<PAGE> 1
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SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
CAPITAL HOLDINGS, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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<PAGE> 2
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CAPITAL HOLDINGS, INC.
NOTICE OF ANNUAL MEETING
AND
PROXY STATEMENT
ANNUAL SHAREHOLDERS MEETING
MAY 7, 1998
===============================================================================
<PAGE> 3
CAPITAL HOLDINGS, INC.
5520 Monroe Street
Sylvania, OH 43560
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD
May 7, 1998
TO THE HOLDERS OF SHARES OF COMMON STOCK:
Notice is hereby given that the Annual Meeting of the Shareholders of
Capital Holdings, Inc. (the "Corporation") will be held at The Franciscan Life
Center, Lourdes College, 6832 Convent Boulevard, Sylvania, Ohio, on Thursday,
May 7, 1998, at 6:30 p.m. (local time), for the purpose of considering and
voting upon the following matters:
1. The election of five Directors (to be elected to Class II of the
Corporation's staggered Board of Directors) to serve a three-year term
or until their successors shall have been elected and qualified.
2. Amendment of the Capital Holdings, Inc. 1996 Incentive Stock Option
Plan to provide an aggregate per person annual grant limitation.
3. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENT THEREOF. THE BOARD OF DIRECTORS AT PRESENT
KNOWS OF NO OTHER BUSINESS TO BE PRESENTED BY OR ON BEHALF OF THE
CORPORATION.
Shareholders of record at the close of business on March 10, 1998, are
the only shareholders entitled to notice of and to vote at the Annual
Shareholders Meeting.
By order of the Board of Directors
John S. Szuch, Chairman and Chief
Executive Officer
April 13, 1998
IMPORTANT
WHETHER YOU EXPECT TO ATTEND THE MEETING OR NOT, PLEASE MARK, SIGN,
DATE, AND RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED SELF-ADDRESSED
ENVELOPE AS PROMPTLY AS POSSIBLE. NO POSTAGE IS REQUIRED.
<PAGE> 4
CAPITAL HOLDINGS, INC.
SYLVANIA, OHIO
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Capital Holdings, Inc. (the "Corporation") of
proxies to be voted at the Annual Meeting of Shareholders to be held on
Thursday, May 7, 1998, in accordance with the foregoing notice.
Capital Holdings, Inc. is a registered bank holding company of which
Capital Bank, N.A. (hereinafter collectively "Corporation") is its principal
subsidiary.
The solicitation of proxies on the enclosed form is made on behalf of
the Board of Directors of the Corporation. All costs associated with the
solicitation will be borne by the Corporation. The Corporation does not intend
to solicit proxies other than by use of the mails, but certain officers and
regular employees of the Corporation or its subsidiaries, without additional
compensation, may use their personal efforts, by telephone or otherwise, to
obtain proxies. The proxy materials are first being mailed to shareholders on
April 13, 1998.
Any shareholder executing a proxy has the right to revoke it by the
execution of a subsequently dated proxy, by written notice delivered to the
Secretary of the Corporation prior to the exercise of the proxy or in person by
voting at the meeting. The shares will be voted in accordance with the
direction of the shareholder as specified on the proxy. In the absence of
instructions, the proxy will be voted "FOR" the election of the five persons
listed in this Proxy Statement.
VOTING SECURITIES
Only shareholders of record at the close of business on March 10,
1998, will be eligible to vote at the Annual Meeting or any adjournment
thereof. As of March 10, 1998, the Corporation had outstanding 2,000,510 shares
of no par value common stock. Shareholders are entitled to one vote for each
share of common stock owned as of the record date, and shall have the right to
cumulate votes in the election of Directors in accordance with Ohio law.
Cumulative voting permits a shareholder to multiply the number of shares held
by the number of directors to be elected, and cast those votes for one
candidate or spread those votes among several candidates as he or she deems
appropriate.
2
<PAGE> 5
All Directors and Executive Officers of the Corporation as a group
(comprised of seventeen individuals), beneficially held 450,316 shares of the
Corporation's common stock as of March 10, 1998, representing 22.51 percent of
the outstanding common stock of the Corporation.
PROPOSAL #1 ELECTION OF DIRECTORS AND INFORMATION
WITH RESPECT TO DIRECTORS AND OFFICERS
CLASSIFICATION SYSTEM FOR THE ELECTION OF DIRECTORS
The Corporation has a staggered system for the election of Directors.
Directors are divided into three classes as nearly equal in number as possible.
The Corporation has fourteen Directors, and they are elected to serve a
three-year term.
