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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): March 30, 1999
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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 19401
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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 March 30, 1999, HealthAxis.com, Inc. ("HealthAxis" or the
"Company"), the Internet subsidiary of Provident, completed the private
placement of $8.8 million of Series C Preferred Stock to a group of accredited
investors. The terms of the Series C Preferred Stock are as follows:
Series C Convertible 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 junior to the Series C Preferred
Stock (the "Series C Junior Stock"). In the event the Company proposes to pay
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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, out of the
assets of the Company legally available for distribution to its shareholders, an
amount in cash equal to $5.77 ("Series C Offering Price") per share for each
share of Series C Preferred Stock, plus an amount equal to all dividends accrued
and unpaid, if any, on each such share up to the date fixed for distribution,
before any distribution may be made to the holders of the Company's Common
Stock, the Series A Preferred Stock or Series C 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
Preferred Stock and distribution to the holders of the Series C and 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 and Series B Preferred Stock. The relative
value of a share of Series A, Series B and Series C 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.
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 Series C 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").
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The Series C Conversion Price on the Series C Preferred Stock shall be
$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 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.
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. 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 only operating subsidiary of
Provident and Provident's only operations shall be within HealthAxis upon the
following conditions:
(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 and Series C Preferred Stock of HealthAxis;
(ii) HealthAxis receives a fairness opinion from an investment
banking firm approved by a majority of the holders of the outstanding shares of
the Series B Preferred Stock and Series C Preferred Stock, which approval shall
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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 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.
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
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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. Subject to rights granted to HPS, holders of the Series B
Preferred Stock and certain warrant holders, the holders of at least 25% 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 of the Series C Preferred Stock 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.
In connection with the sale of the Series C Preferred Stock, HealthAxis
amended the terms. The rights and preferences of Series A and B Preferred Stock
were revised as follows:
Series A Convertible Preferred Stock
Dividends. Prior to March 30, 1999, holders of the Series A Preferred
Stock are entitled to cumulative dividends accruing from the date of issuance,
as and if declared by the Board of Directors out of funds legally available
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therefor, at the annual rate of $0.13 per share (subject to equitable adjustment
to reflect stock splits, stock dividends, stock contributions, recapitalization
and similar occurrences). Dividends on the Series A Preferred Stock shall be
computed on the basis of the actual number of days lapsed for any period less
than a full year. If all accrued dividends on the Series A Preferred Stock have
not been paid or set apart for payment: (i) no dividends or other distributions
may be declared and paid or set apart for payment on the Common Stock, and (ii)
the Company shall not repurchase, redeem or otherwise acquire any shares of its
Common Stock, other than the repurchase by the Company of Common Stock from any
Company employee upon the cessation of such employee's employment with the
Company.
After March 30, 1999, holders of the Series A 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.
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 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) with
respect to dividends which have been declared on the shares of the Series A
Preferred Stock or any share of Preferred Stock of HealthAxis which is junior to
the Series A Preferred Stock with respect to the payment of dividends or
distribution of assets of HealthAxis or both (the "Series A 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 Series A 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 A 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 and
payment of all amounts owed to the Series B and Series C 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 and Series C 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 Preferred
Stock and Series C 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
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remaining assets of the Company available for distribution to shareholders with
holders of the Common Stock and the Series B and Series C Preferred Stock. The
relative value of a share of Series A, Series B and Series C 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.
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
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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.
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 C 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 and the 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 A Preferred Stock, voting as a
single class, shall be necessary for the Company to: (i) amend, repeal or modify
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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 Preferred
Stock).
Registration Rights. When the 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),
the 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 Preferred Stock. Subject to rights granted to HPS,
holders of the Series B Preferred Stock and certain warrant holders and holders
of the Series C 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 Convertible Preferred Stock
Dividends. Prior to March 30, 1999, holders of the Series B Preferred
Stock will be entitled to cumulative dividends accruing from the date of
issuance, as and if declared by the Board of Directors out of funds legally
available therefor, at the annual rate of $.13 per share (subject to equitable
adjustment to reflect stock splits, stock dividends, stock combinations,
recapitalizations and similar occurrences). Dividends on the Series B Preferred
Stock will be computed on the basis of the actual number of days lapsed for any
period less than a full year. If all accrued dividends on the Series B Preferred
Stock have not been paid or set apart for payment: (i) no dividends or other
distributions may be declared and paid or set apart for payment upon 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"); and (ii) the Company shall not repurchase,
redeem or otherwise acquire any shares of its Common Stock, Series A Preferred
Stock or any series of Series B Junior Stock, other than the repurchase by the
Company of Common Stock from any Company employee upon the cessation of the
employee's employment with the Company. Holders of Series B Preferred Stock are
not entitled to participate in any other dividends or other distributions (cash,
stock or otherwise) declared or paid on or with respect to the Common Stock or
any other class of stock of the Company.
