As filed with the Securities and Exchange Commission on November 15, 2000
Registration Statement No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 6312 23-1664166
(State or other (Primary Standard (IRS Employer
jurisdiction of Industrial Identification Identification
incorporation or Classification Code) Number)
organization)
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, Chairman of the Board,
President and Chief Executive Officer
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, Esquire
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, Pennsylvania 19103
(215) 665-8500
Approximate date of commencement of proposed sale to public: From time
to time after the effective date of this Registration Statement.
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 being
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. [ ]
CALCULATION OF REGISTRATION FEE
=======================================================================
Title of each class Proposed maximum Amount of
of securities aggregate offering registration
to be registered price (1) fee
----------------------------------- ------------------ ------------
Senior Debt Securities and
Subordinated Debt Securities
----------------------------------- ------------------ ------------
Preferred Stock, $1.00 par value
----------------------------------- ------------------ ------------
Common Stock, $.10 par value
----------------------------------- ------------------ ------------
Warrants
----------------------------------- ------------------ ------------
Total $75,000,000 $ 19,800
=================================== ================== ============
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) and exclusive of accrued interest and dividends,
if any.
------------------------------
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 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
The prospectus included in this registration statement relates to the
securities registered pursuant to this Form S-3.
<PAGE>
Subject to Completion, dated November 15, 2000
Prospectus
[PENN TREATY LOGO]
PENN TREATY AMERICAN CORPORATION
3440 Lehigh Street
Allentown, Pennsylvania 18103
(610) 965-2222
$75,000,000
Penn Treaty American
Corporation
Debt Securities
Preferred Stock
Common Stock
Warrants
Penn Treaty American Corporation has listed its shares of common stock on
the New York Stock Exchange under the symbol "PTA".
--------------------------------
We will provide specific terms of these securities in supplements to
this prospectus. You should read this prospectus and any supplement carefully
before you invest.
You should also carefully consider the risk factors relating to these
securities that we describe starting on page 1 of this prospectus.
--------------------------------
This prospectus may not be used to consummate sales of the securities
offered by this prospectus unless accompanied by a prospectus supplement.
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these shares nor passed upon the accuracy
or adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
This prospectus is dated November 15 , 2000.
<PAGE>
Penn Treaty is a holding company that controls insurance company subsidiaries
domiciled in Pennsylvania, New York and Bermuda. The insurance laws and
regulations of each of Pennsylvania and New York provide, among other things,
that without the consent of the insurance commissioner of that state, no person
may acquire control of us and that any person possessing 10% or more of the
aggregate voting power of our common stock (including shares that may be issued
if all convertible securities are converted) will be presumed to have acquired
control unless each insurance commissioner, upon application, has determined
otherwise.
<PAGE>
Table of Contents
Page
----
Risk Factors 1
Where You Can Find More Information 4
Summary 5
Penn Treaty 5
Use of Proceeds 7
Ratio of Earnings To Fixed Charges 7
Description of the Securities To Be Offered 7
Description of Our Senior Debt Securities
and Subordinated Debt Securities 8
Description of Capital Stock 20
Description of Warrants 28
Plan of Distribution 29
Legal Matters 30
Experts 30
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding to invest in any of our securities.
We would suffer a financial loss if actual losses and expenses are greater
than the reserves.
Our reserves for losses and expenses are estimates for actual, future
reported and unreported claims and expenses. We compute the amount of these
reserves based on facts and circumstances known at the time the reserves are
established. In establishing these reserves, we use historical claims
information, industry statistics and other factors. We would suffer a financial
loss if our reserves are not sufficient to cover our actual losses and expenses.
We may have to reduce or refund premiums on new products if loss ratios are
too low and may suffer financial loss if loss ratios are too high.
We are subject to a greater risk for new insurance products because we
cannot estimate policy claims as well for new products. If as a result of actual
claims, we do not meet state mandated loss ratios for a new product, state
insurance regulators may require us to reduce or refund the premiums on these
new products. Because of our relatively limited claims experience with newer
product areas and the introduction of existing products in new markets, we may
also incur higher than expected loss ratios. In response to these higher than
expected loss ratios, we may increase our reserve levels for these new products.
If we fail to anticipate the need for reserve increases, we may suffer a
financial loss because the reserves may not be adequate to cover the actual
losses.
We may recognize a disproportionate amount of policy costs in one financial
reporting period if our estimate for the life of a policy is inaccurate or
if policies are terminated early.
In our sale of insurance policies, we recognize the policy acquisition
costs over the life of the policy. These costs include all expenses that are
directly related to and vary with the acquisition of the policy, including
commission, underwriting and other expenses. We use actuarial assumptions to
determine the time period over which to spread these policy costs. If these
actuarial assumptions are inaccurate, we would recognize a disproportionate
amount of these expenses at one time which would negatively affect our results
of operations for that period. In addition, these acquisition costs cannot be
spread over time if either we or the insured party terminates the policy early.
In that case, we would recognize the remaining costs in one lump sum at the time
of termination.
If any of the policies we offer are not in compliance with state minimum
statutory loss ratios, we may have to reduce or refund premiums.
We are licensed by a number of states to do business as an insurance
company in those states. These states may change the minimum mandated statutory
loss ratios required for insurance companies, like ours, to maintain. These
state regulations also mandate the manner in which insurance companies, like
ours, may compute these ratios and the manner in which the states measure and
enforce compliance with these ratios. We are unable to predict the impact of:
o any changes in the mandatory statutory loss ratios for individual
or group long-term care policies;
1
<PAGE>
o any changes in the minimum loss ratios for individual or group
long-term care or Medicare supplement policies; or
o any change in the manner in which these minimums are computed or
enforced in the future.
If we offer policies which are not in compliance with state minimum
statutory loss ratios, state regulators may require us to reduce or refund
premiums.
If governmental authorities change the regulations applicable to the
insurance industry, we may have to reduce premiums.
We, as an insurance company, are subject to stringent state governmental
requirements including:
o licensure;
o benefit structure;
o payment of dividends;
o settlement of claims;
o capital levels;
o premium increases; and
o transfer of control of insurers.
The applicable governmental authority may change these laws and
regulations, including any of the following changes:
o rate rollback legislation;
o legislation to control premiums; and
o policy terminations and other policy terms, including premium
levels.
Any of these changes may affect the amount we may charge for insurance
premiums. Because insurance premiums are our primary source of income, our
income may be negatively affected by any of these changes.
In addition, from time to time, our income may be affected by significant
federal and state legislative developments in long-term care and Medicare
coverage. Among the proposals currently pending in the United States Congress
that may affect our income are the implementation of minimum consumer protection
standards for inclusion in all long-term care policies, including:
2
<PAGE>
o guaranteed premium rates;
o protection against inflation;
o limitations on waiting periods for pre-existing conditions;
o prohibiting "high pressure" sales tactics for long-term care
insurance;
o guaranteed consumer access to information about insurers,
including lapse and replacement rates for policies and the
percentage of claims our insurance company have denied; and
o permitting premiums paid for long-term care insurance to be
treated as deductible medical expenses, with the amount of the
deduction increasing with the age of the taxpayer.
Because our competitors have greater resources and larger networks of
agents and higher ratings, we may not be able to compete successfully.
We sell our products in highly competitive markets. We compete with large
national and smaller regional insurers, as well as specialty insurers. Many
insurers are larger, have greater resources, larger networks of agents and
higher ratings than us. In addition, we are also subject to competition from
other insurers with better breadth, flexibility of coverage and pricing. In
addition, we may be subject, from time to time, to new competition resulting
from changes in Medicare benefits, as well as from additional private insurance
carriers introducing products similar to those offered by us. In addition, we
compete with other insurance companies for producing agents to market and sell
our products.
Over the past three fiscal years, more than half of our premiums were from
sales of policies in Florida and Pennsylvania. Our ability to compete
successfully may suffer from competitive changes in these markets.
We may not be able to compete successfully if we cannot recruit and retain
insurance agents.
We continuously recruit and train independent agents to market and sell our
products. We may not be able to continue to attract and retain independent
agents to sell our products. We also engage marketing general agents from time
to time to recruit independent agents and develop networks of agents in various
states. Our business and ability to compete may suffer from the inability to
recruit and retain insurance agents and from the loss of services provided by
our marketing agents.
We are liable to policyholders if any of our reinsurance agreements are
ineffective or exceed anticipated levels.
We obtain reinsurance from unaffiliated reinsurers on some of our policies
to:
o increase the number and size of the policies we may underwrite;
and
3
<PAGE>
o reduce the risk to which we are exposed.
If a third party insurer becomes insolvent or otherwise fails to honor its
obligations to us under any of our reinsurance agreements, we remain fully
liable to the policyholder.
We also act as reinsurer on some in-force policies which we have acquired
from unrelated insurance companies. We may have increased liability with respect
to these reinsurance policies if actual losses on these policies exceed levels
anticipated by us.
If senior citizens are not able to afford our policies, our income may
decrease.
Our insurance products are designed primarily for sale to persons age 65
and over. Many of these persons live on fixed incomes and, as a result, are
highly sensitive to inflation and interest rate fluctuations, which affect their
buying power. Senior citizens are less able to afford our products in times of
adverse economic conditions and high interest rates. If senior citizens do not
purchase our policies, our income may decrease.
We may expend significant capital to keep pace with developments in the
insurance industry and for internal growth.
The insurance industry may undergo development and change in the future
and, accordingly, new products and methods of service may also be introduced. In
order to keep pace with any new developments, we may need to expend significant
capital to offer new products and to train our employees for these products and
services. We may not be successful in developing new products and these capital
expenditures may have a material adverse effect on us.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission ("SEC") a
registration statement under the Securities Act for senior debt securities,
subordinated debt securities, preferred stock, common stock, and warrants. This
prospectus, which is part of the registration statement, omits information from
the registration statement and its exhibits and schedules. We file annual,
quarterly and special reports, proxy statements and other information with the
SEC which you may read and copy at the SEC's public reference rooms located at
450 Fifth Street, N.W., Washington, D.C. 20549, 75 Park Place, New York, New
York 10007 and 219 South Dearborn Street, Chicago, Illinois 60604. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference rooms.
