10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

Commission file number 1-9700

THE CHARLES SCHWAB CORPORATION

(Exact name of Registrant as specified in its charter)

Delaware	94-3025021
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

120 Kearny Street, San Francisco, CA 94108

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (415) 636-7000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x            Accelerated filer  ¨            Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

1,156,442,426 shares of $.01 par value Common Stock

Outstanding on October 24, 2007

THE CHARLES SCHWAB CORPORATION

Quarterly Report on Form 10-Q

For the Quarter Ended September 30, 2007

Index

		Page
Part I - Financial Information
Item 1.	Condensed Consolidated Financial Statements (Unaudited):
	Statements of Income	1
	Balance Sheets	2
	Statements of Cash Flows	3
	Notes	4 –18
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19 –35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36 –37
Item 4.	Controls and Procedures	37
Part II - Other Information
Item 1.	Legal Proceedings	37 –38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	39
Item 4.	Submission of Matters to a Vote of Security Holders	39
Item 5.	Other Information	39
Item 6.	Exhibits	40
Signature		41

Part I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

THE CHARLES SCHWAB CORPORATION

Condensed Consolidated Statements of Income

(In millions, except per share amounts)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Net Revenues
Asset management and administration fees	$	610		$	489		$	1,730		$	1,427
Interest revenue		593			543			1,697			1,565
Interest expense		(160	)		(183	)		(491	)		(502	)
Net interest revenue		433			360			1,206			1,063
Trading revenue		218			167			618			604
Other		30			50			95			119
Total net revenues		1,291			1,066			3,649			3,213
Expenses Excluding Interest
Compensation and benefits		447			404			1,326			1,220
Professional services		81			73			236			207
Occupancy and equipment		70			64			208			192
Advertising and market development		44			31			162			135
Communications		50			42			150			133
Depreciation and amortization		39			39			117			119
Other		48			31			123			103
Total expenses excluding interest		779			684			2,322			2,109
Income from continuing operations before taxes on income		512			382			1,327			1,104
Taxes on income		(189	)		(152	)		(512	)		(437	)
Income from continuing operations		323			230			815			667
Income from discontinued operations, net of tax		1,211			36			1,284			93
Net Income	$	1,534		$	266		$	2,099		$	760
Weighted-Average Common Shares Outstanding — Diluted		1,201			1,277			1,242			1,289
Earnings Per Share - Basic
Income from continuing operations	$	.27		$	.18		$	.66		$	.52
Income from discontinued operations, net of tax	$	1.02		$	.03		$	1.05		$	.08
Net income	$	1.29		$	.21		$	1.71		$	.60
Earnings Per Share - Diluted
Income from continuing operations	$	.27		$	.18		$	.66		$	.52
Income from discontinued operations, net of tax	$	1.01		$	.03		$	1.03		$	.07
Net income	$	1.28		$	.21		$	1.69		$	.59
Dividends Declared Per Common Share	$	1.050		$	.030		$	1.150		$	.085

See Notes to Condensed Consolidated Financial Statements.

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THE CHARLES SCHWAB CORPORATION

Condensed Consolidated Balance Sheets

(In millions, except share and per share amounts)

(Unaudited)

	September 30, 2007			December 31, 2006
Assets
Cash and cash equivalents	$	4,869		$	4,507
Cash and investments segregated and on deposit for federal or other regulatory purposes (1) (including resale agreements of $2,741 in 2007 and $4,740 in 2006)		9,401			10,862
Securities owned — at market value (including securities pledged of $5 in both 2007 and 2006)		7,991			6,386
Receivables from brokers, dealers, and clearing organizations		817			650
Receivables from brokerage clients — net		11,160			10,927
Loans to banking clients — net		3,074			2,334
Loans held for sale		44			30
Equipment, office facilities, and property — net		604			602
Goodwill		525			419
Deferred tax assets		241			406
Other assets		583			524
Assets retained from discontinued operations		—			749
Assets of discontinued operations		—			10,596
Total	$	39,309		$	48,992
Liabilities and Stockholders’ Equity
Deposits from banking clients	$	12,470		$	11,020
Drafts payable		330			324
Payables to brokers, dealers, and clearing organizations		1,936			1,498
Payables to brokerage clients		18,929			20,621
Accrued expenses and other liabilities		1,625			1,069
Long-term debt		625			388
Liabilities of discontinued operations		—			9,064
Total liabilities		35,915			43,984
Stockholders’ equity:
Preferred stock — 9,940,000 shares authorized; $.01 par value per share; none issued		—			—
Common stock — 3 billion shares authorized; $.01 par value per share; 1,392,091,544 shares issued		14			14
Additional paid-in capital		2,075			1,868
Retained earnings		5,526			4,901
Treasury stock — 237,060,751 and 126,904,699 shares in 2007 and 2006, respectively, at cost		(4,209	)		(1,739	)
Accumulated other comprehensive loss		(12	)		(36	)
Total stockholders’ equity		3,394			5,008
Total	$	39,309		$	48,992

⁽¹⁾ Amounts included represent actual balances on deposit, whereas cash and investments required to be segregated for federal or other regulatory purposes at September 30, 2007 and December 31, 2006, excluding $201 million of intercompany repurchase agreements and associated interest at December 31, 2006, were $9,677 million and $11,063 million, respectively. The Company deposited a net amount of $589 million and $554 million into its segregated bank accounts on October 2 and January 3, 2007, respectively.

See Notes to Condensed Consolidated Financial Statements.

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THE CHARLES SCHWAB CORPORATION

Condensed Consolidated Statements of Cash Flows

(In millions)

(Unaudited)

	Nine Months Ended September 30,
	2007			2006
Cash Flows from Operating Activities
Net income	$	2,099		$	760
Adjustments to reconcile net income to net cash provided by operating activities:
Income from discontinued operations, net of tax		(1,284	)		(93	)
Depreciation and amortization		117			119
Stock-based compensation expense		40			26
Excess tax benefits from stock-based compensation		(85	)		(45	)
Provision for deferred income taxes		185			(13	)
Other		7			3
Originations of loans held for sale		(628	)		(490	)
Proceeds from sales of loans held for sale		615			486
Net change in:
Cash and investments segregated and on deposit for federal or other regulatory purposes		1,461			4,250
Securities owned (excluding securities available for sale)		51			(122	)
Receivables from brokers, dealers, and clearing organizations		(167	)		42
Receivables from brokerage clients		(239	)		448
Other assets		(37	)		(65	)
Drafts payable		6			34
Payables to brokers, dealers, and clearing organizations		438			191
Payables to brokerage clients		(1,692	)		(4,477	)
Securities sold, but not yet purchased, at market value		(14	)		227
Accrued expenses and other liabilities		(94	)		25
Net change provided by discontinued operations		389			38
Net cash provided by operating activities		1,168			1,344
Cash Flows from Investing Activities
Purchases of securities available for sale		(3,100	)		(2,958	)
Proceeds from sales of securities available for sale		—			81
Proceeds from maturities, calls, and mandatory redemptions of securities available for sale		1,471			646
Net increase in loans to banking clients		(748	)		(288	)
Purchase of equipment, office facilities, and property		(116	)		(81	)
Proceeds from sales of equipment, office facilities, and property		—			62
Proceeds from sale of U.S. Trust, net of transaction costs		3,237			—
Cash payments for business combinations, net of cash acquired		(117	)		—
Cash payments for investments, net		—			6
Net cash provided by (used for) discontinued operations		67			(460	)
Net cash provided by (used for) investing activities		694			(2,992	)
Cash Flows from Financing Activities
Net change in deposits from banking clients		1,450			3,099
Excess tax benefits from stock-based compensation		85			45
Issuance of long-term debt		249			—
Repayment of long-term debt		(10	)		(68	)
Dividends paid		(1,442	)		(109	)
Purchase of treasury stock		(2,740	)		(755	)
Proceeds from stock options exercised and other		345			192
Net cash provided by discontinued operations		563			656
Net cash (used for) provided by financing activities		(1,500	)		3,060
Increase in Cash and Cash Equivalents		362			1,412
Cash and Cash Equivalents at Beginning of Period		4,507			1,905
Cash and Cash Equivalents at End of Period	$	4,869		$	3,317

See Notes to Condensed Consolidated Financial Statements.

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, and as Noted)

(Unaudited)

1. Basis of Presentation

The Charles Schwab Corporation (CSC) is a financial holding company engaged, through its subsidiaries, in securities brokerage, banking, and related financial services. Charles Schwab & Co., Inc. (Schwab) is a securities broker-dealer with 306 domestic branch offices in 45 states, as well as a branch in each of the Commonwealth of Puerto Rico and London, U.K. In addition, Schwab serves clients in Hong Kong through one of CSC’s subsidiaries. Other subsidiaries include Charles Schwab Bank, N.A. (Schwab Bank), a retail bank; Charles Schwab Investment Management, Inc., the investment advisor for Schwab’s proprietary mutual funds; CyberTrader, Inc., an electronic trading technology and brokerage firm providing services to highly active, online traders; and The Charles Schwab Trust Company, a trustee for employee benefit plans, primarily 401(k) plans.

The accompanying unaudited condensed consolidated financial statements include CSC and its majority-owned subsidiaries (collectively referred to as the Company). These financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and, in the opinion of management, reflect all adjustments necessary to present fairly the financial position, results of operations, and cash flows for the periods presented in conformity with generally accepted accounting principles in the U.S. (GAAP). All adjustments were of a normal recurring nature. Certain prior-year amounts have been reclassified to conform to the 2007 presentation. All material intercompany balances and transactions have been eliminated. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2006 included in the Company’s Current Report on Form 8-K, as filed with the SEC on July 17, 2007. The Company’s results for any interim period are not necessarily indicative of results for a full year or any other interim period.

On November 19, 2006, the Company entered into a definitive agreement with Bank of America Corporation (Bank of America) pursuant to which Bank of America agreed to acquire all of the outstanding common stock of U.S. Trust Corporation (USTC, and with its subsidiaries collectively referred to as U.S. Trust), a subsidiary which provides wealth management services. The transaction was completed on July 1, 2007; accordingly, these financial statements reflect U.S. Trust as a discontinued operation for all periods prior to the completion of the sale.

2. Significant Accounting Policies

Asset management and administration fees: Asset management and administration fees, which include mutual fund service fees and fees for other asset-based financial services provided to individual and institutional clients, are recognized as revenue over the period that the related service is provided, based upon average net asset balances. The Company earns mutual fund service fees for transfer agent services, shareholder services, administration, and investment management provided to its proprietary funds, and recordkeeping and shareholder services provided to third-party funds. Mutual fund service fees are based upon the daily balances of client assets invested in third-party funds and the Company’s proprietary funds. These daily asset balances are based upon quoted market prices. The Company also earns asset management fees for advisory and managed account services, which are based on the daily balances of client assets subject to the specific fee for service.

Interest revenue: Interest revenue represents interest earned on certain assets, which include margin loans to brokerage clients, investments of segregated client cash balances, loans to banking clients, and securities available for sale. Interest revenue is recognized in the period earned based upon average daily asset balances and respective interest rates.

Securities transactions: Trading revenue includes commission revenues and revenues from principal transactions. Clients’ securities transactions are recorded on the date that they settle, while the related commission revenues and expenses are recorded on the date that the trade occurs. Principal transactions are recorded on the date that the trade occurs.

Cash and cash equivalents: The Company considers all highly liquid investments, including money market funds, interest-bearing deposits with banks, federal funds sold, commercial paper and treasury securities, with original

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, and as Noted)

(Unaudited)

maturities of three months or less that are not segregated and on deposit for federal or other regulatory purposes to be cash equivalents.

Cash and investments segregated and on deposit for federal or other regulatory purposes include securities purchased under agreements to resell (resale agreements), which are collateralized by U.S. government securities, and certificates of deposit. Resale agreements are collateralized investing transactions that are recorded at their contractual amounts plus accrued interest. The Company obtains control of collateral (U.S. government and agency securities) with a market value equal to or in excess of the principal amount loaned and accrued interest under resale agreements. Collateral is valued daily by the Company, with additional collateral obtained when necessary. Certificates of deposit are recorded at market value.

Securities owned include securities available for sale, which are recorded at fair value based on quoted market prices, where available. Mortgage-backed securities are not exchange traded and are valued based on dealer quotes or discounted cash flow models with expected cash flow and yield assumption inputs. Long-term certificates of deposit are recorded at market value. Unrealized gains and losses are reported, net of taxes, in accumulated other comprehensive income (loss) included in stockholders’ equity. Realized gains and losses from sales of securities available for sale are determined on a specific identification basis and are included in other revenue.

Securities owned also includes Schwab Funds^® money market funds, fixed income securities, equity and other securities, and equity and bond mutual funds recorded at estimated fair value based on quoted market prices. Unrealized gains and losses are included in trading revenue.

Securities borrowed and securities loaned: Securities borrowed require the Company to deliver cash to the lender in exchange for securities and are included in receivables from brokers, dealers, and clearing organizations. For securities loaned, the Company receives collateral in the form of cash in an amount equal to the market value of securities loaned. Securities loaned are included in payables to brokers, dealers, and clearing organizations. The Company monitors the market value of securities borrowed and loaned, with additional collateral obtained or refunded when necessary. Fees received or paid are recorded in interest revenue or interest expense.

Receivables from brokerage clients include margin loans to clients and are stated net of allowance for doubtful accounts of $1 million at September 30, 2007 and $2 million at December 31, 2006. Cash receivables from brokerage clients that remain unsecured or partially secured for more than 30 days are fully reserved. There were no significant losses recognized during the periods presented. At September 30, 2007 and December 31, 2006, the weighted-average interest rate charged on margin loan balances was 7.6% and 8.2%, respectively.

Loans to banking clients are stated net of allowance for loan losses of $6 million and $4 million at September 30, 2007 and December 31, 2006, respectively. The allowance is established through charges to income based on management’s evaluation of the existing portfolio. The adequacy of the allowance is reviewed regularly by management, taking into consideration current economic conditions, the existing loan portfolio composition, past loss experience and risks inherent in the portfolio, including the value of impaired loans.

Nonperforming assets included in loans to banking clients consist of financial instruments where the Company has stopped accruing interest (non-accrual financial instruments). Interest accruals are discontinued when principal or interest is contractually past due 90 days or more (unless the loans are both well-secured and in the process of collection), or when the full timely collection of interest or principal becomes uncertain. Non-accrual financial instruments are returned to accrual status only when all delinquent principal and interest payments become current and the collectibility of future principal and interest on a timely basis is reasonably assured.

Loans held for sale consist of fixed-rate and adjustable-rate mortgage loans intended for sale. Loans held for sale are stated at lower of cost or market value. Market value is estimated using quoted market prices for securities backed by similar types of loans.

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, and as Noted)

(Unaudited)

Equipment, office facilities, and property: Equipment and office facilities are depreciated on a straight-line basis over the estimated useful life of the asset of three to ten years. Buildings are depreciated on a straight-line basis over twenty years. Leasehold improvements are amortized on a straight-line basis over the lesser of the estimated useful life of the asset or the term of the lease. Software and certain costs incurred for purchasing or developing software for internal use are amortized on a straight-line basis over an estimated useful life of three or five years. Equipment, office facilities, and property are stated at cost net of accumulated depreciation and amortization, except for land, which is stated at cost. Equipment, office facilities, and property are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

Drafts Payable represent outstanding checks and electronic transfers that have not yet been presented for payment at a bank.

Derivative financial instruments are recorded on the balance sheet in other assets and other liabilities at fair value based upon dealer quotes and third-party pricing services. As part of its consolidated asset and liability management process, the Company utilizes interest rate swap agreements (Swaps) to effectively convert the interest rate characteristics of a portion of its Medium-Term Notes from fixed to variable. These Swaps have been designated as fair value hedges and therefore, changes in the fair value of the Swaps are offset by changes in the fair value of the hedged Medium-Term Notes.

Schwab Bank’s loans held for sale portfolio consists of fixed- and adjustable-rate mortgages, which are subject to a loss in value when market interest rates rise. Schwab Bank uses forward sale commitments to manage this risk. These forward sale commitments have been designated as cash flow hedging instruments with respect to the loans held for sale. Accordingly, the fair values of these forward sale commitments are recorded on the Company’s consolidated balance sheet, with gains or losses recorded in other comprehensive income (loss).

Additionally, Schwab Bank uses forward sale commitments to hedge interest rate lock commitments issued on mortgage loans that will be held for sale. Schwab Bank considers the fair value of these commitments to be zero at the commitment date, with subsequent changes in fair value determined solely based on changes in market interest rates. Any changes in fair value of the interest rate lock commitments are completely offset by changes in fair value of the related forward sale commitments.

Income taxes: The Company provides for income taxes on all transactions that have been recognized in the consolidated financial statements in accordance with Statement of Financial Accounting Standards No. 109 – Accounting for Income Taxes (SFAS No. 109). Accordingly, deferred tax assets are adjusted to reflect the tax rates at which future taxable amounts will likely be settled or realized. The effects of tax rate changes on future deferred tax assets and deferred tax liabilities, as well as other changes in income tax laws, are recorded in earnings in the period during which such changes are enacted. Beginning January 1, 2007, the Company records uncertain tax positions in accordance with Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes. See note “5—Taxes on Income,” for disclosures pursuant to FIN No. 48.

Stock-based compensation: SFAS No. 123 (revised 2004) – Share-Based Payment (SFAS No. 123R) requires the measurement and recognition of compensation expense based on estimated fair values for all share-based payment arrangements including employee and director stock option and restricted stock awards.

Stock-based compensation expense is based on awards expected to vest, and therefore has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant based on the Company’s historical forfeiture experience and revised in subsequent periods if actual forfeitures differ from those estimates.

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, and as Noted)

(Unaudited)

A summary of the Company’s stock-based compensation expense and related income tax benefit is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
Stock option expense	$	4	$	3	$	11	$	11
Restricted stock expense		9		5		28		15
Total stock-based compensation	$	13	$	8	$	39	$	26
Income tax benefit on stock-based compensation	$	5	$	3	$	16	$	10

Long-term incentive compensation: Eligible officers may receive cash long-term incentive plan units under a long-term incentive plan (LTIP). These awards are restricted from transfer or sale and vest annually over a three- to four-year performance period. Each award provides for a one-time cash payment for an amount that varies based upon the Company’s cumulative EPS over the respective performance period of each grant. The Company accrues the estimated total cost for each grant on a straight-line basis over each LTIP’s vesting period, with periodic cumulative adjustments to expense as estimates of the total grant cost are revised.

Employee Stock Purchase Plan: On May 17, 2007, CSC’s stockholders approved the adoption of the Employee Stock Purchase Plan (ESPP). Eligible employees may purchase CSC’s common stock at a 15% discount through payroll deductions not to exceed 10% of the employee’s eligible compensation. Payroll deductions are accumulated during six month offering periods that start each year on February 1^st and August 1^st. On the last trading day of the offering period, these payroll deductions are applied toward the purchase of CSC’s common stock at a 15% discount to the closing stock price on such day. The first such offering period began on August 1, 2007. At September 30, 2007, the Company had 50 million shares reserved for future issuance under the ESPP. The Company recognized $1 million of compensation expense related to the ESPP in both the three months and nine months ended September 30, 2007.

Goodwill represents the cost of acquired businesses in excess of the fair value of the related net assets acquired. Goodwill is tested for impairment annually and whenever indications of impairment exist. In testing for a potential impairment of goodwill, management estimates the fair value of each of the Company’s reporting units (defined as the Company’s businesses for which financial information is available and reviewed regularly by management), and compares it to their carrying value. If the estimated fair value of a reporting unit is less than its carrying value, management is required to estimate the fair value of all assets and liabilities of the reporting unit, including goodwill. If the carrying value of the reporting unit’s goodwill is greater than the estimated fair value, an impairment charge is recognized for the excess. The Company has elected April 1 as its annual impairment testing date. At September 30, 2007 and December 31, 2006, the Company’s goodwill balance was $525 million and $419 million, respectively.

The carrying amount of goodwill by reportable segment is presented in the following table:

	September 30, 2007		December 31, 2006
Schwab Investor Services	$	416	$	416
Schwab Corporate and Retirement Services		109		3
Total	$	525	$	419

New Accounting Standards

SFAS No. 155 – Accounting for Certain Hybrid Financial Instruments was effective for all financial instruments acquired or issued after December 31, 2006. This statement allows financial instruments that contain an embedded derivative to be accounted for as a whole (i.e., eliminating the need to account for the embedded derivative separately) if an election is made to report the whole instrument on a fair value basis. The Company made no such election and therefore, the adoption of SFAS No. 155 did not impact the Company’s financial position, results of operations, EPS, or cash flows.

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, and as Noted)

(Unaudited)

SFAS No. 156 – Accounting for Servicing of Financial Assets was effective beginning January 1, 2007. This statement amends the requirements under SFAS No. 140 – Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, for accounting for mortgage servicing assets and servicing liabilities. Previously, servicing assets and servicing liabilities were amortized over the expected period of estimated net servicing income or loss and assessed for impairment or increased obligation at each reporting date. SFAS No. 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, and permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. The adoption of SFAS No. 156 did not impact the Company’s financial position, results of operations, EPS, or cash flows.

SFAS No. 157 – Fair Value Measurements is effective beginning January 1, 2008. This statement defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements. The adoption of SFAS No. 157 is not expected to have a material impact on the Company’s financial position, results of operations, EPS, or cash flows.

SFAS No. 159 – The Fair Value Option for Financial Assets and Financial Liabilities was issued in February 2007 and is effective beginning January 1, 2008. This statement permits entities to elect to measure eligible financial instruments, commitments, and certain other arrangements at fair value at specified election dates with changes in fair value recognized in earnings at each subsequent reporting period. The adoption of SFAS No. 159 is not expected to have a material impact on the Company’s financial position, results of operations, EPS, or cash flows.

Emerging Issues Task Force Issue (EITF) No. 06-02 – Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43 – Accounting for Compensated Absences was effective beginning January 1, 2007. This issue requires the recognition of compensation expense associated with a sabbatical leave or other similar benefit arrangement that does not vest over the requisite service period. The Company previously recorded compensation expense related to its sabbatical program in the period the sabbatical was taken by an employee. As a result of this change in accounting principle, the Company recorded a charge, net of estimated forfeitures, to retained earnings as of January 1, 2007 of $17 million after tax. This accounting change did not have a material impact on the Company’s results of operations, EPS, or cash flows.

FIN No. 48 – Accounting for Uncertainty in Income Taxes—An Interpretation of SFAS No. 109 was effective beginning January 1, 2007. This interpretation provides new requirements for the recognition, measurement, and disclosure in the financial statements of a tax position taken or expected to be taken in a tax return when there is uncertainty about whether that tax position will ultimately be sustained. The adoption of FIN No. 48 resulted in a charge to retained earnings as of January 1, 2007 of $17 million. The adoption of FIN No. 48 did not have a material impact on the Company’s results of operations, EPS, or cash flows.

3. Capital Restructuring

On July 2, 2007, CSC announced its plan to return approximately $3.5 billion in capital to stockholders and create a more efficient and cost-effective capital structure. The plan included the following components:

• CSC paid a special cash dividend of $1.00 per common share, which returned $1.2 billion to stockholders. The special dividend was paid on August 24, 2007, to stockholders of record on July 24, 2007.

• In August 2007, CSC repurchased 84 million shares of its common stock through a modified “Dutch Auction” Tender Offer (Tender Offer). The Tender Offer period closed on July 31, 2007 and CSC accepted for purchase 84 million shares of its common stock, at a purchase price of $20.50 per share, for a total purchase price of $1.7 billion.

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THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, and as Noted)

(Unaudited)

• CSC executed a separate Stock Purchase Agreement with Chairman and CEO Charles R. Schwab, CSC’s largest stockholder, and with certain additional stockholders whose shares Mr. Schwab is deemed to beneficially own. Under the Stock Purchase Agreement, Mr. Schwab and the other stockholders who are parties to the agreement did not participate in the Tender Offer, but instead, sold, and CSC purchased, 18 million shares, at a purchase price ($20.50 per share), which is the same as was determined and paid in the Tender Offer, for a total purchase price of $369 million. The number of shares repurchased resulted in Mr. Schwab maintaining the same beneficial ownership percentage in CSC’s outstanding common stock that he had prior to the Tender Offer and sale of shares pursuant to the Stock Purchase Agreement (approximately 18 percent, which does not take into consideration Mr. Schwab’s outstanding options to acquire stock). The shares under this agreement were repurchased on August 15, 2007.

• On September 14, 2007, CSC issued $250 million of 6.375% Senior Medium-Term Notes due in 2017. See note “15—Subsequent Event” for a discussion of the issuance of junior subordinated notes and trust preferred securities which completed the capital restructuring plan.

In accordance with the terms of the Company’s share-based awards program, the payment of the special dividend required the Company to adjust the number of common shares subject to stock options outstanding, as well as the price at which the awards may be exercised. The adjustments resulted in an increase in the number of common shares subject to outstanding stock options in an aggregate amount of 3 million common shares and a decrease in the weighted-average exercise price per option from $17.16 to $16.36. The effect of the adjustments provided each holder of outstanding stock options with the same aggregate fair value pre- and post-dividend, with no change in stock-based compensation expense.

4. Business Acquisition

On March 31, 2007, the Company completed its acquisition of The 401(k) Company, which offers defined contribution plan services, for $115 million in cash. The acquisition enhances the Company’s ability to meet the needs of retirement plans of all sizes, as well as provides the opportunity to capture rollover accounts from retirement plans served by The 401(k) Company and cross-sell the Company’s other investment and banking services to plan participants. The Company’s condensed consolidated financial statements include The 401(k) Company as a wholly-owned subsidiary of CSC from March 31, 2007. Pro-forma financial information for The 401(k) Company is not presented as it is not material to the Company’s condensed consolidated financial statements.

The initial recording of goodwill and other intangibles requires subjective judgments concerning estimates of the fair value of acquired assets. Any excess of the purchase price over the fair value of the acquired net assets is recorded as goodwill. As a result of a purchase price allocation, the Company recorded goodwill of $106 million and intangible assets of $8 million, both of which are deductible for tax purposes over a period of 15 years. The intangible assets, which relate to customer relationships, will be amortized on a straight-line basis over 16 years. The goodwill has been allocated to the Schwab Corporate and Retirement Services segment.

5. Taxes on Income

Upon the implementation of FIN No. 48 on January 1, 2007, the Company recorded a charge to retained earnings of $17 million related to various federal and state income tax matters, including estimated interest. Of this charge, $14 million related to discontinued operations. The balance of the Company’s unrecognized tax benefits at September 30 and January 1, 2007 is approximately $5 million and $20 million, respectively. The January 1, 2007 balance includes $15 million, related to discontinued operations. The Company’s unrecognized tax benefits, which are included in accrued expenses and other liabilities on the Company’s condensed consolidated balance sheets, represent the difference between positions taken on tax return filings and the requirements under FIN No. 48 to consider potential tax settlement outcomes. Resolving these uncertain tax matters in the Company’s favor would reduce income tax expense from continuing operations by $5 million.

- 9 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, and as Noted)

(Unaudited)

The Company recognizes interest and penalties related to unrecognized tax benefits in taxes on income. Interest charges for the third quarter and first nine months of 2007 were not material. At September 30, 2007, the Company had a liability for estimated interest on the unrecognized tax benefits of $2 million.

CSC and its subsidiaries file income tax returns in the federal jurisdiction, as well as most state and applicable local jurisdictions and are subject to routine examinations by the respective taxing authorities. Based upon the expected completion of audits within the next 12 months, management does not expect a change in the unrecognized tax benefits to be material to the financial statements. Federal returns have been audited through 2004. Those audits are complete subject to the resolution of a 1989 tax matter in which a decision has been rendered by the 9^th Circuit Court of Appeals and is expected to be final in the fourth quarter of 2007. Until final resolution of this matter, all federal and state income tax returns for the years 1989 through 2004 remain technically open for examination.

6. Comprehensive Income

Comprehensive income includes net income and changes in equity except those resulting from investments by, or distributions to, stockholders. Comprehensive income is presented in the following table:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Net income	$	1,534		$	266		$	2,099		$	760
Other comprehensive income (loss):
Change in unrealized loss on cash flow hedging instruments:
Unrealized gain (loss)		—			(17	)		1			3
Reclassification of realized gain included in net income (1)		(7	)		(11	)		(7	)		(11	)
Income tax effect		3			12			3			3
Net		(4	)		(16	)		(3	)		(5	)
Change in unrealized gain on securities available for sale:
Unrealized gain (loss)		15			76			(21	)		7
Reclassification of realized loss included in net income (1)		59			—			59			—
Income tax effect		(31	)		(31	)		(16	)		(1	)
Net		43			45			22			6
Minimum pension liability adjustment:
Reclassification of realized loss included in net income (1)		9			—			9			—
Income tax effect		(4	)		—			(4	)		—
Net		5			—			5			—
Total other comprehensive income		44			29			24			1
Comprehensive income	$	1,578		$	295		$	2,123		$	761

⁽¹⁾ Reclassification adjustment for the three and nine months ended September 30, 2007 related to the sale of U.S. Trust.

- 10 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, and as Noted)

(Unaudited)

7. Earnings Per Share

Basic EPS is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income by the weighted-average number of common shares plus the effect of dilutive potential common shares outstanding for the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and unvested restricted stock awards. EPS under the basic and diluted computations are presented in the following table:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
Net income	$	1,534	$	266	$	2,099	$	760
Weighted-average common shares outstanding – basic		1,188		1,263		1,227		1,274
Common stock equivalent shares related to stock incentive plans		13		14		15		15
Weighted-average common shares outstanding – diluted(1)		1,201		1,277		1,242		1,289
Basic EPS:
Income from continuing operations	$	.27	$	.18	$	.66	$	.52
Income from discontinued operations, net of tax	$	1.02	$	.03	$	1.05	$	.08
Net income	$	1.29	$	.21	$	1.71	$	.60
Diluted EPS:
Income from continuing operations	$	.27	$	.18	$	.66	$	.52
Income from discontinued operations, net of tax	$	1.01	$	.03	$	1.03	$	.07
Net income	$	1.28	$	.21	$	1.69	$	.59

⁽¹⁾ Antidilutive stock options excluded from the calculation of diluted earnings per share were 19 million and 32 million shares for the third quarters of 2007 and 2006, respectively, and 23 million and 34 million shares for the first nine months of 2007 and 2006, respectively.

8. Regulatory Requirements

CSC is a financial holding company, which is a type of bank holding company subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the Federal Reserve Board) under the Bank Holding Company Act of 1956, as amended (the Act).

Under the Act, the Federal Reserve Board has established consolidated capital requirements for bank holding companies. CSC is subject to those guidelines. CSC’s depository institution subsidiary is Schwab Bank.

On August 9, 2007, CSC and Schwab Bank filed applications with the Office of Thrift Supervision (OTS) to convert CSC to a savings and loan association holding company and Schwab Bank to a federal savings association. Following these conversions, CSC would cease to be subject to the supervision and regulation of the Federal Reserve and would become subject to supervision by the OTS. Similarly, Schwab Bank would cease to be subject to the supervision and regulation of the Office of the Comptroller of the Currency and would become subject to supervision by the OTS.

- 11 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, and as Noted)

(Unaudited)

The regulatory capital and ratios, including discontinued operations at December 31, 2006, are as follows:

		Actual				Minimum Capital Requirement				Minimum to be Well Capitalized (1)
September 30, 2007		Amount		Ratio		Amount		Ratio		Amount		Ratio
Tier 1 Capital:	Company	$	2,860	12.8	%	$	895	4.0	%		N/A
	Schwab Bank	$	802	12.8	%	$	250	4.0	%	$	375	6.0	%
Total Capital:	Company	$	2,866	12.8	%	$	1,789	8.0	%		N/A
	Schwab Bank	$	809	12.9	%	$	500	8.0	%	$	625	10.0	%
Leverage:	Company	$	2,860	7.4	%	$	1,542	4.0	%		N/A
	Schwab Bank	$	802	6.2	%	$	520	4.0	%	$	650	5.0	%
		Actual				Minimum Capital Requirement				Minimum to be Well Capitalized (1)
December 31, 2006		Amount		Ratio		Amount		Ratio		Amount		Ratio
Tier 1 Capital:	Company	$	4,137	15.5	%	$	1,066	4.0	%		N/A
	Schwab Bank	$	705	14.1	%	$	200	4.0	%	$	300	6.0	%
	U.S. Trust	$	875	13.6	%	$	258	4.0	%		N/A
	United States Trust NA	$	735	11.7	%	$	252	4.0	%	$	377	6.0	%
Total Capital:	Company	$	4,168	15.6	%	$	2,132	8.0	%		N/A
	Schwab Bank	$	709	14.2	%	$	400	8.0	%	$	500	10.0	%
	U.S. Trust	$	901	14.0	%	$	516	8.0	%		N/A
	United States Trust NA	$	761	12.1	%	$	503	8.0	%	$	629	10.0	%
Leverage:	Company	$	4,137	8.9	%	$	1,857	4.0	%		N/A
	Schwab Bank	$	705	6.7	%	$	420	4.0	%	$	525	5.0	%
	U.S. Trust	$	875	7.9	%	$	443	4.0	%		N/A
	United States Trust NA	$	735	6.8	%	$	434	4.0	%	$	543	5.0	%

N/A Not applicable.

⁽¹⁾ Applicable only to depository institutions.

Based on its regulatory capital ratios at September 30, 2007 and December 31, 2006, Schwab Bank is considered well capitalized (the highest category) pursuant to banking regulatory guidelines. At December 31, 2006, United States Trust National Association (United States Trust NA) was also considered well capitalized.

Schwab is subject to the Uniform Net Capital Rule under the Securities Exchange Act of 1934 (the Rule). Schwab computes net capital under the alternative method permitted by this Rule. This method requires the maintenance of minimum net capital, as defined, of the greater of 2% of aggregate debit balances arising from client transactions or a minimum dollar requirement, which is based on the type of business conducted by the broker-dealer. At September 30, 2007, 2% of aggregate debits was $233 million, which exceeded the minimum dollar requirement for Schwab of $250,000. At September 30, 2007, Schwab’s net capital was $1.2 billion (10% of aggregate debit balances), which was $946 million in excess of its minimum required net capital and $596 million in excess of 5% of aggregate debit balances. Under the alternative method, a broker-dealer may not repay subordinated borrowings, pay cash dividends, or make any unsecured advances or loans to its parent or employees if such payment would result in net capital of less than 5% of aggregate debit balances or less than 120% of its minimum dollar requirement.

- 12 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, and as Noted)

(Unaudited)

9. Commitments and Contingent Liabilities

Guarantees: The Company recognizes, at the inception of a guarantee, a liability for the estimated fair value of the obligation undertaken in issuing the guarantee. The fair values of the obligations relating to standby letters of credit (LOCs) are estimated based on fees charged to enter into similar agreements, considering the creditworthiness of the counterparties. The fair values of the obligations relating to other guarantees are estimated based on transactions for similar guarantees or expected present value measures.

In the normal course of business, the Company provides certain indemnifications (i.e., protection against damage or loss) to counterparties in connection with the disposition of certain of its assets. Such indemnifications are generally standard contractual terms with various expiration dates and typically relate to title to the assets transferred, ownership of intellectual property rights (e.g., patents), accuracy of financial statements, compliance with laws and regulations, failure to pay, satisfy or discharge any liability, or to defend claims, as well as errors, omissions, and misrepresentations. The maximum potential future liability under these indemnifications cannot be estimated. The Company has not recorded a liability for these indemnifications and believes that the occurrence of events that would trigger payments under these agreements is remote.

Separately, the Company has guaranteed certain payments in the event of a termination of certain mutual fund sub-advisor agreements, related to the adoption of AXA Rosenberg LLC’s U.S. family of mutual funds, known as the Laudus Funds^®. Additionally, the Company has provided indemnifications related to facility leases and technology services to a counterparty in connection with the disposition of certain of its assets. At September 30, 2007, the Company’s maximum potential future liability under these agreements was approximately $140 million. Further, as discussed below under “Legal contingencies,” the Company provided an indemnification to UBS Securities LLC and UBS Americas Inc. (collectively referred to as UBS) for expenses associated with certain litigation. At September 30, 2007, the Company has a recorded liability of approximately $30 million reflecting the estimated fair value of these guarantees and indemnifications. The fair value of these guarantees and indemnifications is not necessarily indicative of amounts that would be paid in the event a payment was required.

