<PAGE> 1
Filed pursuant to Rule 424(b)(2)
Registration No. 333-47179
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED OCTOBER 5, 1998.
50,000,000 SHARES
MBNA CORPORATION
COMMON STOCK
------------------------
The Common Stock is listed on the New York Stock Exchange under the symbol
"KRB." The last reported sale price of the Common Stock on the New York Stock
Exchange on December 31, 1998 was $24 13/16 per share.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED ON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF
ANY BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Initial price to public..................................... $24.00 $1,200,000,000
Underwriting discount(1).................................... $ .50 $ 25,000,000
Proceeds, before expenses, to the Corporation............... $23.50 $1,175,000,000
</TABLE>
- ---------------
(1) In addition, the underwriter may receive from purchasers of the shares
normal brokerage commissions in amounts agreed with such purchasers.
------------------------
The underwriter expects to deliver the shares against payment in New York,
New York on January 7, 1999.
GOLDMAN, SACHS & CO.
------------------------
Prospectus Supplement dated January 4, 1999.
<PAGE> 2
THE CORPORATION
MBNA Corporation (the "Corporation"), a bank holding company, is the parent
company of MBNA America Bank, N.A. (the "Bank"), a national bank. Through the
activities of the Bank, the Corporation is the world's largest independent
credit card lender and the leading issuer of affinity credit cards marketed
primarily to members of associations and customers of financial institutions. In
addition to credit card lending, the Corporation also makes other consumer loans
and offers insurance and deposit products.
The Corporation generates interest and other income through finance charges
assessed on outstanding loan receivables, interchange income, credit card and
other fees, securitization income, insurance, and interest earned on investment
securities and money market instruments. The Corporation's primary costs are the
costs of funding its loan receivables and investment securities and money market
instruments, 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.
As of September 30, 1998, the Corporation had assets of $23.8 billion,
deposits of $14.1 billion and stockholders' equity of $2.2 billion. The
Corporation's return on average stockholders' equity for the nine months ended
September 30, 1998 was 35.26% and return on average total assets was 3.23%.
The Bank has two wholly owned subsidiaries that operate outside the United
States: MBNA International Bank Limited in the United Kingdom ($4.1 billion of
managed loans as of September 30, 1998) and MBNA Canada Bank in Canada ($290.7
million of managed loans as of September 30, 1998). At September 30, 1998, 92.1%
of the Corporation's managed loans were generated in the United States and 7.9%
were generated in foreign countries.
RECENT DEVELOPMENTS
On January 4, 1999, the Corporation released unaudited consolidated
financial results and data for the three months and year ended December 31,
1998. Net income for the fourth quarter of 1998 rose to $238.3 million or $.30
per share of Common Stock, an increase of 30.4%, compared with $188.3 million or
$.23 per share of Common Stock for the fourth quarter of 1997. For the full
year, net income rose to $776.3 million, or $.97 per share of Common Stock,
compared with $622.5 million or $.76 per share of Common Stock for 1997. Total
managed loans at December 31, 1998 were $59.6 billion, a $3.4 billion increase
over third quarter 1998 and a $10.3 billion increase over year-end 1997. The
managed net interest margin for 1998 was 7.47%. Delinquency on total managed
loans was 4.62% at December 31, 1998. Managed loan losses for 1998 were 4.31%.
In addition, the Corporation's Board of Directors declared a quarterly
dividend of $.07 per share of Common Stock, payable April 1, 1999, to
stockholders of record as of March 16, 1999.
In the opinion of management, the unaudited consolidated financial results
and data for the three months and year ended December 31, 1998, have been
prepared in accordance with generally accepted accounting principles on a basis
consistent with the audited consolidated financial statements for the year ended
December 31, 1997.
On December 23, 1998, the Corporation and PNC Bank, N. A., executed a
definitive agreement for the purchase by the Corporation of the credit card
business of PNC Bank, N.A., including the capital stock of PNC National Bank, a
credit card bank with loan receivables of approximately $2.9 billion. The
purchase price represented a 15% premium on the credit card receivables. The
purchased accounts include PNC-branded and AAA-branded credit card accounts. The
transaction is currently expected to close in the first quarter of 1999, subject
to regulatory approval. The transaction will include long-term agreements with
PNC Bank, N. A. and with AAA to market credit card products to the 3.3 million
households served by PNC and the 36 million members of AAA.
S-2
<PAGE> 3
Following the announcement of the purchase, Standard & Poor's Corporation
and Moody's Investors Service, Inc. placed the ratings of the long-term debt of
the Corporation and the Bank on watch for possible downgrade, which continues in
effect.
USE OF PROCEEDS
The Corporation estimates that the net proceeds of this offering, after
underwriting commissions, discounts, and offering expenses, will be
approximately $1,174,700,000. The Corporation intends to use the net proceeds
from this offering to complete the purchase of the credit card business of PNC
Bank, N.A. and for general corporate purposes.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Corporation at September 30, 1998 and as adjusted to give effect to the issuance
and sale of the shares of Common Stock offered hereby. The table should be read
in conjunction with the consolidated financial statements of the Corporation and
the accompanying notes thereto incorporated by reference in the Prospectus. See
"Incorporation of Certain Information by Reference" and "Available Information"
in the Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
--------------------------
ACTUAL AS ADJUSTED
----------- ------------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C>
Long-Term Debt and Bank Notes (a)........................... $5,967,790 $5,967,790
Stockholders' Equity
Preferred stock........................................... 86 86
Common stock.............................................. 7,518 8,018
Additional paid-in capital................................ 302,748 1,476,948
Retained earnings and accumulated other comprehensive
income................................................. 1,932,150 1,932,150
---------- ----------
Total Stockholders' Equity........................ 2,242,502 3,417,202
---------- ----------
Total Capitalization.............................. $8,210,292 $9,384,992
========== ==========
</TABLE>
- ---------------
(a) Includes $563.2 million of guaranteed preferred beneficial interests in
Corporation's junior subordinated deferrable interest debentures.
MARKET PRICE OF COMMON STOCK
The Common Stock is listed and traded on the New York Stock Exchange (the
"NYSE") under the symbol "KRB." As of December 31, 1998, there were 751,795,674
shares of Common Stock issued and outstanding. The following table sets forth
the high and low sales price and the closing price per share of the Common
Stock, as reported on the NYSE Composite Tape for the quarters indicated, as
well as the cash dividends per share of Common Stock declared by the Corporation
for the quarters indicated. The prices set forth below have been adjusted to
reflect the three-for-two split of the Common Stock effected on October 1, 1998.
<TABLE>
<CAPTION>
DIVIDEND DECLARED
HIGH LOW CLOSE PER COMMON SHARE
---- --- ----- -----------------
<S> <C> <C> <C> <C>
1998
First quarter.......................................... $25 $17 3/16 $23 7/8 $.06
Second quarter......................................... 25 5/16 20 5/16 22 1/16 .06
Third quarter.......................................... 25 1/16 15 11/16 19 1/16 .06
Fourth quarter......................................... 25 3/8 13 3/4 24 13/16 .06
</TABLE>
S-3
<PAGE> 4
<TABLE>
<CAPTION>
DIVIDEND DECLARED
HIGH LOW CLOSE PER COMMON SHARE
---- --- ----- -----------------
<S> <C> <C> <C> <C>
1997
First quarter.......................................... $16 1/2 $12 1/8 $12 3/8 $.05
Second quarter......................................... 16 7/16 12 7/16 16 1/4 .05
Third quarter.......................................... 20 1/16 16 9/16 18 .05
Fourth quarter......................................... 19 1/2 17 1/16 18 3/16 .05
1996
First quarter.......................................... $ 9 1/4 $ 6 3/4 $ 8 3/4 $.05
Second quarter......................................... 9 3/8 8 8 7/16 .05
Third quarter.......................................... 10 5/16 7 7/8 10 5/16 .05
Fourth quarter......................................... 12 11/16 10 1/8 12 5/16 .05
</TABLE>
The Board of Directors has declared a quarterly dividend of $.07 per share
on the Common Stock, payable April 1, 1999 to stockholders of record as of March
16, 1999.
DIVIDEND LIMITATIONS
The payment of dividends in the future and the amount of such dividends, if
any, will be at the discretion of the Corporation's Board of Directors. The
payment of Preferred and Common Stock dividends by the Corporation may be
limited by certain factors including regulatory capital requirements, broad
enforcement powers of the federal bank regulatory agencies, and tangible net
worth maintenance requirements under the Corporation's revolving credit
facilities. The payment of Common Stock dividends may also be limited by the
terms of outstanding Preferred Stock. If the Corporation has not paid scheduled
dividends on the Preferred Stock, or declared the dividends and set aside funds
for payment, the Corporation may not declare or pay any cash dividends on the
Common Stock. In addition, if the Corporation defers interest payments for
consecutive periods covering five years on the guaranteed preferred beneficial
interests in Corporation's junior subordinated deferrable interest debentures
(see "Capitalization"), the Corporation may not be permitted to declare or pay
any cash dividends on the Corporation's capital stock or interest on debt
securities that have equal or lower priority than the junior subordinated
deferrable interest debentures.
The primary source of funds for payment of Preferred and Common Stock
dividends by the Corporation is dividends received from the Bank. The amount of
dividends that a bank may declare in any year is subject to certain regulatory
restrictions. Generally, dividends declared in a given year by a national bank,
such as the Bank, are limited to its net profit, as defined by the Comptroller
of the Currency, for that year, combined with its retained net income for the
preceding two years. Also, a national bank may not declare dividends if such
declaration would leave the bank inadequately capitalized. Therefore, the
ability of the Bank to declare dividends will depend on its future net income
and capital requirements. At September 30, 1998, the amount of retained earnings
available for declaration and payment of dividends from the Bank to the
Corporation was $1.2 billion.
Payment of dividends by the Bank to the Corporation, however, may be
further limited by federal bank regulatory agencies through the exercise of
their broad supervisory powers.
The Bank's payment of dividends to the Corporation may also be limited by a
tangible net worth requirement under the Bank's revolving credit facility. This
facility was not drawn upon as of September 30, 1998. If this facility had been
drawn upon as of September 30, 1998, the amount of retained earnings available
for declaration of dividends would have been limited to $675.6 million.
S-4
<PAGE> 5
UNDERWRITING
The Corporation and Goldman, Sachs & Co. ("Goldman Sachs") have entered
into an underwriting agreement with respect to the shares being offered. Subject
to certain conditions, Goldman Sachs has agreed to purchase all of the shares.
Shares sold by Goldman Sachs to the public will initially be offered at the
initial price to public set forth on the cover of this Prospectus Supplement. In
addition, Goldman, Sachs may receive from purchasers of the shares normal
brokerage commissions in amounts agreed with such purchasers. If all the shares
are not sold at the initial offering price, Goldman Sachs may change the
offering price and the other selling terms.
The Corporation has agreed with Goldman Sachs not to dispose of or hedge
any of their Common Stock or securities convertible into or exchangeable for
shares of Common Stock during the period from the date of this Prospectus
Supplement continuing through the date 90 days after the date of this Prospectus
Supplement, except with the prior written consent of Goldman Sachs. This
agreement does not apply to any existing employee benefit plans.
