UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________.
Commission file number 1-13300
CAPITAL ONE FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 54-1719854
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2980 Fairview Park Drive, Suite 1300, Falls Church, Virginia 22042-4525
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(Address of principal executive offices) (Zip Code)
(703) 205-1000
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(Registrant's telephone number, including area code)
(Not Applicable)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of July 31, 2000 there were 196,214,267 shares of the registrant's Common
Stock, par value $.01 per share, outstanding.
<PAGE>
CAPITAL ONE FINANCIAL CORPORATION
FORM 10-Q
INDEX
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June 30, 2000
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets...............3
Condensed Consolidated Statements of Income.........4
Condensed Consolidated Statements of Changes
in Stockholders' Equity..........................5
Condensed Consolidated Statements of
Cash Flows.......................................6
Notes to Condensed Consolidated Financial
Statements.......................................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations......................................10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................28
Signatures..............................................28
<PAGE>
Item 1.
CAPITAL ONE FINANCIAL CORPORATION
Condensed Consolidated Balance Sheets
(dollars in thousands, except per share data)(unaudited)
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
------------------------------------------------------------------ --------------- --------------
<S> <C> <C>
Assets:
Cash and due from banks $ 100,999 $ 134,065
Federal funds sold and resale agreements 10,000
Interest-bearing deposits at other banks 78,226 112,432
------------------------------------------------------------------ -------------- --------------
Cash and cash equivalents 189,225 246,497
Securities available for sale 1,507,770 1,856,421
Consumer loans 11,382,780 9,913,549
Less: Allowance for loan losses (407,000) (342,000)
------------------------------------------------------------------ -------------- --------------
Net loans 10,975,780 9,571,549
Premises and equipment, net 545,262 470,732
Interest receivable 51,799 64,637
Accounts receivable from securitizations 1,302,424 661,922
Other 554,631 464,685
------------------------------------------------------------------ -------------- --------------
Total assets $ 15,126,891 $ 13,336,443
------------------------------------------------------------------ -------------- --------------
Liabilities:
Interest-bearing deposits $ 5,288,927 $ 3,783,809
Other borrowings 2,773,050 2,780,466
Senior notes 4,176,394 4,180,548
Interest payable 96,493 116,405
Other 1,146,451 959,608
------------------------------------------------------------------ -------------- --------------
Total liabilities 13,481,315 11,820,836
Stockholders' Equity:
Preferred stock, par value $.01 per share; authorized
50,000,000 shares, none issued or outstanding
Common stock, par value $.01 per share; authorized
1,000,000,000 and 300,000,000 shares, and 199,670,421
issued as of June 30, 2000 and December 31, 1999, respectively 1,997 1,997
Paid-in capital, net 578,915 613,590
Retained earnings 1,231,193 1,022,296
Cumulative other comprehensive loss (33,823) (31,262)
Less: Treasury stock, at cost; 3,649,375 and 2,624,006
shares as of June 30, 2000 and December 31, 1999,
respectively (132,706) (91,014)
------------------------------------------------------------------ -------------- --------------
Total stockholders' equity 1,645,576 1,515,607
------------------------------------------------------------------ ------------- -------------
Total liabilities and stockholders' equity $ 15,126,891 $ 13,336,443
------------------------------------------------------------------ -------------- --------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
CAPITAL ONE FINANCIAL CORPORATION
Condensed Consolidated Statements of Income
(in thousands, except per share data) (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
---------------------------------------------------- ------------------------ --------------------------
2000 1999 2000 1999
---------------------------------------------------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income:
Consumer loans, including fees $ 511,886 $ 353,193 $ 1,000,823 $ 678,260
Securities available for sale 22,845 23,522 47,579 49,745
Other 1,776 1,058 3,552 2,839
---------------------------------------------------- ---------- ---------- ----------- ------------
Total interest income 536,507 377,773 1,051,954 730,844
Interest Expense:
Deposits 63,619 26,438 115,739 50,380
Other borrowings 46,914 21,196 88,368 46,748
Senior notes 62,016 80,654 130,392 153,149
---------------------------------------------------- ---------- ---------- ----------- ------------
Total interest expense 172,549 128,288 334,499 250,277
---------------------------------------------------- ---------- ---------- ----------- ------------
Net interest income 363,958 249,485 717,455 480,567
Provision for loan losses 151,010 74,301 277,535 148,887
---------------------------------------------------- ---------- ---------- ----------- ------------
Net interest income after provision for loan losses 212,948 175,184 439,920 331,680
Non-Interest Income:
Servicing and securitizations 282,640 293,606 553,398 565,560
Service charges and other fees 374,706 244,874 715,938 467,327
Interchange 53,461 33,567 96,531 63,786
---------------------------------------------------- ---------- ---------- ----------- ------------
Total non-interest income 710,807 572,047 1,365,867 1,096,673
Non-Interest Expense:
Salaries and associate benefits 236,618 194,461 471,454 373,655
Marketing 211,560 178,242 413,498 354,330
Communications and data processing 72,933 62,478 143,755 120,550
Supplies and equipment 58,167 42,303 110,441 79,007
Occupancy 27,250 16,381 52,542 30,295
Other 135,736 112,272 260,494 196,553
---------------------------------------------------- ---------- ---------- ----------- ------------
Total non-interest expense 742,264 606,137 1,452,184 1,154,390
---------------------------------------------------- ---------- ---------- ----------- ------------
Income before income taxes 181,491 141,094 353,603 273,963
Income taxes 68,966 53,616 134,369 104,106
---------------------------------------------------- ---------- ---------- ----------- ------------
Net income $ 112,525 $ 87,478 $ 219,234 $ 169,857
---------------------------------------------------- ---------- ---------- ----------- ------------
Basic earnings per share $ 0.57 $ 0.44 $ 1.11 $ 0.86
---------------------------------------------------- ---------- ---------- ----------- ------------
Diluted earnings per share $ 0.54 $ 0.41 $ 1.05 $ 0.80
---------------------------------------------------- ---------- ---------- ----------- ------------
Dividends paid per share $ 0.03 $ 0.03 $ 0.05 $ 0.05
---------------------------------------------------- ---------- ---------- ----------- ------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
CAPITAL ONE FINANCIAL CORPORATION
Condensed Consolidated Statements of Changes in Stockholders' Equity
(dollars in thousands, except per share data) (unaudited)
<TABLE>
<CAPTION>
Cumulative
Other Total
Common Stock Paid-In Retained Comprehensive Treasury Stockholders'
Shares Amount Capital, Net Earnings Income (Loss) Stock Equity
------------------------------------------- ----------- ------ ----------- ----------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 199,670,376 $1,997 $ 598,167 $ 679,838 $ 60,655 $ (70,251) $ 1,270,406
Comprehensive income:
Net income 169,857 169,857
Other comprehensive income, net of income tax:
Unrealized losses on securities, net of income
tax benefit of $31,048 (50,657) (50,657)
Foreign currency translation adjustments 2,720 2,720
---------- ------------
Other comprehensive income (47,937) (47,937)
------------
Comprehensive income 121,920
Cash dividends - $.0533 per share (10,328) (10,328)
Purchases of treasury stock (53,410) (53,410)
Issuances of common stock 45 1,311 20 2,002 3,333
Exercise of stock options (21,215) 43,697 22,482
Common stock issuable under incentive plan 46,372 46,372
Other items, net 2,161 2,161
------------------------------------------ ----------- ------ ---------- ---------- ---------- --------- -------------
Balance, June 30, 1999 199,670,421 $1,997 $ 626,796 $ 839,387 $ 12,718 $ (77,962) $ 1,402,936
----------------------------------------- ----------- ------ ---------- ---------- ---------- --------- -------------
Balance, December 31, 1999 199,670,421 $1,997 $ 613,590 $1,022,296 $(31,262) $ (91,014) $ 1,515,607
Comprehensive income:
Net income 219,234 219,234
Other comprehensive income, net of income tax:
Unrealized losses on securities, net of income
tax benefit of $981 (1,601) (1,601)
Foreign currency translation adjustments (960) (960)
---------- -------------
Other comprehensive income (2,561) (2,561)
-------------
Comprehensive income 216,673
Cash dividends - $.0533 per share (10,337) (10,337)
Purchases of treasury stock (99,486) (99,486)
Issuances of common stock (1,299) 9,347 8,048
Exercise of stock options (41,245) 48,447 7,202
Common stock issuable under incentive plan 5,083 5,083
Other items, net 2,786 2,786
----------------------------------------- ----------- ------ ---------- ---------- ---------- --------- --------------
Balance, June 30, 2000 199,670,421 $1,997 $ 578,915 $1,231,193 $ (33,823) $(132,706) $ 1,645,576
---------------------------------------- ----------- ------ ---------- ---------- ---------- --------- --------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
CAPITAL ONE FINANCIAL CORPORATION
Condensed Consolidated Statements of Cash Flows
(in thousands) (unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
------------------------------------------------------------ --------------------------------
2000 1999
------------------------------------------------------------ ------------- ---------------
<S> <C> <C>
Operating Activities:
Net income $ 219,234 $ 169,857
Adjustments to reconcile net income to cash
provided by operating activities:
Provision for loan losses 277,535 148,887
Depreciation and amortization, net 55,843 76,294
Stock compensation plans 5,083 46,372
Decrease (increase) in interest receivable 12,838 (7,941)
Increase in accounts receivable from securitizations (642,973) (102,057)
Increase in other assets (96,846) (120,326)
(Decrease) increase in interest payable (19,912) 9,513
Increase in other liabilities 186,843 91,619
------------------------------------------------------------ ------------- -------------
Net cash (used in) provided by operating activities (2,355) 312,218
------------------------------------------------------------ ------------- -------------
Investing Activities:
Purchases of securities available for sale (150,062) (455,572)
Proceeds from maturities of securities available for sale 66,423 141,207
Proceeds from sales of securities available for sale 432,046 462,071
Proceeds from securitization of consumer loans 616,511 1,225,043
Net increase in consumer loans (2,412,433) (2,676,109)
Recoveries of loans previously charged off 106,811 55,967
Additions of premises and equipment, net (115,079) (157,732)
------------------------------------------------------------ ------------- -------------
Net cash used in investing activities (1,455,783) (1,405,125)
------------------------------------------------------------ ------------- -------------
Financing Activities:
Net increase in interest-bearing deposits 1,505,118 414,954
Net decrease in other borrowings (7,416) (287,905)
Issuances of senior notes 994,176 1,120,059
Payments of senior notes (998,638) (320,000)
Dividends paid (10,337) (10,328)
Purchases of treasury stock (99,486) (53,410)
Net proceeds from issuances of common stock 10,247 5,086
Proceeds from exercise of stock options 7,202 22,482
------------------------------------------------------------ ------------- -------------
Net cash provided by financing activities 1,400,866 890,938
------------------------------------------------------------ ------------- -------------
Decrease in cash and cash equivalents (57,272) (201,969)
Cash and cash equivalents at beginning of period 246,497 300,167
------------------------------------------------------------ ------------- -------------
Cash and cash equivalents at end of period $ 189,225 $ 98,198
------------------------------------------------------------ ------------- -------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
CAPITAL ONE FINANCIAL CORPORATION
Notes to Condensed Consolidated Financial Statements
June 30, 2000
(in thousands, except per share data) (unaudited)
Note A: Basis of Presentation
The consolidated financial statements include the accounts of Capital
One Financial Corporation (the "Corporation") and its subsidiaries. The
Corporation is a holding company whose subsidiaries provide a variety of
products and services to consumers. The principal subsidiaries are Capital One
Bank (the "Bank"), which offers credit card products, and Capital One, F.S.B.
(the "Savings Bank"), which offers consumer lending (including credit cards) and
deposit products. The Corporation and its subsidiaries are collectively referred
to as the "Company."
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
("GAAP") for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by GAAP for complete consolidated
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from these estimates. Operating results for the three and six
months ended June 30, 2000 are not necessarily indicative of the results for the
year ending December 31, 2000. The notes to the consolidated financial
statements contained in the Annual Report on Form 10-K for the year ended
December 31, 1999 should be read in conjunction with these condensed
consolidated financial statements. All significant intercompany balances and
transactions have been eliminated. Certain prior period amounts have been
reclassified to conform to the 2000 presentation.
Note B: Significant Accounting Policies
Cash and Cash Equivalents
Cash paid for interest for the six months ended June 30, 2000 and 1999
was $354,411 and $237,337, respectively. Cash paid for income taxes for the six
months ended June 30, 2000 and 1999 was $152,500 and $136,510, respectively.
Note C: Recent Accounting Pronouncement
In June 2000, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities - an amendment of
FASB Statement No. 133". In June 1999, the FASB issued SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133". SFAS No. 138, SFAS No. 137 and SFAS No. 133
(all together "SFAS 133 as amended") will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through earnings. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. SFAS 133 as amended is effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000. The adoption of SFAS 133 as
amended is not expected to have a material effect on the Company's financial
position or results of operations.
Note D: Borrowings
In June 2000, the Bank entered into a Senior and Subordinated Global
Bank Note Program, from which it may issue and sell up to a maximum of U.S.
$5,000,000 aggregate principal amount (or the equivalent thereof in other
currencies) of senior global bank notes and subordinated global bank notes with
maturities from 30 days to 30 years. This Global Bank Note Program must be
renewed annually. As of June 30, 2000, the Bank had issued and outstanding
$200,000 in floating rate and $800,000 in fixed rate senior global bank notes
with maturities of three and five years, respectively.
Note E: Comprehensive Income
Comprehensive income for the three months ended June 30, 2000 and 1999
was as follows:
Three Months Ended
June 30
---------------------------- -------------------------------------
2000 1999
---------------------------- ---------------- ----------------
Comprehensive Income:
Net income $ 112,525 $ 87,478
Other comprehensive income (2,021) (9,836)
---------------------------- ---------------- ----------------
Total comprehensive income $ 110,504 $ 77,642
---------------------------- ---------------- ----------------
Note F: Associate Stock Plan
In May 2000, the Company's Board of Directors approved a stock options
grant to certain members of the Company's management. This grant was composed of
1,690,380 options to all managers, excluding the Company's Chief Executive
Officer and Chief Operating Officer, at the fair market value on the date of
grant. All options under this grant will vest ratably over three years.
Note G: Earnings Per Share
Basic earnings per share is based on the weighted average number of
common shares outstanding, excluding any dilutive effects of options. Diluted
earnings per share is based on the weighted average number of common and common
equivalent shares, dilutive stock options or other dilutive securities
outstanding during the year.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------------------------------ ------------------------ -------------------------
(shares in thousands) 2000 1999 2000 1999
------------------------------------------------ ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net income $ 112,525 $ 87,478 $ 219,234 $ 169,857
Denominator:
Denominator for basic earnings per share -
Weighted-average shares 196,012 197,642 196,328 197,632
Effect of dilutive securities:
Stock options 12,621 13,857 12,343 13,495
Denominator for diluted earnings per share -
Adjusted weighted-average shares 208,633 211,499 208,671 211,127
------------------------------------------------ ---------- ---------- ---------- -----------
Basic earnings per share $ 0.57 $ 0.44 $ 1.11 $ 0.86
------------------------------------------------ ---------- ---------- ---------- -----------
Diluted earnings per share $ 0.54 $ 0.41 $ 1.05 $ 0.80
------------------------------------------------ ---------- ---------- ---------- -----------
</TABLE>
Note H: Commitments and Contingencies
In connection with the transfer of substantially all of Signet Bank's
credit card business to the Bank in November 1994, the Company and the Bank
agreed to indemnify Signet Bank (which was acquired by First Union Bank on
November 30, 1997) for certain liabilities incurred in litigation arising from
that business, which may include liabilities, if any, incurred in the purported
class action case described below.
During 1995, the Company and the Bank became involved in a purported
class action suit relating to certain collection practices engaged in by Signet
Bank and, subsequently, by the Bank. The complaint in this case alleges that
Signet Bank and/or the Bank violated a variety of California state statutes and
constitutional and common law duties by filing collection lawsuits, obtaining
judgements and pursuing garnishment proceedings in the Virginia state courts
against defaulted credit card customers who were not residents of Virginia. This
case was filed in the Superior Court of California in the County of Alameda,
Southern Division, on behalf of a class of California residents. The complaint
in this case seeks unspecified statutory damages, compensatory damages, punitive
damages, restitution, attorneys' fees and costs, a permanent injunction and
other equitable relief.
In early 1997, the California court entered judgement in favor of the
Bank on all of the plaintiffs' claims. The plaintiffs appealed the ruling to the
California Court of Appeals First Appellate District Division 4. In early 1999,
the Court of Appeals affirmed the trial court's ruling in favor of the Bank on
six counts, but reversed the trial court's ruling on two counts of the
plaintiffs' complaint. The California Supreme Court rejected the Bank's Petition
for Review of the remaining two counts and remitted them to the trial court for
further proceedings. In August 1999, the trial court denied without prejudice
plaintiffs' motion to certify a class on the one remaining common law claim. In
November 1999, the United States Supreme Court denied the Bank's writ of
certiorari on the remaining two counts, declining to exercise its discretionary
power to review these issues.
Subsequently, the Bank moved for summary judgement on the two remaining
counts and for a ruling that a class cannot be certified in this case. The
motion for summary judgement was granted in favor of the Bank on both counts,
but the plaintiffs were granted leave to amend the complaint.
Because no specific measure of damages is demanded in the complaint of
the California case and the trial court entered judgement in favor of the Bank
before the parties completed any significant discovery, an informed assessment
of the ultimate outcome of this case cannot be made at this time. Management
believes, however, that there are meritorious defenses to this lawsuit and
intends to defend it vigorously.
The Company is commonly subject to various other pending and threatened
legal actions arising from the conduct of its normal business activities. In the
opinion of management, the ultimate aggregate liability, if any, arising out of
any pending or threatened action will not have a material adverse effect on the
consolidated financial condition of the Company. At the present time, however,
management is not in a position to determine whether the resolution of pending
or threatened litigation will have a material effect on the Company's results of
operations in any future reporting period.
<PAGE>
Item 2.
CAPITAL ONE FINANCIAL CORPORATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Introduction
Capital One Financial Corporation (the "Corporation") is a holding
company whose subsidiaries provide a variety of products and services to
consumers using its Information-Based Strategy ("IBS"). The principal
subsidiaries are Capital One Bank (the "Bank"), which offers credit card
products, and Capital One, F.S.B. (the "Savings Bank"), which offers consumer
lending products (including credit cards) and deposit products. The Corporation
and its subsidiaries are collectively referred to as the "Company." As of June
30, 2000, the Company had 27.1 million customers and $21.9 billion in managed
consumer loans outstanding and was one of the largest providers of MasterCard
and Visa credit cards in the world. The Company's profitability is affected by
the net interest income and non-interest income earned on earning assets,
consumer usage patterns, credit quality, the level of marketing expense and
operating efficiency.
Earnings Summary
Net income for the three months ended June 30, 2000 of $112.5 million,
or $.54 per share, compares to net income of $87.5 million, or $.41 per share,
for the same period in 1999. The increase in net income is primarily a result of
an increase in asset and account volumes and rates. Net interest income
increased $114.5 million, or 46%, as the net interest margin increased to 12.45%
from 10.80% and average earning assets increased by 27%. The provision for loan
losses increased $76.7 million, or 103%, and average reported loans increased by
35%. Non-interest income increased $138.8 million, or 24%, primarily as a result
of an increase in average accounts of 40% and an increase in the frequency of
certain fees charged due to increased purchase volume. Marketing expense
increased $33.3 million, or 19%, to $211.6 million as the Company continues to
invest in new product opportunities. Salaries and associate benefits expense
increased $42.2 million, or 22%. The $60.6 million, or 26%, increase in all
other non-interest expenses as well as the increase in salaries and associate
benefits expense primarily reflected increased staff, the cost of operations and
the building of infrastructure to manage the growth in accounts and new product
opportunities. Each component is discussed in further detail in subsequent
sections of this analysis.
Net income for the six months ended June 30, 2000 was $219.2 million,
or $1.05 per share, compared to $169.9 million, or $.80 per share, for the same
period in 1999. This 29% increase in net income primarily reflected the
increases in asset and account volumes accompanied by an increase in net
interest margin as discussed above. Each component is discussed in further
detail in subsequent sections of this analysis.
Managed Consumer Loan Portfolio
The Company analyzes its financial performance on a managed consumer
loan portfolio basis. Managed consumer loan adds back the effect of off-balance
sheet consumer loans. The Company also evaluates its interest rate exposure on a
managed portfolio basis.
The Company's managed consumer loan portfolio is comprised of reported
and off-balance sheet loans. Off-balance sheet loans are those which have been
securitized and accounted for as sales in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities" ("SFAS 125"), and are not
assets of the Company. Therefore, those loans are not shown on the balance
sheet.
Table 1 summarizes the Company's managed consumer loan portfolio.
------------------------------------------------------------------------------
Table 1 - Managed Consumer Loan Portfolio
------------------------------------------------------------------------------
Three Months Ended
June 30
---------------------------------------------- ------------------------------
(in thousands) 2000 1999
---------------------------------------------- ------------- --------------
Period-End Balances:
Reported consumer loans $ 11,382,780 $ 7,426,974
Off-balance sheet consumer loans 10,499,775 10,433,163
---------------------------------------------- ------------- --------------
Total managed consumer loan portfolio $ 21,882,555 $ 17,860,137
---------------------------------------------- ------------- --------------
Average Balances:
Reported consumer loans $ 10,028,330 $ 7,406,257
Off-balance sheet consumer loans 10,886,795 10,191,314
---------------------------------------------- ------------- --------------
Total average managed consumer loan portfolio $ 20,915,125 $ 17,597,571
---------------------------------------------- ------------- --------------
Six Months Ended
June 30
---------------------------------------------- ------------------------------
(in thousands) 2000 1999
---------------------------------------------- ------------- --------------
Average Balances:
Reported consumer loans $ 9,866,632 $ 7,120,578
Off-balance sheet consumer loans 10,681,618 10,396,421
---------------------------------------------- ------------- --------------
Total average managed consumer loan portfolio $ 20,548,250 $ 17,516,999
---------------------------------------------- ------------- --------------
Since 1990, the Company has actively engaged in consumer loan
securitization transactions. Securitization involves the transfer by the Company
of a pool of loan receivables to an entity created for securitizations,
generally a trust or other special purpose entity ("the trusts"). The credit
quality of the receivables is supported by credit enhancements, which may be in
various forms including a letter of credit, a cash collateral guaranty or
account, or a subordinated interest in the receivables in the pool. Certificates
representing undivided ownership interests in the receivables are sold to the
public through an underwritten offering or to private investors in private
placement transactions. The Company receives the proceeds of the sale. The
Company retains an interest in the trusts ("seller's interest") equal to the
amount of the receivables transferred to the trust in excess of the principal
balance of the certificates. The Company's interest in the trusts varies as the
amount of the excess receivables in the trusts fluctuates as the accountholders
make principal payments and incur new charges on the selected accounts. The
securitization generally results in the removal of the receivables, other than
the seller's interest, from the Company's balance sheet for financial and
regulatory accounting purposes.
The Company's relationship with its customers is not affected by the
securitization. The Company acts as a servicing agent and receives a fee for
doing so.
Collections received from securitized receivables are used to pay
interest to certificateholders, servicing and other fees, and are available to
absorb the investors' share of credit losses. Amounts collected in excess of
that needed to pay the above amounts are remitted to the Company, as described
in Servicing and Securitizations Income.
Certificateholders in the Company's securitization program are
generally entitled to receive principal payments either through monthly payments
during an amortization period or in one lump sum after an accumulation period.
Amortization may begin sooner in certain circumstances, including if the
annualized portfolio yield (consisting, generally, of interest and fees) for a
three-month period drops below the sum of the certificate rate payable to
investors, loan servicing fees and net credit losses during the period.
Prior to the commencement of the amortization or accumulation period,
all principal payments received on the trusts' receivables are reinvested in new
receivables to maintain the principal balance of certificates. During the
amortization period, the investors' share of principal payments is paid to the
certificateholders until they are paid in full. During the accumulation period,
the investors' share of principal payments is paid into a principal funding
account designed to accumulate amounts so that the certificates can be paid in
full on the expected final payment date.
Table 2 indicates the impact of the consumer loan securitizations on
average earning assets, net interest margin and loan yield for the periods
presented. The Company intends to continue to securitize consumer loans.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Table 2 - OPERATING DATA AND RATIOS
----------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
-------------------------- -------------------------------- -------------------------------
(dollars in thousands) 2000 1999 2000 1999
-------------------------- -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Reported:
Average earning assets $ 11,694,459 $ 9,237,115 $ 11,626,081 $ 9,061,481
Net interest margin(1) 12.45% 10.80% 12.34% 10.61%
Loan yield 20.42 19.08 20.29 19.05
-------------------------- -------------- ------------- -------------- --------------
Managed:
Average earning assets $ 22,581,254 $ 19,428,429 $ 22,307,699 $ 19,457,902
Net interest margin(1) 10.88% 10.85% 11.06% 10.70%
Loan yield 17.94 17.43 18.00 17.27
-------------------------- -------------- ------------- -------------- --------------
</TABLE>
(1) Net interest margin is equal to net interest income divided by average
earning assets.
