<PAGE>
As filed with the Securities and Exchange Commission on April 11, 1997
Registration No. 333-22125
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
AMENDMENT NO. 1
TO
FORM S-3/A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
PENN TREATY AMERICAN CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1664166
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
------------------------------
3440 Lehigh Street
Allentown, Pennsylvania 18103
(610) 965-2222
(Address, including zip code, and telephone number,
including area code,
of registrant's principal executive offices)
Irving Levit, President
Penn Treaty American Corporation
3440 Lehigh Street, Allentown, Pennsylvania 18103
(610) 965-2222
(Name, address, including zip code, and telephone
number, including area code,
of agent for service)
------------------------------
Copies to:
Justin P. Klein, Esq.
Ballard Spahr Andrews & Ingersoll
1735 Market Street, 51st Floor
Philadelphia, Pennsylvania 19103
(215) 665-8500
------------------------------
Approximate date of commencement of proposed sale to the public:
From time to time after this Registration Statement becomes effective.
------------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: |_|
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: |_| __________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: |_| ____________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: |_|
<TABLE>
<CAPTION>
===========================================================================================================
CALCULATION OF REGISTRATION FEE
===========================================================================================================
Title of each class of Proposed maximum aggregate Amount of
securities to be registered Amount to be registered offering price(1) registration fee
- -----------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
6-1/4% Convertible $74,750,000 $74,750,000 $22,651.49(2)
Notes due 2003
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Common Stock, par value 2,628,340 shares(3)
$.10 per share
===========================================================================================================
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(i).
(2) The registration fee in the amount of $22,651.49 was previously paid in
connection with the initial filing of this Registration Statement.
(3) Such number represents the number of shares of Common Stock initially
issuable upon conversion of the Notes registered hereby and, pursuant to
Rule 416 under the Securities Act of 1933, as amended, such indeterminate
number of shares of Common Stock as may be issued from time to time upon
conversion of the Notes by reason of adjustment of the conversion price
under certain circumstances outlined in the Prospectus.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
PRELIMINARY PROSPECTUS, SUBJECT TO COMPLETION DATED APRIL 11, 1997
PENN TREATY AMERICAN CORPORATION
$74,750,000 6 1/4% Convertible Subordinated Notes Due 2003
2,628,340 shares of Common Stock
-----------
This Prospectus relates to the offering by the selling securityholders
named herein (the "Selling Securityholders") of 6 1/4% Convertible Subordinated
Notes Due 2003 (the "Notes") of Penn Treaty American Corporation, a Pennsylvania
corporation (the "Company"), in the aggregate principal amount of up to
$74,750,000. In addition, this Prospectus relates to the offering by the Selling
Securityholders of up to 2,628,340 shares (subject to adjustment under certain
circumstances) of the Company's common stock, par value $.10 per share ("Common
Stock" and, together with the Notes, the "Securities"), issued or issuable upon
conversion of the Notes.
The Notes were issued and sold in November 1996 in a transaction exempt
from the registration requirements of the Securities Act of 1933, as amended
(the "Securities Act"), to persons reasonably believed by the managers who
placed the Notes (the "Initial Purchasers") to be "qualified institutional
buyers" (as defined in Rule 144A under the Securities Act) or institutional
accredited investors or to persons in offshore transactions in reliance upon
Regulation S under the Securities Act. Prior to their resale pursuant to this
Prospectus, certain of the Notes were eligible for trading on the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") Market. The
Notes resold pursuant to this Prospectus will no longer be eligible for trading
on the PORTAL Market.
The Notes mature on December 1, 2003, unless previously redeemed,
converted or repurchased. See "Description of the Notes-Optional Redemption
by the Company," "--Conversion of the Notes" and "--Change of Control."
Interest on the Notes is payable semi-annually on June 1 and December 1 of
each year commencing June 1, 1997.
Holders ("Holders") of the Notes are entitled at any time through November
28, 2003, subject to prior redemption or repurchase, to convert any of the Notes
or portions thereof into Common Stock, at a conversion price of $28.44 per
share, subject to certain adjustments. See "Description of the Notes-Conversion
of the Notes." The Common Stock is currently traded on the Nasdaq Stock Market
under the symbol "PTAC." On April 10, 1997, the reported closing price of the
Common Stock on the Nasdaq Stock Market was $26.50 per share.
The Notes are redeemable, in whole or in part, at the option of the
Company, at any time on or after December 3, 1999, at the declining redemption
prices set forth herein, plus accrued interest. In the event of a Change of
Control (as defined herein), each Holder of the Notes may require the Company to
repurchase such Holder's Notes, in whole or in part, at a repurchase price of
101% of the principal amount thereof, plus accrued interest. See "Description of
the Notes-Optional Redemption by the Company" and "--Change of Control."
The Notes constitute unsecured obligations of the Company and are
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined herein) of the Company. In addition, because the Company's
operations are conducted through subsidiaries, claims of regulators, creditors
and holders of indebtedness of such subsidiaries will have priority with respect
to the assets and earnings of such subsidiaries over the claims of creditors of
the Company, including Holders of the Notes. See "Description of the
Notes-Subordination."
The Company will not receive any of the proceeds from the sale of the
Securities offered hereby. The Selling Securityholders directly, through agents
designated from time to time, or through brokers, dealers or underwriters to be
designated, may sell the Securities from time to time on terms to be determined
at the time of sale. To the extent required, the specific amount of Securities
to be sold, the respective purchase price and public offering price, the names
of any such agent, broker, dealer or underwriter, and any applicable commission
or discount with respect to the particular offer will be set forth in a
Prospectus Supplement. The Company has agreed to bear substantially all expenses
of registration of the Securities under federal and state securities laws, but
not including, among other things, commissions, fees and discounts of
underwriters, brokers, dealers and agents. In addition, the Company has agreed
to indemnify the Selling Securityholders against certain liabilities. See "Plan
of Distribution."
The Selling Securityholders and any broker, dealer, agents or underwriters
that participate with the Selling Securityholders in the distribution of the
Securities may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commissions received by them and any profits on the
resale of the Securities purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The Selling Securityholders
have agreed to indemnify the Company against certain liabilities. See "Plan of
Distribution."
----------
See "Risk Factors" commencing on page 7 for a discussion of certain
factors that should be considered by prospective investors in the Securities.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April __, 1997
<PAGE>
THE COMPANY IS A HOLDING COMPANY THAT CONTROLS CERTAIN INSURANCE COMPANY
SUBSIDIARIES DOMICILED IN PENNSYLVANIA AND VERMONT. THE INSURANCE LAWS AND
REGULATIONS OF EACH OF PENNSYLVANIA AND VERMONT PROVIDE, AMONG OTHER THINGS,
THAT WITHOUT THE CONSENT OF THE INSURANCE COMMISSIONER OF EACH SUCH STATE, NO
PERSON MAY ACQUIRE CONTROL OF THE COMPANY AND THAT ANY PERSON OR HOLDER OF
SHARES OF COMMON STOCK OR SECURITIES CONVERTIBLE INTO COMMON STOCK (SUCH AS THE
NOTES) POSSESSING 10% OR MORE OF THE AGGREGATE VOTING POWER OF THE COMMON STOCK
(INCLUSIVE OF SHARES ISSUABLE UPON CONVERSION OF ALL SUCH CONVERTIBLE
SECURITIES) WILL BE PRESUMED TO HAVE ACQUIRED SUCH CONTROL UNLESS EACH SUCH
INSURANCE COMMISSIONER, UPON APPLICATION, HAS DETERMINED OTHERWISE.
SOME OF THE INFORMATION PRESENTED IN THIS PROSPECTUS CONSTITUTES FORWARD
LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. ALTHOUGH THE COMPANY BELIEVES THAT ITS EXPECTATIONS ARE
BASED ON REASONABLE ASSUMPTIONS WITHIN THE BOUNDS OF ITS KNOWLEDGE OF ITS
BUSINESS AND OPERATIONS, THERE CAN BE NO ASSURANCE THAT ACTUAL RESULTS OF THE
COMPANY'S OPERATIONS WILL NOT DIFFER MATERIALLY FROM ITS EXPECTATIONS. FACTORS
WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER FROM EXPECTATIONS INCLUDE, AMONG
OTHERS, THE ADEQUACY OF THE COMPANY'S LOSS RESERVES, THE COMPANY'S ABILITY TO
QUALIFY NEW INSURANCE PRODUCTS FOR SALE IN THE STATES IN WHICH IT IS LICENSED
AND THE ACCEPTANCE OF SUCH PRODUCTS, THE COMPANY'S ABILITY TO COMPLY WITH
GOVERNMENT REGULATIONS, THE ABILITY OF SENIOR CITIZENS TO PURCHASE THE COMPANY'S
PRODUCTS IN LIGHT OF THE INCREASING COSTS OF HEALTH CARE AND THE COMPANY'S
ABILITY TO EXPAND ITS NETWORK OF PRODUCTIVE INDEPENDENT AGENTS. SPECIFIC
REFERENCE IS MADE TO THE RISKS AND UNCERTAINTIES DESCRIBED UNDER "RISK FACTORS."
2
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form S-3 under the
Securities Act with respect to the Securities offered hereby. This Prospectus,
which constitutes part of the Registration Statement, omits certain of the
information contained in the Registration Statement and the exhibits and
schedules thereto on file with the Commission pursuant to the Securities Act and
the rules and regulations of the Commission thereunder. Statements contained in
this Prospectus as to the contents of any contract or other document referred to
are not necessarily complete and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, and each such statement is qualified in all respects by such
reference. The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements, information statements
and other information with the Commission. Such reports, proxy and information
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the Commission's Regional Offices at Seven World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West Madison Avenue,
Suite 1400, Chicago, Illinois 60661. Copies of such material also can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates, or from the
Commission's internet web site at http://www.sec.gov. The Common Stock is listed
on the Nasdaq Stock Market and, in connection with such listing, the Company
also files reports, proxy statements and other information with the Nasdaq Stock
Market. Such reports, proxy statements and other information filed by the
Company can be inspected and copied at the offices of the Nasdaq Stock Market,
1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents of the Company filed with the Commission (File No.
0-15972) are incorporated herein by reference:
(i) the Company's Annual Report on Form 10-K for the year ended
December 31, 1996; and
(ii) the description of the Common Stock contained in the Company's
Registration Statement on Form 8-A for such securities, including
any amendments or reports filed for the purpose of updating such
description.
In addition, all reports and other documents subsequently filed by the
Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act,
prior to the termination of the offering made hereby, shall be deemed to be
incorporated by reference into this Prospectus. Any statement contained in this
Prospectus or in a document incorporated or deemed to be incorporated by
reference herein, shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any and all of the documents
incorporated by reference herein (other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference in such documents).
Requests for such copies should be directed to Penn Treaty American Corporation,
3440 Lehigh Street, Allentown, Pennsylvania 18103, Attention: Michael F. Grill,
Treasurer (telephone number (610) 965-2222).
3
<PAGE>
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SUMMARY
The following does not purport to be complete, is qualified in its
entirety by, and should be read in conjunction with, the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus or incorporated herein by reference. Unless the
context requires otherwise, all references herein to the "Company" mean Penn
Treaty American Corporation and its subsidiaries, collectively. See "Glossary
of Certain Insurance Terms" for the definition of certain insurance terms
used in this Prospectus. For a discussion of certain factors that should be
considered by prospective purchasers of the Securities, see "Risk Factors."
The Company
The Company is one of the leading providers of long-term nursing home care
and home health care insurance. The Company markets its products primarily to
persons age 65 and over through independent insurance agents and underwrites its
policies through three subsidiaries, Penn Treaty Life Insurance Company
("PTLIC"), Network America Life Insurance Company ("Network America") and
American Network Insurance Company. The Company's principal products are
individual fixed, defined benefit accident and health insurance policies
covering long-term skilled, intermediate and custodial nursing home care and
home health care. Policies are designed to make the administration of claims
simple, quick and sensitive to the needs of the policyholders. As of December
31, 1996, long-term nursing home care and home health care policies accounted
for approximately 94% of the Company's total annualized premiums in-force.
The Company introduced its first long-term nursing home care insurance
product in 1975 and its first home health care product in 1987. In late 1994,
the Company introduced its Independent Living(SM) policy which provides coverage
over the full term of the policy for home care services furnished by an
unlicensed homemaker or companion as well as a licensed care provider. Available
policy riders allow insureds to tailor their policies and include an automatic
annual benefit increase, benefits for adult day-care centers and a return of
premium benefit.
The Company's objective is to strengthen its position as a leader in
providing long-term care insurance to senior citizens. To meet this objective
and to continue to increase profitability, the Company is implementing the
following strategies:
o developing and qualifying new products with state insurance
regulatory authorities;
o increasing the size and productivity of the Company's network of
independent agents;
o seeking to acquire complementary insurance companies and blocks of
in-force policies underwritten by other insurance companies; and
o introducing existing products in newly licensed states.
