<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 12, 1994
REGISTRATION NO. 33-49719
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
PRE-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CAPITAL HOLDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 51-0108922
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
CAPITAL HOLDING CENTER
400 WEST MARKET STREET
LOUISVILLE, KENTUCKY 40202
(502) 560-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ROBERT L. WALKER
SENIOR VICE PRESIDENT-FINANCE AND
CHIEF FINANCIAL OFFICER
CAPITAL HOLDING CORPORATION
CAPITAL HOLDING CENTER
400 WEST MARKET STREET
LOUISVILLE, KENTUCKY 40202
(502) 560-3250
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
C. CRAIG BRADLEY, JR., ESQ. ROBERT M. THOMAS, JR., ESQ.
STITES & HARBISON SULLIVAN & CROMWELL
400 WEST MARKET STREET 125 BROAD STREET
LOUISVILLE, KENTUCKY 40202 NEW YORK, NEW YORK 10004
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this registration statement as determined in
light of market conditions and other factors.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
----------------
Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus herein
also relates to and describes such aggregate principal amount of debt
securities as shall result in aggregate proceeds to the Registrant of
$107,250,000, which debt securities are registered under Registration Statement
No. 33-35006 of the Registrant.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
$400,000,000
(CAPITAL HOLDINGS CORPORATION LOGO)
DEBT SECURITIES
----------------
The Company may from time to time offer Debt Securities consisting of
debentures, notes, and/or other unsecured evidences of indebtedness in one or
more series at an aggregate initial public offering price not to exceed
$400,000,000 or its equivalent in any other currency or composite currency. The
Debt Securities may be offered as separate series in amounts, at prices, and on
terms to be determined at the time of sale. The accompanying Prospectus
Supplement sets forth with regard to the series of Debt Securities in respect
of which this Prospectus is being delivered the title, aggregate principal
amount, denominations (which may be in United States dollars, in any other
currency, or in a composite currency), maturity, rate, if any (which may be
fixed or variable), time of payment of any interest, any terms for redemption
at the option of the Company or the holder, any terms for sinking fund
payments, any listing on a securities exchange, the initial public offering
price, and any other terms in connection with the offering and sale of such
series of Debt Securities. All or a portion of the Debt Securities of a series
may be issuable in permanent global form which will be exchangeable, subject to
certain restrictions set forth herein, into definitive Debt Securities.
The Company may sell Debt Securities to or through underwriters, and also may
sell Debt Securities directly to other purchasers or through agents. Such
underwriters may include Goldman, Sachs & Co. or may be a group of underwriters
represented by firms which may include Goldman, Sachs & Co. Goldman, Sachs &
Co. and other persons may also act as agents. The accompanying Prospectus
Supplement sets forth the names of any underwriters or agents involved in the
sale of the series of Debt Securities in respect of which this Prospectus is
being delivered, the principal amounts, if any, to be purchased by
underwriters, and the compensation, if any, of such underwriters or agents.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
GOLDMAN, SACHS & CO.
----------------
The date of this Prospectus is , 1993.
<PAGE>
FOR NORTH CAROLINA RESIDENTS ONLY: The Commissioner of Insurance of the State
of North Carolina has not approved or disapproved the offering, nor has the
Commissioner passed upon the accuracy or adequacy of this Prospectus.
----------------
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the "SEC")
a Registration Statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Debt Securities. This Prospectus does
not contain all information set forth in the Registration Statement; certain
parts are omitted in accordance with SEC regulations. Reference is hereby made
to such Registration Statement and the exhibits filed as a part of it for
further information on the Company and the Debt Securities.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and files reports, proxy
statements, and other information under the Exchange Act with the SEC. Such
reports, proxy statements, and other information can be inspected and copied at
the SEC, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
regional offices at 7 World Trade Center, Suite 1300, New York, New York 10048
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies may
also be obtained from the SEC's Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. Copies of such material and
other information about the Company can also be inspected at the offices of the
New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005; and
the Pacific Stock Exchange, 301 Pine Street, San Francisco, California.
----------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the SEC (File No. 1-6701)
under the Exchange Act, are incorporated herein by reference:
(a) the Company's Annual Report on Form 10-K for the year ended December
31, 1992, as amended by Form 10-K/A-1 (which incorporates by reference
certain portions of the 1992 Annual Report to Shareholders and the Proxy
Statement for the Annual Meeting of Shareholders held on May 5, 1993);
(b) the Company's Current Report on Form 8-K dated February 17, 1993;
(c) the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1993, as amended by Form 10-Q/A filed on June 22, 1993 and Form
10-Q/A-2 filed on June 24, 1993;
(d) the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993;
(e) the Company's Current Report on Form 8-K dated July 1, 1993;
(f) the Company's Current Report on Form 8-K dated August 31, 1993; and
(g) the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993.
All documents filed by the Company under Sections 13(a), 13(c), 14, or 15(d)
of the Exchange Act after the date of this Prospectus and before the
termination of the offering shall be deemed to be incorporated by reference in
this Prospectus and to be a part of it from the respective dates such documents
are filed. Any statement contained in a document all or a portion of which is
incorporated or deemed to be incorporated by reference in this Prospectus shall
be deemed to be modified or superseded for the purposes of this Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which also is incorporated or deemed to be incorporated by reference
herein modifies or supersedes such statement. Any statements so modified shall
not be deemed to be a part of this Prospectus, except as so modified, and any
statement so superseded shall not be deemed to constitute part of this
Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered (including any beneficial owner), on written or oral
request, a copy of any or all of the documents incorporated in this Prospectus
by reference, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Requests should be
made to Capital Holding Corporation, P.O. Box 32830, Louisville, Kentucky
40232, Attention: Office of the Secretary, Telephone: (502) 560-2000.
2
<PAGE>
CAPITAL HOLDING CORPORATION
Capital Holding Corporation (the "Company") is a diversified insurance and
financial services holding company. The Company provides its subsidiaries with
general management support, including data processing, legal, and financial
services. The Company markets products and services through its subsidiaries,
one or more of which is licensed to do business in all 50 states, in Puerto
Rico, and in the District of Columbia.
The Company is incorporated under the laws of the State of Delaware. Its
principal executive offices are located in the Capital Holding Center, 400 West
Market Street, Louisville, Kentucky 40202, and its telephone number is (502)
560-2000.
BUSINESS SEGMENTS
The operations of the Company and its subsidiaries have been classified into
five business segments: Agency Group, Direct Response Group, Accumulation and
Investment Group, Banking Group, and Corporate and Other.
Agency Group
Agency Group markets a full range of traditional and interest-sensitive life
and health insurance products through home service representatives and in
partnership with third-party insurance and marketing organizations. Agency
Group's business is conducted through four subsidiaries: Commonwealth Life
Insurance Company, based in Louisville, Kentucky; Peoples Security Life
Insurance Company, based in Durham, North Carolina; Capital Security Life
Insurance Company (previously Public Savings Life Insurance Company), based in
Durham, North Carolina; and Durham Life Insurance Company, based in Durham,
North Carolina. Substantially all of the home service representatives are
employees of these subsidiaries and do not represent other insurers. Such
representatives receive compensation from sales commissions, and from renewal
and service commissions. The compensation arrangement is designed to reward
representatives who not only sell new policies, but who also effectively
maintain and service in-force business to meet Company sales and persistency
objectives.
Direct Response Group
Direct Response Group markets life, health, and personal lines property and
casualty insurance primarily through television and print media solicitation,
direct mail, telephone and third-party programs. Life, health and property and
casualty insurance products are issued or underwritten by subsidiaries of
National Liberty Corporation and Worldwide Underwriters Insurance Company and
their respective subsidiaries. Through its third-party marketing programs,
National Liberty Corporation sells life and health insurance to customers of
banks, department stores, oil companies and other businesses with large
customer bases. Academy Life Insurance and its related companies, which were
acquired in January 1993, market products to service personnel on military
bases through 700 independent counsellors. Property and casualty products are
also marketed through a portion of the home service agents of Agency Group.
Accumulation and Investment Group
Accumulation and Investment Group is responsible for the marketing and
management of accumulation (investment-type) products issued or underwritten by
certain of the Company's life insurance affiliates--Commonwealth Life Insurance
Company, Peoples Security Life Insurance Company, and National Home Life
Assurance Company--as well as for the management of the
3
<PAGE>
Company's insurance-related investment portfolios. This business is principally
concerned with asset/liability spread management. Accumulation and Investment
Group serves two principal accumulation product markets: institutional and
retail. Accumulation and Investment Group targets institutional customers, such
as banks, mutual funds, pension funds and other financial organizations,
primarily with index-guaranteed investment contracts (GICs) and funding
agreements. Fixed and variable annuity contracts, individual retirement
accounts and immediate life annuities (including structured settlements) are
distributed to retail markets through financial planners, securities brokerage
firms, savings and loan associations, banks and other financial institutions.
The asset/liability management process of Accumulation and Investment Group
monitors product and asset characteristics on both the individual product and
Company aggregate levels. Each major product category is supported by a
separate asset portfolio, which is managed in accordance with a pre-established
baseline asset strategy. This strategy represents a pairing of a product's
assets and liabilities, taking into account asset and liability risks, maturity
and liquidity risks, as well as asset diversification and quality
considerations. The baselines are developed and updated through financial
modeling.
In the course of its management of the insurance-related investment
portfolios, Accumulation and Investment Group engages in commercial mortgage
lending. The commercial mortgage lending practice is that substantially all
originations are first mortgage loans with maximum loan-to-value ratios of 75%.
The Company requires a minimum debt service coverage against existing cash
flows of 1.2 times. At the time of the origination of a mortgage loan, a
personal inspection of the collateral and research concerning the borrower and
the market are undertaken. In addition, new mortgage loans require engineering
and environmental studies. Currently, multi-family apartments, credit-anchored
shopping centers and industrial facilities are preferred as projects for
mortgage loans. Mortgage loans are not presently offered on projects secured by
hotels, farms, raw land, unanchored shopping centers and special purpose type
properties.
Banking Group
Banking Group, which consists of First Deposit Corporation and its
subsidiaries, markets consumer loans and deposit products nationwide using
direct mail and telemarketing channels and other direct response methods.
Banking Group's loan products consist primarily of unsecured consumer credit
card loans, a revolving cash loan product without a credit card, and a home
equity-secured loan product. Banking Group also offers a secured credit card
and insurance premium financing loans. Deposit products include retail and
institutional certificates of deposit, money market deposit accounts, and
individual retirement accounts (IRAs).