Risk Adjusted Revenue and Margin
The Company's products are designed with the objective of maximizing
revenue for the level of risk undertaken. Management believes that comparable
measures for external analysis are the risk adjusted revenue and risk adjusted
margin of the managed portfolio. Risk adjusted revenue is defined as net
interest income and non-interest income less net charge-offs. Risk adjusted
margin measures risk adjusted revenue as a percentage of average earning assets.
It considers not only the loan yield and net interest margin, but also the fee
income associated with these products. By deducting net charge-offs,
consideration is given to the risk inherent in these differing products.
The Company markets its card products to specific consumer populations.
The terms of each card product are actively managed in an effort to maximize
return at the consumer level, reflecting the risk and expected performance of
the account. For example, card product terms typically include the ability to
reprice individual accounts upwards or downwards based on the consumer's
performance. In addition, since 1998, the Company has aggressively marketed low
non-introductory rate cards to consumers with the best established credit
profiles to take advantage of the favorable risk return characteristics of this
consumer type. Industry competitors have continuously solicited the Company's
customers with similar interest rate strategies. Management believes the
competition has put, and will continue to put, additional pressure on the
Company's pricing strategies.
By applying its IBS and in response to dynamic competitive pressures,
the Company also targets a significant amount of its marketing expense to other
credit card product opportunities. Examples of such products include secured
cards and other customized card products including affinity and co-branded
cards, student cards and other cards targeted to certain markets that are
underserved by the Company's competitors. These products do not have a
significant, immediate impact on managed loan balances; rather they typically
consist of lower credit limit accounts and balances that build over time. The
terms of these customized card products tend to include annual membership fees
and higher annual finance charge rates. The profile of the consumers targeted
for these products, in some cases, may also tend to result in higher account
delinquency rates and consequently higher past-due and overlimit fees as a
percentage of loan receivables outstanding than the low non-introductory rate
products.
Table 3 provides income statement data and ratios for the Company's
managed consumer loan portfolio. The causes of increases and decreases in the
various components of risk adjusted revenue are discussed in further detail in
subsequent sections of this analysis.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Table 3 - Managed risk adjusted revenue
-----------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------------------ ------------------------- -----------------------------
(dollars in thousands) 2000 1999 2000 1999
------------------------------ ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Managed Income Statement:
Net interest income $ 614,352 $ 527,099 $ 1,233,206 $ 1,041,037
Non-interest income 554,425 398,477 1,043,722 756,124
Net charge-offs (207,643) (164,004) (402,919) (335,133)
------------------------------ ----------- ----------- ------------- -------------
Risk adjusted revenue $ 961,134 $ 761,572 $ 1,874,009 $ 1,462,028
------------------------------ ----------- ----------- ------------- -------------
Ratios(1):
Net interest margin 10.88% 10.85% 11.06% 10.70%
Non-interest income 9.82 8.20 9.36 7.77
Net charge-offs (3.67) (3.37) (3.62) (3.44)
------------------------------ ----------- ----------- ------------- -------------
Risk adjusted margin 17.03% 15.68% 16.80% 15.03%
------------------------------ ----------- ----------- ------------- -------------
</TABLE>
(1) As a percentage of average managed earning assets.
Net Interest Income
Net interest income is interest and past-due fees earned from the
Company's consumer loans and securities less interest expense on borrowings,
which includes interest-bearing deposits, other borrowings and borrowings from
senior notes.
Reported net interest income for the three months ended June 30, 2000
was $364.0 million, compared to $249.5 million for the same period in the prior
year, representing an increase of $114.5 million, or 46%. For the six months
ended June 30, 2000, net interest income was $717.5 million compared to $480.6
million for the same period in 1999, representing an increase of $236.9 million,
or 49%. Net interest margin increased 165 and 173 basis points for the three and
six months ended June 30, 2000, respectively, compared to the same periods in
the prior year. These increases were primarily a result of the increases in the
yield on earning assets of 199 and 197 basis points for the three and six months
ended June 30, 2000, respectively, to 18.35% from 16.36% and to 18.10% from
16.13% as compared to the same periods in the prior year. The increase in the
yield on earning assets was primarily attributable to an increase in the average
balance in the consumer loan portfolio of 35% and 39% for the three and six
months ended June 30, 2000, respectively, as well as an increase in the yield on
those consumer loans. The yield on consumer loans increased 134 and 124 basis
points, respectively, as a result of a slight shift in the mix of the portfolio
to higher yielding assets and an increase in the frequency of past-due fees
charged as compared to the same periods in the prior year.
Managed net interest income increased $87.3 million and $192.2 million,
or 17% and 18%, for the three and six months ended June 30, 2000, respectively,
compared to the same periods in the prior year. The increases in managed net
interest income were the result of a 16% and 15% increase in managed average
earning assets and the managed net interest margin increasing 3 and 36 basis
points to 10.88% and 11.06% for the three and six months ended June 30, 2000,
respectively. The increases in managed net interest margin principally reflect
the increases in average earning asset composition and earning asset yields
discussed above.
Table 4 provides average balance sheet data, an analysis of net
interest income, net interest spread (the difference between the yield on
earning assets and the cost of interest-bearing liabilities) and net interest
margin for the three and six months ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Table 4 - STATEMENTS OF AVERAGE BALANCES, INCOME AND EXPENSE, YIELDS AND RATES
------------------------------------------------------------------------------------------------------------
Three Months Ended June 30
----------------------------------------------------------------------------
2000 1999
------------------------------------- -------------------------------------
Average Income/ Yield/ Average Income/ Yield/
(dollars in thousands) Balance Expense Rate Balance Expense Rate
------------------------------- ------------- ---------- --------- ----------- --------- ---------
Assets:
Earning assets
<S> <C> <C> <C> <C> <C> <C>
Consumer loans(1) $ 10,028,330 $ 511,886 20.42% $ 7,406,257 $ 353,193 19.08%
Securities available for
sale 1,519,369 22,845 6.01 1,673,433 23,522 5.62
Other 146,760 1,776 4.84 157,425 1,058 2.69
------------------------------- ------------ ---------- ------ ----------- ---------- ------
Total earning assets 11,694,459 $ 536,507 18.35% 9,237,115 $ 377,773 16.36%
Cash and due from banks 91,330 16,961
Allowance for loan losses (377,833) (253,500)
Premises and equipment, net 537,187 320,661
Other 1,751,490 1,324,335
------------------------------- ------------ ---------- ------ ----------- ---------- ------
Total assets $ 13,696,633 $10,645,572
------------------------------- ------------ ---------- ------ ----------- ---------- ------
Liabilities and Equity:
Interest-bearing liabilities
Deposits $ 4,495,242 $ 63,619 5.66% $ 2,270,769 $ 26,438 4.66%
Other borrowings 2,687,569 46,914 6.98 1,599,977 21,196 5.30
Senior notes 3,659,603 62,016 6.78 4,620,921 80,654 6.98
------------------------------- ------------ ---------- ------ ----------- ---------- ------
Total interest-bearing
liabilities 10,842,414 $ 172,549 6.37% 8,491,667 $ 128,288 6.04%
Other 1,227,904 780,168
------------------------------- ------------ ---------- ------ ----------- ---------- ------
Total liabilities 12,070,318 9,271,835
Equity 1,626,315 1,373,737
------------------------------- ------------ ---------- ------ ----------- ---------- ------
Total liabilities and equity $ 13,696,633 $10,645,572
------------------------------- ------------ ---------- ------ ----------- ---------- ------
Net interest spread 11.98% 10.32%
------------------------------- ------------ ---------- ------ ----------- ---------- ------
Interest income to
average earning assets 18.35% 16.36%
Interest expense to
average earning assets 5.90 5.56
------------------------------- ------------ ---------- ------ ----------- ---------- ------
Net interest margin 12.45% 10.80%
------------------------------- ------------ ---------- ------ ----------- ---------- ------
</TABLE>
(1) Interest income includes past-due fees on loans of approximately $184,589
and $111,913 for the three months ended June 30, 2000 and 1999,
respectively.
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30
------------------------------------- ------------------------------------------------------------------------------
2000 1999
------------------------------------- ------------------------------------- --------------------------------------
Average Income/ Yield/ Average Income/ Yield/
(dollars in thousands) Balance Expense Rate Balance Expense Rate
------------------------------------- ------------- ------------- --------- --------------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Earning assets
Consumer loans(1) $ 9,866,632 $ 1,000,823 20.29% $ 7,120,578 $ 678,260 19.05%
Securities available for
sale 1,600,453 47,579 5.95 1,774,473 49,745 5.61
Other 158,996 3,552 4.47 166,430 2,839 3.41
------------------------------------- ------------- ------------- --------- --------------- ------------ --------
Total earning assets 11,626,081 $ 1,051,954 18.10% 9,061,481 $ 730,844 16.13%
Cash and due from banks 91,146 10,512
Allowance for loan losses (367,833) (246,417)
Premises and equipment, net 516,894 297,168
Other 1,494,304 1,276,324
------------------------------------- ------------- ------------- --------- --------------- ------------ --------
Total assets $ 13,360,592 $ 10,399,068
------------------------------------- ------------- ------------- --------- --------------- ------------ --------
Liabilities and Equity:
Interest-bearing liabilities
Deposits $ 4,194,746 $ 115,739 5.52% $ 2,186,397 $ 50,380 4.61%
Other borrowings 2,596,147 88,368 6.81 1,688,486 46,748 5.54
Senior notes 3,839,544 130,392 6.79 4,406,571 153,149 6.95
------------------------------------- ------------- ------------- --------- --------------- ------------ --------
Total interest-bearing liabilities 10,630,437 $ 334,499 6.29% 8,281,454 $ 250,277 6.04%
Other 1,133,546 779,782
------------------------------------- ------------- ------------- --------- --------------- ------------ --------
Total liabilities 11,763,983 9,061,236
Equity 1,596,609 1,337,832
------------------------------------- ------------- ------------- --------- --------------- ------------ --------
Total liabilities and equity $ 13,360,592 $ 10,399,068
------------------------------------- ------------- ------------- --------- --------------- ------------ --------
Net interest spread 11.81% 10.09%
------------------------------------- ------------- ------------- --------- --------------- ------------ --------
Interest income to
average earning assets 18.10% 16.13%
Interest expense to
average earning assets 5.76 5.52
------------------------------------- ------------- ------------- --------- --------------- ------------ --------
Net interest margin 12.34% 10.61%
------------------------------------- ------------- ------------- --------- --------------- ------------ --------
</TABLE>
(1) Interest income includes past-due fees on loans of approximately $347,364
and $219,061 for the six months ended June 30, 2000 and 1999, respectively.
<PAGE>
Interest Variance Analysis
Net interest income is affected by changes in the average interest rate
earned on earning assets and the average interest rate paid on interest-bearing
liabilities. In addition, net interest income is affected by changes in the
volume of earning assets and interest-bearing liabilities. Table 5 sets forth
the dollar amount of the increases (decreases) in interest income and interest
expense resulting from changes in the volume of earning assets and
interest-bearing liabilities and from changes in yields and rates.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Table 5 - INTEREST VARIANCE ANALYSIS
-----------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, 2000 vs 1999 June 30, 2000 vs 1999
---------------------------------- ----------------------------------------- -----------------------------------------
Increase Change due to(1) Increase Change due to(1)
(in thousands) (Decrease) Volume Yield/Rate (Decrease) Volume Yield/Rate
---------------------------------- ------------- ----------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Consumer loans $ 158,693 $ 132,382 $ 26,311 $ 322,563 $ 276,101 $ 46,462
Securities available for sale (677) (7,850) 7,137 (2,166) (8,782) 6,616
Other 718 (473) 1,191 713 (353) 1,066
---------------------------------- ------------ ----------- ------------- ------------- ------------ ------------
Total interest income 158,734 108,893 49,841 321,110 224,465 96,645
Interest Expense:
Deposits 37,181 30,475 6,706 65,359 53,797 11,562
Other borrowings 25,718 17,527 8,191 41,620 29,171 12,449
Senior notes (18,638) (16,351) (2,287) (22,757) (19,324) (3,433)
---------------------------------- ------------ ----------- ------------- ------------- ------------ ------------
Total interest expense 44,261 37,104 7,157 84,222 75,543 10,679
---------------------------------- ------------ ----------- ------------- ------------- ------------ ------------
Net interest income(1) $ 114,473 $ 72,797 $ 41,676 $ 236,888 $ 150,112 $ 86,776
------------------------------------------------ ----------- ------------- ------------- ------------ ------------
</TABLE>
(1) The change in interest due to both volume and rates has been allocated in
proportion to the relationship of the absolute dollar amounts of the change
in each. The changes in income and expense are calculated independently for
each line in the table. The totals for the volume and yield/rate columns
are not the sum of the individual lines.
Servicing and Securitizations Income
Servicing and securitization income represents servicing fees, excess
spread and other fees relating to consumer loan receivables sold through
securitization transactions, as well as gains and losses recognized as a result
of the securitization transactions. Servicing and securitizations income
decreased $11.0 million, or 4% to $282.6 million for the three months ended June
30, 2000, from $293.6 million in the same period in the prior year. Servicing
and securitizations income decreased $12.2 million, or 2% to $553.4 million for
the six months ended June 30, 2000, from $565.6 million in the same period in
the prior year. These decreases were primarily due to the increase in interest
expense as a result of increased interest rates, as well as a slight increase in
the average securitization liabilities.
In accordance with SFAS 125, the Company records gains or losses on the
securitizations of consumer loan receivables on the date of sale based on the
estimated fair value of assets sold and retained and liabilities incurred in the
sale. Gains represent the present value of estimated excess cash flows the
Company has retained over the estimated outstanding period of the receivable and
are included in servicing and securitization income. This excess cash flow
essentially represents an "interest only" ("I/O") strip, consisting of the
excess of finance charges and past-due fees over the sum of the return paid to
certificateholders, estimated contractual servicing fees and credit losses.
However, exposure to credit losses on the securitized loans is contractually
limited to these cash flows.
Certain estimates inherent in the determination of the fair value of
the I/O strip are influenced by factors outside the Company's control, and as a
result, such estimates could materially change in the near term. Any future
gains that will be recognized in accordance with SFAS 125 will be dependent on
the timing and amount of future securitizations. The Company will continuously
assess the performance of new and existing securitization transactions as
estimates of future cash flows change.
<PAGE>
Other Non-Interest Income
Interchange income increased to $53.5 million and $96.5 million, or
59%, and 51%, for the three and six months ended June 30, 2000, respectively,
compared to $33.6 million and $63.8 million for the same periods in the prior
year. These increases are primarily attributable to increased purchase volume
and new account growth in the three months ended June 30, 2000. Service charges
and other fees increased $129.8 million and $248.6 million, 53%, to $374.7
million and $715.9 million for the three and six months ended June 30, 2000,
respectively, compared the same periods in the prior year. These increases were
primarily due to the increase in average accounts of 40% for the three and six
months ended June 30, 2000, respectively, compared to the same periods in the
prior year and increased ancillary product sales through the use of IBS.
Non-Interest Expense
Non-interest expense for the three and six months ended June 30, 2000
was $742.3 million and $1.5 billion, respectively, an increase of 22% and 26%
over $606.1 million and $1.2 billion, respectively, for the same periods in the
prior year. Contributing to the increase in non-interest expense for the three
and six months ended June 30, 2000 was salaries and associate benefits expense
which increased $42.2 million, or 22%, and $97.8 million, or 26%, respectively.
Marketing expense increased $33.3 million and $59.2 million, or 19% and 17%, to
$211.6 million and $413.5 million for the three and six months ended June 30,
2000, respectively, as the Company continued to invest in new and existing
product opportunities. All other non-interest expenses increased $60.7 million
and $140.8 million, or 26% and 33%, to $294.1 million and $567.2 million for the
three and six months ended June 30, 2000, respectively, from $233.4 million and
$426.4 million for the same periods in the prior year. These increases were
primarily a result of a 40% increase in the average number of accounts for the
three and six months ended June 30, 2000, as compared to the same periods in the
prior year, as well as the Company's continued expansion into new product and
geographic markets, which resulted in a corresponding increase in all
operational costs.
Income Taxes
The Company's income tax rate was 38% for the three months ended June
30, 2000 and 1999 and includes both state and federal income tax components.
Asset Quality
The asset quality of a portfolio is generally a function of the initial
underwriting criteria used, seasoning of the accounts, levels of competition,
account management activities and demographic concentration, as well as general
economic conditions. The seasoning of the accounts is also an important
indicator of the delinquency and loss levels of the portfolio. Accounts tend to
exhibit a rising trend of delinquency and credit losses as they season.
Delinquencies
Table 6 shows the Company's consumer loan delinquency trends for the
periods presented on a reported and managed basis. The entire balance of an
account is contractually delinquent if the minimum payment is not received by
the payment due date. Delinquencies not only have the potential to impact
earnings if the account charges off, they also are costly in terms of the
personnel and other resources dedicated to resolving the delinquencies.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Table 6 - Delinquencies
-------------------------------------------------------------------------------------
June 30
----------------------- -----------------------------------------------------------
2000 1999
----------------------- ---------------------------- -----------------------------
% of % of
(dollars in thousands) Loans Total Loans Loans Total Loans
----------------------- -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Reported:
Loans outstanding $ 11,382,780 100.00% $ 7,426,974 100.00%
Loans delinquent:
30-59 days 299,055 2.63 167,399 2.25
60-89 days 172,491 1.52 91,717 1.24
90 or more days 304,286 2.67 138,264 1.86
----------------------- -------------- ------------ -------------- ------------
Total $ 775,832 6.82% $ 397,380 5.35%
----------------------- -------------- ------------ -------------- ------------
Managed:
Loans outstanding $ 21,882,555 100.00% $ 17,860,137 100.00%
Loans delinquent:
30-59 days 457,586 2.09 341,120 1.91
60-89 days 263,988 1.21 192,264 1.07
90 or more days 449,498 2.05 310,231 1.74
----------------------- -------------- ------------ -------------- ------------
Total $ 1,171,072 5.35% $ 843,615 4.72%
----------------------- -------------- ------------ -------------- ------------
</TABLE>
The 30-plus day delinquency rate for the reported consumer loan
portfolio was 6.82% as of June 30, 2000, up 147 basis points from 5.35% as of
June 30, 1999, and up 31 basis points from 6.51% as of March 31, 2000. The
30-plus day delinquency rate for the managed consumer loan portfolio was 5.35%
as of June 30, 2000, up 63 basis points from 4.72% as of June 30, 1999 and up 9
basis points from 5.26% as of March 31, 2000. Both the reported and managed
consumer loan delinquency rate increases as of June 30, 2000 principally
reflected more seasoned accounts. In addition, the mix of the reported loan
portfolio in the current period includes more accounts that tend to have higher
delinquencies than the portfolio average.
Net Charge-Offs
Net charge-offs include the principal amount of losses (excluding
accrued and unpaid finance charges, fees and fraud losses) less current period
recoveries. Table 7 shows the Company's net charge-offs for the periods
presented on a reported and managed basis.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Table 7 - Net Charge-Offs
---------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------------------------------ ----------------------------- -----------------------------
(dollars in thousands) 2000 1999 2000 1999
------------------------------------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Reported:
Average loans outstanding $ 10,028,330 $ 7,406,257 $ 9,866,632 $ 7,120,578
Net charge-offs 113,746 59,805 209,415 115,055
Net charge-offs as a percentage of
average loans outstanding 4.54% 3.23% 4.24% 3.23%
------------------------------------------ ------------- ------------- ------------- -------------
Managed:
Average loans outstanding $ 20,915,125 $ 17,597,571 $ 20,548,250 $ 17,516,999
Net charge-offs 207,643 164,004 402,919 335,133
Net charge-offs as a percentage of
average loans outstanding 3.97% 3.73% 3.92% 3.83%
------------------------------------------ ------------- ------------- ------------- -------------
</TABLE>
Net charge-offs of managed loans increased $43.6 million and $67.8
million, or 27% and 20%, while average managed consumer loans grew 19% and 17%
for the three and six months ended June 30, 2000, respectively, compared to the
same periods in the prior year. For the three and six months ended June 30,
2000, the Company's net charge-offs as a percentage of average managed loans
outstanding were 3.97% and 3.92%, respectively, compared to 3.73% and 3.83% for
the same periods in the prior year.
Provision and Allowance for Loan Losses
The allowance for loan losses is maintained at an amount estimated to
be sufficient to absorb probable future losses, net of recoveries (including
recovery of collateral), inherent in the existing reported loan portfolio. The
provision for loan losses is the periodic cost of maintaining an adequate
allowance. Management believes that the allowance for loan losses is adequate to
cover anticipated losses in the reported homogeneous consumer loan portfolio
under current conditions. There can be no assurance as to future credit losses
that may be incurred in connection with the Company's consumer loan portfolio,
nor can there be any assurance that the loan loss allowance that has been
established by the Company will be sufficient to absorb such future credit
losses. The allowance is a general allowance applicable to the reported
homogeneous consumer loan portfolio. The amount of allowance necessary is
determined primarily based on a migration analysis of delinquent and current
accounts. In evaluating the sufficiency of the allowance for loan losses,
management also takes into consideration the following factors: recent trends in
delinquencies and charge-offs including bankrupt, deceased and recovered
amounts; historical trends in loan volume; forecasting uncertainties and size of
credit risks; the degree of risk inherent in the composition of the loan
portfolio; economic conditions; credit evaluations and underwriting policies.
<PAGE>
Table 8 sets forth the activity in the allowance for loan losses for
the periods indicated. See "Asset Quality," "Delinquencies" and "Net
Charge-Offs" for a more complete analysis of asset quality.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Table 8 - Summary of allowance for loan losses
-----------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------------------------------------------ ------------------------------ ---------------------------
(dollars in thousands) 2000 1999 2000 1999
------------------------------------------------------ --------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 372,000 $ 251,000 $ 342,000 $ 231,000
Provision for loan losses 151,010 74,301 277,535 148,887
Other (2,264) 504 (3,120) 1,168
Charge-offs (168,572) (90,627) (316,226) (171,022)
Recoveries 54,826 30,822 106,811 55,967
-----------------------------------------------------------------------------------------------------------------
Net charge-offs (113,746) (59,805) (209,415) (115,055)
-----------------------------------------------------------------------------------------------------------------
Balance at end of period $ 407,000 $ 266,000 $ 407,000 $ 266,000
-----------------------------------------------------------------------------------------------------------------
Allowance for loan losses to loans at period-end 3.58% 3.58% 3.58% 3.58%
-----------------------------------------------------------------------------------------------------------------
</TABLE>
For the three and six months ended June 30, 2000, the provision for
loan losses increased to $151.0 million and $277.5 million, or 103% and 86%,
respectively, from $74.3 million and $148.9 million for the comparable periods
in the prior year.
Funding
The Company has established access to a variety of funding
alternatives, in addition to securitization of its consumer loans. In June 2000,
the Company established a $5.0 billion global senior and subordinated bank note
program, of which $994 million was outstanding as of June 30, 2000, with
original terms of three to five years. The Company has historically issued
senior unsecured debt of the Bank through its $8.0 billion domestic bank note
program, of which $2.6 billion was outstanding as of June 30, 2000, with
original terms of one to ten years. Internationally, the Company has funding
programs designed for foreign investors or to raise funds in foreign currencies.
Both of the Company's committed revolving credit facilities offer foreign
currency funding options, allowing the Bank to offer securities to both U.S. and
non-U.S. investors. In addition, the Bank has established a $1.0 billion Euro
Medium Term Note program that is targeted specifically to non-U.S. investors.
The Company funds its foreign assets by directly or synthetically borrowing or
securitizing in the local currency to mitigate the financial statement effect of
currency translation.
The Company has significantly expanded its retail deposit gathering
efforts through both direct and broker marketing channels. The Company uses its
IBS capabilities to test and market a variety of retail deposit origination
strategies, as well as to develop customized account management programs. As of
June 30, 2000, the Company had $5.3 billion in interest-bearing deposits, with
original maturities of up to ten years.
Table 9 shows the maturation of certificates of deposit in
denominations of $100,000 or greater ("large denomination CDs") as of June 30,
1999.
