BPO MANAGEMENT SERVICES, INC. - S-4/A - 20000420 - TAXATION
Material Federal Income Tax Consequences
The following is a summary description of the material United States
federal income tax consequences of the merger to HealthAxis and the HealthAxis
shareholders who receive HAI common stock in the merger or perfect dissenters'
rights. This summary does not address tax considerations which may affect the
treatment of special status taxpayers such as financial institutions,
broker-dealers, life insurance companies, tax-exempt organizations, investment
companies and foreign taxpayers or of HealthAxis shareholders who do not hold
their HealthAxis stock as a capital asset at the date the merger is completed.
In addition, no information is provided in this summary with respect to the tax
consequences of the merger either under applicable foreign, state or local laws
or to persons who acquired HealthAxis common stock under employee stock options
or otherwise as compensation.
The following discussion is based on the Internal Revenue Code of 1986,
as in effect on the date of this joint proxy statement/prospectus, without
consideration of the particular facts or circumstances of any particular holder
of HealthAxis stock. HealthAxis and HAI have not sought, and will not seek, any
49
rulings from the Internal Revenue Service, with respect to any of the matters
discussed in this summary. It is a condition to the closing that tax counsel to
HealthAxis render an opinion that the merger will qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986.
Provided that the merger qualifies as a statutory merger under applicable state
law:
o the merger will constitute a reorganization within the meaning of
Section 368(a)(2) of the Internal Revenue Code of 1986;
o no gain or loss will be recognized by HAI upon the exchange of
HealthAxis stock solely in exchange for HAI common stock;
o no gain or loss will be recognized by HealthAxis shareholders upon
the exchange of their HealthAxis stock solely for HAI common
stock;
o the basis of HAI common stock received by HealthAxis shareholders
in the merger will be the same as the basis of their HealthAxis
stock surrendered in exchange therefor;
o for capital gains purposes, the holding period of HAI common stock
received by HealthAxis shareholders in the merger will include the
period during which the HealthAxis stock surrendered in exchange
therefor was held, provided that the HealthAxis stock is held as a
capital asset at the date the merger is completed;
o a HealthAxis shareholder who receives cash in lieu of HAI
fractional shares will be treated as having received the
fractional shares and then as having received cash in redemption
of those fractional shares; in that event, the holder will
generally recognize gains or losses equal to the difference
between the amount of cash received and the holder's tax basis
allocable to the HAI fractional shares. The gain or loss will be
long term capital gain or loss if the shares of HealthAxis common
stock were held by the HealthAxis shareholder for more than one
year on the date of the closing of the merger of HealthAxis into
HealthAxis Acquisition Corp.
A HealthAxis shareholder who perfects dissenters' rights with respect
to his or her shares of HealthAxis stock, and who does not withdraw his or her
rights, should, in general, treat the difference between the tax basis of the
shares of HealthAxis stock held by the HealthAxis shareholder with respect to
which dissenters' rights are perfected and the amount received in payment
therefor as capital gain or loss. However, depending on the HealthAxis
shareholder's particular circumstances, this amount might be treated for federal
income tax purposes as dividend income.
Blank Rome Comisky & McCauley LLP, counsel to HealthAxis, will provide
its opinion on the federal income tax consequences of the merger.
The foregoing is a general discussion of the material federal income
tax consequences of the merger for HealthAxis and HealthAxis shareholders and is
included for general information only. The foregoing discussion does not take
into account the particular facts and circumstances of each HealthAxis
shareholder's tax status and attributes. Accordingly, each HealthAxis
shareholder should consult his or her own tax advisor regarding the specific tax
consequences of the merger, including the application and effect of federal,
state, local and other tax laws and the possible effects of changes in these tax
laws.
50
Accounting Treatment
In merging HealthAxis with a subsidiary of HAI, HAI shareholders will
continue to own their existing shares of HAI common stock. The HealthAxis
preferred stock will be converted into common stock, and HAI will issue up to
33,479,785 shares of its common stock to HealthAxis shareholders, which will
represent approximately 72% of the outstanding common stock of HAI after the
merger. The HAI shareholders who hold HAI common stock prior to the merger will
hold approximately 28% of the outstanding common stock of HAI after the merger.
In addition, outstanding HealthAxis options and warrants will convert into
options or warrants to purchase HAI common stock.
In determining the proper accounting treatment for the merger of HAI
and HealthAxis, it is important to note that, HAI, having discontinued its
insurance operations, is a public shell holding company. HealthAxis is the only
operating subsidiary remaining.
Because HAI is a public shell holding company and upon merging the
companies, the shareholders of HealthAxis will hold a majority of the stock of
HAI, the merger represents a recapitalization of HealthAxis in accordance with
generally accepted accounting principles. The exchange of shares will be based
on the carrying value of HealthAxis with the contributed net assets of HAI being
recorded at their historical cost. The preferred stock of HealthAxis will be
converted into common stock. Costs incurred as a result of the merger will be
expensed upon the merger's completion.
NASDAQ Listing
HAI will cause the shares of HAI common stock to be issued in
connection with the merger to be listed on the NASDAQ National Market.
51
Pro Forma Combined Financial Information
The following unaudited pro forma condensed consolidated financial information
is based on the historical financial statements of HealthAxis, Insurdata
Incorporated and HAI. The unaudited pro forma condensed consolidated balance
sheet and statement of operations as of and for the year ended December 31, 1999
give effect to the following transactions for the statement of operations as if
they occurred on January 1, 1999 and for the balance sheet as if they occurred
on December 31, 1999.
The pro forma adjustments are as follows:
1. The merger of Insurdata Incorporated and HealthAxis on January 7,
2000 which has been accounted for under the purchase method of
accounting in accordance with APB No. 16 whereas HA1, by virtue of
its former holding a majority of the voting interest was
determined to be the accounting acquirer. As a result, the net
assets of Insurdata Incorporated have been recorded at their fair
value.
2. The merger of HAI, a corporate shell holding company and
HealthAxis.
3. The conversion of the preferred stock of HealthAxis into common
stock of HealthAxis.
The unaudited pro forma condensed consolidated financial statements are
presented for informational purposes only and do not purport to be indicative of
the financial position which would actually have existed or the results of the
operations which would actually have been obtained if the transactions had
occurred at and for the period indicated above or which may exist or be obtained
in the future.
The unaudited pro forma condensed consolidated financial information should be
read in conjunction the notes hereto and the following:
o HAI's historical consolidated financial statements and notes
thereto included in HAI's annual report on Form 10-K for the year
ended December 31, 1999 which is incorporated by reference in this
document.
o Insurdata Incorporated's historical consolidated financial
statements and notes thereto included elsewhere herein for each of
the three years in the period ended December 31, 1999.
o HealthAxis' historical consolidated financial statements and notes
included elsewhere herein for the year ended December 31, 1999 and
the period from Inception (March 26, 1998) through December 31,
1998.
52
HEALTHAXIS INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in the Thousands)
HEALTHAXIS INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in the Thousands, except share and per share data)
Year Ended December 31, 1999
Non Merging Insurdata
Insurdata Incorporated
Insurdata Incorporated Merger Recapitalization
HealthAxis Incorporated Subsidiaries Adjustmets Subtotal Adjustments
---------- ------------ ------------ ---------- -------- -----------------
(1) (2)
Revenue:
Commission and fee revenue ..... $ 291 $ 46,463 $(3,566) $ $ 43,188 $
Interest and other revenue ..... 451 80 13 544 205(5)
----------- -------- ------- --------- ---------- -------
Total revenue .................. 742 46,543 (3,553) 43,732 205
----------- -------- ------- --------- ---------- -------
Expenses:
Operating and development ...... 6,008 38,470 (3,069) 41,409
Sales and marketing ............ 20,099 475 20,574
General and administrative ..... 5,110 5,395 (77) 2,250(4) 12,678 4,112(5)
Amortization of value
customers .................... 4,129(3) 4,129
Amortization of developed
software ..................... 29(3) 29
Amortization of goodwill ....... 207,817(3) 207,817
Interest expense ............... 9 9 1,572(5)
Merger costs ...................
----------- -------- ------- --------- ---------- -------
Total expenses ................. 31,226 44,340 (3,146) 214,225 286,645 5,684
----------- -------- ------- --------- ---------- -------
Income (loss) from
operations .................... (30,484) 2,203 (407) (214,225) (242,913) (5,479)
Provisions (benefit) for
income taxes: ................. 832 (119) 713
----------- -------- ------- --------- ---------- -------
Income (loss) from
continuing operations ......... $ (30,484) $ 1,371 $ (288) $(214,225) $ (243,626) $(5,479)
=========== ======== ======= ========= ========== =======
Basic and diluted (loss) per
common share from continuing
operations ........................ $ (1.82) $ (6.31)
Basic and diluted weighted
average common shares
outstanding ....................... 16,808,000 38,616,000
[RESTUBBED]
HAI
Merger
Adjustments Pro Forma
----------- ---------
Revenue:
Commission and fee revenue ..... $ $ 43,188
Interest and other revenue ..... 749
-------- ----------
Total revenue .................. 43,937
-------- ----------
Expenses:
Operating and development ...... 41,409
Sales and marketing ............ 20,574
General and administrative ..... 48,098(6) 64,888
Amortization of value
customers .................... 4,129
Amortization of developed
software ..................... 29
Amortization of goodwill ....... 207,817
Interest expense ............... 1,581
Merger costs ................... -
-------- ----------
Total expenses ................. 48,098 340,427
-------- ----------
Income (loss) from
operations .................... (48,098) (296,490)
Provisions (benefit) for
income taxes: ................. 713
-------- ----------
Income (loss) from
continuing operations ......... $(48,098) $ (297,203)
======== ==========
Basic and diluted (loss) per
common share from continuing
operations ........................ $ (6.50)
Basic and diluted weighted
average common shares
outstanding ................... 45,704,000
54
HEALTHAXIS INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands except per share data)
1. Historical consolidated financial statements of Insurdata Incorporated.
2. Adjustment relates to Insurdata Incorporated's sale of Insurdata
Marketing Services, LLC and Insurdata Administrators, a division of
Insurdata Incorporated at book value to UICI on October 1, 1999. The
adjustment to the Statement of Operations was made to eliminate the
activity of these two entities as of October 1, 1999. The operations
listed above were retained by UICI prior to the merger of Insurdata
Incorporated and HealthAxis.
3. On January 7, 2000, HealthAxis exchanged 21,807,567 shares of its
common stock for 16,396,667 shares or 100% of the issued and
outstanding shares of Insurdata Incorporated common stock.
Adjustments to eliminate the historical cost of assets purchased by
HealthAxis and the allocation of the purchase price to the assets of
Insurdata Incorporated are calculated as follows:
Number of shares issued in the merger with Insurdata .......... 24,577,128
Fair value of shares issued ................................... $ 26.58
-----------
Fair value of shares issued by HAI ............................ $ 653,260
Value of vested options ....................................... 794
Merger costs .................................................. 750
-----------
654,804
Allocation of Purchase Price:
Insurdata Incorporated net assets at historical cost .......... 15,220
Less: Goodwill .......................................... (1,144)
Less: Capitalized software .............................. (3,452)
Add: Net deferred tax liability ......................... 540
-----------
Fair value of Insurdata Incorporated net assets ............... 11,164
Future value of Insurdata Incorporated customers .............. 17,205
Future value of Insurdata Incorporated developed
software ................................................ 2,862
-----------
Purchase price allocated to specific assets ................... 31,231
-----------
Excess of cost over fair value of net assets acquired ......... $ 623,573
===========
The fair value HealthAxis shares issued is based on HAI's market value
per share on the date of the merger with Insurdata Incorporated,
adjusted for the 1.127 exchange ratio of HealthAxis common stock into
HAI common stock and a 10% liquidity discount for unregistered shares.
The determination was made to use HAI's market value in determining the
compensation paid for Insurdata due to the following:
o HAI's stock as traded on the open market was being valued as an
Internet company ever since the insurance operations were
discontinued.
o The expectation that the merger between HAI and HealthAxis would
be consumated.
The historical basis of Insurdata's goodwill and capitalized software
along with the deferred taxes related to these assets were eliminated
and revalued in accordance with the purchase method of accounting in
accordance with APB 16.
55
The fair value of the customer base was calculated as the net present
value of revenue less expenses of projected (future) sales to existing
customers of existing products. The developed software valuation was
calculated as the net present value of revenue less expenses of
projected sales of existing products to new customers. The net present
values were calculated on an after tax basis with a 10% discount
factor. The estimated future value of Insurdata Incorporated's
customers and developed software which are amortized at a rate in
direct proportion to the estimated future profits over a 4 year life
for customers and a 3 year life for developed software. The excess of
cost over the fair value of assets acquired or Goodwill is amortized on
a straight line basis over a three-year period.
4. In accordance with the interpretation of APB 25, "Accounting for
Certain transactions involving Stock Compensation:"
o In a purchase business combination, stock options granted by the
acquirer in exchange for outstanding vested options (or options
that vest upon the change in control) of the acquiree shall be
considered part of the purchase transaction and accounted for
under APB 16. Accordingly, the fair value of the new (acquirer)
options shall be included as part of the consideration paid for
the acquiree.
o Nonvested stock options granted by the acquirer in exchange for
the acquiree's outstanding nonvested options shall continue to be
accounted for under APB 25. Compensation cost shall be recognized
by the acquirer (over the remaining vesting period) to the extent
that compensation cost (if any) for the previously outstanding
nonvested options has not been recognized by the acquiree prior to
the date of the exchange.
o A new measurement date is required if the exchange results in a
more than de minimis increase in fair value. (The fair value of
the option is determined using its remaining contractual term
rather than its remaining expected life.) If a new measurement
date is required, additional compensation cost shall be measured
and recognized to the extent that the intrinsic value of the new
(acquirer) options exceeds the intrinsic value of the previously
outstanding options immediately before the exchange.
Adjustment relates to the exchange of Insurdata Incorporated options
for options in HealthAxis as of the date of the merger as described in
Note 3. The amounts are calculated as follows:
Vested options.............................. 27,000
Non-vested options.......................... 400,000
---------
Total options............................... 427,000
=========
Fair value of vested options................ $ 29.36
Change in Intrinsic value of non-vested
options .................................... $ 25.04
Non-vested options presented as prepaid
compensation costs.......................... $ 10,016
Vested options presented as additional
purchase price.............................. 794
---------
$ 10,810
=========
A new measurement date for all options was required as a result of the
more than de minimis increase in fair value upon exchange of the
options. Prepaid compensation will be expensed over the remaining
vesting period of the options.
56
The fair value of the vested options is based on the Black Scholes
Option Pricing Model, HAI's closing share price on the date of the
merger with Insurdata Incorporated adjusted for the 1.127 exchange
ratio of HealthAxis common stock into HAI common stock, the exercise
price and assumed holding period of the options and a 10% liquidity
discount for unregistered shares.
5. Adjustments to all of the capital accounts in order to account for the
acquisition of Insurdata Incorporated and the recapitalization of
HealthAxis are as follows:
Additional Prepaid
Preferred Common Paid In Compensa-
Stock Stock Capital tion Deficit Total
--------- --------- ----------- ---------- --------- --------
Balance at December 31, 1999 .............. $ 5,209 $ 70,506 $ 26,165 $ $ (35,274) $ 66,606
Acquisition of Insurdata Incorporated
See Note 3 ................................ 653,260 653,260
Exchange of Insurdata Incorporated
Options See Note 4 ........................ 10,810 (10,016) 794
Conversion of Preferred Stock ............. (5,209) 5,209
Recapitalization of HealthAxis ............ (724,324) 733,197 (35,207) (26,334)
Merger Costs See Note 7 .................. 1,260 (3,325) (2,065)
Exchange of HealthAxis Options
See Note 6 ................................ 109,171 (61,073) (48,098) --
------- --------- ---------- -------- --------- --------
$ $ 4,651 $ 880,603 $(71,089) $(121,904) $692,261
======= ========= ========== ======== ========= ========
The operating activities of HAI, the public shell company, for the year
ended December 31, 1999 have been reflected as a recapitalization adjustment in
the pro forma condensed consolidated statement of operations.
6. Adjustment relates to the exchange of options of HealthAxis for HAI
options. In accordance with Emerging Issues Task Force No. 90-9
"Changes to Fixed Employee Stock Option Plans as a Result of Equity
Restructuring" a remeasuring has occurred if the aggregate intrinsic
value of the options immediately after the merger is greater than the
aggregate intrinsic value of the options immediately before the merger.
Additional compensation cost is calculated as follows:
HealthAxis options converted to HAI options.... 4,359,328
Change in Intrinsic value...................... $ 25.04
----------
Total compensation value....................... $ 109,171
==========
Non-vested options presented as prepaid
compensation costs............................. $ 61,073
Vested options presented as compensation costs
and charged to operations upon the
recapitalization............................... $ 48,098
----------
$ 109,171
==========
Prepaid compensation will be expensed over the vesting period of the
options. The value of the vested options will be charged to operations
in each period presented.
7. Merger costs include legal, accounting and investment advisory costs
incurred as a result of the merger of HealthAxis into HAI as well as
severance costs for employees whose positions will be eliminated as a
result of the merger. The charge to operations for severance and other
merger costs is expected to occur in the second quarter of 2000. The
severance costs for nine terminated employees are payroll, payroll
taxes and the cost associated with stock options that automatically
vest upon termination of these seven staff members and two executive
officers. The total amount of the charge to operations is expected to
be $3,325.
57
8. The following tables provides a breakdown of the pro forma shares
outstanding after each equity event for both HAI and HealthAxis:
The share activity for HealthAxis is as follows:
Weighted Average
Shares Outstanding Shares Outstanding
------------------ ------------------
December 31, 1999............................. 20,587,000 16,808,000
Insurdata Incorporated merger................. 21,808,000 21,808,000
----------- ----------
Total shares outstanding prior to the
recapitalization.............................. 42,395,000 38,616,000
=========== ==========
HealthAxis shares outstanding prior to the
recapitalization.............................. 42,395,000
Conversion of Preferred Stock................. 2,586,000
Shares owned by HAI........................... (15,356,000)
-----------
Total HealthAxis shares prior to conversion... 29,625,000
Recapitalization adjustment................... 3,819,000
-----------
33,444,000
===========
The recapitalization adjustment is calculated by multiplying the total
shares prior to conversion by 1.127 per share.
The share activity for HAI is as follows:
Weighted Average
Shares Outstanding Shares Outstanding
------------------ ------------------
December 31, 1999........................ 13,027,000 12,260,000
Recapitalization of HealthAxis........... 33,444,000 33,480,000
---------- ----------
Total HAI shares outstanding after the
merger of HealthAxis..................... 46,471,000 45,740,000
========== ==========
9. Neither HealthAxis or HAI has made any changes to their accounting
policies during 2000.
58
Information Concerning HealthAxis
General
HealthAxis is a leading online insurance provider of fully integrated
end-to-end solutions which utilize the Internet for health insurance
distribution and administration. HealthAxis serves both consumers and insurance
companies that underwrite policies, independent entities that administer claims
processing and payment, Blue Cross/Blue Shield plans, and self-insured
employers. These entities which are responsible for the processing and payment
of insurance claims are referred to as payers in the insurance industry and in
this document. HealthAxis' consumer services group is an online retailer of
health insurance products and related consumer services. HealthAxis' application
solutions group offers a platform of Internet based software applications and
services to payers designed to enhance the efficiency and effectiveness of the
claims administration, benefits enrollment, benefits maintenance and conversion
of insurance claims information to electronic form. The application solutions
group also provides the administrative backbone for the consumer services group
thereby creating a full service, Internet based insurance agency.
Through its consumer-oriented website, www.healthaxis.com, HealthAxis
offers consumers access to educational materials, personal profiling tools,
instant quotes, and the ability to purchase health insurance entirely within the
online environment. The HealthAxis website guides a consumer through every step
in the health insurance purchase process, from education and price quotation
through enrollment and post sale service. HealthAxis believes that no other
insurance website currently matches HealthAxis' ability to cover all pre- and
post-sale activities completely online. HealthAxis believes that its
consumer-focused online distribution service enhances both the decision-making
and purchasing experience, by giving prospective customers relevant,
personalized and real-time information along with the convenience of shopping
online 24 hours a day, seven days a week. HealthAxis believes its website
provides a superior decision-making and purchasing experience to those currently
available through either the traditional distribution system or online
competitors.
HealthAxis does not underwrite insurance, but functions strictly as an
online insurance agency. By selling directly to consumers via the Internet,
HealthAxis can significantly reduce the cost of product distribution as compared
to the traditional agent-based distribution system. HealthAxis targets the
individual and small group health insurance markets through its website,
www.healthaxis.com. (References in this document to consumers or customers refer
to individuals as well as small groups served by the website.) HealthAxis'
website is accessible directly, or through one of the Internet portals with
which HealthAxis entered into an agreement. HealthAxis will target the large
group market with ancillary insurance products by cross-selling into the
application solutions group's client base of large group employers.
HealthAxis' consumer services group has entered into carrier partner
agreements with 12 insurance companies, including Aetna US HealthCare, Aegon,
UICI, US Life, WellPoint Health Network Inc. and Fortis Health. HealthAxis has
also entered into a national marketing alliance with the National Blue Cross and
Blue Shield Association. These insurance companies which have entered into
agreements with HealthAxis are referred to as carrier partners. These carrier
partners have agreed to distribute health insurance products online through the
HealthAxis website. HealthAxis' network of carrier partners provides products
that are available in all 50 states and the District of Columbia, including
major, individual and small group medical, dental, vision, life, prescription
drug and disability insurance. Individual medical from WellPoint, major medical
from Celtic and Ceres Group, small group medical from Aetna, dental/vision from
Security Life, short term medical and student medical plans from Fortis, and a
prescription drug benefit card plan offered by Aegon are currently available for
purchase on the HealthAxis website. HealthAxis intends to regularly add new
plans and new carriers to its website. HealthAxis' objective is to offer its
customers a choice of carriers in each market.
59
HealthAxis' application solutions group provides integrated proprietary
software applications that utilize the Internet to address the workflow and
processing inefficiencies embedded in the healthcare insurance industry. The
software enables carriers, independent entities that administer claims
processing and payment and large group employers to reduce costs and improve
customer service through the use of online benefits enrollment and
administration services. These software applications increase the efficiency of
a client's operations by eliminating paper-based processes and improving the
client's ability to capture, process and share data with plan members and other
industry participants within the healthcare system. These products, in
conjunction with HealthAxis' online distribution capabilities, create an
Internet based insurance agency which provides all the services of a traditional
insurance agency without assuming any underwriting risk.
The application solutions group offers the suite of proprietary
integrated workflow and business software applications described below. The
application solutions group suite of software applications includes Insur-Web,
Insur-Image, Insur-Voice, Insur-Enroll, Insur-Admin and Insur-Claim.
In addition, the application solutions group offers the following
products and services:
Systems Integration and Technology Management Services which provide
clients with cost-effective design, development and implementation of technical
solutions for healthcare organizations and consist of four primary offerings:
information technology planning, multi-vendor system integration, application
software maintenance and workflow automation.
Imaging and Electronic Data Capture Services which provide outsourcing
services to efficiently convert paper healthcare claims into electronic
transactions. Additionally, HealthAxis provides mailroom services to sort
incoming healthcare claim forms prior to imaging.
Web Based Image Storage and Retrieval which provides claims image
retrieval services via the Internet from a standard desktop personal computer
using a web browser.
The application solutions group's clients include large insurance
carriers, Blue Cross and Blue Shield organizations, independent entities that
administer claims processing and payment, self-funded employers, and other
industry participants. The application solutions group also offers systems
integration, technology management and data capture services to these same
customer client groups.
The application solutions group has over 20 years of experience
building software applications and developing systems for the healthcare payer
industry. The application solutions group's current client base represents
approximately 800,000 insured lives (excluding covered dependents) enrolled
under the proprietary software applications and approximately 2,000,000 claims
per month through the data capture services. Excluding the non-merging
subsidiaries of Insurdata Incorporated, the application solutions group
generated approximately $38.2 million in pro forma revenues for the year ended
December 31, 1998 and approximately $42.9 million in pro forma revenues for the
year ended December 31, 1999.
60
Historical Development and Insurdata Merger
HAI incorporated HealthAxis in March 1998 for the purpose of selling
insurance products on the Internet. The health insurance expertise supplied by
HAI based upon its 100 years of experience as an underwriter of individual
health insurance policies was critical in the initial stages of HealthAxis'
development as an online insurance agency. HAI also provided capital resources
as well as the initial products sold on the HealthAxis website. During 1998 and
1999, HealthAxis entered into marketing agreements with several Internet portals
in order to build HealthAxis brand awareness. During 1999, HealthAxis expanded
from 15 to 105 employees, entered into carrier partner agreements with
nationally recognized insurance companies to sell products on its website,
commenced interactive marketing of its website through agreements with Internet
portals, expanded and enhanced its website and raised capital through several
private placements of its securities.
In December 1998, HealthAxis initiated online insurance distribution
through America Online and the World Wide Web through the "soft launch" of one
of HAI's products in 18 states. The objective of the soft launch was to provide
a controlled environment through which HealthAxis could minimize service
problems in the delivery of insurance products.
During 1998, the board of directors of HAI made a strategic decision to
sell its insurance underwriting business and focus its capital and managerial
resources on ecommerce sales of insurance through HealthAxis. In pursuit of this
goal, between December 1998 and November 1999, HAI sold its traditional
insurance businesses in a series of unrelated transactions, including the sale
of Provident Indemnity Life Insurance Company to AHC Acquisition, Inc. As a
result of these sales, by the end of 1999, HealthAxis was HAI's only operating
subsidiary. During 1999, HealthAxis continued to focus on expanding the
geographic scope and diversity of the products offered on its website through
its carrier partner agreements with nationally recognized insurance companies.
Throughout 1999, HealthAxis continued to integrate new carrier partner products
on its website and made additional technological enhancements to its website.
HealthAxis determined that, despite its efforts to hire information
technology employees, it needed to outsource certain aspects of the carrier
integration process to Insurdata Incorporated, a subsidiary of UICI, in order to
more rapidly integrate carrier partners on its website. HealthAxis' relationship
with Insurdata highlighted HealthAxis' need to upgrade its technical
capabilities in order to capitalize on the competitive advantage created by
rapidly integrating new carrier partners on its website. In August 1999,
HealthAxis began negotiations with Insurdata to merge Insurdata into HealthAxis.
HealthAxis' reasons for pursuing the merger with Insurdata included the
following:
[ ] Acquire technical expertise. Insurdata had over 300 technology
professionals with substantial experience in the workflows applicable
to the health insurance industry's business processes; HealthAxis'
management believed its technological leadership in the healthcare
payer segment of the insurance industry would be invaluable to
HealthAxis' growth.
[ ] Accelerate carrier partner integration process. Management believed
Insurdata's technological expertise and staff of information technology
professionals were critical to the acceleration of the carrier partner
integration process.
61
[ ] Increased revenues. Insurdata's pro forma revenues (excluding
non-merging subsidiaries) were $42.9 million in 1999.
[ ] Enhance attraction of products and services to insurance payers.
Management believed that the addition of the ability to offer an
end-to-end Internet based set of services to insurance payers was more
attractive to insurance industry participants than solely distribution
services.
[ ] Improve ability to raise capital. Management believed that an
established revenue base, seasoned management and significantly greater
technological resources would improve HealthAxis' ability to raise
capital.
On December 6, 1999, HealthAxis, Insurdata, HAI and UICI entered into
an agreement and plan of merger which set forth the terms and conditions under
which Insurdata was merged with and into HealthAxis. As part of this merger,
Insurdata became HealthAxis' application solutions group. The companies
completed the merger on January 7, 2000. As a condition to the merger, UICI
required HealthAxis to raise at least $55 million in additional capital in order
for HealthAxis to implement its business plan.
Since its inception, HealthAxis has funded its operations through
capital contributions from HAI and the sale of common and preferred stock or
debt convertible into common stock in a series of private placements. On
December 7, 1999, HealthAxis completed a $57.7 million private placement of
3,846,003 shares of its common stock at $15.00 per share to accredited
investors, including the purchase of 133,333 shares of HealthAxis common stock
by HAI. The private placement of at least $55.0 million was a condition to the
completion of the Insurdata merger.
As a result of the merger with Insurdata and the December 7, 1999
private placement effected as a condition to the merger, UICI became the largest
shareholder of HealthAxis, holding 43.6% of HealthAxis' capital stock, and HAI's
ownership of HealthAxis was reduced to 34.8%. In March 2000, UICI privately
placed 2.0 million shares of its HealthAxis common stock with a single
institutional investor. As a result of this sale, UICI currently owns 39.1% of
HealthAxis. See "Risk Factors -- UICI may make decisions which some other
shareholders do not consider to be in their best interest."
Additionally, in connection with the Insurdata merger, UICI entered
into two voting trust agreements. These agreements grant voting power over a
portion of the HealthAxis common stock held by UICI to the trustees who are also
directors of HealthAxis and HAI. Pursuant to the terms of certain voting trust
agreements, UICI's voting control is limited to 19.1% of HealthAxis' outstanding
equity securities. In connection with the completion of the Insurdata merger,
HAI, UICI, HealthAxis and Michael Ashker, President and Chief Executive of
HealthAxis and HAI, entered into a shareholders' agreement. Under the terms of
the shareholders' agreement, the board of directors of HAI will consist of up to
nine members. UICI and HAI may each independently nominate three nominees to the
board, and, the remaining three directors will be nominated by mutual agreement
of HAI (acting by the vote of a majority of the members of the board who were
not nominated by or agreed to by UICI) and UICI. This provision of the
shareholders' agreement will terminate with respect to UICI when UICI owns less
than 20% of the HAI common stock on a fully diluted basis. In connection with
the reorganization, this agreement will be terminated and the parties to this
agreement, as well as Alvin Clemens and HealthAxis Acquisition, Inc., will enter
into a similar agreement.
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Health Insurance Industry
The health insurance industry represents one of the largest segments of
the U.S. economy. In 1995, the last year for which industry figures are
available, the Health Insurance Association of America reported that total
premium revenues for commercial insurers, Blue Cross and Blue Shield plans,
self-insured plans and HMOs equaled approximately $321 billion. The Health
Insurance Association of America projected a growth rate of 5% to 7% for 1996
and 1997. These insurance payers collectively provided health insurance coverage
to over 185 million Americans in 1995. The remainder of the population was
either uninsured (roughly 44 million persons) or covered by a government program
such as Medicare or Medicaid.
The method of distributing health insurance varies by market segment.
HealthAxis plans to employ a captive sales force to market its products to large
and mid-sized employer groups by targeting the human resource departments of
these entities. Small group (generally 100 lives and fewer) and individual plans
are sold primarily through independent agents directly to the consumer/small
group decision maker. The traditional system serving individuals and small
groups consists of a hierarchy of master general agents, general agents and
agents, each of whom creates incremental cost as product flows downstream from
the underwriter to the consumer. Agents represent the principal point of
interaction with the consumer and are responsible for closing sales. Agents
solicit prospects at the local level and help consumers select a policy. This
highly labor-intensive system of distribution has existed since the emergence of
insurance as a mass market product. HealthAxis believes that the expenses
associated with this distribution system represents approximately 20% of the
total cost of an individual health insurance product, creating a
disintermediation opportunity.
HealthAxis believes that agents, in addition to generating significant
selling costs for insurers, often create a shopping experience that is less than
ideal for the buyer. Based upon its research, HealthAxis believes prospective
consumers view meetings with agents as inconvenient and dislike sales pressure
that is perceived to accompany these meetings. Agents represent the "sellers"
(i.e. insurance carriers) and not the "purchaser" of the insurance product.
HealthAxis' goal is to position itself as the customer's "trusted advisor."
HealthAxis believes the Internet can be a significant force in
transforming the distribution and marketing of health insurance in the small
group and individual retail markets by reducing distribution costs and improving
the shopping experience. The type of labor intensive, high-cost distribution
system that is currently utilized in the health insurance industry is highly
vulnerable to the disintermediation of agents from the sales process. HealthAxis
also believes that insurance, as an information-based product, is better suited
to Internet distribution than physical products such as books and furniture,
items for which the "packing and shipping" components can entirely offset the
efficiency of the online sales. The Internet offers consumers the ability to
"shop" for insurance in an environment that offers 24 hours a day/seven days a
week availability, information access, and the ability to control the pace of
the buying process, without agent pressure.
HealthAxis believes that the rapid growth of the Internet has helped to
accelerate the development of the market opportunity in Internet insurance
distribution. Rapid increases in the number of websites, number of web users,
access to the web, and dollar amounts of transactions conducted via the web
illustrate the significance of the web as both a center of commerce as well as a
mass medium. According to the Emarketer, an Internet market research firm, the
number of U.S. online users was approximately 58 million in 1999 and is
estimated to increase to approximately 88 million in 2002. The increase in web
users is attributable to a number of factors, including the decreasing cost and
wider availability of both personal computers and online access as well as an
increase in the types of goods, services and content available through the
Internet. Emarketer estimates the total value of goods and services purchased
over the Internet will grow from $38.9 billion in 1998 to $654.4 billion in
2003.
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Plan Administration. Healthcare plan administration involves providers,
payers, managed care organizations, reinsurance carriers, preferred provider
organizations, medical and dental claim review staffs, employers and employees.
Unlike other insurance types, healthcare insurance administration results in
extensive interaction between the consumer and the insurance carrier due to the
high number of claims submitted. Each of these participants must be able to
share, process and access data in order to perform their respective roles in the
healthcare system. However, the fragmentation within the healthcare industry
complicates this task.
It is estimated that over $250 billion each year is wasted through
redundant procedures and excessive administrative costs. As the overall
healthcare industry has increased in size and complexity, the burden of
gathering, processing and managing the approximately 4.6 billion claims
generated each year has led to significant administrative bureaucracies,
inefficiencies and, consequently, increasing costs. This burden, coupled with
the fact that the industry has historically under-invested in information
technology, has placed increasing strains on the profitability of the overall
industry as pricing pressures and other competitive factors have compressed
margins. Recent industry reports conclude that the health insurance industry is
10 to 15 years behind other transaction intensive industries, such as the
airline and banking industries, in its use of information technology. This
failure to effectively utilize currently available technology is reflected in
the higher transaction processing costs incurred within the health insurance
industry. HealthAxis believes that the estimated cost to process a healthcare
claim can range from $8.00 to $18.50, versus less than $1.00 for a banking
transaction.
HealthAxis believes that the healthcare industry has historically
under-invested in information technology due to the limited suitability of
existing technological platforms in addressing the needs of the industry. The
high degree of interaction and the large volume of transactions among healthcare
providers, insurers and managed care companies, independent administrative
service organizations, employers and employees does not lend itself to the
traditional client-server or mainframe environments. These systems, which are
designed to operate with dedicated networks, are generally not suited for
interfacing among a number of unrelated, external users on a cost effective
basis. HealthAxis believes the Internet, which facilitates the rapid deployment
of information and provides for cost-effective access to an unlimited number of
users, represents the next phase in the evolution of healthcare information
technology. Due to the transaction-intense nature of healthcare insurance,
HealthAxis believes the online consumer will demand Internet access to
healthcare eligibility information, claims status and provider information.
The HealthAxis Solution
HealthAxis provides a comprehensive set of technology-based solutions
for the health insurance industry. The HealthAxis solution addresses both the
consumer's needs for a more cost-efficient and information-rich purchase
experience and the payer community's need to achieve cost efficiencies in their
operations. HealthAxis provides fully integrated insurance distribution and
administration solutions which utilize the Internet, serving both consumers and
insurance payers. HealthAxis is composed of the consumer services group and the
application solutions group.
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The End-to-End Solutions Provider
Payers Customers
------------ --------------
Insurance Large Groups
Carriers
TPAs
Blue Cross/ HealthAxis.com Individuals
Blue Shield
Self-Funded Small Groups
Employers
WorkFlow Health Insurance
Applications Retail and
Administrative
Support Web Site
The consumer services group is an online retailer of health insurance
products and related consumer services. The consumer services group targets both
the individual and small group insurance markets through its website,
www.healthaxis.com. The HealthAxis website provides a fully integrated
transaction platform for the sale of health insurance over the Internet.
HealthAxis believes its website provides a superior decision-making and
purchasing experience to those currently available through either the
traditional agent-based distribution system or online competitors. The
HealthAxis website guides a consumer through every step in the health insurance
purchase process from education and price quotation through enrollment and post
sale service. HealthAxis believes that no other insurance website currently
matches HealthAxis' ability to cover all pre-and post-sale activities.
HealthAxis' application solutions group provides integrated proprietary
software applications that utilize the Internet to address the workflow and
processing inefficiencies embedded in the healthcare insurance industry. The
software enables carriers, independent entities that administer claims
processing and payment and large group employers to reduce costs and improve
customer service through the use of online benefits enrollment and
administration services. These software applications increase the efficiency of
a client's operations by eliminating paper-based processes and improve the
client's ability to capture, process and share data with plan members and other
industry participants within the healthcare system, including providers, payers,
managed care organizations, agents, reinsurance carriers, employees and
employers. In addition, the application solutions group offers these customers
related systems integration, technology management and data capture services to
these same customer groups.
The HealthAxis Strategy
HealthAxis' strategy consists of six principal components:
o Build HealthAxis Brand Awareness.
o Expand Sales Force to Capitalize on Leading Technology.
o Provide High Levels of Value and Service to Consumers.
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o Accelerate Carrier Partner Integration by Utilizing Technical
Expertise of the Application Solutions Group's Staff.
o Cross-Sell Payer Services to Carrier Partners and Consumer Services
to Existing Application Solutions Group Client Base.
o Develop Multiple Distribution Channels.
Build HealthAxis Brand Awareness. HealthAxis intends to expend
resources to build a recognizable, national brand. During 1998 and 1999,
HealthAxis' consumer services group has established portal relationships with
America Online Inc., Lycos, Inc., Snap!, LLC, CNet Inc. and Yahoo! Inc.
HealthAxis intends to continue to build brand awareness through online marketing
by renewing some of its existing agreements, renegotiating certain agreements
with existing portal partners or creating new portal relationships. HealthAxis
intends to diversify its marketing approach to include TV, radio, print, direct
mail, and the use of public relations to develop brand awareness.
Expand Sales Force to Capitalize on Leading Technology. The application
solutions group has established product leadership through its software
applications: Insur-Web, Insur-Enroll and Insur-Image. HealthAxis is committed
to capitalizing on its product strength by expanding its sales force in order to
increase the market share of these products.
Provide High Levels of Value and Service to Consumers. A key element of
HealthAxis' strategy is to offer a customer-focused environment on its website
that provides the consumer with access to relevant, timely product information
and an array of interactive profiling tools to provide a customized,
user-friendly purchasing experience.
Accelerate Carrier Partner Integration by Utilizing Technical Expertise
of the Application Solutions Group's Staff. A key synergy between the consumer
services group and the application solutions group is the applicability of the
application solutions group's technical expertise to the carrier partner
integration process. The application solutions group's technical staff, with
over 300 professionals and over 20 years of experience working with health
insurance payers, is expected to support and expedite the carrier partner
integration process.
Cross-Sell Payer Services to Carrier Partners and Consumer Services to
Existing Application Solutions Group Client Base. HealthAxis intends to
cross-sell its distribution services to the application solutions group's
existing client base of large employer groups to provide these clients'
employees with access to ancillary health insurance products not offered by the
employer including vision care, disability coverage and long term care insurance
with integrated, product distribution through the Internet. Concurrently, the
application solutions group intends to cross-sell its proprietary software
services to the consumer services group's existing carrier partners. Certain of
the carrier partners are among the largest payers in the United States and
represent a potential source of revenues for the application solutions group's
administration services.
Develop Multiple Distribution Channels. HealthAxis targets its
individual, small business and large group customers through multiple channels
of distribution. For the individual and small group markets, HealthAxis utilizes
both its own website at www.healthaxis.com and an affinity marketing program.
The affinity marketing program involves distribution partnerships with companies
for which HealthAxis provides a cobranded or private label health insurance
distribution platform. The affinity marketing program seeks to leverage the
market position of well known brands to reach targeted customer types. The
affinity marketing program will reach customers of our distribution partners as
well as the distribution partners' employees. HealthAxis has developed affinity
marketing relationships with Fidelity National Financial, Digital Insight,
Insurance.com and others. Additionally, HealthAxis can utilize the application
solutions group's client relationships to sell ancillary insurance products,
including disability plans, life insurance, critical care coverage and vision
care to large group employers.
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Revenue Model
HealthAxis derives a variety of recurring revenue streams from its
various business activities.
Consumer Services Group Revenues. The consumer services group generates
revenues from both commissions from the sale of insurance policies and
volume-based marketing assessments. HealthAxis charges its carrier partners a
commission, which is levied as a percentage of the dollar amount of premiums
sold through HealthAxis for each carrier partner's products. Due to the
efficiency of the online channel, HealthAxis believes it can charge a commission
that is lower than that assessed by traditional agents, resulting in cost
savings to both the insurer and the consumer. The commission fee is the
principal source of revenue for the consumer services group. In addition,
carrier partners are charged a carrier marketing fee based upon actual premium
revenue of the particular product line. The concept behind the carrier marketing
fee is to charge the carrier partner an amount similar to what it would allocate
to advertising/marketing the same product through traditional agent distribution
channels. Carrier marketing revenues vary among the portfolio of carrier
partners based upon a variety of factors. While this amount varies by carrier,
HealthAxis believes that the industry average is between 2-4% of premiums.
HealthAxis executes the complete sale of insurance policies rather than
generating referrals or leads to insurance agents. Instead of collecting a
one-time referral fee, the consumer services group earns monthly revenues for
the duration of each policy that is sold through HealthAxis. Further, by
remaining the main point of contact for the consumers, HealthAxis will benefit
as policies are renewed.
Application Solutions Group Revenues. The application solutions group
generates transaction-based revenues through multi-year or annually renewable
contracts with its clients for its proprietary applications. These contracts
generally include an up-front payment intended to recoup certain start-up costs
incurred by the application solutions group in serving new clients. Typically,
these costs are associated with converting the client's existing system,
training and other costs incurred to tailor a specific solution for a client.
The principal revenue obtained from these contracts is a per-transaction fee,
the unit of measure which varies based upon the particular application solution.
Some applications are priced on a per-employee per-month or on a per-member
(including dependents) per-month basis while others are on a per-image and
per-transaction basis. The application solutions group charges its clients for
its systems integration and technology services on a time and materials basis.
The application solutions group charges its clients for its data capture
services, where it converts the client's data from a paper based format to an
electronic format, on a per-claim basis.
Products
HealthAxis provides a comprehensive product set with solutions for both
consumers and payers. HealthAxis is capable of providing software services
across both the administration and distribution segments of the health insurance
market. The following describes the products offered by both HealthAxis'
consumer services group and application solutions group.
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Consumer Services Group
HealthAxis' website is located at www.healthaxis.com. HealthAxis
believes its website provides a superior retail experience when compared to
those currently available either through the traditional distribution system or
online competitors. The website can be accessed directly or through one of
HealthAxis' portal marketing partners.
www.healthaxis.com presents a consumer with the following:
o Access to insurance information and personal profiling tools;
o Opportunity to buy online from among a choice of products from
leading health insurance providers;
o Affordable products priced to reflect the efficiencies of Internet
based distribution;
o Informed assistance from licensed professionals through chat, phone
or e-mail; and
o Ongoing customer service through plan and policy information
maintained in the customer's personal space.
HealthAxis launched its service in December 1998 through America Online
Inc. This launch involved a single carrier with product distribution in 18
states. The soft launch phase was designed to aid HealthAxis in understanding
both the marketplace and the capabilities of its platform. In August 1999,
HealthAxis officially launched its website with the addition of its second
carrier partner, which expanded HealthAxis' geographic scope to include 38
states and the District of Columbia. As of April 10, 2000, HealthAxis offered
major medical, small group medical, individual medical, short-term medical,
student medical, dental, vision, and prescription plans, with at least one
product available in each of the 50 states and the District of Columbia.
Products of additional carrier partners are anticipated to be added during 2000.
HealthAxis is currently licensed in 50 states and the District of Columbia
either directly or through its agency employees or wholly owned subsidiaries.
See "-- Regulation."
Product Set. HealthAxis intends to offer a full range of health and
related insurance products. HealthAxis' objective is to provide "one stop
shopping" for health insurance products. HealthAxis' goal is to offer consumers
and small businesses a choice of products from among a selection of quality
insurance providers. HealthAxis' insurance product portfolio will include the
following:
o Individual Medical o Critical Care o Student Medical
o Small Group Medical o Long-Term Disability o Senior Medical
o Prescription o Long-Term Care o Senior Life
o Vision o Term Life o Other Health
o Dental o Short-Term Medical
As of April 10, 2000, HealthAxis had entered into agreements with 12
carrier partners plus a national marketing agreement with the Blue Cross and
Blue Shield Association. In addition to its current carrier partner
relationships, HealthAxis continues to work towards implementing additional
relationships to enhance the depth and breadth of the product portfolio.
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Relevant Information and Customized Advice. HealthAxis believes
consumer education is an important component of establishing a relationship with
the prospective customer. Consumers can use www.healthaxis.com to gather
information about insurance products, the application and underwriting process,
and which products are relevant to his or her needs and budget. Resources are
available both online and via the customer care center, which can be reached by
telephone, live "chat", or e-mail. HealthAxis is building an extensive
personalization capability that will enable users to self-profile their health
insurance needs. Such online profiling tools will provide an important level of
customization to the buyer's shopping experience.
Quotes. HealthAxis provides instant quotes on available plans. Quotes
for these plans are returned in seconds. In most cases, the consumer can proceed
either directly from his or her quote to an application to purchase the desired
policy. In limited instances, the assistance of one of HealthAxis' licensed
insurance advisors will be required to complete the purchase.
Application Process. HealthAxis allows a customer to apply for most of
its policies online, without traditional paper applications. In order to offer
electronic applications, HealthAxis creates, in conjunction with its carrier
partners, an online version of the product's application form. HealthAxis
believes the online form provides both a convenience to its consumers and a cost
savings to its carrier partners. All of HealthAxis' online applications can be
saved so that the consumer may store partially completed forms in a password
protected area for subsequent use. HealthAxis includes in its online forms an
array of context sensitive information to help guide the consumer through the
application process. This context based help is complemented by the availability
of licensed insurance professionals via live "chat", e-mail, and a toll free
telephone number. Upon completion of an application form, a consumer simply
clicks the "send" button to submit the application to HealthAxis, which
automatically forwards it to the appropriate carrier partner. A consumer then
receives an instant message that confirms receipt of the application.
In some cases, HealthAxis will integrate a carrier partners' products
on an interim basis, which may involve selling its plan through
www.healthaxis.com prior to the completion of the full integration process. In
such instances, HealthAxis' fully licensed insurance advisors will physically
mail an application to the prospective applicant and receive the paper
application back from the applicant. HealthAxis' objective is to integrate all
of its carrier partners' products into its website so that all documentation is
available electronically.
Customer Care Center. HealthAxis operates a customer care center in its
East Norriton headquarters in order to provide consumers a variety of customer
support options, including online "live chat" and telephone assistance. The
customer care center staff is composed predominantly of fully licensed insurance
professionals. HealthAxis believes these professionals play an important role in
ensuring both customer satisfaction and sales conversion.
As fully licensed insurance professionals, the customer care center
staff can assist applicants through the entire purchase process, including:
o evaluating the customer's insurance needs;
o evaluating insurance plans; and
o completing and submitting an application.
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The customer care center staff is trained in both insurance and technology to
assist customers with product issues, processing questions and technical matters
including web browser difficulties. HealthAxis' customer service representatives
are available seven days a week.
Underwriting. HealthAxis does not engage in insurance underwriting.
HealthAxis' role is to provide an online platform that connects the applicants
and the insurance underwriters. HealthAxis believes its primary function once an
application has been submitted is to serve as the conduit for communications
between the applicant and the carrier partner. In most cases, applications
submitted by customers are electronically transmitted to the appropriate carrier
partner or to the carrier partner through its designated independent
underwriter.
Insurance products vary in the extent of review required for each
applicant. For example, products like dental insurance, vision care, and
short-term medical coverage are typically issued without underwriting.
Non-underwritten products lend themselves to rapid online fulfillment, given the
lack of review required to issue the policy. Other products, like medical
insurance, long-term care, or life insurance require underwriting. In such
instances, the underwriting process itself is substantially similar to the
traditional system. Carrier partner representatives receive the application
electronically from HealthAxis' web servers. Upon receipt, the underwriters
review the application and contact the applicant, if necessary, to conduct
further inquiry. Each carrier partner adheres to its own underwriting standards
with respect to the issuance and rating of policies. HealthAxis attempts to
select carrier partners for which efficient product fulfillment is a high
priority.
Policy Issuance Process. The policy issuance process varies with the
type of product purchased. For example, for a fully integrated, major medical
plan, the new HealthAxis policyholder is mailed a plastic identification card,
where appropriate to product type, with an accompanying welcome letter. The
letter directs the policyholder to his or her HealthAxis personal space, a fully
secure, online, password protected environment, where HealthAxis has deposited
an electronic copy of the policy certificate. The carrier partner is not
required to mail physical materials to the applicant beyond any plastic
identification card that may be attached to the product. All materials formerly
delivered in paper form are now delivered electronically to the applicant
through the personal space. The electronic materials include plan information
and the doctor/hospital network directory. HealthAxis believes that its ability
to transform the costly paper flow historically associated with traditional
policy issuance to an efficient electronic document flow represents a cost
savings for the carrier partner. In the instances where the plan purchased is
either not fully integrated into the website or where the documentation
associated with the plan is limited relative to a major medical policy, the
fulfillment process differs, typically relying less on electronic documentation.
Post-sale Customer Care. HealthAxis provides each customer with online
access to his or her policy information. Depending on the specific product
purchased, that customer may also gain online access to billing data, claims
history and claims status reports. These records are viewable on
www.healthaxis.com in the customer's personal space. In his or her personal
space, the customer can not only view information, but also maintain and update
his or her personal data. HealthAxis believes that delivering a post sale
services online provides both a convenience to customers and a cost savings to
insurers. Under the traditional agent based system, the customer would be
required to call either the agent who sold the product or the underwriter's
customer service center. In contrast, a HealthAxis customer, having purchased a
fully integrated plan, can conveniently access his or her plan information 24
hours a day/seven days a week without initiating a conversation with a sales
agent. Concurrently, the carrier partners benefit from reduced customer service
expenses because policyholder records can be
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automatically updated without manual intervention by the carrier partner's
staff. HealthAxis believes that its ability to deliver post-sale services to its
customers is unique.
Billing Process. A consumer can select from payment methods, including
credit card or an automatic debit from a bank account. The website is fully
enabled to process both credit card and monthly bank account debit transactions.
Application Solutions Group
HealthAxis' application solutions group is a provider of proprietary
applications that address the specific workflow and processing needs of the
administration segment of the healthcare insurance industry in an efficient and
cost-effective manner. The application solutions group, through its proprietary
enrollment and plan administration applications, provides Internet enrollment
and online access to claims and eligibility data. The application solutions
group's services include proprietary workflow and Internet-enabled business
applications that enhance transaction processing and promote the flow of
information among constituent users, including providers, payers, managed care
and case management organizations, reinsurance carriers, agents, preferred
provider organizations, medical and dental claim review staffs, employers and
employees. In addition, the application solutions group offers related systems
integration, technology infrastructure management and data capture services.
Proprietary Applications. The application solutions group offers the
suite of proprietary workflow and business applications described below. These
products are offered to HealthAxis' clients on a per-employee per-month basis,
where the client pays the application solutions group a monthly fee for each
enrollee it administers. HealthAxis typically enters into multi-year contracts
with clients to whom it supplies these services.
Workflow Applications
Insur-Web. Insur-Web is the application solutions group's web-enabling
technology that provides an Internet gateway to the application solutions
group's other proprietary business applications. By enabling the application
solutions group's business applications to work via the Internet, the
application solutions group allows its clients to provide direct access to
systems and data within a secure environment; thereby lowering transaction costs
and shortening cycle times for their constituent users. In
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addition to password protection, Insur-Web employs firewalls, logging tools,
encryption technology and virus detection software packages that are designed to
prevent unauthorized access to the extranet. Insur-Web can serve as the gateway
to the application solutions group's proprietary applications or to the client's
legacy systems. This product was released in 1999.
Insur-Image. Insur-Image is a seamless scanning, optical character
recognition and data verification workflow system specifically engineered for
claims processing that enables payers to create a paperless environment.
HealthAxis uses Insur-Image claim forms to capture, in digital form, claims,
attachments and related correspondence. Insur-Image contains a form
identification process that automatically identifies the type of claim form and
routes it to the appropriate next step in the workflow process, thereby
eliminating the need for manual pre-sorting. The image is then processed by an
optical character recognition/intelligent character recognition engine. The
engine extracts the data from the claim image, thereby minimizing the need for
manual data entry. Insur-Image then applies a data verification technology known
as Sorted Character Image Verification, to increase data accuracy and measure
quality. Insur-Image provides long-term archival image storage. Management
believes that the speed and accuracy of its Insur-Image application gives
HealthAxis a competitive advantage in the industry. Insur-Image can be used in
conjunction with HealthAxis' Insur-Claims system, or can be integrated with an
organization's existing claims processing system. This system has been in
service for more than five years.
Insur-Voice. Insur-Voice is a scaleable, flexible, interactive voice
response system that provides employees, providers and employers 24-hour a day
access to information thereby improving service while reducing customer service
costs. Insur-Voice reduces administrative costs by automating the processing of
customer inquiries through the use of a menu-driven telephone interface. Using
Insur-Voice, the application solutions group's clients can provide a variety of
services including interactive enrollment, benefit modification, automated
access to provider directories, preferred provider organization pricing,
automated eligibility verification and claim status reporting. Insur-Voice can
be integrated with the application solutions group's other proprietary
application solutions or can be integrated into the client's existing system.
This product has been in operation for more than five years.
Business Administration Applications
Insur-Enroll. Insur-Enroll is an Internet and interactive voice
response enabled enrollment and eligibility function. Insur-Enroll provides
24-hour interactive enrollment, eligibility and life event management
capabilities. Insur-Enroll supports an unlimited number of benefit plans
including health, dental, life, vision and accident and disability, and medical
and dependent care flexible spending accounts. Using employee specific
demographic information, Insur-Enroll automatically computes coverage levels and
pre- and post-tax deductions. A least-cost routing feature allows Insur-Enroll
to forward customized forms and confirmation statements to employees
automatically through e-mail, fax or regular mail. HealthAxis believes that less
than 10% of plan enrollments are executed using the Internet and that this
number is expected to increase to over 60% within the next several years.
HealthAxis believes that the utilization of the Internet for enrollment services
presents a significant cost saving opportunity to insurers, benefit
administrators, independent entities that administer claims processing and
payment, consultants, self-administered groups and employers, and a significant
market opportunity for the application solutions group. The solution was
successfully deployed in 1999.
Insur-Admin. Insur-Admin is a comprehensive benefits administration
system that features enrollment, group and individual billing and premium
collection and reconciliation for independent entities that administer claims
processing and payment, insurers, self-administered groups, health plan
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network managers and healthcare purchasing cooperatives. Insur-Admin
accommodates both interactive and batch enrollment into a wide spectrum of
coverages. It allows organizations to track an infinite number of divisions,
subdivisions, locations, health classifications and work groupings. Insur-Admin
interfaces with a plastic card production system thereby reducing the time
required to produce identification cards. A billing function included in
Insur-Admin manages individual and group billing and premium collection and
reconciliation including the ability to service multi-employer groups that have
joined together to negotiate insurance rates. Insur-Admin manages all aspects of
Consolidated Omnibus Budget Reconciliation Act, including calculating and
collecting Consolidated Omnibus Budget Reconciliation Act premiums, tracking
qualifying events and issuing rights and qualification letters and billing
coupon books. The system performs Health Insurance Portability and
Accountability Act compliance activities, including capturing prior coverage
credit days and issuing Health Insurance Portability and Accountability Act
certificates upon termination of coverage. Insur-Admin also manages medical and
dependent care flexible savings accounts. By integrating Insur-Admin with the
application solutions group's Insur-Web, Insur-Image and Insur-Voice
applications, clients achieve enhanced workflow efficiencies. Insur-Admin can be
implemented in a stand-alone mode, or can be integrated with the application
solutions group's claim payment systems. This system has been in service for
more than five years.
Insur-Claims. Insur-Claims is a comprehensive claims processing system
for health, dental, vision, short-term disability, executive reimbursement and
medical and dependent care flexible spending accounts. A rules-based approach
allows Insur-Claims to be fully customized, which allows the system to handle
complex benefit structures and provider reimbursement arrangements. Insur-Claims
also includes auto adjudication and preferred provider organization repricing
functions, which further increases the efficiency of the system. Insur-Claims is
utilized by independent entities that administer claims processing and payment,
insurers and self-administered groups. Insur-Claims also facilitates utilization
management, including pre-certifications, referrals and authorizations,
re-bundling and unbundling edits, and 1099 and tax processing. Insur-Claims also
accepts electronic data interchange or "EDI" transactions. Insur-Claims can be
integrated with the application solutions group's Insur-Web and Insur-Voice
applications to provide on-demand access to benefit coverage information such as
enrollment and claim status, either through the Internet or over the telephone.
This system, combined with Insur-Voice, also enhances the ability of customer
service representatives to assist consumers by automatically routing and
displaying customer-specific data to a customer service representative upon
receipt of a phone call. This system has been in operation for more than five
years.
HealthAxis retains physical and operational control of its proprietary
applications which allows the application solutions group to cost-effectively
perform application system maintenance and upgrades as all clients utilize the
same version of each application. In addition to reducing the costs associated
with tracking and distributing application versions, the application solutions
group does not incur expenses associated with supporting multiple versions of
the same application. Management believes that this approach also reduces the
administrative burden on the client, thereby increasing overall client
satisfaction.
Systems Integration and Technology Management. Through its systems
integration and technology management services, the application solutions group
provides cost-effective design, development and implementation of technical
solutions for payers. These services can be supplied independently or as a
complete package pursuant to which the application solutions group assumes
complete responsibility for the client's information technology operation as is,
and, where appropriate, converts the client to the application solutions group's
systems. These services are provided to
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HealthAxis' clients on a time and materials basis. The application solutions
group's systems integration services consist of four primary offerings:
o Information technology planning. The application solutions group's
information technology planning services match systems requirements
with the clients' long-term business needs to establish the
application, data and technology framework.
o Multi-vendor system integration. Through its multi-vendor systems
integration services, the application solutions group delivers
solutions composed of custom and packaged software, hardware and
communications technologies. This service encompasses defining user
and architecture requirements and performing systems design, vendor
management, integration testing and implementation.
o Application software maintenance. The application solutions group
offers a variety of management functions in connection with its
application software maintenance services, including the management
of the client's application software portfolio of legacy and
newly-developed systems. The application solutions group's
application management services include consulting and
implementation of application enhancements, corrective and adaptive
maintenance and application support, including training. In
situations in which a third-party application software package is a
suitable alternative to custom development, the application
solutions group undertakes a suitability analysis, evaluates and
selects an application package, performs modifications, implements
the solution and trains users.
o Workflow automation. The application solutions group's workflow
automation services provide consulting and solution integration
focused on improving productivity by automating data capture and
shortening processing times. The application solutions group
utilizes both its proprietary workflow solutions and custom
solutions within its workflow automation services. The application
solutions group also offers systems operations for MVS mainframe
processors, UNIX and NT server environments, network management for
voice, data and e-mail systems (including on LAN environments) and
comprehensive client support through its help desk functions.
The application solutions group applies strong management practices to
the systems delivery process through its proprietary Insur-Method software
development and systems integration life cycle methodology. Insur-Method is a
standardized set of methods and techniques utilized to ensure successful
delivery of projects in a timely and cost effective manner and in accordance
with client specifications. Insur-Method encompasses all phases of project
development from planning, including business analysis and, where applicable,
business process reengineering, to development, including programming, to
implementation, including technology integration. Insur-Method also encompasses
project management through a detailed budgeting process. The application
solutions group also utilizes Insur-Method in its applications maintenance
services to manage application upgrades, track service levels and measure
programmer productivity and maintenance costs. These services are provided
exclusively to the healthcare administration industry and are generally provided
in connection with one of the proprietary applications. By focusing on
healthcare administration, HealthAxis believes it can bring greater value to
clients.
Imaging and Electronic Data Capture. The application solutions group
performs imaging or data capture outsourcing services to efficiently convert
paper transactions in the form of healthcare
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claims into electronic transactions. As a complement to its imaging services,
the application solutions group also provides mailroom services pursuant to
which the application solutions group receives and sorts incoming healthcare
claim forms prior to imaging. Processing paper based claims is inherently
inefficient and time-consuming. Paper claim forms undergo several processes from
the time they are received and sorted in the payer's mailroom to the time the
relevant data is captured and entered into the payer's system. These cumbersome
processes, coupled with the high volume of claims processed by typical payers,
results in a significant and expensive administrative burden on payers.
The application solutions group utilizes a combination of advanced
technology and strong management practices in favorable labor markets in the
rural U.S. and Jamaica to efficiently capture and convert large volumes of
claims. The resulting data is downloaded to the client's internal claims
adjudication database or, for those clients utilizing the application solutions
group's claim processing solutions, to the application solutions group's data
center for adjudication and payment. HealthAxis offers these services to its
clients on a per claim or per image basis.
Internet Based Image Storage and Retrieval. In tandem with claims data
capture, the application solutions group provides claims image retrieval
services via the Internet. This service features multi-level search capabilities
for locating claim images, as well as the ability to dynamically assign claims
to various work queues. All claim types are supported including dental X-rays.
Image retrieval can be done from standard desktop personal computer using a web
browser.
The application solutions group's imaging and electronic data capture
services are provided on a per image basis. The application solutions group
provides these services pursuant to multi-year or annually renewable contracts.
Claims capture is a vital component of efficient healthcare administration. This
service complements all other products and services. In addition, it provides a
good entry point with new carrier clients and provides cost efficiencies.
Technology Development
The application solutions group has an internal technology unit led by
the Chief Technology Officer. This unit is designed to support the application
solutions group's operating units and their clients through continuing research,
development, evaluation and implementation of new technologies. The application
solutions group uses a team approach throughout the development phase of new
products and product enhancements which involves the active participation of the
application solutions group's other business units in the early stages of
development. This early involvement is essential to the development and
successful implementation of effective technology solutions.
In addition to project specific tasks, the application solutions
group's technology unit continues to enhance the application solutions group's
proprietary applications and to develop and test new solutions, including the
testing and analysis of applications available in the market. The application
solutions group's advanced technology unit is involved in research and
development in six core technology areas: web services, workflow, transaction
processing, database services, indexing services and communication.
Carrier Partners
HealthAxis seeks to form alliances with nationally recognized insurance
carriers committed to developing the lower cost electronic channel as an
important means of distributing healthcare insurance products. Because
HealthAxis does not engage in underwriting, HealthAxis relies exclusively on its
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carrier partners, the insurance providers from which HealthAxis sources its
products, in order to be able to offer products to individual and small group
consumers. All insurance plans sold on www.healthaxis.com are underwritten by
HealthAxis' carrier partners, and not by HealthAxis.
As of December 31, 1999, HealthAxis had signed agreements with 12
carrier partners. The carrier partner portfolio covers important medical
insurance categories, including individual medical, small group medical, dental,
vision, disability, term life, prescription drug, and more. HealthAxis has
signed most of its carrier partners to exclusive agreements. Under the carrier
partner agreements, HealthAxis becomes the sole online distribution intermediary
able to build electronic linkages into the carrier partner's systems. These
exclusivity provisions generally apply for one to two years from the launch of
the product(s) on the website. HealthAxis continues to market to new insurance
carriers to increase the product selection available on its website.
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HealthAxis' current portfolio of carrier partners appears in the table
below:
HealthAxis Carrier Partners
(as of December 31, 1999)
Carrier Partner AM Best Rating(1) State Availability Products/Services
-------------------- ---------------------- ------------------------ ---------------------------
1. Aegon NR-5(2) 49 states Discount PCS Plan*
Accidental Death &
Dismemberment
Medicare Supplemental
2. Aetna/US Health Care A- 50 states (small group) Small Group Medical*
3 states (individual) Individual Medical
3. Ameritas A+ 49 states 10 year and 20 year Term Life
Group Dental
4. Blue Cross of A 7 states Individual Medical*
CA/WellPoint Small Group Medical
5. Celtic Life Insurance Co. A- 35 states Major Medical*
6. Ceres Group (Provident B 24 states Major Medical*
American Life & Health Small Group Medical
Insurance Company)
7. Fortis Health A+ 44 states Short-term Medical*
Student Medical*
Long-term Care
8. HPA/Allianz A++ 35 states Flexible Term Medical
9. Life Insurance Company A 50 states Accidental Death and
of North America (a Dismemberment
CIGNA Company) First Diagnosis Cancer
10. Security Life B+ 41 states Individual Dental/Vision*
Group Dental/Vision
Fully insured PCS
11. UICI Midwest Life A 38 states Individual Medical
12. US Life/American A+ 50 states Group Dental/Vision
General Short-term Disability
Long-term Disability
Group Term Life
(1) AM Best Company Inc. is an independent third-party that rates insurance
companies.
(2) AM Best "NR-5" rating can be assigned to a company for which AM Best
prepares standard financial reports, but are not to be formally evaluated
for the purpose of assigning rating opinions at HealthAxis' request.
* Indicates products currently available on the HealthAxis website, however,
these products may not be available in all the carrier partners' available
states.
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As of April 10, 2000, HealthAxis offers products of the Ceres Group,
Blue Cross of CA/WellPoint, Aetna, Celtic, Security Life, Fortis and Aegon
through its website. The products offered include major medical insurance, small
group medical insurance, individual medical insurance, short-term medical
insurance, a student medical insurance product and a prescription plan.
HealthAxis has at least one product available in each of 50 states and the
District of Columbia.
The two principal steps in establishing a carrier partner relationship
are carrier partner development and carrier partner integration. Carrier partner
development is the sales process involved in identifying potential carrier
partners and entering into a carrier partner agreement. Carrier partner
integration is the process by which a newly signed carrier partner links its
legacy systems to HealthAxis' web servers for the purpose of distributing
products through HealthAxis' website.
Carrier Partner Development. HealthAxis employs stringent value
criteria in selecting new Carrier Partners. HealthAxis looks for the following
characteristics:
o Do consumers need the product?
o Does the carrier partner's products fill a gap in HealthAxis'
present product portfolio, either in terms of product type or
geography?
o Does the product represent a potentially significant revenue
source?
o Is the product competitive in its features and price?
o Is the carrier partner committed to ecommerce?
o Is the carrier partner willing to provide product priced for the
lower cost of the Internet channel?
o Is the carrier partner capable of working with HealthAxis to create
the electronic connection between HealthAxis' servers and the
carrier partner's systems?
Carrier Partner Integration. The carrier partner integration process is
the key to building a robust product portfolio. A product cannot be sold on
HealthAxis' website until the integration team has embedded the carrier's plan
including the plan description, rating engines, provider network information and
application forms, into the website. The complexity of health insurance
underwriting workflows requires a carrier integration staff that has expertise
in both technology and insurance in order to be able to efficiently execute
their tasks. The consumer services group anticipates that it will be able to
leverage the application solutions group's workflow application experience to
expedite the carrier partner integration process.
Carrier partner integration is a multi-step process that takes two to
six months to complete. The HealthAxis integration team generates both
functional and technical specification documents. Once the requirements are
understood, the HealthAxis team begins the programming activities that will
execute the newly designed, electronic workflows. Because each carrier utilizes
different workflows and means of handling data, HealthAxis believes the
application solutions group's substantial experience in the healthcare industry
can be invaluable in resolving complex programming problems.
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Application Solutions Group Clients
As of January 7, 2000, HealthAxis' application solutions group had a
total of 37 clients, which include insurance carriers, independent entities that
administer claims processing and payment, Blue Cross/Blue Shield organizations
and self-administered employers. Contracts with these payers are for a
multi-year (generally three year) term with annual renewals thereafter.
The application solutions group's business model of offering its
proprietary applications on a transaction basis, plus the difficulty of
migrating to a new system, makes it administratively and economically burdensome
for such clients to switch to a competitor. As a result of this model and a
generally high level of client satisfaction, HealthAxis' application solutions
group has enjoyed long-term client relationships. See "Chapter I - The Merger -
Risk Factors - The loss of one or more of the application solutions group's
large clients would have a detrimental affect on HealthAxis' financial
condition."
As a result of the parent-subsidiary relationship between the
application solutions group (formerly, Insurdata Incorporated) and UICI, the
application solutions group has historically derived a large percentage of its
revenues from UICI and its subsidiaries. For the year ended December 31, 1999,
UICI and its subsidiaries accounted for approximately 66% of the application
services group's pro forma revenues. A portion of the application solutions
group's revenue from UICI in the past was for year 2000 services which have been
substantially completed. UICI and its subsidiaries are currently the application
solutions group's primary client for its system integration and technology
management services. HealthAxis believes that the percentage of the application
solutions group's revenues attributable to UICI and its subsidiaries will
decline as HealthAxis' marketing efforts continue to expand HealthAxis' base of
external clients. See "Chapter IV - Other HealthAxis Annual Meeting Proposals -
Item 1 - Election of HealthAxis Directors - Certain Transactions and -
Relationship with HAI and UICI."
In addition to UICI and its subsidiaries, two clients, Continental
Casualty Company and National Capital Administrative Services, have historically
accounted for a substantial portion of the application solutions group's
revenue. Continental Casualty Company accounted for approximately 8% of the
application solutions group's pro forma revenues in 1998 and less than 4.0% of
pro forma revenues in 1999. National Capital Administrative Services accounted
for 11% of the application solutions group's revenues in 1998. In 1999, the
National Capital Administrative Services account was de-centralized into
multiple, separately contracted smaller entities. None of those smaller entities
generated revenues which were individually significant.
Sales and Marketing
Consumer Services Group
The primary target markets are the small group and the individual
market. Within the individual market, the targeted consumers are individuals who
are not covered by a corporate sponsored health plan. Potential individual
consumers include people who are self-employed individuals, part-time employees,
full-time independent contractors or other individuals who rely upon
self-provided health insurance coverage. Within the small group market,
HealthAxis intends to focus its marketing efforts on groups of 25 or less,
including small office and home office-based individuals. The average size of a
group sale
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should increase over time. The cost-savings resulting from buying direct can be
substantial when experienced by multiple employees even for very small groups.
The consumer services group intends to utilize the application
solutions group's large employer relationships to market ancillary health
insurance products such as vision care and disability plans to members of large
groups. HealthAxis believes this type of worksite marketing program represents
an economical means of acquiring new consumers. The application solutions
group's presence in worksites gives the consumer services group a unique
marketing advantage relative to stand-alone health insurance retailers lacking
this ready access to the large group workplace.
HealthAxis believes its ability to create and continue to strengthen
its brand identity is critical to achieving widespread acceptance, particularly
in light of the competitive nature of HealthAxis' business. Promoting and
positioning its brand identity will depend largely on the success of HealthAxis'
marketing efforts and the ability of HealthAxis to provide high quality
insurance products and services. In order to promote its brand identity,
HealthAxis will need to increase its marketing efforts and its financial
commitment to create and maintain brand awareness and loyalty among Internet
users. See "-- The HealthAxis Strategy."
Strategic Alliances. HealthAxis' portal marketing agreements were the
focus of HealthAxis' marketing efforts in 1999. HealthAxis' marketing effort in
2000 will feature a more diversified marketing approach and will include radio,
print, TV, outdoor, and direct mail. In addition, HealthAxis has initiated a
significant business development effort designed to build retailing partnerships
with a multitude of online and offline companies that share the consumer
services group's target audiences. In addition, HealthAxis has also entered into
a targeted marketing agreement with Yahoo! Inc. See "-- Marketing Agreements"
for a description of this agreement.
Life Event Marketing. HealthAxis' market research indicates that the
purchase of health insurance is generally associated with a variety of
identifiable life events. These events represent situations in which a potential
consumer may recognize a heightened need for insurance and include, among other
things, change in job, graduation from college, marriage, birth of a child,
divorce, relocation, starting a new business and discontinuing operations of an
existing business. These life events generally require the establishment of new
financial and healthcare relationships. Identifying these events and targeting
individuals experiencing such events are important elements of HealthAxis'
marketing strategy.
Direct Marketing. HealthAxis plans to use direct marketing techniques
to target new and existing customers with promotions. HealthAxis plans to e-mail
to potential customers highlighting HealthAxis products and the advantages of
Internet based insurance product purchases. The Internet allows rapid and
effective experimentation and analysis, instant user feedback and efficient
personalization of insurance products for each customer, all of which HealthAxis
seeks to incorporate in its marketing activities. Direct e-mail to HealthAxis
consumers also will be an important driver of HealthAxis' cross-selling efforts.
HealthAxis' customer relationship will allow HealthAxis to target existing
customers with offers for related, ancillary healthcare insurance products. For
example, following the customer's initial purchase of an individual health
insurance policy, HealthAxis might send that person an e-mail introducing a
long-term disability product.
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Application Solutions Group
The application solutions group recently implemented a coordinated
sales and marketing effort. The goals for this sales and marketing effort are
to:
o Target potential clients for the application solutions group's
services;
o Identify opportunities to cross-sell additional services to
application solutions group's existing clients;
o Cross-sell to carrier partners the services of the application
solutions group;
o Assist clients in growing their own businesses, creating additional
revenue for the application solutions group; and
o Increase the application solutions group's visibility within the
industry.
In the past, new external clients were generally added as a result of referrals
or as a result of direct contact initiated by the client due to the application
solutions group's reputation in the industry.
The application solutions group's current marketing program is designed
to raise the visibility of the application solutions group and its products and
services, in order to increase sales opportunities. In the past, new external
clients were generally added as a result of references or direct contact
initiated by the client due to the application solutions group's reputation in
the industry. The application solutions group now utilizes the services of an
outside advertising firm specializing in the technology sector. The current
marketing program consists of multiple channels to reach the application
solutions group's target audience. The application solutions group's website,
currently at www.insurdata.com, allows prospective clients access to product and
service descriptions and Company news. The application solutions group issues
press releases regularly through the Internet, public wire services and selected
trade publications and pursues advertising and editorial opportunities in key
industry trade publications. Both the application solutions group and the
consumer services group also exhibit at industry trade shows and conduct direct
mail campaigns highlighting HealthAxis' products and services to targeted
audiences.
Marketing Agreements
Agreement with America Online, Inc. HealthAxis' interactive marketing
agreement with America Online, Inc. provided that HealthAxis would be the
exclusive third-party direct marketer of certain types of health insurance
policies and, subject to certain restrictions, the non-exclusive third-party
marketer of certain other types of insurance policies. Under the interactive
marketing agreement, America Online Inc. advertised the products to its
subscribers on America Online Inc.'s online network and the products were sold
online through HealthAxis' website. On March 29, 1999, HealthAxis and America
Online, Inc. entered into the second amendment to the interactive marketing
agreement, which provided HealthAxis with access to CompuServe and Netscape
Netcenter, which HealthAxis believed would expand its marketing scope. The
second amendment also provided for a four month "wind down" period in the event
HealthAxis elected not to exercise its option to renew its agreement with
America Online, Inc. for an additional term. HealthAxis has paid America Online,
Inc. a total of $10.0 million pursuant to this agreement. The initial term
expired on January 31, 2000. HealthAxis has chosen not to
81
exercise its option to renew its agreement with America Online, Inc. HealthAxis
is currently negotiating a new agreement with America Online, Inc.
Agreement with Lycos, Inc. HealthAxis' amended agreement with Lycos,
Inc. provides that Lycos, Inc. will make HealthAxis the exclusive provider of
medical, HMO, PPO, indemnity, vision, prescription, long-term care, and
long-term disability insurance, for a total of approximately $9.1 million of
which $2.5 million has been paid. The term of the agreement will extend for
twenty-four months from the launch of the co-branded version of HealthAxis' site
if certain sales goals are met. The initial term of 12 months ending April 30,
2000 has a total cost of $2.5 million with the renewal, if certain sales goals
are met, of 12 additional months for an approximate cost of $6.6 million. In
addition, HealthAxis will pay Lycos, Inc., certain fees based upon the success
of sales from the co-branded website.
Agreement with CNet, Inc. In June 1998, HealthAxis entered into a
promotional agreement with CNet, Inc. whereby CNet, Inc. would exclusively
promote HealthAxis' products on CNet Inc.'s websites. This agreement was amended
on April 14, 1999 to, among other things, revise the current payment schedule
and remove Snap! as a party to allow HealthAxis to enter into a separate
agreement with Snap! Under the agreement with CNet, Inc., CNet, Inc. promoted
HealthAxis as its exclusive provider of certain insurance products for
approximately $1.7 million during the initial term of the agreement, which
extended until August 31, 2000. As of March 1, 2000, HealthAxis paid CNet, Inc.
approximately $650,000. As of March 27, 2000, HealthAxis and CNet, Inc. had
mutually agreed to terminate the agreement on May 31, 2000.
Agreement with Snap!, LLC. In April 1999, HealthAxis, CNet, Inc. and
Snap!, LLC amended their marketing agreement to remove Snap!, LLC as a party so
that HealthAxis and Snap!, LLC, now a separate entity from CNet, Inc., could
enter into a new agreement. This agreement allows for HealthAxis to participate
in Snap!, LLC's "Insurance Center" and provides for strategic placements across
various channels. The initial term of this agreement is through August 31, 2000,
for an approximate cost of $1.5 million. HealthAxis has the option to renew this
agreement with Snap!, LLC through August 31, 2001.
