<PAGE>
PURSUANT TO RULE 424(b)(4)
REGISTRATION NO. 33-52785
4,000,000 SHARES
LOGO CAPITAL HOLDING LLC
8 7/8% CUMULATIVE MONTHLY INCOME PREFERRED SHARES ("MIPS"*)
(LIQUIDATION PREFERENCE $25 PER SHARE)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
CAPITAL HOLDING CORPORATION
---------------
The 8 7/8% 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 8 7/8% 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 May
31, 1994. The Capital Holding guarantee does not cover payment of undeclared
dividends. In such event, the remedy of a holder of the Preferred Shares is to
enforce the obligations of Capital Holding under the loan agreement described
herein. See "Description of the Loans--Enforcement." 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 May 31, 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."
The Capital Holding guarantee will be subordinate and junior in right of
payment to all other liabilities of Capital Holding. At December 31, 1993,
Capital Holding had total liabilities of approximately $20.4 billion, all of
which rank senior to the guarantee.
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.
The Preferred Shares have been approved for listing on the New York Stock
Exchange, subject to official notice of issuance.
SEE "PROSPECTUS SUMMARY--THE OFFERING" FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE PREFERRED
SHARES OFFERED HEREBY, INCLUDING THE PERIOD AND CIRCUMSTANCES DURING AND UNDER
WHICH PAYMENT OF DIVIDENDS ON THE PREFERRED SHARES MAY BE DEFERRED AND RELATED
FEDERAL INCOME TAX CONSEQUENCES.
---------------
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........................ $25.00 (2) $25.00
Total............................ $100,000,000 (2) $100,000,000
</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 $.7875 per Preferred Share (or
$3,150,000 in the aggregate). 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 May 12, 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.
DEAN WITTER REYNOLDS INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY SHEARSON INC.
---------------
The date of this Prospectus is May 5, 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
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.
2
<PAGE>
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.
3
<PAGE>
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
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 withhold-
ing taxes are imposed or in other lim-
ited circumstances described herein un-
der "Description of Preferred Shares--
Optional Redemption"). Thereafter, re-
deemable at the option of the Company,
subject to the prior consent of Capital
Holding, in whole or in part, at any
time and from time to time, or
mandatorily in the event of a prepay-
ment by Capital Holding of the Loans
under the Loan Agreement (each as de-
fined below), at $25 per share plus ac-
cumulated and unpaid dividends.
4
<PAGE>
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." The Company
must also obtain the approval of the
holders of the Preferred Shares prior
to the issuance of any securities
ranking, as to participation in the
profits or assets of the Company,
senior to the Preferred Shares.
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 irrevocably 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
5
<PAGE>
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 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:
SUBORDINATION OF CAPITAL HOLDING
OBLIGATIONS. 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
"Description of the Loans--
6
<PAGE>
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, all without restriction
under the terms of the Preferred
Shares.
ENFORCEABILITY OF JUDGMENTS AGAINST
COMPANY. 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.
OPTION TO EXTEND INTEREST PAYMENT
PERIOD. 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".
TAX CONSEQUENCES OF 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 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".
7
<PAGE>
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 (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.
8
<PAGE>
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.
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.
9
<PAGE>
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:
REVENUES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
SEGMENT 1993 1992
------- ---------- ----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
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.
10
<PAGE>
INCOME BEFORE FEDERAL INCOME TAX
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
SEGMENT 1993 1992
------- -------- --------
(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.
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.
11
<PAGE>
"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.
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 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.
12
<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>
13
<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 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.
14
<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 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.
15
<PAGE>
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
(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
16
<PAGE>
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 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.
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
17
<PAGE>
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 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
18
<PAGE>
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.
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
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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 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 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.
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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 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.
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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.
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
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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.
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 irrevocably and unconditionally agree, to the extent set
forth herein, to pay in full, to the holders of the Preferred 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,
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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.
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:
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(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.
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.
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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 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 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
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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 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. Because Capital Holding may not declare dividends on any
share of its preferred or common stock during any extended interest payment
period, the extension of a payment period is, in the view of the Company and
Capital Holding, remote.
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
27
<PAGE>
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.
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
28
<PAGE>
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. 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.
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
29
<PAGE>
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);
(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
30
<PAGE>
(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.
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
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<PAGE>
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 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 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
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<PAGE>
period up to 60 months. 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
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.
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<PAGE>
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
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.
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<PAGE>
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., Dean Witter Reynolds Inc.,
PaineWebber Incorporated, Prudential Securities Incorporated and Smith Barney
Shearson Inc. are acting as representatives, has severally agreed to purchase
from the Company the respective number of Preferred Shares set forth opposite
its name below:
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Goldman, Sachs & Co............................................
Dean Witter Reynolds Inc.......................................
PaineWebber Incorporated ......................................
Prudential Securities Incorporated.............................
Smith Barney Shearson Inc. ....................................
---------
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.
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.
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<PAGE>
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.
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<PAGE>
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS 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 AN OFFER TO SELL OR THE SOLICITA-
TION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OF-
FER 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 OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 3
Prospectus Summary......................................................... 4
Recent Developments........................................................ 8
Capital Holding LLC........................................................ 8
Capital Holding Corporation................................................ 8
Use of Proceeds............................................................ 12
Capitalization............................................................. 13
Summary Consolidated Financial Data........................................ 14
Description of Preferred Shares............................................ 15
Description of the Guarantee............................................... 23
Description of the Loans................................................... 26
Taxation................................................................... 31
Underwriting............................................................... 35
Legal Matters.............................................................. 36
Experts.................................................................... 36
</TABLE>
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4,000,000 SHARES
CAPITAL HOLDING LLC
GUARANTEED TO THE EXTENT SET
FORTH HEREIN BY
CAPITAL HOLDING CORPORATION
% CUMULATIVE
MONTHLY INCOME PREFERRED SHARES
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LOGO
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GOLDMAN, SACHS & CO.
DEAN WITTER REYNOLDS INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY SHEARSON INC.
REPRESENTATIVES OF THE UNDERWRITERS
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