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Filed Pursuant to Rule 424(b)(5)
Registration No. 333-82228
Prospectus Supplement
(to Prospectus dated
March 21, 2002)
1,371,999 Shares
Capital One Financial Corporation
Common Stock
We are offering all of the 1,371,999 shares of common stock offered by this prospectus supplement. We will issue the shares to Dungarvan
Business Trust, through an indirect wholly-owned subsidiary, pursuant to a Termination and Mutual Release Agreement (the “Termination Agreement”), dated as of July 25, 2002. The issuance of the shares under the Termination Agreement is
more fully described in this prospectus supplement under the heading “Termination and Mutual Release Agreement.” We will not receive any proceeds from the issuance of the shares, but certain of our obligations under the terms of the
Termination Agreement will be satisfied.
Our common stock is listed on the New York Stock Exchange, under the
symbol “COF”. On November 7, 2002, the last reported sale price for our common stock was $30.95 per share.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE “RISK FACTORS” SECTION BEGINNING ON PAGE S-3 OF THIS PROSPECTUS SUPPLEMENT.
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 ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The securities offered by this prospectus supplement are not savings accounts, deposits or other obligations of any bank and are not insured by the Federal Deposit Insurance Corporation.
We expect to deliver the shares in New York, New York, on or about November 11, 2002.
The date of this prospectus supplement is November 11, 2002
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Important Notice about Information Presented in this
Prospectus Supplement and the Accompanying Prospectus
We provide information to
you about the common stock in two separate documents: (a) the accompanying prospectus, which provides general information, some of which may not apply to the common stock and (b) this prospectus supplement, which describes the specific details
regarding this offering. If information in this prospectus supplement is inconsistent with the prospectus, you should rely on this prospectus supplement. In addition, as a result of our statement that we incorporate certain documents by reference,
this prospectus supplement and the accompanying prospectus are deemed to include certain of our filings pursuant to the Securities Exchange Act of 1934, as amended. You should read and consider the information in the documents we have referred you
to in “Incorporation of Certain Information by Reference” on page S-5 of this prospectus supplement and page 2 of the accompanying prospectus.
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.
You should rely only on the information incorporated by reference or set forth in this prospectus supplement and the accompanying
prospectus. We have not authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. 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 supplement and the accompanying prospectus is accurate as of any date other than the date on the front of those documents.
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Capital One is a corporation incorporated in Delaware on July 21, 1994.
Our subsidiaries market a variety of financial products and services to consumers using our proprietary information-based strategy, which we refer to as IBS and which is described in more detail in the accompanying prospectus under the heading
“Capital One Financial Corporation—Information-Based Strategy.” Our common stock is listed on the New York Stock Exchange under the symbol “COF” and is included in the Standard & Poor’s 500 Index. Our principal
executive office is located at 2980 Fairview Park Drive, Suite 1300, Falls Church, Virginia 22042-4525, our telephone number is (703) 205-1000 and our Internet address is http://www.capitalone.com. The information on our web site is not part of this
prospectus supplement or the accompanying prospectus.
Our predecessor began operations in 1953, the same year as
the formation of what is now MasterCard International, and, through our subsidiaries, we are one of the oldest continually operating bank card issuers in the United States. Through our subsidiaries, we are also one of the largest issuers of
MasterCard and Visa1 credit cards in the world. The success of our IBS, which we initiated in 1998, in
addition to credit card industry dynamics, has been the foundation of our growth in terms of managed credit card loans and accounts. As of September 30, 2002, we had total reported assets of $36.9 billion, total reported liabilities of $32.6 billion
and total stockholders’ equity of $4.3 billion.
Capital One Bank
Our principal subsidiary is Capital One Bank, which we call the Bank. The Bank, a member of the Federal Reserve System, was incorporated in May 1994 and is a
limited-purpose Virginia state-chartered credit card bank that offers credit card products. The Bank is subject to comprehensive regulation and periodic examination by the Bureau of Financial Institutions of the Virginia State Corporation
Commission, the Board of Governors of the Federal Reserve System, or the FRB, the Federal Reserve Bank of Richmond and the FDIC. For a discussion of the capital categories applicable to the Bank and its historical regulatory capital ratios, see
“Capital One Financial Corporation—Capital One Bank” and “—Supervision, Regulation and Other Matters” in the accompanying prospectus.
Our principal asset is our equity interest in the Bank. As of September 30, 2002, the Bank constituted approximately 72% 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. We established the Savings Bank in June 1996, and it currently takes deposits and offers
a variety of credit card and other lending products and services to existing cardholders and other households.
Recent Developments
Release of Third Quarter Results
On October 17, 2002, we announced earnings for the third quarter of 2002 of $258.8 million, compared with earnings of $165.3 million in the comparable period in the
prior year. Managed consumer loan balances increased by $3.7 billion during the third quarter of 2002 to $56.9 billion. Total revenue, defined as managed net interest and non-interest income, increased to $2.6 billion during the third quarter of
2002, compared to $2.4 billion in the second quarter of 2002. The managed net charge-off rate decreased to 4.96% for the third quarter of
1 |
MasterCard and Visa are registered trademarks of MasterCard International
Incorporated and VISA USA, Inc., respectively. |
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2002, as compared to 4.98% for the second quarter of 2002. The managed delinquency rate (30+ days) increased to 5.36% as of September 30, 2002,
compared with 4.54% as of June 30, 2002. Marketing expense for the third quarter of 2002 was $185.8 million, down from $320.4 million in the second quarter of 2002. Reflecting the lower marketing expense, our accounts declined to 48.2 million at
September 30, 2002, from 48.6 million at June 30, 2002. Annualized operating expenses per account increased to $80 in the third quarter of 2002 from $70 in the second quarter of 2002, including the effect of several one-time expenses.
Regulatory Developments
As described in our quarterly report on Form 10-Q for the quarter ended September 30, 2002, as filed August 13, 2002, we have entered into an informal memorandum of understanding with the bank
regulatory authorities with respect to certain issues, including our capital, allowance for loan losses, finance charge and fee reserve, and policies, procedures, systems and controls. A memorandum of understanding is characterized by regulatory
authorities as an informal action, that is not published or publicly available and that is used when circumstances warrant a milder form of action than a formal supervisory action, such as a formal written agreement or order. We have implemented
levels of capital, reserves and allowances that we believe satisfy the memorandum of understanding.
In addition,
as required under the memorandum of understanding, we have continued to take actions, among others, to enhance our enterprise risk management framework and legal entity business plans. As part of the ongoing supervision of the Bank and the Savings
Bank, we will periodically report to, and consult with, the regulators on all the matters addressed under the informal memorandum of understanding. We expect many of the initiatives to be completed over the next several months, and we hope to see
the memorandum of understanding lifted during 2003.
Pursuant to the Termination Agreement, the
parties to a Stock Purchase Agreement dated May 9, 2001, by which we acquired AmeriFee Corporation (the “Stock Purchase Agreement”), agreed to terminate the Stock Purchase Agreement, subject to certain exceptions for survivability, in
exchange for certain payments by us and the release by all parties of any claims and potential claims that they may have against the other parties to the Stock Purchase Agreement.
We will satisfy our payment obligations under the Termination Agreement by delivery to Dungarvan Business Trust of that number of fully-paid, non-assessable shares of our
common stock specified below. Payment will be made in two separate issuances, as described below.
