<PAGE>
As filed with the Securities and Exchange Commission on February 20, 1997
Registration No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM S-3
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
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<C> <C> <C> <C>
6-1/4% Convertible $74,750,000 $74,750,000 $22,651.49
Notes due 2003
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Common Stock, par value 2,628,340 shares(2)
$.10 per share
===========================================================================================================
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(i).
(2) 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 FEBRUARY 20, 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 or
repurchased. See "Description of the Notes-Optional Redemption by the Company"
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 February 18, 1997, the reported closing price of the
Common Stock on the Nasdaq Stock Market was $27.375 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 8 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 _______ __, 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, 1995;
(ii) the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996;
(iii) the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996;
(iv) the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996, as amended by Form 10-Q/A filed on December 11,
1996;
(v) the Company's Current Report on Form 8-K dated March 27, 1996, as
amended by Form 8-K/A dated May 10, 1996;
(vi) the Company's Current Report on Form 8-K dated September 16, 1996;
(vii) the Company's Current Report on Form 8-K dated December 6, 1996;
(viii) the Company's Current Report on Form 8-K dated December 13, 1996;
and
(ix) 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.
3
<PAGE>
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).
4
<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. All references
in this Prospectus to the "1995 Financial Statements" shall mean the audited
consolidated financial statements of the Company and its subsidiaries contained
in the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995, which is incorporated herein by reference. 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
- --------------------------------------------------------------------------------
5
<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. The Company has
expanded its network of independent agents from approximately 12,200 as of
December 31, 1995 to 19,086 as of December 31, 1996, a 56.4% increase.
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 February 14, 1997(1) .......... 7,516,930 shares
Common Stock to be outstanding assuming conversion
of the Notes(1)(2) ........................................ 10,145,270 shares
Nasdaq National Market symbol ................................ PTAC
- ----------
(1) Excludes 199,643 shares of Common Stock issuable upon exercise of stock
options outstanding at February 14, 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").
Interest Payment Dates .... June 1 and December 1 of each year, commencing June
1, 1997.
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6
<PAGE>
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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 December 31, 1996, 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 December 31, 1996, the
aggregate liabilities of such subsidiaries were
approximately $275,000,000. 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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7
<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 1995 Financial Statements.
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 December 31, 1996.
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
$275,000,000 as of December 31, 1996.
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.
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
8
<PAGE>
historical claims data, such as long-term nursing home care insurance. As of
December 31, 1996, Independent Living(SM) policies accounted for
approximately 20% of the Company's total annualized premiums in-force, and
for the year ended December 31, 1996, Independent Living(SM) policies
accounted for approximately 40% 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 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.
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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 and Network America's ratings are, and
ANIC's rating is expected to be, "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 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
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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 18% 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, 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 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
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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,
September 30, 1996 1995 1994 1993 1992 1991
Ratio of Earnings
to Fixed Charges... 87.62x 34.26x 45.19x 36.06x 33.92x 40.10x
For purpose of computing the ratio of earnings to fixed charges, earnings
consist 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 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 currently held by QIBs and by persons who are not U.S. persons who
acquired such Notes in "offshore transactions" in reliance on Regulation S under
the Securities Act ("Non-U.S. Persons") are currently 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 sold to 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 registered in the
name of Cede, as DTC's nominee. Except as set forth below, the record ownership
of the
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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 settlement
of securities transactions between Participants through electronic book-entry
changes to
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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), (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
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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 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.
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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
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,
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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 December 31, 1996, the Company had approximately $1,900,000
outstanding under its mortgage and approximately $500,000 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 December 31, 1996, the aggregate liabilities of
such subsidiaries were approximately $275,000,000. 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
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
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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.
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
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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.
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,
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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, 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
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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 will be the transfer agent and registrar with regard to the shares of
Common Stock. In addition, the Trustee 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 February 14,
1997, there were approximately 438 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, encumber or otherwise dispose of all or
substantially all of the property or business of the Company; or liquidate or
dissolve the Company.
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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.
(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.
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(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 until
March 24, 1997 is Registrar & Transfer Company. As of March 24, 1997, the
transfer agent and registrar for the shares of the Common Stock will be 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>
Amalgamated Bank of Chicago $25,000 * 879
Bank of New York 9,881,000 13.22% 347,433
Bankers Trust Company 7,250,000 9.70 254,922
Bear Stearns Securities Corp.(3) 7,256,000 9.70 255,133
Boatmen's Trust Company 461,000 * 16,209
Boston Safe Deposit & Trust Co. 7,580,000 10.14 266,526
Bankers Trust/BT Holdings (New York) Inc. 1,000,000 1.33 35,161
Bank of Tokyo-Mitsubishi Trust Company 500,000 * 17,580
Chase Manhattan Bank 10,597,000 14.18 37,260
Chase Manhattan Bank/Chemical 1,377,000 1.80 48,417
Citicorp Services, Inc. 950,000 1.27 33,403
Corestates Bank N.A.(4) 2,175,000 2.91 76,476
First Interstate Bank of California 3,775,000 5.05 132,735
First Trust National Association 266,000 * 9,353
First Tennessee Bank, N.A. (Memphis) 925,000 1.24 32,524
Fleet Bank of Massachusetts, N.A. 40,000 * 1,406
Key Bank National Association 570,000 * 20,042
Lazard Freres & Co. 250,000 * 8,790
Lehman Brothers, Inc. 600,000 * 21,097
Lehman Brothers International
(Europe) - Prime Broker (LBI) 3,000,000 4.01 105,485
Mercantile, Safe Deposit and Trust Company 460,000 * 16,174
Montgomery Securities 750,000 1.00 26,371
Morgan Stanley & Co., Incorporated 750,000 1.00 26,371
Norwest Bank Minnesota National Association 100,000 * 3,516
Northern Trust Company 2,049,000 2.74 72,046
PNC National Association 1,120,000 1.50 39,381
Republic New York Securities Corp. 1,200,000 1.61 42,194
Schwab (Charles) Trust Company 20,000 * 703
Societe General Securities Corporation 1,500,000 2.01 52,742
SSB-Custodian 6,504,000 8.70 228,691
Star Bank, National Association, Cincinnati 64,000 * 2,250
Trust Company Bank 122,000 * 4,289
United States National Bank of Oregon 250,000 * 8,790
Wachovia Bank North Carolina 233,000 * 8,192
Wagner, Stott & Co. 900,000 1.20 31,645
All Other Holders 250,000 * 8,790
</TABLE>
- ----------
* Less than 1%.
(1) The information set forth herein is as of February 13, 1997 and will be
updated as required. Certain of the holders share 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) Bear Stearns & Co. Inc. was an Initial Purchaser in the private placement
of the Notes.
(4) Corestates Bank N.A. provides banking services to the Company for which
it receives customary fees.
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.
27
<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 offer 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, Rules 10b-6
and 10b-7, which may limit the timing of purchases and sales of any of the
Securities by the Selling Securityholders and any other such person.
Furthermore, under Rule 10b-6 under the Exchange Act, any person engaged in the
distribution of the Securities may not simultaneously engage in market-making
activities with respect to the particular Securities for a period of nine
business days prior to the 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.
28
<PAGE>
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,
1995 and 1994 and for each of the three years in the period ended December
31, 1995, 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.
29
<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.
30
<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 PENN TREATY
Summary ................................................. 5 AMERICAN CORPORATION
Risk Factors ............................................ 8
Use of Proceeds ......................................... 13 $74,750,000
Ratio of Earnings to Fixed Charges ...................... 13
Dividend Policy ......................................... 13 6 1/4% Convertible Subordinated
Description of the Notes ................................ 14 Notes Due 2003
Description of Capital Stock ............................ 24
Selling Securityholders ................................. 27 2,628,340 Shares of Common Stock
Plan of Distribution .................................... 28
Legal Matters ........................................... 29 -----------
Experts ................................................. 29
Glossary of Certain Insurance Terms ..................... 30 __________ __, 1997
</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 ...................... 60,000.00
Accounting Fees and Expenses ......................... 20,000.00
Legal Fees and Expenses .............................. 20,000.00
Miscellaneous Fees and Expenses ...................... 2,849.51
------------
Total .......................................... $ 125,000.00
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 (included on signature page).
25.1 Form T-1, Statement of Eligibility and Qualification of First Union
National Bank.
- ----------
* To be filed by Amendment
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 registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Allentown, Commonwealth of Pennsylvania, on February
20, 1997.