In connection with the offering, Goldman Sachs may purchase and sell shares
of Common Stock in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by Goldman Sachs of a greater number of
shares than it is required to purchase in the offering. Stabilizing transactions
consist of certain bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the Common Stock while the offering
is in progress.
Goldman Sachs also may impose a penalty bid. This occurs when a particular
dealer repays to Goldman Sachs a portion of the underwriting discount received
by it because Goldman Sachs has repurchased shares sold by or for the account of
such dealer in stabilizing or short covering transactions.
These activities by Goldman Sachs may stabilize, maintain or otherwise
affect the market price of the Common Stock. As a result, the price of the
Common Stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by Goldman
Sachs at any time. These transactions may be effected on the NYSE, in the
over-the-counter market or otherwise.
The Corporation estimates that its share of the total expenses of the
offering, excluding underwriting discounts and commissions, will be
approximately $300,000.
The Corporation has agreed to indemnify Goldman Sachs against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents and information previously filed with the
Commission are hereby incorporated by reference in this Prospectus Supplement:
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1997, as amended by Forms 10-K/A-1 and 10-K/A-2, provided, however, that the
information referred to in Item 402(a)(8) of Regulation S-K promulgated by the
Commission shall not be deemed to be specifically incorporated by reference
herein.
2. The Company's Current Reports on Form 8-K dated January 13, 1998,
January 31, 1998, February 28, 1998, March 18, 1998, March 26, 1998, March 31,
1998, April 14, 1998, April 30, 1998, May 31, 1998, June 24, 1998, June 30,
1998, July 14, 1998, July 30, 1998, July 31, 1998, August 11, 1998, August 26,
1998, August 31, 1998, September 10, 1998, September 24, 1998, September 30,
1998, October 7, 1998, October 22, 1998, October 29, 1998, October 31, 1998,
November 30, 1998, December 17, 1998, December 23, 1998 and January 4, 1999.
S-5
<PAGE> 6
3. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 30, 1998, June 30, 1998 and September 30, 1998.
4. The description of the Corporation's Common Stock contained in its
registration statement filed on Form 8-A on January 18, 1991 under the Exchange
Act.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act, after the date of this Prospectus Supplement and
prior to the termination of the offering of the shares of Common Stock hereby
shall be deemed to be incorporated herein by reference. Any statement contained
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus
Supplement, the Prospectus and the Registration Statement of which they are a
part to the extent that a statement contained herein or in any other
subsequently filed document which is also incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus Supplement, the
Prospectus or such Registration Statement.
The Company undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus Supplement has been
delivered, upon written or oral request of such person, a copy of any or all of
the documents which have been or may be incorporated herein by reference, other
than exhibits to such documents (unless such exhibits are specifically
incorporated by reference to such documents). Requests for such copies should be
directed to MBNA Corporation, Wilmington, Delaware 19884-0131, Attention:
Investor Relations (800) 362-6255.
VALIDITY OF THE COMMON STOCK
The validity of the Common Stock will be passed upon for the Corporation by
John W. Scheflen, Executive Vice President, General Counsel and Secretary of the
Corporation, and by Simpson Thacher & Bartlett, New York, New York. The validity
of the shares of Common Stock offered hereby will be passed upon for Goldman
Sachs by Sullivan & Cromwell, New York, New York. Simpson Thacher & Bartlett and
Sullivan & Cromwell each will rely upon the opinion of Mr. Scheflen with respect
to matters of Maryland law and Mr. Scheflen will rely upon the opinion of
Simpson Thacher & Bartlett with respect to matters of New York law. Mr. Scheflen
owns beneficially in excess of 750,000 shares of Common Stock of the
Corporation, including options exercisable within sixty days under the
Corporation's stock incentive plans. Sullivan & Cromwell regularly performs
legal services for the Corporation.
S-6
<PAGE> 7
Prospectus
<TABLE>
<S> <C>
$2,250,000,000 [MBNA LOGO]
MBNA CORPORATION
- -------------------------------
A security is not a deposit MBNA Corporation may offer and sell --
and the securities are not -- Debt Securities
insured or guaranteed -- Preferred Stock
by the Federal Deposit -- Common Stock
Insurance Corporation -- Warrants
or any other governmental -- Stock Purchase Contracts
agency. -- Stock Purchase Units
This prospectus may be used to We will provide specific terms of these
offer and sell securities only securities in supplements to this prospectus.
if accompanied by the You should read this prospectus and any
prospectus supplement for supplements carefully before you invest.
those securities.
- -------------------------------
</TABLE>
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
SECURITIES OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
October 5, 1998
<PAGE> 8
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
We provide information to you about the securities in three separate
documents that progressively provide more detail:
- - this prospectus, which provides general information, some of which may not
apply to your securities;
- - the accompanying prospectus supplement, which describes the terms of the
securities, some of which may not apply to your securities; and
- - a pricing supplement, which describes the specific and final terms of your
securities.
IF THE TERMS OF YOUR SECURITIES VARY BETWEEN THE PRICING SUPPLEMENT, THE
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, YOU SHOULD RELY ON THE
INFORMATION IN THE FOLLOWING ORDER OF PRIORITY:
- - THE PRICING SUPPLEMENT;
- - THE PROSPECTUS SUPPLEMENT; AND
- - THE PROSPECTUS.
We include cross-references in this prospectus and the accompanying
prospectus supplement to captions in these materials where you can find further
related discussions. The following Table of Contents and the Table of Contents
included in the accompanying prospectus supplement provide the pages on which
these captions are located.
You can find a listing of the pages where capitalized terms used in this
prospectus are defined under the caption "Index of Terms for Prospectus"
beginning on page 24 in this prospectus.
------------------------
2
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION........................ 4
INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE................. 4
THE COMPANY.................................. 5
Year 2000................................ 5
USE OF PROCEEDS.............................. 5
RATIO OF EARNINGS TO FIXED
CHARGES AND RATIO OF EARNINGS
TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND
REQUIREMENTS............................. 6
REGULATORY MATTERS........................... 6
General.................................. 6
Dividend Restrictions.................... 7
Holding Company Structure................ 7
Capital Adequacy......................... 8
FDICIA and FDIC Insurance................ 8
Regulation of the Credit Card Business... 9
Federal Financial Institutions
Examination Council.................... 10
DESCRIPTION OF DEBT SECURITIES............... 10
General.................................. 11
Subordination of Subordinated Debt
Securities............................. 12
Restriction on Sale or Issuance of Voting
Stock of the Bank...................... 13
Events of Default........................ 14
Defeasance and Covenant Defeasance....... 15
Modification and Waiver.................. 16
Consolidation, Merger and Sale of
Assets................................. 16
Global Debt Securities................... 16
Concerning the Trustees.................. 17
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
DESCRIPTION OF PREFERRED STOCK............... 17
General.................................. 17
Rank..................................... 18
Dividend Rights.......................... 18
Voting Rights............................ 18
Rights Upon Liquidation.................. 19
Redemption............................... 19
Conversion............................... 19
Depositary Shares........................ 20
General............................. 20
Dividends and Other Distributions... 20
Redemption of Depositary Shares..... 20
Voting the Preferred Stock.......... 20
Amendment and Termination of the
Deposit Agreement............... 20
Charges of Depositary............... 21
Resignation and Removal of
Depositary...................... 21
Miscellaneous....................... 21
DESCRIPTION OF COMMON STOCK.................. 21
DESCRIPTION OF WARRANTS...................... 22
DESCRIPTION OF STOCK PURCHASE
CONTRACTS AND STOCK PURCHASE
UNITS.................................... 22
PLAN OF DISTRIBUTION......................... 22
VALIDITY OF SECURITIES....................... 23
EXPERTS...................................... 23
INDEX OF TERMS FOR PROSPECTUS................ 24
</TABLE>
3
<PAGE> 10
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy and
information statements and other information, including the documents
incorporated by reference herein, can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; and at the Commission's regional offices at 75 Park
Place, New York, New York 10007 and Suite 1400, Northwestern Atrium Center, 500
West Madison Street, Chicago, Illinois 60661, or obtained through the
Commission's Internet address at http://www.sec.gov. Copies of such material can
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Such material can also
be inspected and copied at the office of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
The Company has filed a registration statement on Form S-3 (herein,
together with all amendments and exhibits, referred to as the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Debt Securities, Preferred Stock, Common Stock, Warrants,
Stock Purchase Contracts and Stock Purchase Units (collectively, the
"Securities") offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are hereby incorporated by reference in this Prospectus the following
documents and information heretofore filed with the Commission:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1997, as amended by Forms 10-K/A-1 and 10-K/A-2, provided,
however, that the information referred to in Item 402(a)(8) of Regulation
S-K promulgated by the Commission shall not be deemed to be specifically
incorporated by reference herein.
2. The Company's Current Reports on Form 8-K dated January 13, 1998,
January 31, 1998, February 28, 1998, March 18, 1998, March 26, 1998, March
31, 1998, April 14, 1998, April 30, 1998, May 31, 1998, June 24, 1998, June
30, 1998, July 14, 1998, July 30, 1998, July 31, 1998, August 11, 1998,
August 26, 1998, August 31, 1998, September 10, 1998 and September 24,
1998.
3. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act, after the date of this Prospectus and prior to the
termination of the offering of the Securities hereby shall be deemed to be
incorporated herein by reference. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus and the Registration
Statement of which it is a part to the extent that a statement contained herein
or in any other subsequently filed document which is also incorporated or deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus or such
Registration Statement.
The Company undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus has been delivered, upon
written or oral request of such person, a copy of any or all of the documents
which have been or may be incorporated herein by reference, other than exhibits
to such documents (unless such exhibits are specifically incorporated by
reference to such documents). Requests for such copies should be directed to
MBNA Corporation, Wilmington, Delaware 19884-0131, Attention: Investor Relations
(800) 362-6255.
4
<PAGE> 11
THE COMPANY
MBNA Corporation (the "Company"), is a registered bank holding company
incorporated under the laws of Maryland in 1990. It is the parent corporation of
MBNA America Bank, National Association (the "Bank"), a national bank organized
in January 1991, as the successor to a national bank organized in 1982.
The Company's principal executive offices are located in Wilmington,
Delaware 19884, and its telephone number is (800) 362-6255.
YEAR 2000
Many computer applications have been written using two digits rather than
four to define the applicable year, and therefore may not recognize a date using
"00" as the Year 2000. This could result in the inability of the application to
properly process transactions with dates in the Year 2000 or thereafter. The
Company has substantially completed an assessment of the impact of this problem
on its computer systems and applications, including the systems that service the
Company's loans, and is executing a plan to make the necessary programming
changes, and has begun to test and implement them. The Company expects to
complete implementation of the necessary changes to its mainframe, distributed,
and desktop systems by the end of 1998, and its other systems by mid-1999.
The Company is actively monitoring the progress of third parties, whose
systems provide information to the Company's system, in achieving Year 2000
compliance and is developing contingency plans to address any failure of a
critical vendor to do so. Based on its efforts and the information available to
date, and assuming the continued availability of staff and other technical
resources, and no unexpected difficulty in implementing system enhancements, the
Company believes that it will not incur significant operational disruptions or
material costs as a result of the Year 2000 problem. However, there can be no
assurance that the systems of third parties with which the Company deals will be
timely converted and will not adversely affect the Company's business.
