Capital One 2003 Annual Report Download - page 99

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.
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