Yahoo! Inc. Marketing Agreement. On August 12, 1999, HealthAxis entered
into a targeted marketing agreement with Yahoo! Inc., which provides HealthAxis
with impressions in selected areas. The agreement terminated on January 31,
2000. On February 7, 2000, HealthAxis and Yahoo! Inc. entered into a new
agreement which terminates on December 31, 2000 for an approximate cost of $3.6
million.
Intellectual Property and Technology
Patent, Trademark and Copyright Protection. HealthAxis' ability to
compete is dependent to a significant degree upon its proprietary systems,
technology, and intellectual property. HealthAxis relies upon a combination of
trademark, copyright, confidentiality agreements and trade secret laws as well
as other measures to protect its proprietary rights. HealthAxis does not have
any patents or patent applications and currently does not plan to file any
patent applications. HealthAxis has registered the name "HealthAxis.com" with
Internic, a private corporation organized by U.S. government which administers
Internet domain names. HealthAxis has applied for registration of the service
marks "HealthAxis" and "HealthAxis.com" with the U.S. Patent and Trademark
Office. HealthAxis was notified by the U.S. Patent and Trademark Office that it
had preliminarily denied registration of the service marks "HealthAxis" and
"HealthAxis.com" on the basis of potential confusion with an allegedly similar
registered service mark. HealthAxis is attempting to overcome the U.S. Patent
and Trademark Office's preliminary denial by negotiating a consent with the
party holding the similar mark. This party
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has verbally agreed to HealthAxis' registration of these marks. Until HealthAxis
reaches a final agreement with this party and the U.S. Patent and Trademark
Office approves this agreement, HealthAxis can not provide any assurance as to
whether or not it will be successful in overcoming the U.S. Patent and Trademark
Office's preliminary denial of registration. HealthAxis has applied for or
registered the following trademarks with the U.S. Patent and Trademark Office:
Insur-Web, Insur-Voice, Insur-Image, Insur-Enroll, Insur-Admin and Insur-Claims.
HealthAxis has determined not to file applications for these marks in foreign
countries at this time. HealthAxis' sales materials, content and software are
protected by copyright.
In December 1998, a third party notified Insurdata that it believed
Insurdata had infringed upon a common law trademark held by such party through
its use of the name "Insur-Web" because a similar name is currently being
utilized by the third party. HealthAxis does not believe that its use of the
name Insur-Web constitutes an infringement of this party's rights and intends to
defend itself against any infringement claim asserted. No assurance can be given
as to whether Insurdata will ultimately prevail in any action that may be
brought by this party. See "--Risk Factors -- HealthAxis may be unable to
protect is proprietary technology."
The source code and design of HealthAxis' software will be protected by
HealthAxis through applicable trade secret law. HealthAxis also intends to use
confidentiality agreements with its employees to further protect its source
codes and software.
Third Party Technology, Website Ownership and Maintenance. HealthAxis
relies on a variety of technology that it licenses from third parties, including
its database and Internet server software, which is used in HealthAxis' website
to perform key functions. Web design and maintenance are currently performed by
in house technicians in order to permit HealthAxis to maintain control over its
Internet platform. HealthAxis anticipates updating its website on an ongoing
basis. See "--Risk Factors -- HealthAxis depends upon technology licensed from
third parties for the success of its operations."
The satisfactory performance, reliability and availability of
HealthAxis' website, transaction processing systems and network infrastructure
is critical to HealthAxis' consumer services group's reputation and its ability
to attract and retain customers and maintain adequate policyholder service
levels. HealthAxis will continually review and seek to upgrade its technical
infrastructure and provide for certain system redundancies and backup power to
limit the likelihood of systems overload or failure. HealthAxis believes that as
part of doing business on the Internet, it will, from time to time, experience
periodic system interruptions. Any unexpectedly high volume of traffic on
HealthAxis' website or in the number of applications placed by consumers may
require HealthAxis to expand and upgrade further its technology, transaction
processing systems and network infrastructure to accommodate that substantial
increase in volume. HealthAxis will continue in its efforts to expand and
upgrade its system.
Website Technology. The technology supporting the website itself
consists of a scalable client/server architecture in a fully load balanced
environment using redundant Sun Enterprise servers. HealthAxis' applications are
specifically designed for the website and are written in the programming
language Java under a Sun implementation of the Unix operating system.
HealthAxis has used RAID technology to provide a greater degree of reliability
for data contained in its Oracle 8 based database. The host for the website is
Best Internet Communications, Inc., located in San Francisco, California. The
infrastructure, web applications software and the web servers are owned by
HealthAxis. HealthAxis continually monitors website statistics, network
performance and service levels.
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Back End Processing Technology. HealthAxis has created an executive
information system operating in an Oracle 8 environment on a Sun computer
running Unix. HealthAxis' systems have back up and recovery programs in place.
HealthAxis uses multiple web servers within a single site but plans to
distribute its servers to multiple sites for greater redundancy.
Communications. All of the above installations are interconnected using
high-speed private telecommunications links. All transmissions between the
consumer, website, and carrier partners or independent entities that administer
claims processing and payment will be secured using "Secured Socket Layer" (SSL
version 3). Domestic encryption is used where applicable (i.e., 128 bit)
including all server to server communications. A minimum export encryption is
also used (i.e., 40 bit).
Application Solutions Group Web Technologies. The technology supporting
the application solutions group's Web services are based on a distributed
computing environment relying primarily on Microsoft technology platforms. Web
servers are based on Internet Information Server 4.0, middle tier business logic
is placed in Microsoft Transaction Server 2.0, and databases are based on
Microsoft SQL Server 7.0 and 6.5. The current computing platform consists of
over 50 NT servers. Additional software utilized includes workflow and print
tools from JetForm. PDF technology has been licensed from Active4 Technologies.
DataCenter Core Processing Environment. The application solutions group
also has connectivity to several back end computing environments. The main data
center is located in North Richland Hills, Texas and is a 8,500 sq. foot
facility with the following processing equipment and systems:
o 16 IBM RS6000 processors running AIX (ranging up to the H70 class
computing platform)
o IBM mainframe 9672/R35 (180Mips) running OS/390
o Two terrabytes of DASD (1.3 available) and two Storage Tek tape
silohs (6000 tapes each)
All NT server equipment is from Compaq and all production servers are Proliant
class servers configured with RAID (or mirroring), dual LAN connectivity, and
redundant power supplies. All networks are switched with Cisco Catalyst
multi-gigabit switching, and core routers are Cisco with Bay routers for WAN
connectivity. Internet firewall technology is based on Cisco PIX firewalls. The
facility has redundant backbone connections for the WAN and Internet. There is
UPS and diesel power backup. Off-sight disaster recovery is through Comdisco.
Competition
HealthAxis believes it provides a unique combination of Internet based
consumer services and business to business software applications. HealthAxis
also believes that its ability to offer both payers and consumers an electronic
platform gives HealthAxis a unique competitive advantage among its peers.
HealthAxis competes with other insurance online providers and traditional,
agent-based insurance distribution system participants.
Online Insurance Competition. HealthAxis' principal online competitors
are Intuit's InsureMarket (www.insuremarket.com), Quotesmith
(www.quotesmith.com), Insweb (www.insweb.com) and ehealthinsurance.com
(www.ehealthinsurance.com). Insweb and Insuremarket are both built around an
agent-referral business model pursuant to which prospective applicants are given
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a price quote, but must utilize a referral to a traditional agent in order to
apply for and buy a policy. In addition, neither company is focused on the
health insurance market as is HealthAxis. Quotesmith is an agency that uses its
website to initiate a sales process that ultimately resembles the traditional,
paper-heavy process, not an ecommerce model. Ehealthinsurance.com's business
model more closely resembles HealthAxis' transaction-oriented focus. However,
HealthAxis believes it currently has more carrier partners and broader
distribution than does ehealthinsurance.com. In addition, ehealthinsurance.com
does not offer the transaction processing on its website and requires actual
signatures.
HealthAxis believes that the principal competitive factors in the
online insurance distribution market will be price and convenience, as well as,
name recognition and reputation, product selection, Internet access to claims
information, ease of use, site content, quality of claims processing services
and technical experience. Relative to both traditional agents and agent-referral
online services, HealthAxis believes that its online transaction-based business
model affords it a competitive advantage in the low cost delivery of health
insurance plans to consumers and small groups.
The principal competitive factors for the application solutions group
are the breadth and quality of system and product offerings, features and
functionality, service and support, processing capacity and the ability to
successfully develop and deploy product improvements. HealthAxis believes that
the application solutions group's major competitors include Healtheon/WebMD,
RIMS, Erisco, El Dorado, TXEN, a division of Nichols Research Corp., and Amisys
Managed Care Systems, Inc., a division of HBOC. See "--Risk Factors --
Competition from entities with longer operating histories and greater financial
resources than HealthAxis may have a material adverse effect on its business."
Privacy Policy
HealthAxis believes a significant barrier to the popularity or
acceptance of online insurance sales and communications is the secure
transmission of confidential information over public networks. The application
solutions group retains confidential client and patient claim information at its
data center. Computer viruses, break-ins or other security breaches could lead
to misappropriation of personal or proprietary information. These security
breaches can also cause interruptions, delays or cessation in service to
HealthAxis' customers. HealthAxis relies on encryption and authentication
technology licensed from third parties to provide the security and
authentication necessary to effect secure transmission of confidential
information, such as names, addresses, social security numbers, consumer credit
card numbers and claims information. HealthAxis carries general liability
insurance (including errors and omissions coverage), but HealthAxis' insurance
may not be adequate to cover all costs incurred in defense of potential claims.
To address consumer concerns over the security of transactions
conducted on the Internet and other online services and the privacy of users,
HealthAxis has adopted a privacy policy for information of users of its website.
HealthAxis does not disclose any personally identifiable information of a
consumer to HealthAxis' carrier partners until the consumer submits an
application. HealthAxis does not sell or otherwise make available to any other
party any personally identifiable information of the consumers. Personally
identifiable non-medical information may be used internally in order to
continuously improve the content of the website and the consumer's shopping
experience. Aggregated statistical information, without individual
identification, is analyzed by HealthAxis in order to improve the overall
product offering and may be shared with HealthAxis' carrier partners for that
purpose. HealthAxis is a licensee of the TRUSTe Privacy Program and adheres to
their standards regarding the protection of personally identifiable information
of Internet users.
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Regulation
Internet Related. Although there are currently few laws and regulations
directly applicable to the Internet, it is likely that new laws and regulations
will be adopted in the United States and elsewhere covering issues such as
copyrights, privacy, pricing, sales taxes and characteristics and quality of
Internet services. The adoption of restrictive laws or regulations could slow
Internet growth or expose companies engaged in business on the Internet to
regulation or restrictions on the content available on their websites. The
application of existing laws and regulations governing Internet issues such as
property ownership, libel and personal privacy is also subject to substantial
uncertainty at this time. In addition, current or new government laws and
regulations, or the application of existing laws and regulations, including laws
and regulations governing issues such as property ownership, content, taxation,
defamation and personal injury, may expose companies engaged in business on the
Internet to significant liabilities.
Insurance Related. As a result of the business activities presently
being conducted by HealthAxis, HealthAxis has organized HealthAxis.com Insurance
Services, Inc., a Pennsylvania corporation, which has also organized subsidiary
companies in four states. HealthAxis.com Insurance Services, Inc. is to become
licensed with state insurance departments to sell insurance and receive
commissions from the sale of insurance. HealthAxis.com Insurance Services, Inc.,
either directly or through its agency employees or wholly owned subsidiaries,
has filed or is in the process of filing for licenses in all 50 states and the
District of Columbia. As a licensed agency, HealthAxis.com Insurance Services,
Inc. is subject to the regulation and examination by the Insurance Departments
or commissions in the states in which HealthAxis.com Insurance Services, Inc. is
licensed. HealthAxis, either directly or through wholly-owned subsidiaries doing
business in certain states, is subject to the laws and regulations of such
insurance departments where such laws and regulations are primarily intended to
benefit purchasers of insurance and generally grant supervisory agencies broad
administrative powers, including the power to restrict the carrying on of
business for failure to comply with such laws and regulations. In such event,
the possible sanctions that may be imposed include the suspension of individual
employees, limitations on engaging in business for specific periods, censures
and fines. Advertisements in connection with insurance products sold through
HealthAxis' website are regulated by state insurance departments and
commissions. See "--Risk Factors --Insurance regulations may increase
HealthAxis' costs to maintain compliance."
There have been, and currently are, a number of proposals introduced in
the United States Congress to reform the current healthcare system. There are
proposals pending in state legislatures to reform the healthcare system as well.
Many states have already enacted comprehensive healthcare reform legislation and
a number of legislative and regulatory proposals are currently being considered
at the state and federal level. Legislative proposals have included:
o requirements with respect to mandated universal health insurance
coverage;
o restrictions on preexisting condition limitations;
o community rating standards; o guaranteed issue and renewal
requirements;
o restrictions on premium increases;
o differential limitations in rates for new and renewal business or
for demographic groups; and
o underwriting practice restrictions.
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These reforms generally include the formation of voluntary purchasing
alliances for small employers (typically with less than 50-100 employees). They
also require insurers to:
o accept all qualified small employer groups as a condition of
providing small group insurance;
o prohibit the imposition of preexisting condition limitations or
medical condition terminations; and
o phase out experience-rating for small employer groups.
Certain jurisdictions also have enacted so-called "any willing
provider" laws which may decrease the demand for managed care plans. Healthcare
industry participants may react to these proposals and the uncertainty
surrounding these proposals by curtailing or deferring investments, including
investments in the application solutions group's applications and services.
HealthAxis is unable to predict whether, or in what form, these proposals will
be enacted or the specific effects these proposals will have on HealthAxis'
business
Facilities
HealthAxis is headquartered in East Norriton, Pennsylvania. HealthAxis'
headquarters which is owned by HAI, is approximately 47,000 square feet and is
situated on approximately 6.5 acres HealthAxis leases 41,000 square feet and the
remaining 6,000 square feet is leased to Provident Indemnity Life Insurance
Company or used by HAI. HealthAxis also leases office space at the following
locations:
Address Square Feet
--------------------------------------------------------- ---------------
5215 North O'Connor Blvd, 800 Central Tower, Irving, TX 37,900
2121 Precinct Line Road, Hurst TX(1) 20,000
4001 McEwen, Dallas, TX(1) 4,000
990 West Atherton Dr, Ste. 200 Salt Lake City, UT 5,000
670 East Main St, Castledale, UT 5,450
1200 East Ephraim Canyon, Ephraim, UT 10,000
Montego Bay Free Zone, Bldg No. 2, Montego Bay, Jamaica 5,000
1-3 Pimento Way, Montego Freeport, Montego Bay, Jamaica 10,000
577 Howard Street, San Francisco, CA 2,100
Employees
As of January 7, 2000, HealthAxis had 1,055 employees, including 435
full-time professional employees, 477 full time data capture employees and
approximately 143 part-time data capture employees. None of HealthAxis'
employees is represented by a labor union or collective bargaining agreement.
HealthAxis considers its employee relations to be good.
HealthAxis' future success depends upon the ability of its current
executive officers to establish clear lines of responsibility and authority, to
work effectively as a team, and to gain the trust and confidence of its
employees. HealthAxis' future success also depends on its ability to identify,
attract, hire, train, retain and motivate other highly skilled technical,
managerial, marketing and consumer service personnel. Competition for
technically skilled
(1) Leased frfom UICI or one of its subsidiaries.
87
personnel is intense, but HealthAxis will continue its efforts to attract,
integrate and retain sufficiently qualified personnel, including software
developers and other technical experts.
Litigation Matters
From time to time, HealthAxis may be involved in litigation, including
that arising in the ordinary course of its business. No litigation is pending
which, in the opinion of management, is likely to have a materially adverse
effect on HealthAxis' results of operations or financial condition.
88
Management's Discussion and Analysis of Financial Condition
and Results of Operations of HealthAxis
The following discussion is qualified in its entirety by the more
detailed information contained in the Selected Consolidated Financial
Information of HealthAxis appearing on page 8 and the Consolidated Financial
Statements and the related notes of HealthAxis included in Chapter VI of this
joint proxy statement/prospectus.
Results of Operations
Year ended December 31, 1999 Compared to Period ended December 31, 1998
Net loss applicable to common stock. Net loss applicable to common
stock was $30.6 million or ($1.82) per basic and diluted share in 1999 compared
to net loss of $4.9 million or ($0.35) per basic and diluted share in 1998.
Results in 1998 reflect nine months of operations beginning with HealthAxis'
inception in March 1998, as compared to twelve months of operations in 1999.
HealthAxis experienced increased expenses due to increased employees and website
enhancements during 1999 as compared to 1998.
Revenue. Revenue of $0.3 million represents commission and
administrative fees earned on individual health insurance policies sold on
HealthAxis' website. There were no revenues in 1998 due to the launch of
HealthAxis' website, on December 3, 1998. Revenue related to HealthAxis' website
is anticipated to grow in 2000 as a result of growth in first year, renewal
commissions and fees, and the introduction of new products onto the website.
Operating and development expenses. Operating expenses of $6.0 million
in 1999 increased from $0.8 million in 1998 primarily due to higher employee and
recruiting expenses related to planning and scheduling website implementation of
carriers products, website enhancements, and general operations. Operating
expenses are expected to increase as more carriers and products are integrated
into HealthAxis' website.
Sales and marketing expense. Sales and marketing expense of $20.1
million in 1999 increased from $1.3 million in 1998 due primarily to the
amortization of HealthAxis' Internet marketing agreements with Internet portals
such as America Online, Inc., Lycos, Inc., Snap!, LLC, CNet Inc. and Yahoo! Inc.
which agreements are referred to as interactive marketing agreements in this
proxy statement/prospectus. These agreements are based on the number of
HealthAxis' Internet advertisements that it placed on the web pages of these
Internet portals and viewed by Internet users which are referred to as
impressions. Interactive marketing amortization was $14.6 million in 1999
compared to $0.6 million in 1998. Interactive marketing amortization expense
represented the cost of exclusivity and Internet advertisements delivered to
HealthAxis from strategically selected websites. Amortization of HealthAxis'
interactive marketing agreements in 2000 is anticipated to approximate $11.2
million. In addition, HealthAxis' employee and recruiting expense increased.
General and Administrative Expenses. General and administrative
expenses of $4.3 million net of $0.8 million of amortization of goodwill in 1999
increased from $2.5 million in 1998 due primarily to employee and recruiting
expenses relating to the increase in HealthAxis' administrative and executive
staff. The increase was also due to professional fees and overhead expenses.
General and administrative expenses include executive management, accounting,
legal, and human resource personnel and expenditures for applicable overhead
costs.
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Amortization of goodwill. Amortization of goodwill of $0.8 million
included in general and administrative expenses in 1999 relates to HAI's
purchase of 1,415,000 shares of HealthAxis common stock from HealthPlan Services
Inc. Amortization of HAI's $7.9 million of goodwill in 1999 includes 3 1/2
months amortization for the purchase of these shares and accordingly will be
higher in 2000. Further, HealthAxis anticipates recognizing approximately $623
million of goodwill as a result of the January 7, 2000 merger of Insurdata into
HealthAxis to be amortized on a straight line basis over a 3 year period.
Interest income. Interest income of $0.5 million in 1999 relates to
interest earned in short term investments. There was no corresponding income
during 1998.
Interest expense. Interest expense of $9,000 in 1999 includes expenses
related to capital lease obligations. Interest expense decreased from $141,000
in 1998, which included interest on the convertible note paid to HealthPlan
Services.
Year Ended December 31, 1998
Net Loss. For the year ended December 31, 1998, the net (loss)
applicable to common stock was ($4.9) million or ($0.35) per diluted share.
HealthAxis' net loss was the result of beginning operations on March 26, 1998,
with the largest expenses related to recruiting and Internet marketing
agreements with America Online, Inc., Lycos, Inc., Snap!, LLC and CNet Inc.
which are referred to as interactive marketing agreements in this proxy
statement/prospectus.
Revenues. Revenues for the year ended December 31, 1998 related
primarily to interest income. No commissions were received as the official
launch of the HealthAxis website occurred on December 3, 1998.
Operating and Development Expenses. Operating and development expenses
of $0.8 million for the year ended December 31, 1998 were the result of the cost
of services provided as well as increased consulting fees relating to
integrating carrier partner products on the website and website design.
Sales and Marketing Expenses. Sales and marketing expenses of $1.3
million for the year ended December 31, 1998 were primarily due to the
amortization of expenses related to HealthAxis' interactive marketing agreements
based on the number of impressions received by the HealthAxis website.
Interactive marketing amortization for the year ended December 31, 1998 was $0.6
million.
General and Administrative Expenses. General and administrative
expenses of $2.5 million for the year ended December 31, 1998 were primarily due
to consulting, employee and recruiting expenses.
Liquidity and Capital Resources
A major objective of HealthAxis is to maintain sufficient liquidity to
fund growth and meet all cash requirements with cash and short term equivalents
plus funds generated from operating cash flow.
During 1999, HealthAxis' liquidity requirements were primarily created
and met through the private placement of debt and equity securities. During
1999, the primary uses of cash for HealthAxis were operating costs and payments
to America Online, Inc., Lycos, Inc., CNet, Inc., Snap!, LLC and Yahoo! Inc.
Cash and cash equivalents as of December 31, 1999 amounted to $56.4
million which was attributable to the December private placement of common
stock. HealthAxis believes that the current cash and cash equivalent will be
sufficient to fund its current operations through the first quarter 2001.
Net cash used in operating activities of $14.9 million in 1999 was
primarily the result of operating losses.
During 1999, HealthAxis made the final payment of $1.5 million to
America Online, Inc. under the initial term of Second Amendment to the Amended
and Restated Interactive Marketing Agreement with America Online, Inc.
Additionally, HealthAxis paid $3.3 million in the aggregate to Lycos, Inc.,
CNet, Inc., Snap!, LLC and Yahoo! Inc. which amount was included in prepaid
interactive marketing expense.
During 1999, HealthAxis completed private offerings of approximately
$74.7 million of equity securities, the net proceeds of which have been used to
and are anticipated to be used to fund amounts due under HealthAxis'
distribution agreements with America Online, Inc., Lycos, Inc., CNet, Inc. and
Snap!, LLC and an advertising agreement with Yahoo! Inc. with the balance
intended to be used by HealthAxis for its working capital and other general
purposes.
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Non cash issuance of warrants relates to services provided for alliance
agreements and professional fees.
During 1998, HAI issued the following warrants for the purchase of
shares of HAI common stock on behalf of HealthAxis for services provided to
HealthAxis. In order to properly reflect the expense of these services to
HealthAxis, the $3.5 million value of these warrants has been pushed down to the
operations of HealthAxis and recorded as a capital contribution from parent
company.
------------------------------ --------------- --------------------- ----------------------
Warrant Holder Shares Exercise Price Value
------------------------------ --------------- --------------------- ----------------------
America Online, Inc. 300,000 $4.480 $ 989,700
------------------------------ --------------- --------------------- ----------------------
America Online, Inc. 300,000 $3.380 $ 1,660,050
------------------------------ --------------- --------------------- ----------------------
Lynx Capital LLC 400,000 $4.516 $ 663,071
------------------------------ --------------- --------------------- ----------------------
HealthPlan Services 100,000 $9.000 $ 160,210
------------------------------ --------------- --------------------- ----------------------
Total 1,100,000 $ 3,473,031
------------------------------ --------------- --------------------- ----------------------
During March 1998, 875,000 shares of common stock were issued to HAI at
$0.10 per share, for an investment of $87,500. During August 1998, there was a
stock split, giving HAI an additional 12,250,000 shares of common stock.
During September 1988, PILIC purchased 545,916 shares of Series A
Preferred Stock at $4.40 per share for an investment of $2,400,000.
During November 1998, HAI invested $3,000,000 to purchase 682,395
shares of common stock at $4.40 per share.
During December 1999, HAI invested $2,000,000 to purchase 133,333
shares of common stock at $15.00 per share. These shares are included in
Consolidated Statements of Stockholders' Equity Table in Total Shares issued
during 1999 for cash. See footnote 13 to the HealthAxis Financial Statements.
Payment of dividends paid by HealthAxis to HAI is subject to
restrictions set for in the certificate of designation related to HealthAxis
Series A, B, C and D convertible preferred stock. HealthAxis does not anticipate
paying cash dividends on its common stock or on any class of preferred stock in
the foreseeable future.
On December 7, 1999, HealthAxis and Insurdata Incorporated, a
subsidiary of UICI, announced the signing of a definitive agreement to merge the
two companies, with the combined entity retaining the HealthAxis name. Under the
terms of the transaction, Insurdata's shareholders received 49% of the newly
combined company. The transaction, which closed on January 7, 2000, will be
accounted for under the purchase method of accounting in accordance with APB No.
16 and HealthAxis, by virtue of its holding a majority of the voting interest,
was determined to be the acquirer for accounting purposes. HealthAxis
anticipates that revenues will increase as a result of Insurdata's revenues
which were $42.9 million on a pro forma basis during 1999 (excluding the new
merging subsidiaries of Insurdata Incorporated). It is anticipated that
Insurdata's technological expertise and established customer base will benefit
HealthAxis' future operations by improving the process of implementing carrier
products on the website and website development, increasing revenues with
HealthAxis' established customer base, the potential to cross market products to
HealthAxis' and Insurdata's clients and providing each company with exposure to
additional potential clients.
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On January 26, 2000, HAI, HealthAxis and a wholly owned subsidiary of
HAI entered into the Agreement and Plan of Reorganization which provides for the
merger of HealthAxis with and into the subsidiary of HAI which will result in
former shareholders of HealthAxis becoming shareholders of HAI. This transaction
is referred to as the reorganization. The HAI subsidiary will continue as the
surviving corporation of the reorganization, will retain all of its separate
corporate existence and will be known as HealthAxis.com Inc. The reorganization
will be accounted for by HAI as a recapitalization in accordance with generally
accepted accounting principles. As a recapitalization, HAI capital stock issued
to HealthAxis stockholders will be accounted for at the historical cost and the
net assets of HAI will be recorded at historical cost. As a result of the
recapitalization, the preferred and common stock of HealthAxis will be converted
to HAI common stock eliminating all minority interest in HealthAxis and the
minority interest net loss of subsidiary line item on the statement of
operations. In addition, HAI will convert outstanding HealthAxis options and
warrants into options or warrants to purchase HAI common stock. HAI anticipates
that HAI will issue a total of 33,479,785 shares of HAI common stock to
HealthAxis shareholders in the reorganization. HAI also anticipates that HAI
will issue up to approximately 6,319,205 shares of HAI common stock upon the
exercise of options and warrants to purchase HealthAxis common stock to be
assumed by HAI of which HAI anticipates recording approximately $61 million of
prepaid compensation which will be expensed over the vesting period of the
options. There can be no assurance, however, that the conditions to the
reorganization will be satisfied or that the reorganization documents will not
be terminated.
HealthAxis believes that the merger between HealthAxis and Insurdata
will benefit HealthAxis and its shareholders because HealthAxis will:
o increase its revenues, as demonstrated by the increase in revenues
from $291,000 in 1999 to a combined pro forma revenue of $42.9
million for 1999;
o improve its ability to raise capital by providing an established
revenue base, seasoned management and significantly greater
technological resources;
o increase product offerings and client exposure, which will
potentially enable HealthAxis to generate additional revenues; and
o acquire technical expertise and accelerate carrier partner
integration process, which would allow HealthAxis to more quickly
make additional products available on its website and accelerate its
growth.
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Historically Insurdata has been funded primarily through cash generated
from operations. At December 31, 1999, Insurdata's cash balance was $2.1
million, current liabilities were $4.5 million of which anticipated 2000
payments under certain employee compensation plans were $1.1 million and capital
purchase commitments were $1 million.
HealthAxis believes the reorganization between HealthAxis and HAI will
benefit HealthAxis and its shareholders because it will:
o improve HealthAxis' ability to raise capital on more favorable terms
than in the private equity markets;
o eliminate investor confusion stemming from HAI's long history as a
health insurance underwriter; and
o streamline corporate structure to eliminate dual shareholder
approvals in connection with annual meetings and other shareholder
actions and their associated costs.
During 1998 and 1999, HealthAxis entered into agreements with America
Online, Inc., Lycos, Inc., CNet, Inc., Snap!, LLC and Yahoo! Inc. In connection
with these agreements, HealthAxis paid $4.7 million in cash and warrants during
1999 and is required to pay $5 million in 2000. HealthAxis believes that its
current cash and cash equivalents will be sufficient to fund HealthAxis'
obligations under these agreements and current operations through March 31,
2001. However, subsequent equity or debt financings will be necessary to enable
HealthAxis to fund future operations and continue to implement its current
business strategies.
HealthAxis has no material commitments for capital expenditures at
December 31, 1999 and such expenditures totaled approximately $3.8 million in
1999. Such expenditures were primarily for equipment, software, furniture and
building improvements.
The charge to operations for severance and other merger costs is
expected to occur in the second quarter of 2000. The severance costs for nine
terminated employees are payroll, payroll taxes and the cost associated with
stock options that automatically vest upon termination of these seven staff
members and two executive officers. The total amount of the charge to
operations is expected to be $3,325, of which $2.0 is expected to reduce working
capital.
On January 7, 2000, HealthAxis and Insurdata Incorporated completed the
merger of the two companies. HealthAxis anticipates that it will pay out of
pocket merger costs of approximately $0.6 million during 2000.
On December 7, 1999, HealthAxis announced plans to move forward with
its reorganization with HAI. The merger was approved by the boards of directors
of HealthAxis and HAI on January 26, 2000. HealthAxis anticipates that it will
pay out-of-pocket merger costs of approximately $2.2 million during 2000.
Approximately $1.4 million remains outstanding under the initial
agreements with HealthAxis' distribution partners which is payable in 2000. In
addition, HealthAxis entered into a new contract with Yahoo! with total payments
of $3.6 million required to be made in 2000. Given effect of these payments,
$53.3 million of the net proceeds of the December 1999 offering remains for
working capital and other general corporate purposes.
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The HAI convertible debentures outstanding at December 31, 1999 are
fixed rate obligations and would not be exposed to the impact of interest rate
fluctuations. To the extent that HAI seeks to refinance these instruments, the
prevailing market interest rates on replacement debt could exceed rates
currently paid thereby increasing interest expense and increasing net loss.
HealthAxis has incurred costs to develop and enhance its technology, to
create and introduce its website and to establish marketing, insurance carrier
and claims administration relationships. As a result, HealthAxis has incurred
significant losses and expects to continue to incur losses on a quarterly and
annual basis for the foreseeable future. HealthAxis currently intends to
substantially increase its operating expenses as a result of its strategic
alliances, to fund increased interactive sales and marketing, to enhance its
existing website and to fund increased salaries and other costs. Consequently,
HealthAxis expects negative cash flow from operations to continue for the
foreseeable future as it continues to develop and market its Internet based
health and life insurance business.
Impact of Inflation
Higher interest rates, which have traditionally accompanied inflation,
affect HealthAxis' short-term investment revenue.
Inflation has significantly increased the cost of health care. The
adequacy of premium rates in relation to the level of health claims is
constantly monitored and, where appropriate, premium rates on such policies,
when appropriate, are increased as policy benefits increase. Failure to make
such increases commensurate with health care cost increases may result in a loss
to HealthAxis' insurance carriers. Implementation by HealthAxis' insurance
carriers of changes in premium rates may affect HealthAxis commission revenue
and may increase HealthAxis operating expense.
Year 2000 Compliance
Year 2000 issues are the result of computer programs being written
using two digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the Year 2000. This could result in system failures or miscalculations
causing disruptions in operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities
To date, HealthAxis has experienced very few Year 2000 problems. The
cost of programming changes as of December 31, 1999 was less than $150,000.
94
Management of HealthAxis
Executive Officers and Directors
The following table sets forth information regarding the directors and
executive officers of HealthAxis.
Name Age(1) Position with HealthAxis
----------------------------------- --------- --------------------------------------------------------------
Michael Ashker................... 47 President, Chief Executive Officer and Director
Alvin H. Clemens................. 62 Chairman of the Board
Henry G. Hager.................. 65 Director
Patrick J. McLaughlin............ 42 Director
Edward W. LeBaron, Jr............ 68 Director
Gregory T. Mutz.................. 53 Director
Dennis B. Maloney................ 53 Chief Operating Officer and Director
Anthony R. Verdi................. 51 Treasurer and Chief Financial Officer
Elaine del Rossi................. 56 Senior Vice President -- Sales and Marketing
33 Executive Vice President -- Strategy and Corporate
Andrew Felder.................... Development
Michael G. Hankinson............. 43 Vice President, General Counsel and Secretary
(1) Age as of the record date of the annual meeting.
Michael Ashker has been President, Chief Executive Officer and a
Director of HealthAxis since March 1998. Mr. Ashker has been a Director of HAI
since December 1998 and President and Chief Executive Officer of HAI since
August 1999. Mr. Ashker was the Managing Director of Lynx Capital Group LLC, an
independent investment advisor and fund management firm, from September 1995 to
January, 2000. Prior to such time, he was a Money Manager for Kidder Peabody &
Co. from 1991 to 1995, for Bateman, Eichler, Hill and Richards from 1988 to
1991, and for Shearson/American Express from 1984 to 1988.
Alvin H. Clemens has been Chairman of the Board of HealthAxis since
March 1998. Mr. Clemens has been Chairman of the Board of HAI and subsidiary
companies since October 1989 and was Chief Executive Officer of HAI from 1989 to
1999. Mr. Clemens was also President of HAI and Provident Indemnity Life
Insurance Company Life Insurance Company from 1993 to 1996. Prior to such time
he was President of Maine National Life Insurance Company from 1989 to 1995 and
Owner and Chairman of the Board of Maine National Life Insurance Company from
1985 to 1989. Mr. Clemens was President and Director of Academy Life Insurance
Company and Pension Life Insurance Company of America from 1970 to 1985. Mr.
Clemens was Chairman and Chief Executive Officer of Academy Insurance Group
Inc., from 1967 to 1985.
Henry G. Hager has been a Director of HAI since 1996 and a Partner in
the law firm of Stradley Ronon from 1994 through December of 1999. He currently
is Of Counsel at Stradley Ronon and has been President and Chief Executive
Officer of The Insurance Federation of Pennsylvania since 1985. Mr. Hager also
serves as a director of American Waterworks Company, a public company. Mr. Hager
joined HealthAxis' board in January 2000.
95
Edward W. LeBaron, Jr. has been a Director of HAI since 1998 and a
Director of Lynx Capital Group, LLC since January 1997. Prior to such time, Mr.
LeBaron was an attorney and Partner in the Political Law Group of Pillsbury,
Madison & Sutro from 1989 to 1994. Mr. LeBaron joined HealthAxis' board in
January 2000.
Gregory T. Mutz has served as a Director and President and Chief
Executive Officer of UICI since January 1999 and has served as a director of
HealthAxis since January 2000. Mr. Mutz was a director of Insurdata Incorporated
from May 1999 to January 2000. Mr. Mutz has served as Chairman of the Board of
Amli Realty Co. since 1980, as Chairman of the Board of Trustees of Amli
Residential Properties Trust since 1994, and as Chairman of Amli Commercial
Properties Trust since 1997. Mr. Mutz has also served as Chairman of the Board
of Excell Global Services since 1997. He has been a Director of the National
Multifamily Housing Council since 1995 and a Director of Alleghany/Chicago Trust
since 1996. Mr. Mutz also served as a Director of Baldwin & Lyons from 1978
until 1997 and as a Director of Avtel Communications from 1997 until 1998.
Dennis B. Maloney became HealthAxis' Chief Operating Officer and a
director in January 2000. Prior to such time Mr. Maloney was President and Chief
Executive Officer of Insurdata Incorporated since January 1997 and was on the
Board of Directors of Insurdata Incorporated from March 1997 to January 2000.
From 1976 until October 1996, Mr. Maloney served in various capacities with SHL
Systemhouse, Inc., a technology company, most recently as President of its
outsourcing division. Mr. Maloney is a director of JetForm Corporation, a public
company.
Patrick J. McLaughlin has served as a director of HealthAxis since
February, 2000 and has served as a director of UICI since January 1999. Mr.
McLaughlin has also served as a director of Universal American Financial
Corporation since 1995. Mr. McLaughlin has been the Managing Director of Emerald
Capital Group, Ltd., an asset management and consulting firm specializing in the
insurance industry, since April 1993. Prior to such time, he was Executive Vice
President and Chief Investment Officer of Life Partners Group, Inc. from April
1990 to April 1993 and Managing Director of Conning & Company from August 1989
to April 1990. He served as Senior Vice President and Chief Investment Officer
of ICH Corporation from March 1987 to August 1989.
Anthony R. Verdi has been the Chief Financial Officer and Treasurer of
HealthAxis since November 1999. Mr. Verdi has been Chief Financial Officer and
Treasurer of HAI since April 2000. He also serves as Chief Operating Officer of
HAI and subsidiaries since December 1997. He served as President of Provident
Indemnity Life Insurance Company from December 1998 through October 1999 and as
Treasurer and Chief Financial Officer of HAI and subsidiaries from 1990 through
1997. Prior to 1990, he was Vice President and Controller of Inter-County
Hospitalization Plan Inc. and he served as Assistant Controller Academy
Insurance Group Inc. from 1971 through 1986.
Elaine del Rossi has been Senior Vice President -- Sales and Marketing
of HealthAxis since November 15, 1999. Prior to such time, she served as
President of Health Options 2000 Consulting, a sales, marketing and business
consultant to major healthcare companies from March 1997 to November 1999. From
September 1994 to March 1997, she served as Senior Vice President of
Sales/Marketing for AmeriChoice Medicaid HMO.
96
Andrew Felder has been Executive Vice President -- Strategy and
Corporate Development of HealthAxis since January 1999. He has also served as
Executive Vice President of HAI since April 1, 2000. He also served as Chief
Operating Officer of HealthAxis from March 1998 to March 1999. Prior to such
time, Mr. Felder was a self-employed management consultant to Lynx Capital Group
LLC, from July 1997 to February 1998 during which time he co-founded
JusticeLink, Inc., a Dallas, Texas Internet company that provides electronic
document filing services to the justice community. He also was employed as the
Vice President of Strategic Planning at Wells Fargo Bank, from July 1995 to
February 1997 and the Manager of Strategic Planning at Dole Food Company, from
July 1992 to July 1995.
Michael G. Hankinson has been the Vice President and General Counsel of
HealthAxis since April, 1999. He became Secretary of HealthAxis in November,
1999. Mr. Hankinson has also served as Vice President, General Counsel and
Assistant Secretary of HAI since April 1, 2000. Prior to joining HealthAxis, Mr.
Hankinson served as Senior Vice President, Secretary and General Counsel with
Gramercy Insurance Co. from September 1992 to June 1998. Prior to such time, Mr.
Hankinson was an environmental attorney with Olin Corporation from 1991 to
August 1992 and an Instructor in Management in the College of Business
Administration at Fairleigh Dickinson University from August 1986 to August
1992.
HealthAxis' performance depends substantially on the continued services
and on the performance of our senior management and other key personnel.
HealthAxis does not have employment agreements with its key personnel and these
individuals may terminate their employment at any time.
97
Principal Shareholders of HealthAxis
The following table provides information regarding the beneficial
ownership of HealthAxis' capital stock as of April 10, 2000 by:
o each person who is known by HealthAxis to own beneficially 5% or more
of any class of HealthAxis' capital stock;
o each of HealthAxis' directors;
o HealthAxis' chief executive officer and each of the other four most
highly compensated executive officers; and
o all of HealthAxis' directors and executive officers as a group.
Common Stock Series A Preferred Series B Preferred
---------------------- ----------------------- ----------------------
Number of Number of Number of
Shares Shares Shares
Beneficially Percent Beneficially Percent Beneficially Percent
Beneficial Owners (1) Owned of Class Owned of Class Owned of Class
--------------------- ---------- -------- ------------ -------- ----------- --------
UICI..................... 17,101,178(2) 40.1% -- -- -- --
4001 McEwen, Suite 200
Dallas, TX 75244
HealthAxis Inc........... 15,355,728 36.2% 445,916(3) 81.7% -- --
2500 DeKalb Pike
East Norriton, PA 19401
UICI Voting Trust........ 9,103,217(9) 21.4% -- -- -- --
2500 DeKalb Pike
East Norriton, PA 19401
Founders Plan Voting Trust 2,419,935(10) 5.7% -- -- -- --
2500 DeKalb Pike
East Norriton, PA 19401
AHC Acquisition Inc...... -- -- 100,000 18.3% -- --
2500 DeKalb Pike
East Norriton, PA 19401
America Online Inc....... 300,000(4) -- -- -- 625,529 100.0%
22000 AOL Way
Dulles, VA 20166
Seneca Capital, Ltd...... 1,395,180(5) 3.3% -- -- -- --
830 Third Avenue, 14th Floor
New York, NY 10022
Seneca Capital, L.P...... 838,153(5) 2.0% -- -- -- --
830 Third Avenue, 14th Floor
New York, NY 10022
Cerberus Partners, LP.... -- -- -- -- -- --
450 Park Avenue, 28th Floor
New York, NY 10022
HealthInvestors, LP...... -- -- -- -- -- --
450 Park Avenue, 28th Floor
New York, NY 10022
Series C Preferred Series D Preferred
---------------------- ------------------------
Number of Number of
Shares Shares
Beneficially Percent Beneficially Percent
Beneficial Owners (1) Owned of Class Owned of Class
--------------------- ------------ -------- ------------ --------
UICI..................... 866,551 56.8% -- --
4001 McEwen, Suite 200
Dallas, TX 75244
HealthAxis Inc........... -- -- -- --
2500 DeKalb Pike
East Norriton, PA 19401
UICI Voting Trust........ -- -- -- --
2500 DeKalb Pike
East Norriton, PA 19401
Founders Plan Voting Trust -- -- -- --
2500 DeKalb Pike
East Norriton, PA 19401
AHC Acquisition Inc...... -- -- -- --
2500 DeKalb Pike
East Norriton, PA 19401
America Online Inc....... -- -- -- --
22000 AOL Way
Dulles, VA 20166
Seneca Capital, Ltd...... -- -- -- --
830 Third Avenue, 14th Floor
New York, NY 10022
Seneca Capital, L.P...... -- -- -- --
830 Third Avenue, 14th Floor
New York, NY 10022
Cerberus Partners, LP.... 86,656(6) 5.7% -- --
450 Park Avenue, 28th Floor
New York, NY 10022
HealthInvestors, LP...... 105,000(7) 6.9% -- --
450 Park Avenue, 28th Floor
New York, NY 10022
98
Common Stock Series A Preferred Series B Preferred
---------------------- ----------------------- ----------------------
Number of Number of Number of
Shares Shares Shares
Beneficially Percent Beneficially Percent Beneficially Percent
Beneficial Owners (1) Owned of Class Owned of Class Owned of Class
--------------------- ---------- -------- ------------ -------- ----------- --------
Pequod International Ltd. 72,517(8) (*) -- -- -- --
450 Park Avenue, 28th Floor
New York, NY 10022
Pequod Investments, L.P.. 72,517(8) (*) -- -- -- --
450 Park Avenue, 28th Floor
New York, NY 10022
Pequod Health LLC........ 36,851(8) (*) -- -- -- --
450 Park Avenue, 28th Floor
New York, NY 10022
Intel Corp. ............. -- -- -- -- -- --
2200 Mission College Blvd.
Santa Clara, CA 95052
Michael Ashker .......... 12,662,487(9)(10)(12) 29.0% -- -- -- --
Alvin H. Clemens ........ 2,419,935(12) 5.7% 100,000(8) 18.3% -- --
Henry G. Hager .......... 2,419,935(12) 5.7% -- -- -- --
Patrick J. McLaughlin ... -- -- -- -- -- --
Edward W. LeBaron, Jr. .. 11,523,152(11)(12) 27.1% -- -- -- --
Gregory T. Mutz ......... -- -- -- -- -- --
Anthony R. Verdi ........ -- -- -- -- -- --
Dennis B. Maloney ....... 9,635,217(11)(13) 22.5% -- -- -- --
Andrew Felder ........... 187,503(14) (*) -- -- -- --
Elaine del Rossi ........ --(15) -- -- -- -- --
Michael G. Hankinson .... 23,668(16) (*) -- -- -- --
All directors and
executive officers
as a group (11
Persons)................. 13,405,658 30.4% 100,000(8) 18.3% -- --
Series C Preferred Series D Preferred
---------------------- ------------------------
Number of Number of
Shares Shares
Beneficially Percent Beneficially Percent
Beneficial Owners (1) Owned of Class Owned of Class
--------------------- ------------ -------- ------------ --------
Pequod International Ltd. 129,983 8.5% -- --
450 Park Avenue, 28th Floor
New York, NY 10022
Pequod Investments, L.P.. 129,983 8.5% -- --
450 Park Avenue, 28th Floor
New York, NY 10022
Pequod Health LLC........ 169,851 11.1% -- --
450 Park Avenue, 28th Floor
New York, NY 10022
Intel Corp. ............. -- -- 370,834 100.0%
2200 Mission College Blvd.
Santa Clara, CA 95052
Michael Ashker .......... -- -- -- --
Alvin H. Clemens ........ -- -- -- --
Henry G. Hager .......... -- -- -- --
Patrick J. McLaughlin ... -- -- -- --
Edward W. LeBaron, Jr. .. -- -- -- --
Gregory T. Mutz ......... -- -- -- --
Anthony R. Verdi ........ -- -- -- --
Dennis B. Maloney ....... -- -- -- --
Andrew Felder ........... -- -- -- --
Elaine del Rossi ........ -- -- -- --
Michael G. Hankinson .... -- -- -- --
All directors and
executive officers
as a group (11
Persons)................. -- -- -- --
1 The address of each director and executive officer is that of HealthAxis.
2 Includes a warrant granted to UICI to purchase 150,000 shares of common
stock at an exercise price of $4.40 per share and 7,500 shares of common
stock at an exercise price of $12.00 per share and reflects the issuance of
18,943,678 shares to UICI in connection with the merger of Insurdata
Incorporated with HealthAxis less the sale of 2,000,000 shares by UICI on
March 16, 2000, of which 9,103,217 shares are held in the UICI Voting Trust
over which UICI has sole dispositive power but no voting power. The shares
held in this trust are voted by a majority of the trustees of this trust,
Messrs. Ashker, LeBaron and Maloney. See "-- Certain Transactions."
3 Represents shares of Series A preferred stock acquired from Provident
Indemnity Life Insurance Company, a former subsidiary of HAI, which are
convertible into common stock on a one for one basis (subject to
adjustment). See "Chapter IV - Other HealthAxis Annual Meeting Proposals
- Item 1 - Election of Directors - Relationship with HAI and UICI."
4 Represents a warrant exercisable for 300,000 shares of HealthAxis common
stock or HAI common stock at an exercise price of $1.77 per share for
HealthAxis common stock and $3.38 per share of HAI common stock.
5 Mr. Doug Hirsch, manager of these funds, has voting and dispositive power
over these shares.
99
6 Mr. Stephen Feinberg, manager of this fund, has voting and dispositive
power over these shares.
7 Mr. Cory Horowitz, manager of this fund, has voting and dispositive power
over these shares.
8 Mr. John Gallen, manager of these funds has voting and dispositive power
over these shares.
9 Includes 1,139,335 shares of common stock subject to options granted to Mr.
Ashker which are currently exercisable. Of such amount, options to purchase
991,000 shares, 96,667 shares, 18,334 shares, and 33,334 shares have been
granted at exercise prices of $1.77, $5.77, $12.00 and $15.00 per share,
respectively. Excludes options to purchase 48,333 shares, 36,666 shares and
66,666 shares which have been granted at exercise prices of $5.77, $12.00
and $15.00 per share, respectively, which are not currently exercisable.
10 Represents 100,000 shares of Series A preferred stock transferred to AHC
Acquisition, Inc. in connection with the sale of Provident Indemnity Life
Insurance Company.
11 Includes 9,103,217 shares of HealthAxis common stock which are held in the
UICI voting trust which UICI has sole dispositive power but no voting
power. The shares held in the trust are voted by a majority of the
trustees, Mr. Ashker, Mr. LeBaron and Mr. Maloney.
12 Includes 2,419,935 shares of HealthAxis common stock which are held in a
voting trust and will be issued to certain employees of Insurdata
Incorporated and other UICI subsidiaries pursuant to the terms of options
granted under the Insurdata Founders Plan. The shares held in this trust
are voted by a majority vote of the trustees of the trust who are Messrs
Ashker, Clemens, LeBaron and Hager.
13 Includes 266,000 shares of common stock subject to options granted under
the Insurdata Founders' Plan which are held in a voting trust and are
currently exercisable. Excludes 798,000 shares of common stock subject to
options granted under the Insurdata Founders' Plan which are held in a
voting trust and are not currently exercisable.
14 Includes 187,503 shares of common stock subject to options granted to Mr.
Felder which are currently exercisable. Of such amount, options to purchase
121,875 shares, 15,626 shares, 33,334 shares, 8,334 shares and 8,334 shares
have been granted at exercise prices of $1.77, $4.00, $5.77, $12.00 and
$15.00, respectively. Excludes options to purchase 28,125 shares, 9,374
shares, 16,666 shares, 16,666 shares and 16,666 shares which have been
granted at exercise prices of $1.77, $4.00, $5.77, $12.00 and $15.00 per
share, respectively, which are not currently exercisable.
15 Excludes 40,000 shares of common stock subject to options granted which are
not currently exercisable. Of such amount, options to purchase 20,000
shares have been granted at an exercise price of $12.00 and 20,000 shares
have been granted at an exercise price of $15.00. These options begin to
vest on November 22, 2000.
16 Includes 23,668 shares of HealthAxis common stock subject to options
granted to Mr. Hankinson which are currently exercisable. Of such amount,
options to purchase 17,000 shares, 3,334 shares and 3,334 shares have been
granted at exercise prices of $5.77, $12.00 and $15.00, respectively.
Excludes 39,666 shares subject to options, which are exercisable in
quarterly installments with the next installment earned on July 26, 2000,
and 6,666 shares subject to options which are not currently exercisable.
* Less than 1.0 percent.
100
Post Reorganization HAI Share Ownership of HealthAxis Principal Shareholders
The following table provides information regarding the beneficial
ownership of HAI stock by the owners of HealthAxis' capital stock as of April
10, 2000 as adjusted for the HealthAxis/HAI reorganization using a 1.127
exchange ratio: The following HealthAxis shareholders are included in the
following table:
o each person who is known by HealthAxis to own beneficially 5% or
more of any class of HealthAxis' capital stock;
o each of HealthAxis' directors;
o HealthAxis' chief executive officer and each of the other four most
highly compensated executive officers; and
o all of HealthAxis' directors and executive officers as a group.
Common Stock
-----------------------------------
Number of Shares Percent of
Beneficial Owners (1) Beneficially Owned Class
----------------------------------------------------- ------------------- ----------
UICI............................................. 20,249,631(2) 43.5%
4001 McEwen, Suite 200
Dallas, TX 75244
HealthAxis Inc................................... -- --
2500 DeKalb Pike
East Norriton, PA 19401
UICI Voting Trust................................ 10,259,326 (3) 22.0%
2500 DeKalb Pike
East Norriton, PA 19401
Founders Plan Voting Trust....................... 2,727,267 (4) 5.8%
2500 DeKalb Pike
East Norriton, PA 19401
AHC Acquisition Inc.............................. 112,700 (*)
2500 DeKalb Pike
East Norriton, PA 19401
America Online Inc............................... 1,343,071 (5) 2.9%
22000 AOL Way
Dulles, VA 20166
Seneca Capital, Ltd.............................. 1,572,368 (6) 3.4%
830 Third Avenue, 14th Floor
New York, NY 10022
Seneca Capital, LP............................... 944,598 (6) 2.0%
830 Third Avenue, 14th Floor
New York, NY 10022
Cerberus Partners, LP............................ 97,661 (7) (*)
450 Park Avenue, 28th Floor
New York, NY 10022
101
Common Stock
-----------------------------------
Number of Shares Percent of
Beneficial Owners (1) Beneficially Owned Class
----------------------------------------------------- ------------------- ----------
HealthInvestors, L P ............................ 118,335(8) (*)
450 Park Avenue, 28th Floor
New York, NY 10022
Pequod International Ltd......................... 228,218(9) (*)
450 Park Avenue, 28th Floor
New York, NY 10022
Pequod Investments, L.P.......................... 228,218(9) (*)
450 Park Avenue, 28th Floor
New York, NY 10022
Pequod Health LLC................................ 232,953(9) (*)
450 Park Avenue, 28th Floor
New York, NY 10022
Intel Corp. ..................................... 417,930(10) (*)
2200 Mission College Blvd.
Santa Clara, CA 95052
Michael Ashker .................................. 14,665,400(3)(4)(11) 30.7%
Alvin H. Clemens ................................ 5,339,467(4)(12) 11.2%
Henry G. Hager .................................. 2,792,267(4)(13) 6.0%
Patrick J. McLaughlin ........................... -- --
Edward W. LeBaron, Jr. .......................... 13,030,164(3)(4)(14) 28.0%
Gregory T. Mutz ................................. -- (*)
Anthony R. Verdi ................................ 89,974(15) (*)
Dennis B. Maloney ............................... 10,859,890(4)(16) 23.3%
Andrew Felder ................................... 241,316(17) (*)
Elaine del Rossi ................................ --(18) --
Michael G. Hankinson ............................ 26,674(19) (*)
All directors and executive officers as a group (11 18,344,697 39.3%
Persons).........................................
1 The address of each director and executive officer is that of HealthAxis.
2 Includes a warrant granted to UICI to purchase 169,050 shares of HAI common
stock at an exercise price of $3.90 per share and 8,453 shares of HAI
common stock at an exercise price of $10.65 per share and reflects
20,072,128 shares of HAI common stock owned by UICI, of which 10,259,326
shares are held in the UICI Voting Trust over which UICI has sole
dispositive power but no voting power. The shares held in this trust are
voted by a majority of the trustees of this trust, Messrs. Ashker, LeBaron
and Maloney.
3 Includes 10,259,326 shares of HAI common stock which are held in the UICI
Voting Trust over which UICI has sole dispositive power but no voting
power. The shares held in the trust are voted by a majority of the
trustees, Mr. Ashker, Mr. LeBaron and Mr. Maloney.
102
4 Includes 2,727,267 shares of HAI common stock which are held in a voting
trust and will be issued to certain employees of Insurdata Incorporated and
other UICI subsidiaries pursuant to the terms of options granted under the
Insurdata Founders Plan. The shares held in this trust are voted by a
majority vote of the trustees of the trust who are Messrs. Ashker, Clemens,
LeBaron and Hager.
5 Includes 704,971 shares of HAI common stock, a warrant exercisable for
338,100 shares of HAI common stock at an exercise price of $1.57 per share
or 300,000 shares of HAI common stock at an exercise price of $3.38 per
share, and a warrant exercisable for 300,000 shares of HAI common stock at
an exercise price of $4.48.
6 Mr. Doug Hirsch, manager of this fund, has voting and dispositive power
over these shares.
7 Mr. Stephen Feinberg, manager of this fund, has voting and dispositive
power over these shares.
8 Mr. Cory Horowitz, manager of these funds, has voting and dispositive power
over these shares.
9 Mr. John Gallen, manager of these funds, has voting and dispositive power
over these shares.
10 Includes 375,667 shares of HAI common stock and warrants to purchase 42,263
shares of HAI common stock at $12.00 per share that are currently
exercisable. Excludes warrants to purchase 42,262 shares of HAI common
stock at $12.00 per share that are not currently exercisable.
11 Includes 89,776 shares of HAI common stock and 1,284,031 shares of HAI
common stock subject to options granted to Mr. Ashker which are currently
exercisable. Of such amount, options to purchase 1,116,857 shares, 108,944
shares, 20,663 shares, and 37,567 shares have been granted at exercise
prices of $1.57, $5.12, $10.65 and $13.31 per share, respectively. Excludes
options to purchase 54,471 shares, 41,323 shares and 75,132 shares which
have been granted at exercise prices of $5.12, $10.65 and $13.31 per share,
respectively, which are not currently exercisable. Also includes 5,000
shares of HAI common stock subject to options granted at an exercise price
of $7.50 under the HAI Stock Option Plan of Directors, which are currently
exercisable and 300,000 shares of the HAI common stock subject to warrants
granted at an exercise price of $4.516 which were assigned to Mr. Ashker
from Lynx Capital Group, LLC, which are currently exercisable.
12 Includes 1,848,926 shares of HAI common stock and 112,700 shares of HAI
common stock issuable upon conversion of 100,000 shares of Series A
preferred stock of HealthAxis transferred to AHC Acquisition, Inc. in
connection with the sale of Provident Indemnity Life Insurance Company.
Also includes 650,574 shares of common stock subject to options granted
under the HAI Stock Option Plan for Directors, which are currently
exercisable. Of such amount, options to purchase 253,376 shares and 397,198
shares have been granted at exercise prices of $0.91 and $3.64,
respectively.
13 Includes 10,000 shares of HAI common stock and 55,000 shares of HAI common
stock subject to options granted under the HAI Stock Option Plan of
Directors, which are currently exercisable. Of such amount, options to
purchase 30,000 shares and 25,000 shares have been granted at exercise
prices of $2.875 and $8.75, respectively.
14 Includes 38,571 shares of HAI common stock and 5,000 shares of HAI common
stock subject to options granted at an exercise price of $7.50 under the
HAI Stock Option Plan of Directors, which are currently exercisable.
15 Includes 49,974 shares of HAI common stock owned by Mr. Verdi and 40,000
shares of HAI common stock subject to options under the HAI Stock Option
Plan of Directors, which are currently exercisable. Of such amount, options
to purchase 15,000 shares, 20,000 shares and 5,000 shares have been granted
at exercise prices of $5.00, $6.00 and $7.50 per share, respectively.
Excludes options to purchase 10,000 shares, 5,000 shares and 20,000 shares
which have been granted at exercise prices of $5.00, $6.00 and $7.50,
respectively, which are not currently exercisable. Excludes options to
purchase 5,635 shares which have been granted at an exercise price of
$13.31 per share, which are not currently exercisable.
16 Includes 299,782 shares of HAI common stock subject to options granted
under the Insurdata Founders' Plan which are held in a voting trust and are
currently exercisable at $1.36 per share and 300,782 shares of HAI common
stock owned by Mr. Maloney. Excludes 899,346 shares of HAI common stock
subject to options granted under the Insurdata Founders' Plan which are
held in a voting trust and are not currently exercisable at $1.36 per
share.
17 Includes 211,316 shares of HAI common stock subject to options granted
under the HealthAxis 1998 Stock Option Plan to Mr. Felder which are
currently exercisable. Of such amount, options to purchase 137,353 shares,
17,612 shares, 37,567 shares, 9,392 shares and 9,392 shares have been
granted at exercise prices of $1.57, $3.55, $5.12, $10.65 and $13.31,
respectively. Also includes 30,000 shares of HAI common stock subject to
warrants granted at an exercise price of $4.516 which were assigned to Mr.
Felder from Lynx Capital Group, LLC, which are currently exercisable.
Excludes options to purchase 31,698 shares, 10,565 shares, 18,783 shares,
18,783 shares and 18,783 shares which have been granted at exercise prices
of $1.57, $3.55, $5.12, $10.65 and $13.31 per share, respectively, which
are not currently exercisable.
18 Excludes 45,080 shares of HAI common stock subject to options granted under
the HealthAxis 1998 Stock Option Plan which are not currently exercisable.
Of such amount, options to purchase 22,540 shares have been granted at an
exercise price of $10.65 and 22,540 shares have been granted at an exercise
price of $13.31.
19 Includes 26,674 shares of HAI common stock subject to options granted under
the HealthAxis 1998 Stock Option Plan to Mr. Hankinson which are currently
exercisable. Of such amount, options to purchase 19,160 shares, 3,757
shares and 3,757 shares have been granted at exercise prices of $5.12,
$10.65 and $13.31, respectively. Excludes options to purchase 37,190
shares, 7,513 shares and 7,513 shares which have been granted at exercise
prices of $5.12, $10.65 and $13.31 per share, respectively, which are not
currently exercisable.
* Less than 1.0 percent.
103
Comparison of Capital Stock and Shareholders' Rights
The rights of HAI shareholders are governed by HAI's charter, bylaws
and the Pennsylvania Business Corporation Law of 1988, referred to as the PA
BCL. The rights of HealthAxis shareholders are governed by HealthAxis' charter,
bylaws and the PA BCL. After the date the merger is completed, the rights of
HealthAxis shareholders who become HAI shareholders will be governed by HAI's
charter, bylaws and the PA BCL.
In addition to approving the merger, HAI shareholders are being asked
to adopt and approve amended and restated Articles of Incorporation for HAI in
this joint proxy statement/prospectus. For a discussion of the differences
between HAI's current Articles of Incorporation and the new Articles of
Incorporation, see "Chapter III -- Item 3 Adoption and Approval of Amended and
Restated Articles of Incorporation." The following comparison of shareholders'
rights and the capital stock assumes that the HAI shareholders approve the new
amended and restated articles of incorporation.
The following is a summary of the material differences between the
rights of HAI shareholders and the rights of HealthAxis shareholders and between
the capital stock of HAI and the capital stock of HealthAxis. This summary is
not intended to be complete and is qualified in its entirety by reference to
applicable provisions of the PA BCL, HAI's articles of incorporation and bylaws
and HealthAxis' articles of incorporation and bylaws.
Comparison of Capital Stock
Description of HAI Capital Stock. The authorized capital stock of HAI
will consist of 1,900,000,000 shares of HAI common stock $.10 par value, and
100,000,000 shares of preferred stock, $1.00 par value.
HAI Common Stock. As of April 10, 2000, there were approximately
13,097,618 shares of HAI common stock outstanding, held of record by
approximately 3,200 shareholders. HAI common stock is listed and traded on the
NASDAQ National Market under the symbol "HAXS." Holders of HAI common stock are
entitled to one vote per share on all matters to be voted upon by the
shareholders. The shareholders may not cumulate votes in connection with the
election of directors. The holders of HAI common stock are entitled to receive
ratably dividends, if any, declared from time to time by the HAI board of
directors out of funds legally available for dividends. In the event of a
liquidation, dissolution or winding up of HAI, the holders of HAI common stock
are entitled to share ratably in all assets remaining after payment of
liabilities. The HAI common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the HAI common stock. All outstanding shares of HAI common stock
are fully paid and non-assessable, and the shares of HAI common stock to be
outstanding upon completion of the merger will be fully paid and non-assessable.
HAI Preferred Stock. HAI has 100,000,000 shares of HAI preferred stock
authorized and no shares are outstanding. The HAI board of directors has the
authority to issue the shares of HAI preferred stock in one or more series and
to fix the rights, preferences, privileges and restrictions granted to or
imposed upon any unissued and undesignated shares of HAI preferred stock and to
fix the number of shares constituting any series and the designations of such
series, without any further vote or action by the shareholders. Although it
presently has no intention to do so, the HAI board of directors, without
shareholder approval, can issue HAI preferred stock with voting and conversion
rights which could adversely affect the voting power or other rights of the
holders of HAI common stock. The issuance of HAI preferred stock may have the
effect of delaying, deferring or preventing a change in control of HAI.
104
HAI Transfer Agent and Registrar. The transfer agent and registrar for
the HAI common stock is ChaseMellon Shareholder Services LLP, 450 West 33rd St.,
10th Floor, New York, NY 10001 and its telephone number is (212) 273-8016.
Description of HealthAxis Capital Stock. HealthAxis is authorized by
its Articles of Incorporation, as amended, to issue 100,000,000 shares of common
stock, no par value per share and 20,000,000 shares of preferred stock, $1.00
par value per share. As of April 10, 2000, there were 42,477,449 shares of
common stock outstanding and held of record by 72 shareholders and 3,031,191
shares of preferred stock outstanding and held of record by 12 shareholders.
HealthAxis acts as its own transfer agent and registrar with respect to its
common stock.
HealthAxis Common Stock. The holders of HealthAxis common stock are
entitled to one vote per share on all matters to be voted upon the by the
shareholders. Shareholders may not cumulate votes in connection with the
election of directors. Pursuant to the preferences of the holders of preferred
stock, discussed below, the holders of common stock are entitled to receive
dividends, if any, as may be declared from time to time by the board of
directors out of funds legally available therefor. In the event of liquidation,
dissolution or winding up of HealthAxis, whether voluntary or involuntary,
assets and funds of HealthAxis available for distribution to shareholders, and
remaining after the payment to holders of preferred stock of the amount to which
they are entitled as discussed below, will be divided ratably and paid to the
holders of common stock. Shares of HealthAxis common stock have no preemptive or
conversion rights or other subscription rights. All outstanding shares of
HealthAxis common stock are fully paid and nonassessable.
HealthAxis Preferred Stock. The preferred stock may be issued from time
to time by the board of directors as shares of one or more classes or series.
Subject to the provisions of HealthAxis' amended and restated articles of
incorporation and limitations prescribed by law, the board of directors is
expressly authorized to adopt resolutions to issue shares, to fix the number of
shares, to change the number of shares constituting any series and to provide
for or change the voting powers, designations, preferences and relative,
participating, optional or other special rights, qualifications, limitations or
restrictions thereof, including dividend rights (including whether dividends are
cumulative), dividend rates, terms of redemption (including sinking fund
provisions), redemption prices, conversion rights and liquidation preferences of
the shares constituting any class or series of the preferred stock, in each case
without any further action or vote by the shareholders. To the extent the
Company determines to issue a new series of preferred stock, shareholder
approval would be required from each series of outstanding preferred stock
voting as a separate class.
One of the effects of undesignated preferred stock may be to enable the
board of directors to render more difficult or to discourage an attempt to
obtain control of HealthAxis by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of HealthAxis' management.
The issuance of additional shares of the preferred stock pursuant to the board
of directors' authority described herein may adversely affect the rights of the
holders of the common stock. For example, preferred stock issued by HealthAxis
may rank prior to the common stock as to dividend rights, liquidation preference
or both, may have full or limited voting rights and may be convertible into
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shares of the common stock. Accordingly, the issuance of shares of preferred
stock may discourage bids for the common stock or may adversely affect the
market price of the common stock.
HealthAxis has 20,000,000 shares of preferred stock authorized of which
the board of directors has designated 953,980 shares as Series A preferred
stock, 625,529 shares as Series B preferred stock, 3,420,291 shares as Series C
preferred stock and 500,000 as Series D preferred stock. At April 10, 2000 there
were 545,916 shares of Series A preferred stock outstanding, 625,529 shares of
Series B preferred stock outstanding, 1,526,412 shares of Series C preferred
stock outstanding and 333,334 shares of Series D preferred stock. The HealthAxis
board of directors has the authority to issue up to an additional 14,500,000
shares of HealthAxis preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions granted to or imposed upon any
unissued and undesignated shares of HealthAxis preferred stock and to fix the
number of shares constituting any series and the designations of such series,
without any further vote or action by the shareholders. Although it presently
has no intention to do so, the HealthAxis board of directors, without
shareholder approval, can issue HealthAxis preferred stock with voting and
conversion rights which could adversely affect the voting power or other rights
of the holders of HealthAxis common stock. The issuance of HealthAxis preferred
stock may have the effect of delaying, deferring or preventing a change in
control of HealthAxis.
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Dividends. The holders of the preferred stock are entitled to receive
dividends as declared by the board of directors of HealthAxis in its discretion,
out of funds legally available for that purpose. Dividends on each share of
preferred stock, if and when declared, shall accrue from the applicable date of
declaration so that if at any time accrued dividends upon the preferred stock
have not been paid, the amount and deficiency in these dividends will be fully
paid (but without interest). A sum sufficient for the payment will have been set
apart for payment, before any dividend will be declared or paid or any other
distribution ordered or made upon shares of HealthAxis common stock and before
any sum will be set aside for or applied to the purchase or redemption of any
shares of HealthAxis common stock, other than the repurchase by HealthAxis of
shares of common stock from any employee upon termination of their employment.
Dividends, if and when declared, must first be paid to the holders of the Series
B preferred stock, then to the holders of the Series C and Series D preferred
stock and then to the holders of the Series A preferred stock. Only after
dividends have been paid to each holder of preferred stock, will HealthAxis pay
dividends to the holders of common stock.
Liquidation. In the event of any dissolution, liquidation or winding up
of the affairs of HealthAxis, whether voluntary or otherwise, after payment or
provision for payment of the debts and other liabilities of HealthAxis, the
holders of the preferred stock will be entitled to receive, out of HealthAxis'
assets legally available for distribution to its shareholders, a preference
amount specified in the amended and restated certificate of designation for each
series of preferred stock, plus an amount equal to all dividends accrued and
unpaid on each share up to the date fixed for distribution, before any
distribution may be made to the holders of HealthAxis' common stock. The
preference amount for the Series B preferred stock will first be paid to the
holders of Series B preferred stock, then the preference amount for the Series C
and Series D preferred stock will be paid to the holders of Series C and Series
D preferred stock respectively and then the preference amount for the Series A
preferred stock will be paid to the holders of Series A preferred stock. If
after payment or provision for payment of the debts and other liabilities of
HealthAxis and the distribution to the holders of each series of preferred stock
the full amount of their preference, holders of the preferred stock will be
entitled to share on a pro rata basis the remaining HealthAxis assets available
for distribution to shareholders with holders of the common stock. The relative
value of a share of each series of preferred stock for this purpose will be
determined on an as converted basis.
The consolidation or merger of HealthAxis with any corporation (other
than a transaction where holders of HealthAxis' voting capital stock hold a
majority of voting capital of the resulting entity), the sale of all or
substantially all of HealthAxis' assets, or the acquisition by any person or
entity of a majority of the voting capital stock of HealthAxis will be deemed a
liquidation or winding up.
Mandatory Redemption. The shares of Series A preferred stock are
redeemable by HealthAxis at any time after September 15, 1999 and HealthAxis may
redeem any or all of the outstanding Series A preferred stock at a redemption
price equal to the original issuance price of approximately $4.40 per share
(subject to adjustment to reflect stock splits, stock dividends, stock
combinations, recapitalizations and similar occurrences) plus an amount that
would yield a total annualized return of 10%, calculated daily and compounded
annually, from the date of purchase through the mandatory redemption date.
Notice of the exercise of the mandatory redemption rights must be given by
HealthAxis to holders of the Series A preferred stock pursuant to the notice of
mandatory redemption provisions contained in the certificate of designation
related to the Series A preferred stock.
Optional Redemption. The holders of the Series B preferred stock have
the option, exercisable upon request of the holders of 51% of the outstanding
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shares of Series B preferred stock, upon the occurrence of a trigger event (as
defined below), to cause HealthAxis to redeem any or all of the shares of Series
B preferred stock requested to be redeemed, at a redemption price per share
equal to the original issuance price of $4.36279 (subject to adjustment to
reflect stock splits, stock dividends, stock contributions, recapitalizations
and similar occurrences) plus an amount that would yield a total annualized
return of 10% calculated daily and compounded annually from the date on which
the holder acquired the shares of Series B preferred stock through the date of
redemption. Notice of the exercise of the optional redemption rights with
respect to the Series B preferred stock must be given to HealthAxis pursuant to
the notice of optional redemption provision contained in the Certificate of
Designation related to the Series B preferred stock.
A "Trigger Event" means: (i) January 31, 2002, if by that date
HealthAxis has not consummated an underwritten public offering of newly issued
common stock pursuant to a registration statement filed under the Securities
Act, at a net offering price per share of common stock that represents a
pre-offering market capitalization of not less than $150.0 million and with
aggregate proceeds of not less than $25.0 million, (ii) failure to renew by
HealthAxis or a material breach by any party other than America Online Inc. or
termination of the IM Agreement with America Online Inc., (iii) the date of the
occurrence of a liquidation of HealthAxis (as defined above), (iv) March 31,
1999, if by that date, HealthAxis has not consummated an equity financing
yielding aggregate gross proceeds of not less than $3.5 million at a price per
share of at least $3.74 (a "Qualified Financing"), or (v) May 31, 1999, if by
that date, HealthAxis has not consummated an equity financing yielding aggregate
gross proceeds of not less than $7.0 million at a price per share of at least
$3.74. HealthAxis completed the required financing prior to May 31, 1999.
Redemption. The Series C and Series D preferred stock are not subject
to any mandatory redemption or optional redemption provisions.
Optional Conversion. Shares of preferred stock are convertible, at the
option of the holders, into shares of common stock equal to the quotient
obtained by dividing: (i) the original issuance price by (ii) the conversion
price (as defined below). The conversion price per share will be the original
issuance price subject to adjustments from time to time in the event HealthAxis
issues any shares of common stock or securities exchangeable into shares of
common stock other than certain excluded shares, without consideration or for
consideration per share less than the conversion price in effect immediately
prior to the issuance or there is a stock dividend, stock split combination,
capital recapitalization (other than a change in par value), consolidation or
merger.
Mandatory Conversion. All of the outstanding shares of preferred stock
will be converted into a number of shares of common stock at the Conversion
Price upon the earlier of: (i) the consummation of an underwritten public
offering of the common stock of HealthAxis at a net offering price per share
that represents a pre-offering market capitalization of not less than $150.0
million and aggregate proceeds (net of underwriting commissions and discounts)
to HealthAxis of not less than $25.0 million or (ii) a qualified merger, an
upstream merger of HealthAxis with HAI or the merger of HealthAxis with a
wholly-owned subsidiary of HAI. In order to trigger this mandatory conversion,
the qualified merger must:
o result in HealthAxis being the only operating subsidiary of HAI;
o be approved, in addition to whatever vote is otherwise required
by applicable law, by a majority vote of holders of the Series B
preferred stock, Series C preferred stock and Series D preferred
stock of HealthAxis;
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o require that HealthAxis receive a fairness opinion from an
investment banking firm approved by a majority of the holders
of the outstanding shares of the Series B preferred stock,
Series C preferred stock and Series D preferred stock, which
approval shall not be unreasonably withheld, indicating that
the merger is fair to the shareholders of HealthAxis, other
than HAI and its subsidiaries, from a financial point of view;
o require that the securities to be issued to holders of the
preferred stock upon the completion of the merger shall be
registered with the SEC pursuant to the Securities Act of
1933, as amended, freely tradable and listed on a national
securities exchange or quoted on the NASDAQ National Market;
and
o require that the resulting entity has a market capitalization
of at least $200,000,000.
HealthAxis believes that the merger of HealthAxis with and into HealthAxis
Acquisition Corp. will be a qualified merger that triggers the mandatory
conversion provisions for each series of preferred stock.
Voting Rights. In addition to the voting rights afforded by applicable
law, the holders of the preferred stock are entitled to vote on all matters as
to which holders of common stock are entitled to vote. The holders of each share
of preferred stock are entitled to the number of votes equal to the nearest
whole number of shares of common stock into which the preferred stock is
convertible. Except as set forth below, the holders of the Series A preferred
stock shall vote together with holders of the common stock and the Series B,
Series C and Series D preferred stock as one class.
The affirmative vote, in person or by proxy, of the holders of a
majority of the outstanding shares of each series of preferred stock, each
voting as a class, will be necessary for HealthAxis to:
o amend, repeal or modify any provision of, or add any provision
to, HealthAxis' Amended and Restated Articles of Incorporation
or Bylaws if such action would materially affect the powers,
rights, preferences or the qualifications, limitations or
restrictions provided for the benefit of, the preferred stock;
o authorize create, designate or establish any additional shares
of any class or series of preferred stock with senior rights
and preference;
o reclassify the shares of common stock into shares having any
series preference or priority as to dividends or assets
superior to the preferred stock; or
o or in any manner amend or modify the powers, rights,
preferences, privileges or the qualifications, limitations or
restrictions of the preferred stock.
Registration Rights. In connection with the purchase of preferred
stock, each holder of preferred stock entered into a registration rights
agreement with HealthAxis. While each of these agreements were individually
negotiated, the following sets forth a general description of the rights granted
in each agreement:
When HealthAxis proposes to register any shares of common stock from
authorized but unissued common shares or treasury shares under the Securities
Act (other than on a Form S-4 or Form S-8), HealthAxis is required to give
notice to the holders of the preferred stock and the holders of common stock
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acquired upon the conversion of preferred stock of the proposed registration and
to include their shares of common stock received upon the conversion of the
preferred stock in such registration, subject to certain conditions including
the right of the underwriter of the offering to limit the number of shares sold
by the holders if the underwriter advised HealthAxis and the holders in writing
that the number of shares required to be included would interfere with the
successful marketing of the shares offered. Additionally, the holders of
preferred stock, may, under certain circumstances, require HealthAxis to file a
registration statement under the Securities Act with respect to the common stock
acquired upon the conversion of the preferred stock.
Other. The preferred stock is not subject to any sinking fund or other
similar provisions. The holders of Series B preferred stock are entitled to
certain preemptive rights which are described in the Stock Purchase Agreement
related to the Series B preferred stock.
Comparison of Shareholders' Rights
Upon completion of the merger, the holders of the HealthAxis capital
stock will become holders of HAI common stock. There are certain material
differences between the rights and privileges of the holders of the HealthAxis
capital stock and the holders of HAI common stock.
HAI and HealthAxis are both incorporated under the laws of the
Commonwealth of Pennsylvania, and the rights of shareholders of HAI and
HealthAxis are governed by the PA BCL. However, the rights of the HAI
shareholders are governed by the amended and restated articles of incorporation
of HAI and the amended and restated bylaws of HAI and the rights of the
HealthAxis shareholders are governed by the HealthAxis amended and restated
articles of incorporation and the HealthAxis amended and restated bylaws. If the
merger is consummated, the shareholders of HealthAxis will become shareholders
of HAI. The following is a summary of the material differences between the
rights of holders of HealthAxis capital stock and the rights of holders of HAI
capital stock. These differences arise from differences between the corporate
governing instruments of HAI and HealthAxis. This summary does not purport to
identify all of the differences that may be material to HealthAxis shareholders
and is subject to the detailed provisions of the relevant laws and governing
instruments. This summary should be read in conjunction with "Comparison of
Capital Stock."
