<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
PROVIDENT AMERICAN CORPORATION
- -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
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PROVIDENT AMERICAN CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 17, 1998
TO THE SHAREHOLDERS OF
PROVIDENT AMERICAN CORPORATION:
The Annual Meeting of Shareholders of Provident American Corporation (the
"Company") shall be held at 9:00 A.M., prevailing time, on Wednesday, December
17, 1998, at the Company's Executive Offices located at 2500 DeKalb Pike,
Norristown, Pennsylvania 19404, for the following purposes
1. To elect nine (9) directors to serve until the next Annual Meeting of
Shareholders and until their successors are duly elected;
2. To act upon the appointment of BDO Seidman LLP as independent public
accountants for the Company for its 1998 fiscal year.
The Board of Directors has fixed the close of business on September 18,
1998 as the record date for the determination of shareholders entitled to notice
of and to vote at the Annual Meeting.
A copy of the Company's Annual Report for its fiscal year ended December
31, 1997 is enclosed with this Proxy Statement.
All shareholders are cordially invited to attend the meeting in person.
However, whether or not you expect to attend the Annual Meeting in person,
please fill in, sign, and return the enclosed form of proxy in the envelope
provided. The shareholders attending the meeting may vote in person even if they
have returned a proxy.
By Order of the Board of Directors,
/s/ Michael F. Beausang, Jr.
MICHAEL F. BEAUSANG, JR.,
Secretary
Date: November 23, 1998
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN
PLEASE MAIL YOUR PROXY PROMPTLY
<PAGE>
PROVIDENT AMERICAN CORPORATION
PROXY STATEMENT
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This Proxy Statement and the form of proxy enclosed herewith, which are
first being mailed to shareholders on or about November 23, 1998, are furnished
in connection with the solicitation by the Board of Directors of Provident
American Corporation (the "Company") of proxies to be voted at the Annual
Meeting of Shareholders (the "Annual Meeting") to be held at 9:00 A.M.,
prevailing time, on December 17, 1998, and at any adjournment thereof at the
Company's Executive Offices located at 2500 DeKalb Pike, Norristown,
Pennsylvania 19404.
Shares represented by proxies in the accompanying form, if properly
signed and returned, will be voted in accordance with the specifications made
thereon by the shareholders. Any proxy not specifying to the contrary will be
voted in favor of the adoption of the proposals referred to in the Notice of
Annual Meeting and for the nominees for director listed in Item 1 thereof. A
shareholder who signs and returns a proxy in the accompanying form may revoke it
at any time before it is voted by giving written notice thereof to the Secretary
of the Company.
The cost of solicitation of proxies in the accompanying form will be
borne by the Company, including expenses in connection with preparing and
mailing this Proxy Statement. Such solicitation will be made by mail and may
also be made on behalf of the Company by the Company's regular officers and
employees in person or by telephone or telegram. The Company, 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 enclosed proxy confers discretionary authority to vote with respect
to any and all of the following matters that may come before the meeting: (i)
matters which the Company does not know, a reasonable time before the proxy
solicitation, are to be presented at the meeting; (ii) approval of the minutes
of a prior meeting of shareholders, if such approval does not amount to
ratification of the action taken at the meeting; (iii) 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; (iv) any proposal omitted from this Proxy Statement
and form of proxy pursuant to Rules 14a-8 or 14a-9 under the Securities Exchange
Act of 1934, as amended; and (v) matters incident to the conduct of the meeting.
In connection with such matters, the persons named in the enclosed form of proxy
will vote in accordance with their best judgment.
The Company is not currently aware of any matters which will be brought
before the Annual Meeting (other than procedural matters) which are not referred
to in the enclosed Notice of the Annual Meeting.
As of the close of business on September 18, 1998 (the "Record Date"),
the Company had outstanding 10,200,735 shares of Common Stock, $.10 par value
("Common Stock"), and 580,250 shares of Series A Cumulative Convertible
Preferred Stock, $1.00 par value, ("Series A Preferred Stock"), which will vote
on an as-converted basis with four votes per share. A majority of the
outstanding shares of Common Stock and Series A Preferred Stock, together as a
class will constitute a quorum at the Annual Meeting. In all matters other than
the election of directors, the affirmative vote of the majority of shares
present in person or represented by proxy at the Annual Meeting and entitled to
vote on the matter shall be the act of the shareholders. Under the Pennsylvania
Business Corporation Law, an abstention, notwithstanding the authority to vote
or broker non-vote will not have the same legal affect as an "against" vote and
will not be counted in determining whether the proposal has received the
required shareholder vote.