One issuance
consists of 1,371,999 shares which are registered in this offering. We refer to these shares herein as the “registered shares.” The registered shares are issued in consideration of the release of claims and potential claims by the parties
to the Termination Agreement (other than us and our wholly-owned subsidiary). The number of registered shares issued under the terms of the Termination Agreement is based on a valuation of the shares of $31.98 per share (equal to the average price
per share of our common stock determined by the last trade (as reported in The Wall Street Journal for New York Stock Exchange Composite Transactions) for each of the five (5) trading days immediately preceding the third trading day before the date
of this prospectus supplement). Because the registered shares are being registered in this offering, they are not restricted securities within the meaning of Rule 144 under the Securities Act of 1933, as amended, as described below.
The other issuance consists of 344,789 shares which are not subject to this prospectus supplement and are not registered in
this offering. We refer to these shares herein as the “unregistered shares.” The unregistered
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shares are issued in satisfaction of our obligation under the terms of the Stock Purchase Agreement and Termination Agreement to pay $11,025,000 in shares of our common stock. Because the
unregistered shares are not being issued in this offering, and are instead issued as part of the consideration originally provided for under the Stock Purchase Agreement, these shares are “restricted securities” within the meaning of Rule
144 as promulgated under the Securities Act of 1933, as amended, and therefore, absent another exemption, may be resold only pursuant to Rule 144, as described below.
Rule 144
As stated above, the unregistered shares are
“restricted securities” within the meaning of Rule 144 under the Securities Act. In general, unless another exemption is available, “restricted securities” may be resold if:
• |
a one-year “holding period” has been satisfied; |
• |
a notice of proposed sale on Form 144 is filed with the SEC; |
• |
the sale is effected in a transaction that qualifies as a “broker transaction” within the meaning of Rule 144(g); and |
• |
the number of shares sold does not exceed the greater of: (i) 1% of the number of shares of our common stock outstanding; or (ii) the reported average weekly
trading volume of our common stock on the New York Stock Exchange during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. |
Because the unregistered shares will be issued to the Dungarvan Business Trust as part of the consideration due under the Stock Purchase Agreement, the “holding
period” for the unregistered shares commenced on May 20, 2001, the closing date of our acquisition of the AmeriFee Corporation, and therefore the one-year holding period has been satisfied. If you wish to sell or transfer any of the
unregistered shares you should notify your broker that they are subject to Rule 144. Once the “holding period” exceeds two years (i.e., after May 20, 2003), the unregistered shares may be resold without compliance with the foregoing
restrictions.
Investing in our common stock involves risks and uncertainties. In order
to better understand the risks involved in an investment in our common stock, please carefully read the risks described below and in the documents incorporated by reference into this prospectus supplement and the accompanying prospectus, including
those set forth under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2001, as amended by Form 10-K/A, before making an investment decision. In addition, these risks and uncertainties may cause
our future results to differ, perhaps materially, from those set forth in this prospectus supplement and the accompanying prospectus, including the documents incorporated by reference herein and therein. Among the risks and uncertainties affecting
our business are the following:
• |
continued intense competition from numerous providers of products and services which compete with our businesses; |
• |
an increase in credit losses (including increases due to a worsening of general economic conditions); |
• |
our ability to continue to securitize our credit cards and consumer loans and to otherwise access the capital markets at attractive rates and terms to
capitalize and fund our operations and future growth; |
• |
regulatory developments that may affect our businesses; |
• |
financial, legal, regulatory, accounting or other changes that may affect investment in, or the overall performance of, a product or business, including changes
in existing law and regulation affecting the credit card and consumer loan industry, in particular (including any further federal bank examiner
|
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guidance affecting credit card and/or subprime lending) and the financial services industry, in general (including the ability of financial services companies to obtain, use and share consumer
data); |
• |
with respect to financial and other products, changes in our aggregate accounts or consumer loan balances and the growth rate thereof, including changes
resulting from factors such as shifting product mix, amount of our actual marketing expenses and attrition of accounts and loan balances; |
• |
the amount of, and rate of growth in, our expenses (including salaries and associate benefits and marketing expenses) as our business develops or changes or as
we expand into new market areas; |
• |
our ability to build the operational and organizational infrastructure necessary to engage in new businesses or to expand internationally;
|
• |
our ability to recruit experienced personnel to assist in the management and operations of new products and services; and |
• |
other factors listed from time to time in reports we file with the SEC, including, but not limited to fluctuations of our accounts and loan balances, our
ability to sustain and manage our growth, our access to capital on terms acceptable to us, credit losses, economic downturns, interest rate fluctuations, regulatory and legislative changes, fluctuations in our expenses, losses associated with new
products or services or expansion internationally, our ability to recruit and retain experienced personnel, and the other factors set forth under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31,
2001. |
This prospectus supplement and the accompanying prospectus,
as well as the documents incorporated by reference herein and therein, contain 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,” “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. Numerous factors could cause our actual results to differ materially from those described in forward-looking statements, including those described above under “Risk Factors.”
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.
We caution you that any such forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions, including the risk factors referred to above. 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.
Our common stock is listed on the New York Stock Exchange
under the symbol “COF” and is included in the Standard & Poor’s 500 Index. As of November 5, 2002, there were 222,310,360 shares of common stock
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outstanding. The following table sets forth the high and low sales price per share of the common stock for the quarters indicated.
| High |
Low | |||||
| 2002 |
||||||
| Fourth quarter (through November 7, 2002) |
$ |
36.50 |
$ |
25.49 | ||
| Third quarter |
|
61.10 |
|
24.05 | ||
| Second quarter |
|
66.50 |
|
52.00 | ||
| First quarter |
|
64.91 |
|
43.01 | ||
| 2001 |
||||||
| Fourth quarter |
$ |
55.60 |
$ |
41.00 | ||
| Third quarter |
|
67.25 |
|
36.40 | ||
| Second quarter |
|
72.58 |
|
51.61 | ||
| First quarter |
|
70.44 |
|
46.90 | ||
| 2000 |
||||||
| Fourth quarter |
$ |
73.25 |
$ |
45.88 | ||
| Third quarter |
|
71.75 |
|
44.63 | ||
| Second quarter |
|
53.75 |
|
39.38 | ||
| First quarter |
|
48.81 |
|
32.06 | ||
On November 7, 2002 the last reported sale price of our common
stock on the NYSE was $30.95. As of November 5, 2002, there were 10,178 holders of record of our common stock.
Capital One has paid dividends on its common stock of 2.6667
cents per share, as adjusted for its three-for-one common stock split on June 1, 1999, each quarter since it became an independent company on February 28, 1995. The payment of dividends in the future, and the amount of such dividends, if any, will
be at the discretion of our Board of Directors. The principal source of funds for dividends on our common stock is dividends from our direct and indirect subsidiaries. There are various federal and Virginia law requirements that effect the extent to
which some of our subsidiaries, including Capital One Bank and Capital One, F.S.B., can finance or otherwise supply funds to us through dividends, loans or otherwise. These federal and Virginia law requirements are described in the prospectus under
the caption “Capital One Financial Corporation—Supervision, Regulation and Other Matters—Dividends and Transfers of Funds.” The payment of dividends on our common stock may be limited in the future by the terms of any preferred
stock that we may issue.
The SEC allows us to
“incorporate by reference” information into this prospectus supplement and the accompanying prospectus. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. 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 and documents subsequently filed by Capital One pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
prior to the termination of the offering. The information incorporated by reference is considered to be a part of this prospectus supplement and the accompanying prospectus. Information that we file with the SEC after the date of any other filing
that is incorporated by reference in this prospectus supplement will automatically update and, to the extent that information is inconsistent, supercede information contained in any earlier filing, or in this prospectus supplement and the
accompanying prospectus. Capital One’s SEC file number is 001-13300.