Percentage of Voting Stock; Influence Over Affairs. Upon completion of
the merger, the percentage ownership of HAI on a fully diluted basis by each
former HealthAxis shareholder will be substantially the same as the HealthAxis
shareholder's current percentage ownership of HealthAxis. Upon completion of the
merger, the former HealthAxis shareholders will own approximately 72% of HAI
whereas they currently own 65% of HealthAxis.
Removal of Directors.
HAI. The HAI articles provide that a director may only be removed from
office for cause and by the vote of at least 65% of the votes entitled to be
cast at an annual or regular election.
HealthAxis. The HealthAxis articles provide that any director may be
removed from office with or without cause but only by the affirmative vote of
shareholders entitled to cast at least 70% of the votes entitled to be cast by
all shareholders at any annual or regular election of directors.
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Call of Special Meetings of Shareholders.
HAI. HAI's bylaws provide that a special meeting of its shareholders
may be called at any time by the board, the chairman of the board or the chief
executive officer, but may not be called by the HAI shareholders.
HealthAxis. Under the PA BCL, special meetings of shareholders may be
called by the board of directors, by any officers or by any other persons as
provided in the bylaws, and, unless otherwise provided in the articles, by
shareholders entitled to cast at least 20% of the votes that all shareholders
are entitled to cast at a particular meeting. The HealthAxis bylaws provide that
the board of directors, the chairman of the board or the chief executive officer
may call a special meeting of HealthAxis' shareholders. Additionally, a special
meeting may be called upon the written request of the holders of at least 20% of
the HealthAxis shares entitled to vote at such a meeting, if made in connection
with the election of persons to serve as members of the board of directors in
accordance with the terms of the shareholders agreement between HealthAxis, HAI
and UICI. Notice of the special meeting must be delivered by HealthAxis to the
shareholders in writing.
Action of Shareholders Without a Meeting.
HAI. The HAI bylaws provide that any action required or permitted to be
taken at a meeting of shareholders may be taken without a meeting if all
shareholders entitled to vote on the matter consent to the action in writing.
HealthAxis. The HealthAxis bylaws provide for shareholder approval by
less than unanimous consent, where the action to be approved has been previously
approved by the board of directors. However, shareholders have the right to take
action by written consent in connection with (1) the removal of directors in
accordance with the HealthAxis Articles and bylaws and (2) the election of
persons to serve as members of the board of directors in accordance with the
terms of the shareholders' Agreement.
Number and Classification of Directors.
HAI. The HAI bylaws provide that the board of directors will consist of
not less than three and not more than twelve directors. The PA BCL provides that
the term of office for each director is one year.
HealthAxis. The HealthAxis bylaws also provide that the board of
directors will consist of not less than three and not more than twelve
directors. The PA BCL provides that term of office for each director is one
year.
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CHAPTER II - INFORMATION ABOUT THE ANNUAL MEETINGS AND VOTING
The HAI Annual Meeting
The HAI board of directors is furnishing this joint proxy
statement/prospectus to you in connection with the solicitation of proxies from
the holders of HAI common stock relating to:
o the election of directors;
o approval of the HAI merger proposal;
o the proposal to approve the amendment and restatement of HAI's
Amended and Restated Articles of Incorporation;
o approval of the proposal to adopt the 2000 Stock Option Plan;
o approval of the adjournment proposal; and
o other matters to be voted upon at the HAI annual meeting and at any
adjournment or postponement of the HAI annual meeting.
HAI mailed this document to shareholders beginning on April 28, 2000. You should
read this document carefully before voting your shares.
When and Where the HAI Annual Meeting Will be Held
The HAI annual meeting will be held at the executive offices of
HealthAxis Inc. located at 2500 DeKalb Pike, East Norriton, Pennsylvania 19401
on May 30, 2000, starting at 10:00 a.m., prevailing time.
How to Attend and Participate in the HAI Annual Meeting
Only shareholders of HAI may attend the HAI annual meeting.
HAI will establish reasonable rules and procedures for the conduct of
the HAI annual meeting to ensure that there is sufficient time to address all of
the items on the agenda, procedures for maintaining order and the safety of
those present, and limitations on the time allotted for questions or comments by
shareholders.
What Will be Voted Upon
At the HAI annual meeting, you will be asked to consider and vote upon
the following matters:
o to elect seven directors;
o to consider and vote on a proposal to adopt the agreement and plan
of reorganization and the agreement and plan of merger, each dated
as of January 26, 2000, including amendment to these agreements
among HAI, HealthAxis and a wholly-owned subsidiary of HAI, and to
approve the merger, the issuance of HAI shares and other
transactions described in the merger agreements;
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o to approve the amendment and restatement of HAI's amended and
restated articles of incorporation;
o to approve the adoption of the 2000 Stock Option Plan;
o to act upon the appointment of BDO Seidman LLP as independent public
accountants for HAI for its 2000 fiscal year;
o to act upon the adjournment of the annual meeting, if necessary, to
permit further solicitation of proxies in the event there are not
sufficient votes at the time of the annual meeting to approve the
agreement and plan of reorganization and the agreement and plan of
merger; and
o to act upon such other matters as may properly come before the
annual meeting.
The board of directors of HAI does not know of any other matters to be
presented for consideration other than the matters described in the notice of
annual meeting, but if any matters are properly presented, it is the intention
of the persons named in the accompanying proxy to vote on such matters in
accordance with their judgment.
Only HAI Shareholders of Record as of April 20, 2000 Are Entitled to Vote
HAI shareholders who hold their shares of record as of the close of
business on April 20, 2000 are entitled to receive notice of and vote at the HAI
annual meeting. On April 10, 2000, there were approximately 13,097,618 shares of
HAI common stock outstanding and entitled to vote at the HAI annual meeting. A
list of shareholders eligible to vote will be available at the HAI annual
meeting.
Majority of Outstanding Shares Must be Represented For a Vote to be Taken
In order to have a quorum, a majority of the shares of HAI common stock
that are outstanding and entitled to vote at the HAI annual meeting must be
present in person or by proxy. If a quorum is not present, a majority of shares
that are represented may adjourn or postpone the HAI annual meeting.
Vote Required
A nominee for director must receive a plurality of the votes cast to be
elected. The merger proposal must be approved by the affirmative vote, in person
or by proxy, of holders of at least 80% of the outstanding shares of common
stock. The proposals to adopt the amended and restated articles of incorporation
must receive an affirmative vote of a majority of votes cast. The proposals to
adopt and approve the 2000 Stock Option Plan and to adjourn the annual meeting,
if necessary, to solicit additional proxies each require the affirmative vote of
the majority of the shares of common stock present and represented by proxy at
the annual meeting. Each share of HAI common stock is entitled to one vote.
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Voting Your Shares
The HAI board of directors is soliciting your proxy to give you the
opportunity to vote at the HAI annual meeting. When you deliver a valid proxy,
the shares represented by that proxy will be voted in accordance with your
instructions. If you do not vote by proxy or attend the HAI annual meeting and
vote in person, it will have the same effect, in most cases, as voting against
the HAI merger proposal.
You may grant a proxy by signing and mailing your proxy card. To grant
your proxy by mail, please complete your proxy card, and sign, date and return
it in the enclosed envelope. To be valid, a returned proxy card must be signed
and dated. If you attend the HAI annual meeting in person, you may vote your
shares by ballot at the annual meeting.
Changing Your Vote by Revoking Your Proxy
You may revoke your proxy at any time prior to the closing of the polls
at the HAI annual meeting by delivering to the Secretary of HAI a signed notice
of revocation or a later-dated signed proxy or by attending the HAI annual
meeting and voting in person. Attendance at the HAI annual meeting will not in
itself constitute the revocation of a proxy.
How Proxies Are Counted
If you return a signed and dated proxy card but do not indicate how the
shares are to be voted, those shares represented by your proxy card will be
voted as recommended by the HAI board of directors. A valid proxy also gives the
individuals named as proxies authority to use their discretion when voting the
shares on any other matters that are properly presented for action at the HAI
annual meeting including:
o matters which HAI has not received notice at least 45 days prior to
________, 2000;
o approval of minutes of a prior meeting of shareholders, if the
approval does not constitute ratification of actions taken at the
prior meeting;
o the election of any person to any office for which a bona fide
nominee is unable to serve or for good cause will not serve;
o any proposal omitted from this joint proxy statement/prospectus and
form of proxy pursuant to Rules 14a-8 or 14a-9 under the Securities
Exchange Act of 1934, as amended; and
o matters incident to the conduct of the annual meeting.
Shares of HAI common stock which are present at the HAI annual meeting but not
voted will be counted as present for purposes of determining whether there is a
quorum, which consists of a majority of the outstanding shares of common stock
entitled to vote, but will not be counted to determine whether the HAI merger
proposal or any other proposal is approved.
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The proposal to adopt the 2000 Stock Option Plan, the proposal to adopt
the HAI amended and restated articles of incorporation and the proposal to act
upon the adjournment of the annual meeting must be approved by a majority of the
votes cast. Accordingly, abstentions will have no effect on the outcome of those
proposals. However, since directors are elected by a plurality of the votes
cast, votes withheld from nominees for director could have an effect on the
outcome of the election. In the case of the HAI merger proposal, which requires
the approval of 80% of all outstanding shares, abstentions will have the same
effect as a vote against the merger proposal.
Cost of Solicitation
HAI will pay the cost of soliciting HAI proxies. However, HealthAxis
and HAI will share equally the cost of printing this document. HAI has retained
the services of Corporate Investor Communications, Inc. to solicit proxies in
connection with the HAI Annual Meeting for a cost of approximately $6,000 plus
out-of-pocket expenses. In addition, HAI's regular officers and employees will
solicit proxies on behalf of HAI by mail, in person or by telephone or telegram
without additional compensation. HAI, upon request therefor, will also reimburse
brokers or persons holding shares in their names or in the names of nominees for
their reasonable expenses in sending proxies and proxy materials to beneficial
owners.
The HealthAxis Annual Meeting
The HealthAxis board of directors is furnishing this joint proxy
statement/prospectus to you in connection with the solicitation of proxies from
the holders of HealthAxis stock relating to the election of directors, the
HealthAxis merger proposal and other matters to be voted upon at the HealthAxis
annual meeting and at any adjournment or postponement of the meeting. This joint
proxy statement/prospectus is also a prospectus for the shares of HAI common
stock to be issued in the merger. HealthAxis mailed this joint proxy
statement/prospectus to shareholders beginning April 28, 2000. You should read
this joint proxy statement/prospectus carefully before voting your shares.
When and Where the HealthAxis Annual Meeting Will be Held
The HealthAxis annual meeting will be held at its executive offices
located at 2500 DeKalb Pike, East Norriton, Pennsylvania 19401 on May 30, 2000,
starting at 10:00 a.m., prevailing time.
How to Attend and Participate in the HealthAxis Annual Meeting
Only shareholders of HealthAxis may attend the HealthAxis annual
meeting.
HealthAxis will establish reasonable rules and procedures for the
conduct of the HealthAxis annual meeting to ensure that there is sufficient time
to address all of the items on the agenda and to facilitate an orderly meeting.
These rules will be distributed at the HealthAxis annual meeting and will
include an agenda for the HealthAxis annual meeting, procedures for maintaining
order and the safety of those present, and limitations on the time allotted for
questions or comments by shareholders.
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What Will be Voted Upon
At the HealthAxis annual meeting, you will be asked to consider and
vote upon the following proposals:
o to elect seven directors;
o to consider and vote on a proposal to adopt the agreement and plan
of reorganization and the agreement and plan of merger, each dated
as of January 26, 2000 including amendments to these agreements,
among HAI, HealthAxis and a wholly-owned subsidiary of HAI, and to
approve the merger, the issuance of HAI shares and other
transactions described in the merger agreements;
o to act upon the adjournment of the annual meeting, if necessary, to
permit further solicitation of proxies in the event there are not
sufficient votes at the time of the annual meeting to approve the
agreement and plan of reorganization and the agreement and plan of
merger;
o to act upon such other matters as may properly come before the
annual meeting; and
o to act upon any other matters properly coming before the annual
meeting.
The board of directors of HealthAxis does not know of any other matters
to be presented for consideration other than the matters described in the notice
of annual meeting, but if any matters are properly presented, it is the
intention of the persons named in the accompanying proxy to vote on such matters
in accordance with their judgment.
Only HealthAxis Shareholders of Record as of April 20, 2000 Are Entitled to Vote
HealthAxis shareholders who hold their shares of record as of the close
of business on April 20, 2000, are entitled to receive notice of and vote at the
HealthAxis annual meeting. On the record date, there were approximately
42,477,449 shares of HealthAxis common stock, 545,916 shares of Series A
preferred stock, 625,529 shares of Series B preferred stock, 1,526,412 shares of
Series C preferred stock and 333,334 shares of Series D preferred stock
outstanding and entitled to vote at the HealthAxis annual meeting.
Majority of Outstanding Shares Must be Represented For a Vote to be Taken
In order to have a quorum, a majority of the shares of HealthAxis
capital stock that are outstanding and entitled to vote at the HealthAxis annual
meeting must be represented in person or by proxy. All such shares that are
present in person or represented by proxy at the annual meeting will be counted
in determining whether a quorum is present including abstentions. If a quorum is
not present, a majority of shares that are represented may adjourn or postpone
the HealthAxis annual meeting.
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Vote Required
A nominee for director must receive a plurality of the votes cast to be
elected. The HealthAxis merger proposal must be approved by the affirmative vote
of a majority of the shares of HealthAxis common and preferred stock that are
outstanding and entitled to vote at the HealthAxis annual meeting. Additionally,
the merger proposal must be approved by the affirmative vote of at least a
majority of the shares of Series A preferred stock, Series B preferred stock,
Series C preferred stock and Series D preferred stock, each voting as a separate
class. The proposal to adjourn the annual meeting, if necessary, to solicit
additional proxies requires a majority vote of the common and preferred stock
present and represented by proxy at the annual meeting. Each share of preferred
stock and each share of common stock is entitled to one vote.
Voting Your Shares
The HealthAxis board of directors is soliciting proxies from HealthAxis
shareholders. This will give you the opportunity to vote at the HealthAxis
annual meeting. When you deliver a valid proxy, the shares represented by that
proxy will be voted in accordance with your instructions. If you do not vote by
proxy or attend the HealthAxis annual meeting and vote in person, it will have
the same effect, in most cases, as voting against the HealthAxis merger
proposal.
You may grant a proxy by signing and mailing your proxy card.
To grant your proxy by mail, please complete your proxy card, sign,
date and return it in the enclosed envelope. To be valid, a returned proxy card
must be signed and dated.
If you attend the HealthAxis annual meeting in person, you may vote
your shares by completing a ballot at the meeting.
Changing Your Vote by Revoking Your Proxy
You may revoke your proxy at any time before the polls close at the
HealthAxis annual meeting. You may revoke your proxy by delivering notice in
writing to the Secretary of HealthAxis, granting a later-dated proxy or
appearing in person and voting at the HealthAxis annual meeting. You will not
revoke your proxy by simply attending the HealthAxis annual meeting unless you
complete a ballot.
How Proxies Are Counted
If you return a signed and dated proxy card but do not indicate how the
shares are to be voted, those shares represented by your proxy card will be
voted as recommended by the HealthAxis board of directors. A valid proxy also
gives the individuals named as proxies authority to vote in their discretion
when voting the shares on any other matters that are properly presented for
action at the HealthAxis annual meeting. A properly executed proxy card marked
"abstain" will not be voted. However, it may be counted to determine whether
there is a quorum present. Abstentions are not counted in determining the number
of shares voted for or against any nominee for director. However, because the
merger proposal must be approved by a majority of the shares of HealthAxis
common and preferred stock that are outstanding, voting as one class, and a
majority of each series of preferred stock outstanding, each voting as a
separate class, abstentions will have the same effect as a vote against the
merger proposal.
117
Cost of Solicitation
HealthAxis will pay the cost of soliciting HealthAxis proxies. However,
HealthAxis and HAI will share equally the cost of printing this joint proxy
statement/prospectus. Solicitation of proxies will be made by mail and may also
be made on behalf of HealthAxis by HealthAxis' regular officers and employees in
person or by telephone or telegram.
Proxy Statement Proposals
At the annual meeting, the HealthAxis board of directors will submit to
you its nominees for election as directors. You will also vote to approve the
merger agreement. In addition, the HealthAxis board of directors may submit
other matters to you for action at that annual meeting.
The bylaws also provide that if you intend to nominate a candidate for
election as a director, you must deliver written notice of your intention to the
Secretary. The notice must be delivered not less than 90 days before the date of
a meeting of shareholders. The notice must contain the following information:
the name and address of and number of shares of HealthAxis stock owned by you
(and that of any other shareholders known to be supporting the nominee you have
selected) and the nominee for election as a director; the nominee's business
address and experience during the past five years and other information
concerning the nominee that would be required to be included in a proxy
statement soliciting proxies for the election of the nominee; and a description
of any arrangement or understanding between the shareholder and the nominee. In
addition, the notice must include the nominee's consent to serve as a director
of HealthAxis if elected.
HealthAxis shareholders should not send in their stock certificates
with their proxy card. Soon after HAI and HealthAxis complete the merger, you
will receive written instructions on how to exchange your HealthAxis stock
certificates for shares of the combined company.
118
CHAPTER III - OTHER HAI ANNUAL MEETING PROPOSALS
ITEM 1 - ELECTION OF HAI DIRECTORS
HAI Board of Directors
The board of directors by resolution has set the number of persons to
be elected to the board of directors at the annual meeting at seven, and has
designated the persons listed below to be nominees for election as directors.
HAI has no reason to believe that any of the nominees will be disqualified or
unable to serve if elected. However, if any nominee should become unavailable
for any reason, proxies may be voted for another person nominated by the present
board of directors to fill the vacancy or the size of the board may be reduced
accordingly. Directors hold office for a term of one year and until their
successors are duly elected.
The names of the nominees for directors, together with certain
information regarding the nominees, are as follows:
119
--------------------------------------------------------------------------------------------------------------------
Served as Principal Occupation for Past Five Years
Director Year Term and Position(s) Held with
Name Age Since Will Expire HAI or Subsidiaries
--------------------------------------------------------------------------------------------------------------------
Michael Ashker 47 1998 2001 President and Chief Executive Officer of
HealthAxis since 1998; President and Chief
Executive Officer of HAI since August 1999;
Managing Director and Portfolio Manager of Lynx
Capital Group LLC and Managing Member of Lynx
Venture Partners I, LLC from 1995 to 1998.
Alvin H. Clemens 62 1989 2001 Chairman of the Board of HAI and subsidiary
companies since October 1989, Chairman of
HealthAxis since 1998, Chief Executive Officer
of HAI from 1989 to 1999 and President of HAI
from 1993 to 1996; President of Provident
Indemnity Life Insurance Company from November
30, 1999 to present; President of Maine National
Life Insurance Company from 1989 to 1995; Owner
and Chairman of the Board of Maine National Life
Insurance Company from 1985 to 1989; President
and Director of Academy Life Insurance Company
and Pension Life Insurance Company of America
from 1970 to 1985; Chairman/Chief Executive
Officer of Academy Insurance Group Inc. from
1967 to 1985.
Henry G. Hager 65 1996 2001 Of Counsel in the law firm of Stradley, Ronon,
Stevens and Young since January, 2000; Partner
at Stradley Ronon from 1994 through 1999;
President and Chief Executive Officer of the
Insurance Federation of Pennsylvania since 1985;
Director of American Waterworks Company, a
publicly held company.
Edward W. LeBaron, Jr. 68 1998 2001 Director of Lynx Capital Group, LLC from
January, 1997 to January 2000; Attorney,
Political Law Group, Pillsbury, Madison & Sutro
from 1989 to 1995 and from 1996 to 1998; Chief
Executive Officer of Pacific Casino Management
from 1995 to 1996; Director of Tom Brown, Inc.,
a publicly held company.
Gregory T. Mutz 54 2000 2001 Director of HealthAxis since January 2000;
Director and President and Chief Executive
Officer of UICI since January 1999 and Director
of Insurdata Incorporated from May 1999 to
January 2000. Chairman of the Board of Amli
Realty Co. since 1980, Chairman of the Board of
Trustees of Amli Residential Properties Trust
since 1994, and Chairman of Amli Commercial
Properties Trust since 1997. Chairman of the
Board of Excell Global Services since 1997.
Director of the National Multifamily Housing
Council since 1995 and a Director of
Alleghany/Chicago Trust since 1996. Director of
Baldwin & Lyons from 1978 until 1997 and
Director of AvTel Communications from 1997 until
1998.
120
--------------------------------------------------------------------------------------------------------------------
Served as Principal Occupation for Past Five Years
Director Year Term and Position(s) Held with
Name Age Since Will Expire HAI or Subsidiaries
--------------------------------------------------------------------------------------------------------------------
Dennis B. Maloney 53 2000 2001 Director and Chief Operating Officer of
HealthAxis since January 2000. President and
Chief Executive Officer of Insurdata
Incorporated from January 1997 to January 2000
and Director of Insurdata Incorporated from
March 1997 to January 2000. Executive Officer
of SHL Systemhouse from 1976 until October 1996,
Director of JetForm Corporation, a publicly held
company.
Patrick J. McLaughlin 42 2000 2001 Director of UICI since January 1999; Director
of Universal American Financial Corporation
since 1995; Managing Director of Emerald Capital
Group, Ltd., an asset management and consulting
firm specializing in the insurance industry,
since April 1993; Executive Vice President and
Chief Investment Officer of Life Partners Group,
Inc. from April 1990 to April 1993; Managing
Director of Conning & Company, an independent
banking firm, from August 1989 to April 1990;
Senior Vice President and Chief Investment
Officer of ICH Corporation, an insurance
company, from March 1987 to August 1989.
The names of current directors who are not standing for reelection,
together with certain information regarding the directors, are as follows:
--------------------------------------------------------------------------------------------------------------------
Served as Principal Occupation for Past Five Years
Director Year Term and Position(s) Held with
Name Age Since Will Expire HAI or Subsidiaries
--------------------------------------------------------------------------------------------------------------------
Harold M. Davis 63 1989 2000 Chairman of the Board of Realen Homes, Inc.
since 1968.
George W. Karr, Jr. 61 1996 2000 Chief Executive Officer of Karr Barth
Associates, Inc. since 1984.
Theophile J. Mignatti, Jr. 63 1998 2000 Chairman Mignatti Enterprises since 1998;
President and CEO of Mignatti Venture Associates
since 1989; President of Historic Venture
Associates 1984-1989; President of Mignatti
Construction Company 1966-1984.
P. Glenn Moyer 64 1989 2000 Private Practice Attorney since 1992; Director,
Main National from 1985 to 1995.
--------------------------------------------------------------------------------------------------------------------
Executive Officers Who Are Not Also Directors
Andrew Felder, age 33, has been Executive Vice President - Strategy and
Corporate Development of HealthAxis since January 1999. He has also served as
Executive Vice President of HAI since April 1, 2000. He also served as Chief
Operating Officer of HealthAxis from March 1998 to March 1999. Prior to such
time, Mr. Felder was a self-employed management consultant to Lynx Capital Group
LLC, from July 1997 to February 1998 during which time he co-founded
JusticeLink, Inc., a Dallas, Texas Internet company that provides electronic
document filing services to the justice community. He also was employed as the
Vice President of Strategic Planning at Wells Fargo Bank, from July 1995 to
February 1997 and the Manager of Strategic Planning at Dole Food Company, from
July 1992 to July 1995.
121
Michael G. Hankinson, age 43, has been the Vice President and General
Counsel of HealthAxis since April, 1999. He became Secretary of HealthAxis in
November, 1999. Mr. Hankinson has also served as Vice President, General Counsel
and Assistant Secretary of HAI since April 1, 2000. Prior to joining HealthAxis,
Mr. Hankinson served as Senior Vice President, Secretary and General Counsel
with Gramercy Insurance Co. from September 1992 to June 1998. Prior to such
time, Mr. Hankinson was an environmental attorney with Olin Corporation from
1991 to August 1992 and an Instructor in Management in the College of Business
Administration at Fairleigh Dickinson University from August 1986 to August
1992.
Anthony R. Verdi, age 51, has been the Chief Financial Officer and
Treasurer of HealthAxis since November 1999. Mr. Verdi has been Chief Financial
Officer and Treasurer of HAI since April 2000. He also serves as Chief Operating
Officer of HAI and subsidiaries since December 1997. He served as President of
Provident Indemnity Life Insurance Company from December 1998 through October
1999 and as Treasurer and Chief Financial Officer of HAI and subsidiaries from
1990 through 1997. Prior to 1990, he was Vice President and Controller of
Inter-County Hospitalization Plan Inc. and he served as Assistant Controller
Academy Insurance Group Inc. from 1971 through 1986.
Messrs. Michael Ashker, Alvin H. Clemens, Andrew Felder, Michael G.
Hankinson and Anthony R. Verdi are the executive officers of HAI.
Meetings and Committees of the Board of Directors
During 1999, the board of directors of HAI held nine meetings. All
directors attended at least 75% of the aggregate meetings of the board and the
committees on which they served.
HAI's board of directors has standing an Executive/Compensation/
Nominating Committee, an Audit Committee and an Option Administration Committee.
The Executive/Compensation/Nominating Committee, on which Michael
Ashker, Alvin Clemens, Harold Davis and Theophile J. Mignatti, Jr. currently
serve, is appointed to act when a meeting of the full board of directors is not
feasible, administers HAI's compensation matters, nominates directors and
determines replacements for directors when membership on the board of directors
ends prior to the expiration of a term. The Executive/Compensation/Nominating
Committee held two meetings during 1999.
The Audit Committee is appointed to recommend the selection of HAI's
auditors, review the scope and results of audits, review the adequacy of HAI's
accounting, financial and operating systems and supervise special
investigations. The Audit Committee held two meetings in 1999. In 1999, the
Audit Committee was comprised of Henry G. Hager, Harold M. Davis, and P. Glenn
Moyer.
The Option Administration Committee was established by the board of
directors on July 16, 1996 and currently consists of Alvin Clemens, Edward W.
LeBaron, Jr. and Anthony Verdi. Any options to be granted to Messrs. Ashker,
Clemens, or Verdi are subject to the approval of only Messrs. Hager, Karr and
Moyer, who are outside directors of HAI and as such are disinterested persons.
The Option Administration Committee did not meet during 1999. A new Option
Administration Committee will be appointed at the organizational meeting of the
directors following the annual meeting.
122
Director Compensation
Directors who are not employees of HAI are paid a fee of $1,000 for
attendance at each meeting of the board of directors of HAI, with no fee being
paid for attendance at meetings of any of HAI's subsidiaries, and $500 for
attendance at each meeting of any committee of the board.
Report of the Executive/Compensation/Nominating Committee
The compensation of HAI's executive officers is generally determined by
the Executive/Compensation/Nominating Committee of the board of directors. This
committee is comprised of Messrs. Clemens, Ashker, Davis and Mignatti. The
following is a report with respect to certain compensation paid or awarded to
HAI's executive officers during 1999 is furnished by the directors who comprise
this committee:
General Policies. HAI's compensation programs are intended to enable
HAI to attract, motivate, reward, and retain the management talent required to
achieve aggressive corporate objectives in a highly competitive industry, and
thereby increase shareholder value. It is HAI's policy to provide incentives to
its senior management to achieve both short-term and long-term objectives and to
reward exceptional performance and contributions to the development of HAI's
business. To attain these objectives, the development of HAI's executive
compensation program includes a competitive base salary, coupled with a cash
incentive bonus which is based upon HAI's business, primarily in the achievement
of pre-determined financial goals. In general, as an executive officer's level
of management responsibility in HAI increases, a greater portion of his or her
potential total compensation depends upon HAI's performance as measured by
objective standards over one or more years.
Relationship of Compensation to Performance. As a person's level of
responsibility at HAI increases, a greater portion of potential total
compensation opportunity is shifted to performance incentives. The total of
salary and bonus is intended to provide cash compensation, which is competitive
in a mid-range when performance meets goals.
The overall salary range structure is maintained at a mid-range
competitive level to attract and retain the highest caliber of employees.
Individual salary rates are based on the salary range for the position as well
as the length of service, quality of performance in that position, and other key
factors.
The performance-based incentive initially requires that earnings
generate sufficient funds to establish a bonus pool. Target bonus opportunities
are established for each position level. The level of each employee's bonus is
based on achievement for that year of corporate objectives, which HAI believes
correlate to shareholder value and support the strategic goals of HAI. The
compensation of the chief executive officer is determined by the Executive
Committee utilizing compensation parameters of the insurance industry.
Policy with Respect to Section 162(m) of the Internal Revenue Code.
Generally, Section 162(m) of the Internal Revenue Code, and the regulations
promulgated thereunder referred to as Section 162(m), denies a deduction to any
publicly held corporation, such as HAI, for certain compensation exceeding
$1,000,000 paid to the chief executive officer and the four other highest paid
executive officers during any taxable year, excluding, among other things,
certain performance-based compensation. The Executive Committee intends to
evaluate the level of compensation and the importance to HAI of qualifying for
the performance-based exclusion with respect to options having an exercise price
of not less than the fair market value of the common stock on the date of grant.
The Executive Committee will also continually evaluate to what extent Section
162(m) will apply to its other compensation programs.
123
The Executive/Compensation/Nomination Committee
Michael Ashker, Alvin Clemens, Harold Davis and Theophile J. Mignatti, Jr.
Executive Committee Interlocks and Insider Participation.
Mr. Clemens, HAI's Chairman of the Board and Mr. Ashker, HAI's
President and Chief Executive Officer, are members of the
Executive/Compensation/Nominating Committee; however, they do not vote upon any
matters relating to their compensation, fringe benefits, or with respect to the
granting of any stock options to them.
Certain Relationships and Related Transactions.
Alvin H. Clemens, Chairman of HAI and HealthAxis, is the largest
shareholder of HAI. As of December 31, 1999, Mr. Clemens owned, either directly
or indirectly (but not including shares for which Mr. Clemens disclaims
beneficial ownership), 2,499,500 shares of HAI common stock (including the right
to acquire 650,574 shares of common stock pursuant to the exercise of stock
options), or 18.2% of HAI's common stock. In addition, in connection with the
sale of Provident Indemnity Life Insurance Company, HAI transferred 100,000
shares of HealthAxis Series A preferred stock acquired from Provident Indemnity
Life Insurance Company to AHC Acquisition, Inc., a company owned by Mr. Clemens.
HAI made a loan to Alvin H. Clemens, then Chairman and Chief Executive
Officer of HAI in the original principal amount of $300,000, collateralized by
100,000 shares of HAI's common stock owned by Mr. Clemens and evidenced by a
promissory note dated April 8, 1996, which was repayable together with interest
at the rate of 5.33% per annum on or before April 8, 1999. The promissory note
was amended effective April 8, 1997 to increase the principal balance from
$300,000 to $600,000, to change the interest rate from 5.33% to 5.75%, to change
the repayment terms so that the promissory note shall be repayable with interest
only for two years, with the entire principal balance, together with all accrued
interest, due and payable on April 8, 1999, and to increase the collateral from
100,000 shares of the HAI's common stock, $.10 par value, to 128,478 shares. The
promissory note was subsequently amended on March 24, 1999 whereby Mr. Clemens
repaid $50,489 of accrued interest and the repayment date for the principal was
extended to April 8, 2000. Mr. Clemens repaid the loan and all indebtedness
owned to HAI in the amount of $649,055 on September 29, 1999.
Effective February 19, 1997, HAI and Mr. Clemens entered into a new
employment agreement which replaced Mr. Clemens' prior employment contract dated
as of January 1, 1993. Pursuant to the agreement, HAI employed Mr. Clemens as
Chief Executive Officer for a five-year term ending December 31, 2002, and
unless otherwise terminated, the term shall automatically be extended at the end
of each year after December 31, 1997, in order that at all times, on each
December 31st during the duration of the agreement, there will be an unexpired
five-year term. HAI and Mr. Clemens amended the employment agreement on July 28,
1999 to change Mr. Clemens' executive position to Chairman of the Board of
Directors and Chairman of the Executive/Compensation/Nominating Committee. HAI
paid Mr. Clemens a base salary in 1999 of $413,184. Mr. Clemens' contract
entitles him to an annual cost of living increase, and additional incentive or
bonus compensation as will be deemed appropriate from time to time by the board
of directors of HAI. The agreement further provides for group life, health,
disability, major medical, and other insurance coverages for Mr. Clemens and his
family, and upon termination, provides termination benefits which include the
provision of health insurance for Mr. Clemens and his spouse for life, a salary
benefit of five times base salary in the event of Mr. Clemens' death,
disability, or termination without cause, and includes certain restrictions on
Mr. Clemens competition and disclosure of confidential information.
124
Pursuant to agreements effective as of September 9, 1999 between HAI
and Mr. Clemens, Mr. Clemens:
o assigned his rights to acquire up to an additional 3,300,000 shares
pursuant to the March 10, 1997 agreement to HAI,
o released and assigned all of his right in and to options to purchase
152,802 shares of HAI's preferred stock to HAI, and
o amended the options to purchase the remaining 397,198 shares to
eliminate the right to exercise all options to purchase any HAI
preferred stock and to retain only the right to receive HAI common
stock upon the exercise of the options.
Michael Ashker, a director and the President and Chief Executive
Officer of HealthAxis and HAI, beneficially owns 394,776 shares of HAI's common
stock (including options granted pursuant to HAI's stock option plans and
warrants and shares of HAI common stock, as described below). Mr. Ashker has
been granted options to purchase 991,000 shares of the HealthAxis common stock
at an exercise price of $1.77, all of which are currently exercisable. Mr.
Ashker was also awarded options to purchase 145,000 shares of HealthAxis common
stock at an exercise price of $5.77, 55,000 shares of HealthAxis common stock at
an exercise price of $12.00 and 100,000 shares of HealthAxis' common stock at an
exercise price of $15.00 that are exercisable over a two year period commencing
in April, 1999, November 1999, and February, 2000, respectively.
As of December 31, 1999, Mr. Ashker resigned as sole manager of Lynx
Capital Group, LLC which acts as an investment advisor to and general partner of
Lynx Tech Fund, LP, an investment limited partnership. At the same time, Lynx
Capital Group, LLC transferred the 400,000 currently exercisable warrants to
purchase HAI common stock granted pursuant to a consulting agreement between HAI
and Lynx Capital Group, LLC to Mr. Ashker, Deidre Holt, George Stephenson,
Andrew Felder and Kenneth Brown. Lynx Capital Group, LLC transferred warrants to
purchase 300,000 shares of HAI common stock to Mr. Ashker, warrants to purchase
25,000 shares of HAI common stock to Ms. Holt, warrants to purchase 30,000
shares of HAI common stock to Mr. Felder, warrants to purchase 15,000 shares of
HAI common stock to Mr. Stephenson and warrants to purchase 5,000 shares of HAI
common stock to Mr. Brown. Mr. Brown is currently the sole manager of Lynx
Capital Group, LLC. Mr. Brown is also a registered representative of Van Kasper
& Company, a broker-dealer and has discretion over brokerage accounts that are
invested in HAI common stock. Mr. Ashker was formerly a registered
representative of Van Kasper & Company. Edward W. LeBaron, Jr, who is currently
serving as a director of HAI and HealthAxis, also resigned as a member of Lynx
Capital Group, LLC as of December 31, 1999. In a Form 4, filed on December 9,
1999, Mr. LeBaron reported that he beneficially owned 33,571 shares of HAI
common stock. In a Schedule 13D dated February 14, 2000, Lynx Capital Group, LLC
reported shared voting and dispositive power with Lynx Tech Fund LP over 323,300
shares. Mr. Brown reported sole voting and dispositive power over 5,000 shares
of HAI common stock and shared voting and dispositive power over 323,300 shares
of HAI common stock. Additionally, Van Kasper & Company reported shared voting
and dispositive power over 175,000 shares of HAI common stock.
125
As of November 13, 1998, Lynx Private Equity Partners I, LLC purchased
250,000 shares of HAI common stock for an aggregate purchase price of $875,000.
Mr. LeBaron was the sole manager of Lynx Private Equity Partners I, LLC.
Pursuant to the limited liability company agreement of Lynx Private Equity
Partner I, LLC, Mr. Ashker had the authority to vote the shares of HAI held by
Lynx Private Equity Partners I, LLC. On November 11, 1999, Lynx Private Equity
Partners I, LLC dissolved and transferred its shares of HAI common stock to Mr.
Ashker, Mr. LeBaron and Lynx Tech Fund, LP. These shares transferred by Lynx
Private Equity Partners I, LLC are included in the beneficial ownership
discussed above.
In addition, Messrs. Ashker and Clemens, by virtue of their positions
as trustees of certain voting trusts, have shared voting power with the other
trustees over 25.4% of HealthAxis' outstanding capital stock.
Michael F. Beausang, Jr., Esquire, HAI's Secretary and a former
Director of HealthAxis and HAI, is a partner in the law firm of Butera,
Beausang, Cohen & Brennan. This law firm performs legal services for HealthAxis
and HAI and in 1999, HAI paid Butera Beausang Cohen & Brennan $497,308.
On August 16, 1999, HAI entered into a stock purchase agreement with
AHC Acquisition, Inc., a company owned by Alvin H. Clemens, the Chairman of
HealthAxis and HAI, which provided for the sale of Provident Indemnity Life
Insurance Company to AHC Acquisition, Inc. for an aggregate payment of $14.7
million. This transaction was completed on November 30, 1999. In accordance with
the terms of the stock purchase agreement, HAI:
o purchased the Company's headquarters located at 2500 DeKalb Pike from
Provident Indemnity Life Insurance Company for $4.7 million;
o agreed to exercise its option to purchase 545,916 shares of HealthAxis
Series A preferred stock from Provident Indemnity Life Insurance Company
for $2.8 million;
o made a $7.2 million capital contribution from HAI to Provident Indemnity
Life Insurance Company in order to eliminate a statutory deficiency and
comply with insurance regulations that required Provident Indemnity Life
Insurance Company to maintain adequate capital to meet its obligations
under existing insurance policies; and
o transferred 100,000 shares of the HealthAxis Series A preferred stock, and
the associated registration rights previously granted to Provident
Indemnity Life Insurance Company, to AHC Acquisition, Inc.
HAI made the $2.8 million payment for the shares of HealthAxis Series A
preferred stock pursuant to the option agreement between HAI and Provident
Indemnity Life Insurance Company and the payment equates to a $4.71 price per
share plus interest at the rate of 8% per annum thereon from the date of
acquisition of these shares by Provident Indemnity Life Insurance Company
through November 30, 1999, the date of exercise. The $4.71 price represents the
price per share originally paid by Provident Indemnity Life Insurance Company
for these shares. HAI recognized a $10.3 million loss on the sale of Provident
Indemnity Life Insurance Company which included a write-off of assets in the
amount of $2.7 million together with HAI's November 30, 1999 capital
contribution to Provident Indemnity Life Insurance Company in the amount of $7.2
million and the value of the HealthAxis Series A preferred stock transferred to
AHC Acquisition, Inc. in the amount of $0.4 million. The terms of the sale of
Provident Indemnity Life Insurance Company to AHC Acquisition, Inc. were
approved by the Insurance Department of the Commonwealth of Pennsylvania, the
regulatory agency that governs insurance company operations in Pennsylvania. The
sale of Provident Indemnity Life Insurance Company was also approved by the
disinterested members of the board of directors of HAI with Mr. Clemens
abstaining from voting on this matter.
126
HAI had loans receivable from related parties with: Mr. Clemens, which
is collateralized by 128,478 shares of HAI's common stock owned by Mr. Clemens
and Mr. John Gillin, a former director and shareholder of HAI, which is
collateralized by 10,000 shares and a stock option grant. Mr. Clemens' loan was
paid in full on September 29, 1999. Mr. Gillin's loan was repaid in full during
January 1999.
The following table details the loan receivable at December 31, 1999.
Mr. Clemens Mr. Gillin
----------- ----------
Amounts due at December 31, 1999
Loan principal $ -- $ --
Accrued interest -- --
Highest outstanding balance $681,433 $165,723
1999 Interest income $ 23,851 --
Interest Rate 5.33% 8.50%
For information regarding transactions with UICI, see "Chapter III -
Other HealthAxis Annual Meeting Proposals - Item 1 - Election of Directors -
Relationship with UICI" and " - Certain Transactions."
Section 16(a) of the Exchange Act ("Section 16(a)") requires HAI's
directors, executive officers, and persons who own more than 10% of a registered
class of HAI's equity securities, to file with the SEC initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of HAI. Officers, directors and greater than 10% stockholders are
required by SEC regulation to furnish HAI with copies of all Section 16(a) forms
they file.
To HAI's knowledge, based solely on a review of the copies of such
reports furnished to HAI and written representations that no other reports were
required, during the fiscal year ended December 31, 1999, all Section 16(a)
filing requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with.
Executive Compensation
The following table provides information relating to the chief
executive officer and the most highly compensated executive officers of HAI and
HealthAxis whose total annual salary and bonus exceeded $100,000 during fiscal
1999:
127
Summary Compensation Table
Long-Term
Compensation
----------------
Annual Compensation Awards
------------------------------------------------------ ---------------- ----------------
Securities
Underlying
Name and Other Annual Options All Other
Principal Salary Bonus Compensation (#HAI/ Compensation(1)
Position Year ($) ($) ($) HealthAxis) ($)
------------------------------ ---- -------- -------- ------------ ------------- ----------------
Michael Ashker, 1999 $120,000 $ 50,000 -- 5,000/200,000(3) --
CEO and President of HAI 1998 $ 92,308 -- -- 0/991,000(4) $ 80,000
and HealthAxis (2) --
Alvin H. Clemens, 1999 $413,184 -- -- -- $ 17,764
Chairman of the Board of HAI 1998 $413,896 -- -- 0/309,000(5) $ 17,714
and HealthAxis (6) 1997 $417,453 $305,850 -- -- $ 18,288
Andrew Felder, 1999 $120,000 -- -- 0/75,000(4) $ 10,000
Executive VP-Strategy and 1998 $ 64,615 -- -- 0/175,000(4) --
Corporate Development
of HealthAxis and HAI (7)
Francis L. Gillan III 1999 $110,000 -- -- 20,000/0(9) $ 3,579
CFO and Treasurer of HAI (8)
Anthony R. Verdi, 1999 $150,000 -- -- 25,000/5,000(11) $ 44,941
COO of HAI and CFO of 1998 $151,392 -- -- -- $ 10,144
HealthAxis (10) 1997 $151,335 -- -- -- $ 9,295
(1) Includes for 1999, 1998 and 1997, respectively, (a) HAI contributions to
savings plan (Mr. Clemens $4,000, $4,000 and $4,000; Mr. Gillan $3,579,
Mr. Verdi $3,461, $3,317 and $3,595), (b) HAI automobile expense
allowances (Mr. Clemens $11,280, $11,280 and $11,998; and Mr. Verdi
$5,700, $5,700 and $5,700), (c) consulting fees (Mr. Ashker $80,000, and
Mr. Felder $10,000) and (d) payout of accumulated vacation (Mr. Verdi
$34,615).
(2) Mr. Ashker joined HealthAxis as President and Chief Executive Officer on
April 1, 1998 and became President and Chief Executive Officer of HAI in
August, 1999. In 1999, Mr. Ashker was paid $120,000 as a salary by
HealthAxis and other annual compensation of $80,000 by HAI. In 1998, all
of Mr. Ashker's annual compensation was paid by HealthAxis.
(3) Includes options to purchase 200,000 shares of HealthAxis common stock and
an option to purchase 5,000 shares of the HAI.
(4) Represents options to purchase HealthAxis common stock.
(5) Mr. Clemens was granted options to purchase 309,000 shares of HealthAxis
common stock, however, these grants to Mr. Clemens were terminated during
1999.
(6) Mr. Clemens received a salary during 1999 from HAI but did not receive a
salary from HealthAxis.
(7) During 1999, Mr. Felder's salary of $120,000 was paid by HealthAxis. In
1998, Mr. Felder also served as a consultant to HAI and was paid $10,000.
Mr. Felder became Executive Vice President of HAI on April 1, 2000.
(8) Mr. Gillan became Chief Financial Officer and Treasurer of HAI on January
14, 1999. Mr. Gillan resigned as Chief Financial Officer and Treasurer of
HAI as of April 1, 2000.
(9) Represents options to purchase shares of HAI common stock.
(10) Mr. Verdi joined HealthAxis as its Chief Financial Officer and Treasurer
on December 1, 1999. In 1999, Mr. Verdi received his annual salary and
other annual compensation from HAI. Mr. Verdi became Chief Financial
Officer and Treasurer of HAI as of April 1, 2000.
(11) Includes options to purchase 25,000 shares of HAI common stock and 5,000
shares of HealthAxis common stock.
128
The following individuals were not included in the above chart because
they did not receive compensation in excess of $100,000 from HealthAxis or HAI
during fiscal 1999: Elaine del Rossi joined HealthAxis as Senior Vice President
- Sales and Marketing on November 15, 1999. In 1999, Ms. del Rossi was granted
options to purchase 20,000 shares of HealthAxis common stock at $12.00 per share
of which none have vested. Michael G. Hankinson joined HealthAxis as Vice
President and General Counsel in April, 1999. Mr. Hankinson became Vice
President, General Counsel and Assistant Secretary of HAI on April 1, 2000. In
1999, Mr. Hankinson was granted options to purchase 50,000 shares of HealthAxis
common stock at $5.77 per share and 10,000 shares of HealthAxis common stock, of
which 3,334 have vested, at $12.00 per share. Dennis B. Maloney became
HealthAxis' Chief Operating Officer in January, 2000. In 1999, Mr. Maloney
served as President and Chief Executive Officer of Insurdata Incorporated and
was paid $240,000 in salary and $17,048 in additional compensation. HealthAxis
expects that all three individuals will be paid compensation in excess of
$100,000 during fiscal 2000.
Employment Agreement
Effective February 19, 1997, HAI and Mr. Clemens entered into a new
employment agreement which replaced Mr. Clemens' prior employment contract dated
as of January 1, 1993. Pursuant to the agreement, Mr. Clemens was employed as
Chief Executive Officer of HAI for a five-year term ending December 31, 2002 and
unless otherwise terminated, the term shall automatically be extended at the end
of each year after December 31, 1997, in order that at all times, on each
December 31st during the duration of the agreement, there will be an unexpired
five-year term. The employment agreement was amended on July 28, 1999 to change
Mr. Clemens' executive position to Chairman of the Board of Directors and
Chairman of the Executive/Compensation/Nominating Committee. Mr. Clemens was
paid a base salary in 1999 of $413,184. The agreement provided for an annual
cost of living increase and additional incentive or bonus compensation as deemed
appropriate from time to time by the board of directors of HAI. The agreement
further provided for group life, health, disability, major medical, and other
insurance coverages for Mr. Clemens and his family, and upon termination,
provides termination benefits which include the provision of health insurance
for Mr. Clemens and his spouse for life, a salary benefit of five times base
salary in the event of Mr. Clemens' death, disability, or termination without
cause, and includes certain restrictions on Mr. Clemens competition and
disclosure of confidential information, along with options to purchase 50,000
shares of HAI's common stock granted under HAI's Non-Qualified Option Plan for
Directors and the 1996 Employee Incentive Stock Option Plan which were
subsequently terminated.
129
Option Grants in 1999
The following table sets forth information regarding options granted to
the Chief Executive Officer and each of the most highly compensated executive
officers of HAI and HealthAxis whose total annual salary and bonus exceeded
$100,000 during fiscal 1999:
HealthAxis Inc. and HealthAxis.com, Inc.
Option Grants in 1999
Potential Realizable Value
At Assumed Annual Rates
Number of % of Total Of Stock Appreciation for
Securities Options Exercise Option Term
Options Granted to Price Expiration -------------------------------
Name Granted Employees $/Share Date 5% 10%
--------------------- ------------- ------------- --------- ----------- -------------- ------------
Michael Ashker 5,000(1) .87% $ 7.50 3/4/09 $ 24,093 $ 60,576
President and CEO of 200,000(2) 9.36% 7.48(2) 11/22/09 563,514 1,496,650
HAI and HealthAxis
Alvin Clemens -- -- -- -- -- --
Chairman of HAI and
HealthAxis
Andrew Felder 75,000(2) 5.41% 7.85 11/22/09 184,061 585,758
Executive VP-Strategy &
Corporate Development
of HealthAxis
Francis L. Gillan III 20,000(1) 3.49% 7.50 3/4/07 61,065 142,308
CFO of HAI
Anthony R. Verdi
COO of HAI and CFO of 25,000(1) 4.36% 7.50 3/4/07 76,331 177,885
HealthAxis 5,000(2) .36%
(1) Options granted to purchase HAI common stock.
(2) Options granted under the HealthAxis 1998 Stock Plan to purchase HealthAxis
common stock which are convertible into 1.127 shares of HAI common stock.
The following individuals were not included in the above chart because
they did not receive compensation in excess of $100,000 from HealthAxis or HAI
during fiscal 1999: Elaine del Rossi joined HealthAxis as Senior Vice President
- Sales and Marketing on November 15, 1999. In 1999, Ms. del Rossi was granted
options to purchase 20,000 shares of HealthAxis common stock at $12.00 per
share. Of these options, none have vested. Michael G. Hankinson joined
HealthAxis as Vice President and General Counsel in April, 1999. Mr. Hankinson
became Vice President, General Counsel and Assistant Secretary of HAI on April
1, 2000. In 1999, Mr. Hankinson was granted options to purchase 50,000 shares of
HealthAxis common stock at $5.77 per share and 10,000 shares of HealthAxis
common stock, of which 3,334 have vested, at $12.00 per share. Dennis B. Maloney
became HealthAxis' Chief Operating Officer in January, 2000. In 1999, Mr.
Maloney served as President and Chief Executive Officer of Insurdata
Incorporated and was paid $240,000 in salary and $17,048 in additional
compensation. HealthAxis expects that all three individuals will be paid
compensation in excess of $100,000 during fiscal 2000.
130
Aggregate Option Exercises in 1999 and Year-End Values
The following table sets forth information regarding option exercises
by the Chief Executive Officer and each of the most highly compensated executive
officers of HAI and HealthAxis whose total annual salary and bonus exceeded
$100,000 during fiscal 1999 as well as the year end values of shares underlying
options:
Number of Value of
Underlying Unexercised
Shares Unexercised In-the-Money
Acquired Value Options Options at
Name On Exercise Realized at 12/31/99 12/31/99
------------------------------------------ ------------- ---------- -------------- ---------------
Alvin H. Clemens(1)
Chairman of the Board of HAI and HealthAxis
Exercisable (HAI) - - - -
Unexercisable (HAI) - - - -
Michael Ashker
CEO and President of HAI and HealthAxis
Exercisable (HAI) - - 5,000 $115,625
Unexercisable (HAI) - - - -
Exercisable (HealthAxis) - - 1,057,668 $30,138,117
Unexercisable (HealthAxis) - - 133,332 $3,085,538
Andrew Felder
Executive VP-Strategy and Corporate
Development of HealthAxis
Exercisable (HealthAxis) - - 140,626 3,877,963
Unexercisable (HealthAxis) - - 109,374 2,824,287
Francis L. Gillan III
CFO and Treasurer of HAI
Exercisable (HAI) 17,000 $331,469 7,500 $183,875
Unexercisable (HAI) - - 23,000 $552,750
Anthony R. Verdi
COO of HAI and CFO of HealthAxis
Exercisable (HAI) 22,000 $578,906 40,000 $992,500
Unexercisable (HAI) 35,000 $841,875
Exercisable (HealthAxis) - - - -
Unexercisable (HealthAxis) - - 5,000 $78,125
(1) As of December 31, 1999, the above table excludes non-compensatory stock
options to purchase 1,253,376 shares of common stock at $0.90 issued to Mr.
Clemens in 1989 of which Mr. Clemens disclaims beneficial ownership of
967,040 shares owned by a partnership of which Mr. Clemens is a partner;
excludes an option to purchase 397,198 shares of Series A cumulative
preferred stock at $3.64 issued on April 1, 1993 in connection with the
purchase by Mr. Clemens of other shares of preferred stock at such time. By
letter agreement dated September 9, 1999, the option to purchase shares of
Series A cumulative preferred stock was amended to eliminate the right to
convert these options into any class of securities of HAI other than HAI's
common stock.
The following individuals were not included in the above chart because
they did not receive compensation in excess of $100,000 from HealthAxis or HAI
during fiscal 1999: Elaine del Rossi joined HealthAxis as Senior Vice President
- Sales and Marketing on November 15, 1999. In 1999, Ms. del Rossi was granted
options to purchase 20,000 shares of HealthAxis common stock at $12.00 per
share. Of these options, none have vested. Michael G. Hankinson joined
HealthAxis as Vice President and
131
General Counsel in April, 1999. Mr. Hankinson became Vice President, General
Counsel and Assistant Secretary of HAI on April 1, 2000. In 1999, Mr. Hankinson
was granted options to purchase 50,000 shares of HealthAxis common stock at
$5.77 per share and 10,000 shares of HealthAxis common stock, of which 3,334
have vested, at $12.00 per share. Dennis B. Maloney became HealthAxis' Chief
Operating Officer in January, 2000. In 1999, Mr. Maloney served as President and
Chief Executive Officer of Insurdata Incorporated and was paid $240,000 in
salary and $17,048 in additional compensation. HealthAxis expects that all three
individuals will be paid compensation in excess of $100,000 during fiscal 2000.
132
Performance Graph
The following graph compares the yearly percentage change in cumulative
total return (change in the year-end stock price plus reinvested dividends) to
HAI's shareholders against the cumulative total return of the NASDAQ Market
Index and the Peer Group Index (Media General Financial Services, Inc., Industry
Group 430 - Life Insurance & Group 431 - Accident/Health Insurance) for the five
years beginning January 1, 1995:
Compare 5-Year Cumulative Total Return
Among HAI
Nasdaq Market Index and MG Group Indexes
[GRAPHIC OMITTED]
Assumes $100 Invested on January 1, 1995
Assumes Dividend Reinvested
Fiscal Year Ended December 31, 1999
Stock Ownership of Directors, Nominees and Officers of HAI
The following table sets forth, as of April 10, 2000, the amount and
percentage of HAI's outstanding common stock beneficially owned by:
o each person who is known by HAI to be the beneficial owner of more
than 5% of HAI's outstanding common stock;
o each director or director nominee;
o each executive officer; and
o all officers and directors of HAI as a group.
The following tables also sets forth the number of shares beneficially
owned by those persons after the reorganization, as if the reorganization was
completed on April 10, 2000.
Common Stock
--------------------------------------------------------------------
No. of Shares
No. of Shares Beneficially Owned
Beneficially Percent of After Percent of
Name of Beneficial Owner Owned(1)(2) Class Reorganization(2) Class
------------------------- -------------- ---------- ------------------- -----------
Alvin H. Clemens(3) 2,499,500(4) 18.2% 5,339,467(5)(6) 11.3%
907 Exeter Crest
Villanova, PA 19085
Michael Ashker 394,776(7) 2.9% 14,665,400(6)(7)(8)(9) 30.5%
c/o HealthAxis Inc.
2500 DeKalb Pike
East Norriton, PA 19401
Harold M. Davis 175,000(10) 1.3% 175,000(10) (*)
c/o Realen Properties
1000 Chesterbrook Blvd.
Suite 100
Berwyn, PA 19312
Henry G. Hager 65,000(11) (*) 2,792,267(6)(11) 6.0%
7 Jorrocks Lane
Malvern, PA 19355
Patrick J. McLaughlin -- (*) -- (*)
c/o Emerald Capital Group, Ltd.
100 Cretwind Dr.
Suite 202
Rosemont, PA 19010
George W. Karr, Jr. 77,000(12) (*) 77,000(12) (*)
Karr Barth Associates, Inc.
40 Monument Road
Bala Cynwyd, PA 19004-1797
Edward W. LeBaron, Jr. 43,571(13) (*) 13,030,164(6)(8)(13) 28.0%
Lynx Private Equity Partners, LLC
2601 Fair Oaks Boulevard, Suite 150
Sacramento, CA 95864
Dennis B. Maloney 1,000 (*) 10,859,890(8)(14) 23.2%
c/o HealthAxis Inc.
2500 DeKalb Pike
East Norriton, PA 19401
134
Common Stock
--------------------------------------------------------------------
No. of Shares
No. of Shares Beneficially Owned
Beneficially Percent of After Percent of
Name of Beneficial Owner Owned(1)(2) Class Reorganization(2) Class
------------------------- -------------- ---------- ------------------- -----------
Theophile J. Mignatti, Jr. 35,000(3)(15) (*) 35,000(15) (*)
Mignatti Companies
2310 Terwood Drive, P.O. Box 249
Huntingdon Valley, PA 19006
P. Glenn Moyer 51,100(16) (*) 51,100(16) (*)
P.O. Box 438
9 Main Street
Souderton, PA 18964
Greg Mutz -- (*) -- (*)
c/o UICI
4001 McEwen Drive, Suite 200
Dallas, TX 75244
Andrew Felder 30,000(17) (*) 241,316(17)(18) (*)
c/o HealthAxis Inc.
2500 DeKalb Pike
East Norriton, PA 19401
Michael G. Hankinson -- (*) 26,674(19) (*)
c/o HealthAxis Inc.
2500 DeKalb Pike
East Norriton, PA 19401
Anthony R. Verdi 89,974(20) (*) 89,974(20) (*)
c/o HealthAxis Inc.
2500 DeKalb Pike
East Norriton, PA 19401
Taunus Corporation 760,803(21) 5.8% 760,803(21) 1.6%
31 West 52nd Street
New York, NY 10019
All directors and officers as a 3,430,921 24.0% 17,814,245 36.3%
group (14 persons; common stock)
(*) Less than 1%.
(1) Share information is based upon information furnished by directors and
officers.
(2) Calculated as a percentage of outstanding shares plus each individual's
options to purchase common shares (or all directors and officers as a
group).
(3) Mr. Clemens' daughter is married to Mr. Mignatti's son.
(4) Includes 1,848,926 shares of HAI common stock owned by Mr. Clemens and
650,574 shares of HAI common stock subject to options granted under the
HAI Stock Option Plan for Directors, which are currently exercisable. Of
such amount, options to purchase 253,376 shares and 397,198 shares have
been granted at exercise prices of $0.91 and $3.64, respectively. Mr.
Clemens disclaims beneficial
135
ownership of 616,000 shares of HAI common stock given by him to the Mark
Twain Trust in 1991 and 967,040 options to purchase additional shares of
HAI common stock owned by a partnership in which Mr. Clemens is a partner.
(5) Includes 112,700 shares of common stock held by AHC Acquisition, Inc. in
connection with the sale of Provident Indemnity Life Insurance Company.
(6) Includes 2,727,267 shares of common stock which are held in a voting trust
and will be issued to certain employees of Insurdata Incorporated and
other UICI subsidiaries pursuant to the terms of options granted under the
Insurdata Founders Plan. The shares held in this trust are voted by a
majority vote of the trustees of the trust who are Messers Ashker,
Clemens, LeBaron and Hager.
(7) Includes 89,776 shares of common stock owned by Mr. Ashker, 5,000 shares
of common stock subject to options granted at an exercise price of $7.50
under the HAI Stock Option Plan of Directors and 300,000 shares of common
stock subject to warrants granted at an exercise price of $4.516 which
were assigned to Mr. Ashker from Lynx Capital Group, LLC, which are
currently exercisable.
(8) Includes 10,259,326 shares of common stock which are held in the UICI
voting trust which UICI has sole dispositive power but no voting power.
The shares held in the trust are voted by a majority of the trustees, Mr.
Ashker, Mr. LeBaron and Mr. Maloney.
(9) Includes 1,284,031 shares of common stock subject to options granted which
are currently exercisable. Of such amount, options to purchase 1,116,857
shares, 108,944 shares, 20,663 shares, and 37,567 shares have been granted
at exercise prices of $1.57, $5.12, $10.65 and $13.31 per share,
respectively. Excludes options to purchase 54,471 shares, 41,323 shares
and 75,132 shares which have been granted at exercise prices of $5.12,
$10.65 and $13.31 per share, respectively, which are not currently
exercisable.
(10) Includes 120,000 shares of common stock owned by Mr. Davis and 55,000
shares of common stock subject to options granted under the HAI Stock
Option Plan of Directors, which are currently exercisable. Of such amount,
options to purchase 30,000 shares and 25,000 shares have been granted at
exercise prices of $2.875 and $8.75, respectively.
(11) Includes 10,000 shares of common stock owned by Mr. Hager and 55,000
shares of common stock subject to options granted under the HAI Stock
Option Plan of Directors, which are currently exercisable. Of such amount,
options to purchase 30,000 shares and 25,000 shares have been granted at
exercise prices of $2.875 and $8.75, respectively.
(12) Includes 22,000 shares of common stock owned by Mr. Karr and 55,000 shares
of common stock subject to options granted under the HAI Stock Option Plan
of Directors, which are currently exercisable. Of such amount, options to
purchase 30,000 shares and 25,000 shares have been granted at exercise
prices of $2.875 and $8.75, respectively.
(13) Includes 38,571 shares of common stock owned by Mr. LeBaron and 5,000
shares of common stock subject to options granted at an exercise price of
$7.50 under the HAI Stock Option Plan of Directors, which are currently
exercisable.
(14) Includes 300,782 shares of common stock owned by Mr. Maloney and 299,782
shares of common stock subject to options granted under the Insurdata
Founders Plan which are held in a voting trust and are currently
exercisable at $1.36 per share. Excludes 899,346 shares of common stock
subject to options granted under the Insurdata Founders Plan which are
held in a voting trust and are not currently exercisable at $1.36 per
share.
(15) Includes 20,000 shares of common stock held in wife's name (deceased),
10,000 shares of common stock owned by Mr. Mignatti and 5,000 shares of
common stock subject to options granted at an exercise price of $7.50
under the HAI Stock Option Plan of Directors, which are currently
exercisable.
(16) Includes 1,100 shares of common stock owned by Mr. Moyer and 50,000 shares
of common stock subject to options granted under the HAI Stock Option Plan
of Directors, which are currently
136
exercisable. Of such amount, options to purchase 25,000 shares have been
granted at exercise prices of $2.875 and 25,000 shares have been granted
at exercise prices of $8.75.
(17) Includes 30,000 shares of common stock subject to warrants granted at an
exercise price of $4.516 which were assigned to Mr. Felder from Lynx
Capital Group, LLC.
(18) Includes 211,316 shares of HAI common stock subject to options granted to
Mr. Felder which are currently exercisable. Of such amount, options to
purchase 137,353 shares, 17,612 shares, 37,567 shares, 9,392 shares and
9,392 shares have been granted at exercise prices of $1.57, $3.55, $5.12,
$10.65 and $13.31, respectively. Excludes options to purchase 31,698
shares, 10,565 shares, 18,783 shares, 18,783 shares and 18,783 shares
which have been granted at exercise prices of $1.57, $3.55, $5.12, $10.65
and $13.31 per share, respectively, which are not currently exercisable.
(19) Includes 26,674 shares of common stock subject to options granted to Mr.
Hankinson which are currently exercisable. Of such amount, options to
purchase 19,160 shares, 3,757 shares and 3,757 shares have been granted at
exercise prices of $5.12, $10.65 and $13.31, respectively. Excludes
options to purchase 37,190 shares, 7,513 shares and 7,513 shares which
have been granted at exercise prices of $5.12, $10.65 and $13.31 per
share, respectively, which are not currently exercisable.
(20) Includes 49,974 shares of common stock owned by Mr. Verdi and 40,000
shares of common stock subject to options under the HAI Stock Option Plan
of Directors, which are currently exercisable. Of such amount, options to
purchase 15,000 shares, 20,000 shares and 5,000 shares have been granted
at exercise prices of $5.00, $6.00 and $7.50 per share, respectively.
Excludes options to purchase 10,000 shares, 5,000 shares and 20,000 shares
which have been granted at exercise prices of $5.00, $6.00 and $7.50,
respectively, which are not currently exercisable. Excludes options to
purchase 5,635 shares which have been granted at an exercise price of
$13.31 per share, which are not currently exercisable.
(21) Information with regard to Taunus Corporation has been derived from a
Schedule 13G filed by Taunus Corporation and DB Alex. Brown LLC with the
Securities and Exchange Commission on February 14, 2000. Taunus Corp.
reported sole voting power with respect to 708,003 shares of HAI common
stock and sole dispositive power over 760,803 shares of HAI common stock.
DB Alex. Brown LLC reported sole voting and dispositive power with respect
to 678,500 shares of HAI common stock, which are included in the 760,803
shares reported by Taunus Corp.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" EACH OF THE
NOMINEES FOR DIRECTOR.
137
ITEM 2 - HAI MERGER PROPOSAL
For summary and detailed information regarding the merger proposal, see
Chapter I - "The Merger."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF
ITEM 2.
138
ITEM 3 - ADOPTION AND APPROVAL OF AMENDED AND
RESTATED ARTICLES OF INCORPORATION
HAI's Board of Directors has adopted amended and restated articles of
incorporation, subject to shareholder approval at the annual meeting. The
amendment and restatement of articles of incorporation submitted to shareholders
for their approval will:
o Increase the number of authorized shares of capital stock to
2,000,000,000;
o Increase the number of authorized shares of common stock to
1,900,000,000;
o Eliminate the Class A common stock;
o Increase the number of authorized shares of preferred stock to
100,000,000;
o Provide that special meetings of the shareholders may only be
called by the Board of Directors, the Chairman or the Chief
Executive Officer of HAI;
o Increase the shareholder vote required to remove a director for
cause and eliminate the ability of shareholders to remove a
director without cause;
o Increase the shareholder vote required to approve an amendment to
the articles of incorporation that has not been previously approved
by a majority of the board of directors to 70% of the shareholder
votes entitled to be cast at a meeting;
o Decrease the shareholder vote required to approve an amendment to
HAI's bylaws that has not previously been approved by the Board of
Directors to 65% of the shareholder votes entitled to be cast at a
meeting; and
o Provide that HAI has opted out of certain subchapters of the
Pennsylvania Business Corporation Law.
The complete text or the amended and restated articles of incorporation
is included as Appendix F to this joint proxy statement/prospectus.
Purpose of Changes to Authorized Stock. HAI's current amended and
restated articles of incorporation provide for 27,500,000 authorized shares
including: 25,000,000 shares of common stock, 2,500,000 shares of Class A common
stock and 5,000,000 shares of preferred stock. HAI's board of directors believes
that it is in HAI's best interest to increase the number of shares of common
stock and preferred stock that it is authorized to issue in order to give HAI a
sufficient number of shares to complete the reorganization with HealthAxis and
to provide for future issuances of stock. HAI's board of directors also believes
that the availability of additional authorized shares will provide it with the
flexibility to issue securities for other proper corporate purposes which may be
identified in the future, such as to raise equity capital, to adopt additional
employee benefit plans or reserve additional shares for issuance under the
plans, to acquire other companies and to grant warrants to consultants or other
business partners. No additional action or authorization by HAI shareholders
would be necessary prior to the issuance of these additional shares, unless
required by applicable law or the rules of any stock exchange or national
securities association trading system on which HAI's common stock is then listed
or quoted. Accordingly, this solicitation may be the only opportunity for the
HAI shareholders to take action in connection with certain acquisitions, benefit
plans, recapitalizations or other corporate actions.
The certificate of designation for the Series A preferred stock of HAI
provided for Class A common stock. HAI's board of directors has determined to
eliminate the Class A common stock because it has no intention of issuing common
stock with different voting rights than its outstanding common stock.
139
Dilutive Effect of Potential New Stock Issuances. HAI shareholders
generally do not have preemptive rights with respect to its common or preferred
stock. Should HAI's board of directors elect to issue additional shares of
common or preferred stock, existing shareholders would not have any preferential
rights to purchase these shares. Therefore, additional issuances of common or
preferred stock by HAI could have a dilutive effect on the earnings per share,
voting power and shareholdings of current shareholders.
Anti-takeover Effect of Increase in Authorized Capital Stock. The
proposed increase in the authorized number of shares of HAI common and preferred
stock could, under certain circumstances, have an anti-takeover effect, although
this is not the intention of this proposal. The increase in the authorized
shares may have the effect of discharging unsolicited takeover attempts and may
limit the opportunity for HAI shareholders to dispose of their shares at the
higher price generally available in takeover attempts or that may be available
under a merger proposal. However, HAI's board of directors is not aware of any
attempts to take control of HAI and has not presented this proposal with the
intent that it be utilized as a type of anti-takeover device.
Purpose and Effect of Amending the Requirement for Shareholder Approval
of Amendments to the Articles of Incorporation or the Bylaws that were not
previously approved by the Board of Directors. The current HAI articles of
incorporation do not require more than a majority vote of shareholders to amend
the articles of incorporation or bylaws where the board of director's approval
has not been obtained. However, the current bylaws provide that 80% of the
shareholder vote entitled to be cast at a meeting is required to approve an
amendment to the bylaws that has not been previously approved by the board of
directors. Under the new articles of incorporation and bylaws, at least 65% of
the shareholder votes entitled to be cast at a meeting must approve amendments
to the bylaws or the articles of incorporation that have not been previously
approved by the board of directors. While the current HAI articles of
incorporation are silent regarding this matter, the PA BCL provides that 10% of
the total shareholder votes may propose an amendment to the articles of
incorporation. The effect of these provisions would make it more difficult for
shareholders to approve changes to the HAI articles of incorporation without
prior approval by the board of directors. However, it would be slightly less
difficult for shareholders to approve changes to the HAI bylaws without prior
approval of the board of directors.
Purpose and Effect of Amending the Requirement for Shareholder Removal
of Directors. The amended and restated articles of incorporation provide that a
director may only be removed for cause and only by the vote of at least 70% of
the votes entitled to be cast at an annual or regular election. While the
current HAI articles of incorporation and bylaws do not contain a provision
regarding this matter, the PA BCL provides that a director may be removed with
or without cause by a majority of the shares entitled to be cast at the
election. By increasing the shareholder vote required and providing that
directors may only be removed for cause, this provision would have the effect of
making it more difficult for shareholders to remove directors.
Purpose and Effect of Changes to the Rights of Shareholders to Call a
Special Meeting. The amended and restated articles of incorporation provide that
a special meeting may only be called by the board of directors, the Chairman and
the Chief Executive Officer. While HAI's current articles of incorporation do
not contain this provision regarding shareholder's special meetings, the PA BCL
provides that 20% of all shareholders entitled to vote may call a special
meeting. This provision in the articles of incorporation would make it more
difficult for shareholders of HAI to call a special meeting.
140
Purpose and Effect of Opting Out of Certain Subchapters of the
Pennsylvania Business Corporation Law. The articles of incorporation do not
contain a provision regarding subchapters E, F, G and H of the PA BCL. However,
the new amended and restated articles of incorporation provide that HAI has
opted out of these subchapters. Generally speaking, these subchapters have the
effect of making friendly transactions more difficult. Therefore, this provision
in the amended and restated articles of incorporation would make a friendly
transaction easier to consummate. However, HAI's board of directors is not aware
of any transaction, other than the reorganization with HealthAxis, that would
alter control of HAI and has not presented this proposal for that purpose.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF
ITEM 3.
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ITEM 4 - APPROVAL OF THE 2000 STOCK OPTION PLAN
General
The HAI board of directors adopted the 2000 Stock Option Plan, subject
to approval by the shareholders. Employees, officers and directors of HAI, as
well as certain consultants of HAI, are eligible to receive options under the
2000 Stock Option Plan. The purpose of the 2000 Stock Option Plan is to provide
additional incentive to these individuals by encouraging them to invest in HAI's
common stock and thereby acquire a further proprietary interest in HAI and an
ncreased personal interest in HAI's continued success and progress. HAI is
currently evaluating the possibility of merging HAI's existing director and
employee stock option plans into the 2000 Stock Option Plan.
HAI is seeking shareholder approval of Item 4 to satisfy a NASDAQ
National Market requirement that requires companies whose shares are reported on
the NASDAQ National Market to obtain shareholder approval when stock option
plans are established pursuant to which stock may be acquired by officers or
directors. The second reason HAI is asking shareholders to approve the adoption
of the plan is to satisfy requirements of the Internal Revenue Code which
require shareholder approval in order for options granted under the 2000 Stock
Option Plan to qualify as incentive stock options and for the 2000 Stock Option
Plan to satisfy one of the conditions of Section 162(m) of the Internal Revenue
Code applicable to performance-based compensation.
Set forth below is a summary of the provisions of the 2000 Stock Option
Plan. This summary is qualified in its entirety by the detailed provisions of
the text of the 2000 Stock Option Plan included in Appendix "G" to this joint
proxy statement/prospectus.
Eligibility
All officers and employees of HAI and of any present or future HAI
parent or subsidiary corporation are eligible to receive an option or options
under the 2000 Stock Option Plan. All directors of, and important consultants
to, HAI and of any present or future HAI parent or subsidiary corporation are
also eligible to receive an option or options under the 2000 Stock Option Plan.
Types of Awards
Options granted under the 2000 Stock Option Plan may be incentive stock
options, or non-qualified stock options. The term "option" includes both
incentive stock options and non-qualified stock options.
Administration
The 2000 Stock Option Plan shall be administered by the board of
directors of HAI, or a compensation committee appointed by HAI's board of
directors. Pursuant to the terms of the 2000 Stock Option Plan, the compensation
committee must consist of a minimum of two and a maximum of five members of the
board of directors, each of whom will be a "Non-Employee Director" within the
meaning of Rule 16b under the Securities Exchange Act of 1934, or any future
corresponding rule, except that the failure of the compensation committee for
any reason to be composed solely of Non-Employee Directors shall not prevent an
option from being considered granted under the 2000 Stock Option Plan. The term
"committee" as used in this section refers to either HAI's board of directors or
the committee. Under the 2000 Stock Option Plan, the committee has the right to
adopt such rules for the conduct of its business
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and the administration of the 2000 Stock Option Plan as it considers desirable.
The committee has the right to construe the 2000 Stock Option Plan and the
options issued pursuant to it, to correct defects and omissions and to reconcile
inconsistencies to the extent necessary to effectuate the purpose of the 2000
Stock Option Plan and the options issued pursuant to it.
Common Stock Subject to the 2000 Stock Option Plan
The aggregate number of shares which may be issued upon the exercise of
options under the 2000 Stock Option Plan is 10,000,000 shares of HAI's common
stock.
Limitation on Maximum Number of Options Awarded
The 2000 Stock Option Plan provides that the maximum number of options
which may be awarded to any single optionee under the 2000 Stock Option Plan
shall be no more than is equal to 90% of the shares reserved for issuance under
the 2000 Stock Option Plan. The purpose of this limitation is to enable awards
made pursuant to the 2000 Stock Option Plan to comply with the conditions of
Section 162(m) of the Internal Revenue Code which provide for the deductibility
of compensation paid to certain of HAI's executive officers if it is performance
based.
Change in Control
Subject to the compensation committee's changes made at the time of
grant, in the event of a "change of control" of HAI, options granted under the
2000 Stock Option Plan become exercisable for up to 100% of the total number of
shares subject to the option minus the number of shares previously purchased
upon exercise of the option and subject to any adjustments made at the
discretion of the compensation committee. The vesting date may accelerate
accordingly. A "change of control" includes any of the following events:
o A change within a twelve-month period in the holders of more than
50% of the outstanding voting stock of HAI; or
o Any other event deemed to constitute a "change of control" by the
compensation committee.
Exercise Price of Options/Payment of Exercise Price
The option price for options issued under the 2000 Stock Option Plan
shall be equal to the fair market value of HAI's common stock on the date of
grant of the option. The exercise price of an option may be paid in cash, the
delivery of already owned shares of common stock of HAI having a fair market
value equal to the exercise price, or a combination thereof.
Special Provisions for Incentive Stock Options
The maximum aggregate fair market value of the shares of HAI common
stock, as determined when the incentive stock option is granted, with respect to
which incentive stock options are first exercisable by an employee in any
calendar year cannot exceed $100,000. In addition, no incentive stock option may
be granted to an employee owning directly or indirectly stock possessing more
than 10% of the total combined voting power of all classes of stock of HAI,
unless the exercise price is set at not less than 110% of the fair market value
of the shares subject to such incentive stock option on the date of the
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grant and such incentive stock option expires not later than five years from the
date of grant. No incentive stock option granted under the 2000 Stock Option
Plan is assignable or transferable, otherwise than by will or by the laws of
descent and distribution. Except in the event of death or disability, any
incentive stock option granted under the 2000 Stock Option Plan is exercisable
only during the lifetime of an optionee, and are exercisable only by such
optionee. Awards of non-qualified stock options are not subject to these special
limitations.
Exercisability and Expiration of Options
All options granted pursuant to the 2000 Stock Option Plan are
exercisable in accordance with a vesting schedule (if any) which is set by the
committee at the time of grant. The expiration date of an option is also
determined by the committee at the time of the grant, but in no event will an
option be exercisable after the expiration of ten years from the date of grant
of the option.
All unexercised options terminate three months following the date on
which an optionee's employment with HAI terminates, other than by reason of
disability or death. An exercisable option held by an optionee who dies or who
ceases to be employed by HAI because of disability may be exercised by the
employee or his representative within one year after the employee dies or
becomes disabled (but not later than the scheduled option termination date).
The committee may in its sole discretion, provide in an option
agreement the circumstances under which the option shall become immediately
exercisable and may accelerate the date on which all or any portion of an option
may be exercised.
Expiration of the 2000 Stock Option Plan
Unless terminated earlier by the board of directors, the 2000 Stock
Option Plan will remain in effect until all awards granted under the 2000 Stock
Option Plan have been satisfied by the issuance of shares provided that no new
awards may be granted under such 2000 Stock Option Plan more than ten years from
of the date the 2000 Stock Option Plan was adopted by HAI.
