Exhibit 4.1
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR
REGISTERED OR QUALIFIED UNDER THE SECURITIES LAW OF ANY STATE. THIS WARRANT MAY
NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN CONTRAVENTION OF THE SECURITIES
ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS.
WARRANT
TO PURCHASE SERIES A-1
CONVERTIBLE PREFERRED STOCK OF
PENN TREATY AMERICAN CORPORATION
No. 1 February 19, 2002
THIS CERTIFIES THAT, for value received, Centre Strategic Investment Holdings
Limited, a Bermuda corporation ("Warrant Holder"), or registered assigns, has
the right to purchase from PENN TREATY AMERICAN CORPORATION, a Pennsylvania
corporation (the "Company"), prior to the Expiration Date, at a per share price
equal to the Warrant Price, up to that number of shares of the Series A-1
Convertible Preferred Stock of the Company which would on the Exercise Date be
convertible into the number of shares of the Common Stock of the Company which
is eight and sixty-nine one hundredths percent (8.69%), as it may be reduced
from time to time pursuant to Section 2(c) or adjusted from time to time
pursuant to Section 8 (the "Exercise Percentage"), of the number of Fully
Diluted Outstanding shares of the Common Stock of the Company as of the Exercise
Date.
1. Definitions. As used in this Warrant, the following terms have the
respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common Stock
issued by the Company after the date hereof, other than Warrant Common Shares.
"Appraised Value" shall mean, in respect of any share of Common Stock on
any date herein specified, the fair market value of such share of Common Stock
(determined without giving effect to any discount for (i) a minority interest,
or (ii) any lack of transferability or liquidity), as determined by an
investment banking firm of nationally recognized standing selected by the
Company and acceptable to the Majority Holders, on the basis of a sale between a
willing seller and buyer, neither acting under any compulsion. If the investment
banking firm selected by the Company is not acceptable to the Majority Holders
and the Company and the Majority Holders cannot agree on a mutually acceptable
investment banking firm, then the Majority Holders and the Company shall each
choose one such investment banking firm and the respective chosen firms shall
agree on another investment banking firm which shall make the determination. The
Company shall retain, at its sole cost, such investment banking firm or firms as
may be necessary for the determination of Appraised Value.
"Business Day" shall mean any day that is not a Saturday or Sunday or a day
on which banks are required or permitted to be closed in the State of New York.
"Common Stock" shall mean (except where the context otherwise indicates)
the Common Stock, par value $.10 per share, of the Company as constituted on the
date hereof, and any capital stock into which such Common Stock may thereafter
be changed, and shall also include (i) capital stock of the Company of any other
class (regardless of how denominated) issued to the holders of shares of Common
Stock upon any reclassification thereof which is also not preferred as to
dividends or assets over any other class of stock of the Company and which is
not subject to redemption and (ii) shares of common stock of any successor or
acquiring corporation received by or distributed to the holders of Common Stock
of the Company in the circumstances contemplated by Section 8(e).
"Company" shall have the meaning set forth in the preamble.
"Convertible Securities" shall mean evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable for, with
or without payment of additional consideration in cash or property, Additional
Shares of Common Stock, either immediately or upon the occurrence of a specified
date or event.
"Exercise Percentage" shall have the meaning set forth in the preamble.
"Exercise Date" shall mean the date on which the Company shall have
received (i) this Warrant (or any New Warrant, as applicable), with the Form of
Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Warrant Price
for the number of Warrant Preferred Shares so indicated by the holder hereof to
be purchased unless the exercise of such Warrant is made pursuant to the
cashless exercise provision of Section 2(d) hereof.
"Exercise Period" shall mean the period commencing the date hereof and
ending on the Expiration Date.
"Expiration Date" shall mean December 31, 2007.
"Fair Market Value" shall mean, as of any date, the value of a share of
Common Stock determined as follows:
(i) if such stock is publicly traded and is then listed on a national
securities market or exchange, its closing price on the date of
determination on the principal national securities exchange on which the
stock is listed or admitted to trading as reported in The Wall Street
Journal;
(ii) if such stock is then quoted on the Nasdaq National Market, its
closing price on the Nasdaq National Market on the date of determination as
reported in The Wall Street Journal;
(iii) if such stock is publicly traded but is not listed or admitted
to trading on a national securities exchange nor quoted on the Nasdaq
National Market, the average of the closing bid and asked prices on the
date of determination as reported by The Wall Street Journal (or, if not so
reported, as otherwise reported by any newspaper or other source as the
Board of Directors of the Company may determine in good faith); or
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(iv) if none of the foregoing is applicable, the Appraised Value.
