<PAGE> 1
THIS PRELIMINARY PROSPECTUS SUPPLEMENT AND THE INFORMATION CONTAINED HEREIN
ARE SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE PROSPECTUS
SUPPLEMENT IS DELIVERED IN FINAL FORM. UNDER NO CIRCUMSTANCES SHALL THIS
PRELIMINARY PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION.
Filed Pursuant to Rule 424(b)(2)
Registration No. 33-95600
SUBJECT TO COMPLETION, DATED SEPTEMBER 16, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 5, 1995)
[MBNA CORPORATION LOGO]
6,000,000 SHARES
MBNA CORPORATION
ADJUSTABLE RATE CUMULATIVE PREFERRED STOCK, SERIES B
------------------------
Dividends on the Adjustable Rate Cumulative Preferred Stock, Series B, $25
stated value per share (the "Series B Preferred Stock"), of MBNA Corporation
(the "Company") will be cumulative from September , 1996 and will be payable
quarterly in arrears on January 15, April 15, July 15 and October 15 of each
year, commencing October 15, 1996. The dividend rate for the initial dividend
period from September , 1996 to October 15, 1996 will be % per annum ($
per share). Thereafter, the dividend rate on the Series B Preferred Stock will
be the "Applicable Rate" from time to time in effect. The Applicable Rate for
any dividend period will be equal to % of the highest of the Treasury Bill
Rate, the Ten Year Constant Maturity Rate and the Thirty Year Constant Maturity
Rate (each as defined herein), as determined in advance of such dividend period,
but not less than 4.5% per annum or more than 10.5% per annum. The amount of
dividends payable in respect of the Series B Preferred Stock will be adjusted in
the event of certain amendments to the Internal Revenue Code of 1986, as amended
(the "Code"), in respect of the dividends-received deduction. See "Description
of the Series B Preferred Stock--Dividends" and "--Applicable Rate" in this
Prospectus Supplement.
The Series B Preferred Stock will not be redeemable prior to October 15,
2001. On or after such date, the Series B Preferred Stock will be redeemable at
the option of the Company, in whole or in part from time to time, at a price of
$25 per share, plus accrued and unpaid dividends to the date of redemption. The
Series B Preferred Stock may also be redeemed, in whole, at the option of the
Company, in the event of certain amendments to the Code in respect of the
dividends-received deduction. The Series B Preferred Stock will not be entitled
to the benefits of any sinking fund. See "Description of the Series B Preferred
Stock--Redemption" in this Prospectus Supplement.
Application will be made to list the Series B Preferred Stock on the New
York Stock Exchange. Trading of the Series B Preferred Stock on the New York
Stock Exchange is expected to commence within a 30-day period after the initial
delivery of the Series B Preferred Stock.
------------------------
THE SHARES OF SERIES B PREFERRED STOCK ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR
OTHER OBLIGATIONS OF ANY BANK OR NONBANK SUBSIDIARY OF THE COMPANY AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE BANK INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO
WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................. $25.00 $ $
- -----------------------------------------------------------------------------------------------------------------
Total..................................... $ $ $
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued dividends, if any, from , 1996 to the date of
delivery.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting" in this Prospectus Supplement.
(3) Before deducting expenses payable by the Company estimated to be $ .
------------------------
The shares of the Series B Preferred Stock are offered, subject to prior
sale, when, as and if accepted by the Underwriters named herein and subject to
approval of certain matters by Simpson Thacher & Bartlett, counsel for the
Underwriters. It is expected that delivery of the shares of the Series B
Preferred Stock will be made on or about , 1996 at the office of
, New York, N.Y. against payment therefor in immediately available
funds.
------------------------
BEAR, STEARNS & CO. INC.
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MERRILL LYNCH & CO.
PRUDENTIAL SECURITIES INCORPORATED
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS SEPTEMBER , 1996
<PAGE> 2
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES OF
SERIES B PREFERRED STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE
NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE COMPANY
The Company is a registered bank holding company incorporated in 1990 under
the laws of Maryland. It is the parent corporation of MBNA America Bank,
National Association (the "Bank"), a national bank organized in January 1991 as
the successor to a national bank organized in 1982.
As of June 30, 1996, the Company had consolidated assets of $14.0 billion,
consolidated deposits of $9.2 billion and stockholders' equity of $1.4 billion.
The principal asset of the Company is its equity interest in the Bank. As of
June 30, 1996, the Bank and its subsidiaries constituted approximately 92.8% of
the consolidated assets of the Company.
Through the Bank, the Company is the country's second largest lender
through bank credit cards and is the leading issuer of affinity credit cards
marketed primarily to members of associations and financial institutions. In
addition to its credit card lending, the Company also makes other consumer loans
and offers various deposit products.
USE OF PROCEEDS
The net proceeds from the sale of the Series B Preferred Stock offered
hereby will be applied to the Company's general funds to be utilized for general
corporate purposes.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
The following are the consolidated ratio of earnings to combined fixed
charges and preferred stock dividend requirements for the Company for each of
the years in the five-year period ended December 31, 1995 and the six-month
period ended June 30, 1996:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
30, YEAR ENDED DECEMBER 31,
---------- ---------------------------------------
1996* 1995 1994 1993** 1992 1991
---------- ---- ----- ------ ---- ----
<S> <C> <C> <C> <C> <C> <C>
Including Interest on Deposits.......................... 1.7 2.0 2.4 2.0 2.1 1.6
Excluding Interest on Deposits.......................... 3.3 4.3 5.7 6.0 15.7 12.9
</TABLE>
- ---------------
* Income before income taxes for the six months ended June 30, 1996, includes a
charge of $54.3 million related to the launch of the MBNA Platinum Plus Visa
and MasterCard program. Without the charge, the ratio of earnings to combined
fixed charges and preferred stock dividend requirements, including and
excluding interest on deposits, would have been 1.9 and 3.8, respectively.
** Income before income taxes for 1993 includes a charge of $150.0 million for
the termination of a marketing agreement with an independent third-party
marketing organization. Without the charge, the ratio of earnings to fixed
charges including and excluding interest on deposits, would have been 2.9 and
9.9, respectively.
The ratio of earnings to combined fixed charges and preferred stock
dividend requirements is computed by dividing (i) income before income taxes and
fixed charges less interest capitalized during such period, net of amortization
of previously capitalized interest, by (ii) fixed charges and preferred stock
dividend requirements. Fixed charges consist of interest expense on borrowings,
including capitalized interest (including or excluding deposits, as the case may
be) and the portion of rental expense which is deemed representative of
interest. The preferred stock dividend requirements represent the pre-tax
earnings which would be required to cover such dividend requirements on the
Company's preferred stock outstanding. The Company did not have any preferred
stock outstanding during the periods prior to 1995 presented above and
accordingly there were no preferred stock dividend requirements during such
periods.
S-2
<PAGE> 3
SUMMARY FINANCIAL DATA
The following summary financial information of the Company and its
consolidated subsidiaries for, or as of the last day of, the six-month periods
ended June 30, 1996 and 1995, respectively, and for, or as of the last day of,
each of the years during the three-year period ended December 31, 1995, is
qualified in its entirety by the financial statements and the detailed
information contained in the Company's Current Report on Form 8-K dated August
31, 1996, Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 and
Annual Report on Form 10-K for the year ended December 31, 1995, as amended by
Form 10-K/A-1, each of which is incorporated herein by reference.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------- -----------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net interest income............................. $ 301,325 $ 257,546 $ 544,226 $ 532,108 $ 474,323
Provision for possible credit losses............ 98,600 62,101 138,176 108,477 98,795
Other operating income.......................... 841,609 629,833 1,424,618 1,013,580 739,968
Other operating expense......................... 720,552 584,260 1,246,067 996,110 774,872
Net income(a)................................... 195,542 145,560 353,099 266,593 207,796
BALANCE SHEET DATA
Investment securities and money market
instruments................................... $ 2,797,561 $ 2,904,895 $ 2,669,402 $ 2,269,081 $ 1,440,684
Loans held for securitization................... 2,811,305 2,643,419 3,168,427 2,299,026 741,869
Credit card loans............................... 4,298,466 3,913,823 4,090,553 2,882,232 2,949,995
Other consumer loans............................ 1,058,661 630,230 876,938 525,742 775,514
----------- ----------- ----------- ----------- -----------
Total loans................................... 5,357,127 4,544,053 4,967,491 3,407,974 3,725,509
Reserve for possible credit losses.............. (110,406) (104,101) (104,886) (101,519) (97,580)
----------- ----------- ----------- ----------- -----------
Net loans..................................... 5,246,721 4,439,952 4,862,605 3,306,455 3,627,929
Total assets.................................... 13,954,375 12,080,216 13,228,889 9,671,858 7,319,756
Total deposits.................................. 9,207,263 8,055,523 8,608,914 6,632,489 5,241,883
Stockholders' equity............................ 1,369,331 996,089 1,265,058 919,578 769,131
RATIOS
Return on average total assets.................. 2.91% 2.76% 3.09% 3.16% 3.15%
Return on average stockholders' equity.......... 31.02 31.41 35.51 32.70 30.01
Average receivables to average deposits......... 90.32 92.43 91.60 93.05 85.34
Stockholders' equity to total assets............ 9.81 8.25 9.56 9.51 10.51
Tier 1 risk-based capital....................... 11.24 9.91 11.06 11.44 12.40
Total risk-based capital........................ 13.79 12.94 13.72 15.18 16.88
Leverage capital................................ 9.94 8.62 10.17 9.36 10.38
Loan Portfolio:
Delinquency(b).................................. 3.31 2.55 3.11 2.60 3.03
Net credit losses............................... 2.30 1.78 1.91 1.96 2.43
Managed Loans(c):
Delinquency..................................... 3.87 3.23 3.70 3.03 3.27
Net credit losses............................... 3.37 2.64 2.74 2.59 2.97
Net interest margin(d).......................... 7.67 7.36 7.42 8.16 8.47
MANAGED LOAN DATA(c)
At period end:
Loans held for securitization................... $ 2,811,305 $ 2,643,419 $ 3,168,427 $ 2,299,026 $ 741,869
Loan portfolio.................................. 5,357,127 4,544,053 4,967,491 3,407,974 3,725,509
Securitized loans............................... 22,396,267 15,529,654 18,575,786 13,036,864 7,891,140
----------- ----------- ----------- ----------- -----------
Total managed loans........................... $30,564,699 $22,717,126 $26,711,704 $18,743,864 $12,358,518
=========== =========== =========== =========== ===========
For the period:
Sales and cash advance volume................... $20,812,855 $15,732,486 $34,272,909 $25,078,918 $17,889,747
</TABLE>
- ---------------
(a) Net income for the six months ended June 30, 1996, includes a $32.8 million
tax benefit related to deductions for the amortization of customer-based
intangible assets acquired in connection with the 1991 initial public
offering of the Company's common stock, and a charge of $32.8 million net
of tax ($54.3 million pre-tax) related to the launch of the MBNA Platinum
Plus Visa and MasterCard program. These items were recognized by the
Company during the three months ended March 31, 1996. Net income for the
year ended December 31, 1993, includes an $89.8 million tax benefit related
to the recognition of tax deductions for the amortization of customer-based
intangible assets acquired in connection with the 1991 initial public
offering of the Company's common stock. Net income for the year ended
December 31, 1993, also includes a charge of $150.0 million ($92.9 million,
net of tax) for the termination of a marketing agreement with an
independent third-party marketing organization.
(b) Loan portfolio delinquency does not include loans held for securitization or
securitized loans.
(c) Managed loans include the Company's loans held for securitization, loan
portfolio, and securitized loans.
(d) Managed net interest margin is presented on a fully taxable equivalent
basis.
S-3
<PAGE> 4
INTERIM RESULTS
The following discussion of the Company's results for the three and six
months ended June 30, 1996 is qualified in its entirety by, and should be read
in conjunction with, the above Summary Financial Data and the consolidated
financial statements and other information included in the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996, which is incorporated
herein by reference.
The Company generates interest and other income through finance charges
assessed on outstanding loan receivables, interchange income, merchant discount
fees, credit card fees, loan servicing fees, processing fees, and interest
earned on investment securities and money market instruments. The Company's
primary costs are the costs of funding its loan receivables and investment
securities which include interest paid on deposits, short-term borrowings, and
long-term debt and bank notes; credit losses; royalties paid to affinity groups
and financial institutions; business development and operating expenses; and
income taxes.
EARNINGS SUMMARY
Net income for the three and six months ended June 30, 1996 was $103.3
million and $195.5 million, or $.44 per common share and $.83 per common share,
increasing 34.5% and 34.3% from $76.8 million and $145.6 million or $.34 per
common share and $.64 per common share for the same periods in 1995,
respectively. Earnings per common share is computed using weighted average
common shares outstanding, including common stock equivalents, of 230.0 million
shares for the three and six months ended June 30, 1996 and 228.1 million and
227.3 million shares for the same periods in 1995, respectively.
The overall growth in earnings was primarily attributable to the growth in
average managed loans outstanding. Average managed loans increased 35.2% and
37.5% to $29.1 billion and $28.0 billion for the three and six months ended June
30, 1996, compared to $21.5 billion and $20.4 billion for the same periods in
1995, respectively. Included in average managed loans are the Company's loans
held for securitization, loan portfolio, and securitized loans.
The Company continues to be an active participant in the asset
securitization market. Securitizations leave net income substantially the same
by converting interest income, interchange, and other fees in excess of interest
paid to certificateholders, credit losses, and other trust expenses into loan
servicing fees, while reducing the Company's on-balance-sheet assets. During the
three and six months ended June 30, 1996, the Company securitized approximately
$2.6 billion and $4.3 billion of loan receivables bringing the total amount of
outstanding securitized loans to $22.4 billion as of June 30, 1996.
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" (Statement No. 125),
which provides new accounting and reporting standards for sales, securitization,
and servicing of receivables and other financial assets and extinguishments of
liabilities. As required, the Company will adopt Statement No. 125 for
transactions occurring after December 31, 1996 and is presently evaluating the
impact Statement No. 125 will have on the Company's consolidated financial
statements.
Return on average total assets for the three and six months ended June 30,
1996, was 3.03% and 2.91%, compared to 2.69% and 2.76% for the same periods
during 1995, respectively. The higher returns are primarily a result of a 34.5%
and 34.3% increase in net income. These increases in net income exceeded the
19.6% and 27.2% increases in the Company's average total assets for the three
and six months ended June 30, 1996, respectively. Return on average
stockholders' equity for the three and six months ended June 30, 1996, was
32.13% and 31.02%, compared to 32.37% and 31.41% for the same periods in 1995,
respectively. The lower returns are primarily a result of an increase in average
stockholders' equity related to the issuance of $150.0 million of 7 1/2%
Cumulative Preferred Stock, Series A (the "Series A Preferred Stock"), in
November 1995 by the Company which offset the increase in net income over the
same periods.
S-4
<PAGE> 5
NET INTEREST INCOME
Net interest income for the three and six months ended June 30, 1996, on a
fully taxable equivalent basis, was $150.6 million and $302.2 million,
respectively, compared to $138.3 million and $258.4 million for the same periods
in 1995. The increases in net interest income for the three and six months ended
June 30, 1996 are primarily a result of an increase in average interest-earning
assets of $1.3 billion and $2.0 billion, respectively, partially offset by
increases of $1.8 billion and $2.4 billion in average interest-bearing
liabilities for the same periods. The increase in interest-earning assets during
the three months ended June 30, 1996 was a result of increases in average
investments and money market instruments of $666.2 million and average loan
receivables of $623.8 million, while the increase for the six months ended June
30, 1996 was due to an increase in average investments and money market
instruments of $587.1 million and average loan receivables of $1.4 billion,
respectively. The increase in interest-bearing liabilities during these periods
resulted primarily from funding the increases in interest-earning assets.
