<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
PENN TREATY AMERICAN CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
PENN TREATY AMERICAN CORPORATION
3440 LEHIGH STREET
ALLENTOWN, PENNSYLVANIA 18103
--------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FRIDAY, MAY 22, 1998
TO THE SHAREHOLDERS OF PENN TREATY AMERICAN CORPORATION
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of PENN TREATY
AMERICAN CORPORATION (the "Company") will be held at Comfort Suites of
Allentown, 3712 Hamilton Boulevard, Allentown, Pennsylvania on Friday, May 22,
1998, at 9:00 a.m. (the "Meeting") for the purpose of considering and voting
upon the following matters:
1. To elect three persons to the Company's Board of Directors as
Class II Directors to serve until the 2001 Annual Meeting of
Shareholders and until their successors are elected and have been
qualified;
2. To approve the 1998 Employee Incentive Stock Option Plan;
3. To ratify the selection of Coopers & Lybrand L.L.P. as independent
public accountants for the Company and its subsidiaries for the year
ending December 31, 1998; and
4. To transact whatever other business may properly come before the
Meeting, or any adjournments or postponements thereof.
Only those Shareholders of Common Stock of record at the close of business on
April 6, 1998 shall be entitled to notice of, and to vote at, the Meeting.
EACH SHAREHOLDER, WHETHER OR NOT HE OR SHE PLANS TO ATTEND THE ANNUAL
MEETING, IS REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD WITHOUT
DELAY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE. ANY PROXY GIVEN BY THE
SHAREHOLDER MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED BY FILING WITH THE
SECRETARY OF THE COMPANY A WRITTEN REVOCATION OR A DULY EXECUTED PROXY BEARING A
LATER DATE. ANY SHAREHOLDER PRESENT AT THE ANNUAL MEETING MAY REVOKE HIS OR HER
PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE ANNUAL MEETING.
By order of the Board of Directors,
/s/ Domenic P. Stangherlin
Domenic P. Stangherlin, Secretary
Allentown, Pennsylvania
April 22, 1998
PENN TREATY AMERICAN CORPORATION
<PAGE>
3440 Lehigh Street
Allentown, Pennsylvania 18103
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 22, 1998
INTRODUCTORY STATEMENT
This Proxy Statement ("Proxy Statement") is being furnished to the
shareholders of Penn Treaty American Corporation, a Pennsylvania corporation
(the "Company"), in connection with the solicitation by the Board of Directors
of the Company of Proxies to be voted at the Annual Meeting of Shareholders of
the Company to be held on May 22, 1998, at Comfort Suites of Allentown, 3712
Hamilton Boulevard, Allentown, Pennsylvania at 9:00 a.m., or at any adjournments
or postponements thereof (the "Meeting"). This Proxy Statement and the
accompanying Proxy Card are first being mailed to the shareholders on or about
April 22, 1998. A copy of the 1998 Annual Report, which includes financial
statements for the fiscal year ended December 31, 1997, is enclosed herewith.
Costs of solicitation will be borne by the Company.
MATTERS TO BE CONSIDERED
The matters to be considered and voted upon at the Meeting will be:
1. To elect three persons to the Company's Board of Directors as Class
II Directors to serve until the 2001 Annual Meeting of Shareholders
and until their successors are elected and have been qualified;
2. To approve the 1998 Employee Incentive Stock Option Plan;
3. To ratify the selection of Coopers & Lybrand L.L.P. as independent
public accountants for the Company and its subsidiaries for the year
ending December 31, 1998; and
4. To transact whatever other business may properly come before the
Meeting, or any adjournments or postponements thereof.
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
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<PAGE>
The close of business on April 6, 1998 has been fixed as the record date
for the determination of shareholders entitled to notice of and to vote at the
Meeting and any adjournments or postponements thereof. As of such date, there
were outstanding 7,795,996 shares of common stock, par value $.10 per share
("Common Stock"), held by 425 shareholders of record.
Each share of Common Stock is entitled to one vote on all matters properly
submitted at the Meeting. The presence, in person or by Proxy, of the holders
of a majority of the outstanding shares of Common Stock entitled to vote on the
matters set forth in the accompanying Notice of Meeting will constitute a quorum
for the transaction of business at the Meeting. The three nominees for Director
who receive the largest number of votes cast at the Meeting, either in person or
by Proxy (there being no cumulative voting), will be elected to serve on the
Board of Directors of the Company. The approval of the Company's 1998 Employee
Incentive Stock Option Plan will require the affirmative vote, either in person
or by Proxy, of the holders of shares representing at least a majority of the
votes cast at the Meeting. The ratification and approval of the selection of
Coopers and Lybrand L.L.P. as the independent public accountants for the Company
and its subsidiaries, Penn Treaty Life Insurance Company ("PTLIC"), Senior
Financial Consultants Company (the "Agency")(formerly, Cher-Britt Service
Company), Penn Treaty Network America Insurance Company ("PTNA")(formerly
Network America Life Insurance Company) and American Network Insurance Company,
("ANIC")(formerly Health Insurance of Vermont, Inc.), will require the
affirmative vote, either in person or by Proxy, of the holders of shares
representing at least a majority of the votes cast at the Meeting.
Shares represented by valid Proxies will be voted in accordance with
instructions contained therein or, in the absence of such instructions, in
accordance with the recommendations of the Board of Directors. Shareholders who
execute Proxies may revoke them at any time before such Proxies are voted by (i)
delivering written notice to the Secretary of the Company at the Company's
principal executive offices or (ii) delivering to the Secretary of the Company
duly executed Proxies bearing a later date than the Proxy being revoked.
Shareholders who execute Proxies but nevertheless attend the Meeting may revoke
such Proxies at any time before such Proxies are voted by giving written notice
to the Secretary.
PROPOSAL I - ELECTION OF DIRECTORS
3
<PAGE>
The Board of Directors currently has nine members and is divided into three
classes, each comprised of three Directors who serve for terms of three years
and until their successors have been elected and qualified.
The Proxy Agents named in the enclosed Proxy Card intend to vote, unless
instructed otherwise, for election of the nominees named below. If for any
reason any of the nominees becomes unable or is unwilling to serve at the time
of the Meeting, the Proxy Agents will, unless instructed otherwise, vote for a
substitute nominee or nominees in their discretion. It is not anticipated that
any nominee will be unavailable for election.
The following information with respect to current and past five years'
business experience, directorships and memberships on committees of the Board of
Directors has been furnished to the Company by each person nominated as a
Director and each person whose term of office as a Director will continue after
the Meeting.
Class II Nominees for election at the Meeting to serve until the 2001
Annual Meeting are listed below. All of the nominees are currently serving as
directors.
Jack D. Baum has served as Vice President of Marketing of the Company and
PTLIC since April 1985 and became a Director of each in March 1987. He became
Vice President of Sales and Director of the Agency in February 1988, of PTNA in
July 1989 and ANIC when it was purchased in 1996. His duties include
supervising and motivating the Company's sales force and he is responsible for
advertising and promotional activities. Prior to joining the Company, Mr. Baum
served as Vice President of Marketing for National Security General Insurance
Company in Lancaster, Pennsylvania from September 1983 to April 1985 and as a
Director of Group Sales and Marketing for Educators Mutual Life Insurance in
Lancaster, Pennsylvania, from March 1976 to September 1983. Mr. Baum is 64 and
has over 20 years experience in the insurance business.
Emile G. Ilchuk has served as a Director of the Company and PTLIC since
January 1972, of the Agency since February 1988, of PTNA since July 1989 and of
ANIC since it was purchased in 1996. Mr. Ilchuk has worked as a Safety
Inspector for the Pennsylvania Department of Labor and Industry since 1975. He
is 60.
Glen A. Levit has served as a Director of the Company since May 1995, as a
director of PTLIC and PTNA since April 1995 and as a director of ANIC since it
was purchased in 1996. He has served as Vice President of Sales of the Company
since May 1997. In April 1997 Mr. Levit was named President of PTLIC, PTNA and
ANIC. Prior to being named President, Mr. Levit served as Vice
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<PAGE>
President of Sales of PTLIC and PTNA from June 1993 to April 1997 and as Vice
President of ANIC from 1996 to April 1997. From October 1991 until June 1993 Mr.