You can also obtain copies of our filings with the SEC over the Internet at the
SEC's web site at http://www.sec.gov. Our common stock is listed on the NYSE
and, as a result, we also file reports, proxy statements and other information
with the NYSE.
The SEC allows us to "incorporate by reference" the information that we
file, which means that we can disclose important information by referring to
those documents. The information incorporated by reference is an important part
of this prospectus, and information that we file later with the SEC will
automatically supersede this information. We incorporate by reference the
documents filed with the SEC (File No. 0-15972) listed below and any future
filings made with the SEC under Sections 13(a), 13(c), 14 and 15(d) of the
Exchange Act, until this offering is terminated:
4
<PAGE>
o our Annual Report on Form 10-K for the year ended December 31,
1999;
o our Quarterly Reports on Form 10-Q for the quarters ended March
31, 2000, June 30, 2000 and September 30, 2000;
o our Current Report on Form 8-K filed April 12, 2000; and
o the description of our common stock contained in our registration
statement filed pursuant to Section 12 of the Exchange Act, and
any amendments or reports filed for the purpose of updating this
description.
We will provide at no cost to each person who receives a copy of this
prospectus, upon written or oral request, a copy of any and all of the documents
(without exhibits) incorporated by reference in this prospectus. You should
request copies from: Penn Treaty American Corporation, 3440 Lehigh Street,
Allentown, Pennsylvania 18103, Attention: Cameron B. Waite, Chief Financial
Officer (telephone number (610) 965-2222).
SUMMARY
This summary calls your attention to selected information about us and our
business, but may not contain all the information that is important to you. This
summary 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. In this prospectus, we frequently use the terms "we" and "our" to
refer to Penn Treaty American Corporation and our subsidiaries.
The Company
We are one of the leading providers of long-term nursing home care and home
health care insurance. We market our products primarily to persons age 65 and
over through independent insurance agents and underwrite our policies through
three subsidiaries, Penn Treaty Network America Insurance Company, American
Network Insurance Company and American Independent Network Insurance Company of
New York. Our 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. We design our policies to make
the administration of claims simple, quick and sensitive to the needs of our
policyholders. As of December 31, 1999, long-term nursing home care and home
health care policies accounted for approximately 95% of our total annualized
premiums in-force.
We introduced our first long-term nursing home care insurance product in
1972 and our first home health care product in 1987. In late 1994, we introduced
our 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. In late 1996 and throughout 1997,
we began the introduction of our Personal Freedom policies, which provide
comprehensive coverage for nursing home and home health care. In late 1996, we
also introduced our Assisted Living policy, which, as a nursing home plan,
provides enhanced benefits and includes a home health care rider. During 1998,
we developed our Secured Risk Nursing Facility and Post Acute Recover Plans,
5
<PAGE>
which provide limited benefits to higher risk applicants. Insureds may tailor
their policies and include an automatic annual benefit increase, benefits for
adult day-care centers and a return of premium benefit. We also market and sell
life, disability, Medicare supplement and other hospital care insurance
products.
Our objective is to strengthen our position as a leader in providing
long-term care insurance to senior citizens. To meet this objective and to
continue to increase profitability, we are implementing the following
strategies:
o developing and qualifying new products with state insurance
regulatory authorities;
o increasing the size and productivity of our network of
independent agents;
o seeking to acquire complementary insurance companies and blocks
of in-force policies underwritten by other insurance companies;
o introducing existing products in newly licensed states;
o utilizing internet strategies for the marketing and underwriting
of our products; and
o entering marketing and administration agreements with third
parties.
The shift in the population towards individuals over age 55 represents
significant opportunities for the long-term care insurance market as these
individuals begin to focus on their long-term care needs. According to a 1996
report by the U.S. Census Bureau, there are projected to be 39.7 million
individuals over age 65 and 75.1 million individuals over age 55 by 2010, as
compared to 1980 when there were 25.5 million individuals over age 65 and 47.3
million individuals over age 55. Trends in life expectancy of the United States
population also support the projected growth in long-term care insurance.
According to a 1999 report by the U.S. National Center for Life Statistics, life
expectancy has been increasing and is expected to increase to 77.4 years by 2010
from a current level of 76.4 years. At the same time, life expectancy among
individuals over age 65 has been steadily improving, which has resulted in
people living longer, healthy lives. Overall, we expect these trends to generate
awareness and demand for long-term care insurance while providing some
assurances that claim costs will not increase more than anticipated.
The rising cost of nursing and home health care further supports the
potential for long-term care insurance as a means to pay for such services.
According to a 1998 report by the U.S. Healthcare Financing Administration, the
combined cost of home health care and nursing home care was $20.0 billion in
1980. By 1996, this cost had risen to $108.7 billion. In addition, recent
legislative changes have continued to encourage individuals to use private
insurance for long-term care needs through the implementation of tax incentives
at both the national and state levels.
We believe that one of the principal methods of supporting our growth is
increasing the number of agents licensed to sell our products. We attract and
retain agents through competitive compensation arrangements, timely payment of
claims and a history of satisfied customers. Through seminars and lectures, we
train and educate our agents about our products and our operations, including
our rigorous underwriting procedures, in order to increase our agents'
productivity. In 2000, our policies were marketed through approximately 10,000
producing agents.
6
<PAGE>
We are currently licensed to market products in 50 states and the District
of Columbia. Although not all of our products are currently eligible for sale in
all of these jurisdictions, we actively seek to expand the regions where we sell
our products. Our business is generated primarily in Florida, California,
Pennsylvania, Virginia, Illinois, and Arizona.
Our principal executive offices are located at 3440 Lehigh Street,
Allentown, Pennsylvania 18103, and our telephone number is (610) 965-2222.
USE OF PROCEEDS
Unless otherwise indicated in a supplement or supplements to this
prospectus, the net proceeds we receive from the sale of the securities offered
by this prospectus are expected to be used for general corporate purposes and as
statutory surplus to our subsidiary insurers. Any specific allocation of the
proceeds to a particular purpose that has been made at the date of any
prospectus supplement will be described in that supplement.
RATIO OF EARNINGS TO FIXED CHARGES
The following are our consolidated ratios of earnings to fixed charges for
each of the periods indicated:
Six Months
Ended
June 30, 2000 Years Ended December 31,
-------------------------------------
(unaudited) 1999 1998 1997 1996 1995
------------- ---- ---- ---- ---- ----
Ratio of earnings
to fixed charges 7.0x 7.1x 8.3x 3.1x 24.5x 34.3x
---------------------
The ratio of earnings to combined fixed charges and preferred stock
dividends for the identified periods are identical to the ratios of earnings to
fixed charges in the table because we had no issued and outstanding preferred
stock in any of such periods.
We determined the earnings in the calculation of the ratio of earnings to
fixed charges by increasing income before federal income taxes by an amount
equal to fixed charges. Fixed charges consist of interest expense on borrowings
(including capitalized interest) and one-third (the proportion deemed
representative of the interest portion) of rent expense.
DESCRIPTION OF THE SECURITIES TO BE OFFERED
We may offer and sell from time to time (i) our unsecured senior debt
securities or unsecured subordinated debt securities, consisting of notes or
other evidences of indebtedness, (ii) shares of our common stock, $.10 par
value, (iii) shares of our series preferred stock, $1.00 par value or (iv)
warrants to purchase Senior Debt Securities, Subordinated Debt Securities,
7
<PAGE>
Common Stock or Preferred Stock. We may offer these securities in one or more
separate classes or series, in amounts, at prices and on terms to be determined
by market conditions at the time of sale and to be set forth in a prospectus
supplement. We may sell these securities for U.S. dollars, foreign denominated
currency or currency units. Amounts payable with respect to any such securities
may likewise be payable in U.S. dollars, foreign denominated currency or
currency units.
The securities offered by this prospectus may be offered in amounts, at
prices and on terms to be determined at the time of offering; provided, however,
that the aggregate initial public offering price of all the securities offered
by this prospectus will be limited to $75,000,000. Specific terms of the
securities offered by this prospectus will be set forth in an accompanying
prospectus supplement or supplements at the time of that offering, together with
the net proceeds from their sale.
Description of our Senior Debt Securities and Subordinated Debt Securities
Our Senior Debt Securities and Subordinated Debt Securities (collectively,
"Debt Securities"), consisting of notes or other evidences of indebtedness, may
be issued from time to time under in one or more series, in the case of Senior
Debt Securities, under a Senior Debt Indenture (the "Senior Debt Indenture")
between us and the named trustee, which we anticipate to be First Union National
Bank, and in the case of Subordinated Debt Securities under a Subordinated Debt
Indenture (the "Subordinated Debt Indenture") between us and the named trustee,
which we anticipate to be First Union National Bank. The Senior Debt Indenture
and the Subordinated Debt Indenture are sometimes referred to in this prospectus
individually as an "Indenture" and together as the "Indentures." First Union
National Bank, in its capacity as the anticipated trustee under the Indentures,
is referred to hereinafter as "indenture trustee".
Each of the Indentures shall be included as an exhibit to the relevant
prospectus supplement pursuant to which the respective Debt Securities are
offered. The following description summarizes the material terms of the
Indentures and Debt Securities and is qualified in its entirety by reference to
the detailed provisions of the Debt Securities and the Indentures, which will
contain the full text of these provisions and other information regarding the
Debt Securities, including definitions of some of the terms used in this
prospectus. Wherever particular sections are defined or defined terms of the
Indentures are referred to, these sections or defined terms are incorporated
herein by reference as part of the statement made and the statement is qualified
in its entirety by such reference.
The Indentures will be substantially identical except for provisions
relating to subordination.
General
The Indentures will not limit the aggregate principal amount of Debt
Securities that may be issued will and provide that Debt Securities may be
issued from time to time in one or more series and may be denominated and
payable in U.S. dollars, foreign currencies or currency units.
