<PAGE>
PROSPECTUS SUPPLEMENT
(To Prospectus dated July 17, 1998)
CAPITAL ONE FINANCIAL CORPORATION
$200,000,000
7 1/8% Notes due 2008
Interest payable February 1 and August 1
Interest on the 7 1/8% Notes due August 1, 2008 (the "Notes") is payable semi-
annually on February 1 and August 1 of each year, beginning February 1, 1999.
The Notes may be redeemed at any time at the option of Capital One Financial
Corporation (the "Company"), in whole or in part, at a redemption price equal
to the greater of (i) 100% of the principal amount of such Notes and (ii) as
determined by the Quotation Agent (as defined herein), the sum of the present
values of the remaining scheduled payments of principal and interest thereon
(not including any portion of such payments of interest accrued as of the date
of redemption) discounted to the date of redemption on a semi-annual basis (as-
suming a 360-day year consisting of twelve 30-day months) at the Adjusted Trea-
sury Rate (as defined herein) plus 25 basis points plus, in each case, accrued
interest thereon to the date of redemption. See "Description of Notes--Optional
Redemption" herein.
The Notes will be represented by one or more global Notes (the "Global Securi-
ties") registered in the name of The Depository Trust Company (the "Deposita-
ry") or its nominee. Interests in the Global Securities will be shown on, and
transfer thereof will be effected only through, records maintained by the De-
positary and its participants. Except as provided herein, Notes in definitive
form will not be issued. See "Description of Notes--Book Entry Form."
The Notes will trade in the Depositary's Same-Day Funds Settlement System until
maturity, and secondary market trading activity for the Notes will therefor
settle in immediately available funds. All payments of principal and interest
will be made by the Company in immediately available funds. See "Description of
Notes--Same-Day Settlement and Payment."
THE NOTES ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK
SUBSIDIARY OF THE COMPANY AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Underwriters have agreed to purchase the Notes from the Company at 98.939%
of their principal amount (resulting in $197,878,000 aggregate proceeds to the
Company, before deducting expenses payable by the Company estimated at
$300,000), plus accrued interest, if any, from July 27, 1998, subject to the
terms and conditions as set forth in the Underwriting Agreement.
The Underwriters propose to offer the Notes from time to time for sale in one
or more negotiated transactions, or otherwise, at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or at ne-
gotiated prices. For further information with respect to the plan of distribu-
tion and any discounts, commissions or profits on resale that may be deemed un-
derwriting discounts or commissions, see "Underwriting" herein. The Company has
agreed to indemnify the Underwriters against certain liabilities, including li-
abilities under the Securities Act of 1933, as amended.
The Notes are offered, subject to prior sale, when, as and if accepted by the
Underwriters and subject to approval of certain legal matters by Simpson
Thacher & Bartlett, counsel for the Underwriters. It is expected that delivery
of the Notes will be made on or about July 27, 1998 through the facilities of
the Depositary, against payment therefor in immediately available funds.
J.P. MORGAN & CO.
CHASE SECURITIES INC.
DONALDSON, LUFKIN & JENRETTE
July 22, 1998 LEHMAN BROTHERS
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS DATED JULY 17, 1998 (THE "PROSPECTUS"), AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. CAPITALIZED TERMS NOT
OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANINGS GIVEN TO THEM IN THE
PROSPECTUS. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THE NOTES BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS, NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF OR THAT THE
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN OR THEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
The Company................................................................ S-3
Recent Developments........................................................ S-3
Selected Consolidated Financial Data....................................... S-4
Use of Proceeds............................................................ S-6
Capitalization............................................................. S-6
Description of Notes....................................................... S-7
Underwriting............................................................... S-10
Validity of Notes.......................................................... S-10
PROSPECTUS
Available Information...................................................... 1
Incorporation of Certain Information by Reference.......................... 1
The Company................................................................ 3
Use of Proceeds............................................................ 4
Certain Ratios............................................................. 5
Supervision, Regulation and Other Matters.................................. 5
Description of Debt Securities............................................. 10
Description of Preferred Stock............................................. 17
Description of Common Stock................................................ 20
Plan of Distribution....................................................... 26
Validity of Securities..................................................... 26
Experts.................................................................... 27
</TABLE>
S-2
<PAGE>
THE COMPANY
The Company is a holding company, incorporated in Delaware on July 21, 1994,
whose subsidiaries provide a variety of products and services to consumers. The
Company's principal subsidiary, Capital One Bank (the "Bank"), a Virginia state
chartered bank, offers credit card products. Capital One, F.S.B. (the "Savings
Bank"), a federally chartered savings bank, provides certain consumer lending
and deposit services. The Company's Common Stock is listed on the New York
Stock Exchange under the symbol COF. The Company's principal executive office
is located at 2980 Fairview Park Drive, Suite 1300, Falls Church, Virginia
22042-4525, telephone number: (703) 205-1000.
The Company (including its subsidiaries and the operations of its predecessor)
is one of the oldest continually operating bank card issuers in the U.S., hav-
ing commenced operations in 1953, the same year as the formation of what is now
MasterCard International. The growth in managed loans and credit card accounts
achieved by the Company in recent years was due largely to credit card industry
dynamics and the success of the Company's proprietary information-based strat-
egy ("IBS") initiated in 1988. As of June 30, 1998, the Company had total as-
sets of $7.7 billion, total liabilities of $6.5 billion and total equity of
$1.1 billion. As of June 30, 1998, the Company had 13.6 million customers and
$15.0 billion in managed consumer loans outstanding and was one of the largest
providers of MasterCard(R)* and Visa(R)* credit cards in the world.
RECENT DEVELOPMENTS
SECOND QUARTER RESULTS
The Company announced its second quarter earnings results for 1998 on July 16,
1998. The Company's net income for the three months ended June 30, 1998 was
$66.9 million, or $.96 per share, compared to net income of $65.7 million, or
$.96 per share, for the first quarter of 1998 and $39.4 million, or $.58 per
share, for the comparable period in 1997. Earnings per share amounts are re-
ported on a diluted basis. This increase primarily reflects an increase in fee
revenue from the growth in loans and accounts offset by a decrease in the net
interest margin, as discussed below. During the second quarter, the Company's
managed consumer loan balances increased by $967 million to $15.0 billion, and
the Company added 914,000 net new accounts, bringing total accounts to 13.6
million.
The managed net interest margin was 9.84 percent in the second quarter of 1998,
an expected decrease from 10.40 percent in the first quarter of 1998 and an in-
crease from 8.30 percent in the comparable period of the prior year. The lower
margin from the previous quarter primarily reflects decreases in late fees as
the Company's delinquency levels declined. Non-interest income increased $33
million compared to the first quarter of 1998 and $84 million for the compara-
ble period in the prior year. This growth reflects increased fees (including
annual membership, interchange, and overlimit) on the Company's customized
products and strategic cross-sell initiatives.
The Company also announced that it had signed an agreement to acquire Summit
Acceptance Corporation ("Summit"). Based in Dallas, Texas, Summit is a subprime
automobile finance company with approximately 180 employees and serviced loans
of approximately $260 million as of June 30, 1998. The acquisition price for
Summit will be approximately $55 million which will be paid through the issu-
ance of the Company's common stock. The acquisition will be accounted for as a
purchase and goodwill of approximately $70 million will be amortized over 15
years.
* MasterCard and Visa are registered trademarks of MasterCard International In-
corporated and VISA USA, Inc., respectively.
S-3
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company as of the dates or for the periods indicated. This information should
be read in conjunction with, and is qualified in its entirety by reference to,
the detailed information and financial statements included in the documents in-
corporated herein by reference. See "Available Information" and "Incorporation
of Certain Information by Reference" in the accompanying Prospectus. The infor-
mation set forth below for the six months ended June 30, 1998 and 1997 has been
derived from unaudited consolidated financial statements of the Company and re-
flects, in the opinion of management, all adjustments (consisting only of nor-
mal recurring adjustments) necessary for a fair presentation of such informa-
tion. Results for the six months ended June 30, 1998 are not necessarily indic-
ative of results which may be expected for any other interim period or for the
year as a whole.
The Company periodically securitizes and sells consumer loan receivables to
provide funds for operations and to improve liquidity. The effect of these
transactions is to remove these consumer loans from the Company's balance
sheet. The Company records gains or losses on the securitization of consumer
loan receivables based on the estimated fair value of the assets obtained and
liabilities incurred on the sale. The information in the following table under
"Managed Loan Data" includes receivables sold in credit card securitization
transactions and the Company's on-balance sheet loan portfolio.
<TABLE>
<CAPTION>
AT OR FOR THE SIX MONTHS AT OR FOR THE YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
-------------------------- ---------------------------------
1998 1997 1997 1996 1995
------------ ------------ --------- --------- ---------
(UNAUDITED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income......... $ 529 $ 335 $ 717 $ 660 $ 457
Interest expense........ 195 164 335 295 249
<CAPTION>
------------ ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net interest income..... 335 171 383 365 208
Provision for loan
losses................. 145 96 262 167 66
<CAPTION>
------------ ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net interest income
after provision for
loan losses............ 190 75 120 198 142
Noninterest income...... 645 472 1,069 763 553
Noninterest expense..... 621 416 883 713 497
<CAPTION>
------------ ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income before income
taxes.................. 214 132 305 243 198
Income taxes............ 81 50 116 93 71
<CAPTION>
------------ ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net income.............. 133 82 189 155 127
<CAPTION>
============ ============ ========= ========= =========
<S> <C> <C> <C> <C> <C>
Diluted earnings per
share.................. 1.92 1.21 2.80 2.32 1.90
Dividends paid per
share.................. .16 .16 .32 .32 .24
BALANCE SHEET STATISTICS
(PERIOD-END):
Consumer loans held for
securitization......... $ $ $ $ $ 400
Consumer loans.......... 5,140 3,624 4,862 4,344 2,522
Allowance for loan
losses................. (213) (118) (183) (118) (72)
Cash and cash
equivalents............ 39 453 237 529 872
Securities available for
sale................... 1,431 1,142 1,243 878 413
Total assets............ 7,651 6,159 7,078 6,467 4,759
Deposits................ 1,287 870 1,313 943 696
Other borrowings........ 4,769 4,063 4,429 4,525 3,302
Stockholders' equity.... 1,069 821 893 740 599
</TABLE>
S-4
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE SIX MONTHS AT OR FOR THE YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
-------------------------- ---------------------------------
1998 1997 1997 1996 1995
------------ ------------ --------- --------- ---------
(UNAUDITED)
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
MANAGED LOAN DATA:
Total loans (average)... $ 14,254 $ 12,637 $ 13,007 $ 11,268 $ 9,089
Interest income......... 1,222 968 2,046 1,663 1,192
Period-end loans........ 14,969 12,737 14,231 12,803 10,445
Total accounts (000's)
(period-end)........... 13,588 9,796 11,747 8,586 6,149
Yield................... 17.15% 15.31% 15.73% 14.76% 13.12%
Delinquency rate(1)(2).. 5.14 6.33 6.20 6.24 4.20
Net charge-off
rate(1)(3)............. 5.97 6.11 6.59 4.24 2.25
SELECTED FINANCIAL
RATIOS:
Return on average
equity................. 26.67% 20.95% 22.98% 22.94% 23.28%
Return on average
assets................. 3.39 2.53 2.88 2.79 2.85
Net interest margin--
managed................ 10.12 8.56 8.86 8.16 6.28
Ratio of earnings to
fixed charges
(including interest on
deposits).............. 2.07 1.78 1.89 1.83 1.78
Ratio of earnings to
fixed charges
(excluding interest on
deposits).............. 2.24 1.88 2.01 2.02 1.97
COMPANY CONSOLIDATED
CAPITAL RATIOS(4):
Capital to managed
assets................. 6.68% 6.01% 6.03% 4.96% 4.88%
</TABLE>
- -------
(1) In the fourth quarter of 1997, the Company modified its methodology for
charging off credit card loans (net of any collateral) to 180 days past-
due, from the prior practice of charging off loans during the next billing
cycle after becoming 180 days past-due. At this time the Company also rec-
ognized the estimated uncollected portion of finance charge and fee income
receivables, which decreased loans and pre-tax income. The delinquency
rate, without the modification in charge-off policy and finance charge and
fee income recognition, would have been 6.97%. The net charge-off rate,
without the modification in charge-off policy, would have been 6.22%.
(2) Delinquencies represent loans which were 30 days or more past-due at period
end as a percentage of managed receivables.
(3) Net charge-offs reflect actual principal amounts charged off less recov-
eries as a percentage of average receivables for the period.
(4) The Tier 1 risk-based capital ratios for the Bank for 1995, 1996, 1997, and
the three months ended March 31, 1998 were 11.52%, 11.61%, 10.49% and
14.08%. The total risk-based capital ratios for the Bank for 1995, 1996,
1997, and the three months ended March 31, 1998 were 12.77%, 12.87%, 13.26%
and 16.94%. The leverage capital ratios for the Bank for 1995, 1996, 1997,
and the three months ended March 31, 1998 were 8.52%, 9.04%, 10.75% and
11.34%.
S-5
<PAGE>
USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the Notes for
general corporate purposes, which may include possible acquisitions, invest-
ments in securities and the purchase of real property for use in the Company's
business and the reduction of debt of, and investments in, or extensions of
credit to, the Company's subsidiaries, including upon completion of the acqui-
sition, Summit.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company
and its subsidiaries at June 30, 1998 and as adjusted as of such date to give
effect to the issuance of the Notes offered hereby, after deduction of under-
writing discounts and estimated expenses of the offering and the application of
the net proceeds therefrom. This table should be read in conjunction with the
Company's consolidated financial statements and the notes thereto incorporated
by reference herein. See "Available Information" and "Incorporation of Certain
Information by Reference" in the accompanying Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
DEBT:
Interest-bearing deposits............................. $1,287,402 $1,287,402
Other borrowings...................................... 959,480 959,480
Senior notes.......................................... 3,709,404 3,709,404
Deposit notes......................................... 99,996 99,996
Notes offered hereby.................................. -- 200,000
<CAPTION>
---------- -----------
<S> <C> <C>
Total debt(1)......................................... $6,056,282 $6,256,282
<CAPTION>
========== ===========
<S> <C> <C>
Guaranteed preferred beneficial interests in Capital
One Bank's floating rate junior subordinated capital
income securities.................................... 97,791 97,791
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share; authorized
300,000,000 shares, 66,558,730 issued ............... $ 666 $ 666
Paid-in capital, net.................................. 561,518 561,578
Retained earnings..................................... 547,485 547,485
Cumulative other comprehensive income................. 3,421 3,421
Less: Treasury stock, at cost, 1,020,608 shares....... (43,929) (43,929)
<CAPTION>
---------- -----------
<S> <C> <C>
Total stockholders' equity............................ 1,069,161 1,069,161
<CAPTION>
---------- -----------
<S> <C> <C>
Total capitalization.................................. $7,223,234 $7,423,234
<CAPTION>
========== ===========
</TABLE>
- --------
(1) The Company obtains funding from a number of sources. As of June 30, 1998,
these sources included securitizations, wholesale deposits in amounts of
$100,000 or more, overnight and term federal funds borrowings, medium-term
bank notes and bank deposit notes, retail deposits and stockholders' equity.