INFORMATION WITH RESPECT TO NOMINEES
The following information is provided with respect to each Class II
(term to expire in 2001) nominee for Director and each present and continuing
Director whose term of office extends beyond the Annual Meeting of the
Corporation's Shareholders. Those nominees receiving the greatest number of
votes will be elected as Directors.
There is no minimum number of votes required to elect a Director.
<TABLE>
<CAPTION>
Director of the
Name and Age Principal Occupation Past 5 Years Corporation Since
- ------------ --------------------------------- -----------------
<S> <C> <C>
Michael C. Landin (1) President of Michael Landin Associates 1988
(54) (clothing broker); Director of the
Corporation
Ronald R. Langenderfer President of Centaur, Inc. (steel service center); 1988
(53) Director of the Corporation
Joel A. Levine Spengler Nathanson of Counsel P.L.L.; 1988
(59) Director of the Corporation
Noel S. Romanoff Chief Executive Officer of Romanoff Electric 1988
(56) Corp. (electrical contractor); Director of the
Corporation
Robert A. Sullivan President, Chief Operating Officer, Secretary 1988
(43) and Director of the Corporation
</TABLE>
THE DIRECTORS UNANIMOUSLY RECOMMEND A VOTE IN FAVOR OF THIS PROPOSAL #1.
3
<PAGE> 6
INFORMATION WITH RESPECT TO DIRECTORS NOT STANDING FOR REELECTION
CLASS III - (CONTINUING DIRECTORS WITH TERM TO EXPIRE 1999)
<TABLE>
<CAPTION>
Director of the
Name and Age Principal Occupation Past 5 Years Corporation Since
- ------------ --------------------------------- -----------------
<S> <C> <C>
George A. Isaac, III President and Chief Executive Officer of The 1988
(44) Isaac Corporation (scrap processor/broker;
commercial real estate and development);
Director of the Corporation
W. Geoffrey Lyden, III President of The Lyden Company (petroleum 1988
(45) marketing); Director of the Corporation
James D. Sayre President of M&S Manufacturing Co. 1988
(52) (automotive parts supplier); Director
of the Corporation
John S. Szuch Chairman of the Board of Directors, Chief 1988
(49) Executive Officer and Director of the
Corporation
James M. Tuschman (2) Member Executive Management Group of 1988
(56) OmniSource Corp. (scrap steel processor);
Director of the Corporation
</TABLE>
{THIS SPACE INTENTIONALLY LEFT BLANK}
4
<PAGE> 7
CLASS I - (CONTINUING DIRECTORS WITH TERM TO EXPIRE 2000)
<TABLE>
<CAPTION>
Director of the
Name and Age Principal Occupation Past 5 Years Corporation Since
- ------------ --------------------------------- -----------------
<S> <C> <C>
James M. Appold President of Consolidated Biscuit Co. 1988
(58) (consumer food business); Director of
the Corporation
David P. Bennett President of Bennett Enterprises, Inc. 1988
(68) (restaurant business); Director of the
Corporation
Yale M. Feniger Chief Executive Officer of Fen Ltd. 1988
(77) (airplane sales); Director of the Corporation
Thomas W. Noe President of Vintage Coins & Cards 1988
(43) (coin dealer); Director of the Corporation
<FN>
- -------------------------------------------------------------------------------
(1) Mr. Landin previously served as President - Landin & Landin Clothiers,
Inc. from January 1993 to November 1996.
(2) Mr. Tuschman previously served as Principal, Executive Vice President
and Chairman of the Operations Committee of Jacobson, Maynard,
Tuschman & Kalur from February 1985 to December 1997.
</TABLE>
The business experience of each of the above-listed nominees and
Directors during the past five years was that typical to a person engaged in
the principal occupation listed. Unless otherwise indicated, each of the
nominees and Directors has had the same position or another executive position
with the same employer during the past five years.
Shareholders desiring to nominate individuals to serve as Directors
may do so by following the procedure outlined in the Corporation's Code of
Regulations requiring advance notice to the Corporation of such nomination and
certain information regarding the proposed nominee.
