TELERATE"). "Reuters Screen LIBO Page" means the display designated as page "LIBO" on the Reuters Monitor Money Rates Service (or such other page as may replace the LIBO page on that service for the purpose of displaying London interbank offered rates of major banks). "Telerate Page 3750" means the display designated as page "3750" on the Telerate Service (or such other page as may replace the 3750 page on that service or such other service or services as may be nominated by the British Bankers' Association for the purpose of displaying London interbank offered rates for U.S. dollar deposits). If neither LIBOR Reuters nor LIBOR Telerate is specified on the face hereof, LIBOR will be determined as if LIBOR Telerate had been specified. If fewer than two offered rates appear on the Reuters Screen LIBO Page, or if no rate appears on the Telerate Page 3750, as applicable, LIBOR in respect of that LIBOR Interest Determination Date will be determined as if the parties had specified the rate described in (ii) below. (ii) With respect to a LIBOR Interest Determination Date on which fewer than two offered rates appear on the Reuters Screen LIBO Page, as specified in (i)(a) above, or on which no rate appears on Telerate Page 3750, as specified in (i)(b) above, as applicable, LIBOR will be determined on the basis of the rates at which deposits in U.S. dollars having the Index Maturity specified on the face hereof are offered at approximately 11:00 A.M., London time, on that LIBOR Interest Determination Date by four major banks in the London interbank market selected by the Calculation Agent ("REFERENCE BANKS") to prime banks in the London interbank market commencing on the second London Banking Day immediately following that LIBOR Interest Determination Date and in a principal amount equal to an amount of not less than $1,000,000 that is representative for a single transaction in such market at such time. The Calculation Agent will request the principal London office of each of the Reference Banks to provide a quotation of its rate. If at least two such quotations are provided, LIBOR in respect of that LIBOR Interest Determination Date will be the arithmetic mean of such quotations. If fewer than two quotations are provided, LIBOR in respect of that LIBOR Interest Determination Date will be the arithmetic mean of the rates quoted at approximately 11:00 A.M., New York City time, on that LIBOR Interest Determination Date by three major banks in The City of New York selected by the Calculation Agent for loans in U.S. dollars to leading European banks having the Index Maturity specified on the face hereof, commencing on the second London Banking Day immediately following that LIBOR Interest Determination Date and in a principal amount equal to an amount of not less than 9 $1,000,000 that is representative for a single transaction in such market at such time; provided, however, that if the banks selected as aforesaid by the Calculation Agent are not quoting as mentioned in this sentence, LIBOR with respect to such LIBOR Interest Determination Date will be the rate of LIBOR in effect on such date. Determination of Prime Rate. If the Base Rate specified on the face hereof is the Prime Rate, the Prime Rate with respect to this Note shall be determined on each Interest Determination Date and shall be the rate set forth in H.15(519) for such date opposite the caption "Bank Prime Loan." If such rate is not yet published by 9:00 A.M., New York City time, on the Calculation Date pertaining to such Interest Determination Date, the Prime Rate for such Interest Determination Date will be the arithmetic mean of the rates of interest publicly announced by each bank named on the Reuters Screen USPRIME 1 Page (as defined below) as such bank's prime rate or base lending rate as in effect for such Interest Determination Date as quoted on the Reuters Screen USPRIME 1 Page on such Interest Determination Date, or, if fewer than four such rates appear on the Reuters Screen USPRIME 1 Page for such Interest Determination Date, the rate shall be the arithmetic mean of the prime rates quoted on the basis of the actual number of days in the year divided by 360 as of the close of business on such Interest Determination Date by at least two of the three major money center banks in The City of New York selected by the Calculation Agent from which quotations are requested. If fewer than two quotations are provided, the Prime Rate shall be calculated by the Calculation Agent and shall be determined as the arithmetic mean on the basis of the prime rates in The City of New York by the appropriate number of substitute banks or trust companies organized and doing business under the laws of the United States, or any State thereof, in each case having total equity capital of at least U.S. $500 million and being subject to supervision or examination by Federal or State authority, selected by the Calculation Agent to quote such rate or rates; provided, however, that if the substitute banks or trust companies selected as aforesaid are not quoting as mentioned in this sentence, the Prime Rate for such Interest Reset Period will be the Prime Rate in effect for the immediately preceding Interest Reset Period (or, if there is no such Interest Reset Period, the Initial Interest Rate). "Reuters Screen USPRIME 1 Page" means the display designated as Page "USPRIME 1" on the Reuters Monitor Money Rates Service (or such other page as may replace the USPRIME 1 Page on that service for the purpose of displaying prime rates or base lending rates of major United States banks). 10 Determination of Treasury Rate. If the Base Rate specified on the face hereof is the Treasury Rate, the Treasury Rate with respect to this Note shall be determined on each Interest Determination Date and shall be the rate for the auction held on such date of direct obligations of the United States ("TREASURY BILLS") having the Index Maturity specified on the face hereof, as published in H.15(519) under the heading "Treasury Bills--auction average (investment)," or if not so published by 9:00 A.M., New York City time, on the Calculation Date pertaining to such Interest Determination Date, the auction average rate on such Interest Determination Date (expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as applicable, and applied on a daily basis) as otherwise announced by the United States Department of the Treasury. In the event that the results of the auction of Treasury Bills having the Index Maturity specified on the face hereof are not published or reported as provided above by 3:00 P.M., New York City time, on such Calculation Date or if no such auction is held on such Interest Determination Date, then the Treasury Rate shall be calculated by the Calculation Agent and shall be a yield to maturity (expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as applicable, and applied on a daily basis) calculated using the arithmetic mean of the secondary market bid rates, as of approximately 3:30 P.M., New York City time, on such Interest Determination Date, of three leading primary United States government securities dealers selected by the Calculation Agent for the issue of Treasury Bills with a remaining maturity closest to the Index Maturity specified on the face hereof; provided, however, that if the dealers selected as aforesaid by the Calculation Agent are not quoting as mentioned in this sentence, the Treasury Rate for such Interest Reset Date will be the same as the Treasury Rate for the immediately preceding Interest Reset Period (or, if there was no such Interest Reset Period, the rate of interest payable hereon shall be the Initial Interest Rate). Determination of CMT Rate. If the Base Rate specified on the face hereof is the CMT Rate, the CMT Rate with respect to this Note shall be determined on each Interest Determination Date and shall be the rate displayed for the Index Maturity specified on the face hereof on the Designated CMT Telerate Page (as defined below) under the Caption ". . . Treasury Constant Maturities . . . Federal Reserve Board Release H.15" under the column for the Designated CMT Maturity Index (as defined below) for (i) if the Designated CMT Telerate Page is 7055, the rate on such Interest Determination Date and (ii) if the Designated CMT Telerate Page is 7052, the week or the month, as applicable, ended immediately preceding the week in which the related Interest Determination Date occurs. If such rate is no longer displayed on the relevant page, or is not displayed by 3:00 p.m., New York City time, on the Calculation Date pertaining to such Interest Determination Date, then the CMT Rate for such Interest Determination Date will be such Treasury Constant Maturity rate for the Designated CMT Maturity Index as published in the relevant H.15(519). If such rate is no longer published, or is not published by 3:00 p.m., New York City time, on the related Calculation Date, then the CMT Rate for such Interest Determination Date will be such Treasury Constant Maturity rate for the Designated CMT Maturity Index (or other United States Treasury rate for the Designated CMT Maturity Index) for the Interest Determination Date with respect to the related Interest Reset Date as may then be published by either the Board of Governors of the Federal Reserve System or the United States Department of the Treasury that the Calculation Agent determines to be comparable to the rate formerly displayed on the Designated CMT Telerate Page and published in the relevant H.15(519). If such information is not provided by 3:00 p.m., New York time, on the related Calculation Date, then the CMT Rate for the Interest Determination Date will be calculated by the 11 Calculation Agent and will be a yield to maturity, based on the arithmetic mean of the secondary market closing offer side prices as of approximately 3:30 p.m., New York City time, on the Interest Determination Date reported, according to their written records, by three leading primary United States government securities dealers (each, a "REFERENCE DEALER") in The City of New York (which may include affiliates of the Issuer) selected by the Calculation Agent (from five such Reference Dealers selected by the Calculation Agent, after consultation with the Issuer, and eliminating the highest quotation (or, in the event of equality, one of the highest) and the lowest quotation (or, in the event of equality, one of the lowest)), for the most recently issued direct noncallable fixed rate obligations of the United States ("TREASURY NOTES") with an original maturity of approximately the Designated CMT Maturity Index and remaining term to maturity of not less than such Designated CMT Maturity Index minus one year. If the Calculation Agent cannot obtain three such Treasury Notes quotations, the CMT Rate for such Interest Determination Date will be calculated by the Calculation Agent and will be a yield to maturity based on the arithmetic mean of the secondary market offer side prices as of approximately 3:30 p.m., New York City time, on the Interest Determination Date of three Reference Dealers in The City of New York (from five such Reference Dealers selected by the Calculation Agent, after consultation with the Issuer, and eliminating the highest quotation (or, in the event of equality, one of the highest) and the lowest quotation (or, in the event of equality, one of the lowest)), for Treasury Notes with an original maturity of the number of years that is the next highest to the Designated CMT Maturity Index and a remaining term to maturity closest to the Designated CMT Maturity Index and in an amount of at least $100,000,000. If three or four (and not five) of such Reference Dealers are quoting as described above, then the CMT Rate will be based on the arithmetic mean of the offer prices obtained and neither the highest nor the lowest of such quotes will be eliminated; provided, however, that if fewer than three Reference Dealers selected by the Calculation Agent are quoting