"Fully Diluted Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all shares of Common Stock outstanding at such date, together with all shares of
Common Stock issuable (i) upon the conversion of Warrant Preferred Shares, (ii)
upon the conversion of the Preferred Stock issuable upon the exercise of the
Related Warrants to the extent then exercisable, and (iii) in respect of any
other outstanding Convertible Securities, options, warrants or other rights to
purchase or receive Common Stock or Convertible Securities, but only if the
exercise or conversion price of the shares covered by any such Convertible
Security, option, warrant or other right to purchase or receive Common Stock or
Convertible Securities is not greater than one hundred fifty percent (150%) of
the Fair Market Value of a share of Common Stock on the Exercise Date.
"Holder" shall mean the Person or Persons in whose name the Warrant set
forth herein is registered on the books of the Company maintained for such
purpose.
"Majority Holders" shall mean the holders of Warrant Securities exercisable
for, convertible into or representing, as the case may be, as of the date of any
such determination, in excess of fifty percent (50%) of the aggregate number of
shares of Common Stock theretofore obtained or thereafter obtainable through the
exercise or conversion of Warrant Securities.
"New Warrant" shall mean a new warrant to purchase Preferred Stock, in
substantially the form of this Warrant, issuable in certain events as set forth
herein.
"Other Property" shall have the meaning set forth in Section 8(e).
"Permitted Issuances" shall mean the (a) the issuance of stock options to
employees of the Company or any Subsidiary of the Company pursuant to a stock
option plan approved by the stockholders of the Company authorizing the issuance
of not more than two million (2,000,000) shares of Common Stock, or (b) issuance
of shares of Common Stock upon (i) conversion of Warrant Preferred Shares, or
(ii) exercise of the stock options referred to in clause (a) of this definition.
"Person" shall mean any individual, corporation, sole proprietorship,
partnership (general or limited), limited liability company, joint venture,
trust, association, institution, or other legal entity or organization.
"Preferred Stock" shall mean the Warrant Preferred Shares and the shares of
the Company's preferred stock issuable upon the exercise of the Related
Warrants.
"Related Warrants" shall mean the warrants having substantially similar
terms and conditions (except with respect to series, exercise price and number
of shares covered thereby) issued to Warrant Holder concurrently with the
original issuance of the Warrants and all warrants issued upon transfer,
division or combination of, or in substitution for, such warrants.
"Subsidiary" shall mean, with respect to any Person, any corporation of
which outstanding stock having ordinary voting power to elect a majority of the
board of directors of such corporation is at the time, directly or indirectly,
owned legally or beneficially by such Person and/or one or more Subsidiaries of
such Person.
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"Then Conversion Price" shall have the meaning set forth in Section
8(c)(i).
"Warrants" shall mean this Warrant and all warrants issued upon transfer,
division or combination of, or in substitution for, this Warrant. All Warrants
shall at all times be identical as to terms and conditions and date, except as
to the number of shares of Preferred Stock for which they may be exercised.
"Warrant Common Shares" shall mean the shares of Common Stock issued or
issuable upon conversion of the Warrant Preferred Shares.
"Warrant Holder" shall have the meaning set forth in the preamble.
"Warrant Preferred Shares" shall mean the shares of Preferred Stock
purchased by or issuable to the Holders of Warrants from time to time upon the
exercise of this Warrant.
"Warrant Price" shall mean $12.00, subject to adjustment as provided
herein.
"Warrant Register" shall have the meaning set forth in Section 6.
"Warrant Securities" shall mean the Warrants, the Related Warrants, the
Warrant Preferred Shares and the Warrant Common Shares, collectively.
2. Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the registered Holder on any
Business Day before 5:00 P.M., Eastern time, at any time and from time to
time during the Exercise Period, for all or any portion of the Warrant
Preferred Shares. At 5:00 P.M., Eastern time on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become
void and of no value.
(b) Upon surrender of this Warrant, with the Form of Election to
Purchase attached hereto duly completed and signed, to the Company at its
office at 0000 Xxxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxxxxxx 00000-0000, Attn:
Xxxx Xxxxxx, or at such other address as the Company may designate by
notice pursuant to Section 13, and upon payment of the Warrant Price
multiplied by the number of Warrant Preferred Shares that the Warrant
Holder intends to purchase hereunder, in lawful money of the United States
of America, in cash or by certified or official bank check or checks in New
York Clearing House Funds, all as specified by the Holder in the Form of
Election to Purchase, the Company shall promptly (but in no event later
than three (3) Business Days after the Exercise Date) issue or cause to be
issued and cause to be delivered to or upon the written order of the
Holder, and in such name or names and in such denominations as the Holder
may designate, a certificate or certificates for the Warrant Preferred
Shares issuable upon such exercise. Any Person so designated by the Warrant
Holder to receive Warrant Preferred Shares shall be deemed to have become
the holder of record of such Warrant Preferred Shares as of the Exercise
Date.