The net interest margin, on a fully taxable equivalent basis, was 5.52% and
5.58% for the three and six months ended June 30, 1996, compared to 5.73% and
5.85% for the same periods in 1995, respectively.
OTHER OPERATING INCOME
Total other operating income increased $111.5 million and $211.8 million or
33.5% and 33.6% to $444.1 million and $841.6 million for the three and six
months ended June 30, 1996, from $332.6 million and $629.8 million for the same
periods in 1995, respectively. These increases are primarily attributable to a
39.5% and 38.4% increase in loan servicing fees, which grew $108.0 million and
$199.5 million to $381.8 million and $718.9 million for the three and six months
ended June 30, 1996, as compared to the same periods for 1995, respectively. The
increases in loan servicing fees are primarily the result of a $7.0 billion and
$6.3 billion, or 49.4% and 45.7% increase in average securitized loans to $21.0
billion and $19.9 billion for the three and six months ended June 30, 1996,
respectively. Loan servicing fees, generated by securitized loans, consist of
interest income, interchange, and other fees in excess of interest paid to
certificateholders, credit losses, and other trust expenses. In addition, credit
card fees increased $4.8 million and $13.2 million during the three and six
months ended June 30, 1996, as compared to the same periods for 1995,
respectively, primarily resulting from increases in overlimit and late fees in
1996.
OTHER OPERATING EXPENSE
Total other operating expense increased 22.2% and 23.3% to $374.0 million
and $720.6 million for the three and six months ended June 30, 1996 from $306.1
million and $584.3 million for the same periods in 1995, respectively. The
growth in other operating expense reflects the Company's continued expansion of
business development activities including regional marketing and sales, account
activation, customer retention, and customer service. These activities are
expected to enhance the ability of the Company to attract and retain customers.
During the three and six months ended June 30, 1996, the Company opened
approximately 2.2 million and 4.0 million new accounts, respectively.
ASSET QUALITY
Delinquencies
An account is contractually delinquent if the minimum payment is not
received by the specified date on the customer's statement. However, the Company
generally continues to accrue interest until the loan is charged off.
Delinquency as a percentage of the Company's loans was 3.31% at June 30, 1996,
compared with 3.11% at December 31, 1995. The Company's loan delinquency has
continued to increase from December 31, 1995 to a level that the Company
believes is more consistent with its long-term historical delinquency rate. The
Company believes that several factors, including general economic conditions,
increased consumer debt levels, and the seasoning or increase in the average age
of the Company's loan receivables, contributed to the increase in delinquency.
As new accounts season the delinquency rate on these accounts generally rises
then
S-5
<PAGE> 6
stabilizes. The following table presents the delinquency of the Company's loan
portfolio, excluding loans held for securitization:
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
------------------- -------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Loan portfolio...................................... $5,357,127 $4,967,491
Loans delinquent:
30 to 59 days.................................. $ 72,911 1.36% $ 65,651 1.32%
60 to 89 days.................................. 33,272 .62 30,162 .61
90 or more days................................ 71,195 1.33 58,894 1.18
---------- ---- ---------- ----
Total.......................................... $ 177,378 3.31% $ 154,707 3.11%
========= ==== ========= ====
</TABLE>
Net Credit Losses
The Company's policy is generally to charge off accounts when they become
180 days contractually past due. Net credit losses for the three and six months
ended June 30, 1996 for the Company's loan portfolio were $45.7 million and
$93.1 million, compared to $34.9 million and $59.5 million for the same periods
in 1995, respectively. Net credit losses as a percentage of average loan
receivables were 2.27% and 2.30% for the three and six months ended June 30,
1996, compared to 1.88% and 1.78% for the same periods last year, respectively.
For the full year ended December 31, 1995, net credit losses were 1.91% of
average loan receivables.
Reserve and Provision for Possible Credit Losses
The loan portfolio is regularly reviewed to determine an appropriate range
for the reserve for possible credit losses based upon the impact of economic
conditions on the borrowers' ability to repay, past collection experience, the
risk characteristics of the portfolio, and other factors that deserve current
recognition. A provision is charged to operating expense to maintain the reserve
level within this range. The reserve for possible credit losses, however, does
not include an allocation for credit risk related to securitized loans, which is
absorbed directly by the related trusts under their respective contractual
agreements, thus reducing loan servicing fees rather than the reserve for
possible credit losses. The provision for possible credit losses for the three
and six months ended June 30, 1996 was $49.1 million and $98.6 million compared
to $36.5 million and $62.1 million for the same periods in 1995, respectively.
The increase in the Company's provision for possible credit losses primarily
reflects the increase in the Company's net credit losses.
LIQUIDITY
The objective of liquidity management is to diversify the sources of funds
available to meet the Company's operating requirements. Also, as part of the
liquidity management process, the Company anticipates the level of funds
required for future periods and regularly reviews funding alternatives based on
its asset and liability mix. These requirements include funding new loans,
deposit withdrawals, long-term debt and bank note maturities and the portion of
loans previously securitized that need to be refinanced as the underlying
securitizations amortize. Funding is provided from a variety of sources,
including deposits, debt issuance, and securitizations. The Company also borrows
in the short-term and interbank funding markets. In February 1995, the Bank
entered into a three-year, $2.0 billion committed syndicated revolving credit
facility. Advances are subject to covenants and conditions customary in a
transaction of this kind. These conditions include requirements for tangible net
worth of at least $500.0 million, increased by 40% of the Bank's annual net
income, and managed loan receivables 90 days or more past due plus nonaccrual
receivables not to exceed 6% of managed credit card receivables. Should managed
credit card losses equal or exceed 5% for a period of four consecutive quarters,
a ratio of qualifying loan receivables to outstanding borrowings under the
facility of at least 115% is required. The facility is to be used for general
corporate purposes and was not drawn upon as of June 30, 1996. In December 1995,
the facility was amended to extend the maturity by one year to February 1999.
S-6
<PAGE> 7
Deposits generated by the Bank are a major source of funds for the Company.
Total deposits at June 30, 1996 and December 31, 1995 were $9.2 billion and $8.6
billion, respectively. The Company continues to focus on increasing its direct
deposits primarily as a result of offering competitive rates on money market
deposit accounts and certificates of deposit.
Securitization of the Bank's loan receivables continues to be another major
funding alternative for the Company. This is accomplished primarily through the
public and private issuance of asset-backed securities. As loan receivables are
securitized, the Company's on-balance sheet funding needs are reduced by the
amount of loans securitized.
During the three and six months ended June 30, 1996, the Bank securitized
loan receivables totaling $2.6 billion and $4.3 billion respectively, through
both public and private markets. These securitizations bring the total amount of
outstanding securitized loans to $22.4 billion or 73.3% of managed loans as of
June 30, 1996. Amortization of previously securitized loan receivables totaled
$416.7 million and $583.3 million for the three and six months ended June 30,
1996. During the amortization period, new charges and cash advances are for the
account of the Bank, which increases the Company's on-balance-sheet assets. An
additional $1.2 billion of previously securitized loans will amortize into the
Bank's loan portfolio during the remainder of 1996.
The Company also holds investment securities, which are generally AAA-rated
securities, of $2.2 billion at June 30, 1996, most of which can be used as
collateral under repurchase agreements. Also, the Company had $592.6 million of
money market instruments at June 30, 1996. Of the $2.2 billion in investment
securities, $1.3 billion were classified as available-for-sale. These investment
securities, in addition to the money market instruments, provide increased
liquidity and flexibility to support the Company's anticipated growth and
funding needs.
CAPITAL ADEQUACY
The Company is subject to risk-based capital guidelines adopted by the
Federal Reserve Board for bank holding companies. The Bank is also subject to
similar capital requirements adopted by the Office of the Comptroller of the
Currency. Under these requirements, the regulatory agencies have set minimum
thresholds for Tier I capital, Total capital, and Leverage ratios. At June 30,
1996, both the Company's and the Bank's capital exceeded all minimum regulatory
requirements, and the Bank was "well capitalized" as defined in the regulations
issued pursuant to the FDIC Improvement Act of 1991. Both the Company's and the
Bank's risk-based capital ratios, shown in the following table, have been
computed in accordance with regulatory accounting policies.
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------------
MBNA MBNA AMERICA MINIMUM
CORPORATION BANK, N.A. REQUIREMENTS
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Tier 1.............................................. 11.24% 9.01% 4.00%
Total............................................... 13.79 11.82 8.00
Leverage............................................ 9.94 7.85 3.00
</TABLE>
PAYMENT OF DIVIDENDS
During the three and six months ended June 30, 1996, the Company declared
dividends of $38.5 million and $76.9 million, respectively, on its preferred and
common stock. The payment of preferred and common stock dividends by the Company
may be limited by certain factors including regulatory capital requirements,
broad enforcement powers of the federal bank regulatory agencies, and tangible
net worth maintenance requirements under the Company's revolving credit
facilities.
The primary source of funds for payment of preferred and common stock
dividends by the Company is dividends received from the Bank. The amount of
dividends that a bank may declare in any year is subject to certain regulatory
restrictions. Generally, dividends declared in a given year by a national bank
are limited to
S-7
<PAGE> 8
its "net profit", as defined by regulatory agencies, for that year, combined
with its retained net income for the preceding two years. Also, a bank may not
declare dividends if such declaration would leave the bank inadequately
capitalized. Therefore, the ability of the Bank to declare dividends will depend
on its future net income and capital requirements. At June 30, 1996, the amount
of retained earnings available for declaration of dividends from the Bank to the
Company was $417.5 million. Payment of dividends by the Bank to the Company,
however, may be limited by federal bank regulatory agencies.
The Bank's payment of dividends to the Company may also be limited by a
tangible net worth requirement under the Bank's revolving credit facility. This
facility was not drawn upon as of June 30, 1996. If this facility were drawn
upon as of June 30, 1996, the amount of retained earnings available for
declaration of dividends would have been limited to $209.3 million.
MANAGED ASSETS, LOANS AND RATIOS
<TABLE>
<CAPTION>
DECEMBER
JUNE 30, 31,
1996 1995
----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Managed Asset Data
At Period End:
Loans held for securitization..................................... $ 2,811,305 $ 3,168,427
Loan portfolio.................................................... 5,357,127 4,967,491
Securitized loans................................................. 22,396,267 18,575,786
----------- -----------
Total managed loans.......................................... $30,564,699 $26,711,704
=========== ===========
Total managed interest-earning assets........................ $33,362,260 $29,381,106
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------- --------------
1996 1995 1996 1995
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Managed Ratios:
Net interest margin (on a fully taxable equivalent
basis)................................................... 7.66% 7.37% 7.67% 7.36%
Delinquency................................................ 3.87 3.23
Net credit losses.......................................... 3.46 2.64 3.37 2.64
</TABLE>
DESCRIPTION OF THE SERIES B PREFERRED STOCK
The following description of certain terms of the Series B Preferred Stock
supplements the description of the general terms and provisions of the Preferred
Stock of the Company set forth under the heading "Description of Preferred
Stock" in the accompanying Prospectus, to which description reference is hereby
made. The Series B Preferred Stock is a series of the Preferred Stock of the
Company, which Preferred Stock may be issued from time to time in one or more
series with such preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption as are determined by the Company's Board of Directors.
The description of certain provisions of the Series B Preferred Stock set forth
below does not purport to be complete and is subject to and qualified in its
entirety by reference to the Company's charter filed with the Securities and
Exchange Commission as an Exhibit to the Registration Statement to which this
Prospectus Supplement and the accompanying Prospectus relate. As used in this
Prospectus Supplement, the term "Board of Directors" includes any duly
authorized committee of the Board of Directors.
The Company's charter authorizes the issuance of 720,000,000 shares of
stock, of which 700,000,000 shares are classified as common stock and 20,000,000
shares are classified as Preferred Stock. Of the 20,000,000 shares of Preferred
Stock, 6,000,000 shares have been issued as the Series A Preferred Stock. The
charter authorizes the Company's Board of Directors to classify Preferred Stock
into one or more series and to set the terms of each series. The charter also
authorizes the Board of Directors to reclassify authorized
S-8
<PAGE> 9
but unissued shares of common stock as Preferred Stock or other classes of
stock. Pursuant to this authority, the Board of Directors has classified
6,000,000 shares of Preferred Stock as shares of Adjustable Rate Cumulative
Preferred Stock, Series B, and has set the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption as described below. The
Board of Directors is authorized to set the terms of and to approve the issuance
of additional series of Preferred Stock.
RANK
With respect to dividend rights and rights on liquidation, winding up and
dissolution, the Series B Preferred Stock will rank (i) senior to all classes of
common stock of the Company and to all equity securities issued by the Company,
the terms of which specifically provide that such equity securities will rank
junior to the Series B Preferred Stock (such common stock and such other equity
securities being collectively referred to as the "Junior Securities"); (ii) on a
parity with all equity securities issued by the Company the terms of which
specifically provide that such equity securities will rank on a parity with the
Series B Preferred Stock, including, without limitation, the Series A Preferred
Stock (collectively referred to as the "Parity Securities"); and (iii) junior to
all equity securities issued by the Company the terms of which specifically
provide that such equity securities will rank senior to the Series B Preferred
Stock, subject to a class vote of the Series B Preferred Stock as set forth
under "Voting Rights" ("Senior Securities").
DIVIDENDS
Holders of shares of the Series B Preferred Stock will be entitled to
receive, as, if and when declared by the Board of Directors of the Company, out
of assets of the Company legally available for payment, cash dividends, which
shall be fully cumulative from the date of original issue, at the annual rate of
% ($ per share) for the initial dividend period from September ,
1996 to October 15, 1996 and at an annual rate equal to the Applicable Rate from
time to time in effect for each quarterly dividend period thereafter. Dividends
on the Series B Preferred Stock will be payable quarterly on January 15, April
15, July 15 and October 15 of each year (each, a "Dividend Payment Date"),
commencing October 15, 1996.
If a dividend payment date is not a business day, dividends (if declared)
on the Series B Preferred Stock will be paid on the immediately succeeding
business day, without interest. A dividend period with respect to a dividend
payment date is the period commencing on the immediately preceding dividend
payment date and ending on the day immediately prior to the next succeeding
dividend payment date. Each dividend will be payable to holders of record as
they appear on the stock books of the Company on such record dates as shall be
fixed by the Board of Directors of the Company and shall be not more than 60
days preceding the payment date of such dividend. The right of the holders of
the Series B Preferred Stock to receive dividends is fully cumulative and,
accordingly, all dividends not paid, whether or not declared, will accumulate
without interest until declared and paid, which declaration and payment may be
for all or part of the then accumulated dividends. The Company's ability to pay
dividends on its Preferred Stock, including the Series B Preferred Stock, is
subject to policies established by the Federal Reserve Board. See "Regulatory
Matters--Dividend Restrictions" in the accompanying Prospectus.
No dividends may be declared or paid or funds set apart for the payment of
dividends on any Junior Securities unless full cumulative dividends for all
dividend periods terminating on or prior to the date of such declaration or
payment shall have been paid or declared and a sum sufficient for the payment
thereof set apart for payment on the Series B Preferred Stock. If dividends are
not paid in full upon the Series B Preferred Stock and any Parity Securities,
all dividends declared upon shares of Series B Preferred Stock and any Parity
Securities will be declared pro rata so that the amount of dividends declared
per share on the Series B Preferred Stock and any Parity Securities will in all
cases bear to each other the same ratio that accrued dividends per share on the
shares of Series B Preferred Stock and such Parity Securities bear to each
other. If, for any dividend period, full dividends on a cumulative basis on any
share or shares of Series B Preferred Stock or full dividends on any outstanding
Parity Securities have not been paid, no dividends will be declared or paid or
set aside for payment or other distribution declared or made upon any Junior
Securities, nor will any Junior
S-9
<PAGE> 10
Securities be redeemed, purchased or otherwise acquired for any consideration
(or any moneys be paid or made available for a sinking fund for the redemption
of any shares of any such Junior Securities (except by conversion into or
exchange for other Junior Securities)).
