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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): July 12, 1999
PROVIDENT AMERICAN CORPORATION
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(Exact name of registrant as specified in its charter)
Pennsylvania 0-13591 23-2214195
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(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
2500 DeKalb Pike, Norristown, Pennsylvania 19404
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(Address of principal executive offices/Zip Code)
Former name, former address, and former fiscal year, if changed since
last report: N/A
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Item 5. Other Events
The following information is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the Consolidated Financial Statements of the Provident American Corporation
("Provident") and its subsidiaries, and the notes thereto, appearing in
Provident's reports filed with the Securities and Exchange Commission ("SEC").
Except for the historical information contained herein, this Current Report on
Form 8-K, contains certain forward-looking statements regarding Provident's
business and prospects that are based upon numerous assumptions about future
conditions which may ultimately prove to be inaccurate and actual events and
results may materially differ from anticipated results described in such
statements. Such forward-looking statements involve risks and uncertainties,
such as historical and anticipated losses; uncertainty of future results, new
business challenges, risks associated with brand development, competition,
funding; need for additional capital, management of potential growth; new
management team, dependence on key personnel, dependence on the Internet,
dependence on strategic alliances with Internet providers, liability for
information retrieved from the Internet, uncertain acceptance of the Internet as
a medium for health insurance sales, risk capacity constrains; reliance on
internally developed systems; system development risks, dependence on third
party systems, rapid technological change, risk of system failure, A.M. Best's
insurance ratings, dependence on key suppliers of insurance products, dependence
upon third party claims administration services, changes in the insurance
industry, insurance industry factors, health care reform legislation, government
regulation and legal uncertainties, potential conflicts of interest, risk
associated with the Year 2000 and absence of dividends. Any one or a combination
of these factors could have a material adverse effect on Provident's business,
financial condition and results of operations. These forward-looking statements
represent Provident's judgment as of the date of this report. Provident
disclaims, however, any intent or obligation to update these forward-looking
statements.
On July 12, 1999, HealthAxis.com, Inc. ("HealthAxis" or the "Company"),
the Internet subsidiary of Provident, completed the private placement of 333,334
shares of Series D Preferred Stock at $12.00 per share, for an aggregate
purchase price of $4.0 million, to an accredited investor.
In connection with the Series D Offering the Company's Amended and
Restated Articles of Incorporation were amended to authorize an additional
500,000 shares of Preferred Stock. The first paragraph of Article 5 of the
Company's Amended and Restated Articles provides as follows:
"The Corporation shall have the authority to issue an aggregate of
45,500,000 shares of capital stock which shall be divided into 40,000,000 shares
of Common Stock, par value $0.10 per share, as more fully described in Section
5(a) below, and 5,500,000 shares of Preferred Stock, par value $1.00 per share,
as more fully described in Section 5(b) below."
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The terms of the Series D Preferred Stock are as follows:
Series D Preferred Convertible Stock
Dividends. Holders of the Series D Preferred Stock will be entitled to
dividends accruing from the date of issue, if such dividends are declared by the
Board of Directors out of funds legally available therefor. If any accrued
dividends on the Series D Preferred Stock have not been paid or set apart for
payment, no dividends or other distributions may be declared and paid or set
apart for payment upon any common stock, no par value per share of the Company
(the "Common Stock") or any series of preferred stock of the Company (the
"Preferred Stock") with a dividend preference junior to the Series D Preferred
Stock (the "Series D Junior Stock"). In the event the Company proposes to pay
any dividend upon the shares of Common Stock or any class of Series D Junior
Stock, dividends shall have been declared on the shares of Series D Preferred
Stock and a sum paid to the holders thereof or a sum sufficient for the payment
thereof shall have been set apart for such payment, which sum equals a dividend
per share of Series D Preferred Stock which is not less than the proposed
dividend per share to be paid on the Common Stock or such other Series D Junior
Stock, as the case may be (determined, in the case of the Series D Preferred
Stock, on an as converted basis). The Company does not anticipate paying any
dividends on its Series D Preferred Stock in the foreseeable future.
Liquidation. In the event of any distribution, liquidation or winding
up of the affairs of the Company, whether voluntary or otherwise, after payment
or provisions for payment of the debts and other liabilities of the Company and
payment of all amounts owed to the holders of the Series B Preferred Stock, the
holders of the Series D Preferred Stock shall be entitled to receive, on a pari
passu basis with the Series C Preferred Stock out of the assets of the Company
legally available for distribution to its shareholders, an amount in cash equal
to $12.00 ("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 the Company's Common Stock, the Series A Preferred Stock
or Series D Junior Stock.
If after payment or provision for payment of the debts and other
liabilities of the Company, the full amount due to holders of the Series B,
Series C and Series D Preferred Stock and the distribution to the holders of the
Series A Preferred Stock the full amount of their preference, holders of the
Series D Preferred Stock shall be entitled to share on a pro rata basis the
remaining assets of the Company available for distribution to shareholders with
holders of the Common Stock and the Series A, Series B and Series C Preferred
Stock. 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.
The consolidation or merger of the Company with any corporation (other
than a transaction where holders of the Company's voting capital stock hold a
majority of voting capital of the resulting entity), the sale of all or
substantially all of the Company's assets, the acquisition by any person or
entity of a majority of the voting capital stock of the Company, will be deemed
a liquidation or winding up of the Company.
