This prospectus supplement relates to an effective registration statement under
the Securities Act of 1933, but is not complete and may be changed. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION, DATED JANUARY 22, 2002
PRELIMINARY PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED AUGUST 13, 1999
$300,000,000
[LOGO]
CAPITAL ONE
Capital One Financial Corporation
% Notes Due , 2007
-------------
We will pay interest on the notes each and . The first
interest payment will be made on , 2002.
We may not redeem the notes prior to their maturity on , 2007.
There is no sinking fund for the notes.
The notes are not savings accounts, deposits or other obligations of a bank
and are not insured by the FDIC or any other governmental agency.
Investing in the notes involves risks. See "Risk Factors" on page S-7.
Underwriting
Price to Discounts and Proceeds to
Public (1) Commissions Capital One (1)
---------- ------------- ---------------
Per Note............ % % %
Total............... $ $ $
(1) Plus accrued interest, if any, from , 2002.
Delivery of the notes in book-entry form only, will be made on or about
January , 2002.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the prospectus to which it relates is truthful or
complete. Any representation to the contrary is a criminal offense.
Joint Bookrunners
Credit Suisse First Boston JPMorgan
Banc of America Securities LLC
Deutsche Banc Alex. Brown
Lehman Brothers
The date of this prospectus supplement is January , 2002.
-------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
----
FORWARD-LOOKING STATEMENTS.......... S-3
THE COMPANY......................... S-3
RECENT DEVELOPMENTS................. S-4
SELECTED CONSOLIDATED FINANCIAL DATA S-5
RISK FACTORS........................ S-7
USE OF PROCEEDS..................... S-11
CAPITALIZATION...................... S-12
DESCRIPTION OF NOTES................ S-13
UNDERWRITING........................ S-16
NOTICE TO CANADIAN RESIDENTS........ S-17
WHERE YOU CAN FIND MORE INFORMATION. S-18
LEGAL MATTERS....................... S-19
PROSPECTUS
Page
----
ABOUT THIS PROSPECTUS............... 2
WHERE TO FIND MORE INFORMATION...... 2
INCORPORATION OF CERTAIN INFORMATION
BY REFERENCE...................... 2
CAPITAL ONE......................... 3
USE OF PROCEEDS..................... 4
FINANCIAL RATIOS.................... 4
SUPERVISION, REGULATION AND OTHER
MATTERS........................... 5
DESCRIPTION OF DEBT SECURITIES...... 10
DESCRIPTION OF PREFERRED STOCK...... 17
DESCRIPTION OF COMMON STOCK......... 20
PLAN OF DISTRIBUTION................ 24
VALIDITY OF SECURITIES.............. 24
EXPERTS............................. 24
-------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
ABOUT THIS PROSPECTUS SUPPLEMENT
We provide information to you about the notes in two separate documents: (a)
the accompanying prospectus, which provides general information, some of which
may not apply to the notes, and (b) this prospectus supplement, which describes
the specific terms of the notes. If information in this prospectus supplement
is inconsistent with the prospectus, you should rely on this prospectus
supplement.
It is important for you to read and consider all the information contained
in this prospectus supplement and the attached prospectus in making your
investment decision. You should also read and consider the information in the
documents we have referred you to in "Where You Can Find More Information" on
page S-18.
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
additional related discussions. The table of contents in this prospectus
supplement provides the pages on which these captions are located.
In this prospectus supplement, the terms "Capital One", "we", "us", and
"our" refer to Capital One Financial Corporation.
S-2
FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus contain (or
incorporate by reference) forward-looking statements. Forward-looking
statements include information relating to growth in earnings per share, return
on equity, growth in managed loans outstanding and customer accounts, net
interest margins, funding costs, operations costs and employment growth,
marketing expense, delinquencies and charge-offs. Forward-looking statements
also include statements using words such as "expect", "anticipate", "intent",
"plan", "believe", "estimate" or similar expressions. We have based these
forward-looking statements on our current plans, estimates and projections, and
you should not unduly rely on them.
Numerous factors could cause our actual results to differ materially from
those described in forward-looking statements, including, among other things:
. continued intense competition from numerous providers of products and
services which compete with our businesses;
. an increase in credit losses (including increases due to worsening of
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;
. losses associated with new products or services or expansion
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 reports we file with the
Securities and Exchange Commission, including, but not limited to, factors
set forth under the caption "Risk Factors" in this prospectus supplement
and in our Annual Report on Form 10-K for the year ended December 31, 2000.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
You should carefully consider the factors discussed above in evaluating these
forward-looking statements.
THE COMPANY
We are a holding company, incorporated in Delaware on July 21, 1994. Our
subsidiaries provide a variety of products and services to consumers using our
proprietary information-based strategy, which we refer to as IBS. Our principal
executive office is located at 2980 Fairview Park Drive, Suite 1300, Falls
Church, Virginia 22042-4525 (telephone number: (703) 205-1000). Our web site is
www.capitalone.com. The information on our web site is not part of this
prospectus supplement or the related prospectus.
Our predecessor commenced operations in 1953, the same year as the formation
of what is now MasterCard International, and is one of the oldest continually
operating bank card issuers in the United States. We are one of the largest
issuers of MasterCard(R)* and Visa(R)* credit cards in the world. The success
of our information-based strategy, which we initiated in 1988, in addition to
credit card industry dynamics, has led to our growth in managed credit card
loans and accounts. As of December 31, 2001, we had total reported assets of
$28.2 billion, total reported liabilities of $24.9 billion and total
stockholders' equity of $3.3 billion.
--------
* MasterCard and Visa are registered trademarks of MasterCard International
Incorporated and Visa USA, Inc., respectively.
S-3
Capital One Bank
Our principal subsidiary is Capital One Bank, which we call "the Bank." The
Bank is a limited purpose Virginia state chartered bank that offers credit card
products. Our principal asset is our equity interest in the Bank. As of
December 31, 2001, the Bank constituted approximately 74% of our managed
assets. The Bank offers a variety of credit card products, including:
. Visa and MasterCard brands;
. Platinum and Gold premium label cards;
. Secured and unsecured standard product cards; and
. United States and international offerings, with a current focus on the
United Kingdom, Canada and France.
Capital One, F.S.B.
We also have a federally chartered savings bank subsidiary, Capital One,
F.S.B., which we call "the Savings Bank." The Savings Bank was established in
June 1996 to offer consumer lending products and deposits. The Savings Bank
offers, and expects to continue to offer, multiple financial products and
services by using our information-based strategy and existing information
technology systems.
Proposed Merger of Capital One Bank and Capital One, F.S.B.
We have filed applications with the Board of Governors of the Federal
Reserve System and the State Corporation Commission of Virginia, Bureau of
Financial Institutions, to merge the Bank and the Savings Bank. If approved,
the Bank would be the surviving institution, and would, concurrently with the
merger, convert from a state-chartered limited purpose credit card bank to a
state-chartered savings bank. The resulting institution would retain the name
"Capital One Bank," as well as its membership in the Federal Reserve System.
RECENT DEVELOPMENTS
On January 15, 2002, we announced earnings for 2001 of $642.0 million,
compared with earnings of $469.6 million in 2000. For the fourth quarter of
2001, earnings were $177.7 million versus earnings of $128.3 million for the
comparable period in the prior year. During the fourth quarter of 2001, we
added 3.7 million net new accounts, bringing total accounts to 43.8 million.
Managed consumer loan balances increased by $6.8 billion during the fourth
quarter of 2001 to $45.3 billion. Total managed revenue increased to $1.9
billion during the fourth quarter of 2001, compared to $1.8 billion in the
third quarter of 2001 and $1.4 billion in the fourth quarter of 2000. The
managed net charge-off ratio was 4.42% for the three months ended December 31,
2001, as compared to 3.92% for the three months ended September 30, 2001 and
3.98% for the three months ended December 31, 2000. The managed delinquency
rate decreased to 4.95% as of December 31, 2001, compared with 5.20% as of
September 30, 2001. Our managed net interest margin decreased to 8.68% in the
fourth quarter of 2001 from 9.27% in the third quarter of 2001 primarily
because of an increase in the amount of loans at teaser rates, continued growth
in our superprime segment and an increase in our liquidity during the quarter.
Contributing to the growth in accounts and managed loans during the quarter was
an increase in marketing expense to $301 million from $282 million in the third
quarter of 2001 and $259 million in the fourth quarter of 2000. Annualized
operating expenses per account declined in the fourth quarter of 2001 to $74
from $81 (excluding one-time charges) in the third quarter of 2001 and $78 in
the fourth quarter of 2000.
S-4
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for
Capital One as of the dates or for the periods indicated. This information
should be read in conjunction with, and is qualified in its entirety by
reference to, the detailed information and financial statements included in the
documents incorporated herein by reference. See "Where You Can Find More
Information" on page S-18.
We periodically securitize and sell consumer loan receivables to provide
funds for operations and to improve liquidity. The effect of these transactions
is to remove these consumer loans from our balance sheet. We record gains or
losses on the securitization of consumer loan receivables based on the
estimated fair value of the assets sold and retained and liabilities incurred
in the sale. The information in the following table under "Managed Loan Data"
includes receivables sold in credit card securitization transactions and our
on-balance sheet loan portfolio.
Nine Months Ended
September 30, Year Ended December 31,
------------------------ ------------------------------------
2001 2000 2000 1999 1998
----------- ----------- ----------- ----------- ----------
(Dollars in thousands, except per share and ratio data)
Income Statement Data:
Interest income..................... $ 2,029,779 $ 1,683,667 $ 2,389,902 $ 1,593,484 $1,111,536
Interest expense.................... 856,169 553,342 801,017 540,882 424,284
----------- ----------- ----------- ----------- ----------
Net interest income................. 1,173,610 1,130,325 1,588,885 1,052,602 687,252
Provision for loan losses........... 683,947 470,944 718,170 382,948 267,028
----------- ----------- ----------- ----------- ----------
Net interest income after provision
for loan losses................... 489,663 659,381 870,715 669,654 420,224
Non-interest income................. 3,242,642 2,162,336 3,034,416 2,372,359 1,488,283
Non-interest expense................ 2,983,460 2,271,141 3,147,657 2,464,996 1,464,586
----------- ----------- ----------- ----------- ----------
Income before income taxes.......... 748,845 550,576 757,474 577,017 443,921
Income taxes........................ 284,561 209,219 287,840 213,926 168,690
----------- ----------- ----------- ----------- ----------
Net income.......................... $ 464,284 $ 341,357 $ 469,634 $ 363,091 $ 275,231
=========== =========== =========== =========== ==========
Per Common Share:
Basic earnings per share............ $ 2.23 $ 1.73 $ 2.39 $ 1.84 $ 1.40
Diluted earnings per share.......... $ 2.11 $ 1.63 $ 2.24 $ 1.72 $ 1.32
Balance Sheet Statistics (period-end):
Securities.......................... $ 3,175,310 $ 1,793,395 $ 1,859,029 $ 1,968,853 $2,080,980
Consumer loans...................... 17,479,715 12,331,088 15,112,712 9,913,549 6,157,111
Allowance for loan losses........... (727,000) (457,000) (527,000) (342,000) (231,000)
Total assets........................ 23,513,437 16,378,825 18,889,341 13,336,443 9,419,403
Interest-bearing deposits........... 11,075,499 6,323,924 8,379,025 3,783,809 1,999,979
Shareholders' equity................ 2,983,293 1,775,388 1,962,514 1,515,607 1,270,406
S-5
At or for the Nine Months
Ended September 30, At or for the Year Ended December 31,
------------------------ -------------------------------------
2001 2000 2000 1999 1998
----------- ----------- ----------- ----------- -----------
(Dollars in thousands, except ratio data)
Managed Loan Data:
Total loans (average)............. $33,678,036 $21,378,235 $22,634,862 $18,046,913 $15,209,537
Interest income................... 3,980,188 2,888,826 4,034,882 3,174,057 2,583,872
Yield............................. 15.76% 18.02% 17.83% 17.59% 16.99%
Total loans (period-end).......... 38,489,020 24,152,151 29,524,026 20,236,588 17,395,126
Delinquency rate (1).............. 5.20% 5.32% 5.23% 5.23% 4.70%
Net charge-off rate (2)........... 3.89% 3.88% 3.90% 3.85% 5.33%
Selected Financial Ratios:
Return on average reported assets. 2.80% 3.19% 3.09% 3.28% 3.30%
Return on average shareholders'
equity.......................... 23.52% 27.65% 27.61% 25.79% 25.30%
Managed net interest margin....... 9.19% 10.94% 10.71% 10.83% 9.91%
Ratio of earnings to fixed charges
(including interest on deposits) 1.86 1.95 1.91 2.05 2.02
Ratio of earnings to fixed charges
(excluding interest on deposits) 2.84 2.48 2.48 2.39 2.21
Company Consolidated Capital
Ratios(3):
Capital to managed assets......... 6.93% 6.65% 6.19% 6.83% 6.64%
--------
(1) Delinquencies represent loans which were 30 days or more past-due at
period-end as a percentage of managed receivables.
(2) Net charge-offs reflect actual principle amounts charged off, less
recoveries, as a percentage of average receivables for the period.