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The following documents contain important information about Capital One and its
financial condition. Capital One has previously filed these documents with the SEC and incorporates them by reference into this prospectus supplement:
• |
its Annual Report on Form 10-K for the fiscal year ended December 31, 2001, filed on March 22, 2002, as amended by Form 10-K/A, filed on August 14, 2002;
|
• |
its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002 and June 30, 2002, filed on May 15, 2002 and August 14, 2002, respectively; and
|
• |
its Current Reports on Form 8-K, as filed on January 16, 2002, April 16, 2002, April 23, 2002, July 16, 2002, October 17, 2002 and October 24, 2002.
|
Documents incorporated by reference are available from Capital One without charge, excluding
any exhibits to those documents unless the exhibit is specifically incorporated by reference as an exhibit in this prospectus supplement or the accompanying prospectus. You can obtain documents incorporated by reference in this prospectus supplement
or the accompanying prospectus 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 22042-4525, telephone (703) 205-1000.
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PROSPECTUS
$1,787,000,000
Capital One Financial Corporation
Debt Securities
Preferred Stock
Common Stock
Stock Purchase Contracts
Equity Units
We will provide specific terms of these securities in supplements to this prospectus. We urge you to read this
prospectus and any prospectus supplement carefully before you make your investment decision.
Neither the
Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is March 21, 2002.
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In this prospectus, “Capital One,” “we,”
“our” or “us” refers to Capital One Financial Corporation.
This prospectus is part of a
registration statement that we have filed with the Securities and Exchange Commission, or the SEC, utilizing a “shelf” registration process. Under this shelf process, we may from time to time issue and sell any combination of the
securities described in this prospectus in one or more offerings up to a total dollar amount of $1,787,000,000. This prospectus provides you with a general description of the securities we may issue and sell. Each time we issue and sell securities,
we will provide a prospectus supplement that will contain specific information about the terms of that offering. You should read both this prospectus and the prospectus supplement applicable to any offering, together with the additional information
described under the heading “Where You Can Find More Information” below.
This prospectus and the documents incorporated by reference
in this prospectus contain 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,” “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.
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 Capital One’s businesses;
|
• |
an increase in credit losses (including increases due to worsening of economic conditions); |
• |
Capital One’s ability to continue to securitize its credit cards and consumer loans and to otherwise access the capital markets at attractive rates and
terms to fund its 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 SEC, including, but not limited to, factors set forth under the caption “Risk
Factors” in any prospectus supplement and in Capital One’s 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.
We caution you that any such forward-looking
statements are not guarantees of future performance. They involve risks, uncertainties and assumptions, including the risk factors referred to above. Capital One’s 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 Capital One’s ability to control or predict.
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This prospectus is part of a registration statement
we have filed with the SEC under the Securities Act of 1933, or the Securities Act. The registration statement, including the attached exhibits and schedules, contains additional relevant information about us and the securities described in this
prospectus. The SEC’s rules and regulations allow us to omit certain information included in the registration statement from this prospectus. 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, Capital One files annual, quarterly and
special reports, proxy statements and other information with the SEC under the Securities Exchange Act of 1934, or the Exchange Act. 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 may also
inspect reports, proxy statements and other information that Capital One has 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 Capital One to
“incorporate by reference” information into this prospectus and any prospectus supplement. This means that Capital One 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 this prospectus and any prospectus supplement. Information that Capital One files later with the SEC and that is incorporated by reference in any prospectus supplement will
automatically update and supercede information contained in this prospectus and any prospectus supplement. Capital One’s SEC file number is
001-13300.
The following documents contain important information about Capital One and its financial condition. Capital One has previously
filed these documents with the SEC and incorporates them by reference into this prospectus:
• |
its Annual Report on Form 10-K for the fiscal year ended December 31, 2000, filed on March 29, 2001; |
• |
its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2001, June 30, 2001 and September 30, 2001, filed on May 11, 2001, August 14, 2001 and
November 14, 2001, respectively; |
• |
its 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 |
• |
its definitive proxy statement1 filed on March 18, 2002. |
1 |
The information referred to in Item (a)(8) of Regulation S-K and paragraph (d)(3) of Item 7 of Regulation 14C promulgated by the SEC shall not be deemed to
be specifically incorporated by reference into this prospectus. |
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We also incorporate by reference in this prospectus additional documents that
Capital One may file with the SEC after the date of this prospectus. 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 Capital One without charge, excluding any exhibits to those documents unless the
exhibit is specifically incorporated by reference as an exhibit in this prospectus. You can obtain documents incorporated by reference in this prospectus 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 22042-4525, telephone (703) 205-1000.
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.
Overview
Capital One is a corporation incorporated in Delaware on July 21, 1994. Its subsidiaries market a variety of financial products and services to consumers using its
proprietary information-based strategy, which we refer to as IBS and which is described in more detail below. Its common stock is listed on the New York Stock Exchange under the symbol “COF” and is included in the Standard &
Poor’s 500 Index. Its principal executive office is located at 2980 Fairview Park Drive, Suite 1300, Falls Church, Virginia 22042-4525, its telephone number is (703) 205-1000 and its internet address is http://www.capitalone.com. The
information on our web site is not part of this prospectus.
Capital One’s predecessor began operations in
1953, the same year as the formation of what is now MasterCard International, and Capital One, through its subsidiaries, is one of the oldest continually operating bank card issuers in the United States. Capital One, through its subsidiaries, is one
of the largest issuers of MasterCard and Visa2 credit cards in the world. The success of its IBS, which
it initiated in 1998, in addition to credit card industry dynamics, has been the foundation of its growth in terms of managed credit card loans and accounts. As of December 31, 2001, Capital One had total reported assets of $28.2 billion, total
reported liabilities of $24.9 billion and total stockholders’ equity of $3.3 billion.
Capital One Bank
Capital One’s principal subsidiary is Capital One Bank, which we call the Bank. The Bank was incorporated in May 1994 and
is a Virginia state-chartered limited-purpose credit card bank that offers credit card products. Capital One’s principal asset is its equity interest in the Bank. As of December 31, 2001, the Bank constituted approximately 74% of Capital
One’s 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. |
2 |
Mastercard and Visa are registered trademarks of Mastercard International Incorporated and VISA USA, Inc., respectively. |
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Capital One, F.S.B.
Capital One also has 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 currently offers multiple financial products and services by using Capital One’s IBS and information technology systems.
Information-Based Strategy
Capital One’s
IBS allows it to differentiate among customers based on their credit risk, credit card usage and other characteristics. Its IBS involves:
• |
developing sophisticated credit models; |
• |
enhancing state of the art information systems; |
• |
recruiting and keeping 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 its IBS to design customized products and solicitations for targeted customer segments.
This leads to greater customer response levels and eventually increased revenues within its risk models.
Capital
One applies its IBS to all areas of its business, including solicitations, account management, credit line management, pricing strategies, usage stimulation, collections, recoveries, and account and balance retention. Some examples of Capital
One’s use of its IBS in the credit card business include, and are expected to continue to include, various low introductory and intermediate-rate balance transfer products and other customized credit card products. Capital One has expanded its
IBS beyond its credit card business and uses it in other financial and non-financial businesses to identify new product opportunities and to make informed investment decisions regarding its existing products. These products and services include
selected non-credit card consumer lending products, such as automobile financing and installment lending.
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.
Capital One Bank. The
Bank is a 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, or the BIF, of the Federal Deposit Insurance Corporation, or the FDIC. In
addition to regulatory requirements imposed as a result of the Bank’s international operations (discussed below), the Bank is subject to comprehensive regulation and periodic examination by the Bureau of Financial Institutions of the Virginia
State Corporation Commission, or the Bureau of Financial Institutions, the Board of Governors of the Federal Reserve System, or the FRB, the Federal Reserve Bank of Richmond and the FDIC. The Bank is not a “bank” under the Bank Holding
Company Act of 1956, as amended, or 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 |
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• |
does not engage in the business of making commercial loans. |
Due to the Bank’s status as a limited-purpose credit card bank, Capital One’s non-credit card operations must be conducted in other operating subsidiaries of
Capital One.