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(c) This Warrant shall be exercisable, from time to time, either in
its entirety or for all or a portion of the Warrant Preferred Shares. If
this Warrant is exercised at any time for less than all of the Warrant
Preferred Shares, the Company shall determine the percentage of the number
of Fully Diluted Outstanding shares of Common Stock on which the number of
Warrant Preferred Shares so purchased was based (the "Purchased
Percentage"), and the Company shall issue or cause to be issued, at its
expense, a New Warrant evidencing the right to purchase up to that number
of shares of Preferred Stock which is convertible into the number of Fully
Diluted Outstanding shares of the Common Stock of the Company which is a
percentage of such number equal to the difference between the Exercise
Percentage and the Purchased Percentage.
(d) In lieu of exercising this Warrant pursuant to Section 2(b) above,
a Holder may elect to receive Warrant Preferred Shares equal to the value
of this Warrant (or the portion thereof being exercised) by surrender of
this Warrant at the office of the Company as set forth in Section 2(b),
together with notice of such election, in which event the Company shall
issue to the Holder a number of Warrant Preferred Shares (rounded down to
the nearest whole number) computed using the following formula:
X = Y (A-B)
-------
A
Where
X = the number of Warrant Preferred
Shares to be issued to the Holder;
Y = the number of Warrant Preferred
Shares or the portion thereof as to
which this Warrant is being
exercised (at the date of such
calculation);
A = the Fair Market Value of the
number of shares of Common Stock
into which one Warrant Preferred
Share is then convertible; and
B = the Warrant Price (as adjusted to
the date of such calculation).
3. Payment of Expenses and Taxes. The Company will pay all expenses in
connection with, and all taxes and other governmental charges that may be
imposed with respect to, the issuance and delivery of Warrant Preferred Shares
upon the exercise of this Warrant; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the registration of any certificates for Warrant Preferred Shares or
New Warrants in a name other than that of the Warrant Holder.
4. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and indemnity, if
requested, reasonably satisfactory to the Company.
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5. Reservation of Warrant Shares. The Company covenants that it will at (a)
all times reserve and keep available out of the aggregate of its authorized but
unissued Preferred Stock, solely for the purpose of enabling it to issue Warrant
Preferred Shares upon exercise of this Warrant as herein provided, the number of
Warrant Preferred Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, and out of its authorized but unissued Common
Stock, solely for the purpose of enabling it to issue shares of Common Stock
upon conversion of the Warrant Preferred Shares, the number of shares of Common
Stock into which all unconverted Warrant Preferred Shares are convertible, each
free from preemptive rights or any other rights of persons other than the Holder
(taking into account the adjustments provided herein), and (b) take all action
that may be necessary or appropriate (including without limitation exercising
its best efforts to obtain shareholder approval) to increase the authorized
number of shares of Common Stock if necessary to permit such conversion. All
Warrant Preferred Shares that shall be so issuable and deliverable, and all
Common Stock into which such Warrant Preferred Shares are convertible, shall,
upon issuance and the payment of the applicable Warrant Price in accordance with
the terms hereof, or upon conversion of the Warrant Preferred Shares in
accordance with the terms thereof, as the case may be, be duly and validly
authorized, issued and fully paid and nonassessable, and free from all taxes,
liens, claims and encumbrances and will not be subject to preemptive rights or
other similar rights of shareholders of the Company, other than (i) restrictions
on transferability as may be applicable under federal and state securities laws,
or (ii) those created by the Holder.
6. Registration of Warrant. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Warrant Holder hereof from time to time.
The Company may deem and treat the registered Warrant Holder of this Warrant as
the absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Warrant Holder, and for all other purposes, and the Company
shall not be affected by notice to the contrary.
7. Registration of Transfers and Exchanges.
(a) This Warrant and the rights granted to the Holder are
transferable, in whole or in part, upon surrender of this Warrant as
provided in Section 2(b) above.
(b) The Company shall register the transfer of any portion of this
Warrant in the Warrant Register, upon surrender of this Warrant, with the
Form of Assignment attached hereto duly completed and signed, to the
Company at the office specified in or pursuant to Section 2(b). Upon any
such registration or transfer, a New Warrant evidencing the portion of this
Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if
any, shall be issued to the transferring Holder. The acceptance of the New
Warrant by the transferee thereof shall be deemed the acceptance by such
transferee of all of the rights and obligations of a Holder of a Warrant.