as described herein, the CMT Rate for such Interest Reset Date will be the same as the CMT Rate for the immediately preceding Interest Reset Period (or, if there was no such Interest Reset Period, the rate of interest payable hereon shall be the Initial Interest Rate). If two Treasury Notes with an original maturity as described in the second preceding sentence have remaining terms to maturity equally close to the Designated CMT Maturity Index, the quotes for the Treasury note with the shorter remaining term to maturity will be used. "DESIGNATED CMT TELERATE PAGE" means the display on the Dow Jones Telerate Service specified on the face hereof (or any other page as may replace such page on that service for the purpose of displaying Treasury Constant Maturities as reported in H.15(519)), for the purpose of displaying Treasury Constant Maturities as reported in H.15(519). If no such page is specified on the face hereof, the Designated CMT Telerate Page shall be 7052, for the most recent week. "DESIGNATED CMT MATURITY INDEX" shall be the original period to maturity of the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years) specified on the face hereof with respect to which the CMT Rate will be calculated. If no such maturity is specified on the face hereof, the Designated CMT Maturity Index shall be two years. Notwithstanding the foregoing, the interest rate hereon shall not be greater than the Maximum Interest Rate, if any, or less than the Minimum Interest Rate, if any, specified on the face hereof. The 12 Calculation Agent shall calculate the interest rate hereon in accordance with the foregoing on or before each Calculation Date. At the request of the holder hereof, the Calculation Agent will provide to the holder hereof the interest rate hereon then in effect and, if determined, the interest rate that will become effective as of the next Interest Reset Date. Interest payments on this Note will include interest accrued to but excluding the Interest Payment Dates or the Maturity Date (or any earlier redemption or repayment date), as the case may be; provided, however, that if the Interest Reset Period with respect to this Note is daily or weekly, interest payable on any Interest Payment Date, other than interest payable on any date on which principal hereof is payable, will include interest accrued through and including the Record Date next preceding the applicable Interest Payment Date. Accrued interest hereon shall be an amount calculated by multiplying the face amount hereof by an accrued interest factor. Such accrued interest factor shall be computed by adding the interest factor calculated for each day in the period for which interest is being paid. The interest factor for each such date shall be computed by dividing the interest rate applicable to such day by 360 if the Base Rate is CD Rate, Commercial Paper Rate, Federal Funds Rate, Prime Rate or LIBOR, as specified on the face hereof, or by the actual number of days in the year if the Base Rate is the Treasury Rate or the CMT Rate, as specified on the face hereof. All percentages resulting from any calculation of the rate of interest on this Note will be rounded, if necessary, to the nearest one hundred- thousandth of a percentage point (.0000001), with five one-millionths of a percentage point rounded upward, and all dollar amounts used in or resulting from such calculation on this Note will be rounded to the nearest cent (with one-half cent rounded upward). The interest rate in effect on any Interest Reset Date will be the applicable rate as reset on such date. The interest rate applicable to any other day is the interest rate from the immediately preceding Interest Reset Date (or, if none, the Initial Interest Rate). This Note and all other obligations of the Issuer hereunder will constitute part of the senior subordinated debt of the Issuer, will be issued under the Senior Subordinated Indenture and will be subordinate and junior in right of payment, to the extent and in the manner set forth in the Senior Subordinated Indenture, to all "Senior Indebtedness" of the Issuer. The Senior Subordinated Indenture defines "Senior Indebtedness" as the principal of and premium, if any, and interest on (a) indebtedness of the Issuer, whether outstanding on the date of the Senior Subordinated Indenture or thereafter created, that is (i) for money borrowed by the Issuer (including, without limitation, capitalized lease obligations), (ii) for money borrowed by others and guaranteed, directly or indirectly, by the Issuer or (iii) constituting purchase money indebtedness, or indebtedness secured by property at the time of the acquisition of such property by the Issuer, for the payment of which the Issuer is directly or contingently liable, and (b) all deferrals, renewals, extensions and refundings of and amendments, modifications and supplements to (whether outstanding on the date of the Senior Subordinated Indenture or thereafter created), any such indebtedness, unless by the terms of the instrument creating or evidencing any such indebtedness referred to in clause (a) or clause (b) above it is expressly provided that such indebtedness is not superior in right of payment to the Notes and/or it is expressly provided that such indebtedness is itself subordinated to any other indebtedness of the Issuer. As used in the preceding sentence, the term "purchase money indebtedness" means 13 indebtedness evidenced by a note, debenture, bond or other instrument (whether or not secured by any lien or other security interest) issued or assumed as all or a part of the consideration for the acquisition of property, whether by purchase, merger, consolidation or otherwise. The term Senior Indebtedness shall not include (i) indebtedness of the Issuer to a subsidiary of the Issuer for money borrowed or advances from a subsidiary of the Issuer or (ii) the Notes. This Note, and any Note or Notes issued upon transfer or exchange hereof, is issuable only in fully registered form, without coupons, in denominations of U.S. $1,000 and any integral multiple of U.S. $1,000 in excess thereof. The Trustee has been appointed registrar for the Notes, and the Trustee will maintain at its office in The City of New York a register for the registration and registration of transfer of Notes. The transfer of this Note may be registered at the aforesaid office of the Trustee by surrendering this Note for cancellation, accompanied by a written instrument of transfer in form satisfactory to the Trustee and duly executed by the registered holder hereof in person or by the holder's attorney duly authorized in writing, and thereupon the Trustee shall issue in the name of the transferee or transferees, in exchange herefor, a new Note or Notes having identical terms and provisions and having a like aggregate principal amount in authorized denominations, subject to the terms and conditions set forth herein; provided, however, that the Trustee will not be required (i) to register the transfer of or exchange any Note that has been called for redemption in whole or in part, except the unredeemed portion of Notes being redeemed in part, (ii) to register the transfer of or exchange any Note if the holder thereof has exercised his right, if any, to require the Issuer to repurchase such Note in whole or in part, except the portion of such Note not required to be repurchased, or (iii) to register the transfer of or exchange Notes to the extent and during the period so provided in the Senior Subordinated Indenture with respect to the redemption of Notes. Notes are exchangeable at said office for other Notes of other authorized denominations of equal aggregate principal amount having identical terms and provisions. All such exchanges and registrations of transfer of Notes will be free of charge, but the Issuer may require payment of a sum sufficient to cover any tax or other governmental charge in connection therewith. All Notes surrendered for exchange shall be accompanied by a written instrument of transfer in form satisfactory to the Trustee and executed by the registered holder in person or by the holder's attorney duly authorized in writing. The date of registration of any Note delivered upon any exchange or transfer of Notes shall be such that no gain or loss of interest results from such exchange or registration of transfer. In case any Note shall at any time become mutilated, defaced or be destroyed, lost or stolen and such Note or evidence of the loss, theft or destruction thereof (together with the indemnity hereinafter referred to and such other documents or proof as may be required in the premises) shall be delivered to the Trustee, a new Note of like tenor will be issued by the Issuer in exchange for the Note so mutilated or defaced, or in lieu of the Note so destroyed or lost or stolen, but, in the case of any destroyed or lost or stolen Note, only upon receipt of evidence satisfactory to the Trustee and the Issuer that such Note was destroyed or lost or stolen and, if required, upon receipt also of indemnity satisfactory to each of them. All expenses and reasonable charges associated with procuring such indemnity and with the preparation, authentication and delivery of a new Note shall be borne by the owner of the Note mutilated, defaced, destroyed, lost or stolen. 14 The Senior Subordinated Indenture provides that, (a) if an Event of Default (as defined in the Senior Subordinated Indenture) due to the default in payment of principal of, premium, if any, or interest on, any series of debt securities issued under the Senior Subordinated Indenture, including the series of Senior Subordinated Medium-Term Notes of which this Note forms a part, or due to the default in the performance or breach of any other covenant or warranty of the Issuer applicable to the debt securities of such series but not applicable to all outstanding debt securities issued under the Senior Subordinated Indenture shall have occurred and be continuing, either the Trustee or the holders of not less than 25% in principal amount of the debt securities of each affected series (voting as a single class) may then declare the principal of all debt securities of all such series and interest accrued thereon to be due and payable immediately and (b) if an Event of Default due to a default in the performance of any other of the covenants or agreements in the Senior Subordinated Indenture applicable to all outstanding debt securities issued thereunder, including this Note, or due to certain events of bankruptcy, insolvency and reorganization of the Issuer, shall have occurred and be continuing, either the Trustee or the holders of not less than 25% in principal amount of all debt securities issued under the Senior Subordinated Indenture then outstanding (treated as one class) may declare the principal of all such debt securities and interest accrued thereon to be due and payable immediately, but upon certain conditions such declarations may be annulled and past defaults may be waived (except a continuing default in payment of principal (or premium, if any) or interest on such debt securities) by the holders of a majority in principal amount of the debt securities of all affected series then outstanding. The Trustee also acts as trustee under a Senior Indenture, dated as of July 15, 1993 (the "SENIOR INDENTURE" and, together with the Senior Subordinated Indenture, the "INDENTURES"), between the Issuer and the Trustee, with respect to certain other debt securities of the Issuer. The Senior Subordinated Indenture provides that, should a default occur with respect to either the debt securities issued under the Senior Subordinated Indenture or the debt securities issued under the Senior Indenture, the Trustee would be required to resign as trustee under one of the Indentures within 90 days of such default unless such default were cured, duly waived or otherwise eliminated. The Senior Subordinated Indenture permits the Issuer and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the