The specific terms of a series of Debt Securities will be established in or
pursuant to a resolution of our Board of Directors or in one or more indentures
supplemental to an Indenture (each, an "Indenture Supplement"). Pursuant to the
Indentures, we will be able to establish different rights with respect to each
series of Debt Securities issued under such Indentures, including, pursuant to
an Indenture Supplement, different covenants and events of default.
8
<PAGE>
The applicable prospectus supplement will provide information regarding the
specific terms of the Debt Securities, including: (i) the classification as
senior or subordinated Debt Securities and the specific title and designation,
aggregate principal amount (including any limit thereon), purchase price and
denominations of those Debt Securities; (ii) currency in which principal of,
premium, if any, on and/or any interest on those Debt Securities will or may be
payable; (iii) the date or dates on which the principal of those Debt Securities
is payable or the method of determining the same, if applicable; (iv) the rate
or rates (which may be fixed or variable) at which those Debt Securities will
bear interest, if any, or the method of determining interest payment dates, if
applicable; (v) the date or dates from which such interest, if any, will accrue
or the method of determining interest payments dates, if applicable, the
interest payment dates, if any, on which interest will be payable or the manner
of determining the same, if applicable, and the record dates for the
determination of holders to whom interest is payable on those Debt Securities;
(vi) the place or places where the principal of and premium, if any, on and
interest on the Debt Securities will be payable; (vii) any redemption, repayment
or sinking fund provisions; (viii) whether those Debt Securities are convertible
into or exchangeable for our common stock or other securities or rights of us or
other issuers and, if so, the applicable conversion or exchange terms and
conditions; (ix) whether the Debt Securities will be issuable in registered form
("Registered Debt Securities") or bearer form ("Bearer Debt Securities") or both
and, if Bearer Debt Securities are issuable, any restrictions applicable to the
place of payment of any principal of and premium, if any, on and interest on
those Bearer Debt Securities, to the exchange of one form for another and to the
offer, sale and delivery of those Bearer Debt Securities (except that under
current United States federal income tax law, Registered Debt Securities will
not be exchangeable into Bearer Debt Securities); (x) any applicable material
United States federal income tax consequences, including those related to the
Debt Securities issued at a discount below their stated principal amount; (xi)
the proposed listing; if any, of the Debt Securities on any securities exchange
or market; and (xii) any other specific terms pertaining to the Debt Securities,
whether in addition to, or modification or deletion of, the terms described
herein.
Unless otherwise specified in a prospectus supplement, Registered Debt
Securities will be issued only in denominations of U.S. $1,000 and any integral
multiple thereof.
Debt Securities will bear interest, if any, at a fixed rate or a floating
rate. Debt Securities bearing no interest or interest at a rate that at the time
of issuance is below the prevailing market rate will be sold at a discount below
their stated principal amount. Special United States federal income tax
considerations applicable to any discounted Debt Securities or to Debt
Securities issued at par which are treated as having been issued at a discount
for United States federal income tax purposes will be described in the relevant
prospectus supplement.
Registration and Transfer
Debt Securities may be presented for exchange and Registered Debt
Securities may be presented for transfer in the manner, at the places and
subject to the restrictions described in the applicable prospectus supplement.
These services will be provided without charge, other than any tax or other
governmental charge payable in connection therewith, but subject to the
limitations described in the applicable prospectus supplement. Bearer Debt
Securities and the related coupons, if any, will be transferable by delivery.
9
<PAGE>
Global Debt Securities
Registered Debt Securities of a series may be issued in the form of one or
more global securities (a "Global Security") that will be deposited with, or on
behalf of, a depositary (a "Depositary") or with a nominee for a Depositary
identified in the prospectus supplement relating to that series. In that case,
one or more Global Securities will be issued in a denomination or aggregate
denominations equal to the portion of the aggregate principal amount of
outstanding Registered Debt Securities of the series to be represented by the
Global Security or Securities. Unless and until it is exchanged in whole for
Registered Debt Securities in definitive registered form, a Global Security may
not be transferred except as a whole by the Depositary for the Global Security
to a nominee of the Depositary or by a nominee of the Depositary to the
Depositary or another nominee of the Depositary or by the Depositary or any such
nominee to a successor of the Depositary or a nominee of such successor.
Bearer Debt Securities of a series may also be issued in the form of one or
more Global Securities (a "Bearer Global Security") that will be deposited with
a Depositary for Euroclear System and Cedel Bank, S.A., or with a nominee for
the Depositary identified in the prospectus supplement relating to that series.
The specific terms and procedures, including the specific terms of the
depositary arrangement and any specific procedures for the issuance of Debt
Securities in definitive form in exchange for a Bearer Global Security, with
respect to any portion of a series of Debt Securities to be represented by a
Bearer Global Security will be described in the prospectus supplement relating
to that series.
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Global Security
will be described in the prospectus supplement relating to that series. However,
except for Debt Securities issued in foreign currencies, unless otherwise
specified in the applicable prospectus supplement, The Depository Trust Company
("DTC") will be the Depositary and the following depositary arrangements will
apply.
DTC has advised us that 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 participating
organizations (collectively, the "Participants") and to facilitate the clearance
and settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. The Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interest and transfer of ownership interest of each actual purchaser
of each security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.
10
<PAGE>
DTC has also advised us that, pursuant to procedures established by it, (i)
upon deposit of a Global Security representing Debt Securities, DTC will credit
the accounts of the designated Participants with the applicable portions of the
principal amount of such Debt Securities and (ii) ownership of beneficial
interests in a Global Security representing Debt Securities will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the Participants) or by the Participants and
the Indirect Participants (with respect to other owners of beneficial
interests).
Investors in a Global Security representing Debt Securities may hold their
interests therein directly through DTC if they are Indirect Participants or
indirectly through organizations that are Indirect Participants. All beneficial
interests in a Global Security representing Debt Securities will be subject to
procedures and requirements of DTC. The laws of some states require that certain
persons take physical delivery of securities that they own in definitive form.
Consequently, the ability to transfer beneficial interests in a Global Security
representing Debt Securities to such persons will be limited to that extent.
Because DTC can act only on behalf of Participants, which in turn act on behalf
of Indirect Participants and certain banks, the ability of a person having
beneficial interests in a Global Security representing Debt Securities to pledge
such interests to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such interests, may be affected by the
lack of a physical certificate evidencing such interests.
Payments in respect of a Global Security representing Debt Securities will
be payable in same-day funds by the indenture trustee to Cede & Co. as nominee
of DTC in its capacity as the holder thereof under the applicable Indenture.
Under the terms of each Indenture, the indenture trustee will treat the persons
in whose names Debt Securities, including a Global Security representing Debt
Securities, are registered as the owners thereof for the purpose of receiving
such payments and for any and all other purposes whatsoever. Consequently,
neither the indenture trustee nor any agent thereof has or will have any
responsibility or liability for (i) any aspect of DTC's records or any
Participant's or Indirect Participant's records relating to or payments made on
account of beneficial interests in a Global Security representing Debt
Securities, or for maintaining, supervising or reviewing any of DTC's records or
any Participant's or Indirect Participant's records relating to the beneficial
interests in a Global Security representing Debt Securities or (ii) any other
matter relating to the actions and practices of DTC or any of its Participants
or Indirect Participants. DTC has advised us that its current practice, upon
receipt of any payment in respect of securities, such as a Global Security
representing Debt Securities, is to credit the accounts of the relevant
Participants with the payment on the payment date, in amounts proportionate to
their respective holdings in principal amount of beneficial interests in the
relevant security as shown on the records of DTC unless DTC has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the owners of beneficial interests
in a Global Security representing Debt Securities will be governed by standing
instructions and customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be our responsibility or
the responsibility of DTC or the indenture trustee. Neither we nor the indenture
trustee will be liable for any delay by DTC or any of its Participants in
identifying the owners of beneficial interests in a Global Security representing
Debt Securities, and we and the indenture trustee may conclusively rely on and
will be protected in relying on instructions from DTC or its nominee for all
purposes.
Beneficial interests in a Global Security representing Debt Securities will
trade in DTC's Same-Day Funds Settlement System and secondary market trading
activity in such interests will therefore settle in immediately available funds,
subject in all cases to the rules and procedures of DTC, the Participants and
the Indirect Participants.
11
<PAGE>
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants and by Participants and Indirect
Participants to beneficial owners, and vice versa, will be governed by
arrangements among them, subject to statutory or regulatory requirements as may
be in effect from time to time. Neither we nor the indenture trustee will have
any responsibility or liability with respect thereto.
Prior to any redemption of Debt Securities covered by a Global Security, we
will provide DTC with notices of redemption containing all information required
by DTC's rules and procedures. Such notices will be provided to DTC for
distribution to Participants within the time periods established by DTC. If less
than the entire principal amount of Subordinated Debt Securities of a series
represented by a Global Security is to be redeemed, DTC's practice is to
determine by lot the amount of the interest of each Participant to be redeemed.
DTC has advised us that it will take any action permitted to be taken by a
holder of Debt Securities only at the direction of one or more Participants to
whose account with DTC interests in a Global Security representing Debt
Securities are credited and only in respect of such portion of the principal
amount of Debt Securities as to which such Participant or Participants has or
have given such direction.
The foregoing information concerning DTC and its book-entry system has been
obtained from sources that we and the indenture trustee believe to be reliable,
but neither we nor the indenture trustee takes responsibility for the accuracy
thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of beneficial interests in a Global Security representing Debt Securities among
Participants in DTC, it is under no obligation to follow or to continue to
follow such procedures, and such procedures may be discontinued at any time.
Neither we nor the indenture trustee will have any responsibility for the
performance by DTC, the Participants or the Indirect Participants of their
respective obligations under the rules and procedures governing DTC's
operations.
