<PAGE> 1
As filed with the Securities and Exchange Commission on February 5, 1997
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
MBNA CORPORATION MBNA CAPITAL C
(Exact name of Registrant as (Exact name of Registrant as
specified in its charter) specified in its charter)
MARYLAND DELAWARE
(State or other jurisdiction (State or other jurisdiction
of incorporation or organization) of incorporation or organization)
52-1713008
(I.R.S. Employer -----------
Identification Number) (I.R.S. Employer
Identification Number)
Wilmington, Delaware 19884
(800) 362-6255
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
------------
M. Scot Kaufman
Executive Vice President, Chief Financial Officer and Chief Accounting Officer
Wilmington, Delaware 19884-0864
(800) 362-6255
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------
Copies to:
<TABLE>
<S> <C> <C>
John W. Scheflen John B. Tehan, Esq. Vincent J. Pisano, Esq.
Executive Vice President Simpson Thacher & Bartlett Skadden, Arps, Slate, Meagher &
General Counsel & Secretary 425 Lexington Avenue Flom LLP
MBNA Corporation New York, New York 10017 919 Third Avenue
Wilmington, Delaware 19884-0616 (212) 455-2000 New York, New York 10022
(800) 362-6255 (212) 735-3000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes
effective and all other conditions to the exchange offer (the "Exchange Offer")
described in the enclosed prospectus have been satisfied or waived.
If the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
<PAGE> 2
2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER UNIT(2) PRICE FEE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
___% Trust-Originated
Preferred Securities(SM) 6,000,000 26.00 156,000,000 $47,273
(TOPrS(SM)) (the Securities (3)
"Preferred Securities") (1)
- ------------------------------------------------------------------------------------------------------
Junior Subordinated
Debentures of MBNA $150,000,000
Corporation
- -------------------------------------------
Guarantee of the
Preferred Securities by $150,000,000
MBNA Corporation
======================================================================================================
</TABLE>
(1) Estimated maximum amount of each class of Securities issuable by MBNA
Corporation ("MBNA") and MBNA Capital C (the "Trust") pursuant to the
Exchange Offer. Also registered hereby, in addition to the rights of
holders of the Preferred Securities under the Guarantee and under the
Junior Subordinated Debentures, are the obligations of MBNA in the
Indenture relating to the Junior Subordinated Debentures and in the
Amended and Restated Trust Agreement, including MBNA's obligation to
pay costs, expenses and certain liabilities of the Trust.
(2) Each share of 7.50% Cumulative Preferred Stock, Series A (the "Series
A Preferred Stock"), of MBNA accepted for exchange will be exchanged
for $25 aggregate principal amount of Preferred Securities.
(3) The proposed maximum aggregate offering price equals $156,000,000,
calculated pursuant to Rule 457(f) under the Securities Act of 1933 as
follows: the product of $26.00 (the average of high and low prices
for the Series A Preferred Stock on January 29, 1997, as reported by
the New York Stock Exchange Composite Tape) and 6,000,000 (the maximum
number of shares of Series A Preferred Stock which may be tendered
pursuant to the Exchange Offer).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE> 3
PROSPECTUS [LOGO]
MBNA CORPORATION
MBNA CAPITAL C
OFFER TO EXCHANGE
MBNA Capital C
___% Trust--Originated
Preferred Securities(SM)
("TOPrS(SM)")
(Liquidation Amount $25.00
per Preferred Security and guaranteed to the extent
set forth herein by MBNA Corporation)
for
6,000,000 Shares
7.50% Cumulative Preferred Stock, Series A
CUSIP 5526L209
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON ________, APRIL __, 1997, UNLESS THE OFFER IS
EXTENDED.
MBNA Corporation, a Maryland corporation ("MBNA"), and MBNA
Capital C, a Delaware statutory business trust (the "Trust"), hereby offer,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying Letter of Transmittal, to exchange ___% Trust--Originated
Preferred Securities, Series C, representing undivided beneficial ownership
interests in the assets of the Trust (the "Preferred Securities"), for any and
all shares of MBNA's 7.50% Cumulative Preferred Stock, Series A, $0.01 par
value (the "Series A Preferred Stock"), not owned by MBNA (this Prospectus
together with the Letter of Transmittal for the Series A Preferred Stock
constitute the "Offer"). Exchanges will be made on the basis of one Preferred
Security for each share of Series A Preferred Stock, in each case validly
tendered and accepted for exchange in the Offer. As of the date of this
Prospectus, there are 6,000,000 shares of Series A Preferred Stock outstanding
and not owned by MBNA.
Concurrently with the issuance of Preferred Securities in
exchange for Series A Preferred Stock validly tendered in the Offer, MBNA will
deposit in the Trust as trust assets its ___% Junior Subordinated Deferrable
Interest Debentures, Series C, due 2027 (the "Junior Subordinated Debentures"),
having an aggregate principal amount equal to the aggregate stated liquidation
amount of the Preferred Securities and the proceeds received upon issuance of
the common securities to be issued by the Trust. The Junior Subordinated
Debentures will mature on April __, 2027.
<PAGE> 4
2
SEE "RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO THE
OFFER" STARTING ON PAGE __ FOR A DISCUSSION OF CERTAIN FACTORS RELATING TO THE
PREFERRED SECURITIES THAT SHOULD BE CONSIDERED BY INVESTORS INCLUDING THE
PERIOD AND CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS OF DISTRIBUTIONS ON
THE PREFERRED SECURITIES MAY BE DEFERRED AND THE RELATED FEDERAL INCOME TAX
CONSEQUENCES.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR BY ANY SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COM-
MISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PRO-
SPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------
MERRILL LYNCH & CO. HAS BEEN RETAINED AS DEALER MANAGER TO SOLICIT EXCHANGES OF
SERIES A PREFERRED STOCK FOR PREFERRED SECURITIES. SEE "EXCHANGE AGENT AND
INFORMATION AGENT-DEALER MANAGER; ADMINISTRATIVE DEALERS." THE BANK OF NEW
YORK HAS BEEN RETAINED AS EXCHANGE AGENT (THE " EXCHANGE AGENT") IN CONNECTION
WITH THE OFFER. MORROW & CO., INC. HAS BEEN RETAINED TO ACT AS INFORMATION
AGENT TO ASSIST IN CONNECTION WITH THE OFFER.
--------------
The Dealer Manager For The Offer Is:
MERRILL LYNCH & CO.
The date of this Prospectus is March __, 1997.
- -SM- "Trust Originated Preferred Securities" and "TOPrS" are service marks of
Merrill Lynch & Co.
<PAGE> 5
3
NONE OF MBNA, THE BOARD OF DIRECTORS OF MBNA, THE TRUSTEES NOR
THE TRUST MAKES ANY RECOMMENDATION TO HOLDERS (AS DEFINED HEREIN) OF SERIES A
PREFERRED STOCK AS TO WHETHER TO EXCHANGE OR REFRAIN FROM EXCHANGING THEIR
SERIES A PREFERRED STOCK IN THE OFFER. HOLDERS OF SERIES A PREFERRED STOCK ARE
URGED TO CONSULT THEIR FINANCIAL AND TAX ADVISORS IN MAKING THEIR DECISIONS ON
WHAT ACTION TO TAKE IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES.
IN ORDER TO PARTICIPATE IN THE OFFER, HOLDERS OF SERIES A
PREFERRED STOCK MUST SUBMIT A LETTER OF TRANSMITTAL AND COMPLY WITH THE OTHER
PROCEDURES FOR TENDERING IN ACCORDANCE WITH THE INSTRUCTIONS CONTAINED HEREIN
AND IN THE LETTER OF TRANSMITTAL PRIOR TO THE EXPIRATION DATE (AS DEFINED
HEREIN). SEE "THE OFFER--PROCEDURES FOR TENDERING."
For a description of the other terms of the Offer, see "The
Offer--Terms of The Offer," "--Expiration Date; Extensions; Amendments;
Termination," and "--Withdrawal of Tenders." Application will be made to list
the Preferred Securities on the New York Stock Exchange (the "NYSE"). In order
to satisfy the NYSE listing requirements, acceptance of Series A Preferred
Stock validly tendered in the Offer is subject to the condition that as of the
Expiration Date there be at least 400 record or beneficial holders of at least
1,000,000 Preferred Securities to be issued in exchange for such Series A
Preferred Stock (the "Minimum Distribution Condition"), which condition may not
be waived. See "The Offer--Expiration Date; Extensions; Amendments;
Termination" and "--Conditions to the Offer."
The Trust expressly reserves the right, in its sole
discretion, subject to applicable law, to (i) terminate the Offer, not accept
for exchange the Series A Preferred Stock and promptly return the Series A
Preferred Stock upon the failure of any condition specified above or in "The
Offer--Conditions to the Offer," (ii) waive any condition to the Offer (other
than the Minimum Distribution Condition) and accept all Series A Preferred
Stock previously tendered pursuant to the Offer, (iii) extend the Expiration
Date of the Offer and retain all Series A Preferred Stock tendered pursuant to
the Offer until the Expiration Date, subject, however, to all withdrawal rights
of holders, see "The Offer--Withdrawal of Tenders," (iv) amend the terms of the
Offer, (v) modify the form of the consideration to be paid pursuant to the
Offer or (vi) not accept for exchange the Series A Preferred Stock at any time
on or prior to the Expiration Date, for any reason, including, without
limitation, if fewer than 100,000 shares of Series A Preferred Stock would
remain outstanding upon acceptance of those tendered (which condition may be
waived by the Trust). Any amendment applicable to the Offer will apply to all
Series A Preferred Stock tendered pursuant to the Offer. The minimum period
during which the Offer must remain open following material changes in the terms
of the Offer or the information concerning the Offer, other than a change in
the percentage of securities sought or the price, depends upon the facts and
circumstances, including the relative materiality of such terms or information.
See "The Offer--Expiration Date; Extensions; Amendments; Termination."
<PAGE> 6
4
MBNA will own directly or indirectly all of the securities
representing common undivided beneficial interests in the assets represented by
common securities of the Trust (the "Common Securities" and, together with the
Preferred Securities, the "Trust Securities"). The Trust exists for the sole
purpose of (i) issuing (a) the Preferred Securities in exchange for the Series
A Preferred Stock validly tendered in the Offer and delivering the Series A
Preferred Stock to MBNA in consideration for the deposit by MBNA in the Trust
as trust assets of Junior Subordinated Debentures having an aggregate stated
principal amount equal to the aggregate stated liquidation amount of the
Preferred Securities and (b) the Common Securities to MBNA in exchange for cash
and investing the proceeds thereof in an equal aggregate principal amount of
the Junior Subordinated Debentures and (ii) engaging in only those other
activities as are necessary or incidental thereto. The Preferred Securities and
the Common Securities will rank pari passu with each other and will have
equivalent terms, except that the holders of the Common Securities will have
the exclusive right to appoint, replace or remove the Administrative Trustees
(as defined herein) and, if a Debenture Event of Default (as defined herein)
occurs and is continuing, (i) the holders of Preferred Securities will have a
priority over holders of the Common Securities with respect to payments in
respect of distributions and payments upon liquidation, redemption or otherwise
and (ii) the holders of a majority in Liquidation Amount (as defined herein) of
the Preferred Securities shall have the right (subject to the terms of the
Trust Agreement (as defined herein)) to appoint, replace or remove the Property
Trustee (as defined herein) and the Delaware Trustee (as defined herein). See
"Prospectus Summary--Description of the Preferred Securities" and
"--Description of the Junior Subordinated Debentures."
Holders of the Preferred Securities will be entitled to
receive cumulative cash distributions accruing from the first day following the
Expiration Date (the "Accrual Date") and payable quarterly in arrears on the
15th day of January, April, July and October of each year, commencing ,
1997, at the annual rate of ___% of the Liquidation Amount of $25 per Preferred
Security ("Distributions"). In addition, MBNA will pay a cash payment equal to
all accumulated and unpaid dividends on the Series A Preferred Stock as of the
Expiration Date on April 15, 1997 to holders of the Series A Preferred Stock
accepted for exchange. Subject to certain exceptions, as described herein,
MBNA has the right to defer payment of interest on the Junior Subordinated
Debentures at any time or from time to time for a period not exceeding 20
consecutive quarterly periods with respect to each deferral period (each, an
"Extension Period"), provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures. Upon the termination of
any such Extension Period and the payment of all interest then accrued and
unpaid (together with interest thereon at the rate of ___%, compounded
quarterly, to the extent permitted by applicable law), MBNA may elect to begin
a new Extension Period subject to the requirements set forth herein. If
interest payments on the Junior Subordinated Debentures are so deferred,
Distributions on the Preferred Securities will also be deferred and MBNA will
not be permitted, subject to certain exceptions described herein, to declare or
pay any cash distributions with respect to MBNA's capital stock or debt
securities that rank pari passu with or junior to the Junior Subordinated
Debentures. During an Extension Period, interest on the Junior Subordinated
Debentures will continue to accrue (and the amount of Distributions to which
holders of the Preferred Securities are entitled will accumulate) at the rate
of ___% per annum, compounded quarterly, to the extent permitted by applicable
law, from the relevant
<PAGE> 7
5
payment date for such interest, and holders of Preferred Securities will be
required to accrue the stated interest on the Junior Subordinated Debentures
(in the form of original issue discount ("OID")) for United States federal
income tax purposes and, consequently, will be required to include such OID in
gross income for such purposes in advance of the receipt of cash attributable
to such income. See "Description of the Junior Subordinated Debentures --
Option to Defer Interest Payments" and "Certain United States Federal Income
Tax Consequences -- Interest Income and Original Issue Discount."
The Junior Subordinated Debentures are unsecured and
subordinated to all Senior Debt (as defined herein), which aggregated $
at December 31, 1996. Substantially all of MBNA's existing indebtedness
constitutes Senior Debt, other than MBNA's 8.278% Junior Subordinated
Debentures, Series A, due December 1, 2026 (the "Series A Debentures"), its
Floating Rate Junior Subordinated Debentures, Series B, due February 1, 2027
(the "Series B Debentures") and its guarantees of the 8.278% Capital
Securities, Series A (the "Series A Capital Securities"), and the Floating Rate
Capital Securities, Series B (the "Series B Capital Securities") issued by
subsidiary trusts, all of which are pari passu in right of payment with the
Junior Subordinated Debentures. Because MBNA is a holding company, the right
of MBNA to participate in any distribution of assets of any subsidiary,
including MBNA America Bank, National Association, upon such subsidiary's
liquidation or reorganization or otherwise, is subject to the prior claims of
creditors of that subsidiary, including depositors, except to the extent that
MBNA may itself be recognized as a creditor of that subsidiary. Accordingly,
the Junior Subordinated Debentures (and therefore the Preferred Securities)
will be effectively subordinated to all existing and future liabilities of
MBNA's subsidiaries, and holders thereof should only look to the assets of MBNA
for payments on the Junior Subordinated Debentures. See "Description of the
Junior Subordinated Debentures--Subordination".
MBNA has, through the Guarantee, the Trust Agreement, the
Junior Subordinated Debentures and the Indenture (each as defined herein),
taken together, fully, irrevocably and unconditionally guaranteed all of the
Trust's obligations under the Preferred Securities. See "Relationship Between
the Preferred Securities, the Junior Subordinated Debentures and the
Guarantee--Full and Unconditional Guarantee". The Guarantee of MBNA guarantees
the payment of Distributions and payments on liquidation of the Trust or
redemption of the Preferred Securities, but only in each case to the extent of
funds held by the Trust, as described herein (the "Guarantee"). See
"Description of Guarantee". If MBNA does not make interest payments on the
Junior Subordinated Debentures held by the Trust, the Trust will have
insufficient funds to pay Distributions on the Preferred Securities. The
Guarantee does not cover payment of Distributions when the Trust has
insufficient funds to pay such Distributions. In such event, a holder of
Preferred Securities may institute a legal proceeding directly against MBNA
pursuant to the terms of the Indenture to enforce payment of amounts equal to
such Distributions to such holder. See "Description of the Junior
Subordinated Debentures--Enforcement of Certain Rights By Holders of Preferred
Securities". The obligations of MBNA under the Guarantee and the Indenture are
subordinate and junior in right of payment to all Senior Debt of MBNA.
<PAGE> 8
6
The Preferred Securities are subject to mandatory redemption,
in whole or in part, upon repayment of Junior Subordinated Debentures at their
Stated Maturity or their earlier redemption. Subject to MBNA having received
prior approval of the Board of Governors of the Federal Reserve System (the
"Federal Reserve") to do so, if then required under applicable capital
guidelines or policies, the Junior Subordinated Debentures are redeemable prior
to their Stated Maturity at the option of MBNA (i) on or after _______________,
in whole at any time or in part from time to time at a redemption price equal
to 100% of the principal amount thereof, plus accrued and unpaid interest
through the redemption date (the "Optional Prepayment Price"), or (ii) prior to
_______________, in whole (but not in part), within 90 days following the
occurrence of a Special Event (as defined herein) at a redemption price equal
to ___% of the principal amount thereof from the Expiration Date through
, , declining ratably on each thereafter to 100% on or after
, , plus in any case, accrued and unpaid interest thereon to the
redemption date (the "Special Event Prepayment Price," and, together with the
Optional Prepayment Price, the "Redemption Price"). If MBNA redeems the Junior
Subordinated Debentures, the Trust must redeem a Like Amount (as defined
herein) of Trust Securities having an aggregate Liquidation Amount equal to the
aggregate principal amount of the Junior Subordinated Debentures so redeemed at
a redemption price equal to (i) the Optional Prepayment Price if redeemed on or
after _______________ or (ii) the Special Event Prepayment Price if redeemed
prior to _______________, upon the occurrence of a Special Event. (See "Risk
Factors and Special Considerations Relating to the Offer," "Description of the
Preferred Securities -- Redemption or Exchange."
MBNA will have the right at any time to terminate the Trust,
subject to MBNA having received prior approval of the Federal Reserve to do so
if then required under applicable capital guidelines or policies. MBNA has no
present intention to take such action, principally because the Junior
Subordinated Debentures, unlike the Preferred Securities, would not be
considered "Tier 1 Capital" for purposes of the Federal Reserve Board's capital
guidelines for bank holding companies. See "Description of the Preferred
Securities--Liquidation Distribution Upon Termination." In the event of the
termination of the Trust, after satisfaction of liabilities to creditors of the
Trust as required by applicable law, the holders of the Preferred Securities
will be entitled to receive a Liquidation Amount of $25 per Preferred Security
plus accumulated and unpaid Distributions thereon to the date of payment, which
may be in the form of a distribution of such amount in Junior Subordinated
Debentures in exchange therefor, subject to certain exceptions. See
"Description of the Preferred Securities--Liquidation Distribution Upon
Termination."
Application has been made to list the Preferred Securities on
the New York Stock Exchange under the symbol "KRBCC 27". If Junior
Subordinated Debentures are distributed to the holders of Preferred Securities
in exchange therefor upon the liquidation of the Trust, MBNA will use its best
efforts to list the Junior Subordinated Debentures on the New York Stock
Exchange or such other stock exchanges or automated quotation systems, if any,
on which the Preferred Securities are then listed or traded.
The shares of Series A Preferred Stock are listed and
principally traded on the NYSE under the symbol "KRB.PF.A.". On February 4,
1997, the last full day of trading
<PAGE> 9
7
prior to the filing of the Registration Statement on Form S-4, of which this
Prospectus forms a part, the closing sales price of the Series A Preferred
Stock on the NYSE was $26.25 per share. The closing sales price of the Series
A Preferred Stock on the NYSE on _______ __, 1997 was $ per share.
HOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SERIES A
PREFERRED STOCK. To the extent that shares of Series A Preferred Stock are
tendered and accepted in the Offer, the terms on which untendered Series A
Preferred Stock could subsequently be sold may be adversely affected. To the
extent that the aggregate number of shares of Series A Preferred Stock tendered
and accepted in the Offer results in (i) the aggregate value of publicly-held
shares to be less than $2 million and (ii) the number of outstanding shares of
Series A Preferred Stock to be less than 100,000, MBNA would be required to
delist the Series A Preferred Stock from the NYSE pursuant to NYSE rules and
regulations, and the trading market for untendered Series A Preferred Stock
could be adversely affected. In addition, following the Expiration Date, and
in accordance with and subject to applicable law, MBNA may from time to time
acquire Series A Preferred Stock in the open market, by tender offer,
subsequent exchange offer or otherwise. MBNA's decision to make such
acquisitions is dependent on many factors, including market conditions in
effect at the time of any contemplated acquisition. Accordingly, MBNA cannot
predict whether and to what extent it will acquire any additional Series A
Preferred Stock and the consideration to be paid therefor. See "Listing and
Trading of Preferred Securities and Series A Preferred Stock."
MBNA will pay to Administrative Dealers (as defined herein)
designated by the record or beneficial owner, as appropriate, of Series A
Preferred Stock a solicitation fee of $0.50 per Preferred Share ($0.25 per
Preferred Share with respect to the solicitation of beneficial holders of
10,000 or more shares) validly tendered and accepted for exchange pursuant to
the Offer, subject to certain conditions. Administrative Dealers are not
entitled to a solicitation fee for Series A Preferred Stock beneficially owned
by such Administrative Dealer. See "Exchange Agent and Information
Agent--Dealer Manager; Administrative Dealers."
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY MBNA,
THE TRUST, THE TRUSTEES OR THE DEALER MANAGER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY EXCHANGE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF MBNA OR
THE TRUST SINCE THE RESPECTIVE DATES AS OF WHICH INFORMATION IS GIVEN HEREIN.
THE OFFER IS NOT BEING MADE TO (NOR WILL TENDERS BE ACCEPTED FROM OR ON BEHALF
OF) HOLDERS OF SERIES A PREFERRED STOCK IN ANY JURISDICTION IN WHICH THE MAKING
OF THE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE LAWS
OF SUCH JURISDICTION. HOWEVER, MBNA AND THE TRUST MAY, AT THEIR DISCRETION,
TAKE SUCH ACTION AS THEY MAY DEEM NECESSARY TO MAKE THE OFFER IN ANY SUCH
JURISDICTION AND EXTEND THE OFFER TO
<PAGE> 10
8
HOLDERS OF SERIES A PREFERRED STOCK IN SUCH JURISDICTION. IN ANY JURISDICTION
THE SECURITIES LAWS OR BLUE SKY LAWS OF WHICH REQUIRE THE OFFER TO BE MADE BY A
LICENSED BROKER OR DEALER, THE OFFER IS BEING MADE ON BEHALF OF THE TRUST BY
THE DEALER MANAGER OR ONE OR MORE REGISTERED BROKERS OR DEALERS WHICH ARE
LICENSED UNDER THE LAWS OF SUCH JURISDICTION.
<PAGE> 11
9
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
MBNA CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
CERTAIN POTENTIAL BENEFITS AND RISKS TO INVESTORS . . . . . . . . . . . . . . . . . . . . . . . . . . 14
POTENTIAL BENEFITS TO EXCHANGING HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
POTENTIAL RISKS TO EXCHANGING HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
POTENTIAL RISKS TO NON-EXCHANGING HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
THE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
REASON AND PURPOSE OF THE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
TERMS OF THE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
EXPIRATION DATE; WITHDRAWALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
CONDITIONS TO THE OFFER; EXTENSIONS; AMENDMENT; TERMINATION . . . . . . . . . . . . . . . . . . . 21
PROCEDURES FOR TENDERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SPECIAL PROCEDURE FOR BENEFICIAL OWNERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
GUARANTEED DELIVERY PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ACCEPTANCE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
DELIVERY OF PREFERRED SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
DESCRIPTION OF PREFERRED SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . 28
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . 31
ACCOUNTING FOR EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
EXCHANGE AGENT AND INFORMATION AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
DEALER MANAGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO THE OFFER . . . . . . . . . . . . . . . . . . . . 34
EXCHANGE OF SERIES A PREFERRED STOCK FOR PREFERRED SECURITIES
IS A TAXABLE EVENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
CORPORATE HOLDERS OF PREFERRED SECURITIES NOT ENTITLED TO DIVIDENDS RECEIVED DEDUCTION . . . . . . . 34
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND JUNIOR SUBORDINATED DEBENTURES . . . . . 34
</TABLE>
i
<PAGE> 12
<TABLE>
<CAPTION>
Page
----
<S> <C>
RIGHTS UNDER THE GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED
SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
OPTION TO EXTEND INTEREST PAYMENT PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
PROPOSED TAX LEGISLATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
LIMITED VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
TRADING PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
CONSEQUENCES OF HIGHLY LEVERAGED TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
LACK OF ESTABLISHED TRADING MARKET FOR PREFERRED SECURITIES . . . . . . . . . . . . . . . . . . . . . 40
REDUCED TRADING MARKET FOR SERIES A PREFERRED STOCK . . . . . . . . . . . . . . . . . . . . . . . . . 40
COMPARISON OF PREFERRED SECURITIES AND SERIES A PREFERRED
STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
MBNA CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . 47
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ACCOUNTING TREATMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
THE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
REASON AND PURPOSE OF THE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
TERMS OF THE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
CONDITIONS TO THE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION . . . . . . . . . . . . . . . . . . . . . . 54
PROCEDURES FOR TENDERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
LETTER OF TRANSMITTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
WITHDRAWAL OF TENDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
EXCHANGE AGENT AND INFORMATION AGENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
DEALER MANAGER; ADMINISTRATIVE DEALERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
</TABLE>
ii
<PAGE> 13
<TABLE>
<CAPTION>
Page
----
<S> <C>
LISTING AND TRADING OF PREFERRED SECURITIES AND SERIES A PREFERRED STOCK . . . . . . . . . . . . . . 63
TRANSACTIONS AND ARRANGEMENTS CONCERNING THE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . 64
FEES AND EXPENSES; TRANSFER TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
PRICE RANGE OF SERIES A PREFERRED STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
DESCRIPTION OF THE PREFERRED SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
BOOK-ENTRY; DELIVERY AND FORM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
DESCRIPTION OF GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . 83
GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
RELATIONSHIP BETWEEN THE PREFERRED SECURITIES, THE JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE . 92
DESCRIPTION OF THE SERIES A PREFERRED STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . . . . 98
TAX CONSEQUENCES OF THE EXCHANGE OF SERIES A PREFERRED
SHARES FOR PREFERRED SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
TAXATION OF THE PREFERRED SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
VALIDITY OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
</TABLE>
iii
<PAGE> 14
9
AVAILABLE INFORMATION
This Prospectus constitutes a part of a Registration Statement
on Form S-4 (together with all amendments and exhibits thereto, the
"Registration Statement") filed by MBNA and the Trust with the Securities and
Exchange Commission (the "Commission") 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 such
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Reference is made to such
Registration Statement and to the exhibits relating thereto for further
information with respect to MBNA, the Trust and such securities. Any
statements contained herein concerning the provisions of any document filed as
an exhibit to the Registration Statement or otherwise filed with the Commission
or incorporated by reference herein are not necessarily complete, and, in each
instance, reference is made to the copy of such document so filed for a more
complete description of the matter involved. Each such statement is qualified
in its entirety by such reference.
MBNA 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 Commission. Reports, proxy statements and other information concerning
MBNA can be inspected and copied at prescribed rates at the Commission's Public
Reference Room, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, as well as the following Regional Offices of the Commission: 7 World
Trade Center, 13th Floor, New York, New York 10048; and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may be obtained by mail from the Commission's Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
If available, such reports and other information may also be accessed through
the Commission's electronic data gathering, analysis and retrieval system
("EDGAR") via electronic means, including the Commission's web site on the
Internet (http://www.sec.gov). Such reports, proxy statements and other
information may also be inspected at the offices of the NYSE, 20 Broad Street,
New York, New York 10005.
No separate financial statements of the Trust have been
included herein. MBNA does not consider that such financial statements would be
material to holders of the Preferred Securities because (i) all of the voting
securities of the Trust will be owned, directly or indirectly, by MBNA, a
reporting company under the Exchange Act, (ii) the Trust has no independent
operations but exists for the sole purpose of issuing (a) its Preferred
Securities in exchange for Series A Preferred Stock validly tendered in the
Offer and delivering such Series A Preferred Stock to MBNA in consideration of
the deposit by MBNA as trust assets of Junior Subordinated Debentures having an
aggregate stated principal amount equal to the aggregate stated liquidation
amount of such Preferred Securities, and (b) its Common Securities to MBNA in
exchange for cash and investing the proceeds thereof in an equivalent amount of
Junior Subordinated Debentures, and (iii) MBNA's obligations described herein
to provide certain indemnities in respect of, and be responsible for, certain
costs, expenses, debts and liabilities of the Trust under the Indenture and
pursuant to the Trust Agreement, the Guarantee issued by MBNA with respect to
Preferred Securities issued by the Trust, the Junior Subordinated Debentures
purchased by the Trust, and the Indenture, taken together,
<PAGE> 15
10
constitute a full and unconditional guarantee of payments due on the Preferred
Securities. See "Description of Guarantee" and "Description of the Junior
Subordinated Debentures."
The Trust is not currently subject to the information
reporting requirements of the Exchange Act. The Trust will become subject to
such requirements upon the effectiveness of the Registration Statement,
although it intends to seek and expects to receive exemptions therefrom.
<PAGE> 16
11
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by MBNA
pursuant to Section 13 of the Exchange Act are incorporated by reference in
this Prospectus:
(a) MBNA's Annual Report on Form 10-K for the year ended December 31, 1995
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.
(b) Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996,
June 30, 1996 and September 30, 1996;
(c) Current Reports on Form 8-K dated October 15, 1996, October 24, 1996,
October 31, 1996, November 26, 1996, November 30, 1996, December 3,
1996, December 5, 1996, December 31, 1996 and January 14, 1997; and
(d) The description of the Series A Preferred Stock contained in a
Registration Statement on Form 8-A dated November 13, 1995, and any
amendment or report filed for the purpose of updating such
description.
Such incorporation by reference shall not be deemed to
specifically incorporate by reference the information referred to in Item
402(a)(8) of Regulation S-K.
All documents filed by MBNA pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of this offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained in this Prospectus or 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 to the extent that
a statement contained herein or therein (or in any subsequently filed document
that also is on or is deemed to be incorporated by reference herein or therein)
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.
MBNA will provide without charge to each person to whom a copy
of this Prospectus has been delivered, upon the written or oral request of such
person, a copy of any or all of the documents referred to above which have been
or may be incorporated by reference herein (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference in
such documents). Requests for such copies should be directed to MBNA
Corporation, Wilmington, Delaware 19884-0781, Attention: Investor Relations
(800) 362-6255.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON
REQUEST FROM THE INVESTOR RELATIONS DEPARTMENT, MBNA CORPORATION, WILMINGTON,
DELAWARE
<PAGE> 17
12
19884-0781, ATTENTION: INVESTOR RELATIONS (800) 362-6255. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MARCH __, 1997.
<PAGE> 18
13
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is
qualified in its entirety by the detailed information contained elsewhere in,
or incorporated by reference in, this Prospectus.
MBNA CORPORATION
MBNA 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 December 31, 1996, MBNA had consolidated assets of $17.0
billion, consolidated deposits of $10.2 billion and stockholders' equity of
$1.7 billion. The principal asset of MBNA is its equity interest in the Bank.
As of December 31, 1996, the Bank and its subsidiaries constituted
approximately 92.7% of the consolidated assets of MBNA.
Through the Bank, MBNA is one of the world's largest bank
credit card lenders and is the leading issuer of affinity credit cards marketed
primarily to members of associations and customers of financial institutions.
In addition to its credit card lending, MBNA also offers other consumer loans
and various deposit products.
MBNA 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. MBNA'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.
The principal office of MBNA is located in Wilmington,
Delaware 19884, and its telephone number is (800) 362-6255.
THE TRUST
The Trust is a statutory business trust created under Delaware
law pursuant to the filing of a certificate of trust with the Secretary of
State of the State of Delaware on November 6, 1996 and will be governed by the
Trust Agreement executed by MBNA, as Depository, The Bank of New York, as
Property Trustee, The Bank of New York (Delaware), as Delaware Trustee, and the
Administrative Trustees named therein the (the "Trust Agreement"). The Trust's
business and affairs are conducted by the Issuer Trustees: The Bank of New
York, as Property Trustee, and The Bank of New York (Delaware), as Delaware
Trustee, and two individual Administrative Trustees who are employees or
officers of or affiliated with MBNA. The Trust exists for the exclusive
purposes of (i) issuing (a) its
<PAGE> 19
14
Preferred Securities in exchange for Series A Preferred Stock validly tendered
in the Offer and delivering such Series A Preferred Stock to MBNA in
consideration of the deposit by MBNA, as trust assets, of Junior Subordinated
Debentures having an aggregate stated principal amount equal to the aggregate
stated liquidation amount of such Preferred Securities, and (b) its Common
Securities to MBNA in exchange for cash and investing the proceeds thereof in
an equal aggregate principal amount of Junior Subordinated Debentures and (ii)
engaging in only those other activities necessary or incidental thereto (such
as registering the transfer of the Trust Securities). Accordingly, the Junior
Subordinated Debentures will be the sole assets of the Trust, and payments
under the Junior Subordinated Debentures will be the sole revenue of the Trust.
All of the Common Securities will be owned by MBNA. The Common Securities will
rank pari passu, and payments will be made thereon pro rata, with the Preferred
Securities, except that upon the occurrence and continuance of a Debenture
Event of Default, the rights of MBNA as holder of the Common Securities to
payment in respect of Distributions and payments upon liquidation, redemption
or otherwise will be subordinated to the rights of the holders of the Preferred
Securities. See "Description of the Preferred Securities -- Subordination of
Common Securities". MBNA will acquire Common Securities in an aggregate
Liquidation Amount equal to 3% of the total capital of the Trust. The Trust has
a term of 55 years, but may terminate earlier as provided in the Trust
Agreement. The principal executive office of the Trust is Wilmington, Delaware
19884, and its telephone number is (800) 362-6255. See "The Trust."
The rights of the holders of the Preferred Securities,
including economic rights, rights to information and voting rights, are set
forth in the Trust Agreement, the Delaware Business Trust Act and the Trust
Indenture Act (as defined herein). See "Description of the Preferred
Securities.")
CERTAIN POTENTIAL BENEFITS AND RISKS TO INVESTORS
Prospective investors should carefully review the information
contained elsewhere in this Prospectus prior to making a decision regarding the
Offer and should particularly consider the following matters:
POTENTIAL BENEFITS TO EXCHANGING HOLDERS
- The cash distribution rate on the Preferred Securities will be
[ ] basis points greater than the dividend rate on the
Series A Preferred Stock. See "Comparison of Preferred
Securities and Series A Preferred Stock."
