-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NUHnUeWZC3pJXpsQOdYG4p7hCW2enOqZ8FJ3C3YfYl49p+e3nMtRx78jedVST3ts MWPwSEuCEcR5U2mXzvbqOA== 0000912057-97-006334.txt : 19970222 0000912057-97-006334.hdr.sgml : 19970222 ACCESSION NUMBER: 0000912057-97-006334 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19970220 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENN TREATY AMERICAN CORP CENTRAL INDEX KEY: 0000814181 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 231664166 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-22125 FILM NUMBER: 97540456 BUSINESS ADDRESS: STREET 1: 3440 LEHIGH ST CITY: ALLENTOWN STATE: PA ZIP: 18103 BUSINESS PHONE: 2159652222 MAIL ADDRESS: STREET 2: 3440 LEHIGH STREET CITY: ALLENTOWN STATE: PA ZIP: 18103 S-3 1 FORM S-3 As filed with the Securities and Exchange Commission on February 20, 1997 Registration No. 333-_____ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------ FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------ PENN TREATY AMERICAN CORPORATION (Exact name of registrant as specified in its charter) Pennsylvania 23-1664166 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ------------------------------ 3440 Lehigh Street Allentown, Pennsylvania 18103 (610) 965-2222 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Irving Levit, President Penn Treaty American Corporation 3440 Lehigh Street, Allentown, Pennsylvania 18103 (610) 965-2222 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------------ Copies to: Justin P. Klein, Esq. Ballard Spahr Andrews & Ingersoll 1735 Market Street, 51st Floor Philadelphia, Pennsylvania 19103 (215) 665-8500 ------------------------------ Approximate date of commencement of proposed sale to the public: From time to time after this Registration Statement becomes effective. ------------------------------ If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box: |_| If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box: |X| If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: |_| __________________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: |_| ____________________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: |_|
=========================================================================================================== CALCULATION OF REGISTRATION FEE =========================================================================================================== Title of each class of Proposed maximum aggregate Amount of securities to be registered Amount to be registered offering price(1) registration fee - ----------------------------------------------------------------------------------------------------------- 6-1/4% Convertible $74,750,000 $74,750,000 $22,651.49 Notes due 2003 - ----------------------------------------------------------------------------------------------------------- Common Stock, par value 2,628,340 shares(2) $.10 per share ===========================================================================================================
(1) Estimated solely for the purposes of calculating the registration fee pursuant to Rule 457(i). (2) Such number represents the number of shares of Common Stock initially issuable upon conversion of the Notes registered hereby and, pursuant to Rule 416 under the Securities Act of 1933, as amended, such indeterminate number of shares of Common Stock as may be issued from time to time upon conversion of the Notes by reason of adjustment of the conversion price under certain circumstances outlined in the Prospectus. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. PRELIMINARY PROSPECTUS, SUBJECT TO COMPLETION DATED FEBRUARY 20, 1997 PENN TREATY AMERICAN CORPORATION $74,750,000 6 1/4% Convertible Subordinated Notes Due 2003 2,628,340 shares of Common Stock ----------- This Prospectus relates to the offering by the selling securityholders named herein (the "Selling Securityholders") of 6 1/4% Convertible Subordinated Notes Due 2003 (the "Notes") of Penn Treaty American Corporation, a Pennsylvania corporation (the "Company"), in the aggregate principal amount of up to $74,750,000. In addition, this Prospectus relates to the offering by the Selling Securityholders of up to 2,628,340 shares (subject to adjustment under certain circumstances) of the Company's common stock, par value $.10 per share ("Common Stock" and, together with the Notes, the "Securities"), issued or issuable upon conversion of the Notes. The Notes were issued and sold in November 1996 in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), to persons reasonably believed by the managers who placed the Notes (the "Initial Purchasers") to be "qualified institutional buyers" (as defined in Rule 144A under the Securities Act) or institutional accredited investors or to persons in offshore transactions in reliance upon Regulation S under the Securities Act. Prior to their resale pursuant to this Prospectus, certain of the Notes were eligible for trading on the Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") Market. The Notes resold pursuant to this Prospectus will no longer be eligible for trading on the PORTAL Market. The Notes mature on December 1, 2003, unless previously redeemed or repurchased. See "Description of the Notes-Optional Redemption by the Company" and "--Change of Control." Interest on the Notes is payable semi-annually on June 1 and December 1 of each year commencing June 1, 1997. Holders ("Holders") of the Notes are entitled at any time through November 28, 2003, subject to prior redemption or repurchase, to convert any of the Notes or portions thereof into Common Stock, at a conversion price of $28.44 per share, subject to certain adjustments. See "Description of the Notes-Conversion of the Notes." The Common Stock is currently traded on the Nasdaq Stock Market under the symbol "PTAC." On February 18, 1997, the reported closing price of the Common Stock on the Nasdaq Stock Market was $27.375 per share. The Notes are redeemable, in whole or in part, at the option of the Company, at any time on or after December 3, 1999, at the declining redemption prices set forth herein, plus accrued interest. In the event of a Change of Control (as defined herein), each Holder of the Notes may require the Company to repurchase such Holder's Notes, in whole or in part, at a repurchase price of 101% of the principal amount thereof, plus accrued interest. See "Description of the Notes-Optional Redemption by the Company" and "--Change of Control." The Notes constitute unsecured obligations of the Company and are subordinated in right of payment to all existing and future Senior Indebtedness (as defined herein) of the Company. In addition, because the Company's operations are conducted through subsidiaries, claims of regulators, creditors and holders of indebtedness of such subsidiaries will have priority with respect to the assets and earnings of such subsidiaries over the claims of creditors of the Company, including Holders of the Notes. See "Description of the Notes-Subordination." The Company will not receive any of the proceeds from the sale of the Securities offered hereby. The Selling Securityholders directly, through agents designated from time to time, or through brokers, dealers or underwriters to be designated, may sell the Securities from time to time on terms to be determined at the time of sale. To the extent required, the specific amount of Securities to be sold, the respective purchase price and public offering price, the names of any such agent, broker, dealer or underwriter, and any applicable commission or discount with respect to the particular offer will be set forth in a Prospectus Supplement. The Company has agreed to bear substantially all expenses of registration of the Securities under federal and state securities laws, but not including, among other things, commissions, fees and discounts of underwriters, brokers, dealers and agents. In addition, the Company has agreed to indemnify the Selling Securityholders against certain liabilities. See "Plan of Distribution." The Selling Securityholders and any broker, dealer, agents or underwriters that participate with the Selling Securityholders in the distribution of the Securities may be deemed to be "underwriters" within the meaning of the Securities Act, and any commissions received by them and any profits on the resale of the Securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. The Selling Securityholders have agreed to indemnify the Company against certain liabilities. See "Plan of Distribution." ---------- See "Risk Factors" commencing on page 8 for a discussion of certain factors that should be considered by prospective investors in the Securities. ---------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is _______ __, 1997 THE COMPANY IS A HOLDING COMPANY THAT CONTROLS CERTAIN INSURANCE COMPANY SUBSIDIARIES DOMICILED IN PENNSYLVANIA AND VERMONT. THE INSURANCE LAWS AND REGULATIONS OF EACH OF PENNSYLVANIA AND VERMONT PROVIDE, AMONG OTHER THINGS, THAT WITHOUT THE CONSENT OF THE INSURANCE COMMISSIONER OF EACH SUCH STATE, NO PERSON MAY ACQUIRE CONTROL OF THE COMPANY AND THAT ANY PERSON OR HOLDER OF SHARES OF COMMON STOCK OR SECURITIES CONVERTIBLE INTO COMMON STOCK (SUCH AS THE NOTES) POSSESSING 10% OR MORE OF THE AGGREGATE VOTING POWER OF THE COMMON STOCK (INCLUSIVE OF SHARES ISSUABLE UPON CONVERSION OF ALL SUCH CONVERTIBLE SECURITIES) WILL BE PRESUMED TO HAVE ACQUIRED SUCH CONTROL UNLESS EACH SUCH INSURANCE COMMISSIONER, UPON APPLICATION, HAS DETERMINED OTHERWISE. SOME OF THE INFORMATION PRESENTED IN THIS PROSPECTUS CONSTITUTES FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. ALTHOUGH THE COMPANY BELIEVES THAT ITS EXPECTATIONS ARE BASED ON REASONABLE ASSUMPTIONS WITHIN THE BOUNDS OF ITS KNOWLEDGE OF ITS BUSINESS AND OPERATIONS, THERE CAN BE NO ASSURANCE THAT ACTUAL RESULTS OF THE COMPANY'S OPERATIONS WILL NOT DIFFER MATERIALLY FROM ITS EXPECTATIONS. FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER FROM EXPECTATIONS INCLUDE, AMONG OTHERS, THE ADEQUACY OF THE COMPANY'S LOSS RESERVES, THE COMPANY'S ABILITY TO QUALIFY NEW INSURANCE PRODUCTS FOR SALE IN THE STATES IN WHICH IT IS LICENSED AND THE ACCEPTANCE OF SUCH PRODUCTS, THE COMPANY'S ABILITY TO COMPLY WITH GOVERNMENT REGULATIONS, THE ABILITY OF SENIOR CITIZENS TO PURCHASE THE COMPANY'S PRODUCTS IN LIGHT OF THE INCREASING COSTS OF HEALTH CARE AND THE COMPANY'S ABILITY TO EXPAND ITS NETWORK OF PRODUCTIVE INDEPENDENT AGENTS. SPECIFIC REFERENCE IS MADE TO THE RISKS AND UNCERTAINTIES DESCRIBED UNDER "RISK FACTORS." 2 AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") in Washington, D.C. a Registration Statement on Form S-3 under the Securities Act with respect to the Securities offered hereby. This Prospectus, which constitutes part of the Registration Statement, omits certain of the information contained in the Registration Statement and the exhibits and schedules thereto on file with the Commission pursuant to the Securities Act and the rules and regulations of the Commission thereunder. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, and each such statement is qualified in all respects by such reference. The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files reports, proxy statements, information statements and other information with the Commission. Such reports, proxy and information statements and other information filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's Regional Offices at Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison Avenue, Suite 1400, Chicago, Illinois 60661. Copies of such material also can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates, or from the Commission's internet web site at http://www.sec.gov. The Common Stock is listed on the Nasdaq Stock Market and, in connection with such listing, the Company also files reports, proxy statements and other information with the Nasdaq Stock Market. Such reports, proxy statements and other information filed by the Company can be inspected and copied at the offices of the Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C. 20006. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents of the Company filed with the Commission (File No. 0-15972) are incorporated herein by reference: (i) the Company's Annual Report on Form 10-K for the year ended December 31, 1995; (ii) the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996; (iii) the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996; (iv) the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, as amended by Form 10-Q/A filed on December 11, 1996; (v) the Company's Current Report on Form 8-K dated March 27, 1996, as amended by Form 8-K/A dated May 10, 1996; (vi) the Company's Current Report on Form 8-K dated September 16, 1996; (vii) the Company's Current Report on Form 8-K dated December 6, 1996; (viii) the Company's Current Report on Form 8-K dated December 13, 1996; and (ix) the description of the Common Stock contained in the Company's Registration Statement on Form 8-A for such securities, including any amendments or reports filed for the purpose of updating such description. 3 In addition, all reports and other documents subsequently filed by the Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the termination of the offering made hereby, shall be deemed to be incorporated by reference into this Prospectus. Any statement contained in this Prospectus or in a document incorporated or deemed to be incorporated by reference herein, shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any subsequently filed document that also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person, including any beneficial owner, to whom a copy of this Prospectus is delivered, upon the written or oral request of such person, a copy of any and all of the documents incorporated by reference herein (other than exhibits to such documents, unless such exhibits are specifically incorporated by reference in such documents). Requests for such copies should be directed to Penn Treaty American Corporation, 3440 Lehigh Street, Allentown, Pennsylvania 18103, Attention: Michael F. Grill, Treasurer (telephone number (610) 965-2222). 4 - -------------------------------------------------------------------------------- SUMMARY The following does not purport to be complete, is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements, including the notes thereto, appearing elsewhere in this Prospectus or incorporated herein by reference. Unless the context requires otherwise, all references herein to the "Company" mean Penn Treaty American Corporation and its subsidiaries, collectively. All references in this Prospectus to the "1995 Financial Statements" shall mean the audited consolidated financial statements of the Company and its subsidiaries contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, which is incorporated herein by reference. See "Glossary of Certain Insurance Terms" for the definition of certain insurance terms used in this Prospectus. For a discussion of certain factors that should be considered by prospective purchasers of the Securities, see "Risk Factors." The Company The Company is one of the leading providers of long-term nursing home care and home health care insurance. The Company markets its products primarily to persons age 65 and over through independent insurance agents and underwrites its policies through three subsidiaries, Penn Treaty Life Insurance Company ("PTLIC"), Network America Life Insurance Company ("Network America") and American Network Insurance Company. The Company's principal products are individual fixed, defined benefit accident and health insurance policies covering long-term skilled, intermediate and custodial nursing home care and home health care. Policies are designed to make the administration of claims simple, quick and sensitive to the needs of the policyholders. As of December 31, 1996, long-term nursing home care and home health care policies accounted for approximately 94% of the Company's total annualized premiums in-force. The Company introduced its first long-term nursing home care insurance product in 1975 and its first home health care product in 1987. In late 1994, the Company introduced its Independent Living(SM) policy which provides coverage over the full term of the policy for home care services furnished by an unlicensed homemaker or companion as well as a licensed care provider. Available policy riders allow insureds to tailor their policies and include an automatic annual benefit increase, benefits for adult day-care centers and a return of premium benefit. The Company's objective is to strengthen its position as a leader in providing long-term care insurance to senior citizens. To meet this objective and to continue to increase profitability, the Company is implementing the following strategies: o developing and qualifying new products with state insurance regulatory authorities; o increasing the size and productivity of the Company's network of independent agents; o seeking to acquire complementary insurance companies and blocks of in-force policies underwritten by other insurance companies; and o introducing existing products in newly licensed states. As the average age of the U.S. population increases and the cost of long-term care rises, demand for the products offered by the Company is also increasing. The number of individuals age 65 and over is expected to increase from approximately 33 million in 1994 to approximately 77 million by 2030 and 98 million by 2050. According to an independent study published in 1994, the average cost of nursing home care was estimated to - -------------------------------------------------------------------------------- 5 - -------------------------------------------------------------------------------- be approximately $37,000 per year. The Company believes that this cost and demographic factors provide a favorable environment for the continued expansion and growth of the Company's business. The Company believes that one of the principal methods of supporting its growth is increasing the number of agents licensed to sell its products. The Company attracts and retains agents through competitive compensation arrangements, timely payment of claims and a history of satisfied customers. Through seminars and lectures, the Company trains and educates its agents about the Company's products and its operations, including its rigorous underwriting procedures, in order to increase its agents' productivity. The Company has expanded its network of independent agents from approximately 12,200 as of December 31, 1995 to 19,086 as of December 31, 1996, a 56.4% increase. The Company is currently licensed to market products in 49 states and the District of Columbia. Although not all of the Company's products are currently eligible for sale in all of these jurisdictions, the Company actively seeks to expand the regions where it sells its products. The Company's business is generated primarily in Florida, Pennsylvania, Virginia, California, Illinois, Ohio, Arizona and Missouri. On August 30, 1996, the Company consummated the acquisition of all of the issued and outstanding capital stock of Health Insurance of Vermont, Inc., which has since changed its name to American Network Insurance Company ("ANIC"). The Company's principal executive offices are located at 3440 Lehigh Street, Allentown, Pennsylvania 18103, and its telephone number is (610) 965-2222. THE OFFERING THIS PROSPECTUS RELATES TO THE OFFERING BY THE SELLING SECURITYHOLDERS OF BOTH THE NOTES AND, TO THE EXTENT THE NOTES HAVE BEEN, OR ARE, CONVERTED, THE COMMON STOCK. THE FOLLOWING SUMMARY OF CERTAIN TERMS OF THE NOTES IS NOT COMPLETE AND IS QUALIFIED BY ALL OF THE TERMS AND CONDITIONS CONTAINED IN THE NOTES AND IN THE INDENTURE (AS DEFINED HEREIN). FOR A MORE DETAILED DESCRIPTION OF THE TERMS OF THE NOTES, SEE "DESCRIPTION OF THE NOTES." The Common Stock Common Stock outstanding as of February 14, 1997(1) .......... 7,516,930 shares Common Stock to be outstanding assuming conversion of the Notes(1)(2) ........................................ 10,145,270 shares Nasdaq National Market symbol ................................ PTAC - ---------- (1) Excludes 199,643 shares of Common Stock issuable upon exercise of stock options outstanding at February 14, 1997. (2) Assumes no adjustment to the conversion price of the Notes. The Notes Issuer .................... Penn Treaty American Corporation (the "Company"). The Notes ................. $74,750,000 aggregate principal amount of 6 1/4% Convertible Subordinated Notes Due December 1, 2003 issued under an indenture (the "Indenture") between the Company and First Union National Bank, as trustee (the "Trustee"). Interest Payment Dates .... June 1 and December 1 of each year, commencing June 1, 1997. - -------------------------------------------------------------------------------- 6 - -------------------------------------------------------------------------------- Conversion Price .......... The Notes are convertible into Common Stock of the Company at $28.44 per share, subject to adjustment as set forth herein, at any time prior to maturity, repurchase or redemption. See "Description of the Notes-Conversion of the Notes." Redemption ................ The Notes are redeemable, in whole or in part, at the option of the Company, at any time on or after December 3, 1999, at the declining redemption prices set forth herein plus accrued interest. See "Description of the Notes-Optional Redemption by the Company." Change of Control ......... In the event of a Change of Control (as defined herein), Holders of the Notes will have the right to require that the Company repurchase the Notes, in whole or in part, at a repurchase price of 101% of the principal amount thereof, plus accrued interest. See "Description of the Notes-Change of Control." Subordination ............. The Notes constitute general unsecured obligations of the Company and are subordinated in right of payment to all existing and future Senior Indebtedness (as defined herein) of the Company. As of December 31, 1996, the Company had approximately $2,400,000 of Senior Indebtedness outstanding. In addition, because the Company's operations are conducted through subsidiaries, claims of holders of indebtedness of such subsidiaries, as well as claims of regulators and creditors of such subsidiaries, will have priority with respect to the assets and earnings of such subsidiaries over the claims of creditors of the Company, including Holders of the Notes. As of December 31, 1996, the aggregate liabilities of such subsidiaries were approximately $275,000,000. The Indenture does not limit the amount of additional indebtedness which the Company can create, incur, assume or guarantee, nor does the Indenture limit the amount of indebtedness which any subsidiary can create, incur, assume or guarantee. See "Description of the Notes-Subordination." Listing ................... Prior to their resale pursuant to this Prospectus, the Notes sold in reliance on Rule 144A under the Securities Act ("Rule 144A") were eligible for trading in the PORTAL Market. The Notes sold pursuant to this Prospectus will no longer be eligible for trading on the PORTAL Market. - -------------------------------------------------------------------------------- 7 RISK FACTORS In addition to other information contained or incorporated by reference in this Prospectus, a prospective purchaser of the Securities should carefully consider, among other things, the following risk factors in evaluating the Company and its business before purchasing any Securities. Holding Company Structure; Reliance on Subsidiary Dividends The Company is an insurance holding company whose assets principally consist of the capital stock of its operating subsidiaries. The ability of the Company to redeem, repurchase or make interest payments on the Notes, and to pay dividends on its Common Stock, is dependent upon the ability of its subsidiaries to pay cash dividends or make other cash payments to the Company. The Company's insurance subsidiaries are subject to state laws and regulations which restrict their ability to pay dividends and make other payments to the Company. See "Dividend Policy" and Notes to the 1995 Financial Statements. Structural Subordination of the Notes The Notes are general unsecured obligations of the Company and are subordinated in right of payment to all existing and future Senior Indebtedness of the Company. By reason of such subordination, in the event of an insolvency, liquidation or other reorganization of the Company, the Senior Indebtedness must be paid in full before the Company may make any payments with respect to the principal of, premium, if any, and interest on the Notes. Senior Indebtedness was approximately $2,400,000 at December 31, 1996. Because the Company's operations are conducted through subsidiaries, claims of the creditors of the subsidiaries (including policyholders) will have priority with respect to the assets and earnings of such subsidiaries over the claims of the creditors of the Company, including Holders of the Notes, even though such obligations do not constitute Senior Indebtedness. The Company's subsidiaries had aggregate liabilities of approximately $275,000,000 as of December 31, 1996. The Indenture does not restrict the ability of the Company or any of its subsidiaries to incur additional Senior Indebtedness or to pledge their assets in the future. See "Description of the Notes." Repurchase of Notes at the Option of Holders Upon a Change of Control; Availability of Funds In the event of a Change of Control, each Holder of the Notes will have the right to require that the Company repurchase the Notes, in whole or in part, at a repurchase price of 101% of the principal amount thereof, plus accrued interest to the date of repurchase. If a Change of Control were to occur, there can be no assurance that the Company would have sufficient funds to pay such repurchase price for all Notes tendered by the Holders thereof. See "--Structural Subordination of the Notes" above and "Description of the Notes-Change of Control." Adequacy of Loss Reserves; Implementation of New Products The reserves for losses and expenses established by the Company are estimates of amounts needed to pay reported and incurred but not yet reported claims and related expenses based on facts and circumstances known as of the time the reserves are established. Reserves are based on historical claims information, industry statistics and other factors. The establishment of appropriate reserves is an inherently uncertain process, and there can be no assurance that the ultimate loss and expense will not materially exceed the Company's reserves and have a material adverse effect on its results of operations and financial condition. Due to the inherent uncertainty of estimating reserves, it has been necessary, and may over time continue to be necessary, to revise estimated future liabilities as reflected in the Company's reserves for claims and policy expenses. The introduction of new insurance products, such as the Independent Living(SM) policy, entails a greater risk of unanticipated claims than products with respect to which the Company has developed significant 8 historical claims data, such as long-term nursing home care insurance. As of December 31, 1996, Independent Living(SM) policies accounted for approximately 20% of the Company's total annualized premiums in-force, and for the year ended December 31, 1996, Independent Living(SM) policies accounted for approximately 40% of the Company's new business premiums for such period. In order to minimize the risks to the Company associated with this lack of historical claims experience data, the Company generally limits both the amount of benefits and duration of coverage available under new products until such data are developed. There can be no assurance, however, that such limits will be adequate. If as a result of actual experience, the Company does not meet state mandated loss ratios for a product, state insurance regulators may require the Company to reduce or refund premiums on such product. If, however, losses are greater than anticipated, in addition to adjusting its reserve levels as discussed below, the Company may seek regulatory approval of premium increases. Because this approval process is time consuming, the Company must attempt to anticipate the need for premium increases substantially in advance of its targeted date for implementing such increases. Failure to anticipate the need for or to secure regulatory approval of such increases could have a material adverse effect on the Company. Moreover, fluidity in market competition and regulatory forces might limit the Company's ability to rely on historical claims experience for the development of new premium rates and reserve allocations. The Company began marketing its home health care policies as a stand-alone product in 1987 and, in the past, experienced a higher than expected number of claims filed and longer than expected duration of claims, requiring higher levels of reserves and loss ratios than anticipated with this product line. Because of the Company's relatively limited claims experience with its home health care products, the Company may continue to incur higher than expected loss ratios and may be required to adjust its reserve levels with respect to these products. Recoverability of Deferred Acquisition Costs In connection with the sale of its insurance policies, the Company defers and amortizes a portion of the policy acquisition costs over the related premium paying periods of the life of the policy. These costs include all expenses directly related to the acquisition of the policy, including commissions, underwriting and other policy issue expenses. The amortization of deferred acquisition costs is determined using the same projected actuarial assumptions used in computing policy reserves. Deferred acquisition costs can be affected by unanticipated termination of policies because, upon such unanticipated termination, the Company is required to expense fully the deferred acquisition costs associated with the terminated policy. If these actuarial assumptions prove to be inaccurate, the result could have a material adverse effect on the Company's results of operations in future periods. Mandated Loss Ratios The states in which the Company is licensed have the authority to change the minimum mandated statutory loss ratios to which the Company is subject, the manner in which these ratios are computed and the manner in which compliance with these ratios is measured and enforced. Loss ratios are commonly defined as incurred claims and increases in policy reserves divided by earned premiums. Most states in which the Company writes insurance have adopted the loss ratios recommended by the National Association of Insurance Commissioners (the "NAIC"). The Company is unable to predict the impact of (i) the imposition of any changes in the mandatory statutory loss ratios for individual or group long-term care policies to which the Company may become subject, (ii) any changes in the minimum loss ratios for individual or group long-term care or Medicare supplement policies and (iii) any change in the manner in which these minimums are computed or enforced in the future. The Company has not been informed by any state that it does not meet mandated minimums, and the Company believes that it is in compliance with all such minimum ratios. In the event the Company is not in compliance with minimum statutory loss ratios mandated by regulatory authorities with respect to certain policies, the Company may be required to reduce or refund premiums, which could have a material adverse effect upon the Company. 9 Government Regulation The business of the Company, including the insurance policies sold by the Company's insurance subsidiaries, is subject to stringent state governmental requirements, including those regarding licensure, benefit structure, policy forms, minimum loss ratios, payment of dividends, settlement of claims, capital levels, premium rate levels, premium rate increases and transfer of control of the Company's insurance subsidiaries. Certain changes in such laws and regulations could have a material adverse effect on the operations of the Company's insurance subsidiaries and, in turn, on the Company. Specific developments which could have a material adverse effect on the operations of the Company's insurance subsidiaries include, but are not limited to, rate rollback legislation and legislation to control premiums, policy terminations and other policy terms, including premium levels. In addition, the administration of such regulations is vested in state agencies which have broad powers and are concerned primarily with the protection of policyholders rather than the protection of investors. Furthermore, from time to time there are significant federal and state legislative developments with respect to long-term care and Medicare coverage. The Federal Omnibus Budget Reconciliation Act of 1990 requires that Medicare supplement policies provide for guaranteed renewability and waivers of pre-existing condition coverage limitations under certain circumstances. In addition, in 1993 the NAIC adopted model long-term care policy language requiring the provision of nonforfeiture benefits and has proposed a rate stabilization standard for long-term care policies. In August 1996, Congress enacted the Health Insurance Portability and Accountability Act of 1996 which permits, under certain circumstances, premiums paid for eligible long-term care insurance policies to be treated as tax deductible medical expenses. The Company cannot predict with certainty the effect this legislation could have on its business and operations. Highly Competitive and Concentrated Markets; A.M. Best Rating The Company's ability to expand and attract new business is affected by the ratings assigned to its insurance subsidiaries by A.M. Best Company, Inc. ("A.M. Best"), an independent insurance industry rating agency. Ratings for the industry currently range from "A++ (Superior)" to "F (In Liquidation)" and some companies are unrated. A.M. Best's ratings are based upon factors of concern to policyholders and insurance agents and are not directed toward the protection of investors. PTLIC's and Network America's ratings are, and ANIC's rating is expected to be, "B+ (Very Good)". The inability of the Company's insurance subsidiaries to maintain a "B+" or better rating could adversely affect the sales of the Company's products. The markets in which the Company competes are highly competitive. The Company competes with large national and smaller regional insurers, as well as specialty insurers. Many of these insurers are larger and have greater resources and higher A.M. Best ratings than the Company. In addition to A.M. Best ratings, the Company competes with other insurance companies on the basis of pricing, breadth and flexibility of coverage, and the quality and level of agent and policyholder services provided. The Company also competes with other insurance companies for producing agents to market and sell its products. In addition, the Company has experienced geographic concentration in the sale of its products. During the years ended December 31, 1994, 1995 and 1996, more than half of the Company's premiums have been derived from sales of policies in California, Florida and Pennsylvania. Competitive changes in such markets could have a material adverse effect on the Company. Agent Recruitment; Reliance on Marketing General Agent The Company regularly engages in active recruitment and training of independent agents to market and sell its products, in part by frequent presentations designed to educate agents with respect to the Company's insurance products and operations. The Company also periodically reviews and terminates its agency relationships with non-producing or underproducing agents or agents who do not comply with the Company's guidelines and policies with respect to the sale of its products. While the Company believes that the commissions it pays to independent agents are competitive with the commissions paid by other insurance 10 companies selling similar policies, there can be no assurance that the Company will be able to continue to attract and retain independent agents to sell the Company's products. The Company utilizes marketing general agents from time to time for the purpose of recruiting independent agents and developing networks of agents in various states. The Company has a marketing general agent for purposes of generating business for PTLIC and Network America in several states. This marketing general agent receives an overriding commission on business written in return for recruiting, training, and motivating the independent agents. This marketing general agent also functions as a general agent for PTLIC and Network America in several states. In the capacity of marketing general agent and general agent, this agent accounted for 20%, 18% and 18% of the total premiums earned by the Company during the years ended December 31, 1994, 1995 and 1996, respectively. The loss of the services provided by this agent as marketing general agent and general agent could have a material adverse effect upon the Company. Dependence on Senior Citizen Market; Rising Health Care Costs The Company's insurance products are designed primarily for sale to persons age 65 and over. Many such persons live on fixed incomes and, as a result, are highly sensitive to interest rate and inflation fluctuations which affect their buying power. In periods of low interest rates, renewal premiums on the Company's products have decreased. Inflationary trends in health care costs over time will cause the fixed benefits provided by the Company's policies to cover less of the actual costs of long-term care. This may require the Company to increase policy benefits under new policies to maintain the marketability of its products, with corresponding increases in premiums. There can be no assurance that adverse economic conditions or lower interest rates will not have a material impact upon the ability of senior citizens to afford the Company's products which, in turn, could have a material adverse impact upon the Company. Dependence on Key Personnel The success of the Company has largely depended upon the efforts of its senior operating management, including the Company's Chairman of the Board, President, Chief Executive Officer and founder, Mr. Irving Levit. The loss of the services of Mr. Levit or one or more of its key personnel could have a material adverse effect on the operations of the Company. Control by Principal Shareholder and Management Mr. Irving Levit controls, directly or indirectly, approximately 24% of the Common Stock. In addition, a majority of the members of the Board of Directors consist of members of senior management. Accordingly, Mr. Levit and other members of senior management have the power to exert significant influence over the policies and affairs of the Company. Effect of Certain Anti-Takeover Provisions The Company's Restated and Amended Articles of Incorporation, the Pennsylvania Business Corporation Law of 1988 (the "1988 BCL") and the insurance laws of states in which the Company conducts business contain certain provisions which could delay or impede the removal of incumbent directors and could make more difficult a merger, tender offer or proxy contest involving the Company, even if such transaction would be beneficial to the interests of the shareholders, or could discourage a third party from attempting to acquire control of the Company. In particular, the classification of the Company's Board of Directors could have the effect of delaying a change in control of the Company. In addition, the Company has authorized 5,000,000 shares of Preferred Stock, which the Company could issue without further shareholder approval and upon such terms and conditions, and having such rights privileges and preferences, as the Board of Directors may determine. The Company has no current plans to issue any Preferred Stock. In addition, insurance laws and regulations of each of Pennsylvania and Vermont provide, among other things, that without the consent of the insurance commissioner of each such state, no person may acquire control of the Company, and that any 11 person or holder of shares of Common Stock or securities convertible into Common Stock (such as the Notes) possessing 10% or more of the aggregate voting power of the Common Stock (inclusive of shares issuable upon conversion of all such convertible securities) will be presumed to have acquired such control unless each such insurance commissioner, upon application, has determined otherwise. Absence of Public Market; Possible Volatility of Prices; Restrictions on Transfer Prior to their resale pursuant to this Prospectus, Notes sold to qualified institutional buyers as defined in Rule 144A ("QIBs") were eligible for trading on the PORTAL Market. The Notes sold pursuant to this Prospectus will no longer be eligible for trading on the Portal Market. The Initial Purchasers have advised the Company that they currently intend to make a market in the Notes, but they are not obligated to do so and may discontinue such market-making at any time. There can be no assurance that an active market for the Notes will develop and continue or that the market price of the Notes will not decline. There can be no assurance as to the liquidity of investments in the Notes or as to the price Holders may realize upon the sale of the Notes. These prices are determined in the marketplace and may be influenced by many factors, including the liquidity of the market for the Notes and Common Stock, the market price of the Common Stock, interest rates, investor perception of the Company and general economic and market conditions. 12 USE OF PROCEEDS The Company will not receive any of the proceeds from the sale of the Securities offered hereby. RATIO OF EARNINGS TO FIXED CHARGES Year Ended December 31, September 30, 1996 1995 1994 1993 1992 1991 Ratio of Earnings to Fixed Charges... 87.62x 34.26x 45.19x 36.06x 33.92x 40.10x For purpose of computing the ratio of earnings to fixed charges, earnings consist of earnings before income taxes and fixed charges. Fixed charges consist of interest expense plus the portion of rental expense under operating leases that has been deemed by the Company to be representative of the interest factor (approximately one-third of rental expenses). DIVIDEND POLICY The Company has never paid any cash dividends on its Common Stock and does not intend to do so in the foreseeable future. It is the present intention of the Company to retain any future earnings to support the continued growth of the Company's business. Any future payment of dividends by the Company is subject to the discretion of the Board of Directors and is dependent, in part, on any dividends it may receive from its subsidiaries. The payment of dividends by the Company's subsidiaries is dependent on a number of factors, including their respective earnings and financial condition, business needs and capital and surplus requirements, and is also subject to certain regulatory restrictions and the effect that such payment would have on their ratings by A.M. Best. The Company distributed a 50% stock dividend on the Common Stock on May 15, 1995. 13 DESCRIPTION OF THE NOTES The Notes were issued under an Indenture, dated as of November 26, 1996 (the "Indenture"), between the Company and First Union National Bank, as trustee (the "Trustee"). The following summaries of certain provisions of the Notes and the Indenture do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all the provisions of the Notes and the Indenture, including the definitions therein of certain terms which are not otherwise defined in this Prospectus. Wherever particular provisions or defined terms of the Indenture (or of the form of Notes which is a part thereof) are referred to, such provisions or defined terms are incorporated herein by reference in their entirety. As used in this "Description of the Notes," the "Company" refers to Penn Treaty American Corporation and does not, unless the context otherwise indicates, include its subsidiaries. Copies of the Indenture and the Registration Rights Agreement, dated as of November 26, 1996, between the Company and the Initial Purchasers are incorporated by reference into the Registration Statement of which this Prospectus forms a part. General In November 1996, the Company issued an aggregate principal amount of $74,750,000 of its 6 1/4% Convertible Subordinated Notes Due 2003 pursuant to exemptions from the Securities Act. The Notes are general unsecured subordinated obligations of the Company and are convertible into Common Stock as described below under the subheading "--Conversion of the Notes." The Notes were issued in fully registered form only in denominations of $1,000 in principal amount or any integral multiple thereof and mature on December 1, 2003, unless earlier redeemed at the option of the Company or repurchased at the option of the Holder upon a Change of Control. The Indenture does not contain any financial covenants or any restrictions on the payment of dividends, the repurchase of securities of the Company or the incurrence of debt by the Company or any of its subsidiaries. The Notes bear interest at the annual rate of 6 1/4%, payable semi-annually on June 1 and December 1, commencing on June 1, 1997, to Holders of record at the close of business on the preceding May 15 and November 15, respectively. Interest is computed on the basis of a 360-day year composed of twelve 30-day months. Interest may, at the option of the Company, be paid by check mailed to the address of such Holder as it appears in the note register. Any Holder of Notes with an aggregate principal amount equal to or in excess of $5,000,000 may request that interest be paid by wire transfer upon written notice by such Holder to the Trustee in accordance with the provisions of the Indenture. Principal will be payable, and the Notes may be presented for conversion, registration of transfer and exchange, without service charge, at the office of the Trustee in New York, New York. Book Entry; Delivery and Form Notes currently held by QIBs and by persons who are not U.S. persons who acquired such Notes in "offshore transactions" in reliance on Regulation S under the Securities Act ("Non-U.S. Persons") are currently evidenced by restricted global notes (the "Restricted Global Notes") which were deposited with, or on behalf of, The Depository Trust Company ("DTC"), and registered in the name of Cede & Co. ("Cede") as DTC's nominee. Notes sold to institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) were issued in definitive form. A purchaser (a "Public Holder") of Notes pursuant to this Prospectus will receive a beneficial interest in an unrestricted global note (the "Public Global Note") which will be deposited with, or on behalf of, DTC and registered in the name of Cede, as DTC's nominee. Except as set forth below, the record ownership of the 14 Public Global Note may be transferred in whole or in part, only to another nominee of DTC or to a successor of DTC or its nominee. A Public Holder may hold its interest in the Public Global Note directly through DTC if such Public Holder is a participant in DTC, or indirectly through organizations which are participants in DTC (the "Participants"). Transfers between Participants are effected in the ordinary way in accordance with DTC rules and will be settled in same day funds. Public Holders who are not Participants may beneficially own interests in the Public Global Note held by DTC only through Participants or certain banks, brokers, dealers, trust companies and other parties that clear through or maintain a custodial relationship with a Participant, either directly or indirectly ("Indirect Participants"). So long as Cede, as the nominee of DTC, is the registered owner of the Public Global Note, Cede for all purposes is considered the sole holder of the Public Global Note. Owners of beneficial interests in the Public Global Note are entitled to have certificates registered in their names and to receive physical delivery of certificates in definitive form. The laws of some states require that certain persons take physical delivery of securities in definitive form. Payment of interest on and the redemption and repurchase price of the Public Global Note will be made to Cede, the nominee for DTC, as registered owner of the Public Global Note, by wire transfer of immediately available funds on each interest payment date, each redemption date and each repurchase date, as applicable. None of the Company, the Trustee or any paying agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Public Global Note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interest. The Company has been informed by DTC, that, with respect to any payment of interest on or the redemption or repurchase price of the Public Global Note, DTC's practice is to credit Participants' accounts on the payment date, redemption date or repurchase date, as applicable, therefor with payments in amounts proportionate to their respective beneficial interests in the principal amount represented by the Public Global Note as shown on the records of DTC, unless DTC has reason to believe that it will not receive payment on such payment date. Payments by Participants to owners of beneficial interests in the principal amount represented by the Public Global Note held through such Participants are the responsibility of such Participants, as is now the case with securities held for the accounts of customers registered in street name. Because DTC can only act on behalf of Participants, who in turn act on behalf of Indirect Participants and certain banks, the ability of a person having a beneficial interest in the principal amount represented by the Public Global Note to pledge such interest to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interest, may be affected by the lack of a physical certificate evidencing such interest. Neither the Company nor the Trustee (or any registrar, paying agent or conversion agent under the Indenture) will have any responsibility for the performance of DTC, or its Participants or Indirect Participants of their respective obligations under the rules and procedures governing their operations. DTC has advised the Company that it will take any action permitted to be taken by a Public Holder of Notes (including, without limitation, the presentation of Notes for exchange as described below) only at the direction of one or more Participants to whose account with DTC interests in the Public Global Note are credited and only in respect of the principal amount of the Notes represented by the Public Global Note as to which such Participant or Participants has or have given such direction. DTC has advised the Company as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its Participants and to facilitate the clearance and settlement of securities transactions between Participants through electronic book-entry changes to 15 accounts of its Participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations. Certain of such Participants (or their representatives), together with other entities, own DTC. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through, or maintain a custodial relationship with, a Participant, either directly or indirectly. Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in the Public Global Note among Participants, it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. If DTC is at any time unwilling or unable to continue as depositary and a successor depositary is not appointed by the Company within 90 days, the Company will cause the Notes to be issued in definitive form in exchange for the Public Global Note. Conversion of the Notes Holders of any Notes are entitled at any time until the close of business on November 28, 2003, subject to prior redemption or repurchase, to convert any Notes or portions thereof (in denominations of $1,000 in principal amount or integral multiples thereof) into Common Stock at the conversion price of $28.44 per share, subject to adjustment as described below; provided that in the case of Notes called for redemption, conversion rights will expire at the close of business on the business day immediately preceding the date fixed for redemption, unless the Company defaults in payment of the redemption price. A Note (or portion thereof) in respect of which a Holder is exercising its option to require repurchase upon a Change of Control may be converted only if such Holder withdraws its election to exercise such redemption option in accordance with the terms of the Indenture. Except as described below, no adjustment will be made on conversion of any Notes for interest accrued thereon or for dividends paid on any Common Stock issued. A Holder of Notes at the close of business on a record date will be entitled to receive the interest payable on such Notes on the corresponding interest payment date. However, Notes surrendered for conversion during the period from the close of business on a record date to the opening of business on the next succeeding interest payment date must be accompanied by funds equal to the interest payable on such succeeding interest payment date on the principal amount so converted (unless such Note or portion thereof being converted is called for redemption on a redemption date during the period from the close of business on or after any record date to the close of business on the business day following the corresponding interest payment date). The interest payment with respect to a Note called for redemption on a date between the close of business on any record date for the payment of interest to the close of business on the business day following the corresponding interest payment date and surrendered for conversion during that period will be payable on the corresponding interest payment date to the registered Holder at the close of business on that record date (notwithstanding the conversion of such Note before the corresponding interest payment date). A Holder of Notes who elects to convert during that period need not include funds equal to the interest paid. The Company is not required to issue fractional shares of Common Stock upon conversion of Notes and, in lieu thereof, will pay a cash adjustment based upon the closing price of the Common Stock on the last business day prior to the date of conversion. The conversion price is subject to adjustment (under formulae set forth in the Indenture) upon the occurrence of certain events, including: (i) the issuance of Common Stock as a dividend or distribution on the outstanding Common Stock, (ii) the issuance to all holders of Common Stock of certain rights, options or warrants to purchase Common Stock at less than the Current Market Price (as defined in the Indenture), (iii) certain subdivisions, combinations and reclassifications of Common Stock, (iv) distributions to all holders of Common Stock of the Company of any class of capital stock of the Company (other than distributions of Common Stock as a dividend or distribution) or evidences of indebtedness of the Company or assets (including securities, but excluding those rights, options and warrants referred to in clause (ii) above and dividends and distributions in connection with the liquidation, dissolution or winding up of the Company and dividends and distributions paid exclusively in cash), (v) distributions consisting exclusively of cash (excluding any cash portion of distributions referred to in clause (iv) or in connection with a consolidation, merger or sale of assets 16 of the Company as referred to in clause (ii) of the third paragraph below) to all holders of Common Stock in an aggregate amount that, together with (x) all other such all-cash distributions made within the preceding 12 months in respect of which no adjustment has been made and (y) any cash and the fair market value of other consideration payable in respect of any tender offers by the Company or any of its subsidiaries for Common Stock concluded within the preceding 12 months in respect of which no adjustment has been made, exceeds 20% of the Company's market capitalization (being the product of the then current market price of the Common Stock times the number of shares of Common Stock then outstanding) on the record date for such distribution and (vi) the purchase of Common Stock pursuant to a tender offer made by the Company or any of its subsidiaries which involves an aggregate consideration that, together with (x) any cash and the fair market value of any other consideration payable in any other tender offer by the Company or any of its subsidiaries for Common Stock expiring within the 12 months preceding such tender offer in respect of which no adjustment has been made and (y) the aggregate amount of any such all-cash distributions referred to in clause (v) above to all holders of Common Stock within the 12 months preceding the expiration of such tender offer in respect of which no adjustments have been made, exceeds 20% of the Company's market capitalization on the expiration of such tender offer. No adjustment of the conversion price will be made for shares issued pursuant to a plan for reinvestment of dividends or interest. No adjustment will be made pursuant to clause (iv) of the preceding paragraph if the Company makes proper provision for each Holder of Notes who converts a Note (or portion thereof) to receive, in addition to the Common Stock issuable upon such conversion, the kind and amount of assets (including securities) that such Holder would have been entitled to receive if such Holder had been a holder of the Common Stock at the time of the distribution of such assets or securities. Rights, options or warrants distributed by the Company to all holders of the Common Stock that entitle the holders thereof to purchase shares of the Company's capital stock and that, until the occurrence of an event (a "Triggering Event"), (i) are deemed to be transferred with the Common Stock, (ii) are not exercisable and (iii) are also issued in respect of future issuances of Common Stock, shall not be deemed to be distributed (and no adjustment in the Conversion Price shall be required) until the occurrence of the Triggering Event. Except as stated above, the conversion price will not be adjusted for the issuance of Common Stock or any securities convertible into or exchangeable for Common Stock or carrying the right to purchase any of the foregoing. No adjustment in the conversion price will be required unless such adjustment would require a change of at least 1% in the conversion price then in effect; provided that any adjustment that would otherwise be required to be made shall be carried forward and taken into account in any subsequent adjustment. In the case of (i) any reclassification or change of the Common Stock (other than changes in par value or from par value to no par value as a result of a subdivision or a combination) or (ii) a consolidation, merger or combination involving the Company or a sale or conveyance to another corporation of the property and assets of the Company as an entirety or substantially as an entirety (determined on a consolidated basis), in each case as a result of which holders of Common Stock shall be entitled to receive stock, other securities, other property or assets (including cash) with respect to or in exchange for such Common Stock, the Holders of the Notes then outstanding will be entitled thereafter to convert such Notes into the kind and amount of shares of stock, other securities or other property or assets which they would have owned or been entitled to receive upon such reclassification, change, consolidation, merger, sale or conveyance had such Notes been converted into Common Stock immediately prior to such reclassification, change, consolidation, merger, sale or conveyance assuming that a Holder of Notes did not exercise any rights of election, if any, as to the stock, other securities or other property or assets receivable in connection therewith. In the event of a taxable distribution to holders of Common Stock (or other transaction) which results in any adjustment of the conversion price, the Holders of Notes may, in certain circumstances, be deemed to have received a distribution subject to the United States income tax as a dividend; in certain other circumstances, the absence of such an adjustment may result in a taxable dividend to the holders of Common Stock. 17 The Company from time to time may to the extent permitted by law reduce the conversion price by any amount for any period of at least 20 days, in which case the Company shall give at least 15 days' notice of such decrease, if the Board of Directors has made a determination that such decrease would be in the best interests of the Company, which determination shall be conclusive. The Company may, at its option, make such reductions in the conversion price, in addition to those set forth above, as the Company deems advisable to avoid or diminish any income tax to its shareholders resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. Subordination The payment of principal of, premium, if any, and interest on the Notes will, to the extent set forth in the Indenture, be subordinated in right of payment to the prior payment in full of all Senior Indebtedness. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding related to the Company or its property, in an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities, the holders of all Senior Indebtedness will first be entitled to receive payment in full of all amounts due or to become due thereon before the Holders of the Notes will be entitled to receive any payment in respect of the principal of, premium, if any, or interest on the Notes (except that Holders of Notes may receive securities that are subordinated at least to the same extent as the Notes to Senior Indebtedness and any securities issued in exchange for Senior Indebtedness). The Company also may not make any payment upon or in respect of the Notes (except in such subordinated securities) and may not acquire from the Trustee or the Holder of any Note for cash or property (other than securities subordinated to at least the same extent as the Note to (i) Senior Indebtedness and (ii) any securities issued in exchange for all Senior Indebtedness) until Senior Indebtedness has been paid in full if (i) a default in the payment of the principal of, premium, if any, or interest on Senior Indebtedness occurs and is continuing beyond any applicable period of grace or (ii) any other default occurs and is continuing with respect to Senior Indebtedness that permits holders of the Senior Indebtedness as to which such default relates to accelerate its maturity and the Trustee receives a notice of such default (a "Payment Blockage Notice") from the representative or representatives of holders of at least a majority in principal amount of Senior Indebtedness then outstanding. Payments on the Notes may and shall be resumed (i) in the case of a payment default, upon the date on which such default is cured or waived, or (ii) in the case of a default other than a non-payment default, 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Senior Indebtedness has been accelerated. No new period of payment blockage may be commenced within 360 days after the receipt by the Trustee of any prior Payment Blockage Notice. No default, other than a nonpayment default, that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice, unless such default shall have been cured or waived for a period of not less than 180 days. "Senior Indebtedness" with respect to the Notes means the principal of, premium, if any, and interest on, and any fees, costs, expenses and any other amounts (including indemnity payments) related to the following, whether outstanding on the date of the Indenture or thereafter incurred or created: (i) indebtedness, matured or unmatured, whether or not contingent, of the Company for money borrowed evidenced by notes or other written obligations, (ii) any interest rate contract, interest rate swap agreement or other similar agreement or arrangement designed to protect the Company or any of its subsidiaries against fluctuations in interest rates, (iii) indebtedness, matured or unmatured, whether or not contingent, of the Company evidenced by notes, debentures, bonds or similar instruments or letters of credit (or reimbursement agreements in respect thereof), (iv) obligations of the Company as lessee under capitalized leases and under leases of property made as part of any sale and leaseback transactions, (v) indebtedness of others of any of the kinds described in the preceding clauses (i) through (iv) assumed or guaranteed by the Company and (vi) renewals, extensions, modifications, amendments and refundings of, and indebtedness and obligations of a successor person issued in exchange for or in replacement of, indebtedness or obligations of the kinds described in the preceding clauses (i) through (iv), unless the agreement pursuant to which any such indebtedness described in clauses (i) through (vi) is created, 18 issued, assumed or guaranteed expressly provides that such indebtedness is not senior or superior in right of payment to the Notes; provided, however, that the following shall not constitute Senior Indebtedness: (i) any indebtedness or obligation of the Company in respect of the Notes; (ii) any indebtedness of the Company to any of its subsidiaries or other affiliates; (iii) any indebtedness that is subordinated or junior in any respect to any other indebtedness of the Company other than Senior Indebtedness; and (iv) any indebtedness incurred for the purchase of goods or materials in the ordinary course of business. In the event that the Trustee (or paying agent if other than the Trustee) or any Holder receives any payment of principal or interest with respect to the Notes at a time when such payment is prohibited under the Indenture, such payment shall be held in trust for the benefit of, and immediately shall be paid over and delivered to, the holders of Senior Indebtedness or their representative as their respective interests may appear. After all Senior Indebtedness is paid in full and until the Notes are paid in full, Holders shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Indebtedness to receive distributions applicable to Senior Indebtedness to the extent that distributions otherwise payable to the Holders have been applied to the payment of Senior Indebtedness. As of December 31, 1996, the Company had approximately $1,900,000 outstanding under its mortgage and approximately $500,000 outstanding under capitalized leases and a note payable of a subsidiary of the Company, which obligations constituted the only Senior Indebtedness of the Company outstanding as of that date. The Indenture does not prohibit or limit the incurrence of Senior Indebtedness. In addition, because the Company's operations are conducted primarily through its subsidiaries, claims of holders of indebtedness of such subsidiaries, as well as claims of regulators and creditors of such subsidiaries, will have priority with respect to the assets and earnings of such subsidiaries over the claims of creditors of the Company, including Holders of the Notes. As of December 31, 1996, the aggregate liabilities of such subsidiaries were approximately $275,000,000. The Indenture does not limit the amount of additional indebtedness which any of the Company's subsidiaries can create, incur, assume or guarantee. Because of these subordination provisions, in the event of a liquidation or insolvency of the Company or any of its subsidiaries, Holders of Notes may recover less, ratably, than the holders of Senior Indebtedness. Optional Redemption by the Company The Notes are not redeemable at the option of the Company prior to December 3, 1999. At any time on or after that date, the Notes may be redeemed at the Company's option by publishing a notice in the Wall Street Journal and mailing a notice of such redemption on at least 30 but not more than 60 days prior to the date fixed for redemption to the Holders of Notes to be redeemed at their last addresses as they appear on the Note register, in whole at any time or in part from time to time, at the following prices (expressed in percentages of the principal amount), together with accrued interest to the date fixed for redemption if redeemed during the 12-month period beginning: Date Redemption Price - ---- ---------------- December 3, 1999 ............................................ 103.13% December 1, 2000 ............................................ 102.08% December 1, 2001 ............................................ 101.04% and 100% on or after December 1, 2002 If fewer than all the Notes are to be redeemed, the Trustee will select the Notes to be redeemed in principal amounts of $1,000 or integral multiples thereof by lot or, in its discretion, on a pro rata basis. If any Note is to be redeemed in part only, a new Note or Notes in principal amount equal to the unredeemed principal portion thereof will be issued. If a portion of a Holder's Notes is selected for partial redemption and such 19 Holder converts a portion of such Notes, such converted portion shall be deemed to be taken from the portion selected for redemption. No sinking fund is provided for the Notes. Change of Control Upon the occurrence of a Change of Control, each Holder of Notes shall have the right to require that the Company repurchase such Holder's Notes in whole or in part in integral multiples of $1,000, at a purchase price in cash in an amount equal to 101% of the principal amount thereof, together with accrued and unpaid interest to the date of repurchase, pursuant to an offer (the "Change of Control Offer") made in accordance with the procedures described below and the other provisions in the Indenture. A "Change of Control" means an event or series of events in which (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) acquires "beneficial ownership" (as determined in accordance with Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 50% of the total Voting Stock (as defined below) of the Company at an Acquisition Price (as defined below) less than the conversion price then in effect with respect to the Notes and (ii) the holders of the Common Stock receive consideration which is not all or substantially all common stock that is (or upon consummation of or immediately following such event or events will be) listed on a United States national securities exchange or approved for quotation on the Nasdaq Stock Market or any similar United States system of automated dissemination of quotations of securities' prices; provided, however, that any such person or group shall not be deemed to be the beneficial owner of, or to beneficially own, any Voting Stock tendered in a tender offer until such tendered Voting Stock is accepted for purchase under the tender offer. "Voting Stock" means stock of the class or classes pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of a corporation (irrespective whether or not at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). "Acquisition Price" means the weighted average price paid by the person or group in acquiring the Voting Stock. Within 30 days following any Change of Control, the Company shall send by first-class mail, postage prepaid, to the Trustee and to each Holder of Notes, at such Holder's address appearing in the note register, a notice stating, among other things, that a Change of Control has occurred, the repurchase price, the repurchase date, which shall be a business day no earlier than 30 days nor later than 60 days from the date such notice is mailed, and certain other procedures that a Holder of Notes must follow to accept a Change of Control Offer or to withdraw such acceptance. The Company will comply, to the extent applicable, with the requirements of Rule 13e-4 and Rule 14e-1 under the Exchange Act and other securities laws or regulations, to the extent such laws are applicable, in connection with the repurchase of the Notes as described above. Future indebtedness of the Company may contain prohibitions of certain events which would constitute a Change of Control or require the Company to offer to repurchase such indebtedness upon a Change of Control. Moreover, the exercise by the Holders of Notes of their right to require the Company to purchase the Notes could cause a default under such indebtedness, even if the Change of Control itself does not, due to the financial effect of such purchase on the Company. Finally, the Company's ability to pay cash to Holders of Notes upon a purchase may be limited by the Company's then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required purchases. Furthermore, the Change of Control provisions may in certain circumstances make more difficult or discourage a takeover of the Company and the removal of the incumbent management. Merger, Consolidation and Sale of Assets The Indenture prohibits the Company from consolidating with or merging with or into, or conveying, transferring or leasing all or substantially all its assets (determined on a consolidated basis), to any person 20 unless: (i) either the Company is the resulting, surviving or transferee person (the "Successor Company") or the Successor Company is a person organized and existing under the laws of the United States or any state thereof or the District of Columbia, and the Successor Company (if not the Company) expressly assumes by a supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Indenture and the Notes, including the conversion rights described above under "--Conversion of the Notes," (ii) immediately after giving effect to such transaction no Event of Default (as defined below) has happened and is continuing and (iii) the Company delivers to the Trustee an officers' certificate and an opinion of counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with the Indenture. Events of Default and Remedies; Notice An Event of Default is defined in the Indenture as being, among other things: default in payment of the principal of or premium, if any, on the Notes when due at maturity, upon redemption or otherwise, including failure by the Company to purchase the Notes when required as described under "--Change of Control" (whether or not such payment shall be prohibited by the subordination