Under the applicable Indenture, a Global Security representing Debt
Securities will be exchangeable for Debt Securities in definitive form if (i)
DTC (x) notifies us that it is unwilling or unable to continue as depositary
therefor or (y) has ceased to be a clearing agency registered under the Exchange
Act, and we thereupon fail to appoint a successor depositary within 90 days,
(ii) we, in our sole discretion, elect to cause the issuance of our Debt
Securities in definitive form or (iii) there shall have occurred and be
continuing an Event of Default under the applicable Indenture or any event which
after notice or lapse of time or both would be an Event of Default under such
Indenture.
Ranking
Senior Debt Securities. Payment of the principal of and premium, if any, on
and interest on Senior Debt Securities will rank pari passu with all of our
other unsecured and unsubordinated debt.
12
<PAGE>
Subordinated Debt Securities. Payment of the principal of, premium, if any,
and interest on Subordinated Debt Securities will, to the extent set forth in
the Subordinated Debt Indenture, be subordinated in right of payment to the
prior payment in full of all senior indebtedness. Upon any distribution to our
creditors in a liquidation or dissolution of us or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding related to us or
our property, in an assignment for the benefit of creditors or any marshalling
of our 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 Subordinated Debt Securities will be entitled
to receive any payment in respect of the principal of, premium, if any, or
interest on the Subordinated Debt Securities (except that holders of
Subordinated Debt Securities may receive securities that are subordinated at
least to the same extent as the Subordinated Debt Securities to senior
indebtedness and any securities issued in exchange for senior indebtedness).
We also may not make any payment upon or in respect of the Subordinated
Debt Securities (except in Subordinated Debt Securities) and may not acquire
from the indenture trustee or the holder of any Subordinated Debt Securities for
cash or property (other than securities subordinated to at least the same extent
as the Subordinated Debt Securities to (i) senior indebtedness and (ii) any
securities issued in exchange for 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 that default relates to accelerate its maturity
and the indenture trustee receives a notice of that default (a "Payment Blockage
Notice") from the representative or representatives of holders of at least a
majority of principal amount of senior indebtedness then outstanding. Payments
on the Subordinated Debt Securities may be resumed (i) in the case of a payment
default, upon the date on which that default is cured or waived, or (ii) in the
case of a default other than a non-payment default, the number of days after the
date on which the applicable Payment Blockage Notice is received as provided in
the relevant prospectus supplement 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 indenture 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 indenture trustee will be, or be made, the basis for a subsequent Payment
Blockage Notice, unless that default has been cured or waived for a period of
not less than the number of days set forth in the relevant prospectus
supplement.
The term "senior indebtedness," with respect to the Subordinated Debt
Securities, means the principal of, premium, if any, on 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 Subordinated
Debt Indenture or thereafter incurred or created: (i) our indebtedness, matured
or unmatured, whether or not contingent, 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 us
or any of our subsidiaries against fluctuations in interest rates, (iii) our
indebtedness, matured or unmatured, whether or not contingent, evidenced by
notes, debentures, bonds or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) including indebtedness under any
outstanding Senior Debt Securities, (iv) our obligations 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 us and (vi)
renewals, extensions, modifications, amendments and refundings of, and
13
<PAGE>
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 (iv) is created, issued, assumed or guaranteed
expressly provides that the indebtedness is not senior or superior in right of
payment to the Subordinated Debt Securities. The following will not constitute
senior indebtedness: (i) any of our indebtedness or obligations in respect of
the Subordinated Debt Securities; (ii) any of our indebtedness to any of our
subsidiaries or other affiliates; (iii) any indebtedness that is subordinated or
junior in any respect to any of our other indebtedness 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 indenture trustee or any holder receives any payment
of principal or interest with respect to the Subordinated Debt Securities at a
time when payment is prohibited under the Subordinated Debt Indenture, the
payment shall be held in trust for the benefit of, and immediately 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 Subordinated Debt Securities are paid in full, holders will
be subrogated (equally and ratably with all other indebtedness pari passu with
the Subordinated Debt Securities) 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.
In addition, because our operations are conducted primarily through our
subsidiaries, claims of holders of indebtedness of our subsidiaries, as well as
claims of regulators and creditors of our subsidiaries, will have priority with
respect to the assets and earnings of our subsidiaries over the claims of our
creditors including holders of the Subordinated Debt Securities. The
Subordinated Debt Indenture will not limit the amount of additional indebtedness
which any of our subsidiaries can create, incur, assume or guarantee.
Because of these subordination provisions, in the event of our liquidation
or insolvency or the liquidation or insolvency of any of our subsidiaries,
holders of Subordinated Debt Securities may recover less, ratably, than the
holders of senior indebtedness.
Payment and Paying Agents
Unless otherwise indicated in the relevant prospectus supplement, payment
of principal of and premium, if any, on and interest on Debt Securities will be
made at the office of the indenture trustee in the City of Philadelphia or at
the office of any other paying agent or paying agents as we may designate from
time to time, except that at our option, payment of any interest may be made,
except in the case of a Global Security representing Debt Securities, by (i)
check mailed to the address of the person appearing in the applicable securities
register or (ii) transfer to an account maintained by the person as specified in
the securities register, provided that proper transfer instructions have been
received by the relevant record date. Payment of any interest on any Debt
Securities will be made to the person in whose name those Debt Securities are
registered at the close of business on the record date for interest, except in
the case of defaulted interest. We may at any time designate additional paying
agents or rescind the designation of any paying agent; provided, however, we
will at all times be required to maintain a paying agent in each place of
payment for Debt Securities.
14
<PAGE>
Any moneys deposited with the indenture trustee or any paying agent, or
then held by us in trust, for the payment of the principal of and premiums, if
any, on or interest on any Debt Securities and remaining unclaimed for two years
after such principal and premium, if any, or interest has become due and payable
shall, at our request, be paid to us and the holder of Debt Securities shall
thereafter look, as a general unsecured creditor, only to us for payment.
Conversion Rights
The terms and conditions, if any, on which Debt Securities are convertible
into or exchangeable for our common stock or our other securities will be set
forth in the prospectus supplement. These terms will include the conversion or
exchange price, the conversion or exchange date(s) or period(s), provisions as
to whether conversion or exchange will be at our option or the option of the
holder, the events requiring an adjustment of the conversion or exchange price
and provisions affecting conversion or exchange in the event of the redemption
of Debt Securities.
Merger, Consolidation and Sale of Assets
Each Indenture will prohibit us from consolidating with or merging with or
into, or conveying, transferring or leasing all or substantially all our assets
(determined on a consolidated basis), to any person unless: (i) either we are
the successor company which results or survives 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 us)
expressly assumes by a supplemental indenture, executed and delivered to the
indenture trustee, in form satisfactory to the indenture trustee, all of our
obligations under the applicable Indenture and Debt Securities, including the
conversion rights described in any prospectus supplement, (ii) immediately after
giving effect to the transaction, no event of default has happened and is
continuing and (iii) we deliver to the indenture trustee an officers'
certificate and an opinion of counsel, each stating that the transaction and the
supplemental indenture (if any) comply with the applicable Indenture.
Change of Control
Upon the occurrence of a change of control, each holder of Debt Securities
will have the right to require that we repurchase that holder's Debt Securities
in whole or in part in integral multiples of $1,000, at a purchase price in cash
in an amount equal to the principal amount thereof, together with accrued and
unpaid interest to the date of purchase, pursuant to an offer (the "change of
control offer") made in accordance with the procedures described below and the
other provisions in the applicable Indenture.
The term "change of control" means an event or series of events in which
(i) any "person" or "group (as these 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 our total voting stock (as defined below) at an Acquisition
Price (as defined below) less than the conversion price then in effect with
respect to Debt Securities 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 these 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
person or group will not be deemed to be the beneficial owner of, or to
15
<PAGE>
beneficially own, any voting stock tendered in a tender offer until the tendered
voting stock is accepted for purchase under the tender offer. The term " voting
stock" means stock of the class or classes pursuant to which the holders have
the general voting power under ordinary circumstances to elect at least a
majority of the board of directors.
Within 30 days following any change of control, we shall send by
first-class mail, postage prepaid, to the indenture trustee and to each holder
of Debt Securities, at the holder's address appearing in the securities
register, a notice stating, among other things, that a change of control has
occurred, the purchase price, the purchase 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 Subordinated Debt
Securities must follow to accept a change of control offer or to withdraw such
acceptance.
We 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 these laws are applicable, in connection with the
repurchase of Debt Securities as described above.
The occurrence of some of the events that would constitute a change of
control may constitute a default under our mortgage. Our future indebtedness may
contain prohibitions of some events which would constitute a change of control
or require us to offer to repurchase such indebtedness upon a change of control.
Moreover, the exercise by the holders of Debt Securities of their right to
require us to purchase Debt Securities 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 us. Finally, our ability to pay cash to
holders of Debt Securities upon a purchase may be limited by our 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 us and the removal of the incumbent management.
Events of Default and Remedies
An Event of Default will be defined in each Indenture as being: default in
payment of the principal of or premium, if any, on Debt Securities when due at
maturity, upon redemption or otherwise, including our failure to purchase Debt
Securities when required (whether or not such payment shall be prohibited by the
subordination provisions of the applicable Indenture); default for 30 days in
payment of any installment of interest on Debt Securities (whether or not such
payment shall be prohibited by the subordination provisions of the applicable
Indenture); our default for 90 days after notice in the observance or
performance of any other covenants in the applicable Indenture; or certain
events involving our bankruptcy, insolvency or reorganization. Each Indenture
will provide that the indenture trustee may withhold notice to the holders of
Debt Securities of any default (except in payment of principal, premium, if any,
or interest with respect to Debt Securities) if the indenture trustee, in good
faith, considers it in the interest of the holders of Debt Securities to do so.