- Although the obligations of MBNA under the Junior Subordinated
Debentures are unsecured and will be subordinated and junior
in right of payment to all Senior Debt of MBNA, they will rank
pari passu with MBNA's other general unsecured creditors and
will be senior to all capital stock of MBNA now or hereafter
issued by MBNA (including the Series A Preferred Stock).
<PAGE> 20
15
- While no dividends are required to be paid with respect to the
Series A Preferred Stock, interest payments on the Junior
Subordinated Debentures and therefore distributions on the
Preferred Securities may not be deferred for more than 20
consecutive quarterly interest periods. Moreover, during any
such Extension Period, MBNA may not, and may not permit any
subsidiary of MBNA to (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of MBNA's capital
stock, including the Series A Preferred Stock (ii) make any
payment of principal, interest or premium, if any, on or
repay, repurchase or redeem any debt securities of MBNA
(including other series of junior subordinated debentures)
that rank pari passu with or junior in interest to the Junior
Subordinated Debentures or (iii) make any guarantee payments
with respect to any guarantee by MBNA of the debt securities
of any subsidiary of MBNA if such guarantee ranks pari passu
with or junior in interest to the Junior Subordinated
Debentures, including its guarantees of the Series A Capital
Securities and the Series B Capital Securities (other than (a)
dividends or distributions in capital stock of MBNA, (b) any
declaration of a dividend in connection with the
implementation of a stockholders' rights plan or the
redemption or repurchase of any such rights pursuant thereto,
(c) payments under the Guarantee and (d) purchases of common
stock related to the issuance of common stock or rights under
any of MBNA's benefit plans for its directors, officers or
employees, related to the issuance of common stock or rights
under a dividend reinvestment and stock purchase plan, or
related to the issuance of common stock (or securities
convertible into or exchangeable for common stock) as
consideration in an acquisition transaction that was entered
into prior to the commencement of such Extension Period).
MBNA has no present intention of exercising its right to defer
payments of interest on the Junior Subordinated Debentures.
However, should MBNA determine to exercise such right in the
future, the market price of the Preferred Securities is likely
to be affected. See "Description of the Preferred
Securities." Dividends on the Series A Preferred Stock accrue
whether or not such dividends are declared. See "Description
of the Series A Preferred Stock -- Dividends."
- The Offer will allow MBNA to achieve certain tax efficiencies
because, in contrast to dividend payments with respect to the
Series A Preferred Stock which are not deductible by MBNA,
MBNA will be able to deduct interest payments on the Junior
Subordinated Debentures for United States federal income tax
purposes. Such tax efficiencies may give rise to an
incremental increase in cash flow to MBNA. See "The Offer -
Reason and Purpose of the Offer."
- So long as payments of interest and other payments are made
when due on the Junior Subordinated Debentures, such payments
will be sufficient to cover cash distributions and other
payments made on the Trust Securities because (i) the
aggregate principal amount of Junior Subordinated Debentures
deposited as
<PAGE> 21
16
trust assets in the Trust will be equal to the sum of (a) the
aggregate stated liquidation amount of the Preferred
Securities issued by the Trust in exchange for the Series A
Preferred Stock accepted in the Offer and (b) the amount of
proceeds received by the Trust from the issuance of the Common
Securities to MBNA, which proceeds will be used by the Trust
to purchase an equal principal amount of Junior Subordinated
Debentures, (ii) the interest rate and interest and other
payment dates on the Junior Subordinated Debentures will match
the distribution rate and distribution and other payment dates
for the Trust Securities, (iii) the Indenture provides that
MBNA, as issuer of the Junior Subordinated Debentures, shall
pay for all debts and obligations (other than payments of
interest and principal with respect to the Trust Securities)
and all costs and expenses of the Trust, and (iv) the Trust
Agreement provides that the Trustees shall not permit the
Trust to, among other things, engage in any activity that is
not consistent with the purposes of the Trust. See "The
Trust," "Description of the Preferred Securities,"
"Description of the Junior Subordinated Debentures" and
"Relationship Between the Preferred Securities, the Junior
Subordinated Debentures and the Guarantee."
- The Trust will have no independent operations and will exist
for the sole purpose of effecting the Offer and issuing the
Trust Securities as described herein and owning and holding
the Junior Subordinated Debentures. See "The Trust."
- If a Debenture Event of Default occurs and is continuing under
the Indenture, then the holders of Preferred Securities would
be able to rely on the enforcement by the Property Trustee of
its rights as a holder of the Junior Subordinated Debentures
against MBNA. If a Debenture Event of Default with respect to
the Junior Subordinated Debentures has occurred and is
continuing and such event is attributable to the failure of
MBNA to pay interest, premium (if any) or principal on such
Junior Subordinated Debentures on the date such interest,
premium (if any) or principal is due and payable, a holder of
Preferred Securities may institute a legal proceeding directly
against MBNA for enforcement of payment to such holder of the
principal of or interest or premium (if any) on such Junior
Subordinated Debentures having a principal amount equal to the
aggregate Liquidation Amount of the Preferred Securities of
such holder (a "Direct Action"). MBNA may not amend the
Indenture to remove the foregoing right to bring a Direct
Action without the prior written consent of the holders of all
of the Preferred Securities outstanding. If the right to
bring a Direct Action is removed, the Trust may become subject
to the reporting obligations under the Exchange Act. MBNA
shall have the right under the Indenture to set-off any
payment made to such holder of Preferred Securities by MBNA in
connection with a Direct Action. The holders of the Preferred
Securities will not be able to exercise directly any remedies
other than those set forth in this paragraph available to the
holders of the Junior
<PAGE> 22
17
Subordinated Debentures. See "Description of the Preferred
Securities -- Events of Default; Notice."
POTENTIAL RISKS TO EXCHANGING HOLDERS
- Participation in the Offer will be a taxable event for holders
of Series A Preferred Stock. See "Risk Factors and Special
Considerations Relating to the Offer -- Exchange of Series A
Preferred Stock for Preferred Securities is a Taxable Event"
and "Certain United States Federal Income Tax Consequences --
Tax Consequences of the Exchange of Series A Preferred Stock
for Preferred Securities."
- The obligations of MBNA under the Guarantee issued by MBNA for
the benefit of the holders of Trust Securities and under the
Junior Subordinated Debentures are unsecured and subordinate
and junior in right of payment to all Senior Debt of MBNA, and
rank pari passu with MBNA's other general unsecured creditors.
In addition, because MBNA is a holding company, the right of
MBNA to participate in any distribution of the assets of any
subsidiary, including MBNA America Bank, National Association,
upon such subsidiary's liquidation or reorganization or
otherwise is subject to the prior claims of creditors of that
subsidiary, including depositors, except to the extent that
MBNA may itself be recognized as a creditor of that
subsidiary. There are various legal limitations on the extent
to which certain of MBNA's subsidiaries may extend credit, pay
dividends or otherwise supply funds to, or engage in
transactions with, MBNA or certain of its other subsidiaries.
Accordingly, the Junior Subordinated Debentures will be
effectively subordinated to all existing and future
liabilities of MBNA's subsidiaries, and holders of Junior
Subordinated Debentures should look only to the assets of MBNA
for payments on the Junior Subordinated Debentures. See "MBNA
Corporation." None of the Indenture, the Guarantee or the
Trust Agreement places any limitation on the amount of secured
or unsecured debt, including Senior Debt, that may be incurred
by MBNA. See "Description of Guarantee -- Status of the
Guarantee" and "Description of Junior Subordinated
Debentures."
- If MBNA were to default in its obligation to pay amounts
payable on the Junior Subordinated Debentures, the Trust would
lack available funds for the payment of distributions or
amounts payable on redemption of the Preferred Securities or
otherwise. In addition, the interest payment period on the
Junior Subordinated Debentures may be extended from time to
time under certain circumstances by MBNA, in its sole
discretion, for up to 20 consecutive quarters with respect to
each extension period, such period not to extend beyond the
Stated Maturity of the Junior Subordinated Debentures. See
"Risk Factors and Special Considerations Relating to the Offer
-- Ranking of
<PAGE> 23
18
Subordinated Obligations Under the Guarantee and Junior
Subordinated Debentures" and "-- Option to Extend Interest
Payment Period."
- Should MBNA not make interest or other payments on the Junior
Subordinated Debentures for any reason, including as a result
of MBNA's election to defer payments of interest on the Junior
Subordinated Debentures by extending the interest payment
period thereon, the Trust will not make distributions or other
payments on the Trust Securities. In such an event, holders
of the Preferred Securities would not be able to rely on the
Guarantee since the Guarantee covers distributions and other
payments on the Preferred Securities only if and to the extent
that MBNA has made a payment to the Trust of interest or
principal on the Junior Subordinated Debentures deposited in
the Trust as trust assets. See "Risk Factors and Special
Considerations Relating to the Offer--Rights Under the
Guarantee."
- If MBNA elects to defer payments of interest on the Junior
Subordinated Debentures by extending the interest period
thereon, distributions on the Preferred Securities would also
be deferred but the Trust would continue to accrue the stated
interest on the Junior Subordinated Debentures (as OID), which
would be taxable to beneficial owners of Preferred Securities.
As a result, during an Extension Period, beneficial owners of
Preferred Securities would include their pro rata share of
such OID in gross income in advance of the receipt of cash
attributable to such income. See "Risk Factors and Special
Considerations Relating to the Offer -- Option to Extend
Interest Payment Period" and "Certain United States Federal
Income Tax Consequences--Interest Income and Original Issue
Discount."
- Holders of Preferred Securities will have limited voting
rights relating only to the modification of the Preferred
Securities and the Guarantee and the exercise of the Trust's
rights as a holder of Junior Subordinated Debentures and the
Guarantee and will not be able under any circumstances to
elect directors to the Board of Directors of MBNA. Holders of
Preferred Securities will not be entitled to vote to appoint,
remove or replace the Property Trustee, the Delaware Trustee
or any Administrative Trustee, and such voting rights are
vested exclusively in the holder of the Common Securities
except, with respect to the Property Trustee and the Delaware
Trustee, upon the occurrence of certain events described
herein. See "Risk Factors and Special Considerations Relating
to the Offer -- Limited Voting Rights" and "Description of the
Preferred Securities -- Voting Rights; Amendment of the Trust
Agreement." Holders of Series A Preferred Stock also have
limited voting rights. However, with certain exceptions, in
the event that dividends on any or all shares of series of
MBNA's preferred stock, including the Series A Preferred
Stock, are in arrears and unpaid for six quarterly dividend
periods, whether or not consecutive, the Board of Directors of
MBNA (the "MBNA Board") would have to be increased by two
directors and the holders of Series A Preferred
<PAGE> 24
19
Stock, together with the holders of all other series of
preferred stock then entitled to vote thereon, would be
entitled to elect two directors of the expanded MBNA Board.
See "Description of the Series A Preferred Stock--Voting
Rights."
- The shares of Series A Preferred Stock are redeemable at the
option of MBNA on or after ____________ in whole or in part.
The Junior Subordinated Debentures, and as a result, the
Preferred Securities, are redeemable by MBNA, in whole or in
part, from time to time, on or after __________, or in whole
but not in part, prior to __________, upon the occurrence of a
Special Event. See "Risk Factors and Special Considerations
Relating to the Offer -- Special Event--Redemption."
- Unlike dividends paid on Series A Preferred Stock,
distributions made on the Preferred Securities are not
eligible for the dividends received deduction for corporate
holders.
- While application will be made to list the Preferred
Securities on the NYSE, the Preferred Securities are a new
issue of securities with no established trading market. In
addition, liquidity of the Preferred Securities will be
affected by the number of shares of Series A Preferred Stock
exchanged in the Offer. See "Risk Factors and Special
Considerations Relating to the Offer--Lack of Established
Trading Market for Preferred Securities" and "--Reduced
Trading Market for Series A Preferred Stock
- MBNA will have the right at any time to liquidate the Trust
and cause the Junior Subordinated Debentures held by the Trust
to be distributed to the holders of Trust Securities, subject
to the prior approval of the Federal Reserve if then required
under applicable guidelines or policies. While MBNA will use
its best efforts in such a situation to have the Junior
Subordinated Debentures listed on the NYSE, there is no
guarantee that such listing will take place or that a market
will exist for the Junior Subordinated Debentures. See "Risk
Factors and Special Considerations Relating to the Offer --
Exchange of Series A Preferred Stock for Preferred Securities
is a Taxable Event."
POTENTIAL RISKS TO NON-EXCHANGING HOLDERS
- The liquidity and trading market for untendered shares of
Series A Preferred Stock could be adversely affected to the
extent shares of Series A Preferred Stock are tendered and
accepted in the Offer. In addition, following the Expiration
Date, and in accordance with and subject to applicable law,
MBNA may from time to time acquire Series A Preferred Stock in
the open market, by tender offer, subsequent exchange offer or
otherwise. MBNA's decision to make such acquisitions is
dependent on many factors, including market conditions in
effect at the time of any contemplated acquisition.
Accordingly,
<PAGE> 25
20
MBNA cannot predict whether and to what extent it will acquire
any additional Series A Preferred Stock and the consideration
to be paid therefor. See "Risk Factors and Special
Considerations Relating to the Offer -- Reduced Trading Market
for Series A Preferred Stock."
- The Junior Subordinated Debentures and the Guarantee will rank
senior in right of payment to the untendered shares of Series
A Preferred Stock. See "Risk Factors and Special
Considerations Relating to the Offer -- Ranking of
Subordinated Obligations Under the Guarantee and Junior
Subordinated Debentures."
<PAGE> 26
21
THE OFFER
REASON AND PURPOSE OF THE OFFER
On October 21, 1996, the Federal Reserve Board issued a press
release (the "Federal Reserve Press Release") announcing that certain
cumulative preferred stock instruments, such as the Preferred Securities, could
be included as "Tier 1 Capital" for purposes of the Federal Reserve Board's
capital guidelines for bank holding companies ("Tier 1 Capital"), subject to
certain limitations. The potential for such Tier 1 Capital treatment, together
with MBNA's ability to deduct, for income tax purposes, interest payable on the
Junior Subordinated Debentures, could provide MBNA with greater financial
flexibility and more cost-effective regulatory capital.
TERMS OF THE OFFER
Upon the terms and subject to the conditions set forth herein
and in the Letter of Transmittal, the Trust hereby offers to exchange Preferred
Securities for any and all of the Series A Preferred Stock not owned by MBNA.
Exchanges will be made on the basis of one Preferred Security for each
Preferred Share validly tendered and accepted for exchange in the Offer. See
"The Offer -- Terms of the Offer."
EXPIRATION DATE; WITHDRAWALS
Upon the terms and conditions of the Offer, the Trust will
accept for exchange any and all shares of Series A Preferred Stock validly
tendered and not withdrawn prior to 12:00 Midnight, New York City time, on
___________ April __, 1997, or if the Offer is extended by the Trust, in its
sole discretion, the latest date and time to which the Offer has been extended
(the "Expiration Date"). Tenders of Series A Preferred Stock pursuant to the
Offer may be withdrawn at any time prior to the Expiration Date and, unless
accepted for exchange by the Trust, may be withdrawn at any time after 40
Business Days (as defined herein) after the date of this Prospectus. A
"Business Day" shall mean any day other than Saturday, Sunday or any other day
on which banking institutions in New York City (in the State of New York) and
in Wilmington (in the State of Delaware) are permitted or required by any
applicable law to close. See "The Offer -- Expiration Date; Extensions;
Amendments; Termination" and "-- Withdrawal of Tenders." Tenders must be made
to the Exchange Agent in order to be valid.
CONDITIONS TO THE OFFER; EXTENSIONS; AMENDMENT; TERMINATION
Consummation of the Offer is conditioned on, among other
things, tenders by a sufficient number of holders of Series A Preferred Stock
to meet the Minimum Distribution Condition, which condition may not be waived.
See "The Offer -- Conditions to the Offer" and "- Expiration Date; Extensions;
Amendments; Termination."
<PAGE> 27
22
The Trust expressly reserves the right, in its sole
discretion, subject to applicable law, to (i) terminate the Offer, and not
accept for exchange any Series A Preferred Stock and promptly return the Series
A Preferred Stock, upon the failure of any condition specified above or under
"The Offer -- Conditions to the Offer," (ii) waive any condition to the Offer
(other than the Minimum Distribution Condition) and accept all Series A
Preferred Stock previously tendered pursuant to the Offer, (iii) extend the
Expiration Date of the Offer and retain all Series A Preferred Stock, tendered
pursuant to the Offer under the Expiration Date, subject, however, to all
withdrawal rights of holders, see "The Offer -- Withdrawal of Tenders," (iv)
amend the terms of the Offer, (v) modify the form of the consideration to be
paid pursuant to the Offer, or (vi) not accept for exchange the Series A
Preferred Stock at any time on or prior to the Expiration Date, for any reason,
including, without limitation, if fewer than 100,000 shares of Series A
Preferred Stock would remain outstanding upon acceptance of those tendered
(which conditions may be waived by the Trust). Any amendment applicable to the
Offer will apply to all Series A Preferred Stock tendered pursuant to the
Offer. The minimum period during which the Offer must remain open following
material changes in the terms of the Offer or the information concerning the
Offer, other than a change in the percentage of securities sought or the price,
depends upon the facts and circumstances, including the relative materiality of
such terms or information. See "The Offer -- Conditions to the Offer" and "-
Expiration Date; Extensions; Amendments; Termination."
PROCEDURES FOR TENDERING
Each Holder of Series A Preferred Stock wishing to participate
in the Offer must (i) properly complete and sign the Letter of Transmittal (or
where appropriate, an Agent's Message (as defined herein) or a facsimile
thereof (all references in this Prospectus to the Letter of Transmittal shall
be deemed to include a facsimile thereof) in accordance with the instructions
contained herein and in the Letter of Transmittal, together with any required
signature guarantees, and deliver the same to The Bank of New York, as Exchange
Agent, at one of its addresses set forth on the back cover page hereof, prior
to the Expiration Date and either (a) certificates for the Series A Preferred
Stock must be received by the Exchange Agent at such address or (b) such Series
A Preferred Stock must be transferred pursuant to the procedures for book-entry
transfer described herein and a confirmation of such book-entry transfer must
be received by the Exchange Agent, in each case prior to the Expiration Date,
or (ii) comply with the guaranteed delivery procedures described herein. See
"The Offer -- Procedures for Tendering."
IN ORDER TO PARTICIPATE IN THE OFFER, HOLDERS OF SERIES A
PREFERRED STOCK MUST SUBMIT THE LETTER OF TRANSMITTAL AND COMPLY WITH THE OTHER
PROCEDURES FOR TENDERING IN ACCORDANCE WITH THE INSTRUCTIONS CONTAINED HEREIN
AND IN THE LETTER OF TRANSMITTAL PRIOR TO THE EXPIRATION DATE.
LETTERS OF TRANSMITTAL, SERIES A PREFERRED STOCK AND ANY OTHER
REQUIRED DOCUMENTS SHOULD BE SENT ONLY TO THE EXCHANGE
<PAGE> 28
23
AGENT -- NOT TO MBNA, THE TRUST, THE DEALER MANAGER OR THE INFORMATION AGENT.
SPECIAL PROCEDURE FOR BENEFICIAL OWNERS.
Any beneficial owner whose shares of Series A Preferred Stock
are registered in the name of a broker, dealer, commercial bank, trust company
or other nominee and who wishes to tender such Series A Preferred Stock should
contact such registered holder promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such beneficial owner wishes to
tender on its own behalf, such owner must, prior to completing and executing
the Letter of Transmittal and delivering its Series A Preferred Stock, either
make appropriate arrangements to register ownership of the Series A Preferred
Stock in such owner's name or obtain a properly completed stock power from the
registered Holder. The transfer of registered ownership may take considerable
time and may not be able to be completed prior to the Expiration Date. See
"The Offer -- Procedures for Tendering -- Special Procedure for Beneficial
Owners."
GUARANTEED DELIVERY PROCEDURES
If a holder desires to accept the Offer and time will not
permit the Letter of Transmittal or Series A Preferred Stock to reach the
Exchange Agent before the Expiration Date or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected in
accordance with the guaranteed delivery procedures set forth in "The Offer --
Procedures for Tendering -- Guaranteed Delivery."
ACCEPTANCE OF SHARES
Upon the terms and subject to the conditions of the Offer,
including the Minimum Distribution Condition, the Trust will accept for
exchange any and all shares of Series A Preferred Stock validly tendered and
not withdrawn prior to the Expiration Date. The Trust expressly reserves the
right, in its sole discretion, to delay acceptance for exchange of Series A
Preferred Stock tendered under the Offer and the delivery of the Preferred
Securities with respect to the Series A Preferred Stock accepted for exchange
(subject to Rules 13e-4 and 14e-1 under the Exchange Act, which require that
MBNA and the Trust consummate the Offer or return the Series A Preferred Stock
deposited by or on behalf of the Holders thereof promptly after the termination
or withdrawal of the Offer), or to amend, withdraw or terminate the Offer, at
any time prior to the Expiration Date for any of the reasons set forth in "The
Offer -- Conditions to the Offer" and "- Expiration Date; Extensions;
Amendments; Termination."
If the Trust decides, in its sole discretion, to decrease the
number of shares of Series A Preferred Stock sought in the Offer or to increase
or decrease the consideration offered to holders of Series A Preferred Stock,
and if the Offer is scheduled to expire less than ten Business Days from and
including the date that notice of such increase or decrease is first published,
sent or given in the manner specified in "The Offer -- Terms of the Offer" and
<PAGE> 29
24
"- Expiration Date; Extensions; Amendments; Termination," then the Offer will
remain open for a minimum of ten Business Days from and including the date of
such notice.
All Series A Preferred Stock not accepted pursuant to the
Offer will be returned to the tendering Holders at the Trust's expense as
promptly as practicable following the Expiration Date.
DELIVERY OF PREFERRED SECURITIES
Subject to the terms and conditions of the Offer, the delivery
of the Preferred Securities to be issued pursuant to the Offer will occur as
promptly as practicable following the Expiration Date. See "The Offer -- Terms
of the Offer" and "--Expiration Date; Extensions; Amendments; Termination."
DESCRIPTION OF PREFERRED SECURITIES
The Preferred Securities represent undivided ownership
beneficial interests in the assets of the Trust, and Distributions on each
Preferred Security will be payable at the annual rate of ___% of the stated
Liquidation Amount of $25 payable quarterly in arrears on the 15th day of
January, April, July and October of each year, to the holders of the Preferred
Securities on the relevant record dates. The record dates for the Preferred
Securities will be the last day of the month prior to the relevant Distribution
Payment date. Distributions will accumulate from the date of original
issuance. The first Distribution payment date for the Preferred Securities
will be _______________. In the event that any date on which Distributions are
payable on the Preferred Securities is not a Business Day, then payment of the
Distributions payable on such date will be made on the next succeeding day that
is a Business Day (and without any additional Distributions or other payment in
respect of any such delay), except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on the date such payment was originally payable. In addition, MBNA will pay a
cash payment equal to all accumulated and unpaid dividends on the Series A
Preferred Stock as of the Expiration Date on April 15, 1997 to holders of the
Series A Preferred Stock accepted for exchange. See "Description of the
Preferred Securities--Distributions."
So long as no Debenture Event of Default has occurred and is
continuing, MBNA has the right under the Indenture to defer payment of interest
on the Junior Subordinated Debentures at any time or from time to time for a
period not exceeding 20 consecutive quarterly periods with respect to each
Extension Period, provided, that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures. As a consequence of any
such deferral of interest payments by MBNA, quarterly Distributions on the
Preferred Securities by the Trust also will be deferred during any such
Extension Period. Distributions to which holders of the Preferred Securities
are entitled will accumulate additional Distributions thereon at the rate per
annum of ___% thereof, compounded quarterly from the relevant payment date for
such Distributions. The term
<PAGE> 30
25
"Distributions" as used herein shall include any such additional Distributions.
During any such Extension Period, MBNA may not, and may not permit any
subsidiary of MBNA to, (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire or make a liquidation payment with respect to, any of
MBNA's capital stock, (ii) make any payment of principal, interest or premium,
if any, on or repay, repurchase or redeem any debt securities of MBNA
(including other series of junior subordinated debentures) that rank pari passu
with or junior in interest to the Junior Subordinated Debentures or (iii) make
any guarantee payments with respect to any guarantee by MBNA of the debt
securities of any subsidiary of MBNA if such guarantee ranks pari passu with or
junior in interest to the Junior Subordinated Debentures, including its
guarantees of the Series A Capital Securities and the Series B Capital
Securities (other than (a) dividends or distributions in capital stock of MBNA,
(b) any declaration of a dividend in connection with the implementation of a
stockholders' rights plan or the redemption or repurchase of any such rights
pursuant thereto, (c) payments under the Guarantee and (d) purchases of common
stock related to the issuance of common stock or rights under any of MBNA's
benefit plans for its directors, officers or employees, related to the issuance
of common stock or rights under a dividend reinvestment and stock purchase
plan, or related to the issuance of common stock (or securities convertible
into or exchangeable for common stock) as consideration in an acquisition
transaction that was entered into prior to the commencement of such Extension
Period). Prior to the termination of any such Extension Period, MBNA may
further defer the payment of interest on the Junior Subordinated Debentures,
provided, that no Extension Period may exceed 20 consecutive quarterly periods
or extend beyond the Stated Maturity of the Junior Subordinated Debentures.
Upon the termination of any such Extension Period and the payment of all
interest then accrued and unpaid (together with any interest thereon at the
rate of ___%, compounded quarterly, to the extent permitted by applicable law),
MBNA may elect to begin a new Extension Period. There is no limitation on the
number of times that MBNA may elect to begin an Extension Period. During an
Extension Period, holders of Preferred Securities will be required to accrue
the stated interest on their pro rata share of the Junior Subordinated
Debentures (as OID) for United States federal income tax purposes and,
consequently, will be required to include such OID in gross income for such
purposes in advance of the receipt of cash attributable to such income. See
"Description of the Junior Subordinated Debentures--Option to Defer Interest
Payments" and "Certain United States Federal Income Tax Consequences--Interest
Income and Original Issue Discount."
MBNA has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
Upon the repayment or redemption, in whole or in part, of the
Junior Subordinated Debentures, whether at Stated Maturity or upon earlier
redemption as provided in the Indenture, the proceeds from such repayment or
redemption shall be applied by the Property Trustee to redeem a Like Amount of
the Trust Securities, upon not less than 30 nor more than 60 days' notice prior
to the date fixed for redemption having an aggregate Liquidation Amount equal
to the aggregate principal amount of the Junior
<PAGE> 31
26
Subordinated Debentures so repaid or redeemed at the applicable Redemption
Price. See "Description of the Junior Subordinated Debentures--Optional
Redemption." If less than all of the Junior Subordinated Debentures are to be
repaid or redeemed on a Redemption Date, then the proceeds from such repayment
or redemption shall be allocated to the redemption pro rata of the Preferred
Securities and the Common Securities.
MBNA has the right, subject to the prior approval of the
Federal Reserve if then required under applicable guidelines or policies to
redeem the Junior Subordinated Debentures (i) on or after _______________, in
whole at any time or in part from time to time, or (ii) prior to
_______________, in whole (but not in part) within 90 days following the
occurrence of a Special Event. A redemption of the Junior Subordinated
Debentures would cause a mandatory redemption of Preferred Securities and
Common Securities.
A "Special Event" means a Tax Event or a "Capital Treatment
Event" (each as defined herein), as the case may be.
A "Tax Event" means the receipt by the Trust or MBNA of an
opinion of counsel experienced in such matters to the effect that, as a result
of any amendment to, or change (including any announced proposed change) in,
the laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective, or
which proposed change, pronouncement or decision is announced, on or after the
date of issuance of the Preferred Securities under the Trust Agreement, there
is more than an insubstantial risk that (i) the Trust is, or will be within 90
days of the date of such opinion, subject to United States federal income tax
with respect to income received or accrued on the Junior Subordinated
Debentures, (ii) interest payable by MBNA on the Junior Subordinated Debentures
is not, or within 90 days of the date of such opinion, will not be, deductible
by MBNA, in whole or in part, for United States federal income tax purposes or
(iii) the Trust is, or will be within 90 days of the date of the opinion,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
A "Capital Treatment Event" means the reasonable determination
by MBNA that, as a result of any amendment to, or change (including any
proposed change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective, or which proposed change, pronouncement, action or decision is
announced, on or after the date of issuance of the Preferred Securities under
the Trust Agreement, there is more than an insubstantial risk that MBNA will
not be entitled to treat an amount equal to the Liquidation Amount of the
Preferred Securities as "Tier 1 Capital" (or the then equivalent thereof) for
purposes of the capital adequacy guidelines of the Federal Reserve, as then in
effect and applicable to MBNA.
MBNA will have the right at any time to terminate the Trust
and, after satisfaction of the liabilities to creditors of the Trust as
required by applicable law, cause the Junior Subordinated Debentures to be
distributed to the holders of the Preferred Securities in
<PAGE> 32
27
exchange therefor upon liquidation of the Trust. Such right is subject to MBNA
having received prior approval of the Federal Reserve if then required under
applicable capital guidelines or policies. Notice of such liquidation will be
mailed to holders of the Preferred Securities not later than 30 days nor more
than 60 days prior to such event.
Under current United States federal income tax law and
interpretations and assuming, as expected, the Trust is treated as a grantor
trust, a distribution of Junior Subordinated Debentures in exchange for the
Preferred Securities would not be a taxable event to holders of the Preferred
Securities. Should there be a change in law, a change in legal interpretation,
a Tax Event or other circumstances, however, the distribution could be a
taxable event to holders of the Preferred Securities. See "Certain United
States Federal Income Tax Consequences--Distribution of Junior Subordinated
Debentures to Holders of Preferred Securities." If MBNA elects neither to
redeem the Junior Subordinated Debentures prior to maturity nor to liquidate
the Trust and distribute the Junior Subordinated Debentures to holders of the
Preferred Securities in exchange therefor, the Preferred Securities will remain
outstanding until the Stated Maturity of the Junior Subordinated Debentures.
The amount payable on the Preferred Securities in the event of
any liquidation of the Trust is $25 per Preferred Securities plus accumulated
and unpaid Distributions, which amount may be paid in the form of a
distribution of a Like Amount in Junior Subordinated Debentures, subject to
certain exceptions. See "Description of the Preferred Securities--Liquidation
Distribution Upon Termination."
<PAGE> 33
28
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
Concurrently with the issuance of its Preferred Securities in
exchange for Series A Preferred Stock accepted in the Offer and the delivery of
such Series A Preferred Stock to MBNA in consideration of the deposit by MBNA
as trust assets of its Junior Subordinated Debentures having an aggregate
stated principal amount equal to the aggregate stated liquidation amount of
such Preferred Securities, the Trust will issue its Common Securities to MBNA
in exchange for cash and invest the process thereof in an equal aggregate
principal amount of Junior Subordinated Debentures. The Junior Subordinated
Debentures will bear interest at the annual rate of ___% of the principal
amount thereof, payable quarterly in arrears on the 15th day of January, April,
July and October of each year (each, an "Interest Payment Date"), commencing
_______________, to the person in whose name each Junior Subordinated Debenture
is registered on the last day of the month prior to an Interest Payment Date.
It is anticipated that, until the liquidation, if any, of the Trust, each
Junior Subordinated Debenture will be held by the Property Trustee in trust for
the benefit of the holders of the Trust Securities. The amount of interest
payable for any period will be computed on the basis of a 360-day year of
twelve 30-day months. In the event that any date on which interest is payable
on the Junior Subordinated Debentures is not a Business Day, then payment of
the interest payable on such date will be made on the next succeeding day that
is a Business Day (and without any interest or other payment in respect of any
such delay), except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on the date such
payment was originally payable. Accrued interest that is not paid on the
applicable Interest Payment Date will bear additional interest on the amount
thereof (to the extent permitted by law) at the rate per annum of ___% thereof,
compounded quarterly from the relevant Interest Payment Date. The term
"interest" as used herein shall include quarterly interest payments and
interest on quarterly interest payments not paid on the applicable Interest
Payment Date, as applicable.
The Junior Subordinated Debentures will be issued as a series
of junior subordinated deferrable interest debentures under the Indenture.
The Junior Subordinated Debentures will mature on April __,
2027.
So long as no event of default under the Indenture has
occurred and is continuing, MBNA has the right under the Indenture at any time
or from time to time during the term of the Junior Subordinated Debentures to
defer payment of interest on the Junior Subordinated Debentures for a period
not exceeding 20 consecutive quarterly periods with respect to each Extension
Period, provided, that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. At the end of such Extension
Period, MBNA must pay all interest then accrued and unpaid on the Junior
Subordinated Debentures (together with interest on such unpaid interest at the
annual rate of ___%, compounded quarterly from the relevant Interest Payment
Date, to the extent permitted by applicable law). During an Extension Period,
interest will accrue and holders of Junior Subordinated Debentures (or holders
of Preferred Securities while such series is outstanding) will be
<PAGE> 34
29
required to accrue the stated interest on the Junior Subordinated Debentures
(as OID) for United States federal income tax purposes and, consequently, such
holders will be required to include such OID in gross income for such purposes
in advance of the receipt of cash attributable to such income. See "Certain
United States Federal Income Tax Consequences--Interest Income and Original
Issue Discount."
During any such Extension Period, MBNA may not, and not permit
any subsidiary of MBNA to, (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire or make a liquidation payment with respect to,
any of MBNA's capital stock, (ii) make any payment of principal, interest or
premium, if any, on or repay, repurchase redeem any debt securities of MBNA
(including other series of junior subordinated debentures) that rank pari passu
with or junior in interest to the Junior Subordinated Debentures or (iii) make
any guarantee payments with respect to any guarantee by MBNA of the debt
securities of any subsidiary of MBNA if such guarantee ranks pari passu with or
junior in interest to the Junior Subordinated Debentures, including its
guarantees of the Series A Capital Securities and the Series B Capital
Securities (other than (a) dividends or distributions in capital stock of MBNA,
(b) any declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the redemption or repurchase of any such rights
pursuant thereto, (c) payments under the Guarantee, and (d) purchases of common
stock related to the issuance of common stock or rights under any of MBNA's
benefit plans for its directors, officers or employees, related to the issuance
of common stock or rights under a dividend reinvestment and stock purchase
plan, or related to the issuance of common stock (or securities convertible
into or exchangeable for common stock) as consideration in an acquisition
transaction that was entered into prior to the commencement of such Extension
Period). Prior to the termination of any such Extension Period, MBNA may
further defer the payment of interest on the Junior Subordinated Debentures,
provided, that no Extension Period may exceed 20 consecutive quarterly periods
or extend beyond the Stated Maturity of the Junior Subordinated Debentures.