As the average age of the U.S. population increases and the cost of
long-term care rises, demand for the products offered by the Company is also
increasing. The number of individuals age 65 and over is expected to increase
from approximately 33 million in 1994 to approximately 77 million by 2030 and 98
million by 2050. According to an independent study published in 1994, the
average cost of nursing home care was estimated to
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4
<PAGE>
- --------------------------------------------------------------------------------
be approximately $37,000 per year. The Company believes that this cost and
demographic factors provide a favorable environment for the continued expansion
and growth of the Company's business.
The Company believes that one of the principal methods of supporting its
growth is increasing the number of agents licensed to sell its products. The
Company attracts and retains agents through competitive compensation
arrangements, timely payment of claims and a history of satisfied customers.
Through seminars and lectures, the Company trains and educates its agents about
the Company's products and its operations, including its rigorous underwriting
procedures, in order to increase its agents' productivity. In 1996, the
Company's policies were marketed through approximately 7,500 producing
agents, an increase of 46% over the number of producing agents in 1995.
The Company is currently licensed to market products in 49 states and the
District of Columbia. Although not all of the Company's products are currently
eligible for sale in all of these jurisdictions, the Company actively seeks to
expand the regions where it sells its products. The Company's business is
generated primarily in Florida, Pennsylvania, Virginia, California, Illinois,
Ohio, Arizona and Missouri.
On August 30, 1996, the Company consummated the acquisition of all of the
issued and outstanding capital stock of Health Insurance of Vermont, Inc., which
has since changed its name to American Network Insurance Company ("ANIC").
The Company's principal executive offices are located at 3440 Lehigh
Street, Allentown, Pennsylvania 18103, and its telephone number is (610)
965-2222.
THE OFFERING
THIS PROSPECTUS RELATES TO THE OFFERING BY THE SELLING SECURITYHOLDERS OF
BOTH THE NOTES AND, TO THE EXTENT THE NOTES HAVE BEEN, OR ARE, CONVERTED, THE
COMMON STOCK. THE FOLLOWING SUMMARY OF CERTAIN TERMS OF THE NOTES IS NOT
COMPLETE AND IS QUALIFIED BY ALL OF THE TERMS AND CONDITIONS CONTAINED IN THE
NOTES AND IN THE INDENTURE (AS DEFINED HEREIN). FOR A MORE DETAILED DESCRIPTION
OF THE TERMS OF THE NOTES, SEE "DESCRIPTION OF THE NOTES."
The Common Stock
Common Stock outstanding as of April 10, 1997(1) ............. 7,519,199 shares
Common Stock to be outstanding assuming conversion
of the Notes(1)(2) ........................................ 10,147,539 shares
Nasdaq National Market symbol ................................ PTAC
- ----------
(1) Excludes 192,176 shares of Common Stock issuable upon exercise of stock
options outstanding at April 10, 1997.
(2) Assumes no adjustment to the conversion price of the Notes.
The Notes
Issuer .................... Penn Treaty American Corporation (the "Company").
The Notes ................. $74,750,000 aggregate principal amount of 6 1/4%
Convertible Subordinated Notes Due December 1, 2003
issued under an indenture (the "Indenture") between
the Company and First Union National Bank, as
trustee (the "Trustee").
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5
<PAGE>
- --------------------------------------------------------------------------------
Interest Payment Dates .... June 1 and December 1 of each year, commencing June
1, 1997.
Conversion Price .......... The Notes are convertible into Common Stock of the
Company at $28.44 per share, subject to adjustment
as set forth herein, at any time prior to maturity,
repurchase or redemption. See "Description of the
Notes-Conversion of the Notes."
Redemption ................ The Notes are redeemable, in whole or in part, at
the option of the Company, at any time on or after
December 3, 1999, at the declining redemption
prices set forth herein plus accrued interest. See
"Description of the Notes-Optional Redemption by
the Company."
Change of Control ......... In the event of a Change of Control (as defined
herein), Holders of the Notes will have the right
to require that the Company repurchase the Notes,
in whole or in part, at a repurchase price of 101%
of the principal amount thereof, plus accrued
interest. See "Description of the Notes-Change of
Control."
Subordination ............. The Notes constitute general unsecured obligations
of the Company and are subordinated in right of
payment to all existing and future Senior
Indebtedness (as defined herein) of the Company. As
of April 9, 1997, the Company had approximately
$2,400,000 of Senior Indebtedness outstanding. In
addition, because the Company's operations are
conducted through subsidiaries, claims of holders
of indebtedness of such subsidiaries, as well as
claims of regulators and creditors of such
subsidiaries, will have priority with respect to
the assets and earnings of such subsidiaries over
the claims of creditors of the Company, including
Holders of the Notes. As of April 9, 1997, the
aggregate liabilities of such subsidiaries were
approximately $190,800,000. The Indenture does not
limit the amount of additional indebtedness which
the Company can create, incur, assume or guarantee,
nor does the Indenture limit the amount of
indebtedness which any subsidiary can create,
incur, assume or guarantee. See "Description of the
Notes-Subordination."
Listing ................... Prior to their resale pursuant to this Prospectus,
the Notes sold in reliance on Rule 144A under the
Securities Act ("Rule 144A") were eligible for
trading in the PORTAL Market. The Notes sold
pursuant to this Prospectus will no longer be
eligible for trading on the PORTAL Market.
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6
<PAGE>
RISK FACTORS
In addition to other information contained or incorporated by reference in
this Prospectus, a prospective purchaser of the Securities should carefully
consider, among other things, the following risk factors in evaluating the
Company and its business before purchasing any Securities.
Holding Company Structure; Reliance on Subsidiary Dividends
The Company is an insurance holding company whose assets principally
consist of the capital stock of its operating subsidiaries. The ability of the
Company to redeem, repurchase or make interest payments on the Notes, and to pay
dividends on its Common Stock, is dependent upon the ability of its subsidiaries
to pay cash dividends or make other cash payments to the Company. The Company's
insurance subsidiaries are subject to state laws and regulations which restrict
their ability to pay dividends and make other payments to the Company. See
"Dividend Policy" and Notes to the 1996 Financial Statements contained in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996, which is incorporated herein by reference.
Structural Subordination of the Notes
The Notes are general unsecured obligations of the Company and are
subordinated in right of payment to all existing and future Senior
Indebtedness of the Company. By reason of such subordination, in the event of
an insolvency, liquidation or other reorganization of the Company, the Senior
Indebtedness must be paid in full before the Company may make any payments
with respect to the principal of, premium, if any, and interest on the Notes.
Senior Indebtedness was approximately $2,400,000 at April 9, 1997.
Because the Company's operations are conducted through subsidiaries, claims
of the creditors of the subsidiaries (including policyholders) will have
priority with respect to the assets and earnings of such subsidiaries over
the claims of the creditors of the Company, including Holders of the Notes,
even though such obligations do not constitute Senior Indebtedness. The
Company's subsidiaries had aggregate liabilities of approximately
$190,800,000 as of April 9, 1997.
The Indenture does not restrict the ability of the Company or any of its
subsidiaries to incur additional Senior Indebtedness or to pledge their assets
in the future. See "Description of the Notes."
Repurchase of Notes at the Option of Holders Upon a Change of Control;
Availability of Funds
In the event of a Change of Control, each Holder of the Notes will have
the right to require that the Company repurchase the Notes, in whole or in part,
at a repurchase price of 101% of the principal amount thereof, plus accrued
interest to the date of repurchase. If a Change of Control were to occur, there
can be no assurance that the Company would have sufficient funds to pay such
repurchase price for all Notes tendered by the Holders thereof. See
"--Structural Subordination of the Notes" above and "Description of the
Notes-Change of Control."
Adequacy of Loss Reserves; Implementation of New Products
The reserves for losses and expenses established by the Company are
estimates of amounts needed to pay reported and incurred but not yet reported
claims and related expenses based on facts and circumstances known as of the
time the reserves are established. Reserves are based on historical claims
information, industry statistics and other factors. The establishment of
appropriate reserves is an inherently uncertain process, and there can be no
assurance that the ultimate loss and expense will not materially exceed the
Company's reserves and have a material adverse effect on its results of
operations and financial condition. Due to the inherent uncertainty of
estimating reserves, it has been necessary, and may over time continue to be
necessary, to revise estimated future liabilities as reflected in the Company's
reserves for claims and policy expenses.
7
<PAGE>
The introduction of new insurance products, such as the Independent
Living(SM) policy, entails a greater risk of unanticipated claims than
products with respect to which the Company has developed significant
historical claims data, such as long-term nursing home care insurance. As of
December 31, 1996, Independent Living(SM) and other home health care policies
accounted for approximately 27% of the Company's total annualized premiums
in-force, and for the year ended December 31, 1996, home health care policies
accounted for approximately 42% of the Company's new business premiums for
such period. In order to minimize the risks to the Company associated with
this lack of historical claims experience data, the Company generally limits
both the amount of benefits and duration of coverage available under new
products until such data are developed. There can be no assurance, however,
that such limits will be adequate.
If as a result of actual experience, the Company does not meet state
mandated loss ratios for a product, state insurance regulators may require the
Company to reduce or refund premiums on such product. If, however, losses are
greater than anticipated, in addition to adjusting its reserve levels as
discussed below, the Company may seek regulatory approval of premium increases.
Because this approval process is time consuming, the Company must attempt to
anticipate the need for premium increases substantially in advance of its
targeted date for implementing such increases. Failure to anticipate the need
for or to secure regulatory approval of such increases could have a material
adverse effect on the Company. Moreover, fluidity in market competition and
regulatory forces might limit the Company's ability to rely on historical claims
experience for the development of new premium rates and reserve allocations.
The Company began marketing its home health care policies as a stand-alone
product in 1987 and, in the past, experienced a higher than expected number of
claims filed and longer than expected duration of claims, requiring higher
levels of reserves and loss ratios than anticipated with this product line.
Because of the Company's relatively limited claims experience with its home
health care products, the Company may continue to incur higher than expected
loss ratios and may be required to adjust its reserve levels with respect to
these products.
Recoverability of Deferred Acquisition Costs
In connection with the sale of its insurance policies, the Company defers
and amortizes a portion of the policy acquisition costs over the related premium
paying periods of the life of the policy. These costs include all expenses
directly related to the acquisition of the policy, including commissions,
underwriting and other policy issue expenses. The amortization of deferred
acquisition costs is determined using the same projected actuarial assumptions
used in computing policy reserves. Deferred acquisition costs can be affected by
unanticipated termination of policies because, upon such unanticipated
termination, the Company is required to expense fully the deferred acquisition
costs associated with the terminated policy. If these actuarial assumptions
prove to be inaccurate, the result could have a material adverse effect on the
Company's results of operations in future periods.
Mandated Loss Ratios
The states in which the Company is licensed have the authority to change
the minimum mandated statutory loss ratios to which the Company is subject, the
manner in which these ratios are computed and the manner in which compliance
with these ratios is measured and enforced. Loss ratios are commonly defined as
incurred claims and increases in policy reserves divided by earned premiums.
Most states in which the Company writes insurance have adopted the loss ratios
recommended by the National Association of Insurance Commissioners (the "NAIC").
The Company is unable to predict the impact of (i) the imposition of any changes
in the mandatory statutory loss ratios for individual or group long-term care
policies to which the Company may become subject, (ii) any changes in the
minimum loss ratios for individual or group long-term care or Medicare
supplement policies and (iii) any change in the manner in which these minimums
are computed or enforced in the future. The Company has not been informed by any
state that it does not meet mandated minimums, and the Company believes that it
is in compliance with all such minimum ratios. In the event the Company is not
in compliance with minimum statutory loss ratios
8
<PAGE>
mandated by regulatory authorities with respect to certain policies, the
Company may be required to reduce or refund premiums, which could have a
material adverse effect upon the Company.
Government Regulation
The business of the Company, including the insurance policies sold by the
Company's insurance subsidiaries, is subject to stringent state governmental
requirements, including those regarding licensure, benefit structure, policy
forms, minimum loss ratios, payment of dividends, settlement of claims, capital
levels, premium rate levels, premium rate increases and transfer of control of
the Company's insurance subsidiaries. Certain changes in such laws and
regulations could have a material adverse effect on the operations of the
Company's insurance subsidiaries and, in turn, on the Company. Specific
developments which could have a material adverse effect on the operations of the
Company's insurance subsidiaries include, but are not limited to, rate rollback
legislation and legislation to control premiums, policy terminations and other
policy terms, including premium levels. In addition, the administration of such
regulations is vested in state agencies which have broad powers and are
concerned primarily with the protection of policyholders rather than the
protection of investors.
Furthermore, from time to time there are significant federal and state
legislative developments with respect to long-term care and Medicare
coverage. The Federal Omnibus Budget Reconciliation Act of 1990 requires that
Medicare supplement policies provide for guaranteed renewability and waivers
of pre-existing condition coverage limitations under certain circumstances.
In addition, in 1993 the NAIC adopted model long-term care policy language
requiring the provision of nonforfeiture benefits and has proposed a rate
stabilization standard for long-term care policies. In August 1996, Congress
enacted the Health Insurance Portability and Accountability Act of 1996 which
permits, under certain circumstances, premiums paid for eligible long-term
care insurance policies to be treated as tax deductible medical expenses. The
Company cannot predict with certainty the effect this legislation could have
on its business and operations.