Capital One, F.S.B. The Savings Bank is a federal savings bank
chartered by the Office of Thrift Supervision, or the OTS, and is a member of the Federal Home Loan Bank System. Its deposits are insured by the Savings Association Insurance Fund of the FDIC. The Savings Bank is subject to comprehensive regulation
and periodic examination by the OTS and the FDIC.
Capital One Financial
Corporation. Capital One is not a bank holding company under the BHCA as a result of its ownership of the Bank because the Bank is not a “bank” as defined under the BHCA. If the Bank failed to meet the credit
card bank exemption criteria described above, its status as an insured depository institution would make Capital One subject to the provisions of the BHCA, including certain restrictions as to the types of business activities in which a bank holding
company and its affiliates may engage. Becoming a bank holding company under the BHCA would affect Capital One’s ability to engage in certain non–banking businesses. In addition, for purposes of the BHCA, if the Bank failed to qualify for
the credit card bank exemption, any entity that acquired direct or indirect control of the Bank and also engaged in activities not permitted for bank holding companies could be required either to discontinue the impermissible activities or to divest
itself of control of the Bank.
As a result of Capital One’s ownership of a single savings association, the
Savings Bank, Capital One is a unitary savings and loan holding company subject to regulation by the OTS and the provisions of the Savings and Loan Holding Company Act. As a unitary savings and loan holding company, Capital One generally is not
restricted under existing laws as to the types of business activities in which it may engage as long as the Savings Bank continues to meet the qualified thrift lender test, or the QTL Test. If Capital One ceased to be a unitary savings and loan
holding company as a result of its acquisition of an additional savings institution, as a result of the failure of the Savings Bank to meet the QTL Test or as a result of a change in control of the Savings Bank, the types of activities that Capital
One and its non–savings association subsidiaries would be able to engage in would generally be limited to those eligible for bank holding companies.
Under the Gramm-Leach-Bliley Financial Services Modernization Act of 1999, or the Act, certain bank holding companies may engage in an expanded range of activities, including the securities and
insurance businesses. To do so, a bank holding company must voluntarily elect to become a new type of company called a “financial holding company.” While these changes are significant in their impact upon the traditional banking,
securities and insurance industries, the impact upon Capital One is less significant in light of the fact that Capital One is regulated as a unitary thrift holding company and not as a bank holding company or a financial holding company. As a
result, Capital One may engage in both the full range of activities authorized for bank or financial holding companies and additional non-banking activities typically impermissible for such entities. In addition, the Act permits a limited-purpose
credit card bank such as the Bank to establish one or more foreign banking subsidiaries that are not subject to the business line limitations credit card banks face in the United States. Therefore, such foreign banking subsidiaries could engage in
non-credit card lending and could accept retail deposits overseas.
While the Act does not impact the permissible
range of the Bank’s activities, it does impose some limitations on the future activities of unitary thrift holding companies. Existing unitary thrift holding companies such as Capital One are “grandfathered” with full powers to
continue and expand their current activities. Grandfathered unitary thrift holding companies, however, may not be acquired by non-financial companies and maintain their grandfathered powers. In addition, if a grandfathered unitary thrift holding
company is acquired by a financial company that does not have such grandfather rights, it may lose its ability to engage in certain non-banking activities otherwise ineligible for bank holding companies or financial holding companies.
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Capital One is also registered as a financial institution holding company under
Virginia law and as such is subject to periodic examination by the Bureau of Financial Institutions.
The Bank has
filed applications with the FRB and the Bureau of Financial Institutions seeking 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. The merger would not change
the regulatory status of Capital One, which would remain a grandfathered unitary thrift holding company and would not be subject to the activity limitations applicable to a bank holding company or a financial holding company.
Capital One’s automobile financing activities fall under the scrutiny of the state agencies having supervisory authority
under applicable sales finance laws or consumer finance laws in most states.
Dividends and Transfers of
Funds. Dividends to Capital One from its direct and indirect subsidiaries represent a major source of funds for Capital One to pay dividends on its stock, make payments on its debt securities and meet its other
obligations. There are various federal and Virginia law limitations on the extent to which the Bank and the Savings Bank can finance or otherwise supply funds to Capital One through dividends, loans or otherwise. These limitations include minimum
regulatory capital requirements, FRB, OTS and Virginia law requirements concerning the payment of dividends out of net profits or surplus, Sections 23A and 23B of the Federal Reserve Act governing transactions between an insured depository
institution and its affiliates and general federal and Virginia regulatory oversight to prevent unsafe or unsound practices. In general, federal banking laws prohibit an insured depository institution, such as the Bank and the Savings Bank, from
making dividend distributions if 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 is required to give the OTS at least 30
days’ advance notice of any proposed dividend. Under OTS regulations, other limitations apply to the Savings Bank’s ability to pay dividends, the magnitude of which depends upon the extent to which the Savings Bank meets its regulatory
capital requirements. In addition, under Virginia law, the Bureau of Financial Institutions may limit the payment of dividends by the Bank if the Bureau of Financial Institutions determines that a limitation would be in the public interest and
necessary for the Bank’s safety and soundness.
Capital Adequacy. The Bank and
the Savings Bank are currently subject to capital adequacy guidelines adopted by the FRB and the OTS, respectively. For a further discussion of the capital adequacy guidelines, see Capital One’s Annual Report on Form 10-K and its consolidated
financial statements incorporated by reference in this prospectus.
In January 2001, the Basel Committee on
Banking Supervision issued for public comment a proposal to revise significantly the current international capital adequacy accord, the purpose of which is to ensure that banking organizations maintain prudent levels of capital, to make regulatory
capital standards more reflective of banking risks, and to provide incentives for organizations to enhance their risk management capabilities. If ultimately adopted, this proposal may require some banks to increase their current capital levels.
FDICIA. The Federal Deposit Insurance Corporation Improvement Act of 1991, or
FDICIA, provides for expanded regulation of banks and savings banks, including expanded federal banking agency examinations, and requires federal bank regulatory authorities to take “prompt corrective action,” or PCA, in respect of insured
depository institutions that do not meet minimum capital requirements. FDICIA establishes five capital ratio levels: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. The
capital categories are determined solely for the purposes of applying FDICIA’s PCA provisions, as discussed below, and such capital categories may not constitute an accurate representation of the overall financial condition or prospects of the
Bank or the Savings Bank.
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As of December 31, 2001, the Bank and the Savings Bank met the requirements for a
“well capitalized” institution. A “well capitalized” classification should not necessarily be viewed as describing the condition or future prospects of a depository institution, including the Bank and the Savings Bank.
Under FDICIA’s PCA system, an insured depository institution in the “undercapitalized category”
must submit a capital restoration plan guaranteed by its parent company. The liability of the parent company under this guarantee is limited to the lesser of 5.00% of the insured depository institution’s assets at the time it became
undercapitalized or the amount needed to comply with the plan. An insured depository institution in the “undercapitalized category” also is subject to limitations in numerous areas, including, but not limited to, asset growth,
acquisitions, branching, new business lines, acceptance of brokered deposits and borrowings from the FRB. Progressively more burdensome restrictions are applied to insured depository institutions in the undercapitalized category that fail to submit
or implement a capital plan and to insured depository institutions that are in the significantly undercapitalized or critically undercapitalized categories. In addition, an insured depository institution’s primary federal banking agency is
authorized to downgrade the institution’s capital category to the next lower category upon a determination that the institution is in an unsafe or unsound condition or is engaged in an unsafe or unsound practice. An unsafe or unsound practice
can include receipt by the institution of a less than satisfactory rating on its most recent examination with respect to its capital, asset quality, management, earnings, liquidity and sensitivity to market risk.