The amount of any dividends payable for any period greater or less than a
full dividend period shall be computed on the basis of a 360-day year consisting
of twelve 30-day months and the actual number of days elapsed in any period less
than one month.
Applicable Rate
Except as provided below in this paragraph, the "Applicable Rate" for any
dividend period (other than the initial dividend period) will be equal to % of
the Effective Rate (as defined below), but not less than 4.5% per annum or more
than 10.5% per annum. The "Effective Rate" for any dividend period will be equal
to the highest of the Treasury Bill Rate, the Ten Year Constant Maturity Rate
and the Thirty Year Constant Maturity Rate (each as defined below) for such
dividend period. In the event that the Company determines in good faith that for
any reason:
(i) any one of the Treasury Bill Rate, the Ten Year Constant Maturity
Rate or the Thirty Year Constant Maturity Rate cannot be determined for any
dividend period, then the Effective Rate for such dividend period will be
equal to the higher of whichever two of such rates can be so determined;
(ii) only one of the Treasury Bill Rate, the Ten Year Constant
Maturity Rate or the Thirty Year Constant Maturity Rate can be determined
for any dividend period, then the Effective Rate for such dividend period
will be equal to whichever such rate can be so determined; or
(iii) none of the Treasury Bill Rate, the Ten Year Constant Maturity
Rate or the Thirty Year Constant Maturity Rate can be determined for any
dividend period, then the Effective Rate for the preceding dividend period
will be continued for such dividend period.
Except as described below in this paragraph, the "Treasury Bill Rate" for
each dividend period will be the arithmetic average of the two most recent
weekly per annum market discount rates (or the one weekly per annum market
discount rate, if only one such rate is published during the relevant Calendar
Period (as defined below)) for three-month U.S. Treasury bills, as published
weekly by the Federal Reserve Board during the Calendar Period immediately
preceding the last ten calendar days preceding the dividend period for which the
dividend rate on the Series B Preferred Stock is being determined. In the event
that the Federal Reserve Board does not publish such a weekly per annum market
discount rate during any such Calendar Period, then the Treasury Bill Rate for
such dividend period will be the arithmetic average of the two most recent
weekly per annum market discount rates (or the one weekly per annum market
discount rate, if only one such rate is published during the relevant Calendar
Period) for three-month U.S. Treasury bills, as published weekly during such
Calendar Period by any Federal Reserve Bank or by any U.S. Government department
or agency selected by the Company. In the event that a per annum market discount
rate for three-month U.S. Treasury bills is not published by the Federal Reserve
Board or by any Federal Reserve Bank or by any U.S. Government department or
agency during such Calendar Period, then the Treasury Bill Rate for such
dividend period will be the arithmetic average of the two most recent weekly per
annum market discount rates (or the one weekly per annum market discount rate,
if only one such rate is published during the relevant Calendar Period) for all
of the U.S. Treasury bills then having remaining maturities of not less than 80
nor more than 100 days, as published during such Calendar Period by the Federal
Reserve Board or, if the Federal Reserve Board does not publish such rates, by
any Federal Reserve Bank or by any U.S. Government department or agency selected
by the Company. In the event that the Company determines in good faith that for
any reason no such U.S. Treasury bill rates are published as provided above
during such Calendar Period, then the Treasury Bill Rate for such dividend
period will be the arithmetic average of the per annum market discount rates
based upon the closing bids during such Calendar Period for each of the issues
of marketable non-interest-bearing U.S. Treasury securities with a remaining
maturity of not less than 80 nor more than 100 days from the date of each such
quotation, as chosen and quoted daily for each business day in New York City (or
less frequently if daily quotations are not generally available) to the Company
by at least three recognized dealers in U.S. Government securities selected by
the Company. In the event that the Company
S-10
<PAGE> 11
determines in good faith that for any reason the Company cannot determine the
Treasury Bill Rate for any dividend period as provided above in this paragraph,
the Treasury Bill Rate for such dividend period will be the arithmetic average
of the per annum market discount rates based upon the closing bids during such
Calendar Period for each of the issues of marketable interest-bearing U.S.
Treasury securities with a remaining maturity of not less than 80 nor more than
100 days from the date of each such quotation, as chosen and quoted daily for
each business day in New York City (or less frequently if daily quotations are
not generally available) to the Company by at least three recognized dealers in
U.S. Government securities selected by the Company.
Except as described below in this paragraph, the "Ten Year Constant
Maturity Rate" for each dividend period will be the arithmetic average of the
two most recent weekly per annum Ten Year Average Yields (as defined below) (or
the one weekly per annum Ten Year Average Yield, if only one such yield is
published during the relevant Calendar Period), as published weekly by the
Federal Reserve Board during the Calendar Period immediately preceding the last
ten calendar days preceding the dividend period for which the dividend rate on
the Series B Preferred Stock is being determined. In the event that the Federal
Reserve Board does not publish such a weekly per annum Ten Year Average Yield
during any such Calendar Period, then the Ten Year Constant Maturity Rate for
such dividend period will be the arithmetic average of the two most recent
weekly per annum Ten Year Average Yields (or the one weekly per annum Ten Year
Average Yield, if only one such yield is published during the relevant Calendar
Period), as published weekly during such Calendar Period by any Federal Reserve
Bank or by any U.S. Government department or agency selected by the Company. In
the event that a per annum Ten Year Average Yield is not published by the
Federal Reserve Board or by any Federal Reserve Bank or by any U.S. Government
department or agency during such Calendar Period, then the Ten Year Constant
Maturity Rate for such dividend period will be the arithmetic average of the two
most recent weekly per annum average yields to maturity (or the one weekly per
annum average yield to maturity, if only one such yield is published during the
relevant Calendar Period) for all of the actively traded marketable U.S.
Treasury fixed interest rate securities (other than Special Securities (as
defined below)) then having remaining maturities of not less than eight nor more
than twelve years, as published during such Calendar Period by the Federal
Reserve Board or, if the Federal Reserve Board does not publish such yields, by
any Federal Reserve Bank or by any U.S. Government department or agency selected
by the Company. In the event that the Company determines in good faith that for
any reason the Company cannot determine the Ten Year Constant Maturity Rate for
any dividend period as provided above in this paragraph, then the Ten Year
Constant Maturity Rate for such dividend period will be the arithmetic average
of the per annum average yields to maturity based upon the closing bids during
such Calendar Period for each of the issues of actively traded marketable U.S.
Treasury fixed interest rate securities (other than Special Securities) with a
final maturity date not less than eight nor more than twelve years from the date
of each such quotation, as chosen and quoted daily for each business day in New
York City (or less frequently if daily quotations are not generally available)
to the Company by at least three recognized dealers in U.S. Government
securities selected by the Company.
Except as described below in this paragraph, the "Thirty Year Constant
Maturity Rate" for each dividend period will be the arithmetic average of the
two most recent weekly per annum Thirty Year Average Yields (as defined below)
(or the one weekly per annum Thirty Year Average Yield, if only one such yield
is published during the relevant Calendar Period), as published weekly by the
Federal Reserve Board during the Calendar Period immediately preceding the last
ten calendar days preceding the dividend period for which the dividend rate on
the Series B Preferred Stock is being determined. In the event that the Federal
Reserve Board does not publish such a weekly per annum Thirty Year Average Yield
during any such Calendar Period, then the Thirty Year Constant Maturity Rate for
such dividend period will be the arithmetic average of the two most recent
weekly per annum Thirty Year Average Yields (or the one weekly per annum Thirty
Year Average Yield, if only one such yield is published during the relevant
Calendar Period), as published weekly during such Calendar Period by any Federal
Reserve Bank or by any U.S. Government department or agency selected by the
Company. In the event that a per annum Thirty Year Average Yield is not
published by the Federal Reserve Board or by any Federal Reserve Bank or by any
U.S. Government department or agency during such Calendar Period, then the
Thirty Year Constant Maturity Rate for such dividend period will be the
arithmetic average of the two most recent weekly per annum average yields to
maturity (or the one weekly
S-11
<PAGE> 12
per annum average yield to maturity, if only one such yield is published during
the relevant Calendar Period) for all of the actively traded marketable U.S.
Treasury fixed interest rate securities (other than Special Securities) then
having remaining maturities of not less than twenty-eight nor more than thirty
years, as published during such Calendar Period by the Federal Reserve Board or,
if the Federal Reserve Board does not publish such yields, by any Federal
Reserve Bank or by any U.S. Government department or agency selected by the
Company. In the event that the Company determines in good faith that for any
reason the Company cannot determine the Thirty Year Constant Maturity Rate for
any dividend period as provided above in this paragraph, then the Thirty Year
Constant Maturity Rate for such dividend period will be the arithmetic average
of the per annum average yields to maturity based upon the closing bids during
such Calendar Period for each of the issues of actively traded marketable U.S.
Treasury fixed interest rate securities (other than Special Securities) with a
final maturity date not less than twenty-eight nor more than thirty years from
the date of each such quotation, as chosen and quoted daily for each business
day in New York City (or less frequently if daily quotations are not generally
available) to the Company by at least three recognized dealers in U.S.
Government securities selected by the Company.
The Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Thirty
Year Constant Maturity Rate will each be rounded to the nearest five hundredths
of a percent.
The Applicable Rate with respect to each dividend period (other than the
initial dividend period) will be calculated as promptly as practicable by the
Company according to the appropriate method described above. The Company will
cause each Applicable Rate to be published in a newspaper of general circulation
in New York City before the commencement of the dividend period to which it
applies and will cause notice of such Applicable Rate to be enclosed with the
dividend payment checks next mailed to the holders of the Series B Preferred
Stock.
As used above, the term "Calendar Period" means a period of fourteen
calendar days; the term "Special Securities" means securities which can, at the
option of the holder, be surrendered at face value in payment of any Federal
estate tax or which provide tax benefits to the holder and are priced to reflect
such tax benefits or which were originally issued at a deep or substantial
discount; the term "Ten Year Average Yield" means the average yield to maturity
for actively traded marketable U.S. Treasury fixed interest rate securities
(adjusted to constant maturities of ten years); and the term "Thirty Year
Average Yield" means the average yield to maturity for actively traded
marketable U.S. Treasury fixed interest rate securities (adjusted to constant
maturities of thirty years).
Changes in the Dividends-Received Percentage
If one or more amendments to the Code are enacted that reduce the
percentage of the dividends-received deduction (currently 70%) as specified in
section 243(a)(1) of the Code or any successor provision (the
"Dividends-Received Percentage"), certain adjustments may be made in respect of
the dividends payable by the Company, and Post Declaration Date Dividends and
Retroactive Dividends (as such terms are defined below) may become payable, as
described below.
The amount of each dividend payable (if declared) per share of the Series B
Preferred Stock for dividend payments made on or after the effective date of
such change in the Code will be adjusted by multiplying the amount of the
dividend payable described above under "Dividends" (before adjustment) by a
factor, which will be the number determined in accordance with the following
formula (the "DRD Formula"), and rounding the result to the nearest cent (with
one-half cent rounded up):
1-.35(1-.70)
------------
1-.35(1-DRP)
For the purposes of the DRD Formula, "DRP" means the Dividends-Received
Percentage (expressed as a decimal) applicable to the dividend in question. No
amendment to the Code, other than a change in the percentage of the
dividends-received deduction set forth in section 243(a)(1) of the Code or any
successor
S-12
<PAGE> 13
provision thereto, will give rise to an adjustment. Notwithstanding the
foregoing provisions, if, with respect to any such amendment, the Company
receives either an unqualified opinion of nationally recognized independent tax
counsel selected by the Company or a private letter ruling or similar form of
authorization from the Internal Revenue Service (the "IRS") to the effect that
such an amendment does not apply to a dividend payable on the Series B Preferred
Stock, then such amendment will not result in the adjustment provided for
pursuant to the DRD Formula with respect to such dividend. The opinion
referenced in the previous sentence shall be based upon the legislation amending
or establishing the DRP or upon a published pronouncement of the IRS addressing
such legislation. Unless the context otherwise requires, references to dividends
in this Prospectus Supplement will mean dividends as adjusted by the DRD
Formula. The Company's calculation of the dividends payable as so adjusted shall
be final and not subject to review.
Notwithstanding the foregoing, if any such amendment to the Code is enacted
and effective after the dividend payable on a Dividend Payment Date has been
declared but not paid, the amount of the dividend payable on such Dividend
Payment Date will not be increased; instead, additional dividends (the "Post
Declaration Date Dividends"), equal to the excess, if any, of (x) the product of
the dividend paid by the Company on such Dividend Payment Date and the DRD
Formula over (y) the dividend paid by the Company on such Dividend Payment Date,
will be payable (if declared) to holders of the Series B Preferred Stock on the
record date applicable to the next succeeding Dividend Payment Date or, if the
Series B Preferred Stock is called for redemption prior to such record date, to
holders of the Series B Preferred Stock on the applicable redemption date, as
the case may be, in addition to any other amounts payable on such date.
In the event that the amount of dividends payable per share of the Series B
Preferred Stock is adjusted pursuant to the DRD Formula and/or Post Declaration
Date Dividends are to be paid, the Company will give notice of each such
adjustment and, if applicable, any Post Declaration Date Dividends to the
holders of the Series B Preferred Stock.
The Series B Preferred Stock may be redeemed in whole at the option of the
Company in the event an amendment to the Code is enacted which reduces the
Dividends-Received Percentage to less than 50%. See "Redemption."
See also "Recent Tax Proposals" for a discussion of certain Proposals (as
defined below) to reduce the Dividends-Received Percentage.
VOTING RIGHTS
Whenever dividends on the Series B Preferred Stock shall be in arrears for
six full quarterly dividend periods, the holders of outstanding shares of the
Series B Preferred Stock (voting as a class with holders of all Parity
Securities upon which like voting rights have been conferred and are
exercisable) will be entitled to vote for the election of two additional
directors on the terms set forth below. Such voting rights will continue until
all past dividends accumulated on the Series B Preferred Stock shall have been
paid in full. Upon payment in full of such dividends such voting rights shall
terminate, subject to re-vesting in the event of each and every subsequent
default in the payment of dividends as aforesaid. Holders of all series of
Parity Securities which are granted such voting rights will vote as a class,
each holder of shares of the Series B Preferred Stock will have one vote for
each share of stock held and each holder of each other series of Parity
Securities will have such number of votes, if any, for each share of stock held
as may be granted to such holder. If the holders of shares of the Series B
Preferred Stock or any other class of Parity Securities become entitled to vote
as described in this paragraph, the Board of Directors will be increased by two
directors, and the holders of the Series B Preferred Stock and the holders of
Parity Securities entitled to vote will have the exclusive right, voting as a
class as described above, to elect two directors at the next annual meeting of
shareholders of the Company.
Upon termination of the right of the holders of the Series B Preferred
Stock and of the holders of any Parity Securities entitled to vote as described
above to vote for directors as described above, the term of office of all
directors then in office elected by such holders will terminate immediately.
Whenever the term of office of the directors elected by such holders ends and
the related special voting rights expire, the number of directors automatically
will be decreased to such number as otherwise would apply.
S-13
<PAGE> 14
So long as any shares of the Series B Preferred Stock remain outstanding,
the Company will not, without the affirmative vote of at least two-thirds of the
votes entitled to be cast by holders of shares of the Series B Preferred Stock,
(i) voting as a class with holders of all Parity Securities upon which like
voting rights have been conferred, authorize, create or issue, or increase the
authorized or issued amount, of any Senior Securities; (ii) amend, alter or
repeal, whether by merger, consolidation, share exchange, or otherwise, the
Company's charter so as to adversely affect the preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of the Series B Preferred Stock or the
holders thereof; provided, however, that any increase in the amount of the
shares of the Series B Preferred Stock or the creation and issuance of other
series of Preferred Stock, in each case constituting Parity Securities, will not
be deemed to adversely affect such rights, preferences, privileges or voting
powers.