USE OF PROCEEDS
Except as otherwise described in the applicable Prospectus Supplement, the
net proceeds from the sale of the Securities offered hereby will be applied to
the Company's general funds to be utilized for general corporate purposes,
including the reduction of short-term debt, possible acquisitions, investments
in, or extension of credit to, the Company's subsidiaries and the possible
acquisition of real property for use in the Company's business.
5
<PAGE> 12
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 the Company for the six months ended June 30, 1998 and for each
of the years in the five-year period ended December 31, 1997.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
---------- --------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
EARNINGS TO FIXED CHARGES:
Including Interest on Deposits........................ 1.9 2.0 2.0 2.0 2.4 2.0
Excluding Interest on Deposits........................ 3.6 4.0 4.2 4.4 5.7 6.0
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK
DIVIDEND REQUIREMENTS (A):
Including Interest on Deposits........................ 1.8 1.9 1.9 2.0 2.4 2.0
Excluding Interest on Deposits........................ 3.4 3.6 3.8 4.3 5.7 6.0
</TABLE>
- ---------------
(a) Preferred Stock dividend requirements are adjusted to represent a pretax
earnings equivalent.
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 applicable),
and the portion of rental expense which is deemed representative of interest.
The preferred stock dividend requirements represent the pretax earnings which
would have been required to cover such dividend requirements on the Company's
preferred stock outstanding. The Company did not have any preferred stock
outstanding during the periods prior to 1995 presented above and accordingly
there were no preferred stock dividend requirements during such periods.
REGULATORY MATTERS
The following discussion sets forth certain of the elements of the
comprehensive regulatory framework applicable to bank holding companies and
banks and provides certain specific information relevant to the Company and its
subsidiaries. Federal regulation of financial institutions such as the Company
and the Bank is intended primarily for the protection of depositors and the Bank
Insurance Fund rather than shareholders or other creditors.
GENERAL
As a bank holding company, the Company is subject to the supervision of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board").
The Bank is subject to supervision and examination by applicable federal
agencies, principally the Office of the Comptroller of the Currency (the "OCC"),
which is the Bank's primary regulator. The Bank's deposits are insured by, and
therefore the Bank is also subject to the regulations of, the Federal Deposit
Insurance Corporation ("FDIC"). In addition to the impact of regulation,
commercial banks are affected significantly by the actions of the Federal
Reserve Board as it attempts to control the money supply and credit availability
in order to influence the economy.
As a bank holding company, the Company is also subject to regulation under
the Bank Holding Company Act of 1956 (the "BHCA") and to the BHCA's examination
and reporting requirements. Under the BHCA, bank holding companies must, in some
cases, obtain the approval of the Federal Reserve Board prior to acquiring
direct or indirect ownership or control of more than five percent of the voting
shares or substantially
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all of the assets of any company, including a bank. In addition, bank holding
companies are prohibited under the BHCA from engaging in nonbanking activities
other than those that the Federal Reserve Board has determined are closely
related to banking.
The earnings of the Bank, and therefore the earnings of the Company, are
affected by general economic conditions, management policies and the legislative
and governmental actions of various regulatory authorities, including the
Federal Reserve Board, the FDIC and the OCC. In addition, there are numerous
governmental requirements and regulations which affect the activities of the
Company.
DIVIDEND RESTRICTIONS
The Company is a legal entity separate and distinct from its banking and
other subsidiaries. The principal source of cash flow of the Company, including
cash flow to pay dividends on its stock or principal (premium, if any) and
interest on debt securities, is dividends from the Bank. The approval of the OCC
is required for any dividend paid or declared by a national bank if the total of
all dividends paid or declared by the bank in any calendar year would exceed the
total of its net income for that year combined with its retained net income for
the preceding two years less any required transfers to surplus or a fund for the
retirement of any preferred stock. In addition, a national bank may not pay a
dividend in an amount greater than its undivided profits. Under current
regulatory practice, national banks may pay dividends only out of current
operating earnings. The payment of dividends by the Bank may also be affected by
other factors, such as requirements for the maintenance of adequate capital.
Under these provisions, the Bank could have declared, as of June 30, 1998,
without obtaining prior regulatory approval, aggregate dividends of
approximately $983.2 million. The Bank's payment of dividends to the Company may
also be limited by a tangible net worth requirement under the Bank's revolving
credit facility. This facility was not drawn upon as of June 30, 1998. If this
facility was drawn upon as of June 30, 1998, the amount of retained earnings
available for declaration of dividends would have been limited to $708.7
million.
In addition, under the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA"), a FDIC-insured depository institution may not make
capital distributions (including the payment of dividends) or pay any management
fees to its holding company if it is undercapitalized or if such payment would
cause it to become undercapitalized. See "-- FDICIA and FDIC Insurance."
HOLDING COMPANY STRUCTURE
The Bank is subject to restrictions under federal law which limit the
transfer of funds by the Bank to the Company and its nonbanking subsidiaries,
whether in the form of loans, extensions of credit, investments or asset
purchases. Such transfers by the Bank to the Company or any nonbanking
subsidiary are limited in amount to 10% of the Bank's capital and surplus and,
with respect to the Company and all such nonbanking subsidiaries, to an
aggregate of 20% of the Bank's capital and surplus. Furthermore, loans and
extensions of credit by the Bank to the Company or its nonbanking subsidiaries
are required to be secured in specified amounts.
Extensions of credit and other transactions between the Bank and the
Corporation must be on terms and under circumstances, including credit
standards, that are substantially the same or at least as favorable to the Bank
as those prevailing at the time for comparable transactions with non-affiliated
companies.
Under Federal Reserve Board policy, the Company is expected to act as a
source of financial strength to each of its subsidiary banks and to commit
resources to support each such subsidiary bank, in circumstances where the
Company might not do so absent such policy. Any capital loans by the Company to
a subsidiary bank would also be subordinate in right of payment to deposits and
to certain other indebtedness of such bank. In addition, the Crime Control Act
of 1990 provides that in the event of a bank holding company's bankruptcy, any
commitment by the bank holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment.
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Federal law permits the OCC to order the pro rata assessment of
shareholders of a national bank whose capital stock has become impaired, by
losses or otherwise, to relieve a deficiency in such national bank's capital
stock. The statute also provides for the enforcement of any such pro rata
assessment of shareholders of such national bank to cover such impairment of
capital stock by sale, to the extent necessary, of the capital stock of any
assessed shareholder failing to pay the assessment. The Company, as the sole
stockholder of the Bank, is subject to such provisions.
CAPITAL ADEQUACY
Under the Federal Reserve Board's risk-based capital guidelines for bank
holding companies and member banks, the minimum ratio of total capital to
risk-adjusted assets (including certain off-balance sheet items) is 8%. At least
half of the total capital is to be comprised of common equity, retained
earnings, minority interests in consolidated subsidiaries, noncumulative
perpetual preferred stock and a limited amount of cumulative perpetual preferred
stock, less goodwill and less certain other disallowed intangible assets and
disallowed deferred tax assets ("Tier 1 capital"). The remainder ("Tier 2
capital") may consist of hybrid capital instruments, perpetual debt, mandatory
convertible debt securities, a limited amount of subordinated debt, other
preferred stock and a limited amount of loan and lease loss reserves. The total
of Tier 1 capital and Tier 2 capital is referred to as "Total capital." In
addition, the Federal Reserve Board has approved minimum leverage ratio
guidelines for bank holding companies and state member banks. These guidelines
provide for a minimum ratio of Tier 1 capital to quarterly average assets
("Leverage Ratio") of 3% for bank holding companies and state member banks that
meet certain specified criteria, including that they have the highest regulatory
rating. All other bank holding companies and state member banks will be required
to maintain a Leverage Ratio of 3% plus an additional cushion of 100 to 200
basis points. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels,
without significant reliance on intangible assets. Furthermore, the guidelines
indicate that the Federal Reserve Board will continue to consider a "tangible
Tier 1 leverage ratio" in evaluating proposals for expansion or new activities.
The tangible Tier 1 leverage ratio is the ratio of a banking organization's Tier
1 capital, less all intangibles, to total assets. The Bank is also subject to
similar capital requirements adopted by the OCC. Under the guidelines, as of
June 30, 1998, the Company's Tier 1 and total capital to risk-adjusted assets
ratios were 10.78% and 14.02%, respectively, and the Company's Leverage Ratio
was 11.28%. As of June 30, 1998, the Bank's Tier 1 and total capital to
risk-adjusted assets ratios were 10.99% and 13.90%, respectively, and the Bank's
Leverage Ratio was 11.55%.
On November 20, 1997, the OCC, the Federal Reserve, the FDIC and the Office
of Thrift Supervision proposed for comment regulations establishing new
risk-based capital requirements for recourse arrangements and direct credit
substitutes. "Recourse" for this purpose means any retained risk of loss
associated with any transferred asset that exceeds a pro rata share of the
bank's or holding company's remaining claim on the asset, if any. Under existing
regulations, banks and bank holding companies have to maintain capital against
the full amount of any assets for which risk of loss is retained, unless the
resulting capital amount would exceed the maximum contractual liability or
exposure retained, in which case the capital required would equal,
dollar-for-dollar, such maximum contractual liability or exposure. The proposal
would extend this treatment to direct credit substitutes. "Direct credit
substitute" means any assumed risk of loss associated with any asset or other
claim that exceeds the bank's or holding company's pro rata share of the asset
or claim, if any.
One aspect of the proposal specifically addresses securitizations and would
base the capital charge for such transactions on credit ratings from nationally
recognized statistical rating agencies.
FDICIA AND FDIC INSURANCE
FDICIA provides for expanded regulation of banks and bank holding
companies. The expanded regulation includes expanded federal banking agency
examinations and increased powers of federal banking agencies to take corrective
action to resolve the problems of insured depository institutions with capital
deficiencies. Those powers vary depending on which of several levels of
capitalization a particular institution
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meets. FDICIA establishes five capital tiers: well-capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized.
FDICIA permits only "well capitalized" institutions to accept brokered
deposits without restrictions. As of June 30, 1998 the Bank met the FDIC's
definition of a well capitalized institution for purposes of accepting brokered
deposits. For the purposes of the brokered deposit rules, a bank is defined to
be "well capitalized" if it maintains a ratio of Tier 1 capital to risk-adjusted
assets of at least 6.0%, a ratio of Total capital to risk-adjusted assets of at
least 10.0% and a leverage ratio of at least 5.0% and is not subject to any
order, direction or written agreement to maintain specific capital levels. Under
the regulatory definition of brokered deposits, as of June 30, 1998 the Bank had
brokered deposits of $2.3 billion.
The Bank is subject to FDIC deposit insurance assessments for the Bank
Insurance Fund ("BIF"). Each financial institution is assigned to one of three
capital groups -- well capitalized, adequately capitalized or
undercapitalized -- and further assigned to one of three subgroups within a
capital group, on the basis of supervisory evaluations by the institution's
primary federal and, if applicable, state supervisors and other information
relevant to the institution's financial condition and the risk posed to the
applicable insurance fund. The assessment rate applicable to the Bank in the
future will depend in part upon the risk assessment classification assigned to
the Bank by the FDIC and in part on the BIF assessment schedule adopted by the
FDIC. The Deposit Insurance Funds Act of 1996 ("DIFA") provides that premiums
related to deposits assessed by the BIF are to be assessed at a rate of between
0 cents and 27 cents per $100 of deposits.