--------------------------------------------------------------------------------
Table 9 - Maturities of large denomination certificates-$100,000 or more
--------------------------------------------------------------------------------
June 30, 2000
------------------------------- --------------------------
(dollars in thousands) Balance Percent
------------------------------- ------------- ----------
Three months or less $ 326,721 18.72%
Over 3 through 6 months 200,794 11.51
Over 6 through 12 months 377,469 21.63
Over 12 months through 10 years 840,073 48.14
------------------------------- ------------- ---------
Total $ 1,745,057 100.00%
------------------------------- ------------- ---------
The Company's other borrowings portfolio consists of $2.1 billion in
borrowings maturing within one year and $647 million in borrowings maturing
after one year.
Table 10 shows the Company's unsecured funding availability and
outstandings as of June 30, 2000.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Table 10 - FUNDING AVAILABILITY
-----------------------------------------------------------------------------------------------------------------
June 30, 2000
-----------------------------------------------------------------------------------------------------------------
Effective/ Final
(dollars or dollar equivalents in millions) Issue Date Availability(1) Outstanding Maturity(4)
----------------------------------------------- ------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Domestic revolving credit facility 5/99 $1,200 5/03
UK/Canada revolving credit facility 8/97 350 8/00
Senior global bank note program 6/00 5,000 $ 994 -
Senior domestic bank note program(2) 4/97 8,000 2,628 -
Non-U.S. bank note program 10/97 1,000 5 -
Corporation Shelf Registration 8/99 1,550 549 -
Capital securities(3) 1/97 100 98 2/27
----------------------------------------------- ------------- ---------------- ---------------- -----------------
</TABLE>
(1) All funding sources are revolving except for the Corporation Shelf
Registration and the Capital Securities. Funding availability under the
credit facilities is subject to compliance with certain representations,
warranties and covenants. Funding availability under all other sources is
subject to market conditions.
(2) Includes availability to issue up to $200 million of subordinated bank
notes, none outstanding as of June 30, 2000.
(3) Qualifies as Tier 1 capital at the Corporation and Tier 2 capital at the
Bank.
(4) Maturity date refers to the date the facility terminates, where applicable.
In May 1999, the Company entered into a four-year, $1,200,000 unsecured
revolving credit arrangement (the "Credit Facility"). The Credit Facility is
comprised of two tranches: a $810,000 Tranche A facility available to the Bank
and the Savings Bank, including an option for up to $250,000 in multicurrency
availability, and a $390,000 Tranche B facility available to the Corporation,
the Bank and the Savings Bank, including an option for up to $150,000 in
multicurrency availability. Each tranche under the facility is structured as a
four-year commitment and is available for general corporate purposes. All
borrowings under the Credit Facility are based on varying terms of LIBOR. The
Bank has irrevocably undertaken to honor any demand by the lenders to repay any
borrowings which are due and payable by the Savings Bank but have not been paid.
Any borrowings under the Credit Facility will mature on May 24, 2003; however,
the final maturity of each tranche may be extended for three additional one-year
periods with the lenders' consent.
The UK/Canada revolving credit facility is used to finance the
Company's expansion in the United Kingdom and Canada. The facility is comprised
of two tranches: a Tranche A facility in the amount of (pound)156.5 million
($249.8 million equivalent based on the exchange rate at closing) and a Tranche
B facility in the amount of C$139.6 million ($100.2 million equivalent based on
the exchange rate at closing). An amount of (pound)34.6 million or C$76.9
million ($55.2 million equivalent based on the exchange rates at closing) may be
transferred between the Tranche A facility and the Tranche B facility,
respectively, upon the request of the Company. The Corporation serves as the
guarantor of all borrowings under the UK/Canada revolving facility. The
commitment terminates on August 29, 2000; however, it may be extended for two
additional one-year periods.
The Corporation has three shelf registration statements under
which the Corporation from time to time may offer and sell (i) senior or
subordinated debt securities, consisting of debentures, notes and/or other
unsecured evidences, (ii) preferred stock, which may be issued in the form of
depository shares evidenced by depository receipts and (iii) common stock. The
amount of securities registered is limited to a $1.6 billion aggregate public
offering price or its equivalent (based on the applicable exchange rate at the
time of sale) in one or more foreign currencies, currency units or composite
currencies as shall be designated by the Corporation. As of June 30, 2000, the
Corporation had existing unsecured senior debt outstanding under the shelf
registrations of $550 million including $125 million maturing in 2003, $225
million maturing in 2006, and $200 million maturing in 2008.
Liquidity
Liquidity refers to the Company's ability to meet its cash needs. The
Company meets its cash requirements by securitizing assets, gathering deposits
and through issuing debt. As discussed in "Managed Consumer Loan Portfolio," a
significant source of liquidity for the Company has been the securitization of
consumer loans. Maturity terms of the existing securitizations vary from 1999 to
2008 and typically have accumulation periods during which principal payments are
aggregated to make payments to investors. As payments on the loans are
accumulated and are no longer reinvested in new loans, the Company's funding
requirements for such new loans increase accordingly. The occurrence of certain
events may cause the securitization transactions to amortize earlier than
scheduled, which would accelerate the need for funding.
As such loans amortize or are otherwise paid, the Company believes it
can securitize consumer loans, purchase federal funds and establish other
funding sources to fund the amortization or other payment of the securitizations
in the future, although no assurance can be given to that effect. Additionally,
the Company maintains a portfolio of high-quality securities such as U.S.
Treasuries and other U.S. government obligations, commercial paper,
interest-bearing deposits with other banks, federal funds and other cash
equivalents in order to provide adequate liquidity and to meet its ongoing cash
needs. As of June 30, 2000, the Company held $1.6 billion in such securities.
Capital Adequacy
The Bank and the Savings Bank are subject to capital adequacy
guidelines adopted by the Federal Reserve Board (the "Federal Reserve") and the
Office of Thrift Supervision (the "OTS") (collectively, the "regulators"),
respectively. The capital adequacy guidelines and the regulatory framework for
prompt corrective action require the Bank and the Savings Bank to maintain
specific capital levels based upon quantitative measures of their assets,
liabilities and off-balance sheet items.
The most recent notifications received from the regulators categorized
the Bank and the Savings Bank as "well-capitalized." To be categorized as
"well-capitalized," the Bank and the Savings Bank must maintain minimum capital
ratios as set forth in Table 11. As of June 30, 2000, there were no conditions
or events since the notifications discussed above that management believes would
have changed either the Bank or the Savings Bank's capital category.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Table 11 - Regulatory Capital Ratios
----------------------------------------------------------------------------------------------------------------
To Be "Well-Capitalized" Under
Minimum for Capital Prompt Corrective Action
Ratios Adequacy Purposes Provisions
--------------------------------- --------------- --------------------------- ----------------------------------
<S> <C> <C> <C>
June 30, 2000
Capital One Bank
Tier 1 Capital 9.16% 4.00% 6.00%
Total Capital 11.39 8.00 10.00
Tier 1 Leverage 10.64 4.00 5.00
Capital One, F.S.B.
Tier 1 Capital 9.96% 4.00% 6.00%
Total Capital 11.56 8.00 10.00
Tier 1 Leverage 7.02 4.00 5.00
--------------------------------- --------------- --------------------------- ----------------------------------
June 30, 1999
Capital One Bank
Tier 1 Capital 11.51% 4.00% 6.00%
Total Capital 14.25 8.00 10.00
Tier 1 Leverage 11.16 4.00 5.00
Capital One, F.S.B.(1)
Tier 1 Capital 10.49% 4.00% 6.00%
Total Capital 12.43 12.00 10.00
Tier 1 Leverage 9.89 8.00 5.00
--------------------------------- --------------- --------------------------- ----------------------------------
</TABLE>
(1) Before June 30, 1999, the Savings Bank was subject to capital requirements
that exceed minimum capital adequacy requirements, including the requirement
to maintain a minimum Tier 1 Leverage/Core Capital ratio of 8% and a Total
Capital ratio of 12%.
During 1996, the Bank received regulatory approval and established a
branch office in the United Kingdom. In connection with such approval, the
Company committed to the Federal Reserve that, for so long as the Bank maintains
a branch in the United Kingdom, the Company will maintain a minimum Tier 1
Leverage ratio of 3.0%. As of June 30 2000, the Company's Tier 1 Leverage ratio
was 12.51%.
Additionally, certain regulatory restrictions exist which limit the
ability of the Bank and the Savings Bank to transfer funds to the Corporation.
As of June 30, 2000, retained earnings of the Bank and the Savings Bank of
$172.5 million and $41.5 million, respectively, were available for payment of
dividends to the Corporation without prior approval by the Federal Reserve and
the OTS. The Savings Bank, however, is required to give the OTS at least 30
days' advance notice of any proposed dividend and OTS, in its discretion, may
object to such dividend.
Off-Balance Sheet Risk
The Company is subject to off-balance sheet risk in the normal course
of business including commitments to extend credit, reduce the interest rate
sensitivity of its securitization transactions and its off-balance sheet
financial instruments. The Company enters into interest rate swap agreements in
the management of its interest rate exposure. The Company also enters into
forward foreign currency exchange contracts and currency swaps to reduce its
sensitivity to changing foreign currency exchange rates. These off-balance sheet
financial instruments involve elements of credit, interest rate or foreign
currency exchange rate risk in excess of the amount recognized on the balance
sheet. These instruments also present the Company with certain credit, market,
legal and operational risks. The Company has established credit policies for
off-balance sheet instruments as it has for on-balance sheet instruments.
Interest Rate Sensitivity
Interest rate sensitivity refers to the change in earnings that may
result from changes in the level of interest rates. To the extent that managed
interest income and expense do not respond equally to changes in interest rates,
or that all rates do not change uniformly, earnings could be affected. The
Company's managed net interest income is affected by changes in short-term
interest rates, primarily LIBOR, as a result of its issuance of interest-bearing
deposits, variable rate loans and variable rate securitizations. The Company
manages and mitigates its interest rate sensitivity through several techniques
which include, but are not limited to, changing the maturity, repricing and
distribution of assets and liabilities and entering into interest rate swaps.
The Company measures exposure to its interest rate risk through the use
of a simulation model. The model generates a distribution of possible
twelve-month managed net interest income outcomes based on (i) a set of
plausible interest rate scenarios, as determined by management based upon
historical trends and market expectations, (ii) all existing financial
instruments, including swaps, and (iii) an estimate of ongoing business activity
over the coming twelve months. The Company's asset/liability management policy
requires that based on this distribution there be at least a 95% probability
that managed net interest income achieved over the coming twelve months will be
no more than 3% below the mean managed net interest income of the distribution.
As of June 30, 2000, the Company was in compliance with the policy; more than
99% of the outcomes generated by the model produced a managed net interest
income of no more than 1.0% below the mean outcome. The interest rate scenarios
evaluated as of June 30, 2000, included scenarios in which short-term interest
rates rose by over 400 basis points or fell by as much as 250 basis points over
twelve months.
The analysis does not consider the effects of the changed level of
overall economic activity associated with various interest rate scenarios.
Further, in the event of a rate change of large magnitude, management would
likely take actions to further mitigate its exposure to any adverse impact. For
example, management may reprice interest rates on outstanding credit card loans
subject to the right of the consumers in certain states to reject such repricing
by giving timely written notice to the Company and thereby relinquishing
charging privileges. However, the repricing of credit card loans may be limited
by competitive factors as well as certain legal constraints.
Interest rate sensitivity at a point in time can also be analyzed by
measuring the mismatch in balances of earning assets and interest-bearing
liabilities that are subject to repricing in future periods.
<PAGE>
Business Outlook
Earnings, Goals and Strategies
This business outlook section summarizes Capital One's expectations for
earnings for the year ending December 31, 2000, and our primary goals and
strategies for continued growth. The statements contained in this section are
based on management's current expectations. Certain statements are forward
looking and, therefore, actual results could differ materially. Factors which
could materially influence results are set forth throughout this section and in
Capital One's Annual Report on Form 10-K for the year ended December 31, 1999
(Part I, Item 1, Risk Factors).
We have set targets, dependent on the factors set forth below, to
achieve a 25% return on equity in 2000 and to increase Capital One's earnings
per share in 2000 by approximately 30% over 1999 earnings per share. As
discussed elsewhere in this report and below, Capital One's actual earnings are
a function of our revenues (net interest income and non-interest income on our
earning assets), consumer usage and payment patterns, credit quality of our
earning assets (which affects fees and charge-offs), marketing expenses and
operating expenses.
Product and Market Opportunities
Our strategy for future growth has been, and is expected to continue to
be, to apply our proprietary IBS to our lending business as well as to other
businesses, both financial and non-financial, including telecommunications and
Internet services. We will seek to identify new product opportunities and to
make informed investment decisions regarding new and existing products. Our
lending and other financial and non-financial products are subject to
competitive pressures, which management anticipates will increase as these
markets mature.
Lending. Lending includes credit card and other consumer lending products,
including automobile financing. Credit card opportunities include, and are
expected to continue to include, a wide variety of highly customized products
with interest rates, credit lines and other features specifically tailored for
numerous consumer segments. We expect continued growth across a broad spectrum
of new and existing customized products, which are distinguished by a range of
credit lines, pricing structures and other characteristics. For example, our low
non-introductory rate products, which are marketed to consumers with the best
established credit profiles, are characterized by higher credit lines, lower
yields and an expectation of low delinquencies and credit losses. On the other
hand, certain other customized card products are characterized by lower credit
lines, higher yields (including fees) and in some cases, higher delinquencies
and credit losses. These products also involve higher operational costs but
exhibit better response rates, less adverse selection, less attrition and a
greater ability to reprice than traditional products. More importantly, as a
whole, all of these customized products continue to have less volatile returns
than the traditional products in recent market conditions. Based in part on the
success of this range of products, we are currently on track to attain our fifth
consecutive year of approximately 40% net account growth, and we believe that
leveraging our customer relationships will be a key to our future growth.
International Expansion. We have expanded our existing operations outside of the
United States and have experienced growth in the number of accounts and loan
balances in our international business. To date, our principal operations
outside of the United States have been in the United Kingdom, with additional
operations in Canada. To support the continued growth of our United Kingdom
business and any future business in Europe, we recently received approval to
open a bank in the United Kingdom from the UK Financial Services Authority. We
are seeking similar approval from the Federal Reserve Board. We anticipate
entering and doing business in additional countries from time to time as
opportunities arise.
Internet Services and Products. Our Internet services include credit card
account decisioning, real-time account numbering, retail deposit-taking and
account servicing. We have set targets to originate one million accounts and
service two million accounts online by the end of 2000, provided that we can
continue to limit fraud and safeguard our customers' privacy.
Telecommunications. We market telecommunication services through our subsidiary
America One Communications, Inc. We are testing various wireless products and
services with a focus on underserved markets.
We will continue to apply our IBS in an effort to balance the mix of
credit card products with other financial and non-financial products and
services to optimize profitability within the context of acceptable risk. Our
growth through expansion and product diversification will be affected by our
ability to build internally or acquire the necessary operational and
organizational infrastructure, recruit experienced personnel, fund these new
businesses and manage expenses. Although we believe we have the personnel,
financial resources and business strategy necessary for continued success, there
can be no assurance that our results of operations and financial condition in
the future will reflect our historical financial performance.
Marketing Investment
We expect our 2000 marketing expenses to exceed 1999's expense level
and to increase significantly through the first quarter of 2001, as we continue
to invest in various credit card products and services, brand management and
other financial and non-financial products and services. We caution, however,
that an increase in marketing expenses does not necessarily equate to a
comparable increase in outstanding balances or accounts based on historical
results. As our portfolio continues to grow, generating balances and accounts to
offset attrition requires increasing amounts of marketing. In addition, the cost
to acquire new accounts varies across product lines and is expected to rise as
we move beyond the domestic card business. With competition affecting the
profitability of traditional card products, we have been allocating, and expect
to continue to allocate, a greater portion of our marketing expense to other
customized credit card products and other financial and non-financial products.
We intend to continue a flexible approach in our allocation of marketing
expenses. We are also developing a brand marketing strategy to supplement
current strategies. The actual amount of marketing investment is subject to a
variety of external and internal factors, such as competition in the consumer
credit and wireless service industries, general economic conditions affecting
consumer credit performance, the asset quality of our portfolio and the
identification of market opportunities across product lines that exceed our
targeted rates of return on investment.
The amount of marketing expense allocated to various products or
businesses will influence the characteristics of our portfolio as various
products or businesses are characterized by different account growth, loan
growth and asset quality characteristics. We currently expect continued strong
account growth and loan growth in 2000, particularly in prime customer markets.
Actual growth, however, may vary significantly depending on our actual product
mix and the level of attrition in our managed portfolio, which is primarily
affected by competitive pressures.
Impact of Delinquencies, Charge-Offs and Attrition
Our earnings are particularly sensitive to delinquencies and
charge-offs on our portfolio and to the level of attrition due to competition in
the credit card industry. As delinquency levels fluctuate, the resulting amount
of past due and overlimit fees, which are significant sources of our revenue,
will also fluctuate. Further, the timing of revenues from increasing or
decreasing delinquencies precedes the related impact of higher or lower
charge-offs that ultimately result from varying levels of delinquencies.
Delinquencies and net charge-offs are impacted by general economic trends in
consumer credit performance, including bankruptcies, the degree of seasoning of
our portfolio and the product mix.
As of June 30, 2000, we had the third-lowest net charge-off rate among
the top ten credit card issuers in the United States. However, we expect
delinquencies to increase moderately through 2000 and that, as a result,
charge-offs will also increase in 2000. We caution that delinquency and
charge-off levels are not always predictable and may vary from projections. In
the case of an economic downturn or recession, delinquencies and charge-offs are
likely to increase more quickly. In addition, competition in the credit card
industry, as measured by the volume of mail solicitations, has declined but
remains very high. Competition can affect our earnings by increasing attrition
of our outstanding loans (thereby reducing interest and fee income) and by
making it more difficult to retain and attract profitable customers.
Cautionary Factors
The strategies and objectives outlined above, and the other
forward-looking statements contained in this section, involve a number of risks
and uncertainties. Capital One cautions readers that any forward-looking
information is not a guarantee of future performance and that actual results
could differ materially. In addition to the factors discussed above, among the
other factors that could cause actual results to differ materially are the
following: continued intense competition from numerous providers of products and
services which compete with our businesses; with respect to financial and other
products, changes in our aggregate accounts or consumer loan balances and the
growth rate thereof, including changes resulting from factors such as shifting
product mix, amount of our actual marketing expenses and attrition of accounts
and loan balances; an increase in credit losses (including increases due to a
worsening of general economic conditions); our ability to continue to securitize
our credit cards and consumer loans and to otherwise access the capital markets
at attractive rates and terms to fund our operations and future growth;
difficulties or delays in the development, production, testing and marketing of
new products or services; losses associated with new products or services or
expansion internationally; financial, legal, regulatory or other difficulties
that may affect investment in, or the overall performance of, a product or
business, including changes in existing laws to regulate further the credit card
and consumer loan industry and the financial services industry, in general,
including the flexibility of financial services companies to obtain, use and
share consumer data; the amount of, and rate of growth in, our expenses
(including salaries and associate benefits and marketing expenses) as our
business develops or changes or as we expand into new market areas; the
availability of capital necessary to fund our new businesses; our ability to
build the operational and organizational infrastructure necessary to engage in
new businesses or to expand internationally; our ability to recruit experienced
personnel to assist in the management and operations of new products and
services; and other factors listed from time to time in the our SEC reports,
including, but not limited to, the Annual Report on Form 10-K for the year ended
December 31, 1999 (Part I, Item 1, Risk Factors).
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Index of Exhibits
Exhibit Description of Exhibit
10 Distribution Agreement dated June 6, 2000 among Capital One
Bank, J.P. Morgan Securities Inc. and the agents named therein
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K, dated April 13, 2000,
Commission File No. 1-13300, enclosing its press release dated April 13,
2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPITAL ONE FINANCIAL CORPORATION
(Registrant)
Date: August 11, 2000 /s/ David M. Willey
------------------------------
David M. Willey
Senior Vice President,
Corporate Financial Management
(Chief Accounting Officer
and duly authorized officer
of the Registrant)
<PAGE>
Exhibit 10
Capital One Bank
Senior and Subordinated Global Bank Notes
Due From 30 Days to 30 Years or More from Date of Issue
DISTRIBUTION AGREEMENT
June 6, 2000
J.P. MORGAN SECURITIES INC.
60 Wall Street
New York, New York 10260
AND EACH OF THE DISTRIBUTION AGENTS LISTED
ON SCHEDULE 1 HERETO
Ladies and Gentlemen:
Capital One Bank, a banking association chartered under the laws of the
Commonwealth of Virginia (the "Bank"), confirms its agreement with J.P. Morgan
Securities Inc. and each of the distribution agents listed on Schedule 1 hereto
(each referred to as a "Distribution Agent" and collectively referred to as the
"Distribution Agents") with respect to the issue and sale by it of its (i)
senior unsecured debt obligations not insured by the Federal Deposit Insurance
Corporation (the "FDIC") (the "Senior Notes") and (ii) subordinated unsecured
debt obligations not insured by the FDIC (the "Subordinated Notes", and together
with the Senior Notes, the "Bank Notes"). The Bank Notes have maturities of 30
days to 30 years or more from date of issue. The Bank Notes are to be issued
pursuant to a Global Agency Agreement, dated as of June 6, 2000 (the "Global
Agency Agreement"), among the Bank and The Chase Manhattan Bank, as domestic
paying agent (the "Domestic Paying Agent") and registrar (the "Registrar"), The
Chase Manhattan Bank, London Branch, as London paying agent (the "London Paying
Agent") and London issuing agent (the "London Issuing Agent"), Chase Manhattan
Bank Luxembourg S.A., as Luxembourg listing agent and paying agent ("Luxembourg
Agent") and Kredietbank S.A. Luxembourgeoise, as Luxembourg listing (the
"Luxembourg Listing Agent", and together with the Domestic Paying Agent and the
London Paying Agent, the "Paying Agents" and each individually, a "Paying
Agent"). As of the date hereof, the Bank has authorized the issuance of up to
U.S.$5,000,000,000 (or the equivalent thereof in other currencies calculated as
described in the Offering Circular dated June 6, 2000) aggregate principal
amount at any one time outstanding of its Bank Notes. It is understood, however,
that the Bank may from time to time authorize the issuance of an additional
outstanding amount of Bank Notes and that the Bank Notes may be distributed
through or sold to one or more of the Distribution Agents pursuant to the terms
of this Agreement, all as though the issuance of the Bank Notes were authorized
as of the date hereof. The Bank is a subsidiary of Capital One Financial
Corporation (the "Parent").
This Agreement provides both for the sale of Bank Notes by the Bank to
the Distribution Agents as principal for resale to investors and other
purchasers and for the sale of Bank Notes by the Bank directly to investors
through the Distribution Agents (as may from time to time be agreed to by the
Bank and the Distribution Agents), in which case the Distribution Agents will
act as agents of the Bank in soliciting Bank Note purchasers.
SECTION 1. Appointment as Distribution Agents.
(a) Appointment of Distribution Agents. Subject to the terms and conditions
stated herein and subject to the reservation by the Bank of the right to sell
Bank Notes directly to investors on its own behalf in those jurisdictions where
it is authorized to do so, the Bank hereby agrees that Bank Notes will be sold
exclusively to or through the Distribution Agents. The Distribution Agents are
authorized to engage the services of any other broker or dealer in connection
with the offer or sale of the Bank Notes purchased by a Distribution Agent as
principal for resale to others but are not authorized to appoint sub-agents. In
connection with sales by the Distribution Agents of Bank Notes purchased by a
Distribution Agent as principal to other brokers or dealers, a Distribution
Agent may allow any portion of the discount it has received in connection with
such purchase from the Bank to such brokers or dealers.
(b) Sale of Bank Notes. The Bank shall not approve the solicitation of purchases
of Bank Notes in excess of the amount which shall be authorized to be
outstanding by the Bank from time to time or in excess of the aggregate
principal amount of Bank Notes specified in the Offering Circular. The
Distribution Agents will have no responsibility for maintaining records with
respect to the aggregate principal amount of Bank Notes sold or outstanding, or
of otherwise monitoring the availability of Bank Notes for sale.
(c) Purchases as Principal. The Distribution Agents shall not have any
obligation to purchase Bank Notes from the Bank as principal, but the
Distribution Agents may agree from time to time to purchase Bank Notes as
principal. Any such purchase of Bank Notes by a Distribution Agent as principal
shall be made in accordance with Section 3(a) hereof.