The foregoing voting provisions will not apply if all outstanding shares of
the Series B Preferred Stock have been redeemed. Such voting provisions shall
also not apply from and after the redemption date if notice has been given to
effect such a redemption in accordance with the provisions set forth below under
"Redemption."
CONVERSION RIGHTS
Shares of the Series B Preferred Stock are not convertible into any other
securities of the Company.
RIGHTS UPON LIQUIDATION
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the Series B Preferred Stock will be
entitled to receive out of assets of the Company available for distribution to
the shareholders, before any distribution of assets is made to any holder of
Junior Securities, including common stock, a liquidating distribution in the
amount of $25 per share plus an amount equal to accrued and unpaid dividends
(whether or not declared). If upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the amounts payable with respect to
the Series B Preferred Stock and any other Parity Securities are not paid in
full, all distributions to holders of the Series B Preferred Stock and any
Parity Securities will be paid pro rata so that the amount of distributions per
share on the Series B Preferred Stock and any Parity Securities will in all
cases bear to each other the same ratio that the stated liquidation preference
per share on the shares of the Series B Preferred Stock and such Parity
Securities bear to each other.
REDEMPTION
The Series B Preferred Stock is not subject to any mandatory redemption,
sinking fund or other similar provisions, and the holders of the Series B
Preferred Stock have no right to require redemption of the Series B Preferred
Stock.
Prior to October 15, 2001, the Series B Preferred Stock is not redeemable.
On and after such date, shares of the Series B Preferred Stock will be
redeemable, in whole or in part, at the option of the Company, at any time and
from time to time upon not less than thirty nor more than sixty days' notice, at
$25 per share of the Series B Preferred Stock plus accrued and unpaid dividends
(whether or not declared) to the date fixed for redemption. Under current
regulations, any such redemption may be effected only with the prior approval of
the Federal Reserve Board.
If less than all outstanding shares of the Series B Preferred Stock are to
be redeemed, the selection of the shares to be redeemed shall be determined by
lot or pro rata as may be determined by the Company or by any other method
determined by the Company to be equitable. From and after the redemption date
(unless default be made by the Company in providing for the payment of the
redemption price), dividends shall cease to accrue on the shares of the Series B
Preferred Stock called for redemption and all rights of the holders thereof
(except the right to receive the redemption price) shall cease.
Notwithstanding the preceding paragraphs, if the Dividends-Received
Percentage is less than 50% and, as a result, the amount of dividends on the
Series B Preferred Stock payable on any Dividend Payment Date will
S-14
<PAGE> 15
be or is adjusted upwards as described above under "Changes in the
Dividends-Received Percentage", the Company, at its option, may redeem all, but
not less than all, of the outstanding shares of the Series B Preferred Stock,
provided, that within sixty days of the date on which an amendment to the Code
is enacted which reduces the Dividends-Received Percentage to less than 50%, the
Company sends notice to holders of the Series B Preferred Stock of such
redemption. Any redemption of the Series B Preferred Stock pursuant to this
paragraph will take place on the date specified in the notice, which shall not
be less than thirty nor more than sixty days from the date such notice is sent
to holders of the Series B Preferred Stock. Any redemption of the Series B
Preferred Stock in accordance with this paragraph shall be on notice as
aforesaid at the applicable redemption price set forth in the following table,
in each case plus accrued and unpaid dividends (whether or not declared) thereon
to the date fixed for the redemption, including any changes in dividends payable
due to changes in the Dividends-Received Percentage and Post Declaration Date
Dividends, if any:
<TABLE>
<CAPTION>
REDEMPTION PERIOD REDEMPTION PRICE PER SHARE
-------------------------------------------------------------- --------------------------
<S> <C>
September , 1996 to October 14, 1997........................ $26.25
October 15, 1997 to October 14, 1998.......................... $26.00
October 15, 1998 to October 14, 1999.......................... $25.75
October 15, 1999 to October 14, 2000.......................... $25.50
October 15, 2000 to October 14, 2001.......................... $25.25
On or after October 15, 2001.................................. $25.00
</TABLE>
Under current regulations, any such redemption may be effected only with the
prior approval of the Federal Reserve Board.
TRANSFER AGENT AND REGISTRAR
The Bank of New York will be the transfer agent, registrar, dividend
disbursing agent and redemption agent for the Series B Preferred Stock.
RECENT TAX PROPOSALS
On December 7, 1995, the Clinton Administration released a budget plan that
includes certain tax proposals (the "December Proposals") and on August 27, 1996
released an additional tax proposal that would eliminate the Dividends-Received
Percentage for certain preferred stock (the "August Proposal," and together with
the December Proposals, the "Proposals")that may affect holders of the Series B
Preferred Stock. The Proposals have not yet been introduced as legislation, may
not be enacted into law and any legislation which is enacted may differ from the
Proposals materially.
Under the December Proposals, the Dividends-Received Percentage that is
currently available to U.S. corporate shareholders for certain dividends
received from another corporation in which the shareholder owns less than 20%
(by vote and value) would be reduced from 70% to 50% for dividends paid after
January 31, 1996. Additionally, under current law, the Dividends-Received
Percentage is allowed to a U.S. corporate shareholder only if the shareholder
satisfies a 46-day holding period for the dividend-paying stock (or a 91-day
period for certain dividends on preferred stock); for this purpose, days on
which the market risk of owning said stock is reduced through certain hedging
transactions may not be counted. The December Proposals provide that a taxpayer
is not entitled to a Dividends-Received Percentage if the taxpayer's holding
period for the dividend-paying stock is not satisfied over a period immediately
before or immediately after the taxpayer becomes entitled to receive the
dividend. This provision would be effective for dividends paid after January 31,
1996. If enacted, the August Proposal would eliminate the Dividends-Received
Percentage for certain preferred stock. Such preferred stock includes stock that
has a dividend rate which varies in whole or in part (directly or indirectly)
with reference to interest rates, commodity prices or similar indices. The
August Proposal would apply to dividends on stock issued after the effective
date of the August Proposal. If enacted as currently proposed, the August
Proposal would not apply to the Series B Preferred Stock. There can be no
assurance, however, that legislation enacted after the date hereof will not
adversely affect the tax treatment of the Series B Preferred Stock. See
"Description of the Series B Preferred Stock--Dividends--Changes in the
Dividends-Received Percentage."
S-15
<PAGE> 16
UNDERWRITING
Subject to the terms and conditions set forth in a pricing agreement and
the underwriting agreement relating thereto (together, the "Underwriting
Agreement"), the Company has agreed to sell to each of the Underwriters named
below, and each of the Underwriters, for whom Bear, Stearns & Co. Inc. are
acting as representatives (the "Representatives"), has severally agreed to
purchase, the number of shares of the Series B Preferred Stock set forth
opposite its name below. In the Underwriting Agreement, the several Underwriters
have agreed, subject to the terms and conditions set forth therein, to purchase
all of the shares of the Series B Preferred Stock offered hereby if any of the
shares of the Series B Preferred Stock are purchased.
<TABLE>
<CAPTION>
NUMBER OF
SERIES B
PREFERRED
UNDERWRITER SHARES
----------------------------------------------------------------- ---------
<S> <C>
Bear, Stearns & Co. Inc. ........................................ 1,200,000
Goldman, Sachs & Co. ............................................ 1,200,000
Lehman Brothers Inc.............................................. 1,200,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated............... 1,200,000
Prudential Securities Incorporated............................... 1,200,000
---------
Total.................................................. 6,000,000
========
</TABLE>
The Representatives have advised the Company that they propose initially to
offer the shares of the Series B Preferred Stock to the public at the public
offering price set forth on the cover page of this Prospectus Supplement, and to
certain dealers at such price less a concession not in excess of $ per
share; provided, however, that such concession shall not exceed $ per share
for sales to certain institutions. The Underwriters may allow, and such dealers
may reallow, a discount not in excess of $ per share to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The Company has agreed to indemnify the Underwriters against certain
liabilities under the Securities Act of 1933, as amended, or to contribute to
payments which the Underwriters may be required to make in respect thereof.
Any Underwriter may be a customer of, engage in transactions with, and
perform services for, the Company in the ordinary course of business.
Application will be made to list the Series B Preferred Stock on the New
York Stock Exchange. The Representatives have advised the Company that they
intend to make a market in the Series B Preferred Stock prior to the
commencement of trading on the New York Stock Exchange. The Representatives will
have no obligation to make a market in the Series B Preferred Stock, however,
and may cease market making activities, if commenced, at any time.
VALIDITY OF THE SERIES B PREFERRED STOCK
The validity of the Series B Preferred Stock will be passed upon for the
Company by John W. Scheflen, Executive Vice President, General Counsel and
Secretary of the Company, and for the Underwriters by Simpson Thacher & Bartlett
(a partnership which includes professional corporations), New York, New York.
Simpson Thacher & Bartlett will rely on the opinion of Mr. Scheflen as to
matters of Maryland law and Mr. Scheflen will rely on the opinion of Simpson
Thacher & Bartlett as to matters of New York law. Mr. Scheflen owns beneficially
192,500 shares of common stock of the Company, including options exercisable
within sixty days under the Company's 1991 Long Term Incentive Plan. Simpson
Thacher & Bartlett regularly performs legal services for the Company and its
subsidiaries.
S-16
<PAGE> 17
EXPERTS
The consolidated financial statements of MBNA Corporation incorporated by
reference in MBNA Corporation's Annual Report (Form 10-K) for the year ended
December 31, 1995, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of said firm as
experts in auditing and accounting.
S-17
<PAGE> 18
[MBNA CORPORATION LOGO]
$1,000,000,000
MBNA Corporation
Debt Securities and Preferred Stock
------------------------------
MBNA Corporation (the "Company") from time to time may offer and sell (i)
debt securities, consisting of debentures, notes and/or other unsecured
evidences of indebtedness (the "Debt Securities"), which may be either unsecured
senior Debt Securities (the "Senior Debt Securities") or unsecured subordinated
Debt Securities (the "Subordinated Debt Securities") and (ii) preferred stock,
par value $.01 per share ( the "Preferred Stock"), which may be issued in the
form of depositary shares evidenced by depositary receipts (the "Depositary
Shares"). The Debt Securities and the Preferred Stock are collectively referred
to herein as the "Securities."
The Securities offered pursuant to this Prospectus may be issued in one or
more series or issuances and will be limited to $1,000,000,000 aggregate public
offering price (or its equivalent (based on the applicable exchange rate at the
time of sale) in one or more foreign currencies, currency units or composite
currencies as shall be designated by the Company). Certain specific terms of the
particular Securities in respect of which this Prospectus is being delivered are
set forth in the accompanying Prospectus Supplement, including, where
applicable, in the case of Debt Securities, the specific title, aggregate
principal amount, the denominations (which may be in U.S. dollars, in any other
currency or in composite currencies) maturity, premium, if any, the interest
rate (which may be fixed, floating or adjustable), the time and method of
calculating payment of interest, if any, the place or places where principal of
(and premium, if any) and interest, if any, on such Debt Securities will be
payable, the currency in which principal of (and premium, if any) and interest,
if any, on such Debt Securities will be payable, any terms of redemption at the
option of the Company or the holder, any sinking fund provisions, the form of
the Debt Securities (which may be in registered form or book-entry form), the
initial public offering price and any other terms of such Debt Securities, and,
in the case of Preferred Stock, the specific title, the aggregate amount, any
dividend (including the method of calculating payment of dividends),
liquidation, redemption, voting and other rights, any terms for any conversion
or exchange into other Securities, the initial public offering price and any
other terms of such Preferred Stock.
The Senior Debt Securities, when issued, will rank on a parity with all
other unsecured and unsubordinated indebtedness of the Company, and the
Subordinated Debt Securities, when issued, will be subordinated as described
under "Description of Debt Securities -- Subordination of Subordinated Debt
Securities."
------------------------------
The Securities will be sold directly by the Company, through agents,
underwriters or dealers as designated from time to time, or through a
combination of such methods. If agents of the Company or any dealers or
underwriters are involved in the sale of the Securities in respect of which this
Prospectus is being delivered, the names of such agents, dealers or underwriters
and any applicable commissions or discounts are set forth in or may be
calculated from the Prospectus Supplement with respect to such Securities.
Except as indicated in the applicable Prospectus Supplement, the Securities
are not expected to be listed on a securities exchange, and any underwriters or
dealers will not be obligated to make a market in Securities. The Company cannot
predict the activity or liquidity of any trading in the Securities.
THE SECURITIES WILL NOT BE DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND WILL
NOT BE INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE
FUND OR ANY OTHER GOVERNMENTAL AGENCY.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF SECURITIES UNLESS
ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------------
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 5, 1995.
<PAGE> 19
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND ANY
ACCOMPANYING PROSPECTUS SUPPLEMENT IN CONNECTION WITH THE OFFERING DESCRIBED
HEREIN AND THEREIN, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR BY ANY UNDERWRITER, DEALER OR AGENT. NEITHER THIS PROSPECTUS NOR ANY
PROSPECTUS SUPPLEMENT SHALL CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OFFERED HEREUNDER IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OR SALE IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY PROSPECTUS
SUPPLEMENT NOR ANY SALE MADE HEREUNDER IMPLIES THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY AT ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy and
information statements and other information, including the documents
incorporated by reference herein, can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; and at the Commission's regional offices at 75 Park
Place, New York, New York 10007 and Suite 1400, Northwestern Atrium Center, 500
West Madison Street, Chicago, Illinois 60661. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. Such material can also be
inspected at the office of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
The Company has filed a registration statement on Form S-3 (herein,
together with all amendments and exhibits, referred to as the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the securities offered hereby. This Prospectus does not contain
all of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are hereby incorporated by reference in this Prospectus the following
documents and information heretofore filed with the Commission:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1994 as amended by Form 10-K/A-1 provided, however, that the
information referred to in Item 402(a)(8) of Regulation S-K promulgated by
the Commission shall not be deemed to be specifically incorporated by
reference herein.
2. The Company's Current Reports on Form 8-K dated March 31, 1995;
April 13, 1995; April 30, 1995; May 23, 1995; May 31, 1995; June 29, 1995;
June 30, 1995; July 13, 1995; July 31, 1995; August 2, 1995; August 3,
1995; and August 30, 1995.
3. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1995 and June 30, 1995.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act, after the date of this Prospectus and prior to the
termination of the offering of the Securities hereby shall be deemed to be
incorporated herein by reference. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus and the Registration
Statement of which it is a part to the extent that a statement contained herein
or in any other subsequently filed document which is also incorporated or deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus or such
Registration Statement.
The Company undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus has been delivered, upon
written or oral request of such person, a copy of any or all of the documents
which have been or may be incorporated herein by reference, other than exhibits
to such documents (unless such exhibits are specifically incorporated by
reference to such documents). Requests for such copies should be directed to
MBNA Corporation, Wilmington, Delaware 19884-0785, Attention: Vernon H.C.
Wright, Chief Corporate Finance Officer (302) 453-9930.
2
<PAGE> 20
THE COMPANY
MBNA Corporation (the "Company"), is a registered bank holding company
incorporated under the laws of Maryland in 1990. It is the parent corporation of
MBNA America Bank, National Association (the "Bank"), a national bank organized
in January 1991, as the successor to a national bank organized in 1982.
As of June 30, 1995, the Company had consolidated assets of $12.1 billion,
consolidated deposits of $8.1 billion and stockholders' equity of $996.1
million. The principal asset of the Company is its equity interest in the Bank.