The Company has clients that sell (i.e., write) listed option contracts that are cleared by various clearing houses. The clearing houses establish margin requirements on these transactions. The Company satisfies the margin requirements by arranging LOCs, in favor of the clearing houses, which are issued by multiple banks. At September 30, 2007, the aggregate face amount of these outstanding LOCs totaled $1.2 billion. In connection with its securities lending activities, Schwab is required to provide collateral to certain brokerage clients. Schwab satisfies the collateral requirements by arranging LOCs, in favor of these brokerage clients, which are issued by multiple banks. At September 30, 2007, the aggregate face amount of these outstanding LOCs totaled $218 million. No funds were drawn under these LOCs at September 30, 2007.

The Company also provides guarantees to securities clearing houses and exchanges under their standard membership agreement, which requires members to guarantee the performance of other members. Under the agreement, if another member becomes unable to satisfy its obligations to the clearing houses and exchanges, other members would be required to meet shortfalls. The Company’s liability under these arrangements is not quantifiable and may exceed the cash and securities it has posted as collateral. However, the potential requirement for the Company to make payments under these arrangements is remote. Accordingly, no liability has been recognized for these transactions.

Legal contingencies: The Company is subject to claims and lawsuits in the ordinary course of business, including arbitrations, class actions, and other litigation, some of which include claims for substantial or unspecified damages. The Company is also the subject of inquiries, investigations, and proceedings by regulatory and other governmental agencies. In addition, the Company is responding to certain litigation claims brought against former subsidiaries pursuant to indemnities it has provided to purchasers of those entities.

- 13 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, and as Noted)

(Unaudited)

The Company believes it has strong defenses in all significant matters currently pending and is vigorously contesting liability and the damages claimed. Nevertheless, some of these matters may result in adverse judgments or awards, including penalties, injunctions, or other relief, and the Company may also determine to settle a matter because of the uncertainty and risks of litigation. Predicting the outcome of a matter is inherently difficult, particularly where claimants seek substantial or unspecified damages, or when investigations or legal proceedings are at an early stage. In many cases, including those matters described below, it is not possible to determine whether a loss will be incurred or to estimate the range of that loss until the matter is close to resolution. However, based on current information and consultation with counsel, management believes that the resolution of matters currently pending, including those described below, will not have a material adverse impact on the financial condition or cash flows of the Company, but could be material to the Company’s operating results for a particular future period, depending on results for that period.

SoundView Litigation: As part of the sale of Schwab Capital Markets L.P. and all of the outstanding capital stock of SoundView Technology Group, Inc. (SoundView), (collectively referred to as Schwab Soundview Capital Markets, or SSCM), to UBS, the Company agreed to indemnify UBS for certain litigation, including the claims described below.

SoundView and certain of its subsidiaries are among the numerous financial institutions named as defendants in multiple purported securities class actions filed in the United States District Court for the Southern District of New York (the IPO Allocation Litigation) between June and December 2001. The IPO Allocation Litigation was brought on behalf of persons who either directly or in the aftermarket purchased IPO securities between March 1997 and December 2000. The plaintiffs allege that SoundView entities and the other underwriters named as defendants required customers receiving allocations of IPO shares to pay excessive and undisclosed commissions on unrelated trades and to purchase shares in the aftermarket at prices higher than the IPO price, in violation of the federal securities laws. SoundView entities have been named in 31 of the actions, each involving a different company’s IPO, and had underwriting commitments in approximately 90 other IPOs that are the subject of lawsuits. SoundView entities have not been named as defendants in these cases, although the lead underwriters in those IPOs have asserted that depending on the outcome of the cases, SoundView entities may have indemnification or contribution obligations based on underwriting commitments in the IPOs. The parties, with the assent of the District Court, selected 17 cases as focus cases for the purpose of case-specific discovery, and in October 2004, the District Court allowed 6 of the focus cases to proceed as class actions. Defendants appealed that decision to the United States Court of Appeals for the Second Circuit, which issued an order on December 5, 2006 reversing the District Court’s decision to allow the 6 focus cases to proceed as class actions. On April 6, 2007, the Court of Appeals denied the plaintiffs’ request for rehearing. In August 2007, plaintiffs filed amended class action complaints, which again seek approval for the cases to proceed as class actions. The Company will continue to vigorously contest these claims on behalf of SoundView pursuant to the indemnity with UBS.

10. Financial Instruments Subject to Off-Balance Sheet Risk, Credit Risk, or Market Risk

Interest rate swaps: CSC uses Swaps to effectively convert the interest rate characteristics of a portion of its Medium-Term Notes from fixed to variable. These Swaps are structured for CSC to receive a fixed rate of interest and pay a variable rate of interest based on the three-month LIBOR rate. The variable interest rates reset every three months. Information on these Swaps is summarized in the following table:

	September 30, 2007			December 31, 2006
Notional principal amount	$	243		$	253
Weighted-average variable interest rate		8.23	%		7.91	%
Weighted-average fixed interest rate		7.81	%		7.78	%
Weighted-average maturity (in years)		2.0			2.7

- 14 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, and as Noted)

(Unaudited)

These Swaps have been designated as fair value hedges under SFAS No. 133 – Accounting for Derivative Instruments and Hedging Activities. Changes in the fair value of the Swaps are offset by changes in fair value of the hedged Medium-Term Notes. At September 30, 2007 and December 31, 2006, CSC recorded a derivative asset of $2 million and approximately $500,000, respectively, for these Swaps.

Forward sale and interest rate lock commitments: Schwab Bank’s loans held for sale portfolio consists of fixed- and adjustable-rate mortgages, which are subject to a loss in value when market interest rates rise. Schwab Bank uses forward sale commitments to manage this risk. These forward sale commitments have been designated as cash flow hedging instruments with respect to the loans held for sale. Accordingly, the fair values of these forward sale commitments are recorded on the Company’s condensed consolidated balance sheets, with gains or losses recorded in other comprehensive income (loss). Amounts included in other comprehensive income (loss) are reclassified into earnings when the related loan is sold. At both September 30, 2007 and December 31, 2006, the derivative asset and liability recorded by Schwab Bank for these forward sale commitments were immaterial.

Additionally, Schwab Bank uses forward sale commitments to hedge interest rate lock commitments issued on mortgage loans that will be held for sale. Schwab Bank considers the fair value of these commitments to be zero at the commitment date, with subsequent changes in fair value determined solely based on changes in market interest rates. Any changes in fair value of the interest rate lock commitments are completely offset by changes in fair value of the related forward sale commitments. Schwab Bank had interest rate lock commitments on mortgage loans to be held for sale with principal balances totaling approximately $146 million and $122 million at September 30, 2007 and December 31, 2006, respectively. At both September 30, 2007 and December 31, 2006, the derivative asset and liability recorded by Schwab Bank for these interest rate lock commitments and the related forward sale commitments were immaterial.

11. Segment Information

The Company structures its segments according to its various types of clients and the services provided to those clients. The Company’s three reportable segments are Schwab Investor Services, Schwab Institutional^®, and Schwab Corporate and Retirement Services. As a result of organizational and related business changes in the second quarter of 2007, the corporate and retirement services business, which was historically included within the Schwab Investor Services segment, has been separated into its own segment called Schwab Corporate and Retirement Services. Additionally, the mutual fund clearing services business, which was historically included in unallocated and other, is included within the Schwab Corporate and Retirement Services segment. Previously-reported segment information has been revised to reflect these changes. As a result of the Company’s sale of U.S. Trust in 2007, the previously-reported U.S. Trust segment has been eliminated. The Company evaluates the performance of its segments on a pre-tax basis excluding items such as restructuring charges, impairment charges, discontinued operations, and extraordinary items. Intersegment net revenues are not material and are therefore not disclosed.

- 15 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, and as Noted)

(Unaudited)

Financial information for the Company’s reportable segments is presented in the following table:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Net revenues:
Schwab Investor Services	$	862		$	703		$	2,450		$	2,191
Schwab Institutional		287			239			818			720
Schwab Corporate and Retirement Services		134			95			371			272
Unallocated and other (1)		8			29			10			30
Total net revenues	$	1,291		$	1,066		$	3,649		$	3,213
Income from continuing operations before taxes on income:
Schwab Investor Services	$	343		$	230		$	886		$	710
Schwab Institutional		125			98			342			304
Schwab Corporate and Retirement Services		40			29			104			77
Unallocated and other		4			25			(5	)		13
Income from continuing operations before taxes on income		512			382			1,327			1,104
Taxes on income		(189	)		(152	)		(512	)		(437	)
Income from discontinued operations, net of tax		1,211			36			1,284			93
Net income	$	1,534		$	266		$	2,099		$	760

⁽¹⁾ Includes gains (losses) on investments.

12. Supplemental Cash Flow Information

Certain information affecting the cash flows of the Company is presented in the following table:

	Nine Months Ended September 30,
	2007		2006
Income taxes paid (1)	$	421	$	455
Interest paid:
Brokerage client cash balances	$	270	$	326
Deposits from banking clients		189		133
Long-term debt		16		18
Other		16		16
Total interest paid	$	491	$	493

⁽¹⁾ Includes discontinued operations.

13. Discontinued Operations

On November 19, 2006, CSC entered into a definitive agreement with Bank of America pursuant to which Bank of America agreed to acquire all of the outstanding common stock of U.S. Trust for $3.3 billion in cash. The transaction closed on July 1, 2007. CSC recognized a gain on the sale of $1.9 billion, or $1.2 billion after tax, in the third quarter of 2007.

The results of operations, net of income taxes, and cash flows of U.S. Trust have been presented as discontinued operations on the Company’s condensed consolidated statements of income and of cash flows for all periods through the date of the sale. The assets and liabilities of U.S. Trust prior to the sale have each been combined and presented as assets and liabilities of discontinued operations on the Company’s condensed consolidated balance sheets. The

- 16 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, and as Noted)

(Unaudited)

Company’s consolidated prior period revenues, expenses, taxes on income, assets, liabilities, and cash flows also reflect this presentation.

The assets and liabilities of U.S. Trust included in assets of discontinued operations and liabilities of discontinued operations at December 31, 2006 were as follows:

	December 31, 2006
Assets
Cash and cash equivalents	$	625
Cash and investments segregated and on deposit for federal and other regulatory purposes		11
Loans to banking clients – net		7,090
Securities owned		2,571
Equipment, office facilities, and property – net		97
Goodwill		390
Intangible assets – net		119
Other assets		442
Assets retained from discontinued operations		(749	)
Total assets	$	10,596
Liabilities
Deposits from banking clients (net of liabilities retained)	$	8,532
Accrued expenses and other liabilities		379
Short-term borrowings		101
Long-term debt		52
Total liabilities	$	9,064

The components of income from discontinued operations related to U.S. Trust are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Net revenues	$	—		$	224		$	446		$	667
Income from discontinued operations, before taxes	$	—		$	56		$	116		$	144
Gain on sale of U.S. Trust, before taxes		1,862			—			1,862			—
Taxes on income		(651	)		(20	)		(694	)		(53	)
Income from discontinued operations, net of tax	$	1,211		$	36		$	1,284		$	91

When calculating the Company’s gain on the sale of U.S. Trust for income tax purposes, the acquisition date tax basis is the basis of U.S. Trust’s prior stockholders in their shares as of the date U.S. Trust was acquired by the Company, since the transaction qualified as a tax-free exchange. In the fourth quarter of 2006, the Company recorded a $205 million income tax benefit related to the estimated difference between the tax and book bases of the Company’s U.S. Trust stock. This amount was included in income from discontinued operations, net of tax on the Company’s consolidated statements of income. This initial estimate of the tax benefit was based on publicly available information, including information on the composition of U.S. Trust’s stockholders at the acquisition date and the market price of U.S. Trust stock during relevant periods, and subject to adjustment following a survey of former U.S. Trust stockholders. The Company completed the survey in the third quarter of 2007. Based upon the results of this survey, the Company recorded an additional $72 million income tax benefit.

In May 2007, Schwab terminated an arrangement with U.S. Trust by which the excess cash held in certain Schwab brokerage client accounts was swept into a money market deposit account at U.S. Trust. Schwab moved all of these

- 17 -

THE CHARLES SCHWAB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, and as Noted)

(Unaudited)

balances to a similar existing arrangement with Schwab Bank. At December 31, 2006, these balances totaled $749 million and were included in deposits from banking clients with a corresponding amount in assets retained from discontinued operations on the Company’s condensed consolidated balance sheets. The interest expense related to these client deposit balances maintained at U.S. Trust is included in interest expense from continuing operations on the Company’s condensed consolidated statements of income. This interest expense was $3 million for the third quarter of 2006, and $4 million and $8 million for the first nine months of 2007 and 2006, respectively. The corresponding interest revenue on the invested cash balances related to these deposits is included in interest revenue from continuing operations on the Company’s condensed consolidated statements of income. This interest revenue was $10 million for the third quarter of 2006, and $14 million and $28 million for the first nine months of 2007 and 2006, respectively. The interest revenue amount was calculated using the Company’s funds transfer pricing methodology, which is used by management to estimate the interest earned on the investment of these deposit balances.

14. Restructuring Reserve

A summary of the activity in the facilities restructuring reserve related to the Company’s past restructuring initiatives, as well as certain retained restructuring-related obligations following the past sales of SSCM and Charles Schwab Europe, for the third quarter and first nine months of 2007 is as follows:

	Three Months Ended September 30, 2007			Nine Months Ended September 30, 2007
Beginning balance	$	92		$	112
Restructuring credit (1)		(2	)		(5	)
Cash payments—net		(8	)		(27	)
Other (2)		1			3
Ending balance at September 30, 2007 (3)	$	83		$	83

⁽¹⁾ Represents change in sublease assumptions.

⁽²⁾ Primarily includes the accretion of facilities restructuring reserves, which are initially recorded at net present value. Accretion expense is recorded in occupancy and equipment expense on the Company’s condensed consolidated statements of income.

⁽³⁾ The Company expects to substantially utilize the remaining facilities restructuring reserve through cash payments for the net lease expense over the respective lease terms through 2017.

The actual costs of the remaining restructuring reserve related to these restructuring initiatives could differ from the estimated costs, depending primarily on the Company’s ability to sublease properties.

15. Subsequent Event

On October 5, 2007, CSC and Schwab Capital Trust I, a statutory trust formed under the laws of the State of Delaware (Trust), closed the public offering of $300 million of the Trust’s fixed to floating rate trust preferred securities. The proceeds from the sale of the trust preferred securities were invested by the Trust in fixed to floating rate junior subordinated notes issued by CSC (Subordinated Debt). The Subordinated Debt has a fixed interest rate of 7.50% until November 15, 2017 and a floating rate thereafter. The Subordinated Debt may be redeemed at a redemption price of principal plus accrued but unpaid interest on November 15, 2017, on or after November 15, 2037, or following the occurrence of certain events, and at a make-whole redemption price at any other time. CSC has contractually agreed, for the benefit of certain holders of the Company’s long-term indebtedness ranking senior to the Subordinated Debt, not to redeem, repay or purchase the Subordinated Debt or the trust preferred securities prior to November 15, 2047 unless it has received proceeds of the issuance of certain replacement capital securities, among other conditions. CSC expects that the trust preferred securities will be treated as Tier 1 capital of CSC. The issuance of the Subordinated Debt and trust preferred securities completed CSC’s previously announced capital restructuring plan.

- 18 -

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, and as Noted)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

Management of The Charles Schwab Corporation (CSC) and its subsidiaries (collectively referred to as the Company) focuses on several key financial and non-financial metrics in evaluating the Company’s financial position and operating performance. All information contained in this Form 10-Q is presented on a continuing operations basis unless otherwise noted. Results for the third quarters and first nine months of 2007 and 2006 are shown in the following table:

	Three Months Ended September 30,						Percent		Nine Months Ended September 30,						Percent
	2007			2006			Change		2007			2006			Change
Client Activity Metrics:
Net new client assets (in billions) (1, 2)	$	37.3		$	22.5		66	%	$	120.7		$	74.5		62	%
Client assets (in billions, at quarter end)	$	1,440.7		$	1,177.0		22	%
Clients’ daily average trades (in thousands)		294.3			236.4		24	%		272.8			278.2		(2	%)
Company Financial Metrics:
Net revenue growth from prior year’s period		21	%		15	%				13.6	%		21	%
Pre-tax profit margin from continuing operations		39.7	%		35.8	%				36.4	%		34.4	%
Return on stockholders’ equity		145	%		23	%				67	%		22	%
Annualized net revenue per average full-time equivalent employee (in thousands)	$	400		$	356		12	%	$	379		$	364		4	%

⁽¹⁾ The first nine months of 2007 includes $17.8 billion related to the acquisition of The 401(k) Company and $3.3 billion related to a mutual fund clearing services client. Effective in the second quarter of 2007, amount includes balances covered by 401(k) record keeping-only services, which totaled $5.2 billion at May 31, 2007, related to the March 2007 acquisition of The 401(k) Company.

⁽²⁾ Effective in the third quarter of 2007, amounts include the Company’s mutual fund clearing services business’ daily net settlements. All prior period amounts have been recast to reflect this change.

While the securities markets experienced increased volatility during the third quarter of 2007, the Company continued to strengthen its operating and financial performance. Net new client assets of $37.3 billion for the third quarter of 2007 were 66% higher than the third quarter of 2006. Total client assets rose by 22% from the third quarter of 2006 to $1.441 trillion at September 30, 2007. Net revenues grew on a year-over-year basis, rising by 21% compared to the third quarter of 2006. This increase was primarily due to an increase in asset management and administration fees driven by growth in client assets, as well as an increase in net interest revenue due to higher interest rate spreads resulting from the higher interest rate environment. Net interest revenue also increased due to incremental interest revenue generated by temporarily investing the proceeds from the sale of U.S. Trust. These factors contributed to a 19% increase in asset-based and other revenues (which include asset management and administration fees, net interest revenue, and other revenues) to a record $1,073 million. Total expenses in the third quarter of 2007 increased $95 million, or 14%, compared to the third quarter of 2006, primarily due to higher compensation and benefits expense, and advertising and market development expense. Pre-tax profit margin from continuing operations was 39.7%, which represents an increase from 35.8% in the third quarter of 2006. Net income grew to $1,534 million, which includes a $1,211 million after-tax gain on the sale of U.S. Trust from $266 million in the third quarter of 2006. Return on stockholders’ equity increased to 145% in the third quarter of 2007, compared to 23% in the third quarter of 2006, reflecting the sale of U.S. Trust, earnings growth, and the Company’s continued active management of its capital base.

- 19 -

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, and as Noted)

Capital Restructuring

On July 2, 2007, CSC announced its plan to return approximately $3.5 billion in capital to stockholders and create a more efficient and cost-effective capital structure. The plan included the following components:

• CSC paid a special cash dividend of $1.00 per common share, which returned $1.2 billion to stockholders. The special dividend was paid on August 24, 2007, to stockholders of record on July 24, 2007.

• In August 2007, CSC repurchased 84 million shares of its common stock through a modified “Dutch Auction” Tender Offer (Tender Offer). The Tender Offer period closed on July 31, 2007 and CSC accepted for purchase 84 million shares of its common stock, at a purchase price of $20.50 per share, for a total purchase price of $1.7 billion.

• CSC executed a separate Stock Purchase Agreement with Chairman and CEO Charles R. Schwab, CSC’s largest stockholder, and with certain additional stockholders whose shares Mr. Schwab is deemed to beneficially own. Under the Stock Purchase Agreement, Mr. Schwab and the other stockholders who are parties to the agreement did not participate in the Tender Offer, but instead, sold, and CSC purchased, 18 million shares, at a purchase price ($20.50 per share), which is the same as was determined and paid in the Tender Offer, for a total purchase price of $369 million. The number of shares repurchased resulted in Mr. Schwab maintaining the same beneficial percentage interest in CSC’s outstanding common stock that he had prior to the Tender Offer and sale of shares pursuant to the Stock Purchase Agreement (approximately 18 percent, which does not take into consideration Mr. Schwab’s outstanding options to acquire stock). The shares under this agreement were repurchased on August 15, 2007.

• On September 14, 2007, CSC issued $250 million of 6.375% Senior Medium-Term Notes due in 2017. See note “15 – Subsequent Event” in the Notes to Condensed Consolidated Financial Statements for a discussion of the issuance of junior subordinated notes and trust preferred securities which completed the capital restructuring plan.

Discontinued Operations

On November 19, 2006, CSC entered into a definitive agreement with Bank of America Corporation (Bank of America) pursuant to which Bank of America agreed to acquire all of the outstanding common stock of U.S. Trust Corporation (USTC, and with its subsidiaries collectively referred to as U.S. Trust) for $3.3 billion in cash. The transaction closed on July 1, 2007. CSC recognized a gain on the sale of $1.9 billion, or $1.2 billion after tax, in the third quarter of 2007.

The results of operations, net of income taxes, and cash flows of U.S. Trust have been presented as discontinued operations on the Company’s condensed consolidated statements of income and of cash flows for all periods through the date of the sale. The assets and liabilities of U.S. Trust prior to the sale have been combined and presented as assets and liabilities of discontinued operations on the Company’s condensed consolidated balance sheets. The Company’s consolidated prior period revenues, expenses, taxes on income, assets, liabilities, and cash flows also reflect this presentation.

Business Acquisition

On March 31, 2007, the Company completed its acquisition of The 401(k) Company, which offers defined contribution plan services, for $115 million in cash. As a result of a purchase price allocation, the Company recorded goodwill of $106 million and intangible assets of $8 million. The intangible assets will be amortized over 16 years.

Subsequent Event

See note “15 – Subsequent Event” in the Notes to Condensed Consolidated Financial Statements for a discussion of additional debt issued.

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THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, and as Noted)

RESULTS OF OPERATIONS

	Three Months Ended September 30,						Percent		Nine Months Ended September 30,						Percent
	2007			2006			Change		2007			2006			Change
Asset-based and other revenues	$	1,073		$	899		19	%	$	3,031		$	2,609		16	%
Trading revenue		218			167		31	%		618			604		2	%
Total net revenues		1,291			1,066		21	%		3,649			3,213		14	%
Expenses excluding interest		779			684		14	%		2,322			2,109		10	%
Income from continuing operations before taxes on income		512			382		34	%		1,327			1,104		20	%
Taxes on income		(189	)		(152	)	24	%		(512	)		(437	)	17	%
Income from continuing operations		323			230		40	%		815			667		22	%
Income from discontinued operations, net of tax		1,211			36		N/M			1,284			93		N/M
Net income	$	1,534		$	266		N/M		$	2,099		$	760		176	%
Earnings per share from continuing operations – diluted	$	.27		$	.18		50	%	$	.66		$	.52		27	%
Earnings per share – diluted	$	1.28		$	.21		N/M		$	1.69		$	.59		186	%
Pre-tax profit margin from continuing operations		39.7	%		35.8	%				36.4	%		34.4	%
Effective income tax rate on income from continuing operations		36.9	%		39.8	%				38.6	%		39.6	%

N/M Not Meaningful.

The increase in asset-based and other revenues from the third quarter and first nine months of 2006 was due to an increase in asset management and administration fees resulting from higher levels of client assets, and an increase in net interest revenue resulting from yields on assets increasing faster than those on liabilities. Net interest revenue also increased due to incremental interest revenue generated by temporarily investing the proceeds from the sale of U.S. Trust. The increase in trading revenue from the third quarter and first nine months of 2006 was primarily due to higher average revenue earned per revenue trade and higher daily average revenue trades for the third quarter.

The increase in expenses excluding interest from the third quarter and first nine months of 2006 was mainly due to higher compensation and benefits expense, advertising and market development expense, and professional services expense.

The increase in income from continuing operations from the third quarter and first nine months of 2006 was primarily due to an increase in net revenues, partially offset by higher expenses excluding interest. The increase in net income from 2006 was primarily due to the gain of $1.2 billion, after tax, on the sale of U.S. Trust in the third quarter of 2007.

Segment Information

The Company provides financial services to individuals, and institutional and corporate clients through three segments – Schwab Investor Services, Schwab Institutional^®, and Schwab Corporate and Retirement Services. As a result of organizational and related business changes in the second quarter of 2007, the corporate and retirement services business, which was historically included within the Schwab Investor Services segment, was separated into its own segment called Schwab Corporate and Retirement Services. Additionally, the mutual fund clearing services business, which was historically included in unallocated and other, is included within the Schwab Corporate and Retirement Services segment. Previously-reported segment information has been revised to reflect these changes. The Schwab Investor Services segment includes the Company’s retail brokerage and banking operations. The Schwab Institutional segment provides custodial, trading, and support services to independent investment advisors. The Schwab Corporate and Retirement Services segment provides retirement plan services, plan administrator services, stock plan services,

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THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, and as Noted)

and mutual fund clearing services and supports the availability of Schwab proprietary mutual funds on third-party platforms.

Financial information for the Company’s reportable segments is presented in the following table:

	Three Months Ended September 30,				Percent Change		Nine Months Ended September 30,					Percent Change
	2007		2006				2007			2006
Schwab Investor Services:
Net revenues	$	862	$	703	23	%	$	2,450		$	2,191	12	%
Expenses excluding interest		519		473	10	%		1,564			1,481	6	%
Contribution margin	$	343	$	230	49	%	$	886		$	710	25	%
Schwab Institutional:
Net revenues	$	287	$	239	20	%	$	818		$	720	14	%
Expenses excluding interest		162		141	15	%		476			416	14	%
Contribution margin	$	125	$	98	28	%	$	342		$	304	13	%
Schwab Corporate and Retirement Services:
Net revenues	$	134	$	95	41	%	$	371		$	272	36	%
Expenses excluding interest		94		66	42	%		267			195	37	%
Contribution margin	$	40	$	29	38	%	$	104		$	77	35	%
Unallocated and other:
Net revenues	$	8	$	29	(72	%)	$	10		$	30	(67	%)
Expenses excluding interest		4		4	—			15			17	(12	%)
Contribution margin	$	4	$	25	(84	%)	$	(5	)	$	13	N/M
Total:
Net revenues	$	1,291	$	1,066	21	%	$	3,649		$	3,213	14	%
Expenses excluding interest		779		684	14	%		2,322			2,109	10	%
Contribution margin	$	512	$	382	34	%	$	1,327		$	1,104	20	%

N/M Not meaningful.

Schwab Investor Services

Net revenues increased by $159 million, or 23%, and $259 million, or 12%, from the third quarter and first nine months of 2006, respectively, due to higher asset management and administration fees and net interest revenue. Asset management and administration fees increased as a result of higher balances of client assets in the Company’s proprietary mutual funds and Mutual Fund OneSource^® service, as well as balances participating in advisory and managed account service programs. Net interest revenue increased due to higher levels of market interest rates and changes in the composition of interest-earning assets, including increases in securities available for sale and loans to banking clients, as well as generally higher yields on earning assets. Trading revenue increased primarily due to higher daily average revenue trades. Expenses excluding interest increased by $46 million, or 10%, and $83 million, or 6%, from the third quarter and first nine months of 2006, respectively, primarily due to higher client servicing and other related expenses as well as higher advertising and market development expense as a result of increased media spending.

Schwab Institutional

Net revenues increased by $48 million, or 20%, and $98 million, or 14%, from the third quarter and first nine months of 2006, respectively, due to higher asset management and administration fees as a result of increases in the balances of client assets in the Company’s proprietary mutual funds and Mutual Fund OneSource service. Expenses excluding interest increased by $21 million, or 15%, and $60 million, or 14%, from the third quarter and first nine months of 2006, respectively, primarily due to higher project spending, and marketing and business development.

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THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, and as Noted)

Schwab Corporate and Retirement Services

Net revenues increased by $39 million, or 41%, and $99 million, or 36%, from the third quarter and first nine months of 2006, respectively, due to higher asset management and administration fees as a result of increases in balances of client assets in the Company’s proprietary mutual funds and Mutual Fund OneSource service. Expenses excluding interest increased by $28 million, or 42%, and $72 million, or 37%, from the third quarter and first nine months of 2006, respectively, primarily due to higher account servicing and related costs as a result of a 119% increase in the number of corporate retirement plan participants and a 36% increase in client assets. Additionally, both net revenues and expenses excluding interest increased from the third quarter and first nine months of 2006 due to the recent acquisition of The 401(k) Company.

Net Revenues

The Company categorizes its revenues as either asset-based and other revenues or trading revenue. As shown in the following tables, asset-based and other revenues, trading revenue, and total net revenues increased in the third quarter and first nine months of 2007 from the same periods in 2006.

- 23 -

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, and as Noted)

Sources of Net Revenues

Three Months Ended September 30,

			2007				2006
	Percent Change		Amount		% of Total Net Revenues		Amount		% of Total Net Revenues
Asset-based and other revenues
Asset management and administration fees (1)
Mutual fund service fees:
Proprietary funds (Schwab Funds® and Laudus Funds®)	19	%	$	301	23	%	$	253	24	%
Mutual Fund OneSource®	28	%		173	13	%		135	13	%
Other	25	%		5	1	%		4	—
Investment management and trust fees	32	%		120	9	%		91	9	%
Other	83	%		11	1	%		6	—
Asset management and administration fees	25	%		610	47	%		489	46	%
Net interest revenue
Interest revenue:
Margin loans to clients	3	%		222	17	%		216	20	%
Investments, client-related	(16	%)		125	10	%		148	14	%
Securities available for sale	19	%		108	8	%		91	9	%
Loans to banking clients	29	%		44	3	%		34	3	%
Short-term investments	93	%		27	2	%		14	1	%
Other	68	%		67	6	%		40	4	%
Interest revenue	9	%		593	46	%		543	51	%
Interest expense:
Brokerage client cash balances	(23	%)		84	6	%		109	10	%
Deposits from banking clients	7	%		65	5	%		61	6	%
Long-term debt	—			7	1	%		7	1	%
Other	(33	%)		4	—			6	—
Interest expense	(13	%)		160	12	%		183	17	%
Net interest revenue	20	%		433	34	%		360	34	%
Other	(40	%)		30	2	%		50	4	%
Total asset-based and other revenues	19	%		1,073	83	%		899	84	%
Trading revenue
Commissions	33	%		187	15	%		141	13	%
Principal transactions	19	%		31	2	%		26	3	%
Total trading revenue	31	%		218	17	%		167	16	%
Total net revenues	21	%	$	1,291	100	%	$	1,066	100	%

⁽¹⁾ Certain prior-year amounts have been reclassified to conform to the 2007 presentation.

- 24 -

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, and as Noted)

Sources of Net Revenues

Nine Months Ended September 30,

			2007				2006
	Percent Change		Amount		% of Total Net Revenues		Amount		% of Total Net Revenues
Asset-based and other revenues
Asset management and administration fees (1)
Mutual fund service fees:
Proprietary funds (Schwab Funds® and Laudus Funds®)	18	%	$	854	23	%	$	721	22	%
Mutual Fund OneSource®	22	%		490	13	%		403	13	%
Other	8	%		13	1	%		12	—
Investment management and trust fees	29	%		344	9	%		266	8	%
Other	16	%		29	1	%		25	1	%
Asset management and administration fees	21	%		1,730	47	%		1,427	44	%
Net interest revenue
Interest revenue:
Margin loans to clients	2	%		641	18	%		627	20	%
Investments, client-related	(13	%)		404	11	%		467	15	%
Securities available for sale	29	%		295	8	%		228	7	%
Loans to banking clients	30	%		121	3	%		93	3	%
Short-term investments	184	%		91	2	%		32	1	%
Other	23	%		145	5	%		118	3	%
Interest revenue	8	%		1,697	47	%		1,565	49	%
Interest expense:
Brokerage client cash balances	(17	%)		269	7	%		325	10	%
Deposits from banking clients	36	%		187	5	%		138	4	%
Long-term debt	(5	%)		21	1	%		22	1	%
Other	(18	%)		14	1	%		17	1	%
Interest expense	(2	%)		491	14	%		502	16	%
Net interest revenue	13	%		1,206	33	%		1,063	33	%
Other	(20	%)		95	3	%		119	4	%
Total asset-based and other revenues	16	%		3,031	83	%		2,609	81	%
Trading revenue
Commissions	(1	%)		537	15	%		542	17	%
Principal transactions	31	%		81	2	%		62	2	%
Total trading revenue	2	%		618	17	%		604	19	%
Total net revenues	14	%	$	3,649	100	%	$	3,213	100	%

⁽¹⁾ Certain prior-year amounts have been reclassified to conform to the 2007 presentation.

- 25 -

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, and as Noted)

Asset Management and Administration Fees

Asset management and administration fees include mutual fund service fees, as well as fees for other asset-based financial services provided to individual and institutional clients. The Company earns mutual fund service fees for transfer agent services, shareholder services, administration, and investment management provided to its proprietary funds, and recordkeeping and shareholder services provided to third-party funds. These fees are based upon the daily balances of client assets invested in third-party funds and the Company’s proprietary funds. The Company also earns asset management fees for advisory and managed account services, which are based on the daily balances of client assets subject to the specific fee for service. The fair values of client assets, which include proprietary and third-party mutual funds, are primarily based on quoted market prices. Asset management and administration fees may vary with changes in the balances of client assets due to market fluctuations and levels of net new client assets.

The increase in asset management and administration fees from the third quarter and first nine months of 2006 was primarily due to higher mutual fund, advisory, and managed account asset balances. The $87 million, or 22%, and $221 million, or 19%, increase in mutual fund service fees from the third quarter and first nine months of 2006, respectively, was primarily due to a 26% rise in the Company’s proprietary mutual fund asset balances and a 26% increase in asset balances in Schwab’s Mutual Fund OneSource service. The $29 million, or 32%, and $78 million, or 29%, increase in investment management and trust fees from the third quarter and first nine months of 2006, respectively, was primarily due to higher balances of client assets participating in advisory and managed account services programs. At September 30, 2007, the Company’s total client assets increased $263.7 billion, or 22%, from September 30, 2006 due to $129.5 billion of net new client assets and $134.2 billion of net market gains.

Net Interest Revenue

Net interest revenue is the difference between interest earned on certain assets (mainly margin loans to clients, investments of segregated client cash balances, loans to banking clients, and securities available for sale) and interest paid on supporting liabilities (mainly deposits from banking clients and brokerage client cash balances). Net interest revenue is affected by changes in the volume and mix of these assets and liabilities, as well as by fluctuations in interest rates and portfolio management strategies. The Company is positioned so that the consolidated balance sheet produces an increase in net interest revenue when interest rates rise and, conversely, a decrease in net interest revenue when interest rates fall (i.e., interest-earning assets reprice more quickly than interest-bearing liabilities). In the event of falling interest rates, the Company might attempt to mitigate some of this negative impact by extending the maturities of assets in investment portfolios to lock-in asset yields as well as by lowering rates paid to clients on interest-bearing liabilities.

In clearing its clients’ trades, Schwab holds cash balances payable to clients. In most cases, Schwab pays its clients interest on cash balances awaiting investment, and may invest these funds and earn interest revenue. Margin loans arise when Schwab lends funds to clients on a secured basis to purchase securities. Pursuant to SEC regulations, client cash balances that are not used for margin lending are generally segregated into investment accounts that are maintained for the exclusive benefit of clients.

