<PAGE>
As filed with the Securities and Exchange Commission on April 26, 1994
Registration No. 33-52785
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
Amendment No. 2
To
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------
CAPITAL HOLDING LLC CAPITAL HOLDING CORPORATION
(Exact name of Registrant as (Exact name of Guarantor as
specified in its charter) specified in its charter)
Turks and Caicos Islands Delaware
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
Applied for 51-0108922
(I.R.S. Employer (I.R.S. Employer
Identification No.) Identification No.)
c/o Gregory P. Givan Robert L. Walker
Second Vice President- Senior Vice President-Finance
Corporate Finance and Chief Financial Officer
Capital Holding Corporation Capital Holding Corporation
Capital Holding Center Capital Holding Center
400 West Market Street 400 West Market Street
Louisville, Kentucky 40202 Louisville, Kentucky 40202
(502) 560-2000 (502) 560-2000
(Address, including zip code, and (Address, including zip code, and
telephone number, including area telephone number, including area
code, of Registrant's principal code, of Guarantor's principal
executive offices and agent for executive offices and agent for
service) 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
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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. [_]
----------
THE REGISTRANT AND THE GUARANTOR HEREBY AMEND THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT AND THE GUARANTOR 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.
==============================================================================
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED APRIL 26, 1994
4,000,000 SHARES
CAPITAL HOLDING LLC
___% CUMULATIVE MONTHLY INCOME PREFERRED SHARES ("MIPS"*)
(LIQUIDATION PREFERENCE $25 PER SHARE)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
CAPITAL HOLDING CORPORATION
______________
The ___% Cumulative Monthly Income Preferred Shares (the "MIPS"* or the
"Preferred Shares"), liquidation preference $25 per share, offered hereby
are being issued by Capital Holding LLC, a limited life company organized
under the laws of the Turks and Caicos Islands (the "Company"). The
Company is a wholly owned subsidiary of Capital Holding Corporation, a
Delaware corporation ("Capital Holding"). The Company has been formed for
the sole purpose of issuing preferred shares, including the MIPS, and
common shares and lending the proceeds thereof to Capital Holding to
finance Capital Holding's business operations.
The payment of dividends, if and to the extent declared out of moneys
held by the Company and legally available therefor, and payments on
liquidation or redemption with respect to the Preferred Shares, are
guaranteed by Capital Holding to the extent described herein. The Preferred
Shares will entitle holders to receive cumulative preferential cash
dividends, at an annual rate of ___% of the liquidation preference of $25
per share, accruing from the date of original issuance and payable, in
United States dollars, monthly in arrears on the last day of each calendar
month of each year, commencing _____________, 1994. No portion of the
dividends received by a holder of the Preferred Shares will be eligible for
the dividends received deduction for United States federal income tax
purposes. See "Taxation-United States."
The Preferred Shares are redeemable, at the option of the Company (with
Capital Holding's consent) in whole or in part from time to time, at $25
per share on or after ______________, 1999, plus in each case accumulated
and unpaid dividends to the date fixed for redemption, and will be
redeemed, under certain other circumstances, including from the proceeds of
any prepayment and repayment of the loan to Capital Holding of the proceeds
from the sale of the Preferred Shares. In addition, if at any time the
Company or Capital Holding is or would be required to pay certain
additional amounts or to withhold or deduct certain amounts, the Preferred
Shares are redeemable at the option of the Company (with Capital Holding's
consent), from time to time, at $25 per share plus accumulated and unpaid
dividends to the date fixed for redemption. See "Description of Preferred
Shares-Optional Redemption."
In the event of liquidation of the Company, holders of the Preferred
Shares will be entitled to receive for each Preferred Share a liquidation
preference of $25 plus accumulated and unpaid dividends to the date of
payment, subject to certain limitations. See "Description of Preferred
Shares-Liquidation Distribution."
See "Capital Holding LLC," "Description of Preferred Shares-Mandatory
Redemption," "Description of the Guarantee" and "Description of the
Loans" herein for descriptions of various contractual backup undertakings of
Capital Holding relating to the Preferred Shares.
Application has been made for listing of the Preferred Shares on the New
York Stock Exchange.
SEE "PROSPECTUS SUMMARY" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE PREFERRED SHARES OFFERED
HEREBY.
______________
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.
______________
<TABLE>
<CAPTION>
Initial Public Underwriting Proceeds to
Offering Price Commissions (1) Company (2)(3)
-------------- --------------- ---------------
<S> <C> <C> <C>
Per Share.. $ (2) $
Total...... $ (2) $
</TABLE>
(1) The Company and Capital Holding have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) In view of the fact that the proceeds of the sale of the Preferred Shares
will be lent to Capital Holding, Capital Holding has agreed to pay the
Underwriters as compensation ("Underwriters' Compensation") for their
services under the Underwriting Agreement $________ per Preferred Share
(or $________ in the aggregate); provided that such compensation will be
$_________ per Preferred Share sold to certain institutions. Therefore,
to the extent that Preferred Shares are sold to such institutions, the
actual amount of Underwriters' Compensation will be less than the amount
specified in the preceding sentence. See "Underwriting."
(3) Expenses related to the organization of the Company and the offering,
estimated at $380,000, will be paid by Capital Holding.
_______________
The Preferred Shares are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
delivery of the Preferred Shares will be made only in book-entry form through
the facilities of The Depository Trust Company on or about _________, 1994.
________________
* An application has been filed by Goldman, Sachs & Co. with the United States
Patent and Trademark Office for the registration of the MIPS service
mark.
GOLDMAN, SACHS & CO.
_______________
The date of this Prospectus is _______________, 1994.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PREFERRED
SHARES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
____________
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 and Capital Holding have filed with the Securities and Exchange
Commission (the "SEC") a joint Registration Statement under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the Preferred
Shares. 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, Capital
Holding and the Preferred Shares.
Capital Holding 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 Northwestern Atrium Center, 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 Capital Holding 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.
No separate financial statements of the Company have been included herein.
The Company and Capital Holding do not consider that such financial statements
would be material to holders of the Preferred Shares because the Company is a
newly organized special purpose entity, has no operating history and no
independent operations and is not engaged in any activity other than the
issuance of the Preferred Shares and its common shares, and the lending of the
proceeds thereof to Capital Holding. See "Capital Holding LLC." The Company
is a limited life company organized under the laws of the Turks and Caicos
Islands
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and will be managed by Capital Holding, which directly or indirectly owns all
of the Company's common shares, which are nontransferable. The Company has no
physical assets located within the United States. As a result, it may not be
possible for investors to effect service of process within the United States
upon the Company or to enforce against it in the United States courts
judgments obtained in such courts predicated upon civil liability provisions
of the federal securities laws of the United States. The Company has been
advised by its Turks and Caicos Islands legal counsel, Misick and Stanbrook,
that there is doubt as to the enforceability, in the Turks and Caicos
Islands in original actions or in actions for enforcement of judgments of
United States courts, of liabilities predicated solely upon the federal
securities laws of the United States.
____________
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following document, filed by Capital Holding with the SEC (File No. 1-
6701) under the Exchange Act, is incorporated herein by reference:
Capital Holding's Annual Report on Form 10-K for the year ended December
31, 1993 (which incorporates by reference certain portions of the 1993 Annual
Report to Shareholders and the Proxy Statement for the Annual Meeting of
Shareholders to be held on May 11, 1994).
All documents filed by Capital Holding 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.
Capital Holding 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.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements included elsewhere in this
Prospectus or incorporated herein by reference.
THE COMPANY AND CAPITAL HOLDING
Capital Holding LLC (the "Company"), a wholly owned special purpose
subsidiary of Capital Holding Corporation ("Capital Holding"), is a Turks and
Caicos Islands limited life company formed solely for the purpose of issuing
common and preferred shares, including the Preferred Shares, and lending the
proceeds thereof to Capital Holding.
Capital Holding is a diversified insurance and financial services holding
company. Capital Holding provides its subsidiaries with general management
support, including data processing, legal, and financial services. Capital
Holding 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 OFFERING
<TABLE>
<CAPTION>
<S> <C>
Shares Offered........................ 4,000,000 shares of _____% Cumulative
Monthly Income Preferred Shares.
Issuer................................ Capital Holding LLC, a special
purpose Turks and Caicos Islands
limited life company wholly owned by
Capital Holding Corporation.
Guarantor............................. Capital Holding Corporation.
Liquidation Preference................ $25 per share, plus accumulated and
unpaid dividends.
Dividends............................. Cumulative at the annual rate of
_____% of the stated liquidation
preference per share, payable monthly
in arrears on the last day of each
calendar month, commencing
________________, 1994.
Redemption............................ Not redeemable prior to ____________,
1999 (except in the event certain
withholding taxes are imposed or in
other limited circumstances described
herein under "Description of
Preferred Shares-Optional
Redemption"). Thereafter, redeemable
at the option of the Company, subject
to the prior consent of Capital
Holding, in whole or in part, at any
time and from
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
time to time, or mandatorily in the
event of a prepayment by Capital Holding
of the Loans under the Loan Agreement
(each as defined below), at $25 per
share plus accumulated and unpaid
dividends.
Voting Rights........................ Except as described under "Description
of Preferred Shares--Voting Rights"
herein, holders of the Preferred Shares
will have no voting rights. If the
Company fails to pay dividends in full
on the Preferred Shares for 18
consecutive monthly dividend periods, or
Capital Holding is in default under any
of its obligations under the Guarantee
or the Loan Agreement (each as
hereinafter defined), holders of a
majority in liquidation preference of
the Preferred Shares will be entitled to
appoint a trustee to enforce the
Company's rights under the Loan
Agreement and to enforce Capital
Holding's obligations under the
Guarantee and declare and pay dividends
on the Preferred Shares. Notwithstanding
the appointment of any such trustee,
Capital Holding and the Company retain
all rights under the Loan Agreement,
including the right to extend the
interest payment period for up to 60
months as provided under "Description of
the Loans--Extended Interest Payment
Period."
Merger, Consolidation or
Replacement of the Company.......... The Company may not consolidate or
merge with, or be replaced by or be
continued as, or transfer its properties
and assets substantially as an entirety
to, any corporation or other body,
except under certain circumstances. See
"Description of Preferred Shares--
Merger, Consolidation or Replacement of
the Company."
Listing............................... New York Stock Exchange (Symbol:
________).
Use of Proceeds....................... All proceeds will be lent (the
"Loans") by the Company to Capital
Holding under a Loan Agreement (the
"Loan Agreement") to repay certain
short-term indebtedness incurred by
Capital Holding to redeem its
Adjustable Rate Preferred Stock,
Series F, par value $5 per share.
Backup Undertakings of Capital
Holding:
Payment and Guarantee Agreement
Obligations....................... Capital Holding fully and
unconditionally guarantees (the
"Guarantee") the Company's payment
of: (i) all legally declared and
unpaid dividends, (ii) all redemption
payments to the extent of funds
legally available therefor, and (iii)
in the event of liquidation, the
lesser of (a) the liquidation
preference plus accumulated and
unpaid dividends and (b) assets of
the Company legally available in
liquidation to holders of the Preferred
Shares. The Guarantee is directly
enforceable by holders of the Preferred
Shares and is subordinate to all
liabilities of Capital Holding.
Loan Agreement Obligations........... Under the Loan Agreement, Capital
Holding is obligated to pay (i)
interest at _____% per annum and, in
certain circumstances, to pay
Additional Interest (as hereinafter
defined), in order to allow full payment
of all dividends on the Preferred Shares
(see "Description of the Loans-
Interest") (subject to certain rights of
extension described under "Description
of the
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Loans-Extended Interest Payment
Period"), (ii) principal in an amount
equal to all amounts payable by the
Company to holders of the Preferred
Shares on account of mandatory or
optional redemptions of the Preferred
Shares, and (iii) the entire
principal amount upon the earlier of
_____________, 2024 or the date of
dissolution, wind-up or liquidation
of the Company or Capital Holding.
The obligations of Capital Holding
under the Loan Agreement are directly
enforceable by holders of the Preferred
Shares, and are subordinate to the
extent described herein.
Related Guarantee and Loan Agreement
Covenants........................... Under the Payment and Guarantee
Agreement and the Loan Agreement,
Capital Holding covenants, among
other things, (i) to maintain
ownership of all capital stock of the
Company other than the Preferred Shares
and any additional preference shares
ranking pari passu with the Preferred
Shares, (ii) not to voluntarily
dissolve, wind-up or liquidate the
Company so long as the Loans (and any
Preferred Shares) are outstanding, and
(iii) to remain as Manager (as defined
herein) of the Company and timely
perform its duties as Manager (including
the duty to declare and pay dividends on
the Preferred Shares).
Certain Investment Considerations.... Prospective purchasers of the Preferred
Shares should carefully review the
information contained elsewhere in
this Prospectus and should
particularly consider the following
matters:
Capital Holding's obligations under
the Guarantee are subordinate and
junior in right of payment to all
other liabilities of Capital Holding,
and its obligations under the Loan
Agreement are subordinate and junior
in right of payment to all Senior
Indebtedness of Capital Holding (as
defined under
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
"Description of the Loans-
Subordination"). At December 31, 1993,
Capital Holding had total liabilities of
approximately $20.4 billion, all of
which rank senior to the Guarantee.
Capital Holding may in the future incur
additional Senior Indebtedness and issue
securities or enter into guarantees that
will rank senior to or pari passu with
the Guarantee and the Loan Agreement.
The Company is a newly-formed,
limited life subsidiary of Capital
Holding organized under the laws of
the Turks and Caicos Islands with no
physical assets located in the United
States. As a result it may not be
possible for purchasers of the
Preferred Shares to effect service of
process within the United States upon
the Company or to enforce civil
judgments against the Company in
United States courts based upon
federal securities laws of the United
States. In addition, there is doubt as
to the enforceability of actions based
upon the federal securities laws of the
United States in the Turks and Caicos
Islands courts.
Capital Holding has the right under
the Loan Agreement to extend interest
payment periods for up to 60 months,
and, as a consequence, monthly
dividends on the Preferred Shares can
be deferred (but will continue to
accumulate) by the Company during any
such extended interest payment
period. In the event that Capital
Holding exercises this right, Capital
Holding may not declare dividends on
any share of its preferred or common
stock, and therefore, the extension
of a payment period is, in the view
of the Company and Capital Holding,
remote. See "Description of the
Loans-Extended Interest Payment Period".
Should an extended interest payment
period occur, the Company will
continue to accrue income for U.S.
federal income tax purposes which
will be allocated, but not
distributed, to record holders of the
Preferred Shares. As a result, such
holders will include interest in
gross income for U.S. federal income
tax purposes in advance of the
receipt of cash, and any such holders
who dispose of Preferred
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Shares prior to the record date for
payment of dividends following such
period will also include interest in
gross income but will not receive
cash related thereto. See
"Taxation-United States-Potential
Extension of Interest Payment Period".
</TABLE>
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RECENT DEVELOPMENTS
On February 16, 1994, the Capital Holding Board of Directors approved a
recommendation that shareholders approve an amendment to Capital Holding's
Certificate of Incorporation which would change the name of the corporation
from Capital Holding Corporation to Providian Corporation. Shareholders will
vote on this recommendation at Capital Holding's annual meeting on May 11,
1994.
Based on information currently available, Capital Holding has recorded a
non-recurring charge to net income for the first quarter of 1994 approximating
34 cents per share for its impaired investment in Granite Partners, a limited
partnership which invested in complex mortgage-backed securities. This non-
recurring charge reflects a write-off of all of Capital Holding's investment in
Granite Partners, which was valued at $52.4 million at the end of 1993. This
investment represents less than 0.3% of Capital Holding's total invested assets
of $17 billion. As a limited partner in the fund, Capital Holding's loss
exposure is limited solely to its investment in the fund.
CAPITAL HOLDING LLC
The Company, a wholly owned subsidiary of Capital Holding, is a limited
life company organized under the laws of the Turks and Caicos Islands. The
Company was organized on March 18, 1994, and will have a life of 150 years
from the date of its organization. The Company's registered offices are
located at MacLaw House, P.O. Box 103, Duke Street, Grand Turk, Turks and
Caicos Islands, British West Indies, telephone: (809) 946-2476. Capital
Holding owns directly or indirectly all of the common shares of the Company,
which shares are nontransferable. The Company exists solely for the purpose of
issuing preferred and common shares and lending the proceeds thereof to
Capital Holding to finance Capital Holding's business operations.
CAPITAL HOLDING CORPORATION
Capital Holding is a diversified insurance and financial services holding
company. Capital Holding provides its subsidiaries with general management
support, including data processing, legal, and financial services. Capital
Holding 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.
Capital Holding 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 Capital Holding 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
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(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.
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, Capital Enterprises Insurance Company 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 Company and its related companies, which were acquired in January
1993, market products to service personnel on military bases through 611
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 Capital Holding'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 Capital Holding'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 fixed rate and indexed-guaranteed investment contracts (GICs).
Fixed and variable annuity contracts, individual retirement annuities and
immediate life annuities (primarily structured settlements) are distributed to
retail markets through financial planners, securities brokerage firms,
specialized consultants, 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.
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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,
insurance premium financing loans and fee-based products designed to suspend
certain customer payment obligations in situations such as loss of income due
to unemployment or disability. Deposit products include retail and
institutional certificates of deposit and money market deposit accounts. To
comply with growth restrictions imposed by banking laws, Banking Group has
securitized certain of its consumer loans/credit card receivables for which it
provides servicing.
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 unacceptable derogatory credit remarks; (iii)
necessary income qualification; and (iv) no rapid increase in outstanding debt
or credit availability.
Corporate and Other
Corporate and Other includes activities of a general corporate nature, the
group and credit life and health (through 1992) and real estate results of
Durham, real estate development activities, debt service, realized investment
gains and losses, an allocation of net investment income for the 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, 1993 and 1992:
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<TABLE>
<CAPTION>
REVENUES
YEARS ENDED DECEMBER 31
-----------------------
1993 1992
---------- ----------
<S> <C> <C>
SEGMENT (DOLLARS IN THOUSANDS)
- --------
Agency Group:
Life (includes premium equivalents). $ 653,646 $ 637,521
Health.............................. 74,646 74,095
Other product lines................. 64,049 68,986
---------- ----------
Subtotal.......................... 792,341 780,602
Life premium equivalents............ (58,864) (53,593)
---------- ----------
Total Agency Group................ 733,477 727,009
Direct Response Group:
Life................................ 362,571 273,969
Health.............................. 212,074 197,790
Property and casualty............... 162,382 158,603
Other product lines................. 21,489 20,489
---------- ----------
Total Direct Response Group....... 758,516 650,851
Banking Group......................... 545,070 506,691
Accumulation and Investment Group..... 832,768 852,550
Corporate and Other:(1)
Other............................... 34,488 109,714
Realized investment gain (loss)..... (20,155) 6,477
---------- ----------
Total Corporate and Other......... 14,333 116,191
---------- ----------
Consolidated.................... $2,884,164 $2,853,292
========== ==========
- ---------------
</TABLE>
(1) Reflects the sale of Durham Life Insurance Company credit business in July
1992, and Durham Life group business reinsurance effective January 1,
1993.