(d) Solicitations as Distribution Agent. If agreed upon by a Distribution Agent
and the Bank, the Distribution Agent, acting solely as agent for the Bank and
not as principal, will solicit purchases of the Bank Notes. The Distribution
Agent will communicate to the Bank, orally or in writing, each offer to purchase
Bank Notes solicited by such Distribution Agent on an agency basis, other than
those offers rejected by the Distribution Agent. The Distribution Agent shall
have the right, in its discretion reasonably exercised, to reject any proposed
purchase of Bank Notes, as a whole or in part, and any such rejection shall not
be deemed a breach of any Distribution Agent's agreement contained herein. The
Bank may accept or reject any proposed purchase of the Bank Notes in whole or in
part. The Distribution Agent shall make reasonable efforts to assist the Bank in
obtaining performance by each purchaser whose offer to purchase Bank Notes has
been solicited by the Distribution Agent and accepted by the Bank. The
Distribution Agent shall not have any liability to the Bank in the event any
such agency purchase is not consummated for any reason. If the Bank shall
default on its obligation to deliver Bank Notes to a purchaser whose offer it
has accepted, the Bank shall (i) hold the Distribution Agent harmless against
any loss, claim or damage arising from or as a result of such default by the
Bank and (ii) notwithstanding such default, pay to the Distribution Agent any
commission to which it would be entitled in connection with such sale.
(e) Reliance. The Bank and the Distribution Agents agree that the Bank Notes
purchased by the Distribution Agents shall be purchased, and the Bank Notes the
placement of which a Distribution Agent arranges shall be placed by such
Distribution Agent, in reliance on the representations, warranties, covenants
and agreements of the Bank contained herein and on the terms and conditions and
in the manner provided herein.
SECTION 2. Representations and Warranties.
(a) The Bank represents and warrants to each Distribution Agent as of the date
hereof, as of the date of each acceptance by the Bank of an offer for the
purchase of Bank Notes (whether to the Distribution Agent as principal or
through the Distribution Agent as agent), as of the date of each delivery of
Bank Notes (whether to such Distribution Agent as principal or through such
Distribution Agent as agent) (the date of each such delivery to a Distribution
Agent as principal being hereafter referred to as a "Settlement Date"), and as
of the times referred to in Section 8(b) hereof (each of the times referenced
above being referred to hereafter as a "Representation Date"), as follows:
(i) Offering Circular. The Bank has prepared an offering circular, dated
June 6, 2000 (as such document may hereafter be amended or supplemented
(including by any pricing supplement) by the Bank), including the
material incorporated therein by reference, the "Offering Circular"),
to be used by the Distribution Agents in connection with the
Distribution Agents' solicitation of purchasers of, or offering of, the
Bank Notes. The Bank has been authorized by the Parent to incorporate
by reference in the Offering Circular the Parent's annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and each other document filed by the Parent pursuant to Section 13(a),
13(c), 14 or 15(d) (and any and all amendments thereto) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the
rules and regulations thereunder. The Offering Circular, as of the date
hereof, does not and, as of the applicable Representation Date, will
not, contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they are made, not
misleading; provided, however, that the representations and warranties
in this subsection shall not apply to statements in or omissions from
the Offering Circular made in reliance upon, and in conformity with,
information furnished to the Bank in writing by the Distribution Agents
expressly for use therein.
The Bank has incorporated by reference in the Offering
Circular the publicly available portions of each of its Consolidated
Reports of Condition and Income (each, a "Call Report"), and any
amendments or supplements thereto, beginning with and including the
Call Report for the period ended December 31, 1997 to and including the
most recent Call Report filed or published prior to the offering of
Bank Notes. The publicly available portions of any Call Reports filed
by the Bank subsequent to the date of the Offering Circular and prior
to the termination of the offering of the Bank Notes will be
incorporated therein by reference.
The documents incorporated by reference into the Offering
Circular, at the time they were or hereafter are filed with the
applicable federal regulatory authorities, complied or when so filed
will comply in all material respects with the 1934 Act or the rules and
regulations otherwise applicable thereto, as the case may be and, when
read together with the other information in the Offering Circular, did
not and will not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they were or are made, not misleading.
(ii) Due Organization, Valid Existence and Good Standing. The Bank is a banking
corporation duly organized, validly existing and in good standing under the
laws of the Commonwealth of Virginia, and is licensed, registered or
qualified to conduct the business in which it is engaged in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such license, registration or qualification,
except to the extent that the failure to be so licensed, registered or
qualified or to be in good standing would not have a material adverse
effect on the Bank and its subsidiaries taken as a whole. The Bank is a
subsidiary of the Parent, a Delaware corporation which has securities
registered under the 1934 Act.
(iii)Due Authorization, Execution and Delivery of this Agreement, the Global
Agency Agreement, the Interest Calculation Agreement, the Exchange Rate
Agent Agreement and the Letters of Representations. This Agreement, the
Global Agency Agreement, the Interest Calculation Agreement dated as of
June 6, 2000 between the Bank and The Chase Manhattan Bank (the "Interest
Calculation Agreement"), the Exchange Rate Agent Agreement between the Bank
and The Chase Manhattan Bank dated June 6, 2000 and the Short-Term and
Medium-Term Letters of Representation dated June 6, 2000 (the "Letter[s] of
Representations"), between the Bank, The Chase Manhattan Bank and The
Depository Trust Company, have been duly authorized, executed and delivered
by the Bank and are valid and legally binding agreements of the Bank,
enforceable against the Bank in accordance with their respective terms,
subject to applicable bankruptcy, liquidation, insolvency, fraudulent
transfer, reorganization, moratorium, conservatorship, receivership and
similar laws of general applicability relating to, or affecting, creditors'
rights, to general equity principles and with respect to any
indemnification or contribution obligation, to public policies which might
affect such obligations.
(iv) Due Authorization, Execution and Delivery of the Bank Notes. The Bank Notes
have been duly authorized for issuance and sale pursuant to this Agreement
and, when issued and authenticated against payment of the consideration
therefor, the Bank Notes will be valid and legally binding obligations of
the Bank, enforceable against the Bank in accordance with their respective
terms, subject to applicable bankruptcy, liquidation, insolvency,
fraudulent transfer, reorganization, moratorium, conservatorship,
receivership and similar laws of general applicability relating to, or
affecting, creditors' rights to general equity principles and with respect
to any indemnification or contribution obligation, to public policies which
might affect such obligations.
(v) Exemption from Registration. The Bank Notes are exempt from registration
under Section 3(a)(2) of the Securities Act of 1933, as amended (the "1933
Act"), and neither registration of the Bank Notes under the 1933 Act, nor
qualification of an indenture under the Trust Indenture Act of 1939, as
amended, is required in connection with the offer, sale, issuance or
delivery of the Bank Notes pursuant to this Agreement or any applicable
Terms Agreement (as defined in Section 3(a) hereof).
(vi) Exemption from Investment Company Act. The Bank is not required to register
under the provisions of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), or to take any other action with respect to or
under the Investment Company Act.
(vii)No Other Approvals Required. No consent, approval or authorization of or
filing with any governmental body or agency is required for the performance
by the Bank of its obligations under this Agreement, the Bank Notes, the
Global Agency Agreement, the Interest Calculation Agreement, the Exchange
Rate Agent Agreement, the Letters of Representations and any applicable
Terms Agreement (provided that the representations contained in the
immediately preceding clause with respect to approvals under the laws of
foreign countries shall only be to the best knowledge of the Bank) or the
consummation by the Bank of the transactions contemplated by this Agreement
and any agreement with a Distribution Agent to purchase such Bank Notes as
principal, except such as may be required by the securities or Blue Sky
laws of the various states in connection with the offer and sale of the
Bank Notes.
(viii) Description of Bank Notes. The Bank Notes are substantially in the form
heretofore delivered to the Distribution Agents and conform in all material
respects to the description thereof contained in the Offering Circular
under the caption "Description of Notes."
(ix) Priority of Bank Notes. The Senior Notes are unsecured and unsubordinated
debt obligations of the Bank and rank pari passu among themselves and with
all other unsecured and unsubordinated debt obligations of the Bank except,
(A) pursuant to Section 11(d)(11) of the Federal Deposit Insurance Act, the
Bank's unsecured deposit obligations and (B) pursuant to Section 6.1 -
110.9 of the Code of Virginia, the Bank's deposit obligations. The
Subordinated Notes are unsecured and subordinated debt obligations of the
Bank, rank pari passu among themselves, and are subordinated and junior in
right of payment to the Bank's obligations to depositors and general
creditors, other than obligations which, by their express terms, rank on a
parity with or junior to the Subordinated Notes. Upon issuance, the
Subordinated Notes will qualify as Tier 2 capital of the Bank
(within the meaning of Appendix A to 12 C.F.R. Part 208).
(x) No Violation. Neither the Bank or any of its subsidiaries nor the Parent or
any of its subsidiaries is in violation of its charter or by-laws or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage loan
agreement, note, lease or other instrument to which it is a party or by
which it or any of them or their properties may be bound which might result
in a material adverse change in the condition, financial or otherwise, or
in the earnings, business affairs or business prospects of the Bank and its
subsidiaries, considered as one enterprise, or might materially and
adversely affect the properties or assets thereof or might materially and
adversely affect the consummation of this Agreement, the Global Agency
Agreement, the Interest Calculation Agreement, the Exchange Rate Agent
Agreement, the Letters of Representations or the Bank Notes or any
transaction contemplated hereby or thereby. The execution, issuance and
delivery by the Bank of the Bank Notes, and the execution, delivery and
performance by the Bank of this Agreement, the Global Agency Agreement, the
Interest Calculation Agreement, the Exchange Rate Agent Agreement, the
Letters of Representations and any applicable Terms Agreement, will not
violate any law, rule, regulation, order, judgment or decree applicable to
the Parent and its subsidiaries or to the Bank and any of its subsidiaries
or violate any provision of the Bank's charter or by-laws, or conflict with
or result in a material breach of or constitute a material default under,
or result in the creation or imposition of any material lien, charge or
encumbrance upon any property or assets of the Parent and its subsidiaries
or the Bank and any of its subsidiaries pursuant to any contract,
indenture, mortgage loan agreement, note, lease or other instrument to
which the Parent or any of its subsidiaries or the Bank or any of its
subsidiaries, or the property of any of them, is bound or subject.
(xi) No Material Adverse Change. Since the respective dates as of which
information is given or incorporated by reference in the Offering Circular
(a) there has not been any material adverse change in the condition,
financial or otherwise, or business affairs or business prospects of the
Bank and its subsidiaries or of the Parent and its subsidiaries, as the
case may be, considered as one enterprise, whether or not arising in the
ordinary course of business, other than as set forth or contemplated in the
Offering Circular (including the material incorporated by reference
therein), and (b) there have been no material transactions entered into by
the Bank or any of its subsidiaries or the Parent and any of its
subsidiaries considered as one enterprise, other than those in the ordinary
course of business.
(xii)Rating. The Senior Notes of the Bank have been rated by a "nationally
recognized statistical rating agency" (as that term is defined by the
Securities and Exchange Commission ("the Commission") for purposes of Rule
436(g)(2) under the 1933 Act), in one of its four highest categories. The
Bank "has unsecured non-convertible debt with a term of issue of at least
four (4) years, or unsecured non-convertible preferred securities, rated by
a nationally recognized statistical rating organization" within the meaning
of Conduct Rule 2710(b)(7) of the National Association of Securities
Dealers, Inc.
(xiii) Financial Statements and Financial Information. The financial statements
and other financial information of the Parent and its consolidated
subsidiaries and the Bank and its consolidated subsidiaries included or
incorporated by reference in the Offering Circular present fairly the
consolidated financial position of the Parent and its consolidated
subsidiaries and the Bank and its consolidated subsidiaries, as the case
may be, as of the dates indicated therein and the consolidated results of
their operations for the periods specified therein; and except as stated
therein, such financial statements have been prepared in conformity with
generally accepted accounting principles in the United States applied on a
consistent basis; financial information of certain financial institutions,
if any, proposed to be acquired by the Parent and the Bank included or
incorporated by reference in the Offering Circular present fairly the
financial position of such financial institutions as of the dates indicated
therein and the results of their operations for the periods specified
therein.
(xiv)Legal Proceedings. Except as may be set forth in the Offering Circular,
there is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Bank, threatened against or affecting, the Parent or any
of its subsidiaries or the Bank or any of its subsidiaries, which might, in
the opinion of the Bank, result in any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Bank and its subsidiaries considered as one
enterprise, or might materially and adversely affect the properties or
assets thereof or might materially and adversely affect the consummation of
this Agreement, the Global Agency Agreement, the Interest Calculation
Agreement, the Exchange Rate Agent Agreement or the Bank Notes or any
transaction contemplated hereby or thereby.
(xv) Commodity Exchange Act. The Bank Notes, when issued, authenticated and
delivered pursuant to the provisions of this Agreement and the Global
Agency Agreement, will be excluded or exempted under the provisions of the
Commodity Exchange Act.
(b) Additional Certifications. Any certificate signed by any officer of the Bank
or the Parent and delivered to the Distribution Agents or to counsel for the
Distribution Agents in connection with an offering of Bank Notes, or the sale of
Bank Notes to a Distribution Agent as principal, contemplated by this Agreement
shall be deemed a representation and warranty by the Bank to the Distribution
Agents as to the matters covered thereby on the date of such certificate and at
each Representation Date referred to in Section 2(a) hereof subsequent thereto.
SECTION 3. Purchases as Principal; Solicitations as Distribution Agents.
(a) Purchases as Principal. Unless otherwise agreed to by a Distribution Agent
and the Bank, Bank Notes shall be purchased by the Distribution Agent as
principal. Such purchases shall be made in accordance with terms agreed upon by
the Distribution Agent and the Bank with respect to such information (as
applicable) as is specified in Exhibit A hereto (which terms shall be agreed
upon orally, and which may or may not be confirmed in writing in the form of
Exhibit A, prepared by the Distribution Agent and mailed or sent via facsimile
transmission to the Bank) and, in the case of sales to Distribution Agents on a
syndicated basis, a separate terms agreement substantially in the form of
Exhibit H hereto. Any oral or written agreement entered into pursuant to the
previous sentence, including any agreement in the form of Exhibit H hereof, is
referred to herein as a "Terms Agreement". The Distribution Agent's commitment
to purchase Bank Notes as principal shall be deemed to have been made on the
basis of the representations and warranties of the Bank herein contained and
shall be subject to the terms and conditions herein set forth. Each purchase of
Bank Notes, unless otherwise agreed, shall be at a discount from the principal
amount of each such Bank Note equivalent to the applicable commission set forth
in Exhibit B hereto. The Distribution Agent may engage the services of any other
broker or dealer in connection with the resale of the Bank Notes purchased as
principal and may allow any portion of the discount received in connection with
such purchases from the Bank to such brokers and dealers. At the time of each
purchase of Bank Notes by a Distribution Agent as principal, the Distribution
Agent shall specify the requirements for the opinions of counsel, officers'
certificates and the accountant's letter pursuant to Sections 6(a), 6(b) and
6(d) hereof. The resale of any Bank Notes acquired by such Distribution Agent as
principal shall be subject to all of the applicable selling restrictions set
forth in Exhibit G hereto.
(b) Solicitations as Distribution Agents. On the basis of the representations
and warranties herein contained, but subject to the terms and conditions herein
set forth, when agreed upon by the Bank and a Distribution Agent, such
Distribution Agent, as an agent of the Bank, will use its reasonable efforts to
solicit offers to purchase the Bank Notes upon the terms and conditions set
forth herein and in the Offering Circular. All Bank Notes sold through a
Distribution Agent as agent will be sold at 100% of their principal amount
unless otherwise agreed to by the Bank and the Distribution Agent.
The Bank reserves the right, in its sole discretion, to suspend
solicitation of purchases of the Bank Notes through the Distribution Agents, as
agents, commencing at any time for any period of time or permanently. Upon
receipt of instructions from the Bank, the Distribution Agents will forthwith
suspend solicitation of purchases from the Bank until such time as the Bank has
advised the Distribution Agents that such solicitation may be resumed. During
such period, the Bank shall not be required to comply with the provisions of
Sections 8(b), (c) and (d). Upon advising the Distribution Agents that such
solicitation may be resumed, however, the Bank shall simultaneously provide the
documents required to be delivered by Sections 8(b), (c) and (d), and the
Distribution Agents shall have no obligation to solicit offers to purchase the
Bank Notes until such documentation has been received by the Distribution
Agents.
The Bank agrees to pay each Distribution Agent a commission, in the
form of a discount, equal to the applicable percentage of the principal amount
of each Bank Note sold by the Bank as a result of a solicitation made by such
Distribution Agent as set forth in Exhibit B hereto, or as otherwise agreed to
by the Bank and such Distribution Agent. The Distribution Agents may reallow any
portion of the commission payable pursuant hereto to dealers in connection with
the offer and sale of the Bank Notes.
(c) Administrative Procedures. The purchase price, interest rate or formula,
maturity date and other terms of the Bank Notes (as applicable) specified in
Exhibit A hereto shall be agreed upon by the Bank and the applicable
Distribution Agent and set forth in a pricing supplement to the Offering
Circular to be prepared in connection with each sale of Bank Notes.
Administrative procedures with respect to the sale of Bank Notes shall be agreed
upon from time to time by the Distribution Agents and the Bank (the
"Procedures"). The initial Procedures, as agreed upon by the Distribution Agents
and the Bank, are attached hereto as Exhibit I. The Distribution Agents and the
Bank agree to perform the respective duties and obligations specifically
provided to be performed by the Distribution Agents and the Bank herein and in
the Procedures.
(d) Delivery. The documents required to be delivered by Section 6 hereof shall
be delivered at the office of Brown & Wood LLP, on the date hereof, or at such
other time as the Distribution Agents and the Bank may agree upon in writing
(the "Closing Time").
SECTION 4. Covenants of the Bank.
The Bank covenants with the Distribution Agents as follows:
(a) Amending Offering Circular. The Bank will give the Distribution Agents
notice of its intention to prepare any additional offering circular supplement
with respect to the sale of the Bank Notes or any amendment or supplement to the
Offering Circular and will furnish the Distribution Agents with copies of any
such amendment or supplement or other documents proposed to be distributed a
reasonable time in advance of such proposed distribution and will not distribute
any such amendment or supplement or other documents in a form to which the
Distribution Agents or counsel for the Distribution Agents shall reasonably
object.
(b) Copies of Offering Circular. The Bank will deliver to the Distribution
Agents as many copies of the Offering Circular (as amended or supplemented,
including documents incorporated by reference therein) as the Distribution
Agents shall reasonably request in connection with sales or solicitations of
offers to purchase the Bank Notes.
(c) Revisions of Offering Circular -- Material Changes. Except as otherwise
provided in Subsection (d) of this Section 4, if any event shall occur or
condition exist as a result of which it is necessary, in the reasonable opinion
of counsel for the Distribution Agents or counsel for the Bank, to amend or
supplement the Offering Circular in order that the Offering Circular will not
include any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein not misleading in the
light of the circumstances existing at the time it is delivered to a purchaser,
immediate notice shall be given, and confirmed in writing, to the Distribution
Agents to cease the solicitation of offers to purchase the Bank Notes in their
capacity as agents and to cease sales of the Bank Notes the Distribution Agents
may then own as principal, and the Bank will promptly prepare such amendment or
supplement as may be necessary to correct such untrue statement or omission. The
Distribution Agents shall, at such time as the Bank shall have furnished to the
Distribution Agents an amended or supplemented Offering Circular in form
satisfactory to the Distribution Agents and their counsel, resume solicitation
of offers to purchase Bank Notes using the Offering Circular so amended and
supplemented. The Bank agrees to update the Offering Circular no less than
annually within 120 days after its fiscal year-end.
(d) Suspension of Certain Obligations. The Bank shall not be required to comply
with the provisions of subsection (c) of this Section 4 during any period from
the later of the time (i) the Distribution Agents shall have suspended
solicitation of purchases of the Bank Notes in their capacity as agents pursuant
to a request from the Bank and (ii) no Distribution Agent shall then hold any
Bank Notes purchased as principal pursuant hereto, until the time the Bank shall
determine that solicitation of purchases of the Bank Notes should be resumed or
the Distribution Agent shall subsequently purchase Bank Notes from the Bank as
principal.
(e) Regulatory Reports. The Bank shall provide the Distribution Agents with
copies of the publicly available portion of any reports required to be filed by
the Bank or the Parent with any United States or state supervisory or regulatory
authority as promptly as reasonably practicable after such reports become
publicly available.
(f) Preparation of Pricing Supplements. The Bank will prepare, with respect to
the Bank Notes to be sold through or to the Distribution Agents pursuant to this
Agreement, a pricing supplement with respect to the Bank Notes in a form
previously approved by the Distribution Agents.
(g) Blue Sky Qualifications. The Bank will endeavor, in cooperation with the
Distribution Agents, to qualify the Bank Notes for offering and sale under the
applicable securities laws of such states and other jurisdictions of the United
States as the Distribution Agents may designate, and will maintain such
qualifications in effect for as long as may be required for the distribution of
the Bank Notes; provided, however, that the Bank shall not be obligated to file
any general consent to service of process or to qualify as a foreign corporation
in any jurisdiction in which it is not so qualified. The Bank will file such
statements and reports as may be required by the laws of each jurisdiction in
which the Bank Notes have been qualified as above provided. The Bank will
promptly advise the Distribution Agents of the receipt by the Bank of any
notification with respect to the suspension of the qualification of the Bank
Notes for sale in any such state or jurisdiction or the initiating or
threatening of any proceeding for such purpose.
(h) Stand-Off Agreement. In connection with a purchase by a Distribution Agent
of Bank Notes as principal, between the date of the agreement to purchase such
Bank Notes and the Settlement Date with respect to such purchase, the Bank will
not, without the prior consent of the Distribution Agent who is party to such
agreement, offer or sell, or enter into any agreement to sell, any debt
securities of the Bank (other than the Bank Notes that are to be sold pursuant
to such agreement and deposit and other bank obligations issued and sold
directly by the Bank in the ordinary course of its business).
SECTION 5. Payment of Expenses.
Whether or not the transactions contemplated hereunder are consummated
or this Agreement or any agreement by a Distribution Agent to purchase Bank
Notes as principal is terminated, the Bank will pay all expenses incident to the
performance of the Bank's obligations under this Agreement including, without
limitation: (a) the preparation, printing and delivery of the Offering Circular
and all amendments and supplements thereto; (b) the preparation and reproduction
of this Agreement; (c) the preparation, issuance and delivery of the Bank Notes,
including fees and expenses related to the use of book-entry notes; (d) the fees
and disbursements of the Bank's counsel and accountants, of the Paying Agents,
London Issuing Agent, Registrar, Transfer Agent and Listing Agent and of any
calculation agents or exchange rate agents; (e) the reasonable fees and
disbursements of counsel to the Distribution Agents incurred in connection with
the establishment of the program relating to the Bank Notes and incurred from
time to time in connection with the transactions contemplated thereby; (f) any
fees charged by rating agencies for rating of the Bank Notes; (g) any
advertising and other out-of-pocket expenses of the Distribution Agents incurred
with the approval of the Bank; (h) the qualification of the Bank Notes under
state securities laws in accordance with the provisions of Section 4(g) hereof,
including the filing fees and the reasonable fees and disbursements of counsel
for the Distribution Agents in connection therewith and in connection with the
preparation of any Blue Sky Survey and any Legal Investment Survey; (i) the cost
of preparing and providing any CUSIP or other identification numbers for the
Bank Notes and (j) all fees payable to any exchange in connection with listing
the Bank Notes on such exchange.
SECTION 6. Conditions of Distribution Agents' Obligations.
The obligations of the Distribution Agents to solicit offers to
purchase the Bank Notes as agents of the Bank, the obligations of any purchasers
of Bank Notes sold through a Distribution Agent as agent, and any obligation of
a Distribution Agent to purchase Bank Notes pursuant to any agreement by such
Distribution Agent to purchase Bank Notes as principal (or otherwise), will be
subject at all times to the accuracy in all material respects of the
representations and warranties on the part of the Bank herein and to the
accuracy in all material respects of the statements of the Bank's and the
Parent's officers made in any certificate furnished pursuant to the provisions
hereof, to the performance and observance in all material respects by the Bank
of all covenants and agreements herein contained and to the following additional
conditions precedent:
(a) Legal Opinions. On the date hereof, and, if required pursuant to Section
8(c) hereof, on each Settlement Date, the Distribution Agents shall have
received the following legal opinions, dated as of the date hereof or the
Settlement Date, as the case may be, and in form and substance satisfactory to
the Distribution Agents:
(i) Opinions of Counsel to the Bank and the Parent. The opinion of John G.
Finneran, Jr., Counsel to the Bank and the Parent, substantially in the
form of Exhibit C.
(ii) Opinion of Counsel to the Distribution Agents. The opinion of Brown &
Wood LLP, counsel to the Distribution Agents, covering such matters as
they may request.
(b) Officers' Certificates. On the date hereof, and, if required pursuant to
Section 8(b) hereof, on each Settlement Date, the Distribution Agents shall have
received a certificate of (i) the President, Senior Vice President or Vice
President, and the Chief Financial Officer, Chief Accounting Officer or
Treasurer of the Bank satisfactory to the Distribution Agents, substantially in
the form of Exhibit D hereto and (ii) the President, Senior Vice President or
Vice President, and the Chief Financial Officer, Chief Accounting Officer or
Treasurer of the Parent satisfactory to the Distribution Agents, substantially
in the form of Exhibit E hereto, each dated the date hereof or the Settlement
Date, as the case may be.