Banking Group's loan products are issued primarily through two wholly-owned
subsidiaries of First Deposit Corporation, First Deposit National Bank ("FDNB")
and First Deposit National Credit Card Bank ("FDNCCB"). FDNB is a commercial
banking institution headquartered in Tilton, New Hampshire. FDNCCB is a credit
card bank headquartered in Tilton, New Hampshire, and is authorized to engage
only in credit card operations pursuant to the Bank Holding Company Act of
1956, as amended.
Banking Group's unsecured consumer loans are principally generated through
direct mail solicitations sent to a prescreened list of prospective
accountholders, followed by credit verification. Four principles guide
development of specific underwriting criteria for each mailing: (i) sufficient
credit history; (ii) no derogatory credit remarks; (iii) necessary income
qualification; and (iv) no rapid increase in outstanding debt or credit
availability.
Banking Group, as part of the asset/liability management process of its
business, monitors and projects changes in the level of assets due to customer
activity on outstanding and newly issued lines of credit or other loan
products. Projected changes in asset levels are monitored on a daily and weekly
basis and are used to determine the level of funding required during a
particular period. Banking Group has a policy of monitoring and managing the
amount of funding that matures during a particular period (weekly or monthly),
as well as managing the level of individual customer concentrations in the
portfolio.
4
<PAGE>
Banking Group accesses funds from a variety of sources with varying rate
structures and terms. This diversification of sources allows flexibility in
managing and ensures continuity of funding. Banking Group structures deposit
maturities (i) to fund current assets, and (ii) in the event of securitization
of assets, to comply with growth restrictions imposed by the banking laws. A
significant portion of Banking Group's deposits are short-term, which increases
the importance of monitoring and maintaining liquidity.
Banking Group analyzes the amount of current and future liquidity needs in
order to support its deposit portfolio and asset growth. To provide liquidity
for its existing deposit base as well as to satisfy short-term funding
requirements, Banking Group maintains committed lines of credit.
Corporate and Other
Corporate and Other includes activities of a general corporate nature, the
group and credit life and health and real estate results of Durham Corporation,
the operations of real estate development subsidiaries, debt service, realized
investment gains and losses net of related deferred acquisition cost
amortization, insurance subsidiaries' net investment income on equity in excess
of that which is needed to support their operations, a charge through net
investment income for capital allocated to business segments, and intersegment
eliminations.
The following summary of operations by business segment sets forth amounts
for the years ended December 31, 1992 and 1991.
REVENUES
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
----------------------
SEGMENT 1992 1991
- ------- ---------- ----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Agency Group:(1)
Life (includes premium equivalents)................... $ 637,521 $ 542,962
Health................................................ 74,095 69,337
Other product lines................................... 68,986 56,199
---------- ----------
Subtotal............................................ 780,602 668,498
Life premium equivalents.............................. (53,593) (45,161)
---------- ----------
Total Agency Group.................................. 727,009 623,337
Direct Response Group:
Life.................................................. 273,969 260,464
Health................................................ 197,790 209,655
Property and casualty................................. 158,603 160,652
Other product lines................................... 20,489 20,023
---------- ----------
Total Direct Response Group......................... 650,851 650,794
Banking Group........................................... 506,691 450,956
Accumulation and Investment Group....................... 852,550 913,532
Corporate and Other:(2)
Other................................................. 109,714 50,817
Realized investment gain (loss)....................... 6,477 (18,780)
---------- ----------
Total Corporate and Other........................... 116,191 32,037
---------- ----------
Consolidated...................................... $2,853,292 $2,670,656
========== ==========
</TABLE>
- --------
(1) Includes the operations of Durham Corporation, other than the group and
credit life and health and real estate results of Durham Life Insurance
Company, from the date of acquisition (November 14, 1991).
(2) Includes group and credit life and health and real estate results of Durham
Life Insurance Company from the date of acquisition (November 14, 1991).
The credit life and health operations of Durham Life Insurance Company were
sold in July 1992.
5
<PAGE>
INCOME BEFORE FEDERAL INCOME TAX
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------
SEGMENT 1992 1991
- ------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Agency Group:(1)
Life............................................... $ 183,112 $ 168,350
Health............................................. 2,579 1,232
Other product lines................................ 4,521 3,370
----------- -----------
Total Agency Group............................... 190,212 172,952
Direct Response Group:
Life............................................... 40,384 38,409
Health............................................. 43,183 35,329
Property and casualty.............................. 6,608 1,244
Other product lines................................ (5,673) (4,262)
----------- -----------
Total Direct Response Group...................... 84,502 70,720
Banking Group........................................ 93,502 73,231
Accumulation and Investment Group.................... 120,142 112,242
Corporate and Other:(2)
Other.............................................. (32,493) (56,334)
Realized investment loss, net of related amortiza-
tion.............................................. (3,838) (26,875)
----------- -----------
Total Corporate and Other........................ (36,331) (83,209)
----------- -----------
Consolidated................................... $452,027 $345,936
=========== ===========
</TABLE>
- --------
(1) Includes the operations of Durham Corporation, other than the group and
credit life and health and real estate results of Durham Life Insurance
Company, from the date of acquisition (November 14, 1991).
(2) Includes group and credit life and health and real estate results of Durham
Life Insurance Company from the date of acquisition (November 14, 1991).
The credit life and health operations of Durham Life Insurance Company were
sold in July 1992.
REGULATORY ENVIRONMENT
The business of the Company's insurance subsidiaries is subject to regulation
and supervision by the insurance regulatory authority of each state in which
the subsidiaries are licensed to do business. Such regulators grant licenses to
transact business; regulate trade practices; approve policy forms; license
agents; establish reserve requirements; review form and content of required
financial statements; and assure that capital, surplus and solvency
requirements are met.
The National Association of Insurance Commissioners (the "NAIC"), a self-
regulatory organization of state insurance commissioners, adopted, in December
of 1992, a "Risk Based Capital for Life and/or Health Insurers Model Act" (the
"Model Act") which was designed to identify inadequately capitalized life and
health insurers. The Model Act defines two key measures: (i) Adjusted Capital,
which equals an insurer's statutory capital and surplus plus its Asset
Valuation Reserve, plus half its liability for policyholder dividends, and (ii)
Risk Based Capital. Risk Based Capital is determined by a complex formula which
is intended to take into account the various risks assumed by an insurer.
Should an insurer's Adjusted Capital fall below certain prescribed levels
(defined in terms of its Risk Based Capital), the Model Act provides for four
different levels of regulatory attention:
"Plan Level": Triggered if an insurer's Adjusted Capital is less than 100%
but greater than or equal to 75% of its Risk Based Capital; requires the
insurer to submit a plan to the appropriate regulatory authority that discusses
proposed corrective action.
6
<PAGE>
"Action Level": Triggered if an insurer's Adjusted Capital is less than 75%
but greater than or equal to 50% of its Risk Based Capital; authorizes the
regulatory authority to perform a special examination of the insurer and to
issue an order specifying corrective actions.
"Authorized Control Level": Triggered if an insurer's Adjusted Capital is
less than 50% but greater than or equal to 35% of its Risk Based Capital;
authorizes the regulatory authority to take whatever action it deems necessary.
"Mandatory Control Level": Triggered if an insurer's Adjusted Capital falls
below 35% of its Risk Based Capital; requires the regulatory authority to place
the insurer under its control.
Since the Adjusted Capital levels of the Company's insurance subsidiaries
currently exceed all of the regulatory action levels as defined by the NAIC's
Model Act, the Model Act currently has no impact on the Company's operations or
financial condition.
First Deposit Corporation's consumer banking subsidiaries are subject to
state and federal regulation with respect to lending and investment practices,
capital requirements, and financial reporting. The primary regulator for these
consumer banking subsidiaries is the Office of the Comptroller of the Currency.
COMPETITION
Insurance
The insurance industry is highly competitive with over 2,000 life insurance
companies competing with each other in the United States, some of which have
substantially greater financial resources, broader product lines and larger
staffs than the Company's insurance subsidiaries. Additionally, life insurance
companies face increasing competition from banks, mutual funds and other
financial entities for attracting investment funds.
The Company's insurance subsidiaries differentiate themselves through
progressive marketing techniques, product features, price, customer service,
stability and reputation, as well as competitive credit ratings. The insurance
segment maintains its competitive position by its focus on low risk/high return
markets and efficient cost structure. Other competitive strengths include
integrated asset/liability management, risk management and innovative product
engineering.
Banking
The credit card and consumer revolving loan industry business in which
Banking Group is engaged is highly competitive. The industry has recently
experienced consolidation, lower growth and rising charge-offs.
Competitors are increasing their use of advertising, target marketing,
pricing competition and incentive programs. Recently, other credit card issuers
have announced changes in the terms of certain credit cards, including lowering
the fixed annual percentage rate charged on balances or converting the annual
percentage rate charged on balances from a fixed per annum rate to a variable
rate. In addition, other credit card issuers have announced "tiered" or "risk-
adjusted" rates under which the annual percentage rate for the issuer's most
creditworthy customers is lowered.
In response, FDNB and FDNCCB have generally retained the right to alter (i)
the periodic finance charge; (ii) the fees and other charges which will be
applicable from time to time to their respective unsecured credit accounts;
(iii) the minimum monthly payment required under the unsecured credit accounts;
and (iv) various other terms with respect to the unsecured credit accounts.
USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the Debt
Securities offered hereby for general corporate purposes.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data presents the consolidated
results of operations of the Company and its subsidiaries. This summary
information should be read in conjunction with and is qualified in its
entirety by the detailed information and financial statements, including the
notes thereto, contained in the documents incorporated by reference in this
Prospectus. See "Incorporation of Certain Documents by Reference." The Summary
Consolidated Financial Data for the nine-month periods ended September 30,
1993 and 1992, are unaudited and reflect all adjustments which are, in the
opinion of management, necessary to a fair presentation for the interim
periods. All such adjustments are of a normal recurring nature. The results of
operations for the nine-month period ended September 30, 1993 are not
necessarily indicative of the results to be expected for the full year ending
December 31, 1993.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------ --------------------------------------------------------------
1993 1992 1992 1991 1990 1989 1988
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER COMMON AND COMMON EQUIVALENT SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITAL HOLDING
CORPORATION
SUMMARY OF STATEMENTS OF
INCOME:
Premiums and Other
Income, Net........... $ 1,081,840 $ 1,038,211 $ 1,393,273 $ 1,209,572 $ 1,299,169 $ 1,083,018 $ 1,001,664
Net Investment Income.. 1,099,250 1,089,585 1,453,542 1,479,864 1,400,939 1,292,829 1,018,892
Realized Investment
Gain (Loss)........... (24,576) 6,632 6,477 (18,780) (122,799) 124,269 25,310
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Revenues......... 2,156,514 2,134,428 2,853,292 2,670,656 2,577,309 2,500,116 2,045,866
Total Benefits and
Expenses.............. 1,803,478 1,810,034 2,401,265 2,324,720 2,352,597 2,115,589 1,786,687
Federal Income Tax (1). 121,907 92,245 129,531 95,704 58,519 108,819 69,315
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before
Cumulative Effect of
Change in Accounting
Principle............. 231,129 232,149 322,496 250,232 166,193 275,708 189,864
Cumulative Effect of
Change in Accounting
Principle (2)......... -- -- -- -- -- (56,021) --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Income............. $ 231,129 $ 232,149 $ 322,496 $ 250,232 $ 166,193 $ 219,687 $ 189,864
=========== =========== =========== =========== =========== =========== ===========
SELECTED PER COMMON AND
COMMON EQUIVALENT SHARE
DATA: (3)
Income before
Cumulative Effect of
Change in Accounting
Principle............. $ 2.24 $ 2.26 $ 3.14 $ 2.66 $ 1.70 $ 2.93 $ 2.00
Cumulative Effect of
Change in Accounting
Principle (2)......... -- -- -- -- -- (0.62) --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Income............. $ 2.24 $ 2.26 $ 3.14 $ 2.66 $ 1.70 $ 2.31 $ 2.00
----------- ----------- ----------- ----------- ----------- ----------- -----------
SELECTED DATA FROM
STATEMENTS OF FINANCIAL
CONDITION:
Cash and Investments... $18,462,960 $16,395,135 $16,791,345 $15,661,663 $13,922,117 $12,628,998 $10,922,041
Total Assets........... 23,227,943 19,988,238 20,588,264 18,873,028 16,668,545 14,970,015 12,963,268
Total Policy
Liabilities........... 15,241,595 13,674,344 13,928,769 12,877,486 11,965,244 10,486,216 8,931,730
Long-Term Debt......... 589,268 589,320 589,320 611,245 386,247 330,299 262,574
Shareholders' Equity... 2,430,581 2,073,070 2,185,927 1,930,924 1,552,515 1,516,269 1,257,549
RATIO OF EARNINGS TO
FIXED CHARGES (4)...... 6.7 5.8 6.0 4.7 4.3 7.5 5.9
RATIO OF EARNINGS TO
FIXED CHARGES,
INCLUDING INTEREST ON
BANKING DEPOSITS (5)... 4.5 3.7 3.9 2.9 2.4 3.2 3.1
RATIO OF EARNINGS TO
FIXED CHARGES,
INCLUDING INTEREST ON
BANKING DEPOSITS,
ANNUITIES AND OTHER
FINANCIAL PRODUCTS (6). 1.6 1.5 1.5 1.4 1.3 1.5 1.5
</TABLE>
- -------
(1) During the third quarter of 1993, the Company revised its estimated annual
effective tax rate from 29.5 percent to 30.5 percent to reflect a change
in the federal statutory income tax rate from 34 percent to 35 percent.
This change was a result of the Omnibus Budget Reconciliation Act of 1993,
enacted on August 10, 1993 and retroactive to January 1, 1993. The effect
of this change was to increase income tax expense for the nine-month
period ended September 30, 1993 by $15.5 million.
(2) Effective January 1, 1989, the Company changed its method of accounting
for postemployment life and health benefits from the "pay-as-you-go"
method of health benefits and a modified accrual basis for life insurance
and adopted the full accrual method of accounting for all postemployment
benefits and for life insurance benefits for active employees. The
$56,021,000 cumulative effect, net of $25,928,000 of federal income tax
benefit, is included in net income of the first quarter of 1989.
(3) Per common and common equivalent share amounts have been retroactively
adjusted for a two-for-one stock split effected in the form of a stock
dividend, effective April 30, 1993.
(4) For the purpose of computing the ratio of earnings to fixed charges,
earnings have been calculated by adding to pretax income from continuing
operations the amount of fixed charges reduced for capitalized interest
and increased for amortization of previously capitalized interest. Fixed
charges consists of interest on debt and a portion of net rental expense,
approximately one-third, deemed to represent interest.
1990, 1989 and 1988 ratios of earnings to fixed charges have been restated
from ratios presented in previous registration statements of the Company to
reflect a reclassification of interest expense to conform to 1992
presentation. These reclassifications and restatements had no effect on
previously reported net income.
(5) Computation of this ratio is the same as described in note (4) above
except that fixed charges also includes interest on banking deposits.
(6) Computation of this ratio is the same as described in note (4) above
except that fixed charges also includes interest on banking deposits,
annuities and other financial products.
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DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
offered by any Prospectus Supplement (the "Offered Debt Securities") and the
extent, if any, to which such general provisions may apply to the Debt
Securities so offered will be described in that Prospectus Supplement. The term
"Debt Securities," as used in this caption, refers to all Securities issued
under the Indenture (as defined below) and includes any Offered Debt
Securities.
The Offered Debt Securities are to be issued under an Indenture dated as of
January 1, 1994 (the "Indenture"), between the Company and Morgan Guaranty
Trust Company of New York, as Trustee (the "Trustee"), a copy of which is filed
as an exhibit to the Registration Statement. The following summaries of certain
provisions of the Debt Securities and the Indenture do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all provisions of the Indenture, including the definitions therein of
certain terms. Wherever particular provisions or defined terms of the Indenture
are referred to, such provisions or defined terms are incorporated herein by
reference. Section or Article references are to the Indenture. Capitalized
terms not otherwise defined herein shall have the meaning given them in the
Indenture.
GENERAL
The Debt Securities will be unsecured obligations of the Company and will
rank equally and ratably with other unsecured and unsubordinated indebtedness
of the Company. The Indenture does not limit the amount of debentures, notes,
or other evidences of indebtedness that may be issued under it. Debt Securities
may be issued from time to time in one or more series up to the aggregate
amount authorized by the Company.
Reference is made to the Prospectus Supplement relating to the particular
series of Offered Debt Securities offered thereby for the following terms and
additional provisions, where applicable, of the Offered Debt Securities: (1)
the title of the Offered Debt Securities; (2) any limit on their aggregate
principal amount; (3) the Person to whom any interest on any Offered Debt
Security shall be payable if other than to the Person in whose name the Offered
Debt Security is registered at the Regular Record Date; (4) the price(s)
(expressed as a percentage of the aggregate principal amount thereof) at which
they will be issued; (5) the date(s), or the methods by which to determine such
date(s), on which the principal of the Offered Debt Securities will be payable;
(6) the rate(s) (which may be fixed or variable) at which they will bear
interest, if any, and the date from which such interest will accrue and the
dates on which such interest will be payable and the Regular Record Dates for
such Interest Payment Dates; (7) the Place(s) of Payment for the principal,
premium, if any, and interest on the Offered Debt Securities; (8) any mandatory
or optional sinking fund or analogous provisions; (9) any index used to
determine the amount of payments of principal of and premium, if any, and
interest; (10) the date, if any, after which, the terms upon which and the
price(s) at which the Company may redeem them at its option; (11) the currency
or currencies (including composite currencies) of payment of principal of and
premium, if any, and interest thereon if other than U.S. dollars; (12) whether
the Indenture provisions relating to defeasance and/or covenant defeasance will
apply to them; (13) whether they are to be issuable in the form of one or more
Global Securities; (14) the denominations of the Offered Debt Securities, if
other than in denominations of $1,000 and any integral multiple thereof; (15)
the portion of
the principal (if other than all principal Outstanding) due upon a declaration
of acceleration of the Offered Debt Security; and (16) any other terms.
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Unless otherwise indicated in the Prospectus Supplement, principal (and
premium, if any) and interest, if any, on the Offered Debt Securities will be
payable, and transfers of the Offered Debt Securities will be registrable, at
the Corporate Trust Office of the Trustee; provided that, at the Company's
option, interest may be paid by (i) check mailed to the address of the Person
entitled thereto as it appears in the Security Register or (ii) wire transfer
to an account maintained by such Person located in the United States. (Sections
301, 305, 307, 308 and 1002) Unless otherwise indicated in an applicable
Prospectus Supplement, payment of any interest due on any Offered Debt Security
will be payable to the Person in whose name such Offered Debt Security is
registered at the close of business on the Regular Record Date for such
interest. (Sections 307 and 308)
Unless the Prospectus Supplement otherwise indicates, the Offered Debt
Securities will be issued in registered form without coupons in denominations
of $1,000 and any integral multiple thereof. (Section 302) No service charge
will be made for any registration of transfer or exchange of Offered Debt
Securities, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge imposed in connection therewith, other
than for certain exchanges not involving any transfer. (Section 305) The
Indenture provides that Debt Securities may be issuable in the form of one or
more Global Securities. (Sections 205, 301 and 305) See "Global Securities."
Debt Securities may be issued as Original Issue Discount Securities to be
offered and sold at a substantial discount from their stated principal amount.
Special United States federal income tax and other considerations applicable to
Offered Debt Securities issued at an original issue discount, including
Original Issue Discount Securities, and special United States federal income
tax considerations applicable to any Offered Debt Securities that are
denominated in other than U.S. dollars are described under "United States
Taxation."
GLOBAL SECURITIES
If any Offered Debt Securities are issuable in the form of one or more Global
Securities, the applicable Prospectus Supplement will describe the
circumstances, if any, under which beneficial owners of interests in any such
Offered Debt Security issuable in the form of one or more Global Securities may
exchange such interests for Offered Debt Securities of such series and of like
tenor and principal amount in any authorized form and denomination. (Sections
101, 301 and 305) Principal of and any premium and interest on Offered Debt
Securities issuable in the form of one or more Global Securities will be
payable in the manner described in the applicable Prospectus Supplement.
RESTRICTIVE COVENANTS
Limitations on Liens on Restricted Subsidiaries' Capital Stock
The Company will not, and it will not permit any Restricted Subsidiary at any
time directly or indirectly to, create, assume, incur, or permit to exist any
indebtedness secured by a pledge, lien, or other encumbrance on the capital
stock of any Restricted Subsidiary without making effective provision whereby
the Debt Securities then outstanding (and, if the Company so elects, any other
indebtedness ranking on a parity with the Debt Securities) shall be equally and
ratably secured with such secured indebtedness so long as such other
indebtedness shall be secured; provided, however, that this covenant shall not
be applicable to liens (as defined in Section 1007) of (i) taxes or assessments
or governmental charges or levies not then due and delinquent or the validity
of which is being contested in good faith or which is less than $5,000,000,
(ii) liens created by or resulting from any litigation or legal proceeding
being contested in good faith or involving claims of less than $5,000,000, or
(iii) deposits to secure (or in lieu of) surety, stay, appeals or custom bonds.