Upon the termination of any such Extension Period and the payment of all
interest then accrued and unpaid (together with interest thereon at the rate of
___%, compounded quarterly, to the extent permitted by applicable law), MBNA
may elect to begin a new Extension Period subject to the above requirements.
No interest shall be due and payable during an Extension Period, except at the
end thereof. MBNA must give the Property Trustee, the Administrative Trustees
and the Debenture Trustee notice of its election to begin such Extension Period
at least one Business Day prior to the earlier of (i) the date Distributions on
the Trust Securities would have been payable except for the election to begin
such Extension Period, (ii) the date the Administrative Trustees are required
to give notice to the NYSE, the NASDAQ National Market or other applicable
stock exchange or automated quotation system on which the Preferred Securities
are then listed or quoted or to holders of Junior Subordinated Debentures of
the record date for such Distributions or (iii) the date such Distributions are
payable, but in any event not less than one Business Day prior to such record
date. The Debenture Trustee shall give notice of MBNA's election to begin a
new Extension Period to the holders of the Junior Subordinated Debentures.
There is no limitation on the number of times that MBNA may elect to begin an
Extension Period. See "Description of Junior Subordinated Debentures--Option
to Defer Interest Payments".
<PAGE> 35
30
In the Indenture, MBNA, as borrower, has agreed to pay to the
Trust all debts and other obligations (other than with respect to the Trust
Securities) and all costs and expenses of the Trust (including costs and
expenses relating to the organization of the Trust, the fees and expenses of
the Trust's Trustees and the costs and expenses relating to the operation of
the Trust) and to pay any and all taxes and all costs and expenses with respect
thereto (other than United States withholding taxes) to which the Trust might
become subject. See "Description of the Junior Subordinated Debentures--Trust
Expenses and Taxes".
Subject to MBNA having received prior approval of the Federal
Reserve if then required under applicable capital guidelines or policies, the
Junior Subordinated Debentures are redeemable prior to maturity at the option
of MBNA (i) on or after _______________, in whole at any time or in part from
time to time or (ii) prior to _______________, in whole (but not in part)
within 90 days following the occurrence of a Special Event. The proceeds of
any such redemption will be used by the Trust to redeem the Trust Securities.
The Redemption Price with respect to the Junior Subordinated
Debentures shall be equal to (i) the Optional Prepayment Price if redeemed on
or after ________ or (ii) the Special Event Prepayment Price if redeemed prior
to ________, upon the occurrence of a Special Event.
As described under "Description of the Preferred
Securities--Liquidation Distribution Upon Termination," under certain
circumstances involving the termination of the Trust, Junior Subordinated
Debentures may be distributed to the holders of the Preferred Securities in
exchange therefor upon liquidation of the Trust after satisfaction of
liabilities to creditors of the Trust as provided by applicable law. It is
anticipated that the depositary arrangements for the Junior Subordinated
Debentures would be substantially identical to those in effect for the
Preferred Securities. If Junior Subordinated Debentures are distributed to the
holders of Preferred Securities in exchange therefor upon the liquidation of
the Trust, MBNA will use its best efforts to list the Junior Subordinated
Debentures on the NYSE or such other stock exchanges or automated quotation
system, if any, on which the Preferred Securities are then listed or quoted.
There can be no assurance as to the market price of any Junior Subordinated
Debentures that may be distributed to the holders of Preferred Securities.
CERTAIN TERMS OF GUARANTEE
The Guarantee will be qualified as an indenture under the
Trust Indenture Act. The Bank of New York will act as Guarantee Trustee (as
defined herein) for the purposes of compliance with the provisions of the Trust
Indenture Act. The Guarantee Trustee will hold the Guarantee for the benefit
of the holders of the Preferred Securities.
The Guarantee guarantees to the holders of the Preferred
Securities the following payments, to the extent not paid by the Trust: (i) any
accumulated and unpaid Distributions required to be paid on the Preferred
Securities, to the extent that the Trust has funds on hand available therefor
at such time, (ii) the redemption price with respect to any
<PAGE> 36
31
Preferred Securities called for redemption, to the extent that the Trust has
funds on hand available therefor at such time, and (iii) upon a voluntary or
involuntary dissolution, winding up or liquidation of the Trust (unless the
Junior Subordinated Debentures are distributed to holders of the Trust
Securities), the lesser of (a) the aggregate of the Liquidation Amount and all
accumulated and unpaid Distributions to the date of payment, to the extent that
the Trust has funds on hand available therefor at such time, and (b) the amount
of assets of the Trust remaining available for distribution to holders of the
Trust Securities after satisfaction of the liabilities to creditors of the
Trust as required by applicable law. The Guarantee will be qualified as an
indenture under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). The Bank of New York will act as the indenture trustee under
the Guarantee (the "Guarantee Trustee") for the purpose of compliance with the
Trust Indenture Act and will hold the Guarantee for the benefit of the holders
of the Trust Securities. The Bank of New York will also act as Debenture
Trustee for the Junior Subordinated Debentures and as Property Trustee.
The holders of not less than a majority in aggregate
Liquidation Amount of the Preferred Securities shall have the right to direct
the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of the Guarantee or to direct the
exercise of any trust power conferred upon the Guarantee Trustee under the
Guarantee. Any holder of the Preferred Securities may institute a legal
proceeding directly against MBNA to enforce its rights under the Guarantee
without first instituting a legal proceeding against the Trust, the Guarantee
Trustee or any other person or entity. If MBNA were to default on its
obligation to pay amounts payable under the Junior Subordinated Debentures, the
Trust would lack funds for the payment of Distributions or amounts payable on
redemption of the Preferred Securities or otherwise, and, in such event,
holders of the Preferred Securities would not be able to rely upon the
Guarantee for payment of such amounts. Instead, if an event of default under
the Indenture shall have occurred and be continuing and such event is
attributable to the failure of MBNA to pay interest or premium, if any, on or
principal of the Junior Subordinated Debentures on the applicable payment date,
then a holder of Preferred Securities may institute a Direct Action. In
connection with such Direct Action, MBNA will have a right of set-off under the
Indenture to the extent of any payment made by MBNA to such holder of Preferred
Securities in the Direct Action. Except as described herein, holders of
Preferred Securities will not be able to exercise directly any other remedy
available to the holders of the Series A Subordinated Debentures or assert
directly any other rights in respect of the Series A Subordinated Debentures.
See "Description of the Junior Subordinated Debentures--Enforcement of Certain
Rights by Holders of Preferred Securities," "--Debenture Events of Default" and
"Description of Guarantee." The Trust Agreement provides that each holder of
Preferred Securities by acceptance thereof agrees to the provisions of the
Guarantee and the Indenture.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The exchange of Series A Preferred Stock for Preferred
Securities pursuant to the Offer will be a taxable event. The United States
federal income tax consequences to holders who exchange their Series A
Preferred Stock for Preferred Securities will vary
<PAGE> 37
32
depending on each holder's particular circumstances. See "Certain United
States Federal Income Tax Consequences -- Tax Consequences of the Exchange of
Series A Preferred Stock for Preferred Securities" for a discussion of the
United States federal income tax consequences that may be applicable to holders
who exchange shares of their Series A Preferred Stock for Preferred Securities.
Unlike dividends paid on Series A Preferred Stock,
distributions made on the Preferred Securities are not eligible for the
dividends received deduction currently available to corporate holders. In
addition, the Preferred Securities may trade at a price that does not fully
reflect the value of accrued but unpaid interest with respect to the underlying
Junior Subordinated Debentures.
ACCOUNTING FOR EXCHANGE
The refinancing of the Series A Preferred Stock with the
Preferred Securities will decrease MBNA's stockholders' equity and may increase
or decrease earnings applicable to common stockholders. The financial
statements of the Trust will be consolidated into MBNA's consolidated
financial statements, with the Preferred Securities treated as minority
interest and shown in MBNA's balance sheet as "Guaranteed Preferred Beneficial
Interests in MBNA's Junior Subordinated Deferrable Interest Debentures" and
appropriate disclosure about the Preferred Securities, the Guarantee and the
Junior Subordinated Debentures will be included in the notes to the
consolidated financial statements. The financial statement notes of MBNA will
reflect that the sole asset of the Trust will be the Junior Subordinated
Debentures. See "Capitalization" and "Accounting Treatment." Holders of Series
A Preferred Stock who do not tender their Series A Preferred Stock in the Offer
or whose shares of Series A Preferred Stock are not accepted for exchange will
continue to hold such Series A Preferred Stock and will be entitled to all the
rights and preferences, and will be subject to all of the limitations,
applicable thereto.
To the extent that shares of Series A Preferred Stock are
tendered and accepted in the Offer, the terms on which untendered shares of
Series A Preferred Stock could subsequently be sold could be adversely
affected. See "Risk Factors and Special Considerations Relating to the Offer
- -- Reduced Trading Market for Series A Preferred Stock."
EXCHANGE AGENT AND INFORMATION AGENT
The Bank of New York has been appointed as Exchange Agent in
connection with the Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or a Letter of Transmittal and requests
for Notices of Guaranteed Delivery should be directed to Morrow & Co., Inc.
which has been retained by MBNA and the Trust to act as Information Agent for
the Offer. The addresses and telephone numbers of the Exchange
<PAGE> 38
33
Agent and the Information Agent are set forth in "Exchange Agent and
Information Agent" and on the outside back cover of this Prospectus.
DEALER MANAGER
Merrill Lynch, Pierce, Fenner & Smith Incorporated has been
retained as Dealer Manager in connection with the Offer. For information
regarding fees payable to the Dealer Manager and Administrative Dealers, see
"Exchange Agent and Information Agent-- Dealer Manager; Administrative
Dealers."
<PAGE> 39
34
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO THE OFFER
Prospective exchanging holders of Series A Preferred Stock who
plan to participate in the Offer should carefully consider, in addition to the
other information set forth elsewhere in this Prospectus, the following:
EXCHANGE OF SERIES A PREFERRED STOCK FOR PREFERRED SECURITIES IS A TAXABLE
EVENT
The exchange of Series A Preferred Stock for Preferred
Securities pursuant to the Offer will be a taxable event. See "Certain United
States Federal Income Tax Consequences -- Tax Consequences of the Exchange of
Series A Preferred Stock for Preferred Securities." ALL HOLDERS OF SERIES A
PREFERRED STOCK ARE ADVISED TO CONSULT THEIR TAX ADVISORS REGARDING THE UNITED
STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE EXCHANGE OF
SERIES A PREFERRED STOCK AND THE ISSUANCE OF PREFERRED SECURITIES.
CORPORATE HOLDERS OF PREFERRED SECURITIES NOT ENTITLED TO DIVIDENDS RECEIVED
DEDUCTION
Unlike dividends paid on Series A Preferred Stock,
distributions on the Preferred Securities are not eligible for the dividends
received deduction currently available to corporate holders.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND JUNIOR SUBORDINATED
DEBENTURES
The obligations of MBNA under the Guarantee issued by MBNA for
the benefit of the holders of Preferred Securities and under the Junior
Subordinated Debentures are unsecured and rank subordinate and junior in right
of payment to all Senior Debt of MBNA. Substantially all of MBNA's
indebtedness constitutes Senior Debt, other than MBNA's Series A Debentures,
its Floating Rate Debentures and its guarantees of the Series A Capital
Securities and the Series B Capital Securities, all of which are pari passu in
right of payment with the Junior Subordinated Debentures. Because MBNA is a
holding company, the right of MBNA to participate in any distribution of the
assets of any subsidiary, including MBNA America Bank, National Association,
upon such subsidiary's liquidation or reorganization or otherwise is subject to
the prior claims of creditors of that subsidiary, except to the extent that
MBNA may itself be recognized as a creditor of that subsidiary. There are
various legal limitations on the extent to which certain of MBNA's subsidiaries
may extend credit, pay dividends or otherwise supply funds to, or engage in
transactions with, MBNA or certain of its other subsidiaries. Accordingly, the
Junior Subordinated Debentures will be effectively subordinated to all existing
and future liabilities of MBNA's subsidiaries, and holders of Junior
Subordinated Debentures should look only to the assets of MBNA for payments on
the Junior Subordinated Debentures. See "MBNA Corporation." None of the
Indenture, the Guarantee or the Trust Agreement places any limitation on the
amount of secured or unsecured debt, including Senior Debt, that may be
incurred by MBNA. See "Description of Guarantees--Status of the Guarantees"
and "Description of the Junior Subordinated Debentures--Subordination."
<PAGE> 40
35
The ability of the Trust to pay amounts due on the Preferred
Securities is solely dependent upon MBNA making payments on the Junior
Subordinated Debentures as and when required.
RIGHTS UNDER THE GUARANTEE
The Guarantee will be qualified as an indenture under the
Trust Indenture Act. The Bank of New York will act as Guarantee Trustee for the
purposes of compliance with the provisions of the Trust Indenture Act. The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
Preferred Securities.
The Guarantee guarantees to the holders of the Preferred
Securities the following payments, to the extent not paid by the Trust: (i) any
accumulated and unpaid Distributions required to be paid on the Preferred
Securities, to the extent that the Trust has funds on hand available therefor
at such time, (ii) the redemption price with respect to any Preferred
Securities called for redemption, to the extent that the Trust has funds on
hand available therefor at such time, and (iii) upon a voluntary or involuntary
dissolution, winding up or liquidation of the Trust (unless the Junior
Subordinated Debentures are distributed to holders of the Trust Securities),
the lesser of (a) the aggregate of the Liquidation Amount and all accumulated
and unpaid Distributions to the date of payment, to the extent that the Trust
has funds on hand available therefor at such time, and (b) the amount of assets
of the Trust remaining available for distribution to holders of the Trust
Securities after satisfaction of the liabilities to creditors of the Trust as
required by applicable law. The Guarantee will be qualified as an indenture
under the Trust Indenture Act. The Bank of New York will act as the indenture
trustee under the Guarantee (the "Guarantee Trustee") for the purpose of
compliance with the Trust Indenture Act and will hold the Guarantee for the
benefit of the holders of the Trust Securities. The Bank of New York will also
act as Debenture Trustee for the Junior Subordinated Debentures and as Property
Trustee.
The holders of not less than a majority in aggregate
Liquidation Amount of the Preferred Securities shall have the right to direct
the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of the Guarantee or to direct the
exercise of any trust power conferred upon the Guarantee Trustee under the
Guarantee. Any holder of the Preferred Securities may institute a legal
proceeding directly against MBNA to enforce its rights under the Guarantee
without first instituting a legal proceeding against the Trust, the Guarantee
Trustee or any other person or entity. If MBNA were to default on its
obligation to pay amounts payable under the Junior Subordinated Debentures, the
Trust would lack funds for the payment of Distributions or amounts payable on
redemption of the Preferred Securities or otherwise, and, in such event,
holders of the Preferred Securities would not be able to rely upon the
Guarantee for payment of such amounts. Instead, if an event of default under
the Indenture shall have occurred and be continuing and such event is
attributable to the failure of MBNA to pay interest or premium, if any, on or
principal of the Junior Subordinated Debentures on the applicable payment date,
then a holder of Preferred Securities may institute a Direct Action. In
connection with such Direct Action, MBNA will have a right of set-off under the
Indenture to the extent of any
<PAGE> 41
36
payment made by MBNA to such holder of Preferred Securities in the Direct
Action. Except as described herein, holders of Preferred Securities will not
be able to exercise directly any other remedy available to the holders of the
Junior Subordinated Debentures or assert directly any other rights in respect
of the Junior Subordinated Debentures. See "Description of the Junior
Subordinated Debentures--Enforcement of Certain Rights by Holders of
"--Debenture Events of Default" and "Description of Guarantee." The Trust
Agreement provides that each holder of Preferred Securities by acceptance
thereof agrees to the provisions of the Guarantee and the Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Debenture Event of Default with respect to Junior
Subordinate Debentures has occurred and is continuing and such event is
attributable to the failure of MBNA to pay interest, premium (if any) or
principal on such Junior Subordinated Debentures on the date such interest,
premium (if any) or principal is due and payable, a holder of Preferred
Securities may institute a Direct Action. MBNA may not amend the Indenture to
remove the foregoing right to bring a Direct Action without the prior written
consent of the holders of all of the Preferred Securities outstanding. If the
right to bring a Direct Action is removed, the Trust may become subject to the
reporting obligations under the Exchange Act. MBNA shall have the right under
the Indenture to set-off any payment made to such holder of Preferred
Securities by MBNA in connection with a Direct Action.
The holders of the Preferred Securities will not be able to
exercise directly any remedies other than those set forth in the preceding
paragraph available to the holders of the Junior Subordinated Debentures. See
"Description of the Preferred Securities--Events of Default; Notice."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no event of default under the Indenture has
occurred or is continuing, MBNA has the right under the Indenture to defer
payment of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 20 consecutive quarterly periods with
respect to each Extension Period, provided, that no Extension Period may extend
beyond the Stated Maturity of the Junior Subordinated Debentures. As a
consequence of any such deferral, quarterly Distributions on the Preferred
Securities by the Trust will also be deferred (and the amount of Distributions
to which holders of the Preferred Securities are entitled will accumulate
additional Distributions thereon at the rate of ___% per annum, compounded
quarterly from the relevant payment date for such Distributions) during any
such Extension Period. During any such Extension Period, MBNA may not, and may
not permit any subsidiary of MBNA to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of MBNA's capital stock, (ii) make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of MBNA (including other series of junior subordinated
debentures) that rank pari passu with or junior in interest to the Junior
Subordinated Debentures or (iii) make any guarantee payments with respect to
<PAGE> 42
37
any guarantee by MBNA of the debt securities of any subsidiary of MBNA if such
guarantee ranks pari passu with or junior in interest to the Junior
Subordinated Debentures, including its guarantees of the Series A Capital
Securities and the Series B Capital Securities (other than (a) dividends or
distributions in capital stock of MBNA, (b) any declaration of a dividend in
connection with the implementation of a stockholders' rights plan or the
redemption or repurchase of any such rights pursuant thereto, (c) payments
under the Guarantee and (d) purchases of common stock related to the issuance
of common stock or rights under any of MBNA's benefit plans for its directors,
officers or employees, related to the issuance of common stock or rights under
a dividend reinvestment and stock purchase plan, or related to the issuance of
common stock (or securities convertible into or exchangeable for common stock)
as consideration in an acquisition transaction that was entered into prior to
the commencement of such Extension Period). Prior to the termination of any
such Extension Period, MBNA may further defer the payment of interest, provided
that no Extension Period may exceed 20 consecutive quarterly periods or extend
beyond the Stated Maturity of the Junior Subordinated Debentures. Upon the
termination of any Extension Period and the payment of all interest then
accrued and unpaid (together with interest thereon at the rate of ___% per
annum, compounded quarterly from the interest payment date for such interest,
to the extent permitted by applicable law), MBNA may elect to begin a new
Extension Period subject to the above requirements. There is no limitation on
the number of times that MBNA may elect to begin an Extension Period. See
"Description of the Preferred Securities--Distributions" and "Description of
the Junior Subordinated Debentures--Option to Defer Interest Payments."
The Series A Debentures and the Series B Debentures are pari
passu in right of payment with the Junior Subordinated Debentures. As a
result, in the event MBNA exercises its right to defer interest on the Series A
Debentures or the Series B Debentures, MBNA will be prohibited from making
payments on the Junior Subordinated Debentures and, in the event MBNA exercises
its right to defer interest on the Junior Subordinated Debentures, MBNA will be
prohibited from making payments on the Series A Debentures and the Series B
Debentures.
Should an Extension Period occur, a holder of Preferred
Securities will be required to accrue the stated interest on its pro rata share
of the Junior Subordinated Debentures (as OID) for United States federal income
tax purposes. As a result, a holder of Preferred Securities will be required
to include such OID in gross income for United States federal income tax
purposes in advance of the receipt of cash attributable to such income, and
will not receive the cash related to such income from the Trust if the holder
disposes of the Preferred Securities prior to the record date for the payment
of Distributions. See "Certain United States Federal Income Tax
Consequences--Interest Income and Original Issue Discount" and "--Sales or
Redemption of Preferred Securities."
MBNA has no current intention of exercising its right to defer
payments of interest on the Junior Subordinated Debentures. However, should
MBNA elect to exercise such right in the future, the market price of the
Preferred Securities is likely to be affected. A holder that disposes of its
Preferred Securities during an Extension Period, therefore, might
<PAGE> 43
38
not receive the same return on its investment as a holder that continues to
hold its Preferred Securities.
SPECIAL EVENT -- REDEMPTION
Upon the occurrence and continuation of a Special Event prior
to , MBNA has the right to redeem the Junior Subordinated Debentures
in whole (but not in part) within 90 days following the occurrence of such
Special Event and thereby cause a mandatory redemption of the Preferred
Securities. The exercise of such right is subject to MBNA having received
prior approval of the Federal Reserve to do so if then required under
applicable capital guidelines or policies. See "Description of the Preferred
Securities--Redemption or Exchange" and "Description of the Junior Subordinated
Debentures--Redemption."
PROPOSED TAX LEGISLATION
On March 19, 1996, the Revenue Reconciliation Bill of 1996
(the "Bill") was introduced in the 104th Congress which would have, among other
things, generally denied interest deductions for interest on an instrument
issued by a corporation that has a maximum term of more than 20 years and that
it is not shown as indebtedness on the separate balance sheet of the issuer or,
where the instrument is issued to a related party (other than a corporation),
where the holder or some other related party issues a related instrument that
is not shown as indebtedness on the issuer's consolidated balance sheet. This
provision was proposed to be effective generally for instruments issued on or
after December 7, 1995. If this provision were to apply to the Junior
Subordinated Debentures, MBNA would not be able to deduct interest on the
Junior Subordinated Debentures. However, on March 29, 1996, the Chairmen of
the Senate Finance and House Ways and Means Committees issued a joint statement
(the "Joint Statement") to the effect that it was their intention that the
effective date of the Bill, if enacted, would be no earlier than the date of
appropriate Congressional action. In addition, subsequent to the publication of
the Joint Statement, Senator Daniel Patrick Moynihan and Representatives Sam M.
Gibbons and Charles B. Rangel wrote letters to Treasury Department officials
concurring with the view expressed in the joint Statement (the "Democrat
Letters"). The 104th Congress adjourned without enacting the Bill. Moreover,
if the principles contained in the Joint Statement and the Democrat Letters
were followed any similar legislation in this area that is subsequently enacted
would not apply to the Junior Subordinated Debentures. Although the 104th
Congress adjourned without enacting the Bill, there can be no assurance that
current or future legislative proposals or final legislation will not adversely
affect the ability of MBNA to deduct interest on the Junior Subordinated
Debentures or otherwise affect the tax treatment of the transaction described
herein. If enacted such a change could give rise to a Tax Event, which would
permit MBNA, upon approval of the Federal Reserve if then required under
applicable guidelines or policies to cause a redemption of the Preferred
Securities as described more fully under "Description of the Preferred
Securities--Redemption or Exchange."
<PAGE> 44
39
EXCHANGE OF PREFERRED SECURITIES FOR JUNIOR SUBORDINATED DEBENTURES
MBNA will have the right at any time to terminate the Trust
and, after satisfaction of liabilities to creditors of the Trust as required by
applicable law, cause the Junior Subordinated Debentures to be distributed to
the holders of the Preferred Securities in exchange therefor upon liquidation
of the Trust. The exercise of such right is subject to MBNA having received
prior approval of the Federal Reserve if then required under applicable capital
guidelines or policies. See "Description of the Preferred
Securities--Liquidation Distribution Upon Termination."
Under current United States federal income tax law and
interpretations and assuming, as expected, the Trust is classified as a grantor
trust for such purposes, a distribution of the Junior Subordinated Debentures
upon a liquidation of the Trust would not be a taxable event to holders of the
Preferred Securities. However, if a Tax Event were to occur which would cause
the Trust to be subject to United States federal income tax with respect to
income received or accrued on the Junior Subordinated Debentures, a
distribution of the Junior Subordinated Debentures by the Trust could be a
taxable event to the Trust and the holders of the Preferred Securities. See
"Certain United States Federal Income Tax Consequences--Distribution of the
Junior Subordinated Debentures to Holders of Preferred Securities."
MARKET PRICES
There can be no assurance as to the market prices for
Preferred Securities or Junior Subordinated Debentures that may be distributed
in exchange for Preferred Securities upon liquidation of the Trust.
Accordingly, the Preferred Securities or the Junior Subordinated Debentures may
trade at a discount to the price that the investor paid to purchase the
Preferred Securities offered hereby. As a result of the existence of MBNA's
right to defer interest payments, the market price of the Preferred Securities
(which represent beneficial ownership interests in the Trust) may be more
volatile than the market prices of other securities that are not subject to
such optional deferrals. See "Description of the Junior Subordinated
Debentures."
LIMITED VOTING RIGHTS
Holders of Preferred Securities generally will have limited
voting rights relating only to the modification of the Preferred Securities and
the Guarantee and the exercise of the Trust's rights as a holder of Junior
Subordinated Debentures and the Guarantee. Holders of Preferred Securities
will not be entitled to vote to appoint, remove or replace the Property
Trustee, the Delaware Trustee or any Administrative Trustee, and such voting
rights are vested exclusively in the holder of the Common Securities except,
with respect to the Property Trustee and the Delaware Trustee, upon the
occurrence of certain events described herein. The Property Trustee, the
Delaware Trustee, the Administrative Trustee and MBNA may amend the Trust
Agreement without the consent of holders of Preferred Securities to ensure that
the Trust will be classified for United States federal income tax purposes as a
<PAGE> 45
40
grantor trust unless such action materially and adversely affects the interests
of such holders. See "Description of the Preferred Securities--Voting Rights;
Amendment of Trust Agreement" and "--Removal of Issuer Trustees."
TRADING PRICE
The Preferred Securities may trade at a price that does not
fully reflect the value of accrued but unpaid interest with respect to the
underlying Junior Subordinated Debentures. See "United States Federal Income
Taxation--Interest Income and Original Issue Discount" and "--Sales or
Redemption of Preferred Securities."
CONSEQUENCES OF HIGHLY LEVERAGED TRANSACTION
The Indenture does not contain provisions that afford holders
of the Junior Subordinated Debentures protection in the event of a highly
leveraged transaction, including a change of control, or other similar
transactions involving MBNA that may adversely affect such holders. See
"Description of the Junior Subordinated Debentures--General."
LACK OF ESTABLISHED TRADING MARKET FOR PREFERRED SECURITIES
The Preferred Securities constitute a new issue of securities
of the Trust with no established trading market. While application will be
made to list the Preferred Securities on the NYSE, there can be no assurance
that an active market for the Preferred Securities will develop or be sustained
in the future on such exchange. Although the Dealer Manager has indicated to
MBNA and the Trust that they intend to make a market in the Preferred
Securities following the Expiration Date, as permitted by applicable laws and
regulations prior to the commencement of trading on the NYSE, they are not
obligated to do so and may discontinue any such market-making at any time
without notice. Accordingly, no assurance can be given as to the liquidity of,
or trading markets for, the Preferred Securities. In order to satisfy the NYSE
listing requirements, acceptance of Series A Preferred Stock validly tendered
in the Offer is subject to the Minimum Distribution Condition which condition
may not be waived by MBNA or the Trust. See "Listing and Trading of Preferred
Securities and Series A Preferred Stock."
REDUCED TRADING MARKET FOR SERIES A PREFERRED STOCK
To the extent shares of Series A Preferred Stock are tendered
and accepted in the Offer, the liquidity and trading market for the Series A
Preferred Stock to be outstanding following the Offer, and the terms upon which
such Series A Preferred Stock could be sold, could be adversely affected. In
addition, if the Offer is substantially subscribed, there would be a
significant risk that round lot holdings of the Series A Preferred Stock
outstanding following the Offer would be limited. Further, following the
Expiration Date, and in accordance with and subject to applicable law, MBNA may
from time to time acquire Series A Preferred Stock in the open market, by
tender offer, subsequent exchange offer or otherwise. MBNA's decision to make
such acquisitions is dependent on many factors,
<PAGE> 46
41
including market conditions in effect at the time of any contemplated
acquisition. Accordingly, MBNA cannot predict whether and to what extent it
will acquire any additional Series A Preferred Stock and the consideration to
be paid therefor. See "Listing and Trading of Preferred Securities and Series
A Preferred Stock."
Under the rules of the NYSE, preferred securities such as the
Series A Preferred Stock are subject to delisting if (i) the aggregate value of
publicly-held shares is less than $2 million and (ii) the number of
publicly-held shares is less than 100,000. There can be no assurance that the
Series A Preferred Stock will continue to meet the NYSE listing standards
following the Offer.
<PAGE> 47
42
COMPARISON OF PREFERRED SECURITIES AND SERIES A
PREFERRED STOCK
The following is a brief summary of certain terms of the
Preferred Securities and the Series A Preferred Stock. For a more complete
description of the Preferred Securities, see "Description of the Preferred
Securities." For a description of the Junior Subordinated Debentures which
will be deposited in the Trust as trust assets and will represent the sole
source for the payment of distributions and other payments on the Preferred
Securities, see "Description of the Junior Subordinated Debentures." For a
description of the Series A Preferred Stock, see "Description of the Series A
Preferred Stock."
<TABLE>
<CAPTION>
SERIES A
PREFERRED SECURITIES PREFERRED STOCK
<S> <C> <C>
Issuer. . . . . . . . . . The Trust. However, the Trust's assets MBNA.
consist solely of the Junior
Subordinated Debentures issued by MBNA
and the Trust's payment of Distributions
and amounts due upon a liquidation of
the Trust or a redemption of the Trust
Securities is guaranteed on a
subordinated basis, as and to the extent
described herein, by MBNA.
Distribution/
Dividend Rate. . . . . . ___% per annum distribution, payable 7.50% per annum dividend payable on
quarterly in arrears on January 15, the Series A Preferred Stock on
April 15, July 15 and October 15 of each January 15, April 15, July 15 and
year, commencing _______________ from October 15 of each year, in each case
and including the Accrual Date, but only out of funds legally available
if and to the extent that interest therefor, when, as and if declared by
payments are made in respect of the the MBNA Board. Dividends are
Junior Subordinated Debentures held by cumulative. Dividends accrue whether
the Trust. In addition, MBNA will pay a or not MBNA has earnings, whether or
cash payment equal to all accumulated not there are funds legally available
and unpaid dividends on the Series A for the payment of such dividends and
Preferred Stock as of the Expiration whether or not such dividends are
Date on April 15, 1997 to holders of the declared.
Series A Preferred Stock accepted for
exchange.
</TABLE>
<PAGE> 48
43
<TABLE>
<S> <C> <C>
Interest Accrual. . . . . During any Extension Period on the Accrued but unpaid dividends do not
Junior Subordinated Debentures, bear interest.
distribution payments on the Preferred
Securities will not be made but would
continue to accrue, and, in the case of
distributions in arrears, would bear
interest at the rate of ___% per annum,
compounded quarterly to the extent
permitted by applicable law.
Maturity/Mandatory and
Optional Redemption . . .
The Preferred Securities will be No maturity or
redeemed upon the maturity or earlier mandatory redemption.
redemption of the Junior Subordinated The Series A Preferred
Debentures, at a redemption price equal Stock are redeemable at
to $25 per Preferred Security, plus any the option of MBNA on
accrued and unpaid distributions to the and after January 15,
redemption date, including distributions 2001, in whole or in
accrued as a result of MBNA's election part, at a redemption
to defer payments of interest on the price equivalent to $25
Junior Subordinated Debentures. The per Preferred Share to
Junior Subordinated Debentures are be redeemed, plus
redeemable by MBNA, in whole or in part, accrued and unpaid
from time to time on or after dividends (whether or
_______________, or, in whole but not in not declared on a fully
part, prior to _______________, upon the cumulative basis) to
occurrence of a Special Event, in each the date fixed for
case at the applicable Redemption Price. redemption. Holders of
In the event that the Junior Series A Preferred
Subordinated Debentures are redeemed or Stock have no right to
upon the repayment of the Junior require MBNA to redeem
Subordinated Debentures, upon maturity, the Series A Preferred
upon redemption or otherwise, the Stock.
proceeds thereof will be promptly
applied to redeem the Preferred
Securities and the Common Securities.
The
</TABLE>
<PAGE> 49
44
<TABLE>
<S> <C> <C>
Junior Subordinated Debentures mature on
April __, 2027. See "Description of the
Preferred Securities--Redemption or
Exchange." Holders of Preferred
Securities have no right to require MBNA
to redeem the Preferred Securities at
the option of the holders.
Subordination . . . . . . Subordinated to claims of creditors of Subordinated to claims of creditors of
the Trust, if any. The Preferred MBNA including the Junior Subordinated
Securities and the Common Securities Debentures, pari passu with MBNA's
will have equivalent terms; provided other preferred stock and senior to
that if a Debenture Event of Default all other shares of capital stock of
occurs and is continuing, (i) the MBNA.
holders of the Preferred Securities will
have a priority over holders of the
Common Securities with respect to
payments in respect of distributions and
payments upon liquidation, redemption or
otherwise and (ii) holders of a majority
in Liquidation Amount of Preferred
Securities have the right (subject to
the terms of the Trust Agreement) to
appoint, replace or remove the Property
Trustee and the Delaware Trustee.
The Trust is not permitted to issue any
securities other than the Trust
Securities or to incur any indebtedness.
MBNA will pay all fees and expenses
related to the Trust and the offering of
the Trust Securities.
The Junior Subordinated Debentures will
rank subordinate in right of payment to
all Senior Debt of MBNA.
Listing . . . . . . . . . Application will be made to list The Series A Preferred Stock is
</TABLE>
<PAGE> 50
45
<TABLE>
<S> <C> <C>
the Preferred Securities on the NYSE under Stock islisted on the
the symbol "KRBCC 27." In order to NYSE under the symbol
satisfy the NYSE listing requirements, "KRB.PFA."
acceptance of shares of Series A
Preferred Stock validly tendered in the
Offer is subject to the Minimum
Distribution Condition, which condition
may not be waived.
Dividends Received
Deduction. . . . . . . . . Distributions on the Preferred Dividends are eligible for the
Securities are not eligible for the dividends received deduction currently
dividends received deduction currently available to corporate holders.
available to corporate holders.