Highly Competitive and Concentrated Markets; A.M. Best Rating
The Company's ability to expand and attract new business is affected by
the ratings assigned to its insurance subsidiaries by A.M. Best Company, Inc.
("A.M. Best"), an independent insurance industry rating agency. Ratings for
the industry currently range from "A++ (Superior)" to "F (In Liquidation)"
and some companies are unrated. A.M. Best's ratings are based upon factors of
concern to policyholders and insurance agents and are not directed toward the
protection of investors. PTLIC's, Network America's and ANIC's ratings are
"B++" (Very Good)". The inability of the Company's insurance subsidiaries to
maintain a "B++" or better rating could adversely affect the sales of the
Company's products. The markets in which the Company competes are highly
competitive. The Company competes with large national and smaller regional
insurers, as well as specialty insurers. Many of these insurers are larger
and have greater resources and higher A.M. Best ratings than the Company. In
addition to A.M. Best ratings, the Company competes with other insurance
companies on the basis of pricing, breadth and flexibility of coverage, and
the quality and level of agent and policyholder services provided. The
Company also competes with other insurance companies for producing agents to
market and sell its products. In addition, the Company has experienced
geographic concentration in the sale of its products. During the years ended
December 31, 1994, 1995 and 1996, more than half of the Company's premiums
have been derived from sales of policies in California, Florida and
Pennsylvania. Competitive changes in such markets could have a material
adverse effect on the Company.
Agent Recruitment; Reliance on Marketing General Agent
The Company regularly engages in active recruitment and training of
independent agents to market and sell its products, in part by frequent
presentations designed to educate agents with respect to the Company's insurance
products and operations. The Company also periodically reviews and terminates
its agency relationships with non-producing or underproducing agents or agents
who do not comply with the Company's guidelines and policies
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with respect to the sale of its products. While the Company believes that the
commissions it pays to independent agents are competitive with the commissions
paid by other insurance companies selling similar policies, there can be no
assurance that the Company will be able to continue to attract and retain
independent agents to sell the Company's products.
The Company utilizes marketing general agents from time to time for the
purpose of recruiting independent agents and developing networks of agents in
various states. The Company has a marketing general agent for purposes of
generating business for PTLIC and Network America in several states. This
marketing general agent receives an overriding commission on business written in
return for recruiting, training and motivating the independent agents. This
marketing general agent also functions as a general agent for PTLIC and Network
America in several states. In the capacity of marketing general agent and
general agent, this agent accounted for 20%, 18% and 21% of the total premiums
earned by the Company during the years ended December 31, 1994, 1995 and 1996,
respectively. The loss of the services provided by this agent as marketing
general agent and general agent could have a material adverse effect upon the
Company.
Dependence on Senior Citizen Market; Rising Health Care Costs
The Company's insurance products are designed primarily for sale to
persons age 65 and over. Many such persons live on fixed incomes and, as a
result, are highly sensitive to interest rate and inflation fluctuations which
affect their buying power. In periods of low interest rates, renewal premiums on
the Company's products have decreased. Inflationary trends in health care costs
over time will cause the fixed benefits provided by the Company's policies to
cover less of the actual costs of long-term care. This may require the Company
to increase policy benefits under new policies to maintain the marketability of
its products, with corresponding increases in premiums. There can be no
assurance that adverse economic conditions or lower interest rates will not have
a material impact upon the ability of senior citizens to afford the Company's
products which, in turn, could have a material adverse impact upon the Company.
Dependence on Key Personnel
The success of the Company has largely depended upon the efforts of its
senior operating management, including the Company's Chairman of the Board,
President, Chief Executive Officer and founder, Mr. Irving Levit. The loss of
the services of Mr. Levit or one or more of its key personnel could have a
material adverse effect on the operations of the Company.
Control by Principal Shareholder and Management
Mr. Irving Levit controls, directly or indirectly, approximately 24% of
the Common Stock. In addition, a majority of the members of the Board of
Directors consist of members of senior management. Accordingly, Mr. Levit and
other members of senior management have the power to exert significant influence
over the policies and affairs of the Company.
Effect of Certain Anti-Takeover Provisions
The Company's Restated and Amended Articles of Incorporation, as
amended, the Pennsylvania Business Corporation Law of 1988 (the "1988 BCL")
and the insurance laws of states in which the Company conducts business
contain certain provisions which could delay or impede the removal of
incumbent directors and could make more difficult a merger, tender offer or
proxy contest involving the Company, even if such transaction would be
beneficial to the interests of the shareholders, or could discourage a third
party from attempting to acquire control of the Company. In particular, the
classification of the Company's Board of Directors could have the effect of
delaying a change in control of the Company. In addition, the Company has
authorized 5,000,000 shares of Preferred Stock, which the Company could issue
without further shareholder approval and upon such terms and
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conditions, and having such rights privileges and preferences, as the Board of
Directors may determine. The Company has no current plans to issue any
Preferred Stock. In addition, insurance laws and regulations of each of
Pennsylvania and Vermont provide, among other things, that without the consent
of the insurance commissioner of each such state, no person may acquire control
of the Company, and that any person or holder of shares of Common Stock or
securities convertible into Common Stock (such as the Notes) possessing 10% or
more of the aggregate voting power of the Common Stock (inclusive of shares
issuable upon conversion of all such convertible securities) will be presumed
to have acquired such control unless each such insurance commissioner, upon
application, has determined otherwise.
Absence of Public Market; Possible Volatility of Prices; Restrictions on
Transfer
Prior to their resale pursuant to this Prospectus, Notes sold to qualified
institutional buyers as defined in Rule 144A ("QIBs") were eligible for trading
on the PORTAL Market. The Notes sold pursuant to this Prospectus will no longer
be eligible for trading on the PORTAL Market. The Initial Purchasers have
advised the Company that they currently intend to make a market in the Notes,
but they are not obligated to do so and may discontinue such market-making at
any time. There can be no assurance that an active market for the Notes will
develop and continue or that the market price of the Notes will not decline.
There can be no assurance as to the liquidity of investments in the Notes or as
to the price Holders may realize upon the sale of the Notes. These prices are
determined in the marketplace and may be influenced by many factors, including
the liquidity of the market for the Notes and Common Stock, the market price of
the Common Stock, interest rates, investor perception of the Company and general
economic and market conditions.
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USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Securities offered hereby.
RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31,
1996 1995 1994 1993 1992
Ratio of Earnings
to Fixed Charges... 25.83x 34.26x 45.19x 36.06x 33.92x
For the purpose of computing the ratio of earnings to fixed charges,
earnings consists of earnings before income taxes and fixed charges. Fixed
charges consist of interest expense plus the portion of rental expense under
operating leases that has been deemed by the Company to be representative of
the interest factor (approximately one-third of rental expenses).
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock and does
not intend to do so in the foreseeable future. It is the present intention of
the Company to retain any future earnings to support the continued growth of the
Company's business. Any future payment of dividends by the Company is subject to
the discretion of the Board of Directors and is dependent, in part, on any
dividends it may receive from its subsidiaries. The payment of dividends by the
Company's subsidiaries is dependent on a number of factors, including their
respective earnings and financial condition, business needs and capital and
surplus requirements, and is also subject to certain regulatory restrictions and
the effect that such payment would have on their ratings by A.M. Best. The
Company distributed a 50% stock dividend on the Common Stock on May 15, 1995.
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DESCRIPTION OF THE NOTES
The Notes were issued under an Indenture, dated as of November 26, 1996
(the "Indenture"), between the Company and First Union National Bank, as trustee
(the "Trustee"). The following summaries of certain provisions of the Notes and
the Indenture do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all the provisions of the Notes and
the Indenture, including the definitions therein of certain terms which are not
otherwise defined in this Prospectus. Wherever particular provisions or defined
terms of the Indenture (or of the form of Notes which is a part thereof) are
referred to, such provisions or defined terms are incorporated herein by
reference in their entirety. As used in this "Description of the Notes," the
"Company" refers to Penn Treaty American Corporation and does not, unless the
context otherwise indicates, include its subsidiaries. Copies of the Indenture
and the Registration Rights Agreement, dated as of November 26, 1996, between
the Company and the Initial Purchasers are incorporated by reference into the
Registration Statement of which this Prospectus forms a part.
General
In November 1996, the Company issued an aggregate principal amount of
$74,750,000 of its 6 1/4% Convertible Subordinated Notes Due 2003 pursuant to
exemptions from the Securities Act.
The Notes are general unsecured subordinated obligations of the Company
and are convertible into Common Stock as described below under the subheading
"--Conversion of the Notes." The Notes were issued in fully registered form
only in denominations of $1,000 in principal amount or any integral multiple
thereof and mature on December 1, 2003, unless earlier redeemed at the option
of the Company, converted at the option of the Holder or repurchased at the
option of the Holder upon a Change of Control.
The Indenture does not contain any financial covenants or any restrictions
on the payment of dividends, the repurchase of securities of the Company or the
incurrence of debt by the Company or any of its subsidiaries.
The Notes bear interest at the annual rate of 6 1/4%, payable
semi-annually on June 1 and December 1, commencing on June 1, 1997, to Holders
of record at the close of business on the preceding May 15 and November 15,
respectively. Interest is computed on the basis of a 360-day year composed of
twelve 30-day months.
Interest may, at the option of the Company, be paid by check mailed to the
address of such Holder as it appears in the note register. Any Holder of Notes
with an aggregate principal amount equal to or in excess of $5,000,000 may
request that interest be paid by wire transfer upon written notice by such
Holder to the Trustee in accordance with the provisions of the Indenture.
Principal will be payable, and the Notes may be presented for conversion,
registration of transfer and exchange, without service charge, at the office of
the Trustee in New York, New York.
Book Entry; Delivery and Form
Notes initially held by QIBs and by persons who were not U.S. persons
who acquired such Notes in "offshore transactions" in reliance on Regulation
S under the Securities Act ("Non-U.S. Persons") were initially evidenced by
restricted global notes (the "Restricted Global Notes") which were deposited
with, or on behalf of, The Depository Trust Company ("DTC"), and registered
in the name of Cede & Co. ("Cede") as DTC's nominee. Notes initially held by
institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act) were issued in definitive form.
A purchaser (a "Public Holder") of Notes pursuant to this Prospectus will
receive a beneficial interest in an unrestricted global note (the "Public Global
Note") which will be deposited with, or on behalf of, DTC and
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registered in the name of Cede, as DTC's nominee. Except as set forth below,
the record ownership of the Public Global Note may be transferred in whole or
in part, only to another nominee of DTC or to a successor of DTC or its
nominee.
A Public Holder may hold its interest in the Public Global Note directly
through DTC if such Public Holder is a participant in DTC, or indirectly through
organizations which are participants in DTC (the "Participants"). Transfers
between Participants are effected in the ordinary way in accordance with DTC
rules and will be settled in same day funds.
Public Holders who are not Participants may beneficially own interests in
the Public Global Note held by DTC only through Participants or certain banks,
brokers, dealers, trust companies and other parties that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants"). So long as Cede, as the nominee of DTC, is
the registered owner of the Public Global Note, Cede for all purposes is
considered the sole holder of the Public Global Note. Owners of beneficial
interests in the Public Global Note are entitled to have certificates registered
in their names and to receive physical delivery of certificates in definitive
form. The laws of some states require that certain persons take physical
delivery of securities in definitive form.
Payment of interest on and the redemption and repurchase price of the
Public Global Note will be made to Cede, the nominee for DTC, as registered
owner of the Public Global Note, by wire transfer of immediately available funds
on each interest payment date, each redemption date and each repurchase date, as
applicable. None of the Company, the Trustee or any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Public Global
Note or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
The Company has been informed by DTC, that, with respect to any payment of
interest on or the redemption or repurchase price of the Public Global Note,
DTC's practice is to credit Participants' accounts on the payment date,
redemption date or repurchase date, as applicable, therefor with payments in
amounts proportionate to their respective beneficial interests in the principal
amount represented by the Public Global Note as shown on the records of DTC,
unless DTC has reason to believe that it will not receive payment on such
payment date. Payments by Participants to owners of beneficial interests in the
principal amount represented by the Public Global Note held through such
Participants are the responsibility of such Participants, as is now the case
with securities held for the accounts of customers registered in street name.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest in the principal amount represented by the Public
Global Note to pledge such interest to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interest, may be affected by the lack of a physical certificate evidencing such
interest.
Neither the Company nor the Trustee (or any registrar, paying agent or
conversion agent under the Indenture) will have any responsibility for the
performance of DTC, or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations. DTC has advised the Company that it will take any action permitted
to be taken by a Public Holder of Notes (including, without limitation, the
presentation of Notes for exchange as described below) only at the direction of
one or more Participants to whose account with DTC interests in the Public
Global Note are credited and only in respect of the principal amount of the
Notes represented by the Public Global Note as to which such Participant or
Participants has or have given such direction.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and
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settlement of securities transactions between Participants through electronic
book-entry changes to accounts of its Participants, thereby eliminating the
need for physical movement of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations. Certain
of such Participants (or their representatives), together with other entities,
own DTC. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through, or maintain a
custodial relationship with, a Participant, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Public Global Note among Participants, it is under
no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days, the Company will cause the Notes to be issued in
definitive form in exchange for the Public Global Note.