Following March 30, 1999, holders of the Series B Preferred Stock are
entitled to receive such dividends as declared by the Board of Directors of
HealthAxis in its discretion, 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 Series B 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 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
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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 and Series C 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 and Series C Preferred Stock, the holders of the Series B Preferred
Stock, the Series C Preferred Stock, the Series A 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, B and C Preferred Stock for this purpose shall be
determined in 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.
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 (as defined above), (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
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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 $3.5 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.
Excluded Stock means Common Stock: (i) up to 2,900,000 issued to
employees, directors and officers of and consultants to the Company pursuant to
agreements approved by the Board of Directors; (ii) issued upon conversion of
Series A Preferred Stock and Series B Preferred Stock; (iii) issued by the
Company as a stock dividend or upon any subdivision, split-up or combination of
shares of Common Stock; and (iv) issued in the Qualified Financing provided that
the issuance price of the Common Stock is not less that 85% of the original
issuance price.
Whenever the Company adjusts the Conversion Price, the Company will
mail a statement showing in detail the facts requiring the adjustment and the
Conversion Price that will be in effect after the adjustment.
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
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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 A 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 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 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 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 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 consolidation or
merger of the Company (other than any merger or consolidation resulting in the
holders of the capital stock of the Company entitled to vote in the election of
directors holding a majority of the capital stock of the surviving entity that
is entitled to vote in the election of directors), or any person or entity
becoming the holder of a majority of the capital stock of the Company entitled
to vote for the election of directors or any sale or disposition by the Company
of all or substantially all of its assets; (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.
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 "AOL Registration Agreement"). The AOL 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.
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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.
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. See also "Changes in Web
Alliances -- America Online, Inc."
Changes in Web Alliances
America Online, Inc. See Note AA of the Notes to Consolidated Financial
Statements of Provident, included in Provident's Form 10-K for the year ended
December 31, 1998 filed with the Securities and Exchange Commission on March 31,
1999 (the "Form 10-K"), for information regarding changes in HealthAxis' amended
interactive marketing agreement with AOL. See "Carrier Partner Alliances" for
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information regarding the Stockholders' Agreement between AOL, the Company and
certain other stockholders.
The Stock Purchase Agreement, dated November 13, 1998, related to AOL's
purchase of the Series B Preferred Stock (the "Stock Purchase Agreement")
provides that the Company may not issue, sell, exchange or agree to issue, sell
or exchange or reserve or set aside for issuance any Common Stock, any other
equity security of the Company, or any convertible debt security or debt
security with equity features or any option, warrant or right to subscribe for,
or purchase any equity or debt security of the Company unless the Company offers
to sell AOL its proportionate interest (as defined in the Stock Purchase
Agreement) of such securities at a price and terms specified by the Company,
which offer is required to remain open for 30 days. This first right of purchase
provided to AOL does not apply to the issuance of the 2.9 million shares of
Common Stock reserved for issuance under the Company's Stock Option Plan, Common
Stock issued upon the conversion of the Series A Preferred Stock; Common Stock
issued pursuant to a stock dividend or stock split, combination or subdivision;
securities issued in an acquisition of another corporation by merger or purchase
of substantially all of the assets of such corporation whereby the Company owns
not less than 51% of the voting power of such other corporation. These
above-described rights granted to AOL do not apply to and terminate upon an
underwritten public offering with a pre-offering market capitalization of $150.0
million which results in aggregate net cash proceeds of not less than $25.0
million.