Each Indenture will provide that if an Event of Default (other than an
Event of Default with respect to certain of our payment obligations or the
entering of a judgment against us or any of our subsidiaries involving
liabilities of $10,000,000 or more and such judgment has not been vacated,
16
<PAGE>
discharged or satisfied within 60 days) shall have occurred and be continuing,
unless otherwise provided in a prospectus supplement, the indenture trustee or
the holders of not less than 25% in principal amount of Debt Securities then
outstanding may declare the principal of and premium, if any, on Debt Securities
to be due and payable immediately, but if we shall pay or deposit with the
indenture trustee a sum sufficient to pay all matured installments of interest
on all Debt Securities and the principal and premiums, if any, on all Debt
Securities that have become due other than by acceleration and certain expenses
and fees on the indenture trustee and if we shall deem all defaults (except the
nonpayment of interest on, premium, if any, and principal of any Debt Securities
which shall have become due by acceleration) 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 Debt Securities then outstanding.
The holders of a majority in principal amount of Debt Securities then
outstanding shall have the right to direct the time, method and place of
conducting any proceedings for any remedy available to the indenture trustee,
subject to certain limitations that will be specified in the applicable
Indenture. The applicable Indenture will provide that, subject to the duty of
the indenture trustee following an Event of Default to act with the required
standard of care, the indenture trustee will not be under an obligation to
exercise any of its rights or powers under such Indenture at the request or
direction of any of the holders, unless the indenture trustee receives
satisfactory indemnity against any associated costs, liability or expense.
Satisfaction and Discharge; Defeasance
Each Indenture will cease to be of further effect as to all outstanding
Debt Securities (except as to (i) rights of the holders of Debt Securities to
receive payments of principal of, premium, if any, and interest on, the Debt
Securities, (ii) rights of holders of Debt Securities to convert to common
stock, (iii) any right of optional redemption, (iv) any rights of registration
of transfer and exchange, (v) substitution of apparently mutilated, defaced,
destroyed, lost or stolen Debt Securities, (vi) rights, obligations and
immunities of the indenture trustee under the applicable Indenture and (vii)
rights of the holders of Debt Securities as beneficiaries of the applicable
Indenture with respect to the property so deposited with the indenture trustee
payable to all or any of them) if (A) we will have paid or caused to be paid the
principal of, premium, if any, and interest on Debt Securities as and when the
same will have become due and payable or (B) all outstanding Debt Securities
(except lost, stolen or destroyed Debt Securities which have been replaced or
paid) have been delivered to the indenture trustee for cancellation or (C) (x)
Debt Securities not previously delivered to the indenture 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 indenture trustee upon delivery of notice and
(y) we will have irrevocably deposited with the indenture trustee, the trust
funds, cash, in an amount sufficient to pay principal of and interest on the
outstanding Debt Securities, 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 we are a party or by which we are bound and we have delivered
to the indenture trustee an officers' certificate and an opinion of counsel,
each stating that all conditions related to such defeasance have been complied
with.
Each 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 Debt Securities will be discharged on a
specified day set forth in the relevant prospectus supplement after our
17
<PAGE>
irrevocable deposit with the indenture trustee in trust, specifically pledged as
security for, and dedicated solely to, the benefit of the holders of Debt
Securities of cash, U.S. Government Obligations (as will be defined in the
applicable 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 indenture trustee,
to pay the principal of, premium, if any, and interest on Debt Securities then
outstanding in accordance with the terms of the applicable Indenture and Debt
Securities ("legal defeasance"). Such legal defeasance may only be effected if
(i) such deposit will not result in a breach or violation of, or constitute a
default under, any agreement or instrument to which we are a party or by which
we are bound, (ii) we have delivered to the indenture trustee an opinion of
counsel stating that (A) we have received from, or there has been published by,
the Internal Revenue Service a ruling or (B) since the date of the applicable
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 Debt Securities
will not recognize income, gain or loss for federal income tax purposes as a
result of such deposit, defeasance and discharge by us and will be subject to
federal income tax on the same amount and in the same manner and at the same
time as would have been the case if such deposit, defeasance and discharge had
not occurred, (iii) we have delivered to the indenture trustee an opinion of
counsel to the effect that after the specified day in the relevant prospectus
supplement 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 (iv) we have delivered to the
indenture trustee an officers' certificate and an opinion of counsel stating
that all conditions related to the defeasance have been complied with.
<PAGE>
We may also be released from our obligations under the covenants described
above under "--Merger, Consolidation and Sale of Assets" with respect to Debt
Securities outstanding on the specified day in the relevant prospectus
supplement after our irrevocable deposit with the indenture trustee, in trust,
specifically pledged as security for, and dedicated solely to, the benefit of
the holders of Debt Securities, 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 written
certification thereof delivered to the indenture trustee, to pay the principal
of, premium, if any, and interest on Debt Securities then outstanding in
accordance with the terms of the applicable Indenture and Debt Securities
("covenant defeasance"). Such covenant defeasance may only be effected if (i)
such deposit will not result in a breach or violation of, or constitute a
default under, any agreement or instrument to which we are a party or by which
we are bound, (ii) we have delivered to the indenture trustee an officers'
certificate and an opinion of counsel to the effect that the holders of Debt
Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and covenant defeasance by us 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, (iii) we have delivered to the indenture trustee an opinion of
counsel to the effect that after the specified day in the relevant prospectus
supplement 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 (iv) we have delivered to the
indenture trustee an officers' certificate and an opinion of counsel stating
that all conditions relating to the covenant defeasance have been complied with.
Following such covenant defeasance, we 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 Debt Securities.
18
<PAGE>
Modifications of the Indentures
Each Indenture will contain provisions permitting us and the indenture
trustee, with the consent of the holders of not less than a majority in
principal amount of Debt Securities at the time outstanding, to modify the
applicable Indenture or any supplemental indenture or the rights of the holders
of Debt Securities, except that no such modification shall (i) extend the fixed
maturity of any Debt Securities, 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 our
obligation to repurchase of any Debt Securities 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 Debt Securities are payable,
modify the subordination provisions of the applicable Indenture in a manner
adverse to the holders of Debt Securities or impair the right to convert d Debt
Securities into our Common Stock subject to the terms set forth in the
applicable Indenture, without the consent of the holder of Debt Securities so
affected or (ii) reduce the aforesaid percentage of Debt Securities, without the
consent of the holders of all of Debt Securities then outstanding.
Certain Covenants of the Company
Restrictions on Creation of Secured Debt. We will covenant that, so long as
any of Debt Securities remain outstanding, we will not, nor will we permit any
of our subsidiaries to issue, assume or guarantee any debt for money borrowed
(herein referred to as "debt") if such debt is secured by a mortgage, security
interest, pledge, lien or other encumbrance (any of such are hereinafter
referred to as a "lien") on any property, or on any shares of stock or
indebtedness of any subsidiary (whether such property, shares of stock or
indebtedness are now owned or acquired after the date of the applicable
Indenture), without, in any such case, effectively providing concurrently with
the issuance, assumption of or guarantee of any such debt that Debt Securities
(together with, if we shall so determine, any of our other indebtedness of or
guarantee ranking equally with Debt Securities issued under the applicable
Indenture and then existing or thereafter created) shall be secured equally and
ratably with such debt. This restriction, however, shall not apply to debt
secured by liens: (i) on property, shares of stock or indebtedness of any
corporation existing at the time such corporation becomes a subsidiary, (ii) on
property existing at the time that it is acquired or to secure debt incurred for
the purpose of financing the purchase price of such property or improvements or
construction on the property, which debt is incurred prior to or within one year
after the later of such acquisition, completion of such construction, or the
commencement of commercial operation of such property; provided, however, that
in the case of any such acquisition, construction or improvement the lien shall
not apply to any property theretofore owned by us or a subsidiary, other than in
the case of any such construction or improvement, any theretofore unimproved
real improvement, on which the property is constructed, or the improvements are
located; (iii) securing debt owed by any of our subsidiaries to us or another
subsidiary; (iv) on property of a corporation existing at the time such
corporation is merged into or consolidated with us or one of our subsidiaries or
at the time of a sale, lease or other disposition of the properties of a
corporation as an entirety or substantially as an entirety to us or our
subsidiaries; (v) existing at the date of the applicable Indenture; or (vi) any
extension, renewal or replacement (or successive extensions, renewals or
replacements), in whole or in part, of any lien referred to in the foregoing
clauses (i) through (v) inclusive; provided, however, that the principal amount
of debt secured thereby shall not exceed the principal amount of debt so secured
at the time of such extension, renewal or replacement and that such extension,
renewal or replacement shall be limited to all or a part of the property which
secured the lien so extended, renewed or replaced (plus improvements on such
property).
19
<PAGE>
Notwithstanding the above, we may, without securing Debt Securities, issue,
assume or guarantee secured debt which would otherwise be subject to the
foregoing restrictions, provided that the aggregate amount of debt secured by a
lien then outstanding (not including secured debt permitted under the foregoing
exceptions) does not exceed 5% of our consolidated shareholders' equity as of
the end of the last preceding year.
Restrictions of Sale and Leaseback Transactions. Each Indenture will
restrict us or any of our subsidiaries from entering into sale and leaseback
transactions of any property (except for a temporary lease for a term of not
more than three years, leases between us and a subsidiary or between
subsidiaries, leases previously entered into or leases agreed to by the
indenture trustee) unless (i) we or one of our subsidiaries would be entitled to
issue, assume or guarantee debt secured by a lien upon the property involved at
least equal to the present value (discounted as provided in the applicable
Indenture) of the obligation of a lessee for rental payment during the remaining
term of any lease ("attributable debt") in respect of such transaction without
equally and ratably securing Debt Securities, provided that such attributable
debt shall then be deemed for all purposes under the applicable Indenture and
the provisions of this covenant to be debt subject to the covenant described
above under "--Restrictions on Creation of Secured Debt," or (ii) an amount in
cash equal to such attributable debt is applied to the retirement of debt then
having a maturity of more than one year.
Governing Law
The Indentures and Debt Securities will be governed by, and construed in
accordance with, the laws of the Commonwealth of Pennsylvania.
Concerning the Indenture Trustee
We anticipate appointing First Union National Bank, the anticipated
indenture trustee, as the paying agent, conversion agent, registrar and
custodian with regard to the Subordinated Debt Securities. The indenture trustee
and/or its affiliates may in the future provide banking and other services to us
in the ordinary course of their respective businesses. First Union National Bank
is also the trustee under our Indenture dated as of November 26, 1996.