Voting Rights/
Enforcement. . . . . . . . Holders of Preferred Securities If dividends shall be
generally will have limited voting in arrears for six
rights relating only to the modification quarterly dividend
of Preferred Securities and the periods, whether or not
Guarantee and the exercise of the consecutive, the MBNA
Trust's rights as a holder of Junior Board shall be
Subordinated Debentures and the increased by two
Guarantee. Holders of Preferred directors and holders
Securities will not be entitled to vote have the right
to appoint, remove or replace the (together with other
Property Trustee, the Delaware Trustee classes or series of
or any Administrative Trustee, and such preferred stock ranking
voting rights are vested exclusively in on a parity with the
the holder of the Common Securities Series A Preferred
except, with respect to the Property Stock to elect two
Trustee and the Delaware Trustee, upon directors.
the occurrence of certain events
described herein. The Property Trustee,
the Delaware Trustee, the Administrative
Trustee and MBNA may amend the Trust
Agreement without the consent of holders
of Preferred Securities to ensure that
the Trust will be classified for United
States federal income tax purposes as a
grantor trust unless such action
materially and adversely affects the
interests of such holders. See
"Description of the Preferred
Securities--Voting Rights; Amendment of
Trust Agreement" and "--Removal of
Issuer Trustees." See "Description of
the Series A Preferred Stock--Voting
Rights."
</TABLE>
<PAGE> 51
46
MBNA CORPORATION
MBNA 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 December 31, 1996, MBNA had consolidated assets of $17.0
billion, consolidated deposits of $10.2 billion and stockholders' equity of
$1.7 billion. The principal asset of MBNA is its equity interest in the Bank.
As of December 31, 1996, the Bank and its subsidiaries constituted
approximately 92.7% of the consolidated assets of MBNA.
Through the Bank, MBNA is one of the world's largest bank
credit card lenders and is the leading issuer of affinity credit cards marketed
primarily to members of associations and customers of financial institutions.
In addition to its credit card lending, MBNA also offers other consumer loans
and various deposit products.
MBNA 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. MBNA'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.
The principal office of MBNA is located in Wilmington,
Delaware 19884, and its telephone number is (800) 362-6255.
<PAGE> 52
47
RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
The following are the consolidated ratio of earnings to fixed
charges and ratio of earnings to combined fixed charges and preferred stock
dividend requirements for MBNA for each of the years in the five-year period
ended December 31, 1995 and the nine-month period ended September 30, 1996:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEARS ENDED DECEMBER 31,
SEPTEMBER 30, -----------------------------------------------------------------
1996(a) 1995 1994 1993(b) 1992 1991
------------- ----------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS TO FIXED CHARGES:
Including Interest on Deposits... 1.9 2.0 2.4 2.0 2.1 1.6
Excluding Interest on Deposits... 4.0 4.4 5.7 6.0 15.7 12.9
EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS:
Including Interest on Deposits... 1.8 2.0 2.4 2.0 2.1 1.6
Excluding Interest on Deposits... 3.6 4.3 5.7 6.0 15.7 12.9
</TABLE>
- ---------------
(a) Income before income taxes for the nine months ended September 30,
1996, includes a charge of $54.3 million related to the launch of
the MBNA Platinum Plus Visa(R) and MasterCard(R) */ program.
Without the charge, the ratio of earnings to fixed charges,
including and excluding interest on deposits, would have been 2.0
and 4.3, respectively, and 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 3.9,
respectively.
(b) 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 and the ratio of
earnings to combined fixed charges and preferred stock dividend
requirements, 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. 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 MBNA's preferred stock outstanding. MBNA 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.
- -------------------
*/ MasterCard(R) and Visa(R) are federally registered servicemarks of
MasterCard International Inc. and Visa U.S.A., Inc., respectively.
<PAGE> 53
48
CAPITALIZATION
The following table sets forth the consolidated capitalization of
MBNA and its subsidiaries as of September 30, 1996 and as adjusted to give
effect to (i) the issuance of $250 million of 8.278% Capital Securities, Series
A, by MBNA Capital A on December 18, 1996, (ii) the issuance of $280 million of
Floating Rate Capital Securities, Series B, by MBNA Capital B on January 23,
1997, and (iii) the consummation of the exchange of Preferred Securities for
Series A Preferred Stock. There has been no material adverse change in the
capitalization of MBNA since September 30, 1996. The following data should be
read in conjunction with the consolidated financial statements and notes
thereto of MBNA and its subsidiaries incorporated herein by reference.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------------------
ACTUAL AS ADJUSTED
-------------------- --------------------
(IN THOUSANDS)
<S> <C> <C>
Total Long-Term Debt and Bank Notes. . . . . . . . . . . . . . . . . . . . . . . . . $3,382,469 $3,382,469
Guaranteed Preferred Beneficial Interests in MBNA's Junior
Subordinated Deferrable Interest Debentures, Series A(a) . . . . . . . . . . . . . -- 250,000
Guaranteed Preferred Beneficial Interests in MBNA's Junior
Subordinated Deferrable Interest Debentures, Series B(b) . . . . . . . . . . . . . -- 280,000
Guaranteed Preferred Beneficial Interests in MBNA's Junior
Subordinated Deferrable Interest Debentures, Series C(c) . . . . . . . . . . . . . -- 150,000
Stockholders' Equity
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 60
----------
Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,228 2,228
Additional Paid-in Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 621,839 471,899
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 980,876 980,876
---------- ----------
Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . 1,605,063 1,455,063
---------- ----------
Total Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,987,532 $5,517,532
========== ==========
</TABLE>
- ------------------
(a) On December 18, 1996, MBNA Capital A issued $250.0 million of
guaranteed preferred beneficial interests in a registered public
offering. MBNA Capital A invested the proceeds of such offering,
together with approximately $7.7 million paid by MBNA for MBNA
Capital A's common securities, in approximately $257.7 million
principal amount of MBNA's Series A Subordinated Debentures. The
Series A Subordinated Debentures bear interest at the rate of
8.278% per annum and mature on December 1, 2026. MBNA owns all of
the common securities of MBNA Capital A and the sole assets of MBNA
Capital A are the Series A Subordinated Debentures.
(b) On January 23, 1997, MBNA Capital B issued $280.0 million of
guaranteed preferred beneficial interests in a registered public
offering. MBNA Capital B invested the proceeds of such offering,
together with approximately $8.6 million paid by MBNA for MBNA
Capital B's common securities, in approximately $288.6 million
principal amount of MBNA's Series B Subordinated Debentures. The
Series B Subordinated Debentures will bear interest at the rate of
0.80% per annum above LIBOR on the Liquidation Amount of $1,000 per
Series B Subordinated Debenture and will mature on February 1,
2027. MBNA owns all of the Common Securities of the Series B
Issuer.
(c) As described herein, the sole assets of the Trust will be
$154,640,000 principal amount of Junior Subordinated Debentures
issued by MBNA to the Trust, assuming all the Series A Preferred
Stock is tendered and accepted for exchange in the Offer. The
Junior Subordinated Debentures will bear interest at the rate of
___% per annum and will mature on April __, 2027. MBNA will own all
of the Common Securities of the Trust.
<PAGE> 54
49
ACCOUNTING TREATMENT
For financial reporting purposes, the Trust will be treated as a
subsidiary of MBNA and, accordingly, the accounts of the Trust will be included
in the consolidated financial statements of MBNA. The Preferred Securities
will be presented as part of a separate line item in the consolidated balance
sheets of MBNA under the caption "Guaranteed Preferred Beneficial Interests in
MBNA's Junior Subordinated Deferrable Interest Debentures" and appropriate
disclosures about the Preferred Securities, the Guarantee and the Junior
Subordinated Debentures will be included in the notes to the consolidated
financial statements. For financial reporting purposes, MBNA will record
Distributions payable on the Preferred Securities as an expense in the
consolidated statements of income.
MBNA has agreed that future financial reports of MBNA will: (i)
present the Preferred Securities issued by other trusts created by MBNA on
MBNA's balance sheet as part of a separate line term entitled "Guaranteed
Preferred Beneficial Interests in MBNA's Junior Subordinated Deferrable
Interest Debentures"; (ii) include in a note to the consolidated financial
statements disclosure that the sole assets of the trusts are the Junior
Subordinated Debentures (specifying as to each trust the principal amount,
interest rate and maturity date of Junior Subordinated Debentures held); and
(iii) disclose, in a note to the consolidated financial statements, that (a)
the trusts are wholly owned, (b) the sole assets of the trusts are the Junior
Subordinated Debentures (specifying as to each trust the principal amount,
interest rate and maturity date of the Junior Subordinated Debentures held),
and (c) the obligations of MBNA under the relevant Junior Subordinated
Debentures, indenture, trust agreement and guarantee, in the aggregate,
constitute a full and unconditional guarantee by MBNA of such trusts'
obligations under the Preferred Securities issued by such trust.
THE TRUST
The Trust is a statutory business trust created under Delaware law
pursuant to (i) a trust agreement executed by MBNA, as Depositor of the Trust,
and an Administrative Trustee of such Trust and (ii) the filing of a
certificate of trust with the Delaware Secretary of State. The trust agreement
will be amended and restated in its entirety substantially in the form filed as
an exhibit to the Registration Statement of which this Prospectus forms a part.
The Trust Agreement will be qualified as an indenture under the Trust Indenture
Act. The Trust exists for the exclusive purposes of (i) issuing (a) its
Preferred Securities in exchange for Series A Preferred Stock validly tendered
in the Offer and delivering such Series A Preferred Stock to MBNA in
consideration of the deposit by MBNA as trust assets of Junior Subordinated
Debentures having an aggregate stated principal amount equal to the aggregate
stated liquidation amount of such Preferred Securities, and (b) its Common
Securities to MBNA in exchange for cash and investing the proceeds thereof in
an equal aggregate principal amount of Junior Subordinated Debentures and (ii)
engaging in only those other activities necessary or incidental thereto (such
as registering the transfer of Trust Securities).
<PAGE> 55
50
Accordingly, the Junior Subordinated Debentures will be the sole assets of the
Trust, and payments under the Junior Subordinated Debentures will be the sole
revenue of the Trust.
All of the Common Securities of the Trust will be owned by MBNA.
The Common Securities of the Trust will rank pari passu and payments will be
made thereon pro rata, with the Preferred Securities of the Trust, except that
upon the occurrence and continuance of Debenture Event of Default, the rights
of MBNA as holder of the Common Securities to payment in respect of
Distributions and payments upon liquidation or redemption will be subordinated
to the rights of the holders of the Preferred Securities of the Trust. See
"Description of the Preferred Securities--Subordination of Common Securities."
MBNA will acquire Common Securities in an aggregate Liquidation Amount equal to
not less than 3% of the total capital of the Trust.
The Trust has a term of approximately 55 years, but may terminate
earlier as provided in the Trust Agreement. The Trust's business and affairs
are conducted by its trustees, each appointed by MBNA as holder of the Common
Securities. The trustees for the Trust will be The Bank of New York, as the
Property Trustee, The Bank of New York (Delaware), as the Delaware Trustee, and
the Administrative Trustees who are employees or officers of or affiliated with
MBNA (collectively, the "Issuer Trustees"). The Bank of New York, as Property
Trustee, will act as sole trustee under the Trust Agreement for purposes of
compliance with the Trust Indenture Act. The Bank of New York will also act as
trustee under the Guarantees and the Indenture. See "Description of Guarantees"
and "Description of the Junior Subordinated Debentures." The holder of the
Common Securities of the Trust, or the holders of a majority in Liquidation
Amount of the Preferred Securities if an event of default under the Trust
Agreement for the Trust has occurred and is continuing, will be entitled to
appoint, remove or replace the Property Trustee and/or the Delaware Trustee for
the Trust. In no event will the holders of the Preferred Securities have the
right to vote to appoint, remove or replace the Administrative Trustees; such
voting rights are vested exclusively in the holder of the Common Securities.
The duties and obligations of the Issuer Trustee are governed by the applicable
Trust Agreement. MBNA will pay all fees and expenses related to the Trust and
the offering of the Preferred Securities and will pay, directly or indirectly,
all ongoing costs, expenses and liabilities of the Trust.
The principal executive office of the Trust is Wilmington, Delaware
19884 and its telephone number is (800) 362-6255.
THE FOREGOING SUMMARY OF CERTAIN PROVISIONS OF THE TRUST AGREEMENT
IS A DISCUSSION OF ALL MATERIAL TERMS OF THE TRUST AGREEMENT, BUT DOES NOT
PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
TRUST AGREEMENT WHICH HAS BEEN FILED AS AN EXHIBIT TO THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
The business address of the Trust is c/o MBNA Corporation,
Wilmington, Delaware 19884, telephone number (800) 362-6255.
<PAGE> 56
51
THE OFFER
REASON AND PURPOSE OF THE OFFER
On October 21, 1996, the Federal Reserve Board issued the Federal
Reserve Press Release announcing that certain cumulative preferred instruments,
such as the Preferred Securities, as Tier 1 Capital for purposes of the Federal
Reserve Board's capital guidelines for bank holding companies, subject to
certain limitations. The potential for such Tier 1 Capital treatment, together
with MBNA's ability to deduct, for income tax purposes, interest payable on the
Junior Subordinated Debentures, could provide MBNA with greater financial
flexibility and more cost-effective regulatory capital.
GENERAL
PARTICIPATION IN THE OFFER IS VOLUNTARY AND HOLDERS OF SERIES A
PREFERRED STOCK SHOULD CAREFULLY CONSIDER WHETHER TO ACCEPT. NONE OF MBNA, THE
BOARD OF DIRECTORS OF MBNA, THE TRUSTEES NOR THE TRUST MAKES ANY RECOMMENDATION
TO HOLDERS AS TO WHETHER TO EXCHANGE OR REFRAIN FROM EXCHANGING THEIR SERIES A
PREFERRED STOCK IN THE OFFER. HOLDERS OF SERIES A PREFERRED STOCK ARE URGED TO
CONSULT THEIR FINANCIAL AND TAX ADVISORS IN MAKING THEIR DECISIONS ON WHAT
ACTION TO TAKE IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES. SEE "PRICE
RANGE OF SERIES A PREFERRED STOCK."
Unless the context requires otherwise, the term "Holder" with
respect to the Offer means (i) any person in whose name any shares of Series A
Preferred Stock are registered on the books of MBNA or (ii) any other person
who has obtained a properly completed stock power from the registered holder,
or (iii) any person whose Series A Preferred Stock are held of record by a
Depository Institution.
TERMS OF THE OFFER
Upon the terms and subject to the conditions set forth herein and
in the Letter of Transmittal, the Trust will exchange Preferred Securities for
any and all of the Series A Preferred Stock not owned by MBNA. The Offer will
be effected on a basis of one Preferred Security for each Preferred Share
validly tendered and accepted for exchange, as applicable. See "--Procedures
for Tendering." Upon the terms and subject to the conditions set forth herein
and in the Letter of Transmittal, the Trust will accept shares of Series A
Preferred Stock validly tendered and not withdrawn prior to the Expiration Date
and, unless the Offer has been withdrawn or terminated, will deliver Preferred
Securities in exchange therefor to tendering Holders of Series A Preferred
Stock as promptly as practicable following the Expiration Date. The Trust
expressly reserves the right, in its sole discretion, to delay acceptance for
exchange of Series A Preferred Stock tendered under the Offer and the
<PAGE> 57
52
delivery of the Preferred Securities with respect to the Series A Preferred
Stock accepted for exchange (subject to Rules 13e-4 and 14e-1 under the
Exchange Act, which require that MBNA and the Trust consummate the Offer or
return the Series A Preferred Stock deposited by or on behalf of the Holders
thereof promptly after the termination or withdrawal of the Offer), or to
amend, withdraw or terminate the Offer, at any time prior to the Expiration
Date for any of the reasons set forth in "--Conditions to the Offer" and
"--Expiration Date; Extensions; Amendments; Termination."
In all cases, except to the extent waived by the Trust, delivery of
Preferred Securities issued with respect to the Series A Preferred Stock
accepted for exchange pursuant to the Offer will be made only after timely
receipt by the Exchange Agent of Series A Preferred Stock (or confirmation of
book-entry transfer thereof), a properly completed and duly executed Letter of
Transmittal and any other documents required thereby.
As of the date of this Prospectus, there are 6,000,000 shares of
Series A Preferred Stock not owned by MBNA. This Prospectus, together with the
applicable Letter of Transmittal, is being sent to all registered Holders on or
about the date of this Prospectus. The Trust shall be deemed to have accepted
validly tendered Series A Preferred Stock (or defectively tendered Series A
Preferred Stock with respect to which the Trust has waived such defect) when,
as and if the Trust has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering Holders for the
purpose of receiving Series A Preferred Stock from, and remitting Preferred
Securities to, tendering Holders who are participating in the Offer. Upon the
terms and subject to the conditions of the Offer, delivery of the Preferred
Securities to tendering Holders will be made as promptly as practicable
following the Expiration Date.
If any tendered shares of Series A Preferred Stock are not accepted
for exchange because of an invalid tender, the occurrence of certain other
events set forth herein or otherwise, unless otherwise requested by the Holder
under "Special Delivery Instructions" in the Letter of Transmittal, such Series
A Preferred Stock will be returned, without expense, to the tendering Holder
thereof, as promptly as practicable after the Expiration Date or the withdrawal
or termination of the Offer.
Holders of Series A Preferred Stock will not have any appraisal or
dissenters' rights under the General Corporation Law of Maryland in connection
with the Offer. MBNA and the Trust intend to conduct the Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
Holders who tender Series A Preferred Stock in the Offer will not
be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Series A Preferred Stock pursuant to the Offer. See "Fees and
Expenses; Transfer Taxes."
Holders tendering Series A Preferred Stock held in global form
shall receive Preferred Securities in global form and Holders tendering Series
A Preferred Stock held
<PAGE> 58
53
directly in certificated form shall receive Preferred Securities in
certificated form, in each case unless otherwise specified in the Letter of
Transmittal.
CONDITIONS TO THE OFFER
Notwithstanding any other provisions of the Offer, or any extension
of the Offer, the Trust will not be required to deliver Preferred Securities in
respect of any properly tendered Series A Preferred Stock and may terminate the
Offer by oral or written notice to the Exchange Agent and the holders of the
Series A Preferred Stock, or, at its option, may modify or otherwise amend the
Offer (other than with respect to the Minimum Distribution Condition) with
respect to the Series A Preferred Stock if the condition in clause (a) below is
not satisfied at or prior to the Expiration Date or if any of the events
specified in clauses (b) through (d) occurs at or prior to the exchange date
for the Series A Preferred Stock:
(a) tenders by a sufficient number of holders of Series A
Preferred Stock to satisfy the Minimum Distribution Condition for the
Offer;
(b) any action has been taken or threatened, or any statute, rule,
regulation, judgment, order, stay, decree or injunction has been
promulgated, enacted, entered, enforced or deemed applicable to the Offer,
by or before any court or governmental regulatory or administrative agency
or authority or tribunal, domestic or foreign, which (i) challenges the
making of the Offer, or might directly or indirectly prohibit, prevent,
restrict or delay consummation of the Offer, or otherwise and adversely
affects in any material manner the Offer or (ii) could materially adversely
affect the business, condition (financial or otherwise), income,
operations, properties, assets, liabilities or prospects of MBNA and its
subsidiaries, taken as a whole, or materially impair the contemplated
benefits of the Offer to MBNA, including any such action, statute, rule,
regulation, judgment, order, stay, decree or injunction which would
constitute a Special Event if it occurred after the Expiration Date;
(c) any event has occurred or is likely to occur affecting the
business or financial affairs of MBNA that would or might prohibit,
prevent, restrict or delay consummation of the Offer or that will, or is
reasonably likely to, materially impair the contemplated benefits of the
Offer or might be material to holders of Series A Preferred Stock in
deciding whether to accept the Offer; and
(d) any of the following events shall have occurred (i) any
general suspension of or limitation on trading in securities on the NYSE or
in the over-the-counter market (whether or not mandatory), (ii) any
significant adverse change in the price of the Series A Preferred Stock or
in the United States securities or financial markets, (iii) a material
impairment in the trading market for debt or equity securities on the NYSE
or in the over-the-counter market (whether or not mandatory), (iv) a
declaration of a banking moratorium or any suspension of payments in
respect of banks by federal or state authorities in the United States
(whether or not mandatory), (v) a commencement of a war, armed hostilities
or other national or international crisis directly or indirectly
<PAGE> 59
54
relating to the United States, (vi) any limitation (whether or not
mandatory) by any governmental authority on, or other event having a
reasonable likelihood of affecting, the extension of credit by banks or
other lending institutions in the United States, or (vii) any significant
adverse change in United States securities or financial markets generally
or in the case of any of the foregoing existing at the time of the
commencement of the Offer, a material acceleration or worsening thereof.
The foregoing conditions are for the sole benefit of the Trust and
MBNA and, except for the Minimum Distribution Condition, may be waived by the
Trust and MBNA, in whole or in part, in their sole discretion. Any
determination made by MBNA or the Trust concerning an event, development or
circumstance described or referred to above will be final and binding on all
parties.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The Offer will expire on the Expiration Date. The Trust expressly
reserves the right, as to the Offer, in its sole discretion, subject to
applicable law, to (i) terminate the Offer, and not accept for exchange any
Series A Preferred Stock and promptly return such Series A Preferred Stock upon
the failure of any of the conditions specified above in "--Conditions to the
Offer," (ii) waive any condition to the Offer (other than the Minimum
Distribution Condition) and accept all Series A Preferred Stock previously
tendered pursuant to the Offer, (iii) extend the Expiration Date of the Offer
and retain all Series A Preferred Stock tendered pursuant to the Offer until
the Expiration Date, subject, however, to all withdrawal rights of holders, see
"--Withdrawal of Tenders," (iv) amend the terms of the Offer, (v) modify the
form of the consideration to be paid pursuant to the Offer, or (vi) not accept
for exchange the Series A Preferred Stock at any time on or prior to the
Expiration Date, for any reason, including, without limitation, if fewer than
100,000 of the Series A Preferred Stock would remain outstanding upon
acceptance of those tendered (which condition may be waived by the Trust). Any
amendment applicable to the Offer will apply to all Series A Preferred Stock
tendered pursuant to the Offer. During any extension of the Offer, all Series
A Preferred Stock previously tendered pursuant to the Offer and not withdrawn
will remain subject to the Offer.
If the Trust makes a material change in the terms of the Offer, the
Trust will extend the Offer. The minimum period for which the Offer must
remain open following material changes in the terms of the Offer or the
information concerning the Offer, other than a change in the amount of Series A
Preferred Stock sought for exchange or an increase or decrease in the
consideration offered to Holders of Series A Preferred Stock, will depend upon
the facts and circumstances, including the relative materiality of the change
or information. With respect to a decrease in the number of Series A Preferred
Stock sought in the Offer or an increase or decrease in the consideration
offered to Holders of the Series A Preferred Stock, if required, the Offer will
remain open for a minimum of ten (10) Business Days following public
announcement of such change. In the case of any amendment, withdrawal or
termination of the Offer, a public announcement will be issued no later than
9:00 a.m., New York City time, on the next business day after the previously
scheduled
<PAGE> 60
55
Expiration Date of the Offer. If the Trust withdraws or terminates the Offer,
it will give immediate notice to the Exchange Agent, and the Series A Preferred
Stock theretofore tendered pursuant to the Offer will be returned promptly to
the tendering Holders thereof. See "--Withdrawal of Tenders." In order to
satisfy the NYSE listing requirements, acceptance of Series A Preferred Stock
validly tendered in the Offer is subject to the Minimum Distribution Condition,
which condition may not be waived.
PROCEDURES FOR TENDERING
The tender of Series A Preferred Stock by a Holder thereof pursuant
to one of the procedures set forth below will constitute an agreement between
such Holder and the Trust in accordance with the terms and subject to the
conditions set forth herein and in the related Letter of Transmittal and the
Trust's right to terminate or withdraw the Offer at any time for any reason.
EACH HOLDER OF SERIES A PREFERRED STOCK WISHING TO PARTICIPATE IN
THE OFFER MUST (I) PROPERLY COMPLETE AND SIGN THE LETTER OF TRANSMITTAL IN
ACCORDANCE WITH THE INSTRUCTIONS CONTAINED HEREIN AND IN THE LETTER OF
TRANSMITTAL (EXCEPT WHEN AN AGENT'S MESSAGE IS APPROPRIATE AND UTILIZED),
TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES, AND DELIVER THE SAME TO THE
EXCHANGE AGENT AT ONE OF ITS ADDRESSES SET FORTH ON THE BACK COVER PAGE HEREOF
PRIOR TO THE EXPIRATION DATE AND EITHER (A) CERTIFICATES FOR THE SERIES A
PREFERRED STOCK MUST BE RECEIVED BY THE EXCHANGE AGENT AT SUCH ADDRESS OR (B)
SUCH SERIES A PREFERRED STOCK MUST BE TRANSFERRED PURSUANT TO THE PROCEDURES
FOR BOOK-ENTRY TRANSFER DESCRIBED BELOW AND A CONFIRMATION OF SUCH BOOK-ENTRY
TRANSFER MUST BE RECEIVED BY THE EXCHANGE AGENT, IN EACH CASE PRIOR TO THE
EXPIRATION DATE, OR (II) COMPLY WITH THE GUARANTEED DELIVERY PROCEDURES
DESCRIBED BELOW. LETTERS OF TRANSMITTAL, SERIES A PREFERRED STOCK AND ANY
OTHER REQUIRED DOCUMENTS SHOULD BE SENT ONLY TO THE EXCHANGE AGENT, NOT TO THE
TRUST, MBNA, THE DEALER MANAGER OR THE INFORMATION AGENT.
SPECIAL PROCEDURE FOR BENEFICIAL OWNERS. Any beneficial owner
whose shares of Series A Preferred Stock are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender such Series A Preferred Stock should contact such registered Holder
promptly and instruct such registered Holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on its own behalf,
such owner must, prior to completing and executing the Letter of Transmittal
and delivering its Series A Preferred Stock, either make appropriate
arrangements to register ownership of the Series A Preferred Stock in such
owner's name or obtain a properly completed stock power from the registered
Holder. The transfer of registered ownership may take considerable time and
may not be able to be completed prior to the Expiration Date.
<PAGE> 61
56
THE METHOD OF DELIVERY OF SERIES A PREFERRED STOCK AND ALL OTHER
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS
RECOMMENDED THAT (1) REGISTERED MAIL, RETURN RECEIPT REQUEST, BE USED, (2)
INSURANCE BE OBTAINED, AND (3) THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF
THE EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE
EXPIRATION DATE.
SIGNATURE GUARANTEES. If tendered shares of Series A Preferred
Stock are registered in the name of the signer of the Letter of Transmittal and
the Preferred Securities to be issued in exchange therefor are to be issued
(and any untendered Series A Preferred Stock are to be reissued) in the name of
the registered Holder, the signature of such signer need not be guaranteed. If
the tendered shares of Series A Preferred Stock are registered in the name of
someone other than the signer of the Letter of Transmittal, or if Preferred
Securities issued in exchange therefor are to be issued in the name of any
person other than the signer of the Letter of Transmittal, such tendered Series
A Preferred Stock must be endorsed or accompanied by written instructions of
transfer in form satisfactory to the Trust and duly executed by the registered
Holder, and the signature on the endorsement or instrument of transfer must be
guaranteed by a financial institution (including most banks, savings and loans
associations and brokerage houses) that is a participant in the Security
Transfer Agents Medallion Program or the Stock Exchange Medallion Program (any
of the foregoing hereinafter referred to as an "Eligible Institution"). If the
Preferred Securities and/or the shares of Series A Preferred Stock are not
exchanged or are to be delivered to an address other than that of the
registered Holder appearing on the register for the Series A Preferred Stock,
the signature in the Letter of Transmittal must be guaranteed by an Eligible
Institution.
BOOK-ENTRY TRANSFER. The Trust understands that the Exchange Agent
will make a request promptly after the date of this Prospectus to establish
accounts with respect to the Series A Preferred Stock at a Depository
Institution for the purpose of facilitating the Offer, and subject to the
establishment thereof, any financial institution that is a participant in a
Depository Institution's system may make book-entry delivery of Series A
Preferred Stock by causing the Depository Institution to transfer such Series A
Preferred Stock into the Exchange Agent's account with respect to the Series A
Preferred Stock in accordance with such Depository Institution's Automated
Tender Offer Program ("ATOP") procedures for such book-entry transfers.
However, the exchange for the Series A Preferred Stock so tendered will only be
made after timely confirmation (a "Book-Entry Confirmation") of such Book-Entry
Transfer of Series A Preferred Stock into the Exchange Agent's account, and
timely receipt by the Exchange Agent of an Agent's Message (as such term is
defined in the next paragraph) and any other documents required by the Letter
of Transmittal.
The term "Agent's Message" means a message, transmitted by a
Depository Institution and received by the Exchange Agent and forming a part of
a Book-Entry Confirmation, which states that such Depository Institution has
received an express acknowledgment from such participant tendering Series A
Preferred Stock that is the subject
<PAGE> 62
57
to such Book-Entry Confirmation, that such participant has received and agrees
to be bound by the terms of the Letter of Transmittal, and that the Trust may
enforce such agreement against such participant.
GUARANTEED DELIVERY. If a Holder desires to participate in the
Offer and time will not permit a Letter of Transmittal or Series A Preferred
Stock to reach the Exchange Agent before the Expiration Date or the procedure
for book-entry transfer cannot be completed on a timely basis, a tender may be
effected if the Exchange Agent has received at one of its addresses on the back
cover page hereof prior to the Expiration Date, a letter, telegram or facsimile
transmission from an Eligible Institution setting forth the name and address of
the tendering Holder, the name(s) in which the shares of Series A Preferred
Stock are registered and, if the shares of Series A Preferred Stock are held in
certificated form, the certificate numbers of the Series A Preferred Stock to
be tendered, and stating that the tender is being made thereby and guaranteeing
that within three NYSE trading days after the date of execution of such letter,
telegram or facsimile transmission by the Eligible Institution, the Series A
Preferred Stock in proper form for transfer, together with a properly completed
and duly executed Letter of Transmittal (and any other required documents), or,
in the case of a Depository Institution, an Agent's Message, will be delivered
by such Eligible Institution. Unless the Series A Preferred Stock being
tendered by the above-described method are deposited with the Exchange Agent
within the time period set forth above (accompanied or preceded by a properly
completed Letter of Transmittal and any other required documents) or, in the
case of a Depository Institution, in accordance with such Depository
Institution's ATOP procedures (along with a Letter of Transmittal or an Agent's
Message) is received, the Trust may, at its option, reject the tender. In
addition to the copy being transmitted herewith, copies of a Notice of
Guaranteed Delivery which may be used by Eligible Institutions for the purposes
described in this paragraph are available from the Exchange Agent and the
Information Agent.
MISCELLANEOUS. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance for exchange of any tender of Series
A Preferred Stock will be determined by the Trust, whose determination will be
final and binding. The Trust reserves the absolute right to reject any or all
tenders not in proper form or the acceptance for exchange of which may, in the
opinion of the Trust's counsel, be unlawful. The Trust also reserves the
absolute right to waive any defect or irregularity in the tender of any Series
A Preferred Stock, and the Trust's interpretation of the terms and conditions
of the Offer (including the instructions in the applicable Letter of
Transmittal) will be final and binding. None of the Trust, the Exchange Agent,
the Dealer Manager, the Information Agent or any other person will be under any
duty to give notification of any defects or irregularities in tenders or incur
any liability for failure to give any such notification.
Tenders of Series A Preferred Stock involving any irregularities
will not be deemed to have been made until such irregularities have been cured
or waived. Series A Preferred Stock received by the Exchange Agent that are
not validly tendered and as to which the irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering Holder (or in
the case of Series A Preferred Stock tendered by book-entry
<PAGE> 63
58
transfer into the Exchange Agent's account at a Depository Institution, such
Series A Preferred Stock will be credited to an account maintained at the
Depository Institution designated by the participant therein who so delivered
such Series A Preferred Stock), unless otherwise requested by the Holder in the
Letter of Transmittal, as promptly as practicable after the Expiration Date or
the withdrawal or termination of the Offer.
LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the
following terms and conditions, which are part of the Offer. The party
tendering the Series A Preferred Stock for exchange (the "Transferor")
exchanges, assigns and transfers the Series A Preferred Stock to the Trust, and
irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause such Series A Preferred Stock to be
assigned, transferred and exchanged. The Transferor represents and warrants
that it has full power and authority to tender, exchange, assign and transfer
such Series A Preferred Stock and to acquire Preferred Securities issuable upon
the exchange of such tendered Series A Preferred Stock and that, when such
Transferor's shares of Series A Preferred Stock are accepted for exchange, the
Trust will acquire good and unencumbered title to such tendered Series A
Preferred Stock, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The Transferor also
warrants that it will, upon request, execute and deliver any additional
documents deemed by the Trust to be necessary or desirable to complete the
exchange, assignment and transfer of tendered Series A Preferred Stock or
transfer ownership of such Series A Preferred Stock on the account books
maintained by the Depository Institution. All authority conferred by the
Transferor will survive the death, bankruptcy or incapacity of the Transferor
and every obligation of the Transferor shall be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of such
Transferor.
WITHDRAWAL OF TENDERS
Tenders of Series A Preferred Stock pursuant to the Offer may be
withdrawn at any time prior to the Expiration Date and, unless accepted for
exchange by the Trust, may be withdrawn at any time after 40 Business Days
after the date of this Prospectus.