(3) The Bank and the Savings Bank had the following capital ratios as of
December 31, 2000, 1999 and 1998:
Bank Savings Bank
------------------- -------------------
2000 1999 1998 2000 1999 1998
----- ----- ----- ----- ----- -----
Tier 1 risk-based capital ratio 9.30% 10.64% 11.38% 8.24% 9.06% 11.28%
Total risk-based capital ratio. 11.38 13.11 13.88 10.90 10.69 13.87
Tier 1 leverage ratio.......... 10.02 11.13 10.24 6.28 8.08 9.46
S-6
RISK FACTORS
This prospectus supplement and the documents incorporated by reference in
this prospectus supplement contain forward-looking statements. Statements that
are not historical facts, including statements about our beliefs and
expectations, are forward-looking statements. Forward-looking statements
include information relating to our future earnings per share, return on
equity, growth in managed loans outstanding and customer accounts, net interest
margins, funding costs, operations costs and employment growth, marketing
expense, delinquencies and charge-offs. Forward-looking statements also include
statements using words such as "expect", "anticipate", "intend", "plan",
"believe", "estimate" or similar expressions. We have based these
forward-looking statements on our current plans, estimates and projections, and
you should not unduly rely on them.
Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties and assumptions, including the risks discussed
below. Our future performance and actual results may differ materially from
those expressed in these forward-looking statements. Many of the factors that
will determine these results and values are beyond our ability to control or
predict. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. You should carefully consider the factors discussed below
in evaluating these forward-looking statements.
This section highlights specific risks that could affect our business and
us. Although we have tried to discuss key factors, please be aware that other
risks may prove to be important in the future. New risks may emerge at any time
and we cannot predict such risks or estimate the extent to which they may
affect our financial performance.
We Face Intense Competition in all of our Markets
We face intense competition from many other providers of credit cards and
other consumer financial products and services. In particular, we compete with
international, national, regional and local bank card issuers, with other
general purpose credit or charge card issuers, and to a certain extent, issuers
of smart cards and debit cards. In addition, the Gramm-Leach-Bliley Financial
Services Modernization Act of 1999, which permits greater affiliations between
banks, securities firms and insurance companies, may increase competition in
the financial services industry, including in the credit card business.
Increased competition has resulted in, and may continue to cause, a decrease in
credit card response rates and reduced productivity of marketing dollars
invested in certain lines of business. Other credit card companies may compete
with us for customers by offering lower interest rates and fees and/or higher
credit limits. Because customers generally choose credit card issuers based on
price (primarily interest rates and fees), credit limit and other product
features, customer loyalty is limited. We may lose entire accounts, or may lose
account balances, to competing card issuers. This customer attrition, together
with any lowering of interest rates or fees that we might implement to retain
customers, could reduce our revenues and therefore our earnings.
In the past, we faced intense competition primarily in the market for our
low introductory rate credit cards. Recently, however, competition in the
markets for our other credit card products, such as our low fixed-rate cards,
secured cards and other customized cards, has become more intense. The cost to
acquire new accounts varies along business lines and is expected to rise as we
move beyond the domestic card market. We expect that competition will continue
to grow more intense with respect to most of our products, including our
products offered internationally.
S-7
Fluctuations in Our Accounts and Loan Balances Will Affect Our Financial Results
Our accounts and loan balances and the rate at which they grow are affected
by a number of factors, including how we allocate our marketing investment
among different products and the rate at which customers transfer their
accounts and loan balances to us or away from us to competing card issuers.
Accounts and loan balances are also affected by general economic conditions,
which may increase or decrease the amount of spending by customers and affect
their ability to repay their loans, and other factors beyond our control.
Because we designed our IBS to take advantage of market opportunities by
differentiating among customers and targeting growth opportunities, we cannot
forecast how much we will spend for marketing, how we will spend such funds, or
on which products. Accordingly, our account and loan balance growth is affected
by which products our IBS identifies as targeted growth opportunities and our
continual reassessment of those targets, general economic conditions, and many
other factors. Our results, therefore, will vary as marketing investments,
accounts and loan balances fluctuate.
It is Difficult to Sustain and Manage Growth
Our growth strategy is threefold. First, we seek to continue to grow our
domestic credit card business. Second, we desire to grow our lending business,
including credit cards, internationally, in the United Kingdom, Canada and
beyond. Third, we hope to identify and pursue new business opportunities. Our
management believes that, through IBS, we can achieve these objectives.
However, there are a number of factors that can affect our ability to do so,
including:
. our ability to retain existing customers and to attract new customers;
. the growth of existing and new account balances;
. the delinquency and charge-off levels of accounts;
. the availability of funding on favorable terms;
. the amount of funds available for marketing to solicit new customers;
. general economic and other factors;
. postal service disruptions and costs;
. the legal and regulatory environment;
. a favorable interest rate environment;
. our ability to build or acquire the necessary operational and
organizational infrastructure;
. our ability to manage expenses as we expand; and
. our ability to recruit experienced management and operations personnel.
Our expansion internationally is affected by additional factors, including
limited access to information, differences in cultural attitudes toward credit,
new regulatory and legislative environments, political developments, exchange
rates and differences from the historical experience of portfolio performance
in the United States and other countries.
Difficulties or delays in the development, production, testing and marketing
of new products or services will affect the success of such products or
services and can cause losses associated with the costs to develop unsuccessful
products and services. Such difficulties could include:
. failure to implement new product or service programs on time;
. failure of customers to accept these products or services;
S-8
. operational difficulties or delays;
. losses arising from the testing of new products or services; and
. legal and other difficulties.
In addition, we may not achieve the same financial results in connection
with any new products and services we offer as we achieved in the past from our
credit card business.
We May Experience Limited Availability of Financing and Variation in Our
Funding Costs
The securitization of consumer loans, which involve the sale of beneficial
interests in consumer loan balances, is one of our major sources of funding. As
of December 31, 2001, we had $27.4 billion, or approximately 60%, of our total
loans subject to securitization transactions. Our ability to use securitization
funding depends on how difficult and expensive such funding is. Until now, we
have completed securitization transactions on terms that we believe are
acceptable. However, securitization transactions can be affected by many
factors. Economic, legal, regulatory, accounting and tax changes can make
securitization funding more difficult, more expensive or unavailable on any
terms both domestically and internationally, where the securitization of
consumer loans may be on terms more or less favorable than in the United
States. For example, securitizations that meet the criteria for sale treatment
under generally accepted accounting principles may not always be an attractive
source of funding for us, and we may have to seek other more expensive funding
sources in the future.
In general, the amount, type and cost of our financing, including financing
from other financial institutions, the capital markets and deposits, affect our
financial results. A number of factors could make such financing more
difficult, more expensive or unavailable including, but not limited to, changes
within our organization, changes in the activities of our business partners,
changes affecting our investments, interest rate fluctuations and regulatory
changes. In addition, we compete for funding with other banks, savings banks
and similar companies. Some of these institutions are publicly traded. Many of
these institutions are substantially larger, have more capital and other
resources and have better financial ratings than we do. Competition from these
other borrowers may increase our cost of funds. Events that disrupt capital
markets and other factors beyond our control could also make our funding
sources more expensive or unavailable.
We May Experience Increased Delinquencies and Credit Losses
Like other credit card lenders, we face the risk that we will not be able to
collect on our accounts because accountholders may not repay their credit card
and other unsecured loans. Consumers who miss payments on their credit card and
other unsecured loans often fail to repay them, and consumers who file for
protection under the bankruptcy laws generally do not repay their credit card
and other unsecured loans. Therefore, the rate of missed payments, or
"delinquencies," on our portfolio of loans, and the rate at which consumers may
be expected to file for bankruptcy, can be used to predict the future rate at
which we will charge-off our consumer loans. A high charge-off rate would hurt
our overall financial performance and the performance of our securitizations
and increase our cost of funds.
Widespread increases in past-due payments and nonpayment are likely to occur
if the country or a regional area experiences an economic downturn, such as a
recession. In addition, credit card accounts tend to exhibit a rising trend of
delinquency and credit losses as they "season," or age. As a result of
seasoning of our portfolio and other factors, we have experienced an increase
in our managed net charge-off rate from 3.92% in the third quarter of 2001 to
4.42% in the fourth quarter of 2001. Delinquencies and credit losses could also
occur for other reasons. For example, fraud can cause losses. Likewise, if we
make fewer loans than we have in the past, the proportion of new loans in our
portfolio will decrease and the delinquency rate and charge-off rate may
increase. Therefore, the seasoning of accounts or a slowdown in the rate at
which we acquire new accounts may require higher loan loss provisions and
reserves. This would reduce our earnings unless offset by other changes.
S-9
In addition, we market many of our products to consumers who have less
experience with credit risk and performance, and who therefore tend to
experience higher delinquency and charge-off rates. We refer to these consumers
as "underserved." Our goal is to use IBS to set the credit limits and price
products for underserved consumers relative to the risk of anticipated
associated losses, but we may not set high enough fees and rates for these
accounts to offset the higher delinquency and loss rates we may experience.
We Face Risk From Economic Downturns and Social Factors
Delinquencies and credit losses in the credit card industry generally
increase during economic downturns or recessions. Likewise, consumer demand may
decline during an economic downturn or recession. Accordingly, an economic
downturn or recession (either local or national) can hurt our financial
performance as accountholders default on their loans or carry lower balances.
As we increasingly market our cards internationally, an economic downturn or
recession outside the United States also could hurt our financial performance.
A variety of social factors also may cause changes in credit card use, payment
patterns and the rate of defaults by accountholders. These social factors
include changes in consumer confidence levels, the public's perception of the
use of credit cards and changing attitudes about incurring debt and the stigma
of personal bankruptcy. Our goal is to manage these risks through our
underwriting criteria and product design, but these tools may not be enough to
protect our growth and profitability during a sustained period of economic
downturn or recession or a material shift in social attitudes.
We Face Risks of Interest Rate Fluctuations
Like other financial institutions, we borrow money from institutions and
depositors which we then lend to customers. We earn interest on the consumer
loans we make, and pay interest on the deposits and borrowings we use to fund
those loans. The difference between these two interest rates affects the value
of our assets and liabilities. If the rate of interest we pay on our borrowings
increases more than the rate of interest we earn on our loans, our net interest
income, and therefore our earnings, could fall. Our earnings could also be hurt
if the rates on our consumer loans fall more quickly than those on our
borrowings.
The financial instruments and techniques we use to manage the risk of
interest rate fluctuations, such as asset/liability matching, interest rate
swaps and hedges, may not always work successfully. Our goal is generally to
maintain an interest rate neutral or "matched" position, where interest rates
on loans and borrowings go up or down by the same amount and at the same time
so that interest rate changes for loans or borrowings will not affect our
earnings. We cannot, however, always achieve this position at a reasonable
cost. Furthermore, if these techniques become unavailable or impractical, our
earnings could be less than we may have anticipated.
We also manage these risks partly by changing the interest rates we charge
on our credit card accounts. The success of repricing accounts to match an
increase or decrease in our borrowing rates depends on the overall product mix
of such accounts, the actual amount of accounts repriced, the rate at which we
are originating new accounts and our ability to retain accounts (and the
related loan balances) after repricing. For example, if we increase the
interest rate we charge on our credit card accounts and the accountholders
close their accounts as a result, we won't be able to match our increased
borrowing costs as quickly if at all.
Changes in Regulation and Legislation Can Affect Our Results
Federal and state laws and rules, as well as rules to which we are subject
in foreign jurisdictions in which we conduct business, significantly limit the
types of activities in which we engage. For example, federal and state consumer
protection laws and rules limit the manner in which we may offer and extend
credit. From time to time, the United States Congress and the states consider
changing these laws and may enact new laws or amend existing laws to regulate
further the consumer lending industry. Such new laws or rules could limit the
amount of interest or fees we can charge, restrict our ability to collect on
account balances, or materially affect us or the banking or credit card
industries in some other manner. Additional federal and state consumer
protection
S-10
legislation also could seek to expand the privacy protections afforded to
customers of financial institutions and restrict our ability to share or
receive customer information.
The laws governing bankruptcy and debtor relief, in the U.S. or in foreign
jurisdictions in which we conduct business, also could change, making it more
expensive or more difficult for us to collect from our customers. Congress
currently is considering legislation that would change the existing federal
bankruptcy laws. One intended purpose of this legislation is to increase the
collectibility of unsecured debt, however, it is not clear whether or in what
form Congress may adopt this legislation and we cannot predict how this
legislation may affect us.
In addition, banking regulators possess broad discretion to issue or revise
regulations, or to issue guidance regarding the interpretation or application
of such regulations, which may significantly impact Capital One, the Bank or
the Savings Bank. For example, the banking agencies have issued examiner
guidelines governing subprime lending activities which may require financial
institutions engaged in such lending to carry higher levels of capital and/or
loan loss reserves. Regulators have also recently restricted the ability of two
credit card issuers to provide further credit to higher risk customers due
principally to supervisory concerns over rising charge-off rates and capital
adequacy. We maintain an active dialogue with our banking agency regulators and
believe that our capital levels and risk management practices are appropriate
for our business. We cannot, however, predict whether and how any new
guidelines issued or other regulatory actions taken by the agencies will be
applied to the Bank or the Savings Bank or the resulting effect on Capital One,
the Bank or the Savings Bank.