Conversion of the Notes
Holders of any Notes are entitled at any time until the close of business
on November 28, 2003, subject to prior redemption or repurchase, to convert any
Notes or portions thereof (in denominations of $1,000 in principal amount or
integral multiples thereof) into Common Stock at the conversion price of $28.44
per share, subject to adjustment as described below; provided that in the case
of Notes called for redemption, conversion rights will expire at the close of
business on the business day immediately preceding the date fixed for
redemption, unless the Company defaults in payment of the redemption price. A
Note (or portion thereof) in respect of which a Holder is exercising its option
to require repurchase upon a Change of Control may be converted only if such
Holder withdraws its election to exercise such redemption option in accordance
with the terms of the Indenture.
Except as described below, no adjustment will be made on conversion of any
Notes for interest accrued thereon or for dividends paid on any Common Stock
issued. A Holder of Notes at the close of business on a record date will be
entitled to receive the interest payable on such Notes on the corresponding
interest payment date. However, Notes surrendered for conversion during the
period from the close of business on a record date to the opening of business on
the next succeeding interest payment date must be accompanied by funds equal to
the interest payable on such succeeding interest payment date on the principal
amount so converted (unless such Note or portion thereof being converted is
called for redemption on a redemption date during the period from the close of
business on or after any record date to the close of business on the business
day following the corresponding interest payment date). The interest payment
with respect to a Note called for redemption on a date between the close of
business on any record date for the payment of interest to the close of business
on the business day following the corresponding interest payment date and
surrendered for conversion during that period will be payable on the
corresponding interest payment date to the registered Holder at the close of
business on that record date (notwithstanding the conversion of such Note before
the corresponding interest payment date). A Holder of Notes who elects to
convert during that period need not include funds equal to the interest paid.
The Company is not required to issue fractional shares of Common Stock upon
conversion of Notes and, in lieu thereof, will pay a cash adjustment based upon
the closing price of the Common Stock on the last business day prior to the date
of conversion.
The conversion price is subject to adjustment (under formulae set forth in
the Indenture) upon the occurrence of certain events, including: (i) the
issuance of Common Stock as a dividend or distribution on the outstanding Common
Stock, (ii) the issuance to all holders of Common Stock of certain rights,
options or warrants to purchase Common Stock at less than the Current Market
Price (as defined in the Indenture), (iii) certain subdivisions, combinations
and reclassifications of Common Stock, (iv) distributions to all holders of
Common Stock of the Company of any class of capital stock of the Company (other
than distributions of Common Stock as a dividend or distribution) or evidences
of indebtedness of the Company or assets (including securities, but excluding
those rights, options and warrants referred to in clause (ii) above and
dividends and distributions in connection with the liquidation, dissolution or
winding up of the Company and dividends and distributions paid exclusively in
cash),
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(v) distributions consisting exclusively of cash (excluding any cash
portion of distributions referred to in clause (iv) or in connection with a
consolidation, merger or sale of assets of the Company as referred to in clause
(ii) of the third paragraph below) to all holders of Common Stock in an
aggregate amount that, together with (x) all other such all-cash distributions
made within the preceding 12 months in respect of which no adjustment has been
made and (y) any cash and the fair market value of other consideration payable
in respect of any tender offers by the Company or any of its subsidiaries for
Common Stock concluded within the preceding 12 months in respect of which no
adjustment has been made, exceeds 20% of the Company's market capitalization
(being the product of the then current market price of the Common Stock times
the number of shares of Common Stock then outstanding) on the record date for
such distribution and (vi) the purchase of Common Stock pursuant to a tender
offer made by the Company or any of its subsidiaries which involves an
aggregate consideration that, together with (x) any cash and the fair market
value of any other consideration payable in any other tender offer by the
Company or any of its subsidiaries for Common Stock expiring within the 12
months preceding such tender offer in respect of which no adjustment has been
made and (y) the aggregate amount of any such all-cash distributions referred
to in clause (v) above to all holders of Common Stock within the 12 months
preceding the expiration of such tender offer in respect of which no
adjustments have been made, exceeds 20% of the Company's market capitalization
on the expiration of such tender offer. No adjustment of the conversion price
will be made for shares issued pursuant to a plan for reinvestment of dividends
or interest.
No adjustment will be made pursuant to clause (iv) of the preceding
paragraph if the Company makes proper provision for each Holder of Notes who
converts a Note (or portion thereof) to receive, in addition to the Common Stock
issuable upon such conversion, the kind and amount of assets (including
securities) that such Holder would have been entitled to receive if such Holder
had been a holder of the Common Stock at the time of the distribution of such
assets or securities. Rights, options or warrants distributed by the Company to
all holders of the Common Stock that entitle the holders thereof to purchase
shares of the Company's capital stock and that, until the occurrence of an event
(a "Triggering Event"), (i) are deemed to be transferred with the Common Stock,
(ii) are not exercisable and (iii) are also issued in respect of future
issuances of Common Stock, shall not be deemed to be distributed (and no
adjustment in the Conversion Price shall be required) until the occurrence of
the Triggering Event.
Except as stated above, the conversion price will not be adjusted for the
issuance of Common Stock or any securities convertible into or exchangeable for
Common Stock or carrying the right to purchase any of the foregoing. No
adjustment in the conversion price will be required unless such adjustment would
require a change of at least 1% in the conversion price then in effect; provided
that any adjustment that would otherwise be required to be made shall be carried
forward and taken into account in any subsequent adjustment.
In the case of (i) any reclassification or change of the Common Stock
(other than changes in par value or from par value to no par value as a result
of a subdivision or a combination) or (ii) a consolidation, merger or
combination involving the Company or a sale or conveyance to another corporation
of the property and assets of the Company as an entirety or substantially as an
entirety (determined on a consolidated basis), in each case as a result of which
holders of Common Stock shall be entitled to receive stock, other securities,
other property or assets (including cash) with respect to or in exchange for
such Common Stock, the Holders of the Notes then outstanding will be entitled
thereafter to convert such Notes into the kind and amount of shares of stock,
other securities or other property or assets which they would have owned or been
entitled to receive upon such reclassification, change, consolidation, merger,
sale or conveyance had such Notes been converted into Common Stock immediately
prior to such reclassification, change, consolidation, merger, sale or
conveyance assuming that a Holder of Notes did not exercise any rights of
election, if any, as to the stock, other securities or other property or assets
receivable in connection therewith.
In the event of a taxable distribution to holders of Common Stock (or
other transaction) which results in any adjustment of the conversion price, the
Holders of Notes may, in certain circumstances, be deemed to have
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received a distribution subject to the United States income tax as a
dividend; in certain other circumstances, the absence of such an adjustment
may result in a taxable dividend to the holders of Common Stock.
The Company from time to time may to the extent permitted by law reduce
the conversion price by any amount for any period of at least 20 days, in which
case the Company shall give at least 15 days' notice of such decrease, if the
Board of Directors has made a determination that such decrease would be in the
best interests of the Company, which determination shall be conclusive. The
Company may, at its option, make such reductions in the conversion price, in
addition to those set forth above, as the Company deems advisable to avoid or
diminish any income tax to its shareholders resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated as
such for income tax purposes.
Subordination
The payment of principal of, premium, if any, and interest on the Notes
will, to the extent set forth in the Indenture, be subordinated in right of
payment to the prior payment in full of all Senior Indebtedness. Upon any
distribution to creditors of the Company in a liquidation or dissolution of the
Company or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding related to the Company or its property, in an assignment for the
benefit of creditors or any marshalling of the Company's assets and liabilities,
the holders of all Senior Indebtedness will first be entitled to receive payment
in full of all amounts due or to become due thereon before the Holders of the
Notes will be entitled to receive any payment in respect of the principal of,
premium, if any, or interest on the Notes (except that Holders of Notes may
receive securities that are subordinated at least to the same extent as the
Notes to Senior Indebtedness and any securities issued in exchange for Senior
Indebtedness).
The Company also may not make any payment upon or in respect of the Notes
(except in such subordinated securities) and may not acquire from the Trustee or
the Holder of any Note for cash or property (other than securities subordinated
to at least the same extent as the Note to (i) Senior Indebtedness and (ii) any
securities issued in exchange for all Senior Indebtedness) until Senior
Indebtedness has been paid in full if (i) a default in the payment of the
principal of, premium, if any, or interest on Senior Indebtedness occurs and is
continuing beyond any applicable period of grace or (ii) any other default
occurs and is continuing with respect to Senior Indebtedness that permits
holders of the Senior Indebtedness as to which such default relates to
accelerate its maturity and the Trustee receives a notice of such default (a
"Payment Blockage Notice") from the representative or representatives of holders
of at least a majority in principal amount of Senior Indebtedness then
outstanding. Payments on the Notes may and shall be resumed (i) in the case of a
payment default, upon the date on which such default is cured or waived, or (ii)
in the case of a default other than a non-payment default, 179 days after the
date on which the applicable Payment Blockage Notice is received, unless the
maturity of any Senior Indebtedness has been accelerated. No new period of
payment blockage may be commenced within 360 days after the receipt by the
Trustee of any prior Payment Blockage Notice. No default, other than a
nonpayment default, that existed or was continuing on the date of delivery of
any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a
subsequent Payment Blockage Notice, unless such default shall have been cured or
waived for a period of not less than 180 days.
"Senior Indebtedness" with respect to the Notes means the principal of,
premium, if any, and interest on, and any fees, costs, expenses and any other
amounts (including indemnity payments) related to the following, whether
outstanding on the date of the Indenture or thereafter incurred or created:
(i) indebtedness, matured or unmatured, whether or not contingent, of the
Company for money borrowed evidenced by notes or other written obligations,
(ii) any interest rate contract, interest rate swap agreement or other
similar agreement or arrangement designed to protect the Company or any of
its subsidiaries against fluctuations in interest rates, (iii) indebtedness,
matured or unmatured, whether or not contingent, of the Company evidenced by
notes, debentures, bonds or similar instruments or letters of credit (or
reimbursement agreements in respect thereof), (iv) obligations of the Company
as lessee under capitalized leases and under leases of property made as part
of any sale and leaseback transactions, (v) indebtedness of others of any of
the kinds described in the preceding clauses (i) through (iv) assumed or
guaranteed by the Company and (vi) renewals, extensions, modifications,
amendments and refundings of, and
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indebtedness and obligations of a successor person issued in exchange for or
in replacement of, indebtedness or obligations of the kinds described in the
preceding clauses (i) through (iv), unless the agreement pursuant to which
any such indebtedness described in clauses (i) through (vi) is created,
issued, assumed or guaranteed expressly provides that such indebtedness is
not senior or superior in right of payment to the Notes; provided, however,
that the following shall not constitute Senior Indebtedness: (i) any
indebtedness or obligation of the Company in respect of the Notes; (ii) any
indebtedness of the Company to any of its subsidiaries or other affiliates;
(iii) any indebtedness that is subordinated or junior in any respect to any
other indebtedness of the Company other than Senior Indebtedness; and (iv)
any indebtedness incurred for the purchase of goods or materials in the
ordinary course of business.
In the event that the Trustee (or paying agent if other than the
Trustee) or any Holder receives any payment of principal or interest with
respect to the Notes at a time when such payment is prohibited under the
Indenture, such payment shall be held in trust for the benefit of, and
immediately shall be paid over and delivered to, the holders of Senior
Indebtedness or their representative as their respective interests may
appear. After all Senior Indebtedness is paid in full and until the Notes are
paid in full, Holders shall be subrogated (equally and ratably with all other
Indebtedness pari passu with the Notes) to the rights of holders of Senior
Indebtedness to receive distributions applicable to Senior Indebtedness to
the extent that distributions otherwise payable to the Holders have been
applied to the payment of Senior Indebtedness.
As of April 9, 1997, the Company had approximately $2,000,000
outstanding under its mortgage and approximately $400,000 outstanding under
capitalized leases and a note payable of a subsidiary of the Company, which
obligations constituted the only Senior Indebtedness of the Company
outstanding as of that date. The Indenture does not prohibit or limit the
incurrence of Senior Indebtedness.
In addition, because the Company's operations are conducted primarily
through its subsidiaries, claims of holders of indebtedness of such
subsidiaries, as well as claims of regulators and creditors of such
subsidiaries, will have priority with respect to the assets and earnings of
such subsidiaries over the claims of creditors of the Company, including
Holders of the Notes. As of April 9, 1997, the aggregate liabilities of such
subsidiaries were approximately $190,800,000. The Indenture does not limit
the amount of additional indebtedness which any of the Company's subsidiaries
can create, incur, assume or guarantee.
Because of these subordination provisions, in the event of a liquidation
or insolvency of the Company or any of its subsidiaries, Holders of Notes may
recover less, ratably, than the holders of Senior Indebtedness.
