Employment Agreement - Charles Schwab Corp. and H. Marshall Schwarz
January 23, 2002
Mr. H. Marshall Schwarz
Apartment 6-A
1220 Park Avenue
New York, New York 10128
Dear Marshall:
As a result of your discussions with Jeff Maurer and me, this letter details the
terms of our agreement ("Agreement") relative to your employment status with
U.S. Trust Corporation and The Charles Schwab Corporation (together with any
affiliated entity, collectively the "Company"). References in this letter
agreement to "U.S. Trust" that do not designate a particular U.S. Trust entity,
mean the appropriate U.S. Trust Corporation subsidiary as the context requires.
1. As of close of business on February 28, 2002, you will voluntarily step down
from and are relieved of your current responsibilities as Chairman and any other
employment positions you hold (hereafter, "Separation from Employment"). Also on
that same date, you are deemed to have resigned as an Officer and, except as set
forth in 1(a) and 1(b) below, all board positions, committee positions and other
positions you may hold. The date your employment ends is the "Separation Date."
(a) Notwithstanding your Separation from Employment or the provisions of
paragraph 12(h) of that certain Executive Employment Agreement and
Covenant Not to Compete entered into by and among U.S. Trust
Corporation, The Charles Schwab Corporation and you ("Employment
Agreement") you will remain a member of the U.S. Trust Corporation and
United States Trust Company of New York Boards of Directors until the
earlier of (i) your resignation; (ii) your 72nd birthday; (iii) your
death, incapacity or other inability to perform your duties as a board
member; or (iv) you are removed from the board as result of
appropriate board action due to unsatisfactory performance or breach
of duty.
(b) Notwithstanding the above, you will remain a member of The Charles
Schwab Corporation Board of Directors, subject to the same terms and
conditions that currently apply to you, until the expiration of the
current board term. After the expiration of the current board term you
will not seek election for any subsequent term without the prior
express written consent of the Co-Chief Executive Officers of The
Charles Schwab Corporation.
2. In consideration for the promises and other consideration provided by you,
U.S. Trust will provide you with a one-time lump-sum payment in the amount of
two million five hundred thirty three thousand three hundred thirty-three
dollars ($2,533,333) less usual and customary taxes, withholding and authorized
deductions. Said payment will be made on or before June 30, 2002. You will also
receive options to purchase 51,233 shares of stock of The Charles Schwab
Corporation ("Options"). The Options shall possess the same exercise price,
vesting schedule, expiration date and such other particulars as set forth in the
U.S. Trust Retention Bonus Program.
3. For purposes of the Employment Agreement your Separation from Employment
shall be treated as a separation by mutual consent pursuant to paragraph 12(e)
of said Employment Agreement.
4. You acknowledge that the amounts referred to in paragraph 2 above are, with
the exception of any accrued and vested benefits, including without limitation,
those under any plan or agreement described in this Agreement below or in
Schedule A attached hereto, in lieu of and in full satisfaction of any amounts
that might otherwise be payable under any contract, agreement, plan, policy,
program, practice or otherwise, past or present, of the Company, including, but
not limited to, the Employment Agreement, the 1990 Change in Control and
Severance Policy for Top Tier Officers of United States Trust Company of New
York and Affiliated Companies, as amended and restated effective as of October
22, 1996, 1990 Change in Control and Severance Policy for Officers and Employees
of United States Trust Company of New York and Affiliated Companies, as amended
and restated effective as of October 22, 1996, the U.S. Trust Retention Bonus
Program, the Executive Incentive Plan of U.S. Trust Corporation and any
incentive compensation plans. You expressly agree that you are not entitled to
receive any other payments or benefits under any contract, plan, policy,
agreement, program, practice or otherwise, including but not limited to those
listed in this paragraph, in exchange for receipt of benefits under this
Agreement. Specifically excepted from this agreement is a normal and customary
director's fee for any directorship you may hold.