To be effective, a written notice of withdrawal delivered by mail,
hand delivery or facsimile transmission must be timely received by the Exchange
Agent at one of its addresses set forth on the back cover page hereof. The
method of notification is at the risk and election of the Holder. Any such
notice of withdrawal must specify (i) the Holder named in the Letter of
Transmittal as having tendered Series A Preferred Stock to be withdrawn, (ii)
if the shares of Series A Preferred Stock are held in certificated form, the
certificate numbers of the Series A Preferred Stock to be withdrawn, (iii) that
such Holder is withdrawing his election to have such Series A Preferred Stock
exchanged and (iv) the name of the registered Holder of such Series A Preferred
Stock. In addition, the notice of withdrawal must be signed by the Holder in
the same manner as the original signature on the Letter of Transmittal
(including any required signature guarantees) or be accompanied by evidence
satisfactory to
<PAGE> 64
59
the Trust that the person withdrawing the tender has succeeded to the
beneficial ownership of the Series A Preferred Stock being withdrawn. The
Exchange Agent will return the properly withdrawn Series A Preferred Stock
promptly following receipt of notice of withdrawal. If shares of Series A
Preferred Stock have been tendered pursuant to the procedure for book-entry
transfer, any notice of withdrawal must specify the name and number of the
account at a Depository Institution to be credited with the withdrawn Series A
Preferred Stock and otherwise comply with such Depository Institution
procedures. All questions as to the validity of notice of withdrawal,
including time of receipt, will be determined by the Trust, and such
determination will be final and binding on all parties. Withdrawals of tenders
of Series A Preferred Stock may not be rescinded and any Series A Preferred
Stock withdrawn will thereafter be deemed not validly tendered for purposes of
the Offer. Properly withdrawn Series A Preferred Stock, however, may be
retendered by following the procedures therefor described elsewhere herein at
any time prior to the Expiration Date. See "--Procedures for Tendering."
Upon the terms and subject to the conditions of the Offer,
including the Minimum Distribution Condition, the Trust will accept for
exchange any and all Series A Preferred Stock that have been validly tendered
and not withdrawn prior to the Expiration Date.
The Trust expressly reserves the right, in its sole discretion, to
delay acceptance for exchange of Series A Preferred Stock tendered under the
Offer and the delivery of the Preferred Securities with respect to the Series A
Preferred Stock accepted for exchange (subject to Rules 13e-4 and 14e-1 under
the Exchange Act, which require that MBNA and the Trust consummate the Offer or
return the Series A Preferred Stock deposited by or on behalf of the Holders
thereof promptly after the termination or withdrawal of the Offer), or to
amend, withdraw or terminate the Offer, at any time prior to the Expiration
Date for any of the reasons set forth in "--Conditions to the Offer" and
"--Expiration Date; Extensions; Amendments; Termination."
If the Trust decides, in its sole discretion, to decrease the
number of shares of Series A Preferred Stock sought in the Offer or to increase
or decrease the consideration offered to Holders of Series A Preferred Stock,
and if the Offer is scheduled to expire less than ten (10) Business Days from
and including the date that notice of such increase or decrease is first
published, sent or given in the manner specified in "--Expiration Date;
Extensions; Amendments; Termination," then the Offer will be extended for a
minimum of ten (10) Business Days from and including the date of such notice.
All Series A Preferred Stock not accepted pursuant to the Offer
will be returned to the tendering Holders at the Trust's expense as promptly as
practicable following the Expiration Date.
<PAGE> 65
60
EXCHANGE AGENT AND INFORMATION AGENT.
The Bank of New York has been appointed as Exchange Agent for the Offer.
THE EXCHANGE AGENT IS:
THE BANK OF NEW YORK
BY HAND: BY MAIL (REGISTERED OR CERTIFIED MAIL
The Bank of New York RECOMMENDED):
Corporate Trust Services Window The Bank of New York
101 Barclay Street Corporate Trust Services Window
Ground Level 101 Barclay Street, 7E
New York, NY 10286 New York, NY 10286
Attention: Reorganization Section Attention: Reorganization Section
or
The Bank of New York BY OVERNIGHT COURIER:
101 Barclay Street, 7E The Bank of New York
New York, NY 10286 101 Barclay Street
Attention: Reorganization Section Ground Level
New York, NY 10286
Attention: Reorganization Section
BY FACSIMILE:
(For Eligible Institutions Only)
(212) 571-3080
CONFIRM RECEIPT OF NOTICE OF GUARANTEED DELIVERY BY TELEPHONE:
(212) 815-6333
Morrow & Co., Inc. has been retained as the Information Agent to
assist in connection with the Offer. Questions and requests for assistance
regarding the Offer, requests for additional copies of this Prospectus, the
Letter of Transmittal and requests for Notice of Guaranteed Delivery may be
directed to the Information Agent.
THE INFORMATION AGENT IS:
MORROW & CO., INC.
909 3rd Avenue
New York, New York 10022
(800) 566-9061 (Toll-Free)
Banks and Brokers:
(800) 662-5200 (Toll-Free)
MBNA will pay the Exchange Agent and Information Agent reasonable and
customary fees for their services and will reimburse them for all their
reasonable out-of-pocket expenses in connection therewith.
<PAGE> 66
61
DEALER MANAGER; ADMINISTRATIVE DEALERS
Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Dealer
Manager, has agreed to solicit exchanges of Series A Preferred Stock for
Preferred Securities. The maximum fee payable to the Dealer Manager is
approximately $_________ plus any amount that the Dealer Manager may be
entitled to pursuant to the next paragraph. MBNA will also reimburse the
Dealer Manager for certain reasonable out-of-pocket expenses in connection with
the Offer and will indemnify the Dealer Manager against certain liabilities,
including liabilities under the Securities Act. The Dealer Manager engages in
transactions with, and from time to time has performed services for, MBNA,
including acting as underwriter for the issuance of the Series A Preferred
Stock.
MBNA will pay to a Administrative Dealer a solicitation fee of
$0.50 per share of Series A Preferred Stock ($0.25 per share of Series A
Preferred Stock with respect to the solicitation of beneficial holders of
10,000 or more shares) validly tendered and accepted for exchange pursuant to
the Offer. As used in this Prospectus, "Administrative Dealer" includes (i)
any broker or dealer in securities, including the Dealer Manager in its
capacity as a broker or dealer, who is a member of any national securities
exchange or of the National Association of Securities Dealers, Inc. (the
"NASD"), (ii) any foreign broker or dealer not eligible for membership in the
NASD who agrees to conform to the NASD's Rules of Fair Practice in soliciting
tenders outside the United States to the same extent as though it were an NASD
member, or (iii) any bank or trust company, any one of whom has solicited and
obtained a tender pursuant to the Offer. No solicitation fee shall be payable
to a Administrative Dealer with respect to the tender of shares of Series A
Preferred Stock by the Holder unless the Letter of Transmittal accompanying
such tender designates such Administrative Dealer as such in the box captioned
"Solicited Tenders."
Administrative Dealers will include any of the organizations
described in clauses (i), (ii) and (iii) above even when the activities of such
organizations in connection with the Offer consist solely of forwarding to
clients materials relating to the Offer, including this Prospectus and the
Letter of Transmittal, and tendering Series A Preferred Stock as directed by
beneficial owners thereof. No Administrative Dealer is required to make any
recommendation to holders of Series A Preferred Stock as to whether to tender
or refrain from tendering in the Offer. No assumption is made, in making
payment to any Administrative Dealer, that its activities in connection with
the Offer included any activities other than those described above, and for all
purposes in connection with the Offer included any activities other than those
described above, and for all purposes noted in all materials relating to the
Offer, the term "solicit" shall be deemed to mean no more than "processing
shares tendered" or "forwarding to customers materials regarding the Offer."
If tendered shares of Series A Preferred Stock are being
delivered by book-entry transfer made to an account maintained by the Exchange
Agent with Depository Institutions, the Administrative Dealer must return a
Notice of Solicited Tenders (included in the materials provided to brokers and
dealers) to the Exchange Agent within three trading days after the Expiration
Date in order to receive a solicitation fee. No solicitation fee shall be
payable to a Administrative Dealer in respect of shares of Series A Preferred
Stock (i) beneficially owned by such Administrative Dealer or (ii) registered
in the name of such
<PAGE> 67
62
Administrative Dealer unless such shares of Series A Preferred Stock are being
held by such Administrative Dealer as nominee and such shares of Series A
Preferred Stock are being tendered for the benefit of one or more beneficial
owners identified on the Letter of Transmittal or the Notice of Solicited
Tenders. No solicitation fee shall be payable to the Administrative Dealer
with respect to the tender of Series A Preferred Stock by the Holder of record,
for the benefit of the beneficial owner, unless the beneficial owner has
designated such Administrative Dealer.
No solicitation fee shall be payable to a Administrative
Dealer if such Administrative Dealer is required for any reason to transfer any
portion of such fee to a tendering Holder (other than itself). No broker,
dealer, bank, trust company or fiduciary shall be deemed to be the agent of
MBNA, the Trust, the Trustees, the Exchange Agent, the Information Agent or the
Dealer Manager for purposes of the Offer.
Other than as described above, MBNA will not pay any
solicitation fees to any broker, dealer, bank, trust company or other person
for any Series A Preferred Stock exchanged in connection with the Offer. MBNA
will reimburse such persons for customary handling and mailing expenses
incurred in connection with the Offer.
LISTING AND TRADING OF PREFERRED SECURITIES
AND SERIES A PREFERRED STOCK
The Preferred Securities constitute a new issue of securities
of the Trust with no established trading market. While application will be
made to list the Preferred Securities on the NYSE, there can be no assurance
that an active market for the Preferred Securities will develop or be sustained
in the future on such exchange. Although the Dealer Manager has indicated to
the Trust that it intends to make a market in the Preferred Securities
following the Expiration Date as permitted by applicable laws and regulations
prior to the commencement of trading on the NYSE, it is not obligated to do so
and may discontinue any such market-making at any time without notice.
Accordingly, no assurance can be given as to the liquidity of, or trading
markets for, the Preferred Securities. In order to satisfy the NYSE listing
requirements, acceptance of Series A Preferred Stock validly tendered in the
Offer is subject to the Minimum Distribution Condition, which condition may not
be waived.
To the extent that a certain number of shares of Series A
Preferred Stock are tendered and accepted in the Offer and/or the number of
holders of Series A Preferred Stock is reduced to below certain levels, MBNA,
pursuant to NYSE rules and regulations, would be required to delist the Series
A Preferred Stock from the NYSE, and the trading market for untendered Series A
Preferred Stock could be adversely affected. Although the possibility exists
that the Series A Preferred Stock may be delisted from the NYSE, MBNA does not
believe that the Offer is likely to cause the Series A Preferred Stock to be
delisted from the NYSE. However, following the Expiration Date, and in
accordance with the subject to applicable law, MBNA may from time to time
acquire Series A Preferred Stock in the open
<PAGE> 68
63
market, by tender offer, subsequent exchange offer or otherwise. MBNA's
decision to make such acquisitions is dependent on many factors, including
market conditions in effect at the time of any contemplated acquisition.
Accordingly, MBNA cannot predict whether and to what extent it may acquire any
additional Series A Preferred Stock and the consideration to be paid therefor.
In addition, if the Offer is substantially subscribed, there would be a
significant risk that round lot holdings of Series A Preferred Stock
outstanding following the Offer would be limited. See "Risk Factors and
Special Considerations Relating to the Offer--Lack of Established Trading
Market for Preferred Securities" and "--Reduced Trading Market for Series A
Preferred Stock."
TRANSACTIONS AND ARRANGEMENTS CONCERNING THE OFFER
Except as described herein, there are no contracts,
arrangements, understandings or relationships in connection with the Offer
between MBNA or any of its directors or executive officers, the Trust or the
Trustees and any person with respect to any securities of MBNA or the Trust,
including the Junior Subordinated Debentures, the Series A Preferred Stock and
the Preferred Securities.
FEES AND EXPENSES; TRANSFER TAXES
The expenses of soliciting tenders of the Series A Preferred
Stock will be borne by MBNA. For compensation to be paid to the Dealer Manager
and Administrative Dealers, see "The Exchange Agent and Information
Agent--Dealer Manager; Administrative Dealers." The total cash expenditures to
be incurred in connection with the Offer, other than fees payable to the Dealer
Manager and Administrative Dealers, but including the expenses of the Dealer
Manager, printing, accounting and legal fees, and the fees and expenses of the
Exchange Agent, the Information Agent, the Institutional Trustee and the
Delaware Trustee, are estimated to be approximately [$____________]. MBNA will
pay all transfer taxes, if any, applicable to the exchange of Series A
Preferred Stock pursuant to the Offer. If, however, certificates representing
Preferred Securities or Series A Preferred Stock tendered or if a transfer tax
is imposed for any reason other than the exchange of Series A Preferred Stock
pursuant to the Offer, then the amount of any such transfer taxes (whether
imposed on the registered Holder or any other persons) will be payable by the
tendering Holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering Holder.
PRICE RANGE OF SERIES A PREFERRED STOCK
The shares of Series A Preferred Stock are listed and
principally traded on the NYSE. The following table sets forth, for each
period shown, the high and low sales prices of the Series A Preferred Stock as
reported on the NYSE Composite Tape. The shares of Series A Preferred Stock
were issued on November 14, 1995. For recent closing prices of the Series A
Preferred Stock, see the cover page of this Prospectus.
<PAGE> 69
64
<TABLE>
<CAPTION>
SERIES A PREFERRED STOCK
-------------------------------------------------
DIVIDENDS DECLARED
HIGH LOW PER PREFERRED SHARE
---------- ------------- ----------------------
<S> <C> <C> <C>
1996
1st Quarter . . . . . . . . . . . . . . . . . . . $25.13 $24.13 $.46875
2nd Quarter . . . . . . . . . . . . . . . . . . . 25.00 23.88 .46875
3rd Quarter . . . . . . . . . . . . . . . . . . . 24.63 24.00 .46875
4th Quarter . . . . . . . . . . . . . . . . . . . 26.75 24.38 .46875
</TABLE>
DESCRIPTION OF THE PREFERRED SECURITIES
Pursuant to the terms of the Trust Agreement for the Trust, the
Trustees on behalf of the Trust will issue the Preferred Securities and the
Common Securities. The Preferred Securities will represent beneficial ownership
interests in the assets of the Trust and the holders thereof will be entitled
to a preference in certain circumstances with respect to Distributions and
amounts payable on redemption or liquidation over the Common Securities of such
Trust, as well as other benefits as described in the Trust Agreement. The
summary of certain provisions of the Preferred Securities and Trust Agreement,
which summarizes the material terms thereof, does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all the
provisions of the Trust Agreement, including the definitions therein of certain
terms, and the Trust Indenture Act, to each of which reference is hereby the
definitions therein of certain terms, and the Trust Indenture Act, to each of
which reference is hereby made. Wherever particular defined terms of the Trust
Agreement (as amended or supplemented from time to time) are referred to
herein, such defined terms are incorporated herein or therein by reference. The
form of the Trust Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.
GENERAL
The Preferred Securities of the Trust will rank pari passu, and
payments will be made thereon pro rata, with the Common Securities of the Trust
except as described under "--Subordination of Common Securities." Legal title
to the Junior Subordinated Debentures will be held by the Property Trustee in
trust for the benefit of the holders of the Preferred Securities and Common
Securities. The guarantee agreement executed by MBNA for the benefit of the
holders of the Trust's Trust Securities will be a guarantee on a subordinated
basis with respect to the related Trust Securities but will not guarantee
payment of Distributions or amounts payable on redemption or liquidation of
such Trust Securities when the Trust does not have funds on hand available to
make such payments. See "Description of Guarantee."
DISTRIBUTIONS
Distributions on the Preferred Securities will be cumulative, will
accumulate from the date of original issuance and will be payable the 15th day
of January, April, July and October of each year, commencing _________________.
In the event that any date on which Distributions are payable on the Preferred
Securities is not a Business Day (as defined
<PAGE> 70
65
below), payment of the Distribution payable on such date will be made on the
next succeeding day that is a Business Day (and without any interest or other
payment in respect to any such delay) except that, if such Business Day is in
the next succeeding calendar year, payment of such Distribution shall be made
on the immediately preceding Business Day, in either case with the same force
and effect as if made on such date (each date on which Distributions are
payable in accordance with the foregoing, a "Distribution Date"). A "Business
Day" shall mean any day other than a Saturday or a Sunday, or a day on which
banking institutions in the City of New York are authorized or required by law
or executive order to remain closed or a day on which the corporate trust
office of the Property Trustee or the Debenture Trustee is closed for business.
In addition, MBNA will pay a cash payment equal to all accumulated
and unpaid dividends on the Series A Preferred Stock as of the Expiration Date
on April 15, 1997 to holders of the Series A Preferred Stock accepted for
exchange.
The Trust's Preferred Securities represent beneficial ownership
interests in the asset of Trust, and the Distributions on each Preferred
Security will be payable at a rate per annum of ___% of the stated liquidation
amount of $25 per Preferred Security. Distributions in arrears for more than
one quarter will bear interest thereon at the rate per annum of ___% compounded
quarterly. The amount of Distributions payable for any period will be computed
on the basis of a 360-day year of twelve 30-day months. The term
"Distributions" as used herein includes any such additional Distributions
unless otherwise stated.
MBNA has the right under the Indenture to defer the payment of
interest at any time or from time to time on the Junior Subordinated Debentures
for up to 20 consecutive quarterly interest payment periods, provided that no
Extension Period may extend beyond the Stated Maturity of the Junior
Subordinated Debentures. As a consequence of any such deferral, Distributions
on the Preferred Securities would be deferred (but would continue to accumulate
additional Distributions thereon at a rate per annum of ___% of the liquidation
amount of $25 per Preferred Security during any such Extension Period. During
such Extension Period, MBNA may not, and may not permit any subsidiary of MBNA
to, (i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the MBNA's
capital stock, (ii) make any payment of principal, interest or premium, if any,
on or repay, repurchase or redeem any debt securities of MBNA (including other
series of junior subordinated debentures) that rank pari passu with or junior
in interest to the Junior Subordinated Debentures or (iii) make any guarantee
payments with respect to any guarantee by MBNA of debt securities of any
subsidiary of MBNA if such guarantee ranks pari passu with or junior in
interest to the Junior Subordinated Debentures, including its guarantees of the
Series A Capital Securities and the Series B Capital Securities issued by
subsidiary trusts (other than (a) dividends or distributions in capital stock
of MBNA, (b) any declaration of a dividend in connection with the
implementation of a stockholders' rights plan, or the issuance of stock under
any such plan in the future or the redemption or repurchase of any such rights
pursuant thereto, (c) payments under the Guarantee and (d) purchases of common
stock related to the issuance of common stock or rights under any of the MBNA's
benefit plans for its directors, officers or employees related to the issuance
of common stock or rights under a dividend reinvestment and stock purchase
plan, or related to the issuance of common stock (or securities convertible
<PAGE> 71
66
into or exchangeable for common stock) as consideration in an acquisition
transaction that was entered into prior to the commencement of such Extension
Period).
The revenue of the Trust available for distribution to holders of
its Preferred Securities will be limited to payments under the Junior
Subordinated Debentures in which the Trust will invest the proceeds from the
issuance and sale of its Trust Securities. See "Description of the Junior
Subordinated Debentures." If MBNA does not make interest payments on such
Junior Subordinated Debentures, the Property Trustee will not have funds
available to pay Distributions on the Preferred Securities. The payment of
Distributions (if and to the extent the Trust has funds legally available for
the payment of such Distributions and cash sufficient to make such payments) is
guaranteed by MBNA on the basis set forth herein under "Description of
Guarantee."
Distributions on the Preferred Securities will be payable to the
holders thereof as they appear on the register of the Trust on the relevant
record dates, which shall be the ____ day of the month in which the
Distribution Date occurs.
REDEMPTION OR EXCHANGE
Mandatory Redemption. Upon the repayment or redemption, in whole or
in part, of any Junior Subordinated Debentures, whether at maturity or upon
earlier redemption as provided in the Indenture, the proceeds from such
repayment or redemption shall be applied by the Property Trustee to redeem a
Like Amount (as defined below) of the Trust Securities, upon not less than 30
nor more than 60 days notice. See "Description of the Junior Subordinated
Debentures--Redemption." If less than all Junior Subordinated Debentures are to
be repaid or redeemed on a Redemption Date, then the proceeds from such
repayment or redemption shall be allocated to the redemption pro rata of the
Preferred Securities and the Common Securities.
MBNA will have the right to redeem the Junior Subordinated
Debentures (i) on or after ________________, in whole at any time or in part
from time to time at the Optional Prepayment Price or (ii) at any time, in
whole (but not in part), upon the occurrence of a Special Event at the Special
Event Prepayment Price, subject to receipt of prior approval by the Federal
Reserve if then required under applicable capital guidelines or policies.
In the case of a redemption following a Special Event as described
under (ii) above, the Special Event Prepayment Price shall equal (i) ___% of
the principal amount of the Junior Subordinated Debentures if prepaid during
the period commencing on the Accrual Date through and including ____________,
___ and (ii) the percentage of the principal amount of the Junior Subordinated
Debentures specified below, if prepaid during the 12-month period beginning
_________ of the years indicated below plus in each case, accrued and unpaid
interest thereon to the date of prepayment:
<PAGE> 72
67
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ___%
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ___
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ___
2001 and thereafter. . . . . . . . . . . . . . . . . . . . . . . . 100%
</TABLE>
Following such redemption all Trust Securities shall be redeemed by the Trust
at a redemption price equal the Special Event Prepayment Price.
A "Special Event" means a Tax Event or a "Capital Treatment Event"
(each as defined herein), as the case may be.
A "Tax Event" means the receipt by the Trust or MBNA of an opinion
of counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced proposed change) in, the laws
(or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective, or
which proposed change, pronouncement or decision is announced, on or after the
date of issuance of the Preferred Securities under the Trust Agreement, there
is more than an insubstantial risk that (i) the Trust is, or will be within 90
days of the date of such opinion, subject to United States federal income tax
with respect to income received or accrued on the Junior Subordinated
Debentures, (ii) interest payable by MBNA on the Junior Subordinated Debentures
is not, or within 90 days of the date of such opinion, will not be, deductible
by MBNA, in whole or in part, for United States federal income tax purposes or
(iii) the Trust is, or will be within 90 days of the date of the opinion,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
A "Capital Treatment Event" means the reasonable determination by
MBNA that, as a result of any amendment to, or change (including any proposed
change) in, the laws (or any regulations thereunder) of the United States or
any political subdivision thereof or therein, or as a result of any official or
administrative pronouncement or action or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective, or
which proposed change, pronouncement, action or decision is announced, on or
after the date of issuance of the Preferred Securities under the Trust
Agreement, there is more than an insubstantial risk that MBNA will not be
entitled to treat an amount equal to the Liquidation Amount of the Preferred
Securities as "Tier 1 Capital" (or the then equivalent thereof) for purposes of
the capital adequacy guidelines of the Federal Reserve, as then in effect and
applicable to MBNA.
Distribution of Junior Subordinated Debentures. Subject to MBNA
having received prior approval of the Federal Reserve to do so if then required
under applicable capital guidelines or policies of the Federal Reserve, MBNA
has the right at any time to liquidate the Trust and, after satisfaction of the
liabilities of creditors of the Trust as provided by applicable law, cause such
Junior Subordinated Debentures to be distributed to the holders of the
Preferred Securities and Common Securities in exchange therefor upon
liquidation of the Trust.
<PAGE> 73
68
Special Event Redemption. If a Tax Event or Capital Treatment Event
in respect of the Preferred Securities and Common Securities shall occur and be
continuing, MBNA has the right to redeem the Junior Subordinated Debentures in
whole (but not in part) and thereby cause a mandatory redemption of the
Preferred Securities and Common Securities in whole (but not in part) at the
Redemption Price within 90 days following the occurrence of such Tax Event or
Capital Treatment Event. In the event a Tax Event or Capital Treatment Event in
respect of the Preferred Securities and Common Securities has occurred and is
continuing and MBNA does not elect to redeem the Junior Subordinated Debentures
and thereby cause a mandatory redemption of such Preferred Securities and
Common Securities or to liquidate the Trust and cause the Junior Subordinated
Debentures to be distributed to holders of the Preferred Securities and Common
Securities in exchange therefor upon liquidation of the Trust as described
above, the Preferred Securities will remain outstanding.
Possible Tax Law Changes. On March 19, 1996, the Revenue
Reconciliation Bill of 1996 (the "Bill"), was introduced in the 104th Congress
which would have, among other things, generally denied interest deductions for
interest on an instrument issued by a corporation that has a maximum term of
more than 20 years and that is not shown as indebtedness on the separate
balance sheet of the issuer or, where the instrument is issued to a related
party (other than a corporation), where the holder or some other related party
issues a related instrument that is not shown as indebtedness on the issuer's
consolidated balance sheet. This provision of the Bill was proposed to be
effective generally for instruments issued on or after December 7, 1995. If
this provision were to apply to the Junior Subordinated Debentures, MBNA would
not be able to deduct interest on the Junior Subordinated Debentures. However,
on March 29, 1996, the Chairmen of the Senate Finance and House Ways and Means
Committees issued the Joint Statement to the effect that it was their intention
that the effective date of the Bill, if enacted, would be no earlier than the
date of appropriate Congressional action. In addition, subsequent to the
publication of the Joint Statement, Senator Daniel Patrick Moynihan and
Representatives Sam M. Gibbons and Charles B. Rangel sent the Democrat Letters
to Treasury Department officials concurring with the view expressed in the
Joint Statement. The 104th Congress adjourned without enacting the Bill.
Moreover, if the principles contained in the Joint Statement and the Democrat
Letters were followed, any similar legislation in this area that is
subsequently enacted would not apply to any Junior Subordinated Debentures
issued prior to the effective date of such legislation. Although the 104th
Congress adjourned without enacting the Bill, there can be no assurance that
current or future legislative proposals or final legislation will not adversely
affect the ability of MBNA to deduct interest on the Junior Subordinated
Debentures or otherwise affect the tax treatment of the transaction described
herein. If enacted, such a change could give rise to a Tax Event, which may
permit MBNA to cause a redemption of the Preferred Securities.
"Like Amount" means (i) with respect to a redemption of the Trust
Securities having a Liquidation Amount (as defined below) equal to that portion
of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Common Securities and to the Preferred Securities pro rata based upon the
relative Liquidation Amounts of such classes and the proceeds of which will be
used to pay the Redemption Price of such Trust Securities, and (ii) with
respect to a distribution of Junior Subordinated Debentures to holders of Trust
Securities in exchange therefor in
<PAGE> 74
69
connection with a dissolution or liquidation of the Trust, Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the holder to whom such Junior Subordinated Debentures
would be distributed.
"Liquidation Amount" means the stated amount of $25 per Trust
Security.
After the liquidation date fixed for any distribution of Junior
Subordinated Debentures for Preferred Securities (i) such Preferred Securities
will no longer be deemed to be outstanding, (ii) the depository or its nominee,
as the record holder of such Preferred Securities, will receive a registered
global certificate or certificates representing the Junior Subordinated
Debentures to be delivered upon such distribution and (iii) any certificates
representing such Preferred Securities not held by the Depository or its
nominee will be deemed to represent the Junior Subordinated Debentures having a
principal amount equal to the stated Liquidation Amount of such Preferred
Securities, and bearing accrued and unpaid interest in an amount equal to the
accrued and unpaid Distributions on such Preferred Securities until such
certificates are presented to the Administrative Trustees or their agent for
transfer or reissuance.
REDEMPTION PROCEDURES
Preferred Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the applicable proceeds from the
contemporaneous redemption of the Junior Subordinated Debentures. Redemptions
of the Preferred Securities shall be made and the Redemption Price shall be
payable on each Redemption Date only to the extent that the Trust has funds on
hand available for the payment of such Redemption Price. See also
"--Subordination of Common Securities."
If the Trust gives a notice of redemption in respect of its
Preferred Securities, then, by 12:00 noon, New York City time, on the
Redemption Date, to the extent funds are available, the Property Trustee will
deposit irrevocably with the depository funds sufficient to pay the applicable
Redemption Price and will give the Depository irrevocable instructions and
authority to pay the Redemption Price to the holders of such Preferred
Securities. With respect to Preferred Securities in certificate form, the
Property Trustee, to the extent funds are available, will irrevocably deposit
with the paying agent for such Preferred Securities funds sufficient to pay the
Redemption Price and will give such paying agent irrevocable instructions and
authority to pay the Redemption Price to the holders thereof upon surrender of
their certificates evidencing such Preferred Securities. Notwithstanding the
foregoing, Distributions payable on or prior to the Redemption Date for any
Preferred Securities called for redemption shall be payable to the holders of
such Preferred Securities on the relevant record dates for the related
Distribution Dates. If notice of redemption shall have been given and funds
deposited as required, then upon the date of such deposit, all rights of the
holders of such Preferred Securities so called for redemption will cease,
except the right of the holders of such Preferred Securities to receive the
Redemption Price, but without interest on such Redemption Price, and such
Preferred Securities will cease to be outstanding. In the event that any date
fixed for redemption of Preferred Securities is not a Business Day, then
payment of the Redemption Price payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any
<PAGE> 75
70
such delay), except that, if such Business Day falls in the next calendar year,
such payment will be made on the immediately preceding Business Day. In the
event that payment of the Redemption Price in respect of Preferred Securities
called for redemption is improperly withheld or refused and not paid either by
the Trust or by MBNA pursuant to the Guarantee as described under "Description
of Guarantee," Distributions on such Preferred Securities will continue to
accrue at a rate of ___% of the Liquidation Amount of $25 per Preferred
Security, from the Redemption Date originally established by the Trust for such
Preferred Securities to the date such Redemption Price is actually paid, in
which case the actual payment date will be the date fixed for redemption for
purposes of calculating the Redemption Price.
Subject to applicable law (including, without limitation, United
States federal securities law), MBNA or its subsidiaries may at any time and
from time to time purchase outstanding Preferred Securities by tender, in the
open market or by private agreement.
If less than all of the Preferred Securities and Common Securities
issued by the Trust are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of such Preferred Securities and Common Securities to be
redeemed shall be allocated pro rata to the Preferred Securities and the Common
Securities based upon the relative Liquidation Amounts of such classes. The
particular Preferred Securities to be redeemed shall be selected on a pro rata
basis not more than 60 days prior to the Redemption Date by the Property
Trustee from the outstanding Preferred Securities not previously called for
redemption, by such method as the Property Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
(equal to $25 or an integral multiple of $25 in excess thereof) of the
Liquidation Amount of Preferred Securities of a denomination larger than $25.
The Property Trustee shall promptly notify the trust registrar in writing of
the Preferred Securities selected for redemption and, in the case of any
Preferred Securities selected for partial redemption, the Liquidation Amount
thereof to be redeemed. For all purposes of each Trust Agreement, unless the
context otherwise requires, all provisions relating to the redemption of
Preferred Securities shall relate, in the case of any Preferred Securities
redeemed or to be redeemed only in part, to the portion of the aggregate
Liquidation Amount of Preferred Securities which has been or is to be redeemed.
Unless the Trust defaults in payment of the Redemption Price, on and after the
Redemption Date additional Distributions will cease to accumulate on such
Preferred Securities or portions thereof called for redemption.
Notice of any redemption will be mailed at least 30 days but not
more than 60 days before the Redemption Date to each holder of Trust Securities
to be redeemed at its registered address.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the
Trust's Preferred Securities and Common Securities, as applicable, shall be
made pro rata based on the Liquidation Amount of such Preferred Securities and
Common Securities; provided, however, that if on any Distribution Date or
Redemption Date a Debenture Event of Default shall have occurred and be
continuing, no payment of any Distribution on, or Redemption Price of, any of
the Common Securities, and no other payment on account of the redemption,
<PAGE> 76
71
liquidation or other acquisition of such Common Securities shall be made unless
payment in full in cash of all accumulated and unpaid Distributions on all of
the Trust's outstanding Preferred Securities for all Distribution periods
terminating on or prior thereto or in the case of payment of the Redemption
Price the full amount of such Redemption Price on all of the Trust's
outstanding Preferred Securities then called for redemption shall have been
made or provided for, and all funds available to the Property Trustee shall
first be applied to the payment in full in cash of all Distributions on, or
Redemption Price of, the Trust's Preferred Securities then due and payable.
In the case of any event of default under the Trust Agreement
resulting from a Debenture Event of Default, MBNA as holder of the Trust's
Common Securities will be deemed to have waived any right to act with respect
to any such event of default under the Trust Agreement until the effect of all
such events of default with respect to the Preferred Securities have been
cured, waived or otherwise eliminated. Until all such events of default under
the Trust Agreement with respect to the Preferred Securities have been so
cured, waived or otherwise eliminated, the Property Trustee shall act solely on
behalf of the holders of such Preferred Securities and not on behalf of MBNA as
holder of the Trust's Common Securities, and only the holders of such Preferred
Securities will have the right to direct the Property Trustee to act on their
behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
Pursuant to the Trust Agreement, the Trust shall automatically
terminate upon expiration of its term and shall terminate on the first to occur
of: (i) certain events of bankruptcy, dissolution or liquidation of MBNA; (ii)
the distribution of a Like Amount of the Junior Subordinated Debentures to the
holders of its Trust Securities, if MBNA, as Depositor, has given written
direction to the Property Trustee to terminate the Trust (subject to MBNA
having received prior approval of the Federal Reserve if so required under
applicable capital guidelines or policies); (iii) redemption of all of the
Trust's Preferred Securities as described under "--Redemption or
Exchange--Mandatory Redemption"; and (iv) the entry of an order for the
dissolution of the Trust by a court of competent jurisdiction.
If an early termination occurs as described in clause (i), (ii) or
(iv) above, the Trust shall be liquidated by the Issuer Trustees as
expeditiously as the Issuer Trustees determine to be possible by distributing,
after satisfaction of liabilities to creditors of the Trust as provided by
applicable law, to the holders of such Trust Securities in exchange therefor a
Like Amount of the Junior Subordinated Debentures, unless such distribution is
determined by the Property Trustee not to be practical, in which event such
holders will be entitled to receive out of the assets of the Trust available
for distribution to holders after satisfaction of liabilities to creditors of
the Trust as provided by applicable law, an amount equal to, in the case of
holders of Preferred Securities, the aggregate of the Liquidation Amount plus
accrued and unpaid Distributions thereon to the date of payment (such amount
being the "Liquidation Distribution"). If such Liquidation Distribution can be
paid only in part because the Trust has insufficient assets available to pay in
full the aggregate Liquidation Distribution, then the amounts payable directly
by the Trust on its Preferred Securities shall be paid on a pro rata basis. The
holder(s) of the Trust's Common Securities will be entitled to receive
distributions upon any such liquidation pro rata with the holders of its
Preferred
<PAGE> 77
72
Securities, except that if a Debenture Event of Default has occurred and is
continuing, the Preferred Securities shall have a priority over the Common
Securities.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default"
under the Trust Agreement with respect to the Preferred Securities issued
thereunder (whatever the reason for such Event of Default and whether it shall
be voluntary or involuntary or be effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body):
(i) the occurrence of a Debenture Event of Default under the
Indenture (see "Description of the Junior Subordinated
Debentures--Debenture Events of Default"); or
(ii) default by the Property Trustee in the payment of any
Distribution when it becomes due and payable, and continuation of such
default for a period of 30 days; or
(iii) default by the Property Trustee in the payment of any
Redemption Price of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material
respect, of any covenant or warranty of the Issuer Trustees in such Trust
Agreement (other than a covenant or warranty a default in the performance
of which or the breach of which is dealt with in clause (ii) or (iii)
above), and continuation of such default or breach for a period of 90 days
after there has been given, by registered or certified mail, to the
defaulting Issuer Trustee or Trustees by the holders of at least 25% in
aggregate Liquidation Amount of the outstanding Preferred Securities of the
Trust, a written notice specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of Default" under
such Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency
with respect to the Property Trustee and the failure by MBNA to appoint a
successor Property Trustee within 90 days thereof.