The Company and Provident also agreed that provided AOL owned or
possessed the right to acquire at least 1% of the Company's outstanding Common
Stock, the Company would not, directly or indirectly, without the prior written
consent of AOL:
1. sell, transfer, lease or dispose of substantially all of the
Company's property assets, licenses or material intellectual property or rights;
2. merge or consolidate the Company into or permit any subsidiary of
the Company to merge with any other corporation or entity;
3. liquidate or partially liquidate the Company or any similar
transaction;
4. take any action to cause any amendment, alteration or repeal of any
provision of the Certificate of Incorporation or Bylaws;
5. declare or pay any dividends or make any distribution of cash or
property or both to holders of capital stock or other securities of the Company,
or repurchase or redeem such securities, except as set forth in the Certificate
of Designations of the Series B Preferred Stock;
6. enter into a related party transaction, other than with Provident or
affiliates of Provident, except on terms no less favorable to the Company than
could have been obtained in an arms length negotiation with a third party;
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7. waive, modify or amend any agreement with Provident or any Provident
affiliate;
8. enter into or become subject to any agreement which restricts the
Company from engaging or otherwise competing in any aspect of its business
anywhere in the world or otherwise limits the business in which the Company may
engage or compete; or
9. take any action or enter into any transaction outside the ordinary
course of business or effect by material change in the conduct or operation of
its business.
In addition, the Stock Purchase Agreement provides that provided AOL
owns or has the right to acquire more than 1% of the outstanding Common Stock of
the Company, neither the Company or Provident, nor shall Provident permit the
Company or any of its other subsidiaries, without the prior written consent of
AOL, to take any action or enter into any transaction which under the
circumstances under which it was entered into, could reasonably be foreseen to
prejudice the interest of the Company in favor of Provident or any Provident
subsidiary. Notwithstanding the foregoing, the prior consent of AOL shall not be
required to engage in an equity offering generating proceeds of at least $10.5
million at a price per share of at least $3.74 (as adjusted for stock splits,
dividends recapitalizations and like occurrences) as described in the
Certificate of Designation related to the Series B Preferred Stock.
The Stock Purchase Agreement also provides that AOL may assign its
rights under such agreement to: (i) any partner or affiliate of AOL, or (ii) any
person or entity acquiring at least 50,000 shares of the Series B Preferred
Stock, the Common Stock underlying the Series B Preferred Stock or a combination
thereof. As a condition to the transfer of rights granted pursuant to the Stock
Purchase Agreement, subsequent transferees of AOL may not assign their rights
under the Stock Purchase Agreement and each transferee must provide notice of
the transfer to the Company and agree to be bound by the Stockholders' Agreement
entered into between the Company and the named stockholders.
CNet, Inc. On April 14, 1999, the Company and CNet, Inc. ("CNet")
amended the Promotion Agreement dated June 14, 1998, as amended on November 13,
1998 (the "Amended Agreement") to, among other things, revise the current
payment schedule and to add Snap! LLC ("Snap") as a party to the agreement, as
CNet and Snap are now separate entities. The Amended Agreement extends the
termination date of the initial term of the agreement to August 31, 2000;
allocates the total number of monthly impressions between Snap and CNet;
provides CNet and Snap with the ability to immediately terminate the Amended
Agreement for nonpayment of fees due or to charge interest on all unpaid amounts
at a rate of 1-1/2% per month; revises the exclusivity provisions of the Amended
Agreement; and revises the payment schedule applicable to the optional term. The
Amended Agreement also provides for the permanent placement of a Company banner
on the Snap Health Insurance Center to be created within the Business and Money
Channel on the Snap website and provides that HealthAxis and Snap shall work
together to develop a co-branded site.
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Carrier Partner Alliances
In March 1999, HealthAxis amended its January 1999 Carrier Partner
Agreement with the MEGA Life & Health Insurance Company and Midwest National
Life Insurance Company of Tennessee, subsidiaries of UICI, to offer health
insurance products on the HealthAxis' website with claims processing to be
performed by Insurdata Incorporated, a subsidiary of UICI. It is currently
estimated that HealthAxis will commence offering UICI's insurance products on
its website by late 1999. HealthAxis and Provident also granted UICI rights
similar to the rights granted to AOL in the Stockholders Agreement, subject to
the priority rights to AOL until HealthAxis completes a Qualified Public
Offering or a Qualified Merger as defined in the Certificate of Designation
related to the Series C Preferred Stock. HealthAxis also agreed to provide UICI
with a one-time right to nominate one nominee for election as a director, which
is in addition to the nomination rights granted to the holders of the Series C
Preferred Stock. UICI purchased $5.0 million of the Series C Preferred Stock of
HealthAxis.