In addition, the existing laws and rules, both in the U.S and in the foreign
jurisdictions in which we conduct operations, are complex. If we fail to comply
with them we might not be able to collect our loans in full, or we might be
required to pay damages or penalties to our customers. For these reasons, new
or changes in existing laws or rules could hurt our profits.
Fluctuations in Our Expenses and Other Costs May Hurt Our Financial Results
Our expenses and other costs, such as human resources and marketing
expenses, directly affect our earnings results. Many factors can influence the
amount of our expenses, as well has how quickly they grow. For example,
increases in postal rates currently contemplated by postal regulators could
raise our costs for postal service, which is a significant component of our
expenses for marketing and for servicing our 43.8 million accounts as of
December 31, 2001. As our business develops, changes or expands, additional
expenses can arise from asset purchases, structural reorganization or a
reevaluation of business strategies. Other factors that can affect the amount
of our expenses include legal and administrative cases and proceedings, which
can be expensive to pursue or defend. In addition, changes in accounting
policies can significantly affect how we calculate expenses and earnings.
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the notes offered by this
prospectus supplement will be approximately $ after deducting
underwriting discounts and our estimated expenses of the offering.
We intend to use the net proceeds from this offering for general corporate
purposes, which may include the reduction of short-term debt, possible
acquisitions, investments in, or extensions of credit to, our subsidiaries and
investments in securities.
S-11
CAPITALIZATION
The following table sets forth our consolidated capitalization at December
31, 2001 on an actual basis and as adjusted to give effect to the issuance of
the notes offered by this prospectus supplement. The table should be read in
conjunction with our consolidated financial statements and the accompanying
notes incorporated by reference in this prospectus supplement.
December 31, 2001
-----------------------------
Actual As Adjusted
---------------- -----------
(Unaudited, dollars in
thousands)
Debt:
-----
Interest-bearing deposits................................................... $12,838,968 $12,838,968
Other borrowings............................................................ 3,995,528 3,995,528
Senior notes................................................................ 5,335,229
---------------- -----------
Total Debt........................................................... 22,169,725
---------------- -----------
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 shares, and
216,722,883 shares issued and outstanding................................. 2,167 2,167
Paid-in-capital, net........................................................ 1,350,118 1,350,118
Retained earnings and cumulative other comprehensive income................. 2,006,163 2,006,163
Less: Treasury stock, at cost; 878,720 shares............................ (34,970) (34,970)
---------------- -----------
Total Stockholders' Equity........................................... 3,323,478 3,323,478
---------------- -----------
Total Capitalization................................................. $25,493,203 $
================ ===========
S-12
DESCRIPTION OF NOTES
The following description of the particular terms of the notes offered
hereby supplements, and to the extent inconsistent therewith modifies, the
description of the general terms and provisions of senior debt securities set
forth in the accompanying prospectus, to which description reference is hereby
made. The following description is qualified in its entirety by reference to
the provisions of the senior indenture (as defined below). Capitalized terms
not defined herein have the meanings assigned to such terms in the accompanying
prospectus or in the senior indenture.
General
The notes offered hereby constitute a series of senior debt securities
described in the accompanying prospectus to be issued under the indenture,
which we refer to as the senior indenture, dated as of November 1, 1996,
between us and BNY Midwest Trust Company (as successor to Harris Trust and
Savings Bank), as senior trustee. The notes will be direct, unsecured
obligations of the company and will mature on , 2007.
The notes will bear interest at the rate per annum shown on the cover page
of this prospectus supplement, payable semiannually in arrears on
each and , beginning , 2002, to the persons in whose names the
notes are registered at the close of business on the or , as the case
may be, next preceding such and . Interest on the notes will be paid
on the basis of a 360-day year comprised of twelve 30-day months.
The notes are initially being offered in the principal amount of
$300,000,000. We may, without the consent of the holders, increase such total
principal amount by issuing more notes in the future, on the same terms and
conditions (other than possibly the issue price) and with the same CUSIP number
as the notes being offered hereby.
The notes do not provide for any sinking fund and may not be redeemed prior
to maturity.
Book-Entry, Delivery and Form
The notes will be issued in the form of one or more fully registered
permanent global securities registered in the name of a nominee of the
depositary as described under "Description of Debt Securities--Global Debt
Securities" in the accompanying prospectus. The depositary has advised us as
follows: it is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended. The depositary holds securities that its
participants deposit with it. The depositary also facilitates the settlement
among participants of securities transactions, such as transfers and pledges,
in deposited securities through electronic computerized book entry changes in
participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other
organizations. The depositary is owned by a number of its direct participants
and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc.,
and the National Association of Securities Dealers, Inc. Access to the
depositary's system is also available to others such as securities brokers and
dealers, and banks and trust companies that clear through or maintain a
custodial relationship with a direct participant, either directly or
indirectly. The rules applicable to the depositary and its participants are on
file with the Securities and Exchange Commission.
Upon the issuance of the global securities evidencing the notes, the
depository will credit, on its book entry registration and transfer system, the
respective principal amounts of the notes evidenced thereby to the accounts of
participants. The accounts to be credited shall be designated by the
underwriters. Ownership of beneficial
S-13
interests in the global securities will be limited to participants or persons
that may hold interests through participants. Ownership of beneficial interests
in the global securities will be shown on, and the transfer of those ownership
interests may be effected only through, records maintained by the depositary or
its nominee (with respect to participants) and the records of participants
(with respect to persons who hold their interests through participants). The
laws of some states require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such laws may impair the
ability of holders to transfer beneficial interests in the notes to certain
purchasers.
So long as the depositary, or its nominee, is the registered holder of the
global securities, the depositary or its nominee will be considered the sole
owner or holder of the notes represented by such global securities for all
purposes under the senior indenture. Except as set forth below, owners of
beneficial interests in the global securities will not be entitled to have
notes represented by such global securities registered in their names, will not
receive or be entitled to receive physical delivery of notes in definitive
form, and will not be considered the owners or holders thereof for any purpose
under the senior indenture. Accordingly, each person owning a beneficial
interest in the global securities must rely on the procedures of the depositary
and, if such person is not a participant, on the procedures of the participant
through which such person owns its interest, to exercise any rights of a holder
under the senior indenture. Under existing industry practices, in the event
that we request any action of holders or that an owner of a beneficial interest
in the global securities desires to give any consent or take any action under
the senior indenture, the depositary would authorize the participants holding
the relevant beneficial interests to give or take such action or consent, and
such participants would authorize beneficial owners owning through such
participants to give or take such action or consent or would otherwise act upon
the instructions of beneficial owners owning through them.
Payment of principal and interest on notes registered in the name of or held
by the depositary or its nominee will be made to the depositary or its nominee,
as the case may be, as registered holder of the global securities representing
the notes. Neither we, the senior trustee, any Paying Agent nor the security
registrar for the notes will have any responsibility or liability for any
aspect of the records relating to, or payments made on account of, beneficial
ownership interests in the global securities or maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
We have been advised by the depositary that upon receipt of any payment of
principal or interest in respect of the global securities, the depositary will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the global
securities as shown on the records of the depositary or its nominee. Payments
by participants to owners of beneficial interests in the global securities held
through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts
of customers in bearer form or registered in "street name", and will be the
responsibility of such participants.
If the depositary is at any time unwilling, unable or ineligible to continue
as depositary and a successor depositary is not appointed by us within 90 days,
or an Event of Default has occurred and is continuing, we will issue notes in
definitive form in exchange for such global securities. In addition, we may at
any time and in its sole discretion determine not to have the notes represented
by the global securities and, in such event, will issue notes in definitive
form in exchange for the global securities.
Defeasance and Discharge
The defeasance provisions of the senior indenture described under
"Description of Debt Securities--Defeasance and Covenant Defeasance" in the
accompanying prospectus will apply to the notes.
Same-Day Settlement and Payment
Settlement by purchasers of the notes will be made in immediately available
funds. All payments by us to the depositary of principal and interest will be
made in immediately available funds.
S-14
So long as any notes are represented by global securities registered in the
name of the depositary or its nominee, such notes will trade in the
depositary's Same-Day Funds Settlement System and secondary market trading in
such notes will therefore be required by the depositary to settle in
immediately available funds. No assurance can be given as to the effect, if
any, of settlement in immediately available funds on trading activity in the
notes.
Trustee
BNY Midwest Trust Company, as successor to Harris Trust and Savings Bank,
will serve as the senior trustee with respect to the notes.
S-15
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated January , 2002, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation and J.P. Morgan
Securities Inc. are acting as representatives, the following respective
principal amounts of the notes:
Principal
Underwriter Amount
----------- ---------
Credit Suisse First Boston Corporation $
J.P. Morgan Securities Inc............
Banc of America Securities LLC........
Deutsche Banc Alex. Brown Inc.........
Lehman Brothers Inc...................
--
Total.............................. $
==
The underwriting agreement provides that the underwriters are obligated to
purchase all of the notes if any are purchased. The underwriting agreement also
provides that, if an underwriter defaults, the purchase commitments of the
non-defaulting underwriters may be increased or the offering of the notes may
be terminated.
The underwriters propose to offer the notes initially at the public offering
price on the cover page of this prospectus supplement and to selling group
members at that price less a selling concession of % of the principal
amount per note. The underwriters and selling group members may allow a
discount of % of the principal amount per note on sales to other
broker/dealers. After the initial public offering the representatives may
change the public offering price and concession and discount to broker/dealers.
We estimate that our out-of-pocket expenses for this offering will be
approximately $ .
The notes are a new issue of securities with no established trading market.
One or more of the underwriters intend to make a secondary market for the
notes. However, they are not obligated to do so and may discontinue making a
secondary market for the notes at any time without notice. No assurance can be
given as to how liquid the trading market for the notes will be.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be
required to make in that respect.
Certain of the underwriters and their respective affiliates have from time
to time performed and may in the future perform various financial advisory,
commercial banking and investment banking services for us, for which they
received or will receive customary fees.
In connection with the offering the underwriters, may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934 (the "Exchange Act").
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Over-allotment involves sales by the underwriters of notes in excess of
the principal amount of the notes the underwriters are obligated to
purchase, which creates a syndicate short position.
. Syndicate covering transactions involve purchases of the notes in the open
market after the distribution has been completed in order to cover
syndicate short positions. A short position is more likely to be
S-16
created if the underwriters are concerned that there may be downward
pressure on the price of the notes in the open market after pricing that
could adversely affect investors who purchase in the offering.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the notes originally sold by the syndicate
member are purchased in a stabilizing transaction or a syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may have the effect of raising or maintaining the market price of the
notes or preventing or retarding a decline in the market price of the notes. As
a result the price of the notes may be higher than the price that might
otherwise exist in the open market.
Credit Suisse First Boston Corporation and J.P. Morgan Securities Inc. will
make securities available for distribution on the Internet through a
proprietary Web site and/or a third-party system operated by Market Axess Inc.,
an Internet-based communications technology provider. Market Axess Inc. is
providing the system as a conduit for communications between Credit Suisse
First Boston Corporation and J.P. Morgan Securities Inc. and their respective
customers and is not a party to any transactions. Market Axess Inc. will not
function as an underwriter or agent of the issuer, nor will Market Axess Inc.
act as a broker for any customer of Credit Suisse First Boston Corporation or
J.P. Morgan Securities Inc. Market Axess Inc., a registered broker-dealer, will
receive compensation from Credit Suisse First Boston Corporation and J.P.
Morgan Securities Inc. based on transactions Credit Suisse First Boston
Corporation and J.P. Morgan Securities Inc. conduct through the system. Credit
Suisse First Boston Corporation and J.P. Morgan Securities Inc. will make
securities available to their respective customers through the Internet
distributions, whether made through a proprietary or third party system, on the
same terms as distributions made through other channels.
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the notes in Canada is being made only on a private
placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of the notes are made. Any resale of the notes in Canada must be made
under applicable securities laws, which will vary depending on the relevant
jurisdiction, and which may require resales to be made under available
statutory exemptions or under a discretionary exemption granted by the
applicable Canadian securities regulatory authority. Purchasers are advised to
seek legal advice prior to any resale of the notes.
Representations of Purchasers
By purchasing notes in Canada and accepting a purchase confirmation a
purchaser is representing to us and the dealer from whom the purchase
confirmation is received that
. the purchaser is entitled under applicable provincial securities laws to
purchase the notes without the benefit of a prospectus qualified under
those securities laws,
. where required by law, that the purchaser is purchasing as principal and
not as agent, and
. the purchaser has reviewed the text above under Resale Restrictions.
Rights of Action--Ontario Purchasers Only
Under Ontario securities legislation, a purchaser who purchases a security
offered by this prospectus during the period of distribution will have a
statutory right of action for damages, or while still the owner of the notes,
for rescission against us in the event that this prospectus contains a
misrepresentation. A purchaser will be
S-17
deemed to have relied on the misrepresentation. The right of action for damages
is exercisable not later than the earlier of 180 days from the date the
purchaser first had knowledge of the facts giving rise to the cause of action
and three years from the date on which payment is made for the notes. The right
of action for rescission is exercisable not later than 180 days from the date
on which payment is made for the notes. If a purchaser elects to exercise the
right of action for rescission, the purchaser will have no right of action for
damages against us. In no case will the amount recoverable in any action exceed
the price at which the notes were offered to the purchaser and if the purchaser
is shown to have purchased the securities with knowledge of the
misrepresentation, we will have no liability. In the case of an action for
damages, we will not be liable for all or any portion of the damages that are
proven to not represent the depreciation in value of the notes as a result of
the misrepresentation relied upon. These rights are in addition to, and without
derogation from, any other rights or remedies available at law to an Ontario
purchaser. The foregoing is a summary of the rights available to an Ontario
purchaser. Ontario purchasers should refer to the complete text of the relevant
statutory provisions.