PENN TREATY AMERICAN CORPORATION
By: /s/ Irving Levit
-----------------------------
Irving Levit
President and Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Irving Levit and A.J. Carden and each or
any one of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effect amendments) to this registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to perform each and every act
and thing requisite and necessary to be done in connection therewith, as fully
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
his or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
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, February 20, 1997
- --------------------------- President and Chief
Irving Levit Executive Officer (Principal
Executive Officer)
/s/ Michael F. Grill Treasurer, Controller and February 20, 1997
- --------------------------- Director (Principal
Michael F. Grill Accounting Officer)
/s/ A.J. Carden Executive Vice President and February 20 1997
- --------------------------- Director
A.J. Carden
/s/ Domenic P. Stangherlin Secretary and Director February 20, 1997
- ---------------------------
Domenic P. Stangherlin
/s/ Jack D. Baum Vice President, Marketing February 20, 1997
- --------------------------- and Director
Jack D. Baum
II-4
<PAGE>
/s/ Cameron Waite Chief Financial Officer February 20, 1997
- --------------------------- (Principal Financial
Cameron Waite Officer)
/s/ Emile G. Ilchuk Director February 20, 1997
- ---------------------------
Emile G. Ilchuk
/s/ C. Mitchell Goldman Director February 20, 1997
- ---------------------------
C. Mitchell Goldman
/s/ John W. Mahoney Director February 20, 1997
- ---------------------------
John W. Mahoney
/s/ Glen A. Levit Director February 20, 1997
- ---------------------------
Glen A. Levit
II-5
<PAGE>
EXHIBIT 3.1(b)
<PAGE>
Microfilm Number 9709-541 Filed with the Department of State on Jan 28, 1997
-------- ------------
Entity Number 145993 /s/ Yvette Kane
------ --------------------------------------------
Secretary of the Commonwealth
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
In compliance with the requirements of 15 Pa.C.S. *1915 (relating to
articles of amendment), the undersigned business corporation, desiring to amend
its Articles, hereby states that:
1. The name of the corporation is: Penn Treaty American Corporation
2. The (a) address of the corporation's current registered office in this
Commonwealth or (b) name of its commercial registered office provider and
the county of venue is (the Department is hereby authorized to correct the
following information to conform to the records of the Department):
(a) 3440 Lehigh Street Allentown PA 18103 Lehigh
------------------ --------- -- ----- ------
Number and Street City State Zip County
(b)
c/o:---------------------------------------------------------------------------
Name of Commercial Registered Office Provider County
For a corporation represented by a commercial registered office provider,
the county in (b) shall be deemed the county in which the corporation is located
for venue and official publication purposes.
3. The statute by or under which it was incorporated is: Pennsylvania
Business Corporation Law, Act of May 5, 1933, P.L. 364, as amended
4. The date of its incorporation is: May 13, 1965
5. (Check, and if appropriate complete, one of the following):
X The amendment shall be effective upon filing these Articles of
Amendment in the Department of State.
The amendment shall be effective on: at
-- ------ ------
Date Hour
6. (Check one of the following):
X The amendment was adopted by the shareholders (or members) pursuant
to 15 Pa.C.S. Section 1914(a) and (b).
___ The amendment was adopted by the board of directors pursuant to 15
PA.C.S. Section 1914(c).
7. (Check, and if appropriate complete, one of the following:
X The amendment adopted by the corporation, set forth in full, is as
follows: The first paragraph of Article FIFTH shall be amended and
restated in its entirety as follows:
"The aggregate number of shares which the Corporation shall
have the authority to issue is 25,000,000 shares of common stock,
par value $.10 per share ("Common Stock"), and 5,000,000 shares of
preferred stock, par value $1.00 per share ("Preferred Stock")."
___ The amendment adopted by the corporation is set forth in full in
Exhibit A attached hereto and made a part hereof.
<PAGE>
8. (Check if the amendment restates the Articles):
___ The restated Articles of Incorporation supersede the original
Articles and all amendments thereto.
IN TESTIMONY WHEREOF, the undersigned corporation has caused these
Articles of Amendment to be signed by a duly authorized officer thereof this
27th day of January, 1997.
- ----
Penn Treaty American Corporation
---------------------------------
(Name of Corporation)
BY: /s/ A.J. Carden
---------------------------------
TITLE: Executive Vice President
---------------------------------
-2-
<PAGE>
EXHIBIT 3.2
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
PENN TREATY AMERICAN CORPORATION
A Pennsylvania Corporation
(December 3, 1996)
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I - OFFICES ......................................................... 1
1. Registered Office .............................................. 1
2. Additional Offices ............................................. 1
ARTICLE II - SEAL ........................................................... 1
1. Corporate Seal ................................................. 1
ARTICLE III - SHAREHOLDERS' MEETING ......................................... 1
1. Location of Shareholders Meeting ............................... 1
2. Date of Annual Shareholders Meeting ............................ 1
3. Failure to Hold Annual Meeting ................................. 2
4. Quorum ......................................................... 2
5. Shareholder Action ............................................. 3
6. Proxies ........................................................ 3
7. Voting ......................................................... 4
8. Notice of Annual Meeting of Shareholders ....................... 6
9. Judges of Election ............................................. 7
10. Special Meetings of Shareholders ............................... 7
11. Business Transacted at Special Meetings of Shareholders ........ 8
12. Notice of Special Meetings of Shareholders ..................... 8
13. Shareholders List .............................................. 8
14. Action by Unanimous Consent of Shareholders in Lieu
of a Meeting ................................................. 9
15. Action by Majority Consent of Shareholders in Lieu
of a Meeting ................................................. 9
ARTICLE IV - DIRECTORS ...................................................... 9
1. Number and Class of Directors .................................. 9
2. Removal of Directors; Vacancies ................................ 11
3. Powers of Directors ............................................ 11
4. Location of Meetings of the Board of Directors ................. 11
5. Meetings of the Board of Directors ............................. 11
6. Annual Meetings of the Board of Directors ...................... 12
7. Special Meetings of the Board of Directors ..................... 12
8. Quorum ......................................................... 12
9. Compensation ................................................... 12
10. Standard of Care ............................................... 13
11. Liability of Directors ......................................... 14
12. Tender Offers - Directors Duty ................................. 14
13. Nomination of Board of Directors ............................... 16
ARTICLE V - OFFICERS ........................................................ 17
1. Officers ....................................................... 17
2. Compensation ................................................... 17
3. Term of Office ................................................. 18
4. The Chief Executive Officer .................................... 18
5. The President .................................................. 18
6. The Secretary .................................................. 19
7. The Treasurer .................................................. 19
<PAGE>
ARTICLE VI - VACANCIES ...................................................... 20
1. Vacancies ...................................................... 20
ARTICLE VII - CORPORATE RECORDS ............................................. 20
1. Minute Books and Share Register ................................ 20
2. Inspection of Corporate Records ................................ 20
ARTICLE VIII - SHARE CERTIFICATES, DIVIDENDS, ETC. .......................... 21
1. Share Certificates ............................................. 21
2. Transfers of Shares ............................................ 21
3. Record Date .................................................... 21
4. Lost Stock Certificate ......................................... 23
5. Dividends ...................................................... 23
6. Payment of Dividends ........................................... 24
ARTICLE IX - MISCELLANEOUS PROVISIONS ....................................... 24
1. Checks or Demands for Money .................................... 24
2. Fiscal Year .................................................... 24
3. Written Notice ................................................. 24
4. Waiver of Notice ............................................... 25
5. Participation in Meetings by Telephone Conference Call ......... 26
6. Opt-Out Provisions ............................................. 26
ARTICLE X - ANNUAL STATEMENT ................................................ 27
1. Annual Statement ............................................... 27
ARTICLE XI - AMENDMENTS ..................................................... 27
1. Procedure ...................................................... 27
ARTICLE XII - INDEMNIFICATION OF DIRECTORS, OFFICERS
EMPLOYEES AND AGENTS; INSURANCE ............................... 28
1. General Rule ................................................... 28
2. Derivative Actions ............................................. 29
3. Success on Merits .............................................. 30
4. Determination .................................................. 30
5. Advancing Expenses ............................................. 30
6. Not Exclusive of Other Rights .................................. 31
7. Power to Purchase Insurance .................................... 31
8. Creation of a Fund to Secure Indemnification ................... 32
9. Willful Misconduct or Recklessness ............................. 32
10. Authority ...................................................... 32
ii
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AMENDED AND RESTATED
BY-LAWS
OF
PENN TREATY AMERICAN CORPORATION
ARTICLE I - OFFICES
1. Registered Office. The registered office of the Corporation shall be at
3440 Lehigh Street, Allentown, Pennsylvania 18103.
2. Additional Offices. The Corporation may also have offices at such other
places as the Board of Directors may from time to time appoint or the business
of the Corporation may require.
ARTICLE II - SEAL
1. Corporate Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal, PENNSYLVANIA."
ARTICLE III - SHAREHOLDERS' MEETING
1. Location of Shareholders Meeting. Meetings of shareholders may be held
at the registered office of the Corporation or at such other place within or
without the Commonwealth of Pennsylvania as may from time to time be selected by
the Board of Directors.
2. Date of Annual Shareholders Meeting. The annual meeting of the
shareholders, shall be held on the fourth Friday of May in each year if not a
legal holiday, and if a legal holiday, then on the next secular day following at
such time and place as may be specified in the notice thereof, at which time
they shall elect a Board of Directors, and transact such other business as may
properly be brought before the meeting. If the annual meeting is not called and
held within six months after the designated time, any shareholder may call the
meeting at anytime thereafter.
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3. Failure to Hold Annual Meeting. Failure to hold the annual meeting at
the designated time shall not work a dissolution of the Corporation or affect
otherwise valid corporate acts.
4. Quorum. (a) A meeting of the Corporation duly called shall not be
organized for the transaction of business unless a quorum is present. The
presence of shareholders, in person or by proxy, entitled to cast a least a
majority of the votes that all shareholders are entitled to cast on a particular
matter to be acted upon at the meeting shall constitute a quorum for the
purposes of consideration and action on the matter. The shareholders present, in
person or by proxy, at a duly organized meeting can continue to do business
until adjournment notwithstanding the withdrawal of enough shareholders to leave
less than a quorum. If a meeting cannot be organized because a quorum has not
attended, those shareholders present and entitled to vote may, except as
otherwise provided in this paragraph, adjourn the meeting to such time and place
as they may determine.