(Section 1007)
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Limitations on Sales of Restricted Subsidiaries' Capital Stock
The Company is restricted from disposing of in any way any shares of capital
stock of a Restricted Subsidiary (other than for directors' qualifying shares
or dispositions to a Subsidiary), and Restricted Subsidiaries are restricted
from disposing of in any way any shares of capital stock of any other
Restricted Subsidiary (other than for directors' qualifying shares or
dispositions to the Company or to a Subsidiary), except the entire capital
stock of such Restricted Subsidiary owned by the Company for a consideration
which, in the opinion of the Board of Directors, is at least equal to the fair
value thereof. (Section 1008) Unless otherwise specified in the Prospectus
Supplement, the term "Restricted Subsidiary" means any Subsidiary of the
Company with assets greater than or equal to 5% of all assets of the Company
and its Subsidiaries (excluding the assets of First Deposit Corporation and its
subsidiaries), computed and consolidated in accordance with generally accepted
accounting principles. The term "Restricted Subsidiary" does not include First
Deposit Corporation (a subsidiary of the Company) or any of its subsidiaries.
(Section 101)
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides, if such provision is made applicable to the Debt
Securities of any series pursuant to Section 301 of the Indenture, that the
Company may elect either:
(a) to defease and be discharged from any and all obligations with
respect to Outstanding Debt Securities of such series (except for the
obligations to register the transfer or exchange of such Debt Securities;
to replace temporary or mutilated, destroyed, lost, or stolen Debt
Securities; to maintain an office or agency in respect of the Debt
Securities; and to hold moneys for payment in trust) ("defeasance"); or
(b)(1) to be released from its obligations with respect to the
Outstanding Debt Securities of such series under Sections 801(3)
(limitation on creation of liens in connection with mergers or
consolidations of the Company, etc.), 1006 (payment of taxes and other
claims), 1007 (limitation on creation of liens on capital stock of
Restricted Subsidiaries), and 1008 (limitation on sales of capital stock of
Restricted Subsidiaries) of the Indenture; and (2) that the occurrence of
an event specified in Section 501(4) (with respect to Sections 801(3),
1007, and 1008) or Section 501(5), as described in clauses (d) and (e)
under "Events of Default," shall not be deemed to be an Event of Default
under the Indenture with respect to such Debt Securities ("covenant
defeasance"),
upon the irrevocable deposit with the Trustee (or other qualifying trustee), in
trust for such purpose, of money and/or U.S. Government Obligations (as
defined) that through the payment of principal and interest in accordance with
their terms will provide money in an amount sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of (and premium, if any) and interest on such series of Debt
Securities, and any mandatory sinking funds or analogous payments thereon, on
the scheduled due dates therefor.
Such a trust may be established only if, among other things, the Company has
delivered to the Trustee an opinion of counsel (as specified in the Indenture)
to the effect that the Holders of such series of Debt Securities will not
recognize income, gain, or loss for federal income tax purposes as a result of
the deposit, defeasance (and discharge of such series of Debt Securities) or
covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner, and at the same times as would have been the case
if such deposit, defeasance (and discharge of such series of Debt Securities)
or covenant defeasance had not occurred. Such opinion, in the case of
defeasance under clause (a) above, must refer to and be based upon a ruling of
the Internal Revenue Service or a change in applicable federal income tax law
occurring after the date of the Indenture. The Prospectus Supplement may
further describe the provisions, if any, permitting such defeasance and/or
covenant defeasance with respect to the Debt Securities of a particular series.
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In the event the Company exercises its option to omit compliance with certain
covenants of the Indenture with respect to any series of Debt Securities and
the Debt Securities of such series 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 Trustee will be sufficient to pay amounts due
on the Debt Securities of such series at the time of their Stated Maturity but
may not be sufficient 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 shall remain liable for such payments.
The Prospectus Supplement will state if the defeasance and/or the covenant
defeasance provisions will apply to the Offered Debt Securities. (Article
Thirteen)
EVENTS OF DEFAULT
The following are Events of Default with respect to Debt Securities of any
series: (a) failure to pay any interest on any Debt Security of that series
when due, continued for 30 days; (b) failure to pay any principal of or
premium, if any, on any Debt Security of that series when due; (c) failure to
deposit any sinking fund payment, when due, in respect of any Debt Security of
that series; (d) default in the performance, or breach, of any other covenant
or warranty of the Company in the Indenture (other than a covenant or warranty
included solely for the benefit of any series of Debt Securities other than
that series), continued for 60 days after written notice as provided in the
Indenture; (e) default in and acceleration of any indebtedness for money
borrowed by the Company or any Restricted Subsidiary in excess of an aggregate
principal amount of $10,000,000 under the terms of the instrument under which
such indebtedness is issued or secured, if such acceleration is not rescinded
or annulled within 10 days after written notice as provided in the Indenture;
(f) certain events in bankruptcy, insolvency, or reorganization; and (g) any
other Event of Default provided with respect to Debt Securities of that series.
(Section 501)
If an Event of Default with respect to Debt Securities of any series at the
time Outstanding occurs and is continuing, either the Trustee or the Holders of
at least 25% in 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 Securities, such portion of the principal
amount as may be specified in the terms of that series) of all the Debt
Securities of that series to be due and payable immediately. 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 by the Trustee, the Holders of a majority in principal amount of the
Outstanding Debt Securities of that series may, under certain circumstances,
rescind and annul such acceleration. (Section 502)
The Trustee will be under no obligation, subject to the provisions of the
Indenture relating to the duties of the Trustee in the case an Event of Default
shall occur and be continuing, to exercise any of its rights or powers under
the Indenture at the request or direction of any of the Holders of the Debt
Securities, unless such Holder shall have offered to the Trustee reasonable
indemnity. (Sections 601 and 603) Subject to such indemnification provisions,
the Holders of a majority in principal amount of the Outstanding Debt
Securities of any series affected 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 Debt Security of any series will have any right to institute
any proceeding with respect to the Indenture or for any remedy thereunder,
unless such Holder shall have previously given to the Trustee written notice of
a continuing Event of Default with respect to Debt Securities of that series
and unless also the Holders of not less than 25% in 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
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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,
the Holder of any Debt Security will have an absolute and unconditional right
to receive payment of the principal of (and premium, if any) and interest on
such Debt Security on or after the due dates expressed in such Debt Security
and to institute suit for the enforcement of any such payment. (Section 508)
The Company will be required to furnish to the Trustee within 120 days after
the end of each fiscal year of the Company a statement as to any default in the
performance and observance of any of the terms, provisions and conditions of
the Indenture or any Board Resolution adopted with respect to the issuance of
any series of Debt Securities under Section 301 of the Indenture. (Section
1004)
MODIFICATION AND WAIVER
The Company and the Trustee may modify or amend the Indenture with the
consent of the Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of each series affected by such modification or
amendment; provided, however, that no such modification or amendment may,
without the consent of the Holder of each affected Outstanding Debt Security
affected thereby: (a) change the Stated Maturity of the principal of, or any
installment of principal of or interest on, any Debt Security; (b) reduce the
principal amount of, or the premium (if any) or interest payable upon the
redemption of any Debt Security; (c) change the Place of Payment where, or the
coin or currency in which, any Debt Security or the premium (if any) or
interest thereon is payable; (d) reduce the amount of principal of an Original
Issue Discount Debt Security payable upon acceleration of the Maturity thereof;
(e) impair the right to institute suit for the enforcement of any payment on or
with respect to any Debt Security on or after the Stated Maturity or Redemption
Date thereof; or (f) 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 compliance with
certain provisions of the Indenture or for waiver of certain defaults. (Section
902)
The Company may omit in any particular instance to comply with certain
restrictive provisions set forth in the Indenture (Sections 1004 to 1008,
inclusive) with respect to the Debt Securities of any series if before the time
for such compliance the Holders of at least a majority in principal amount of
the Outstanding Debt Securities of such series shall by the Act of such Holders
either expressly waive such compliance in such instance or generally waive
compliance with such term, provision, covenant or condition. (Section 1009) The
Holders of not less than a majority in principal amount of the Outstanding Debt
Securities of any series may on behalf of the Holders of all Debt Securities of
that series waive any past default under the Indenture with respect to that
series, except a default in the payment of the principal of (or premium, if
any) or interest on any Debt Security of that series or in respect of a
provision that under the Indenture cannot be modified or amended without the
consent of the Holder of each Outstanding Debt Security of that series
affected. (Section 513)
The Indenture provides that, in determining whether the Holders of the
requisite principal amount of the Outstanding Debt Securities have given any
request, demand, authorization, direction, notice, consent or waiver
thereunder: (a) the principal amount of an Original Issue Discount Security
that shall be deemed to be Outstanding shall be the amount of the principal
thereof that would be due and payable as of the date of such determination upon
acceleration of the Maturity thereof to such date; and (b) the principal amount
of a Debt Security denominated in other than U.S. dollars shall be the U.S.
