<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED
BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
CAPITAL ONE FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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Notes:
<PAGE>
[CAPITAL ONE LOGO APPEARS HERE]
Capital One Financial Corporation
2980 Fairview Park Drive, Suite 1300
Falls Church, Virginia 22042-4525
NOTICE OF ANNUAL STOCKHOLDER MEETING
To be held April 29, 1999
Dear Stockholder:
It is our pleasure to invite you to the annual stockholder meeting of
Capital One Financial Corporation ("Capital One"). The meeting will be held at
10:00 a.m. on Thursday, April 29, 1999 at the Fairview Park Marriott Hotel,
3111 Fairview Park Drive, Falls Church, Virginia 22042-4525.
At our annual meeting you will be asked to:
. Elect three directors;
. Approve the company's 1994 Stock Incentive Plan, as amended;
. Approve the appointment of Ernst & Young LLP as independent auditors
for 1999; and
. Conduct any other business properly brought before the meeting.
We will discuss the company's business and financial results of 1998 and
answer any questions you may have. We have also enclosed the 1998 Annual
Report, including financial statements.
If you were a stockholder of record at the close of business on March 1,
1999, you are entitled to vote at our annual meeting.
Your vote is important. This year, record holders of Capital One shares can
vote their shares on the Internet or by using a toll-free telephone number.
Instructions for using these services can be found on the enclosed proxy card.
Of course, you may continue to vote your shares by sending in your signed and
dated proxy card by mail. This way your shares will be voted even if you are
unable to attend the meeting. If you later attend the meeting and prefer to
vote in person or change your proxy vote, you may do so.
We look forward to seeing you at the meeting.
By Order of the Board of Directors,
/s/ John G. Finneran, Jr.
John G. Finneran, Jr.
Corporate Secretary
March 20, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
VOTING MATTERS AND PROCEDURES............................................. 1
What is the purpose of the annual meeting?.............................. 1
Who can attend the meeting?............................................. 1
Who is requesting your vote?............................................ 1
Who is entitled to vote?................................................ 1
Will a list of stockholders be made available?.......................... 1
What constitutes a quorum?.............................................. 1
How do you vote?........................................................ 2
Can you vote by telephone or electronically?............................ 2
Can you get the company's annual meeting materials delivered to you
electronically next year?.............................................. 2
What vote is necessary to approve each item?............................ 2
What are the Board's recommendations?................................... 3
INFORMATION ABOUT CAPITAL ONE'S COMMON STOCK OWNERSHIP.................... 3
Certain Beneficial Owners............................................... 3
Directors and Named Executive Officers.................................. 4
Section 16(a) Beneficial Ownership Reporting Compliance................. 4
INFORMATION ABOUT OUR DIRECTORS AND EXECUTIVE OFFICERS.................... 5
Introductions........................................................... 5
Board Meetings.......................................................... 7
Committee Meetings...................................................... 7
Compensation of the Board............................................... 8
Related Party Transactions with Directors............................... 9
COMPENSATION OF EXECUTIVE OFFICERS........................................ 10
Summary Compensation Table.............................................. 10
Option Grant Table...................................................... 12
Option Exercise and Option Value Table.................................. 13
Company Arrangements with Executive Officers............................ 14
Pension Plans........................................................... 14
Performance Graph....................................................... 16
REPORT ON EXECUTIVE COMPENSATION FROM THE COMPENSATION COMMITTEE.......... 17
Compensation Philosophy................................................. 17
Methodology for Determining Compensation................................ 17
Components of the Executive Compensation Program........................ 18
Deductibility of Compensation Expenses.................................. 20
ELECTION OF DIRECTORS..................................................... 21
APPROVAL OF THE 1994 STOCK INCENTIVE PLAN, AS AMENDED..................... 22
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS......................... 28
OTHER BUSINESS............................................................ 29
ANNUAL REPORT TO STOCKHOLDERS............................................. 29
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING............................. 29
INTERNET AND TELEPHONE VOTING............................................. 29
ELECTRONIC DELIVERY OF NEXT YEAR'S ANNUAL MEETING MATERIALS............... 30
APPENDIX I................................................................ A-1
</TABLE>
<PAGE>
[CAPITAL ONE LOGO APPEARS HERE]
----------------
PROXY STATEMENT
----------------
VOTING MATTERS AND PROCEDURES
What is the purpose of the annual meeting?
At the company's annual meeting, stockholders will act upon the matters
outlined in the accompanying notice of meeting, including the election of
directors, approval of the company's 1994 Stock Incentive Plan, as amended,
and ratification of the company's independent auditors. In addition, the
company's management will report on the performance of the company during 1998
and respond to questions from stockholders.
Who can attend the meeting?
There are no restrictions on who may attend the meeting or any formal
requirements to attend the meeting. The members of the Board of Directors and
senior management of the company, as well as representatives of Ernst & Young
LLP, the company's independent auditors during 1998, will attend the meeting.
Who is requesting your vote?
This proxy statement and the proxy card are being mailed on or about March
30, 1999. The Board of Directors of the company is requesting your vote for
the matters presented in this proxy. The cost of preparing, assembling and
mailing the proxy card, this proxy statement, and other enclosed materials,
and all clerical and other expenses of solicitations will be at the expense of
Capital One. We have retained Georgeson & Company Inc. to assist us in the
solicitation of proxies for an aggregate fee of $8,000, plus reasonable out-
of-pocket expenses.
Who is entitled to vote?
All holders of the company's common stock of record at the close of business
on March 1, 1999 are entitled to vote. All stockholders are entitled to one
vote for each share held for all matters submitted for a vote at the meeting.
Cumulative voting for the election of directors is not permitted. On March 1,
1999, there were 63,855,648 shares of the company's common stock outstanding.
Will a list of stockholders be made available?
We will make a list of stockholders available at the annual meeting and, for
ten days prior to the meeting, at our Northern Virginia offices located at
2980 Fairview Park Drive, Suite 1300, Falls Church, Virginia 22042-4525.
What constitutes a quorum?
A quorum of stockholders is necessary to transact business at the annual
meeting. A quorum exists if the holders of a majority of the shares entitled
to vote are present in person or represented by proxy, including proxies on
which abstentions (withholding authority to vote) are indicated.
<PAGE>
How do you vote?
You can vote by either:
. Signing and returning the enclosed proxy card or following the
directions thereon for telephone or Internet voting; or
. Casting your vote in person at the annual meeting.
If you vote by signing the proxy card, the individuals identified on the
card will vote your shares as you designate. "Street name" stockholders who
wish to vote in person at the meeting will need to obtain a proxy form from
the institution that holds their shares.
If you return a duly executed proxy card but do not specify a choice, your
shares will be voted in favor of Items 1-3 on the proxy card and at the
discretion of the proxyholders for any other matters properly submitted to a
vote at the meeting.
If you vote by proxy, you may revoke your proxy at any time prior to the
final tallying of votes by (1) delivering a written notice to the company's
Corporate Secretary at the address on the front page of this proxy statement,
(2) executing and delivering a later-dated proxy or (3) attending the meeting
and voting in person.
Can you vote by telephone or electronically?
Instead of submitting your proxy vote on the paper proxy card, you can vote
by telephone or electronically by the Internet. See "Internet and Telephone
Voting" on pages 29-30 of this proxy statement for additional information.
Please note that there are separate Internet and telephone voting arrangements
depending upon whether your shares are registered in your own name through the
company's stock transfer agent, First Chicago Trust Company of New York, or
held in "street name" through a broker, bank or other nominee.
Can you get the company's annual meeting materials delivered to you
electronically next year?
If you vote electronically via the Internet, you can consent to electronic
delivery of next year's proxy statement, proxy card and annual report by
responding affirmatively to the request for your consent when prompted. See
"Electronic Delivery of Next Year's Annual Meeting Materials" on page 30 of
this proxy statement for additional information. If you consent and the
company delivers some or all of next year's annual meeting materials to you by
electronic mail or by posting such materials to the Internet, you will not
receive paper copies of these materials through the mail. Because electronic
delivery could save the company a significant portion of the costs associated
with printing and mailing materials, we encourage you to consent to electronic
delivery.
What vote is necessary to approve each item?
Votes will be tabulated by the Inspector of Elections. The Board of
Directors has appointed representatives of First Chicago Trust Company of New
York as the Inspector of Elections.
Item 1 on the proxy card requests your vote for the three directors who are
up for re-election this year. You may cast or withhold your vote for each of
the nominees. Directors are elected by a plurality of votes cast, meaning that
the three director nominees that receive the most votes shall be elected.
Item 2, the approval of the company's 1994 Stock Incentive Plan, as amended
(i) to increase the number of shares available for issuance, (ii) to clarify
the eligibility requirements thereunder, and (iii) to approve certain option
grants to Messrs. Fairbank and Morris, and Item 3, the approval of the
appointment of Ernst & Young LLP as independent auditors for 1999, will be
approved if the holders of a majority of the shares present in person or
represented by proxy vote in favor of the matter. Consequently, abstentions
have the same effect as a vote "against" the matter.
For Items 1-3 presented at this meeting, if you hold shares through a broker
and you do not vote your proxy, the broker is authorized to vote your shares
without any specific instruction from you.
2
<PAGE>
What are the Board's recommendations?
Unless you give other instructions on your proxy card, the people named as
proxy holders on the proxy card will vote in accordance with the
recommendations of the Board of Directors. The Board's recommendations are set
forth together with a description of each item in this proxy statement. In
summary, the Board recommends a vote:
. for election of the nominated slate of directors (see page 21);
. for approval of the company's 1994 Stock Incentive Plan, as amended
(see pages 22-27); and
. for ratification of the appointment of Ernst & Young LLP as the
company's independent auditors for 1999 (see page 28).
With respect to any other matter that properly comes before the meeting, the
proxy holders will vote as recommended by the Board of Directors or, if no
recommendation is given, in their own discretion.
INFORMATION ABOUT CAPITAL ONE'S COMMON STOCK OWNERSHIP
Certain Beneficial Owners
The following table lists stockholders that are known to the company to own
beneficially more than 5% of Capital One's common stock.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent of
Name and Address Ownership(1) Class(2)
---------------- ----------------- ----------
<S> <C> <C>
Tiger Performance L.L.C., Tiger Management
L.L.C. and Julian H. Robertson, Jr.(3)...... 3,908,800 5.94%
101 Park Avenue
New York, New York 10178
Neuberger Berman, LLC(4)..................... 3,309,750 5.02%
605 Third Avenue
New York, New York 10158-3698
</TABLE>
- --------
(1) Beneficial ownership is a term broadly defined under Securities and
Exchange Commission ("SEC") rules and regulations. The information
contained in this table is based on Schedule 13G reports filed with the
SEC and the ownership interests indicated are current only as of the dates
of filing with the SEC, as indicated below.
(2) All percentage calculations are based on the number of shares of common
stock issued and outstanding on February 26, 1999, which was 65,855,648.
(3) On a Schedule 13G filed on February 16, 1999, Tiger Management L.L.C. and
Tiger Performance L.L.C., registered investment advisors, reported
beneficial ownership of 2,152,600 shares and 1,756,200 shares,
respectively, the sum of which is the total beneficial ownership reported
by Julian H. Robertson, Jr., the ultimate controlling person of Tiger
Management L.L.C. and Tiger Performance L.L.C. The beneficial owners
reported that they hold shares for themselves and/or their affiliates,
advisory clients and investors. Each beneficial owner has certified in its
Schedule 13G that the shares of common stock were acquired in the ordinary
course of business and were not acquired for the purpose of and do not
have the effect of changing or influencing the control of the company and
were not acquired in connection with or as a participant in any
transaction having such purpose or effect.
(4) On a Schedule 13G filed on February 10, 1999, Neuberger Berman, LLC and
Neuberger Berman Management, Inc. reported beneficial ownership of
3,221,700 shares over which they exercise shared power to make investment
and/or voting decisions. Neuberger Berman, LLC holds the remaining 84,850
shares for individual client accounts over which it has power to dispose
of such shares. Neuberger Berman, LLC and Neuberger Berman Management Inc.
are sub-adviser and investment manager, respectively, of Neuberger
Berman's various mutual funds. On the Schedule 13G, Neuberger Berman, LLC
and Neuberger Berman Management Inc. each certified that the shares of
common stock were acquired and are held in the ordinary course of business
and were not acquired and are not held for the purpose of or with the
effect of changing or influencing the control of the company and are not
held in connection with or as a participant in any transaction having that
purpose or effect.
3
<PAGE>
Directors and Named Executive Officers
The following table lists the beneficial ownership of Capital One's common
stock, as of February 26, 1999, by our directors and the Named Executive
Officers (as defined herein).
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent of
Name and Address* Ownership(1) Class(2)
----------------- ----------------- ----------
<S> <C> <C>
Richard D. Fairbank........................ 2,758,581(3)(4) 4.19%
Nigel W. Morris............................ 1,527,488(3)(5) 2.32%
Matthew J. Cooper.......................... 174,192(6) **
James P. Donehey........................... 115,659(7) **
John G. Finneran, Jr....................... 119,214(8) **
W. Ronald Dietz............................ 30,906(9) **
James A. Flick, Jr......................... 32,500(9) **
Patrick W. Gross........................... 30,556(9) **
James V. Kimsey............................ 51,579(9) **
Stanley I. Westreich....................... 485,190(9)(10) .74%
All directors and executive officers as a
group (15 persons)........................ 5,592,464(11) 8.49%
</TABLE>
- --------
* All addresses are c/o Capital One Financial Corporation, 2980 Fairview
Park Drive, Suite 1300, Falls Church, Virginia 22042-4525.
** Less than .5% of the outstanding shares of common stock.
(1) To the company's knowledge, each officer and director, together with his
spouse, is the sole beneficial owner of the shares shown next to his name
unless we have indicated otherwise. The totals include shares of common
stock (i) subject to options held by each person granted under the
company's 1994 Stock Incentive Plan (the "Stock Incentive Plan") or the
company's 1995 Non-Employee Directors Stock Incentive Plan (the
"Directors Plan"), that are or will become exercisable on or before April
29, 1999, (ii) held by the executive officer under the company's
Associate Savings Plan (the "Savings Plan") and (iii) held by the
executive officer under the company's 1994 Associate Stock Purchase Plan
(the "Stock Purchase Plan").
(2) All percentage calculations are based on the number of shares of common
stock issued and outstanding on February 26, 1999, which was 65,855,648.
(3) Includes 35,834 shares owned by Fairbank Morris, Inc. Messrs. Fairbank
and Morris share voting and investment power for these shares.
(4) Includes 2,604,260 shares issuable upon the exercise of options.
(5) Includes 1,491,033 shares issuable upon the exercise of options.
(6) Includes 154,325 shares issuable upon the exercise of options.
(7) Includes 111,064 shares issuable upon the exercise of options.
(8) Includes 112,857 shares issuable upon the exercise of options.
(9) Includes 28,000 shares issuable upon the exercise of options.
(10) Includes 52,000 shares held in a trust, for which Mr. Westreich is the
trustee and ultimate beneficiary.