(b) Those shareholders entitled to vote, in person or by proxy, who
attend a meeting of shareholders that has been previously adjourned for one or
more periods aggregating at least fifteen days because of an absence of a
quorum, although less than a quorum as fixed in this paragraph or in these
by-laws, shall nevertheless constitute a quorum for the purpose of acting upon
any matter set forth in the notice of the meeting if the notice states that
those shareholders who attend the adjourned meeting shall nevertheless
constitute a quorum for the purpose of acting upon the matter. When a meeting of
shareholders is adjourned, it shall not be necessary to give any notice of the
adjourned meeting or the business to be transacted at an adjourned meeting,
other than by announcement at the meeting at which the adjournment is taken
unless the Board fixes a new record date for the adjourned meeting.
5. Shareholder Action. Unless otherwise provided in this paragraph or
these by-laws, whenever any corporate action is to be taken by a vote of the
shareholders of the Corporation it shall be authorized by a majority of the
votes cast at a duly organized meeting of the shareholders by the holders of
shares entitled to vote thereon.
6. Proxies. Every shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person to act for
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him by proxy. The presence of, or vote or other action at a meeting of
shareholders, or the expression of consent or dissent to corporate action in
writing, by a proxy of a shareholder shall constitute the presence of, or vote
or action by, or written consent or dissent of the shareholder for the purposes
of this paragraph. Where two or more proxies of a shareholder are present, the
Corporation shall, unless otherwise expressly provided in the proxy, accept as
the vote of all shares represented thereby the vote cast by a majority of them
and, if a majority of the proxies cannot agree whether the shares represented
shall be voted or upon the manner of voting the shares, the voting of the shares
shall be divided equally among those persons. Every proxy shall be executed in
writing by the shareholder or by his duly authorized attorney-in-fact and filed
with the Secretary of the corporation. A proxy, unless coupled with an interest,
shall be revocable at will, notwithstanding any other agreement or any provision
in the proxy to the contrary, but the revocation of a proxy shall not be
effective until written notice thereof has been given to the Secretary of the
corporation. An unrevoked proxy shall not be valid after three years from the
date of the execution unless a longer time is expressly provided therein. A
proxy shall not be revoked by death or incapacity of the maker unless, before
the vote is counted or the authority is exercised, written notice of the death
or incapacity is given to the Secretary of the Corporation.
7. Voting. (a) Shares of the Corporation standing in the name of a trustee
or other fiduciary and shares held by an assignee for the benefit of creditors
or by a receiver may be voted by the trustee, fiduciary, assignee or receiver. A
shareholder whose shares are pledged shall be entitled to vote the shares until
the shares have been transferred into the name of the pledgee, or a nominee of
the pledgee, but nothing in this paragraph shall affect the validity of a proxy
given to a pledgee or nominee. Where shares of the Corporation are held jointly
or as tenants in common by two or more persons, as fiduciaries or otherwise: (i)
if only one or more such persons is present in person or by proxy, all of the
shares standing in the names of such person shall be deemed to be represented
for the purpose of determining a quorum and the Corporation shall accept as the
vote of all the shares the vote cast by him or a majority of them; and (ii) if
the persons are equally divided upon whether the shares held by them shall be
voted or upon the manner of voting the shares, the voting of the shares shall be
divided equally among the persons without prejudice to the right of the joint
owners or the beneficial owners thereof among
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themselves. If there has been filed with the Secretary of the Corporation a
copy, certified by an attorney at law to be correct, of the relevant portions of
the agreement under which the shares are held or the instrument by which the
trust or estate was created or the order of court appointing them or of any
order of court directing the voting of the shares, the persons specified as
having such voting power in the latest document so filed, and only those persons
shall be entitled to vote the shares but only in accordance therewith.
(b) Any other domestic or foreign corporation for profit or
not-for-profit that is a shareholder of the Corporation may vote by any of its
officers or agents, or by proxy appointed by any officer or agent, unless some
other person, by resolution of the board of directors of the other corporation
or a provision of its articles or by-laws, a copy of which resolution or
provision certified to be correct by one of its officers has been filed with the
Secretary of the Corporation, is appointed its general or special proxy in which
case that person shall be entitled to vote the shares. Shares of a domestic or
foreign corporation for profit or not-for-profit other than a business
corporation, standing in the name of a shareholder that is a business
corporation, may be voted by the persons and in the manner provided for in the
case of business corporations by the foregoing sentence unless the laws of the
jurisdiction in which the issuer of the shares is incorporated require the
shares or memberships to be voted by some other person or persons or in some
other manner in which case, to the extent that those laws are inconsistent
herewith, this paragraph shall not apply. Shares of the Corporation owned,
directly or indirectly, by it and controlled, directly or indirectly, by the
Board of Directors of the Corporation, as such, shall not be voted at any
meeting and shall not be counted in determining the total number of outstanding
shares for voting purposes at any given time.
8. Notice of Annual Meeting of Shareholders. Written notice of the annual
meeting shall be mailed to each shareholder entitled to vote thereat, at such
address as appears on the books of the Corporation, at least five days prior to
the meeting unless a greater period is required by statute in a particular case.
For a meeting called to consider a fundamental change under Chapter 19 of the
Business Corporation Law of 1988, written notice shall be given at least ten
days prior to the meeting.
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9. Judges of Election. In advance of any meeting of shareholders, the
Board of Directors may appoint judges of election, who need not be shareholders,
to act at such meeting or any adjournment thereof. If judges of election be not
so appointed, the chairman of any such meeting may, and on the request of any
shareholder or his proxy, shall, make such appointment at the meeting. The
number of judges shall be one or three. If appointed at a meeting on the request
of one or more shareholders or proxies, the majority of shares present and
entitled to vote shall determine whether one or three judges are to be
appointed. On request of the chairman of the meeting, or of any shareholder or
his proxy, the judges shall make a report in writing of any challenge or
question or matter determined by them, and execute a certificate of any fact
found by them. No person who is a candidate for office shall act as a judge.
10. Special Meetings of Shareholders. Special meetings of the shareholders
may be called at any time by the Board of Directors or by the President. At any
time, upon written request of any person who has called a special meeting, it
shall be the duty of the Secretary to fix the time of the meeting which, if the
meeting is called pursuant to a statutory right, shall be held not more than
sixty days after receipt of the request. If the Secretary neglects or refuses to
fix the time of the meeting, the person or persons calling the meeting may do
so.
11. Business Transacted at Special Meetings of Shareholders. Business
transacted at all special meetings shall be confined to the objects stated in
the call and matters germane thereto.
12. Notice of Special Meetings of Shareholders. Written notice of a
special meeting of shareholders stating the time and place and object thereof,
shall be mailed, postage prepaid, to each shareholder entitled to vote thereat
at such address as appears on the books of the corporation, at least five days
before such meeting, unless a greater period of notice is required by statute in
a particular case. For a meeting called to consider a fundamental change under
Chapter 19 of the Business Corporation Law of 1988, written notice shall be
given at least ten days prior to the meeting.
13. Shareholders List. The office or agent having charge of the transfer
books shall make a complete list of the shareholders entitled to vote at any
meeting of shareholders arranged in alphabetical order, with the address of and
the number of shares held by each. Such list shall be subject to inspection by
any shareholder during the whole time of the meeting.
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14. Action by Unanimous Consent of Shareholders in Lieu of a Meeting. Any
action required or permitted to be taken at a meeting of the shareholders or of
a class of shareholders of the Corporation may be taken if, prior or subsequent
to the action a consent or consents thereto by all the shareholders who would be
entitled to vote at a meeting are filed with the Secretary.
15. Action by Majority Consent of Shareholders in Lieu of a Meeting. If
the Articles so permit, any action required or permitted to be taken at a
meeting of the shareholders may be taken without a meeting upon the written
consent of the shareholders who would have been entitled to cast the minimum
number of votes that would be necessary to authorize the action at a meeting at
which all shareholders entitled to vote thereon were present and voting. Such
consents shall be filed with the secretary of the Corporation. The action shall
not become effective until at least ten days' written notice of the action has
been given to each shareholder entitled to vote thereon who has not consented
thereto.
ARTICLE IV - DIRECTORS
1. Number and Class of Directors. Except as otherwise fixed pursuant to
the provisions of Article Fifth of the Articles of Incorporation relating to the
rights of the holders of any class or series of stock having a preference over
the common stock as to dividends or upon liquidation to election of additional
directors under specified circumstances, the number of directors shall be fixed
at nine (9). The directors shall be natural persons of full age, who need not be
residents of this Commonwealth or shareholders in the Corporation. At the annual
election of directors to be held at the annual meeting of shareholders in 1987,
the directors shall be divided into three (3) classes, as nearly equal as
possible, known as Class I, Class II, and Class III. The initial directors of
Class I shall serve until the 1988 annual meeting of shareholders, at which time
the directors of Class I shall be elected for a term of three (3) years and
shall thereafter be elected every three (3) years for three (3) year terms. The
initial directors of Class II shall serve until the 1989 annual meeting of
shareholders, at which time the directors of Class II shall be elected for a
term of three (3) years and shall thereafter be elected every three (3) years
for three (3) year terms. The initial directors of Class III shall serve until
the 1990 annual meeting of shareholders, at which time the directors of Class
III shall be elected for a term of three (3) years and shall thereafter be
elected
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every three (3) years for three (3) year terms. Each director elected shall hold
office until his or her successor is elected and qualified.
The term "entire Board" as used in these by-laws means the total number of
directors which the Corporation would have if there were no vacancies.
2. Removal of Directors; Vacancies. Any member of the Board of Directors
may be removed for cause only by the affirmative vote of the holders of 67% of
the combined voting power of all shareholders who are entitled to vote for the
election of directors, voting together as a single class. Proper "cause" shall
be determined by the vote of not less than 67% of the entire Board of Directors.
A director elected to fill a vacant position, however created, shall serve for
the remainder of the term of the director he or she is replacing.