Levit served as the Regional Sales Director and as a regional marketer for PTLIC
and PTNA. Prior to that time, Mr. Levit worked in several other departments of
PTLIC and PTNA. Mr. Levit has also served as a director of IMC, an insurance
agency, since 1988. He is 30 and has over 10 years of experience in the
insurance business. Mr. Levit is the son of Irving Levit.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE ABOVE
NOMINEES FOR A FIXED TERM OF THREE YEARS.
Class III Directors whose present terms continue until the 1999 Annual Meeting:
Michael F. Grill has served as Treasurer and Comptroller of the Company and
PTLIC since 1981, of the Agency since February 1988, of PTNA since July 1989 and
ANIC since it was purchased in 1996. Mr. Grill became a Director of the Company
in December 1986, of the Agency in February 1988, of PTNA in July 1989 and of
ANIC in 1996. Prior to joining the Company, Mr. Grill served as Chief
Accountant for World Life and Health Insurance Company located in King of
Prussia, Pennsylvania from 1973 to 1981. Mr. Grill is 48 and has 25 years
experience in the insurance business.
C. Mitchell Goldman, Esquire, has served as a Director of the Company since
May 1987. Mr. Goldman is a partner in the law firm of Goldman, Marshall &
Muszynski, P.C., which engages in the practice of health care law. Mr. Goldman
currently serves as Corporate Secretary of the Corporate Alliance for Drug
Education. Mr. Goldman is a member of the National Health Lawyer Association
and the American Hospital Association Society for Planning and Healthcare
Marketing. In addition to his law degree, Mr. Goldman has an MBA in Health Care
Administration from the Wharton School of the University of Pennsylvania. He is
47.
David B. Trindle, FSA, MAAA has served as a Director of the Company since
September 1997. Mr. Trindle is an independent consulting actuary with 24 years
experience in health insurance and managed care. From 1993 until 1996, Mr.
Trindle served as Partner and National Director of the Health Actuarial Practice
of KPMG Peat Marwick. Prior to 1993, Mr. Trindle served as President of QED
Consulting Group, an actuarial firm specializing in health insurance and
long-term care which was co-founded by Mr. Trindle in 1988. From 1973 to 1988,
Mr. Trindle served in various senior management and executive roles at UNUM
Corporation, Transport Life Insurance Company and Union Fidelity Life Insurance
Company, where he also served on the Board of Directors. Mr. Trindle is a
Member
5
<PAGE>
of the American Academy of Actuaries and a Fellow of the Society of Actuaries,
for whom he served as Chairman of the Health Section. Mr. Trindle holds a
Masters Degree in Mathematics from Pennsylvania State University. He is 48.
Class I Directors whose present terms continue until the 2000 Annual Meeting:
Irving Levit is the founder, Chairman of the Board of Directors, President
and Chief Executive Officer of the Company. Mr. Levit has also served as the
Chairman of the Board of Directors and Chief Executive Officer of PTLIC since
1976, of PTNA since 1989 and ANIC since 1996. In addition, Mr. Levit has been
the sole owner of the Irv Levit Insurance Management Corporation ("IMC"), an
insurance agency, since 1961. Mr. Levit is 68 and has over 40 years experience
in the insurance business.
A. J. Carden has served as Executive Vice President and Director of the
Company and PTLIC since July 1983, of the Agency since February 1988, of PTNA
since July 1989 and ANIC since it was purchased in 1996. In April 1997, Mr.
Carden was also named Chief Operating Officer of the Company, PTLIC, PTNA and
ANIC. From 1970 to July 1983, Mr. Carden served as Assistant to the President
and Vice President of Claims for Columbia Life Insurance Company and Columbia
Accident and Health Insurance Company located in Bloomsburg, Pennsylvania. Mr.
Carden is 64 and has over 40 years experience in the insurance business.
Domenic P. Stangherlin has served as Secretary and Director of the Company
and PTLIC since June 1971, of the Agency since February 1988, of PTNA since July
1989 and ANIC since it was purchased in 1996. Mr. Stangherlin is the owner and
manager of the Line Tool Company, a manufacturer of micro-positioners located in
Allentown, Pennsylvania. He is 71.
GENERAL INFORMATION REGARDING DIRECTORS AND EXECUTIVE OFFICERS
Additional Executive Officers:
Cameron B. Waite has served as Chief Financial Officer of the Company since
May 1996. From September 1994 to April 1996, Mr. Waite was Chief Financial
Officer and Treasurer of Blue Fish Clothing, Inc., a manufacturer, wholesaler
and retailer of women's clothing. From April 1983 to September 1994, Mr. Waite
held various positions with Independence Bancorp. Inc., which merged with
CoreStates Financial Corporation, his last position being Vice President of
Asset Liability Management. He holds a BA in Economics from Dickinson College
and an MBA from Lehigh University. He is 37.
6
<PAGE>
Jim Heyer has served as Vice President of Administration of PTLIC and PTNA
since June 1993, as Director of ANIC since 1996 and Vice President of
Administration of the Company since May 1997. Mr. Heyer is involved with the
companies' claims, underwriting and compliance/product development areas.
Previously, he had served as Assistant Vice President and Administrative
Assistant for PTLIC and PTNA. Mr. Heyer began with PTLIC in 1988 as an
underwriter. From 1986 to 1988, Mr. Heyer was a Claims Examiner for The
Guardian Life Insurance Company of North America. Mr. Heyer is 33 and has 12
years experience in the insurance business.
Board Committees:
To assist in the discharge of its responsibilities, the Board of Directors
has an Audit Committee, a Compensation Committee and an Executive Committee.
The Audit Committee communicates with and receives information directly from the
Company's independent accountants. The Audit Committee comprises Messrs. Ilchuk
and Goldman. The Audit Committee met one time during the last fiscal year. The
Compensation Committee comprises Messrs. Goldman and Stangherlin. This
committee reviews and evaluates the performance and leadership of the Company's
executive officers and recommends compensation levels to the Board of Directors.
The Compensation Committee met one time during the last fiscal year. The
Executive Committee meets periodically to discuss and act upon certain
significant matters affecting the Company. The Executive Committee comprises
Messrs. Levit, Carden and Stangherlin. The Executive Committee met two times
during the last fiscal year. The Board of Directors does not have a nominating
committee. The total combined attendance for all Committee meetings was 100%.
Director Attendance at Board Meetings:
During 1997, the Board of Directors met six times. Each Director attended
at least 75% of the meetings of the Board. The average attendance of directors
at Board and Committee meetings during 1997 was 98%.
Compensation of Directors:
Each Director receives a fee of $200 for each regular board meeting
attended. In addition, Mr. Goldman, currently a Director
of the Company, received a consulting fee of $7,000 during 1997.
7
<PAGE>
Information with respect to the share ownership of the Directors and the
nominees is set forth below. See "Principal Shareholders."
Certain Relationships and Related Transactions:
IMC, an insurance agency which is owned by Irving Levit, Chairman of the
Board, President and Chief Executive Officer of the Company, and Chairman of the
Board and Chief Executive Officer of PTLIC, PTNA, ANIC and the Agency, produced
approximately $62,000, $55,000 and $50,000 of new and renewal premiums for PTLIC
for the years ended December 31, 1995, 1996 and 1997, respectively, for which it
received commissions of approximately $14,000, $12,000 and $13,000,
respectively. While IMC has only been minimally involved in the sale of
insurance products since 1979 and IMC'S operations since that time have not been
significant, IMC continues to receive overriding commissions from the Company of
5%, on business written for PTLIC by any IMC general agents who were appointed
prior to 1979 and any of their sub-agents hired prior and subsequent to January
1979 and one agent appointed in 1981. For the years ended December 31, 1995,
1996 and 1997 these overriding commissions totaled approximately $517,000,
$539,000 and $534,000, respectively. The premium revenues on which such
overrides are paid, are based on commissions which are higher than those
currently paid to independent agents.
The terms on which commissions have been paid to IMC are consistent with
(i) the terms on which commissions have been paid by the Company to comparable
unaffiliated agencies in the past and currently to one unaffiliated agency
performing similar services and (ii) the terms on which commissions are paid in
the industry in general, and were no less favorable than would have been
obtained from unrelated third parties. To the extent that the Company engages
in future transactions with any of its affiliates, all such transactions will
likewise be on terms no less favorable than could be obtained from unaffiliated
parties and will be approved by a majority of the Company's disinterested
directors.