S-6
<PAGE>
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered hereby
supplements, and to the extent inconsistent therewith modifies, the description
of the general terms and provisions of Senior Debt Securities set forth in the
accompanying Prospectus, to which description reference is hereby made. The
following description is qualified in its entirety by reference to the provi-
sions of the Senior Indenture (as defined below). Capitalized terms not defined
herein have the meanings assigned to such terms in the accompanying Prospectus
or in the Senior Indenture.
GENERAL
The Notes offered hereby constitute a series of Senior Debt Securities de-
scribed in the accompanying Prospectus to be issued under the Indenture, dated
as of November 1, 1996 (the "Senior Indenture"), between the Company and Harris
Trust and Savings Bank, as Trustee (the "Senior Trustee"). The Notes will be
limited to $200,000,000 aggregate principal amount, will be direct, unsecured
obligations of the Company and will mature on .
The Notes will bear interest at the rate per annum shown on the cover page of
this Prospectus Supplement, payable semiannually in arrears on each February 1
and August 1, beginning February 1, 1999, to the persons in whose names the
Notes are registered at the close of business on the January 15 or July 15, as
the case may be, next preceding such February 1 and August 1.
The Notes do not provide for any sinking fund.
OPTIONAL REDEMPTION
The Notes will be redeemable, in whole or in part, at the option of the Company
at any time at a redemption price equal to the greater of (i) 100% of the prin-
cipal amount of such Notes, and (ii) as determined by the Quotation Agent (as
defined below), the sum of the present values of the remaining scheduled pay-
ments of principal and interest thereon (not including any portion of such pay-
ments of interest accrued as of the date of redemption) discounted to the date
of redemption on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate (as defined below) plus 25
basis points plus, in each case, accrued interest thereon to the date of re-
demption.
"Adjusted Treasury Rate" means, with respect to any redemption date, the rate
per annum equal to the semi-annual equivalent yield to maturity of the Compara-
ble Treasury Issue, assuming a price for the Comparable Treasury Issue (ex-
pressed as a percentage of its principal amount) equal to the Comparable Trea-
sury Price for such redemption price.
"Comparable Treasury Issue" means the United States Treasury security selected
by the Quotation Agent as having a maturity comparable to the remaining term of
the Notes to be redeemed that would be utilized, at the time of selection and
in accordance with customary financial practice, in pricing new issues of cor-
porate debt securities of comparable maturity to the remaining term of such
Notes.
"Comparable Treasury Price" means, with respect to any redemption date, (i) the
average of the Reference Treasury Dealer Quotations for such redemption date,
after excluding the highest and lowest such Reference Treasury Dealer Quota-
tions, or (ii) if the Trustee obtains fewer than three such Reference Treasury
Dealer Quotations, the average of all such Reference Treasury Dealer Quota-
tions.
"Quotation Agent" means the Reference Treasury Dealer appointed by the Company.
"Reference Treasury Dealer" means (i) each of J.P. Morgan Securities Inc.,
Chase Securities Inc., Donaldson, Lufkin & Jenrette Securities Corporation,
Lehman Brothers Inc. and their respective successors; provided, however, that
if any of the foregoing shall cease to be a primary U.S. Government securities
dealer in New York City (a "Primary Treasury Dealer"), the Company shall sub-
stitute therefor another Primary Treasury Dealer; and (ii) any other Primary
Treasury Dealer selected by the Company.
S-7
<PAGE>
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the Com-
pany, of the bid and asked prices for the Comparable Treasury Issue (expressed
in each case as a percentage of its principal amount) quoted in writing to the
Trustee by such Reference Treasury Dealer at 5:00 p.m., New York City time, on
the third Business Day preceding such redemption date.
Notice of any redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of the Notes to be redeemed. Un-
less the Company defaults in payment of the redemption price, on and after the
redemption date, interest will cease to accrue on the Notes or portions thereof
called for redemption.
BOOK ENTRY FORM
The Notes will be issued in the form of one or more fully registered permanent
Global Securities registered in the name of a nominee of the Depositary as de-
scribed under "Description of Debt Securities--Global Debt Securities" in the
accompanying Prospectus. The Depositary has advised the Company as follows: it
is a limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code, and a "clearing agency" registered pursu-
ant to the provisions of Section 17A of the Securities Exchange Act of 1934, as
amended. The Depositary holds securities that its participants ("Participants")
deposit with it. The Depositary also facilitates the settlement among Partici-
pants of securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book entry changes in Participants'
accounts, thereby eliminating the need for physical movement of securities cer-
tificates. Direct Participants include securities brokers and dealers, banks,
trust companies, clearing corporations, and certain other organizations. The
Depositary is owned by a number of its direct Participants and by the New York
Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Asso-
ciation of Securities Dealers, Inc. Access to the Depositary's system is also
available to others such as securities brokers and dealers, and banks and trust
companies that clear through or maintain a custodial relationship with a direct
Participant, either directly or indirectly. The rules applicable to the Deposi-
tary and its Participants are on file with the Securities and Exchange Commis-
sion.
Upon the issuance of the Global Securities evidencing the Notes, the Depository
will credit, on its book entry registration and transfer system, the respective
principal amounts of the Notes evidenced thereby to the accounts of Partici-
pants. The accounts to be credited shall be designated by the Underwriters.
Ownership of beneficial interests in the Global Securities will be limited to
Participants or persons that may hold interests through Participants. Ownership
of beneficial interests in the Global Securities will be shown on, and the
transfer of those ownership interests may be effected only through, records
maintained by the Depositary or its nominee (with respect to Participants) and
the records of Participants (with respect to persons who hold their interests
through Participants). The laws of some states require that certain purchasers
of securities take physical delivery of such securities in definitive form.
Such laws may impair the ability of Holders to transfer beneficial interests in
the Notes to certain purchasers.
So long as the Depositary, or its nominee, is the registered holder of the
Global Securities, the Depositary or its nominee will be considered the sole
owner or holder of the Notes represented by such Global Securities for all pur-
poses under the Senior Indenture. Except as set forth below, owners of benefi-
cial interests in the Global Securities will not be entitled to have Notes rep-
resented by such Global Securities registered in their names, will not receive
or be entitled to receive physical delivery of Notes in definitive form, and
will not be considered the owners or holders thereof for any purpose under the
Senior Indenture. Accordingly, each person owning a beneficial interest in the
Global Securities must rely on the procedures of the Depositary and, if such
person is not a Participant, on the procedures of the Participant through which
such person owns its interest, to exercise any rights of a Holder under the Se-
nior Indenture. Under existing industry practices, in the event that the Com-
pany requests any action of Holders or that an owner of a beneficial interest
in the Global Securities desires to give any consent or take any action under
the Senior Indenture, the Depositary would authorize the Participants holding
the relevant beneficial interests to give or take such action or consent, and
such Participants would authorize beneficial owners owning through such Partic-
ipants to give or take such action or consent or would otherwise act upon the
instructions of beneficial owners owning through them.
S-8
<PAGE>
Payment of principal and interest on Notes registered in the name of or held by
the Depositary or its nominee will be made to the Depositary or its nominee, as
the case may be, as registered holder of the Global Securities representing the
Notes. None of the Company, the Senior Trustee, any Paying Agent nor the Secu-
rity Registrar for the Notes will have any responsibility or liability for any
aspect of the records relating to, or payments made on account of, beneficial
ownership interests in the Global Securities or maintaining, supervising or re-
viewing any records relating to such beneficial ownership interests.
The Company has been advised by the Depositary that upon receipt of any payment
of principal or interest in respect of the Global Securities, the Depositary
will credit Participants' accounts with payments in amounts proportionate to
their respective beneficial interests in the principal amount of the Global Se-
curities as shown on the records of the Depositary or its nominee. Payments by
Participants to owners of beneficial interests in the Global Securities held
through such Participants will be governed by standing instructions and custom-
ary practices, as is now the case with securities held for the accounts of cus-
tomers in bearer form or registered in "street name", and will be the responsi-
bility of such Participants.
If the Depositary is at any time unwilling, unable or ineligible to continue as
depositary and a successor depositary is not appointed by the Company within 90
days, or an Event of Default has occurred and is continuing, the Company will
issue Notes in definitive form in exchange for such Global Securities. In addi-
tion, the Company may at any time and in its sole discretion determine not to
have the Notes represented by the Global Securities and, in such event, will
issue Notes in definitive form in exchange for the Global Securities.
DEFEASANCE AND DISCHARGE
The defeasance provisions of the Senior Indenture described under "Description
of Debt Securities--Defeasance and Covenant Defeasance" in the accompanying
Prospectus will apply to the Notes.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement by purchasers of the Notes will be made in immediately available
funds. All payments by the Company to the Depositary of principal and interest
will be made in immediately available funds.
So long as any Notes are represented by Global Securities registered in the
name of the Depositary or its nominee, such Notes will trade in the
Depositary's Same-Day Funds Settlement System and secondary market trading in
such Notes will therefore be required by the Depositary to settle in immedi-
ately available funds. No assurance can be given as to the effect, if any, of
settlement in immediately available funds on trading activity in the Notes.
TRUSTEE
Harris Trust and Savings Bank will serve as the Senior Trustee with respect to
the Notes.
S-9
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the Company has agreed to
sell to each of the underwriters named below (the "Underwriters"), severally,
and each of the Underwriters has agreed to purchase, the aggregate principal
amount of Notes set forth opposite its name below.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF NOTES
- ------------ ----------------
<S> <C>
J.P. Morgan Securities Inc. .................................. $ 50,000,000
Chase Securities Inc. ........................................ 50,000,000
Donaldson, Lufkin & Jenrette Securities Corporation........... 50,000,000
Lehman Brothers Inc. ......................................... 50,000,000
<CAPTION>
----------------
<S> <C>
Total....................................................... $200,000,000
<CAPTION>
================
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the Underwriters
are obligated to take and pay for all of the Notes if any are taken.
The distribution of the Notes by the Underwriters is being effected from time
to time in negotiated transactions or otherwise at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or at ne-
gotiated prices. In connection with the sale of any Notes, the Underwriters may
be deemed to have received compensation from the Company equal to the differ-
ence between the amount received by the Underwriters upon the sale of such
Notes and the price at which the Underwriters purchased such Notes from the
Company. In addition, the Underwriters may sell Notes to or through certain
dealers, and dealers may receive compensation in the form of underwriting dis-
counts, concessions or commissions from the Underwriters and/or any purchasers
of Notes for whom they may act as agent (which compensation may be in excess of
customary commissions). The Underwriters may also receive compensation from the
purchasers of Notes for whom they may act as agent.
The Company does not intend to apply for listing of the Notes on a national se-
curities exchange. The Company has been advised by the Underwriters that they
intend to make a market in the Notes although the Underwriters are not obli-
gated to make a market in the Notes and may discontinue market making at any
time without notice. No assurances can be given as to the liquidity of the
trading market for the Notes.
The Company has agreed to indemnify the Underwriters against certain liabili-
ties, including liabilities under the Securities Act of 1933, as amended, or to
contribute to payments that the Underwriters may be required to make in respect
thereof.
In the ordinary course of their respective businesses, affiliates of certain of
the Underwriters have engaged and may in the future engage in commercial bank-
ing and investment banking transactions with the Company.
VALIDITY OF NOTES
The validity of the Notes will be passed upon for the Company by John G.
Finneran, Jr., Esq., Senior Vice President, General Counsel and Corporate Sec-
retary of the Company, and for the Underwriters by Simpson Thacher & Bartlett,
New York, New York. As of July 17, 1998, Mr. Finneran owned approximately 2,674
shares of Common Stock of the Company and held options to purchase 178,704
shares of Common Stock issued under the Company's 1994 Stock Incentive Plan.
S-10
<PAGE>
$500,000,000
CAPITAL ONE FINANCIAL CORPORATION
DEBT SECURITIES, PREFERRED STOCK AND COMMON STOCK
----------------
Capital One Financial Corporation (the "Company") from time to time may
offer and sell (i) debt securities, consisting of debentures, notes and/or
other unsecured evidences of indebtedness (the "Debt Securities"), which may
be either unsecured senior Debt Securities (the "Senior Debt Securities") or
unsecured subordinated Debt Securities (the "Subordinated Debt Securities"),
(ii) preferred stock, par value $.01 per share (the "Preferred Stock"), which
may be issued in the form of depositary shares evidenced by depositary
receipts (the "Depositary Shares") and (iii) common stock, par value $.01 per
share ("Common Stock"). The Debt Securities, Preferred Stock, including the
Depositary Shares, and Common Stock are collectively referred to herein as the
"Securities."
The Securities offered pursuant to this Prospectus may be issued in one or
more series or issuances, together or separately and will be limited to
$500,000,000 aggregate public offering price (or its equivalent (based on the
applicable exchange rate at the time of sale) in one or more foreign
currencies, currency units of composite currencies as shall be designated by
the Company). The specific terms of the particular Securities in respect of
which this Prospectus is being delivered will be set forth in an accompanying
Prospectus Supplement, including, where applicable: (i) in the case of Debt
Securities, the specific title, aggregate principal amount, the denominations
(which may be in U.S. dollars, in any other currency or in composite
currencies), maturity, premium, if any, the interest rate (which may be fixed,
floating or adjustable), the time and method of calculating payment of
interest, if any, the place or places where the principal of (and premium, if
any) and interest, if any, on such Debt Securities will be payable, the
currency in which principal of (and premium, if any) and interest, if any, on
such Debt Securities will be payable, any terms of redemption at the option of
the Company or the holder, the terms of conversion or exchange into Common
Stock or other Securities, any sinking fund provisions, the form of the Debt
Securities (which may be in registered form or book-entry form), the initial
public offering price and any other terms of such Debt Securities; (ii) in the
case of Preferred Stock, the specific title, the aggregate amount, any
dividends (including the method of calculating payment of dividends),
liquidation, redemption, voting and other rights, the initial public offering
price and any other terms of such Preferred Stock; and (iii) in the case of
Common Stock, the initial public offering price.