provisions of the Indenture); default for 30 days in payment of any installment of interest on the Notes (whether or not such payment shall be prohibited by the subordination provisions of the Indenture); default by the Company for 90 days after notice in the observance or performance of any other covenants in the Indenture; or certain events involving bankruptcy, insolvency or reorganization of the Company. The Indenture provides that the Trustee may withhold notice to the Holders of Notes of any default (except in payment of principal, premium, if any, or interest with respect to the Notes) if the Trustee, in good faith, considers it in the interest of the Holders of the Notes to do so. The Indenture provides that if an Event of Default (other than an Event of Default with respect to certain events, including bankruptcy, insolvency or reorganization of the Company) shall have occurred and be continuing, the Trustee or the Holders of not less than 25% in principal amount of the Notes then outstanding may declare the principal of and premium, if any, on the Notes to be due and payable immediately, but if the Company shall pay or deposit with the Trustee a sum sufficient to pay all matured installments of interest on all Notes and the principal and premiums, if any, on all Notes that have become due other than by acceleration and certain expenses and fees of the Trustee and if all defaults (except the nonpayment of interest on, premium, if any, and principal of any Notes which shall have become due by acceleration) shall have been cured or waived and certain other conditions are met, such declaration may be canceled and past defaults may be waived by the Holders of a majority in principal amount of the Notes then outstanding. The Holders of a majority in principal amount of the Notes then outstanding shall have the right to direct the time, method and place of conducting any proceedings for any remedy available to the Trustee, subject to certain limitations specified in the Indenture. The Indenture provides that, subject to the duty of the Trustee following an Event of Default to act with the required standard of care, the Trustee will not be under an obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the Holders, unless the Trustee receives satisfactory indemnity against any associated costs, liability or expense. Within 120 days of the end of each fiscal year, the Company must deliver to the Trustee an Officers' Certificate stating whether or not to the best knowledge of the signers the Company is in compliance (without regard to periods of grace or notice requirements) with all conditions and covenants under the Indenture, and if the Company is not in compliance, specifying such non-compliance and the nature and status of such non-compliance of which such signer may have knowledge. Satisfaction and Discharge; Defeasance The Indenture will cease to be of further effect as to all outstanding Notes (except as to (i) rights of the Holders of Notes to receive payments of principal of, premium, if any, and interest on, the Notes, (ii) rights of Holders of Notes to convert to Common Stock or, in certain circumstances, cash, (iii) the Company's right of optional redemption, (iv) rights of registration of transfer and exchange, (v) substitution of apparently mutilated, 21 defaced, destroyed, lost or stolen Notes, (vi) rights, obligations and immunities of the Trustee under the Indenture and (vii) rights of the Holders of Notes as beneficiaries of the Indenture with respect to the property so deposited with the Trustee payable to all or any of them) if (A) the Company will have paid or caused to be paid the principal of, premium, if any, and interest on the Notes as and when the same will have become due and payable or (B) all outstanding Notes (except lost, stolen or destroyed Notes which have been replaced or paid) have been delivered to the Trustee for cancellation or (C) (x) the Notes not previously delivered to the Trustee for cancellation will have become due and payable or are by their terms to become due and payable within one year or are to be called for redemption under arrangements satisfactory to the Trustee upon delivery of notice and (y) the Company will have irrevocably deposited with the Trustee, as trust funds, cash, in an amount sufficient to pay principal of and interest on the outstanding Notes, to maturity or redemption, as the case may be. Such trust may only be established if such deposit will not result in a breach or violation of, or constitute a default under, any agreement or instrument pursuant to which the Company is a party or by which it is bound and the Company has delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions related to such defeasance have been complied with. The Indenture will also cease to be in effect (except as described in clauses (i) through (vii) in the immediately preceding paragraph) and the indebtedness on all outstanding Notes will be discharged on the 123rd day after the irrevocable deposit by the Company with the Trustee, in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Notes, of cash, U.S. Government Obligations (as defined in the Indenture) or a combination thereof, in an amount sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay the principal of, premium, if any, and interest on the Notes then outstanding in accordance with the terms of the Indenture and the Notes ("legal defeasance"). Such legal defeasance may only be effected if (i) no Event of Default has occurred or is continuing, (ii) such deposit will not result in a breach or violation of, or constitute a default under, any agreement or instrument to which the Company is a party or by which it is bound, (iii) the Company has delivered to the Trustee an opinion of counsel stating that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, based thereon, the Holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge by the Company and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred, (iv) the Company has delivered to the Trustee an opinion of counsel to the effect that after the 123rd day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and (v) the Company has delivered to the Trustee an officers' certificate and an opinion of counsel stating that all conditions related to the defeasance have been complied with. The Company may also be released from its obligations under the covenants described above under "--Change of Control" and "--Merger, Consolidation and Sale of Assets" with respect to the Notes outstanding on the 123rd day after the irrevocable deposit by the Company with the Trustee, in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Notes, of cash, U.S. Government Obligations or a combination thereof, in an amount sufficient in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay the principal of, premium, if any, and interest on the Notes then outstanding in accordance with the terms of the Indenture and the Notes ("covenant defeasance"). Such covenant defeasance may only be effected if (i) no Event of Default has occurred or is continuing, (ii) such deposit will not result in a breach or violation of, or constitute a default under, any agreement or instrument to which the Company is a party or by which it is bound, (iii) the Company has delivered to the Trustee an officers' certificate and an opinion of counsel to the effect that the Holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and covenant defeasance by the Company and will be subject to federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit and covenant defeasance had not occurred, (iv) the Company has delivered to the Trustee an opinion of counsel to the effect that after the 123rd day following the deposit, the trust funds will not be subject to the effect of any 22 applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and (v) the Company has delivered to the Trustee an officers' certificate and an opinion of counsel stating that all conditions related to the covenant defeasance have been complied with. Following such covenant defeasance, the Company will no longer be required to comply with the obligations described above under "--Merger, Consolidation and Sale of Assets" and will have no obligation to repurchase the Notes pursuant to the provisions described under "--Change of Control." Notwithstanding any satisfaction and discharge or defeasance of the Indenture, the obligations of the Company described under "--Conversion of the Notes" will survive to the extent provided in the Indenture until the Notes cease to be outstanding. Modifications of the Indenture The Indenture contains provisions permitting the Company and the Trustee, with the consent of the Holders of not less than a majority in principal amount of the Notes at the time outstanding, to modify the Indenture or any supplemental indenture or the rights of the Holders of the Notes, except that no such modification shall (i) extend the fixed maturity of any Note, reduce the rate or extend the time of payment of interest thereon, reduce the principal amount thereof or premium, if any, thereon, reduce any amount payable upon redemption thereof, change the obligation of the Company to repurchase the Notes, at the option of the Holder, upon the happening of a Change of Control, impair or affect the right of a Holder to institute suit for the payment thereof, change the currency in which the Notes are payable, modify the subordination provisions of the Indenture in a manner adverse to the Holders of the Notes or impair the right to convert the Notes into Common Stock subject to the terms set forth in the Indenture, without the consent of the Holder of each Note so affected or (ii) reduce the aforesaid percentage of the Notes, without the consent of the Holders of all of the Notes then outstanding. The Company and the Trustee may amend or supplement the Indenture without notice to or consent of any Holder in certain events, such as to make provision for certain conversion rights, to provide for the issuance of Notes in coupon form, to correct or supplement any inconsistent or deficient provision in the Indenture, to comply with the provisions of the Trust Indenture Act of 1939 or to appoint a successor Trustee. Concerning the Trustee First Union National Bank, the Trustee under the Indenture, has been appointed by the Company as the paying agent, conversion agent, registrar and custodian with regard to the Notes. As of March 24, 1997 First Union National Bank will be the transfer agent and registrar with regard to the shares of Common Stock. In addition, the Trustee and/or its affiliates may in the future provide banking and other services to the Company in the ordinary course of their respective businesses. Under the Indenture, each Holder or former Holder of a Note agrees to indemnify the Company and the Trustee against any liability that may result from the transfer, exchange or assignment of such Holder's or former Holder's Note in violation of any provision of the Indenture or applicable United States federal or state securities laws. The Holders of a majority in principal amount of all outstanding Notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, provided that such direction does not conflict with any rule of law or with the Indenture, and the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. 23 DESCRIPTION OF CAPITAL STOCK The Company's authorized capital stock consists of 25,000,000 shares of Common Stock, par value $.10 per share and 5,000,000 shares of preferred stock, par value $1.00 per share ("Preferred Stock"). The relative rights of the Company's Common Stock and Preferred Stock are defined by the Company's Restated and Amended Articles of Incorporation, as amended, as described below, as well as by the Company's Amended and Restated By-laws, as amended, and the 1988 BCL. Common Stock Subject to the rights of holders of any series of Preferred Stock which may from time to time be issued, holders of Common Stock are entitled to one vote per share on matters acted upon at any shareholders' meeting, including the election of Directors, and to dividends when, as and if declared by the Board of Directors out of funds legally available therefor. There is no cumulative voting and the Common Stock is not redeemable. In the event of any liquidation, dissolution or winding up of the Company, each holder of Common Stock is entitled to share ratably in all assets of the Company remaining after the payment of liabilities and any amounts required to be paid to holders of Preferred Stock, if any. Holders of Common Stock have no preemptive or conversion rights and are not subject to further calls or assessments by the Company. All shares of Common Stock now outstanding, and all shares to be outstanding upon the completion of this offering, are and will be fully paid and non-assessable. The Common Stock is traded on the Nasdaq Stock Market. As of February 14, 1997, there were approximately 438 holders of record of Common Stock. This number was derived from the Company's shareholder records, and does not include beneficial owners of the Company's Common Stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers, and other fiduciaries. Preferred Stock The Board of Directors of the Company, without further action by the shareholders, is authorized to issue the shares of Preferred Stock in one or more series and to determine the voting rights, preferences as to dividends, and the liquidation, conversion, redemption and other rights of each series. The issuance of a series with voting and conversion rights may adversely affect the voting power of the holders of Common Stock. The issuance of Preferred Stock may have the effect of delaying, deferring or preventing a change in control of the Company without further action by the shareholders. The Company has no present plans to issue any shares of Preferred Stock. Anti-Takeover Provisions The Company's Board of Directors is divided into three classes, each of which is comprised of three Directors elected for a three-year term, with one class being elected each year. Directors may be removed without cause only with the approval of 67% of the voting power of the stock entitled to vote in the election of Directors. Any Director elected to fill a vacancy, however created, serves for the remainder of the term of the Director which he or she is replacing. The Company's Restated and Amended Articles of Incorporation, as amended, require the affirmative vote of shareholders owning at least 67% of the outstanding shares of the Company's Common Stock in order for the Company to: amend, repeal or add any provision to the Restated and Amended Articles of Incorporation, as amended; merge or consolidate with another corporation, other than a wholly-owned subsidiary; exchange shares of the Company's Common Stock in such a manner that a corporation, person or entity acquires the issued or outstanding shares of Common Stock of the Company pursuant to a vote of shareholders; sell, lease, convey, encumber or otherwise dispose of all or substantially all of the property or business of the Company; or liquidate or dissolve the Company. 24 In addition, the Restated and Amended Articles of Incorporation, as amended, permit the Board of Directors to oppose a tender offer or other offer for the Company's securities, and allow the Board to consider any pertinent issue in determining whether to oppose any such offer. Finally, the Restated and Amended Articles of Incorporation, as amended, require the Company to obtain the approval of the holders of a majority of all capital stock entitled to vote in the election of directors prior to any direct or indirect purchase of securities of any class by the Company from a shareholder who beneficially owns 20% or more of the outstanding securities in the class to be acquired and has not held such securities for more than two years at the time of such purchase. The foregoing vote of shareholders is not required if any such purchase is made by the Company as part of a tender or exchange offer to purchase securities of the same class from all holders of such securities in a manner complying with the applicable requirements of the Exchange Act. Pursuant to the Company's Amended and Restated By-laws, as amended, shareholder nominations for election to the Board of Directors must be made in writing and delivered or mailed to the President of the Company not less than fifty days nor more than seventy-five days prior to any meeting of shareholders called for the election of Directors; provided, however, that if less than fifty days' notice of the meeting is given to shareholders, such nominations shall be mailed or delivered to the President not later than the close of business on the seventh day following the day on which the notice of the meeting was mailed. The 1988 BCL includes certain shareholder protection provisions, some of which apply to the Company and two of which, relating to "Disgorgement by Certain Controlling Shareholders following Attempts to Acquire Control" and "Control Share Acquisitions," the Company has specifically opted out of pursuant to an amendment to its by-laws. The following is a description of those provisions of the 1988 BCL that still apply to the Company and that may have an anti-takeover effect. This description of the 1988 BCL is only a summary thereof, does not purport to be complete and is qualified in its entirety by reference to the full text of the 1988 BCL. (i) The control transaction provisions allow holders of voting shares of a corporation to "put" their stock to an acquiror for fair value in the event of a control transaction (the acquisition of 20% of the voting stock of the corporation). Fair value is defined as not less than the highest price paid by the acquiror during a certain 90 day period. (ii) An interested shareholder (the beneficial owner of twenty percent of the voting stock either of a corporation or of an affiliate of the corporation who was at any time within the five-year period immediately prior to the date in question the beneficial owner of twenty percent of the voting stock of the corporation) cannot engage in a business combination with the corporation for a period of five years unless: (a) the board approves the business combination or the acquisition of shares in advance, or (b) if the interested shareholder owns 80% of such stock, the business combination is approved by a majority of the disinterested shareholders and the transaction satisfies certain "fair price" provisions. After the five-year period, the same restrictions apply, unless the transaction either is approved by a majority of the disinterested shareholders or satisfies the fair price provisions. (iii) Corporations may adopt shareholders' rights plans with discriminatory provisions (sometimes referred to as poison pills) whereby options to acquire shares or corporate assets are created and issued which contain terms that limit persons owning or offering to acquire a specified percentage of outstanding shares from exercising, converting, transferring or receiving options and allows the exercise of options to be limited to shareholders or triggered based upon control transactions. Such poison pills take effect only in the event of a control transaction. Pursuant to the 1988 BCL, such poison pills may be adopted by the Board without shareholder approval. (iv) In taking action with respect to tender offers or takeover proposals (as for any other action), directors may, in considering the best interests of the corporation, consider the effects of any action upon employees, suppliers, customers, communities where the corporation is located and all other pertinent factors. 25 (v) Shareholders of a corporation no longer have a statutory right to call special meetings of shareholders or to propose amendments to the articles under the provisions of the 1988 BCL. The foregoing provisions may discourage certain types of transactions that involve a change of control of the Company and ensure a measure of continuity in the management of the business and affairs of the Company. While the Company does not currently have a shareholder rights plan or poison pill, the effect of the above-described provisions may be to deter hostile takeovers at a price higher than the prevailing market price for the Common Stock and to permit current management to remain in control of the Company. In some circumstances certain shareholders may consider these anti-takeover provisions to have disadvantageous effects. Tender offers or other non-open market acquisitions of stock are frequently made at prices above the prevailing market price of a company's stock. In addition, acquisitions of stock by persons attempting to acquire control through market purchases may cause the market price of the stock to reach levels that are higher than would otherwise be the case. These anti-takeover provisions may discourage any or all such acquisitions, particularly those of less than all of the Company's shares, and may thereby deprive certain holders of the Company's Common Stock of any opportunity to sell their stock at a temporarily higher market price. Pursuant to an amendment to the Company's Amended and Restated By-laws adopted on July 19, 1990, the Company opted out of "Disgorgement by Certain Controlling Shareholders following Attempts to Acquire Control," which would otherwise allow the Company to recover all profits derived by any person or group that acquires control or disclosed an intention to acquire voting power over 20% of the equity securities of the Company on the disposition of any of the securities of the Company acquired within two years prior or eighteen months after acquiring such control or announcing an intention to that effect. The Company also opted out of "Control Share Acquisitions," which would otherwise suspend the voting rights of a shareholder when his ownership of the Company's securities crossed any of three thresholds (20%, 33% or 50%). The voting rights are held in abeyance until the shareholders holding a majority of disinterested shares vote to restore them. The inapplicability of these provisions mitigates somewhat the deterrence of hostile anti-takeover attempts at prices in excess of the prevailing market prices and lessens the ability of current management to retain control of the Company. In addition to provisions of the 1988 BCL, insurance laws and regulations of each of Pennsylvania and Vermont provide, among other things, that without the consent of the insurance commissioner of each such state, no person may acquire control of the Company and that any person or holder of shares of Common Stock or securities convertible into Common Stock (such as the Notes) possessing 10% or more of the aggregate voting power of the Common Stock (inclusive of shares issuable upon conversion of all such convertible securities) will be presumed to have acquired such control unless each such insurance commissioner, upon application, has determined otherwise. The transfer agent and registrar for the shares of the Common Stock until March 24, 1997 is Registrar & Transfer Company. As of March 24, 1997, the transfer agent and registrar for the shares of the Common Stock will be First Union National Bank. 26 SELLING SECURITYHOLDERS The Notes were originally issued by the Company in transactions exempt from the registration requirements of the Securities Act to persons believed by the Initial Purchasers to be QIBs, institutional accredited investors or to persons in off-shore transactions in reliance upon Regulation S under the Securities Act. The Selling Securityholders (which term includes their transferees, pledgees, donees and their successors) may from time to time offer and sell pursuant to this Prospectus any or all of the Notes and the shares of Common Stock initially issued or issuable upon conversion of the Notes (the "Conversion Shares"). The following table sets forth information, with respect to the Selling Securityholders and the respective principal amount of Notes beneficially owned by each such Selling Securityholder and that may be sold, and the number of Conversion Shares that may be sold, by the Selling Securityholders pursuant to this Prospectus. Except as set forth below, none of the Selling Securityholders has, or within the past three years has had, any position, office or other material relationship with the Company or any of its predecessors or affiliates. Because the Selling Securityholders may offer all or a portion of the Notes and the Conversion Shares pursuant to this Prospectus, no estimate can be given as to the amount of Notes or the Conversion Shares that will be held by the Selling Securityholders upon termination of any such sale. The following table is based upon information furnished to the Company by The Depository Trust Company, New York, New York and the Selling Securityholders.