- 26 -

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, and as Noted)

Client-related daily average balances, interest rates, and average net interest spread for the third quarters and first nine months of 2007 and 2006 are summarized in the following table:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Interest-Earning Assets:
Investments of segregated client cash balances:
Average balance outstanding	$	9,400		$	11,492		$	10,301		$	13,372
Average interest rate		5.27	%		5.09	%		5.24	%		4.67	%
Margin loans to clients:
Average balance outstanding	$	10,852		$	10,152		$	10,477		$	10,328
Average interest rate		8.10	%		8.42	%		8.18	%		8.11	%
Securities available for sale:
Average balance outstanding (1)	$	7,803		$	6,721		$	7,206		$	5,868
Average interest rate		5.50	%		5.36	%		5.48	%		5.19	%
Loans to banking clients:
Average balance outstanding	$	2,900		$	2,210		$	2,635		$	2,118
Average interest rate		6.11	%		6.01	%		6.15	%		5.85	%
Funding Sources:
Interest-bearing brokerage client cash balances:
Average balance outstanding	$	14,288		$	16,847		$	14,893		$	18,625
Average interest rate		2.31	%		2.56	%		2.41	%		2.34	%
Interest-bearing banking deposits:
Average balance outstanding (1)	$	12,143		$	9,778		$	11,731		$	8,665
Average interest rate		2.12	%		2.48	%		2.13	%		2.13	%
Other interest-bearing sources:
Average balance outstanding	$	2,069		$	1,737		$	1,949		$	1,848
Average interest rate		1.92	%		2.49	%		2.09	%		2.33	%
Average noninterest-bearing portion	$	2,455		$	2,213		$	2,046		$	2,548
Summary:
Total average balance on interest-earning assets	$	30,955		$	30,575		$	30,619		$	31,686
Average yield on interest-earning assets		6.40	%		6.32	%		6.38	%		5.97	%
Total average balance on funding sources	$	30,955		$	30,575		$	30,619		$	31,686
Average interest rate on funding sources		2.03	%		2.35	%		2.12	%		2.09	%
Average net interest spread		4.37	%		3.97	%		4.26	%		3.88	%

⁽¹⁾ For the 2006 periods and the nine months ended September 30, 2007, amounts include assets and liabilities retained from discontinued operations as discussed below.

The increase in net interest revenue from the third quarter and first nine months of 2006 was primarily due to higher levels of market interest rates and changes in the composition of interest-earning assets, including increases in securities available for sale and loans to banking clients, as well as generally higher yields on earning assets, partially offset by higher average balances on banking deposits. Additionally, the Company’s average net interest spread increased from the third quarter and first nine months of 2006 as the average yield on interest-earning assets increased more than the average interest rate on funding sources. Net interest revenue also increased due to incremental interest revenue generated by temporarily investing the proceeds from the sale of U.S. Trust.

The amount of excess cash held in certain Schwab brokerage client accounts that is swept into money market deposit accounts at Schwab Bank and (through May 2007) at U.S. Trust has increased significantly since the program’s

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THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, and as Noted)

inception in 2003. Average interest-bearing banking deposits increased $2.4 billion, or 24%, to $12.1 billion from the third quarter of 2006, and $3.1 billion, or 35%, to $11.7 billion from the first nine months of 2006. As a result, the average securities available for sale balances increased $1.1 billion, or 16%, to $7.8 billion from the third quarter of 2006, and $1.3 billion, or 23%, to $7.2 billion from the first nine months of 2006, with higher levels of investments in corporate debt and mortgage-backed securities. Meanwhile, average interest-bearing brokerage client cash balances decreased $2.6 billion, or 15%, to $14.3 billion from the third quarter of 2006, and $3.7 billion, or 20%, to $14.9 billion from the first nine months of 2006. The decline in the average interest-bearing brokerage client cash balances led to a corresponding decline of $2.1 billion, or 18%, in average investments of segregated client cash balances to $9.4 billion from the third quarter of 2006, and $3.1 billion, or 23%, to $10.3 billion from the first nine months of 2006.

Certain interest-bearing assets and liabilities of U.S. Trust retained by the Company: The excess cash held in certain Schwab brokerage client accounts was previously swept into a money market deposit account at U.S. Trust. In May 2007, Schwab terminated this arrangement and moved all of these balances to a similar existing arrangement with Schwab Bank. At December 31, 2006, these balances totaled $749 million and were included in deposits from banking clients with a corresponding amount in assets retained from discontinued operations on the Company’s condensed consolidated balance sheets.

Trading Revenue

Trading revenue includes commission revenue (generated by executing client trades) and principal transaction revenues (from client fixed income securities trading activity). The increase in trading revenue from the third quarter and first nine months of 2006 was primarily due to higher average revenue earned per revenue trade and higher daily average revenue trades for the third quarter.

As shown in the following table, daily average revenue trades executed by the Company increased 26% from the third quarter of 2006 and decreased 3% from the first nine months of 2006, while average revenue earned per revenue trade increased 5% and 6% from the third quarter and first nine months of 2006, respectively, primarily due to higher average revenue per trade for fixed income and equity securities trades.

	Three Months						Nine Months
	Ended September 30,				Percent		Ended September 30,				Percent
	2007		2006		Change		2007		2006		Change
Daily average revenue trades (in thousands) (1)		253.5		201.2	26	%		235.1		242.3	(3	%)
Number of trading days		62.5		62.5	—			186.5		187.5	(1	%)
Average revenue earned per revenue trade	$	13.56	$	12.89	5	%	$	14.03	$	13.28	6	%

⁽¹⁾ Includes all client trades that generate trading revenue (i.e., commission revenue or revenue from fixed income securities trading).

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THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, and as Noted)

Expenses Excluding Interest

As shown in the table below, total expenses excluding interest increased in the third quarter and first nine months of 2007 primarily due to higher compensation and benefits expense, advertising and market development expense, and professional services expense.

	Three Months Ended								Nine Months Ended
	September 30,						Percent Change		September 30,						Percent Change
	2007			2006					2007			2006
Compensation and benefits	$	447		$	404		11	%	$	1,326		$	1,220		9	%
Professional services		81			73		11	%		236			207		14	%
Occupancy and equipment		70			64		9	%		208			192		8	%
Advertising and market development		44			31		42	%		162			135		20	%
Communications		50			42		19	%		150			133		13	%
Depreciation and amortization		39			39		—			117			119		(2	%)
Other		48			31		55	%		123			103		19	%
Total expenses excluding interest	$	779		$	684		14	%	$	2,322		$	2,109		10	%
Expenses as a percentage of total net revenues:
Total expenses excluding interest		60.3	%		64.2	%				63.6	%		65.6	%
Advertising and market development		3.4	%		2.9	%				4.4	%		4.2	%

Compensation and Benefits

The increase in compensation and benefits expense from the third quarter and first nine months of 2006 was primarily due to an increase in full-time equivalent employees, and higher payroll taxes, health insurance costs, and 401(k) employer match contributions. The following table shows a comparison of certain compensation and benefits components and employee data:

	Three Months Ended								Nine Months Ended
	September 30,						Percent Change		September 30,						Percent Change
	2007			2006					2007			2006
Salaries and wages	$	234		$	212		10	%	$	711		$	655		9	%
Incentive compensation (1)		149			133		12	%		402			379		6	%
Employee benefits and other		64			59		8	%		213			186		15	%
Total compensation and benefits expense	$	447		$	404		11	%	$	1,326		$	1,220		9	%
Compensation and benefits expense as a percentage of total net revenues:
Salaries and wages		18.1	%		19.9	%				19.5	%		20.4	%
Incentive compensation		11.5	%		12.5	%				11.0	%		11.8	%
Employee benefits and other		5.0	%		5.5	%				5.8	%		5.8	%
Total compensation and benefits expense		34.6	%		37.9	%				36.3	%		38.0	%
Full-time equivalent employees (in thousands)(2)
At quarter end		12.9			12.1		7	%
Average		12.9			12.0		8	%		12.9			11.8		9	%

⁽¹⁾ Includes incentives, discretionary bonus costs, employee stock purchase plan, long-term incentive plan compensation, and stock-based compensation.

⁽²⁾ Includes full-time, part-time and temporary employees, and persons employed on a contract basis, but excludes professional services related to outsourced service providers.

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THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, and as Noted)

For the third quarter and first nine months of 2007, net revenue growth outpaced compensation and benefits expense growth, resulting in a declining ratio of compensation and benefits expense as a percentage of total net revenues.

Expenses Excluding Compensation and Benefits

The increase in professional services expense from the third quarter and first nine months of 2006 was primarily due to increases in fees paid to outsourced service providers and consultants. The increase in advertising and marketing development expense from the third quarter and first nine months of 2006 was primarily due to higher media spending related to the Company’s “Talk to Chuck™” national advertising campaign.

Taxes on Income

The Company’s effective income tax rate on income from continuing operations was 36.9% for the third quarter of 2007, compared to a tax rate of 39.8% for the third quarter of 2006. The Company’s effective income tax rate on income from continuing operations was 38.6% for the first nine months of 2007, compared to a tax rate of 39.6% for the first nine months of 2006. The decrease in the third quarter and first nine months of 2007 was primarily due to a $15 million tax benefit related to the special cash dividend paid on August 24, 2007.

LIQUIDITY AND CAPITAL RESOURCES

CSC conducts substantially all of its business through its wholly-owned subsidiaries. The capital structure among CSC and its subsidiaries is designed to provide each entity with capital and liquidity to meet its operational needs and regulatory requirements.

CSC is a financial holding company, which is a type of bank holding company subject to supervision and regulation by the Board of Governors of the Federal Reserve System (Federal Reserve Board) under the Bank Holding Company Act of 1956, as amended. CSC and its depository institution subsidiary, Schwab Bank, are subject to the Federal Reserve Board’s risk-based and leverage capital guidelines. These regulations require banks and bank holding companies to maintain minimum levels of capital. In addition, Schwab Bank is subject to limitations on the amount of dividends it can pay to CSC. Based on its regulatory capital ratios at September 30, 2007 and December 31, 2006, Schwab Bank is considered well capitalized. At December 31, 2006, United States Trust Company, National Association was also considered well capitalized.

On August 9, 2007, CSC and Schwab Bank filed applications with the Office of Thrift Supervision (OTS) to convert CSC to a savings and loan association holding company and Schwab Bank to a federal savings association. Following these conversions, CSC would cease to be subject to the supervision and regulation of the Federal Reserve and would become subject to supervision by the OTS. Similarly, Schwab Bank would cease to be subject to the supervision and regulation of the Office of the Comptroller of the Currency and would become subject to supervision by the OTS.

Liquidity

CSC

CSC’s liquidity needs are generally met through cash generated by its subsidiaries, as well as cash provided by external financing. Charles Schwab & Co., Inc. (Schwab) and Schwab Bank are subject to regulatory requirements that may restrict them from certain transactions with CSC. Management believes that funds generated by the operations of CSC’s subsidiaries will continue to be the primary funding source in meeting CSC’s liquidity needs, providing adequate liquidity to meet Schwab Bank’s capital guidelines, and maintaining Schwab’s net capital.

CSC has liquidity needs that arise from its Senior Medium-Term Notes, Series A (Medium-Term Notes), as well as from the funding of cash dividends, share repurchases, acquisitions, and other investments. On September 14, 2007, CSC issued $250 million of 6.375% Medium-Term Notes due in 2017. The Medium-Term Notes, of which $502 million was

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THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, and as Noted)

issued and outstanding at September 30, 2007, have maturities ranging from 2007 to 2017 and fixed interest rates ranging from 6.38% to 8.05% with interest payable semiannually. The Medium-Term Notes are rated A2 by Moody’s Investors Service (Moody’s), A- by Standard & Poor’s Ratings Group (S&P), and A by Fitch Ratings, Ltd. (Fitch).

CSC has a prospectus supplement on file with the Securities and Exchange Commission (SEC) enabling CSC to issue up to $750 million in Senior or Senior Subordinated Medium-Term Notes, Series A. At September 30, 2007, $500 million of these notes remained unissued.

CSC has a Registration Statement under the Securities Act of 1933 on Form S-3 on file with the SEC relating to a universal shelf registration for the issuance of up to $1.0 billion aggregate amount of various securities, including common stock, preferred stock, debt securities, and warrants. At September 30, 2007, all of these securities remained unissued. See note “15 – Subsequent Event” in the Notes to the Condensed Consolidated Financial Statements for a discussion of the junior subordinated notes and trust preferred securities issued under this registration statement.

CSC has authorization from its Board of Directors to issue commercial paper up to the amount of CSC’s committed, unsecured credit facility (see below), not to exceed $1.5 billion. At September 30, 2007, no commercial paper has been issued. CSC’s ratings for these short-term borrowings are P-1 by Moody’s, A-2 by S&P, and F1 by Fitch.

CSC maintains an $800 million committed, unsecured credit facility with a group of eighteen banks which is scheduled to expire in June 2008. This facility replaced a similar facility that expired in June 2007. These facilities were unused during the first nine months of 2007. Any issuances under CSC’s commercial paper program will reduce the amount available under this facility. The funds under this facility are available for general corporate purposes and CSC pays a commitment fee on the unused balance of this facility. The financial covenants in this facility require CSC to maintain a minimum level of stockholders’ equity, Schwab to maintain a minimum net capital ratio, as defined, and CSC’s depository institution subsidiaries to be well capitalized, as defined. Management believes that these restrictions will not have a material effect on its ability to meet foreseeable dividend or funding requirements.

CSC also has direct access to $811 million of the $861 million uncommitted, unsecured bank credit lines, provided by eight banks that are primarily utilized by Schwab to manage short-term liquidity. The amount available to CSC under these lines is lower than the amount available to Schwab because the credit line provided by one of these banks is only available to Schwab. These lines were not used by CSC during the first nine months of 2007.

In addition, Schwab provides CSC with a $1.0 billion credit facility maturing in 2009. No funds were drawn under this facility at September 30, 2007.

Schwab

Liquidity needs relating to client trading and margin borrowing activities are met primarily through cash balances in brokerage client accounts, which were $18.4 billion and $19.9 billion at September 30, 2007 and December 31, 2006, respectively. Management believes that brokerage client cash balances and operating earnings will continue to be the primary sources of liquidity for Schwab in the future.

The Company has a lease financing liability related to an office building and land under a 20-year lease. The remaining lease financing liability of $122 million at September 30, 2007 is being reduced by a portion of the lease payments over the remaining lease term.

To manage short-term liquidity, Schwab maintains uncommitted, unsecured bank credit lines with a group of eight banks totaling $861 million at September 30, 2007. The need for short-term borrowings arises primarily from timing differences between cash flow requirements, scheduled liquidation of interest-bearing investments, and movements of cash to meet segregation requirements. Schwab used such borrowings for twelve days during the first nine months of 2007, with daily amounts borrowed averaging $213 million. There were no borrowings outstanding under these lines at September 30, 2007.

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THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, and as Noted)

To satisfy the margin requirement of client option transactions with the Options Clearing Corporation (OCC), Schwab has unsecured letter of credit agreements with twelve banks in favor of the OCC aggregating $1.2 billion at September 30, 2007. Schwab pays a fee to maintain these arrangements. In connection with its securities lending activities, Schwab is required to provide collateral to certain brokerage clients. Schwab satisfies the collateral requirements by arranging letters of credit (LOCs), in favor of these brokerage clients, which are issued by multiple banks. Schwab also pays a fee to maintain these arrangements. At September 30, 2007, the aggregate face amount of these outstanding LOCs totaled $218 million. No funds were drawn under these LOCs at September 30, 2007.

Schwab is subject to regulatory requirements that are intended to ensure the general financial soundness and liquidity of broker-dealers. These regulations prohibit Schwab from repaying subordinated borrowings to CSC, paying cash dividends, or making unsecured advances or loans to its parent or employees if such payment would result in net capital of less than 5% of aggregate debit balances or less than 120% of its minimum dollar requirement of $250,000. At September 30, 2007, Schwab’s net capital was $1.2 billion (10% of aggregate debit balances), which was $946 million in excess of its minimum required net capital and $596 million in excess of 5% of aggregate debit balances. Schwab targets net capital to be approximately 10% of its aggregate debit balances, which primarily consist of client margin loans.

To manage Schwab’s regulatory capital requirement, CSC provides Schwab with a $1.4 billion subordinated revolving credit facility which is scheduled to expire in March 2008. The amount outstanding under this facility at September 30, 2007 was $220 million. Borrowings under this subordinated lending arrangement qualify as regulatory capital for Schwab.

In addition, CSC provides Schwab with a $1.0 billion credit facility maturing in 2009. Borrowings under this facility do not qualify as regulatory capital for Schwab. No funds were drawn under this facility at September 30, 2007.

Schwab Bank

Schwab Bank’s current liquidity needs are generally met through deposits from banking clients and equity capital.

The excess cash held in certain Schwab brokerage client accounts is swept into a money market deposit account at Schwab Bank. At September 30, 2007, these balances totaled $11.5 billion.

Schwab Bank has access to traditional funding sources such as deposits, federal funds purchased, and repurchase agreements. Additionally, CSC provides Schwab Bank with a $100 million short-term credit facility maturing in December 2007. Borrowings under this facility do not qualify as regulatory capital for Schwab Bank. No funds were drawn under this facility at September 30, 2007.

Schwab Bank maintains a credit facility with the Federal Home Loan Bank System (FHLB). At September 30, 2007, $622 million was available, and no funds were drawn under this facility.

Concentration Risk

The Company’s most significant concentration of risk is its exposure to securities issued or collateralized by the U.S. Government and its agencies (U.S. Government securities). The Company’s direct market risk exposure, primarily from investments in securities available for sale, amounted to $3.1 billion at September 30, 2007. The Company maintains indirect exposure to U.S. Government securities held as collateral to secure its resale agreements. The Company’s primary credit exposure on these resale transactions is with its counterparty. The Company would have exposure to the U.S. Government securities only in the event of the counterparty’s default on the resale agreements. U.S. Government securities held as collateral for resale agreements at September 30, 2007 totaled $2.8 billion.

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THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, and as Noted)

Capital Resources

The Company monitors both the relative composition and absolute level of its capital structure. Management is focused on limiting the Company’s use of capital and currently targets a long-term debt to total financial capital ratio of less than 30%. The Company’s total financial capital (long-term debt plus stockholders’ equity) at September 30, 2007 was $4.0 billion, down $1.4 billion, or 26%, from December 31, 2006. The decline in the Company’s total financial capital was primarily due to the repurchase of shares under the Tender Offer and Stock Purchase Agreement with Mr. Schwab and certain additional stockholders and the $1.00 per common share special dividend paid in August 2007, offset by the issuance of $250 million of senior medium-term notes and the gain realized on the sale of U.S. Trust.

At September 30, 2007, the Company had long-term debt of $625 million, or 16% of total financial capital, that bears interest at a weighted-average rate of 6.77%. At December 31, 2006, the Company had long-term debt of $388 million, or 7% of total financial capital. The Company repaid $10 million and $68 million of long-term debt in 2007 and 2006, respectively.

The Company’s cash position (reported as cash and cash equivalents on its condensed consolidated balance sheet) and cash flows are affected by changes in brokerage client cash balances and the associated amounts required to be segregated under federal or other regulatory guidelines. Timing differences between cash and investments actually segregated on a given date and the amount required to be segregated for that date may arise in the ordinary course of business and are addressed by the Company in accordance with applicable regulations. Other factors which affect the Company’s cash position and cash flows include investment activity in securities, levels of capital expenditures, acquisition and divestiture activity, banking client deposit activity, brokerage and banking client loan activity, financing activity in long-term debt, payments of dividends, and repurchases of CSC’s common stock. The combination of these factors can cause significant fluctuations in the levels of cash and cash equivalents during specific time periods.

Capital Expenditures

In the first nine months of 2007 and 2006, the Company’s capital expenditures were $116 million and $81 million, respectively. In the first nine months of 2006, the Company sold a data center for $62 million. Capital expenditures in the first nine months of 2007 and 2006 were primarily for software and equipment relating to the Company’s information technology systems. Capital expenditures include capitalized costs for developing internal-use software of $43 million in the first nine months of 2007 and $27 million in the first nine months of 2006.

Dividends

During the first nine months of 2007 and 2006, CSC paid common stock cash dividends of $1.4 billion and $109 million, respectively, which included a special cash dividend in 2007 of $1.2 billion. The special cash dividend of $1.00 per common share was paid on August 24, 2007, to stockholders of record on July 24, 2007.

Share Repurchases

During the first nine months of 2007, CSC repurchased 135 million shares of its common stock, including shares repurchased under the Tender Offer and Stock Purchase Agreement described below for $2.7 billion. CSC repurchased 46 million shares of its common stock for $746 million in the first nine months of 2006. As of September 30, 2007, CSC had remaining authority from the Board of Directors to repurchase up to $446 million of its common stock.

- 33 -

THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, and as Noted)

On July 31, 2007, CSC concluded a share repurchase through a Tender Offer. CSC accepted for purchase 84 million shares of its common stock at a price of $20.50 per share, for a total purchase price of $1.7 billion. Pursuant to the tender offer rules, CSC was prohibited from making open market repurchases of its common stock during the Tender Offer period and until August 15, 2007.

Under the Stock Purchase Agreement executed on July 2, 2007 with Chairman and CEO Charles R. Schwab, CSC’s largest stockholder, and with certain additional stockholders whose shares Mr. Schwab is deemed to beneficially own, CSC purchased 18 million shares at a price of $20.50 per share for a total of $369 million.

Acquisition and Divestiture

On July 1, 2007, the Company completed the sale of U.S. Trust to Bank of America and received proceeds of $3.3 billion.

On March 31, 2007, the Company completed its acquisition of The 401(k) Company for $115 million in cash.

Off-Balance-Sheet Arrangements

The Company enters into various off-balance-sheet arrangements in the ordinary course of business, primarily to meet the needs of its clients. These arrangements include firm commitments to extend credit. Additionally, the Company enters into guarantees and other similar arrangements as part of transactions in the ordinary course of business. For discussion on the Company’s off-balance-sheet arrangements, see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, and note “9 – Commitments and Contingent Liabilities” in the Notes to Condensed Consolidated Financial Statements.

RISK MANAGEMENT

For discussion on the Company’s principal risks and some of the policies and procedures for risk identification, assessment, and management, see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. For a discussion on liquidity risk, see “Item 1A – Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. See “Item 3 – Quantitative and Qualitative Disclosures About Market Risk” for additional information relating to market risk.

Given the nature of the Company’s net revenues, expenses, and risk profile, the Company’s earnings and CSC’s common stock price have been and may continue to be subject to significant volatility from period to period. The Company’s results for any interim period are not necessarily indicative of results for a full year or any other interim period. Risk is inherent in the Company’s business. Consequently, despite the Company’s attempts to identify areas of risk, oversee operational areas involving risk, and implement policies and procedures designed to manage risk, there can be no assurance that the Company will not suffer unexpected losses due to operating or other risks.

CRITICAL ACCOUNTING ESTIMATES

Certain of the Company’s accounting policies that involve a higher degree of judgment and complexity are discussed in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. There have been no material changes to these critical accounting estimates during the first nine months of 2007.

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THE CHARLES SCHWAB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Millions, Except Ratios, and as Noted)

As disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, the Company’s annual goodwill impairment testing date is April 1. In testing for a potential impairment of goodwill on April 1, 2007, management estimated the fair value of each of the Company’s reporting units (generally defined as the Company’s businesses for which financial information is available and reviewed regularly by management) and compared this value to the carrying value of the reporting unit. The estimated fair value of each reporting unit was greater than its carrying value, and therefore management concluded that no amount of goodwill was impaired.

FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” “estimate,” “aim,” “target,” and other similar expressions. In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances are forward-looking statements.

These forward-looking statements, which reflect management’s beliefs, objectives, and expectations as of the date hereof, are necessarily estimates based on the best judgment of the Company’s senior management. These statements relate to, among other things:

• the outcome of audits of federal and state tax returns and the impact of changes in unrecognized tax benefits on the Company’s results of operations (see note “5 – Taxes on Income” in the Notes to Condensed Consolidated Financial Statements);

• the impact of changes in the likelihood of indemnification and guarantee payment obligations on the Company’s results of operations (see note “9 – Commitments and Contingent Liabilities” in the Notes to Condensed Consolidated Financial Statements);

• the impact of legal proceedings and regulatory matters (see note “9 – Commitments and Contingent Liabilities” in the Notes to Condensed Consolidated Financial Statements and Part II – Other Information, Item 1 – Legal Proceedings);

• the impact of changes in estimated costs related to past restructuring initiatives on the Company’s results of operations (see note “14 – Restructuring Reserve” in the Notes to Condensed Consolidated Financial Statements);

• sources of liquidity and capital (see Liquidity and Capital Resources); and

• target capital ratios (see Liquidity and Capital Resources).

Achievement of the expressed beliefs, objectives, and expectations described in these statements is subject to certain risks and uncertainties that could cause actual results to differ materially from the expressed beliefs, objectives, and expectations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or, in the case of documents incorporated by reference, as of the date of those documents.

Important factors that may cause such differences are noted in this interim report and include, but are not limited to:

• unanticipated adverse developments in litigation or regulatory matters;

• the Company’s ability to sublease certain properties;

• the amount of loans to the Company’s banking and brokerage clients;

• the level of the Company’s stock repurchase activity;

• the timing and impact of the settlement of tax audits; and

• potential breaches of contractual terms for which the Company has indemnification obligations.

Certain of these factors, as well as general risk factors affecting the Company, are discussed in greater detail in “Item 1A – Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

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THE CHARLES SCHWAB CORPORATION

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the potential for loss due to a change in the value of a financial instrument held by the Company as a result of fluctuations in interest rates or equity prices.

For the Company’s market risk related to its interest rate risk, it has disclosed below a sensitivity analysis, referred to as a net interest revenue simulation model. The Company is exposed to interest rate risk primarily from changes in the interest rates on its interest-earning assets (mainly margin loans to clients, investments, loans to banking clients, mortgage-backed securities, and other fixed-rate investments) and its funding sources (including brokerage client cash balances, banking deposits, proceeds from stock-lending activities, and long-term debt) which finance these assets. To mitigate the risk of loss, the Company has established policies and procedures which include setting guidelines on the amount of net interest revenue at risk, and by monitoring the net interest margin and average maturity of its interest-earning assets and funding sources. To remain within these guidelines, the Company manages the maturity, repricing, and cash flow characteristics of the investment portfolios. The Company also has the ability to adjust the rates paid on certain brokerage client cash balances and certain banking deposits and the rates charged on margin loans.

The Company has market risk as a result of fluctuations in equity prices. However, the Company’s exposure to equity prices is not material. Additionally, the Company’s market risk related to financial instruments held for trading, financial instruments held for purposes other than trading, interest rate swaps related to a portion of its fixed interest rate medium-term notes, and forward sale and interest rate lock commitments related to its loans held for sale portfolio is not material.

Net Interest Revenue Simulation

The Company uses net interest revenue simulation modeling techniques to evaluate and manage the effect of changing interest rates. The simulation model (the model) includes all interest-sensitive assets and liabilities, as well as Swaps utilized by the Company to hedge its interest rate risk. Key variables in the model include the repricing of financial instruments, prepayment and reinvestment assumptions, and product pricing assumptions. Historically, the Company included additional variables (e.g., changes in the balances of client loans, deposits, brokerage client cash, and changes in the level and term structure of interest rates) in the model assumptions. Effective in 2007 for all periods presented, the Company uses constant balances and market rates in the model assumptions in order to minimize the number of variables and to better isolate risks. The simulations involve assumptions that are inherently uncertain and, as a result, cannot precisely estimate net interest revenue or precisely predict the impact of changes in interest rates on net interest revenue. Actual results may differ from simulated results due to balance growth or decline, the timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies, including changes in asset and liability mix.

As demonstrated by the simulations presented below, the Company is positioned so that the consolidated balance sheet produces an increase in net interest revenue when interest rates rise and, conversely, a decrease in net interest revenue when interest rates fall (i.e., interest-earning assets are repricing more quickly than interest-bearing liabilities).

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THE CHARLES SCHWAB CORPORATION

The simulations in the following table assume that the asset and liability structure of the consolidated balance sheet would not be changed as a result of the simulated changes in interest rates. As the Company actively manages its consolidated balance sheet and interest rate exposure, in all likelihood the Company would take steps to manage any additional interest rate exposure that could result from changes in the interest rate environment. The following table shows the results of a gradual 200 basis point increase or decrease in interest rates relative to the Company’s current market rates forecast on simulated net interest revenue over the next twelve months at September 30, 2007 and December 31, 2006.

Percentage Increase (Decrease)	September 30, 2007		December 31, 2006
Increase of 200 basis points	6.9	%	7.4	%
Decrease of 200 basis points	(5.4	%)	(5.5	%)

The simulations show a decrease in exposure to rate changes at September 30, 2007 from December 31, 2006, and the Company remains positioned to experience increases in net interest revenue as rates rise and decreases as rates fall.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures: The management of the Company with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of September 30, 2007. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2007.

Changes in internal control over financial reporting: No change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) was identified during the quarter ended September 30, 2007 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company is subject to claims and lawsuits in the ordinary course of its business, including arbitrations, class actions, and other litigation, some of which include claims for substantial or unspecified damages. The Company is also the subject of inquiries, investigations, and proceedings by various regulatory and other governmental agencies. In addition, the Company is responding to certain litigation claims brought against former subsidiaries pursuant to indemnities it has provided to purchasers of those entities. Certain of these matters are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

The Company believes it has strong defenses in all significant matters currently pending and is vigorously contesting liability and the damages claimed. Nevertheless, some of these matters may result in adverse judgments or awards, including penalties, injunctions, or other relief, and the Company may also determine to settle a matter because of the uncertainty and risks of litigation. Predicting the outcome of a matter is inherently difficult, particularly where claimants seek substantial or unspecified damages, or when investigations or legal proceedings are at an early stage. In many cases, it is not possible to determine whether a loss will be incurred or to estimate the range of that loss until the matter is close to resolution. However, based on current information and consultation with counsel, management believes that the resolution of matters currently pending will not have a material adverse impact on the financial

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THE CHARLES SCHWAB CORPORATION

condition or cash flows of the Company, but could be material to the Company’s operating results for a particular future period, depending on results for that period.

Item 1A. Risk Factors

During the first nine months of 2007, there have been no material changes to the risk factors in “Item 1A – Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) Issuer Purchases of Equity Securities

The following table summarizes purchases made by or on behalf of CSC of its common stock for each calendar month in the third quarter of 2007.

Month	Total Number of Shares Purchased (in thousands)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program (in thousands)	Approximate Dollar Value of Shares that May Yet be Purchased under the Program (in millions)
July:
Share Repurchase Program (1)	—	$	—	—	$	446
Employee Transactions (2)	578	$	21.46	N/A		N/A
August:
Share Repurchase Program (1)	—	$	—	—	$	446
Employee Transactions (2)	4	$	19.17	N/A		N/A
Tender Offer (3)	84,000	$	20.50	84,000	$	—
Stock Purchase Agreement (3)	18,000	$	20.50	18,000	$	—
September:
Share Repurchase Program (1)	—	$	—	—	$	446
Employee Transactions (2)	5	$	19.91	N/A		N/A
Total:
Share Repurchase Program (1)	—	$	—	—	$	446
Employee Transactions (2)	587	$	20.18	N/A		N/A
Tender Offer (3)	84,000	$	20.50	84,000	$	—
Stock Purchase Agreement (3)	18,000	$	20.50	18,000	$	—

N/A Not applicable.

⁽¹⁾ All shares were repurchased under authorizations by CSC’s Board of Directors covering up to $500 million of common stock publicly announced by the Company on April 25, 2007. The remaining authorization does not have an expiration date.

⁽²⁾ Includes restricted shares withheld (under the terms of grants under employee stock incentive plans) to offset tax withholding obligations that occur upon vesting and release of restricted shares. The Company may receive shares to pay the exercise price and/or to satisfy tax withholding obligations by employees who exercise stock options (granted under employee stock incentive plans), which are commonly referred to as stock swap exercises.

⁽³⁾ All shares were repurchased under authorization by CSC’s Board of Directors which was publicly announced on July 2, 2007, for up to 84 million shares for the Tender Offer and 18 million shares for the Stock Purchase Agreement with Charles R. Schwab and with certain additional shareholders whose shares Mr. Schwab is deemed to beneficially own.

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THE CHARLES SCHWAB CORPORATION

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

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THE CHARLES SCHWAB CORPORATION

Item 6. Exhibits

The following exhibits are filed as part of this Quarterly Report on Form 10-Q.

Exhibit Number	Exhibit
10.242	The Charles Schwab Corporation 1987 Stock Option Plan, amended and restated as of September 25, 2002, with form of Non-Qualified Stock Option Agreement attached (supersedes Exhibit 10.222), filed as Exhibit 10.242 to the Registrant’s Form 10-Q for the quarter ended September 30, 2007.	(2)
10.243	The Charles Schwab Corporation 1987 Executive Officer Stock Option Plan, amended and restated as of September 25, 2002, with form of Non-Qualified Stock Option Agreement attached (supersedes Exhibit 10.223), filed as Exhibit 10.243 to the Registrant’s Form 10-Q for the quarter ended September 30, 2007.	(2)
10.244	The Charles Schwab Corporation 1992 Stock Incentive Plan, amended and restated as of September 25, 2002 (supersedes Exhibit 10.224), filed as Exhibit 10.244 to the Registrant’s Form 10-Q for the quarter ended September 30, 2007.	(2)
10.298	Directed Employee Benefit Trust Agreement under the SchwabPlan Retirement Savings and Investment Plan dated August 17, 2007 (supersedes exhibits 10.87, 10.101, 10.116, 10.169 and 10.202).	(2)
10.299	Amendment to Credit Agreement (364-Day Commitment) dated as of June 15, 2007 between the Registrant and the financial institutions listed therein, dated August 3, 2007.
12.1	Computation of Ratio of Earnings to Fixed Charges.
31.1	Certification Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
31.2	Certification Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
32.1	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.	(1)
32.2	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.	(1)

(1) Furnished as an exhibit to this quarterly report on Form 10-Q.

(2) Management contract or compensatory plan.

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THE CHARLES SCHWAB CORPORATION

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	THE CHARLES SCHWAB CORPORATION
	(Registrant)
Date: November 7, 2007	/s/ Joseph R. Martinetto
	Joseph R. Martinetto
	Executive Vice President and
	Chief Financial Officer

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EX-10.242

Exhibit 10.242

THE CHARLES SCHWAB CORPORATION

1987 STOCK OPTION PLAN

(Restated to include Amendments through September 25, 2002)

Article 1.    Introduction.

The purpose of the 1987 Stock Option Plan, as Amended and Restated (the “Plan”) is to enable The Charles Schwab Corporation and its subsidiaries to attract and retain directors, officers, and other key employees and to provide such persons with additional incentive to advance the interests of the Company. The Plan was initially adopted on March 24, 1987, and was amended on July 29, 1987, April 17, 1989, September 17, 1996 and October 22, 1997. The Plan is hereby restated and amended as of October 22, 1997, and the terms of this Restatement shall apply to all awards granted under the Plan on or after such date. The Plan shall terminate not more than ten (10) years from the date the Plan initially was adopted. The Plan will provide for Awards in the form of Restricted Shares, Performance Share Awards or Options, which may constitute incentive stock options or nonstatutory stock options. The Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware.

Article 2.    Administration.

2.1 The Committee.    The Plan shall be administered by the Committee. The Committee shall consist of two or more Non-Employee Directors, who shall be appointed by the Board.

2.2    Committee Responsibilities.    The Committee shall select the Key Employees who are to receive Awards under the Plan, determine the amount, vesting requirements and other conditions of such Awards, may interpret the Plan, and make all other decisions relating to the operation of the Plan. The Committee may adopt such rules or guidelines as it deems appropriate to implement the Plan. The Committee’s determinations under the Plan shall be final and binding on all persons.

Article 3.    Limitation on Awards.

The aggregate number of Restricted Shares, Performance Share Awards and Options awarded under the Plan shall not exceed 1,616,000 (including those shares awarded prior to the amendment of the Plan). If any Restricted Shares, Performance Share Awards or Options are forfeited, or if any Performance Share Awards terminate for any other reason without the associated Common Shares being issued, or if any Options terminate for any other reason before being exercised, then such Restricted Shares, Performance Share Awards or Options shall again become available for Awards under the Plan. The limitation of this Article 3 shall be subject to adjustment pursuant to Article 10. Any Common Shares issued pursuant to the Plan may be authorized but unissued shares or treasury shares.

Article 4.    Eligibility.

4.1 General Rule.    Key Employees shall be eligible for designation as Participants by the Committee.

4.2 Ten-Percent Stockholders.    A Key Employee who owns more than 10 percent of the total combined voting power of all classes of outstanding stock of the Company or any of its Subsidiaries shall not be eligible for the grant of an ISO unless (a) the Exercise price under such ISO is at least 110 percent of the Fair Market Value of a Common Share on the date of grant and (b) such ISO by its terms is not exercisable after the expiration of five years from the date of grant.