Executive Compensation:
Compensation Committee Interlocks and Insider Participation:
The Compensation Committee of the Board of Directors consists of Messrs.
Goldman and Stangherlin, who are non-employee directors. Mr. Stangherlin also
serves as the Secretary of the
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Company, PTLIC, the Agency, PTNA and ANIC. See Certain Relationships and
Related Transactions.
Compensation Committee Report on Executive Compensation:
The Company's Executive Compensation Program is administered by the
Compensation Committee (the "Committee"), a Committee of the Board of Directors
consisting of independent non-employee directors. The primary functions of the
Committee are to review and evaluate the performance and leadership of the Chief
Executive Officer and all other executive officers and to recommend compensation
amounts to the Board of Directors. In 1997, the Board of Directors accepted and
adopted all of the Committee's recommendations concerning executive compensation
amounts.
The Committee seeks to:
- provide compensation which is closely linked to Company and
individual performance;
- align the interests of the Company's executives with those
of its shareholders through award opportunities that can
result in ownership of common stock;
- ensure that compensation is sufficiently competitive to
attract and retain high quality executive talent.
Consistent with these objectives, the Committee employs a system of
quantitative measures and qualitative assessments in evaluating and measuring
executive officer performance. Quantitative measures include earnings
performance, return on assets and growth of revenues. Qualitative assessments
include the quality and measured progress of the operations of the Company and
the success of strategic actions taken.
In addition to Company-wide measures of performance, the Committee
considers performance factors particular to each executive officer, such as the
performance of the departments for which said officer had management
responsibility, individual managerial accomplishments and contribution to the
achievement of corporate goals.
CEO Compensation:
In accordance with the Committee's general practice and the Company's
compensation policies, Mr. Levit's compensation for the 1997 fiscal year was
based principally upon the Company's performance and Mr. Levit's ongoing
contribution to that performance. The increases in Mr. Levit's salary and the
amount of the bonus were determined in the Committee's sole discretion after its
consideration of competitive data, the Board's
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assessment of Mr. Levit's performance and recognition of the Company's
performance during 1997.
C. Mitchell Goldman
Domenic Stangherlin
Summary Compensation Table
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company for the
fiscal years ended December 31, 1995, 1996 and 1997 of those persons who during
1997 (i) served as the Company's chief executive officer or (ii) were executive
officers (other than the chief executive officer) whose total annual salary and
bonus exceeded $100,000:
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------------- ------------ All Other
Name and Salary Bonus Other Options Compensation
Principal Position Year ($) ($) ($)(1) (#) ($) (2)
- -------------------- ---- --------- -------- ------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Irving Levit (3) 1995 232,909 35,000 1,400 48,000 4,500(3)
Chairman of the 1996 259,927 40,000 1,000 48,000 8,998(3)
Board, President 1997 264,591 50,000 800 29,000 2,562(3)
& Chief Executive
Officer
A. J. Carden 1995 117,754 15,000 1,400 18,000 3,983
Executive Vice- 1996 123,062 17,000 1,000 18,000 4,202
President & Chief 1997 131,707 17,000 800 10,000 1,990
Operating Officer
</TABLE>
- -------------------------
(1) Represents Directors' fees of $200 for each regular board meeting attended.
(2) Represents Company contributions to the Company's Pension Plan on behalf of
each of the named individuals.
(3) Excludes cash overriding commissions and direct commissions totaling
approximately $531,000, $551,000 and $547,000 paid to IMC by the Company
in 1995, 1996 and 1997, respectively, in connection with policies written
for the Company. See "Certain Relationships and Related Transactions"
above.
Pension Plan and 401(K) Plan
Until August 1, 1996, the Company maintained a defined contribution
pension plan covering substantially all employees. The company contributed
3% of each eligible employee's annual covered payroll to the plan. All
contributions were subject to limitations imposed by the Internal Revenue
Code on retirement plans and Section 401(k) plans. Upon the termination of
the plan on August 1, 1996, each participant became fully vested. A
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prorata portion of the 1996 scheduled contribution was put into the plan upon
termination.
On August 1, 1996, the Company adopted a 401(k) retirement plan,
covering substantially all employees with one year of service. Under the
plan, participating employees may contribute up to 15% of their annual salary
on a pre-tax basis. The Company, under the plan, equally matches employee
contributions up to the first three percent of the employee's salary. The
Company and employee portion of the plan is vested immediately. The Company
expense in 1997 was $93,152. The Company may elect to make a discretionary
contribution to the plan, which will be contributed proportionately to each
eligible employee. The Company did not make a discretionary contribution in
1997.
ANIC maintained a defined benefit pension plan for all ANIC employees in
1996. This plan was subsequently terminated in 1997, with all eligible
employees joining the Company's 401(K) plan. There was no 1997 contribution
expense for this plan.
Incentive Stock Option Plan
The shareholders of the Company adopted an Incentive Stock Option Plan
(the "Plan") in March 1987. The Plan, as amended by shareholder action on
May 25, 1990, May 28, 1993, and May 23, 1997 provides for the granting of
options to purchase up to 1,200,000 shares of Common Stock. Stock options
have been granted and are outstanding to date with respect to 514,997 shares.
Prices of these options range from $5.00 to $35.475 per share. In 1995,
102,000 stock options were granted under the Plan at an exercise price of
$12.38 per share and 48,000 stock options were granted at an exercise price
of $13.61 per share. In June 1996, 116,800 stock options were granted under
the Plan at an exercise price of $20.50 per share and 48,000 stock options
were granted at an exercise price of $22.55 per share. In October 1997,
72,250 stock options were granted under the Plan at an exercise price of
$32.25 per share and 29,000 stock options were granted at $35.475 per share.
In addition, as of April 13, 1998, stock options granted with respect to
20,853 shares have been canceled and 174,777 shares have been exercised.
Options granted under the Plan are intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Code. A committee of the
Board of Directors has the authority to administer the Plan and to grant
options to key employees (including officers, whether or not they are
Directors) of the Company. The exercise price of all options granted under
the Plan may not be less than the fair market value of the shares on the date
of grant (110% of fair market value in the case of grant to any person who
holds more than 10% of the combined voting power of all classes of
outstanding stock.) The maximum allowable term of each option is ten years
(five years in the case of holders of more than 10% of the combined voting
power of all classes of outstanding stock), and the options become
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exercisable in four equal annual installments commencing one year from the
option grant date.
Option Grants in Last Fiscal Year
The following table sets forth information concerning grants of stock
options during the fiscal year ended December 31, 1997 to each of the
Company's executive officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term (1)
-------------------------------------------- -----------------------------------
% of Total
Options Granted
Options to Employees Exercise or Expiration 5% 10%
Name Granted(#) in Fiscal Year Base Price($) Date ($) ($)
- ---- ---------- --------------- ------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Irving Levit 29,000 29.1% 35.475 10/02/07 494,649 1,397,023
A. J. Carden 10,000 10.0% 32.25 10/02/07 202,819 513,982
</TABLE>
- ----------------
1. The dollar amounts set forth under these columns are the result of
calculations made at assumed 5% and 10% appreciation rates as required by the
Securities and Exchange Commission regulations and are not intended to
indicate future price appreciation, if any, of the Company's common stock.
Aggregate Option Exercises and Year-End Option Values
The following table sets forth the number of shares acquired on exercise
of stock options and the aggregate gains realized on exercise in 1997 by the
Company's executive officers named in the Summary Compensation Table. The
table also sets forth the number of shares covered by exercisable and
unexercisable options held by such executives on December 31, 1997 and the
aggregate gains that would have been realized had these options been
exercised on December 31, 1997, even though these options were not exercised,
and the unexercisable options could not have been exercised on December 31,
1997.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at In-the-Money Options
Dec. 31, 1997(#) at Dec. 31, 1997($)(1)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise(#) ($) Unexercisable Unexercisable
- ---- --------------- -------------- --------------------- ----------------------
<S> <C> <C> <C> <C>
Irving Levit 0 0 99,660/104,427 1,999,128/1,004,436
12
<PAGE>
A.J. Carden 12,984 215,314 13,500/32,500 225,000/326,250
</TABLE>
- ------------
(1) Market value of shares covered by in-the-money options on December 31,
1997, less option exercise price. Options are in-the-money if the market
value of the shares covered thereby is greater than the option exercise
price. The closing price of the Company's Common Stock at fiscal year end
was $31.75.