(11) Includes 4,897,156 shares issuable upon the exercise of options for all
directors and executive officers as a group.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act requires that the company's
executive officers and directors, and persons that beneficially own more than
10% of the common stock, file certain reports of ownership of the common stock
and changes in such ownership with the SEC and provide copies of these reports
to Capital One. Based solely on our review of these reports and written
representations furnished to us, we believe that in 1998 each of the reporting
persons complied with these filing requirements, except for James P. Donehey,
Senior Vice President, who filed one late report covering a stock option
exercise.
4
<PAGE>
INFORMATION ABOUT OUR DIRECTORS AND EXECUTIVE OFFICERS
Introductions
Capital One's directors and executive officers are listed with a brief
description of their business experience for the past five years.
Richard D. Fairbank Chairman and Chief Executive Officer Age 48
Mr. Fairbank has been Chairman of the Board of Directors of Capital One
since February 28, 1995. He has been Chief Executive Officer and a director
since July 26, 1994. Prior to November 22, 1994, he was Executive Vice
President of Signet Bank's credit card division in charge of credit card
operations. Mr. Fairbank is a director of MasterCard International, Inc. Mr.
Fairbank is also a director of the company's two principal subsidiaries,
Capital One Bank (the "Bank") and Capital One, F.S.B. (the "Savings Bank").
Nigel W. Morris President, Chief Operating Officer and Director Age 40
Mr. Morris has been a director of the company since February 28, 1995. He
has been President and Chief Operating Officer since July 26, 1994. Prior to
November 22, 1994, he was Executive Vice President of Signet Bank's credit
card division. Mr. Morris is a member of Visa U.S.A. Inc.'s Marketing
Committee and is a director of Covance Inc. Mr. Morris is also a director of
the Bank and the Savings Bank.
Marjorie M. Connelly Senior Vice President, Credit Card Operations Age 37
Ms. Connelly joined the company in March 1994. She is Senior Vice President
of Credit Card Operations, and is responsible for management of the inbound
and outbound call centers, including customer service, telemarketing and
retention, cardholder correspondence processing, chargebacks and retrievals,
credit operations, payment processing, embossing, image operations and
statement rendition. Ms. Connelly is currently a member of the VISA Card
Operations Advisors Committee.
Matthew J. Cooper Senior Vice President Age 32
Mr. Cooper is a Senior Vice President of Capital One. He has been employed
in various capacities by the company and its predecessor since October 1989.
Mr. Cooper's major areas of responsibility include management of the company's
lending business in the United Kingdom and Canada.
James P. Donehey Senior Vice President and Chief Information Officer Age 50
Mr. Donehey joined Capital One in November 1994. He is currently Senior Vice
President and Chief Information Officer. Mr. Donehey is responsible for all
computer operations, telecommunications and business applications software in
support of the company's activities. Mr. Donehey is also responsible for all
facilities and real estate. From February 1984 to October 1994, Mr. Donehey
was an executive director of Goldman Sachs & Company responsible for systems
management in its Chicago and London offices.
John G. Finneran, Jr. Senior Vice President, General Counsel
and Corporate Secretary Age 49
Mr. Finneran joined Capital One in September 1994 as Senior Vice President,
General Counsel and Corporate Secretary. Prior to joining the company, he was
a Deputy General Counsel to the Federal Deposit Insurance Corporation.
5
<PAGE>
Dennis H. Liberson Senior Vice President, Human Resources Age 43
Mr. Liberson joined Capital One in February 1995. Mr. Liberson is a Senior
Vice President in charge of Human Resources and is responsible for the
development and implementation of human resources programs, including programs
related to compensation, benefits, recruitment and employee development. From
September 1989 to June 1994, Mr. Liberson was Vice President, Human Resource
Services for Burger King Corporation.
William J. McDonald Senior Vice President, Brand Management Age 43
Mr. McDonald joined the company in September 1998. He is Senior Vice
President for Brand Management, responsible for the marketing, advertising and
global brand positioning of Capital One's products. From 1993 to 1997, Mr.
McDonald served as Executive Vice President and Chief Marketing Officer at
Boston Chicken, Inc., where he was responsible for marketing and research and
new product development functions, including brand growth strategies for
Boston Market.
Peter Schnall Senior Vice President, Marketing and Analysis Age 35
Mr. Schnall joined Capital One in August 1996 and has been Senior Vice
President, Marketing and Analysis since January 1999. He is responsible for
the marketing, credit policy and portfolio management of Capital One's credit
card and lending businesses in the United States. From August 1994 to July
1996, Mr. Schnall served as a Senior Vice President at the Advisory Board
Company, an advisory firm with practices in financial services and health
care.
David M. Willey Senior Vice President, Finance and Accounting, Age 38
Treasurer and Assistant Secretary
Mr. Willey is Senior Vice President, Finance and Accounting, Treasurer and
Assistant Secretary. He has been employed in various capacities by the company
and its predecessor since September 1989. Mr. Willey is responsible for
capital funding, investments, securitizations and other capital markets
activity and is Chairman of the Asset/Liability Management Committee. Since
January 1999, he has additionally been responsible for various staff
functions, including External Reporting, Finance & Accounting, Corporate
Communications and Performance Management and Purchasing. Mr. Willey is also a
director of the Bank and the Savings Bank.
W. Ronald Dietz Director Age 56
Mr. Dietz is Managing Partner of Customer Contact Solutions LLC, an advisory
firm offering services in a broad range of customer handling and call center
performance areas. He is also President of Charter Associates, Ltd., a firm
engaged in a variety of consulting and venture management activities. He has
been a director of Capital One since February 28, 1995. From 1997 to 1998, Mr.
Dietz was the Chief Executive Officer of Technical Assistance Research Program
in Rosslyn, Virginia, a call center and customer service advisory firm. From
April 1993 to July 1996, he was President and Chief Executive Officer of
Anthem Financial, Inc., an Indianapolis-based financial services company. He
also served as a director of Anthem Financial and as an Executive Vice
President of Anthem's parent company, the Associated Insurance Companies, Inc.
Mr. Dietz is also a director of the Savings Bank.
6
<PAGE>
James A. Flick, Jr. Age 64
Director
Mr. Flick is President and Chief Executive Officer of Dome Corporation,
Baltimore, Maryland, a real estate development and management services
company. He has been a director of Capital One since February 28, 1995. From
October 1991 to January 1995, Mr. Flick was Executive Vice President of Legg
Mason, Inc., Baltimore, Maryland, an investment company. Mr. Flick is also a
director of the Ryland Group, Inc., Bethlehem Steel Credit Affiliate One,
Inc., Bethlehem Steel Credit Affiliate Two, Inc., FTI Consulting, Inc. and
Youth Services International, Inc. Mr. Flick is also a director of the Bank
and the Savings Bank.
Patrick W. Gross Director Age 54
Mr. Gross is a founder of American Management Systems, Inc. ("AMS"),
Fairfax, Virginia, an information technology consulting, software development,
and systems integration firm, and is currently Chairman of its Executive
Committee. He has served as a Principal Executive Officer and Managing
Director of AMS since its incorporation in 1970. Mr. Gross is also Chairman of
the board of directors of Baker and Taylor Holdings, Inc., Charlotte, North
Carolina, a private company, and a director of Computer Network Technology
Corporation, Minneapolis, Minnesota and of Landmark Systems Corporation,
McLean, Virginia, both public companies. He has been a director of Capital One
since February 28, 1995. Mr. Gross is also a director of the Savings Bank.
James V. Kimsey Director Age 59
Mr. Kimsey is the founding Chief Executive Officer and is currently Chairman
Emeritus of America Online, Inc., Dulles, Virginia ("America Online"). He
served as Chairman of the board of directors of America Online from 1985 to
1995. He was also President of America Online from 1985 to January 1991 and
Chief Executive Officer from 1985 to April 1993. Mr. Kimsey is currently
Chairman of the AOL Foundation. He is a director of Batterson Venture Partners
and is on the Board of Advisors of Carousel Capital Partners. He has been a
director of Capital One since February 28, 1995. Mr. Kimsey is also a director
of the Bank.
Stanley I. Westreich Director Age 62
Mr. Westreich has been President of Westfield Realty, Inc., Arlington,
Virginia, a real estate development and construction company since 1965. He
has been a director of Capital One since July 26, 1994. Mr. Westreich is also
a director of the Bank.
Board Meetings
The Board of Directors oversees the business of the company and directs
management of the company. The Board does not involve itself with the day-to-
day operations and implementation of the business. Instead, the Board meets
periodically with management to review the company's performance and its
future business strategy. Members of the Board also continually consult with
management to keep informed about the company's progress. The full Board of
Directors met six times during 1998. Each director attended all of the Board
meetings held during the year.
Committee Meetings
The Board also conducts business through two committees: the Audit Committee
and the Compensation Committee. The Audit Committee met five times during 1998
and the Compensation Committee met seven times. Each member of these
committees attended all of the meetings, except for Mr. Gross, who was absent
from one meeting of the Audit Committee.
7
<PAGE>
The Audit Committee
Members: Messrs. Dietz (Chairman), Flick and Gross. The
Audit Committee recommends the selection of independent
auditors, approves the scope of the audits by the
independent auditors and our internal auditors and reviews
audit findings, accounting policies and compliance
matters. The Audit Committee investigates any audit or
compliance matter brought to its attention. The Audit
Committee also reviews all reports of examination and
management's responses and any transactions between the
company and any of its directors, executive officers or
their affiliates. The Audit Committee is composed entirely
of directors who are not employees of the company and who
are free from any relationships that in the opinion of the
Board of Directors would interfere with their exercise of
independent judgment.
The Compensation Committee
Members: Messrs. Westreich (Chairman) and Kimsey. The
Compensation Committee recommends officers for election or
reelection, and approves all salary levels and incentive
awards for senior management, subject to the Board's
approval of compensation for Messrs. Fairbank and Morris.
The Compensation Committee also administers the company's
Stock Incentive Plan and Stock Purchase Plan. The
Compensation Committee is composed entirely of directors
who are not employees of the company and who are free from
any relationships that in the opinion of the Board of
Directors would interfere with their exercise of
independent judgment.
Compensation of the Board
Annual Fees We compensate directors who are not employees of Capital
One as follows:
. payment of an annual retainer of $20,000;
. payment of $1,000 for each board or committee meeting
attended; and
. reimbursement of expenses to attend meetings.
The chairmen of the Audit and Compensation Committees
receive an additional annual retainer of $4,000. Employees
of the company who serve as directors do not receive any
additional compensation for serving as a director.
Stock/Option We also grant each director who is not an employee of the
Grants company common stock and options under the Directors Plan
as follows:
. at the time an individual first becomes a director, a
one-time restricted stock grant of the lesser of (a)
2,500 shares of common stock and (b) the number of
whole shares of common stock determined by dividing
$50,000 by the fair market value of the common stock on
the date of the grant; and
. each year, a grant of a stock option to purchase 7,000
shares of common stock.
The restrictions on the stock grant prohibit the sale or
transfer of the shares of common stock until one year
after the grant date. The options, which have a ten-year
term, are granted on the date of the annual meeting and
become exercisable in full one year after that date. The
option exercise price is equal to the fair market value of
the common stock on the grant date.
8
<PAGE>
Other Benefits Under our 1994 Deferred Compensation Plan, directors who
are not employees of the company may voluntarily defer all
of their annual fees and receive deferred income benefits.
Directors accounts are credited monthly with an interest
equivalent in an amount determined from time to time by
the company. Directors electing this deferral will begin
to receive their deferred income benefits in cash when
they cease to be directors, or earlier if authorized by
the Compensation Committee. Benefits are generally payable
in monthly installments beginning within 90 days after
retirement and extending no later than the date the
individual reaches age 80. These benefits will be paid to
the beneficiaries or estates of directors who die before
they receive their benefits. Upon a change of control of
the company and unless otherwise directed by a director,
the company shall pay to each director within thirty days
of the change of control, a lump sum cash payment equal to
such director's account balance as of the date of the
change of control.
Related Party Transactions with Directors
American Management Systems, Inc. Transactions
From time to time, the company has retained AMS, a
consulting company specializing in information technology,
applications and systems integration, to provide services.
Mr. Gross, a director of Capital One, is also a director
and principal executive officer of AMS. Capital One and
its subsidiaries entered into an agreement with AMS on
April 5, 1995. Under this agreement, AMS agreed to perform
general consulting and other tasks agreed to through work
orders.
During 1998, Capital One paid AMS a total of $6,232,912
for services under this agreement. The company intends to
continue its relationship with AMS in the future and is
currently negotiating another contract with AMS for
additional consulting services. The company believes that
the terms of existing AMS agreements are, and that any
future arrangements will be, fair and reasonable and no
less favorable to Capital One as those we could obtain
from unrelated third parties.
9
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
The following table summarizes compensation awarded to, earned by or paid to
our Chief Executive Officer and the other four most highly compensated
executive officers for the year ended December 31, 1998 (collectively, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------- ------------
Awards
------------
Securities
Name and Underlying All Other
Principal Position Year Salary Bonus(1) Options Compensation
------------------ ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
RICHARD D. FAIRBANK 1998 $ 0(2) $ 0(3) 400,000(4) $ 0
Chairman of the Board 1997 676,250 0(3) 311,453(2) 38,190
and Chief Executive
Officer................ 1996 635,416 0(3) -- 45,597
NIGEL W. MORRIS 1998 0(2) 0(3) 305,951(4) 0
President, Chief
Operating 1997 497,083 0(3) 207,632(2) 28,072
Officer and Director.... 1996 435,000 0(3) -- 46,916
1998 237,083 128,795(5) 21,919(6) 31,027(7)
MATTHEW J. COOPER 1997 207,500 86,985(8) 69,764(5) 14,042
Senior Vice President... 1996 172,497 77,425(8) 26,400 14,461
JAMES P. DONEHEY 1998 222,814(8) 100,750(5) 35,951(6) 32,775(7)
Senior Vice President
and 1997 194,168(8) 137,750 71,484(5) 14,529
Chief Information
Officer................ 1996 132,002(8) 157,090 28,400 16,072
JOHN G. FINNERAN, JR. 1998 252,500 100,750(5) 33,714(6) 30,018(7)
Senior Vice President,
General 1997 236,250 127,252(8) 74,308(5) 15,648
Counsel and Corporate
Secretary.............. 1996 213,916 156,331(8) 32,400 25,251
</TABLE>
- --------
(1) Bonuses earned for each calendar year are paid during the following
calendar year. Because they reward performance for a particular calendar
year, bonuses are reported for the year in which they are earned rather
than the year in which they are paid.