4.3 Attribution Rules.    For purposes of Section 4.2, in determining stock ownership, a Key Employee shall be deemed to own the stock owned, directly or indirectly, by or for his or her brothers, sisters, spouse, ancestors or lineal descendants. Stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be deemed to be owned proportionately by or for its stockholders, partners or beneficiaries. Stock with respect to which the Key Employee holds an option shall not be counted.

4.4 Outstanding Stock.    For purposes of Section 4.2, “outstanding stock” shall include all stock actually issued and outstanding immediately after the grant of the ISO to the Key Employee. “Outstanding stock” shall not include treasury shares or shares authorized for issuance under outstanding options held by the Key Employee or by any other person.

Article 5. Options.

5.1 Stock Option Agreement. Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company. Such Option shall be subject to all applicable terms and conditions of the Plan, and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Committee deems appropriate for inclusion in a Stock Option Agreement. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical. The Committee may designate all or any part of an Option as an ISO. The Committee may designate all or any part of an Option as an ISO (or, in the case of a Key Employee who is subject to the tax laws of a foreign jurisdiction, as an option qualifying for favorable tax treatment under the laws of such foreign jurisdiction).

5.2 Options Nontransferability.    No Option granted under the Plan shall be transferable by the Optionee other than by will or the laws of descent and distribution. An Option may be exercised during the lifetime of the Optionee only by him or her. No Option or interest therein may be transferred, assigned, pledged or hypothecated by the Optionee during his or her lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process.

5.3 Number of Shares.    Each Stock Option Agreement shall specify the number of Common Shares subject to the Option and shall provide for the adjustment of such number in accordance with Article 10. Each Stock Option Agreement shall also specify whether the Option is an ISO or an NSO.

5.4 Exercise Price.    Each Stock Option Agreement shall specify the Exercise Price. The Exercise Price under an Option shall not be less than 100 percent of the Fair Market Value of a Common Share on the date of grant, except as otherwise provided in Section 4.2. Subject to the preceding sentence, the Exercise Price under any Option shall be determined by the Committee. The Exercise Price shall be payable in accordance with Article 6.

5.5    Exercisability and Term. Each Stock Option Agreement shall specify the date when all or any installment of the Option is to become exercisable. The Stock Option Agreement shall also specify the term of the Option. The term of an ISO shall in no event exceed 10 years from the date of grant, and Section 4.2 may require a shorter term. Subject to the preceding sentence, the Committee shall determine when all or any part of an Option is to become exercisable and when such Option is to expire; provided that, in appropriate cases, the Company shall have the discretion to extend the term of an Option or the time within which, following termination of employment, an Option may be exercised, or to accelerate the exercisability of an Option. A Stock Option Agreement may provide for expiration prior to the end of its term in the event of the termination of the Optionee’s employment and shall provide for the suspension of vesting when an employee is on a leave of absence for a period in excess of six months in appropriate cases, as determined by the Company; provided that the exercisability of Options shall be accelerated in the event of the Participant’s death or Disability and, in the case of Retirement, the exercisability of all outstanding Options shall be accelerated, other than any Options that had been granted within two years of the date of the Optionee’s Retirement. NSOs may also be awarded in combination with Restricted Shares, and such an Award may provide that the NSOs will not be exercisable unless the related Restricted Shares are forfeited. In addition, NSOs granted under this Section 5 may be granted subject to forfeiture provisions which provide for forfeiture of the Option upon the exercise of tandem awards, the terms of which are established in other programs of the Company.

5.6    Limitation on Amount of ISOs.    The aggregate fair market value (determined at the time the ISO is granted) of the Common Shares with respect to which ISOs are exercisable for the first time by the Optionee during any calendar year (under all incentive stock option plans of the Company) shall not exceed $100,000; provided, however, that all or any portion of an Option which cannot be exercised as an ISO because of such limitation shall be treated as an NSO.

5.7    Effect of Change in Control. The Committee (in its sole discretion) may determine, at the time of granting an Option, that such Option shall become fully exercisable as to all Common Shares subject to such Option immediately preceding any Change in Control with respect to the Company.

5.8    Restrictions on Transfer of Common Shares.    Any Common Shares issued upon exercise of an Option shall be subject to such special forfeiture conditions, rights of repurchase, rights of first refusal and other transfer restrictions as the Committee may determine. Such restrictions shall be set forth in the applicable Stock Option Agreement and shall apply in addition to any general restrictions that may apply to all holders of Common Shares.

5.9    Authorization of Replacement Options.    Concurrently with the grant of any Option to a Participant, the Committee may authorize the grant of Replacement Options. If Replacement Options have been authorized by the Committee with respect to a particular award of Options (the “Underlying Options”), the Option Agreement with respect to the Underlying Options shall so state, and the terms and conditions of the Replacement Options shall be provided therein. The grant of any Replacement Options shall be effective only upon the exercise of the Underlying Options through the use of Common Shares pursuant to Section 6.2 or Section 6.3. The number of Replacement Options shall equal the number of Common Shares used to exercise the Underlying Options, and, if the Option Agreement so provides, the number of Common Shares used to satisfy any tax withholding requirements incident to the exercise of the Underlying Options

in accordance with Section 12.2. Upon the exercise of the Underlying Options, the Replacement Options shall be evidenced by an amendment to the Underlying Option Agreement. Notwithstanding the fact that the Underlying Option may be an ISO, a Replacement Option is not intended to qualify as an ISO. The Exercise Price of a Replacement Option shall be no less than the Fair Market Value of a Common Share on the date the grant of the Replacement Option becomes effective. The term of each Replacement Option shall be equal to the remaining term of the Underlying Option. No Replacement Options shall be granted to Optionees when Underlying Options are exercised pursuant to the terms of the Plan and the Underlying Option Agreement following termination of the Optionee’s employment. The Committee, in its sole discretion, may establish such other terms and conditions for Replacement Options as it deems appropriate.

5.10 Options Granted to Non-United States Key Employees. In the case of Key Employees who are subject to the tax laws of a foreign jurisdiction, the Company may issue Options to such Key Employees that contain terms required to conform with any requirements for favorable tax treatment imposed by the laws of such foreign jurisdiction, or as otherwise may be required by the laws of such foreign jurisdiction. The terms of any such Options shall be governed by the Plan, subject to the terms of any Addendum to the Plan specifically applicable to such Options.

5.11 Effect of Job Elimination. Notwithstanding anything to the contrary contained in the Plan or in any Stock Option Agreement or Stock Award Agreement entered into with respect to an Award pursuant to the Plan, in the case of a Participant who is an Officer, and who becomes entitled to receive payments with respect to a Severance Period pursuant to the Charles Schwab Severance Pay Plan (the “Severance Plan”) on account of a Job Elimination, the terms of the Plan and any Stock Option Agreement or Stock Award Agreement entered into with respect to an Award shall be applied by treating the Participant as if the Participant had terminated employment on the Participant’s Termination Date. For purposes of applying this Section, the terms Officer, Severance Period, Termination Date, and Job Elimination shall have the meanings set forth in the Severance Plan.

Article 6.    Payment for Option Shares.

6.1 General Rule.    The entire Exercise Price of Common Shares issued upon exercise of Options shall be payable in cash at the time when such Common Shares are purchased, except as follows:

(a) In the case of an ISO granted under the Plan, payment shall be made only pursuant to the express provisions of the applicable Stock Option Agreement. However, the Committee may specify in the Stock Option Agreement that payment may be made pursuant to Section 6.2 or 6.3.

(b) In the case of an NSO, the Committee may at any time accept payment pursuant to Section 6.2 or 6.3.

6.2 Surrender of Stock.    To the extent that this Section 6.2 is applicable, payment for all or any part of the Exercise Price may be made with Common Shares which are surrendered to the Company. Such Common Shares shall be valued at their Fair Market Value on the date when the new Common Shares are purchased under the Plan. In the event that the Common Shares being surrendered are Restricted Shares that have not yet become vested, the same restrictions shall be imposed upon the new Common Shares being purchased.

6.3    Exercise/Sale.    To the extent this Section 6.3 is applicable, payment may be made by the delivery (on a form prescribed by the Company) of an irrevocable direction to Charles Schwab & Co., Inc. to sell Common Shares (including the Common Shares to be issued upon exercise of the Options) and to deliver all or part of the sales proceeds to the Company in payment of all or part of the Exercise Price and any withholding taxes.

Article 7.    Restricted Shares and Performance Share Awards.

7.1 Time, Amount and Form of Awards.    The Committee may grant Restricted Shares or Performance Share Awards with respect to an Award Year during such Award Year or at any time thereafter. Each such Award shall be evidenced by a Stock Award Agreement between the Award recipient and the Company. The amount of each Award of Restricted Shares or Performance Share Awards shall be determined by the Committee. Awards under the Plan may be granted in the form of Restricted Shares or Performance Share Awards or in any combination thereof, as the Committee shall determine at its sole discretion at the time of the grant. Restricted Shares or Performance Share Awards may also be awarded in combination with NSOs, and such an Award may provide that the Restricted Shares or Performance Share Awards will be forfeited in the event that the related NSOs are exercised.

7.2 Payment for Restricted Share Awards.    To the extent that an Award is granted in the form of Restricted Shares, the Award recipient, as a condition to the grant of such Award, shall be required to pay the Company in cash an amount equal to the par value of such Restricted Shares.

7.3 Vesting or Issuance Conditions.    Each Award of Restricted Shares shall become vested, in full or in installments, upon satisfaction of the conditions specified in the Stock Award Agreement. Common Shares shall be issued pursuant to Performance Share Awards in full or in installments upon satisfaction of the issuance conditions specified in the Stock Award Agreement. The Committee shall select the vesting conditions in the case of Restricted Shares, or issuance conditions in the case of Performance Share Awards, which may be based upon the Participant’s service, the Participant’s performance, the Company’s performance or such other criteria as the Committee may adopt; provided that, in the case of an Award of Restricted Shares where vesting is based entirely on the Participant’s service, (i) vesting shall be accelerated in the event of the Participant’s death or Disability; (ii) in the case of Retirement, vesting shall be accelerated for all Restricted Shares that had been granted more than two years prior to the date of the Participant’s Retirement; and (iii) vesting shall be suspended when an employee is on a leave of absence for a period in excess of six months in appropriate cases, as determined by the Company. The Committee, in its sole discretion, may determine, at the time of making an Award of Restricted Shares, that such Award shall become fully vested in the event that a Change in Control occurs with respect to the Company. The Committee, in its sole discretion, may determine, at the time of making a Performance Share Award, that the issuance conditions set forth in such Award shall be waived in the event that a Change in Control occurs with respect to the Company.

7.4 Form of Settlement of Performance Share Awards.    Settlement of Performance Share Awards shall only be made in the form of Common Shares. Until a Performance Share Award is settled, the number of Performance Share Awards shall be subject to adjustment pursuant to Article 10.

7.5 Death of Recipient. Any Common Shares that are to be issued pursuant to a Performance Share Award after the recipient’s death shall be delivered or distributed to the recipient’s beneficiary or beneficiaries. Each recipient of a Performance Share Award under the Plan shall designate one or more beneficiaries for this purpose by filing the prescribed form with the Company. A beneficiary designation may be changed by filing the prescribed form with the Company at any time before the Award recipient’s death. If no beneficiary was designated or if no designated beneficiary survives the Award recipient, then any Common Shares that are to be issued pursuant to a Performance Share Award after the recipient’s death shall be delivered or distributed to the recipient’s estate. The Committee, in its sole discretion, shall determine the form and time of any distribution(s) to a recipient’s beneficiary or estate.

Article 8.    Claims Procedures.

Claims for benefits under the Plan shall be filed in writing with the Committee on forms supplied by the Committee. Written notice of the disposition of a claim shall be furnished to the claimant within 90 days after the claim is filed. If the claim is denied, the notice of disposition shall set forth the specific reasons for the denial, citations to the pertinent provisions of the Plan, and, where appropriate, an explanation as to how the claimant can perfect the claim. If the claimant wishes further consideration of his or her claim, the claimant may appeal a denied claim to the Committee (or to a person designated by the Committee) for further review. Such appeal shall be filed in writing with the Committee on a form supplied by the Committee, together with a written statement of the claimant’s position, no later than 90 days following receipt by the claimant of written notice of the denial of his or her claim. If the claimant so requests, the Committee shall schedule a hearing. A decision on review shall be made after a full and fair review of the claim and shall be delivered in writing to the claimant no later than 60 days after the Committee’s receipt of the notice of appeal, unless special circumstances (including the need to hold a hearing) require an extension of time for processing the appeal, in which case a written decision on review shall be delivered to the claimant as soon as possible but not later than 120 days after the Committee’s receipt of the appeal notice. The claimant shall be notified in writing of any such extension of time. The written decision on review shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, and shall specifically refer to the pertinent Plan provisions on which it is based. All determinations of the Committee shall be final and binding on Participants and their beneficiaries.

Article 9.    Voting Rights and Dividends.

9.1 Restricted Shares.

(a) All holders of Restricted Shares who are not Named Executive Officers shall have the same voting, dividend, and other rights as the Company’s other stockholders.

(b) During the period of restriction, Named Executive Officers holding Restricted Shares granted hereunder shall be credited with all regular cash dividends paid with respect to all Restricted Shares while they are so held. If a dividend is paid in the form of cash, such cash dividend shall be credited to Named Executive Officers subject to the same restrictions on transferability and forfeitability as the Restricted Shares with respect to which they were paid. If any dividends or distributions are paid in shares of Common Stock, the shares of Common Stock shall be subject to the same

restrictions on transferability and forfeitability as the Restricted Shares with respect to which they were paid. Subject to the succeeding paragraph, and to the restrictions on vesting and the forfeiture provisions, all dividends credited to a Named Executive Officer shall be paid to the Named Executive Officer within forty-five (45) days following the full vesting of the Restricted Shares with respect to which such dividends were earned.

In the event that any dividend constitutes a “derivative security” or an “equity security” pursuant to Rule 16(a) under the Exchange Act, such dividend shall be subject to a vesting period equal to the longer of: (i) the remaining vesting period of the Restricted Shares with respect to which the dividend is paid; or (ii) six (6) months. The Committee shall establish procedures for the application of this provision.

Named Executive Officers holding Restricted Shares shall have the same voting rights as the Company’s other stockholders.

9.2 Performance Share Awards. The holders of Performance Share Awards shall have no voting or dividend rights until such time as any Common Shares are issued pursuant thereto, at which time they shall have the same voting, dividend and other rights as the Company’s other stockholders.

Article 10.    Protection Against Dilution; Adjustment of Awards.

10.1    General.    In the event of a subdivision of the outstanding Common Shares, a declaration of a dividend payable in Common Shares, a declaration of a dividend payable in a form other than Common Shares, a combination or consolidation of the outstanding Common Shares (by reclassification or otherwise) into a lesser number of Common Shares, a recapitalization, a spinoff or a similar occurrence, the Committee shall make appropriate adjustments in one or more of (a) the number of Options, Restricted Shares and Performance Share Awards available for future Awards under Article 3, (b) the number of Performance Share Awards included in any prior Award which has not yet been settled, (c) the number of Common Shares covered by each outstanding Option or (d) the Exercise Price under each outstanding Option.

10.2 Reorganizations.    In the event that the Company is a party to a merger or other reorganization, outstanding Options, Restricted Shares and Performance Share Awards shall be subject to the agreement of merger or reorganization. Such agreement may provide, without limitation, for the assumption of outstanding Awards by the surviving corporation or its parent, for their continuation by the Company (if the Company is a surviving corporation), for accelerated vesting or for settlement in cash.

10.3    Reservation of Rights.    Except as provided in this Article 10, a Participant shall have no rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class. Any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Common Shares subject to an Option. The grant of an Award pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.

Article 11. Limitation of Rights.

11.1    Employment Rights.    Neither the Plan nor any Award granted under the Plan shall be deemed to give any individual a right to remain employed by the Company or any Subsidiary. The Company and its Subsidiaries reserve the right to terminate the employment of any employee at any time, with or without cause, subject only to a written employment agreement (if any).

11.2    Stockholders’ Rights.    A Participant shall have no dividend rights, voting rights or other rights as a stockholder with respect to any Common Shares covered by his or her Award prior to the issuance of a stock certificate for such Common Shares. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date when such certificate is issued, except as expressly provided in Articles 7, 9 and 10.

11.3 Creditors’ Rights. A holder of Performance Share Awards shall have no rights other than those of a general creditor of the Company. Performance Share Awards represent unfunded and unsecured obligations of the Company, subject to the terms and conditions of the applicable Stock Award Agreement.

11.4    Government    Regulations.    Any other provision of the Plan notwithstanding, the obligations of the Company with respect to Common Shares to be issued pursuant to the Plan shall be subject to all applicable laws, rules and regulations, and such approvals by any governmental agencies as may be required. The Company reserves the right to restrict, in whole or in part, the delivery of Common Shares pursuant to any Award until such time as:

(a) Any legal requirements or regulations have been met relating to the issuance of such Common Shares or to their registration, qualification or exemption from registration or qualification under the Securities Act of 1933, as amended, or any applicable state securities laws; and

(b) Satisfactory assurances have been received that such Common Shares, when issued, will be duly listed on the New York Stock Exchange or any other securities exchange on which Common Shares are then listed.

Article 12. Withholding Taxes.

12.1 General. To the extent required by applicable federal, state, local or foreign law, the recipient of any payment or distribution under the Plan shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise by reason of such payment or distribution. The Company shall not be required to make such payment or distribution until such obligations are satisfied.

12.2 Nonstatutory Options, Restricted Shares or Performance Share Awards. The Committee may permit an Optionee who exercises NSOs, or who receives Awards of Restricted Shares, or who receives Common Shares pursuant to the terms of a Performance Share Award, to satisfy all or part of his or her withholding tax obligations by having the Company withhold a portion of the Common Shares that otherwise would be issued to him or her under such Awards. Such Common Shares shall be valued at their Fair Market Value on the date when taxes otherwise would be withheld in cash. The payment of withholding taxes by surrendering Common Shares to the Company, if permitted by the Committee, shall be subject to such restrictions as the Committee may impose, including any restrictions required by rules of the Securities and Exchange Commission.

Article 13.    Assignment or Transfer of Award.

13.1    General Rule.    Any Award granted under the Plan shall not be anticipated, assigned, attached, garnished, optioned, transferred or made subject to any creditor’s process, whether voluntarily, involuntarily or by operation of law, except to the extent specifically permitted by Section 13.2.

13.2    Exceptions to General Rule.    Notwithstanding Section 13.1, this Plan shall not preclude (i) a Participant from designating a beneficiary to succeed, after the Participant’s death, to those of the Participant’s Awards (including without limitation, the right to exercise any unexercised Options) as may be determined by the Company from time to time in its sole discretion, (ii) a transfer of any Award hereunder by will or the laws of descent or distribution, or (iii) a voluntary transfer of an Award (other than an ISO) to a trust, partnership or limited liability company for the benefit of one or more members of the Participant’s family, subject to the prior approval of the Committee or its designee; provided that, in the case of an Award granted prior to September 25, 2002, such approval shall not be required for a transfer to a trust or partnership if the Participant has sole investment control over such trust or partnership.

Article 14.    Future of Plans.

14.1    Term of the Plan.    The Plan, as set forth herein, shall become effective on February 26, 1997. The Plan shall remain in effect until it is terminated under Section 15.2, except that no Awards shall be made after March 24, 1997.

14.2    Amendment or Termination.    The Board may at any time terminate this Plan, and the Board or the Committee make such modifications of the Plan as it shall deem advisable; provided, however, that any amendment of the Plan shall be subject to the approval of the Company’s stockholders to the extent required by applicable laws, regulations or rules.

14.3 Effect of Amendment or Termination.    No Award shall be made under the Plan after the termination thereof. The termination of the Plan, or any amendment thereof, shall not affect any Option, Restricted Share or Performance Share Award previously granted under the Plan.

Article 15.    Definitions.

15.1    “Award” means any award of an Option, a Restricted Share or a Performance Share Award under the Plan.

15.2    “Award Year” means a fiscal year beginning January 1 and ending December 31 with respect to which an Award may be granted.

15.3    “Board” means the Company’s Board of Directors, as constituted from time to time.

15.4    “Change in Control” means the occurrence of any of the following events after the effective date of the Plan as set out in Section 15.1:

(a) A change in control required to be reported pursuant to Item 6(e) of Schedule 14A of Regulation 14A under the Exchange Act;

(b) A change in the composition of the Board, as a result of which fewer

than two-thirds of the incumbent directors are directors who either (i) had been directors of the Company 24 months prior to such change or (ii) were elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the directors who had been directors of the Company 24 months prior to such change and who were still in office at the time of the election or nomination;

(c) Any “person” (as such term is used in sections 13(d) and 14(d) of the Exchange Act) becomes the beneficial owner, directly or indirectly, of securities of the Company representing 20 percent or more of the combined voting power of the Company’s then outstanding securities ordinarily (and apart from rights accruing under special circumstances) having the right to vote at elections of directors (the “Base Capital Stock”); provided, however, that any change in the relative beneficial ownership of securities of any person resulting solely from a reduction in the aggregate number of outstanding shares of Base Capital Stock, and any decrease thereafter in such person’s ownership of securities, shall be disregarded until such person increases in any manner, directly or indirectly, such person’s beneficial ownership of any securities of the Company.

15.5 “Code” means the Internal Revenue Code of 1986, as amended.

15.6 “Committee” means the Compensation Committee of the Board, as constituted from time to time.

15.7 “Common Share” means one share of the common stock of the Company.

15.8    “Company” means The Charles Schwab Corporation, a Delaware corporation.

15.9 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

15.10 “Exchange Act” means the Securities Exchange Act of 1934, as amended.

15.11    “Exercise Price” means the amount for which one Common Share may be purchased upon exercise of an Option, as specified by the Committee in the applicable Stock Option Agreement.

15.12    “Fair Market Value” means the market price of a Common Share, determined by the committee as follows:

(a) If the Common Share was traded on a stock exchange on the date in question, then the Fair Market Value shall be equal to the closing price reported by the applicable composite-transactions report for such date;

(b) If the Common Share was traded over-the-counter on the date in question and was classified as a national market issue, then the Fair Market Value shall be equal to the last transaction price quoted by the NASDAQ system for such date;

(c) If the Common Share was traded over-the-counter on the date in question but was not classified as a national market issue, then the Fair Market Value shall be equal to the mean between the last reported representative bid and asked prices quoted by the NASDAQ system for such date; and

(d) If none of the foregoing provisions is applicable, then the Fair Market

Value shall be determined by the Committee in good faith on such basis as it deems appropriate.

15.13 “ISO” means an incentive stock option described in section 422(b) of the Code.

15.14 “Key Employee” means a key common-law employee of the Company or any Subsidiary, as determined by the Committee.

15.15 “Named Executive Officer” means a Participant who, as of the date of vesting of an Award is one of a group of “covered employees,” as defined in the Regulations promulgated under Code Section 162(m), or any successor statute.

15.16    ”Non-Employee Director” means a member of the Board who is not a common-law employee.

15.17 “NSO” means an employee stock option not described in sections 422 through 424 of the Code.

15.18 “Option” means an ISO or NSO or, in the case of a Key Employee who is subject to the tax laws of a foreign jurisdiction, an option qualifying for favorable tax treatment under the laws of such jurisdiction, including a Replacement Option, granted under the Plan and entitling the holder to purchase one Common Share.

15.19 “Optionee” means an individual, or his or her estate, legatee or heirs at law that holds an Option.

15.20 “Participant” means a Non-Employee Director or Key Employee who has received an Award.

15.21    “Performance Share Award” means the conditional right to receive in the future one Common Share, awarded to a Participant under the Plan.

15.22    “Plan” means this 1987 Stock Option Plan of The Charles Schwab Corporation, as it may be amended from time to time.

15.23    “Replacement Option” means an Option that is granted when a Participant uses a Common Share held or to be acquired by the Participant to exercise an Option and/or to satisfy tax withholding requirements incident to the exercise of an Option.

15.24    “Restricted Share” means a Common SIhare awarded to a Participant under the Plan.

15.25 “Stock Award Agreement” means the agreement between the Company and the recipient of a Restricted Share or Performance Share Award which contains the terms, conditions and restrictions pertaining to such Restricted Share or Performance Share Award.

15.26 “Stock Option Agreement” means the agreement between the Company and an Optionee which contains the terms, conditions and restrictions pertaining to his or her option.

15.27 “Subsidiary” means any corporation, if the Company and/or one or more other Subsidiaries own not less than 50 percent of the total combined voting power of all classes of outstanding stock of such corporation. A corporation

that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.

15.28. “Retirement” shall mean any termination of employment of an Optionee for any reason other than death at any time after the Optionee has attained fifty (50), but only if, at the time of such termination, the Participant has been credited with at least seven (7) Years of Service under the Charles Schwab Profit Sharing and Employee Stock Ownership Plan. The foregoing definition shall apply to all Stock Option Agreements entered into pursuant to the Plan, irrespective of any definition to the contrary contained in any such Stock Option Agreement.

15.29 “Disability” means the inability to engage in any substantial gainful activity considering the Participant’s age, education and work experience by reason of any medically determined physical or mental impairment that has continued without interruption for a period of at least six months and that can be expected to be of long, continued and indefinite duration. All determinations as to whether a Participant has incurred a Disability shall be made by the Employee Benefits Administration Committee of the Company, the findings of which shall be final, binding and conclusive.

ADDENDUM A

The provisions of the Plan, as amended by the terms of this Addendum A, shall apply to the grant of Approved Options to Key U.K. Employees.

1. For purposes of this Addendum A, the following definitions shall apply in addition to those set out in section 16 of the Plan:

Approved Option Means a stock option designed to qualify as an approved executive share option under the Taxes Act;

Inland Revenue means the Board of the Inland Revenue in the United Kingdom.

Key U.K. Employee means a designated employee of Sharelink Investment Services plc or any subsidiary (as that term is defined in the Companies Act 1985 of the United Kingdom, as amended) of which Sharelink Investment Services plc has control for the purposes of section 840 of the Taxes Act;

Taxes Act means the Income and Corporation Taxes Act 1988 of the United Kingdom.

2. An Approved Option may only be granted to a Key U.K. Employee who:

(i) is employed on a full-time basis; and

(ii) does not fall within the provisions of paragraph 8 of Schedule 9 to the Taxes Act.

For purposes of this section 2(i) of Addendum A, “full-time” shall mean an employee who is required to work 20 hours per week, excluding meal breaks.

3. No Approved Option may be granted to a Key U.K. Employee if it would cause the aggregate of the exercise price of all subsisting Approved Options granted to such employee under the Plan, or any other subsisting options granted to such employee under any other share option scheme approved under Schedule 9 of the Taxes Act and established by the Company or an associated company, to

exceed the higher of (a) one hundred thousand pounds sterling and (b) four times such employee’s relevant emoluments for the current or preceding year of assessment (whichever is greater); but where there were no relevant emoluments for the previous year of assessment, the limit shall be the higher of one hundred thousand pounds sterling) or four times such employee’s relevant emoluments for the period of twelve months beginning with the first day during the current year of assessment in respect of which there are relevant emoluments. For the purpose of this section 3 of Addendum A, “associated company” means an associated company within the meaning of section 416 of the Taxes Act; “relevant emoluments” has the meaning given by paragraph 28(4) of Schedule 9 to the Taxes Act and “year of assessment” means a year beginning on any April 6 and ending on the following April 5.

4. Common Shares issued pursuant to the exercise of Approved Options must satisfy the conditions specified in paragraphs 10 to 14 of Schedule 9 to the Taxes Act.

5. Notwithstanding the provisions of Section 5.4 of the Plan, the exercise price of an Approved Option shall not be less than 100 percent of the closing price of a Common Share as reported in the New York Stock Exchange Composite Index on the date of grant.

6. No Approved Option may be exercised at any time by a Key U.K. Employee when that Key U.K. Employee falls within the provisions of paragraph 8 of Schedule 9 to the Taxes Act. If at any time the shares under an Approved Option cease to comply with the conditions in paragraphs 10 to 14 of Schedule 9 to the Taxes Act, then all Approved Options then outstanding shall lapse and cease to be exercisable from the date of the shares ceasing so to comply, and no optionee shall have any cause of action against the Company, Sharelink Investment Services plc or any subsidiary of the Company or any other person in respect thereof.

7. An Approved Option may contain such other terms, provisions and conditions as may be determined by the Committee consistent with the Plan, provided that the approved option otherwise complies with the requirements for approved executive option schemes specified in Schedule 9 of the Taxes Act.

8. In relation to an Approved Option, notwithstanding the terms of section 10.1 of the Plan, no adjustment shall be made pursuant to section 10.1 of the Plan to any outstanding Approved Options without the prior approval of the Inland Revenue.

9. In relation to an Approved Option any Key U.K. Employee shall make arrangements satisfactory to the Company for the satisfaction of any tax withholding or deduction - - at - - source obligations that arise by reason of the grant to him or her of such option, or its subsequent exercise.

10. In relation to an Approved Option, in addition to the provisions set out in section 15.2 of the Plan, no amendment which affects any of the provisions of the Plan relating to Approved Options shall be effective until approved by the Inland Revenue, except for such amendment as are required to obtain and maintain the approval of Inland Revenue pursuant to Schedule 9 to the Taxes Act.

NON-OUALIFIED STOCK OPTION AGREEMENT

(1987 Stock Option Plan, as first amended)

THIS AGREEMENT, made as of this              of                 , 19    , by and between The Charles Schwab Corporation a Delaware corporation (“Company”), and                          (“Optionee”).

WITNESSETH:

WHEREAS, there has been granted to Optionee, effective as of                     , 19    , a non-qualified stock option under the 1987 Stock Option Plan, as first amended, of the Company (“Option Plan”);

NOW, THEREFORE, it is mutually agreed as follows:

1. The Optionee shall have a non-qualified stock option to acquire              shares of common stock of the Company (the “Shares”), at a price of $                  per share.

2. Optionee acknowledges that paragraph 5(a) of the Option Plan imposes significant restrictions on Optionee’s ability to exercise this option.

3. This is a non-statutory stock option and the provisions of paragraph 5(b) of the Option Plan are inapplicable to this Option. With that exception and except as provided in paragraphs 4, 5 and 6 below, the other terms of this option shall be the same as without limitation, vesting of Shares, limitations on exercise and transfer, and other restrictions. The Option Plan is attached hereto as Exhibit A and is incorporated herein by this reference. Optionee has read the Option Plan and, other than for the provisions of paragraph 5(b) of the Option Plan and as provided in paragraphs 4, 5 and 6 below, agrees to be bound by its terms. Without limitation, Optionee specifically acknowledges the representations, warranties and agreements contained in paragraph 6(e) of the Option Plan.

4. Notwithstanding paragraph 6(b) of the Option Plan, in the event Optionee’s employment, service as a director or provision of independent contractor services with or for the Company and its subsidiaries terminates by reason of Optionee’s death or permanent disability, all shares then not deemed to be Vested thereupon will be deemed immediately Vested. For this purpose, “permanent disability” will mean the reasonable determination by a qualified physician acceptable to the Company that the Optionee has an illness or incapacity that has disabled, or will disable, the Optionee from rendering his or her normal services to the company and its subsidiaries for a period of more than six (6) consecutive months in any consecutive twelve (12) month period.

5. If the Company fails to timely exercise its right to repurchase Unvested Shares, those Shares will be treated as Vested Shares. Options underlying Unvested Shares may not be exercised once vesting ceases.

6. Any notice to be given by the Optionee under the terms of the Option Plan shall be deemed to have been duly given, and effective upon receipt, if sent by Certified Mail, postage and certification prepaid, to The Charles Schwab Corporation, 101 Montgomery Street, San Francisco, California 94104, Attention: Corporate Secretary, except as superseded by a different address noticed to

Optionee.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and year referred to above.

BY:
	on Behalf of
	The Charles Schwab Corporation
	(“Company”)
	Optionee

Attachments:	(1)	Spousal Consent
	(2)	Exhibit A: 1987 Stock Option Plan, as first amended.

EX-10.243

Exhibit 10.243

THE CHARLES SCHWAB CORPORATION

1987 EXECUTIVE OFFICER STOCK OPTION PLAN

(Restated to include Amendments through September 25, 2002)

Article 1.    Introduction.

The purpose of the 1987 Executive Stock Option Plan, as Amended and Restated (the “Plan”) is to enable The Charles Schwab Corporation and its subsidiaries to attract and retain directors, officers, and other key employees and to provide such persons with additional incentive to advance the interests of the Company. The Plan was initially adopted on March 24, 1987, and was amended on September 17, 1996 and October 22, 1997. The Plan is hereby restated and amended as of October 22, 1997, and the terms of this Restatement shall apply to all awards granted under the Plan on or after such date. The Plan shall terminate not more than ten (10) years from the date the Plan initially was adopted. The Plan will provide Awards in the form of Restricted Shares, Performance Share Awards or Options. The Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware.

Article 2.    Administration.

2.1 The Committee. The Plan shall be administered by the Committee. The Committee shall consist of two or more Non-Employee Directors, who shall be appointed by the Board.

2.2    Committee Responsibilities.    The Committee shall select the Key Employees who are to receive Awards under the Plan, determine the amount, vesting requirements and other conditions of such Awards, may interpret the Plan, and make all other decisions relating to the operation of the Plan. The Committee may adopt such rules or guidelines as it deems appropriate to implement the Plan. The Committee’s determinations under the Plan shall be final and binding on all persons.

Article 3.    Limitation on Awards.

The aggregate number of Restricted Shares, Performance Share Awards and Options awarded under the Plan shall not exceed 1,284,000 (including those shares awarded prior to the amendment of the Plan). If any Restricted Shares, Performance Share Awards or Options are forfeited, or if any Performance Share Awards terminate for any other reason without the associated Common Shares being issued, or if any Options terminate for any other reason before being exercised, then such Restricted Shares, Performance Share Awards or Options shall again become available for Awards under the Plan. The limitation of this Article 3 shall be subject to adjustment pursuant to Article 10. Any Common Shares issued pursuant to the Plan may be authorized but unissued shares or treasury shares.

Article 4.    Eligibility.

4.1 General Rule. Key Employees shall be eligible for designation as Participants by the Committee.

Article 5.    Options.

5.1 Stock Option Agreement. Each grant of an Option under the Plan shall be

evidenced by a Stock Option Agreement between the Optionee and the Company. Such Option shall be subject to all applicable terms and conditions of the Plan, and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Committee deems appropriate for inclusion in a Stock Option Agreement. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical.

5.2 Options Nontransferability.    No Option granted under the Plan shall be transferable by the Optionee other than by will or the laws of descent and distribution. An Option may be exercised during the lifetime of the Optionee only by him or her. No Option or interest therein may be transferred, assigned, pledged or hypothecated by the Optionee during his or her lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process.

5.3 Number of Shares.    Each Stock Option Agreement shall specify the number of Common Shares subject to the Option and shall provide for the adjustment of such number in accordance with Article 10.

5.4 Exercise Price.    Each Stock Option Agreement shall specify the Exercise Price. The Exercise Price under an Option shall not be less than 100 percent of the Fair Market Value of a Common Share on the date of grant. Subject to the preceding sentence, the Exercise Price under any Option shall be determined by the Committee. The Exercise Price shall be payable in accordance with Article 6.

5.5    Exercisability and Term. Each Stock Option Agreement shall specify the date when all or any installment of the Option is to become exercisable. The Stock Option Agreement shall also specify the term of the Option. Subject to the preceding sentence, the Committee shall determine when all or any part of an Option is to become exercisable and when such Option is to expire; provided that, in appropriate cases, the Company shall have the discretion to extend the term of an Option or the time within which, following termination of employment, an Option may be exercised, or to accelerate the exercisability of an Option. A Stock Option Agreement may provide for expiration prior to the end of its term in the event of the termination of the Optionee’s employment and shall provide for the suspension of vesting when an employee is on a leave of absence for a period in excess of six months in appropriate cases, as determined by the Company; provided that the exercisability of Options shall be accelerated in the event of the Participant’s death or Disability and, in the case of Retirement, the exercisability of all outstanding Options shall be accelerated, other than any Options that had been granted within two years of the date of the Optionee’s Retirement. Options may also be awarded in combination with Restricted Shares, and such an Award may provide that the Options will not be exercisable unless the related Restricted Shares are forfeited. In addition, Options granted under this Section 5 may be granted subject to forfeiture provisions which provide for forfeiture of the Option upon the exercise of tandem awards, the terms of which are established in other programs of the Company.