DIFA also separated, effective January 1, 1997, the Financing Corporation
("FICO") assessment to service the interest on its bond obligations from the BIF
and the Savings Association Insurance Fund ("SAIF") assessments. The amount
assessed on individual institutions by the FICO will be in addition to the
amount, if any, paid for deposit insurance according to the FDIC's risk-related
assessment rate schedules. FICO assessment rates for the third quarter of 1998
were set at 1.22 basis points annually for BIF-assessable deposits. (The rate
may be adjusted quarterly to reflect a change in assessment base for the BIF. By
law, the FICO rate on BIF-assessable deposits must be one-fifth the rate on
SAIF-assessable deposits until the insurance funds are merged or until January
1, 2000, whichever occurs first.)
REGULATION OF THE CREDIT CARD BUSINESS
The relationship between the Bank and its cardholders is extensively
regulated by federal and state consumer protection laws. The Truth in Lending
Act requires credit card issuers to make certain disclosures along with their
applications and solicitations, upon opening an account and with each periodic
statement. The Truth in Lending Act also imposes certain substantive
requirements and restrictions on credit card issuers and provides cardholders
with certain rights to dispute unauthorized charges and to have their billing
errors corrected promptly. Cardholders are also given the right to have their
payments promptly credited to their accounts.
The Equal Credit Opportunity Act prohibits lenders from making credit
decisions based on sex, race and marital status among others. In order to
protect borrowers from such discrimination, the Equal Credit Opportunity Act
requires credit card issuers to disclose the principal reasons they took adverse
action against an applicant or a cardholder.
The Fair Credit Reporting Act generally regulates credit reporting
agencies, but also imposes some duties on credit card issuers as users of
consumer credit reports. For instance, the Fair Credit Reporting Act prohibits
the use of a consumer credit report by a credit card issuer except in connection
with a proposed business transaction with the consumer. The Fair Credit
Reporting Act also requires that credit card issuers notify consumers when they
take adverse action based upon information obtained from credit reporting
agencies.
The federal regulators are authorized to impose penalties for violations of
these statutes and, in certain cases, to order the Bank to pay restitution to
injured cardholders. Cardholders may bring actions for damages for such
violations. In addition, a cardholder may be entitled to assert a violation of
these consumer protection laws by way of set-off against his obligation to pay
the outstanding credit card balance.
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In May, 1996, Andrew B. Spark filed a lawsuit against the Company, the Bank
and certain of its officers and its subsidiary, MBNA Marketing Systems, Inc. The
case is pending in the United States District Court for the District of
Delaware. This suit is a purported class action. The plaintiff alleges that the
Bank's advertising of its cash promotional annual percentage rate program was
fraudulent and deceptive. The plaintiff seeks unspecified damages including
actual, treble and punitive damages and attorneys' fees for an alleged breach of
contract, violation of the Delaware Deceptive Trade Practices Act and the
federal Racketeer Influenced and Corrupt Organizations Act. In February, 1998, a
class was certified. The Company believes its advertising practices are proper
under applicable federal and state law and intends to defend the action
vigorously.
FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL
The Federal Financial Institutions Examination Council, on June 30, 1998,
proposed a revised policy statement on the classification of retail credit. If
adopted, the revised policy statement could establish, effective January 1,
2001, a uniform charge-off period of 150 days delinquency for open-end and
closed-end credit. Alternatively, the proposal also contains guidance that
would, effective January 1, 1999, standardize the methodology for implementing
the existing 180 day charge-off policy requirement for open-end credit. The
revised policy statement could also, effective January 1, 1999, provide guidance
for loans affected by bankruptcy, fraudulent activity and death; establish
standards for re-aging, extending, deferring or rewriting of past due accounts;
and broaden the circumstances under which partial payments are recognized as
full payments for purposes of determining that a loan is no longer delinquent.
DESCRIPTION OF DEBT SECURITIES
The Company from time to time may offer and sell debt securities,
consisting of debentures, notes and/or other unsecured evidences of indebtedness
(the "Debt Securities"), which may be either unsecured senior Debt Securities
(the "Senior Debt Securities") or unsecured subordinated Debt Securities (the
"Subordinated Debt Securities"). The Senior Debt Securities are to be issued
under an Indenture (the "Senior Indenture") between the Company and Bankers
Trust Company, as Trustee (the "Senior Trustee"). The Subordinated Debt
Securities are to be issued under a second Indenture (the "Subordinated
Indenture") between the Company and Harris Trust and Savings Bank, as Trustee
(the "Subordinated Trustee"). Copies of the Senior Indenture and the
Subordinated Indenture have been filed with the Commission as exhibits to the
Registration Statement. The Senior Indenture and the Subordinated Indenture are
sometimes referred to collectively as the "Indentures" and the Senior Trustee
and the Subordinated Trustee are sometimes referred to collectively as the
"Trustees." The following summaries of the provisions of the Senior Debt
Securities, the Subordinated Debt Securities and the Indentures do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all the provisions of the Indenture applicable to a particular
series of Debt Securities (the "Applicable Indenture"), including the
definitions therein of certain terms. Wherever particular Sections, Articles or
defined terms of the Applicable Indenture are referred to, it is intended that
such Sections, Articles or defined terms shall be incorporated herein by
reference. Article and Section references used herein are references to the
Applicable Indenture. Capitalized terms not otherwise defined herein shall have
the meaning given to them in the Applicable Indenture.
The following sets forth certain general terms and provisions of the Debt
Securities offered hereby. The particular terms of the Debt Securities offered
by any Prospectus Supplement (the "Offered Debt Securities") will be described
in the Prospectus Supplement relating to such Offered Debt Securities (the
"Applicable Prospectus Supplement").
The Company is a bank holding company, and the right of the Company to
participate as a shareholder in any distribution of assets of any subsidiary
upon its liquidation or reorganization or winding-up (and thus the ability of
Holders of the Debt Securities to benefit, as creditors of the Company, from
such distribution) is subject to the prior claims of creditors of any such
subsidiary. The Bank is subject to claims by creditors for long-term and
short-term debt obligations, including deposit liabilities, obligations for
federal funds purchased and securities sold under repurchase agreements. There
are also various legal limitations on the extent to
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which the Bank may pay dividends or otherwise supply funds to the Company or its
affiliates. See "Regulatory Matters."
GENERAL
The Indentures do not limit the amount of Debt Securities that may be
issued thereunder and provide that Debt Securities may be issued thereunder from
time to time in one or more series. The Debt Securities will be unsecured
obligations of the Company.
The general provisions of the Indentures and the Debt Securities do not
contain any provisions that would limit the ability of the Company or its
Subsidiaries to incur indebtedness, that would require the Company or an
acquiror to repurchase Debt Securities in the event of a "change in control" or
that would afford holders of Debt Securities protection in the event of a highly
leveraged or similar transaction involving the Company or its Subsidiaries.
Reference is made to the Applicable Prospectus Supplement for information with
respect to any deletions from, modifications of or additions to the Events of
Default or covenants of the Company described below that are applicable to the
Debt Securities, including any addition of covenants or other provisions
providing event risk or similar protection.
Unless otherwise indicated in the Applicable Prospectus Supplement,
principal of, premium, if any, and interest on the Debt Securities will be
payable, and the transfer of Debt Securities will be registerable, at the office
or agency of the Company in the Borough of Manhattan, The City of New York
maintained by the Company and at any other office or agency maintained by the
Company for such purpose, except that, at the option of the Company, interest
may be paid by mailing a check to the address of the Person entitled thereto as
it appears on the register for the Debt Securities. (Sections 301, 305 and 1002)
The Debt Securities will be issued only in fully registered form without coupons
and, unless otherwise indicated in the Applicable Prospectus Supplement, in
denominations of $1,000 or integral multiples thereof. (Section 302) No service
charge will be made for any registration of transfer or exchange of the Debt
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge imposed in connection therewith. (Section 305)
The Applicable Prospectus Supplement will describe the following terms of
the Offered Debt Securities: (1) the title of the Offered Debt Securities; (2)
whether the Offered Debt Securities are Senior Debt Securities or Subordinated
Debt Securities; (3) any limit on the aggregate principal amount of the Offered
Debt Securities; (4) the date or dates on which the principal of the Offered
Debt Securities will mature; (5) the rate or rates (which may be fixed or
variable) at which the Offered Debt Securities will bear interest, if any, and
the date or dates from which any such interest, if any, will accrue; (6) the
dates on which such interest, if any, on the Offered Debt Securities will be
payable and the Regular Record Dates for such Interest Payment Dates; (7) the
place or places where the principal of and any premium and interest on the
Offered Debt Securities shall be payable; (8) any mandatory or optional sinking
funds or analogous provisions; (9) the date, if any, after which and the price
or prices at which the Offered Debt Securities may, pursuant to any optional or
mandatory redemption provisions, be redeemed and the other detailed terms and
provisions of any such optional or mandatory redemption provision; (10) the
obligation of the Company, if any, to redeem or repurchase the Offered Debt
Securities at the option of the Holder; (11) if other than denominations of
$1,000 and any integral multiple thereof, the denominations in which the Offered
Debt Securities shall be issuable; (12) if other than the principal amount
thereof; the portion of the principal amount of the Offered Debt Securities that
will be payable upon the declaration of acceleration of the Maturity thereof;
(13) the currency of payment of principal of and any premium and interest on the
Offered Debt Securities; (14) any index used to determine the amount of payment
of principal of and any premium and interest on the Offered Debt Securities;
(15) if the Offered Debt Securities will be issuable only in the form of a
Global Security, the Depositary or its nominee with respect to the Offered Debt
Securities and the circumstances under which the Global Security may be
registered for transfer or exchange in the name of a Person other than the
Depositary or its nominee; (16) the applicability, if any, of the provisions
described under "Defeasance and Covenant Defeasance"; (17) any additional Event
of Default, and in the case of any Offered Subordinated Debt Securities, any
additional Event of Default that would result in the acceleration of the
maturity thereof; and (18) any other terms of the Offered Debt Securities.
(Section 301)
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Both Senior Debt Securities and Subordinated Debt Securities may be issued
as Original Issue Discount Debt Securities to be offered and sold at a
substantial discount below their stated principal amount. Federal income tax
consequences and other special considerations applicable to any such Original
Issue Discount Debt Securities will be described in the Applicable Prospectus
Supplement. "Original Issue Discount Debt Security" means any Debt Security
which provides for an amount less than the principal amount thereof to be due
and payable upon the declaration of acceleration of the Maturity thereof upon
the occurrence of an Event of Default and the continuation thereof. (Section
101)
SUBORDINATION OF SUBORDINATED DEBT SECURITIES
Unless otherwise indicated in the Applicable Prospectus Supplement, the
following provisions shall apply to the Subordinated Debt Securities. The
following Section references are to Sections of the Subordinated Indenture.