(2) Under a compensation package approved by the Board of Directors on
December 18, 1997 (EntrepreneurGrant II), Messrs. Fairbank and Morris
agreed to give up their entire salary and all benefits under the Stock
Purchase Plan, the Savings Plan and the company's Unfunded Excess Savings
Plan (the "Excess Savings Plan") through 2000 in exchange for an award of
performance-based options. Under this agreement, Messrs. Fairbank and
Morris were granted 411,453 options and 274,302 options, respectively. The
base salaries that Messrs. Fairbank and Morris would otherwise have
received in 1998 were $690,000 and $520,000, respectively. The company
achieved the performance targets in 1998 and all of these options became
exercisable. As more fully described in footnote (4) below, Mr. Fairbank
and Mr. Morris subsequently agreed to surrender a portion of these vested
options as consideration for new performance-based options
(EntrepreneurGrant III). Under this agreement, Mr. Fairbank surrendered
100,000 options and Mr. Morris surrendered 66,670 options. The
performance-based options granted to Messrs. Fairbank and Morris under
EntrepreneurGrant III are subject to stockholder approval of Item 2 of
this proxy statement. The securities underlying options shown in this
table reflect options granted, net of options surrendered.
10
<PAGE>
(3) Under a compensation package approved by the Board of Directors on
September 15, 1995, Messrs. Fairbank and Morris agreed to give up all
incentive compensation (other than salary and contributions under the
Stock Purchase Plan, the Savings Plan and the Excess Savings Plan) for a
period of five years beginning with the 1995 calendar year in exchange for
performance-based options. The company achieved the performance targets
and all of these options are exercisable.
(4) Includes new stock options and reload options granted under the Stock
Incentive Plan. On June 11, 1998, under the company's EntrepreneurGrant
III program, the Board of Directors approved an award of 400,000 and
266,680 performance-based options to Messrs. Fairbank and Morris,
respectively, in exchange for the surrender of previously vested options,
as more fully discussed in footnote (2) above. These awards are subject to
stockholder approval of Item 2 of this proxy statement and are more fully
discussed on pages 19-20 of "Report on Executive Compensation from the
Compensation Committee."
(5) Under the company's EntrepreneurGrant II program, Messrs. Cooper, Donehey
and Finneran elected to forgo a part of their cash bonuses for three years
beginning 1998, in amounts equal to up to 50% of their annual target
bonus, in exchange for options granted in 1997 (as discussed more fully on
pages 19-20 of the "Report on Executive Compensation from the Compensation
Committee"). The number of options indicated next to their names includes
the following option grants under EntrepreneurGrant II: Mr. Cooper 34,694,
Mr. Donehey 36,908 and Mr. Finneran 36,908. The company achieved the
performance targets in 1998 and all of these performance-based options are
exercisable. Under the company's EntrepreneurGrant III, Messrs. Cooper,
Donehey and Finneran elected to forgo an additional part of their cash
bonuses for three years beginning 1998, in amounts equal to up to the 50%
of their annual target bonus (in addition to amounts previously forgone
under EntrepreneurGrant II) in exchange for performance-based options, as
more fully described in footnote (6) below. Cash bonuses otherwise payable
to Messrs. Cooper, Donehey and Finneran were reduced in 1998 by the
following amounts: Mr. Donehey $130,250, Mr. Cooper $85,705 and Mr.
Finneran $130,250. The amounts shown in this table are cash bonuses
awarded, net of amounts forgone.
(6) Includes new stock options and reload options granted under the Stock
Incentive Plan. Under the company's EntrepreneurGrant III, Messrs. Cooper,
Donehey and Finneran received the following option grants: Mr. Cooper
6,178, Mr. Donehey 16,431 and Mr. Finneran 16,431.
(7) All other compensation consists of the amount of contributions the company
made under the Stock Purchase Plan and the Savings Plan and credits to the
account of the employee under the Excess Savings Plan. For 1998, matching
company contributions equal to 17.65% of the employee contributions under
the Stock Purchase Plan were as follows: Mr. Cooper $6,277, Mr. Donehey
$4,457 and Mr. Finneran $552. For 1998, the company contributed $9,600
under the Savings Plan for each of these executive officers. For 1998, the
amounts of matching credits under the Excess Savings Plan were: Mr. Cooper
$15,150, Mr. Donehey $18,718 and Mr. Finneran $19,867.
(8) Under the company's 1995 Special Option Program, Messrs. Cooper and
Finneran elected to forgo a part of their cash bonuses and Mr. Donehey
elected to forgo a part of his annual salary for three years beginning
October 1995, in amounts equal to 25% of their 1995 base salaries, in
exchange for options granted in 1995. Cash bonuses otherwise payable to
Mr. Cooper and Mr. Finneran were reduced, and Mr. Donehey's annual salary
was reduced, in each of 1997 and 1996 by the following amounts: Mr. Cooper
$42,500, Mr. Finneran $49,998, and Mr. Donehey $37,498. Mr. Donehey also
gave up $29,686 in 1998. The amounts shown in this table are cash bonuses
awarded and salary paid, net of amounts forgone.
11
<PAGE>
Option Grant Table
The following table sets forth information concerning grants of stock
options made to the Named Executive Officers in 1998.
1998 OPTION GRANTS
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------- Potential Realizable Value
Number of % of Total at Assumed Annual Rates of
Securities Options Stock Price Appreciation
Underlying Granted to Exercise For Option Term(2)
Options Associates for the Price per Expiration ------------------------------
Name Granted 1998 Fiscal Year Share(1) Date 5% 10%
---- ---------- ------------------ --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard D. Fairbank..... 400,000(3) 11.60% $101.3125 6/11/08 $ 0(4) $ 0(4)
Nigel W. Morris......... 266,680(3) 7.73% 101.3125 6/11/08 0(4) 0(4)
39,271(5) 1.14% 99.8750 11/15/04 1,355,334 3,081,617
Matthew J. Cooper....... 141(5) * 92.7815 9/15/05 5,703 13,444
6,178(3) .18% 101.3125 6/11/08 0(4) 0(4)
15,600(6) .45% 111.2500 12/17/08 1,091,447 2,765,940
James P. Donehey........ 199(5) * 59.4688 11/15/04 4,683 10,864
591(5) .02% 102.8130 11/15/04 23,016 53,036
792(5) .02% 92.1255 9/15/05 31,812 74,982
16,431(3) .48% 101.3125 6/11/08 0(4) 0(4)
571(5) .02% 120.7190 11/15/04 24,958 57,126
845(5) .02% 94.3125 11/15/04 27,539 62,615
922(5) .03% 99.3125 11/15/04 31,820 72,350
15,600(6) .45% 111.2500 12/17/08 1,091,447 2,765,940
John G. Finneran, Jr.... 406(5) .01% 100.2190 9/15/05 17,740 41,814
16,431(3) .48% 101.3125 6/11/08 0(4) 0(4)
1,277(5) .04% 113.3125 9/15/05 60,570 141,794
15,600(6) .45% 111.2500 12/17/08 1,091,447 2,765,940
</TABLE>
- --------
* Less than .01% of total options granted to associates in 1998.
(1) Equal to the fair market value of the common stock on the date of grant
determined on the basis of the average of the high and low sales prices as
reported by the New York Stock Exchange Composite Transaction Tape.
(2) The dollar amounts under these columns are calculated based on assumed
rates of stock appreciation prescribed by the SEC and are not intended to
be a forecast of possible future stock price appreciation.
(3) On June 11, 1998, the Board of Directors approved awards of performance-
based options to Messrs. Fairbank and Morris under EntrepreneurGrant III.
Messrs. Fairbank and Morris were granted these awards in exchange for
their agreement to forgo a portion of their fully vested, in-the-money
options from their December 18, 1997 grant. On June 11, 1998, the Board of
Directors also approved awards of performance-based options to Messrs.
Cooper, Donehey and Finneran under EntrepreneurGrant III. Under this
program, these executive officers elected to give up a portion of their
cash bonuses (up to the 50% of their annual target bonuses not previously
forgone under EntrepreneurGrant II) in exchange for this performance-based
option grant. All of these performance-based options vest if the fair
market value of the common stock reaches and remains at or above $175.00
for at least ten trading days in any 30 calendar-day period, on or before
June 11, 2001. These options also vest immediately upon a change of
control of the company on or before June 11, 2001. The performance-based
options granted to Messrs. Fairbank and Morris under EntrepreneurGrant III
are subject to stockholder approval of Item 2 of this proxy statement.
EntrepreneurGrant III is more fully described on pages 19-20 of "Report on
Executive Compensation from the Compensation Committee."
12
<PAGE>
(4) These dollar amounts reflect the value of only that portion of the options
that will become exercisable by June 11, 2001 based on the stock
performance vesting criteria described in footnote (3) above. At the
assumed 5% and 10% rates of stock price appreciation, these options will
not become exercisable and would have no value.
(5) These options are reload options that were granted under the Stock
Incentive Plan. See footnote (6) below. Reload options are exercisable, in
full, six months after their grant date and immediately upon a change of
control.
(6) These options were granted under the Stock Incentive Plan. The options
vest in one-third annual increments and become fully exercisable upon a
change in control. These options include a reload feature, under which the
executive will receive an additional option grant at the time he
surrenders already owned shares of the common stock as payment of the
exercise price of this option. One reload option with an exercise price
equal to the fair market value on the date of grant is issued for each
such share surrendered. Rather than enhance his or her holdings, reload
options are intended to enable an employee who exercises an option by
tendering previously owned shares to remain in the same economic position,
or "equity position," with respect to potential appreciation in the common
stock as if he or she had continued to hold the original option
unexercised. As such, reload options meet the company's objective of
fostering continued stock ownership by our employees, but the receipt of
reload options by any such employee does not result in a net increase in
his or her equity position.
Option Exercise and Option Value Table
The following table sets forth information concerning exercises of stock
options made by the Named Executive Officers in 1998 and the values at 1998
year end of unexercised options held by the Named Executive Officers.
1998 OPTION EXERCISES AND OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at 1998 Year End at 1998 Year End
Shares Acquired Exercisable/ Exercisable/
Name on Exercise Value Realized(1) Unexercisable Unexercisable(2)
---- --------------- ----------------- ------------------------ -----------------------
<S> <C> <C> <C> <C>
Richard D. Fairbank..... 0 $ 0 2,604,260/598,202 $232,475,987/26,161,798
Nigel W. Morris......... 245,137 20,560,866 1,491,033/438,086 130,278,858/18,105,314
Matthew J. Cooper....... 450 28,616 145,525/61,646 12,273,896/3,204,423
James P. Donehey........ 22,098 1,844,499 105,181/75,571 8,127,173/3,499,007
John G. Finneran, Jr.... 38,390 3,089,340 110,780/79,842 8,671,721/3,859,006
</TABLE>
- --------
(1) The value realized is the net value of the shares (market price less the
exercise price) received.
(2) In-the-Money Options are those for which the 1998 year-end market price of
the underlying shares of common stock exceeded the exercise price of the
option. The value of the In-the-Money Options is the difference between
the market price (determined on the basis of the average of the high and
low price as reported by the New York Stock Exchange Composite Transaction
Tape on the last business day of 1998) of the common stock ($116.78 per
share) and the exercise price of the option multiplied by the number of
shares underlying the option.
13
<PAGE>
Company Arrangements with Executive Officers
Employment The company does not have employment agreements with any
Agreements of its executive officers. The compensation arrangements
with these officers, however, encourage their continued
employment with the company.
Change of Control All of the executive officers identified on pages 5-6 of
Employment "Information About Our Directors and Executive Officers"
Agreements have change of control employment agreements. The
agreements are designed to assure that if a change of
control of the company occurs, our business will continue
with minimal disruption because these agreements provide
greater employment security to key operational and
management executives. A change of control is defined as
the acquisition of 20% or more of the company's common
stock or the combined voting power of the voting
securities by a person or group, certain changes in the
majority of the Board of Directors, certain mergers
involving the company, liquidation, dissolution or the
sale of all or substantially all of the company's assets.
The agreements with Messrs Fairbank, Morris and Finneran
entitle them to receive (i) their base salary and a pro
rata bonus through the date of termination, (ii) a lump
sum payment of three times their salary and highest
bonus, (iii) any deferred compensation and accrued
vacation not yet paid and (iv) certain special retirement
benefits, if within three years of the change of control
they are terminated without cause, or if they voluntarily
leave for good reason (which includes leaving for any
reason during the 30-day period beginning one year after
a change in control). The agreements also provide a tax
gross-up feature to cover excise or similar taxes
(including excise taxes and income taxes imposed upon the
gross-up payment) that the officer may have to pay
resulting from payments received due to a change of
control.
All other executive officers identified on pages 5-6 of
"Information About Our Directors and Executive Officers"
have change of control agreements that entitle them to
receive (i) their base salary and a pro rata bonus
through the date of termination, (ii) a lump sum payment
of two times their salary and highest bonus, (iii) any
deferred compensation and accrued vacation not yet paid
and (iv) certain special retirement benefits, if within
two years of the change of control they are terminated
without cause, or if they voluntarily leave for a good
cause (but which does not include leaving for any reason
during a specified period). The agreements also provide a
tax gross-up feature to cover excise or similar taxes
(including excise taxes and income taxes imposed upon the
gross-up payment) that the officer may have to pay
resulting from payments received due to a change of
control.
Pension Plans
General In 1995, the company made a number of changes to its
pension and deferred compensation plans. Among the
changes were that we stopped making further pay-based
contributions to the company's cash balance pension plan
(the "Cash Balance Pension Plan") and the related excess
cash balance pension plan (the "Excess Cash Balance
Plan"). We also eliminated the Executive Employees
Supplemental Retirement Plan and the ability of executive
officers to defer compensation under the 1994 Deferred
Compensation Plan.
14
<PAGE>
Cash Balance Pension Plan and Excess Cash Balance Plan
Before it was amended in November 1995, the Cash Balance
Pension Plan covered all full-time salaried employees of
Capital One and its subsidiaries. The Cash Balance
Pension Plan is a type of defined benefit plan intended
to qualify under Section 401(a) of the Internal Revenue
Code under which participants were credited with pay-
based credits equal to 4% of compensation for
participants with less than 20 years of service, and 5%
of compensation for participants with 20 or more years of
service. Service with the company's predecessor or one of
its subsidiaries was recognized as service with Capital
One for all purposes under the plan. Compensation
generally included all annual paid compensation up to
$150,000, as indexed for cost of living increases.
Participants are fully vested in plan benefits after five
years of service.
Before it was amended in November 1995, the Excess Cash
Balance Plan was available to certain executive officers
(including the Named Executive Officers). The Excess Cash
Balance Plan provided additional benefits to participants
to the extent benefits under the Cash Balance Pension
Plan were restricted because of limitations imposed by
provisions of the Internal Revenue Code.
In November 1995, we amended the Cash Balance Pension
Plan and the Excess Cash Balance Plan to eliminate
further pay-based credits to participants as of December
31, 1995, and to provide that there would be no new
participants in such plans on or after January 1, 1996.
Interest credits continue to be credited on plan balances
on a quarterly basis. Based on the account balance of
each Named Executive Officer as of January 1, 1999, the
projected annual retirement benefits under the Cash
Balance Pension Plan and the Excess Cash Balance Plan,
respectively, are $288 and $987 for Mr. Fairbank, $435
and $954 for Mr. Morris, $1,406 and $2,197 for Mr.