debt securities of all series issued under the Senior Subordinated Indenture then outstanding and affected (voting as one class), to execute supplemental indentures adding any provisions to or changing in any manner the rights of the holders of each series so affected; provided that the Issuer and the Trustee may not, without the consent of the holder of each outstanding debt security affected thereby, (a) extend the final maturity of any such debt security, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any amount payable on redemption or repayment thereof, or change the currency of payment thereof, or impair or affect the rights of any holder to institute suit for the payment thereof without the consent of the holder of each debt security so affected; or (b) reduce the aforesaid percentage in principal amount of debt securities the consent of the holders of which is required for any such supplemental indenture, without the consent of the holders of each debt security so affected; provided, however, that neither this Note nor the Senior Subordinated Indenture may be amended to alter the subordination provisions hereof or thereof 15 without the written consent of each holder of Senior Indebtedness then outstanding that would be adversely affected thereby. So long as this Note shall be outstanding, the Issuer will cause to be maintained an office or agency for the payment of the principal of and premium, if any, and interest on this Note as herein provided in the Borough of Manhattan, The City of New York, and an office or agency in said Borough of Manhattan for the registration, registration of transfer and exchange as aforesaid of the Notes. The Issuer may designate other agencies for the payment of said principal, premium and interest at such place or places (subject to applicable laws and regulations) as the Issuer may decide. So long as there shall be such an agency, the Issuer shall keep the Trustee advised of the names and locations of such agencies, if any are so designated. With respect to moneys paid by the Issuer and held by the Trustee or any Paying Agent for payment of the principal of or interest or premium, if any, on any Notes that remain unclaimed at the end of two years after such principal, interest or premium shall have become due and payable (whether at maturity or upon call for redemption or otherwise), (i) the Trustee or such Paying Agent shall notify the holders of such Notes that such moneys shall be repaid to the Issuer and any person claiming such moneys shall thereafter look only to the Issuer for payment thereof and (ii) such moneys shall be so repaid to the Issuer. Upon such repayment all liability of the Trustee or such Paying Agent with respect to such moneys shall thereupon cease, without, however, limiting in any way any obligation that the Issuer may have to pay the principal of or interest or premium, if any, on this Note as the same shall become due. No provision of this Note or of the Senior Subordinated Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Note at the time, place, and rate, and in the coin or currency, herein prescribed unless otherwise agreed between the Issuer and the registered holder of this Note. Prior to due presentment of this Note for registration of transfer, the Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the holder in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note be overdue, and none of the Issuer, the Trustee or any such agent shall be affected by notice to the contrary. No recourse shall be had for the payment of the principal of, premium, if any, or the interest on this Note, for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Senior Subordinated Indenture or any indenture supplemental thereto, against any incorporator, shareholder, officer or director, as such, past, present or future, of the Issuer or of any successor corporation, either directly or through the Issuer or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. This Note shall for all purposes be governed by, and construed in accordance with, the laws of the State of California. 16 All terms used in this Note which are defined in the Senior Subordinated Indenture and not otherwise defined herein shall have the meanings assigned to them in the Senior Subordinated Indenture. 17 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT - Custodian ______________________ (Minor) (Cust) Under Uniform Gifts to Minors Act _____________________________________ (State) Additional abbreviations may also be used though not in the above list. ________________ 18 FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto _______________________________________ [PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE] ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ [PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE] the within Note and all rights thereunder, hereby irrevocably constituting and appointing such person attorney to transfer such note on the books of the Issuer, with full power of substitution in the premises. Dated: ______________________ NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within Note in every particular without alteration or enlargement or any change whatsoever. 19 OPTION TO ELECT REPAYMENT The undersigned hereby irrevocably requests and instructs the Issuer to repay the within Note (or portion thereof specified below) pursuant to its terms at a price equal to the principal amount thereof, together with interest to the Optional Repayment Date, to the undersigned at ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Please print or typewrite name and address of the undersigned) If less than the entire principal amount of the within Note is to be repaid, specify the portion thereof which the holder elects to have repaid: ______________________; and specify the denomination or denominations (which shall not be less than the minimum authorized denomination) of the Notes to be issued to the holder for the portion of the within Note not being repaid (in the absence of any such specification, one such Note will be issued for the portion not being repaid): ______________________. Dated: _______________________________________ NOTICE: The signature on this Option to Elect Repayment must correspond with the name as written upon the face of the within instrument in every particular without alteration or enlargement. 20 EX-10.1 7 CREDIT AGREEMENT (364-DAY COMMITTMENT) EXHIBIT 10.1 CREDIT AGREEMENT (364-DAY COMMITMENT) DATED AS OF JUNE 26, 1998 ============== THE CHARLES SCHWAB CORPORATION CREDIT AGREEMENT (364-DAY COMMITMENT) THIS CREDIT AGREEMENT (364-DAY COMMITMENT) ("this Agreement") is entered into as of June 26, 1998, 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 25 1999, and to make Term Loans to the Borrower on or before June 25, 1999 and maturing no later than June 24, 2000, 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 or Term Loan 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 or Term Loan specifying the information required in Paragraph 2.3 hereof and executed by the Borrower from time to time. -1- 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 or Term Loan 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 -2- 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 or Term Loan 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 or Term Loan 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, -3- 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 or Term Loan for which the CD Rate has been selected (such bank's reserve ratio on such time deposits in effect on June __, 1998 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 NT&SA Citibank, N.A. Change in Control: The consummation of a reorganization, merger or consolidation by the Borrower or the sale or other disposition of all or substantially all of the assets of the Borrower (a "Business Combination"), unless, following such Business Combination, (i) no person or entity (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Borrower or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 35% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation (except to the extent that such ownership existed prior to the Business Combination); and (ii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the board of directors of the Borrower as of the time of the action of the board of directors of the -4- Borrower providing for such Business Combination. 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 26, 1998 Confirming Bank: Citibank, N.A. -5- Confirming Bank Agreement: The Confirming Bank Agreement between the Borrower and Citibank, N.A. dated June 26, 1998, 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 2.4 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. -6- 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 or Term Loan 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 am. (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 or Term Loan 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 -7- "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: Union Bank of Switzerland The Bank of New York Indebtedness: Indebtedness, as to any corporation, means any obligation of, or guaranteed or assumed by, such corporation for (i) borrowed money evidenced by bonds, debentures, notes or other similar instruments, (ii) the deferred purchase price of property or services (excluding trade and other accounts payable), (iii) the leasing of tangible personal property under leases which, under any applicable Financial Accounting Standards Board Statement, have been or should be recorded as capitalized leases, or (iv) direct or contingent obligations under letters of credit issued for the account of such corporation. Minimum Stockholder's Equity: As of the last day of September 1998, and the last day of each fiscal quarter thereafter, the greater of: (a) $575 million, or (b) $575 million plus 40% of the sum of cumulative Net Earnings of the Borrower and its Subsidiaries beginning with July 1, 1998. 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 -8- 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. Notice of Interest Period: A written request made by the Borrower with respect to an outstanding Term Loan prior to its maturity date specifying the information required in Paragraph 2.3 hereof and executed by the Borrower from time to time. Reference Rate: For any Interest Period for any Advance or Term Loan for which the Reference Rate has been selected (or for any post-Interest Period period covered by clause (ii) of Paragraph 2.7 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 Chase Manhattan Bank Revolving Credit -9- Facility: The revolving credit facility available to the Borrower pursuant to paragraph 2.1 hereof. 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. Term Loan Facility: The term loan facility available to the Borrower pursuant to Paragraph 2.2 hereof. 2. THE FACILITIES The Bank agrees that consistent with the terms and conditions set forth in this Article 2 respecting Advances under the Revolving Credit Facility and Term Loans under the Term Loan Facility, 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 (the "Commitment"). Such amount, as it may from time to time be reduced pursuant to Paragraph 2.11 hereof, shall be referred to as the "Credit," and the Credit shall encompass both the Revolving Credit Facility described in Paragraph 2.1 hereof and the Term Loan Facility described in Paragraph 2.2 hereof. 