INCOME BEFORE FEDERAL INCOME TAX
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
1993 1992
---------- -----------
SEGMENT (DOLLARS IN THOUSANDS)
- -------
<S> <C> <C>
Agency Group:
Life............................ $185,644 $183,112
Health.......................... 3,936 2,579
Other product lines............. 4,083 4,521
-------- --------
Total Agency Group............ 193,663 190,212
Direct Response Group:
Life............................ 56,494 40,384
Health.......................... 45,783 43,183
Property and casualty........... 8,202 6,608
Other product lines............. (12,621) (5,673)
-------- --------
Total Direct Response Group... 97,858 84,502
Banking Group..................... 117,720 93,502
Accumulation and Investment Group. 134,085 120,142
Corporate and Other:(1)
Other........................... (34,375) (32,493)
Realized investment loss, net of
related amortization............ (21,893) (3,838)
-------- --------
Total Corporate and Other..... (56,268) (36,331)
-------- --------
Consolidated................ $487,058 $452,027
======== ========
- ---------------
</TABLE>
(1) Reflects the sale of Durham Life Insurance Company credit business in July
1992, and Durham Life group business reinsurance effective January 1,
1993.
-12-
<PAGE>
REGULATORY ENVIRONMENT
The business of Capital Holding'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.
"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 Capital Holding'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 Capital
Holding'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.
-13-
<PAGE>
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 Capital Holding's insurance subsidiaries. Additionally, life
insurance companies face increasing competition from banks, mutual funds and
other financial entities for attracting investment funds.
Capital Holding'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 and have also 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 to the competitive environment, FDNB and FDNCCB have
implemented a variety of new programs to attract and retain customers,
including reducing interest rates on selected accounts. FDNB and FDNCCB have
generally retained the right to alter various charges, fees and other terms
with respect to consumer credit accounts. In addition, Banking Group has
experienced steady growth in its secured loan products and is increasing its
efforts to offer its products to underserved markets.
USE OF PROCEEDS
All of the proceeds from the sale of the Preferred Shares offered hereby
will be lent by the Company to Capital Holding to repay certain short-term
indebtedness incurred by Capital Holding to redeem its Adjustable Rate
Preferred Stock, Series F, par value $5 per share. This indebtedness consists
of commercial paper with varying interest rates of between 3.5% and
4.0%. Pursuant to the Underwriting Agreement, Capital Holding has agreed
to
-14-
<PAGE>
pay Underwriters' Compensation to the Underwriters, as well as the expenses
related to the organization of the Company and the offering, as set forth in
Notes (2) and (3), respectively, on the cover page of this Prospectus.
-15-
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Capital Holding at
December 31, 1993, and as adjusted to give effect to the sale by the Company
of the Preferred Shares pursuant to this offering and the application of the
proceeds therefrom as described under "Use of Proceeds" herein.
<TABLE>
<CAPTION>
December 31, 1993
------------------------
Actual As Adjusted
------ -----------
(Dollars in Thousands)
<S> <C> <C>
Long-term Debt.................................. $ 589,268 $ 589,268
---------- ----------
Preferred Stock of Subsidiary................... 0 100,000
---------- ----------
Shareholders' Equity
Preferred stock:
6,000,000 shares authorized for
issuance in series: Series F,
Adjustable Rate Cumulative,
$100 face value; Issued and
outstanding - 1,000,000 shares............... 100,000 0
Common stock, $1 par:
300,000,000 shares authorized;
Issued - 115,325,000 shares.................. 115,325 115,325
Additional paid-in capital...................... 57,053 57,053
Net unrealized investment gain.................. 17,204 17,204
Retained earnings............................... 2,295,974 2,295,974
Common stock held in treasury - at cost;
13,899,000 shares............................. (89,289) (89,289)
Unearned restricted stock....................... (3,376) (3,376)
---------- ----------
Total Shareholders' Equity...................... 2,492,891 2,392,891
---------- ----------
Total Capitalization............................ $3,082,159 $3,082,159
========== ==========
</TABLE>
-16-
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data presents the consolidated
results of operations of Capital Holding 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."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------
1993 1992 1991 1990 1989
---------- ----------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER COMMON AND COMMON EQUIVALENT SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C>
CAPITAL HOLDING CORPORATION
SUMMARY OF STATEMENTS OF INCOME:
Premiums and Other Income, Net............... $ 1,442,873 $ 1,393,273 $ 1,209,572 $ 1,299,169 $ 1,083,018
Net Investment Income........................ 1,461,446 1,453,542 1,479,864 1,400,939 1,292,829
Realized Investment Gain (Loss).............. (20,155) 6,477 (18,780) (122,799) 124,269
----------- ----------- ----------- ----------- -----------
Total Revenues.............................. 2,884,164 2,853,292 2,670,656 2,577,309 2,500,116
Total Benefits and Expenses.................. 2,397,106 2,401,265 2,324,720 2,352,597 2,115,589
Federal Income Tax (1)....................... 164,393 129,531 95,704 58,519 108,819
----------- ----------- ----------- ----------- -----------
Income before Cumulative Effect of
Change in Accounting Principle.............. 322,665 322,496 250,232 166,193 275,708
Cumulative Effect of Change in
Accounting Principle (2).................... - - - - (56,021)
----------- ----------- ----------- ----------- -----------
Net Income................................... $ 322,665 $ 322,496 $ 250,232 $ 166,193 $ 219,687
=========== =========== =========== =========== ===========
SELECTED PER COMMON AND
COMMON EQUIVALENT SHARE
DATA: (3)
Income before Cumulative Effect of
Change in Accounting Principle.............. $ 3.12 $ 3.14 $ 2.66 $ 1.70 $ 2.93
Cumulative Effect of Change in
Accounting Principle (2).................... - -- -- -- (0.62)
----------- ----------- ----------- ----------- -----------
Net Income................................... $ 3.12 $ 3.14 $ 2.66 $ 1.70 $ 2.31
----------- ----------- ----------- ----------- -----------
SELECTED DATA FROM STATEMENTS OF
FINANCIAL CONDITION:
Cash and Investments......................... $18,152,445 $16,791,345 $15,661,663 $13,922,117 $12,628,998
Total Assets................................. 22,929,005 20,588,264 18,873,028 16,668,545 14,970,015
Total Policy Liabilities..................... 14,925,139 13,928,769 12,877,486 11,965,244 10,486,216
Long-Term Debt............................... 589,268 589,320 611,245 386,247 330,299
Shareholders' Equity......................... 2,492,891 2,185,927 1,930,924 1,552,515 1,516,269
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS (4)............ 6.1 5.1 4.1 3.6 6.0
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS,
INCLUDING INTEREST ON BANKING
DEPOSITS (5)................................. 4.2 3.5 2.7 2.2 3.0
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS,
INCLUDING INTEREST ON BANKING
DEPOSITS, ANNUITIES AND OTHER
FINANCIAL PRODUCTS (6)....................... 1.6 1.5 1.3 1.2 1.5
</TABLE>
- ------------------
(1) As a result of the Omnibus Budget Reconciliation Act of 1993, enacted on
August 10, 1993, and made retroactive to January 1, 1993, the federal
statutory income tax rate increased to 35 percent from 34 percent. The
effect of the change in tax legislation increased income tax expense by
$16,771,000 for the year ended December 31, 1993, including a one-time
charge of $11,682,000 as a result of applying the newly enacted tax rate
to deferred tax balances as of August 10, 1993, and a $5,089,000 impact
on current taxes due to the change in the statutory tax rate.
(2) Effective January 1, 1989, Capital Holding changed its method of
accounting for postemployment life and health benefits from the "pay-as-
you-go" method for 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
-17-
<PAGE>
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 and
preferred stock dividends, earnings have been calculated by adding to
pretax income from continuing operations the amount of fixed charges
reduced for capitalized interest and preferred stock dividend
requirements and increased for amortization of previously capitalized
interest. Fixed charges consists of interest on debt, preferred stock
dividend requirements and a portion of net rental expense, approximately
one-third, deemed to represent interest.
(5) Computation of this ratio is the same as described in note (3) above
except that fixed charges also includes interest on banking deposits.
(6) Computation of this ratio is the same as described in note (3) above
except that fixed charges also includes interest on banking deposits,
annuities and other financial products.
-18-
<PAGE>
DESCRIPTION OF PREFERRED SHARES
The following is a summary of certain terms and provisions of the Preferred
Shares offered hereby. The summary set forth below addresses the material
terms of the Preferred Shares but does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the Memorandum of
Association of the Company (the "Memorandum"), the Articles of Association of
the Company (the "Articles") and the declaration (the "Declaration") adopted
by Capital Holding, as manager (the "Manager"), establishing the rights,
preferences, privileges, limitations and restrictions relating to the
Preferred Shares. Copies of the Memorandum, the Articles, and the form of the
Declaration (as defined below) have been filed as exhibits to the Registration
Statement of which this Prospectus is a part.
GENERAL
The Company is authorized to issue up to 4,000,000 preference shares (the
"Preferred Shares"), in one or more series or classes, with such dividend
rights, liquidation preferences per share, redemption provisions, voting
rights and other rights, preferences, privileges, limitations and restrictions
as the Manager may determine and declare. Pursuant to a declaration adopted by
the Manager (the "Declaration") on behalf of the Company, the Manager
authorized the issuance of 4,000,000 Preferred Shares having those
preferences, rights, powers, qualifications and limitations set forth in the
Declaration. The Company may from time to time by resolution increase its
authorized share capital and issue additional preference shares on terms to be
determined at the time by the Manager. Any and all such preference shares,
which may be issued in one or more additional series or classes, will rank
pari passu with each other and with the Preferred Shares with respect to
participation in profits and assets of the Company.
The Preferred Shares are issuable in registered form only without dividend
coupons. Registration of, and registration of transfers of, the Preferred
Shares are by book entry only as described below.
DIVIDENDS
Dividends on the Preferred Shares will be cumulative, will accrue from
__________, 1994 and will be payable in United States dollars monthly in
arrears on the last day of each calendar month of each year, commencing
__________, 1994, when, as and if declared by the Company, except as otherwise
described below.
The dividend payable on each Preferred Share will be fixed at a rate per
annum of _____% of the liquidation preference thereof ($25 per share). The
amount of dividends payable for any period will be computed on the basis of
twelve 30-day months and a 360-day year and, for any period shorter than a
full monthly dividend period, will be computed on
-19-
<PAGE>
the basis of the actual number of days elapsed in such period. Payment of
dividends is limited in relation to the amount of funds held by the Company
and legally available therefor. See "Description of the Loans-Interest" and
"Description of the Guarantee-General" below.
Dividends declared on the Preferred Shares are payable to the record
holders thereof as they appear on the register for the Preferred Shares on the
relevant record dates, which will be one Business Day (as hereinafter defined)
prior to the relevant payment dates. Subject to applicable laws and
regulations, each such payment will be made as described under "Book-Entry-
Only Issuance; The Depository Trust Company" below. In the event that any
date on which dividends are payable on the Preferred Shares is not a Business
Day, then payment of the dividend payable on such date will be made on the
next succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay) except that, if such Business Day is in
the next succeeding calendar year, such payment will be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on such date. A "Business Day" shall mean any day other
than a day on which banking institutions in The City of New York are
authorized or required by law to close.
Dividends on the Preferred Shares must be declared by the Company by action
of Capital Holding, as Manager of the Company, in any calendar year or portion
thereof to the extent that the Manager reasonably anticipates that at the time
of payment the Company will have, and must be paid by the Company to the
extent that at the time of proposed payment the Company has, (x) funds legally
available for the payment of such dividends and (y) cash on hand sufficient to
permit such payments. It is anticipated that the Company's earnings will
result exclusively from payments under the Loans (as defined herein) of the
proceeds from the sale of the Preferred Shares and the issuance of the Common
Shares. See "Description of the Loans".
CERTAIN RESTRICTIONS ON THE COMPANY
If dividends have not been paid in full on the Preferred Shares, the
Company may not:
(i) pay, or declare and set aside for payment, any dividends on any
other preferred or preference stock of the Company ranking pari passu with
the Preferred Shares as regards participation in profits of the Company
("Company Dividend Parity Shares"), unless the amount of any dividends
declared on any Company Dividend Parity Shares is paid on the Company
Dividend Parity Shares and the Preferred Shares on a pro rata basis on the
date such dividends are paid on such Company Dividend Parity Shares, so
that
(x) (a) the aggregate amount of dividends paid on the Preferred
Shares bears to (b) the aggregate amount of dividends paid on such
Company Dividend Parity Shares the same ratio as
-20-
<PAGE>
(y) (a) the aggregate of all accumulated arrears of unpaid dividends
in respect of the Preferred Shares bears to (b) the aggregate of all
accumulated arrears of unpaid dividends in respect of such Company
Dividend Parity Shares;
(ii) pay, or declare and set aside for payment, any dividends on any
shares of the Company ranking junior to the Preferred Shares as to
dividends ("Company Dividend Junior Shares"); or
(iii) redeem, purchase or otherwise acquire any Company Dividend Parity
Shares or Company Dividend Junior Shares or any Preferred Shares other than
the redemption of all outstanding Preferred Shares at the redemption price
of $25 per Preferred Share plus accumulated and unpaid dividends (whether
or not declared) to the date fixed for redemption (the "Redemption Price");
until, in each case, such time as all accumulated arrears of unpaid dividends
(whether or not declared) on the Preferred Shares shall have been paid in full
for all dividend periods terminating on or prior to, in the case of clauses
(i) and (ii), such payment, and in the case of clause (iii), the date of such
redemption, purchase or acquisition. As of the date of this Prospectus, there
are no Company Dividend Parity Shares outstanding, and the Company does not
have any current plans to issue Company Dividend Parity Shares.
MERGER, CONSOLIDATION OR REPLACEMENT OF THE COMPANY
The Company may not consolidate, amalgamate, merge with or into, be
replaced by or be continued as, or convey, transfer or lease its properties
and assets substantially as an entirety to, any corporation or other body,
except as described in this paragraph and subject to applicable law. For
purposes of applicable Turks and Caicos Islands law, each holder of Preferred
Shares is deemed to have authorized and consented to the Company
consolidating, amalgamating or merging with or into, being replaced by, or
continued as a limited liability company organized as such under the laws of
any state of the United States of America, or a limited partnership organized
under the Uniform Limited Partnership Act in any state of the United States of
America, or a trust organized under the laws of the State of Delaware (in each
case the "Successor"), and the Company may do so, provided, that (i) such
Successor either (x) expressly assumes all the terms and conditions of, and
obligations of the Company under, the Preferred Shares or (y) substitutes for
the Preferred Shares another security having substantially the same terms as
the Preferred Shares (the "Successor Security") so long as the Successor
Securities rank, with respect to participation in the profits or assets of the
Successor, at least as high as the Preferred Shares rank, with respect to
participation in the profits or assets of the Company, (ii) Capital Holding
expressly acknowledges the Successor as the lender under the Loans and
reaffirms its obligations to the Successor and to the holders of the Preferred
Shares or Successor Securities, as the case may be, under the Guarantee, (iii)
such merger, consolidation, amalgamation, replacement or continuation does not
cause the Preferred Shares or Successor Securities, as the case may be, to be
delisted by any national securities exchange or other organization on which
the Preferred Shares or Successor Securities, as the case may be, are listed,
(iv) the Successor receives a written opinion of counsel (such counsel being a
law firm of national standing), which counsel may be counsel to the Company or
Capital Holding, to the effect that
-21-
<PAGE>
such consolidation, amalgamation, merger, replacement or continuation will not
result in a taxable gain to the holders of the Preferred Shares or Successor
Securities, as the case may be, under Federal income tax law or cause the
Successor to be considered an "investment company" under the Investment
Company Act of 1940, as amended (the "1940 Act") and (v) such merger,
consolidation, amalgamation, replacement or continuation does not cause the
Preferred Shares or Successor Securities, as the case may be, to be downgraded
by any "nationally recognized statistical rating organization" as that term is
defined by the SEC for purposes of Rule 436(g)(2) under the Securities Act.
Capital Holding, as Manager, is authorized and directed to conduct its
affairs and to operate the Company in such a way that the Company would not be
deemed to be an "investment company" for purposes of the 1940 Act. In this
connection, Capital Holding, as Manager, is authorized to take any action not
inconsistent with applicable law or the Memorandum or Articles of the Company
which it determines in its discretion to be necessary or desirable for such
purposes.
MANDATORY REDEMPTION
If at any time Capital Holding repays the Loans when due or prepays the
Loans as described under "Description of the Loans-Optional Prepayment", the
proceeds from such prepayment or repayment of principal on the Loans to
Capital Holding of the proceeds from the issuance and sale of the Preferred
Shares and the Common Shares must be applied to redeem the Preferred Shares at
the Redemption Price, upon not less than 30 nor more than 60 days' notice;
provided that any such amounts may instead be lent to or relent to Capital
Holding and not used for such redemption if at the time of such new loan, and
as determined in the judgment of Capital Holding, as Manager, and the
Company's financial advisor (selected by Capital Holding, as Manager, and who
shall be unaffiliated with Capital Holding and shall be among the 30 largest
investment banking firms, measured by total capital, in the United States at
the time of the proposed new loan), (a) Capital Holding is not in bankruptcy,
(b) Capital Holding is not in default on any loan pertaining to the Preferred
Shares, (c) Capital Holding has made timely monthly payments on the repaid
loan for the immediately preceding 18 months, (d) the Company is not in
arrears on payments of dividends on the Preferred Shares, (e) Capital Holding
is expected to be able to make timely payment of principal and interest on
such new loan, (f) such new loan is being made on terms, and under
circumstances, that are consistent with those which a lender would require for
a loan to an unrelated party, (g) such loan is being made at a rate sufficient
to provide payments equal to or greater than the amount of dividend payments
that accrue on the Preferred Shares, (h) the senior unsecured long-term debt
of Capital Holding is rated among the four highest rating categories by a
nationally recognized statistical rating organization, (i) such loan is being
made for a term that is consistent with market circumstances and Capital
Holding's financial condition, and (j) such loan will have a final maturity no
later than the 49th anniversary of the issuance of the Preferred Shares.
-22-
<PAGE>
OPTIONAL REDEMPTION
The Preferred Shares are redeemable, at the option of the Company and
subject to the prior consent of Capital Holding, in whole or in part from time
to time, on or after __________, 1999, upon not less than 30 nor more than 60
days' notice, at the Redemption Price. If a partial redemption would result in
a delisting of the Preferred Shares, the Company may only redeem the Preferred
Shares in whole. In the event that fewer than all the outstanding Preferred
Shares are to be redeemed (other than in a case where such partial redemption
would result in delisting as described in the following paragraph), the
Preferred Shares to be redeemed will be selected as described under "Book-
Entry-Only Issuance; The Depository Trust Company" below. The Company will not
redeem fewer than all the outstanding Preferred Shares unless all accumulated
arrears of unpaid dividends have been paid in full on all Preferred Shares for
all monthly dividend periods terminating on or prior to the date of
redemption.
