FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[x] Quarterly Report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
or
[ ] Transition Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the transition period from
____________________to____________________
Commission file number 0-13972
PENN TREATY AMERICAN CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1664166
(State or other juris- (I.R.S. Employer Identi-
diction of incorporation fication No.)
of organization)
3440 Lehigh Street, Allentown, PA 18103
(Address, including zip code, of principal executive offices)
(610) 965-2222
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if change since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
The number of shares outstanding on the Registrant's common stock, par value
$.10 per share, as of August 9, 1996 was 7,009,447.
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
The registrant's Unaudited Consolidated Balance Sheets, Statements of Income and
Statements of Cash Flows and Notes thereto required under this item are
contained on pages 3 through 9 of this report, respectively. These financial
statements represent the consolidation of the operations of the registrant, and
its subsidiaries, Senior Financial Consultants Company and Penn Treaty Life
Insurance Company (PTLIC). PTLIC and its subsidiary, Network America Life
Insurance Company (the "Insurers"), are underwriters of long-term care and life
insurance products.
<PAGE>
<TABLE>
<CAPTION>
PENN TREATY AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1996 1995
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investments:
Bonds, available for sale at market,
(amortized cost $149,602,566 and
$136,600,775, respectively) ............... $ 149,128,011 $ 142,243,341
Equity securities at market value, (cost of
$3,548,626 and $2,102,529, respectively) .. 4,465,444 2,605,612
Policy loans ................................ 81,632 79,404
------------- -------------
Total Investments 153,675,087 144,928,357
------------- -------------
Cash and cash equivalents ..................... 9,994,740 8,881,061
Property and equipment, at cost, less
accumulated depreciation of $2,030,665
and $1,854,065, respectively ................ 7,065,556 5,740,353
Unamortized policy acquisition costs .......... 72,606,338 63,133,759
Receivables from agents, less allowance for
uncollectable amounts of $231,226 ........... 1,571,244 1,275,481
Accrued investment income ..................... 2,613,523 2,436,435
Cost in excess of net assets acquired, less
accumulated amortization of $249,706 and
$231,826, respectively ...................... 1,179,703 1,197,574
Receivable from reinsurers .................... 8,165,459 7,730,828
Federal income tax refundable ................. 987,884 --
Other assets .................................. 3,570,155 2,420,422
------------- -------------
Total Assets .............................. $ 261,429,689 $ 237,744,270
============= =============
Continued
<PAGE>
<CAPTION>
PENN TREATY AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- Continued
JUNE 30, DECEMBER 31,
1996 1995
------------- -------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES
Policy reserves:
Accident and health ......................... $ 76,151,761 $ 62,007,433
Life ........................................ 7,604,131 7,118,848
Unearned premium reserve ...................... 30,719 26,503
Policy and contract claims .................... 55,712,452 50,206,608
Accounts payable and other liabilities ........ 3,534,437 2,681,499
Mortgages and other debts ..................... 2,124,856 2,206,117
Federal income taxes payable .................. -- 183,249
Deferred income taxes ......................... 17,028,600 16,206,959
------------- -------------
Total Liabilities ......................... 162,186,956 140,637,216
------------- -------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00; 5,000,000 ... -- --
shares authorized, none outstanding
Common stock, par value $.10; 10,000,000
shares authorized, 7,614,876 and
7,576,913 shares issued ..................... 761,488 757,691
Additional paid-in capital .................... 41,466,380 41,146,594
Net unrealized appreciation of securities ..... 291,894 4,055,788
Retained earnings ............................. 58,428,845 52,852,855
------------- -------------
100,948,607 98,812,928
Less 605,629 common shares held in treasury,
at cost ..................................... (1,705,874) (1,705,874)
------------- -------------
Total Shareholders' Equity ................ 99,242,733 97,107,054
------------- -------------
Total Liabilities and Shareholders' Equity $ 261,429,689 $ 237,744,270
============= =============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PENN TREATY AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- --------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Accident and health premiums ..................... $ 31,344,019 $ 24,895,437 $ 60,867,816 $ 47,457,258
Life premiums .................................... 866,222 795,449 1,812,319 1,641,820
------------ ------------ ------------ ------------
32,210,241 25,690,886 62,680,135 49,099,078
Net investment income ............................ 2,505,094 1,806,908 4,891,163 3,489,374
Net realized capital gains ....................... 41,662 135 92,883 13,258
Other income ..................................... 95,542 70,554 181,292 131,828
------------ ------------ ------------ ------------
34,852,539 27,568,483 67,845,473 52,733,538
Benefits and expenses:
Benefits to policyholders ........................ 21,831,785 16,412,339 41,618,439 31,111,467
Commissions ...................................... 10,683,716 9,371,479 20,870,587 16,771,345
Net policy acquisition costs deferred ........... (5,302,723) (4,200,181) (9,472,579) (6,625,223)
General and administrative ....................... 3,487,365 3,076,191 6,793,081 5,793,357
Interest ......................................... 33,740 109,679 69,955 246,191
------------ ------------ ------------ ------------
30,733,883 24,769,507 59,879,483 47,297,137
Income before federal income taxes ................. 4,118,656 2,798,976 7,965,990 5,436,401
Provision for federal income taxes ................. 1,236,000 836,000 2,390,000 1,631,000
------------ ------------ ------------ ------------
Net Income ..................................... $ 2,882,656 $ 1,962,976 $ 5,575,990 $ 3,805,401
============ ============ ============ ============
Earnings per share ................................. $ 0.41 $ 0.42 $ 0.80 $ 0.81
Weighted average number of shares .................. 6,993,805 4,671,284 6,995,819 4,671,284
Outstanding
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PENN TREATY AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net cash flow from operating activities:
Net income ........................................................ $ 5,575,990 $ 3,805,401
Adjustments to reconcile net income to cash provided by operations:
Amortization of intangible assets ............................... 17,880 17,880
Policy acquisition costs, net ................................... (9,472,579) (6,625,223)
Deferred income taxes ........................................... 2,761,132 1,518,107
Depreciation expense ............................................ 176,600 144,597
Net realized capital (gains) losses ............................. (92,883) (13,258)
Increase (decrease) due to change in:
Receivables from agents ......................................... (295,763) (106,291)
Receivable from reinsurers ...................................... (434,631) (907,182)
Policy and contract claims ...................................... 5,505,844 5,244,005
Policy and unearned premium reserves ............................ 14,633,827 9,006,623
Accounts payable and other liabilities .......................... 852,938 482,168
Federal income taxes recoverable ................................ (987,884) 112,893
Federal income tax payable ...................................... (183,249) 0
Accrued investment income ....................................... (177,088) (125,033)
Other, net ...................................................... (1,149,742) (371,220)
------------ ------------
Cash provided by operations .................................... 16,730,392 12,183,467
Cash flow from (used in) investing activities:
Proceeds from sales of investments ................................ 4,108,700 3,663,124
Maturities of investments ......................................... 5,027,858 1,463,386
Purchase of investments ........................................... (23,493,790) (16,952,840)
Acquisition of property and equipment ............................. (1,501,803) (221,115)
------------ ------------
Cash used in investing ........................................ (15,859,035) (12,047,445)
Cash flow from (used in) financing activities:
Proceeds from exercise of stock options ........................... 323,583 0
Repayments of mortgages and other debts ........................... (81,261) (87,580)
------------ ------------
Cash provided by/(used in) financing .......................... 242,322 (87,580)
------------ ------------
Increase in cash .................................................... 1,113,679 48,442
Cash balances:
Beginning of period ............................................... 8,881,061 7,226,769
------------ ------------
End of period ..................................................... $ 9,994,740 $ 7,275,211
============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(unaudited)
The Consolidated Financial Statements should be read in conjunction with these
notes and with the Notes to Consolidated Financial Statements included in Penn
Treaty American Corporation's ("the Company's") Annual Report on Form 10-K for
the year ended December 31, 1995.
In the opinion of management, the summarized financial information reflects all
adjustments (consisting only of normal recurring adjustments) which are
necessary for a fair presentation of the financial position and results of
operations for the interim periods. Certain prior period amounts have been
reclassified to conform with current period presentation.
1. Investments
Management has categorized all of its investment securities as
available for sale since they may be sold in response to changes in
interest rates, prepayments, and similar factors. Investments in this
classification are reported at their current market value with net
unrealized gains and losses, net of the applicable deferred income
tax effect, being added to or deducted from the Company's total
shareholders' equity on the balance sheet. As of June 30, 1996,
shareholders' equity was increased by $291,894 due to unrealized
gains of $442,263 in the investment portfolio. As of December 31,
1995, shareholders' equity was increased by $4,055,788 due to
unrealized gains of $6,145,649 in the investment portfolio.
<PAGE>
The amortized cost and estimated market value of investments
available for sale as of June 30, 1996 and December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
----------------------------- -----------------------------
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S
Government corporations
and agencies ............................................. $119,239,617 $118,307,989 $ 103,119,270 $ 107,160,841
Obligations of states and
political sub-divisions .................................. 24,952,467 25,439,679 24,952,467 26,147,000
Debt securities issued by
foreign governments ...................................... 424,055 441,195 449,055 480,500
Corporate securities ....................................... 4,020,169 3,959,148 5,619,499 5,820,000
Other debt securities ..................................... 966,258 980,000 2,460,484 2,635,000
Equities ................................................... 3,548,626 4,465,444 2,102,529 2,605,612
Policy Loans ............................................... 81,632 81,632 79,404 79,404
------------ ------------ ------------ ------------
Total Investments .......................................... 153,232,824 153,675,087 138,782,708 144,928,357
============ ============ ============ ============
Net unrealized gain (loss) ................................. 442,263 6,145,649
$153,675,087 $144,928,357
============ ============
</TABLE>
<PAGE>
2. Reinsurance
The Company has assumed and ceded reinsurance on certain life and
accident and health contracts under various agreements. The tables
below highlight the amounts shown in the accompanying consolidated
statements of operations which are net of reinsurance activity:
<TABLE>
<CAPTION>
Ceded to Assumed
Gross Other from Other Net
Amount Companies Companies Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Three Months Ended
June 30, 1996
Ordinary Life Insurance
In-Force ................................ $ 63,697,040 $ 12,402,000 $ 0 $ 51,295,040
Premiums:
Accident and health .................. 31,968,639 735,455 110,835 31,344,019
Life ................................. 1,100,686 234,464 0 866,222
Benefits to Policyholders:
Accident and health .................. 14,320,577 250,521 52,093 14,122,149
Life ................................. 422,100 86,276 0 335,824
Inc (dec) in Policy
Reserves:
Accident and health .................. 7,378,433 189,193 (1,204) 7,188,036
Life ................................. 243,293 57,517 0 185,776
Commissions ............................... $ 10,974,859 $ 307,767 $ 16,624 $ 10,683,716
Three Months Ended
June 30, 1995
Ordinary Life Insurance
In-Force ................................ $ 60,344,771 $ 17,505,000 $ 0 $ 42,839,771
Premiums:
Accident and health .................. 25,255,559 516,248 156,126 24,895,437
Life ................................. 1,217,167 421,718 0 795,449
Benefits to Policyholders:
Accident and health .................. 11,819,622 609,071 67,859 11,278,410
Life ................................. 374,142 76,567 0 297,575
Inc (dec) in Policy
Reserves:
Accident and health .................. 4,612,903 (17,817) 6,788 4,637,508
Life ................................. 477,193 278,347 0 198,846
Commissions ............................... $ 9,615,405 $ 267,335 $ 23,409 $ 9,371,479
Six Months Ended
June 30, 1996
Ordinary Life Insurance
In-Force ................................ $ 63,697,040 $ 12,402,000 $ 0 $ 51,295,040
Premiums:
Accident and health .................. 62,105,601 1,471,770 233,985 60,867,816
Life ................................. 2,179,710 367,391 0 1,812,319
Benefits to Policyholders:
Accident and health .................. 27,637,977 921,784 109,973 26,826,166
Life ................................. 839,686 223,830 0 615,856
Inc (dec) in Policy
Reserves:
Accident and health .................. 14,147,374 372,614 (3,046) 13,771,714
Life ................................. 485,283 80,580 0 404,703
Commissions ............................... $ 21,460,237 $ 624,747 $ 35,097 $ 20,870,587
<PAGE>
<CAPTION>
Ceded to Assumed
Gross Other from Other Net
Amount Companies Companies Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Six Months Ended
June 30, 1995
Ordinary Life Insurance
In-Force ................................ $ 60,344,771 $ 17,505,000 $ 0 $ 42,839,771
Premiums:
Accident and health .................. 48,240,519 1,093,324 310,063 47,457,258
Life ................................. 2,472,936 831,116 0 1,641,820
Benefits to Policyholders:
Accident and health .................. 23,062,669 1,166,025 140,209 22,036,853
Life ................................. 652,836 183,958 0 468,878
Inc (dec) in Policy
Reserves:
Accident and health .................. 8,226,055 (24,539) 5,521 8,256,115
Life ................................. 827,466 477,845 0 349,621
Commissions ............................... $ 17,255,763 $ 530,918 $ 46,500 $ 16,771,345
</TABLE>
<PAGE>
3. Merger Agreements
On June 10, 1996, the Company, in conjunction with Health Insurance
of Vermont, Inc. ("HIVT"), submitted a proxy statement/prospectus to
the shareholders of HIVT as notice of a special meeting of HIVT
shareholders to be held on July 11, 1996 to endorse an agreement of
merger between HIVT and a subsidiary of the Company ("the Merger").
The shareholders of HIVT approved the Merger on July 11, 1996.
Subject to obtaining required regulatory approval, the Company
expects the merger to close on or before August 31, 1996.
On June 25, 1996, the Company signed a letter of intent ("the
Letter") to purchase 100% of the outstanding common stock of Merrion
Insurance Company, Inc. ("Merrion"), a licensed New York domiciled
company. Under the Letter, there will be no transfer of business,
premium or liability. It is anticipated that a Definitive Purchase
Agreement will be signed and become final during the third quarter,
1996.