(c) This Warrant is exchangeable upon the surrender hereof by the
Holder to the office of the Company specified in or pursuant to Section
2(b) for one or more New Warrants, evidencing in the aggregate the right to
purchase the number of Warrant Preferred Shares which may then be purchased
hereunder. Any such New Warrant will be dated the date of such exchange,
but reference shall be made to the original date of the issuance of the
Warrant.
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8. Certain Adjustments. The Warrant Price and number of Warrant Preferred
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 8.
(a) Stock Dividends, Subdivisions and Combinations. If at any time the
Company shall:
(i) take a record of the holders of Common Stock for the purpose
of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then the Warrant Price shall be adjusted to equal (A) the then Warrant Price
multiplied by the number of Warrant Preferred Shares immediately prior to the
adjustment, divided by (B) the number of Warrant Preferred Shares immediately
after such adjustment.
(b) Certain Other Distributions. If at any time the Company shall take
a record of the holders of Common Stock for the purpose of entitling them
to receive any dividend or other distribution of:
(i) any evidences of its indebtedness, any shares of its stock or
any other securities or property (other than cash dividends legally
payable out of earnings or earned surplus or Additional Shares of
Common Stock); or
(ii) any warrants or other rights to subscribe for or purchase
any evidences of its indebtedness, any shares of its stock or any
other securities or property of any nature whatsoever (other than cash
dividends legally payable out of earnings or earned surplus or
Additional Shares of Common Stock),
then (A) the Exercise Percentage shall be adjusted to equal the quotient,
expressed as a percentage, of (I) the number of shares of Common Stock of the
Company into which the Warrant Preferred Shares are convertible immediately
after such adjustment (which shall be equal to the product of the number of
shares of Common Stock into which the Warrant Preferred Shares are convertible
immediately prior to such adjustment multiplied by a fraction (x) the numerator
of which shall be the Fair Market Value of a share of Common Stock at the date
of taking such record, and (y) the denominator of which shall be (1) such Fair
Market Value of a share of Common Stock, minus (2) the amount allocable to one
share of Common Stock of the fair value (as determined in good faith by the
Board of Directors of the Company and supported by an opinion from an investment
banking firm of recognized national standing acceptable to the Majority Holders)
of any and all such evidences of indebtedness, shares of stock, other securities
or property or warrants or other subscription or purchase rights so
distributable) divided by (II) the number of Fully Diluted Outstanding shares of
Common Stock of the Company immediately after such adjustment, and (B) the
Warrant Price shall be adjusted to equal (I) the then Warrant Price multiplied
by the number of Warrant Preferred Shares immediately prior to the adjustment
divided by (II) the number of Warrant Preferred Shares immediately after such
adjustment. A reclassification of the Common Stock (other than a change in par
value, or from par value to no par value) into shares of Common Stock and shares
of any other class of stock shall be deemed a distribution by the Company to the
holders of its Common Stock of such shares of such other class of stock within
the meaning of this Section 8(b).
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(c) Issuance of Additional Shares of Common Stock.
(i) If at any time prior to the Commutation Date, as such term is
defined in that certain Reinsurance Agreement among Centre Solutions
(Bermuda) Limited and the operating subsidiaries of the Company, Penn
Treaty Network America Insurance Company and American Network
Insurance Company, with an effective date of December 31, 2001, the
Company shall issue or sell any Additional Shares of Common Stock,
other than Permitted Issuances, at a price per share less than a price
equal to the greater of (A) the quotient of the Warrant Price then in
effect divided by the number of shares of Common Stock into which a
Warrant Preferred Share is then convertible (the "Then Conversion
Price"), or (B) the Fair Market Value of a share of Common Stock into
which a Warrant Preferred Share is then convertible, then the Warrant
Price shall be reduced to the lower of
(x) a price determined by dividing (I) an amount equal to
the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issuance or sale multiplied by the Then
Conversion Price, plus (2) the aggregate consideration received
by the Company upon such issuance or sale, by (II) the total
number of shares of Common Stock outstanding immediately after
such issuance or sale, and
(y) a price determined by multiplying the Then Conversion
Price by a fraction, the numerator of which is (I) the sum of (1)
the number of shares of Common Stock outstanding immediately
prior to such issue or sale multiplied by the Fair Market Value
immediately prior to such issue or sale plus (2) the aggregate
consideration, if any, received by the Company upon such issue or
sale, divided by (II) the total number of shares of Common Stock
outstanding immediately after such issue or sale, and the
denominator of which shall be the Fair Market Value immediately
prior to such issue or sale.