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Redemption. The Series D Preferred Stock is not subject to any
mandatory redemption, sinking fund or other similar provisions.
Optional Conversion. Each share of Series D Preferred Stock is
convertible at any time at the option of the holder into a number of shares of
fully-paid and non-assessable shares of Common Stock equal to the quotient
obtained by dividing: (i) the Offering Price per share by; (ii) the Series D
Conversion Price (as defined below).
The Series D Conversion Price on the Series D Preferred Stock shall be
the Offering Price of $12.00 per share subject to adjustment from time to time
in the event of: (i) the issuance of Common Stock as a dividend or distribution
on the Common Stock; (ii) the combination, subdivision or reclassification of
the Common Stock; (iii) the distribution to all holders of Common Stock of
evidences of the Company's indebtedness or assets (including securities, but
excluding cash dividends or distributions paid out of earned surplus); or (iv)
the sale of Common Stock at a price per share, or the issuance of options,
warrants or convertible securities with an exercise or conversion price per
share, less than the then Series D Conversion Price, except for Excluded Shares.
No adjustment in the Conversion Price will be required until cumulative
adjustments require an adjustment of at least 1-1/2% in the Conversion Price. No
fractional shares will be issued upon conversion, but any fractions will be
adjusted in cash on the basis of the then current market price of the Common
Stock. Payment of accumulated and unpaid dividends will be made upon conversion
to the extent of legally available funds as prescribed by statute.
Excluded Stock means: (i) up to 3,500,000 shares of or options for
Common Stock issued to employees, directors and officers of and consultants to
the Company pursuant to agreements approved by the Board of Directors; provided
that, any shares of Common Stock, options or warrants issued after the date of
filing of the Certificate of Designation for the Series D Preferred Stock must
be issued at a price of not less than $10.00; (ii) shares of Common Stock issued
upon conversion of any series of Preferred Stock; (iii) shares of Common Stock
issued by the Company as a stock dividend or upon any subdivision, split-up or
combination of shares of Common Stock; (iv) shares of Common Stock issued as a
stock dividend or stock split or upon any subdivision, split-up or combination
of shares of Common Stock; or (v) shares of Common Stock issued pursuant to
warrants previously granted to certain strategic alliance or carrier partners.
Mandatory Conversion. All of the outstanding shares of Series D
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 a underwritten
public offering of the Common Stock of the Company at a net offering price per
share that represents a pre-offering market capitalization of not less than
$200.0 million and aggregate proceeds (net of underwriting commissions and
discounts) to the Company of not less than $25.0 million or (ii) a Qualified
Merger. The term "Qualified Merger" shall mean an upstream merger of HealthAxis
with Provident or the merger of HealthAxis with a wholly-owned subsidiary of
Provident pursuant to which HealthAxis shall be the primary operating subsidiary
of Provident and Provident's only operations shall be within HealthAxis upon the
following conditions:
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(i) the merger is approved, in addition to such vote as may
otherwise be 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;
(ii) HealthAxis receives a fairness opinion from BancBoston
Robertson Stephens Inc. (or such other investment banking firm as 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
stockholders of HealthAxis, other than Provident and its subsidiaries, from a
financial point of view;
(iii) the securities to be issued to holders of the Preferred
Stock upon the completion of the merger shall be registered with the Securities
and Exchange Commission pursuant to the Securities Act of 1933, as amended
("Securities Act"), freely tradeable and listed on a national securities
exchange or quoted on the NASDAQ Stock Market; and
(iv) the resulting entity has a market capitalization of at
least $200,000,000.
Voting Rights. In addition to the voting rights offered by the
applicable law, 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 entitles the holder 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 under the holder's
optional conversion rights. Except as set forth below, the holders of Series D
Preferred Stock shall vote together with the holders of Common Stock and the
Series A, Series B and Series C Preferred Stock as one class.
The affirmative vote, in person or by proxy, of the holders of a
majority of the outstanding shares of the Series D Preferred Stock, voting as a
single class, shall be necessary for the Company to: (a) amend, repeal or modify
any provisions of, or add any provision to, the Company's Amended and Restated
Articles of Incorporation if such action would alter or change the rights,
preferences, privileges or powers of, or the restrictions provided for the
benefit of, the Series D Preferred Stock so as to affect the Series D Preferred
Stock adversely; (b) authorize, create or issue any additional shares of any
class or series of Preferred Stock senior to or on parity with the Series D
Preferred Stock, or authorize, create or issue shares of any class or series of
stock or any bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having optional rights to purchase, any shares of stock
senior to or on parity with the Series D Preferred Stock; (c) reclassify the
shares of Common Stock or any other shares of any class or series of Preferred
Stock into shares of Preferred Stock senior to or on parity with the Series D
Preferred Stock; (d) increase the number of shares of Series D Preferred Stock;
(e) consummate any Corporate Transaction (as defined below); (f) directly or
indirectly pay or declare any dividend or make any distribution upon, or redeem,
retire or repurchase or otherwise acquire, any shares of capital stock or other
securities of the Company other than the Series B or Series C Preferred Stock
(other than the repurchase of Common Stock from employees upon termination or
employment); or (g) consummate any transaction whereby the Company shall obtain
control, directly or indirectly, of an insurance corporation.