The Senior Debt Securities, when issued, will rank on a parity with all
other unsecured and unsubordinated indebtedness of the Company, and the
Subordinated Debt Securities, when issued, will be subordinated as described
under "Description of Debt Securities--Subordination of Subordinated Debt
Securities" herein.
----------------
The Securities will be sold directly by the Company, through agents,
underwriters or dealers as designated from time to time, or through a
combination of such methods. If agents of the Company or any dealers or
underwriters are involved in the sale of the Securities in respect of which
this Prospectus is being delivered, the names of such agents, dealers or
underwriters and any applicable commissions or discounts will be set forth in
or may be calculated from the Prospectus Supplement with respect to such
Securities.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF SECURITIES UNLESS
ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THE SECURITIES WILL NOT BE DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR NON-
BANK SUBSIDIARY OF THE COMPANY AND WILL NOT BE INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is July 17, 1998
<PAGE>
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any
accompanying Prospectus Supplement in connection with the offering described
herein and therein, and, if given or made, such other information or
representation must not be relied upon as having been authorized by the
Company or by any underwriter, dealer or agent. Neither this Prospectus nor
any Prospectus Supplement shall constitute an offer to sell or a solicitation
of an offer to buy any securities offered hereunder in any jurisdiction to any
person to whom it is unlawful to make such offer or solicitation or sale in
such jurisdiction. Neither the delivery of this Prospectus or any Prospectus
Supplement nor any sale made hereunder implies that there has been no change
in the affairs of the Company at any time subsequent to the date hereof or
that the information herein is correct as of any time subsequent to its date.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy and
information statements and other information, including the documents
incorporated by reference herein, can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; and at the Commission's regional offices at 7 World
Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, Suite
1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such
information, when available, also may be accessed through the Commission's
electronic data gathering, analysis and retrieval system ("EDGAR") via
electronic means, including the Commission's home page on the Internet at
http://www.sec.gov. Such material also can be inspected at the office of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005.
This Prospectus, which constitutes a part of the registration statement to
which it relates (the "Registration Statement"), does not contain all of the
information set forth in the Registration Statement and in the exhibits and
schedules thereto. For further information with respect to the Company and the
Securities reference is hereby made to the Registration Statement, exhibits
and schedules. Any statements contained herein concerning a provision of any
document are not necessarily complete, and, in each instance, reference is
made to the copy of such document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are hereby incorporated by reference in this Prospectus the following
documents and information heretofore filed with the Commission:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1997, provided, however, that the information referred to in Item
402(a)(8) of Regulation S-K promulgated by the Commission shall not be
deemed to be specifically incorporated by reference herein;
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998;
3. The Company's Current Reports on Form 8-K dated January 15, 1998,
April 16, 1998, June 12, 1998, and July 16, 1998; and
4. The descriptions of the Company's Common Stock which are contained in
the registration statements on Form 8-A filed on August 24, 1994 and
November 16, 1995 by the Company to register such securities under Section
12 of the Exchange Act, including any amendment or report filed for the
purpose of updating such descriptions.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act, after the date of this Prospectus and prior to the
termination of the offering of the Securities hereby, shall be
1
<PAGE>
deemed to be incorporated herein by reference. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which is also incorporated or deemed to be incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus has been delivered,
upon written or oral request of such person, a copy of any or all of the
documents which have been or may be incorporated herein by reference, other
than exhibits to such documents (unless such exhibits are specifically
incorporated by reference to such documents). Requests for such copies should
be directed to Capital One Financial Corporation, Suite 1300, 2980 Fairview
Park Drive, Falls Church, Virginia 22042-4525, Attention: Corporate Secretary,
telephone (703) 205-1000.
2
<PAGE>
THE COMPANY
Capital One Financial Corporation (the "Company") is a holding company,
incorporated in Delaware on July 21, 1994, whose subsidiaries provide a
variety of products and services to consumers. The Company's principal
subsidiary, Capital One Bank (the "Bank"), a Virginia state chartered bank,
offers credit card products. Capital One F.S.B. (the "Savings Bank"), a
federally chartered savings bank, provides certain consumer lending and
deposit services. The Company's Common Stock is listed on the New York Stock
Exchange under the symbol COF. The Company's principal executive office is
located at 2980 Fairview Park Drive, Suite 1300, Falls Church, Virginia 22042-
4525, (telephone number (703) 205-1000).
The Company (including its subsidiaries and the operations of its
predecessor) is one of the oldest continually operating bank card issuers in
the U.S., having commenced operations in 1953, the same year as the formation
of what is now MasterCard International. The growth in managed loans and
credit card accounts achieved by the Company in recent years was due largely
to credit card industry dynamics and the success of the Company's proprietary
information-based strategy ("IBS") initiated in 1988. As of March 31, 1998,
the Company had total assets of $7.2 billion, total liabilities of $6.1
billion and total equity of $987 million. As of March 31, 1998, the Company
had 12.7 million customers and $14.0 billion in managed consumer loans
outstanding and was one of the largest providers of MasterCard(/1/) and
Visa(/1/) credit cards in the world.
CAPITAL ONE BANK
The principal asset of the Company is its equity interest in the Bank. As of
March 31, 1998, the Bank constituted approximately 92% of the managed assets
of the Company. The Bank offers two brands of credit cards, Visa and
MasterCard, and within each brand premium ("platinum" and "gold") cards and
unsecured and secured standard credit card products. Premium credit cards
generally have higher lines of credit and additional ancillary benefits.
Periodically, qualified standard accounts are offered the option to upgrade to
premium accounts. Additionally, among the major bank card issuers, the Bank
was one of the first to issue secured credit cards.
CAPITAL ONE, F.S.B.
In June 1996, the Company established the Savings Bank to expand the
Company's product offerings and its relationships with its cardmembers. The
Savings Bank offers installment loans and credit cards, in each case, both
secured and unsecured. The Savings Bank expects to offer multiple financial
products and services to existing cardmembers and other households using the
Company's IBS and existing information technology systems. As of March 31,
1998, the assets of the Savings Bank constituted approximately 8% of the
managed assets of the Company.
INFORMATION-BASED STRATEGY
The Company's IBS is designed to allow the Company to differentiate among
customers based on credit risk, usage and other characteristics and to match
customer characteristics with appropriate product offerings. IBS involves
developing sophisticated models, information systems, well-trained personnel
and a flexible culture to create credit card or other products and services
that address the demands of changing consumer and competitive markets. By
using sophisticated statistical modeling techniques, the Company is able to
segment its potential customer lists based upon the integrated use of credit
scores, demographics, customer behavioral characteristics and other criteria.
By actively testing a wide variety of product features, marketing channels and
other aspects of its offerings, the Company designs and targets customized
solicitations at various customer segments, thereby enhancing customer
response levels and maximizing returns on investment within given underwriting
parameters.
- --------
(/1/) MasterCard and Visa are registered trademarks of MasterCard
International Incorporated and VISA USA, Inc., respectively.
3
<PAGE>
Continued integrated testing and model development builds on information
gained from earlier phases and is intended to improve the quality, performance
and profitability of the Company's solicitation and account management
initiatives. The Company applies IBS to all areas of its business, including
solicitations, account management, credit line management, pricing strategies,
usage stimulation, collections, recoveries, and account and balance retention.
Historically, the Company has concentrated its efforts on, and applied IBS
to, credit card opportunities at the Bank. However, the Company's strategy for
future growth is expected to continue to be to apply its proprietary IBS to
its credit card business as well as to other businesses, both financial and
non-financial, to identify new product opportunities and to make informed
investment decisions regarding its existing products. Credit card
opportunities include, and are expected to continue to include, various low
introductory and intermediate-rate balance transfer products, as well as other
customized credit card products. The Company intends to continue to offer
these customized products, certain of which are distinguished by several
characteristics, including better response rates, less adverse selection,
higher margins (including fees), lower credit lines, less attrition and a
greater ability to reprice than the Company's traditional low introductory-
rate balance transfer products. Some of these products involve higher
operational costs and, in some cases, higher delinquencies and credit losses
than the Company's traditional low introductory-rate balance transfer
products. More importantly, these customized products continue to have overall
higher and less volatile returns than the traditional low introductory-rate
balance transfer products in recent market conditions. The Company also has
been applying, and expects to continue to apply, its IBS to other financial
and non-financial products. These products and services include selected non-
card consumer lending products and telecommunication services. The Company has
also expanded its existing operations outside of the United States, with an
initial focus on the United Kingdom and Canada. The Company's credit card and
other financial and non-financial products are subject to competitive
pressures, which management anticipates will increase as these markets mature.
USE OF PROCEEDS
Except as otherwise described in the applicable Prospectus Supplement, the
net proceeds from the sale of the Securities hereby offered will be applied to
the Company's general funds to be utilized for general corporate purposes,
including the reduction of short-term debt, possible acquisitions, investments
in, or extensions of credit to, the Company's subsidiaries, investments in
securities and the possible acquisition of real property for use in the
Company's business.
4
<PAGE>
CERTAIN RATIOS
The following table sets forth the consolidated ratio of earnings to fixed
charges and ratio of earnings to combined fixed charges and preferred stock
dividend requirements of the Company for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------- ------------------------
1998 1997 1997 1996 1995 1994 1993
------ ------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings to Fixed Charges:
Including Interest on Deposits....... 2.11 1.83 1.89 1.83 1.78 2.55 3.46
Excluding Interest on Deposits....... 2.30 1.95 2.01 2.02 1.97 2.59 3.46
Earnings to Combined Fixed Charges and
Preferred Stock Dividends:
Including Interest on Deposits....... 2.09 1.82 1.87 1.83 1.78 2.55 3.46
Excluding Interest on Deposits....... 2.27 1.94 1.99 2.02 1.97 2.59 3.46
</TABLE>
The ratio of earnings to fixed charges is computed by dividing (i) income
before income taxes and fixed charges less interest capitalized during such
period, net of amortization of previously capitalized interest, by (ii) fixed
charges. The ratio of earnings to combined fixed charges and preferred stock
dividend requirements is computed by dividing (i) income before income taxes
and fixed charges less interest capitalized during such period, net of
amortization of previously capitalized interest, by (ii) fixed charges and
preferred stock dividend requirements. Fixed charges consist of interest
expense on borrowings, including capitalized interest (including or excluding
deposits, as the case may be) and the portion of rental expense which is
deemed representative of interest. The preferred stock dividend requirements
represent the dividend requirements on the Bank's preferred beneficial
interest in capital income securities. The Company and its subsidiaries did
not have any such preferred stock requirements outstanding during the periods
prior to 1997 presented above and, accordingly, there were no preferred stock
dividend requirements during such periods.
SUPERVISION, REGULATION AND OTHER MATTERS
The Bank is a banking corporation chartered under Virginia law and a member
of the Federal Reserve System, the deposits of which are insured by the Bank
Insurance Fund (the "BIF") of the Federal Deposit Insurance Corporation (the
"FDIC"). The Bank is subject to comprehensive regulation and periodic
examination by the Bureau of Financial Institutions of the Virginia State
Corporation Commission (the "Bureau of Financial Institutions"), the Federal
Reserve Board and the FDIC. The Company is not a bank holding company under
the Bank Holding Company Act of 1956, as amended (the "BHCA"), as a result of
the Company's ownership of the Bank because the Bank is not a "bank" as
defined under the BHCA. The Bank is not a "bank" under the BHCA because it (i)
engages only in credit card operations, (ii) does not accept demand deposits
or deposits that the depositor may withdraw by check or similar means for
payment to third parties or others, (iii) does not accept any savings or time
deposits of less than $100,000, other than as permitted as collateral for
extensions of credit, (iv) maintains only one office that accepts deposits,
and (v) does not engage in the business of making commercial loans. If the
Bank failed to meet the credit card bank exemption criteria described above,
the Bank's status as an insured depository institution would make the Company
subject to the provisions of the BHCA, including certain restrictions as to
the types of business activities in which a bank holding company and its
affiliates may engage. Becoming a bank holding company under the BHCA would
affect the Company's ability to enter into certain non-card product
businesses. Due to the Bank's status as a limited purpose credit card bank,
any non-credit card operations which may be conducted by the Company must be
conducted in other operating subsidiaries of the Company. In addition, for
purposes of the BHCA, if the Bank failed to qualify for the credit card bank
exemption, any entity that acquired direct or indirect control of the Company
and also engaged in activities not permitted for bank holding companies could
be required either to discontinue the impermissible activities or to divest
itself of control of the Company.
5
<PAGE>
The Savings Bank is a federal savings bank chartered by the Office of Thrift
Supervision (the "OTS") and is a member of the Federal Home Loan Bank System.
Its deposits are insured by the Savings Association Insurance Fund ("SAIF") of
the FDIC. Pursuant to recent legislation recapitalizing the SAIF, insurance
premiums currently paid by SAIF-insured institutions are equivalent to the
rate paid by BIF-insured institutions. The Savings Bank is subject to
comprehensive regulation and periodic examination by the OTS and the FDIC. As
a result of its ownership of the Savings Bank, the Company is a unitary
savings and loan holding company subject to regulation by the OTS and the
provisions of the Savings and Loan Holding Company Act. As a unitary savings
and loan holding company, the Company generally is not restricted under
existing laws as to the types of business activities in which it may engage so
long as the Savings Bank continues to meet the qualified thrift lender test
(the "QTL Test"). See "--Investment Limitations and Qualified Thrift Lender
Test" below. If the Company ceased to be a unitary savings and loan holding
company as a result of its acquisition of an additional savings institution or
as a result of the failure of the Savings Bank to meet the QTL Test, the types
of activities that the Company and its non-savings association subsidiaries
would be able to engage in would generally be limited to those eligible for
bank holding companies.