2.1 The Revolving Credit Facility. From time to time commencing on ----------------------------- June 26, 1998 and ending on June 25, 1999, 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 -10- the Borrower (the "Revolving Note") in substantially the form attached hereto as Exhibit A-1, 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 Term Loan Facility. The Borrower from time to time may borrow ------------------ under the Term Loan Facility (and may reborrow any amount theretofore prepaid) until close of business on June 25, 1999, for a term not to exceed 364 days from the date of the borrowing. Each such loan under the Term Loan Facility (a "Term Loan") shall be in the amount of $1,000,000 or an integral multiple thereof and shall become due and payable on the last day of the term selected by the Borrower for such Term Loan (the "Term Loan Maturity Date"), which shall in no event be later than 364 days from the date of such Term Loan. The maximum availability under the Term Loan Facility shall be the amount of the Credit minus the aggregate outstanding principal amount of Advances and Term Loans made - ----- by the Bank; provided, however, that to the extent the proceeds of a Term Loan -------- ------- are used to repay an outstanding Advance (or a portion thereof), such Advance (or portion thereof) shall not be considered part of the aggregate principal amount of outstanding Advances made by the Bank for purposes of this sentence (such maximum availability hereafter being referred to as the "Term Loan Availability"). Under no circumstances shall the aggregate outstanding principal amount of Term Loans and Advances made by the Bank exceed the Credit, and under no circumstances shall the Bank be obligated (i) to make any Term Loan (nor may the Borrower reborrow any amount heretofore prepaid) after June 25, 1999, or (ii) to make any Term Loan in excess of the Term Loan Availability. Each Term Loan made hereunder shall fully and finally mature and be due and payable in full on the Term Loan Maturity Date specified in the Borrowing Advice for such Term Loan; provided, however, that to the extent the Borrowing Advice -------- ------- for any Term Loan selects an Interest Period that expires before the Term Loan Maturity Date specified in such Borrowing Advice, the Borrower may from time to time select additional interest rate options and Interest Periods (none of which shall extend beyond the Term Loan Maturity Date for such Term Loan) by delivering a new Notice of Interest Period pursuant to Paragraphs 2.3, 2.4 and 2.5 hereof. -11- The obligation of the Borrower to repay the aggregate unpaid principal amount of the Term Loans shall be evidenced by a promissory note of the Borrower (the "Term Note") in substantially the form attached hereto as Exhibit A-2, with the blanks appropriately completed, payable to the order of the Bank, bearing interest as hereinafter specified. The Term 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 Term Note, or on a continuation of such schedule attached thereto and made a part thereof, appropriate notations regarding the Term Loans evidenced by the Term 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 Term Note. 2.3 Making of Advances and Term Loans; Interest Periods; Notice. ----------------------------------------------------------- Whenever the Borrower desires the Bank to make an Advance or a Term Loan, or to specify a new Interest Period in respect of a Term Loan as to which an Interest Period is expiring (a "new Term Loan Interest Period"), it shall give the Bank (i) same Banking Day's irrevocable written notice prior to 2:00 p.m. (New York City time) for Reference Rate Advances or Reference Rate Term Loans (or New Term Loan Interest Periods to which the Reference Rate applies) to be made on such Banking Day, (ii) one CD Banking Day's prior irrevocable written notice for CD Rate Advances or CD Term Loans (or New Term Loan Interest Periods to which the CD Rate applies), or (iii) three Eurodollar Banking Days' prior irrevocable written notice for Eurodollar Rate Advances or Eurodollar Term Loans (or new Term Loan Interest Periods to which the Eurodollar Rate applies) (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 or Term Loan is to be made or on which such New Term Loan Interest Period is to commence; (b) The Interest Period selected in accordance with Paragraph 2.4 hereof; (c) The interest rate option selected in accordance with Paragraph 2.5 hereof; and (d) The aggregate principal amount of the Advance or Term Loan to which such Interest Period and interest rate shall apply. -12- Notice of each Borrowing Advice or Notice of Interest Period 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 2.3 for a same day Reference Rate Advance or Reference Rate Term Loan shall be given no later than 2:00 p.m. (New York City time) on the date of such Advance or Term Loan. Any other notice required pursuant to this Paragraph 2.3 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 25, 1999, 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 2.3, 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 25, 1999, an Interest Period of the number of days remaining to June 25, 1999). 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, any outstanding Term Loan, or any interest thereon, or any other amount hereunder, is due and unpaid. If prior to the last day of the Interest Period applicable to any Term Loan the Borrower fails timely to provide a Notice of Interest Period in accordance with this Paragraph 2.3, such Term Loan shall, on the last day of the then-existing Interest Period for such Term Loan, automatically, have applicable to it a New Term Loan Interest Period of thirty (30) days (or, in the event there are fewer than thirty (30) days remaining to the Term Loan Maturity Date for such Term Loan, an Interest Period of the number of days remaining to such Term Loan Maturity Date) and shall bear interest at the Reference Rate. Each Advance or Term Loan 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 (except with respect to any Reference Rate Advance or Reference Rate Term Loan for which same-day written notice has been given by Borrower, such Advance or Term Loan shall be made by 3:30 p.m. (New York City time) on the date of such same-day written notice), and shall be in -13- 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 or Term Loan hereunder) may request that Advances or Term Loans made hereunder for which the interest calculation is to be based on the Eurodollar Rate be evidenced by separate Revolving Notes (in the case of Advances) and Term Notes (in the case of Term Loans), substantially in the form of Exhibit A-1 hereto (in the case of Advances) and Exhibit A-2 hereto (in the case of Term Loans), 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 2.6(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. 2.4 Interest Periods. The Borrower may select the Interest Period ---------------- (as defined in the next sentence) for each Advance and an Interest Period applicable from time to time for each Term Loan, it being understood that the Borrower (i) may request multiple Advances on the same day and may select a different Interest Period for each such Advance; and (ii) may request multiple Term Loans having different Interest Periods (including New Term Loan Interest Periods) applicable thereto; provided, however, that each such Advance or Term --------- -------- Loan shall be in the amount of $1,000,000 or an integral multiple thereof. An Interest Period shall be each period, as selected by the Borrower in accordance with the terms of this Agreement, (i) in the case of each Advance, beginning on the day such Advance is made under this Agreement, and (ii) in the case of a Term Loan, beginning on the date specified in the Borrowing Advice or Notice of Interest Period pertaining thereto, as the case may be, and ending on the date 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 -14- (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 (i) no Interest Period applicable to any Advance shall - -------- ------- extend beyond September 23, 1999; and (ii) no Interest Period applicable to any Term Loan shall extend beyond the Term Loan Maturity Date specified in the Borrowing Advice for such Term Loan, which in no event shall be later than June 24, 2000. 2.5 Interest Rates. Each Advance and each Term Loan, while -------------- outstanding, shall bear interest, payable on the last day of each Interest Period applicable thereto (provided that (i) if any Advance, Term Loan or New -------- ---- Term Loan Interest Period 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 Eurodollar Rate and CD Rate Term Loans, and a 365-day year and actual days elapsed for Reference Rate Advances and Reference Rate Term Loans, 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) the Eurodollar Rate, plus 1/4 of 1% per annum; (b) the CD Rate, plus 3/8 of 1% per annum; or (c) the Reference Rate. 2.6 Substitute Rates. If upon receipt by the Bank of a Borrowing ---------------- Advice relating to an Advance or of a Borrowing Advice or Notice of Interest Period relating to a Term Loan: (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, -15- 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 or Term Loan 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. 2.7 Interest Upon Default. After the principal amount of any Advance --------------------- or Term Loan, accrued interest upon such Advance or Term Loan, 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 or Term Loan at a rate per annum equal to 1% per annum in excess of the rate or rates in effect with respect to such Advance or Term Loan and (ii) thereafter, at a rate per annum equal to 1% per annum in excess of the Reference Rate. 2.8 Commitment Fee. Through June 25, 1999, the Borrower will pay to -------------- the Bank a credit commitment fee (the "Commitment Fee") for each -16- calendar quarter at a rate per annum (based on a 360-day year and actual days elapsed) of 80/1000 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. 2.9 Facility Fee. On June 26, 1998, the Borrower shall pay a ------------ facility fee to the Bank in an amount equal to 20/1000 of 1% of the Bank's Commitment as specified in Schedule I. 2.10 Confirming Bank Fee. On June 26, 1998, the Borrower shall pay ------------------- to the Confirming Bank a fee of $5,000. 2.11 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 or Term Loans 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 or Term Loans 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 or Term Loans under this Agreement. 2.12 Termination Date; Extensions. The termination date of the ---------------------------- Bank's Commitment with respect to the Credit (the "Termination Date"), including both the Revolving Credit Facility under Paragraph 2.1 hereof and -17- the Term Loan Facility under Paragraph 2.2 hereof, is initially June 25, 1999. At any time no earlier than sixty (60) days and no later than thirty (30) days prior to the Termination Date then in effect (whether the initial Termination Date of June 25, 1999 or any later Termination Date as extended under this Paragraph 2.12), the Borrower may, by written notice to the Bank in the form attached as Exhibit D hereto, request that the Termination Date be extended for a period of 364 calendar days. Such request shall be irreovcable and binding upon the Borrower. If the Bank agrees, in its individual and sole discretion, to so extend its Commitment and the Termination Date, it shall evidence such agreement by executing and returning to the Borrower a copy of the Borrower's written request countersigned by the Bank and delivered to the Borrower by the Bank no later than fifteen (15) days after the Bank's receipt of Borrower's written request. If the Bank fails to so respond to and accept the Borrower's request for extension of the Termination Date then in effect, the Bank's Commitment shall be terminated on the Termination Date then in effect. If, on the other hand, the Bank so responds to and accepts the Borrower's request for extension of the Termination Date, then upon receipt by the Borrower of a copy of the Borrower's written request countersigned by the Bank, (i) the Bank's Commitment then in effect and the Termination Date then in effect shall automatically be extended for the 364-day period specified in such written request, and (ii) each reference in this Agreement to "June 25, 1999", "September 23, 1999" and "June 24, 2000" (and any prior extension thereof pursuant to this Paragraph 2.12) also shall automatically be correspondingly extended for 364 days. 3. PAYMENT 3.1 Method of Payment. All payments hereunder and under the ----------------- Revolving Note and the Term 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 and/or the Term 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. -18- 3.3 Net Payments. All payments by Borrower hereunder and under the ------------ Revolving Note and the Term 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 or Term Loan 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 or Term Loan hereunder) which the Bank may sustain as a result of (i) any payment or prepayment of any Advance or Term Loan 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 -19- 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 or Term Loans 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 E. (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, 1997 not reflected on its Quarterly Report on Form 10-Q filed with the SEC for the period ending March 31, 1998. -20- (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, a Notice of Interest Period, and the Revolving Note and the Term Note. The Bank may rely on such certificate with respect to the Advances and Term Loans hereunder unless and until it shall have received an updated certificate and, after receipt of such updated certificate, similarly may rely thereon. 