Upon regulatory approval of the Merger and the Definitive Purchase
Agreement, the Company will be licensed in all 50 United States and
the District of Columbia.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Second Quarter and Three Months Ended June 30, 1996 and 1995:
Accident and Health Premiums. First year accident and health premiums
earned in the three month period ended June 30, 1996 (the 1996 quarter),
including long-term care and Medicare supplement, increased 14.2% to
$11,207,016, compared to $9,814,601 in the same period in 1995 (the 1995
quarter). First year long-term care premiums earned in the 1996 quarter
increased 13.8% to $11,094,041, compared to $9,746,943 in the 1995 quarter. This
increase was primarily attributable to increased sales of home health care
policies, which increased to $5,660,479 for the 1996 quarter from $3,489,330 for
the same period in 1995. Premiums from sales of nursing home care policies
decreased from $6,257,613 in the 1995 quarter to $5,433,562 in the 1996 quarter.
These results reflect increased market demand for the Company's home health care
policies, particularly its Independent Living policy first introduced in the
fourth quarter of 1994, relative to its nursing home policies. First year
Medicare supplement premiums earned by the Company in the 1996 quarter increased
to $112,975 from $67,658 in the 1995 quarter. Total new business for this
product remains low due to the Company's continued reduced emphasis of its
Medicare supplement products because of lower profit margins associated with
this line of business.
Renewal accident and health premiums earned by the Company in the 1996 quarter
including long-term care and Medicare supplement, increased 33.5% to
$20,137,003, compared to $15,080,836 in the same period of 1995. Renewal
long-term care premiums earned in the 1996 quarter increased 35.3% to
$19,502,369, compared to $14,411,152 in the 1995 quarter. This increase reflects
renewals of a larger base of in-force policies, as well as the effect of rate
increases the Company received in various states. The Company believes that this
increase also reflects an increase in persistency, or renewals as a percentage
of total prior year business. Renewal Medicare supplement premiums in the 1996
quarter decreased 5.2% to $634,634, compared to $669,684 in the 1995 quarter.
This trend is consistent with the Company's decision not to actively pursue
Medicare supplement business.
<PAGE>
Life Premiums. First year life premiums earned by the Company in the
1996 quarter decreased 22.9% to $361,751, compared to $469,161 in the 1995
quarter. The Company's life business has remained stable as the Company is
focusing its marketing efforts on its Independent Living policy and its other
long-term care products. Renewal life premiums earned by the Company in the 1996
quarter increased to $504,471, compared to $326,288 in the 1995 quarter. This
increase was primarily the result of renewals of first-year policies written in
1995.
Net Investment Income. Net investment income earned by the Company for
the 1996 quarter increased 38.6% to $2,505,094, from $1,806,908 for the 1995
quarter. This increase was primarily the result of growth in the Company's
investment assets due to continued premium growth and additional funds of
$22,500,000 from the Company's public offering in July 1995, which were
partially offset by a decrease in the average yield on the Company's investments
to 6.63% for the 1996 quarter from 6.76% for the same period in 1995.
Benefits to Policyholders. Total benefits to policyholders in the 1996
quarter increased 33.0% to $21,831,785 compared to $16,412,339 in the 1995
quarter.
Accident and health benefits to policyholders in the 1996 quarter increased
33.9% to $21,310,185 compared to $15,915,918 in the 1995 quarter. The Company's
accident and health loss ratio (the ratio of benefits to policyholders to total
accident and health premiums) was 68.0% in the 1996 quarter, compared to 63.9%
in the 1995 quarter. This increase in the loss ratio was due, in part, to the
increase in premium of the Company's Independent Living policy which is reserved
for at a higher rate, and also to improved persistency. In addition, management
believes that claims were reported more quickly in the last part of the first
quarter and throughout the second quarter of 1996 due to the Company's offer to
waive a policy elimination period if the insured agrees to utilize case
management. Management expects that this acceleration of reported claims has all
been recognized by the end of the 1996 quarter.
Life benefits to policyholders in the 1996 quarter increased to $521,600,
compared to $496,421 for the 1995 quarter. The life loss ratio (the ratio of
claims experience and increases in policy reserves to total life premium) was
60.2% in the 1996 quarter, compared to 62.4% in the 1995 quarter, and reflects
the actual claims incurred and actuarial reserves necessary to support the
portfolio mix of business.
Commissions. Commissions to agents increased 14.0% to $10,683,716 in
the 1996 quarter compared to $9,371,479 in the 1995 quarter.
First year commissions on accident and health business in the 1996 quarter
increased 12.2% to $7,229,121, compared to $6,445,587 in the 1995 quarter,
corresponding to the increase in first year accident and health premiums. The
ratio of first year accident and health commissions to first year accident and
health premiums was 64.5% in the 1996 quarter and 65.7% in the 1995 quarter.
First year commissions on life business in the 1996 quarter decreased 20.0% to
$268,757, compared to $336,159 in the 1995 quarter, directly reflecting the
Company's reduction in first year life premiums. The ratio of first year life
commissions to first year life premiums was 74.3% in the 1996 quarter compared
to 71.7% in the 1995 quarter.
Renewal commissions on accident and health business in the 1996 quarter
increased 22.5% to $3,122,472, compared to $2,548,778 in the 1995 quarter,
consistent with the increase in renewal premiums discussed above. The ratio of
renewal accident and health commissions to renewal accident and health premiums
<PAGE>
was 15.5% in the 1996 quarter and 16.9% in the 1995 quarter. This ratio
fluctuates in relation to the age of the policies in force and the rates of
commissions paid to the agents.
Net Policy Acquisition Costs Deferred. The net deferred policy
acquisition costs in the 1996 quarter increased 26.2% to $5,302,723 compared to
$4,200,181 in the 1995 quarter, consistent with the growth of the Company's
business. This deferral is net of amortization, which decreases or increases as
the Company's actual persistency is better or worse than the persistency assumed
for reserving purposes. The deferral of policy acquisition costs has remained
consistent with the growth of premiums, and the growth in amortization of policy
acquisition costs has been modified by improved persistency.
General and Administrative Expenses. General and administrative
expenses in the 1996 quarter increased 13.4% to $3,487,365, compared to
$3,076,191 in the 1995 quarter. This increase was due to the increase in the
growth of the Company's business. The ratio of general and administrative
expenses to total revenues decreased to 10.0% in the 1996 quarter, compared to
11.2% in 1995 due to increases in investment income and operating efficiencies
realized with premium growth.
Net Income. Net income of $2,882,656 for the 1996 quarter was $919,680
or 46.9% above the same period for 1995 of $1,962,976. Net income includes
income tax provisions of $1,236,000 and $836,000, for the 1996 and 1995
quarters, respectively. Income before federal income taxes increased in the 1996
quarter by $1,319,680 or 47.1% to $4,118,656. This increase was primarily
attributable to the continuing growth of premiums earned.
Six Months Ended June 30, 1996 and 1995:
Accident and Health Premiums. First year accident and health premiums
earned by the Company in the six month period ended June 30, 1996 (the 1996
period), increased 26.9% to $21,220,950, compared to $16,725,675 in the same
period in 1995 (the 1995 period). First year long-term care premiums in the 1996
period increased 25.9% to $20,886,285, compared to $16,594,588 in the 1995
period. This increase was primarily attributable to increased sales of home
health care policies, which increased to $10,308,518 for the 1996 period from
$5,248,829 for the same period in 1995. Premiums from sales of nursing home care
policies decreased from $11,345,759 in the 1995 period to $10,577,767 in the
1996 period. Management believes these results reflect an ongoing market for
long-term care, particularly in home health care coverage. First year Medicare
supplement premiums earned by the Company in the 1996 period increased to
$334,665 from $131,087 in the 1995 period. The Company places reduced emphasis
upon this product due to reduced profitability caused by regulation.
Renewal accident and health premiums earned by the Company in the 1996 period
increased 29.0% to $39,646,866, compared to $30,731,583 in the same period of
1995. Renewal long-term care premiums in the 1996 period increased 30.9% to
$38,290,593, compared to $29,252,267 in the 1995 period. This increase reflects
higher persistency of a continuing growth portfolio Renewal Medicare supplement
premiums earned by the Company in the 1996 period decreased 8.3% to $1,356,273,
compared to $1,479,316 in the 1995 period. This trend is consistent with the
Company's decision not to actively pursue Medicare supplement business.
Life Premiums. First year life premiums earned by the Company in the
1996 period decreased 15.2% to $748,787, compared to $882,729 in the 1995
period. The Company's life business has remained stable as the Company is
focusing its marketing efforts on its Independent Living policy and its other
long-term care products. Renewal life premiums in the 1996 period increased to
<PAGE>
$1,063,532, compared to $759,091 in the 1995 period. This increase was primarily
the result of renewals of first-year policies written in 1995.
Net Investment Income. Net investment income earned by the Company for
the 1996 period increased 40.2% to $4,891,163, from $3,489,374 for the 1995
period. This increase was primarily the result of growth in the Company's
investment assets due to continued premium growth and additional funds of
$22,500,000 from the Company's public offering in July 1995, which were
partially offset by a decrease in the average yield on the Company's investments
to 6.59% for the 1996 period from 6.98% for the same period in 1995.
Benefits to Policyholders. Benefits to policyholders in the 1996 period
increased 33.8% to $41,618,439 compared to $31,111,467 in the 1995 period.
Accident and health benefits to policyholders in the 1996 period increased 34.0%
to $40,597,880 compared to $30,292,968 in the 1995 period. The Company's
accident and health loss ratio was 66.7% in the 1996 period, compared to 63.8%
in the 1995 period. This increase in loss ratio was due, in part, to the
increase in premium and policies of the Company's Independent Living policy
which is reserved for at a higher rate, and also to improved persistency. In
addition, management believes that claims were reported more quickly in the last
part of the first quarter and throughout the second quarter of 1996 due to the
Company's offer to waive a policy elimination period if the insured agrees to
utilize case management. Management expects that this acceleration of reported
claims has all been recognized by the end of the 1996 quarter.
Life benefits to policyholders in the 1996 period increased to $1,020,559,
compared to $818,499 for the 1995 period. The life loss ratio was 56.3% in the
1996 period, compared to 49.9% in the 1995 period. This increase relates to the
maturing of the life products that the Company first introduced in August 1993.
Commissions. Commissions to agents increased 24.4% to $20,870,587 in
the 1996 period compared to $16,771,345 in the 1995 period.
First year commissions on accident and health business in the 1996 period
increased 26.6% to $13,985,603, compared to $11,044,627 in the 1995 period,
corresponding to the increase in first year accident and health premiums. The
ratio of first year accident and health commissions to first year accident and
health premiums was 65.9% in the 1996 period and 66.0% in the 1995 period. First
year commissions on life business in the 1996 period decreased 13.1% to
$579,029, compared to $666,600 in the 1995 period, directly reflecting the
Company's reduction in first year life premiums. The ratio of first year life
commissions to first year life premiums was 77.3% in the 1996 period compared to
74.8% in the 1995 period.
Renewal commissions on accident and health business in the 1996 period increased
23.9% to $6,182,921, compared to $4,991,531 in the 1995 period, remaining
consistent with the increase in renewal premiums discussed above. The ratio of
renewal accident and health commissions to renewal accident and health premiums
was 15.6% in the 1996 period and 16.2% in the 1995 period. This ratio fluctuates
in relation to the age of the policies in force and the rates of commissions
paid to the producing agents.
Net Policy Acquisition Costs Deferred. The net deferred policy
acquisition costs in the 1996 period increased 43.0% to $9,472,579 compared to
$6,625,223 in the 1995 period, consistent with the growth of the Company's
business. This deferral is net of amortization, which decreases or increases as
the Company's actual persistency is better or worse than the persistency assumed
for reserving purposes. The deferral of policy acquisition costs has remained
consistent with the growth of premiums, and the growth in amortization of policy
<PAGE>
acquisition costs has been modified by improved persistency.
General and Administrative Expenses. General and administrative
expenses in the 1996 period increased 17.3% to $6,793,081, compared to
$5,793,357 in the 1995 period. This increase was due to the increase in the
growth of the Company's business. The ratio of general and administrative
expenses to total revenues decreased to 10.0% in the 1996 period, compared to
11.0% in 1995 due to increases in investment income and operating efficiencies
realized with premium growth.
Net Income. Net income of $5,575,990 for the 1996 period was $1,770,589
or 46.5% above the same period for 1995 of $3,805,401. Net income includes
income tax provisions of $2,390,000 and $1,631,000, for the 1996 and 1995
periods, respectively. Income before federal income taxes increased in the 1996
period by $2,529,589 or 46.5% to $7,965,990. This increase was primarily
attributable to the continuing growth of premiums earned.
Liquidity and Capital Resources:
The Company's consolidated liquidity requirements have historically been created
and met from the operations of the Insurers. The Company's primary sources of
cash are premiums and investment income. The Company has, and may continue to
provide cash through public offerings of its common stock. The primary uses of
cash are policy acquisition costs (principally commissions), payments to
policyholders, investment purchases and general and administrative expenses.
Statutory requirements allow insurers to pay dividends only from statutory
earnings as approved by the state insurance commissioner. Statutory earnings are
generally lower than publicly-reported earnings due to the immediate or
accelerated recognition of all costs associated with premium growth and benefit
reserves. The Company believes that this statutory requirement presents hardship
to growth companies, disabling their ability to pay dividends to shareholders.
The Company has not and does not intend to pay shareholder dividends in the near
future due to these requirements, choosing to retain statutory surplus to
support continued premium growth.
The Company invests in securities and other investments authorized by applicable
state laws and regulations, and follows an investment policy designed to
maximize yield to the extent consistent with liquidity requirements and
preservation of assets. At December 31, 1995, the average maturity of the
Company's bond portfolio was 6.4 years and its market value exceeded its cost by
4.1% or approximately $5,643,000. At June 30, 1996, the average maturity of the
Company's bond portfolio was 6.3 years, and its market value represented
approximately 99.7% of its cost, with a current loss of $474,555.
The Company's investment securities are all classified as available for sale
since they may be sold in response to changes in interest rates, prepayments,
and similar factors. Investments in this classification are reported at the
current market value with net unrealized gains and losses, net of the applicable
deferred income tax effect, being added to or deducted from the Company's total
shareholders' equity on the balance sheet. As of June 30, 1996, shareholders'
equity was increased by $291,894 due to unrealized gains of $442,263 in the
investment portfolio. As of December 31, 1995, shareholders' equity was
increased by $4,055,788 due to unrealized gains of $6,145,649 in the investment
portfolio.