Description of Capital Stock
Our authorized capital stock currently consists of 25,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock.
Our Preferred Stock may be issued from time to time in one or more series
with such designations, preferences and rights of the shares of such series and
the qualifications, limitations or restrictions thereon, including, but not
limited to, dividend rights, dividend rate or rates, conversion rights, voting
rights, rights and terms of redemption and the liquidation preference
established by our Board of Directors, without approval of the shareholders,
pursuant to the provisions of our Restated and Amended Articles of
Incorporation, as amended. The issuance of Preferred Stock may have the effect
of delaying, deferring or preventing a change in control without further action
by our shareholders.
20
<PAGE>
At November 3, 2000, there were outstanding (i) 7,819,384 shares of Common
Stock and (ii) no shares of Preferred Stock.
The following summary description of our capital stock is qualified in its
entirety by reference to our Restated and Amended Articles of Incorporation, as
amended and our Amended and Restated By-Laws, copies of which are filed as
exhibits to our Registration Statement on Form S-1 (Reg. No. 33-92690) and our
Registration Statement on Form S-3 (Reg. No. 333-22125).
Common Stock
Dividends.
Subject to the rights of the holders of Preferred Stock, our Common Stock
holders are entitled to receive dividends and other distributions in cash, stock
or property, when, as and if declared by the Board of Directors out of our
assets or funds legally available therefor and shall share equally on a per
share basis in all such dividends and other distributions.
Voting Rights.
At every meeting of shareholders, every Common Stock holder is entitled to
one vote per share. Subject to any voting rights which may be granted to holders
of Preferred Stock, any action submitted to shareholders is approved if the
number of votes cast in favor of such action exceeds the number of votes
required by the provisions of our Articles of Incorporation or by applicable
law, subject to applicable quorum requirements. Our Articles of Incorporation
require the affirmative vote of at least 67% of the voting power of all of our
shareholders with respect to fundamental corporate transactions including
mergers, consolidations and sales of all or substantially all assets. Our Bylaws
provide for action by written consent.
Miscellaneous. The holders of Common Stock have no preemptive rights,
cumulative voting rights, or conversion rights and the Common Stock is not
subject to redemption.
The transfer agent and registrar with respect to the Common Stock is First
Union National Bank.
All shares of Common Stock offered pursuant to a prospectus supplement, or
issuable upon conversion, exchange or exercise of the securities offered by this
prospectus, will, when issued, be fully paid and non-assessable. The Common
Stock is traded on the New York Stock Exchange under the symbol "PTA."
Reference is made to the applicable prospectus supplement relating to the
Common Stock offered thereby for specific terms, including: (i) the number of
shares offered, (ii) the initial offering price, if any, and market price and
(iii) dividend information.
Preferred Stock
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any prospectus supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of our Articles of Incorporation (including any future
amendments thereto) and By-Laws (including any future amendments thereto).
21
<PAGE>
General
Subject to limitations prescribed by Pennsylvania law and our Articles of
Incorporation, our Board of Directors is authorized to fix the number of shares
constituting each series of Preferred Stock and the designations, preferences
and relative or special rights and qualifications, limitations or restrictions
thereof, including such provisions as may be desired concerning voting,
redemption, dividends, dissolution or the distribution of assets, conversion or
exchange, and such other subjects or matters as may be fixed by resolution of
our Board of Directors. The Preferred Stock will, when issued, be fully paid and
non-assessable.
Reference is made to the prospectus supplement relating to the series of
Preferred Stock offered thereby for specific terms, including: (i) the series
and title, if any, of such Preferred Stock; (ii) the number of shares of such
Preferred Stock offered and the liquidation preference per share and the initial
offering price, if any, of such Preferred Stock; (iii) the dividend rate(s),
period(s) and/or payment date(s) or method(s) of calculation thereof applicable
to such Preferred Stock; (iv) whether dividends on such Preferred Stock shall be
cumulative or not and, if cumulative, the date from which dividends on such
Preferred Stock shall accumulate; (v) any voting rights granted to the holders
of such Preferred Stock or required by law; (vi) the procedures for any auction
and remarketing, if any, for such Preferred Stock; (vii) provisions for a
sinking fund, if any, for such Preferred Stock; (viii) provisions for
redemption, if applicable, of such Preferred Stock; (ix) any listing of such
Preferred Stock on any securities exchange; (x) the terms and conditions, if
applicable, upon which such Preferred Stock will be convertible into or
exchangeable for other securities or rights, or a combination of the foregoing,
including the name of the issuer of such securities or rights, the conversion or
exchange price or rate (or manner of calculation thereof) and the conversion or
exchange date(s) or period(s); (xi) a discussion of certain material U.S.
federal income tax considerations applicable to such Preferred Stock; and (xiii)
any other material terms, preferences, rights, limitations or restrictions of
such Preferred Stock.
Rank
Unless otherwise specified in the prospectus supplement, our Preferred
Stock will, with respect to (as applicable) dividend rights and rights upon our
liquidation, dissolution or winding-up, rank (i) senior to all series of our
Common Stock and to all of our equity securities the terms of which provide that
such equity securities are subordinated to our Preferred Stock; (ii) on a parity
with all of our equity securities other than those referred to in clauses (i)
and (iii); and (iii) junior to all of our equity securities which the terms of
such Preferred Stock provide will rank senior to it.
Dividends
Our holders of Preferred Stock of each series shall be entitled to receive,
when, as and if declared by our Board of Directors, out of our assets legally
available for payment, cash, property or stock dividends at such rates and on
such dates as will be set forth in the applicable prospectus supplement. Each
such dividend shall be payable to holders of record as they appear on our stock
transfer books on the record dates as shall be fixed by our Board of Directors.
22
<PAGE>
Dividends on any series of the Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable prospectus supplement. Dividends,
if cumulative, will accumulate from and after the date set forth in the
applicable prospectus supplement. If our Board of Directors fails to declare a
dividend payable on a dividend payment date on any series of the Preferred Stock
for which dividends are non-cumulative, then the holders of such series of the
Preferred Stock will have no right to receive a dividend in respect of the
dividend period ending on such dividend payment date, and we will have no
obligation to pay the dividend accrued for such period, whether or not dividends
on such series are declared payable on any future dividend payment date.
If any shares of the Preferred Stock of any series are outstanding, no full
dividends shall be declared or paid or set apart for payment on our Preferred
Stock of any other series ranking, as to dividends, on parity with or junior to
the Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends on the
Preferred Stock of such series have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment for the then current dividend period ((i) and (ii)
are hereinafter collectively referred to as "all required dividends are paid").
When dividends are not paid in full (or a sum sufficient for such full payment
is not so set apart) upon the shares of Preferred Stock of any series and the
shares of any other series of Preferred Stock ranking on a parity as to
dividends with the Preferred Stock of such series, all dividends declared upon
shares of Preferred Stock of such series and any other series of Preferred Stock
ranking on a parity as to dividends with such Preferred Stock shall be declared
pro rata so that the amount of dividends declared per share on the Preferred
Stock of such series and such other series of Preferred Stock shall in all cases
bear to each other the same ratio that accrued and unpaid dividends per share on
the shares of Preferred Stock of such series (which shall not include any
accumulation in respect of unpaid dividends for prior dividend periods if such
Preferred Stock does not have a cumulative dividend) and such other series of
Preferred Stock bear to each other. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on
Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless all
required dividends are paid, no dividends (other than in Common Stock or other
stock ranking junior to the Preferred Stock of such series as to dividends and
upon our liquidation, dissolution or winding-up) shall be declared or paid or
set aside for payment or other distribution shall be declared or made upon the
Common Stock or any other of our stock ranking junior to or on parity with the
Preferred Stock of such series as to dividends or upon liquidation, nor shall
any Common Stock or any of our other capital stock ranking junior to or on
parity with the Preferred Stock of such series as to dividends or upon
liquidation, dissolution or winding-up of the Company be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any shares of any such stock)
(except by conversion into or exchange for any of our other stock ranking junior
to the Preferred Stock of such series as to dividends and upon our liquidation,
dissolution or winding-up).
Any dividend payment made on shares of a series of Preferred Stock shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
23
<PAGE>
Redemption
If so provided in the applicable prospectus supplement, the shares of
Preferred Stock will be subject to mandatory redemption or redemption at our
option, as a whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such prospectus supplement.
The prospectus supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by us in each year commencing after a
date to be specified, at a redemption price per share to be specified, together
with an amount equal to all accumulated and unpaid dividends thereon (which
shall not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable prospectus supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of our stock, the terms of such Preferred Stock may
provide that, if no such stock shall have been issued or to the extent the net
proceeds from any issuance are insufficient to pay in full the aggregate
redemption price then due, such Preferred Stock shall automatically and
mandatorily be converted into shares of our applicable stock pursuant to
conversion provisions specified in the applicable prospectus supplement.