4.2 Conditions Precedent to Advances and Term Loans. The Bank shall ----------------------------------------------- not be required to make any Advance or Term Loan pursuant to Article 2 hereof: (a) when the Credit, the Revolving Credit Facility (in the case of an Advance) or the Term Loan Facility (in the case of a Term Loan) 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 Term Loan 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 or Term Loan 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. -21- 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 or Term Loan, 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 -22- 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 -23- 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 or Term Loan by the Bank remains outstanding -24- 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 or Term Loan requested by the Borrower under this Agreement (a "primary Advance" or a "primary Term Loan," as the case may be), the Borrower will concurrently request an Advance (or Term Loan) under each of the Borrowing Agreements (each such other Advance or Term Loan under each of the Borrowing Agreements being hereinafter individually referred to as an "other Advance" or "other Term Loan" and collectively referred to as the "other Advances" or "other Term Loans," as the case may be), with each such other Advance or other Term Loan being requested in an amount equal to the same percentage of the Credit under the applicable Borrowing Agreement as the primary Advance or Term Loan constitutes as a percentage of the Credit under this Agreement. As an illustration of the application of this Paragraph 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 -25- 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 or Term Loan 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) (i) Indebtedness to customers, other brokers or dealers, securities exchanges or securities markets, self-regulatory organizations, clearing houses and like institutions (including, without limitation, letters of credit or similar credit support devices issued for the account of Broker Subsidiary and for the benefit of any of the foregoing in order to comply with any margin, collateral or similar requirements imposed by or for the benefit of any of the foregoing), (ii) "broker call" credit, (iii) stock loans, (iv) obligations to banks for disbursement accounts, -26- (v) Indebtedness incurred for the purchase of tangible personal property on a non-recourse basis or for the leasing of tangible personal property under a capitalized lease; (vi) Indebtedness incurred for the purchase, installation or servicing of computer equipment and software; and (vi) Indebtedness incurred in the ordinary course of the Broker Subsidiary's business, to the extent not already included in the foregoing clauses (i) through (vi); (b) intercompany Indebtedness; and (c) other Indebtedness in the aggregate not exceeding $100,000,000. 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 and the Term 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 -27- 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 the Term 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 or the Term 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 -28- mortgage, indenture, agreement or instrument under which there may be issued, or by which there may be secured or evidenced, any Indebtedness of the Borrower in a principal amount not less than $60 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) Any involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief against the Borrower or the Broker Subsidiary, or against all or a substantial part of the property of either of them, under Title 11 of the United States Code or any other federal, state or foreign bankruptcy, insolvency, reorganization or similar law, (ii) the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for the Borrower or the Broker Subsidiary or for all or a substantial part of the property of either of them, or (iii) the winding-up or liquidation of the Borrower or the Broker Subsidiary; and, in any such case, such involuntary proceeding or involuntary petition shall continue undismissed for 60 days, or, before such 60-day period has elapsed, there shall be entered an order or decree ordering the relief requested in such involuntary proceeding or involuntary petition. (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 -29- 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 $50,000,000 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. (i) At any time after a Change in Control, the Borrower fails to maintain at least one of the following credit ratings for its Senior Medium-Term Notes, Series A: (a) BBB- (or better) by Standard & Poor's Rating Group, or (b) Baa3 (or better) by Moody's Investor Service. 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 or Term Loans, 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 and/or under the outstanding Term 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 or Term Loans shall thereupon terminate and the outstanding principal of the Revolving Note and of the Term 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. -30- 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) 667-3155, 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 -31- 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, the Term 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 Paragraph 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 or Term Loans, the Revolving Note, the Term 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 -32- performance hereof, the Bank shall remain the holder of the Revolving Note and of the Term 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 Paragraph 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 and/or the Term Note, each in accordance with Paragraph 9.4 hereof, provided that the recipient has delivered to Bank a written confidentiality agreement substantially similar to this Paragraph 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 - ---------- -33- 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 Paragraph 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 Paragraph 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 Paragraph 9.5, acknowledges that any breach of the agreements contained in this Paragraph 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 Paragraph 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 and the Term 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 and the ------------- Term 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. -34- 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/ Joseph R. Martinetto _________________________________ ______________________________ Its Joseph R. Martinetto ________________________________ Senior Vice President and Treasurer -35- SCHEDULE OF CREDIT AGREEMENTS OMITTED The following are the banks that are each signatories to separate but substantially identical credit agreements that materially differ only with respect to (i) the bank involved and (ii) the amount of the bank's commitment. Bank of America NT&SA By /s/ Steven W. Kastenholz ------------------------- Its Managing Director ----------------------- Bank of New York By /s/ Mark J. Rogers --------------------------- Its Vice President ------------------------- The Chase Manhattan Bank By /s/ Robert J. Gould --------------------------- Its Managing Director ------------------------- Citicorp USA, Inc. By /s/ Kelly Hebert --------------------------- Its Attorney-in-fact ------------------------- The First National Bank of Chicago By /s/ Jeanne M. Madej --------------------------- Its Assistant Vice President ------------------------- -36- First Tennessee Bank National Association By /s/ Victor Notaro --------------------------- Its Vice President ------------------------- Norwest Bank Minnesota, N.A. By /s/ Janet M. Klein --------------------------- Its Vice President ------------------------- PNC Bank By /s/ Philip Jackson --------------------------- Its Senior Vice President ------------------------- NationsBank, N.A. By /s/ Kenneth Ricciardi --------------------------- Its Senior Vice President ------------------------- Union Bank of Switzerland By /s/ Virginia M. Loebel --------------------------- Its Managing Director ------------------------- By /s/ Vincent Piazza --------------------------- Its Assistant Treasurer ------------------------- -37- SCHEDULE I TO CREDIT AGREEMENT (364-DAY COMMITMENT) DATED AS OF JUNE 26, 1998 BETWEEN THE CHARLES SCHWAB CORPORATION AND THE BANKS LISTED BELOW (Dollars in Millions) Amount ------ Bank of America NT&SA $ 25 Attn: Steven W. Kastenholz, Managing Director 231 South LaSalle Street Chicago, IL 60697 Bank of New York 25 Attn: Mark Rogers, Vice President One Wall Street, First Floor New York, NY 10286 Chase Manhattan Bank 17.5 Broker Dealer Division Attn: Robert J. Gould, Managing Director One Chase Plaza, 21st Floor New York, NY 10081 Citicorp USA, Inc. 25 Attn: Michael Mauerstein, Managing Director 399 Park Avenue, 12th Floor, Zone 10 New York, NY 10043 The First National Bank of Chicago 17.5 Attn: Denise de Diego, Senior Vice President 153 West 51st Street, Suite 4000 New York, NY 10019 First Tennessee Bank National Association 10 Attn: Victor Notaro, Vice President 165 Madison Avenue Main Office, 9th Floor Memphis, TN 38103 Norwest Bank Minnesota, N.A. 10 Attn: Bradley A. Hardy, Vice President 6th and Marquette Minneapolis, MN 55479-0085 PNC Bank 25 Attn: Philip Jackson, Senior Vice President 1600 Market Street, 21st Floor Philadelphia, PA 19101 NationsBank, N.A. 10 Attn: Kenneth Ricciardi, Senior Vice President 55 Broadway, 4th Floor New York, NY 10006 -38- Union Bank of Switzerland 10 New York Branch Attn: Virginia Loebel, Managing Director 299 Park Avenue New York, NY 10171-0026 -39- EXHIBIT A-1 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 (364-Day Commitment) between Schwab and the Bank, dated as of June 26, 1998, 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: ----------------------------------- Joseph R. Martinetto Senior Vice President and Treasurer -40- EXHIBIT A-2 TERM 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 Term Loan made by the Bank to Schwab under the terms of a Credit Agreement (364-Day Commitment) between Schwab and the Bank, dated as of June 26, 1998, as amended from time to time (the "Credit Agreement"), as shown in the schedule attached hereto and any continuation thereof, on the Term Loan Maturity Date (as defined in the Credit Agreement) for such Term Loan. The undersigned also promises to pay interest on the unpaid principal amount of each Term Loan from the date of such Term Loan 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: ------------------------------------- Joseph R. Martinetto Senior Vice President and Treasurer -41- EXHIBIT B CONFIRMING BANK AGREEMENT This Agreement is entered into as of June 26, 1998 between The Charles Schwab Corporation (the "Borrower") and Citibank, N.A. (the "Confirming Bank"). WHEREAS, under the terms of separate substantially similar Credit Agreements (364-Day Commitment) (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 25, 1999 and maturing no later than September 23, 1999 and to make Term Loans to the Borrower on or before June 25, 1999 and maturing no later than June 24, 2000 (as such dates may be extended from time to time pursuant to Paragraph 2.12 of each of the Credit Agreements); 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: 1. Terms defined in the Credit Agreements shall bear the same meanings herein unless the context otherwise requires. 