On December 28, 1994, the Company borrowed $4,000,000 from a bank as a secured
term loan, subject to repayment requirements associated with the Company's
ongoing public offering. The proceeds of the loan were contributed to the
<PAGE>
surplus of PTLIC in the form of cash to strengthen its overall surplus position
to allow for additional premium growth within statutory surplus limits. The
Company repaid this loan with a portion of the proceeds from the public
offering, which was consummated on July 6, 1995, and yielded net proceeds of
$26,165,000 from the sale of 2,300,000 shares of the Company's common stock. The
Company contributed $14,000,000 of the net proceeds as surplus to its subsidiary
insurers during the third quarter of 1995.
The Company regularly evaluates potential acquisition opportunities for blocks
of existing business or other companies. On June 10, 1996, the Company, in
conjunction with Health Insurance of Vermont, Inc. ("HIVT"), submitted a proxy
statement/prospectus to the shareholders of HIVT as notice of a special meeting
of HIVT shareholders to be held on July 11, 1996 to endorse an agreement of
merger between HIVT and a subsidiary of the Company ("the Merger"). The
shareholders of HIVT approved the Merger on July 11, 1996. Subject to obtaining
required regulatory approval, the Company expects the merger to close on or
before August 31, 1996.
On June 25, 1996, the Company signed a letter of intent ("the Letter") to
purchase 100% of the outstanding common stock of Merrion Insurance Company, Inc.
("Merrion"), a licensed New York domiciled company. Under the Letter, there will
be no transfer of business, premium or liability. It is anticipated that a
Definitive Purchase Agreement will be signed and become final during the third
quarter, 1996.
Upon regulatory approval of the Merger and the Definitive Purchase Agreement,
the Company will be licensed in all 50 United States and the District of
Columbia. The Company will utilize a portion of the net proceeds of its public
offering to fund the pending acquisitions of HIVT and Merrion.
In the event the Company fails to maintain minimum loss ratios calculated in
accordance with statutory guidelines, fails to meet other requirements mandated
and enforced by regulatory authorities, has adverse claim experience in the
future, or the economy continues to effect the buying power of senior citizens,
the Company's results of operations, liquidity and capital resources could be
adversely affected.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Insurers are parties to various lawsuits generally arising in the normal
course of their insurance business. The Company does not believe that the
eventual outcome of any of the suits to which the Insurers are currently a party
will have a material effect on the financial condition or result of operations
of the Company.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on May 24, 1996. At such
meeting, the following matters were voted upon by the shareholders, receiving
the number of affirmative, negative and withheld votes, as well as abstentions
and broker non-votes, set forth below each matter.
(1) Election of three persons to the Company's Board of Directors as
Class III Directors to serve until the 1999 Annual Meeting of Shareholders and
until their successors are elected and have been qualified.
Michael F. Grill
5,339,040 Affirmative 0 Negative
10,950 Withheld 0 Abstentions and broker
non-votes
C. Mitchell Goldman, Esquire
5,398,440 Affirmative 0 Negative
11,550 Withheld 0 Abstentions and broker
non-votes
John W. Mahoney
5,398,440 Affirmative 0 Negative
11,550 Withheld 0 Abstentions and broker
non-votes
Subsequently, on June 5, 1996, Mr. Mahoney resigned as a member of the
Company's Board of Directors. Mr. Mahoney took no actions as a
Director.
(2) Ratification of the selection of Coopers & Lybrand L.L.P. as
independent public accountants for the Company and its subsidiaries for the year
ending December 31, 1996.
5,406,990 Affirmative 2,900 Negative
0 Withheld 100 Abstentions and broker
non-votes
<PAGE>
Item 5. Other Information
On June 6, 1996, the Company entered into Change of Control Employment
Agreements with the following Directors and Officers:
1. Irving Levit, President, Chief Executive Officer and Chairman of
the Board
2. A.J. Carden, Executive Vice President and Director
3. Michael F. Grill, Treasurer and Director
4. Jack D. Baum, Vice President, Marketing and Director
5. Glen A. Levit, Vice President, Sales and Director
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10.1 - Material Contract with A.J. Carden
Exhibit 10.2 - Material Contract with Jack D. Baum
Exhibit 10.3 - Material Contract with Michael F. Grill
Exhibit 10.4 - Material Contract with Glen A. Levit
Exhibit 10.5 - Material Contract with Irving Levit
Exhibit 11 - Earnings Per Share Calculation
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed one report on Form 8-K/A, Amendment No. 1, during the
quarter ending June 30, 1996, pursuant to Item 5 of that form. No financial
statements were filed as part of that report.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PENN TREATY AMERICAN CORPORATION
Registrant
Date: August 9, 1996 /s/ Irving Levit
______________________
Irving Levit
President
Date: August 9, 1996 /s/ Michael F. Grill
______________________
Michael F. Grill
Treasurer
EXHIBIT 10.1
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 6th day of June , 1996 by and between PENN
TREATY AMERICAN CORPORATION, a Pennsylvania corporation (the "Company"), and A.
J. Carden ("Executive").
The Board of Directors of the Company has determined that it is in the
best interests of the Company and its shareholders to assure that the Company
will have the continued dedication of Executive, notwithstanding the
possibility, threat, or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control, to encourage Executive's
full attention and dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide Executive with
compensation arrangements upon a Change of Control which provide Executive with
individual financial security and which are competitive with those of other
corporations and, in order to accomplish these objectives, the Board has caused
the Company to enter into this Agreement.
In consideration of the mutual covenants set forth herein and intending
to be legally bound hereby, the parties hereto agree as follows:
I. CHANGE OF CONTROL
For the purpose of this Agreement, a "Change of Control" shall mean:
(a) The acquisition, other than from the Company, by any
person, entity or "group" within the meaning of Section 13(d) (3) or 14(d) (2)
of the Securities Exchange Act of 1934 (the "Exchange Act"), but excluding, for
this purpose, the Company, its subsidiaries, or any employee benefit plan of the
Company or its subsidiaries which acquires beneficial ownership of voting
securities of the Company of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of either the then
outstanding shares of common stock or the combined voting power of the Company's
then outstanding voting securities entitled to vote generally in the election of
directors; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of the
Company, as such terms are used in Rule 14A-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a member of the Incumbent Board; or
(c) Approval by the shareholders of the Company of (i) a
reorganization, merger or consolidation, in each case, with respect to which
persons who were the shareholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own more
<PAGE>
than 50% of the combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated company's then
outstanding voting securities, or (ii) a liquidation or dissolution of the
Company or the sale of all or substantially all of the assets of the Company
(whether such assets are held directly or indirectly).
II. EMPLOYMENT
2.01. Effective Date. The Company hereby agrees to continue to employ
Executive as Executive Vice President of the Company, and Executive hereby
agrees to remain an employee of the Company, for the period beginning upon a
Change of Control (as defined in Section I) and ending on the third anniversary
of such date (the "Employment Period"), subject to the terms and conditions
hereinafter set forth. The Employment Period shall automatically be extended for
one or more additional one-year periods commencing at the conclusion of the
initial three-year period, unless three (3) months prior to the end of the
initial term or any subsequent term, the Company shall have delivered to
Executive, or Executive shall have delivered to the Company, written notice that
the term of Executive's employment hereunder will not be extended.
2.02. Prior Termination. Anything in this Agreement to the contrary,
notwithstanding, if Executive's employment with the Company is terminated prior
to the date on which a Change of Control occurs, and it is reasonably
demonstrated that such termination (i) was at the request of a third party who
has taken steps reasonably calculated to effect a Change of control or (ii)
otherwise arose in connection with or anticipation of a Change of Control, then
Executive's Employment Period shall begin as of the date immediately prior to
the date of such termination.
III. DUTIES
3.01. Position and Duties. During the Employment Period, (a)
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be comparable in all
material respects with the most significant of those held, exercised and
assigned at any time during the 90-day period immediately preceding the
commencement of the Employment Period and (b) Executive's services shall be
performed at the location where he was employed immediately preceding the
commencement of the Employment Period or at any office or location not more than
fifty (50) miles from such location.
3.02. Full Efforts. During the Employment Period, Executive agrees to
continue to devote reasonable attention and time to the business and affairs of
the Company, consistent with prior practice, and to use his reasonable best
efforts to perform faithfully and efficiently the responsibilities incidental to
his position.
IV. COMPENSATION AND RELATED MATTERS
4.01. Base Salary. (a) During the Employment Period, the Company shall
pay to Executive a base salary of not less than the highest base salary paid or
payable to Executive by the Company during the twelve-month period immediately
preceding the commencement of the Employment Period, payable in 24 equal
installments on the 1st and 15th day of each month in arrears. This base salary
may be increased from time to time by the Company's Board of Directors. Once
Executive's base salary is increased, it may not thereafter be reduced.
The base salary payments (including any increased base salary payments)
hereunder shall not in any way limit or reduce any other obligation of the
<PAGE>
Company under this Agreement, nor shall any other compensation benefit or
payment hereunder in any way limit or reduce the obligation of the Company to
pay Executive's base salary.
4.02. Bonus. During the Employment Period, the Company shall pay to
Executive a bonus in an amount at least equal to the highest bonus paid to
Executive during the three fiscal years immediately preceding the year in which
the Employment Period commences.
4.03. Incentive Awards. During the Employment Period, Executive shall
be entitled to participate in all incentive, savings and retirement plans,
practices, policies and programs applicable to key employees of the Company.
4.04. Welfare Benefits. During the Employment Period, Executive shall
be entitled to participate in all welfare plans, practices, policies and
programs provided by the Company (including, without limitation, medical plans,
dental plans, disability plans, and group or other insurance plans and
benefits), to the extent that he is and remains eligible to participate
thereunder, and subject to the provisions of such plans as the same may be in
effect from time to time.
4.05. Fringe Benefits. During the Employment Period, Executive shall
be entitled to all fringe benefits provided by the Company to its key employees.
4.06. Expenses. During the Employment Period, Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
him in performing services hereunder, including all travel and living expenses
while away from home and on business or at the request of and in the service of
the Company, provided that such expenses are incurred and accounted for in
accordance with the policies and procedures established by the Company.
4.07. Services Furnished. During the Employment Period, the Company
shall furnish Executive with office space in the Company's current executive
offices in Allentown, Pennsylvania (or in another location proximate to
Allentown, Pennsylvania which is acceptable to Executive), secretarial
assistance, and such other facilities and services as shall be suitable to
Executive's position and adequate for the performance of his duties hereunder.
V. TERMINATION
5.01. Termination by Company. Executive's employment hereunder may be
terminated by the Company without any breach of this Agreement only under the
following circumstances:
(a) Death. Executive's employment hereunder shall terminate
upon his death.
(b) Disability. If, as a result of Executive's incapacity due
to physical or mental illness, Executive shall have been absent from his duties
hereunder on a full-time basis for the entire period of six consecutive months,
and within thirty (30) days after written notice of termination is given (which
may occur before or after the end of such six-month period) shall not have
returned to the performance of his duties hereunder on a full-time basis, the
Company may terminate Executive's employment hereunder.
(c) Cause. The company may terminate Executive's employment
hereunder for "Cause". For purposes of this Agreement, "Cause" means the willful
commission of an act of dishonesty or fraud by the Executive, provided that no
act, or failure to act, on Executive's part shall be considered "willful" unless
<PAGE>
done, or omitted to be done, by him not in good faith and without reasonable
belief that his action or omission was in the best interest of the Company.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause without (i) reasonable notice to Executive setting forth
the reasons for the Company's intention to terminate him for Cause, (ii) an
opportunity for Executive, together with his counsel, to be heard before the
full Board of Directors of the Company with reasonable advance notice of the
time and place of meeting, and (iii) delivery to Executive of a Notice of
Termination (as defined in Section 5.03 hereof) stating that in the good faith
opinion of the Board of Directors, Executive was guilty of conduct constituting
"Cause", and specifying the particulars thereof in detail.
5.02. Termination by Executive. The Executive may terminate his
employment without any breach of this Agreement only for "Good Reason". For
purposes of this Agreement, "Good Reason" shall mean:
(a) the assignment to Executive of any duties inconsistent
with Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by this
Agreement, or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by Executive;
(b) any failure by the Company to comply with Section IV of
this Agreement, other than an isolated, insubstantial and inadvertent failure
not occurring in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by Executive;
(c) the Company's requiring Executive to relocate to any
office or location other than that described in Section 4.07 (excluding travel
reasonably required in the performance of Executive's responsibilities);
(d) any purported termination by the Company of Executive's
employment otherwise than as expressly permitted by this Agreement; or
(e) any failure by the Company to comply with and satisfy
Section 8.04 of this Agreement.
5.03. Termination Procedure.
(a) Notice of Termination. Any termination of Executive's
employment by the Company or by Executive (other than termination due to
Executive's death) shall be communicated by written Notice of Termination to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a written notice which shall (i) indicate the specific termination
provision in this Agreement relied upon, (ii) set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated, and (iii) the Date of
Termination (as defined below).
(b) Date of Termination. "Date of Termination" shall mean:
(i) if Executive's employment is terminated by his death,
the date of his death,
<PAGE>
(ii) if the Executive's employment is terminated pursuant
to Section 5.01(b), thirty (30) days after Notice of Termination is given
(provided that Executive shall not have returned to the performance of his
duties on a full-time basis during such thirty (30) day period),
(iii) if Executive's employment is terminated pursuant to
Section 5.01(c), the date specified in the Notice of Termination, and
(iv) if Executive's employment is terminated for any other
reason, the date on which a Notice of Termination is given, provided that if
within thirty (30) days after any Notice of Termination is given, the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be the date on
which the dispute is finally determined, either by mutual written agreement of
the parties, by a binding and final arbitration award or by a final judgment,
order or decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been perfected).
VI. COMPENSATION UPON TERMINATION
6.01. Death. If Executive's employment is terminated by reason of his
death, this Agreement shall terminate without further obligations to Executive's
legal representatives under this Agreement, other than those obligations accrued
or earned and vested (if applicable) by Executive as of the Date of Termination,
including, for this purpose (i) Executive's full base salary through the Date of
Termination at the rate in effect on the Date of Termination, (ii) if Executive
dies on or after the Company's year-end but before payment of the Company's
year-end bonus (if any), the bonus payment to which Executive is entitled being
hereinafter referred to as "Accrued Obligations". All such Accrued Obligations
shall be paid to Executive's spouse or other designated beneficiary (or if he
leaves to spouse or other designated beneficiary, to his estate) in a lump sum
in cash within thirty (30) days after the Date of Termination.