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A Corporate Transaction means (i) any consolidation or merger
of the Corporation, other than any merger or consolidation resulting in the
holders of the capital stock of the Corporation entitled to vote for the
election of directors holding a majority of the capital stock of the surviving
or resulting entity entitled to vote for the election of directors, (ii) any
person or entity (including any affiliates thereof) becoming the holder of a
majority of the capital stock of the Corporation entitled to vote for the
election of directors, or (iii) any sale or other disposition by the Corporation
of all or substantially all of its assets.
Registration Rights. When the Company 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 a Form S-8), the Company
is required to give notice to the holders of Series D Preferred Stock and the
holders of Common Stock acquired upon the conversion of Series D Preferred Stock
of the proposed registration and the right to include their shares of Common
Stock received upon the conversion of the Series D Preferred Stock ("Series D
Conversion Shares") in such registration (a "Piggyback Registration"), subject
to certain conditions including the right of the underwriter of such offering to
limit the number of Series D Conversion Shares sold by the holders if the
underwriter advised the Company and such holders in writing that the number of
Series D Conversion Shares required to be included by such holders would
interfere with the successful marketing of the shares offered. Such Piggyback
Registration rights are subject to the priority rights granted to HealthPlan
Services, Inc. ("HPS"), holders of the Series B Preferred Stock and certain
warrant holders and are on parity with the rights granted to the holders of the
Series C Preferred Stock. Subject to rights granted to HPS, holders of the
Series B Preferred Stock and certain warrant holders, the holders of at least
60% of the then outstanding shares of Series D Preferred Stock may also require
the Company to file up to two registration statements ("demand registrations")
under the Securities Act with respect to the Common Stock acquired upon the
conversion of the Series D Preferred Stock held by such holders desiring to
participate, subject to certain conditions. Such demand may not be made earlier
than: (i) 12 months from the closing of the Offering or (ii) six months after
the Company's initial public offering. The Company is required to pay all
registration expenses (as defined in the Registration Rights Agreement to be
executed in connection with this transaction), other than any underwriting
discounts and commissions for any underwriter or broker-dealer acting on behalf
of the holders of the Series D Conversion Shares.
Other. The holders of Series D Preferred Stock are not entitled to any
preemptive rights. Shares of Series D Preferred Stock and the shares of the
Common Stock issuable upon conversion will, when issued, be validly issued,
fully paid and non-assessable shares of the Company.
In connection with the sale of the Series D Preferred Stock, HealthAxis
amended the terms of the Series A, Series B and Series C Preferred Stock to
provide as follows:
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Series A Cumulative Convertible Preferred Stock
Dividends. The holder of each share of Series A Preferred Stock is
entitled to receive such dividends as declared by the Board of Directors of the
Corporation in its discretion, out of funds legally available for that purpose.
Dividends on each share of Series A Preferred Stock, if and when declared, shall
accrue from the applicable date of declaration so that if at any time Accrued
Dividends (as hereinafter defined) upon the Series A Preferred Stock shall not
have been paid, the amount and deficiency in such dividends shall be fully paid
(but without interest) or dividends which have been declared on the shares of
the Series A Preferred Stock or any share of Preferred Stock of the Corporation
which is junior to the Series A Preferred Stock with respect to the payment of
dividends or distribution of assets of the Corporation or both (the "Junior
Stock") and a sum sufficient for the payment thereof shall have been set apart
for such payment, before any dividend shall be declared or paid or any other
distribution ordered or made upon shares of Common Stock or any Junior Stock and
before any sum or sums shall be set aside for or applied to the purchase or
redemption of any shares of Common Stock or the Junior Stock, other than the
repurchase by the Corporation of shares of Common Stock from any employee
thereof upon cessation of their employment, which shall under all circumstances
be permitted notwithstanding the foregoing.
Liquidation. In the event of any dissolution, liquidation or winding up
of the affairs of the Company, whether voluntary or otherwise, after payment or
provision for payment of the debts and other liabilities of the Company and
payment of all amounts owed to the Series B, Series C and Series D Preferred
Stock or any other class of securities of the Company having a dividend payment
or other distribution preference senior to the Series A Preferred Stock (the
"Series A Senior Stock"), the holders of the Series A Preferred Stock shall be
entitled to receive, out of the assets of the Company legally available for
distribution to its shareholders, the amount of $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 date fixed for distribution, before any
distribution may be made to the holders of the Company's Common Stock. If, after
payment or provision for payment of the debts and other liabilities of the
Company including amounts payable to holders of the Series B, Series C and
Series D Preferred Stock and any other Series A Senior Stock, the remaining net
assets of the Company are not sufficient to pay the holders of the Series A
Preferred Stock the full amounts of their preferences, the holders of Series A
Preferred Stock would share ratably in any distribution of assets. If after
payment or provision for payment of the debts and other liabilities of the
Company, the full amount due to holders of any Series A Senior Stock, including
the Series B, Series C and Series D Preferred Stock, and the distribution to the
holders of the Series A Preferred Stock the full amount of their preference,
holders of the Series A Preferred Stock shall be entitled to share on a pro rata
basis the remaining assets of the Company available for distribution to
shareholders with holders of the Common Stock and the Series B, Series C and
Series D Preferred Stock. 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.