Optional Redemption by the Company
The Notes are not redeemable at the option of the Company prior to
December 3, 1999. At any time on or after that date, the Notes may be redeemed
at the Company's option by publishing a notice in the Wall Street Journal and
mailing a notice of such redemption on at least 30 but not more than 60 days
prior to the date fixed for redemption to the Holders of Notes to be redeemed at
their last addresses as they appear on the Note register, in whole at any time
or in part from time to time, at the following prices (expressed in percentages
of the principal amount), together with accrued interest to the date fixed for
redemption if redeemed during the 12-month period beginning:
Date Redemption Price
- ---- ----------------
December 3, 1999 ............................................ 103.13%
December 1, 2000 ............................................ 102.08%
December 1, 2001 ............................................ 101.04%
and 100% on or after December 1, 2002
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If fewer than all the Notes are to be redeemed, the Trustee will select
the Notes to be redeemed in principal amounts of $1,000 or integral multiples
thereof by lot or, in its discretion, on a pro rata basis. If any Note is to be
redeemed in part only, a new Note or Notes in principal amount equal to the
unredeemed principal portion thereof will be issued. If a portion of a Holder's
Notes is selected for partial redemption and such Holder converts a portion of
such Notes, such converted portion shall be deemed to be taken from the portion
selected for redemption. No sinking fund is provided for the Notes.
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes shall
have the right to require that the Company repurchase such Holder's Notes in
whole or in part in integral multiples of $1,000, at a purchase price in cash in
an amount equal to 101% of the principal amount thereof, together with accrued
and unpaid interest to the date of repurchase, pursuant to an offer (the "Change
of Control Offer") made in accordance with the procedures described below and
the other provisions in the Indenture.
A "Change of Control" means an event or series of events in which (i) any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act) acquires "beneficial ownership" (as determined in accordance with
Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 50% of
the total Voting Stock (as defined below) of the Company at an Acquisition Price
(as defined below) less than the conversion price then in effect with respect to
the Notes and (ii) the holders of the Common Stock receive consideration which
is not all or substantially all common stock that is (or upon consummation of or
immediately following such event or events will be) listed on a United States
national securities exchange or approved for quotation on the Nasdaq Stock
Market or any similar United States system of automated dissemination of
quotations of securities' prices; provided, however, that any such person or
group shall not be deemed to be the beneficial owner of, or to beneficially own,
any Voting Stock tendered in a tender offer until such tendered Voting Stock is
accepted for purchase under the tender offer. "Voting Stock" means stock of the
class or classes pursuant to which the holders thereof have the general voting
power under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of a corporation (irrespective whether or not at
the time stock of any other class or classes shall have or might have voting
power by reason of the happening of any contingency). "Acquisition Price" means
the weighted average price paid by the person or group in acquiring the Voting
Stock.
Within 30 days following any Change of Control, the Company shall send by
first-class mail, postage prepaid, to the Trustee and to each Holder of Notes,
at such Holder's address appearing in the note register, a notice stating, among
other things, that a Change of Control has occurred, the repurchase price, the
repurchase date, which shall be a business day no earlier than 30 days nor later
than 60 days from the date such notice is mailed, and certain other procedures
that a Holder of Notes must follow to accept a Change of Control Offer or to
withdraw such acceptance.
The Company will comply, to the extent applicable, with the requirements
of Rule 13e-4 and Rule 14e-1 under the Exchange Act and other securities laws or
regulations, to the extent such laws are applicable, in connection with the
repurchase of the Notes as described above.
Future indebtedness of the Company may contain prohibitions of certain
events which would constitute a Change of Control or require the Company to
offer to repurchase such indebtedness upon a Change of Control. Moreover, the
exercise by the Holders of Notes of their right to require the Company to
purchase the Notes could cause a default under such indebtedness, even if the
Change of Control itself does not, due to the financial effect of such purchase
on the Company. Finally, the Company's ability to pay cash to Holders of Notes
upon a purchase may be limited by the Company's then existing financial
resources. There can be no assurance that sufficient funds will be available
when necessary to make any required purchases. Furthermore, the Change of
Control provisions may in certain circumstances make more difficult or
discourage a takeover of the Company and the removal of the incumbent
management.
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Merger, Consolidation and Sale of Assets
The Indenture prohibits the Company from consolidating with or merging
with or into, or conveying, transferring or leasing all or substantially all its
assets (determined on a consolidated basis), to any person unless: (i) either
the Company is the resulting, surviving or transferee person (the "Successor
Company") or the Successor Company is a person organized and existing under the
laws of the United States or any state thereof or the District of Columbia, and
the Successor Company (if not the Company) expressly assumes by a supplemental
indenture, executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of the Company under the Indenture and the Notes,
including the conversion rights described above under "--Conversion of the
Notes," (ii) immediately after giving effect to such transaction no Event of
Default (as defined below) has happened and is continuing and (iii) the Company
delivers to the Trustee an officers' certificate and an opinion of counsel,
each stating that such consolidation, merger or transfer and such supplemental
indenture (if any) comply with the Indenture.
Events of Default and Remedies; Notice
An Event of Default is defined in the Indenture as being, among other
things: default in payment of the principal of or premium, if any, on the Notes
when due at maturity, upon redemption or otherwise, including failure by the
Company to purchase the Notes when required as described under "--Change of
Control" (whether or not such payment shall be prohibited by the subordination
provisions of the Indenture); default for 30 days in payment of any installment
of interest on the Notes (whether or not such payment shall be prohibited by the
subordination provisions of the Indenture); default by the Company for 90 days
after notice in the observance or performance of any other covenants in the
Indenture; or certain events involving bankruptcy, insolvency or reorganization
of the Company. The Indenture provides that the Trustee may withhold notice to
the Holders of Notes of any default (except in payment of principal, premium, if
any, or interest with respect to the Notes) if the Trustee, in good faith,
considers it in the interest of the Holders of the Notes to do so.
The Indenture provides that if an Event of Default (other than an Event of
Default with respect to certain events, including bankruptcy, insolvency or
reorganization of the Company) shall have occurred and be continuing, the
Trustee or the Holders of not less than 25% in principal amount of the Notes
then outstanding may declare the principal of and premium, if any, on the Notes
to be due and payable immediately, but if the Company shall pay or deposit with
the Trustee a sum sufficient to pay all matured installments of interest on all
Notes and the principal and premiums, if any, on all Notes that have become due
other than by acceleration and certain expenses and fees of the Trustee and if
all defaults (except the nonpayment of interest on, premium, if any, and
principal of any Notes which shall have become due by acceleration) shall have
been cured or waived and certain other conditions are met, such declaration may
be canceled and past defaults may be waived by the Holders of a majority in
principal amount of the Notes then outstanding.
The Holders of a majority in principal amount of the Notes then
outstanding shall have the right to direct the time, method and place of
conducting any proceedings for any remedy available to the Trustee, subject to
certain limitations specified in the Indenture. The Indenture provides that,
subject to the duty of the Trustee following an Event of Default to act with the
required standard of care, the Trustee will not be under an obligation to
exercise any of its rights or powers under the Indenture at the request or
direction of any of the Holders, unless the Trustee receives satisfactory
indemnity against any associated costs, liability or expense.
Within 120 days of the end of each fiscal year, the Company must deliver
to the Trustee an Officers' Certificate stating whether or not to the best
knowledge of the signers the Company is in compliance (without regard to periods
of grace or notice requirements) with all conditions and covenants under the
Indenture, and if the Company is not in compliance, specifying such
non-compliance and the nature and status of such non-compliance of which such
signer may have knowledge.
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Satisfaction and Discharge; Defeasance
The Indenture will cease to be of further effect as to all outstanding
Notes (except as to (i) rights of the Holders of Notes to receive payments of
principal of, premium, if any, and interest on, the Notes, (ii) rights of
Holders of Notes to convert to Common Stock or, in certain circumstances, cash,
(iii) the Company's right of optional redemption, (iv) rights of registration of
transfer and exchange, (v) substitution of apparently mutilated, defaced,
destroyed, lost or stolen Notes, (vi) rights, obligations and immunities of the
Trustee under the Indenture and (vii) rights of the Holders of Notes as
beneficiaries of the Indenture with respect to the property so deposited with
the Trustee payable to all or any of them) if (A) the Company will have paid or
caused to be paid the principal of, premium, if any, and interest on the Notes
as and when the same will have become due and payable or (B) all outstanding
Notes (except lost, stolen or destroyed Notes which have been replaced or paid)
have been delivered to the Trustee for cancellation or (C) (x) the Notes not
previously delivered to the Trustee for cancellation will have become due and
payable or are by their terms to become due and payable within one year or are
to be called for redemption under arrangements satisfactory to the Trustee upon
delivery of notice and (y) the Company will have irrevocably deposited with the
Trustee, as trust funds, cash, in an amount sufficient to pay principal of and
interest on the outstanding Notes, to maturity or redemption, as the case may
be. Such trust may only be established if such deposit will not result in a
breach or violation of, or constitute a default under, any agreement or
instrument pursuant to which the Company is a party or by which it is bound
and the Company has delivered to the Trustee an officers' certificate and an
opinion of counsel, each stating that all conditions related to such defeasance
have been complied with.
The Indenture will also cease to be in effect (except as described in
clauses (i) through (vii) in the immediately preceding paragraph) and the
indebtedness on all outstanding Notes will be discharged on the 123rd day after
the irrevocable deposit by the Company with the Trustee, in trust, specifically
pledged as security for, and dedicated solely to, the benefit of the Holders of
the Notes, of cash, U.S. Government Obligations (as defined in the Indenture) or
a combination thereof, in an amount sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay the principal of,
premium, if any, and interest on the Notes then outstanding in accordance with
the terms of the Indenture and the Notes ("legal defeasance"). Such legal
defeasance may only be effected if (i) no Event of Default has occurred or is
continuing, (ii) such deposit will not result in a breach or violation of, or
constitute a default under, any agreement or instrument to which the Company is
a party or by which it is bound, (iii) the Company has delivered to the Trustee
an opinion of counsel stating that (A) the Company has received from, or there
has been published by, the Internal Revenue Service a ruling or (B) since the
date of the Indenture, there has been a change in the applicable federal income
tax law, in either case to the effect that, based thereon, the Holders of the
Notes will not recognize income, gain or loss for federal income tax purposes as
a result of such deposit, defeasance and discharge by the Company and will be
subject to federal income tax on the same amount and in the same manner and at
the same times as would have been the case if such deposit, defeasance and
discharge had not occurred, (iv) the Company has delivered to the Trustee an
opinion of counsel to the effect that after the 123rd day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights generally
and (v) the Company has delivered to the Trustee an officers' certificate and an
opinion of counsel stating that all conditions related to the defeasance have
been complied with.
The Company may also be released from its obligations under the
covenants described above under "--Change of Control" and "--Merger,
Consolidation and Sale of Assets" with respect to the Notes outstanding on
the 123rd day after the irrevocable deposit by the Company with the Trustee,
in trust, specifically pledged as security for, and dedicated solely to, the
benefit of the Holders of the Notes, of cash, U.S. Government Obligations or
a combination thereof, in an amount sufficient in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay the principal of,
premium, if any, and interest on the Notes then outstanding in accordance
with the terms of the Indenture and the Notes ("covenant defeasance"). Such
covenant defeasance may only be effected if (i) no Event of Default has
occurred or is continuing, (ii) such deposit will not result in a breach or
violation of, or constitute a default under,
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any agreement or instrument to which the Company is a party or by which it is
bound, (iii) the Company has delivered to the Trustee an officers'
certificate and an opinion of counsel to the effect that the Holders of the
Notes will not recognize income, gain or loss for federal income tax purposes
as a result of such deposit and covenant defeasance by the Company and will
be subject to federal income tax on the same amount, in the same manner and
at the same times as would have been the case if such deposit and covenant
defeasance had not occurred, (iv) the Company has delivered to the Trustee an
opinion of counsel to the effect that after the 123rd day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally and (v) the Company has delivered to the Trustee an
officers' certificate and an opinion of counsel stating that all conditions
related to the covenant defeasance have been complied with. Following such
covenant defeasance, the Company will no longer be required to comply with
the obligations described above under "--Merger, Consolidation and Sale of
Assets" and will have no obligation to repurchase the Notes pursuant to the
provisions described under "--Change of Control."
Notwithstanding any satisfaction and discharge or defeasance of the
Indenture, the obligations of the Company described under "--Conversion of the
Notes" will survive to the extent provided in the Indenture until the Notes
cease to be outstanding.
Modifications of the Indenture
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the Holders of not less than a majority in principal amount
of the Notes at the time outstanding, to modify the Indenture or any
supplemental indenture or the rights of the Holders of the Notes, except that no
such modification shall (i) extend the fixed maturity of any Note, reduce the
rate or extend the time of payment of interest thereon, reduce the principal
amount thereof or premium, if any, thereon, reduce any amount payable upon
redemption thereof, change the obligation of the Company to repurchase the
Notes, at the option of the Holder, upon the happening of a Change of Control,
impair or affect the right of a Holder to institute suit for the payment
thereof, change the currency in which the Notes are payable, modify the
subordination provisions of the Indenture in a manner adverse to the Holders of
the Notes or impair the right to convert the Notes into Common Stock subject to
the terms set forth in the Indenture, without the consent of the Holder of each
Note so affected or (ii) reduce the aforesaid percentage of the Notes, without
the consent of the Holders of all of the Notes then outstanding. The Company and
the Trustee may amend or supplement the Indenture without notice to or consent
of any Holder in certain events, such as to make provision for certain
conversion rights, to provide for the issuance of Notes in coupon form, to
correct or supplement any inconsistent or deficient provision in the Indenture,
to comply with the provisions of the Trust Indenture Act of 1939 or to appoint a
successor Trustee.