Agent Stock Option Plan
In October 1994, the Board of Directors of the Company authorized a
stock option plan for its agents (the "Agent Plan"). The Agent Plan, adopted
by the Board of Directors in May 1995, provides for the grant of Common Stock
options covering up to 300,000 shares and is designed to reward the Company's
agents by providing for the grant of options to purchase Common Stock to
agents upon attaining certain sales objectives determined by the Board of
Directors. The exercise price of all options granted under the plan may not
be less than the fair market value of the shares on the date of grant. The
maximum allowable term of each option is ten years, and the options become
exercisable in four equal annual installments commencing one year from the
option grant date. Stock options have been granted and are outstanding to
date with respect to 58,900 shares. Prices of these options range from
$12.63 to $32.25 per share. On August 18, 1995, 16,100 options were granted
under the Agent Plan at an exercise price of $12.63 per share. On June 25,
1996, 20,000 options were granted under the Agent Plan at an exercise price
of $20.50 per share. In October 1997, 23,600 stock options were granted under
the Agent Plan at an exercise price of $32.25 per share.
Principal Shareholders
The following table sets forth, as of April 10, 1998, information with
respect to the beneficial ownership of the Common Stock of the Company by (i)
each person known to the Company to own 5% or more of the outstanding shares
of Common Stock, (ii) each of the Company's Directors, and (iii) all
Directors and Executive Officers as a group:
<TABLE>
<CAPTION>
Percent of
Name (1) Shares Owned Ownership (2)
- -------- ------------ -------------
13
<PAGE>
<S> <C> <C>
Irving Levit (3) 1,950,076 24.70%
Palisade Capital Management L.L.C.(4) 494,377 6.34%
Dimensional Fund Advisors, Inc.(5) 453,700 5.82%
Artisan Partners Ltd. Partnership(6) 412,900 5.30%
Jack D. Baum (7) 28,658 *
A. J. Carden (8) 13,500 *
Michael F. Grill (9) 18,669 *
C. Mitchell Goldman, Esquire (10) 1,700 *
Jim Heyer (11) 5,600 *
Emile G. Ilchuk 10,500 *
Glen A. Levit (12) 22,726 *
Domenic P. Stangherlin 27,925 *
David B. Trindle - *
Cameron B. Waite(13) - *
All Directors and Executive
Officers as a group 2,079,354 26.09%
(10 persons) (14)
</TABLE>
- ----------------------
* Less than 1%
(1) Unless otherwise noted, the address of each person named above is in care
of the Company.
(2) Based on 7,795,996 shares outstanding, except that shares underlying
options exercisable within 60 days are deemed to be outstanding for
purposes of calculating the percentage owned by the holder of such options.
(3) Mr. Levit is the President, Chief Executive Officer and Chairman of the
Board of the Company. Includes 48,200 shares held by a private foundation
of which Mr. Levit is an officer and director, 40,007 shares held by Mr.
Levit as trustee of a retirement account, 151,052 shares held by Mr. Levit
as co-trustee of an irrevocable trust for Mr. Levit's five children and
exercisable options to purchase 99,660 shares of Common Stock. Includes
30,000 shares held by Mr. Levit's wife as to which he disclaims beneficial
ownership. Excludes 43,665 shares held by four of his adult children and
options to purchase 104,427 shares of Common Stock.
(4) According to the Schedule 13G filed with the Commission by Palisade Capital
Management, L.L.C. for the year ended December 31, 1997, the address for
Palisade Capital Management, L.L.C. is One Bridge Plaza, Suite 695, Fort
Lee, NJ 07024. Palisade Capital Management L.L.C. reported sole voting
power and sole investment power with respect to all shares and includes
212,377 shares which Palisade Capital Management L.L.C. has a right to
acquire upon conversion of convertible securities.
(5) According to the Schedule 13G filed with the Commission by Dimensional Fund
Advisors, Inc. for the year ended December
14
<PAGE>
31, 1997, the address for Dimensional Fund Advisors, Inc. is 1299 Ocean
Avenue, 11th Floor, Santa Monica, CA 90401. Dimensional Fund Advisors,
Inc. reported sole voting power with respect to 317,300 shares and sole
dispositive power with respect to 453,700 shares of Common Stock.
(6) According to the Schedule 13G filed with the Commission by Artisan Partners
Limited Partnership, Artisan Investment Corporation, Andrew A. Ziegler and
Carlene Murphy Ziegler (collectively "Artisan Partners") for the year ended
December 31, 1997, their principal business address is 1000 North Water
Street, #1770, Milwaukee, WI 53202. Artisan Partners reported shared
voting power and shared investment power with respect to all shares.
(7) Includes 81 shares held by Mr. Baum and 28,577 exercisable options.
Excludes options to purchase 18,000 shares of Common Stock.
(8) Consists of exercisable options, Common Stock and excludes options to
purchase 32,500 shares of Common Stock.
(9) Consists of exercisable options, and excludes options to purchase 26,250
shares of Common Stock.
(10) Includes 375 shares held by Mr. Goldman's wife and 450 shares beneficially
owned by Mr. Goldman's minor children.
(11) Consists if 100 shares of Common Stock and exercisable options to purchase
5,500 shares of Common Stock. Excludes options to purchase 20,000 shares of
Common Stock.
(12) Consists of 15,226 shares of Common Stock and exercisable options to
purchase 7,500 shares of Common Stock. Excludes options to purchase 19,500
shares of Common Stock.
(13) Excludes options to purchase 2,000 shares of Common Stock.
(14) Includes exercisable options held by members of the group to
purchase 173,406 shares.
Performance Graph
The following graph compares the five-year cumulative total return for the
Company's common stock with the comparable cumulative return of two indices.
The Nasdaq Stock Market Index provides some indication of the performance of the
overall stock market, and the Nasdaq Insurance Stock Index reflects the
performance of insurance company stock generally.
15
<PAGE>
PENN TREATY AMERICAN CORPORATION
Performance Graph (1)
[GRAPHIC]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PTAC STOCK $100.00 $105.21 $131.26 $206.25 $325.00 $396.88
NASDAQ STOCK MARKET $100.00 $114.79 $112.21 $158.68 $195.19 $239.63
NASDAQ INS STOCK $100.00 $106.96 $100.68 $143.01 $162.97 $239.18
</TABLE>
(1) Assumes a $100 investment on December 31, 1993 in Penn Treaty American
Corporation common stock, and in each of the indices. The total return assumes
reinvestment of all dividends.
16
<PAGE>
PROPOSAL II - APPROVAL OF THE
1998 EMPLOYEE INCENTIVE STOCK OPTION PLAN
Proposal
The Penn Treaty American Corporation 1998 Employee Incentive Stock
Option Plan (the "1998 Plan") is to be approved at the Meeting. The Plan, which
was adopted by the Company's Board of Directors in April 1998, authorizes the
Company to grant "incentive stock options" under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and non-qualified stock options,
covering up to an aggregate of 600,000 shares of Common Stock. The purpose of
the Plan is to enable the Company to offer officers, directors and employees of
the Company and its subsidiaries options to acquire equity interests in the
Company, thereby attracting, retaining and rewarding such persons, and
strengthening the mutuality of interests between such persons and the Company's
shareholders.
A copy of the 1998 Plan is set forth in Appendix "A" to this Proxy
Statement.
Administration
The 1998 Plan is administered and interpreted by the Compensation
Committee of the Board of Directors (the "Committee").
The Committee has the authority to (i) adopt, alter and repeal such
administrative rules, guidelines and practices as it deems advisable for the
administration of the 1998 Plan; (ii) interpret the terms and provisions of the
1998 Plan and any award granted thereunder; and (iii) otherwise supervise the
administration of the 1998 Plan. In addition, the Committee may correct any
defect, supply any omission or reconcile any inconsistency in the 1998 Plan or
in any award granted in the manner and to the extent it shall deem necessary to
carry the 1998 Plan into effect. In the event of any disagreement as to the
interpretation of the 1998 Plan or any rule or procedure thereunder, the
decision of the Committee will be final and binding upon all persons in
interest.
Eligible Participants
All officers, directors and employees of the Company and its
subsidiaries are eligible to be granted incentive stock options and
non-qualified stock options under the 1998 Plan. As
17
<PAGE>
of April 17, 1998, all of the Company's officers, directors and employees were
eligible to participate in the 1998 Plan.