5.6 Effect of Change in Control. The Committee (in its sole discretion) may determine, at the time of granting an Option, that such Option shall become fully exercisable as to all Common Shares subject to such Option immediately preceding any Change in Control with respect to the Company.

5.7    Restrictions on Transfer of Common Shares.    Any Common Shares issued upon exercise of an Option shall be subject to such sIpecial forfeiture conditions, rights of repurchase, rights of first refusal and other transfer restrictions as the Committee may determine. Such restrictions shall be set

forth in the applicable Stock Option Agreement and shall apply in addition to any general restrictions that may apply to all holders of Common Shares.

5.8    Authorization of Replacement Options.    Concurrently with the grant of any Option to a Participant, the Committee may authorize the grant of Replacement Options. If Replacement Options have been authorized by the Committee with respect to a particular award of Options (the “Underlying Options”), the Option Agreement with respect to the Underlying Options shall so state, and the terms and conditions of the Replacement Options shall be provided therein. The grant of any Replacement Options shall be effective only upon the exercise of the Underlying Options through the use of Common Shares pursuant to Section 6.2 or Section 6.3. The number of Replacement Options shall equal the number of Common Shares used to exercise the Underlying Options, and, if the Option Agreement so provides, the number of Common Shares used to satisfy any tax withholding requirements incident to the exercise of the Underlying Options in accordance with Section 12.2. Upon the exercise of the Underlying Options, the Replacement Options shall be evidenced by an amendment to the Underlying Option Agreement. The Exercise Price of a Replacement Option shall be no less than the Fair Market Value of a Common Share on the date the grant of the Replacement Option becomes effective. The term of each Replacement Option shall be equal to the remaining term of the Underlying Option. No Replacement Options shall be granted to Optionees when Underlying Options are exercised pursuant to the terms of the Plan and the Underlying Option Agreement following termination of the Optionee’s employment. The Committee, in its sole discretion, may establish such other terms and conditions for Replacement Options as it deems appropriate.

5.9 Effect of Job Elimination.    Notwithstanding anything to the contrary contained in the Plan or in any Stock Option Agreement or Stock Award Agreement entered into with respect to an Award pursuant to the Plan, in the case of a Participant who is an Officer, and who becomes entitled to receive payments with respect to a Severance Period pursuant to the Charles Schwab Severance Pay Plan (the “Severance Plan”) on account of a Job Elimination, the terms of the Plan and any Stock Option Agreement or Stock Award Agreement entered into with respect to an Award shall be applied by treating the Participant as if the Participant had terminated employment on the Participant’s Termination Date. For purposes of applying this Section, the terms Officer, Severance Period, Termination Date, and Job Elimination shall have the meanings set forth in the Severance Plan.

Article 6.    Payment for Option Shares.

6.1 General Rule.    The entire Exercise Price of Common Shares issued upon exercise of Options shall be payable in cash at the time when such Common Shares are purchased, except that the Committee may at any time accept payment pursuant to Section 6.2 or 6.3.

6.2 Surrender of Stock.    To the extent that this Section 6.2 is applicable, payment for all or any part of the Exercise Price may be made with Common Shares which are surrendered to the Company. Such Common Shares shall be valued at their Fair Market Value on the date when the new Common Shares are purchased under the Plan. In the event that the Common Shares being surrendered are Restricted Shares that have not yet become vested, the same restrictions shall be imposed upon the new Common Shares being purchased.

6.3 Exercise/Sale.    To the extent this Section 6.3 is applicable, payment may be made by the delivery (on a form prescribed by the Company) of an

irrevocable direction to Charles Schwab & Co., Inc. to sell Common Shares (including the Common Shares to be issued upon exercise of the Options) and to deliver all or part of the sales proceeds to the Company in payment of all or part of the Exercise Price and any withholding taxes.

Article 7.    Restricted Shares and Performance Share Awards.

7.1 Time, Amount and Form of Awards.    The Committee may grant Restricted Shares or Performance Share Awards with respect to an Award Year during such Award Year or at any time thereafter. Each such Award shall be evidenced by a Stock Award Agreement between the Award recipient and the Company. The amount of each Award of Restricted Shares or Performance Share Awards shall be determined by the Committee. Awards under the Plan may be granted in the form of Restricted Shares or Performance Share Awards or in any combination thereof, as the Committee shall determine at its sole discretion at the time of the grant. Restricted Shares or Performance Share Awards may also be awarded in combination with Options, and such an Award may provide that the Restricted Shares or Performance Share Awards will be forfeited in the event that the related Options are exercised.

7.2 Payment for Restricted Share Awards.    To the extent that an Award is granted in the form of Restricted Shares, the Award recipient, as a condition to the grant of such Award, shall be required to pay the Company in cash an amount equal to the par value of such Restricted Shares.

7.3 Vesting or Issuance Conditions.    Each Award of Restricted Shares shall become vested, in full or in installments, upon satisfaction of the conditions specified in the Stock Award Agreement. Common Shares shall be issued pursuant to Performance Share Awards in full or in installments upon satisfaction of the issuance conditions specified in the Stock Award Agreement. The Committee shall select the vesting conditions in the case of Restricted Shares, or issuance conditions in the case of Performance Share Awards, which may be based upon the Participant’s service, the Participant’s performance, the Company’s performance or such other criteria as the Committee may adopt; provided that, in the case of an Award of Restricted Shares where vesting is based entirely on the Participant’s service, (i) vesting shall be accelerated in the event of the Participant’s death or Disability; (ii) in the case of Retirement, vesting shall be accelerated for all Restricted Shares that had been granted more than two years prior to the date of the Participant’s Retirement; and (iii) vesting shall be suspended when an employee is on a leave of absence for a period in excess of six months in appropriate cases, as determined by the Company. The Committee, in its sole discretion, may determine, at the time of making an Award of Restricted Shares, that such Award shall become fully vested in the event that a Change in Control occurs with respect to the Company. The Committee, in its sole discretion, may determine, at the time of making a Performance Share Award, that the issuance conditions set forth in such Award shall be waived in the event that a Change in Control occurs with respect to the Company.

7.4    Form of Settlement of Performance Share Awards.    Settlement of Performance Share Awards shall only be made in the form of Common Shares. Until a Performance Share Award is settled, the number of Performance Share Awards shall be subject to adjustment pursuant to Article 10.

7.5 Death of Recipient. Any Common Shares that are to be issued pursuant to a Performance Share Award after the recipient’s death shall be delivered or distributed to the recipient’s beneficiary or beneficiaries. Each recipient of a Performance Share Award under the Plan shall designate one or more beneficiaries

for this purpose by filing the prescribed form with the Company. A beneficiary designation may be changed by filing the prescribed form with the Company at any time before the Award recipient’s death. If no beneficiary was designated or if no designated beneficiary survives the Award recipient, then any Common Shares that are to be issued pursuant to a Performance Share Award after the recipient’s death shall be delivered or distributed to the recipient’s estate. The Committee, in its sole discretion, shall determine the form and time of any distribution(s) to a recipient’s beneficiary or estate.

Article 8.    Claims Procedures.

Claims for benefits under the Plan shall be filed in writing with the Committee on forms supplied by the Committee. Written notice of the disposition of a claim shall be furnished to the claimant within 90 days after the claim is filed. If the claim is denied, the notice of disposition shall set forth the specific reasons for the denial, citations to the pertinent provisions of the Plan, and, where appropriate, an explanation as to how the claimant can perfect the claim. If the claimant wishes further consideration of his or her claim, the claimant may appeal a denied claim to the Committee (or to a person designated by the Committee) for further review. Such appeal shall be filed in writing with the Committee on a form supplied by the Committee, together with a written statement of the claimant’s position, no later than 90 days following receipt by the claimant of written notice of the denial of his or her claim. If the claimant so requests, the Committee shall schedule a hearing. A decision on review shall be made after a full and fair review of the claim and shall be delivered in writing to the claimant no later than 60 days after the Committee’s receipt of the notice of appeal, unless special circumstances (including the need to hold a hearing) require an extension of time for processing the appeal, in which case a written decision on review shall be delivered to the claimant as soon as possible but not later than 120 days after the Committee’s receipt of the appeal notice. The claimant shall be notified in writing of any such extension of time. The written decision on review shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, and shall specifically refer to the pertinent Plan provisions on which it is based. All determinations of the Committee shall be final and binding on Participants and their beneficiaries.

Article 9.    Voting Rights and Dividends.

9.1 Restricted Shares.

(a) All holders of Restricted Shares who are not Named Executive Officers shall have the same voting, dividend, and other rights as the Company’s other stockholders.

(b) During the period of restriction, Named Executive Officers holding Restricted Shares granted hereunder shall be credited with all regular cash dividends paid with respect to all Restricted Shares while they are so held. If a dividend is paid in the form of cash, such cash dividend shall be credited to Named Executive Officers subject to the same restrictions on transferability and forfeitability as the Restricted Shares with respect to which they were paid. If any dividends or distributions are paid in shares of Common Stock, the shares of Common Stock shall be subject to the same restrictions on transferability and forfeitability as the Restricted Shares with respect to which they were paid. Subject to the succeeding paragraph, and to the restrictions on vesting and the forfeiture provisions, all dividends credited to a Named Executive Officer shall be paid to the Named

Executive Officer within forty-five (45) days following the full vesting of the Restricted Shares with respect to which such dividends were earned.

In the event that any dividend constitutes a “derivative security” or an “equity security” pursuant to Rule 16(a) under the Exchange Act, such dividend shall be subject to a vesting period equal to the longer of: (i) the remaining vesting period of the Restricted Shares with respect to which the dividend is paid; or (ii) six (6) months. The Committee shall establish procedures for the application of this provision.

Named Executive Officers holding Restricted Shares shall have the same voting rights as the Company’s other stockholders.

9.2 Performance Share Awards. The holders of Performance Share Awards shall have no voting or dividend rights until such time as any Common Shares are issued pursuant thereto, at which time they shall have the same voting, dividend and other rights as the Company’s other stockholders.

Article 10.    Protection Against Dilution; Adjustment of Awards.

10.1    General.    In the event of a subdivision of the outstanding Common Shares, a declaration of a dividend payable in Common Shares, a declaration of a dividend payable in a form other than Common Shares, a combination or consolidation of the outstanding Common Shares (by reclassification or otherwise) into a lesser number of Common Shares, a recapitalization, a spinoff or a similar occurrence, the Committee shall make appropriate adjustments in one or more of (a) the number of Options, Restricted Shares and Performance Share Awards available for future Awards under Article 3, (b) the number of Performance Share Awards included in any prior Award which has not yet been settled, (c) the number of Common Shares covered by each outstanding Option or (d) the Exercise Price under each outstanding Option.

10.2 Reorganizations.    In the event that the Company is a party to a merger or other reorganization, outstanding Options, Restricted Shares and Performance Share Awards shall be subject to the agreement of merger or reorganization. Such agreement may provide, without limitation, for the assumption of outstanding Awards by the surviving corporation or its parent, for their continuation by the Company (if the Company is a surviving corporation), for accelerated vesting or for settlement in cash.

10.3    Reservation of Rights.    Except as provided in this Article 10, a Participant shall have no rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class. Any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Common Shares subject to an Option. The grant of an Award pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.

Article 11. Limitation of Rights.

11.1    Employment Rights.    Neither the Plan nor any Award granted under the Plan shall be deemed to give any individual a right to remain employed by the

Company or any Subsidiary. The Company and its Subsidiaries reserve the right to terminate the employment of any employee at any time, with or without cause, subject only to a written employment agreement (if any).

11.2    Stockholders’ Rights.    A Participant shall have no dividend rights, voting rights or other rights as a stockholder with respect to any Common Shares covered by his or her Award prior to the issuance of a stock certificate for such Common Shares. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date when such certificate is issued, except as expressly provided in Articles 7, 9 and 10.

11.3 Creditors’ Rights. A holder of Performance Share Awards shall have no rights other than those of a general creditor of the Company. Performance Share Awards represent unfunded and unsecured obligations of the Company, subject to the terms and conditions of the applicable Stock Award Agreement.

11.4    Government Regulations.    Any other provision of the Plan notwithstanding, the obligations of the Company with respect to Common Shares to be issued pursuant to the Plan shall be subject to all applicable laws, rules and regulations, and such approvals by any governmental agencies as may be required. The Company reserves the right to restrict, in whole or in part, the delivery of Common Shares pursuant to any Award until such time as:

(a) Any legal requirements or regulations have been met relating to the issuance of such Common Shares or to their registration, qualification or exemption from registration or qualification under the Securities Act of 1933, as amended, or any applicable state securities laws; and

(b) Satisfactory assurances have been received that such Common Shares, when issued, will be duly listed on the New York Stock Exchange or any other securities exchange on which Common Shares are then listed.

Article 12. Withholding Taxes.

12.1 General. To the extent required by applicable federal, state, local or foreign law, the recipient of any payment or distribution under the Plan shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise by reason of such payment or distribution. The Company shall not be required to make such payment or distribution until such obligations are satisfied.

12.2 Nonstatutory Options, Restricted Shares or Performance Share Awards. The Committee may permit an Optionee who exercises Options, or who receives Awards of Restricted Shares, or who receives Common Shares pursuant to the terms of a Performance Share Award, to satisfy all or part of his or her withholding tax obligations by having the Company withhold a portion of the Common Shares that otherwise would be issued to him or her under such Awards. Such Common Shares shall be valued at their Fair Market Value on the date when taxes otherwise would be withheld in cash. The payment of withholding taxes by surrendering Common Shares to the Company, if permitted by the Committee, shall be subject to such restrictions as the Committee may impose, including any restrictions required by rules of the Securities and Exchange Commission.

Article 13.    Assignment or Transfer of Award.

13.1    General Rule.    Any Award granted under the Plan shall not be anticipated, assigned, attached, garnished, optioned, transferred or made

subject to any creditor’s process, whether voluntarily, involuntarily or by operation of law, except to the extent specifically permitted by Section 13.2.

13.2    Exceptions to General Rule. Notwithstanding Section 13.1, this Plan shall not preclude (i) a Participant from designating a beneficiary to succeed, after the Participant’s death, to those of the Participant’s Awards (including without limitation, the right to exercise any unexercised Options) as may be determined by the Company from time to time in its sole discretion, (ii) a transfer of any Award hereunder by will or the laws of descent or distribution, or (iii) a voluntary transfer of an Award (other than an ISO) to a trust, partnership or limited liability company for the benefit of one or more members of the Participant’s family, subject to the prior approval of the Committee or its designee; provided that, in the case of an Award granted prior to September 25, 2002, such approval shall not be required for a transfer to a trust or partnership if the Participant has sole investment control over such trust or partnership.

Article 14.    Future of Plans.

14.1    Term of the Plan.    The Plan, as set forth herein, shall become effective on February 26, 1997. The Plan shall remain in effect until it is terminated under Section 14.2, except that no Awards shall be granted after March 24, 1997.

14.2    Amendment or Termination.    The Board may at any time terminate this Plan, and the Board or the Committee make such modifications of the Plan as it shall deem advisable; provided, however, that any amendment of the Plan shall be subject to the approval of the Company’s stockholders to the extent required by applicable laws, regulations or rules.

14.3 Effect of Amendment or Termination.    No Award shall be made under the Plan after the termination thereof. The termination of the Plan, or any amendment thereof, shall not affect any Option, Restricted Share or Performance Share Award previously granted under the Plan.

Article 15.    Definitions.

15.1    “Award” means any award of an Option, a Restricted Share or a Performance Share Award under the Plan.

15.2    “Award Year” means a fiscal year beginning January 1 and ending December 31 with respect to which an Award may be granted.

15.3 “Board” means the Company’s Board of Directors, as constituted from time to time.

15.4    “Change in Control” means the occurrence of any of the following events after the effective date of the Plan as set out in Section 14.1:

(a) A change in control required to be reported pursuant to Item 6(e) of Schedule 14A of Regulation 14A under the Exchange Act;

(b) A change in the composition of the Board, as a result of which fewer than two-thirds of the incumbent directors are directors who either (i) had been directors of the Company 24 months prior to such change or (ii) were elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the directors who had been directors of the

Company 24 months prior to such change and who were still in office at the time of the election or nomination;

(c) Any “person” (as such term is used in sections 13(d) and 14(d) of the Exchange Act) becomes the beneficial owner, directly or indirectly, of securities of the Company representing 20 percent or more of the combined voting power of the Company’s then outstanding securities ordinarily (and apart from rights accruing under special circumstances) having the right to vote at elections of directors (the “Base Capital Stock”); provided, however, that any change in the relative beneficial ownership of securities of any person resulting solely from a reduction in the aggregate number of outstanding shares of Base Capital Stock, and any decrease thereafter in such person’s ownership of securities, shall be disregarded until such person increases in any manner, directly or indirectly, such person’s beneficial ownership of any securities of the Company.

15.5    “Code” means the Internal Revenue Code of 1986, as amended.

15.6    “Committee” means the Compensation Committee of the Board, as constituted from time to time.

15.7 “Common Share” means one share of the common stock of the Company.

15.8    “Company” means The Charles Schwab Corporation, a Delaware corporation.

15.9 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

15.10 “Exchange Act” means the Securities Exchange Act of 1934, as amended.

15.11    “Exercise Price” means the amount for which one Common Share may be purchased upon exercise of an Option, as specified by the Committee in the applicable Stock Option Agreement.

15.12    “Fair Market Value” means the market price of a Common Share, determined by the committee as follows:

(a) If the Common Share was traded on a stock exchange on the date in question, then the Fair Market Value shall be equal to the closing price reported by the applicable composite-transactions report for such date;

(b) If the Common Share was traded over-the-counter on the date in question and was classified as a national market issue, then the Fair Market Value shall be equal to the last transaction price quoted by the NASDAQ system for such date;

(c) If the Common Share was traded over-the-counter on the date in question but was not classified as a national market issue, then the Fair Market Value shall be equal to the mean between the last reported representative bid and asked prices quoted by the NASDAQ system for such date; and

(d) If none of the foregoing provisions is applicable, then the Fair Market Value shall be determined by the Committee in good faith on such basis as it deems appropriate.

15.13 “Key Employee” means a key common-law employee of the Company or any

Subsidiary, as determined by the Committee.

15.14 “Named Executive Officer” means a Participant who, as of the date of vesting of an Award is one of a group of “covered employees,” as defined in the Regulations promulgated under Code Section 162(m), or any successor statute.

15.15    “Non-Employee Director” means a member of the Board who is not a common-law employee.

15.16 “Option” means an employee stock option not described in sections 422 through 424 of the Code, including a Replacement Option, granted under the Plan and entitling the holder to purchase one Common Share.

15.17    “Optionee” means an individual, or his or her estate, legatee or heirs at law that holds an Option.

15.18 “Participant” means a Non-Employee Director or Key Employee who has received an Award.

15.19     “Performance Share Award” means the conditional right to receive in the future one Common Share, awarded to a Participant under the Plan.

15.20    “Plan” means this 1987 Executive Stock Option Plan of The Charles Schwab Corporation, as it may be amended from time to time.

15.21    “Replacement Option” means an Option that is granted when a Participant uses a Common Share held or to be acquired by the Participant to exercise an Option and/or to satisfy tax withholding requirements incident to the exercise of an Option.

15.22 “Restricted Share” means a Common Share awarded to a Participant under the Plan.

15.23 “Stock Award Agreement” means the agreement between the Company and the recipient of a Restricted Share or Performance Share Award which contains the terms, conditions and restrictions pertaining to such Restricted Share or Performance Share Award.

15.24 “Stock Option Agreement” means the agreement between the Company and an Optionee which contains the terms, conditions and restrictions pertaining to his or her option.

15.25 “Subsidiary” means any corporation, if the Company and/or one or more other Subsidiaries own not less than 50 percent of the total combined voting power of all classes of outstanding stock of such corporation. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.

15.26. “Retirement” shall mean any termination of employment of an Optionee for any reason other than death at any time after the Optionee has attained fifty (50), but only if, at the time of such termination, the Participant has been credited with at least seven (7) Years of Service under the Charles Schwab Profit Sharing and Employee Stock Ownership Plan. The foregoing definition shall apply to all Stock Option Agreements entered into pursuant to the Plan, irrespective of any definition to the contrary contained in any such Stock Option Agreement.

15.27 “Disability” means the inability to engage in any substantial gainful activity considering the Participant’s age, education and work experience by reason of any medically determined physical or mental impairment that has continued without interruption for a period of at least six months and that can be expected to be of long, continued and indefinite duration. All determinations as to whether a Participant has incurred a Disability shall be made by the Employee Benefits Administration Committee of the Company, the findings of which shall be final, binding and conclusive.

NON-QUALIFIED STOCK OPTION AGREEMENT

(Executive Officer Stock Option Plan (1987))

THIS AGREEMENT made as of this              day of             , 19        , by and between The Charles Schwab Corporation, a Delaware corporation (“Company”) and                                                       (“Optionee”).

WITNESSETH:

WHEREAS, there has been granted to Optionee, effective as of                     , 19        , a non-qualified stock option under the Executive Officer Stock Option Plan (1987) of the Company (“Option Plan”);

NOW THEREFORE, it is mutually agreed as follows:

1. The Optionee shall have a non-qualified stock option to acquire                  shares of common stock of the company (the “Shares”), at a price of $                 per share.

2. Except as provided in paragraphs 3 and 4 below, the other terms of this option shall be the same as all of those provided for in the Option Plan, which include, without limitation, vesting of Shares, limitations on exercise and transfer, and other restrictions. The Option Plan is attached hereto as Exhibit A and is incorporated herein by this reference. Optionee has read the Option Plan and, other than as provided in paragraphs 3 and 4 below, agrees to be bound by its terms. Without limitation, Optionee specifically acknowledges the representations, warranties and agreements contained in paragraph 6(e) of the Option Plan.

3. Notwithstanding paragraph 6(b) of the Option Plan, in the event Optionee’s employment or service as a director with or for the Company and its subsidiaries terminates by reason of Optionee’s death or permanent disability, all Shares then not deemed to be Vested thereupon will be deemed immediately Vested. For this purpose, “permanent disability” will mean the reasonable determination by a qualified physician acceptable to the company that the Optionee has an illness or incapacity that has disabled, or will disable, the Optionee from rendering his or her normal services to the Company and its subsidiaries for a period of more than six (6) consecutive months in any consecutive twelve (12) month period.

4. Upon exercise of this Option, the Company will extend to the Optionee rights under that certain Registration Rights and Stock Restriction Agreement dated as of March 31, 1987, as amended, subject to the Optionee’s agreement to be bound by the terms thereof.

5. Any notice to be given by the Optionee under the terms of the Option

Plan shall be deemed to have been duly given, and effective upon the receipt, if sent by Certified Mail, postage and certification prepaid, to The Charles Schwab Corporation, 101 Montgomery, San Francisco, California 94104, Attention: Corporate Secretary, except as superseded by a different address noticed to Optionee.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and year referred to above.

THE CHARLES SCHWAB CORPORATION (“Company”)
By:
	“Optionee”

Attachment	(1)	Spousal Consent
	(2)	Exhibit A: 1987 Stock Option Plan

EX-10.244

Exhibit 10.244

THE CHARLES SCHWAB CORPORATION

1992 STOCK INCENTIVE PLAN

(Restated to include Amendments through September 25, 2002)

Article 1.    Introduction.

The Plan was adopted by the Board of Directors on March 26, 1992. The purpose of the Plan is to promote the long-term success of the Company and the creation of incremental stockholder value by (a) encouraging Non-Employee Directors and Key Employees to focus on long-range objectives, (b) encouraging the attraction and retention of Non-Employee Directors and Key Employees with exceptional qualifications and (c) linking Non-Employee Directors and Key Employees directly to stockholder interests. The Plan seeks to achieve this purpose by providing for Awards in the form of Restricted Shares, Performance Share Awards or Options, which may constitute incentive stock options or nonstatutory stock options. The Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware.

Article 2.    Administration.

2.1 The Committee.    The Plan shall be administered by the Committee. The Committee shall consist of two or more Non-Employee Directors, who shall be appointed by the Board.

2.2    Committee Responsibilities.    The Committee shall select the Key Employees who are to receive Awards under the Plan, determine the amount, vesting requirements and other conditions of such Awards, may interpret the Plan, and make all other decisions relating to the operation of the Plan. The Committee may adopt such rules or guidelines as it deems appropriate to implement the Plan. The Committee’s determinations under the Plan shall be final and binding on all persons.

Article 3.    Limitations on Awards.

The aggregate number of Restricted Shares, Performance Share Awards and Options awarded under the Plan shall not exceed 29,150,000 (including those shares awarded prior to the amendment of the Plan). If any Restricted Shares, Performance Share Awards or Options are forfeited, or if any Performance Share Awards terminate for any other reason without the associated Common Shares being issued, or if any Options terminate for any other reason before being exercised, then such Restricted Shares, Performance Share Awards or Options shall again become available for Awards under the Plan.

Subject to the overall limit on the aggregate shares set forth above, the following limitations shall apply: (a) The maximum number of Common Shares which may be granted subject to an Option to any one Participant in any one fiscal year shall be 2,250,000; and (b) The maximum number of Restricted Shares or Performance Share Awards which may be granted to any one Participant in any one fiscal year shall be 900,000. The limitations set forth in the preceding sentence shall be subject to adjustment pursuant to Article 10; and

The limitations of this Article 3 shall each be subject to adjustment pursuant to Article 10. Any Common Shares issued pursuant to the Plan may be authorized but unissued shares or treasury shares.

Article 4.    Eligibility.

4.1    General Rule.    Key Employees and Non-Employee Directors shall be eligible for designation as Participants by the Committee.

4.2 Non-Employee Directors.    In addition to any awards pursuant to Section 4.1, Non-Employee Directors shall be entitled to receive the automatic NSOs described in this Section 4.2.

(a) Each Non-Employee Director shall receive a Non-Officer Stock Option covering 3,500 Common Shares for each Award Year with respect to which he or she serves as a Non-Employee Director on the grant date described in subsection (b) below; provided that the Non-Officer Stock Option shall cover 2,500 shares if the Exercise Price determined as of the grant date, is $35 or more;

(b) The NSO for a particular Award Year shall be granted to each Non-Employee Director as of May 15 of each Award Year, and if May 15 is not a business day, then the grant shall be made on and as of the next succeeding business day;

(c) Each NSO shall be exercisable in full at all times during its term;

(d) The term of each NSO shall be 10 years; provided, however, that any unexercised NSO shall expire on the earlier of the date 10 years after the date of grant or three (3) months following the date that the Optionee ceases to be a Non-Employee Director or a Key Employee for any reason other than death or disability. If an Optionee ceases to be a Non-Employee Director or Key Employee on account of death or disability, any unexercised NSO shall expire on the earlier of the date 10 years after the date of grant or one year after the date of death or disability of such Director; and

(e) The Exercise Price under each NSO shall be equal to the Fair Market Value on the date of grant and shall be payable in any of the forms described in Article 6.

4.3 Ten-Percent Stockholders.    A Key Employee who owns more than 10 percent of the total combined voting power of all classes of outstanding stock of the Company or any of its Subsidiaries shall not be eligible for the grant of an ISO unless (a) the Exercise price under such ISO is at least 110 percent of the Fair Market Value of a Common Share on the date of grant and (b) such ISO by its terms is not exercisable after the expiration of five years from the date of grant.

4.4 Attribution Rules.    For purposes of Section 4.3, in determining stock ownership, a Key Employee shall be deemed to own the stock owned, directly or indirectly, by or for his or her brothers, sisters, spouse, ancestors or lineal descendants. Stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be deemed to be owned proportionately by or for its stockholders, partners or beneficiaries. Stock with respect to which the Key Employee holds an option shall not be counted.

4.5 Outstanding Stock.    For purposes of Section 4.3, “outstanding stock” shall include all stock actually issued and outstanding immediately after the grant of the ISO to the Key Employee. “Outstanding stock” shall not include

treasury shares or shares authorized for issuance under outstanding options held by the Key Employee or by any other person.

4.6 Options Issued To Non-Employee Directors In Lieu of Fee Deferrals.    In addition to any awards pursuant to Sections 4.1 and 4.2, a Non-Employee Director who elects to defer the receipt of amounts pursuant to Section 5.1 of The Charles Schwab Corporation Directors’ Deferred Compensation Plan (the “Directors Deferred Compensation Plan”) and elects to receive stock options in lieu of a Deferral Account balance pursuant to Section 5.4(2) of the Directors Deferred Compensation Plan, shall be entitled to receive a grant of NSOs hereunder on the date the amounts would have been payable to the Non-Employee Director if the Non-Employee Director had not made such deferral election. Any NSOs issued pursuant to this Section shall be issued pursuant to the terms set forth in subsections (c), (d) and (e) of Section 4.2 hereof.

4.7    Performance Shares Issued To Non-Employee Directors Pursuant to Fee Deferrals. In addition to any awards pursuant to Sections 4.1 and 4.2, a Non-Employee Director who elects to defer the receipt of amounts pursuant to Section 5.1 of The Directors’ Deferred Compensation Plan and elects to receive payment in Shares pursuant to Section 5.4(1) of the Directors Deferred Compensation Plan, shall be entitled to receive a grant of Performance Shares hereunder on the date the amounts would have been payable to the Non-Employee Director if the Non-Employee Director had not made such deferral election. For purposes of this section, the term Non-Employee Director shall also include non-employee directors of any Subsidiary, if the Committee has approved participation in the Directors Deferred Compensation Plan for such Subsidiary’s non-employee directors.

Article 5. Options.

5.1 Stock Option Agreement. Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company. Such Option shall be subject to all applicable terms and conditions of the Plan, and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Committee deems appropriate for inclusion in a Stock Option Agreement. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical. The Committee may designate all or any part of an Option as an ISO (or, in the case of a Key Employee who is subject to the tax laws of a foreign jurisdiction, as an option qualifying for favorable tax treatment under the laws of such foreign jurisdiction), except for Options granted to Non-Employee Directors.

5.2 Options Nontransferability.    No Option granted under the Plan shall be transferable by the Optionee other than by will or the laws of descent and distribution. An Option may be exercised during the lifetime of the Optionee only by him or her. No Option or interest therein may be transferred, assigned, pledged or hypothecated by the Optionee during his or her lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process.

5.3 Number of Shares.    Each Stock Option Agreement shall specify the number of Common Shares subject to the Option and shall provide for the adjustment of such number in accordance with Article 10. Each Stock Option Agreement shall also specify whether the Option is an ISO or an NSO.

5.4 Exercise Price.    Each Stock Option Agreement shall specify the Exercise

Price. The Exercise Price under an Option shall not be less than 100 percent of the Fair Market Value of a Common Share on the date of grant, except as otherwise provided in Section 4.3. Subject to the preceding sentence, the Exercise Price under any Option shall be determined by the Committee. The Exercise Price shall be payable in accordance with Article 6.

5.5    Exercisability and Term. Each Stock Option Agreement shall specify the date when all or any installment of the Option is to become exercisable. The Stock Option Agreement shall also specify the term of the Option. The term of an ISO shall in no event exceed 10 years from the date of grant, and Section 4.3 may require a shorter term. Subject to the preceding sentence, the Committee shall determine when all or any part of an Option is to become exercisable and when such Option is to expire; provided that, in appropriate cases, the Company shall have the discretion to extend the term of an Option or the time within which, following termination of employment, an Option may be exercised, or to accelerate the exercisability of an Option. A Stock Option Agreement may provide for expiration prior to the end of its term in the event of the termination of the Optionee’s employment and shall provide for the suspension of vesting when an employee is on a leave of absence for a period in excess of six months in appropriate cases, as determined by the Company; provided that, except to the extent otherwise specified by the Committee at the time of grant, (i) the exercisability of Options shall be accelerated in the event of the Participant’s death or Disability and (ii) in the case of Retirement, the exercisability of all outstanding Options shall be accelerated, other than any Options that had been granted within two years of the date of the Optionee’s Retirement. Except as provided in Section 4.2, NSOs may also be awarded in combination with Restricted Shares, and such an Award may provide that the NSOs will not be exercisable unless the related Restricted Shares are forfeited. In addition, NSOs granted under this Section 5 may be granted subject to forfeiture provisions which provide for forfeiture of the Option upon the exercise of tandem awards, the terms of which are established in other programs of the Company.

5.6    Limitation on Amount of ISOs. The aggregate fair market value (determined at the time the ISO is granted) of the Common Shares with respect to which ISOs are exercisable for the first time by the Optionee during any calendar year (under all incentive stock option plans of the Company) shall not exceed $100,000; provided, however, that all or any portion of an Option which cannot be exercised as an ISO because of such limitation shall be treated as an NSO.

5.7 Effect of Change in Control. The Committee (in its sole discretion) may determine, at the time of granting an Option, that such Option shall become fully exercisable as to all Common Shares subject to such Option immediately preceding any Change in Control with respect to the Company.

5.8    Restrictions on Transfer of Common Shares. Any Common Shares issued upon exercise of an Option shall be subject to such special forfeiture conditions, rights of repurchase, rights of first refusal and other transfer restrictions as the Committee may determine. Such restrictions shall be set forth in the applicable Stock Option Agreement and shall apply in addition to any general restrictions that may apply to all holders of Common Shares.

5.9    Authorization of Replacement Options. Concurrently with the grant of any Option to a Participant (other than NSOs granted pursuant to Section 4.2), the Committee may authorize the grant of Replacement Options. If Replacement Options have been authorized by the Committee with respect to a particular award

of Options (the “Underlying Options”), the Option Agreement with respect to the Underlying Options shall so state, and the terms and conditions of the Replacement Options shall be provided therein. The grant of any Replacement Options shall be effective only upon the exercise of the Underlying Options through the use of Common Shares pursuant to Section 6.2 or Section 6.3. The number of Replacement Options shall equal the number of Common Shares used to exercise the Underlying Options, and, if the Option Agreement so provides, the number of Common Shares used to satisfy any tax withholding requirements incident to the exercise of the Underlying Options in accordance with Section 13.2. Upon the exercise of the Underlying Options, the Replacement Options shall be evidenced by an amendment to the Underlying Option Agreement. Notwithstanding the fact that the Underlying Option may be an ISO, a Replacement Option is not intended to qualify as an ISO. The Exercise Price of a Replacement Option shall be no less than the Fair Market Value of a Common Share on the date the grant of the Replacement Option becomes effective. The term of each Replacement Option shall be equal to the remaining term of the Underlying Option. No Replacement Options shall be granted to Optionees when Underlying Options are exercised pursuant to the terms of the Plan and the Underlying Option Agreement following termination of the Optionee’s employment. The Committee, in its sole discretion, may establish such other terms and conditions for Replacement Options as it deems appropriate.

5.10 Options Granted to Non-United States Key Employees. In the case of Key Employees who are subject to the tax laws of a foreign jurisdiction, the Company may issue Options to such Key Employees that contain terms required to conform with any requirements for favorable tax treatment imposed by the laws of such foreign jurisdiction, or as otherwise may be required by the laws of such foreign jurisdiction. The terms of any such Options shall be governed by the Plan, subject to the terms of any Addendum to the Plan specifically applicable to such Options.

5.11 Effect of Job Elimination.    Notwithstanding anything to the contrary contained in the Plan or in any Stock Option Agreement or Stock Award Agreement entered into with respect to an Award pursuant to the Plan, in the case of a Participant who is an Officer, and who becomes entitled to receive payments with respect to a Severance Period pursuant to the Charles Schwab Severance Pay Plan (the “Severance Plan”) on account of a Job Elimination, the terms of the Plan and any Stock Option Agreement or Stock Award Agreement entered into with respect to an Award shall be applied by treating the Participant as if the Participant had terminated employment on the Participant’s Termination Date. For purposes of applying this Section, the terms Officer, Severance Period, Termination Date, and Job Elimination shall have the meanings set forth in the Severance Plan.

Article 6.    Payment for Option Shares.