(ii) The provisions of Section 8(c)(i) shall not apply to any
issuance of Additional Shares of Common Stock for which an adjustment
is provided under Section 8(a) or (b). No adjustment of the Warrant
Price shall be made under Section 8(c)(i) upon the issuance of any
Additional Shares of Common Stock which are issued pursuant to the
exercise of any warrants, options or other subscription or purchase
rights or pursuant to the exercise of any conversion or exchange
rights in any Convertible Securities, if any such adjustment shall
previously have been made upon the issuance of such warrants, options
or other rights or upon the issuance of such Convertible Securities
(or upon the issuance of any warrant or other rights therefor)
pursuant to Section 8(d).
(d) Issuance of Convertible Securities, Warrants or Other Rights. If
at any time the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a distribution of, or
shall in any manner (whether directly or by assumption in a merger in which
the Company is the surviving corporation) issue or sell, any Convertible
Securities, warrants or other rights to subscribe for or purchase any
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Additional Shares of Common Stock or any Convertible Securities, other than
Permitted Issuances, whether or not the rights to exchange or convert
thereunder are immediately exercisable, if the consideration per share of
Common Stock receivable upon exercise of such warrants or other rights or
upon conversion or exchange of such Convertible Securities shall be less
than the greater of the Then Conversion Price in effect immediately prior
to the time of such issue or sale or the Fair Market Value immediately
prior to such issue or sale, then the Warrant Price shall be adjusted as
provided in Section 8(c) on the basis that (i) the maximum number of
Additional Shares of Common Stock issuable pursuant to all such warrants or
other rights or necessary to effect the conversion or exchange of all such
Convertible Securities shall be deemed to have been issued and outstanding,
(ii) the price per share of such Additional Shares of Common Stock shall be
deemed to be the lowest possible price per share at which such Additional
Shares of Common Stock are available to such holders, and (iii) the Company
shall have received all of the consideration payable therefor as of the
date of the actual issuance of such warrants or other rights or such
Convertible Securities. No further adjustments of the Warrant Price shall
be made upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such warrants or other rights or upon the
actual issue of such Common Stock upon such conversion or exchange of such
Convertible Securities, provided that, where no such adjustment has been
made at the time of issuance, an adjustment shall be made at the time of
the conversion of any such Convertible Securities or at the time of the
exercise of any such warrants or other rights if such an adjustment is
required by Section 8(c).
(e) Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation), or sell,
transfer or otherwise dispose of all or substantially all its property,
assets or business to another Person and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation,
or any cash, shares of stock or other securities or property of any nature
whatsoever (including warrants or other subscription or purchase rights) in
addition to or in lieu of common stock of the successor or acquiring Person
("Other Property"), are to be received by or distributed to the holders of
Common Stock and/or Preferred Stock of the Company, then each Holder shall
have the right thereafter to receive, upon exercise of such Holder's
Warrant, the number of shares of common stock or, at the election of the
Holder, the number of shares of preferred stock, of the successor or
acquiring corporation and Other Property receivable upon or as a result of
such reorganization, reclassification, merger, consolidation or disposition
of assets by a holder of the number of shares of Common Stock into which
the Warrant Preferred Shares are convertible immediately prior to such
event. In case of any such reorganization, reclassification, merger,
consolidation or disposition of assets, the successor or acquiring Person
shall expressly assume the due and punctual observance and performance of
each and every covenant and condition of this Warrant to be performed and
observed by the Company and all the obligations and liabilities hereunder,
subject to such modifications as may be deemed appropriate (as determined
by resolution of the Board of Directors of the Company) in order to provide
for adjustments of Warrant Preferred Shares which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section
8. The foregoing provisions of this Section 8(e) shall similarly apply to
successive reorganizations, reclassifications, mergers, consolidations or
disposition of assets.
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(f) Other Action Affecting Capital Stock. In case at any time or from
time to time the Company shall take any action in respect of its Common
Stock or other securities, other than the payment of cash dividends legally
payable out of earnings or earned surplus or any other action described in
this Section 8, then the number of Warrant Preferred Shares or other
securities for which this Warrant is exercisable and/or the purchase price
thereof shall be adjusted in such manner as may be equitable in the
circumstances.