dollar equivalent, determined in the manner contemplated by Section 301 of the
Indenture on the date of original issuance of such Debt Security, of the
principal amount of such Debt Security (or, in the case of an Original Issue
Discount Debt Security, the U.S. dollar equivalent on the date of original
issuance of such Debt Security of that amount determined as provided in clause
(a) above of such Debt Security). (Section 101)
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CONSOLIDATION, MERGER, AND SALE OF ASSETS
The Indenture provides that the Company, without the consent of any Holders
of Outstanding Debt Securities, may (i) consolidate or merge with or into any
Person, or convey, transfer or lease its properties and assets substantially as
an entirety to any Person, or permit any Person to consolidate with or merge
into the Company, or (ii) permit any Person to convey, transfer or lease its
properties and assets substantially as an entirety to the Company
(collectively, the "Transactions"), provided that in any such case: (a) the
successor Person, in connection with any Transaction, is organized under the
laws of any United States jurisdiction and assumes the Company's obligations on
the Debt Securities and under the Indenture; (b) after giving effect to a
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 happened and be
continuing; (c) if, as a result of any Transaction, properties or assets of the
Company would become subject to a mortgage, pledge, lien, security interest or
other encumbrance which would not be permitted by the Indenture, the Company or
such successor Person, as the case may be, shall take steps as shall be
necessary effectively to secure the Debt Securities equally and ratably with
(or prior to) all indebtedness secured thereby; and (d) certain other
conditions, with respect to the Transactions described in clause (i) of this
paragraph, are met. (Article Eight)
GOVERNING LAW
The Indenture and the Debt Securities will be governed by, and construed in
accordance with, the laws of the State of New York. (Section 112)
REGARDING THE TRUSTEE
Under the Indenture, Morgan Guaranty Trust Company of New York, as Trustee,
any successor Trustee thereto under the Indenture, or any other Trustee under
the Indenture, is required to satisfy certain continuing eligibility criteria,
including the maintenance of certain ratings assigned to the long-term debt of
any such Trustee (or the long-term debt of the holding company of which such
Trustee is a subsidiary if no such ratings for such Trustee are available), in
order to be and remain a trustee under the Indenture. (Section 609) No
resignation or removal of the Trustee and appointment of a successor Trustee
will be effective until the acceptance of appointment by a successor Trustee
pursuant to the provisions of the Indenture. (Sections 610 and 611)
On January 4, 1994, J. P. Morgan & Co. Incorporated, the parent company of
Morgan Guaranty Trust Company of New York, announced that it had reached an
agreement in principle to sell substantially all of the assets and liabilities
of its U.S. domestic corporate trust business to First Bank, N.A. ("First
Bank"), a unit of First Bank System, Inc. in Minneapolis, Minnesota. The sale
is expected to close in the second quarter of 1994, subject to regulatory
approvals. First Bank satisfies the eligibility criteria, described above, in
order to become the successor Trustee to Morgan Guaranty Trust Company of New
York. If and when the agreement in principle is successfully consummated, it is
anticipated that First Bank will become the successor Trustee so long as it
continues to satisfy such eligibility criteria.
Morgan Guaranty Trust Company of New York, the Trustee under the Indenture,
participates with other banks under a Revolving Credit Facility Agreement (the
"Revolving Credit Facility") dated as of June 19, 1992 with the Company, under
which the Company can borrow up to $300,000,000. On the date hereof, no
borrowings were outstanding under the Revolving Credit Facility.
UNITED STATES TAXATION
The following is a summary of the principal United States federal income tax
consequences of the ownership of Debt Securities. It deals only with Debt
Securities held as capital assets within the meaning of the Internal Revenue
Code of 1986, as amended (the "Code") by initial purchasers, other than special
classes of holders such as dealers in securities or currencies, life insurance
companies, persons holding Debt Securities as a hedge or hedged against
currency risks or as part of a straddle, or persons whose functional currency
is not the U.S. dollar. This summary does not discuss all of the tax
consequences that may be relevant to purchasers of Debt Securities.
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The discussion of original issue discount is based in part on regulations,
which are not yet effective (the "Proposed Regulations"), issued under the
Code. While the Proposed Regulations are proposed to be effective for debt
instruments issued on or after sixty days after final regulations are adopted,
the Proposed Regulations are currently the best indication of the views of the
Internal Revenue Service (the "Service") with respect to the federal income tax
treatment of debt instruments having original issue discount.
Prospective purchasers of Debt Securities should consult their own tax
advisors concerning the effective date of the Proposed Regulations, the extent
to which the Proposed Regulations may be relied upon before they become
effective, and the general consequences, in their particular circumstances, of
the ownership of Debt Securities under the Code and the laws of any other
taxing jurisdiction.
PAYMENTS OF INTEREST
Interest on a Debt Security, whether payable in U.S. dollars or a foreign
currency, other than interest on a Discount Debt Security (as defined below
under "Original Issue Discount") that is not, under the Code, "fixed periodic
interest" or, under the Proposed Regulations, "qualified stated interest" (each
as defined below under "Original Issue Discount--General"), will be taxable to
a beneficial owner who or which is (i) a citizen or resident of the United
States, (ii) a domestic corporation or (iii) a person otherwise subject to
United States federal income taxation on a net income basis in respect of the
Debt Security (a "United States Holder") as ordinary income at the time it is
received or accrued, depending on the holder's method of accounting for tax
purposes.
If an interest payment is denominated in or determined by reference to a
foreign currency, the amount of income recognized by a cash basis United States
Holder will be the U.S. dollar value of the interest payment, based on the
exchange rate in effect on the date of receipt, regardless of whether the
payment is in fact converted into U.S. dollars. Accrual basis United States
Holders may determine the amount of income recognized with respect to such
interest payments in accordance with either of two methods.
Under the first method, the amount of income recognized will be based on the
average exchange rate in effect during the interest accrual period (or, with
respect to an accrual period that spans two taxable years, the partial period
within the taxable year). Upon receipt of an interest payment (including a
payment attributable to accrued but unpaid interest upon the sale or retirement
of a Debt Security) determined by reference to a foreign currency, an accrual
basis United States Holder will recognize ordinary income or loss measured by
the difference between such average exchange rate and the exchange rate in
effect on the date of receipt, regardless of whether the payment is in fact
converted into U.S. dollars. Under the second method, an accrual basis United
States Holder may elect to translate interest income into U.S. dollars at the
exchange rate in effect on the last day of the accrual period or, in the case
of an accrual period that spans two taxable years, at the exchange rate in
effect on the last day of the partial period within the taxable year.
Additionally, if receipt or payment of interest occurs within 5 business days
of the last day of the accrual period or, in the case of a partial accrual
period, the last day of the taxable year, an electing accrual basis United
States Holder may instead translate such accrued interest into U.S. dollars at
the exchange rate in effect on the day of actual receipt or payment. Any such
election will apply to all foreign currency debt instruments held by the United
States Holder at the beginning of the first taxable year to which the election
applies or thereafter acquired by the United States Holder, and will be
irrevocable without the consent of the Service.
ORIGINAL ISSUE DISCOUNT
General. A Debt Security will be treated as issued at an original issue
discount (a "Discount Debt Security") if the excess of the Debt Security's
"stated redemption price at maturity" over its issue price equals or exceeds
1/4 of one percent of such Debt Security's stated redemption price at maturity
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multiplied by the number of complete years to its maturity from the issue date.
Generally, the issue price of a Debt Security will be the first price at which
a substantial amount of the Debt Securities are sold to the public. Under the
Code, the "stated redemption price at maturity" of a Debt Security is the total
of all payments provided by the Debt Security other than payments of interest
based on a fixed rate unconditionally payable at fixed periodic intervals of
one year or less during the entire term of the Debt Security ("fixed periodic
interest"). Under the Proposed Regulations, the "stated redemption price at
maturity" of a Debt Security is the total of all payments provided by the Debt
Security that are not payments of "qualified stated interest". Under the
Proposed Regulations, "qualified stated interest" is generally stated interest
that is unconditionally payable in cash or in property (other than debt
instruments of the issuer) at least annually at a single fixed rate and, for
this purpose, interest is considered payable at a single fixed rate only if the
rate appropriately takes into account the length of the interval between stated
interest payments. The Proposed Regulations provide special rules for Variable
Rate Debt Securities which are described below under "Original Issue Discount--
Variable Rate Debt Securities".
If any excess of a Debt Security's stated redemption price at maturity over
its issue price is not sufficient to cause the Debt Security to be a Discount
Debt Security under the rules described above, then such excess constitutes "de
minimis original issue discount". Under the Proposed Regulations, unless the
election described below under "Election to Treat All Interest as Original
Issue Discount" is made, a United States Holder of a Debt Security with de
minimis original issue discount must include such de minimis original issue
discount in income as stated principal payments on the Debt Security are made.
The includible amount with respect to each such principal payment equals the
product of the total amount of the Debt Security's de minimis original issue
discount and a fraction, the numerator of which is the amount of the principal
payment made and the denominator of which is the stated principal amount of the
Debt Security.
The Code provides rules that require United States Holders of Discount Debt
Securities having a maturity of more than one year from their date of issue to
include original issue discount in income before the receipt of cash
attributable to such income. The amount of original issue discount includible
in income by a United States Holder of a Discount Debt Security is the sum of
the "daily portions" of original issue discount with respect to the Discount
Debt Security for each day during the taxable year in which the United States
Holder holds such Discount Debt Security ("accrued original issue discount").
The daily portion is determined by allocating to each day in any "accrual
period" a pro rata portion of the original issue discount allocable to that
accrual period. Under the Code, until final or temporary regulations become
effective, an accrual period is any six-month period (or shorter period from
the issue date of such Debt Security) which ends on a day in the calendar year
corresponding to the maturity date of the Debt Security or the date six months
before such date. The Proposed Regulations would allow the accrual periods with
respect to a Debt Security to be any set of periods (which may be of varying
lengths) selected by the United States Holder as long as (i) no accrual period
is longer than one year and (ii) each scheduled payment of interest or
principal on the Debt Security occurs at the end of an accrual period. The
amount of original issue discount allocable to an accrual period equals the
excess of (a) the product of the Discount Debt Security's adjusted issue price
at the beginning of the accrual period and the Discount Debt Security's yield
to maturity (determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of the accrual period) over
(b) the sum of any payments of fixed periodic interest made on the Debt
Security during (or under the Proposed Regulations, of qualified stated
interest on the Discount Debt Security allocable to) the accrual period. Under
the Code, the "adjusted issue price" of a Discount Debt Security at the
beginning or an accrual period is the sum of the issue price of the Discount
Debt Security plus the adjustments prescribed by the Code for all periods
before the first day of such accrual period (e.g., increased by the amount of
original issue discount allocable to prior accrual periods and decreased by the
amount of all payments in prior accrual periods which were not fixed periodic
interest payments). The Proposed Regulations provide that the "adjusted issue
price" of the Discount Debt Security at the
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beginning of any accrual period is (x) the sum of the issue price of such
Discount Debt Security, the accrued original issue discount for each prior
accrual period, and the amount of any qualified stated interest on the Debt
Security that has accrued prior to the beginning of the accrual period but is
not payable until a later date, less (y) any prior payments on the Discount
Debt Security that were not qualified stated interest payments. The Proposed
Regulations clarify that, for purposes of determining the amount of original
issue discount allocable to an accrual period, if an interval between payments
of qualified stated interest on a Debt Security contains more than one accrual
period, then the amount of qualified stated interest payable at the end of such
interval shall be allocated pro rata (on the basis of their relative lengths)
between the accrual periods contained in the interval.
The Code provides no specific guidance on the method to be used in
determining the amount of original issue discount allocable to a short initial
accrual period. The Proposed Regulations contain certain special rules that
generally allow any reasonable method to be used in determining the amount of
original issue discount allocable to a short initial accrual period (if all
other accrual periods are of equal length) and require that the amount of
original issue discount allocable to the final accrual period equal the excess
of the amount payable at the maturity of the Debt Security (other than any
payment of qualified stated interest) over the Debt Security's adjusted issue
price as of the beginning of such accrual period.