5
<PAGE> 8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth the number and percentage of shares of
common stock owned by the Directors and named Executive Officers of the
Corporation and the name and address of any five percent or greater holder of
the Corporation's common stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP
NAME MARCH 10, 1998 PERCENTAGE
---- -------------- ----------
<S> <C> <C>
James M. Appold 29,586 1.48%
David P. Bennett 23,983 (1) 1.20
Yale M. Feniger 18,130 *
George A. Isaac, III 40,227 (2) 2.01
Michael P. Killian 8,130 (3) *
Stephen J. Kovatch 1,377 *
Michael C. Landin 4,264 *
Ronald R. Langenderfer 29,458 1.47
Bruce K. Lee 11,694 (4) *
Joel A. Levine 9,188 *
W. Geoffrey Lyden, III 26,950 (5) 1.35
Thomas W. Noe 3,252 *
Noel S. Romanoff 56,919 (6) 2.85
James D. Sayre 13,215 *
Robert A. Sullivan 86,319 (7) 4.31
John S. Szuch 78,157 (8) 3.91
James M. Tuschman 9,467 (9) *
--------
All Directors and Executive Officers
as a Group (17 persons) 450,316 22.51%
- -------------------------------------------------------------------------------------------------------------------
<FN>
*Represents less than one percent
All shares shown as beneficially owned are shares over which the named person
exercises sole voting or investment power except as set forth below and include
options issued to Executive Officers under the terms of the Corporation's
Incentive Stock Option Plans which are exercisable within 60 days of the date
for which disclosure is provided.
(1) Includes 313 shares held by spouse.
(2) Includes 2,418 shares held by spouse and 5,100 shares held in child's
trust.
(3) Includes 1,748 shares held as custodian for minor children and 1,377
option shares exercisable within 60 days.
(4) Includes 362 shares held in child's trust and 1,377 option shares
exercisable within 60 days.
(5) Includes 20,405 shares held by The Lyden Company and 1,214 shares held by
spouse.
(6) Includes 52,974 shares held by spouse.
(7) Includes 23,248 shares held by spouse and 4,010 shares held as custodian
for minor children.
(8) Includes 21,200 shares held by spouse and 6,572 shares held as custodian
for minor children.
(9) Includes 9,367 shares held by spouse.
</TABLE>
6
<PAGE> 9
COMMITTEES AND COMPENSATION OF THE BOARD OF DIRECTORS
The Board of Directors conducts its business through meetings of the
Board and through its committees. In accordance with the Code of Regulations of
the Corporation, the Board of Directors has appointed and maintains an Audit
Committee, Compensation Committee, Investment Committee, Securities Committee
and Loan Committee.
The Corporation's nominating function is performed by the Board of
Directors acting as a committee of the whole. In conducting its nominating
function, the Board of Directors of the Corporation is responsible for making
annual nominations for Directors to fill vacancies created by expired terms of
Directors and from time to time, making appointments to fill vacancies created
prior to the expiration of a Director's term. During 1997, the Board met once
to consider and act upon the nomination of Directors.
The Audit Committee reviews with the Corporation's independent
auditors, the audit plan, the scope and results of their audit engagement and
the accompanying management letter, if any; reviews the scope and results of
the Corporation's internal auditing procedures; consults with the independent
auditors and management with regard to the Corporation's accounting methods and
the adequacy of its internal accounting controls; approves professional
services provided by the independent auditors; reviews the independence of the
independent auditors; and reviews the range of the independent auditors' audit
and nonaudit fees. The Audit Committee is composed of Messrs. Feniger, Isaac,
Langenderfer, Levine and Sayre (Chairman). The Audit Committee met three times
during 1997.
The Compensation Committee is responsible for administering the
Corporation's employee benefit plans including its stock option plans; setting
the compensation of the Chairman of the Board, President, Executive Vice
President and all Senior Vice Presidents; reviewing the criteria that form the
basis for management's officer and employee compensation recommendations and
reviewing management's recommendations in this regard. The Compensation
Committee is composed of Messrs. Isaac (Chairman), Levine, Noe, Romanoff,
Sayre, Sullivan, Szuch and Tuschman. The Compensation Committee met three times
during 1997.
The Investment Committee is responsible for reviewing the securities
portfolio of the Bank. The Corporation's Securities Committee reviews and makes
recommendations to the full Board on matters affecting the market for the
Corporation's common stock and the Corporation's dividend policy. The Loan
Committee reviews loan policy matters and approves loan requests as required by
internal policy.
The Board of Directors of the Corporation meets monthly for its
regular meetings and upon call for special meetings. During 1997, the Board met
12 times. All Directors of the Corporation attended at least 75 percent of the
Board and Committee Meetings that they were scheduled to attend during 1997,
except Mr. Isaac who attended 67% of the meetings he was scheduled to attend.
7
<PAGE> 10
The Corporation compensates directors, other than those persons who
serve as officers of the Corporation and its subsidiary, Capital Bank, N.A., in
options of the Corporation's common stock pursuant to the Capital Holdings,
Inc. Nonemployee Director Stock Option Plan (the "Director Option Plan").