The payment of the principal of, premium, if any, and interest on the
Subordinated Debt Securities will, to the extent set forth in the Subordinated
Indenture, be subordinated in right of payment to the prior payment in full of
all Senior Indebtedness (as defined below). In certain events of insolvency, the
payment of the principal of, premium, if any, and interest on the Subordinated
Debt Securities will, to the extent set forth in the Subordinated Indenture,
also be effectively subordinated in right of payment to the prior payment in
full of all Other Financial Obligations (as defined below). Upon any payment or
distribution of assets to creditors upon any liquidation, dissolution, winding
up, reorganization, assignment for the benefit of creditors, marshalling of
assets or any bankruptcy, insolvency or similar proceedings of the Company, the
holders of all Senior Indebtedness will first be entitled to receive payment in
full of all amounts due or to become due thereon before the Holders of the
Subordinated Debt Securities will be entitled to receive any payment in respect
of the principal of, premium, if any, or interest on the Subordinated Debt
Securities. (Section 1302) If, upon any such payment or distribution of assets
to creditors, there remain, after giving effect to such subordination provisions
in favor of the holders of Senior Indebtedness, any amounts of cash, property or
securities available for payment or distribution in respect of Subordinated Debt
Securities (as defined in the Subordinated Indenture, "Excess Proceeds") and if,
at such time, any person entitled to payment pursuant to the terms of Other
Financial Obligations (as defined in the Subordinated Indenture, "Entitled
Person") has not received payment in full of all amounts due or to become due on
or in respect of such Other Financial Obligations, then such Excess Proceeds
shall first be applied to pay or provide for the payment in full of such Other
Financial Obligations before any payment or distribution may be made in respect
of the Subordinated Debt Securities. In the event of the acceleration of the
maturity of any Subordinated Debt Securities, the holders of all Senior
Indebtedness will first be entitled to receive payment in full of all amounts
due or to become due thereon before the Holders of the Subordinated Debt
Securities will be entitled to receive any payment of the principal of, premium,
if any, or interest on the Subordinated Debt Securities. (Section 1303)
Accordingly, in case of such an acceleration, all Senior Indebtedness would have
to be repaid before any payment could be made in respect of the Subordinated
Debt Securities. No payments on account of principal, premium, if any, or
interest in respect of the Subordinated Debt Securities may be made if there
shall have occurred and be continuing a default in any payment with respect to
any Senior Indebtedness, or an event of default with respect to any Senior
Indebtedness permitting the holders thereof to accelerate the maturity thereof,
or if any judicial proceeding shall be pending with respect to any such default.
(Section 1304)
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Indebtedness or
the Subordinated Debt Securities may recover less, ratably, than holders of
Senior Indebtedness and may recover more, ratably, than Holders of the
Subordinated Debt Securities.
"Senior Indebtedness" is defined in the Subordinated Indenture to mean the
principal of, premium, if any, and interest on (i) all indebtedness of the
Company for money borrowed (including indebtedness of others guaranteed by the
Company) other than the Subordinated Debt Securities, whether outstanding on the
date of the Subordinated Indenture or thereafter created, assumed or incurred
and (ii) any amendments, renewals, extensions, modifications and refundings of
any such indebtedness, unless in either case in the instrument creating or
evidencing any such indebtedness or pursuant to which it is outstanding it is
provided
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that such indebtedness is not superior in right of payment to the Subordinated
Debt Securities. (Section 101) For the purposes of this definition,
"indebtedness for money borrowed" is defined as (i) any obligation of, or any
obligation guaranteed by, the Company for the repayment of borrowed money,
whether or not evidenced by bonds, debentures, notes or other written
instruments, (ii) any deferred payment obligation of, or any such obligation
guaranteed by, the Company for the payment of the purchase price of property or
assets evidenced by a note or similar instrument, and (iii) any obligation of,
or any such obligation guaranteed by, the Company for the payment of rent or
other amounts under a lease of property or assets which obligation is required
to be classified and accounted for as a capitalized lease on the balance sheet
of the Company under generally accepted accounting principles.
"Other Financial Obligations" is defined in the Subordinated Indenture to
mean all obligations of the Company to make payment pursuant to the terms of
financial instruments, such as (i) securities contracts and foreign currency
exchange contracts, (ii) derivative instruments, such as swap agreements
(including interest rate and currency and foreign exchange rate swap
agreements), cap agreements, floor agreements, collar agreements, interest rate
agreements, foreign exchange agreements, options, commodity futures contracts,
commodity options contracts and (iii) in the case of both (i) and (ii) above,
similar financial instruments other than (x) obligations on account of Senior
Indebtedness and (y) obligations on account of indebtedness for money borrowed
ranking pari passu with or subordinate to the Subordinated Debt Securities.
(Section 101)
The Subordinated Indenture does not limit the amount of other indebtedness,
including Senior Indebtedness and obligations of the Company in respect of Other
Financial Obligations, that may be issued by the Company or any of its
Subsidiaries. As of June 30, 1998, the aggregate principal amount of Senior
Indebtedness outstanding for the Company was $1.9 billion.
RESTRICTION ON SALE OR ISSUANCE OF VOTING STOCK OF THE BANK
The Senior Indenture contains a covenant by the Company that it will not,
and will not permit any Subsidiary to, sell, assign, transfer, grant a security
interest or otherwise dispose of any shares of Voting Stock, or any securities
convertible into, or options, warrants or rights to subscribe for or purchase
shares, of Voting Stock of the Bank or any Subsidiary owning, directly or
indirectly, any shares of the Bank and that it will not permit the Bank or any
Subsidiary owning, directly or indirectly, any shares of Voting Stock of the
Bank to issue any shares of the Bank's Voting Stock or any securities
convertible into, or options, warrants or rights to subscribe for or purchase
shares of the Bank's Voting Stock, except for sales, assignments, transfers,
issuances, grants of security interests or other dispositions which: (i) are for
fair market value (as determined by the Board of Directors of the Company) and
if, after giving effect thereto, the Company will own not less than 80% of the
shares of Voting Stock of the Bank or any such Subsidiary owning any shares of
Voting Stock of the Bank free and clear of any security interest; (ii) are made
(x) in compliance with an order of a court or regulatory authority of competent
jurisdiction, or (y) in compliance with a condition imposed by any such court or
authority permitting the acquisition by the Company, directly or indirectly, of
any other bank or entity the activities of which are legally permissible for a
Person such as the Company or a Subsidiary to engage in, or (z) in compliance
with an undertaking made to such an authority in connection with an acquisition
by the Company, directly or indirectly, of any bank or entity the activities of
which are legally permissible for a Person such as the Company or a Subsidiary
to engage in (provided that, in the case of clauses (y) and (z), the assets of
the bank or entity being acquired and its consolidated subsidiaries equal or
exceed 75% of the assets of the Bank or such Subsidiary owning, directly or
indirectly, any shares of Voting Stock of the Bank and its respective
consolidated subsidiaries on the date of acquisition); or (iii) are made to the
Company or any wholly owned Subsidiary. Notwithstanding the foregoing, the Bank
may be merged into or consolidated with another banking institution organized
under the laws of the United States, any State thereof or the District of
Columbia, if, after giving effect to such merger or consolidation, the Company
or any wholly owned Subsidiary owns at least 80% of the Voting Stock of such
other banking institution then issued and outstanding free and clear of any
security interest and if, immediately after giving effect thereto, no Event of
Default, and no event which, after notice or lapse of time or both, would become
an Event of Default, shall have happened and be continuing. (Section 1008)
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The foregoing restriction is not included in the Subordinated Indenture.
EVENTS OF DEFAULT
The Senior Indenture (with respect to any series of Senior Debt Securities)
and, unless otherwise provided in the Applicable Prospectus Supplement, the
Subordinated Indenture (with respect to any series of Subordinated Debt
Securities) define an Event of Default as any one of the following events: (a)
default in the payment of any interest upon any Debt Security when it becomes
due and payable, and continuance of such default for a period of 30 days (in the
case of the Subordinated Indenture, whether or not payment is prohibited by the
subordination provisions); (b) default in the payment of the principal of (or
premium, if any, on) any Debt Security at its Maturity (in the case of the
Subordinated Indenture, whether or not payment is prohibited by the
subordination provisions); (c) failure to deposit any sinking fund payment when
due (in the case of the Subordinated Indenture, whether or not payment is
prohibited by the subordination provisions); (d) failure to perform any other
covenants or warranties of the Company in the Applicable Indenture (other than a
covenant or warranty included in the Applicable Indenture solely for the benefit
of a series of Debt Securities thereunder other than that series) continued for
a period of 60 days after the holders of at least 25% in principal amount of the
Outstanding Debt Securities have given written notice as provided in the
Applicable Indenture; (e) failure to pay when due the principal of, or
acceleration of, any indebtedness for borrowed money in an aggregate principal
amount exceeding $10,000,000 of the Company or of the Bank, if such acceleration
is not annulled within 10 days after written notice as provided in the
Applicable Indenture; (f) certain events of bankruptcy, insolvency or
reorganization of the Company or of the Bank; and (g) any other Event of Default
provided with respect to Debt Securities of that series. (Section 501) If an
Event of Default occurs with respect to Debt Securities of any series, the
Trustee under the Applicable Indenture shall give the Holders of Debt Securities
of such series notice of such default, provided however, that in the case of a
default described in (d) above, no such notice to Holders shall be given until
at least 30 days after the occurrence thereof. (Section 602)
If an Event of Default with respect to the Senior Debt Securities of any
series at the time Outstanding occurs and is continuing, either the Senior
Trustee or the Holders of at least 25% in aggregate principal amount of the
Outstanding Debt Securities of that series may declare the principal amount (or,
if the Debt Securities of that series are Original Issue Discount Debt
Securities, such portion of the principal amount as may be specified in the
terms thereof) of all the Senior Debt Securities of that series to be due and
payable immediately. Payment of the principal of the Subordinated Debt
Securities may be accelerated only in the case of certain events of bankruptcy,
insolvency or reorganization of the Company. The Subordinated Trustee and the
Holders will not be entitled to accelerate the maturity of the Subordinated Debt
Securities upon the occurrence of any of the Events of Default described above
except for those described in subparagraph (f) (i.e., the bankruptcy, insolvency
or reorganization of the Company). Accordingly, there is no right of
acceleration in the case of a default in the performance of any covenant with
respect to the Subordinated Debt Securities, including the payment of interest
or principal. At any time after a declaration of acceleration with respect to
Debt Securities of any series has been made, but before a judgment or decree
based on acceleration has been obtained, the Holders of a majority in aggregate
principal amount of Outstanding Debt Securities of that series may, under
certain circumstances, rescind and annul such acceleration. (Section 502)
The Indentures provide that, subject to the duty of the Trustee during
default to act with the required standard of care, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request or direction of any of the Holders, unless such Holders shall have
offered to the Trustee reasonable indemnity. (Section 603) Subject to such
provisions for the indemnification of the Trustee and to certain other
conditions, the Holders of a majority in aggregate principal amount of the
Outstanding Debt Securities of any series will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee, with
respect to the Debt Securities of that series. (Section 512)
No Holder of any series of Debt Securities will have any right to institute
any proceeding with respect to the Applicable Indenture or for the appointment
of a receiver or a trustee or for any remedy thereunder, unless such Holder
shall have previously given to the Trustee under the Applicable Indenture
written notice of a
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continuing Event of Default and unless the Holders of at least 25% in aggregate
principal amount of the Outstanding Debt Securities of that series shall have
made written request, and offered reasonable indemnity, to the Trustee to
institute such proceeding as trustee, and the Trustee shall not have received
from the Holders of a majority in aggregate principal amount of the Outstanding
Debt Securities of that series a direction inconsistent with such request and
shall have failed to institute such proceeding within 60 days. (Section 507)
However, such limitations do not apply to a suit instituted by a Holder of a
Debt Security for enforcement of payment of the principal of and premium, if
any, or interest on such Debt Security on or after the respective due dates
expressed in such Debt Security. (Section 508)
The Company is required under each Indenture to furnish to the Trustee
annually a statement as to the performance by the Company of certain of its
obligations under such Indenture and as to any default in such performance.