6.1 General Rule.    The entire Exercise Price of Common Shares issued upon exercise of Options shall be payable in cash at the time when such Common Shares are purchased, except as follows:

(a) In the case of an ISO granted under the Plan, payment shall be made only pursuant to the express provisions of the applicable Stock Option Agreement. However, the Committee may specify in the Stock Option Agreement that payment may be made pursuant to Section 6.2 or 6.3.

(b) In the case of an NSO, the Committee may at any time accept payment pursuant to Section 6.2 or 6.3.

6.2 Surrender of Stock.    To the extent that this Section 6.2 is applicable, payment for all or any part of the Exercise Price may be made with Common Shares which are surrendered to the Company. Such Common Shares shall be valued at their Fair Market Value on the date when the new Common Shares are purchased under the Plan. In the event that the Common Shares being surrendered are Restricted Shares that have not yet become vested, the same restrictions shall be imposed upon the new Common Shares being purchased.

6.3    Exercise/Sale.    To the extent this Section 6.3 is applicable, payment may be made by the delivery (on a form prescribed by the Company) of an irrevocable direction to Charles Schwab & Co., Inc. to sell Common Shares (including the Common Shares to be issued upon exercise of the Options) and to deliver all or part of the sales proceeds to the Company in payment of all or part of the Exercise Price and any withholding taxes.

Article 7.    Restricted Shares and Performance Share Awards.

7.1 Time, Amount and Form of Awards.    The Committee may grant Restricted Shares or Performance Share Awards with respect to an Award Year during such Award Year or at any time thereafter. Each such Award shall be evidenced by a Stock Award Agreement between the Award recipient and the Company. The amount of each Award of Restricted Shares or Performance Share Awards shall be determined by the Committee. Awards under the Plan may be granted in the form of Restricted Shares or Performance Share Awards or in any combination thereof, as the Committee shall determine at its sole discretion at the time of the grant. Restricted Shares or Performance Share Awards may also be awarded in combination with NSOs, and such an Award may provide that the Restricted Shares or Performance Share Awards will be forfeited in the event that the related NSOs are exercised.

7.2 Payment for Restricted Share Awards.    To the extent that an Award is granted in the form of Restricted Shares, the Award recipient, as a condition to the grant of such Award, shall be required to pay the Company in cash an amount equal to the par value of such Restricted Shares.

7.3 Vesting or Issuance Conditions.    Each Award of Restricted Shares shall become vested, in full or in installments, upon satisfaction of the conditions specified in the Stock Award Agreement. Common Shares shall be issued pursuant to Performance Share Awards in full or in installments upon satisfaction of the issuance conditions specified in the Stock Award Agreement. The Committee shall select the vesting conditions in the case of Restricted Shares, or issuance conditions in the case of Performance Share Awards, which may be based upon the Participant’s service, the Participant’s performance, the Company’s performance or such other criteria as the Committee may adopt; provided that, in the case of an Award of Restricted Shares where vesting is based entirely on the Participant’s service (except to the extent otherwise specified by the Committee at the time of grant), (i) vesting shall be accelerated in the event of the Participant’s death or Disability; (ii) in the case of Retirement, vesting shall be accelerated for all Restricted Shares that had been granted more than two years prior to the date of the Participant’s Retirement; and (iii) vesting shall be suspended when an employee is on a leave of absence for a period in excess of six months in appropriate cases, as determined by the Company. The Committee, in its sole discretion, may determine, at the time of making an Award of Restricted Shares, that such Award shall become fully vested in the event that a Change in Control occurs with respect to the Company. The Committee, in its sole

discretion, may determine, at the time of making a Performance Share Award, that the issuance conditions set forth in such Award shall be waived in the event that a Change in Control occurs with respect to the Company.

7.4    Form of Settlement of Performance Share Awards.    Settlement of Performance Share Awards shall only be made in the form of Common Shares. Until a Performance Share Award is settled, the number of Performance Share Awards shall be subject to adjustment pursuant to Article 10.

7.5 Death of Recipient. Any Common Shares that are to be issued pursuant to a Performance Share Award after the recipient’s death shall be delivered or distributed to the recipient’s beneficiary or beneficiaries. Each recipient of a Performance Share Award under the Plan shall designate one or more beneficiaries for this purpose by filing the prescribed form with the Company. A beneficiary designation may be changed by filing the prescribed form with the Company at any time before the Award recipient’s death. If no beneficiary was designated or if no designated beneficiary survives the Award recipient, then any Common Shares that are to be issued pursuant to a Performance Share Award after the recipient’s death shall be delivered or distributed to the recipient’s estate. The Committee, in its sole discretion, shall determine the form and time of any distribution(s) to a recipient’s beneficiary or estate.

Article 8.    Claims Procedures.

Claims for benefits under the Plan shall be filed in writing with the Committee on forms supplied by the Committee. Written notice of the disposition of a claim shall be furnished to the claimant within 90 days after the claim is filed. If the claim is denied, the notice of disposition shall set forth the specific reasons for the denial, citations to the pertinent provisions of the Plan, and, where appropriate, an explanation as to how the claimant can perfect the claim. If the claimant wishes further consideration of his or her claim, the claimant may appeal a denied claim to the Committee (or to a person designated by the Committee) for further review. Such appeal shall be filed in writing with the Committee on a form supplied by the Committee, together with a written statement of the claimant’s position, no later than 90 days following receipt by the claimant of written notice of the denial of his or her claim. If the claimant so requests, the Committee shall schedule a hearing. A decision on review shall be made after a full and fair review of the claim and shall be delivered in writing to the claimant no later than 60 days after the Committee’s receipt of the notice of appeal, unless special circumstances (including the need to hold a hearing) require an extension of time for processing the appeal, in which case a written decision on review shall be delivered to the claimant as soon as possible but not later than 120 days after the Committee’s receipt of the appeal notice. The claimant shall be notified in writing of any such extension of time. The written decision on review shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, and shall specifically refer to the pertinent Plan provisions on which it is based. All determinations of the Committee shall be final and binding on Participants and their beneficiaries.

Article 9.    Voting Rights and Dividends.

9.1 Restricted Shares.

(a) All holders of Restricted Shares who are not Named Executive Officers shall have the same voting, dividend, and other rights as the Company’s other stockholders.

(b) During the period of restriction, Named Executive Officers holding Restricted Shares granted hereunder shall be credited with all regular cash dividends paid with respect to all Restricted Shares while they are so held. If a dividend is paid in the form of cash, such cash dividend shall be credited to Named Executive Officers subject to the same restrictions on transferability and forfeitability as the Restricted Shares with respect to which they were paid. If any dividends or distributions are paid in shares of Common Stock, the shares of Common Stock shall be subject to the same restrictions on transferability and forfeitability as the Restricted Shares with respect to which they were paid. Subject to the succeeding paragraph, and to the restrictions on vesting and the forfeiture provisions, all dividends credited to a Named Executive Officer shall be paid to the Named Executive Officer within forty-five (45) days following the full vesting of the Restricted Shares with respect to which such dividends were earned.

In the event that any dividend constitutes a “derivative security” or an “equity security” pursuant to Rule 16(a) under the Exchange Act, such dividend shall be subject to a vesting period equal to the longer of: (i) the remaining vesting period of the Restricted Shares with respect to which the dividend is paid; or (ii) six (6) months. The Committee shall establish procedures for the application of this provision.

Named Executive Officers holding Restricted Shares shall have the same voting rights as the Company’s other stockholders.

9.2 Performance Share Awards. The holders of Performance Share Awards shall have no voting or dividend rights until such time as any Common Shares are issued pursuant thereto, at which time they shall have the same voting, dividend and other rights as the Company’s other stockholders.

Article 10.    Protection Against Dilution; Adjustment of Awards.

10.1 General.    In the event of a subdivision of the outstanding Common Shares, a declaration of a dividend payable in Common Shares, a declaration of a dividend payable in a form other than Common Shares, a combination or consolidation of the outstanding Common Shares (by reclassification or otherwise) into a lesser number of Common Shares, a recapitalization, a spinoff or a similar occurrence, the Committee shall make appropriate adjustments in one or more of (a) the number of Options, Restricted Shares and Performance Share Awards available for future Awards under Article 3, (b) the maximum number of Common Shares which may be granted under Article 3 to any one Participant in any one fiscal year either subject to an Option or as Restricted Shares or Performance Share Awards, (c) the number of Performance Share Awards included in any prior Award which has not yet been settled, (d) the number of Common Shares covered by each outstanding Option or (e) the Exercise Price under each outstanding Option.

10.2 Reorganizations.    In the event that the Company is a party to a merger or other reorganization, outstanding Options, Restricted Shares and Performance Share Awards shall be subject to the agreement of merger or reorganization. Such agreement may provide, without limitation, for the assumption of outstanding Awards by the surviving corporation or its parent, for their continuation by the Company (if the Company is a surviving corporation), for accelerated vesting or for settlement in cash.

10.3 Reservation of Rights. Except as provided in this Article 10, a

Participant shall have no rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class. Any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Common Shares subject to an Option. The grant of an Award pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.

Article 11. Limitation of Rights.

11.1    Employment Rights.    Neither the Plan nor any Award granted under the Plan shall be deemed to give any individual a right to remain employed by the Company or any Subsidiary. The Company and its Subsidiaries reserve the right to terminate the employment of any employee at any time, with or without cause, subject only to a written employment agreement (if any).

11.2    Stockholders’ Rights.    A Participant shall have no dividend rights, voting or other rights as a stockholder with respect to any Common Shares covered by his or her Award prior to the issuance of such Common Shares, whether by issuance of a certificate, book entry or other procedure. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date when such certificate is issued, except as expressly provided in Articles 7, 9 and 10.

11.3    Creditors’ Rights.    A holder of Performance Share Awards shall have no rights other than those of a general creditor of the Company. Performance Share Awards represent unfunded and unsecured obligations of the Company, subject to the terms and conditions of the applicable Stock Award Agreement.

11.4    Government Regulations.    Any other provision of the Plan notwithstanding, the obligations of the Company with respect to Common Shares to be issued pursuant to the Plan shall be subject to all applicable laws, rules and regulations, and such approvals by any governmental agencies as may be required. The Company reserves the right to restrict, in whole or in part, the delivery of Common Shares pursuant to any Award until such time as:

(a) Any legal requirements or regulations have been met relating to the issuance of such Common Shares or to their registration, qualification or exemption from registration or qualification under the Securities Act of 1933, as amended, or any applicable state securities laws; and

(b) Satisfactory assurances have been received that such Common Shares, when issued, will be duly listed on the New York Stock Exchange or any other securities exchange on which Common Shares are then listed.

Article 12.    Limitation of Payments.

12.1 Basic Rule. Any provision of the Plan to the contrary notwithstanding, in the event that the independent auditors most recently selected by the Board (the “Auditors”) determine that any payment or transfer in the nature of compensation to or for the benefit of a Participant, whether paid or payable (or transferred or transferable) pursuant to the terms of this Plan or otherwise (a “Payment”), would be nondeductible for federal income tax purposes because of

the provisions concerning “excess parachute payments” in section 280G of the Code, then the aggregate present value of all Payments shall be reduced (but not below zero) to the Reduced Amount; provided, however, that the Committee, at the time of making an Award under this Plan or at any time thereafter, may specify in writing that such Award shall not be so reduced and shall not be subject to this Article 12. For purposes of this Article 12, the “Reduced Amount” shall be the amount, expressed as a present value, which maximizes the aggregate present value of the Payments without causing any Payment to be nondeductible by the Company because of section 280G of the Code.

12.2    Reduction of Payments.    If the Auditors determine that any Payment would be nondeductible because of section 280G of the Code, then the Company shall promptly give the Participant notice to that effect and a copy of the detailed calculation thereof and of the Reduced Amount, and the Participant may then elect, in his or her sole discretion, which and how much of the Payments shall be eliminated or reduced (as long as after such election, the aggregate present value of the Payments equals the Reduced Amount) and shall advise the Company in writing of his or her election within 10 days of receipt of notice. If no such election is made by the Participant within such 10-day period, then the Company may elect which and how much of the Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the Reduced Amount) and shall notify the Participant promptly of such election. For purposes of this Article 12, present value shall be determined in accordance with section 280G(d)(4) of the Code. All determinations made by the Auditors under this Article 12 shall be binding upon the Company and the Participant and shall be made within 60 days of the date when a Payment becomes payable or transferable. As promptly as practicable following such determination and the elections hereunder, the Company shall pay or transfer to or for the benefit of the Participant such amounts as are then due to him or her under the Plan, and shall promptly pay or transfer to or for the benefit of the Participant in the future such amounts as become due to him or her under the Plan.

12.3    Overpayments and Underpayments.    As a result of uncertainty in the application of section 280G of the Code at the time of an initial determination by the Auditors hereunder, it is possible that Payments will have been made by the Company which should not have been made (an “Overpayment”) or that additional Payments which will not have been made by the Company could have been made (an “Underpayment”), consistent in each case with the calculation of the Reduced Amount hereunder. In the event that the Auditors, based upon the assertion of a deficiency by the Internal Revenue Service against the Company or the Participant which the Auditors believe has a high probability of success, determine that an Overpayment has been made, such Overpayment shall be treated for all purposes as a loan to the Participant which he or she shall repay to the Company on demand, together with interest at the applicable federal rate provided in section 7872(f)(2) of the Code; provided, however, that no amount shall be payable by the Participant to the Company if and to the extent that such payment would not reduce the amount which is subject to taxation under section 4999 of the Code. In the event that the Auditors determine that an Underpayment has occurred, such Underpayment shall promptly be paid or transferred by the Company to or for the benefit of the Participant, together with interest at the applicable federal rate provided in section 7872(f)(2) of the Code.

12.4    Related Corporations.    For purposes of this Article 12, the term “Company” shall include affiliated corporations to the extent determined by the Auditors in accordance with section 280G(d)(5) of the Code.

Article 13. Withholding Taxes.

13.1 General. To the extent required by applicable federal, state, local or foreign law, the recipient of any payment or distribution under the Plan shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise by reason of such payment or distribution. The Company shall not be required to make such payment or distribution until such obligations are satisfied.

13.2 Nonstatutory Options, Restricted Shares or Performance Share Awards. The Committee may permit an Optionee who exercises NSOs, or who receives Awards of Restricted Shares, or who receives Common Shares pursuant to the terms of a Performance Share Award, to satisfy all or part of his or her withholding tax obligations by having the Company withhold a portion of the Common Shares that otherwise would be issued to him or her under such Awards. Such Common Shares shall be valued at their Fair Market Value on the date when taxes otherwise would be withheld in cash. The payment of withholding taxes by surrendering Common Shares to the Company, if permitted by the Committee, shall be subject to such restrictions as the Committee may impose, including any restrictions required by rules of the Securities and Exchange Commission.

Article 14.    Assignment or Transfer of Award.

14.1    General Rule.    Any Award granted under the Plan shall not be anticipated, assigned, attached, garnished, optioned, transferred or made subject to any creditor’s process, whether voluntarily, involuntarily or by operation of law, except to the extent specifically permitted by Section 14.2.

14.2    Exceptions to General Rule.    Notwithstanding Section 14.1, this Plan shall not preclude (i) a Participant from designating a beneficiary to succeed, after the Participant’s death, to those of the Participant’s Awards (including without limitation, the right to exercise any unexercised Options) as may be determined by the Company from time to time in its sole discretion, (ii) a transfer of any Award hereunder by will or the laws of descent or distribution, or (iii) a voluntary transfer of an Award (other than an ISO) to a trust, partnership or limited liability company for the benefit of one or more members of the Participant’s family, subject to the prior approval of the Committee or its designee; provided that, in the case of an Award granted prior to September 25, 2002, such approval shall not be required for a transfer to a trust or partnership if the Participant has sole investment control over such trust or partnership.

Article 15.    Future of Plans.

15.1    Term of the Plan.    The Plan, as set forth herein, shall become effective on May 8, 1992. The Plan shall remain in effect until it is terminated under Section 15.2, except that no ISOs shall be granted after May 7, 2002.

15.2 Amendment or Termination. The Committee may, at any time and for any reason, amend or terminate the Plan; provided, however, that any amendment of the Plan shall be subject to the approval of the Company’s stockholders to the extent required by applicable laws, regulations or rules.

15.3 Effect of Amendment or Termination.    No Award shall be made under the Plan after the termination thereof. The termination of the Plan, or any amendment thereof, shall not affect any Option, Restricted Share or Performance

Share Award previously granted under the Plan.

Article 16.    Definitions.

16.1    “Award” means any award of an Option, a Restricted Share or a Performance Share Award under the Plan.

16.2    “Award Year” means a fiscal year beginning January 1 and ending December 31 with respect to which an Award may be granted.

16.3    “Board” means the Company’s Board of Directors, as constituted from time to time.

16.4    “Change in Control” means the occurrence of any of the following events after the effective date of the Plan as set out in Section 15.1:

(a) A change in control required to be reported pursuant to Item 6(e) of Schedule 14A of Regulation 14A under the Exchange Act;

(b) A change in the composition of the Board, as a result of which fewer than two-thirds of the incumbent directors are directors who either (i) had been directors of the Company 24 months prior to such change or (ii) were elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the directors who had been directors of the Company 24 months prior to such change and who were still in office at the time of the election or nomination;

(c) Any “person” (as such term is used in sections 13(d) and 14(d) of the Exchange Act) becomes the beneficial owner, directly or indirectly, of securities of the Company representing 20 percent or more of the combined voting power of the Company’s then outstanding securities ordinarily (and apart from rights accruing under special circumstances) having the right to vote at elections of directors (the “Base Capital Stock”); provided, however, that any change in the relative beneficial ownership of securities of any person resulting solely from a reduction in the aggregate number of outstanding shares of Base Capital Stock, and any decrease thereafter in such person’s ownership of securities, shall be disregarded until such person increases in any manner, directly or indirectly, such person’s beneficial ownership of any securities of the Company.

16.5    “Code” means the Internal Revenue Code of 1986, as amended.

16.6    “Committee” means the Compensation Committee of the Board, as constituted from time to time.

16.7    “Common Share” means one share of the common stock of the Company.

16.8    “Company” means The Charles Schwab Corporation, a Delaware corporation.

16.9    “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

16.10    “Exchange Act” means the Securities Exchange Act of 1934, as amended.

16.11    “Exercise Price” means the amount for which one Common Share may be purchased upon exercise of an Option, as specified by the Committee in the

applicable Stock Option Agreement.

16.12    “Fair Market Value” means the market price of a Common Share, determined by the committee as follows:

(a) If the Common Share was traded on a stock exchange on the date in question, then the Fair Market Value shall be equal to the closing price reported by the applicable composite-transactions report for such date;

(b) If the Common Share was traded over-the-counter on the date in question and was classified as a national market issue, then the Fair Market Value shall be equal to the last transaction price quoted by the NASDAQ system for such date;

(c) If the Common Share was traded over-the-counter on the date in question but was not classified as a national market issue, then the Fair Market Value shall be equal to the mean between the last reported representative bid and asked prices quoted by the NASDAQ system for such date; and

(d) If none of the foregoing provisions is applicable, then the Fair Market Value shall be determined by the Committee in good faith on such basis as it deems appropriate.

16.13 “ISO” means an incentive stock option described in section 422(b) of the Code.

16.14 “Key Employee” means (1) a key common-law employee of the Company or any Subsidiary, as determined by the Committee, or (2) a non-employee director of any Subsidiary, as determined by the Committee.

16.15 “Named Executive Officer” means a Participant who, as of the date of vesting of an Award is one of a group of “covered employees,” as defined in the Regulations promulgated under Code Section 162(m), or any successor statute.

16.16    “Non-Employee Director” means a member of the Board who is not a common-law employee.

16.17 “NSO” means an employee stock option not described in sections 422 through 424 of the Code.

16.18 “Option” means an ISO or NSO or, in the case of a Key Employee who is subject to the tax laws of a foreign jurisdiction, an option qualifying for favorable tax treatment under the laws of such jurisdiction, including a Replacement Option, granted under the Plan and entitling the holder to purchase one Common Share.

16.19    “Optionee” means an individual, or his or her estate, legatee or heirs at law that holds an Option.

16.20 “Participant” means a Non-Employee Director or Key Employee who has received an Award.

16.21     “Performance Share Award” means the conditional right to receive in the future one Common Share, awarded to a Participant under the Plan.

16.22 “Plan” means this 1992 Stock Incentive Plan of The Charles Schwab Corporation, as it may be amended from time to time.

16.23 “Replacement Option” means an Option that is granted when a Participant uses a Common Share held or to be acquired by the Participant to exercise an Option and/or to satisfy tax withholding requirements incident to the exercise of an Option.

16.24 “Restricted Share” means a Common Share awarded to a Participant under the Plan.

16.25 “Stock Award Agreement” means the agreement between the Company and the recipient of a Restricted Share or Performance Share Award which contains the terms, conditions and restrictions pertaining to such Restricted Share or Performance Share Award.

16.26 “Stock Option Agreement” means the agreement between the Company and an Optionee which contains the terms, conditions and restrictions pertaining to his or her option.

16.27 “Subsidiary” means any corporation or other entity, if the Company and/or one or more other Subsidiaries own not less than 50 percent of the total combined voting power of all classes of outstanding stock of such corporation (or ownership interest of such other entity). A corporation or other entity that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.

16.28. “Retirement” shall mean any termination of employment of an Optionee for any reason other than death at any time after the Optionee has attained fifty (50), but only if, at the time of such termination, the Participant has been credited with at least seven (7) Years of Service under the Charles Schwab Profit Sharing and Employee Stock Ownership Plan. The foregoing definition shall apply to all Stock Option Agreements entered into pursuant to the Plan, irrespective of any definition to the contrary contained in any such Stock Option Agreement.

16.29 “Disability” means the inability to engage in any substantial gainful activity considering the Participant’s age, education and work experience by reason of any medically determined physical or mental impairment that has continued without interruption for a period of at least six months and that can be expected to be of long, continued and indefinite duration. All determinations as to whether a Participant has incurred a Disability shall be made by the Employee Benefits Administration Committee of the Company, the findings of which shall be final, binding and conclusive.

ADDENDUM A

The provisions of the Plan, as amended by the terms of this Addendum A, shall apply to the grant of Approved Options to Key U.K. Employees.

1. For purposes of this Addendum A, the following definitions shall apply in addition to those set out in section 16 of the Plan:

Approved Option Means a stock option designed to qualify as an approved executive share option under the Taxes Act;

Inland Revenue means the Board of the Inland Revenue in the United Kingdom.

Key U.K. Employee means a designated employee of Sharelink Investment Services plc or any subsidiary (as that term is defined in the Companies Act 1985 of the United Kingdom, as amended) of which Sharelink Investment Services plc has control for the purposes of section 840 of the Taxes Act;

Taxes Act means the Income and Corporation Taxes Act 1988 of the United Kingdom.

2. An Approved Option may only be granted to a Key U.K. Employee who:

(i) is employed on a full-time basis; and

(ii) does not fall within the provisions of paragraph 8 of Schedule 9 to the Taxes Act.

For purposes of this section 2(i) of Addendum A, “full-time” shall mean an employee who is required to work 20 hours per week, excluding meal breaks.

3. No Approved Option may be granted to a Key U.K. Employee if it would cause the aggregate of the exercise price of all subsisting Approved Options granted to such employee under the Plan, or any other subsisting options granted to such employee under any other share option scheme approved under Schedule 9 of the Taxes Act and established by the Company or an associated company, to exceed the higher of (a) one hundred thousand pounds sterling and (b) four times such employee’s relevant emoluments for the current or preceding year of assessment (whichever is greater); but where there were no relevant emoluments for the previous year of assessment, the limit shall be the higher of one hundred thousand pounds sterling or four times such employee’s relevant emoluments for the period of twelve months beginning with the first day during the current year of assessment in respect of which there are relevant emoluments. For the purpose of this section 3 of Addendum A, “associated company” means an associated company within the meaning of section 416 of the Taxes Act; “relevant emoluments” has the meaning given by paragraph 28(4) of Schedule 9 to the Taxes Act and “year of assessment” means a year beginning on any April 6 and ending on the following April 5.

4. Common Shares issued pursuant to the exercise of Approved Options must satisfy the conditions specified in paragraphs 10 to 14 of Schedule 9 to the Taxes Act.

5.    Notwithstanding the provisions of Section 5.4 of the Plan, the exercise price of an Approved Option shall not be less than 100 percent of the closing price of a Common Share as reported in the New York Stock Exchange Composite Index on the date of grant.

6. No Approved Option may be exercised at any time by a Key U.K. Employee when that Key U.K. Employee falls within the provisions of paragraph 8 of Schedule 9 to the Taxes Act. If at any time the shares under an Approved Option cease to comply with the conditions in paragraphs 10 to 14 of Schedule 9 to the Taxes Act, then all Approved Options then outstanding shall lapse and cease to be exercisable from the date of the shares ceasing so to comply, and no optionee shall have any cause of action against the Company, Sharelink Investment Services plc or any subsidiary of the Company or any other person in respect thereof.

7. An Approved Option may contain such other terms, provisions and conditions as may be determined by the Committee consistent with the Plan, provided that the approved option otherwise complies with the requirements for approved executive option schemes specified in Schedule 9 of the Taxes Act.

8. In relation to an Approved Option, notwithstanding the terms of section 10.1 of the Plan, no adjustment shall be made pursuant to section 10.1 of the Plan to any outstanding Approved Options without the prior approval of the Inland Revenue.

9. In relation to an Approved Option any Key U.K. Employee shall make arrangements satisfactory to the Company for the satisfaction of any tax withholding or deduction - - at - - source obligations that arise by reason of the grant to him or her of such option, or its subsequent exercise.

10. In relation to an Approved Option, in addition to the provisions set out in section 15.2 of the Plan, no amendment which affects any of the provisions of the Plan relating to Approved Options shall be effective until approved by the Inland Revenue, except for such amendment as are required to obtain and maintain the approval of Inland Revenue pursuant to Schedule 9 to the Taxes Act.

EX-10.298

Exhibit 10.298

Directed Employee Benefit Trust Agreement

This TRUST AGREEMENT (the “Agreement”) is entered into by and between the company identified on the Execution Page (the “Company”) and THE CHARLES SCHWAB TRUST COMPANY (the “Trustee”). The Agreement relates to the trust portion of the retirement plan (the “Plan”) and trust identified on the Execution Page which has been established by the Company for the benefit of its employees and to the account established by the Trustee under this Agreement to hold the account assets transferred by the Company to the Trustee (the “Account”), if any. This Agreement is effective on the date it is accepted by the Trustee.

PURPOSE OF TRUST FUND

The Company adopted the Plan for the exclusive purpose of providing benefits to certain of its employees and their beneficiaries and defraying reasonable expenses of administering the Plan. The Plan provides that, from time to time, cash and other assets may be paid to the Trustee by the Company to be held and administered as a trust for the uses and purposes of the Plan. The Company intends that the Plan will qualify under Section 401(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and that the Trust will constitute a part of the Plan, as a tax-exempt entity within the meaning of Code Section 501(a).

The Company and the Trustee enter into this Agreement whereby the Company appoints Trustee as the trustee of the cash, marketable securities, and other property acceptable to the Trustee (as described in Article 2.5) which may be contributed by Company from time to time to the Trust Fund. The Trustee will have no duties or responsibilities with respect to any property other than cash, marketable securities, and other property accepted by the Trustee. The Charles Schwab Trust Company agrees to act as the Trustee of the Trust according to the terms and conditions of this Agreement.

The parties agree that the Trustee will (i) establish an account to hold the trust assets transferred by the Company to the Trustee hereunder (the “Trust Fund” or “Trust”), (ii) provide safekeeping and custody of and administer trust assets held in such Trust Fund, and (iii) perform the functions and duties assigned to it under this Agreement subject to the Company’s directions. The Trustee will act only at the direction of the Company or a party authorized to act on the Company’s behalf. The Trustee has no authority to take any discretionary action and does not exercise discretionary authority or control with respect to Plan assets. The Company warrants and represents that all directions provided to the Trustee will be in conformity with the terms of the applicable Plan and related documents governing the establishment and operation of the Trust Fund, including, this Agreement (“collectively, the “Plan Documents”), and acknowledges and agrees that the Trustee shall have no liability or responsibility in this regard.

The Company warrants and represents that the transfer of custody of the Trust Fund to the Trustee hereunder and the maintenance of custody by Trustee is authorized by the Plan Documents. Furthermore, the Company warrants and represents that any such Plan Documents are in full force and effect and have not been revoked, modified or amended in any way that would cause the representations made in this Agreement to be inaccurate or incorrect. The Company confirms that it is authorized to enter into this Agreement and to carry out all of its duties as described in this Agreement.

The Trustee is subject to the Company’s directions given in accordance with this Agreement. The Company’s directions may be given by (i) resolution of the Company, (ii) one or more individuals designated by the Company to act on the Company’s behalf, or (iii) any other person authorized in writing by the Company or such designated individual(s). The Company will notify the Trustee of the identity of any person(s) authorized to act on its behalf from time to time and will timely notify the Trustee of any person who ceases to be authorized to act and any person who becomes authorized to act. The Trustee will be entitled to rely in good faith on directions received from such authorized person(s) until notified by the Company to the contrary, and the Company acknowledges and agrees that the Trustee shall have no liability or responsibility in this regard.

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ARTICLE 1

CONTRIBUTIONS AND DISTRIBUTIONS

1.1 Plan Administrator Directions. The Company will be the Plan Administrator. The Company, by action of its governing body (the Board of Directors for a corporation, the partnership for a partnership, collectively the “Governing Body”) will have the right to appoint and empower any other person(s) or entity to serve as Plan Administrator, or to serve on the Plan administrative committee (collectively the “Administrator”) on its behalf. The Company appointing the Administrator will inform the Trustee of the appointment by providing it with a copy of the appropriate resolution from the Company’s Governing Body. The Company will notify Trustee of the name(s) of the Administrator as of the date of this Agreement and will inform Trustee of any subsequent change. In the absence of such notification, the Company will be the Administrator. The Administrator will be the Plan’s named fiduciary unless the Company designates other persons who are authorized to act as or on behalf of the Plan as named fiduciary and so informs the Trustee in writing.

The Administrator may delegate to any other person or persons any of the Administrator’s rights, powers or responsibilities with respect to the operation and administration of the Trust Fund. The Company or the Administrator will identify in a written notice to the Trustee the identity of the person(s) authorized to give directions to the Trustee on behalf of the Administrator. Such notice will contain specimens of the authorized signatures and will indicate the number of authorized persons required to effect Trustee action. The Trustee will be entitled to rely upon such written notice as evidence of the identity and authority of the persons appointed. Unless otherwise set forth in this Agreement, for purposes of this Agreement, any reference to the Administrator will include the delegates of the Administrator.

The Company will provide the Trustee with copies of all Plan or other documents required by the Trustee at or before the time this Agreement is executed by the Company and will provide the Trustee all other documents amending or supplementing the Plan promptly upon their adoption. The Company or the Plan Administrator, as applicable, will provide the Trustee with copies of all agreements with all agents, including any investment managers, appointed by the Company (each an “Investment Manager”) or the Plan Administrator and all other documents amending or supplementing such agreements.

Directions from the Administrator to the Trustee will be in writing and signed by the Administrator or persons authorized by the Administrator or may be made by any other method acceptable to the Trustee, including direction by facsimile transmission, electronically, including e-mail, the Internet, intranet systems and automated telephonic response systems to the extent permitted by law, the terms of the Plan as communicated by the Administrator to the Trustee (upon which communication the Trustee shall entitled to rely, without duty or inquiry or investigation), the Trustee and the terms of this Agreement, under procedures agreed to by the Trustee and the Administrator.

1.2 Contributions. The Company will deliver contributions or transfers required by the Trust Agreement to the Trustee for inclusion in the Trust Fund. All contributions or transfers will be received by the Trustee in cash or in other property acceptable to the Trustee (as described in Article 2.5). The Trust Fund will consist of the contributions and transfers received by the Trustee, together with the income on and increment in such assets. The Trustee will manage and administer the Trust Fund without distinction between principal and income.

The Trustee has no responsibility to (i) monitor or enforce contributions required or permitted by the Plan Documents, (ii) compute the required amount of such contributions, (iii) determine whether the Trust Fund is sufficient to provide benefits described in the Plan Documents, or (iv) determine whether contributions actually made comply with the Plan Documents, the governing Plan documents, or, for any Account established on behalf of a Trust Fund subject to the Employee Retirement Income Security Act of 1974 (“ERISA”) (an “ERISA Account”), the Internal Revenue Code of 1986, as amended (the “Code”) or the regulations promulgated thereunder. Contributions normally will be made by wire transfer of cash or by check, or in the form of property acceptable to the Trustee.

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1.3 Rollover Contributions. At the written direction of the Administrator, the Trustee will accept a rollover contribution to the Trust Fund on behalf of an employee eligible to make such a contribution. Such contributions will consist of cash or other property otherwise accepted by the Trustee. The Administrator will be solely responsible for determining:

(a) Where applicable, that such contributions constitute eligible rollover contributions within the meaning of Code Section 402(c)(4) or 408(d)(3);

(b) Whether the employee making the contribution is eligible to do so because he or she is either a participant or an eligible employee who is about to become a participant; and

(c) Where applicable, that the contribution was distributed from an employee benefit plan qualified under Code Section 401(a), a Code Section 403(b) plan, a governmental deferred compensation plan under Code Section 457, from an individual retirement account or annuity described in Code Section 408, or from any other plan from which it is appropriate to accept rollover contributions.

The Trustee will accept such contributions from the Administrator or, at the direction of the Administrator, in a trustee-to-trustee transfer directly from the trustee of the employee benefit Plan from which the distribution is made.

1.4 Collection of Income and Principal. The Trustee will collect the income when paid on Trust Assets and principal of Trust Assets when paid on maturity, redemption, sale or otherwise and invest it in accordance with Articles 2 and 3. The Trustee will make reasonable efforts to diligently collect income and principal of which the Trustee has received actual notice in accordance with normal industry practices. The Trustee will be under no duty to take any action to effect collection of any amounts with respect to which payment is in default, or if payment is refused after due demand. The Trustee will notify the Company or the investment manager appointed in accordance with Article 2.4 (an “Investment Manager”) of any default or refusal to pay.

1.5 Payments and Distributions. At the written direction of the Administrator, the Trustee will from time to time make distributions or transfers from the Trust as specified in such written directions, including distributions for the payment of reasonable Plan expenses. The Trustee will have no liability for making any distribution or transfer directed by the Administrator and will be under no duty to inquire whether directions from the Administrator conform to Plan provisions, the Code, ERISA or regulations promulgated thereunder.

The Administrator will furnish to the Trustee all information necessary to enable the Trustee to withhold from each distribution the amount necessary to pay Federal and state income taxes due. If the Administrator fails to provide adequate tax withholding information, the Trustee will have no obligation to withhold any amount to cover the payment of such taxes. However, the Trustee may, in its sole discretion, and to the extent required under applicable law, withhold from any distribution to any payee such sum as the Trustee may reasonably estimate is necessary to cover required Federal and state taxes which are, or may be, assessed with regard to the amount distributable to such payee. Upon the discharge or settlement of such tax liability the Trustee will pay the balance of such sum, if any, to such payee.

If the Administrator directs that any payment or payments be made or discontinued contingent upon future events, it will be the responsibility of the Administrator to notify the Trustee in writing that such event has occurred, that such payments should be made or discontinued, and that any payments made by the Trustee prior to the date of such notification will, as to the Trustee, be proper payments.

Payments by the Trustee will be delivered or mailed to addresses supplied by the Administrator, or if the Administrator does not provide an address, to the recipient in care of the Administrator. The Trustee’s obligation to make such payments will be satisfied upon such delivery or mailing. The Trustee will have no obligation to determine the identity of persons entitled to benefits or their mailing addresses.

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If the payment made to a participant or beneficiary is returned to the Trustee, or if the payment is not perfected within such time limits as the Trustee in its sole discretion may determine from time to time, the Trustee will inform the Administrator or its authorized agent acting on its behalf. It will be the responsibility of the Administrator or such authorized agent acting on its behalf to instruct the Trustee on the proper disposition of the payment under the terms of the Plan, and the Trustee will have no obligation to take any further action with respect to such payment absent such instructions.