Under the Code and the Proposed Regulations, United States Holders generally
will have to include in income increasingly greater amounts of original issue
discount over the life of the Debt Security.
Acquisition Premium. Under the Proposed Regulations, a United States Holder
that purchases a Debt Security, including a purchase at its original issuance,
for an amount in excess of its adjusted issued price (any such excess being
"acquisition premium") and that does not make the election described below
under "Election to Treat All Interest as Original Issue Discount" is permitted
to reduce the daily portions of original issue discount by a fraction, the
numerator of which is the excess of the United States Holder's adjusted basis
in the Debt Security immediately after its purchase over the adjusted issue
price of the Debt Security, and the denominator of which is the excess of the
sum of all amounts payable on the Debt Security after the purchase date, other
than payments of qualified stated interest, over the Debt Security's adjusted
issue price.
Market Discount. Under the Code, a Debt Security, other than a Debt Security
that matures one year or less from the date of its issuance, will be treated as
issued at a market discount (a "Market Discount Debt Security") if (i) the
amount for which a United States Holder purchased the Debt Security is less
than the Debt Security's issue price (as determined above under "Original Issue
Discount--General") and (ii) the Debt Security's stated redemption price at
maturity or, in the case of a Discount Debt Security, the Debt Security's
"revised issue price", exceeds the basis of such Debt Security immediately
after the United States Holder purchased the Debt Security by at least 1/4 of
one percent of such Debt Security's stated redemption price at maturity or
revised issue price, as the case may be, multiplied by the number of complete
years to the Debt Security's maturity. If the excess, if any, referred to in
the preceding sentence is not sufficient to cause the Debt Security to be a
Market Discount Debt Security, then such excess constitutes "de minimis market
discount". For these purposes, the revised issue price of a Debt Security
equals its issue price, increased by the amount of any original issue discount
that has accrued on the Debt Security.
Any gain recognized on the maturity or disposition of a Market Discount Debt
Security will be treated as ordinary income to the extent that such gain does
not exceed the accrued market discount on such Debt Security. Alternatively, a
United States Holder of a Market Discount Debt Security may elect to include
market discount in income currently over the life of the Debt Security. Such an
election shall apply to all debt instruments with market discount acquired by
the electing United States Holder on or after the first day of the first
taxable year to which the election applies. This election shall apply,
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<PAGE>
in addition to the taxable year for which it is made, to all subsequent taxable
years. This election may not be revoked without the consent of the Service.
Market discount on a Market Discount Debt Security will accrue on a straight-
line basis unless the United States Holder elects to accrue such market
discount on a constant yield to maturity basis. Such an election shall apply
only to the Debt Security with respect to which it is made and may not be
revoked without the consent of the Service. A United States Holder of a Market
Discount Debt Security who does not elect to include market discount in income
currently generally will be required to defer deductions for interest on
borrowings allocable to such Debt Security in an amount not exceeding the
accrued market discount on such Debt Security until the maturity or disposition
of such Debt Security.
Pre-Issuance Accrued Interest. The Proposed Regulations provide that if (i) a
portion of the initial purchase price of a Debt Security is attributable to
pre-issuance accrued interest, (ii) the first stated interest payment on the
Debt Security is to be made within one year of the Debt Security's issue date
and (iii) such payment will equal or exceed the amount of pre-issuance accrued
interest, then the United States Holder may elect to decrease the issue price
of the Debt Security by the amount of pre-issuance accrued interest, in which
case a portion of the first stated interest payment will be treated as a return
of the excluded pre-issuance accrued interest and not as an amount payable on
the Debt Security.
Optional Redemption. Under the Proposed Regulations, if the Company has an
option to redeem a Debt Security, or the Holder has an option to cause a Debt
Security to be repurchased, prior to the Debt Security's stated maturity, such
option will be presumed to be exercised if, by utilizing any date on which such
Debt Security may be redeemed or repurchased as the maturity date and the
amount payable on such date in accordance with the terms of such Debt Security
(the "redemption price") as the principal amount payable at maturity, the yield
on the Debt Security would be (i) in the case of an option of the Company,
lower than its yield to stated maturity, or (ii) in the case of an option of
the Holder, higher than its yield to stated maturity. If such option is not in
fact exercised when presumed to be exercised, the Debt Security would be
treated solely for original issue discount purposes as if it were redeemed or
repurchased, and a new Debt Security were issued, on the presumed exercise date
for an amount equal to the Debt Security's adjusted issue price on that date.
Election to Treat All Interest as Original Issue Discount. Under the Proposed
Regulations, an accrual basis United States Holder may elect to include in
gross income all interest that accrues on a Debt Security using the constant
yield method described above under the heading "Original Issue Discount--
General," with the modifications described below. For purposes of this
election, interest includes stated interest, acquisition discount, original
issue discount, de minimis original issue discount, market discount, de minimis
market discount and unstated interest, as adjusted by any amortizable bond
premium (described below under "Debt Securities Purchased at a Premium") or
acquisition premium.
In applying the constant yield method to a Debt Security with respect to
which this election has been made, the issue price of the Debt Security will
equal the electing United States Holder's adjusted basis in the Debt Security
immediately after its acquisition, the issue date of the Debt Security will be
the date of its acquisition by the electing United States Holder, and no
payments on the Debt Security will be treated as payments of qualified stated
interest. This election will generally apply only to the Debt Security with
respect to which it is made and may not be revoked without the consent of the
Service. If this election is made with respect to a Debt Security with
amortizable bond premium, then the electing United States Holder will be deemed
to have elected to apply amortizable bond premium against interest with respect
to all debt instruments with amortizable bond premium (other than debt
instruments the interest on which is excludible from gross income) held by such
electing United States Holder as of the beginning of the taxable year in which
the Debt Security with respect to which the election is made is acquired or
thereafter acquired. The deemed election with respect to amortizable bond
premium may not be revoked without the consent of the Service.
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If the election to apply the constant yield method to all interest on a Debt
Security is made with respect to a Market Discount Debt Security, then the
electing United States Holder will be treated as having made the election
discussed above under "Original Issue Discount--Market Discount" to include
market discount in income currently over the life of all debt instruments held
or thereafter acquired by such United States Holder.
Variable Rate Debt Securities. Under the Proposed Regulations, a Variable
Rate Debt Security is a Debt Security which provides for total noncontingent
principal payments which equal or exceed its issue price and stated interest,
compounded or paid at least annually, at (i) a single qualified floating rate,
(ii) a single qualified floating rate followed by another qualified floating
rate, (iii) a single fixed rate followed by a single qualified floating rate,
or (iv) a single objective rate, where any such qualified floating or objective
rate in effect during an accrual period will be set at a current value of such
rate. A floating rate is a "qualified floating rate" if variations in such rate
can reasonably be expected to measure contemporaneous fluctuations in the cost
of newly borrowed funds. An objective rate is a rate (other than a qualified
floating rate) the formula for which is fixed throughout the term of the Debt
Security and which is based on the price of actively traded property (other
than nonfunctional currency), an index of the price of such property, or one or
more qualified floating rates.
Under the Proposed Regulations, if stated interest on a Variable Rate Debt
Security is unconditionally payable in cash or in property (other than debt
instruments of the issuer) at least annually, such stated interest will be
"qualified stated interest" that is not included in the "stated redemption
price at maturity" for the purpose of determining original issue discount.
Where a Variable Rate Debt Security provides for a fixed rate followed by a
qualified floating rate or a qualified floating rate followed by another
qualified floating rate and the fair market value of the Debt Security would
not be approximately equal to its current fair market value if the latter rate
were substituted for the initial rate and were in effect throughout the term of
the Debt Security, then some portion of the interest on the Debt Security will
be treated as either accelerated or deferred interest, and such accelerated or
deferred interest will not be treated as qualified stated interest. If the
substitution described in the preceding sentence would decrease the fair market
value of the Debt Security, then the stated interest accruing in the interval
in which the initial rate is in effect that is attributable to the number of
percentage points that must be subtracted from the initial rate in order to
cause the substitution to have approximately no effect on the fair market value
of the Debt Security will be accelerated interest. If the substitution would
increase the fair market value of the Debt Security, then the stated interest
accruing in the interval in which the latter rate is in effect that is
attributable to the number of percentage points that must be subtracted from
the latter rate in order to cause the substitution to have approximately no
effect on the fair market value of the Debt Security will be deferred interest.
Under the Proposed Regulations, the original issue discount for an accrual
period on a Variable Rate Debt Security that arises from stated interest that
is not unconditionally payable at least annually (other than accelerated or
deferred interest) is the amount of stated interest that actually accrues under
the terms of the Debt Security during the accrual period. The original issue
discount on a Variable Rate Debt Security that arises from (i) an excess of the
Debt Security's stated principal amount over its issue price ("true discount"),
and (ii) accelerated interest, or (iii) deferred interest must be allocated to
an accrual period in accordance with a reasonable application of the constant
yield method described above under "Original Issue Discount--General."
The Code delegates to the Treasury Department the authority to prescribe
special rules relating to the tax treatment, under the original issue discount
provisions of the Code, of Debt Securities that satisfy the definition of
Variable Rate Debt Securities. Because the Proposed Regulations are not yet
effective, United States Holders should discuss with their tax advisors the
treatment of such Debt Securities under the Code and, if applicable, the
proposed regulations that describe the application of the original issue
discount provisions of the Code to debt instruments with contingent payments.
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<PAGE>
Short-Term Debt Securities. Under the Code, special rules apply with respect
to original issue discount on Debt Securities that mature one year or less from
the date of its issuance ("short-term Debt Securities"). In general, an
individual or other cash basis United States Holder of a short-term Debt
Security is not required to accrue original issue discount for United States
federal income tax purposes unless it elects to do so. Accrual basis United
States Holders and certain other United States Holders, including banks,
regulated investment companies, dealers in securities and cash basis United
States Holders who so elect, are required to accrue original issue discount on
short-term Debt Securities on either a straight-line basis or under the
constant yield method (based on daily compounding), at the election of the
United States Holder. In the case of a United States Holder not required and
not electing to include original issue discount in income currently, any gain
realized on the sale or retirement of the short-term Debt Security will be
ordinary income to the extent of the original issue discount accrued on a
straight-line basis (unless an election is made to accrue the original issue
discount under the constant yield method) through the date of sale or
retirement. United States Holders who are not required and do not elect to
accrue original issue discount on short-term Debt Securities will be required
to defer deductions for interest on borrowings allocable to short-term Debt
Securities in an amount not exceeding the deferred interest income until such
deferred interest income is realized.