Adjustments
The 2000 Stock Option Plan provides for adjustments to the number of
shares subject to outstanding options and to the exercise price of such
outstanding options in the discretion of the committee in the event of a
declaration of a stock dividend, distribution or other offering of shares,
merger, consolidation, transfer of assets, reorganization, split up, combination
or recapitalization.
Transferability of Non-Qualified Stock Options
Except as otherwise provided by the rules and regulations of the SEC,
the 2000 Stock Option Plan provides that the committee at the time of grant of a
non-qualified stock option may provide that such stock option is transferable to
any "family member" of the optionee by gift or qualified domestic relations
order. For purposes of this section, a family member includes any child,
stepchild, grandchild, parent, step-parent, grandparent, spouse, former spouse,
sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, including adoptive
relationships, any person sharing the grantee's household (other than a tenant
or employee), a trust in which these persons have more than 50% of the
beneficial interest, a foundation in which these persons (or the grantee)
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controls the management of assets, and any other entity in which these persons
or the grantee own more than 50% of the voting interests.
Amendments
Except as required under Rule 422 of the Code or any successor or
provision, the Board of Directors may amend or supplement the 2000 Stock Option
Plan, including the form of option agreement, in any way, or suspend or
terminate such plan at any time, as determined by the Board of Directors without
the approval of shareholders; provided, however, that such action shall not
affect options granted under the 2000 Stock Option Plan prior to the actual date
on which such action occurred. If the Board of Directors voluntarily submits a
proposed amendment, supplement, suspension or termination for shareholder
approval, such submission shall not require any future amendments, supplements,
suspensions or terminations (whether or not relating to the same provision or
subject matter) to be similarly submitted for shareholder approval.
Awards Under the 2000 Stock Option Plan
No awards have been made to date under the 2000 Stock Option Plan. HAI
is evaluating whether to merge existing stock option plans into the 2000 Stock
Option Plan.
On April 10, 2000, the last sale price of the HAI common stock was
$9-7/8 as reported in the NASDAQ National Market.
Federal Income Tax Consequences of the 2000 Stock Option Plan
The following information is not intended to be a complete discussion
of the federal income tax consequences of participation in the 2000 Stock Option
Plan. This information is qualified in its entirety by reference to the internal
revenue code, and the regulations adopted by the IRS. The provisions of the
internal revenue code described in this section include current tax law only and
do not reflect any proposals to revise current tax law.
Incentive Stock Options
Generally, under the Internal Revenue Code, an optionee will not
realize taxable income by reason of the grant or the exercise of an incentive
stock option granted pursuant to the 2000 Stock Option Plan. If an optionee
exercises an incentive stock option and does not dispose of the shares until the
later of:
o two years from the date the option was granted; and
o one year from the date of exercise, the entire gain, if any,
realized upon disposition of the shares will be taxable to the
optionee as long-term capital gain, and HAI will not be entitled to
any deduction. If an optionee disposes of the shares within the
period of two years from the date of grant or one year from the
date of exercise which is called a disqualifying disposition, the
optionee generally will realize ordinary income in the year of
disposition and HAI will receive a corresponding deduction, in an
amount equal to the excess of (1) the lesser of (a) the amount, if
any, realized on the disposition and (b) the fair market value of
the shares on the date the option was exercised over (2) the option
price. Any additional gain realized on the disposition will be
long-term or short-term capital gain and any loss will
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be long-term or short-term capital loss. The optionee will be
considered to have disposed of a share if he sells, exchanges,
makes a gift of or transfers legal title to the share (except
transfers, among others, by pledge, on death or to a spouse). If
the disposition is by sale or exchange, the optionee's tax basis
will equal the amount paid for the share plus any ordinary income
realized as a result of the disqualifying disposition.
The exercise of an incentive stock option may subject the optionee to
the alternative minimum tax. The amount by which the fair market value of the
shares purchased at the time of the exercise exceeds the option exercise price
is an adjustment for purposes of computing the so-called alternative minimum
tax. In the event of a disqualifying disposition of the shares in the same
taxable year as exercise of the incentive stock option, no adjustment is then
required for purposes of the alternative minimum tax, but regular income tax, as
described above, may result from such disqualifying disposition.
An optionee who surrenders shares as payment of the exercise price of
his incentive stock option generally will not recognize gain or loss on his
surrender of such shares. The surrender of shares previously acquired upon
exercise of an incentive stock option in payment of the exercise price of
another incentive stock option, is, however, a "disposition" of such stock. If
the incentive stock option holding period requirements described above have not
been satisfied with respect to such stock, such disposition will be a
disqualifying disposition that may cause the optionee to recognize ordinary
income as discussed above.
Under the Internal Revenue Code, all of the shares received by an
optionee upon exercise of an incentive stock option by surrendering shares will
be subject to the incentive stock option holding period requirements. Of those
shares, a number of shares (the "Exchange Shares") equal to the number of shares
surrendered by the optionee will have the same tax basis for capital gains
purposes (increased by any ordinary income recognized as a result of a
disqualifying disposition of the surrendered shares if they were incentive stock
option shares) and the same capital gains holding period as the shares
surrendered. For purposes of determining ordinary income upon a subsequent
disqualifying disposition of the exchange shares, the amount paid for such
shares will be deemed to be the fair market value of the shares surrendered. The
balance of the shares received by the optionee will have a tax basis (and a
deemed purchase price) of zero and a capital gains holding period beginning on
the date of exercise. The incentive stock option holding period for all shares
will be the same as if the option had been exercised for cash.
Non-Qualified Stock Options
Generally, there will be no federal income tax consequences to either
the optionee or HAI on the grant of non-qualified stock options pursuant to the
2000 Stock Option Plan. On the exercise of a non-qualified stock option, the
optionee has taxable ordinary income equal to the excess of the fair market
value of the shares acquired on the exercise date over the option price of the
shares. HAI will be entitled to a federal income tax deduction (subject to the
limitations contained in Section 162(m)) in an amount equal to such excess,
provided that HAI complies with applicable reporting rules.
Upon the sale of stock acquired by exercise of a non-qualified stock
option, optionees will realize long-term or short-term capital gain or loss
depending upon their holding period for such stock. Capital losses are
deductible only to the extent of capital gains for the year plus $3,000 for
individuals.
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An optionee who surrenders shares in payment of the exercise price of a
non-qualified stock option will not recognize gain or loss with respect to the
shares so delivered unless such shares were acquired pursuant to the exercise of
an incentive stock option and the delivery of such shares is a disqualifying
disposition. See -- "Incentive Stock Options." The optionee will recognize
ordinary income on the exercise of the non-qualified stock option as described
above. Of the shares received in such an exchange, that number of shares equal
to the number of shares surrendered have the same tax basis and capital gains
holding period as the shares surrendered. The balance of shares received will
have a tax basis equal to their fair market value on the date of exercise and
the capital gains holding period will begin on the date of exercise.
In the event of a permitted transfer by gift of a non-qualified stock
option, the transferor will remain taxable on the ordinary income realized as
and when such non-qualified stock option is exercised by the transferee. All
other tax consequences described above will be applicable to the transferee of
the non-qualified stock option. A permitted transfer by gift of a non-qualified
stock option may result in federal gift or transfer taxes to the transferor at
such time as the option is transferred, as well as such later time or times as
the non-qualified stock option vests, if not fully vested on the date of the
initial transfer.
Limitation on HAI's Deduction
Section 162(m) of the Internal Revenue Code will generally limit to
$1,000,000 HAI's federal income tax deduction for compensation paid in any year
to its chief executive officer and its four highest paid executive officers, to
the extent that such compensation is not "performance based." Under Treasury
regulations, a stock option will, in general, qualify as "performance based"
compensation if it (i) has an exercise price of not less than the fair market
value of the underlying stock on the date of grant, (ii) is granted under a plan
that limits the number of shares for which options may be granted to an employee
during a specified period, which plan is approved by a majority of the
shareholders entitled to vote thereon, and (iii) is granted and administered by
a compensation committee consisting solely of at least two outside directors (as
defined in Section 162(m)). If a stock option to an executive referred to above
is not "performance based", the amount that would otherwise be deductible by HAI
in respect of such stock option will be disallowed to the extent that the
executive's aggregate non-performance based compensation paid in the relevant
year exceeds $1,000,000.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF
ITEM 4.
ITEM 5 - APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS
Based upon the recommendation of the audit committee, the HAI board of
directors has selected BDO Seidman, LLP to be HAI's independent certified public
accountants for fiscal year 2000.
A representative of BDO Seidman, LLP is expected to be present at the
annual meeting to have the opportunity to make a statement if he or she desires
to do so and to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF
ITEM 5.
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ITEM 6 - ADJOURNMENT
In the event that there are not sufficient votes to constitute a quorum
or approve the adoption of the merger agreements at the time of the annual
meeting, the proposal could not be approved unless the annual meeting is
adjourned in order to permit further solicitation of proxies. In order to allow
proxies which have been received by HAI, at the time of the applicable meeting
to be voted for the adjournment, if necessary, HAI has submitted the question of
adjournment under such circumstances to its shareholders as a separate matter
for their consideration.
The board of directors of HAI recommends that shareholders vote their
proxies in favor of the adjournment proposal so that their proxies may be used
for such purposes in the event it becomes necessary. Properly executed proxies
will be voted in favor of the adjournment proposal unless otherwise indicated
thereon. If it is necessary to adjourn the annual meeting, no notice of the time
and place of the adjourned meeting is required to be given to shareholders other
than an announcement of such time and place at the annual meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF
ITEM 6.
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CHAPTER IV - OTHER HEALTHAXIS ANNUAL MEETING PROPOSALS
ITEM 1 - ELECTION OF HEALTHAXIS DIRECTORS
The following table sets forth certain information, as of the record
date, regarding HealthAxis' board of directors. The Board has nominated the
persons named below, each of which is currently serving as a director and has
indicated his willingness to continue serving as a director. Nominees are
selected pursuant to a shareholders agreement entered into between HAI,
HealthAxis Acquisition Corp., HealthAxis, UICI, Alvin Clemens and Michael
Ashker. See -- "Chapter I - The Merger - Recent Developments" for a description
of the terms of the shareholders agreement. The board knows of no reason why
such nominee would be unable to serve as a director. If the nominee should for
any reason become unable to serve, then valid proxies will be voted for the
election of a substitute nominee as the board of directors may designate or the
board may reduce the number of directors to eliminate the vacancy. Directors are
elected for a term of one year and serve until their successors are elected and
qualify.
Served as Year Term
Name Age(1) Director Since Will Expire Position
------------------------------ -------- -------------- ------------- -------------------------------------------
Michael Ashker................... 47 1998 2001 President, Chief Executive Officer and
Director
Alvin H. Clemens................. 62 1998 2001 Chairman of the Board
Henry G. Hager.................. 64 2000 2001 Director
Patrick J. McLaughlin............ 42 2000 2001 Director
Edward W. LeBaron, Jr............ 68 2000 2001 Director
Gregory T. Mutz.................. 53 2000 2001 Director
Dennis B. Maloney................ 53 2000 2001 Chief Operating Officer and Director
(1) Age as of record date.
See --"Chapter I - Management of HealthAxis" for a description of the
business experience of the directors of HealthAxis.
Board of Directors and Committees
The Board of Directors, to date, has established no Board Committees.
HealthAxis contemplates that an Executive, Audit, and Compensation Committee
will be established in the future.
Director Compensation
During 1999, no fee was paid to directors for service on HealthAxis'
Board of Directors. Directors were reimbursed for travel expenses to attend
Board meetings.
In July 1998, each of the original directors of HealthAxis, Messrs.
Ashker, Clemens and Michael F. Beausang, Jr., received an option to purchase
50,000 shares of common stock which was immediately exercisable at an exercise
price of $1.77 per share. Each director's option has a term of 10 years and is
currently exercisable. Subject to this grant, Mr. Clemens returned his options
to HealthAxis and the options were cancelled.
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Employment Agreements
HealthAxis has not entered into employment agreements with any
executive officer and all such officers are employed on an "at-will" basis.
Stock Option Plan
In June 1998, HealthAxis adopted, and HAI, as the sole shareholder of
HealthAxis, approved the Stock Option Plan. The purpose of the Stock Option Plan
is to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to employees and
consultants of HealthAxis and its subsidiaries and to promote the success of
HealthAxis' business. The Stock Option Plan, as amended, provides for the award
of options and stock purchase rights. Awards for an aggregate of 8,600,000
shares of common stock may be granted under the Stock Option Plan.
Of the shares currently available for award, options to purchase an
aggregate of 4,054,673 shares of common stock have been granted under the Stock
Option Plan. Options to purchase 991,000 shares of common stock were granted to
Mr. Ashker at an exercise price of $1.77 per share and are immediately
exercisable over a five year term. Mr. Ashker also received options to purchase
145,000, 55,000 and 100,000 shares of common stock at exercise prices of $5.77,
$12.00 and $15.00 per share which vest over two-year periods and have terms of
10 years, with 48,332, 18,334 and 33,334 shares currently exercisable,
respectively. Mr. Felder was granted options to purchase 150,000 and 25,000
shares of common stock at $1.77 and $4.00, that have terms of five years of
which 112,500 and 14,063 are exercisable, respectively. Mr. Felder also was
granted options to purchase 50,000, 25,000 and 25,000 shares of common stock at
$5.77, $12.00 and $15.00, that have terms of ten years of which 33,334, 8,334
and 8,334 are exercisable, respectively. Ms. del Rossi was granted options to
purchase 20,000 shares of common stock at $12.00 and 20,000 shares at $15.00
that have terms of ten years. Mr. Hankinson was granted options to purchase
50,000, 10,000 and 10,000 shares of common stock at $5.77, $12.00 and $15.00, of
which 3,334 and 3,334 are exercisable, respectively. Mr. Verdi was granted
options to purchase 5,000 shares of common stock at $15.00 over 10 years.
The Stock Option Plan is administered by the Board of Directors or a
committee of the Board of Directors. The Board of Directors has the power to:
o determine the fair market value of the common stock;
o select the participants in the Stock Option Plan;
o determine whether and to what extent awards will be issued;
o determine the number of shares of common stock subject to each
award;
o determine the forms of agreement to use under the Stock Option Plan;
o determine the terms and conditions of each award;
o determine whether an option may be settled in cash instead of common
stock;
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o reduce the exercise price of any option to the then current fair
market value of the common stock if the fair market value of the
common stock has declined since the date of the option grant;
o determine the terms and restrictions applicable to stock purchase
rights and restricted stock purchased by exercising such stock
purchase rights;
o interpret the provisions of the Stock Option Plan; and
o modify grants of options or stock purchase rights to participants
who are foreign nationals or employed outside of the United States
in order to recognize differences in local law, tax policies or
customs.
All awards granted under the Stock Option Plan are exercisable in
accordance with a vesting schedule which is set at the time of the issuance of
the option and, except as indicated below, incentive stock options may not be
exercised more than ten years from the date of grant. Pursuant to the terms of
the Stock Option Plan, options granted to employees, other than directors and
officers, must vest at a rate of not less than 20% per year over a five year
period commencing on the grant date.
Options granted under the Stock Option Plan may be options intended to
qualify under Section 422 of the Internal Revenue Code, as amended, called
incentive stock options or options not intended to qualify called non-qualified
stock options. The Stock Option Plan requires the exercise price of incentive
stock options to be at least equal to the fair market value of the common stock
on the date of the grant. In the case of incentive stock options granted to a
shareholder owning, directly or indirectly, in excess of 10% of the common
stock, the incentive stock option exercise price must be at least equal to 110%
of the fair market value of the common stock on the date of grant and such
incentive stock option may not be exercised more than five years from the date
of grant. Non-qualified stock options and stock purchase rights may be offered
at an exercise price of not less than 85% of the fair market value on the date
of grant.
The Stock Option Plan provides that awards granted pursuant to such
plan shall be adjusted as a result of any increase or decrease in outstanding
common stock as a result of a stock split, dividend, combination,
recapitalization or reclassification of the common stock. Certain options
granted pursuant to the Stock Option Plan may become immediately exercisable in
the event of a "change in control" (as defined in the Stock Option Plan) of
HealthAxis.
All unexercised incentive stock options terminate no later than three
months (or such shorter period as determined by the committee making such award;
provided such period may not be less than 30 days) following the date on which
an optionee's employment by, or relationship with, HealthAxis or any parent or
subsidiary of HealthAxis, terminates for any reason (excluding death and
disability) but not later than the expiration date whether or not such
termination is voluntary. No option granted under the Stock Option Plan is
assignable or transferable, otherwise than by will or by the laws of descent and
distribution. Except in the event of death or disability, all options granted
under the Stock Option Plan are exercisable during the lifetime of an optionee,
and are exercisable only by such optionee. Any option held by an employee who
dies or who ceases to be employed because of a total and permanent disability
(as defined in the Internal Revenue Code) must be exercised by the employee or
his representative within 12 months after the optionee dies or ceases to be an
employee due to such disability (but not later than the scheduled termination
date). If the employee ceases to be employed by HealthAxis due to a disability,
other than a total and permanent disability as defined in the Internal Revenue
Code, the options held by such individual must be exercised within six months of
the date of termination.
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Stock purchase rights may be granted either alone, in addition to, or
in tandem with other awards granted under the Stock Option Plan. Stock purchase
rights may not be granted at less than 85% of the fair market value on the date
of grant (or 100% of the fair market value per share for ten percent
shareholders). Unless otherwise determined at the time of grant under the terms
of the Stock Option Plan, the Stock Purchase Rights shall include a stock
repurchase option exercisable by HealthAxis if the employee is terminated,
voluntarily or involuntarily, following the receipt of the restricted stock.
The Board of Directors of HealthAxis may amend, alter, suspend or
discontinue the Stock Option Plan at any time, provided such action shall not
impair the rights of holders of options granted pursuant to such plan.
Shareholder approval is required for any amendment to the Stock Option Plan to
the extent required by the SEC rules or the Internal Revenue Code.
In connection with the HealthAxis merger with Insurdata Incorporated,
all outstanding options issued pursuant to the Insurdata Incorporated 1999 Stock
Option Plan were converted into options to purchase 426,930 shares of HealthAxis
common stock.
Insurdata Incorporated's Founders' Stock Option Plan
UICI established the Founders' Stock Option Plan pursuant to which
officers and key employees of Insurdata Incorporated and certain other UICI
subsidiaries were awarded options to acquire shares of HealthAxis common stock
held by UICI. The options granted were originally for Insurdata Incorporated
shares and have been converted. Options to purchase 3,271,135 shares of
HealthAxis common stock at an exercise price of $1.36 per share were granted
pursuant to the Founders' Stock Option Plan, of which 1,330,266 are currently
exercisable. All awards made pursuant to the Founders' Stock Option Plan vest
over a five-year period. The shares subject to such options are held in a voting
trust. See -- "Chapter I - The Merger - Recent Developments" for additional
information regarding the voting trust. Mr. Maloney was granted options to
purchase 1,330,000 shares of HealthAxis common stock and of this amount, options
to purchase 266,000 shares have been exercised and options to purchase 532,000
shares are currently exercisable.
Executive Compensation
For information regarding the compensation paid by HealthAxis and its
subsidiaries to the Chief Executive Officer and the four most highly compensated
executive officers whose total annual salary and bonus exceeded $100,000 during
fiscal 1999, see "Chapter III - Other HAI Annual Meeting Proposals - Item 1 -
Election of HAI Directors - Executive Compensation."
Relationship With HAI And UICI
Relationship with HAI
HAI, a Pennsylvania corporation organized in 1982, was regulated as an
insurance holding company until the sale of its insurance company subsidiary in
November 1999. Currently, HAI's only business activities are conducted through
HealthAxis.
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Sale of HealthAxis Securities held by Provident Indemnity Life
Insurance Company to HAI. On March 24, 1999, Provident Indemnity Life Insurance
Company, a subsidiary of HAI, granted HAI the option to purchase all of the
545,916 shares of HealthAxis' Series A preferred stock owned by it at a purchase
price of $4.71 per share plus 8% interest calculated quarterly and compounded
annually from the date of Provident Indemnity Life Insurance Company's
acquisition to the date of HAI's purchase. The option expires on December 17,
2003. HealthAxis exercised this option on November 30, 1999.
Sale of Provident Indemnity Life Insurance Company. On August 16, 1999,
HAI entered into a stock purchase agreement with AHC Acquisition, Inc., a
company owned by Alvin H. Clemens, the Chairman of HealthAxis and HAI, which
provided for the sale of Provident Indemnity Life Insurance Company to AHC
Acquisition, Inc. for an aggregate payment of $14.7 million. This transaction
was completed on November 30, 1999. In accordance with the terms of the stock
purchase agreement, HAI:
o purchased the Company's headquarters located at 2500 DeKalb Pike from
Provident Indemnity Life Insurance Company for $4.7 million;
o agreed to exercise its option to purchase 545,916 shares of HealthAxis
Series A preferred stock from Provident Indemnity Life Insurance
Company for $2.8 million;
o made a $7.2 million capital contribution from HAI to Provident
Indemnity Life Insurance Company in order to eliminate a statutory
deficiency and comply with insurance regulations that required
Provident Indemnity Life Insurance Company to maintain adequate capital
to meet its liabilities including pay-out obligations under existing
insurance policies; and
o transferred 100,000 shares of the HealthAxis Series A preferred stock,
and the associated registration rights previously granted to Provident
Indemnity Life Insurance Company, to AHC Acquisition, Inc.
HAI made the $2.8 million payment for the shares of HealthAxis Series A
preferred stock pursuant to the option agreement between HAI and Provident
Indemnity Life Insurance Company. The payment equates to a $4.71 price per share
plus interest at the rate of 8% per annum thereon from the date of acquisition
of these shares by Provident Indemnity Life Insurance Company through November
30, 1999, the date of exercise. The $4.71 price represents the price per share
originally paid by Provident Indemnity Life Insurance Company for these shares.
The Company recognized a $10.3 million loss on the sale of Provident Indemnity
Life Insurance Company which included a write-off of assets in the amount of
$2.7 million together with HAI's November 30, 1999 capital contribution to
Provident Indemnity Life Insurance Company in the amount of $7.2 million and the
value of the HealthAxis Series A preferred stock transferred to AHC Acquisition,
Inc. in the amount of $0.4 million. The terms of the sale of Provident Indemnity
Life Insurance Company to AHC Acquisition, Inc. were approved by the Insurance
Department of the Commonwealth of Pennsylvania, the regulatory agency that
governs insurance company operations in Pennsylvania. The sale of Provident
Indemnity Life Insurance Company was also approved by the disinterested members
of the board of directors of HAI with Mr. Clemens abstaining from voting on this
matter.
Relationship with UICI
UICI is a diversified financial services company that offers insurance
and selected financial services to niche consumer and institutional markets.
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UICI issues health insurance policies covering individuals and families
to self-employed association groups and student markets. UICI also offers health
insurance products for the self-employed individuals who work for small
businesses. UICI also offers a range of health insurance products, including
catastrophic hospital and basic hospital-medical expense plans, choice-of-doctor
plans and managed care options, including a preferred provider organization plan
and other coverage modifications. UICI markets these higher deductible products
through "dedicated" agency sales forces comprised of independent contractor
agents that primarily sell UICI's products. For the student market, UICI offers
tailored insurance programs that generally provide single school year coverage
to individual students at colleges and universities.
UICI also issues life and annuity insurance products to selected niche
markets, and UICI acquires blocks of life insurance and annuity policies from
other insurers on an opportunistic basis. The life and annuity insurance
policies issued by UICI are marketed through a dedicated agency sales force.
UICI also provides underwriting, claims management and claims
administrative services to third-party insurance carriers (primarily to Aegon
USA, Inc. related to products coinsured by UICI), independent entities that
administer claims processing and payment, Blue Cross/Blue Shield organizations
and self-administered employer healthcare plans.
Through its United CreditServ, Inc. subsidiary, UICI has marketed
credit support services to individuals with no, or troubled, credit experience
and assists them in obtaining a nationally recognized credit card. The credit
cards have been issued by United Credit National Bank, an indirect wholly owned
subsidiary of UICI. During the year ended December 31, 1999, UICI's credit card
subsidiary incurred a pre-tax operating loss in the amount of approximately
$145.0 million. As a result of its continuing difficulties with its credit card
operations, in March 2000 UICI announced that it will exit from its United
CreditServ credit card business and, as a result, UICI has designated the unit
as a discontinued operation for financial reporting purposes. Accordingly, in
addition to the $145.0 million of pre-tax operating losses incurred by United
CreditServ in 1999, UICI recorded as additional expense in 1999 the amount of
$130.0 million representing its current estimate of pre-tax loss upon disposal
of the unit.
United Credit National Bank is currently subject to the terms of a
consent order issued by the Office of the Comptroller of the Currency. In
accordance with the terms of the consent order, United Credit National Bank has
ceased all activities with two marketing entities that solicited credit card
applications from United Credit National Bank, and United Credit National Bank
is further prohibited under the terms of the consent order from introducing new
products or services without approval by the Office of the Comptroller of the
Currency.
Educational Finance Group, Inc. (in which UICI holds a 75% interest),
markets, originates, funds and services primarily Federally guaranteed student
loans and is a leading provider of student tuition installment plans.
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UICI and its subsidiaries constitute, in the aggregate, the application
solutions group's largest client. For the years ended December 31, 1997, 1998
and 1999, UICI and its subsidiaries accounted for an aggregate of approximately
$12.6 million, $24.8 million and $28.2 million, respectively, of the application
solutions group's pro forma total revenues, which represent approximately 48%,
65% and 66%, respectively, of such revenues for such periods. A portion of the
application solutions group's revenue from UICI in the past was for year 2000
services which have been substantially completed. UICI and its subsidiaries are
expected to remain the application solutions group's largest client for the
foreseeable future. To the extent UICI or its subsidiaries experience financial
difficulties impacting UICI's ability to pay HealthAxis for services, the
financial performance of HealthAxis may be negatively impacted. HealthAxis
believes that the percentage of the application solutions group's revenues
attributable to UICI and its subsidiaries will decline as HealthAxis' marketing
efforts continue to build HealthAxis' base of external clients.
As a result of UICI's control of Insurdata Incorporated prior to the
merger, none of the terms of contracts entered into between Insurdata and UICI
and its subsidiaries, which were assumed by HealthAxis, resulted from
arm's-length negotiations. See -- "Risk Factors -- Potential conflicts of
interest could arise because some people serve as directors, officers or
employees of HAI or UICI," " -- Potential conflicts of interest may arise
between HealthAxis and UICI regarding the products and services provided by
HealthAxis," and " -- None of the HealthAxis intercompany agreements are subject
to arm's-length negotiations."
During March 2000, UICI privately placed 2.0 million shares of
HealthAxis common stock with a private investor. To the extent UICI determines
to sell a significant amount of its common stock in the future, the prevailing
market price of the HAI stock could be negatively impacted. Sales by UICI of HAI
common stock in the open market will be subject to the volume, manner of sale
and other requirements of Rule 144, absent registration under the Securities Act
of 1933, as amended. See "Risk Factors -- UICI may make decisions that other
shareholders do not consider to be in their best interests."
In December 1999 and February 2000, UICI and certain of its executive
officers, including Gregory Mutz, a director of HealthAxis, were named as
defendants in three securities class action lawsuits, which are all pending in
the U.S. District Court for the Northern District of Texas. These lawsuits
allege, among other things, that UICI's periodic filings with the SEC contained
untrue statements of material facts and/or failed to disclose all material facts
relating to the condition of UICI's credit card business, in violation of
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
Certain of these lawsuits have been consolidated. UICI reported in its public
filings with the SEC that it intends to vigorously contest the allegations in
these lawsuits
Arrangements and Transactions with HAI and UICI
HealthAxis and HAI have entered into various agreements, the material
terms of which are summarized below. These agreements were developed in the
context of a parent/subsidiary relationship and therefore none of the terms of
these agreements are the result of arm's-length negotiations between independent
parties. HealthAxis and UICI have entered into a carrier partner agreement and
plan to enter into agreements for the purpose of defining their ongoing
relationships, the material terms of which are summarized below. UICI and
Insurdata Incorporated have also entered into various agreements, all of which
were assumed by HealthAxis in connection with its merger with Insurdata
Incorporated. These agreements were developed in the context of a
parent/subsidiary relationship and therefore are not the result of arm's-length
negotiations between independent parties. There can be no assurance that each of
these agreements, or the transactions provided for therein, will be effected on
terms at least as favorable to HealthAxis as could have been obtained from
unaffiliated third parties. See "-- Certain Transactions."
Additional or modified arrangements and transactions may be entered
into by HealthAxis and either HAI or UICI, including its subsidiaries, after
completion of the merger. Any such future arrangements and transactions will be
determined through negotiation between HealthAxis and either HAI or UICI, and it
is possible that conflicts of interest will be involved.
155
The following is a summary of the current and contemplated arrangements
and transactions between HealthAxis and either HAI or UICI. The descriptions of
the proposed agreements set forth below are intended to be summaries and the
descriptions are qualified in their entirety by reference to the relevant
agreements.
AHC Acquisition, Inc. Registration Rights Agreement Related to Series A
Preferred Stock. When HealthAxis proposes to register any shares of common stock
from authorized but unissued common shares or treasury shares under the
Securities Act (other than on a Form S-4 or Form S-8), HealthAxis is required to
give notice to the holders of Series A preferred stock and the holders of common
stock acquired upon the conversion of Series A preferred stock of the proposed
registration and to include their shares of common stock received upon the
conversion of the Series A preferred stock in such registration, subject to
certain conditions including the right of the underwriter of the offering to
limit the number of shares sold by the holders if the underwriter advised
HealthAxis and the holders in writing that the number of shares required to be
included by the holders would interfere with the successful marketing of the
shares offered. These piggyback registration rights are subject to the priority
rights granted to HealthPlan Services, holders of the Series B preferred stock,
certain warrant holders, and the holders of the Series C preferred stock and
Series D preferred stock. Subject to rights granted to HealthPlan Services,
holders of the Series B preferred stock, certain warrant holders and holders of
the Series C preferred stock and Series D preferred stock, the holders of at
least 60% of the then outstanding shares of Series A preferred stock may also
require HealthAxis to file one registration statement (a "demand registration")
under the Securities Act with respect to the common stock acquired upon the
conversion of the Series A preferred stock held by the holders desiring to
participate, subject to certain conditions. This demand may not be made earlier
than: (i) November 13, 2001 or (ii) six months after HealthAxis' initial public
offering. The Company is required to pay all registration expenses other than
any underwriting discounts and commissions for any underwriter or broker-dealer
acting on behalf of the holders of the Series A preferred stock. AHC
Acquisition, Inc. is a wholly owned by Alvin H. Clemens.
Lease Agreement. HealthAxis leases its headquarters from HAI in East
Norriton, Pennsylvania at a cost of $61,500 per month. See -- "Chapter I -- the
Merger -- Information Concerning HealthAxis -- Facilities."
UICI Outsourcing Agreement. UICI and its affiliates and HealthAxis have
entered into a technology outsourcing agreement. Pursuant to this agreement,
HealthAxis provides UICI and its affiliates with technology support services,
system integration services, data processing services, local area network and
other software and hardware based services. The terms of this agreement were
negotiated between Insurdata Incorporated and UICI prior to HealthAxis'
acquisition of Insurdata Incorporated. Pursuant to the terms of this agreement,
HealthAxis will provide UICI and its affiliates with technology support
services, system integration services, data processing services, local area
network and other telecommunications services, and other software and hardware
based services for an initial term of five years. At UICI's option, the parties
are required to negotiate, in good faith, a three year renewal term prior to the
expiration of the agreement. If they are unable to agree on renewal prices,
terms and conditions, the agreement will expire at the end of the initial term.
The agreement contains no minimum or maximum commitments on behalf of UICI and
its affiliates, and UICI and its affiliates are free to obtain the services
provided by HealthAxis from an unrelated third party during the term of the
agreement. The agreement requires both UICI and HealthAxis to contribute
facilities and equipment. Under the terms of the agreement, UICI is also
required to contribute certain UICI-owned software. Third party software may
also be used to provide the services required under the agreement. The agreement
provides that Insurdata Incorporated assigns and transfers to UICI any and all
right, title and interest that Insurdata Incorporated may have, or claim to
have, to materials that were previously developed by Insurdata Incorporated for
UICI under certain existing agreements. All materials developed by HealthAxis
during the term of the agreement will belong to UICI. UICI may, at its option,
grant a license to these materials back to HealthAxis subject to payment of
certain royalties from HealthAxis to UICI. The agreement established certain
service levels and availability standards and imposes penalties if such
standards are not met. Under the terms of the agreement, HealthAxis may not stop
providing services due to a dispute between the parties.
156
Generally, the services provided under the agreement must be billed at
HealthAxis' cost plus a ten percent pre-tax profit margin. The agreement also
requires that if HealthAxis charges an unaffiliated third party a rate that is
lower than it charges UICI and its affiliates for similar services, UICI and its
affiliates would be entitled to receive the lower rate. At the expiration or
termination of the agreement, UICI has the right to hire certain employees of
HealthAxis or its affiliates who have spent greater than eighty percent of their
time providing services to UICI and its affiliates during the six months
preceding the expiration or termination of the agreement. In addition, at the
expiration or termination of the agreement, HealthAxis is obligated to provide
up to six months of transition assistance services. The parties also agreed to
indemnify and hold one another harmless against certain enumerated losses and
claims.
UICI Amended and Restated Carrier Partner Agreement. On March 30, 1999,
HealthAxis entered into an amended and restated carrier partner agreement with
UICI and two of UICI's subsidiaries, MEGA Life & Health Insurance Company and
Midwest National Life Insurance Company of Tennessee. Pursuant to the UICI
carrier partner agreement, certain insurance products and services of UICI's
insurance subsidiaries will be offered through HealthAxis' website to consumers.
In addition, HealthAxis agreed to issue to UICI a warrant to purchase up to
150,000 shares of HealthAxis common stock, subject to adjustment, at $4.40 per
share and 7,500 shares of HealthAxis common stock, subject to adjustment, at
$12.00 per share.
Shareholders' Agreement. HAI, UICI, Michael Ashker, and HealthAxis
intend to enter into a shareholders' agreement. Under the terms of the
shareholders' agreement, the board of directors of HealthAxis shall consist of
up to nine members. UICI and HAI may each independently nominate three nominees
to the board and, the remaining three directors will be nominated by mutual
agreement of HAI and UICI. Each party is obligated to vote its shares in favor
of the directors nominated by the other party.
Subject to certain limitations, the shareholders' agreement also
provides that UICI and HAI both have the right to purchase its proportionate
number, or any greater or lesser number, of any additional securities that
HealthAxis may, from time to time, propose to sell and issue. HealthAxis is
required to provide UICI and HAI prior written notice of its intention to issue
such additional securities. Upon receipt of this notice, UICI and HAI have
twenty days to agree to purchase their proportional shares, or any greater or
lesser number, for the price and upon the terms specified in the notice. If UICI
and HAI fail to exercise their purchase rights, HealthAxis has twenty days to
complete the sale of the securities at a price not less than the price specified
in the notice. This provision of the shareholders' agreement terminates at such
time as the HealthAxis common stock is registered under the Exchange Act.
In addition to the preemptive rights set forth above, the shareholders'
agreement also provides that Michael Ashker, UICI and HAI have the right of
first refusal to purchase shares of HealthAxis should one of the other parties
to this agreement desire to transfer his or its HealthAxis securities. The party
desiring to transfer his or its securities is required to provide the other
parties, referred to as the electing parties, with written notice, at least
twenty days prior to the proposed transfer setting forth the terms of the offer
to sell the HealthAxis securities. The electing parties have ten days from the
receipt of notice to elect to purchase that number of securities determined by
the formula set forth in the agreement. If an electing party fails to exercise
its right to purchase, or exercises its right to a portion smaller than it is
entitled, the party transferring his shares has ten days to sell any remaining
securities at the price and on terms no less favorable than specified in the
offer to the electing parties.
157
Subject to certain conditions set forth in the shareholders' agreement,
the shareholders' agreement also provides that HealthAxis can cause UICI to
transfer up to 1,255,000 shares of its HealthAxis common stock to unaffiliated
third parties.
The shareholders' agreement also provides UICI with the right, in its
sole and absolute discretion, to approve among other things, the merger or
similar agreement between HAI and HealthAxis as well as the calculation and
amount of goodwill and other intangibles. See "Chapter I - The Merger - Recent
Developments" for additional information on the conditions under which UICI
agreed to approve the merger.
It is currently intended that this agreement will terminate in
connection with the reorganization and will be replaced by the shareholders'
agreement attached as an exhibit to the agreement and plan of reorganization.
Voting Trusts. UICI has entered into two voting trust agreements. These
agreements grant voting power over a portion of the HealthAxis common stock held
by UICI to the trustees who are directors of HealthAxis and HAI. For a
description of the terms of these trusts, see "Chapter I -- The Merger -- Recent
Developments."
Licensing Systems Integration and Technology Management Agreements. The
application solutions group provides software applications, systems integration
and technology management services to UICI and its subsidiaries. In addition,
UICI provides human resource services to the application solutions group. All of
these transactions and the related agreements are described under "Certain
Transactions."
Certain Transactions
For information regarding Michael Ashker and certain transactions
between HAI and Lynx Capital Group LLC, Lynx Technology Fund, LP and Lynx
Private Equity Partners LLC, see "Chapter III - Other HAI Annual Meeting
Proposals - Item 1 - Election of HAI Directors - Certain Relationships and
Related Transactions."
Michael F. Beausang, Jr., Esquire, the Secretary of HAI and a former
Director of HealthAxis and HAI is a partner in the law firm of Butera, Beausang,
Cohen & Brennan. This law firm performs legal services for HealthAxis and HAI.
HealthAxis paid Butera, Beausang, Cohen & Brennan $64,165 for legal services
during 1999.
For information regarding certain transactions involving Alvin H.
Clemens and AHC Acquisition Inc., see "Chapter III - Other HAI Annual Meeting
Proposals - Item 1 - Election of HAI Directors - Certain Relationships and
Related Transactions."
158
HealthAxis' application solutions group currently provides services to
a number of UICI subsidiaries and affiliates pursuant to written agreements
ranging from one to five years, with annual renewable options thereafter. These
services include the licensing of certain of its proprietary work flow and
business applications as well as systems integration and technology management.
UICI and its subsidiaries and affiliates constitute, in the aggregate,
HealthAxis' largest customer. For the years ended December 31, 1997, 1998 and
1999, UICI and its subsidiaries and affiliates, including the subsidiaries and
affiliates discussed below, accounted for an aggregate of $12.6 million (48%),
$24.8 million (65%) and $28.2 million (66%), respectively, of HealthAxis' pro
forma total revenues for such periods. As of December 31, 1997, 1998 and 1999,
Insurdata Incorporated had trade receivables from UICI and its subsidiaries and
affiliates of $2.2 million, $2.2 million and $3.2 million, respectively. In
addition to trade receivables, Insurdata Incorporated also held various notes
receivable from UICI and its subsidiaries and affiliates, amounting to $0.2
million and $4.5 million at December 31, 1996 and 1997, respectively. These
notes bore interest at rates ranging from 8.25% to 10.5%. Total interest income
from these notes for the years ended December 31, 1996, 1997 and 1998 was
approximately $166,000, $514,000 and $125,000, respectively. These notes were
paid off in 1998.
Commencing in 1996, UICI provides human resource administrative
services to the application solutions group, including payroll services and
employee benefit management pursuant to a one year agreement which expired on
December 31, 1999 with annual renewals thereafter. Either party upon 90 days'
notice may cancel this agreement. In addition to reimbursement on a
dollar-for-dollar basis for wage and benefit costs, UICI charges the application
solutions group an administrative fee of $10 per-employee per-pay period
pursuant to a written agreement, which fee is intended to reimburse UICI for the
overhead it incurs in providing these services. HealthAxis expects that UICI
will continue to provide these services for a limited period of time. HealthAxis
has also engaged other UICI subsidiaries to provide services such as printing
and newsletter publication. It is intended that the UICI subsidiaries will
continue to provide these services for a limited period of time into the future.
HealthAxis leases two facilities from certain subsidiaries of UICI.
HealthAxis leases office space located in Hurst, Texas, pursuant to a written
agreement that expired on December 31, 1999 and currently continues on a month
to month basis. HealthAxis leases additional office space in Dallas, Texas, on a
month-to-month basis under a verbal agreement. Insurdata Incorporated paid an
aggregate of approximately $112,000, $255,000 and $369,000 under these leasing
arrangements for the years ended December 31, 1997, 1998 and 1999, respectively.
HealthAxis believes that the terms of these lease arrangements are no less
favorable to it than could have been obtained in a transaction with an
unaffiliated party.
HealthAxis' application solutions group also currently provides certain
work flow and business applications to UICI Administrators, Inc., an entity that
provides administrative services and is owned by UICI, pursuant to a written
service license agreement. UICI Administrators in turn operates through an
agreement with Healthcare Management Administrators, Inc., an entity owned by
Ronald L. Jensen, the Chairman of UICI and a former director of HealthAxis.
HealthAxis' agreement with UICI Administrators is for a three-year term expiring
in December 2001, with automatic annual renewal provisions thereafter, subject
to prior notice of non-renewal. For the years ended December 31, 1997 and 1998
and 1999, UICI Administrators accounted for an aggregate of $1.6 million, $2.1
million and $3.0 million, respectively, of Insurdata Incorporated's pro forma
revenues under the agreement, which represent approximately 6%, 6% and 7%,
respectively, of Insurdata Incorporated's pro forma revenues for such periods.
The amounts paid by UICI Administrators are included in the UICI and
subsidiaries numbers included on the previous page.
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Insurdata Incorporated provided accounting and management services to
UICI Administrators. In exchange for these services, UICI Administrators pays
HealthAxis a fee based upon the salary, benefits and time commitment of
Insurdata Incorporated's employees actually performing the services. The fee is
intended to reimburse HealthAxis for the costs of providing these services and
therefore such fees are offset against the related expenses. Fees received by
Insurdata Incorporated from UICI Administrators amounted to $2,000, $134,000 and
$143,000 for the years ended December 31, 1997, 1998 and 1999, respectively. In
addition to the accounting services provided by Insurdata Incorporated, it's
President and Chief Executive Officer, provides certain management oversight of
UICI Administrators. Neither the President nor Insurdata Incorporated receives
any compensation in exchange for the President's services. HealthAxis ceased
providing these services following the completion of the HealthAxis merger with
Insurdata Incorporated.
During 1999, Insurdata Incorporated entered into a contract with UICI
Administrators and an unrelated third party for both programming services and
ongoing processing of medical insurance claims and Medicare claims. The contract
provides for HealthAxis to receive an approximate $1.1 million fixed fee for
programming services payable initially in cash up to $640,000 as programming
services are performed and then by a $460,000 non-interest bearing note with an
estimated value of approximately $370,000 using an estimated implied interest
rate of 8.75%. The note will be paid in equal monthly installments of $7,666
over the five-year life of the contract. The note is collateralized by the
proceeds of the cancellation provisions within the UICI Administrators' contract
with the unrelated third party. HealthAxis recorded approximately $812,000 in
programming pro forma revenues under this contract during the year ended
December 31, 1999. The arrangement with UICI Administrators provided for the
customary transaction and processing fees over the term of the contract.
Winterbrook VSO provides certain sales and marketing services for
HealthAxis' imaging and electronic data capture services pursuant to a verbal
brokerage agreement. Winterbrook VSO is owned by Ronald L. Jensen, current
Chairman of UICI and a director of HealthAxis until February 2000. Under the
agreement that expired June 30, 1997, Winterbrook VSO received a commission
computed on the amount of recurring license fees under client contracts that
Winterbrook VSO brokered on behalf of HealthAxis. During 1996 and 1997,
Insurdata Incorporated advanced funds to Winterbrook VSO against future
commissions to be earned by Winterbrook VSO under the brokerage agreement. The
advances were not made pursuant to a written promissory note and did not bear
interest. The outstanding balance of the pro forma advances was approximately
$100,000 and $90,000 as of December 31, 1996 and 1997, respectively. Insurdata
Incorporated paid Winterbrook VSO, or offset against the outstanding balance of
any advances, as applicable, an aggregate of approximately $132,000, $191,000
and $258,000 for the years ended December 31, 1997, 1998 and 1999, respectively.
At December 31, 1999, the pro forma balance of commissions owed to Winterbrook
VSO was approximately $58,000. Mr. Jensen purchased Winterbrook VSO from UICI in
July 1997.
Netlojix Communications, Inc., a telephone company in which Ronald L.
Jensen, Chairman of UICI and a former director of HealthAxis, and his five adult
children and their affiliated trusts own a controlling interest, provides
telephone services to UICI and certain subsidiaries, including Insurdata
Incorporated (now HealthAxis' application solutions group) pursuant to a written
agreement. This agreement is for a 15 month term expiring November 2000 with
automatic monthly renewal provisions thereafter, subject to 30 days' notice of
non-renewal. In 1997 and 1998 and until August 1, 1999, Matrix Telecom, a
subsidiary of Netlojix Communications, Inc., provided telephone services to
Insurdata Incorporated. For the years ended December 31, 1997, 1998 and 1999,
Insurdata Incorporated paid these entities approximately $46,000, $132,000 and
$243,000, respectively.
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Effective October 1, 1999, Insurdata Incorporated sold its Insurdata
Administrators division, which provided benefits administration services and its
100% member interest in Insurdata Marketing Services, LLC to a subsidiary of
UICI for a sales price in cash of approximately $459,000 and $399,000,
respectively. The price approximated Insurdata Incorporated's net book value of
the Insurdata Administrators division and Insurdata Marketing Services, LLC at
the time of the sale.
The book value of the assets and liabilities of the Insurdata
Administrators division and Insurdata Marketing Services, LLC at September 30,
1999 were as follows:
Cash and current equivalents $ 598,000
Other current assets 415,000
Non-current assets 960,000
Liabilities (1,115,000)
----------
Shareholders equity and
Member interest (net book value) $ (858,000)
==========
On October 18, 1999, Insurdata Incorporated made loans aggregating
$631,000 to certain of its executive officers, including Dennis B. Maloney, who
is HealthAxis' Chief Operating Officer. These loans were extended by Insurdata
Incorporated for the purpose of enabling such individuals to exercise options to
purchase Insurdata Incorporated common stock issued under Insurdata
Incorporated's Founders' Plan. Each of the loans is due on December 31, 2002 and
bears interest at a rate of 6% per annum, with interest payable quarterly. If
the employee is terminated and there is a public market for the shares, the due
date on the loan is accelerated to 90 days from the later of termination or the
establishment of a public market. The largest outstanding balance on the loans
was $631,000 during 1999. The outstanding balance on these loans was $631,000 at
December 31, 1999. These loans are now held by HealthAxis and are secured by
HealthAxis common stock.
On October 5, 1999, UICI and HealthPlan Services entered into a
definitive agreement that provides for the purchase of HealthPlan Services by
UICI in a stock-for-stock merger transaction. On April 14, 2000, UICI and
HealthAxis Services announced that they had agreed to terminate this
acquisition.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" EACH NOMINEE FOR
DIRECTOR.
161
ITEM 2 - HEALTHAXIS MERGER PROPOSAL
For summary and detailed information regarding the merger proposal, see
"Chapter I -- The Merger."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF
ITEM 2.
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ITEM 3 - ADJOURNMENT
In the event that there are not sufficient votes to constitute a quorum
or approve the adoption of the merger agreements at the time of the annual
meeting, the proposal could not be approved unless the annual meeting is
adjourned in order to permit further solicitation of proxies. In order to allow
proxies which have been received by HealthAxis, at the time of the applicable
meeting to be voted for the adjournment, if necessary, HealthAxis has submitted
the question of adjournment under such circumstances to its shareholders as a
separate matter for their consideration.
The board of directors of HealthAxis recommends that shareholders vote
their proxies in favor of the adjournment proposal so that their proxies may be
used for such purpose in the event it becomes necessary. Properly executed
proxies will be voted in favor of the adjournment proposal unless otherwise
indicated thereon. If it is necessary to adjourn the annual meeting, no notice
of the time and place of the adjourned meeting is required to be given to
shareholders other than an announcement of such time and place at the annual
meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF
ITEM 3.
163
CHAPTER V - OTHER MATTERS
Where You Can Find More Information
HAI files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements
and other information HAI files with the SEC at the SEC's Public Reference Room
at 450 Fifth Street, N.W., Washington, D.C., 20549. You may obtain information
on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. HAI's SEC filings are also available on the SEC's Internet site
(http://www.sec.gov).
HAI filed a registration statement on Form S-4 to register the shares
of HAI common stock to be issued in the merger under the Securities Act. This
joint proxy statement/prospectus is a part of the registration statement on Form
S-4 and constitutes a prospectus of HAI in addition to being a proxy statement
of each of HAI and HealthAxis for their annual meetings. As allowed by SEC
rules, this joint proxy statement/prospectus does not contain all the
information you can find in the registration statement on Form S-4 or the
exhibits to the registration statement on Form S-4.
The SEC also allows HAI to "incorporate by reference" the information
it files with the SEC, which means HAI can disclose information to you by
referring you to another document filed separately with the SEC. Information
incorporated by reference is deemed to be part of this joint proxy
statement/prospectus. Later information filed by HAI with the SEC updates and
supersedes this joint proxy statement/prospectus.
The following documents previously filed by HAI with the SEC under the
Exchange Act are incorporated in this joint proxy statement/prospectus by this
reference:
SEC Filings Period
-------------------------------------------- ---------------------------------------------------------
Annual Report on Form 10-K Year ended December 31, 1999
Current Reports on Form 8-K Filed on January 15, 1999, April 30, 1999, May 14, 1999,
June 22, 1999, July 26, 1999, August 27, 1999, September
22, 1999, November 15, 1999, December 8, 1999,
December 9, 1999, January 21, 2000, February 1, 2000 and
April 3, 2000.
Amendments to Current Reports on Form 8-K/A Filed on January 19, 1999, May 14, 1999 and June 29, 1999
All documents filed by HAI under Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this joint proxy statement/prospectus
and prior to the annual meetings of HAI and HealthAxis will be deemed to be
incorporated by reference in this joint proxy statement/prospectus and to be a
part of this joint proxy statement/prospectus from the date any document is
filed.
You should rely only on the information contained or incorporated by
reference in this joint proxy statement/prospectus to vote on the proposed
merger. Neither HealthAxis nor HAI has authorized anyone to provide you with
information that is different from what is contained in this joint proxy
statement/prospectus. This joint proxy statement/prospectus is dated _________,
2000. You should not assume that the information contained in the joint proxy
statement/prospectus is accurate as of any date other than that date, and
neither the mailing of this joint proxy statement/prospectus nor the issuance of
HAI common stock in the merger will create any implication to the contrary.
164
Legal Matters
The validity of the shares of HAI common stock offered hereby will be
passed upon for HAI by Butera, Beausang, Cohen and Brennan, Professional
Corporation.
Experts
The consolidated financial statements of HAI for each of the three
years in the period ended December 31, 1999 incorporated by reference into this
joint proxy statement/prospectus have been audited by BDO Seidman, LLP,
independent certified public accountants, to the extent and for the periods set
forth in their reports and are included in reliance upon such reports given upon
the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of HealthAxis for each of the
year ended December 31, 1999 and for the period from Inception (March 26, 1998)
through December 31, 1998 included in the joint proxy/prospectus and in the
registration statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports and are included in reliance upon such reports given upon the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Insurdata Incorporated and
Subsidiaries at December 31, 1998 and 1999, and for each of the three years in
the period ended December 31, 1999, included in this joint proxy statement of
HAI and HealthAxis, which is referred to and made a part of this prospectus and
registration statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
Financial Statements
HAI has enclosed its Annual Report to Shareholders for the year ended
December 31, 1999 with this joint proxy statement/prospectus. Shareholders are
referred to the report for financial and other information about HAI, but such
report is not incorporated in this joint proxy statement/ prospectus and is not
a part of the proxy soliciting material.
Annual Report On Form 10-K
Upon the written request of any beneficial owner of HAI's common stock,
HAI will provide, without charge, a copy of its Annual Report on Form 10-K
(including financial statements and schedules) for the year ended December 31,
1999. A list of exhibits to the Annual Report will also be provided, and copies
of such exhibits will be furnished upon request. Requests should be directed to
Deidre Holt, Investor Relations, HealthAxis Inc., 2500 DeKalb Pike, East
Norriton, Pennsylvania 19401 or by phone (610) 275-3800.
165
Shareholder Proposals
Pursuant to the proxy rules under the Exchange Act, HAI's shareholders
are notified that the deadline for providing HAI timely notice of any
shareholder proposal to be submitted outside of the Rule 14a-8 process for
consideration at HAI's 2001 annual meeting of shareholders will be ____________,
2001. As to all such matters which HAI does not have notice on or prior to
______________, discretionary authority shall be granted to the persons
designated in HAI's proxy related to the 2001 meeting to vote on such proposal.
With respect to inclusion of shareholder proposals in HAI's proxy materials
related to the 2001 meeting, shareholder proposal must be submitted to HAI at
its office located at 2500 DeKalb Pike, East Norriton, Pennsylvania 19401, by
____________, 2001. Any such proposal must also comply with the proxy rules
under the Exchange Act, including Rule 14a-8.
166
Appendix A
EXECUTION COPY
AGREEMENT AND PLAN OF REORGANIZATION
dated as of January 26, 2000
BETWEEN
PROVIDENT AMERICAN CORPORATION
HEALTHAXIS.COM, INC.
AND
HEALTHAXIS ACQUISITION CORP.
AGREEMENT AND PLAN OF REORGANIZATION
Table of Contents
PAGE
----
SECTION 1: DEFINED TERMS........................................................................................2
SECTION 2: THE MERGER...........................................................................................5
SECTION 3: REPRESENTATIONS OF HEALTHAXIS........................................................................5
3.1 Organization......................................................................................5
3.2 Effect of Agreement...............................................................................5
3.3 Capital Stock and Ownership.......................................................................6
3.4 Financial and Corporate Records...................................................................6
3.5 Assets............................................................................................7
3.6 Obligations.......................................................................................7
3.7 Operations Since September 30, 1999...............................................................8
3.8 Tangible Property.................................................................................8
3.9 Software and Other Intangibles....................................................................8
3.10 Contracts.........................................................................................8
3.11 Employees and Independent Contractors.............................................................9
3.12 Employee Benefit Plans...........................................................................10
3.13 Carrier Partners and Internet Partners...........................................................11
3.14 Proceedings and Judgments........................................................................11
3.15 Insurance........................................................................................11
3.16 Questionable Payments............................................................................12
3.17 Related Party Transactions.......................................................................12
3.18 Brokerage Fees...................................................................................12
3.19 Investment Company...............................................................................12
3.20 Full Disclosure..................................................................................12
3.21 Compliance with Law..............................................................................12
SECTION 4: REPRESENTATIONS OF PROVIDENT AND NEWCO..............................................................13
4.1 Organization.....................................................................................13
4.2 Agreement........................................................................................13
4.3 Provident's Stock................................................................................13
4.4 SEC Filings......................................................................................13
4.5 Form S-4 Registration Statement..................................................................14
4.6 Absence of Changes...............................................................................14
4.7 Authorization for Provident Common Stock.........................................................14
4.8 Investment Matters...............................................................................15
4.9 Brokerage Fees...................................................................................15
4.10 Compliance with Law..............................................................................15
4.11 Full Disclosure..................................................................................15
4.12 Investment Company...............................................................................15
SECTION 5: CERTAIN OBLIGATIONS OF HEALTHAXIS PENDING CLOSING....................................................15
5.1 Conduct of Business..............................................................................15
5.2 Consents.........................................................................................16
5.3 Advice of Changes................................................................................16
5.4 Reasonable Best Efforts..........................................................................16
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PAGE
----
SECTION 6: CERTAIN OBLIGATIONS OF PROVIDENT AND NEWCO PENDING CLOSING..........................................16
6.1 Conduct of Business..............................................................................16
6.2 Consents.........................................................................................17
6.3 SEC Reports......................................................................................17
6.4 Advice of Changes................................................................................17
6.5 Reasonable Best Efforts..........................................................................17
6.6 NASDAQ Listing...................................................................................17
6.7 Employee Benefits................................................................................18
6.8 Name and Symbol Change...........................................................................18
SECTION 7: ADDITIONAL COVENANTS OF THE PARTIES..................................................................18
7.1 Shareholders' Meetings...........................................................................18
7.2 Registration Statement and Proxy Statement/Prospectus............................................19
7.3 Blue Sky Permits.................................................................................19
7.4 Tax Free Reorganization..........................................................................19
7.5 Full Disclosure..................................................................................19
SECTION 8: CONDITIONS PRECEDENT TO HEALTHAXIS' CLOSING OBLIGATIONS.............................................20
8.1 Provident's and Newco's Representations..........................................................20
8.2 Provident's and Newco's Performance..............................................................20
8.3 Absence of Proceedings...........................................................................20
8.4 Approval of HealthAxis and Provident Shareholders................................................20
8.5 Board Seats......................................................................................20
8.6 Adverse Changes..................................................................................20
8.7 Registration Statement...........................................................................20
8.8 Listing of Provident Common Stock................................................................20
8.9 Tax Opinion......................................................................................20
SECTION 9: CONDITIONS PRECEDENT TO PROVIDENT'S AND NEWCO'S CLOSING OBLIGATIONS.................................21
9.2 Approval of the HealthAxis and Provident Shareholders............................................21
9.3 Dissenting and other HealthAxis Shareholders.....................................................21
9.4 HealthAxis' Representations......................................................................21
9.5 HealthAxis' Performance..........................................................................21
9.6 Absence of Proceedings...........................................................................21
9.7 Adverse Changes..................................................................................21
SECTION 10: CLOSING............................................................................................22
10.1 Closing..........................................................................................22
10.2 HealthAxis' Obligations at Closing...............................................................22
10.3 Provident's and Newco's Obligations at Closing...................................................24
SECTION 11: CERTAIN OBLIGATIONS OF PROVIDENT AND THE SURVIVING CORPORATION AFTER CLOSING.......................25
11.1 Final Tax Returns................................................................................25
11.2 Delivery of Certificates.........................................................................25
SECTION 12: OTHER PROVISIONS...................................................................................25
12.1 Survival.........................................................................................25
12.2 Termination......................................................................................25
12.3 Publicity........................................................................................25
12.4 Fees and Expenses................................................................................26
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PAGE
----
12.5 Notices..........................................................................................26
12.6 Interpretation of Representations................................................................26
12.7 Reliance by Provident and Newco..................................................................26
12.8 Reliance by HealthAxis...........................................................................26
12.9 Entire Understanding.............................................................................26
12.10 Parties in Interest..............................................................................27
12.11 Waivers..........................................................................................27
12.12 Severability.....................................................................................27
12.13 Counterparts.....................................................................................27
12.14 Section Headings.................................................................................27
12.15 References.......................................................................................27
12.16 Controlling Law..................................................................................27
12.17 Jurisdiction and Process.........................................................................27
12.18 No Third-Party Beneficiaries.....................................................................27
12.19 Nature of Transactions...........................................................................28
12.20 Bankruptcy Qualification.........................................................................28
12.21 Construction.....................................................................................28
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AGREEMENT AND PLAN OF REORGANIZATION
PARTIES: HEALTHAXIS.COM, INC.
a Pennsylvania corporation ("HealthAxis")
2500 DeKalb Pike
East Norriton, PA 19401
PROVIDENT AMERICAN CORPORATION
a Pennsylvania corporation ("Provident")
2500 DeKalb Pike
Norristown, PA 19404
HEALTHAXIS ACQUISITION CORP.
a Pennsylvania corporation ("Newco")
2500 DeKalb Pike
East Norriton, PA 19401
DATE: As of January 26, 2000
BACKGROUND: HealthAxis, formerly known as Insurion, Inc., is a leading web-based
insurance retailer providing fully integrated, end-to-end, web-enabled solutions
for health insurance distribution and administration and a minority owned
subsidiary of Provident. The parties desire that HealthAxis be merged with and
into Newco (the "Merger") on the terms and subject to the conditions set forth
in this Agreement and Plan of Reorganization (the "Agreement") and the Agreement
and Plan of Merger dated as of this date and designated as Exhibit A hereto (the
"Plan"). The parties intend that the Merger: (i) qualify as a tax-free
reorganization within the meaning of Section 368 of the Code, and (ii) be
accounted for as a purchase for financial accounting purposes. It is intended
that as part of or prior to the Merger, Provident will change its name to
HealthAxis Inc. and its NASDAQ symbol to "HAXS".
The Board of Directors of HealthAxis has unanimously determined that
the Merger and the other transactions contemplated by this Agreement and the
Plan (collectively, the "Transactions") are in the best interests of HealthAxis
and its shareholders (as defined in Section 3.2 hereof). The respective Board of
Directors of Provident and Newco, a wholly owned subsidiary of Provident, have
determined that the Transactions are in the best interests of Provident and
Newco and their respective shareholders.
Concurrently with the execution of this Agreement, and as a condition
and inducement to Provident's willingness to enter into this Agreement, each
affiliate shareholder of HealthAxis identified in Schedule A is entering into an
Affiliate Letter attached hereto as Exhibit B.
Intending to be legally bound, in consideration of the foregoing and
the mutual agreements contained herein and subject to the satisfaction of the
terms and conditions set forth herein, the parties hereto agree as follows:
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SECTION 1: DEFINED TERMS
Certain defined terms used in this Agreement and not specifically
defined in context are defined in this Section 1, as follows:
1.1 "Accounts Receivable" means (a) any right to payment for goods
sold, leased or licensed or for services rendered, whether or not it has been
earned by performance, whether billed or unbilled, and whether or not it is
evidenced by any Contract (as defined in Section 1.7); (b) any note receivable;
or (c) any other receivable or right to payment of any nature.
1.2 "Acquired Companies" means HealthAxis and its subsidiaries,
including but not limited to, HealthAxis.com Alabama, Inc., HealthAxis.com
Insurance Services, Inc., HealthAxis.com New Mexico, Inc., HealthAxis.com Texas,
Inc., HealthAxis.com Insurance Agency, Inc., Insurdata Imaging Services LLC and
Satellite Image Systems (Jamaica) Ltd.
1.3 "Asset" means any real, personal, mixed, tangible or intangible
property of any nature, including Cash Assets (as defined in Section 1.4),
prepayments, deposits, escrows, Accounts Receivable, Tangible Property (as
defined in Section 1.31), Real Property (as defined in Section 1.28), Software
(as defined in Section 1.30), Contract Rights (as defined in Section 1.8),
Intangibles (as defined in Section 1.17) and goodwill, and claims, causes of
action and other legal rights and remedies.
1.4 "Cash Asset" means any cash on hand, cash in bank or other
accounts, readily marketable securities, and other cash-equivalent liquid assets
of any nature.
1.5 "Code" means the Internal Revenue Code of 1986, as amended.
1.6 "Consent" means any consent, approval, order or authorization of,
or any declaration, filing or registration with, or any application, notice or
report to, or any waiver by, or any other action (whether similar or dissimilar
to any of the foregoing) of, by or with, any Person (as defined in Section
1.25), which is necessary in order to take a specified action or actions in a
specified manner and/or to achieve a specified result.
1.7 "Contract" means any written or oral contract, agreement,
instrument, order, arrangement, commitment or understanding of any nature,
including sales orders, purchase orders, leases, subleases, data processing
agreements, maintenance agreements, license agreements, sublicense agreements,
loan agreements, promissory notes, security agreements, pledge agreements,
deeds, mortgages, guaranties, indemnities, warranties, employment agreements,
consulting agreements, sales representative agreements, joint venture
agreements, buy-sell agreements, options or warrants.
1.8 "Contract Right" means any right, power or remedy of any nature
under any Contract, including rights to receive property or services or
otherwise derive benefits from the payment, satisfaction or performance of
another party's Obligations (as defined in Section 1.23), rights to demand that
another party accept property or services or take any other actions, and rights
to pursue or exercise remedies or options.
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1.9 "Employee Benefit Plan" means any employee benefit plan as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and any other plan, program, policy or arrangement for or
regarding bonuses, commissions, incentive compensation, severance, vacation,
deferred compensation, pensions, profit sharing, retirement, payroll savings,
stock options, stock purchases, stock awards, stock ownership, phantom stock,
stock appreciation rights, medical/dental expense payment or reimbursement,
disability income or protection, sick pay, group insurance, self insurance,
death benefits, employee welfare or fringe benefits of any nature; but not
including employment Contracts with individual employees.
1.10 "Encumbrance" means any lien, security interest, pledge, right of
first refusal, mortgage, easement, covenant, restriction, reservation,
conditional sale, prior assignment, or other encumbrance, claim, burden or
charge of any nature.
1.11 "Environmental Laws" means all applicable Laws (including consent
decrees and administrative orders) relating to pollution and the protection of
the environment, including those governing the use, generation, handling,
storage and disposal or cleanup of Hazardous Substances (as defined in Section
1.14), all as amended.
1.12 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
1.13 "GAAP" means generally accepted accounting principles under
current United States accounting rules and regulations, consistently applied.
1.14 "Hazardous Substances" means any substance, waste, contaminant,
pollutant or material that has been determined by Law or any United States
federal government authority, or any state or local government authority having
jurisdiction over any Real Property owned, leased or used by the Acquired
Companies, to be capable of posing a risk of injury or damage to health, safety,
property or the environment, including (a) all substances, wastes, contaminants,
pollutants and materials defined, designated or regulated as hazardous,
dangerous or toxic pursuant to any Law of any state in which any Real Property
owned, leased or used by the Acquired Companies, is located or any United States
Law, and (b) asbestos, polychlorinated biphenyls ("PCB's"), petroleum, petroleum
products and urea formaldehyde.
1.15 "including" means including but not limited to.
1.16 "Insurance Policy" means any public liability, product liability,
general liability, comprehensive, property damage, vehicle, life, hospital,
medical, dental, disability, worker's compensation, key man, fidelity bond,
theft, forgery, errors and omissions, directors' and officers' liability, or
other insurance policy of any nature.
1.17 "Intangible" means any name, corporate name, fictitious name,
trademark, trademark application, service mark, service mark application, trade
name, brand name, product name, slogan, trade secret, know-how, patent, patent
application, copyright, copyright application, design, logo, formula, invention,
product right, technology or other intangible asset of any nature, whether in
use, under development or design, or inactive.
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1.18 "Judgment" means any order, writ, injunction, citation, award,
decree or other judgment of any nature of any foreign, federal, state or local
court, governmental body, administrative agency, regulatory authority or
arbitration tribunal.
1.19 "to the knowledge of HealthAxis" means that none of the directors
or officers of any of the Acquired Companies have any actual knowledge, after
due inquiry, that the statement made is incorrect.
1.20 "Law" means any provision of any foreign, federal, state or local
law, statute, ordinance, charter, constitution, treaty, code, rule or regulation
(including those of self-regulatory organizations such as the NASD (as defined
in Section 1.22)).
1.21 "material adverse change" means, with respect to any Person (as
defined in Section 1.25), a material adverse change on the financial condition,
results of operations, business, assets or liabilities of such Person and its
subsidiaries, taken as a whole.
1.22 "NASD" means the National Association of Securities Dealers, Inc.
1.23 "Obligation" means any debt, liability or obligation of any
nature, whether secured, unsecured, recourse, nonrecourse, liquidated,
unliquidated, accrued, absolute, fixed, contingent, ascertained, unascertained,
known, unknown or otherwise.
1.24 "Permit" means any license, permit, approval, waiver, order,
authorization, right or privilege of any nature, granted, issued, approved or
allowed by any foreign, federal, state or local governmental body,
administrative agency or regulatory authority.
1.25 "Person" means any individual, sole proprietorship, joint venture,
partnership, corporation, limited liability company, partnership, association,
cooperative, trust, estate, governmental body, administrative agency, regulatory
authority or other entity of any nature.
1.26 "Proceeding" means any demand, claim, suit, action, litigation,
investigation, arbitration, administrative hearing or other proceeding of any
nature.
1.27 "Provident Common Stock" means shares of common stock, $.10 par
value per share, of Provident.
1.28 "Real Property" means any real estate, land, building,
condominium, town house, structure or other real property of any nature, all
shares of stock or other ownership interests in cooperative or condominium
associations or other forms of ownership interest through which interests in
real estate may be held, and all appurtenant and ancillary rights thereto,
including easements, covenants, water rights, sewer rights and utility rights.
1.29 "SEC" means the United States Securities and Exchange Commission.
1.30 "Software" means any computer program, operating system,
applications system, firmware or software of any nature, whether operational,
under development or inactive, including all object code, source code, technical
manuals, user manuals and other documentation therefor, whether in machine-
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readable form, programming language or any other language or symbols, and
whether stored, encoded, recorded or written on disk, tape, film, memory device,
paper or other media of any nature.
1.31 "Tangible Property" means any furniture, fixtures, leasehold
improvements, vehicles, office equipment, computer equipment, other equipment,
machinery, tools, forms, supplies or other tangible personal property of any
nature.
1.32 "Tax" means (a) any foreign, federal, state or local income,
earnings, profits, gross receipts, franchise, capital stock, net worth, sales,
use, value added, occupancy, general property, real property, personal property,
intangible property, transfer, fuel, excise, payroll, withholding, unemployment
compensation, social security, retirement or other tax of any nature; (b) any
foreign, federal, state or local organization fee, qualification fee, annual
report fee, filing fee, occupation fee, assessment, sewer rent or other fee or
charge of any nature; or (c) any deficiency, interest or penalty imposed with
respect to any of the foregoing.
SECTION 2: THE MERGER
Subject to the terms and conditions of this Agreement and the Plan,
HealthAxis shall be merged with and into Newco with Newco being the surviving
corporation (the "Surviving Corporation") in accordance with the provisions of
this Agreement and the provisions of the Plan. The closing of the Merger and the
other Transactions shall take place on the Closing Date (as defined in Section
10.1) and shall be effective on the Effective Date (as defined in Section 10.1).
SECTION 3: REPRESENTATIONS OF HEALTHAXIS
HealthAxis represents and warrants to Provident and Newco as of the
date of this Agreement and the Closing Date, and covenants with Provident and
Newco, as set forth below in each provision of this Section 3.
3.1 Organization. Except as set forth on Schedule 3.1, each of the
Acquired Companies is a corporation duly organized and subsisting under the Laws
of the jurisdiction of its organization. HealthAxis possesses the full corporate
power and authority to enter into and perform this Agreement. Except as set
forth on Schedule 3.1, each of the Acquired Companies possesses the full
corporate power and authority to own its Assets and to conduct its business as
and where presently conducted. Each of the Acquired Companies is duly qualified
or registered to do business in each jurisdiction where the ownership or leasing
of properties or assets by it, or the operation of its business, requires such
qualification, except where the failure to qualify or register will not have a
material adverse effect on the business, financial condition or results of
operations of HealthAxis on a consolidated basis ("Material Adverse Effect").
Except as set forth on Schedule 3.1, HealthAxis has no subsidiaries. Accurate
and complete copies of articles or certificates of incorporation and bylaws, (or
similar organizational documents), each as amended to date, and all Contracts
relating to the acquisition of each of the Acquired Companies (or their
affiliates or predecessors) have been made available to Provident and Newco.
3.2 Effect of Agreement. Subject to the approval by shareholders of
HealthAxis (the "HealthAxis Shareholders") of the Merger, HealthAxis'
consummation of the Transactions has been duly authorized by all necessary
corporate actions including its board of directors and does not constitute a
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violation of or default under its articles of incorporation or bylaws (or
similar organizational documents). For HealthAxis, its execution, delivery and
performance of this Agreement, and its consummation of the Transactions, (a)
does not constitute a default or breach (immediately or after the giving of
notice, passage of time or both) under any material Contract to which it or any
of the Acquired Companies is a party or by which it or any of the Acquired
Companies is bound, (b) does not constitute a material violation of any Law or
Judgment that is applicable to it or any of the Acquired Companies, or to the
business or Assets of any of the Acquired Companies, or to the Transactions, (c)
does not accelerate or otherwise modify any material Obligation of any of the
Acquired Companies, (d) does not result in the creation of any material
Encumbrance upon, or give to any third party any interest in, any of the
business or Assets, or any of the capital stock of or interests in, any of the
Acquired Companies, and (e) except as stated on Schedule 3.2, does not require
the Consent of any Person. This Agreement constitutes the valid and legally
binding agreement of HealthAxis enforceable against it in accordance with its
terms. Except for the HealthAxis shareholder agreements with AOL dated November
13, 1998 and UICI dated January 7, 2000, the AOL Stock Purchase Agreement dated
November 13, 1998 and the Amended and Restated Carrier Partner Agreement, as
amended, with UICI dated March 30, 1999, there exists no right of first refusal
or other preemptive right with respect to any of the Acquired Companies or the
stock, business or Assets of any of the Acquired Companies.
3.3 Capital Stock and Ownership. As of the date of this Agreement, the
authorized capital stock of HealthAxis consists of: (i) 100,000,000 shares of
Common Stock, no par value per share ("HealthAxis Common Stock"), of which
42,394,881 shares are issued and outstanding; (ii) 20,000,000 shares of
Preferred Stock, par value $1.00 per share (the "HealthAxis Preferred Stock") of
which 3,031,191, shares are issued and outstanding. Series of Preferred Stock
have been designated as follows: Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock, Series C Convertible Preferred Stock, and Series D
Convertible Preferred Stock (collectively, the "HealthAxis Convertible Preferred
Stock"). The HealthAxis Common Stock and the HealthAxis Convertible Preferred
Stock shall be referred to collectively, as the "HealthAxis Stock". All of the
issued and outstanding shares of capital stock of each of the Acquired Companies
have been duly authorized and validly issued, and are fully paid and
nonassessable, with no liability or preemptive rights attaching to the ownership
thereof. All issuances and grants of all outstanding options, warrants and all
offerings, sales and issuances by each of the Acquired Companies of any shares
of capital stock complied in all material respects with all applicable federal
and state securities Laws, all applicable state corporation Laws and all
requirements set forth in applicable Contracts. Except as provided on Schedule
3.3, there are no outstanding options, puts, calls, warrants, subscriptions,
stock appreciation rights, phantom stock, or other Contracts or Contract Rights
relating to the offering, sale, issuance, redemption or disposition of any
shares of capital stock, or other securities of, any of the Acquired Companies
(the "Options"). Schedule 3.3 sets forth with respect to each of the Options the
plan pursuant to which the Option was granted, the name of the Optionee, the
number of shares of common stock subject to the Option, the exercise price, the
date on which the Option was granted, and the date on which the Option expired.
Except as set forth herein, there are no bonds, debentures, notes, or other
indebtedness of the Acquired Companies.
3.4 Financial and Corporate Records. The books and records of each of
the Acquired Companies and Insurdata Incorporated ("Insurdata Inc.") are and
have been properly prepared and maintained in form and substance adequate for
preparing audited financial statements in accordance with GAAP, and such books
and records fairly and accurately reflect in all material respects all of the
Assets and Obligations of each of the Acquired Companies (including Insurdata
Inc.) and all Contracts and other transactions to which each of the Acquired
Companies (including Insurdata Inc.) is or was a party or by which each of the
Acquired Companies (including Insurdata Inc.) or the business or Assets of each
of the
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Acquired Companies (including Insurdata Inc.) is or was affected. Accurate and
complete copies of the contents of the minute books and stock books of each of
the Acquired Companies (including Insurdata Inc.) have been made available to
Provident and Newco. Such minute books and stock books include (a) minutes of
all meetings of the HealthAxis Shareholders, board of directors and any
committees of the board of directors at which any material action was taken,
which minutes accurately record all material actions taken at such meetings, (b)
accurate and complete written statements of all actions taken by the HealthAxis
Shareholders, board of directors and any committees of the board of directors
without a meeting, and (c) accurate and complete records of the subscription,
issuance, transfer and cancellation of all shares of capital stock, and all
other securities since the date of incorporation or formation. Schedule 3.4
includes accurate and complete copies of unaudited pro-forma selected
consolidated financial information of each of HealthAxis and Insurdata (which
merged with and into HealthAxis on January 7, 2000) as of and for the nine
months ended September 30, 1999. These financial statements were prepared in
accordance with GAAP except as described on Schedule 3.4, and all adjustments
that are necessary for a fair presentation thereof (consisting only of normal
recurring adjustments) have been made. Except as set forth on Schedule 3.4, the
financial statements fairly present, in accordance with the applicable
requirements of GAAP, the consolidated financial position of HealthAxis and
Insurdata Inc. as of September 30, 1999.
3.5 Assets. Schedule 3.5 includes detailed lists of all Assets with a
current fair market value of not less than $100,000 of each of the Acquired
Companies which are reflected on the September 30, 1999 Balance Sheet, including
(a) Cash Assets, itemized by bank or other account, showing cost and market
value if different from cost; (b) Accounts Receivable, showing customer names,
individual invoice dates, individual invoice amounts and allowances for doubtful
accounts, or, in the case of earned but not billed receivables, customer names
and individual dates on which the receivables are billable; (c) other current
Assets, itemized by category and with appropriate explanation; (d) Tangible
Property, grouped as to type, showing cost, accumulated depreciation and net
book value; and (e) Software and Intangibles, showing cost or amount
capitalized, accumulated amortization and net book value. Each of the Acquired
Companies has good and valid title to all of its respective Assets which are
owned by it and has the right to transfer all rights, title and interest in such
Assets, free and clear of any Encumbrance, other than Encumbrances (a) for
taxes, assessments, levies, fees and other governmental and similar charges not
due and payable, mechanics' liens, or other "ordinary course" liens that do not
materially effect the value of the Assets; or (b) listed on Schedule 3.5.