Only holders of Common Stock and Series A Preferred Stock of record at
the close of business on the Record Date will be entitled to notice of and to
vote at the Annual Meeting. Cumulative voting rights do not exist with respect
to the election of directors. Each share of Common Stock is entitled to one vote
and each share of Series A Preferred Stock (which is convertible into shares of
Class A Common Stock) is entitled to four votes on all matters to come before
the Annual Meeting.
1
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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
Common Stock and Series A Preferred Stock
The following table sets forth, as of September 18, 1998, the amount and
percentage of the Company's outstanding Common Stock beneficially owned by (i)
each person who is known by the Company to be the beneficial owner of more than
5% of the Company's outstanding Common Stock; (ii) each director or former
director; (iii) each executive officer and (iv) all officers and directors of
the Company as a group.
STOCK OWNERSHIP OF DIRECTORS, NOMINEES, AND OFFICERS
<TABLE>
<CAPTION>
Series A
Cumulative Convertible
Common Stock Preferred Stock
------------------------- -------------------------
No. of Shares Percent No. of Shares Percent
Name of Beneficially of Beneficially of
Beneficial Owner Owned(1) Class(2) Owned(1) Class(2)
- ---------------- ------------ -------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Alvin H. Clemens 3,813,745(3) 33.2% 1,100,000 97.3%
907 Exeter Crest
Villanova, PA 19085
Michael Ashker 1,788,120(4) 15.9%
c/o HealthAxis.com, Inc.
2500 DeKalb Pike
Norristown, PA 19404
Richard E. Field 717,500(5) 6.7%
7304 A West Ocean Front
Newport Beach, CA 92663
Michael F. Beausang, Jr. * 39,733(6) (7) 16,500 2.8%
James O. Bowles 85,000(8) (7)
Valerie C. Clemens * 255,000(9) 2.4%
Harold M. Davis 155,000(9) 1.4%
William C. Fay III 96,000(10) (7)
John T. Gillin * 35,000(9) (7)
Henry G. Hager 45,000(9) (7)
Frederick S. Hammer * 51,666(11) (7)
George W. Karr, Jr. 57,000(9) (7)
Edward W. LeBaron, Jr. 0(12)
Douglas F. Manchester 0(12)
Theophile J. Mignatti, Jr. 0(12)
P. Glenn Moyer 39,000(9) (7)
Anthony R. Verdi 76,435(13) (7) 5,500 1.0%
All directors and officers as a group
(22 persons for common stock
and 3 persons for preferred stock) 4,820,199(14) 40.0% 1,122,000(4) 99.3%
</TABLE>
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* Not standing for reelection.
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2
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(1) 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) Includes options granted to Mr. Clemens to purchase an additional 253,376
shares of the Company's Common Stock at a price of $.91 per share granted
pursuant to the Amended and Restated Stock Option Agreement dated as of February
27, 1989, includes 550,000 shares of Series A Preferred Stock purchased by Mr.
Clemens on March 31, 1993 and also includes 550,000 options at $3.64 per share
to purchase Series A Preferred Stock granted to Mr. Clemens pursuant to a Stock
Option Agreement dated April 1, 1993. Includes options to purchase 16,666 shares
of the Company's Common Stock at $8.75 per share and 5,000 shares of the
Company's Common Stock at $6.00 per share. Mr. Clemens disclaims beneficial
ownership of 616,000 shares of the Company's Common Stock given by him to The
Mark Twain Trust in 1991 and 917,020 options to purchase additional shares of
the Company's Common Stock owned by a partnership in which Mr. Clemens is a
partner. Excludes shares of Series A Preferred Stock, which may be issued under
the Option Contract. See Section entitled "Employment and Other Agreements". The
Series A Preferred Stock is voted on an as converted basis at the rate of 4
votes per share. Each share of Class A Common Stock is entitled to 4 votes and
each share of Common Stock is entitled to 1 vote in connection with matters
coming to a vote of the shareholders.