The Company is also registered as a financial institution holding company
under Virginia law and as such is subject to periodic examination by the
Bureau of Financial Institutions.
The earnings of the Company are affected by general economic conditions,
management policies and the legislative and governmental actions of various
regulatory agencies, including the Bureau of Financial Institutions, the
Federal Reserve Board, the FDIC and the OTS. In addition, there are numerous
governmental requirements and regulations which affect the activities of the
Company.
DIVIDENDS AND TRANSFERS OF FUNDS
The principal source of funds for the Company to pay dividends on stock,
make payments on debt securities and meet other obligations is dividends from
its direct and indirect subsidiaries. There are various federal and Virginia
law limitations on the extent to which the Bank and the Savings Bank can
finance or otherwise supply funds to the Company and its affiliates through
dividends, loans or otherwise. These limitations include minimum regulatory
capital requirements, Federal Reserve Board, OTS and Virginia law requirements
concerning the payment of dividends out of net profits or surplus, Sections
23A and 23B of the Federal Reserve Act governing transactions between an
insured depository institution and its affiliates and general federal and
Virginia regulatory oversight to prevent unsafe or unsound practices. In
general, federal banking laws prohibit an insured depository institution such
as the Bank and the Savings Bank from making dividend distributions if such
distributions are not paid out of available earnings or would cause the
institution to fail to meet applicable capital adequacy standards. In
addition, the Savings Bank is required to give the OTS at least 30 days
advance notice of any proposed dividend and the OTS, in its discretion, may
object to such dividend. Under OTS regulations, other limitations apply to the
Savings Bank's ability to pay dividends, the magnitude of which depends upon
the extent to which the Savings Bank meets its regulatory capital
requirements. In addition, under Virginia law, the Bureau of Financial
Institutions may limit the payment of dividends by the Bank if the Bureau of
Financial Institutions determines that such a limitation would be in the
public interest and necessary for the Bank's safety and soundness.
CAPITAL ADEQUACY
The Bank and the Savings Bank are currently subject to capital adequacy
guidelines adopted by the Federal Reserve Board and the OTS, respectively. For
a further discussion of the capital adequacy guidelines, see pages 31-32 of
the Company's Annual Report on Form 10-K for the year ended December 31, 1997
(which is incorporated herein by reference) under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Capital Adequacy" and page 52 in Note J to Consolidated Financial Statements.
6
<PAGE>
FDICIA
Among other things, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") requires federal bank regulatory authorities to take
"prompt corrective action" in respect of insured depository institutions that
do not meet minimum capital requirements. FDICIA establishes five capital
ratio levels: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized. Under
applicable regulations, an insured depository institution is considered to be
well capitalized if it maintains a Tier 1 risk-based capital ratio (or core
capital to risk-adjusted assets in the case of the Savings Bank) of at least
6%, a total risk-based capital ratio of at least 10% and a Tier 1 leverage
capital ratio (or core capital ratio in the case of the Savings Bank) of at
least 5%, and is not otherwise in a "troubled condition" as specified by its
appropriate federal regulatory agency. An insured depository institution is
considered to be adequately capitalized if it maintains a Tier 1 risk-based
capital ratio (or core capital to risk-adjusted assets in the case of the
Savings Bank) of at least 4%, total risk-based capital ratio of at least 8%,
and a Tier 1 leverage capital ratio (or core capital ratio in the case of the
Savings Bank) of at least 4% (3% for certain highly rated institutions), and
does not otherwise meet the well capitalized definition. The three
undercapitalized categories are based upon the amount by which the insured
depository institution falls below the ratios applicable to adequately
capitalized institutions. The capital categories are determined solely for the
purposes of applying FDICIA's prompt corrective action ("PCA") provisions, as
discussed below, and such capital categories may not constitute an accurate
representation of the overall financial condition or prospects of the Bank or
the Savings Bank.
At March 31, 1998, each of the Bank and the Savings Bank met the
requirements for a "well capitalized" institution. A "well capitalized"
classification should not necessarily be viewed as describing the condition or
future prospects of a depository institution, including the Bank and the
Savings Bank.
Under FDICIA's PCA system, an insured depository institution in the
undercapitalized category must submit a capital restoration plan guaranteed by
its parent company. The liability of the parent company under any such
guarantee is limited to the lesser of 5% of the insured depository
institution's assets at the time it became undercapitalized, or the amount
needed to comply with the plan. An insured depository institution in the
undercapitalized category also is subject to limitations in numerous areas
including, but not limited to, asset growth, acquisitions, branching, new
business lines, acceptance of brokered deposits and borrowings from the
Federal Reserve. Progressively more burdensome restrictions are applied to
insured depository institutions in the undercapitalized category that fail to
submit or implement a capital plan and to insured depository institutions that
are in the significantly undercapitalized or critically undercapitalized
categories. In addition, an insured depository institution's primary federal
banking agency is authorized to downgrade the institution's capital category
to the next lower category upon a determination that the institution is in an
unsafe or unsound condition or is engaged in an unsafe or unsound practice. An
unsafe or unsound practice can include receipt by the institution of a less
than satisfactory rating on its most recent examination with respect to its
asset quality, management, earnings or liquidity.
"Critically undercapitalized" insured depository institutions (which are
defined to include institutions that still have a positive net worth) may not,
beginning 60 days after becoming "critically undercapitalized," make any
payment of principal or interest on their subordinated debt (subject to
certain limited exceptions). Thus, in the event an institution became
"critically undercapitalized," it would generally be prohibited from making
payments on its subordinated debt securities. In addition, "critically
undercapitalized" institutions are subject to appointment of a receiver or
conservator.
FDICIA requires federal banking agencies to review the risk-based capital
standards to ensure that they adequately address interest-rate risk,
concentration of credit risk and risks from non-traditional activities. The
OTS amended its risk-based capital rules to incorporate interest-rate risk
requirements under which a savings bank must hold additional capital if it
projects an excessive decline in "net portfolio value" in the event interest
rates increase or decrease by two percentage points. These standards are not
yet in effect.
7
<PAGE>
FDICIA also requires the FDIC to implement a system of risk-based premiums
for deposit insurance pursuant to which the premiums paid by a depository
institution will be based on the probability that the FDIC will incur a loss
in respect of such institution. The FDIC has since adopted a system that
imposes insurance premiums based upon a matrix that takes into account an
institution's capital level and supervisory rating.
The Bank and the Savings Bank may accept brokered deposits as part of their
funding. Under FDICIA, only "well capitalized" and "adequately capitalized"
institutions may accept brokered deposits. "Adequately capitalized"
institutions, however, must first obtain a waiver from the FDIC before
accepting brokered deposits and such deposits may not pay rates that
significantly exceed the rates paid on deposits of similar maturity from the
institution's normal market area or the national rate on deposits of
comparable maturity, as determined by the FDIC, for deposits from outside the
institution's normal market area.
LIABILITY FOR COMMONLY-CONTROLLED INSTITUTIONS
Under the "cross-guarantee" provision of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA"), insured depository
institutions such as the Bank and the Savings Bank may be liable to the FDIC
in respect of any loss or anticipated loss incurred by the FDIC resulting from
the default of, or FDIC assistance to, any commonly controlled insured
depository institution. The Bank and the Savings Bank are commonly controlled
within the meaning of the FIRREA cross-guarantee provision.
INVESTMENT LIMITATIONS AND QUALIFIED THRIFT LENDER TEST
Federally-chartered savings banks such as the Savings Bank are subject to
certain investment limitations. For example, federal savings banks are
permitted to make consumer loans (i.e., open-end or closed-end loans for
personal, family or household purposes, such as installment loans) of up to 35
percent of the savings bank's assets. Federal savings banks are also required
to meet the QTL Test, which generally requires a savings bank to maintain at
least 65 percent "portfolio assets" (total assets less (i) specified liquid
assets up to 20% of total assets, (ii) intangibles, including goodwill, and
(iii) property used to conduct business) in certain "qualified thrift
investments" (residential mortgages and related investments, including certain
mortgage-backed and mortgage-related investments, small business related
securities, certain state and federal housing investments, education loans and
credit card loans) on a monthly basis in nine out of every 12 months. Failure
to qualify under the QTL Test could subject the Savings Bank to substantial
restrictions on its activities and to certain other penalties, and could
subject the Company to the provisions of the BHCA, including the activity
restrictions that apply generally to bank holding companies and their
affiliates. As of March 31, 1998, 82% of the Savings Bank's portfolio assets
were held in qualified thrift investments, and the Savings Bank is currently
in compliance with the QTL Test.
LENDING ACTIVITIES
The activities of the Bank and the Savings Bank as consumer lenders are also
subject to regulation under various federal laws including the Truth-in-
Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act,
the Community Reinvestment Act and the Soldiers' and Sailors' Civil Relief
Act, as well as to various state laws. Regulators are authorized to impose
penalties for violations of these statutes and, in certain cases, to order the
Bank to pay restitution to injured borrowers. Borrowers may also bring actions
for certain violations. Federal and state bankruptcy and debtor relief laws
also affect the ability of the Bank and the Savings Bank to collect
outstanding balances owed by borrowers who seek relief under these statutes.
LEGISLATION
From time to time legislation has been proposed in Congress to limit
interest rates and fees that could be charged on credit card accounts or
otherwise restrict practices of credit card issuers. Various bills have also
been introduced that eliminate a separate savings bank charter possibly
requiring that existing savings banks become banks and repeal in some respects
the provisions of the Glass-Steagall Act prohibiting certain banking
organizations from engaging in certain securities activities and the
provisions of the BHCA prohibiting
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affiliations between banking organizations and non-banking organizations.
Legislation has also been proposed to change existing federal bankruptcy laws.
It is unclear at this time whether and in what form any such legislation will
be adopted or, if adopted, what its impact on the Bank, the Savings Bank or
the Company would be. Congress may in the future consider other legislation
that would materially affect the banking or credit card industries.
INVESTMENT IN THE COMPANY
Certain acquisitions of capital stock may be subject to regulatory approval
or notice under federal or Virginia law. Investors are responsible for
insuring that they do not directly or indirectly, acquire shares of capital
stock of the Company in excess of the amount which can be acquired without
regulatory approval.
The Bank and the Savings Bank are each "insured depository institutions"
within the meaning of the Change in Bank Control Act. Consequently, federal
law and regulations will prohibit any person or company from acquiring control
of the Company without, in most cases, prior written approval of the Federal
Reserve Board and the OTS, as applicable. Control is conclusively presumed if,
among other things, a person or company acquires more than 25% of any class of
voting stock of the Company. A rebuttable presumption of control arises if a
person or company acquires more than 10% of any class of voting stock and is
subject to any of a number of specified "control factors" as set forth in the
applicable regulations.
Although the Bank is not a "bank" within the meaning of Virginia's
reciprocal interstate banking legislation (Chapter 15 of Title 6.1 of the Code
of Virginia), it is a "bank" within the meaning of Chapter 13 of Title 6.1 of
the Code of Virginia governing the acquisition of interests in Virginia
financial institutions (the "Financial Institution Holding Company Act"). The
Financial Institution Holding Company Act prohibits any person or entity from
acquiring or making any public offer to acquire control of a Virginia
financial institution or its holding company without making application to and
receiving the prior approval of the Bureau of Financial Institutions.
INTERSTATE BANKING AND BRANCHING
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
permits bank holding companies, with Federal Reserve Board approval, to
acquire banks located in states other than the holding company's home state
without regard to whether the transaction is prohibited under state law. In
addition, as of June 1, 1997, national and state banks with different home
states are permitted to merge across state lines, with approval of the
appropriate federal banking agency, unless the home state of a participating
bank passed legislation prior to this date expressly prohibiting interstate
bank mergers. Virginia has not passed such legislation but has elected to
permit such interstate bank mergers.
Federal savings banks, such as the Savings Bank, may establish, subject to
the approval of the OTS, branches outside of the state in which it has its
home office provided that such savings bank qualifies as a domestic building
and loan association under the Internal Revenue Code and meets certain other
legal and regulatory requirements, including with respect to capital adequacy.
INTERSTATE TAXATION
Several states have passed legislation which attempts to tax the income from
interstate financial activities, including credit cards, derived from accounts
held by local state residents. Based on the volume of its business in these
states and the nature of the legislation passed to date, the Company currently
believes that this development will not materially affect the financial
condition of the Bank, the Savings Bank or the Company.
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DESCRIPTION OF DEBT SECURITIES
The Senior Debt Securities are to be issued under an Indenture (the "Senior
Indenture") between the Company and Harris Trust and Savings Bank, as trustee
(the "Senior Trustee"). The Subordinated Debt Securities are to be issued
under an Indenture (the "Subordinated Indenture") between the Company and the
Trustee named in any Prospectus Supplement relating to any Subordinated Debt
Securities (the "Subordinated Trustee"). Copies of the Senior Indenture and
the form of the Subordinated Indenture have been filed with the Commission as
exhibits to the Registration Statement. The Senior Indenture and the
Subordinated Indenture are sometimes referred to collectively as the
"Indentures" and the Senior Trustee and the Subordinated Trustee are sometimes
referred to collectively as the "Trustees." The following summaries of the
provisions of the Debt Securities and the Indentures do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the Indenture applicable to a particular series of
Debt Securities (the "Applicable Indenture"), including the definitions
therein of certain terms. Wherever particular Sections, Articles or defined
terms of the Applicable Indenture are referred to, it is intended that such
Sections, Articles or defined terms shall be incorporated herein by reference.
Article and Section references used herein are references to the Applicable
Indenture. Capitalized terms not otherwise defined herein shall have the
meaning given to them in the Applicable Indenture. As of the date of this
Prospectus, one series of $125,000,000 principal amount of 7.25% Notes due
2003 has been issued under the Senior Indenture, and no series of Debt
Securities has been issued under the Subordinated Indenture.
The following sets forth certain general terms and provisions of the Debt
Securities offered hereby. The particular terms of the Debt Securities offered
by any Prospectus Supplement (the "Offered Debt Securities") will be described
in the Prospectus Supplement relating to such Offered Debt Securities (the
"Applicable Prospectus Supplement").