3.6 Obligations. Schedule 3.6 includes detailed lists of all material
Obligations of each of the Acquired Companies which are required by GAAP to be
reflected on the September 30, 1999 Balance Sheet, itemized by balance sheet
account, and with aggregate net balances equal to the balances on the September
30,1999 Balance Sheet, including (a) accounts payable, (b) accrued expenses and
reserves, itemized by category and with appropriate explanation, (c) deferred
revenues, itemized by customer and time periods, and (d) other current and
long-term liabilities. None of the Acquired Companies has any material
Obligations other than (i) Obligations reflected on the September 30, 1999
Balance Sheet, (ii) Obligations set forth in Schedule 3.8, (iii) Obligations
under Contracts of the type listed or not required to be listed on Schedule
3.13, provided that as of September 30, 1999, no such Obligation consisted of or
resulted from a default under or violation of any such Contract, (iv)
Obligations incurred since September 30, 1999, in the ordinary course,
consistent with past practices, and not in breach of any of the representations
and warranties made in Section 3.9, and (v) Obligations not required by GAAP to
be reflected on the September 30, 1999 Balance Sheet. Except as described on
Schedule 3.8, none of the Obligations of any of the Acquired Companies are
guaranteed by any Person.
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3.7 Operations Since September 30, 1999. Except as disclosed in the
Provident SEC Documents (as defined in Section 4.4), as set forth on Schedule
3.7 or in the ordinary course of their respective businesses consistent with its
past practices, from September 30, 1999 to the date of this Agreement none of
the Acquired Companies has (i) created or assumed any Encumbrance upon any of
its business or Assets, (ii) incurred any Obligation, (iii) made any loan or
advance to any Person; (iv) assumed, guaranteed or otherwise become liable for
any Obligation of any Person; (v) committed for any capital expenditure; (vi)
purchased, leased, sold, abandoned or otherwise acquired or disposed of any
business or Assets; (vii) waived any right or canceled any debt or claim; (viii)
assumed or entered into any Contract other than this Agreement; or (ix)
increased, or authorized an increase in, the compensation or benefits paid or
provided to any of their directors, officers, employees, salesmen, agents or
representatives.
3.8 Tangible Property. Each of the Acquired Companies has good and
valid title to all of its Tangible Property, free and clear of any Encumbrances
other than Encumbrances (a) for taxes, assessments, levies, fees and other
governmental and similar charges not due and payable, mechanics' liens, or other
"ordinary course" liens that do not materially effect the value of the Tangible
Property; or (b) set forth in the September 30, 1999 Balance Sheet or Schedule
3.8.
3.9 Software and Other Intangibles. Except for commercially available
Software, set forth on Schedule 3.9 is an accurate and complete list and
description of all Software and material Intangibles owned, marketed, licensed,
supported, maintained, used or under development by the Acquired Companies, and,
in the case of Software, a product description, the language in which it is
written and the type of hardware platform(s) on which it runs. Except as
explained on Schedule 3.9, each of the Acquired Companies has good and valid
title to, and has the full right to use, all of the Software and Intangibles
listed on Schedule 3.9, free and clear of any Encumbrance (except for use
restrictions contained in licensed commercially available Software). Except as
set forth in Schedule 3.9, all shrinkwrap and other commercially available
Software has been properly licensed and all related fees paid. To the knowledge
of HealthAxis, all application Software utilized in its business is year 2000
compliant. To the knowledge of HealthAxis, none of the Software or Intangibles
listed on Schedule 3.9, or their respective past or current uses, including the
preparation, distribution, marketing or licensing, has violated or infringed
upon, or is violating or infringing upon, any Software, technology, patent,
copyright, trade secret or other Intangible of any Person. To the knowledge of
HealthAxis, no Person is violating or infringing upon, or has violated or
infringed upon at any time, any of the Software or Intangibles listed on
Schedule 3.9. Except as set forth on Schedule 3.9, none of the Software or
Intangibles listed on Schedule 3.9 is owned by or registered in the name of any
current or former owner, shareholder, partner, director, executive, officer,
employee, salesman, agent, customer, representative or contractor of any of the
Acquired Companies or any of the HealthAxis Shareholders nor does any such
Person have any interest therein or right thereto, including the right to
royalty payments.
3.10 Contracts. Schedule 3.10 is an accurate and complete list of all
of the following types of Contracts which involve either future Obligations of
$100,000 or more to which any of the Acquired Companies is a party or by which
any of the Acquired Companies is bound, or is otherwise material to any of the
Acquired Companies (collectively, the "Specified Contracts"), grouped into the
following categories: (a) customer, client or alliance partner Contracts; (b)
Contracts for the purchase or lease of Real Property or otherwise concerning
Real Property owned or used by any of the Acquired Companies; (c) loan
agreements, mortgages, notes, guarantees and other financing Contracts; (d)
Contracts for the purchase, lease and/or maintenance of computer equipment and
other equipment, Contracts for the purchase, license, lease
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and/or maintenance of Software under which any of the Acquired Companies is the
purchaser, licensee, lessee or user, and other supplier Contracts; (e)
employment, consulting and sales representative Contracts (excluding Contracts
which constitute Employee Benefit Plans listed on Schedule 3.12, and excluding
oral Contracts with employees for "at will" employment); (f) Contracts under
which any rights in and/or ownership of any Software product, technology or
other Intangible of any of the Acquired Companies, or any prior version thereof,
or any part of the customer base, business or Assets of any of the Acquired
Companies, or any shares or other ownership interests in any of the Acquired
Companies (or any of their predecessors) was acquired; and (g) other material
Contracts (excluding Contracts which constitute Insurance Policies listed on
Schedule 3.16 and excluding this Agreement and all other Contracts entered into
between any of the Acquired Companies and Provident, or among any of the
Acquired Companies, Provident and other parties in connection herewith). A
description of each oral Specified Contract is included on Schedule 3.10, and
copies of each written Specified Contract have been made available to Provident
and Newco. Except as set forth on Schedule 3.10, with respect to each of the
Specified Contracts, none of the Acquired Companies is in material default
thereunder nor would be in material default thereunder with the passage of time,
the giving of notice, or both. Except as set forth on Schedule 3.10, to the
knowledge of HealthAxis, none of the other parties to any Specified Contract is
in material default thereunder or would be in material default thereunder with
the passage of time, the giving of notice or both. Except as set forth on
Schedule 3.13, none of the Acquired Companies has given or received any notice
of default or notice of termination with respect to any Specified Contract, and
to the knowledge of HealthAxis each Specified Contract is in full force and
effect in accordance with its terms. Except as set forth on Schedule 3.13, there
are no currently outstanding proposals or offers submitted by any of the
Acquired Companies to any customer, prospect, supplier or other Person which, if
accepted, would result in a legally binding Contract of such company involving
an amount or commitment exceeding $100,000 in any single case or an aggregate
amount or commitment exceeding $500,000 in the aggregate.
3.11 Employees and Independent Contractors. Schedule 3.11 is a list of
all of the employees with annual compensation in excess of $100,000 of the
Acquired Companies and (a) their titles or responsibilities; (b) their social
security numbers; (c) their dates of hire; (d) their current salaries or wages
and all bonuses, commissions and incentives paid at any time during the past
twelve months; (e) their last compensation changes and the dates on which such
changes were made; (f) any specific bonus, commission or incentive plans or
agreements for or with them; and (g) any outstanding loans or advances made to
them. Schedule 3.11 is a list of all sales representatives and material
independent contractors engaged by the Acquired Companies and their payment
arrangements (if not set forth in a Contract listed or described on Schedule
3.10). Except as limited by any employment Contracts listed on Schedule 3.10 and
except for any limitations of general application which may be imposed under
applicable employment Laws, each of the Acquired Companies has the right to
terminate the employment of each of its employees at will and to terminate the
engagement of any of its independent contractors without payment to such
employee or independent contractor other than for services rendered through
termination and without incurring any penalty or liability other than liability
for severance pay and benefits in accordance with such company's disclosed
severance pay policy and benefits due terminated employees. Neither the
Transactions, nor the termination of the employment of any employees of any of
the Acquired Companies prior to or following the consummation of the
Transactions could result in any of the Acquired Companies making or being
required to make any "excess parachute payment" as that term is defined in
Section 280G of the Code. To the knowledge of HealthAxis, each of the Acquired
Companies is in compliance in all material respects with all Laws respecting
employment practices. None of the Acquired Companies has ever been a party to or
bound by any union, collective bargaining or similar Contract, nor is any such
Contract currently in effect
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or being negotiated by or on behalf of any of the Acquired Companies. Since
January 1, 1998, none of the Acquired Companies has experienced any labor
problem that was or is material to it. Except as indicated on Schedule 3.11,
since January 1, 1999, to the knowledge of HealthAxis, no employee of any of the
Acquired Companies having an annual salary of $75,000 or more has indicated an
intention to terminate or has been terminated with respect to his or her
employment with such company.
3.12 Employee Benefit Plans. Schedule 3.12 sets forth an accurate and
complete list of all of HealthAxis' Employee Benefit Plans to which any Acquired
Company is bound (collectively referred to as "HealthAxis' Employee Benefit
Plans"). Except as set forth on Schedule 3.12, none of the Acquired Companies
has (a) established, maintained or contributed to (or has been obligated to
contribute to) any Employee Benefit Plans, (b) proposed any Employee Benefit
Plans which it plans to establish or maintain or to which it plans to
contribute, or (c) proposed any changes to any Employee Benefit Plans now in
effect. Accurate and complete copies of all of HealthAxis' Employee Benefit
Plans, a list of all employees affected or covered by HealthAxis' Employee
Benefit Plans, and all Obligations thereunder have been made available to
Provident. If permitted and/or required by applicable Law, the Acquired
Companies have properly submitted all of HealthAxis' Employee Benefit Plans in
good faith to meet the applicable requirements of ERISA and/or the Code to the
Internal Revenue Service (the "IRS") for its approval within the time prescribed
therefor under applicable federal regulations. Favorable letters of
determination of such tax-qualified status from the IRS are attached to Schedule
3.12. With respect to HealthAxis' Employee Benefit Plans, the Acquired Companies
will have made, on or before the Closing Date, all payments required to be made
by them on or before the Closing Date and will have accrued (in accordance with
GAAP) as of the Closing Date all payments due but not yet payable as of the
Closing Date, so there will not have been, nor will there be, any Accumulated
Funding Deficiencies (as defined in ERISA or the Code) or waivers of such
deficiencies. HealthAxis has made available to Provident an accurate and
complete copy of the most current Form 5500 and any other form or filing
required to be submitted to any governmental agency with regard to any of
HealthAxis' Employee Benefit Plans and the most current actuarial report, if
any, with regard to any of HealthAxis' Employee Benefit Plans. All of
HealthAxis' Employee Benefit Plans are, and have been, operated in full
compliance in all material respects with their provisions and with all
applicable Laws including ERISA and the Code and the regulations and rulings
thereunder. The Acquired Companies and all fiduciaries of HealthAxis' Employee
Benefit Plans have complied in all material respects with the provisions of
HealthAxis' Employee Benefit Plans and with all applicable Laws including ERISA
and the Code and the regulations and rulings thereunder. There have been no
Reportable Events (as defined in ERISA), no events described in Sections 4062,
4063 or 4064 of ERISA, and no termination or partial termination (including any
termination or partial termination attributable to the Transactions contemplated
by this Agreement) of any of HealthAxis' Employee Benefit Plans. There would be
no Obligation of any of the Acquired Companies under Title IV of ERISA if any of
HealthAxis' Employee Benefit Plans were terminated as of the Closing Date. As a
result of any action or inaction prior to Closing by any of the Acquired
Companies, none of the Acquired Companies has incurred, nor will incur, any
withdrawal liability, nor do any of the Acquired Companies have any contingent
withdrawal liability, under ERISA to any Multiemployer Plan (as defined in ERISA
or the Code). None of the Acquired Companies has incurred, or will incur, any
Obligation to the Pension Benefit Guaranty Corporation (or any successor
thereto). Neither the execution and delivery of this Agreement nor the
consummation of the Transactions will (x) result in any payment (including any
severance, unemployment compensation or golden parachute payment) becoming due
from any of the Acquired Companies under any of HealthAxis' Employee Benefit
Plans, (y) increase any benefits otherwise payable under any of HealthAxis'
Employee Benefit Plans, or (z) result in the acceleration of the time of payment
or vesting of any such benefits to any extent. There are no pending
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Proceedings that have been asserted or instituted against any of HealthAxis'
Employee Benefit Plans, the Assets of any of the trusts under such plans, the
plan sponsor, the plan administrator or any fiduciary of any such plan (other
than routine benefit claims), and, to the knowledge of HealthAxis, there are no
facts which could form the basis for any such Proceeding. There are no
investigations or audits of any of HealthAxis' Employee Benefit Plans, any
trusts under such plans, the plan sponsor, the plan administrator or any
fiduciary of any such plan that have been instituted or, to the knowledge of
HealthAxis, threatened, and, to the knowledge of HealthAxis, there are no facts
which could form the basis for any such investigation or audit. Except as
disclosed in Schedule 3.12, no event has occurred nor will occur which will
result in any of the Acquired Companies having an Obligation in connection with
any Employee Benefit Plan established, maintained, contributed to or to which
there has been as obligation to contribute (currently or previously) by it or by
any other entity which, together with any of the Acquired Companies, constitute
elements of either (i) a controlled group of corporations (within the meaning of
Section 414(b) of the Code), (ii) a group of trades or businesses under common
control (within the meaning of Sections 414(c) of the Code or 4001 of ERISA),
(iii) an affiliated service group (within the meaning of Section 414(m) of the
Code), or (iv) another arrangement covered by Section 414(o) of the Code.
3.13 Carrier Partners and Internet Partners. Except as set forth on
Schedule 3.13, since January 1, 1999, none of the carrier partners, internet
partners or material suppliers of the Acquired Companies has given notice or
otherwise indicated to such company that it will or intends to terminate or not
renew its Contract with such company before the scheduled expiration date or
otherwise terminate its relationship with such company. To the knowledge of
HealthAxis, the relationship of each of the Acquired Companies with such carrier
partners, internet partners or material suppliers is currently on a good and
normal basis and the Transactions will not adversely affect these relations.
3.14 Proceedings and Judgments. Except as disclosed on Schedule 3.14,
(a) no Proceeding is currently pending or, to the knowledge of HealthAxis,
threatened, nor has any Proceeding occurred at any time since January 1, 1998,
to which any of the Acquired Companies is or was a party, or by which any of the
Acquired Companies or any Assets or business of any of the Acquired Companies is
or was affected; (b) no Judgment is currently outstanding, nor has any Judgment
been outstanding at any time since January 1, 1998, against any of the Acquired
Companies, or by which any of the Acquired Companies or any Assets or business
of any of the Acquired Companies is or was affected; and (c) no material breach
of contract, breach of warranty, tort, negligence, infringement, product
liability, discrimination, wrongful discharge or other claim of any nature has
been asserted in any proceeding or, to the knowledge of HealthAxis, threatened
in writing by or against any of the Acquired Companies at any time since January
1, 1998, and, to the knowledge of HealthAxis, there is no basis for any such
claim.
3.15 Insurance. Schedule 3.15 is an accurate and complete list of all
Insurance Policies (excluding Insurance Policies that constitute HealthAxis'
Employee Benefit Plans described on Schedule 3.12) owned or maintained by any of
the Acquired Companies and/or any of their predecessors at any time since
January 1, 1998. Except as indicated on Schedule 3.15, all such Insurance
Policies are or were on an "occurrence" rather than a "claims made" basis. None
of the Acquired Companies has received notice of cancellation with respect to
any such current Insurance Policy, and, to the knowledge of HealthAxis, there is
no basis for the insurer thereunder to terminate any such current Insurance
Policy. Accurate and complete copies of all Insurance Policies described on
Schedule 3.15 have been made available to Provident. Each such Insurance Policy
is or was in full force and effect during the period(s) of coverage indicated on
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Schedule 3.15. There are no claims that are pending under any of the Insurance
Policies described in this section.
3.16 Questionable Payments. None of the Acquired Companies or, to the
knowledge of HealthAxis, any of the HealthAxis Shareholders, nor any current or
former partners, owners, HealthAxis Shareholders, members, directors,
executives, officers, representatives, agents or employees of any of the
Acquired Companies (when acting in such capacity or otherwise on behalf of any
of the Acquired Companies or any of their predecessors), (a) has used or is
using any corporate funds (i) for any illegal contributions, gifts,
entertainment or other unlawful expenses relating to political activity or, (ii)
to the knowledge of HealthAxis, in violation of customer policies and/or rules;
(b) has used or is using any corporate funds for any direct or indirect unlawful
payments to any foreign or domestic government officials or employees; (c) has
established or maintained, or is maintaining, any unlawful or unrecorded fund of
corporate monies or other properties; (d) has made at any time since January 1,
1998, any false or fictitious entries on the books and records of any of the
Acquired Companies; (e) has made any bribe, unlawful rebate, payoff, influence
payment, kickback or other unlawful payment of any nature using corporate funds
or otherwise on behalf of any of the Acquired Companies; or (f) made any
material favor or gift that is not deductible for federal income tax purposes
using corporate funds or otherwise on behalf of any of the Acquired Companies.
3.17 Related Party Transactions. To the knowledge of HealthAxis, except
as described on Schedule 3.17 and except for any Contracts listed on Schedule
3.13, there are no real estate leases, personal property leases, loans,
guarantees, Contracts, transactions, understandings or other arrangements of any
nature between or among any of the Acquired Companies and any current or former
partner, owner, shareholder, member, director, officer or controlling Person of
any of the Acquired Companies, other than Provident or its subsidiaries.
3.18 Brokerage Fees. Except as set forth on Schedule 3.18, no Person
acting on behalf of any of the Acquired Companies or any of the HealthAxis
Shareholders is or shall be entitled to any brokerage fee, finder's fee or
investment banking fee in connection with the Transactions.
3.19 Investment Company. HealthAxis is not an investment company within
the meaning of Section 368(a)(2)(F)(iii) and (iv) of the Code.
3.20 Full Disclosure. No representation or warranty made by HealthAxis
in this Agreement or pursuant hereto (a) contains any untrue statement of
material fact; or (b) omits to state any material fact that is necessary to make
the statements made, in light of the circumstances under which they are made,
not false or misleading in any respect. The copies of documents attached as
Schedules to this Agreement or otherwise delivered to Provident and Newco in
connection with the Transactions, are accurate and complete, and are not missing
any amendments, modifications, correspondence or other related papers which
would be material to Provident's or Newco's understanding thereof in any
respect.
3.21 Compliance with Law. The operations of each of the Acquired
Companies, the conduct of the business of each of the Acquired Companies, as and
where such business has been or presently is conducted, and the ownership,
possession and use of the Assets of each of the Acquired Companies have complied
and currently do comply with all applicable Laws and the articles and bylaws of
each entity except where the failure to comply will not have a Material Adverse
Effect. Except as set forth on Schedule 3.21, each of the Acquired Companies has
obtained and holds all Permits required for the lawful operation of its
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business or businesses as and where such business or businesses are presently
conducted. All Permits held by the Acquired Companies are listed on Schedule
3.21, and copies of such Permits have been made available to Provident and
Newco.
SECTION 4: REPRESENTATIONS OF PROVIDENT AND NEWCO
Provident and Newco, jointly and severally, represent and warrant to
HealthAxis and the HealthAxis Shareholders as of the date of this Agreement, and
covenant with HealthAxis and the HealthAxis Shareholders, as follows:
4.1 Organization. Provident and Newco are each a corporation that is
duly organized and subsisting under the Laws of the Commonwealth of
Pennsylvania. Provident and Newco each possess the full corporate power and
authority to own its Assets, conduct its business as and where such business is
presently conducted, and enter into this Agreement and the Plan. Newco is a
wholly owned subsidiary of Provident. Newco has not engaged in any activities
other than in connection with its organization and this Agreement and has no
liabilities.
4.2 Agreement. Each of Provident's and Newco's execution, delivery and
performance of this Agreement, and its consummation of the Transactions, (a)
subject to approval by Provident shareholders ("Provident Shareholders') of
Provident's issuances of the Provident Common Stock in the Merger as required by
the NASD and an amendment to its articles of incorporation to increase its
authorized shares, have been duly authorized by all necessary corporate actions
by their respective boards of directors, and Provident Shareholders; (b) do not
constitute a violation of or default under their respective charters or bylaws;
(c) do not constitute a default or breach (immediately or after the giving of
notice, passage of time or both) under any Contract to which Provident or Newco
is a party or by which Provident or Newco is bound; (d) do not constitute a
violation of any Law or Judgment that is applicable to it or to their respective
businesses or Assets, or to the Transactions; and (e) except as stated on
Schedule 4.2, do not require the Consent of any Person. This Agreement
constitutes the valid and legally binding agreement of each of Provident and
Newco, enforceable against each of them in accordance with its terms.
4.3 Provident's Stock. The authorized capital stock of Provident is
50,000,000 shares of Provident Common Stock, of which 12,944,393 shares were
issued and outstanding as of September 30, 1999, 20,000,000 shares of Class A
Common Stock par value $.10 per share, none of which are outstanding, and
20,000,000 shares of preferred stock, $1.00 par value per share, none of which
are outstanding. All of the issued and outstanding shares of capital stock of
Provident have been duly authorized and validly issued, and are fully paid and
nonassessable, with no liability or preemptive rights attaching to the ownership
thereof. All issuances and grants of all outstanding options, warrants and all
offerings, sales and issuances by Provident of any shares of capital stock
complied in all material respects with all applicable federal and state
securities Laws, all applicable state corporation Laws and all requirements set
forth in applicable Contracts. Except as provided on Schedule 4.3, there are no
outstanding options, puts, calls, warrants, subscriptions, stock appreciation
rights, phantom stock, or other Contracts or Contract Rights relating to the
offering, sale, issuance, redemption or disposition of any shares of capital
stock, or other securities of Provident.
4.4 SEC Filings. (a) Except as stated on Schedule 4.4, Provident has
timely filed all reports, proxy statements, forms and other documents required
to be filed with the SEC since January 1, 1996 and
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prior to the date of this Agreement ("Provident SEC Documents"). As of their
respective dates, Provident SEC Documents complied in all material respects with
the requirements of the Securities Act of 1933, as amended (the "Securities
Act"), or the Exchange Act, as the case may be, and the rules and regulations of
the SEC promulgated thereunder applicable to such Provident SEC Documents. As of
their respective dates, the Provident SEC Documents (including all exhibits and
schedules thereto and documents incorporated by reference therein) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(b) The consolidated financial statements of Provident included in
the Provident SEC Documents (i) have been prepared in conformity with GAAP
applied on a consistent basis during the periods involved (except as may be
indicated in the related notes and schedules thereto) and (ii) fairly present in
all material respects the consolidated financial position of Provident and its
consolidated subsidiaries as of the dates thereof, and the results of its
operations and its cash flows for the periods then ended (subject, in the case
of the unaudited statements, to normal year-end audit adjustments, none of which
was material and that, in the case of financial statements included therein
which reflect an acquisition accounted for as a purchase, the financial
statements for the period succeeding the acquisition are presented on a
different basis of accounting than the period prior to the acquisition and are
not directly comparable).
4.5 Form S-4 Registration Statement. The Form S-4 Registration
Statement and all amendments thereto will comply as to form in all material
respects with the provisions of the Securities Act and the rules and regulations
promulgated thereunder. Neither the Form S-4 Registration Statement, nor any
amendments thereof, will, on the date the Proxy Statement/Prospectus is first
mailed to Provident and HealthAxis Shareholders, at the time of the Provident
and/or HealthAxis Shareholders' meeting, at the Effective Date or at the time it
becomes effective, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, provided, however, that Provident makes no representation or
warranty with respect to any information furnished to it by HealthAxis or any of
HealthAxis' accountants, counsel or other authorized representatives in writing
specifically for inclusion in the Form S-4 Registration Statement. None of the
information with respect to Provident or any affiliate of Provident (other than
the Acquired Companies) that is set forth in the Proxy Statement/Prospectus
will, on the date that the Proxy Statement/Prospectus is first mailed to
Provident and HealthAxis Shareholders, at the time of the Provident and/or
HealthAxis Shareholder Meeting or at the Effective Date, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
4.6 Absence of Changes. Except as disclosed in the Provident SEC
Documents, since September 30, 1999, there has not been a material adverse
change as to Provident and its subsidiaries.
4.7 Authorization for Provident Common Stock. Provident will take all
necessary action prior to the Closing Date to permit it to issue the number of
shares of Provident Common Stock required to be issued pursuant to this
Agreement and the Plan, including amending its Articles of Incorporation to
increase the number of authorized shares of common stock. All shares of
Provident Common Stock issued pursuant to this Agreement and the Plan will, when
issued, be validly issued, fully paid and nonassessable and no Person will have
any preemptive right of subscription or purchase in respect thereof. All shares
of Provident Common Stock will, when issued, be registered under the Securities
Act and the Exchange Act and
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registered or exempt from registration under any applicable state securities
laws and will, when issued, be listed for trading on the NASDAQ National Market
System, subject to official notice of issuance.
4.8 Investment Matters. Provident is acquiring the HealthAxis Stock for
its own account for investment purposes only and not with a view to, or for sale
in connection with, any resale or distribution thereof.
4.9 Brokerage Fees. Except as set forth in Schedule 4.9, no Person
acting on behalf of Provident is or shall be entitled to any brokerage fee,
finder's fee or investment banking fee in connection with the Transactions.
4.10 Compliance with Law. The operations of Provident, the conduct of
the businesses of Provident, as and where such businesses have been or presently
are conducted, and the ownership, possession and use of the assets of Provident
have complied and currently do comply in all material respects with all
applicable Laws. Provident is not subject to any consent decree of any Person.
4.11 Full Disclosure. No representation or warranty made by Provident
in this Agreement or pursuant hereto (a) contains any untrue statement of
material fact; or (b) omits to state any material fact that is necessary to make
the statements made, in light of the circumstances under which they are made,
not false or misleading in any respect. The copies of documents attached as
Schedules to this Agreement or otherwise delivered to HealthAxis by Provident in
connection with the Transactions, are accurate and complete, and are not missing
any amendments, modifications, correspondence or other related papers which
would be pertinent to HealthAxis' understanding thereof in any respect.
4.12 Investment Company. Provident is not currently and upon
consummation of the Merger, Provident will not be an investment company within
the meaning of the Investment Company Act of 1940, as amended.
SECTION 5: CERTAIN OBLIGATIONS OF HEALTHAXIS PENDING CLOSING
5.1 Conduct of Business. Between the date of this Agreement and the
Closing Date or termination of the Agreement, except with the prior written
consent of Provident:
(1) Each of the Acquired Companies shall, (i) conduct their
respective businesses in the ordinary course consistent with past practice, (ii)
not make any material change in their business practices, and (iii) use their
reasonable best efforts to preserve their business organization intact, keeping
available the services of their current officers, employees, salesmen, agents
and representatives, and maintaining the goodwill of their customers, suppliers
and other Persons having business relations with the Acquired Companies.
(2) Each of the Acquired Companies shall, maintain their corporate
existence and subsistence in their respective jurisdictions of incorporation and
their good standing in each jurisdiction where they are currently qualified as a
foreign corporation. None of the Acquired Companies shall amend their articles
of incorporation or bylaws.
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(3) None of the Acquired Companies shall, redeem, retire or
purchase, or create, grant or issue any options, warrants or other Contracts or
Contract Rights with respect to, any shares of HealthAxis Stock, or any other
capital stock or other securities of HealthAxis, or create, grant or issue any
stock options, stock appreciation rights, phantom shares or other similar
rights, except as may be consistent with past practices.
(4) Except with respect to the conversion and/or exercise of
currently outstanding warrants, stock options and/or Preferred Stock, HealthAxis
shall not sell, assign, give, pledge or grant or otherwise transfer, dispose of
or encumber any shares of the HealthAxis Stock (or securities convertible,
exercisable or exchangeable for capital stock of HealthAxis), or any other
capital stock or other securities of HealthAxis owned or held by it.
(5) The Acquired Companies shall not enter into any Contract that
commits it to take any action or omit to take any action that would be
inconsistent with any of the provisions of this Section 5.1 or any other
provisions of this Agreement or the Plan.
5.2 Consents. Between the date of this Agreement and the Closing Date,
each of the Acquired Companies shall in good faith use their reasonable best
efforts to obtain all Consents and approvals of all lenders, lessors, vendors,
customers and other Persons necessary to permit the Merger and the other
Transactions to be consummated without violating any loan agreement, lease or
other material Contract to which any of the Acquired Companies is a party or by
which any of the Acquired Companies is bound, and to give the notices and make
the filings described on Schedule 3.2.
5.3 Advice of Changes. Between the date of this Agreement and the
Closing Date, HealthAxis shall promptly advise Provident, in writing, of any
fact of which it obtains knowledge and that, if existing or known as of the date
of this Agreement, would have been required to be set forth or disclosed in or
pursuant to this Agreement (it being understood that such advice shall not be
deemed to modify the representations, warranties and covenants of HealthAxis
contained in this Agreement).
5.4 Reasonable Best Efforts. HealthAxis shall use its reasonable best
efforts to consummate the Merger and the other Transactions as of the earliest
practicable date. HealthAxis shall not take, or cause to be taken, or to the
best of its ability permit to be taken, any action that would impair the
prospect of completing the Merger and the other Transactions.
SECTION 6: CERTAIN OBLIGATIONS OF PROVIDENT AND NEWCO PENDING CLOSING
6.1 Conduct of Business. Between the date of this Agreement and the
Closing Date or termination of the Agreement, except with the prior written
consent of HealthAxis:
(1) Provident shall, (i) conduct its business in the ordinary
course consistent with past practice, (ii) not make any material change in its
business practices, and (iii) use its reasonable best efforts to preserve its
business organization intact, keeping available the services of its current
officers, employees, salesmen, agents and representatives, and maintaining the
goodwill of its customers, suppliers and other Persons having business relations
with Provident.
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(2) Provident and Newco shall maintain their corporate existence
and subsistence in their respective jurisdictions of incorporation and their
good standing in each jurisdiction where they are currently qualified as a
foreign corporation. Neither Provident nor Newco shall amend their articles of
incorporation or bylaws.
(3) Except in the ordinary course of its business consistent with
its past practices, Provident shall not redeem, retire or purchase, or create,
grant or issue any options, warrants or other Contracts or Contract Rights with
respect to, any shares of Provident Common Stock, or any other capital stock or
other securities of Provident, or create, grant or issue any stock options,
stock appreciation rights, phantom shares or other similar rights, except as may
be consistent with past practices.
(4) Except with respect to the conversion and/or exercise of
currently outstanding warrants, stock options and/or Preferred Stock, Provident
shall not sell, assign, give, pledge or grant or otherwise transfer, dispose of
or encumber any shares of the Provident Common Stock (or securities convertible,
exercisable or exchangeable for capital stock of Provident), or any other
capital stock or other securities of Provident owned or held by it.
(5) Neither Provident nor Newco shall enter into any Contract that
commits them to take any action or omit to take any action that would be
inconsistent with any of the provisions of this Section 6.1 of this Agreement or
the Plan.
6.2 Consents. Between the date of this Agreement and the Closing Date,
Provident and Newco shall in good faith use their reasonable best efforts to
obtain all Consents and approvals of all lenders, lessors, vendors, customers
and other Persons necessary to permit the Merger and the other Transactions to
be consummated without violating any loan agreement, lease or other material
Contract to which either Provident or Newco is a party or by which either
Provident or Newco is bound, and to give the notices and make the filings
described on Schedule 4.2.
6.3 SEC Reports. Between the date of this Agreement and the Closing
Date, Provident shall timely file all reports and other filings required to be
filed by it under the Exchange Act.
6.4 Advice of Changes. Between the date of this Agreement and the
Closing Date, Provident shall promptly advise HealthAxis, in writing, of any
fact of which it obtains knowledge and that, if existing or known as of the date
of this Agreement, would have been required to be set forth or disclosed
pursuant to a representation or warranty in this Agreement (it being understood
that such advice shall not be deemed to modify the representations, warranties
and covenants of Provident and/or Newco contained in this Agreement).
6.5 Reasonable Best Efforts. Provident and Newco shall use their
reasonable best efforts to consummate the Merger and the other Transactions as
of the earliest practicable date, and neither Provident nor Newco shall take, or
cause to be taken, or to the best of their ability permit to be taken, any
action that would impair the prospect of completing the Merger and the other
Transactions.
6.6 NASDAQ Listing. Provident shall use its best efforts to cause the
shares of Provident Common Stock constituting the Merger consideration to be
listed on the NASDAQ National Market System subject to notice of official
issuance thereof.
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6.7 Employee Benefits. Following the Effective Date, Provident shall
cause Newco to provide benefits to such employees which are comparable to those
provided to similarly situated employees of Provident from time-to-time.
6.8 Name and Symbol Change. Subject to receipt of the necessary
consents, Provident shall use reasonable efforts to change its name to
HealthAxis Inc. and its symbol to "HAXS".
SECTION 7: ADDITIONAL COVENANTS OF THE PARTIES
7.1 Shareholders' Meetings. (a) Provident shall cause a meeting of its
shareholders (including any postponements or adjournments thereto) (the
"Provident Shareholders' Meeting") to be duly called and held as soon as
reasonably practicable, but in any event within 30 business days after the
mailing of the Proxy Statement/Prospectus (as hereinafter defined), for the
purpose of voting on the approval of the issuance of the shares of Provident
Common Stock to be issued in connection with the Merger; provided, however, that
notwithstanding anything to the contrary contained in this Agreement, Provident
may adjourn or postpone the Provident Shareholders' Meeting to the extent
necessary to ensure that any necessary supplement or amendment to the Proxy
Statement/Prospectus is provided to Provident's Shareholders in advance of a
vote on the issuance of Provident Common Stock in the Merger or, if as of the
time for which the Provident Shareholders' Meeting is originally scheduled (as
set forth in the Proxy Statement/Prospectus) there are insufficient shares of
Provident Common Stock represented (either in person or by proxy) to constitute
a quorum necessary to conduct the business of the Provident Shareholders'
Meeting. HealthAxis shall cause a meeting of its shareholders (including any
postponements or adjournments thereto) (the "HealthAxis Shareholders' Meeting")
(the Provident Shareholders' Meeting and the HealthAxis Shareholders' Meeting
shall collectively be referred to herein as, the "Shareholders' Meetings") to be
duly called and held as soon as reasonably practicable, but in any event within
30 business days after the mailing of the Proxy Statement/Prospectus (as
hereinafter defined), for the purpose of voting on the approval of the Merger.
(b) As promptly as practicable following the date of this
Agreement, Provident and HealthAxis shall prepare a joint proxy
statement/prospectus with respect to the Shareholders' Meetings (which proxy
statement/prospectus will constitute the prospectus of Provident to be included
in the Form S-4 Registration Statement to be filed by Provident pursuant to
Section 7.2 hereof and a proxy statement/prospectus on Schedule 14A) (such proxy
statement, together with any amendments thereof or supplements thereto, in each
case in the form or forms mailed to Provident's and HealthAxis' Shareholders, is
herein called the "Proxy Statement/Prospectus"). Provident will (i) as promptly
as practicable following the preparation of the Proxy Statement/Prospectus file
the Proxy Statement/Prospectus with the SEC, and use its reasonable best efforts
to have it cleared by the SEC and thereafter mail the Proxy Statement/Prospectus
to its shareholders; (ii) use its reasonable best efforts to obtain the
necessary approval by its shareholders of the issuance of the Provident Common
Stock in the Merger and the amendment of the Articles of Incorporation of
Provident to increase the number of authorized shares of Common Stock and (iii)
otherwise comply with all legal requirements applicable to its respective
meeting. HealthAxis will (i) promptly after the Proxy Statement/Prospectus is
cleared by the SEC mail the Proxy Statement/Prospectus to its shareholders; (ii)
use its reasonable best efforts to obtain the necessary approvals by its
shareholders of the Merger and (iii) otherwise comply with all legal
requirements applicable to its respective meeting. Provident agrees to provide
HealthAxis with all comments or correspondence received from the SEC as to
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the Proxy Statement/Prospectus and Provident and HealthAxis shall prepare
responses to any such comments or correspondence as required to have the Proxy
Statement/Prospectus cleared by the SEC. The Proxy Statement/Prospectus shall
include the recommendation of the Provident Board of Directors that their
respective shareholders approve the issuance of the Provident Common Stock in
the Merger. Provident shall send a Notification of the Merger to HealthAxis
Shareholders notifying them of the Effective Date.
(c) The Boards of Directors of each of Provident and HealthAxis
shall recommend approval of the issuance of Provident Common Stock in the Merger
and of the Merger, as the case may be, by their respective shareholders and will
agree to vote the shares that they hold in favor of the Merger. Provident agrees
to vote its shares of HealthAxis common and preferred stock in favor of the
Merger.
7.2 Registration Statement and Proxy Statement/Prospectus. Provident
will, as promptly as practicable following the date of this Agreement, prepare
and, following receipt of notification from the SEC that it has no further
comments on the Proxy Statement/Prospectus assuming Provident initially files a
proxy statement/prospectus on Schedule 14A, file with the SEC a registration
statement on Form S-4 (the "Form S-4 Registration Statement"), containing the
Proxy Statement/Prospectus, and the prospectus in connection with the Merger and
the other transactions contemplated hereby and the SEC as promptly as
practicable, HealthAxis will cooperate with Provident in the preparation and
filing of the Proxy Statement/Prospectus and will provide Provident with all
financial and other data concerning HealthAxis as is necessary in order for
Provident to prepare the Proxy Statement/Prospectus.
7.3 Blue Sky Permits. Provident shall use its reasonable efforts to
obtain, prior to the effective date of the Form S-4 Registration Statement, all
necessary state securities law or "blue sky" permits and approvals required to
ensure that the Provident Common Stock to be issued in the Merger will be
registered or qualified under such state securities Laws, and will pay all
expenses incident thereto; provided, however, that the foregoing shall not
require Provident to (i) submit generally to jurisdiction or require it to
qualify to do business in any jurisdiction where it is not presently required to
submit to jurisdiction or be qualified to do business; or (ii) file a general
consent to service of process in any jurisdiction.
7.4 Tax Free Reorganization. HealthAxis and Provident agree not to take
or cause to be taken any actions that would adversely affect the treatment of
the Merger as a reorganization within the meaning of Section 368(a) of the Code.
7.5 Full Disclosure. None of the information supplied or to be supplied
by or on behalf of the Acquired Companies for inclusion or incorporation by
reference in the Proxy Statement/Prospectus to be filed with the SEC by
Provident in connection with the Provident and/or HealthAxis Shareholders'
Meeting to be held by Provident and/or HealthAxis relating to the Merger did or
will, at the time the information was or is supplied, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were or are made, not misleading. If
any such information becomes untrue in any material respect prior to the filing
of the Proxy Statement/Prospectus, the mailing of the Proxy Statement/Prospectus
to the Provident and HealthAxis Shareholders or the time of the Provident and/or
HealthAxis Shareholders' Meeting, HealthAxis will promptly notify Provident.
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SECTION 8: CONDITIONS PRECEDENT TO HEALTHAXIS' CLOSING OBLIGATIONS
Each obligation of HealthAxis to be performed on the Closing Date shall
be subject to the satisfaction of each of the conditions stated in this Section
8, except to the extent that such satisfaction is waived by HealthAxis in
writing.
8.1 Provident's and Newco's Representations. There shall not have been
any material breach of any representation, warranty or certification made by
Provident and/or Newco in this Agreement or pursuant hereto.
8.2 Provident's and Newco's Performance. All of the terms and
conditions of this Agreement to be satisfied or performed by Provident and/or
Newco on or before the Closing Date (including, but not limited to, the
obligations set forth in Section 10.3) shall have been substantially satisfied
or performed.
8.3 Absence of Proceedings. No Proceeding shall have been instituted,
no Judgment shall have been issued, and no new Law shall have been enacted, on
or before the Closing Date, that seeks to or does prohibit or restrain, or that
seeks material damages as a result of, the consummation of the Merger or any of
the other Transactions.
8.4 Approval of HealthAxis and Provident Shareholders. The Merger and
the issuance of the shares of Provident Common Stock in the Merger shall have
been duly approved by the affirmative vote of the HealthAxis and Provident
Shareholders, as the case may be, in accordance with applicable Law. The
Provident Shareholders shall have approved the amendment to the Articles of
Incorporation of Provident to increase the number of authorized shares of common
stock.
8.5 Board Seats. The following individuals shall have been elected to
the Board of Directors of Provident effective as of the Effective Date of the
Merger: Ronald L Jensen, Gregory T. Mutz and Dennis B. Maloney.
8.6 Adverse Changes. There shall not have been any material adverse
change or material casualty loss affecting Provident or any of its subsidiaries.
or their respective businesses, Assets or financial condition, between the date
of this Agreement and the Closing Date, and there shall not have been any
material adverse change in the financial performance of Provident or its
subsidiaries between the date of this Agreement and the Closing Date.
8.7 Registration Statement. The Form S-4 Registration Statement shall
have become effective in accordance with the provisions of the Securities Act,
and no order suspending such effectiveness shall have been issued and remain in
effect.
8.8 Listing of Provident Common Stock. The shares of Provident Common
Stock issuable in accordance with the Merger shall have been approved for
listing on the NASDAQ National Market System, subject to official notice of
issuance.
8.9 Tax Opinion. The parties shall have received an opinion of tax
counsel, in form and substance reasonably satisfactory to Provident and
HealthAxis, dated as of the Effective Date, substantially to the effect that on
the basis of facts, representations and assumptions set forth in such opinion
which are
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consistent with the state of facts then existing: (i) the Merger will constitute
a "reorganization" within the meaning of Section 368(a) of the Code and each of
Provident, HealthAxis and Newco will be a "party to a reorganization" within the
meaning of Section 368(b) of the Code. In rendering such opinion, such firm may
require and rely upon representations contained in the tax representation
letters delivered to it by Provident and HealthAxis, and such other certificates
from such other Persons as such firm may reasonably require; and (ii) the
consummation of the Merger will not adversely affect the qualification of the
merger between HealthAxis and Insurdata Inc., which occurred on January 7, 2000,
as a "reorganization" within the meaning of Section 368(a) of the Code. Such an
opinion may contain such further assumptions and qualifications as are customary
in legal opinions concerning federal income taxation.
SECTION 9: CONDITIONS PRECEDENT TO PROVIDENT'S AND NEWCO'S CLOSING OBLIGATIONS
Each obligation of Provident and Newco to be performed on the Closing
Date shall be subject to the satisfaction of each of the conditions stated in
this Section 9, except to the extent that such satisfaction is waived by
Provident in writing.
9.1 Upon consummation of the Merger, Provident, Newco, UICI, Michael
Ashker and Alvin H. Clemens shall enter into a shareholder agreement in the form
attached hereto as Exhibit B.
9.2 Approval of the HealthAxis and Provident Shareholders. The Merger
and the issuance of shares of Provident Common Stock in the Merger shall have
been duly approved by the affirmative vote of the Shareholders of HealthAxis and
Provident Shareholders, as the case may be, in accordance with applicable Law,
the Articles of Incorporation and Certificates of Designation.
9.3 Dissenting and other HealthAxis Shareholders. The aggregate number
of shares of HealthAxis Stock owned by those HealthAxis Shareholders (if any)
who shall have exercised (or given notice of their intent to exercise) the
rights of dissenting shareholders under the Pennsylvania Business Corporation
Law or any other applicable corporate law shall be less than ten percent (10%)
of the total number of outstanding shares of HealthAxis Stock.
9.4 HealthAxis' Representations. There shall not have been any material
breach of any representation, warranty or certification made by HealthAxis in
this Agreement or pursuant hereto, except where such material breach is a direct
result of the actions of Provident.
9.5 HealthAxis' Performance. All of the terms and conditions of this
Agreement to be satisfied or performed by HealthAxis on or before the Closing
Date (including the Obligations set forth in Section 10.2) shall have been
substantially satisfied or performed.
9.6 Absence of Proceedings. No Proceeding shall have been instituted,
no Judgment shall have been issued, and no new Law shall have been enacted, on
or before the Closing Date, that seeks to or does prohibit or restrain, or that
seeks damages as a result of, the consummation of the Merger or any of the other
Transactions.
9.7 Adverse Changes. There shall not have been any material adverse
change or material casualty loss affecting the Acquired Companies, or their
respective businesses, Assets or financial condition, between the date of this
Agreement and the Closing Date, and there shall not have been any material
adverse
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change in the financial performance of any of the Acquired Companies between the
date of this Agreement and the Closing Date; provided however that to the extent
any such material adverse change or material casualty loss is caused, directly
or indirectly, by any action or inaction of Provident, such change or loss shall
not be deemed to be a material adverse change or material casualty loss.
9.8 Between the date of this Agreement and the Closing Date, the net
worth of the Acquired Companies on a consolidated basis as determined in
accordance with GAAP, but excluding goodwill and all other intangible assets
acquired as a result of HealthAxis' acquisition of Insurdata, shall not be less
than $20.0 million. To the extent that the Closing Date has not occurred prior
to the quarterly dates set forth below, the net worth as of any previous
quarterly date of the Acquired Companies on a consolidated basis as determined
in accordance with GAAP, but excluding goodwill and other intangible assets
acquired as a result of HealthAxis' acquisition of Insurdata, shall not be less
than: $50.0 million on March 31, 2000; $35.0 million on June 30, 2000; and $20.0
million on September 30, 2000.
SECTION 10: CLOSING
10.1 Closing. The closing of the Merger and the other Transactions (the
"Closing") shall take place at a mutually agreeable time and place on a date
designated by Provident (the "Closing Date"), which shall be no later than the
second business day after the satisfaction or waiver of the conditions set forth
in Sections 8 and 9. Contemporaneously with the Closing, the parties hereto
shall cause the Plan and properly executed Articles of Merger conforming to the
requirements of the Pennsylvania Business Corporation Law (the "Articles of
Merger") to be filed with the proper officers of the Commonwealth of
Pennsylvania, and the parties shall take such further actions as may be required
by the Commonwealth of Pennsylvania, and any other applicable Law, in connection
with consummation of the Merger. The Merger shall take effect at the time such
filing is made with the Commonwealth of Pennsylvania or at such later time as
may be specified in the Articles of Merger (the "Effective Date").
10.2 HealthAxis' Obligations at Closing. At or prior to the Closing,
Provident and Newco shall have received the following:
(1) All instruments or documents necessary to change the names of
the individuals who have access to or are authorized to make withdrawals from or
dispositions of all bank accounts, other accounts, certificates of deposits,
marketable securities, other investments, safe deposit boxes, lock boxes and
safes of HealthAxis described on Schedule 3.4 and all keys and combinations to
all safe deposit boxes, lock boxes and safes of HealthAxis and other
depositories described on Schedule 3.4.
(2) A certificate, dated as of the Closing Date, in form and
substance satisfactory to Provident, signed by the President and Chief Financial
Officer of HealthAxis, certifying, that (i) all representations and warranties
made by HealthAxis in this Agreement are correct in all material respects as of
the Closing Date, as if made on and as of the Closing Date, except for changes
contemplated or permitted by this Agreement, (ii) all of the terms and
conditions of this Agreement to be satisfied or performed by HealthAxis on or
before the Closing Date have been substantially satisfied or performed, and
(iii) there has not been any material adverse change or material casualty loss
affecting any of the Acquired Companies, or their business, Assets or financial
condition, between the date of this Agreement and the Closing Date, and there
has not been any material adverse change in HealthAxis' financial performance
between the date of this Agreement and the Closing Date.
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(3) Articles of Merger for the Commonwealth of Pennsylvania, in
form and substance, acceptable to the parties ("Articles of Merger"), dated as
of the Closing Date and duly executed by HealthAxis.
(4) The signed copies of all Consents listed on Schedule 3.2.
(5) All of the original minute books and stock books of the
Acquired Companies (including original stock certificates evidencing HealthAxis'
100% ownership of each of the subsidiaries) and duly executed resignations,
dated as of the Effective Date, of all directors and officers of the Acquired
Companies other than as specified by Provident.
(6) Good standing certificates for HealthAxis, dated no earlier
than ten (10) days before the Closing Date, from the Commonwealth of
Pennsylvania and from each other jurisdiction in which it is qualified or
registered to do business as a foreign corporation and good standing certificate
or equivalent from each of the other Acquired Companies from their respective
jurisdiction of incorporation.
(7) A certificate of Secretary of HealthAxis as to the incumbency
and signatures of the officers of HealthAxis executing this Agreement.
(8) Copies of the resolutions duly adopted by the board of
directors of HealthAxis, authorizing HealthAxis to execute, deliver and perform
this Agreement and the Plan and to consummate the Transactions, certified by an
officer of HealthAxis as in full force and effect, without modification or
rescission, on and as of the Closing Date.
(9) A duly signed letter, from each affiliate of HealthAxis, in
form, attached hereto as Exhibit C, stating that such affiliate will not sell,
assign, give, pledge (except in connection with fully recourse bank loans) or
otherwise transfer, dispose of or reduce such affiliate's risk relating to any
of such affiliate's shares of capital stock or other securities of Provident
without compliance with the applicable federal and state securities laws.
(10) The legal opinion of tax counsel described in Section 8.9.
(11) A legal opinion of Blank Rome Comisky & McCauley LLP, as to
various corporate and related matters in connection with the Transactions and
reasonably acceptable to Provident.
(12) Notice that all applicable waiting periods with respect to the
Transactions shall have expired under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended ("HSR Act"), and neither the Federal Trade
Commission nor the Antitrust Division of the Department of Justice shall have
(i) required any party to divest itself of any assets in order to consummate
such Transactions, or (ii) taken any actions to prohibit the consummation of
such Transactions.
(13) All other agreements, certificates, instruments, financial
statement certifications, opinions of counsel and documents reasonably requested
by Provident in order to fully consummate the Transactions and carry out the
purposes and intent of this Agreement and the Plan.
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(14) Audited financial statements of each of HealthAxis and
Insurdata Inc. as of December 31, 1999.
10.3 Provident's and Newco's Obligations at Closing. At the Closing,
HealthAxis shall have received the following:
(1) The Articles of Merger duly executed by Newco.
(2) A certificate, dated as of the Closing Date, in form and
substance satisfactory to HealthAxis, signed by an officer of Provident,
certifying that (i) all representations and warranties made by Provident and/or
Newco in this Agreement are correct in all material respects as of the Closing
Date, as if made on and as of the Closing Date, except for changes contemplated
or permitted by this Agreement, (ii) all of the terms and conditions of this
Agreement to be satisfied or performed by Provident and/or Newco on or before
the Closing Date have been substantially satisfied or performed, and (iii) there
has not been any material adverse change or material casualty loss affecting
Provident, or its business, Assets or financial condition, between the date of
this Agreement and the Closing Date, and there has not been any material adverse
change in Provident's financial performance between the date of this Agreement
and the Closing Date.
(3) Good standing certificates for each of Provident and Newco,
dated no earlier than ten (10) days before the Closing Date, from the
Commonwealth of Pennsylvania.
(4) Copies of the resolutions duly adopted by the board of
directors of Provident and by the board of directors and the sole shareholder of
Newco, authorizing Provident and Newco, respectively, to execute, deliver and
perform this Agreement and the Plan and to consummate the Transactions,
certified by an officer of Provident or Newco, respectively, as in full force
and effect, without modification or rescission, on and as of the Closing Date.
(5) A certificate of Secretary of each of Provident and Newco as to
the incumbency and signatures of the officers of Provident and Newco executing
this Agreement.
(6) The signed copies of all Consents listed on Schedule 4.2.
(7) The legal opinion of tax counsel described in Section 8.9.
(8) A legal opinion of Butera, Beausang, Cohen and Brennan,
Professional Corporation, as to various corporate and related matters in
connection with the Transactions and reasonably acceptable to HealthAxis.
(9) Notice that all applicable waiting periods with respect to the
Transactions shall have expired under the HSR Act, and neither the Federal Trade
Commission nor the Antitrust Division of the Department of Justice shall have
(i) required any party to divest itself of any assets in order to consummate
such Transactions, or (ii) taken any actions to prohibit the consummation of
such Transactions.
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(10) All other agreements, certificates, instruments, opinions of
counsel and documents reasonably requested by HealthAxis in order to fully
consummate the Transactions and carry out the purposes and intent of this
Agreement and the Plan.
(11) Audited financial statements of Provident as of December 31,
1999.
SECTION 11: CERTAIN OBLIGATIONS OF PROVIDENT AND THE
SURVIVING CORPORATION AFTER CLOSING
11.1 Final Tax Returns. Newco shall timely prepare and file all
federal, state and other income tax returns required to be filed by HealthAxis
or its subsidiaries for the period from January 1, 2000 through the Closing
Date, and Provident shall fully cooperate with the Newco Corporation with
respect thereto.
11.2 Delivery of Certificates. As soon as practicable, Provident shall
deliver to the HealthAxis Shareholders certificates representing the shares of
Provident Common Stock to which the HealthAxis Shareholders are entitled in
accordance with Section 2 and the Plan.
SECTION 12: OTHER PROVISIONS
12.1 Survival. The covenants, agreements, representations and
warranties of the parties hereto contained in this Agreement shall not survive
the Closing; provided that the covenants and agreements that, by their terms,
are to have effect or be performed after the Closing Date shall survive in
accordance with their terms.
12.2 Termination. At any time before the Closing, whether or not the
Merger has been approved by HealthAxis' Shareholders or Provident's
Shareholders, this Agreement may be terminated and the Merger abandoned in
accordance with any of the following methods:
(1) By the mutual written consents of Provident and HealthAxis,
authorized by their respective boards of directors.
(2) By written notice from Provident to HealthAxis, or from
HealthAxis to Provident, if it becomes certain (for all practical purposes) that
any of the conditions to the closing obligations of the party giving such notice
cannot be satisfied on or before July 31, 2000, for a reason other than such
party's default, and such party is not willing to waive the satisfaction of such
condition.
(3) By written notice from Provident to HealthAxis, or from
HealthAxis to Provident, if the Closing does not occur on or before July 31,
2000 for any reason other than a breach of this Agreement by the party giving
such notice.
12.3 Publicity. Without the prior written consent of Provident,
HealthAxis shall not make any public announcement regarding the Transactions,
nor shall it in any public manner disseminate any information regarding
HealthAxis, Provident, the Merger or the other Transactions. Unless required by
Law or stock exchange regulation, in the opinion of Provident's counsel, neither
Provident nor Newco shall make any public announcement regarding the
Transactions without first consulting with HealthAxis. With respect to any
announcement that any of the parties is required by Law or stock exchange
regulation to issue, such
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party shall, to the extent possible under the circumstances, review the
necessity for the contents of the announcement with the other party before
issuing the announcement.
12.4 Fees and Expenses. Provident shall pay all of the fees and
expenses incurred by it and/or Newco and HealthAxis shall pay all of the fees
and expenses incurred by it in negotiating and preparing this Agreement and the
Plan (and all other contracts and documents executed in connection herewith or
therewith) and in consummating the Transactions.
12.5 Notices. All notices, consents or other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given when delivered personally or one business day
after being sent by a nationally recognized overnight delivery service, postage
or delivery charges prepaid. Notices may also be given by prepaid facsimile and
shall be effective on the date transmitted if confirmed telephonically
immediately thereafter and within 48 hours thereafter by a signed original sent
in the manner provided in the preceding sentence. Notices to HealthAxis shall be
sent to HealthAxis' address stated on page one of this Agreement to the
attention of its president. Notices to Provident and/or Newco shall be sent to
Provident's address stated on page one of this Agreement to the attention of its
General Counsel, with a copy sent simultaneously to the same address to the
attention of its Chief Financial Officer. Any party may change its address for
notice and the address to which copies must be sent by giving notice of the new
addresses to the other parties in accordance with this Section 12.5, provided
that any such change of address notice shall not be effective unless and until
received.
12.6 Interpretation of Representations. Each representation and
warranty made in this Agreement or pursuant hereto is independent of all other
representations and warranties made by the same parties, whether or not covering
related or similar matters, and must be independently and separately satisfied.
Exceptions or qualifications to any such representation or warranty shall not be
construed as exceptions or qualifications to any other representation or
warranty.
12.7 Reliance by Provident and Newco. Notwithstanding the right of
Provident and Newco to investigate the businesses, Assets and financial
condition of the Acquired Companies, and notwithstanding any knowledge
determined or determinable by Provident and Newco as a result of such
investigation, Provident and Newco have the unqualified right to rely upon, and
have relied upon, each of the representations and warranties made by HealthAxis
in this Agreement or pursuant hereto.
12.8 Reliance by HealthAxis. Notwithstanding the right of HealthAxis to
investigate the businesses, Assets and financial condition of Provident and
Newco, and notwithstanding any knowledge determined or determinable by
HealthAxis as a result of such investigation, HealthAxis has the unqualified
right to rely upon, and has relied upon, each of the representations and
warranties made by Provident and Newco in this Agreement or pursuant hereto.
12.9 Entire Understanding. This Agreement, together with the Exhibits
and Schedules hereto, and the Plan state the entire understanding among the
parties with respect to the subject matter hereof, and supersede all prior oral
and written communications and agreements, and all contemporaneous oral
communications and agreements, with respect to the subject matter hereof,
including without limitation all confidentiality letter agreements and letters
of intent previously entered into among some or all of the parties hereto. No
amendment or modification of this Agreement shall be effective unless in writing
and signed by the party against whom enforcement is sought.
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12.10 Parties in Interest. This Agreement shall bind, benefit, and be
enforceable by and against HealthAxis, Provident and Newco and their respective
successors and assigns. No party shall in any manner assign any of its rights or
obligations under this Agreement without the express prior written consent of
the other parties.
12.11 Waivers. Except as otherwise expressly provided herein, no waiver
with respect to this Agreement shall be enforceable unless in writing and signed
by the party against whom enforcement is sought. Except as otherwise expressly
provided herein, no failure to exercise, delay in exercising, or single or
partial exercise of any right, power or remedy by any party, and no course of
dealing between or among any of the parties, shall constitute a waiver of, or
shall preclude any other or further exercise of, any right, power or remedy.
12.12 Severability. If any provision of this Agreement is construed to
be invalid, illegal or unenforceable, then the remaining provisions hereof shall
not be affected thereby and shall be enforceable without regard thereto.
12.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original
hereof, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one counterpart hereof.
12.14 Section Headings. Section and subsection headings in this
Agreement are for convenience of reference only, do not constitute a part of
this Agreement, and shall not affect its interpretation.
12.15 References. All words used in this Agreement shall be construed
to be of such number and gender as the context requires or permits.
12.16 Controlling Law. THIS AGREEMENT IS MADE UNDER, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY THEREIN,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
12.17 Jurisdiction and Process. In any action between or among any of
the parties, whether arising out of this Agreement or otherwise, (a) each of the
parties irrevocably consents to the exclusive jurisdiction and venue of the
federal and state courts located in the Commonwealth of Pennsylvania, (b) if any
such action is commenced in a state court, then, subject to applicable law, no
party shall object to the removal of such action to any federal court located in
the Commonwealth of Pennsylvania, (c) each of the parties irrevocably waives the
right to trial by jury, and (d) each of the parties irrevocably consents to
service of process by first class certified mail, return receipt requested,
postage prepaid, to the address at which such party is to receive notice in
accordance with Section 12.5, and the prevailing parties shall be entitled to
recover their reasonable attorneys' fees and court costs from the other parties.
12.18 No Third-Party Beneficiaries. No provision of this Agreement or
the Plan is intended to or shall be construed to grant or confer any right to
enforce this Agreement or the Plan, or any remedy for breach of this Agreement
or the Plan, to or upon any Person other than the parties hereto, including, but
not
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limited to, any customer, prospect, supplier, employee, contractor, salesman,
agent or representative of any of the Acquired Companies.
12.19 Nature of Transactions. The parties intend that the Merger shall
constitute a purchase under GAAP and a tax-free reorganization under the
Internal Revenue Code of 1986, as amended.
12.20 Bankruptcy Qualification. Each representation or warranty made in
or pursuant to this Agreement regarding the enforceability of any contract shall
be qualified to the extent that such enforceability may be effected by
bankruptcy, insolvency and other similar laws or equitable principles (but not
those concerning fraudulent conveyance) generally affecting creditors' rights
and remedies.
12.21 Construction. The parties hereto agree that any rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not be applied in the construction or interpretation of
this Agreement or any agreements delivered in connection with the Transactions.
[Signatures Appear on Next Page]
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Witness the due execution and delivery hereof as of the date first
stated above.
HEALTHAXIS.COM, INC. PROVIDENT AMERICAN CORPORATION
By: /s/ Michael Ashker By: /s/ Alvin H. Clemens
-------------------------------- ------------------------------
Name: Michael Ashker Name: Alvin H. Clemens
------------------------------- ----------------------------
Title: Chief Executive Officer Title: Chairman
------------------------------- ----------------------------
HEALTHAXIS ACQUISITION CORP.
By: /s/ Alvin H. Clemens
-------------------------------
Name: Alvin H. Clemens
-----------------------------
Title: Chairman
-----------------------------
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HealthAxis Affiliates
Schedule A
MICHAEL ASHKER
ALVIN H. CLEMENS
HENRY G. HAGER
EDWARD W. LeBARON, JR.
ANTHONY R. VERDI
RONALD L. JENSEN
GREGORY T. MUTZ
ANDREW FELDER
DENNIS B. MALONEY
ELAINE DEL ROSSI
MICHAEL BEAUSANG
MICHAEL G. HANKINSON
UICI
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Appendix A
Exhibit A
Agreement and Plan of Merger
Provided as Appendix B to the Joint Proxy Statement/ Prospectus
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Exhibit B
SHAREHOLDERS' AGREEMENT
THIS SHAREHOLDERS' AGREEMENT (this "Agreement"), dated as of ________,
2000, is by and among Provident American Corporation, a Pennsylvania corporation
(the "Company"), and the Persons (as defined herein) set forth on the signature
pages hereto.
RECITALS
WHEREAS, the Company, HealthAxis Acquisition Corp., a Pennsylvania
corporation ("Newco"), HealthAxis.com Inc., a Pennsylvania corporation
("HealthAxis"), and UICI, a Delaware corporation ("UICI"), have entered into an
Agreement and Plan of Merger, dated as of January 26, 2000 (the "Merger
Agreement");
WHEREAS, pursuant to the Merger Agreement, it is contemplated that
certain of the Holders (as hereinafter defined) will acquire shares of the
Company's common stock, no par value (the "Common Stock");
WHEREAS, it is a condition to the consummation of the transactions
contemplated by the Merger Agreement that the parties hereto enter into this
Agreement;
WHEREAS, in consideration of the execution and delivery of this
Agreement by the Company, UICI is agreeing to terminate that certain
Shareholders' Agreement dated as of January 7, 2000 by and among HealthAxis, the
Company, UICI and the other parties thereto; and
WHEREAS, the Holders and the Company wish to record their understanding
regarding certain matters relating to the management of the Company and certain
other matters.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements set forth herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, the parties hereto agree as follows:
SECTION 1. Definitions. In addition to the capitalized terms defined
elsewhere in this Agreement, the following capitalized terms shall have the
following meanings when used in this Agreement:
"Beneficial Owner" means any Person deemed to be a "beneficial
owner" of a security as defined in Rule 13d-3 under the Exchange Act. The terms
"Beneficially Own" and "Beneficial Ownership" have correlative meanings.
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"Board" means the Board of Directors of the Company.
"Commission" means the Securities and Exchange Commission (or
any other governmental body succeeding to the functions of the Securities and
Exchange Commission).
"Common Stock" has the meaning ascribed to such term in the
Recitals.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fully Diluted Basis" with respect to any security, means all
of the issued shares of such security and includes, without limitation, (i) all
of the outstanding shares of such security (except shares then held by or for
the account of the issuer or its wholly owned subsidiaries), (ii) any and all
shares of such security issuable upon conversion of securities convertible into
such security, whether or not convertible at such time, and (iii) any and all
shares of such security issuable upon exercise of other exercisable rights to
acquire such security, including options, warrants and participation rights,
whether or not exercisable at such time.
"Holder" means any holder of Securities who is a party to this
Agreement or who is a successor or assign or subsequent holder as contemplated
by Section 13.
"Nominee" has the meaning ascribed to such term in Section
2(a).
"Person" means any individual, corporation, proprietorship,
firm, partnership, limited partnership, limited liability company, trust,
association or other entity.
"Securities" means Common Stock or shares of capital stock or
other securities, directly or indirectly, exercisable for or convertible into
Common Stock; provided, however, that Securities shall not include any
securities which have been sold (i) pursuant to a registration statement
declared effective by the Commission or (ii) pursuant to Rule 144 promulgated by
the Commission under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
SECTION 2. Board of Directors; Management of the Company.
(a) The Holders and the Company agree that the Board shall consist of
up to nine (9) members, and the parties hereto shall have the right to nominate
a number of persons (each such person, a "Nominee") to serve as directors on the
Board as follows: (i) UICI shall be entitled to nominate three (3) Nominees
(Ronald L. Jensen, Gregory T. Mutz and Dennis B. Maloney being the initial UICI
Nominees); (ii) the Company (acting by the vote of a majority of the members of
the Board that are not nominated by UICI pursuant to clause (i) or agreed to by
UICI pursuant to clause (iii)) shall be entitled to nominate three (3) Nominees
(Michael Ashker, Alvin H. Clemens and
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Edward W. LaBaron, Jr. being the initial Provident Nominees); and (iii) UICI and
the Company (acting by the vote of a majority of the members of the Board that
are not nominated by UICI pursuant to clause (i) or agreed to by UICI pursuant
to clause (iii)) shall together agree mutually to nominate three (3) Nominees
(with Henry Hager being the initial Nominee agreed to by UICI and the Company).
The Company and each Holder agrees to take all actions necessary so as to cause
the Nominees to be elected to the Board including, without limitation, the
voting of its shares of stock of the Company and causing the vote of all shares
of stock of the Company Beneficially Owned by such Holder, the execution of
written consents, the calling of special meetings, the removal of directors, the
filling of vacancies on the Board, and the waiving of notice and the attending
of meetings.
(b) No party shall nominate any person to the Board if: (i) such
individual is employed by, or has investment interests, directly or indirectly,
in, any material competitor of the Company (unless such investment constitutes
less than two percent (2%) of the equity ownership in a public company and at
the time of purchase has a fair market value of less than $50,000); (ii) such
individual is not reasonably experienced in business, financial, insurance or
e-commerce industry matters; (iii) such individual has been convicted of, or has
pled nolo contendere to, a felony; (iv) the election of such individual would
violate any law; or (v) any event required to be disclosed pursuant to Item
401(f) of Regulation S-K of the Exchange Act has occurred with respect to such
individual.
(c) A director elected pursuant to this Section 2 shall serve until (i)
his or her term expires as provided in the Company's articles of incorporation
and bylaws, (ii) he or she is removed pursuant to Section (2)(d) or (iii) the
party who nominated such director no longer has the right to nominate a
director, in which case the party so elected shall immediately resign and the
size of the Board shall be decreased accordingly.
(d) In the event of the death, disability, removal or resignation of
any director designated pursuant to this Section 2, the party that designated
such director shall notify the Company and the other parties hereto, within 30
days after such death, disability, removal or resignation, of a successor
director who shall either (i) be appointed by the remaining directors then in
office to serve the unexpired term of such director or (ii) be elected by the
shareholders pursuant to the Company's bylaws. Each of the Company and UICI
agrees to take all actions necessary to elect any such successor Nominee in the
same manner as discussed in Section 2(a).
(e) The Board may create committees to assist in governing the Company,
however, no executive committee may be formed without the consent of all of the
members of the Board that are Nominees of either UICI or of the Company.
(f) So long as this Section 2 remains in effect, the Board nomination
rights of UICI hereunder shall supersede any rights UICI may have to nominate
Board members under any other agreement. After such time as UICI is no longer
entitled under this Section 2 to nominate persons to serve on the Board, the
rights of UICI under any such agreement to nominate Board members shall be
reinstated.
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(g) The rights of UICI under this Section 2 shall continue in effect
unless and until UICI Beneficially Owns less than 20% of the Common Stock of the
Company on a Fully Diluted Basis.
SECTION 3. Legend. The Company shall stamp or imprint each certificate
or other instrument representing Securities held by a Holder bound by any terms
of this Agreement, throughout the term of this Agreement, with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
PROVISIONS, INCLUDING, AMONG OTHERS, RESTRICTIONS ON VOTING AND
TRANSFER, SET FORTH IN A SHAREHOLDERS' AGREEMENT DATED AS OF
_______________ 2000, AS IT MAY BE AMENDED, MODIFIED, SUPPLEMENTED OR
RESTATED FROM TIME TO TIME, A COPY OF WHICH IS AVAILABLE AT THE
PRINCIPAL OFFICE OF THE COMPANY."
SECTION 4. Approval Rights. In addition to all other rights set forth
in this Agreement, UICI shall, in its sole and absolute discretion, have the
right to approve, alter or prevent the calculation of the amount and the
amortization period of all goodwill and other intangibles recorded by the
Company in connection with the merger of Insurdata Incorporated, a Delaware
corporation, with and into HealthAxis, provided such calculation shall be
consistent with generally accepted accounting principles and approved by the
Company's independent auditors.
SECTION 5. Transfer Option.
(a) Transfer Option. Subject to the terms and conditions in this
Section 5, the Company (acting by the vote of a majority of the members of the
Board that are not nominated by UICI pursuant to clause (i) of Section 2(a) or
agreed to by UICI pursuant to clause (iii) of Section 2(a)) shall have the right
(the "Transfer Option") to cause UICI to transfer to one or more third parties
unaffiliated with UICI, up to 1,414,385 shares of Common Stock owned by UICI at
a per share price equal to the greater of (i) $18.63 and (ii) the Closing Price
(as hereinafter defined). The Transfer Option shall be exercisable one time only
with respect to all such shares of Common Stock and may be exercised at any time
following the date hereof and ending on the first to occur of the following
events: (i) on January 7, 2003; (ii) the ninetieth (90th) day following the date
on which the Closing Price (as hereinafter defined) of shares of Common Stock
shall have been at least $23.96 per share for a period of sixty (60) consecutive
trading days; and (iii) the ninetieth (90th) day following the first date on
which UICI Beneficially Owns less than 40% of the shares of Common Stock on a
Fully Diluted Basis. For purposes hereof, "Closing Price" shall mean the
reported last sale price of a share of Common Stock, on a given day, regular
way, or, in case no such sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in each case on the New York
Stock Exchange Composite Tape, or, if the security is not listed or admitted to
trading on such
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exchange, on the American Stock Exchange Composite Tape, or, if the security is
not listed or admitted to trading on such exchange, the principal national
securities exchange on which the security is listed or admitted to trading, or,
if the security is not listed or admitted to trading on any national securities
exchange, the closing sales price, or, if there is no closing sales price, the
average of the closing bid and asked prices, in the over-the-counter market as
reported by the National Association of Securities Dealers Automated Quotation
System, or, if not so reported, as reported by the National Quotation Bureau,
Incorporated, or any successor thereof, or, if not so reported, the average of
the closing bid and asked prices as furnished by any member of the National
Association of Securities Dealers, Inc. selected from time to time by the
Company for that purpose or, if no such prices are furnished, the fair market
value of the Common Stock as determined in good faith by the board of directors
of the Company, which determination shall be based upon recent issuances or
current offerings pursuant to bona fide private offerings of the same class of
security by the Company; provided, however, that any determination of the
"Closing Price" of any security hereunder shall be based on the assumption that
such security is freely transferable without registration under the Securities
Act.
(b) Exercise of Transfer Option. The Company may exercise its rights
under Section 5(a) by giving UICI written notice of its exercise of the Transfer
Option prior to the expiration of the Transfer Option. Such notice shall state
that the Company intends to cause UICI to transfer such shares to one or more
third parties unaffiliated with UICI. Upon the closing of the transactions
contemplated by an exercise of the Transfer Option, UICI shall surrender its
shares of Common Stock, duly endorsed for transfer, to the Company or the
Persons purchasing such securities, in exchange for the net proceeds from such
transfer. The closing of the transactions upon the exercise of the Transfer
Option shall occur within ninety (90) days of the exercise thereof by the
Company.
(c) Transfer to Third Parties. Any exercise by the Company of its
Transfer Option in which the Company elects to cause UICI to transfer shares of
Common Stock to one or more Persons unaffiliated with UICI shall be governed by
the following terms. The Company may elect to cause the transfer of shares
pursuant to this Section 5(c) in a private placement, in which case the
provisions of Section 5(c)(i) shall apply, or may elect to cause the shares to
be sold in a public offering, in which case the provisions of Section 5(c)(ii)
shall apply.
(i) Private Placement. Upon any exercise of the Transfer
Option in accordance with this Section 8(c) as to which the Company has
elected to cause a transfer of shares in a private placement, the
Company shall, as expeditiously as possible:
(A) prepare a private placement memorandum, together
with such amendments and supplements thereto as may be
necessary to comply with the provisions of the Securities Act
with respect to the sale or other disposition of all shares of
Common Stock covered by such private placement memorandum;
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(B) use its reasonable efforts to perfect exemptions
for the shares of Common Stock covered by such private
placement memorandum under all applicable rules and
regulations of the Commission and such other securities or
blue sky laws of such jurisdictions as UICI shall request, and
do any and all other acts and things reasonably requested by
UICI to permit UICI to consummate the sale or other
disposition in such jurisdictions of such shares, except that
the Company shall not for any such purpose be required to
qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified or to file therein
any general consent to service of process;
(C) enter into and perform its obligations under a
private placement agency agreement, in usual and customary
form, with a placement agent acceptable to UICI, including,
without limitation, to obtain an opinion of counsel to the
Company in the usual and customary form for such private
placement; and
(D) notify UICI, at any time when a private placement
memorandum is required to be delivered under the applicable
law, of the happening of any event of which it has knowledge
as a result of which the private placement memorandum, as then
in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in
the light of the circumstances then existing.
(ii) Public Offering. Upon the exercise of the Transfer Option
in accordance with this Section 5(c) as to which the Company has
elected to cause the shares to be sold in a public offering, the
Company shall, as expeditiously as possible:
(A) prepare and file with the Commission a
registration statement with respect to such shares of Common
Stock and use its reasonable efforts to cause such
registration statement to become effective and remain
effective for as long as shall be necessary to complete the
distribution of the shares of Common Stock so registered;
(B) prepare and file with the Commission such
amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to
comply with the provisions of the Securities Act with respect
to the sale or other disposition of all securities covered by
such registration statement;
(C) furnish to UICI and any underwriters such numbers
of copies of a summary prospectus or other prospectus,
including a preliminary prospectus or any amendment or
supplement to any prospectus, in conformity with the
requirements of the Securities Act, and such other documents,
as UICI or the underwriters may reasonably request in order to
facilitate the public sale or other disposition of the
securities covered by such registration statement;
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(C) use its reasonable efforts to register and
qualify the Common Stock covered by such registration
statement under such other securities or blue sky laws of such
jurisdictions as UICI or the underwriters shall request, and
do any and all other acts and things reasonably requested by
UICI or the underwriters to assist them to consummate the
public sale or other disposition in such jurisdictions of the
Common Stock covered by the registration statement, except
that the Company shall not for any such purpose be required to
qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified or to file therein
any general consent to service of process;
(D) otherwise use its reasonable efforts to comply
with all applicable rules and regulations of the Commission,
and make available to its security holders, as soon as
reasonably practicable, an earnings statement covering the
period of at least twelve months, beginning with the first
fiscal quarter beginning after the effective date of the
registration statement, which earnings statement shall satisfy
the provisions of Section 11(a) of the Securities Act;
(E) use its reasonable efforts to list such Common
Stock on any securities exchange or interdealer quotation
system on which any shares of the Company are then listed, if
the listing or quotation of such securities is then permitted
under the rules of such exchange or interdealer quotation
system;
(F) enter into and perform its obligations under an
underwriting agreement, in usual and customary form, with the
managing underwriter or underwriters selected by UICI of such
underwritten offering, including, without limitation, to
obtain an opinion of counsel to the Company and a "comfort
letter" from the independent public accountants to the Company
in the usual and customary form for such underwritten
offering;
(G) notify UICI, at any time when a prospectus
relating thereto covered by such registration statement is
required to be delivered under the Securities Act, of the
happening of any event of which it has knowledge as a result
of which the prospectus included in such registration
statement, as then in effect, contains an untrue statement of
a material fact or omits to state a material fact required to
be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then
existing;
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(H) make the Company's executive officers available
to participate in "road show" presentations for such periods
and in such places as the underwriters may reasonably request
and make the Company's executive officers available at the
Company's principal executive offices to discuss the affairs
of the Company at times that may be mutually and reasonably
agreed upon; and
(I) upon the request of UICI, take any and all other
actions which may be reasonably necessary to complete the
registration and thereafter to complete the distribution of
the Common Stock so registered.
(iii) Expenses. All expenses of any offering pursuant to a
Transfer Option under this Section 5 shall be borne by the Company,
except that UICI shall bear the cost of a reasonable customary
underwriting commission or discount, brokerage commission or placement
fee in the event of a successful offering.
SECTION 6. Termination. If any Holder shall be in default of its
obligations hereunder and any such default shall continue for a period of 30
days after any other Holder or the Company has given written notice thereof to
such defaulting Holder, then the rights (but not the obligations) under this
Agreement of such defaulting party shall terminate. This Agreement shall
terminate upon the written agreement of each of the parties hereto.
SECTION 7. Beneficial Ownership. Each of the Holders Beneficially Own
that number of shares of Common Stock on a Fully Diluted Basis set forth
opposite their respective names on Exhibit A hereto. Each Holder shall promptly
hereafter notify the Company of any changes to its respective Beneficial
Ownership of Common Stock. The Company shall be entitled to rely upon the
amounts set forth in Exhibit A or such notices without incurring any liability
to any other party hereunder. Each Holder shall respond promptly to any request
made by the Company to provide or confirm such Holder's Beneficial Ownership of
Common Stock.