“Critically undercapitalized” insured depository institutions (which are defined to include institutions that still have a
positive net worth) may not, beginning 60 days after becoming “critically undercapitalized,” make any payment of principal or interest on their subordinated debt (subject to certain limited exceptions). Thus, in the event an institution
became “critically undercapitalized,” it would generally be prohibited from making payments on its subordinated debt securities. In addition, “critically undercapitalized” institutions are subject to appointment of a receiver or
conservator.
FDICIA also requires the FDIC to implement a system of risk-based premiums for deposit insurance
pursuant to which the premiums paid by a depository institution will be based on the probability that the FDIC will incur a loss in respect of 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.
The Bank and the Savings Bank
may accept brokered deposits as part of their funding. Under FDICIA, only “well capitalized” and “adequately capitalized” institutions may accept brokered deposits. “Adequately capitalized” institutions, however, must
first obtain a waiver from the FDIC before accepting brokered deposits, and 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, or FIRREA,
insured depository institutions such as the Bank and the Savings Bank may be liable to the FDIC in respect of any loss or reasonably 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 Limitation and the QTL Test. Federally chartered savings banks such as the Savings Bank are subject to certain investment limitations. For example, federal
savings banks are not permitted to make consumer loans, such as certain open-end or closed-end loans for personal, family or household purposes, excluding credit card loans, in excess of 35% of the savings bank’s assets. Federal savings banks
are also required to meet the QTL Test, which generally requires a savings bank to maintain at least 65% “portfolio assets” (total assets less (i) specified liquid assets up to 20% of total assets, (ii) intangibles, including
goodwill and (iii) property used to conduct business in certain “qualified thrift investments” (residential mortgages and related investments,
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including certain mortgage-backed and mortgage-related investments, small business-related securities, certain state and federal housing investments, education loans and credit card loans)) on a
monthly basis in nine out of every 12 months. Failure to qualify under the QTL Test could subject the Savings Bank to substantial restrictions on its activities, including the activity restrictions that apply generally to bank holding companies and
their affiliates and potential loss of grandfathered rights under the Act. As of December 31, 2001, 82% of the Savings Bank’s portfolio assets were held in qualified thrift investments, and the Savings Bank was in compliance with the QTL Test.
Subprime Lending Guidelines. On January 31, 2001, the federal banking agencies,
including the FRB and the OTS, issued “Expanded Guidance for Subprime Lending Programs,” or the Guidelines. The Guidelines, while not constituting a formal regulation, provide guidance to the federal bank examiners regarding the adequacy
of capital and loan loss reserves held by insured depository institutions engaged in subprime lending. The Guidelines adopt a broad definition of “subprime” loans which likely covers more than one-third of all consumers in the United
States. Because Capital One’s business strategy is to provide credit card products and other consumer loans to a wide range of consumers, a portion of the Bank’s loan assets may be viewed by the examiners as “subprime.” Thus,
under the Guidelines, bank examiners could require the Bank or the Savings Bank to hold additional capital (up to one and one-half to three times the minimally required level of capital, as set forth in the Guidelines), or additional loan loss
reserves, against such assets. As described above, at December 31, 2001, the Bank and the Savings Bank each met the requirements for a “well-capitalized” institution, and management believes that each institution is holding an appropriate
amount of capital or loan loss reserves against higher risk assets. Management also believes the Bank and the Savings Bank have general risk management practices in place that are appropriate in light of their business strategy. Significantly
increased capital or loan loss reserve requirements, if imposed, however, could have a material impact on Capital One’s consolidated financial statements.
Regulation of Lending Activities. The activities of the Bank and the Savings Bank as consumer lenders also are 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 under various state laws. Depending on the underlying
issue and applicable law, regulators are often authorized to impose penalties for violations of these statutes and, in some cases, to order the Bank and the Savings Bank to compensate injured borrowers. Borrowers may also have a private right of
action to bring actions for some violations. Federal bankruptcy and state sales finance laws (in the area of Capital One’s automobile financing business) and state debtor relief and collection laws also affect the ability of the Bank and the
Savings Bank to collect outstanding balances owed by borrowers.
Privacy. The Act
requires a financial institution to disclose its privacy policy to customers and consumers, and requires that such customers and consumers be given a choice (through an opt-out notice) to forbid the sharing of non-public personal information about
them with non-affiliated third persons. Capital One has a written privacy policy posted on its web site which it will deliver to each of its customers when the customer relationship begins, and annually thereafter, in compliance with the Act. Under
that policy, Capital One, the Bank and the Savings Bank protect the security of information about their customers, educate their employees about the importance of protecting customer privacy, and allow their customers to remove their names from the
solicitation lists they use and share with others. Capital One, the Bank and the Savings Bank require business partners with whom they share such information to abide by the redisclosure and reuse provisions of the Act. Capital One, the Bank and the
Savings Bank have developed and implemented programs to fulfill the expressed requests of customers and consumers to opt out of information sharing subject to the Act. With respect to Capital One’s newly acquired subsidiary, PeopleFirst, Inc.,
Capital One is in the process of migrating PeopleFirst’s privacy policy to be in accordance with Capital One’s. As Capital One’s, the Bank’s and the Savings Bank’s regulators establish further guidelines for addressing
customer privacy issues, Capital One and the Bank may need to amend their privacy policies and adapt their internal procedures.
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In addition to adopting federal requirements regarding privacy, the Act also
permits individual states to enact stricter laws relating to the use of customer information. Vermont has done so by regulation, and many states, notably California, are expected to consider such proposals which may impose additional requirements or
restrictions on Capital One, the Bank and the Savings Bank.
Investment in Capital One, the Bank and the
Savings Bank. Certain acquisitions 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 ensuring that they do not, directly or indirectly, acquire shares of Capital One’s 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 prohibit any person or company from acquiring control of Capital One without, in most cases, prior written approval of the FRB or the OTS, as applicable. Control is conclusively presumed if, among other things, a person or company
acquires more than 25% of any class of Capital One’s 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 Chapter 13 of Title 6.1 of the Code of Virginia
governing the acquisition of interests in Virginia financial institutions, or the Financial Institution Holding Company Act. The Financial Institution Holding Company Act prohibits any person or entity from acquiring or making any public offer to
acquire control of a Virginia financial institution or its holding company without making application to and receiving prior approval from the Bureau of Financial Institutions.
International Regulation. The Bank also faces regulation in certain foreign jurisdictions where it currently, and may in the future, operate.
Those regulations may be similar to or substantially different from the regulatory requirements the Bank faces in the United States. In the United Kingdom, the Bank operates through the UK Bank, which was established in 2000. The UK Bank is
regulated by the Financial Services Authority, or the FSA, and licensed by the Office of Fair Trading, or the OFT. The UK Bank is an “authorized deposit taker” and thus is able to take consumer deposits in the UK. The UK Bank has also been
granted a full license by the OFT to issue consumer credit under the UK’s Consumer Credit Act - 1974. The FSA requires the UK Bank to maintain certain capital ratios at all times. In addition, the UK Bank is limited by the UK
Companies Act - 1985 in its distribution of dividends to the Bank in that such dividends may only be paid out of the UK Bank’s “distributable profits.”