As of June 30, 1995, the Bank and its subsidiaries constituted approximately
93.8% of the consolidated assets of the Company.
The Company's principal executive offices are located at 400 Christiana
Road, Newark, Delaware 19713, and its telephone number is (302) 453-9930.
MBNA AMERICA BANK, NATIONAL ASSOCIATION
The Bank, a national banking association located in Newark, Delaware,
conducts nationwide consumer lending programs principally comprised of credit
card related activities. The Bank is a leading issuer of premium MasterCard(R)
credit cards and premium VISA(R)* credit cards. The Bank had aggregate
outstanding loan balances of $22.6 billion on a managed basis at June 30, 1995.
Managed loans include the Bank's on-balance sheet loan portfolio as well as
credit card loans that have been securitized. Of this amount, $21.5 billion were
MasterCard and VISA credit card loans outstanding. In addition to its credit
card products, the Bank accepts deposits, primarily money market products and
certificates of deposit, and offers unsecured lines of credit which can be
accessed by check and home equity loans.
The Bank primarily relies on affinity marketing in the acquisition of new
accounts. Affinity marketing involves the solicitation of prospective
cardholders from identifiable groups with a common interest or a common cause.
Affinity marketing is conducted through two approaches: the first relies on the
solicitation of organized membership groups with the written endorsement of the
group's leadership, and the second utilizes direct solicitation of purchased
list prospects. The Bank also relies on targeted direct response marketing in
the acquisition of new accounts.
Credit applications are reviewed individually by a credit analyst, who
makes a credit decision based on a review of the potential customer's financial
history and capacity to repay. Credit analysts review credit reports obtained
through an independent credit reporting agency and use a delinquency probability
model to assist them in reaching a credit decision for each applicant. Credit
analysts also review and verify other information, such as employment and
income, when necessary to make a credit decision. Further levels of review are
automatically triggered, depending upon the levels of risk indicated by the
delinquency probability model. For some programs, the Bank uses a pre-screening
method to acquire new accounts. Credit analysts review the majority of these
applications to ensure the appropriate credit limit is assigned. The Bank's Loan
Review Department independently reviews selected applications to ensure quality
and consistency. Approximately 50 percent of all credit applications are
approved.
The Bank believes that its affinity marketing strategy and its emphasis on
satisfying customers by consistently delivering quality products and services
have enabled the Bank to attract and retain a portfolio of credit card accounts
with a loss ratio which, based on reports published by MasterCard and VISA, has
been consistently below industry averages. The Bank's net credit losses on
average managed loans outstanding for the six months ended June 30, 1995 were
2.66%. With customers in each of the fifty states, the Bank's portfolio is
geographically diversified. At June 30, 1995, the states with the highest
managed loans outstanding were California, Texas, New York, Florida and New
Jersey, with approximately 14.47%, 7.00%, 6.95%, 5.44% and 4.36% of managed
loans, respectively.
Historically, the Bank has funded its operations primarily by accepting
deposits and by securitizing its assets by selling credit card receivables to a
trust. The trust issues investor certificates which at issuance are
- ---------------
* MasterCard and VISA are registered trademarks of MasterCard International
Incorporated and VISA USA, Inc., respectively.
3
<PAGE> 21
rated AAA by Standard and Poor's and Aaa by Moody's Investors Service,
Incorporated. The Bank retains ownership of the underlying account relationships
that generated the $15.5 billion balance of receivables securitized as of June
30, 1995 and receives a fee for continuing to service those accounts. The
Company offers money market deposit accounts and certificates of deposit. Money
market deposit accounts provide customers with liquidity and convenience of
service, as well as insurance up to $100,000 per depositor by the Federal
Deposit Insurance Corporation (the "FDIC"). Certificates of deposit are
traditional fixed term investments with maturities that typically range from six
to 60 months. They are also insured by the FDIC up to $100,000. Deposit products
are offered to members of the Company's endorsing associations, to existing
credit card customers and to others. As of June 30, 1995, the Bank had $8.2
billion in deposits, of which $6.1 billion were time deposits. Of the $6.1
billion of time deposits, $3.0 billion have a remaining maturity of greater than
one year.
The Company, through its wholly-owned subsidiary MBNA Consumer Services,
Inc., offers home equity loans and lines of credit.
In 1993, the Company organized MBNA International Bank Limited as a
subsidiary of the Bank to market credit cards in the United Kingdom.
USE OF PROCEEDS
Except as otherwise described in the applicable Prospectus Supplement, the
net proceeds from the sale of the Securities offered hereby will be applied to
the Company's general funds to be utilized for general corporate purposes,
including the reduction of short-term debt, possible acquisitions, investments
in, or extension of credit to, the Company's subsidiaries and the possible
acquisition of real property for use in the Company's business.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
JUNE
30, YEARS ENDED DECEMBER 31,
--- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 1994 1993* 1992 1991 1990
--- --- --- ---- ---- ---
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
EARNINGS TO FIXED CHARGES
Including Interest on Deposits..................... 1.9 2.4 2.0 2.1 1.6 1.8
Excluding Interest on Deposits..................... 4.0 5.7 6.0 15.7 12.9 5.3
</TABLE>
- ---------------
* Income before income taxes for 1993 includes a charge of $150.0 million for
the termination of a marketing agreement with an independent third-party
marketing organization. Without the charge, the ratio of earnings to fixed
charges, including and excluding interest on deposits, would have been 2.9 and
9.9, respectively.
The ratio of earnings to fixed charges is computed by dividing (i) income
before income taxes and fixed charges less interest capitalized during such
period, net of amortization of previously capitalized interest, by (ii) fixed
charges. Fixed charges consist of interest expense on borrowings, including
capitalized interest (including or excluding deposits, as the case may be), and
the portion of rental expense which is deemed representative of interest.
REGULATORY MATTERS
The following discussion sets forth certain of the elements of the
comprehensive regulatory framework applicable to bank holding companies and
banks and provides certain specific information relevant to the Company and its
subsidiaries. Federal regulation of financial institutions such as the Company
and the Bank is intended primarily for the protection of depositors and the Bank
Insurance Fund rather than shareholders or other creditors.
4
<PAGE> 22
GENERAL
As a bank holding company, the Company is subject to the supervision of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board").
The Bank is subject to supervision and examination by applicable federal
agencies, principally the Office of the Comptroller of the Currency (the
"Comptroller"), which is the Bank's primary regulator. The Bank's deposits are
insured by, and therefore the Bank is also subject to the regulations of, the
FDIC. In addition to the impact of regulation, commercial banks are affected
significantly by the actions of the Federal Reserve Board as it attempts to
control the money supply and credit availability in order to influence the
economy.
As a bank holding company, the Company is also subject to regulation under
the Bank Holding Company Act of 1956 (the "BHCA") and to the BHCA's examination
and reporting requirements. Under the BHCA, bank holding companies may not
directly or indirectly acquire the ownership or control of more than five
percent of the voting shares or substantially all of the assets of any company,
including a bank, without the prior approval of the Federal Reserve Board. In
addition, bank holding companies generally are prohibited under the BHCA from
engaging in nonbanking activities, subject to certain exceptions.
The earnings of the Bank, and therefore the earnings of the Company, are
affected by general economic conditions, management policies and the legislative
and governmental actions of various regulatory authorities, including the
Federal Reserve Board, the FDIC and the Comptroller. In addition, there are
numerous governmental requirements and regulations which affect the activities
of the Company.
DIVIDEND RESTRICTIONS
The Company is a legal entity separate and distinct from its banking and
other subsidiaries. The principal source of cash flow of the Company, including
cash flow to pay dividends on its stock or principal (premium, if any) and
interest on debt securities, is dividends from the Bank. The approval of the
Comptroller is required for any dividend paid or declared by a national bank if
the total of all dividends paid or declared by the bank in any calendar year
would exceed the total of its net income for that year combined with its
retained net income for the preceding two years less any required transfers to
surplus or a fund for the retirement of any preferred stock. In addition, a
national bank may not pay a dividend in an amount greater than its undivided
profits. Under current regulatory practice, the national banks may pay dividends
only out of current operating earnings. Under these provisions, the Bank could
have declared, as of June 30, 1995, without obtaining prior regulatory approval,
aggregate dividends of approximately $303.8 million. The payment of dividends by
the Bank may also be affected by other factors, such as requirements for the
maintenance of adequate capital.
In addition, under the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA"), a FDIC-insured depository institution may not make
capital distributions (including the payment of dividends) or pay any management
fees to its holding company or pay any dividend if it is undercapitalized or if
such payment would cause it to become undercapitalized. See "-- FDICIA and FDIC
Insurance."
HOLDING COMPANY STRUCTURE
The Bank is subject to restrictions under federal law which limit the
transfer of funds by the Bank to the Company and its nonbanking subsidiaries,
whether in the form of loans, extensions of credit, investments or asset
purchases. Such transfers by the Bank to the Company or any nonbanking
subsidiary are limited in amount to 10% of the Bank's capital and surplus and,
with respect to the Company and all such nonbanking subsidiaries, to an
aggregate of 20% of the Bank's capital and surplus. Furthermore, loans and
extensions of credit by the Bank to the Company or its nonbanking subsidiaries
are required to be secured in specified amounts.
Extensions of credit and other transactions between the Bank and the
Corporation must be on terms and under circumstances, including credit
standards, that are substantially the same or at least as favorable to the Bank
as those prevailing at the time for comparable transactions with non-affiliated
companies.
Under Federal Reserve Board policy, the Company is expected to act as a
source of financial strength to each of its subsidiary banks and to commit
resources to support each such subsidiary bank, in circumstances
5
<PAGE> 23
where the Company might not do so absent such policy. Any capital loans by the
Company to a subsidiary bank would also be subordinate in right of payment to
deposits and to certain other indebtedness of such bank. In addition, the Crime
Control Act of 1990 provides that in the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
Federal law permits the Comptroller to order the pro rata assessment of
shareholders of a national bank whose capital stock has become impaired, by
losses or otherwise, to relieve a deficiency in such national bank's capital
stock. The statute also provides for the enforcement of any such pro rata
assessment of shareholders of such national bank to cover such impairment of
capital stock by sale, to the extent necessary, of the capital stock of any
assessed shareholder failing to pay the assessment. The Company, as the sole
stockholder of the Bank, is subject to such provisions.
CAPITAL ADEQUACY
Under the Federal Reserve Board's risk-based capital guidelines for bank
holding companies and member banks, the minimum ratio of total capital to
risk-adjusted assets (including certain off-balance sheet items) is 8%. At least
half of the total capital is to be comprised of common equity, retained
earnings, minority interests in unconsolidated subsidiaries, noncumulative
perpetual preferred stock and a limited amount of cumulative perpetual preferred
stock, less goodwill and less certain other intangible assets ("Tier 1
capital"). The remainder ("Tier 2 capital") may consist of hybrid capital
instruments, perpetual debt, mandatory convertible debt securities, a limited
amount of subordinated debt, other preferred stock and a limited amount of loan
and lease loss reserves. The total of Tier 1 capital and Tier 2 capital is
referred to as "Total capital." In addition, the Federal Reserve Board has
approved minimum leverage ratio guidelines for bank holding companies and state
member banks. These guidelines provide for a minimum ratio of Tier 1 capital to
quarterly average assets ("Leverage Ratio") of 3% for bank holding companies and
state member banks that meet certain specified criteria, including that they
have the highest regulatory rating. All other bank holding companies and state
member banks will be required to maintain a Leverage Ratio of 3% plus an
additional cushion of 100 to 200 basis points. The guidelines also provide that
banking organizations experiencing internal growth or making acquisitions will
be expected to maintain strong capital positions substantially above the minimum
supervisory levels, without significant reliance on intangible assets.
Furthermore, the guidelines indicate that the Board will continue to consider a
"tangible Tier 1 leverage ratio" in evaluating proposals for expansion or new
activities. The tangible Tier 1 leverage ratio is the ratio of a banking
organization's Tier 1 capital, less all intangibles, to total assets. The Bank
is also subject to similar capital requirements adopted by the Comptroller.
Under the guidelines, as of June 30, 1995, the Company's Tier 1 and total
capital to risk-adjusted assets ratios were 9.91% and 12.94%, respectively, and
the Company's Leverage Ratio was 8.62%. As of June 30, 1995, the Bank's Tier 1
and total capital to risk-adjusted assets ratios were 8.10% and 11.43%,
respectively, and the Bank's Leverage Ratio was 6.94%. Neither the Company nor
the Bank has been advised by its appropriate federal regulatory agency of any
specific leverage ratio applicable to it.
FDICIA AND FDIC INSURANCE
FDICIA provides increased funding for the Bank Insurance Fund ("BIF") of
the FDIC and provides for expanded regulation of banks and bank holding
companies. The expanded regulation includes expanded federal banking agency
examinations and increased powers of federal banking agencies to take corrective
action to resolve the problems of insured depository institutions with capital
deficiencies. Those powers vary depending on which of several levels of
capitalization a particular institution meets.
FDICIA permits only "well capitalized" institutions to accept brokered
deposits without restrictions. As of June 30, 1995 the Bank met the FDIC's
definition of a well capitalized institution for purposes of accepting brokered
deposits. For the purposes of the brokered deposit rules, a bank is defined to
be "well capitalized" if it maintains a ratio of Tier 1 risk-based capital to
risk-adjusted assets of at least 6.0%, a ratio of Total risk-based capital to
risk-adjusted assets of at least 10.0% and a leverage ratio of at least 5.0% and
is not subject to
6
<PAGE> 24
any order, direction or written agreement to maintain specific capital levels.
Under the regulatory definition of brokered deposits, as of June 30, 1995, the
Bank had brokered deposits of $2.2 billion.
The Bank is subject to FDIC deposit insurance assessments for the BIF.
Under the FDIC schedule presently in effect, premiums range from $.23 to $.31
for every $100 of deposits. Each financial institution is assigned to one of
three capital groups -- well capitalized, adequately capitalized or
undercapitalized -- and further assigned to one of three subgroups within a
capital group, on the basis of supervisory evaluations by the institution's
primary federal and, if applicable, state supervisors and other information
relevant to the institution's financial condition and the risk posed to the
applicable insurance fund. The rate schedule is subject to future adjustment by
the FDIC.
REGULATION OF THE CREDIT CARD BUSINESS
The relationship between the Bank and its cardholders is extensively
regulated by federal and state consumer protection laws. The Truth in Lending
Act requires credit card issuers to make certain disclosures along with their
applications and solicitations, upon opening an account and with each periodic
statement. The Act also imposes certain substantive requirements and
restrictions on credit card issuers and provides cardholders with certain rights
to dispute unauthorized charges and to have their billing errors corrected
promptly. Cardholders are also given the right to have their payments promptly
credited to their accounts.
The Equal Credit Opportunity Act prohibits lenders from making credit
decisions on certain bases such as sex, race and marital status among others. In
order to protect borrowers from such discrimination, the Act requires credit
card issuers to disclose the principal reasons they took adverse action against
an applicant or a cardholder.
The Fair Credit Reporting Act generally regulates credit reporting
agencies, but also imposes some duties on credit card issuers as users of
consumer credit reports. For instance, the Act prohibits the use of a consumer
credit report by a credit card issuer except in connection with a proposed
business transaction with the consumer. The Act also requires that credit card
issuers notify consumers when they take adverse action based upon information
obtained from credit reporting agencies.
The federal regulators are authorized to impose penalties for violations of
these statutes and, in certain cases, to order the Bank to pay restitution to
injured cardholders. Cardholders may bring actions for damages for such
violations. In addition, a cardholder may be entitled to assert a violation of
these consumer protection laws by way of set-off against his obligation to pay
the outstanding credit card balance.