SECTION 8. Acknowledgments. Each of the parties hereto acknowledges
that the restrictions, prohibitions and other provisions hereof are reasonable,
fair and equitable in scope, terms and duration, are necessary to protect the
legitimate business interests of each of the other parties hereto, and are a
material inducement to such party to enter into the transactions contemplated by
this Agreement.
SECTION 9. Expenses. Except as otherwise specifically provided in this
Agreement, each party hereto shall bear its own costs and expenses with respect
to the transactions contemplated hereby.
SECTION 10. Remedies. Each of the parties to this Agreement shall be
entitled to enforce its rights under this Agreement specifically, to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights existing in its favor. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of competent jurisdiction for specific performance or
injunctive relief in order to enforce or prevent any violations of the
provisions of this Agreement. The remedies provided in this Agreement shall be
cumulative and shall not preclude the assertion or exercise of any other rights
or remedies available by law, in equity or otherwise.
A-39
SECTION 11. Notices. Any notice, request, instruction or other document
to be given hereunder shall be in writing and shall be deemed to have been given
(a) when received if given in person or by courier or a courier service, (b) on
the date of transmission if sent by facsimile or other wire transmission or (c)
three business days after being deposited in the U.S. mail, certified or
registered mail, postage prepaid, addressed as specified with respect to such
Holder in Exhibit A or to such other individual or address as a party hereto may
designate for itself by notice given as herein provided.
SECTION 12. Amendments and Waivers. The provisions of this Agreement
may be amended or waived only upon the written agreement of each of the parties
hereto; provided, however, that amendments to Sections 2 and 5 may be made upon
the written agreement of both UICI and the Company and no other party. Any
waiver, permit, consent or approval of any kind or character of any provision or
condition of this Agreement must be made in writing and shall be effective only
to the extent specifically set forth in writing. Any amendment or waiver
effected in accordance with this Section 12 shall be binding upon the Company
and each Holder of Securities. Any determination by the Company pursuant to this
Section 12 shall be made by the Company acting by the vote of a majority of the
members of the Board that are not nominated by UICI pursuant to clause (i) of
Section 2(a) or agreed to by UICI pursuant to clause (iii) of Section 2(a).
SECTION 13. Successors and Assigns. All covenants and agreements in
this Agreement by or on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective successors and assigns of the parties hereto,
and each transferee of all or any portion of the Securities held by the parties
hereto, whether so expressed or not. Each Permitted Transferee of all or any
portion of the Securities held by any of the parties hereto shall execute and
deliver a written assumption agreement to the Company agreeing to be bound by
the provisions of this Agreement, in form and substance reasonably acceptable to
the Company. Notwithstanding the foregoing, except as specifically provided in
this Agreement, no assignment of any rights or obligations under this Agreement
may be made by any party.
SECTION 14. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, and the remainder of this
Agreement shall remain operative and in full force and effect. The parties shall
negotiate in good faith a replacement clause or provision as consistent with the
ineffective clause or provision as is practicable under law.
A-40
SECTION 15. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 16. Entire Understanding. This Agreement sets forth the entire
agreement and understanding of the parties hereto with respect to the matters
set forth herein and supersedes any and all prior agreements, arrangements and
understandings among the parties.
SECTION 17. Execution in Counterparts. This Agreement may be executed
in any number of counterparts, each of which when so executed and delivered
shall be deemed an original, and such counterparts together shall constitute one
instrument. Transmission by facsimile of an executed counterpart of this
Agreement shall constitute due and sufficient delivery of this Agreement.
SECTION 18. Interpretation. The headings preceding the Sections
included in this Agreement and the headings to Exhibits and Schedules attached
to this Agreement are for convenience only and shall not be deemed part of this
Agreement or be given any effect in interpreting this Agreement. The use of the
masculine, feminine or neuter gender herein shall not limit any provision of
this Agreement. The use of the terms "including" or "include" shall in all cases
herein mean "including, without limitation" or "include, without limitation",
respectively. Underscored references to Sections or Schedules shall refer to
those portions of this Agreement.
SECTION 19. No Third Party Beneficiaries. This Agreement is solely for
the benefit of the parties hereto and no provision of this Agreement shall be
deemed to confer upon other third parties any remedy, claim, liability,
reimbursement, cause of action or other right.
SECTION 20. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE
LAW, THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 21. No Presumption Against Drafter. Each of the parties hereto
has jointly participated in the negotiation and drafting of this Agreement. In
the event of any ambiguity or a question of intent or interpretation arises,
this Agreement shall be construed as if drafted jointly by each of the parties
hereto and no presumptions or burdens of proof shall arise favoring any party by
virtue of the authorship of any of the provisions of this Agreement.
[Remainder of page intentionally left blank]
A-41
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.
------------------------------------------------------------------------------------------------------------
Number of Shares
of Common Stock Percentage of Shares of
Name and Beneficially Owned Common Stock Outstanding
Notice Address on a Fully Diluted Basis on a Fully Diluted Basis
------------------------------------------------------------------------------------------------------------
Provident American Corporation
2500 DeKalb Pike
Norristown, Pennsylvania 19404
Attn: Alvin H. Clemens
Telephone: (610) 279-2500
Facsimile: (610) 279-0414
With a copy to:
Butera Beausang Cohen & Brennan
630 Freedom Business Center
King of Prussia, Pennsylvania 19406
Attn: Michael F. Beausang
Telephone: (610) 265-0800
Facsimile: (610) 265-7205
------------------------------------------------------------------------------------------------------------
UICI
4001 McEwen Boulevard
Suite 200
Dallas, Texas 75244
Attn: Gregory T. Mutz
Telephone: (972)392-6700
Facsimile: (972)392-6717
With a copy to:
Mayer, Brown & Platt
190 S. LaSalle Street
Chicago, Illinois 60603
Attn: Edward J. Schneidman
Telephone: (312) 701-7348
Facsimile: (312) 701-7711
------------------------------------------------------------------------------------------------------------
Michael Ashker
c/o HealthAxis.com, Inc.
2500 DeKalb Pike
East Norriton, PA 19404
Telephone: (610) 279-3561
Facsimile: (610) 279-4498
With a copy to:
Michael G. Hankinson
c/o HealthAxis.com, Inc.
2500 DeKalb Pike
East Norriton, PA 19404
Telephone: (610) 279-3561
Facsimile: (610) 279-4498
------------------------------------------------------------------------------------------------------------
Alvin H. Clemens
c/o HealthAxis Inc.
2500 DeKalb Pike
East Norriton, PA 19404
Telephone: (610) 279-3561
Facsimile: (610) 279-4498
With a copy to:
Butera Beausang Cohen & Brennan
630 Freedom Business Center
King of Prussia, PA 19406
Attn: Michael F. Beausang
Telephone: (610) 265-0800
Facsimile: (610) 265-7205
------------------------------------------------------------------------------------------------------------
A-43
Exhibit C
January 26, 2000
Provident American Corporation
2500 DeKalb Pike
Norristown, PA 19404
Gentlemen:
This letter is being furnished in accordance with Section 9.1 of the
Agreement and Plan of Reorganization dated January 26, 2000 ("Reorganization
Agreement") by and among HealthAxis.com, Inc., a Pennsylvania corporation
("HealthAxis"), Provident American Corporation, a Pennsylvania corporation
("Provident") and HealthAxis Acquisition Corp., a Pennsylvania corporation
("Newco"), and related Agreement and Plan of Merger dated January 26, 2000
("Merger Agreement") by and among HealthAxis, Provident and Newco, pursuant to
which (i) HealthAxis will be merged with and into Newco with Newco surviving the
merger as a wholly-owned subsidiary of Provident (the "Merger"), and (ii) the
shareholders of HealthAxis will receive for each share of common stock, no par
value per share, of HealthAxis ("HealthAxis Common Stock") issued and
outstanding immediately before the Effective Date shares of common stock of
Provident, $0.10 par value per share ("Provident Stock"), in accordance with the
Merger Agreement. Any shares of Provident Stock that I receive, directly or
indirectly, pursuant to the Merger are referred to herein as the "New Shares".
Capitalized terms used in this letter have the meaning ascribed to them in the
Reorganization Agreement and the Merger Agreement unless otherwise stated
herein.
In connection therewith, and intending to be legally bound, I hereby
represent, warrant, covenant and agree as follows:
1. I own beneficially or of record, in the capacities indicated, the
number of shares of HealthAxis Stock set forth on Appendix A attached hereto
(the "Existing Shares"). Any shares of HealthAxis Stock that I acquire, directly
or indirectly, after the date hereof shall be deemed Existing Shares for the
purposes of this Agreement.
2. I have been advised that I may be deemed to be an "affiliate" of
HealthAxis, as that term is defined for purposes of Rule 145 of the Rules and
Regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act").
3. I shall not make any sale, transfer or other disposition of the
Provident Stock in violation of the Act or the Rules and Regulations.
A-44
4. I have read carefully this letter and discussed applicable
limitations upon my ability to sell, transfer or otherwise dispose of the New
Shares to the extent I believed necessary with my counsel or counsel for
HealthAxis.
5. I have been advised that the issuance of the New Shares to me
pursuant to the Merger will be registered with the Commission under the Act on a
Registration Statement on Form S-4. However, I have also been advised that,
since at the time the Merger will be submitted for a vote of the stockholders of
HealthAxis and Provident, I may be deemed to have been an affiliate of
HealthAxis and that any subsequent distribution by me of the New Shares has not
been registered under the Act, I may not sell, transfer or otherwise dispose of
the New Shares issued to me in the Merger unless (i) such sale, transfer or
other disposition has been registered under the Act, (ii) such sale, transfer or
other disposition is made in conformity with the volume and other limitations of
Rule 145 promulgated by the Commission under the Act or (iii) in the opinion of
counsel reasonably acceptable to Provident, such sale, transfer or other
disposition is otherwise exempt from registration under the Act.
6. I understand that Provident may give stop transfer instructions to
its transfer agent with respect to the New Shares and that Provident reserves
the right to place on the certificates for the New Shares issued to me, or any
substitutions therefor, a legend stating in substance:
"The securities represented by this certificate have been
issued in a transaction to which Rule 145 promulgated under
the Securities Act of 1933 applies and may only be sold or
otherwise transferred in compliance with the requirements of
Rule 145 or pursuant to a registration statement under said
Act or an exemption from such registration."
7. Execution of this letter should not be considered an admission that
I am an affiliate of HealthAxis as described in paragraph 2 of this letter, nor
as a waiver of any rights I may have to object to any claim that I am such an
affiliate on or after the date of this letter.
8. This Agreement shall be binding on me, my heirs and my personal
representatives and shall be enforceable by Provident and its respective
successors and assigns. This Agreement may not be amended, supplemented, or
waived or terminated except by a written instrument executed by me and
Provident. THIS AGREEMENT IS MADE UNDER, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED SOLELY THEREIN, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.
9. I hereby irrevocably consent to the exclusive jurisdiction and venue
of the federal and state courts in Philadelphia, Pennsylvania and irrevocably
consent to service of process by first class mail, return receipt requested,
postage pre-paid, to my address set forth below. The prevailing party in any
action shall be entitled to recover reasonable legal fees and costs from the
other party.
10. If any provision of this Agreement is construed to be invalid,
illegal or unenforceable as to any party or generally, then that provision shall
be enforceable by the other parties and the remaining provisions hereof shall
not be affected thereby and shall be enforceable without regard thereto.
A-45
11. I have carefully read this letter, the Reorganization Agreement,
and the Merger Agreement, and, to the extent I felt necessary, discussed with my
counsel or counsel for Provident the requirements of this letter and its impact
upon my ability to acquire or dispose of, as the case may be, the New Shares or
shares of Provident Stock or HealthAxis Stock or securities convertible into
such shares.
Very truly yours,
(Signature)
Print Name
Street Address
City, State and Zip Code
A-46
APPENDIX A
Number and Type of HealthAxis Stock Name or Capacity in which Owned
Owned Beneficially or of Record Beneficially or of Record
----------------------------------- --------------------------------
A-47
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF REORGANIZATION
PARTIES: HEALTHAXIS.COM, INC.
a Pennsylvania corporation ("HealthAxis")
2500 DeKalb Pike
East Norriton, PA 19401
HEALTHAXIS INC.
(f/k/a PROVIDENT AMERICAN CORPORATION)
a Pennsylvania corporation ("Provident")
2500 DeKalb Pike
Norristown, PA 19404
HEALTHAXIS ACQUISITION CORP.
a Pennsylvania corporation ("Newco")
2500 DeKalb Pike
East Norriton, PA 19401
DATE: As of March 27, 2000
BACKGROUND: Newco is a wholly-owned subsidiary of Provident. HealthAxis,
Provident and Newco have entered into an Agreement and Plan of Reorganization
dated January 26, 2000 (the "Reorganization Agreement"), and HealthAxis,
Provident and Newco have entered into a related Agreement and Plan of Merger
dated January 26, 2000 (the "Plan") that contemplate the consolidation and
merger of HealthAxis with and into Newco (the "Merger") in accordance with the
provisions of the Reorganization Agreement and the provisions of the Plan.
The parties desire to amend the Reorganization Agreement by entering
into this Amendment No. 1 (the "Amendment").
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and subject to the satisfaction of the terms and conditions set forth
herein and in the Reorganization Agreement and the Plan, the parties hereto,
intending to be legally bound, agree as follows:
1. Amendment to Section 8.5. Section 8.5 of the Reorganization
Agreement is amended and restated to read in its entirety as set forth below:
8.5 Board Seats. The following individuals shall have been
elected to the Board of Directors of Provident effective as of the Effective
Date of the Merger: Patrick McLaughlin, Gregory T. Mutz and Dennis B. Maloney.
2. Amendment and Restatement of Exhibit B. The shareholders agreement
attached as Exhibit B to the Reorganization Agreement is amended and restated to
read in its entirety as set forth in the form attached hereto as Appendix A.
3. Miscellaneous. Except as set forth in Section 1 and Section 2 of
this Amendment, the Plan and the Reorganization Agreement shall remain in full
force and effect in accordance with their respective terms. Capitalized terms
used in this Amendment and not defined herein shall have the meaning set forth
in the Plan or the Reorganization Agreement, as the case may be. This Amendment
is made under, and shall be construed in accordance, with the laws of the
Commonwealth of Pennsylvania applicable to agreements made and to be performed
solely therein, without giving affect to principles of conflicts of law. This
Amendment shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. This Amendment may be signed
in counterparts all of which when taken together shall constitute an original
agreement.
[balance of page intentionally left blank; signatures begin on next page]
A-48
WITNESS THE DUE EXECUTION AND DELIVERY HEREOF, INTENDING TO BE LEGALLY
BOUND HEREBY, AS OF THE DATE FIRST STATED ABOVE.
HEALTHAXIS INC. HEALTHAXIS ACQUISITION CORP.
(f/k/a Provident American Corp.)
PARTIES: HEALTHAXIS.COM, INC.
a Pennsylvania corporation ("HealthAxis")
2500 DeKalb Pike
East Norriton, PA 19401
Provident American Corporation
a Pennsylvania corporation ("Provident")
2500 DeKalb Pike
Norristown, PA 19404
HEALTHAXIS ACQUISITION CORP.
a Pennsylvania corporation ("Newco")
2500 DeKalb Pike
East Norriton, PA 19401
DATE: As of January 26, 1999
BACKGROUND: Newco is a wholly owned subsidiary of Provident. HealthAxis,
Provident and Newco have entered into an Agreement and Plan of Reorganization,
dated as of this date (the "Reorganization Agreement"), that contemplates the
consolidation and merger of HealthAxis with and into Newco (the "Merger") in
accordance with the provisions of the Reorganization Agreement and the
provisions of this Agreement and Plan of Merger (this "Plan").
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and subject to the satisfaction of the terms and conditions set forth
herein and in the Reorganization Agreement, the parties hereto, intending to be
legally bound, agree as follows:
1. Merger. On the Effective Date (as defined below), HealthAxis shall be
merged with and into Newco in accordance with the provisions of this Plan and in
compliance with the Pennsylvania Business Corporation Law ("BCL" or the
"Corporation Laws"), and the Merger shall have the effect provided for in the
Corporation Laws. Newco (sometimes referred to as the "Surviving Corporation")
shall be the surviving corporation of the Merger and shall continue to exist and
to be governed by the laws of the Commonwealth of Pennsylvania. The corporate
existence and identity of Newco, with its purposes and powers, shall continue
unaffected and unimpaired by the Merger, and Newco shall remain a wholly owned
subsidiary of Provident after the Effective Date. On the Effective Date, Newco
shall succeed to and be fully vested with the corporate existence and identity
of HealthAxis, and the separate corporate existence and identity of HealthAxis
shall cease.
B-1
2. Name. The name of the Surviving Corporation shall be HealthAxis.com,
Inc.
3. Charter. Immediately after the Merger, the Articles of Incorporation
of the Surviving Corporation shall be that of Newco immediately before the
Merger.
4. Bylaws. Immediately after the Merger, the Bylaws of the Surviving
Corporation shall be those of Newco immediately before the Merger.
5. Directors. Immediately after the Merger, the directors of the
Surviving Corporation shall be the following persons, who shall serve in
accordance with the Bylaws of the Surviving Corporation:
Michael Ashker
Alvin H. Clemens
Henry G. Hagar
Ronald L. Jensen
Edward W. LeBaron, Jr.
Gregory T. Mutz
Dennis B. Maloney
6. Officers. Immediately after the Merger, the officers of the
Surviving Corporation shall be the following persons, who shall serve in
accordance with the Bylaws of the Surviving Corporation:
Michael Ashker President and Chief Executive Officer
Alvin H. Clemens Chairman
Anthony R. Verdi Treasurer and Chief Financial Officer
Andrew Felder Executive Vice President -- Corporate
Development
Dennis B. Maloney Chief Operating Officer
Elaine del Rossi Senior Vice President -- Consumer Group
Michael G. Hankinson Secretary
7. Conversion into Provident Stock. Subject to the possible adjustment
described in Section 9 of this Plan, on the Effective Date, each share of common
stock, no par value per share, of HealthAxis ("HealthAxis Common Stock") issued
and outstanding immediately before the Effective Date (except for Dissenting
Shares, as defined in Section 14 of this Plan) shall, by virtue of the Merger
and without any action on the part of the holder thereof, be automatically
converted into the right to receive 1.127 shares (the "Exchange Ratio") of
common stock of Provident, $0.10 par value per share ("Provident Stock").
B-2
Prior to the Effective Date, all outstanding shares of HealthAxis Series
A Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C
Convertible Preferred Stock and Series D Preferred Stock (collectively,
"HealthAxis Convertible Preferred Stock") shall have been converted into
HealthAxis Common Stock in accordance with their terms.
8. Cancellation. On the Effective Date, all outstanding shares of
HealthAxis Common Stock owned by Provident or Newco or any subsidiary thereof
shall, by virtue of the Merger and without any action on the part of the holders
thereof, no longer be outstanding and shall be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such shares of
HealthAxis Common Stock shall thereafter cease to have any rights with respect
to such shares of HealthAxis Common Stock and no consideration shall be
delivered in exchange therefor.
9. Possible Adjustment due to Recapitalization. Subject to the
conditions in the Agreement and Plan of Reorganization if, between the date of
the Reorganization Agreement and the Effective Date, there is a change in the
number of issued and outstanding shares of Provident Stock resulting from (i) a
stock split, reverse stock split, stock dividend, reclassification, exchange of
shares or similar recapitalization, or (ii) purchases or awards of stock, or
similar transactions under Provident's stock option, purchase and award plans,
then the number of shares of Provident Stock into which the respective shares of
HealthAxis Common Stock are converted, and any other applicable amounts set
forth in this Plan, shall be appropriately adjusted. Subject to the conditions
in the Agreement and Plan of Reorganization, the Exchange Ratio set forth in
Section 7 and such other amounts shall not be adjusted as a result of any other
changes in the number of issued and outstanding shares of Provident Stock, such
as changes resulting from acquisitions or offerings or changes resulting from
exercises of employee stock options under Provident's stock option, purchase and
award plans.
10. No Fractional Shares. No fractional shares of Provident Stock shall
be issued as a result of the Merger. In lieu of the issuance of fractional
shares, the number of shares of Provident Stock to be issued to each shareholder
of HealthAxis in accordance with this Plan shall be rounded down to the nearest
whole number of shares of Provident Stock and any such shareholder who would
otherwise be entitled to receive a fraction of a share of Provident Stock (after
aggregating all fractional shares of Provident Stock issuable to such
shareholder) shall, in lieu of such fraction of a share and, upon surrender of
such shareholder's certificate(s) representing shares of HealthAxis Common
Stock, be paid in cash the dollar amount (rounded to the nearest whole cent),
without interest, determined by multiplying such fraction by the closing sale
price of a share of Provident Stock as quoted on the Nasdaq National Market on
the Effective Date.
11. Stock Options, Warrants and Other Rights. HealthAxis' 1998 Stock
Option Plan (the "Stock Plan") and all options to acquire shares of HealthAxis
Common Stock that are issued and outstanding under the Stock Plan immediately
before the Effective Date of which options to purchase 3,024,971 are outstanding
on the date hereof, 300,000 shares of Common Stock issuable upon the exercise of
B-3
warrants granted to AOL; 63,000 shares of Common Stock issuable upon the
exercise of the warrants granted to ING Baring Furman Selz LLC; up to 150,000
shares of Common Stock issuable upon the exercise of warrants granted to
Aetna/US HealthCare; 157,500 shares of Common Stock issuable upon the exercise
of warrants granted to UICI; up to 50,000 shares of Common Stock issuable upon
the exercise of the warrant granted to First Health; 75,000 shares of Series D
Preferred Stock which is subject to a proposed amendment to convert the Series D
Preferred Stock to Common Stock issuable upon the exercise of warrants granted
to Intel Corp.; up to 330,000 shares of Common Stock issuable upon the exercise
of warrants granted to Blue Cross/Blue Shield; and 426,930 shares of Common
Stock subject to options to be issued as a result of the conversion of options
granted pursuant to the Insurdata 1999 Stock Option Plan immediately before the
Effective Date (collectively, the "Options"), shall continue in effect, as an
option plan of Provident or as options, warrants or rights issued by Provident,
as the case may be, in accordance with the terms and conditions by which they
are governed immediately before the Effective Date, subject to the adjustments
set forth in the next sentence. On the Effective Date, each Option or Warrant
shall, by virtue of the Merger and without any action on the part of the holder
thereof, be automatically adjusted to provide that (a) the number and type of
shares issuable upon exercise of such Option or Warrant shall be that number of
shares of Provident Stock (rounded down to the nearest whole number of shares)
equal to the number of shares of HealthAxis Common Stock issuable upon exercise
of such Option or Warrant immediately before the Effective Date, multiplied by
the Exchange Ratio, and (b) the exercise price per share of Provident Stock
under such Option or Warrant shall be that amount (rounded up to the nearest
whole cent) equal to the exercise price per share of HealthAxis Common Stock
under such Option immediately before the Effective Date, divided by the Exchange
Ratio.
12. HealthAxis Stock held by HealthAxis. On the Effective Date, any
shares of HealthAxis Common Stock and HealthAxis Convertible Preferred Stock
(collectively, "HealthAxis Stock") that are held by HealthAxis (as treasury
shares) immediately before the Effective Date shall, by virtue of the Merger and
without any action on the part of the holder thereof, be automatically canceled.
13. Exchange Procedures for HealthAxis Stock. Provident shall designate
its transfer agent to act as the "Exchange Agent" under this Plan. As soon as is
practicable after the Effective Date, Provident or the Exchange Agent shall mail
or deliver, to each record holder of an outstanding certificate that immediately
before the Effective Date represented shares of HealthAxis Stock, instructions
for use in effecting the surrender of such certificate to the Exchange Agent.
Upon the surrender of such certificate to the Exchange Agent in accordance with
such instructions, the Exchange Agent shall exchange such certificate for a new
certificate representing such number of shares of Provident Stock into which the
shares of HealthAxis Stock represented by such certificate have been converted
in accordance with this Plan (and cash in lieu of any fractional share of
HealthAxis Stock), which shall be promptly delivered to the holder thereof (or
in accordance with instructions provided by the holder thereof). If applicable,
such certificates shall be accompanied by any distributions due with respect to
shares of Provident Stock that were paid to Provident's shareholders of record
as of a date between the Effective Date and the date of distribution of such
certificates. Until surrendered in accordance with the foregoing, each
outstanding certificate that immediately before the Effective Date represented
shares of HealthAxis Stock shall be deemed to evidence ownership of the number
of shares of Provident Stock into which the shares of HealthAxis Stock
represented by such certificate have been converted in accordance with this
Plan.
B-4
14. Dissenting Shares.
(a) Notwithstanding any other provisions of this Plan to the
contrary, shares of HealthAxis Stock which are outstanding immediately prior to
the Effective Date and which are held by shareholders of HealthAxis who shall
have not voted in favor of the Merger or consented thereto in writing and who
shall have demanded properly in writing appraisal for such shares (collectively,
the "Dissenting Shares") in accordance with Section 1571, et seq., of the BCL
(each a "Dissenting shareholder" and collectively, the "Dissenting
shareholders") shall not be converted into or represent the right to receive any
Provident Stock, such shareholders being entitled to receive payment of the
appraised value of such shares of Provident Stock held by them in accordance
with the provisions of such Section 1571, et seq., of the BCL, except that all
Dissenting Shares held by shareholders who shall have failed to perfect or shall
have effectively withdrawn or lost their rights to appraisal of such shares of
HealthAxis Stock in accordance with the provisions of Section 1571, et seq., of
the BCL shall thereupon be deemed to have been converted into and to have become
exchangeable, as of the Effective Date, for the right to receive Provident Stock
in accordance with Section 7 hereof, without interest thereon.
(b) HealthAxis shall give Provident (i) prompt notice of any
written demands for payment or appraisal of any Dissenting Shares pursuant to
Section 1571, et seq., of the BCL, attempted withdrawals of such demands, and
any other instruments served pursuant to the BCL and received by HealthAxis
relating to shareholders' rights to dissent and (ii) the opportunity to
participate, at its expense, in all negotiations and proceedings with respect to
demands for payment or appraisal under Section 1571, et seq., of the BCL.
HealthAxis shall not, without the prior written consent of Provident,
voluntarily make any payment with respect to any demands for payment or
appraisals of the capital stock of HealthAxis, offer to settle or settle any
demands.
15. Effective Date. As used in this Plan, the "Effective Date" shall
mean the date upon which this Plan and a proper Articles of Merger for the
Merger have been duly signed and filed with the proper officials of the
Commonwealth of Pennsylvania.
B-5
16. Entire Understanding. This Plan, together with the Reorganization
Agreement (and the Exhibits and Schedules thereto) by and between Provident,
Newco and HealthAxis, states the entire understanding among the parties hereto
with respect to the subject matter hereof and supersedes all prior oral and
written communications and agreements, and all contemporaneous oral
communications and agreements, with respect to the subject matter hereof. No
amendment or modification of this Plan, and no waiver of any provision of this
Plan, shall be effective unless in writing and signed by the party against whom
enforcement is sought. HealthAxis may agree to any amendment or supplement to
this Plan, or a waiver of any provision of this Plan, either before or after the
approval of HealthAxis' shareholders is obtained (as contemplated by the
Reorganization Agreement) and without seeking further shareholder approval, so
long as such amendment, supplement or waiver does not result in a decrease in
the Exchange Ratio set forth in Section 7 of this Plan, or have a material
adverse effect on HealthAxis' shareholders. The obligations of the parties under
this Plan shall be subject to all of the terms and conditions of the
Reorganization Agreement. If the Reorganization Agreement is terminated in
accordance with its terms, then this Plan shall simultaneously terminate, and
the Merger shall be abandoned without further action by the parties hereto.
17. Parties in Interest. This Plan shall bind, benefit and be
enforceable by and against the parties hereto and their respective successors
and assigns. No party hereto shall in any manner assign any of its rights or
obligations under this Plan without the express prior written consent of the
other parties. Nothing in this Plan or the Reorganization Agreement is intended
to confer, or shall be deemed to confer, any rights or remedies upon any persons
other than the parties hereto and their respective shareholders and directors.
18. Severability. If any provision of this Plan is construed to be
invalid, illegal or unenforceable, then the remaining provisions hereof shall
not be affected thereby and shall be enforceable without regard thereto.
19. Counterparts. This Plan may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original
hereof, and it shall not be necessary in making proof of this Plan to produce or
account for more than one counterpart hereof.
20. Section Headings. Section and subsection headings in this Plan are
for convenience of reference only, do not constitute a part of this Plan, and
shall not affect its interpretation.
B-6
21. References. All words used in this Plan shall be construed to be of
such number and gender as the context requires or permits.
IN TESTIMONY WHEREOF, each undersigned corporation has caused this
Agreement and Plan of Merger to be signed by a duly authorized officer as of the
date first stated above.
HEALTHAXIS.COM, INC.
By: /s/ Michael Ashker
------------------------------
Name: Michael Ashker
Title: Chief Executive Officer
PROVIDENT AMERICAN CORPORATION
By: /s/ Alvin H. Clemens
------------------------------
Name: Alvin H. Clemens
Title: Chairman
HEALTHAXIS ACQUISITION CORP.
By: /s/ Alvin H. Clemens
------------------------------
Name: Alvin H. Clemens
Title: Chairman
B-7
Appendix C
DISSENTERS RIGHTS
[Pa.C.S.]ss.1571. Application and effect of subchapter
(A) GENERAL RULE.-- Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent
from, and to obtain payment of the fair value of his shares in the
event of, any corporate action, or to otherwise obtain fair value for
his shares, where this part expressly provides that a shareholder shall
have the rights and remedies provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of
election).
Section 2907(a) (relating to proceedings to terminate breach of
qualifying conditions).
Section 7104(b)(3) (relating to procedure).
(B) EXCEPTIONS.--
(1) Except as otherwise provided in paragraph (2), the holders of
the shares of any class or series of shares that, at the
record date fixed to determine the shareholders entitled to
notice of and to vote at the meeting at which a plan specified
in any of section 1930, 1931(d), 1932(c) or 1952(d) is to be
voted on, are either:
(i) listed on a national securities exchange; or
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(ii) held of record by more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of any such
shares under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights shall
be available without regard to the exception provided in that
paragraph in the case of:
(i) Shares converted by a plan if the shares are not
converted solely into shares of the acquiring,
surviving, new or other corporation or solely into
such shares and money in lieu of fractional shares.
(ii) Shares of any preferred or special class unless the
articles, the plan or the terms of the transaction
entitle all shareholders of the class to vote thereon
and require for the adoption of the plan or the
effectuation of the transaction the affirmative vote
of a majority of the votes cast by all shareholders
of the class.
(iii) Shares entitled to dissenters rights under section
1906(c) (relating to dissenters rights upon special
treatment).
(3) The shareholders of a corporation that acquires by purchase,
lease, exchange or other disposition all or substantially all
of the shares, property or assets of another corporation by
the issuance of shares, obligations or otherwise, with or
without assuming the liabilities of the other corporation and
with or without the intervention of another corporation or
other person, shall not be entitled to the rights and remedies
of dissenting shareholders provided in this subchapter
regardless of the fact, if it be the case, that the
acquisition was accomplished by the issuance of voting shares
of the corporation to be outstanding immediately after the
acquisition sufficient to elect a majority or more of the
directors of the corporation.
(C) GRANT OF OPTIONAL DISSENTERS RIGHTS.-- The bylaws or a
resolution of the board of directors may direct that all or a
part of the shareholders shall have dissenters rights in
connection with any corporate action or other transaction that
would otherwise not entitle such shareholders to dissenters
rights.
(D) NOTICE OF DISSENTERS RIGHTS.-- Unless otherwise provided by
statute, if a proposed corporate action that would give rise
to dissenters rights under this subpart is submitted to a vote
at a meeting of shareholders, there shall be included in or
enclosed with the notice of meeting:
(1) a statement of the proposed action and a statement that
the shareholders have a right to dissent and obtain
payment of the fair value of their shares by complying
with the terms of this subchapter;
and
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(2) a copy of this subchapter.
(E) OTHER STATUTES.-- The procedures of this subchapter shall also
be applicable to any transaction described in any statute
other than this part that makes reference to this subchapter
for the purpose of granting dissenters rights.
(F) CERTAIN PROVISIONS OF ARTICLES INEFFECTIVE.-- This subchapter
may not be relaxed by any provision of the articles.
(G) CROSS REFERENCES.-- See sections 1105 (relating to restriction
on equitable relief), 1904 (relating to de facto transaction
doctrine abolished) and 2512 (relating to dissenters rights
procedure).
[Pa.C.S.]ss.1572. Definitions
The following words and phrases when used in this subchapter shall have
the meanings given to them in this section unless the context clearly indicates
otherwise:
"CORPORATION." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation, division,
conversion or otherwise of that issuer. A plan of division may designate which
of the resulting corporations is the successor corporation for the purposes of
this subchapter. The successor corporation in a division shall have sole
responsibility for payments to dissenters and other liabilities under this
subchapter except as otherwise provided in the plan of division.
"DISSENTER." A shareholder or beneficial owner who is entitled to and
does assert dissenters rights under this subchapter and who has performed every
act required up to the time involved for the assertion of those rights.
"FAIR VALUE." The fair value of shares immediately before the
effectuation of the corporate action to which the dissenter objects, taking into
account all relevant factors, but excluding any appreciation or depreciation in
anticipation of the corporate action.
"INTEREST." Interest from the effective date of the corporate action
until the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors, including the average
rate currently paid by the corporation on its principal bank loans.
[Pa.C.S.]ss.1573. Record and beneficial holders and owners
(A) RECORD HOLDERS OF SHARES.-- A record holder of shares of a
business corporation may assert dissenters rights as to fewer
than all of the shares registered in his name only if he
dissents with respect to all the shares of the same class or
series beneficially owned by any one person and discloses the
name and address of the person or persons on whose behalf he
dissents. In that event, his rights shall be determined as if
the shares as to which he has dissented and his other shares
were registered in the names of different shareholders.
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(B) BENEFICIAL OWNERS OF SHARES.-- A beneficial owner of shares of
a business corporation who is not the record holder may assert
dissenters rights with respect to shares held on his behalf
and shall be treated as a dissenting shareholder under the
terms of this subchapter if he submits to the corporation not
later than the time of the assertion of dissenters rights a
written consent of the record holder. A beneficial owner may
not dissent with respect to some but less than all shares of
the same class or series owned by the owner, whether or not
the shares so owned by him are registered in his name.
[Pa.C.S.]ss.1574. Notice of intention to dissent
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect no
change in the beneficial ownership of his shares from the date of such filing
continuously through the effective date of the proposed action and must refrain
from voting his shares in approval of such action. A dissenter who fails in any
respect shall not acquire any right to payment of the fair value of his shares
under this subchapter. Neither a proxy nor a vote against the proposed corporate
action shall constitute the written notice required by this section.
[Pa.C.S.]ss.1575. Notice to demand payment
(A) GENERAL RULE.-- If the proposed corporate action is approved
by the required vote at a meeting of shareholders of a
business corporation, the corporation shall mail a further
notice to all dissenters who gave due notice of intention to
demand payment of the fair value of their shares and who
refrained from voting in favor of the proposed action. If the
proposed corporate action is to be taken without a vote of
shareholders, the corporation shall send to all shareholders
who are entitled to dissent and demand payment of the fair
value of their shares a notice of the adoption of the plan or
other corporate action. In either case, the notice shall:
(1) State where and when a demand for payment must be sent
and certificates for certificated shares must be
deposited in order to obtain payment.
(2) Inform holders of uncertificated shares to what extent
transfer of shares will be restricted from the time that
demand for payment is received.
(3) Supply a form for demanding payment that includes a
request for certification of the date on which the
shareholder, or the person on whose behalf the
shareholder dissents, acquired beneficial ownership of
the shares.
(4) Be accompanied by a copy of this subchapter.
(B) TIME FOR RECEIPT OF DEMAND FOR PAYMENT.-- The time set for
receipt of the demand and deposit of certificated shares shall
be not less than 30 days from the mailing of the notice.
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[Pa.C.S.]ss.1576. Failure to comply with notice to demand payment, etc.
(A) EFFECT OF FAILURE OF SHAREHOLDER TO ACT.-- A shareholder who
fails to timely demand payment, or fails (in the case of
certificated shares) to timely deposit certificates, as
required by a notice pursuant to section 1575 (relating to
notice to demand payment) shall not have any right under this
subchapter to receive payment of the fair value of his shares.
(B) RESTRICTION ON UNCERTIFICATED SHARES.-- If the shares are not
represented by certificates, the business corporation may
restrict their transfer from the time of receipt of demand for
payment until effectuation of the proposed corporate action or
the release of restrictions under the terms of section 1577(a)
(relating to failure to effectuate corporate action).
(C) RIGHTS RETAINED BY SHAREHOLDER.-- The dissenter shall retain
all other rights of a shareholder until those rights are
modified by effectuation of the proposed corporate action.
[Pa.C.S.]ss.1577. Release of restrictions or payment for shares
(A) FAILURE TO EFFECTUATE CORPORATE ACTION.-- Within 60 days after
the date set for demanding payment and depositing
certificates, if the business corporation has not effectuated
the proposed corporate action, it shall return any
certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed
by reason of the demand for payment.
(B) RENEWAL OF NOTICE TO DEMAND PAYMENT.-- When uncertificated
shares have been released from transfer restrictions and
deposited certificates have been returned, the corporation may
at any later time send a new notice conforming to the
requirements of section 1575 (relating to notice to demand
payment), with like effect.
(C) PAYMENT OF FAIR VALUE OF SHARES.-- Promptly after effectuation
of the proposed corporate action, or upon timely receipt of
demand for payment if the corporate action has already been
effectuated, the corporation shall either remit to dissenters
who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the
corporation estimates to be the fair value of the shares, or
give written notice that no remittance under this section will
be made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the
issuer of the shares held or owned by the dissenter for a
fiscal year ending not more than 16 months before the
date of remittance or notice together with the latest
available interim financial statements.
(2) A statement of the corporation's estimate of the fair
value of the shares.
C-5
(3) A notice of the right of the dissenter to demand payment
or supplemental payment, as the case may be, accompanied
by a copy of this subchapter.
(D) FAILURE TO MAKE PAYMENT.-- If the corporation does not remit
the amount of its estimate of the fair value of the shares as
provided by subsection (c), it shall return any certificates
that have been deposited and release uncertificated shares
from any transfer restrictions imposed by reason of the demand
for payment. The corporation may make a notation on any such
certificate or on the records of the corporation relating to
any such uncertificated shares that such demand has been made.
If shares with respect to which notation has been so made
shall be transferred, each new certificate issued therefor or
the records relating to any transferred uncertificated shares
shall bear a similar notation, together with the name of the
original dissenting holder or owner of such shares. A
transferee of such shares shall not acquire by such transfer
any rights in the corporation other than those that the
original dissenter had after making demand for payment of
their fair value.
[Pa.C.S.]ss.1578. Estimate by dissenter of fair value of shares
(A) GENERAL RULE.-- If the business corporation gives notice of
its estimate of the fair value of the shares, without
remitting such amount, or remits payment of its estimate of
the fair value of a dissenter's shares as permitted by section
1577(c) (relating to payment of fair value of shares) and the
dissenter believes that the amount stated or remitted is less
than the fair value of his shares, he may send to the
corporation his own estimate of the fair value of the shares,
which shall be deemed a demand for payment of the amount or
the deficiency.
(B) EFFECT OF FAILURE TO FILE ESTIMATE.-- Where the dissenter does
not file his own estimate under subsection (a) within 30 days
after the mailing by the corporation of its remittance or
notice, the dissenter shall be entitled to no more than the
amount stated in the notice or remitted to him by the
corporation.
[Pa.C.S.]ss.1579. Valuation proceedings generally
(A) GENERAL RULE.-- Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under section
1575 (relating to notice to demand payment); or
(3) timely receipt of any estimates pursuant to section 1578
(relating to estimate by dissenter of fair value of
shares); if any demands for payment remain unsettled, the
business corporation may file in court an application for
relief requesting that the fair value of the shares be
determined by the court.
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(B) MANDATORY JOINDER OF DISSENTERS.-- All dissenters, wherever
residing, whose demands have not been settled shall be made
parties to the proceeding as in an action against their
shares. A copy of the application shall be served on each such
dissenter. If a dissenter is a nonresident, the copy may be
served on him in the manner provided or prescribed by or
pursuant to 42 Pa.C.S. Ch. 53 (relating to bases of
jurisdiction and interstate and international procedure).
(C) JURISDICTION OF THE COURT.-- The jurisdiction of the court
shall be plenary and exclusive. The court may appoint an
appraiser to receive evidence and recommend a decision on the
issue of fair value. The appraiser shall have such power and
authority as may be specified in the order of appointment or
in any amendment thereof.
(D) MEASURE OF RECOVERY.-- Each dissenter who is made a party
shall be entitled to recover the amount by which the fair
value of his shares is found to exceed the amount, if any,
previously remitted, plus interest.
(E) EFFECT OF CORPORATION'S FAILURE TO FILE APPLICATION.-- If the
corporation fails to file an application as provided in
subsection (a), any dissenter who made a demand and who has
not already settled his claim against the corporation may do
so in the name of the corporation at any time within 30 days
after the expiration of the 60-day period. If a dissenter does
not file an application within the 30-day period, each
dissenter entitled to file an application shall be paid the
corporation's estimate of the fair value of the shares and no
more, and may bring an action to recover any amount not
previously remitted.
[Pa.C.S.]ss.1580. Costs and expenses of valuation proceedings
(A) GENERAL RULE.-- The costs and expenses of any proceeding under
section 1579 (relating to valuation proceedings generally),
including the reasonable compensation and expenses of the
appraiser appointed by the court, shall be determined by the
court and assessed against the business corporation except
that any part of the costs and expenses may be apportioned and
assessed as the court deems appropriate against all or some of
the dissenters who are parties and whose action in demanding
supplemental payment under section 1578 (relating to estimate
by dissenter of fair value of shares) the court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.
(B) ASSESSMENT OF COUNSEL FEES AND EXPERT FEES WHERE LACK OF GOOD
FAITH APPEARS.-- Fees and expenses of counsel and of experts
for the respective parties may be assessed as the court deems
appropriate against the corporation and in favor of any or all
dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed
against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom
the fees and expenses are assessed acted in bad faith or in a
dilatory, obdurate, arbitrary or vexatious manner in respect
to the rights provided by this subchapter.
C-7
(C) AWARD OF FEES FOR BENEFITS TO OTHER DISSENTERS.-- If the court
finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated and
should not be assessed against the corporation, it may award
to those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefited.
C-8
Appendix D
February 3, 2000
Board of Directors
HealthAxis.Com, Inc.
2500 Dekalb Pike
East Norriton, Pennsylvania 19401
Attention: Alvin H. Clemens, Chairman
Michael Ashker, President and Chief Executive
Members of the Board:
The boards of directors of Provident American Corporation (HealthAxis
Inc. as of February 1, 2000) ("Provident" or the "Company") and HealthAxis.com,
Inc. ("HealthAxis") have agreed on a merger (the "Merger"). The merger is
structured so that HealthAxis will be merged with and into HealthAxis
Acquisition Corp., a wholly owned subsidiary of Provident. We anticipate that
the Company will issue approximately 33.4 million shares of Provident common
stock to HealthAxis shareholders in the Merger. We also anticipate that
Provident will issue up to an additional 5.2 million shares of Provident common
stock upon the exercise of options and warrants to purchase HealthAxis common
stock. Hereafter, the issuance of the common stock to the HealthAxis
shareholders, warrant holders, and option holders in the Merger will be referred
to as "Stock Consideration". Following the Merger, based on the number of shares
of Provident common stock to be issued in the Merger, excluding shares subject
to stock options and warrants to be assumed by Provident, the existing
shareholders of Provident will own approximately 28% and the former HealthAxis
shareholders will own approximately 72% of the outstanding common stock of
Provident.
You have asked us to render an opinion on the fairness of the Stock
Consideration paid in the Merger by Provident, from a financial point of view,
to the Company and its shareholders (the "Opinion").
In arriving at our Opinion set forth below, we have, among other
things, reviewed: the Agreement and Plan of Reorganization (including Exhibits A
and B), dated January 26, 2000, between Provident American Corporation,
HealthAxis.com, Inc. and HealthAxis Acquisition Corp.; the consolidated
financial statements of HealthAxis.com, Inc. and subsidiaries for the period
January 1, 1999 through September 30, 1999; a draft of the consolidated
financial statements of Insurdata Incorporated and subsidiaries for the years
ended December 31, 1997 and 1998 and the nine months ended September 30, 1998
and 1999; Provident American Corporation's Forms 10Q for the periods ending
March 31, 1999, June 30, 1999, and September 30, 1999; Provident American
Corporation's Forms 10-K and Annual Reports for the years ended December 31,
1997 and 1998; projected financial statements of Provident and HealthAxis for
the years ended December 31, 1999, 2000, 2001, and 2002; and other documents,
statistics, and analyses, which we believe were necessary to render our Opinion.
In addition, we conducted discussions with members of Provident and HealthAxis
management concerning various aspects of each company's operations, financial
prospects and other matters of significance.
D-1
As part of this engagement, Provident has agreed to pay Advest a fee
for delivery of this opinion letter. Advest has provided certain investment
banking services to Provident in the past, including advising it regarding this
Merger, and has received fees for rendering these services. Advest has also
provided certain investment banking services to HealthAxis in the past.
In preparing this Opinion, we have relied on the accuracy and
completeness of all information supplied or otherwise made available to us by
the Company and HealthAxis, and we have not independently verified such
information nor have we undertaken an independent appraisal of the assets and
liabilities of Provident or HealthAxis. This Opinion is necessarily based upon
circumstances and conditions as they exist and can be evaluated as of the date
of this letter. We have assumed for purposes of this Opinion that there has not
been any material change in the financial condition of the Company, from that
existing on December 31, 1999. Our Opinion is directed to the Board of Directors
of Provident and does not constitute a recommendation of any kind to any
shareholder of Provident or HealthAxis regarding how such shareholder should
vote at a shareholders' meeting should one to be held in connection with the
Merger.
In reliance upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Stock Consideration paid by Provident in the Merger
is fair, from a financial point of view, to the Company and its shareholders.
Very truly yours,
ADVEST, INC.
/s/ Alexander M. Clark
--------------------------
By: Alexander M. Clark
Managing Director
D-2
Appendix E
[LETTERHEAD OF WARBURG DILLON READ LLC]
January 26, 2000
The Board of Directors
HealthAxis.com, Inc.
2500 DeKalb Pike
East Norriton, PA 19401
Members of the Board:
We understand that HealthAxis.com, Inc. ("HealthAxis") is
considering a transaction whereby HealthAxis will be merged with and into
HealthAxis Acquisition Corp. ("Newco"), a wholly owned subsidiary of Provident
American Corporation ("Provident"), with Newco being the surviving corporation
(the "Merger") pursuant to which each outstanding share of the common stock, no
par value per share, of HealthAxis ("HealthAxis Common Stock") will be converted
into the right to receive 1.127 shares (the "Exchange Ratio") of the common
stock, par value $0.10 per share, of Provident ("Provident Common Stock"). The
terms and conditions of the Merger are more fully set forth in the Agreement and
Plan of Reorganization, dated as of January 26, 2000, among HealthAxis,
Provident and Newco and the Agreement and Plan of Merger, dated as of January
26, 2000, among HealthAxis, Provident and Newco attached as an exhibit thereto
(collectively, the "Merger Agreement").
You have requested our opinion as to the fairness, from a
financial point of view, of the Exchange Ratio to the holders of HealthAxis
Common Stock (other than Provident and its affiliates).
Warburg Dillon Read LLC ("WDR") has acted as financial advisor
to the Board of Directors of HealthAxis with respect to this opinion and will
receive a fee for its services upon the delivery of this opinion. In the
ordinary course of business, WDR, its successors and affiliates may trade the
securities of Provident for our own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
Our opinion does not address HealthAxis's underlying business
decision to effect the Merger or constitute a recommendation to any stockholder
as to how such stockholder should vote with respect to any matter relating to
the Merger. At your direction, we have not been asked to, nor do we, offer any
opinion as to the material terms of the Merger Agreement and the obligations
thereunder, or the form of the Merger. We express no opinion as to what the
value of the Provident Common Stock will be when issued pursuant to the Merger
or the price at which the Provident Common Stock will trade or otherwise be
transferable subsequent to the Merger. In rendering this opinion, we have
assumed, with your consent, that each of HealthAxis, Provident and Newco will
comply with all material terms of the Merger Agreement, as applicable, and that
the Merger will be validly consummated in accordance with its terms. In
connection with our engagement, we were not requested to, and we did not,
participate in the negotiation or structuring of the Merger, nor were we
requested to, and we did not, solicit third party indications of interest with
respect to the acquisition of all or a part of HealthAxis.
In arriving at our opinion, we have, among other things: (i)
reviewed certain publicly available business and historical financial
information relating to HealthAxis and Provident; (ii) reviewed certain internal
financial information and other data relating to the business and financial
prospects of HealthAxis, including estimates and financial forecasts prepared by
the management of HealthAxis, that were provided to us by HealthAxis and are not
publicly available; (iii) conducted discussions with members of the senior
management of HealthAxis and Provident with respect to the operations, financial
condition, history and prospects of HealthAxis and Provident; (iv) reviewed
publicly available financial and stock market data with respect to certain other
companies in lines of business we believe to be generally comparable to those of
HealthAxis and Provident; (v) reviewed the Merger Agreement; and (vi) conducted
such other financial studies, analyses, and investigations, and considered such
other information as we deemed necessary or appropriate.
E-1
In connection with our review, with your consent, we have not
assumed any responsibility for independent verification of any of the
information provided to or reviewed by us for the purpose of this opinion and
have, with your consent, relied on its being complete and accurate in all
material respects. We have relied, without independent verification and with
your consent, on the views of the management of Provident as to Provident's
outstanding liabilities and other obligations, including Provident management's
assessments that Provident has no material liabilities, contingent or otherwise,
other than those reflected on Provident's balance sheet dated December 31, 1999
provided to us by the management of Provident. At your direction, we have not
made any independent evaluation or appraisal of any of the assets or liabilities
(contingent or otherwise) of HealthAxis or Provident, nor have we been furnished
with any such evaluation or appraisal. With respect to the financial forecasts
and estimates referred to above, we have assumed, at your direction, that they
have been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of HealthAxis as to the future
performance of HealthAxis and will be realized in the amounts and at the times
contemplated thereby. We also have assumed, with your consent, that the Merger
will qualify as a tax-free reorganization and that the Merger will be accounted
for as a purchase for financial accounting purposes. Our opinion is necessarily
based on economic, monetary, market and other conditions as in effect on, and
the information made available to us as of, the date of this letter.
Based upon and subject to the foregoing, it is our opinion
that, as the date hereof, the Exchange Ratio is fair, from a financial point of
view, to the holders of HealthAxis Common Stock (other than Provident and its
affiliates).
Very truly yours,
WARBURG DILLON READ LLC
E-2
APPENDIX F
HEALTHAXIS INC.
Amended and Restated Articles of Incorporation
Article 1. Name. The name of the corporation is HealthAxis Inc. (the
"Corporation").
Article 2. Registered Office. The location and address of the
registered office of the Corporation in this Commonwealth is:
2500 DeKalb Pike
East Norriton, PA 19401
Article 3. Purpose. The Corporation is incorporated under the
Pennsylvania Business Corporation Law of 1988, as it may be amended from time to
ime, for the following purposes:
To have unlimited power to engage in or do any lawful act
concerning any or all lawful businesses for which corporations
may be incorporated under the Pennsylvania Business
Corporation Law of 1988, as amended from time to time.
Article 4. Term. The term for which the Corporation is to exist is
perpetual.
Article 5. Authorized Capital Stock. The Corporation shall have the
authority to issue an aggregate of 2,000,000,000 shares of capital stock which
shall be divided into 1,900,000,000 shares of Common Stock, par value $0.10 per
share ("Common Stock"), as more fully described in Section 5(a) below; and
100,000,000 shares of Preferred Stock, par value $1.00 per share ("Preferred
Stock"), as more fully described in Section 5(b) below.
(a) Common Stock. Each holder of record of Common Stock shall
have the right to one vote for each share of Common Stock registered in their
name on the books of the Corporation except as the right to exercise such vote
may be limited by the provisions of these Amended and Restated Articles of
Incorporation or any class or series of Preferred Stock established hereunder.
The holders of Common Stock shall be entitled to such dividends as may be
declared by the Board of Directors from time to time, provided that required
dividends, if any, on the Preferred Stock have been paid or provided for. In the
event of the liquidation, dissolution, or winding up, whether voluntary or
involuntary of the Corporation, the assets and funds of the Corporation
available for distribution to shareholders, and remaining after the payment to
holders of Preferred Stock of the amounts (if any) to which they are entitled,
shall be divided and paid to the holders of the Common Stock according to their
respective shares.
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(b) Preferred Stock. The shares of Preferred Stock may be
divided and issued from time to time in one or more series as may be determined
by the Board of Directors of the Corporation, each such series to be distinctly
designated and to consist of the number of shares determined by the Board of
Directors. The Board of Directors of the Corporation is hereby expressly vested
with authority to adopt resolutions to issue the shares, to fix the number of
shares, to change the number of shares constituting any class or series, and to
provide for or change the voting powers, designations, preferences and relative,
participating, optional or other special rights, qualifications, limitations or
restrictions, if any, of Preferred Stock, and each class or series thereof, in
each case without approval of the shareholders. The authority of the Board of
Directors with respect to each class or series of Preferred Stock shall include,
without limiting the generality of the foregoing, the determination of the
following:
(1) The number of shares constituting that class or series
and the distinctive designation of that class or series;
(2) The dividend rate on the shares of that class or
series, whether dividends shall be cumulative, and, if so, from which
date or dates;
(3) Whether that class or series shall have voting rights,
in addition to any voting rights provided by law, and, if so, the terms
of such voting rights;
(4) Whether that class or series shall have conversion
privileges (including rights to convert such class or series into the
capital stock of the Corporation or any other entity) and, if so, the
terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of
Directors shall determine;
(5) Whether or not shares of that class or series
shall be redeemable and whether or not the Corporation or the holder
(or both) may exercise the redemption right, including the terms of
redemption (including any sinking fund provisions), the date or dates
upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different
conditions;
(6) The rights of the shares of that class or series in
the event of voluntary or involuntary liquidation, dissolution or
winding up of the Corporation; and
(7) Any other relative rights, preferences and limitations
of that class or series as may be permitted or required by law.
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The number of shares, voting powers, designations, preferences and relative,
participating, optional or other special rights, qualifications, limitations or
restrictions, if any, of any class or series of Preferred Stock which may be
designated by the Board of Directors may differ from those of any and all other
class or series at any time outstanding.
(c) Increase in Authorized Preferred Stock. Except as
otherwise provided by law or in a resolution or resolutions establishing any
particular series of Preferred Stock, the aggregate number of authorized shares
of Preferred Stock may be increased by an amendment to these Amended and
Restated Articles of Incorporation approved solely by the holders of Common
Stock and of any series of Preferred Stock which is entitled pursuant to its
voting rights designated by the Board of Directors to vote thereon, if at all,
voting together as a class.
(d) Authorization of Board to Set Terms in Respect of
Corporation's Securities. To the fullest extent permitted by applicable law, the
Board of Directors may set forth in any security, contract, warrant or other
instrument evidencing any shares, option or warrant rights, or securities having
conversion or option or warrant rights, such terms as it deems appropriate
including, without limiting the generality of such authority, conditions that
preclude or limit any Person (as defined in Article 17) or any transferee(s)
(either direct or remote) of such Person from (i) owning or offering to acquire
a specified number or percentage of the outstanding common shares, other shares,
option or warrant rights, securities having conversion or option or warrant
rights, or obligations of the Corporation or (ii) from exercising, converting,
transferring or receiving the shares, option or warrant rights, securities
having conversion or option or warrant rights, or obligations, and which
invalidate any rights or options or warrants beneficially owned by such Person
or any transferee(s) (either direct or remote) of such Person. This subsection
(d) of Article 5 is intended to validate, to the extent permitted by applicable
law, the adoption by the Board of Directors of shareholder rights plans or
so-called "poison pills," including both call and put "poison pills." Nothing
contained herein shall be deemed to limit or restrict the powers of the Board of
Directors as provided in the Pennsylvania Business Corporation Law of 1988, as
amended, or otherwise in Pennsylvania law.
Article 6. Cumulative Voting. The shareholders of the Corporation shall
not be entitled to cumulate their votes in the election of directors.
Article 7. Number of Directors. The Board of Directors shall consist of
not less than three (3) nor more than twelve (12) directors. The number of
directors to be elected, subject to the foregoing limits, shall be determined
from time to time by the Board of Directors.
Article 8. Special Meetings of Shareholders. The shareholders of the
Corporation shall not be entitled to call a special meeting of the shareholders
of the Corporation.
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Article 9. Actions By Consent of Shareholders. The provisions of
Section 1766(b) of the Pennsylvania Business Corporation Law of 1988, as
amended, shall be applicable to any action by the shareholders which has been
previously approved by the Board of Directors, but shall not otherwise be
applicable to the Corporation.
Article 10. Non-Applicability of Certain Provisions of the Pennsylvania
Business Corporation Law. The provisions contained in Subchapters E (Control
Transactions), G (Control- Share Acquisitions), H (Disgorgement by Certain
Controlling Shareholders Following Attempts to Acquire Control), I (Severance
Compensation for Employees Terminated Following Certain Control- Share
Acquisitions) and J (Business Combination Transactions - Labor Contracts) of
Chapter 25 of the Pennsylvania Business Corporation Law, as it may be amended,
shall not be applicable to the Corporation. The provisions of Section 2538 of
the Pennsylvania Business Corporation Law, as it may be amended, shall not be
applicable to the Corporation, unless at least a majority of the incumbent
directors (as defined herein) on the Board of Directors shall determine that
Section 2538, subject to such exceptions, limitations and modifications as such
incumbent directors may provide, shall be applicable. The term "incumbent
director", as used herein, shall mean any director of the Corporation on the
date hereof and any other director whose election or appointment by the Board of
Directors of the Corporation, or whose nomination for election by the
shareholders of the Corporation, was approved by a vote of at least a majority
of the directors then in office who either were directors on the date hereof or
whose election or appointment or nomination for election was previously so
approved.
Article 11. Shareholder Vote Required to Approve Certain Transactions.
No merger, consolidation, liquidation or dissolution of the Corporation nor any
action that would result in the sale or other disposition of all or
substantially all of the assets of the Corporation shall be valid unless first
approved by the affirmative vote of the holders of (a) at least eighty percent
(80%) of the outstanding shares of Common Stock voting as a separate class and
(b) at least eighty percent (80%) of the outstanding shares of Preferred Stock
voting as a separate class. This Article 11 may not be amended unless first
approved by the affirmative vote of the holders of (a) at least eighty percent
(80%) of the outstanding shares of Common Stock voting as a separate class and
(b) at least eighty percent (80%) of the outstanding shares of Preferred Stock
voting as a separate class.
Article 12. Power of Board to Oppose Certain Transactions.
(a) The Board of Directors, if it deems it advisable, may
oppose a tender offer or other offer for the Corporation's securities, whether
the offer is in cash or in securities of a corporation or otherwise. In
considering whether to oppose an offer, the Board of Directors may, but it is
not legally obligated to, consider any pertinent issues. By way of illustration,
but not of limitation, the Board of Directors may, but shall not be legally
obligated to, consider any and all of the following:
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(1) Whether the offer price is acceptable based on the
historical and present operating results or financial conditions of the
Corporation;
(2) Whether a more favorable price could be obtained for the
Corporation's securities in the future;
(3) The effects of any proposed transaction upon any or all
groups affected by such action, including among others, shareholders,
employees, suppliers, customers and creditors of the Corporation and
its subsidiaries and on the communities served by the Corporation and
its subsidiaries;
(4) The reputation and business practices of the offeror and
its management and affiliates as they would affect the employees,
suppliers and customers of the Corporation and its subsidiaries and the
future value of the Corporation's stock;
(5) The value of the securities, if any, which the offeror is
offering in exchange for the Corporation's securities, based on an
analysis of the worth of the Corporation as compared to the corporation
or other entity whose securities are being offered; and
(6) Any antitrust or other legal and regulatory issues that are
raised by the offer.
If the Board of Directors determines that an offer should be rejected, it may
take any lawful action to accomplish its purpose including, but not limited to,
any and all of the following: advising shareholders not to accept the offer;
commencing litigation against the offeror; filing complaints with all
governmental and regulatory authorities; acquiring the Corporation's securities
and/or the offeror's securities; selling or acquiring any assets; selling or
otherwise issuing authorized but unissued securities or treasury stock or
granting options with respect thereto; selling or otherwise issuing any debt
securities (including debt securities convertible into equity securities) or
options therefor; 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.
(b) If the Board of Directors determines to sell the
Corporation or any subsidiary to a third party, or to merge or consolidate the
Corporation or any subsidiary with a third party, the Board of Directors shall
not be legally obligated to create an auction and may negotiate with only one
acquirer.
Article 13. Removal of Directors. The entire Board of Directors, or a
class of the Board, or any individual director may be removed from office only
for cause (as defined herein) and only by the affirmative vote of shareholders
entitled to cast at least seventy percent (70%) of the votes entitled to be cast
by all shareholders at any annual or regular election of directors or of such
class of directors. The foregoing shall not be deemed to limit the right of the
Board of Directors, without shareholder approval, to declare vacant the office
of any director for any proper cause. The term "cause," as used herein, shall
refer only to one of the following events: (1) conviction of the director of a
felony; (2) declaration by order of court that the director is of unsound mind;
or (3) gross abuse of trust which is proved by clear and convincing evidence to
have been committed in bad faith.
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Article 14. Personal Liability of Directors. A director of this
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 or failed to perform the duties
of his office under Section 1713 of the Pennsylvania Business Corporation Law of
1988, as amended; and
(b) The breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness.
This Article 14 shall not apply to a director's liability for monetary
damages to the extent prohibited by Section 1713(b) of the Pennsylvania Business
Corporation Law of 1988, as amended.
Article 15. Amendments to Articles of Incorporation. The shareholders
of the Corporation shall not be entitled to propose an amendment to the Articles
of Incorporation of the Corporation. Any amendment to, or repeal of, any
provision of the Articles of Incorporation of the Corporation which has not
previously received the approval of at least a majority of the incumbent
directors (as defined in Article 10) on the Board of Directors shall require for
adoption the affirmative vote of the shareholders entitled to cast at least
sixty-five percent (65%) of the votes entitled to be cast by all shareholders at
any duly convened annual or special meeting of the shareholders, in addition to
any other approval which is required by law, the Articles of Incorporation of
the Corporation, the Bylaws of the Corporation, or otherwise.
Article 16. Amendments to Bylaws. The Bylaws of the Corporation may be
amended or repealed without shareholder approval by a majority of the incumbent
directors (as defined in Article 10), subject to any other approval which is
required by law, the Articles of Incorporation, the Bylaws of the Corporation,
or otherwise. Any amendment to, or repeal of, any provision of the Bylaws of the
Corporation which has not previously received the approval of at least a
majority of the incumbent directors (as defined in Article 10) on the Board of
Directors shall require for adoption the affirmative vote of the shareholders
entitled to cast at least sixty-five percent (65%) of the votes entitled to be
cast by all shareholders at any duly convened annual or special meeting of the
shareholders, in addition to any other approval which is required by law, the
Articles of Incorporation of the Corporation, the Bylaws of the Corporation, or
otherwise.
Article 17. Severability. In the event that all, some or any part of
any provision contained in these Amended and Restated Articles of Incorporation
shall be found by any court of competent jurisdiction to be illegal, invalid or
unenforceable (as against public policy or otherwise), such provision shall be
enforced to the fullest extent permitted by law and shall be construed as if it
had been narrowed only to the extent necessary so as not to be invalid, illegal
or unenforceable; the validity, legality and enforceability of the remaining
provisions of these Amended and Restated Articles of Incorporation shall
continue in full force and effect and shall not be affected or impaired by such
illegality, invalidity or unenforceability of any other provision (or any part
or parts thereof) of the Amended and Restated Articles of Incorporation.
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Article 18. Definitions. As used herein, the term "Person" shall mean
any individual, partnership, corporation, group or other entity (other than the
Corporation or any Subsidiary, as defined below, for itself or as a fiduciary
for customers, or a trustee holding Voting Securities for the benefit of the
employees of the Corporation or its Subsidiaries or any one of them, pursuant to
one or more employee benefit plans or arrangements sponsored by the Corporation
or any Subsidiary).
As used herein, the term "Subsidiary" shall mean any corporation of
which the Corporation owns fifty percent (50%) or more of any class of
securities entitled to vote in the election of directors, either directly or
indirectly, through one or more other corporations.
Article 19. Headings. Article headings and the ordering of paragraphs
area for convenience of reference only and shall not be construed to alter,
amend or otherwise affect the meaning, intent or effect of the provisions of
these Amended and Restated Articles of Incorporation.
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APPENDIX G
HEALTHAXIS INC.
2000 STOCK OPTION PLAN
1. Purpose of Plan
The purpose of this 2000 Stock Option Plan (the "Plan") is to
provide additional incentive to officers, other employees, and directors of, and
important consultants to, HealthAxis Inc., a Pennsylvania corporation (the
"Company"), and each present or future parent or subsidiary corporation of the
Company, by encouraging them to invest in shares of the Company's common stock,
$0.10 par value per share ("Common Stock"), and thereby acquire a proprietary
interest in the Company and an increased personal interest in the Company's
continued success and progress.
2. Aggregate Number of Shares
10,000,000 shares of the Company's Common Stock shall be the
aggregate number of shares which may be issued under this Plan. Notwithstanding
the foregoing, in the event of any change in the outstanding shares of the
Common Stock of the Company by reason of a stock dividend, stock split,
combination of shares, recapitalization, merger, consolidation, transfer of
assets, reorganization, conversion or what the Committee (defined in Section
4(a)), deems in its sole discretion to be similar circumstances, the aggregate
number and kind of shares which may be issued under this Plan shall be
appropriately adjusted in a manner determined in the sole discretion of the
Committee. Reacquired shares of the Company's Common Stock, as well as unissued
shares, may be used for the purpose of this Plan. Common Stock of the Company
subject to options which have terminated unexercised, either in whole or in
part, shall be available for future options granted under this Plan.
3. Class of Persons Eligible to Receive Options
All officers and employees of the Company and of any present
or future Company parent or subsidiary corporation are eligible to receive an
option or options under this Plan. All directors of, and important consultants
to, the Company and of any present or future Company parent or subsidiary
corporation are also eligible to receive an option or options under this Plan.
The individuals who shall, in fact, receive an option or options shall be
selected by the Committee, in its sole discretion, except as otherwise specified
in Section 4 hereof. No individual may receive options under this Plan for more
than 90% of the total number of shares of the Company's Common Stock authorized
for issuance under this Plan.
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4. Administration of Plan
a. This Plan shall be administered either by the Company's
Board of Directors or the Compensation Committee appointed by the Company's
Board of Directors. The Compensation Committee shall consist of a minimum of two
and a maximum of five members of the Board of Directors, each of whom shall be a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3) under the
Securities Exchange Act of 1934, as amended, or any future corresponding rule,
except that the failure of the Compensation Committee for any reason to be
composed solely of Non-Employee Directors shall not prevent an option from being
considered granted under this Plan. The term "Committee," as used herein, shall
refer to either the Company's Board of Directors or such Compensation Committee,
depending upon who is administering the Plan. The Committee shall, in addition
to its other authority and subject to the provisions of this Plan, determine
which individuals shall in fact be granted an option or options, whether the
option shall be an Incentive Stock Option or a Non-Qualified Stock Option (as
such terms are defined in Section 5(a)), the number of shares to be subject to
each of the options, the time or times at which the options shall be granted,
the rate of option exercisability, and, subject to Section 5 hereof, the price
at which each of the options is exercisable and the duration of the option.
b. The Committee shall adopt such rules for the conduct of its
business and administration of this Plan as it considers desirable. A majority
of the members of the Committee shall constitute a quorum for all purposes. The
vote or written consent of a majority of the members of the Committee on a
particular matter shall constitute the act of the Committee on such matter. The
Committee shall have the right to construe the Plan and the options issued
pursuant to it, to correct defects and omissions and to reconcile
inconsistencies to the extent necessary to effectuate the Plan and the options
issued pursuant to it, and such action shall be final, binding and conclusive
upon all parties concerned. No member of the Committee or the Board of Directors
shall be liable for any act or omission (whether or not negligent) taken or
omitted in good faith, or for the exercise of an authority or discretion granted
in connection with the Plan to a Committee or the Board of Directors, or for the
acts or omissions of any other members of a Committee or the Board of Directors.
Subject to the numerical limitations on Committee membership set forth in
Section 4(a) hereof, the Board of Directors may at any time appoint additional
members of the Committee and may at any time remove any member of the Committee
with or without cause. Vacancies in the Committee, however caused, may be filled
by the Board of Directors, if it so desires.
5. Incentive Stock Options and Non-Qualified Stock Options
a. Options issued pursuant to this Plan may be either
Incentive Stock Options granted pursuant to Section 5(b) hereof or Non-Qualified
Stock Options granted pursuant to Section 5(c) hereof, as determined by the
Committee. An "Incentive Stock Option" is an option which satisfies all of the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") and the regulations thereunder, and a "Non-Qualified Stock Option"
is an option which either does not satisfy all of those requirements or the
terms of the option provide that
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it will not be treated as an Incentive Stock Option. The Committee may grant
both an Incentive Stock Option and a Non-Qualified Stock Option to the same
person, or more than one of each type of option to the same person. The option
price for options issued under this Plan shall be equal at least to the fair
market value (as defined below) of the Company's Common Stock on the date of the
grant of the option. The fair market value of the Company's Common Stock on any
particular date shall mean the last reported sale price of a share of the
Company's Common Stock on any stock exchange on which such stock is then listed
or admitted to trading, or on the NASDAQ National Market, on such date, or if no
sale took place on such day, the last such date on which a sale took place, or
if the Common Stock is not then quoted on the NASDAQ Stock Market, or listed or
admitted to trading on any stock exchange, the average of the bid and asked
prices in the over-the-counter market on such date, or if none of the foregoing,
a price determined in good faith by the Committee to equal the fair market value
per share of the Common Stock.
b. Subject to the authority of the Committee set forth in
Section 4(a) hereof, Incentive Stock Options issued pursuant to this Plan shall
be issued substantially in the form set forth in Exhibit I hereof, which form is
hereby incorporated by reference and made a part hereof, and shall contain
substantially the terms and conditions set forth therein. Incentive Stock
Options shall not be exercisable after the expiration of ten years from the date
such options are granted, unless terminated earlier under the terms of the
option, except that options granted to individuals described in Section
422(b)(6) of the Code shall conform to the provisions of Section 422(c)(5) of
the Code. At the time of the grant of an Incentive Stock Option hereunder, the
Committee may, in its discretion, amend or supplement any of the option terms
contained in Appendix I for any particular optionee, provided that the option as
amended or supplemented satisfies the requirements of Section 422 of the Code
and the regulations thereunder. Each of the options granted pursuant to this
Section 5(b) is intended, if possible, to be an "Incentive Stock Option" as that
term is defined in Section 422 of the Code and the regulations thereunder. In
the event this Plan or any option granted pursuant to this Section 5(b) is in
any way inconsistent with the applicable legal requirements of the Code or the
regulations thereunder for an Incentive Stock Option, this Plan and such option
shall be deemed automatically amended as of the date hereof to conform to such
legal requirements, if such conformity may be achieved by amendment. If such
conformity may not be achieved by amendment, such option shall be deemed to be a
Non-Qualified Stock Option.
c. Subject to the authority of the Committee set forth in
Section 4(a) hereof, Non-Qualified Stock Options issued to officers and other
employees pursuant to this Plan shall be issued substantially in the form set
forth in Appendix II hereof, which form is hereby incorporated by reference and
made a part hereof, and shall contain substantially the terms and conditions set
forth therein. Subject to the authority of the Committee set forth in Section
4(a) hereof, Non-Qualified Stock Options issued to directors and important
consultants pursuant to this Plan shall be issued substantially in the form set
forth in Appendix III hereof, which form is hereby incorporated by reference and
made a part hereof, and shall contain substantially the terms and conditions set
forth therein. Non-Qualified Stock Options shall expire ten years after the date
they are granted, unless terminated earlier under the option terms. At the time
of granting a Non-Qualified Stock Option hereunder, the Committee may, in its
discretion, amend or supplement any of the option terms contained in Exhibit II
or Exhibit III for any particular optionee.
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d. Neither the Company nor any of its current or future
parent, subsidiaries or affiliates, nor their officers, directors, shareholders,
stock option plan committees, employees or agents shall have any liability to
any optionee in the event (i) an option granted pursuant to Section 5(b) hereof
does not qualify as an "Incentive Stock Option" as that term is used in Section
422 of the Code and the regulations thereunder; (ii) any optionee does not
obtain the tax treatment pertaining to an Incentive Stock Option; or (iii) any
option granted pursuant to Section 5(c) hereof is an "Incentive Stock Option."
e. Except as otherwise provided in Section 422 of the Code and
regulations thereunder or any successor provision, no Incentive Stock Option
granted pursuant to this Plan shall be transferable other than by will or the
laws of descent and distribution. Except as otherwise provided by the Rules and
Regulations of the Securities and Exchange Commission, the Committee at the time
of grant of a Non-Qualified Stock Option may provide that such stock option is
transferrable to any "family member" of the optionee by gift or qualified
domestic relations order. For purposes of this section, a family member includes
any child, stepchild, grandchild, parent, step-parent, grandparent, spouse,
former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, including adoptive
relationships, any person sharing the grantee's household (other than a tenant
or employee), a trust in which these persons have more than 50% of the
beneficial interest, a foundation in which these persons (or the grantee)
controls the management of assets, and any other entity in which these persons
or the grantee own more than 50% of the voting interests.
6. Amendment, Supplement, Suspension and Termination
Options shall not be granted pursuant to this Plan after the
expiration of ten years from the date the Plan is adopted by the Board of
Directors of the Company. The Board of Directors reserves the right at any time,
and from time to time, to amend or supplement this Plan, including the forms of
option agreement attached hereto, in any way, or to suspend or terminate it,
effective as of such date, which date may be either before or after the taking
of such action, as may be specified by the Board of Directors; provided,
however, that such action shall not affect options granted under the Plan prior
to the actual date on which such action occurred. If an amendment or supplement
of this Plan is required by the Code or the regulations thereunder to be
approved by the shareholders of the Company in order to permit the granting of
"Incentive Stock Options" (as that term is defined in Section 422 of the Code
and regulations thereunder) pursuant to the amended or supplemented Plan, such
amendment or supplement shall also be approved by the shareholders of the
Company in such manner as is prescribed by the Code and the regulations
thereunder. If the Board of Directors voluntarily submits a proposed amendment,
supplement, suspension or termination for shareholder approval, such submission
shall not require any future amendments, supplements, suspensions or
terminations (whether or not relating to the same provision or subject matter)
to be similarly submitted for shareholder approval.
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7. Effectiveness of Plan
This Plan shall become effective on the date of its adoption
by the Company's Board of Directors, subject however to approval by the holders
of the Company's Common Stock in the manner as prescribed in the Code and the
regulations thereunder. Options may be granted under this Plan prior to
obtaining shareholder approval, provided such options shall not be exercisable
until shareholder approval is obtained.
8. General Conditions
a. Nothing contained in this Plan or any option granted
pursuant to this Plan shall confer upon any employee the right to continue in
the employ of the Company or any affiliated or subsidiary corporation or
interfere in any way with the rights of the Company or any affiliated or
subsidiary corporation to terminate his employment in any way.
b. Nothing contained in this Plan or any option granted
pursuant to this Plan shall confer upon any director or consultant the right to
continue as a director of, or consultant to, the Company or any affiliated or
subsidiary corporation or interfere in any way with the rights of the Company or
any affiliated or subsidiary corporation, or their respective shareholders, to
terminate the directorship of any such director or the consultancy relationship
of any such consultant.
c. Corporate action constituting an offer of stock for sale to
any person under the terms of the options to be granted hereunder shall be
deemed complete as of the date when the Committee authorizes the grant of the
option to the such person, regardless of when the option is actually delivered
to such person or acknowledged or agreed to by him.
d. The terms "parent corporation" and "subsidiary corporation"
as used throughout this Plan, and the options granted pursuant to this Plan,
shall (except as otherwise provided in the option form) have the meaning that is
ascribed to that term when contained in Section 422(b) of the Code and the
regulations thereunder, and the Company shall be deemed to be the grantor
corporation for purposes of applying such meaning.
e. References in this Plan to the Code shall be deemed to also
refer to the corresponding provisions of any future United States revenue law.
f. The use of the masculine pronoun shall include the feminine
gender whenever appropriate.
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Exhibit I
INCENTIVE STOCK OPTION
To: __________________________________________________________________
Name
Address
Date of Grant: ____________________________________________________________
You are hereby granted an option, effective as of the date hereof, to
purchase __________ shares of common stock, $0.10 par value per share ("Common
Stock"), of HealthAxis Inc., a Pennsylvania corporation (the "Company"), at a
price of $____________ per share pursuant to the Company's 2000 Stock Option
Plan (the "Plan").