In Canada, the Bank operates principally through a recently established branch of the Bank, or the Canadian Branch, which, like the Bank is engaged solely in the issuance
of credit cards. Capital One’s installment loan business in Canada is conducted through a separately incorporated finance company subsidiary of Capital One. The Canadian Branch is considered a federally regulated financial institution under the
Canadian Bank Act, and is authorized and supervised by the Canadian Office of the Superintendent of Financial Institutions.
In France, the Bank operates through a branch of the UK Bank that was established under the European Union’s passport authority. This branch issues credit cards and installment loans.
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 Capital One’s business in these states and the nature of the legislation passed to date, we currently believe that this
development will not materially affect Capital One’s financial condition. The states may also consider legislation to tax income derived from transactions conducted through the Internet. The Bank and the Savings Bank currently solicit accounts
and take account information via the Internet. It is unclear at this time, however, whether and in what form any such legislation will be adopted, or if adopted, what its impact on the Bank and the Savings Bank would be.
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Legislation. Legislation has been introduced
requiring additional disclosures for credit cards and other types of consumer lending. Such legislation could place additional restrictions on the practices of credit card issuers and consumer lenders generally. Additional proposals have been made
to change existing federal bankruptcy laws, to expand the privacy protections afforded to customers of financial institutions, and to reform the federal deposit insurance system. It is unclear at this time whether and in what form any legislation
will be adopted or, if adopted, what its impact on the Bank, the Savings Bank or Capital One would be. Congress or individual states may in the future consider other legislation that would materially affect the banking or credit card industries.
Except as otherwise described in the applicable prospectus supplement,
we intend to use the net proceeds from the sale of our debt securities, equity securities, stock purchase contracts and equity units for general corporate purposes in the ordinary course of our business, including the reduction of short–term
debt, possible acquisitions, investments in, or extensions of credit to, our subsidiaries and investments in securities.
We may temporarily invest any funds not required immediately for purposes described above in short-term marketable securities. Based upon our historical and anticipated future growth and our financial needs, we may engage in
additional financings (in addition to our funding activities in the ordinary course of business) of a character and amount to be determined as the need arises. For current information, look at our current filings with the SEC. See “Where You
Can Find More Information.”
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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:
| Nine Months Ended September 30, |
Years Ended December 31, | |||||||||||||
| 2001 |
2000 |
2000 |
1999 |
1998 |
1997 |
1996 | ||||||||
| Earnings to Fixed Charges: |
||||||||||||||
| Including Interest on Deposits |
1.86 |
1.95 |
1.91 |
2.05 |
2.02 |
1.87 |
1.83 | |||||||
| Excluding Interest on Deposits |
2.84 |
2.48 |
2.48 |
2.39 |
2.21 |
1.99 |
2.02 | |||||||
| Earnings to Combined Fixed Charges and Preferred Stock Dividends: |
||||||||||||||
| Including Interest on Deposits |
1.86 |
1.95 |
1.91 |
2.05 |
2.02 |
1.87 |
1.83 | |||||||
| Excluding Interest on Deposits |
2.84 |
2.48 |
2.48 |
2.39 |
2.21 |
1.99 |
2.02 | |||||||
The ratio of earnings to fixed charges is computed by dividing
income before income taxes and fixed charges less interest capitalized during such period, net of amortization of previously capitalized interest, by fixed charges. The ratio of earnings to combined fixed charges and preferred stock dividends is
computed by dividing income before income taxes and fixed charges less interest capitalized during such period, net of amortization of previously capitalized interest, by fixed charges and preferred stock dividend requirements. Fixed charges consist
of interest, expensed or capitalized, on borrowings (including or excluding deposits, as applicable), and the portion of rental expense which is deemed representative.
Capital One may from time to time issue and sell debt
securities which will be Capital One’s direct unsecured general obligations. These debt securities are described below and will be senior debt securities or subordinated debt securities and any senior or subordinated debt securities that may be
part of an equity unit, all of which are called debt securities. The senior debt securities and the subordinated debt securities will be issued under one or more separate indentures between Capital One and BNY Midwest Trust Company (as successor to
Harris Trust and Savings Bank), as trustee, or another indenture 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 indenture trustee and the subordinated indenture trustee are called the indenture trustees.
We have summarized selected provisions of the indentures below. The summary is not complete. A copy of the senior indenture and the form
of subordinated indenture have been incorporated by reference as exhibits to the registration statement of which this prospectus is a part and have been qualified as indentures under the Trust Indenture Act. You should read the indentures for
provisions that may be important to you. You should also consider applicable provisions of the Trust Indenture Act. In the summary below, we have included references to section numbers so that you can easily locate these provisions. The particular
terms of any debt securities Capital One offers will be described in the related prospectus supplement, along with any applicable modifications of or additions to the general terms of the debt securities described below and in the indentures. For a
description of the terms of any series of debt securities, you should also review both the prospectus supplement relating to that series and the description of the debt securities set forth in this prospectus before making an investment decision.
Capitalized terms used in the summary have the meanings specified in the applicable indenture.
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As of the date of this prospectus, Capital One has issued the following notes
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%; |
• |
notes with a maturity date of 2008, an aggregate principal amount of $200,000,000 and an interest rate of 7 1/8%; and |
• |
notes with a maturity date of 2007, an aggregate principal amount of $300,000,000 and an interest rate of 8 3/4%. |
As of the date of this prospectus, 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 significantly limit Capital One’s operations. In particular, they do not:
• |
limit the amount of debt securities that Capital One can issue under the indentures; |
• |
limit the number of series of debt securities that Capital One can issue from time to time; |
• |
limit or otherwise restrict the total amount of debt that Capital One or its subsidiaries may incur or the amount of other securities that Capital One may
issue; |
• |
require Capital One or an acquiror to repurchase debt securities in the event of a “change in control”; or |
• |
contain any covenant or other provision that is specifically intended to afford any holder of the debt securities any protection in the event of highly
leveraged transactions or similar transactions involving Capital One or its subsidiaries. |
The
senior debt securities will rank equally with all of Capital One’s other unsecured unsubordinated indebtedness. The subordinated debt securities will have a junior position to all of Capital One’s senior indebtedness.
Because Capital One is a holding company, dividends and fees from its subsidiaries are Capital One’s principal source of
revenues from which to repay the debt securities. Capital One’s subsidiaries engaged in the banking or credit card business can only pay dividends if they are in compliance with applicable United States federal and state regulatory
requirements. Capital One’s right to participate in any asset distribution of any of its subsidiaries, on liquidation, reorganization or otherwise, will rank junior to the rights of all creditors of that subsidiary (except to the extent that
Capital One may itself be an unsubordinated creditor of that subsidiary). The rights of holders of debt securities to benefit from those distributions will also be junior to prior claims of the creditors of Capital One’s subsidiaries.
Consequently, the debt securities will be effectively subordinated to all liabilities of Capital One’s subsidiaries.
Because Capital One is a holding company, its right to participate as a stockholder in any distribution of assets of any subsidiary, including the Bank and the Savings Bank, 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
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legal limitations on the extent to which they may pay dividends or otherwise supply funds to Capital One or its affiliates. See “Capital One Financial Corporation—Supervision,
Regulation and Other Matters—Dividends and Transfers of Funds.”