If at any time after the issuance of the Preferred Shares, the Company is
or would be required to pay any Additional Amounts (as defined herein) with
respect to the Preferred Shares or Capital Holding is or would be required to
withhold or deduct certain amounts as described under "Description of the
Guarantee-Additional Amounts" with respect to the Preferred Shares, then,
subject to the prior consent of Capital Holding, the Company may, at its
option, upon not less than 30 nor more than 60 days' notice to the holders of
the Preferred Shares, redeem the Preferred Shares in whole (or, if such
requirement relates to only certain of the Preferred Shares, the Preferred
Shares subject to such requirement may be redeemed in part) at the Redemption
Price, provided that, in the case of such a redemption of Preferred Shares in
part, the Company may (i) cause the global certificate representing all of the
Preferred Shares to be withdrawn from The Depository Trust Company or its
successor securities depository (see "Book-Entry-Only Issuance; The Depository
Trust Company"), (ii) issue share certificates in definitive form representing
the Preferred Shares, and (iii) redeem the Preferred Shares subject to such
requirement to withhold or deduct Additional Amounts; and provided further
that, if a partial redemption would result in a delisting of the Preferred
Shares from the New York Stock Exchange, the Company may only redeem the
Preferred Shares in whole.
If the Company gives a notice of redemption in respect of the Preferred
Shares, then, by 2:00 p.m., New York time, on the redemption date, the Company
will irrevocably initiate the transfer of funds for deposit with The
Depository Trust Company in an amount sufficient to pay the applicable
Redemption Price, and will give The Depository Trust Company irrevocable
instructions and authority to pay the Redemption Price to the holders thereof.
See "Book-Entry-Only Issuance; The Depository Trust Company." If notice of
redemption shall have been given and funds deposited as required, then upon
the date of such deposit, all rights of holders of the Preferred Shares so
called for redemption will cease, except the right of the holders of such
shares to receive the Redemption Price, but without interest, and such shares
will cease to be outstanding. In the event that any date on which any payment
in respect of the redemption of Preferred Shares is due is not a Business Day,
then payment of the Redemption Price payable on such date will be made on the
next
-23-
<PAGE>
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day falls
in the next calendar year, such payment will be made on the immediately
preceding Business Day. In the event that payment of the Redemption Price in
respect of the Preferred Shares is improperly withheld or refused and not paid
either by the Company or by Capital Holding pursuant to the Guarantee,
dividends on such shares will continue to accrue, at the then applicable rate,
from the original redemption date to the date of payment, in which case the
actual payment date will be considered the date fixed for redemption for
purposes of calculating the Redemption Price.
Subject to the foregoing and applicable law (including, without limitation,
applicable United States federal and state securities laws), Capital Holding
or its subsidiaries may at any time and from time to time purchase outstanding
Preferred Shares by tender, in the open market or by private agreement.
LIQUIDATION DISTRIBUTION
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of Preferred Shares at the time
outstanding will be entitled to receive out of the assets of the Company
legally available for distribution to shareholders, before any distribution of
assets is made to holders of Common Shares of the Company or any other class
of shares of the Company ranking junior to the Preferred Shares as regards
participation in assets of the Company, but together with the holders of every
other series of preferred or preference stock of the Company outstanding, if
any, ranking pari passu with the Preferred Shares as regards participation in
the assets of the Company ("Company Liquidation Parity Shares"), an amount
equal, in the case of the holders of the Preferred Shares, to the aggregate of
the liquidation preference of $25 per Preferred Share and all accumulated and
unpaid dividends (whether or not declared) to the date of payment (the
"Liquidation Distribution"). If, upon any such liquidation, the Liquidation
Distribution can be paid only in part because the Company has insufficient
assets available to pay in full the aggregate maximum Liquidation Distribution
and the aggregate maximum liquidation distributions on the Company Liquidation
Parity Shares, then the amounts payable directly by the Company on the
Preferred Shares and on such Company Liquidation Parity Shares will be paid on
a pro rata basis, so that
(i) (x) the aggregate amount paid in respect of the Liquidation
Distribution bears to (y) the aggregate amount paid as liquidation
distributions on the Company Liquidation Parity Shares the same ratio as
(ii) (x) the aggregate Liquidation Distribution bears to (y) the
aggregate maximum liquidation distributions on the Company Liquidation
Parity Shares.
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Pursuant to the Articles, the Company will automatically dissolve and be
liquidated (i) when the period fixed for the duration of the Company expires,
(ii) if the holders of the Common Shares pass a resolution requiring the
Company to be wound up and dissolved, (iii) upon the bankruptcy, resignation,
withdrawal, expulsion, termination, cessation or dissolution of the Manager
(provided that the merger of the Manager into a successor that succeeds to the
duties of the Manager shall not be a resignation, withdrawal, termination,
cessation or dissolution of the Manager), or (iv) if all of the Common Shares
are redeemed by the Company.
VOTING RIGHTS
Except as provided below and under "Description of the Guarantee-Amendments
and Assignment" and "Description of the Loans-Miscellaneous", the holders of
the Preferred Shares will have no voting rights.
If (i) the Company fails to pay dividends in full on the Preferred Shares
(whether or not there are funds legally available therefor) for 18 consecutive
monthly dividend periods, (ii) an Event of Default (as defined in the Loan
Agreement relating to the Loans) occurs and is continuing on the Loans (as
defined in "Description of the Loans"), or (iii) Capital Holding is in default
under any of its payment or other obligations under the Guarantee (as
described under "Description of the Guarantee-Certain Covenants of Capital
Holding"), then the holders of a majority in liquidation preference of the
outstanding Preferred Shares, together with the holders of any other shares of
preferred or preference stock of the Company having the right to vote for the
appointment of a trustee in such event, acting as a single class, will be
entitled to appoint and authorize a trustee to enforce the Company's rights as
a creditor under the Loans directly against Capital Holding, enforce the
obligations undertaken by Capital Holding under the Guarantee and the Expenses
and Liabilities Agreement (as defined herein) and declare and pay dividends on
the Preferred Shares. For purposes of determining whether the Company has
failed to pay dividends in full for 18 consecutive monthly dividend periods,
dividends shall be deemed to remain in arrears, notwithstanding any payments
in respect thereof, until full cumulative dividends have been or
contemporaneously are declared and paid with respect to all monthly dividend
periods terminating on or prior to the date of payment of such full cumulative
dividends. Not later than 30 days after such right to appoint a trustee
arises, the Manager will convene a separate general meeting for the above
purpose. If the Manager fails to convene such meeting within such 30-day
period, the holders of 10% in liquidation preference (plus all accumulated
arrears and accruals of dividends per share) of the outstanding Preferred
Shares and such other preferred or preference stock will be entitled to
convene such separate general meeting. The provisions of the Articles relating
to the convening and conduct of the general meetings of shareholders will
apply with respect to any such separate general meeting. Any trustee so
appointed shall vacate office
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immediately, subject to the terms of such other preferred or preference stock,
if the Company (or Capital Holding pursuant to the Guarantee) shall have paid
in full all accumulated and unpaid dividends on the Preferred Shares or such
default or breach by Capital Holding, as the case may be, shall have been
cured. Notwithstanding the appointment of any such trustee, Capital Holding
and the Company retain all rights under the Loan Agreement, including the
right to extend the interest payment period for up to 60 months as provided
under "Description of the Loans--Extended Interest Payment Period." During any
such extension, dividends on the Preferred Shares will be deferred, but
holders will be required to include interest from the Loans in income for
federal income tax purposes. See "Taxation--United States--Potential Extension
of Interest Payment Period."
If any resolution is proposed for adoption by the shareholders of the
Company providing for, or the Manager otherwise proposes to effect (it being
understood that the automatic dissolution and liquidation events described in
(iii) and (iv) under "Liquidation Distribution" above and the events described
under "Merger, Consolidation or Replacement of the Company" above will not be
deemed to be a proposal by the Manager), (x) any variation or abrogation of
the rights, preferences and privileges of the Preferred Shares by way of
amendment of the Company's Articles, the Declaration or otherwise (including,
without limitation, the authorization or issuance of any shares of the Company
ranking, as to participation in the profits or assets of the Company, senior
to the Preferred Shares), (y) the liquidation, dissolution or winding up of
the Company, or (z) the modification of Regulation 16 of the Articles which
absolutely prohibits transfers of shares of the Company's Common Shares, then
the holders of the outstanding Preferred Shares (and, in the case of a
resolution described in clause (x) above which would equally adversely affect
the rights, preferences or privileges of any Company Dividend Parity Shares or
any Company Liquidation Parity Shares, such Company Dividend Parity Shares or
such Company Liquidation Parity Shares, as the case may be, or, in the case of
any resolution described in clause (y) or (z) above, all Company Liquidation
Parity Shares) will be entitled to vote together as a single class on such
resolution or action of the Manager (but not on any other resolution or
action), and such resolution or action shall not be effective except with the
approval of the holders of 66 2/3% in liquidation preference (plus all
accumulated and unpaid dividends) of such outstanding shares; provided,
however, that no such approval shall be required under clauses (x) and (y) if
the liquidation, dissolution and winding up of the Company is proposed or
initiated upon the initiation of proceedings, or after proceedings have been
initiated, for the liquidation, dissolution or winding up of Capital
Holding.
No vote or consent of the holders of the Preferred Shares will be required
for the Company to redeem and cancel Preferred Shares in accordance with the
Articles and the Declaration.
The rights attached to the Preferred Shares will be deemed not to be varied
by the creation or issue of, and no vote will be required for the creation of,
any further series of preference shares or any further shares of the Company
ranking as regards participation in the profits or assets of the Company pari
passu with or junior to the Preferred Shares.
Any required approval of holders of the Preferred Shares may be given at a
separate meeting of such holders convened for such purpose, at a general
meeting of shareholders of the Company or pursuant to written consent. The
Company will cause a notice of any meeting at which holders of the Preferred
Shares are entitled to vote, or of any matter upon which action by written
consent of such holders is to be taken, to be mailed to each holder of record
of the Preferred Shares. Each such
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notice will include a statement setting forth (i) the date of such meeting or
the date by which such action is to be taken, (ii) a description of any
resolution proposed for adoption at such meeting on which such holders are
entitled to vote or of such matter upon which written consent is sought, and
(iii) instructions for the delivery of proxies or written consents.
Notwithstanding that holders of the Preferred Shares are entitled to vote
or consent under any of the circumstances described above, any of the
Preferred Shares and such other preference shares entitled to vote or consent
with such Preferred Shares as a single class outstanding at such time, that
are owned by Capital Holding or any entity owned 50% or more by Capital
Holding, either directly or indirectly, shall not be entitled to vote or
consent and shall, for the purposes of such vote or consent, be treated as if
they were not outstanding.
ADDITIONAL AMOUNTS
All payments in respect of the Preferred Shares by the Company will be made
without withholding or deduction for or on account of any present or future
taxes, duties, assessments or governmental charges of whatever nature imposed
or levied upon or as a result of such payment by or on behalf of the Turks and
Caicos Islands or any authority therein or thereof having power to tax, unless
the withholding or deduction of such taxes, duties, assessments or
governmental charges is required by law. In that event, the Company will pay
as a dividend such additional amounts as may be necessary in order that the
net amounts received by the holders of the Preferred Shares after such
withholding or deduction will equal the amount which would have been
receivable in respect of such Preferred Shares in the absence of such
withholding or deduction (such additional amounts being the "Additional
Amounts"), except that no such Additional Amounts will be payable to a holder
of Preferred Shares (or a third party on such holder's behalf) with respect to
the Preferred Shares:
(a) if such holder is liable for such taxes, duties, assessments or
governmental charges in respect of such Preferred Shares by reason of such
holder's having some connection with the Turks and Caicos Islands other
than being a holder of such Preferred Shares; or
(b) if the Company has notified such holder of the obligation to
withhold taxes and requested but not received from such holder a
declaration of nonresidence or other claim for exemption, and such
withholding or deduction would not have been required had such declaration
or other claim been received.
BOOK-ENTRY-ONLY ISSUANCE; THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC"), New York, New York, will act as
securities depository for the Preferred Shares. The Preferred Shares will be
issued only as fully-registered securities registered in the
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name of Cede & Co. (DTC's nominee). One or more fully-registered Preferred
Share certificates will be issued, representing in the aggregate the total
number of Preferred Shares, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other
organizations ("Direct Participants"). DTC is owned by a number of its Direct
Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc., and the National Association of Securities Dealers, Inc.
Access to the DTC system is also available to others such as securities
brokers and dealers, banks, and trust companies that clear through or maintain
a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The Rules applicable to DTC and its
Participants are on file with the Securities and Exchange Commission.
Purchases of Preferred Shares under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Shares on DTC's records. The ownership interest of each actual purchaser of
each Preferred Share ("Beneficial Owner") is in turn recorded on the Direct
and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchase, but Beneficial Owners are
expected to receive written confirmations providing details of their
transactions, as well as periodic statements of their holdings, from the
Direct or Indirect Participants through which the Beneficial Owners purchased
Preferred Shares. Transfers of ownership interests in the Preferred Shares
are to be accomplished by entries made on the books of Participants acting on
behalf of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in Preferred Shares, except in the
event that use of the book-entry system for the Preferred Shares is
discontinued.
To facilitate subsequent transfers, all Preferred Shares deposited by
Participants with DTC are registered in the name of Cede & Co. The deposit of
Preferred Shares with DTC and their registration in the name of Cede & Co.
effect no change in beneficial ownership. DTC has no knowledge of the actual
Beneficial Owners of the Preferred Shares; DTC's records reflect only the
identity of the Direct Participants to whose accounts such Preferred Shares
are credited, which may or may not be the Beneficial Owners. The Participants
will remain responsible for keeping account of their holdings on behalf of
their customers.
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Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed
by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices will be sent to Cede & Co. If less than all of the
Preferred Shares are being redeemed, DTC's practice is to determine by lot the
amount of the interest of each Direct Participant in the Preferred Shares to
be redeemed.
Although voting with respect to the Preferred Shares is limited, in those
cases where a vote is required, neither DTC nor Cede & Co. will consent or
vote with respect to the Preferred Shares. Under its usual procedures, DTC
mails an Omnibus Proxy to the Company as soon as possible after the record
date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to
those Direct Participants to whose accounts the Preferred Shares are credited
on the record date (identified in a listing attached to the Omnibus Proxy).
Dividend payments on the Preferred Shares will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the relevant payable
date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payments on such
payable date. Payments by Participants to Beneficial Owners will be governed
by standing instructions and customary practices and will be the
responsibility of such Participant and not of DTC, the Company or Capital
Holding, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of dividends to DTC is the responsibility
of the Company, disbursement of such payments to Direct Participants will be
the responsibility of DTC, and disbursement of such payments to the Beneficial
Owners will be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the Preferred Shares at any time by giving reasonable notice to the
Company. Under such circumstances, in the event that a successor securities
depository is not obtained, Preferred Share certificates are required to be
printed and delivered. Additionally, in the event that the Company exercises
its option to redeem only a portion of the Preferred Shares because the
Company or Capital Holding is or would be required to withhold or deduct
Additional Amounts in regard to such Preferred Shares to be redeemed, the
Company may cause the global certificate or certificates representing all of
the Preferred Shares to be withdrawn from DTC (or its successor securities
depository) and may issue share certificates in definitive form representing
the Preferred Shares. Thereafter, the Preferred Shares subject to such
requirement to withhold or deduct Additional Amounts would be redeemed.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but
neither the Company nor Capital Holding takes responsibility for the accuracy
thereof.
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REGISTRAR, TRANSFER AGENT AND PAYING AGENT
Capital Holding will act as registrar, transfer agent and paying agent for
the Preferred Shares (the "Paying Agent").
Registration of transfers of the Preferred Shares will be effected without
charge by or on behalf of the Company, but upon payment (with the giving of
such indemnity as the Company or Capital Holding may require) in respect of
any tax or other governmental charges which may be imposed in relation to it.
The Company will not be required to register or cause to be registered the
transfer of Preferred Shares after such Preferred Shares have been called for
redemption.
MISCELLANEOUS
The Company is not subject to any mandatory redemption or sinking fund
provisions with respect to the Preferred Shares. Holders of the Preferred
Shares have no preemptive rights.
Capital Holding and the Company will enter into an agreement (the "Expenses
and Liabilities Agreement") pursuant to which Capital Holding will agree to
guarantee the payment of any liabilities incurred by the Company (other than
obligations to holders of the Preferred Shares, which will be separately
guaranteed to the extent set forth in the Guarantee; see "Description of the
Guarantee"). The Expenses and Liabilities Agreement will expressly provide
that such agreement is for the benefit of, and is enforceable by, third
parties to whom the Company owes such obligations. A copy of the form of the
Expenses and Liabilities Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the guarantee (the
"Guarantee") which will be executed and delivered by Capital Holding for the
benefit of the holders from time to time of the Preferred Shares. This
summary contains all material information concerning the Guarantee but does
not purport to be complete. References to provisions of the Guarantee are
qualified in their entirety by reference to the full text of the Payment and
Guarantee Agreement, the form of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
GENERAL
Capital Holding will fully and unconditionally agree, to the extent
set forth herein, to pay in full, to the holders of the Preferred
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Shares, the Guarantee Payments (as defined below) (except to the extent paid
by the Company), as and when due, regardless of any defense, right of set-off
or counterclaim which the Company may have or assert. The following payments
constitute the Guarantee Payments for the Preferred Shares: (i) accumulated
and unpaid dividends which have been legally declared on the Preferred Shares,
(ii) the Redemption Price legally payable with respect to any Preferred Shares
called for redemption by the Company, (iii) in the event of liquidation of the
Company, the lesser of (a) the liquidation preference plus all accumulated and
unpaid dividends (whether or not declared) to the date of payment and (b) the
amount of assets of the Company legally available for distribution to holders
of the Preferred Shares, and (iv) any Additional Amounts payable by the
Company in respect of the Preferred Shares. Capital Holding's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by Capital Holding to the holders of the Preferred Shares or by
causing the Company to pay such amounts to such holders.
See "Prospectus Summary-The Offering" for a summary description of other
contractual backup undertakings of Capital Holding for the benefit of holders
of the Preferred Shares.