The National Bank Act, which governs the activities of national banks,
authorizes national banks to use various alternative interest rates when they
make loans, including the interest rate authorized to state chartered lenders
located in the state where the national bank is located. This ability to
"export" rates, as provided for in the Act, is relied upon by the Bank to charge
customers the interest rates and fees permitted by Delaware law regardless of an
inconsistent law of the state in which the customer is located, thereby
facilitating the Bank's nationwide credit card lending activities.
In October 1991, the United States District Court for the State of
Massachusetts held that the Greenwood Trust Company (a federally-insured,
Delaware-chartered bank that issues the Discover credit card) was prohibited by
Massachusetts law from assessing late charges on certain credit card accounts of
Massachusetts residents. On August 6, 1992, that decision was reversed by the
United States Court of Appeals for the First Circuit, which held that
Massachusetts law was preempted by federal law permitting the charges in
question. In January 1993, the United States Supreme Court denied a petition
from the Commonwealth of Massachusetts to accept the case. Following the
District Court's decision, a number of class action lawsuits or administrative
actions were filed in several states against out-of-state banks (both
federally-insured, state-chartered banks and federally-insured, national banks)
which issue credit cards. These actions challenge a portion or all of the
various fees and charges (such as late fees, overlimit fees, returned check fees
and annual membership fees) assessed against residents of states in which such
suits were filed, based on restrictions or prohibitions under such states' laws
alleged to be applicable to the out-of-state credit card issuers.
7
<PAGE> 25
In January 1992, a lawsuit was filed against the Bank in the Court of
Common Pleas of Allegheny County, Pennsylvania. The Bank removed the case to
federal court in 1992. In March 1992, lawsuits were filed against the Bank and
other credit card issuers in the Superior Court for the State of California for
the County of Los Angeles. In June 1992, a lawsuit was filed against the Bank in
the State District Court in Denver, Colorado. Each of these suits is a purported
class action. The plaintiffs seek to recover certain credit card fees which the
plaintiffs allege were improperly charged under state law. These actions are
similar to a number of other suits against other credit card issuers filed in
various states. The Bank has filed pre-trial motions for dismissal of each of
these cases. The Bank's motion was granted in the Pennsylvania case and the
plaintiffs have taken an appeal from that decision. The Bank's motion was
granted in the Colorado case and that decision was affirmed by the Colorado
Court of Appeals. The plaintiffs' appeal to the Colorado Supreme Court was
argued on April 25, 1995 and a decision in that case is pending. In several
similar actions, other bank defendants have prevailed. The Bank believes that
all charges collected by it are governed by federal law and are proper
thereunder. The Bank intends to defend these suits vigorously. There can be no
assurance that the Bank will not be named as a defendant in future lawsuits or
administrative actions.
DESCRIPTION OF DEBT SECURITIES
The Senior Debt Securities are to be issued under an Indenture (the "Senior
Indenture") between the Company and Bankers Trust Company, as Trustee (the
"Senior Trustee"). The Subordinated Debt Securities are to be issued under a
second Indenture (the "Subordinated Indenture") between the Company and Harris
Trust and Savings Bank, as Trustee (the "Subordinated Trustee"). Copies of the
Senior Indenture and the Subordinated Indenture have been filed with the
Commission as exhibits to the Registration Statement. The Senior Indenture and
the Subordinated Indenture are sometimes referred to collectively as the
"Indentures" and the Senior Trustee and the Subordinated Trustee are sometimes
referred to collectively as the "Trustees." The following summaries of the
provisions of the Senior Debt Securities, the Subordinated Debt Securities and
the Indentures do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all the provisions of the Indenture
applicable to a particular series of Debt Securities (the "Applicable
Indenture"), including the definitions therein of certain terms. Wherever
particular Sections, Articles or defined terms of the Applicable Indenture are
referred to, it is intended that such Sections, Articles or defined terms shall
be incorporated herein by reference. Article and Section references used herein
are references to the Applicable Indenture. Capitalized terms not otherwise
defined herein shall have the meaning given to them in the Applicable Indenture.
The following sets forth certain general terms and provisions of the Debt
Securities offered hereby. The particular terms of the Debt Securities offered
by any Prospectus Supplement (the "Offered Debt Securities") will be described
in the Prospectus Supplement relating to such Offered Debt Securities (the
"Applicable Prospectus Supplement").
The Company is a bank holding company, and the right of the Company to
participate as a shareholder in any distribution of assets of any subsidiary
upon its liquidation or reorganization or winding-up (and thus the ability of
Holders of the Debt Securities to benefit, as creditors of the Company, from
such distribution) is subject to the prior claims of creditors of any such
subsidiary. The Bank is 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 legal limitations on the extent to which the Bank may pay
dividends or otherwise supply funds to the Company or its affiliates. See
"Regulatory Matters."
GENERAL
The Indentures do not limit the amount of Debt Securities that may be
issued thereunder and provide that Debt Securities may be issued thereunder from
time to time in one or more series. The Debt Securities will be unsecured
obligations of the Company.
The general provisions of the Indentures and the Debt Securities do not
contain any provisions that would limit the ability of the Company or its
Subsidiaries to incur indebtedness, that would require the Company or
8
<PAGE> 26
an acquiror to repurchase Debt Securities in the event of a "change in control"
or that would afford holders of Debt Securities protection in the event of a
highly leveraged or similar transaction involving the Company or its
Subsidiaries. Reference is made to the Applicable Prospectus Supplement for
information with respect to any deletions from, modifications of or additions to
the Events of Default or covenants of the Company described below that are
applicable to the Debt Securities, including any addition of covenants or other
provisions providing event risk or similar protection.
Unless otherwise indicated in the Applicable Prospectus Supplement,
principal of, premium, if any, and interest on the Debt Securities will be
payable, and the transfer of Debt Securities will be registerable, at the office
or agency of the Company in the Borough of Manhattan, The City of New York
maintained by the Company and at any other office or agency maintained by the
Company for such purpose, except that, at the option of the Company, interest
may be paid by mailing a check to the address of the Person entitled thereto as
it appears on the register for the Debt Securities. (Sections 301, 305 and 1002)
The Debt Securities will be issued only in fully registered form without coupons
and, unless otherwise indicated in the Applicable Prospectus Supplement, in
denominations of $1,000 or integral multiples thereof. (Section 302) No service
charge will be made for any registration of transfer or exchange of the Debt
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge imposed in connection therewith. (Section 305)
The Applicable Prospectus Supplement will describe the following terms of
the Offered Debt Securities: (1) the title of the Offered Debt Securities; (2)
whether the Offered Debt Securities are Senior Debt Securities or Subordinated
Debt Securities; (3) any limit on the aggregate principal amount of the Offered
Debt Securities; (4) the date or dates on which the principal of the Offered
Debt Securities will mature; (5) the rate or rates (which may be fixed or
variable) at which the Offered Debt Securities will bear interest, if any, and
the date or dates from which any such interest, if any, will accrue; (6) the
dates on which such interest, if any, on the Offered Debt Securities will be
payable and the Regular Record Dates for such Interest Payment Dates; (7) the
place or places where the principal of and any premium and interest on the
Offered Debt Securities shall be payable; (8) any mandatory or optional sinking
funds or analogous provisions; (9) the date, if any, after which and the price
or prices at which the Offered Debt Securities may, pursuant to any optional or
mandatory redemption provisions, be redeemed and the other detailed terms and
provisions of any such optional or mandatory redemption provision; (10) the
obligation of the Company, if any, to redeem or repurchase the Offered Debt
Securities at the option of the Holder; (11) if other than denominations of
$1,000 and any integral multiple thereof, the denominations in which the Offered
Debt Securities shall be issuable; (12) if other than the principal amount
thereof, the portion of the principal amount of the Offered Debt Securities that
will be payable upon the declaration of acceleration of the Maturity thereof,
(13) the currency of payment of principal of and any premium and interest on the
Offered Debt Securities; (14) any index used to determine the amount of payment
of principal of and any premium and interest on the Offered Debt Securities;
(15) if the Offered Debt Securities will be issuable only in the form of a
Global Security, the Depositary or its nominee with respect to the Offered Debt
Securities and the circumstances under which the Global Security may be
registered for transfer or exchange in the name of a Person other than the
Depositary or its nominee; (16) the applicability, if any, of the provisions
described under "Defeasance and Covenant Defeasance"; (17) any additional Event
of Default, and in the case of any Offered Subordinated Debt Securities, any
additional Event of Default that would result in the acceleration of the
maturity thereof; and (18) any other terms of the Offered Debt Securities.
(Section 301)
Both Senior Debt Securities and Subordinated Debt Securities may be issued
as Original Issue Discount Debt Securities to be offered and sold at a
substantial discount below their stated principal amount. Federal income tax
consequences and other special considerations applicable to any such Original
Issue Discount Debt Securities will be described in the Applicable Prospectus
Supplement. "Original Issue Discount Debt Security" means any Debt Security
which provides for an amount less than the principal amount thereof to be due
and payable upon the declaration of acceleration of the Maturity thereof upon
the occurrence of an Event of Default and the continuation thereof. (Section
101)
9
<PAGE> 27
SUBORDINATION OF SUBORDINATED DEBT SECURITIES
Unless otherwise indicated in the Applicable Prospectus Supplement, the
following provisions shall apply to the Subordinated Debt Securities. The
following Section references are to Sections of the Subordinated Indenture.
The payment of the principal of, premium, if any, and interest on the
Subordinated Debt Securities will, to the extent set forth in the Subordinated
Indenture, be subordinated in right of payment to the prior payment in full of
all Senior Indebtedness (as defined below). In certain events of insolvency, the
payment of the principal of, premium, if any, and interest on the Subordinated
Debt Securities will, to the extent set forth in the Subordinated Indenture,
also be effectively subordinated in right of payment to the prior payment in
full of all Other Financial Obligations (as defined below). Upon any payment or
distribution of assets to creditors upon any liquidation, dissolution, winding
up, reorganization, assignment for the benefit of creditors, marshalling of
assets or any bankruptcy, insolvency or similar proceedings of the Company, the
holders of all Senior Indebtedness will first be entitled to receive payment in
full of all amounts due or to become due thereon before the Holders of the
Subordinated Debt Securities will be entitled to receive any payment in respect
of the principal of, premium, if any, or interest on the Subordinated Debt
Securities. (Section 1302) If, upon any such payment or distribution of assets
to creditors, there remain, after giving effect to such subordination provisions
in favor of the holders of Senior Indebtedness, any amounts of cash, property or
securities available for payment or distribution in respect of Subordinated Debt
Securities (as defined in the Subordinated Indenture, "Excess Proceeds") and if,
at such time, any person entitled to payment pursuant to the terms of Other
Financial Obligations (as defined in the Subordinated Indenture, "Entitled
Person") has not received payment in full of all amounts due or to become due on
or in respect of such Other Financial Obligations, then such Excess Proceeds
shall first be applied to pay or provide for the payment in full of such Other
Financial Obligations before any payment or distribution may be made in respect
of the Subordinated Debt Securities. In the event of the acceleration of the
maturity of any Subordinated Debt Securities, the holders of all Senior
Indebtedness will first be entitled to receive payment in full of all amounts
due or to become due thereon before the Holders of the Subordinated Debt
Securities will be entitled to receive any payment of the principal of, premium,
if any, or interest on the Subordinated Debt Securities. (Section 1303)
Accordingly, in case of such an acceleration, all Senior Indebtedness would have
to be repaid before any payment could be made in respect of the Subordinated
Debt Securities. No payments on account of principal, premium, if any, or
interest in respect of the Subordinated Debt Securities may be made if there
shall have occurred and be continuing a default in any payment with respect to
any Senior Indebtedness, or an event of default with respect to any Senior
Indebtedness permitting the holders thereof to accelerate the maturity thereof,
or if any judicial proceeding shall be pending with respect to any such default.
(Section 1304)
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Indebtedness or
the Subordinated Debt Securities may recover less, ratably, than holders of
Senior Indebtedness and may recover more, ratably, than Holders of the
Subordinated Debt Securities.
"Senior Indebtedness" is defined in the Subordinated Indenture to mean the
principal of, premium, if any, and interest on (i) all indebtedness of the
Company for money borrowed (including indebtedness of others guaranteed by the
Company) other than the Subordinated Debt Securities, whether outstanding on the
date of the Subordinated Indenture or thereafter created, assumed or incurred
and (ii) any amendments, renewals, extensions, modifications and refundings of
any such indebtedness, unless in either case in the instrument creating or
evidencing any such indebtedness or pursuant to which it is outstanding it is
provided that such indebtedness is not superior in right of payment to the
Subordinated Debt Securities. (Section 101) For the purposes of this definition,
"indebtedness for money borrowed" is defined as (i) any obligation of, or any
obligation guaranteed by, the Company for the repayment of borrowed money,
whether or not evidenced by bonds, debentures, notes or other written
instruments, (ii) any deferred payment obligation of, or any such obligation
guaranteed by, the Company for the payment of the purchase price of property or
assets evidenced by a note or similar instrument, and (iii) any obligation of,
or any such obligation guaranteed by, the Company for the payment of rent or
other amounts under a lease of property or assets which obligation is required
to be
10
<PAGE> 28
classified and accounted for as a capitalized lease on the balance sheet of the
Company under generally accepted accounting principles.
"Other Financial Obligations" is defined in the Subordinated Indenture to
mean all obligations of the Company to make payment pursuant to the terms of
financial instruments, such as (i) securities contracts and foreign currency
exchange contracts, (ii) derivative instruments, such as swap agreements
(including interest rate and currency and foreign exchange rate swap
agreements), cap agreements, floor agreements, collar agreements, interest rate
agreements, foreign exchange agreements, options, commodity futures contracts,
commodity options contracts and (iii) in the case of both (i) and (ii) above,
similar financial instruments other than (x) obligations on account of Senior
Indebtedness and (y) obligations on account of indebtedness for money borrowed
ranking pari passu with or subordinate to the Subordinated Debt Securities.
The Subordinated Indenture does not limit the amount of other indebtedness,
including Senior Indebtedness and obligations of the Company in respect of Other
Financial Obligations, that may be issued by the Company or any of its
Subsidiaries. As of June 30, 1995, the aggregate amount of Senior Indebtedness
outstanding was $740.5 million.
RESTRICTION ON SALE OR ISSUANCE OF VOTING STOCK OF THE BANK
The Senior Indenture contains a covenant by the Company that it will not,
and will not permit any Subsidiary to, sell, assign, transfer, grant a security
interest or otherwise dispose of any shares of Voting Stock, or any securities
convertible into, or options, warrants or rights to subscribe for or purchase
shares, of Voting Stock of the Bank or any Subsidiary owning, directly or
indirectly, any shares of the Bank and that it will not permit the Bank or any
Subsidiary owning, directly or indirectly, any shares of Voting Stock of the
Bank to issue any shares of the Bank's Voting Stock or any securities
convertible into, or options, warrants or rights to subscribe for or purchase
shares of the Bank's Voting Stock, except for sales, assignments, transfers,
issuances, grants of security interests or other dispositions which: (i) are for
fair market value (as determined by the Board of Directors of the Company) and
if, after giving effect thereto, the Company will own not less than 80% of the
shares of Voting Stock of the Bank or any such Subsidiary owning any shares of
Voting Stock of the Bank free and clear of any security interest; (ii) are made
(x) in compliance with an order of a court or regulatory authority of competent
jurisdiction, or (y) in compliance with a condition imposed by any such court or
authority permitting the acquisition by the Company, directly or indirectly, of
any other bank or entity the activities of which are legally permissible for a
Person such as the Company or a Subsidiary to engage in, or (z) in compliance
with an undertaking made to such an authority in connection with an acquisition
by the Company, directly or indirectly, of any bank or entity the activities of
which are legally permissible for a Person such as the Company or a Subsidiary
to engage in (provided that, in the case of clauses (y) and (z), the assets of
the bank or entity being acquired and its consolidated subsidiaries equal or
exceed 75% of the assets of the Bank or such Subsidiary owning, directly or
indirectly, any shares of Voting Stock of the Bank and its respective
consolidated subsidiaries on the date of acquisition); or (iii) are made to the
Company or any Wholly-owned Subsidiary. Notwithstanding the foregoing, the Bank
may be merged into or consolidated with another banking institution organized
under the laws of the United States, any State thereof or the District of
Columbia, if, after giving effect to such merger or consolidation, the Company
or any Wholly-owned Subsidiary owns at least 80% of the Voting Stock of such
other banking institution then issued and outstanding free and clear of any
security interest and if, immediately after giving effect thereto, no Event of
Default, and no event which, after notice or lapse of time or both, would become
an Event of Default, shall have happened and be continuing. (Section 1008)
The foregoing restriction is not included in the Subordinated Indenture.