In connection with its amended Carrier Partner agreement with UICI,
HealthAxis agreed to issue UICI a warrant to purchase 150,000 shares of its
Common Stock at an exercise price of $4.40 per share subject to increase by
25,000 shares on each of April 30, 1999 and May 15, 1999 HealthAxis does not
complete the sale of $15.0 million of Series C Preferred Stock. Such warrant has
a term of 5 years and contains an acceleration clause which requires UICI to
exercise the warrant within 90 days of the date that HealthAxis' Common Stock
trades above $28.80 per share for a period of 90 consecutive trading days as
calculated based upon the average daily closing price of HealthAxis' Common
Stock for any consecutive 90 day trading period. In the event, AOL exercises its
redemption rights set forth in the Certificate of Designation related to the
Series B Preferred Stock, UICI shall receive a warrant to purchase an additional
200,000 shares of HealthAxis' Series C Preferred Stock at an exercise price of
$3.00 per share.
The Stockholders' Agreement dated, November 13, 1998 (the
"Stockholders' Agreement") between HealthAxis, AOL, HPS, Provident, PILIC and
Messrs. Ashker and Clemens provides that in the event a Selling Group
Stockholder, which includes all parties to the Stockholders' Agreement other
than AOL and HealthAxis, intends to sell or transfer any shares of capital stock
of HealthAxis, such Selling Group Stockholder shall give notice to AOL of the
name and terms offered by the proposed purchaser and provide AOL with the right
to purchase such shares at the same price offered by the proposed purchaser for
a period of 30 days. If AOL does not elect to purchase such shares within 30
days, the Selling Group Stockholder may sell such shares to the proposed
purchaser within 90 days on the same terms, including price, contained in the
notice to AOL. If the sale is not effective within 90 days, additional notice to
AOL is required. A purchaser of the shares held by any Selling Group Stockholder
must agree to be bound by the terms of the Stockholders' Agreement as a
condition to the transfer. If any Selling Group Stockholder receives any bona
fide offer from a third party to purchase any shares of stock covered by the
Stockholders' Agreement, such stockholder shall provide notice of such offer to
AOL and shall not sell any stock of HealthAxis unless the terms of the offer are
extended to AOL.
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If Provident or any affiliate of Provident that holds shares of
HealthAxis ("Provident Group Holder") intends to engage in a "Change of Control
Transaction," such entity must provide AOL with 30 days prior written notice of
such transaction and may not consummate such transaction unless the acquiror
agrees to acquire all of the stock owned by AOL under the terms and procedures
set forth in the Stockholders' Agreement. For purposes of the Stockholders'
Agreement, the term "Change in Control Transaction" means: (a) the
reorganization, merger or consolidation or other disposition of all or
substantially all of the assets of Provident or a Provident Group Holder; (b)
the acquisition of beneficial ownership of more than 50% of (i) the then
outstanding shares of Provident or any Provident Group Holder, or (ii) the
combined voting power of the then outstanding voting securities entitled to vote
in the election of directors of Provident or the Provident Group Holder,
provided that a transaction involving any affiliate of Provident shall not be
considered a change in control if the affiliate does not, directly or
indirectly, own any stock of HealthAxis.
The Stockholders' Agreement terminates upon: (i) an underwritten public
offering by HealthAxis which generates net cash proceeds of $25.0 million and
has a pre-offering market capitalization of not less than $150.0 million; or
(ii) with respect to a particular party to such agreement, upon the transfer of
all of the stock owned by such stockholder.