Notwithstanding the foregoing, unless provided otherwise for any series of
Preferred Stock, unless all required dividends are paid: (i) no shares of the
applicable series of Preferred Stock shall be redeemed unless all outstanding
shares of Preferred Stock of such series are simultaneously redeemed and (ii) we
shall not purchase or otherwise acquire directly or indirectly any shares of the
applicable series of Preferred Stock (except by conversion into or exchange for
our stock ranking junior to the Preferred Stock of such series as to dividends
and upon our liquidation, dissolution or winding-up), provided, however, that
the foregoing shall not prevent the purchase or acquisition of shares of
Preferred Stock of such series pursuant to a purchase or exchange offer made on
the same terms to holders of all outstanding shares of Preferred Stock of such
series.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
us, then, before any distribution or payment shall be made to the holders of any
Common Stock or any other class or series of our stock ranking junior to such
series of Preferred Stock in the distribution of assets upon any liquidation,
dissolution or winding-up of us, the holders of each series of Preferred Stock
shall be entitled to receive out of our assets legally available for
distribution to shareholders liquidating distributions in the amount of the
liquidation preference per share (set forth in the applicable prospectus
supplement), plus an amount equal to all dividends accrued and unpaid thereon
(which shall not include any accumulation in respect of unpaid dividends for
prior dividend periods if such series of Preferred Stock does not have a
cumulative dividend). After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of such series of
Preferred Stock will have no right or claim to any of our remaining assets. In
the event that, upon any voluntary or involuntary liquidation, dissolution or
winding-up of us, our legally available assets are insufficient to pay the
amount of the liquidating distributions on all outstanding shares of such series
of Preferred Stock and the corresponding amounts payable on all shares of other
series of our stock ranking on a parity with such series of Preferred Stock in
the distribution of assets upon any liquidation, dissolution or winding-up of
24
<PAGE>
us, then the holders of such class or series of Preferred Stock and all other
such classes or series of stock shall share ratably in any such distribution of
assets in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
shares of such series of Preferred Stock, our remaining assets shall be
distributed among the holders of any other series of stock ranking junior to
such series of Preferred Stock upon any liquidation, dissolution or winding-up
of us, according to their respective rights and preferences and in each case
according to their respective number of shares.
For such purposes, neither the consolidation or merger of us with or into
any other company nor the sale, lease, transfer or conveyance of all or
substantially all of our property or business shall be deemed to constitute our
liquidation, dissolution or winding-up.
Voting Rights
Holders of such series of Preferred Stock will not have any voting rights,
except as set forth below (unless otherwise specified in a prospectus
supplement) or as otherwise from time to time required by law or as indicated in
the applicable prospectus supplement.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock remain outstanding, we shall not, without the
affirmative vote or consent of the holders of at least two-thirds of the shares
of each series of Preferred Stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting (such series voting separately as a
class), (i) authorize or create, or increase the authorized or issued amount of,
any class or series of stock ranking senior to such series of Preferred Stock
with respect to payment of dividends or the distribution of assets upon our
liquidation, dissolution or winding-up or reclassify any of our authorized stock
into any such shares, or create, authorize or issue any obligation or security
convertible into or exchangeable for, or evidencing the right to purchase, any
such shares; or (ii) amend, alter or repeal the provisions of our Articles of
Incorporation in respect of such series of Preferred Stock, whether by merger,
consolidation or otherwise, so as to materially and adversely affect any right,
preference, privilege or voting power of such series of Preferred Stock or the
holders thereof; provided, however, that any increase in the amount of the
authorized Preferred Stock or the creation or issuance of any other series of
Preferred Stock, or any increase in the amount of authorized shares of such
series, in each case ranking on a parity with or junior to the Preferred Stock
of such series with respect to payment of dividends and the distribution of
assets upon liquidation, dissolution or winding-up, shall not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall have
been redeemed or called for redemption upon proper notice and sufficient funds
shall have been irrevocably deposited in trust to effect such redemption.
25
<PAGE>
Conversion Rights
The terms and conditions, if any, upon which shares of any series of
Preferred Stock are convertible into or exchangeable for other securities or
rights of us or other issuers, including, without limitation, Common Stock, Debt
Securities or another series of Preferred Stock, or any combination of the
foregoing, will be set forth in the applicable prospectus supplement relating
thereto. Such terms will include the name of the issuer of such other securities
or rights and the number or principal amount of the securities or rights into
which the Preferred Stock is convertible or exchangeable, the conversion or
exchange price or rate (or manner of calculation thereof), the conversion or
exchange date(s) or period(s), provisions as to whether the conversion or
exchange will be at the option of the holders of such series of Preferred Stock
or at our option and the events requiring an adjustment of the conversion or
exchange price or rate.
Anti-Takeover Provisions
Our 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 our shareholders 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.
Our Restated and Amended Articles of Incorporation, as amended require the
affirmative vote of shareholders owning at least 67% of the outstanding shares
of our Common Stock in order for us 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 our Common Stock in such a manner that a corporation, person
or entity acquires our issued or outstanding shares of our Common Stock pursuant
to a vote of shareholders; sell, lease, convey, encumber or otherwise dispose of
all or substantially all of our property or business; or liquidate or dissolve
us.
In addition, the Restated and Amended Articles of Incorporation, as
amended, permit the Board of Directors to oppose a tender offer or other offer
of our securities, and allow the Board to consider any pertinent issue in
determining whether to oppose any such offer.
Pursuant to our Amended and Restated By-laws, shareholder nominations for
election to the Board of Directors must be made in writing and delivered or
mailed to our President 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 Pennsylvania Business Corporation Law of 1988, as amended (the "1988
BCL"), includes certain shareholder protection provision, some of which apply to
us and two of which, relating to "Disgorgement by Certain Controlling
Shareholders" and "Control Share Acquisitions," we have specifically opted out
of pursuant to an amendment to our by-laws. The following is a description of
those provisions of the 1988 BCL that still apply to us 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.
26
<PAGE>
(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 twenty percent of the
voting stock of the corporation). Fair value is defined as not less than
the highest price paid by the accquiror 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 the date in question the beneficial owner of twenty percent of the
voting stock of the corporation) cannot engaged 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 eighty percent 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 located and all other
pertinent factors.
(v) Shareholders of a corporation no longer have a statutory right to
call special meetings of shareholders or to propose amendments to the
articles under the provisions of the 1988 BCL.
The foregoing provisions may discourage certain types of transactions that
involve a change of control of us and ensure a measure of continuity in the
management of our business and affairs. While we do 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 our Common Stock and to permit current management to
remain in control of us. 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 the 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 of such acquisitions, particularly those of less than all
of our shares, and may thereby deprive certain holders of our Common Stock of
any opportunity to sell their stock at a temporarily higher market price.
27
<PAGE>
Pursuant to an amendment to our Amended and Restated By-laws adopted on
July 19, 1990, we opted out of the applicability of two additional statutory
anti-takeover provisions. The first, titled "Disgorgement by Certain Controlling
Shareholders Following Attempts to Acquire Control," would otherwise allow us to
recover all profits derived by any person or group that acquired control or
disclosed an intention to acquire voting power over twenty percent of our equity
securities on the disposition of any of our securities acquired within two years
prior or eighteen months after acquiring such control or announcing an intention
to that effect. The second, titled "Control Share Acquisition," would otherwise
suspend the voting rights of a shareholder when his or her ownership of our
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 us.
In addition to provisions of the 1988 BCL, the Pennsylvania Insurance Code
provides that no person may acquire control of us unless such person has given
prior written notice to us and received the prior approval of the Pennsylvania
Insurance Commissioner. Any purchaser or holder of shares is presumed to have
acquired such control unless the Pennsylvania Insurance Commissioner, upon
receipt of an application, has determined otherwise.
DESCRIPTION OF WARRANTS
We may issue Warrants to purchase Debt Securities, Preferred Stock or
Common Stock (collectively, the "Underlying Warrant Securities"), and such
Warrants may be issued independently or together with any such Underlying
Warrant Securities and may be attached to or separate from such Underlying
Warrant Securities. Each series of Warrants will be issued under a separate
warrant agreement (each a "Warrant Agreement") to be entered into between us and
a warrant agent ("warrant agent"). The warrant agent will act solely as our
agent in connection with the Warrants of such series and will not assume any
obligation or relationship of agency for or with holders or beneficial owners of
Warrants.
The applicable prospectus supplement will describe the specific terms
of any Warrants offered thereby, including: (i) the title of such Warrants; (ii)
the aggregate number of such Warrants; (iii) the price or prices at which such
Warrants will be issued; (iv) the currency or currencies, including composite
currencies, in which the exercise price of such Warrants may be payable; (v) the
designation and terms of the Underlying Warrant Securities purchasable upon
exercise of such Warrants; (vi) the price at which the Underlying Warrant
Securities purchasable upon exercise of such Warrants may be purchased; (vii)
the date on which the right to exercise such Warrants shall commence and the
date on which such right shall expire; (viii) whether such Warrants will be
issued in registered form or bearer form; (ix) if applicable, the minimum or
maximum amount of such Warrants which may be exercised at any one time; (x) if
applicable, the designation and terms of the Underlying Warrant Securities with
which such Warrants are issued and the number of such Warrants issued with each
28
<PAGE>
such Underlying Warrant Security; (xi) if applicable, the date on and after
which such Warrants and the related Underlying Warrant Securities will be
separately transferable; (xii) information with respect to book-entry
procedures, if any; (xiii) if applicable, a discussion of certain United States
federal income tax considerations; and (xiv) any other terms of such Warrants,
including terms, procedures and limitations relating to the exchange and
exercise of such Warrants.
PLAN OF DISTRIBUTION
We may sell the securities offered by this prospectus (i) through
underwriters or dealers; (ii) through agents; (iii) directly to purchasers; or
(iv) through a combination of any such methods of sale. Any such underwriter,
dealer or agent may be deemed to be an underwriter within the meaning of the
Securities Act. The prospectus supplement relating to a series of the securities
being offered will set forth its offering terms, including the name or names of
any underwriters, dealers or agents, the purchase price of the securities being
offered and the proceeds to us from such sale, any underwriting discounts,
commissions and other items constituting underwriters' compensation, any public
offering price and any underwriting discounts, commissions and other items
allowed or reallowed or paid to dealers or agents and any securities exchanges
on which the securities offered by this prospectus may be listed.
If underwriters are used in the sale, the securities offered by this
prospectus will be acquired by the underwriters for their own account and may be
resold from time to time in one or more transactions, including negotiated
transactions, at a fixed price or prices, which may be changed, or at market
prices prevailing at the time of sale, or at prices related to such prevailing
market prices, or at negotiated prices. The securities offered by this
prospectus may be offered to the public either through underwriting syndicates
represented by one or more managing underwriters or directly by one or more of
such firms. Unless otherwise set forth in a prospectus supplement, the
obligations of the underwriters to purchase the securities offered by this
prospectus will be subject to certain conditions precedent and the underwriters
will be obligated to purchase all the securities if any are purchased. Any
public offering price and any discounts or concessions allowed or reallowed or
paid to dealers may be changed from time to time.