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The consolidation or merger of the Company with any corporation (other
than a transaction where holders of the Company's voting capital stock hold a
majority of voting capital of the resulting entity), the sale of all or
substantially all of the Company's assets, the acquisition by any person or
entity of a majority of the voting capital stock of the Company, will be deemed
a liquidation or winding up of the Company.
Mandatory Redemption. The shares of Series A Preferred Stock are
redeemable by the Company at any time after September 15, 1999 (the "Mandatory
Redemption Period"). During the Mandatory Redemption Period, the Company 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 the
Company 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.
During the Mandatory Redemption Period, holders of the Series A
Preferred Stock have the right at any time to convert all or a part of their
shares of Series A Preferred Stock into shares of Common Stock.
Optional Conversion. At any time prior to redemption, shares of Series
A Preferred Stock are convertible, at the option of the holders thereof, into
shares of Common Stock equal to the quotient obtained by dividing: (i) the
original issuance price (approximately $4.40 per share) by (ii) the Conversion
Price (as defined below). With respect to shares of Series A Preferred Stock
called for redemption, the right to convert shall cease at the close of business
on the redemption date.
The Conversion Price per share shall be the original issuance price
subject to adjustment from time to time in the event: (i) the Company issues,
from the date of the original issuance through the date of a second qualified
financing (as defined below) any shares of Common Stock, other than Excluded
Shares (as defined below), without consideration or for consideration per share
less than the Conversion Price in effect immediately prior to such issuance;
(ii) after the date of original issuance, the Company issues options or rights
to purchase Common Stock or securities or exchangeable into shares of Common
Stock; (iii) there is a stock dividend, stock split combination, capital
recapitalization (other than a change in par value) or consolidation or merger
(other than consolidation or merger when the Company is the continuing
corporation and does not result in a change in the Common Stock). A second
qualified financing is an equity offering yielding aggregate gross proceeds to
the Company of not less than $3.5 million at a price per share of at least
$3.74.
Excluded Shares include: (i) 3,500,000 shares of Common Stock issued
pursuant to the Company's Stock Option Plan provided that any shares of Common
Stock, options or warrants issued after the date of filing of the Amended and
Restated Certificate of Designation related to the Series A Preferred Stock are
issued at a price of not less than $4.00; (ii) Common Stock issued upon the
conversion of the Series A Preferred Stock or Series B Preferred Stock; (iii)
Common Stock issued as part of a stock dividend, split-up or combination of
Common Stock; and (iv) Common Stock issued in a qualified financing provided the
issuance price of the Common Stock is not less than 85% of the original issuance
price of the Series A Preferred Stock.
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To the extent the Company makes a dividend payment or other
distribution payable in Common Stock, the Company shall make a provision so that
each holder of Series A Preferred Stock shall receive upon conversion of such
securities the number of shares of Common Stock which would have been received
had the Series A Preferred Stock been converted to Common Stock on such date.
Holders of the Series A Preferred Stock intending to exercise these
conversion rights are required to give notice to the Company in accordance with
notice requirements set forth in the Certificate of Designation. No fractional
shares of Common Stock shall be issued upon conversion. Fractional interests
will be paid in cash based upon the current price of a share of Common Stock
pursuant to the procedure set forth in the Certificate of Designation.
Mandatory Conversion. All of the outstanding shares of Series A
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 a underwritten
public offering of the Common Stock of the Company 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 the Company of not less than $25.0 million or (ii) a Qualified
Merger. See "Series D Preferred Stock -- Mandatory Conversion" for the
definition of a Qualified Merger.
Voting Rights. In addition to the voting rights afforded by applicable
law, the 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 A Preferred Stock are entitled to the number of votes equal
to the nearest whole number of shares of Common Stock into which the Series A
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 the Series A Preferred Stock, voting as a
single class, shall be necessary for the Company to: (i) amend, repeal or modify
any provision of, or add any provision to, the Company's 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 Series A Preferred Stock; (ii) authorize,
create, designate or establish any additional shares of any class or series of
Series A Senior Stock or other security or instrument convertible into or
exchangeable for any Series A Senior Stock, other than the Series B Preferred
Stock; (iii) reclassify the shares of Common Stock into shares having any series
preference or priority as to dividends or assets superior to the Series A
Preferred Stock; (iv) or in any manner amend or modify the powers, rights,
preferences, privileges or the qualifications, limitations or restrictions of
the Series A Preferred Stock (other than the creation of the Series B, Series C
or Series D Preferred Stock).
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Registration Rights. 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
("Series A Conversion Shares") in such registration (a "Piggyback
Registration"), subject to certain conditions including the right of the
underwriter of such offering to limit the number of Series A Conversion Shares
sold by the holders if the underwriter advised the Company and such holders in
writing that the number of Series A Conversion Shares required to be included by
such holders would interfere with the successful marketing of the shares
offered. Such Piggyback Registration rights are subject to the priority rights
granted to HPS , holders of the Series B Preferred Stock, certain warrant
holders and the Series C and Series D Preferred Stock to be issued. Subject to
rights granted to HPS, holders of the Series B Preferred Stock, certain warrant
holders and holders of the Series C and Series D Preferred Stock, the holders of
at least 60% of the then outstanding shares of Series A Preferred Stock may also
require the Company 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 such holders desiring to
participate, subject to certain conditions. Such demand may not be made earlier
than: (i) November 13, 2001 or (ii) six months after the Company?s initial
public offering. The Company is required to pay all registration expenses (as
defined in the Registration Rights Agreement) 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.