Within five Business Days after the occurrence of any Event of
Default actually known to the Property Trustee, the Property Trustee shall
transmit notice of such Event of Default to the holders of the Preferred
Securities, the Administrative Trustees and MBNA, as Depositor, unless such
Event of Default shall have been cured or waived. MBNA as Depositor, and the
Administrative Trustees are required to file annually with the Property Trustee
a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the
Preferred Securities shall have a preference over the Common Securities as
described above. See "--Subordination of Common Securities" and "--Liquidation
Distribution Upon Termination."
<PAGE> 78
73
The existence of an Event of Default does not entitle the holders of Preferred
Securities to accelerate the maturity thereof.
REMOVAL OF ISSUER TRUSTEES
Unless a Debenture Event of Default shall have occurred and be
continuing, the Issuer Trustees may be removed at any time by the holder of the
Common Securities. If a Debenture Event of Default has occurred and is
continuing, the Property Trustee and the Delaware Trustee may be removed by the
holders of a majority in Liquidation Amount of the outstanding Preferred
Securities. In no event will the holders of the Preferred Securities have the
right to vote to appoint, remove or replace the Administrative Trustees, which
voting rights are vested exclusively in MBNA as the holder of the Common
Securities. No resignation or removal of an Issuer Trustee and no appointment
of a successor trustee shall be effective until the acceptance of appointment
by the successor trustee in accordance with the provisions of the applicable
Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default shall have occurred and be continuing,
at any time or from time to time, for the purpose of meeting the legal
requirements of the Trust Indenture Act or of any jurisdiction in which any
part of the trust property may at the time be located, MBNA, as the holder of
the Common Securities, and the Administrative Trustees shall have power to
appoint one or more persons either to act as a co-trustee, jointly with the
Property Trustee, of all or any part of such trust property, or to act as
separate trustee of any such property, in either case with such powers as may
be provided in the instrument of appointment, and to vest in such person or
persons in such capacity any property, title, right or power deemed necessary
or desirable, subject to the provisions of the applicable Trust Agreement. In
case a Debenture Event of Default has occurred and is continuing, the Property
Trustee alone shall have power to make such appointment.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any person into which the Property Trustee, the Delaware Trustee or
any Administrative Trustee that is not a natural person may be merged or
converted or with which it may be consolidated, or any person resulting from
any merger, conversion or consolidation to which such Trustee shall be a party,
or any person succeeding to all or substantially all the corporate trust
business of such Trustee, shall be the successor of such Trustee under each
Trust Agreement, provided such person shall be otherwise qualified and
eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The Trust may not merge with or into, consolidate, amalgamate, or
be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other person, except as
described below. The Trust may, at the request of MBNA, with the consent of the
Administrative Trustees and without the consent of the holders of the Preferred
Securities, merge with or into, consolidate, amalgamate, or be replaced by, or
convey, transfer or lease its properties and assets substantially as an
entirety
<PAGE> 79
74
to, a trust organized as such under the laws of any State; provided, that (i)
such successor entity either (a) expressly assumes all of the obligations of
the Trust with respect to the Preferred Securities or (b) substitutes for the
Preferred Securities other securities having substantially the same terms as
the Preferred Securities (the "Successor Securities") so long as the Successor
Securities rank the same as the Preferred Securities in priority with respect
to distributions and payments upon liquidation, redemption and otherwise, (ii)
MBNA expressly appoints a trustee of such successor entity possessing the same
powers and duties as the Property Trustee as the holder of the Junior
Subordinated Debentures, (iii) the Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on any
national securities exchange or other organization on which the Preferred
Securities are then listed, if any, (iv) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not cause the
Preferred Securities to be downgraded by any nationally recognized statistical
rating organization which gives ratings on the Preferred Securities, (v) such
merger, consolidation, amalgamation, replacement. conveyance, transfer or lease
does not adversely affect the rights, preferences and privileges of the holders
of the Preferred Securities (including any Successor Securities) in any
material respect, (vi) such successor entity has a purpose identical to that of
the Trust, (vii) prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, MBNA has received an opinion from
independent counsel to the Trust experienced in such matters to the effect that
(a) such merger, consolidation, amalgamation, replacement, conveyance, transfer
or lease does not adversely affect the rights, preferences and privileges of
the holders of the Preferred Securities (including any Successor Securities) in
any material respect, and (b) following such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, neither the Trust nor
such successor entity will be required to register as an investment company
under the Investment Company Act of 1940, as amended (the "Investment Company
Act"), and (viii) MBNA or any permitted successor or assignee owns all of the
Common Securities of such successor entity and guarantees the obligations of
such successor entity under the Successor Securities at least to the extent
provided by the Guarantee. Notwithstanding the foregoing, the Trust shall not,
except with the consent of holders of 100% in Liquidation Amount of the
Preferred Securities, consolidate, amalgamate, merge with or into, or be
replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger, replacement, conveyance, transfer or lease
would cause the Trust or the successor entity to be classified as other than a
grantor trust for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "Description of
Guarantee--Amendments and Assignment" and as otherwise required by law and the
Trust Agreement, the holders of the Preferred Securities will have no voting
rights.
The Trust Agreement may be amended from time to time by MBNA, the
Property Trustee, the Delaware Trustee and the Administrative Trustees, without
the consent of the holders of the Preferred Securities (i) to cure any
ambiguity, correct or supplement any provisions in the Trust Agreement that may
be inconsistent with any other provision, or to make any other provisions with
respect to matters or questions arising under the Trust
<PAGE> 80
75
Agreement, which shall not be inconsistent with the other provisions of the
Trust Agreement, or (ii) to modify, eliminate or add to any provisions of the
Trust Agreement to such extent as shall be necessary to ensure that the Trust
will be classified for United States federal income tax purposes as a grantor
trust at all times that any Trust Securities are outstanding or to ensure that
the Trust will not be required to register as an "investment company" under the
Investment Company Act; provided, however, that in the case of either clause
(i) or clause (ii), such action shall not adversely affect in any material
respect the interests of any holder of Preferred Securities, and any amendments
of the Trust Agreement shall become effective when notice thereof is given to
the holders of Trust Securities. The Trust Agreement may be amended by the
Issuer Trustees and MBNA with (i) the consent of holders representing not less
than a majority (based upon Liquidation Amounts) of the outstanding Trust
Securities, and (ii) receipt by the Issuer Trustees of an opinion of counsel to
the effect that such amendment or the exercise of any power granted to the
Issuer Trustees in accordance with such amendment will not affect the Trust's
status as a grantor trust for United States federal income tax purposes or the
Trust's exemption from status as an "investment company" under the Investment
Company Act, provided that without the consent of each holder of Trust
Securities, such Trust Agreement may not be amended to (i) change the amount or
timing of any Distribution on the Trust Securities or otherwise adversely
affect the amount of any Distribution required to be made in respect of the
Trust Securities as of a specified date or (ii) restrict the right of a holder
of Trust Securities to institute suit for the enforcement of any such payment
on or after such date.
So long as any Junior Subordinated Debentures are held by the
Property Trustee, the Issuer Trustees shall not (i) direct the time, method and
place of conducting any proceeding for any remedy available to the Debenture
Trustee, or executing any trust or power conferred on the Property Trustee with
respect to the Junior Subordinated Debentures, (ii) waive any past default that
is waivable under the Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal of all the Junior Subordinated Debentures shall
be due and payable or (iv) consent to any amendment, modification or
termination of the Indenture or such Junior Subordinated Debentures, where such
consent shall be required, without, in each case, obtaining the prior approval
of the holders of a majority in aggregate Liquidation Amount of all outstanding
Preferred Securities; provided, however, that where a consent under the
Indenture would require the consent of each holder of Junior Subordinated
Debentures affected thereby, no such consent shall be given by the Property
Trustee without the prior consent of each holder of the Preferred Securities.
The Issuer Trustees shall not revoke any action previously authorized or
approved by a vote of the holders of the Preferred Securities except by
subsequent vote of the holders of the Preferred Securities. The Property
Trustee shall notify each holder of Preferred Securities of any notice of
default with respect to the Junior Subordinated Debentures. In addition to
obtaining the foregoing approvals of the holders of the Preferred Securities,
prior to taking any of the foregoing actions, the Issuer Trustees shall obtain
an opinion of counsel experienced in such matters to the effect that such
action would not cause the Trust to be classified as other than a grantor trust
for United States federal income tax purposes.
Any required approval of holders of Preferred Securities may be
given at a meeting of holders of Preferred Securities convened for such purpose
or pursuant to written consent. The Property Trustee will cause a notice of any
meeting at which holders of
<PAGE> 81
76
Preferred Securities are entitled to vote, or of any matter upon which action
by written consent of such holders is to be taken, to be given to each holder
of record of Preferred Securities in the manner set forth in the Trust
Agreement.
No vote or consent of the holders of Preferred Securities will be
required for the Trust to redeem and cancel its Preferred Securities in
accordance with the applicable Trust Agreement.
Notwithstanding that holders of Preferred Securities are entitled
to vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by MBNA, the Issuer Trustees or any
affiliate of MBNA or any Issuer Trustees, shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
BOOK-ENTRY; DELIVERY AND FORM
Preferred Securities will be issued in fully registered form.
Investors may elect to hold their Preferred Securities directly or, subject to
the rules and procedures of a Depository Institution described below, hold
their interest in a global certificate (the "Preferred Securities Global
Certificate") registered in the name of a Depository Institution or its
nominee. However, tendering holders of Series A Preferred Stock held in global
form shall initially receive an interest in the Preferred Securities Global
Certificate and tendering holders of Series A Preferred Stock held directly in
certificated form shall initially receive Preferred Securities in certificated
form, in each case unless otherwise specified in the Letter of Transmittal.
See "The Offer--Procedures for Tendering."
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interest in a global Preferred
Securities.
A Depository Institution holds securities that its participants
("Participants") deposit with the Depository Institution. A Depository
Institution also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations ("Direct Participants").
A Depository Institution is owned by a number of its Direct Participants and by
the NYSE, the American Stock Exchange, Inc., and the National Association of
Securities Dealers, Inc. Access to the Depository Institution's system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The
rules applicable to a Depository Institution and its Participants are on file
with the Commission.
Upon issuance of a Preferred Securities Global Certificate, the
Depository Institution will credit on its book-entry registration and transfer
system the number of Preferred Securities represented by such Preferred
Securities Global Certificate to the accounts of institutions that have
accounts with the Depository Institution. Ownership of beneficial
<PAGE> 82
77
interests in a Preferred Securities Global Certificate will be limited to
Participants or persons that may hold interests through Participants. The
ownership interest of each actual purchaser of each Preferred Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from the Depository Institution of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the
transactions, as well as periodic statements of their holdings, from the Direct
or Indirect Participants through which the Beneficial Owners purchased
Preferred Securities. Transfers of ownership interests in the Preferred
Securities are to be accomplished by entries made on the books of Participants
acting on behalf of Beneficial Owners.
A Depository Institution has no knowledge of the actual Beneficial
Owners of the Preferred Securities; a Depository Institution's records reflect
only the identity of the Direct Participants to whose accounts such Preferred
Securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers. So long as a Depository Institution, or its
nominee, is the owner of a Preferred Securities Global Certificate, a
Depository Institution or such nominee, as the case may be, will be considered
the sole owner and holder of record of the Preferred Securities represented by
such Preferred Securities Global Certificate for all purposes.
Conveyance of notices and other communications by a Depository
Institution to Direct Participants, by Direct Participants to Indirect
Participants, and by Direct Participants and Indirect Participants to
Beneficial Owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Redemption notices shall be sent to the Depository Institution. If
less than all of the Preferred Securities are being redeemed, the Depository
Institution will reduce pro rata (subject to adjustment to eliminate fractional
Preferred Securities) the amount of interest of each Direct Participant in the
Preferred Securities to be redeemed.
Although voting with respect to the Preferred Securities is
limited, in those instances in which a vote is required, the Depository
Institution will not consent or vote with respect to Preferred Securities.
Under its usual procedures, the Depository Institution would mail an Omnibus
Proxy to the Trust as soon as possible after the record date. The Omnibus
Proxy assigns the Depository Institution's consenting or voting rights to those
Direct Participants to whose accounts the Preferred Securities are credited on
the record date (identified in a listing attached to the Omnibus Proxy).
Distribution payments on the Preferred Securities represented by a
Preferred Securities Global Certificate will be made by the Trust to the
Depository Institution. The Depository Institution's practice is to credit
Direct Participants' accounts on the relevant payment date in accordance with
their respective holdings shown on a Depository Institution's records unless
the Depository Institution has reason to believe that it will not receive
payments on such payment date. Payments by Participants to Beneficial Owners
will be governed by standing instructions and customary practices and will be
the responsibility of such participants and not of a Depository Institution,
the Trust or MBNA, subject to any
<PAGE> 83
78
statutory or regulatory requirements as may be in effect from time to time.
Payment of distributions to a Depository Institution is the responsibility of
the Trust, disbursement of such payments to Direct Participants is the
responsibility of the Depository Institution, and disbursement of such payments
to the Beneficial Owners is the responsibility of Direct and Indirect
Participants.
A Depository Institution may discontinue providing its services as
securities depository with respect to the Preferred Securities at any time by
giving reasonable notice to the Trust. Under such circumstances, if a
successor securities depository is not obtained, Preferred Security
certificates will be required to be printed and delivered. Additionally, the
Trust may decide to discontinue use of the system of book-entry transfers
through the Depository Institution (or a successor depository). In that event,
certificates for the Preferred Securities will be printed and delivered.
The information in this section concerning the Depository
Institution and the Depository Institution's book-entry system has been
obtained from sources that the Trust and MBNA believe to be reliable, but the
Trust and MBNA take no responsibility for the accuracy thereof.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities shall be made to
the Depository, which shall credit the relevant accounts at the Depository on
the applicable Distribution Dates or such payments shall be made by check
mailed to the address of the holder entitled thereto as such address shall
appear on the Register. The paying agent (the "Paying Agent") shall initially
be the Property Trustee and any co-paying agent chosen by the Property Trustee
and acceptable to the Administrative Trustees and MBNA. The Paying Agent shall
be permitted to resign as Paying Agent upon 30 days' written notice to the
Property Trustee and MBNA. In the event that the Property Trustee shall no
longer be the Paying Agent, the Administrative Trustees shall appoint a
successor (which shall be a bank or trust company acceptable to the
Administrative Trustees and MBNA) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for
the Preferred Securities. Registration of transfers of Preferred Securities
will be effected without charge by or on behalf of the Trust, but upon payment
of any tax or other governmental charges that may be imposed in connection with
any transfer or exchange. The Trust will not be required to register or cause
to be registered the transfer of their Preferred Securities after such
Preferred Securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and
continuance of an Event of Default, undertakes to perform only such duties as
are specifically set forth in the Trust Agreement and, after such Event of
Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs.
<PAGE> 84
79
Subject to this provision, the Property Trustee is under no obligation to
exercise any of the powers vested in it by the Trust Agreement at the request
of any holder of Preferred Securities unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be incurred thereby. If
no Event of Default has occurred and is continuing and the Property Trustee is
required to decide between alternative causes of action, construe ambiguous
provisions in the Trust Agreement or is unsure of the application of any
provision of the Trust Agreement, and the matter is not one on which holders of
Preferred Securities are entitled under such Trust Agreement to vote, then the
Property Trustee shall take such action as is directed by MBNA and if not so
directed, shall take such action as it deems advisable and in the best
interests of the holders of the Trust Securities and will have no liability
except for its own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct
the affairs of and to operate the Trust in such a way that the Trust will not
be deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as other than a grantor trust for United
States federal income tax purposes and so that the Junior Subordinated
Debentures will be treated as indebtedness of MBNA for United States federal
income tax purposes. In this connection, MBNA and the Administrative Trustees
are authorized to take any action, not inconsistent with applicable law, the
certificate of trust of the Trust or the Trust Agreement, that MBNA and the
Administrative Trustees determine in their discretion to be necessary or
desirable for such purposes, as long as such action does not materially
adversely affect the interests of the holders of the Preferred Securities.
Holders of the Preferred Securities have no preemptive or similar
rights.
The Trust may not borrow money or issue debt or mortgage or pledge
any of its assets.
GOVERNING LAW
The Trust Agreement and the Preferred Securities will be governed
by, and constructed in accordance with, the internal laws of the State of
Delaware.
DESCRIPTION OF GUARANTEE
A Guarantee will be executed and delivered by MBNA concurrently
with the issuance by the Trust of its Trust Securities for the benefit of the
holders from time to time of such Trust Securities. The Bank of New York will
act as trustee under Guarantee for the purposes of compliance with the Trust
Indenture Act and Guarantee will be qualified as an indenture under the Trust
Indenture Act. This summary of certain provisions of the Guarantees which
summarizes the material terms thereof does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all of the
provisions of the Guarantee, including the definitions therein of certain
terms, and the Trust Indenture Act, to each of which reference is hereby made.
The form of Guarantee has been filed as an exhibit
<PAGE> 85
80
to the Registration Statement of which this Prospectus forms a part. Reference
in this summary to Trust Securities means the Trust Securities to which the
Guarantee relates. The Guarantee Trustee will hold the Guarantee for the
benefit of the holders of the Trust's Trust Securities.
GENERAL
MBNA will irrevocably agree to pay in full on a subordinated basis,
to the extent set forth herein, the Guarantee Payments (as defined below) to
the holders of Trust Securities, as and when due, regardless of any defense,
right of set-off or counterclaim that the Trust may have or assert other than
the defense of payment. The following payments with respect to the Trust
Securities, to the extent not paid by or on behalf of the Trust (the "Guarantee
Payments"), will be subject to the Guarantee: (i) any accumulated and unpaid
Distributions required to be paid on Trust Securities, to the extent that the
Trust has funds on hand available therefor at such time, (ii) the Redemption
Price with respect to any Trust Securities called for redemption to the extent
that the Trust has funds on hand available therefor at such time, or (iii) upon
a voluntary or involuntary dissolution, winding up or liquidation of the Trust
(unless the Junior Subordinated Debentures are distributed to holders of the
Trust Securities in exchange therefor), the lesser of (a) the Liquidation
Distribution and (b) the amount of assets of the Trust remaining available for
distribution to holders of Trust Securities after satisfaction of liabilities
to creditors of the Trust as required by applicable law. MBNA's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by MBNA to the holders of the applicable Trust Securities or by causing
the Trust to pay such amounts to such holders.
The Guarantee will be an irrevocable guarantee on a subordinated
basis of the Trust's obligations under the Trust Securities, but will apply
only to the extent that such Trust has funds sufficient to make such payments,
and is not a guarantee of collection.
If MBNA does not make interest payments on the Junior Subordinated
Debentures held by the Trust, the Trust will not be able to pay Distributions
on the Trust Securities and will not have funds legally available therefor. The
Guarantee will rank subordinate and junior in right of payment to all Senior
Debt of MBNA. See "--Status of the Guarantee." Because MBNA is a holding
company, the right of MBNA to participate in any distribution of assets of any
subsidiary upon such subsidiary's liquidation or reorganization or otherwise,
is subject to the prior claims of creditors of that subsidiary, except to the
extent MBNA may itself be recognized as a creditor of that subsidiary.
Accordingly, MBNA's obligations under the Guarantee will be effectively
subordinated to all existing and future liabilities of MBNA's subsidiaries, and
claimants should look only to the assets of MBNA for payments thereunder. The
Guarantee does not limit the incurrence or issuance of other secured or
unsecured debt of MBNA, including Senior Debt, whether under the Indenture, any
other existing indenture or any other indenture that MBNA may enter into in the
future or otherwise.
MBNA has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Indenture taken together, fully, irrevocably
and unconditionally guaranteed all of the Trust's obligations under the
Preferred Securities. No
<PAGE> 86
81
single document standing alone or operating in conjunction with fewer than all
of the other documents constitutes such guarantee. It is only the combined
operation of these documents that has the effect of providing a full,
irrevocable and unconditional guarantee of the Trust's obligations under the
Preferred Securities. See "Relationship Between the Preferred Securities, the
Junior Subordinated Debentures and the Guarantee."
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of MBNA and
will rank subordinate and junior in right of payment to all Senior Debt of MBNA
in the same manner as the Junior Subordinated Debentures.
The Preferred Securities will rank pari passu with all other
Guarantees issued by MBNA. The Guarantee will constitute a guarantee of payment
and not of collection (i.e., the guaranteed party may institute a legal
proceeding directly against the Guarantor to enforce its rights under the
Guarantee without first instituting a legal proceeding against any other person
or entity). The Guarantee will be held for the benefit of the holders of the
Preferred Securities. The Guarantee will not be discharged except by payment of
the Guarantee Payments in full to the extent not paid by Trust or upon
distribution to the holders of the Preferred Securities of the Junior
Subordinated Debentures. None of the Guarantees places a limitation on the
amount of additional Senior Debt that may be incurred by MBNA. MBNA expects
from time to time to incur additional indebtedness constituting Senior Debt.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially
adversely affect the rights of holders of the Preferred Securities (in which
case no vote will be required), the Guarantee may not be amended without the
prior approval of the holders of not less than a majority of the aggregate
Liquidation Amount of such outstanding Preferred Securities. The manner of
obtaining any such approval will be as set forth under "Description of the
Preferred Securities--Voting Rights; Amendment of the Trust Agreement." All
guarantees and agreements contained in the Guarantee shall bind the successors,
assigns, receivers, trustees and representatives of MBNA and shall inure to the
benefit of the holders of the Preferred Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure
of MBNA to perform any of its payment or other obligations thereunder. The
holders of not less than a majority in aggregate Liquidation Amount of the
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of such Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under such Guarantee.
Any holder of the Preferred Securities may institute a legal
proceeding directly against MBNA to enforce its rights under the Guarantee
without first instituting a legal proceeding against the Trust, the Guarantee
Trustee or any other person or entity.
<PAGE> 87
82
MBNA, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not MBNA is in compliance with all the
conditions and covenants applicable to it under MBNA.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and
continuance of a default by MBNA in performance of the Guarantee, undertakes to
perform only such duties as are specifically set forth in the Guarantee and,
after default with respect to the Guarantee, must exercise the same degree of
care and skill as a prudent person would exercise or use in the conduct of his
or her own affairs. Subject to this provision, the Guarantee Trustee is under
no obligation to exercise any of the powers vested in it by any Guarantee at
the request of any holder of any Preferred Securities unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred thereby.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect
upon full payment of the Redemption Price of the Preferred Securities, upon
full payment of the amounts payable upon liquidation of the Trust or upon
distribution of Junior Subordinated Debentures to the holders of the Preferred
Securities in exchange therefor. The Guarantee will continue to be effective or
will be reinstated, as the case may be, if at any time any holder of the
Preferred Securities must restore payment of any sums paid under such Preferred
Securities or the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with
the laws of the State of New York.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued as a series of
debentures under a Junior Subordinated Indenture, as supplemented from time to
time, between MBNA and The Bank of New York as Debenture Trustee. This summary
of certain terms and provisions of the Junior Subordinated Debentures,
Debentures and the Indenture, which summarizes the material provisions thereof,
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the Indenture, the form of which is filed as an
exhibit to the Registration Statement of which this Prospectus forms a part,
and to the Trust Indenture Act, to each of which reference is hereby made. The
Indenture is qualified under the Trust Indenture Act. Whenever particular
defined terms of the Indenture are referred to herein, such defined terms are
incorporated herein or therein by reference.
GENERAL
The Junior Subordinated Debentures will rank pari passu with all
other series of junior subordinated debentures issued under the indenture,
including the Series A
<PAGE> 88
83
Debentures and the Series B Debentures, and will be unsecured and subordinate
and junior in right of payment to the extent and in the manner set forth in the
Indenture to all Senior Debt as defined below) of MBNA. See "--Subordination."
Because MBNA is a holding company, the right of MBNA to participate in any
distribution of assets of any subsidiary, including the Bank, upon such
subsidiary's liquidation or reorganization or otherwise is subject to the prior
claims of creditors of the subsidiary, except to the extent MBNA may itself be
recognized as a creditor of that subsidiary. Accordingly, the Junior
Subordinated Debentures will be effectively subordinated to all existing and
future liabilities of MBNA's subsidiaries, and holders of Junior Subordinated
Debentures should look only to the assets of MBNA for payments on the Junior
Subordinated Debentures. The Indenture does not limit the incurrence or
issuance of other secured or unsecured debt of MBNA, including Senior Debt,
whether under the Indenture, any other existing indenture or any other
indenture that MBNA may enter into in the future or otherwise. See
"--Subordination".
PAYMENT AND PAYING AGENTS
Payment of principal of and premium, if any, and any interest on
Junior Subordinated Debentures will be made at the office of the Debenture
Trustee in the City of New York or at the office of such paying agent or paying
agents as MBNA may designate from time to time, except that at the option of
MBNA payment of any interest may be made (i) except in the case of global
Junior Subordinated Debentures, by check mailed to the address of the person
entitled thereto as such address shall appear in the securities register or
(ii) by transfer to an account maintained by the person entitled thereto as
specified in the securities register, provided that proper transfer
instructions have been received by the Regular Record Date. Payment of any
interest on Junior Subordinated Debentures will be made to the person in whose
name such Junior Subordinated Debenture is registered at the close of business
on the Regular Record Date for such interest, except in the case of defaulted
interest. MBNA may at any time designate additional paying agents or rescind
the designation of any paying agent.
Any moneys deposited with the Debenture Trustee or any paying
agent, or then held by MBNA in trust, for the payment of the principal of and
premium, if any, or interest on any Junior Subordinated Debenture and remaining
unclaimed for two years after such principal and premium, if any, or interest
has become due and payable shall, at the request of MBNA, be repaid to MBNA and
the holder of such Junior Subordinated Debenture shall thereafter look, as a
general unsecured creditor, only to MBNA for payment thereof.
OPTION TO DEFER INTEREST PAYMENTS
MBNA will have the right at any time and from time to time during
the term of the Junior Subordinated Debentures to defer payment of interest for
up to 20 consecutive quarterly interest payment periods, subject to the terms,
conditions and covenants, specified herein, provided that such Extension Period
may not extend beyond the Stated Maturity of such Junior Subordinated
Debentures.
<PAGE> 89
84
OPTIONAL REDEMPTION
Junior Subordinated Debentures will not be subject to any sinking
fund.
MBNA has the right to redeem the Junior Subordinated Debentures (i)
on or after _______ __, ____, subject to the prior approval of the Federal
Reserve if then required under applicable guidelines or policies, in whole at
any time or in part from time to time, at the Optional Prepayment Price, or
(ii) prior to _______ __, ____, in whole (but not in part) within 90 days
following the occurrence of a Special Event at the Special Event Prepayment
Price equal to (i) ___% of the principal amount of the Debentures if prepaid
during the period commencing on the Accrual Date through and including
_____________ and (ii) the percentage of the principal amount of the Junior
Subordinated Debentures specified below, if prepaid during the 12-month period
beginning _____________ of the years indicated below plus, in each case,
accrued interest thereon to but excluding the date of prepayment:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
------------------------------------------------------------ ------------
<S> <C>
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . ___%
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . ___
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . ___
2001 and thereafter . . . . . . . . . . . . . . . . . . . . 100
</TABLE>
Following such redemption, all Trust Securities shall be redeemed
by the Trust at a redemption price equal to the Special Event Prepayment Price
plus accrued and unpaid distributions to but excluding the redemption date.
A "Special Event" means a Tax Event or a "Capital Treatment Event"
(each as defined herein), as the case may be.
A "Tax Event" means the receipt by the Trust or MBNA of an opinion
of counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced proposed change) in, the laws
(or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective, or
which proposed change, pronouncement or decision is announced, on or after the
date of issuance of the Preferred Securities under the Trust Agreement, there
is more than an insubstantial risk that (i) the Trust is, or will be within 90
days of the date of such opinion, subject to United States federal income tax
with respect to income received or accrued on the Junior Subordinated
Debentures, (ii) interest payable by MBNA on the Junior Subordinated Debentures
is not, or within 90 days of the date of such opinion, will not be, deductible
by MBNA, in whole or in part, for United States federal income tax purposes or
(iii) the Trust is, or will be within 90 days of the date of the opinion,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
A "Capital Treatment Event" means the reasonable determination by
MBNA that, as a result of any amendment to, or change (including any proposed
change) in, the laws
<PAGE> 90
85
(or any regulations thereunder) of the United States or any political
subdivision thereof or therein, or as a result of any official or
administrative pronouncement or action or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective, or
which proposed change, pronouncement, action or decision is announced, on or
after the date of issuance of the Preferred Securities under the Trust
Agreement, there is more than an insubstantial risk that MBNA will not be
entitled to treat an amount equal to the Liquidation Amount of the Preferred
Securities as "Tier 1 Capital" (or the then equivalent thereof) for purposes of
the capital adequacy guidelines of the Federal Reserve, as then in effect and
applicable to MBNA.
Notice of any redemption will be mailed at least 30 days but not
more than 60 days before the redemption date to each holder of Junior
Subordinated Debentures to be redeemed at its registered address. Unless MBNA
defaults in payment of the redemption price, on and after the redemption date
interest ceases to accrue on such Junior Subordinated Debentures or portions
thereof called for redemption.
RESTRICTIONS ON CERTAIN PAYMENTS
MBNA will covenant, as to the Junior Subordinated Debentures, that
it will not, and will not permit any subsidiary of MBNA to, (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of MBNA's capital stock, (ii) make any
payment of principal, interest or premium, if any, on or repay or repurchase or
redeem any debt securities of MBNA (including other series of junior
subordinated debentures) that rank pari passu with or junior in interest to the
Junior Subordinated Debentures or (iii) make any guarantee payments with
respect to any guarantee by MBNA of the debt securities of any subsidiary of
MBNA if such guarantee ranks pari passu with or junior in interest to the
Junior Subordinated Debentures, including its guarantees of the Series A
Capital Securities and the Series B Capital Securities (other than (a)
dividends or distributions in capital stock of MBNA, (b) any declaration of a
dividend in connection with the implementation of a stockholders' rights plan,
or the redemption or repurchase of any such rights pursuant thereto, (c)
payments under any Guarantee with respect to the series of Preferred Securities
and (d) purchases of common stock related to the issuance of common stock or
rights under any of MBNA's benefit plans for its directors, officers or
employees, related to the issuance of common stock or rights under a dividend
reinvestment and stock purchase plan, or related to the issuance of common
stock (or securities convertible into or exchangeable for common stock) as
consideration in an acquisition transaction that was entered into prior to the
commencement of such Extension Period) if at such time (i) there shall have
occurred any event of which MBNA has actual knowledge (a) that with the giving
of notice or the lapse of time, or both, would constitute an "Event of Default"
under the Indenture with respect to the Junior Subordinated Debentures and (b)
in respect of which MBNA shall not have taken reasonable steps to cure, (ii) if
such Junior Subordinated Debentures are held by the Trust, MBNA shall be in
default with respect to its payment of any obligations under the Guarantee
relating to such Preferred Securities or (iii) MBNA shall have given notice of
its selection of an Extension Period as provided in the Indenture and shall not
have rescinded such notice, or such Extension Period, or any extension thereof,
shall be continuing.
<PAGE> 91
86
MODIFICATION OF INDENTURE
From time to time MBNA and the Debenture Trustee may, without the
consent of the holders of any series of junior subordinated debentures issued
under the Indenture, including the Junior Subordinated Debentures, amend, waive
or supplement the Indenture for specified purposes, including, among other
things, curing ambiguities, defects or inconsistencies (provided that any such
action does not materially adversely affect the interest of the holders of any
series of junior subordinated debentures or, the holders of any preferred
securities, the proceeds of which are invested in any such series of junior
subordinated debentures with corresponding terms ("related preferred
securities"), including the Preferred Securities, so long as they remain
outstanding) and qualifying, or maintaining the qualification of, the Indenture
under the Trust Indenture Act. The Indenture contains provisions permitting
MBNA and the Debenture Trustee, with the consent of the holders of not less
than a majority in principal amount of each outstanding series of junior
subordinated debentures affected, to modify the Indenture in a manner adversely
affecting the rights of the holders of any series of junior subordinated
debentures in any material respect; provided, that no such modification may,
without the consent of the holder of each outstanding junior subordinated
debenture so affected, (i) change the stated maturity of any series of junior
subordinated debentures, or reduce the principal amount thereof, or reduce the
rate or extend the time of payment of interest thereon or (ii) reduce the
percentage of principal amount of junior subordinated debentures of any series,
the holders of which are required to consent to any such modification of the
Indenture, and so long as any related preferred securities remain outstanding,
including the Preferred Securities, (a) no such modification may be made that
adversely affects the holders of such related preferred securities in any
material respect, and no termination of the Indenture may occur, and no waiver
of any event of default or compliance with any covenant under the Indenture may
be effective, without the prior consent of the holders of at least a majority
of the aggregate Liquidation Amount of all related preferred securities
affected unless and until the principal of the corresponding junior
subordinated debentures and all accrued and unpaid interest thereon have been
paid in full and certain other conditions have been satisfied, and (b) where a
consent under the Indenture would require the consent of each holder of
corresponding junior subordinated debentures, no such consent shall be given by
the Property Trustee without the prior consent of each holder of related
preferred securities.
In addition, MBNA and the Debenture Trustee may execute, without
the consent of any holder of junior subordinated debentures, any supplemental
Indenture for the purpose of creating any new series of junior subordinated
debentures.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following
described events with respect to the Junior Subordinated Debentures that has
occurred and is continuing constitutes a "Debenture Event of Default" with
respect to such Junior Subordinated Debentures:
<PAGE> 92
87
(i) failure for 30 days to pay any interest on such Junior
Subordinated Debentures when due (subject to the deferral of any interest
payment in the case of an Extension Period); or
(ii) failure to pay any principal or premium, if any, on the
Junior Subordinated Debentures when due, whether at maturity or upon
redemption; or
(iii) failure to observe or perform in any material respect
certain other covenants contained in the Indenture for 90 days after
written notice to MBNA from the Debenture Trustee or the holders of at
least 25% in aggregate outstanding principal amount of Junior Subordinated
Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of
MBNA.