Pursuant to the Director Option Plan, directors of the Corporation receive an
option grant of 500 shares annually as a retainer and 50 shares per regular
Board meeting attended. All options granted under the Director Option Plan
contain an exercise price equal to the shares' fair market value as of the date
of grant. Directors receive no cash compensation for their service as a
director except for committee service, for which directors who are not
employees of the Corporation, receive $350 per committee meeting attended.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Corporation and/or its subsidiaries, to or
on behalf of the Corporation's Chairman and Chief Executive Officer and the
four most highly compensated individuals for the fiscal years ended December
31, 1997, 1996, and 1995.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
------------------- ------------
Name and Option # All Other
Principal Position Year Salary(1) Bonus(2) Awards(shares) Compensation(3)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mr. John S. Szuch 1997 $188,000 $195,000 2,500 $34,315
Chairman and Chief 1996 175,000 168,300 2,500 33,345
Executive Officer 1995 163,500 118,000 2,650 27,747
Mr. Robert A. Sullivan 1997 $188,000 $195,000 2,500 $33,112
President and Chief 1996 175,000 168,300 2,500 32,289
Operating Officer 1995 163,500 118,000 2,650 28,307
Mr. Bruce K. Lee 1997 $126,792 $118,000 3,500 $18,504
Executive Vice President 1996 116,600 95,000 1,500 17,104
1995 110,000 70,000 1,590 14,487
Mr. Michael P. Killian 1997 $108,000 $59,000 1,000 $12,606
Senior Vice President 1996 102,900 45,000 500 11,924
1995 98,000 35,000 530 10,710
Mr. Stephen J. Kovatch 1997 $108,000 $54,000 1,000 $12,400
Senior Vice President 1996 102,900 45,000 500 12,073
1995 98,000 35,000 530 10,847
<FN>
- ------------------------------------------------------------------------------------------------------
(1) Represents total cash compensation earned, including amounts earned but
deferred at the election of these officers.
(2) Represents cash bonus awarded.
(3) Figures for 1997 represent:
Capital Bank, N.A. Retirement Savings Plan (Szuch, Sullivan, Lee, Killian and Kovatch - $11,939);
Capital Holdings, Inc. Supplemental Executive Retirement Plan (Szuch - $17,096, Sullivan - $16,949,
Lee - $6,565, Killian - $667, Kovatch - $461);
Split dollar life insurance premiums (Szuch - $5,280, Sullivan - $4,224).
</TABLE>
8
<PAGE> 11
1997 STOCK OPTION GRANTS TABLE
The following table sets forth stock options granted to the
Corporation's Chairman and Chief Executive Officer and the Corporation's four
other most highly compensated Executive Officers during 1997 under the
Corporation's Incentive Stock Option Plans. Under new Securities and Exchange
Commission regulations, companies are required to project an estimate of
appreciation of the underlying shares of stock during the option term. The
Corporation has chosen the "five percent/ten percent" formula approved by the
SEC. However, the ultimate value will depend on the market value of the
Corporation's stock at a future date, which may not correspond to the
projections below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Potential Realizable Value
at Assumed Annual Rates
Of Stock Price Appreciation
Individual Grants for Option Term
- --------------------------------------------------------------------------------- -----------------------------
% of Total
Options Granted Exercise
Options to Employees Price(2)
Name Granted(1) in 1997 Per Share Expiration Date 5% 10%
---- ---------- ------- --------- --------------- -- ---
<S> <C> <C> <C> <C> <C> <C>
John S. Szuch 2,500 15% $47.00 January 1, 2008 $73,895 $187,265
Robert A. Sullivan 2,500 15% 47.00 January 1, 2008 73,895 187,265
Bruce K. Lee 2,000 12% 42.00 June 9, 2007 52,827 133,874
Bruce K. Lee 1,500 9% 47.00 January 1, 2008 44,337 112,359
Michael P. Killian 1,000 6% 47.00 January 1, 2008 29,558 74,906
Stephen J. Kovatch 1,000 6% 47.00 January 1, 2008 29,558 74,906
------
10,500
<FN>
- -------------------------------------------------------------------------------------------------------------------
(1) Options granted in 1997 are incentive stock options which are exercisable
after five years from the date of grant with full vesting occurring after
the fifth anniversary date; however, all options become immediately
exercisable in the event of a change in control of the Corporation. These
options were granted for a term of 10 years, subject to earlier
termination in certain events related to termination of employment.
(2) Exercise price is the fair market value on the date of grant.