(Section 1004)
DEFEASANCE AND COVENANT DEFEASANCE
The Indentures provide, if such provision is made applicable to the Debt
Securities of any series pursuant to Section 301 of the Applicable Indenture
(which will be indicated in the Applicable Prospectus Supplement), that the
Company may elect either (a) to defease and be discharged from any and all
obligations in respect of such Debt Securities then outstanding (including, in
the case of Subordinated Debt Securities, the provisions described under
"Subordination of Subordinated Debt Securities" and except for certain
obligations to register the transfer of or exchange of such Debt Securities,
replace stolen, lost or mutilated Debt Securities, maintain paying agencies and
hold monies for payment in trust) ("defeasance") or (b) to be released from its
obligations with respect to such Debt Securities under any covenant applicable
to such Debt Securities which is determined pursuant to Section 301 of the
Applicable Indenture to be subject to covenant defeasance and, with respect to
Senior Debt Securities, to be released from its obligations concerning the
restriction on sale or issuance of Voting Stock described under "Restriction on
Sale or Issuance of Voting Stock of the Bank" ("covenant defeasance"), and the
occurrence of an event described in clause (d) (insofar as with respect to
covenants subject to covenant defeasance) or clause (e) under "Events of
Default" above shall no longer be an Event of Default, in each case (a) or (b),
if the Company deposits, in trust, with the Trustee under the Applicable
Indenture money or U.S. Government Obligations, which through the payment of
interest thereon and principal thereof in accordance with their terms will
provide money, in an amount sufficient, without reinvestment, to pay all the
principal of (and premium, if any) and interest on such Debt Securities on the
dates such payments are due (which may include one or more redemption dates
designated by the Company) and any mandatory sinking fund or analogous payments
thereon in accordance with the terms of such Debt Securities. Such a trust may
only be established if, among other things, (i) no Event of Default or event
which with the giving of notice or lapse of time, or both, would become an Event
of Default under the Indenture shall have occurred and be continuing on the date
of such deposit, (ii) such deposit will not cause the Trustee under the
Applicable Indenture to have any conflicting interest with respect to other
securities of the Company, (iii) the Company shall have delivered an Opinion of
Counsel to the effect that the Holders will not recognize income, gain or loss
for Federal income tax purposes as a result of such deposit or defeasance and
will be subject to Federal income tax in the same manner as if such defeasance
had not occurred and (iv) in the case of Subordinated Debt Securities, no
default in the payment of principal of any Senior Indebtedness shall have
occurred or be continuing and no other event of default with respect to any
Senior Indebtedness shall have occurred and be continuing, permitting, after
notice or lapse of time or both, the acceleration thereof.
The Company may exercise its defeasance option with respect to such Debt
Securities notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its defeasance option, payment of such Debt Securities
may not be accelerated because of an Event of Default. If the Company exercises
its covenant defeasance option, payment of such Debt Securities may not be
accelerated by reference to the covenants noted under clause (b) above. In the
event the Company omits to comply with its remaining obligations with respect to
such Debt Securities under the Applicable Indenture after exercising its
covenant defeasance option and such Debt Securities are declared due and payable
because of the occurrence of any Event of Default, the amount of money and U.S.
Government Obligations on deposit with the applicable
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Trustee may be insufficient to pay amounts due on the Debt Securities of such
series at the time of the acceleration resulting from such Event of Default.
However, the Company will remain liable in respect of such payments. (Article
Thirteen and Article Fourteen of the Senior Indenture and the Subordinated
Indenture, respectively.)
MODIFICATION AND WAIVER
Modifications and amendments of each of the Senior Indenture or the
Subordinated Indenture may be made by the Company and the Trustee under the
Applicable Indenture with the consent of the Holders of not less than 66 2/3% in
aggregate principal amount of the Outstanding Debt Securities of each series
issued under such Indenture and affected by the modification or amendments;
provided, however, that no such modification or amendment may, without the
consent of the Holders of all Debt Securities affected thereby, (i) change the
Stated Maturity of the principal of, or any installment of principal of or
interest on, any Debt Security; (ii) reduce the principal amount of, or the
premium, if any, or (except as otherwise provided in the Applicable Prospectus
Supplement) interest on, any Debt Security (including in the case of an Original
Issue Discount Debt Security the amount payable upon acceleration of the
maturity thereof); (iii) change the place or currency of payment of principal
of, premium, if any, or interest on any Debt Security; (iv) impair the right to
institute suit for the enforcement of any payment on any Debt Security on or at
the Stated Maturity thereof (or in the case of redemption, on or after the
Redemption Date); (v) in the case of the Subordinated Indenture, modify the
subordination provisions in a manner adverse to the Holders of the Subordinated
Debt Securities; or (vi) reduce the percentage in principal amount of
Outstanding Debt Securities of any series, the consent of whose Holders is
required for modification or amendment of the Indenture or for waiver of certain
defaults or, in the case of the Senior Indenture, for waiver of compliance with
certain provisions of such Indenture. (Section 902)
The Holders of at least 66 2/3% in aggregate principal amount of the
Outstanding Senior Debt Securities of any series may, on behalf of all Holders
of that series, waive compliance by the Company with certain restrictive
provisions of the Applicable Indenture. (Section 1009) The Holders of a majority
in aggregate principal amount of the Senior Debt Securities or the Subordinated
Debt Securities may, on behalf of all Holders of the Senior Debt Securities or
the Subordinated Debt Securities, respectively, waive any past default under the
Applicable Indenture, except a default in the payment of principal, premium or
interest or in the performance of certain covenants. (Section 513)
CONSOLIDATION, MERGER AND SALE OF ASSETS
Under each Indenture, the Company may consolidate with or merge into any
other corporation or convey, transfer or lease its properties and assets
substantially as an entirety to any Person without the consent of the Holders of
any of the Outstanding Debt Securities provided that (i) any successor or
purchaser is a corporation organized under the laws of the United States of
America, any State or the District of Columbia, and any such successor or
purchaser expressly assumes the Company's obligations on the Debt Securities
under a supplemental Indenture, (ii) immediately after giving effect to the
transaction no Event of Default, and no event which, after notice or lapse of
time or both, would become an Event of Default, shall have occurred and be
continuing, (iii) if properties or assets of the Company become subject to a
mortgage, pledge, lien, security interest or other encumbrance not permitted by
such Indenture, the Company or such successor Person, as the case may be, takes
such steps as shall be necessary effectively to secure the Securities equally
and ratably with (or prior to) all indebtedness secured thereby, and (iv) the
Company has delivered to the Trustee under the Applicable Indenture an Officers'
Certificate and an Opinion of Counsel stating compliance with these provisions.
(Section 801)
GLOBAL DEBT SECURITIES
The Debt Securities of a series may be issued in the form of one or more
Global Securities that will be deposited with a Depositary or its nominee
identified in the Applicable Prospectus Supplement. In such a case, one or more
Global Securities will be issued in a denomination or aggregate denominations
equal to the portion of the aggregate principal amount of Outstanding Debt
Securities of the series to be represented by
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such Global Security or Securities. Unless and until it is exchanged in whole or
in part for Debt Securities in definitive registered form, a Global Security may
not be registered for transfer or exchange except as a whole by the Depositary
for such Global Security to a nominee for such Depositary and except in the
circumstances described in the Applicable Prospectus Supplement. (Sections 204
and 305)
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Global Security
will be described in the Applicable Prospectus Supplement.
CONCERNING THE TRUSTEES
Bankers Trust Company and Harris Trust and Savings Bank are Trustees under
the Senior Indenture and the Subordinated Indenture, respectively. In the normal
course of business, the Company and its subsidiaries conduct banking
transactions with the Trustees, and the Trustees conduct banking transactions
with the Company and its subsidiaries. Bankers Trust Company serves as trustee
for several of the trusts established in connection with certain of the Bank's
asset securitizations.
DESCRIPTION OF PREFERRED STOCK
The following summary contains a description of the general terms of the
preferred stock, par value $.01 per share (the "Preferred Stock") to which any
Prospectus Supplement may relate. Certain terms of any series of the Preferred
Stock offered by any Prospectus Supplement will be described in the Prospectus
Supplement relating to such series of the Preferred Stock. If so indicated in
the Prospectus Supplement, the terms of any such series, including any
Depositary Shares (as defined below) issued in respect thereof, may differ from
the terms set forth below. The description of certain provisions of the
Preferred Stock set forth below and in any Prospectus Supplement does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the Company's Articles of Incorporation and the articles
supplementary to the Company's Articles of Incorporation which will be filed
with the Commission in connection with the offering of such series of Preferred
Stock.
GENERAL
Under the Company's Articles of Incorporation, the Board of Directors of
the Company is authorized, without further shareholder action, to provide for
the issuance of shares of Preferred Stock, par value $.01 per share, in one or
more series, with such terms, including preferences, conversion and other
rights, voting power, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption, as shall be established in or pursuant
to the resolution or resolutions providing for the issue thereof to be adopted
by the Board of Directors. Currently, under the Company's Articles of
Incorporation, 20,000,000 shares are classified as Preferred Stock. The
Company's Board of Directors has authority, without further shareholder
approval, to reclassify authorized but unissued shares of any stock as Preferred
Stock or other stock having preferred dividend and voting rights and other
characteristics determined by the Board of Directors. Prior to the issuance of
each series of Preferred Stock, the Board of Directors (as used herein the term
"Board of Directors" includes any duly authorized committee thereof) will adopt
resolutions creating and designating such series as a series of Preferred Stock.
As of June 30, 1998, the Company has outstanding 4,547,882 shares of 7 1/2%
Cumulative Preferred Stock, Series A, and 4,026,000 shares of Adjustable Rate
Cumulative Preferred Stock, Series B.
The Preferred Stock shall have the dividend, liquidation, and voting rights
set forth below, unless otherwise provided in the Prospectus Supplement relating
to a particular series of the Preferred Stock. Reference is made to the
Prospectus Supplement relating to the particular series of the Preferred Stock
offered thereby for specific terms, including: (i) the designation of such
Preferred Stock and the number of shares offered; (ii) the amount of liquidation
preference per share; (iii) the price at which such Preferred Stock will be
issued; (iv) the dividend rate (or method of calculation), the dates on which
dividends shall be payable, whether such dividends shall be cumulative or
noncumulative and, if cumulative, the dates from which dividends shall commence
to cumulate; (v) any redemption or sinking fund provisions of such Preferred
Stock; (vi) whether the Company has elected to offer Depositary Shares (as
defined below); and (vii) any
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additional voting, dividend, liquidation, redemption, sinking fund and other
rights, preferences, privileges, limitations and restrictions of such Preferred
Stock.