Concerning the Trustee
First Union National Bank, the Trustee under the Indenture, has been
appointed by the Company as the paying agent, conversion agent, registrar and
custodian with regard to the Notes. As of March 24, 1997, First Union National
Bank is also the transfer agent and registrar with regard to the shares of
Common Stock. In addition, First Union National Bank and/or its affiliates
may in the future provide banking and other services to the Company in the
ordinary course of their respective businesses. Under the Indenture, each
Holder or former Holder of a Note agrees to indemnify the Company and the
Trustee against any liability that may result from the transfer, exchange or
assignment of such Holder's or former Holder's Note in violation of any
provision of the Indenture or applicable United States federal or state
securities laws.
The Holders of a majority in principal amount of all outstanding Notes
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on the Trustee, provided that such direction does not conflict with
any rule of law or with the Indenture, and the Trustee may take any other action
deemed proper by the Trustee that is not inconsistent with such direction.
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DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, par value $.10 per share and 5,000,000 shares of preferred stock,
par value $1.00 per share ("Preferred Stock"). The relative rights of the
Company's Common Stock and Preferred Stock are defined by the Company's Restated
and Amended Articles of Incorporation, as amended, as described below, as well
as by the Company's Amended and Restated By-laws, as amended, and the 1988 BCL.
Common Stock
Subject to the rights of holders of any series of Preferred Stock which
may from time to time be issued, holders of Common Stock are entitled to one
vote per share on matters acted upon at any shareholders' meeting, including the
election of Directors, and to dividends when, as and if declared by the Board of
Directors out of funds legally available therefor. There is no cumulative voting
and the Common Stock is not redeemable. In the event of any liquidation,
dissolution or winding up of the Company, each holder of Common Stock is
entitled to share ratably in all assets of the Company remaining after the
payment of liabilities and any amounts required to be paid to holders of
Preferred Stock, if any. Holders of Common Stock have no preemptive or
conversion rights and are not subject to further calls or assessments by the
Company. All shares of Common Stock now outstanding, and all shares to be
outstanding upon the completion of this offering, are and will be fully paid and
non-assessable.
The Common Stock is traded on the Nasdaq Stock Market. As of April 10,
1997, there were approximately 430 holders of record of Common Stock. This
number was derived from the Company's shareholder records, and does not include
beneficial owners of the Company's Common Stock whose shares are held in the
names of various dealers, clearing agencies, banks, brokers, and other
fiduciaries.
Preferred Stock
The Board of Directors of the Company, without further action by the
shareholders, is authorized to issue the shares of Preferred Stock in one or
more series and to determine the voting rights, preferences as to dividends, and
the liquidation, conversion, redemption and other rights of each series. The
issuance of a series with voting and conversion rights may adversely affect the
voting power of the holders of Common Stock. The issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of the
Company without further action by the shareholders. The Company has no present
plans to issue any shares of Preferred Stock.
Anti-Takeover Provisions
The Company's Board of Directors is divided into three classes, each of
which is comprised of three Directors elected for a three-year term, with one
class being elected each year. Directors may be removed without cause only with
the approval of 67% of the voting power of the stock entitled to vote in the
election of Directors. Any Director elected to fill a vacancy, however created,
serves for the remainder of the term of the Director which he or she is
replacing.
The Company's Restated and Amended Articles of Incorporation, as amended,
require the affirmative vote of shareholders owning at least 67% of the
outstanding shares of the Company's Common Stock in order for the Company to:
amend, repeal or add any provision to the Restated and Amended Articles of
Incorporation, as amended; merge or consolidate with another corporation, other
than a wholly-owned subsidiary; exchange shares of the Company's Common Stock in
such a manner that a corporation, person or entity acquires the issued or
outstanding shares of Common Stock of the Company pursuant to a vote of
shareholders; sell, lease, convey,
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encumber or otherwise dispose of all or substantially all of the property or
business of the Company; or liquidate or dissolve the Company.
In addition, the Restated and Amended Articles of Incorporation, as
amended, permit the Board of Directors to oppose a tender offer or other offer
for the Company's securities, and allow the Board to consider any pertinent
issue in determining whether to oppose any such offer. Finally, the Restated and
Amended Articles of Incorporation, as amended, require the Company to obtain the
approval of the holders of a majority of all capital stock entitled to vote in
the election of directors prior to any direct or indirect purchase of securities
of any class by the Company from a shareholder who beneficially owns 20% or more
of the outstanding securities in the class to be acquired and has not held such
securities for more than two years at the time of such purchase. The foregoing
vote of shareholders is not required if any such purchase is made by the Company
as part of a tender or exchange offer to purchase securities of the same class
from all holders of such securities in a manner complying with the applicable
requirements of the Exchange Act.
Pursuant to the Company's Amended and Restated By-laws, as amended,
shareholder nominations for election to the Board of Directors must be made in
writing and delivered or mailed to the President of the Company not less than
fifty days nor more than seventy-five days prior to any meeting of shareholders
called for the election of Directors; provided, however, that if less than fifty
days' notice of the meeting is given to shareholders, such nominations shall be
mailed or delivered to the President not later than the close of business on the
seventh day following the day on which the notice of the meeting was mailed.
The 1988 BCL includes certain shareholder protection provisions, some of
which apply to the Company and two of which, relating to "Disgorgement by
Certain Controlling Shareholders following Attempts to Acquire Control" and
"Control Share Acquisitions," the Company has specifically opted out of pursuant
to an amendment to its by-laws. The following is a description of those
provisions of the 1988 BCL that still apply to the Company and that may have an
anti-takeover effect. This description of the 1988 BCL is only a summary
thereof, does not purport to be complete and is qualified in its entirety by
reference to the full text of the 1988 BCL.
(i) The control transaction provisions allow holders of voting shares of a
corporation to "put" their stock to an acquiror for fair value in the event of a
control transaction (the acquisition of 20% of the voting stock of the
corporation). Fair value is defined as not less than the highest price paid by
the acquiror during a certain 90 day period.
(ii) An interested shareholder (the beneficial owner of twenty percent of
the voting stock either of a corporation or of an affiliate of the corporation
who was at any time within the five-year period immediately prior to the date in
question the beneficial owner of twenty percent of the voting stock of the
corporation) cannot engage in a business combination with the corporation for a
period of five years unless: (a) the board approves the business combination or
the acquisition of shares in advance, or (b) if the interested shareholder owns
80% of such stock, the business combination is approved by a majority of the
disinterested shareholders and the transaction satisfies certain "fair price"
provisions. After the five-year period, the same restrictions apply, unless the
transaction either is approved by a majority of the disinterested shareholders
or satisfies the fair price provisions.
(iii) Corporations may adopt shareholders' rights plans with
discriminatory provisions (sometimes referred to as poison pills) whereby
options to acquire shares or corporate assets are created and issued which
contain terms that limit persons owning or offering to acquire a specified
percentage of outstanding shares from exercising, converting, transferring or
receiving options and allows the exercise of options to be limited to
shareholders or triggered based upon control transactions. Such poison pills
take effect only in the event of a control transaction. Pursuant to the 1988
BCL, such poison pills may be adopted by the Board without shareholder approval.
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(iv) In taking action with respect to tender offers or takeover proposals
(as for any other action), directors may, in considering the best interests of
the corporation, consider the effects of any action upon employees, suppliers,
customers, communities where the corporation is located and all other pertinent
factors.
(v) Shareholders of a corporation no longer have a statutory right to call
special meetings of shareholders or to propose amendments to the articles under
the provisions of the 1988 BCL.
The foregoing provisions may discourage certain types of transactions that
involve a change of control of the Company and ensure a measure of continuity in
the management of the business and affairs of the Company. While the Company
does not currently have a shareholder rights plan or poison pill, the effect of
the above-described provisions may be to deter hostile takeovers at a price
higher than the prevailing market price for the Common Stock and to permit
current management to remain in control of the Company. In some circumstances
certain shareholders may consider these anti-takeover provisions to have
disadvantageous effects. Tender offers or other non-open market acquisitions of
stock are frequently made at prices above the prevailing market price of a
company's stock. In addition, acquisitions of stock by persons attempting to
acquire control through market purchases may cause the market price of the stock
to reach levels that are higher than would otherwise be the case. These
anti-takeover provisions may discourage any or all such acquisitions,
particularly those of less than all of the Company's shares, and may thereby
deprive certain holders of the Company's Common Stock of any opportunity to sell
their stock at a temporarily higher market price.
Pursuant to an amendment to the Company's Amended and Restated By-laws
adopted on July 19, 1990, the Company opted out of "Disgorgement by Certain
Controlling Shareholders following Attempts to Acquire Control," which would
otherwise allow the Company to recover all profits derived by any person or
group that acquires control or disclosed an intention to acquire voting power
over 20% of the equity securities of the Company on the disposition of any of
the securities of the Company acquired within two years prior or eighteen months
after acquiring such control or announcing an intention to that effect. The
Company also opted out of "Control Share Acquisitions," which would otherwise
suspend the voting rights of a shareholder when his ownership of the Company's
securities crossed any of three thresholds (20%, 33% or 50%). The voting rights
are held in abeyance until the shareholders holding a majority of disinterested
shares vote to restore them. The inapplicability of these provisions mitigates
somewhat the deterrence of hostile anti-takeover attempts at prices in excess of
the prevailing market prices and lessens the ability of current management to
retain control of the Company.
In addition to provisions of the 1988 BCL, insurance laws and regulations
of each of Pennsylvania and Vermont provide, among other things, that without
the consent of the insurance commissioner of each such state, no person may
acquire control of the Company and that any person or holder of shares of Common
Stock or securities convertible into Common Stock (such as the Notes) possessing
10% or more of the aggregate voting power of the Common Stock (inclusive of
shares issuable upon conversion of all such convertible securities) will be
presumed to have acquired such control unless each such insurance commissioner,
upon application, has determined otherwise.
The transfer agent and registrar for the shares of the Common Stock is
First Union National Bank.
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SELLING SECURITYHOLDERS
The Notes were originally issued by the Company in transactions exempt
from the registration requirements of the Securities Act to persons believed by
the Initial Purchasers to be QIBs, institutional accredited investors or to
persons in off-shore transactions in reliance upon Regulation S under the
Securities Act. The Selling Securityholders (which term includes their
transferees, pledgees, donees and their successors) may from time to time offer
and sell pursuant to this Prospectus any or all of the Notes and the shares of
Common Stock initially issued or issuable upon conversion of the Notes (the
"Conversion Shares").
The following table sets forth information, with respect to the Selling
Securityholders and the respective principal amount of Notes beneficially owned
by each such Selling Securityholder and that may be sold, and the number of
Conversion Shares that may be sold, by the Selling Securityholders pursuant to
this Prospectus. Except as set forth below, none of the Selling Securityholders
has, or within the past three years has had, any position, office or other
material relationship with the Company or any of its predecessors or affiliates.