Terms
A prospectus supplement relating to the offering of any series of debt securities 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 date or dates (including the maturity date) on which the principal will be payable and any provisions relating to extending or shortening the date on which
the principal and premium, if any, of the debt securities of the series is payable; the interest rate, or method of calculating the interest rate, the date or dates from which interest will accrue and the interest payment dates; the manner of paying
principal of and interest on the debt securities; and the place or places where principal, premium and interest will be payable; |
• |
the detailed terms and provisions of any optional or mandatory redemption provision; |
• |
any limit upon the currency of the offered debt securities; |
• |
any changes to the covenants or additional events of default or covenants; |
• |
any sinking fund or other provisions that would obligate Capital One to repurchase or otherwise redeem the debt securities; |
• |
whether the debt securities will be convertible into or exchangeable for Capital One’s common stock or other securities or property and, if so, the terms
of the conversion or exchange; |
• |
the percentage of the principal amount (expressed as a percentage of the aggregate principal amount) or price at which the debt securities will be issued and,
if an index, formula or other method is used, the method for determining amounts of principal or interest; |
• |
whether and upon what terms debt securities may be defeased (which means that Capital One would be discharged from its obligations by depositing sufficient cash
or government securities to pay the principal, interest, any premiums and other sums due to the stated maturity date or a redemption date of the debt securities of the series); and |
• |
any other terms not inconsistent with the provisions of the indentures, including any covenants or other terms that may be required or advisable under United
States or other applicable laws or regulations, or advisable in connection with the marketing of the debt securities. (Section 301) |
Form of the Debt Securities
The indentures provide that Capital One may issue senior and
subordinated debt securities, respectively, in registered form, in bearer form or in both registered and bearer form. Unless otherwise indicated in the applicable prospectus supplement, each series of senior and subordinated 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 applicable indenture trustee’s register for the applicable debt securities.
(Section 305)
The senior and subordinated debt securities may also be issued as original issue discount debt
securities. “Original issue discount debt securities” are securities sold by Capital One 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)
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Unless otherwise indicated in the applicable prospectus supplement, Capital One
will issue senior and subordinated debt securities in registered form, without coupons, in denominations of $1,000 or any whole number multiple of $1,000. Capital One will issue senior and subordinated 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 senior and subordinated debt securities, but Capital One or the applicable indenture trustee may require the holder to
pay any tax or other governmental charge payable upon a transfer, exchange or conversion.
If Capital One issues
the debt securities in bearer form, the debt securities 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.
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, payment 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 Capital One 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 senior or
subordinated debt securities and any limitations and restrictions relating to a series of global senior or subordinated debt securities. (Section 305)
Covenants
Under the indentures, we agree to the following:
• |
Except as permitted under “—Consolidation, Merger and Sales of Assets,” we will preserve and keep in full force and effect our corporate
existence and the corporate existence of each of our significant
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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
holder. (Section 1007)
• |
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: |
Ÿ |
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 |
Ÿ |
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) |
• |
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)
|
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:
• |
Capital One is involved in insolvency, bankruptcy or similar proceedings; or |
• |
Capital One fails to pay the principal of, premium, interest or some types of additional payments on or any sinking fund with respect to 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)
“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 the junior subordinated debt securities and other 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.
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Consolidation, Merger and Sale of Assets
Each indenture generally permits a consolidation or merger between Capital One and another corporation. Each also permits the sale by Capital One of all or
substantially all of its 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 expressly
assumes Capital One’s 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 |
• |
Capital One has delivered to the applicable indenture trustee an officers’ certificate and an opinion of counsel stating compliance with these provisions.
(Section 801) |
The successor shall be substituted for Capital One as if it had been an original
party to the indentures and the debt securities. Thereafter, the successor may exercise Capital One’s rights and powers under the indentures and the debt securities and all of Capital One’s obligations under those documents will terminate.
(Section 802)
Exchange of Debt Securities
Registered debt securities may be exchanged for an equal principal amount of registered debt securities of the same series and date of maturity in authorized denominations requested by the holders upon
surrender of the registered debt securities at an office or agency Capital One maintains for that purpose and upon fulfillment of all other requirements set forth in the indentures. (Section 305)
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)
Events
of Default
The indentures define an event of default for any series of senior or subordinated 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 senior or subordinated debt securities 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); |
• |
failure to pay the principal of or any premium on any senior or subordinated debt securities 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 applicable indenture, other than a covenant or warranty applicable only to another series of senior or
subordinated debt securities, that continues for 60 days after Capital One is given written notice; |
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• |
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 any series of senior or subordinated debt securities, the applicable indenture 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 senior or subordinated debt securities occurs and continues, either the applicable indenture trustee or the holders of at least 25% of the aggregate principal amount of the
outstanding senior or subordinated debt securities of that series may declare the principal amount or, if the senior or subordinated debt securities of that series are original issue discount debt securities, a specified portion of the principal
amount of all the senior or subordinated 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 Capital One defaults in
its 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 senior or subordinated debt securities of that series. (Section 502)
Other than its duties in the case of a default, the applicable indenture trustee is not obligated to exercise any of its rights or powers
under any senior or subordinated indenture at the request or direction of any of the holders, unless those holders offer the applicable indenture 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 applicable indenture trustee, or exercising any trust or power conferred on the applicable indenture trustee, for the senior or
subordinated 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 applicable indenture trustee written notice of a continuing event of default; |
• |
the majority holders have made written request, and offered reasonable indemnity, to the applicable indenture trustee to institute the proceeding as trustee;
and |
• |
the applicable indenture trustee has not received an inconsistent request from the majority holders and has 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 senior and subordinated debt securities. (Section 508)
Waivers
The holders of at least 50% of the aggregate principal amount of the outstanding
senior and subordinated debt securities of each series may, on behalf of all holders of that series, waive Capital One’s compliance with
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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)
Amendments
Unless provided otherwise in the applicable prospectus supplement, Capital One and the applicable trustee may modify and amend an
indenture with the consent of the holders of at least 66 2/3% in aggregate principal amount of the outstanding senior and subordinated debt securities of each series issued under the applicable 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 senior or subordinated debt security, the amount payable upon acceleration of the maturity of that debt security; |
• |
in the case of the subordinated indenture, modify the subordination provisions in a manner adverse to the holders of those debt securities;
|
• |
reduce the percentage in principal amount of outstanding debt securities of any series; or |
• |
adversely affect the right of any holder of convertible debt securities or exchangeable senior or subordinated debt securities to convert or exchange. (Section
902) |
Except as otherwise provided in the applicable prospectus supplement, Capital One and the
applicable indenture trustee may modify and amend an indenture 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 applicable 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 applicable 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 applicable 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 |
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to amend or supplement any provision of the applicable 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) |
Legal Defeasance and
Covenant Defeasance
If the applicable prospectus supplement provides for defeasance, Capital One may elect to
pay and discharge its obligations on the applicable 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;
|
• |
Capital One deposits with the applicable indenture 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 applicable debt securities of the series; |
• |
Capital One pays all other sums due with respect to the outstanding debt securities of the series; |
• |
Capital One delivers 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 |
• |
Capital One delivers a certificate of its independent public accountants as required by the applicable indenture. (Section 402) |
If this happens, the holders of the applicable debt securities of the series will not be entitled to the benefits of the
applicable indenture, except for the registration of transfer or exchange of applicable debt securities and the replacement of stolen, lost or mutilated debt securities. (Section 306)
Determining the Outstanding Debt Securities
Capital One
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 applicable 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 any 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)
|
Governing Law
The indentures will be governed by, and construed in accordance with, the laws of the State of New York.
Regarding the Indenture Trustees
In the normal course of business, Capital One and its
subsidiaries conduct banking transactions with the indenture trustees, and the indenture trustees conduct banking transactions with Capital One and its subsidiaries.