(4) The information in regard to Mr. Ashker has been derived from filings with
the Securities and Exchange Commission as of the Record Date. Mr. Ashker is
presently serving as President, CEO and a director of one of the Company's
subsidiaries, HealthAxis.com, Inc. Sole voting and dispositive power is claimed
with regard to 61,000 shares and shared voting power is claimed with regard to
1,038,680 shares and shared dispositive power is claimed with regard to
1,467,120 shares. See also "Certain Relationships and Related Transactions" for
a description of transactions between Mr. Ashker, Lynx Capital Group, LLC and
the Company. Amendment No. 1 to Schedule 13D was filed on behalf of Mr. Ashker
and others on November 11, 1998, indicating that Mr. Ashker beneficially owned
less than ten percent (10%) of the Company's outstanding Common Stock as of such
date. The Schedule 13D is also filed on behalf of Lynx Capital Group, LLC, a
California limited liability company of which Mr. Ashker is the sole manager;
Van Kasper & Company, a broker-dealer and California corporation; Lynx Private
Partners, L.P. and Lynx Tech Fund, L.P., both investment limited partnerships of
which Lynx Capital Group, LLC, serves as investment advisor; and Lynx Healthtech
Fund, L.P., which Lynx Capital Group, LLC, serves as investment advisor and
manager. Each of the above entities also claims beneficial ownership of various
amounts of the Company's Common Stock.
(5) Includes warrants and options to purchase 550,000 shares of the Company's
Common Stock.
(6) Includes 16,500 shares of Series A Preferred Stock. Includes shares owned
beneficially by Mr. Beausang through the Butera, Beausang, Cohen & Brennan
Employees' Pension Plan. Mr. Beausang disclaims beneficial ownership of all
shares owned directly or beneficially by his wife, Deborah D. Beausang. Includes
options to purchase 17,500 shares of the Company's Common Stock.
(7) Less than 1%.
(8) Represents options to purchase 85,000 shares of the Company's Common Stock.
(9) Includes options to purchase 35,000 shares of the Company's Common Stock.
(10) Includes options to purchase 96,000 shares of the Company's Common Stock.
(11) Includes options to purchase 26,666 shares of the Company's Common Stock.
(12) See section entitled "Certain Relationships and Related Transactions".
(13) Includes 5,500 shares of Series A Preferred Stock. Includes an option to
purchase 47,000 shares of the Company's Common Stock.
(14) Includes stock and options of all officers and directors to purchase an
aggregate of 245,250 shares and 199,995 shares, respectively, and options
granted to Mr. Clemens as described in note 3.
3
<PAGE>
ITEM 1
ELECTION 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 nine, and has
designated the persons listed below to be nominees for election as Directors.
All of the nominees are currently members of the Board. The Company 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 of the Company 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 them, are as follows:
<TABLE>
<CAPTION>
Served as Year Principal Occupation for Past Five
Director Term Will Years and Position(s) Held with
Name Age Since Expire The Company or Subsidiaries
---- --- ----- ------ ---------------------------
<S> <C> <C> <C>
Michael Ashker 45 1999 CEO, HealthAxis.com, Inc. since 1998; Managing Director
and Portfolio Manager of Lynx Capital Group LLC and Managing
Member of Lynx Venture Partners I, LLC 1995-1998.
Alvin H. Clemens 61 1989 1999 Director; Chairman of the Board and Chief Executive
Officer of the Company and subsidiary companies since
October 1989 and President of the Company and PILIC
1993-1996; President of Maine National 1989-1995; Owner
and Chairman of the Board of Maine National 1985-1989;
President and Director of Academy Life Insurance Co. and
Pension Life Insurance Co. 1970-1985; Chairman/Chief
Executive Officer of Academy Insurance Group Inc.
1967-1985.
Harold M. Davis 62 1989 1999 Director; Chairman of the Board of Realen Homes, Inc.
since 1968.
Henry G. Hager 64 1996 1999 Director; Partner in the law firm of Stradley, Ronon,
Stevens and Young since 1994; President and Chief
Executive Officer of The Insurance Federation of
Pennsylvania since 1985.
George W. Karr, Jr. 60 1996 1999 Director; Chief Executive Officer of Karr Barth
Associates, Inc. since 1984.
Edward W. LeBaron, Jr. 68 1999 Director of Lynx Capital Group, LLC since January, 1997;
Attorney and Partner, Political Law Group, Pillsbury,
Madison & Sutro 1989-1994.
Douglas F. Manchester 56 1999 Chairman of Manchester Resorts since 1983; owner of the
San Diego Marriott Hotel & Marina and the Hyatt
Regency-San Diego; Founder of La Jolla Bank and Trust
Company, and Jolla Pacific Savings Bank; Member of the
Board of Trustees of the University of San Diego since
1978.
Theophile J. Mignatti, Jr. 62 1999 Chairman Mignatti Enterprises since October 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 63 1989 1999 Director; Private Practice Attorney since 1992; Director,
Maine National 1985-1995.
</TABLE>
4
<PAGE>
During 1997, the Company's Board of Directors held five (5) meetings. All
Directors attended at least 75% of the aggregate meetings of the Board and the
Committees on which they served.