Number of Shares Subject to the 1998 Plan
The maximum number of shares that may be issued under the 1998 Plan is
600,000. No participant may be granted awards of stock options representing
more than 100,000 shares during any calendar year. The shares may be either
authorized and unissued shares or issued shares reacquired by the Company. The
aggregate number of shares issuable under the 1998 Plan and the number of shares
subject to awards made under the 1998 Plan are subject to adjustment in the
event of a merger, reorganization, consolidation, recapitalization, dividend
(other than a regular cash dividend), stock split, or other change in corporate
structure affecting the shares.
If any stock option granted under the 1998 Plan expires, terminates or
is cancelled for any reason without having been exercised in full, the number of
unpurchased shares will again be available for the purposes of the 1998 Plan.
Awards Under the 1998 Plan
The terms of stock options granted under the 1998 Plan are determined
by the Committee. The Committee will determine the eligible recipients, option
price, the expiration date of the option (provided that no option is exercisable
more than ten years after the date the option is granted), the number of shares
to which the option pertains, any conditions relating to the exercise of the
option and such other terms and conditions as the Committee, in its sole
discretion, shall determine. The Committee will also specify whether the option
is intended to be an incentive stock option ("ISO") eligible for preferential
tax treatment under Section 422 of the Code or a non-qualified stock option.
The option price for ISOs shall not be less than the fair market value
of the Company's Common Stock on the date of grant. The option price for
non-qualified stock options will be determined by the Committee at the time of
grant. The option exercise price may be paid (i) in cash, (ii) to the extent
determined by the Committee, in the form of shares of Common Stock duly owned by
the participant (and for which the participant has good title free and clear of
any liens and encumbrances), based on the fair market value of the shares of
Common Stock on the date of exercise or (iii) by a combination of cash and
shares of Common Stock. A participant will not be
18
<PAGE>
deemed to be the holder of shares of Common Stock, or to have the rights of a
holder of Common Stock, with respect to Common Stock subject to an option,
unless and until a stock certificate representing the shares subject to an
option is issued to the participant.
In the event that a participant's employment with the Company and all
its subsidiaries terminates by reason of the death of the participant, any stock
option held by such participant exercisable as of the date of death may be
exercised by the legal representative of the participant's estate. Such stock
option shall be exercisable until the earlier of twelve months after the date of
death or until the expiration of the term of such stock option. Stock options
not exercisable on the date of death shall be forfeited.
In the event that a participant's employment with the Company and all
its subsidiaries terminates by reason of the disability of the participant, any
stock option held by the participant exercisable as of the date of disability
may be exercised until the earlier of twelve months after the date of such
termination or until the expiration of such stock option. If an ISO is
exercised after the expiration of the exercise period that applies for purposes
of Section 422 of the Code, such stock option will be treated as a non-qualified
stock option.
If a participant's employment with the Company and all of its
subsidiaries terminates for any reason other than death or disability, any stock
option held by such participant shall be forfeited on the date of such
termination.
Federal Tax Consequences
The federal income tax discussion set forth below is intended for
general information only. State and local income tax consequences are not
discussed and may vary from locality to locality.
Non-Qualified Stock Options. A participant will not be deemed to
receive any income at the time a non-qualified stock option is granted, nor will
the Company be entitled to a deduction at that time. However, when any part of
a non-qualified stock option is exercised, the participant will be deemed to
have received compensation taxable as ordinary income in an amount equal to the
difference between the option exercise price of the non-qualified stock option
and the fair market value of the shares received upon the exercise of the
non-qualified stock option. Where a non-qualified stock option is exercised by
a director or executive officer within six months of the date of
19
<PAGE>
its grant, the recognition of income in respect of such exercise will ordinarily
be delayed until such shares may be resold without incurring liability under
Section 16(b) of the Exchange Act (generally six months after the date of grant
of the non-qualified stock option), and in such case the amount of such ordinary
income will be determined as of the date of recognition based upon the fair
market value of the shares on that date. If, however, a participant subject to
Section 16(b) of the Exchange Act files an appropriate election under Section
83(b) of the Code with the Internal Revenue Service within thirty days of his or
her exercise of a non-qualified stock option that had been granted within the
six-month period ending on the date of such exercise, such participant will be
deemed to have received compensation taxable as ordinary income in an amount
equal to the difference between the exercise price and the fair market value, on
the date of exercise, of the shares received upon such exercise. The Company
will (subject to any applicable Code limitation) be entitled to a tax deduction
in an amount equal to the amount of compensation taxable as ordinary income when
such income is recognized by the participant.
Upon any subsequent sale of the shares acquired upon the exercise of a
non-qualified stock option, any gain (the excess of the amount received over the
fair market value of the shares on the date ordinary income was recognized) or
loss (the excess of the fair market value of the shares on the date ordinary
income was recognized over the amount received) will be a long-term capital gain
or loss if the sale occurs more than one year after the date of exercise (or, if
later, the date when income was recognized by the optionee) and otherwise will
be a short-term capital gain or loss.
If all or any part of the exercise price of a non-qualified stock
option is paid by the participant with shares (including shares previously
acquired upon exercise of an incentive stock option), no gain or loss will be
recognized on the shares surrendered in payment. The number of shares received
on such exercise of the non-qualified stock option equal to the number of shares
surrendered will have the same basis and holding period, for purposes of
determining whether subsequent dispositions result in long-term or short-term
capital gain or loss, as the basis and holding period of the shares surrendered.
The balance of the shares received on such exercise will be treated for federal
income tax purposes as described in the preceding paragraphs as though issued
upon the exercise of the non-qualified stock option for an option exercise price
equal to the consideration, if any, paid by the participant in cash. The
participant's compensation, which is taxable as ordinary income upon such
exercise, and the Company's deduction will not be
20
<PAGE>
affected by whether the exercise price is paid in cash or in shares.
Incentive Stock Options. A participant will not be deemed to receive
any income at the time an incentive stock option is granted or exercised
pursuant to the 1998 Plan. (However, special rules apply to participants who
are subject to the alternative minimum tax.) If a participant does not dispose
of the shares acquired upon exercise of an incentive stock option within two
years after the grant of the incentive stock option and one year after the
exercise of the incentive stock option, the gain (if any) on a subsequent sale
(the excess of the amount received over the exercise price) or loss (if any) on
a subsequent sale (the excess of the exercise price over the amount received)
will be a long-term capital gain or loss.
If the participant disposes of the shares acquired upon exercise of an
incentive stock option within two years after the date of grant of the incentive
stock option or within one year after the exercise of the incentive stock
option, the disposition is a "disqualifying disposition," and the participant
will generally recognize income in the year of the "disqualifying disposition"
equal to the excess of the amount received for the shares over the exercise
price. Of that income, the portion equal to the excess of the fair market value
of the shares at the time the incentive stock option was exercised over the
option exercise price will be treated as compensation taxable as ordinary income
(for which the Company will be entitled to a tax deduction in the year of the
"disqualifying disposition") and the balance, if any, will be long-term or
short-term capital gain depending on whether the shares were sold more than one
year after the Incentive stock option was exercised. However, in the case of a
"disqualifying disposition" that is a sale or exchange (other than a sale or
exchange with certain persons related to the participant), the amount of
compensation income recognized by the participant cannot exceed the excess of
the amount received over the option exercise price, even where the amount
received is less than the fair market value of the shares at the time the
incentive stock option was exercised. If a participant uses shares acquired
upon the exercise of an incentive stock option to exercise an incentive stock
option at a time when the sale of such shares would constitute a "disqualifying
disposition," the participant will recognize ordinary income in the amount
described in the preceding two sentences.
Recent Developments in Taxation of Long-Term Capital Gains. As a
consequence of amendments to the Code by the Taxpayer Relief Act of 1997,
long-term capital gains recognized upon the disposition of shares acquired upon
exercise of an ISO
21
<PAGE>
or a non-qualified stock option will be subject to taxation at a maximum rate of
20% if such shares have been held for more than 18 months after the date of
exercise. If such shares have been held for more than one year after the date
of exercise (but for no more than 18 months), any long-term capital gains
recognized will be subject to taxation at a maximum rate of 28%.