2. 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. 3. 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. 4. (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 -42- 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). (b) 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. 5. (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, -43- 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; (ii) 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 __, 1998 was 0%); (iii) 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 (iv) 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 -44- 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). (b) 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. 6. (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: (i) 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%; (ii) 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. (b) 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. 7. 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. 8. 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: (a) 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 -45- 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. (b) 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. (c) 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. (d) 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. (e) 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. (f) 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. (g) 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. 9. (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 -46- 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. (b) 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. (c) 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. (d) 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 -47- of any such merger, conversion, consolidation or sale shall forthwith be given to the Borrower and to each of the Banks. 10. The Borrower undertakes that, so long as any Revolving Note or Term 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. 11. 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: Treasurer Telephone: (415) 627-7000 FAX: (415) 667-3155 -48- If to the Confirming Bank: Citibank, N.A. Attn: Michael Mauerstein Managing Director 399 Park Avenue, 12th Floor, Zone 10 New York, NY 10043 Telephone: (212) 559-6985 FAX: (212) 371-6309 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. 12. 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. 13. 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. 14. 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. CITIBANK, N.A. THE CHARLES SCHWAB CORPORATION By: By: ____________________________ ________________________________ Joseph R. Martinetto Its: Senior Vice President and Treasurer ___________________________ -49- SCHEDULE I TO CONFIRMING BANK AGREEMENT DATED AS OF JUNE 26, 1998 BETWEEN THE CHARLES SCHWAB CORPORATION AND CITIBANK, N.A. (Dollars in Millions) Amount ------ Bank of America NT&SA $ 25 Attn: Steven W. Kastenholz, Managing Director 231 South LaSalle Street Chicago, IL 60697 Bank of New York 25 Attn: Mark Rogers, Vice President One Wall Street, First Floor New York, NY 10286 Chase Manhattan Bank 17.5 Broker Dealer Division Attn: Robert J. Gould, Managing Director One Chase Plaza, 21st Floor New York, NY 10081 Citicorp USA, Inc. 25 Attn: Michael Mauerstein, Managing Director 399 Park Avenue, 12th Floor, Zone 10 New York, NY 10043 The First National Bank of Chicago 17.5 Attn: Denise de Diego, Senior Vice President 153 West 51st Street, Suite 4000 New York, NY 10019 First Tennessee Bank National Association 10 Attn: Victor Notaro, Vice President 165 Madison Avenue Main Office, 9th Floor Memphis, TN 38103 Norwest Bank Minnesota, N.A. 10 Attn: Bradley A. Hardy, Vice President 6th and Marquette Minneapolis, MN 55479-0085 PNC Bank 25 Attn: Philip Jackson, Senior Vice President 1600 Market Street, 21st Floor Philadelphia, PA 19101 NationsBank, N.A. 10 Attn: Kenneth Ricciardi, Senior Vice President 55 Broadway, 4th Floor New York, NY 10006 -50- Union Bank of Switzerland 10 New York Branch Attn: Virginia Loebel, Managing Director 299 Park Avenue New York, NY 10171-0026 -51- EXHIBIT C BORROWING ADVICE 1. This Borrowing Advice is executed and delivered by The Charles Schwab Corporation ("Borrower") to [Bank] pursuant to that certain Credit Agreement (364-Day Commitment) dated as of June 26, 1998, 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. 2. Borrower hereby requests that [Bank] make an Advance [or Term Loan] for the account of Borrower (at _______________, Account No. ________________) pursuant to Paragraph 2.3 of the Credit Agreement as follows: (a) Amount of Advance [or Term Loan]:_________________ (b) Date of Advance [or Term Loan]: _________________ (c) [If an Advance] Type of Advance (check one only): ________ Reference Rate with ____ - day Interest Period ________ CD Rate with _________- day Interest Period ________ Eurodollar Rate with ________- day Interest Period (d) [If a Term Loan] Type of Term Loan (check one only): ________ Reference Rate with initial ____ - day Interest Period ________ CD Rate with initial _________- day Interest Period ________ Eurodollar Rate with initial ________- day Interest Period (e) [If a Term Loan] Maturity Date of Term Loan: _________________ 3. Following this request for Advance [or Term Loan], the aggregate outstanding amount of all Advances and Term Loans under the Revolving Note will not exceed the Credit amount. 4. This Borrowing Advice is executed on ______________ by the Borrower. BORROWER: THE CHARLES SCHWAB CORPORATION a Delaware Corporation By ________________________________________ [Printed Name and Title] -52- EXHIBIT D COMMITMENT AND TERMINATION DATE EXTENSION REQUEST [Date] [Bank name and Address] Reference is made to that certain Credit Agreement (364-Day Commitment) dated as of June 26, 1998 ("Credit Agreement") entered into by The Charles Schwab Corporation ("Borrower") and [Bank] ("Bank"). Terms defined in the Credit Agreement and not otherwise defined herein are used herein as defined in the Credit Agreement. Pursuant to Paragraph 2.12 of the Credit Agreement, Borrower hereby requests Bank to agree to the extension of Bank's Commitment presently in effect, in the amount of $[specify amount of existing Commitment], and the --------------------------------------- Termination Date presently in effect for an additional 364 days. Bank's execution of a copy of this letter in the space provided below and the transmission of such executed copy to Borrower shall constitute Lender's acceptance of Borrower's request and Lender's agreement to the 364-day extension sought herein. More specifically, upon the execution of a copy of this letter by Bank and the transmission thereof to Borrower within 15 days after Bank's receipt of this letter, (1) the Termination Date as defined in Paragraph 2.12 of the Credit Agreement shall be extended 364 days and deemed changed to _____________, and (2) all other dates appearing in the Credit Agreement that are referred to in Paragraph 2.12 of the Credit Agreement shall correspondingly be extended 364 days. This Commitment and Termination Date Extension Request is executed by Borrower on ____________________. BORROWER: THE CHARLES SCHWAB CORPORATION a Delaware Corporation By _____________________________________ [Printed Name and Title] ACCEPTED AND AGREED: [BANK] By __________________________________ [Printed Name and Title] -53- EX-10.2 8 CREDIT AGREEMENT (3-YEAR COMMITTMENT) EXHIBIT 10.2 CREDIT AGREEMENT (3-YEAR COMMITMENT) DATED AS OF JUNE 26, 1998 ============== THE CHARLES SCHWAB CORPORATION CREDIT AGREEMENT (3-YEAR COMMITMENT) THIS CREDIT AGREEMENT (3-YEAR COMMITMENT) ("this Agreement") is entered into as of June 26, 1998, 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 22, 2001, 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 Applicable Commit- ment Rate: The Applicable Commitment Rate shall be the rate per annum set forth in the following table opposite the credit rating for the Borrower's Senior Medium-Term Notes, Series A that is in effect at the time a Commitment Fee is payable to the Bank pursuant to Paragraph 2.6 hereof: =============================================================== Credit Rating Rate Per Annum --------------------------------------------------------------- At least A by Standard & Poor's Rating 110/1000 of 1% Group or A2 by Moody's Investor Service --------------------------------------------------------------- At least A- by Standard & Poor's Rating 120/1000 of 1% Group or A3 by Moody's Investor Service --------------------------------------------------------------- At least BBB by Standard & Poor's Rating 140/1000 of 1% Group or Baa2 by Moody's Investor Service --------------------------------------------------------------- At least BBB- by Standard & Poor's Rating 180/1000 of 1% Group or Baa3 by Moody's Investor Service --------------------------------------------------------------- Lower than BBB- by Standard & Poor's Rating 375/1000 of 1% Service and lower than Baa3 by Moody's Investor Service =============================================================== Assessment Rate: For any Interest Period for any Advance for which the CD Rate has been selected, the -1- 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 2.3 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 -2- 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 -3- 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 Spread: The CD Rate Spread applicable to a CD Rate Advance shall be the rate per annum set forth in the following table opposite the credit rating for the Borrower's Senior Medium-Term Notes, Series A that is in effect on the date such CD Rate Advance is made pursuant to Article 2 hereof: ============================================================== Credit Rating Rate Per Annum - -------------------------------------------------------------- At least A by Standard & Poor's Rating 350/1000 of 1% Group or A2 by Moody's Investor Service - -------------------------------------------------------------- At least A- by Standard & Poor's Rating 375/1000 of 1% Group or A3 by Moody's Investor Service - -------------------------------------------------------------- At least BBB by Standard & Poor's Rating 450/1000 of 1% Group or Baa2 by Moody's Investor Service - -------------------------------------------------------------- At least BBB- by Standard & Poor's Rating 575/1000 of 1% Group or Baa3 by Moody's Investor Service - -------------------------------------------------------------- Lower than BBB- by Standard & Poor's Rating 1 + 130/1000% Service and lower than Baa3 by Moody's Investor Service ============================================================== -4- 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 __, 1998 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 NT&SA Citibank, N.A. Change in Control: The consummation of a reorganization, merger or consolidation by the Borrower or the sale or other disposition of all or substantially all of the assets of the Borrower (a "Business Combination"), unless, following such Business Combination, (i) no person or entity (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Borrower or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 35% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then -5- outstanding voting securities of such corporation (except to the extent that such ownership existed prior to the Business Combination); and (ii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the board of directors of the Borrower as of the time of the action of the board of directors of the Borrower providing for such Business Combination. 