Because the Selling Securityholders may offer all or a portion of the Notes and
the Conversion Shares pursuant to this Prospectus, no estimate can be given as
to the amount of Notes or the Conversion Shares that will be held by the Selling
Securityholders upon termination of any such sale. The following table is based
upon information furnished to the Company by The Depository Trust Company, New
York, New York and the Selling Securityholders.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OF NOTES NUMBER OF
BENEFICIALLY CONVERSION
OWNED AND PERCENT OF SHARES
THAT MAY OUTSTANDING THAT MAY
NAME (1) BE SOLD NOTES BE SOLD(2)
- -------------------------------------------------------------------------- ------------ --------------- -----------
<S> <C> <C> <C>
Austin Firefighters Conv. (3)............................................. $ 106,000 * 3,727
Bancroft Convertible Fund, Inc............................................ 1,375,000 1.84% 48,347
Bank America Convertible Fund............................................. 62,000 * 2,180
Bank of America Illinois EB Convertible Fund.............................. 33,000 * 1,160
Bank of Tokyo--Mitsubishi Trust Company Commingled
Convertible Securities Fund............................................. 500,000 * 17,580
Bankers Trust ttee for Chrysler Corp Emp #1 Pension Plan dtd 4/1/89....... 2,255,000 3.02 79,289
Baptist Hospital (3)...................................................... 92,000 * 3,234
Bear, Stearns & Co. Inc. (4).............................................. 1,361,000 1.82 47,855
Bond Fund Series--Oppenheimer Bond Fund for Growth........................ 3,250,000 4.35 114,275
Boston Museum of Fine Arts (3)............................................ 40,000 * 1,406
Burroughs Wellcome Fund................................................... 204,000 * 7,172
Bush Foundation........................................................... 121,000 * 4,254
Carrigaholt Capital (Bermuda) L.P......................................... 1,625,000 2.17 57,137
Chase Manhattan ttee for IBM Corp. Retirement Plan Trust Dtd 12/18/45..... 3,745,000 5.01 131,680
Citizen Auto Profit Sharing............................................... 20,000 * 703
Clark Family Foundation, Inc.............................................. 250,000 * 8,790
The Classic IC Company, Ltd............................................... 1,125,000 1.51 39,556
Columbia/HCA Money Purchase Plan.......................................... 690,000 * 24,261
Common Fund............................................................... 205,000 * 7,208
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OF NOTES NUMBER OF
BENEFICIALLY CONVERSION
OWNED AND PERCENT OF SHARES
THAT MAY OUTSTANDING THAT MAY
NAME (1) BE SOLD NOTES BE SOLD(2)
- -------------------------------------------------------------------------- ------------ --------------- -----------
<S> <C> <C> <C>
Dreyfus Variable Investment Fund Growth and Income Portfolio.............. 2,000,000 2.68 70,323
Dunham & Associates Conv. Fund II (3)..................................... 26,000 * 914
Dunham & Associates Ser III (3)........................................... 10,000 * 351
Earlham College........................................................... 64,000 * 2,250
Ellsworth Convertible Growth and Income Fund, Inc......................... 1,375,000 1.84 48,347
Engineers Joint Pension (3)............................................... 146,000 * 5,133
Equitable Life Assurance Separate Account--Balanced....................... 155,000 * 5,450
Equitable Life Assurance Separate Account--Convertible.................... 2,340,000 3.13 82,278
First Bank National Association as trustee of the Donaldson Company Inc.
Pension Trust--Kennedy Capital Management............................... 65,000 * 2,285
First Trust National Association as trustee under the Trust Agreement
pursuant to certain Potlatch Corporation Retirement Plans--Society
Investment Management................................................... 150,000 * 5,274
First Trust National Association as agent of the Sisters of St. Joseph of
Carondelet--Kennedy Capital Management.................................. 51,000 * 1,793
Forest Fulcrum Fund LP.................................................... 2,875,000 3.85 101,090
Forest Fulcrum Fund Ltd................................................... 925,000 1.24 32,524
Franklin & Marshall College............................................... 151,000 * 5,309
Furman Selz LLC........................................................... 250,000 * 8,790
The Gordon Fund LP........................................................ 150,000 * 5,274
Greyhound Lines, Inc. Pension Fund........................................ 100,000 * 3,516
The HCA Foundation........................................................ 240,000 * 8,438
The Hotel Industry--ILWU Pension Trust.................................... 105,000 * 3,691
The Hotel Union & Industry of Hawaii...................................... 300,000 * 10,548
Hudson River Trust Balanced Account....................................... 905,000 1.21 31,821
Hudson River Trust Growth & Income Account................................ 660,000 * 23,206
Hudson River Trust Growth Investors....................................... 735,000 * 25,843
Hughes Aircraft Company Master Retirement Trust........................... 620,000 * 21,800
Iowa State University Foundation.......................................... 100,000 * 3,516
Iron Workers Pension...................................................... 32,000 * 1,125
Kresge Foundation......................................................... 254,000 * 8,931
Laterman Strategies 90's LLC.............................................. 650,000 * 22,855
The Lincoln Fund LP....................................................... 600,000 * 21,097
David Lipscomb University General Endowment............................... 80,000 * 2,812
LSM Ltd................................................................... 300,000 * 10,548
McMahan Securities Co. L.P................................................ 400,000 * 14,064
Memphis Light, Gas & Water Retirement Fund................................ 925,000 1.24 32,524
Montgomery County Employees Ret. Sys.--Value.............................. 330,000 * 11,603
New Haven, City of........................................................ 33,000 * 1,603
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OF NOTES NUMBER OF
BENEFICIALLY CONVERSION
OWNED AND PERCENT OF SHARES
THAT MAY OUTSTANDING THAT MAY
NAME (1) BE SOLD NOTES BE SOLD(2)
- -------------------------------------------------------------------------- ------------ --------------- -----------
<S> <C> <C> <C>
Nicholas Applegate Income & Growth Fund (3)............................... 920,000 1.23 32,348
Occidental College (3).................................................... 90,000 * 3,164
Offshore Strategies Ltd................................................... 800,000 1.07 28,129
Oklahoma Law Enforcement Ret. System...................................... 143,000 * 5,028
Oregon Equity Fund........................................................ 1,000,000 1.34 35,161
Outboard Marine........................................................... 260,000 * 9,142
Pacific Horizons Capital Income Fund...................................... 890,000 1.19 31,293
Pacific Innovation Trust Capital Income Fund.............................. 15,000 * 527
Partner Reinsurance Company Ltd........................................... 225,000 * 7,911
Premier Growth and Income Fund............................................ 2,000,000 2.68 70,323
R.R. Donnelley & Sons..................................................... 331,000 * 11,638
Rabbinical Pension Board.................................................. 66,000 * 2,320
RCB Employees Benefit Trust............................................... 58,000 * 2,039
RCB Grantor Trust......................................................... 117,000 * 4,113
Sage Capital.............................................................. 750,000 1.00 26,371
SAIF Corporation.......................................................... 1,275,000 1.71 44,831
San Diego City Retirement (3)............................................. 290,000 * 10,196
San Diego County Convertible (3).......................................... 1,711,000 2.29 60,161
Schwan's Profit Sharing Trust............................................. 144,000 * 5,063
SEIU Local 25............................................................. 25,000 * 879
Societe Generale Securities Corp.......................................... 1,000,000 1.34 35,161
State Street Bank Custodian for GE Pension Trust.......................... 739,000 * 25,984
Stepstone Convertible Sec. Fund........................................... 500,000 * 17,580
Tracor, Inc............................................................... 22,000 * 773
TQA Vantage Fund, Ltd..................................................... 750,000 1.00 26,371
Vanguard Convertible Securities Fund, Inc................................. 1,155,000 1.55 40,611
Wake Forest University (3)................................................ 233,000 * 8,192
Washington University..................................................... 355,000 * 12,482
All other Holders......................................................... 23,725,000 31.74 834,212
</TABLE>
- ------------------------
* Less than 1%.
(1) The information set forth herein is as of March 10, 1997, except for: (a)
Dreyfus Variable Investment Fund Growth and Income Portfolio which is as of
March 6, 1997; (b) Hughes Aircraft Company Master Retirement Trust, Partner
Reinsurance Company Ltd. and Vanguard Convertible Securities Fund, Inc.
which are as of March 27, 1997; (c) Oregon Equity Fund and SAIF Corporation
which are as of April 2, 1997; (d) Burroughs Wellcome Fund, Bush Foundation,
Citizen Auto Profit Sharing, Common Fund, Earlham College, Iowa State
University Foundation, Iron Workers Pension, Kresge Foundation, Montgomery
County Employees Ret. Sys.--Value, New Haven, City of, Oklahoma Law
Enforcement Ret. System, Outboard Marine, R.R. Donnelley & Sons, Rabbinical
Pension Board, RCB Employees Benefit Trust, RCB Grantor Trust, Schwan's
Profit Sharing Trust, SEIU Local 25, Tracor, Inc. and Washington University
all of which are as of April 4, 1997; (e) Bear, Stearns & Co. Inc., Bank
America Convertible Fund, Bank of America Illinois EB Convertible Fund,
Bank of Tokyo-Mitsubishi Trust Company, Carrigaholt Capital (Bermuda) L.P.,
The Classic IC Company, Ltd., McMahan Securities Co. L.P., Pacific Horizons
Capital Income Fund, Pacific Innovation Trust Capital Income Fund, Societe
Generale Securities
28
<PAGE>
Corp. and Stepstone Convertible Sec. Fund all of which are as of April 7,
1997; and (f) First Trust National Association as trustee under the Trust
Agreement pursuant to certain Potlatch Corporation Retirement Plans which
is as of April 8, 1997. The information set forth herein will be updated as
required. Certain of the Holders share voting and investment power with
their respective investment advisors.
(2) Assumes conversion of the full amount of Notes held by such Holder at the
initial rate of $28.44 in principal amount of Notes per share of Common
Stock.
(3) Nicholas-Applegate Capital Management has full voting and investment power
of these Securities.
(4) Bear, Stearns & Co. Inc. was an Initial Purchaser in the private placement
of the Notes.
Information concerning the Selling Securityholders may change from time to
time and will be set forth in supplements to this Prospectus. In addition, the
per share conversion price, and therefore the number of shares of Common Stock,
are subject to adjustment under certain circumstances. Accordingly, the number
of shares of Common Stock offered hereby may increase or decrease. As of the
date of this Prospectus, the aggregate principal amount of Notes is $74,750,000
and the number of shares of Common Stock into which the Notes may be converted
is approximately 2,628,340 shares.
It is not possible to predict the principal amount of Notes or the number
of shares of Common Stock that will be sold hereby. Consequently, it is not
possible to predict the amount of Notes or the number of shares of Common Stock
that will be owned by the Selling Securityholders following completion of this
offering.
29
<PAGE>
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds of the sale of the
Securities offered hereby. The Securities may be sold from time to time to
purchasers directly by the Selling Securityholders. Alternatively, the Selling
Securityholders may from time to time offer the Securities through underwriters,
brokers, dealers or agents who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling
Securityholders and/or the purchasers of the Securities for whom they may act as
agent. The Selling Securityholders and any such underwriters, brokers, dealers
or agents who participate in the distribution of the Securities may be deemed to
be "underwriters," and any profits on the sale of the Securities by them and any
discounts, commissions or concessions received by any such underwriters,
brokers, dealers or agents might be deemed to be underwriting discounts and
commissions under the Securities Act. To the extent the Selling Securityholders
may be deemed to be underwriters, the Selling Securityholders may be subject to
certain statutory liabilities of the Securities Act, including, but not limited
to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the
Exchange Act.
The Securities offered hereby may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
Securities may be sold by one or more of the following methods, without
limitation: (i) to underwriters who will acquire the Securities for their own
account and resell them in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale (any public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time); (ii)
a block trade in which the broker or dealer so engaged will attempt to sell the
Securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (iii) purchases by a broker or dealer
as principal and resale by such broker or dealer for its own account pursuant to
this Prospectus; (iv) ordinary brokerage transactions and transactions in which
the broker solicits purchasers; (v) an exchange distribution in accordance with
the rules of such exchange; (vi) face-to-face transactions between sellers and
purchasers without a broker or dealer; (vii) through the writing of options; and
(viii) other legally available means. At any time a particular offering of
Securities is made, a revised Prospectus or Prospectus Supplement, if required,
will be distributed including the name or names of any underwriters, brokers,
dealers or agents, any discounts, commissions and other items constituting
compensation from the Selling Securityholders and any discounts, commissions or
concessions allowed or reallowed or paid to dealers. Such revised Prospectus or
Prospectus Supplement and, if necessary, a post-effective amendment to the
registration statement of which this Prospectus is a part, will be filed with
the Commission to reflect the disclosure of additional information with respect
to the distribution of the Securities. In addition, the Securities may be sold
in private transactions or under Rule 144 rather than pursuant to this
Prospectus.
There is no assurance that any Selling Securityholder will sell any or all
of the Securities offered by it hereunder or that any such Selling
Securityholder will not transfer, devise or gift such Securities by other means
not described herein.
Underwriters participating in any offering made pursuant to this
Prospectus (as amended or supplemented from time to time) may receive
underwriting discounts and commissions, and discounts or concessions may be
allowed or reallowed or paid to dealers, and brokers or agents participating in
such transaction may receive brokerage or agent's commissions or fees.
The Selling Securityholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation,
Regulation M, which may limit the timing of purchases and sales of any of the
Securities by the Selling Securityholders and any other such person.
Regulation M may prohibit persons engaged in the distribution of the
Securities from simultaneously engaging in market making activities with
respect to the particular Securities for a period of up to five business days
(or such other applicable period as Regulation M may provide) prior to the
30
<PAGE>
commencement of such distribution. All of the foregoing may affect the
marketability of the Securities and the ability of any person or entity to
engage in market-making activities with respect to the Securities.
In order to comply with the securities laws of certain states, if
applicable, the Securities will be sold in such jurisdictions, if required, only
through registered or licensed brokers or dealers.
Pursuant to the Registration Rights Agreement entered into in connection
with the offer and sale of the Notes by the Company, each of the Company and the
Selling Securityholders will be indemnified by the other against certain
liabilities, including certain liabilities under the Securities Act, or will be
entitled to contribution in connection therewith.
The Company has agreed to pay substantially all of the expenses incidental
to the registration, offering and sale of the Securities to the public other
than commissions, fees and discounts of underwriters, brokers, dealers and
agents.
