**Exhibit 4.1**

 

FIRST SUPPLEMENTAL INDENTURE

 

This FIRSTSUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as ofMarch 5, 2003, between Penn Treaty American Corporation (the “Company”)and Wells Fargo Bank Minnesota, N.A., as trustee under the Indenture referredto below (the “Trustee”).

 

WITNESSETH

 

WHEREAS, theCompany has heretofore executed and delivered to the Trustee an indenture,dated as of October 25, 2002 (the “Indenture”), providing for the issuance ofup to $74,750,000 of 6 1/4% Convertible Subordinated Notes due 2008 (the“Notes”);

 

WHEREAS, theIndenture provides that under certain circumstances the Company may lower theConversion Price and the Company and the Trustee may enter into indenturessupplemental to the Indenture to add provisions that are considered by theBoard of Directors of the Company and the Trustee to be for the benefit of theholders of the Notes.

 

NOW THEREFORE,in consideration of the foregoing and for other good and valuableconsideration, the receipt of which is hereby acknowledged, the Company and theTrustee mutually covenant and agree for the equal and ratable benefit of theholders of the Notes as follows:

 

1.                                       DEFINITIONS.  Capitalized terms used herein withoutdefinition shall have the meanings assigned to them in the Indenture.

 

2.                                       REDEMPTION.  Section 3.1 is hereby amended and restatedin its entirety to read as follows:

 

“Section 3.1           REDEMPTION PRICES.  The Notes are not redeemable at the optionof the Company prior to October 15, 2005. At any time on or after that date, the Notes may be redeemed at theCompany’s option, upon notice as set forth in Section 3.2, in whole at any timeor in part from time to time, at the redemption price of 100% of principalamount of Notes plus accrued and unpaid interest.”

 

3.                                       FORCEDREDEMPTION.  Existing Section 14.1(b) isnow 14.1(c), existing Section 14.1(c) is now 14.1(d) and a new Section 14.1(b)is added to read in full as follows:

 

“(b)         In the event that the Company does notamend its Articles of Incorporation on or before May 27, 2003 to increase thenumber of authorized shares of Common Stock to an amount sufficient to coverthe conversion of the Notes and the existing notes due in 2008, the Companywill, at the request of any Noteholder providing notice to the Company in amanner consistent with Section 16.4, purchase such Noteholder’s Notes in cashat a price equal to 125% of the principal amount of such Noteholder Notes plusaccrued, but unpaid interest.  The rightof a Noteholder to request that the Company purchase such Noteholder’s Notespursuant to this Section 14.1(b) shall terminate upon the amendment of theCompany’s Articles of Incorporation to increase the number of authorized shares

 

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of CommonStock to an amount sufficient to cover the conversion of the Notes and theexisting notes due in 2008.”

 

4.                                       PREFERREDINTEREST ON EARLY CONVERSION.  A newSection 14.1(e) is added to read in full as follows:

 

“(e)         In the event that a Noteholder desiresto convert all or any portion of its Notes into shares of Common Stock prior toOctober 15, 2005, the Company will pay such Noteholder an amount equal to theinterest that would have been otherwise earned on such Notes between the dateof such conversion and October 15, 2005 discounted to present value utilizing arate of 6.25% with simple interest over a 360 day year.  In the event that a Noteholder elects toconvert prior to October 15, 2005 and the Company is required to pay interestpursuant to this Section 14.1(e), the Company may, in its sole discretion,elect to make such interest payment in cash or in shares of Common Stock basedon 90% of the average Closing Prices of the Common Stock for the five TradingDays immediately preceding the conversion date.  Prior to or concurrently with such payment, the Company willprovide the Trustee with an Officers’ Certificate setting forth the calculationof the payment required by this Section 14.1(e).  The Trustee shall have no obligation or liability with respect tothe calculation of the payments required by this Section 14.1(e).”

 

5.                                       MANDATORYCONVERSION.  Section 14.3 is herebyamended and restated in its entirety to read as follows:

 

“Section 14.3         MANDATORY CONVERSION.   The Notes shall be automatically convertedinto Common Stock on the first date (the “Mandatory Conversion Date”) on orafter the 15th Trading Day following October 15, 2005, on which: (i) theaverage of the Closing Price (as defined in Section 14.6(g)) of the CommonStock on 15 consecutive preceding Trading Days is equal to or greater than 110%of the Conversion Price and (ii) the Company has sufficient shares of CommonStock (or other securities into which the Notes are then convertible)authorized to execute the Mandatory Conversion (as defined below).  The Notes shall be converted into thatnumber of fully paid and nonassessable shares of Common Stock (or othersecurities into which the Notes are then convertible) obtained by dividing theaggregate principal amount of the Notes by the Conversion Price in effect atsuch time rounded to the nearest 1/100,000th of a share (with0.000005 being rolled upward) (the “Mandatory Conversion”).”

 

6.                                       CONVERSIONPRICE.  Section 14.5 is hereby amendedand restated in its entirety to read as follows:

 

“Section 14.5         CONVERSION PRICE.  The conversion price of the Notes (the“Conversion Price”) shall be $1.75 per share of Common Stock, subject toadjustment as provided in this Article XIV.”

 

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7.                                       CONFIRMATIONOF INDENTURE.  The Indenture and thisSupplemental Indenture shall be read, taken and construed as one and the sameinstrument.  Except as amended andrestated hereby, the provisions of the Indenture shall remain in full force andeffect.

 

8.                                       GOVERNINGLAW.  This Supplemental Indenture shallbe deemed to be a contract made under the substantive laws of New York and forall purposes shall be construed in accordance with the substantive laws of NewYork without regard to conflicts of laws principles thereof.

 

9.                                       COUNTERPARTS.  The parties may sign any number of copies ofthis Supplemental Indenture.  Eachsigned copy shall be an original, but all of them together represent the sameagreement.

 

10.                                 EFFECTOF HEADINGS.  The Section headingsherein are for convenience only and shall not affect the construction hereof.

 

11.                                 THETRUSTEE.  The Trustee shall not beresponsible in any manner whatsoever for or in respect of the validity orsufficiency of this Supplemental Indenture or for or in respect of the recitalscontained herein, all of which recitals are made solely by the Company.

 

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IN WITNESSWHEREOF, the parties hereto have caused this Supplemental Indenture to be dulyexecuted and attested, all as of the date first above written.

 

Dated: May 12, 2003

 
|   |   | **PENN TREATY AMERICAN CORPORATION**  |
|--------|--------|---------------------------------------|
|   |   |                                  |
|   |   | By:                                   | /s/ Cameron B. Waite |   |
|   |   | Name:                                 | Cameron B. Waite |
|   |   | Title:                                | EVP and CFO |
|   |   |                                  |
|   |   | **WELLS FARGO BANK  MINNESOTA, N.A.** |
|   |   |                                  |
|   |   | By:                                   | /s/ Michael G. Slade |   |
|   |   | Name:                                 | Michael G. Slade |
|   |   | Title:                                | Corporate Trust Officer |

 

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