CERTAIN COVENANTS OF CAPITAL HOLDING
In the Guarantee, Capital Holding will covenant that, so long as any
Preferred Shares remain outstanding, neither Capital Holding nor any majority-
owned subsidiary of Capital Holding will declare or pay any dividend on, or
redeem, purchase, acquire or make a liquidation payment with respect to, any
of its capital stock or make any guarantee payments with respect to the
foregoing (other than (i) payments under the Guarantee or under other guaranty
agreements made by Capital Holding in respect of additional preferred shares
that may be issued in one or more series or classes that rank pari passu with
each other and with the Preferred Shares with respect to participation in the
profits and assets of the Company, or (ii) dividends or guarantee payments to
Capital Holding by a majority-owned subsidiary), if at such time Capital
Holding is in default with respect to its payment or other obligations under
the Guarantee, or the Expenses and Liabilities Agreement or there shall have
occurred any event that, with the giving of notice or the lapse of time or
both, would constitute an Event of Default under the Loans.
In the Guarantee, Capital Holding will also covenant that, so long as any
Preferred Shares remain outstanding, it will (i) maintain direct or indirect
100% ownership of the Common Shares and any other shares of the Company other
than (x) the Preferred Shares or (y) any additional preferred shares that may
be issued in one or more series or classes, and that rank pari passu with each
other and with the Preferred Shares with respect to participation in profits
and assets of the Company, (ii) cause at least 21% of the total value of the
Company and at least 21% of all interests in the capital, income, gain, loss,
deduction and credit of the Company to be represented by Common Shares, (iii)
not voluntarily dissolve, wind-up or liquidate the Company, (iv) remain the
Manager of the Company and timely perform all of its duties as Manager of the
Company (including the duty to declare and pay dividends on the Preferred
Shares), provided that any permitted successor of Capital Holding under the
Loan Agreement may succeed to Capital Holding's duties as Manager, and (v) use
reasonable efforts to cause the Company to remain a limited life company and
otherwise continue to be treated as a partnership for United States federal
income tax purposes.
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ADDITIONAL AMOUNTS
All Guarantee Payments will be made without withholding or deduction for or
on account of any present or future taxes, duties, assessments or governmental
charges of whatever nature imposed or levied upon or as a result of such
payment by or on behalf of the United States, any state thereof or any other
jurisdiction through which or from which such payment is made, or any
authority therein or thereof having power to tax, unless the withholding or
deduction of such taxes, duties, assessments or governmental charges is
required by law. In that event, Capital Holding will pay such additional
amounts as may be necessary in order that the net amounts received by the
holders of the Preferred Shares after such withholding or deduction will equal
the amount which would have been receivable in respect of the Preferred Shares
in the absence of such withholding or deduction, except that no such
additional amounts will be payable to a holder of the Preferred Shares (or a
third party on his behalf) with respect to any of the Preferred Shares:
(a) if such holder is liable for such taxes, duties, assessments or
governmental charges in respect of the Preferred Shares by reason of
such holder's having some connection with the United States, any
state thereof or any other jurisdiction through which or from which
such payment is made, other than being a holder of the Preferred
Shares, or
(b) if the Company or Capital Holding has notified such holder of the
obligation to withhold taxes and requested but not received from
such holder a declaration of non-residence or other claim for
exemption, and such withholding or deduction would not have been
required had such declaration or other claim been received.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of the Preferred Shares (in which case no vote will be required),
the Guarantee may be changed only by a written instrument executed by Capital
Holding and with the prior approval of the holders of not less than 66 2/3% in
liquidation preference of all Preferred Shares then outstanding. The manner
of obtaining any such approval of holders of the Preferred Shares will be as
set forth under "Description of Preferred Shares-Voting Rights." All
guarantees and agreements contained in the Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of Capital
Holding and shall inure to the benefit of the holders of all Preferred Shares
then outstanding.
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TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect as to
the Preferred Shares upon full payment of the Redemption Price of all
outstanding Preferred Shares or upon full payment of the amounts payable to
holders of the Preferred Shares upon liquidation of the Company. The
Guarantee will continue to be effective or will be reinstated, however, as the
case may be, if at any time any holder of Preferred Shares must restore
payment of any sums paid under the Preferred Shares or the Guarantee.
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of Capital Holding
and will rank (i) subordinate and junior in right of payment to all other
liabilities of Capital Holding and (ii) senior to the most senior preferred or
preference stock of any series now or hereafter issued by Capital Holding, and
(iii) senior to any guarantee now or hereafter entered into by Capital Holding
in respect of any preferred or preference stock of any affiliate of Capital
Holding, except for guarantees in respect of any further series of preference
shares or any further shares of the Company ranking as regards participation
in the profits or assets of the Company pari passu with the Preferred Shares.
At December 31, 1993, Capital Holding had total liabilities of approximately
$20.4 billion, all of which are senior to the Guarantee.
The Guarantee will constitute a guarantee of payment and not of collection.
This means that a holder of Preferred Shares may enforce the Guarantee directly
against Capital Holding, and Capital Holding will waive any right or remedy to
require that any action be brought against the Company or any other person or
entity before proceeding against Capital Holding. The Guarantee will not be
discharged except by payment of the Guarantee Payments in full to the extent
not paid by the Company and by complete performance of all obligations of
Capital Holding under the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
DESCRIPTION OF THE LOANS
Set forth below is a summary of information concerning the loans (the
"Loans") which will be made by the Company to Capital Holding of the proceeds
from the issuance of (i) the Preferred Shares and (ii) the Company's Common
Shares and related capital contributions ("Common Share Payments"). This
summary contains all material information concerning the loan agreement (the
"Loan Agreement") but does not purport to be complete. References to
provisions of the Loan Agreement are qualified in their entirety by reference
to the full text of the Loan Agreement, the form of which has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
Capital Holding's obligations under the Loan Agreement will also be for the
benefit of the holders from time to time of the Preferred Shares, and such
holders will
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be entitled to enforce the Loan Agreement directly against Capital Holding.
GENERAL
Pursuant to the Loan Agreement, the Company will agree to make the Loans to
Capital Holding in an aggregate principal amount of $__________, such amount
being equal to the aggregate liquidation preference of the Preferred Shares
issued and sold by the Company of $__________ and the aggregate Common Share
Payments of $__________.
The entire principal amount of the Loans will become due and payable
(together with any accrued and unpaid interest thereon, including Additional
Interest (as hereinafter defined), if any) on the earliest of __________, 2024
or the date upon which Capital Holding or the Company shall be dissolved,
wound-up or liquidated.
MANDATORY PREPAYMENT
If the Company redeems the Preferred Shares in accordance with the terms
thereof, the Loans will become due and payable in a principal amount equal to
the aggregate Redemption Price of the Preferred Shares so redeemed, together
with any and all interest accrued thereon. Any payment pursuant to this
provision shall be made by wire transfer, which shall be initiated by 2:00
p.m., New York time, on the date of such redemption or at such other time or
such earlier date as the Company and Capital Holding shall agree.
OPTIONAL PREPAYMENT
Capital Holding will have the right to prepay the Loans, without premium or
penalty,
(i) in whole or in part (together with any accrued but unpaid interest,
including Additional Interest, if any, on the portion being
prepaid) at any time on or after __________, 1999; and
(ii) in whole (together with all accrued and unpaid interest, including
Additional Interest, if any, thereon) at any time if Capital
Holding is or would be required to pay any Additional Interest on
the entire amount of the Loans pursuant to the terms of the Loan
Agreement or, if such requirement to pay Additional Interest shall
relate only to a portion of the Loans, the portion of the Loans
affected by any such requirement (together with all accrued and
unpaid interest, including Additional Interest, on the portion
being prepaid), provided that if a partial prepayment would,
through the corresponding partial redemption of the Preferred
Shares, result in a delisting of the Preferred Shares from the New
York Stock
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Exchange, Capital Holding may only prepay the Loans in full. In no
event, however, will Capital Holding have the right to prepay the
Loans, or a portion thereof, under this clause (ii) based on (a) a
technical obligation to pay Additional Interest because of a
withholding obligation to the extent Capital Holding would not
incur any penalties, interest or tax under the United States
Internal Revenue Code of 1986, as amended (the "Code") or other
applicable law if Capital Holding did not withhold, or (b) a de
minimis obligation to pay Additional Interest. For purposes of the
foregoing, in the event that Capital Holding is advised by
independent legal counsel that more than an insubstantial risk
exists that Capital Holding will incur penalties, interest or tax
under the Code or other applicable law if it does not withhold,
Capital Holding shall have the right to repay the Loans, or a
portion thereof, under this clause (ii) unless the obligation to
pay Additional Interest if Capital Holding does so withhold is a de
minimis obligation.
INTEREST
The Loans will bear interest at an annual rate equal to _____% from the
date they are made until maturity. Such interest shall be payable on the last
day of each calendar month of each year, commencing __________, 1994. In the
event that any date on which interest is payable on the Loans is not a
Business Day, then payment of the interest payable on such date will be made
on the next succeeding day which is a Business Day (and without any interest
or other payment in respect of any such delay) except that, if such Business
Day is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on such date, subject to certain rights of extension
described below.
EXTENDED INTEREST PAYMENT PERIOD
Capital Holding shall have the right at any time or times during the term
of the Loans, so long as Capital Holding is not in default in the payment of
interest on the Loans, to extend the interest payment period to up to 60
months; provided that at the end of such period Capital Holding shall pay all
interest then accrued and unpaid (together with interest thereon at the rate
specified for the Loans to the extent permitted by applicable law); and
provided further that, during any such extended interest payment period
neither Capital Holding nor any majority-owned subsidiary of Capital Holding
shall declare or pay any dividends on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its shares of common or preferred
stock or make any guarantee payments with respect to the foregoing (other than
(i) payments under the Guarantee or under other guaranty agreements made by
Capital Holding in respect of additional preferred shares that may be issued
in one or more series or classes that rank pari passu with each other and with
the Preferred Shares with respect to participation in the profits and assets
of the Company, or (ii) dividend or guarantee payments to Capital Holding).
Prior to the termination of any such extended interest payment period,
Capital Holding may further extend the interest
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payment period, provided that such extended interest payment period together
with all such further extensions thereof may not exceed 60 months. Capital
Holding shall give the Company notice of its selection of such extended
interest payment period one Business Day prior to the earlier of (i) the date
the Company declares the related dividend or (ii) the date the Company is
required to give notice of the record or payment date of such related dividend
to the New York Stock Exchange or other applicable self-regulatory
organization or to holders of the Preferred Shares, but in any event not less
than two Business Days prior to such record date. Capital Holding shall cause
the Company to give such notice of Capital Holding's selection of such
extended interest payment period to the holders of the Preferred Shares.
ADDITIONAL INTEREST
If at any time following the date of the Loan Agreement (a) the Company
shall be required to pay any Additional Amounts in respect of the Preferred
Shares, pursuant to the terms thereof, (b) Capital Holding shall be required
to withhold or deduct any amounts, for or on account of any taxes, duties or
government charges of whatever nature imposed by the United States of America
(or any political subdivision thereof or therein), from the interest payments
to be made by Capital Holding on the Loans or (c) the Company shall be
required to pay, with respect to its income derived from the interest payments
on the Loans, any amounts for or on account of any taxes, duties or
governmental charges of whatever nature imposed by the Turks and Caicos
Islands (or any political subdivision thereof or therein), or any other taxing
authority, then, in any such case, Capital Holding will pay as interest such
additional amounts ("Additional Interest") as may be necessary in order that
the net amounts received and retained by the Company after paying such
Additional Amounts, or after such withholding or deduction or the payment of
such taxes, duties, assessments or governmental charges, as the case may be,
shall result in the Company's having such funds as it would have had in the
absence of the obligation to pay such Additional Amounts, or such withholding
or deduction or the payment of such taxes, duties, assessments or governmental
charges, as the case may be. The obligation to pay Additional Interest under
(b) above shall be reduced proportionately to the extent that (x) Capital
Holding or the Company has notified holders of Preferred Shares of the
obligation to withhold taxes and requested but not received from such holders
declarations of nonresidence or other claim for exemption and (y) such
withholding or deduction would not have been required had such declaration or
claim been received.
METHOD AND DATE OF PAYMENT
Each payment by Capital Holding of principal and interest (including
Additional Interest, if any) on the Loans shall be made to the Company in
lawful money of the United States, at such place and to such accounts as may
be designated by the Company.
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SET-OFF
Notwithstanding anything to the contrary in the Loan Agreement, Capital
Holding shall have the right to set-off any payment it is otherwise required
to make thereunder with and to the extent Capital Holding has theretofore
made, or is concurrently on the date of such payment making, a payment under
the Guarantee.
SUBORDINATION
The Loan Agreement provides that Capital Holding and the Company covenant
that each of the Loans is subordinate and junior in right of payment to all
Senior Indebtedness as provided in the Loan Agreement. The term "Senior
Indebtedness" means the principal, premium, if any, and interest on (i) all
indebtedness of Capital Holding other than ordinary trade credit and other
accounts payable arising in the ordinary course of business, whether
outstanding on the date of the Loan Agreement or thereafter created, incurred
or assumed, which is for money borrowed, or evidenced by a note or similar
instrument given in connection with the acquisition of any business,
properties or assets, including securities, (ii) any indebtedness of others of
the kinds described in the preceding clause (i) for which Capital Holding is
responsible or liable (directly or indirectly, contingently or
noncontingently) as guarantor or otherwise and (iii) amendments, renewals,
extensions and refundings of any such indebtedness, unless in any instrument
or instruments evidencing or securing such indebtedness or pursuant to which
the same is outstanding, or in any such amendment, renewal, extension or
refunding, it is expressly provided that such indebtedness is not superior in
right of payment to the Loans. The Senior Indebtedness shall continue to be
Senior Indebtedness and entitled to the benefits of the subordination
provisions irrespective of any amendment, modification or waiver of any term
of the Senior Indebtedness or extension or renewal of the Senior Indebtedness.
Under the foregoing definition Senior Indebtedness does not include, without
limitation, ordinary trade credit and other accounts payable arising in the
ordinary course of Capital Holding's business and other liabilities of Capital
Holding which are not incurred for money borrowed or evidenced by notes or
similar instruments.
In the event that (i) Capital Holding shall default in the payment of any
principal, or premium, if any, or interest on any Senior Indebtedness when the
same becomes due and payable, whether at maturity or at a date fixed for
prepayment or declaration or otherwise or (ii) an event of default occurs with
respect to any Senior Indebtedness permitting the holders thereof to
accelerate the maturity thereof and written notice describing such event of
default and requesting commencement of payment blockage on transactions as
hereinafter described is given to Capital Holding by the holders of Senior
Indebtedness, then unless and until such default in payment or event of
default shall have been cured or waived or shall have ceased to exist, no
direct or indirect payment (in cash, property, securities, by set-off or
otherwise) shall be made or agreed to be made on account of the Loans
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or interest thereon or in respect of any repayment, redemption, retirement,
purchase or other acquisition of the Loans. Capital Holding will give prompt
written notice to the Company of any default in the payment of any Senior
Indebtedness and of any dissolution, winding up or reorganization of Capital
Holding.
In the event of (i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to Capital Holding or its property or for the benefit of its creditors, (ii)
any proceeding for the liquidation, dissolution or other winding up of Capital
Holding, voluntary or involuntary, whether or not involving insolvency or
bankruptcy proceedings, (iii) any assignment by Capital Holding for the
benefit of creditors, or (iv) any other marshaling of the assets of Capital
Holding, all Senior Indebtedness shall first be paid in full before any
payment or distribution, whether in cash, securities or other property, may be
made by Capital Holding on account of the Loans. In any such event, any
payment or distribution, whether in cash, securities or other property (other
than securities of Capital Holding or any other corporation provided for by a
plan of reorganization or a readjustment, the payment of which is subordinate,
at least to the extent provided in the subordination provisions of the Loan
Agreement with respect to the indebtedness evidenced by the Loans, to the
payment of all Senior Indebtedness at the time outstanding and to any
securities issued in respect thereof under any such plan of reorganization or
readjustment), which would otherwise (but for the subordination provision) be
payable or deliverable in respect to the Loans shall be paid or delivered
directly to the holders of the Senior Indebtedness (or their representative or
trustee) in accordance with the priorities then existing among such holders
until all Senior Indebtedness shall have been paid in full. No present or
future holder of any Senior Indebtedness may be prejudiced in the right to
enforce subordination of the indebtedness constituting the Loans by any act or
failure to act on the part of Capital Holding.
Senior Indebtedness shall not be deemed to have been paid in full unless
the holders thereof shall have received cash, securities or other property
equal to the amount of such Senior Indebtedness then outstanding. Upon the
payment in full of all Senior Indebtedness, the Company shall be subrogated to
all the rights of any holders of Senior Indebtedness to receive any further
payments or distributions applicable to the Senior Indebtedness until the
Loans shall have been paid in full, and such payments or distributions of
cash, securities or other property received by the Company, by reason of such
subrogation, which otherwise would be paid or distributed to the holders of
Senior Indebtedness, shall, as between Capital Holding and its creditors other
than the holders of Senior Indebtedness, on the one hand, and the Company, on
the other, be deemed to be a payment by Capital Holding on account of Senior
Indebtedness, and not on account of the Loans.
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COVENANTS
Capital Holding will covenant that neither Capital Holding, nor any
majority-owned subsidiary of Capital Holding, will declare or pay any dividend
on, or redeem, purchase, acquire or make a liquidation payment with respect
to, any of Capital Holding's capital stock, or make any guarantee payments
with respect to the foregoing (other than (i) payments under the Guarantee or
under other guaranty agreements made by Capital Holding in respect of
additional preferred shares that may be issued in one or more series or
classes that rank pari passu with each other and with the Preferred Shares
with respect to participation in the profits and assets of the Company, or
(ii) dividends or guarantee payments to Capital Holding by a majority-owned
subsidiary), if at such time (x) there shall have occurred any event that,
with the giving of notice or the lapse of time or both, would constitute an
Event of Default under the Loan Agreement or (y) Capital Holding shall be in
default with respect to its payment or other obligations under the Guarantee
or the Expenses and Liabilities Agreement. Capital Holding will also covenant
(i) to maintain direct or indirect 100% ownership of the Common Shares and any
other shares of the Company other than (x) the Preferred Shares, and (y) any
additional preferred shares that may be issued in one or more series or
classes, and that rank pari passu with each other and with the Preferred
Shares with respect to participation in the profits and assets of the Company,
(ii) to cause at least 21% of the total value of the Company and at least 21%
of all interests in the capital, income, gain, loss, deduction and credit of
the Company to be represented by Common Shares, (iii) not to voluntarily
dissolve, wind-up or liquidate the Company, (iv) to remain the Manager of the
Company and to timely perform all of its duties as Manager (including the duty
to declare and pay dividends on the Preferred Shares as described in
"Description of the Preferred Shares-Dividends"); provided that any permitted
successor of Capital Holding under the Loan Agreement may succeed to Capital
Holding's duties as Manager, and (v) to use its reasonable efforts to cause
the Company to remain a limited life company and otherwise continue to be
treated as a partnership for United States federal income tax purposes.
The Company may not waive compliance or waive any default in compliance by
Capital Holding of any covenant or other term in the Loan Agreement without
the approval of the same percentage of Preferred Shareholders, obtained in the
same manner, as would be required for an amendment of the Loan Agreement to
the same effect.