3. Powers of Directors. In addition to the powers and authorities by these
by-laws expressly conferred upon them, the Board may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by statute or
by the Articles or by these by-laws directed or required to be exercised or done
by the shareholders.
4. Location of Meetings of the Board of Directors. The meetings of the
Board of Directors may be held at such place within this Commonwealth, or
elsewhere, as a majority of the directors may from time to time appoint, or as
may be designated in the notice calling the meeting.
5. Meetings of the Board of Directors. Each newly elected Board may meet
at such place and time as shall be fixed by the shareholders at the meeting at
which such directors are elected and no notice shall be necessary to the newly
elected directors in order to legally constitute the meeting, or they may meet
at such place and time as may be fixed by the consent in writing of all the
directors.
6. Annual Meetings of the Board of Directors. Annual meetings of the Board
shall be held without notice immediately following the annual meeting of the
shareholders, at the registered office of the Corporation, or at such other time
and place as shall be determined by the Board.
7. Special Meetings of the Board of Directors. Special meetings of the
Board may be called by the President on one day's notice to each director,
either personally or by mail or by telegram;
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special meetings shall be called by the President or Secretary in like manner
and on like notice on the written request of two directors.
8. Quorum. A majority of the directors in office shall be necessary to
constitute a quorum for the transaction of business, and the acts of a majority
of the directors present at a meeting at which a quorum is present shall be the
acts of the Board of Directors. If all the directors shall severally or
collectively consent in writing to any action to be taken by the Corporation,
such action shall be as valid a corporate action as though it had been
authorized at a meeting of the Board of Directors.
9. Compensation. Directors as such, shall not receive any stated salary
for their services, but by resolution of the Board, a fixed sum and expenses of
attendance, if any, may be allowed for attendance at each regular or special
meeting of the Board, provided that nothing herein contained shall be construed
to preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
10. Standard of Care. A director of the Corporation shall stand in a
fiduciary relation to the Corporation and shall perform his duties as a
director, including his duties as a member of any committee of the Board upon
which he may serve, in good faith, in a manner he reasonably believes to be in
the best interests of the Corporation, and with such are, including reasonable
inquiry, skill and diligence, as a person of ordinary prudence would use under
similar circumstances. In performing his duties, a director shall be entitled to
rely in good faith on information, opinions, reports or statements, including
financial statements and other financial data, in each case prepared or
presented by any of the following:
(a) One or more officers or employees of the Corporation whom the
director reasonably believes to be reliable and competent in the matters
presented;
(b) Counsel, public accountants or other persons to matters which
the director reasonably believes to be within the professional or expert
competence of such person; and/or
(c) A committee of the Board upon which he does not serve, duly
designated in accordance with law, as to matters within its designated
authority, which committee the director reasonably believes to merit confidence.
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A director shall not be considered to be acting in good faith if he has
knowledge concerning the matter in question that would cause his reliance to be
unwarranted.
11. Liability of Directors. A director of the Corporation shall not be
personally liable for monetary damages as such for any action taken, or any
failure to take any action, unless:
(a) the director has breached his duty of good faith or duty of
loyalty or failed to perform the duties of his office; and/or
(b) the breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness.
12. Tender Offers - Directors Duty. (a) The Board of Directors may, if it
deems advisable, oppose a tender offer, or other offer for the Corporation's
securities, whether the offer is in cash or in the securities of a corporation
or otherwise. When considering whether to oppose an offer, the Board of
Directors may, but is not legally obligated to, consider any pertinent issue. By
way of illustration, but not of limitation, the Board of Directors may, but
shall not be legally obligated to, consider any or all of the following:
(i) whether the offer is acceptable based on historical and present
operating results or the financial condition of the Corporation and its
subsidiaries, and their future prospects;
(ii) whether a more favorable offer could be obtained for the
Corporation's, or its subsidiaries,' securities or assets in the future;
(iii) the social, economic or any other material impact which an
acquisition of the Corporation, or substantially all of its assets, would
have upon the employees, insureds and customers of the Corporation and its
subsidiaries and the communities in which they serve;
(iv) the reputation and business practices of the offeror and its
management and affiliates as they would affect the employees, insureds and
customers of the Corporation and its subsidiaries and the future value of
the corporation's stock;
(v) the value of the securities (if any) which the offeror is
offering in exchange for the Corporation's, or its subsidiaries',
securities or assets based on an analysis of the
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worth of the Corporation, or if its subsidiaries, as compared to the
offeror corporation or other entity whose securities are being offered;
and/or
(vi) any antitrust or other legal or regulatory issues that are
raised by the offer.
(b) If the Board of Directors determines that an offer should be
rejected, it may take any lawful action to accomplish its purposes including,
but not limited to, any or all of the following: advising shareholders not to
accept the offer; litigation against the offeror; filing complaints with all
governmental and regulatory authorities; acquiring the Corporation's securities;
selling or otherwise issuing authorized shares of preferred stock with such
designations, preferences, qualifications, limitations, restrictions and/or
special rights as the Board of Directors deems appropriate; selling or otherwise
issuing authorized but unissued securities or treasury stock or granting options
with respect thereto; acquiring a company to create an antitrust or other
regulatory problem for the offeror; and obtaining a more favorable offer from
another individual or entity.
13. Nomination of Board of Directors. Nominations for election to the
Board of Directors may be made by the Board of Directors or a committee
appointed by the Board of Directors or, subject to the rights of the holders of
preferred stock, by any shareholder of any outstanding class of common stock of
the Corporation entitled to vote for election of directors. Nominations, other
than those made by or on behalf of the Board of Directors of the Corporation,
shall be made in writing and shall be delivered or mailed to the President of
the Corporation not less than fifty (50) days nor more than seventy-five (75)
days prior to any meeting of shareholders called for the election of directors,
provided, however that if less than fifty (50) days' notice of the meeting is
given to shareholders, such nomination shall be mailed or delivered to the
President of the Corporation not later than the close of business on the seventh
day following the day on which the notice of the meeting was mailed. Such
notification shall contain the following information to the extent known to the
notifying shareholder(s): (a) the name and address of each proposed nominee; (b)
the principal occupation of each proposed nominee; (c) the total number of
shares of common stock of the Corporation that will be voted for each proposed
nominee by the notifying shareholder(s); (d) the name and residence address of
the notifying shareholder(s). Nominations not made
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in accordance herewith shall be disregarded by the chairman of the meeting and
votes cast for such nominee shall not be counted.
ARTICLE V - OFFICERS
1. Officers. The executive officers of the Corporation shall be chosen by
the directors and shall be a Chief Executive Officer, President, Secretary, and
Treasurer. The Board of Directors may also choose one or more Vice-Presidents
and such other officers and agents as it shall deem necessary, who shall hold
their offices for such terms and shall have such authority and shall perform
such duties as from time to time shall be prescribed by the Board. Any two or
more offices may be held by the same person. It shall not be necessary for the
officers to be directors.
2. Compensation. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors.
3. Term of Office. The officers of the Corporation shall hold office for
one year and until their successors are chosen and shall have qualified. Any
officer elected or appointed by the Board of Directors may be removed by the
Board of Directors whenever in their judgment the best interests of the
Corporation will be served thereby.
4. The Chief Executive Officer. The Chief Executive Officer shall preside
at all meetings of the shareholders and directors. He shall oversee the general
and active management of the Corporation and shall execute bonds, mortgages and
other contracts requiring a seal, under the seal of the Corporation. He shall be
Ex-Officio a member of all committees, and shall have the general powers and
duties of supervision and management usually vested in the office of Chief
Executive Officer of a corporation and shall perform such other duties as from
time to time may be assigned by the Board of Directors.
5. The President. The President shall have general and active management
of the business of the Corporation, shall see that all orders and resolutions of
the Board are carried into effect, subject, however, to the right of the
directors to delegate any specific powers, except such as may be by statute
exclusively conferred on the President, to any other officer or officers of the
Corporation. He shall execute bonds, mortgages and other contracts requiring a
seal, under the seal of the Corporation. He shall have
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the general powers and duties of supervision and management usually vested in
the office of President of a corporation and shall perform such other duties as
from time to time may be assigned by the Board of Directors.
6. The Secretary. The Secretary shall attend all sessions of the Board and
all meetings of the shareholders and act as clerk thereof, and record all the
votes of the Corporation and the minutes of all its transactions in a book to be
kept for that purpose; and shall perform like duties for all committees of the
Board of Directors when required. He shall give, or cause to be given, notice of
all meetings of the shareholders and the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors, Chief
Executive Officer or President, and under whose supervision he shall be. He
shall keep in safe custody the corporate seal of the Corporation, and when
authorized by the Board, affix the same to any instrument requiring it.
7. The Treasurer. The Treasurer shall have custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall keep the moneys of
the Corporation in a separate account to the credit of the Corporation. He shall
disburse the funds of the Corporation as may be ordered by the Board, taking
proper vouchers for such disbursements, and shall render to the Chief Executive
Officer, President and directors, at the annual meetings of the Board, or
whenever they may require it, an account of all his transactions as Treasurer
and of the financial condition of the Corporation.
ARTICLE VI - VACANCIES
1. Vacancies. If the office of any one or more officer or agent becomes
vacant for any reason, the Board of Directors may choose a successor or
successors, who shall hold office for the unexpired term in respect of which
such vacancy occurred.