Messrs. Alvin H. Clemens, James O. Bowles, William C. Fay, III, and
Anthony R. Verdi are the executive officers of the Company.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Company'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 Messrs.
Clemens, Davis, Gillin and Karr currently serve, is appointed to act when a
meeting of the full Board of Directors is not feasible, administers the
Company's compensation matters and also 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 1997.
The Audit Committee is appointed to recommend the selection of the
Company's auditors, review the scope and results of audits, review the adequacy
of the Company's accounting, financial and operating system and supervise
special investigations. The Audit Committee held one meeting in 1997. The Audit
Committee in 1997 was comprised of Messrs. Gillin, Moyer, and Mrs. Clemens (Mr.
Beausang was an alternate); effective March 13, 1998 the Audit Committee is
comprised of Messrs. Davis, Moyer and Hager.
The Option Administration Committee was established by the Board of
Directors on July 16, 1996 and consists of Alvin H. Clemens, Harold M. Davis, P.
Glenn Moyer, who are Directors of the Company, and James O. Bowles and Anthony
R. Verdi, officers of the Company. Any options to be granted to Messrs. Bowles,
Clemens, or Verdi are subject to the approval of only Messrs. Davis and Moyer,
who are outside directors of the Company and as such are disinterested persons.
The Option Administration Committee held one meeting during 1997. A new Option
Administration Committee will be appointed at the organizational meeting of the
Directors following the Annual Meeting.
DIRECTOR COMPENSATION
Directors who are not employees of the Company are paid a fee of $1,000
for attendance at each meeting of the Board of Directors of the Company, with no
fee being paid for attendance at meetings of any of the Company's subsidiaries,
and $500 for attendance at each meeting of any committee of the Board. During
1997 the Company granted each Director other than Mr. Clemens an option to
purchase 30,000 shares of the Company's common stock at an exercise price of
$2.875 per share, the fair market value of a share of the Company's common stock
on the date of grant, exercisable one-third on the date of grant, one-third one
(1) year from the date of grant, and the remaining one-third two (2) years from
the date of grant.
Mr. John T. Gillin also serves as a consultant for the Company. The
Company paid Mr. Gillin $90,000 in 1997 for consulting services.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), requires officers, Directors, and persons who own more than ten
percent of a registered class of the Company's equity securities to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission and to furnish the Company with copies of all such reports.
Based solely on its review of the reports received or written
representations that no other reports were required, the Company believes that,
for the fiscal year ended December 31, 1997, all filings required pursuant to
Section 16(a) of the 1934 Act applicable to its officers, Directors and greater
than ten percent beneficial owners of the Company's Common Stock were made.
5
<PAGE>
REPORT OF THE EXECUTIVE/COMPENSATION/NOMINATING COMMITTEE
The compensation of the Company's executive officers is generally
determined by the Executive/Compensation/Nominating Committee (the "Executive
Committee") of the Board of Directors. The Executive Committee is comprised of
Messrs. Clemens, Davis, Gillin and Karr. The following report with respect to
certain compensation paid or awarded to the Company's executive officers during
1997 is furnished by the directors who comprise the Executive Committee:
General Policies
The Company's compensation programs are intended to enable the Company 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 the Company'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 the
Company's business. To attain these objectives, the development of the Company's
executive compensation program includes a competitive base salary, coupled with
a cash incentive bonus which is based upon the Company's business, primarily in
the achievement of pre-determined financial goals. In general, as an executive
officer's level of management responsibility in the Company increases, a greater
portion of his or her potential total compensation depends upon the Company's
performance as measured by objective standards over one or more years.
Relationship of Compensation to Performance
As a person's level of responsibility in the Company 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 the Company believes
correlate to shareholder value and support the strategic goals of the Company.
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 (collectively, "Section 162(m)"), denies a
deduction to any publicly held corporation, such as the Company, 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
the Company 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.
Executive Committee Interlocks and Insider Participation
Mr. Clemens, the Company's Chairman of the Board and Chief Executive
Officer, is a member of the Executive/Compensation/Nominating Committee;
however, Mr. Clemens does not vote upon any matters relating to his
compensation, fringe benefits, or with respect to the granting of any stock
options to him.
6
<PAGE>
Certain Relationships and Related Transactions
The Company made a loan to Alvin H. Clemens, Chairman and Chief Executive
Officer of the Company in the original principal amount of $300,000,
collateralized by 100,000 shares of the Company'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 loan 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 loan shall be
repayable 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 Company's Common Stock, $.10
par value, to 128,478 shares.