(c) Representations Certificate. On the date hereof, the Distribution Agents
shall have received a certificate of the Parent, substantially in the form of
Exhibit F hereto.
(d) Accountants' Letter. On the date hereof, and, if required pursuant to
Section 8(d) hereof, on each Settlement Date, the Distribution Agents shall have
received a letter from Ernst & Young LLP, independent accountants to the Bank
and the Parent, dated as of the date hereof or the Settlement Date, as the case
may be, and in form and substance satisfactory to the Distribution Agents.
(e) Other Documents. On the date hereof and on each Settlement Date, counsel to
the Distribution Agents shall have been furnished with such documents and
opinions as such counsel may reasonably request for the purpose of enabling such
counsel to pass upon the issuance and sale of the Bank Notes as herein
contemplated and related proceedings, or in order to evidence the accuracy and
completeness of any of the representations and warranties, or the fulfillment of
any of the conditions, herein contained; and all proceedings taken by the Bank
in connection with the issuance and sale of Bank Notes as herein contemplated
shall be satisfactory in form and substance to the Distribution Agents and to
counsel to the Distribution Agents.
If any condition specified in this Section 6 shall not have been
fulfilled when and as required to be fulfilled, this Agreement (or, at the
option of the Distribution Agent, any applicable agreement by such Distribution
Agent to purchase Bank Notes as principal) may be terminated by the Distribution
Agents by written notice to the Bank at any time at or prior to the Closing Time
and any such termination shall be without liability of any party to any other
party, except that the provisions of Section 5 hereof, the indemnity and
contribution agreement set forth in Sections 9 and 10 hereof, and the provisions
of Sections 11, 14 and 15 hereof shall remain in effect.
SECTION 7. Delivery of and Payment for Bank Notes Sold through a Distribution
Agent.
Delivery of Bank Notes sold through a Distribution Agent as agent shall
be made by the Bank to such Distribution Agent for the account of any purchaser
only against payment therefor in immediately available funds. In the event that
a purchaser shall fail either to accept delivery of or to make payment for a
Bank Note on the date fixed for settlement, the Distribution Agent shall
promptly notify the Bank and deliver the Bank Note to the Bank, and, if the
Distribution Agent has theretofore paid the Bank for the Bank Note, the Bank
will promptly return such funds to the Distribution Agent. If such failure shall
have occurred for any reason other than default by the applicable Distribution
Agent to perform its obligations hereunder, the Bank will reimburse such
Distribution Agent on an equitable basis for its loss of the use of funds during
the period when the funds were credited to the account of the Bank.
SECTION 8. Additional Covenants of the Bank.
The Bank covenants and agrees with each Distribution Agent that:
(a) Reaffirmation of Representations and Warranties. Each acceptance by the Bank
of an offer for the purchase of Bank Notes (whether to a Distribution Agent as
principal or through the Distribution Agent as agent), and each delivery of Bank
Notes to the Distribution Agents, shall be deemed to be an affirmation that the
representations and warranties of the Bank contained in this Agreement and in
any certificate theretofore delivered to the Distribution Agents pursuant hereto
are true and correct in all material respects at the time of such acceptance or
sale, as the case may be, and an undertaking that such representations and
warranties will be true and correct in all material respects at the time of
delivery to the purchaser or his agent, or to the applicable Distribution Agent,
of the Bank Note or Bank Notes relating to such acceptance or sale, as the case
may be, as though made at and as of each such time (and it is understood that
such representations and warranties shall relate to the Offering Circular as
amended and supplemented to each such time, including any amendment resulting
from the incorporation by reference of documents filed by the Bank or the
Parent).
(b) Subsequent Delivery of Certificates. Each time that (i) the Offering
Circular shall be amended or supplemented (other than by an amendment or
supplement providing solely for a change in the interest rates or other variable
terms of Bank Notes), (ii) there is filed with the Commission or any bank
regulatory agency any document incorporated by reference into the Offering
Circular, but in no event more than once a quarter upon the filing of the
Parent's Form 10-Q unless requested by the Distribution Agents, (iii) (if
required in connection with the purchase of Bank Notes by a Distribution Agent
as principal) the Bank sells Bank Notes to such Distribution Agent as principal
or (iv) the Bank issues and sells Bank Notes in a form not previously certified
to the Distribution Agents by the Bank, the Bank shall furnish or cause to be
furnished forthwith to the Distribution Agents certificates from the Bank and
the Parent dated the date of such amendment or supplement, the date of such
filing, or the Settlement Date, as the case may be, to the effect that the
statements contained in the certificates which were last furnished to the
Distribution Agents by the Bank and the Parent pursuant to Section 6(b) hereof
are true and correct in all material respects at the time of such amendment,
supplement or sale, as the case may be, as though made at and as of such time
(except that such statements shall be deemed to relate to the Offering Circular
as amended and supplemented to such time, including any amendment resulting from
incorporation by reference of documents filed by the Bank and the Parent) or, in
lieu of such certificates, certificates of the same form as the certificates
referred to in said Section 6(b), modified as necessary to relate to the
Offering Circular as amended and supplemented to the time of delivery of such
certificates.
(c) Subsequent Delivery of Legal Opinions. Each time that (i) the Offering
Circular shall be amended or supplemented with respect to the Bank Notes (other
than by an amendment or supplement (x) providing solely for a change in interest
rates or other variable terms of the Bank Notes or similar changes, or (y)
setting forth financial statements or other information as of and for a fiscal
period (unless, in the reasonable judgment of the Distribution Agents, an
opinion of counsel should be furnished in light of such an amendment)), (ii)
there is filed with the Commission or any bank regulatory agency any document
incorporated by reference into the Offering Circular, but in no event more than
once a quarter upon the filing of the Parent's Form 10-Q unless requested by the
Distribution Agents, (iii) (if required in connection with the purchase of Bank
Notes by a Distribution Agent as principal) the Bank sells Bank Notes to such
agent as principal or (iv) the Bank issues and sells Bank Notes in a form not
previously certified to the Distribution Agents by the Bank, the Bank shall
furnish or cause to be furnished forthwith to the Distribution Agents and the
Distribution Agents' counsel a letter from each counsel last furnishing an
opinion referred to in Section 6(a)(i) hereof (or such other counsel as may be
acceptable to the Distribution Agents) to the effect that the Distribution
Agents may rely on such last opinion to the same extent as though it were dated
the date of such letter authorizing reliance (except that statements in such
last opinion shall be deemed to relate to the Offering Circular as amended and
supplemented to the time of delivery of such letter authorizing reliance) or in
lieu of such letter, each such counsel (or such other counsel as may be
acceptable to the Distribution Agents) may deliver a letter in the same form as
its letter referred to in Section 6(a)(i) but modified, as necessary to relate
to the Offering Circular as amended and supplemented to the time of delivery of
such letter. With respect to this Section 8(c), the opinion referred to in
Section 6(a)(ii) will also be furnished in the same manner contemplated above
but only pursuant to Section 8(c)(iii) above.
(d) Subsequent Delivery of Accountants' Letters. Each time that (i) the Offering
Circular shall be amended or supplemented with respect to the Bank Notes (other
than by an amendment or supplement providing solely for a change in interest
rates or other variable terms of the Bank Notes), (ii) if requested by the
Distribution Agents, but in any event at least once annually at the filing of
the Parent's Form 10-K, there is filed with the Commission any document
incorporated by reference into the Offering Circular, (iii) (if required in
connection with the purchase of Bank Notes by a Distribution Agent as principal)
the Bank sells Bank Notes to such agent as principal or (iv) (if required by a
Distribution Agent) the Bank issues and sells Bank Notes in a form not
previously certified to the Distribution Agents by the Bank, the Bank shall
furnish or cause to be furnished forthwith to the Distribution Agents and the
Distribution Agents' counsel a letter from Ernst & Young LLP reaffirming the
statements made in its letter delivered pursuant to Section 6(d), or in lieu of
such letter, Ernst & Young LLP may deliver a letter in the same form as its
letter referred to in Section 6(d) but modified as necessary to relate to the
Offering Circular as amended and supplemented to the time of delivery of such
letter.
(e) Listing. In connection with any application to list Bank Notes on the
Luxembourg Stock Exchange or any other stock exchange, the Bank will furnish
from time to time any and all documents, instruments, information and
undertakings and publish all advertisements or other material that may the
necessary in order to effect such listing(s) and maintain such listing(s) until
none of such Bank Notes is outstanding or until such time as payment in respect
of principal, premium, if any, and interest in respect of all such Bank Notes
has been duly provided for, whichever is earlier; provided, however, that if the
Bank can no longer reasonably maintain such listing(s), it will use its best
efforts to obtain and maintain the quotation for, or listing of, the Bank Notes
on such other stock exchange or stock exchanges as the Bank may decide with the
approval of the Distribution Agents.
SECTION 9. Indemnification.
(a) Indemnification of Distribution Agents. The Bank agrees to indemnify and
hold harmless each Distribution Agent, each person who controls any Distribution
Agent and each affiliate of any Distribution Agent which assists such
Distribution Agent in the distribution of the Bank Notes within the meaning of
the 1933 Act or of the 1934 Act against any and all losses, claims, damages,
expenses or liabilities, to which they or any of them may become subject under
the 1933 Act or the 1934 Act or other Federal or state statutory law or
regulation, at common law or otherwise, as incurred, insofar as such losses,
claims, damages, expenses or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Offering Circular (including for purposes of this
Section 9 all amendments and supplements thereto and any of the documents
incorporated by reference therein), or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and agrees to
reimburse each such indemnified party for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the Bank
will not be liable in any such case to the extent that any such loss, claim,
damage, expense or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Bank by or on behalf of any Distribution Agent specifically for use in the
Offering Circular.
(b) Indemnification of the Bank. Each Distribution Agent severally agrees to
indemnify and hold harmless the Bank and each person who controls the Bank
within the meaning of the 1933 Act or of the 1934 Act to the same extent as the
foregoing indemnity from the Bank to each Distribution Agent, but only with
reference to written information furnished to the Bank by or on behalf of such
Distribution Agent specifically for use in the Offering Circular. This indemnity
agreement will be in addition to any liability which any Distribution Agent may
otherwise have.
If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such person (the "Indemnified Person") shall promptly
notify the person against whom such indemnity may be sought (the "Indemnifying
Person") in writing, and the Indemnifying Person, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may designate in such proceeding and shall pay the fees and
expenses of such counsel related to such proceeding. In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Person and the Indemnified Person shall have
mutually agreed to the contrary, (ii) the Indemnifying Person has failed within
a reasonable time to retain counsel reasonably satisfactory to the Indemnified
Person or (iii) the named parties in any such proceeding (including any
impleaded parties) include both the Indemnifying Person and the Indemnified
Person and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It is
understood that the Indemnifying Person shall not, in connection with any
proceeding or related proceeding in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm (in addition to any local
counsel) for all Indemnified Persons, and that all such fees and expenses shall
be reimbursed as they are incurred. Any such separate firm for the Distribution
Agents, each affiliate of any Distribution Agent which assists such Distribution
Agent in the distribution of the Bank Notes and such control persons of the
Distribution Agents shall be designated in writing by J.P. Morgan Securities
Inc. or, if J.P. Morgan Securities Inc. is not an Indemnified Party, by the
Distribution Agents that are Indemnified Parties and any such separate firm for
the Bank, its directors, its officers and such control persons of the Bank or
authorized representatives shall be designated in writing by the Bank. The
Indemnifying Person shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the Indemnifying Person agrees to
indemnify any Indemnified Person from and against any loss or liability by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an Indemnified Person shall have requested an Indemnifying Person
to reimburse the Indemnified Person for fees and expenses of counsel as
contemplated by the third sentence of this paragraph, the Indemnifying Person
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than 30
days after receipt by such Indemnifying Person of the aforesaid request and (ii)
such Indemnifying Person shall not have reimbursed the Indemnified Person in
accordance with such request prior to the date of such settlement. No
Indemnifying Person shall, without the prior written consent of the Indemnified
Person, effect any settlement of any pending or threatened proceeding in respect
of which any Indemnified Person is or could have been a party and indemnity
could have been sought hereunder by such Indemnified Person, unless such
settlement includes an unconditional release of such Indemnified Person from all
liability on claims that are the subject matter of such proceeding.
SECTION 10. Contribution.
If the indemnification provided for in paragraphs (a) or (b) of Section
9 is unavailable to an Indemnified Person or insufficient in respect of any
losses, claims, damages or liabilities referred to therein in connection with
any offering of Bank Notes, but is applicable in accordance with its terms, then
each Indemnifying Person under such paragraph, in lieu of indemnifying such
Indemnified Person thereunder, shall contribute to the amount paid or payable by
such Indemnified Person as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Bank on the one hand and each Distribution Agent on the
other from the offering of the Bank Notes or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Bank on the one hand and each
Distribution Agent on the other in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits received by the
Bank on the one hand and each Distribution Agent on the other in connection with
the offering of such Bank Notes shall be deemed to be in the same respective
proportion as the net proceeds from the offering of such Bank Notes (before
deducting expenses) received by the Bank and the total discounts and commissions
received by each Distribution Agent in respect thereof bear to the aggregate
offering price of such Bank Notes. The relative fault of the Bank on the one
hand and of each Distribution Agent on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Bank or by such Distribution Agent and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or the omission or alleged omission.
The Bank and each Distribution Agent agrees that it would not be just
and equitable if contribution pursuant to this Section 10 were determined by pro
rata allocation (even if all Distribution Agents were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to above in this Section 10. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to above in Sections 9 and 10 shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses incurred by such Indemnified Person in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of Sections 9
and 10, in no event shall a Distribution Agent be required to contribute any
amount in excess of the amount by which the total price at which the Bank Notes
referred to in Section 10 that were sold by or through such Distribution Agent
exceeds the amount of any damages that such Distribution Agent has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligation of each Distribution Agent to contribute
pursuant to this Section 10 is several (in the proportion that the principal
amount of the Bank Notes the sale of which by or through such Distribution Agent
gave rise to such losses, claims, damages or liabilities bears to the aggregate
principal amount of the Bank Notes the sale of which by or through any
Distribution Agent gave rise to such losses, claims, damages or liabilities) and
is not joint.
SECTION 11. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this
Agreement or contained in certificates of officers of the Bank pursuant hereto,
shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of the Distribution Agents or any controlling
person of a Distribution Agent, or by or on behalf of the Bank, and shall
survive each delivery of and payment for any of the Bank Notes.
SECTION 12. Termination.
(a) Termination of this Agreement. This Agreement (excluding any agreement
hereunder by a Distribution Agent to purchase Bank Notes as principal) may be
terminated for any reason, at any time by either the Bank or any of the
Distribution Agents as to itself, immediately upon the giving of 30 days written
notice of such termination to the other party hereto in accordance with the
provisions of Section 13 hereof.
(b) Termination of an Agreement to Purchase Bank Notes as Principal. A
Distribution Agent may terminate an agreement hereunder by such Distribution
Agent to purchase Bank Notes as principal, immediately upon written notice to
the Bank, at any time prior to the Settlement Date relating thereto (i) if there
has been, since the date of such agreement or since the respective dates as of
which information is given in the Offering Circular, any material adverse change
in the condition, financial or otherwise, or in the earnings, business affairs
or business prospects of the Bank and its subsidiaries, or of the Parent and its
subsidiaries, as the case may be, considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there shall have occurred
any material adverse change in the financial markets in the United States or any
outbreak or escalation of hostilities or other national or international
calamity or crisis the effect of which is such as to make it, in the judgment of
such Distribution Agent, impracticable to market the Bank Notes or enforce
contracts for the sale of the Bank Notes, or (iii) there shall have occurred a
change in international financial, political or economic conditions or currency
exchange rates or exchange controls as would be likely to prejudice materially
the sale by such Distribution Agent of the Bank Notes, or (iv) if trading in any
securities of the Bank or the Parent shall have been suspended by the Commission
or a national securities exchange, or if trading generally on either the
American Stock Exchange, the New York Stock Exchange or the Chicago Board of
Trade shall have been suspended, or minimum or maximum prices for trading shall
have been fixed, or maximum ranges for prices for securities shall have been
required, by either of said exchanges or by order of the Commission or any other
governmental authority, or if a banking moratorium shall have been declared by
either federal, New York State or the Commonwealth of Virginia authorities, as
the case may be, or (v) if the rating assigned by any nationally recognized
securities rating agency to any debt securities of the Bank or the Parent as of
the date of any agreement by a Distribution Agent to purchase the Bank Notes as
principal shall have been lowered since that date or if any such rating agency
shall have publicly announced that it has placed under surveillance or review,
other than with positive implications, its rating of any debt securities or
deposits of the Bank or the Parent, or (vi) if there shall have come to such
Distribution Agent's attention any facts that would cause such Distribution
Agent to believe that the Offering Circular or any amendments thereto or
supplements thereof, at the time it was required to be delivered to a purchaser
of Bank Notes, contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements therein, in
light of the circumstances existing at the time of such delivery, not
misleading.
(c) General.
In the event of any such termination, none of the parties will have any
liability to the other parties hereto, except that (i) the Distribution Agents
shall be entitled to any commissions earned in accordance with the third
paragraph of Section 3(b) hereof, (ii) if at the time of termination (a) a
Distribution Agent shall own any Bank Notes purchased with the intention of
reselling them or (b) an offer to purchase any of the Bank Notes has been
accepted by the Bank but the time of delivery to the purchaser or his agent of
the Bank Note or Bank Notes relating thereto has not occurred, the covenants set
forth in Sections 4 and 8 hereof shall remain in effect until such Bank Notes
are so resold or delivered, as the case may be, and (iii) the provisions of
Section 5 hereof, the indemnity and contribution agreements set forth in
Sections 9 and 10 hereof, and the provisions of Section 11, 14 and 15 hereof
shall remain in effect.
SECTION 13. Notices.
Unless otherwise provided herein, all notices required under the terms
and provisions hereof shall be in writing, either delivered by hand, by mail or
by telex, telecopier or telegram, and any such notice shall be effective when
received at the address specified below.
If to the Bank:
Capital One Bank
8000 Jones Branch Road
McLean, Virginia 22102
Attention: Treasurer
Facsimile Number: (703) 875-1099
If to the Parent:
Capital One Financial Corporation
2980 Fairview Park Drive
Falls Church, Virginia 22042-4525
Attention: Senior Vice President, Corporate Financial Management
Facsimile Number: (703) 205-1088
If to J.P. Morgan Securities Inc.:
J.P. Morgan Securities Inc.
60 Wall Street, 5th Floor
New York, New York 10260
Attention: Transaction Execution Group
Facsimile Number: (212) 648-5151
If to any other Distribution Agent, at the address specified in Schedule 1
hereto, or at such other address as such party may designate from time to time
by notice duly given in accordance with the terms of this Section 13.
SECTION 14. Parties.
This Agreement shall inure to the benefit of and be binding upon the
Distribution Agents, the Bank and their respective successors. Nothing expressed
or mentioned in this Agreement is intended or shall be construed to give any
person, firm or corporation, other than the parties hereto and their respective
successors and the controlling persons and officers and directors referred to in
Sections 9 and 10 and their heirs and legal representatives, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision herein or therein contained. This Agreement and all conditions and
provisions hereof and thereof are intended to be for the sole and exclusive
benefit of the parties hereto and respective successors and said controlling
persons and officers and directors and their heirs and legal representatives,
and for the benefit of no other person, firm or corporation. No purchaser of
Bank Notes shall be deemed to be a successor by reason merely of such purchase.
SECTION 15. Governing Law.
This Agreement and all the rights and obligations of the parties shall
be governed by and construed in accordance with the laws of New York applicable
to agreements made and to be performed in such state without regard to its
conflicts of laws principles. Any suit, action or proceeding brought by the Bank
or the Parent in connection with or arising under this Agreement shall be
brought solely in the state or federal court of appropriate jurisdiction located
in the Borough of Manhattan, The City of New York.
SECTION 16. Counterparts.
This Agreement may be executed by any one or more of the parties hereto
in any number of counterparts, each of which shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument.
<PAGE>
If the foregoing is in accordance with the your understanding of our
agreement, please sign and return to the Bank a counterpart hereof, whereupon
this instrument along with all counterparts will become a binding agreement
between each of the Distribution Agents and the Bank in accordance with its
terms.
Very truly yours,
CAPITAL ONE BANK
By: __/s/___________________
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
J.P. MORGAN SECURITIES INC.
By: __/s/___________________
Name:
Title:
J.P. MORGAN SECURITIES LTD.
By: __/s/___________________
Name:
Title:
<PAGE>
ABN AMRO INCORPORATED
By: __/s/___________________
Name:
Title:
ABN AMRO BANK N.V.
By: __/s/___________________
Name:
Title:
BANC OF AMERICA SECURITIES LLC
By: __/s/___________________
Name:
Title:
BANK OF AMERICA INTERNATIONAL LIMITED
By: __/s/___________________
Name:
Title:
BARCLAYS CAPITAL INC.
By: __/s/___________________
Name:
Title:
BARCLAYS BANK PLC
By: __/s/___________________
Name:
Title:
<PAGE>
CHASE SECURITIES INC.
By: __/s/___________________
Name:
Title:
CHASE MANHATTAN INTERNATIONAL LIMITED
By: __/s/___________________
Name:
Title:
CREDIT SUISSE FIRST BOSTON CORPORATION
By: __/s/___________________
Name:
Title:
CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED
By: __/s/___________________
Name:
Title:
DEUTSCHE BANK SECURITIES INC.
By: __/s/___________________
Name:
Title:
DEUTSCHE BANK AG LONDON
By: __/s/___________________
Name:
Title:
<PAGE>
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
By: __/s/___________________
Name:
Title:
DONALDSON, LUFKIN & JENRETTE INTERNATIONAL
By: __/s/___________________
Name:
Title:
MORGAN STANLEY & CO. INCORPORATED
By: __/s/___________________
Name:
Title:
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
By: __/s/___________________
Name:
Title:
SALOMON SMITH BARNEY INC.