ENFORCEMENT
Capital Holding will agree in the Loan Agreement that its obligations
thereunder are for the benefit of the holders of the Preferred Shares. The
holders, or a trustee appointed by and acting on behalf of the holders, may
enforce the obligations of Capital Holding under the Loan Agreement directly
against Capital Holding as third party beneficiary of Capital Holding's
obligations thereunder without first proceeding against the Company. However, no
holder of Preferred Shares is entitled to institute any proceeding under the
Loan Agreement to enforce the obligations therein unless such proceeding has
been brought by or with the consent of the holders of at least a majority in
liquidation preference of the outstanding Preferred Shares.
The holders' claims under the Loan Agreement will rank subordinate and
junior in right of payment to all Senior Indebtedness of Capital Holding as
described under "Subordination" above. Upon payment of such claims, any trustee
appointed by the holders to act on their behalf would be authorized to declare
and cause the Company to pay dividends on the Preferred Shares as described
under "Description of Preferred Shares--Voting Rights."
EVENTS OF DEFAULT
If one or more of the following events (each an "Event of Default") shall
occur and be continuing:
(a) default in the payment of interest on the Loans, including any
Additional Interest in respect thereof, when due for 10 days
(whether by virtue of the provisions described above under "-
Subordination" or otherwise); provided that a valid extension of the
interest payment period by Capital Holding shall not constitute a
default in the payment of interest for this purpose (see "-
Interest");
(b) default in the payment of principal on the Loans when due (whether
by virtue of the provisions described above under "-Subordination"
or otherwise);
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(c) the dissolution or winding-up or liquidation of the Company;
(d) the bankruptcy, insolvency or liquidation of Capital Holding; or
(e) breach by Capital Holding of any of its covenants under the Loan
Agreement continued for 30 days after notice to Capital Holding from
any holder of the Preferred Shares;
then, provided that the holders of a majority of liquidation preference of the
outstanding Preferred Shares are entitled to appoint a trustee (as described
under "Description of Preferred Shares-Voting Rights" above), the Company will
have the right to declare the principal of and the interest on the Loans
(including any Additional Interest and any interest subject to an extension
election) and all other amounts payable under the Loan Agreement to be
forthwith due and payable and to enforce its other rights as a creditor with
respect to the Loans. Under the terms of the Preferred Shares, the holders of
outstanding Preferred Shares will have the rights referred to under
"Description of the Preferred Shares-Voting Rights", including the right to
appoint a trustee, which trustee will be authorized to exercise the Company's
right to accelerate the principal amount of the Loans and to enforce the
Company's other rights as a creditor under the Loans, and Capital Holding
agrees to cooperate with such trustee.
MISCELLANEOUS
Capital Holding will have the right at all times to assign any of its
rights or obligations under the Loan Agreement to a direct or indirect wholly
owned subsidiary of Capital Holding other than any subsidiary that is an
insurance company; provided that, in the event of any such assignment, Capital
Holding will remain jointly and severally liable for all such obligations.
The Company may not assign any of its rights under the Loan Agreement without
the prior written consent of Capital Holding. Subject to the foregoing, the
Loan Agreement will be binding upon and inure to the benefit of Capital
Holding and the Company and their respective successors and assigns. The Loan
Agreement provides that it may not otherwise be assigned by Capital Holding or
the Company.
The Loan Agreement will provide that Capital Holding may merge with or into
another entity or may permit another entity to merge with or into Capital
Holding, or may sell, transfer or lease all or substantially all of its assets
to another entity, only if (i) at such time no Event of Default has occurred
and is continuing, or would occur as a result of such merger, sale, transfer
or lease, and (ii) Capital Holding is the survivor of such merger or the
entity to which Capital Holding's assets are sold, transferred or leased is an
entity organized under the laws of the United States or any state thereof and
assumes all of Capital Holding's obligations under the Loan Agreement.
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Except as to matters relating to the authorization, execution and delivery
of the Loan Agreement by the Company, which will be governed by the laws of
the Turks and Caicos Islands, the Loan Agreement will be governed by and
construed in accordance with the laws of the State of New York.
The Loan Agreement may be amended by mutual consent of the parties in the
manner the parties shall agree; provided that, so long as any of the Preferred
Shares remain outstanding, no such amendment shall be made that adversely
affects the holders of Preferred Shares, no termination of the Loan Agreement
shall occur and no Event of Default or compliance with any covenant under the
Loan Agreement may be waived by the Company, without the prior consent of at
least 66 2/3% of the outstanding Preferred Shares, in writing or at a duly
constituted meeting of such holders.
TAXATION
The following discussion summarizes the material federal income tax
considerations and Turks and Caicos Islands tax considerations that may be
relevant to prospective purchasers of the Preferred Shares.
PROSPECTIVE PURCHASERS OF THE PREFERRED SHARES ARE ADVISED TO CONSULT THEIR
OWN TAX ADVISORS AS TO THE TURKS AND CAICOS ISLANDS, UNITED STATES OR OTHER
TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED
SHARES, INCLUDING THE EFFECT OF ANY STATE OR LOCAL TAX LAWS.
UNITED STATES
The following summary is based upon the opinion of King & Spalding, special
United States tax counsel to Capital Holding and the Company, insofar as it
relates to matters of law and legal conclusions. The discussion is intended
to address only those federal income tax considerations that are generally
applicable to all holders of the Preferred Shares ("Holders"). The specific
tax consequences will vary for the Holders because of their varying
circumstances. This section is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed
regulations thereunder and current administrative rulings and court decisions,
all of which are subject to change. Subsequent changes may cause the tax
consequences to vary substantially from the consequences described below.
King & Spalding, special United States tax counsel to Capital Holding and
the Company, has reviewed the following discussion and is of the opinion that
this discussion accurately describes all of the material federal income tax
consequences to the Holders. Because the particular circumstances of
individual Holders may vary, the following discussion is not exhaustive of all
possible tax considerations. The discussion deals
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only with Preferred Shares held as capital assets by initial purchasers and
has only limited application to corporations, estates, trusts and non-resident
aliens. The discussion does not deal with special classes of Holders, such as
dealers in securities or currencies, life insurance companies, persons holding
Preferred Shares 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.
INCOME FROM PREFERRED SHARES
In the opinion of King & Spalding, the Company will be treated as a
partnership for federal income tax purposes. Each Holder will be required to
include in gross income the Holder's distributive share of the Company's net
income. Such income should not exceed dividends received on a Preferred
Share, except in limited circumstances as described below under "Potential
Extension of Interest Payment Period". No portion of such income will be
eligible for the dividends received deduction.
DISPOSITION OF PREFERRED SHARES
Gain or loss will be recognized on a sale of Preferred Shares equal to the
difference between the amount realized and the Holder's tax basis for the
Preferred Shares sold. Depending on the particular circumstances of a Holder,
gain or loss recognized by a Holder on the sale or exchange of a Preferred
Share held for more than one year will be taxable as long-term capital gain or
loss.
COMPANY INFORMATION RETURNS
Capital Holding, as Manager of the Company, will furnish each Holder with a
Schedule K-1 setting forth each Holder's allocable share of income within 90
days after the close of the Company's taxable year and will serve as the "Tax
Matters Partner", as that term is defined in the Code.
Any person who holds Preferred Shares as a nominee for another person is
required to furnish to the Company (a) the name, address and taxpayer
identification number of the beneficial owners and the nominee; (b) whether
the beneficial owner is (i) a person that is not a United States person, (ii)
a foreign government, an international organization or any wholly owned agency
or instrumentality of either of the foregoing, or (iii) a tax-exempt entity;
(c) the amount and description of Preferred Shares held, acquired or
transferred for the beneficial owners; and (d) certain information including
the dates of acquisitions and transfers, means of acquisitions and transfers,
and acquisition cost for purchases, as well as the amount of net proceeds from
sales. Brokers and financial institutions are required to furnish additional
information, including whether they are a United States person and
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certain information on Preferred Shares they acquire, hold or transfer for
their own account. A penalty of $50 per failure (up to a maximum of $100,000
per calendar year) is imposed by the Code for failure to report such
information to the Company.
POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD
Under the terms of the Loans which will be made from the proceeds of
issuance of the Preferred Shares and the Common Share Payments, Capital
Holding will be permitted to extend the payment period up to 60 months. In
the event that Capital Holding exercises this right, Capital Holding may not
declare dividends on any share of its preferred or common stock, and
therefore, the extension of a payment period is, in the view of the Company
and Capital Holding, remote. In the event that the payment period is
extended, the Company will continue to accrue income, equal to the amount of
the interest payment due at the end of the extended payment period, over the
length of the extended payment period.
Accrued income will be allocated, but not distributed, to Holders of record
on the last day of each calendar month. As a result, Holders of record during
an extended interest payment period will include interest in gross income in
advance of the receipt of cash and any such holders who dispose of Preferred
Shares prior to the record date for the payment of dividends following such
extended interest payment period will include interest in gross income but
will not receive any cash related thereto. The tax basis of a Preferred Share
will be increased by the amount of any interest that is included in income
without a receipt of cash, and will be decreased again when such cash is
subsequently received from the Company.
NON-UNITED STATES HOLDERS
For purposes of this discussion, a "Non-United States Holder" is any Holder
who or which is (i) a nonresident alien individual or (ii) a foreign
corporation, partnership or estate or trust, in either case not subject to
United States federal income tax on a net income basis in respect of a
Preferred Share.
Under present United States federal income tax law, and assuming
satisfaction by Capital Holding of its withholding tax obligations, if any:
(i) payments by the Company or any of its paying agents to any Holder
who or which is a Non-United States Holder will not be subject to United
States federal withholding tax; provided that (a) the beneficial owner of
the Preferred Share does not actually or constructively own 10% or more
of the total combined voting power of all classes of stock of Capital
Holding entitled to vote, (b) the beneficial owner of the Preferred Share
is not a controlled foreign corporation that is related to Capital
Holding through
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stock ownership; and (c) either (A) the beneficial owner of the Preferred
Share certifies to the Company or its agent, under penalties of perjury,
that it is not a United States Holder and provides its name and address
or (B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of
its trade or business (a "financial institution") and holds the Preferred
Share certifies to the Company or its agent under penalties of perjury
that such statement has been received from the beneficial owner by it or
by a financial institution between it and the beneficial owner and
furnishes the payor with a copy thereof; and
(ii) a Non-United States Holder of a Preferred Share will not be
subject to United States federal withholding tax on any gain realized on
the sale or exchange of a Preferred Share.
Should any United States withholding tax be imposed on payments on the
Loans, the Guarantee or the Preferred Shares, Capital Holding is obligated,
except as described below, to pay those taxes (see "Description of the Loans-
Additional Interest" and "Description of the Guarantee-Additional Amounts",
above). However, in the case of withholding tax imposed on the Preferred
Shares, such shares may be subject to a call for redemption, or in the case of
withholding tax imposed on the Loans, Capital Holding may prepay all or a
portion of the Loans, resulting in the redemption of some or all of the
shares. In addition, with regard to payments on the Loans or the Preferred
Shares, Capital Holding is not obligated to pay U.S. withholding tax imposed
because of the Holder's failure to provide a declaration of non-residence or
other claim for exemption. With regard to the Guarantee, Capital Holding is
not obligated to pay withholding tax imposed because of a Holder's connection
with the United States, any State thereof or any other jurisdiction through
which or from which such payment is made or because of a Holder's failure to
provide a declaration of non-residence or other claim for exemption.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to payments of
the proceeds of the sale of Preferred Shares within the United States to
noncorporate United States Holders, and "backup withholding" at a rate of 31%
will apply to such payments if the United States Holder fails to provide an
accurate taxpayer identification number.
Payments of the proceeds from the sale by a Non-United States Holder of
Preferred Shares made to or through a foreign office of a broker will not be
subject to information reporting or backup withholding, except that, if the
broker is a United States person, a controlled foreign corporation for United
States tax purposes or a foreign person 50% or more of whose gross income is
effectively connected with a United States trade or business for a specified
three-year period, information reporting may apply to such payments. Payments
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of the proceeds from the sale of Preferred Shares to or through the United
States office of a broker is subject to information reporting and backup
withholding unless the Holder or beneficial owner certifies as to its non-
United States status or otherwise establishes an exemption from information
reporting and backup withholding.
TURKS AND CAICOS ISLANDS
The following discussion is a summary of material Turks and Caicos Islands
tax considerations that may be relevant to prospective purchasers of the
Preferred Shares and represents the opinion of Misick and Stanbrook, Turks and
Caicos Islands counsel to the Company, insofar as it relates to matters of law
and legal conclusions.
Payment of dividends on the Preferred Shares will not be subject to any
withholding under the tax laws of the Turks and Caicos Islands.
There are no taxes in the Turks and Caicos Islands on income, profits,
capital gains or turnover, nor are there any inheritance, estate, or gift
taxes or duties in the Turks and Caicos Islands. The Company is exempted from
the payment of stamp duty on the issuance of any shares, debentures or other
obligations of the Company. No stamp duty is payable on the transfer or
redemption of shares in the Company. The Company has been issued a
certificate by the Governor of the Turks and Caicos Islands stating that the
Company is exempt, for a period of twenty years from the date of its
organization, March 18, 1994, from the payment of any taxes or duties which
may be imposed in the future on profits, income, capital gains, assets or
appreciations and any such tax or duty or tax in the nature of estate duty or
inheritance tax payable on the shares, debentures or other obligations of the
Company.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each
of the Underwriters, for whom Goldman, Sachs & Co. are acting as
representatives, has severally agreed to purchase from the Company the
respective number of Preferred Shares set forth opposite its name below:
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<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
UNDERWRITERS SHARES
- -------------------------------------- --------------------------------------
<S> <C>
Goldman, Sachs & Co..................
---------
Total............................. 4,000,000
- ---------- =========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all such Preferred Shares
offered hereby, if any are taken.
The Underwriters propose to offer the Preferred Shares in part directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus, and in part to certain securities dealers at such price less
a concession of $___ per Preferred Share ($___ per Preferred Share sold to
certain institutions). The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $___ per Preferred Share to certain
brokers and dealers. After the Preferred Shares are released for sale to the
public, the offering price and other selling terms may from time to time be
varied by the representatives.
In view of the fact that the proceeds from the sale of the Preferred Shares
will be loaned to Capital Holding, under the Underwriting Agreement Capital
Holding has agreed to pay to such Underwriters an amount in New York Clearing
House (next day) funds of $_____ per Preferred Share ($_____ per Preferred
Share sold to certain institutions) for the accounts of the several
Underwriters, as compensation for the services of the several Underwriters
under the Underwriting Agreement.
Prior to this offering, there has been no public market for the Preferred
Shares. In order to meet one of the requirements for listing the Preferred
Shares on the New York Stock Exchange, the Underwriters will undertake to sell
the Preferred Shares to a minimum of 400 beneficial holders and upon the
initial issuance of the Preferred Shares there shall be a minimum of 1,000,000
Preferred Shares outstanding.
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The Company and Capital Holding have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the United States
Securities Act of 1933, as amended.
John L. Weinberg is a director of Capital Holding and also serves as a
member of the Asset/Liability Committee and the Audit Committee of Capital
Holding'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 and their
associates may be customers of, engage in transactions with, and perform
services for Capital Holding in the ordinary course of business.
LEGAL MATTERS
The validity of the Preferred Shares will be passed upon for the Company by
Misick and Stanbrook, Grand Turk, Turks and Caicos Islands. The validity of
the Backup Undertakings by Capital Holding will be passed upon for the Company
and Capital Holding by Misick and Stanbrook, Turks and Caicos Islands counsel
to the Company and Capital Holding, and by Stites & Harbison, Louisville,
Kentucky, and for the Underwriters by Sullivan & Cromwell, New York, New York.
King & Spalding, Atlanta, Georgia, will pass upon the United States federal
income tax matters, and Misick and Stanbrook will pass upon the Turks and
Caicos Islands tax matters, described under "Taxation" in this Prospectus.
Larry D. Thompson, a partner in King & Spalding, is a director of Capital
Holding and also serves as a member of the Asset/Liability Committee and the
Audit Committee of Capital Holding's Board of Directors.
EXPERTS
The consolidated financial statements of Capital Holding incorporated by
reference in Capital Holding's Annual Report on Form 10-K for the year ended
December 31, 1993, 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.
-47-
<PAGE>
===============================================================================
No person has been authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized. This Prospectus does not constitute an
offer to sell or the solicitation of an offer to buy any securities other than
the securities to which it relates or to an offer to sell or the solicitation of
an offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of Capital Holding or the Company since the
date hereof or that information contained herein is correct as of any time
subsequent to its date.
-----------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
Available Information...... 2
Incorporation of Certain
Documents by Reference.... 3
Prospectus Summary......... 4
Recent Developments........ 9
Capital Holding LLC........ 9
Capital Holding
Corporation............... 9
Use of Proceeds............ 14
Capitalization............. 16
Summary Consolidated
Financial Data............ 17
Description of Preferred
Shares.................... 19
Description of the
Guarantee................. 30
Description of the
Loans..................... 33
Taxation................... 41
Underwriting............... 45
Legal Matters.............. 47
Experts.................... 47
</TABLE>
===============================================================================
4,000,000 Shares
Capital Holding LLC
Guaranteed to the extent set
forth herein by
Capital Holding Corporation
% Cumulative
------
Monthly Income Preferred Shares
--------------
[LOGO OF CHC]
--------------
Goldman, Sachs & Co.
<PAGE>
<TABLE>
<CAPTION>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<S> <C>
Registration Fee........................... $ 34,483
Listing Fees............................... 44,130
Printing and Engraving Expenses............ 125,000*
Rating Agency Fees......................... 40,000*
Accountants' Fees and Expenses............. 50,000*
Legal Fees and Expenses.................... 50,000*
Blue Sky Fees and Expenses................. 25,000*
Miscellaneous.............................. 11,387*
--------
Total................................. $380,000*
========
- -------------
*Estimated.
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Capital Holding Corporation 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).
Capital Holding Corporation has purchased insurance coverage for its
directors and officers with respect to certain liabilities incurred in their
capacities as such, and insuring Capital Holding 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 Certificate of Incorporation of Capital Holding Corporation
was amended to: (a) limit directors' liability in certain
II-1
<PAGE>
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. Article Eleventh of the Certificate of
Incorporation of Capital Holding Corporation provides that a director of the
corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit. Section 6.1 of the
By-Laws of Capital Holding Corporation provides that its officers, directors,
employees, and agents shall have such rights to indemnification as are provided
for in the company's Certificate of Incorporation.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
<S> <C>
1** - Form of Underwriting Agreement.
3.1** - Memorandum of Association of Capital Holding LLC.
3.2** - Articles of Association of Capital Holding LLC.
4.1** - Form of Payment and Guarantee Agreement between Capital Holding LLC and Capital Holding Corporation.
4.2* - Form of the Terms of the Cumulative Monthly Income Preferred Shares (as amended).