6.02. Disability. If Executive's employment is terminated by reason of
disability pursuant to Section 5.01(b), this Agreement shall terminate without
further obligations to Executive, other than the obligation to pay to Executive
all Accrued Obligations. All such Accrued Obligations shall be paid to Executive
in a lump sum in cash within thirty (30) days after the Date of Termination.
6.03. Termination for Cause: Termination by Executive in Breach of
Agreement. If Executive's employment is terminated for Cause or if Executive
terminates employment for any reason other than Good Reason, this Agreement
shall terminate without further obligations to Executive other than the
Company's obligation to pay to Executive all Accrued Obligations. All such
Accrued Obligations shall be paid to Executive in a lump sum in cash within
thirty (30) days after the Date of Termination.
6.04. Termination by Executive for Good Reason; Termination by the
Company in Breach of Agreement. If Executive's employment is terminated by the
Company for any reason other than those specified in Section 5.01, or if
Executive shall terminate his employment for Good Reason:
(a) the Company shall pay to Executive in a lump sum in cash
within thirty (30) days after the Date of Termination the aggregate of the
following amounts:
(i) Executive's full base salary through the end of the
Employment Period; and
<PAGE>
(ii) the product of (x) the annual bonus (if any) paid to
Executive for the last full fiscal year and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the Date of
Termination and the denominator of which is 365; and
(iii) all Accrued Obligations.
(b) for the remainder of the Employment Period, or such longer
period as any plan, program, practice or policy may provide, the Company shall
continue benefits to Executive and/or Executive's family at least equal to those
that would have been provided to them if Executive's employment had not been
terminated, including health insurance and life insurance, and for purposes of
eligibility for retiree benefits pursuant to such plans, practices, programs and
policies, Executive shall be considered to have remained employed until the end
of the Employment Period and to have retired on the last day of such period. In
the event that Executive's participation in any such plan, program, practice or
policy is barred, the Company shall arrange to provide Executive with benefits
substantially similar to those which Executive would otherwise have been
entitled to receive under the plans, programs, practices or policies from which
his continued participation is barred.
VII. CONFIDENTIALITY
Executive acknowledges and agrees that in the course of, or
incident to, his employment, the Company may provide to Executive, or Executive
may otherwise become exposed to, confidential information. For purposes of the
Agreement, the term "confidential information" shall mean all information
concerning the business of the Company, including but not limited to, all data
processing programs, systems and methods of processing of the Company, all
software concepts, ideas, developments or products of the Company, all
inventions, experiments and research of the Company, all marketing initiatives
or techniques of the Company, all customer and prospect lists of the Company,
and all information received from third parties and held in confidence by the
Company, but shall not include any information that enters the public domain,
other than information that enters the public domain as a result of a violation
by Executive, or any other person or entity at his direction. In light of the
foregoing, Executive agrees to hold the confidential information in the
strictest confidence and will not disclose (without the prior written consent of
the Company) any portion thereof to any person or entity, other than the Company
or those designated by it.
VIII. MISCELLANEOUS
8.01. Notice. All notices or other communications hereunder shall be in
writing and deemed given if mailed by registered or certified mail, return
receipt requested, or by similarly reliable means, to the parties at the
addresses set forth below or to such other addresses as shall be specified by
notice to the other parties hereunder:
To the Company at:
Penn Treaty American Corporation
3440 Lehigh Street
Allentown, PA 18103
To Executive at:
5722 Schantz Road
Allentown, PA 18104
<PAGE>
8.02. Waiver of or Consent to Breach. The waiver by the Company or
Executive of a breach or violation of any of the provisions of this Agreement
shall not operate or be construed as a waiver of any subsequent breach or
violation thereof.
8.03. Assignability. This Agreement shall not be assignable by
Executive, but otherwise shall be binding upon and inure to the benefit of the
parties hereto and their successors and assigns.
8.04. Successors. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
8.05. Withholding. The Company may withhold from any amounts payable
under this Agreement such federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
8.06. Employment Before Change of Control
(a) Executive and the Company acknowledge that the employment
of Executive by the Company is "at will," and, prior to a Change of Control, may
be terminated by either Executive or the Company at any time. Upon a termination
of Executive's employment or upon Executive's ceasing to be an officer of the
Company, in each case, prior to a Change of Control, there shall be no further
rights under this Agreement.
(b) Nothing in this Agreement shall prevent or limit
Executive's continuing or future participation in any benefit, bonus, incentive
or other plans, programs, policies or practices provided by the Company and for
which Executive may qualify, nor shall anything herein limit or otherwise affect
such rights as Executive may have under any stock option or other agreements
with the Company.
8.07. Entire Agreement. This writing represents the entire agreement
and understanding of the parties with respect to the matters addressed herein,
and it may not be altered or amended except by a written instrument signed by
the Company and Executive. Any and all promises, agreements, representations,
warranties and other statements, written or oral, made among the parties in
respect to such matters prior to, or contemporaneously with, the execution
hereof are hereby canceled and superseded and shall be of no further force and
effect.
8.08. Severability. If any provision of this Agreement shall be or
become illegal or unenforceable in whole or in part for any reason whatsoever,
the remaining provisions shall be deemed severable and independent and shall
nevertheless be deemed valid, binding and enforceable.
8.09. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania.
8.10. Headings. The headings in this Agreement are for convenience
only; they form no part of this Agreement and shall not affect its
interpretation.
<PAGE>
8.11. Gender. As used herein the neuter shall include the masculine
and feminine, as the context may require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PENN TREATY AMERICAN CORPORATION
/s/ Michael F. Grill
--------------------
By: Michael F. Grill
Title: Treasurer
/s/ A. J. Carden
----------------
A. J. Carden
Executive Vice President
EXHIBIT 10.2
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 6th day of June , 1996 by and between PENN
TREATY AMERICAN CORPORATION, a Pennsylvania corporation (the "Company"), and
Jack D. Baum ("Executive").
The Board of Directors of the Company has determined that it is in the
best interests of the Company and its shareholders to assure that the Company
will have the continued dedication of Executive, notwithstanding the
possibility, threat, or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control, to encourage Executive's
full attention and dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide Executive with
compensation arrangements upon a Change of Control which provide Executive with
individual financial security and which are competitive with those of other
corporations and, in order to accomplish these objectives, the Board has caused
the Company to enter into this Agreement.
In consideration of the mutual covenants set forth herein and intending
to be legally bound hereby, the parties hereto agree as follows:
I. CHANGE OF CONTROL
For the purpose of this Agreement, a "Change of Control" shall mean:
(a) The acquisition, other than from the Company, by any
person, entity or "group" within the meaning of Section 13(d) (3) or 14(d) (2)
of the Securities Exchange Act of 1934 (the "Exchange Act"), but excluding, for
this purpose, the Company, its subsidiaries, or any employee benefit plan of the
Company or its subsidiaries which acquires beneficial ownership of voting
securities of the Company of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of either the then
outstanding shares of common stock or the combined voting power of the Company's
then outstanding voting securities entitled to vote generally in the election of
directors; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of the
Company, as such terms are used in Rule 14A-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a member of the Incumbent Board; or
(c) Approval by the shareholders of the Company of (i) a
reorganization, merger or consolidation, in each case, with respect to which
persons who were the shareholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own more
<PAGE>
than 50% of the combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated company's then
outstanding voting securities, or (ii) a liquidation or dissolution of the
Company or the sale of all or substantially all of the assets of the Company
(whether such assets are held directly or indirectly).
II. EMPLOYMENT
2.01. Effective Date. The Company hereby agrees to continue to employ
Executive as Vice President, Marketing of the Company, and Executive hereby
agrees to remain an employee of the Company, for the period beginning upon a
Change of Control (as defined in Section I) and ending on the third anniversary
of such date (the "Employment Period"), subject to the terms and conditions
hereinafter set forth. The Employment Period shall automatically be extended for
one or more additional one-year periods commencing at the conclusion of the
initial three-year period, unless three (3) months prior to the end of the
initial term or any subsequent term, the Company shall have delivered to
Executive, or Executive shall have delivered to the Company, written notice that
the term of Executive's employment hereunder will not be extended.
2.02. Prior Termination. Anything in this Agreement to the contrary,
notwithstanding, if Executive's employment with the Company is terminated prior
to the date on which a Change of Control occurs, and it is reasonably
demonstrated that such termination (i) was at the request of a third party who
has taken steps reasonably calculated to effect a Change of control or (ii)
otherwise arose in connection with or anticipation of a Change of Control, then
Executive's Employment Period shall begin as of the date immediately prior to
the date of such termination.
III. DUTIES
3.01. Position and Duties. During the Employment Period, (a)
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be comparable in all
material respects with the most significant of those held, exercised and
assigned at any time during the 90-day period immediately preceding the
commencement of the Employment Period and (b) Executive's services shall be
performed at the location where he was employed immediately preceding the
commencement of the Employment Period or at any office or location not more than
fifty (50) miles from such location.
3.02. Full Efforts. During the Employment Period, Executive agrees to
continue to devote reasonable attention and time to the business and affairs of
the Company, consistent with prior practice, and to use his reasonable best
efforts to perform faithfully and efficiently the responsibilities incidental to
his position.
IV. COMPENSATION AND RELATED MATTERS
4.01. Base Salary. (a) During the Employment Period, the Company shall
pay to Executive a base salary of not less than the highest base salary paid or
payable to Executive by the Company during the twelve-month period immediately
preceding the commencement of the Employment Period, payable in 24 equal
installments on the 1st and 15th day of each month in arrears. This base salary
may be increased from time to time by the Company's Board of Directors. Once
Executive's base salary is increased, it may not thereafter be reduced.
The base salary payments (including any increased base salary payments)
hereunder shall not in any way limit or reduce any other obligation of the
<PAGE>
Company under this Agreement, nor shall any other compensation benefit or
payment hereunder in any way limit or reduce the obligation of the Company to
pay Executive's base salary.
4.02. Bonus. During the Employment Period, the Company shall pay to
Executive a bonus in an amount at least equal to the highest bonus paid to
Executive during the three fiscal years immediately preceding the year in which
the Employment Period commences.
4.03. Incentive Awards. During the Employment Period, Executive shall
be entitled to participate in all incentive, savings and retirement plans,
practices, policies and programs applicable to key employees of the Company
(including, without limitation, [name of plans).
4.04. Welfare Benefits. During the Employment Period, Executive shall
be entitled to participate in all welfare plans, practices, policies and
programs provided by the Company (including, without limitation, medical plans,
dental plans, disability plans, and group or other insurance plans and
benefits), to the extent that he is and remains eligible to participate
thereunder, and subject to the provisions of such plans as the same may be in
effect from time to time.
4.05. Fringe Benefits. During the Employment Period, Executive shall
be entitled to all fringe benefits provided by the Company to its key employees.
4.06. Expenses. During the Employment Period, Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
him in performing services hereunder, including all travel and living expenses
while away from home and on business or at the request of and in the service of
the Company, provided that such expenses are incurred and accounted for in
accordance with the policies and procedures established by the Company.
4.07. Services Furnished. During the Employment Period, the Company
shall furnish Executive with office space in the Company's current executive
offices in Allentown, Pennsylvania (or in another location proximate to
Allentown, Pennsylvania which is acceptable to Executive), secretarial
assistance, and such other facilities and services as shall be suitable to
Executive's position and adequate for the performance of his duties hereunder.
V. TERMINATION
5.01. Termination by Company. Executive's employment hereunder may be
terminated by the Company without any breach of this Agreement only under the
following circumstances:
(a) Death. Executive's employment hereunder shall terminate
upon his death.
(b) Disability. If, as a result of Executive's incapacity due
to physical or mental illness, Executive shall have been absent from his duties
hereunder on a full-time basis for the entire period of six consecutive months,
and within thirty (30) days after written notice of termination is given (which
may occur before or after the end of such six-month period) shall not have
returned to the performance of his duties hereunder on a full-time basis, the
Company may terminate Executive's employment hereunder.
(c) Cause. The company may terminate Executive's employment
hereunder for "Cause". For purposes of this Agreement, "Cause" means the willful
commission of an act of dishonesty or fraud by the Executive, provided that no
<PAGE>
act, or failure to act, on Executive's part shall be considered "willful" unless
done, or omitted to be done, by him not in good faith and without reasonable
belief that his action or omission was in the best interest of the Company.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause without (i) reasonable notice to Executive setting forth
the reasons for the Company's intention to terminate him for Cause, (ii) an
opportunity for Executive, together with his counsel, to be heard before the
full Board of Directors of the Company with reasonable advance notice of the
time and place of meeting, and (iii) delivery to Executive of a Notice of
Termination (as defined in Section 5.03 hereof) stating that in the good faith
opinion of the Board of Directors, Executive was guilty of conduct constituting
"Cause", and specifying the particulars thereof in detail.
5.02. Termination by Executive. The Executive may terminate his
employment without any breach of this Agreement only for "Good Reason". For
purposes of this Agreement, "Good Reason" shall mean:
(a) the assignment to Executive of any duties inconsistent
with Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by this
Agreement, or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by Executive;
(b) any failure by the Company to comply with Section IV of
this Agreement, other than an isolated, insubstantial and inadvertent failure
not occurring in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by Executive;
(c) the Company's requiring Executive to relocate to any
office or location other than that described in Section 4.07 (excluding travel
reasonably required in the performance of Executive's responsibilities);
(d) any purported termination by the Company of Executive's
employment otherwise than as expressly permitted by this Agreement; or
(e) any failure by the Company to comply with and satisfy
Section 8.04 of this Agreement.
5.03. Termination Procedure.
(a) Notice of Termination. Any termination of Executive's
employment by the Company or by Executive (other than termination due to
Executive's death) shall be communicated by written Notice of Termination to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a written notice which shall (i) indicate the specific termination
provision in this Agreement relied upon, (ii) set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated, and (iii) the Date of
Termination (as defined below).