Withholding
The Company has the right to reduce the number of shares otherwise
deliverable under the 1998 Plan by an amount that would have a Fair Market Value
on such date equal to the amount of all federal, state and local taxes required
to be withheld by the Company, or to deduct the amount of such taxes from any
cash payment otherwise to be made to the participant. In connection with such
withholding, the Committee may make such arrangements as are consistent with the
1998 Plan as it deems appropriate.
THE BOARD OF DIRECTORS DEEMS PROPOSAL II TO BE IN THE BEST INTERESTS
OF THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL OF THE
1998 EMPLOYEE INCENTIVE STOCK OPTION PLAN.
PROPOSAL III -- APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company, upon recommendation of the Audit
Committee, has selected the firm of Coopers & Lybrand L.L.P. as the independent
public accountants of the Company and its subsidiaries for the year ending
December 31, 1998. Coopers & Lybrand L.L.P. has acted in this capacity since
1986. A representative of Coopers & Lybrand L.L.P. is expected to be present at
the Meeting for the purpose of making a statement if he so desires and to
respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION AND APPROVAL OF
THE APPOINTMENT OF COOPERS & LYBRAND L.L.P. AS THE INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE COMPANY AND ITS SUBSIDIARIES FOR THE YEAR ENDING DECEMBER
31, 1998.
SHAREHOLDER PROPOSALS
For the 1999 Annual Meeting of Shareholders, shareholder proposals must be
received by the Secretary of the Company no later than January 4, 1999.
22
<PAGE>
OTHER MATTERS
At the date of this Proxy Statement, the only business which the Board of
Directors intends to present or knows that others will present at the Meeting is
that which is presented above. If any other matter or matters are properly
brought before the Meeting, or any adjournments or postponements thereof, it is
the intention of the persons named in the accompanying Proxy Card to vote
Proxies on such matters in accordance with their judgment.
By order of the Board of Directors,
/s/ Domenic P. Stangherlin
Domenic P. Stangherlin,
Secretary
Allentown, Pennsylvania
April 22, 1998
23
<PAGE>
APPENDIX "A"
PENN TREATY AMERICAN CORPORATION
1998 EMPLOYEE STOCK OPTION PLAN
ARTICLE I
Purpose
The purpose of the 1998 Employee Stock Option Plan (the "Plan") is to
enable Penn Treaty American Corporation (the "Company") to offer its officers,
directors and employees of the Company and its Subsidiaries options to acquire
equity interests in the Company, thereby attracting, retaining and rewarding
such persons, and strengthening the mutuality of interests between such persons
and the Company's shareholders.
ARTICLE II
Definitions
For purposes of the Plan, the following terms shall have the following
meanings:
2..1 "Award" shall mean an award under the Plan of a Stock Option.
2..1 "Board" shall mean the Board of Directors of the Company.
2..2 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2..3 "Committee" shall mean the Compensation Committee of the Board,
consisting of two or more members of the Board.
2..4 "Common Stock" shall mean the Common Stock, par value $.10 per
share, of the Company.
2..5 "Disability" shall mean a disability that results in a
Participant's Termination of Employment with the Company or a Subsidiary, as
determined pursuant to standard Company procedures.
2..6 "Fair Market Value" for purposes of the Plan, unless otherwise
required by any applicable provision of the Code or any regulations issued
thereunder, shall mean, as of any date, the average of the high and low sales
prices of a share of Common Stock as
24
<PAGE>
reported on the principal national securities exchange on which the Common Stock
is listed or admitted to trading, or, if not listed or traded on any such
exchange, The Nasdaq Stock Market ("NASDAQ"), or, if such sales prices are not
available, the average of the bid and asked prices per share reported on NASDAQ,
or, if such quotations are not available, the fair market value as determined by
the Board, which determination shall be conclusive.
2..7 "Incentive Stock Option" shall mean any Stock Option awarded
under the Plan intended to be and designated as an "Incentive Stock Option"
within the meaning of Section 422 of the Code.
2..8 "Non-Qualified Stock Option" shall mean any Stock Option granted
under the Plan that is not an Incentive Stock Option.
2..9 "Participant" shall mean an employee to whom an Award has been
granted.
2..10 "Stock Option" or "Option" shall mean any option to purchase
shares of Common Stock granted pursuant to Article VI of the Plan.
2..11 "Subsidiary" shall mean any subsidiary of the Company, 80%
or more of the voting stock of which is owned, directly or indirectly, by the
Company.
2..12 "Termination of Employment" shall mean a termination of
employment with the Company and all of its Subsidiaries. Whether authorized
leave of absence or absence for military or governmental service shall
constitute termination of employment, for the purposes of the Plan, shall be
determined by the Committee, which determination shall be final and conclusive.
ARTICLE III
Administration
3..1 The Committee. The Plan shall be administered and interpreted by
the Committee.
3..2 Awards. The Committee shall have full authority to grant,
pursuant to the terms of the Plan, Stock Options to persons eligible under
Article V. In particular, the Committee shall have the authority:
(a) to select the persons to whom Stock Options may from time to
time be granted;
(b) to determine whether and to what extent Incentive Stock
Options and Non-Qualified Stock Options, or any combination thereof, are to be
granted to one or more persons eligible to receive Awards under Article V;
25
<PAGE>
(c) to determine the number of shares of Common Stock to be
covered by each Award granted hereunder; and
(d) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Award granted hereunder (including, but not
limited to, the option price, the option term, and provisions relating to any
restriction or limitation, any vesting schedule or acceleration, or any waiver
with respect to the Award).
3..3 Guidelines. Subject to Article VII hereof, the Committee shall
have the authority to adopt, alter and repeal such administrative rules,
guidelines and practices governing the Plan as it shall, from time to time, deem
advisable; to interpret the terms and provisions of the Plan and any Award
granted under the Plan (and any agreements relating thereto); and to otherwise
supervise the administration of the Plan. The Committee may correct any defect,
supply any omission or reconcile any inconsistency in the Plan or in any Award
in the manner and to the extent it shall deem necessary to carry the Plan into
effect. Notwithstanding the foregoing, no action of the Committee under this
Section 3.3 shall impair the rights of any Participant without the Participant's
consent, unless otherwise required by law.
3..4 Decisions Final. Any decision, interpretation or other action
made or taken in good faith by the Committee arising out of or in connection
with the Plan shall be final, binding and conclusive on the Company, all
Participants and their respective heirs, executors, administrators, successors
and assigns.
ARTICLE IV
Share Limitation
4..1 Shares. The maximum aggregate number of shares of Common Stock
that may be issued under the Plan is 600,000 (subject to any increase or
decrease pursuant to Section 4.3), which may be either authorized and unissued
shares of Common Stock or issued Common Stock reacquired by the Company. If any
Option granted under the Plan shall expire, terminate or be canceled for any
reason without having been exercised in full, the number of unpurchased shares
shall again be available for the purposes of the Plan.
4..2 Individual Limit. No employee may be granted Awards covering
more than 100,000 shares of Common Stock (subject to increase or decrease
pursuant to Section 4.3) during any calendar year.
4..3 Changes.
(a) The number of shares of Common Stock covered by each
outstanding Stock Option, and the exercise price per share in
26
<PAGE>
each such Option, shall be proportionately adjusted for any increase or decrease
in the number of issued shares of Common Stock of the Company resulting from a
subdivision or consolidation of shares or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
such shares effected without receipt of consideration by the Company.
(b) If the Company shall be the surviving corporation in any
merger or consolidation, each outstanding Stock Option shall pertain to and
apply to the securities to which a holder of the number of shares of Common
Stock subject to the Stock Option would have been entitled. A dissolution or
liquidation of the Company or a merger or consolidation in which the Company is
not the surviving corporation, shall cause each outstanding Stock Option to
terminate, provided that each optionee shall, in such event, if a period of 12
months from the date of the granting of the Stock Option shall have expired,
have the right immediately prior to such dissolution or liquidation, or merger
or consolidation in which the Company is not the surviving corporation, to
exercise his Stock Option in whole or in part without regard to the installment
provisions of Section 6.4(d) of the Plan. Notwithstanding the above provisions
upon a merger or consolidation, a Stock Option will not terminate if assumed by
the surviving or acquiring corporation, or its parent, and in the case of an
Incentive Stock Option the circumstances of such assumption are not deemed a
modification of the Incentive Stock Option within the meaning of Sections 424(a)
and 424(h)(3)(A) of the Code.