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 -6- force of law) of any relevant government or corporation entity. Closing Date: June 26, 1998 Confirming Bank: Citibank, N.A. Confirming Bank Agreement: The Confirming Bank Agreement between the Borrower and Citibank, N.A. dated June 26, 1998, 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 2.4 hereof. Intermediate Parent: Schwab Holdings, Inc. and its successors and assigns. -7- 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 am. (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 -8- 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: Union Bank of Switzerland The Bank of New York Eurodollar Rate Spread: The Eurodollar Rate Spread applicable to a Eurodollar Rate Advance shall be the rate per annum set forth in the following table opposite the credit rating for Borrower's Senior Medium-Term Notes, Series A that is in effect on the date -9- such Eurodollar Rate Advance is made pursuant to Article 2 hereof: ============================================================== Credit Rating Rate Per Annum -------------------------------------------------------------- At least A by Standard & Poor's Rating 225/1000 of 1% Group or A2 by Moody's Investor Service -------------------------------------------------------------- At least A- by Standard & Poor's Rating 250/1000 of 1% Group or A3 by Moody's Investor Service -------------------------------------------------------------- At least BBB by Standard & Poor's Rating 325/1000 of 1% Group or Baa2 by Moody's Investor Service -------------------------------------------------------------- At least BBB- by Standard & Poor's Rating 450/1000 of 1% Group or Baa3 by Moody's Investor Service -------------------------------------------------------------- Lower than BBB- by Standard & Poor's Rating 1% Service and lower than Baa3 by Moody's Investor Service ============================================================== Indebtedness: Indebtedness, as to any corporation, means any obligation of, or guaranteed or assumed by, such corporation for (i) borrowed money evidenced by bonds, debentures, notes or other similar instruments, (ii) the deferred purchase price of property or services (excluding trade and other accounts payable), (iii) the leasing of tangible personal property under leases which, under any applicable Financial Accounting Standards Board Statement, have been or should be recorded as capitalized leases, or (iv) direct or contingent obligations under letters of credit issued for the account of such corporation. Minimum Stockholder's Equity: As of the last day of September 1998, and the last day of each fiscal quarter thereafter, the greater of: (a) $575 million, or (b) $575 million plus 40% of the sum of cumulative Net Earnings of the -10- Borrower and its Subsidiaries beginning with July 1, 1998. 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 2.7 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 -11- Chase Manhattan Bank Revolving Credit Facility: The revolving credit facility available to the Borrower pursuant to paragraph 2.1 hereof. 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 (the "Commitment"). 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 26, 1998 and ending on June 22, 2001, 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 -12- 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; Interest Periods; Notice. Whenever the -------------------------------------------- Borrower desires the Bank to make an Advance, it shall give the Bank (i) same Banking Day's irrevocable written notice prior to 2:00 p.m. (New York City time) for Reference Rate Advances to be made on such Banking Day, (ii) one CD Banking Day's prior irrevocable written notice for CD Rate Advances, or (iii) three Eurodollar Banking Days' prior irrevocable written 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 for a same day Reference Rate Advance shall be given no later than 2:00 p.m. (New York City time) on the date of such Advance. Any other 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. -13- With respect to any Advance having an Interest Period ending on or before June 22, 2001, 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 22, 2001, an Interest Period of the number of days remaining to June 22, 2001). 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 (except with respect to any Reference Rate Advance for which same-day written notice has been given by Borrower, such Advance shall be made by 3:30 p.m. (New York City time) on the date of such same-day written notice), 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. 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 -14- 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 21, 2001. 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) the Eurodollar Rate, plus the Eurodollar Rate Spread; -15- (b) the CD Rate, plus the CD Rate Spread; or (c) the 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. -16- 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 22, 2001, the Borrower will pay to -------------- the Bank a credit commitment fee (the "Commitment Fee") for each calendar quarter in an amount equal to the Applicable Commitment Rate (based on a 360-day year and actual days elapsed) on 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 26, 1998, the Borrower shall pay a ------------ facility fee to the Bank in an amount equal to 20/1000 of 1% of the Bank's Commitment as specified in Schedule I. 2.9 Confirming Bank Fee. On June 26, 1998, the Borrower shall pay to ------------------- the Confirming Bank a fee of $5,000. 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 -17- 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. 2.11 Termination Date; Extensions. The termination date of the ---------------------------- Bank's Commitment with respect to the Credit (the "Termination Date") is initially June 22, 2001. At any time no earlier than sixty (60) days and no later than thirty (30) days prior to the Termination Date then in effect (whether the initial Termination Date of June 22, 2001 or any later Termination Date as extended under this Paragraph 2.11), the Borrower may, by written notice to the Bank in the form attached as Exhibit D hereto, request that the Termination Date be extended for a period of 364 calendar days. Such request shall be irrevocable and binding upon the Borrower. If the Bank agrees, in its individual and sole discretion, to so extend its Commitment and the Termination Date, it shall evidence such agreement by executing and returning to the Borrower a copy of the Borrower's written request countersigned by the Bank and delivered to the Borrower by the Bank no later than fifteen (15) days after the Bank's receipt of Borrower's written request. If the Bank fails to so respond to and accept the Borrower's request for extension of the Termination Date then in effect, the Bank's Commitment shall be terminated on the Termination Date then in effect. If, on the other hand, the Bank so responds to and accepts the Borrower's request for extension of the Termination Date, then upon receipt by the Borrower of a copy of the Borrower's written request countersigned by the Bank, (i) the Bank's Commitment then in effect and the Termination Date then in effect shall automatically be extended for the 364-day period specified in such written request, and (ii) each reference in this Agreement to "June 22, 2001" and "September 21, 2001" (and any prior extension thereof pursuant to this Paragraph 2.11) also shall automatically be correspondingly extended for 364 days. 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 -18- 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 -19- 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 E. (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. -20- (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, 1997 not reflected on its Quarterly Report on Form 10-Q filed with the SEC for the period ending March 31, 1998. (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 updated certificate and, after receipt of such updated 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 -21- 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. -22- 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. -23- 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. -24- 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 Paragraph 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 -25- 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) (i) Indebtedness to customers, other brokers or dealers, securities exchanges or securities markets, self-regulatory organizations, clearing houses and like institutions (including, without limitation, letters of credit or similar credit support devices issued for the account of Broker Subsidiary and for the benefit of any of the foregoing in order to comply with any margin, collateral or similar requirements imposed by or for the benefit of any of the foregoing), (ii) "broker call" credit, (iii) stock loans, -26- (iv) obligations to banks for disbursement accounts, (v) Indebtedness incurred for the purchase of tangible personal property on a non-recourse basis or for the leasing of tangible personal property under a capitalized lease; (vi) Indebtedness incurred for the purchase, installation or servicing of computer equipment and software; and (vi) Indebtedness incurred in the ordinary course of the Broker Subsidiary's business, to the extent not already included in the foregoing clauses (i) through (vi); (b) intercompany Indebtedness; and (c) other Indebtedness in the aggregate not exceeding $100,000,000. 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 -27- 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 -28- mortgage, indenture, agreement or instrument under which there may be issued, or by which there may be secured or evidenced, any Indebtedness of the Borrower in a principal amount not less than $60 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) Any involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief against the Borrower or the Broker Subsidiary, or against all or a substantial part of the property of either of them, under Title 11 of the United States Code or any other federal, state or foreign bankruptcy, insolvency, reorganization or similar law, (ii) the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for the Borrower or the Broker Subsidiary or for all or a substantial part of the property of either of them, or (iii) the winding-up or liquidation of the Borrower or the Broker Subsidiary; and, in any such case, such involuntary proceeding or involuntary petition shall continue undismissed for 60 days, or, before such 60-day period has elapsed, there shall be entered an order or decree ordering the relief requested in such involuntary proceeding or involuntary petition. (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 -29- 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 $50,000,000 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. (i) At any time after a Change in Control, the Borrower fails to maintain at least one of the following credit ratings for its Senior Medium-Term Notes, Series A: (a) BBB- (or better) by Standard & Poor's Rating Group, or (b) Baa3 (or better) by Moody's Investor Service. 