Capital One 2005 Annual Report Download - page 94

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 vested on April 29, 2005, and the remainder will vest on April 29, 2008, or upon a change in control of the
Company. In 2003, the former COO’ s options associated with Entrepreneur Grant IV were forfeited in accordance with the
terms of the employment agreement between the former COO and the Corporation. 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 $5.4 million, $4.4 million and $3.9 million in compensation expense
for the years ended December 31, 2005, 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
ssociate Stock Purchase Plan, of which 1.3 million shares were available for issuance as of December 31, 2005. A
D
ividend 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 for issuance under the 1997 DRP at
December 31, 2005. The Company also instituted an additional dividend reinvestment plan in 2002 (“2002 DRP”) with an
additional 7.5 million shares reserved, all of which were available for issuance at December 31, 2005.
Note 11
Employee Stock Ownership Plan
As a result of the acquisition of Hibernia, the Company now has an internally-leveraged employee stock ownership plan
(“ESOP”) in which substantially all former employees of Hibernia participate. In accordance with the merger agreement,
assets of the ESOP will be allocated solely for the benefit of participants who were employees of Hibernia and its subsidiaries
immediately prior to the merger date. The ESOP owned 949,579 shares of COF Common Stock at December 31, 2005 and
the outstanding debt obligation of the ESOP totaled $11.2 million. The National Bank makes annual contributions to the
ESOP in an amount determined by the Company’ s Board of Directors (or a committee authorized by the Board of Directors),
but at least equal to the ESOP’ s minimum debt service less dividends received by the ESOP. Dividends received by the
ESOP in 2005 were used to pay debt service, and it is anticipated this practice will continue in the future.
The ESOP shares initially were pledged as collateral for its debt. As the debt is repaid, shares are released from collateral and
allocated to active participants. The remaining collateral shares are reported as a reduction to paid-in capital in equity. As
shares are committed to be released, the Company reports compensation expense equal to the current market value of the
shares, and the shares become outstanding for earnings per share calculations. Dividends on allocated ESOP shares are
recorded as a reduction of retained earnings; dividends on unallocated ESOP shares are recorded as a reduction of
ontributions due to the ESOP. c
Compensation expense of $0.7 million relating to the ESOP was recorded by the Company for the year ended December 31,
2005. The ESOP held 705,178 allocated shares and 244,401 suspense shares at December 31, 2005. The fair value of the
spense shares at December 31, 2005 was $21.1 million. su
Note 12
Retirement Plans
A
ssociate Savings Plan
The Company sponsors a contributory Associate Savings Plan in which substantially all full-time and certain part-time
associates are eligible to participate. The Company makes contributions to each eligible employee’ s account, matches a
portion of associate contributions and makes discretionary contributions based upon the Company meeting a certain earnings
per share target. The Company’ s contributions to this plan amounted to $67.6 million, $71.7 million and $71.1 million for the
years ended December 31, 2005, 2004 and 2003, respectively.
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