</TABLE>
9
<PAGE> 12
1997 STOCK OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth the number and value of all unexercised
stock options held by Executive Officers at year-end. The value of
"in-the-money" options refers to options having an exercise price which is less
than the market price of the Corporation's stock on December 31, 1997. On that
date, the Corporation's named Executive Officers held exercisable options which
were "in-the-money" as discussed in the following table. In addition, the table
sets forth the number of options exercised by each of the named Executive
Officers during 1997 and indicates the amount of value realized upon such
exercise.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Number (#) of Value ($) of
Unexercised Unexercised
Options- Options-
12/31/97 12/31/97(2)
-------- -----------
Shares Acquired Net Value($) Exercisable/ Exercisable/
Name on Exercise Realized(1) Unexercisable Unexercisable
---- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
John S. Szuch 21,301 $597,706 2,000/ $61,120/
7,650 68,933
Robert A. Sullivan 21,051 590,691 2,250/ 68,760/
7,650 68,933
Bruce K. Lee 13,917 469,281 1,377/ 42,081/
7,748 80,900
Michael P. Killian 13,917 469,281 1,377/ 42,081/
3,188 43,327
Stephen J. Kovatch 12,078 399,476 0/3,188 0/43,327
<FN>
(1) Represents estimated market value of the Corporation's common stock at
exercise date, less the exercise price.
(2) Represents estimated market value of the Corporation's common stock at
December 31, 1997, less the exercise price.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Corporation has a funded, non-qualified supplemental executive
retirement plan (the "Supplemental Retirement Plan"), due to limitations
imposed by federal law on the amount of retirement income that may be paid
through the Corporation's Profit Sharing Plan. Under the Supplemental
Retirement Plan, only employees selected by the Compensation Committee and
approved by the Board of Directors are eligible to participate. As of the date
of this proxy participation in the Supplemental Retirement Plan is limited to
Mr. Szuch, Mr. Sullivan, Mr. Lee, Mr. Killian and Mr. Kovatch. Benefits under
the Supplemental Retirement Plan are funded annually and are held in an
irrevocable trust for the benefit of the participants. Payments under the
Supplemental Retirement Plan have no effect on the funding or availability of
funds under the Corporation's current Profit Sharing Plan nor on any future
qualified plan. The following
10
<PAGE> 13
Executive Officers participated in the Supplemental Retirement Plan in 1997:
Mr. Szuch ($17,096), Mr. Sullivan ($16,949), Mr. Lee ($6,565), Mr. Killian
($667) and Mr. Kovatch ($461).
REPORT OF THE COMPENSATION COMMITTEE OF CAPITAL HOLDINGS, INC. ON COMPENSATION
Under rules established by the Securities and Exchange Commission (the
"SEC"), the Corporation is required to provide certain data and information in
regard to the compensation and benefits provided to the Corporation's Chairman
of the Board, President and Chief Executive Officer and, if applicable, the
four other most highly compensated Executive Officers, whose compensation
exceeded $100,000 during the Corporation's fiscal year. The disclosure
requirements, as applied to the Corporation, include the Corporation's Chairman
of the Board and Chief Executive Officer (John S. Szuch), its President and
Chief Operating Officer (Robert A. Sullivan), its Executive Vice President
(Bruce K. Lee) and two of its Senior Vice Presidents, Mr. Michael P. Killian,
and Mr. Stephen J. Kovatch. The disclosure includes the use of tables and a
report explaining the rationale and considerations that led to fundamental
executive compensation decisions affecting such officers. Capital Holdings,
Inc. is a holding company and owns a single operating subsidiary, Capital Bank,
N.A. Capital Holdings, Inc. has no direct employees. All disclosures contained
in this Proxy Statement regarding executive compensation reflect compensation
paid by Capital Bank, N.A. The Compensation Committee of the Corporation has
the responsibility of determining the compensation policy and practices with
respect to all Executive Officers. At the direction of the Board of Directors,
the Compensation Committee has prepared the following report for inclusion in
this Proxy Statement.
COMPENSATION PHILOSOPHY. This report reflects the Corporation's
compensation philosophy as endorsed by the Compensation Committee. The
Compensation Committee makes a recommendation regarding the level of
compensation for Mr. Szuch and Mr. Sullivan. The Compensation Committee
determines the level of compensation for all other Executive Officers within
the constraints of the amounts approved by the Board.
Essentially, the executive compensation program of the Corporation has
been designed to:
- Support a pay-for-performance policy that awards Executive
Officers for corporate performance.
- Motivate key Executive Officers to achieve strategic business
goals.
- Provide compensation opportunities which are comparable to those
offered by other peer group companies; thus allowing the
Corporation to compete for and retain talented executives who
are critical to the Corporation's long-term success.
SALARIES. Effective January 1, 1998, the Compensation Committee
recommended and the Board increased the salary paid to Mr. Szuch and Mr.