By: __/s/___________________
Name:
Title:
SALOMON BROTHERS INTERNATIONAL LIMITED
By: __/s/___________________
Name:
Title:
<PAGE>
SCHEDULE 1
J.P. MORGAN SECURITIES INC. Address for notices:
60 Wall Street 60 Wall Street, 5th Floor
New York, New York 10260 New York, New York 10260
Attention: Transaction Execution Group
Telephone: (212) 648-0234
Facsimile: (212) 648-5151
J.P. MORGAN SECURITIES LTD. Address for notices:
60 Victoria Embankment 60 Victoria Embankment, 4th Floor
London EC4Y OJP London EC4Y OJP
Attention: Transaction Execution Group
-- Mary Hustings
Telephone: 011-44-207-325-5633
Facsimile: 011-44-207-325-8240
ABN AMRO INCORPORATED Address for notices:
1290 Avenue of the Americas 1290 Avenue of the Americas
New York, NY 10104 New York, NY 10104
Attention: Marc Egert
Telephone: (212) 314-1858
ABN AMRO BANK N.V. Address for notices:
250 Bishopsgate 250 Bishopsgate
London EC2M 4AA London EC2M 4AA
United Kingdom United Kingdom
BANC OF AMERICA SECURITIES LLC Address for notices:
100 North Tyron Street, 7th Floor 100 North Tyron Street, 7th Floor
Charlotte, NC 28255 Charlotte, NC 28255
Attention: MTN Desk
Telephone: (704) 386-6616
Facsimile: (704) 388-9939
BANK OF AMERICA INTERNATIONAL LIMITED Address for notices:
1 Alie Street 1 Alie Street
London, E18DE London, E18DE
United Kingdom United Kingdom
Attention: New Issues/Syndicate
Telephone: 011-44-207-634-4903
Facsimile: 011-44-207-634-4937
BARCLAYS CAPITAL INC. Address for notices:
222 Broadway 222 Broadway, 7th Floor
New York, New York 10038 New York, New York 10038
Attention: Eric Jaeger
Telephone: (212) 412-2973
Facsimile: (212) 412-5610
BARCLAYS BANK PLC Address for notices:
5 The North Colonnade 5 The North Colonnade
Canary Wharf Canary Wharf
London E14 4BB London E14 4BB
Attention: MTN Dealers
Telephone: 011-44-207-773-9090
Facsimile: 011-44-207-773-4876
Telex: 94020039 BAR G
CHASE SECURITIES INC. Address for notices:
270 Park Avenue 270 Park Avenue
New York, NY 10017 New York, NY 10017
Attention: Medium-Term Note Desk
Telephone: (212) 834-1421
Facsimile: (212) 834-6081
CHASE MANHATTAN INTERNATIONAL LIMITED Address for notices:
125 London Wall 125 London Wall
London, EC2Y 5AJ London, EC2Y 5AJ
United Kingdom United Kingdom
Attention: New Issues Desk
Telephone: 011-44-207-777-3900
Facsimile: 011-44-207-777-3144
Telex: 9406-0177 CMIL G
CREDIT SUISSE FIRST BOSTON CORPORATION Address for notices:
11 Madison Avenue 11 Madison Avenue
New York, NY 10010 New York, NY 10010
Attention: Sharon Harrison
Telephone: (212) 325-2501
Facsimile: (212) 325-8007
CREDIT SUISSE FIRST BOSTON (EUROPE)
LIMITED Address for notices:
One Cabot Square One Cabot Square
London E14 4QJ London E14 4QJ
United Kingdom United Kingdom
Attention: MTN Trading Desk
Telephone: 011-44-207-888-4021
Facsimile: 011-44-207-888-3719
DEUTSCHE BANK SECURITIES INC. Address for notices:
31 West 52nd Street, 3rd Floor 31 West 52nd Street, 3rd Floor
New York, NY 10019 New York, NY 10019
DEUTSCHE BANK AG LONDON Address for notices:
Winchester House Winchester House
1 Great Winchester Street 1 Great Winchester Street
London EC2N 4DB London EC2N 2DB
Attention: MTN Desk
Telephone: 011-44-207-545-2761
Facsimile: 011-44-207-541-2761
DONALDSON, LUFKIN & JENRETTE Address for notices:
SECURITIES CORPORATION 277 Park Avenue, 9th Floor
277 Park Avenue New York, NY 10172
New York, NY 10172 Attention: Michael Waters
Telephone: (212) 892-3035
DONALDSON, LUFKIN & JENRETTE Address for notices:
INTERNATIONAL 99 Bishopsgate
99 Bishopsgate London EC2M 2YF
London EC2M 3YF United Kingdom
United Kingdom Attention: Dennis Redburn
Telephone: 011-44-207-655-7071
Facsimile: 011-44-207-655-7220
MORGAN STANLEY & CO. INCORPORATED Address for notices:
1585 Broadway, 2nd Floor 1585 Broadway, 2nd Floor
New York, NY 10035 New York, NY 10035
Attn: Manager-Continuously Offered
Products
Telephone: (212) 761-4000
Facsimile: (212) 761-0780
with a copy to:
Att:Peter Cooper
Investment Banking Information Center
29th Floor
Telephone: (212) 761-8385
Facsimile: (212) 761-0260
MORGAN STANLEY & CO. Address for notices:
INTERNATIONAL LIMITED 25 Cabot Square
25 Cabot Square Canary Wharf
Canary Wharf London E14 4QA
London E14 4QA United Kingdom
United Kingdom Attn: Debt Capital Markets
Telephone: 011-44-207-425-7730
with a copy to:
Attn: Peter Cooper
Investment Banking Information Center
29th Floor
Telephone: (212) 761-8385
Facsimile: (212) 761-0260
SALOMON SMITH BARNEY INC. Address for notices:
7 World Trade Center 390 Greenwich Street, 4th Floor
New York, New York 10048 New York, New York 10013
Attention: Peter Ahern
Telephone: (212) 723-6104
Facsimile: (212) 723-8670
SALOMON BROTHERS Address for notices:
INTERNATIONAL LIMITED Victoria Plaza
Victoria Plaza 111 Buckingham Palace Road
111 Buckingham Palace Road London SW1W 0SB
London SW1W 0SB Attention: MTN Desk
Telephone: 020-0721-4228
Facsimile: 020-7721-2829
<PAGE>
EXHIBIT A
The following terms, if applicable, shall be agreed to by the
Distribution Agent and the Bank in connection with each sale of Bank Notes to
the Distribution Agent (and unless otherwise defined herein, capitalized terms
used herein shall have the meanings ascribed to them in the Offering Circular).
DESCRIPTION OF THE NOTES
1. Specified Currency and Principal Amount:
2. Senior or Subordinated:
3. Original Issue Date:
4. Stated Maturity Date:
5. Issue Price:
6. (a) Authorized Denomination(s):
(b) Redenomination (Yes/No):
[If yes, give details]
7. Form of Note (Registered or Bearer):
8. (a) Series Number:
(b) If forming part of an existing Series (Yes/No):
[If yes, give details]
9. Interest Period:
One Month
Three Months
Six Months
Twelve Months
Other (Specify Number of Months):
10. Interest Payment Date(s):
11. Record Dates (for Registered Notes with Maturities Greater than One Year):
12. Exchange Rate Agent (Registered Notes and Dual Currency Notes):
13. Default Rate (if other than Interest Rate): % per annum
14. PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE
15. FIXED RATE NOTES
16. Interest Rate: % per annum.
17. Day Count Convention:
30/360 for the period from_______to_______
Actual/360 for the period from________to________
Actual/Actual for the period from________to________
Other (specify convention and applicable period):
FLOATING RATE NOTES
18. Interest Rate Determination:
ISDA Rate
Reference Rate Determination
19. Calculation Agent, if not The Chase Manhattan Bank:
20. Maximum Interest Rate: % per annum
21. Minimum Interest Rate: % per annum
22. Day Count Convention:
30/360 for the period from________to________
Actual/360 for the period from________to________
Actual/Actual for the period from________to_________
Other (specify convention and applicable period):
23. Business Day Convention:
Floating Rate Convention
Following Business Day Convention
Modified Following Business Day Convention
Preceding Business Day Convention
Other (specify):
ISDA RATE
24. Margin: [+/-] % per annum
25. Floating Rate Option:
26. Designated Maturity:
27. Reset Date:
REFERENCE RATE DETERMINATION
28. Initial Interest Rate:
29. Index Maturity:
30. Interest Rate Basis or Bases:
If CMT Rate: Designated CMT Telerate Page:
Designated CMT Maturity Index:
IF EURIBOR:
If LIBOR: LIBOR Telerate
Page:
LIBOR Reuters
Page:
31. Index Currency:
32. Spread: [+/-] % per annum
33. Spread Multiplier:
34. Initial Interest Reset Date:
35. Interest Reset Period:
36. Interest Reset Dates:
37. Interest Calculation:
Regular Floating Rate Note
Floating Rate/Fixed Rate Note
Fixed Rate Commencement Date: % per annum
Fixed Interest Rate:
Inverse Floating Rate Note: % per annum
Fixed Interest Rate:
PROVISIONS REGARDING REDEMPTION/REPAYMENT
38. Initial Redemption Date:
39. Initial Redemption Percentage:
40. Annual Redemption Percentage Reduction:
41. Holder's Optional Repayment Date(s):
DISCOUNT NOTES (INCLUDING ZERO COUPON NOTES)
42. Discount Note (Yes/No):
If Yes: Total Amount of OID:
Yield to Maturity:
Initial Accrual Period: %
Issue Price:
INDEXED NOTES
43. Index: [give details]
44. Formula:
45. Agent, if any, responsible for calculating the principal and/or interest
payable:
46. Provisions where calculation by reference to Index and/or Formula is
impossible or impracticable:
DUAL CURRENCY NOTES
47. Dual Currency Notes (Yes/No):
If Yes: Face Amount:
Face Amount Currency:
Optional Payment Currency:
Option Election Dates: [give details]
48. Designated Exchange Rate:
49. Option Value Calculation Agent:
50. Agent, if any, responsible for calculating the principal and/or interest
payable:
INSTALLMENT NOTES
51. Additional provisions relating to Installment Notes:
PARTLY PAID NOTES
52. Additional provisions relating to Partly Paid Notes:
GENERAL PROVISIONS
53. Additional or different Paying Agents:
54. Additional or different Registrars:
55. Additional or different London Issuing Agents:
56. Additional or different Transfer Agents:
57. "Business Day" definition (if other than as defined in the Offering
Circular):
58. Cost, if any, to be borne by Noteholders in connection with exchanges for
Definitive Bearer Notes:
59. Talons for future Coupons or Receipts to be attached to Definitive
Bearer Notes (Yes/No) and dates on which such Talons mature:
[If yes, give details]
60. Additional selling restrictions: [give details]
61. CUSIP:
ISIN:
Common Code:
Other (specify):
62. Details of additional/alternative clearance system approved by the Bank:
63. Notes to the listed (Yes/No):
If Yes, stock exchange(s):
64. Syndicated Issue (Yes/No):
If Yes, names of managers and details of relevant stabilizing
manager, if any:
65. Clearance System(s):
DTC only
Euroclear and Clearstream, Luxembourg only
DTC, and Euroclear and Clearstream, Luxembourg through DTC
DTC, Euroclear and Clearstream, Luxembourg
Other:
66. Name(s) of relevant Distribution Agent(s):
67. Other terms or special conditions:
68. Tax considerations:
69. Discount or Commission per Note:
<PAGE>
EXHIBIT B
As compensation for the services of the Distribution Agents hereunder,
the Bank shall pay the applicable Distribution Agent, on a discount basis, a
commission for the sale of each Bank Note equal to the principal amount of the
Bank Note multiplied by the appropriate percentage set forth below, as agreed
upon by the applicable Distribution Agent and the Bank:
Global Bank Notes Commission Schedule
PERCENT OF PRINCIPAL
MATURITY RANGES AMOUNT
7 days to less than 9 months ............................ .050%
From 9 months to less than 1 year ....................... .125%
From 1 year to less than 18 months ...................... .150%
From 18 months to less than 2 years ..................... .200%
From 2 years to less than 3 years ....................... .250%
From 3 years to less than 4 years ....................... .350%
From 4 years to less than 5 years ....................... .450%
From 5 years to less than 6 years ....................... .500%
From 6 years to less than 7 years ....................... .550%
From 7 years to less than 10 years ...................... .600%
From 10 years to less than 15 years ..................... .625%
Greater than and including 15 years ..................... [to be negotiated at
the time of sale]
<PAGE>
[FORM OF OPINION OF COUNSEL TO THE BANK AND THE PARENT]
EXHIBIT C
[Date]
J.P. MORGAN SECURITIES INC.
60 Wall Street
New York, New York 10260
(OTHER DISTRIBUTION AGENTS)
Ladies and Gentlemen:
I am the General Counsel of Capital One Bank (the "Bank") and
Capital One Financial Corporation (the "Parent") and, together with other
attorneys under my supervision have acted as counsel to the Bank and the Parent,
in connection with the execution today (i) by you and the Bank of the
Distribution Agreement (the "Distribution Agreement"), (ii) by the Parent of the
Representations Certificate pursuant to Section 6(c) of the Distribution
Agreement (the "Representations Certificate"), and (iii) by the Bank and The
Chase Manhattan Bank, The Chase Manhattan Bank, London Branch and Kredietbank
S.A. Luxembourgeoise (together, the "Paying Agents") of the Global Agency
Agreement (the "Global Agency Agreement"), the Interest Calculation Agreement
between the Bank and The Chase Manhattan Bank dated as of June 6, 2000 (the
"Interest Calculation Agreement"), the Exchange Rate Agent Agreement between the
Bank and The Chase Manhattan Bank dated June 6, 2000 (the "Exchange Rate Agent
Agreement) and (iv) by the Bank and The Chase Manhattan Bank and The Depository
Trust Company of the Short-Term and Medium-Term Letters of Representations (the
"Letters of Representations"), all of which are dated June 6, 2000, relating to
the issuance and sale by the Bank of its (i) senior bank notes (the "Senior
Notes") and (ii) subordinated bank notes (the "Subordinated Notes" and together
with the Senior Notes, the "Bank Notes"). The Bank Notes have maturities of 30
days to 30 years or more from date of issue. This opinion letter is furnished
pursuant to Section 6(a)(i) of the Distribution Agreement. Capitalized terms
used herein and not otherwise defined have the meanings set forth in the
Distribution Agreement.
In arriving at the opinions expressed below, we have examined and relied on
the following documents:
(a) an executed copy of the Distribution Agreement, the Representations
Certificate, the Global Agency Agreement, the Exchange Rate Agent Agreement
and the Interest Calculation Agreement;
(b) the Offering Circular;
(c) specimens of the Bank Notes; and
(d) the documents delivered to you by the Bank and the Parent at the closing
pursuant to the Distribution Agreement.
In addition, we have examined and relied on the originals or copies certified or
otherwise identified to my satisfaction of all such corporate records of the
Bank and the Parent and such other instruments and other certificates of public
officials, officers and representatives of the Bank and the Parent and such
other persons, and I have made such investigations of law, as I have deemed
appropriate as a basis for the opinions expressed below. In rendering the
opinions expressed below, I have assumed and have not verified that the
signatures on all documents that I have examined are genuine, that all copies of
documents that I have examined conform to the originals thereof, and that the
Bank Notes conform to the specimen thereof that I have examined.
Based on the foregoing, it is our opinion that:
1. The Bank is a banking corporation validly existing and in good standing
under the laws of the Commonwealth of Virginia. The Parent is a corporation
validly existing and in good standing under the laws of the State of
Delaware and is qualified to do business as a foreign corporation in the
Commonwealth of Virginia. The Bank is a wholly-owned subsidiary of the
Parent, which has securities registered under the Securities Exchange Act
of 1934, as amended.
2. The Distribution Agreement, the Global Agency Agreement, the Interest
Calculation Agreement, the Exchange Rate Agent Agreement and the Letters of
Representations have been duly authorized, executed and delivered by the
Bank and, assuming due authorization, execution and delivery by all parties
thereto other than the Bank, are legal, valid, binding and enforceable
agreements of the Bank, subject to applicable bankruptcy, liquidation,
insolvency, fraudulent transfer, reorganization, moratorium,
conservatorship, receivership, and similar laws of general applicability
relating to, or affecting, creditors' rights and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law) and, subject, as
to any indemnification or contribution obligation, to public policies which
might affect such obligations.
3. The Representations Certificate has been duly authorized, executed and
delivered by a duly authorized officer of the Parent and, assuming due
authorization, execution and delivery of the Distribution Agreement, the
Global Agency Agreement, the Interest Calculation Agreement and the
Exchange Rate Agent Agreement by all parties thereto other than the Bank,
is a legal, valid, binding and enforceable agreement of the Parent, subject
to applicable bankruptcy, liquidation, insolvency, fraudulent transfer,
reorganization, moratorium, conservatorship, receivership and similar laws
of general applicability relating to, or affecting, creditors' rights and
subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding in equity or at law) and,
subject, as to any indemnification or contribution obligation, to public
policies which might affect such obligations.
4. The Bank Notes have been duly authorized for issuance and sale pursuant to
the Distribution Agreement and, when issued and authenticated against
payment of the consideration therefor, the Bank Notes will be legal, valid,
binding and enforceable obligations of the Bank, subject to applicable
bankruptcy, liquidation, insolvency, fraudulent transfer, reorganization,
moratorium, conservatorship, receivership, and similar laws of general
applicability relating to, or affecting creditors rights and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).
5. The execution, issuance and delivery by the Bank of the Bank Notes, the
execution, delivery and performance by the Bank of the Distribution
Agreement, the Global Agency Agreement, the Interest Calculation Agreement,
the Exchange Rate Agency Agreement, the Letters of Representations and any
agreement by an agent party to the Distribution Agreement to purchase the
Bank Notes as principal, and the execution, delivery and performance by the
Parent of the Representations Certificate, do not violate any law, rule,
regulation, order, judgment or decree applicable to the Parent and its
subsidiaries or the Bank and its subsidiaries, if any, or violate any
provision of each of the Bank's or the Parent's Charter, Bylaws, or
Articles of Incorporation, as the case may be, or conflict with or result
in a material breach of or constitute a material default under, or result
in the creation or imposition of any material lien, charge or encumbrance
upon any property or assets of the Parent and its subsidiaries or the Bank
and its subsidiaries, if any, pursuant to any contract, indenture,
mortgage, loan agreement, note, lease or other instrument known to me to
which the Parent or any of its subsidiaries or the Bank and its
subsidiaries if any, or the property of any of them, is bound or subject.
6. The Bank Notes are exempt from registration under Section 3(a)(2) of the
Securities Act of 1933, as amended (the "1933 Act"), and neither
registration of the Bank Notes under the 1933 Act, nor qualification of an
indenture under the Trust Indenture Act of 1939, as amended, will be
required in connection with the offer, sale, issuance or delivery of the
Bank Notes pursuant to the Distribution Agreement or any applicable
agreement by an agent party to the Distribution Agreement to purchase the
Bank Notes as principal.
7. The Bank is not required to register under the provisions of the Investment
Company Act of 1940, as amended (the "Investment Company Act").
8. No consent, approval or authorization of or filing with any Federal or
Virginia governmental body or agency is required for the performance by the
Bank of its obligations under the Distribution Agreement, the Global Agency
Agreement, the Interest Calculation Agreement, the Exchange Rate Agent
Agreement, and any applicable agreement by an agent party to the
Distribution Agreement to purchase the Bank Notes as principal or the Bank
Notes, except such as may be required by the securities or Blue Sky laws of
the various states in connection with the offer and sale of the Bank Notes.
9. The Bank Notes conform in all material respects to the description thereof
contained in the Offering Circular under the caption "Description of
Notes."
10. The Senior Notes are unsecured and unsubordinated debt obligations of the
Bank, and rank pari passu among themselves and with all other unsecured and
unsubordinated debt obligations of the Bank except, (A) pursuant to Section
11(d)(11) of the Federal Deposit Insurance Act, the Bank's unsecured
deposit obligations and (B) pursuant to Section 6.1 - 110.9 of the Code of
Virginia, the Bank's deposit obligations. The Subordinated Notes are
unsecured and subordinated debt obligations of the Bank, rank pari passu
among themselves, and are subordinate and junior in right of payment to the
Bank's obligations to the depositors and general creditors, other than
obligations which, by their express terms, rank on a parity with or junior
to such Subordinated Notes. Upon issuance, the Subordinated Notes will
qualify as Tier 2 capital of the Bank (within the meaning of Appendix A to
12 C.F.R. Part 208).
11. Except as may be set forth in the Offering Circular, there is no action,
suit or proceeding before or by any court or governmental agency or body,
domestic or foreign, now pending, or, to my knowledge, threatened against
or affecting, the Parent or any of its subsidiaries or the Bank and its
subsidiaries, if any, which if determined adversely to the Parent or any of
its subsidiaries or the Bank and its subsidiaries, as the case may be,
could reasonably be expected to result in any material adverse change in
the financial condition, or in the earnings or business affairs of the
Parent and its subsidiaries, taken as a whole, or the Bank and its
subsidiaries, taken as a whole, or could reasonably be expected to
materially and adversely affect the consummation of the Distribution
Agreement, the Global Agency Agreement, the Interest Calculation Agreement,
the Exchange Rate Agent Agreement or the Bank Notes or any transaction
contemplated hereby or thereby.
Because the primary purpose of my role in the transaction was not to
establish or confirm factual matters or financial, accounting or statistical
matters and because of the wholly or partially non-legal character of many of
the statements contained in the Offering Circular, we are not passing upon and
do not assume any responsibility for the accuracy, completeness or fairness of
the statements contained in the Offering Circular and we make no representation
that we have independently verified the accuracy, completeness or fairness of
such statements. Without limiting the foregoing, we assume no responsibility
for, and have not independently verified, the accuracy, completeness or fairness
of the financial statements and schedules and other financial and statistical
data included in the Offering Circular, and we have not examined the accounting,
financial or statistical records from which such financial statements, schedules
and data are derived. We note that, while certain portions of the Offering
Circular (including financial statements and schedules) have been included
therein on the authority of "experts" within the meaning of the 1933 Act, as
amended, we are not such experts with respect to any portion of the Offering
Circular, including without limitation such financial statements or schedules or
the other financial or statistical data included therein.
However, in the course of our acting as counsel to the Bank in
connection with its preparation of the Offering Circular and the offering of the
Bank Notes, prior to the date of the Offering Circular, we participated in
conferences and in telephone conversations with representatives of the Bank,
Ernst & Young, accountants for the Bank, your representatives and your counsel,
during which conferences and conversations the contents of the Offering Circular
and related matters were discussed. In addition, we reviewed certain corporate
documents furnished to us by the Bank or otherwise in my possession, including
the minutes of the stockholders and the Board of Directors of the Bank, which
minutes are all such minutes with respect to the Bank since the date of its
incorporation.
Based on our participation in the above-mentioned conferences and
conversations, our review of the documents described above, our understanding of
applicable law and the experience we have gained in our practice thereunder, we
advise you that no information has come to our attention that causes us to
believe that the Offering Circular (other than the financial statements and
schedules and other financial and statistical data included therein and the
information included therein in the last paragraph of page 2 of the Offering
Circular and under the caption "Certain United States Federal Income Tax
Considerations" and "Plan of Distribution", as to which we express no view) as
of the date thereof or hereof, contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
For purposes of the opinion contained in paragraph 11 above,
we have not regarded any action, suit or proceeding to be "threatened" unless
the potential litigant or governmental authority has manifested to the
management of the Bank or the Parent or to us a present intention to initiate
such action, suit or proceeding.
We express no opinion other than as to the federal law of the
United States of America, the law of the Commonwealth of Virginia and the
general corporation law of the State of Delaware.
We are furnishing this opinion letter to you solely for your
benefit. This opinion letter is not to be used, circulated, quoted or otherwise
referred to for any other purpose, except that Brown & Wood LLP may rely upon
this opinion letter to the same extent as if it were addressed to it for
purposes of rendering its opinion to you on the date hereof.
Very truly yours,
<PAGE>
EXHIBIT D
[THE BANK]
OFFICERS' CERTIFICATE
We, [Officers' Names], [Officers' Titles], respectively, of Capital One
Bank, a banking association duly organized and validly existing in good standing
under the laws of the Commonwealth of Virginia (the "Bank"), pursuant to Section
6(b)(i) of the Distribution Agreement, dated June 6, 2000 (the "Distribution
Agreement"), among each of the Bank, J.P. Morgan Securities Inc., J.P. Morgan
Securities Ltd., ABN AMRO Incorporated, ABN AMRO Bank N.V., Banc of America
Securities LLC, Bank of America International Limited, Barclays Capital Inc.,
Barclays Bank PLC, Chase Securities Inc., Chase Manhattan International Limited,
Credit Suisse First Boston Corporation, Credit Suisse First Boston (Europe)
Limited, Deutsche Bank Securities Inc., Deutsche Bank AG London, Donaldson,
Lufkin & Jenrette Securities Corporation, Donaldson, Lufkin & Jenrette
International, Morgan Stanley & Co. Incorporated, Morgan Stanley & Co.
International Limited, Salomon Smith Barney Inc., and Salomon Brothers
International Limited hereby certify that:
(i) Since [ ], there has been no material adverse change in the
condition, financial or otherwise, of the Bank and its subsidiaries considered
as one enterprise, or in the business affairs, earnings or business prospects of
the Bank and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, other than as set forth or
contemplated in the Offering Circular, dated June 6, 2000 (including the
material incorporated by reference therein), as amended or supplemented to the
date hereof, relating to the Bank Notes;
(ii) The other representations and warranties of the Bank contained in
Section 2 of the Distribution Agreement are true and correct in all material
respects with the same force and effect as though expressly made at and as of
the date hereof; and
(iii) The Bank has performed or complied with the Distribution
Agreement and with all agreements and documentation executed in connection
therewith and satisfied in all material respects all conditions on its part to
be performed or satisfied at or prior to the date hereof.
IN WITNESS WHEREOF, we have hereunto signed our names and affixed the
seal of the Bank this __, day of [ ].
By: _/s/__________________________
Name:
Title:
[SEAL]
By: _/s/__________________________
Name:
Title:
<PAGE>
<PAGE>
EXHIBIT E
[PARENT]
Officers' Certificate
We, [Officers' Names], [Officers' Titles], respectively, of Capital One
Financial Corporation, a corporation organized under the laws of the State of
Delaware (the "Parent"), pursuant to Section 6(b)(ii) of the Distribution
Agreement, dated June 6, 2000, (the "Distribution Agreement"), among each of
Capital One Bank (the "Bank"), J.P. Morgan Securities Inc., J.P. Morgan
Securities Ltd., ABN AMRO Incorporated, ABN AMRO Bank N.V., Banc of America
Securities LLC, Bank of America International Limited, Barclays Capital Inc.,
Barclays Bank PLC, Chase Securities Inc., Chase Manhattan International Limited,
Credit Suisse First Boston Corporation, Credit Suisse First Boston (Europe)
Limited, Deutsche Bank Securities Inc., Deutsche Bank AG London, Donaldson,
Lufkin & Jenrette Securities Corporation, Donaldson, Lufkin & Jenrette
International, Morgan Stanley & Co. Incorporated, Morgan Stanley & Co.