The Company made a loan to John T. Gillin, a Director of the Company in
the original principal amount of $140,900, collateralized by 20,000 shares of
the Company's Common Stock owned by Mr. Gillin and evidenced by a Promissory
Note dated April 2, 1996, as amended by an Amendment to Promissory Note dated
June 20, 1996, and a Second Amendment to Promissory Note dated February 1, 1997.
The loan was amended effective as of April 30, 1997 for the purpose of changing
the repayment terms of the Gillin Note and to increase the collateral to include
Mr. Gillin's option to purchase 25,000 shares of the Company's Common Stock,
$.10 par value, dated July 16, 1996.
Richard E. Field, former Chief Executive Officer of Richard E. Field &
Associates, Inc., d/b/a/ REF & Associates, Inc. ("REF") provides the Company's
insurance subsidiaries with exclusive marketing, sales, and product design
services as part of a 36 month Marketing and Consulting Agreement effected as of
January 1, 1996 ("Consulting Agreement"). The Company paid Mr. Field $300,000 in
1997 in connection with the Consulting Agreement. Upon the execution of the
Consulting Agreement, the Company issued a warrant to Mr. Field to purchase
100,000 shares of the Company's Common Stock at the market price per share as of
each of January 1, 1997, and January 1, 1998, provided PILIC has realized
annualized premium of at least $35 million, $45 million, and $50 million,
respectively, for each of these calendar years. The annualized premium threshold
for the year ending December 31, 1996 was achieved, and accordingly, Mr. Field
is entitled to exercise 100,000 warrants for 1996. Mr. Field also achieved the
annualized premium threshold for the year ending December 31, 1997, and is
entitled to exercise an additional 100,000 warrants for 1997.
The Company's Secretary and General Counsel, Michael F. Beausang, Jr., is
also a member of the Board of Directors and a partner/shareholder in the law
firm of Butera, Beausang, Cohen & Brennan ("BBC&B"). The Company paid legal fees
of approximately $278,500 to BBC&B in 1997.
Michael Ashker, nominated to be elected as a member of the Board of
Directors of the Company, serves as President, Chief Executive Officer and
Director of HealthAxis.com, Inc., one of the Company's subsidiaries. Mr. Ashker
is the managing director of Lynx Capital Group, LLC., a California limited
liability company, Van Kasper & Company, a broker-dealer and California
corporation; Lynx Capital Group, LLC serves as an investment advisor to and
manager of Lynx Tech Fund, L.P. Each of the entities described in this paragraph
also claims beneficial ownership of various amounts of the Company's Common
Stock.
Effective March 31, 1998, the Company entered into a Consulting Agreement
with Lynx Capital Group, L.L.C., a California corporation (the "Consultant") of
which Mr. Ashker is the managing director, which provides for retention of Lynx
as a consultant with respect to the development and marketing of health
insurance products over the Internet and the establishment of a web site for the
Company. The Consultant is compensated by the payment of a consulting fee of
$10,000 per month. The Company agreed to issue to Consultant (a) options to
purchase 150,000 shares of the Company's common stock upon the closing of an
agreement with AOL at per share exercise price equal to $3.57, exercisable
within three years; (b) options to purchase 100,000 shares of the Company's
common stock upon securing equity funding for the venture in an amount not less
than $10,000,000, at a price equal to the closing price of the Company's common
stock during the sixty days immediately preceding the closing of such financing,
to expire three years from the date of the grant; (c) options to purchase 50,000
shares of the Company's common stock upon the internet based retailing venture
and web site established for the Company becoming operational at an exercise
price equal to the average closing price of the Company's common stock during
the thirty business days immediately preceding the date on which the web site
7
<PAGE>
becomes operational, the options to be exercised within three years of the
grant; (d) options to purchase 50,000 shares of the Company's common stock upon
the conclusion of interactive advertising/marketing agreements with internet
service providers and search engine specialty content providers at an exercise
price equal to the average closing price of the Company's common stock during
the thirty business days preceding conclusion of the interactive
advertising/marketing agreements, the option to be exercised within three years
of the grant; and (d) options to purchase 50,000 shares of the Company's common
stock provided that Consultant obtains funding for the Company in an amount not
less than $5,000,000 from HPS, FHG, or any other insurance company whose
products are sold through Provident's Internet web sites, the options to be
exercised within three years of the grant.