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ARTICLE VII - CORPORATE RECORDS
1. Minute Books and Share Register. There shall be kept at the registered
office or principal place of business of the Corporation an original or
duplicate record of the proceedings of the shareholders and of the directors,
and the original or a copy of its by-laws, including all amendments or
alterations thereto to date, certified by the Secretary of the Corporation. At
the registered office, principal place of business or at the office of the
Corporation's transfer agent, an original or duplicate share register shall also
be kept giving the names of the shareholders in alphabetical order, and showing
their respective addresses, the number and classes of shares held by each, the
number and date of certificates issued for the shares, and the number and date
of cancellation of every certificate surrendered for cancellation.
2. Inspection of Corporate Records. Every shareholder upon written
verified demand stating the purpose thereof, shall have a right to examine, in
person or by agent or attorney, at any reasonable time or times, for any
reasonable purpose, the share register, books or records of account, and records
of the proceedings of the shareholders and directors, and make extracts
therefrom.
ARTICLE VIII - SHARE CERTIFICATES, DIVIDENDS, ETC.
1. Share Certificates. The share certificates of the Corporation shall be
numbered and registered in the share ledger and transfer books of the
Corporation, as they are issued. Every share certificate may be executed by
facsimile or otherwise on behalf of the Corporation in any manner approved by
the Board of Directors. In case any officer who has signed, or whose facsimile
signature has been placed upon any share certificate shall have ceased to be
such officer because of death, resignation or otherwise before the certificate
is issued, it may be issued by the Corporation with the same effect as if the
officer had not ceased to be such at the date of its issue.
2. Transfers of Shares. Transfers of shares shall be made on the books of
the Corporation upon surrender of the certificates therefor, endorsed by the
person named in the certificate or by attorney, lawfully constituted in writing.
No transfer shall be made inconsistent with the provisions of Article 8 of the
Uniform Commercial Code, and its amendments and supplements.
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3. Record Date. (a) The Board of Directors may fix a time, not more than
ninety days, prior to the date of any meeting of shareholders, or the date fixed
for the payment of any dividend or distribution, or the date for the allotment
of rights, or the date when any change or conversion or exchange of shares will
be made or go into effect, as a record date for the determination of the
shareholders entitled to notice of, or to vote at, any such meeting, or entitled
to receive payment of any such dividend or distribution, or to receive any such
allotment of rights, or to exercise the rights with respect to any such change,
conversion, or exchange of shares. In such case, only such shareholders as shall
be shareholders of record on the date so fixed shall be entitled to notice of,
or to vote at, such meeting, or to receive payment of such dividend, or to
receive such allotment of rights, or to exercise such rights as the case may be,
notwithstanding any transfer of any shares on the books of the Corporation after
any record date fixed, as aforesaid. When a determination of shareholders of
record has been made as provided in this paragraph for purposes of a meeting the
determination shall apply to any adjournment thereof unless the Board of
Directors fixes a new record date for the adjourned meeting.
(b) If a record date is not fixed:
(1) The record date for determining shareholders entitled to
notice of to vote at a meeting of shareholders shall be at the close of
business on the day next preceding the day on which notice is given or, if
notice is waived, at the close of business on the day immediately
preceding the day on which the meeting is held.
(2) The record date for determining shareholders entitled to
express consent or dissent to corporate action in writing without a
meeting when prior action by the Board of Directors is not necessary,
shall be the close of business on the day on which the first written
consent or dissent is filed with the Secretary.
(3) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
4. Lost Stock Certificate. Any person claiming a share certificate to be
lost or destroyed shall make an affidavit or affirmation of that fact and
advertise the same in such manner as the Board of
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Directors may require, and shall give the Corporation a bond of indemnity with
sufficient surety to protect the Corporation or any person injured by the issue
of a new certificate from any liability or expense which it or they may incur by
reason of the original certificate remaining outstanding, whereupon a new
certificate may be issued of the same tenor and for the same number of shares as
the one alleged to be lost or destroyed, but always subject to the approval of
the Board of Directors.
5. Dividends. Subject to the provisions of Section 1551, the Board of
Directors may, in its discretion, declare and pay dividends and make other
distributions upon the outstanding shares of the Corporation from time to time
and to such extent as they deem advisable, in cash, property or in shares of the
Corporation.
6. Payment of Dividends. Before payment of any dividend there may be set
aside out of the net profits of the Corporation such sum or sums as the
directors, from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interests of the
Corporation, and the directors may abolish any such reserve in the manner in
which it was created.
ARTICLE IX - MISCELLANEOUS PROVISIONS
1. Checks or Demands for Money. All checks or demands for money and notes
of the Corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
2. Fiscal Year. The fiscal year shall end the 31st day of December of each
year.
3. Written Notice. Whenever written notice is required to be given to any
person by statute, or by the Articles of Incorporation or these by-laws, it may
be given to such person, either personally or by sending a copy thereof by first
class or express mail, postage pre-paid or by telegram (with messenger service
specified), telex or TWX (with answer back received) or courier service, charges
prepaid, or by telecopier, to his address (or to his telex, TWX, telecopier or
telephone number) appearing on the books of the Corporation, or in the case of
directors, supplied by him to the Corporation for the
15
<PAGE>
purpose of notice. If the notice is sent by mail, telegraph or courier service,
it shall be deemed to have been given to the person entitled thereto when
deposited in the United States mail or with a telegraph office or courier
service for delivery to that person or, in the case of telex or TWX, when
dispatched. A notice of meeting shall specify the place, day and hour of the
meeting and, in the case of a special meeting, the general nature of the
business to be transacted.
4. Waiver of Notice. Whenever any written notice is required to be given
by statute, or by the Articles or the by-laws of this Corporation, a waiver
thereof in writing, signed by the person or persons entitled to the notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of the notice. Except as otherwise provided by statute and in these
by-laws, neither the business to be transacted at, nor the purpose of, a meeting
need be specified in the waiver of notice of the meeting. In the case of a
special meeting of shareholders, the waiver of notice shall specify the general
nature of the business to be transacted. Attendance of a person either in person
or by proxy, at any meeting shall constitute a waiver of notice of the meeting
except where a person attends a meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting was not lawfully called or convened.
5. Participation in Meetings by Telephone Conference Call. One or more
persons may participate in a meeting of the Board, of a committee of the
incorporators, the Board or of the shareholders, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in a meeting
pursuant to this paragraph shall constitute presence in person at this meeting.
6. Opt-Out Provisions. The Corporation hereby explicitly opts out of the
provisions of Subchapter H (entitled "Disgorgement by Certain Controlling
Shareholders Following Attempts to Acquire Control") of Act No. 1990-36, 15 Pa.
C.S. 2571-2575 and these provisions shall accordingly not be applicable to the
Corporation. (This amendment to the By-laws was approved by the Board of
Directors on July 19, 1990.) The Corporation hereby explicitly opts out of the
provisions of Subchapter G (entitled "Control Share Acquisitions") of Act No.
1990-36, 15 Pa.C.S. 2561-2567 and these provisions shall
16
<PAGE>
accordingly not be applicable to the Corporation. (This amendment to the By-laws
was approved by the Board of Directors on July 19, 1990.)
ARTICLE X - ANNUAL STATEMENT
1. Annual Statement. The President and Board of Directors shall present at
each annual meeting a full and complete statement of the business and affairs of
the Corporation for the preceding year. Such statement shall be prepared and
presented in whatever manner the Board of Directors shall deem advisable and
need not be verified by a certified public accountant.
ARTICLE XI - AMENDMENTS
1. Procedure. These by-laws may be altered, amended or repealed, or new
by-laws may be adopted by the Board of Directors, subject always to the power of
the shareholders to change such action, at any regular meeting of the Board of
Directors or at any special meeting of the Board of directors if notice of such
alteration, amendment, repeal or adoption of new by-laws be contained in the
notice of such special meeting; provided that notwithstanding the foregoing, the
provisions of Article IV, paragraphs 1, 2, 10, 11, 12 and 13, Article XII or
this Article XI of these by-laws may be altered, amended, or repealed only upon
the affirmative vote of 67% of the combined voting power of all shareholders who
are entitled to vote thereon, voting as a single class.
ARTICLE XII - INDEMNIFICATION OF DIRECTORS, OFFICERS
EMPLOYEES AND AGENTS; INSURANCE
1. General Rule. Any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Corporation) by reason of the fact that he is or was a
director, officer, employee, or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall be indemnified by this Corporation against expenses (including attorneys'
fees)
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judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the Corporation, and, with respect to any criminal action or
proceedings, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceedings by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
2. Derivative Actions. Any person who was or is a party, or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the Corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall be indemnified by this Corporation
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interests of the Corporation; except, however, that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation unless and only to
the extent that the Court of Common Pleas of the county in which the registered
office of the Corporation is located or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Co urt
of Common Pleas or such other court shall deem proper.
3. Success on Merits. To the extent that a director, officer, employee or
agent as above described has been successful on the merits or otherwise in
defense of any action, suit or proceeding
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<PAGE>
referred to in paragraph 1 or 2 of this Article or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
4. Determination. Any indemnification under paragraph 1 or 2 of this
Article (unless ordered by a court) shall be made only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in such subparagraph. Such
determination shall be made:
(a) By the vote of the Board of Directors consisting of directors
who were not parties to such action, suit or proceedings; or
(b) If such action is not obtainable, or even if obtainable the vote
of the disinterested directors so directs, by independent legal counsel in a
written opinion, or
(c) By the shareholders.
5. Advancing Expenses. Expenses incurred by an officer, director, employee
or agent in defending a civil or criminal action, suit or proceeding may be paid
by the Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the Corporation
as authorized in this Article.
6. Not Exclusive of Other Rights. The indemnification provided by this
Article shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any by-law,
agreement, vote of shareholders or directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
7. Power to Purchase Insurance. The Corporation may, by action of the
Board of Directors, purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise
19
<PAGE>
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article.