Cooper, $168 and $188 for Mr. Donehey and $199 and $352
for Mr. Finneran. Messrs. Fairbank and Morris are
currently credited with ten years of service under the
plans; Mr. Cooper is currently credited with nine years
of service under the plans; and Messrs. Donehey and
Finneran are currently credited with four years of
service under the plans. These projected benefits assume
interest credits under the Cash Balance Plan to be 5.37%
per annum and under the Excess Cash Balance Plan to be
7.75% per annum.
In lieu of the pay-based credits under the Cash Balance
Pension Plan and the Excess Cash Balance Plan, beginning
January 1, 1996, we began making automatic contributions
equal to 3% of an employee's eligible compensation to the
employee's account in the Savings Plan and, if
applicable, the Excess Savings Plan.
15
<PAGE>
Performance Graph
The following graph compares cumulative total stockholder return on our
common stock with the S&P Composite 500 Stock Index and an industry index, the
S&P Financial Composite Index, for the period from November 18, 1994 (the
first Friday following the date on which our common stock began trading on the
New York Stock Exchange) to December 31, 1998. The graph assumes that the
value of the investment in the common stock and each index was $100 at
November 18, 1994 and that all dividends were reinvested. The stock price
performance on the graph below is not necessarily indicative of future
performance.
[PERFORMANCE GRAPH APPEARS HERE]
16
<PAGE>
REPORT ON EXECUTIVE COMPENSATION
FROM THE COMPENSATION COMMITTEE
As the Compensation Committee of the Board of Directors, we offer this
report to describe the compensation philosophy and policies underlying our
recommendations to the Board of Directors for the 1998 compensation package of
the company's executive officers generally and the Chief Executive Officer and
the President and Chief Operating Officer more specifically. Please read this
report carefully because certain features of the Chief Executive Officer's and
the President and Chief Operating Officer's compensation arrangements are
subject to your approval of the amended Stock Incentive Plan at this year's
annual meeting.
Compensation Philosophy
We have designed and adopted a compensation program for the company's
executives based on three underlying principles: recruitment and retention of
top executive talent, value creation and flexibility. Although we believe that
executive compensation should be market based, to enable us to recruit and
retain top performers with the necessary skills and talent, the compensation
package has to provide the executive with an opportunity for compensation to
exceed market standards. To this end, we have linked compensation to
stockholder value by using stock options as the principal vehicle to achieve
an above-market compensation opportunity. As a result, the compensation
packages reward the accomplishments of management only to the extent such
accomplishments create stockholder wealth. We believe that such a stock
option-based program best aligns the interests of management with the
interests of stockholders and is in the best interests of Capital One and its
stockholders. Finally, we believe that the company's compensation program must
maintain the flexibility to respond rapidly to market opportunities.
Accordingly, we have avoided the use of rigid performance criteria under the
plans, as such criteria could interfere with the company's business
strategies.
Methodology for Determining Compensation
Compensation Comparators. In determining the overall amount of compensation
to be paid in 1998, we considered the compensation and benefits paid to
similar executives within (i) those organizations against whom Capital One
competes to recruit executive officers, (ii) companies in the financial
services sector generally and (iii) other credit card companies.
Surveys. We reviewed surveys, published by leading compensation and benefits
consulting firms, showing compensation levels for executives in the group of
comparable companies. In addition, with respect to the compensation of the
Chief Executive Officer and the President and Chief Operating Officer, we
reviewed information presented by our independent compensation consultants.
Entrepreneurial Approach. To support an entrepreneurial approach, we
developed a compensation package that emphasizes the use of stock-based
incentives. Stock options are currently the only form of long-term incentive
provided to our executives and, as a result, management can achieve
compensation that is above market levels for executives in comparable
companies only if the value of our company's common stock increases.
Tier Approach. Capital One uses management "Tiers" in determining the
overall compensation of its associates, including the executive officers, and
assigns each executive officer to a designated Tier based on job
responsibility and such officer's contribution to the management of the
company.
17
<PAGE>
Components of the Executive Compensation Program
Executives are eligible to receive compensation in three forms:
. base salary,
. annual cash incentive awards, and
. annual stock option awards.
Each compensation component is offered to executives in various
combinations, depending on the executive's Tier. The combined package provides
a total compensation opportunity that places executive compensation at
approximately the 75th percentile in the range of total compensation paid to
comparable executives at comparable companies.
Base Salary. Each management Tier has a salary band. The salary band defines
the minimum and maximum salary levels for the Tier. Targeted salaries are
based on the 50th percentile for executives at comparable companies.
Individual salaries within the band reflect the officer's scope of
responsibility, prior experience and accomplishments, and other individual
factors, as well as market data on salary levels for comparable positions.
Base salaries are adjusted annually within the salary bands depending on
individual performance, and are determined based on subjective evaluations of
various factors, including recent performance and time in job. The company
expects to adhere rigorously to the 50th percentile level for executive
officers' salaries and therefore adjustments in targeted base salaries will be
limited only to amounts necessary to maintain such level.
Annual Cash Incentives. The compensation program also provides executive
officers with annual cash option incentive awards based on individual and
corporate performance criteria. Annual cash incentive targets in 1998 were a
specified percentage (between 30% and 50%) of the base salary amount for each
Tier such that total compensation (base salary and annual cash incentives) for
executive officers is at approximately the 65th percentile of comparable
companies. Actual cash incentive awards are determined based on a combination
of corporate and individual performance and may be greater or less than the
targeted annual incentive. Annual incentives can be as high as 200% of the
target levels when performance exceeds the targeted criteria. Performance
below the threshold level results in no award.
Individual performance is based on subjective evaluations of factors similar
to the criteria specified above for adjustments in base salaries. For
corporate performance, we maintain a flexible approach to performance
measurement so that we are able to respond appropriately to emerging and
evolving business opportunities. The corporate performance criteria for 1998
annual incentives included earnings per share, marketing expenses, loan and
account growth, credit quality, customer satisfaction, marketing innovation,
operating efficiency, associate management, technological innovation,
recruiting, flexibility, management integration and other factors.
Annual Stock Option Awards. Stock options provide executive officers with a
strong economic interest to maximize stockholder value, and align the
interests of the executive officers with those of stockholders. Stock option
grants compensate management only to the extent value in the form of stock
price appreciation has been created. Stock options are granted with an
exercise price equal to the market price on the grant date and therefore have
no economic value unless Capital One's stock price increases. Given the
company's emphasis on stock options in the overall compensation package, an
executive officer's total compensation will be highly dependent on the
performance of the common stock. This compensation component is intended to
encourage individual commitment to corporate business strategies and to focus
executives on improving stock performance.
Stock option targets are established for each Tier. Individual grants are
determined based on individual performance and can be increased or decreased
by as much as 50% from the target levels. In evaluating individual
performance, we consider an officer's responsibilities, recent performance and
accomplishments and the expected future contribution of the officer to Capital
One's performance. We determine individual performance based on a subjective
evaluation of these factors.
18
<PAGE>
EntrepreneurGrants. To link more strongly the company's interest with that
of its stockholders and more importantly, to retain our management team, we
have developed a series of option grants to senior management (in addition to
the annual stock incentive grants) under which managers can elect to give up
some form of compensation in exchange for an additional option grant. These
additional grants are often referred to as "EntrepreneurGrants." Beginning
with the first EntrepreneurGrant in 1995, these programs have been designed
with the aid of our independent compensation consultants to resemble the
compensation structures of highly entrepreneurial companies and are highly
dependent on the performance of the common stock.
The company has conducted three separate EntrepreneurGrant programs for its
executive officers, plus a "catch-up" grant for newly hired or promoted
executive officers. Each EntrepreneurGrant has the following features:
. Executive officers may elect to give up a portion of their base
salary or incentive compensation, including an assumed amount of
forgone company match under the company's associate savings plan,
for two to five years in exchange for options.
. The exercise price of such options is the fair market value of the
company's common stock on the date of the grant, as determined by
the average of the high and low sales prices of the common stock on
the New York Stock Exchange on the relevant date.
. Depending on the program, options vest either (i) in full upon the
company's stock price reaching a specified target prior to a
specific date, (ii) in full on a specific date or (iii) in one-third
annual increments. In addition, options vest immediately upon a
change of control of the company.
. If vesting occurs upon the company's stock reaching a specified
price, the target price represents an average increase of 20%
annually through the vesting deadline.
. Options are exercisable for a period of ten years from the date of
grant. Options may expire earlier if the executive officer
terminates employment, dies or suffers a disability.
. All of the options are non-statutory stock options that do not
receive favorable tax treatment under the Internal Revenue Code.
We offered our first EntrepreneurGrant program on September 15, 1995 to the
company's senior management. All of the executive officers named in the proxy
statement that year (six at the time, all but one of whom are still at the
company) elected to forgo the maximum allowable amount in exchange for
options. Based on the success of EntrepreneurGrant I, on December 18, 1997, we
offered a similar option program to our senior executives and Tier 4 managers,
EntrepreneurGrant II, which focused more on stock price performance and the
retention benefits to the company. The EntrepreneurGrant II options granted to
our senior executives vested when the company's stock price reached and
remained at or above $84.00 per share in 1998 and the options granted to Tier
4 managers will vest in full on December 18, 2000, or immediately upon a
change in control. Because we believe that stock option grants continue to be
extremely important to our overall compensation package, on June 11, 1998, we
granted new performance-based options to our senior executives under
EntrepreneurGrant III. These options will vest if the company's stock price
reaches and remains at or above $175.00 per share for at least ten trading
days in a 30 calendar-day period prior to June 11, 2001, or immediately upon a
change of control. If the company's stock price does not reach this threshold
within the given timeframe, these options will expire without vesting. The
performance-based options granted to the Chief Executive Officer and to the
President and Chief Operating Officer under EntrepreneurGrant III are subject
to stockholder approval of Item 2 of this proxy statement.
19
<PAGE>
The following table illustrates the participation levels, compensation
forgone and number of options granted pursuant to our three EntrepreneurGrant
programs offered to senior management since 1995.
ENTREPRENEURGRANT PROGRAMS
<TABLE>
<CAPTION>
Percent of Compensation
Executives Forgone Options
Program Grant Date Participating (approximate) Granted
------- ---------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
EntrepreneurGrant(1).... September 15, 1995 87% $10.1 million 2,789,632
EntrepreneurGrant
II(1).................. December 18, 1997 95% $ 9.4 million 1,200,451(2)
EntrepreneurGrant
III(3)................. June 11, 1998 95% $11.7 million(4) 888,706
EntrepreneurGrant II December 17, 1998 74% $ 1.4 million 52,937
catch-up grant(5)...... and January 4, 1999
</TABLE>
- --------
(1) Offered to senior management (Tiers 4 and above)
(2) Excludes 166,670 options subsequently surrendered by Messrs. Fairbank and
Morris.
(3) Offered to senior executives (Tiers 3 and above).
(4) Includes value of 100,000 vested options surrendered by Mr. Fairbank and
66,670 vested options surrendered by Mr. Morris.
(5) Offered to senior management (Tiers 3 and 4) promoted or hired since
EntrepreneurGrant II.
Deductibility of Compensation Expenses
Section 162(m) of the Internal Revenue Code provides that compensation that
is paid to the chief executive officer or to any of the four most highly
compensated executive officers (other than the chief executive officer) in
excess of $1 million is generally not deductible by the company for federal
income tax purposes unless it qualifies as "performance-based" compensation.
To qualify as "performance-based" under Section 162(m), compensation payments
must be made from a plan that is administered by a committee of outside
directors and must be based on the achievement of objective performance goals.
In addition, the material terms of the plan must be disclosed to and approved
by stockholders, and the Committee must certify that the performance goals
have been achieved. Committee certification is not required, however, if the
compensation is attributable solely to the increase in the value of the
Company's stock.
The Committee has considered the impact of this tax code provision in
designing the company's compensation plans. While we believe it is more
important to have executive officers focused on the business opportunities
afforded by the company's information-based strategies rather than to use
inappropriate measures to capture the benefits of the tax deduction, the
Committee has and intends in the future to take such steps as it deems
reasonably practicable to minimize the impact of Section 162(m). To this end,
the performance-based options granted to Messrs. Fairbank and Morris under
EntrepreneurGrant III are subject to stockholder approval of Item 2 of this
proxy statement. If the stockholders approve Item 2, these options will
qualify as "performance-based" and Section 162(m) will not prevent the company
from deducting the expense associated with these options at the time of their
exercise.
The Compensation Committee
Stanley I. Westreich (Chairman)
James V. Kimsey
20
<PAGE>
ELECTION OF DIRECTORS
(Item 1 on the Proxy Card)
The Board of Directors is divided into three classes. At each annual meeting
the term of one class expires. Directors in each class are elected to serve
for three-year terms. At the 1997 annual meeting, Richard D. Fairbank and
Stanley I. Westreich were elected to serve on the Board of Directors for
three-year terms expiring at the annual meeting to be held in 2000. At the
1998 Annual Meeting, Nigel W. Morris and W. Ronald Dietz were elected to serve
on the Board of Directors for three-year terms expiring at the annual meeting
to be held in 2001. All of the current directors began serving as directors as
of the close of business on February 28, 1995, except Mr. Fairbank and Mr.
Westreich, who have served as directors since July 26, 1994.
The nominees for re-election this year are James A. Flick, Patrick W. Gross
and James V. Kimsey. Each has consented to serve a three-year term. Messrs.
Flick, Gross and Kimsey have been directors of the company since February 28,
1995.
In the event a nominee should not continue to be available for election, the
Board may designate a substitute as a nominee. Proxies will be voted for the
election of such substitute. As of the date of this proxy statement, the Board
of Directors has no reason to believe that any of the nominees will be unable
or unwilling to serve.
Information about the three proposed nominees for election as directors, and
about each other current director whose term will continue after the annual
meeting, is set forth under "Information About Our Directors and Executive
Officers" starting on page 5 of this proxy statement.
Directors will be elected by a plurality of the votes cast for the election
of directors at the meeting. Cumulative voting is not permitted.
The Board recommends a vote "FOR" each of these director nominees.
21
<PAGE>
APPROVAL OF THE 1994 STOCK INCENTIVE PLAN, AS AMENDED
(Item 2 on the Proxy Card)
The Board of Directors is recommending your approval of the Stock Incentive
Plan as it has been amended (i) to increase by 3,250,000 the number of shares
available for issuance under the plan and (ii) to clarify that all employees
of the company are eligible to participate in the plan. Approval of the plan
will also constitute approval of the option grants to Mr. Fairbank, our
Chairman and Chief Executive Officer, and Mr. Morris, our President and Chief
Operating Officer, under EntrepreneurGrant III, which will remain outstanding
if and only if the number of shares available for issuance under the plan is
increased as set forth above.
We have summarized below the amendments to the Stock Incentive Plan and the
reasons why we are recommending approval of the plan as amended. We also
summarize below the material provisions of the Stock Incentive Plan, which
summary is qualified by reference to the text of the plan attached to this
proxy statement as Appendix I.