For purposes of determining the amount of original issue discount subject to
these rules, the Proposed Regulations provide that all interest payments on a
short-term Debt Security, including qualified stated interest, are included in
the short-term Debt Security's stated redemption price at maturity.
Foreign Currency Discount Debt Securities. Original issue discount for any
accrual period on a Discount Debt Security that is denominated in a foreign
currency will be determined in the foreign currency and then translated into
U.S. dollars in the same manner as stated interest accrued by an accrual basis
United States Holder, as described under "Payments of Interest." Upon receipt
of an amount attributable to original issue discount (whether in connection
with a payment of interest or the sale or retirement of a Debt Security), a
United States Holder may recognize ordinary income or loss.
DEBT SECURITIES PURCHASED AT A PREMIUM
Under the Code, a United States Holder that purchases a Debt Security for an
amount in excess of its principal amount may elect to treat such excess as
"amortizable bond premium", in which case the amount required to be included in
the United States Holder's income each year with respect to interest on the
Debt Security will be reduced by the amount of amortizable bond premium
allocable (based on the Debt Security's yield to maturity) to such year. In the
case of a Debt Security that is denominated in a foreign currency, bond premium
will be computed in units of foreign currency, and amortizable bond premium
will reduce interest income in units of the foreign currency. At the time
amortized bond premium offsets interest income, a United States Holder may
realize exchange gain or loss (taxable as ordinary income or loss, but
generally not as interest income or expense), measured by the difference
between exchange rates at that time and at the time of the acquisition of the
Debt Securities. Any election to amortize bond premium shall apply to all bonds
(other than bonds the interest on which is excludible from gross income) held
by the United States Holder at the beginning of the first taxable year to which
the election applies or thereafter acquired by the United States Holder, and is
irrevocable without the consent of the Service. See also "Original Issue
Discount--Election to Treat All Interest as Original Issue Discount".
PURCHASE, SALE AND RETIREMENT OF THE DEBT SECURITIES
A United States Holder's tax basis in a Debt Security will generally be its
U.S. dollar cost (which, in the case of a Debt Security purchased with a
foreign currency, will be the U.S. dollar value of the purchase price on the
date of purchase), increased by the amount of any original issue discount or
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<PAGE>
market discount included in the United States Holder's gross income with
respect to the Debt Security and, under the Proposed Regulations, the amount,
if any, of income attributable to de minimis original issue discount included
in the United States Holder's gross income with respect to the Debt Security,
and reduced by the sum of (i) under the Code, the amount of any payments other
than payments of fixed periodic interest or, under the Proposed Regulations,
the amount of any payments that are not qualified stated interest payments, and
(ii) the amount of any amortizable bond premium applied to reduce interest on
the Debt Security. A United States Holder generally will recognize gain or loss
on the sale or retirement of a Debt Security equal to the difference between
the amount realized on the sale or retirement and the tax basis of the Debt
Security. The amount realized on a sale or retirement for an amount in foreign
currency will be the U.S. dollar value of such amount on the date of sale or
retirement. Except to the extent described above under "Original Issue
Discount--Short Term Debt Securities" or "Original Issue Discount--Market
Discount" or in the next succeeding paragraph, and except to the extent
attributable to accrued but unpaid interest, gain or loss recognized on the
sale or retirement of a Debt Security will be capital gain or loss and will be
long-term capital gain or loss if the Debt Security was held for more than one
year.
Gain or loss recognized by a United States Holder on the sale or retirement
of a Debt Security that is attributable to changes in exchange rates will be
treated as ordinary income or loss. However, exchange gain or loss is taken
into account only to the extent of total gain or loss realized on the
transaction.
EXCHANGE OF AMOUNTS IN OTHER THAN U.S. DOLLARS
Foreign currency received as interest on a Debt Security or on the sale or
retirement of a Debt Security will have a tax basis equal to its U.S. dollar
value at the time such interest is received or at the time of such sale or
retirement. Foreign currency that is purchased will generally have a tax basis
equal to the U.S. dollar value of the foreign currency on the date of purchase.
Any gain or loss recognized on a sale or other disposition of a foreign
currency (including its use to purchase Debt Securities or upon exchange for
U.S. dollars) will be ordinary income or loss.
INDEXED DEBT SECURITIES
The applicable Prospectus Supplement will contain a discussion of any special
United States federal income tax rules with respect to Debt Securities payments
on which are determined by reference to any index.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to payments of
principal, any premium and interest made on a Debt Security and the proceeds of
the sale of a Debt Security before maturity within the United States to, and to
the accrual of original issue discount on a Discount Debt Security with respect
to, non-corporate United States Holders, and "backup withholding" at a rate of
31% will apply to such payments and to payments of original issue discount if
the United States Holder fails to provide an accurate taxpayer identification
number, fails to report all interest and dividends required to be shown on its
federal income tax returns or, under certain circumstances, fails to certify
under penalties of perjury that it is not subject to backup withholding for
failure to report interest and dividend payments.
FOREIGN CURRENCY RISKS
GENERAL
Exchange Rates and Exchange Controls. An investment in Debt Securities
denominated in other than U.S. dollars entails significant risks that are not
associated with a similar investment in a security denominated in U.S. dollars.
Such risks include, without limitation, the possibility of significant changes
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in rates of exchange between the U.S. dollar and the various foreign currencies
or composite currencies, and the possibility of the imposition or modification
of foreign exchange controls by either the U.S. or foreign governments. Such
risks generally depend on economic and political events over which the Company
has no control. In recent years, rates of exchange between the U.S. dollar and
certain foreign currencies have been highly volatile, and such volatility may
be expected to continue in the future. Fluctuations in any particular exchange
rate that have occurred in the past are not necessarily indicative, however, of
fluctuations in the rate that may occur during the term of any Debt Security.
Depreciation of the Specified Currency other than U.S. dollars against the U.S.
dollar would result in a decrease in the effective yield of such Debt Security
below its coupon rate, and in certain circumstances could result in a loss to
the investor on a U.S. dollar basis.
Governments have imposed from time to time and may in the future impose
exchange controls that could effect exchange rates as well as the availability
of a specified foreign currency at a Debt Security's maturity. Even if there
are no actual exchange controls, it is possible that the Specified Currency for
any particular Debt Security would not be available at such Debt Security's
maturity. In that event, the Company will repay in U.S. dollars on the basis of
the most recently available Exchange Rate.
Currently, there are limited facilities in the United States for conversion
of U.S. dollars into foreign currencies, and vice versa. Accordingly, payments
on Debt Securities made in a Specified Currency other than U.S. dollars will be
made from an account with a bank located in the country issuing the Specified
Currency (or, for Debt Securities denominated in ECUs, Brussels).
THIS PROSPECTUS DOES NOT DESCRIBE ALL THE RISKS OF AN INVESTMENT IN DEBT
SECURITIES DENOMINATED IN OTHER THAN U.S. DOLLARS. PROSPECTIVE INVESTORS SHOULD
CONSULT THEIR OWN FINANCIAL AND LEGAL ADVISORS AS TO THE RISKS ENTAILED BY AN
INVESTMENT IN DEBT SECURITIES DENOMINATED IN OTHER THAN U.S. DOLLARS. DEBT
SECURITIES DENOMINATED IN OTHER THAN U.S. DOLLARS ARE NOT AN APPROPRIATE
INVESTMENT FOR INVESTORS WHO ARE UNSOPHISTICATED ABOUT FOREIGN CURRENCY
TRANSACTIONS.
UNLESS OTHERWISE SPECIFIED IN THE PROSPECTUS SUPPLEMENT, DEBT SECURITIES
DENOMINATED IN OTHER THAN U.S. DOLLARS OR ECUS WILL NOT BE SOLD IN, OR TO
RESIDENTS OF, THE COUNTRY ISSUING THE SPECIFIED CURRENCY IN WHICH PARTICULAR
DEBT SECURITIES ARE DENOMINATED. THE INFORMATION SET FORTH IN THIS PROSPECTUS
IS DIRECTED TO PROSPECTIVE PURCHASERS WHO ARE UNITED STATES RESIDENTS, AND THE
COMPANY DISCLAIMS ANY RESPONSIBILITY TO ADVISE PROSPECTIVE PURCHASERS WHO ARE
RESIDENTS OF COUNTRIES OTHER THAN THE UNITED STATES AS TO ANY MATTERS THAT MAY
AFFECT THE PURCHASE, HOLDING, OR RECEIPT OF PAYMENTS OF PRINCIPAL OF AND
INTEREST ON THE DEBT SECURITIES. SUCH PERSONS SHOULD CONSULT THEIR OWN
FINANCIAL AND LEGAL ADVISORS WITH REGARD TO SUCH MATTERS.
Governing Law and Judgments. The Debt Securities will be governed by and
construed in accordance with the laws of the State of New York. Courts in the
United States generally would grant judgment relating to an action based on the
Foreign Currency Debt Securities only in U.S. dollars, and the date used to
determine the rate of conversion of foreign currencies into U.S. dollars will
depend on various factors, including which court rendered judgment. Section 27
of the Judiciary Law of the State of New York provides that a New York State
court would be required to enter judgment in the Specified Currency; such
judgment would then be converted into U.S. dollars at the rate of exchange
prevailing on the date judgment was rendered. Other United States courts,
however, in granting such judgment, might determine the rate of conversion into
U.S. dollars with reference to the date of default, the date judgment is
rendered, or some other date.
EXCHANGE RATE AND CONTROLS FOR SPECIFIED CURRENCIES
For any Debt Security denominated in other than U.S. dollars, a Currency
Supplement with respect to the applicable Specified Currency (which supplement
shall include information about any applicable current foreign exchange
controls) shall be attached to the related Prospectus Supplement. The
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information concerning exchange rates is furnished as a matter of information
only and should not be regarded as indicative of the rate of or trends in
future fluctuations in currency exchange rates.
PLAN OF DISTRIBUTION
The Company may sell Debt Securities to or through underwriters and also may
sell Debt Securities directly to other purchasers or through agents. Such
underwriters or agents may include Goldman, Sachs & Co. or a group of
underwriters represented by firms including Goldman, Sachs & Co., and will be
named in the Prospectus Supplement. Goldman, Sachs & Co. may also act as
agents.
The distribution of the Debt Securities may be affected 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 Debt Securities, underwriters may receive
compensation from the Company or from purchasers of Debt Securities, for whom
they may act as agents, in the form of discounts, concessions, or commissions.