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The following description summarizes the general terms
and provisions of Capital One’s authorized preferred stock. If Capital One offers preferred stock, it 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 non–cumulative, and, if cumulative, the dates from which dividends will commence to cumulate;
|
• |
any redemption or sinking fund provisions of the preferred stock; |
• |
whether Capital One has 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 its Board of Directors, or the Board, to issue one or more series of preferred stock, par value $.01 per share, without the approval of Capital One’s 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, 50,000,000 shares are classified as preferred stock under
Capital One’s Restated Certificate of Incorporation and no shares of preferred stock are outstanding. Capital One has 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 its 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 non-cumulative. 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 FRB. See “Capital One Financial Corporation—Supervision, Regulation and Other Matters.”
Capital One 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 Capital One has
paid or set apart funds for the 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 Capital One liquidates,
dissolves or winds up its 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 Capital One does 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 Capital One’s assets. After the holders of any series of preferred stock are paid in full, they will not have any
further claim to any of Capital One’s remaining assets.
Because Capital One is a holding company, the rights
of its 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
Capital One may itself 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 Capital One’s 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; |
• |
the conversion period; |
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• |
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
Capital One may, at its option, elect to offer fractional shares of preferred stock, or “depositary shares,” rather than full shares of preferred stock. In that event, Capital One 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.
Capital One is authorized to issue 1,000,000,000 shares of
common stock, par value $.01 per share. As of December 31, 2001, 217,656,985 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 Capital One’s 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
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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,
Capital One’s Restated Certificate of Incorporation and Bylaws do not exclude Capital One from Section 203’s restrictions. The provisions of Section 203 may encourage companies interested in acquiring Capital One 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 Capital One’s 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 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.
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
three-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, Capital One’s 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. Capital One’s Restated Certificate of
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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 Capital One’s next annual meeting. This would prevent the holders of Capital One’s 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 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. Capital One’s 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 Capital One’s stockholders receive a “fair price” for their common stock are satisfied. Capital One’s 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; |
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• |
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. Capital One may agree with any person to provide an
indemnification greater than or different from the indemnification provided by the Restated Certificate of Incorporation.
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 the Board.
Rights to Purchase Certain
Preferred Shares
Each share of Capital One’s 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, or the Junior Preferred Shares, at a price of $200 per one
three-hundredth of a share, subject to adjustment. Capital One has 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.
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Dividend Reinvestment Plan
In January 1996, Capital One implemented a dividend reinvestment and stock purchase plan. The plan provides stockholders with the opportunity to purchase additional shares
of Capital One’s 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 Capital One’s permission at a discount which will be from 0% to 3%. Capital One uses 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.
The applicable prospectus
supplement will describe the particular terms of the stock purchase contracts or equity units offered by that prospectus supplement. If Capital One issues any stock purchase contracts or equity units, it will file the form of stock purchase contract
and equity unit as exhibits to the registration statement of which this prospectus forms a part and you should read these documents for provisions that may be important to you.
Capital One may issue stock purchase contracts, including contracts obligating holders to purchase from Capital One, and obligating Capital One to sell to the holders, a
specified number of shares of Capital One common stock or other securities at a future date or dates. Capital One may fix the price and number of shares of common stock or other securities subject to the stock purchase contracts at the time Capital
One issues the stock purchase contracts or it may provide that the price and number of securities will be determined pursuant to a specific formula set forth in the stock purchase contracts. The stock purchase contracts may be issued separately or
as part of units consisting of a stock purchase contract and senior or subordinated debt securities or debt obligations of third parties, including U.S. treasury securities, that secure the obligations of the holders of the units to purchase the
common stock or other securities under the stock purchase contracts. We refer to these units as equity units. The stock purchase contracts will require holders to secure their obligations under the stock purchase contracts in a specified manner. The
stock purchase contracts also may require Capital One to make periodic payments to the holders of the equity units or vice versa, and those payments may be unsecured or refunded on some basis.
The securities may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale or at negotiated prices. Each prospectus supplement will describe the method of distribution of the securities offered
therein.
Capital One may sell the securities directly to purchasers from time to time. Alternatively, it may from
time to time offer the securities to or though underwriters, broker/dealers or agents otherwise indicated in the prospectus supplement acting on a best efforts basis for the period of appointment, who may receive compensation in the form of
underwriting discounts, concessions or commissions from Capital One or the purchasers of such securities for whom they may act as agents.
Each prospectus supplement will set forth the terms of the offering of the securities being offered thereby, including the name or names of any underwriters or agents with whom Capital One has entered into arrangements for
the sale of the securities, the public offering or purchase price of those securities, the proceeds to Capital One from such sale, any underwriting discounts and other items constituting underwriters’ compensation, any discounts or concessions
allowed or reallowed or paid to dealers, any commissions allowed or paid to agents, and the name of any securities exchange on which those securities may be listed. Only
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underwriters so named in the applicable prospectus supplement are deemed to be “underwriters” within the meaning of the Securities Act in connection with the securities offered thereby,
and any profit on the sale of such securities and any discounts, commissions, concessions or other compensation received by those underwriters may be deemed to be underwriting discounts and commissions under the Securities Act.
The obligations of the underwriters to purchase those securities will be subject to certain conditions precedent, and the
underwriters will be obligated to purchase all of the securities of the series offered by Capital One and described in the applicable prospectus supplement if they purchase any of those securities. Any initial public offering price and any discounts
or concessions allowed or reallowed or paid to dealers may be changed from time to time.
Securities may also be
offered and sold, if so indicated in the prospectus supplement, in connection with a remarketing upon their purchase, in accordance with a redemption or repayment pursuant to their terms, by one or more firms, or remarketing firms, acting as
principals for their own accounts or as agents for either Capital One. Any remarketing firm will be identified and the terms of its agreement, if any, with Capital One and its compensation will be described in the prospectus supplement. Remarketing
firms may be deemed to be underwriters in connection with the securities remarketed thereby.
If indicated in the
applicable prospectus supplement, Capital One may authorize underwriters or other persons acting as its agents to solicit offers by certain institutions to purchase securities from it 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 Capital One. The obligations of any purchaser under any contract will be subject to the condition that the purchase of the offered 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.
If any underwriter or any selling group member intends to engage in stabilizing, syndicate short covering transactions, penalty bids or any other transaction in connection with the offering of securities that may stabilize,
maintain, or otherwise affect the price of those securities, such intention and a description of such transactions will be described in the prospectus supplement.
Underwriters and agents who participate in the distribution of the securities may be entitled under agreements with Capital One to indemnification by Capital One against
certain civil liabilities, including liabilities under the Securities Act, or to contribution in connection with payments which the agents or underwriters may be required to make in respect thereof. Some of any agents and underwriters, including
their associates, may be customers of, engage in transactions with, or perform services for, Capital One and its subsidiaries in the ordinary course of business.
Unless indicated in the applicable prospectus supplement, Capital One does not expect to list the securities on a securities exchange, except for the common stock, which is listed on the New York Stock
Exchange. Capital One will not require underwriters or dealers to make a market in the securities. Capital One cannot predict the activity or liquidity of any trading in the securities.
Unless otherwise indicated in the applicable prospectus
supplement, certain legal matters in connection with the securities will be passed upon by John G. Finneran, Jr., Capital One’s Executive Vice President, General Counsel and Corporate Secretary. As of January 15, 2002, Mr. Finneran owned
27,051 shares of Capital One’s common stock and held vested options to purchase 119,652 shares of Capital One’s common stock issued under its 1994 Stock Incentive Plan and unvested options to purchase 535,293 shares of Capital One’s
common stock issued under its 1994 Stock Incentive Plan.
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Ernst & Young LLP, independent auditors, have audited Capital One’s
consolidated financial statements incorporated by reference in its Annual Report on Form 10-K for the year ended December 31, 2000, 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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