Sullivan. The increase reflected consideration of competitive data reported in
compensation surveys and the Compensation Committee's assessment of the
performance of such executives over the intervening year and recognition of the
Corporation's performance during 1997. In addition, the Compensation
11
<PAGE> 14
Committee approved compensation increases for all other Executive Officers of
the Corporation. Executive Officer salary increase determinations are based
upon an evaluation of such executives' performance against goals set in the
prior year.
CASH BONUS PLAN. The Corporation maintains a cash bonus plan (the
"Bonus Plan") which allocates a portion of the Corporation's pre-tax net income
for the purpose of employee cash bonuses on an annual basis. The Bonus Plan is
administered by the Compensation Committee and provides for the allocation of
two percent of the Corporation's pre-tax net income to each of the
Corporation's Chairman of the Board and Chief Executive Officer (Mr. Szuch) and
the Corporation's President and Chief Operating Officer (Mr. Sullivan),
provided that overall corporate objectives are met. The award of a bonus to any
employee under the terms of the Bonus Plan is discretionary and in the case of
Messrs. Szuch and Sullivan is determined by the Board of Directors upon the
recommendation of the Compensation Committee, and in all other cases is
determined by the Compensation Committee upon recommendation of management.
The Compensation Committee has determined that a significant portion
of executive compensation should be payable in an annual bonus which shall be
based principally upon the financial performance of the Corporation. The
Compensation Committee believes that it is important to reward executive
management based upon the success of the Corporation.
LONG-TERM COMPENSATION. Long-term incentive compensation is addressed
by the Corporation's Incentive Stock Option Plans and the Nonemployee Director
Stock Option Plan. These option plans are designed to provide long-term
incentive to the executive officers and directors of the Corporation, and to
better align the interest of management with those of the Corporation's
shareholders. The Board generally believes that stock options provide an
effective means of accomplishing its long-term compensation objectives, as the
level of compensation is directly proportional to the level of appreciation in
the market value of the Corporation's common stock subsequent to the date of
the option grant.
COMPANY'S POSITION ON COMPLIANCE WITH SECTION 162(M) OF THE INTERNAL
REVENUE CODE. Section 162(m) of the Internal Revenue Code (the "Code") limits
the deduction allowable for federal income tax purposes to the Corporation for
compensation paid to the Chief Executive Officer and each of the four other
most highly compensated executive officers in any year to $1 million, excluding
qualified performance-based compensation. The Company's 1996 Incentive Stock
Option Plan (the "Option Plan") does not meet the technical requirements of
Section 162(m) of the Code. Specifically, the Code requires, among other
things, that stock option plans contain a limit on the aggregate options which
may be granted to any one person. Although no executive officer of the Company
has reached the deductibility cap in 1997, the Company is currently proposing
an amendment to its Option Plan to comply with the requirements of Section
162(m) of the Code to assure the deductibility of compensation pursuant to
future option grants. The Committee will continue to work to structure
components of its executive compensation package to achieve maximum
deductibility under Section 162(m), while at the same time considering the
goals of its executive compensation philosophy.
12
<PAGE> 15
THIS REPORT ON COMPENSATION IS SUBMITTED BY THE COMPENSATION COMMITTEE MEMBERS:
George A. Isaac, III, Chairman James D. Sayre
Joel A. Levine Robert A. Sullivan
Thomas W. Noe John S. Szuch
Noel S. Romanoff James M. Tuschman
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
John S. Szuch, the Corporation's Chairman of the Board and Chief
Executive Officer, and Robert A. Sullivan, the Corporation's President and
Chief Operating Officer, served on the Compensation Committee of the
Corporation, which is responsible for compensation matters (see "Report of the
Compensation Committee of Capital Holdings, Inc. on Compensation" in this Proxy
Statement).
Although Messrs. Szuch and Sullivan served on the Compensation
Committee, they did not participate in any decisions regarding their own
compensation as an Executive Officer. Each year, the Compensation Committee
recommends the amount of the bonus award for Messrs. Szuch and Sullivan
(pursuant to the Cash Bonus Plan described elsewhere in this Proxy Statement)
and salary for the ensuing year. Neither Mr. Szuch nor Mr. Sullivan
participated in discussions nor decision-making relative to their own nor each
other's compensation.
{THIS SPACE INTENTIONALLY LEFT BLANK}
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<PAGE> 16
PERFORMANCE GRAPH - FIVE-YEAR SHAREHOLDER RETURN COMPARISON
The SEC requires that the Corporation include in this Proxy Statement
a line-graph presentation comparing cumulative five-year shareholder returns on
an indexed basis with a broad equity market index and either a nationally
recognized industry standard or an index of peer companies selected by the
Corporation. The Corporation has selected the Dow Jones Equity Market Index and
the Dow Jones Regional Bank Index for purposes of this performance comparison.