Principal Amount of Notes Number of Beneficially Conversion Owned and Percent of Shares That May Outstanding That May Name (1) Be Sold Notes Be Sold(2) - -------- ------------ ----------- ---------- Amalgamated Bank of Chicago $25,000 * 879 Bank of New York 9,881,000 13.22% 347,433 Bankers Trust Company 7,250,000 9.70 254,922 Bear Stearns Securities Corp.(3) 7,256,000 9.70 255,133 Boatmen's Trust Company 461,000 * 16,209 Boston Safe Deposit & Trust Co. 7,580,000 10.14 266,526 Bankers Trust/BT Holdings (New York) Inc. 1,000,000 1.33 35,161 Bank of Tokyo-Mitsubishi Trust Company 500,000 * 17,580 Chase Manhattan Bank 10,597,000 14.18 37,260 Chase Manhattan Bank/Chemical 1,377,000 1.80 48,417 Citicorp Services, Inc. 950,000 1.27 33,403 Corestates Bank N.A.(4) 2,175,000 2.91 76,476 First Interstate Bank of California 3,775,000 5.05 132,735 First Trust National Association 266,000 * 9,353 First Tennessee Bank, N.A. (Memphis) 925,000 1.24 32,524 Fleet Bank of Massachusetts, N.A. 40,000 * 1,406 Key Bank National Association 570,000 * 20,042 Lazard Freres & Co. 250,000 * 8,790 Lehman Brothers, Inc. 600,000 * 21,097 Lehman Brothers International (Europe) - Prime Broker (LBI) 3,000,000 4.01 105,485 Mercantile, Safe Deposit and Trust Company 460,000 * 16,174 Montgomery Securities 750,000 1.00 26,371 Morgan Stanley & Co., Incorporated 750,000 1.00 26,371 Norwest Bank Minnesota National Association 100,000 * 3,516 Northern Trust Company 2,049,000 2.74 72,046 PNC National Association 1,120,000 1.50 39,381 Republic New York Securities Corp. 1,200,000 1.61 42,194 Schwab (Charles) Trust Company 20,000 * 703 Societe General Securities Corporation 1,500,000 2.01 52,742 SSB-Custodian 6,504,000 8.70 228,691 Star Bank, National Association, Cincinnati 64,000 * 2,250 Trust Company Bank 122,000 * 4,289 United States National Bank of Oregon 250,000 * 8,790 Wachovia Bank North Carolina 233,000 * 8,192 Wagner, Stott & Co. 900,000 1.20 31,645 All Other Holders 250,000 * 8,790
- ---------- * Less than 1%. (1) The information set forth herein is as of February 13, 1997 and will be updated as required. Certain of the holders share investment power with their respective investment advisors. (2) Assumes conversion of the full amount of Notes held by such holder at the initial rate of $28.44 in principal amount of Notes per share of Common Stock. (3) Bear Stearns & Co. Inc. was an Initial Purchaser in the private placement of the Notes. (4) Corestates Bank N.A. provides banking services to the Company for which it receives customary fees. Information concerning the Selling Securityholders may change from time to time and will be set forth in supplements to this Prospectus. In addition, the per share conversion price, and therefore the number of shares of Common Stock, are subject to adjustment under certain circumstances. Accordingly, the number of shares of Common Stock offered hereby may increase or decrease. As of the date of this Prospectus, the aggregate principal amount of Notes is $74,750,000 and the number of shares of Common Stock into which the Notes may be converted is approximately 2,628,340 shares. It is not possible to predict the principal amount of Notes or the number of shares of Common Stock that will be sold hereby. Consequently, it is not possible to predict the amount of Notes or the number of shares of Common Stock that will be owned by the Selling Securityholders following completion of this offering. 27 PLAN OF DISTRIBUTION The Company will not receive any of the proceeds of the sale of the Securities offered hereby. The Securities may be sold from time to time to purchasers directly by the Selling Securityholders. Alternatively, the Selling Securityholders may from time to time offer the Securities through underwriters, brokers, dealers or agents who may receive compensation in the form of underwriting discounts, concessions or commissions from the Selling Securityholders and/or the purchasers of the Securities for whom they may act as agent. The Selling Securityholders and any such underwriters, brokers, dealers or agents who participate in the distribution of the Securities may be deemed to be "underwriters," and any profits on the sale of the Securities by them and any discounts, commissions or concessions received by any such underwriters, brokers, dealers or agents might be deemed to be underwriting discounts and commissions under the Securities Act. To the extent the Selling Securityholders may be deemed to be underwriters, the Selling Securityholders may be subject to certain statutory liabilities of the Securities Act, including, but not limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Exchange Act. The Securities offered hereby may be sold from time to time in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale or at negotiated prices. The Securities may be sold by one or more of the following methods, without limitation: (i) to underwriters who will acquire the Securities for their own account and resell them in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale (any public offering price and any discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time); (ii) a block trade in which the broker or dealer so engaged will attempt to sell the Securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; (iii) purchases by a broker or dealer as principal and resale by such broker or dealer for its own account pursuant to this Prospectus; (iv) ordinary brokerage transactions and transactions in which the broker solicits purchasers; (v) an exchange distribution in accordance with the rules of such exchange; (vi) face-to-face transactions between sellers and purchasers without a broker or dealer; (vii) through the writing of options; and (viii) other legally available means. At any time a particular offer of Securities is made, a revised Prospectus or Prospectus Supplement, if required, will be distributed including the name or names of any underwriters, brokers, dealers or agents, any discounts, commissions and other items constituting compensation from the Selling Securityholders and any discounts, commissions or concessions allowed or reallowed or paid to dealers. Such revised Prospectus or Prospectus Supplement and, if necessary, a post-effective amendment to the registration statement of which this Prospectus is a part, will be filed with the Commission to reflect the disclosure of additional information with respect to the distribution of the Securities. In addition, the Securities may be sold in private transactions or under Rule 144 rather than pursuant to this Prospectus. There is no assurance that any Selling Securityholder will sell any or all of the Securities offered by it hereunder or that any such Selling Securityholder will not transfer, devise or gift such Securities by other means not described herein. Underwriters participating in any offering made pursuant to this Prospectus (as amended or supplemented from time to time) may receive underwriting discounts and commissions, and discounts or concessions may be allowed or reallowed or paid to dealers, and brokers or agents participating in such transaction may receive brokerage or agent's commissions or fees. The Selling Securityholders and any other person participating in such distribution will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Rules 10b-6 and 10b-7, which may limit the timing of purchases and sales of any of the Securities by the Selling Securityholders and any other such person. Furthermore, under Rule 10b-6 under the Exchange Act, any person engaged in the distribution of the Securities may not simultaneously engage in market-making activities with respect to the particular Securities for a period of nine business days prior to the commencement of such distribution. All of the foregoing may affect the marketability of the Securities and the ability of any person or entity to engage in market-making activities with respect to the Securities. 28 In order to comply with the securities laws of certain states, if applicable, the Securities will be sold in such jurisdictions, if required, only through registered or licensed brokers or dealers. Pursuant to the Registration Rights Agreement entered into in connection with the offer and sale of the Notes by the Company, each of the Company and the Selling Securityholders will be indemnified by the other against certain liabilities, including certain liabilities under the Securities Act, or will be entitled to contribution in connection therewith. The Company has agreed to pay substantially all of the expenses incidental to the registration, offering and sale of the Securities to the public other than commissions, fees and discounts of underwriters, brokers, dealers and agents. LEGAL MATTERS The validity of the Securities offered hereby will be passed upon for the Company by Ballard Spahr Andrews & Ingersoll, Philadelphia, Pennsylvania. EXPERTS The consolidated financial statements of the Company as of December 31, 1995 and 1994 and for each of the three years in the period ended December 31, 1995, incorporated by reference in this Prospectus have been audited by Coopers & Lybrand L.L.P., independent public accountants, as stated in their report incorporated by reference herein. Such financial statements are incorporated by reference herein in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. 29 GLOSSARY OF CERTAIN INSURANCE TERMS Annualized Premiums........ The total premiums payable by policyholders over a twelve-month period. Claim ..................... A demand for payment of a policy benefit because of the occurrence of an insured event, such as nursing home confinement, death of or use of home health care services by the insured, or incurrence of hospital or medical bills. Loss ratio ................ The ratio of claims incurred and the increase in policy reserves to premiums. Policy acquisition costs .. All expenses incurred by an insurance company that vary with and are directly related to acquiring insurance policies. The largest component of such expenses is typically the commissions paid to insurance agents. Policy acquisition costs also include underwriting expenses. Policy reserves ........... Estimated liabilities established by an insurer to reflect the difference between level renewal premiums and the increasing risks of claims losses as policyholders age. Premiums .................. The consideration received by the Company pursuant to the terms of an insurance contract. Reserves .................. Estimated liabilities established by an insurer to reflect the estimated costs of claims payments that the insurer will ultimately be required to pay with respect to insurance it has written. Rider ..................... An attachment to a policy modifying conditions of the policy by restricting or expanding coverage or making some other change in the coverage. Underwriting .............. The process whereby an insurer reviews applications submitted for insurance coverage and determines whether to provide all or part of the coverage being requested for an agreed premium. 30 No dealer, sales representative, or any other person has been authorized to give any information or to make any representations in connection with this offering other than those contained in this Prospectus, and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or any Selling Securityholder. This Prospectus does not constitute an offer to sell or a solicitation of any offer to buy any securities other than the securities to which it relates or an offer to, or a solicitation of, any person in any jurisdiction where such an offer or solicitation would be unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create an implication that there has been no change in the affairs of the Company or that information contained herein is correct as of any time subsequent to the date hereof. ----------- TABLE OF CONTENTS Available Information ................................... 3 Incorporation of Certain Documents by Reference ......... 3 PENN TREATY Summary ................................................. 5 AMERICAN CORPORATION Risk Factors ............................................ 8 Use of Proceeds ......................................... 13 $74,750,000 Ratio of Earnings to Fixed Charges ...................... 13 Dividend Policy ......................................... 13 6 1/4% Convertible Subordinated Description of the Notes ................................ 14 Notes Due 2003 Description of Capital Stock ............................ 24 Selling Securityholders ................................. 27 2,628,340 Shares of Common Stock Plan of Distribution .................................... 28 Legal Matters ........................................... 29 ----------- Experts ................................................. 29 Glossary of Certain Insurance Terms ..................... 30 __________ __, 1997
PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 14. Other Expenses of Issuance and Distribution. The following table sets forth the amounts of expenses in connection with the issuance of the Securities offered pursuant to this Registration Statement which shall be borne by the Company. All of the expenses listed below, except the Securities and Exchange Commission Registration Fee, represent estimates only. Estimated --------- Securities and Exchange Commission Registration Fee .. $ 22,651.49 Printing and Engraving Expenses ...................... 60,000.00 Accounting Fees and Expenses ......................... 20,000.00 Legal Fees and Expenses .............................. 20,000.00 Miscellaneous Fees and Expenses ...................... 2,849.51 ------------ Total .......................................... $ 125,000.00 Item 15. Indemnification of Directors and Officers. The Amended and Restated By-Laws of the registrant provide for indemnification of directors and officers of the registrant in accordance with the indemnification provisions of the 1988 BCL. Sections 1741-50 of the 1988 BCL permit indemnification of directors, officers, employees and agents of a corporation under certain conditions and subject to certain limitations. The registrant has directors' and officers' liability insurance insuring its directors and officers against liability incurred in their capacities as directors and officers and providing for reimbursement of the registrant for any indemnification payments made by it to directors and officers. Item 16. Exhibits and Financial Statement Schedules. Exhibit Number Description - ------ ----------- 3.1(a) Restated and Amended Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-1, Reg. No. 33-92690). 3.1(b) Amendment to Restated and Amended Articles of Incorporation. 3.2 Amended and Restated By-laws, as amended. 4.1 Indenture dated as of November 26, 1996 between Penn Treaty American Corporation and First Union National Bank, as Trustee (including forms of Notes) (incorporated by reference to Exhibit 4.1 to Penn Treaty American Corporation's Current Report on Form 8-K filed on December 6, 1996). 4.3 Registration Rights Agreement dated as of November 26, 1996 by and among the Company and Bear, Stearns & Co. Inc. and Advest Inc. (incorporated by reference to Exhibit 4.2 to Penn Treaty American Corporation's Current Report on Form 8-K filed on December 6, 1996). 4.4 Form of Public Note. 4.5 Specimen copy of Common Stock Certificate (incorporated by reference to Exhibit 4 to Registration Statement on Form S-1, Reg. No. 33-92690). 5.1 Opinion of Ballard Spahr Andrews & Ingersoll.* II-1 12.1 Statement Re Earnings to Fixed Charges.* 23.1 Consent of Coopers and Lybrand L.L.P. 23.2 Consent of Ballard Spahr Andrews & Ingersoll (contained in Exhibit 5.1). 24.1 Power of Attorney (included on signature page). 25.1 Form T-1, Statement of Eligibility and Qualification of First Union National Bank. - ---------- * To be filed by Amendment Item 17. Undertakings. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes: (1) To file, during any period in which any offers or sales are being made, a post-effective amendment to the registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if the registration statement is on Form S-3 or Form S-8 and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offering therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Allentown, Commonwealth of Pennsylvania, on February 20, 1997. PENN TREATY AMERICAN CORPORATION By: /s/ Irving Levit ----------------------------- Irving Levit President and Chief Executive Officer KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Irving Levit and A.J. Carden and each or any one of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effect amendments) to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the date indicated. Signature Title Date /s/ Irving Levit Chairman of the Board, February 20, 1997 - --------------------------- President and Chief Irving Levit Executive Officer (Principal Executive Officer) /s/ Michael F. Grill Treasurer, Controller and February 20, 1997 - --------------------------- Director (Principal Michael F. Grill Accounting Officer) /s/ A.J. Carden Executive Vice President and February 20 1997 - --------------------------- Director A.J. Carden /s/ Domenic P. Stangherlin Secretary and Director February 20, 1997 - --------------------------- Domenic P. Stangherlin /s/ Jack D. Baum Vice President, Marketing February 20, 1997 - --------------------------- and Director Jack D. Baum II-4 /s/ Cameron Waite Chief Financial Officer February 20, 1997 - --------------------------- (Principal Financial Cameron Waite Officer) /s/ Emile G. Ilchuk Director February 20, 1997 - --------------------------- Emile G. Ilchuk /s/ C. Mitchell Goldman Director February 20, 1997 - --------------------------- C. Mitchell Goldman /s/ John W. Mahoney Director February 20, 1997 - --------------------------- John W. Mahoney /s/ Glen A. Levit Director February 20, 1997 - --------------------------- Glen A. Levit II-5 EX-3.1(B) 2 EXHIBIT 3.1(B) EXHIBIT 3.1(b) Microfilm Number 9709-541 Filed with the Department of State on Jan 28, 1997 -------- ------------ Entity Number 145993 /s/ Yvette Kane ------ -------------------------------------------- Secretary of the Commonwealth ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION In compliance with the requirements of 15 Pa.C.S. *1915 (relating to articles of amendment), the undersigned business corporation, desiring to amend its Articles, hereby states that: 1. The name of the corporation is: Penn Treaty American Corporation 2. The (a) address of the corporation's current registered office in this Commonwealth or (b) name of its commercial registered office provider and the county of venue is (the Department is hereby authorized to correct the following information to conform to the records of the Department): (a) 3440 Lehigh Street Allentown PA 18103 Lehigh ------------------ --------- -- ----- ------ Number and Street City State Zip County (b) c/o:--------------------------------------------------------------------------- Name of Commercial Registered Office Provider County For a corporation represented by a commercial registered office provider, the county in (b) shall be deemed the county in which the corporation is located for venue and official publication purposes. 3. The statute by or under which it was incorporated is: Pennsylvania Business Corporation Law, Act of May 5, 1933, P.L. 364, as amended 4. The date of its incorporation is: May 13, 1965 5. (Check, and if appropriate complete, one of the following): X The amendment shall be effective upon filing these Articles of Amendment in the Department of State. The amendment shall be effective on: at -- ------ ------ Date Hour 6. (Check one of the following): X The amendment was adopted by the shareholders (or members) pursuant to 15 Pa.C.S. Section 1914(a) and (b). ___ The amendment was adopted by the board of directors pursuant to 15 PA.C.S. Section 1914(c). 7. (Check, and if appropriate complete, one of the following: X The amendment adopted by the corporation, set forth in full, is as follows: The first paragraph of Article FIFTH shall be amended and restated in its entirety as follows: "The aggregate number of shares which the Corporation shall have the authority to issue is 25,000,000 shares of common stock, par value $.10 per share ("Common Stock"), and 5,000,000 shares of preferred stock, par value $1.00 per share ("Preferred Stock")." ___ The amendment adopted by the corporation is set forth in full in Exhibit A attached hereto and made a part hereof. 8. (Check if the amendment restates the Articles): ___ The restated Articles of Incorporation supersede the original Articles and all amendments thereto. IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by a duly authorized officer thereof this 27th day of January, 1997. - ---- Penn Treaty American Corporation --------------------------------- (Name of Corporation) BY: /s/ A.J. Carden --------------------------------- TITLE: Executive Vice President --------------------------------- -2- EX-3.2 3 EXHIBIT 3.2 EXHIBIT 3.2 AMENDED AND RESTATED BY-LAWS OF PENN TREATY AMERICAN CORPORATION A Pennsylvania Corporation (December 3, 1996) TABLE OF CONTENTS Page ---- ARTICLE I - OFFICES ......................................................... 1 1. Registered Office .............................................. 1 2. Additional Offices ............................................. 1 ARTICLE II - SEAL ........................................................... 1 1. Corporate Seal ................................................. 1 ARTICLE III - SHAREHOLDERS' MEETING ......................................... 1 1. Location of Shareholders Meeting ............................... 1 2. Date of Annual Shareholders Meeting ............................ 1 3. Failure to Hold Annual Meeting ................................. 2 4. Quorum ......................................................... 2 5. Shareholder Action ............................................. 3 6. Proxies ........................................................ 3 7. Voting ......................................................... 4 8. Notice of Annual Meeting of Shareholders ....................... 6 9. Judges of Election ............................................. 7 10. Special Meetings of Shareholders ............................... 7 11. Business Transacted at Special Meetings of Shareholders ........ 8 12. Notice of Special Meetings of Shareholders ..................... 8 13. Shareholders List .............................................. 8 14. Action by Unanimous Consent of Shareholders in Lieu of a Meeting ................................................. 9 15. Action by Majority Consent of Shareholders in Lieu of a Meeting ................................................. 9 ARTICLE IV - DIRECTORS ...................................................... 9 1. Number and Class of Directors .................................. 9 2. Removal of Directors; Vacancies ................................ 11 3. Powers of Directors ............................................ 11 4. Location of Meetings of the Board of Directors ................. 11 5. Meetings of the Board of Directors ............................. 11 6. Annual Meetings of the Board of Directors ...................... 12 7. Special Meetings of the Board of Directors ..................... 12 8. Quorum ......................................................... 12 9. Compensation ................................................... 12 10. Standard of Care ............................................... 13 11. Liability of Directors ......................................... 14 12. Tender Offers - Directors Duty ................................. 14 13. Nomination of Board of Directors ............................... 16 ARTICLE V - OFFICERS ........................................................ 17 1. Officers ....................................................... 17 2. Compensation ................................................... 17 3. Term of Office ................................................. 18 4. The Chief Executive Officer .................................... 18 5. The President .................................................. 18 6. The Secretary .................................................. 19 7. The Treasurer .................................................. 19 ARTICLE VI - VACANCIES ...................................................... 20 1. Vacancies ...................................................... 20 ARTICLE VII - CORPORATE RECORDS ............................................. 20 1. Minute Books and Share Register ................................ 20 2. Inspection of Corporate Records ................................ 20 ARTICLE VIII - SHARE CERTIFICATES, DIVIDENDS, ETC. .......................... 21 1. Share Certificates ............................................. 21 2. Transfers of Shares ............................................ 21 3. Record Date .................................................... 21 4. Lost Stock Certificate ......................................... 23 5. Dividends ...................................................... 23 6. Payment of Dividends ........................................... 24 ARTICLE IX - MISCELLANEOUS PROVISIONS ....................................... 24 1. Checks or Demands for Money .................................... 24 2. Fiscal Year .................................................... 24 3. Written Notice ................................................. 24 4. Waiver of Notice ............................................... 25 5. Participation in Meetings by Telephone Conference Call ......... 26 6. Opt-Out Provisions ............................................. 26 ARTICLE X - ANNUAL STATEMENT ................................................ 27 1. Annual Statement ............................................... 27 ARTICLE XI - AMENDMENTS ..................................................... 27 1. Procedure ...................................................... 27 ARTICLE XII - INDEMNIFICATION OF DIRECTORS, OFFICERS EMPLOYEES AND AGENTS; INSURANCE ............................... 