8. Creation of a Fund to Secure Indemnification. The Corporation may
create a fund of any nature, which may, but need not be, under the control of a
trustee, or otherwise secure in any matter its indemnification obligations,
whether arising under or pursuant to this Article or otherwise.
9. Willful Misconduct or Recklessness. Indemnification pursuant to this
Article shall not be made in any case where the act or failure to act giving
rise to the claim for indemnification is determined by a court to have
constituted willful misconduct or recklessness.
10. Authority. Indemnification pursuant to this Article, under any by-law,
agreement, vote of shareholders, members or directors or otherwise, may be
granted for any action taken or any failure to take any action and may be made
whether or not the Corporation would have the power to indemnify the person
under any provision of law except as provided in this Article and whether or not
the indemnified liability arises or arose from any threatened, pending or
completed action by or in the right of the Corporation.
20
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EXHIBIT 4.4
<PAGE>
[FORM OF PUBLIC NOTE]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
No. B- U.S. $74,750,000
CUSIP No._________ -----------
PENN TREATY AMERICAN CORPORATION
6 1/4% Convertible Subordinated Notes Due 2003
Registered Holder: Cede & Co.
PENN TREATY AMERICAN CORPORATION, a corporation duly organized and validly
existing under the laws of the Commonwealth of Pennsylvania (the "Company"),
which term includes any Successor Company under the Indenture referred to on the
reverse hereof, for value received hereby promises to pay to Cede & Co., or
registered assigns, the principal sum not to exceed Seventy Four Million Seven
Hundred Fifty Thousand United States Dollars (subject to adjustment as set forth
in the next paragraph hereof) on December 1, 2003, at the office or agency of
the Company maintained for that purpose in the Borough of Manhattan, The City of
New York, or, at the option of the holder of this Public Note, at the Corporate
Trust Office of the Trustee, in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts, and to pay interest, semi-annually on June 1 and
December 1 of each year (each an "Interest Payment Date"), commencing June 1,
1997, on said principal sum at said office or agency, in like coin or currency,
at the rate of 6 1/4% per annum, from November 26, 1996 or the most recent
Interest Payment Date, as the case may be, next preceding the date of this
Public Note to which interest has been paid or duly provided for, unless the
date hereof is a date to which interest has been paid or duly provided for, in
which case from the date of this Public Note, or unless no interest has been
paid or duly provided for on the Notes, in which case from November 26, 1996,
until payment of said principal sum has been made or duly provided for. Any
interest on any Note that is payable, but is not punctually paid or duly
provided for on said June 1 or December 1 (herein called "Defaulted Interest")
shall forthwith cease to be payable to the Noteholder on the relevant record
date by virtue of his having been such Noteholder; and such Defaulted Interest
shall be paid by the Company, at its election in each case, either (i) by
notifying the Trustee of a special record date, the amount of interest to be
paid on such special record date and the date of payment (not more than 25 days
after receipt by the Trustee of such interest, unless the Trustee shall consent
to an earlier date) and depositing with the Trustee an amount of money equal to
the aggregate amount to be paid in respect of such Defaulted Interest on making
arrangements satisfactory to the Trustee for such deposit or (ii) in any lawful
manner not inconsistent with the requirements of any securities exchange on
which the Notes may be listed and upon notice requested by such exchange, if,
after notice to the Trustee, the Trustee deems such manner of payment to be
practicable. The interest so payable on any June 1 or December 1 will be paid to
the person in whose name this Public Note (or one or more Predecessor Notes) is
registered at the close of business on the record date, which shall be the May
15 or November 15 (whether or not a
<PAGE>
Business Day) next preceding such June 1 or December 1, respectively; provided
that any such interest not punctually paid or duly provided for shall be payable
as provided in the Indenture. Interest shall be paid by check mailed to the
registered holder at the registered address of such person unless other
arrangements are made in accordance with the provisions of the Indenture.
The aggregate principal amount of this Public Note represented hereby
may from time to time be reduced or increased to reflect exchanges of a part
of this Public Note for interests in the definitive Public Notes or exchanges
of interests in the Regulation S Global Note, Restricted Global Note or
definitive Notes for a part of this Public Note or conversions, redemptions
or repurchases of a part of this Public Note or cancellations of a part of
this Public Note or transfers of interests in the Regulation S Global Note,
Restricted Global Note or definitive Notes in return for a part of this
Public Note or transfers of a part of this Public Note effected by delivery
of interests in the Regulation S Global Note, Restricted Global Note or
definitive Notes, in each case, and in any such case, by means of notations
on the Schedule of Exchanges, Conversions, Redemptions, Repurchases,
Cancellations and Transfers on the last page hereof. Notwithstanding any
provision of this Public Note to the contrary, (i) exchanges of a part of
this Public Note for interests in the definitive Public Notes, (ii) exchanges
of interests in the Regulation S Global Note, Restricted Global Note or
definitive Notes for a part of this Public Note, (iii) conversions,
redemptions or repurchases of a part of this Public Note, (iv) cancellations
of a part of this Public Note, (v) transfers of interests in the Regulation S
Global Note, Restricted Global Note or definitive Notes in return for a part
of this Public Note and (vi) transfers of a part of this Public Note effected
by delivery of interests in the Regulation S Global Note, Restricted Global
Note or definitive Notes may be effected without the surrendering of this
Public Note, provided that appropriate notations on the Schedule of
Exchanges, Conversions, Redemptions, Repurchases, Cancellations and Transfers
are made by the Trustee, or the Custodian at the direction of the Trustee, to
reflect the appropriate reduction or increase, as the case may be, in the
aggregate principal amount of this Public Note resulting therefrom or as a
consequence thereof.
Reference is made to the further provisions of this Public Note set forth
on the reverse hereof, including, without limitation, provisions giving the
holder of this Public Note the right to convert this Public Note into Common
Stock of the Company on the terms and subject to the limitations referred to on
the reverse hereof and as more fully specified in the Indenture. Such further
provisions shall for all purposes have the same effect as though fully set forth
at this place.
This Public Note shall not be valid or become obligatory for any purpose
until the certificate of authentication hereon shall have been manually signed
by the Trustee or a duly authorized authenticating agent under the Indenture.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Public Note to be duly
executed under its corporate seal.
PENN TREATY AMERICAN CORPORATION
By: ______________________________
Name:
Title:
Attest:
____________________________
Secretary
3
<PAGE>
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Notes described in the within-named Indenture.
FIRST UNION NATIONAL BANK, as Trustee
By:_________________________ Authorized
Signatory
4
<PAGE>
[FORM OF REVERSE OF PUBLIC NOTE]
PENN TREATY AMERICAN CORPORATION
6 1/4% Convertible Subordinated Notes Due 2003
This Public Note is one of a duly authorized issue of Notes of the
Company, designated as its 6 1/4% Convertible Subordinated Notes Due 2003
(herein called the "Notes"), limited to the aggregate principal amount of
$74,750,000 issued under and pursuant to an Indenture dated as of November 26,
1996 (the "Indenture"), between the Company and First Union National Bank, as
trustee (the "Trustee"), to which Indenture and all indentures supplemental
thereto reference is hereby made for a complete description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the
Trustee, the Company and the holders of the Notes. Each Note is subject to, and
qualified by, all such terms as set forth in the Indenture certain of which are
summarized hereon and each holder of a Note is referred to the corresponding
provisions of the Indenture for a complete statement of such terms. To the
extent that there is any inconsistency between the summary provisions set forth
in the Notes and the Indenture, the provisions of the Indenture shall govern.
Capitalized terms used but not defined in this Public Note shall have the
meanings ascribed to them in the Indenture.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of, premium, if any, and accrued
interest on all Notes may be declared, and upon said declaration shall become,
due and payable, in the manner, with the effect and subject to the conditions
provided in the Indenture.
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 (as defined in
the Indenture). 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 Senior Indebtedness) until all Senior
Indebtedness has been paid in full if (a) 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 (b) 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
Nonpayment 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
5
<PAGE>
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.
In the event that the Trustee (or paying agent if other than the Trustee)
or any holder of the Notes 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, the holders of the Notes 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 of the Notes have
been applied to the payment of Senior Indebtedness.
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in aggregate
principal amount of the Notes at the time outstanding, evidenced as in the
Indenture provided, to execute supplemental indentures adding any provisions to
or changing in any manner or eliminating any of the provisions of the Indenture
or of any supplemental indenture or modifying in any manner the rights of the
holders of the Notes; provided that no such supplemental indenture shall (i)
extend the fixed maturity of any Note, or reduce the rate or extend the time of
payment of interest thereon, or reduce the principal amount thereof or premium,
if any, thereon, or reduce any amount payable on redemption thereof, alter the
obligation of the Company to repurchase the Notes at the option of the holders
upon the occurrence of a Change of Control, or impair or affect the right of any
Noteholder to institute suit for the payment thereof, or make the principal
thereof or interest or premium, if any, thereon payable in any coin or currency
other than that provided in the Notes, modify the subordination provisions 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 Notes, the holders of which are required to consent to any such
supplemental indenture, without the consent of the holders of all Notes then
outstanding. The Company and the Trustee may amend or supplement the Indenture
without notice to or consent of any holder of Notes in certain events specified
in the Indenture. It is also provided in the Indenture that, prior to any
declaration accelerating the maturity of the Notes, the holders of a majority in
aggregate principal amount of the Notes at the time outstanding may on behalf of
the holders of all of the Notes waive any past default or Event of Default under
the Indenture and its consequences except a default in the payment of interest
or any premium on or the principal of any of the Notes, a failure by the Company
to convert any Notes into Common Stock of the Company, unless otherwise excused
pursuant to the terms of the Indenture, or a default in respect of a covenant or
provision of the Indenture that under Article X thereof cannot be modified or
amended without the consent of the holders of all Notes then outstanding. Any
such consent or waiver by the holder of this Public Note (unless revoked as
provided in the Indenture) shall be conclusive and binding upon such holder and
upon all future holders and owners of this Public Note and any Notes that may be
issued in exchange or substitution hereof, irrespective of whether or not any
notation thereof is made upon this Public Note or such other Notes.