1.6 Participant Loans and Qualified Domestic Relations Orders. If the Plan authorizes loans to Plan participants, the Trustee will issue such loans from the Trust at the direction of the Administrator. The Administrator will issue directions to Trustee in accordance with the terms of the loan policy drafted by the Administrator. The Plan’s loan policy is contained in a separate agreement established under the terms of the Plan. Likewise, Trustee will make payments pursuant to domestic relations orders only at the direction of the Administrator. Administrator will be responsible for establishing written procedures to evaluate and administer the payment of benefits under domestic relations orders as required under the Code and ERISA.

The following provisions apply with respect to any participant loans (“Loans”) made from the Plan and domestic relations orders (“DROs”) received by the Plan.

(a) Loans will be made pursuant to a request furnished to the Trustee by the Administrator.

(b) The Trustee will have no responsibility for reviewing any documentation concerning Loans, including without limitation the loan policy, any promissory notes, federal truth-in-lending disclosure forms and spousal consent forms (collectively “Loan Documents”) for compliance with applicable state and Federal laws. The Trustee will have no responsibility for holding any Loan Documents. Administrator will be solely responsible for reviewing and maintaining all Loan Documents.

(c) The Administrator will perform all accounting required for all Loans, including the establishment thereof and all renewals and payments thereon. The Administrator will promptly transmit any payments on Loans to the Trustee and will transmit to the Trustee such information as is necessary for the Trustee to properly account for all such payments. In the event of the failure of a participant to make any timely repayment on a Loan, the Administrator will instruct the Trustee with respect to all matters surrounding such failure, including without limitation whether to declare the loan in default and whether to treat the loan as a deemed distribution for purposes of tax reporting. The Trustee will not have any responsibility to declare a Loan in default absent any instructions to do so from the Administrator.

(d) The Trustee will establish a single master loan record on its books and records to represent the Plan’s Loans. The Trustee will process disbursements, renewals and payments on its books and records on an aggregate (not a per participant) basis against this master loan record.

(e) The Administrator will be solely responsible for determining whether any Domestic Relations Orders (DRO) received by the Plan constitutes a “qualified domestic relations order” within the meaning of Code Section 414(p) (“QDRO”). The Trustee will not have any responsibility to make such determination.

(f) When the Trustee receives a direction from the Administrator to make any payment to an alternate beneficiary under a DRO, the Trustee will be entitled to treat such direction as having been made following a determination by the Administrator (pursuant to its written procedures) that the DRO constitutes a QDRO.

(g) The Trustee will have no administrative obligations with regard to Loans or DROs other than as specifically provided herein.

1.7 Trustee’s Reliance on Administrator’s Directions. The Trustee may rely upon directions from the Administrator in making payments from the Trust Fund, including payments pursuant to a domestic relations order determined by the Administrator to be qualified within the meaning of Code Section

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414(p), or payments made to satisfy taxes due. The Trustee will have no liability for payments made, or for failure to make payments, or for discontinuing payments, on the direction of the Administrator. The Trustee will have no liability for failure to make payments from the Trust in the absence of proper written directions from the Administrator.

The Trustee may request instructions from the Administrator and will have no duty to act or liability for failure to act if such instructions are not forthcoming from the Administrator. If requested instructions are not received within a reasonable time, the Trustee may, but is under no duty to act in its own discretion to carry out the provisions of this Agreement.

1.8 Disputed Payments. If any controversy or disagreement arises regarding any payment from the Trust Fund or the person(s) to whom payment or delivery of any asset should be made by the Trustee, the Trustee may retain the assets involved without liability pending settlement of the controversy or disagreement and/or require that such controversy or disagreement be adjudicated pursuant to arbitration as provided in Article 9.5. The Trustee will not be liable for the payment of any interest or income on such assets that it retains pursuant to the instruction of an arbitrator. The Trustee may consult its legal counsel or legal counsel of the Company and will be protected to the extent permitted by law in acting upon advice of counsel.

ARTICLE 2

FIDUCIARY RESPONSIBILITY AND INDEMNIFICATION

2.1 Administrator Direction of Investments. Except as provided in Articles 2.3 and 2.4 below, the Administrator will have complete authority over and responsibility for the management, disposition, and investment of Trust assets. The Trustee will comply with proper written directions of the Administrator concerning those assets. The Administrator will not issue any direction to the Trustee that would violate the terms of the Plan and Trust, or be prohibited by the provisions of ERISA, the Internal Revenue Code, and/or any other applicable law, rules and regulations, including but not limited to the provisions of Section 404 and 406(b) of ERISA and the regulations promulgated thereunder and will provide the Trustee with supportive documentation to such effect upon reasonable request. Except as required by ERISA or otherwise provided in this Agreement the Trustee will have no duty or responsibility to review, initiate action, or make recommendations regarding Trust assets and will retain assets until directed in writing by the Administrator to dispose of them.

2.2 Funding Policy. Except to the extent that the Administrator: (i) determines that its authority and responsibility is limited by Section 404(c) of ERISA or (ii) has properly delegated its authority and responsibility to a third party, the Administrator will be responsible for establishing and carrying out a funding policy and method for the Plan, as specified in Section 402(b)(1) of ERISA, consistent with the objectives of the Plan and the requirements of ERISA and taking into consideration the Plan’s short-term and long-term financial needs. The Administrator acknowledges and agrees that it shall be its responsibility and liability, and not that of the Trustee, to determine whether or not it is responsible for establishing and carrying out a funding policy and method in light of the application of (i) or (ii) above.

The Trustee will not be responsible for establishing the Plan’s funding policy or for ensuring adherence to the policy, nor will the Trustee be responsible for the proper diversification of the Trust Fund. Except to the extent that the Administrator: (i) determines that its authority and responsibility is limited by Section 404(c) of ERISA or (ii) has properly delegated its authority and responsibility to a third party, the Administrator will be responsible for the Plan’s funding policy, for the diversification of Trust Fund assets, and for the Trust Fund’s compliance with statutory limitations on the amount of investment in securities or other property of the Company, or its affiliated companies.

2.3 Participant Direction of Investments. If permissible under the Plan, each participant and/or beneficiary may have investment power over the account maintained for him or her, and may direct the investment and reinvestment of assets of the account among the options authorized by the Administrator. Such direction shall be furnished to the Trustee in writing under procedures agreed to by the Trustee and the Administrator. To the extent provided under ERISA section 404(c), the Trustee shall not be liable for

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any loss, or by reason of any breach, which results from such participant’s or beneficiary’s exercise of control. If a participant who has investment authority under the terms of the Plan fails to provide such directions, the Administrator shall direct the investment of the participant’s accounts. The Administrator shall maintain records showing the interest of each participant and/or beneficiary in the Trust Fund unless the Trustee enters into an agreement with the Company to keep separate accounts for each such participant and/or beneficiary. The Trustee shall have no duty or responsibility to review or make recommendations regarding investments made at the direction of the Administrator or participant and shall be required to act only upon receipt of proper written directions. A participant or beneficiary shall not have authority to direct the investment of assets in his or her account in a loan to any participant, including himself or herself, or “collectibles” within the meaning of Code section 408(m)(2).

For Plans that permit a participant to direct the investment of his or her account assets, the Trustee will, upon written instructions from the Administrator, establish on behalf of a participant or beneficiary a Schwab Personal Choice Retirement Account^™ (“PCRA Account”) at Charles Schwab & Co., Inc. (the “Broker/Dealer”). Such Account will be used to segregate the non-core assets representing the value of an individual participant’s or beneficiary’s account(s) under the Plan. The participant or beneficiary will be allowed to manage the investment of the assets in his or her PCRA Account and will be solely responsible for any loss resulting from his or her exercise of control over the assets segregated into his or her PCRA Account.

2.4 Investment Manager Direction of Investments. The Administrator may appoint one or more investment managers within the meaning of Section 3(38) of ERISA (each, an “Investment Manager”) to direct, control or manage the investment of all or a portion of the Trust assets, as provided in Sections 3(38) and 403(a)(2) of ERISA, such assets to be held either in an account directly held by the Trustee or in a managed account portfolio established by the Trustee, at the direction of the Administrator, and held by a sub-custodian or broker-dealer (each, a “Sub-Custodian”) appointed by the Trustee in its sole discretion. The Administrator may remove an Investment Manager and may appoint a replacement Investment Manager. The Administrator will promptly notify the Trustee in writing of the appointment or removal of each Investment Manager and/or of the establishment of a managed account portfolio. The Trustee acknowledges that it will have responsibility for notifying any applicable Sub-Custodian of the revocation of the investment responsibility held by an Investment Manager, the appointment of a successor Investment Manager, and/or the termination of a managed account portfolio. Any notification from the Administrator confirming the appointment of an Investment Manager or the establishment of a managed account portfolio to be held by a Sub-Custodian will include a designation of those assets and/or managed account portfolios over which the Investment Manager will exercise control.

The Administrator will cause the Investment Manager to acknowledge to the Trustee in writing that the Investment Manager is registered as an investment advisor under the Investment Advisors Act of 1940 with respect to the performance of its duties in connection with the Plan and is an investment manager as that term is defined by the Section 3(38) of ERISA and, as such, is a fiduciary with respect to the Plan. If the foregoing conditions are met, the Investment Manager will have the power to manage, acquire, or dispose of any Trust assets, or any account portfolio holding any Trust assets, designated as subject to such Investment Manager’s control. The Trustee will not be liable for acts or omissions of the Investment Manager, or be under any obligation to invest or otherwise manage any asset of the Trust, or any account portfolio holding any asset of the Trust, that is subject to the management of such Investment Manager.

The Trustee and/or any Sub-Custodian will act only upon receipt of proper written directions from the duly appointed Investment Manager or by any other method acceptable to the Trustee. The Trustee will have no liability to review or question any such directions.

The Company acknowledges and agrees that the establishment of a managed account portfolio to be held by a Sub-Custodian appointed by the Trustee as described herein is subject to additional fees as set forth in Article 6.2, SchwabPlan® Services Agreement (by and between Charles Schwab & Co., Inc. and Schwab Retirement Plan Services, Inc., effective October 1, 1998, as amended from time to time) and the applicable fee schedules defined therein.

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2.5 Acceptable Investments. Depending on the Trustee’s ability to support and administer the asset, the Trustee’s powers and duties over the asset, the type of account, the business risk, and other factors, the Trustee will accept (which acceptance shall not be unreasonably withheld) assets for acquisition or holding in the Trust, including in a participant’s PCRA Account as described under Article 2.3. The Administrator directing such investments (the “Directing Party”) shall be solely responsible for determining whether the investment is appropriate, prudent and permissible under ERISA, the Internal Revenue Code, and any other applicable law, rules, and regulations, whether the investment is permissible under the terms of the Plan Documents, the economic viability of the underwriter, and diversification of Trust Fund assets. The Trustee does not (i) exercise investment management powers over the Trust Fund, or (ii) determine whether a particular investment decision made by the Administrator fits the investment objectives of the Trust Fund or is otherwise appropriate for the Trust Fund.

Subject to the foregoing subjective criteria, and to other policies and procedures that may be issued by the Trustee from time to time, the following types of assets are ordinarily acceptable in the Trust Fund:

(a)    Cash

(b)    Publicly traded stock listed on a U.S. stock exchange or regularly quoted over-the-counter

(c)    Publicly traded bonds listed on a U.S. bond exchange or regularly quoted over-the-counter

(d)    Mutual funds available through the Charles Schwab & Co., Inc. Mutual Fund Marketplace

(e)    Registered limited partnership interests, REITs and similar investments listed on a U.S. stock exchange or regularly quoted over-the-counter

(f)    Commercial paper, bankers acceptances eligible for rediscounting at the Federal Reserve, repurchase and reverse repurchase agreements and other “money market” instruments for which trading and custodial facilities are readily available

(g)    U.S. Government and U.S. Government Agency issues

(h)    Municipal securities whose bid and asked values are readily available

(i)    Federally insured savings accounts, Certificates of Deposit and Bank Investment Contracts. The Directing Party is responsible for determining Federal insurance coverage and limits and for diversifying Trust Fund assets in accordance with those limits.

(j)    American Depository Receipts, Eurobonds and similar instruments listed on a U.S. exchange or regularly quoted domestically over-the-counter for which trading and custodial facilities are readily available.

(k)    Life insurance, annuities, and Guaranteed Investment Contracts issued by insurance companies licensed to do business in one or more states in the U.S.

(l)    The securities of The Charles Schwab Corporation, its affiliates and subsidiaries. These securities may be subject to legal and regulatory prohibitions or restrictions and are not permitted to be held in PCRA Accounts.

Notwithstanding the above, the Company understands that in certain circumstances a particular investment may be determined by the Trustee to be unacceptable, even though it would be acceptable in other instances.

Subject to the Trustee’s administrative capabilities and its sole determination of the business risk involved in holding the particular asset in question, a direction to invest the Trust Fund (including a participant’s PCRA Account) in the following types of assets may be acceptable:

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(a)    Unregistered Limited Partnerships

(b)    Other unregistered securities, closely held stock and other securities for which there is no readily available market

(c)    Loans secured by First Deeds of Trust

(d)    Other secured loans

(e)    Foreign securities for which trading and custodial facilities are readily available.

(f)    Covered put and call options (if held in self-directed brokerage accounts and authorized by the Administrator)

Certain of the above types of assets are not publicly traded, and original and/or current cost basis and periodic valuations may not be readily available. For such assets (each a “Non-Standard Asset”) accepted by the Trustee for acquisition or holding in the Trust Fund, including in a PCRA Account, the Company acknowledges and agrees:

(a)    To consult with competent tax, accounting, and/or legal counsel with respect to the requirements applicable to periodic valuations of such assets and to comply with such requirements, in particular as these impact the Company’s provision of directions to the Trustee with respect to such valuations.

(b)    To provide the Trustee with directions with respect to the use of original and/or current cost basis with respect to each Non-Standard Asset, whenever such direction is requested by the Trustee or its affiliate, including but not limited to the time of transfer of such assets to the Trust.

(c)    To provide the Trustee with appropriate directions regarding the valuation of each Non-Standard asset in accordance with Article 4.3 herein.

(d)    In the event that unrelated business taxable income (“UBTI”) is generated with respect to any Non-Standard Asset, to provide full and accurate information with respect to such UBTI as is necessary for the reporting of such UBTI. Should any applicable UBTI information not be provided to the Trustee, the Company acknowledges that the Trustee shall not have any responsibility or liability for, and shall not make any federal tax reports or filings that require, the reporting or inclusion of this information.

(e)    To the extent that any legal documents required to effectuate the acquisition or holding of any Non-Standard Asset requires execution by a third party, including but not limited to a participant or beneficiary, the Company agrees to provide such properly executed documents to the Trustee upon request within a reasonable timeframe prior to the transaction.

The Company understands that the Trustee reserves the right to refuse to purchase or hold any particular issue or asset described herein, including Non-Standard Assets. The Company acknowledges and agrees that the purchase and holding of any such assets may be subject to additional fees as set forth in the SchwabPlan^® Services Agreement. In addition, notwithstanding any general indemnity given elsewhere, the Trustee reserves the right to seek specific indemnity from the Company or other appropriate parties where the Trustee determines in its sole discretion that the acquisition or holding of a particular asset or class of asset involves unusual business risk.

2.6 Unacceptable Investments.

The following assets are unacceptable in the Trust Fund:

(a)    General partnerships or undivided interests in real property

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(b)    Tangible personal property (e.g., precious metals, gems, works of art, stamps, coins, furniture and other household items, motor vehicles, etc.)

(c)    Real estate

(d)    Foreign currency and bank accounts

(e)    Short sales

(f)    Commodity futures and forward contracts

(g)    Oil, gas and mineral interests

(h)    Intangible personal property (e.g., patents and rights)

(i)    Unsecured loans

2.7 Limitation on Liability.    The Trustee will not be liable in any way for any loss resulting from a cause over which it does not have direct control and with respect to which it cannot make reasonable arrangements to mitigate, including, but not limited to, any failure of electronic or mechanical equipment or communication lines, telephone or other interconnect problems or unauthorized access, strikes or other labor disputes, acts of God, fire, war or civil strife.

2.8 Indemnification.    Trustee will not be liable for any act or failure to act carried out in good faith reliance on any representation of the Administrator. Except in the event that the Trustee has breached its duties under this Agreement due to its negligence or willful misconduct, the Company and to the extent permitted under ERISA, the Plan, will indemnify and hold harmless the Trust Fund, the Trustee, and its officers, employees, affiliates and agents from and against all liabilities, losses, expenses, and claims (including reasonable attorney’s fees and costs of defense) arising out of:

(a)    Any action or inaction by the Trustee in accordance with the written directions (or the absence of such directions) from the Company, the Administrator, the third party administrator (the Plan’s “Recordkeeper”), an Investment Manager, a participant, beneficiary, or alternate payee under a QDRO pursuant to Article 1.6 and any person authorized to act on behalf of one or more of them (a “Directing Party”);

(b)    Any action or inaction by the Trustee that results from the Trustee’s good faith reliance on the action or inaction of a Directing Party, including any such action related to directions to invest Trust assets or otherwise deal with Plan assets;

(c)    With respect to a direction to invest in Non-Standard Assets:

(i)    The Trustee’s inability to invest, re-invest, liquidate or collect income received with respect to such Non-Standard Assets;

(ii)    The Trustee’s use of any cost basis, unit or share, UBTI, and/or valuation information provided to it in accordance with its acceptance of such Non-Standard Assets or the Company’s directions to the Trustee regarding such information, including, but not limited to: (1) use of a prior annual valuation amount where a subsequent valuation amount has not yet been obtained or for which directions from the Company have not yet been provided to the Trustee; (2) the Company provision of an improper or incorrect valuation amount to the Trustee, (3) the failure of the Company to provide a valuation direction to the Trustee;

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(iii)    The investment, reinvestment, reporting, disclosure, liquidation and distribution under the Plan of and with respect to participant and beneficiary contributions and benefits based on such cost basis, unit or share, UBTI, and/or valuation information.

(d)    The Trustee’s execution of it duties under this Agreement in good faith, except in the event of the Trustee’s breach of its duties under this Agreement due to its own negligence or willful misconduct;

(e)    The acts or omissions to act with respect to the Plan or Trust by a Directing Party;

(f)    Any violation by a Directing Party of the provisions of ERISA or the regulations thereunder;

(g)    Any violation by a Directing Party of the terms of the Plan Documents, instruments, investment policies or guidelines (“Plan Documents”); or

(h)    Any breach of the representations and warranties of Article 2.9 of this Agreement.

For purposes of this Article, “affiliate” will mean any member of a controlled group of corporations or a group of trades or businesses under common control, within the meaning of Section 414(b) and (c) of the Code of which the Trustee is a member.

Expenses incurred by the Trustee that it believes are subject to indemnification under this Agreement will be paid by the Company upon the Trustee’s request, provided that the Company may delay payment of any amount in dispute until such dispute is resolved according to the provisions of Article 9.5 of the Agreement. Such resolution may include the award of interest on unpaid amounts determined to be payable to the Trustee under this Article.

If the Trust ceases to be a tax-exempt trust under Section 401 and Section 501 of the Code, the Company will indemnify the Trustee for any Federal or state taxes which the Trustee is required to pay as a result of any distribution made at the direction of the Administrator and the Company will be subrogated to the right of the Trustee to proceed against any person or decedent’s estate benefiting from such tax payment.

Each party must notify the other promptly in the event that a claim has been made and/or suit has been brought which could give rise to rights under this Article.

All indemnities provided herein will survive termination of this Agreement.

2.9 Representations and Warranties

The Company represents and warrants as follows:

(a)    there are no Plan Documents that limit the investments of the Plan, the powers of the Trustee, or the ability to pay expenses out of the Plan that have not been provided to the Trustee and in the event any Plan Document is modified to impose such a limitation, the modified Plan Document will be provided by the Company to the Trustee within fifteen days of the adoption of the modification;

(b)    no direction will be issued by the Company or the Administrator to the Trustee in violation of the terms of the Plan Documents, this Agreement, or ERISA or the regulations thereunder;

(c)    it maintains and follows procedures for identifying prohibited transactions as defined under ERISA and applicable ERISA exemptive relief;

(d)    no direction will be issued by the Company or the Administrator to the Trustee that will result in a non-exempt prohibited transaction under ERISA or the Code;

(e)    it will provide the Trustee with appropriate direction in the event the Company discloses material non-public information concerning the Company to the Trustee; and

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(f)    there are no existing SEC Form 8-K filings that disclose material information regarding the Company’s financial condition or operation that would call into question the Company’s ability to continue as a going concern, bankruptcy filings or formal civil or criminal charges filed against the Company or its officers or directors by federal or state regulators other than those that have been disclosed to the Trustee by the Company, and in the event any such filing is made, the Company will provide the Trustee with a copy of such filing within fifteen days.

ARTICLE 3

TRUST INVESTMENTS AND TRUSTEE POWERS

3.1 Powers of the Trustee. The Trustee will not have any discretion or authority with regard to the investment of the Trust Fund, but must act solely as a directed trustee of the funds contributed to it. As a directed trustee, the Trustee is authorized and empowered, by way of limitation, with the following powers, rights and duties, each of which the nondiscretionary Trustee exercises solely in accordance with the written direction of the Administrator, its delegate, properly authorized participants (as described in Article 2.3), or a properly appointed Investment Manager (as described in Article 2.4):

(a)    To invest any part or all of the Trust Fund in common stock, preferred stock, convertible preferred stock, bonds, debentures, convertible debentures and bonds, mortgages, notes, time certificates of deposit, commercial paper and other evidences of indebtedness (including those of the Trustee, The Charles Schwab Corporation (the “Public Company”), the Broker/Dealer, their affiliates and subsidiaries, to the extent permitted under applicable laws), other securities, annuity contracts, mutual funds (including those advised by the Trustee or its affiliate(s), to the extent permitted by law, for which the Company hereby acknowledges that the Trustee or its affiliate(s) receives a fee), covered calls and protective puts, U.S. Treasury notes and any other direct or indirect obligations of the United States government or its agencies, other property of any kind (personal, real, or mixed, and tangible or intangible), collective investments (as described in Article 3.2), insurance contracts of any type (as described in Article 3.3), limited partnerships (if provided with documentation which the Trustee in its sole discretion deems adequate), securities issued by the Company (as described in Article 3.4), and to make any other investments as directed.

(b)    To collect income generated by the Trust Fund investments and proceeds realized on the sale or disposition of assets and to hold the same pending reinvestment or distribution in accordance with this Agreement;

(c)    To register Trust Fund property in the Trustee’s own name, in the name of a nominee or in bearer form, provided the Trustee’s records and accounts show that such property is an asset of the Trust Fund;

(d)    To deposit securities in a security depository and permit the securities so deposited to be held in the name of the depository’s nominee, and to deposit securities issued or guaranteed by the U.S. Government or any agency or instrumentality thereof, including securities evidenced by book entry rather than by certificate, with the U.S. Department of the Treasury, a Federal Reserve Bank or other appropriate custodial entity, in the same account as the Trustee’s own property, provided the Trustee’s records and accounts show that such securities are assets of the Trust Fund;

(e)    To retain the property in the Trust;

(f)    To sell Trust assets, at either public or private sale, at such time or times and on such terms and conditions as it may deem appropriate;

(g)    To consent to or participate in any plan for the reorganization, consolidation, or merger of any business unit, any security of which is held in the Trust Fund, to pay calls and assessments imposed upon the owners of such securities as condition of their participating therein, and to consent to any contract, lease, mortgage, purchase or sale of property, by or between such business unit and any other party;

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(h)    To renew or extend the time of payment of any obligation due or becoming due;

(i)    To compromise, arbitrate (subject to the restrictions of Article 9.5), or otherwise adjust or settle claims in favor of or against the Trust and to deliver or accept consideration in either total or partial satisfaction of any indebtedness or other obligation, and to continue to hold property so received for the period of time that the Trustee deems appropriate;

(j)    To exercise or dispose of any right it may have as the holder of any security, to convert the same into another security, to acquire any additional security or securities, to make any payments, to exchange any security, or to do any other act with reference thereto;

(k)    To exchange any property for other property upon such terms and conditions as the Trustee may deem proper, and to give or receive money to effect equality in price;

(l)    To sue or defend in connection with any and all securities or property at any time received or held in the Trust Fund and to charge against the Trust Fund all reasonable expenses, including attorney’s fees in connection therewith;

(m)    To borrow money from any source (including the Trustee) and to execute promissory notes, mortgages or other obligations and to pledge or mortgage any Trust assets as security, subject to applicable requirements of the Code and ERISA;

(n)    To deposit any security with any protective or reorganization committee, and to delegate to that committee such power and authority as the Trustee may deem proper, and to agree to pay out of the Trust Fund that portion of the expenses and compensation of that committee as the Trustee may deem proper;

(o)    To have, respecting securities, all the rights, powers and privileges of an owner, including the power to give proxies, pay assessments and other sums deemed by the Trustee to be necessary for the protection of the Trust Fund, to vote any corporate stock either in person or by proxy, with or without the power of substitution;

(p)    To appoint agents as necessary or desirable, including legal counsel who may be counsel for the Company;

(q)    To the extent permitted under applicable laws, to invest in savings accounts, certificates of deposit or other deposits which bear a reasonable interest rate in a bank, including those of the Trustee, the Charles Schwab Bank, N.A., or any affiliate or subsidiary, if such bank is supervised by the United States or any state;

(r)    To hold in cash, without liability for interest, such portion of the Trust Fund which, in its discretion, will be reasonable under the circumstances, pending investments, the payment of expenses, or the distribution of benefits;

(s)    To lend securities from the Trust on a secured basis in accordance with a separate written agreement between the Administrator, the Trustee, and its affiliates; and

(t)    To exercise all of the further rights, powers, options and privileges granted, provided for, or vested in trustees generally under the laws of the State of California, so that the powers conferred upon the Trustee herein will not be in limitation of any authority conferred by law, but will be in addition thereto.

3.2 Collective Investment Funds. The Trust Fund may be invested and reinvested, in whole or in part, in any common or collective investment fund (the “Collective Fund” or “Fund”) maintained by the Trustee or an investment manager exclusively for the commingling and collective investment of assets of qualified retirement plans and tax-exempt trusts in which the Trust Fund is eligible to participate. The documents

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establishing or amending these trusts are hereby incorporated by reference into this Agreement. Notwithstanding any other provision of this Agreement, to the extent Trust Fund assets are invested in a Collective Fund, the terms of the Fund’s governing instrument will govern the investment responsibilities and powers of the entity responsible for management of the Collective Fund (the “Fund Manager”). The market value of the Trust Fund’s interest in any Collective Fund will be the fair market value of the interest as determined by the Fund Manager in accordance with the Fund’s governing instrument. For purposes of valuation of Trust Fund assets, the Trustee will be entitled to rely conclusively on the value reported by the Fund Manager.

3.3 Insurance Contracts/Pooled Investment Vehicles. The Administrator may direct the Trustee to invest Trust Fund assets in a pooled investment vehicle funded by contracts issued by an insurance company qualified to do business in a state (within the meaning of ERISA Section 3(10)) including, without limitation, group annuity and guaranteed investment contracts. Any such contract may provide for the allocation of amounts received by the insurance company to its general account, one or more of its separate accounts (including pooled separate accounts), or both. To the extent Trust Fund assets are allocated to a separate account of an insurance company, the Administrator will appoint the insurance company as an investment manager as provided in Article 2.4 above. Notwithstanding any other provision of the Agreement, the terms of the contract(s) governing the separate account(s) in which the Trust Fund is invested will govern the investment responsibilities and powers of the insurance company and, to the extent required by law, the terms of such contract(s) will be incorporated into the Agreement.

To the extent permitted by the Plan, the Administrator may direct the Trustee to apply for and purchase individual life insurance or annuity contracts (the “Contracts”) from an insurance company (the “Insurer”), subject to the following provisions:

(a)    The Administrator will be responsible for ensuring that the purchases conform to the requirements of the Plan and any rules and policies established by the Administrator regarding the form, value, optional settlement methods and other provisions of the Contracts. The Trustee will not be responsible for the validity or proper execution of any Contract delivered to it, or any act of any person that renders the Contract void or voidable. The Trustee will not be responsible if the Contract held in the Trust Fund fails to meet the requirements of the Plan, and will have no duty to inform participants of the terms and conditions of any such Contract.

(b)    The Administrator will instruct the Insurer to notify the Administrator of all premiums becoming due under the Contracts. The Administrator will deliver all premium notices to the Trustee, together with a direction to the Trustee to liquidate assets and pay the premiums out of the Trust Fund. The Trustee will have no responsibility for paying the premium unless the Administrator provides the Trustee written instructions to do so and sufficient liquid Trust assets are available for that purpose.

(c)    The Administrator will cause the Plan to be designated as the sole owner of all Contracts. The Trustee will exercise its powers, rights, privileges, options and other incidents of ownership with respect to the Contracts only at the written direction of the Administrator. The Administrator will be responsible for informing the Trustee of the identity of all beneficiaries of any Contract.

(d)    The Company hereby instructs the Trustee to value every Contract held in the Trust at $1.00.

3.4 Employer Securities. To the extent permitted by the Plan and ERISA and subject to the applicable Federal and state securities laws, the Administrator may direct the Trustee to invest in qualifying employer securities (“Employer Securities”) within the meaning of ERISA Section 407(d)(4) and (5). The Administrator will have full responsibility for determining that any such investment and the exercise of any voting rights appurtenant to Employer Securities, comply with applicable law. Notwithstanding any other provision of the Plan or this Agreement, the Administrator will have responsibility for determining whether such shares should be sold, exchanged, or otherwise disposed of, except as provided in Article 3.6, 3.7 and 3.8 herein.

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With respect to Plans holding Employer Securities, it will be the responsibility of the Administrator, and not the Trustee, to assure compliance with all requirements imposed under the securities laws of the United States or any state, including, but not limited to, registration and filing requirements. The Trustee is hereby specifically indemnified and held harmless for any loss or liability it may incur, or for any penalties that may be imposed as a result of, the Administrator’s failure to comply with such requirements. The Trust Fund will not invest in Employer Securities unless the Administrator determines that the securities are exempt from registration under the Federal Securities Act of 1933 (the “1933 Act”), as amended, and are exempt from registration or qualification under the applicable state law, and of any other applicable blue sky law, or in the alternative, that the securities have been so registered and/or qualified. The Administrator will also specify what restrictive legend on transfer, if any, is required to be set forth on the certificates for the securities and the procedure to be followed by the Trustee to effectuate a resale of such securities.

The Administrator will not direct that Trust assets be invested in Employer Securities, if such investment would be prohibited by ERISA. The Administrator will only direct the investment of Trust funds into Employer Securities if: (i) those securities are traded on an exchange permitting a readily ascertainable fair market value, (ii) the Administrator agrees to instruct the Trustee to obtain a current valuation by a qualified independent appraiser on an annual basis, or (iii) the Administrator agrees to obtain such a valuation and deliver it to the Trustee on an annual basis.

The Company hereby acknowledges (i) that the Administrator has the sole responsibility for all decisions to invest Trust assets in Employer Securities, except to the extent that the Administrator has determined that its responsibility is limited by Section 404(c) of ERISA or the Administrator has properly delegated its responsibility to a third party, (ii) that the Trustee has no duty to question any such direction, and (iii) that the Company will indemnify and hold harmless the Trustee from any liability to any parties, including without limitation Plan participants and beneficiaries, that may result to the Trustee from following any such direction to invest Trust assets in Employer Securities, irrespective of whether such direction constitutes a proper direction within the meaning of ERISA.

3.5 Securities Notification and Reporting. The Company represents and warrants that it will take all responsibility (and hereby assumes all liability for the failure) to notify participants of any limitations on investment directions necessary or appropriate to comply with Federal securities laws (including the Securities Exchange Act of 1934 and the 1933 Act), including but not limited to the frequency of investment changes by certain officers and shareholder-employees pursuant to Section 16 of the Securities Exchange Act of 1934 and, to the extent applicable, the volume of trading in Employer Securities pursuant to Regulation M and the timing of trading and blackout periods under the Sarbanes-Oxley Act of 2002. Consequently the Trustee will have no liability to a participant, beneficiary, or the Company for carrying out instructions relating to the acquisition or disposition of Employer Securities regardless of whether those instructions subject such person or the Company to any liability.

The Company represents and warrants that either the percentage of the issued and outstanding class of equity security registered under Section 12 of the Securities Exchange Act of 1934 which is Employer Securities owned by the Plan (the “Plan Percentage”) is less than 4.5% or that the Plan and its prior trust have complied with all notice and filing requirements imposed by Federal securities laws with regard to the securities. The Company covenants that it will:

(a)    Notify the Trustee in writing within five business days following any date as of which the Plan Percentage equals or exceeds 4.5%;

(b)    Monitor the Plan Percentage on a daily basis so long as the Plan Percentage is at least 4.5%;

(c)    Notify the Trustee in writing within five business days following any date as of which the Plan Percentage equals or exceeds 5% and, if applicable, 10%; and

(d)    Provide monthly written reports to the Trustee disclosing the Plan Percentage. The foregoing monitoring and notification requirements will cease during any month when the Plan Percentage is below

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4.5% for each day of the month. The provisions of this Article 3.5 will survive the termination of this Trust Agreement.

The Company further represents and warrants that the Company will file all statements and reports required by the Securities and Exchange Commission that are required on account of the purchase, sale or ownership of Employer Securities by the Trust Fund, including without limitation Forms 11-K, 13-D, 13-G, and Forms 4 and 5, and that the Trustee will have no responsibility for any such filings.

3.6 Securities Voting Rights. Except as provided in Article 3.7 and 3.8 regarding Employer Securities, the Administrator, or any Investment Manager it appoints will exercise the voting or other rights in Trust Fund securities. Where an Investment Manager has been authorized to acquire and dispose of all or a portion of the Trust Fund, the Investment Manager will be responsible and liable for voting or exercising other rights in the securities subject to its management and control.

The Trustee will deliver to the Administrator, or the person or persons identified by the Administrator, proxies and powers of attorney and related informational material it receives, for any shares or other property held including Employer Securities in the Trust. Subject to the provisions of Article 3.7 and 3.8 regarding Employer Securities, the Administrator will have responsibility for voting such shares and the tendering of such shares, by proxy or in person. The Trustee may use agents to affect such delivery to the Administrator. In no event will the Trustee be responsible for the voting or tendering of shares of securities held in the Trust or for ascertaining or monitoring whether, or how, proxies are voted or whether the proper number of proxies is received. The Company will indemnify and hold harmless the Trustee from any liability to any parties, including without limitation Plan participants and beneficiaries, that may result to the Trustee from following any such direction to vote or tender shares of securities held in the Trust (or any failure to vote or tender such shares in the absence of such a direction), irrespective of whether such direction constitutes a proper direction within the meaning of ERISA.

3.7 Employer Securities Voting Rights. If Employer Securities are a permissible investment option under the Plan, all voting rights with respect to the Employer Securities held in the Trust Fund and allocated to participants’ Accounts shall be exercised by the Trustee in such manner as may be directed by the respective participants (which term, for purposes of this Section, shall include the beneficiary of a deceased participant and any alternate payee for whom an account has been established with an interest in the Employer Securities). Any Employer Securities in the Trust Fund that are allocated to Participants who fail to give directions to the Trustee and all Employer Securities otherwise unallocated, if any, shall be voted by the Trustee in the same proportion as the shares for which voting instructions have been received, subject to the power, responsibility and obligation of the Administrator to direct the Trustee to act with respect to the voting of such shares in a different manner, if the Administrator determines that such action is consistent with and/or required by its fiduciary obligations under ERISA. The Company acknowledges that it shall be the responsibility of the Administrator, and not the Trustee, to determine whether the fiduciary responsibilities of ERISA require that a direction be provided to the Trustee to override such proportionate voting.

In the event that no voting rights are required by law or the terms of the Plan to be passed through to participants, the shares will be voted by the Administrator or other authorized party unless otherwise agreed to in writing. The Company acknowledges that it shall be the responsibility of the Administrator, and not the Trustee, to determine the manner in which such shares are to be voted consistent with the Administrator’s fiduciary obligations under ERISA.