28 1. General Rule ................................................... 28 2. Derivative Actions ............................................. 29 3. Success on Merits .............................................. 30 4. Determination .................................................. 30 5. Advancing Expenses ............................................. 30 6. Not Exclusive of Other Rights .................................. 31 7. Power to Purchase Insurance .................................... 31 8. Creation of a Fund to Secure Indemnification ................... 32 9. Willful Misconduct or Recklessness ............................. 32 10. Authority ...................................................... 32 ii AMENDED AND RESTATED BY-LAWS OF PENN TREATY AMERICAN CORPORATION ARTICLE I - OFFICES 1. Registered Office. The registered office of the Corporation shall be at 3440 Lehigh Street, Allentown, Pennsylvania 18103. 2. Additional Offices. The Corporation may also have offices at such other places as the Board of Directors may from time to time appoint or the business of the Corporation may require. ARTICLE II - SEAL 1. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, PENNSYLVANIA." ARTICLE III - SHAREHOLDERS' MEETING 1. Location of Shareholders Meeting. Meetings of shareholders may be held at the registered office of the Corporation or at such other place within or without the Commonwealth of Pennsylvania as may from time to time be selected by the Board of Directors. 2. Date of Annual Shareholders Meeting. The annual meeting of the shareholders, shall be held on the fourth Friday of May in each year if not a legal holiday, and if a legal holiday, then on the next secular day following at such time and place as may be specified in the notice thereof, at which time they shall elect a Board of Directors, and transact such other business as may properly be brought before the meeting. If the annual meeting is not called and held within six months after the designated time, any shareholder may call the meeting at anytime thereafter. 1 3. Failure to Hold Annual Meeting. Failure to hold the annual meeting at the designated time shall not work a dissolution of the Corporation or affect otherwise valid corporate acts. 4. Quorum. (a) A meeting of the Corporation duly called shall not be organized for the transaction of business unless a quorum is present. The presence of shareholders, in person or by proxy, entitled to cast a least a majority of the votes that all shareholders are entitled to cast on a particular matter to be acted upon at the meeting shall constitute a quorum for the purposes of consideration and action on the matter. The shareholders present, in person or by proxy, at a duly organized meeting can continue to do business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum. If a meeting cannot be organized because a quorum has not attended, those shareholders present and entitled to vote may, except as otherwise provided in this paragraph, adjourn the meeting to such time and place as they may determine. (b) Those shareholders entitled to vote, in person or by proxy, who attend a meeting of shareholders that has been previously adjourned for one or more periods aggregating at least fifteen days because of an absence of a quorum, although less than a quorum as fixed in this paragraph or in these by-laws, shall nevertheless constitute a quorum for the purpose of acting upon any matter set forth in the notice of the meeting if the notice states that those shareholders who attend the adjourned meeting shall nevertheless constitute a quorum for the purpose of acting upon the matter. When a meeting of shareholders is adjourned, it shall not be necessary to give any notice of the adjourned meeting or the business to be transacted at an adjourned meeting, other than by announcement at the meeting at which the adjournment is taken unless the Board fixes a new record date for the adjourned meeting. 5. Shareholder Action. Unless otherwise provided in this paragraph or these by-laws, whenever any corporate action is to be taken by a vote of the shareholders of the Corporation it shall be authorized by a majority of the votes cast at a duly organized meeting of the shareholders by the holders of shares entitled to vote thereon. 6. Proxies. Every shareholder entitled to vote at a meeting of shareholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person to act for 2 him by proxy. The presence of, or vote or other action at a meeting of shareholders, or the expression of consent or dissent to corporate action in writing, by a proxy of a shareholder shall constitute the presence of, or vote or action by, or written consent or dissent of the shareholder for the purposes of this paragraph. Where two or more proxies of a shareholder are present, the Corporation shall, unless otherwise expressly provided in the proxy, accept as the vote of all shares represented thereby the vote cast by a majority of them and, if a majority of the proxies cannot agree whether the shares represented shall be voted or upon the manner of voting the shares, the voting of the shares shall be divided equally among those persons. Every proxy shall be executed in writing by the shareholder or by his duly authorized attorney-in-fact and filed with the Secretary of the corporation. A proxy, unless coupled with an interest, shall be revocable at will, notwithstanding any other agreement or any provision in the proxy to the contrary, but the revocation of a proxy shall not be effective until written notice thereof has been given to the Secretary of the corporation. An unrevoked proxy shall not be valid after three years from the date of the execution unless a longer time is expressly provided therein. A proxy shall not be revoked by death or incapacity of the maker unless, before the vote is counted or the authority is exercised, written notice of the death or incapacity is given to the Secretary of the Corporation. 7. Voting. (a) Shares of the Corporation standing in the name of a trustee or other fiduciary and shares held by an assignee for the benefit of creditors or by a receiver may be voted by the trustee, fiduciary, assignee or receiver. A shareholder whose shares are pledged shall be entitled to vote the shares until the shares have been transferred into the name of the pledgee, or a nominee of the pledgee, but nothing in this paragraph shall affect the validity of a proxy given to a pledgee or nominee. Where shares of the Corporation are held jointly or as tenants in common by two or more persons, as fiduciaries or otherwise: (i) if only one or more such persons is present in person or by proxy, all of the shares standing in the names of such person shall be deemed to be represented for the purpose of determining a quorum and the Corporation shall accept as the vote of all the shares the vote cast by him or a majority of them; and (ii) if the persons are equally divided upon whether the shares held by them shall be voted or upon the manner of voting the shares, the voting of the shares shall be divided equally among the persons without prejudice to the right of the joint owners or the beneficial owners thereof among 3 themselves. If there has been filed with the Secretary of the Corporation a copy, certified by an attorney at law to be correct, of the relevant portions of the agreement under which the shares are held or the instrument by which the trust or estate was created or the order of court appointing them or of any order of court directing the voting of the shares, the persons specified as having such voting power in the latest document so filed, and only those persons shall be entitled to vote the shares but only in accordance therewith. (b) Any other domestic or foreign corporation for profit or not-for-profit that is a shareholder of the Corporation may vote by any of its officers or agents, or by proxy appointed by any officer or agent, unless some other person, by resolution of the board of directors of the other corporation or a provision of its articles or by-laws, a copy of which resolution or provision certified to be correct by one of its officers has been filed with the Secretary of the Corporation, is appointed its general or special proxy in which case that person shall be entitled to vote the shares. Shares of a domestic or foreign corporation for profit or not-for-profit other than a business corporation, standing in the name of a shareholder that is a business corporation, may be voted by the persons and in the manner provided for in the case of business corporations by the foregoing sentence unless the laws of the jurisdiction in which the issuer of the shares is incorporated require the shares or memberships to be voted by some other person or persons or in some other manner in which case, to the extent that those laws are inconsistent herewith, this paragraph shall not apply. Shares of the Corporation owned, directly or indirectly, by it and controlled, directly or indirectly, by the Board of Directors of the Corporation, as such, shall not be voted at any meeting and shall not be counted in determining the total number of outstanding shares for voting purposes at any given time. 8. Notice of Annual Meeting of Shareholders. Written notice of the annual meeting shall be mailed to each shareholder entitled to vote thereat, at such address as appears on the books of the Corporation, at least five days prior to the meeting unless a greater period is required by statute in a particular case. For a meeting called to consider a fundamental change under Chapter 19 of the Business Corporation Law of 1988, written notice shall be given at least ten days prior to the meeting. 4 9. Judges of Election. In advance of any meeting of shareholders, the Board of Directors may appoint judges of election, who need not be shareholders, to act at such meeting or any adjournment thereof. If judges of election be not so appointed, the chairman of any such meeting may, and on the request of any shareholder or his proxy, shall, make such appointment at the meeting. The number of judges shall be one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares present and entitled to vote shall determine whether one or three judges are to be appointed. On request of the chairman of the meeting, or of any shareholder or his proxy, the judges shall make a report in writing of any challenge or question or matter determined by them, and execute a certificate of any fact found by them. No person who is a candidate for office shall act as a judge. 10. Special Meetings of Shareholders. Special meetings of the shareholders may be called at any time by the Board of Directors or by the President. At any time, upon written request of any person who has called a special meeting, it shall be the duty of the Secretary to fix the time of the meeting which, if the meeting is called pursuant to a statutory right, shall be held not more than sixty days after receipt of the request. If the Secretary neglects or refuses to fix the time of the meeting, the person or persons calling the meeting may do so. 11. Business Transacted at Special Meetings of Shareholders. Business transacted at all special meetings shall be confined to the objects stated in the call and matters germane thereto. 12. Notice of Special Meetings of Shareholders. Written notice of a special meeting of shareholders stating the time and place and object thereof, shall be mailed, postage prepaid, to each shareholder entitled to vote thereat at such address as appears on the books of the corporation, at least five days before such meeting, unless a greater period of notice is required by statute in a particular case. For a meeting called to consider a fundamental change under Chapter 19 of the Business Corporation Law of 1988, written notice shall be given at least ten days prior to the meeting. 13. Shareholders List. The office or agent having charge of the transfer books shall make a complete list of the shareholders entitled to vote at any meeting of shareholders arranged in alphabetical order, with the address of and the number of shares held by each. Such list shall be subject to inspection by any shareholder during the whole time of the meeting. 5 14. Action by Unanimous Consent of Shareholders in Lieu of a Meeting. Any action required or permitted to be taken at a meeting of the shareholders or of a class of shareholders of the Corporation may be taken if, prior or subsequent to the action a consent or consents thereto by all the shareholders who would be entitled to vote at a meeting are filed with the Secretary. 15. Action by Majority Consent of Shareholders in Lieu of a Meeting. If the Articles so permit, any action required or permitted to be taken at a meeting of the shareholders may be taken without a meeting upon the written consent of the shareholders who would have been entitled to cast the minimum number of votes that would be necessary to authorize the action at a meeting at which all shareholders entitled to vote thereon were present and voting. Such consents shall be filed with the secretary of the Corporation. The action shall not become effective until at least ten days' written notice of the action has been given to each shareholder entitled to vote thereon who has not consented thereto. ARTICLE IV - DIRECTORS 1. Number and Class of Directors. Except as otherwise fixed pursuant to the provisions of Article Fifth of the Articles of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the common stock as to dividends or upon liquidation to election of additional directors under specified circumstances, the number of directors shall be fixed at nine (9). The directors shall be natural persons of full age, who need not be residents of this Commonwealth or shareholders in the Corporation. At the annual election of directors to be held at the annual meeting of shareholders in 1987, the directors shall be divided into three (3) classes, as nearly equal as possible, known as Class I, Class II, and Class III. The initial directors of Class I shall serve until the 1988 annual meeting of shareholders, at which time the directors of Class I shall be elected for a term of three (3) years and shall thereafter be elected every three (3) years for three (3) year terms. The initial directors of Class II shall serve until the 1989 annual meeting of shareholders, at which time the directors of Class II shall be elected for a term of three (3) years and shall thereafter be elected every three (3) years for three (3) year terms. The initial directors of Class III shall serve until the 1990 annual meeting of shareholders, at which time the directors of Class III shall be elected for a term of three (3) years and shall thereafter be elected 6 every three (3) years for three (3) year terms. Each director elected shall hold office until his or her successor is elected and qualified. The term "entire Board" as used in these by-laws means the total number of directors which the Corporation would have if there were no vacancies. 2. Removal of Directors; Vacancies. Any member of the Board of Directors may be removed for cause only by the affirmative vote of the holders of 67% of the combined voting power of all shareholders who are entitled to vote for the election of directors, voting together as a single class. Proper "cause" shall be determined by the vote of not less than 67% of the entire Board of Directors. A director elected to fill a vacant position, however created, shall serve for the remainder of the term of the director he or she is replacing. 3. Powers of Directors. In addition to the powers and authorities by these by-laws expressly conferred upon them, the Board may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Articles or by these by-laws directed or required to be exercised or done by the shareholders. 4. Location of Meetings of the Board of Directors. The meetings of the Board of Directors may be held at such place within this Commonwealth, or elsewhere, as a majority of the directors may from time to time appoint, or as may be designated in the notice calling the meeting. 5. Meetings of the Board of Directors. Each newly elected Board may meet at such place and time as shall be fixed by the shareholders at the meeting at which such directors are elected and no notice shall be necessary to the newly elected directors in order to legally constitute the meeting, or they may meet at such place and time as may be fixed by the consent in writing of all the directors. 6. Annual Meetings of the Board of Directors. Annual meetings of the Board shall be held without notice immediately following the annual meeting of the shareholders, at the registered office of the Corporation, or at such other time and place as shall be determined by the Board. 7. Special Meetings of the Board of Directors. Special meetings of the Board may be called by the President on one day's notice to each director, either personally or by mail or by telegram; 7 special meetings shall be called by the President or Secretary in like manner and on like notice on the written request of two directors. 8. Quorum. A majority of the directors in office shall be necessary to constitute a quorum for the transaction of business, and the acts of a majority of the directors present at a meeting at which a quorum is present shall be the acts of the Board of Directors. If all the directors shall severally or collectively consent in writing to any action to be taken by the Corporation, such action shall be as valid a corporate action as though it had been authorized at a meeting of the Board of Directors. 9. Compensation. Directors as such, shall not receive any stated salary for their services, but by resolution of the Board, a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board, provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. 10. Standard of Care. A director of the Corporation shall stand in a fiduciary relation to the Corporation and shall perform his duties as a director, including his duties as a member of any committee of the Board upon which he may serve, in good faith, in a manner he reasonably believes to be in the best interests of the Corporation, and with such are, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances. In performing his duties, a director shall be entitled to rely in good faith on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by any of the following: (a) One or more officers or employees of the Corporation whom the director reasonably believes to be reliable and competent in the matters presented; (b) Counsel, public accountants or other persons to matters which the director reasonably believes to be within the professional or expert competence of such person; and/or (c) A committee of the Board upon which he does not serve, duly designated in accordance with law, as to matters within its designated authority, which committee the director reasonably believes to merit confidence. 8 A director shall not be considered to be acting in good faith if he has knowledge concerning the matter in question that would cause his reliance to be unwarranted. 11. Liability of Directors. A director of the Corporation shall not be personally liable for monetary damages as such for any action taken, or any failure to take any action, unless: (a) the director has breached his duty of good faith or duty of loyalty or failed to perform the duties of his office; and/or (b) the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness. 12. Tender Offers - Directors Duty. (a) The Board of Directors may, if it deems advisable, oppose a tender offer, or other offer for the Corporation's securities, whether the offer is in cash or in the securities of a corporation or otherwise. When considering whether to oppose an offer, the Board of Directors may, but is not legally obligated to, consider any pertinent issue. By way of illustration, but not of limitation, the Board of Directors may, but shall not be legally obligated to, consider any or all of the following: (i) whether the offer is acceptable based on historical and present operating results or the financial condition of the Corporation and its subsidiaries, and their future prospects; (ii) whether a more favorable offer could be obtained for the Corporation's, or its subsidiaries,' securities or assets in the future; (iii) the social, economic or any other material impact which an acquisition of the Corporation, or substantially all of its assets, would have upon the employees, insureds and customers of the Corporation and its subsidiaries and the communities in which they serve; (iv) the reputation and business practices of the offeror and its management and affiliates as they would affect the employees, insureds and customers of the Corporation and its subsidiaries and the future value of the corporation's stock; (v) the value of the securities (if any) which the offeror is offering in exchange for the Corporation's, or its subsidiaries', securities or assets based on an analysis of the 9 worth of the Corporation, or if its subsidiaries, as compared to the offeror corporation or other entity whose securities are being offered; and/or (vi) any antitrust or other legal or regulatory issues that are raised by the offer. (b) If the Board of Directors determines that an offer should be rejected, it may take any lawful action to accomplish its purposes including, but not limited to, any or all of the following: advising shareholders not to accept the offer; litigation against the offeror; filing complaints with all governmental and regulatory authorities; acquiring the Corporation's securities; selling or otherwise issuing authorized shares of preferred stock with such designations, preferences, qualifications, limitations, restrictions and/or special rights as the Board of Directors deems appropriate; selling or otherwise issuing authorized but unissued securities or treasury stock or granting options with respect thereto; acquiring a company to create an antitrust or other regulatory problem for the offeror; and obtaining a more favorable offer from another individual or entity. 13. Nomination of Board of Directors. Nominations for election to the Board of Directors may be made by the Board of Directors or a committee appointed by the Board of Directors or, subject to the rights of the holders of preferred stock, by any shareholder of any outstanding class of common stock of the Corporation entitled to vote for election of directors. Nominations, other than those made by or on behalf of the Board of Directors of the Corporation, shall be made in writing and shall be delivered or mailed to the President of the Corporation not less than fifty (50) days nor more than seventy-five (75) days prior to any meeting of shareholders called for the election of directors, provided, however that if less than fifty (50) days' notice of the meeting is given to shareholders, such nomination shall be mailed or delivered to the President of the Corporation not later than the close of business on the seventh day following the day on which the notice of the meeting was mailed. Such notification shall contain the following information to the extent known to the notifying shareholder(s): (a) the name and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the total number of shares of common stock of the Corporation that will be voted for each proposed nominee by the notifying shareholder(s); (d) the name and residence address of the notifying shareholder(s). Nominations not made 10 in accordance herewith shall be disregarded by the chairman of the meeting and votes cast for such nominee shall not be counted. ARTICLE V - OFFICERS 1. Officers. The executive officers of the Corporation shall be chosen by the directors and shall be a Chief Executive Officer, President, Secretary, and Treasurer. The Board of Directors may also choose one or more Vice-Presidents and such other officers and agents as it shall deem necessary, who shall hold their offices for such terms and shall have such authority and shall perform such duties as from time to time shall be prescribed by the Board. Any two or more offices may be held by the same person. It shall not be necessary for the officers to be directors. 2. Compensation. The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors. 3. Term of Office. The officers of the Corporation shall hold office for one year and until their successors are chosen and shall have qualified. Any officer elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in their judgment the best interests of the Corporation will be served thereby. 4. The Chief Executive Officer. The Chief Executive Officer shall preside at all meetings of the shareholders and directors. He shall oversee the general and active management of the Corporation and shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation. He shall be Ex-Officio a member of all committees, and shall have the general powers and duties of supervision and management usually vested in the office of Chief Executive Officer of a corporation and shall perform such other duties as from time to time may be assigned by the Board of Directors. 5. The President. The President shall have general and active management of the business of the Corporation, shall see that all orders and resolutions of the Board are carried into effect, subject, however, to the right of the directors to delegate any specific powers, except such as may be by statute exclusively conferred on the President, to any other officer or officers of the Corporation. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation. He shall have 11 the general powers and duties of supervision and management usually vested in the office of President of a corporation and shall perform such other duties as from time to time may be assigned by the Board of Directors. 