EVENTS OF DEFAULT
The Senior Indenture (with respect to any series of Senior Debt Securities)
and, unless otherwise provided in the Applicable Prospectus Supplement, the
Subordinated Indenture (with respect to any series of Subordinated Debt
Securities) define an Event of Default as any one of the following events: (a)
default in the payment of any interest upon any Debt Security when it becomes
due and payable, and continuance of
11
<PAGE> 29
such default for a period of 30 days (in the case of the Subordinated Indenture,
whether or not payment is prohibited by the subordination provisions); (b)
default in the payment of the principal of (or premium, if any, on) any Debt
Security at its Maturity (in the case of the Subordinated Indenture, whether or
not payment is prohibited by the subordination provisions); (c) 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); (d) failure to perform any other covenants or warranties of the
Company in the Applicable Indenture (other than a covenant or warranty included
in the Applicable Indenture solely for the benefit of a series of Debt
Securities thereunder other than that series) continued for a period of 60 days
after the holders of at least 25% in principal amount of the Outstanding Debt
Securities have given written notice as provided in the Applicable Indenture;
(e) failure to pay when due the principal of, or acceleration of, any
indebtedness for borrowed money in an aggregate principal amount exceeding
$10,000,000 of the Company or of the Bank, if such acceleration is not annulled
within 10 days after written notice as provided in the Applicable Indenture; (f)
certain events of bankruptcy, insolvency or reorganization of the Company or of
the Bank, and (g) any other Event of Default provided with respect to Debt
Securities of that series. (Section 501) If an Event of Default occurs with
respect to Debt Securities of any series, the Trustee under the Applicable
Indenture shall give the Holders of Debt Securities of such series notice of
such default, provided however, that in the case of a default described in (d)
above, no such notice to Holders shall be given until at least 30 days after the
occurrence thereof. (Section 602)
If an Event of Default with respect to the Senior Debt Securities of any
series at the time Outstanding occurs and is continuing, either the Senior
Trustee or the Holders of at least 25% in aggregate principal amount of the
Outstanding Debt Securities of that series may declare the principal amount (or,
if the Debt Securities of that series are Original Issue Discount Debt
Securities, such portion of the principal amount as may be specified in the
terms thereof) of all the Senior Debt Securities of that series to be due and
payable immediately. Payment of the principal of the Subordinated Debt
Securities may be accelerated only in the case of certain events of bankruptcy,
insolvency or reorganization of the Company. The Subordinated Trustee and the
Holders will not be entitled to accelerate the maturity of the Subordinated Debt
Securities upon the occurrence of any of the Events of Default described above
except for those described in subparagraph (f) (i.e., the bankruptcy, insolvency
or reorganization of the Company). Accordingly, there is no right of
acceleration in the case of a default in the performance of any covenant with
respect to the Subordinated Debt Securities, including the payment of interest
or principal. At any time after a declaration of acceleration with respect to
Debt Securities of any series has been made, but before a judgment or decree
based on acceleration has been obtained, the Holders of a majority in aggregate
principal amount of Outstanding Debt Securities of that series may, under
certain circumstances, rescind and annul such acceleration. (Section 502)
The Indentures provide that, subject to the duty of the Trustee during
default to act with the required standard of care, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request or direction of any of the Holders, unless such Holders shall have
offered to the Trustee reasonable indemnity. (Section 603) Subject to such
provisions for the indemnification of the Trustee and to certain other
conditions, the Holders of a majority in aggregate principal amount of the
Outstanding Debt Securities of any series will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee, with
respect to the Debt Securities of that series. (Section 512)
No Holder of any series of Debt Securities will have any right to institute
any proceeding with respect to the Applicable Indenture or for the appointment
of a receiver or a trustee or for any remedy thereunder, unless such Holder
shall have previously given to the Trustee under the Applicable Indenture
written notice of a continuing Event of Default and unless the Holders of at
least 25% in aggregate principal amount of the Outstanding Debt Securities of
that series shall have made written request, and offered reasonable indemnity,
to the Trustee to institute such proceeding as trustee, and the Trustee shall
not have received from the Holders of a majority in aggregate principal amount
of the Outstanding Debt Securities of that series a direction inconsistent with
such request and shall have failed to institute such proceeding within 60 days.
(Section 507) However, such limitations do not apply to a suit instituted by a
Holder of a Debt Security for enforcement of
12
<PAGE> 30
payment of the principal of and premium, if any, or interest on such Debt
Security on or after the respective due dates expressed in such Debt Security.
(Section 508)
The Company is required under each Indenture to furnish to the Trustee
annually a statement as to the performance by the Company of certain of its
obligations under such Indenture and as to any default in such performance.
(Section 1004)
DEFEASANCE AND COVENANT DEFEASANCE
The Indentures provide, if such provision is made applicable to the Debt
Securities of any series pursuant to Section 301 of the Applicable Indenture
(which will be indicated in the Applicable Prospectus Supplement), that the
Company may elect either (a) to defease and be discharged from any and all
obligations in respect of such Debt Securities then outstanding (including, in
the case of Subordinated Debt Securities, the provisions described under
"Subordination of Subordinated Debt Securities" and except for certain
obligations to register the transfer of or exchange of such Debt Securities,
replace stolen, lost or mutilated Debt Securities, maintain paying agencies and
hold monies for payment in trust) ("defeasance") or (b) to be released from its
obligations with respect to such Debt Securities under any covenant applicable
to such Debt Securities which is determined pursuant to Section 301 of the
Applicable Indenture to be subject to covenant defeasance and, with respect to
Senior Debt Securities, to be released from its obligations concerning the
restriction on sale or issuance of Voting Stock described under "Restriction on
Sale or Issuance of Voting Stock of the Bank" ("covenant defeasance"), and the
occurrence of an event described in clause (d) (insofar as with respect to
covenants subject to covenant defeasance) or clause (e) under "Events of
Default" above shall no longer be an Event of Default, in each case (a) or (b),
if the Company deposits, in trust, with the Trustee under the Applicable
Indenture money or U.S. Government Obligations, which through the payment of
interest thereon and principal thereof in accordance with their terms will
provide money, in an amount sufficient, without reinvestment, to pay all the
principal of (and premium, if any) and interest on such Debt Securities on the
dates such payments are due (which may include one or more redemption dates
designated by the Company) and any mandatory sinking fund or analogous payments
thereon in accordance with the terms of such Debt Securities. Such a trust may
only be established if, among other things, (i) no Event of Default or event
which with the giving of notice or lapse of time, or both, would become an Event
of Default under the Indenture shall have occurred and be continuing on the date
of such deposit, (ii) such deposit will not cause the Trustee under the
Applicable Indenture to have any conflicting interest with respect to other
securities of the Company, (iii) the Company shall have delivered an Opinion of
Counsel to the effect that the Holders will not recognize income, gain or loss
for Federal income tax purposes as a result of such deposit or defeasance and
will be subject to Federal income tax in the same manner as if such defeasance
had not occurred and (iv) in the case of Subordinated Debt Securities, no
default in the payment of principal of any Senior Indebtedness shall have
occurred or be continuing and no other event of default with respect to any
Senior Indebtedness shall have occurred and be continuing, permitting, after
notice or lapse of time or both, the acceleration thereof.
The Company may exercise its defeasance option with respect to such Debt
Securities notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its defeasance option, payment of such Debt Securities
may not be accelerated because of an Event of Default. If the Company exercises
its covenant defeasance option, payment of such Debt Securities may not be
accelerated by reference to the covenants noted under clause (b) above. In the
event the Company omits to comply with its remaining obligations with respect to
such Debt Securities under the Applicable Indenture after exercising its
covenant defeasance option and such Debt Securities are declared due and payable
because of the occurrence of any Event of Default, the amount of money and U.S.
Government Obligations on deposit with the applicable Trustee may be
insufficient to pay amounts due on the Debt Securities of such series at the
time of the acceleration resulting from such Event of Default. However, the
Company will remain liable in respect of such payments. (Article Thirteen and
Article Fourteen of the Senior Indenture and the Subordinated Indenture,
respectively.)
13
<PAGE> 31
MODIFICATION AND WAIVER
Modifications and amendments of each of the Senior Indenture or the
Subordinated Indenture may be made by the Company and the Trustee under the
Applicable Indenture with the consent of the Holders of not less than 66 2/3% in
aggregate principal amount of the Outstanding Debt Securities of each series
issued under such Indenture and affected by the modification or amendments;
provided, however, that no such modification or amendment may, without the
consent of the Holders of all Debt Securities affected thereby, (i) change the
Stated Maturity of the principal of, or any installment of principal of or
interest on, any Debt Security; (ii) 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 Debt Security the amount payable upon acceleration of the
maturity thereof); (iii) change the place or currency of payment of principal
of, premium, if any, or interest on any Debt Security, (iv) impair the right to
institute suit for the enforcement of any payment on any Debt Security on or at
the Stated Maturity thereof (or in the case of redemption, on or after the
Redemption Date); (v) in the case of the Subordinated Indenture, modify the
subordination provisions in a manner adverse to the Holders of the Subordinated
Debt Securities; or (vi) reduce the percentage in principal amount of
Outstanding Debt Securities of any series, the consent of whose Holders is
required for modification or amendment of the Indenture or for waiver of certain
defaults or, in the case of the Senior Indenture, for waiver of compliance with
certain provisions of such Indenture. (Section 902)
The Holders of at least 66 2/3% in aggregate principal amount of the
Outstanding Senior Debt Securities of any series may, on behalf of all Holders
of that series, waive compliance by the Company with certain restrictive
provisions of the Applicable Indenture. (Section 1009) The Holders of a majority
in aggregate principal amount of the Senior Debt Securities or the Subordinated
Debt Securities may, on behalf of all Holders of the Senior Debt Securities or
the Subordinated Debt Securities, respectively, 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. (Section 513)
CONSOLIDATION, MERGER AND SALE OF ASSETS
Under each Indenture, the Company may consolidate with or merge into any
other corporation or convey, transfer or lease its properties and assets
substantially as an entirety to any Person without the consent of the Holders of
any of the Outstanding Debt Securities provided that (i) any successor or
purchaser is a corporation organized under the laws of the United States of
America, any State or the District of Columbia, and any such successor or
purchaser expressly assumes the Company's obligations on the Debt Securities
under a supplemental Indenture, (ii) 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, shall have occurred and be
continuing, (iii) if properties or assets of the Company become subject to a
mortgage, pledge, lien, security interest or other encumbrance not permitted by
such Indenture, the Company or such successor Person, as the case may be, takes
such steps as shall be necessary effectively to secure the Securities equally
and ratably with (or prior to) all indebtedness secured thereby, and (iv) the
Company has delivered to the Trustee under the Applicable Indenture an Officers'
Certificate and an Opinion of Counsel stating compliance with these provisions.
(Section 801)
GLOBAL DEBT SECURITIES
The Debt Securities of a series may be issued in the form of one or more
Global Securities that will be deposited with a Depositary or its nominee
identified in the Applicable Prospectus Supplement. In such a case, one or more
Global Securities will be issued in a denomination or aggregate denominations
equal to the portion of the aggregate principal amount of Outstanding Debt
Securities of the series to be represented by such Global Security or
Securities. Unless and until it is exchanged in whole or in part for Debt
Securities in definitive registered form, a Global Security may not be
registered for transfer or exchange except as a whole by the Depositary for such
Global Security to a nominee for such Depositary and except in the circumstances
described in the Applicable Prospectus Supplement. (Sections 204 and 305)
14
<PAGE> 32
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Global Security
will be described in the Applicable Prospectus Supplement.
CONCERNING THE TRUSTEES
Bankers Trust Company and Harris Trust and Savings Bank are Trustees under
the Senior Indenture and the Subordinated Indenture, respectively. In the normal
course of business, the Company and its subsidiaries conduct banking
transactions with the Trustees, and the Trustees conduct banking transactions
with the Company and its subsidiaries. Bankers Trust Company serves as trustee
for several of the trusts established in connection with certain of the Bank's
asset securitizations.
DESCRIPTION OF PREFERRED STOCK
The following summary contains a description of the general terms of the
Preferred Stock to which any Prospectus Supplement may relate. Certain terms of
any series of the Preferred Stock offered by any Prospectus Supplement will be
described in the Prospectus Supplement relating to such series of the Preferred
Stock. If so indicated in the Prospectus Supplement, the terms of any such
series, including any Depositary Shares (as defined below) issued in respect
thereof, may differ from the terms set forth below. The description of certain
provisions of the Preferred Stock set forth below and in any Prospectus
Supplement does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the Company's Articles of Incorporation and the
articles supplementary to the Company's Articles of Incorporation which will be
filed with the Commission in connection with the offering of such series of
Preferred Stock.
GENERAL
Under the Company's Articles of Incorporation, the Board of Directors of
the Company is authorized, without further shareholder action, to provide for
the issuance of shares of Preferred Stock, par value $.01 per share, in one or
more series, with such terms, including preferences, conversion and other
rights, voting power, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption, as shall be established in or pursuant
to the resolution or resolutions providing for the issue thereof to be adopted
by the Board of Directors. Currently, under the Company's Articles of
Incorporation, 10,000,000 shares are classified as Preferred Stock. The
Company's Board of Directors has authority, without further shareholder
approval, to reclassify authorized but unissued shares of any stock as Preferred
Stock or other stock having preferred dividend and voting rights and other
characteristics determined by the Board of Directors. Prior to the issuance of
each series of Preferred Stock, the Board of Directors (as used herein the term
"Board of Directors" includes any duly authorized committee thereof) will adopt
resolutions creating and designating such series as a series of Preferred Stock.
As of the date of this Prospectus, no shares of Preferred Stock are outstanding.
The Preferred Stock shall have the dividend, liquidation, and voting rights
set forth below, unless otherwise provided in the Prospectus Supplement relating
to a particular series of the Preferred Stock. Reference is made to the
Prospectus Supplement relating to the particular series of the Preferred Stock
offered thereby for specific terms, including: (i) the designation of such
Preferred Stock and the number of shares offered, (ii) the amount of liquidation
preference per share; (iii) the price at which such Preferred Stock will be
issued; (iv) the dividend rate (or method of calculation), the dates on which
dividends shall be payable, whether such dividends shall be cumulative or
noncumulative and, if cumulative, the dates from which dividends shall commence
to cumulate; (v) any redemption or sinking fund provisions of such Preferred
Stock, (vi) whether the Company has elected to offer Depositary Shares (as
defined below); and (vii) any additional voting, dividend, liquidation,
redemption, sinking fund and other rights, preferences, privileges, limitations
and restrictions of such Preferred Stock.
The Preferred Stock will, when issued, be fully paid and nonassessable and
have no preemptive rights. Unless otherwise specified in the Prospectus
Supplement relating to a particular series of the Preferred Stock, each series
of the Preferred Stock will rank on a parity as to dividends and liquidation
rights in all respects with each other series of the Preferred Stock.