International Limited, Salomon Smith Barney Inc., and Salomon Brothers
International Limited (collectively, the "Distribution Agents") hereby certify
that:
1. Since [ ], there has been no material adverse change in the
condition, financial or otherwise, of the Bank and its subsidiaries or the
Parent and its subsidiaries, as the case may be, considered as one enterprise,
or in the business affairs, earnings or business prospects of the Bank and its
subsidiaries, as the case may be, considered as one enterprise, whether or not
arising in the ordinary course of business, other than as set forth or
contemplated in the Offering Circular, dated June 6, 2000, as amended or
supplemented to the date hereof, relating to the Bank Notes;
2. The representations and warranties of the Parent contained in the
Representation Certificate dated June 6, 2000, furnished by the Parent to the
Distribution Agents pursuant to Section 6(c) of the Distribution Agreement are
true and correct in all material respects with the same force and effect as
though expressly made at and as of the date hereof; and
3. The Parent has performed or complied in all material respects with
the Distribution Agreement and with all agreements and documentation executed in
connection therewith and satisfied in all material respects all conditions on
its part to be performed or satisfied at or prior to the date hereof.
IN WITNESS WHEREOF, we have hereunto signed our names and affixed the
seal of the Parent the __th day of [ ].
By: _/s/__________________________
Name:
Title:
[SEAL]
By: _/s/__________________________
Name:
Title:
<PAGE>
EXHIBIT F
REPRESENTATIONS CERTIFICATE OF CAPITAL ONE FINANCIAL CORPORATION
To induce J.P. Morgan Securities Inc., J.P. Morgan Securities Ltd., ABN
AMRO Incorporated, ABN AMRO Bank N.V., Banc of America Securities LLC, Bank of
America International Limited, Barclays Capital Inc., Barclays Bank PLC, Chase
Securities Inc., Chase Manhattan International Limited, Credit Suisse First
Boston Corporation, Credit Suisse First Boston (Europe) Limited, Deutsche Bank
Securities Inc., Deutsche Bank AG London, Donaldson, Lufkin & Jenrette
Securities Corporation, Donaldson, Lufkin & Jenrette International, Morgan
Stanley & Co. Incorporated, Morgan Stanley & Co. International Limited, Salomon
Smith Barney Inc., Salomon Brothers International Limited (each referred to as a
"Distribution Agent" and collectively referred to as the "Distribution Agents")
to enter into the Distribution Agreement of even date herewith (the
"Distribution Agreement") among each of Capital One Bank (the "Bank"), and the
Distribution Agents and to induce The Chase Manhattan Bank, The Chase Manhattan
Bank, London Branch and Kredietbank S.A Luxembourgeoise to enter into the Global
Agency Agreement (the "Global Agency Agreement") between the Bank and The Chase
Manhattan Bank, The Chase Manhattan Bank, London Branch and Kredietbank S.A
Luxembourgeoise with respect to the issue and sale by the Bank of its Bank Notes
(the "Bank Notes"), the undersigned, [Officers' Names], [Officers' Titles in
accordance with Section 6(c) of the Distribution Agreement] of Capital One
Financial Corporation (the "Parent"), hereby represent and warrant on behalf of
the Parent to each Distribution Agent and to [ ] as of the date hereof, as of
each time that there is filed with the Securities and Exchange Commission (the
"Commission") any document relating to the Parent incorporated by reference in
the Offering Circular, as of the date of each acceptance by the Bank of an offer
for the purchase of Bank Notes (whether by a Distribution Agent as principal or
through such Distribution Agent as agent), as of each applicable Settlement Date
and as of each applicable Representation Date, as follows:
(i) Authorization to Incorporate by Reference. The Parent has authorized the
Bank to incorporate by reference in the Offering Circular its annual
reports on Form 10-K, quarterly reports on Form 10-Q and current reports on
Form 8-K, and each other document filed by the Corporation pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities and Exchange Act of
1934, as amended (the "1934 Act") filed by the Parent with the Commission
pursuant to the 1934 Act and the rules and regulations thereunder (and any
and all amendments thereto) (the "Incorporated Documents").
(ii) Incorporated Documents. The Incorporated Documents, at the time they were
or hereafter are filed with the applicable federal regulatory authorities,
complied or when so filed will comply, as the case may be, in all material
respects with the requirements of the 1934 Act and the rules and
regulations promulgated thereunder or the rules and regulations otherwise
applicable thereto, as the case may be, and, when read together with the
other information in the Offering Circular, did not and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were or are
made, not misleading.
(iii)Due Organization, Valid Existence and Good Standing. The Parent is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, and is licensed, registered or qualified to
conduct the business in which it is engaged in each jurisdiction in which
the conduct of its business or its ownership or leasing of property
requires such license, registration or qualification, except to the extent
that the failure to be so licensed, registered or qualified or to be in
good standing would not have a material adverse effect on the Parent and
its subsidiaries taken as a whole.
(iv) No Material Adverse Change. Since the respective dates as of which
information is given in the Offering Circular, there has not been any
material adverse change, or any development which could be expected to
result in a material adverse change, in the condition, financial or
otherwise, or in the business affairs, earnings or business prospects of
the Bank and its subsidiaries, considered as one enterprise, or the Parent
and its subsidiaries, considered as one enterprise, whether or not arising
in the ordinary course of business, other than as set forth or contemplated
in the Offering Circular.
In addition, to induce the Distribution Agents to enter into the
Distribution Agreement, the Parent agrees to indemnify and hold harmless each
Distribution Agent and each person, if any, who controls each Distribution Agent
within the meaning of Section 15 of the Securities Act of 1933, as amended (the
"1933 Act") or Section 20 of the 1934 Act (each, a "Controlling Person") to the
same extent and upon the same terms that the Bank agree to indemnify and hold
harmless each Distribution Agent and each such Controlling Person in Section
9(a) of the Distribution Agreement and each such person and to contribute to the
payment of any losses, liabilities, claims, damages or expenses incurred by each
Distribution Agent or each such Controlling Person to the same extent and upon
the same terms that the Bank agrees to contribute in Section 10 of the
Distribution Agreement.
All representations and warranties contained in this certificate shall
remain operative and in full force and effect, regardless of any investigation
made by or on behalf of the Distribution Agents or any Controlling Person of the
Distribution Agents, or by or on behalf of the Parent and shall survive each
delivery of and payment for any of the Bank Notes.
All terms used herein but not otherwise defined shall have the meanings
assigned to such terms in the Distribution Agreement.
<PAGE>
IN WITNESS WHEREOF, I have hereunto signed my name on behalf of the
Parent this __th day of June 6, 2000.
CAPITAL ONE FINANCIAL
CORPORATION
By:
Name:
Title:
<PAGE>
EXHIBIT G
SELLING RESTRICTIONS
Each Distribution Agent and the Bank will, in connection with the offering of
the Bank Notes on behalf of the Bank, comply with the restrictions on the
offering of Bank Notes and distribution of documents relating thereto set forth
below and/or such other restrictions agreed to by the Bank and such Distribution
Agent. Capitalized terms used below but not defined herein have the meanings
ascribed to them in the Offering Circular.
Sales Restrictions
General
No action has been taken by the Bank or any of the Distribution Agents
which would permit a public offering of its (i) senior unsecured debt
obligations not insured by the Federal Deposit Insurance Corporation (the
"FDIC") (the "Senior Notes") and (ii) subordinated unsecured debt obligations
not insured by the FDIC (the "Subordinated Notes") and together with the Senior
Notes, the "Bank Notes") or distribution of the Offering Circular in any
jurisdiction, other than the United States, where action for that purpose is
required. Accordingly, the Bank Notes may not be offered or sold, directly or
indirectly, and neither the Offering Circular nor any advertisement or other
offering material may be distributed or published in any jurisdiction, except in
circumstances that will result in compliance with any applicable laws and
regulations. Persons into whose possession the Offering Circular or any Bank
Notes come must inform themselves about, and observe, any such restrictions.
Neither the Bank nor any of the Distribution Agents represents that the Offering
Circular may be lawfully distributed, or that the Bank Notes may be lawfully
offered, in compliance with any applicable registration or other requirements in
any such jurisdiction, or pursuant to an exemption therefrom, or assumes any
responsibility for facilitating any such distribution or offering. In
particular, there are further restrictions on the distribution of the Offering
Circular and the offer or sale of the Bank Notes in the United Kingdom, Japan,
Germany and Switzerland. See the Offering Circular section entitled "Plan of
Distribution -- Sales Restrictions".
With regard to each Bank Note, the relevant purchaser will be required
to comply with such restrictions as the Bank and the relevant purchaser shall
agree and as shall be set out in the applicable Pricing Supplement.
United States Law
The Bank Notes have not been, and are not required to be, registered
with the Commission under the 1933 Act. The Bank Notes are exempt from
registration with the Commission pursuant to an exemption contained in Section
3(a)(2) of the 1933 Act.
Bearer Notes are subject to United States tax law requirements and may
not be offered, sold, resold or delivered, directly or indirectly within the
United States or its possessions or to a U.S. person, except in certain
transactions permitted by United States tax regulations. Any underwriters,
distribution agents and dealers participating in the offering of Bearer Notes,
directly or indirectly, will the required to agree that they will not, in
connection with the original issuance of any Bearer Notes or during the
restricted period offer, sell, resell or deliver, directly or indirectly, any
Bearer Notes in the United States or its possessions or to United States persons
(other than as permitted by the applicable United States tax regulations). In
addition, any such underwriters, agents and dealers will be required to have
procedures reasonably designed to ensure that their employees or agents who are
directly engaged in selling Bearer Notes are aware of the above restrictions on
the offering, sale, resale or delivery of Bearer Notes. Terms used in this
paragraph have the meaning given to them by the Code.
United Kingdom
Each Distribution Agent agrees, and each other distribution agent will
be required to agree, that:
(i) in relation to Bank Notes which have a maturity of one
year or more, it has not offered or sold and, prior to the expiry of
the period of six months from the issue date of such Bank Notes (or in
respect of Bank Notes which are to be listed on the London Stock
Exchange, prior to admission of such Bank Notes to listing in
accordance with Part IV of the Financial Services Act 1986 (the
"FSA")), will not offer or sell any such Bank Notes to persons in the
United Kingdom except to persons whose ordinary activities involve them
in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise
in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the
U.K. Public Offers of Securities Regulations 1995 as amended and/or, as
applicable, the FSA;
(ii) it has only issued or passed on and will only issue or
pass on in the United Kingdom any document received by it in connection
with the issue of any Bank Notes, other than in relation to Bank Notes
to be listed on the London Stock Exchange, any document which consists
of or any part of listing particulars, supplementary listing
particulars or any other document required or permitted to be published
by the listing rules under Part IV of the FSA, to a person who is of a
kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 as amended or is a
person to whom such document may otherwise lawfully be issued or passed
on; and
(iii) it has complied and will comply with all applicable
provisions of the FSA with respect to anything done by it in relation
to any Bank Notes in, from or otherwise involving the United Kingdom.
Japan
The Bank Notes have not been, and will not be, registered under the
Securities and Exchange Law of Japan. Accordingly, each Distribution Agent
represents and agrees, and each other distribution agent or dealer will be
required to represent and agree, that it will not offer or sell any Bank Notes
directly or indirectly in Japan or to residents of Japan or for the benefit of
any Japanese person (which term as used herein means any person resident in
Japan including any corporation or other entity organized under the laws of
Japan) or to others for re-offering or resale, directly or indirectly, in Japan
or to, or for the benefit of, any resident of Japan or to any Japanese person
except in compliance with any applicable laws and regulations of Japan taken as
a whole. Each Distribution Agent agrees to provide any necessary information on
Bank Notes denominated or payable in Yen to the Bank (which shall not include
the names of clients) so that the Bank may make any required reports to the
Ministry of Finance through its designated agent.
In connection with an issuance of Bank Notes denominated or payable in
Yen, the Bank will be required to comply with all applicable laws, regulations
and guidelines, as amended from time to time, of the Japanese government and
regulatory authorities.
Switzerland
Each Distribution Agent agrees, and each other distribution agent will
be required to agree, that the issue of any Bank Notes denominated in Swiss
Francs or carrying a Swiss Franc-related element will be effected in compliance
with the relevant regulations of the Swiss National Bank, which currently
require that such issues have a maturity of more than one year, to be effected
through a bank domiciled in Switzerland or Liechtenstein that is regulated under
the Federal Law on Banks and Savings Banks of 1934 (as amended) (which includes
a branch or subsidiary located in Switzerland of a foreign bank) or through a
securities dealer which has been licensed as a securities dealer under the Swiss
Federal Law on Stock Exchanges and Securities Trading of 1995 (except for issues
of Bank Notes denominated in Swiss Francs on a syndicated basis, where only the
lead manager need be a bank domiciled in Switzerland or Liechtenstein). The
relevant Distribution Agent must report certain details of the relevant
transaction to the Swiss National Bank no later than the relevant issue date.
In addition, in connection with issuances of Bearer Notes:
(1) except to the extent permitted under United States Treasury Regulationsss.
1.163-5(c)(2)(i)(D) (the "D Rules"), (a) each Distribution Agent agrees
that it has not offered or sold, and during the restricted period under
Regulation S under the 1933 Act or other applicable restricted period (the
"Restricted Period") will not offer or sell, Bearer Notes to a person who
is within the United States or its possessions or to a United States
person, and (b) it has not delivered and will not deliver within the United
States or its possessions definitive Bearer Notes that are sold during the
restricted period;
(2) each Distribution Agent represents and agrees that it has and throughout
the Restricted Period will have in effect procedures reasonably designed to
ensure that its employees or Distribution Agents who are directly engaged
in selling Bearer Notes are aware that Bearer Notes may not be offered or
sold during the Restricted Period to a person who is within the United
States or its possessions or to a United States person, except as permitted
by the D Rules;
(3) if it is a United States person, each such Distribution Agent represents
that it is acquiring the Bearer Notes for purposes of resale in connection
with their original issuance and if it retains Bearer Notes for its own
account, it will only do so in accordance with the requirements of Section
1.163-5(c)(2)(i)(D)(6) of the D Rules; and
(4) With respect to each affiliate that acquires from it Bearer Notes for the
purpose of offering or selling Bearer Notes during the Restricted Period,
each such Distribution Agent either (a) repeats and confirms the
representations and agreements contained in clauses (1), (2) and (3) above
on its behalf, or (b) agrees that it will obtain from such affiliate for
the Bank's benefit the representations and agreements contained in clauses
(1), (2) and (3) above.
Terms used in the foregoing paragraph have the meanings given to them by the
Code and regulations thereunder, including the D Rules.
<PAGE>
EXHIBIT H
FORM OF SYNDICATED TERMS AGREEMENT
[Date]
To: The Agents Listed on Annex 1 Hereto
c/o ______________________________
(the "Lead Agent")
Re: Capital One Bank (the "Issuer")
US$5,000,000,000 Global Bank Note Program
Ladies and Gentlemen:
The Issuer proposes to issue and sell the _____% Global Bank Notes due
_________________ (the "Notes") to J.P. Morgan Securities Inc. and the agents
listed on Annex 1 hereto (collectively, the "Agents"). The Agents agree to
purchase on a syndicated basis the Notes as described in the pricing supplement
attached as Annex 2 hereto (the "Pricing Supplement"), on the terms set out in
such Pricing Supplement and on the terms set out below. The sale of the Notes
will be subject to the terms and conditions stated herein and in the
Distribution Agreement, dated June 6, 2000 ( the "Distribution Agreement"),
among the Issuer and the Distribution Agents named therein. Unless otherwise
defined herein, all terms used herein have the meanings given to them in the
Distribution Agreement. Each of the provisions of the Distribution Agreement is
incorporated herein by reference in its entirety, and shall be deemed to be part
of this Agreement to the same extent as if such provisions had been set forth in
full herein.
1. Subject to the terms and conditions of the Distribution Agreement and
this Agreement, the Issuer hereby agrees to issue the Notes, and the
Agents severally agree to purchase the Notes (in the proportions set
out next to each Agent's name in Annex I hereto) at the purchase price
of _______ per Note (being equal to the issue price of __% of the
principal amount less a combined underwriting commission of __% of the
principal amount);
2. The purchase price specified above will be paid by the Lead Agent on
behalf of the Agents by wire transfer in immediately available funds to
the Issuer at ______ (____ time) on _______, ___, or such other time
and/or date as the Issuer and the Lead Agent on behalf of the Agents
may agree (the "Settlement Time") against delivery of the Notes to or
upon your order in the manner contemplated in the Distribution
Agreement, the Global Agency Agreement or otherwise.
3. The Agents' obligations hereunder are conditional on the receipt of:
(i) opinions of counsel described in Section 6(a) of the Distribution
Agreement, dated as of the Settlement Time, (ii) a "comfort letter"
described in Section 6(d) of the Distribution Agreement, dated as of
the Settlement Time, (iii) the officer's certificates described in
Section 6(b) of the Distribution Agreement, dated as of the Settlement
Time; and (iv) such other opinions, certificates and documents as may
be agreed by the Issuer and the Agents on or prior to the date of this
Agreement.
4. If one or more of the Agents shall fail at the Settlement Time to
purchase the Bank Notes which it or they are obligated to purchase
under this Agreement (the "Defaulted Bank Notes"), the Lead Agent shall
have the right, within 36 hours thereafter, to make arrangements for
one or more of the non-defaulting Agents, or any other agents, to
purchase all, but not less than all, of the Defaulted Bank Notes in
such amounts as may be agreed upon and upon the terms herein set forth;
if, however, the Lead Agent shall not have completed such arrangements
within such 36-hour period, then:
(a) if the principal amount of Defaulted Bank Notes does not
exceed 10% of the principal amount of Notes to be purchased on such
date, each of the non-defaulting Agents shall be obligated, severally
and not jointly, to purchase the full amount thereof in the proportions
that their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Agents, or
(b) if the principal amount of Defaulted Bank Notes exceeds
10% of the principal amount of Notes to be purchased on such date, this
Agreement shall terminate without liability on the part of any
non-defaulting Agent.
No action taken pursuant to this section shall relieve any defaulting
Agent from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement either the Lead Agent or the Issuer shall have the right to
postpone the Settlement Time for a period not exceeding seven days in order to
effect any required changes in any documents or arrangements. As used herein,
the term "Agent" includes any person substituted for an Agent under this Section
4.
Very truly yours,
CAPITAL ONE BANK
By: __/s/_____________
Name:
Title:
J.P. MORGAN SECURITIES INC.
By:
Name:
Title:
By and on behalf of the Agents listed on Annex I hereto.
<PAGE>
ANNEX I
Schedule of Agents
Agent Principal Amount of Notes
<PAGE>
ANNEX 2
The following terms, if applicable, shall be agreed to by the Agent and
the Issuer in connection with each sale of Notes to the Agent (and unless
otherwise defined herein, capitalized terms used herein shall have the meanings
ascribed to them in the Offering Circular).
DESCRIPTION OF THE NOTES
1. Specified Currency and Principal Amount:
2. Senior or Subordinated:
3. Original Issue Date:
4. Stated Maturity Date:
5. Issue Price:
6. (a) Authorized Denomination(s):
(b) Redenomination (Yes/No):
[If yes, give details]
7. Form of Note (Registered or Bearer):
8. (a) Series Number:
(b) If forming part of an existing Series (Yes/No):
[If yes, give details]
9. Interest Period:
One Month
Three Months
Six Months
Twelve Months
Other (Specify Number of Months):
10. Interest Payment Date(s):
11. Record Dates (for Registered Notes with Maturities Greater than One Year):
12. Exchange Rate Agent (Registered Notes and Dual Currency Notes):
13. Default Rate (if other than Interest Rate): % per annum
14. PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE
15. FIXED RATE NOTES
16. Interest Rate: % per annum.
17. Day Count Convention:
30/360 for the period from_______to_______
Actual/360 for the period from________to________
Actual/Actual for the period from________to________
Other (specify convention and applicable period):
FLOATING RATE NOTES
18. Interest Rate Determination:
ISDA Rate
Reference Rate Determination
19. Calculation Agent, if not The Chase Manhattan Bank:
20. Maximum Interest Rate: % per annum
21. Minimum Interest Rate: % per annum
22. Day Count Convention:
30/360 for the period from________to________
Actual/360 for the period from________to________
Actual/Actual for the period from________to_________
Other (specify convention and applicable period):
23. Business Day Convention:
Floating Rate Convention
Following Business Day Convention
Modified Following Business Day Convention
Preceding Business Day Convention
Other (specify):
ISDA RATE
24. Margin: [+/-] % per annum
25. Floating Rate Option:
26. Designated Maturity:
27. Reset Date:
REFERENCE RATE DETERMINATION
28. Initial Interest Rate:
29. Index Maturity:
30. Interest Rate Basis or Bases:
If CMT Rate: Designated CMT Telerate Page:
Designated CMT Maturity Index:
IF EURIBOR:
If LIBOR: LIBOR Telerate
Page:
LIBOR Reuters
Page:
31. Index Currency:
32. Spread: [+/-] % per annum
33. Spread Multiplier:
34. Initial Interest Reset Date:
35. Interest Reset Period:
36. Interest Reset Dates:
37. Interest Calculation:
Regular Floating Rate Note
Floating Rate/Fixed Rate Note
Fixed Rate Commencement Date: % per annum
Fixed Interest Rate:
Inverse Floating Rate Note: % per annum
Fixed Interest Rate:
PROVISIONS REGARDING REDEMPTION/REPAYMENT
38. Initial Redemption Date:
39. Initial Redemption Percentage:
40. Annual Redemption Percentage Reduction:
41. Holder's Optional Repayment Date(s):
DISCOUNT NOTES (INCLUDING ZERO COUPON NOTES)
42. Discount Note (Yes/No):
If Yes: Total Amount of OID:
Yield to Maturity:
Initial Accrual Period: %
Issue Price:
INDEXED NOTES
43. Index: [give details]
44. Formula:
45. Agent, if any, responsible for calculating the principal and/or interest
payable:
46. Provisions where calculation by reference to Index and/or Formula is
impossible or impracticable:
DUAL CURRENCY NOTES
47. Dual Currency Notes (Yes/No):
If Yes: Face Amount:
Face Amount Currency:
Optional Payment Currency:
Option Election Dates: [give details]
48. Designated Exchange Rate:
49. Option Value Calculation Agent:
50. Agent, if any, responsible for calculating the principal and/or interest
payable:
INSTALLMENT NOTES
51. Additional provisions relating to Installment Notes:
PARTLY PAID NOTES
52. Additional provisions relating to Partly Paid Notes:
GENERAL PROVISIONS
53. Additional or different Paying Agents:
54. Additional or different Registrars:
55. Additional or different London Issuing Agents:
56. Additional or different Transfer Agents:
57. "Business Day" definition (if other than as defined in the Offering
Circular):
58. Cost, if any, to be borne by Noteholders in connection with exchanges for
Definitive Bearer Notes:
59. Talons for future Coupons or Receipts to be attached to Definitive
Bearer Notes (Yes/No) and dates on which such Talons mature:
[If yes, give details]
60. Additional selling restrictions: [give details]
61. CUSIP:
ISIN:
Common Code:
Other (specify):
62. Details of additional/alternative clearance system approved by the Bank:
63. Notes to the listed (Yes/No):
If Yes, stock exchange(s):
64. Syndicated Issue (Yes/No):
If Yes, names of managers and details of relevant stabilizing
manager, if any:
65. Clearance System(s):
DTC only
Euroclear and Clearstream, Luxembourg only
DTC, and Euroclear and Clearstream, Luxembourg through DTC
DTC, Euroclear and Clearstream, Luxembourg
Other:
66. Other terms or special conditions:
67. Tax considerations:
Discount or Commission per Note:
<PAGE>
EXHIBIT I
ADMINISTRATIVE PROCEDURES MEMORANDUM
(Dated as of June 6, 2000)
FOR
CAPITAL ONE BANK
Global Bank Notes Due From
30 Days to 30 Years or More from Date of Issue
Senior unsecured debt obligations (the "Senior Notes") and subordinated
unsecured obligations (the "Subordinated Notes" and, together with the Senior
Notes, the "Bank Notes") which from time to time may be offered on a continuing
basis for sale by Capital One Bank (the "Bank") through each of J.P. Morgan
Securities Inc. and each of the distribution agents listed on Schedule I to the
Distribution Agreement to which these Administrative Procedures are an exhibit
(the "Distribution Agreement") (each, a "Distribution Agent" and collectively,
the "Distribution Agents") who may purchase the Bank Notes, as principal from
the Bank for resale to investors and other purchasers in accordance with the
Distribution Agreement. In addition, if agreed to by the Bank and the applicable
Distribution Agent, such Distribution Agent may utilize its reasonable efforts
on an agency basis to solicit offers to purchase the Bank Notes. Only those
provisions in these Administrative Procedures that are applicable to the
particular role that a Distribution Agent will perform shall apply. Whenever
these Administrative Procedures indicate that information may be set forth in a
Bank Note, such information may be set forth in a Pricing Supplement to the
Offering Circular (as defined below).