No reference herein to the Indenture and no provision of this Public Note
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of and any premium and
interest on this Public Note at the place, at the respective times, at the rate
and in the coin or currency herein prescribed.
6
<PAGE>
Interest on the Notes shall be computed on the basis of a 360-day year
composed of twelve 30-day months.
The Notes are issuable in registered form without coupons in denominations
of $1,000 principal amount and integral multiples thereof. At the office or
agency of the Company referred to on the face hereof, and in the manner and
subject to the limitations provided in the Indenture, without payment of any
service charge but with payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration or
exchange of Notes, Notes may be exchanged for a like aggregate principal amount
of Notes of other authorized denominations.
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, upon notice as set forth in the Indenture, 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; provided that if the date fixed for
redemption is a date on or after the record date and on or before the next
following Interest Payment Date, then the interest payable on such date shall be
paid to the holder of record on the next preceding May 15 or November 15,
respectively.
If a Change of Control (as defined in the Indenture) shall occur at any
time, then 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 of such Notes, plus accrued and unpaid interest, if any, to the
repurchase date pursuant to an offer to be made by the Company and in accordance
with the procedures set forth in the Indenture.
Subject to the provisions of the Indenture, the holder hereof has the
right, at its option, at any time after 90 days following the latest date of
original issuance of the Notes and prior to the close of business on November
28, 2003, subject to prior redemption or repurchase, or, as to all or any
portion hereof called for redemption, prior to the close of business one
business day before the date fixed for redemption (unless the Company shall
default in payment due upon redemption thereof), to convert the principal hereof
or any portion of such principal that is $1,000 or an integral multiple thereof,
into that number of fully paid and non-assessable shares of the Company's Common
Stock, as said shares shall be constituted at the date of conversion, obtained
by dividing the principal amount of this Public Note or portion thereof to be
converted by the conversion price of $28.44 per share or such conversion price
as adjusted from time to time as provided in the Indenture, upon surrender of
this Public Note, together with a conversion notice as provided in the
Indenture, to the Company at the office or agency of the Company maintained for
that purpose in the Borough of Manhattan, The City of New York, or at the option
of such holder, the Corporate Trust Office of the Trustee, and, unless the
shares issuable on conversion are to be issued in the same name as this Public
Note, duly endorsed by, or accompanied by instruments of transfer in form
satisfactory to the Company duly executed by, the holder or by his duly
authorized attorney.
7
<PAGE>
Except as described in the Indenture, 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.
Upon due presentment for registration of transfer of this Public Note at
the office or agency of the Company in the Borough of Manhattan, The City of New
York, or at the option of the holder of this Public Note, at the Corporate Trust
Office of the Trustee, a new Note or Notes of authorized denominations for an
equal aggregate principal amount will be issued to the transferee in exchange
thereof, subject to the conditions and limitations provided in the Indenture,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company, the Trustee, any authenticating agent, any paying agent, any
conversion agent and any Note registrar may deem and treat the registered holder
hereof as the absolute owner of this Public Note (whether or not this Public
Note shall be overdue and notwithstanding any notation of ownership or other
writing hereon made by anyone other than the Company or any Note registrar), for
the purpose of receiving payment hereof, or on account hereof, for the
conversion hereof and for all other purposes, and neither the Company nor the
Trustee nor any other authenticating agent nor any paying agent nor any other
conversion agent nor any Note registrar shall be affected by any notice to the
contrary. All payments made to or upon the order of such registered holder
shall, to the extent of the sum or sums paid, satisfy and discharge liability
for monies payable on this Public Note.
No recourse for the payment of the principal of or any premium or interest
on this Public Note, or for any claim based hereon or otherwise in respect
hereof, and no recourse under or upon any obligation, covenant or agreement of
the Company in the Indenture or any indenture supplemental thereto or in any
Note, or because of the creation of any indebtedness represented thereby, shall
be had against any incorporator, shareholder, officer or director, as such,
past, present or future, of the Company or of any Successor Company, either
directly or through the Company or any Successor Company, whether by virtue of
any constitution, statute or rule of law or by the enforcement of any assessment
or penalty or otherwise, all such liability being, by the acceptance hereof and
as part of the consideration for the issue hereof, expressly waived and
released.
8
<PAGE>
[FORM OF CONVERSION NOTICE]
CONVERSION NOTICE
To: Penn Treaty American Corporation
The undersigned registered owner of this Public Note hereby irrevocably
exercises the option to convert this Public Note, or the portion hereof
(which is $1,000 principal amount or an integral multiple thereof) below
designated, into shares of Common Stock, par value $.10 per share of the
Company, in accordance with the terms of the Indenture referred to in this
Public Note, and directs that the shares issuable and deliverable upon
such conversion, together with any check in payment for fractional shares
and any Notes representing any unconverted principal amount hereof, be
issued and delivered to the registered holder hereof unless a different
name has been indicated below. If shares or any portion of this Public
Note not converted are to be issued in the name of a person other than the
undersigned, the undersigned will check the appropriate box below and pay
all transfer taxes payable with respect thereto. Any amount required to be
paid to the undersigned on account of interest accompanies this Public
Note.
Dated:_______________________ Contact Person: ____________________
Fax Number:_________________________
_____________________________ Telephone Number:___________________
_____________________________
Signature(s)
Signature(s) must be guaranteed by an eligible Guarantor Institution (banks,
stock brokers, savings and loan associations and credit unions) with membership
in an approved signature guarantee medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be issued, or
Notes to be delivered, other than to and in the name of the registered holder.
________________________________________
Signature Guarantee
Fill in for registration of shares if to be issued, and Notes if to be
delivered, other than to and in the name of the registered holder:
_______________________________________
(Name)
_______________________________________
(Street Address)
9
<PAGE>
_______________________________________
(City, State and Zip Code)
Please print name and address
Principal amount to be converted (if less
than all)
$____________________
________________________________
Social Security or Other Taxpayer
Identification Number
10
<PAGE>
[FORM OF OPTION TO ELECT REPAYMENT
UPON A CHANGE OF CONTROL]
To: Penn Treaty American Corporation
The undersigned registered owner of this Public Note hereby
irrevocably acknowledges receipt of a notice from Penn Treaty American
Corporation (the "Company") as to the occurrence of a Change of Control with
respect to the Company and requests and instructs the Company to repay the
entire principal amount of this Public Note, or the portion thereof (which is
$1,000 principal amount or an integral multiple thereof) below designated, in
accordance with the terms of the Indenture referred to in this Public Note,
together with accrued interest to such date, to the registered holder hereof.
Dated:_____________________
________________________________________
________________________________________
Signature(s)
________________________________________
Social Security or Other Taxpayer
Identification Number
Principal amount to be repaid (if less
than all): $__________________
11
<PAGE>
SCHEDULE A
SCHEDULE OF EXCHANGES, CONVERSIONS,
REDEMPTIONS, REPURCHASES, CANCELLATIONS AND TRANSFERS
The initial principal amount of this Public Note is U.S.
$0. The following additions to principal, redemptions, reuprchases,
exchanges of a part of this Public Note for an interest in the
Regulation S Global Note, Restricted Global Note, definitive Notes and
conversions into Common Stock have been made:
<TABLE>
<CAPTION>
====================================================================================================================
<S> <C> <C> <C> <C>
Principal Amount Principal Amount
Added on Redeemed,
Date of Addition to Exchange of Repurchased or
Principal, Re- Interest in the Exchanged for Remaining Principal
demption, Regulation S Global Interest in the Amount
Repurchase, Note, Restricted Definitive Notes or Outstanding Notation Made by
Exchange or Global Note or De- Converted into Following such or on behalf of the
Conversion nitive Public Notes Common Stock Transaction Trustee
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
====================================================================================================================
</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
6, 1996, on our audits of the consolidated financial statements and
financial statement schedules of Penn Treaty American Corporation as of
December 31, 1995 and 1994, and for the years ended December 31, 1995, 1994
and 1933, which report is included in Form 10-K which is incorporated by
reference in the registration statement.
COOPERS & LYBRAND L.L.P
/s/ Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
February 18, 1996
<PAGE>
EXHIBIT 25.1
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)/ /
FIRST UNION NATIONAL BANK
(Exact Name of Trustee as Specified in its Charter)
22-1147033
(I.R.S. Employer Identification No.)
101 NORTHSIDE PLAZA, ELKTON, MARYLAND
(Address of Principal Executive Offices)
21921
(Zip Code)
FIRST UNION NATIONAL BANK
123 SOUTH BROAD STREET
PHILADELPHIA, PA 19109
ATTENTION: CORPORATE TRUST ADMINISTRATION
(215) 985-6000
(Name, address and telephone number of Agent for Service)
PENN TREATY AMERICAN CORPORATION
(Exact Name of Obligor as Specified in its Charter)
PENNSYLVANIA
(State or other jurisdiction of Incorporation or Organization)
23-1664166
(I.R.S. Employer Identification No.)
