Capital One 2004 Annual Report Download - page 101

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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 vested during the second quarter of
2004 when the company achieved cumulative diluted earnings per share in excess of $5.03 for four consecutive
quarters (second quarter of 2003 through first quarter of 2004). Options under this grant qualify as fixed as
defined by APB 25; accordingly no compensation expense was 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. All performance-
based option accelerated vesting provisions lapsed during 2004; as such the options will now vest in accordance
with the ultimate vesting provisions. 50% of the stock options held by middle management will vest on April 29,
2005 and the remainder, including options held by senior management, will vest on April 29, 2008, 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 was 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. All options under this grant vested in the second quarter of 2004 when the company
achieved cumulative earnings per share in excess of $5.03 for four consecutive quarters (second quarter 2003
through first quarter 2004). Options under this grant qualify as fixed, as defined by APB 25; accordingly no
compensation expense was recognized.
Associate Stock Purchase Plan
The Company maintains an Associate Stock Purchase Plan (the “Purchase Plan”). The Purchase Plan is a
compensatory plan under SFAS 123; accordingly the Company recognized $4.4 million and $3.9 million in
compensation expense for the years ended December 31, 2004 and 2003, respectively.
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. An aggregate of 3.0 million common shares has been
authorized for issuance under the 2002 Associate Stock Purchase Plan, of which 1.6 million shares were
available for issuance as of December 31, 2004.
Dividend Reinvestment and Stock Purchase Plan
In 1997, the Company implemented its dividend reinvestment and stock purchase plan (“1997 DRP”), which
allows participating stockholders to purchase additional shares of the Company’s common stock through
automatic reinvestment of dividends or optional cash investments. The Company has 3.6 million shares available
under the 1997 DRP. The Company also instituted an additional dividend reinvestment in 2002 (“2002 DRP”)
with an additional 7.5 million shares reserved, all of which were available for issuance at December 31, 2004.
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