Enforcement of Legal Rights
All of our directors and officers as well as the experts named herein may be
located outside of Canada and, as a result, it may not be possible for Canadian
purchasers to effect service of process within Canada upon us or those persons.
All or a substantial portion of our assets and the assets of those persons may
be located outside of Canada and, as a result, it may not be possible to
satisfy a judgment against us or those persons in Canada or to enforce a
judgment obtained in Canadian courts against us or those persons outside of
Canada.
Taxation and Eligibility for Investment
Canadian purchasers of notes should consult their own legal and tax advisors
with respect to the tax consequences of an investment in the notes in their
particular circumstances and about the eligibility of the notes for investment
by the purchaser under relevant Canadian legislation.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus supplement and the accompanying prospectus are part of a
registration statement we have filed with the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933 with respect to the
notes being offered by this prospectus supplement. The registration statement,
including the attached exhibits and schedules, contains additional relevant
information about us and the securities described in the accompanying
prospectus and this prospectus supplement. The SEC's rules and regulations
allow us to omit certain information included in the registration statement
from the accompanying prospectus and this prospectus supplement. The
registration statement may be inspected by anyone without charge at the SEC's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549.
In addition, we file reports, proxy statements and other information with
the SEC under the Securities Exchange Act of 1934. You may read and copy this
information at the following SEC location:
Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
You may also obtain copies of this information by mail from the SEC's Public
Reference Room, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at
rates determined by the SEC. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-732-0330. You can also inspect
S-18
reports, proxy statements and other information that we have filed
electronically with the SEC at the SEC's web site at http://www.sec.gov. These
documents can also be inspected at the offices of the New York Stock Exchange,
20 Broad Street, New York, New York 10005.
The SEC allows us to "incorporate by reference" information into the
accompanying prospectus and this prospectus supplement. This means that we can
disclose important information to you by referring you to another document
filed separately with the SEC. The information incorporated by reference is
considered to be a part of the accompanying prospectus and this prospectus
supplement. Information that we file later with the SEC and that is
incorporated by reference in this prospectus supplement will automatically
update and supercede information contained in this prospectus supplement and
the accompanying prospectus.
The following documents contain important information about us and our
financial condition. We have previously filed these documents with the SEC and
incorporate them by reference into this prospectus:
1. Our annual report on Form 10-K, for the year ended December 31, 2000;
2. Our quarterly reports on Form 10-Q for the quarters ended March 31, 2001,
June 30, 2001 and September 30, 2001;
3. Our current reports on Form 8-K filed on January 17, 2001, January 19, 2001,
April 17, 2001, July 18, 2001, July 26, 2001, September 21, 2001, October
17, 2001, October 25, 2001, November 2, 2001 and January 16, 2002; and
4. Our definitive proxy statement* filed on March 21, 2001.
We also incorporate by reference additional documents that we may file with
the SEC after the date of this prospectus supplement. These documents include
periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K.
Documents incorporated by reference are available from us without charge,
excluding any exhibits to those documents unless the exhibit is specifically
incorporated by reference as an exhibit in this prospectus supplement. You can
obtain documents incorporated by reference in this prospectus supplement by
requesting them in writing or by telephone from us at Capital One Financial
Corporation, Investor Relations Department, 2980 Fairview Park Drive, Falls
Church, Virginia 22042, telephone (703) 205-1000.
LEGAL MATTERS
John G. Finneran, Jr., Capital One's Executive Vice President, General
Counsel and Corporate Secretary, will pass upon the validity of the notes
offered by this prospectus supplement for Capital One. As of January 15, 2002,
Mr. Finneran owned 27,051 shares of common stock and held 119,652 vested
options and 535,293 unvested options to purchase additional shares of common
stock issued under Capital One's 1994 Stock Incentive Plan. Simpson Thacher &
Bartlett, New York, New York will pass upon the validity of the notes offered
by this prospectus supplement for the underwriters.
--------
* The information referred to in Item 402(a)(8) of Regulation S-K promulgated
by the SEC shall not be deemed to be specifically incorporated by reference
into the accompanying prospectus and this prospectus supplement.
S-19
PROSPECTUS
Capital One Financial Corporation
2980 Fairview Park Drive
Suite 1300
Falls Church, Virginia 22042-4525
(703) 205-1000
$1,000,000,000
Debt Securities
Preferred Stock
Common Stock
--------------------------------------------------------------------------------
We will provide specific terms of these securities in supplements to this
prospectus.
You should read this prospectus and any supplement before you invest.
--------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
This prospectus is dated August 13, 1999
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that Capital One has
filed with the Securities and Exchange Commission utilizing a "shelf"
registration process. Under this shelf process, Capital One may from time to
time sell any combination of the securities described in this prospectus in one
or more offerings up to a total dollar amount of $1,000,000,000. This
prospectus provides you with a general description of the securities we may
offer. Each time we sell securities, we will provide a prospectus supplement
that will contain specific information about the terms of that offering. The
prospectus supplement may also add, update or change information contained in
this prospectus. You should read both this prospectus and the prospectus
supplement applicable to any offering, together with the additional information
described under the heading "Where To Find More Information."
In this prospectus, the terms "Capital One," "we," "us" and "our" refer to
Capital One Financial Corporation.
WHERE TO FIND MORE INFORMATION
Capital One files annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission. Our SEC
filings are available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. For further information on the public reference rooms,
please call the SEC at 1-800-SEC-0330.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with
them, which means we can disclose important information to you by referring you
to those documents. The information incorporated by reference is an important
part of this prospectus. Any information that we file with the SEC after this
prospectus will automatically update and supercede the information in this
prospectus. We incorporate by reference our documents listed below and any
future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 until we sell all of the securities
described in this prospectus.
. Annual Report on Form 10-K for the year ended December 31, 1998;
. Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999 and
June 30, 1999;
. Current Reports on Form 8-K dated January 19, 1999, April 15, 1999,
April 30, 1999, May 5, 1999, and July 15, 1999; and
. The descriptions of Capital One's common stock and preferred stock
purchase rights, which are contained in Forms 8-A filed on August 24, 1994
and November 16, 1995.
You may request a copy of these filings at no cost by writing or telephoning
the following address:
Capital One Financial Corporation
Suite 1300
2980 Fairview Park Drive
Falls Church, Virginia 22042-4525
Attention: Corporate Secretary
(703) 205-1000
2
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not
authorized anyone else to provide you with different information. We are not
making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus or any
prospectus supplement is accurate as of any date other than the date on the
front of those documents.
CAPITAL ONE
Capital One Financial Corporation is a holding company incorporated in
Delaware on July 21, 1994. Its subsidiaries provide a variety of products and
services to consumers using Capital One's proprietary information-based
strategy, which is described in more detail below. Our common stock is listed
on the New York Stock Exchange under the symbol COF and is included in the
Standard and Poor's 500 Index. Our principal executive office is located at
2980 Fairview Park Drive, Suite 1300, Falls Church, Virginia 22042-4525, and
our telephone number is (703) 205-1000.
Capital One's predecessor began its operations in 1953, which is the same
year as the formation of what is now MasterCard International. We are one of
the largest providers of MasterCard and Visa/1/ branded credit cards in the
world and are one of the oldest continually operating bankcard issuers in the
United States. Capital One's historic growth in managed consumer loans and
credit card accounts is due largely to the dynamics of the credit card industry
and the success of our proprietary information-based strategy, which we
launched in 1988. As of June 30, 1999, Capital One had reported total assets of
$10.6 billion and total liabilities of $9.1 billion.
Capital One operates in three business segments: lending, telecommunications
and other non-lending new business initiatives.
Capital One Bank
Capital One's principal subsidiary is Capital One Bank, which we call "the
Bank." The Bank is a limited purpose Virginia state chartered bank that offers
credit card products. Capital One's principal asset is its equity interest in
the Bank. As of June 30, 1999, the Bank's business constituted approximately
83% of the managed assets of Capital One. The Bank offers a variety of credit
card products, including:
. Visa and MasterCard brands;
. Platinum and other premium label cards;
. Secured and unsecured standard product cards; and
. International offerings, with an initial focus on the United Kingdom.
Capital One, F.S.B.
Capital One also has a subsidiary that is a federally chartered savings
bank, Capital One F.S.B., which we call "the Savings Bank." The Savings Bank
was established in June 1996 to offer consumer lending products, including
credit cards, and deposits. The Savings Bank offers, and expects to continue to
offer, multiple financial products and services by using Capital One's
information-based strategy and information technology systems.
--------
/1/ MasterCard and Visa are registered trademarks of MasterCard International
Incorporated and VISA USA, Inc., respectively.
3
Capital One's Information-Based Strategy
Capital One's information-based strategy allows it to differentiate among
customers based on their credit risk, credit card usage and other
characteristics. This information-based strategy involves:
. developing sophisticated credit models;
. enhancing state of the art information systems;
. recruiting and retaining well-trained personnel to create a flexible
working culture; and
. segmenting potential customer lists based on credit scores, demographics,
customer behavioral characteristics and other criteria.
Capital One uses this strategy to customize products and solicitations for
targeted customer segments. This leads to greater customer response levels and
increased revenues within our risk models.
Capital One applies its information-based strategy to all areas of its
business, including solicitations, account management, credit line management,
pricing strategies, usage stimulation, collections, recoveries, and account and
balance retention. 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
customer segments. We have also expanded our information-based strategies
beyond our credit card business to other financial and non-financial businesses
in order to identify new product opportunities and to make informed investment
decisions regarding our existing products. These products and services include
selected non-credit card consumer lending products, such as automobile
financing and telecommunication services.
USE OF PROCEEDS
The net proceeds from the sale of the securities will be used for general
corporate purposes, including the reduction of short-term debt, possible
acquisitions, investments in Capital One's subsidiaries, investments in
securities and the possible acquisition of real property for use in our
business.
FINANCIAL RATIOS
Capital One's consolidated ratio of earnings to fixed charges and ratio of
earnings to combined fixed charges and preferred stock dividend requirements
are as follows:
Six Months
Ended Years Ended
June 30, December 31,
---------- ------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
Earnings to Fixed Charges:
Including Interest on Deposits..................... 2.07 2.07 2.04 1.89 1.83 1.78 2.55
Excluding Interest on Deposits..................... 2.33 2.24 2.24 2.01 2.02 1.97 2.59
Earnings to Combined Fixed Charges and Preferred Stock
Dividends:
Including Interest on Deposits..................... 2.05 2.05 2.02 1.87 1.83 1.78 2.55
Excluding Interest on Deposits..................... 2.31 2.22 2.21 1.99 2.02 1.97 2.59
4
The ratio of earnings to fixed charges is computed by dividing (i) income
before income taxes and fixed charges less interest capitalized during the
period, net of amortization of previously capitalized interest, by (ii) fixed
charges. The ratio of earnings to combined fixed charges and preferred stock
dividend requirements is computed by dividing (i) income before income taxes
and fixed charges less interest capitalized during the period, net of
amortization of previously capitalized interest, by (ii) fixed charges and
preferred stock dividend requirements. Fixed charges consist of interest
expense on borrowings, including capitalized interest (including or excluding
deposits, as the case may be) and the portion of rental expense which is deemed
representative of interest. The preferred stock dividend requirements represent
the dividend requirements on the Bank's preferred beneficial interest in
capital income securities. Capital One and its subsidiaries did not have any
preferred stock dividend requirements outstanding during the periods prior to
1997 presented above and, therefore, there were no preferred stock dividend
requirements during those periods.
SUPERVISION, REGULATION AND OTHER MATTERS
The following discussion describes some of the elements of the comprehensive
regulatory framework applicable to Capital One and its subsidiaries.
General
Capital One Bank is a limited purpose banking corporation chartered under
Virginia law and a member of the Federal Reserve System. The Bank's deposits
are insured by the Bank Insurance Fund, the "BIF," of the Federal Deposit
Insurance Corporation. The Bank is subject to comprehensive regulation and
periodic examination by the Bureau of Financial Institutions of the Virginia
State Corporation Commission, the Federal Reserve Board and the FDIC. Capital
One, however, is not a bank holding company under the Bank Holding Company Act
of 1956 as a result of our ownership of the Bank because the Bank is not a
"bank" as defined under the BHCA. It is not a "bank" under the BHCA because it:
. engages only in credit card operations;
. does not accept demand deposits or deposits that the depositor may
withdraw by check or similar means for payment to third parties or others;
. does not accept any savings or time deposits of less than $100,000 other
than as permitted as collateral for extensions of credit;
. maintains only one office that accepts deposits; and
. does not engage in the business of making commercial loans.
If the Bank failed to meet these criteria, the Bank's status as an insured
depository institution would make Capital One subject to regulation under the
BHCA, including business activity restrictions. For example, becoming a bank
holding company under the BHCA would limit our ability to enter into businesses
outside of banking. In addition, if the Bank failed to qualify for the credit
card bank exemption, any entity that acquired direct or indirect control of
Capital One could be required to either discontinue any impermissible
non-financial activities or divest itself of control of Capital One.