Brief Summary The Stock Incentive Plan currently authorizes the issuance
of up to 10,620,880 shares of common stock. On January 22,
1999, the Board of Directors approved an amendment to the
Stock Incentive Plan to increase the number of shares
reserved for issuance under the plan by 3,250,000 shares
to 13,870,880. Due to prior stock option and restricted
stock grants, as of December 31, 1998, only 895,674 shares
remained available for issuance under the plan to the
company's employees (without reduction for the 666,680
shares issuable under the option grants to Mr. Fairbank
and Mr. Morris under EntrepreneurGrant III). Messrs.
Fairbank and Morris have agreed that the stock options
granted to them under EntrepreneurGrant III are subject to
forfeiture if this proposed amendment to the plan is not
approved. Therefore, by approving the plan, as amended,
you will be approving these grants as well. Currently, the
terms of the Stock Incentive Plan provide that any "key
employee" of the company is eligible to receive an award
under the Plan. In exercising its administrative
responsibilities under the Plan, the Compensation
Committee (with the support of the Board of Directors) has
considered every employee as potentially "key" in terms of
the employee's ability to contribute to the profits or
growth of the company. By stating specifically that all
employees are eligible to receive awards, the proposed
amendment to the plan would conform the language of the
plan to this interpretation and would allow the company to
continue implementing its compensation philosophy for
employees at all levels.
Purpose of these Amendments
The Board of Directors strongly recommends your approval
of the plan. The Board believes that stock option grants
are extremely important to the company's overall
compensation package and to the continued success of the
company. To recruit and, more importantly, to retain top
performers with the skills and talent necessary to succeed
with the company's strategy, the compensation package
offered to our executives must provide an opportunity for
compensation that exceeds market standards. To this end,
the Board of Directors has linked executive compensation
to stockholder value by using stock options as the
principal vehicle to achieve this above-market
compensation opportunity. Stock options provide executive
officers a strong economic interest in maximizing
stockholder value and align their interests with that of
stockholders. Given the company's emphasis on stock
options in the overall compensation package, an executive
officer's total compensation will be highly dependent on
the performance of the company's common stock.
22
<PAGE>
This compensation program encourages the individual
commitment of all senior management to corporate business
strategies and focuses executives on improving stock
performance.
The company also grants options from time to time to its
non-executive employees. These options may be in the form
of annual bonuses to Tier 5 and 6 employees or through
periodic grants like the company's OneGrant of April 1998,
under which the Compensation Committee granted options to
purchase 50 shares to all Capital One Tier 6, 7 and 8
employees. The Board of Directors strongly believes that
such programs are important to link the interests of all
of the company's employees with that of its stockholders
and to recruit and retain the most qualified employees for
the company. Clarifying the eligibility requirements under
the Stock Incentive Plan will enable the company to
fulfill this goal.
Dilution of options offset by Stock Repurchases
On July 10, 1997, the Board of Directors approved a
program to repurchase up to 2,000,000 shares of common
stock in order to offset partially the dilutive and
earnings per share impact of new issuances of common stock
under the company's various stock plans, including the
Stock Incentive Plan. On July 30, 1998, the Board of
Directors increased the number of shares authorized for
repurchase by 1,500,000 shares, for a total program to
repurchase up to 3,500,000 shares. As of March 15, 1999,
the company had repurchased 2,262,500 shares under this
program. The company uses these repurchased shares for
issuances under the Stock Incentive Plan and other benefit
plans.
Stockholder approval needed for tax deductibility
Stockholder approval of the material terms of the Stock
Incentive Plan is required so that we generally can deduct
for federal income tax purposes the compensation expense
associated with options granted under the Stock Incentive
Plan to our senior executives who are covered by Section
162(m) of the Internal Revenue Code. By approving the
material terms of the Stock Incentive Plan, as amended,
you will be also be approving the options previously
granted to Mr. Fairbank, our Chairman and Chief Executive
Officer, and Mr. Morris, our President and Chief Operating
Officer, under EntrepreneurGrant III. Stockholder approval
of the specific option grants to Messrs. Fairbank and
Morris is necessary for deductibility for federal income
tax purposes of the compensation expense associated with
these options. If this amendment is not adopted, the
options granted to Messrs. Fairbank and Morris under
EntrepreneurGrant III, will terminate in full. See "Report
on Executive Compensation from the Compensation
Committee--Deductibility of Compensation Expenses" on page
20 of the Proxy Statement.
Description of the Stock Incentive Plan
The Stock Incentive Plan currently authorizes the issuance of up to
10,620,880 shares of common stock and, as amended, will authorize the issuance
of up to 13,870,880 shares of common stock. The plan is administered by the
Compensation Committee of the Board of Directors. Executive officers
(including the Named Executive Officers) and all other company employees are
eligible to participate in the plan. As of December 31, 1998, the company had
10,073 full-time and 359 part-time employees. The Stock Incentive Plan is
intended to provide a means for employees to increase their personal financial
interest in the company, thereby stimulating the efforts of these employees
and strengthening their desire to remain with the company. The Stock Incentive
Plan terminates on October 27, 2004, unless sooner terminated by the Board of
Directors.
23
<PAGE>
The Board of Directors may amend the Stock Incentive Plan in such respects
as it deems advisable; provided that, if and to the extent required by the
Internal Revenue Code, the stockholders of Capital One must approve any
amendment that would (i) materially increase the benefits accruing to
participants under the plan, (ii) materially increase the number of shares of
common stock that may be issued under the plan, or (iii) materially expand the
class of persons eligible for participation in the plan.
Stock Options. Options to purchase shares of common stock granted under the
Stock Incentive Plan may be incentive stock options that qualify for favorable
income tax treatment or nonstatutory stock options. The purchase price of
common stock covered by an option may not be less than 100% (or, in the case
of an incentive stock option granted to a 10% stockholder, 110%) of the fair
market value of the common stock on the date of the option grant. The value of
incentive stock options, based on the exercise price, which can be exercisable
for the first time in any calendar year under the Stock Incentive Plan or any
other similar plan maintained by the company is limited to $100,000.
Options may be exercised only at such times as may be specified by the
Compensation Committee in the optionee's stock option agreement. Generally, an
incentive stock option shall not be exercisable after the first to occur of
(i) ten years (or, in the case of an incentive stock option granted to a 10%
stockholder, five years) from the date on which the incentive stock option was
granted, (ii) three months from the optionee's retirement or termination of
employment for reasons other than death or disability, or (iii) one year from
the optionee's retirement or termination of employment on account of death or
disability. The Committee may grant options with more liberal exercise
provisions provided that the optionee must consent to the exercise provisions
if such provisions would cause the incentive stock option to lose its
favorable tax treatment. The Committee also may grant options with a provision
that an option not otherwise exercisable will vest upon a change of control,
and/or that restrictions on stock options will lapse, upon a change of
control.
If the option so provides, an optionee exercising an option may pay the
purchase price in cash; by delivering shares of common stock that were held by
the optionee for at least six months; by delivering a promissory note; by
delivering an exercise notice together with irrevocable instructions to a
broker to promptly deliver to the company the amount of sale or loan proceeds
from the option shares to pay the exercise price; or by such other methods of
exercise as may be approved by the Committee from time to time. The Committee
may, in its discretion, provide that an employee who exercises an option by
delivering already-owned shares of common stock will automatically be granted
a new option in an amount equal to the number of shares delivered to exercise
the option with an exercise price equal to the fair market value of the common
stock on the date of delivery and otherwise having terms that are generally
the same as the option that is exercised (a "reload option"), except that such
reload options may not have a reload feature. The Committee may, in its
discretion, include reload option rights in an option when granted or amend an
outstanding option to grant reload option rights.
Stock Appreciation Rights. The Compensation Committee may award stock
appreciation rights with an incentive or nonstatutory stock option, or the
Committee may subsequently award and attach stock appreciation rights to a
previously awarded nonstatutory stock option, and impose such conditions upon
their exercise as it deems appropriate. When the stock appreciation right is
exercisable, the holder may surrender all or a portion of his unexercised
stock appreciation right and receive in exchange an amount equal to the excess
of (i) the fair market value on the date of exercise of the common stock
covered by the surrendered portion of the stock appreciation right over (ii)
the exercise price of the common stock under the related option. The Committee
may limit the amount that can be received when a stock appreciation right is
exercised. When a stock appreciation right is exercised, the corresponding
option, or portion thereof, will no longer be exercisable. Similarly, when an
option is exercised, any stock appreciation rights attached to the option will
no longer be exercisable. The company's obligation arising upon the exercise
of a stock appreciation right may be paid in common stock or in cash, or in
any combination of the two, as the Committee may determine. Stock appreciation
rights may be exercised only when the underlying option is exercisable.
Restricted Stock. Restricted stock issued pursuant to the Stock Incentive
Plan is subject to the following general restrictions: (i) none of such shares
may be sold, transferred, pledged, or otherwise encumbered or
24
<PAGE>
disposed of until the restrictions on such shares shall have lapsed or been
removed under the provisions of the plan, and (ii) if a holder of restricted
stock ceases to be employed by the company, such holder will forfeit any
shares of restricted stock on which the restrictions have not lapsed or been
otherwise removed.
The Committee establishes as to each share of restricted stock issued under
the Stock Incentive Plan the terms and conditions upon which the restrictions
on such shares shall lapse. Such terms and conditions may include, without
limitation, the lapsing of such restrictions at the end of a specified period
of time, the meeting of performance goals, or as a result of the disability,
death or retirement of the recipient or a change of control. In addition, the
Committee may at any time, in its sole discretion, accelerate the time at
which any or all restrictions will lapse or remove any and all such
restrictions.
Incentive Stock. The Committee may establish performance programs with fixed
goals and designate employees as eligible to receive incentive stock if the
goals are achieved. Incentive stock will be issued only in accordance with the
program established by the Committee. More than one performance program may be
established by the Committee, such programs may operate concurrently or for
varied periods of time, and a participant may participate in more than one
program at the same time. A participant who is eligible to receive incentive
stock has no rights as a stockholder until incentive shares are received.
Individual Award Limits. The maximum number of shares with respect to which
nonstatutory stock options or stock appreciation rights may be granted under
the plan in any calendar year to an eligible employee are as follows: (i) the
Chief Executive Officer--1.5 million shares; (ii) each of the next four most
highly compensated employees during the preceding calender year--1.0 million
shares; and (iii) each other eligible employee--500,000 shares.
Termination/Adjustments/Transferability. If a stock option expires or
otherwise terminates unexercised, any unissued shares allocable to such stock
option may be subjected again to an award. Similarly, if shares of restricted
stock or incentive stock are returned to, canceled or otherwise reacquired by
the company or shares are surrendered to the company in payment of federal and
state income tax withholding liabilities upon the exercise of nonstatutory
stock options or stock appreciation rights, such shares may again be subjected
to an award under the Stock Incentive Plan. Adjustments will be made in the
number of shares that may be issued under the Stock Incentive Plan in the
event of a future stock dividend, stock split or similar pro rata change in
the number of outstanding shares of common stock or the future creation or
issuance to stockholders generally of rights, options or warrants for the
purchase of common stock or preferred stock. Generally, any award under the
Stock Incentive Plan may not be sold, transferred, pledged, or otherwise
disposed of, other than by will or by the laws of descent and distribution,
and all rights granted to a participant under the Stock Incentive Plan shall
be exercisable during his lifetime only by such participant, or his guardians
or legal representatives. However, the Committee, in its discretion, may
provide that all or a portion of a stock option (other than incentive stock
options) and related stock appreciation rights may be granted upon such terms
that permit the transfer of such awards in the form and manner determined by
the Committee. Upon the death of a participant, his personal representative or
beneficiary may exercise his rights to the extent permitted under the terms of
the Stock Incentive Plan and the award granted under the Stock Incentive Plan.
Federal Income Tax Consequences
Generally federal income tax liability is not incurred when an employee is
granted a nonstatutory stock option or an incentive stock option or when the
employee is granted restricted stock. An employee will be subject to federal
income tax on the award of restricted stock when the restrictions imposed
lapse or the stock becomes transferable, unless the employee makes a Section
83(b) election to have the grant taxed as compensation income at fair market
value on the date of grant, with the result that any future appreciation (or
depreciation) in the value of the stock subject to the grant will be treated
as capital gain (or loss) at the time the stock is sold. An employee who is
eligible to receive incentive stock if performance goals are met will not
incur federal income tax until the incentive stock is received.
25
<PAGE>
Upon exercise of a nonstatutory stock option or a stock appreciation right,
an employee generally will recognize compensation income, which is subject to
income tax withholding by the company, equal to the difference between the
fair market value of the common stock on the date of the exercise and the
purchase price. An employee who has received shares of restricted stock, and
has not made a Section 83(b) election, will include in his gross income as
compensation income an amount equal to the fair market value of the shares of
restricted stock at the time the restrictions lapse or the stock becomes
transferable. An employee who receives shares of incentive stock will include
in his gross income as compensation income an amount equal to the fair market
value of the shares of incentive stock on the date of transfer to the
employee. Generally, such amounts will be included in income in the tax year
in which such event occurs, but a director or officer may be subject to
special tax rules that defer recognition of income until the restricted stock
or incentive stock could be sold by such person without incurring liability
under Section 16 of the Securities Exchange Act. The compensation income
recognized by the employee will be subject to income tax withholding by the
company.
When an employee exercises an incentive stock option, he generally will not
recognize income subject to tax, unless the employee is subject to the
alternative minimum tax.
An employee may deliver shares of common stock instead of cash to acquire
shares under an incentive stock option or nonstatutory stock option, without
having to recognize taxable gain (except in some cases with respect to
"statutory option stock") on any appreciation in value of the shares
delivered. However, if an employee delivers shares of "statutory option stock"
in satisfaction of all, or any part, of the exercise price under an incentive
stock option, and if the applicable holding periods for the "statutory option
stock" have not been met, he will be considered to have made a taxable
disposition of the "statutory option stock." "Statutory option stock" is stock
acquired upon the exercise of incentive stock options.
Assuming that the recipient's compensation is otherwise reasonable and that
the statutory limitations on compensation deductions by publicly held
companies (as discussed below) imposed by Section 162(m) of the Internal
Revenue Code do not apply, the company usually will be entitled to a business
expense deduction at the time and in the amount that the recipient of an
incentive award recognizes ordinary compensation income in connection
therewith. As stated above, this usually occurs upon exercise of nonstatutory
options and stock appreciation rights or when restrictions imposed upon
restricted stock lapse or upon the receipt of incentive stock. Section 162(m)
imposes a $1 million limitation on the amount of the annual compensation
deduction allowable to a publicly-held company in respect of each of its chief
executive officer and its four most highly paid executive officers other than
the chief executive officer. An exception is provided for certain performance-
based compensation if statutory provisions pertaining to stockholder approval
(and related disclosure) and plan administration are satisfied. The provisions
of the Stock Incentive Plan as it is proposed to be amended, will satisfy
these statutory provisions with respect to nonstatutory stock options and
stock appreciation rights so that compensation income recognized upon the
exercise of a nonstatutory option or a stock appreciation right will be
performance-based.