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. -30- 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) 667-3155, 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 -31- 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 Paragraph 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 -32- 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 Paragraph 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 Paragraph 9.4 hereof, provided that the recipient has delivered to Bank a written confidentiality agreement substantially similar to this Paragraph 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 -33- (iii) information disclosed by Borrower to any person not associated with Borrower without a written confidentiality agreement substantially similar to this Paragraph 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 Paragraph 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 Paragraph 9.5, acknowledges that any breach of the agreements contained in this Paragraph 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 Paragraph 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. -34- 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/ Joseph R. Martinetto --------------------------------------- ------------------------------- Its Joseph R. Martinetto -------------------------------------- Senior Vice President and Treasurer -35- SCHEDULE OF CREDIT AGREEMENTS OMITTED The following are the banks that are each signatories to separate but substantially identical credit agreements that materially differ only with respect to (i) the bank involved and (ii) the amount of the bank's commitment. Bank of America NT&SA By /s/ Steven W. Kastenholz ------------------------- Its Managing Director ----------------- Bank of New York By /s/ Mark J. Rogers ------------------- Its Vice President -------------- The Chase Manhattan Bank By /s/ Robert J. Gould -------------------- Its Managing Director ----------------- Citicorp USA, Inc. By /s/ Kelly Hebert ----------------- Its Attorney-in-fact ---------------- The First National Bank of Chicago By /s/ Jeanne M. Madej -------------------- Its Assistant Vice President ------------------------ -36- First Tennessee Bank National Association By /s/ Victor Notaro ----------------- Its Vice President ----------------- Norwest Bank Minnesota, N.A. By /s/ Janet M. Klein ------------------ Its Vice President ----------------- PNC Bank By /s/ Philip Jackson ------------------ Its Senior Vice President ------------------------ NationsBank, N.A. By /s/ Kenneth Ricciardi --------------------- Its Senior Vice President ------------------------ Union Bank of Switzerland By /s/ Virginia M. Loebel ---------------------- Its Managing Director -------------------- By /s/ Vincent Piazza ------------------- Its Assistant Treasurer ---------------------- -37- SCHEDULE I TO CREDIT AGREEMENT (3-YEAR COMMITMENT) DATED AS OF JUNE 26, 1998 BETWEEN THE CHARLES SCHWAB CORPORATION AND THE BANKS LISTED BELOW (Dollars in Millions)
Amount ------ Bank of America NT&SA $ 25 Attn: Steven W. Kastenholz, Managing Director 231 South LaSalle Street Chicago, IL 60697 Bank of New York 25 Attn: Mark Rogers, Vice President One Wall Street, First Floor New York, NY 10286 Chase Manhattan Bank 17.5 Broker Dealer Division Attn: Robert J. Gould, Managing Director One Chase Plaza, 21st Floor New York, NY 10081 Citicorp USA, Inc. 25 Attn: Michael Mauerstein, Managing Director 399 Park Avenue, 12th Floor, Zone 10 New York, NY 10043 The First National Bank of Chicago 17.5 Attn: Denise de Diego, Senior Vice President 153 West 51st Street, Suite 4000 New York, NY 10019 First Tennessee Bank National Association 10 Attn: Victor Notaro, Vice President 165 Madison Avenue Main Office, 9th Floor Memphis, TN 38103 Norwest Bank Minnesota, N.A. 10 Attn: Bradley A. Hardy, Vice President 6th and Marquette Minneapolis, MN 55479-0085 PNC Bank 25 Attn: Philip Jackson, Senior Vice President 1600 Market Street, 21st Floor Philadelphia, PA 19101 NationsBank, N.A. 10 Attn: Kenneth Ricciardi, Senior Vice President 55 Broadway, 4th Floor New York, NY 10006
-38- Union Bank of Switzerland 10 New York Branch Attn: Virginia Loebel, Managing Director 299 Park Avenue New York, NY 10171-0026
-39- 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 (3-Year Commitment) between Schwab and the Bank, dated as of June 26, 1998, 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: _________________________________ Joseph R. Martinetto Senior Vice President and Treasurer -40- EXHIBIT B CONFIRMING BANK AGREEMENT This Agreement is entered into as of June 26, 1998 between The Charles Schwab Corporation (the "Borrower") and Citibank, N.A. (the "Confirming Bank"). WHEREAS, under the terms of separate substantially similar Credit Agreements (3-Year Commitment) (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 22, 2001 and maturing no later than September 21, 2001 (as such dates may be extended from time to time pursuant to Paragraph 2.11 of each of the Credit Agreements); 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: 1. Terms defined in the Credit Agreements shall bear the same meanings herein unless the context otherwise requires. 2. 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. 3. 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. 4. (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 -41- 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). (b) 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. 5. (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, -42- 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; (ii) 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 __, 1998 was 0%); (iii) 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 (iv) 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 -43- 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). (b) 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. 6. (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: (i) 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%; (ii) 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. (b) 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. 7. 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. 8. 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: (a) 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 -44- 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. (b) 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. (c) 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. (d) 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. (e) 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. (f) 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. (g) 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. 9. (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 -45- 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. (b) 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. (c) 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. (d) 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 -46- of any such merger, conversion, consolidation or sale shall forthwith be given to the Borrower and to each of the Banks. 10. 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. 11. 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: Treasurer Telephone: (415) 627-7000 FAX: (415) 667-3155 -47- If to the Confirming Bank: Citibank, N.A. Attn: Michael Mauerstein Managing Director 399 Park Avenue, 12th Floor, Zone 10 New York, NY 10043 Telephone: (212) 559-6985 FAX: (212) 371-6309 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. 12. 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. 13. 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. 14. 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. CITIBANK, N.A. THE CHARLES SCHWAB CORPORATION By:_______________________ By:________________________________ Joseph R. Martinetto Its:______________________ Senior Vice President and Treasurer -48- SCHEDULE I TO CONFIRMING BANK AGREEMENT DATED AS OF JUNE 26, 1998 BETWEEN THE CHARLES SCHWAB CORPORATION AND CITIBANK, N.A. (Dollars in Millions)
Amount ------ Bank of America NT&SA $ 25 Attn: Steven W. Kastenholz, Managing Director 231 South LaSalle Street Chicago, IL 60697 Bank of New York 25 Attn: Mark Rogers, Vice President One Wall Street, First Floor New York, NY 10286 Chase Manhattan Bank 17.5 Broker Dealer Division Attn: Robert J. Gould, Managing Director One Chase Plaza, 21st Floor New York, NY 10081 Citicorp USA, Inc. 25 Attn: Michael Mauerstein, Managing Director 399 Park Avenue, 12th Floor, Zone 10 New York, NY 10043 The First National Bank of Chicago 17.5 Attn: Denise de Diego, Senior Vice President 153 West 51st Street, Suite 4000 New York, NY 10019 First Tennessee Bank National Association 10 Attn: Victor Notaro, Vice President 165 Madison Avenue Main Office, 9th Floor Memphis, TN 38103 Norwest Bank Minnesota, N.A. 10 Attn: Bradley A. Hardy, Vice President 6th and Marquette Minneapolis, MN 55479-0085 PNC Bank 25 Attn: Philip Jackson, Senior Vice President 1600 Market Street, 21st Floor Philadelphia, PA 19101 NationsBank, N.A. 10 Attn: Kenneth Ricciardi, Senior Vice President 55 Broadway, 4th Floor New York, NY 10006
-49- Union Bank of Switzerland 10 New York Branch Attn: Virginia Loebel, Managing Director 299 Park Avenue New York, NY 10171-0026
-50- EXHIBIT C BORROWING ADVICE 1. This Borrowing Advice is executed and delivered by The Charles Schwab Corporation ("Borrower") to [Bank] pursuant to that certain Credit Agreement (3-Year Commitment) dated as of June 26, 1998, 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. 2. 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 3. Following this request for Advance, the aggregate outstanding amount of all Advances the Revolving Note will not exceed the Credit amount. 4. This Borrowing Advice is executed on ______________ by the Borrower. BORROWER: THE CHARLES SCHWAB CORPORATION a Delaware Corporation By ___________________________ [Printed Name and Title] -51- EXHIBIT D COMMITMENT AND TERMINATION DATE EXTENSION REQUEST [Date] [Bank name and Address] Reference is made to that certain Credit Agreement (3-Year Commitment) dated as of June 26, 1998 ("Credit Agreement") entered into by The Charles Schwab Corporation ("Borrower") and [Bank] ("Bank"). Terms defined in the Credit Agreement and not otherwise defined herein are used herein as defined in the Credit Agreement. Pursuant to Paragraph 2.11 of the Credit Agreement, Borrower hereby requests Bank to agree to the extension of Bank's Commitment presently in effect, in the amount of $[specify amount of existing Commitment], and the --------------------------------------- Termination Date presently in effect for an additional 364 days. Bank's execution of a copy of this letter in the space provided below and the transmission of such executed copy to Borrower shall constitute Lender's acceptance of Borrower's request and Lender's agreement to the 364-day extension sought herein. More specifically, upon the execution of a copy of this letter by Bank and the transmission thereof to Borrower within 15 days after Bank's receipt of this letter, (1) the Termination Date as defined in Paragraph 2.11 of the Credit Agreement shall be extended 364 days and deemed changed to _____________, and (2) all other dates appearing in the Credit Agreement that are referred to in Paragraph 2.11 of the Credit Agreement shall correspondingly be extended 364 days. This Commitment and Termination Date Extension Request is executed by Borrower on ____________________. BORROWER: THE CHARLES SCHWAB CORPORATION a Delaware Corporation By ___________________________ [Printed Name and Title] ACCEPTED AND AGREED: [BANK] By _____________________________ [Printed Name and Title] -52- -----END PRIVACY-ENHANCED MESSAGE-----