As of November 13, 1998, Lynx Private Equity Partners I, LLC., of which
Mr. LeBaron is the Managing Director, purchased 250,000 shares of the Company's
Common Stock in a transaction wherein the Company also sold 607,143 shares of
the Company's Common Stock to certain other unrelated individuals. As a part of
that transaction, the Company informally agreed to nominate Messrs. Ashker and
LeBaron to be elected as Directors of the Company at all meetings of
shareholders held before December 31, 1999.
InterHotel Company, Ltd., of which Douglas F. Manchester is a principal,
purchased 357,143 shares of the Company's Common Stock on November 13, 1998. As
a part of that transaction the Company agreed to nominate Mr. Manchester to be
elected as a Director of the Company at the 1998 Annual Meeting of Shareholders.
EXECUTIVE COMPENSATION
Employment and Other Agreements
Effective February 19, 1997, the Company and Mr. Clemens entered into a
new employment agreement ("Agreement") which replaces Mr. Clemens' prior
Employment Contract dated as of January 1, 1993. Pursuant to the Agreement, Mr.
Clemens is employed as Chief Executive Officer of the Company for a five-year
term ending December 31, 2002 (the "Term"), 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 shall be an unexpired five-year term. Mr. Clemens is paid a
base salary in 1997 of $394,308, plus an annual cost of living increase, and
such additional incentive or bonus compensation as shall be deemed appropriate
from time to time by the Board of Directors of the Company. A bonus of $305,850
was paid to Mr. Clemens in 1997. 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.
In addition, pursuant to an Agreement to grant options dated as of March
10, 1997 (the "Option Contract"), the Company agreed to grant Mr. Clemens an
option to successively purchase up to 3,300,000 shares of the Company's Series A
Preferred Stock, which option or options will be granted upon any exercise by
Mr. Clemens of any previously granted option to purchase Series A Preferred
Stock, and each subsequently granted option to purchase shares of Series A
Preferred Stock from time-to-time. The rights set forth in the options pursuant
to the Option Contract are limited as follows: (1) the number of shares of
Series A Preferred Stock issuable upon each exercise of the options pursuant to
the Option Contract shall be limited by the number of Series A Preferred Stock
which shall, as of the date of any such exercise, be authorized and unissued;
(2) the number of shares of Series A Preferred Stock issuable upon the exercise
of all of the Options granted to Mr. Clemens under the Option Contract and under
a previously granted option to purchase 550,000 shares of Series A Preferred
Stock shall not in the aggregate exceed 3,850,000 shares of Series A Preferred
Stock; and (3) except upon the occurrence of a "change in control" (as defined
in the Option Contract), Mr. Clemens shall not be permitted to exercise an
option granted under the Option Contract (i) to purchase more than 550,000
shares of Series A Preferred Stock in any six-month period, or (ii) to purchase
shares which would result in Mr. Clemens controlling more than 55% of the
outstanding voting rights for all classes of the Company's Common and Series A
Preferred Stock.
8
<PAGE>
Upon the occurrence of a "change in control" of the Company, Mr. Clemens
shall have the right to immediately exercise all options (3,850,000) to purchase
shares of Series A Preferred Stock, and the Company will make a loan to Mr.
Clemens in an amount equal to the aggregate exercise price of all options to
purchase shares of Series A Preferred Stock which Mr. Clemens may then be
entitled to exercise, plus an amount equal to all federal and state income taxes
incurred by Mr. Clemens in connection with the exercise (the "Loan"). The Loan
shall be unsecured, and shall bear interest at the then applicable federal
short-term rate, but not less than six (6%) percent per annum, with interest and
principal due and payable in full five (5) years from the date of the Loan. For
this purpose a "change of control" shall mean the acquisition by any individual,
entity or group (within the meaning of the Securities Exchange Act of 1934, as
amended), of beneficial ownership of 25% or more of either the then outstanding
shares of the Common Stock of the Company, or the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors.
Mr. Bowles is employed as President of the Company at a base salary of
$195,000, with an annual cost of living increase, and such additional incentive
or bonus compensation and certain insurance and other fringe benefits as shall
be deemed appropriate from time-to-time by the Executive Committee or the Board
of Directors of the Company. Mr. Bowles is subject to certain restrictions on
competition and disclosure of confidential information. In the event of the
termination of his employment. In addition, Mr. Bowles was granted an option to
purchase 50,000 shares of the Company's Common Stock at an exercise price of
$11.00 per share, which option is immediately exercisable and unless sooner
exercised, expires on November 7, 2001.