The Savings Bank is a federal savings bank chartered by the Office of Thrift
Supervision and is a member of the Federal Home Loan Bank System. Its deposits
are insured by the Savings Association Insurance Fund of the FDIC. Under recent
legislation recapitalizing the SAIF, insurance premiums currently paid by
SAIF-insured institutions are now equivalent to the rate paid by BIF-insured
institutions. The Savings Bank is subject to comprehensive regulation and
periodic examination by the OTS and the FDIC. As a result of our ownership of a
single savings association, the Savings Bank, we are a unitary savings and loan
holding company subject to regulation by the OTS and the provisions of the
Savings and Loan Holding Company Act. As a unitary savings
5
and loan holding company, we generally are not subject to business activity
restrictions as long as the Savings Bank continues to meet the qualified thrift
lender test. See "--Investment Limitations and Qualified Thrift Lender Test"
below. If we cease to be a unitary savings and loan holding company by either
acquiring an additional savings institution or because the Savings Bank failed
to meet the qualified thrift lender test, the types of activities that we and
our non-savings association subsidiaries would be able to engage in would
generally be limited to those eligible for bank holding companies.
We are also registered as a financial institution holding company under
Virginia law and are subject to periodic examination by the Bureau of Financial
Institutions.
The following sections describe in greater detail some regulations that
currently affect our business. Additional legislation and governmental actions
of our regulators, including the Bureau of Financial Institutions, the Federal
Reserve Board, FDIC and the OTS, can from time to time also affect our business.
Dividends and Transfers of Funds
Capital One is a legal entity separate from its banking and other
subsidiaries. The primary source of cash for us to pay dividends on stock, make
payments on debt securities and meet other obligations, is dividends from the
Bank and the Savings Bank. There are various federal and Virginia law
limitations on the extent to which these two subsidiaries can finance or
otherwise supply funds to us and our affiliates through dividends, loans or
otherwise. These limitations include the following: minimum regulatory capital
requirements; Federal Reserve Board, OTS and Virginia law requirements
concerning the payment of dividends out of net profits or surplus; Sections 23A
and 23B of the Federal Reserve Act governing transactions between an insured
depository institution and its affiliates; and general federal and Virginia
regulatory oversight to prevent unsafe or unsound practices.
In general, federal banking laws do not allow an insured depository
institution, such as the Bank or the Savings Bank, to make dividend
distributions if the distributions are not paid out of available earnings or
would cause the institution to fail to meet applicable capital adequacy
standards. In addition, the Savings Bank must give the OTS at least 30 days
advance notice of any proposed dividend and the OTS, in its discretion, may
object to the dividend. Under OTS regulations, other limitations apply to the
Savings Bank's ability to pay dividends, such as requirements to maintain
adequate regulatory capital. In addition, under Virginia law, the Bureau of
Financial Institutions may limit the payment of dividends by the Bank if the
Bureau determines that this limitation would be in the public interest and
necessary for safety and soundness.
Capital Adequacy
The Bank and the Savings Bank are currently subject to capital adequacy
guidelines adopted by the Federal Reserve Board and the OTS. The most recent
notifications received from the regulators categorized the Bank and the Savings
Bank as "well-capitalized." We do not believe there have been any conditions or
events which have changed either the Bank or the Savings Bank's capital
category since those notifications.
During 1996, the Bank received regulatory approval and established a branch
office in the United Kingdom. In connection with this 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%.
FDICIA
FDICIA provides for expanded regulation of banks and savings banks. The
expanded regulation includes expanded federal banking agency examinations and
increased powers of federal banking agencies to take corrective action to
resolve the problems of insured depository institutions with capital
deficiencies. Those powers may vary depending on which of several levels of
capitalization a particular institution meets. FDICIA
6
establishes five capital tiers: well-capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized.
An insured depository institution is considered to be well-capitalized if it
maintains a Tier 1 risk-based capital ratio (or core capital to risk-adjusted
assets in the case of the Savings Bank) of at least 6%, a total risk-based
capital ratio of at least 10% and a Tier 1 leverage capital ratio (or core
capital ratio in the case of the Savings Bank) of at least 5%, and is not
otherwise in a "troubled condition" as specified by its appropriate federal
regulatory agency. An insured depository institution is considered to be
adequately capitalized if it maintains a Tier 1 risk-based capital ratio (or
core capital to risk-adjusted assets in the case of the Savings Bank) of at
least 4%, total risk-based capital ratio of at least 8%, and a Tier 1 leverage
capital ratio (or core capital ratio in the case of the Savings Bank) of at
least 4% (3% for certain highly rated institutions), and does not otherwise
meet the well-capitalized definition. The three undercapitalized categories are
based upon the amount by which the insured depository institution falls below
the ratios applicable to adequately capitalized institutions. The capital
categories are determined solely for the purposes of applying FDICIA's prompt
corrective action provisions and the capital categories may not accurately
represent the overall financial condition or prospects of the Bank or the
Savings Bank.
At June 30, 1999, both the Bank and the Savings Bank met the requirements
for a "well-capitalized" institution. A "well-capitalized" classification
should not necessarily be viewed as describing the condition or future
prospects of a depository institution.
Under FDICIA's prompt corrective action system, an insured depository
institution in the undercapitalized category must submit a capital restoration
plan guaranteed by its parent company. The liability of the parent company
under this guarantee is limited to the lesser of 5% of the insured depository
institution's assets at the time it became undercapitalized, or the amount
needed to comply with the capital restoration plan. An insured depository
institution in the undercapitalized category is also subject to limitations in
numerous areas including, but not limited to, asset growth, acquisitions,
branching, new business lines, acceptance of brokered deposits and borrowings
from the Federal Reserve. Progressively more burdensome restrictions are
applied to insured depository institutions in the undercapitalized category
that fail to submit or implement a capital restoration plan and to insured
depository institutions that are in the significantly undercapitalized or
critically undercapitalized categories. In addition, an insured depository
institution's primary federal banking agency is authorized to downgrade the
institution's capital category to the next lower category upon a determination
that the institution is in an unsafe or unsound condition or is engaged in an
unsafe or unsound practice. An unsafe or unsound practice can include receipt
by the institution of a less than satisfactory rating on its most recent
examination with respect to its asset quality, management, earnings or
liquidity.
"Critically undercapitalized" insured depository institutions, which are
defined to include institutions that still have a positive net worth, generally
may not, beginning 60 days after becoming "critically undercapitalized," make
any payment of principal or interest on their subordinated debt. Thus, in the
event an institution became "critically undercapitalized," it would generally
be prohibited from making payments on its subordinated debt securities. In
addition, "critically undercapitalized" institutions are subject to appointment
of a receiver or conservator.
FDICIA requires federal banking agencies to review the risk-based capital
standards to ensure that they adequately address interest-rate risk,
concentration of credit risk and risks from non-traditional activities. The OTS
amended its risk-based capital rules to incorporate interest-rate risk
requirements under which a savings bank must hold additional capital if it
projects an excessive decline in "net portfolio value" in the event interest
rates increase or decrease by two percentage points. These standards are not
yet in effect.
FDICIA also requires the FDIC to implement a system of risk-based premiums
for deposit insurance pursuant to which the premiums paid by a depository
institution will be based on the probability that the FDIC will incur a loss
due to that institution. The FDIC has since adopted a system that imposes
insurance premiums based upon a matrix that takes into account an institution's
capital level and supervisory rating.
7
The Bank and the Savings Bank may accept brokered deposits as part of their
funding. Under FDICIA, only "well capitalized" and "adequately capitalized"
institutions may accept brokered deposits. "Adequately capitalized"
institutions, however, must first obtain a waiver from the FDIC before
accepting brokered deposits. These deposits may not pay rates that
significantly exceed the rates paid on deposits of similar maturity from the
institution's normal market area or the national rate on deposits of comparable
maturity, as determined by the FDIC, for deposits from outside the
institution's normal market area.
Liability for Commonly-Controlled Institutions
Under the "cross-guarantee" provision of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, insured depository institutions may be
liable to the FDIC for any loss or anticipated loss incurred by the FDIC
resulting from the default of, or FDIC assistance to, any commonly controlled
insured depository institution. The Bank and the Savings Bank are commonly
controlled within the meaning of the FIRREA cross-guarantee provision.
Investment Limitations and Qualified Thrift Lender Test
As a federally chartered savings bank, the Savings Bank is subject to
certain investment limitations. For example, federal savings banks are
permitted to make consumer loans, such as open-end or closed-end loans for
personal, family or household purposes, such as installment loans, of up to 35%
of the savings bank's assets. Federal savings banks are also required to meet
the Qualified Thrift Lender Test, which generally requires a savings bank to
maintain at least 65% of its "portfolio assets" in certain "qualified thrift
investments" on a monthly basis in nine out of every 12 months. "Portfolio
assets" are defined as total assets less specified liquid assets up to 20% of
total assets, intangibles, including goodwill, and property used to conduct
business. "Qualified thrift investments" include residential mortgages and
related investments, including certain mortgage-backed and mortgage-related
investments, small business related securities, certain state and federal
housing investments, education loans and credit card loans. Failure to qualify
under the Qualified Thrift Lender Test could subject the Savings Bank to
substantial restrictions on its activities and to certain other penalties, and
could subject Capital One to the provisions of the BHCA, including the activity
restrictions that apply generally to bank holding companies and their
affiliates. As of June 30, 1999, 86% of the Savings Bank's portfolio assets
were held in qualified thrift investments, and the Savings Bank was in
compliance with the Qualified Thrift Lender Test.
Lending Activities
The activities of the Bank and the Savings Bank as consumer lenders are also
subject to regulation under various federal laws, including the
Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit
Reporting Act, the Community Reinvestment Act and the Soldiers' and Sailors'
Civil Relief Act, as well as to various state laws. Regulators are authorized
to impose penalties for violations of these statutes and, in some cases, to
order the Bank and the Savings Bank to pay restitution to injured borrowers.
Borrowers may also bring actions for some violations. Federal and state
bankruptcy and debtor relief laws also affect the ability of the Bank and the
Savings Bank to collect outstanding balances owed by borrowers who seek relief
under these statutes.
Year 2000
On October 15, 1998, the banking regulators jointly published the
Interagency Guidelines establishing Year 2000 Standards for Safety and
Soundness. Among other things, the standards list requirements and timetables
for a review of mission critical systems for year 2000 readiness, renovation of
internal and external mission critical systems, testing of mission critical
systems, business resumption contingency planning, remediation contingency
planning, customer risk assessment and involvement of the board of directors
and management. Capital One's year 2000 plan is subject to and in compliance
with these standards.
8
Legislation
Each of the U.S. Senate and House of Representatives have separately adopted
financial system reform legislation enabling greater affiliation amongst
financial services providers, including banks, securities firms and insurance
companies. Among other changes from current law, both bills contain
"grandfather" provisions enabling existing unitary savings and loan holding
companies, like Capital One, to continue to engage in non-financial activities
subject to existing restrictions. Both bills also contain restrictions on
transferring grandfathered status to an acquiror. It is unclear at this time
what form the final legislation, if any, will take and what its impact on
Capital One and our subsidiaries would be.
From time to time, legislation has been proposed in Congress to limit
interest rates and fees that could be charged on credit card accounts or
otherwise restrict the practices of credit card issuers. Various bills have
also been introduced that eliminate a separate savings bank charter, possibly
requiring that existing savings banks become banks. Legislation has also been
proposed to change existing federal bankruptcy laws. It is unclear at this time
whether and in what form any legislation will be adopted or, if adopted, what
its impact on Capital One and our subsidiaries would be. Congress may in the
future consider other legislation that would materially affect the banking or
credit card industries.
Investment in Capital One
The acquisition of Capital One's, the Bank's or the Savings Bank's capital
stock may be subject to regulatory approval or notice under federal or Virginia
law. Investors are responsible for insuring that they do not, directly or
indirectly, acquire shares of our capital stock in excess of the amount which
can be acquired without regulatory approval.
The Bank and the Savings Bank are each "insured depository institutions"
within the meaning of the Change in Bank Control Act. Because of this, federal
law and regulations will prohibit any person or company from acquiring control
of Capital One without, in most cases, prior written approval of the Federal
Reserve Board and the OTS, as applicable. Control is conclusively presumed if,
among other things, a person or company acquires more than 25% of any class of
our voting stock. A rebuttable presumption of control arises if a person or
company acquires more than 10% of any class of voting stock and is subject to
any of a number of specified "control factors" as set forth in the applicable
regulations.
Although the Bank is not a "bank" within the meaning of Virginia's
reciprocal interstate banking legislation (Chapter 15 of Title 6.1 of the Code
of Virginia), it is a "bank" within the meaning of Virginia's Financial
Institution Holding Company Act, which governs the acquisition of interests in
Virginia financial institutions. The Financial Institution Holding Company Act
prohibits any person or entity from acquiring or making any public offer to
acquire control of a Virginia financial institution or its holding company
without making application to and receiving the prior approval of the Bureau of
Financial Institutions.