No deduction to the company is allowed in connection with an incentive stock
option, unless the employee disposes of common stock received upon exercise
before the expiration of the holding period for incentive stock option stock,
subject to the limitations of Section 162(m).
This summary of federal income tax consequences of nonstatutory stock
options, incentive stock options, stock appreciation rights, restricted stock
and incentive stock does not purport to be complete. There may also be state
and local income taxes applicable to these items.
26
<PAGE>
New Plan Benefits Table
The following table summarizes the stock option grants that have been made to
the Messrs. Fairbank and Morris under EntrepreneurGrant III, subject to
stockholder approval. The remaining 3,478,994 shares of common stock that,
after giving effect to the amendment, will be available for issuance under the
Stock Incentive Plan will be used for future awards. All such future awards
are subject to the discretion of the Compensation Committee and, therefore,
are not determinable at this time.
NEW PLAN BENEFITS
1998
<TABLE>
<CAPTION>
Number of
Underlying Shares
Name and Position Grants of Options(1)
----------------- --------------------
<S> <C>
Richard D. Fairbank
Chairman and Chief Executive Officer...................... 400,000
Nigel W. Morris
President and Chief Operating Officer..................... 266,680
</TABLE>
- --------
(1) The exercise price of these options is $101.3125, the average of the high
and low trading prices of the company's common stock on June 11, 1998, the
date of grant. These options vest if the stock price reaches and remains
at or above $175.00 for at least ten trading days in any 30 calendar-day
period on or before June 11, 2001. All of the options vest immediately
upon a change of control that occurs on or before June 11, 2001.
Stock Price
On March 15, 1999, the closing price of the company's common stock on the New
York Stock Exchange was $133.5625.
Vote
The affirmative vote of the holders of a majority of the shares of common
stock present in person or represented by proxy and entitled to vote at the
annual meeting is required to approve the Stock Incentive Plan, as amended.
The Board of Directors recommends that you vote "FOR" approval of the Stock
Incentive Plan, as amended.
27
<PAGE>
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
(Item 3 on the Proxy Card)
The Board of Directors, upon the recommendation of the Audit Committee, has
selected the firm of Ernst & Young LLP as independent auditors for 1999. The
Board is submitting this proposal to the vote of the stockholders in order to
obtain their view on the Board's selection. If stockholders do not ratify the
selection of Ernst & Young LLP, the Board of Directors will reconsider the
selection of independent auditors.
Representatives of Ernst & Young LLP are expected to be present at the
annual meeting. They will have the opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions.
The affirmative vote of a majority of the shares of common stock present in
person or represented by proxy and entitled to vote at the annual meeting is
required to ratify the selection of Ernst & Young LLP as independent auditors
for 1999.
The Board recommends a vote "FOR" the ratification of Ernst & Young LLP as
the independent auditors for 1999.
28
<PAGE>
OTHER BUSINESS
We know of no other business that will be presented for consideration at the
annual meeting. If other matters are properly brought before the meeting, the
persons named in the accompanying proxy card will vote such proxy at their
discretion.
ANNUAL REPORT TO STOCKHOLDERS
The Annual Report to Stockholders for the fiscal year ended December 31,
1998, including consolidated financial statements, is being furnished along
with this proxy statement to stockholders of record on March 1, 1999. The
Annual Report to Stockholders does not constitute a part of the proxy
soliciting material. A copy of our Annual Report on Form 10-K, which is filed
with the Securities and Exchange Commission, may be obtained at the meeting or
by contacting our Investor Relations Department at the company's address on
the front cover of this proxy statement.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
If you wish to present a stockholder proposal at the 2000 annual meeting and
wish to have such proposal considered for inclusion in our 2000 proxy
statement, you must send us the proposal, along with any supporting statement,
to the Corporate Secretary, so that it is received at the address on the front
cover of this proxy statement on or before November 26, 1999. All proposals
must comply with applicable Securities and Exchange Commission regulations.
Under our bylaws, if you wish to nominate directors for election, or present
other business before the stockholders at the annual meeting, you must give
proper written notice of any such nomination or business to the Corporate
Secretary not before January 29, 2000 and not after February 18, 2000. If the
annual meeting for 2000 is not within thirty days before or seventy days after
April 29, 2000, the anniversary date of this year's annual meeting, you must
send notice within ten days following any notice or publication of the
meeting. Your notice must include certain information specified in our bylaws
concerning the nomination or the business. A copy of our bylaws may be
obtained from the Corporate Secretary at the company's address on the front
cover of this proxy statement.
INTERNET AND TELEPHONE VOTING
Shares Directly Registered in the Name of the Stockholder
Stockholders with shares registered directly with the company's transfer
agent, First Chicago Trust Company of New York, may vote telephonically by
calling First Chicago at 800-OK2-VOTE (800-652-8683) or electronically via the
Internet at the following address on the World Wide Web:
www.vote-by-net.com
Votes submitted via the Internet through First Chicago's program must be
received by 8:00 PM (EDT) on April 28, 1999. The giving of a proxy by
telephone or via the Internet will not affect your right to vote in person if
you decide to attend the meeting.
29
<PAGE>
Shares Registered in the Name of a Brokerage Firm or Bank
A number of brokerage firms and banks participate in a program provided
through ADP Investor Communication Services that offers telephone and Internet
voting options. This program is different from the program provided by First
Chicago for shares registered in the name of the stockholder. If your shares
are held in an account at a brokerage firm or bank participating in the ADP
program, you may vote those shares telephonically by calling the telephone
number referenced on your voting form. If your shares are held in an account
at a brokerage firm or bank participating in the ADP program, you may elect to
vote via the Internet as set forth on your voting form. Votes submitted via
the Internet through the ADP program must be received by 11:59 PM (EDT) on
April 28, 1999. The giving of such proxy will not affect your right to vote in
person if you decide to attend the annual meeting.
Proxies given pursuant to Internet and telephone voting are permitted under
applicable law. The telephone and Internet voting procedures are designed to
authenticate a stockholder's identity, to allow a stockholder to give his or
her voting instructions and to confirm that a stockholder's instructions have
been recorded properly. Stockholders voting via the Internet through either
First Chicago or ADP Investor Communication Services should understand that
there may be costs associated with electronic access, such as usage charges
from Internet access providers and telephone companies, that must be borne by
the stockholder.
ELECTRONIC DELIVERY OF NEXT YEAR'S ANNUAL MEETING MATERIALS
For the first time, the company is offering its stockholders the opportunity
to consent to receiving the company's year 2000 proxy materials and annual
report electronically. Electronic delivery could save the company a
significant portion of the costs associated with printing and mailing its
annual meeting materials, and we hope that our stockholders find this service
convenient and useful. By providing the appropriate information when you vote
via the Internet, you can consent to receive a notice next year explaining how
to access Capital One's year 2000 proxy materials and annual report on the
Internet. If you consent and the company elects to deliver next year's proxy
materials and/or annual report to you electronically, then the company will
send you a notice (either by electronic mail or regular mail) explaining how
to access these materials but will not send paper copies of these materials
through the mail. Of course, the company may also choose to send one or more
items to you in paper form despite your consent to receive them
electronically. Your consent will be effective only through Capital One's
annual meeting of stockholders to be held in the year 2000.
By consenting to electronic delivery, you are stating to the company that
you currently have access to the Internet and expect to have access next year.
If you do not have access to the Internet, or do not expect to have access
next year, please do not consent to electronic delivery because the company
may rely on your consent and not deliver paper copies of the annual meeting
materials next year. In addition, if you consent to electronic delivery, you
will be responsible for your usual Internet charges (e.g., online fees) in
connection with the electronic delivery of the proxy materials and annual
report.
By Order of the Board of Directors,
[/s/ JOHN G. FINNERAN, JR. APPEARS
HERE]
John G. Finneran, Jr.
Corporate Secretary
March 20, 1999
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APPENDIX I
CAPITAL ONE FINANCIAL CORPORATION
1994 STOCK INCENTIVE PLAN, AS AMENDED
1. Purpose. The purpose of the Capital One Financial Corporation 1994 Stock
Incentive Plan (the "Plan") is to further the long term stability and
financial success of Capital One Financial Corporation (the "Company") by
attracting and retaining key employees of the Company through the use of stock
incentives. It is believed that ownership of Company Stock will stimulate the
efforts of those employees of the Company upon whose judgment and interest the
Company is and will be largely dependent for the successful conduct of its
business. It is also believed that Awards granted to such employees under this
Plan will strengthen their desire to remain with the Company and will further
the identification of those employees' interests with those of the Company's
shareholders. The Plan was adopted by the Board of Directors and approved by
the Company's sole shareholder on October 28, 1994.
The Plan is intended to satisfy the requirements of Securities and Exchange
Commission Rule 16b-3 ("Rule 16b-3").
2. Definitions. As used in the Plan, the following terms have the meanings
indicated:
(a) "Award" means, collectively, the award of an Option, Stock
Appreciation Right, Restricted Stock or Incentive Stock under the Plan.
(b) "Board" means the board of directors of the Company.
(c) "Change of Control" means:
(i) The acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% (or, if such shares are purchased from the Company, 40%) or more
of either (A) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (B) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Company
Voting Securities"), provided, however, that any acquisition by (x) the
Company or any of its subsidiaries, or any employee benefit plan (or
related trust) sponsored or maintained by the Company or any of its
subsidiaries or (y) any corporation with respect to which, immediately
following such acquisition, more than 60% of, respectively, the then
outstanding shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common
Stock and Company Voting Securities immediately prior to such
acquisition in substantially the same proportion as their ownership,
immediately prior to such acquisition, of the Outstanding Company
Common Stock and Company Voting Securities, as the case may be, shall
not constitute a Change of Control; or
(ii) Individuals who constitute the Board as of September 1, 1995
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any individual becoming a director
subsequent to September 1, 1995 whose appointment to fill a vacancy or
to fill a new Board position or whose nomination for election by the
Company's shareholders was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered
as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office is in connection with an actual or threatened
election contest relating to the election of the Directors of the
Company (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act); or
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(iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation (a "Business Combination"), in
each case, with respect to which all or substantially all of the
individuals and entities who were the respective beneficial owners of
the Outstanding Company Common Stock and Company Voting Securities
immediately prior to such Business Combination do not in the aggregate,
immediately following such Business Combination, beneficially own,
directly or indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination in substantially the same proportion as
their ownership immediately prior to such Business Combination of the
Outstanding Company Common Stock and Company Voting Securities, as the
case may be; or
(iv) (A) a complete liquidation or dissolution of the Company or (B)
sale or other disposition of all or substantially all of the assets of
the Company other than to a corporation with respect to which,
immediately following such sale or disposition, more than 60% of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, in the aggregate by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common
Stock and Company Voting Securities immediately prior to such sale or
disposition in substantially the same proportion as their ownership of
the Outstanding Company Common Stock and Company Voting Securities, as
the case may be, immediately prior to such sale or disposition.
(v) Neither the sale of Company common stock in an initial public
offering, nor the distribution of Company common stock by Capital One
Financial Corporation's parent corporation to its shareholders in a
transaction to which Section 355 of the Internal Revenue Code applies,
nor any restructuring of the Company or its Board of Directors in
contemplation of or as the result of either of such events, shall
constitute a Change of Control.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Company" means Capital One Financial Corporation, a Delaware
corporation.
(f) "Company Stock" means Common Stock of the Company. If the par value
of the Company Stock is changed, or in the event of a change in the capital
structure of the Company (as provided in Section 15), the shares resulting
from such a change shall be deemed to be Company Stock within the meaning
of the Plan.
(g) "Date of Grant" means the date on which an Award is granted by the
Committee or such later date specified by the Committee as the date as of
which the Award is to be effective.
(h) "Disability" or "Disabled" means, as to an Incentive Stock Option, a
Disability within the meaning of Code section 22(e)(3). As to all other
Awards, the Committee shall determine whether a Disability exists and such
determination shall be conclusive.
(i) "Distribution" means the distribution of the Company's common stock
to shareholders of the Company's parent corporation in a transaction to
which Code Section 355 applies.
(j) "Distribution Date" means the date on which the Distribution occurs.
(k) "Fair Market Value" means, on the date shares of the Company Stock
are offered in an initial public offering, the offering price, and on any
given date thereafter, the average of the high and low price on such date
as reported on The New York Stock Exchange-Composite Transactions Tape. In
the absence of any such sale, fair market value means the average of the
highest bid and lowest asked prices of a share of Company Stock on such
date as reported by such source. In the absence of such average or if
shares of Company Stock are no longer traded on The New York Stock
Exchange, the fair market value shall be determined by the Committee using
any reasonable method in good faith.
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(l) "Incentive Stock" means Company Stock awarded when performance goals
are achieved pursuant to an incentive plan as provided in Section 9.
(m) "Incentive Stock Option" means an Option intended to meet the
requirements of, and qualify for favorable Federal income tax treatment
under, Code section 422.
(n) "Insider" means a person subject to Section 16(b) of the Securities
Exchange Act of 1934.
(o) "Nonstatutory Stock Option" means an Option, which does not meet the
requirements of Code section 422, or even if meeting the requirements of
Code section 422, is not intended to be an Incentive Stock Option and is so
designated.
(p) "Option" means a right to purchase Company Stock granted under the
Plan, at a price determined in accordance with the Plan.
(q) "Parent" means, with respect to any corporation, a "parent
corporation" of that corporation within the meaning of Code section 424(e).
(r) "Participant" means any employee who receives an Award under the
Plan.
(s) "Reload Feature" means a feature of an Option described in an
employee's stock option agreement that provides for the automatic grant of
a Reload Option in accordance with the provisions described in Section
10(d).
(t) "Reload Option" means an Option granted to an employee equal to the
number of shares of already owned Company Stock delivered by the employee
to exercise an Option described in Section 10(d).
(u) "Restricted Stock" means Company Stock awarded upon the terms and
subject to the restrictions set forth in Section 8.
(v) "Restricted Stock Award" means an award of Restricted Stock granted
under the Plan.
(w) "Rule 16b-3" means Rule 16b-3 of the Securities Exchange Act of 1934.
A reference in the Plan to Rule 16b-3 shall include a reference to any
corresponding rule (or number redesignation) of any amendments to Rule 16b-
3 enacted after the effective date of the Plan's adoption.
(x) "Stock Appreciation Right" means a right granted under the Plan to
receive from the Company amounts in cash or shares of Company Stock upon
the surrender of an Option.
(y) "Stock Option Committee" or "Committee" means the committee appointed
by the Board as described under Section 16.
(z) "Subsidiary" means, with respect to any corporation, a "subsidiary
corporation" of that corporation within the meaning of Code section 424(f).
(aa) "10% Shareholder" means a person who owns, directly or indirectly,
stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or any Parent or Subsidiary of the Company.
Indirect ownership of stock shall be determined in accordance with Code
section 424(d).