3440 LEHIGH STREET
ALLENTOWN,PENNSYLVANIA
(address of Principal Executive Offices)
18103
(Zip Code)
6-1/4% Convertible Subordinated Notes Due 2003
(Title of Indenture Securities)
<PAGE>
1. General information.
Furnish the following information as to the trustee:
a) Name and address of each examining or supervisory authority to which it
is subject:
Comptroller of the Currency
United States Department of the Treasury
Washington, D.C. 20219
Federal Reserve Bank (3rd District)
Philadelphia, Pennsylvania 19106
Federal Deposit Insurance Corporation
Washington, D.C. 20429
b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
3. Voting securities of the trustee.
Furnish the following information as to each class of voting securities
of the trustee:
Not applicable - see answer to Item 13.
4. Trusteeships under other indentures.
If the trustee is a trustee under another indenture under which any other
securities, or certificates of interest or participation in any other
securities, of the obligor are outstanding, furnish the following
information:
Not applicable - see answer to Item 13.
5. Interlocking directorates and similar relationships with the obligor or
underwriters.
If the trustee or any of the directors or executive officers of the
trustee is a director, officer, partner, employee, appointee, or
representative of the obligor or of any underwriter for the obligor,
identify each such person having any such connection and state the nature of
each such connection.
Not applicable - see answer to Item 13.
<PAGE>
6. Voting securities of the trustee owned by the obligor or its officials.
Furnish the following information as to the voting securities of the
trustee owned beneficially by the obligor and each director, partner, and
executive officer of the obligor:
Not applicable - see answer to Item 13.
7. Voting securities of the trustee owned by underwriters or their
officials.
Furnish the following information as to the voting securities of the
trustee owned beneficially by each underwriter for the obligor and each
director, partner, and executive officer of each such underwriter:
Not applicable - see answer to Item 13.
8. Securities of the obligor owned or held by the trustee.
Furnish the following information as to securities of the obligor owned
beneficially or held as collateral security for obligations in default by
the trustee:
Not applicable - see answer to Item 13.
9. Securities of underwriters owned or held by the trustee.
If the trustee owns beneficially or holds as collateral security for
obligations in default any securities of an underwriter for the obligor,
furnish the following information as to each class of securities of such
underwriter any of which are so owned or held by the trustee:
Not applicable - see answer to Item 13.
10. Ownership or holdings by the trustee of voting securities of certain
affiliates or security holders of the obligor.
If the trustee owns beneficially or holds as collateral security for
obligations in default voting securities of a person who, to the knowledge
of the trustee (1) owns 10 percent or more of the voting stock of the
obligor or (2) is an affiliate, other than a subsidiary, of the obligor,
furnish the following information as to the voting securities of such person:
Not applicable - see answer to Item 13.
11. Ownership or holdings by the trustee of any securities of a person
owning 50 percent or more of the voting securities of the obligor.
If the trustee owns beneficially or holds as collateral security for
obligations in default any securities of a person who, to the knowledge of
the trustee, owns 50 percent or more of the voting securities of the
obligor, furnish the following information as to each class of securities of
such person any of which are so owned or held by the trustee:
Not applicable - see answer to Item 13.
<PAGE>
12. Indebtedness of the obligor to the trustee.
Except as noted in the instructions, if the obligor is indebted to the
trustee, furnish the following information:
Not applicable - see answer to Item 13.
13. Defaults by the obligor.
(a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such default.
None.
(b) If the trustee is a trustee under another indenture under which any
other securities, or certificates of interest or participation in any other
securities, of the obligor are outstanding, or is trustee for more than one
outstanding series of securities under the indenture, state whether there
has been a default under any such indenture or series, identify the
indenture or series affected, and explain the nature of any such default.
None.
14. Affiliations with the underwriters.
If any underwriter is an affiliate of the trustee, describe each such
affiliation.
Not applicable - see answer to Item 13.
15. Foreign trustee.
Identify the order or rule pursuant to which the trustee is authorized
to act as sole trustee under indentures qualified or to be qualified under
the Act.
Not applicable - trustee is a national banking association organized
under the laws of the United States.
16. List of Exhibits.
List below all exhibits filed as part of this statement of eligibility.
/ / 1. Copy of Articles of Association of the trustee as now in effect.**
/ / 2. Copy of the Certificate of the Comptroller of the Currency dated
January 11, 1994, evidencing the authority of the trustee to transact
business.*
/ / 3. Copy of the Certification of Fiduciary Powers of the trustee by the
Office of the Comptroller of the Currency dated July 24, 1992.*
/ / 4. Copy of existing by-laws of the trustee.**
/ / 5. Copy of each indenture referred to in Item 4, if the obligor is in
default.
-Not Applicable.
/ X / 6. Consent of the trustee required by Section 321(b) of the Act.
<PAGE>
/ X / 7. Copy of report of condition of the trustee at the close of business
on December 31, 1996, published pursuant to the requirements of
its supervising authority.
/ / 8. Copy of any order pursuant to which the foreign trustee is
authorized to act as sole trustee under indentures qualified or to be
qualified under the Act.
- Not Applicable
/ / 9. Consent to service of process required of foreign trustees pursuant
to Rule 10a-4 under the Act.
- Not Applicable
_____________________
*Previously filed with the Securities Exchange Commission on February
11, 1994 as an Exhibit to Form T-1 in connection with Registration
Statement Number 22-73340 and ** previously filed with the Securities
Exchange Commission on March 6,1996 with Registration Statement Number
333-1102 and incorporated herein by reference
NOTE
The trustee disclaims responsibility for the accuracy or
completeness of information contained in this Statement of Eligibility and
Qualification not known to the trustee and not obtainable by it through
reasonable investigation and as to which information it has obtained from
the obligor and has had to rely or will obtain from the principal
underwriters and will have to rely.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, First Union National Bank, a national banking association organized
and existing under the laws of the United States of America, has duly caused
this Statement of Eligibility and Qualification to be signed on its behalf
by the undersigned, thereunto duly authorized, all in the City of
Philadelphia and Commonwealth of Pennsylvania, on the 20th day of February,
1997.
FIRST UNION NATIONAL BANK
By:/s/ George J. Rayzis
George J. Rayzis
Vice President
<PAGE>
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust
Indenture Act of 1939, and in connection with the issue of Penn Treaty
American Corporation 6-1/4 % Convertible Subordinated Notes due 2003, First
Union National Bank, hereby consents that reports of examinations by
Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon request therefor.
FIRST UNION NATIONAL BANK
By: /s/ George J. Rayzis
George J. Rayzis
Vice President
Philadelphia, Pennsylvania
February 20, 1997
<PAGE>
REPORT OF CONDITION EXHIBIT 7
Consolidating domestic and foreign subsidiaries of the First Union National
Bank of Elkton in the state of Maryland, at the close of business on
December 31, 1996 published in response to call made by Comptroller of the
Currency, under title 12, United States Code, Section 161. Charter Number
33869 Comptroller of the Currency Northeastern District.
Statement of Resources and Liabilities
ASSETS
Thousand of Dollars
Cash and balance due from depository institutions:
Noninterest-bearing balances and currency and coin......... 1,835,479
Interest-bearing balances.................................. 83,025
Securities..................................................../////////
Held-to-maturity securities................................ 431,623
Available-for-sale securities.............................. 2,429,818
Federal funds sold and securities purchased under agreements//////////
to resell in domestic offices of the bank and of its //////////
Edge and Agreement subsidiaries, and in IBFs: //////////
Federal funds sold..................................... 998,987
Securities purchased under agreements to resell........ 465,602
Loans and lease financing receivables:
Loan and leases, net of unearned income......19,495,582
LESS: Allowance for loan and lease losses.......258,533
LESS: Allocated transfer risk reserve.................0
Loans and leases, net of unearned income, allowance, and
reserve................................................. 19,237,049
Assets held in trading accounts......................... 0
Premises and fixed assets (including capitalized leases).. 395,941
Other real estate owned................................... 49,984
Investment in unconsolidated subsidiaries and associated //////////
companies................................................. 26,336
Customer's liability to this bank on acceptances outstanding. 44,524
Intangible assets........................................... 398,568
Other assets................................................ 731,433
Total assets............................................... 27,128,369
LIABILITIES
Deposits:
In domestic offices................................... 21,604,197
Noninterest-bearing......................4,512,791
Interest-bearing........................17,091,406
In foreign offices, Edge and Agreement subsidiaries,
and IBFs.............................................. 390,835
Noninterest-bearing........................ 70
Interest-bearing...........................390,765
Federal funds purchased and securities sold under agreements
to repurchase in domestic offices of the bank and of its
Edge and Agreement subsidiaries, and IBFs
Federal fund purchased................................ 305,422
Securities sold under agreements to repurchase........ 1,308,107
Demand notes issued to the U.S. Treasury................... 99,992
Trading liabilities........................................ 0
Other borrowed money:...................................... /////////
With original maturity of one year or less............ 8,000
With original maturity of more than one year.......... 9,532
Mortgage indebtedness and obligations under capitalized leases 6,149
Bank's liability on acceptances executed and outstanding..... 45,252
Subordinated notes and debentures........................... 475,000
Other liabilities............................................ 656,346
Total liabilities............................................24,908,832
Limited-life preferred stock and related surplus............. 0
<PAGE>
EQUITY CAPITAL
Perpetual preferred stock and related surplus................ 160,540
Common Stock................................................. 452,156
Surplus...................................................... 1,300,080
Undivided profits and capital reserves....................... 318,243
Net unrealized holding gains (losses) on available-for-sale /////////
securities.................................................. (11,482)
Cumulative foreign currency translation adjustments.......... 0
Total equity capital......................................... 2,219,537
Total liabilities, limited-life preferred stock and equity... /////////
capital....................................................27,128,369