6. The Secretary. The Secretary shall attend all sessions of the Board and all meetings of the shareholders and act as clerk thereof, and record all the votes of the Corporation and the minutes of all its transactions in a book to be kept for that purpose; and shall perform like duties for all committees of the Board of Directors when required. He shall give, or cause to be given, notice of all meetings of the shareholders and the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, Chief Executive Officer or President, and under whose supervision he shall be. He shall keep in safe custody the corporate seal of the Corporation, and when authorized by the Board, affix the same to any instrument requiring it. 7. The Treasurer. The Treasurer shall have custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall keep the moneys of the Corporation in a separate account to the credit of the Corporation. He shall disburse the funds of the Corporation as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer, President and directors, at the annual meetings of the Board, or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the Corporation. ARTICLE VI - VACANCIES 1. Vacancies. If the office of any one or more officer or agent becomes vacant for any reason, the Board of Directors may choose a successor or successors, who shall hold office for the unexpired term in respect of which such vacancy occurred. 12 ARTICLE VII - CORPORATE RECORDS 1. Minute Books and Share Register. There shall be kept at the registered office or principal place of business of the Corporation an original or duplicate record of the proceedings of the shareholders and of the directors, and the original or a copy of its by-laws, including all amendments or alterations thereto to date, certified by the Secretary of the Corporation. At the registered office, principal place of business or at the office of the Corporation's transfer agent, an original or duplicate share register shall also be kept giving the names of the shareholders in alphabetical order, and showing their respective addresses, the number and classes of shares held by each, the number and date of certificates issued for the shares, and the number and date of cancellation of every certificate surrendered for cancellation. 2. Inspection of Corporate Records. Every shareholder upon written verified demand stating the purpose thereof, shall have a right to examine, in person or by agent or attorney, at any reasonable time or times, for any reasonable purpose, the share register, books or records of account, and records of the proceedings of the shareholders and directors, and make extracts therefrom. ARTICLE VIII - SHARE CERTIFICATES, DIVIDENDS, ETC. 1. Share Certificates. The share certificates of the Corporation shall be numbered and registered in the share ledger and transfer books of the Corporation, as they are issued. Every share certificate may be executed by facsimile or otherwise on behalf of the Corporation in any manner approved by the Board of Directors. In case any officer who has signed, or whose facsimile signature has been placed upon any share certificate shall have ceased to be such officer because of death, resignation or otherwise before the certificate is issued, it may be issued by the Corporation with the same effect as if the officer had not ceased to be such at the date of its issue. 2. Transfers of Shares. Transfers of shares shall be made on the books of the Corporation upon surrender of the certificates therefor, endorsed by the person named in the certificate or by attorney, lawfully constituted in writing. No transfer shall be made inconsistent with the provisions of Article 8 of the Uniform Commercial Code, and its amendments and supplements. 13 3. Record Date. (a) The Board of Directors may fix a time, not more than ninety days, prior to the date of any meeting of shareholders, or the date fixed for the payment of any dividend or distribution, or the date for the allotment of rights, or the date when any change or conversion or exchange of shares will be made or go into effect, as a record date for the determination of the shareholders entitled to notice of, or to vote at, any such meeting, or entitled to receive payment of any such dividend or distribution, or to receive any such allotment of rights, or to exercise the rights with respect to any such change, conversion, or exchange of shares. In such case, only such shareholders as shall be shareholders of record on the date so fixed shall be entitled to notice of, or to vote at, such meeting, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after any record date fixed, as aforesaid. When a determination of shareholders of record has been made as provided in this paragraph for purposes of a meeting the determination shall apply to any adjournment thereof unless the Board of Directors fixes a new record date for the adjourned meeting. (b) If a record date is not fixed: (1) The record date for determining shareholders entitled to notice of to vote at a meeting of shareholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day immediately preceding the day on which the meeting is held. (2) The record date for determining shareholders entitled to express consent or dissent to corporate action in writing without a meeting when prior action by the Board of Directors is not necessary, shall be the close of business on the day on which the first written consent or dissent is filed with the Secretary. (3) The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. 4. Lost Stock Certificate. Any person claiming a share certificate to be lost or destroyed shall make an affidavit or affirmation of that fact and advertise the same in such manner as the Board of 14 Directors may require, and shall give the Corporation a bond of indemnity with sufficient surety to protect the Corporation or any person injured by the issue of a new certificate from any liability or expense which it or they may incur by reason of the original certificate remaining outstanding, whereupon a new certificate may be issued of the same tenor and for the same number of shares as the one alleged to be lost or destroyed, but always subject to the approval of the Board of Directors. 5. Dividends. Subject to the provisions of Section 1551, the Board of Directors may, in its discretion, declare and pay dividends and make other distributions upon the outstanding shares of the Corporation from time to time and to such extent as they deem advisable, in cash, property or in shares of the Corporation. 6. Payment of Dividends. Before payment of any dividend there may be set aside out of the net profits of the Corporation such sum or sums as the directors, from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interests of the Corporation, and the directors may abolish any such reserve in the manner in which it was created. ARTICLE IX - MISCELLANEOUS PROVISIONS 1. Checks or Demands for Money. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers as the Board of Directors may from time to time designate. 2. Fiscal Year. The fiscal year shall end the 31st day of December of each year. 3. Written Notice. Whenever written notice is required to be given to any person by statute, or by the Articles of Incorporation or these by-laws, it may be given to such person, either personally or by sending a copy thereof by first class or express mail, postage pre-paid or by telegram (with messenger service specified), telex or TWX (with answer back received) or courier service, charges prepaid, or by telecopier, to his address (or to his telex, TWX, telecopier or telephone number) appearing on the books of the Corporation, or in the case of directors, supplied by him to the Corporation for the 15 purpose of notice. If the notice is sent by mail, telegraph or courier service, it shall be deemed to have been given to the person entitled thereto when deposited in the United States mail or with a telegraph office or courier service for delivery to that person or, in the case of telex or TWX, when dispatched. A notice of meeting shall specify the place, day and hour of the meeting and, in the case of a special meeting, the general nature of the business to be transacted. 4. Waiver of Notice. Whenever any written notice is required to be given by statute, or by the Articles or the by-laws of this Corporation, a waiver thereof in writing, signed by the person or persons entitled to the notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of the notice. Except as otherwise provided by statute and in these by-laws, neither the business to be transacted at, nor the purpose of, a meeting need be specified in the waiver of notice of the meeting. In the case of a special meeting of shareholders, the waiver of notice shall specify the general nature of the business to be transacted. Attendance of a person either in person or by proxy, at any meeting shall constitute a waiver of notice of the meeting except where a person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened. 5. Participation in Meetings by Telephone Conference Call. One or more persons may participate in a meeting of the Board, of a committee of the incorporators, the Board or of the shareholders, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this paragraph shall constitute presence in person at this meeting. 6. Opt-Out Provisions. The Corporation hereby explicitly opts out of the provisions of Subchapter H (entitled "Disgorgement by Certain Controlling Shareholders Following Attempts to Acquire Control") of Act No. 1990-36, 15 Pa. C.S. 2571-2575 and these provisions shall accordingly not be applicable to the Corporation. (This amendment to the By-laws was approved by the Board of Directors on July 19, 1990.) The Corporation hereby explicitly opts out of the provisions of Subchapter G (entitled "Control Share Acquisitions") of Act No. 1990-36, 15 Pa.C.S. 2561-2567 and these provisions shall 16 accordingly not be applicable to the Corporation. (This amendment to the By-laws was approved by the Board of Directors on July 19, 1990.) ARTICLE X - ANNUAL STATEMENT 1. Annual Statement. The President and Board of Directors shall present at each annual meeting a full and complete statement of the business and affairs of the Corporation for the preceding year. Such statement shall be prepared and presented in whatever manner the Board of Directors shall deem advisable and need not be verified by a certified public accountant. ARTICLE XI - AMENDMENTS 1. Procedure. These by-laws may be altered, amended or repealed, or new by-laws may be adopted by the Board of Directors, subject always to the power of the shareholders to change such action, at any regular meeting of the Board of Directors or at any special meeting of the Board of directors if notice of such alteration, amendment, repeal or adoption of new by-laws be contained in the notice of such special meeting; provided that notwithstanding the foregoing, the provisions of Article IV, paragraphs 1, 2, 10, 11, 12 and 13, Article XII or this Article XI of these by-laws may be altered, amended, or repealed only upon the affirmative vote of 67% of the combined voting power of all shareholders who are entitled to vote thereon, voting as a single class. ARTICLE XII - INDEMNIFICATION OF DIRECTORS, OFFICERS EMPLOYEES AND AGENTS; INSURANCE 1. General Rule. Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified by this Corporation against expenses (including attorneys' fees) 17 judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceedings, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceedings by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. 2. Derivative Actions. Any person who was or is a party, or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified by this Corporation against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation; except, however, that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation unless and only to the extent that the Court of Common Pleas of the county in which the registered office of the Corporation is located or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Co urt of Common Pleas or such other court shall deem proper. 3. Success on Merits. To the extent that a director, officer, employee or agent as above described has been successful on the merits or otherwise in defense of any action, suit or proceeding 18 referred to in paragraph 1 or 2 of this Article or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. 4. Determination. Any indemnification under paragraph 1 or 2 of this Article (unless ordered by a court) shall be made only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in such subparagraph. Such determination shall be made: (a) By the vote of the Board of Directors consisting of directors who were not parties to such action, suit or proceedings; or (b) If such action is not obtainable, or even if obtainable the vote of the disinterested directors so directs, by independent legal counsel in a written opinion, or (c) By the shareholders. 5. Advancing Expenses. Expenses incurred by an officer, director, employee or agent in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation as authorized in this Article. 6. Not Exclusive of Other Rights. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of shareholders or directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. 7. Power to Purchase Insurance. The Corporation may, by action of the Board of Directors, purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise 19 against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article. 8. Creation of a Fund to Secure Indemnification. The Corporation may create a fund of any nature, which may, but need not be, under the control of a trustee, or otherwise secure in any matter its indemnification obligations, whether arising under or pursuant to this Article or otherwise. 9. Willful Misconduct or Recklessness. Indemnification pursuant to this Article shall not be made in any case where the act or failure to act giving rise to the claim for indemnification is determined by a court to have constituted willful misconduct or recklessness. 10. Authority. Indemnification pursuant to this Article, under any by-law, agreement, vote of shareholders, members or directors or otherwise, may be granted for any action taken or any failure to take any action and may be made whether or not the Corporation would have the power to indemnify the person under any provision of law except as provided in this Article and whether or not the indemnified liability arises or arose from any threatened, pending or completed action by or in the right of the Corporation. 20 EX-4.4 4 EXHIBIT 4.4 EXHIBIT 4.4 [FORM OF PUBLIC NOTE] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. No. B- U.S. $74,750,000 CUSIP No._________ ----------- PENN TREATY AMERICAN CORPORATION 6 1/4% Convertible Subordinated Notes Due 2003 Registered Holder: Cede & Co. PENN TREATY AMERICAN CORPORATION, a corporation duly organized and validly existing under the laws of the Commonwealth of Pennsylvania (the "Company"), which term includes any Successor Company under the Indenture referred to on the reverse hereof, for value received hereby promises to pay to Cede & Co., or registered assigns, the principal sum not to exceed Seventy Four Million Seven Hundred Fifty Thousand United States Dollars (subject to adjustment as set forth in the next paragraph hereof) on December 1, 2003, at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, or, at the option of the holder of this Public Note, at the Corporate Trust Office of the Trustee, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest, semi-annually on June 1 and December 1 of each year (each an "Interest Payment Date"), commencing June 1, 1997, on said principal sum at said office or agency, in like coin or currency, at the rate of 6 1/4% per annum, from November 26, 1996 or the most recent Interest Payment Date, as the case may be, next preceding the date of this Public Note to which interest has been paid or duly provided for, unless the date hereof is a date to which interest has been paid or duly provided for, in which case from the date of this Public Note, or unless no interest has been paid or duly provided for on the Notes, in which case from November 26, 1996, until payment of said principal sum has been made or duly provided for. Any interest on any Note that is payable, but is not punctually paid or duly provided for on said June 1 or December 1 (herein called "Defaulted Interest") shall forthwith cease to be payable to the Noteholder on the relevant record date by virtue of his having been such Noteholder; and such Defaulted Interest shall be paid by the Company, at its election in each case, either (i) by notifying the Trustee of a special record date, the amount of interest to be paid on such special record date and the date of payment (not more than 25 days after receipt by the Trustee of such interest, unless the Trustee shall consent to an earlier date) and depositing with the Trustee an amount of money equal to the aggregate amount to be paid in respect of such Defaulted Interest on making arrangements satisfactory to the Trustee for such deposit or (ii) in any lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed and upon notice requested by such exchange, if, after notice to the Trustee, the Trustee deems such manner of payment to be practicable. The interest so payable on any June 1 or December 1 will be paid to the person in whose name this Public Note (or one or more Predecessor Notes) is registered at the close of business on the record date, which shall be the May 15 or November 15 (whether or not a Business Day) next preceding such June 1 or December 1, respectively; provided that any such interest not punctually paid or duly provided for shall be payable as provided in the Indenture. Interest shall be paid by check mailed to the registered holder at the registered address of such person unless other arrangements are made in accordance with the provisions of the Indenture. The aggregate principal amount of this Public Note represented hereby may from time to time be reduced or increased to reflect exchanges of a part of this Public Note for interests in the definitive Public Notes or exchanges of interests in the Regulation S Global Note, Restricted Global Note or definitive Notes for a part of this Public Note or conversions, redemptions or repurchases of a part of this Public Note or cancellations of a part of this Public Note or transfers of interests in the Regulation S Global Note, Restricted Global Note or definitive Notes in return for a part of this Public Note or transfers of a part of this Public Note effected by delivery of interests in the Regulation S Global Note, Restricted Global Note or definitive Notes, in each case, and in any such case, by means of notations on the Schedule of Exchanges, Conversions, Redemptions, Repurchases, Cancellations and Transfers on the last page hereof. Notwithstanding any provision of this Public Note to the contrary, (i) exchanges of a part of this Public Note for interests in the definitive Public Notes, (ii) exchanges of interests in the Regulation S Global Note, Restricted Global Note or definitive Notes for a part of this Public Note, (iii) conversions, redemptions or repurchases of a part of this Public Note, (iv) cancellations of a part of this Public Note, (v) transfers of interests in the Regulation S Global Note, Restricted Global Note or definitive Notes in return for a part of this Public Note and (vi) transfers of a part of this Public Note effected by delivery of interests in the Regulation S Global Note, Restricted Global Note or definitive Notes may be effected without the surrendering of this Public Note, provided that appropriate notations on the Schedule of Exchanges, Conversions, Redemptions, Repurchases, Cancellations and Transfers are made by the Trustee, or the Custodian at the direction of the Trustee, to reflect the appropriate reduction or increase, as the case may be, in the aggregate principal amount of this Public Note resulting therefrom or as a consequence thereof. Reference is made to the further provisions of this Public Note set forth on the reverse hereof, including, without limitation, provisions giving the holder of this Public Note the right to convert this Public Note into Common Stock of the Company on the terms and subject to the limitations referred to on the reverse hereof and as more fully specified in the Indenture. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Public Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been manually signed by the Trustee or a duly authorized authenticating agent under the Indenture. 2 IN WITNESS WHEREOF, the Company has caused this Public Note to be duly executed under its corporate seal. PENN TREATY AMERICAN CORPORATION By: ______________________________ Name: Title: Attest: ____________________________ Secretary 3 [FORM OF CERTIFICATE OF AUTHENTICATION] CERTIFICATE OF AUTHENTICATION Dated: This is one of the Notes described in the within-named Indenture. FIRST UNION NATIONAL BANK, as Trustee By:_________________________ Authorized Signatory 4 [FORM OF REVERSE OF PUBLIC NOTE] PENN TREATY AMERICAN CORPORATION 6 1/4% Convertible Subordinated Notes Due 2003 This Public Note is one of a duly authorized issue of Notes of the Company, designated as its 6 1/4% Convertible Subordinated Notes Due 2003 (herein called the "Notes"), limited to the aggregate principal amount of $74,750,000 issued under and pursuant to an Indenture dated as of November 26, 1996 (the "Indenture"), between the Company and First Union National Bank, as trustee (the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a complete description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Notes. Each Note is subject to, and qualified by, all such terms as set forth in the Indenture certain of which are summarized hereon and each holder of a Note is referred to the corresponding provisions of the Indenture for a complete statement of such terms. To the extent that there is any inconsistency between the summary provisions set forth in the Notes and the Indenture, the provisions of the Indenture shall govern. Capitalized terms used but not defined in this Public Note shall have the meanings ascribed to them in the Indenture. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of, premium, if any, and accrued interest on all Notes may be declared, and upon said declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The payment of principal of, premium, if any, and interest on the Notes will, to the extent set forth in the Indenture, be subordinated in right of payment to the prior payment in full of all Senior Indebtedness (as defined in the Indenture). Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding related to the Company or its property, in an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities, the holders of all Senior Indebtedness will first be entitled to receive payment in full of all amounts due or to become due thereon before the holders of the Notes will be entitled to receive any payment in respect of the principal of, premium, if any, or interest on the Notes (except that holders of Notes may receive securities that are subordinated at least to the same extent as the Notes to Senior Indebtedness and any securities issued in exchange for Senior Indebtedness). The Company also may not make any payment upon or in respect of the Notes (except in such subordinated securities) and may not acquire from the Trustee or the holder of any Note for cash or property (other than securities subordinated to at least the same extent as the Note to (i) Senior Indebtedness and (ii) any securities issued in exchange for Senior Indebtedness) until all Senior Indebtedness has been paid in full if (a) a default in the payment of the principal of, premium, if any, or interest on Senior Indebtedness occurs and is continuing beyond any applicable period of grace or (b) any other default occurs and is continuing with respect to Senior Indebtedness that permits holders of the Senior Indebtedness as to which such default relates to accelerate its maturity and the Trustee receives a notice of such default (a "Payment Blockage Notice") from the representative or representatives of holders of at least a majority in principal amount of Senior Indebtedness then outstanding. Payments on the Notes may and shall be resumed (i) in the case of a Payment Default, upon the date on which such default is cured or waived, or (ii) in the case of a Nonpayment Default, 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Senior Indebtedness has been accelerated. No new period of payment blockage may be commenced within 360 days after 5 the receipt by the Trustee of any prior Payment Blockage Notice. No default, other than a Nonpayment Default, that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been cured or waived for a period of not less than 180 days. In the event that the Trustee (or paying agent if other than the Trustee) or any holder of the Notes receives any payment of principal or interest with respect to the Notes at a time when such payment is prohibited under the Indenture, such payment shall be held in trust for the benefit of, and immediately shall be paid over and delivered to, the holders of Senior Indebtedness or their representative as their respective interests may appear. After all Senior Indebtedness is paid in full and until the Notes are paid in full, the holders of the Notes shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Indebtedness to receive distributions applicable to Senior Indebtedness to the extent that distributions otherwise payable to the holders of the Notes have been applied to the payment of Senior Indebtedness. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding, evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the holders of the Notes; provided that no such supplemental indenture shall (i) extend the fixed maturity of any Note, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or premium, if any, thereon, or reduce any amount payable on redemption thereof, alter the obligation of the Company to repurchase the Notes at the option of the holders upon the occurrence of a Change of Control, or impair or affect the right of any Noteholder to institute suit for the payment thereof, or make the principal thereof or interest or premium, if any, thereon payable in any coin or currency other than that provided in the Notes, modify the subordination provisions in a manner adverse to the holders of the Notes, or impair the right to convert the Notes into Common Stock subject to the terms set forth in the Indenture without the consent of the holder of each Note so affected or (ii) reduce the aforesaid percentage of Notes, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Notes then outstanding. The Company and the Trustee may amend or supplement the Indenture without notice to or consent of any holder of Notes in certain events specified in the Indenture. It is also provided in the Indenture that, prior to any declaration accelerating the maturity of the Notes, the holders of a majority in aggregate principal amount of the Notes at the time outstanding may on behalf of the holders of all of the Notes waive any past default or Event of Default under the Indenture and its consequences except a default in the payment of interest or any premium on or the principal of any of the Notes, a failure by the Company to convert any Notes into Common Stock of the Company, unless otherwise excused pursuant to the terms of the Indenture, or a default in respect of a covenant or provision of the Indenture that under Article X thereof cannot be modified or amended without the consent of the holders of all Notes then outstanding. Any such consent or waiver by the holder of this Public Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Public Note and any Notes that may be issued in exchange or substitution hereof, irrespective of whether or not any notation thereof is made upon this Public Note or such other Notes. No reference herein to the Indenture and no provision of this Public Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Public Note at the place, at the respective times, at the rate and in the coin or currency herein prescribed. 6 Interest on the Notes shall be computed on the basis of a 360-day year composed of twelve 30-day months. The Notes are issuable in registered form without coupons in denominations of $1,000 principal amount and integral multiples thereof. At the office or agency of the Company referred to on the face hereof, and in the manner and subject to the limitations provided in the Indenture, without payment of any service charge but with payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration or exchange of Notes, Notes may be exchanged for a like aggregate principal amount of Notes of other authorized denominations. The Notes are not redeemable at the option of the Company prior to December 3, 1999. At any time on or after that date, the Notes may be redeemed at the Company's option, upon notice as set forth in the Indenture, in whole at any time or in part from time to time, at the following prices (expressed in percentages of the principal amount), together with accrued interest to the date fixed for redemption if redeemed during the 12-month period beginning: Date Redemption Price ---- ---------------- December 3, 1999 103.13% December 1, 2000 102.08% December 1, 2001 101.04% and 100% on or after December 1, 2002; provided that if the date fixed for redemption is a date on or after the record date and on or before the next following Interest Payment Date, then the interest payable on such date shall be paid to the holder of record on the next preceding May 15 or November 15, respectively. If a Change of Control (as defined in the Indenture) shall occur at any time, then each holder of Notes shall have the right to require that the Company repurchase such holder's Notes in whole or in part in integral multiples of $1,000, at a purchase price in cash in an amount equal to 101% of the principal amount of such Notes, plus accrued and unpaid interest, if any, to the repurchase date pursuant to an offer to be made by the Company and in accordance with the procedures set forth in the Indenture. Subject to the provisions of the Indenture, the holder hereof has the right, at its option, at any time after 90 days following the latest date of original issuance of the Notes and prior to the close of business on November 28, 2003, subject to prior redemption or repurchase, or, as to all or any portion hereof called for redemption, prior to the close of business one business day before the date fixed for redemption (unless the Company shall default in payment due upon redemption thereof), to convert the principal hereof or any portion of such principal that is $1,000 or an integral multiple thereof, into that number of fully paid and non-assessable shares of the Company's Common Stock, as said shares shall be constituted at the date of conversion, obtained by dividing the principal amount of this Public Note or portion thereof to be converted by the conversion price of $28.44 per share or such conversion price as adjusted from time to time as provided in the Indenture, upon surrender of this Public Note, together with a conversion notice as provided in the Indenture, to the Company at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, or at the option of such holder, the Corporate Trust Office of the Trustee, and, unless the shares issuable on conversion are to be issued in the same name as this Public Note, duly endorsed by, or accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or by his duly authorized attorney. 7 Except as described in the Indenture, no adjustment will be made on conversion of any Notes for interest accrued thereon or for dividends paid on any Common Stock issued. A Holder of Notes at the close of business on a record date will be entitled to receive the interest payable on such Notes on the corresponding interest payment date. However, Notes surrendered for conversion during the period from the close of business on a record date to the opening of business on the next succeeding interest payment date must be accompanied by funds equal to the interest payable on such succeeding interest payment date on the principal amount so converted (unless such Note or portion thereof being converted is called for redemption on a redemption date during the period from the close of business on or after any record date to the close of business on the business day following the corresponding interest payment date). The interest payment with respect to a Note called for redemption on a date between the close of business on any record date for the payment of interest to the close of business on the business day following the corresponding interest payment date and surrendered for conversion during that period will be payable on the corresponding interest payment date to the registered Holder at the close of business on that record date (notwithstanding the conversion of such Note before the corresponding interest payment date). A Holder of Notes who elects to convert during that period need not include funds equal to the interest paid. The Company is not required to issue fractional shares of Common Stock upon conversion of Notes and, in lieu thereof, will pay a cash adjustment based upon the closing price of the Common Stock on the last business day prior to the date of conversion. Upon due presentment for registration of transfer of this Public Note at the office or agency of the Company in the Borough of Manhattan, The City of New York, or at the option of the holder of this Public Note, at the Corporate Trust Office of the Trustee, a new Note or Notes of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange thereof, subject to the conditions and limitations provided in the Indenture, without charge except for any tax or other governmental charge imposed in connection therewith. The Company, the Trustee, any authenticating agent, any paying agent, any conversion agent and any Note registrar may deem and treat the registered holder hereof as the absolute owner of this Public Note (whether or not this Public Note shall be overdue and notwithstanding any notation of ownership or other writing hereon made by anyone other than the Company or any Note registrar), for the purpose of receiving payment hereof, or on account hereof, for the conversion hereof and for all other purposes, and neither the Company nor the Trustee nor any other authenticating agent nor any paying agent nor any other conversion agent nor any Note registrar shall be affected by any notice to the contrary. All payments made to or upon the order of such registered holder shall, to the extent of the sum or sums paid, satisfy and discharge liability for monies payable on this Public Note. No recourse for the payment of the principal of or any premium or interest on this Public Note, or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any indenture supplemental thereto or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, shareholder, officer or director, as such, past, present or future, of the Company or of any Successor Company, either directly or through the Company or any Successor Company, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. 8 [FORM OF CONVERSION NOTICE] CONVERSION NOTICE To: Penn Treaty American Corporation The undersigned registered owner of this Public Note hereby irrevocably exercises the option to convert this Public Note, or the portion hereof (which is $1,000 principal amount or an integral multiple thereof) below designated, into shares of Common Stock, par value $.10 per share of the Company, in accordance with the terms of the Indenture referred to in this Public Note, and directs that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional shares and any Notes representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Public Note not converted are to be issued in the name of a person other than the undersigned, the undersigned will check the appropriate box below and pay all transfer taxes payable with respect thereto. Any amount required to be paid to the undersigned on account of interest accompanies this Public Note. Dated:_______________________ Contact Person: ____________________ Fax Number:_________________________ _____________________________ Telephone Number:___________________ _____________________________ Signature(s) Signature(s) must be guaranteed by an eligible Guarantor Institution (banks, stock brokers, savings and loan associations and credit unions) with membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be issued, or Notes to be delivered, other than to and in the name of the registered holder. ________________________________________ Signature Guarantee Fill in for registration of shares if to be issued, and Notes if to be delivered, other than to and in the name of the registered holder: _______________________________________ (Name) _______________________________________ (Street Address) 9 _______________________________________ (City, State and Zip Code) Please print name and address Principal amount to be converted (if less than all) $____________________ ________________________________ Social Security or Other Taxpayer Identification Number 10 [FORM OF OPTION TO ELECT REPAYMENT UPON A CHANGE OF CONTROL] To: Penn Treaty American Corporation The undersigned registered owner of this Public Note hereby irrevocably acknowledges receipt of a notice from Penn Treaty American Corporation (the "Company") as to the occurrence of a Change of Control with respect to the Company and requests and instructs the Company to repay the entire principal amount of this Public Note, or the portion thereof (which is $1,000 principal amount or an integral multiple thereof) below designated, in accordance with the terms of the Indenture referred to in this Public Note, together with accrued interest to such date, to the registered holder hereof. Dated:_____________________ ________________________________________ ________________________________________ Signature(s) ________________________________________ Social Security or Other Taxpayer Identification Number Principal amount to be repaid (if less than all): $__________________ 11 SCHEDULE A SCHEDULE OF EXCHANGES, CONVERSIONS, REDEMPTIONS, REPURCHASES, CANCELLATIONS AND TRANSFERS The initial principal amount of this Public Note is U.S. $0. The following additions to principal, redemptions, reuprchases, exchanges of a part of this Public Note for an interest in the Regulation S Global Note, Restricted Global Note, definitive Notes and conversions into Common Stock have been made:
==================================================================================================================== Principal Amount Principal Amount Added on Redeemed, Date of Addition to Exchange of Repurchased or Principal, Re- Interest in the Exchanged for Remaining Principal demption, Regulation S Global Interest in the Amount Repurchase, Note, Restricted Definitive Notes or Outstanding Notation Made by Exchange or Global Note or De- Converted into Following such or on behalf of the Conversion nitive Public Notes Common Stock Transaction Trustee - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- ====================================================================================================================
EX-23.1 5 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Penn Treaty American Corporation on Form S-3 of our reports dated March 6, 1996, on our audits of the consolidated financial statements and financial statement schedules of Penn Treaty American Corporation as of December 31, 1995 and 1994, and for the years ended December 31, 1995, 1994 and 1933, which report is included in Form 10-K which is incorporated by reference in the registration statement. COOPERS & LYBRAND L.L.P /s/ Coopers & Lybrand L.L.P. Philadelphia, Pennsylvania February 18, 1996 EX-25.1 6 EXHIBIT 25.1 EXHIBIT 25.1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2)/ / FIRST UNION NATIONAL BANK (Exact Name of Trustee as Specified in its Charter) 22-1147033 (I.R.S. Employer Identification No.) 101 NORTHSIDE PLAZA, ELKTON, MARYLAND (Address of Principal Executive Offices) 21921 (Zip Code) FIRST UNION NATIONAL BANK 123 SOUTH BROAD STREET PHILADELPHIA, PA 19109 ATTENTION: CORPORATE TRUST ADMINISTRATION (215) 985-6000 (Name, address and telephone number of Agent for Service) PENN TREATY AMERICAN CORPORATION (Exact Name of Obligor as Specified in its Charter) PENNSYLVANIA (State or other jurisdiction of Incorporation or Organization) 23-1664166 (I.R.S. Employer Identification No.) 3440 LEHIGH STREET ALLENTOWN,PENNSYLVANIA (address of Principal Executive Offices) 18103 (Zip Code) 6-1/4% Convertible Subordinated Notes Due 2003 (Title of Indenture Securities) 1. General information. Furnish the following information as to the trustee: a) Name and address of each examining or supervisory authority to which it is subject: Comptroller of the Currency United States Department of the Treasury Washington, D.C. 20219 Federal Reserve Bank (3rd District) Philadelphia, Pennsylvania 19106 Federal Deposit Insurance Corporation Washington, D.C. 20429 b) Whether it is authorized to exercise corporate trust powers. Yes. 2. Affiliations with obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. 3. Voting securities of the trustee. Furnish the following information as to each class of voting securities of the trustee: Not applicable - see answer to Item 13. 4. Trusteeships under other indentures. If the trustee is a trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the obligor are outstanding, furnish the following information: Not applicable - see answer to Item 13. 5. Interlocking directorates and similar relationships with the obligor or underwriters. If the trustee or any of the directors or executive officers of the trustee is a director, officer, partner, employee, appointee, or representative of the obligor or of any underwriter for the obligor, identify each such person having any such connection and state the nature of each such connection. Not applicable - see answer to Item 13. 6. Voting securities of the trustee owned by the obligor or its officials. Furnish the following information as to the voting securities of the trustee owned beneficially by the obligor and each director, partner, and executive officer of the obligor: Not applicable - see answer to Item 13. 7. Voting securities of the trustee owned by underwriters or their officials. Furnish the following information as to the voting securities of the trustee owned beneficially by each underwriter for the obligor and each director, partner, and executive officer of each such underwriter: Not applicable - see answer to Item 13. 8. Securities of the obligor owned or held by the trustee. Furnish the following information as to securities of the obligor owned beneficially or held as collateral security for obligations in default by the trustee: Not applicable - see answer to Item 13. 9. Securities of underwriters owned or held by the trustee. If the trustee owns beneficially or holds as collateral security for obligations in default any securities of an underwriter for the obligor, furnish the following information as to each class of securities of such underwriter any of which are so owned or held by the trustee: Not applicable - see answer to Item 13. 10. Ownership or holdings by the trustee of voting securities of certain affiliates or security holders of the obligor. If the trustee owns beneficially or holds as collateral security for obligations in default voting securities of a person who, to the knowledge of the trustee (1) owns 10 percent or more of the voting stock of the obligor or (2) is an affiliate, other than a subsidiary, of the obligor, furnish the following information as to the voting securities of such person: Not applicable - see answer to Item 13. 11. Ownership or holdings by the trustee of any securities of a person owning 50 percent or more of the voting securities of the obligor. If the trustee owns beneficially or holds as collateral security for obligations in default any securities of a person who, to the knowledge of the trustee, owns 50 percent or more of the voting securities of the obligor, furnish the following information as to each class of securities of such person any of which are so owned or held by the trustee: Not applicable - see answer to Item 13. 12. Indebtedness of the obligor to the trustee. Except as noted in the instructions, if the obligor is indebted to the trustee, furnish the following information: Not applicable - see answer to Item 13. 13. Defaults by the obligor. (a) State whether there is or has been a default with respect to the securities under this indenture. Explain the nature of any such default. None. (b) If the trustee is a trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the obligor are outstanding, or is trustee for more than one outstanding series of securities under the indenture, state whether there has been a default under any such indenture or series, identify the indenture or series affected, and explain the nature of any such default. None. 14. Affiliations with the underwriters. If any underwriter is an affiliate of the trustee, describe each such affiliation. Not applicable - see answer to Item 13. 15. Foreign trustee. Identify the order or rule pursuant to which the trustee is authorized to act as sole trustee under indentures qualified or to be qualified under the Act. Not applicable - trustee is a national banking association organized under the laws of the United States. 16. List of Exhibits. List below all exhibits filed as part of this statement of eligibility. / / 1. Copy of Articles of Association of the trustee as now in effect.** / / 2. Copy of the Certificate of the Comptroller of the Currency dated January 11, 1994, evidencing the authority of the trustee to transact business.* / / 3. Copy of the Certification of Fiduciary Powers of the trustee by the Office of the Comptroller of the Currency dated July 24, 1992.* / / 4. Copy of existing by-laws of the trustee.** / / 5. Copy of each indenture referred to in Item 4, if the obligor is in default. -Not Applicable. / X / 6. Consent of the trustee required by Section 321(b) of the Act. / X / 7. Copy of report of condition of the trustee at the close of business on December 31, 1996, published pursuant to the requirements of its supervising authority. / / 8. Copy of any order pursuant to which the foreign trustee is authorized to act as sole trustee under indentures qualified or to be qualified under the Act. - Not Applicable / / 9. Consent to service of process required of foreign trustees pursuant to Rule 10a-4 under the Act. - Not Applicable _____________________ *Previously filed with the Securities Exchange Commission on February 11, 1994 as an Exhibit to Form T-1 in connection with Registration Statement Number 22-73340 and ** previously filed with the Securities Exchange Commission on March 6,1996 with Registration Statement Number 333-1102 and incorporated herein by reference NOTE The trustee disclaims responsibility for the accuracy or completeness of information contained in this Statement of Eligibility and Qualification not known to the trustee and not obtainable by it through reasonable investigation and as to which information it has obtained from the obligor and has had to rely or will obtain from the principal underwriters and will have to rely. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, First Union National Bank, a national banking association organized and existing under the laws of the United States of America, has duly caused this Statement of Eligibility and Qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Philadelphia and Commonwealth of Pennsylvania, on the 20th day of February, 1997. FIRST UNION NATIONAL BANK By:/s/ George J. Rayzis George J. Rayzis Vice President EXHIBIT 6 CONSENT OF TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of 1939, and in connection with the issue of Penn Treaty American Corporation 6-1/4 % Convertible Subordinated Notes due 2003, First Union National Bank, hereby consents that reports of examinations by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. FIRST UNION NATIONAL BANK By: /s/ George J. Rayzis George J. Rayzis Vice President Philadelphia, Pennsylvania February 20, 1997 REPORT OF CONDITION EXHIBIT 7 Consolidating domestic and foreign subsidiaries of the First Union National Bank of Elkton in the state of Maryland, at the close of business on December 31, 1996 published in response to call made by Comptroller of the Currency, under title 12, United States Code, Section 161. Charter Number 33869 Comptroller of the Currency Northeastern District. Statement of Resources and Liabilities ASSETS Thousand of Dollars Cash and balance due from depository institutions: Noninterest-bearing balances and currency and coin......... 1,835,479 Interest-bearing balances.................................. 83,025 Securities....................................................///////// Held-to-maturity securities................................ 431,623 Available-for-sale securities.............................. 2,429,818 Federal funds sold and securities purchased under agreements////////// to resell in domestic offices of the bank and of its ////////// Edge and Agreement subsidiaries, and in IBFs: ////////// Federal funds sold..................................... 998,987 Securities purchased under agreements to resell........ 465,602 Loans and lease financing receivables: Loan and leases, net of unearned income......19,495,582 LESS: Allowance for loan and lease losses.......258,533 LESS: Allocated transfer risk reserve.................0 Loans and leases, net of unearned income, allowance, and reserve................................................. 19,237,049 Assets held in trading accounts......................... 0 Premises and fixed assets (including capitalized leases).. 395,941 Other real estate owned................................... 49,984 Investment in unconsolidated subsidiaries and associated ////////// companies................................................. 26,336 Customer's liability to this bank on acceptances outstanding. 44,524 Intangible assets........................................... 398,568 Other assets................................................ 731,433 Total assets............................................... 27,128,369 LIABILITIES Deposits: In domestic offices................................... 21,604,197 Noninterest-bearing......................4,512,791 Interest-bearing........................17,091,406 In foreign offices, Edge and Agreement subsidiaries, and IBFs.............................................. 390,835 Noninterest-bearing........................ 70 Interest-bearing...........................390,765 Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and IBFs Federal fund purchased................................ 305,422 Securities sold under agreements to repurchase........ 1,308,107 Demand notes issued to the U.S. Treasury................... 99,992 Trading liabilities........................................ 0 Other borrowed money:...................................... ///////// With original maturity of one year or less............ 8,000 With original maturity of more than one year.......... 9,532 Mortgage indebtedness and obligations under capitalized leases 6,149 Bank's liability on acceptances executed and outstanding..... 45,252 Subordinated notes and debentures........................... 475,000 Other liabilities............................................ 656,346 Total liabilities............................................24,908,832 Limited-life preferred stock and related surplus............. 0 EQUITY CAPITAL Perpetual preferred stock and related surplus................ 160,540 Common Stock................................................. 452,156 Surplus...................................................... 1,300,080 Undivided profits and capital reserves....................... 318,243 Net unrealized holding gains (losses) on available-for-sale ///////// securities.................................................. (11,482) Cumulative foreign currency translation adjustments.......... 0 Total equity capital......................................... 2,219,537 Total liabilities, limited-life preferred stock and equity... ///////// capital....................................................27,128,369 -----END PRIVACY-ENHANCED MESSAGE-----