(g) Computation of Consideration. To the extent that any Additional
Shares of Common Stock or any Convertible Securities or any warrants or
other rights to subscribe for or purchase any Additional Shares of Common
Stock or any Convertible Securities shall be issued for cash consideration,
the consideration received by the Company therefor shall be the amount of
the cash received by the Company therefor, or, if such Additional Shares of
Common Stock or Convertible Securities are offered by the Company for
subscription, the subscription price, or, if such Additional Shares of
Common Stock or Convertible Securities are sold to underwriters or dealers
for public offering without a subscription offering, the initial public
offering price (in any such case subtracting any amounts paid or receivable
for accrued interest or accrued dividends, but not subtracting any
compensation, discounts or expenses paid or incurred by the Company for and
in the underwriting of, or otherwise in connection with, the issuance
thereof). To the extent that such issuance shall be for a consideration
other than cash, or in case any Additional Shares of Common Stock or any
Convertible Securities or any warrants or other rights to subscribe for or
purchase such Additional Shares of Common Stock or Convertible Securities
shall be issued in connection with any merger in which the Company issues
any securities, then the amount of such consideration shall be deemed to be
the fair value of such consideration at the time of such issuance as
determined in good faith by the Board of Directors of the Company or, if so
requested by the Majority Holders, by a nationally recognized independent
financial expert selected by the Majority Holders. The consideration for
any Additional Shares of Common Stock issuable pursuant to any warrants or
other rights to subscribe for or purchase the same shall be the
consideration, if any, received by the Company for issuing such warrants or
other rights plus the additional consideration payable to the Company upon
exercise of such warrants or other rights. The consideration for any
Additional Shares of Common Stock issuable pursuant to the terms of any
Convertible Securities shall be the consideration received by the Company
for issuing warrants or other rights to subscribe for or purchase such
Convertible Securities, plus the consideration paid or payable to the
Company in respect of the subscription for or purchase of such Convertible
Securities, plus the additional consideration, if any, payable to the
Company upon the exercise of the right of conversion or exchange contained
in such Convertible Securities. In case of the issuance at any time of any
Additional Shares of Common Stock or Convertible Securities in payment or
satisfaction of any dividends upon any class of stock other than Common
Stock, the Company shall be deemed to have received for such Additional
Shares of Common Stock or Convertible Securities a consideration equal to
the amount of such dividend so paid or satisfied.
(h) Readjustment of Warrant Price. Upon the expiration of the right to
convert, exchange or exercise any Convertible Securities or any warrant or
other right, the issuance of which effected an adjustment in the Warrant
Price, if any such Convertible Securities or any warrant or other right
shall not have been converted, exercised or exchanged, the number of Fully
Diluted Outstanding shares shall be adjusted to reflect such expiration,
and the Warrant Price shall forthwith be readjusted and thereafter be the
price which it would have been (but reflecting any other adjustments in the
Warrant Price made pursuant to the provisions of this Subsection 8 after
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the issuance of such Convertible Securities, warrants or other rights) had
the adjustment of the Warrant Price been made in accordance with the
issuance or sale of the number of Additional Shares of Common Stock
actually issued upon conversion, exchange or issuance of such Convertible
Securities, warrants or other rights and thereupon only the number of
Additional Shares of Common Stock actually so issued shall be deemed to
have been issued and only the consideration actually received by the
Company shall be deemed to have been received by the Company.
(i) Other Provisions. For the purposes of this Section 8, the
following provisions shall also be applicable:
(A) All calculations under this Section 8 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case
may be.
(B) No adjustment in the Warrant Price shall be made if such
adjustment would result in a change in the Warrant Price of less
than $.01, provided that any such adjustments not made shall be
carried forward and taken into account at the time of any
subsequent adjustment in the Warrant Price.
(C) The number of shares of Common Stock or any other
securities at any time outstanding shall not include any shares
thereof then directly or indirectly owned or held by or for the
account of the Company or any Subsidiary.
(D) Whenever the Board of Directors of the Company shall be
required to make any determination under this Section 8, such
determination may be challenged in good faith by the Holders of
Warrants exercisable for at least a majority of the Warrant
Preferred Shares, and any dispute shall be resolved by an
investment banking firm of recognized national standing selected
by the Company and acceptable to such Holders.