15
<PAGE> 33
RANK
Any series of the Preferred Stock will, with respect to dividend rights and
rights on liquidation, winding up and dissolution rank (i) senior to all classes
of common stock of the Company and to all equity securities issued by the
Company the terms of which specifically provide that such equity securities will
rank junior to the Preferred Stock (collectively referred to as the "Junior
Securities"); (ii) on a parity with all equity securities issued by the Company
the terms of which specifically provide that such equity securities will rank on
a parity with the Preferred Stock, (collectively referred to as the "Parity
Securities"); and (iii) junior to all equity securities issued by the Company
the terms of which specifically provide that such equity securities will rank
senior to the Preferred Stock.
DIVIDEND RIGHTS
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of funds
of the Company legally available therefor, cash dividends at such rates and on
such dates as are set forth in the Prospectus Supplement relating to such series
of the Preferred Stock. Such rate may be fixed or variable or both. Each such
dividend will be payable to the holders of record as they appear on the stock
record books of the Company (or, if applicable, the records of the Depositary
referred to below under "Depositary Shares") on such record dates as will be
fixed by the Board of Directors of the Company or a duly authorized committee
thereof. Dividends on any series of the Preferred Stock may be cumulative or
noncumulative, as provided in the Prospectus Supplement relating thereto. The
Company's ability to pay dividends on its Preferred Stock is subject to policies
established by the Federal Reserve Board. See "Regulatory Matters -- Dividend
Restrictions."
No full dividends may be declared or paid or funds set apart for the
payment of dividends on any Parity Securities unless dividends shall have been
paid or set apart for such payment on the Preferred Stock. If full dividends are
not so paid, the Preferred Stock shall share dividends pro rata with the Parity
Securities.
Each series of Preferred Stock will be entitled to dividends as described
in the Prospectus Supplement relating to such series, which may be based upon
one or more methods of determination. Different series of the Preferred Stock
may be entitled to dividends at different rates or based upon different methods
of determination.
VOTING RIGHTS
Except as indicated in the Prospectus Supplement relating to a particular
series of Preferred Stock, or except as expressly required by applicable law,
the holders of the Preferred Stock will not be entitled to any voting rights.
Under regulations adopted by the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") if the holders of shares of any series of
preferred stock of the Company become entitled to vote for the election of
directors because dividends on such series are in arrears such series may then
be deemed a "class of voting securities" and a holder of 25% or more of such
series (or a holder of 5% or more if it otherwise exercises a "controlling
influence" over the Company) may then be subject to regulation as a bank holding
company in accordance with the Bank Holding Company Act. In addition, at such
time as such series is deemed a class of voting securities, (i) any other bank
holding company may be required to obtain the approval of the Federal Reserve
Board under the Bank Holding Company Act to acquire or retain 5% or more of such
series and (ii) any person other than a bank holding company may be required to
obtain the approval of the Federal Reserve Board under the Change in Bank
Control Act or the Bank Holding Company Act to acquire or retain 10% or more of
such series.
RIGHTS UPON LIQUIDATION
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of each series of Preferred Stock will be
entitled to receive out of assets of the Company available for distribution to
shareholders, before any distribution of assets is made to holders of Junior
Securities, including
16
<PAGE> 34
common stock, liquidating distributions in the amount set forth in the
Prospectus Supplement relating to such series of the Preferred Stock plus an
amount equal to accrued and unpaid dividends for the then-current dividend
period and, if such series of the Preferred Stock is cumulative, for all
dividend periods prior thereto, all as set forth in the Prospectus Supplement
with respect to such shares. If upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the amounts payable with respect to
the Preferred Stock of any series and any other Parity Securities are not paid
in full, the holders of the Preferred Stock of such series and the Parity
Securities will share ratably in any such distribution of assets of the Company
in proportion to the full liquidation preferences to which each is entitled.
After payment of the full amount of the liquidation preference to which they are
entitled, the holders of such series of Preferred Stock will not be entitled to
any further participation in any distribution of assets of the Company.
Because the Company is a holding company, its rights, the rights of its
creditors and of its stockholders, including the holders of the shares of the
Preferred Stock offered hereby, to participate in the assets of any subsidiary,
including the Bank, upon the latter's liquidation or recapitalization may be
subject to the prior claims of the subsidiary's creditors except to the extent
that the Company may itself be a creditor with recognized claims against the
subsidiary.
REDEMPTION
A series of the Preferred Stock may be redeemable, in whole or in part, at
the option of the Company or the holder thereof, and may be subject to mandatory
redemption pursuant to a sinking fund, in each case upon terms, at the times and
at the redemption prices set forth in the Prospectus Supplement relating to such
series.
In the event of partial redemptions of Preferred Stock, whether by
mandatory or optional redemption, the shares to be redeemed will be determined
by lot or pro rata, as may be determined by the Board of Directors of the
Company, a committee thereof or by any other method determined to be equitable
by the Board of Directors.
On or after a redemption date, unless the Company defaults in the payment
of the redemption price, dividends will cease to accrue on shares of Preferred
Stock called for redemption and all rights of holders of such shares will
terminate except for the right to receive the redemption price.
Under current regulations, bank holding companies may not exercise any
option to redeem shares of preferred stock included as Tier 1 capital, or
exchange such preferred stock for debt securities, without the prior approval of
the Federal Reserve Board. Ordinarily, the Federal Reserve Board would not
permit such a redemption unless (1) the shares are redeemed with the proceeds of
a sale by the bank holding company of common stock or perpetual preferred stock
or (2) the Federal Reserve Board determines that the bank holding company's
condition and circumstances warrant the reduction of a source of permanent
capital.
CONVERSION
The Prospectus Supplement for any series of the Preferred Stock will state
the terms, if any, on which shares of that series are convertible into other
securities of the Company.
DEPOSITARY SHARES
General. The Company may, at its option, elect to offer receipts for
fractional interests ("Depositary Shares") in Preferred Stock, rather than full
shares of Preferred Stock. In such event, receipts ("Depositary Receipts") for
Depositary Shares, each of which will represent a fraction (to be set forth in
the Prospectus Supplement relating to a particular series of Preferred Stock) of
a share of a particular series of Preferred Stock, will be issued as described
below.
The shares of any series of Preferred Stock represented by Depositary
Shares will be deposited under a Deposit Agreement (the "Deposit Agreement")
between the Company and the depositary named in the Prospectus Supplement (the
"Depositary"). Subject to the terms of the Deposit Agreement, each owner of a
Depositary Share will be entitled, in proportion to the applicable fraction of a
share of Preferred Stock represented by such Depositary Share, to all the rights
and preferences of the Preferred Stock represented
17
<PAGE> 35
thereby (including dividend, voting, redemption, subscription and liquidation
rights). The following summary of certain provisions of the Deposit Agreement
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Deposit Agreement, including
the definitions therein of certain terms. Whenever particular sections of the
Deposit Agreement are referred to, it is intended that such sections shall be
incorporated herein by reference. Copies of the forms of Deposit Agreement and
Depositary Receipt are filed as an exhibit to the Registration Statement of
which this Prospectus is a part, and the following summary is qualified in its
entirety by reference to such exhibits.
Dividends and Other Distributions. The Depositary will distribute all cash
dividends or other cash distributions received in respect to the Preferred Stock
to the record holders of Depositary Shares relating to such Preferred Stock in
proportion to the numbers of such Depositary Shares owned by such holders.
(Section 4.01)
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary Shares in
an equitable manner, unless the Depositary determines that it is not feasible to
make such distribution, in which case the Depositary may sell such property and
distribute the net proceeds for such sale to such holders. (Section 4.02)
Redemption of Depositary Shares. If a series of Preferred Stock
represented by Depositary Shares is subject to redemption, the Depositary Shares
will be redeemed from the proceeds received by the Depositary resulting from the
redemption, in whole or in part, of such series of Preferred Stock held by the
Depositary. The redemption price per Depositary Shares will be equal to the
applicable fraction of the redemption price per share payable with respect to
such series of the Preferred Stock. Whenever the Company redeems shares of
Preferred Stock held by the Depositary, the Depositary will redeem as of the
same redemption date the number of Depositary Shares representing shares of
Preferred Stock so redeemed. If fewer than all the Depositary Shares are to be
redeemed, the Depositary Shares to be redeemed will be selected by lot, pro rata
or by any other equitable method as may be determined by the Depositary.
(Section 2.08)
Voting the Preferred Stock. Upon receipt of notice of any meeting at which
the holders of the Preferred Stock are entitled to vote, the Depositary will
mail the information contained in such notice of meeting to the record holders
of the Depositary Shares relating to such Preferred Stock. Each record holder of
such Depositary Shares on the record date (which will be the same date as the
record date for the Preferred Stock) will be entitled to instruct the Depositary
as to the exercise of the voting rights pertaining to the amount of the
Preferred Stock represented by such holder's Depositary Shares. The Depositary
will endeavor, insofar as practicable, to vote the amount of the Preferred Stock
represented by such Depositary Shares in accordance with such instructions, and
the Company will agree to take all reasonable action which may be deemed
necessary by the Depositary in order to enable the Depositary to do so. The
Depositary will abstain from voting shares of the Preferred Stock to the extent
it does not receive specific instructions from the holder of Depositary Shares
representing such Preferred Stock. (Section 4.05)
Amendment and Termination of the Deposit Agreement. The form of Depositary
Receipt evidencing the Depositary Shares and any provision of the Deposit
Agreement may at any time be amended by agreement between the Company and the
Depositary. However, any amendment which materially and adversely alters the
rights of the holders of Depositary Shares will not be effective unless such
amendment has been approved by the holders of at least a majority of the
Depositary Shares then outstanding. (Section 6.01) The Deposit Agreement will
only terminate if (i) all outstanding Depositary Shares have been redeemed or
(ii) there has been a final distribution in respect of the Preferred Stock in
connection with any liquidation, dissolution or winding up of the Company and
such distribution has been distributed to the holders of Depositary Receipts.
(Section 6.02)
Charges of Depositary. The Company will pay all transfer and other taxes
and governmental charges arising solely from the existence of the depositary
arrangements. The Company will pay charges of the Depositary in connection with
the initial deposit of the Preferred Stock and issuance of Depositary Receipts,
all withdrawals of shares of Preferred Stock by owners of Depositary Shares and
any redemption of the Preferred Stock. Holders of Depositary Receipts will pay
other transfer and other taxes and governmental
18
<PAGE> 36
charges and such other charges as are expressly provided in the Deposit
Agreement to be for their accounts. (Section 5.07)
Resignation and Removal of Depositary. The Depositary may resign at any
time by delivering to the Company notice of its election to do so, and the
Company may at any time remove the Depositary, any such resignation or removal
to take effect upon the appointment of a successor Depositary and its acceptance
of such appointment. Such successor Depositary must be appointed within 60 days
after delivery of the notice of resignation or removal and must be a bank or
trust company having its principal office in the United States and having a
combined capital and surplus of at least $50,000,000. (Section 5.04)
Miscellaneous. The Depositary will forward all reports and communications
from the Company which are delivered to the Depositary and which the Company is
required or otherwise determines to furnish to the holders of the Preferred
Stock. (Section 4.07)
Neither the Depositary nor the Company will be liable under the Deposit
Agreement to holders of Depositary Receipts other than for its negligence,
willful misconduct or bad faith. Neither the Company nor the Depositary will be
obligated to prosecute or defend any legal proceeding in respect of any
Depositary Shares or Preferred Stock unless satisfactory indemnity is furnished.
The Company and the Depositary may rely upon written advice of counsel or
accountants, or upon information provided by persons presenting Preferred Stock
for deposit, holders of Depositary Receipts or other persons believed to be
competent and on documents believed to be genuine. (Section 5.03)
PLAN OF DISTRIBUTION
The Company may sell Securities to or through underwriters or dealers, and
also may sell Securities directly to other purchasers or through agents. Each
Prospectus Supplement will describe the method of distribution of the Securities
being offered thereby.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Securities, underwriters may receive
compensation from the Company or from purchasers of Securities for whom they may
act as agents in the form of discounts, concessions or commissions. Underwriters
may sell Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers and agents that participate in the distribution of
Securities may be deemed to be underwriters, and any discounts or commissions
received by them from the Company and any profit on the resale of Securities by
them may be deemed to be underwriting discounts and commissions, under the
Securities Act of 1933, as amended (the "Securities Act"). Any such underwriter
or agent will be identified, and any such compensation received from the Company
will be described, in the Prospectus Supplement.
If so indicated in the Applicable Prospectus Supplement and subject to
existing market conditions, the Company will authorize underwriters or other
persons acting as the Company's agents to solicit offers by certain institutions
to purchase Offered Debt Securities from the Company pursuant to contracts
providing for payment and delivery on a future date. Institutions with which
such contracts may be made include but are not limited to commercial and savings
banks, insurance companies, pension funds, investment companies, educational and
charitable institutions and others, but in all cases such institutions must be
approved by the Company. The obligations of any purchaser under any such
contract will be subject to the condition that the purchase of the Offered Debt
Securities shall not at the time of delivery be prohibited under the laws of the
jurisdiction to which such purchaser is subject. The underwriters and such other
agents will not have any responsibility in respect of the validity or
performance of such contracts.
19
<PAGE> 37
Underwriters and agents who participate in the distribution of Securities
may be entitled under agreements which may be entered into by the Company to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act.
Except as indicated in the Applicable Prospectus Supplement, the Securities
are not expected to be listed on a securities exchange, and any underwriters or
dealers will not be obligated to make a market in Securities. The Company cannot
predict the activity or liquidity of any trading in the Securities.
VALIDITY OF SECURITIES
The validity of the Securities will be passed upon for the Company by John
W. Scheflen, Executive Vice President, General Counsel and Secretary of the
Company, and for any underwriters, dealers or agents by Simpson Thacher &
Bartlett (a partnership which includes professional corporations), New York, New
York. Simpson Thacher & Bartlett will rely on the opinion of Mr. Scheflen as to
matters of Maryland law and Mr. Scheflen will rely on the opinion of Simpson
Thacher & Bartlett as to matters of New York law. Mr. Scheflen owns beneficially
137,500 shares of common stock of the Company, including options exercisable
within sixty days under the Company's 1991 Long Term Incentive Plan. Simpson
Thacher & Bartlett regularly performs legal services for the Company and its
subsidiaries.
EXPERTS
The consolidated financial statements of MBNA Corporation incorporated by
reference in MBNA Corporation's Annual Report (Form 10-K) for the year ended
December 31, 1994, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
20
<PAGE> 38
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, BY ANY UNDERWRITER OR BY ANY OTHER PERSON. THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION MAY
NOT LAWFULLY BE MADE. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUPPLEMENT
The Company........................ S-2
Use of Proceeds.................... S-2
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Dividend Requirements............ S-2
Summary Financial Data............. S-3
Interim Results.................... S-4
Description of the Series B
Preferred Stock.................. S-8
Recent Tax Proposals............... S-15
Underwriting....................... S-16
Validity of the Series B
Preferred Stock.................. S-16
Experts............................ S-17
PROSPECTUS
Available Information.............. 2
Incorporation of Certain Documents
by Reference..................... 2
The Company........................ 3
Use of Proceeds.................... 4
Ratio of Earnings to Fixed
Charges.......................... 4
Regulatory Matters................. 4
Description of Debt Securities..... 8
Description of Preferred Stock..... 15
Plan of Distribution............... 19
Validity of Securities............. 20
Experts............................ 20
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6,000,000 SHARES
[MBNA LOGO]
ADJUSTABLE RATE CUMULATIVE
PREFERRED STOCK, SERIES B
------------------------------------------------
PROSPECTUS SUPPLEMENT
------------------------------------------------
BEAR, STEARNS & CO. INC.
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MERRILL LYNCH & CO.
PRUDENTIAL SECURITIES
INCORPORATED
SEPTEMBER , 1995
(LOGO)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