Interstate Taxation
Several states have passed legislation which attempts to tax the income from
interstate financial activities, including credit cards, derived from accounts
held by local state residents. Based on the volume of our business in these
states and the nature of the legislation passed to date, we currently believe
that this development will not materially affect us or our subsidiaries'
financial condition. Recently, a three-year moratorium has been considered on
new state and local taxes established to tax the Internet, interactive computer
services, or the use of those services. The moratorium, however, does not
prevent states from imposing taxes on or measured by net income derived from
the services, fairly apportioned business license taxes, and sales and use
taxes on interstate commerce that are consistent with taxes on mail order and
telephone transactions. We currently solicit accounts and take account
information via the Internet. It is unclear at this time, however, whether and
in what form any legislation will be adopted or, if adopted, what its impact on
us would be.
9
DESCRIPTION OF DEBT SECURITIES
Capital One may from time to time offer and sell debt securities which will
be our direct unsecured general obligations. These securities are described
below, and will be either senior debt securities or subordinated debt
securities, both of which are called "Debt Securities." The Debt Securities
will be issued under one or more separate indentures between Capital One and
Harris Trust and Savings Bank, as Trustee, or the Trustee named in the
applicable prospectus supplement. Senior Debt Securities will be issued under a
"Senior Indenture" and subordinated Debt Securities will be issued under a
"Subordinated Indenture." Together, the Senior Indenture and the Subordinated
Indenture are called the "Indentures" and the Senior Trustee and the
Subordinated Trustee are called the "Trustees."
We have summarized selected provisions of the Indentures and the Debt
Securities below. The summary is not complete. Copies of the Senior Indenture
and the form of the Subordinated Indenture have been filed with the SEC as
exhibits to the registration statement of which this prospectus is a part. You
should read the Indentures for provisions that may be important to you. In the
summary below, we have included references to section numbers so that you can
easily locate these provisions. Unless the section references state otherwise,
these section numbers refer to both the Senior Indenture and the Subordinated
Indenture. Capitalized terms used in the summary have the meanings specified in
the Indentures. As of the date of this prospectus, the following notes have
been issued under the Senior Indenture:
. Notes with a maturity date of 2003, an aggregate principal amount of
$125,000,000 and an interest rate of 7 1/4%;
. Notes with a maturity date of 2006, an aggregate principal amount of
$225,000,000 and an interest rate of 7 1/4%; and
. Notes with a maturity date of 2008, an aggregate principal amount of
$200,000,000 and an interest rate of 7 1/8%.
Capital One has not issued any series of Debt Securities under the
Subordinated Indenture.
General
The Debt Securities will be Capital One's direct unsecured obligations. The
Indentures do not limit the amount of Debt Securities that may be issued and
further provide that Debt Securities may be issued from time to time in one or
more series. The senior Debt Securities will rank equally with all of our other
unsecured unsubordinated indebtedness. The subordinated Debt Securities will
have a junior position to all of our senior debt.
Capital One's right to participate as a stockholder in any distribution of
assets of any subsidiary upon its liquidation, reorganization or winding-up,
and thus the ability of holders of the Debt Securities to benefit, as creditors
of Capital One, from the distribution, is subject to the prior claims of
creditors of the subsidiary. The Bank and the Savings Bank are subject to
claims by creditors for long-term and short-term debt obligations, including
deposit liabilities, obligations for federal funds purchased and securities
sold under repurchase agreements. There are also various legal limitations on
the extent to which they may pay dividends or otherwise supply funds to Capital
One or its affiliates. See "Supervision, Regulation and Other
Matters--Dividends and Transfer of Funds."
The Indentures and the Debt Securities generally do not limit or otherwise
restrict the amount of indebtedness that Capital One may incur or the amount of
other securities that Capital One may issue. The Indentures and the Debt
Securities also generally do not require Capital One or an acquiror to
repurchase Debt Securities in the event of a "change in control" or afford
holders any protection in the event of a highly leveraged or similar
transaction involving Capital One or its subsidiaries. You should refer to the
applicable prospectus
10
supplement for information with respect to any changes to the events of default
or covenants which are described below that are applicable to any series of the
Debt Securities.
The prospectus supplement relating to any series of Debt Securities being
offered will include specific terms relating to the offering. These terms will
include some or all of the following:
. the title and type of the offered Debt Securities;
. any limit upon the aggregate principal amount of the offered Debt
Securities;
. the percentage of the principal amount (expressed as a percentage of the
aggregate principal amount) at which the Debt Securities will be issued;
. the date or dates on which the principal will be payable;
. the interest rate and the interest payment dates;
. any sinking fund or other provisions that would obligate us to repurchase
or otherwise redeem the Debt Securities;
. the detailed terms and provisions of any optional or mandatory redemption
provision;
. any changes to the covenants or additional events of default or covenants;
. whether the Debt Securities will be convertible into or exchangeable for
our common stock or other securities and, if so, the terms of the
conversion or exchange and the terms of the other securities; and
. any other terms of the offered Debt Securities. (Section 301)
Form of the Securities
The Indentures provide that Capital One may issue Debt Securities in
registered form, in bearer form or in both registered and bearer form. Unless
otherwise indicated in the applicable prospectus supplement, each series of
Debt Securities will be issued in registered form only, without coupons.
Holders of "registered form" securities do not receive a physical certificate
but instead are listed on the Trustee's register for the Debt Securities.
(Section 305)
If we issue the Debt Securities in bearer form, they will have interest
coupons attached, unless issued as original issue discount Debt Securities.
"Bearer form" securities are payable to whomever physically holds them from
time to time. Debt Securities in bearer form will not be offered, sold, resold
or delivered in connection with their original issuance in the United States or
to any United States person other than through offices of certain United States
financial institutions located outside the United States. Purchasers of Debt
Securities in bearer form will be subject to certification procedures and may
be affected by United States tax law limitations. These procedures and
limitations will be described in the applicable prospectus supplement.
The Debt Securities may also be issued as original issue discount Debt
Securities. "Original issue discount Debt Securities" are securities sold by us
for substantially less than their stated principal amount. Federal income tax
consequences and other special considerations applicable to any original issue
discount Debt Securities will be described in the applicable prospectus
supplement. (Section 101)
Unless otherwise indicated in the applicable prospectus supplement, Capital
One will issue Debt Securities in registered form in denominations of $1,000 or
any whole number multiple of $1,000. We will issue Debt Securities in bearer
form in denominations of $5,000 or any whole number of $5,000. (Section 302)
There will be no service charge for any transfer, exchange or conversion of the
Debt Securities, but we may require the holder to pay any tax or other
governmental charge payable upon a transfer, exchange or conversion.
11
Registration, Transfer, Payment and Paying Agent
Unless otherwise described in the applicable prospectus supplement, payments
on the Debt Securities will be made at Capital One's office or agency
maintained for that purpose. We have appointed an agency in New York, New York
to make payments on the Debt Securities; however, we may change our agent from
time to time. (Section 1002) Any transfer of the Debt Securities will be
registerable at the same place. In addition, we may choose to pay interest by
check mailed to the address in the security register of the person in whose
name the Debt Security is registered at the close of business on the regular
record date. (Sections 305 and 307)
Unless otherwise indicated in the applicable prospectus supplement, payments
of principal, premium, if any, and interest on Debt Securities in bearer form
will be made at the office outside the United States specified in the
applicable prospectus supplement and as we may designate from time to time.
Payment can also be made by check or by transfer to an account maintained by
the payee with a bank located outside the United States. Unless otherwise
indicated in the applicable prospectus supplement, payments on Debt Securities
in bearer form will be made only if the holder surrenders the coupon relating
to the interest payment date. We will not make any payments on any Debt
Security in bearer form at any office or agency in the United States, by check
mailed to any address in the United States or by transfer to any account
maintained with a bank located in the United States. (Section 1002)
Global Debt Securities
The Debt Securities of a series may be issued in whole or in part in global
form, which means that we will deposit with the depositary identified in the
applicable prospectus supplement, one or more certificates representing the
entire series. Global Debt Securities may be issued in either registered or
bearer form and in either temporary or permanent form. Unless it is exchanged
in whole or in part for Debt Securities in definitive form, a global
certificate may generally be transferred only as a whole unless it is being
transferred to a nominee of the depositary. (Section 305)
The applicable prospectus supplement will describe the specific terms of the
depositary agreement governing a series of global Debt Securities and any
limitations and restrictions relating to a series of global Debt Securities.
(Section 305)
Subordination of Subordinated Debt Securities
Unless otherwise indicated in the applicable prospectus supplement, the
following provisions will apply to subordinated Debt Securities. Section
references are to sections of the Subordinated Indenture.
Subordinated Debt Securities will be subordinated in right of payment to all
Senior Indebtedness, as defined below. Payments on subordinated Debt Securities
will also be effectively subordinated if:
. we are involved in insolvency, bankruptcy or similar proceedings; or
. we fail to pay the principal, premium, interest, some types of additional
payments or any sinking fund on any Senior Indebtedness when due. (Section
1601)
Because of this subordination, some of Capital One's creditors may receive
more, ratably, than holders of subordinated Debt Securities if Capital One is
insolvent.
After all payments have been made to the holders of Senior Indebtedness, any
holders of subordinated Debt Securities will be subrogated to the rights of
holders of Senior Indebtedness upon any distribution of assets in any
proceedings out of the distributive shares of subordinated Debt Securities.
(Sections 1601 and 1602)
12
"Senior Indebtedness" means the principal of and premium, if any, and
interest, on, whether outstanding now or incurred later (a) all indebtedness
for money borrowed by Capital One, including indebtedness of others that
Capital One guarantees, other than the subordinated Debt Securities and
indebtedness that is expressly stated as not senior, and (b) any amendments,
renewals, extensions, modifications and refundings of any indebtedness, unless
in either case the instrument evidencing the indebtedness provides that it is
not senior in right of payment to the subordinated Debt Securities.
Conversion and Exchangeability
The holders of Debt Securities that are convertible into common stock or
other securities will be entitled to convert the Debt Securities in some
circumstances. The terms of any conversion will be described in the applicable
prospectus supplement. (Section 1602)
The holders of Debt Securities may be obligated to exchange them for common
stock or other securities of Capital One in some circumstances. The terms of
any exchange will be described in the applicable prospectus supplement.
(Section 305)
Covenants
Under the Indentures, we agree to the following:
. Corporate Existence. Except as permitted under "--Consolidation, Merger
and Sale of Assets," we will preserve and keep in full force and effect
our corporate existence and the corporate existences of each of our
significant subsidiaries, as defined below. We will also preserve and keep
in full force and effect our and our significant subsidiaries' charter
rights, statutory rights and franchises. Neither Capital One nor any
significant subsidiary will be required to preserve these rights or
franchises if Capital One or the significant subsidiary determines it is
no longer desirable and that the loss is not disadvantageous in any
material respect to the holders. (Section 1007)
. Limitation on Disposition of Significant Subsidiaries. Each of the
Indentures contains a covenant by us limiting our ability to dispose of
the voting stock of a significant subsidiary. A "significant subsidiary"
is any of our subsidiaries that constitutes 20% or more of our
consolidated assets. This covenant generally provides that, as long as any
of the Debt Securities are outstanding, neither Capital One nor any of its
significant subsidiaries will, other than through a securitization of
assets:
. issue stock or securities convertible into stock of a significant
subsidiary unless Capital One will own at least 80% of the subsidiary's
voting stock after the issuance; or
. consolidate with or merge into any other corporation, or convey,
transfer or lease its property and assets substantially as an entity to
any person other than Capital One or one of its subsidiaries, unless
Capital One will own at least 80% of the surviving successor or other
person. (Section 1005)
. Limitation on Creation of Liens. Neither Capital One nor its subsidiaries
will pledge, encumber or grant a lien on a significant subsidiary's voting
stock to secure indebtedness for borrowed money, unless the Debt
Securities are equally and ratably secured by this pledge, encumbrance or
lien, and Capital One would continue to control the subsidiary if the
pledge, encumbrance or lien is exercised. (Section 1006)
Events of Default
The Indentures define an event of default for any series of Debt Securities
as any of the following events, unless otherwise provided in the applicable
prospectus supplement:
. failure to pay the interest or any additional amounts payable on any Debt
Security when due and continuance of that default for 30 days (in the case
of the Subordinated Indenture, whether or not payment is prohibited by the
subordination provisions);
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. failure to pay the principal or any premium on any Debt Security when due
(in the case of the Subordinated Indenture, whether or not payment is
prohibited by the subordination provisions);
. failure to deposit any sinking fund payment when due (in the case of the
Subordinated Indenture, whether or not payment is prohibited by the
subordination provisions);
. failure to perform any covenant or warranty in the Indenture, other than a
covenant or warranty applicable only to another series of Debt Securities,
that continues for 60 days after Capital One is given written notice;
. any event of default by Capital One, or any of its significant
subsidiaries, under any mortgage, indenture or other instrument under
which any indebtedness exceeding $10,000,000 becomes due and payable, if
the acceleration is not rescinded or annulled within 30 days after written
notice;
. certain events of bankruptcy, insolvency or reorganization of Capital One
or any of its significant subsidiaries; or
. any other event of default included in any Indenture or supplemental
indenture. (Section 501)
If an event of default occurs with respect to Debt Securities of any series,
the Trustee will give the holders of those Debt Securities notice of the
default under the terms of the applicable Indenture. (Section 501)
If an event of default with respect to any series of Debt Securities occurs
and continues, either the Trustee, or the holders of at least 25% of the
aggregate principal amount of the outstanding Debt Securities of that series,
may declare the principal amount or, if the Debt Securities of that series are
original issue discount Debt Securities, a specified portion of the principal
amount of all the senior Debt Securities of that series, to be due and payable
immediately. (Section 502)
Payment of the principal of subordinated Debt Securities may be accelerated
only in the case of certain events of bankruptcy, insolvency or reorganization.