Other. 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.
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Series B Cumulative Convertible Preferred Stock
Dividends. The 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, out of funds legally available for that purpose, provided that,
such dividend if payable in cash shall be at least equal to $0.13 per share
unless dividends per share in excess of $0.13 per share are paid to any other
holder of capital stock of HealthAxis in which event the dividend payable to
each holder of the Series B Preferred Stock shall equal $0.13 per share plus an
amount equal to such holder's pro rata portion of any dividend declared by the
Board of Directors of HealthAxis and payable to all other holders of capital
stock in excess of $0.13 per share. Dividends on each share of Series B
Preferred Stock, if and when declared, shall accrue from the applicable date of
declaration so that if at any time accrued dividends upon the Series B Preferred
Stock shall not have been paid, the amount and deficiency in such dividends
shall be fully paid (but without interest) with respect to dividends which have
been declared on the shares of the Series B Preferred Stock or the Common Stock,
Series A Preferred Stock or any other class of securities of the Company having
a dividend or distribution preference junior to the Series B Preferred Stock
(the "Series B Junior Stock"), a sum sufficient for the payment thereof shall
have been set apart for such payment, before any dividend shall be declared or
paid or any other distribution ordered or made shares of Common Stock or any
Series B Junior Stock, and before any sum or sums shall be set aside for or
applied to the purchase or redemption of any shares of Common Stock or the
Series B Junior Stock, other than the repurchase by HealthAxis of shares of
Common Stock from any employee thereof upon cessation of their employment, which
shall under all circumstances be permitted notwithstanding the foregoing.
Liquidation. In the event of any dissolution, liquidation or winding up
of the affairs of the Company, whether voluntary or otherwise, after payment or
provision for payment of the debts and other liabilities of the Company, the
holders of the Series B Preferred Stock shall be entitled to receive, out of the
assets of the Company legally available for distribution to its shareholders,
the amount of approximately $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 date fixed for distribution, before any distribution may be made
to the holders of the Company's 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 the
Company, the remaining net assets of the Company 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 the Company and the full preference amount due to the holders of
any Series A, Series B, Series C and Series D Preferred Stock, the holders of
the Series B Preferred Stock, the Series C Preferred Stock, the Series A
Preferred Stock, the Series D Preferred Stock and the Common Stock will be
entitled to receive on a pro rata basis the remaining assets of the Company
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 in an as converted basis.
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The consolidation or merger of the Company with any corporation (other
than a transaction where holders of the Company's voting capital stock hold a
majority of voting capital of the resulting entity), the sale of all or
substantially all of the Company's assets, the acquisition by any person or
entity of a majority of the voting capital stock of the Company, will be deemed
a liquidation or winding up of the Company.
Optional Redemption. 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 the
Company 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 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.
A "Trigger Event" means: (i) January 31, 2002, if by that date, the
Company 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 the
Company or a material breach by any party other than America Online, Inc.
("AOL") or termination of the IM Agreement with AOL, (iii) the date of the
occurrence of a liquidation of the Company, (iv) March 31, 1999, if by that
date, the Company has not consummated an equity financing yielding aggregate
gross proceeds to the Company of not less than $7.0 million at a price per share
of at least $3.74 (a "Qualified Financing"), or (v) May 31, 1999, if by that
date, the Company has not consummated an equity financing yielding aggregate
gross proceeds to the Company of not less than $7.0 million at a price per share
of at least $3.74 (a "Second Qualified Financing").
Optional Conversion. Shares of Series B Preferred Stock are convertible
at any time, at the option of the holder, into the number of fully paid
nonassessable 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 initially be the original issuance
price for the Series B Preferred Stock. The Conversion Price will be adjusted
from time to time in the event: (i) the Company issues, from the original
issuance date through the date of a Second Qualified Financing, any shares of
Common Stock, except for Excluded Stock (as defined below), without
consideration or for a consideration per share less than the Conversion Price in
effect immediately prior to that issuance; (ii) at any time after the Second
Qualified Financing date, the Company issues any shares of Common Stock, except
for Excluded Stock (as defined below), without consideration or for a
consideration per share less than the Conversion Price in effect immediately
prior to that issuance; (iii) at any time after the original issuance date, the
number of shares of Common Stock outstanding is changed by a stock dividend,
stock split, combination or capital reorganization.
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Excluded Stock means: (i) up to 3,500,000 shares of or options for
Common Stock issued to employees, directors and officers of and consultants to
the Company pursuant to agreements approved by the Board of Directors; (ii)
shares of Common Stock issued upon conversion of Series A, Series B, Series C or
Series D Preferred Stock; (iii) shares of Common Stock issued by the Company as
a stock dividend or upon any subdivision, split-up or combination of shares of
Common Stock; and (iv) shares of Common Stock issued in the Qualified Financing
provided that the issuance price of the Common Stock is not less that 85% of the
original issuance price.