5.1** - Opinion of Misick and Stanbrook, Turks and Caicos Islands counsel to the Company and Capital Holding
Corporation, as to legality of the Cumulative Monthly Income Preferred Shares.
5.2** - Opinion of Stites & Harbison as to the legality of the Guarantee.
8.1** - Opinion of Misick and Stanbrook, Turks and Caicos Islands counsel to the Company and Capital Holding
Corporation, as to tax matters (included in Exhibit 5.1).
8.2* - Opinion of King & Spalding, as to United States tax matters.
12** - Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.
23.1** - Consent of Ernst & Young.
23.2** - Consent of Misick and Stanbrook (included in Exhibit 5.1).
23.3** - Consent of Stites & Harbison (included in Exhibit 5.2).
23.4* - Consent of King & Spalding (included in Exhibit 8.2).
24.1** - Certified copy of resolution of the Board of Directors of Capital Holding Corporation authorizing the corporation
and its officers to name attorneys-in-fact to sign on their behalf the registration statement and any and all
amendments (including post-effective amendments) thereto .
24.2** - Power of attorney for certain directors and officers of Capital Holding Corporation authorizing the
attorneys-in-fact named therein to sign on their behalf the registration statement and any and all amendments
(including post-effective amendments) thereto.
99.1* - Form of Loan Agreement between Capital Holding LLC and Capital Holding Corporation (as amended).
99.2** - Form of Expenses and Liabilities Agreement between Capital Holding LLC and Capital Holding Corporation.
</TABLE>
- ---------------
*Filed herewith.
**Previously filed.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
Each of the undersigned registrant and guarantor hereby undertakes:
(1) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of Capital Holding Corporation's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 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.
(2) That, 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 and the guarantor 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.
(3) That, 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.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to directors, officers, and controlling persons of the
registrant or the guarantor under Item 15 above, or otherwise, the registrant
and the guarantor have 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 or the guarantor of
expenses incurred or paid by a director, officer, or controlling person of the
registrant or the guarantor in the successful defense of any action, suit, or
proceeding) is asserted against the registrant or the guarantor by such
director, officer, or controlling person in connection with the securities being
registered, the registrant and the guarantor will, unless in the opinion of
their counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
them 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, CAPITAL HOLDING
LLC 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 AMENDMENT
NO. 2 TO REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOUISVILLE, COMMONWEALTH OF
KENTUCKY, ON THE 26TH DAY OF APRIL, 1994.
CAPITAL HOLDING LLC
(Registrant)
By: Capital Holding Corporation, as Manager
By: Robert L. Walker*
---------------------------------------
Robert L. Walker
Senior Vice President-Finance
and Chief Financial Officer
of Manager
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS
IN THE CAPACITIES INDICATED ON THE 26TH DAY OF APRIL, 1994.
<TABLE>
<CAPTION>
SIGNATURES TITLES
---------- ------
<S> <C>
Robert L. Walker* Senior Vice President-Finance and
- ----------------------------- Chief Financial Officer of Manager
Robert L. Walker (Principal Executive Officer)
Steven T. Downey* Vice President and Controller
- ----------------------------- of Manager
Steven T. Downey (Principal Financial and
Accounting Officer)
/s/ R. Michael Slaven Authorized Representative of
- ----------------------------- Registrant in the United States
R. Michael Slaven
*By: /s/ R. Michael Slaven
-------------------------
R. Michael Slaven
Attorney-in-fact for the above
named officers
</TABLE>
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, CAPITAL HOLDING
CORPORATION 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
AMENDMENT NO. 2 TO REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOUISVILLE, COMMONWEALTH
OF KENTUCKY, ON THE 26TH DAY OF APRIL, 1994.
CAPITAL HOLDING CORPORATION
(Guarantor)
By: IRVING W. BAILEY II*
Chairman of the Board,
President, and Chief
Executive Officer
*By: /s/ R. Michael Slaven
----------------------------
R. Michael Slaven
Attorney-in-fact for
Irving W. Bailey II
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES INDICATED ON THE 26TH DAY OF APRIL, 1994.
<TABLE>
<CAPTION>
SIGNATURES TITLES
---------- ------
<S> <C>
Irving W. Bailey II* Chairman of the Board,
- ----------------------------- President, and Chief Executive Officer
Irving W. Bailey II (Principal Executive Officer)
Robert L. Walker* Senior Vice President--Finance
- ----------------------------- and Chief Financial Officer
Robert L. Walker (Principal Financial Officer)
Steven T. Downey* Vice President and Controller
- ----------------------------- (Principal Accounting Officer)
Steven T. Downey
John L. Clendenin* Director
- -----------------------------
John L. Clendenin
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLES
---------- ------
<S> <C>
- ----------------------- Director
John M. Cranor, III
Joseph F. Decosimo* Director
- -----------------------
Joseph F. Decosimo
Lyle Everingham* Director
- -----------------------
Lyle Everingham
Raymond V. Gilmartin* Director
- -----------------------
Raymond V. Gilmartin
J. David Grissom* Director
- -----------------------
J. David Grissom
Watts Hill, Jr.* Director
- -----------------------
Watts Hill, Jr.
F. Warren McFarlan* Director
- -----------------------
F. Warren McFarlan
Martha R. Seger* Director
- -----------------------
Martha R. Seger
- ----------------------- Director
Florence R. Skelly
Larry D. Thompson* Director
- -----------------------
Larry D. Thompson
- ----------------------- Director
John L. Weinberg
*By: /s/ R. Michael Slaven
----------------------
R. Michael Slaven
Attorney-in-fact
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C>
1** --Form of Underwriting Agreement.
3.1** --Memorandum of Association of Capital Holding LLC.
3.2** --Articles of Association of Capital Holding LLC.
4.1** --Form of Payment and Guarantee Agreement between Capital Holding
LLC and Capital Holding Corporation.
4.2* --Form of the Terms of the Cumulative Monthly Income Preferred
Shares (as amended).
5.1** --Opinion of Misick and Stanbrook, Turks and Caicos Islands
counsel to the Company and Capital Holding Corporation, as
to legality of the Cumulative Monthly Income Preferred
Shares.
5.2** --Opinion of Stites & Harbison as to the legality of the
Guarantee.
8.1** --Opinion of Misick and Stanbrook, Turks and Caicos Islands
counsel to the Company and Capital Holding Corporation,
as to tax matters (included in Exhibit 5.1).
8.2* --Opinion of King & Spalding, as to United States tax matters.
12** --Computation of Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends.
23.1** --Consent of Ernst & Young.
23.2** --Consent of Misick and Stanbrook (included in Exhibit 5.1).
23.3** --Consent of Stites & Harbison (included in Exhibit 5.2).
23.4* --Consent of King & Spalding (included in Exhibit 8.2).
24.1** --Certified copy of resolution of the Board of Directors of Capital
Holding Corporation authorizing the corporation and its officers
to name attorneys-in-fact to sign on their behalf the
registration statement and any and all amendments
(including post-effective amendments) thereto.
24.2** --Power of attorney for certain directors and officers of Capital
Holding Corporation authorizing the attorneys-in-fact named
therein to sign on their behalf the registration statement and
any and all amendments (including post-effective amendments)
thereto.
99.1* --Form of Loan Agreement between Capital Holding LLC and Capital
Holding Corporation (as amended).
99.2** --Form of Expenses and Liabilities Agreement between Capital
Holding LLC and Capital Holding Corporation.
</TABLE>
- ---------------
*Filed herewith.
**Previously filed.
II-7
<PAGE>
TERMS OF THE __% CUMULATIVE
MONTHLY INCOME PREFERRED SHARES OF CAPITAL HOLDING LLC
The undersigned officer of Capital Holding Corporation, a Delaware
corporation ("Capital Holding" or the "Manager") which acts as Manager of
Capital Holding LLC, a limited life company organized under the laws of the
Turks and Caicos Islands (the "Company"), HEREBY CERTIFIES:
1. That by duly adopted resolutions of the holders of Common Stock of
the Company dated March 21, 1994, the Company authorized the creation of
4,000,000 Preferred Shares of U.S. $1.00 each with such rights and
restrictions as the Manager shall from time to time determine and declare;
and
2. That by duly adopted declaration of the Manager, on behalf of the
Company dated _____________, 1994, the Manager, pursuant to authority granted
to it in the Articles of Association of the Company (the "Articles of
Association"), authorized the issuance of 4,000,000 Preferred Shares having such
designations, stated value, rights, privileges, restrictions, preferences and
other terms and provisions as the Manager authorized or approved as set forth
below:
DECLARED, that pursuant to the Articles of Association, the Manager
hereby authorizes the issuance of 4,000,000 Preferred Shares, liquidation
preference $25 per Preferred Share, of the Company and hereby fixes the number,
voting powers, designation, preferences, participating, optional or other
special rights and the qualifications, limitations or restrictions of, and other
matters relating to, said shares as follows:
1. Designation. 4,000,000 shares of the Preferred Shares of the
Company, liquidation preference $25 per Preferred Share, are hereby designated
as "__% Cumulative Monthly Income Preferred Shares" (hereinafter called the
"Preferred Shares").
2. Ranking. The Preferred Shares shall, with respect to
participation in the profits or assets of the Company, rank prior to any other
equity securities of the Company, including the common shares of the Company
(the "Common Shares"), other than any additional preferred shares that may be
issued in one or more series or classes and that rank pari passu with each other
and with the Preferred Shares with respect to participation in the profits and
assets of the Company. So long as any Preferred Shares are outstanding, the
Company will not issue any shares of capital stock ranking, as to participation
in the profits or assets of the Company, senior to the Preferred Shares. The
issuance of any shares of capital stock ranking senior to the Preferred Shares
constitutes a variation or
<PAGE>
abrogation of the rights attached to the Preferred Shares under the Articles of
Association.
3. Dividends. (a) The holders of the Preferred Shares shall be
entitled to receive, when, as and if declared by the Company out of funds held
by the Company and legally available therefor, cumulative cash dividends at the
annual rate of __% of the stated liquidation preference of $25 per share,
calculated on the basis of a 360-day year consisting of 12 months of 30 days
each, and for any period shorter than a full monthly dividend period, dividends
will be computed on the basis of the actual number of days elapsed in such
period, and payable in United States dollars monthly in arrears on the last day
of each calendar month of each year, commencing _______ __, 1994. Such
dividends will accrue and be cumulative whether or not they have been declared
and whether or not there are profits, surplus or other funds of the Company
legally available for the payment of dividends. Dividends on the Preferred
Shares shall be cumulative from the date of original issue, and the cumulative
portion from such date to _______ __, 1994 shall be payable on _______ __, 1994.
(b) Dividends on the Preferred Shares must be declared by the Manager
of the Company in any calendar year or portion thereof to the extent that the
Manager reasonably anticipates that at the time of payment the Company will
have, and must be paid by the Company to the extent that at the time of proposed
payment it has, (x) funds legally available for the payment of such dividends
and (y) cash on hand sufficient to permit such payments. Dividends declared on
the Preferred Shares will be payable to the record holders thereof as they
appear on the register for the Preferred Shares on the relevant record dates,
which will be one Business Day prior to the relevant payment dates. In the
event that any date on which dividends are payable on the Preferred Shares is
not a Business Day, then payment of the dividend payable on such date will be
made on the next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay) except that, if such
Business Day is in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day, in each case with the same force and
effect as if made on such date. A "Business Day" shall mean any day other than
a day on which banking institutions in The City of New York are authorized or
required by law to close.
(c) If dividends have not been paid in full on the Preferred
Shares, the Company shall not:
-2-
<PAGE>
(i) pay, or declare and set aside for payment, any
dividends on any other preferred or preference stock of the Company
ranking pari passu with the Preferred Shares as regards participation
in profits of the Company ("Company Dividend Parity Shares"), unless
the amount of any dividends declared on any Company Dividend Parity
Shares is paid on the Company Dividend Parity Shares and the Preferred
Shares on a pro rata basis on the date such dividends are paid on such
Company Dividend Parity Shares, so that
(x) (a) the aggregate amount of dividends paid on the
Preferred Shares bears to (b) the aggregate amount of dividends
paid on such Company Dividend Parity Shares the same ratio as
(y) (a) the aggregate of all accumulated arrears of
unpaid dividends in respect of the Preferred Shares bears to (b)
the aggregate of all accumulated arrears of unpaid dividends in
respect of such Company Dividend Parity Shares;
(ii) pay, or declare and set aside for payment, any dividends on
any shares of the Company ranking junior to the Preferred Shares as to
dividends (the "Company Dividend Junior Shares"); or
(iii) redeem, purchase or otherwise acquire any Company Dividend
Parity Shares or Company Dividend Junior Shares or any Preferred Shares
other than the redemption of all outstanding Preferred Shares at the
redemption price of $25 per Share plus accumulated and unpaid dividends
(whether or not declared) to the date fixed for redemption (the "Redemption
Price");
until, in each case, such time as all accumulated arrears of unpaid dividends
(whether or not declared) on the Preferred Shares shall have been paid in full
for all dividend periods terminating on or prior to, in the case of clauses (i)
and (ii), such payment and, in the case of clause (iii) the date of such
redemption, purchase or acquisition.
-3-
<PAGE>
3. Merger, Consolidation or Replacement of the Company. The Company may not
consolidate, amalgamate, merge with or into, be replaced by or be continued as
or convey, transfer or lease its properties and assets substantially as an
entirety to any corporation or other body, except as described in this paragraph
and subject to applicable law. For purposes of applicable Turks and Caicos
Islands law, each holder of Preferred Shares hereby authorizes and consents to
the Company consolidating, amalgamating, merging with or into, being replaced
by, or continued as a limited liability company organized as such under the laws
of any state of the United States of America, or a limited partnership organized
under the Uniform Limited Partnership Act in any state of the United States of
America, or a trust organized under the laws of the State of Delaware (in each
case the "Successor") and the Company may do so, provided, that (i) such
Successor either (x) expressly assumes all the terms and conditions of, and
obligations of the Company under, the Preferred Shares or (y) substitutes for
the Preferred Shares another security having substantially the same terms as the
Preferred Shares (the "Successor Security") so long as the Successor Securities
rank, with respect to participation in the profits or assets of the Successor,
at least as high as the Preferred Shares rank, with respect to participation in
the profits or assets of the Company, (ii) Capital Holding expressly
acknowledges the Successor as the lender under the Loans and reaffirms its
obligations to the Successor and to the holders of the Preferred Shares or
Successor Securities, as the case may be, under the Guarantee, (iii) such
merger, consolidation, amalgamation, replacement or continuation does not cause
the Preferred Shares or Successor Securities, as the case may be, to be delisted
by any national securities exchange or other organization on which the Preferred
Shares or Successor Securities, as the case may be, are listed, (iv) the
Successor receives a written opinion of counsel (such counsel being a law firm
of national standing), which counsel may be counsel to the Company or Capital
Holding, to the effect that such consolidation, amalgamation, merger,
replacement or continuation will not result in a taxable gain to the holders of
the Preferred Shares or Successor Securities, as the case may be, under Federal
income tax law or cause the Successor to be considered an "investment company"
under the Investment Company Act of 1940, as amended (the "1940 Act") and (v)
such merger, consolidation, amalgamation, replacement or continuation does not
cause the Preferred Shares or Successor Securities, as the case may be, to
be
-4-
<PAGE>
downgraded by any "nationally recognized statistical rating organization" as
that term is defined by the SEC for purposes of Rule 436(g)(2) under the
Securities Act.
The Manager is authorized and directed to conduct its affairs and to
operate the Company in such a way that the Company would not be deemed to be an
"investment company" for purposes of the 1940 Act. In this connection, Capital
Holding, as manager, is authorized to take any action not inconsistent with
applicable law or the Memorandum of Association or the Articles of Association
of the Company which it determines in its discretion to be necessary or
desirable for such purposes.
4. Redemption. (a) The Preferred Shares are redeemable, at the
option of the Company and subject to the prior consent of Capital Holding,
in whole or in part from time to time, on or after _______ __, 1999, upon not
less than 30 nor more than 60 days' notice, at the Redemption Price. If a
partial redemption would result in a delisting of the Preferred Shares, the
Company may only redeem the Preferred Shares in whole. The Company will not
redeem fewer than all the outstanding Preferred Shares unless all accumulated
arrears of unpaid dividends have been paid on all Preferred Shares for all
monthly dividend periods terminating on or prior to the date of redemption.
(b) Upon any repayment or prepayment of principal on the Loans to
Capital Holding of the proceeds from the issuance and sale of the Preferred
Shares and the Common
-5-
<PAGE>
Shares (the "Loans"), the proceeds from such repayment of principal on the Loans
shall be applied to redeem the Preferred Shares at the Redemption Price, upon
not less than 30 nor more than 60 days' notice; provided that any such amounts
may be lent to or relent to Capital Holding, and not used for redemption, if at
the time of such new loan, and as determined in the judgment of Capital Holding,
as Manager, and its financial advisor (selected by Capital Holding, as Manager,
and who shall be unaffiliated with Capital Holding and shall be among the 30
largest investment banking firms, measured by total capital, in the United
States at the time of the proposed new loan), (a) Capital Holding is not in
bankruptcy, (b) Capital Holding is not in default on any loan pertaining to the
Preferred Shares, (c) Capital Holding has made timely payments on the repaid
loan for the immediately preceding 18 months, (d) the Company is not in arrears
on payments of dividends on the Preferred Shares, (e) Capital Holding is
expected to be able to make timely payment of principal and interest on such new
loan, (f) such new loan is being made on terms, and under circumstances, that
are consistent with those which a lender would require for a loan to an
unrelated party, (g) such loan is being made at a rate sufficient to provide
payments equal to or greater than the amount of dividend payments that accrue on
the Preferred Shares, (h) the senior unsecured long-term debt of Capital Holding
is rated among the four highest rating categories by a nationally recognized
statistical rating organization, (i) such loan is being made for a term that is
consistent with market circumstances and Capital Holding's financial condition
and (j) such loan will have a final maturity no later than the forty-ninth
anniversary of the issuance of the Preferred Shares. No Loan may mature more
than 49 years from the date hereof.
(c) Notwithstanding subparagraph (a) above, if at any time after the
issuance of the Preferred Shares, the Company is or would be required to pay
Additional Amounts with respect to the Preferred Shares or Capital Holding is or
would be required to withhold or deduct certain amounts as described under
paragraph 8 hereof and under the Payment and Guarantee Agreement of Capital
Holding dated as of ______ __, 1994 (the "Guarantee Agreement"), then, subject
to the prior consent of Capital Holding, the Company may, at its option, upon
not less than 30 nor more than 60 days' notice to the holders of the Preferred
Shares (which notice shall be irrevocable), redeem the Preferred Shares in whole
or, if such requirement relates only to certain of the Preferred Shares, the
Preferred Shares subject to such requirement in each case may be redeemed in
part at the Redemption Price; provided that in the case of a partial redemption,
the Company shall cause all of the Preferred Shares to be issued in definitive
form, and provided,
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further, that if a partial redemption would result in a delisting of the
Preferred Shares, the Company may only redeem the Preferred Shares in whole.