The Chase Manhattan Bank (or such other agent appointed in accordance
with the Global Agency Agreement (as defined below)) will act as the registrar
(the "Registrar") and domestic paying agent (the "Domestic Paying Agent") for
the Bank Notes through its office at 450 West 33rd Street New York, New York
10001-2697. The Chase Manhattan Bank, London Branch, acting through its London
office (or such other agent appointed in accordance with the Global Agency
Agreement), will act as London paying agent (the "London Paying Agent") and
London issuing agent (the "London Issuing Agent"). As used herein, the term
"Offering Circular" refers to the most recent offering circular, as such
document may be amended or supplemented, which has been prepared by the Bank for
use by the Distribution Agents in connection with the offering of the Bank
Notes.
Capitalized terms used herein that are not otherwise defined shall have
the meanings ascribed thereto in the Bank Notes or the Offering Circular.
<PAGE>
DTC REGISTERED GLOBAL NOTES
Bank Notes may the issued in book-entry form (each beneficial interest
in a global Note, a "Book-Entry Note" and collectively, the "Book-Entry Notes")
and represented by one or more fully registered global Bank Notes (each, a
"Global Note" and collectively, the "Global Bank Notes") held by or on behalf of
The Depository Trust Company, as depositary ("DTC", which term includes any
successor thereof), and recorded in the book-entry system maintained by DTC.
Book-Entry Notes represented by a Global Note are exchangeable for definitive
Bank Notes in registered form, of like tenor and of an equal aggregate principal
amount, by the owners of such Book-Entry Notes only upon certain limited
circumstances described in the Offering Circular.
In connection with the qualification of Book-Entry Notes for
eligibility in the book-entry system maintained by DTC, The Chase Manhattan Bank
or its agents will perform the custodial, document control and administrative
functions described below, in accordance with its respective obligations under
the applicable Letters of Representations from The Chase Manhattan Bank to DTC
relating to the Program, and a Certificate of Deposit Agreement between The
Chase Manhattan Bank and DTC (the "Certificate Agreement"), and its obligations
as a participant in DTC, including DTC's Same-Day Funds Settlement System
("SDFS").
Settlement Procedures for
Book-Entry Notes: Settlement Procedures with regard
to Book-Entry Notes purchased by each
Distribution Agent as principal or sold by
each Distribution Agent, as agent of the
Bank, will be as follows (which will have
been agreed to by the Bank and such
Distribution Agent in accordance with the
Distribution Agreement):
(A) The Distribution Agent will advise
the Bank by telephone, confirmed by
facsimile to the Bank and the
Registrar, of the following
settlement information:
1. Taxpayer identification number of
the purchaser.
2. Principal amount of such
Book-Entry Notes.
3. Whether the Bank Note is a Senior
Note or a Subordinated Note.
4. Each term specified in the
applicable Pricing Supplement.
5. Price to public, if any, of
such Book Entry Bank Notes (if
such Book-Entry Notes are not
being offered "at the
market").
6. Trade Date.
7. Settlement Date (Original Issue Date).
8. Maturity Date.
9. Redemption provisions, if any,
including: Initial Redemption Date,
Initial Redemption Percentage and
Annual Redemption Percentage Reduction.
10. Repayment provisions, if any, including
Holder's Optional Repayment Date(s).
11. Net proceeds to the Bank.
12. Whether such Book-Entry Notes are
being sold to the Distribution Agent
as principal or to an investor or other
purchaser through the Distribution Agent
acting as agent for the Bank.
13. The Distribution Agent's commission or
discount, as applicable.
14. Whether such Book-Entry Notes are being
issued with Original Issue Discount
and the terms thereof.
15. Default Rate.
16. Identification numbers of participant
accounts maintained by DTC on behalf
of the Distribution Agent.
17. Whether additional documentation will be
required for Bank Notes being sold to
the Distribution Agent as principal.
18. Such other information specified with
respect to such Book-Entry Notes
(whether by Addendum or otherwise).
(B) The Registrar will assign a CUSIP
number of the appropriate series to
the Global Note representing such
Book-Entry Notes and, as soon
thereafter as practicable, the
Registrar will notify the
Distribution Agent by telephone of
such CUSIP number.
(C) The Registrar will communicate to
DTC and the Distribution Agent
through DTC's Participant Terminal
System, a pending deposit message
specifying the following settlement
information:
1. The information set forth in Settlement
Procedure A.
2. The identification numbers of
the participant accounts
maintained by DTC on behalf
of the Registrar and the
Distribution Agent.
3. Identification of the Book-Entry Note as
a Fixed Rate Book-Entry Note or Floating
Rate Book-Entry Note.
4. The initial Interest Payment
Date for the Global Note
representing such Book-Entry
Notes, the number of days by
which such date succeeds the
related Record Date and, if
then calculable, the amount
of interest payable on such
Interest Payment Date (which
amount shall have been
confirmed by the Bank).
5. The CUSIP number of the
Global Note representing such
Book-Entry Notes.
6. Whether such Global Note
represents any other Bank
Notes issued or to the issued
in book-entry form.
(D) The Registrar will complete and
deliver to DTC (or its custodian)
the Global Note representing such
Book-Entry Notes in a form that has
been approved by the Bank and the
relevant Distribution Agents.
(E) DTC will credit the Book-Entry Notes
represented by such Global Note to
the participant account of the
Registrar maintained by DTC.
(F) The Registrar will enter an SDFS deliver
order through DTC's Participant Terminal
System instructing DTC (i) to debit such
Book-Entry Notes to the Registrar's
participant account and credit such Book-
Entry Notes to the participant account of
the Distribution Agent maintained by DTC
and (ii) to debit the settlement account of
the Distribution Agent and credit the
Settlement account of the Registrar
maintained by DTC in an amount equal to the
price of such Book-Entry Notes less such
Distribution Agent's commission or
discount. Any entry of such deliver order
shall be deemed to constitute a
representation and warranty by the
Registrar to DTC that (i) the Global Note
representing such Book-Entry Notes has been
issued and authenticated and (ii) the
Registrar is holding such Global Note
pursuant to the Certificate Agreement.
(G) In the case of Book-Entry Notes sold
through a Distribution Agent acting as
agent, the Distribution Agent will enter an
SDFS deliver order through DTC's
Participant Terminal System instructing DTC
(i) to debit such Book-Entry Notes to the
Distribution Agent's participant account
and credit such Book-Entry Notes to the
participant accounts of the Participants
maintained by DTC and (ii)to debit the
settlement accounts of such Participants
and credit the settlement account of the
Distribution Agent maintained by DTC, in an
amount equal to the offering price of such
Book-Entry Notes.
(H) Transfers of funds in accordance
with SDFS deliver orders described
in Settlement Procedures F and G
will be settled in accordance with
SDFS operating procedures in effect
on the Settlement Date.
(I) In the case of Book-Entry Notes
sold through a Distribution Agent
acting as agent, the Distribution
Agent will confirm the purchase of
such Book-Entry Notes to the
purchaser either by transmitting to
the Participant with respect to
such Book-Entry Notes a
confirmation order through DTC's
Participant Terminal System or by
mailing a written confirmation to
such purchaser.
Settlement Procedures
Timetable: For offers to purchase Book-Entry Notes
accepted by the Bank, Settlement
Procedures "A" through "I" set forth above
shall be completed as soon as possible but
no later than the respective times (New
York City time) set forth below:
Settlement
Procedure Time
A 11:00 a.m. on the Trade Date
B 12:00 noon on the Trade Date
C 5:00 p.m. on the Trade Date
D 9:00 a.m. on the Settlement Date
E 10:00 a.m. on the Settlement Date
F-G 2:00 p.m. on the Settlement Date
H 4:00 p.m. on the Settlement Date
I 5:00 p.m. on the Settlement Date
If a sale is to be settled on the same
Business Day as the Trade Date, Settlement
Procedures C, F, and G shall be completed
no later than 2:30 p.m. on such Business
Day, and Settlement Procedure D shall be
completed no later than 10:00 a.m. on such
Business Day.
If a sale is to be settled more than one
Business Day after the trade date,
Settlement Procedures A, B and C may, if
necessary, be completed at any time prior
to the specified times on the first
Business Day after such trade date. In
connection with a sale which is to be
settled more than one Business Day after
the trade date, if the initial interest
rate for a Floating Rate Note is not known
at the time that Settlement Procedure A is
completed, Settlement Procedures B and C
shall be completed as soon as such rate
has been determined, but no later than
11:00 a.m. and 2:00 p.m., New York City
time, respectively, on the second Business
Day before the Settlement Date.
Settlement Procedure H is subject to
extension in accordance with any extension
of Fedwire closing deadlines and in the
other events specified in the SDFS
operating procedures in effect on the
Settlement Date.
If settlement of a Book-Entry Note is
rescheduled or canceled, the Registrar
will deliver to DTC, through DTC's
Participant Terminal System, a
cancellation message to such effect by no
later than 5:00 p.m., New York City time,
on the Business Day immediately preceding
the scheduled Settlement Date.
Failure to Settle: If the Registrar fails to enter an SDFS
deliver order with respect to a Book-Entry
Note pursuant to Settlement Procedure F,
then the Registrar may deliver to DTC,
through DTC's Participant Terminal System,
as soon as practicable a withdrawal
message instructing DTC to debit such Book
-Entry Note to the participant account of
the Registrar maintained at DTC. DTC
will process the withdrawal message;
provided that such participant account
contains a principal amount of the Global
Note representing such Book-Entry Note
that is at least equal to the principal
amount to the debited. If withdrawal
messages are processed with respect to all
Book-Entry Notes represented by a Global
Note, the Registrar will mark such Global
Note "canceled" and make appropriate
entries in its records. The CUSIP number
assigned to such Global Note shall, in
accordance with CUSIP Service Bureau
procedures, be canceled and not
immediately reassigned. If withdrawal
messages are processed with respect to
some of the Book-Entry Notes represented
by a Global Note, the Registrar will
exchange such Global Note for two Global
Bank Notes, one of which shall represent
the Book-Entry Notes for which such
withdrawal messages are processed and
shall be canceled immediately after
issuance, and the other of which shall
represent the other Book-Entry Notes
previously represented by the surrendered
Global Note and shall bear the CUSIP
number of the surrendered Global Note.
In the case of any Book-Entry Note sold
through a Distribution Agent, acting as
agent, if the purchase price for any
Book-Entry Note is not timely paid to the
Participants with respect to such
Book-Entry Note by the beneficial
purchaser thereof (or a person, including
an indirect participant in DTC, acting on
behalf of such purchaser), such
Participants and, in turn, the applicable
Distribution Agent may enter SDFS deliver
orders through DTC's Participant Terminal
System reversing the orders entered
pursuant to Settlement Procedures F and G,
respectively. Thereafter, the Registrar
will deliver the withdrawal message and
take the related actions described in the
preceding paragraph.
Notwithstanding the foregoing, upon any
failure to settle with respect to a
Book-Entry Note, DTC may take any actions
in accordance with its SDFS operating
procedures then in effect. In the event of
a failure to settle with respect to a
Book-Entry Note that was to have been
represented by a Global Note also
representing other Book-Entry Notes, the
Registrar will provide, in accordance with
Settlement Procedure D, for the issuance
of a Global Note representing such
remaining Book-Entry Notes and will make
appropriate entries in its records.
<PAGE>
BEARER NOTES
In certain circumstances Bearer Notes may be issued. Settlement
Procedures with regard to Bearer Notes purchased by each Distribution Agent as
principal or sold by each Distribution Agent as agent of the Bank, will be as
follows:
Latest
London
Day Time Action
No later than Original 2:00 p.m.
Issue Date minus 5
Business Days The Bank may agree with one or more of
the Distribution Agents for the issue
and purchase of
Bearer Notes (whether pursuant to an
unsolicited bid from a
Distribution Agent or pursuant
to an inquiry by the Bank). The
Distribution Agent instructs the
London Issuing Agent to obtain a
Common Code and ISIN from
Euroclear or Clearstream,
Luxembourg. In the case of the
first Tranche of Bank Notes of a
Series, the London Issuing Agent
telephones Euroclear or
Clearstream, Luxembourg with a
request for a Common Code and
ISIN for such Series and in the
case of a subsequent Tranche of
Bank Notes of that Series the
London Issuing Agent telephones
Euroclear or Clearstream,
Luxembourg with a request for a
temporary Common Code and ISIN
for such Tranche. Each Common
Code and ISIN is notified by the
London Issuing Agent to each
Distribution Agent which has
reached agreement with the Bank.
3:00p.m. If a Distribution Agent has
reached agreement with the Bank
by telephone, such Distribution
Agent confirms the terms of the
agreement to the Bank by fax
attaching a copy of the Pricing
Supplement. The Distribution
Agent sends a copy of that fax
to the London Issuing Agent and
the Registrar for information.
5:00 p.m. The Bank confirms its agreement
to the terms on which the issue of
Bearer Notes is to the made
(including the form of the Pricing
Supplement) by signing and
returning a copy of the Pricing
Supplement to the relevant
Distribution Agent. The Bank also
confirms its instructions to the London
Issuing Agent (including, in
the case of Floating Rate Bank
Notes, the rate fixed by the
Calculation Agent) to carry out the
duties to be carried out by the
London Issuing Agent under these
Settlement Procedures and the
Global Agency Agreement including
preparing, authenticating and
issuing a Temporary Global Note for
the Tranche of Bank Notes which
is to be purchased and in the case of
the first Tranche of a Series,
where the Pricing Supplement for such
Tranche does not specify that
such Temporary Global Note is to be
exchangeable only for Bearer
Notes in definitive form, a Permanent
Global Note for such Series,
giving details of such Bearer Notes.
The Bank confirms such
instructions by sending a copy
by Fax of the signed Pricing
Supplement to the London Issuing
Agent.
No later than Original 2:00 p.m.
Issue Date minus 4 In the case of Bearer Notes which are to
Business Days the listed on a Stock Exchange, the
London Issuing Agent notifies the
relevant Listing
Agent who in turn notifies the
relevant Stock Exchange by fax
or by hand of the details of the
Bank Notes to be issued by
sending the Pricing Supplement
to the relevant Stock Exchange.
Original Issue Date 3:00 p.m. In the case of Bearer Notes
minus 2 Business Days cleared through Euroclear and/or
Business Days Clearstream, Luxembourg, the relevant
Distribution Agent instructs
the relevant clearing system to
debit its account and pay the
purchase price, against delivery
of the Bearer Notes, to the
London Issuing Agent's account
with the relevant clearing
system on the Original Issue
Date and the London Issuing
Agent receives details of such
instructions through the records
of the relevant clearing system.
Original Issue Date
minus 1 Business Day 3:00 p.m. In the case of Floating Rate Bank Notes,
the Calculation Agent notifies the
relevant clearing system, the Bank, any
relevant Stock Exchange (or the relevant
Listing Agent, which in turn
shall notify the relevant Stock
Exchange) and the relevant
Distribution Agent by telex or
fax of the rate of interest for
the first Interest Period (if
already determined). Where the
rate of interest has not yet
been determined, notification
will be made in accordance with
this paragraph as soon as it has
been determined.
Original Issue Date agreed
minus 1 Business Day time The London Issuing Agent prepares
(in the case of pre-closed and authenticates a Temporary
issues) or Original Issue Global Note for each Tranche of
Date (in any other case) Bank Notes which is to be purchased
(the "Payment Instruction Date") and, where required as specified
above, a Permanent Global Note in
respect of the relevant Series. The
Temporary Global Note and any
such Permanent Global Note are
then delivered by the London Issuing
Agent to a common depositary
for Euroclear and Clearstream,
Luxembourg and instructions are
given by the London Issuing Agent to
Euroclear or, as the case may
be, Clearstream, Luxembourg to
credit the Bearer Notes
represented by such Temporary
Global Note to the London
Issuing Agent's distribution
account.
In the case of Bearer Notes
cleared through Euroclear and/or
Clearstream, Luxembourg, the
London Issuing Agent further
instructs Euroclear or, as the
case may be, Clearstream,
Luxembourg to debit from the
distribution account the nominal
amount of the relevant Tranche
of Bank Notes and to credit such
nominal amount to the account of
such Distribution Agent with
Euroclear or Clearstream,
Luxembourg against payment to
the account of the London
Issuing Agent of the purchase
price for the relevant Tranche
of Bank Notes on the Original
Issue Date. The relevant
Distribution Agent gives
corresponding instructions to
Euroclear or Clearstream,
Luxembourg. The parties (which
for this purpose shall include
the London Issuing Agent) may
agree to arrange for "free
delivery" to the made through
the relevant clearing system if
specified in the applicable
Pricing Supplement.
Original Issue Date The relevant clearing
system debits and credits
accounts in accordance with
instructions received by it.
The London Issuing Agent pays to
the Bank on the Original Issue
Date the aggregate purchase
price received by it to such
account of the Bank as shall
have been notified to the London
Issuing Agent for the purpose.
On or subsequent to The London Issuing Agent notifies the
the Original Issue Bank forthwith in the event that a
Date Distribution Agent does not pay the
purchase price due from
it in respect of a Bank Note.
The London Issuing Agent
notifies the Bank of the issue
of Bearer Notes giving details
of the Global Note(s) and the
nominal sum represented thereby.
The relevant Distribution Agent
promptly notifies the London
Issuing Agent that the
distribution of the Bearer Notes
purchased or placed by it has
been completed. If applicable,
the London Issuing Agent
promptly notifies the Bank, the
relevant Distribution Agents and
the relevant clearing system of
the date of the end of any
applicable restricted trading
period with respect to the
relevant Tranche of Bank Notes.
<PAGE>
EUROCLEAR/CLEARSTREAM, LUXEMBOURG REGISTERED GLOBAL NOTES
Bank Notes may be issued in book-entry form as Book-Entry Notes and
represented by one or more fully registered Global Bank Notes held by or on
behalf of Euroclear and/or Clearstream, Luxembourg, as depositary, and recorded
in the book-entry system maintained by Euroclear and/or Clearstream, Luxembourg.
Book-Entry Notes represented by a Global Note are exchangeable for definitive
Bank Notes in registered form, of like tenor and of an equal aggregate principal
amount, by the owners of such Book-Entry Notes only upon certain limited
circumstances described in the Offering Circular. Settlement Procedures with
regard to Book-Entry Notes purchased by each Distribution Agent as principal or
sold by each Distribution Agent, as agent of the Bank, are as follows:
Latest
London
Day Time Action
No later than Original 2:00 p.m. The Bank may agree with one or more of
Bank Notes the Distribution Agents for the issue
Issue Date minus 5 and purchase of (whether pursuant to an
Business Days unsolicited bid from a Distribution
Agent or pursuant to an inquiry
by the relevant Bank).
3:00 p.m. In the case of the first Tranche of
Registered Bank Notes, the London
Issuing Agent telephones Euroclear
and/or Clearstream,Luxembourg with a
request for a Common Code for such
Tranche and, in the case of a subsequent
Tranche of Bank Notes of that Series,
the London Issuing Agent telephones
Euroclear and/or Clearstream,
Luxembourg with a request for a
temporary Common Code for such
Tranche and the London Issuing Agent
confirms such number(s) to the
Registrar. Each ISIN number, and each
Common Code is notified by the
Registrar by telex or fax to the
Bank and the relevant Distribution
Agent.
If a Distribution Agent has
reached agreement with the Bank
by telephone, such Distribution
Agent confirms the terms of the
agreement to the Bank by telex
or fax attaching a copy of the
Pricing Supplement. The relevant
Distribution Agent sends a copy
of that fax to the London
Issuing Agent and the Registrar
for information.
5:00 p.m. The Bank confirms its agreement to
the terms on which the issue of Bank
Notes is to the made (including the
form of the Pricing
Supplement)by signing and returning
a copy of the Pricing Supplement to
the relevant Distribution Agent.
The Bank also confirms its
instructions (including, in the case
of Floating Rate Bank Notes, the rate
fixed by the Calculation Agent) to the
London Issuing Agent and the
Registrar to carry out the duties
to be carried out by the London
Issuing Agent and the Registrar under
these Settlement Procedures and
the Global Agency Agreement including
preparing, authenticating and issuing
one or more Registered Global Bank
Notes and/or one or more Definitive
Registered Bank Notes for each Tranche
of Bank Notes which are to be purchased
or placed by the relevant Distribution
Agent,giving details of such Bank Notes.
The Bank confirms such
instructions by sending a copy
by fax of the signed Pricing
Supplement to the London Issuing
Agent and the Registrar.
The relevant Distribution Agent
notifies Euroclear and/or
Clearstream, Luxembourg of the
relevant accounts to be credited
with Bank Notes represented by
interests in the Global Note(s)
to the issued.
No later than Original 2:00 p.m. In the case of Bank Notes which are to
Issue Date minus 4 the listed on a Stock Exchange, the
Business Days London Issuing Agent notifies the
relevant Listing
Agent who in turn notifies the
relevant Stock Exchange by fax
or by hand of the details of the
Bank Notes to be issued by
sending the Pricing Supplement
to the relevant Stock Exchange.
Original Issue Date 3:00 p.m. Where the relevant Distribution Agent
minus 2 Business Days is purchasing or placing Bank Notes
through Euroclear and/or
Clearstream, Luxembourg, the relevant
Distribution Agent instructs
Euroclear and/or Clearstream,
Luxembourg, subject to further
instructions, on the Original
Issue Date or, in the case of
Bank Notes denominated in a
currency requiring a
pre-closing, the Original Issue
Date minus 1 Business Day, to
debit its account, or such
account as it directs, and pay
the purchase price to the
account of the closing bank as
agreed between the Bank, the
London Issuing Agent and the
relevant Distribution Agent from
time to time (in such capacity,
the "Closing Bank") for such
purpose.
Original Issue Date 3:00 p.m. In the case of Floating Rate Bank
minus 1 Business Day Notes, the Calculation Agent
notifies the Registrar, Euroclear,
Clearstream, Luxembourg, the
Bank, in the case of Listed Bank
Notes, the relevant Listing
Agent (who in turn notifies the
relevant Stock Exchange), and
the relevant Distribution Agent
by telex or fax of the rate of
interest for the first Interest
Period (if already determined).
Where the rate of interest has
not yet been determined, this
will be notified in accordance
with this paragraph as soon as
it has been determined.
Original Issue Date agreed The London Issuing Agent prepares and
minus 1 Business Day time authenticates the Registered Global
(in the case of pre- Note(s) for each Tranche of Bank Notes
closed issues)or which is to be purchased by attaching
Original Issue Date the applicable Pricing Supplement to a
(in any other case copy of the applicable master Registered
(the "Payment Global Note(s).
Instruction Date")
The Registrar enters details of the
principal amount of Bank Notes
to the issued and the registered
holder(s) of such Bank Notes in the
Register. Each Registered Global
Note is then delivered by, or on
behalf of, the London Issuing
Agent to a custodian for
Euroclear and/or Clearstream,
Luxembourg to credit the
principal amount of the relevant
Tranche of Bank Notes to the
appropriate participants'
accounts in Euroclear and/or
Clearstream, Luxembourg
previously notified by the
relevant Distribution Agent.
Each Definitive Registered Note
is delivered to the relevant
Distribution Agent or its
designee for the benefit of the
purchaser of such Bank Note
against delivery by such
Distribution Agent of a receipt
therefor or, if so instructed
and upon confirmation from the
Bank that proper payment by the
purchaser has been made,
delivered directly to the Bank
or its designee for the benefit
of the purchaser of such Bank
Note(s) against delivery of a
receipt therefor. The parties
(which for this purpose shall
include the London Issuing Agent
and the Registrar) may agree to
arrange for "free delivery" to
be made through the relevant
clearing system if specified in
the applicable Pricing
Supplement, in which case these
Settlement Procedures will be
amended accordingly.
Original Issue Date The relevant
Distribution Agent instructs
Euroclear and/or Clearstream,
Luxembourg to credit the
interests in the Registered
Global Note(s) representing Bank
Notes purchased by or through
such Distribution Agent to such
accounts as the relevant
Distribution Agent has directed
with Euroclear and/or
Clearstream, Luxembourg.
Euroclear and/or Clearstream,
Luxembourg debit and credit
accounts in accordance with
instructions received by them.
The Closing Bank makes payment
to the Bank on the Original
Issue Date of the aggregate
amount received by it to such
account of the Bank as shall
have been notified to the
Closing Bank for that purpose by
the relevant bank.
On or subsequent to The London Issuing Agent notifies the
the Original Issue Bank forthwith in the event that the
Date relevant Distribution Agent does not
pay the purchase price due
from it in respect of the Bank Notes.
The relevant Distribution Agent
notifies the London Issuing
Agent that the distribution of
the Bank Notes purchased or
placed by it has been completed.
Exhibit 27 See below.