The Company's right to participate as a stockholder in any distribution of
assets of any subsidiary upon its liquidation or reorganization or winding-up
(and thus the ability of Holders of the Debt Securities to benefit, as
creditors of the Company, from such distribution) is subject to the prior
claims of creditors of any such subsidiary. The Bank and the Savings Bank are
subject to claims by creditors for long-term and short-term debt, obligations,
including deposit liabilities, obligations for federal funds purchased and
securities sold under repurchase agreements. There are also various legal
limitations on the extent to which the Bank and the Savings Bank may pay
dividends or otherwise supply funds to the Company or its affiliates. See
"Supervision, Regulation and Other Matters--Dividends and Transfer of Funds"
herein.
GENERAL
The Indentures do not limit the amount of Debt Securities that may be issued
thereunder and provide that Debt Securities may be issued thereunder from time
to time in one or more series. The Debt Securities will be unsecured
obligations of the Company.
The general provisions of the Indentures and the Debt Securities do not
contain any provisions that (i) would limit or otherwise restrict the amount
of indebtedness which may be incurred or other securities which may be issued
by the Company, (ii) would require the Company or an acquiror to repurchase
Debt Securities in the event of a "change in control" or (iii) would afford
Holders protection in the event of a highly leveraged or similar transaction
involving the Company or its subsidiaries. The Debt Securities issued under
the Senior Indenture will rank on parity with all other unsecured
unsubordinated indebtedness of the Company. The Debt Securities issued under
the Subordinated Indenture will be subordinate and junior in right of payment
to all Senior Indebtedness of the Company to the extent and in the manner set
forth in the Subordinated Indenture. See "--Subordination of Subordinated Debt
Securities" herein. Reference is made to the Applicable Prospectus Supplement
for information with respect to any deletions from, modifications of or
additions to the Events of Default or covenants of the Company described below
that are applicable to the Debt Securities, including any addition of
covenants or other provisions providing event risk or similar protection.
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The Applicable Prospectus Supplement will describe the following terms of
the Offered Debt Securities: (1) the title and series of the Offered Debt
Securities; (2) whether the Offered Debt Securities are Senior Debt Securities
or Subordinated Debt Securities; (3) any limit upon the aggregate principal
amount of the Offered Debt Securities; (4) the price or prices (expressed as a
percentage of the aggregate principal amount thereof) at which such Debt
Securities will be issued; (5) the date or dates on which the principal of the
Offered Debt Securities will mature, or the method or methods, if any, by
which such date or dates shall be determined; (6) the rate or rates (which may
be fixed or variable) at which the Offered Debt Securities will bear interest,
if any, and the date or dates from which any such interest will accrue; (7)
the dates on which such interest, if any, on the Offered Debt Securities will
be payable and the Regular Record Dates for such Interest Payment Dates; (8)
the place or places where the principal of and any premium and interest on the
Offered Debt Securities shall be payable; (9) any mandatory or optional
sinking funds or analogous provisions; (10) the date, if any, after which and
the price or prices at which the Offered Debt Securities may, pursuant to any
optional or mandatory redemption provisions, be redeemed and the other
detailed terms and provisions of any such optional or mandatory redemption
provision; (11) the obligation of the Company, if any, to redeem or repurchase
the Offered Debt Securities at the option of the Holder; (12) if other than
denominations of $1,000 and any integral multiple thereof, the denominations
in which the Offered Debt Securities shall be issuable; (13) if other than the
principal amount thereof, the portion of the principal amount of the Offered
Debt Securities that will be payable upon the declaration of acceleration of
the Maturity thereof; (14) the currency of payment of principal of and any
premium and interest on the Offered Debt Securities; (15) any index used to
determine the amount of payment of principal of and any premium and interest
on the Offered Debt Securities; (16) if the Offered Debt Securities will be
issuable only in temporary or permanent global form, the Depositary or its
nominee with respect to the Offered Debt Securities and the circumstances
under which the global Debt Security may be registered for transfer or
exchange in the name of a Person other than the Depositary or its nominee;
(17) whether any of the Debt Securities will be issued in bearer form and, if
so, any limitations on issuance of such bearer Debt Securities (including
exchange for registered Debt Securities of the same series); (18) the
applicability, if any, of the provisions described under "--Defeasance and
Covenant Defeasance" herein; (19) any additional Event of Default, and in the
case of any Offered Subordinated Debt Securities, any additional Event of
Default that would result in the acceleration of the maturity thereof; (20)
whether such Debt Securities shall be convertible into or exchangeable for
Common Stock or other Securities and, if so, the terms of such conversion or
exchange and the terms of such other Securities; and (21) any other terms of
the Offered Debt Securities. (Section 301 of each Indenture).
Debt Securities may be issued as Original Issue Discount Securities to be
offered and sold at a substantial discount below their stated principal
amount. Federal income tax consequences and other special considerations
applicable to any such Original Issue Discount Securities will be described in
the Applicable Prospectus Supplement. "Original Issue Discount Security" means
any Debt Security which provides for declaration of an amount less than the
principal face amount thereof to be due and payable upon acceleration of the
Maturity thereof upon the occurrence of an Event of Default and the
continuation thereof.
REGISTRATION, TRANSFER, PAYMENT AND PAYING AGENT
Unless otherwise indicated in the Applicable Prospectus Supplement, each
series of Debt Securities will be issued in registered form only, without
coupons. The Indentures, however, provide that the Company may also issue Debt
Securities in bearer form only, or in both registered and bearer form. Debt
Securities issued in bearer form shall have interest coupons attached, unless
issued as Original Issue Discount Securities. Debt Securities in bearer form
shall not be offered, sold, resold or delivered in connection with their
original issuance in the United States or to any United States person (as
defined below) other than through offices located outside the United States of
certain United States financial institutions. As used herein, "United States
person" means any citizen or resident of the United States, any corporation,
partnership, or other entity created or organized in or under the laws of the
United States, or any estate or trust, the income of which is subject to
United States federal income taxation regardless of its source, and "United
States" means the United States of America (including the states thereof and
the District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction.
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Purchasers of Debt Securities in bearer form will be subject to certification
procedures and may be affected by certain limitations under United States tax
laws. Such procedures and limitations will be described in the Applicable
Prospectus Supplement.
Unless otherwise indicated in the Applicable Prospectus Supplement, Debt
Securities will be issued in denominations of $1,000 or any integral multiple
thereof. No service charge will be made for any transfer, exchange or
conversion of the Debt Securities but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
Unless otherwise described in the Applicable Prospectus Supplement, the
principal, premium, if any, and interest, if any, of or on the Debt Securities
will be payable and transfer of the Debt Securities will be registrable at the
office or agency of the Company maintained for that purpose, as the Company
may designate from time to time in the city of New York, New York, provided
that payments of interest may be made at the option of the Company by check
mailed to the address appearing in the Security Register of the person in
whose name such registered Debt Security is registered at the close of
business on the Regular Record Date (Sections 305 and 307 of each Indenture).
Unless otherwise indicated in the Applicable Prospectus Supplement, payment
of principal of, premium, if any, and interest, if any, on Debt Securities in
bearer form will be made payable, subject to any applicable laws and
regulations, at such office outside the United States as specified in the
Applicable Prospectus Supplement and as the Company may designate from time to
time, at the option of the Holder, by check or by transfer to an account
maintained by the payee with a bank located outside the United States. Unless
otherwise indicated in the Applicable Prospectus Supplement, payment of
interest and certain additional amounts on Debt Securities in bearer form will
be made only against surrender of the coupon relating to such Interest Payment
Date. No payment with respect to any Debt Security in bearer form will be made
at any office or agency of the Company in the United States or by check mailed
to any address in the United States or by transfer to an account maintained
with a bank located in the United States.
GLOBAL DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities ("Global Debt Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the Applicable Prospectus Supplement. In such case, one or more Global Debt
Securities will be issued in a denomination or aggregate denominations equal
to the portion of the aggregate principal amount of Outstanding Debt
Securities of the series to be represented by such Global Debt Security or
Securities. Global Debt Securities may be issued in either registered or
bearer form and in either temporary or permanent form. Unless and until it is
exchanged in whole or in part for individual certificates evidencing Debt
Securities in definitive form represented thereby, a Global Debt Security may
not be transferred except as a whole by the Depositary for such Global Debt
Security to a nominee of such Depositary or by a nominee of such Depositary to
such Depositary or another nominee of such Depositary or by such Depositary or
any such nominee to a successor of such Depositary or a nominee of such
successor.
The specific terms of the depositary agreement with respect to a series of
Global Debt Securities and certain limitations and restrictions relating to a
series of bearer Global Debt Securities will be described in the Applicable
Prospectus Supplement.
SUBORDINATION OF SUBORDINATED DEBT SECURITIES
Unless otherwise indicated in the Applicable Prospectus Supplement, the
following provisions shall apply to the Subordinated Debt Securities. The
following Section references are to Sections of the Subordinated Indenture.
Upon any distribution of assets of the Company resulting from any insolvency
or bankruptcy proceedings, any receivership, liquidation, reorganization,
arrangement or similar proceedings or any voluntary liquidation,
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dissolution or winding up, payments on Subordinated Debt Securities are to be
subordinated, to the extent provided in the Subordinated Indenture, in right
of payment to the prior payment in full of all Senior Indebtedness, but the
obligation of the Company to make payments on the Subordinated Debt Securities
will not otherwise be affected. No payment on Subordinated Debt Securities may
be made at any time when there is a default in the payment of any principal,
premium, interest, Additional Amounts or any sinking fund on any Senior
Indebtedness. Holders of Subordinated Debt Securities will be subrogated to
the rights of Holders of Senior Indebtedness to the extent of payments made on
Senior Indebtedness upon any distribution of assets in any such proceedings
out of the distributive shares of Subordinated Debt Securities. (Sections 1601
and 1602 of the Subordinated Indenture).
By reason of such subordination, in the event of the insolvency of the
Company, certain creditors of the Company may recover more, ratably, than
Holders of Subordinated Debt Securities.
"Senior Indebtedness" means the principal of and premium, if any, and
interest on the following, whether outstanding at the date hereof or
thereafter incurred or created: (a) indebtedness of the Company for money
borrowed (including any indebtedness secured by a mortgage or other lien which
is (i) given to secure all or part of the purchase price of property subject
thereto, whether given to the vendor of such property or to another or (ii)
existing on property at the time of acquisition thereof) evidenced by notes or
other written obligations, except such indebtedness as is by its terms
expressly stated to be not superior in right of payment to the Securities or
to rank pari passu or is identified in a Board Resolution or any indenture
supplemental hereto as not superior in right of payment or to rank pari passu
with the Securities; (b) indebtedness of the Company evidenced by notes,
debentures, bonds or other securities sold by the Company for money; (c)
indebtedness of others of the kinds described in either of the preceding
clauses (a) or (b) assumed by or guaranteed in any manner by the Company or in
effect guaranteed by the Company through an agreement to purchase, contingent
or otherwise; and (d) renewals, extensions or refundings of indebtedness of
the kinds described in any of the preceding clauses (a), (b) and (c) unless,
in the case of any particular indebtedness, renewal, extension or refunding,
the instrument creating or evidencing the same or the assumption or guarantee
of the same expressly provides that such indebtedness, renewal, extension or
refunding is not superior in right of payment to the Securities. (Section 101
of the Subordinated Indenture).
CONVERSION AND EXCHANGEABILITY
The holders of Debt Securities of a specified series that are convertible
into Common Stock or other Securities ("Convertible Debt Securities") will be
entitled at certain times specified in the Applicable Prospectus Supplement
relating to such Convertible Debt Securities, subject to prior redemption,
exchange, repayment or repurchase, to convert any Convertible Debt Securities
of such series into Common Stock or other Securities, at the conversion price
set forth in the Applicable Prospectus Supplement, subject to adjustment and
to such other terms as are set forth in such Applicable Prospectus Supplement.
The holders of Debt Securities of any series may be obligated at any time or
at maturity to exchange them for Common Stock or other Securities of the
Company. The terms of any such exchange and any such Common Stock or other
Securities will be described in the Applicable Prospectus Supplement relating
to such series of Debt Securities.
CERTAIN COVENANTS
Corporate Existence. Except as permitted under "--Consolidation, Merger and
Sale of Assets," the Company will do or cause to be done all things necessary
to preserve and keep in full force and effect its corporate existence and the
corporate existences of each Significant Subsidiary and its rights (charter or
statutory) and franchises and those of each Significant Subsidiary; provided,
however, that neither the Company nor any Significant Subsidiary will be
required to preserve any right or franchise if the Company or such Significant
Subsidiary determines that the preservation thereof is no longer desirable in
the conduct of its business and that the loss thereof is not disadvantageous
in any material respect to the Holders. (Section 1007 of each Indenture).
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Limitation on Disposition of Significant Subsidiaries. Each of the
Indentures contains a covenant by the Company limiting its ability to dispose
of the Voting Stock of a Significant Subsidiary. A "Significant Subsidiary" is
defined to mean any Subsidiary of the Company the Consolidated Assets of which
constitute 20% or more of the Company's Consolidated Assets. Such covenant
provides that, subject to certain exceptions, so long as any of the Debt
Securities are outstanding, the Company: (a) will not, nor will it permit any
Subsidiary to, sell, assign, transfer or otherwise dispose of any shares of,
securities convertible into or options, warrants or rights to subscribe for or
purchase shares of, Voting Stock of a Significant Subsidiary, nor will the
Company permit a Significant Subsidiary to issue any shares of, or securities
convertible into or options, warrants or rights to subscribe for or purchase
shares of Voting Stock of a Significant Subsidiary (other than sales of
directors' qualifying shares) unless the Company will own, directly or
indirectly, at least 80% of the issued and outstanding Voting Stock of such
Subsidiary after giving effect to such transaction; or (b) will not permit a
Significant Subsidiary to either (i) merge or consolidate with or into any
corporation (other than the Company), unless at least 80% of the surviving
corporation's Voting Stock is, or upon consummation of the merger or
consolidation will be, owned, directly or indirectly, by the Company, or (ii)
lease, sell or transfer all or substantially all of its properties and assets
to any corporation or other person (other than the Company), unless 80% of the
Voting Stock of such corporation or other person is owned, or will be owned,
upon such lease, sale or transfer, directly or indirectly, by the Company;
provided, however, that nothing in the Indentures covenants shall prohibit the
Company or a Significant Subsidiary from the sale or transfer of assets
pursuant to any securitization transaction. (Section 1005 of each Indenture).