The holders of a majority in aggregate outstanding principal amount
of junior subordinated debentures of each series affected have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Debenture Trustee. The Debenture Trustee or the holders of not
less than 25% in aggregate outstanding principal amount of junior subordinated
debentures of each series affected may declare the principal due and payable
immediately upon a Debenture Event of Default with respect to such series, and,
should the Debenture Trustee or such holders of the junior subordinated
debentures fail to make such declaration, the holders of at least 25% in
aggregate Liquidation Amount of the related preferred securities shall have
such right. The holders of a majority in aggregate outstanding principal
amount of junior subordinated debentures of each series affected may annul such
declaration with respect to such series. Should the holders of such junior
subordinated debentures fail to annul such declaration, the holders of a
majority in aggregate Liquidation Amount of related preferred securities
affected shall have such right.
The holders of a majority in aggregate outstanding principal amount
of each series of the junior subordinated debentures affected thereby may, on
behalf of the holders of all the junior subordinated debentures of such series,
waive any default, except a default in the payment of principal or interest
(unless such default has been cured and a sum sufficient to pay all matured
installments of interest, premium (if any) and principal due with respect to
such series otherwise than by acceleration has been deposited with the
Debenture Trustee) or a default in respect of a covenant or provision which
under the Indenture cannot be modified or amended without the consent of the
holder of each outstanding junior subordinated debenture of such series. Should
the holders of junior subordinated debentures fail to annul such declaration
and waive such default, the holders of a majority in aggregate Liquidation
Amount of the series of related preferred securities affected shall have such
right. MBNA is required to file annually with the Debenture Trustee a
certificate as to whether or not MBNA is in compliance with all the conditions
and covenants applicable to it under the Indenture.
In case a Debenture Event of Default shall occur and be continuing
as to a series of junior subordinated debentures, the Property Trustee for the
related preferred securities will have the right to declare the principal of
and the interest on such junior subordinated debentures, and any other amounts
payable under the Indenture, to be forthwith
<PAGE> 93
88
due and payable and to enforce its other rights as a creditor with respect to
such junior subordinated debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and
such event is attributable to the failure of MBNA to pay interest, premium (if
any) or principal on such Junior Subordinated Debentures on the date such
interest, premium (if any) or principal is due and payable, a holder of
Preferred Securities may institute a Direct Action. MBNA may not amend the
Indenture to remove the foregoing right to bring a Direct Action without the
prior written consent of the holders of all of the Preferred Securities
outstanding. If the right to bring a Direct Action is removed, the Trust may
become subject to the reporting obligations under the Exchange Act. MBNA shall
have the right under the Indenture to set-off any payment made to such holder
of Preferred Securities by MBNA in connection with a Direct Action.
The holders of the Preferred Securities will not be able to
exercise directly any remedies other than those set forth in the preceding
paragraph available to the holders of the Junior Subordinated Debentures. See
"Description of the Preferred Securities--Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that MBNA may consolidate with or merge into
any other person or convey, transfer or lease its properties and assets
substantially as an entirety to any person, provided that (i) in case MBNA
consolidates with or merges into another person or conveys or transfers its
properties and assets substantially as an entirety to any person, the successor
person is organized under the laws of the United States or any state or the
District of Columbia, and such successor person expressly assumes MBNA's
obligations on the Junior Subordinated Debentures issued under the Indenture;
(ii) immediately after giving effect thereto, no Debenture Event of Default,
and no event which, after notice or lapse of time or both, would become a
Debenture Event of Default, shall have occurred and be continuing; (iii) in the
case of Junior Subordinated Debentures, such transaction is permitted under the
Trust Agreement and Guarantee and does not give rise to any breach or violation
of the Trust Agreement or Guarantee, and (iv) certain other conditions as
prescribed by the Indenture are met.
The general provisions of the Indenture do not afford holders of
the Junior Subordinated Debentures protection in the event of a highly
leveraged or other transaction involving MBNA that may adversely affect holders
of the Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and
payable at their Stated Maturity within one year, and MBNA deposits or causes
to be deposited with the Debenture Trustee funds, in trust, for
<PAGE> 94
89
the purpose and in an amount in the currency or currencies in which the Junior
Subordinated Debentures are payable sufficient to pay and discharge the entire
indebtedness on the Junior Subordinated Debentures not previously delivered to
the Debenture Trustee for cancellation, for the principal (and premium, if any)
and interest to the date of the deposit or to the Stated Maturity, as the case
may be, then the Indenture will cease to be of further effect (except as to
MBNA's obligations to pay all other sums due pursuant to the Indenture and to
provide the officer's certificates and opinions of counsel described therein),
and MBNA will be deemed to have satisfied and discharged the Indenture.
SUBORDINATION
In the Indenture, MBNA has covenanted and agreed the Junior
Subordinated Debentures issued thereunder will be subordinate and junior in
right of payment to all Senior Debt to the extent provided in the Indenture.
Upon any payment or distribution of assets of MBNA upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of MBNA, the holders of Senior Debt will first be
entitled to receive payment in full of principal of (and premium, if any) and
interest, if any, on such Senior Debt before the holders of Junior Subordinated
Debentures or the Property Trustee on behalf of the holders of Trust
Securities, will be entitled to receive or retain any payment in respect of the
principal of (and premium, if any) or interest, if any, on the Junior
Subordinated Debentures; provided, however, that holders of Senior Debt shall
not be entitled to receive payment of any such amounts to the extent that such
holders would be required by the subordination provisions of such Senior Debt
to pay such amounts over to the obligees on trade accounts payable or other
liabilities arising in the ordinary course of MBNA's business.
In the event of the acceleration of the maturity of any Junior
Subordinated Debentures, the holders of all Senior Debt outstanding at the time
of such acceleration will first be entitled to receive payment in full of all
amounts due thereon (including any amounts due upon acceleration) before the
holders of Junior Subordinated Debentures will be entitled to receive or retain
any payment in respect of the principal of or premium, if any, or interest, if
any, on the Junior Subordinated Debentures; provided, however, that holders of
Senior Debt shall not be entitled to receive payment of any such amounts to the
extent that such holders would be required by the subordination provisions of
such Senior Debt to pay such amounts over to the obligees on trade accounts
payable or other liabilities arising in the ordinary course of MBNA's business.
No payments on account of principal or premium, if any, or interest
in respect of the Junior Subordinated Debentures may be made if there shall
have occurred and be continuing a default in any payment with respect to Senior
Debt or an event of default with respect to any Senior Debt resulting in the
acceleration of the maturity thereof, or if any judicial proceeding shall be
pending with respect to any such default.
"Debt" means with respect to any person, whether recourse is to all
or a portion of the assets of such person and whether or not contingent, (i)
every obligation of such person for money borrowed; (ii) every obligation of
such person evidenced by bonds,
<PAGE> 95
90
debentures, notes or other similar instruments, including obligations incurred
in connection with the acquisition of property, assets or businesses; (iii)
every reimbursement obligation of such person with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account of
such person; (iv) every obligation of such person issued or assumed as the
deferred purchase price of property or services (but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of business); (v)
every capital lease obligation of such person; (vi) every obligation of such
person for claims in respect of derivative products such as interest and
foreign exchange rate contracts, commodity contracts and similar arrangements;
and (vii) and every obligation of the type referred to in clauses (i) through
(vi) of another person and all dividends of another person the payment of
which, in either case, such person has guaranteed or is responsible or liable,
directly or indirectly, as obligor or otherwise.
"Senior Debt" means the principal of and premium, if any, and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to MBNA whether or not
such claim for post-petition interest is allowed in such proceeding), on Debt,
whether incurred on or prior to the date of the Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Junior Subordinated Debentures or to other
Debt which is pari passu with, or subordinated to, the Junior Subordinated
Debentures; provided, however, that Senior Debt shall not be deemed to include
(i) any other series of junior subordinated debentures issued under the
Indenture including the Series A Debentures and Series B Debentures which are
pari passu in right of payment with the Junior Subordinated Debentures, (ii)
any Debt of MBNA which when incurred and without respect to any election under
Section 1111 (b) of the United States Bankruptcy Code of 1978, as amended, was
without recourse to MBNA, (iii) any Debt of MBNA to any of its subsidiaries,
(iv) any guarantees by MBNA of the debt securities of any subsidiary of MBNA if
such guarantee ranks pari passu with or junior in interest to the Junior
Subordinated Debentures, including its guarantees of the Series A Capital
Securities and the Series B Capital Securities, (v) Debt to any employee of
MBNA, (vi) Debt which by its terms is subordinated to trade accounts payable or
accrued liabilities arising in the ordinary course of business to the extent
that payments made to the holders of such Debt by the holders of the Junior
Subordinated Debentures as a result of the subordination provisions of the
Indenture would be greater than such payments otherwise would have been as a
result of any obligation of such holders of such Debt to pay amounts over to
the obligees on such trade accounts payable or accrued liabilities arising in
the ordinary course of business as a result of subordination provisions to
which such Debt is subject, and (vii) any other debt securities issued pursuant
to the Indenture.
The Indenture places no limitation on the amount of Senior Debt
that may be incurred by MBNA. MBNA expects from time to time to incur
additional indebtedness and other obligations constituting Senior Debt.
<PAGE> 96
91
TRUST EXPENSES AND TAXES
In the Indenture, MBNA, as borrower, has agreed to pay to the Trust
all debts and other obligations (other than with respect to the Trust
Securities) and all costs and expenses of the Trust (including costs and
expenses relating to the organization of the Trust, the fees and expenses of
the related Issuer Trustees and the costs and expenses relating to the
operation of the Trust) and the offering of the Preferred Securities, and to
pay any and all taxes, duties, assessments or other similar governmental
charges (other than United States withholding taxes), and all costs and
expenses with respect to the foregoing, to which the Trust might become
subject.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be
governed by and construed in accordance with the laws of the State of New York.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee shall have and be subject to all the duties
and responsibilities specified with respect to an indenture trustee under the
Trust Indenture Act. Subject to such provisions, the Debenture Trustee is under
no obligation to exercise any of the powers vested in it by the Indenture at
the request of any holder of Junior Subordinated Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The Debenture Trustee is not required to
expend or risk its own funds or otherwise incur personal financial liability in
the performance of its duties if the Debenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be
governed by, and construed in accordance with, the internal laws of the State
of New York.
RELATIONSHIP BETWEEN THE PREFERRED SECURITIES,
THE JUNIOR SUBORDINATED DEBENTURES AND THE
GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Preferred
Securities (to the extent the Trust has funds available for the payment of such
Distributions) are irrevocably guaranteed by MBNA as and to the extent set
forth under "Description of Guarantee." Taken together, MBNA's obligations
under each series of Junior Subordinated Debentures, the Indenture, the Trust
Agreement, and the Guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee of payments of distributions and other amounts
<PAGE> 97
92
due on the Preferred Securities. No single document standing alone or operating
in conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Trust's obligations under the Preferred Securities. If and to the extent that
MBNA does not make payments on the Junior Subordinated Debentures, the Trust
will not pay Distributions or other amounts due on the Preferred Securities.
The Guarantee does not cover payment of Distributions when the Trust does not
have sufficient funds to pay such Distributions. In such event, the remedy of a
holder of Preferred Securities is to institute a legal proceeding directly
against MBNA pursuant to the terms of the Indenture for enforcement of payment
of amounts equal to such Distributions to such holder. The obligations of MBNA
under the Guarantee are subordinate and junior in right of payment to all
Senior Debt of MBNA.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when
due on the Junior Subordinated Debentures, such payments will be sufficient to
cover Distributions and other payments due on the Preferred Securities,
primarily because (i) the aggregate principal amount of Junior Subordinated
Debentures will be equal to the sum of the aggregate stated Liquidation Amount
of the Preferred Securities and Common Securities; (ii) the interest rate and
interest and other payment dates on the Junior Subordinated Debentures will
match the Distribution rate and Distribution and other payment dates for the
Preferred Securities; (iii) MBNA shall pay for all and any costs, expenses and
liabilities of the Trust except the Trust's obligations to holders of its
Preferred Securities or other similar interests on the Trust's under such
Preferred Securities or such other similar interests, as the case may be; and
(iv) the Trust Agreement further provides that the Trust will not engage in any
activity that is not consistent with the limited purposes of such Trust.
Notwithstanding anything to the contrary in the Indenture, MBNA has
the right to setoff any payment it is otherwise required to make thereunder
with and to the extent MBNA has theretofore made, or is concurrently on the
date of such payment making, a payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES
A holder of any Preferred Security may institute a legal proceeding
directly against MBNA to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Trust or any
other person or entity.
A default or event of default under any Senior Debt of MBNA would
not constitute a default or Event of Default under the Indenture. However, in
the event of payment defaults under, or acceleration of Senior Debt of MBNA,
the subordination provisions of the Indenture provide that no payments may be
made in respect of the Junior Subordinated Debentures until such Senior Debt
has been paid in full or any payment default thereunder has been cured or
waived. Failure to make required payments on the Junior Subordinated Debentures
would constitute an Event of Default under the Indenture.
<PAGE> 98
93
LIMITED PURPOSE OF THE TRUST
The Trust's Preferred Securities evidence a beneficial ownership
interest in the Trust, and the Trust exists for the sole purpose of (i) issuing
(a) its Preferred Securities in exchange for Series A Preferred Stock validly
tendered in the Offer and delivering such Series A Preferred Stock to MBNA in
consideration of the deposit by MBNA as trust assets Junior Subordinated
Debentures having an aggregate stated principal amount equal to the aggregate
stated liquidation amount of such Preferred Securities, and (b) its Common
Securities to MBNA in exchange for cash and investing the proceeds thereof in
an equal aggregate principal amount of Junior Subordinated Debentures and (ii)
engaging in only those other activities necessary or incidental thereto (such
as registering the transfer of the Trust Securities). Taken together, MBNA
obligations under the Junior Subordinated Debentures, the Indenture, the Trust
Agreement and the Guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee of payments of Distributions and other amounts due on
the Preferred Securities. See "--Full and Unconditional Guarantee."
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or
liquidation of the Trust involving the liquidation of the Junior Subordinated
Debentures, the holders of the Preferred Securities will be entitled to
receive, out of the assets held by the Trust, the Liquidation Distribution in
cash. See "Description of the Preferred Securities--Liquidation Distribution
Upon Termination." Upon any voluntary or involuntary liquidation or bankruptcy
of MBNA, the Property Trustee, as holder of the Junior Subordinated Debentures,
would be a subordinated creditor of MBNA, subordinated in right of payment to
all Senior Debt as set forth in the Indenture, but entitled to receive payment
in full of principal and interest, before any stockholders of MBNA receive
payments or distributions. Since MBNA is the guarantor under the Guarantee and
has agreed to pay for all costs, expenses and liabilities of the Trust (other
than the Trust's obligations to the holders of its Preferred Securities), the
positions of a holder of such Preferred Securities and a holder of the Junior
Subordinated Debentures relative to other creditors and to stockholders of MBNA
in the event liquidation or bankruptcy of MBNA are expected to be substantially
the same.
DESCRIPTION OF THE SERIES A PREFERRED STOCK
The description of certain provisions of the Series A Preferred
Stock set forth below does not purport to be complete and is subject to and
qualified in its entirety by reference to MBNA's charter filed with the
Securities and Exchange Commission. As used herein, the term "Board of
Directors" includes any duly authorized committee of the Board of Directors.
GENERAL
MBNA'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. The charter authorizes
MBNA'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
<PAGE> 99
94
the Board of Directors to reclassify authorized but unissued shares of common
stock as Preferred Stock or other classes of stock. Pursuant to this
authority, the Board of Directors had classified 6,000,000 shares of
Preferred Stock as shares of 7 1/2% Cumulative Preferred Stock, Series A, 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, including without limitation, MBNA's Adjustable Rate
Preferred Stock, Series B ("Series B Preferred Stock").
RANK
With respect to dividend rights and rights on liquidation, winding
up and dissolution, the Series A Preferred Stock rank (i) senior to all classes
of common stock of MBNA and to all equity securities issued by MBNA, the terms
of which specifically provide that such equity securities will rank junior to
the Series A 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 MBNA 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"),
including, without limitation, MBNA's Series B Preferred Stock; and (iii)
junior to all equity securities issued by MBNA the terms of which
specifically provide that such equity securities will rank senior to the Series
A Preferred Stock ("Senior Securities"). As of the date of this Prospectus,
there are no outstanding shares of equity stock of MBNA which constitute
Parity Securities (other than Series B Preferred Stock) or Senior Securities.
DIVIDENDS
Holders of shares of Series A Preferred Stock will be entitled to
receive, as, if and when declared by the Board of Directors of MBNA out of
assets of MBNA legally available for payment, cash dividends, which shall be
fully cumulative from the date of original issue, at the annual rate of $1.875
per share. Dividends on the Series A Preferred Stock will be payable quarterly,
as, if and when declared by the Board of Directors of MBNA, on April 15, July
15, October 15 and January 15 of each year at such annual rate.
If a dividend payment date is not a business day, dividends (if
declared) on the Series A 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 MBNA on such record dates as shall
be fixed by the Board of Directors of MBNA and shall be not more than 60 days
preceding the payment date of such dividend. The right of the holders of the
Series A 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. MBNA's ability to pay
dividends on its Series A Preferred Stock, including the Series A Preferred
Stock, is subject to policies established by the Federal Reserve Board.
<PAGE> 100
95
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 A Preferred Stock.
If dividends are not paid in full upon the Preferred Stock and any Parity
Securities, all dividends declared upon shares of Series A Preferred Stock and
any Parity Securities will be declared pro rata so that the amount of dividends
declared per share on the Series A 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 A 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 A 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 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.
VOTING RIGHTS
Whenever dividends on the Series A Preferred Stock shall be in
arrears for six full quarterly dividend periods, the holders of outstanding
shares of the Series A 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 A 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 A 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 A
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 A 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 MBNA.
Upon termination of the right of the holders of the Series A
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
<PAGE> 101
96
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.
So long as any shares of Series A Preferred Stock remain
outstanding, MBNA 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 A 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, MBNA'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 A Preferred Stock or the holders thereof;
provided, however, that any increase in the amount of the shares of Series A
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 Series A 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 A Preferred Stock are not convertible into any
other securities of MBNA.
RIGHTS UPON LIQUIDATION
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of MBNA, the holders of the Series A Preferred Stock
will be entitled to receive out of assets of MBNA 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 MBNA, the amounts payable with respect to the
Series A Preferred Stock and any other Parity Securities are not paid in full,
all distributions to holders of the Series A Preferred Stock and any Parity
Securities will be paid pro rata so that the amount of distributions per share
on the Series A 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 Series A Preferred Stock and such Parity Securities bear
to each other.
REDEMPTION
The Series A Preferred Stock is not subject to any mandatory
redemption, sinking fund or other similar provisions, and the holders of the
Series A Preferred Stock have no right to require redemption of the Series A
Preferred Stock.
<PAGE> 102
97
Prior to January 15, 2001, the Series A Preferred Stock is not
redeemable. On and after such date, shares of Series A Preferred Stock will be
redeemable, in whole or in part, at the option of MBNA, at any time and from
time to time upon not less than thirty nor more than sixty days' notice, at $25
per share of Series A Preferred Stock plus accrued and unpaid dividends
(whether or not declared) on a fully cumulative basis 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 A 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 Board of Directors or
by any other method determined by the Board of Directors to be equitable. From
and after the redemption date (unless default be made by MBNA in providing for
the payment of the redemption price), dividends shall cease to accrue on the
shares of the Series A Preferred Stock called for redemption and all rights of
the holders thereof (except the right to receive the redemption price) shall
cease.
TRANSFER AGENT AND REGISTRAR
The Bank of New York is the transfer agent, registrar, dividend
disbursing agent and redemption agent for the Series A Preferred Stock.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Simpson Thacher & Bartlett, in its capacity as
special tax counsel to the Company and the Trust ("Tax Counsel"), the following
summary accurately describes the material United States federal income tax
consequences that may be relevant to (i) the exchange of shares of Series A
Preferred Stock for Preferred Securities (the "Exchange") and (ii) the receipt,
ownership and disposition of Preferred Securities. Unless otherwise stated,
this summary deals only with the beneficial owners of Series A Preferred Stock
("shareholders") who are United States persons (defined below) that hold their
Series A Preferred Stock as a capital asset (as defined in Section 1221 of the
Internal Revenue Code of 1986, as amended (the "Code")) and who receive their
Preferred Securities in the Exchange and will hold such Preferred Securities as
capital assets. As used herein, a "United States person" means (i) a person
that is a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate the income
of which is subject to United States federal income taxation regardless of its
source or (iv) a trust if a court within the United States is able to exercise
primary supervision over the administration of such trust and one or more
United States fiduciaries have the authority to control all the substantial
decisions of such trust. The tax treatment of a shareholder may very depending
on his, her or its particular situation. This summary does not address all the
tax consequences that may be relevant to a particular shareholder or to
shareholders that may be subject to special tax treatment, such as banks, real
estate investment trusts, regulated investment companies, insurance companies,
dealers in securities or currencies, tax-exempt investors, persons holding
Series A Preferred Stock or Preferred Securities as part of a hedging or
conversion transaction or a straddle, persons whose "functional currency" is
not the United States dollar or persons
<PAGE> 103
98
who own five percent or more of the stock of MBNA or any class thereof. In
addition, this summary does not include any description of any United States
federal alternative minimum tax consequences or the tax laws of any state,
local or foreign jurisdiction that may be applicable to a shareholder or to a
holder of Preferred Securities. This summary is based on the Code, the
Treasury regulations promulgated thereunder and administrative and judicial
interpretations thereof, all as of the date hereof and all of which are subject
to change, possibly on a retroactive basis. The authorities on which this
summary is based are subject to various interpretations, and the opinions of
Tax Counsel are not binding on the Internal Revenue Service ("IRS") or the
courts, either of which could take a contrary position. Moreover, no rulings
have been or will be sought from the IRS with respect to the transactions
described herein. Accordingly, there can be no assurance that the IRS will not
challenge the opinions expressed herein or that a court would not sustain such
a challenge. Nevertheless, Tax Counsel has advised that it is of the view that,
if challenged, the opinions expressed herein would be sustained by a court with
jurisdiction in a properly presented case.
ALL HOLDERS OF SERIES A PREFERRED STOCK ARE ADVISED TO CONSULT
THEIR TAX ADVISORS AS TO THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF
THE EXCHANGE OF SERIES A PREFERRED STOCK FOR PREFERRED SECURITIES AND OF THE
OWNERSHIP AND DISPOSITION OF PREFERRED SECURITIES IN LIGHT OF THEIR PARTICULAR
CIRCUMSTANCES, AS WELL AS THE EFFECT OF ANY STATE, LOCAL OR OTHER TAX LAWS.
TAX CONSEQUENCES OF THE EXCHANGE OF SERIES A PREFERRED SHARES FOR PREFERRED
SECURITIES
TAX CONSEQUENCES OF THE EXCHANGE
The Exchange will be a taxable transaction for United States
federal income tax purposes. Under Section 302 of the Code, the Exchange will
be treated as a "sale or exchange" of a shareholder's (an "Exchanging
Shareholder") Series A Preferred Stock (rather than as a distribution by MBNA
with respect to the Series A Preferred Stock held by the Exchanging
Shareholder) if the Exchange either (i) results in a complete termination of
the Exchanging Shareholder's actual and constructive ownership of Series A
Preferred Stock and any other MBNA stock, or (ii) is "not essentially
equivalent to a dividend" with respect to the Exchanging Shareholder ( the
tests described in (i) and (ii) are referred to collectively herein as the
"Code Section 302 Tests").
If either Code Section 302 Test is satisfied, an Exchanging
Shareholder who exchanges shares of Series A Preferred Stock for Preferred
Securities will recognize gain or loss equal to the difference between the fair
market value, as of the Expiration Date, of the Exchanging Shareholder's pro
rata share of the Junior Subordinated Debentures (as represented by the fair
market value of the Preferred Securities received by such Exchanging
Shareholder in the Exchange) and the shareholder's adjusted tax basis in the
Series A Preferred Stock surrendered in the Exchange. Such gain or loss will
be capital gain or loss, and will be treated as long-term capital gain or loss
if the Exchanging Shareholder held the Series A Preferred Stock surrendered in
the Exchange for more than one year. Subject to
<PAGE> 104
99
certain limited exceptions, capital losses cannot be applied to offset ordinary
income for United States Federal income tax purposes.
However, if neither Code Section 302 Test is satisfied, (i) the
Exchanging Shareholder would be treated as having received a distribution from
MBNA in respect of the shareholder's Series A Preferred Stock (or other MBNA
stock) in an amount equal to the aggregate fair market value, as of the
Expiration Date, of the Exchanging Shareholder's pro rata share of the Junior
Subordinated Debentures (as represented by the fair market value of the
Preferred Securities received by such Exchanging Shareholder in the Exchange
and without any offset for the adjusted tax basis of the Series A Preferred
Stock surrendered in the Exchange), (ii) the Exchanging Shareholder would not
recognize any gain or loss on the Exchange, and (iii) the Exchanging
Shareholder's adjusted tax basis in the Series A Preferred Stock surrendered in
the Exchange would be added to such shareholder's adjusted tax basis in the
shares of Series A Preferred Stock or other MBNA stock (if any) that the
Exchanging Shareholder still owned after the Exchange. The amount of the
distribution described in (i) above will be taxable as a dividend for United
States federal income tax purposes to the extent of MBNA's current and
accumulated earnings and profits ("E&P") (as determined for such purposes). If
the aggregate fair market value of the Preferred Securities received by an
Exchanging Shareholder in the Exchange exceeds the amount treated as a dividend
for United States federal income tax purposes, such excess would reduce the
Exchanging Shareholder's adjusted tax basis in its remaining Series A Preferred
Stock (or other MBNA stock, if any), but not below zero and, thereafter, would
be treated as capital gain.
Subject to the limitations set forth in Sections 246(c) and 246A of
the Code, a corporate Exchanging Shareholder would be entitled, under current
law, to a 70% dividends-received deduction with respect to any amount that is
treated as a dividend by such corporate Exchanging Shareholder for United
Stares federal income tax purposes.
In addition, any amount that is treated as a dividend by a
corporate Exchanging Shareholder may constitute an "extraordinary dividend"
under Section 1059 of the Code. For this purpose, all dividends on preferred
stock (other than qualified preferred dividends payable annually at a fixed
rate of return) equal to, or greater than, 5% of a corporation's adjusted tax
basis in such preferred stock and received by the corporation, and having an
ex-dividend date, within an 85-day period are treated as an extraordinary
dividend. (The measuring period for aggregating dividends is extended to 365
days if the total dividends received in such period exceed 20% of the
corporation's adjusted tax basis in such preferred stock.)
If the dividend were treated as an extraordinary dividend, a
corporate Exchanging Shareholder would be required under Section 1059(a) of the
Code to reduce its adjusted tax basis (but not below zero) in its remaining
shares of Series A Preferred Stock (or shares of other MBNA stock) by the
non-taxed portion of the aggregate extraordinary dividend (i.e., the amount of
the dividend-received deduction that is allowed with respect to such
extraordinary dividend). If such non-taxed portion exceeds the corporate
Exchanging Shareholder's adjusted tax basis in its Series A Preferred Stock
(and its adjusted tax basis in any MBNA stock that it owns), the corporate
Exchanging Shareholder would be required to treat the excess as gain from the
sale of its remaining Series A Preferred Stock or other
<PAGE> 105
100
MBNA stock. Corporate Exchanging Shareholders should consult their own tax
advisors concerning the potential application of Code Section 1059 to the
Exchange.
APPLICATION OF THE CODE SECTION 302 TESTS
The surrender of shares of Series A Preferred Stock by an
Exchanging Shareholder will be considered a "complete redemption" of all of the
Series A Preferred Stock owned by an Exchanging Shareholder (within the meaning
of Section 302(b)(3) of the Code) if either (i) all of the Series A Preferred
Stock and any other MBNA stock actually and constructively owned by the
Exchanging Shareholder is surrendered pursuant to the Exchange or sold (or
otherwise transferred) to an unrelated party in connection with the Exchange,
or (ii) all of the Series A Preferred Stock and any other MBNA stock actually
owned by the Exchanging Shareholder is surrendered pursuant to the Exchange or
sold (or otherwise transferred) to an unrelated party in connection with the
Exchange, and, with respect to Series A Preferred Stock and other MBNA stock
considered to be constructively owned by the Exchanging Shareholder which is
not exchanged or otherwise disposed of in connection with the Exchange, the
Exchanging Shareholder waives constructive ownership of all such stock under
the procedures described in Section 302(c) of the Code. Code Section 302(c),
however, permits the waiver of such constructive ownership only in limited
circumstances. Accordingly, Exchanging Shareholders expecting to waive
constructive ownership of Series A Preferred Stock or other MBNA stock under
Code Section 302(c) should consult their own tax advisors regarding their
eligibility to do so and the applicable procedural rules.
Alternatively, the receipt of Preferred Securities by an Exchanging
Shareholder in exchange for Series A Preferred Stock will be considered "not
essentially equivalent to a dividend" for United States federal income tax
purposes, if the Exchange results in a "meaningful reduction" in the Exchanging
Shareholder's proportionate equity interest in MBNA. The IRS has ruled that a
redemption of any amount of non-voting preferred stock is "not essentially
equivalent to dividend" if the redeeming shareholder does not actually or
constructively own any other stock in the redeeming corporation. Thus, an
exchange of less than all of the Series A Preferred Stock actually or
constructively owned by an Exchanging Shareholder who does not actually or
constructively own any other stock of MBNA will most likely be considered "not
essentially equivalent to a dividend". However, because what constitutes a
"meaningful reduction" of a shareholder's proportionate equity interest in a
corporation depends upon a variety of factors, Exchanging Shareholders
expecting to rely upon the "not essentially equivalent to a dividend" test
should consult their own tax advisors as to its application in their particular
situations.
CONSTRUCTIVE OWNERSHIP
In determining whether any of the Code Section 302 Tests are
satisfied, an Exchanging Shareholder must take into account not only the Series
A Preferred Stock and any other MBNA stock that such shareholder actually owns,
but also shares of Series A Preferred Stock or other MBNA stock which the
Exchanging Shareholder will be considered to "constructively" own under Section
318 of the Code. Under Section 318 of the Code, an Exchanging Shareholder may
be considered to constructively own (i) shares of Series A Preferred Stock or
other MBNA stock actually owned, and in some cases constructively
<PAGE> 106
101
owned, by certain related individuals or entities, and (ii) shares of Series A
Preferred Stock or other MBNA stock which the Exchanging Shareholder has the
right to acquire by exercise of an option or pursuant to conversion or other
similar rights. Contemporaneous dispositions or acquisitions of shares of
Series A Preferred Stock or other MBNA stock by an Exchanging Shareholder or
related individuals or entities also may be deemed to be part of a single,
integrated transaction and, therefore, taken into account in determining
whether the Code Section 302 Tests have been satisfied.
NON-UNITED STATES EXCHANGING SHAREHOLDERS
The tax consequences of the Exchange to a Non-United States
Exchanging Shareholder will depend upon whether the Exchange is treated as a
"sale or exchange" under the Code Section 302 Tests described above or as a
distribution in respect of the Series A Preferred Stock (or other MBNA stock,
if any) held by such Non-United States Exchanging Shareholder. For purposes of
this discussion, a "Non-United States Exchanging Shareholder" means any
Exchanging Shareholder who is not a "United States person" (as defined above).
If a Non-United States Exchanging Shareholder can satisfy either of
the Code Section 302 Tests described above, the Exchange will be treated as a
"sale or exchange" of such Non-United States Exchanging Shareholder's Series A
Preferred Stock for United States federal income tax purposes. Consequently,
in this instance, United States federal withholding tax will not be imposed on
any gain realized by a Non-United States Exchanging Shareholder on the
Exchange. In addition, any gain realized by the Non-United States Exchanging
Shareholder on the Exchange also would not be subject to United States federal
income tax (on a net income basis) unless (i) such gain is effectively
connected with a trade or business carried on within the United States by the
Non-United States Exchanging Shareholder, or (ii) in the case of a Non-United
States Exchanging Shareholder who is an individual, such individual is present
in the United States for 183 days or more in the taxable year in which the
Exchange occurs and certain other conditions are met.
Alternatively, if a Non-United States Exchanging Shareholder cannot
satisfy either of the Code Section 302 Tests, the Non-United States Exchanging
Shareholder's receipt of Preferred Securities will be treated as a
distribution in respect of such Non-United States Exchanging Shareholder's
Series A Preferred Stock (or other MBNA stock) for United States federal income
tax purposes. See "Tax Consequences of the Exchange" above.
To the extent such distribution is considered a "dividend" for such
purposes, the gross amount of such dividend will be subject to United States
federal withholding tax at a rate of 30% unless the Non-United States
Exchanging Shareholder provides MBNA (or its paying agent) with a properly
executed (i) IRS from 1001 (or successor form) claiming an exemption from, or a
reduction of, such withholding tax under an applicable United States tax
treaty, or (ii) IRS Form 4224 (or successor form) stating that such dividend
income is not subject to United States federal withholding tax because it is
effectively connected with the Non-United States Exchanging Shareholder's
conduct of a trade or business within the United States.
<PAGE> 107
102
If a Non-United States Exchanging Shareholder is engaged in a trade
or business in the United States and such dividend income is effectively
connected with such trade or business, the Non-United States Exchanging
Shareholder, although exempt from the 30% withholding tax described above, will
be subject to United States federal income tax on such dividend income on a net
income basis in the same manner as if it were a United States person. In
addition, if such Non-United States Exchanging Shareholder is a foreign
corporation, it may be subject to a United States branch profits tax equal to
30% of its effectively connected earnings and profits for the taxable year,
subject to adjustments. For this purpose, such dividend income would be
included in such foreign corporation's effectively connected earnings and
profits.
To the extent that the amount of a distribution to a Non-United
States Exchanging Shareholder is treated as a reduction of such shareholder's
adjusted tax basis in its remaining Series A Preferred Stock (or other MBNA
stock), the amount of such distribution will not be subject to United States
federal withholding or income tax. If any amount of such distribution is
treated as capital gain, such amount will not be subject to United States
withholding tax and, except as described above, such gain will not be subject
to United States federal income tax.