Holders of the Series B Preferred Stock intending to exercise these
conversion rights are required to give notice to the Company in accordance with
the notice requirements set forth in the Certificate of Designation. No
fractional shares will be issued upon conversion, but any fractions will be
adjusted in cash in an amount equal to the product of the price of one share of
Common Stock as determined in good faith by the board of Directors and the
fractional interest.
Mandatory Conversion. All of the outstanding shares of Series B
Preferred Stock shall be converted into a number of shares of Common Stock at
the Conversion Price (as defined herein) upon the earlier of: (i) the
consummation of a underwritten public offering of the Common Stock of the
Company at a net offering price per share that represents a pre-offering market
capitalization of not less than $200.0 million and aggregate proceeds (net of
underwriting commissions and discounts) to the Company of not less than $25.0
million, or (ii) a Qualified Merger. See "Series D Preferred Stock -- Mandatory
Conversion" for a description of a Qualified Merger.
Voting Rights. In addition to the voting rights offered by the
applicable law, 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 Common Stock into which the
holder's Series B Preferred Stock is convertible under the holder's optional
conversion rights. Except as set forth below, the holders of Series B Preferred
Stock shall vote together with the holders of Common Stock and the Series A,
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 the Series B Preferred Stock, voting as a
single class, shall be necessary for the Company to: (a) authorize, create,
designate or establish any class or series of capital stock or other security or
other instrument convertible into or exchangeable for any security ranking
senior or on parity with the Series B Preferred Stock or reclassify any shares
of Common Stock into shares having any preference or priority as to dividends or
assets superior to any such preference or priority of the Series B Preferred
Stock; (b) in any other manner amend or modify the powers, privileges,
preferences, or rights or qualifications, limitations or restrictions of the
Series B Preferred Stock as to materially adversely affect the holders of the
Series B Preferred Stock; (c) amend the Amended and Restated Articles of
Incorporation or Bylaws of the Company so as to materially adversely affect the
powers, preferences or rights or qualifications, limitations or restrictions, of
the shares of Series B Preferred Stock; (d) consummate any Corporate Transaction
(as defined above); (e) increase or decrease the total number of authorized
shares of Series B Preferred Stock; (f) directly or indirectly pay or declare
any dividend or make any distribution upon, or redeem or repurchase or otherwise
acquire, any shares of capital stock or other securities of the Company (other
than the repurchase of Common Stock from employees upon termination or
employment); (g) consummate any transaction whereby the Company shall obtain
control, directly or indirectly, of an insurance corporation; and (h) effect any
change in or enter into any business other than the business conducted by the
Company on the original issuance date.
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Registration Rights. In connection with AOL's purchase of the Series B
Preferred Stock, the Company and AOL entered into a Registration Rights
Agreement (the "Registration Agreement"). The Registration Agreement sets forth
the rights of AOL or any successor, assignee or transferee (the "Investor") in
connection with the public offering of 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.
At any time following the earlier of: (i) six months after the
Company's initial public offering, or (ii) November 13, 2001, the Company is
required to use its best efforts to effect up to two registrations under the
Securities Act of Common Stock held by Investor or issuable to Investor upon
exercise or exchange of any securities, including Series B Preferred Stock
("Registrable Shares") upon receipt of written notice from the Investor. The
Company shall not be obligated to use its best efforts to effect the
registration of Registrable Shares during any period in which any other
registration statement (other than on Form S-4 or S-8) pursuant to which
authorized but unissued Common Stock or treasury shares ("Primary Shares") is to
be sold has been filed or declared effective within the prior 90 days.
Additionally, the Company may delay the filing or effectiveness of any
registration statement related to the Registrable Shares for a period of 90 days
after the date of the Investor's demand if: (i) the Company has plans to engage
within 60 days in a firm commitment underwritten public offering of Primary
Shares and the Investor would be afforded piggyback registration rights (as
described below) in connection with such offering; or (ii) the Company gives the
Investor a certificate stating that in the good faith judgement of the Board of
Directors, it would be seriously detrimental to the Company for the registration
statement to be filed and the Company has not exercised this right more than
once in any 12 month period. If the managing underwriter advises the Company
that the inclusion of all of the shares proposed to be included would interfere
with the successful marketing of the Primary Shares, then the shares included in
the registration will be as follows: (i) first, Registrable Shares held by the
Investor; (ii) second, Primary Shares; and (iii) third, Common Stock which does
not constitute Primary Shares or Registrable Shares ("Other Stock").
If the Company intends to register Primary Shares, other than
Registrable Shares, under the Securities Act, it will promptly give written
notice to such effect to the Investor. Upon the Company?s receipt of written
notice from the Investor which must be received by the Company within 30 days
after delivery of the Company's notice to the Investor, the Company will use its
best efforts to include those Registrable Shares in such registration. If the
managing underwriter advises the Company that inclusions of all of the shares
proposed to be included would interfere with the successful marketing of the
Primary Shares, then the shares included in the registration will be as follows:
(i) first, Primary Shares; (ii) second, Registrable Shares held by the Investor;
and (iii) third, Other Shares.
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Other. The Series B 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.