5. 1992 Stock Incentive Plan: You will continue to vest in any stock options
previously granted to you until your Separation Date, in accordance with the
terms and conditions of the applicable Plan documents. Under the provisions of
The Charles Schwab Corporation 1992 Stock Incentive Plan, you retain the right
to exercise vested options plan for a specific period of time after your
Separation Date. Any stock options that are not vested as of your Separation
Date are immediately cancelled. Please refer to your Stock Option Agreement(s)
and Plan documents to determine how your rights apply to exercising your
options.
Restricted Shares: You will continue to vest in any restricted shares granted to
you until your Separation Date in accordance with the terms and conditions of
the applicable Plan documents. Restricted shares not vested as of your
Separation Date will be forfeited as provided by the applicable Plan documents.
Please refer to your Restricted Share Agreement(s) and Plan documents for
further information.
6. In the event of your death prior to your Separation Date, your Separation
Date will be changed to the date of your death and the Company will pay to your
estate any amounts due to you under paragraph 2 of this Agreement.
7. Through your Separation Date, you will continue to be eligible for all
regular employee insured benefits (excluding Short and Long Term Disability,
except as otherwise required by law) on the same terms and conditions as the
other plan participants in accordance with the terms of each plan. Commencing
with your Separation Date you will be entitled to the health and life insurance
benefits provided all qualified retirees of U.S. Trust.
8. A payment representing the amount of unused vacation and floating holiday
time you accrued through February 28, 2002 will be included in your last salary
payment.
9. Should there be any outstanding advances, loans or other obligations which
you owe the Company, or any of its parent(s), and/or its/their affiliates or
subsidiaries, such amounts must be repaid by your Separation Date (except as
provided above regarding 401(k) loans). If you have not repaid such amount, you
expressly agree that any outstanding amount due at your Separation Date may be
deducted from any payment(s) otherwise due you under this Agreement. You agree
that you nonetheless remain responsible for repayment if an amount is
outstanding after the offset.
10. In the event you incur travel or other business expenses after your
Separation Date related to Company business or your duties as a director,
reimbursement for such expenses will be approved or disapproved in accordance
with the travel and entertainment expense policies then in effect.
11. You acknowledge that by reason of your employment, you had access to and did
receive knowledge of the Company's trade secrets and proprietary and
confidential information ("Confidential Information"). You acknowledge and
affirm your obligations to maintain the confidentiality of Confidential
Information and not to use it or to disclose it to any third party in the
future. You understand and agree that the term "Confidential Information"
includes, but is not limited to, customer identity, customer account, personal
or business information, customer lists, lead information, employee information
(employment, personal, financial or account information), employee lists,
know-how, computer hardware or software configuration or design, research and
development, product designs, plans and/or methods (whether currently in use or
in development), source codes, future developments, costs, profits, account
valuation, pricing and pricing structure, technical, marketing, business,
financial, or other information which constitute trade secret information, or
information not available to competitors of the Company, the use or disclosure
of which might reasonably be construed to be contrary to the interests of the
Company. You agree that this paragraph is not intended to limit any definition
of "Confidential Information" in any prior written confidentiality agreement you
signed as a condition of your employment. You also agree that Confidential
Information is a valuable and unique asset which is actively protected and that
unauthorized use and/or disclosure of Confidential Information would cause
immediate and irreparable harm.
12. You expressly agree that any attempt on your part to induce any employee,
consultant or contractor to leave his/her assignment or employment with the
Company, or any other effort by you to interfere in those relationships will be
harmful and damaging to the Company. Therefore you agree that for a period of
twelve (12) months after your Separation Date, you will not in any way (directly
or indirectly), on your own behalf of any other person or entity: (1) solicit,
induce or attempt to solicit or induce, any employee, consultant or contractor
of the Company to leave his or her employment or assignment; (2) otherwise
interfere with or disrupt the employment or contract relationship with the
Company; (3) recruit, solicit, entice or hire away any employee, consultant or
contractor of the Company; or (4) hire or engage any employee, consultant or
contractor of the Company, or any former employee of the Company whose
employment ceased less than one (1) year before the date of such hire or
engagement.