The Preferred Stock will, when issued, be fully paid and nonassessable and
have no preemptive rights. Unless otherwise specified in the Prospectus
Supplement relating to a particular series of the Preferred Stock, each series
of the Preferred Stock will rank on a parity as to dividends and liquidation
rights in all respects with each other series of the Preferred Stock.
RANK
Any series of the Preferred Stock will, with respect to dividend rights and
rights on liquidation, winding up and dissolution rank (i) senior to all classes
of Common Stock and to all equity securities issued by the Company the terms of
which specifically provide that such equity securities will rank junior to the
Preferred Stock (collectively referred to as the "Junior Securities"); (ii) on a
parity with all equity securities issued by the Company the terms of which
specifically provide that such equity securities will rank on a parity with the
Preferred Stock (collectively referred to as the "Parity Securities"); and (iii)
junior to all equity securities issued by the Company the terms of which
specifically provide that such equity securities will rank senior to the
Preferred Stock.
DIVIDEND RIGHTS
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of funds
of the Company legally available therefor, cash dividends at such rates and on
such dates as are set forth in the Prospectus Supplement relating to such series
of the Preferred Stock. Such rate may be fixed or variable or both. Each such
dividend will be payable to the holders of record as they appear on the stock
record books of the Company (or, if applicable, the records of the Depositary
referred to below under "Depositary Shares") on such record dates as will be
fixed by the Board of Directors of the Company or a duly authorized committee
thereof. Dividends on any series of the Preferred Stock may be cumulative or
noncumulative, as provided in the Prospectus Supplement relating thereto. The
Company's ability to pay dividends on its Preferred Stock is subject to policies
established by the Federal Reserve Board. See "Regulatory Matters -- Dividend
Restrictions."
No full dividends may be declared or paid or funds set apart for the
payment of dividends on any Parity Securities unless dividends shall have been
paid or set apart for such payment on the Preferred Stock. If full dividends are
not so paid, the Preferred Stock shall share dividends pro rata with the Parity
Securities. 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 Preferred Stock.
Each series of Preferred Stock will be entitled to dividends as described
in the Prospectus Supplement relating to such series, which may be based upon
one or more methods of determination. Different series of the Preferred Stock
may be entitled to dividends at different rates or based upon different methods
of determination.
VOTING RIGHTS
Except as indicated in the Prospectus Supplement relating to a particular
series of Preferred Stock, or except as expressly required by applicable law,
the holders of the Preferred Stock will not be entitled to any voting rights.
Under regulations adopted by the Federal Reserve Board if the holders of
shares of any series of Preferred Stock of the Company become entitled to vote
for the election of directors because dividends on such series are in arrears
such series may then be deemed a "class of voting securities" and a holder of
25% or more of such series (or a holder of 5% or more if it otherwise exercises
a "controlling influence" over the Company) may then be subject to regulation as
a bank holding company in accordance with the Bank Holding Company
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Act. In addition, at such time as such series is deemed a class of voting
securities, (i) any other bank holding company may be required to obtain the
approval of the Federal Reserve Board under the Bank Holding Company Act to
acquire or retain 5% or more of such series and (ii) any person other than a
bank holding company may be required to obtain the approval of the Federal
Reserve Board under the Change in Bank Control Act or the Bank Holding Company
Act to acquire or retain 10% or more of such series.
RIGHTS UPON LIQUIDATION
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of each series of Preferred Stock will be
entitled to receive out of assets of the Company available for distribution to
shareholders, before any distribution of assets is made to holders of Junior
Securities, including common stock, liquidating distributions in the amount set
forth in the Prospectus Supplement relating to such series of the Preferred
Stock plus an amount equal to accrued and unpaid dividends for the then-current
dividend period and, if such series of the Preferred Stock is cumulative, for
all dividend periods prior thereto, all as set forth in the Prospectus
Supplement with respect to such shares. If upon any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the amounts payable with
respect to the Preferred Stock of any series and any other Parity Securities are
not paid in full, the holders of the Preferred Stock of such series and the
Parity Securities will share ratably in any such distribution of assets of the
Company in proportion to the full liquidation preferences to which each is
entitled. After payment of the full amount of the liquidation preference to
which they are entitled, the holders of such series of Preferred Stock will not
be entitled to any further participation in any distribution of assets of the
Company.
Because the Company is a bank holding company, its rights, the rights of
its creditors and of its stockholders, including the holders of the shares of
the Preferred Stock offered hereby, to participate in the assets of any
subsidiary, including the Bank, upon the latter's liquidation or
recapitalization may be subject to the prior claims of the subsidiary's
creditors except to the extent that the Company may itself be a creditor with
recognized claims against the subsidiary.
REDEMPTION
A series of the Preferred Stock may be redeemable, in whole or in part, at
the option of the Company or the holder thereof, and may be subject to mandatory
redemption pursuant to a sinking fund, in each case upon terms, at the times and
at the redemption prices set forth in the Prospectus Supplement relating to such
series.
In the event of partial redemptions of Preferred Stock, whether by
mandatory or optional redemption, the shares to be redeemed will be determined
by lot or pro rata, as may be determined by the Board of Directors of the
Company, a committee thereof or by any other method determined to be equitable
by the Board of Directors.
On or after a redemption date, unless the Company defaults in the payment
of the redemption price, dividends will cease to accrue on shares of Preferred
Stock called for redemption and all rights of holders of such shares will
terminate except for the right to receive the redemption price.
Under current regulations, bank holding companies may exercise an option to
redeem shares of preferred stock included as Tier 1 capital, or exchange such
preferred stock for debt securities, without the prior approval of the Federal
Reserve Board, if the bank holding company will remain well capitalized,
received a composite rating of 1 or 2 of its most recent BOPEC inspection and is
not the subject of any unresolved supervisory issues.
CONVERSION
The Prospectus Supplement for any series of the Preferred Stock will state
the terms, if any, on which shares of that series are convertible into other
securities of the Company.
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DEPOSITARY SHARES
General. The Company may, at its option, elect to offer receipts for
fractional interests ("Depositary Shares") in Preferred Stock, rather than full
shares of Preferred Stock. In such event, receipts ("Depositary Receipts") for
Depositary Shares, each of which will represent a fraction (to be set forth in
the Prospectus Supplement relating to a particular series of Preferred Stock) of
a share of a particular series of Preferred Stock, will be issued as described
below.
The shares of any series of Preferred Stock represented by Depositary
Shares will be deposited under a Deposit Agreement (the "Deposit Agreement")
between the Company and the depositary named in the Prospectus Supplement (the
"Depositary"). Subject to the terms of the Deposit Agreement, each owner of a
Depositary Share will be entitled, in proportion to the applicable fraction of a
share of Preferred Stock represented by such Depositary Share, to all the rights
and preferences of the Preferred Stock represented thereby (including dividend,
voting, redemption, subscription and liquidation rights). The following summary
of certain provisions of the Deposit Agreement does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all the
provisions of the Deposit Agreement, including the definitions therein of
certain terms. Whenever particular sections of the Deposit Agreement are
referred to, it is intended that such sections shall be incorporated herein by
reference. Copies of the forms of Deposit Agreement and Depositary Receipt are
filed as an exhibit to the Registration Statement of which this Prospectus is a
part, and the following summary is qualified in its entirety by reference to
such exhibits.
Dividends and Other Distributions. The Depositary will distribute all cash
dividends or other cash distributions received in respect to the Preferred Stock
to the record holders of Depositary Shares relating to such Preferred Stock in
proportion to the numbers of such Depositary Shares owned by such holders.
(Section 4.01)
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary Shares in
an equitable manner, unless the Depositary determines that it is not feasible to
make such distribution, in which case the Depositary may sell such property and
distribute the net proceeds for such sale to such holders. (Section 4.02)
Redemption of Depositary Shares. If a series of Preferred Stock
represented by Depositary Shares is subject to redemption, the Depositary Shares
will be redeemed from the proceeds received by the Depositary resulting from the
redemption, in whole or in part, of such series of Preferred Stock held by the
Depositary. The redemption price per Depositary Shares will be equal to the
applicable fraction of the redemption price per share payable with respect to
such series of the Preferred Stock. Whenever the Company redeems shares of
Preferred Stock held by the Depositary, the Depositary will redeem as of the
same redemption date the number of Depositary Shares representing shares of
Preferred Stock so redeemed. If fewer than all the Depositary Shares are to be
redeemed, the Depositary Shares to be redeemed will be selected by lot, pro rata
or by any other equitable method as may be determined by the Depositary.
(Section 2.08)
Voting the Preferred Stock. Upon receipt of notice of any meeting at which
the holders of the Preferred Stock are entitled to vote, the Depositary will
mail the information contained in such notice of meeting to the record holders
of the Depositary Shares relating to such Preferred Stock. Each record holder of
such Depositary Shares on the record date (which will be the same date as the
record date for the Preferred Stock) will be entitled to instruct the Depositary
as to the exercise of the voting rights pertaining to the amount of the
Preferred Stock represented by such holder's Depositary Shares. The Depositary
will endeavor, insofar as practicable, to vote the amount of the Preferred Stock
represented by such Depositary Shares in accordance with such instructions, and
the Company will agree to take all reasonable action which may be deemed
necessary by the Depositary in order to enable the Depositary to do so. The
Depositary will abstain from voting shares of the Preferred Stock to the extent
it does not receive specific instructions from the holder of Depositary Shares
representing such Preferred Stock. (Section 4.05)
Amendment and Termination of the Deposit Agreement. The form of Depositary
Receipt evidencing the Depositary Shares and any provision of the Deposit
Agreement may at any time be amended by agreement between the Company and the
Depositary. However, any amendment which materially and adversely alters
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the rights of the holders of Depositary Shares will not be effective unless such
amendment has been approved by the holders of at least a majority of the
Depositary Shares then outstanding. (Section 6.01) The Deposit Agreement will
only terminate if (i) all outstanding Depositary Shares have been redeemed or
(ii) there has been a final distribution in respect of the Preferred Stock in
connection with any liquidation, dissolution or winding up of the Company and
such distribution has been distributed to the holders of Depositary Receipts.
(Section 6.02)
Charges of Depositary. The Company will pay all transfer and other taxes
and governmental charges arising solely from the existence of the depositary
arrangements. The Company will pay charges of the Depositary in connection with
the initial deposit of the Preferred Stock and issuance of Depositary Receipts,
all withdrawals of shares of Preferred Stock by owners of Depositary Shares and
any redemption of the Preferred Stock. Holders of Depositary Receipts will pay
other transfer and other taxes and governmental charges and such other charges
as are expressly provided in the Deposit Agreement to be for their accounts.