[In order to avoid the adverse tax consequences that may result
from its failure to withhold United States withholding taxes on Preferred
Securities that are transferred to Non-United States Exchanging Shareholders,
MBNA will sell a portion of the Preferred Securities that would otherwise be
distributed to a Non-United States Exchanging Shareholder in the Exchange, so
that the proceeds derived from such sale will be sufficient to allow MBNA to
withhold United States federal income tax in an amount equal to 30% of the
aggregate fair market value, as of the Expiration Date, of such Non-United
States Exchanging Shareholder's pro rata share of the Junior Subordinated
Debentures, unless MBNA determines that a reduced rate of withholding is
applicable pursuant to a United States tax treaty or that an exemption from
withholding is applicable because such gross proceeds are effectively connected
with the conduct of a trade or business by the Non-United States Exchanging
Shareholder within the United States. Without definite knowledge to the
contrary, MBNA will determine whether a Non-United States Exchanging
Shareholder is not a United States person by reference to such shareholder's
mailing address. A Non-United States Exchanging Shareholder may be eligible to
obtain a refund of such withholding tax, or a portion thereof, if such
Non-United States Exchanging Shareholder (i) meets the "complete redemption,"
or "not essentially equivalent to a dividend" tests described above, (ii) is
entitled to a reduced rate of withholding pursuant to a United States tax
treaty and MBNA withheld at a higher rate, or (iii) is otherwise able to
establish that no withholding tax or a reduced amount of withholding tax was
due with respect to the Exchange. Non-United States Exchanging Shareholders
are urged to consult their own tax advisors regarding the application of United
States federal income tax withholding, including eligibility for a withholding
tax reduction or exemption and the refund procedures.]
BACKUP WITHHOLDING
ANY EXCHANGING SHAREHOLDER WHO FAILS TO COMPLETE AND SIGN THE
SUBSTITUTE FORM W-9 THAT IS INCLUDED IN THE APPLICABLE
<PAGE> 108
103
LETTER OF TRANSMITTAL AND PROXY (OR, IN THE CASE OF A NON-UNITED STATES
EXCHANGING SHAREHOLDER, FORM W-8 OBTAINABLE FROM THE DEPOSITARY) MAY BE SUBJECT
TO A REQUIRED UNITED STATES FEDERAL INCOME TAX BACKUP WITHHOLDING OF 31% OF THE
AGGREGATE FAIR MARKET VALUE OF THE PREFERRED SECURITIES THAT WOULD OTHERWISE BE
DISTRIBUTED TO SUCH EXCHANGING SHAREHOLDER PURSUANT TO THE EXCHANGE. To
prevent backup United States federal income tax withholding with respect to the
aggregate fair market value of the Preferred Securities received pursuant to
the Exchange, an Exchanging Shareholder who is a United States person must
provide the Depositary with the Exchanging Shareholder's correct taxpayer
identification number and certify that the Exchanging Shareholder is not
subject to backup withholding of United States federal income tax by completing
the Substitute Form W-9 included in the applicable Letter of Transmittal.
Certain Exchanging Shareholders (including, among others, all corporations and
certain Non-United States Exchanging Shareholders) are exempt from United
States backup withholding. For a corporate United States Exchanging
Shareholder to qualify for such exemption, such corporate Exchanging
Shareholder must provide the Depositary with a properly completed and executed
Substitute Form W-9 attesting to its exempt status. In order for a Non-United
States Exchanging Shareholder to qualify as an exempt recipient, the Non-United
States Exchanging Shareholder must submit an IRS Form W-8, Certificate of
Foreign Status, signed under penalties of perjury, attesting to that Non-United
States Exchanging Shareholder's exempt foreign status. A copy of an IRS Form
W-8 may be obtained from the Depositary.
Unless an Exchanging Shareholder provides the appropriate
certification, under the applicable law and regulations concerning "backup
withholding" of United States federal income tax, the Depositary will be
required to withhold, and will withhold, an amount equal to 31% of the
aggregate fair market value of the Preferred Securities that otherwise would be
distributed to such Exchanging Shareholder. The amount of any backup
withholding that is deducted from the aggregate fair market value of the
Preferred Securities that would have been distributed to an Exchanging
Shareholder will be allowed as a credit against such Exchanging Shareholder's
United States federal income tax liability and may entitle such Exchanging
Shareholder to a refund, provided that the required information is furnished to
the IRS.
TAXATION OF THE PREFERRED SECURITIES
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Preferred Securities, Tax
Counsel is of the opinion that, under current law and assuming compliance with
the terms of the Trust Agreement, the Trust will be classified as a grantor
trust and not as an association taxable as a corporation for United States
federal income tax purposes. As a result, each beneficial owner of Preferred
Securities (a "Securityholder") will be treated as owning an undivided
beneficial interest in the Junior Subordinated Debentures. Accordingly, each
Securityholder will be required to include in its gross income its pro rata
share of the interest income or OID
<PAGE> 109
104
paid or accrued on the Junior Subordinated Debentures. See "--Interest Income
and Original Issue Discount."
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
MBNA, the Trust and the holders of the Trust Securities (by
acceptance of a beneficial interest in a Trust Security) will agree to treat
the Junior Subordinated Debentures as indebtedness for all United States tax
purposes. In connection with the issuance of the Junior Subordinated
Debentures, Tax Counsel is of the opinion that, under current law, and based on
certain representations, facts and assumptions set forth in such opinion, the
Junior Subordinated Debentures will be classified as indebtedness for United
States federal income tax purposes.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
The Junior Subordinated Debentures will be considered to have been
issued with OID (within the meaning of Section 1273(a) of the Code) to the
extent the "issue price" of the Junior Subordinated Debentures is less than the
"stated redemption price at maturity" of the Junior Subordinated Debentures,
provided such difference is greater than the product of .25% of such "stated
redemption price at maturity" and the number of complete years to maturity
(i.e., 30 years) of the Junior Subordinated Debentures (the "De Minimis OID
Amount"). The "issue price" of the Junior Subordinated Debentures will be
equal to the fair market value of the Junior Subordinated Debentures as of the
Expiration Date. The "stated redemption price at maturity" of the Junior
Subordinated Debentures is equal to the sum of all the payments to be made on
the Junior Subordinated, other than payments of "qualified stated interest."
The stated interest on the Junior Subordinated should be considered
"qualified stated interest" under the applicable Treasury regulations because
MBNA believes that the likelihood of it exercising its option to defer payment
of the stated interest on the Junior Subordinated Debentures is remote inasmuch
as the exercise of such deferral option would, under the terms of the Junior
Subordinated Debentures, prohibit MBNA from making any distributions with
respect to its capital stock until such interest is paid.
Accordingly, (i) the Junior Subordinated Debentures will not be
considered to have been issued with OID unless the aggregate stated principal
amount of the Junior Subordinated Debentures exceeds the aggregate fair market
value of the Junior Subordinated Debentures, as of the Expiration Date, by more
than the De Minimis OID Amount, and (ii), except as set forth below, a
Securityholder generally will include in income its pro rata share of the
stated interest on the Junior Subordinated Debentures at the time such stated
interest is paid or accrued in accordance with such Securityholder's regular
method of tax accounting.
If, however, the aggregate stated principal amount of the Junior
Subordinated Debentures exceeds the aggregate fair market value of the Junior
Subordinated Debentures, as of the Expiration Date, by more than the De Minimis
OID Amount, the Junior Subordinated Debentures will have been considered to
have issued with OID for United States federal income tax purposes and
Securityholders will be required to accrue their pro rata share of
<PAGE> 110
105
such excess (as OID) on a daily economic accrual basis (using the
constant-yield-to-maturity method of accrual described in Section 1272(a) of
the Code) regardless of their regular method of tax accounting. Consequently,
Securityholders would be required to include such amount in income for United
States federal income tax purposes in advance of receipt of the cash
attributable to such income. In addition, if MBNA exercises its right to defer
payments of stated interest on the Junior Subordinated Debentures, the
Securityholders also will be required to accrue the stated interest (together
with any OID, or if the Junior Subordinated Debentures are not considered to
have been issued with OID, the amount of de minimis OID, if any, on the Junior
Subordinated Debentures) as OID on a daily economic accrual basis. Any amount
of OID included in a Securityholder's gross income will increase such
Securityholder's adjusted tax basis in its Preferred Securities, and the amount
of Distributions received by a Securityholder with respect to such Preferred
Securities (other than Distributions received with respect to payments of
qualified stated interest on the Securityholder's pro rata share of the Junior
Subordinated Debentures) will reduce the adjusted tax basis of such Preferred
Securities.
Moreover, if the Junior Subordinated Debentures are not considered
to have been issued with OID (i.e., because the aggregate fair market value of
the Junior Subordinated Debentures, as of the Expiration Date, is not less than
the aggregate stated principal amount of the Junior Subordinated Debentures, by
an amount in excess of the De Minimis OID Amount) and MBNA exercises its right
to defer payments of interest on the Junior Subordinated Debentures, the Junior
Subordinated Debentures will become OID instruments at such time and all
holders of the Junior Subordinated Debentures, and, consequently, all
Securityholders, will be required to accrue their pro rata share of OID (which
will include both the stated interest and the De Minimis OID Amount, if any, on
the Junior Subordinated Debentures) on a daily economic accrual basis during
the Extension Period even though MBNA will not pay the stated interest on the
Junior Subordinated Debentures until the end of the Extension Period, and even
though some Securityholders may use the cash method of tax accounting. In
addition, the Junior Subordinated Debentures will be taxed as OID instruments
thereafter for as long as they remain outstanding. Thus, even after the end of
an Extension Period, all Securityholders would be required to continue to
include the stated interest (and the De Minimis OID Amount, if any) on the
Junior Subordinated Debentures in income on a daily basis, regardless of their
method of tax accounting and in advance of receipt of the cash attributable to
such interest income. In this instance, under the OID economic accrual rules,
a Securityholder would accrue an amount of interest income each year that
approximates the stated interest payments called for under the terms of the
Junior Subordinated Debentures, and actual cash payments of stated interest on
the Junior Subordinated Debentures would not be reported separately as taxable
income. Any amount of OID included in a Securityholder's gross income (whether
or not during an Extension Period) with respect to a Preferred Security will
increase such Securityholder's tax basis in such Preferred Security, and the
amount of Distributions received by such Securityholder in respect of such
accrued OID will reduce the tax basis of such Preferred Security.
The Treasury regulations described above have not been addressed in
any rulings or other interpretations by the IRS, and it is possible that the
IRS could take a contrary position. If the IRS were to assert successfully that
the stated interest on the Junior Subordinated Debentures was OID regardless of
whether MBNA exercises its right to defer
<PAGE> 111
106
payments of interest on such debentures, all Securityholders would be required
to include such stated interest in income on a daily economic accrual basis as
described above.
Corporate Securityholders will not be entitled to
dividends-received deductions with respect to any income recognized with
respect to the Preferred Securities.
AMORTIZATION OF BOND PREMIUM
If the fair market value of the Junior Subordinated Debentures as
of the Expiration Date, exceeds the aggregate stated principal amount of the
Junior Subordinated Debentures, the Junior Subordinated Debentures will not be
considered to have been issued with OID and such excess will be considered
"amortizable bond premium." A Securityholder generally may elect to amortize
its pro rata share of such bond premium over the term of the Junior
Subordinated Debentures (i.e., 30 years) on an economic accrual basis (using
the constant-yield-to-maturity method described above). The amount of such
bond premium that is amortized in any taxable year will be treated as a
reduction of the Securityholder's pro rata share of the interest income (or
OID) on the Junior Subordinated Debentures. If a Securityholder does not make
an election to amortize such bond premium, the amount of such bond premium will
reduce the gain (or increase the loss) recognized by the Securityholder upon a
taxable disposition of its Preferred Securities (or Junior Subordinated
Debentures). If a Securityholder makes an election to amortize its pro rata
share of bond premium on an economic accrual basis, such election will apply to
all debt instruments held or subsequently acquired by such Securityholder on or
after the first day of the first taxable year to which such election applies
and such election may not be revoked without the consent of the IRS.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF PREFERRED
SECURITIES
Under current law, a distribution by the Trust of the Junior
Subordinated Debentures as described under the caption "Description of the
Preferred Securities--Liquidation Distribution Upon Termination" will be
non-taxable and will result in the Securityholder receiving directly its pro
rata share of the Junior Subordinated Debentures previously held indirectly
through the Trust, with a holding period and aggregate tax basis equal to the
holding period and aggregate tax basis such Securityholder had in its Preferred
Securities immediately before such distribution. If, however, the liquidation
of the Trust were to occur because the Trust is subject to United States
federal income tax with respect to income accrued or received on the Junior
Subordinated Debentures, the distribution of Junior Subordinated Debentures to
Securityholders by the Trust would be a taxable event to the Trust and each
Securityholder and a Securityholder would recognize gain or loss as if the
Securityholder had exchanged its Preferred Securities for the Junior
Subordinated Debentures it received upon the liquidation of the Trust. A
Securityholder will accrue interest in respect of Junior Subordinated
Debentures received from the Trust in the manner described above under
"--Interest Income and Original Issue Discount."
SALES OR REDEMPTION OF PREFERRED SECURITIES
Gain or loss will be recognized by a Securityholder on a sale of
Preferred Securities (including a redemption for cash) in an amount equal to
the difference between the
<PAGE> 112
107
amount realized by the Securityholder on the sale or redemption of the
Preferred Securities (except to the extent that such amount realized is
characterized as a payment in respect of accrued but unpaid interest on such
Securityholder's allocable share of the Junior Subordinated Debentures that
such Securityholder has not included in gross income previously) and the
Securityholder's adjusted tax basis in the Preferred Securities sold or
redeemed. Such gain or loss generally will be taxable as long-term capital gain
or loss if the Securityholder held the Preferred Securities that it sold or
redeemed for more than one year. Subject to certain limited exceptions, capital
losses cannot be applied to offset ordinary income for United States federal
income tax purposes.
NON-UNITED STATES HOLDERS
As used herein, the term "Non-United States Holder" means any
Securityholder that is not a United States person. As discussed above, the
Preferred Securities will be treated as evidence of an undivided beneficial
ownership interest in the Junior Subordinated Debentures. See "--Classification
of the Trust." Thus, under present United States federal income tax law, and
subject to the discussion below concerning backup withholding:
(a) no withholding of United States federal income tax will be
required with respect to the payment by the Trust or MBNA (or any paying
agent of either the Trust or MBNA (a "Paying Agent")) of principal or
interest (which for purposes of this discussion includes any OID) with
respect to the Preferred Securities (or on the Junior Subordinated
Debentures), to a Non-United States Holder, provided (i) that the
beneficial owner of the Preferred Securities ("Beneficial Owner") does not
actually or constructively own 10% or more of the total combined voting
power of all classes of stock of MBNA entitled to vote within the meaning
of section 871 (h) (3) of the Code and the regulations thereunder, (ii) the
Beneficial Owner is not a controlled foreign corporation that is related to
MBNA through stock ownership, (iii) the Beneficial Owner is not a bank
whose receipt of interest with respect to the Preferred Securities (or on
the Junior Subordinated Debentures) is described in section 881 (c) (3) (A)
of the Code and (iv) the Beneficial Owner satisfies the statement
requirement (described generally below) set forth in section 871 (h) and
section 881 (c) of the Code and the regulations thereunder; and
(b) no withholding of United States federal income tax will be
required with respect to any gain realized by a Non-United States Holder
upon the sale or other disposition of the Preferred Securities (or the
Junior Subordinated Debentures).
To satisfy the requirement referred to in (a) (iv) above, the
Beneficial Owner, or a financial institution holding the Preferred Securities
on behalf of such owner, must provide, in accordance with specified procedures,
to the Trust or a Paying Agent, a statement to the effect that the Beneficial
Owner is not a United States Person. Pursuant to current temporary Treasury
regulations, these requirements will be met if (1) the Beneficial Owner
provides his name and address, and certifies, under penalties of perjury, that
it is not a United States Person (which certification may be made on an IRS
Form W-8 (or successor form)) or (2) a financial institution holding the
Preferred Securities on behalf of the Beneficial Owner
<PAGE> 113
108
certifies, under penalties of perjury, that such statement has been received by
it and furnishes the Trust or a Paying Agent with a copy thereof.
If a Non-United States Holder cannot satisfy the requirements of
the "portfolio interest" exception described in (a) above, payments of interest
made to such Non-United States Holder will be subject to a 30% withholding tax
unless the Beneficial Owner provides the Trust (or MBNA or a Paying Agent, as
the case may be), with a properly executed (1) IRS Form 1001 (or successor
form) claiming an exemption from, or a reduction of, such withholding tax under
the benefit of an applicable United States tax treaty or (2) IRS Form 4224 (or
successor form) stating that interest paid on the Junior Subordinated
Debentures is not subject to withholding tax because it is effectively
connected with the Beneficial Owner's conduct of a trade or business in the
United States.
If a Non-United States Holder is engaged in a trade or business in
the United States and interest on the Junior Subordinated Debentures is
effectively connected with the conduct of such trade or business, the
Non-United States Holder, although exempt from the withholding tax discussed
above, will be subject to United States federal income tax on such interest on
a net income basis in the same manner as if it were a United States Holder. In
addition, if such Non-United States Holder is a foreign corporation, it may be
subject to a branch profits tax equal to 30% of its effectively connected
earnings and profits for the taxable year, subject to adjustments. For this
purpose, such interest income would be included in such foreign corporation's
effectively connected earnings and profits.
Any gain realized upon the sale or other disposition of the
Preferred Securities (or the Junior Subordinated Debentures) generally will not
be subject to United States federal income tax unless (i) such gain is
effectively connected with a trade or business carried on in the United States
by the Non-United States Holder, (ii) in the case of a Non-United States Holder
who is an individual, such individual is present in the United States for 183
days or more in the taxable year of such sale, exchange or retirement, and
certain other conditions are met, or (iii) in the case of any gain representing
accrued interest on the Junior Subordinated Debentures, the requirements
described above are not satisfied.
As discussed below, legislation was introduced in the 104th
Congress that would have denied an interest deduction to MBNA for the interest
payable on the Junior Subordinated Debentures. Such legislation also may have
caused the Junior Subordinated Debentures to have been classified as equity
(rather than indebtedness) of MBNA for United States federal income purposes
and, thus, caused the income derived from the Junior Subordinated Debentures to
be characterized as dividend, rather than interest, income for such purposes.
Dividend income is not eligible for the "portfolio interest" exception
described in (a) above. Therefore, if such legislation had been enacted, income
derived by a Non-United States Holder on the Preferred Securities may have been
subject to the 30% United States federal withholding tax described above unless
a reduction or elimination of such tax was available under an applicable United
States tax treaty or such dividend income was effectively connected with a
trade or business carried on in the United States by such Non-United States
Holder. The 104th Congress adjourned without enacting such legislation.
However, it is possible that legislation could be enacted in the future that
could adversely affect the characterization of income paid on the Preferred
Securities (or the Junior Subordinated
<PAGE> 114
109
Debentures) or otherwise adversely affect a Non-United States Holder. See
"--Possible Tax Law Changes".
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of interest (or OID, if any) accrued with respect to the
Preferred Securities (or on the Junior Subordinated Debentures) held of record
by United States Persons (other than corporations and other exempt
Securityholders) will be reported to the Internal Revenue Service. Backup
withholding at a rate of 31% will apply to payments of interest (or OID, if
any) to nonexempt United States persons unless the Securityholder furnishes its
taxpayer identification number in the manner prescribed in applicable Treasury
Regulations, certifies that such number is correct, certifies as to no loss of
exemption from backup withholding and meets certain other conditions.
Payment of the proceeds from the disposition of Preferred
Securities (or Junior Subordinated Debentures) to or through the United States
office of a broker is subject to information reporting and backup withholding
unless the holder or beneficial owner establishes an exemption from information
reporting and backup withholding.
Any amounts withheld from a Securityholder under the backup
withholding rules will be allowed as a refund or a credit against such
Securityholder's United States federal income tax liability, provided the
required information is furnished to the Internal Revenue Service.
It is anticipated that income on the Preferred Securities will be
reported to holders on an IRS Form 1099, which will be mailed to holders of the
Preferred Securities by January 31 following each calendar year.
POSSIBLE TAX LAW CHANGES
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the
"Bill") was introduced in the 104th Congress which would have, among other
things, generally denied interest deductions for interest on an instrument
issued by a corporation that has a maximum term of more than 20 years and that
is not shown as indebtedness on the separate balance sheet of the issuer or,
where the instrument is issued to a related party (other than a corporation),
where the holder or some other related party issues a related instrument that
is not shown as indebtedness on the issuer's consolidated balance sheet. This
provision was proposed to be effective generally for instruments issued on or
after December 7, 1995. If this provision were to apply to the Junior
Subordinated Debentures, MBNA would not be able to deduct interest on the
Junior Subordinated Debentures. However, on March 29, 1996, the Chairmen of the
Senate Finance and House Ways and Means Committees issued the Joint Statement
to the effect that it was their intention that the effective date of the Bill,
if enacted, would be no earlier than the date of appropriate Congressional
action. In addition, subsequent to the publication of the Joint Statement,
Senator Daniel Patrick Moynihan and Representatives Sam M. Gibbons and Charles
B. Rangel wrote the Democrat Letters to Treasury Department officials
concurring with the view expressed in the Joint Statement. The 104th Congress
adjourned without enacting the Bill. Moreover, if the principles contained in
<PAGE> 115
110
the Joint Statement and the Democrat Letters were followed any similar
legislation in this area that is subsequently enacted would not apply to the
Junior Subordinated Debentures. Although the 104th Congress adjourned without
enacting the Bill, there can be no assurance that current or future legislative
proposals or final legislation will not adversely affect the ability of MBNA to
deduct interest on the Junior Subordinated Debentures or otherwise affect the
tax treatment of the transaction described herein. Moreover, such a change
could give rise to a Tax Event, which would permit MBNA, upon approval of the
Federal Reserve if then required under applicable capital guidelines or
policies, to cause a redemption of the Preferred Securities under "Description
of the Preferred Securities--Redemption or Exchange--Tax Event or Capital Event
Redemption."
<PAGE> 116
111
ERISA CONSIDERATIONS
A fiduciary of a pension, profit-sharing or other employee benefit
plan subject to ERISA should consider the fiduciary standards of ERISA in the
context of the plan's particular circumstances before authorizing an investment
in the Preferred Securities. Among other factors, the fiduciary should consider
whether such an investment is in accordance with the documents governing the
plan and whether an investment is appropriate for the plan in view of its
overall investment policy and the composition and diversification of its
portfolio. Other provisions of ERISA and the Code prohibit an employee benefit
plan from engaging in certain transactions involving "plan assets" with parties
which are "parties in interest" under ERISA or "disqualified persons" under the
Code with respect to the plan. Therefore, a fiduciary of an employee benefit
plan should also consider whether an investment in the Preferred Securities
might constitute or give rise to a prohibited transaction under ERISA and the
Code.
If the assets of the Trust were deemed to be plan assets of
employee benefit plans that are holders of the Preferred Securities, the plan's
investments in the Preferred Securities might be deemed to constitute a
delegation under ERISA of the duty to manage plan assets by a fiduciary
investing in Preferred Securities, and certain transactions involving the
operation of the Trust might be deemed to constitute prohibited transactions
under ERISA and the Code.
The U.S. Department of Labor (the "DOL") has issued a final
regulation with regard to whether the underlying assets of an entity in which
employee benefit plans acquire equity interests would be deemed to be plan
assets. The regulation provides that the underlying assets of an entity will
not be considered to be plan assets if the equity interests acquired by
employee benefit plans are "publicly-offered securities"--that is, they are (1)
widely held (i.e., owned by more than 100 investors independent of MBNA and of
each other), (2) freely transferable and (3) sold as part of an offering
pursuant to an effective registration statement under the Securities Act and
then timely registered under Section 12(b) or 12(9) of the Exchange Act. It is
expected that the Preferred Securities will meet the criteria of
"publicly-offered securities" above. MBNA expects (although no assurances can
be given) that the Preferred Securities will be held by at least 100
independent investors at the conclusion of the offer to exchange.
Even if the Trust were deemed to be "plan assets" of employee
benefit plans that are holders of the Preferred Securities of the Trust, there
are five class exemptions issued by the DOL which would apply to exempt certain
transactions involving assets of the Trust from the prohibited transaction
provisions of ERISA and the Code--Prohibited Transaction Exemption 84-14, for
certain transactions determined by qualified professional asset managers,
Prohibited Transaction Exemption 90-1, for certain transactions involving
insurance company pooled separate accounts, Prohibited Transaction Exemption
91-38, for certain transactions involving bank collective investment funds,
Prohibited Transaction Exemption 95-60 for certain transactions involving
insurance company general accounts, and Prohibited Transaction Exemption 96-23,
for certain transactions determined by in house asset managers.
<PAGE> 117
112
MBNA and certain of its affiliates might be considered parties in
interest or disqualified persons with respect to certain employee benefit
plans, such as plans for which MBNA serves as trustee. Special caution should
be exercised before such an employee plan benefit purchases Preferred
Securities in such circumstances.
Due to the complexity of these rules and the penalties imposed upon
persons involved in prohibited transactions, it is important that an employee
benefit plan considering the purchase of Preferred Securities consult with its
counsel regarding the consequences under ERISA of the acquisition and ownership
of Preferred Securities. Employee benefit plans which are governmental plans
(as defined in Section 3(32) of ERISA) and certain church plans (as defined in
Section 3(33) of ERISA) generally are not subject to ERISA requirements.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the
Preferred Securities, the enforceability of Trust Agreement and the formation
of the Trust will be passed upon by Richards, Layton & Finger, special Delaware
counsel to MBNA and the Trust. The validity of the Guarantee and the Junior
Subordinated Debentures will be passed upon for MBNA by Simpson Thacher &
Bartlett (a partnership which includes professional corporations) and for the
Dealer Manager by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
Simpson Thacher & Bartlett and Skadden, Arps, Slate, Meagher & Flom LLP, New
York, New York will rely on the opinion of John W. Scheflen, Executive Vice
President, General Counsel and Secretary of MBNA as to matters of Maryland law
and the opinion of Richards, Layton & Finger as to matters of Delaware law.
Certain matters relating to United States federal income tax considerations
described in this Prospectus Supplement will be passed upon for MBNA by Simpson
Thacher & Bartlett. Mr. Scheflen owns beneficially in excess of 100,000 shares
of common stock of MBNA, including options exercisable within sixty days under
MBNA's 1991 Long Term Incentive Plan. Richards, Layton & Finger regularly
performs legal services for MBNA 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, 1995, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon incorporated by
reference 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.
<PAGE> 118
Facsimile copies of Letters of Transmittal will be accepted,
Letters of Transmittal, certificates representing Series A Preferred Stock and
any other required document should be sent by each Holder of Series A Preferred
Stock or his broker, dealer, commercial bank, trust company or other nominee to
the Exchange Agent at one of the addresses as set forth below:
THE EXCHANGE AGENT IS:
THE BANK OF NEW YORK
BY HAND: BY MAIL (REGISTERED OR CERTIFIED MAIL
RECOMMENDED):
The Bank of New York The Bank of New York
Corporate Trust Services Window Corporate Trust Services Window
101 Barclay Street 101 Barclay Street, 7E
Ground Level New York, NY 10286
New York, NY 10286 Attention: Reorganization Section
Attention: Reorganization Section
BY OVERNIGHT COURIER:
OR The Bank of New York
Corporate Trust Services Window
The Bank of New York 101 Barclay Street
101 Barclay Street, 7E Ground Level
New York, NY 10286 New York, NY 10286
Attention: Reorganization Section Attention: Reorganization Section
BY FACSIMILE:
(For Eligible Institutions Only)
(212) 571-3080
CONFIRM RECEIPT OF NOTICE OF GUARANTEED DELIVERY BY TELEPHONE
(212) 815-6333
Attn:
Morrow & Co., Inc. has been retained as the Information Agent to
assist in connection with the Offer. Questions and requests for assistance
regarding the Offer, requests for additional copies of this Prospectus, the
Letters of Transmittal and requests for Notice of Guaranteed Delivery may be
directed to the Information Agent.
THE INFORMATION AGENT IS:
MORROW & CO., INC.
909 3rd Avenue
New York, New York 10022
(800) 566-9061 (Toll-Free)
Banks and Brokers Call Collect
(800) 662-5200
Any questions or requests for assistance or additional copies of this
Prospectus, the Letter of Transmittal or for copies of the Notice of Guaranteed
Delivery may be directed to the Information Agent at its telephone number and
location set forth above. You may also contact your broker, dealer, commercial
bank or trust company or other nominee for assistance concerning the Offer.
THE DEALER MANAGER FOR THE OFFER IS:
MERRILL LYNCH & CO.
World Financial Center
North Tower--Seventh Floor
New York, New York 10281
(888) ML4-TNDR (Toll-Free)
(888) 654-8637 (Toll-Free)
Attn: Susan L. Weinberg
<PAGE> 119
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
A list of exhibits included as part of this Registration Statement is set
forth in an Exhibit Index which immediately precedes such exhibits.
(b) The following financial statement schedules are filed as part of
this Registration Statement:
None.
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the Financial
Statements of the Registrant or Notes thereto.
II-1
<PAGE> 120
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Wilmington, State of Delaware, on February 5, 1997.
MBNA CORPORATION
By: /s/ Vernon H.C. Wright
---------------------------------------
Name: Vernon H.C. Wright
Title: Executive Vice President and
Chief Corporate Finance Officer
The undersigned Directors and Officers of MBNA Corporation hereby
appoint Vernon H.C. Wright and John W. Scheflen, and each of them, as
attorneys-in-fact for the undersigned, with full power of substitution and
resubstitution, for, and in the name, place, and stead of the undersigned, to
sign and file with the Securities and Exchange Commission under the Securities
Act of 1933, as amended, any and all amendments (including post-effective
amendments) and exhibits to this Registration Statement and any and all
applications and other documents to be filed with the Securities and Exchange
Commission pertaining to the registration of the securities covered hereby,
with full power and authority to do and perform each and every act and thing
requisite and necessary or desirable, hereby ratifying and confirming all that
said attorney-in-fact, or either of them, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on February 5, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
/s/ Alfred Lerner
-----------------------------------
Alfred Lerner Chairman and Chief Executive Officer
and Director
/s/ Charles M. Cawley
----------------------------------
Charles M. Cawley President and Director
/s/ M. Scot Kaufman
----------------------------------
M. Scot Kaufman Executive Vice President, Chief
Financial Officer and Chief
Accounting Officer and Treasurer
(principal financial and accounting
officer)
</TABLE>
II-2
<PAGE> 121
SIGNATURE TITLE
/s/ James H. Berick, Esq.
-----------------------------------
James H. Berick, Esq. Director
/s/ Randolph D. Lerner, Esq.
---------------------------------
Randolph D. Lerner, Esq. Director
/s/ Stuart L. Markowitz, M.D.
-------------------------------
Stuart L. Markowitz, M.D. Director
/s/ Michael Rosenthal, Ph. D.
--------------------------------
Michael Rosenthal, Ph.D. Director
II-3
<PAGE> 122
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Wilmington, State of Delaware, on February 5, 1997.
MBNA CAPITAL C
By: MBNA Corporation, as Depositor
By: /s/ John W. Scheflen
----------------------------------
John W. Scheflen
II-4
<PAGE> 123
INDEX OF EXHIBITS
<TABLE>
<S> <C>
1 - Form of Dealer Manager Agreement. (1)
4(c) - Indenture between MBNA Corporation and The Bank of New York, as Trustee. (1)
4(d)(3) - Certificate of Trust of MBNA Capital C, formerly known as MBNA Capital III. (2)
4(e)(3) - Trust Agreement of MBNA Capital C, formerly known as MBNA Capital III. (2)
4(f)(3) - Form of Amended and Restated Trust Agreement to be used in connection with the issuance of the Preferred Securities.
(1)
4(g)(3) - Form of Preferred Security (included in Exhibit 4(e)(3)).
4(h)(3) - Form of Guarantee. (1)
4(i) - Form of Junior Subordinated Debenture (included in Exhibit 4(c)).
5(a) - Opinion of John W. Scheflen. (1)
5(d) - Opinion of Richards, Layton & Finger. (1)
8 - Tax Opinion of Simpson Thacher & Bartlett. (1)
12 - Statement re: Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred
Stock Dividends. (2)
23(a) - Consent of Ernst & Young L.L.P.
23(b) - Consent of John W. Scheflen. (2)
23(c) - Consent of Richards, Layton & Finger (included in Exhibit 5(d)).
24 - Powers of Attorney for MBNA (included on signature page).
25(a) - Form T-1 Statement of Eligibility of the Bank of New York to act as trustee under the Junior Subordinated
Indenture. (2)
25(d) - Form T-1 Statement of Eligibility of the Bank of New York to act as trustee under the Amended and Restated Trust
Agreement of MBNA Capital C, formerly known as MBNA Capital III. (2)
</TABLE>
II-5
<PAGE> 124
<TABLE>
<S> <C>
25(i) - Form T-1 Statement of Eligibility of the Bank of New York to act as trustee under the Guarantee for the benefit of
the holders of Preferred Securities of MBNA Capital C, formerly known as MBNA Capital III. (2)
99(a) - Form of Letter of Transmittal. (1)
99(b) - Form of Notice of Guaranteed Delivery. (1)
99(c) - Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (1)
99(d) - Form of Letter to Clients. (1)
99(e) - Form of Exchange Agent Agreement. (1)
99(f) - Form of Information Agent Agreement. (1)
99(g) - Form of MBNA Letter to Holders of Series A Preferred Stock. (1)
99(h) - Form of Questions and Answers Regarding Preferred Securities. (1)
99(i) - Form of Notice of Offer to Exchange. (1)
</TABLE>
- ------------------
(1) To be filed by Amendment.
(2) Incorporated by reference to the Exhibit with the same exhibit
number of MBNA's Registration Statement on Form S-3 (No.
333-15435).
II-6
<PAGE> 1
EXHIBIT 23(A)
Consent of Ernst & Young LLP
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S_4 and related Prospectus of MBNA Corporation
and MBNA Capital C, for the registration of _____% Trust-Originated Preferred
Securities and to the incorporation by reference therein of our report dated
January 17, 1996 with respect to the consolidated financial statements of MBNA
Corporation incorporated by reference in its Annual Report (Form 10-K) for the
year ended December 31, 1995, filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
Baltimore, Maryland
January 31, 1997