Series C Cumulative Preferred Stock
Dividends. Holders of the Series C Preferred Stock will be entitled to
dividends accruing from the date of issue, if such dividends are declared by the
Board of Directors out of funds legally available therefor. If any accrued
dividends on the Series C Preferred Stock have not been paid or set apart for
payment, no dividends or other distributions may be declared and paid or set
apart for payment upon any common stock, no par value per share of the Company
(the "Common Stock") or any series of preferred stock of the Company (the
"Preferred Stock") with a dividend preference senior to the Series C Preferred
Stock (the "Series C Junior Stock"). In the event the Company proposes to pay
any dividend upon the shares of Common Stock or any class of Series C Junior
Stock, dividends shall have been declared on the shares of Series C Preferred
Stock and a sum paid to the holders thereof or a sum sufficient for the payment
thereof shall have been set apart for such payment, which sum equals a dividend
per share of Series C Preferred Stock which is not less than the proposed
dividend per share to be paid on the Common Stock or such other Series C Junior
Stock, as the case may be (determined, in the case of the Series C Preferred
Stock, on an as converted basis). The Company does not anticipate paying any
dividends on its Series C Preferred Stock in the foreseeable future.
Liquidation. In the event of any distribution, liquidation or winding
up of the affairs of the Company, whether voluntary or otherwise, after payment
or provisions for payment of the debts and other liabilities of the Company 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 the Series D Preferred Stock, out of the assets
of the Company legally available for distribution to its shareholders, an amount
in cash equal to $5.77 ("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 the Company's Common Stock, the
Series A Preferred Stock.
If after payment or provision for payment of the debts and other
liabilities of the Company, the full amount due to holders of the Series B,
Series C and Series D Preferred Stock and the distribution to the holders of the
Series A Preferred Stock the full amount of their preference, holders of the
Series C Preferred Stock shall be entitled to share on a pro rata basis the
remaining assets of the Company available for distribution to shareholders with
holders of the Common Stock and the Series A, Series B and Series D Preferred
Stock. 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.
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The consolidation or merger of the Company with any corporation (other
than a transaction where holders of the Company's voting capital stock hold a
majority of voting capital of the resulting entity), the sale of all or
substantially all of the Company's assets, the acquisition by any person or
entity of a majority of the voting capital stock of the Company, will be deemed
a liquidation or winding up of the Company.
Redemption. The Series C Preferred Stock is not subject to any
mandatory redemption, sinking fund or other similar provisions.
Optional Conversion. Each share of Series C Preferred Stock is
convertible at any time at the option of the holder into a number of shares of
fully-paid and non-assessable shares of Common Stock equal to the quotient
obtained by dividing: (i) the Offering Price per share by; (ii) the Series C
Conversion Price (as defined below). Each share of Series C Preferred Stock
shall be converted immediately upon the consummation of an underwritten initial
public offering of Common Stock at a net Offering Price per share that
represents a pre-offering market capitalization of not less than $200.0 million
and aggregate proceeds (net of underwriting commissions and discounts) to the
Company of not less than $25.0 million (a "Series C Qualified Financing").
The Series C Conversion Price on the Series C Preferred Stock shall be
the Offering Price of $5.77 per share subject to adjustment from time to time in
the event of: (i) the issuance of Common Stock as a dividend or distribution on
the Common Stock; (ii) the combination, subdivision or reclassification of the
Common Stock; (iii) the distribution to all holders of Common Stock of evidences
of the Company's indebtedness or assets (including securities, but excluding
cash dividends or distributions paid out of earned surplus); or (iv) the sale of
Common Stock at a price per share, or the issuance of options, warrants or
convertible securities with an exercise or conversion price per share, less than
the then Series C Conversion Price, except for Excluded Shares. No adjustment in
the Conversion Price will be required until cumulative adjustments require an
adjustment of at least 1-1/2% in the Conversion Price. No fractional shares will
be issued upon conversion, but any fractions will be adjusted in cash on the
basis of the then current market price of the Common Stock. Payment of
accumulated and unpaid dividends will be made upon conversion to the extent of
legally available funds as prescribed by statute.
Excluded Stock means: (i) up to 3,500,000 shares of Common Stock issued
to employees, directors and officers of and consultants to the Company pursuant
to agreements approved by the Board of Directors; provided that, any shares of
Common Stock, options or warrants issued after the date of filing of the
Certificate of Designation for the Series C Preferred Stock must be issued at a
price of not less than $4.00; (ii) shares of Common Stock issued upon conversion
of any series of Preferred Stock; (iii) shares of Common Stock issued by the
Company as a stock dividend or upon any subdivision, split-up or combination of
shares of Common Stock; (iv) shares of Common Stock issued as a stock dividend
or stock split or upon any subdivision, split-up or combination of shares of
Common Stock; or (v) shares of Common Stock issued pursuant to the market price
protection provisions of the Stock Purchase Agreement related to the Series C
Preferred Stock.
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Mandatory Conversion. All of the outstanding shares of Series A
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 a underwritten
public offering of the Common Stock of the Company at a net offering price per
share that represents a pre-offering market capitalization of not less than
$200.0 million and aggregate proceeds (net of underwriting commissions and
discounts) to the Company of not less than $25.0 million or (ii) a Qualified
Merger. See "Series D Preferred Stock -- Mandatory Conversation" for a
description of Qualified Merger.