(b) Date of Termination. "Date of Termination" shall mean:
(i) if Executive's employment is terminated by his death,
the date of his death,
<PAGE>
(ii) if the Executive's employment is terminated pursuant
to Section 5.01(b), thirty (30) days after Notice of Termination is given
(provided that Executive shall not have returned to the performance of his
duties on a full-time basis during such thirty (30) day period),
(iii) if Executive's employment is terminated pursuant to
Section 5.01(c), the date specified in the Notice of Termination, and
(iv) if Executive's employment is terminated for any other
reason, the date on which a Notice of Termination is given, provided that if
within thirty (30) days after any Notice of Termination is given, the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be the date on
which the dispute is finally determined, either by mutual written agreement of
the parties, by a binding and final arbitration award or by a final judgment,
order or decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been perfected).
VI. COMPENSATION UPON TERMINATION
6.01. Death. If Executive's employment is terminated by reason of his
death, this Agreement shall terminate without further obligations to Executive's
legal representatives under this Agreement, other than those obligations accrued
or earned and vested (if applicable) by Executive as of the Date of Termination,
including, for this purpose (i) Executive's full base salary through the Date of
Termination at the rate in effect on the Date of Termination, (ii) if Executive
dies on or after the Company's year-end but before payment of the Company's
year-end bonus (if any), the bonus payment to which Executive is entitled being
hereinafter referred to as "Accrued Obligations". All such Accrued Obligations
shall be paid to Executive's spouse or other designated beneficiary (or if he
leaves to spouse or other designated beneficiary, to his estate) in a lump sum
in cash within thirty (30) days after the Date of Termination.
6.02. Disability. If Executive's employment is terminated by reason of
disability pursuant to Section 5.01(b), this Agreement shall terminate without
further obligations to Executive, other than the obligation to pay to Executive
all Accrued Obligations. All such Accrued Obligations shall be paid to Executive
in a lump sum in cash within thirty (30) days after the Date of Termination.
6.03. Termination for Cause: Termination by Executive in Breach of
Agreement. If Executive's employment is terminated for Cause or if Executive
terminates employment for any reason other than Good Reason, this Agreement
shall terminate without further obligations to Executive other than the
Company's obligation to pay to Executive all Accrued Obligations. All such
Accrued Obligations shall be paid to Executive in a lump sum in cash within
thirty (30) days after the Date of Termination.
6.04. Termination by Executive for Good Reason; Termination by the
Company in Breach of Agreement. If Executive's employment is terminated by the
Company for any reason other than those specified in Section 5.01, or if
Executive shall terminate his employment for Good Reason:
(a) the Company shall pay to Executive in a lump sum in cash
within thirty (30) days after the Date of Termination the aggregate of the
following amounts:
(i) Executive's full base salary through the end of the
Employment Period; and
<PAGE>
(ii) the product of (x) the annual bonus (if any) paid to
Executive for the last full fiscal year and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the Date of
Termination and the denominator of which is 365; and
(iii) all Accrued Obligations.
(b) for the remainder of the Employment Period, or such longer
period as any plan, program, practice or policy may provide, the Company shall
continue benefits to Executive and/or Executive's family at least equal to those
that would have been provided to them if Executive's employment had not been
terminated, including health insurance and life insurance, and for purposes of
eligibility for retiree benefits pursuant to such plans, practices, programs and
policies, Executive shall be considered to have remained employed until the end
of the Employment Period and to have retired on the last day of such period. In
the event that Executive's participation in any such plan, program, practice or
policy is barred, the Company shall arrange to provide Executive with benefits
substantially similar to those which Executive would otherwise have been
entitled to receive under the plans, programs, practices or policies from which
his continued participation is barred.
VII. CONFIDENTIALITY
Executive acknowledges and agrees that in the course of, or
incident to, his employment, the Company may provide to Executive, or Executive
may otherwise become exposed to, confidential information. For purposes of the
Agreement, the term "confidential information" shall mean all information
concerning the business of the Company, including but not limited to, all data
processing programs, systems and methods of processing of the Company, all
software concepts, ideas, developments or products of the Company, all
inventions, experiments and research of the Company, all marketing initiatives
or techniques of the Company, all customer and prospect lists of the Company,
and all information received from third parties and held in confidence by the
Company, but shall not include any information that enters the public domain,
other than information that enters the public domain as a result of a violation
by Executive, or any other person or entity at his direction. In light of the
foregoing, Executive agrees to hold the confidential information in the
strictest confidence and will not disclose (without the prior written consent of
the Company) any portion thereof to any person or entity, other than the Company
or those designated by it.
VIII. MISCELLANEOUS
8.01. Notice. All notices or other communications hereunder shall be in
writing and deemed given if mailed by registered or certified mail, return
receipt requested, or by similarly reliable means, to the parties at the
addresses set forth below or to such other addresses as shall be specified by
notice to the other parties hereunder:
To the Company at:
Penn Treaty American Corporation
3440 Lehigh Street
Allentown, PA 18103
To Executive at:
2918 Aronimink Place
Macungie, PA 18062
<PAGE>
8.02. Waiver of or Consent to Breach. The waiver by the Company or
Executive of a breach or violation of any of the provisions of this Agreement
shall not operate or be construed as a waiver of any subsequent breach or
violation thereof.
8.03. Assignability. This Agreement shall not be assignable by
Executive, but otherwise shall be binding upon and inure to the benefit of the
parties hereto and their successors and assigns.
8.04. Successors. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
8.05. Withholding. The Company may withhold from any amounts payable
under this Agreement such federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
8.06. Employment Before Change of Control
(a) Executive and the Company acknowledge that the employment
of Executive by the Company is "at will," and, prior to a Change of Control, may
be terminated by either Executive or the Company at any time. Upon a termination
of Executive's employment or upon Executive's ceasing to be an officer of the
Company, in each case, prior to a Change of Control, there shall be no further
rights under this Agreement.
(b) Nothing in this Agreement shall prevent or limit
Executive's continuing or future participation in any benefit, bonus, incentive
or other plans, programs, policies or practices provided by the Company and for
which Executive may qualify, nor shall anything herein limit or otherwise affect
such rights as Executive may have under any stock option or other agreements
with the Company.
8.07. Entire Agreement. This writing represents the entire agreement
and understanding of the parties with respect to the matters addressed herein,
and it may not be altered or amended except by a written instrument signed by
the Company and Executive. Any and all promises, agreements, representations,
warranties and other statements, written or oral, made among the parties in
respect to such matters prior to, or contemporaneously with, the execution
hereof are hereby canceled and superseded and shall be of no further force and
effect.
8.08. . Severability. If any provision of this Agreement shall be or
become illegal or unenforceable in whole or in part for any reason whatsoever,
the remaining provisions shall be deemed severable and independent and shall
nevertheless be deemed valid, binding and enforceable.
8.09. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
8.10. Headings. The headings in this Agreement are for convenience
only; they form no part of this Agreement and shall not affect its
interpretation.
<PAGE>
8.11. Gender. As used herein the neuter shall include the masculine
and feminine, as the context may require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PENN TREATY AMERICAN CORPORATION
/s/ A. J. Carden
----------------
By: A. J. Carden
Title: Executive Vice President
/s/ Jack D. Baum
----------------
Jack D. Baum
EXHIBIT 10.3
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 6th day of June , 1996 by and between PENN
TREATY AMERICAN CORPORATION, a Pennsylvania corporation (the "Company"), and
Michael F. Grill ("Executive").
The Board of Directors of the Company has determined that it is in the
best interests of the Company and its shareholders to assure that the Company
will have the continued dedication of Executive, notwithstanding the
possibility, threat, or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control, to encourage Executive's
full attention and dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide Executive with
compensation arrangements upon a Change of Control which provide Executive with
individual financial security and which are competitive with those of other
corporations and, in order to accomplish these objectives, the Board has caused
the Company to enter into this Agreement.
In consideration of the mutual covenants set forth herein and intending
to be legally bound hereby, the parties hereto agree as follows:
I. CHANGE OF CONTROL
For the purpose of this Agreement, a "Change of Control" shall mean:
(a) The acquisition, other than from the Company, by any
person, entity or "group" within the meaning of Section 13(d) (3) or 14(d) (2)
of the Securities Exchange Act of 1934 (the "Exchange Act"), but excluding, for
this purpose, the Company, its subsidiaries, or any employee benefit plan of the
Company or its subsidiaries which acquires beneficial ownership of voting
securities of the Company of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of either the then
outstanding shares of common stock or the combined voting power of the Company's
then outstanding voting securities entitled to vote generally in the election of
directors; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of the
Company, as such terms are used in Rule 14A-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a member of the Incumbent Board; or
(c) Approval by the shareholders of the Company of (i) a
reorganization, merger or consolidation, in each case, with respect to which
<PAGE>
persons who were the shareholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own more
than 50% of the combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated company's then
outstanding voting securities, or (ii) a liquidation or dissolution of the
Company or the sale of all or substantially all of the assets of the Company
(whether such assets are held directly or indirectly).
II. EMPLOYMENT
2.01. Effective Date. The Company hereby agrees to continue to employ
Executive as Treasurer of the Company, and Executive hereby agrees to remain an
employee of the Company, for the period beginning upon a Change of Control (as
defined in Section I) and ending on the third anniversary of such date (the
"Employment Period"), subject to the terms and conditions hereinafter set forth.
The Employment Period shall automatically be extended for one or more additional
one-year periods commencing at the conclusion of the initial three-year period,
unless three (3) months prior to the end of the initial term or any subsequent
term, the Company shall have delivered to Executive, or Executive shall have
delivered to the Company, written notice that the term of Executive's employment
hereunder will not be extended.
2.02. Prior Termination. Anything in this Agreement to the contrary,
notwithstanding, if Executive's employment with the Company is terminated prior
to the date on which a Change of Control occurs, and it is reasonably
demonstrated that such termination (i) was at the request of a third party who
has taken steps reasonably calculated to effect a Change of control or (ii)
otherwise arose in connection with or anticipation of a Change of Control, then
Executive's Employment Period shall begin as of the date immediately prior to
the date of such termination.
III. DUTIES
3.01. Position and Duties. During the Employment Period, (a)
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be comparable in all
material respects with the most significant of those held, exercised and
assigned at any time during the 90-day period immediately preceding the
commencement of the Employment Period and (b) Executive's services shall be
performed at the location where he was employed immediately preceding the
commencement of the Employment Period or at any office or location not more than
fifty (50) miles from such location.
3.02. Full Efforts. During the Employment Period, Executive agrees to
continue to devote reasonable attention and time to the business and affairs of
the Company, consistent with prior practice, and to use his reasonable best
efforts to perform faithfully and efficiently the responsibilities incidental to
his position.
IV. COMPENSATION AND RELATED MATTERS
4.01. Base Salary. (a) During the Employment Period, the Company shall
pay to Executive a base salary of not less than the highest base salary paid or
payable to Executive by the Company during the twelve-month period immediately
preceding the commencement of the Employment Period, payable in 24 equal
installments on the 1st and 15th day of each month in arrears. This base salary
may be increased from time to time by the Company's Board of Directors. Once
Executive's base salary is increased, it may not thereafter be reduced.
<PAGE>
The base salary payments (including any increased base salary payments)
hereunder shall not in any way limit or reduce any other obligation of the
Company under this Agreement, nor shall any other compensation benefit or
payment hereunder in any way limit or reduce the obligation of the Company to
pay Executive's base salary.
4.02. Bonus. During the Employment Period, the Company shall pay to
Executive a bonus in an amount at least equal to the highest bonus paid to
Executive during the three fiscal years immediately preceding the year in which
the Employment Period commences.
4.03. Incentive Awards. During the Employment Period, Executive shall
be entitled to participate in all incentive, savings and retirement plans,
practices, policies and programs applicable to key employees of the Company.
4.04. Welfare Benefits. During the Employment Period, Executive shall
be entitled to participate in all welfare plans, practices, policies and
programs provided by the Company (including, without limitation, medical plans,
dental plans, disability plans, and group or other insurance plans and
benefits), to the extent that he is and remains eligible to participate
thereunder, and subject to the provisions of such plans as the same may be in
effect from time to time.
4.05 Fringe Benefits. During the Employment Period, Executive shall
be entitled to all fringe benefits provided by the Company to its key employees.
4.06. Expenses. During the Employment Period, Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
him in performing services hereunder, including all travel and living expenses
while away from home and on business or at the request of and in the service of
the Company, provided that such expenses are incurred and accounted for in
accordance with the policies and procedures established by the Company.
4.07. Services Furnished. During the Employment Period, the Company
shall furnish Executive with office space in the Company's current executive
offices in Allentown, Pennsylvania (or in another location proximate to
Allentown, Pennsylvania which is acceptable to Executive), secretarial
assistance, and such other facilities and services as shall be suitable to
Executive's position and adequate for the performance of his duties hereunder.
V. TERMINATION
5.01. Termination by Company. Executive's employment hereunder may be
terminated by the Company without any breach of this Agreement only under the
following circumstances:
(a) Death. Executive's employment hereunder shall terminate
upon his death.
(b) Disability. If, as a result of Executive's incapacity due
to physical or mental illness, Executive shall have been absent from his duties
hereunder on a full-time basis for the entire period of six consecutive months,
and within thirty (30) days after written notice of termination is given (which
may occur before or after the end of such six-month period) shall not have
returned to the performance of his duties hereunder on a full-time basis, the
Company may terminate Executive's employment hereunder.
(c) Cause. The company may terminate Executive's employment
hereunder for "Cause". For purposes of this Agreement, "Cause" means the willful
<PAGE>
commission of an act of dishonesty or fraud by the Executive, provided that no
act, or failure to act, on Executive's part shall be considered "willful" unless
done, or omitted to be done, by him not in good faith and without reasonable
belief that his action or omission was in the best interest of the Company.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause without (i) reasonable notice to Executive setting forth
the reasons for the Company's intention to terminate him for Cause, (ii) an
opportunity for Executive, together with his counsel, to be heard before the
full Board of Directors of the Company with reasonable advance notice of the
time and place of meeting, and (iii) delivery to Executive of a Notice of
Termination (as defined in Section 5.03 hereof) stating that in the good faith
opinion of the Board of Directors, Executive was guilty of conduct constituting
"Cause", and specifying the particulars thereof in detail.