Underwriters may sell Debt 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 act
as agents. Underwriters, dealers, and agents that participate in the
distribution of Debt Securities may be deemed to be underwriters, and any
discounts or commissions they receive from the Company, and any profit on the
resale of Debt Securities they realize 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.
Each series of Offered Debt Securities will be a new issue with no
established trading market. The Company may elect to list any series of Offered
Debt Securities on an exchange, but is not obligated to do so. It is possible
that one or more underwriters may make a market in a series of Offered Debt
Securities, but will not be obligated to do so and may discontinue any market
making at any time without notice. Therefore, no assurance can be given as to
the liquidity of the trading market for the Debt Securities.
Under agreements the Company may enter into, underwriters, dealers, and
agents who participate in the distribution of Debt Securities may be entitled
to indemnification by the Company against certain liabilities, including
liabilities under the Securities Act.
John L. Weinberg is a director of the Company and also serves as a member of
the Asset/Liability Committee and the Human Resources Committee of the
Company's Board of Directors. He was Senior Partner of the Goldman Sachs Group,
L.P. and its principal affiliate, Goldman, Sachs & Co., until November 30,
1990, when he retired as a general partner and became Senior Chairman of the
Goldman Sachs Group, L.P. In July 1991 he became Senior Chairman of Goldman,
Sachs & Co. In addition, certain of the underwriters or agents and their
associates may be customers of, engage in transactions with, and perform
services for the Company in the ordinary course of business.
VALIDITY OF DEBT SECURITIES
Unless otherwise specified in the Prospectus Supplement with respect to the
Offered Debt Securities, the validity of the Debt Securities will be passed
upon for the Company by Stites & Harbison, Louisville, Kentucky, and if sold to
or through underwriters or agents, by Sullivan & Cromwell, New York, New York.
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EXPERTS
The consolidated financial statements of the Company incorporated by
reference in the Company's Annual Report on Form 10-K for the year ended
December 31, 1992, and the related schedules included therein, have been
audited by Ernst & Young, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such
consolidated financial statements and related schedules 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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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Registration Fee............................................... $ 91,485
Trustee's Fees and Expenses.................................... 16,000*
Printing and Engraving Expenses................................ 70,000*
Rating Agency Fees............................................. 150,000*
Accountants' Fees and Expenses................................. 80,000*
Legal Fees and Expenses........................................ 250,000*
Blue Sky Fees and Expenses..................................... 20,000*
Miscellaneous.................................................. 5,515*
--------
Total...................................................... $683,000*
========
</TABLE>
- --------
*Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Delaware corporation. Section 145 of the Delaware General
Corporation Law empowers a corporation, with limitations, to indemnify its
directors, officers, employees, and agents against expenses (including
attorneys' fees), judgments, fines, and certain settlements actually and
reasonably incurred by them in connection with any suit or proceeding to which
they are a party so long as they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation (and, with respect to a criminal action or proceeding, so long as
they had no reasonable cause to believe their conduct to have been unlawful).
The Company has purchased insurance coverage for its directors and officers
with respect to certain liabilities incurred in their capacities as such, and
insuring the Company against any payments which it is obligated to make to such
persons under the above indemnification provisions.
The Delaware General Corporation Law was amended in June 1986 to allow
Delaware corporations to amend their certificates of incorporation (a) to
eliminate or limit their directors' personal liability to the Company and its
shareholders for monetary damages for violations of their fiduciary duty of
care in certain cases (including gross negligence) and (b) to enhance the scope
of authorized indemnification (including the advancing of litigation expenses)
for its directors, officers, employees, and agents. Under the amended statute,
a corporation can entitle an individual to an advance of expenses associated
with a legal proceeding before its conclusion, if that individual agrees to
repay the expenses advanced if it is ultimately determined that indemnification
was not warranted.
In May, 1987, the Company's Certificate of Incorporation was amended to: (a)
limit Company directors' liability in certain circumstances, (b) enhance
indemnification rights for its directors, officers, employees, and agents to
the fullest extent permitted by Delaware law as amended in June 1986 in the
manner described above, and (c) entitle an individual to an advance of expenses
as described above. Section 6.1 of the Company's By-Laws provides that the
Company's officers, directors, employees, and agents shall have such rights to
indemnification as are provided for in the Company's Certificate of
Incorporation.
II-1
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
1.1** --Form of Underwriting Agreement.
4.1** --Form of Indenture between the Company and Morgan Guaranty Trust
Company of New York, as Trustee.
5.1** --Opinion of Stites & Harbison as to validity of Debt Securities,
and including consent.
12.1** --Computation of Ratio of Earnings to Fixed Charges.
23.1* --Consent of Ernst & Young.
23.2** --Consent of Stites & Harbison (included in Exhibit 5.1)
24.1** --Certified copy of resolution of the Board of Directors of the Com-
pany authorizing the corporation and its officers to name attor-
neys-in-fact to sign on their behalf this registration statement
and any and all amendments (including post-effective amendments)
thereto.
24.2** --Power of attorney authorizing Lee Adrean, Elaine J. Robinson, Paul
J. Houk, and Sherry F. Hardy to sign the registration statement and
any and all amendments (including post-effective amendments) to the
registration statement from Robert L. Walker as principal financial
officer of the Company (powers of attorney authorizing Lee Adrean,
Elaine J. Robinson, Paul J. Houk, and Sherry F. Hardy to sign this
registration statement and any and all amendments [including post-
effective amendments] to this registration statement on behalf of
the Company and its directors and officers--previously filed).
25.1** --Form T-1, Statement of Eligibility and Qualification under the
Trust Indenture Act of 1939, as amended, of Morgan Guaranty Trust
Company of New York.
</TABLE>
- --------
* Filed herewith.
** Previously filed.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made of
the securities registered hereby, a post-effective amendment to this
registration statement:
(i) to include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933, as amended (the "Act");
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that the undertakings set forth in paragraphs (i) and
(ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are
incorporated by reference in this registration statement;
(2) that for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE>
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of its annual report
pursuant to Section 13(a) or 15(d) of the Exchange Act that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities under the Act may be permitted
to directors, officers, and controlling persons of the registrant under Item 15
above, or otherwise, the registrant has been advised that in the opinion of the
SEC such indemnification is against public policy as expressed in the Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of such
registrant in the successful defense of any action, suit, or proceeding) is
asserted against the registrant by such director, officer, or controlling
person in connection with the securities being registered, such registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS PRE-EFFECTIVE
AMENDMENT NO. 3 TO FORM S-3 REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOUISVILLE AND
COMMONWEALTH OF KENTUCKY, ON THIS 12TH DAY OF JANUARY, 1994.
CAPITAL HOLDING CORPORATION
By: IRVING W. BAILEY II*
Chairman of the Board, President,
and Chief Executive Officer
/s/ Sherry F. Hardy
*By: _________________________________
SHERRY F. HARDY
Attorney-in-fact for
Irving W. Bailey II
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS PRE-
EFFECTIVE AMENDMENT NO. 3 TO FORM S-3 REGISTRATION STATEMENT HAS BEEN SIGNED BY
THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON THIS 12TH DAY OF JANUARY,
1994.
<TABLE>
<CAPTION>
SIGNATURES TITLES
---------- ------
<S> <C>
Irving W. Bailey II*
- ------------------------------------
Irving W. Bailey II Chairman of the Board,
President, and Chief
Executive Officer
(Principal Executive
Officer)
Robert L. Walker*
- ------------------------------------
Robert L. Walker Senior Vice President--
Finance and Chief Financial
Officer (Principal
Financial and Accounting
Officer)
John L. Clendenin*
- ------------------------------------
John L. Clendenin Director
John M. Cranor, III*
- ------------------------------------
John M. Cranor, III Director
Joseph F. Decosimo*
- ------------------------------------
Joseph F. Decosimo Director
Lyle Everingham*
- ------------------------------------
Lyle Everingham Director
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLES
---------- ------
<S> <C>
- ------------------------------------
Raymond V. Gilmartin Director
J. David Grissom*
- ------------------------------------
J. David Grissom Director
Watts Hill, Jr.*
- ------------------------------------
Watts Hill, Jr. Director
- ------------------------------------
F. Warren McFarlan Director
Martha R. Seger*
- ------------------------------------
Martha R. Seger Director
Florence R. Skelly*
- ------------------------------------
Florence R. Skelly Director
John L. Weinberg*
- ------------------------------------
John L. Weinberg Director
</TABLE>
/s/ Sherry F. Hardy
*By: _____________________________
Sherry F. Hardy
Attorney-in-fact
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
1.1** --Form of Underwriting Agreement.
4.1** --Form of Indenture between the Company and Morgan Guaranty Trust
Company of New York, as Trustee.
5.1** --Opinion of Stites & Harbison as to validity of Debt Securities,
and including consent.
12.1** --Computation of Ratio of Earnings to Fixed Charges.
23.1* --Consent of Ernst & Young.
23.2** --Consent of Stites & Harbison (included in Exhibit 5.1)
24.1** --Certified copy of resolution of the Board of Directors of the Com-
pany authorizing the corporation and its officers to name attor-
neys-in-fact to sign on their behalf this registration statement
and any and all amendments (including post-effective amendments)
thereto.
24.2** --Power of attorney authorizing Lee Adrean, Elaine J. Robinson, Paul
J. Houk, and Sherry F. Hardy to sign the registration statement and
any and all amendments (including post- effective amendments) to
the registration statement from Robert L. Walker as principal fi-
nancial officer of the Company (powers of attorney authorizing Lee
Adrean, Elaine J. Robinson, Paul J. Houk, and Sherry F. Hardy to
sign this registration statement and any and all amendments (in-
cluding post-effective amendments) to this registration statement
on behalf of the Company and its directors and officers--previously
filed).
25.1** --Form T-1, Statement of Eligibility and Qualification under the
Trust Indenture Act of 1939, as amended, of Morgan Guaranty Trust
Company of New York.
</TABLE>
- --------
* Filed herewith.
** Previously filed.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Pre-
Effective Amendment No. 3 to the Registration Statement (Form S-3 No. 33-49719)
and related Prospectus of Capital Holding Corporation for the registration of
$292,750,000 in Debt Securities, and to the incorporation by reference therein
of our report dated February 10, 1993, except for Note N, as to which the date
is February 17, 1993, with respect to the consolidated financial statements and
related schedules of Capital Holding Corporation included in or incorporated by
reference in its Annual Report (Form 10-K) for the year ended December 31,
1992, as amended by Form 10-K/A-1, filed with the Securities and Exchange
Commission.
ERNST & YOUNG
Louisville, Kentucky
January 12, 1994