Limitation on Creation of Liens. So long as any of the Debt Securities shall
be outstanding, the Company will not, nor will it permit any Subsidiary to,
create, assume, incur or suffer to be created, assumed or incurred or to exist
any pledge, encumbrance or lien, as security for indebtedness for borrowed
money, upon any shares of, or securities convertible into or options, warrants
or rights to subscribe for or purchase shares of, Voting Stock of a
Significant Subsidiary, directly or indirectly, without making effective
provision whereby the Debt Securities of all series shall be equally and
ratably secured with any and all such indebtedness if, treating such pledge,
encumbrance or lien as a transfer of the shares of, or securities convertible
into or options, warrants or rights to subscribe for or purchase shares of,
Voting Stock subject thereto to the secured party and to the issuance of the
maximum number of shares of Voting Stock of such Significant Subsidiary
issuable upon the exercise of all such convertible securities, options,
warrants or rights, such Significant Subsidiary would not continue to be a
Controlled Subsidiary. (Section 1006 of each Indenture).
EVENTS OF DEFAULT
The Senior Indenture (with respect to any series of Senior Debt Securities)
and, unless otherwise provided in the Applicable Prospectus Supplement, the
Subordinated Indenture (with respect to any series of Subordinated Debt
Securities) define an Event of Default as any of the following events: (a)
default in the payment of any interest or any Additional Amounts payable in
respect of any Debt Security when it becomes due and payable, and continuance
of such default for a period of 30 days (in the case of the Subordinated
Indenture, whether or not payment is prohibited by the subordination
provisions); (b) default in the payment of the principal of (or premium, if
any, on) any Debt Security at its Maturity (in the case of the Subordinated
Indenture, whether or not payment is prohibited by the subordinated
provisions); (c) default in the deposit of any sinking fund payment when due
(in the case of the Subordinated Indenture, whether or not payment is
prohibited by the subordinated provisions); (d) default in the performance of
any other covenants or warranties of the Company in the Applicable Indenture
(other than a covenant or warranty included in the Applicable Indenture solely
for the benefit of a series of Debt Securities thereunder other than that
series) continued for a period of 60 days after the Holders of at least 25% in
principal amount of the Outstanding Debt Securities shall have given written
notice as provided in the Applicable Indenture; (e) any event of default under
any mortgage, indenture or other instrument under which any indebtedness for
borrowed money in an aggregate principal amount exceeding $10,000,000 of the
Company or any Significant Subsidiary shall become due and payable, if such
acceleration is not rescinded or annulled within 30 days after written notice
as provided in the Applicable Indenture; (f) certain events of bankruptcy,
insolvency or reorganization of the Company or any Significant Subsidiary, and
(g) any
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other Event of Default provided with respect to Debt Securities of that
series. If an Event of Default occurs with respect to Debt Securities of any
series, the Trustee under the Applicable Indenture shall give the Holders of
Debt Securities of such series notice of such default, provided however, that
in the case of a default described in (d) above, no such notice to Holders
shall be given until at least 30 days after the occurrence thereof. (Section
501 of each Indenture).
If an Event of Default with respect to the Senior Debt Securities of any
series at the time Outstanding occurs and is continuing, either the Senior
Trustee or the Holders of not less than 25% in aggregate principal amount of
the Outstanding Debt Securities of that series may declare the principal
amount (or, if the Debt Securities of that series are Original Issue Discount
Debt Securities, such portion of the principal amount as may be specified in
the terms thereof) of all the Senior Debt Securities of that series to be due
and payable immediately. Payment of the principal of the Subordinated Debt
Securities may be accelerated only in the case of certain events of
bankruptcy, insolvency or reorganization of the Company. The Subordinated
Trustee and the Holders will not be entitled to accelerate the maturity of the
Subordinated Debt Securities upon the occurrence of any of the Events of
Default described above except for those described in subparagraph (f) above
the previous paragraph (i.e., the bankruptcy, insolvency or reorganization of
the Company). Accordingly, there is no right of acceleration in the case of a
default in the performance of any covenant with respect to the Subordinated
Debt Securities, including the payment of interest or principal. At any time
after a declaration of acceleration with respect to Debt Securities of any
series has been made, but before a judgment or decree based on acceleration
has been obtained, the Holders of not less than a majority in aggregate
principal amount of Outstanding Debt Securities of that series may, under
certain circumstances, rescind and annul such declaration. (Section 502 of
each Indenture).
The Indentures provide that, subject to the duty of the Trustee during
default to act with the required standard of care, the Trustee will be under
no obligation to exercise any of its rights or powers under the Indenture at
the request or direction of any of the Holders, unless such Holders shall have
offered to the Trustee reasonable indemnity. (Section 601 of each Indenture).
Subject to such provisions for the indemnification of the Trustee and to
certain other conditions, the Holders of a majority in aggregate principal
amount of the Outstanding Debt Securities of any series will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee, with respect to the Debt Securities of that series. (Section 512 of
each Indenture).
No Holder of any series of Debt Securities will have any right to institute
any proceeding with respect to the Applicable Indenture or for the appointment
of a receiver or a trustee, or for any remedy thereunder, unless such Holder
shall have previously given to the Trustee under the Applicable Indenture
written notice of a continuing Event of Default and unless the Holders of not
less than 25% in aggregate principal amount of the Outstanding Debt Securities
of that series shall have made written request, and offered reasonable
indemnity, to the Trustee to institute such proceeding as trustee, and the
Trustee shall not have received from the Holders of a majority in aggregate
principal amount of the Outstanding Debt Securities of that series a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. (Section 507 of each Indenture). However, such
limitations do not apply to a suit instituted on such Debt Security on or
after the respective due dates expressed in such Debt Security and to convert
any Debt Security which is a Convertible Debt Security (as defined herein),
and to institute suit for the enforcement of any such rights to payment or
conversion. (Section 508 of each Indenture).
The Company is required under each Indenture to furnish to the Trustee
annually a statement as to the performance by the Company of certain of its
obligations under such indenture and as to any default in such performance.
(Section 1009 of each Indenture).
DEFEASANCE AND COVENANT DEFEASANCE
The Indentures provide, if such provision is made applicable to the Debt
Securities of any series pursuant to Section 301 of the Applicable Indenture
(which will be indicated in the Applicable Prospectus Supplement), that the
Company may elect to pay and discharge the entire indebtedness in respect of
such Debt Securities then
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outstanding (including, in the case of Subordinated Debt Securities, the
provisions described under "-- Subordination of Subordinated Debt Securities"
and except for certain obligations to register the transfer of or exchange of
such Debt Securities, replace stolen, lost or mutilated Debt Securities,
maintain paying agencies and hold monies for payment in trust ("defeasance"),
upon satisfaction of certain conditions, the terms and conditions of such Debt
Securities shall no longer be binding upon or applicable to the Company. The
Company may elect such satisfaction and discharge when (i) no Event of Default
has occurred and is continuing, or would occur upon the giving of notice or
lapse of time at the time of such satisfaction and discharge and (ii) the
Company deposits, in trust, with the Trustee under the Applicable Indenture
money or Government Obligations, which through the payment of interest thereon
and principal thereof in accordance with their terms will provide money, in an
amount sufficient, without reinvestment, to pay all the principal of (and
premium, if any) and interest on, and Additional Amounts with respect to, such
Debt Securities on the dates such payments are due and payable, or fulfills
such obligations by such other means of satisfaction and discharge as provided
in the Applicable Indenture; (iii) the Company has paid or caused to be paid
all other sums payable with respect to the Outstanding Securities of such
series; (iv) the Company has delivered an Opinion of Counsel to the effect
that the Holders shall have no Federal income tax consequences as a result of
such deposit or defeasance; and (v) the Company has delivered a certificate of
its Independent Public Accountants as required by the Applicable Indenture.
(Section 402 of each Indenture).
OUTSTANDING DEBT SECURITIES
In determining whether the Holders of the requisite principal amount of
Outstanding Debt Securities have given any request, demand, authorization,
direction, notice, consent or waiver under the Indenture, (i) the portion of
the principal amount of an Original Issue Discount Security that shall be
deemed to be outstanding for such purposes shall be that portion of the
principal amount thereof that would be declared to be due and payable pursuant
to the terms of such Original Issue Discount Security as of the date of such
determination, (ii) the principal amount of any Indexed Security shall be the
principal face amount of such Indexed Security determined on the date of its
original issuance, (iii) the principal amount of a Debt Security denominated
in one or more foreign currency units shall be the U.S. dollar equivalent
based on the applicable exchange rate or rates at the time of sale, and (iv)
any Debt Security owned by the Company or any obligor on such Debt Security or
any affiliate of the Company or such other obligor, shall be deemed not to be
outstanding. (Section 101 of each Indenture).
MODIFICATIONS AND WAIVER
Modifications and amendments of each of the Indentures may be made by the
Company and the Trustee under the Applicable Indenture for any purpose with
the consent of the Holders of not less than 66 2/3% in aggregate principal
amount of the Outstanding Debt Securities of each series issued under such
indenture and affected by the modification or amendments; provided, however,
that no such modification or amendment may, without the consent of the Holders
of all Outstanding Debt Securities affected thereby, (i) change the Stated
Maturity of the principal of, or any premium or installment of interest on,
any Debt Security; (ii) reduce the principal amount of, or the premium, if
any, or (except as otherwise provided in the Applicable Prospectus Supplement)
interest on, any Debt Security (including in the case of an Original Issue
Discount Debt Security the amount payable upon acceleration of the maturity
thereof or the amount provable in bankruptcy); (iii) in the case of the
Subordinated Indenture, modify the subordination provisions in a manner
adverse to the Holders of the Subordinated Debt Securities; (iv) reduce the
percentage in principal amount of Outstanding Debt Securities of any series;
or (v) in the case of Convertible Debt Securities, adversely affect the right
to convert such Debt Securities. (Section 902 of each Indenture).
The Holders of at least a majority in aggregate principal amount of the
Outstanding Debt Securities of each series may, on behalf of all Holders of
that series, waive insofar as that series is concerned, compliance by the
Company with certain restrictive provisions of the Applicable Indenture,
including the provisions in "--Certain Covenants") herein. (Section 1008 of
each Indenture). The Holders of not less than a majority in aggregate
principal amount of the Outstanding Debt Securities may, on behalf of all
Holders of the Debt Securities of that
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series, waive any past default under the Applicable Indenture with respect to
Debt Securities of that series, except a default in the payment of principal,
premium or interest or in the performance of certain covenants. (Section 513
of each Indenture).
Modification and amendment of each of the Indentures may be made by the
Company and the applicable Trustee without the consent of any Holder for any
of the following purposes: (i) to evidence the succession of another Person to
the Company; (ii) to add to the covenants of the Company for the benefit of
the Holders of all of any series of Debt Securities; (iii) to add Events of
Default; (iv) to add or change any provisions of the Indenture to facilitate
the issuance of bearer Debt Securities; (v) to add to, delete from or revise
the conditions, limitations and restrictions on the authorized amount, terms
or purposes of issue, authentication and delivery of Debt Securities; (vi) to
establish the form or terms of Debt Securities of any series and any related
coupons; (vii) to evidence and provide for the acceptance of appointment by a
successor Trustee; (viii) to cure any ambiguity, defect or inconsistency in
the Indenture, provided such action does not adversely affect the interests of
Holders of Debt Securities of any series or any related coupons in any
material respect; (ix) to supplement any of the provisions of the Indenture to
such extent as shall be necessary to permit or facilitate the defeasance and
discharge of any series of Debt Securities, provided such action does not
adversely affect the interests of Holders of Debt Securities of such series or
related coupons in any material respect; (x) to secure the Debt Securities;
and (xi) to amend or supplement any provision contained in the Indenture or in
any supplemental indenture, provided that such amendment or supplement does
not materially adversely affect the interests of the Holders of any Debt
Securities then Outstanding. (Section 901 of each Indenture).
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may consolidate with or merge into any other Person or Persons
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person without the consent of the Holders of any of the
Outstanding Debt Securities provided that (i) any successor or purchaser is a
corporation organized under the laws of the United States of America, any
state thereof or the District of Columbia, and any such successor or purchaser
expressly assumes the Company's obligations on the Debt Securities under each
of the Indentures, (ii) immediately after giving effect to the transaction no
Event of Default, and no event which, after notice or lapse of time or both,
would become an Event of Default, shall have occurred and be continuing, and
(iii) the Company has delivered to the Trustee under the Applicable Indenture
an Officers' Certificate and an Opinion of Counsel stating compliance with
these provisions. (Section 801 of each Indenture).
CONCERNING THE TRUSTEES
In the normal course of business, the Company and its subsidiaries conduct,
or may conduct, banking transactions with the Trustees, and the Trustees
conduct, or may conduct, banking transactions with the Company and its
subsidiaries.
DESCRIPTION OF PREFERRED STOCK
The following summary contains a description of the general terms of the
Preferred Stock to which any Prospectus Supplement may relate. Certain terms
of any series of the Preferred Stock offered by any Prospectus Supplement will
be described in the Prospectus Supplement relating to such series of the
Preferred Stock. If so indicated in the Prospectus Supplement, the terms of
any such series, including any Depositary Shares (as defined below) issued in
respect thereof, may differ from the terms set forth below. The description of
certain provisions of the Preferred Stock set forth below and in any
Prospectus Supplement does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the Company's Restated Certificate
of Incorporation and the certificates supplementary to the Company's Restated
Certificate of Incorporation which will be filed with the Commission in
connection with the offering of such series of Preferred Stock.
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GENERAL
Under the Company's Restated Certificate of Incorporation, the Board of
Directors of the Company is authorized, without further stockholder action, to
provide for the issuance of shares of Preferred Stock, par value $.01 per
share, in one or more series, with such terms, including preferences,
conversion and other rights, voting power, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption, as shall be
established in or pursuant to the resolution or resolutions providing for the
issue thereof to be adopted by the Board of Directors. Currently, under the
Company's Restated Certificate of Incorporation, 50,000,000 shares are
classified as Preferred Stock. The Company has designated 1,000,000 shares of
such Preferred Stock as Cumulative Participating Junior Preferred Stock, which
may be issued upon the exercise and conversion of certain Rights (as defined
below) attached to each share of the Company's common stock. See "Description
of Common Stock--Rights to Purchase Certain Preferred Shares" herein. Prior to
the issuance of each series of Preferred Stock, the Board of Directors (as
used herein the term "Board of Directors" includes any duly authorized
committee thereof) will adopt resolutions creating and designating such series
of Preferred Stock. The description of certain provisions of the Preferred
Stock set forth below and in any Prospectus Supplements does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Certificate of Designation of the Company relating to the particular series of
Preferred Stock, which will be filed with the Commission at or prior to the
time of sale of such Preferred Stock. As of the date of this Prospectus, no
shares of Preferred Stock are outstanding.