The following three tables show information relating to the Chairman of
the Board, President and Chief Executive Officer and the most highly compensated
executive officers during the calendar years specified therein:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
- ---------------------------------------------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
- ---------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Long Term
Restricted Securities Incentive
Name and Other Annual Stock Underlying Plan All Other
Principal Salary Bonus Compensation Award(s) Options Payouts Compensation(2)
Position(1) Year ($) ($) ($) ($) (#) ($) ($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alvin H. Clemens, 1997 417,453 305,850 18,288
Chairman of the Board 1996 386,662 75,000 15,748
and CEO 1995 381,814 15,225
- ---------------------------------------------------------------------------------------------------------------------------
James O. Bowles(3) 1997 195,000 64,945
President 1996 130,000 125,000
1995
- ---------------------------------------------------------------------------------------------------------------------------
William C. Fay III 1997 125,625 177,386 50,000 4,000
Sr. Vice President 1996 111,958 173,570 160,000 3,080
Sales 1995 120,802 89,108 3,042
- ---------------------------------------------------------------------------------------------------------------------------
Anthony R. Verdi, 1997 151,335 9,295
COO 1996 128,072 75,000 10,406
1995 126,000 9,415
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes Chairman of the Board, President and Chief Executive Officer and
the most highly compensated executive officers whose total annual salary and
bonus exceeded $100,000.
(2) Includes for 1997, 1996 and 1995, respectively, (a) Company contributions to
savings plan (Mr. Clemens $4,000, $3,750 and $4,620; Mr. Fay $4,000, $3,080
and 3,042; Mr. Verdi $3,595, $3,150 and $2,558), and (b) automobile expense
allowances (Mr. Clemens $11,998, $11,998 and $10,605; and Mr. Verdi $5,700,
$7,256 and $6,857).
(3) Mr. Bowles joined the Company on May 1, 1996 as a result of the acquisition
of NIA Corporation.
9
<PAGE>
Provident American Corporation
Option Grants in 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Potential Realizable
Value
At Assumed Annual Rates
Number of % of Total Of Stock Appreciation
Securities Options Exercise for
Options Granted to Price Expiration Option Term Alternative to
Name Granted Employees $/Share Date 5% 10% F & g (1)
- ---------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William C. Fay III 50,000 5.25% $4.00 10/6/02 $17,367 $74,290 $71,070
Sr. Vice President,
Sales
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on the Black-Scholes option pricing model assuming: 0% dividend yield,
no adjustments for forfeitures and the following expected stock volatility,
length of time for exercise and risk free interest rate:
63.235%, three years and 5.5%, respectively.
Provident American Corporation
Aggregate Option Exercises in 1997 and Year-End Values
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Number of
Underlying Value of
Shares Unexercised Unexercised
Acquired Value Options In-the-Money
Name On Exercise Realized At 12/31/97 Options at
12/31/97 ($)
- ---------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alvin H. Clemens
Chairman of the Board, CEO
Exercisable (1) 0 $0 26,669 $0
Unexercisable 48,334 $0
James O. Bowles
President
Exercisable 0 $0 75,000 $0
Unexercisable 40,000 $0
William C. Fay III
Sr. Vice President, Sales
Exercisable 0 $0 69,000 $0
Unexercisable 141,000 $0
Anthony R. Verdi
COO
Exercisable 0 $0 42,000 $0
Unexercisable 55,000 $0
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes non-compensatory stock options to purchase 1,253,376 shares of
common stock at $0.9091 issued to Mr. Clemens in 1989 of which Mr. Clemens
disclaims beneficial ownership of 917,020 shares owned by a partnership of
which Mr. Clemens is a partner; excludes an option to purchase 550,000
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, and also excludes any options which could be
granted to Mr. Clemens under the Option Contract dated March 10, 1997
described in the Section entitled - "Employment and Other Agreements".
10
<PAGE>
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
the Company'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, 1993:
Compare 5-Year Cumulative Total Return
Among Provident American Corporation
NASDAQ Market Index and MG Group Indexes
400 |-----------|-----------|-----------|-----------|-----------|-----------|
| |
| |
| |
350 |----------------------------------------------------@------------------|
| |
| |
| |
300 |-----------------------------------------------------------------%-----|
D | |
| |
O | |
250 |-----------------------------------------------------------------*-----|
L | |
| # |
L | |
200 |-----------------------------------------------------%*----------------|
A | # |
| @ |
R | %* |
150 |-----------------------------------------------------------------------|
S | # |
| * * |
| % % |
100 |---@%#*----------#-----------#-----------------------------------------|
| @ |
| |
| |
50 |-----------------------------@----------------------------------@------|
| |
| |
| |
0 |-----------|-----------|-----------|-----------|-----------|-----------|
1992 1993 1994 1995 1996 1997
@ = Provident American Corp. % = Life Insurance
# = Accident/Health Insurance * = NASDAQ Market Index
Assumes $100 Invested on January 1, 1993
Assumes Dividend Reinvested
Fiscal Year Ended December 31, 1997
ITEM 2
APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS
The following resolution concerning the appointment of independent
auditors will be offered at the meeting:
"RESOLVED, That the appointment by the Board of Directors of the
Company of BDO Seidman LLP to audit the accounts of the Company and its
subsidiaries for the fiscal year 1998 is hereby ratified and approved."