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for the
Company by Ballard Spahr Andrews & Ingersoll, Philadelphia, Pennsylvania.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and 1995 and for each of the three years in the period ended December
31, 1996, incorporated by reference in this Prospectus have been audited by
Coopers & Lybrand L.L.P., independent public accountants, as stated in their
report incorporated by reference herein. Such financial statements are
incorporated by reference herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
31
<PAGE>
GLOSSARY OF CERTAIN INSURANCE TERMS
Annualized Premiums........ The total premiums payable by
policyholders over a twelve-month period.
Claim ..................... A demand for payment of a policy benefit because of
the occurrence of an insured event, such as nursing
home confinement, death of or use of home health
care services by the insured, or incurrence of
hospital or medical bills.
Loss ratio ................ The ratio of claims incurred and the increase in
policy reserves to premiums.
Policy acquisition costs .. All expenses incurred by an insurance company that
vary with and are directly related to acquiring
insurance policies. The largest component of such
expenses is typically the commissions paid to
insurance agents. Policy acquisition costs also
include underwriting expenses.
Policy reserves ........... Estimated liabilities established by an insurer to
reflect the difference between level renewal
premiums and the increasing risks of claims losses
as policyholders age.
Premiums .................. The consideration received by the Company pursuant
to the terms of an insurance contract.
Reserves .................. Estimated liabilities established by an insurer to
reflect the estimated costs of claims payments that
the insurer will ultimately be required to pay with
respect to insurance it has written.
Rider ..................... An attachment to a policy modifying conditions of
the policy by restricting or expanding coverage or
making some other change in the coverage.
Underwriting .............. The process whereby an insurer reviews applications
submitted for insurance coverage and determines
whether to provide all or part of the coverage
being requested for an agreed premium.
32
<PAGE>
No dealer, sales representative, or any other person has been authorized
to give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any Selling Securityholder. This Prospectus does
not constitute an offer to sell or a solicitation of any offer to buy any
securities other than the securities to which it relates or an offer to, or a
solicitation of, any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create an implication that
there has been no change in the affairs of the Company or that information
contained herein is correct as of any time subsequent to the date hereof.
-----------
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Available Information ................................... 3
Incorporation of Certain Documents by Reference ......... 3
Summary ................................................. 4
Risk Factors ............................................ 7 PENN TREATY
Use of Proceeds ......................................... 12 AMERICAN CORPORATION
Ratio of Earnings to Fixed Charges ...................... 12
Dividend Policy ......................................... 12 $74,750,000
Description of the Notes ................................ 13
Description of Capital Stock ............................ 23 6 1/4% Convertible Subordinated
Selling Securityholders ................................. 26 Notes Due 2003
Plan of Distribution .................................... 30 2,628,340 Shares of Common Stock
Legal Matters ........................................... 31 -----------
Experts ................................................. 31 April __, 1997
Glossary of Certain Insurance Terms ..................... 32
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the amounts of expenses in connection with
the issuance of the Securities offered pursuant to this Registration Statement
which shall be borne by the Company. All of the expenses listed below, except
the Securities and Exchange Commission Registration Fee, represent estimates
only.
Estimated
---------
Securities and Exchange Commission Registration Fee .. $ 22,651.49
Printing and Engraving Expenses ...................... 100,000.00
Accounting Fees and Expenses ......................... 41,500.00
Legal Fees and Expenses .............................. 125,000.00
Miscellaneous Fees and Expenses ...................... 10,848.51
------------
Total .......................................... $ 300,000.00
Item 15. Indemnification of Directors and Officers.
The Amended and Restated By-Laws of the registrant provide for
indemnification of directors and officers of the registrant in accordance with
the indemnification provisions of the 1988 BCL. Sections 1741-50 of the 1988 BCL
permit indemnification of directors, officers, employees and agents of a
corporation under certain conditions and subject to certain limitations.
The registrant has directors' and officers' liability insurance insuring
its directors and officers against liability incurred in their capacities as
directors and officers and providing for reimbursement of the registrant for any
indemnification payments made by it to directors and officers.
Item 16. Exhibits and Financial Statement Schedules.
Exhibit
Number Description
- ------ -----------
3.1(a) Restated and Amended Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to Registration Statement on Form S-1,
Reg. No. 33-92690).
3.1(b) Amendment to Restated and Amended Articles of Incorporation.*
3.2 Amended and Restated By-laws, as amended.*
4.1 Indenture dated as of November 26, 1996 between Penn Treaty American
Corporation and First Union National Bank, as Trustee (including
forms of Notes) (incorporated by reference to Exhibit 4.1 to Penn
Treaty American Corporation's Current Report on Form 8-K filed on
December 6, 1996).
4.3 Registration Rights Agreement dated as of November 26, 1996 by and
among the Company and Bear, Stearns & Co. Inc. and Advest Inc.
(incorporated by reference to Exhibit 4.2 to Penn Treaty American
Corporation's Current Report on Form 8-K filed on December 6,
1996).
4.4 Form of Public Note.*
4.5 Specimen copy of Common Stock Certificate (incorporated by reference
to Exhibit 4 to Registration Statement on Form S-1, Reg. No.
33-92690).
5.1 Opinion of Ballard Spahr Andrews & Ingersoll.
II-1
<PAGE>
12.1 Statement Re Earnings to Fixed Charges.
23.1 Consent of Coopers and Lybrand L.L.P.
23.2 Consent of Ballard Spahr Andrews & Ingersoll (contained in Exhibit
5.1).
24.1 Power of Attorney.*
25.1 Form T-1, Statement of Eligibility and Qualification of First Union
National Bank.*
- ----------
* Previously filed with the Commission
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which any offers or sales are being
made, a post-effective amendment to the registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8 and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offering therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-2
<PAGE>
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to the registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Allentown,
Commonwealth of Pennsylvania, on April 10, 1997.
PENN TREATY AMERICAN CORPORATION
By: /s/ Irving Levit
-----------------------------
Irving Levit
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed by the
following persons in the capacities and on the date indicated.
Signature Title Date
/s/ Irving Levit Chairman of the Board, April 10, 1997
- --------------------------- President and Chief
Irving Levit Executive Officer (Principal
Executive Officer)
/s/ Michael F. Grill Treasurer, Controller and April 10, 1997
- --------------------------- Director (Principal
Michael F. Grill Accounting Officer)
/s/ A.J. Carden Executive Vice President and April 10, 1997
- --------------------------- Director
A.J. Carden
/s/ Domenic P. Stangherlin Secretary and Director April 10, 1997
- ---------------------------
Domenic P. Stangherlin
/s/ Jack D. Baum Vice President, Marketing April 10, 1997
- --------------------------- and Director
Jack D. Baum
/s/ Cameron Waite Chief Financial Officer April 10, 1997
- --------------------------- (Principal Financial
Cameron Waite Officer)
/s/ Emile G. Ilchuk Director April 10, 1997
- ---------------------------
Emile G. Ilchuk
/s/ C. Mitchell Goldman Director April 10, 1997
- ---------------------------
C. Mitchell Goldman
II-4
<PAGE>
/s/ John W. Mahoney Director April 10, 1997
- ---------------------------
John W. Mahoney
/s/ Glen A. Levit Director April 10, 1997
- ---------------------------
Glen A. Levit
II-5
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1(a) Restated and Amended Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to Registration Statement on Form S-1,
Reg. No. 33-92690).
3.1(b) Amendment to Restated and Amended Articles of Incorporation.*
3.2 Amended and Restated By-laws, as amended.*
4.1 Indenture dated as of November 26, 1996 between Penn Treaty American
Corporation and First Union National Bank, as Trustee (including
forms of Notes) (incorporated by reference to Exhibit 4.1 to Penn
Treaty American Corporation's Current Report on Form 8-K filed on
December 6, 1996).
4.3 Registration Rights Agreement dated as of November 26, 1996 by and
among the Company and Bear, Stearns & Co. Inc. and Advest Inc.
(incorporated by reference to Exhibit 4.2 to Penn Treaty American
Corporation's Current Report on Form 8-K filed on December 6,
1996).
4.4 Form of Public Note.*
4.5 Specimen copy of Common Stock Certificate (incorporated by reference
to Exhibit 4 to Registration Statement on Form S-1, Reg. No.
33-92690).
5.1 Opinion of Ballard Spahr Andrews & Ingersoll.
12.1 Statement Re Earnings to Fixed Charges.
23.1 Consent of Coopers and Lybrand L.L.P.
23.2 Consent of Ballard Spahr Andrews & Ingersoll (contained in Exhibit
5.1).
24.1 Power of Attorney.*
25.1 Form T-1, Statement of Eligibility and Qualification of First Union
National Bank.*
- ----------
* Previously filed with the Commission
<PAGE>
Exhibit 5.1
<PAGE>
[BALLARD SPAHR ANDREWS & INGERSOLL LETTERHEAD APPEARS HERE]
April 11, 1997
Penn Treaty American Corporation
3440 Lehigh Street
Allentown, PA 18103
Re: Registration Statement on Form S-3 for
Penn Treaty American Corporation (the "Company")
------------------------------------------------
Ladies and Gentlemen:
We have acted as your counsel and are rendering this opinion in connection
with the filing of a Registration Statement on Form S-3 (the "Registration
Statement") by the Company with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, relating to the registration by the
Company of (i) $74,750,000 principal amount of its 6 1/4% Convertible
Subordinated Notes Due 2003 (the "Notes") and (ii) 2,628,340 shares of the
Company's common stock, par value $.10 share (the "Common Stock"), issuable
upon conversion of the Notes (the "Conversion Shares"). The Notes were
originally issued under an Indenture dated as of November 26, 1996 (the
"Indenture") by and between the Company and First Union National Bank, as
Trustee (the "Trustee").
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of (i) the Registration Statement and all exhibits thereto,
(ii) the Indenture and (iii) the Notes. We have also examined such corporate
records and other agreements, documents and instruments, and such certificates
or comparable documents of public officials and officers and representatives of
the Company, and have made such inquiries of such officers and representatives
and have considered such matters of law as we have deemed appropriate as the
basis for the opinions hereinafter set forth, including the Company's
Restated and Amended Articles of Incorporation, as amended and By-laws, as
amended, certain resolutions adopted by the Board of Directors of the Company
relating to the issuance of the Notes and the Conversion Shares and
statements from certain officers of the Company. In delivering this opinion,
we have assumed the genuineness of all signatures, the legal capacity of
natural persons, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
certified, photostatic or conformed copies, the authenticity of originals of
all such latter documents, and the accuracy and completeness of all records,
information and statements submitted to us by officers and representatives of
the Company.
Based upon and subject to the limitations, qualifications, exceptions and
assumptions set forth herein, we are of the opinion that:
<PAGE>
Penn Treaty American Corporation
April 11, 1997
Page 2
1. The Notes have been duly and validly authorized by the Company and,
assuming due authentication by the Trustee, constitute valid and binding
obligations of the Company, enforceable against the Company in accordance
with their terms and are entitled to the benefits (and are subject to all
of the limitations) of the Indenture, except that enforcement may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer, fraudulent conveyance or other similar laws affecting
or relating to enforcement of creditors' rights generally, (ii) general
principles of equity, including without limitation, concepts of
materiality, reasonableness, good faith and fair dealing (regardless of
whether such enforcement may be sought in a proceeding in equity or at law)
and (iii) the invalidity or unenforceability under certain circumstances,
under state or federal law or court decisions, of provisions indemnifying a
party against liability for its own wrongful or negligent acts or when such
indemnification is against public policy.
2. The Conversion Shares have been duly authorized by the Company and,
when issued and delivered in accordance with the terms of the Indenture,
will be validly issued, fully paid and nonassessable.
We express no opinion as to the law of any jurisdiction other than the
federal law of the United States and the law of the Commonwealth of
Pennsylvania.
We hereby consent to the sole use of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the Prospectus included therein. This opinion is not to be used,
circulated, quoted, referred to or relied upon by any other person or for any
other purpose without our prior written consent.
Very truly yours,
/s/ BALLARD SPAHR ANDREWS & INGERSOLL
<PAGE>
EXHIBIT 12.1
<PAGE>
Exhibit 12.1
RATIO OF EARNINGS TO FIXED CHARGES
($000)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
Pretax income from continuing operations............................... $ 7,736 $ 7,958 $ 9,325 $ 12,438 $ 17,007
Add: Fixed charges..................................................... 235 227 211 374 685
--------- --------- --------- --------- ---------
Adjusted earnings...................................................... 7,971 8,185 9,536 12,812 17,692
Fixed charges:
Interest expense..................................................... 192 184 162 327 625
Rental expense portion............................................... 94 43 49 47 60
--------- --------- --------- --------- ---------
Total fixed charges.................................................... $ 235 $ 227 $ 211 $ 374 $ 685
Ratio of earnings to fixed charges..................................... 33.92x 36.06x 45.19x 34.26x 25.83x
</TABLE>
<PAGE>
EXHIBIT 23.1
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Penn Treaty American Corporation on Form S-3 of our reports dated March
5, 1997, on our audits of the consolidated financial statements and
financial statement schedule of Penn Treaty American Corporation as of
December 31, 1996 and 1995, and for the years ended December 31, 1996, 1995
and 1994, which report is included in Form 10-K which is incorporated by
reference in the registration statement. We also consent to the reference to
our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
April 9, 1997