The Preferred Stock shall have the dividend, liquidation, and voting rights
set forth below, unless otherwise provided in the Prospectus Supplement
relating to a particular series of the Preferred Stock. Reference is made to
the Prospectus Supplement relating to the particular series of the Preferred
Stock offered thereby for specific terms, including: (i) the designation of
such Preferred Stock and the number of shares offered; (ii) the amount of
liquidation preference per share; (iii) the price at which such Preferred
Stock will be issued; (iv) the dividend rate (or method of calculation), the
dates on which dividends shall be payable, whether such dividends shall be
cumulative or noncumulative, and, if cumulative, the dates from which
dividends shall commence to cumulate; (v) any redemption or sinking fund
provisions of such Preferred Stock; (vi) whether the Company has elected to
offer Depositary Shares; (vii) the terms and conditions, if applicable, upon
which such Preferred Stock will be convertible into Common Stock or other
Securities, including the conversion price (or manner of calculation thereof);
and (viii) any additional voting, dividend, liquidation, redemption, sinking
fund and other rights, preferences, privileges, limitations and restrictions
of such Preferred Stock.
The Preferred Stock will, when issued, be fully paid and nonassessable and
have no preemptive rights. Unless otherwise specified in the Prospectus
Supplement relating to a particular series of the Preferred Stock, each series
of the Preferred Stock will rank on parity as to dividends and liquidation
rights in all respects with each other series of the Preferred Stock.
DIVIDEND RIGHTS
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of
funds of the Company legally available therefor, cash dividends at such rates
and on such dates as are set forth in the Prospectus Supplement relating to
such series of the Preferred Stock. Such rates may be fixed or variable or
both. Each such dividend will be payable to the holders of record as they
appear on the stock record books of the Company (or, if applicable, the
records of the Depositary referred to below under "--Depositary Shares") on
such record dates as will be fixed by the Board of Directors of the Company or
a duly authorized committee thereof. Dividends on any series of the Preferred
Stock may be cumulative or noncumulative, as provided in the Prospectus
Supplement relating thereto. The ability of the Company to pay dividends with
respect to its Preferred Stock or other capital stock may be affected by the
ability of the Bank to pay dividends. The ability of the Bank, as well as the
Company, to pay dividends in the future is, and could be further influenced by
bank regulatory requirements and capital guidelines and policies established
by the Federal Reserve Board. See "Supervision, Regulation and Other Matters"
herein.
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No full dividends may be declared or paid or funds set apart for the payment
of dividends on any securities which rank on parity with the Preferred Stock
unless dividends shall have been paid or set apart for such payment on the
Preferred Stock. If full dividends are not so paid, the Preferred Stock shall
share dividends pro rata with such Securities.
Each series of Preferred Stock will be entitled to dividends as described in
the Prospectus Supplement relating to such series, which may be based upon one
or more methods of determination. Different series of the Preferred Stock may
be entitled to dividends at different rates or based upon different methods of
determination.
VOTING RIGHTS
Except as indicated in the Prospectus Supplement relating to a particular
series of Preferred Stock, or except as expressly required by applicable law,
the holders of the Preferred Stock will not be entitled to any voting rights.
RIGHTS UPON LIQUIDATION
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of each series of Preferred Stock will
be entitled to receive out of assets of the Company available for distribution
to stockholders, after distribution of assets is made to holders of any series
or class of capital stock as may be set forth in the related Prospectus
Supplement, liquidating distributions in the amount set forth in the
Prospectus Supplement relating to such series of the Preferred Stock plus an
amount equal to accrued and unpaid dividends for the then-current dividend
period and, if such series of the Preferred Stock is cumulative, for all
dividend periods prior thereto, all as set forth in the Prospectus Supplement
with respect to such shares. If upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the amounts payable with respect to
the holders of Preferred Stock of any series are not paid in full, the holders
of the Preferred Stock of such series will share ratably in any such
distribution of assets of the Company in proportion to the full liquidation
preferences to which each is entitled. After payment of the full amount of the
liquidation preference to which they are entitled, the holders of such series
of Preferred Stock will not be entitled to any further participation in any
distribution of assets of the Company.
Because the Company is a holding company, its rights, the rights of its
creditors and of its stockholders, including the holders of the shares of the
Preferred Stock offered hereby, to participate in the assets of any
subsidiary, including the Bank, upon the latter's liquidation of
recapitalization may be subject to the prior claims of the subsidiary's
creditors, except to the extent that the Company may itself be a creditor with
reorganized claims against the subsidiary.
REDEMPTION
A series of the Preferred Stock may be redeemable, in whole or in part, at
the option of the Company or the holder thereof, and may be subject to
mandatory redemption pursuant to a sinking fund, in each case upon terms, at
the times and at the redemption prices set forth in the Prospectus Supplement
relating to such series.
In the event of partial redemptions of Preferred Stock, whether by mandatory
or optional redemption, the shares to be redeemed will be determined by lot or
pro rata, as may be determined by the Board of Directors of the Company, a
committee thereof or by any other method determined to be equitable by the
Board of Directors.
On or after a redemption date, unless the Company defaults in the payment of
the redemption price, dividends will cease to accrue on shares of Preferred
Stock called for redemption and all rights of holders of such shares will
terminate except for the right to receive the redemption price.
CONVERSION
The Prospectus Supplement for any series of the Preferred Stock will state
the terms and conditions, if any, on which shares of that series are
convertible into Common Stock or other Securities of the Company. Such
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terms will include the number of shares of Common Stock or the number of
shares or aggregate amount of other Securities into which the shares of
Preferred Stock are convertible, the conversion price (or manner of
calculation thereof), the conversion period, provisions as to whether
conversion will be at the option of the holders of the Preferred Stock or the
Company, if applicable, the events requiring an adjustment of the conversion
price and provisions affecting conversion in the event of the redemption of
such series of Preferred Stock.
DEPOSITARY SHARES
The Company may, at its sole option, elect to offer receipts for fractional
interests ("Depositary Shares") in Preferred Stock, rather than full shares of
Preferred Stock. In such event, receipts ("Depositary Receipts") for
Depositary Shares, each of which will represent a fraction (to be set forth in
the Prospectus Supplement relating to a particular series of Preferred Stock)
of a share of a particular series of Preferred Stock, will be issued as
described below.
The shares of any series of Preferred Stock represented by Depositary Shares
will be deposited under a Deposit Agreement (the "Depositary Agreement")
between the Company and the depositary named in the Prospectus Supplement (the
"Depositary"). Subject to the terms of the Deposit Agreement, each owner of a
Depositary Share will be entitled, in proportion to the applicable fraction of
a share of Preferred Stock represented by such Depositary Share, to all the
rights and preferences of the Preferred Stock represented thereby (including
dividend, voting, redemption, subscription and liquidation rights). The above
summary of the Depositary Shares does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the description
in the applicable Prospectus Supplement and all the provisions of the Deposit
Agreement (which contain the form of Depositary Receipt), which will be filed
as an exhibit to the Registration Statement of which this Prospectus is a
part.
DESCRIPTION OF COMMON STOCK
The Company is authorized to issue 300,000,000 shares of Common Stock, par
value $.01 per share, of which 66,558,730 were issued and outstanding at June
30, 1998. The Common Stock is traded on the New York Stock Exchange under the
symbol "COF". All outstanding shares of Common Stock are, and any shares of
Common Stock offered, will be validly issued, fully paid and nonassessable.
VOTING AND OTHER RIGHTS
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and except as described below, a
majority vote is required for all action to be taken by stockholders.
Directors are elected by a plurality of the votes cast, and stockholders do
not have cumulative voting rights in the election of directors. Shares of
Common Stock do not have any preemptive, subscription, redemption, sinking
fund or conversion rights.
DISTRIBUTION
Subject to preferences that may be applicable to holders of any outstanding
shares of Preferred Stock, holders of Common Stock are entitled to such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. Upon liquidation, dissolution or winding-up of the
Company, the assets legally available for distribution to stockholders are
distributable ratably among the holders of Common Stock at that time
outstanding, subject to prior distribution rights of creditors of the Company
and to the preferential rights of any outstanding shares of Preferred Stock.
ANTITAKEOVER LEGISLATION
Section 203 of the General Corporation Law of the State of Delaware (the
"Delaware Law") provides that, subject to certain exceptions specified
therein, a corporation shall not engage in any business combination with any
"interested stockholder" for a three-year period following the time that such
stockholder becomes an
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interested stockholder unless (i) prior to such time, the board of directors
of the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder; (ii)
upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding certain shares); or (iii) at or subsequent to
such time, the business combination is approved by the board of directors of
the corporation and by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder.
Except as otherwise specified in Section 203 of the Delaware Law, an
interested stockholder is defined to include (x) any person that is the owner
of 15% or more of the outstanding voting stock of the corporation, or is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation, at any time within three
years immediately prior to the relevant date and (y) the affiliates and
associates of any such person.
Under certain circumstances, Section 203 of the Delaware Law makes it more
difficult for a person who would be an "interested stockholder" to effect
various business combinations with a corporation for a three-year period,
although the stockholders may elect to exclude a corporation from the
restrictions imposed thereunder. Neither the Restated Certificate of
Incorporation nor the Bylaws of the Company exclude the Company from the
restrictions imposed under Section 203 of the Delaware Law. It is anticipated
that the provisions of Section 203 of the Delaware Law may encourage companies
interested in acquiring the Company to negotiate in advance with the Board of
Directors, since the stockholder approval requirement would be avoided if a
majority of the directors then in office approves either the business
combination or the transaction which results in the stockholder becoming an
interested stockholder.
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
Certain of the provisions of the Restated Certificate of Incorporation and
Bylaws discussed below may have the effect, either alone or in combination
with the provisions of Section 203 discussed above, the Rights discussed
below, and certain banking laws and regulations (see "Supervision, Regulation
and Other Matters--Investment in the Company"), of making more difficult or
discouraging a tender offer, proxy contest or other takeover attempt that is
opposed by the Board of Directors but that a stockholder might consider to be
in such stockholder's best interest. Those provisions include (i) restrictions
on the rights of stockholders to remove directors, (ii) prohibitions against
stockholders calling a special meeting of stockholders or acting by unanimous
written consent in lieu of a meeting, (iii) a "fair price" provision for
business combinations and (iv) requirements for advance notice of actions
proposed by stockholders for consideration at meetings of the stockholders.
The summary set forth below describes certain provisions of the Restated
Certificate of Incorporation and Bylaws and is qualified in its entirety by
reference to the provisions of the Restated Certificate of Incorporation and
Bylaws, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus forms a part.
Classified Board of Directors. The Restated Certificate of Incorporation and
Bylaws of the Company provide that the Board of Directors, other than those
elected by any series of Preferred Stock, will be divided into three classes
of directors, with the classes to be as nearly equal in number as possible.
The class of directors elected at each annual meeting are elected for a term
expiring at the annual meeting of stockholders held in the third year
following their election and until their successors are elected and qualified.
The classification of directors will have the effect of making it more
difficult for stockholders to change the composition of the Board of
Directors. At least two annual meetings of stockholders, instead of one, will
generally be required to effect a change in a majority of the Board of
Directors. Such a delay may be held to ensure that the Company's directors, if
confronted by a holder attempting to force a proxy contest, a tender or
exchange offer, or an extraordinary corporate transaction, would have
sufficient time to review the proposal as well as any available alternatives
to the proposal and to act in what they believe to be the best interest of the
stockholders. The classification provisions will apply to every election of
directors, however, regardless of whether a change in the composition of the
Board of Directors would be beneficial to the Company and its
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stockholders and whether or not a majority of the Company's stockholders
believe that such a change would be desirable.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or
otherwise attempting to obtain control of the Company, even though such an
attempt might be beneficial to the Company and its stockholders. The
classification of the Board of Directors could thus increase the likelihood
that incumbent directors will retain their positions. In addition, because the
classification provisions may discourage accumulations of large blocks of the
Company's stock by purchasers whose objective is to take control of the
Company and remove a majority of the Board of Directors, the classification of
the Board of Directors could tend to reduce the likelihood of fluctuations in
the market price of the Common Stock that might result from accumulations of
large blocks. Accordingly, stockholders could be deprived of certain
opportunities to sell their shares of Common Stock at a higher market price
than might otherwise be the case.
Number of Directors; Removal; Filling Vacancies. The Restated Certificate of
Incorporation provides that, subject to any rights of holders of Preferred
Stock to elect additional directors under specified circumstances, the number
of directors will be fixed in the manner provided in the Bylaws. The Bylaws
provide that, subject to any rights of holders of Preferred Stock to elect
directors under specified circumstances, the number of directors will be fixed
from time to time exclusively pursuant to a resolution adopted by directors
constituting a majority of the total number of directors that the Company
would have if there were no vacancies on the Board of Directors (the "Whole
Board"), but must consist of not more than seventeen nor less than three
directors. In addition, the Bylaws provide that, subject to any rights of
holders of Preferred Stock, and unless the Board of Directors otherwise
determines, any vacancies will be filled only by the affirmative vote of a
majority of the remaining directors, though less than a quorum. Accordingly,
absent an amendment to the Bylaws, the Board of Directors could prevent any
stockholder from enlarging the Board of Directors and filling the new
directorships with such stockholder's own nominees.
In order to be qualified to serve as a director, a person must (a) not have
attained the age of seventy years and (b) either (i) be an officer or employee
of the Company and not (A) have voluntarily resigned from the position or
office he held at the time of his election as a director, (B) have retired or
been retired pursuant to the requirements of a pension, profit sharing, or
similar plan or (C) have, at the time of his election as a director, held a
position or office in the Company which has been changed, other than by an
upward or expanded promotion or (ii) in the case of any person who is not an
officer or employee of the Company, not (A) have retired from or severed his
connection with the organization with which he was affiliated at the time of
his election as a director or (B) have held a position or office with an
organization with which he was affiliated at the time of his election as a
director which has been changed, other than by an upward or expanded
promotion, and (C) not have a material conflict of interest with the Company
(1) as defined by applicable laws and regulations and (2) the existence and
materiality of which may be determined by a majority of the remaining
directors. Whenever any director shall cease to be qualified to serve as a
director his term shall expire, but such director shall continue to serve
until his successor is elected and qualified; provided, however, that no
director's term shall so expire if the Board of Directors shall have waived
such qualification.
