Capital One 2002 Annual Report Download - page 65

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The Company recognized $22.0 million, $113.5 million and $47.0 million
of tax benefits from the exercise of stock options by its associates during
2002, 2001 and 2000, respectively.
The Company granted 2.5 million and .9 million restricted stock awards
with a weighted average grant date value of $34.58 and $47.07 per share for
2002 and 2001, respectively. Restrictions generally expire in three years from
the date of grant. The compensation cost that has been charged against
income for the Company’s restricted stock awards was $27.7 million and
$1.0 million for 2002 and 2001, respectively.
ACCELERATED VESTING OPTION GRANTS
EntrepreneurGrant V
In October 2001, the Company’s Board of Directors approved a stock options
grant to senior management (“EntrepreneurGrant V”). This grant was
composed of 6,502,318 options to certain key managers (including 3,535,000
performance-based options to the Company’s Chief Executive Officer
(“CEO”) and Chief Operating Officer (“COO”)) at the fair market value on
the date of grant. The CEO and COO gave up their salaries, annual cash
incentives, annual option grants and Senior Executive Retirement Plan
contributions for the years 2002 and 2003 in exchange for their
EntrepreneurGrant V options. Other members of senior management had the
opportunity to forego up to 50 percent of their expected annual cash
incentives for 2002 through 2004 in exchange for performance-based options.
All performance-based options under this grant will vest on October 18,
2007. Vesting will be accelerated if the Company’s common stock’s fair market
value is at or above $83.87 per share, $100.64 per share, $120.77 per share or
$144.92 per share in any five trading days during the performance period on
or before October 18, 2004, 2005, 2006 or 2007, respectively. In addition,
the performance-based options under this grant will also vest upon the
achievement of at least $5.03 cumulative diluted earnings per share in any
four consecutive quarters ending in the fourth quarter of 2004, or upon a
change of control of the Company. Options under this grant qualify as fixed
as defined by APB 25, accordingly no compensation expense is recognized.
EntrepreneurGrant IV
In April 1999, the Company’s Board of Directors approved a stock option
grant to senior management (“Entrepreneur Grant IV”). This grant was
composed of 7,636,107 options to certain key managers (including
1,884,435 options to the Company’s CEO and COO) with an exercise price
equal to the fair market value on the date of grant. The CEO and COO gave
up their salaries for the year 2001 and their annual cash incentives, annual
option grants and Senior Executive Retirement Plan contributions for the
years 2000 and 2001 in exchange for their Entrepreneur Grant IV options.
Other members of senior management had the opportunity to give up all
potential annual stock option grants for 1999 and 2000 in exchange for this
one-time grant. Under the original terms, all options under this grant would
have vested on April 29, 2008, or earlier if the common stock’s fair market
value was at or above $100 per share for at least ten trading days in any 30
consecutive calendar day period on or before June 15, 2002, or upon a
change of control of the Company. In May 2001, the Company’s Board of
Directors approved an amendment to EntrepreneurGrant IV that provides
additional vesting criteria. As amended, EntrepreneurGrant IV will continue
to vest under its original terms, and will also vest if the Company’s common
stock price reaches a fair market value of at least $120 per share or $144 per
share for ten trading days within 30 calendar days prior to June 15, 2003 or
June 15, 2004, respectively. In addition, 50% of the EntrepreneurGrant IV
stock options held by middle management as of the grant date will vest on
April 29, 2005, regardless of stock performance. Options under this grant
qualify as fixed as defined by APB 25, accordingly no compensation expense
is recognized.
Director Accelerated Vesting Option Grants
In October 2001, the Company granted 305,000 options to the non-
executive members of the Board of Directors for director compensation for
the years 2002, 2003 and 2004. These options were granted at the fair
market value on the date of grant and vest on October 18, 2010. Vesting will
be accelerated if the stock’s fair market value is at or above $83.87 per share,
$100.64 per share, $120.77 per share, $144.92 per share, $173.91 per share,
$208.70 per share or $250.43 per share for at least five days during the
performance period on or before October 18, 2004, 2005, 2006, 2007,
2008, 2009 or 2010, respectively. In addition, the options under this grant
will vest upon the achievement of at least $5.03 cumulative diluted earnings
per share for any four consecutive quarters ending in the fourth quarter
2004, or upon a change in control of the Company. Options under this
grant qualify as fixed, as defined by APB 25, accordingly no compensation
expense is recognized.
In April 1999, all non-employee directors of the Company were given the
option to receive performance-based options under this plan in lieu of their
annual cash retainer and their time-vesting options for each of 1999, 2000 and
2001. As a result, 497,490 performance-based options were granted to certain
non-employee directors of the Company. The options would have vested in full
if, on or before June 15, 2002, the market value of the Company’s stock would
have equaled or exceeded $100 per share for ten trading days in a 30
consecutive calendar day period or upon change of control of the Company on
or before June 15, 2002. The vesting provisions were not achieved and as such
the unvested options were cancelled during 2002.
ASSOCIATE STOCK PURCHASE PLAN
The Company maintains an Associate Stock Purchase Plan (the “Purchase
Plan”). The Purchase Plan qualifies as a noncompensatory plan,
accordingly no compensation expense is recognized.
Under the Purchase Plan, associates of the Company are eligible to purchase
common stock through monthly salary deductions of a maximum of 15%
and a minimum of 1% of monthly base pay. To date, the amounts deducted
are applied to the purchase of unissued common or treasury stock of the
Company at 85% of the current market price. Shares may also be acquired
on the market. The Company terminated its 1995 Associate Stock Purchase
Plan in October 2002 when shares available for issuance under such plan
were exhausted, and implemented in substitution its 2002 Associate Stock
Purchase Plan under substantially similar terms. An aggregate of 3.0 million
common shares has been authorized for issuance under the 2002 Associate
Stock Purchase Plan, of which 2.7 million shares were available for issuance
as of December 31, 2002.