Your option may first be exercised on and after one year from the date
of grant, but not before that time. On and after one year and prior to
__________ years from the date of grant, your option may be exercised for up to
_____% of the total number of shares subject to the option minus the number of
shares previously purchased by exercise of the option (as adjusted as the
Committee in its sole discretion determines for any change in the outstanding
shares of the Common Stock of the Company by reason of a stock dividend, stock
split, combination of shares, recapitalization, merger, consolidation, transfer
of assets, reorganization, conversion or what the Committee deems in its sole
discretion to be similar circumstances). Each succeeding year thereafter, your
option may be exercised for up to an additional _____% of the total number of
shares subject to the option minus the number of shares previously purchased by
exercise of the option (as adjusted for any change in the outstanding shares of
the Common Stock of the Company by reason of a stock dividend, stock split,
combination of shares, recapitalization, merger, consolidation, transfer of
assets, reorganization, conversion or what the Committee deems in its sole
discretion to be similar circumstances). Thus, this option is fully exercisable
on and after _____ years after the date of grant, except if terminated earlier
as provided herein. This option shall terminate and is not exercisable after ten
years from the date of its grant (the "Scheduled Termination Date"), except if
terminated earlier as hereafter provided.
In the event of a "Change of Control" (as defined below) of the
Company, your option may, from and after the date of the Change of Control, and
notwithstanding the immediately preceding paragraph, be exercised for up to 100%
of the total number of shares then subject to the option minus the number of
shares previously purchased upon exercise of the option (as adjusted for stock
dividends, stock splits, combinations of shares and what the Committee deems in
its sole discretion) and your vesting date may accelerate accordingly. A "Change
of Control" shall be deemed to have occurred upon the happening of any of the
following events:
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1. A change within a twelve-month period in the holders of more than
50% of the outstanding voting stock of the Company; or
2. Any other event deemed to constitute a "Change of Control" by the
Committee.
You may exercise your option by giving written notice to the Secretary
of the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check and includes cash
received from a stock brokerage firm in a so-called "cashless exercise"; (b)
(unless prohibited by the Committee) certificates representing shares of Common
Stock of the Company, which will be valued by the Secretary of the Company at
the fair market value per share of the Company's Common Stock (as determined in
accordance with the Plan) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; or (c)
(unless prohibited by the Committee) any combination of cash and Common Stock of
the Company valued as provided in clause (b). The use of the so-called
"attestation procedure" to exercise a stock option may be permitted by the
Committee. Any assignment of stock shall be in a form and substance satisfactory
to the Secretary of the Company, including guarantees of signature(s) and
payment of all transfer taxes if the Secretary deems such guarantees necessary
or desirable.
Your option will, to the extent not previously exercised by you,
terminate three months after the date on which your employment by the Company or
a Company subsidiary corporation is terminated (whether such termination be
voluntary or involuntary) other than by reason of disability as defined in
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the regulations thereunder, or death (but in no event later than the
Scheduled Termination Date). After the date your employment is terminated, as
aforesaid, you may exercise this option only for the number of shares which you
had a right to purchase and did not purchase on the date your employment
terminated. If you are employed by a Company subsidiary corporation, your
employment shall be deemed to have terminated on the date your employer ceases
to be a Company subsidiary corporation, unless you are on that date transferred
to the Company or another Company subsidiary corporation. Your employment shall
not be deemed to have terminated if you are transferred from the Company to a
Company subsidiary corporation, or vice versa, or from one Company subsidiary
corporation to another Company subsidiary corporation.
If you die while employed by the Company or a Company subsidiary
corporation, your executor or administrator, as the case may be, may, at any
time within one year after the date of your death (but in no event later than
the Scheduled Termination Date), exercise the option as to any shares which you
had a right to purchase and did not purchase during your lifetime. If your
G-7
employment with the Company or a Company parent or subsidiary corporation is
terminated by reason of your becoming disabled (within the meaning of Section
22(e)(3) of the Code and the regulations thereunder), you or your legal guardian
or custodian may at any time within one year after the date of such termination
(but in no event later than the Scheduled Termination Date), exercise the option
as to any shares which you had a right to purchase and did not purchase prior to
such termination. Your executor, administrator, guardian or custodian must
present proof of his authority satisfactory to the Company prior to being
allowed to exercise this option.
In the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee deems in its sole discretion to
be similar circumstances, the number and kind of shares subject to this option
and the option price of such shares shall be appropriately adjusted in a manner
to be determined in the sole discretion of the Committee.
Notwithstanding anything to the contrary contained in this option, in
the event of a sale or a proposed sale of the majority of the stock or assets of
the Company or a proposed Change of Control, the Committee shall have the right
to terminate this option upon thirty (30) days prior written notice to you,
subject to your right to exercise such option to the extent vested prior to such
termination.
This option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option
is not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this option is granted is approved
by the shareholders of the Company in the manner prescribed by the Code and the
regulations thereunder;
(b) Until this option and the optioned shares are approved and/or
registered with such federal, state and local regulatory bodies or agencies and
securities exchanges as the Company may deem necessary or desirable; or
(c) During any period of time in which the Company deems that the
exercisability of this option, the offer to sell the shares optioned hereunder,
or the sale thereof, may violate a federal, state, local or securities exchange
rule, regulation or law, or may cause the Company to be legally obligated to
issue or sell more shares than the Company is legally entitled to issue or sell.
G-8
(d) Until you have paid or made suitable arrangements to pay (which may
include payment through the surrender of Common Stock, unless prohibited by the
Committee) (i) all federal, state and local income tax withholding required to
be withheld by the Company in connection with the option exercise, and (ii) your
portion of other federal, state and local payroll and other taxes due in
connection with the option exercise.
The following two paragraphs shall be applicable if, on the date of
exercise of this option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended,
and under applicable state securities laws, and shall continue to be applicable
for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that he will
acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgments and agreements as the
Company may, in its sole discretion, deem advisable to avoid any violation of
federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the optionee
hereunder shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
applicable state securities laws. The shares have been acquired for
investment and may not be offered, sold, transferred, pledged or
otherwise disposed of without an effective registration statement under
the Securities Act of 1933, as amended, and under any applicable state
securities laws or an opinion of counsel acceptable to the Company that
the proposed transaction will be exempt from such registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
G-9
The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act of 1933, as amended, and any applicable state
securities laws.
It is the intention of the Company and you that this option shall, if
possible, be an "Incentive Stock Option" as that term is used in Section 422 of
the Code and the regulations thereunder. In the event this option is in any way
inconsistent with the legal requirements of the Code or the regulations
thereunder for an "Incentive Stock Option," this option shall be deemed
automatically amended as of the date hereof to conform to such legal
requirements, if such conformity may be achieved by amendment. If such
conformity may not be achieved by amendment, such option shall be deemed to be a
Non-Qualified Stock Option.
Nothing herein shall modify your status as an at-will employee of the
Company. Further, nothing herein guarantees you employment for any specified
period of time. This means that either you or the Company may terminate your
employment at any time for any reason, or no reason. You recognize that, for
instance, you may terminate your employment or the Company may terminate your
employment prior to the date on which your option becomes vested.
Any dispute or disagreement between you and the Company with respect to
any portion of this option or its validity, construction, meaning, performance
or your rights hereunder shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association or its
successor, as amended from time to time. However, prior to submission to
arbitration you will attempt to resolve any disputes or disagreements with the
Company over this option amicably and informally, in good faith, for a period
not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the arbitrator(s)
being rendered, you and the Company may resolve the dispute by settlement. You
and the Company shall equally share the costs charged by the American
Arbitration Association or its successor, but you and the Company shall
otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, the reasons for the decision and award and shall be binding and
conclusive on you and the Company. Further, neither you nor the Company shall
appeal any such award. Judgment of a court of competent jurisdiction may be
entered upon the award and may be enforced as such in accordance with the
provisions of the award.
This option shall be subject to the terms of the Plan in effect on the
date this option is granted, which terms are hereby incorporated herein by
reference and made a part hereof. In the event of any conflict between the terms
of this option and the terms of the Plan in effect on the date of this option,
the terms of the Plan shall govern. This option constitutes the entire
understanding between the Company and you with respect to the subject matter
hereof and no amendment, supplement or waiver of this option, in whole or in
part, shall be binding upon the Company unless in writing and signed by the
President of the Company. This option and the performances of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of Delaware.
G-10
In consideration of the grant to you of this option, you hereby agree
to the confidentiality and non-interference provisions set forth in Attachment A
hereto.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions, including Attachment A hereto.
HEALTHAXIS INC.
By:______________________________
I hereby acknowledge receipt of a copy of the foregoing stock option
and the 2000 Stock Option Plan and, having read them hereby signify my
understanding of, and my agreement with, its terms and conditions including
Attachment A hereto. I accept this option in full satisfaction of any previous
written or verbal promises made to me by the Company with respect to option
grants [except for options granted to me pursuant to agreements dated
___________].
(Date) (Signature)
G-11
APPENDIX G
Attachment A to Stock Option
Confidentiality and Non-Interference.
(a) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, during your employment with the Company or
at any time thereafter, except with the express prior written consent of the
Company or pursuant to the lawful order of any judicial or administrative agency
of government, directly or indirectly, disclose, communicate or divulge to any
individual or entity, or use for the benefit of any individual or entity, any
knowledge or information with respect to the conduct or details of the Company's
business which you, acting reasonably, believe or should believe to be of a
confidential nature and the disclosure of which not to be in the Company's
interest.
(b) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, during your employment with the Company and
for a period of two years thereafter, except with the express prior written
consent of the Company, directly or indirectly, whether as employee, owner,
partner, consultant, agent, director, officer, shareholder or in any other
capacity, engage in or assist any individual or entity to engage in any act or
action which you, acting reasonably, believe or should believe would be harmful
or inimical to the interests of the Company.
(c) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, for a period of two years after your
employment with the Company ceases for any reason whatsoever (whether voluntary
or not), except with the express prior written consent of the Company, directly
or indirectly, whether as employee, owner, partner, consultant, agent, director,
officer, shareholder or in any other capacity, for your own account or for the
benefit of any individual or entity, (i) solicit any customer of the Company for
business which would result in such customer terminating their relationship with
the Company; or (ii) solicit or induce any individual or entity which is an
employee of the Company to leave the Company or to otherwise terminate their
relationship with the Company.
(d) The parties agree that any breach by you of any of the covenants or
agreements contained in this Attachment A will result in irreparable injury to
the Company for which money damages could not adequately compensate the Company
and therefore, in the event of any such breach, the Company shall be entitled
(in addition to any other rights and remedies which it may have at law or in
equity) to have an injunction issued by any competent court enjoining and
restraining you and/or any other individual or entity involved therein from
continuing such breach. The existence of any claim or cause of action which you
may have against the Company or any other individual or entity shall not
constitute a defense or bar to the enforcement of such covenants. If the Company
is obliged to resort to the courts for the enforcement of any of the covenants
or agreements contained in this Attachment A, or if such covenants or agreements
are otherwise the subject of litigation between the parties, and the Company
prevails in such enforcement or litigation, then the term of such covenants and
agreements shall be extended for a period of time equal to the period of such
breach, which extension shall commence on the later of (a) the date on which the
original (unextended) term of such covenants and agreements is scheduled to
terminate or (b) the date of the final court order (without further right of
appeal) enforcing such covenant or agreement.
G-12
(e) If any portion of the covenants or agreements contained in this
Attachment A, or the application hereof, is construed to be invalid or
unenforceable, the other portions of such covenant(s) or agreement(s) or the
application thereof shall not be affected and shall be given full force and
effect without regard to the invalid or enforceable portions to the fullest
extent possible. If any covenant or agreement in this Attachment A is held
unenforceable because of the area covered, the duration thereof, or the scope
thereof, then the court making such determination shall have the power to reduce
the area and/or duration and/or limit the scope thereof, and the covenant or
agreement shall then be enforceable in its reduced form.
(f) For purposes of this Attachment A, the term "the Company" shall
include the Company, any successor to the Company and all present and future
direct and indirect subsidiaries and affiliates of the Company.
G-13
EXHIBIT II
NON-QUALIFIED STOCK OPTION FOR OFFICERS
AND OTHER EMPLOYEES
To: ____________________________________________________________________
Name
Address
Date of Grant:_______________________________________________________________
You are hereby granted an option, effective as of the date hereof, to
purchase __________ shares of common stock, $0.10 par value per share ("Common
Stock"), of HealthAxis Inc., a Pennsylvania corporation (the "Company"), at a
price of $_______ per share pursuant to the Company's 2000 Stock Option Plan
(the "Plan").
Your option may first be exercised on and after one year from the date
of grant, but not before that time. On and after one year and prior to _____
years from the date of grant, your option may be exercised for up to _______ of
the total number of shares subject to the option minus the number of shares
previously purchased by exercise of the option (as adjusted as the Committee in
its sole discretion determines for any change in the outstanding shares of the
Common Stock of the Company by reason of a stock dividend, stock split,
combination of shares, recapitalization, merger, consolidation, transfer of
assets, reorganization, conversion or what the Committee deems in its sole
discretion to be similar circumstances). Each succeeding year thereafter, your
option may be exercised for up to an additional ____% of the total number of
shares subject to the option minus the number of shares previously purchased by
exercise of the option (as adjusted for any change in the outstanding shares of
the Common Stock of the Company by reason of a stock dividend, stock split,
combination of shares, recapitalization, merger, consolidation, transfer of
assets, reorganization, conversion or what the Committee deems in its sole
discretion to be similar circumstances). Thus, this option is fully exercisable
on and after_____ years after the date of grant, except if terminated earlier as
provided herein. This option shall terminate and is not exercisable after ten
years from the date of its grant (the "Scheduled Termination Date"), except if
terminated earlier as hereafter provided.
In the event of a "Change of Control" (as defined below) of the
Company, your option may, from and after the date of the Change of Control, and
notwithstanding the immediately preceding paragraph, be exercised for up to 100%
of the total number of shares then subject to the option minus the number of
shares previously purchased upon exercise of the option (as adjusted for stock
dividends, stock splits, combinations of shares and what the Committee deems in
its sole discretion) and your vesting date may accelerate accordingly. A "Change
of Control" shall be deemed to have occurred upon the happening of any of the
following events:
G-14
1. A change within a twelve-month period in the holders of more than
50% of the outstanding voting stock of the Company; or
2. Any other event deemed to constitute a "Change of Control" by the
Committee.
You may exercise your option by giving written notice to the Secretary
of the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check and includes cash
received from a stock brokerage firm in a so-called "cashless exercise"; (b)
(unless prohibited by the Committee) certificates representing shares of Common
Stock of the Company, which will be valued by the Secretary of the Company at
the fair market value per share of the Company's Common Stock (as determined in
accordance with the Plan) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; or (c)
(unless prohibited by the Committee) any combination of cash and Common Stock of
the Company valued as provided in clause (b). The use of the so-called
"attestation procedure" to exercise a stock option may be permitted by the
Committee. Any assignment of stock shall be in a form and substance satisfactory
to the Secretary of the Company, including guarantees of signature(s) and
payment of all transfer taxes if the Secretary deems such guarantees necessary
or desirable.
Your option will, to the extent not previously exercised by you,
terminate three months after the date on which your employment by the Company or
a Company subsidiary corporation is terminated (whether such termination be
voluntary or involuntary) other than by reason of disability as defined in
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the regulations thereunder, or death (but in no event later than the
Scheduled Termination Date). After the date your employment is terminated, as
aforesaid, you may exercise this option only for the number of shares which you
had a right to purchase and did not purchase on the date your employment
terminated. If you are employed by a Company subsidiary corporation, your
employment shall be deemed to have terminated on the date your employer ceases
to be a Company subsidiary corporation, unless you are on that date transferred
to the Company or another Company subsidiary corporation. Your employment shall
not be deemed to have terminated if you are transferred from the Company to a
Company subsidiary corporation, or vice versa, or from one Company subsidiary
corporation to another Company subsidiary corporation.
If you die while employed by the Company or a Company subsidiary
corporation, your executor or administrator, as the case may be, may, at any
time within one year after the date of your death (but in no event later than
the Scheduled Termination Date), exercise the option as to any shares which you
had a right to purchase and did not purchase during your lifetime. If your
G-15
employment with the Company or a Company parent or subsidiary corporation is
terminated by reason of your becoming disabled (within the meaning of Section
22(e)(3) of the Code and the regulations thereunder), you or your legal guardian
or custodian may at any time within one year after the date of such termination
(but in no event later than the Scheduled Termination Date), exercise the option
as to any shares which you had a right to purchase and did not purchase prior to
such termination. Your executor, administrator, guardian or custodian must
present proof of his authority satisfactory to the Company prior to being
allowed to exercise this option.
In the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee deems in its sole discretion to
be similar circumstances, the number and kind of shares subject to this option
and the option price of such shares shall be appropriately adjusted in a manner
to be determined in the sole discretion of the Committee.
Notwithstanding anything to the contrary contained in this option, in
the event of a sale or a proposed sale of the majority of the stock or assets of
the Company or a proposed Change of Control, the Committee shall have the right
to terminate this option upon thirty (30) days prior written notice to you,
subject to your right to exercise such option to the extent vested prior to such
termination.
Except for transfers to ___________ under the terms set forth in the
Plan, this option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option
is not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this option is granted is
approved by the shareholders of the Company in the manner prescribed by the Code
and the regulations thereunder;
(b) Until this option and the optioned shares are approved
and/or registered with such federal, state and local regulatory bodies or
agencies and securities exchanges as the Company may deem necessary or
desirable; or
G-16
(c) During any period of time in which the Company deems that
the exercisability of this option, the offer to sell the shares optioned
hereunder, or the sale thereof, may violate a federal, state, local or
securities exchange rule, regulation or law, or may cause the Company to be
legally obligated to issue or sell more shares than the Company is legally
entitled to issue or sell.
(d) Until you have paid or made suitable arrangements to pay
(which may include payment through the surrender of Common Stock, unless
prohibited by the Committee) (i) all federal, state and local income tax
withholding required to be withheld by the Company in connection with the option
exercise and (ii) your portion of other federal, state and local payroll and
other taxes due in connection with the option exercise.
The following two paragraphs shall be applicable if, on the
date of exercise of this option, the Common Stock to be purchased pursuant to
such exercise has not been registered under the Securities Act of 1933, as
amended, and under applicable state securities laws, and shall continue to be
applicable for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that
he will acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgments and agreements as the
Company may, in its sole discretion, deem advisable to avoid any violation of
federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the
optionee hereunder shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
applicable state securities laws. The shares have been acquired for
investment and may not be offered, sold, transferred, pledged or
otherwise disposed of without an effective registration statement under
the Securities Act of 1933, as amended, and under any applicable state
securities laws or an opinion of counsel acceptable to the Company that
the proposed transaction will be exempt from such registration."
G-17
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act of 1933, as amended, and any applicable state
securities laws.
It is the intention of the Company and you that this option shall not
be an "Incentive Stock Option" as that term is used in Section 422 of the Code
and the regulations thereunder.
Nothing herein shall modify your status as an at-will employee of the
Company. Further, nothing herein guarantees you employment for any specified
period of time. This means that either you or the Company may terminate your
employment at any time for any reason, or no reason. You recognize that, for
instance, you may terminate your employment or the Company may terminate your
employment prior to the date on which your option becomes vested.
Any dispute or disagreement between you and the Company with respect to
any portion of this option or its validity, construction, meaning, performance
or your rights hereunder shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association or its
successor, as amended from time to time. However, prior to submission to
arbitration you will attempt to resolve any disputes or disagreements with the
Company over this option amicably and informally, in good faith, for a period
not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the arbitrator(s)
being rendered, you and the Company may resolve the dispute by settlement. You
and the Company shall equally share the costs charged by the American
Arbitration Association or its successor, but you and the Company shall
otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, the reasons for the decision and award and shall be binding and
conclusive on you and the Company. Further, neither you nor the Company shall
appeal any such award. Judgment of a court of competent jurisdiction may be
entered upon the award and may be enforced as such in accordance with the
provisions of the award.
This option shall be subject to the terms of the Plan in effect on the
date this option is granted, which terms are hereby incorporated herein by
reference and made a part hereof. In the event of any conflict between the terms
of this option and the terms of the Plan in effect on the date of this option,
the terms of the Plan shall govern. This option constitutes the entire
understanding between the Company and you with respect to the subject matter
hereof and no amendment, supplement or waiver of this option, in whole or in
part, shall be binding upon the Company unless in writing and signed by the
President of the Company. This option and the performances of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of Delaware.
G-18
In consideration of the grant to you of this option, you hereby agree
to the confidentiality and non-interference provisions set forth in Attachment A
hereto.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions, including Attachment A hereto.
HEALTHAXIS INC.
By:__________________________________
I hereby acknowledge receipt of a copy of the foregoing stock option
and the 2000 Stock Option Plan and, having read them hereby signify my
understanding of, and my agreement with, its terms and conditions including
Attachment A hereto. I accept this option in full satisfaction of any previously
written or verbal promises made to me by the Company with respect to option
grants [except for options granted to me pursuant to agreements dated
_______________].
(Date) (Signature)
G-19
Attachment A to Stock Option
Confidentiality and Non-Interference.
(a) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, during your employment with the Company or
at any time thereafter, except with the express prior written consent of the
Company or pursuant to the lawful order of any judicial or administrative agency
of government, directly or indirectly, disclose, communicate or divulge to any
individual or entity, or use for the benefit of any individual or entity, any
knowledge or information with respect to the conduct or details of the Company's
business which you, acting reasonably, believe or should believe to be of a
confidential nature and the disclosure of which not to be in the Company's
interest.
(b) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, during your employment with the Company and
for a period of two years thereafter, except with the express prior written
consent of the Company, directly or indirectly, whether as employee, owner,
partner, consultant, agent, director, officer, shareholder or in any other
capacity, engage in or assist any individual or entity to engage in any act or
action which you, acting reasonably, believe or should believe would be harmful
or inimical to the interests of the Company.
(c) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, for a period of two years after your
employment with the Company ceases for any reason whatsoever (whether voluntary
or not), except with the express prior written consent of the Company, directly
or indirectly, whether as employee, owner, partner, consultant, agent, director,
officer, shareholder or in any other capacity, for your own account or for the
benefit of any individual or entity, (i) solicit any customer of the Company for
business which would result in such customer terminating their relationship with
the Company; or (ii) solicit or induce any individual or entity which is an
employee of the Company to leave the Company or to otherwise terminate their
relationship with the Company.
(d) The parties agree that any breach by you of any of the covenants or
agreements contained in this Attachment A will result in irreparable injury to
the Company for which money damages could not adequately compensate the Company
and therefore, in the event of any such breach, the Company shall be entitled
(in addition to any other rights and remedies which it may have at law or in
equity) to have an injunction issued by any competent court enjoining and
restraining you and/or any other individual or entity involved therein from
continuing such breach. The existence of any claim or cause of action which you
may have against the Company or any other individual or entity shall not
constitute a defense or bar to the enforcement of such covenants. If the Company
is obliged to resort to the courts for the enforcement of any of the covenants
or agreements contained in this Attachment A, or if such covenants or agreements
are otherwise the subject of litigation between the parties, and the Company
prevails in such enforcement or litigation, then the term of such covenants and
agreements shall be extended for a period of time equal to the period of such
breach, which extension shall commence on the later of (a) the date on which the
original (unextended) term of such covenants and agreements is scheduled to
terminate or (b) the date of the final court order (without further right of
appeal) enforcing such covenant or agreement.
G-20
(e) If any portion of the covenants or agreements contained in this
Attachment A, or the application hereof, is construed to be invalid or
unenforceable, the other portions of such covenant(s) or agreement(s) or the
application thereof shall not be affected and shall be given full force and
effect without regard to the invalid or enforceable portions to the fullest
extent possible. If any covenant or agreement in this Attachment A is held
unenforceable because of the area covered, the duration thereof, or the scope
thereof, then the court making such determination shall have the power to reduce
the area and/or duration and/or limit the scope thereof, and the covenant or
agreement shall then be enforceable in its reduced form.
(f) For purposes of this Attachment A, the term "the Company" shall
include the Company, any successor to the Company and all present and future
direct and indirect subsidiaries and affiliates of the Company.
G-21
APPENDIX G
EXHIBIT III
NON-QUALIFIED STOCK OPTION FOR DIRECTORS
AND IMPORTANT CONSULTANTS
To: ____________________________________________________________________________
Name
Address
Date of Grant:__________________________________________________________________
You are hereby granted an option, effective as of the date hereof, to
purchase __________ shares of common stock, $0.10 par value per share ("Common
Stock"), of HealthAxis Inc., a Pennsylvania corporation (the "Company"), at a
price of $_______ per share pursuant to the Company's 2000 Stock Option Plan
(the "Plan").
Your option may first be exercised on and after one year from the date
of grant, but not before that time. On and after one year and prior to
______years from the date of grant, your option may be exercised for up to
______% of the total number of shares subject to the option minus the number of
shares previously purchased by exercise of the option (as adjusted as the
Committee in its sole discretion determines for any change in the outstanding
shares of the Common Stock of the Company by reason of a stock dividend, stock
split, combination of shares, recapitalization, merger, consolidation, transfer
of assets, reorganization, conversion or what the Committee deems in its sole
discretion to be similar circumstances). Each succeeding year thereafter, your
option may be exercised for up to an additional ______% of the total number of
shares subject to the option minus the number of shares previously purchased by
exercise of the option (as adjusted for any change in the outstanding shares of
the Common Stock of the Company by reason of a stock dividend, stock split,
combination of shares, recapitalization, merger, consolidation, transfer of
assets, reorganization, conversion or what the Committee deems in its sole
discretion to be similar circumstances). Thus, this option is fully exercisable
on and after _____ years after the date of grant, except if terminated earlier
as provided herein. This option shall terminate and is not exercisable after ten
years from the date of its grant (the "Scheduled Termination Date"), except if
terminated earlier as hereafter provided.
In the event of a "Change of Control" (as defined below) of the
Company, your option may, from and after the date of the Change of Control, and
notwithstanding the immediately preceding paragraph, be exercised for up to 100%
of the total number of shares then subject to the option minus the number of
shares previously purchased upon exercise of the option (as adjusted for stock
G-22
dividends, stock splits, combinations of shares and what the Committee deems in
its sole discretion) and your vesting date may accelerate accordingly. A "Change
of Control" shall be deemed to have occurred upon the happening of any of the
following events:
1. A change within a twelve-month period in the holders of more than
50% of the outstanding voting stock of the Company; or
2. Any other event deemed to constitute a "Change of Control" by the
Committee.
You may exercise your option by giving written notice to the Secretary
of the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check and includes cash
received from a stock brokerage firm in a so-called "cashless exercise"; (b)
(unless prohibited by the Committee) certificates representing shares of Common
Stock of the Company, which will be valued by the Secretary of the Company at
the fair market value per share of the Company's Common Stock (as determined in
accordance with the Plan) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; or (c)
(unless prohibited by the Committee) any combination of cash and Common Stock of
the Company valued as provided in clause (b). The use of the so-called
"attestation procedure" to exercise a stock option may be permitted by the
Committee. Any assignment of stock shall be in a form and substance satisfactory
to the Secretary of the Company, including guarantees of signature(s) and
payment of all transfer taxes if the Secretary deems such guarantees necessary
or desirable.
Your option will, to the extent not previously exercised by you,
terminate three months after the date on which you cease for any reason to be a
director of, or consultant to, the Company or a subsidiary corporation (whether
by death, disability, resignation, removal, failure to be reappointed, reelected
or otherwise, or the expiration of any consulting arrangement, and regardless of
whether the failure to continue as a director or consultant was for cause or
without cause or otherwise), but in no event later than ten years from the date
this option is granted. After the date you cease to be a director or consultant,
you may exercise this option only for the number of shares which you had a right
to purchase and did not purchase on the date you ceased to be a director or
consultant. If you are a director of a subsidiary corporation, your directorship
shall be deemed to have terminated on the date such company ceases to be a
subsidiary corporation, unless you are also a director of the Company or another
subsidiary corporation, or on that date became a director of the Company or
another subsidiary corporation. Your directorship or consultancy shall not be
deemed to have terminated if you cease being a director of, or consultant to,
the Company or a subsidiary corporation but are or concurrently therewith become
(a) a director of, or consultant to, the Company or another subsidiary
corporation or (b) an employee of the Company or a subsidiary corporation.
G-23
In the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee deems in its sole discretion to
be similar circumstances, the number and kind of shares subject to this option
and the option price of such shares shall be appropriately adjusted in a manner
to be determined in the sole discretion of the Committee.
Notwithstanding anything to the contrary contained in this option, in
the event of a sale or a proposed sale of the majority of the stock or assets of
the Company or a proposed Change of Control, the Committee shall have the right
to terminate this option upon thirty (30) days prior written notice to you,
subject to your right to exercise such option to the extent vested prior to such
termination.
Except for transfers to __________ under the terms set forth in the
Plan, this option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option
is not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this option is granted is
approved by the shareholders of the Company in the manner prescribed by the Code
and the regulations thereunder;
(b) Until this option and the optioned shares are approved and/or
registered with such federal, state and local regulatory bodies or agencies and
securities exchanges as the Company may deem necessary or desirable; or
(c) During any period of time in which the Company deems that the
exercisability of this option, the offer to sell the shares optioned hereunder,
or the sale thereof, may violate a federal, state, local or securities exchange
rule, regulation or law, or may cause the Company to be legally obligated to
issue or sell more shares than the Company is legally entitled to issue or sell.
(d) Until you have paid or made suitable arrangements to pay (which
may include payment through the surrender of Common Stock, unless prohibited by
the Committee) (i) all federal, state and local income tax withholding required
to be withheld by the Company in
G-24
connection with the option exercise and (ii) your portion of other federal,
state and local payroll and other taxes due in connection with the option
exercise.
The following two paragraphs shall be applicable if, on the date of
exercise of this option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended,
and under applicable state securities laws, and shall continue to be applicable
for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that he
will acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgements and agreements as
the Company may, in its sole discretion, deem advisable to avoid any violation
of federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the optionee
hereunder shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
applicable state securities laws. The shares have been acquired for
investment and may not be offered, sold, transferred, pledged or
otherwise disposed of without an effective registration statement under
the Securities Act of 1933, as amended, and under any applicable state
securities laws or an opinion of counsel acceptable to the Company that
the proposed transaction will be exempt from such registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act of 1933, as amended, and any applicable state
securities laws.
It is the intention of the Company and you that this option shall not
be an "Incentive Stock Option" as that term is used in Section 422 of the Code
and the regulations thereunder.
G-25
Any dispute or disagreement between you and the Company with respect to
any portion of this option or its validity, construction, meaning, performance
or your rights hereunder shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association or its
successor, as amended from time to time. However, prior to submission to
arbitration you will attempt to resolve any disputes or disagreements with the
Company over this option amicably and informally, in good faith, for a period
not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the arbitrator(s)
being rendered, you and the Company may resolve the dispute by settlement. You
and the Company shall equally share the costs charged by the American
Arbitration Association or its successor, but you and the Company shall
otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, the reasons for the decision and award and shall be binding and
conclusive on you and the Company. Further, neither you nor the Company shall
appeal any such award. Judgment of a court of competent jurisdiction may be
entered upon the award and may be enforced as such in accordance with the
provisions of the award.
This option shall be subject to the terms of the Plan in effect on the
date this option is granted, which terms are hereby incorporated herein by
reference and made a part hereof. In the event of any conflict between the terms
of this option and the terms of the Plan in effect on the date of this option,
the terms of the Plan shall govern. This option constitutes the entire
understanding between the Company and you with respect to the subject matter
hereof and no amendment, supplement or waiver of this option, in whole or in
part, shall be binding upon the Company unless in writing and signed by the
President of the Company. This option and the performances of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of Delaware.
In consideration of the grant to you of this option, you hereby agree
to the confidentiality and non-interference provisions set forth in Attachment A
hereto.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions, including Attachment A hereto.
HEALTHAXIS INC.
By:________________________________
I hereby acknowledge receipt of a copy of the foregoing stock option
and the 2000 Stock Option Plan and, having read them hereby signify my
understanding of, and my agreement with, its terms and conditions, including
Attachment A hereto. I accept this option in full satisfaction of any
G-26
previous written or verbal promises made to me by the Company with respect to
option grants [except for options granted to me pursuant to agreements dated
________].
(Date) (Signature)
G-27
Attachment A to Stock Option
Confidentiality and Non-Interference.
(a) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, during your term as a director of, or a
consultant to, the Company or at any time thereafter, except with the express
prior written consent of the Company or pursuant to the lawful order of any
judicial or administrative agency of government, directly or indirectly,
disclose, communicate or divulge to any individual or entity, or use for the
benefit of any individual or entity, any knowledge or information with respect
to the conduct or details of the Company's business which you, acting
reasonably, believe or should believe to be of a confidential nature and the
disclosure of which not to be in the Company's interest.
(b) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, during your term as a director of, or a
consultant to, the Company and for a period of two years thereafter, except with
the express prior written consent of the Company, directly or indirectly,
whether as employee, owner, partner, consultant, agent, director, officer,
shareholder or in any other capacity, engage in or assist any individual or
entity to engage in any act or action which you, acting reasonably, believe or
should believe would be harmful or inimical to the interests of the Company.
(c) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, for a period of two years after your term as
a director of, or a consultant to, the Company ceases for any reason whatsoever
(whether voluntary or not), except with the express prior written consent of the
Company, directly or indirectly, whether as employee, owner, partner,
consultant, agent, director, officer, shareholder or in any other capacity, for
your own account or for the benefit of any individual or entity, (i) solicit any
customer of the Company for business which would result in such customer
terminating their relationship with the Company; or (ii) solicit or induce any
individual or entity which is an employee of the Company to leave the Company or
to otherwise terminate their relationship with the Company.
(d) The parties agree that any breach by you of any of the covenants or
agreements contained in this Attachment A will result in irreparable injury to
the Company for which money damages could not adequately compensate the Company
and therefore, in the event of any such breach, the Company shall be entitled
(in addition to any other rights and remedies which it may have at law or in
equity) to have an injunction issued by any competent court enjoining and
restraining you and/or any other individual or entity involved therein from
continuing such breach. The existence of any claim or cause of action which you
may have against the Company or any other individual or entity shall not
constitute a defense or bar to the enforcement of such covenants. If the Company
is obliged to resort to the courts for the enforcement of any of the covenants
or agreements contained in this Attachment A, or if such covenants or agreements
are otherwise the subject of litigation between the parties, and the Company
prevails in such enforcement or litigation,
G-28
then the term of such covenants and agreements shall be extended for a period of
time equal to the period of such breach, which extension shall commence on the
later of (a) the date on which the original (unextended) term of such covenants
and agreements is scheduled to terminate or (b) the date of the final court
order (without further right of appeal) enforcing such covenant or agreement.
(e) If any portion of the covenants or agreements contained in this
Attachment A, or the application hereof, is construed to be invalid or
unenforceable, the other portions of such covenant(s) or agreement(s) or the
application thereof shall not be affected and shall be given full force and
effect without regard to the invalid or enforceable portions to the fullest
extent possible. If any covenant or agreement in this Attachment A is held
unenforceable because of the area covered, the duration thereof, or the scope
thereof, then the court making such determination shall have the power to reduce
the area and/or duration and/or limit the scope thereof, and the covenant or
agreement shall then be enforceable in its reduced form.
(f) For purposes of this Attachment A, the term "the Company" shall
include the Company, any successor to the Company and all present and future
direct and indirect subsidiaries and affiliates of the Company.
G-29
CHAPTER VI--CONSOLIDATED FINANCIAL STATEMENTS
OF HEALTHAXIS.COM, INC. AND INSURDATA INCCORPORATED
TABLE OF CONTENTS
HelathAxis.com, Inc and Subsidiaries
(A Development Stage Enterprise)
Consolidated Financial Statements
Pages
For the Period from Inception (March 2, 1998) through December 31, 1999:
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Changes in Stockholders' Equity................. F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
Insurdata Incorporated and Subsidiaries
Consolidated Financial Statements
Report of Independent Auditors............................................. F-36
Consolidated Balance Sheets................................................ F-37
Consolidated Statements of Income.......................................... F-38
Consolidated Statements of Stockholders' Equity............................ F-39
Consolidated Statements of Cash Flows...................................... F-40
Notes to Consolidated Statements........................................... F-42
___________________________________________
F-1
Independent Auditors' Report
Board of Directors and Stockholders
HealthAxis.com, Inc.
East Norriton, Pennsylvania
We have audited the accompanying consolidated balance sheets of HealthAxis.com,
Inc. and Subsidiaries as of December 31, 1999 and 1998 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year ended December 31, 1999 and for the period from March 26, 1998
(inception) through December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of HealthAxis.com,
Inc. and Subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the year ended December 31, 1999 and for the
period from March 26, 1998 (inception) through December 31, 1998, in conformity
with generally accepted accounting principles.
/s/ BDO Seidman LLP
March 16, 2000
F-2
HealthAxis.com, Inc.
Consolidated Balance Sheets
(dollars in thousands)
================================================================================
December 31, 1999 1998
--------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $56,444 $ 1,724
Prepaid interactive marketing expense 1,790 11,654
Other assets 369 125
--------------------------------------------------------------------------------
Total current assets 58,603 13,503
--------------------------------------------------------------------------------
Deferred acquisition costs 750 --
Equipment and software, net of accumulated deprecation of
$1,088 in 1999 and $53 in 1998 3,291 1,466
Goodwill, net of accumulated amortization of $766 7,114 --
Prepaid alliance agreements, net of accumulated
amortization of $436 2,282 --
--------------------------------------------------------------------------------
Total assets $72,040 $14,969
F-3
HealthAxis.com, Inc.
Consolidated Balance Sheets
(dollars in thousands, except per share and share data)
================================================================================
December 31, 1999 1998
--------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 5,434 $ 2,012
--------------------------------------------------------------------------------
Commitments and contingencies
Preferred stock Series A $.13 cumulative, redeemable and
convertible
Authorized 953,980 shares
Issued and outstanding 545,916 shares -- 2,470
Preferred stock Series B $.13 cumulative, redeemable and
convertible
Issued and outstanding 625,529 shares 2,804 2,735
--------------------------------------------------------------------------------
2,804 5,205
--------------------------------------------------------------------------------
Stockholders' equity
Preferred stock, $1 par value
Authorized 20,000,000 shares for all issues
Series A
Issued and outstanding 545,916 shares 546 --
Series C
Issued and outstanding 1,526,412 shares 1,526 --
Series D
Issued and outstanding 333,334 shares 333 --
Common stock, no par value
Authorized 100,000,000 shares
Issued and outstanding 20,587,311 shares in 1999 and
16,172,760 shares in 1998 70,506 9,060
Additional paid-in capital 26,165 3,482
Accumulated (deficit) (35,274) (4,790)
--------------------------------------------------------------------------------
Total stockholders' equity 63,802 7,752
--------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 72,040 $14,969
================================================================================
See accompanying notes to consolidated financial statements.
F-3 Cont.
HealthAxis.com, Inc.
Consolidated Statements of Operations
(dollars in thousands, except share and per share data)
================================================================================
Period from
March 26,
1998
(inception)
Year ended through
December 31, December 31,
Year ended December 31, 1999 1998
--------------------------------------------------------------------------------
Revenue
Interactive commission and fee revenue $ 291 $ --
--------------------------------------------------------------------------------
Expenses
Operating and development 6,008 812
Sales and marketing 20,099 1,295
General and administrative 5,110 2,544
--------------------------------------------------------------------------------
Total expenses 31,217 4,651
--------------------------------------------------------------------------------
Operating (loss) (30,926) (4,651)
--------------------------------------------------------------------------------
Interest and other income 451 2
Interest expense (9) (141)
--------------------------------------------------------------------------------
Net (Loss) (30,484) (4,790)
Dividends on preferred stock (129) (106)
--------------------------------------------------------------------------------
Net (loss) applicable to common stock $ (30,613) $ (4,896)
--------------------------------------------------------------------------------
Loss per share of common stock
Basic and diluted $ (1.82) $ (0.35)
--------------------------------------------------------------------------------
Weighted average common shares and equivalents used
in computing loss per share
Basic and diluted 16,808,000 14,027,000
--------------------------------------------------------------------------------
F-4
See accompanying notes to consolidated financial statements.
HealthAxis.com, Inc.
Consolidated Statements of Stockholders' Equity
(dollars in thousands, except share data)
Preferred Stock Preferred Stock Preferred Stock Common Stock
Series A Series C Series D
Shares Amount Shares Amount Shares Amount Shares Amount
-----------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1998 $ $ -- $ -- $ --
Stock dividend on a 14:1 basis -- -- 12,250,000 --
Capital contribution from parent 1,557,395 3,001
company
Stock options and warrants issued
HPS note conversion 2,365,365 6,059
Dividends on preferred stock
Net (loss)
-----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 16,172,760 9,060
Reclassification of preferred stock 545,916 546
Additional contribution from parent
company
Preferred shares issued, net of
issuance costs 1,526,412 1,526 333,334 333
Common shares issued,
net of issuance costs 4,362,051 61,347
Warrants issued for services
Exercise of stock options 52,500 99
Push down of goodwill from parent
company
Dividends on preferred stock
Net loss
-----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 545,916 $546 1,526,412 $1,526 333,334 $333 20,587,311 $70,506
-----------------------------------------------------------------------------------------------------------------------------------
[RESTUBBED TABLE FOR ABOVE]
Additional Accumu-
Paid-In lated
Capital (Deficit) Total
-----------------------------------------------------------------------
Balance, January 1, 1998 $ -- $ -- $ --
Stock dividend on a 14:1 basis -- -- --
Capital contribution from parent 3,473 -- 6,474
company
Stock options and warrants issued 115 -- 115
HPS note conversion -- -- 6,059
Dividends on preferred stock (106) -- (106)
Net (loss) (4,790) (4,790)
-----------------------------------------------------------------------
Balance, December 31, 1998 3,482 (4,790) 7,752
Reclassification of preferred stock 1,854 -- 2,400
Additional contribution from parent 87 -- 87
company
Preferred shares issued, net of
issuance costs 10,223 -- 12,082
Common shares issued,
net of issuance costs 61,347
Warrants issued for services 2,767 -- 2,767
Exercise of stock options -- -- 99
Push down of goodwill from parent 7,881 -- 7,881
company
Dividends on preferred stock (129) -- (129)
Net loss (30,484) (30,484)
-----------------------------------------------------------------------
Balance, December 31, 1999 $26,165 $(35,274) $63,802
-----------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5
HealthAxis.com, Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
Period from
March 26,
1998
(inception)
Year ended through
December 31, December 31,
1999 1998
--------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net (loss) $(30,484) $(4,790)
Adjustments to reconcile net loss to net cash (used in)
operating activities
Issuance of common stock in lieu of interest on
HPS note -- 106
Depreciation and amortization 17,049 1,172
Noncash compensation expense 120 61
Premium on conversion of HPS convertible note -- 953
Write-off of software costs 749 --
Changes in assets and liabilities
(Increase) in assets
Prepaid interactive marketing expense (4,730) (9,300)
Other assets (994) (70)
Increase in liabilities
Accounts payable and accrued expenses 3,422 2,012
--------------------------------------------------------------------------------------------------------
Net cash (used in) operating activities (14,868) (9,856)
--------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Purchases of equipment and software (3,814) (1,520)
--------------------------------------------------------------------------------------------------------
F-6
HealthAxis.com, Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
Period from
March 26,
1998
(inception)
Year ended through
December 31, December 31,
1999 1998
--------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Principal payments on capital lease $ (125) $ --
Net proceeds from sales of common stock 61,445 3,000
Net proceeds from sales of preferred stock 12,082 5,100
Proceeds from issuance of HPS convertible note -- 5,000
--------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 73,402 13,100
--------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 54,720 1,724
Cash and cash equivalents at beginning of period 1,724 --
--------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $56,444 $ 1,724
--------------------------------------------------------------------------------------------------------
Noncash financing activities
Fair value of warrants issued in connection with Series C
Preferred shares sold $ 279 $ 2,994
Issuance of warrants in connection with alliance
agreements $ 2,718 $ --
Additional contribution from parent company $ 87 $ --
Issuance of common stock on conversion of HPS note $ -- $ 5,000
Equipment acquired under capital leases $ 154 $ --
Push down of goodwill from parent $ 7,881 $ --
Dividends on preferred stock $ 129 $ 106
--------------------------------------------------------------------------------------------------------
Other supplemental disclosure
Interest paid $ 9 $ --
--------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
1. Nature of HealthAxis.com, Inc. ("HealthAxis" or the "Company") was
Operations incorporated on March 26, 1998 to sell health insurance
products online. HealthAxis seeks to utilize its
exclusive distribution agreements to create a distinct
branded identity for its online health and life
insurance "store." HealthAxis provides convenient,
around-the-clock, online health and life insurance
products.
HealthAxis is a subsidiary of HealthAxis Inc. ("HAI")
(formerly Provident American Corporation), which as of
December 31, 1999 owned 66.9% of HealthAxis' capital
stock. On December 7, 1999 HealthAxis announced that
HealthAxis and Insurdata Incorporated, a subsidiary of
UICI had signed a definitive agreement to merge the two
companies which was completed on January 7, 2000. On
January 26, 2000, HAI and HealthAxis entered into an
Agreement and Plan of Reorganization and an Agreement
and Plan of Merger pursuant to which HAI will acquire
all of the outstanding shares of HealthAxis it does not
currently own.
The Company operates in one segment which is that of an
Internet-based insurance agency.
2. Summary of Principles of Consolidation
Significant
Accounting The consolidated financial statements include the
Policies accounts of HealthAxis and all of its wholly owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The consolidated
financial activity and amounts of HealthAxis and
subsidiaries are also included in the consolidated
financial statements of HAI.
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make estimates and
assumptions that affect the reported amounts of
revenues, expenses, assets, and liabilities and
disclosure of contingencies. Actual results could differ
from those estimates.
F-7
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
================================================================================
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid
investments with maturities of three months or less from
date of purchase. HealthAxis maintains its cash accounts
at one commercial bank. Cash accounts at the bank often
exceed amounts that are insured by the Federal Deposit
Insurance Corporation.
Prepaid Interactive Marketing Expense
Prepaid interactive marketing expense represents cash
and other consideration paid in accordance with its
distribution arrangements for exclusivity and
advertising impressions. Amounts related to exclusivity
are amortized on a straight-line basis over the
respective contract term. Amounts related to advertising
impressions are expensed as impressions are delivered
under the respective agreements.
Prepaid Alliance Agreement
Prepaid alliance agreements represent the fair value of
warrants, valued using the Black Scholes Option Pricing
Model, issued to business partners. The cost associated
with services provided in accordance with each agreement
is amortized on a straight-line basis over the life of
the agreement, or if no term exists on the agreement,
over the expected term of the warrant.
Equipment and Software
Equipment and software are recorded at cost.
Expenditures for improvements that increase the
estimated useful lives of the assets are capitalized.
Expenditures for repairs and maintenance are charged to
operations as incurred. Depreciation and amortization is
provided using the straight-line method over the
estimated useful lives of the assets. Upon sale or
retirement, the cost of the asset and the related
F-8
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
================================================================================
accumulated depreciation and amortization are removed
from the accounts and the resulting gain or loss, if
any, is included in operations.
During 1998 HealthAxis adopted Statement of Position
98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." Accordingly,
direct internal and external costs associated with the
development of the features, content and functionality
of www.healthaxis.com, HealthAxis' website, incurred
during the application development stage, have been
capitalized, and are amortized over the estimated useful
life.
In 2000, HealthAxis established a plan to transfer the
website to a different computer language platform. As a
result the costs associated with the existing website
will be amortized over the remaining useful life, which
coincides with the expected conversion to a new
platform, which is currently planned for the third
quarter of 2000. Other computer hardware and software
are depreciated over three years and furniture is
depreciated over seven years.
Start-Up Costs
In accordance with Statement of Position No. 98-5,
"Reporting on the Costs of Start-Up Activities",
start-up costs have been expensed as incurred.
Recognition of Revenue
Commission and policy fee revenue is recognized in the
month that the insurance carrier earns the premium on
which the commissions are based.
Goodwill
Goodwill represents the purchase of a minority interest
in HealthAxis and is being amortized on a straight-line
basis over three years.
Income Taxes
Effective April 1999, HealthAxis is no longer eligible
to participate in the consolidated federal income tax
F-9
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
================================================================================
return of HAI. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying
amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax
purposes.
Loss Per Share of Common Stock
HealthAxis adopted Statement of Financial Accounting
Standards ("SFAS") No. 128 "Earnings Per Share"
resulting in the presentation of basic and diluted
earnings per share. Equivalents, including warrants,
stock options, and preferred stock, were anti-dilutive
for all periods presented.
Reclassifications and Restatements of Prior Year Amounts
Certain prior year amounts have been reclassified to
conform to the current year's presentation.
Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangibles
including goodwill are reviewed for impairment whenever
events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. See
equipment and software policy for additional
information.
Recent Accounting Standards
In June 1998, the Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative
Instruments", as amended by SFAS 137. SFAS 137 delays
the effective date of implementation of SFAS 133 by one
year. SFAS 133 established accounting and reporting
standards for derivative instruments and for hedging
activities. SFAS 133 requires that an entity recognize
all derivatives as either assets or liabilities and
measure those instruments at fair market value.
Presently, HealthAxis does not use derivative
instruments either in hedging activities or as
investments. Accordingly, HealthAxis believes that
adoption of SFAS 133 will have no impact on its
financial positions or results of operations.
F-10
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
================================================================================
3. Losses and HealthAxis has incurred costs to develop and enhance its
Uncertainties technology, to create and introduce its website and to
establish marketing, insurance carrier and claims
administration relationships. As a result, HealthAxis
has incurred significant losses and expects to continue
to incur losses on a quarterly and annual basis for the
foreseeable future. HealthAxis currently intends to
substantially increase its operating expenses as a
result of its strategic alliances, to fund increased
interactive sales and marketing, to enhance its existing
website and to fund increased salaries and other costs.
Consequently, HealthAxis expects negative cash flow from
operations to continue for the foreseeable future as it
continues to develop and market its Internet-based
health and life insurance business.
During 1999, HealthAxis raised approximately $76,690
through the sale of its preferred stock ($12,807) and
its common stock ($63,883). The net proceeds have been
used to and are anticipated to be used to fund amounts
due under its distribution agreements with the balance
to be used by HealthAxis for its working capital and
other general purposes. HealthAxis believes that the
above net proceeds together with its current cash and
cash equivalents will be sufficient to fund its current
operations through the first quarter of 2001. However,
subsequent equity or debt financings will be necessary
to enable HealthAxis to fund future operations and to
continue to implement its current business strategies
beyond such date.
In January 2000, HealthAxis acquired Insurdata,
Incorporated. Management believes that the acquisition
will provide HealthAxis with additional technical
expertise and the ability to accelerate the carrier
partner integration process, which will reduce the
amount of time needed to make its website functional. In
addition, Insurdata has an established revenue base of
insurance payers, commercial insurance carriers,
independent third parties that administers claims
processing and payment, and self-insured employers.
HealthAxis plans to offer a platform of web-enabled
software applications and services to insurance payers.
F-11
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
================================================================================
Effective with the Insurdata merger, HealthAxis is a
leading online insurance provider of fully integrated,
end-to-end solutions for health insurance distribution
and administration that utilizes the Internet.
HealthAxis serves both consumers and insurance companies
that underwrite policies, independent entities that
administer claims processing and payment, Blue
Cross/Blue Shield plans, and self-insured employers.
4. Equipment Equipment and software, at cost, consisted of the
and following:
Software
Estimated
Useful Lives December 31,
(Years) 1999 1998
--------------------------------------------------------
Leasehold improvements 5 $ 65 $ --
Furniture and equipment 7 384 92
Computer hardware 3 1,810 447
Computer software 3 500 --
Capitalized software
development costs 3 1,620 980
------------------------------------------------------
Total 4,379 1,519
Less accumulated
depreciation and
amortization (1,088) (53)
------------------------------------------------------
Total equipment and software $ 3,291 $1,466
------------------------------------------------------
F-12
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
================================================================================
5. Accrued Accrued expenses consisted of the following:
Expenses
Year ended December 31, 1999 1998
--------------------------------------------------------
Accounts payable $1,438 $ 481
Due to affiliate -- 93
Dividends payable 129 --
Accrued financing fees 1,277 --
Accrued merger costs 460 --
Accrued payroll and benefits 177 --
Accrued professional fees 387 --
Other accrued expenses 1,345 1,093
Accrued taxes 117 10
Employee withholdings 25 3
Unearned e-commerce revenue -- 332
Deferred revenue 50 --
Capital lease 29 --
--------------------------------------------------------
Total accrued expenses $5,434 $2,012
--------------------------------------------------------
6. Distribution In 1998, HealthAxis entered into various distribution
Agreements agreements with AOL, CNET, SNAP! and Lycos. Under these
agreements, these internet portals will promote
HealthAxis' products to the online users of their
websites. The initial terms of the agreements range from
12 to 15 months with the last agreement expiring in
August 2000.
In 1999 and 1998, HealthAxis made payments and issued
warrants, valued using the Black Scholes Option Pricing
Model, aggregating $16,970 which have been charged to
prepaid interactive marketing expense. The amounts
deferred were allocated based on the terms of each
contract between exclusivity and impression advertising
costs, which totaled $3,527 and $13,443, respectively.
During 1999 and 1998, $3,242 and $11,352 and $381 and
$204 were charged to expense representing exclusivity
and impression advertising, respectively.
F-13
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
================================================================================
During 1999 and 1998, a total of 830,082,353 and
10,244,130 impressions on HealthAxis' website by
Internet subscribers was produced as a result of the
agreements.
Each agreement provides for a renewal term ranging from
12 to 28 months for aggregate payments of $47.6 million
starting in February 2000. HealthAxis has chosen not to
exercise its option to renew its agreement with AOL for
an additional term and accordingly will not pay the
$33.5 million renewal fee. In 2000, approximately $1,160
remains outstanding under the initial agreements with
its distribution partners.
In 1999, HealthAxis entered into a distribution
agreement with Yahoo! that provides for a guaranteed
number of impressions. The initial term was for five
months beginning in September 1999 at a cost of $725.
In February 2000, HealthAxis renewed the contract with
Yahoo!. Total payments of $3,600 will be paid in four
installments as follows: $1,244 upon signing of
agreement, $884 on April 1, 2000 and July 1, 2000, and
$589 on or before October 1, 2000.
7. Prepaid Alliance During 1999, HealthAxis has negotiated several strategic
Agreements alliance agreements which provide for the issuance of
warrants to purchase 762,500 shares of HealthAxis common
stock of which 612,500 can be excised at prices ranging
from $4.40-$20.00. Warrants to purchase 150,000 common
shares will be valued at a 10% discount from the
five-day average closing price of HAI stock prior to the
completion of each event as stipulated in the contract.
The warrants have been valued using the Black Scholes
Option Pricing Model at $2,719 and are being amortized
on a straight-line basis over the term of each agreement
or the expected life of the warrants if there is no
contract term. Amortization of $436 has been charged to
operations as a result of the agreements during 1999.
F-14
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
================================================================================
The services to be performed by the strategic alliances
include, among other things, marketing and technical
support to assist in establishing products on the
website, reaching established sales volume and
establishing additional strategic alliances for
HealthAxis.
8. Stock Options Options
and Warrants
HealthAxis has a stock option plan, which provides for
the granting of options to directors and key employees
of HealthAxis and its subsidiaries.
During 1998, HealthAxis adopted the 1998 Stock Option
Plan (the "1998 Stock Option Plan"), which provides for
the award of options and stock purchase rights
(collectively "Awards") to purchase HealthAxis common
stock. Exercise prices are based on 90% of the per share
price paid in private placement transactions with
unaffiliated third parties for grants prior to May 1999
and 100% of the per share price paid in private
placement transactions with unaffiliated third parties.
During 1998 options to purchase 991,000, 309,000 and
50,000 shares were granted to Michael Ashker, Chief
Executive Officer, Alvin H. Clemens, Chairman of the
Board, and Michael Beausang, the Company's former
Secretary, respectively, and are immediately exercisable
at a price of $1.77 per share having a term of 10 years.
Mr. Clemens' option to purchase HealthAxis shares has
been terminated by mutual agreement. Options to purchase
460,000 shares of HealthAxis common stock awarded at
$1.77 per share were awarded to officers and employees.
These options have a term of five years and vest at a
rate of 25% of the initial award on the grant date, 25%
of the initial award on February 1, 1999 and the balance
in quarterly installments thereafter. Options to
purchase an additional 96,500 shares of common stock
were granted to officers and employees at an exercise
price of $4.00 per share. Such options have a term of
five years and vest at a rate of 25% of the initial
award on the grant date, 25% of the initial award on
November 20, 1999 and the balance in quarterly
installments thereafter.
During 1999, HealthAxis amended the 1998 Stock Option
Plan to increase the number of shares available pursuant
F-15
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
================================================================================
for issuance of options to 8,600,000. Options granted in
1999 have a term of ten years and vest at a rate of
20-33% of the initial award on the grant date, with the
balance vesting in quarterly installments over 2-5
years. Of the options granted, options to purchase
200,000, 75,000, 60,000 and 20,000 shares were granted
to Mr. Ashker, Mr. Felder, Mr. Hankinson and Ms. del
Rossi, respectively. Mr. Ashker, Mr. Felder, Mr.
Hankinson and Ms. del Rossi are executive officers of
HealthAxis.
Stock Purchase Rights ("SPRs") may be granted either
alone, in addition to, or in tandem with other awards
granted under the Stock Option Plan. SPRs may not be
granted at less than 85% of the fair market value on the
date of grant (or 100% of the fair market per share for
ten percent shareholders) unless otherwise determined at
the time of grant. Under the terms of the Stock Option
Plan, the SPRs shall include a stock repurchase option
exercisable by HealthAxis if the employee is terminated,
voluntarily or involuntarily, following the receipt of
the restricted stock.
The following table lists changes in outstanding stock
options for the HealthAxis plan:
Weighted
Average Weighted Average Weighted
Number Exercise (Years) Remaining Average
of Shares Price Contractual Life Fair Value
--------- ----- ---------------- ----------
Granted during 1998 1,956,500 $1.88 $0.38
Outstanding, December 31, 1998
Exercisable 1,515,000 1.77 0.36
Exercisable 24,125 4.00 0.80
Not exercisable 345,000 1.77 0.36
Not exercisable 72,375 4.00 0.80
Total outstanding 1,956,500 1.88 0.38
F-16
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
Weighted
Average Weighted Average Weighted
Number Exercise (Years) Remaining Average
of Shares Price Contractual Life Fair Value
--------- ----- ---------------- ----------
1999
Granted 445,500 4.00 0.80
Granted 758,371 5.77 3.71
Granted 700,750 12.00 7.80
Exercised 52,500 1.88
Canceled/Expired 732,400 3.09
Outstanding, December 31, 1999
Exercisable 1,274,021 1.77 3.7 0.36
Exercisable 146,333 4.00 2.3 0.80
Exercisable 111,332 5.77 8.4 3.71
Exercisable 70,670 12.00 9.1 7.80
Not exercisable 123,854 1.77 3.7 0.36
Not exercisable 145,667 4.00 2.3 0.80
Not exercisable 597,764 5.77 8.4 3.71
Not exercisable 606,580 12.00 9.1 7.80
Total outstanding 3,076,221 5.14
HealthAxis has adopted the disclosure-only provisions of
SFAS No. 123, "Accounting for Stock Based Compensation"
for employees and employee-directors as defined in SFAS
No. 123. Accordingly, no compensation cost has been
recognized for stock option and warrant grants to
employees and employee-directors. HealthAxis has elected
to account for stock-based compensation using the
intrinsic value method prescribed in Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees". Compensation cost for stock
options, if any, is measured as the excess of the fair
value of HealthAxis stock at the date of grant over the
amount an employee must pay to acquire the stock.
Compensation cost for shares issued under performance
share plans is recorded based upon the current market
value of HealthAxis stock at the end of each period.
Prior to the announcement of the merger of HAI and
HealthAxis (the "HAI Merger"), the fair value of
HealthAxis stock was based upon the value of its common
and preferred stock sold in various private placements
of its stock during 1999. All options and warrants
granted subsequent to the announcement of the HAI merger
will be measured for compensation purposes using the
fair value of HAI's stock. Had compensation cost for
HealthAxis stock option grants been determined based on
the fair value at the date of grants in accordance with
the provisions of SFAS No. 123, HealthAxis would have
amortized the cost over the vesting period of the
option. HealthAxis' 1999 and 1998 net loss and net loss
per common share would have been increased to the
following pro forma amounts:
F-17
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
================================================================================
December 31, 1999 1998
--------------------------------------------------------
Net loss applicable to common
shares
As reported $(30,613) $(4,896)
Pro forma $(31,277) $(5,492)
Net loss applicable to common
shares for basic and diluted
As reported $ (1.82) $ (0.35)
Pro forma $ (1.86) $ (0.39)
The fair value of the options and warrants granted
during 1999 and 1998 are estimated on the date of grant
using the Black Scholes Option Pricing Model. The major
assumptions used and the estimated fair value include no
dividends paid, an expected term of five years, an
expected stock volatility of 1%, a risk free interest
rate of 4.48%. The weighted average fair value of
options granted in 1999 and 1998 was $.38 and $.36,
respectively.
Warrants
In 1998, in accordance with the terms of a consulting
agreement with Lynx Capital Group, LLC ("Lynx") which
provides for the payment of monthly fees, travel
expenses, HAI issued warrants to purchase 400,000 shares
of HAI's common stock with an estimated value of $663
which has been accounted for as a capital contribution
from HAI. Of this amount, $290 and $373 has been charged
to operations in 1999 and 1998, respectively.
HealthAxis has agreed to grant warrants to purchase
50,000 shares of common stock at approximately $3.30 to
Robinson, Lerer and Montgomery ("RLM"), a public
relations firm engaged by HeathAxis, as part
compensation for services to be rendered to HeathAxis in
the future. The warrants were valued at $94, and have
been accounted for as other prepaid assets of which $40
and $36 was charged to other general and administrative
expense during 1999 and 1998, respectively.
In January and February 2000, the Company granted
options to acquire approximately 1,200,000 common shares
at $15.00 per share. The fair value of HAI common stock
on the grant dates approximated $29.00 per share. As a
result, the Company will amortize, for financial
accounting purposes, compensation costs of approximately
$16,800 over the 3-4 year investing period of the
options.
F-18
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
9. Series A During 1998, HealthAxis sold 545,916 shares of
Cumulative HealthAxis Series A Cumulative preferred stock, par
Convertible value $1.00 (the "Series A Preferred Stock") to PILIC
Preferred Stock for $2,400.
Initially, PILIC purchased 405,886 shares of Series A
Preferred Stock at $5.91 per share. The Stock Purchase
Agreement for Series A Preferred Stock with PILIC
contained a price adjustment provision that would
require HealthAxis to issue to PILIC additional shares
of Series A Preferred Stock if HealthAxis sold other
shares of common or preferred stock to another investor
at a lower price. As a result of the sale of Series B
Preferred Stock to AOL at $4.40 per share, HealthAxis
issued an additional 140,030 shares of Series A
Preferred Stock to PILIC so that PILIC's price per share
would also equate to $4.40.
During 1999, HAI purchased all Series A from PILIC and
Preferred Stock transferred 100,000 shares to AHC
Acquisition, Inc. ("AHC"), a newly formed Pennsylvania
business corporation, owned by Mr. Alvin H. Clemens
(HealthAxis' and HAI's chairman), for no consideration.
In conjunction with the merger described in Note 17, all
of the Series A Preferred Stock will be converted into
common stock of HAI.
Shares of Series A Preferred Stock are convertible at
any time, at the option of the holder, into HealthAxis
common stock at a price equal to the original issuance
price ($4.40 per share) divided by the conversion price
which is defined as the original issuance price adjusted
for future issuances of HealthAxis common stock as
defined in the Preferred Stock Certificate of
Designation.
As a result of an amendment to the Series A Preferred
Stock Certificate of Designation in 1999, holders of the
Series A Preferred Stock are entitled to receive such
dividends as declared by the Board of Directors of
HealthAxis at its discretion.
Holders of the Series A Preferred Stock are entitled to
vote on all matters as to which holders of common stock
are entitled to vote. The holders of each share of
Series B Preferred Stock are entitled to the number of
votes equal to the nearest whole number of shares of
HealthAxis common stock into which the holder's Series B
Preferred Stock is convertible. Generally, the holders
of Series B Preferred Stock shall vote together with the
holders of HealthAxis common stock as one class.
F-19
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
================================================================================
In the event of any dissolution, liquidation or winding
up of the affairs of HealthAxis, whether voluntary or
otherwise, after payment or provision for payment of the
debts and other liabilities of HealthAxis and all
amounts owed to the Series B, Series C and Series D
Preferred Stock or any other class of securities of
HealthAxis having a dividend payment or other
distribution preference senior to the Series A Preferred
Stock (the "Series A Senior Stock"), the holders of
Series A Preferred Stock shall be entitled to receive
$4.40 in cash for each share of Series A Preferred
Stock, plus an amount equal to all dividends accrued and
unpaid on each such share up to the fixed date for
distribution, before any distribution may be made to the
holders of HealthAxis common stock. Each Preferred Stock
Certificate of Designation includes additional
provisions related to liquidation and the order of
payment as it relates to each series of Preferred Stock.
The Series A Preferred Stock is not subject to any
sinking fund or other similar provisions. The holders of
Series A Preferred Stock are not entitled to any
preemptive rights
10. Series B During 1998, HealthAxis issued 625,529 shares of Series
Redeemable B convertible preferred stock, par value $1.00 per share
Convertible (the "Series B Preferred Stock") to AOL at $4.40 per
Preferred Stock share for an aggregate purchase price of $2,750, less
issuance costs amounting to $51, of which a portion was
used to pay amounts due to AOL under their distribution
agreement with the Company. In conjunction with the
merger described in Note 17, all of the Series B
Preferred Stock will be converted into common stock of
HAI.
Holders of the Series B Preferred Stock are entitled to
vote on all matters as to which holders of common stock
are entitled to vote. The holders of each share of
Series B Preferred Stock are entitled to the number of
votes equal to the nearest whole number of shares of
HealthAxis common stock into which the holder's Series B
Preferred Stock is convertible. Generally, the holders
of Series B Preferred Stock shall vote together with the
holders of HealthAxis common stock as one class.
F-20
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
================================================================================
As a result of an amendment to the Preferred Stock
Certificate of Designation in 1999, holders of the
Series B Preferred Stock are entitled to receive such
dividends as declared by the Board of Directors of
HealthAxis in its discretion at a rate as specified by
the Preferred Stock Certificate of Designation.
In the event of any dissolution, the holders of Series B
Preferred Stock shall be entitled to receive, out of the
assets of HealthAxis legally available for distribution
to its shareholders, the amount of $4.40 in cash for
each share of Series B Preferred Stock, plus an amount
equal to all dividends accrued and unpaid on each such
share up to the fixed date for distribution, before any
distribution may be made to the holders of HealthAxis
common stock, or any series of Series B Junior Stock,
including the Series A, Series C and Series D Preferred
Stock. If, after payment or provision for payment of the
debts and other liabilities of HealthAxis, the remaining
net assets of HealthAxis are not sufficient to pay the
holders of the Series B Preferred Stock the full amounts
of their preference, the holders of Series B Preferred
Stock would share ratably in any distribution of assets.
After payment or provision for payment of the debts and
other liabilities of HealthAxis and the full preference
amount due to the holders of any Series of preferred
stock, Series A, Series B, Series C and Series D
Preferred Stock and the HealthAxis common stock will be
entitled to receive on a pro rata basis the remaining
assets of HealthAxis available for distribution to its
shareholders. The relative value of a share of Series A,
Series B, Series C and Series D Preferred Stock for this
purpose shall be determined on an as converted basis.
Holders of the Series B Preferred Stock have the option,
exercisable upon request of the holders of 51% of the
outstanding shares of Series B Preferred Stock within
six months after the later of the occurrence of a
Trigger Event as defined below or notice of a Trigger
Event, to cause HealthAxis to redeem any or all of the
shares of Series B Preferred Stock requested to be
redeemed, at a redemption price per share equal to the
original issuance price (subject to adjustment to
reflect stock
F-21
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
================================================================================
splits, stock dividends, stock contributions,
recapitalizations and similar occurrences) plus an
amount that would yield a total annualized return of 10%
calculated daily and compounded annually from the later
of either the original issuance date or the date on
which the holder acquired the shares of Series B
Preferred Stock through the date of redemption. Notice
of the exercise of the optional redemption rights with
respect to the Series B Preferred Stock must be given to
the Company pursuant to the notice of optional
redemption provision contained in the Certificate of
Designation related to the Series B Preferred Stock.
Trigger Event is any of the following:
o January 31, 2002, if by then HealthAxis has not
consummated an underwritten public offering for its
account of common stock pursuant to a registration
statement filed under the Securities Act of 1993, as
amended, at a net offering price per share of Common
Stock that represents a pre-offering Market
Capitalization of no less than $150.0 million and with
aggregate proceeds (net of underwriting discounts and
commissions) to HealthAxis of not less than
$25.0 million;
o HealthAxis' failure to renew or any material breach by
any party other than AOL or termination of the
interactive marketing agreement;
o The date of the occurrence of a liquidation of
HealthAxis;
o March 31, 1999, if by then HealthAxis has not
consummated a Qualified financing (a transaction
yielding aggregate gross proceeds to HealthAxis if not
less than $7.0 million, at a price per share of common
stock equal to at least $3.74);
o May 31, 1999, if by then HealthAxis has not
consummated a Second Qualified financing (a
transaction yielding aggregate gross proceeds to
HealthAxis of not less than $3.5 million at a price
per share of common stock equal to at least $3.74).
Shares of Series B Preferred Stock are convertible at
any time, at the option of the holder, into HealthAxis
common stock at a price equal to the original issuance
price ($4.40 per share) divided by the conversion price
which is defined as the original issuance price adjusted
for future issuances of HealthAxis common stock as
defined in the Certificate of Designation related to the
Series B Preferred Stock.
In connection with AOL's purchase of the Series B
Preferred Stock, HealthAxis and AOL entered into a
Registration Rights Agreement ("Registration Agreement")
which sets forth the rights of AOL in connection with
the public offering of a HealthAxis common stock
acquired in connection with the conversion of Series B
Preferred Stock or other shares of common stock acquired
through the exercise of warrants granted to AOL.
Under its Registration Agreement, AOL has the right to
demand registration of its shares of common stock or to
have its shares of common stock included in a
registration statement prepared at the request of
HealthAxis or another HealthAxis shareholder.
The Series B Preferred Stock is not subject to any
sinking fund or other similar provisions. The holders of
Series B Preferred Stock are not entitled to any
preemptive rights.
11. Series C On March 30, 1999, HealthAxis issued 1,526,412 shares of
Convertible HealthAxis Series C convertible preferred stock at $5.77
Preferred Stock per share (the "Series C Preferred Stock"), for an
aggregate purchase price of $8,807, less issuance costs
of $684 and the value of HealthAxis warrants issued in
connection with the issuance of Series C Preferred Stock
to certain professional services firms valued at $278.
In conjunction with the merger described in Note 17, all
of the Series C Preferred Stock will be converted into
common stock of HAI.
F-22
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
================================================================================
Holders of the Series C Preferred Stock are entitled to
vote on all matters as to which holders of common stock
are entitled to vote. The holders of each share of
Series C Preferred Stock are entitled to the number of
votes equal to the nearest whole number of shares of
common stock into which the holder's Series C Preferred
Stock is convertible. Generally, the holders of Series C
Preferred Stock shall vote together with the holders of
HealthAxis common and preferred stock as one class.
Holders of the Series C Preferred Stock will be entitled
to dividends, on a pari passu basis with the holders of
Series D Preferred Stock, accruing from the date of
issue, as such dividends are declared by the Board of
Directors of HealthAxis at its discretion at a rate as
specified by the Preferred Stock Certificate of
Designation.
In the event of any distribution, liquidation or winding
up of the affairs of HealthAxis, whether voluntary or
otherwise, after payment or provisions for payment of
debts an other liabilities of HealthAxis and payment of
all amounts owed to the holders of the Series B
Preferred Stock, the holders of the Series C Preferred
Stock shall be entitled to receive on a pari passu basis
with the holders of Series D Preferred Stock, out of the
assets of HealthAxis legally available for distribution
to its shareholders, an amount in cash equal to $5.77
("Series C Offering Price") per share for each share of
Series C Preferred Stock, plus an amount equal to all
dividends accrued and unpaid, if any, on each such share
up to the date fixed for distribution, before any
distribution may be made to the holders of HealthAxis
common stock, the Series A Preferred Stock or any Series
C Junior Stock.
The Series C Preferred Stock is not subject to any
mandatory redemption, sinking fund or other similar
provisions.
Shares of Series C Preferred Stock are convertible at
any time, at the option of the holder, into HealthAxis
common stock at a price equal to the original issue
F-23
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
================================================================================
price ($5.77 per share) divided by the conversion price
which is defined as the original issuance price adjusted
for future issuances of HealthAxis common stock as
defined in the Certificate of Designation related to the
Series C Preferred Stock.
F-24
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
================================================================================
12. Series D On July 12, 1999, HealthAxis issued 333,334 shares of
Convertible HealthAxis Series D convertible preferred stock to Intel
Preferred Stock Corporation at $12 per share (the Series D Preferred
Stock") for an aggregate purchase price of $4,000, less
issuance costs of $40. The net proceeds of approximately
$3,960, will be used for working capital and other
general corporate purposes, including marketing
expenses, web site enhancements, salary expenses and
advertising and promotional expenses of HealthAxis. In
conjunction with the merger described in Note 17, all of
the Series D Preferred Stock will be converted into
common stock of HAI.
In connection with the HealthAxis Series D offering,
HealthAxis Amended and Restated Articles of
Incorporation were amended to authorize an additional
500,000 shares of HealthAxis Preferred Stock.
Holders of the Series D Preferred Stock are entitled to
vote on all matters as to which holders of common stock
are entitled to vote. The holders of each share of
Series D Preferred Stock are entitled to the number of
votes equal to the nearest whole number of shares of
common stock into which the holder's Series D Preferred
Stock is convertible. Generally, the holders of Series D
Preferred Stock shall vote together with the holders of
HealthAxis common and preferred stock as one class.
Holders of the Series D Preferred Stock will be entitled
to dividends, on a pari passu basis with the holders of
Series C Preferred Stock, accruing from the date of
issue, if such dividends are declared by the Board of
Directors of HealthAxis at its discretion at a rate as
specified by the Preferred Stock Certificate of
Designation.
In the event of any distribution, liquidation or winding
up of the affairs of HealthAxis, whether voluntary or
otherwise, after payment or provisions for payment of
the debts and other liabilities of HealthAxis and
payment of all amounts owed to the holders of the Series
F-25
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
================================================================================
B Preferred Stock, the holders of the Series D Preferred
Stock shall be entitled to receive, on a pari passu
basis with the holders of the Series C Preferred Stock
out of the assets of HealthAxis legally available for
distribution to its shareholders, an amount in cash
equal to $12.00 ("Series D Offering Price") per share
for each share of Series D Preferred Stock, plus an
amount equal to all dividends accrued and unpaid, if
any, on each such share up to the date fixed for
distribution, before any distribution may be made to the
holders of HealthAxis common stock for the Series A
Preferred Stock.
The Series D Preferred Stock is not subject to any
mandatory redemption, sinking fund or other similar
provisions.
Shares of Series D Preferred Stock are convertible at
any time, at the option of the holder, into HealthAxis
common stock at a price equal to the original issue
price ($12.00 per share) divided by the conversion price
which is defined as the original issuance price adjusted
for future issuances of HealthAxis common stock as
defined in the Certificate of Designation related to the
Series D Preferred Stock.
13. Stockholders' In August 1998, the Board of Directors declared a
Equity and 14-for-1 stock dividend of HealthAxis common stock. All
Dividend share amounts have been restated to reflect the effects
Restrictions of this dividend.
During 1998, HealthAxis issued a 5.5% convertible note
to HPS for cash of $5,000 which was subsequently
converted, together with accrued interest, into
2,365,365 shares of common stock. The note was
originally convertible into a 12.5% interest. As a
result of AOL's desire to be the most senior security
upon investment, HealthAxis agreed to give HPS an
additional 2.5% interest upon conversion of their note
to common stock. As a result, the inducement was valued
at $953 and was charged to operations with a
corresponding credit to additional paid in capital.
On May 11, 1999 HealthAxis completed a private placement
of 516,051 shares of HealthAxis common stock to a group
of accredited investors at $12 per share for an
F-26
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
================================================================================
aggregate purchase price of $6,193, less issuance costs
of $2.
On May 13, 1999, HAI entered into a Stock Purchase
Agreement pursuant to which HPS granted HAI an option to
purchase 1,415,000 shares of HealthAxis common stock
from HPS. In August 1999, HAI exercised this option and
completed the purchase in November 1999 for $8,203. HAI
accounted for the purchase of the minority interest in
accordance with APB Opinion No. 16, "Business
Combinations" and subsequently recorded the excess of
the purchase price over the original cost that amounted
to $7,881 as a capital contribution to HealthAxis. In
accordance with pushdown accounting, HealthAxis has
accounted for the capital contribution as goodwill to be
amortized over 3 years.
On December 7, 1999, HealthAxis completed a private
placement of 3,846,003 shares of HealthAxis common stock
to a group of accredited investors and HAI at $15 per
share for an aggregate purchase price of approximately
$57,690 less issuance costs estimated to approximate
$2,533. HAI purchased 133,333 shares in the transaction.
Dividend Restrictions
Dividends paid by HealthAxis to holders of HealthAxis
common stock are subject to restrictions set for in the
Certificates of Designation related to the Series A,
Series B, Series C and Series D Convertible Preferred
Stock. HealthAxis has not nor does it anticipate paying
a cash dividend in the foreseeable future.