Under the Delaware Law, unless otherwise provided in the certificate of
incorporation, directors serving on a classified board may only be removed by
the stockholders for cause. The Restated Certificate of Incorporation and
Bylaws of the Company provide that, subject to the rights of holders of
Preferred Stock to elect directors under specified circumstances, directors
may be removed only for cause and only upon the affirmative vote of holders of
at least 80% of the voting power of all the then outstanding shares of stock
entitled to vote generally in the election of directors ("Voting Stock"),
voting together as a single class.
No Stockholder Action by Written Consent; Special Meetings. The Restated
Certificate of Incorporation and Bylaws of the Company provide that, subject
to the rights of any holders of Preferred Stock to elect additional directors
under specified circumstances, stockholder action can be taken only at an
annual or special meeting of stockholders and can not be taken by written
consent in lieu of a meeting. The Bylaws provide that,
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subject to the rights of holders of any series of Preferred Stock to elect
additional directors under specified circumstances, special meetings of
stockholders can be called only by the Chairman of the Board of Directors or
by the Board of Directors pursuant to a resolution adopted by a majority of
the Whole Board. Stockholders are not permitted to call a special meeting or
to require that the Board of Directors call a special meeting of stockholders.
Moreover, the business permitted to be conducted at any special meeting of
stockholders is limited to the business brought before the meeting pursuant to
the notice of meeting given by the Company.
The provisions of the Restated Certificate of Incorporation and Bylaws of
the Company prohibiting stockholder action by written consent may have the
effect of delaying consideration of a stockholder proposal until the next
annual meeting unless a special meeting is called by the Chairman or at the
request of a majority of the Whole Board. The provisions would also prevent
the holders of a majority of the voting power of the Voting Stock from
unilaterally using the written consent procedure to take stockholder action
and from taking action by consent. Moreover, a stockholder could not force
stockholder consideration of a proposal over the opposition of the Chairman
and the Board of Directors by calling a special meeting of stockholders prior
to the time the Chairman or a majority of the Whole Board believes such
consideration to be appropriate.
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals. The Bylaws establish an advance notice procedure for stockholders
to make nominations of candidates for election as directors, or bring other
business before an annual meeting of stockholders of the Company (the
"Stockholder Notice Procedure").
The Stockholder Notice Procedure provides that only persons who are
nominated by, or at the direction of, the Board of Directors, or by a
stockholder who has given timely written notice to the Secretary of the
Company prior to the meeting at which directors are to be elected, will be
eligible for election as directors of the Company. The Stockholder Notice
Procedure provides that at an annual meeting only such business may be
conducted as has been brought before the meeting by, or at the direction of,
the Chairman or the Board of Directors or by a stockholder who has given
timely written notice to the Secretary of the Company of such stockholder's
intention to bring such business before such meeting. Under the Stockholder
Notice Procedure, for notice of stockholder nominations or proposals to be
made at an annual meeting to be timely, such notice must be received by the
Company not less than 70 days nor more than 90 days prior to the first
anniversary of the previous year's annual meeting (or in the event that the
date of the annual meeting is advanced by more than 30 days, or delayed by
more than 70 days, from such anniversary date, not earlier than the 90th day
prior to such meeting and not later than the later of (x) the 70th day prior
to such meeting and (y) the 10th day after public announcement of the date of
such meeting is first made). Notwithstanding the foregoing, in the event that
the number of directors to be elected is increased and there is no public
announcement naming all of the nominees for director or specifying the size of
the increased Board of Directors made by the Company at least 80 days prior to
the first anniversary of the preceding year's annual meeting, a stockholder's
notice will be timely, but only with respect to nominees for any new positions
created by such increase, if it is received by the Company not later than the
10th day after such public announcement is first made by the Company. Under
the Stockholder Notice Procedure, for notice of a stockholder nomination to be
made at a special meeting at which directors are to be elected to be timely,
such notice must be received by the Company not earlier than the 90th day
before such meeting and not later than the later of (x) the 70th day prior to
such meeting and (y) the 10th day after public announcement of the date of
such meeting is first made.
Under the Stockholder Notice Procedure, a stockholder's notice to the
Company proposing to nominate a person for election as a director must contain
certain information, including, without limitation, the identity and address
of the nominating stockholder, the class and number of shares of stock of the
Company which are owned by such stockholder, and all information regarding the
proposed nominee that would be required to be included in a proxy statement
soliciting proxies for the proposed nominee. Under the Stockholder Notice
Procedure, a stockholder's notice relating to the conduct of business other
than the nomination of directors must contain certain information about such
business and about the proposing stockholder, including, without limitation, a
brief description of the business the stockholder proposes to bring before the
meeting, the reasons for conducting
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such business at such meeting, the name and address of such stockholder, the
class and number of shares of stock of the Company beneficially owned by such
stockholder, and any material interest of such stockholder in the business so
proposed. If the Chairman of the Board or other officer presiding at a meeting
determines that a person was not nominated, or other business was not brought
before the meeting, in accordance with the Stockholder Notice Procedure, such
person will not be eligible for election as a director, or such business will
not be conducted at such meeting, as the case may be.
By requiring advance notice of nominations by stockholders, the Stockholder
Notice Procedure will afford the Board of Directors an opportunity to consider
the qualifications of the proposed nominees and, to the extent deemed
necessary or desirable by the Board of Directors, to inform stockholders about
such qualifications. By requiring advance notice of the proposed business, the
Stockholder Notice Procedure will also provide a more orderly procedure for
conducting annual meetings of stockholders and, to the extent deemed necessary
or desirable by the Board of Directors, will provide the Board of Directors
with an opportunity to inform stockholders, prior to such meetings, if any
buisness proposed to be conducted at such meetings, together with any
recommendations as to the Board's position regarding action to be taken with
respect to such business, so that stockholders can better decide whether to
attend such a meeting or to grant a proxy regarding the disposition of such
business.
Although the Bylaws do not give the Board of Directors any power to approve
or disapprove stockholder nominations for the election of directors or
proposals for action, they have the effect of precluding a contest for the
election of directors or the consideration of stockholder proposals if the
procedures are not followed, and of discouraging or deterring a third party
from conducting a solicitation of proxies to elect its own slate of directors
or to approve its own proposal, without regard to whether consideration of
such nominees or proposals might be harmful or beneficial to the Company and
its stockholders.
Business Combinations. The Restated Certificate of Incorporation requires
certain Business Combinations (as defined therein) with Interested
Stockholders (as defined below) or affiliates thereof be approved by the
affirmative vote of the holders of at least 75% of the Voting Stock of the
Company, voting together as a single class. Such affirmative vote is required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise. The requirement that a Business Combination
with an Interested Stockholder be approved by the affirmative vote of 75% of
the voting power of the outstanding Voting Stock does not apply if either (i)
the Business Combination has been approved by a majority of the Continuing
Directors (as defined below), or (ii) certain price and procedure requirements
designated to ensure that the Company's stockholders receive a "fair price"
for their Common Stock are satisfied. An "Interested Stockholder" is any
person (other than the Company or any subsidiary of the Company) who or which:
(i) is the beneficial owner, directly or indirectly, of 5% or more of the
voting power of the outstanding Voting Stock; (ii) is an affiliate of the
Company and at any time within the two-year period immediately prior to the
date in question was the beneficial owner, directly or indirectly, of 5% or
more of the voting power of the then outstanding Voting Stock; or (iii) is an
assignee of or has otherwise succeeded to any shares of Voting Stock which
were at any time within the two-year period immediately prior to the date in
question beneficially owned by any Interested Stockholder, if such assignment
or succession shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). A "Continuing
Director" means any member of the Board of Directors who was unaffiliated with
the Interested Stockholder and was a member of the Board of Directors prior to
the time that the Interested Stockholder became an Interested Stockholder, and
any successor director who is unaffiliated with the Interested Stockholder and
is recommended or elected to succeed a Continuing Director by a majority of
Continuing Directors then on the Board of Directors.
Liability of Directors; Indemnification. The Restated Certificate of
Incorporation provides that a director will not be personally liable for
monetary damages to the Company or its stockholders for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for paying a dividend or approving a stock repurchase
in violation of Section 174 of the
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Delaware Law or (iv) for any transaction from which the director derived an
improper personal benefit. The Restated Certificate of Incorporation also
provides that each person who is or was or had agreed to become a director or
officer of the Company, or each such person who is or was serving or had
agreed to serve at the request of the Board of Directors of the Company as an
employee or agent of the Company or as director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
(including the heirs, executors, administrators or estate of such person),
will be indemnified by the Company, in accordance with the Bylaws, to the full
extent permitted by the Delaware Law, as the same exists or may in the future
be amended (but, in the case of any such amendment, only to the extent that
such amendment permits the Company to provide broader indemnification rights
than said law permitted the Company to provide prior to such amendment). The
Restated Certificate of Incorporation also specifically authorizes the Company
to enter into agreements with any person providing for indemnification greater
or different than that provided by the Restated Certificate of Incorporation.
Amendments. The Restated Certificate of Incorporation and Bylaws state that
any amendment to certain provisions, including those provisions discussed
above, be approved by the holders of at least 80% of the Voting Stock. This
requirement will prevent a stockholder with only a majority of the Common
Stock from avoiding the requirements of the provisions discussed above by
simply repealing such provisions. The Restated Certificate of Incorporation
further provides that the Bylaws may be amended by the Company's Board of
Directors.
RIGHTS TO PURCHASE CERTAIN PREFERRED SHARES
Each share of Common Stock issued and outstanding, or to be issued and
outstanding, includes, or upon issuance will include, an attached "Right."
Each Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of the Company's Cumulative Participating Junior
Preferred Stock, par value $0.01 per share (the "Junior Preferred Shares") at
a price of $150 per one one-hundredth of a share (the "Purchase Price"),
subject to adjustment. The Company has initially authorized and reserved
1,000,000 shares of Junior Preferred Shares for issuance upon exercise of the
Rights. Because of the nature of the Junior Preferred Shares' dividend and
liquidation rights, the value of the one one-hundredth interest in a Junior
Preferred Shares purchasable upon exercise of each Right should approximate
the value of one share of Common Stock. Initially, the Rights are not
exercisable and trade automatically with the Common Stock. The Rights
generally become exercisable, however, and separate certificates representing
the Rights will be distributed, if any person or group acquires 15 percent or
more of the Company's outstanding Common Stock or a tender offer or exchange
offer is announced for the Company's Common Stock. The Rights expire on
November 29, 2005, unless earlier redeemed by the Company at $0.01 per Right
prior to the time any person or group acquires 15 percent of the outstanding
Common Stock. Until the Rights become exercisable, the Rights have no dilutive
effect on earnings per share. Prior to exercise, a Right will not create any
rights in the holder thereof as a stockholder of the Company, including,
without limitation, the right to vote or receive dividends.
The Rights will have certain antitakeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Board of Directors, except pursuant to an offer
conditioned on a substantial number of Rights being acquired. The Rights
should not interfere with any merger or other business combination approved by
the Board of Directors, since the Rights may be redeemed by the Company for
$0.01 per Right prior to the time that a person or group acquires 15 percent
of the outstanding Common Stock.
The foregoing summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Form 8-A of the
Company filed on November 16, 1995, which is incorporated herein by reference,
and the Certificate of Designations, a copy of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
DIVIDEND REINVESTMENT PLAN
In January 1996, the Company implemented a dividend reinvestment and stock
purchase plan (the "DRIP"). The DRIP provides stockholders with the
opportunity to purchase additional shares of the Company's
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Common Stock by reinvesting all or a portion of their dividends on shares of
Common Stock. The DRIP also provides existing stockholders with the option to
make cash investments monthly (subject to a minimum monthly limit of $50 and a
maximum monthly limit of $5,000). Optional cash investments in excess of
$5,000 may be made with the permission of the Company at a discount which will
be from 0% to 3%. The Company uses proceeds from the DRIP for general
corporate purposes.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is First Chicago Trust
Company of New York.
PLAN OF DISTRIBUTION
The Company may sell Securities to or through underwriters or dealers, and
also may sell Securities directly to other purchasers or through agents. Each
Prospectus Supplement will describe the method of distribution of the
Securities being offered thereby.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Securities, underwriters may receive
compensation from the Company or from purchasers of Securities for whom they
may act as agents in the form of discounts, concessions or commissions.
Underwriters may sell Securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act
as agents. Underwriters, dealers and agents that participate in the
distribution of Securities may be deemed to be underwriters, and any discounts
or commissions received by them from the Company and any profit on the resale
of Securities by them may be deemed to be underwriting discounts and
commissions, under the Securities Act of 1933, as amended. Any such
underwriter or agent will be identified, and any such compensation received
from the Company will be described, in the Prospectus Supplement.
If so indicated in the Applicable Prospectus Supplement, the Company will
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Offered Debt Securities
from the Company pursuant to contracts providing for payment and delivery on a
future date. Institutions with which such contracts may be made include, but
are not limited to, commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable institutions and
others, but in all cases such institutions must be approved by the Company.
The obligations of any purchaser under any such contract will be subject to
the condition that the purchase of the Offered Debt Securities shall not at
the time of delivery be prohibited under the laws of the jurisdiction to which
such purchaser is subject. The underwriters and such other agents will not
have any responsibility in respect to the validity or performance of such
contracts.
Underwriters and agents who participate in the distribution of Securities
may be entitled under agreements which may be entered into by the Company to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act.
VALIDITY OF SECURITIES
The validity of the Securities will be passed upon for the Company by John
G. Finneran, Jr., Senior Vice President, General Counsel and Corporate
Secretary of the Company. Mr. Finneran owns approximately 2,674 shares of
Common Stock of the Company and holds options to purchase 178,704 shares of
Common Stock issued under the Company's 1994 Stock Incentive Plan.
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EXPERTS
The consolidated financial statements of Capital One Financial Corporation
incorporated by reference in Capital One Financial Corporation's Annual Report
(Form 10-K) for the year ended December 31, 1997, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon,
incorporated by reference therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
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