13. You further acknowledge your continuing obligations pursuant to paragraph 8
(Covenant Not to Compete), paragraph 10 (Intellectual Property Rights) and
paragraph 11 (Media Communication and Non-Disparagement) of the Employment
Agreement.
14. You also agree that you will return to Therese Kelly, Senior Vice President,
or her designee any and all originals and copies of documents (including hard
copy and electronic documents, disks, and files) that you received, obtained
and/or created as part of your employment (excluding information you received
about your insured benefits or other benefit programs)(collectively "Files"),
and that you will return all Company property, including but not limited to
Company sponsored credit cards and/or calling cards, telephones, pagers, Palm
Pilots, laptops and other computer software and/or hardware, keys and identity
badges, by no later than March 15, 2002. Notwithstanding the foregoing, you may
maintain Files on U.S. Trust premises, sharing access thereto with U.S. Trust
personnel, as long as you are a director of U.S. Trust or maintain an office at
U.S. Trust.
15. U.S. Trust will provide you with office space, on a space available basis,
and administrative support, on an as needed basis, until such time as you notify
U.S. Trust that you no longer require such resources.
16. You understand that the benefits you receive under this Agreement are in
lieu of and a substitute for any severance benefits you may have been eligible
to receive under U.S. Trust Severance Program.
17. RELEASE: In exchange for the promises contained in this Agreement, you, your
heirs, executors, representatives, successors and assigns (referred to
collectively as "You"), fully release and discharge The Charles Schwab
Corporation, U.S. Trust Corporation, their parent(s), subsidiaries and
affiliates and/or their directors, officers, shareholders, agents, servants,
employees, successors, and assigns (referred to collectively as "Schwab") from
any and all claims for monetary or other damages or any other form of recovery
or relief, whether or not known, suspected or claimed, which You have or
hereafter may have against Schwab, including but not limited to claims for
attorneys' fees and costs, and causes of action with respect to, or arising out
of, your employment or separation from employment with Schwab. This release
includes, but is not limited to, claims arising under:
(1) any federal, state or local fair employment practice law,
(2) any unemployment insurance law,
(3) any disability benefits law,
(4) any workers' compensation law,
(5) any wage law,
(6) the Age Discrimination in Employment Act,
(7) any local, state or federal civil rights laws that prohibit
discrimination on the basis of age, color, race, gender, sex, marital
status, national origin, mental or physical disability, religion,
ancestry, or veteran status or any other form of discrimination (and,
for employees in New Jersey, the Conscientious Employee Protection
Act),
(8) the Employment Retirement Income Security Act, or
(9) any other statute, law, rule, regulation, ordinance, executive order,
contract or tort.
You waive and release the right to institute a lawsuit, arbitration, or other
judicial or quasi-judicial action in accordance with the law. With respect to
any charges, complaints, petitions or claims that have been or may be filed by
you concerning events or actions relating to your employment or separation from
employment, and which events or actions occurred on or before the date You sign
this Agreement, You expressly waive and release any right You may have to
recover monetary or other damages (including equitable relief) or any other form
of recovery or relief in any lawsuit, investigation, hearing, or proceeding of
any kind brought by You, an administrative agency, or any other person on Your
behalf or which includes You in any class. If you breach this paragraph, You
understand that You will be liable for all expenses, including costs and
attorneys' fees, incurred by Schwab (if Schwab prevails) in defending any
lawsuit, arbitration, charge, complaint, petition or claim. This paragraph 17 is
not intended to limit you from pursuing an action for the sole purpose of
enforcing this Agreement. You understand that this Agreement constitutes a
release by You of any and all claims and causes of action of any nature or
description which You have or may have arising up to and including the date You
execute this Agreement, whether or not You have asserted any or all such claims
or causes of action. However, nothing in this agreement is intended to alter the
agreement between you and US Trust dated August 15, 2001 ("August Agreement") to
provide the payment of legal fees in the event of pending or threatened
litigation addressed in the August Agreement. Nor is anything in this paragraph
17 intended to limit your right to reimbursement for legal fees or other costs
with respect to any actual or threatened proceeding to the extent provided in
the By-laws, certificate of incorporation or any resolution of U.S. Trust or The
Charles Schwab Corporation.