Subordinated Debt Securities cannot be accelerated if we default in our
performance of any other covenant, including payment of principal or interest.
Any time after a declaration of acceleration has been made, but before a
judgment or decree based on acceleration has been obtained, the majority
holders may, under certain circumstances, void the declaration. "Majority
holders" are the holders of a majority of the aggregate principal amount of
outstanding Debt Securities of that series. (Section 502)
Other than its duties in the case of a default, the Trustee is not obligated
to exercise any of its rights or powers under any Indenture at the request or
direction of any of the holders, unless those holders offer the Trustee
reasonable indemnity. (Section 601) If the holders provide this reasonable
indemnification, the majority holders may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, for the Debt Securities
of that series. (Section 512)
A holder does not have the right to institute a proceeding, appoint a
receiver or a trustee, or commence any other remedy, unless:
. the holder gives the Trustee written notice of a continuing event of
default;
. the majority holders have made written request, and offered reasonable
indemnity, to the Trustee to institute the proceeding as Trustee; and
. the Trustee has received a consistent request from the majority holders
and failed to institute a proceeding within 60 days. (Section 507)
However, these limitations do not apply to a suit for the enforcement of
payment or conversion rights instituted on or after the respective due dates of
the Debt Securities. (Section 508)
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Defeasance
If the applicable prospectus supplement provides for defeasance, we may
elect to pay and discharge our obligations on the Debt Securities if:
. no event of default has occurred and is continuing, or would occur upon
the giving of notice or lapse of time at the time of the satisfaction and
discharge;
. we deposit with the Trustee sufficient cash or government securities to
pay all the principal, any premium and any other sums due through the
stated maturity or redemption date of the Debt Securities of the series;
. we pay all other sums due with respect to the outstanding securities of
the series;
. we deliver an opinion of counsel to the effect that the holders will have
no federal income tax consequences as a result of the deposit or
defeasance; and
. we deliver a certificate of our independent public accountants as required
by the Indenture. (Section 402)
If this happens, the holders of the Debt Securities of the series will not
be entitled to the benefits of the Indenture, except for the registration of
transfer or exchange of Debt Securities and the replacement of stolen, lost or
mutilated Debt Securities. (Section 306)
Determining the Outstanding Debt Securities
We will consider the following factors in determining whether the holders of
the requisite principal amount of outstanding Debt Securities have given the
proper notice under the Indenture:
. the portion of the principal amount of an original issue discount Debt
Security that will be deemed to be outstanding will be the portion of the
principal amount that would be declared to be due and payable on that date;
. the principal amount of any indexed security will be the principal face
amount of the indexed security determined on the date of its original
issuance;
. the principal amount of a Debt Security denominated in one or more foreign
currency units shall be the U.S. dollar equivalent based on the applicable
exchange rate or rates at the time of sale; and
. any Debt Security owned by Capital One or any other obligor, or any of
their affiliates, will be treated as not outstanding. (Section 101)
Modifications and Waivers under the Indentures
Capital One and the Trustee may modify and amend the Indentures with the
consent of the holders of at least 66 2/3% in aggregate principal amount of the
outstanding Debt Securities of each series issued under the Indenture and
affected by the modification or amendment. However, no modification or
amendment may, without the consent of each holder of Debt Securities affected
by the modification or amendment:
. change the stated maturity of any Debt Security;
. reduce the principal amount of, or the premium, if any, or, except as
otherwise provided in the applicable prospectus supplement, interest on,
any Debt Security, including in the case of an original issue discount
Debt Security, the amount payable upon acceleration of the maturity of the
Debt Security;
. in the case of the Subordinated Indenture, modify the subordination
provisions in a manner adverse to the holders of the Subordinated Debt
Securities;
. reduce the percentage in principal amount of outstanding Debt Securities
of any series; or
. adversely affect the right of any convertible Debt Securities to convert.
(Section 902)
15
The holders of at least 50% of the aggregate principal amount of the
outstanding Debt Securities of each series may, on behalf of all holders of
that series, waive Capital One's compliance with certain restrictive provisions
of the applicable Indenture. They may also waive any past default under the
applicable Indenture, except a default in the payment of principal, premium or
interest or in the performance of certain covenants. (Sections 513 and 1008)
Capital One and the Trustee may modify and amend the Indentures without the
consent of any holder for any of the following purposes:
. to evidence the succession of another person to Capital One;
. to add to the covenants of Capital One for the benefit of the holders of
all or any series of Debt Securities;
. to add events of default;
. to add or change any provisions of the Indenture to facilitate the
issuance of bearer Debt Securities;
. to change the conditions, limitations and restrictions on the authorized
amount, terms or purposes of issue, authentication and delivery of Debt
Securities;
. to establish the form or terms of Debt Securities of any series and any
related coupons;
. to evidence and provide for the acceptance of appointment by a successor
Trustee;
. to cure any ambiguity, defect or inconsistency in the Indenture, provided
the action does not materially adversely affect the interests of the
holders of any Debt Securities or related coupons;
. to supplement any of the provisions of the Indenture if necessary to
permit or facilitate the defeasance and discharge of any series of Debt
Securities, as long as the action does not materially adversely affect the
interests of the holders of any Debt Securities or related coupons;
. to secure the Debt Securities; and
. to amend or supplement any provision of the Indenture or any supplemental
indenture, provided that the amendment or supplement does not materially
adversely affect the interests of the holders of outstanding Debt
Securities. (Section 901)
Consolidation, Merger and Sale of Assets
Each Indenture generally permits a consolidation or merger between us and
another corporation. They also permit the sale by us of all or substantially
all of our property or assets. These events do not require the consent of the
holders of any outstanding Debt Securities if:
. the successor or purchaser is a corporation organized under the laws of
the United States of America, any state or the District of Columbia, and
it expressly assumes our obligations on the Debt Securities under each of
the Indentures;
. immediately after giving effect to the transaction, no event of default,
and no event which, after notice or lapse of time or both, would become an
event of default, will have occurred and be continuing; and
. we have delivered to the Trustee an officers' certificate and an opinion
of counsel stating compliance with these provisions. (Section 801)
Concerning the Trustees
In the normal course of business, Capital One and its subsidiaries conduct
banking transactions with the Trustee, and the Trustee conducts banking
transactions with Capital One and its subsidiaries.
16
DESCRIPTION OF PREFERRED STOCK
The following description summarizes the general terms and provisions of our
authorized preferred stock. If we offer preferred stock, we will describe the
specific designations and rights of this stock in a prospectus supplement and
will file the description with the SEC. Terms which could be included in a
prospectus supplement include:
. the designation of the preferred stock and the number of shares offered;
. the amount of liquidation preference per share;
. the price at which the preferred stock will be issued;
. the dividend rate, or its method of calculation, and the dates on which
dividends will be payable;
. whether the dividends will be cumulative or noncumulative, and if
cumulative, the dates from which dividends will commence to cumulate;
. any redemption or sinking fund provisions of the preferred stock;
. whether we have elected to offer depositary shares, as described below;
. the terms and conditions, if any, upon which the preferred stock will be
convertible into common stock or other securities; and
. any additional voting, dividend, liquidation, redemption, sinking fund and
other rights, preferences, privileges, limitations and restrictions of the
preferred stock.
Preferred stock will have the dividend, liquidation, and voting rights
described below, unless otherwise provided in the applicable prospectus
supplement. You should read the prospectus supplement relating to any series of
preferred stock for the series' specific terms.
General
Capital One's Restated Certificate of Incorporation authorizes our Board of
Directors to issue one or more series of preferred stock, par value $.01 per
share, without the approval of our stockholders. The Board can also determine
the terms, including preferences, conversion and other rights, voting power,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption of any preferred stock. Currently, under our Restated
Certificate of Incorporation, 50,000,000 shares are classified as preferred
stock and no shares of preferred stock are outstanding. We have designated
1,000,000 shares of the preferred stock as cumulative participating junior
preferred stock, which may be issued upon the exercise and conversion of
certain "Rights," as defined below, which are attached to each share of our
common stock. Before issuing a series of preferred stock, the Board will adopt
resolutions creating and designating the series of preferred stock.
The preferred stock will, when issued, be fully paid and non-assessable and
have no preemptive rights. Unless otherwise specified in a prospectus
supplement, each series of the preferred stock will rank equally as to
dividends and liquidation rights in all respects with each other series of the
preferred stock. You should read the applicable prospectus supplement relating
to any series of preferred stock for that series' specific terms.
Dividend Rights
Holders of preferred stock will receive, when, as and if declared by the
Board, dividends at rates and on the dates described in the applicable
prospectus supplement. Each dividend will be payable to the holders of record
as they appear on the stock record books of Capital One or, if applicable, the
records of the depositary referred to under "Depositary Shares," on the record
dates fixed by the Board or its committee. Dividends on any series of preferred
stock may be cumulative or noncumulative. Capital One's ability to pay
dividends on the preferred
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stock depends on the ability of the Bank and the Savings Bank to pay dividends
to Capital One. The ability of Capital One, the Bank and the Savings Bank to
pay dividends in the future is subject to bank regulatory requirements and
capital guidelines and policies established by the Federal Reserve Board. See
"Supervision, Regulation and Other Matters."
We will not declare or pay or set apart funds for the payment of dividends
on any securities which rank equally with the preferred stock unless we have
paid or set apart funds for payment of dividends on the preferred stock. If
full dividends are not paid, the preferred stock will share dividends pro rata
with any equally ranked securities.
Voting Rights
Unless indicated in the applicable prospectus supplement relating to a
particular series of preferred stock or expressly required by law, the holders
of the preferred stock will not have any voting rights.
Rights Upon Liquidation
If we liquidate, dissolve or wind up our affairs, either voluntarily or
involuntarily, the holders of each series of preferred stock will be entitled
to receive liquidating distributions. These will be in the amounts set forth in
the applicable prospectus supplement, plus accrued and unpaid dividends and, if
the series of the preferred stock is cumulative, accrued and unpaid dividends
for all prior dividend periods. If we do not pay in full all amounts payable on
any series of preferred stock, the holders of the preferred stock will share
proportionately with any equally ranked securities in any distribution of our
assets. After the holders of any series of preferred stock are paid in full,
they will not have any further claim to any of our remaining assets.
Because we are a holding company, the rights of our stockholders to
participate in the assets of any subsidiary, including the Bank, upon the
subsidiary's liquidation or recapitalization may be subject to the prior claims
of the subsidiary's creditors, except to the extent that we may ourself be a
creditor with recognized claims against the subsidiary.
Redemption
A series of preferred stock may be redeemable, in whole or in part, at the
option of Capital One or the holder of the stock, and may be subject to
mandatory redemption pursuant to a sinking fund, under the terms included in
any applicable prospectus supplement.
In the event of partial redemptions of preferred stock, the Board or its
committee will determine the method for selecting the shares to be redeemed,
which may be by lot or pro rata or by any other method the Board or its
committee determines to be equitable.
On and after a redemption date, unless Capital One defaults in the payment
of the redemption price, dividends will cease to accrue on shares of preferred
stock which were called for redemption. In addition, all rights of holders of
the preferred shares will terminate except for the right to receive the
redemption price.
Conversion
The applicable prospectus supplement for any series of preferred stock will
state the terms and conditions, if any, on which shares of that series are
convertible into our common stock or other securities, including:
. the number of shares of common stock or other securities into which the
shares of preferred stock are convertible;
. the conversion price or manner of calculation;
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. the conversion period;
. provisions as to whether conversion will be at the option of the holders
of the preferred stock or Capital One, if applicable;
. any events requiring an adjustment of the conversion price; and
. provisions affecting conversion in the event of the redemption of the
series of preferred stock.
Depositary Shares
We may, at our option, elect to offer fractional shares of preferred stock,
or "depositary shares," rather than full shares of preferred stock. In that
event, we will issue receipts for depositary shares, each of which will
represent a fraction of a share of a particular series of preferred stock as
described in the applicable prospectus supplement.
The shares of any series of preferred stock represented by depositary shares
will be deposited under a deposit agreement between Capital One and the
depositary named in the applicable prospectus supplement. Subject to the terms
of the deposit agreement, each owner of a depositary share will be entitled, in
proportion, to all the rights and preferences of the preferred stock, including
dividend, voting, redemption, subscription and liquidation rights. The terms of
any depositary shares will be set forth in the applicable prospectus supplement
and the provisions of the deposit agreement, which will be filed with the SEC.
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DESCRIPTION OF COMMON STOCK
We are authorized to issue 300,000,000 shares of common stock, par value
$.01 per share. As of July 31, 1999, 197,480,933 shares were issued and
outstanding. The common stock is traded on the New York Stock Exchange under
the symbol "COF". All outstanding shares of common stock are and will be fully
paid and non-assessable.
The following summary is not complete and you should refer to the applicable
provisions of the Delaware General Corporation Law and our Restated Certificate
of Incorporation and Bylaws for additional information. See "Where You Can Find
More Information."