The chart below compares the value of $100 invested on December 31, 1992, in
the Corporation's stock, the Dow Jones Equity Market Index and the Dow Jones
Regional Bank Index.
<TABLE>
<CAPTION>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* AMONG CAPITAL
HOLDINGS, INC. DOW JONES EQUITY MARKET INDEX & DOW JONES MAJOR
REGIONAL BANK INDEX FOR FISCAL YEAR ENDING DECEMBER 31
*TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS
- ------------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
CAPITAL HOLDINGS, INC. $100.00 $123.68 $141.08 $168.07 $210.44 $266.79
DOW JONES EQUITY MARKET INDEX $100.00 $109.95 $110.76 $152.49 $187.63 $251.34
DOW JONES REGIONAL BANK INDEX $100.00 $105.27 $101.31 $162.02 $222.62 $347.78
- ------------------------------------------------------------------------------------------------------------------------
<FN>
ASSUMES $100 INVESTED ON JANUARY 1, 1992 IN CAPITAL HOLDINGS, INC. COMMON STOCK, DOW JONES EQUITY MARKET INDEX &
DOW JONES MAJOR REGIONAL BANK INDEX
</TABLE>
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<PAGE> 17
PROPOSAL #2 TO AMEND THE CAPITAL HOLDINGS, INC. 1996 INCENTIVE STOCK OPTION PLAN
Under Section 162(m) of the Internal Revenue Code, the allowable
deduction for compensation paid or accrued with respect to the Chief Executive
Officer and the four other most highly compensated executive officers of the
Company is limited to $1 million per year, including all forms of compensation
such as salary and bonus as well as gain on the exercise of stock options held
by such executives. An exclusion from the $1 million limitation is available
for compensation that satisfies the requirements provided in Section 162(m) of
the Code for qualified performance based compensation. Future grants of options
under the Company's 1996 Incentive Stock Option Plan (the "Option Plan") will
qualify as performance based compensation if, in addition to the satisfaction
of other requirements, the plan provides for an aggregate limit on the number
of options which any one person may receive under the plan. The Board of
Directors is proposing an amendment of the Option Plan to provide that no
person may receive options on more than 30,000 shares of the Company's common
stock in any one year. The adoption of Proposal #2 requires the affirmative
vote of the majority of the Company's shares present, in person or by proxy at
the annual meeting. The complete text of the proposed amendment appears as
EXHIBIT A to this proxy.
THE DIRECTORS UNANIMOUSLY RECOMMEND A VOTE IN FAVOR OF THIS PROPOSAL #2.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors of the Corporation and their associates were customers of,
and have had transactions with, the Corporation in the ordinary course of
business during 1997.
These transactions consisted of extensions of credit by the
Corporation in the ordinary course of business and were made on substantially
the same terms as those prevailing at the time for comparable transactions with
other persons. In the opinion of the management of the Corporation, those
transactions do not involve more than a normal risk of being collectible or
present other unfavorable features. The Corporation expects to have, in the
future, banking transactions in the ordinary course of its business with
Directors and their associates on the same terms, including interest rates and
collateral on loans, as those prevailing at the time of comparable transactions
with others.
Director Levine is of counsel to Spengler Nathanson, a law firm which
performed services for the Corporation during 1997, and is expected to continue
to provide services to the Corporation in the future.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's officers and Directors, and persons who own more than ten percent
of a registered class of the Corporation's equity securities, to file reports
of ownership and changes in ownership with the
15
<PAGE> 18
Securities and Exchange Commission. Officers, Directors and greater than ten
percent shareholders are required by SEC regulation to furnish the Corporation
with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to the
Corporation or written representations that no Form 5s were required, the
Corporation believes that during 1997 all Section 16(a) filing requirements
applicable to its officers and Directors were complied with. The Corporation
has no shareholders who are ten percent beneficial owners.
SELECTION OF AUDITORS
Ernst & Young LLP has been appointed to serve as the Independent
Auditor for the Corporation and its subsidiary for the fiscal year ended
December 31, 1997. It is the intention of the Corporation to appoint Ernst &
Young LLP as Independent Auditor for 1998. Representatives of Ernst & Young LLP
are expected to be present at the Annual Meeting to respond to appropriate
questions from shareholders and to have the opportunity to make any statements
they consider appropriate.
SHAREHOLDER PROPOSALS
Any proposals to be considered for inclusion in the proxy material to
be provided to shareholders of the Corporation for its next annual meeting, to
be held in 1999, must be made by a qualified shareholder and must be received
by the Corporation no later than December 17, 1998.