Voting Rights. In addition to the voting rights offered by the
applicable law, 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 entitles the holder 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 under the holder's
optional conversion rights. Except as set forth below, the holders of Series C
Preferred Stock shall vote together with the holders of Common Stock and the
Series A and Series B Preferred Stock as one class.
The affirmative vote, in person or by proxy, of the holders of a
majority of the outstanding shares of the Series C Preferred Stock, voting as a
single class, shall be necessary for the Company to: (a) amend, repeal or modify
any provisions of, or add any provision to, the Company's Amended and Restated
Articles of Incorporation if such action would alter or change the rights,
preferences, privileges or powers of, or the restrictions provided for the
benefit of, the Series C Preferred Stock so as to affect the Series C Preferred
Stock adversely; (b) authorize, create or issue any additional shares of any
class or series of Preferred Stock senior to or on parity with the Series C
Preferred Stock, or authorize, create or issue shares of any class or series of
stock or any bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having optional rights to purchase, any shares of stock
senior to the Series C Preferred Stock or Parity Stock; (c) reclassify the
shares of Common Stock or any other shares of any class or series of Preferred
Stock into shares of Preferred Stock senior to or on parity with the Series C
Preferred Stock; (d) increase the number of shares of Series C Preferred Stock;
(e) consummate any Corporate Transaction; (f) directly or indirectly pay or
declare any dividend or make any distribution upon, or redeem, retire or
repurchase or otherwise acquire, any shares of capital stock or other securities
of the Company other than the Series B Preferred Stock (other than the
repurchase of Common Stock from employees upon termination or employment); or
(g) consummate any transaction whereby the Company shall obtain control,
directly or indirectly, of an insurance corporation.
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The Stock Purchase Agreement related to the Series C Preferred Stock
provides that as long as holders of the Series C Preferred Stock hold or have
the right to acquire upon conversion at least 10% of the outstanding equity
securities of the Company, a majority of such Series C holders shall be entitled
to nominate for election and the Company will use its best efforts to support
for election to the board of directors a nominee for director selected by the
holders of the Series C Preferred Stock. If the board of directors of the
Company is increased to between eight and 14 members, the right of holders of
the Series C Preferred Stock to nominate one director shall be increased to the
right to elect two directors and if the board is increased to 15 or more members
holders of the Series C Preferred Stock shall have the right to nominate three
directors, subject to the limitations set forth in the Stock Purchase Agreement.
In addition, Provident agreed to vote and to cause its subsidiaries to vote all
shares of HealthAxis owned by them in favor of the Series C nominees.
Registration Rights. When the Company 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 a Form S-8), the Company
is required to give notice to the holders of Series C Preferred Stock and the
holders of Common Stock acquired upon the conversion of Series C Preferred Stock
of the proposed registration and the right to include their shares of Common
Stock received upon the conversion of the Series C Preferred Stock ("Series C
Conversion Shares") in such registration (a "Piggyback Registration"), subject
to certain conditions including the right of the underwriter of such offering to
limit the number of Series C Conversion Shares sold by the holders if the
underwriter advised the Company and such holders in writing that the number of
Series C Conversion Shares required to be included by such holders would
interfere with the successful marketing of the shares offered. Such Piggyback
Registration rights are subject to the priority rights granted to HealthPlan
Services, Inc. ("HPS"), holders of the Series B Preferred Stock and certain
warrant holders and are on parity with the rights granted to the holder of the
Series D Preferred Stock. Subject to rights granted to HPS, holders of the
Series B Preferred Stock and certain warrant holders, the holders of at least
60% of the then outstanding shares of Series C Preferred Stock may also require
the Company to file up to two registration statements ("demand registrations")
under the Securities Act with respect to the Common Stock acquired upon the
conversion of the Series C Preferred Stock held by such holders desiring to
participate, subject to certain conditions. Such demand may not be made earlier
than: (i) 12 months from the closing of the Offering or (ii) six months after
the Company's initial public offering. The Company is required to pay all
registration expenses (as defined in the Registration Rights Agreement to be
executed in connection with this transaction), other than any underwriting
discounts and commissions for any underwriter or broker-dealer acting on behalf
of the holders of the Series C Conversion Shares.
Other. The holders of Series C Preferred Stock are not entitled to any
preemptive rights. Shares of Series C Preferred Stock offered hereby and the
shares of the Common Stock issuable upon conversion will, when issued, be
validly issued, fully paid and non-assessable shares of the Company.
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Item 7. Financial Statements and Exhibits
(a) Financial Statements of business acquired.
Not applicable.
(b) Proforma Financial Information.
Not applicable.
(c) Exhibits.
None.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PROVIDENT AMERICAN CORPORATION
Date: 7/20/99 By: /s/ Alvin H. Clemens
---------------- -----------------------------
Alvin H. Clemens
Chairman of the Board and
Chief Executive Officer
PROVIDENT AMERICAN CORPORATION
Date: 7/20/99 By: /s/ Francis L. Gillan III
---------------- -----------------------------
Francis L. Gillan III
Chief Accounting Officer and
Treasurer