(c) In the event of a change in the Common Stock of the Company
as presently constituted, which is limited to a change of all of its authorized
shares with par value into the same number of shares with a different par value
or without par value, the shares resulting from any such change shall be deemed
to be the Common Stock within the meaning of the Plan.
(d) To the extent that the foregoing adjustments relate to stock
or securities of the Company, such adjustments shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive,
provided that no Incentive Stock Option granted pursuant to the Plan shall be
adjusted in a manner that causes the Incentive Stock Option to fail to continue
to qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(e) The grant of a Stock Option pursuant to the Plan shall not
affect in any way the right or power of the Company to make adjustments,
reclassification, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell, or
transfer all or any part of its business or assets.
ARTICLE V
Eligibility
27
<PAGE>
All officers, directors and employees of the Company and its Subsidiaries
are eligible to be granted Stock Options under the Plan.
ARTICLE VI
Stock Options
6..1 Options. Each Stock Option granted under the Plan shall be
either an Incentive Stock Option or a Non-Qualified Stock Option.
6..2 Grants. The Committee shall have the authority to grant to any
person eligible under Article V one or more Incentive Stock Options,
Non-Qualified Stock Options, or both types of Stock Options. To the extent that
any Stock Option does not qualify as an Incentive Stock Option (whether because
of its provisions or the time or manner of its exercise or otherwise), such
Stock Option or the portion thereof which does not qualify as an Incentive Stock
Option shall constitute a separate Non-Qualified Stock Option.
6..3 Incentive Stock Options. Anything in the Plan to the contrary
notwithstanding, no term of the Plan relating to Incentive Stock Options shall
be interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be exercised, so as to disqualify the Plan under Section
422 of the Code, or, without the consent of the Participants affected, to
disqualify any Incentive Stock Option under such Section 422.
6..4 Terms of Options. Options granted under the Plan shall be
subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as the
Committee shall deem desirable:
(a) Notice of Grant of Stock Option. Each Stock Option shall be
evidenced by, and subject to the terms of, a Notice of Grant of Stock Option
executed by the Company and the Participant. The Notice of Grant of Stock
Option shall specify whether the Option is an Incentive Stock Option or a
Non-Qualified Stock Option, the number of shares of Common Stock subject to the
Stock Option, the option price, the option term, and the other terms and
conditions applicable to the Stock Option.
(b) Option Price. The option price per share of Common Stock
purchasable upon exercise of a Stock Option shall be determined by the Committee
at the time of grant, but shall be not less than 100% of the Fair Market Value
of the Common Stock on the date of grant if the Stock Option is intended to be
an Incentive Stock Option. The Committee may, in its discretion, grant
Non-Qualified Stock Options at an option price per share which is below the Fair
Market Value of the Common Stock on the date of grant.
28
<PAGE>
(c) Option Term. The term of each Stock Option shall be fixed
by the Committee at the time of grant, but no Stock Option shall be exercisable
more than ten years after the date it is granted.
(d) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined by
the Committee at the time of grant; provided, however, that no Stock Option
shall be exercisable in whole or in part prior to 12 months from the date it is
granted; and provided further, that the Committee may waive any installment
exercise or waiting period provisions, in whole or in part, at any time after
the date of grant, based on such factors as the Committee shall deem appropriate
in its sole discretion.
(e) Method of Exercise. Subject to such installment exercise
and waiting period provisions as may be imposed by the Committee, Stock Options
may be exercised in whole or in part at any time during the option term by
delivering to the Company written notice of exercise specifying the number of
shares of Common Stock to be purchased and the option price therefor; provided,
however, that not less than 50 shares may be purchased at any one time unless
the number purchased is the total number at the time purchasable under the Stock
Option. The notice of exercise shall be accompanied by payment in full of the
option price and, if requested, by the representation described in Section 9.2.
Payment of the option price may be made (i) in cash or by check payable to the
Company, (ii) to the extent determined by the Committee on or after the date of
grant, in shares of Common Stock duly owned by the Participant (and for which
the Participant has good title free and clear of any liens and encumbrances) or
(iii) by reduction in the number of shares of Common Stock issuable upon such
exercise, based, in each case, on the Fair Market Value of the Common Stock on
the date of exercise. In addition, the Committee shall have the discretion to
include in any Option grant the right of the Participant (A) to receive a loan
from the Company to pay the exercise price of the Stock Option, with such terms
as shall not cause the Stock Option, if an Incentive Stock Option, to become
disqualified under Section 422 of the Code or amendments thereto, and/or (B) to
receive such assistance from the Company in obtaining a loan from a financial
institution as is necessary in the sole discretion of the Committee. Upon
payment in full of the option price and satisfaction of the other conditions
provided herein, a stock certificate representing the number of shares of Common
Stock to which the Participant is entitled shall be issued and delivered to the
Participant.
(f) Death. In the event of a Participant's Termination of
Employment by reason of death, any Stock Option held by such Participant which
was exercisable on the date of death may thereafter be exercised by the legal
representative of the Participant's estate until the earlier of twelve months
after the date of death or the expiration of the stated term of such Stock
Option, and any Stock Option not exercisable on the date of death shall be
forfeited.
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(g) Disability. In the event of a Participant's Termination of
Employment by reason of Disability, any Stock Option held by such Participant
which was exercisable on the date of such Termination of Employment may
thereafter be exercised by the Participant until the earlier of twelve months
after such date or the expiration of the stated term of such Stock Option, and
any Stock Option not exercisable on the date of such Termination of Employment
shall be forfeited. If an Incentive Stock Option is exercised after the
expiration of the exercise period that applies for purposes of Section 422 of
the Code, such Stock Option will thereafter be treated as a Non-Qualified Stock
Option.
(h) Termination of Employment. Unless otherwise determined by
the Committee on or after the date of grant, in the event of a Participant's
Termination of Employment other than by reason of Death or Disability, all Stock
Options held by such Participant on the date of such Termination of Employment
shall be forfeited as of such date.
(i) Non-Transferability of Options. No Stock Option shall be
transferrable by the Participant otherwise than by will or by the laws of
descent and distribution, to the extent consistent with the terms of the Plan
and the Option, and all Stock Options shall be exercisable, during the
Participant's lifetime, only by the Participant.
(j) Incentive Stock Option Limitations. To the extent that the
aggregate Fair Market Value (determined as of the date of grant) of the Common
Stock with respect to which Incentive Stock Options are exercisable for the
first time by the Participant during any calendar year under the Plan and/or any
other stock option plan of the Company or any subsidiary or parent corporation
(within the meaning of Section 424 of the Code) exceeds $100,000, such Options
shall be treated as Options which are not Incentive Stock Options.
Should the foregoing provisions not be necessary in order for the
Stock Options to qualify as Incentive Stock Options, or should any additional
provisions be required, the Committee may amend the Plan accordingly, without
the necessity of obtaining the approval of the shareholders of the Company.
(k) Ten-Percent Shareholder Rule. Notwithstanding any other
provision of the Plan to the contrary, no Incentive Stock Option shall be
granted to any person who, immediately prior to the grant, owns stock possessing
more than ten percent of the total combined voting power of all classes of stock
of the Company or any subsidiary or parent corporation (within the meaning of
Section 424 of the Code), unless the option price is at least 110% of the Fair
Market Value of the Common Stock on the date of grant and the Option, by its
terms, expires no later than five years after the date of grant.
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6..5 Rights as Shareholder. A Participant shall not be deemed to be
the holder of Common Stock, or to have any of the rights of a holder of Common
Stock, with respect to shares subject to the Option, unless and until the Option
is exercised and a stock certificate representing such shares of Common Stock is
issued to the Participant.
ARTICLE VII
Termination or Amendment
7..1 Termination or Amendment of Plan. The Committee may at any time
amend, discontinue or terminate the Plan or any part thereof (including any
amendment deemed necessary to ensure that the Company may comply with any
regulatory requirement referred to in Article IX); provided, however, that,
unless otherwise required by law, the rights of a Participant with respect to
Awards granted prior to such amendment, discontinuance or termination may not be
impaired without the consent of such Participant and, provided further that, the
Company will seek the approval of the Company's shareholders for any amendment
if such approval is necessary to comply with the Code, Federal or state
securities law or any other applicable rules or regulations.
7..2 Amendment of Options. The Committee may amend the terms of any
Award previously granted,prospectively or retroactively, but, subject to Article
IV, no such amendment or other action by the Committee shall impair the rights
of any holder without the holder's consent.