3. General. The following types of Awards may be granted under the Plan:
Options, Stock Appreciation Rights, Restricted Stock or Incentive Stock.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options.
4. Stock. Subject to Section 15 of the Plan, there shall be reserved for
issuance under the Plan an aggregate of 13,870,880 shares of Company Stock,
which shall be authorized, but unissued shares. Shares granted under the Plan
that expire or otherwise terminate unexercised and shares forfeited pursuant
to restrictions on Restricted Stock or Incentive Stock may again be subjected
to an Award under the Plan. The Committee is expressly authorized to make an
Award to a Participant conditioned upon the surrender for cancellation of an
existing Award. For purposes of determining the number of shares that are
available for Awards under the Plan, such number shall include the number of
shares surrendered by an optionee or retained by the Company in payment of
federal and state income tax withholding liabilities upon exercise of a
Nonstatutory Stock Option or a Stock Appreciation Right.
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5. Eligibility.
(a) Any employee of the Company (or Parent or Subsidiary of the Company)
who, in the judgment of the Committee has contributed or can be expected to
contribute to the profits or growth of the Company (or Parent or Subsidiary)
shall be eligible to receive Awards under the Plan. Directors of the Company
who are employees and are not members of the Committee are eligible to
participate in the Plan. The Committee shall have the power and complete
discretion, as provided in Section 16, to select eligible employees to receive
Awards and to determine for each employee the terms and conditions, the nature
of the award and the number of shares to be allocated to each employee as part
of each Award.
(b) The grant of an Award shall not obligate the Company or any Parent or
Subsidiary of the Company to pay an employee any particular amount of
remuneration, to continue the employment of the employee after the grant or to
make further grants to the employee at any time thereafter.
6. Stock Options.
(a) Whenever the Committee deems it appropriate to grant Options, notice
shall be given to the eligible employee stating the number of shares for which
Options are granted, the Option price per share, whether the Options are
Incentive Stock Options or Nonstatutory Stock Options, the extent to which
Stock Appreciation Rights are granted (as provided in Section 7), and the
conditions to which the grant and exercise of the Options are subject. This
notice shall constitute the stock option agreement between the Company and the
eligible employee.
(b) The exercise price of shares of Company Stock covered by an Option shall
be not less than 100% of the Fair Market Value of such shares on the Date of
Grant. If the employee is a 10% Shareholder and the Option is an Incentive
Stock Option, the exercise price shall be not less than 110% of the Fair
Market Value of such shares on the Date of Grant.
(c) Options may be exercised in whole or in part at such times as may be
specified by the Committee in the employee's stock option agreement; provided
that the exercise provisions for Incentive Stock Options shall in all events
not be more liberal than the following provisions:
(i) No Incentive Stock Option may be exercised after the first to occur
of (x) ten years (or, in the case of an Incentive Stock Option granted to a
10% Shareholder, five years) from the Date of Grant, (y) three months from
the employee's retirement or termination of employment with the Company and
its Parent and Subsidiary corporations for reasons other than Disability or
death, or (z) one year from the employee's termination of employment on
account of Disability or death.
(ii) Except as otherwise provided in this paragraph, no Incentive Stock
Option may be exercised unless the employee is employed by the Company or a
Parent or Subsidiary of the Company at the time of the exercise (or was so
employed not more than three months before the time of the exercise) and
has been employed by the Company or a Parent or Subsidiary of the Company
at all times since the Date of Grant. If an employee's employment is
terminated other than by reason of his Disability or death at a time when
the employee holds an Incentive Stock Option that is exercisable (in whole
or in part), the employee may exercise any or all of the exercisable
portion of the Incentive Stock Option (to the extent exercisable on the
date of termination) within three months after the employee's termination
of employment. If an employee's employment is terminated by reason of his
Disability at a time when the employee holds an Incentive Stock Option that
is exercisable (in whole or in part), the employee may exercise any or all
of the exercisable portion of the Incentive Stock Option (to the extent
exercisable on the date of Disability) within one year after the employee's
termination of employment. If an employee's employment is terminated by
reason of his death at a time when the employee holds an Incentive Stock
Option that is exercisable (in whole or in part), the Incentive Stock
Option may be exercised (to the extent exercisable on the date of death)
within one year after the employee's death by the person to whom the
employee's rights under the Incentive Stock Option shall have passed by
will or by the laws of descent and distribution.
(iii) An Incentive Stock Option by its terms, shall be exercisable in any
calendar year only to the extent that the aggregate Fair Market Value
(determined at the Date of Grant) of the Company Stock with respect
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to which incentive stock options are exercisable for the first time during
the calendar year does not exceed $100,000 (the "Limitation Amount").
Incentive Stock Options granted under the Plan and similar incentive
options granted after 1986 under all other plans of the Company and any
Parent or Subsidiary of the Company shall be aggregated for purposes of
determining whether the Limitation Amount has been exceeded. The Board may
impose such conditions as it deems appropriate on an Incentive Stock Option
to ensure that the foregoing requirement is met. If Incentive Stock Options
that first become exercisable in a calendar year exceed the Limitation
Amount, the excess Options will be treated as Nonstatutory Stock Options to
the extent permitted by law.
(d) The Committee may, in its discretion, grant Options which by their terms
become fully exercisable upon a Change of Control, notwithstanding other
conditions on exercisability in the stock option agreement.
(e) The maximum number of shares with respect to which Nonstatutory Options
or Stock Appreciation Rights may be granted in any calendar year to an
employee eligible to participate in the Plan is as follows: the Chief
Executive Officer, 1,500,000; each of the next four most highly compensated
employees, 1,000,000; each other eligible employee, 500,000.
(f) The Committee may, in its discretion, grant Options containing or amend
Options previously granted to provide for a Reload Feature subject to the
limitations of Section 10(d).
(g) Notwithstanding paragraph (c) above, the Committee may, in its
discretion, amend a previously granted Incentive Stock Option to provide for
more liberal exercise provisions; provided however if the Incentive Stock
Option as amended no longer meets the requirements of Code section 422, and as
a result such Option no longer qualifies for favorable Federal income tax
treatment under Code section 422, the amendments shall not become effective
without the written consent of the Participant and provided further that no
Incentive Stock Option may be exercised after ten (10) years (or, in the case
of an Incentive Stock Option granted to a 10% Shareholder, five (5) years)
from the Date of Grant.
7. Stock Appreciation Rights.
(a) Whenever the Committee deems it appropriate, Stock Appreciation Rights
may be granted in connection with all or any part of an Incentive Stock
Option. At the discretion of the Committee, Stock Appreciation Rights may also
be granted in connection with all or any part of a Nonstatutory Stock Option,
either concurrently with the grant of the Nonstatutory Stock Option or at any
time thereafter during the term of the Nonstatutory Stock Option. The
following provisions apply to all Stock Appreciation Rights that are granted
in connection with Options:
(i) Stock Appreciation Rights shall entitle the employee, upon exercise
of all or any part of the Stock Appreciation Rights, to surrender to the
Company unexercised that portion of the underlying Option relating to the
same number of shares of Company Stock as is covered by the Stock
Appreciation Rights (or the portion of the Stock Appreciation Rights so
exercised) and to receive in exchange from the Company an amount in cash or
shares of Company Stock (as provided in the Stock Appreciation Right) equal
to the excess of (x) the Fair Market Value on the date of exercise of the
Company Stock covered by the surrendered portion of the underlying Option
over (y) the exercise price of the Company Stock covered by the surrendered
portion of the underlying Option. The Committee may limit the amount that
the employee will be entitled to receive upon exercise of the Stock
Appreciation Right.
(ii) Upon the exercise of a Stock Appreciation Right and surrender of the
related portion of the underlying Option, the Option, to the extent
surrendered, shall not thereafter be exercisable.
(iii) Subject to any further conditions upon exercise imposed by the
Committee, a Stock Appreciation Right issued in tandem with an Option shall
be exercisable only to the extent that the related Option is exercisable
and shall expire no later than the date on which the related Option
expires.
(iv) A Stock Appreciation Right may only be exercised at a time when the
Fair Market Value of the Company Stock covered by the Stock Appreciation
Right exceeds the exercise price of the Company Stock covered by the
underlying Option.
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(b) The manner in which the Company's obligation arising upon the exercise
of a Stock Appreciation Right shall be paid shall be determined by the
Committee and shall be set forth in the employee's Option or the related Stock
Appreciation Rights agreement. The Committee may provide for payment in
Company Stock or cash, or a fixed combination of Company Stock or cash, or the
Committee may reserve the right to determine the manner of payment at the time
the Stock Appreciation Right is exercised. Shares of Company Stock issued upon
the exercise of a Stock Appreciation Right shall be valued at their Fair
Market Value on the date of exercise.
8. Restricted Stock Awards.
(a) Whenever the Committee deems it appropriate to grant a Restricted Stock
Award, notice shall be given to the Participant stating the number of shares
of Restricted Stock for which the Restricted Stock Award is granted and the
terms and conditions to which the Restricted Stock Award is subject. This
notice, when accepted in writing by the Participant shall become an award
agreement between the Company and the Participant and certificates
representing the shares shall be issued and delivered to the Participant. A
Restricted Stock Award may be made by the Committee in its discretion without
cash consideration.
(b) Restricted Stock issued pursuant to the Plan shall be subject to the
following restrictions:
(i) Unless otherwise provided by the Committee, Restricted Stock may not
be sold, assigned, transferred or disposed of within a six-month period
beginning on the Date of Grant.
(ii) None of such shares may be sold, assigned, transferred, pledged,
hypothecated, or otherwise encumbered or disposed of until the restrictions
on such shares shall have lapsed or shall have been removed pursuant to
paragraph (d) or (e) below.
(iii) If a Participant ceases to be employed by the Company or a Parent
or Subsidiary of the Company, the Participant shall forfeit to the Company
any shares of Restricted Stock, the restrictions on which shall not have
lapsed or shall not have been removed pursuant to paragraph (d) or (e)
below, on the date such Participant ceases to be so employed.
(c) Upon the acceptance by a Participant of a Restricted Stock Award, such
Participant shall, subject to the restrictions set forth in paragraph (b)
above, have all the rights of a shareholder with respect to the shares of
Restricted Stock subject to such Restricted Stock Award, including, but not
limited to, the right to vote such shares of Restricted Stock and the right to
receive all dividends and other distributions paid thereon. Certificates
representing Restricted Stock shall bear a legend referring to the
restrictions set forth in the Plan and the Participant's award agreement.
(d) The Committee shall establish as to each Restricted Stock Award the
terms and conditions upon which the restrictions set forth in paragraph (b)
above shall lapse. Such terms and conditions may include, without limitation,
the passage of time, the meeting of performance goals, the lapsing of such
restrictions as a result of the Disability, death or retirement of the
Participant, or the occurrence of a Change of Control.
(e) Notwithstanding the forfeiture provisions of paragraph (b)(iii) above,
the Committee may at any time, in its sole discretion, accelerate the time at
which any or all restrictions will lapse or remove any and all such
restrictions.
(f) Each Participant shall agree at the time his Restricted Stock Award is
granted, and as a condition thereof, to pay to the Company, or make
arrangements satisfactory to the Company regarding the payment to the Company
of, the aggregate amount of any Federal, state or local taxes of any kind
required by law to be withheld with respect to the shares of Restricted Stock
subject to the Restricted Stock Award. Until such amount has been paid or
arrangements satisfactory to the Company have been made, no stock certificate
free of a legend reflecting the restrictions set forth in paragraph (b) above
shall be issued to such Participant.
(g) The Company may place on any certificate representing Company Stock
issued in connection with an Incentive Award any legend deemed desirable by
the Company's counsel to comply with Federal or state securities laws, and the
Company may require a customary written indication of the Participant's
investment intent.
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9. Incentive Stock Awards.
(a) Incentive Stock may be issued pursuant to the Plan in connection with
incentive programs established from time to time by the Committee when
performance criteria established by the Committee as part of the incentive
program have been achieved. If the objectives established by the Committee as
a prerequisite to the receipt of Incentive Stock have not been achieved, no
stock will be issued, except as provided in (c). A Participant eligible for
the receipt or issuance of incentive shares will have no rights as a
stockholder before actual receipt of the Incentive Stock.
(b) Whenever the Committee deems it appropriate, the Committee may establish
an incentive program and notify Participants of their participation in and the
terms of the incentive program. More than one incentive program may be
established by the Committee and they may operate concurrently or for varied
periods of time and a Participant may be permitted to participate in more than
one incentive program at the same time. Incentive Stock will be issued only
subject to the incentive program and the Plan and consistent with meeting the
performance goals set by the Committee. Incentive Stock may be issued without
cash consideration.
(c) The Committee may provide in the incentive program, or subsequently,
that Incentive Stock will be issued if a Change of Control occurs even though
the performance goals set by the Committee have not been met.
(d) A Participant's interest in an incentive program may not be sold,
assigned, transferred, pledged, hypothecated, or otherwise encumbered.
(e) Each Participant shall agree as a condition of his participation in an
incentive program and the receipt of Incentive Stock, to pay to the Company,
or make arrangements satisfactory to the Company regarding the payment to the
Company of, the aggregate amount of any Federal, state or local taxes of any
kind required by law to be withheld with respect to the shares of Incentive
Stock received. Until such amount has been paid or arrangements satisfactory
to the Company have been made, no stock certificate free of a legend
reflecting the restrictions set forth in paragraph (b) above shall be issued
to such Participant.
(f) The Company may place on any certificate representing Company Stock
issued in connection with an Incentive Award any legend deemed desirable by
the Company's counsel to comply with Federal or state securities laws, and the
Company may require a customary written indication of the Participant's
investment intent.
10. Method of Exercise of Options and Stock Appreciation Rights.
(a) Options and Stock Appreciation Rights may be exercised by the employee
giving written notice of the exercise to the Company, stating the number of
shares the employee has elected to purchase under the Option or the number of
Stock Appreciation Rights he has elected to exercise. In the case of the
purchase of shares under an Option, such notice shall be effective only if
accompanied by the exercise price in full in cash; provided that if the terms
of an Option so permit, the employee may (i) deliver Company Stock that the
Participant has owned for at least six (6) months (valued at Fair Market Value
on the date of exercise) in satisfaction of all or any part of the exercise
price, (ii) deliver a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of the sale or loan proceeds to pay the exercise price, or (iii)
deliver an interest bearing promissory note, payable to the Company, in
payment of all or part of the exercise price together with such collateral as
may be required by the Committee at the time of exercise. The interest rate
under any such promissory note shall be equal to the minimum interest rate
required at the time to avoid imputed interest to the Participant under the
Code.
(b) Options and Stock Appreciation Rights may also be exercised by the
employee in accordance with any other method or methods of exercise as may be
approved from time to time by the Committee;
(c) The Company may place on any certificate representing Company Stock
issued upon the exercise of an Option or Stock Appreciation Right any legend
deemed desirable by the Company's counsel to comply with Federal or state
securities laws, and the Company may require of the employee a customary
written indication of his investment intent. Until the employee has made any
required payment, including any applicable Federal, state
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and local withholding taxes, and has had issued to him a certificate for the
shares of Company Stock acquired, he shall possess no shareholder rights with
respect to the shares.