5. Redemption Procedure. (a) Notice of any redemption (a "Notice of
Redemption") of the Preferred Shares will be given by the Company by mail to
each record holder to be redeemed not fewer than 30 nor more than 60 days prior
to the date fixed for redemption thereof. For purposes of the calculation of
the date of redemption and the dates on which notices are given pursuant to this
paragraph 5(a), a Notice of Redemption shall be deemed to be given on the day
such notice is first mailed by first class mail, postage prepaid, to holders of
record of the Preferred Shares. Each Notice of Redemption shall be addressed to
the holder of record at the address of the holder appearing in the stock
register of the Company. No defect in the Notice of Redemption or in the
mailing thereof or publication of its contents shall affect the validity of the
redemption proceedings.
(b) In the event that fewer than all the outstanding Preferred
Shares are to be redeemed, the Preferred Shares to be redeemed (i) in the case
of a redemption pursuant to paragraph 4(a) hereof, will be selected in
accordance with paragraph 9 hereof and (ii) in the case of an optional
redemption pursuant to paragraph 4(c) will be such Preferred Shares as were
subject to additional amounts being paid, or amounts being withheld or deducted,
in respect thereof. The Company may not redeem fewer than all the outstanding
Preferred Shares unless all accumulated and unpaid dividends have been paid on
all Preferred Shares for all monthly dividend periods terminating on or prior to
the date of redemption.
(c) If the Company gives a notice of redemption in respect of
Preferred Shares, then, by 2:00 p.m., New York time, on the redemption date, the
Company will irrevocably initiate the transfer of funds for deposit with The
Depository Trust Company in an amount sufficient to pay the applicable
Redemption Price and will give The Depository Trust Company irrevocable
instructions and authority to pay the Redemption Price to the holders thereof.
If notice of redemption shall have been given and funds deposited as required,
then upon the date of such deposit, all rights of holders of such Preferred
Shares so called for redemption will cease, except the right of the holders of
such shares to receive the Redemption Price, but without interest, and such
shares will cease to be outstanding. In the event that any date on which any
payment in respect of the redemption of Preferred Shares is due is not a
Business Day, then payment of the Redemption Price payable on such date will be
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made on the next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay), except that, if such
Business Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day. In the event that payment of the Redemption
Price in respect of Preferred Shares is improperly withheld or refused and not
paid either by the Company or by Capital Holding pursuant to the Guarantee
Agreement, dividends on such shares will continue to accrue, at the then
applicable rate, from the original redemption date to the date of payment, in
which case the actual payment date will be considered the date fixed for redemp-
tion for purposes of calculating the Redemption Price.
6. Liquidation Distribution. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company, the holders
of the Preferred Shares at the time outstanding will be entitled to receive out
of the assets of the Company legally available for distribution to shareholders,
before any distribution of assets is made to holders of Common Shares or any
other class of shares of the Company ranking junior to the Preferred Shares as
regards participation in assets of the Company, but together with the holders of
every other series of preferred or preference stock of the Company outstanding,
if any, ranking pari passu with the Preferred Shares as regards participation in
the assets of the Company ("Company Liquidation Parity Shares"), an amount equal
to the aggregate of the stated liquidation preference of $25 per share and all
accumulated and unpaid dividends (whether or not declared) to the date of
payment (the "Liquidation Distribution"). If, upon any such liquidation, the
Liquidation Distribution can be paid only in part because the Company has
insufficient assets available to pay in full the aggregate maximum Liquidation
Distribution and the aggregate maximum liquidation distributions on the Company
Liquidation Parity Shares, then the amounts payable directly by the Company on
the Preferred Shares and on such Company Liquidation Parity Shares shall be paid
on a pro rata basis, so that
(i) (x) the amount paid in respect of the Liquidation Distribution
bears to (y) the aggregate amount paid as liquidation distributions on the
Company Liquidation Parity Shares the same ratio as
(ii) (x) the aggregate Liquidation Distribution bears to (y) the
aggregate maximum liquidation distributions on the Company Liquidation
Parity Shares.
Pursuant to its Articles of Association, the Company shall automatically
dissolve and be liquidated: (i) when the period fixed for the duration of the
Company expires; (ii)
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if Capital Holding by resolution requires the Company to be wound up and
dissolved; (iii) upon the bankruptcy, resignation, withdrawal, expulsion,
termination, cessation or dissolution of the Manager (provided that the merger
of the Manager into a successor that succeeds to the duties of the Manager shall
not be a resignation, withdrawal, termination, cessation or dissolution of the
Manager); or (iv) if all of the Common Shares are redeemed by the Company.
7. Voting Rights. If (i) the Company fails to pay dividends in full
on the Preferred Shares (whether or not there are funds legally available
therefor) for 18 consecutive monthly dividend periods; (ii) an Event of Default
under the Loans occurs and is continuing on the Loans; or (iii) Capital Holding
is in default under any of its payment or other obligations under the Guarantee
Agreement, then the holders of a majority in liquidation preference of the
outstanding Preferred Shares, together with the holders of any other shares of
preferred or preference stock of the Company having the right to vote for the
appointment of a trustee in such event, acting as a single class, will be
entitled to appoint and authorize a trustee to enforce the Company's rights as a
creditor under the Loans directly against Capital Holding, enforce the
obligations undertaken by Capital Holding under the Guarantee Agreement and the
Expenses and Liabilities Agreement pursuant to which Capital Holding will agree
to guarantee payment of any liabilities incurred by the Company (other than
obligations to holders of Preferred Shares in their capacities as holders) (the
"Expenses and Liabilities Agreement") and declare and pay dividends on the
Preferred Shares. For purposes of determining whether the Company has failed to
pay dividends in full for 18 consecutive monthly dividend periods, dividends
shall be deemed to remain in arrears, notwithstanding any payments in respect
thereof, until full cumulative dividends have been or contemporaneously are
declared and paid with respect to all monthly dividend periods terminating on or
prior to the date of payment of such full cumulative dividends. Not later than
30 days after such right to appoint a trustee arises, the Manager will convene a
general meeting for the above purpose. If the Manager fails to convene such
meeting within such 30-day period, the holders of 10% in liquidation preference
(plus all accumulated arrears and accruals of dividends per share) of the
outstanding Preferred Shares and such other preferred or preference stock will
be entitled to convene such meeting. The provisions of the Articles of
Association relating to the convening and conduct of the general meetings of
shareholders will apply with respect to any such meeting. Any trustee so
appointed shall vacate
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<PAGE>
office immediately, subject to the terms of such other preferred or preference
stock, if the Company (or Capital Holding pursuant to the Guarantee Agreement)
shall have paid in full all accumulated and unpaid dividends on the Preferred
Shares or such default or breach by Capital Holding, as the case may be, shall
have been cured. Notwithstanding the appointment of any such trustee, Capital
Holding and the Company retain all rights under the Loan Agreement, including
the right to extend the interest payment period for up to 60 months, as provided
under the Loan Agreement. During any such extension, dividends on the Preferred
Shares will be deferred, but holders will be required to include interest from
the Loans in income for federal income tax purposes.
If any resolution is proposed for adoption by the shareholders of the
Company providing for, or the Manager otherwise proposes to effect (it being
understood that the automatic dissolution and liquidation events described in
Section 6 (iii) and (iv) above and the events described in Section 3 above will
not be deemed to be a proposal by the Manager), (x) any variation or abrogation
of the rights, preferences and privileges of the Preferred Shares by way of
amendment of the Company's Articles of Association, the Declaration or otherwise
(including, without limitation, the authorization or issuance of any shares of
the Company ranking, as to participation in the profits or assets of the
Company, senior to the Preferred Shares), (y) the liquidation, dissolution or
winding up of the Company or (z) the modification of Regulation 16 of the
Articles of Association, which absolutely prohibits transfers of the Company's
Common Shares, then the holders of the outstanding Preferred Shares (and, in the
case of a resolution described in clause (x) above which would equally adversely
affect the rights, preference or privileges of any Company Dividend Parity
Shares or any Company Liquidation Parity Shares, such Company Dividend Parity
Shares or such Company Liquidation Parity Shares, as the case may be, or, in the
case of any resolution described in clause (y) or (z) above, all Company
Liquidation Parity Shares) will be entitled to vote on such resolution or action
of the Manager (but not on any other resolution or action), and such resolution
or action shall not be effective except with the approval of the holders of 66-
2/3% in liquidation preference (plus all accumulated and unpaid dividends) of
the outstanding Preferred Shares; provided, however, that no such approval or
ratification shall be required under clauses (x) and (y) if the liquidation,
dissolution or winding up of the Company is proposed or initiated upon the
initiation of proceedings, or after proceedings have been initiated, for the
liquidation, dissolution or winding up of Capital Holding.
The rights attached to the Preferred Shares will be deemed not to be
varied by the creation or issue of, and no vote will be required for the
creation of, any further shares or any further series of preference shares of
the Company ranking as regards participation in the profits or assets of the
Company pari passu or junior to the Preferred Shares. Holders of Preferred
Shares have no preemptive rights.
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<PAGE>
Any required approval of holders of Preferred Shares may be given at a
separate meeting of such holders convened for such purpose, at a general meeting
of shareholders of the Company or pursuant to written consent. The Company will
cause a notice of any meeting at which holders of the Preferred Shares are
entitled to vote, or of any matter upon which action by written consent of such
holders is to be taken, to be mailed to each holder of record of Preferred
Shares. Each such notice will include a statement setting forth (i) the date of
such meeting or the date by which such action is to be taken, (ii) a description
of any resolution proposed for adoption at such meeting on which such holders
are entitled to vote or of such matter upon which written consent is sought and
(iii) instructions for the delivery of proxies or consents.
No vote or consent of the holders of the Preferred Shares will be
required for the Company to redeem and cancel Preferred Shares in accordance
with the Articles of Association and the Resolutions.
Notwithstanding that holders of Preferred Shares are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
Shares that are owned by Capital Holding or any entity owned more than 50% or
more by Capital Holding, either directly or indirectly, shall not be entitled to
vote or consent and shall, for the purposes of such vote or consent, be treated
as if they were not outstanding.
8. Additional Amounts. All payments in respect of the Preferred
Shares by the Company will be made without withholding or deduction for or on
account of any present or future taxes, duties, assessments or governmental
charges of whatever nature imposed or levied upon or as a result of such payment
by or on behalf of the Turks and Caicos Islands or any authority therein or
thereof having power to tax ("Taxes"), unless the withholding or deduction of
such taxes, duties, assessments or governmental charges is required by law. In
that event, the Company will pay as a dividend such additional amounts as may be
necessary in order that the net amounts received by the holders of the Preferred
Shares after such withholding or deduction will equal the amount which would
have been receivable in respect of such Preferred Shares in the absence of such
withholding or deduction ("Additional Amounts"), except that no such Additional
Amounts will be payable to a holder of Preferred Shares (or a third party on
such holder's behalf) with respect to Preferred Shares:
(a) if such holder is liable for such taxes, duties, assessments
or governmental
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<PAGE>
charges in respect of such Preferred Shares by reason of such holder's
having some connection with the Turks and Caicos Islands other than
being a holder of such Preferred Shares; or
(b) if the Company has notified such holder of the obligation to
withhold taxes and requested but not received from such holder a
declaration of non-residence or other claim for exemption, and such
withholding or deduction would not have been required had such
declaration or claim been received.
9. Book-Entry-Only Issuance; The Depository Trust Company. The
Depository Trust Company ("DTC") will act as securities depository for the
Preferred Shares. The Shares will be issued only in the form of one or more
fully-registered securities representing in the aggregate the total number of
Preferred Shares and registered in the name of Cede & Co. (DTC's nominee).
Redemption notices shall be sent to Cede & Co. If less than all of
the Preferred Shares are being redeemed, shares to be redeemed shall be
determined in accordance with DTC's practice which at the date hereof is to
determine by lot the amount of the interest of each direct participant in such
series to be redeemed.
DTC may discontinue providing its services as securities depository
with respect to the Preferred Shares at any time by giving reasonable notice to
the Company. Under such circumstances, in the event that the Company exercises
its option to redeem only a portion of the Preferred Shares because a successor
securities depository is not obtained, Preferred Share certificates are required
to be printed and delivered. Additionally, in the event that the Company or
Capital Holding is or would be required to withhold or deduct Additional Amounts
in regard to only certain of the Preferred Shares, the Company may cause all of
the Preferred Shares to be issued in definitive form. Thereafter, upon
surrender of the global certificate or certificates, Preferred Shares will be
issued in definitive form, and the Preferred Shares to which the Additional
Amounts relate will be redeemed.
10. Guarantee of Liabilities. It shall be a condition precedent to
the issuance of the Preferred Shares that Capital Holding execute the Expenses
and Liabilities Agreement, pursuant to which Capital Holding shall guarantee
payment of all liabilities of the Company to the extent not
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<PAGE>
paid by the Company (other than obligations to holders of Preferred Shares,
which will be separately guaranteed to the extent set forth in the Guarantee
Agreement). The Expenses
-13-
<PAGE>
and Liabilities Agreement shall be for the benefit of, and be enforceable by,
third parties to whom the Company owes such obligations.
IN WITNESS WHEREOF, CAPITAL HOLDING LLC has caused this Certificate to
be signed by one of the officers of its Manager, and to be attested to by the
Vice President and Secretary of the Manager, as of this __th day of _________,
1994.
CAPITAL HOLDING LLC
By CAPITAL HOLDING CORPORATION,
as Manager
By:_____________________________
Name:
Title:
Attest:
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<PAGE>
EXHIBIT 8.2
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303-1763
(404) 572-4600
Facsimile: (404) 572-5100
April 14, 1994
CAPITAL HOLDING CORPORATION
Capital Holding Center
400 West Market Street
Louisville, Kentucky 40202
CAPITAL HOLDING LLC
c/o Capital Holding Corporation
Capital Holding Center
400 West Market Street
Louisville, Kentucky 40202
Gentlemen:
We have acted as special United States tax counsel to Capital Holding
Corporation ("Capital Holding") and to Capital Holding LLC (the "Company") in
connection with the proposed offering by the Company of its Cumulative Monthly
Income Preferred Shares (the "Preferred Shares") as described in that certain
Registration Statement on Form S-3 (the "Registration Statement") filed with the
Securities and Exchange Commission on March 22, 1994, as amended. In connection
therewith, you have requested our opinion with respect to (i) the status of the
Company as a partnership for United States federal income tax purposes, and (ii)
the accuracy of the discussion included in the Registration Statement under the
heading "Taxation."
We understand that our opinion will be attached as an Exhibit to, and will be
referred to under the caption "Taxation" in, the Prospectus that is a part of
the Registration Statement, and we hereby consent to such use of our opinion.
All capitalized terms used herein without definition shall have the same meaning
as in the Registration Statement.
<PAGE>
Capital Holding Corporation
Capital Holding LLC
April 14, 1994
Page 2
FACTS AND ASSUMPTIONS RELIED UPON
---------------------------------
In rendering the opinions expressed herein, we have examined such documents as
we have deemed appropriate, including (but not limited to) the Registration
Statement and all Exhibits thereto. In our examination of documents, we have
assumed, with your consent, that all documents submitted to us are authentic
originals, or if submitted as photocopies, that they faithfully reproduce the
originals thereof, that all such documents have been or will be duly executed to
the extent required, that all representations and statements set forth in such
documents are true and correct, and that all obligations imposed by any such
documents on the parties thereto are enforceable, and have been or will be
performed or satisfied, in accordance with their terms. In addition, we have
relied, with your consent, upon the opinion of Misick & Stanbrook with respect
to the organization of the Company, and we have assumed, with your consent, that
the Articles and Memorandum of Association of the Company are enforceable in
accordance with their terms. Finally, we have assumed, again with your consent,
that the Company (i) will not be registered under the Investment Company Act of
1940, as amended, as a management company or unit investment trust, (ii) will
not elect under such Act to be treated as a business development company, and
(iii) will not be a common trust fund or similar fund excluded by section
3(c)(3) of such Act from the definition of "investment company" and will not be
included in the definition of "common trust fund" by section 584(a) of the
United States Internal Revenue Code.
OPINIONS
--------
Based upon and subject to the foregoing, we are of the following opinions.
(1) The Company will be treated as a partnership, and not as a corporation or
as an association taxable as a corporation, for United States federal income tax
purposes.
(2) The discussion contained in that portion of the Registration Statement
under the caption "Taxation" accurately describes all of the material United
States federal income tax considerations to a holder of Preferred Shares.
<PAGE>
Capital Holding Corporation
Capital Holding LLC
April 14, 1994
Page 3
* * *
The opinions expressed herein are based upon the United States Internal Revenue
Code, the United States Treasury Regulations promulgated thereunder, current
administrative positions of the United States Internal Revenue Service, and
existing judicial decisions, any of which could be changed at any time, possibly
on a retroactive basis. Any such changes could adversely affect the opinions
rendered herein and the tax consequences to the Company and to the holders of
the Preferred Shares. In addition, our opinions cannot be relied upon if any of
the facts contained in the documents that we have examined, including the
opinion of Misick & Stanbrook, or if any of the assumptions that we have made,
is, or later becomes, inaccurate.
Finally, our opinion is limited to the tax matters specifically covered thereby,
and we have not been asked to address, nor have we addressed, any other tax
consequences relating to the formation or operation of the Company or of an
investment in the Preferred Shares.
Sincerely yours,
KING & SPALDING
<PAGE>
EXHIBIT 99.1
LOAN AGREEMENT
LOAN AGREEMENT, dated as of _______ ___, 1994, between Capital Holding
Corporation, a Delaware corporation ("CHC"), and Capital Holding LLC, a limited
life company organized under the laws of the Turks & Caicos Islands ("Capital").
WHEREAS, Capital intends to issue common shares (the "Common Shares")
to CHC, and receive related capital contributions, in an aggregate amount of
$26,600,000 (the "Common Share Payments") and to issue and sell up to 4,000,000
shares of its [ ]% Cumulative Monthly Income Preferred Shares (the "Preferred
Shares"), with a liquidation preference equal to $25 per Preferred Share (the
"Liquidation Preference");
WHEREAS, CHC is guaranteeing the payment of dividends on the Preferred
Shares if and when declared to the extent that there are sufficient funds
legally available therefor, the Redemption Price (as defined in the Guarantee
Agreement) and the Liquidation Distribution (as defined in the Guarantee
Agreement) on the Preferred Shares all to the extent set forth in the Payment
and Guarantee Agreement, dated as of ______ ___, 1994 (the "Guarantee
Agreement");
WHEREAS, the primary purpose for which Capital was formed is to
finance the business operations of CHC, and consistent therewith, CHC has asked
Capital to make a loan to CHC in an aggregate principal amount equal to the sum
of the aggregate Common Share Payments and the aggregate Liquidation Preference
of the Preferred Shares issued and sold by Capital; and
WHEREAS, Capital intends to make the aforementioned loans to CHC, on
the terms and conditions hereinafter stated.