Any agent involved in the offer or sale of the securities offered by this
prospectus will be named, and any commissions payable by us to such agent will
be set forth, in a prospectus supplement. Unless otherwise indicated in a
prospectus supplement, any such agent will be acting on a reasonable efforts
basis for the period of its appointment.
If so indicated in a prospectus supplement, we will authorize underwriters,
dealers or agents to solicit offers by certain specified institutions to
purchase the securities offered by this prospectus from us at the public
offering price set forth in such prospectus supplement pursuant to delayed
delivery contracts providing for payment and delivery on a specified date in the
future. Such contracts will be subject to any conditions set forth in a
prospectus supplement and the prospectus supplement will set forth the
commission payable for solicitation of such contracts. The underwriters and
other persons soliciting such contracts will have no responsibility for the
validity or performance of any such contracts.
The securities offered by this prospectus may also be offered and sold, if
so indicated in the prospectus supplement, in connection with a remarketing upon
their purchase, in accordance with a redemption or repayment pursuant to their
terms, or otherwise, by one or more firms ("marketing firms"), acting as
principals for their own accounts or as our agents. Any remarketing firm will be
29
<PAGE>
identified and the terms of its agreement, if any, with us and our compensation
will be described in the prospectus supplement. Remarketing firms may be deemed
to be underwriters in connection with their remarketing of the securities
offered by this prospectus.
Underwriters, dealers, remarketing firms and agents may be entitled under
agreements entered into with us to indemnification by us against certain civil
liabilities, including liabilities under the Securities Act, or to contribution
by us to payments they may be required to make in respect thereof, and may be
customers of, engage in transactions with or perform services for us in the
ordinary course of business.
LEGAL MATTERS
Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia, Pennsylvania, has
passed on the validity of the issuance of each of the securities offered by this
prospectus, unless otherwise specified in a prospectus supplement.
EXPERTS
Our consolidated financial statements which are included in our most recent
Annual Report on Form 10-K have been audited and reported upon by
PricewaterhouseCoopers LLP, independent accountants, and are incorporated by
reference in this prospectus. These financial statements are incorporated by
reference in this prospectus in reliance on the report of PricewaterhouseCoopers
LLP, given on the authority of that firm as experts in accounting and auditing.
30
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated amount of various expenses in
connection with the sale and distribution of the securities being registered:
SEC registration fee $ 19,800
Printing and engraving expenses 60,000
Legal fees and expenses 200,000
Accounting fees and expenses 30,000
Indenture Trustee fees 50,000
Blue sky fees and expenses 10,000
Rating agency fees 25,000
Miscellaneous 100,000
---------
Total $ 494,800
=========
Item 15. Indemnification of Directors and Officers.
Under the provisions of our Amended and Restated Bylaws, as amended, each
person who is or was a director, officer, employee or agent of us shall be
indemnified by us against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding if he or she acted in good faith
and in a manner he or she reasonably believed to be in, or not opposed to, our
best interests, and, with respect to any criminal action or proceedings, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceedings by judgment, order, settlement, conviction, or
upon a plea of nolo contendre 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
or she reasonably believed to be in, or not opposed to, our best interests and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
Under Pennsylvania law, to the extent that such a person is successful on
the merits or otherwise in defense of any action, suit, or proceeding brought
against him or her by reason of the fact that he or she is our director,
officer, employee or agent, he or she shall be indemnified against expenses,
including attorneys' fees actually and reasonably incurred in connection
therewith.
In connection with the defense or settlement of a third-party civil suit,
such a person shall be indemnified under such law against expenses (including
attorneys' fees) actually and reasonably incurred by him or her if he or she
acted in good faith and in a manner he or she reasonably believed to be in, or
not opposed to, our best interest.
II-1
<PAGE>
In connection with the defense or settlement of a suit brought by or in the
right of us such a person shall be indemnified under such law only against
expenses including attorney's fees incurred in the defense or settlement of such
suit if he or she acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, our best interest except that if such a
person is adjudged to be liable in such a suit for negligence or misconduct in
the performance of his or her duty to us, he or she cannot be indemnified unless
the Court of Common Pleas of the county in which our registered office is
located or any other court in which such action or suit was brought determines
that he or she is fairly and reasonably entitled to indemnity for such expenses.
Our Amended and Restated Bylaws, as amended, provide that expenses incurred
by an officer, director, employee or agent in defending a civil or criminal
action, suit or proceeding may be paid by us 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 us.
Under provisions of our Amended and Restated Bylaws, as amended, our
directors shall have no personal liability to us or our shareholders for
monetary damages for breach of their duty of good faith or duty of loyalty or
failure to perform the duties of their offices and/or the breach or failure to
perform constitutes self-dealing willful misconduct or recklessness to the full
extent permitted by the Pennsylvania General Business Law, as it may be amended
from time to time.
We maintain director and officer insurance with respect to those claims
described above in customary amounts.
The foregoing summaries are necessarily subject to the complete text of the
relevant statute or document.
Any underwriters, dealers or agents who execute any of the Agreements
referred to in Exhibit 1 to this Registration Statement will agree to indemnify
our directors and our officers who signed the Registration Statement against
certain liabilities which might arise under the Securities Act of 1933, as
amended, (the "Securities Act"), from information furnished to us by or on
behalf of such indemnifying party.
Item 16. Exhibits
A complete listing of exhibits required is given in the Exhibit Index which
precedes the exhibits filed with this Registration Statement.
Item 17. Undertakings
II-2
<PAGE>
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made of the securities registered hereby, a post-effective amendment
to this 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 this 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 this 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 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
Registration Statement; and
(iii)to include any material information with respect to the
plan of distribution not previously disclosed in this
Registration Statement or any material change to such information
in this Registration Statement; provided, however, that the
undertakings set forth in paragraphs (i) and (ii) above do not
apply if 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, as
amended (the "Exchange Act"), that are incorporated by reference
in this Registration Statement.
(2) That, for purposes 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 offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered hereby which remain
unsold at the termination of the offering.
(4) 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 Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in this Registration Statement shall be deemed to be a new
II-3
<PAGE>
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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, trustees and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above 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, trustee 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
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 November
15, 2000.
PENN TREATY AMERICAN CORPORATION
By: /s/ Irving Levit
----------------------------------------
Irving Levit
Chairman of the Board, President
and Chief Executive Officer
We, the undersigned officers and directors of Penn Treaty American
Corporation, hereby severally constitute Irving Levit and A.J. Carden, and
either of them individually, our true and lawful attorneys with full power to
them and each of them individually, to sign for us and in our names in the
capacities indicated below, this Registration Statement on Form S-3 filed
herewith and any and all amendments, including post-effective amendments, to
said Registration Statement and generally to do all such things in our name and
on our behalf in our capacities as officers and directors to enable Penn Treaty
American Corporation to comply with the provisions of the Securities Act of
1933, as amended, and all requirements of the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be signed
by our said attorneys, or any of them, to said Registration Statements and any
and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Capacity Date
--------- ------- ----
/s/ Irving Levit Chairman of the Board, November 15, 2000
-------------------------- President and Chief
Irving Levit Executive Officer
(Principal Executive Officer)
/s/ Cameron Waite Chief Financial Officer November 15, 2000
-------------------------- (Principal Financial Officer)
Cameron Waite
/s/ Michael F. Grill Treasurer, Controller November 15, 2000
-------------------------- and Director
Michael F. Grill (Principal Accounting Officer)
/s/ A.J. Carden Executive Vice President November 15, 2000
-------------------------- and Director
A.J. Carden
II-5
<PAGE>
Signature Capacity Date
--------- -------- ----
/s/ Dominic P. Stangherlin Director November 15, 2000
--------------------------
Dominic P. Stangherlin
/s/ Jack D. Baum Vice President, Agency November 15, 2000
-------------------------- Management
Jack D. Baum
/s/ Alexander M. Clark Director November 15, 2000
--------------------------
Alexander M. Clark
/s/ Francis R. Grebe Director November 15, 2000
--------------------------
Francis R. Grebe
/s/ David B. Trindle Director November 15, 2000
--------------------------
David B. Trindle
II-6
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
EXHIBITS
TO
FORM S-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
PENN TREATY AMERICAN CORPORATION
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
1.1* Form of Underwriting Agreement (Senior Debt Securities,
Subordinated Debt Securities, Preferred Stock, Common Stock and
Warrants)
3.1 Restated and Amended Articles of Incorporation of Penn Treaty
American Corporation (incorporated by reference to Exhibit 3.1
to Registration Statement on Form S-1, Reg. No. 33-92690)
3.1a Amendment to Restated and Amended Articles of Incorporation of
Penn Treaty (incorporated by reference to Exhibit 3.1(b) to
Registration Statement on Form S-3, No. 333-22125)
3.2 Amended and Restated By-laws, as amended (incorporated by
reference to Exhibit 3.2 to Registration Statement on Form S-3,
No. 333-22125)
4.1* Form of Senior Debt Indenture.
4.2* Form of Subordinated Debt Indenture
4.3* Form of Senior Debt Security
4.4* Form of Subordinated Debt Security
4.5 Form of Penn Treaty Common Stock Certificate (Incorporated by
reference to Registration Statement on Form S-1, Reg. No.
033-14214)
4.6* Form of Penn Treaty Preferred Stock Certificate
4.7* Form of Warrant Agreement
5.1* Opinion of Ballard Spahr Andrews & Ingersoll, LLP regarding the
legality of the securities being registered by the Company
12.1* Statement re Computation of ratio of earnings to fixed charges
23.1* Consent of PricewaterhouseCoopers, LLP
23.2* Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in
Exhibit 5.1)
24.1 Powers of Attorney (included on signature page)
25.1* Statement of eligibility of Trustee
--------------------
* To be filed by amendment.
** Filed herewith.