BDO Seidman LLP has been auditing the accounts of the Company and its
subsidiaries since December 1997. In recommending the approval by the
shareholders of the appointment of that firm, the Board of Directors is acting
upon the recommendation of the Audit Committee. A representative of BDO Seidman
LLP is expected to be present at the Annual Meeting and will have the
opportunity to make a statement, if he desires to do so, and will be available
to respond to appropriate questions.
11
<PAGE>
FINANCIAL STATEMENTS
The Company has enclosed its Annual Report to Shareholders for the year
ended December 31, 1997 with this Proxy Statement. Shareholders are referred to
the report for financial and other information about the Company, but such
report is not incorporated in this Proxy Statement and is not a part of the
proxy soliciting material.
ANNUAL REPORT ON FORM 10-K
Upon the written request of any beneficial owner as of September 18, 1998
of the Company's Common Stock or Series A Preferred Stock, the Company 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, 1997. A list
of exhibits to the Annual Report will also be provided, and copies of such
exhibits will be furnished upon request and payment of a reasonable fee.
Requests should be directed to Craig Gitlitz, Director of Corporate
Communication, Provident American Corporation, 2500 DeKalb Pike, P. O. Box 511,
Norristown, Pennsylvania 19404-0511.
SHAREHOLDER PROPOSALS
Pursuant to recent amendments to the proxy rules under the Exchange Act,
the Company's shareholders are notified that the deadline for providing the
Company timely notice of any shareholder proposal to be submitted outside of the
Rule 14a-8 process for consideration at the Company's 1999 Annual Meeting of
Shareholders (the "1999 Meeting") will be February 15, 1999. As to all such
matters which the Company does not have notice on or prior to February 15, 1999
discretionary authority shall be granted to the persons designated in the
Company's proxy related to the 1999 Meeting to vote on such proposal. This
change in procedure does not affect the Rule 14a-8 requirements applicable to
inclusion of shareholder proposals in the Company's proxy materials related to
the 1999 Meeting. A stockholder proposal regarding the 1999 Meeting must be
submitted to the Company at its office located at 2500 DeKalb Pike, Norristown,
Pennsylvania 19404, by March 15, 1999 to receive consideration for inclusion in
the Company's 1999 proxy materials. Any such proposal must also comply with the
proxy rules under the Exchange Act, including Rule 14a-8.
OTHER MATTERS
The Board of Directors does not know of any 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.
By Order of the Board of Directors.
/s/ Michael F. Beausang, Jr.
Michael F. Beausang, Jr.
Secretary
Date: November 23, 1998
12
<PAGE>
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROVIDENT AMERICAN CORPORATION
The undersigned hereby appoints Francis L. Gillan III and Jimmy R. Potts
as proxies, with power to act without the other and with power of substitution,
and hereby authorizes them to represent and vote, as designated on the other
side, all the shares of stock of Provident American Corporation standing in the
name of the undersigned with all powers which the undersigned would possess if
present at the Annual Meeting of Shareholders of the Company to be held December
17, 1998 or any adjournment thereof.
(Continued and to be marked, dated and signed, on the other side.)
o FOLD AND DETACH HERE o
<PAGE>
Please mark /x/
Our votes
As indicated
In this example
The Board of Directors recommends a vote FOR WITHHELD
Items 1 and 2. FOR BY ALL
/ / / /
ITEM 1. - ELECTION OF DIRECTORS:
Nominees:
Michael Ashker Edward W. LeBaron, Jr.
Alvin H. Clemens Douglas F. Manchester
Harold M. Davis Theophile J. Mignatti III
Henry G. Hager P. Glenn Moyer
George W. Karr, Jr.
WITHHELD FOR: (Write that nominee's name in the space
provided below).
____________________________
ITEM 2. - APPOINTMENT OF INDEPENDENT FOR AGAINST ABSTAIN
ACCOUNTANTS / / / / / /
Signature ________________________ Signature ____________________ Date _________
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
o FOLD AND DETACH HERE o