18. Except as specifically set forth herein, you expressly agree that You intend
this Agreement to extend to all claims, unknown and/or unsuspected, and to all
unanticipated injuries and/or damages, as well as to those claims, injuries or
damages which are now known to or suspected by You, that arose before the date
You signed this Agreement. This Agreement shall remain in effect as a full and
complete release notwithstanding the discovery or existence of any additional or
different facts.
19. You understand and agree that the terms and conditions of this Agreement,
the existence of this Agreement and the circumstances giving rise to it are
confidential and that you will not discuss, orally or in writing, the fact of
this Agreement, any aspect of this Agreement or the circumstances giving rise to
it with anyone other than your immediate family, attorney, CPA, or financial
advisor (with instructions to them that they are bound to maintain the
confidentiality of the terms and conditions of the Agreement), unless you are
subpoenaed or otherwise required by law to disclose the terms or conditions. If
You or your above referenced representatives receive legal notice that
disclosure is being sought, you will immediately provide Schwab with notice of
the potential disclosure (which notice must be prior to the disclosure). Nothing
in this provision is intended to undermine obligations you or Schwab may have to
comply with applicable banking or securities laws, rules and/or regulations.
20. You further agree that you will refrain from taking actions or making
written or oral statements regarding Schwab, which could or would:
- Disparage or defame the goodwill or reputation,
- Adversely affect the morale of other employees,
- Impact the ability to attract qualified candidates, or
- Affect the relationship with its analysts, investors, rating agencies,
media representatives, external consultants or any other entity which could
have influence over its reputation, shareholder value or market share.
You also agree that you will refrain from acting as a source (attributable or
otherwise) or engaging in any dialogue with the media, regarding your
experiences with or at Schwab that in any way would or could be injurious or
detrimental to any Schwab entity or affiliated person, or regarding any
information you may have acquired (first hand or otherwise) concerning Schwab
operations, marketing or advertising strategies or plans, financial performance,
recruitment or retention strategies and/or internal policies and procedures.)
Nothing in this paragraph is intended to undermine obligations you or Schwab may
have to comply with applicable banking and/or securities laws, rules and/or
regulations.
21. You agree that you will continue to cooperate (before and after your
Separation Date) with the Company in all inquiries and/or investigations
(internal, regulatory or otherwise) and on all claims, litigation or arbitration
pertaining to the Company's business or relationships, regardless of whether the
Company is or becomes a named party. In that event, the Company will reimburse
you for reasonable travel expenses in accordance with the travel policies then
in effect and will reimburse you for reasonable legal fees incurred by you to
the extent you determine, with the approval of the Company (such approval not to
be unreasonably withheld), that it is appropriate for you to have independent
legal advice or representation in connection therewith. This reimbursement is
for your convenience. The Company confirms its expectation that you will provide
truthful information in accordance with this paragraph.
22. In the event that any amounts payable under paragraph 2 of this Agreement,
any amounts referred to in paragraph 4 of this Agreement, any amount payable
under the Employment Agreement, or any other payments or benefits to which you
are entitled from the Company are subject to the excise tax imposed under
Section 4999 of the Internal Revenue Code (the "Excise Tax"), the Company shall
pay you an additional amount (the "Gross-Up Payment") such that the net amount
retained by you, after deduction of any Excise Tax and any Federal, state and
local income and employment tax and Excise Tax upon the payment provided by this
paragraph, shall be equal to the amount you would have received had the Excise
Tax not been imposed.
23 All rights and obligations under the Split Dollar Insurance Agreement dated
December 21, 1998 between U.S. Trust Corporation and you (the "Split Dollar
Agreement") shall survive this Agreement and your separation from the Company.