Except as otherwise specifically provided above with respect to proportionate voting, the Company further acknowledges that the failure of the Administrator to provide a direction to the Trustee with respect to the voting of Employer Securities shall constitute the determination by and direction of the Administrator to the Trustee that such shares not be voted and that the Administrator has made such determination consistent with its fiduciary obligations under ERISA.

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The Company and the Administrator will indemnify and hold the Trustee harmless with respect to the Trustee’s voting or not voting of Employer Securities as provided above. The Administrator may establish such rules and guidelines it deems necessary to properly effect the provisions of this Section.

3.8 Employer Securities Tender Rights. If Employer Securities are a permissible investment option under the Plan, all tender or exchange rights with respect to the Employer Securities held in the Trust Fund and allocated to participants’ Accounts shall be exercised by the Trustee in such manner as may be directed by the respective participants (which term, for purposes of this Section, shall include the beneficiary of a deceased participant and any alternate payee for whom an account has been established with an interest in the Employer Securities). The Administrator directs the Trustee not to tender or exchange any Employer Securities in the Trust Fund that are allocated to Participants who fail to give directions to the Trustee and all Employer Securities that are otherwise unallocated, if any. The Company acknowledges that it shall be the responsibility of the Administrator, and not the Trustee, to determine whether the fiduciary responsibilities of ERISA require that a direction be provided to the Trustee to override a participant’s election to tender or exchange or to override the direction provided herein not to tender or exchange Employer Securities.

The Company and the Administrator will indemnify and hold the Trustee harmless with respect to the Trustee’s tendering or exchanging or not tendering or exchanging Employer Securities as provided above. The Administrator may establish such rules and guidelines it deems necessary to properly effect the provisions of this Section.

3.9 Products of an Affiliate. At the direction of the Administrator, the Trustee may purchase shares of regulated investment companies (or other investment vehicles) advised by the Public Company (defined in Section 5.1 below), the Broker/Dealer (defined in Section 5.1 below), the Trustee or any affiliate or subsidiary of any of them (“Affiliated Funds”), except as prohibited by law or regulation.

Uninvested Trust cash may be invested in Affiliated Funds designated by the Administrator for that purpose, unless the Administrator specifically instructs the Trustee to use another fund or account acceptable to the Trustee.

Affiliated Funds may not be purchased or held by the Trust unless the Administrator has received disclosure concerning the Public Company’s, the Broker/Dealer’s, the Trustee’s and/or their affiliate’s and subsidiary’s relationship to the Affiliated Funds. Such disclosure must include an explanation of any fees paid to the Public Company, the Broker/Dealer, the Trustee and/or their affiliates and subsidiaries.

3.10 Overdrafts. Notwithstanding any other provision in this Agreement to the contrary, the Trustee will have the right, but not the responsibility to clear, or cover overdrafts incurred by the Trust Fund. In order to fulfill its obligation to clear Trust Fund overdrafts, the Trustee will request the Administrator to direct the Trustee to sell specific Trust assets in an amount sufficient to cover the overdraft. If the Trustee does not receive the requested direction before the close of business on the day of its request, Trustee will have the right but not the responsibility to sell Trust Fund assets in an amount necessary to cover the overdraft.

In the event the Trustee determines to sell Trust Fund assets in order to cover the overdraft, the Trustee will first liquidate any available money market funds held by the Trust Fund, and to the extent such amounts are not sufficient to cover the overdraft, Trustee will liquidate other classes of Trust assets in the following order until sufficient funds are generated to cover the overdraft:

(1)    Capital preservation funds

(2)    Bond investment funds

(3)    Balanced investment funds

(4)    Stock investment funds

(5)    Equities and other securities

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3.11 Multiple Trusts and Trustees. If the Plan permits the appointment of multiple trustees and the establishment of separate trusts to hold Plan assets, the Company may appoint trustees in addition to the Trustee and establish trusts in addition to the Trust Fund to hold Plan assets. Trustee under this Agreement will have no duty, responsibility or liability for Plan assets held in these other trusts by other trustees, except as required by applicable law.

3.12 Pooling with Assets of Other Plans. If the Company creates or maintains for its employees or the employees of an affiliated company one or more employee benefit plans qualified under Code Section 401(a) in addition to the Plan, the Company may request the Trustee to hold the assets of the additional plan or plans in the Trust Fund. With the consent of the Trustee, the assets of the one or more additional plan(s) maintained by the Company may be maintained as one Trust, and their assets may be commingled.

The Administrator will keep records showing the interest of the Plan and each additional Plan in the Trust Fund unless the Trustee enters into an agreement with the Company to keep separate accounts for each such Plan. The Company and the Administrator will not permit or cause the assets of one Plan within the Trust to be used to pay benefits or administrative expenses of any other Plan within the Trust Fund.

3.13 No Duty to Inquire. All persons dealing with the Trustee are released from inquiring into the decision or authority of the Trustee and from seeing to the proper application of any monies paid or securities or other property delivered to the Trustee.

3.14 No Duty to Investigate. The Trustee will bear no liability for acting upon any instruction or document believed by it to be genuine and to be presented or signed by a party duly authorized to do so, and the Trustee will be under no duty to make any investigation or inquiry about the correctness of such instruction or document.

3.15 Advice of Counsel. The Trustee may consult with legal counsel of its choice, including counsel for the Company, upon any question or matter arising hereunder, and the opinion of such counsel, when relied upon by the Trustee will be evidence the Trustee was acting in good faith and with the care and prudence required under ERISA.

ARTICLE 4

SETTLEMENT OF ACCOUNTS

4.1 Trustee Records. The Trustee will maintain accurate and detailed records of all investments, receipts, disbursements, and other transactions related to the Trust. The records will be available for inspection and audit at all reasonable times by the Administrator, the Company, or their authorized representatives.

4.2 Trustee Reports

(a) Within sixty days following the close of the Plan’s fiscal year or the close of any other period as may be agreed upon by the Trustee and the Administrator, including monthly, the Trustee will file with the Administrator a written accounting of the Trust Fund (the “Trust Statement”) setting forth a description of all securities and other property purchased and sold, all receipts, disbursements, and other transactions affected by it during that fiscal year or other designated period, and listing the securities and other property held by the Trustee at the end of such fiscal year or other designated period, together with their then fair market values.

(b) The Administrator may approve the Trust Statement by written notice of approval delivered to the Trustee or by failure to deliver to the Trustee express objections to the Trust Statement in writing within sixty days from the date upon which the Trust Statement was mailed or otherwise delivered to the Administrator.

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(c) The Trust Statement will be deemed approved upon receipt by the Trustee of the Administrator’s written approval of the Trust Statement or upon the passage of the sixty day period of time, except for any matters covered by written objections that have been delivered to the Trustee by the Administrator and for which the Trustee has not given an explanation or made an adjustment satisfactory to the Administrator.

(d) If the Trust Statement is not settled as provided above, the Trustee, the Company or the Administrator will have the right to submit such controversy or disagreement to arbitration pursuant to Article 9.5, at the expense of the Trust Fund for a settlement of the accounting. Any determination by the arbitrator entered in such proceeding will be conclusive on all persons interested in the Trust Fund.

4.3 Valuation. Notwithstanding any other provision of this Article 4, unless the Trustee is able to obtain the value of the Trust Fund assets, including any Non-Standard Assets held by the Trust Fund, from readily available public sources, as of each annual valuation date assigned by the Company, the Administrator will direct the Trustee with respect to the current fair market value of the Trust Fund assets within the time frame requested by the Trustee, and the Trustee will, in accordance with such valuation, account for such assets and include such information in reports pursuant to Article 4.2 of this Agreement. In the event the Administrator fails to provide such direction, the Administrator directs the Trustee to engage an independent appraiser that meets the requirements of Code Section 401(a)(28)(C) to determine the current fair market value of the Trust Fund assets. Any expenses and costs with respect to such appraisal will be paid out of the Trust Fund or, at the option of the Company, by the Company.

The Company acknowledges and agrees that in the event that any Trust Fund assets, including Non-Standard Assets, are transferred from an account held by a prior trustee or custodian to the trust account, (whether from Charles Schwab & Co., Inc. or an unrelated financial provider):

(1) if such assets are valued at zero, the Trustee shall use such zero valuation for such assets for all plan purposes until such time as the Company provides the Trustee with a replacement valuation or, at the Company’s direction, the Trustee obtains such a replacement valuation.

(2) if it does not provide the Trustee with a subsequent valuation direction or such subsequent valuation direction is not timely provided by it, the Trustee shall use the last valuation direction previously provided by the Company to the Trustee for all Plan purposes.

The Company further acknowledges and agrees that in no event will the Trustee be responsible for use of an updated valuation amount prior to actual receipt by the Trustee of such updated valuation information. In the event that an updated valuation amount is provided by the Company as a result of an error or inaccuracy in a prior valuation direction, the Company shall compensate the Trustee based on its standard hourly rates for Extraordinary Services attributed to work that must be corrected, as defined in the SchwabPlan® Services Agreement referenced in Article 6.2 herein.

The Company, and not the Trustee, will be responsible and liable for the determination of whether the valuation and the valuation method are acceptable and have been conducted in accordance with applicable legal and regulatory requirements. The Trustee will not be liable for an inaccurate valuation and shall have no duty of investigation or inquiry with respect thereto, and the Company shall indemnify, release and hold the Trustee harmless for any losses, liabilities, claims and expenses (including attorney’s fees and costs of defense) resulting from the valuation of Trust Fund assets.

ARTICLE 5

SERVICES BY AND BROKERAGE TRANSACTED THROUGH AFFILIATED ORGANIZATIONS

5.1 Services by the Affiliated Organizations. The Trustee may contract or make other arrangements for the provision of services to the Trust Fund with any organizations affiliated with or subsidiaries of the Trustee, including the Charles Schwab Corporation (the “Public Company”) and Charles Schwab & Co., Inc. (the “Broker/Dealer”), their respective affiliates and subsidiaries, successors and assigns, except where such arrangements are prohibited by law or regulation.

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5.2 Brokerage. The Trustee is authorized to place securities orders, settle securities trades, hold securities in custody, and perform related activities on behalf of the Trust Fund through or by the Broker/Dealer whenever possible unless the Company specifically directs Trustee to settle a trade directly with another broker/dealer or to settle a trade placed by the Investment Manager for execution at another broker/dealer. Trades and related activities transacted through the Broker/ Dealer or another broker/dealer, initiated by either Trustee or the Investment Manager, are subject to fees and commissions established by the Broker/Dealer or other broker/dealer, which may be paid from the Trust Fund or netted from the proceeds of trades. Transactions executed by the Broker/Dealer or other broker/dealer are subject to the applicable account agreement, trading rules and policies as modified or amended from time to time, together with the applicable rules, regulations, customs and usage of any exchange, market, clearing house or self-regulatory organization and applicable federal and state laws, rules and regulations. Trades may not be executed through the Broker/Dealer or other broker/dealer unless the Company has received disclosure concerning the relationship of the Broker/Dealer or other broker/dealer to Trustee, and fees and commissions which may be paid to the Public Company, Broker/ Dealer, Trustee, and/or their affiliates or subsidiaries as a result of using the execution or other services of the Broker/Dealer or other broker/dealer.

5.3 Mutual Funds and Uninvested Cash. The Administrator may direct purchases of shares of regulated investment companies (or other investment vehicles) advised by affiliates of the Public Company, Broker/Dealer (“Schwab Funds”) or Trustee unless such investment is forbidden by law or regulation. Uninvested cash of the Trust Fund will be invested as selected by the Administrator unless the Company or the Investment Manager, if any, specifically instructs the use of another fund or account, except where forbidden by law or regulation.

5.4 Disclosure of Information. The Trustee is authorized to disclose such information as is necessary to the operation and administration of the Trust to the Public Company or any of its affiliates, and to such other persons or organizations that the Trustee determines have a legitimate business purpose for obtaining such information.

The Trustee is authorized to disclose upon request to companies whose securities are held in the Trust Fund: (1) the Company’s and/or the Investment Manager’s name and address (2) the holdings in the Trust Fund of securities issued by the requesting company, and (3) with respect to Rule 22c-2 of the Investment Company Act of 1940, the taxpayer identification number (“TIN”), if known, of any or all Plan participant(s) that purchased, redeemed, transferred or exchanged holdings in a fund subject to Rule 22c-2 through an account maintained by the Trustee, and the amounts and dates of each purchase, redemption, transfer or exchange, and other information that may be required by such rule.

ARTICLE 6

TAXES, EXPENSES AND COMPENSATION OF TRUSTEE

6.1 Taxes. The Trustee will notify the Administrator of any tax levied upon or assessed against the Trust Fund of which the Trustee has knowledge. If the Trustee receives no instructions from the Administrator, the Trustee may pay the tax from the Trust Fund. If the Administrator wishes to contest the tax assessment, it will give appropriate written instructions to the Trustee. The Trustee will not be required to bring any legal actions or proceedings to contest the validity of any tax assessments unless the Trustee has been indemnified to its satisfaction against loss or expense related to such actions or proceedings, including reasonable attorney’s fees.

6.2 Trustee Compensation and Expenses. The Company shall quarterly pay the Trustee its expenses in administering the Trust and reasonable compensation for its services as Trustee as described in the SchwabPlan® Services Agreement, which may be amended from time to time. Trustee reserves the right to alter this rate of compensation at any time by providing the Company with written notice of such change at least sixty days prior to its effective date. Reasonable compensation shall include (compensation for any (i) Extraordinary Services as defined in the SchwabPlan® Services Agreement, (ii) computations required, including with respect to the valuation of assets when current market values are

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not published, and (iii) covering of overdrafts. The Trustee shall have a lien on the Trust Fund for compensation and for any reasonable expenses including counsel, appraisal, or accounting fees, and such amounts may be withdrawn from the Trust Fund unless paid by the Company within thirty days after mailing of the written billing by the Trustee.

The Company acknowledges receipt of the SchwabPlan^® Services Agreement and, where applicable, the Schwab Retirement Account/Personal Choice Retirement Account^® Plan Application (“Application”), or any other specific fee schedules applicable to the Trust Fund (“Other Fee Schedules”) prior to execution of this Agreement. The Company acknowledges and agrees that the amounts described in the SchwabPlan^® Services Agreement and/or Other Fee Schedules, whichever it has received, are approved by it and are payable to the Trustee and to the Recordkeeper, as applicable, and that such amounts have been taken into consideration in determining the reasonableness of the amounts payable to the Trustee and the Recordkeeper.

Reasonable compensation will include the float earned on uninvested cash, the reimbursement of expenses incurred by the Trustee in providing Extraordinary Services, and other compensation and remuneration as defined in any Other Fee Schedules. The Trustee reserves the right to alter this rate of compensation at any time by providing the Company or the Recordkeeper, as applicable, with written notice of such change at least sixty days prior to its effective date.

6.3 Additional Trustee Compensation. In addition to fees set forth elsewhere, the Company acknowledges that the Trustee may receive, as compensation for its services, any credit, interest or other earnings (collectively “Float”) on aggregate cash balances that the Trustee has on deposit with any third-party bank or other financial institution. Such cash balances may result from cash contributions not yet invested, cash pending trade settlements or cash pending distributions from the Trust.

(a)    The Trustee has the authority to initiate investments on behalf of the Trust only upon receipt of instructions from the Administrator. The Trustee calculates its cash Float investment amount each business day by netting all cash activity and adjusting for cash reserved for investment or reinvestment and for cash reserved for distributions. The result is further adjusted by an additional reserve amount determined by the Trustee in its sole discretion as necessary to satisfy the Trust’s cash needs during the following day for settlement of trades and payments, which may be adjusted from time to time.

(b)    The Trustee invests the net cash Float amount primarily in overnight and short-term investments, including money market funds, repurchase agreements, U.S. Government notes, bankers acceptances, and similar securities. The average maturity of the portfolio will not exceed ninety days. Thus the interest rates earned on Float approximate money market or federal funds rates. Exact rates earned for representative periods are available upon request.

(c)    The Trustee will comply with the following service standards.

i.    Incoming Cash: On days on which it is open for business, the Trustee will deposit into the Trust all incoming cash consisting of wires or Automated Clearing House (“ACH”) receipts on the date of receipt. The Trustee will process all incoming checks on the date of receipt if the Trustee receives them by the Trustee’s cash deposit cutoff deadline as published from time to time, such deadline being 4:00 p.m. PST at the time of this Agreement. Checks generally require two or three days to clear and be deposited into the Trust. Funds received after the cutoff times will be processed on the next business day. The period during which Trustee earns Float on these deposits (the “Float Period”) begins when the ACH transfer, wire or check is deposited to the Trust and ends when the cash is invested.

ii.    Outgoing Cash: On days on which it is open for business, the Trustee will process outgoing checks, wires and ACH transfers within forty eight hours after receipt of the distribution instructions from an authorized party. Outgoing checks are delivered to the U.S. postal service or other designated delivery services. The Float Period for distributions issued using checks begins on the day a check is issued from the Trust and ends when the check is presented for payment. If distributions are made using ACH transfers the Float Period begins when the ACH transfer is initiated and ends the next

Page 21 of 24

business day when the funds are deposited in the payee’s account. If distributions are made using wire transfers no Float is earned.

iii.    Cash Pending Trade Settlement: The Trustee will process investment directives received from the Administrator if the Trustee receives them by the Trustee’s trade cut-off deadlines as published from time to time. At the time of this Agreement, directives received before 10:00 a.m. PST (9:00 p.m. PST for trades processed through the Same Day/Late Day program) are initiated on the day received. Directives received after these times are processed on the next business day. The Float Period for such transactions ends when the trade is settled. Most mutual fund trades settle the day after they are initiated. Most other trades settle within three days following the day they are initiated.

ARTICLE 7

RESIGNATION OR REMOVAL OF TRUSTEE

7.1 Resignation/Removal and Replacement. The Trustee may resign as trustee hereunder or may be removed by the Company. This resignation or removal may be accomplished at any time upon the giving of sixty days written notice to the Trustee or Company, as applicable (or less if the receiving party agrees to waive notice). Upon resignation or removal, the Company will appoint a successor trustee who will then succeed to all the powers and duties given to the Trustee by this Agreement. The terminating Trustee will transfer all property of the Trust Fund then held by it to such successor trustee, in accordance with the written directions of the Administrator.

The terminating Trustee may require as a condition of making any transfer to the successor trustee that the successor trustee present evidence that any bonding requirement under ERISA Section 412 has been met. The terminating Trustee may also require that the Company indemnify it against any losses arising from the replacement of the Trustee.

If either party has given notice of termination as provided under this Agreement, and upon the expiration of the advance notice period no other successor trustee has been appointed and has accepted such appointment, this provision will serve as (i) notice of appointment of the individual members of the Company’s Governing Body to serve as Trustee and (ii) as acceptance by the Governing Body of that appointment. The Trustee is authorized to reserve such sum of money as it may deem advisable for payment of its fees and expenses in connection with the settlement of its accounts or other proper Trust expenses, and any balance of such reserve remaining after the payment of such fees and expenses will be paid to the successor trustee.

7.2 Settlement of Accounts. Within sixty days of the transfer to the successor trustee, the terminating Trustee will provide the Company with a Trust Statement in the form and manner prescribed for the annual Trust Statement by Article 4.2. Unless the Company files written objections with the Trustee within sixty days after such Trust Statement has been mailed or otherwise delivered, the Company will be deemed to have approved the Trust Statement.

7.3 Termination of Liability. Upon settlement of its account and transfer of the Trust Fund to the successor trustee, all rights and privileges under the Plan and this Agreement will vest in the successor trustee and thereafter liability of the Trustee for future action or inaction will terminate subject only to the requirement that the Trustee execute all necessary documents to transfer the Trust Fund to the successor trustee. The Trustee will not be obligated to transfer all of the assets of the Trust Fund until the Trustee is indemnified in a manner satisfactory to it for all fees and expenses reasonably anticipated to be incurred through the date of transfer.

ARTICLE 8

TERMINATION OF TRUSTEE AND AMENDMENT

8.1 Termination. The Company intends that this Trust and the Plan of which it is a part will be permanently administered for the benefit of Plan participants and beneficiaries, and to defray reasonable expenses of administering the Plan. This Trust is irrevocable except with respect to Article 9.4; however,

Page 22 of 24

the Company may terminate this Trust by resolution of its Governing Body and upon at least sixty days written notice to the Trustee (unless such notice is waived). Upon such termination, the Trust Fund will be distributed by the Trustee as and when directed by the Administrator in accordance with the provisions of Article 1.5 and the Plan document.

From the date of termination of the Plan and until the final distribution of Trust assets, the Trustee will continue to have all the powers provided under this Agreement that are necessary or desirable for the orderly liquidation and distribution of the Trust Fund. In no instance upon any termination, or discontinuance, and subsequent distribution will the Trust Fund or any part of it be used for, or diverted to, purposes other than providing benefits to participating employees and beneficiaries, and defraying the administrative expenses of the Plan until all Plan liabilities have been satisfied, except as provided in Article 9.4 if the Trust fails to initially qualify for tax-exempt status.

8.2 Conditions on Final Distribution. Upon termination of the Plan and this Trust the Trustee may place conditions on its final transfer or distribution of the Trust Fund. The Trustee may require as a condition to its final distribution of Trust assets that it receive a copy of any approval required by law to be obtained from the Pension Benefit Guaranty Corporation (the “PBGC”) and a determination letter from the Internal Revenue Service that the termination does not affect the tax exempt status of the Plan and Trust. If a PBGC approval is required, the Trustee will not transfer or distribute funds until it receives a copy of the PBGC notice of approval. The Trustee, in its sole discretion, may waive receipt of the Internal Revenue Service determination letter and accept instead the Company’s indemnification of it against any liability arising from such transfer or distribution, or may require the Company to post a bond sufficient to protect the Trustee against such liability until such time as a favorable determination letter from the Internal Revenue Service is received.

8.3 Amendment. Except as provided for in this Agreement and the SchwabPlan^® Services Agreement, including in Article 8.1, this Agreement may be amended at any time by written amendment adopted by the Company and the Trustee, provided, that such amendment will not operate:

(a) To cause any part of the Trust Fund to revert to or be recoverable by the Company or to be used for or diverted to purposes other than the exclusive benefit of participants and their beneficiaries, except to the extent permitted by law and the Plan; or

(b) To reduce the then accrued benefits or the amounts then held for the benefit of any participant or beneficiary of the Plan.

ARTICLE 9

MISCELLANEOUS

9.1 Construction and Severability. This Agreement will be construed and administered under the Code, ERISA and other pertinent Federal statutes, and, to the extent not otherwise preempted, under the laws of the State of California. If any provision is susceptible to more than one interpretation, the interpretation to be given is that which is consistent with the trust being a qualified trust under the meaning of Section 401 and Section 501 of the Code. If any provision of the Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions will continue to be fully effective.

9.2 Headings. The headings in this instrument have been inserted for convenience of reference only, and are to be ignored in any construction of the provisions of this Agreement.

9.3 Restriction on Alienation. No person entitled to any benefit under this Trust and the Plan will have any right to assign, alienate, hypothecate, or encumber his or her interest in any benefits under this Agreement and those benefits will not in any way be subject to claim of his or her creditors or liable to attachment, execution, or other process of law. Any attempt at alienation will be void, and the Trustee will disregard any attempted alienation. The Trust Fund will not be liable for or subject to the debts or torts of any participant or beneficiary, and benefits will not be considered an asset of a participant in bankruptcy. This does not preclude the Trustee from complying with a QDRO (as provided in Article 1.6).

Page 23 of 24

9.4 Failure to Obtain Qualification. It is intended that this Trust will be tax exempt under Section 501 of the Code and that the Plan referred to herein will qualify under Section 401(a) of the Code. However, notwithstanding any other provisions of the Trust, if the Internal Revenue Service is requested to issue to the Company a favorable written determination or ruling with respect to the initial qualification of the Plan and exemption of the Trust from tax and such request is denied, the Trustee will, after receiving a written direction from the Administrator, pay to each participant that portion of the Trust Fund applicable to said participant’s voluntary contributions, if any, and provided the Plan so states, pay to the Company any part of the Trust Fund attributable to Company contributions then remaining in the Trustee’s possession. As a condition to such repayment, the Company must execute, acknowledge, and deliver to the Trustee its written undertaking, in form satisfactory to the Trustee, to indemnify, defend, and hold the Trustee harmless from all claims, actions, demands, or liabilities arising in connection with such repayment, and provided further that such repayment will occur within one year after the date the request for qualification is denied.

9.5 Arbitration of Disputes. Any dispute under this Agreement will be resolved by submission of the issue to a member of the American Arbitration Association who is chosen by the Company and the Trustee. If the Company and the Trustee cannot agree on such a choice, each will nominate a member of the American Arbitration Association, and the two nominees will then select an arbitrator. Expenses of the arbitration will be paid as decided by the arbitrator.

9.6 Entire Agreement. This Agreement and the Plan are both part of and constitute a single, integrated employee benefit Plan and trust and will be construed together. If there is a conflict between the provisions of the Plan and this Agreement, the provisions of this Agreement will control with respect to all rights, duties, responsibilities, obligations, powers and authorities of the Trustee. The Trustee will not be a named fiduciary under the Plan, nor will it have any duty to inquire into, or liability with respect to, the provisions of the Plan.

9.7 Governing Law. The Trust Fund will be administered by the Trustee in the State of California, and all questions as to its validity will be determined in accordance with the laws of the State of California.

9.8 Recorded Conversations. The Trustee is authorized to tape record conversations between the Trustee and persons acting on behalf of the Plan or a participant in the Plan to verify data on transactions.

9.9 Execution and Counterparts. This Agreement may be executed in several counterparts, each of which will be deemed original and such counterparts will constitute but one instrument that may be sufficiently evidenced by any one counterpart.

9.10 Successors and Assigns. This Agreement will inure to the benefit of, and will be binding upon, the parties and their successors and assigns.

9.11 Gender. As used in this Agreement, the masculine gender will include the feminine and neuter genders and the singular will include the plural and the plural the singular, as the context requires.

9.12 Extraordinary Events. The Trustee is not responsible for losses caused directly or indirectly by conditions beyond its control, including, but not limited to, war, natural disasters, government restrictions, exchange or market rulings, strikes, interruptions of communications or data processing services, or disruptions in orderly trading on any exchange or market.

9.13 Notices, Change of Address. Any notice required or permitted to be given under this Agreement will be sufficient if in writing and sent by registered mail, postage prepaid, addressed as follows:

If to the Company, to the address provided on the Execution page.

If to the Trustee:

Page 24 of 24

The Charles Schwab Trust Company

215 Fremont Street, 6th Floor

San Francisco, California 94105

Attention: Vice President, Sales & Relationship Management

or to such other address as the Company or the Trustee may hereafter specify in writing by providing ten days prior notice of such change to the other party. All notices, requests, demands and other communications will be in writing and will be deemed to have been duly given on the date of service, if served personally on the party to whom notice is to be given, or on the fifth day after mailing, if mailed and properly addressed as indicated on the Application.

IN WITNESS WHEREOF, CHARLES SCHWAB & CO., INC. and THE CHARLES SCHWAB TRUST COMPANY, have caused this Agreement to be executed by their respective duly authorized representatives this 17^th day of August, 2007.

CHARLES SCHWAB & CO., INC.	THE CHARLES SCHWAB TRUST COMPANY
COMPANY	TRUSTEE
PLAN ADMINISTRATOR                                    , for the SCHWABPLAN RETIREMENT SAVINGS AND
INVESTMENT PLAN
Plan and Trust
By:             /s/ Jan Hier-King	By:             /s/ Scott A. Glave
Printed Name:             JAN HIER-KING	Printed Name:         Scott A. Glave
Title:     EVP Human Resources	Title:                     Vice President
Address:         101 Montgomery Street
MS: 120KNY30-431
San Francisco, CA 94104

EX-10.299

Exhibit 10.299

EXECUTION COPY

LETTER AMENDMENT

Dated as of August 3, 2007

To the banks, financial institutions

and other institutional lenders

(collectively, the “Lenders”) parties

to the Credit Agreement referred to

below and to Citicorp USA, Inc., as agent

(the “Agent”) for the Lenders

Ladies and Gentlemen:

We refer to the Credit Agreement (364-Day Commitment) dated as of June 15, 2007 (the “Credit Agreement”) among the undersigned and you. Capitalized terms not otherwise defined in this Letter Amendment have the same meanings as specified in the Credit Agreement.

It is hereby agreed by you and us as follows:

The definition of “Minimum Stockholders’ Equity” in Section 1 of the Credit Agreement is, effective as of the date of this Letter Amendment, hereby amended in full to read as follows:

Minimum Stockholders’ Equity:	As of the Closing Date, and the last day of each fiscal quarter thereafter, the greater of:
	(a)    $1,800,000,000, or (b)    the sum of – (i)        $1,800,000,000, plus (ii)        50% of the sum of cumulative Net Earnings for each fiscal quarter commencing with the fiscal quarter ended September 30, 2007.

The Borrower hereby certifies that, as of the date hereof, the representations and warranties contained in Section 5 of the Credit Agreement are correct and no Default or an Event of Default has occurred and is continuing.

This Letter Amendment shall become effective as of the date first above written when, and only when, the Agent shall have received counterparts of this Letter Amendment executed by the undersigned and the Required Lenders. This Letter Amendment is subject to the provisions of Section 10.1 of the Credit Agreement.

On and after the effectiveness of this Letter Amendment, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Credit Agreement, and each reference in the Notes to “the Credit Agreement”, “thereunder”, “thereof” or words

of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended by this Letter Amendment.

The Credit Agreement and the Notes, as specifically amended by this Letter Amendment, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. The execution, delivery and effectiveness of this Letter Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Agent under the Credit Agreement, nor constitute a waiver of any provision of the Credit Agreement.

If you agree to the terms and provisions hereof, please evidence such agreement by executing and returning at least two counterparts of this Letter Amendment to Susan L. Hobart, Shearman & Sterling LLP, 599 Lexington Avenue, New York, New York 10022.

This Letter Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Letter Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Letter Amendment.

This Letter Amendment shall be governed by, and construed in accordance with, the laws of the State of California.

Very truly yours,
THE CHARLES SCHWAB CORPORATION
By	/s/ Carrie L. Dolan
	Name:	Carrie L. Dolan
	Title:	Senior Vice President and Treasurer

Agreed as of the date first above written:

CITICORP USA, INC.,
as Agent and as Lender
By:	/s/ Kevin Ege
Name: Kevin Ege
Title:   Vice President
BANK OF AMERICA, N.A.
By:	/s/ Garfield Johnson
Name: Garfield Johnson
Title:   Senior Vice President

2

CALYON NEW YORK BRANCH
By:	/s/ Sebastian Rocco
Name: Sebastian Rocco
Title:   Managing Director
By:	/s/ Kerwen Pearson
Name: Kerwen Pearson
Title:   Vice President
JPMORGAN CHASE BANK, N.A.
By:	/s/ Therese Bechet
Name: Therese Bechet
Title:   Managing Director
LLOYDS TSB BANK PLC
By:	/s/ Michael J. Gilligan
Name: Michael J. Gilligan
Title:   Managing Director
By:	/s/ Elaine B. Kallenbach
Name: Elaine B. Kallenbach
Title:   Associate Director
BNP PARIBAS
By:	/s/ Frank Sodano
Name: Frank Sodano
Title:   Managing Director
By:	/s/ David Seaman
Name: David Seaman
Title:   Director

NORDDEUTSCHE LANDESBANK GIROZENTRALE,

NEW YORK AND/OR CAYMAN ISLANDS BRANCH

By:

Name:

Title:

By:

Name:

Title:

3

PNC BANK, NATIONAL ASSOCIATION
By:	/s/ Edward J. Chidiac
Name: Edward J. Chidiac
Title:   Managing Director

WELLS FARGO BANK, NATIONAL ASSOCIATION

By:	/s/ Beth McGinnis
Name: Beth McGinnis
Title:   Senior Vice President/Loan Team Manager
WESTLB AG, NEW YORK BRANCH
By:	/s/ Wendy Ferguson
Name: Wendy Ferguson
Title:    Director
By:	/s/ Dee Dee Sklar
Name: Dee Dee Sklar
Title:   Managing Director
BANK OF HAWAII
By:	/s/ Steven R. Nakahara
Name: Steven R. Nakahara
Title:   Vice President

COMMERZBANK AG NEW YORK AND GRAND CAYMAN BRANCHES

By:	William M. Earley
Name: William M. Earley
Title:   Senior Vice President
By:	/s/ Joseph J. Hayes
Name: Joseph J. Hayes
Title:   Vice President
DEUTSCHE BANK AG NEW YORK BRANCH
By:	/s/ Charles Kohler
Name: Charles Kohler
Title:   Managing Director
By:	/s/ Jeffrey Bisig
Name: Jeffrey Bisig
Title:   Director

4

HARRIS N.A.
By:	/s/ Linda Haven
Name: Linda Haven
Title:   Managing Director
HSBC BANK USA, N.A.
By:	/s/ Joseph Travaglione
Name: Joseph Travaglione
Title:   Senior Vice President
MELLON BANK, N.A.
By:	/s/ Thomas Caruso
Name: Thomas Caruso
Title:   First Vice President
STATE STREET BANK AND TRUST COMPANY
By:	/s/ James H. Reichert
Name: James H. Reichert
Title:   Vice President
UBS LOAN FINANCE LLC
By:	/s/ Mary E. Evans
Name: Mary E. Evans
Title:   Associate Director
By:	/s/ David B. Julie
Name: David B. Julie
Title:   Associate Director

5

EX-12.1

THE CHARLES SCHWAB CORPORATION

Exhibit 12.1

Computation of Ratio of Earnings to Fixed Charges

(Dollar amounts in millions)

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
Earnings from continuing operations before taxes on earnings	$	512	$	382	$	1,327	$	1,104
Fixed charges
Interest expense:
Brokerage client cash balances		84		109		269		325
Deposits from banking clients		65		61		187		138
Long-term debt		7		7		21		22
Other		4		6		14		17
Total		160		183		491		502
Interest portion of rental expense		15		14		44		41
Total fixed charges (A)		175		197		535		543
Earnings from continuing operations before taxes on earnings and fixed charges (B)	$	687	$	579	$	1,862	$	1,647
Ratio of earnings to fixed charges (B) ÷ (A) (1)		3.9		2.9		3.5		3.0
Ratio of earnings to fixed charges excluding brokerage and banking client interest expense (2)		20.7		15.1		17.8		14.8

⁽¹⁾ The ratio of earnings to fixed charges is calculated in accordance with SEC requirements. For such purposes, “earnings” consist of earnings from continuing operations before taxes on earnings and fixed charges. “Fixed charges” consist of interest expense as listed above, including one-third of rental expense, which is estimated to be representative of the interest factor.

⁽²⁾ Because interest expense incurred in connection with both payables to brokerage clients and deposits from banking clients is completely offset by interest revenue on related investments and loans, the Company considers such interest to be an operating expense. Accordingly, the ratio of earnings to fixed charges excluding brokerage and banking client interest expense reflects the elimination of such interest expense as a fixed charge.

EX-31.1

Exhibit 31.1

THE CHARLES SCHWAB CORPORATION

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Charles R. Schwab, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Charles Schwab Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 7, 2007	/s/ Charles R. Schwab
		Charles R. Schwab
		Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

THE CHARLES SCHWAB CORPORATION

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph R. Martinetto, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Charles Schwab Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 7, 2007	/s/ Joseph R. Martinetto
		Joseph R. Martinetto
		Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

THE CHARLES SCHWAB CORPORATION

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of The Charles Schwab Corporation (the Company) on Form 10-Q for the quarter ended September 30, 2007 (the Report), I, Charles R. Schwab, Chairman and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.

/s/ Charles R. Schwab	Date: November 7, 2007
Charles R. Schwab
Chairman and Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to The Charles Schwab Corporation and will be retained by The Charles Schwab Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

THE CHARLES SCHWAB CORPORATION

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of The Charles Schwab Corporation (the Company) on Form 10-Q for the quarter ended September 30, 2007 (the Report), I, Joseph R. Martinetto, Executive Vice President and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.

/s/ Joseph R. Martinetto	Date:	November 7, 2007
Joseph R. Martinetto
Executive Vice President and
Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to The Charles Schwab Corporation and will be retained by The Charles Schwab Corporation and furnished to the Securities and Exchange Commission or its staff upon request.