5.02. Termination by Executive. The Executive may terminate his
employment without any breach of this Agreement only for "Good Reason". For
purposes of this Agreement, "Good Reason" shall mean:
(a) the assignment to Executive of any duties inconsistent
with Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by this
Agreement, or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by Executive;
(b) any failure by the Company to comply with Section IV of
this Agreement, other than an isolated, insubstantial and inadvertent failure
not occurring in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by Executive;
(c) the Company's requiring Executive to relocate to any
office or location other than that described in Section 4.07 (excluding travel
reasonably required in the performance of Executive's responsibilities);
(d) any purported termination by the Company of Executive's
employment otherwise than as expressly permitted by this Agreement; or
(e) any failure by the Company to comply with and satisfy
Section 8.04 of this Agreement.
5.03. Termination Procedure.
(a) Notice of Termination. Any termination of Executive's
employment by the Company or by Executive (other than termination due to
Executive's death) shall be communicated by written Notice of Termination to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a written notice which shall (i) indicate the specific termination
provision in this Agreement relied upon, (ii) set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated, and (iii) the Date of
Termination (as defined below).
(b) Date of Termination. "Date of Termination" shall mean:
(i) if Executive's employment is terminated by his death,
the date of his death,
<PAGE>
(ii) if the Executive's employment is terminated pursuant
to Section 5.01(b), thirty (30) days after Notice of Termination is given
(provided that Executive shall not have returned to the performance of his
duties on a full-time basis during such thirty (30) day period),
(iii) if Executive's employment is terminated pursuant to
Section 5.01(c), the date specified in the Notice of Termination, and
(iv) if Executive's employment is terminated for any other
reason, the date on which a Notice of Termination is given, provided that if
within thirty (30) days after any Notice of Termination is given, the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be the date on
which the dispute is finally determined, either by mutual written agreement of
the parties, by a binding and final arbitration award or by a final judgment,
order or decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been perfected).
VI. COMPENSATION UPON TERMINATION
6.01. Death. If Executive's employment is terminated by reason of his
death, this Agreement shall terminate without further obligations to Executive's
legal representatives under this Agreement, other than those obligations accrued
or earned and vested (if applicable) by Executive as of the Date of Termination,
including, for this purpose (i) Executive's full base salary through the Date of
Termination at the rate in effect on the Date of Termination, (ii) if Executive
dies on or after the Company's year-end but before payment of the Company's
year-end bonus (if any), the bonus payment to which Executive is entitled being
hereinafter referred to as "Accrued Obligations". All such Accrued Obligations
shall be paid to Executive's spouse or other designated beneficiary (or if he
leaves so spouse or other designated beneficiary, to his estate) in a lump sum
in cash within thirty (30) days after the Date of Termination.
6.02. Disability. If Executive's employment is terminated by reason of
disability pursuant to Section 5.01(b), this Agreement shall terminate without
further obligations to Executive, other than the obligation to pay to Executive
all Accrued Obligations. All such Accrued Obligations shall be paid to Executive
in a lump sum in cash within thirty (30) days after the Date of Termination.
6.03. Termination for Cause: Termination by Executive in Breach of
Agreement. If Executive's employment is terminated for Cause or if Executive
terminates employment for any reason other than Good Reason, this Agreement
shall terminate without further obligations to Executive other than the
Company's obligation to pay to Executive all Accrued Obligations. All such
Accrued Obligations shall be paid to Executive in a lump sum in cash within
thirty (30) days after the Date of Termination.
6.04. Termination by Executive for Good Reason; Termination by the
Company in Breach of Agreement. If Executive's employment is terminated by the
Company for any reason other than those specified in Section 5.01, or if
Executive shall terminate his employment for Good Reason:
(a) the Company shall pay to Executive in a lump sum in cash
within thirty (30) days after the Date of Termination the aggregate of the
following amounts:
(i) Executive's full base salary through the end of the
Employment Period; and
<PAGE>
(ii) the product of (x) the annual bonus (if any) paid to
Executive for the last full fiscal year and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the Date of
Termination and the denominator of which is 365; and
(iii) all Accrued Obligations.
(b) for the remainder of the Employment Period, or such longer
period as any plan, program, practice or policy may provide, the Company shall
continue benefits to Executive and/or Executive's family at least equal to those
that would have been provided to them if Executive's employment had not been
terminated, including health insurance and life insurance, and for purposes of
eligibility for retiree benefits pursuant to such plans, practices, programs and
policies, Executive shall be considered to have remained employed until the end
of the Employment Period and to have retired on the last day of such period. In
the event that Executive's participation in any such plan, program, practice or
policy is barred, the Company shall arrange to provide Executive with benefits
substantially similar to those which Executive would otherwise have been
entitled to receive under the plans, programs, practices or policies from which
his continued participation is barred.
VII. CONFIDENTIALITY
Executive acknowledges and agrees that in the course of, or
incident to, his employment, the Company may provide to Executive, or Executive
may otherwise become exposed to, confidential information. For purposes of the
Agreement, the term "confidential information" shall mean all information
concerning the business of the Company, including but not limited to, all data
processing programs, systems and methods of processing of the Company, all
software concepts, ideas, developments or products of the Company, all
inventions, experiments and research of the Company, all marketing initiatives
or techniques of the Company, all customer and prospect lists of the Company,
and all information received from third parties and held in confidence by the
Company, but shall not include any information that enters the public domain,
other than information that enters the public domain as a result of a violation
by Executive, or any other person or entity at his direction. In light of the
foregoing, Executive agrees to hold the confidential information in the
strictest confidence and will not disclose (without the prior written consent of
the Company) any portion thereof to any person or entity, other than the Company
or those designated by it.
VIII. MISCELLANEOUS
8.01. Notice. All notices or other communications hereunder shall be in
writing and deemed given if mailed by registered or certified mail, return
receipt requested, or by similarly reliable means, to the parties at the
addresses set forth below or to such other addresses as shall be specified by
notice to the other parties hereunder:
To the Company at:
Penn Treaty American Corporation
3440 Lehigh Street
Allentown, PA 18103
To Executive at:
40 Iroquois Drive
Royersford, PA 19468
<PAGE>
8.02. Waiver of or Consent to Breach. The waiver by the Company or
Executive of a breach or violation of any of the provisions of this Agreement
shall not operate or be construed as a waiver of any subsequent breach or
violation thereof.
8.03. Assignability. This Agreement shall not be assignable by
Executive, but otherwise shall be binding upon and inure to the benefit of the
parties hereto and their successors and assigns.
8.04. Successors. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
8.05 Withholding. The Company may withhold from any amounts payable
under this Agreement such federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
8.06. Employment Before Change of Control
(a) Executive and the Company acknowledge that the employment
of Executive by the Company is "at will," and, prior to a Change of Control, may
be terminated by either Executive or the Company at any time. Upon a termination
of Executive's employment or upon Executive's ceasing to be an officer of the
Company, in each case, prior to a Change of Control, there shall be no further
rights under this Agreement.
(b) Nothing in this Agreement shall prevent or limit
Executive's continuing or future participation in any benefit, bonus, incentive
or other plans, programs, policies or practices provided by the Company and for
which Executive may qualify, nor shall anything herein limit or otherwise affect
such rights as Executive may have under any stock option or other agreements
with the Company.
8.07. Entire Agreement. This writing represents the entire agreement
and understanding of the parties with respect to the matters addressed herein,
and it may not be altered or amended except by a written instrument signed by
the Company and Executive. Any and all promises, agreements, representations,
warranties and other statements, written or oral, made among the parties in
respect to such matters prior to, or contemporaneously with, the execution
hereof are hereby canceled and superseded and shall be of no further force and
effect.
8.08. Severability. If any provision of this Agreement shall be or
become illegal or unenforceable in whole or in part for any reason whatsoever,
the remaining provisions shall be deemed severable and independent and shall
nevertheless be deemed valid, binding and enforceable.
8.09. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
8.10. Headings. The headings in this Agreement are for convenience
only; they form no part of this Agreement and shall not affect its
interpretation.
<PAGE>
8.11. Gender. As used herein the neuter shall include the masculine
and feminine, as the context may require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PENN TREATY AMERICAN CORPORATION
/s/ A. J. Carden
----------------
By: A. J. Carden
Title: Executive Vice President
/s/ Michael F. Grill
--------------------
Michael F. Grill
EXHIBIT 10.4
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 6th day of June , 1996 by and between PENN
TREATY AMERICAN CORPORATION, a Pennsylvania corporation (the "Company"), and
Glen A. Levit ("Executive").
The Board of Directors of the Company has determined that it is in the
best interests of the Company and its shareholders to assure that the Company
will have the continued dedication of Executive, notwithstanding the
possibility, threat, or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control, to encourage Executive's
full attention and dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide Executive with
compensation arrangements upon a Change of Control which provide Executive with
individual financial security and which are competitive with those of other
corporations and, in order to accomplish these objectives, the Board has caused
the Company to enter into this Agreement.
In consideration of the mutual covenants set forth herein and intending
to be legally bound hereby, the parties hereto agree as follows:
I. CHANGE OF CONTROL
For the purpose of this Agreement, a "Change of Control" shall mean:
(a) The acquisition, other than from the Company, by any
person, entity or "group" within the meaning of Section 13(d) (3) or 14(d) (2)
of the Securities Exchange Act of 1934 (the "Exchange Act"), but excluding, for
this purpose, the Company, its subsidiaries, or any employee benefit plan of the
Company or its subsidiaries which acquires beneficial ownership of voting
securities of the Company of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of either the then
outstanding shares of common stock or the combined voting power of the Company's
then outstanding voting securities entitled to vote generally in the election of
directors; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of the
Company, as such terms are used in Rule 14A-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a member of the Incumbent Board; or
(c) Approval by the shareholders of the Company of (i) a
reorganization, merger or consolidation, in each case, with respect to which
persons who were the shareholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own more
<PAGE>
than 50% of the combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated company's then
outstanding voting securities, or (ii) a liquidation or dissolution of the
Company or the sale of all or substantially all of the assets of the Company
(whether such assets are held directly or indirectly).
II. EMPLOYMENT
2.01. Effective Date. The Company hereby agrees to continue to employ
Executive as Vice President, Sales of the Company, and Executive hereby agrees
to remain an employee of the Company, for the period beginning upon a Change of
Control (as defined in Section I) and ending on the third anniversary of such
date (the "Employment Period"), subject to the terms and conditions hereinafter
set forth. The Employment Period shall automatically be extended for one or more
additional one-year periods commencing at the conclusion of the initial
three-year period, unless three (3) months prior to the end of the initial term
or any subsequent term, the Company shall have delivered to Executive, or
Executive shall have delivered to the Company, written notice that the term of
Executive's employment hereunder will not be extended.
2.02. Prior Termination. Anything in this Agreement to the contrary,
notwithstanding, if Executive's employment with the Company is terminated prior
to the date on which a Change of Control occurs, and it is reasonably
demonstrated that such termination (i) was at the request of a third party who
has taken steps reasonably calculated to effect a Change of control or (ii)
otherwise arose in connection with or anticipation of a Change of Control, then
Executive's Employment Period shall begin as of the date immediately prior to
the date of such termination.
III. DUTIES
3.01. Position and Duties. During the Employment Period, (a)
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be comparable in all
material respects with the most significant of those held, exercised and
assigned at any time during the 90-day period immediately preceding the
commencement of the Employment Period and (b) Executive's services shall be
performed at the location where he was employed immediately preceding the
commencement of the Employment Period or at any office or location not more than
fifty (50) miles from such location.
3.02. Full Efforts. During the Employment Period, Executive agrees to
continue to devote reasonable attention and time to the business and affairs of
the Company, consistent with prior practice, and to use his reasonable best
efforts to perform faithfully and efficiently the responsibilities incidental to
his position.
IV. COMPENSATION AND RELATED MATTERS
4.01. Base Salary. (a) During the Employment Period, the Company shall
pay to Executive a base salary of not less than the highest base salary paid or
payable to Executive by the Company during the twelve-month period immediately
preceding the commencement of the Employment Period, payable in 24 equal
installments on the 1st and 15th day of each month in arrears. This base salary
may be increased from time to time by the Company's Board of Directors. Once
Executive's base salary is increased, it may not thereafter be reduced.
The base salary payments (including any increased base salary payments)
hereunder shall not in any way limit or reduce any other obligation of the
<PAGE>
Company under this Agreement, nor shall any other compensation benefit or
payment hereunder in any way limit or reduce the obligation of the Company to
pay Executive's base salary.
4.02. Bonus. During the Employment Period, the Company shall pay to
Executive a bonus in an amount at least equal to the highest bonus paid to
Executive during the three fiscal years immediately preceding the year in which
the Employment Period commences.
4.03. Incentive Awards. During the Employment Period, Executive shall
be entitled to participate in all incentive, savings and retirement plans,
practices, policies and programs applicable to key employees of the Company.
4.04. Welfare Benefits. During the Employment Period, Executive shall
be entitled to participate in all welfare plans, practices, policies and
programs provided by the Company (including, without limitation, medical plans,
dental plans, disability plans, and group or other insurance plans and
benefits), to the extent that he is and remains eligible to participate
thereunder, and subject to the provisions of such plans as the same may be in
effect from time to time.
4.05. Fringe Benefits. During the Employment Period, Executive shall
be entitled to all fringe benefits provided by the Company to its key employees.
4.06. Expenses. During the Employment Period, Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
him in performing services hereunder, including all travel and living expenses
while away from home and on business or at the request of and in the service of
the Company, provided that such expenses are incurred and accounted for in
accordance with the policies and procedures established by the Company.
4.07. Services Furnished. During the Employment Period, the Company
shall furnish Executive with office space in the Company's current executive
offices in Allentown, Pennsylvania (or in another location proximate to
Allentown, Pennsylvania which is acceptable to Executive), secretarial
assistance, and such other facilities and services as shall be suitable to
Executive's position and adequate for the performance of his duties hereunder.
V. TERMINATION
5.01. Termination by Company. Executive's employment hereunder may be
terminated by the Company without any breach of this Agreement only under the
following circumstances:
<PAGE>
(a) Death. Executive's employment hereunder shall terminate
upon his death.