Voting and Other Rights
Each share of common stock is entitled to one vote on all matters submitted
to a vote of stockholders. A majority vote is required for all actions to be
taken by stockholders, except that directors are elected by a plurality of the
votes cast. Stockholders do not have cumulative voting rights in the election
of directors, which means that the holders of more than 50% of the shares
voting in an election of directors can elect all of the directors. Shares of
common stock also do not have any preemptive, subscription, redemption, sinking
fund or conversion rights.
Distribution
Common stock dividends are subject to preferences, if any, on any
outstanding shares of preferred stock. Dividends must be declared by the Board
out of legally available funds. If Capital One liquidates, dissolves or winds
up its affairs, common stockholders are entitled to share proportionately in
the assets available for distribution to holders of common stock.
Anti-takeover Legislation
Capital One is a Delaware corporation and is governed by Section 203 of the
Delaware General Corporation Law. This provision generally states that, subject
to some exceptions, a corporation cannot engage in any business combination
with any "interested stockholder" for three years after the time that the
stockholder became an interested stockholder unless the corporation's
stockholders approve the business combination. Delaware law defines an
interested stockholder to include any person, and its affiliates and
associates, that owns 15% or more of the outstanding voting stock of the
corporation, or is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within three years prior to the relevant date.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to enter into some business
combinations and transactions with a corporation for a three-year period.
Although stockholders may elect to exclude a corporation from Section 203's
restrictions, our Restated Certificate of Incorporation and Bylaws do not
exclude us from Section 203's restrictions. The provisions of Section 203 may
encourage companies interested in acquiring us to negotiate in advance with the
Board, since Section 203 permits the Board, without stockholder approval, to
approve a business combination with an interested stockholder or the
transaction which causes a person to become an interested stockholder. Business
combinations are discussed more fully below.
Capital One's Certificate of Incorporation and Bylaw Provisions
Certain provisions in our Restated Certificate of Incorporation and Bylaws
could make more difficult or discourage a tender offer, proxy contest or other
takeover attempt that is opposed by the Board of Directors but which might be
favored by the stockholders. The Restated Certificate of Incorporation and
Bylaws are filed as exhibits to the registration statement, and certain
provisions are summarized below.
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Classified Board of Directors. Capital One's Board, other than directors
elected by any series of preferred stock, is divided into three classes of
directors, with the classes to be as nearly equal in number as possible. The
class of directors elected at each annual meeting is elected for a 3-year term.
Some practical effects of these classification provisions are the following:
. It will take at least two annual meetings of stockholders, instead of one,
to elect a majority of the Board. This delay ensures that Capital One's
directors, if confronted by a stockholder attempting to force a proxy
contest, a tender or exchange offer, or an extraordinary corporate
transaction, would have sufficient time to review the proposal and any
available alternatives before they act in what they believe to be the best
interests of the stockholders. However, even if a change in the
composition of the Board would be beneficial to Capital One and its
stockholders, it will take at least two annual meetings of stockholders to
make this change.
. A classified Board may discourage third party proxy contests, tender
offers or attempts to obtain control of Capital One. This will happen even
if an attempt might be beneficial to Capital One and its stockholders.
Therefore, there is an increased likelihood that incumbent directors will
retain their positions.
. A classified Board discourages accumulations of large blocks of Capital
One's stock by purchasers whose objective is to take control of the Board.
This could reduce the likelihood of fluctuations in the market price of
the common stock that might result from accumulations of large blocks of
stock. Stockholders therefore might not have opportunities to sell their
shares of common stock at the higher market price that an accumulation of
stock could create.
Number of Directors; Removal; Filling Vacancies. Generally speaking, our
Board must consist of between three and seventeen directors and vacancies will
be filled only by the affirmative vote of a majority of the remaining
directors, even if less than a quorum remains in office. Therefore, unless the
Bylaws are amended, the Board could prevent any stockholder from enlarging the
Board of Directors and filling the new directorships with the stockholder's own
nominees.
Under Delaware law, unless otherwise provided in the certificate of
incorporation, directors serving on a classified board may only be removed by
the stockholders for cause. Our Restated Certificate of Incorporation and
Bylaws provide that, subject to the rights of holders of preferred stock to
elect directors under specified circumstances, directors may be removed only
for cause and only upon the affirmative vote of holders of at least 80% of the
voting power of all of the then outstanding shares of stock entitled to vote
generally in the election of directors.
No Stockholder Action by Written Consent; Special Meetings. Subject to the
rights of any holders of preferred stock to elect additional directors under
specified circumstances, stockholder action can be taken only at an annual or
special meeting of stockholders and cannot be taken by written consent. Under
circumstances described in the Bylaws, special meetings of stockholders can be
called by the Chairman of the Board or by the Board. Stockholders are not
permitted to call a special meeting or to require that the Board call a special
meeting. Moreover, any special meeting of stockholders is limited to the
business in the notice of the special meeting sent to the stockholders before
the meeting.
The provisions prohibiting stockholder action by written consent and
prohibiting stockholders from calling a special meeting could delay
consideration of a stockholder proposal until our next annual meeting. This
would prevent the holders of our stock from unilaterally using the written
consent procedure to take stockholder action. Moreover, a stockholder cannot
force stockholder consideration of a proposal over the opposition of the
Chairman and the Board by calling a special meeting of stockholders.
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals. Only people who are nominated by, or at the direction of, the
Board, or by a stockholder who has given proper written notice prior to a
21
meeting at which directors are to be elected, will be eligible for election as
directors. Business conducted at an annual meeting is limited to the business
brought before the meeting by, or at the direction of, the Chairman, the Board
or a stockholder who has given proper notice. A stockholder's notice to Capital
One proposing to nominate a person for election as a director must also contain
certain information described in the Bylaws. You should refer to Capital One's
Bylaws for more information, including the process and timing requirements for
a stockholder notice.
Some of the effects of the provisions described above and in the Bylaws
include:
. the Board will have a longer period to consider the qualifications of the
proposed nominees and, if deemed necessary or desirable, to inform
stockholders about the qualifications;
. there will be an orderly procedure for conducting annual meetings of
stockholders and informing stockholders, prior to the meetings, of any
business proposed to be conducted at the meetings, including any Board
recommendations; and
. contests for the election of directors or the consideration of stockholder
proposals will be precluded if the procedures are not followed. Third
parties may therefore be discouraged from conducting a solicitation of
proxies to elect their own slate of directors or to approve their own
proposal.
Business Combinations. Certain mergers, share exchanges or sales of Capital
One's assets with or to interested stockholders, as defined below, must be
approved by the affirmative vote of the holders of at least 75% of the voting
stock of Capital One, voting together as a single class. Our Restated
Certificate of Incorporation requires this affirmative vote even if no vote is
required, or a lesser percentage is specified, by law or any national
securities exchange or otherwise. This affirmative vote is not required in two
situations. First, it is not required if the business combination has been
approved by a majority of uninterested, continuing directors. Second, it is not
required if certain price and procedure requirements designed to ensure that
our stockholders receive a "fair price" for their common stock are satisfied.
Our Restated Certificate of Incorporation defines an interested stockholder as
any person, other than Capital One or any subsidiary of Capital One, who or
which:
. beneficially owns, directly or indirectly, 5% or more of the voting power
of the outstanding voting stock;
. is an affiliate of Capital One and at any time within the two-year period
immediately prior to the date in question beneficially owned, directly or
indirectly, 5% or more of the voting power of the then outstanding voting
stock; or
. owns any shares of voting stock which were at any time within the two-year
period immediately prior to the date in question beneficially owned by any
interested stockholder, if the transfer of ownership occurred in the
course of a non-public transaction or series of transactions.
Liability of Directors; Indemnification. A director generally will not be
personally liable for monetary damages to Capital One or its stockholders for
breach of fiduciary duty as a director. A director may be held liable, however,
for the following:
. any breach of the director's duty of loyalty to Capital One or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. paying a dividend or approving a stock repurchase in violation of Delaware
law; or
. any transaction from which the director derived an improper personal
benefit.
Capital One indemnifies its officers and directors against lawsuits by third
parties to the fullest extent of the law. We may agree with any person to
provide an indemnification greater than or different from the indemnification
provided by the Restated Certificate of Incorporation.
22
Amendments. The Restated Certificate of Incorporation and Bylaws generally
may be amended by a majority vote of the stockholders, but some provisions,
including some of the provisions discussed above, can only be amended by an 80%
vote of the stockholders. This 80% approval requirement prevents a stockholder
with only a majority of the common stock from circumventing the requirements of
these provisions by simply amending or repealing them. The Restated Certificate
of Incorporation further provides that the Bylaws may be amended by our Board.
Rights to Purchase Certain Preferred Shares
Each share of our common stock includes an attached "Right." The Right
entitles a holder of common stock to purchase from Capital One one
three-hundredth of a share of Capital One's cumulative participating junior
preferred stock (the "Junior Preferred Shares") at a price of $200 per one
three-hundredth of a share, subject to adjustment. We have initially authorized
and reserved 1,000,000 Junior Preferred Shares for issuance upon exercise of
the Rights. Because of the nature of the Junior Preferred Shares' dividend and
liquidation rights, the value of the one three-hundredth interest in a Junior
Preferred Share that can be purchased on exercise of each Right should
approximate the value of one share of common stock. Initially, the Rights are
not exercisable and trade automatically with the common stock. The Rights
generally become exercisable, however, and separate certificates representing
the Rights will be distributed, if any person or group acquires 15% or more of
Capital One's outstanding common stock or a tender offer or exchange offer is
announced for Capital One's common stock. The Rights expire on November 29,
2005, unless earlier redeemed by Capital One at $0.01 per Right. Capital One
may only redeem the Rights prior to the time that any person or group acquires
15% of the outstanding common stock. Until the Rights become exercisable, the
Rights have no dilutive effect on earnings per share. Prior to exercise, a
Right will not create any rights as a stockholder of Capital One.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire Capital One
on terms not approved by the Board, except pursuant to an offer conditioned on
a substantial number of Rights being acquired. The Rights should not interfere
with any merger or other business combination approved by the Board, since
Capital One may redeem the Rights prior to the time that a person or group
acquires 15% of the outstanding common stock.
Dividend Reinvestment Plan
In January 1996, we implemented a dividend reinvestment and stock purchase
plan. The plan provides stockholders with the opportunity to purchase
additional shares of our common stock by reinvesting all or a portion of their
dividends on shares of common stock. It also provides existing stockholders
with the option to make cash investments monthly, subject to a minimum monthly
limit of $50 and a maximum monthly limit of $5,000. Optional cash investments
in excess of $5,000 may be made with our permission at a discount which will be
from 0% to 3%. We use proceeds from this plan for general corporate purposes.
Transfer Agent
The transfer agent and registrar for the common stock is First Chicago Trust
Company of New York.
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PLAN OF DISTRIBUTION
We may sell the offered securities to or through underwriters or dealers,
directly to other purchasers or through agents. Each prospectus supplement will
describe the particular method of distribution.
The distribution may take place from time to time in one or more
transactions at a fixed price or prices, which may be changed, or at market
prices prevailing at the time of sale, at prices related to the prevailing
market prices or at negotiated prices.
In connection with the sale of the securities, underwriters may receive
compensation in the form of discounts, concessions or commissions from us or
from purchasers of securities for whom they may act as agents. Underwriters may
sell the securities to or through dealers, and the dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers and agents that participate in the distribution
of our securities may be deemed to be underwriters, and any discounts or
commissions received by them from us and any profit on the resale of the
securities by them may be deemed to be underwriting discounts and commissions
under the Securities Act. Any underwriter or agent will be identified, and any
compensation received from us will be described, in the applicable prospectus
supplement.
If indicated in the applicable prospectus supplement, we may authorize
underwriters or other persons acting as our agents to solicit offers by certain
institutions to purchase Debt Securities from us pursuant to contracts
providing for payment and delivery on a future date. Institutions with which
these contracts may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others, but in all cases these institutions must be approved
by us. The obligations of any purchaser under any contract will be subject to
the condition that the purchase of the offered Debt Securities will not at the
time of delivery be prohibited under the laws of the purchaser's jurisdiction.
The underwriters and the other agents will not have any responsibility for the
validity or performance of the contracts.
Underwriters and agents who participate in the distribution of the
securities may be entitled under agreements with us to indemnification by us.
Unless indicated in the applicable prospectus supplement, we do not expect to
list the securities on a securities exchange, except for the common stock,
which is listed on the New York Stock Exchange. We will not require
underwriters or dealers to make a market in the securities. We cannot predict
the activity or liquidity of any trading in the securities.
VALIDITY OF SECURITIES
John G. Finneran, Jr., Capital One's Senior Vice President, General Counsel
and Corporate Secretary, will pass upon the validity of the securities for
Capital One. As of July 31, 1999, Mr. Finneran owned approximately 19,071
shares of Capital One's common stock and held options to purchase 338,571
shares of common stock issued under Capital One's 1994 Stock Incentive Plan.
EXPERTS
Ernst & Young LLP, independent auditors, have audited Capital One's
consolidated financial statements, which are incorporated by reference in
Capital One's Annual Report on Form 10-K for the year ended December 31, 1998,
as set forth in their report which is incorporated by reference in this
prospectus and elsewhere in the registration statement. Capital One's financial
statements are incorporated by reference in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
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