NOW, THEREFORE, CHC and Capital hereby agree as follows:
ARTICLE I
THE LOANS
Section 1.01. The Loans. Subject to the terms and conditions herein,
Capital agrees to make loans to CHC on the date hereof in an aggregate principal
amount of $____
<PAGE>
in next day funds. Such loans shall be referred to herein as the "Loans".
Section 1.02. Term of the Loans; Mandatory Prepayment. (a) If
Capital redeems Preferred Shares in accordance with the terms thereof, the Loans
shall become due and payable in a principal amount equal to the aggregate
Redemption Price of the Preferred Shares so redeemed, together with any and all
accrued interest thereon. Any payment pursuant to this Section 1.02(a) shall be
made by wire transfer, which shall be initiated by 2:00 p.m., New York time, on
the date fixed for such redemption or at such other time on such earlier date as
Capital and CHC shall agree.
(b) The entire principal amount of the Loans shall become due and
payable, together with any accrued and unpaid interest thereon, including
Additional Interest as defined below, if any, on the earliest of _______, 2024
or the date upon which CHC is dissolved, wound-up or liquidated or the date upon
which Capital is dissolved, wound-up or liquidated.
Section 1.03. Optional Prepayment. CHC shall have the right to
prepay the Loans, without premium or penalty,
(i) in whole or in part (together with any accrued but unpaid interest,
including Additional Interest, if any, on the portion being prepaid) at any time
on or after _______________, 1999; and
(ii) in whole (together with all accrued and unpaid interest, including
Additional Interest, if any, thereon) at any time if CHC is or would be required
to pay any Additional Interest on the entire amount of the Loans, or in part
(together with all accrued and unpaid interest, including Additional Interest on
the portion being prepaid) at any time if CHC is or would be required to pay
Additional Interest with respect to only a portion of the Loans, provided that
if a partial prepayment would, through the corresponding partial redemption
required under the terms of the Preferred Shares, result in a delisting of the
Preferred Shares from the New York Stock Exchange, CHC may only prepay the Loans
in whole. In no event, however, shall CHC have the right to prepay the Loans, or
a portion thereof, under this clause (ii) based on (a) a technical obligation to
pay Additional Interest because of a withholding obligation to the extent CHC
would not incur any penalties, interest or tax under the United States Internal
Revenue Code of 1986, as amended or applicable law if CHC did not withhold, or
(b)
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<PAGE>
a de minimis obligation to pay Additional Interest. For purposes of the
foregoing, in the event that CHC is advised by independent legal counsel that
more than an insubstantial risk exists that CHC will incur penalties, interest
or tax under the Internal Revenue Code or other applicable law if it does not
withhold, CHC shall have the right to repay the Loans, or a portion thereof,
under this clause (ii) unless the obligation to pay Additional Interest if CHC
does so withhold is a de minimis obligation.
ARTICLE II
INTEREST
Section 2.01. Interest on the Loans. The Loans shall bear interest at an
annual rate equal to [ ]% from the date they are made until maturity. Such
interest shall be payable on the last day of each calendar month of each year,
commencing ___________, 1994. In the event that any date on which interest is
payable on Loans is not a Business Day, then payment of the interest payable on
such date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with the
same force and effect as if made on such date. A "Business Day" shall mean any
day other than a day on which banking institutions in The City of New York are
authorized or required by law to close.
Section 2.02. Additional Interest. If at any time (a) Capital shall be
required to pay any additional amounts ("Additional Amounts") in respect of the
Preferred Shares pursuant to the terms thereof, (b) CHC shall be required to
withhold or deduct any amounts, for or on account of any taxes, duties or
governmental charges of whatever nature imposed by the United States of America
(or any political subdivision thereof or therein), from the interest payments to
be made by CHC on the Loans or (c) Capital shall be required to pay, with
respect to its income derived from the interest payments on the Loans, any
amounts, for or on account of any taxes, duties or governmental charges of
whatever nature imposed by the Turks and Caicos Islands (or any political
subdivision thereof or therein), or any other taxing authority, then, in any
such case, CHC will pay as interest such additional amounts ("Additional
Interest") as may be necessary in order that the net amounts received and
retained by Capital after paying such Additional Amounts, or after such
withholding or
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<PAGE>
deduction or the payment of such taxes, duties, assessments or governmental
charges, as the case may be, shall result in Capital's having such funds as it
would have had in the absence of the obligation to pay such Additional Amounts,
or such withholding or deduction or the payment of such taxes, duties,
assessments or governmental charges, as the case may be. The obligation to pay
Additional Interest under (b) above shall be reduced proportionately to the
extent that (x) CHC or Capital has notified holders of Preferred Shares of the
obligation to withhold taxes and requested but not received from such holders
declarations of nonresidence or other claims for exemption and (y) such
withholding or deduction would not have been required had such declarations or
claims been received.
Section 2.03. Extension of Interest Payment Period. Notwithstanding the
provisions of Section 2.01 hereof, CHC shall have the right at any time or times
during the terms of the Loans, so long as CHC is not in default in the payment
of interest on the Loans, to extend the interest payment period to up to 60
months, at the end of which period CHC shall pay all interest which has accrued
and not been paid (together with interest thereon at the rate specified for
the Loans to the extent permitted by applicable law); and provided that, during
any such extended interest payment period neither CHC, nor any majority-owned
subsidiary of CHC, shall declare or pay any dividend on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital stock
or make any guarantee payments with respect to the foregoing (other than (i)
payments under the Guarantee Agreement or under other guaranty agreements made
by CHC in respect of additional preferred shares that may be issued in one or
more series or classes that rank pari passu with each other and with the
Preferred Shares with respect to participation in the profits and assets of
Capital, or (ii) dividends or guarantee payments to CHC by a majority-owned
subsidiary). Prior to the termination of any such extended interest payment
period, CHC may further extend the interest payment period, provided that such
extended interest payment, period together with all such further extensions
thereof may not exceed 60 months. CHC shall give Capital notice of its selection
of such extended interest payment period one Business Day prior to the earlier
of (i) the date Capital declares the related dividend or (ii) the date Capital
is required to give notice of the record or payment date of such related
dividend to the New York Stock Exchange or other applicable self-regulatory
organization or to holders of the Preferred Shares, but in any event not less
than two Business Days prior to such record date. CHC shall cause Capital to
give such notice of CHC's selection of such extended interest payment period to
the holders of the Preferred Shares.
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<PAGE>
ARTICLE III
PAYMENTS
Section 3.01. Method and Date of Payment. Each payment by CHC of
principal and interest (including Additional Interest, if any) on the Loans
shall be made to Capital in lawful money of the United States, in next-day funds
for principal payments and in same day funds for interest payments, at such
place and to such account as may be designated by Capital.
Section 3.02. Set-off. Notwithstanding anything to the contrary herein,
CHC shall have the right to set-off any payment it is otherwise required to make
hereunder with and to the extent CHC has theretofore made, or is concurrently on
the date of such payment making, a payment under the Guarantee Agreement.
ARTICLE IV
SUBORDINATION
Section 4.01. Subordination. CHC and Capital covenant and agree, that the
Loans are subordinate and junior in right of payment to all Senior Indebtedness
as provided herein. The term "Senior Indebtedness" shall mean the principal,
premium, if any, and interest on (i) all indebtedness of CHC other than ordinary
trade credit and other accounts payable arising in the ordinary course of
business, whether outstanding on the date hereof or hereafter created, incurred
or assumed, which is for money borrowed, or evidenced by a note or similar
instrument given in connection with the acquisition of any business, properties
or assets, including securities, (ii) any indebtedness of others of the kinds
described in the preceding clause (i) for which CHC is responsible or liable
(directly or indirectly, contingently or noncontingently) as guarantor or
otherwise and (iii) amendments, renewals, extensions and refundings of any such
indebtedness, unless in any instrument or instruments evidencing or securing
such indebtedness or pursuant to which the same is outstanding, or in any such
amendment, renewal, extension or refunding, it is expressly provided that such
indebtedness is not superior in right of payment to the Loans. Senior
Indebtedness shall continue to be Senior Indebtedness and entitled to the
benefits of these subordination provisions
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irrespective of any amendment, modification or waiver of any term of the Senior
Indebtedness or extension or renewal of the Senior Indebtedness.
In the event that (i) CHC shall default in the payment of any principal or
premium, if any, or interest on any Senior Indebtedness when the same becomes
due and payable, whether at maturity or at a date fixed for prepayment or
declaration or otherwise or (ii) an event of default occurs with respect to any
Senior Indebtedness permitting the holders to accelerate the maturity thereof
and written notice describing such event of default and requesting commencement
of payment blockage on transactions as hereinafter described is given to CHC by
the holders of Senior Indebtedness, then unless and until such default in
payment or event of default shall have been cured or waived or shall have ceased
to exist, no direct or indirect payment (in cash, property, securities, by set-
off or otherwise) shall be made or agreed to be made on account of the Loans or
interest thereon or in respect of any repayment, redemption, retirement,
purchase or other acquisition of the Loans. CHC will give prompt written notice
to Capital of any default in the payment of any Senior Indebtedness and of any
dissolution, winding up or reorganization of CHC.
In the event of (i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to CHC, its property or for the benefit of its creditors, (ii) any proceeding
for the liquidation, dissolution or other winding up of CHC, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings,
(iii) any assignment by CHC for the benefit of creditors, or (iv) any other
marshalling of the assets of CHC, all Senior Indebtedness shall first be paid in
full before any payment or distribution, whether in cash, securities or other
property, shall be made on the Loans. In any such event, any payment or
distribution, whether in cash, securities or other property (other than
securities of CHC or any other corporation provided for by a plan of
reorganization or a readjustment, the payment of which is subordinate, at least
to the extent provided in these subordination provisions with respect to the
indebtedness evidenced by the Loans, to the payment of all Senior Indebtedness
at the time outstanding and to any securities issued in respect thereof under
any such plan of reorganization or readjustment), which would otherwise (but for
these subordination provisions) be payable or deliverable in respect of the
Loans shall be paid or delivered directly to the holders of Senior Indebtedness
or to their representative, or to the trustee under the indenture or agreement
(if any) pursuant
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to which such Senior Indebtedness may have been issued, in accordance with the
priorities then existing among such holders until all Senior Indebtedness shall
have been paid in full. No present or future holder of any Senior Indebtedness
shall be prejudiced in the right to enforce subordination of the indebtedness
constituting the Loans by any act or failure to act on the part of CHC.
Senior Indebtedness shall not be deemed to have been paid in full unless
the holders thereof shall have received cash, securities or other property equal
to the amount of such Senior Indebtedness then outstanding. Upon the payment in
full of all Senior Indebtedness, Capital shall be subrogated to all the rights
of any holders of Senior Indebtedness to receive any further payments or
distributions applicable to the Senior Indebtedness until the Loans shall have
been paid in full, and such payments or distributions of cash, securities or
other property received by Capital, by reason of such subrogation, which
otherwise would be paid or distributed to the holders of Senior Indebtedness,
shall, as between CHC and its creditors other than the holders of Senior
Indebtedness on the one hand, and Capital, on the other, be deemed to be a
payment by CHC on account of Senior Indebtedness, and not on account of the
Loans.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.01. Representations and Warranties. CHC represents and warrants
to Capital that:
(a) Good Standing. CHC is a corporation duly incorporated and validly
existing under the laws of the State of Delaware, with power and authority
(corporate and other) to own its properties and conduct its business as now
being conducted.
(b) Power and Authority. CHC has full power and authority to enter into
this agreement and to incur and perform the obligations provided for herein, all
of which have been duly authorized by all proper and necessary action.
(c) No Conflict. The execution and delivery of this Agreement and the
performance by CHC of all its obligations hereunder will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of
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trust, loan agreement or other agreement or instrument to which CHC is a party
or by which CHC is bound or subject, nor will this Agreement result in a
violation of the provisions of CHC's Certificate of Incorporation or By-laws.
(d) Binding Agreement. This Agreement constitutes the valid and legally
binding obligation of CHC enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
ARTICLE VI
COVENANTS
Section 6.01. Covenants. (a) CHC agrees (i) that neither it, nor any of its
majority-owned subsidiaries, shall declare or pay any dividend on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of its
capital stock, or make any guarantee payments with respect to the foregoing
(other than (i) payments under the Guarantee Agreement or under other guaranty
agreements made by CHC in respect of additional preferred shares that may be
issued in one or more series or classes that rank pari passu with each other and
with the Preferred Shares with respect to participation in the profits and
assets of Capital, or (ii) dividends or guarantee payments to CHC by a majority-
owned subsidiary) if at such time (x) there shall have occurred any event that,
with the giving of notice or the lapse of time or both, would constitute an
Event of Default hereunder or (y) CHC shall be in default with respect to its
payment or other obligations under the Guarantee Agreement or under the Expenses
and Liabilities Agreement dated as of ___________ __, 1994, between CHC and
Capital, (ii) to maintain direct or indirect 100% ownership of the Common Shares
and any other shares of Capital other than (x) the Preferred Shares and (y) any
additional preferred shares that may be issued in one or more series or classes,
and that rank pari passu with each other and with the Preferred Shares with
respect to participation in the profits and assets of Capital, (iii) to cause at
least 21% of the total value of Capital and at least 21% of all interest in the
capital, income, gain, loss, deduction and credit of Capital to be represented
by Common Shares, (iv) not to voluntarily dissolve, wind-up or liquidate
Capital, (v) to remain the Manager of Capital and to timely perform all of its
duties as Manager of Capital (including the duty to declare and pay dividends on
the Preferred Shares); provided that any permitted successor of CHC under this
Agreement may succeed to CHC's duties as Manager, and (vi) to use its reasonable
efforts to cause Capital to remain a limited life company and otherwise continue
to be treated as a partnership for United States federal income tax
purposes.
(b) CHC agrees that its obligations under this Agreement will also be for
the benefit of the holders from time to time of Preferred Shares, and CHC
acknowledges and
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agrees that such holder will be entitled to enforce this Agreement directly
against CHC.
(c) CHC agrees not to merge with or into another entity, or permit another
entity to merge with or into it, and agrees not to sell, transfer or lease all
or substantially all of its assets to another entity unless: (i) at such time
no Event of Default hereunder has occurred and is continuing, or would occur as
a result of such merger, sale, transfer or lease, and (ii) CHC is the survivor
of such merger or the entity to which CHC's assets are sold, transferred or
leased is an entity organized under the laws of the United States or any state
thereof and assumes all of CHC's obligations under this Agreement.
ARTICLE VII
EVENTS OF DEFAULT
Section 7.01. Events of Default. If one or more of the following events
(each an "Event of Default") shall occur and be continuing:
(a) default in the payment of any interest on the Loans, including
any Additional Interest in respect of the Loans, when due for ten days
(whether by virtue of the provisions described under Article IV hereof or
otherwise); provided that a valid extension of the interest payment period
by CHC pursuant to Section 2.03 hereof shall not constitute a default in
the payment of interest for this purpose;
(b) default in the payment of principal on the Loans when due
(whether by virtue of the provisions described under Article IV hereof or
otherwise);
(c) the dissolution, winding up or liquidation of Capital;
(d) the bankruptcy, insolvency or liquidation of CHC; or
(e) breach by CHC of any covenants contained herein continued for 30
days after notice to it from any holder of the Preferred Shares;
then, provided that the holders of a majority in liquidation preference of
outstanding Preferred Shares are entitled to appoint a trustee, then, in
every such event, and at any time thereafter during the continuance of such
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event, Capital will have the right to declare the principal of and the interest
on the Loans (including any Additional Interest and any interest subject to an
extension of the interest payment period) and any other amounts payable
hereunder to be forthwith due and payable, whereupon the same shall become and
be forthwith due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived, anything in this
Agreement to the contrary notwithstanding. If an Event of Default specified in
subparagraph (c) or (d) above shall have occurred, the principal of and interest
on the Loans and any other amounts payable hereunder shall thereupon and
concurrently become due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived, anything in
this Agreement to the contrary notwithstanding. CHC expressly acknowledges that
under the terms of the Preferred Shares, the holders of the outstanding
Preferred Shares shall have the right to appoint a trustee, which trustee shall
be authorized to exercise Capital's rights as a creditor under this Agreement,
and CHC agrees to cooperate with such trustee.
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Notices. All notices hereunder shall be deemed given by a
party hereto if in writing and delivered personally or by telegram or facsimile
transmission or by registered or certified mail (return receipt requested) to
the other party at the following address for such party (or at such other
address as shall be specified by like notice):
If to Capital, to:
Capital Holding LLC
c/o Capital Holding Corporation, as Manager
Capital Holding Corporation
Capital Holding Center
400 West Market Street
Louisville, Kentucky 40202
Fax No: (502) 560-2746
Attention: Treasurer
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If to CHC, to:
Capital Holding Corporation
Capital Holding Center
400 West Market Street
Louisville, Kentucky 40202
Fax No: (502) 560-2746
Attention: Treasurer
Any notice given by mail or telegram or facsimile transmission shall be
effective when received.
Section 8.02. Binding Effect. CHC shall have the right at all times to
assign any of its rights or obligations under this Agreement to a direct or
indirect wholly owned subsidiary of CHC other than any subsidiary that is an
insurance company; provided that, in the event of any such assignment, CHC shall
remain jointly and severally liable for all such obligations. Capital may not
assign any of its rights hereunder without the prior written consent of CHC.
Subject to the foregoing, this Agreement shall be binding upon and inure to the
benefit of CHC and Capital and their respective successors and assigns. This
Agreement may not otherwise be assigned by CHC or Capital.
Section 8.03. Governing Law. EXCEPT AS TO MATTERS RELATING TO THE
AUTHORIZATION, EXECUTION AND DELIVERY OF THIS AGREEMENT BY CAPITAL, WHICH SHALL
BE GOVERNED BY THE LAWS OF THE TURKS & CAICOS ISLANDS, THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 8.04. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
Section 8.05. Amendments. This Agreement may be amended by mutual consent
of the parties in the manner the parties shall agree; provided that, so long as
any of the Preferred Shares remain outstanding, no such amendment shall be made
that adversely affects the holders of the Preferred Shares, no termination of
this Agreement shall occur, and no Event of Default or compliance with any
covenant under this Agreement may be waived by Capital, without the prior
approval of the holders of at least 66 2/3% of the outstanding Preferred Shares,
unless and until the Loans and all accrued and unpaid interest thereon
(including Additional Interest, if any) shall have been paid in full.
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IN WITNESS WHEREOF, the parties hereto have caused THIS LOAN AGREEMENT to
be executed by their respective officers thereunto duly authorized as of the day
and year first above written.
CAPITAL HOLDING CORPORATION
By: ______________________
Name:
Title:
CAPITAL HOLDING LLC
By: Capital Holding Corporation,
as Manager
By: ______________________
Name:
Title:
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