(b) Disability. If, as a result of Executive's incapacity due
to physical or mental illness, Executive shall have been absent from his duties
hereunder on a full-time basis for the entire period of six consecutive months,
and within thirty (30) days after written notice of termination is given (which
may occur before or after the end of such six-month period) shall not have
returned to the performance of his duties hereunder on a full-time basis, the
Company may terminate Executive's employment hereunder.
(c) Cause. The company may terminate Executive's employment
hereunder for "Cause". For purposes of this Agreement, "Cause" means the willful
commission of an act of dishonesty or fraud by the Executive, provided that no
act, or failure to act, on Executive's part shall be considered "willful" unless
done, or omitted to be done, by him not in good faith and without reasonable
belief that his action or omission was in the best interest of the Company.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause without (i) reasonable notice to Executive setting forth
the reasons for the Company's intention to terminate him for Cause, (ii) an
opportunity for Executive, together with his counsel, to be heard before the
full Board of Directors of the Company with reasonable advance notice of the
time and place of meeting, and (iii) delivery to Executive of a Notice of
Termination (as defined in Section 5.03 hereof) stating that in the good faith
opinion of the Board of Directors, Executive was guilty of conduct constituting
"Cause", and specifying the particulars thereof in detail.
5.02. Termination by Executive. The Executive may terminate his
employment without any breach of this Agreement only for "Good Reason". For
purposes of this Agreement, "Good Reason" shall mean:
(a) the assignment to Executive of any duties inconsistent
with Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by this
Agreement, or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by Executive;
(b) any failure by the Company to comply with Section IV of
this Agreement, other than an isolated, insubstantial and inadvertent failure
not occurring in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by Executive;
(c) the Company's requiring Executive to relocate to any
office or location other than that described in Section 4.07 (excluding travel
reasonably required in the performance of Executive's responsibilities);
(d) any purported termination by the Company of Executive's
employment otherwise than as expressly permitted by this Agreement; or
(e) any failure by the Company to comply with and satisfy
Section 8.04 of this Agreement.
5.03. Termination Procedure.
(a) Notice of Termination. Any termination of Executive's
<PAGE>
employment by the Company or by Executive (other than termination due to
Executive's death) shall be communicated by written Notice of Termination to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a written notice which shall (i) indicate the specific termination
provision in this Agreement relied upon, (ii) set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated, and (iii) the Date of
Termination (as defined below).
(b) Date of Termination. "Date of Termination" shall mean:
(i) if Executive's employment is terminated by his death,
the date of his death,
(ii) if the Executive's employment is terminated pursuant
to Section 5.01(b), thirty (30) days after Notice of Termination is given
(provided that Executive shall not have returned to the performance of his
duties on a full-time basis during such thirty (30) day period),
(iii) if Executive's employment is terminated pursuant to
Section 5.01(c), the date specified in the Notice of Termination, and
(iv) if Executive's employment is terminated for any other
reason, the date on which a Notice of Termination is given, provided that if
within thirty (30) days after any Notice of Termination is given, the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be the date on
which the dispute is finally determined, either by mutual written agreement of
the parties, by a binding and final arbitration award or by a final judgment,
order or decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been perfected).
VI. COMPENSATION UPON TERMINATION
6.01. Death. If Executive's employment is terminated by reason of his
death, this Agreement shall terminate without further obligations to Executive's
legal representatives under this Agreement, other than those obligations accrued
or earned and vested (if applicable) by Executive as of the Date of Termination,
including, for this purpose (i) Executive's full base salary through the Date of
Termination at the rate in effect on the Date of Termination, (ii) if Executive
dies on or after the Company's year-end but before payment of the Company's
year-end bonus (if any), the bonus payment to which Executive is entitled being
hereinafter referred to as "Accrued Obligations". All such Accrued Obligations
shall be paid to Executive's spouse or other designated beneficiary (or if he
leaves to spouse or other designated beneficiary, to his estate) in a lump sum
in cash within thirty (30) days after the Date of Termination.
6.02. Disability. If Executive's employment is terminated by reason of
disability pursuant to Section 5.01(b), this Agreement shall terminate without
further obligations to Executive, other than the obligation to pay to Executive
all Accrued Obligations. All such Accrued Obligations shall be paid to Executive
in a lump sum in cash within thirty (30) days after the Date of Termination.
6.03. Termination for Cause: Termination by Executive in Breach of
Agreement. If Executive's employment is terminated for Cause or if Executive
terminates employment for any reason other than Good Reason, this Agreement
shall terminate without further obligations to Executive other than the
Company's obligation to pay to Executive all Accrued Obligations. All such
Accrued Obligations shall be paid to Executive in a lump sum in cash within
thirty (30) days after the Date of Termination.
<PAGE>
6.04. Termination by Executive for Good Reason; Termination by the
Company in Breach of Agreement. If Executive's employment is terminated by the
Company for any reason other than those specified in Section 5.01, or if
Executive shall terminate his employment for Good Reason:
(a) the Company shall pay to Executive in a lump sum in cash
within thirty (30) days after the Date of Termination the aggregate of the
following amounts:
(i) Executive's full base salary through the end of the
Employment Period; and
(ii) the product of (x) the annual bonus (if any) paid to
Executive for the last full fiscal year and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the Date of
Termination and the denominator of which is 365; and
(iii) all Accrued Obligations.
(b) for the remainder of the Employment Period, or such longer
period as any plan, program, practice or policy may provide, the Company shall
continue benefits to Executive and/or Executive's family at least equal to those
that would have been provided to them if Executive's employment had not been
terminated, including health insurance and life insurance, and for purposes of
eligibility for retiree benefits pursuant to such plans, practices, programs and
policies, Executive shall be considered to have remained employed until the end
of the Employment Period and to have retired on the last day of such period. In
the event that Executive's participation in any such plan, program, practice or
policy is barred, the Company shall arrange to provide Executive with benefits
substantially similar to those which Executive would otherwise have been
entitled to receive under the plans, programs, practices or policies from which
his continued participation is barred.
VII. CONFIDENTIALITY
Executive acknowledges and agrees that in the course of, or
incident to, his employment, the Company may provide to Executive, or Executive
may otherwise become exposed to, confidential information. For purposes of the
Agreement, the term "confidential information" shall mean all information
concerning the business of the Company, including but not limited to, all data
processing programs, systems and methods of processing of the Company, all
software concepts, ideas, developments or products of the Company, all
inventions, experiments and research of the Company, all marketing initiatives
or techniques of the Company, all customer and prospect lists of the Company,
and all information received from third parties and held in confidence by the
Company, but shall not include any information that enters the public domain,
other than information that enters the public domain as a result of a violation
by Executive, or any other person or entity at his direction. In light of the
foregoing, Executive agrees to hold the confidential information in the
strictest confidence and will not disclose (without the prior written consent of
the Company) any portion thereof to any person or entity, other than the Company
or those designated by it.
VIII. MISCELLANEOUS
8.01. Notice. All notices or other communications hereunder shall be in
writing and deemed given if mailed by registered or certified mail, return
receipt requested, or by similarly reliable means, to the parties at the
<PAGE>
addresses set forth below or to such other addresses as shall be specified by
notice to the other parties hereunder:
To the Company at:
Penn Treaty American Corporation
3440 Lehigh Street
Allentown, PA 18103
To Executive at:
1924 West Livingston Street
Allentown, PA 18104
8.02. Waiver of or Consent to Breach. The waiver by the Company or
Executive of a breach or violation of any of the provisions of this Agreement
shall not operate or be construed as a waiver of any subsequent breach or
violation thereof.
8.03. Assignability. This Agreement shall not be assignable by
Executive, but otherwise shall be binding upon and inure to the benefit of the
parties hereto and their successors and assigns.
8.04. Successors. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
8.05. Withholding. The Company may withhold from any amounts payable
under this Agreement such federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
8.06. Employment Before Change of Control
(a) Executive and the Company acknowledge that the employment
of Executive by the Company is "at will," and, prior to a Change of Control, may
be terminated by either Executive or the Company at any time. Upon a termination
of Executive's employment or upon Executive's ceasing to be an officer of the
Company, in each case, prior to a Change of Control, there shall be no further
rights under this Agreement.
(b) Nothing in this Agreement shall prevent or limit
Executive's continuing or future participation in any benefit, bonus, incentive
or other plans, programs, policies or practices provided by the Company and for
which Executive may qualify, nor shall anything herein limit or otherwise affect
such rights as Executive may have under any stock option or other agreements
with the Company.
8.07. Entire Agreement. This writing represents the entire agreement
and understanding of the parties with respect to the matters addressed herein,
and it may not be altered or amended except by a written instrument signed by
the Company and Executive. Any and all promises, agreements, representations,
warranties and other statements, written or oral, made among the parties in
respect to such matters prior to, or contemporaneously with, the execution
<PAGE>
hereof are hereby canceled and superseded and shall be of no further force and
effect.
8.08. Severability. If any provision of this Agreement shall be or
become illegal or unenforceable in whole or in part for any reason whatsoever,
the remaining provisions shall be deemed severable and independent and shall
nevertheless be deemed valid, binding and enforceable.
8.09. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
8.10 Headings. The headings in this Agreement are for convenience
only; they form no part of this Agreement and shall not affect its
interpretation.
8.11. Gender. As used herein the neuter shall include the masculine
and feminine, as the context may require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PENN TREATY AMERICAN CORPORATION
/s/ A. J. Carden
----------------
By: A. J. Carden
Title: Executive Vice President
/s/ Glen A. Levit
-----------------
Glen A. Levit
EXHIBIT 10.5
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 6th day of June , 1996 by and between PENN
TREATY AMERICAN CORPORATION, a Pennsylvania corporation (the "Company"), and
Irving Levit ("Executive").
The Board of Directors of the Company has determined that it is in the
best interests of the Company and its shareholders to assure that the Company
will have the continued dedication of Executive, notwithstanding the
possibility, threat, or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control, to encourage Executive's
full attention and dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide Executive with
compensation arrangements upon a Change of Control which provide Executive with
individual financial security and which are competitive with those of other
corporations and, in order to accomplish these objectives, the Board has caused
the Company to enter into this Agreement.
In consideration of the mutual covenants set forth herein and intending
to be legally bound hereby, the parties hereto agree as follows:
I. CHANGE OF CONTROL
For the purpose of this Agreement, a "Change of Control" shall mean:
(a) The acquisition, other than from the Company, by any
person, entity or "group" within the meaning of Section 13(d) (3) or 14(d) (2)
of the Securities Exchange Act of 1934 (the "Exchange Act"), but excluding, for
this purpose, the Company, its subsidiaries, or any employee benefit plan of the
Company or its subsidiaries which acquires beneficial ownership of voting
securities of the Company of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of either the then
outstanding shares of common stock or the combined voting power of the Company's
then outstanding voting securities entitled to vote generally in the election of
directors; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of the
Company, as such terms are used in Rule 14A-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a member of the Incumbent Board; or
(c) Approval by the shareholders of the Company of (i) a
reorganization, merger or consolidation, in each case, with respect to which
persons who were the shareholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own more
than 50% of the combined voting power entitled to vote generally in the election
<PAGE>
of directors of the reorganized, merged or consolidated company's then
outstanding voting securities, or (ii) a liquidation or dissolution of the
Company or the sale of all or substantially all of the assets of the Company
(whether such assets are held directly or indirectly).
II. EMPLOYMENT
2.01. Effective Date. The Company hereby agrees to continue to employ
Executive as President and Chief Executive Officer of the Company, and Executive
hereby agrees to remain an employee of the Company, for the period beginning
upon a Change of Control (as defined in Section I) and ending on the fifth
anniversary of such date (the "Employment Period"), subject to the terms and
conditions hereinafter set forth. The Employment Period shall automatically be
extended for one or more additional one-year periods commencing at the
conclusion of the initial five-year period, unless three (3) months prior to the
end of the initial term or any subsequent term, the Company shall have delivered
to Executive, or Executive shall have delivered to the Company, written notice
that the term of Executive's employment hereunder will not be extended.
2.02. Prior Termination. Anything in this Agreement to the contrary,
notwithstanding, if Executive's employment with the Company is terminated prior
to the date on which a Change of Control occurs, and it is reasonably
demonstrated that such termination (i) was at the request of a third party who
has taken steps reasonably calculated to effect a Change of control or (ii)
otherwise arose in connection with or anticipation of a Change of Control, then
Executive's Employment Period shall begin as of the date immediately prior to
the date of such termination.
III. DUTIES
3.01. Position and Duties. During the Employment Period, (a)
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be comparable in all
material respects with the most significant of those held, exercised and
assigned at any time during the 90-day period immediately preceding the
commencement of the Employment Period and (b) Executive's services shall be
performed at the location where he was employed immediately preceding the
commencement of the Employment Period or at any office or location not more than
fifty (50) miles from such location.
3.02. Full Efforts. During the Employment Period, Executive agrees to
continue to devote reasonable attention and time to the business and affairs of
the Company, consistent with prior practice, and to use his reasonable best
efforts to perform faithfully and efficiently the responsibilities incidental to
his position.
IV. COMPENSATION AND RELATED MATTERS
4.01. Base Salary. (a) During the Employment Period, the Company shall
pay to Executive a base salary of not less than the highest base salary paid or
payable to Executive by the Company during the twelve-month period immediately
preceding the commencement of the Employment Period, payable in 24 equal
installments on the 1st and 15th day of each month in arrears. This base salary
may be increased from time to time by the Company's Board of Directors. Once
Executive's base salary is increased, it may not thereafter be reduced.
The base salary payments (including any increased base salary payments)
hereunder shall not in any way limit or reduce any other obligation of the
Company under this Agreement, nor shall any other compensation benefit or
<PAGE>
payment hereunder in any way limit or reduce the obligation of the Company to
pay Executive's base salary.
Bonus. During the Employment Period, the Company shall pay to
Executive a bonus in an amount at least equal to the highest bonus paid to
Executive during the three fiscal years immediately preceding the year in which
the Employment Period commences.
4.03. Incentive Awards. During the Employment Period, Executive shall
be entitled to participate in all incentive, savings and retirement plans,
practices, policies and programs applicable to key employees of the Company.