(d) If an employee exercises an Option that has a Reload Feature by
delivering already owned shares of Company Stock, the employee shall
automatically be granted a Reload Option. The Reload Option shall be subject
to the following provisions:
(i) The Reload Option shall cover the number of shares of Company Stock
delivered by the employee to the Company to exercise the Option with the
Reload Feature;
(ii) The Reload Option will not have a Reload Feature;
(iii) The exercise price of shares of Company Stock covered by a Reload
Option shall be 100% of the Fair Market Value of such shares on the date
the employee delivers shares of Company Stock to the Company to exercise
the Option that has a Reload Feature;
(iv) The Reload Option shall be subject to the same restrictions on
exercisability as those imposed on the underlying Option (possessing the
Reload Feature);
(v) The Reload Option shall not be exercisable until the expiration of
any retention holding period imposed on the disposition of any shares of
Company Stock covered by the underlying Option (possessing the Reload
Feature).
The Committee may, in its discretion, cause the Company to place on any
certificate representing Company Stock issued to a Participant upon the
exercise of an underlying Option (possessing a Reload Feature as evidenced by
the stock option agreement for such Option) delivered pursuant to this
subsection (d), a legend restricting the sale or other disposition of such
Company Stock.
(e) Notwithstanding anything herein to the contrary, Awards shall always be
granted and exercised in such a manner as to conform to the provisions of Rule
16b-3, or any replacement rule adopted, as the same now exists or may, from
time to time, be amended.
11. Applicable Withholding Taxes. As an alternative to making a cash payment
to the Company to satisfy tax withholding obligations, the Committee may
establish procedures permitting the Participant to elect to (a) deliver shares
of already owned Company Stock or (b) have the Company retain that number of
shares of Company Stock that would satisfy all or a specified portion of the
Federal, state and local tax liabilities of the Participant arising in the
year the Award becomes subject to tax. Any such election shall be made only in
accordance with procedures established by the Committee.
12. Transferability of Awards and Options. To the extent required by the
Code, Awards, by their terms, shall not be transferable by the Participant
except by will or by the laws of descent and distribution and shall be
exercisable, during the Participant's lifetime, only by the Participant or by
his guardian or legal representative. The Committee is expressly authorized,
in its discretion, to provide that all or a portion of a Nonstatutory Stock
Option or Stock Appreciation Right may be granted to a Participant upon terms
that permit transfer of the Nonstatutory Stock Option or Stock Appreciation
Right in a form and manner determined by the Committee.
13. Effective Date of the Plan. This Plan having been adopted by the
Company's Board and approved by the Company's sole shareholder shall be
effective on October 28, 1994. Until the requirements of any applicable
federal and state securities laws have been met, no Option or Stock
Appreciation Right shall be exercisable and no award of Restricted Stock or
Incentive Stock shall be made.
14. Termination, Modification, Change. If not sooner terminated by the
Board, this Plan shall terminate at the close of business on October 27, 2004.
No Awards shall be made under the Plan after its termination. The Board may
terminate the Plan or may amend the Plan in such respects as it shall deem
advisable; provided, that, if and to the extent required by the Code, no
change shall be made that materially increases the total number of shares of
Company Stock reserved for issuance pursuant to Awards granted under the Plan
(except pursuant to Section 15), materially expands the class of persons
eligible to receive Awards, or materially increases the benefits accruing to
Participants under the Plan, unless such change is authorized by the
shareholders of the
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<PAGE>
Company. Notwithstanding the foregoing, the Board may amend the Plan and
unilaterally amend Awards as it deems appropriate to ensure compliance with
Rule 16b-3 and to cause Incentive Stock Options to meet the requirements of
the Code and regulations thereunder. Except as provided in the preceding
sentence, a termination or amendment of the Plan shall not, without the
consent of the Participant, detrimentally affect a Participant's rights under
an Award previously granted to him.
15. Change in Capital Structure.
(a) In the event of a stock dividend, stock split or combination of shares,
spin-off, recapitalization or merger in which the Company is the surviving
corporation or other change in the Company's capital stock (including, but not
limited to, the creation or issuance to shareholders generally of rights,
options or warrants for the purchase of common stock or preferred stock of the
Company), the number and kind of shares of stock or securities of the Company
to be subject to the Plan and to Awards then outstanding or to be granted
under the Plan, the maximum number of shares or securities which may be
delivered under the Plan, the exercise price and other relevant provisions
shall be appropriately adjusted by the Committee, whose determination shall be
binding on all persons. If the adjustment would produce fractional shares with
respect to any unexercised Option, the Committee may adjust appropriately the
number of shares covered by the Option so as to eliminate the fractional
shares.
(b) If the Company is a party to a consolidation or a merger in which the
Company is not the surviving corporation, a transaction that results in the
acquisition of substantially all of the Company's outstanding stock by a
single person or entity, or a sale or transfer of substantially all of the
Company's assets, the Committee may take such actions with respect to
outstanding Incentive Awards as the Committee deems appropriate.
(c) Notwithstanding anything in the Plan to the contrary, the Committee may
take the foregoing actions without the consent of any Participant, and the
Committee's determination shall be conclusive and binding on all persons for
all purposes.
16. Administration of the Plan. The Plan shall be administered by the
Committee consisting solely of two or more nonemployee directors of the
Company (within the meaning of Rule 16b-3), who shall be appointed by the
Board. The Committee shall have general authority to impose any limitation or
condition upon an Award the Committee deems appropriate to achieve the
objectives of the Award and the Plan and, in addition, and without limitation
and in addition to powers set forth elsewhere in the Plan, shall have the
following specific authority:
(a) The Committee shall have the power and complete discretion to
determine (i) which eligible employees shall receive an Award and the
nature of the Award, (ii) the number of shares of Company Stock to be
covered by each Award, (iii) whether Options shall be Incentive Stock
Options or Nonstatutory Stock Options, (iv) when, whether and to what
extent Stock Appreciation Rights shall be granted in connection with
Options, (v) whether to include a Reload Feature in an Option and to impose
limitations on the use of shares acquired through the exercise of a Reload
Option to exercise Options, (vi) the fair market value of Company Stock,
(vii) the time or times when an Award shall be granted, (viii) whether an
Award shall become vested over a period of time and when it shall be fully
vested, (ix) conditions relating to the length of time before disposition
of Company Stock received in connection with an Award is permitted, (x) the
terms and conditions on which restrictions upon Restricted Stock shall
lapse, (xi) whether to accelerate the time of receipt of Incentive Stock or
the time when any or all restrictions with respect to Restricted Stock will
lapse or be removed, (xii) the terms of incentive programs, performance
criteria and other factors relevant to the issuance of Incentive Stock or
the lapse of restrictions on Restricted Stock, (xiii) when Options and
Stock Appreciation Rights may be exercised, (xiv) whether a Disability
exists, (xv) the manner in which payment will be made upon the exercise of
Options or Stock Appreciation Rights, (xvi) whether to approve a
Participant's election (x) to deliver shares of already owned Company Stock
to satisfy tax liabilities arising upon the exercise of a Nonstatutory
Stock Option or Stock Appreciation Right or (y) to have the Company
withhold from the shares to be issued upon the exercise or receipt of an
Award that number of shares necessary to satisfy tax liabilities arising
from such exercise or receipt, (xvii) notice provisions relating to the
sale of Company Stock acquired under the Plan, and (xviii) any additional
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<PAGE>
requirements relating to Awards that the Committee deems appropriate.
Notwithstanding the foregoing, no "tandem stock options" (where two stock
options are issued together and the exercise of one option affects the
right to exercise the other option) may be issued in connection with
Incentive Stock Options. The Committee shall also have the power to amend
the terms of previously granted Awards so long as the terms as amended are
consistent with the terms of the Plan and provided that the consent of the
Participant is obtained with respect to any amendment that would be
detrimental to him, except that such consent will not be required if such
amendment is for the purpose of complying with Rule 16b-3 or any
requirement of the Code applicable to the Award.
(b) The Committee may adopt rules and regulations for carrying out the
Plan. The interpretation and construction of any provision of the Plan by
the Committee shall be final and conclusive. The Committee may consult with
counsel, who may be counsel to the Company, and shall not incur any
liability for any action taken in good faith in reliance upon the advice of
counsel.
(c) A majority of the members of the Committee shall constitute a quorum,
and all actions of the Committee shall be taken by a majority of the
members present. Any action may be taken by a written instrument signed by
all of the members, and any action so taken shall be fully effective as if
it had been taken at a meeting.
(d) The Board of Directors from time to time may appoint members
previously appointed and may fill vacancies, however caused, in the
Committee.
17. Notice. All notices and other communications required or permitted to be
given under this Plan shall be in writing and shall be deemed to have been
duly given if delivered as follows: (a) if to the Company--delivery shall be
made personally or by first class mail, postage prepaid at its principal
business address to the attention of the Company's Director of Human
Resources; and (b) if to any Participant--personally, including by delivery
through the Company's internal electronic system with a return receipt
requested or interoffice mail system, or by first class mail, postage prepaid,
at the last known address of the Participant known to the sender at the time
the notice or other communication is sent.
18. Interpretation. The terms of this Plan are subject to all present and
future regulations and rulings of the Secretary of the Treasury or his
delegate relating to the qualification of Incentive Stock Options under the
Code. If any provision of the Plan conflicts with any such regulation or
ruling, then that provision of the Plan shall be void and of no effect.
19. Foreign Equity Incentive Plans. The Committee may authorize any foreign
Subsidiary or any foreign unincorporated division of the Company or of a
Subsidiary to adopt a plan for granting Awards (a "Foreign Equity Incentive
Plan"). All Awards granted under a Foreign Equity Incentive Plan shall be
treated as grants under this Plan. A Foreign Equity Incentive Plan shall have
such terms as the Committee permits; provided that such terms are not
inconsistent with the provisions of this Plan; and provided further that such
terms may be more restrictive than those in this Plan. Awards granted under a
Foreign Equity Incentive Plan shall be governed by the terms of this Plan
except to the extent that the terms of the Foreign Equity Incentive Plan are
more restrictive than the terms of this Plan, in which case such terms of the
Foreign Equity Incentive Plan shall control.
20. Substitute Award. The Committee may make a grant of an Award to an
employee of another corporation who becomes an employee of the Company (or
Parent or Subsidiary of the Company) by reason of a corporate merger,
consolidation, acquisition of stock or property, reorganization, liquidation
or similar transaction involving the Company (or Parent or Subsidiary of the
Company) in substitution for any award made by such corporation. The terms and
conditions of the substitute Award may vary from the terms and conditions
required by the Plan and from those of the substituted award. The Committee
shall prescribe the provisions of the substitute Award.
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[CAPITAL ONE LOGO APPEARS HERE]
<PAGE>
REVOCABLE PROXY
CAPITAL ONE FINANCIAL CORPORATION
Annual Meeting of Stockholders -- April 29, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Richard D. Fairbank and John G.
P Finneran, Jr., and either of them, proxies of the undersigned, with full
R power of substitution, to vote all the shares of Common Stock of Capital
O One Financial Corporation, a Delaware corporation (the "Corporation"), held
X of record by the undersigned on March 1, 1999, at the Annual Meeting of
Y Stockholders to be held April 29, 1999, and at any adjournment thereof.
This Proxy when properly executed will be voted as specified by the
undersigned stockholder. If no choice is specified by the stockholder, this
proxy will be voted "For" all portions of Items (1), (2) and (3), and in
the proxies' discretion on any other matters coming before the meeting.
The undersigned hereby revokes any proxy or proxies heretofore given
to vote upon or act with respect to such stock and hereby ratifies and
confirms all that said proxies, their substitutes or any of them may
lawfully do by virtue hereof.
Nominees for the Election of Directors are:
1. James A. Flick 2. Patrick W. Gross 3. James V. Kimsey
(Continued and to be dated and signed on reverse side)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Fold and Detach Here if You Are Returning Your Proxy Solicitation/
Voting Instruction Card By Mail
<PAGE>
<TABLE>
<S> <C>
[ X ] Please mark your 2539
votes as in this
example.
- -----------------------------------------------------------------------------------------------------------------------------------
Directors recommend a vote FOR Items 1, 2 and 3.
- -----------------------------------------------------------------------------------------------------------------------------------
WITHHOLD
FOR AUTHORITY FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
1. Election of [ ] [ ] 2. Approval of the [ ] [ ] [ ] 3. Ratification of the [ ] [ ] [ ]
Directors 1994 Stock selection of Ernst &
(All nominees listed Incentive Plan, Young LLP as
on reverse side.) as amended. independent auditors
of the Company
To withhold authority to vote for any individual nominee, write such for 1999.
nominee's name in the space provided below
4. In their discretion
- -------------------------------------------------------------------- the proxies are
authorized to vote
upon such other
matters as may come
before the meeting or
any adjournment thereof.
- -----------------------------------------------------------------------------------------------------------------------------------
[ ] Mark this box to receive information
about electronic delivery of next
year's annual meeting materials.
All as more particularly described in
the Company's Proxy Statement for the
Annual Meeting of Stockholders to be
held on April 29, 1999, receipt of
which is hereby acknowledged.
Please date this Proxy Card and sign
your name exactly as it appears
hereon. Where there is more than one
owner, each should sign. When signing
as an attorney, administrator,
executor, guardian or trustee, please
add your title as such. If executed by
a corporation, this Proxy Card should
be signed by a duly authorized officer
indicating such officer's authority.
If executed by a partnership, please
sign in partnership name by authorized
persons indicating such authority.
SIGNATURE (S) DATE
------------------------------------------------------- ----------------
</TABLE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Fold and Detach Here If You Are Returning Your Proxy Solicitation/
Voting Instruction Card By Mail
CAPITAL ONE FINANCIAL CORPORATION
Annual Meeting of Stockholders
Thursday, April 29, 1999, 10:00 a.m.
Fairview Park Marriott Hotel
3111 Fairview Park Drive
Falls Church, VA
22042-4525
Capital One Financial Corporation offers three convenient ways to vote
your shares. You can vote your shares by Internet or telephone 24 hours a day, 7
days a week, or you can vote by mail. To vote your shares by Internet or
telephone, have this card and your social security number available.
1. To vote by Internet:
. Log on to the Internet and go to the web site http://www.vote-by-net.com
2. To vote by telephone:
. On a touch-tone telephone, call 1-800-OK2-vote (1-800-652-8683)
Your Internet or telephone vote authorizes the named proxies to vote your
shares in the same manner as if you had voted by mail. Both the Internet and
telephone voting systems preserve the confidentiality of your vote and will
confirm your voting instructions with you prior to submission.
3. To vote by mail:
. Mark, sign and date your proxy card and return it in the postage-paid
envelope. If you have voted your shares through the Internet or by
telephone, you do not need to mail back your proxy card.
YOUR VOTE IS IMPORTANT TO US. THANK YOU FOR VOTING.