F-27
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
================================================================================
14. Income Taxes Significant components of deferred taxes consisted of
the following:
December 31, 1999 1998
--------------------------------------------------------
Deferred tax assets
Start-up expenses $ 1,366 $1,707
Net operating loss carryforwards 11,006 --
Other, net (307) (33)
--------------------------------------------------------
12,065 1,674
Valuation allowance for deferred tax
assets 12,065 1,674
--------------------------------------------------------
Deferred tax liabilities $ -- $ --
--------------------------------------------------------
HealthAxis has a net operating loss carryforward
("NOL's") of approximately $29,000 which is available to
offset its future taxable income through 2014. However,
a certain amount of the NOL's are subject to annual
limitations, thereby significantly reducing their
ultimate utilization. Additionally, the utilization of
these NOL's, if available, to reduce future income taxes
will depend on the generation of sufficient taxable
income prior to their expiration.
HealthAxis has established a valuation allowance for
deferred tax assets reflecting uncertainty as to whether
the deferred tax asset is realizable. The change in the
valuation allowance in 1999 amounting to $10,391 results
primarily from the increase in net operating loss
carryforwards.
F-28
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
================================================================================
15. Commitments During 1999, HealthAxis entered into capital lease
and obligation with an outside party in the amount of $154
Contingencies on data processing and other equipment, which are
included in property and equipment. The obligation in
1999 was $29 with $9 of interest being paid on the
lease, with payments of $29 due in 2000.
HealthAxis leases office space in San Francisco, CA
whose term ends July 31, 2002. Payments through December
31, 1999 are $27, with payments of $55, $55 and $32 in
2000, 2001, and 2002, respectively.
During 1999, HealthAxis and HAI entered into a
settlement agreement at no cost to resolve a number of
disputes that had arisen between HPS, HealthAxis and
HAI. The Companies agreed to settle all differences and
claims related to an outsource agreement with HAI and
certain actions taken by HealthAxis regarding its
obligations under an E-Commerce Agreement.
Litigation
HealthAxis is involved in disputes and litigation in the
normal course of business. Management is of the opinion
that neither the litigation nor the claims (if any) will
have a material adverse effect on the results of
operations or financial position of HealthAxis.
Government Legislation and Regulation
HealthAxis business is subject to a changing legislative
and regulatory environment. Some of the proposed changes
include initiatives to restrict insurance pricing and
the application of underwriting standards and reform
healthcare. Proposals on national healthcare reform have
been under consideration that could significantly change
the way healthcare is financed and provided. The effects
on HealthAxis of comprehensive healthcare reforms,
which, if enacted, may have a material adverse impact
upon the ability of HealthAxis to profitably engage in
the sale of accident and health insurance products.
16. Related Party Michael Ashker also served as the sole manager of Lynx
Transactions through December 1999. Lynx is party to a consulting
agreement with HAI whereby Lynx provided various
services to HeathAxis during 1998 approximating $23 in
fees and expenses as well as options to purchase 400,000
shares of HAI common stock.
F-29
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
================================================================================
A former Director of HealthAxis and HAI, is a partner in
a law firm which provides legal services to HealthAxis
which approximated $64 and $100 for the years ended
December 31, 1999 and 1998, respectively.
A technology consulting firm owned by HealthAxis former
Chief Information Systems Officer provided information
systems consulting services to HealthAxis approximating
$1,398 and $690 for the years ended December 31, 1999
and 1998, respectively.
17. Subsequent Merger of Insurdata into HealthAxis.com
Events
On December 7, 1999, HealthAxis and Insurdata
Incorporated, a subsidiary of UICI announced the signing
of a definitive agreement to merge the two companies.
The combined entity will retain the HealthAxis.com name.
Under the terms of the transaction, Insurdata's
shareholders will receive approximately 50 percent of
the newly combined company. The transaction closed on
January 7, 2000.
In accordance with the terms of the Merger Agreement,
each outstanding share of Insurdata common stock (the
"Insurdata Common Stock"), was converted into the right
to receive 1.33 shares (the "Exchange Ratio") of
HealthAxis common stock (the "HealthAxis Common Stock").
HealthAxis issued 21,807,567 shares of HealthAxis Common
Stock to Insurdata shareholders. Of the total of
42,392,381 shares of HealthAxis Common Stock
outstanding, UICI received 18,943,678 shares of
HealthAxis Common Stock, 2,439,885 shares of HealthAxis
Common Stock are held by the voting trust (described
herein) and other shareholders of Insurdata received
424,004 shares of HealthAxis Common Stock. Subsequent to
such date, 10,103,217 shares of HealthAxis Common Stock
held by UICI were transferred to a voting trust. See
"Voting Trust Agreements."
The merger of Insurdata and HealthAxis will be accounted
for by HealthAxis under the purchase method of
F-30
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
================================================================================
accounting in accordance with APB No. 16 whereas
HealthAxis, by virtue of its holding a majority of the
voting interest was determined to be the accounting
acquirer. As a result, the net assets of Insurdata will
be recorded at their fair value with the excess of
HealthAxis purchase price over the fair value of the net
assets acquired being goodwill to being amortized on a
straight line basis over three years.
The Merger Agreement provides that each option to
purchase shares of Insurdata Common Stock under
Insurdata's stock option plans which are outstanding on
the Effective Date, whether or not exercisable, shall be
converted into and become a right to purchase shares of
HealthAxis Common Stock, generally in accordance with
the terms of the Insurdata stock option plans and
Insurdata option agreements pursuant to which such
options were granted, except that from and after the
Effective Date, (i) the number of shares of HealthAxis
subject to each Insurdata option shall be equal to the
number of shares of Insurdata Common Stock subject to
such option prior to the Effective Date multiplied by
the exchange ratio (with fractional shares rounded down
to the nearest share and cash being payable for any
fraction of a share) and (ii) the exercise price per
share of HealthAxis Common Stock purchasable thereunder
shall be that specified in the Insurdata option divided
by the exchange ratio (rounded up to the nearest one
hundredth).
The Merger is intended to constitute reorganization
under Section 368(a) of the Internal Revenue Code of
1986, as amended.
The chart below identifies the equity ownership of
HealthAxis Common and Preferred Stock before and after
the merger of Insurdata. The chart excludes options and
warrants to purchase HealthAxis stock.
March 14, 2000 December 31, 1999
-----------------------------------------------------------------------------------
Shares Percentage Shares Percentage
-----------------------------------------------------------------------------------
HAI 15,801,644 34.8% 15,801,644 66.9%
UICI and subsidiaries 17,810,229 39.2% 866,551 3.7%
AHC acquisition 100,000 0.2% 100,000 0.4%
Other shareholders'
interest 11,714,199 25.8% 6,850,310 29.0%
---------------------------------------------------------------------------------
Total 45,426,072 100.0% 23,618,505 100.0%
-----------------------------------------------------------------------------------
F-31
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
Voting Trust Agreements
The Merger Agreement also provides for a voting trust
agreement (the "Voting Trust Agreement") which
established a trust to hold shares of Insurdata Common
Stock which are currently held of record by UICI, but as
to which UICI has granted options to purchase such
shares to certain employees of Insurdata pursuant to its
Insurdata Founders' Program. These shares were converted
into 2,439,885 shares of HealthAxis Common Stock in the
Merger. The initial trustees of this trust are Michael
Ashker, Alvin Clemens, Edward W. LaBaron, Jr. and Henry
Hager (the "Trustees"). All of the initial Trustees are
also directors of HAI and Messrs. Ashker and Clemens are
also directors and officers of HealthAxis. Pursuant to
the terms of the Voting Trust Agreement, a majority of
the Trustees have the power to vote the shares held by
the trust in their discretion at all meetings of
shareholders or pursuant to actions by unanimous
consent. The Voting Trust Agreement terminates upon the
earlier of the distribution of the shares subject to
such agreement or July 1, 2003. Upon the termination of
this Voting Trust Agreement or upon any dissolution or
total or partial liquidation of HealthAxis, whether
voluntary or involuntary, the Trustees shall direct that
all Shares remaining in the Trust and all moneys,
securities, rights or property attributable to the
Shares be distributed to UICI.
Following the completion of the Insurdata merger, UICI,
and Messrs. Ashker, LeBaron and Maloney entered into a
voting trust agreement ("the UICI Voting Trust") which
provides for the establishment of a trust to hold
10,103,217 shares of HealthAxis common stock held by
UICI. The initial trustees of the UICI Voting Trust are
Michael Ashker, Edward W. LeBaron, Jr. and Dennis B.
Maloney who are referred to as the trustees. All of the
trustees are also directors of HealthAxis and Messrs.
Ashker and LeBaron are directors of HAI. Messrs. Ashker
and Maloney are also officers of HealthAxis. A majority
of the trustees have the power to vote the shares held
by the UICI Voting Trust in their discretion at all
meetings of shareholders or pursuant to actions by
unanimous consent. UICI retains dispositive power and
F-32
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
the ability to receive all dividends on the shares held
in the UICI Voting Trust. Pursuant to the UICI Voting
Trust agreement, if one of the trustees is no longer
able to serve as trustee, the other two trustees may
select by unanimous vote a new trustee from the members
of the board of directors of HAI or HealthAxis who are
not selected by UICI. The UICI Voting Trust agreement
also provides that if UICI decides to sell any of its
shares of HealthAxis common stock, half of the shares
sold must be shares subject to the UICI Voting Trust.
The UICI Voting Trust agreement terminates upon the
earlier of February 11, 2020; such time as UICI owns
less than 20% of the outstanding common stock of
HealthAxis or HAI; upon another person acquiring 51% or
more of the outstanding shares of HealthAxis; or July
31, 2000 if transactions contemplated by the merger of
HealthAxis into HealthAxis Acquisition Corporation are
not completed.
Technology Outsourcing Agreement
In accordance with the Merger Agreement, UICI and its
affiliates and Insurdata shall enter into a Technology
Outsourcing Agreement pursuant to which Insurdata will
provide UICI and its affiliates with technology support
services, data processing services and other software
and hardware based services.
UICI Registration Rights Agreement
HealthAxis and UICI also entered into a registration
right agreement that provides for the registration of
HealthAxis shares received by UICI in the Merger.
HealthAxis Merger with HealthAxis Acquisition
Corporation
On December 7, 1999, HAI announced plans to move forward
with its original plan to merge with its subsidiary,
HealthAxis. Management of the respective companies
signed the merger agreement on January 26, 2000. HAI's
board of directors approved the merger on January 26,
2000 and by HealthAxis board of directors on January 26,
2000.
F-33
HealthAxis.com, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands)
The merger documents provide for the merger of
HealthAxis with and into a newly formed, wholly owned
subsidiary of HAI. As a result of the merger, HealthAxis
will cease to exist, and the former shareholders of
HealthAxis will become shareholders of HAI. The HAI
subsidiary will continue as the surviving corporation of
the merger and will retain all of its separate corporate
existence, with all its rights and powers unaffected by
the merger. The merger is subject to both HAI and
HealthAxis shareholder approval.
The merger provides for the conversion of each
outstanding share of HealthAxis common and preferred
stock into 1.127 shares ("the exchange ratio") of HAI
common stock. HealthAxis anticipates that the merger
will constitute a tax free "reorganization" within the
meaning of the Internal Revenue Code of 1986.
HealthAxis anticipates that HAI will issue a total of
approximately 33,400,000 shares of HAI common stock to
HealthAxis shareholders in the merger. We also
anticipate that HAI will issue up to approximately
6,300,000 shares of HAI common stock upon the exercise
of options and warrants to purchase HealthAxis common
stock to be assumed by HAI.
Based on the number of shares of HAI common stock to be
issued in the merger, excluding shares subject to stock
options and warrants to be assumed by HAI, following the
merger, existing HAI shareholders will own approximately
28% and former HealthAxis shareholders will own
approximately 72% of the outstanding common stock of
HAI.
The merger will be accounted for by HAI as a
recapitalization in which the preferred and common stock
of HealthAxis will be converted into HAI common stock
eliminating all minority interest in HealthAxis.
HealthAxis options and warrants outstanding will be
exchanged for options and warrants in HAI. As a result
F-34
of the recapitalization and exchange a remeasurement of
the HealthAxis options is anticipated. As a result of
the remeasurement, the intrinsic value of vested options
will be expensed upon completion of the merger. The
intrinsic value of unvested options will be recorded as
prepaid compensation and will be charged to operations
over the vesting period of these options.
Out of pocket costs which are anticipated to include
legal, accounting and investment advisory costs as well
as severance costs for employees whose positions will be
eliminated as a result of the mergers will be expensed
upon completion of the merger.
F-35
Report of Independent Auditors
The Board of Directors and Stockholders
Insurdata Incorporated
We have audited the accompanying consolidated balance sheets of Insurdata
Incorporated and Subsidiaries (the Company) as of December 31, 1998 and 1999,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Insurdata
Incorporated and Subsidiaries at December 31, 1998 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Dallas, Texas
March 28, 2000
F-36
Insurdata Incorporated and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share amounts)
(Note 1)
ASSETS
December 31
1998 1999
----------------- ----------------
Current assets:
Cash and cash equivalents $ 4,450 $ 2,126
Trade accounts receivable, net of allowance of $69 and $25,
at December 31, 1998 and 1999, respectively 2,482 2,732
Receivables from affiliates 2,242 3,201
Receivable from affiliate related to income taxes - 388
Notes receivable 308 -
Deferred income taxes 131 140
Other current assets 603 828
----------------- ----------------
Total current assets 10,216 9,415
Property and equipment, net 5,987 6,278
Capitalized software and contract start-up costs, net 2,620 3,452
Intangible assets, net 920 1,144
Long-term notes receivable 292 -
Long-term notes receivable - employees - 631
----------------- ----------------
Total assets $20,035 $ 20,920
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 235 $ 959
Accrued liabilities 3,175 2,421
Accrued liabilities payable to affiliates 476 575
Payable to affiliate related to income taxes 731 -
Deferred revenues 377 397
Obligations under capital leases 179 148
----------------- ----------------
Total current liabilities 5,173 4,500
Notes payable 36 24
Obligations under capital leases 409 152
Deferred income taxes 18 680
Phantom stock liability 687 344
Commitments
Minority interest 16 -
Stockholders' equity:
Common stock, no par value:
Authorized shares - 50,000,000 issued and outstanding
shares 16,396,667 for both 1998 and 1999 5,531 5,777
Retained earnings 8,165 9,443
----------------- ----------------
Total stockholders' equity 13,696 15,220
----------------- ----------------
Total liabilities and stockholders' equity $ 20,035 $ 20,920
================= ================
See accompanying notes.
F-37
Insurdata Incorporated and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share amounts)
(Note 1)
Year ended December 31
1997 1998 1999
--------------- -------------- ---------------
Revenue $16,804 $19,325 $ 18,351
Revenue from affiliates 12,591 24,908 28,112
--------------- -------------- ---------------
Total revenue 29,395 44,233 46,463
Operating expenses:
Cost of revenues 21,371 33,935 37,104
Selling, general and administrative 4,526 5,534 5,759
Research and development 440 533 22
Amortization of capitalized software development
and contract start-up costs 645 834 1,344
Amortization of intangible assets and goodwill 74 88 111
Costs of preparing for public offering - 726 -
--------------- -------------- ---------------
Total operating expenses 27,056 41,650 44,340
--------------- -------------- ---------------
Operating income 2,339 2,583 2,123
Interest and other income, net 541 256 80
--------------- -------------- ---------------
Income before income taxes and minority interest 2,880 2,839 2,203
Provision for income taxes 1,195 880 832
--------------- -------------- ---------------
Income before minority interest 1,685 1,959 1,371
Minority interest in (income) loss of subsidiary 176 (34) (93)
--------------- -------------- ---------------
Net income $ 1,861 $ 1,925 $ 1,278
=============== ============== ===============
See accompanying notes.
F-38
Insurdata Incorporated and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In thousands)
(Note 1)
Common Stock
----------------------
Number of Retained Deferred
Shares Amount Earnings Compensation Total
----------- ---------- ----------- ---------------- ---------
Balance at December 31, 1996 16,397 $ 8,408 $ 4,459 $ (233) $12,634
Contribution of Insurdata Administrators from UICI
(Note 1) - 273 - - 273
Contribution from UICI (Note 8) - 132 - - 132
Distributions to UICI and minority interests - (2,791) (80) - (2,871)
Amortization of deferred compensation - - - 147 147
Net income and comprehensive income - - 1,861 - 1,861
----------- ---------- ----------- ---------------- ---------
Balance at December 31, 1997 16,397 6,022 6,240 (86) 12,176
Contribution from UICI (Note 8) - 216 - - 216
Distributions to UICI (Note 1) - (707) - - (707)
Amortization of deferred compensation - - - 86 86
Net income and comprehensive income - - 1,925 - 1,925
----------- ---------- ----------- ---------------- ---------
Balance at December 31, 1998 16,397 5,531 8,165 - 13,696
Tax benefits of stock option deduction - 246 - - 246
Net income and comprehensive income - - 1,278 - 1,278
----------- ---------- ----------- ---------------- ---------
Balance at December 31, 1999 16,397 $ 5,777 $ 9,443 $ - $15,220
=========== ========== =========== ================ =========
See accompanying notes.
F-39
Insurdata Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Note 1)
Year ended December 31
1997 1998 1999
-------------- ------------- -------------
Operating Activities
Net income $ 1,861 $ 1,925 $ 1,278
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation expense 1,193 1,959 2,644
Amortization of intangibles and goodwill 74 88 111
Amortization of capitalized software development and
contract start-up costs 645 834 1,344
Income tax benefits of stock option deduction - - 246
Minority interest (176) 34 93
Compensation from stock grants 147 86 -
Provision for doubtful accounts 155 115 26
Loss on disposal of fixed assets 89 52 35
Purchased in-process research and development - 189 -
Deferred income taxes 125 206 571
Changes in operating assets and liabilities, net of
dispositions
Trade accounts receivable (802) (273) (620)
Receivables from affiliates (3,694) (8) (959)
Other current assets (138) 146 (306)
Accounts payable and accrued liabilities 1,869 883 538
Accrued liabilities payable to affiliates and phantom
stock liability (227) (1,120) (245)
Receivable/payable from affiliate for income taxes 926 (250) (693)
Deferred revenues 132 (127) 20
Other 161 - -
-------------- ------------- -------------
Net cash provided by operating activities 2,340 4,739 4,083
Investing Activities
Capital expenditures (2,578) (3,410) (3,333)
Collection (issuance) of note receivable - (100) 146
Issuance of notes receivable to employees - - (631)
Sale of Insurdata Administrators and Insurdata Marketing
Services to affiliate, net - - 260
Software development and contract start-up costs capitalized (701) (1,513) (1,979)
Payments from (advances to) affiliates (4,371) 4,500 -
Sale of accounts receivable to affiliate 401 - -
Payment of Insurdata Imaging Services contingent purchase price - - (79)
Purchase of minority interest - (1,650) (500)
-------------- ------------- -------------
Net cash used in investing activities (7,249) (2,173) (6,116)
Financing Activities
Contribution from (distribution to) parent, net 64 (491) -
Distribution to minority interests (12) (75) (112)
Payments on capital lease obligations - (28) (168)
Payments on long-term debt - (11) (11)
Payments on long-term debt with affiliates (362) - -
-------------- ------------- -------------
Net cash used in financing activities (310) (605) (291)
-------------- ------------- -------------
F-40
Insurdata Incorporated and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(In thousands)
(Note 1)
Year ended December 31
1997 1998 1999
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents $ (5,219) $ 1,961 $ (2,324)
Cash and cash equivalents at beginning of year 7,708 2,489 4,450
------------ ----------- -----------
Cash and cash equivalents at end of year $ 2,489 $ 4,450 $ 2,126
============ =========== ===========
Supplemental Cash Flow Information
Cash paid for interest $ 263 $ 170 $ 80
============ =========== ===========
Cash paid for income taxes $ 145 $ 846 1,029
============ =========== ===========
Supplemental Schedule of Non-Cash Investing Activities
Acquisition of equipment under capital leases $ - $ 617 $ -
============ =========== ===========
See accompanying notes.
F-41
Insurdata Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999
1. Description of Business and Basis of Presentation
General
Insurdata Incorporated (the Company) provides comprehensive technology solutions
and related outsourcing services to the claims and administration segment of the
health care industry within the United States. The Company's services include
proprietary workflow and internet-enabled business applications that address
transaction processing and the flow of information among constituent users. In
addition, the Company offers systems integration, technology management and
business process outsourcing. The Company's services enable its clients to
reduce administrative costs and improve customer service in all aspects of
health care administration, from eligibility and enrollment to claim capture,
processing, adjudication, payment and customer service. The Company's clients
include insurance carriers, third-party administrators (TPAs), Blue Cross/Blue
Shield organizations, self-administered employers and preferred provider
organizations.
The Company is a majority owned subsidiary of UICI, a diversified financial
services company. The accompanying consolidated financial statements include the
accounts of the Company and all its subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
In September 1997, the Company acquired a 51% member interest in Insurdata
Imaging Services, LLC (IIS) (formerly Satellite Image Systems, LLC), a provider
of imaging and data capture outsourcing services, from UICI for a purchase price
of $2.8 million. Consequently, the purchase price paid to UICI in 1997 is
presented as a distribution to UICI in stockholders' equity due to the "as if
pooling of interests" accounting described below. The purchase price
approximated UICI's net book value for IIS, and was paid by the Company by
exchanging accounts and notes receivable due from UICI Administrators. UICI
acquired 51% controlling interest of IIS on August 1, 1996, for a cash
investment into IIS of $3 million. In May 1998, the Company acquired the
remaining 49% interest in IIS for $1.65 million and annual earn-out payments
through the year 2000 the majority of which were subject to a cumulative ceiling
of approximately $1 million.
Effective January 1998, the Company acquired certain assets used in providing
benefits administration services, subsequently renamed Insurdata Administrators
(IA), from a subsidiary of UICI for a purchase price of approximately $465,000.
The price approximated UICI's net book value and was paid by the Company through
a reduction in the principal amount of a note payable by UICI to the Company. As
a result of IA's acquisition by the Company during 1998 and prior common control
by UICI, the accounts of IA are presented on a combined basis with those of the
Company and its subsidiaries prior to the Company's acquisition date.
Consequently, the purchase price paid to UICI in 1998 is presented as a
distribution to UICI in stockholders' equity due to the "as if pooling of
interests" accounting described below.
F-42
Insurdata Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Basis of Presentation (continued)
Effective June 30, 1998, the Company acquired an 85% interest in Insurdata
Marketing Services, LLC (IMS) (formerly Self Funded Strategies, LLC), from UICI
for a cash purchase price of approximately $57,000 presented as a distribution
to UICI in stockholders' equity. The purchase price for UICI's interest in IMS
approximated UICI's net book value for its interest in this entity. UICI
acquired its 85% controlling interest in IMS on October 1, 1995. The Company
distributed earnings of Self Funded Strategies of $185,000 for the six months
ended June 30, 1998 to UICI. As a result of IMS's acquisition by the Company
during 1998 and prior common control by UICI, the accounts of IMS are presented
on a combined basis with those of the Company and its subsidiaries prior to the
Company's acquisition date.
Effective January 1, 1999, the Company exchanged 5% of its member interest in
IMS for a reduction of future contractual commissions payable by IA and IIS to
IMS. Effective September 15, 1999, the Company acquired the 20% minority
membership interest, which included the 5% exchanged earlier in the period, for
a purchase price of $500,000 cash paid at closing. The consideration paid by the
Company exceeded the book value of the interest acquired by approximately
$503,000. The excess was allocated to prepaid commissions and is being amortized
over a five-year period.
Consistent with the requirements of Emerging Issues Task Force (EITF) Issue No.
90-5, "Exchange of Ownership Interests Between Entities Under Common Control"
(EITF 90-5), and Interpretation 39 of Accounting Principles Board Opinion No. 16
(APB 16), the financial statements of IIS, IA and IMS have been combined with
the Company's financial statements on an "as if pooling of interests" basis from
the date control by UICI was established.
Therefore, the IIS, IA and IMS financial statements have been combined with the
Company's financial statements beginning August 1, 1996, January 1, 1997, and
October 1, 1995, respectively. The assets and liabilities of IIS, IA and IMS
included in the consolidated financial statements are stated at UICI's
historical carrying basis. The carrying value of the IIS, IA and IMS net assets
combined on the dates UICI established control has been reflected as a
contribution received from UICI in the Consolidated Statements of Stockholders'
Equity. Consideration paid by the Company to acquire UICI's interest in IIS, IA
and IMS has been reflected as a distribution to UICI in the Consolidated
Statements of Stockholders' Equity. The Company's assets are presented on its
historical basis and do not reflect UICI's price paid to acquire Insurdata,
which exceeded the carrying value of the Company's net assets at the dates of
acquisition of the Company's shares by UICI by approximately $21 million in the
aggregate.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less from the date of purchase to be cash
equivalents.
F-43
2. Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment are provided on the straight-line basis over the
estimated useful lives of the respective assets or the lease term, if shorter.
Amortization of assets recorded under capital leases is included in depreciation
expense.
Purchased Intangible Assets
Purchased intangible assets, which consist of developed technologies, customer
bases and goodwill, are being amortized on the straight-line basis over three to
twenty years. The carrying value of goodwill is reviewed quarterly and decreased
if facts and circumstances suggest permanent impairment. Developed technologies
and customer base intangibles are reduced to their recoverable value if the
carrying value exceeds expected undiscounted cash flows from the intangible
asset.
Financial Instruments
Financial instruments include cash and cash equivalents, accounts receivable,
accounts payable, obligations under capital leases, notes payable and the
phantom stock liability. The Company believes that the carrying amounts of these
financial instruments approximate their fair value.
Research and Development Costs
The Company incurs research and development costs that relate primarily to the
development of new products and major enhancements to existing services and
products.
Research and development costs are comprised primarily of salaries and related
benefits. The Company expenses or capitalizes, as appropriate, these research
and development costs in accordance with Statement of Financial Accounting
Standards No. 86, Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed. All research and development costs related to
software development projects incurred prior to the time a project has reached
technological feasibility are expensed. Software development costs incurred
subsequent to reaching technological feasibility are capitalized. If the process
of developing a new product or major enhancement does not include a detailed
program design, technological feasibility is determined only after completion of
a working model. All software development costs capitalized are amortized using
an amount determined as the greater of (i) the gross revenue method or (ii) the
straight-line method over the remaining economic life of the product (generally
five years). The Company recorded amortization relating to capitalized software
development costs of $645,000, $697,000 and $893,000 in the years ended December
31, 1997, 1998 and 1999, respectively.
F-44
2. Summary of Significant Accounting Policies (continued)
Contract Start-up Costs
The Company capitalizes costs directly attributable to contract start-up
activities in accordance with SOP 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts. Costs capitalized
include direct labor and fringe benefits. Such costs are amortized over the life
of the respective contract. All other start-up costs not directly related to
contracts are expensed in accordance with SOP 98-5, Reporting on the Costs of
Start-up Activities. Total contract start-up costs capitalized during the years
ended December 31, 1998 and 1999 were approximately $407,000 and $664,000,
respectively. The Company recorded amortization relating to contract start-up
costs of $136,000 and $451,000 in the years ended December 31, 1998 and 1999,
respectively.
Internal-Use Software Development Costs
In March 1998, the AICPA issued Statement of Position (SOP) 98-1, Accounting for
the Costs of Computer Software Developed for or Obtained for Internal-Use. The
SOP, which has been adopted as of January 1, 1999, requires the capitalization
of certain costs in connection with developing or obtaining internal-use
software. Costs capitalized include direct labor and fringe benefits.
Amortization of capitalized software is recognized on a project-by-project
basis, using the straight-line method over periods not exceeding five years,
commencing the month after the date of the project completion. The Company did
not have internal-use software development projects in prior periods and
consequently the adoption of the SOP did not have a significant affect on the
results of operations as compared to prior periods.
Revenue Recognition
The Company's revenues consist primarily of transaction revenues and fees from
professional services.
Transaction revenues are earned on a fee-per-unit basis. Depending on the
product or service provided, the fee may be a charge per covered life or member,
per transaction processed, per document or electronic transmission, or per unit
serviced (such as per PC for LAN support). Transaction revenue is derived from
the Company's workflow and business applications, data capture outsourcing
services and technology management services. Transaction revenue is recorded in
the month the services are rendered.
F-45
2. Summary of Significant Accounting Policies (continued)
Professional services revenue consists of time and materials projects and fixed
price projects. Time and materials projects are billed on a fee per hour or per
day, or based upon a multiple of monthly salary, dependent upon the nature of
the project. Such revenue is recorded as the services are performed.
Professional services revenue on fixed price projects is recognized using the
percentage-of-completion method in proportion to the hours expended compared to
the total hours projected for the project. Changes in estimates of
percentage-of-completion are recognized in the period in which they are
determined. Provisions for estimated losses, if any, are made in the period in
which the loss first becomes apparent. Professional services revenue is derived
from the Company's system integration, consulting and programming services, as
well as customization and implementation performed in conjunction with workflow
and business application software.
Deferred Revenues
Certain contracts allow the Company to bill in advance of contract performance.
Amounts billed in advance of contract performance are deferred until such
amounts are recognized as revenue, in accordance with the Company's revenue
recognition policy.
Concentration of Credit Risk
Revenues and the resulting accounts receivable balances potentially subject the
Company to concentrations of credit risk within the claims and administrative
segment of the health care industry and significant customer relationships. For
the years ended December 31, 1997, 1998 and 1999, the Company's three largest
customers, including UICI and its subsidiaries and affiliates (see Note 4),
accounted for approximately 69%, 74% and 70%, respectively, of the Company's
total revenue. For the years ended December 31, 1997, 1998 and 1999, UICI and
its subsidiaries and affiliates accounted for approximately 43%, 56% and 60%,
respectively, of the Company's total revenue. As of December 31, 1998 and 1999,
the three largest customers accounted for 63% and 60%, respectively, of the
Company's total accounts receivable. As of December 31, 1998 and 1999, UICI and
its subsidiaries and affiliates accounted for approximately 47% and 54%,
respectively, of the Company's total accounts receivable (see Note 4).
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral; however, deposits for
future services or products are sometimes required. Credit losses have been
within management's expectations.
The Company has entered into processing agreements with its customers that have
specified performance commitments. If the Company does not achieve levels of
performance specified in its contracts the Company may be subject to reduced
revenues, penalties, and/or cash payments to its customers. The Company recorded
approximately $538,000 at December 31, 1999 related to performance commitments.
F-46
2. Summary of Significant Accounting Policies (continued)
Stock-Based Compensation
The Company has elected to account for stock-based compensation to employees
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related
Interpretations. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the fair market value of the Company's stock at the date
of the grant over the amount an employee must pay to acquire the stock. See Note
7 regarding the pro forma net income as required by the alternative fair value
accounting provided for under Financial Accounting Standards Board Statement No.
123, Accounting for Stock-Based Compensation (Statement 123).
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income, which
establishes guidance for the reporting and display of comprehensive income and
its components. The Company adopted this Statement as of January 1, 1998;
however, this standard does not currently impact disclosures as the Company has
no elements of other comprehensive income.
New Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted in years beginning after June 15, 2000. Because of the Company's
minimal use of derivatives, management does not anticipate that the adoption of
the new Statement will have a significant effect on earnings or the financial
position of the Company.
On December 3, 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements,
the provisions of which must be applied to the Company's financial statements no
later than the first quarter of 2000. While the SAB does not change existing
rules on revenue recognition, it provides additional guidance for transactions
not specifically addressed by existing rules. The Company's management believes,
based upon a review of the effects of the provisions of the SAB, that the SAB
will not have a significant effect on the Company's revenue recognition
accounting.
F-47
2. Summary of Significant Accounting Policies (continued)
Reclassifications
Certain prior year amounts have been reclassified to conform to current year
presentation.
3. Costs of Preparing for Public Offering
During 1998 the Company began the process of preparing for an initial public
offering. Due to market conditions the Company placed the public offering of its
securities on hold in September 1998. As a result, the Company expensed $726,000
of offering-related costs in the third quarter of 1998.
4. Related Party Transactions
The Company conducts a significant amount of business with its parent, UICI. The
Company currently provides services to a number of UICI subsidiaries and
affiliates pursuant to written agreements ranging from one to three years, with
annual renewable options thereafter. These services include the use of certain
of its proprietary workflow and business applications, as well as systems
integration and technology management. UICI and its subsidiaries and affiliates
constitute, in the aggregate, the Company's largest customer. For the years
ended December 31, 1997, 1998 and 1999, UICI and its subsidiaries and
affiliates, including the subsidiaries and affiliates discussed below, accounted
for an aggregate of $12.6 million (43%), $24.9 million (56%) and $28.1 million
(60%), respectively, of the Company's total revenues for such periods. As of
December 31, 1998 and 1999, the Company had trade receivables from UICI and its
subsidiaries and affiliates of $2.2 million (47%) and $3.2 million (54%),
respectively. In addition to trade receivables, the Company also held various
notes receivable from UICI and its subsidiaries and affiliates, amounting to
$4.5 million at December 31, 1997. These notes bore interest at rates ranging
from 8.25% to 10.5%. Total interest income from these notes for the years ended
December 31, 1997 and 1998, was approximately $514,000 and $125,000,
respectively. These notes were paid off in 1998.
UICI provides human resource administrative services to the Company, including
payroll services and employee benefit management. In addition to reimbursement
on a dollar-for-dollar basis for wage and benefit costs, UICI charges the
Company an administrative fee of $10 per employee per pay period pursuant to a
written agreement, which fee is intended to reimburse UICI for the overhead it
incurs in providing these services. For the years ended December 31, 1997, 1998
and 1999, the Company paid UICI an aggregate of approximately $54,000, $73,000
and $75,000, respectively, in administrative fees under this arrangement. The
Company expects UICI to continue to provide these services for the foreseeable
future. The Company has also engaged other UICI subsidiaries to provide services
such as printing and newsletter publication. For the years ended December 31,
1998 and 1999, the Company paid these subsidiaries an aggregate of approximately
$18,000 and $20,000, respectively, for such services.
F-48
4. Related Party Transactions (continued)
The Company leases two facilities from certain subsidiaries of UICI. The Company
leases office space located in Hurst, Texas. The Company leases additional
office space in Dallas, Texas, on a month-to-month basis under a verbal
agreement. The Company paid an aggregate of approximately $112,000, $255,000 and
$369,000 under these leasing arrangements for the years ended December 31, 1997,
1998 and 1999, respectively.
During 1998, the Company purchased certain furniture and equipment for $141,000
from a subsidiary of UICI for purchase prices equal to the subsidiary's net book
value for such items. Also during 1998, the Company purchased certain furniture
and equipment for $195,000 from BTSI, a UICI affiliate, for a purchase price
equal to BTSI's net book value for such items.
The Company currently provides certain workflow and business applications to
UICI Administrators, Inc. (UICI Administrators), a TPA owned by UICI, pursuant
to a written service agreement. UICI Administrators in turn operates through an
agreement with Healthcare Management Administrators, Inc. (HMA), an entity owned
by Ronald L. Jensen, a director of the Company and Chairman of UICI. The
Company's agreement with UICI Administrators is for a five-year term expiring in
December 2001, with automatic annual renewal provisions thereafter, subject to
prior notice of nonrenewal.
The Company provided accounting and management services to UICI Administrators.
In exchange for these services, UICI Administrators paid the Company a fee based
upon the salary, benefits and time commitment of the Company's employees who
actually performed the services. The fee was intended to reimburse the Company
for the costs of providing these services and therefore such fees were offset
against the related expenses. Fees received from UICI Administrators amounted to
$2,000, $134,000 and $143,000 for the years ended December 31, 1997, 1998 and
1999, respectively. In addition to the accounting services provided by the
Company, the Company's President and Chief Executive Officer provided certain
management oversight of UICI Administrators. Neither the President nor the
Company received any compensation in exchange for the President's services. The
accounting and management services ceased at December 31, 1999.
During 1999, the Company entered into a contract with UICI Administrators and an
unrelated third party for both programming services and ongoing processing of
medical insurance claims and Medicare claims. The contract provides for the
Company to receive an approximate $1.1 million fixed fee for programming
services payable initially in cash up to $640,000 as programming services are
performed and then by a $460,000 non-interest bearing note with an estimated
fair value of approximately $370,000 using an estimated implied interest rate of
8.75%. The note will be paid in equal monthly installments of $7,666 over the
five-year life of the contract. The note is collateralized by the proceeds of
the cancellation provisions within UICI Administrators' contract with the
unrelated third party. The Company recorded approximately $812,000 in
programming revenues under this contract during the year ended December 31,
1999. The Company's arrangement with UICI Administrators provides for the
Company to receive its customary transaction and processing fees over the term
of the contract.
F-49
4. Related Party Transactions (continued)
HMA, an entity owned by Ronald L. Jensen, provides a significant number of
services to UICI Administrators, which is a customer of the Company. HMA was
formed by Mr. Jensen in July 1997. Along with UICI Administrators, HMA
experienced significant operating losses in 1998. The Company had advanced
approximately $1.1 million to HMA under a written promissory note dated April
30, 1998, that bore interest at prime plus 2% and was payable on demand upon 30
days prior notice. The entire balance of the note was repaid during August 1998.
Winterbrook VSO (VSO), an entity owned by Ronald L. Jensen, provides certain
sales and marketing services for the Company's imaging and electronic data
capture services pursuant to a verbal brokerage agreement that expired June 30,
1997. Under the agreement, VSO receives a commission computed on the amount of
recurring fees under client contracts that VSO brokered on behalf of the
Company. During 1997, the Company advanced funds to VSO against future
commissions to be earned by VSO under the brokerage agreement. The advances were
not made pursuant to a written promissory note and did not bear interest. The
Company paid VSO, or offset against the outstanding balance of any advances, as
applicable, fees aggregating approximately $132,000, $191,000 and $258,000 for
the years ended December 31, 1997, 1998 and 1999, respectively. At December 31,
1998 and 1999, the balance of commissions owed to VSO was approximately $42,000
and $58,000, respectively. Mr. Jensen purchased VSO from UICI in July 1997.
Netlojix Communications Inc., a telephone company in which Ronald L. Jensen,
Chairman of UICI and a former director of HealthAxis, and his five adult
children and their affiliated trusts own a controlling interest, provides
telephone services to UICI and certain subsidiaries, including Insurdata
Incorporated (now HealthAxis' applications solutions group) pursuant to a
written agreement. This agreement was for a 15 month term expiring November 2000
with automatic monthly renewal provisions thereafter, subject to 30 days' notice
of non-renewal. In 1997 and 1998 and until August 1, 1999, Matrix Telecom, a
subsidiary of Netlojix Communications, Inc., provided telephone services to
Insurdata Incorporated. For the pro forma years ended December 31, 1997, 1998
and 1999, the application solutions group paid these entities approximately
$46,000, $132,000 and $243,000, respectively.
Effective October 1, 1999, the Company sold its business in providing benefit
administration services, namely its IA division, and its 100% member interest in
IMS, to a subsidiary of UICI for a sales price in cash of approximately $459,000
and $399,000, respectively. The price approximated the Company's net book value
of IA and IMS at the time of the sale.
The book value of the assets and liabilities of the IA and IMS divisions at
September 30, 1999 were as follows:
Cash and cash equivalents $ 598,000
Other current assets 415,000
Non-current assets 960,000
Liabilities (1,115,000)
Shareholders equity and -----------
member interest (net book value) $ (858,000)
===========
F-50
5. Property and Equipment
Property and equipment, at cost, consist of the following (in thousands):
The Company's intangible assets at December 31, 1996, resulted from the
application of purchase accounting to the acquisition price paid by UICI for IIS
on August 1, 1996. The excess consideration paid by UICI over the fair value of
the net tangible assets of IIS less minority interests determined at the date of
acquisition of approximately $1.6 million was allocated initially to
identifiable intangible assets with the remainder allocated to goodwill.
On May 1, 1998, the Company purchased the remaining 49% member interest in IIS
for $1.65 million. The consideration paid by the Company exceeded the book value
of the interest acquired by approximately $453,000. The excess purchase price
over the fair value of tangible assets was allocated to intangible assets based
on appraised values including $189,000 allocated to in-process research and
development. The in-process research and development was expensed at the date of
the acquisition. In addition to the consideration described above, the purchase
of the remaining interest in IIS included annual earn-out payments through the
year 2000 the majority of which was subject to a cumulative ceiling of
approximately $1 million. On August 31, 1999, the Company exchanged a note
receivable from the former shareholders of approximately $454,000 to settle a
majority of the earn-out provision rights. The balance of the earn-out
provisions was settled by the Company for approximately $79,000 in cash during
the fourth quarter of 1999. The Company recorded the carrying value of the note
receivable and cash payments as additional purchase price on the applicable
settlement dates, which amounts are being amortized over the remaining useful
lives of the assets acquired.
F-51
6. Intangible Assets (continued)
Intangible assets consist of the following (in thousands):
Useful Lives December 31
(Years) 1998 1999
---------------- ------------ ------------
Goodwill 20 $ 621 621
Customer base 10 377 604
Work force 5 115 223
Accumulated amortization (193) (304)
------------ ------------
$ 920 $1,144
============ ============
7. Stock Option Plans
UICI sponsors the Founders Stock Option Plan (Founders Plan) pursuant to which
UICI and the Company have granted stock options to certain key employees of the
Company to purchase shares of the Company's Common Stock from UICI. Under the
Founders Plan, UICI has made available for purchase an aggregate of 2,459,500
shares of Common Stock, representing 15% of the total number of shares of Common
Stock held by UICI, at an exercise price of $1.80 per share. Options awarded
under the plan vest ratably over a five-year period and expire 90 days after the
last vesting date. The Founders Plan is administered by the Company's Board of
Directors, which has the authority to determine who will receive stock options,
the number of shares of Common Stock subject to such stock options and the
terms, conditions, restrictions and limitations relating to an award of stock
options, including the time and conditions of vesting and exercise.
On June 1, 1999, the Company's Board of Directors approved the Insurdata
Incorporated 1999 Stock Option Plan (the 1999 Plan). The 1999 Plan authorized
management of the Company to grant to employees up to 2,500,000 options to
purchase the Company's common stock. As of December 31, 1999, 321,000 options
have been granted under the 1999 Plan. The options granted became exercisable
25% on each anniversary of the date the options were awarded to the employee. No
compensation expense was recognized as all options under the 1999 Plan have been
granted with an exercise price not less than the fair value of the common stock
on the date of grant. The Company has reserved 2,500,000 shares of the Company's
common stock for issuances under the 1999 Plan.
F-52
7. Stock Option Plans (continued)
A summary of the Company's stock option activity is as follows:
Founders Plan 1999 Plan
-------------------------------- ------------------------------
Weighted Weighted
Average Average
Options Exercise Price Options Exercise Price
-------------------------------- ------------------------------
Outstanding at December 31, 1996 - $ - - $ -
Granted 2,066,000 1.80 - -
Forfeited - - - -
------------- ------------
Outstanding at December 31, 1997 2,066,000 1.80 - -
Granted 393,500 1.80 - -
Forfeited (198,000) 1.80 - -
------------- ------------
Outstanding at December 31, 1998 2,261,500 1.80 - -
Granted - - 321,000 4.32
Forfeited (108,200) 1.80 - -
Exercised (316,800) 1.80 - -
------------- ------------
Outstanding at December 31, 1999 1,836,500 1.80 321,000 4.32
============= ============
Founders Plan 1999 Plan
-------------------------------- ------------------------------
Options exercisable at December 31,
1998 443,200 -
1999 594,300 18,750
Weighted average remaining
contractual life (years) at December 31,
1998 3.65 -
1999 2.62 3.54
The 1999 Plan granted 271,000 options at an exercise price of $3.00 per share
and 50,000 options with a weighted average exercise price of $11.50 per share.
The exercise price of exercisable options in the 1999 Plan is $3.00.
Under APB 25, because the exercise price of the Company's employee stock options
equals or exceeds the market value of the underlying stock on the date of grant,
no compensation expense has been recognized. The Company recorded during 1999
an increase to stockholders' equity of $70,000 related to the tax benefit
resulting from the exercise of 316,800 Founders Plan options.
F-53
7. Stock Option Plans (continued)
Effective August 15, 1998, the Company's employees became participants in a UICI
stock option plan (UICI Plan) pursuant to which UICI has granted stock options
to purchase shares of UICI common stock to certain employees of the Company.
There were 418,458 options granted to Insurdata employees, of which 35,772 have
been exercised as of December 31, 1999 and related tax benefit of $176,000 was
recorded as an increase in stockholders' equity. There were 43,192 and 33,480
options forfeited during 1998 and 1999, respectively. Each option has an
exercise price of $15. Under the original terms of the grant, the options vested
20% each year beginning on August 15, 1999 and thereafter through 2001 and 40%
on August 15, 2002. Effective December 14, 1999, in connection with the signing
of a merger agreement with HealthAxis Inc., the vesting schedule was accelerated
to provide an additional 20% vesting to all participating Company employees who
were employed as of that date. Under the plan, participants are deemed to have
terminated employment at any such time that their employer becomes a less than
50% owned subsidiary of UICI. Pursuant to this provision, employees of the
Company are deemed to have been terminated from employment for plan purposes on
January 7, 2000. As such, no additional amounts of options will vest beyond 1999
and all outstanding options under the plan will expire on March 31, 2000. These
options are UICI obligations and have not been included in the Company's stock
option information on the previous page. The exercise price of these options
equals the market price of UICI common stock on the date of grant. As such, no
compensation expense has been recognized under APB 25. All option prices when
exercised are remitted to UICI.
Pro forma information regarding net income required by Statement 123 has been
determined as if the Company had accounted for its employee stock options under
the fair value method of that Statement. The weighted-average fair value per
share of options granted in the Founders Plan during 1997 and 1998 was $.41 and
$.35, respectively. The weighted-average fair value per share of options granted
in the UICI Plan during 1998 was $3.06. The weighted-average fair value per
share of options granted in the 1999 Plan during 1999 was $1.50. The fair value
of the options was estimated using a Black-Scholes option pricing model with the
following weighted-average assumptions for 1997, 1998 and 1999, respectively:
risk-free interest rate of 6.70%, 5.71% and 5.81%; a volatility factor of 0.38,
0.38 and 0.67; no dividend yield and an expected life of four years.
F-54
7. Stock Option Plans (continued)
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including, for publicly held companies, expected stock
price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands):
Year ended December 31
1997 1998 1999
--------------- ----------------- ---------------
Pro forma net income $ 1,759 $ 1,587 $ 810
8. Income Taxes
Commencing with the tax year ended December 31, 1997, the Company is included in
the consolidated income tax returns of UICI.
The Company has a verbal tax sharing agreement with UICI. Under this agreement,
except as described below, the Company remits payments to UICI or receives
payments from UICI for tax expense or benefit computed as if the Company filed a
separate income tax return. Based on this agreement, taxes receivable of
$388,000 at December 31, 1999, are primarily receivable from UICI, not from the
taxing authorities. The Company's tax provision and related tax accounts have
been prepared on a separate return basis.
Certain taxable income and losses related to IMS and IIS were included in UICI's
consolidated tax return prior to the Company acquiring those entities.
Subsequent to acquisition of those entities by the Company, such entities were
subject to the Company's verbal tax sharing agreement with UICI. Consequently,
prior to acquisition of such entities settlement of the related tax expense and
benefits through the Company's tax sharing agreement did not occur. The
resulting taxes payable or receivable are reflected in stockholders' equity as a
contribution from UICI of $132,000 and $216,000 for the years ended December 31,
1997 and 1998, respectively.
IMS and IIS are limited liability corporations (LLCs) which are treated as
partnerships for federal income tax purposes. Accordingly, minority interests in
the LLCs are determined before income tax expense or benefit associated with the
income or loss of the LLC.
F-55
8. Income Taxes (continued)
The components of the provision for income taxes are as follows (in thousands):
Year ended December 31
1997 1998 1999
-------------- --------------- -------------
Current:
Federal $ 916 $ 535 $ 135
State 154 139 44
-------------- --------------- -------------
Total current 1,070 674 179
Deferred:
Federal 104 172 550
State 21 34 103
-------------- --------------- -------------
Total deferred 125 206 653
-------------- --------------- -------------
Total provision for
income taxes $ 1,195 $ 880 $ 832
============== =============== =============
The effective income tax rate on income before income taxes differed from the
federal income tax statutory rate for the following reasons (in thousands):
Year ended December 31
1997 1998 1999
-------------- --------------- -------------
Income tax provision:
Based upon the federal statutory rate $ 979 $ 965 $ 749
State income tax, net of federal benefit 115 114 104
Benefit associated with minority interest
in loss of subsidiary 73 6 (32)
Research and development credit - (124) -
Other 28 (81) 11
-------------- --------------- -------------
$1,195 $ 880 $ 832
============== =============== =============
F-56
8. Income Taxes (continued)
The Company's deferred tax assets and liabilities consist of the following (in
thousands):
December 31
1998 1999
------------- -------------
Deferred tax assets:
Excess of book over tax depreciation $ 57 $ 57
Basis in limited liability companies 81 -
Phantom stock compensation 392 261
Intangibles 145 150
Other - 9
------------- -------------
Total deferred tax assets 675 477
Deferred tax liabilities:
Software development and contract
start-up costs 562 1,017
------------- -------------
Total deferred tax liabilities 562 1,017
------------- -------------
Net deferred tax assets (liabilities) $ 113 $ (540)
============= =============
9. Lease Commitments
The Company leases equipment under capital leases and leases its headquarters
and certain other facilities under operating leases. Minimum noncancelable lease
payments required under operating and capital leases for the years subsequent to
December 31, 1999, are as follows (in thousands):
Operating Capital
Leases Leases
----------------- ----------------
2000 $ 1,263 $ 172
2001 1,137 158
2002 834 2
2003 575 -
----------------- ----------------
Total $ 3,809 332
=================
Less amount representing interest (32)
----------------
Present value of minimum lease payments 300
Less current portion (148)
----------------
$ 152
================
Rent expense totaled approximately $884,000, $1,367,000 and $1,824,000 for the
years ended December 31, 1997, 1998 and 1999, respectively.
F-57
10. Employee Benefit Plans
The Company adopted the Insurdata Incorporated 401(k) and Profit Sharing Plan
(the Insurdata Plan) on July 1, 1988, for the benefit of employees meeting
certain age and service requirements. The Insurdata Plan provided for a Company
match of up to 25% of the employee contributions up to a maximum of 2% of
eligible employee compensation. The Plan was discontinued effective April 1,
1997. Employer matching contributions to the Insurdata Plan amounted to $3,000
for the year ended December 31, 1997.
Effective April 1, 1997, eligible employees of the Company became participants
in the UICI Employee Stock Ownership Plan (the Plan). On January 1, 1998, the
Plan was converted to the UICI Employee Stock Ownership and Savings Plan, which
is a combination ESOP/401(k) plan. Under the Plan, the Company contributed 3% of
qualified salary up front and matched 50% of employee contributions up to 6% of
eligible employee compensation. Employer contributions vest 10% and 20% per year
for the first four years and the next three years, respectively. All Company
contributions are invested in UICI common stock. Employer contributions to the
ESOP were $353,000, $600,000 and $801,000 for the years ended December 31, 1997,
1998 and 1999, respectively.
Effective January 1, 1997, the Company began participating in the UICI Special
Total Ownership Plan (the STOP Plan). Under the STOP Plan, UICI makes periodic
discretionary contributions to a trust on behalf of employees of UICI and its
subsidiaries, including the Company. The plan invests 100% of these
contributions in UICI common stock. The Company recorded compensation expense of
$126,000 and $44,000 related to the STOP Plan for the years ended December 31,
1997 and 1998, respectively.
In 1992, the Company adopted the Insurdata Incorporated Key Person Award Program
(the KPA Plan), which provided for profit sharing and phantom stock awards for
certain key employees of the Company. The Company awarded a total of 1,050,000
shares of phantom stock under the KPA Plan. Except for ongoing payments
associated with awards of phantom stock, the KPA Plan terminated on December 31,
1996.
Under the KPA Plan, shares of phantom stock could be redeemed for cash under
certain circumstances, including termination of employment, with payment
occurring in one lump sum without interest or, at the election of the Company,
in a maximum of five equal annual installments, with interest at the lower of
the prime rate or 10%. All shares of phantom stock awarded under the plan were
redeemed by the holders thereof at a market price of $1.80 per share effective
December 31, 1996. Payment of the cash value is being made by the Company in
five equal annual installments, including interest. The long-term phantom stock
liability is approximately $.7 million and $.3 million at December 31, 1998 and
1999, respectively. The current phantom stock liability is approximately $.3
million at December 31, 1999.
F-58
10. Employee Benefit Plans (continued)
Upon the acquisition of IIS by UICI in August 1996, the management of IIS was
granted a 5% interest in IIS to be earned over a two-year period. The Company
has recorded the related unearned compensation as a reduction of stockholders'
equity. Compensation expense recorded for this agreement was $147,000 and
$86,000 for the years ended December 31, 1997 and 1998, respectively.
11. Year 2000 Issue (Unaudited)
Many currently installed computer systems and software products are unable to
distinguish between twentieth century dates and twenty-first century dates. If
not corrected, such computer applications could fail or create erroneous
results. The problems associated with this issue could appear in hardware,
operating systems and other software programs. The Company took steps to prevent
these issues from adversely affecting its future operating results. The
Company's management believes its proprietary software used to deliver services
to its customers is Year 2000 compliant. Costs related to addressing the Year
2000 issue has been insignificant prior to 1999 and approximately $125,000
during 1999.
12. Subsequent Events
On December 6, 1999, the Company signed a Merger Agreement with HealthAxis.com,
Inc. (HealthAxis), whereby the Company's shareholders agreed to exchange their
100% ownership of the Company for an ownership interest in the combined entity.
Closing of the transaction occurred on January 7, 2000. At closing, each issued
and outstanding share of Insurdata Common Stock was surrendered and converted
into 1.33 shares of HealthAxis Common Stock. The Insurdata Common Stock was
simultaneously cancelled and retired and HealthAxis is the surviving entity of
the merger. It is anticipated that the merger will be treated as a Tax-Free
Reorganization within the meaning of Section 368 (a) of the Internal Revenue
Service Code. HealthAxis is a Web-based retailer of health insurance products
and related consumer services.
On January 26, 2000, HealthAxis entered into a merger agreement and plan of
reorganization with HealthAxis, Inc. (HAI, formerly Provident American
Corporation). The merger is structured so that HAI will be the surviving
publicly traded company and HealthAxis will be merged with and into HealthAxis
Acquisition Corp., a wholly owned subsidiary of HAI.
F-59
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The Pennsylvania Business Corporation Law provides, in substance, that
Pennsylvania corporations shall have the power, under specified circumstances,
to indemnify their directors, officers, employees and agents in connection with
actions, suits or proceedings brought against them by third parties and in
connection with actions or suits by or in the right of the corporation, by
reason of the fact that they were or are such directors, officers, employees and
agents, against expenses (including attorney's fees) and, in the case of
actions, suits or proceedings brought by third parties, against judgments, fines
and amounts paid in settlement actually and reasonably incurred in any such
action, suit or proceeding.
The Registrant's Bylaws provide for indemnification to the fullest
extent permitted by the Pennsylvania Business Corporation Law. Pursuant to the
Registrant's bylaws, directors, officers, employees or agents will be
indemnified in connection with actions, suits and proceedings brought against
them, including an action by or in the right of the corporation by reason of the
fact that they were or are directors, officers, employees or agents of the
corporation.
The Registrant has obtained directors' and officers' liability
insurance that covers certain liabilities, including liabilities to the
Registrant and its stockholders, in the amount of $10,000,000.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
Number Exhibits
------ --------
2.1 Agreement and Plan of Reorganization dated January 26, 2000 among HAI, HealthAxis
and HealthAxis Acquisition Corp. and Amendment No. 1 to Agreement and Plan of
Reorganization dated March 27, 2000 among HAI, HealthAxis and HealthAxis
Acquisition Corp. (included in the Joint Proxy Statement/Prospectus as Appendix A).
2.2 Agreement and Plan of Merger dated January 26, 2000 among HAI, HealthAxis and
HealthAxis Acquisition Corp. (included in the Joint Proxy Statement/Prospectus
as Appendix B).
3.1 Form of Proposed Amended and Restated Articles of Incorporation (included in the
Joint Proxy Statement/Prospectus as Appendix C).
3.2 Amended and Restated Bylaws.*
5.1 Opinion of Butera Beausang Cohen & Brennan LP.
8.1 Tax Opinion of Blank Rome Comisky & McCauley LLP.
10.1 Voting Trust Agreement between HAI, HealthAxis, UICI, Michael Ashker, Dennis Maloney and Edward
LeBaron, Jr., dated February 11, 2000.*
10.2 2000 Stock Option Plan (included in the Joint Proxy Statement /Prospectus as Appendix G).
23.1 Consent of BDO Seidman, LLP.
23.2 Consent of BDO Seidman, LLP.
23.3 Consent of Ernst and Young LLP.
23.4 Consent of Blank Rome Comisky & McCauley LLP (included in Exhibit 8.1).
23.5 Consent of Butera Beausang Cohen & Brennan P.C. (included in Exhibit 5.1).
24.1 Power of Attorney.*
27.1 Financial Data Schedule (incorporated by reference to Exhibit 27 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1999.
99.1 Form of HAI Proxy.
99.2 Form of HealthAxis Proxy.
-----------------------------
*Previously filed.
II-1
(b) Financial Statement Schedules
None.
(c) Item 4(b) Reports
Not Applicable.
Item 22. Undertakings.
(1) The Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Joint Proxy
Statement/Prospectus pursuant to Items 4, 10(b), 11 or 13 of Form S-4, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(2) The Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(3) The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, 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.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the Articles of
Incorporation (the "Articles of Incorporation") and the Bylaws (the "Bylaws") of
the Registrant and the Pennsylvania Business Corporation Law, 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 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
question has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(5) (A) The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
II-2
(B) The Registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (A) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in East Norriton,
Pennsylvania, on the date indicated.
HEALTHAXIS INC.
Date: April 20, 2000 By: /s/ Michael Ashker
-----------------------
Michael Ashker
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Michael Ashker Chief Executive Officer and President April 20, 2000
--------------------- (principal executive officer)
Michael Ashker
/s/ Anthony R. Verdi Chief Operating Officer, Chief April 20, 2000
--------------------- Financial Officer and Treasurer
Anthony R. Verdi (principal financial officer)
* Chairman of the Board of Directors
----------------
Alvin H. Clemens
* Director
----------------
Harold M. Davis
* Director
----------------
Henry G. Hager
* Director
-------------------
George W. Karr, Jr.
* Director
----------------------
Edward W. LeBaron, Jr.
* Director
---------------------
Theophile J. Mignatti
* Director
---------------------
P. Glenn Moyer
By: /s/ Michael Ashker April 20, 2000
--------------------------------
Michael Ashker, Attorney-In-Fact
II-4
EXHIBIT INDEX
Exhibit
Number Exhibits
------ --------
2.1 Agreement and Plan of Reorganization dated January 26, 2000 among HAI, HealthAxis and HealthAxis
Acquisition Corp. and Amendment No. 1 to Agreement and Plan of Reorganization dated March 27,
2000 among HAI, HealthAxis and HealthAxis Acquisition Corp. (included in the Joint Proxy
Statement/Prospectus as Appendix A).
2.2 Agreement and Plan of Merger dated January 26, 2000 among HAI, HealthAxis and
HealthAxis Acquisition Corp. (included in the Joint Proxy Statement/Prospectus as Appendix B).
3.1 Form of Proposed Amended and Restated Articles of Incorporation (included in the Joint Proxy
Statement/Prospectus as Appendix C).
3.2 Amended and Restated Bylaws.*
5.1 Opinion of Butera Beausang Cohen & Brennan LP.
8.1 Tax Opinion of Blank Rome Comisky & McCauley LLP.
10.1 Voting Trust Agreement between HAI, HealthAxis, UICI, Michael Ashker, Dennis
Maloney and Edward LeBaron, Jr., dated February 11, 2000.*
10.2 2000 Stock Option Plan (included in the Joint Proxy Statement/Prospectus as Appendix G).
23.1 Consent of BDO Seidman, LLP.
23.2 Consent of BDO Seidman, LLP.
23.3 Consent of Ernst and Young LLP.
23.4 Consent of Blank Rome Comisky & McCauley LLP (included in Exhibit 8.1).
23.5 Consent of Butera Beausang Cohen & Brennan P.C. (included in Exhibit 5.1).
24.1 Power of Attorney.
27.1 Financial Data Schedule (incorporated by reference to Exhibit 27 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1999).
99.1 Form of HAI Proxy.
99.2 Form of HealthAxis Proxy.
*Previously filed.
II-5
April 18, 2000
HealthAxis Inc.
2500 DeKalb Pike
East Norriton, PA 19401
Re: HealthAxis Inc.
Registration Statement on Form S-4
Gentlemen:
We have acted as counsel to HealthAxis Inc. (the "Company") in
connection with the Registration Statement on Form S-4 (the "Registration
Statement") filed by the Company with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, related to the issuance of up to
39,798,990 shares (the "Shares") of common stock, par value $0.10 per share of
the Company in connection with the proposed merger (the "Merger") of HealthAxis
Acquisition Corp, a Pennsylvania corporation, with and into HealthAxis.com,
Inc., a Pennsylvania corporation ("HealthAxis"). This opinion is being furnished
pursuant to the requirements of Item 601(b)(5) of Regulation S-K.
In rendering this opinion, we have examined only the documents listed
on Exhibit "A" attached hereto. We have not performed any independent
investigation other than the document examination described. Our opinion is
therefore qualified in all respects by the scope of that document examination.
We have assumed and relied, as to questions of fact and mixed questions of law
and fact, on the truth, completeness, authenticity and due authorization of all
certificates, documents and records examined and the genuineness of all
signatures.
This opinion is limited to the laws of the Commonwealth of Pennsylvania
and no opinion is expressed as to the laws of any other jurisdiction.
Based upon and subject to the foregoing, we are of the opinion that the
Shares that are being issued by the Company pursuant to the Registration
Statement, when issued by the Company as contemplated by the Registration
Statement and in accordance with the Agreement and Plan of Reorganization and
the Agreement and Plan of Merger will be legally issued, fully paid and
non-assessable.
The opinions expressed herein are qualified in all respects by the
following: (a) no opinion is rendered as to the availability of equitable
remedies including, but not limited to, specific performance and injunctive
relief; (b) the effect of bankruptcy, reorganization, insolvency, fraudulent
conveyance, moratorium and other similar laws or equitable principles affecting
creditors' rights or remedies; and (c) the effect of applicable law and court
decisions which may now or hereafter limit or render unenforceable certain
rights and remedies.
This opinion is given as of the date hereof. We assume no obligation to
update or supplement this opinion to reflect any facts or circumstances that may
hereafter come to our attention or any changes in laws that may hereafter occur.
This opinion is strictly limited to the matters stated herein and no
other or more extensive opinion is intended, implied or to be inferred beyond
the matters expressly stated herein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Joint Proxy Statement / Prospectus, which is part of the
Registration Statement.
1. The Company's Amended and Restated Articles of Incorporation.
2. The Company's Amended and Restated Bylaws.
3. Resolutions of the Board of Directors dated January 26, 2000.
4. Agreement and Plan of Reorganization filed as an exhibit to the Registration
Statement.
5. Agreement and Plan of Merger filed as an exhibit to the Registration
Statement.
6. The Registration Statement.
7. Good Standing Certificate issued by the Secretary of the Commonwealth of
Pennsylvania.
April 11, 2000
Board of Directors of HealthAxis.com, Inc.
Board of Directors of HealthAxis Inc.
2500 Dekalb Pike
East Norriton, Pennsylvania 19401
Re: HealthAxis.com, Inc. - Merger with
HealthAxis Acquisition Corporation
Dear Gentlemen:
You have requested our opinion concerning certain Federal income tax
consequences in connection with the merger (the "Merger") of HealthAxis.com,
Inc., a Pennsylvania corporation ("HealthAxis"), with and into HealthAxis
Acquisition Corporation, a newly formed Pennsylvania corporation ("Newco") and a
wholly-owned subsidiary of HealthAxis Inc. (f/k/a Provident American
Corporation), a Pennsylvania corporation ("Provident"). The terms of the Merger
are described in the Agreement and Plan of Reorganization dated January 26,
2000, as amended, (the "Reorganization Agreement") by and among HealthAxis,
Provident and Newco, and in the Registration Statement on Form S-4 Registration
Number 333-30256 (the "Registration Statement"), filed with the United States
Securities and Exchange Commission under the Securities Act of 1933, as amended,
in connection with the Merger. Our opinion is based upon our understanding of
the facts of and incident to the transaction, as set forth in the Reorganization
Agreement, and upon the condition that those facts are true, correct and
complete. Further, our opinion is issued in reliance upon the Officer's
Certificates of HealthAxis, Provident and Newco (attached as exhibits hereto)
relating to the truth, correctness and completeness of those facts and the facts
in the Reorganization Agreement, including the financial statements and exhibits
that are a part thereof, or referred to therein. This opinion is being furnished
pursuant to Section 8.9 of the Reorganization Agreement, and all capitalized
terms herein, unless otherwise specified, have the meanings assigned thereto in
the Reorganization Agreement.
In connection with our opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
the Reorganization Agreement, the Registration Statement and such other
documents as we have deemed necessary or appropriate as a basis for the opinion
set forth below. In our examination we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies and the authenticity of the originals of such latter
documents. As to any facts material to this opinion that we did not
independently establish or verify, we have relied upon statements and
representations of officers and other representatives of HealthAxis, Provident,
Newco and others. In particular, we have relied upon certain representations of
the management of HealthAxis, Provident and Newco in the Officer's Certificates
that are attached hereto.
In addition, we have assumed that: (i) the Merger will be reported by
HealthAxis, Provident and Newco on their respective federal income tax returns
in a manner consistent with the opinion set forth below; (ii) any representation
or statement made "to the best of knowledge" or similarly qualified is correct
without such qualification; and (iii) the Merger will qualify as a statutory
merger under the laws of the Commonwealth of Pennsylvania.
In addition to being based on certain representations by HealthAxis,
Provident and Newco referred to above, our opinion is also based on the current
provisions of the Internal Revenue Code of 1986, as amended (the "Code")(1),
applicable Treasury Regulations promulgated thereunder, and rulings, procedures,
and other pronouncements published by the Internal Revenue Service (the
"Service"). Such laws, regulations, rulings, case law and pronouncements are
subject to change at any time, and such change may adversely affect the
continuing validity of the opinion set forth below.
Based solely upon the foregoing and provided that the transaction
contemplated by the Reorganization Agreement is consummated in the manner
described in the Reorganization Agreement, we are of the opinion that under
present law, for Federal income tax purposes:
(1) The merger of HealthAxis with and into Newco will constitute a
reorganization within the meaning of Section 368(a) of the Code. HealthAxis,
Newco and Provident each will be "a party to a reorganization" within the
meaning of Section 368(b) of the Code.
(2) The consummation of the Merger will not adversely affect the
qualification of the merger between HealthAxis and Insurdata Incorporated, which
occurred on January 7, 2000, as a reorganization within the meaning of Section
368(a) of the Code.
This letter expresses our views only as to the specific issues
addressed above. No opinion is expressed concerning the Federal income tax
treatment of the transaction under any provision of the Code not specifically
referenced herein. No opinion is expressed with respect to foreign, state and
local taxes, Federal or state securities law, or any other foreign, Federal,
state or local law not expressly referenced herein.
Our opinion sets forth our legal judgment, and is not binding on the
Service or any other person. Therefore, there can be no assurance that the
conclusions set forth herein would be sustained by a court if challenged.
Further, the opinion represents our conclusions based upon the
documents reviewed by us and the facts presented to us. Any material amendments
to such documents or changes in any significant fact could affect the opinion
expressed herein.
We are pleased to offer this opinion based upon the Federal income tax
laws as of this date. No assurances can be provided as to future changes in, or
administrative or judicial interpretations of, these laws.
(1) Unless otherwise indicated, all section references are to sections of the
Code.
We undertake no obligation to update the opinion expressed herein
after the date of this letter. This opinion letter is solely for the information
and use of the addressee and may not be reproduced, quoted in whole or in part,
referred to in any other context, filed with any governmental agency, or relied
upon for any purpose by any other person without our express written consent. We
do hereby consent, however, to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Joint Proxy Statement/Prospectus, which is part of the
Registration Statement.
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement Amendment No. 1 on Form S-4
(Registration No. 333-30256) of our report dated March 16, 2000, relating to the
consolidated financial statements of HealthAxis Inc. and Subsidiaries appearing
in the Company's Annual Report on Form 10-K for the year ended December 31,
1999.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
--------------------------
BDO SEIDMAN, LLP
Philadelphia, PA
April 20, 2000
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
HealthAxis.com, Inc.
East Norriton, PA
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement Amendment No. 1 on Form S-4 (Registration No. 333-30256)
of our report dated March 16, 2000, relating to the consolidated financial
statements of HealthAxis.com, Inc. for the year ended December 31, 1999.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
--------------------------
BDO SEIDMAN, LLP
Philadelphia, PA
April 20, 2000
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 28, 2000, with respect to the consolidated
financial statements of Insurdata Incorporated and Subsidiaries included in
Amendment No. 1 to the Proxy Statement/ Prospectus of HealthAxis Inc. that is
made a part of the Registration Statement (Form S-4 No. 333-30256) and
Prospectus of HealthAxis Inc. for the registration of 39,798,990 shares of its
common stock.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Dallas, Texas
April 14, 2000
Exhibit 99.1
REVOCABLE PROXY
HEALTHAXIS INC.
Annual Meeting of Stockholders - May 30, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF HEALTHAXIS INC.
The undersigned hereby constitutes and appoints Michael Ashker and
Alvin Clemens and each of them, as attorneys-in-fact and proxies of the
undersigned, with full power of substitution for and in the name, place and
stead of the undersigned to appear at the annual meeting of stockholders of
HealthAxis Inc., to be held on May 30, 2000, and at any postponement or
adjournment thereof, and to vote all of the shares of capital stock of Provident
which the undersigned is entitled to vote, with all the powers and authority the
undersigned would possess if personally present. The undersigned directs this
proxy to vote as indicated on the reverse side of this proxy card:
THIS PROXY WILL, WHEN PROPERLY EXECUTED, BE VOTED AS DIRECTED. IF NO
INSTRUCTIONS TO THE CONTRARY ARE INDICATED, THE PERSONS NAMED HEREIN INTEND TO
VOTE FOR THE ELECTION OF THE NOMINEES, ITEM 2, ITEM 3, ITEM 4, ITEM 5 AND ITEM
6. IF ANY OTHER BUSINESS IS PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED
BY THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE
BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
THE PROXY AGENTS PRESENT AND ACTING IN PERSON OR BY THEIR SUBSTITUTES (OR, IF
ONLY ONE IS PRESENT AND ACTING, THEN THAT ONE) MAY EXERCISE ALL THE POWERS
CONFERRED BY THIS PROXY. DISCRETIONARY AUTHORITY IS CONFERRED BY THIS PROXY AS
TO CERTAIN MATTERS DESCRIBED IN THE COMPANY'S PROXY STATEMENT.
(Continued and to be signed on reverse side)
Please mark your votes as in this example. _X_
The Board of Directors recommends a VOTE "FOR" the election of the
nominees listed below and for Item 2, Item 3, Item 4, Item 5 and
Item 6.
I. The election as directors of all of the following nominees for the term of
one year:
MICHAEL ASHKER
ALVIN H. CLEMENS
HENRY G. HAGER
PATRICK J. McLAUGHLIN
EDWARD W. LeBARON, JR.
GREGORY T. MUTZ
DENNIS B. MALONEY
[ ] FOR [ ] VOTE WITHHELD
To withhold authority to vote for an individual nominee, write that
nominee's name on the space provided below:
II. To adopt the agreement and plan of reorganization and the agreement and
plan of merger, each dated as of January 26, 2000 including the amendment
to the agreement and plan of reorganization among HealthAxis Inc.,
HeathAxis.com, Inc. and HealthAxis Acquisition Corp., a wholly-owned
subsidiary of HealthAxis Inc., and to approve the merger, the issuance of
HealthAxis Inc. shares and other transactions described in the merger
agreements ("Item 2");
[ ] FOR [ ] AGAINST [ ] ABSTAIN
III. To adopt and approve HealthAxis Inc.'s amended and restated articles of
incorporation ("Item 3");
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IV. To approve the adoption of the 2000 Stock Option Plan ("Item 4");
[ ] FOR [ ] AGAINST [ ] ABSTAIN
V. To approve the appointment of BDO Seidman LLP as independent public
accountants for HealthAxis Inc. for its 2000 fiscal year ("Item 5");
[ ] FOR [ ] AGAINST [ ] ABSTAIN
VI. To act upon the adjournment of the annual meeting, if necessary, to permit
further solicitation of proxies in the event there are not sufficient votes
at the time of the annual meeting to approve the agreement and plan of
reorganization and the agreement and plan of merger ("Item 6");
[ ] FOR [ ] AGAINST [ ] ABSTAIN
VII. In their discretion, the proxies are authorized to vote on any other
business as may properly come before the annual meeting or any adjournment
or postponement thereof.
Should the undersigned be present and choose to vote at the annual
meeting or at any adjournments or postponements thereof, and after notification
to the Secretary of HealthAxis Inc. at the annual meeting of the stockholder's
decision to terminate this proxy, then the power of such attorneys or proxies
shall be terminated and shall have no force and effect. This proxy may also be
revoked by filing a written notice of revocation with the Secretary or by duly
executing a proxy bearing a later date.
The undersigned hereby acknowledges receipt of HealthAxis Inc.'s 2000
Annual Report to Shareholders, Notice of HealthAxis Inc.'s annual meeting and
the joint proxy statement/prospectus relating thereto.
PLEASE DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE
PAID ENVELOPE.
______________________ _______________________ DATE:____________________, 2000
Signature(s) (Please date this proxy)
NOTE: It would be helpful if you signed your name exactly as it appears on your
stock certificate(s), indicating any official position or representative
capacity. If shares are registered in more than one name, all owners
should sign.
Please date, sign and mail your
proxy card back as soon as possible.
Exhibit 99.2
REVOCABLE PROXY
HEALTHAXIS.COM, INC.
Annual Meeting of Stockholders - May 30, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF HEALTHAXIS
The undersigned hereby constitutes and appoints Michael Ashker and
Anthony Verdi and each of them, as attorneys-in-fact and proxies of the
undersigned, with full power of substitution for and in the name, place and
stead of the undersigned to appear at the annual meeting of stockholders of
HealthAxis.com, Inc. ("HealthAxis"), to be held on May 30, 2000, and at any
postponement or adjournment thereof, and to vote all of the shares of common or
preferred stock of HealthAxis which the undersigned is entitled to vote, with
all the powers and authority the undersigned would possess if personally
present. The undersigned directs this proxy to vote as indicated on the reverse
side of this proxy card:
THIS PROXY WILL, WHEN PROPERLY EXECUTED, BE VOTED AS DIRECTED. IF NO
INSTRUCTIONS TO THE CONTRARY ARE INDICATED, THE PERSONS NAMED HEREIN INTEND TO
VOTE FOR THE ELECTION OF THE NOMINEES, ITEM 2 AND ITEM 3. IF ANY OTHER BUSINESS
IS PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS
PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS
OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
THE PROXY AGENTS PRESENT AND ACTING IN PERSON OR BY THEIR SUBSTITUTES (OR, IF
ONLY ONE IS PRESENT AND ACTING, THEN THAT ONE) MAY EXERCISE ALL THE POWERS
CONFERRED BY THIS PROXY. DISCRETIONARY AUTHORITY IS CONFERRED BY THIS PROXY AS
TO CERTAIN MATTERS DESCRIBED IN THE COMPANY'S PROXY STATEMENT.
(Continued and to be signed on reverse side)
Please mark your votes as in this example. X
The Board of Directors recommends a VOTE "FOR" the election of the
nominees listed below, Item 2 and Item 3.
I. The election as directors of the following nominees for the term of one
year:
MICHAEL ASHKER
ALVIN H. CLEMENS
HENRY G. HAGER
PATRICK J. McLAUGHLIN
EDWARD W. LEBARON, JR.
GREGORY T. MUTZ
DENNIS B. MALONEY
[ ] FOR [ ] VOTE WITHHELD
To withhold authority to vote for an individual nominee, write that
nominee's name on the space provided below.
II. To adopt the agreement and plan of reorganization and the agreement and
plan of merger, each dated as of January 26, 2000 including the amendment
to the agreement and plan of reorganization among HealthAxis Inc. (formerly
Provident American Corporation) HealthAxis and HealthAxis Acquisition
Corp., a wholly owned subsidiary of HealthAxis Inc., and to approve the
merger and other transactions described in the merger agreements
("Item 2");
[ ] FOR [ ] AGAINST [ ] ABSTAIN
III. To act upon the adjournment of the annual meeting, if necessary, to permit
further solicitation of proxies in the event there are not sufficient votes
at the time of the annual meeting to approve the agreement and plan of
reorganization and the agreement and plan of merger ("Item 3");
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IV. In their discretion, the proxies are authorized to vote on any other
business as may properly come before the annual meeting or any adjournment
or postponement thereof.
Should the undersigned be present and choose to vote at the annual
meeting or at any adjournments or postponements thereof, and after notification
to the Secretary of HealthAxis at the annual meeting of the stockholder's
decision to terminate this proxy, then the power of such attorneys or proxies
shall be terminated and shall have no force and effect. This proxy may also be
revoked by filing a written notice of revocation with the Secretary or by duly
executing a proxy bearing a later date.
The undersigned hereby acknowledges receipt of Notice of HealthAxis'
Annual Meeting and the joint proxy statement /prospectus.
PLEASE DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE
PAID ENVELOPE.
_______________________ _____________________ DATE:_____________________, 2000
Signature(s) (Please date this proxy)
NOTE: It would be helpful if you signed your name exactly as it appears on your
stock certificate(s), indicating any official position or representative
capacity. If shares are registered in more than one name, all owners
should sign.
Please date, sign and mail your
proxy card back as soon as possible.
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