OTHER MATTERS
The Board of Directors of the Corporation is not aware of any other
matters that may come before the meeting. However, the enclosed Proxy will
confer discretionary authority with respect to matters which are not known to
the Board of Directors at the time of printing hereof and which may properly
come before the meeting. A copy of the Corporation's 1997 report filed with the
Securities and Exchange Commission, on Form 10-K, will be available without
charge to shareholders on request. Address all requests, in writing, for this
document to Michael P. Killian, Senior Vice President, Capital Holdings, Inc.,
5520 Monroe Street, Sylvania, Ohio 43560.
16
<PAGE> 19
EXHIBIT A
PROPOSED AMENDMENT TO PARAGRAPH 3 OF THE 1996
CAPITAL HOLDINGS, INC. INCENTIVE STOCK OPTION PLAN
3. ELIGIBILITY AND ANNUAL PER PERSON GRANT LIMITATION.
The Board shall grant Options only to officers and other key employees
of the Company and its subsidiaries who perform services of major importance in
the management, operation and development of the business of the Company or of
any subsidiary of the Company, and it shall determine the number of shares to
be allocated to each Option. The Company shall effect the grant of Options
under the Plan in accordance with determinations made by the Board pursuant to
the provision of the Plan by execution and delivery of written instruments in a
form approved by the Board. NO PERSON SHALL RECEIVE OPTIONS FOR MORE THAN
30,000 SHARES PER YEAR, ADJUSTED FOR ANY STOCK DIVIDENDS, STOCK SPLITS, REVERSE
STOCK SPLITS, RECAPITALIZATIONS, MERGERS OR CONSOLIDATIONS.
17
<PAGE> 20
OFFICIAL PROXY
THIS PROXY IS SOLICITED BY MANAGEMENT AND UNLESS OTHERWISE MARKED, WILL BE
VOTED FOR THE PROPOSALS.
Be it known, that John S. Szuch and Robert A. Sullivan, or either of them, are
appointed attorneys or attorney, with full power of substitution, including the
right to vote cumulatively for and in the name of the undersigned, all shares
of stock of Capital Holdings, Inc. which the undersigned is entitled to vote at
the Annual Meeting of the Stockholders of said company scheduled to be held at
6:30 p.m., May 7, 1998, at FRANCISCAN CENTER, LOURDES COLLEGE, Sylvania, Ohio
43560, or at any adjournment of recess thereof, such proxies being directed to
vote as specified below and being authorized to vote in their discretion on any
matter to come before the meeting and as to which a specified vote is not
requested.
PROPOSAL 1. TO RE-ELECT THE FOLLOWING DIRECTORS TO SERVE FOR THE TERM
INDICATED. PLEASE MARK AN "X" IN THE APPROPRIATE BOX. MANAGEMENT RECOMMENDS A
"FOR" VOTE ON THE PROPOSAL.
<TABLE>
<S> <C>
[ ] FOR [ ] WITHHOLD AUTHORITY
<CAPTION>
To vote for all nominees listed below
CLASS TERM EXPIRES
Class II 2001
1. Michael C. Landin NOTE: Directors Isaac, Lyden, Sayre, Szuch and Tuschman are
2. Ronald R. Langenderfer members of Class III whose terms will expire in 1999. Directors
3. Joel A. Levine Appold, Bennett, Feniger and Noe are members of Class I whose terms
4. Noel S. Romanoff will expire in 2000.
5. Robert A. Sullivan
To withhold authority to vote for any individual nominee, write that name on
the line.
PROPOSAL 2. TO AMEND THE CAPITAL HOLDINGS, INC. 1996 INCENTIVE STOCK OPTION PLAN TO PROVIDE AN AGGREGATE PER
PERSON ANNUAL GRANT LIMITATION.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<CAPTION>
------------------------------------------------------------------------------
PROPOSAL 3. TO TRANSACT SUCH BUSINESS AS MAY LAWFULLY COME BEFORE THE
STOCKHOLDERS AT SUCH ANNUAL MEETING.
If the above ballot is not marked, such proxies are authorized to vote the
shares represented by this Proxy in accordance with their discretion.
<S> <C>
ALL FORMER PROXIES ARE HEREBY REVOKED Number of shares: _____________
Date Signed:___________________
________________________________________________
Titling of Stock
_________________________________________ _______________________________
Signature of Stockholder Signature of Stockholder
(All joint owners should sign. When signing in fiduciary capacity or as a
corporate officer, please give your full title as such.)
</TABLE>