4.04. Welfare Benefits. During the Employment Period, Executive shall
be entitled to participate in all welfare plans, practices, policies and
programs provided by the Company (including, without limitation, medical plans,
dental plans, disability plans, and group or other insurance plans and
benefits), to the extent that he is and remains eligible to participate
thereunder, and subject to the provisions of such plans as the same may be in
effect from time to time.
4.05. Fringe Benefits. During the Employment Period, Executive shall
be entitled to all fringe benefits provided by the Company to its key employees.
4.06. Expenses. During the Employment Period, Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
him in performing services hereunder, including all travel and living expenses
while away from home and on business or at the request of and in the service of
the Company, provided that such expenses are incurred and accounted for in
accordance with the policies and procedures established by the Company.
4.07. Services Furnished. During the Employment Period, the Company
shall furnish Executive with office space in the Company's current executive
offices in Allentown, Pennsylvania (or in another location proximate to
Allentown, Pennsylvania which is acceptable to Executive), secretarial
assistance, and such other facilities and services as shall be suitable to
Executive's position and adequate for the performance of his duties hereunder.
In addition, the Company shall provide Executive with telephone, facsimile and
communications equipment at his residence in Columbus, New Jersey.
4.08. Board of Directors. During the Employment Period, the Board of
Directors agrees to nominate or appoint Executive to serve as a Director of the
Company and Executive agrees to serve, if elected or appointed thereto, as a
Director of the Company and any of its subsidiaries and affiliates, provided
that Executive is indemnified for serving in any and all such capacities on a
basis no less favorable than is currently provided under the Company's By-laws.
4.09. Vested Commissions. The terms of this Agreement shall have no
effect on commissions earned on new and renewal premiums produced by IMC (an
insurance agency owned by Executive) for Penn Treaty Life Insurance Company, a
subsidiary of Company. All of Executive's rights to said commissions shall be
governed by Executive's agency contract with Penn Treaty Life Insurance Company
dated January, 1979, which provides that all such commissions are vested for
life.
V. TERMINATION
5.01. Termination by Company. Executive's employment hereunder may be
terminated by the Company without any breach of this Agreement only under the
following circumstances:
<PAGE>
(a) Death. Executive's employment hereunder shall terminate
upon his death.
(b) Disability. If, as a result of Executive's incapacity due
to physical or mental illness, Executive shall have been absent from his duties
hereunder on a full-time basis for the entire period of six consecutive months,
and within thirty (30) days after written notice of termination is given (which
may occur before or after the end of such six-month period) shall not have
returned to the performance of his duties hereunder on a full-time basis, the
Company may terminate Executive's employment hereunder.
(c) Cause. The company may terminate Executive's employment
hereunder for "Cause". For purposes of this Agreement, "Cause" means the willful
commission of an act of dishonesty or fraud by the Executive, provided that no
act, or failure to act, on Executive's part shall be considered "willful" unless
done, or omitted to be done, by him not in good faith and without reasonable
belief that his action or omission was in the best interest of the Company.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause without (i) reasonable notice to Executive setting forth
the reasons for the Company's intention to terminate him for Cause, (ii) an
opportunity for Executive, together with his counsel, to be heard before the
full Board of Directors of the Company with reasonable advance notice of the
time and place of meeting, and (iii) delivery to Executive of a Notice of
Termination (as defined in Section 5.03 hereof) stating that in the good faith
opinion of the Board of Directors, Executive was guilty of conduct constituting
"Cause", and specifying the particulars thereof in detail.
5.02. Termination by Executive. The Executive may terminate his
employment without any breach of this Agreement only for "Good Reason". For
purposes of this Agreement, "Good Reason" shall mean:
(a) the assignment to Executive of any duties inconsistent
with Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by this
Agreement, or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by Executive;
(b) any failure by the Company to comply with Section IV of
this Agreement, other than an isolated, insubstantial and inadvertent failure
not occurring in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by Executive;
(c) the Company's requiring Executive to relocate to any
office or location other than that described in Section 4.07 (excluding travel
reasonably required in the performance of Executive's responsibilities);
(d) any purported termination by the Company of Executive's
employment otherwise than as expressly permitted by this Agreement; or
(e) any failure by the Company to comply with and satisfy
Section 8.04 of this Agreement.
5.03. Termination Procedure.
(a) Notice of Termination. Any termination of Executive's
employment by the Company or by Executive (other than termination due to
<PAGE>
Executive's death) shall be communicated by written Notice of Termination to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a written notice which shall (i) indicate the specific termination
provision in this Agreement relied upon, (ii) set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated, and (iii) the Date of
Termination (as defined below).
(b) Date of Termination. "Date of Termination" shall mean:
(i) if Executive's employment is terminated by his death,
the date of his death,
(ii) if the Executive's employment is terminated pursuant
to Section 5.01(b), thirty (30) days after Notice of Termination is given
(provided that Executive shall not have returned to the performance of his
duties on a full-time basis during such thirty (30) day period),
(iii) if Executive's employment is terminated pursuant to
Section 5.01(c), the date specified in the Notice of Termination, and
(iv) if Executive's employment is terminated for any other
reason, the date on which a Notice of Termination is given, provided that if
within thirty (30) days after any Notice of Termination is given, the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be the date on
which the dispute is finally determined, either by mutual written agreement of
the parties, by a binding and final arbitration award or by a final judgment,
order or decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been perfected).
VI. COMPENSATION UPON TERMINATION
6.01. Death. If Executive's employment is terminated by reason of his
death, this Agreement shall terminate without further obligations to Executive's
legal representatives under this Agreement, other than those obligations accrued
or earned and vested (if applicable) by Executive as of the Date of Termination,
including, for this purpose (i) Executive's full base salary through the Date of
Termination at the rate in effect on the Date of Termination, (ii) if Executive
dies on or after the Company's year-end but before payment of the Company's
year-end bonus (if any), the bonus payment to which Executive is entitled and
being hereinafter referred to as "Accrued Obligations". All such Accrued
Obligations shall be paid to Executive's spouse or other designated beneficiary
(or if he leaves to spouse or other designated beneficiary, to his estate) in a
lump sum in cash within thirty (30) days after the Date of Termination.
6.02. Disability. If Executive's employment is terminated by reason of
disability pursuant to Section 5.01(b), this Agreement shall terminate without
further obligations to Executive, other than the obligation to pay to Executive
all Accrued Obligations. All such Accrued Obligations shall be paid to Executive
in a lump sum in cash within thirty (30) days after the Date of Termination.
6.03. Termination for Cause: Termination by Executive in Breach of
Agreement. If Executive's employment is terminated for Cause or if Executive
terminates employment for any reason other than Good Reason, this Agreement
shall terminate without further obligations to Executive other than the
Company's obligation to pay to Executive all Accrued Obligations. All such
Accrued Obligations shall be paid to Executive in a lump sum in cash within
thirty (30) days after the Date of Termination.
<PAGE>
6.04. Termination by Executive for Good Reason; Termination by the
Company in Breach of Agreement. If Executive's employment is terminated by the
Company for any reason other than those specified in Section 5.01, or if
Executive shall terminate his employment for Good Reason:
(a) the Company shall pay to Executive in a lump sum in cash
within thirty (30) days after the Date of Termination the aggregate of the
following amounts:
(i) Executive's full base salary through the end of the
Employment Period; and
(ii) the product of (x) the annual bonus (if any) paid to
Executive for the last full fiscal year and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through the Date of
Termination and the denominator of which is 365; and
(iii) all Accrued Obligations.
(b) for the remainder of the Employment Period, or such longer
period as any plan, program, practice or policy may provide, the Company shall
continue benefits to Executive and/or Executive's family at least equal to those
that would have been provided to them if Executive's employment had not been
terminated, including health insurance and life insurance, and for purposes of
eligibility for retiree benefits pursuant to such plans, practices, programs and
policies, Executive shall be considered to have remained employed until the end
of the Employment Period and to have retired on the last day of such period. In
the event that Executive's participation in any such plan, program, practice or
policy is barred, the Company shall arrange to provide Executive with benefits
substantially similar to those which Executive would otherwise have been
entitled to receive under the plans, programs, practices or policies from which
his continued participation is barred.
VII. CONFIDENTIALITY
Executive acknowledges and agrees that in the course of, or
incident to, his employment, the Company may provide to Executive, or Executive
may otherwise become exposed to, confidential information. For purposes of the
Agreement, the term "confidential information" shall mean all information
concerning the business of the Company, including but not limited to, all data
processing programs, systems and methods of processing of the Company, all
software concepts, ideas, developments or products of the Company, all
inventions, experiments and research of the Company, all marketing initiatives
or techniques of the Company, all customer and prospect lists of the Company,
and all information received from third parties and held in confidence by the
Company, but shall not include any information that enters the public domain,
other than information that enters the public domain as a result of a violation
by Executive, or any other person or entity at his direction. In light of the
foregoing, Executive agrees to hold the confidential information in the
strictest confidence and will not disclose (without the prior written consent of
the Company) any portion thereof to any person or entity, other than the Company
or those designated by it.
VIII. MISCELLANEOUS
8.01. Notice. All notices or other communications hereunder shall be in
writing and deemed given if mailed by registered or certified mail, return
receipt requested, or by similarly reliable means, to the parties at the
addresses set forth below or to such other addresses as shall be specified by
notice to the other parties hereunder:
<PAGE>
To the Company at:
Penn Treaty American Corporation
3440 Lehigh Street
Allentown, PA 18103
To Executive at:
Winners International Farm
P.O. Box 323
Columbus, New Jersey 08022
8.02. Waiver of or Consent to Breach. The waiver by the Company or
Executive of a breach or violation of any of the provisions of this Agreement
shall not operate or be construed as a waiver of any subsequent breach or
violation thereof.
8.03. Assignability. This Agreement shall not be assignable by
Executive, but otherwise shall be binding upon and inure to the benefit of the
parties hereto and their successors and assigns.
8.04. Successors. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
8.05. Withholding. The Company may withhold from any amounts payable
under this Agreement such federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
8.06. Employment Before Change of Control
(a) Executive and the Company acknowledge that the employment
of Executive by the Company is "at will," and, prior to a Change of Control, may
be terminated by either Executive or the Company at any time. Upon a termination
of Executive's employment or upon Executive's ceasing to be an officer of the
Company, in each case, prior to a Change of Control, there shall be no further
rights under this Agreement.
(b) Nothing in this Agreement shall prevent or limit
Executive's continuing or future participation in any benefit, bonus, incentive
or other plans, programs, policies or practices provided by the Company and for
which Executive may qualify, nor shall anything herein limit or otherwise affect
such rights as Executive may have under any stock option or other agreements
with the Company.
8.07. Entire Agreement. This writing represents the entire agreement
and understanding of the parties with respect to the matters addressed herein,
and it may not be altered or amended except by a written instrument signed by
the Company and Executive. Any and all promises, agreements, representations,
warranties and other statements, written or oral, made among the parties in
respect to such matters prior to, or contemporaneously with, the execution
<PAGE>
hereof are hereby canceled and superseded and shall be of no further force and
effect.
8.08. Severability. If any provision of this Agreement shall be or
become illegal or unenforceable in whole or in part for any reason whatsoever,
the remaining provisions shall be deemed severable and independent and shall
nevertheless be deemed valid, binding and enforceable.
8.09. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
8.10. Headings. The headings in this Agreement are for convenience
only; they form no part of this Agreement and shall not affect its
interpretation.
8.11. Gender. As used herein the neuter shall include the masculine
and feminine, as the context may require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PENN TREATY AMERICAN CORPORATION
/s/ A. J. Carden
----------------
By: A. J. Carden
Title: Executive Vice President
/s/ Irving Levit
----------------
Irving Levit
EXHIBIT 11
PENN TREATY AMERICAN CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(unaudited)
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
------------------------------ ----------------------------
1996 (1) 1995 (1) 1996 (1) 1995 (1)
------------------------------ ----------------------------
<S> <C> <C> <C> <C>
Shares outstanding
beginning of period ........................ 6,990,084 4,671,284 6,971,284 4,671,284
Weighted average shares of
exercised stock options ................... 3,721 -- 24,535 --
--------- --------- --------- ---------
Weighted average primary
shares outstanding ........................ 6,993,805 4,671,284 6,995,819 4,671,284
Net income for primary
earnings per share ........................ 2,882,656 1,962,976 5,575,990 3,805,401
Net income per common
primary share ............................. $ 0.41 $ 0.42 $ 0.80 $ 0.81
--------- --------- --------- ---------
</TABLE>
(1) Shares outstanding at the beginning of the period are net of Treasury Shares
held at January 1, 1996 and 1995 of 605,629.
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-END> JUN-30-1996 JUN-30-1995
<DEBT-HELD-FOR-SALE> 149,128,011 0
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 4,465,444 0
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 153,675,087 0
<CASH> 9,994,740 0
<RECOVER-REINSURE> 8,165,459 0
<DEFERRED-ACQUISITION> 72,606,338 0
<TOTAL-ASSETS> 261,429,689 0
<POLICY-LOSSES> 55,712,452 0
<UNEARNED-PREMIUMS> 30,719 0
<POLICY-OTHER> 83,755,892 0
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 0 0
0 0
0 0
<COMMON> 761,488 0
<OTHER-SE> 98,481,245 0
<TOTAL-LIABILITY-AND-EQUITY> 261,429,689 0
62,680,135 49,009,078
<INVESTMENT-INCOME> 4,891,163 3,489,374
<INVESTMENT-GAINS> 92,883 13,258
<OTHER-INCOME> 181,292 131,828
<BENEFITS> 41,618,439 31,111,467
<UNDERWRITING-AMORTIZATION> (9,472,579) (6,625,223)
<UNDERWRITING-OTHER> 27,773,623 22,810,893
<INCOME-PRETAX> 7,965,990 5,436,401
<INCOME-TAX> 2,390,000 1,631,000
<INCOME-CONTINUING> 5,575,990 3,805,401
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,575,990 3,805,401
<EPS-PRIMARY> .80 .81
<EPS-DILUTED> .80 .81
<RESERVE-OPEN> 0 0
<PROVISION-CURRENT> 0 0
<PROVISION-PRIOR> 0 0
<PAYMENTS-CURRENT> 0 0
<PAYMENTS-PRIOR> 0 0
<RESERVE-CLOSE> 0 0
<CUMULATIVE-DEFICIENCY> 0 0
</TABLE>