The Company agrees that it will report consistently with any election permitted
by IRS Notice 2002-8, or the regulations to be issued announced in such Notice,
made by the trustee under your trust indenture dated March 3, 1998 with respect
to the income taxation of the insurance provided under the Split Dollar
Agreement. The Company further agrees that it will provide such information with
respect to the financial performance of the insurance policy acquired under the
Split Dollar Agreement as such trustee shall from time to time reasonably
request.
24. By entering into this Agreement, the Company does not admit any liability to
you or any other person arising out of or attributable to your employment at the
Company or the ending of that employment. The Company expressly denies any and
all such liability and denies it has engaged in any wrongful act.
25. You confirm that you have been supplied with and have read a copy of this
Agreement and understand its terms, that you have been advised to consult with
an attorney before signing this Agreement, that you fully understand the content
and effect of this Agreement, and that you enter into this Agreement
voluntarily. You also confirm that you have been given at least twenty-one (21)
days in which to consider the terms of this Agreement (which 21 day period
begins on the date you were first provided with a copy of the original Agreement
for review and signature), and that you approve and accept the terms and
knowingly and voluntarily agree to be bound by them. This notice is provided in
accordance with the Age Discrimination in Employment Act.
26. For a period of seven (7) calendar days after you sign this Agreement, you
are entitled to revoke it, and this Agreement will not become effective or
enforceable until that seven-day period has expired without a revocation by you.
To revoke this Agreement, please deliver to me a writing requesting revocation.
The writing must be physically received by me within 7 calendar days of the date
of your signature on this Agreement in order to be effective.
27. This Agreement is severable. If a provision or a portion of a provision is
found legally unenforceable or invalid, the remaining portions and provisions of
this Agreement remain enforceable and shall be enforced to the full extent of
the law.
28. This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New York.
29. This Agreement, the August Agreement, and the surviving provisions of the
Employment Agreement constitute the complete understanding between you and
Schwab as to the subject matter contained herein and supercedes any other
agreements or understandings, whether written or verbal. No other subsequent
promises or agreements shall be binding unless they are reduced to writing and
are signed by you and an authorized Schwab Officer, except as otherwise provided
above.
Marshall, if the terms of this Agreement are satisfactory, please date, sign and
initial this document in the space provided below and on the following page.
Please do not make any other marks on the Agreement. The signed original should
be returned to Charles Fergusson, Senior Vice President, United States Trust
Company of New York, 114 West 47th Street, New York, New York 10036 in the
enclosed envelope on or before March 1, 2002. I have included a copy for your
files. Once you return the signed and initialed original, I will initial it as
well and provide you with a copy of the fully executed document. Please feel
free to contact me should you have any questions.
Very truly yours,
/s/ David S. Pottruck
------------------------
David Pottruck
President and Co-Chief Executive Officer
The Charles Schwab Corporation
AGREED: /s/ H. Marshall Schwarz DATE: 2/28/02
------------------------ --------------------
H. Marshall Schwarz
<PAGE>
Schedule A
----------
H. Marshall Schwarz
A/O January 10, 2002
Account Balance as of 1/10/02*
Benefit Equalization Plan of U.S. Trust Corp. $ 2,689,528.73
--------------------------------------------------------------------------------
Executive Deferred Compensation Plan of U.S. Trust Corp. 5,846,263.12
--------------------------------------------------------------------------------
Long Term Performance Plan of U.S. Trust Corp 1,628,943.83
--------------------------------------------------------------------------------
U.S. Trust Corporation 401(k) Plan - 401(k) 2,335,761.09
--------------------------------------------------------------------------------
U.S. Trust Corporation 401(k) Plan - ESOP 267,303.94
--------------------------------------------------------------------------------
U.S. Trust Corporation 401(k) Plan - ESOP Diversification 267,492.46
------------------------------------------------------------====================
Total $ 13,035,293.17
--------------------------------------------------------------------------------
*Amounts will change with changes in market values, additions and withdrawals.
In addition:
1) Rights under the Split Dollar Insurance Agreement dated December 21, 1998,
between U.S. Trust Corporation and H.M. Schwarz
2) Rights to a pension pursuant to the terms of the U.S. Trust Retirement Plan