9. Notices to Warrant Holders.
(a) Notice of Adjustments. Whenever the number of Warrant Preferred
Shares, or whenever the price at which a Warrant Preferred Share may be
purchased, shall be adjusted pursuant to Section 8, the Company shall
forthwith prepare a certificate to be executed by the chief financial
officer of the Company setting forth, in reasonable detail, the event
requiring the adjustment and the method by which such adjustment was
calculated, specifying the number of Warrant Preferred Shares for which
this Warrant is then exercisable and (if such adjustment was made pursuant
to Section 8(e) or (f)) describing the number and kind of any other shares
of stock or Other Property for which this Warrant is exercisable, and any
change in the purchase price or prices thereof, after giving effect to such
adjustment or change. The Company shall promptly cause a signed copy of
such certificate to be delivered to each Holder in accordance with Section
13. The Company shall keep at its office as set forth in Section 2(b)
copies of all such certificates and cause the same to be available for
inspection at said office during normal business hours by any Holder or any
prospective purchaser of a Warrant designated by a Holder thereof.
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(b) Notice of Certain Corporate Action. In case the Company shall
propose to (i) pay any dividend payable in stock of any class to the
holders of its Common Stock or to make any other distribution to the
holders of its Common Stock, (ii) offer to the holders of its Common Stock
rights to subscribe for or to purchase any Convertible Securities or
Additional Shares of Common Stock or shares of stock of any class or any
other securities, rights or options, (iii) effect any reclassification of
its Common Stock (other than a reclassification involving only the
subdivision or combination of outstanding shares of Common Stock), (iv)
effect any capital reorganization or recapitalization, (v) effect any
consolidation, merger or sale, transfer or other disposition of all or
substantially all its property, assets or business, or (vi) effect the
liquidation, dissolution or winding up of the Company, then in each such
case, the Company shall give to each Holder, in accordance with Section 13,
a notice of such proposed action, which shall specify the date on which a
record is to be taken for the purposes of such stock dividend, distribution
or rights, or the date on which such reclassification, reorganization,
recapitalization, consolidation, merger, sale, transfer, disposition,
liquidation, dissolution or winding up is to take place and the date of
participation therein by the holders of Common Stock, if any such date is
to be fixed, as well as the record date for any vote on any such action and
shall also set forth such facts with respect thereto as shall be reasonably
necessary to indicate the effect of such action on the Common Stock and the
Warrant Preferred Shares and the number and kind of any other shares of
stock which will constitute shares issuable upon exercise of this Warrant,
and the purchase price or prices thereof, after giving effect to any
adjustment which will be required as a result of such action. Such notice
shall be so given in the case of any action covered by clause (i) or (ii)
above at least twenty (20) days prior to the record date for determining
holders of the Common Stock for purposes of such action and, in the case of
any other such action, at least twenty (20) days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of Common Stock, whichever shall be earlier.
10. No Impairment. The Company shall not by any action including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith carry out of all such terms and take all such actions as may
be necessary or appropriate to protect the rights of Holders against impairment.
11. Registration Rights. Concurrently with the issuance of this Warrant,
the Company and Warrant Holder are entering into a separate agreement pursuant
to which Holders are granted certain rights to register Warrant Common Shares
under the Securities Act of 1933, as amended.
12. Fractional Shares. The Company shall not be required to issue or cause
to be issued fractional Warrant Preferred Shares on the exercise of this
Warrant. The number of full Warrant Preferred Shares which shall be issuable
upon the exercise of this Warrant shall be computed on the basis of the
aggregate number of Warrant Preferred Shares purchasable on exercise of this
Warrant so presented. If any fraction of a Warrant Preferred Share would, except
for the provisions of this Section 12, be issuable on the exercise of this
Warrant, the Company shall, at its option, (a) pay an amount in cash equal to
the Warrant Price multiplied by such fraction or (b) round the number of Warrant
Preferred Shares issuable up to the next whole number of such shares.
12
13. Notices. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 4:30 p.m. (Eastern time) on a Business Day, (ii) the Business
Day after the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile telephone number specified in this Section later
than 4:30 p.m. (Eastern time), (iii) the Business Day following the date of
mailing, if sent by nationally recognized overnight courier service, or (iv)
upon actual receipt by the party to whom such notice is required to be given.
The addresses for such communications shall be: (i) if to the Company, to 0000
Xxxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxxxxxx 00000-0000, Attn: Xxxx Xxxxxx, facsimile
number (000) 000-0000, or (ii) if to a Holder, to the address or facsimile
number appearing on the Warrant Register or such other address or facsimile
number as the Holder may provide to the Company in accordance with this Section
13.
14. Warrant Agent.
(a) The Company shall serve as warrant agent under this Warrant. Upon
thirty (30) days' notice to the Warrant Holder, the Company may appoint a
new warrant agent.
(b) Any corporation into which the Company or any new warrant agent
may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which any new warrant agent transfers substantially all of its corporate
trust or shareholders services business shall be a successor warrant agent
under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Warrant Holder at the
Warrant Holder's last address as shown on the Warrant Register.
15. Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and assigns. This Warrant
may be amended only in writing signed by the Company and the Holder.
(b) The Company agrees to indemnify and hold harmless each Holder, its
officers, directors, employees, agents and attorneys, from and against any
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, attorneys' fees, expenses and disbursements of any
kind which may be imposed upon, incurred by or asserted against each Holder
relating to or arising out of (i) such Holder's exercise of this Warrant
and/or ownership of any Warrant Preferred Shares or Warrant Common Shares
upon the exercise hereof or conversion of Warrant Preferred Shares, or (ii)
any litigation or other proceeding to which such Holder is made a party in
its capacity as a stockholder or warrant holder of the Company; provided
that the Company will not be liable hereunder to the extent that any
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, attorneys' fees, expenses or disbursements are found
in a final nonappealable judgment by a court of competent jurisdiction to
have resulted from either (x) such Holder's gross negligence or willful
misconduct, or (y) actions or omissions taken or not taken by such Holder
in any capacity other than as a stockholder or warrant holder of the
Company.
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(c) This Warrant shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York without regard
to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not constitute a
part of this Warrant and shall not be deemed to limit or affect any of the
provisions hereof.
(e) In case any one or more of the terms or provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall
not in any way be affected or impaired thereby and the parties will attempt
in good faith to agree upon a valid and enforceable provision which shall
be a commercially reasonable substitute therefor, and upon so agreeing,
shall incorporate such substitute provision in this Warrant.
(f) This Warrant and all other Warrants may be modified or amended or
the provisions hereof waived with the written consent of the Company, the
Warrant Holder and the Holders of Warrants exercisable for at least a
majority of the Warrant Preferred Shares, provided that no such Warrant may
be modified or amended to reduce the number of Warrant Preferred Shares or
to increase the price at which such shares may be purchased upon exercise
of such Warrant (before giving effect to any adjustment as provided
therein) without the prior written consent of the Holder thereof.
14
IN WITNESS WHEREOF, Penn Treaty American Corporation has caused this Warrant to
be signed by its duly authorized officer as of the date above.
PENN TREATY AMERICAN CORPORATION
By:
----------------------------
Its:
----------------------------
15
EXHIBIT "1" to WARRANT
FORM OF ELECTION TO PURCHASE
(To be executed by the Warrant Holder to exercise the right to purchase shares
of Series A-1 Convertible Preferred Stock under the foregoing Warrant)
To Penn Treaty American Corporation:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned ("Warrant Holder") hereby irrevocably elects to
acquire _____________ shares of Series A-1 Convertible Preferred Stock (the
"Shares"), $1.00 par value per share, of Penn Treaty American Corporation and
(check the applicable provision):
____ encloses herewith $________ in cash or certified or official bank
check or checks in New York Clearing House funds, which sum represents the
aggregate Warrant Price (as defined in the Warrant) for the number of Shares to
which this Form of Election to Purchase relates, together with any applicable
taxes payable by the undersigned pursuant to the Warrant;
or
____ elects to acquire such Shares pursuant to the cashless exercise
provision (Section 2(d)) of the Warrant.
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
-----------------------------------
--------------------------------------------------------------------------------
(Please print name and address)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
If the number of shares of Series A-1 Convertible Preferred Stock
issuable upon this exercise shall not be all of the shares of Series A-1
Convertible Preferred Stock which the undersigned is entitled to purchase in
accordance with the enclosed Warrant, the undersigned requests that a New
Warrant (as defined in the Warrant) evidencing the right to purchase the shares
of Series A-1 Convertible Preferred Stock not issuable pursuant to the exercise
evidenced hereby be issued in the name of and delivered to:
--------------------------------------------------------------------------------
(Please print name and address)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Dated:___________________, 200_ Name of Warrant Holder:
(Print)_____________________________
(By:)_______________________________
(Name:)_____________________________
(Title:)____________________________
(Signature must conform in all
respects to name of Warrant Holder
as specified on the face of the
Warrant)
16
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Series A-1 Convertible Preferred
Stock of Penn Treaty American Corporation to which the within Warrant relates
and appoints ________________ attorney to transfer said right on the books of
Penn Treaty American Corporation with full power of substitution in the
premises.
Dated:
_______________, 200_
----------------------------------------
(Signature must conform in all respects
to name of Warrant Holder as specified
on the face of the Warrant)
----------------------------------------
Address of Transferee
----------------------------------------
----------------------------------------
----------------------------------------
Social Security or Tax Identification
Number
17