(Section 5.07)
Resignation and Removal of Depositary. The Depositary may resign at any
time by delivering to the Company notice of its election to do so, and the
Company may at any time remove the Depositary, any such resignation or removal
to take effect upon the appointment of a successor Depositary and its acceptance
of such appointment. Such successor Depositary must be appointed within 60 days
after delivery of the notice of resignation or removal and must be a bank or
trust company having its principal office in the United States and having a
combined capital and surplus of at least $50,000,000. (Section 5.04)
Miscellaneous. The Depositary will forward all reports and communications
from the Company which are delivered to the Depositary and which the Company is
required or otherwise determines to furnish to the holders of the Preferred
Stock. (Section 4.07)
Neither the Depositary nor the Company will be liable under the Deposit
Agreement to holders of Depositary Receipts other than for its negligence,
willful misconduct or bad faith. Neither the Company nor the Depositary will be
obligated to prosecute or defend any legal proceeding in respect of any
Depositary Shares or Preferred Stock unless satisfactory indemnity is furnished.
The Company and the Depositary may rely upon written advice of counsel or
accountants, or upon information provided by persons presenting Preferred Stock
for deposit, holders of Depositary Receipts or other persons believed to be
competent and on documents believed to be genuine. (Section 5.03)
DESCRIPTION OF COMMON STOCK
The following summary does not purport to be complete and is subject in all
respects to the applicable provisions of the Maryland General Corporation Law
and the Company's charter and by-laws. See "Available Information."
The Company is authorized to issue up to 1,500,000,000 shares of common
stock, $.01 par value per share (the "Common Stock"). At June 30, 1998, the
Company had issued and outstanding 751,781,250 shares of Common Stock.
Holders of Common Stock of the Company are entitled to receive, pro rata,
dividends declared by the Board of Directors out of funds legally available
therefor. The ability of the Company to pay dividends to its stockholders may be
limited by federal law. See "Regulatory Matters." In the event of any
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in the assets available for distribution to
stockholders.
Each share of Common Stock is entitled to one vote on each matter submitted
to a vote of stockholders. There is no right of cumulative voting in connection
with the election of directors. The Common Stock has no conversion rights and is
not redeemable. All outstanding shares of Common Stock are, and the shares sold
in the offerings will be when issued, fully paid and nonassessable. A
stockholder of the Company has no preemptive rights to subscribe for additional
shares of stock or other securities of the Company except as may be granted by
the Company's board of directors.
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DESCRIPTION OF WARRANTS
The Company may issue warrants to purchase Debt Securities, Preferred
Stock, Depositary Shares and Common Stock (the "Warrants"). Warrants may be
issued independently of or together with any other Securities and may be
attached to or separate from such Securities. Each series of Warrants will be
issued under a separate Warrant Agreement (each a "Warrant Agreement") to be
entered into between the Company and a Warrant Agent ("Warrant Agent"). The
Warrant Agent will act solely as an agent of the Company in connection with the
Warrants of such series and will not assume any obligation or relationship of
agency or trust for or with holders or beneficial owners of Warrants. The
following sets forth certain general terms and provisions of the Warrants
offered hereby. Further terms of the Warrants and the applicable Warrant
Agreement will be set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the following terms,
where applicable, of the Warrants in respect of which this Prospectus is being
delivered: (i) the title of such Warrants; (ii) the aggregate number of such
Warrants; (iii) the price or prices at which such Warrants will be issued; (iv)
the designation, aggregate principal amount and terms of the securities
purchasable upon exercise of such Warrants; (v) the designation and terms of the
Securities with which such Warrants are issued and the number of such Warrants
issued with each such security; (vi) if applicable, the date on and after which
such Warrants and the related securities will be separately transferable; (vii)
the price at which the securities purchasable upon exercise of such Warrants may
be purchased; (viii) the date on which the right to exercise such Warrants shall
commence and the date on which such right shall expire; (ix) the minimum or
maximum amount of such Warrants which may be exercised at any one time; (x)
information with respect to book-entry procedures, if any; (xi) a discussion of
certain Federal income tax considerations; and (xii) any other terms of such
Warrants, including terms, procedures and limitations relating to the exchange
and exercise of such Warrants.
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
The Company may issue stock purchase contracts ("Stock Purchase
Contracts"), representing contracts obligating holders to purchase from the
Company, and the Company to sell to the holders, a specified number of shares of
Common Stock at a future date or dates. The price per share of Common Stock may
be fixed at the time the Stock Purchase Contracts are issued or may be
determined by reference to a specific formula set forth in the Stock Purchase
Contracts. The Stock Purchase Contracts may be issued separately or as a part of
stock purchase units ("Stock Purchase Units") consisting of a Stock Purchase
Contract and Debt Securities or debt obligations of third parties, including
U.S. Treasury securities, securing the holders' obligations to purchase the
Common Stock under the Stock Purchase Contracts. The Stock Purchase Contracts
may require the Company to make periodic payments to the holders of the Stock
Purchase Units or vice-versa, and such payments may be unsecured or prefunded on
some basis. The Stock Purchase Contracts may require holders to secure their
obligations thereunder in a specified manner.
The applicable Prospectus Supplement will describe the terms of any Stock
Purchase Contracts or Stock Purchase Units.
PLAN OF DISTRIBUTION
The Company may sell Securities to or through underwriters or dealers, and
also may sell Securities directly to other purchasers or through agents. Each
Prospectus Supplement will describe the method of distribution of the Securities
being offered thereby.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Securities, underwriters may receive
compensation from the Company or from purchasers of Securities for whom they may
act as agents in the form of discounts, concessions or
22
<PAGE> 29
commissions. Underwriters may sell Securities to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agents. Underwriters, dealers and agents that participate
in the distribution of Securities may be deemed to be underwriters, and any
discounts or commissions received by them from the Company and any profit on the
resale of Securities by them may be deemed to be underwriting discounts and
commissions, under the Securities Act. Any such underwriter or agent will be
identified, and any such compensation received from the Company will be
described, in the Prospectus Supplement.
If so indicated in the Applicable Prospectus Supplement and subject to
existing market conditions, the Company will authorize underwriters or other
persons acting as the Company's agents to solicit offers by certain institutions
to purchase Offered Debt Securities from the Company pursuant to contracts
providing for payment and delivery on a future date. Institutions with which
such contracts may be made include but are not limited to commercial and savings
banks, insurance companies, pension funds, investment companies, educational and
charitable institutions and others, but in all cases such institutions must be
approved by the Company. The obligations of any purchaser under any such
contract will be subject to the condition that the purchase of the Offered Debt
Securities shall not at the time of delivery be prohibited under the laws of the
jurisdiction to which such purchaser is subject. The underwriters and such other
agents will not have any responsibility in respect of the validity or
performance of such contracts.
Underwriters and agents who participate in the distribution of Securities
may be entitled under agreements which may be entered into by the Company to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act.
Except as indicated in the Applicable Prospectus Supplement, the Securities
are not expected to be listed on a securities exchange, except for the Common
Stock, which is listed on the New York Stock Exchange, and any underwriters or
dealers will not be obligated to make a market in Securities. The Company cannot
predict the activity or liquidity of any trading in the Securities.
VALIDITY OF SECURITIES
The validity of the Securities will be passed upon for the Company by John
W. Scheflen, Executive Vice President, General Counsel and Secretary of the
Company, and for any underwriters, dealers or agents by Simpson Thacher &
Bartlett, New York, New York. Simpson Thacher & Bartlett will rely on the
opinion of Mr. Scheflen as to matters of Maryland law and Mr. Scheflen will rely
on the opinion of Simpson Thacher & Bartlett as to matters of New York law. Mr.
Scheflen owns beneficially in excess of 100,000 shares of Common Stock,
including options exercisable within sixty days under the Company's 1991 Long
Term Incentive Plan. Simpson Thacher & Bartlett regularly performs legal
services for the Company and its subsidiaries.
EXPERTS
The consolidated financial statements of MBNA Corporation incorporated by
reference in MBNA Corporation's Annual Report (Form 10-K) for the year ended
December 31, 1997, 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.
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INDEX OF TERMS FOR PROSPECTUS
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
Applicable Indenture.................. 10
Applicable Prospectus Supplement...... 10
Bank.................................. 5
BHCA.................................. 6
BIF................................... 9
Board of Directors.................... 17
Commission............................ 4
Common Stock.......................... 21
Company............................... 5
covenant defeasance................... 15
Debt Securities....................... 10
defeasance............................ 15
Deposit Agreement..................... 20
Depositary............................ 20
Depositary Receipts................... 20
Depositary Shares..................... 20
DIFA.................................. 9
Direct credit substitute.............. 8
Entitled Person....................... 12
Excess Proceeds....................... 12
Exchange Act.......................... 4
FDIC.................................. 6
FDICIA................................ 7
Federal Reserve Board................. 6
FICO.................................. 9
indebtedness for money borrowed....... 13
Indentures............................ 10
Junior Securities..................... 18
Leverage Ratio........................ 8
</TABLE>
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
OCC................................... 6
Offered Debt Securities............... 10
Original Issue Discount Debt
Security............................ 12
Other Financial Obligations........... 13
Parity Securities..................... 18
Preferred Stock....................... 17
Recourse.............................. 8
Registration Statement................ 4
SAIF.................................. 9
Securities............................ 4
Securities Act........................ 4
Senior Debt Securities................ 10
Senior Indebtedness................... 12
Senior Indenture...................... 10
Senior Trustee........................ 10
Stock Purchase Contracts.............. 22
Stock Purchase Units.................. 22
Subordinated Debt Securities.......... 10
Subordinated Indenture................ 10
Subordinated Trustee.................. 10
tangible Tier 1 leverage ratio........ 8
Tier 1 capital........................ 8
Tier 2 capital........................ 8
Total capital......................... 8
Trustees.............................. 10
Warrant Agent......................... 22
Warrant Agreement..................... 22
Warrants.............................. 22
well capitalized...................... 9
</TABLE>
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<PAGE> 32
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NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION OR
REPRESENTATIONS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS ARE AN OFFER TO
SELL ONLY THE SHARES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND IN
JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Corporation...................... S-2
Recent Developments.................. S-2
Use of Proceeds...................... S-3
Capitalization....................... S-3
Market Price of Common Stock......... S-3
Dividend Limitations................. S-4
Underwriting......................... S-5
Incorporation of Certain Information
by Reference....................... S-5
Validity of the Common Stock......... S-6
PROSPECTUS
PAGE
----
Table of Contents.................... 3
Available Information................ 4
Incorporation of Certain Information
by Reference....................... 4
The Company.......................... 5
Use of Proceeds...................... 5
Ratio of Earning to Fixed Charges and
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Dividend Requirements.............. 6
Regulatory Matters................... 6
Description of Debt Securities....... 10
Description of Preferred Stock....... 17
Description of Common Stock.......... 21
Description of Warrants.............. 22
Description of Stock Purchase
Contracts and Stock Purchase
Units.............................. 22
Plan of Distribution................. 22
Validity of Securities............... 23
Experts.............................. 23
Index of Terms for Prospectus........ 24
</TABLE>
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50,000,000 SHARES
MBNA CORPORATION
COMMON STOCK
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[MBNA LOGO]
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GOLDMAN, SACHS & CO.
[RECYCLE LOGO]
THIS DOCUMENT IS PRINTED ENTIRELY ON RECYCLED PAPER.
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