ARTICLE VIII
Unfunded Plan
The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any payment not yet made to a Participant by the
Company, nothing contained herein shall give any such Participant any rights
that are greater than those of a general creditor of the Company.
ARTICLE IX
General Provisions
9..1 Nonassignment. Except as otherwise provided in the Plan, any
Award granted hereunder and the rights and privileges conferred thereby shall
not be sold, transferred, assigned, pledged or hypothecated in any way (whether
by operation of law or otherwise), and shall not be subject to execution,
attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of an Award, right or privilege contrary to the
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provisions hereof, or upon the levy of any attachment or similar process
thereon, such Award and the rights and privileges conferred hereby shall
immediately terminate and the Award shall immediately be forfeited to the
Company.
9..2 Legend. The Committee may require each person acquiring shares
upon exercise of a Stock Option to represent to the Company in writing that the
Participant is acquiring the shares without a view to distribution thereof. The
stock certificates representing such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.
All certificates representing shares of Common Stock delivered under
the Plan shall be subject to such stock transfer orders and other restrictions
as the Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange or
stock market upon which the Common Stock is then listed or traded, any
applicable Federal or state securities law, and any applicable corporate law,
and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
9..3 Other Plans. Nothing contained in the Plan shall prevent the
Board from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases.
9..4 No Right to Employment. Neither the Plan nor the grant of any
Award hereunder shall give any Participant or other employee any right with
respect to continuance of employment by the Company or any Subsidiary, nor shall
the Plan impose any limitation on the right of the Company or any Subsidiary by
which a Participant is employed to terminate such Participant's employment at
any time.
9..5 Withholding of Taxes. The Company shall have the right to
reduce the number of shares of Common Stock otherwise deliverable pursuant to
the Plan by an amount that would have a Fair Market Value equal to the amount of
all Federal, state and local taxes required to be withheld, or to deduct the
amount of such taxes from any cash payment otherwise to be made to the
Participant. In connection with such withholding, the Committee may make such
arrangements as are consistent with the Plan as it may deem appropriate.
9..6 Listing and Other Conditions.
(a) If the Common Stock is listed on a national securities
exchange or The Nasdaq Stock Market, the issuance of any shares of Common Stock
pursuant to an Award shall be conditioned upon such shares being listed on such
exchange or NASDAQ. The Company shall have no obligation to issue any shares of
Common Stock unless
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and until such shares are so listed, and the right to exercise any Option shall
be suspended until such listing has been effected.
(b) If at any time counsel to the Company shall be of the
opinion that any sale or delivery of shares of Common Stock upon exercise of a
Stock Option is or may in the circumstances be unlawful or result in the
imposition of excise taxes under the statutes, rules or regulations of any
applicable jurisdiction, the Company shall have no obligation to make such sale
or delivery, or to make any application or to effect or to maintain any
qualification or registration under the Securities Act of 1933, as amended, or
otherwise with respect to shares of Common Stock or Awards, and the right to
exercise any Option shall be suspended until, in the opinion of such counsel,
such sale or delivery shall be lawful or shall not result in the imposition of
excise taxes.
(c) Upon termination of any period of suspension under this
Section 9.6, any Award affected by such suspension which shall not then have
expired or terminated shall be reinstated as to all shares available before such
suspension and as to shares which would otherwise have become available during
the period of such suspension, but no such suspension shall extend the term of
any Option.
9..7 Governing Law. The Plan and actions taken in connection
herewith shall be governed and construed in accordance with the laws of the
Commonwealth of Pennsylvania.
9..8 Construction. Wherever any words are used in the Plan in the
masculine gender they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply, and wherever any words
are used herein in the singular form they shall be construed as though they were
also used in the plural form in all cases where they would so apply.
9..9 Liability of the Board and the Committee. No member of the
Board or the Committee nor any employee of the Company or any of its
subsidiaries shall be liable for any act or action hereunder, whether of
omission or commission, by any other member or employee or by any agent to whom
duties in connection with the administration of the Plan have been delegated or,
except in circumstances involving bad faith, gross negligence or fraud, for
anything done or omitted to be done by himself.
9..10 Other Benefits. No payment pursuant to an Award shall be
deemed compensation for purposes of computing benefits under any retirement plan
of the Company or any Subsidiary nor affect any benefits under any other benefit
plan now or hereafter in effect under which the availability or amount of
benefits is related to the level of compensation.
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9..11 Costs. The Company shall bear all expenses incurred in
administering the Plan, including expenses related to the issuance of Common
Stock upon exercise of Stock Options.
9..12 Severability. If any part of the Plan shall be determined to
be invalid or void in any respect, such determination shall not affect, impair,
invalidate or nullify the remaining provisions of the Plan which shall continue
in full force and effect.
9..13 Successors. The Plan shall be binding upon and inure to the
benefit of any successor or successors of the Company.
9..14 Headings. Article and section headings contained in the Plan
are included for convenience only and are not to be used in construing or
interpreting the Plan.
ARTICLE X
Term of Plan
10..1 Effective Date. The Plan shall be effective as of the date of
its approval by the Company's shareholders.
10..2 Termination Date. Unless sooner terminated, the Plan shall
terminate ten years after it is adopted by the Board and no Awards may be
granted thereafter. Termination of the Plan shall not affect Awards granted
before such date.
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REVOCABLE PROXY
PENN TREATY AMERICAN CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
May 22, 1998
This Proxy is Solicited on Behalf of the Board of Directors
Michael F. Grill, Irving Levit and A.J. Carden, each with the powers of
substitution and with all the powers and discretion the undersigned would have
if personally present, are hereby appointed the Proxy Agents to represent the
undersigned at the Annual Meeting of Shareholders of Penn Treaty American
Corporation (the "Comany") to be held at 9:00 A.M., prevailing local time on
May 22, 1998 (the "Meeting"), including any adjournment(s) or
postponement(s) thereof, and to vote all shares of stock of the Company which
the undersigned is entitled to vote on all matters that properly come before
the Meeting, subject to any directions indicated in the boxes below.
1. ELECTION OF DIRECTORS: For Withhold For All Except
Jack D. Baum / / / / / /
Emile G. Ilchuk
Glen A. Levit
- ----------------------------------------------------------------------------
INSTRUCTION: To withhold authority to vote for any individual nominee, mark
"For All Except" and write that nominee's name in the space provided.
2. ADOPTION OF THE 1998 EMPLOYEE STOCK OPTION PLAN.
For Against Abstain
/ / / / / /
3. PROPOSAL TO APPROVE THE APPOINTMENT OF COOPERS & LYBRAND L.L.P. as the
independent public accountant for the Company and its subsidiaries for the
year ending December 31, 1998.
For Against Abstain
/ / / / / /
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Meeting or any postponement(s) or
adjournment(s) thereof.
(over)
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WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DIRECTED. IF NO
DIRECTIONS TO THE CONTRARY ARE INDICATED THE BOXES PROVIDED, THE PROXY AGENTS
INTEND TO VOTE (i) FOR THE ELECTION OF THE THREE NONIMEES LISTED ABOVE, (ii)
FOR THE ADOPTION OF THE 1998 EMPLOYEE INCENTIVE STOCK OPTION PLAN, AS LISTED
ABOVE (iii) FOR THE RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT PUBLIC
ACCOUNTANTS, AND (iv) IN THE DISCRETION OF THE PROXY AGENTS ON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENTS OR
ADJOURNMENTS THEREOF.
The Proxy Agents present and acting at the Meeting, in person or by their
substitutes (or if only one is present and acting, then that one), may
exercise all the powers conferred hereby. Discretionary authority is hereby
conferred as to certain matters described in the Proxy Statement. This Proxy,
if properly executed and delivered, will revoke all prior Proxies.
Receipt of the Notice of the Annual Meeting of Shareholders and the Proxy
Statement dated April 22, 1998 are hereby acknowledged.
Please sign your name exactly as it appears on your certificate(s)
indicating any official position or representative capacity. If shares are
registered in more than one name, all owners should sign.
Please be sure to sign and date this Proxy in the box below.
Date________________________________________________________
____________________________________________________________
Stockholders sign above Co-holder (if any) sign above
PLEASE ACT PROMPTLY SIGN, DATE & MAIL YOUR PROXY CARD TODAY.