Provident Registration Rights Agreement
The Company and Provident entered into the Provident Rights Agreement,
pursuant to which Provident can require the Company to register, at the
Company's expense, 50% of the Common Stock held by Provident in connection with
the Company's initial public offering and the balance of such shares one year
thereafter, subject to the registration rights granted to HPS and the holders of
the Series A, B and Series C Preferred Stock. The Company also granted Provident
piggyback registration rights similar to those granted to PILIC (See "Series B
Preferred Stock") which provide that 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 Form S-8), the
Company is required to give notice to Provident of the proposed registration and
its rights to include its shares of Common Stock in such registration (a
"Piggyback Registration"), subject to certain conditions including the right of
the underwriter of such offering to limit the number of shares sold by Provident
or other holders if the underwriter advised the Company and such holders in
writing that the number of Common Stock 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 AOL,
HPS, holders of the Series B Preferred Stock, certain warrant holders, PILIC and
the Series C Preferred Stock.
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Provident Option to Purchase HealthAxis Shares Held by PILIC.
On March 24, 1999, Provident Indemnity Life Insurance Company
("PILIC"), a subsidiary of Provident and holder of all of the Series A Preferred
Stock of the Company, granted Provident the option to purchase all of the
Company's Series A Preferred Stock owned by it at a purchase price of $4.71 per
share plus 8% interest calculated quarterly and compounded annually from March
24, 1999 to the date of purchase. The option expires on December 17, 2003.
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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.
The following exhibits are filed herewith:
S-K Item
Number Description
- -------- -----------
10.1 Second Amendment to the Amended and Restated Interactive
Marketing Agreement between HealthAxis.com, Inc. and America
Online, Inc. (To be filed by amendment.)
10.2 Second Amendment to the Promotion Agreement between HealthAxis
and CNet. (To be filed by amendment.)
10.3 Stockholders Agreement dated November 13, 1998.
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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: April 28, 1999 By: /s/ Alvin H. Clemens
-------------------------- -------------------------------------
Alvin H. Clemens
Chairman of the Board and
Chief Executive Officer
Date: April 28, 1999 By: /s/ Francis L. Gillan III
-------------------------- -------------------------------------
Francis L. Gillan III
Chief Financial Officer and Treasurer
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EXHIBIT INDEX
S-K Item
Number Description
- -------- -----------
10.1 Second Amendment to the Amended and Restated Interactive
Marketing Agreement between HealthAxis.com, Inc. and America
Online, Inc. (To be filed by amendment.)
10.2 Second Amendment to the Promotion Agreement between HealthAxis
and CNet. (To be filed by amendment.)
10.3 Stockholders Agreement dated November 13, 1998.
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[Execution Copy]
STOCKHOLDERS' AGREEMENT dated as of
November 13, 1998, among
HEALTHAXIS.COM, INC., a Pennsylvania
corporation (the "Corporation"), and
the stockholders of the Corporation
identified on Schedule I hereto
(collectively, the "Stockholders").
The Corporation is a corporation duly organized and existing
under the laws of the State of Pennsylvania with an authorized capitalization of
40,000,000 shares of common stock, $.10 par value per share (the "Common
Stock"), and 5,000,000 shares of Preferred Stock, $1.00 par value per share (the
"Preferred Stock"), of which 943,980 shares have been designated as Series A
Convertible Preferred Stock (the "Series A Preferred Stock") and 625,529 shares
have been designated as Series B Convertible Preferred Stock (the "Series B
Preferred Stock"). It is deemed to be in the best interests of the Corporation
and the Stockholders that provision be made for the continuity and stability of
the business and policies of the Corporation and, to that end, the Corporation
and the Stockholders hereby set forth their agreement with respect to the shares
of Stock (as hereinafter defined) owned by the Stockholders.
NOW, THEREFORE, in consideration of the premises and of the
mutual consents and obligations hereinafter set forth, the parties hereto hereby
agree as follows:
Section 1. Definitions. As used herein, the following terms shall have
the following respective meanings:
(a) "Affiliate", with respect to any Stockholder, shall mean
any individual, partnership, corporation, group or trust that directly or
indirectly controls, is controlled by or is under common control with such
Stockholder, with "control" being the power to direct or cause the direction of
management and policies, whether through ownership of voting securities, by
contract or otherwise.
(b) "Designated Public Offering" shall mean a firm commitment
underwritten public offering of shares of Common Stock of the Corporation under
the Securities Act of 1933, as amended, at a net offering price per share that
represents a pre-offering market capitalization of no less than $150,000,000 and
which results in aggregate net cash proceeds of not less than $25,000,000 to the
Corporation.
(c) "Group" shall mean:
(1) in the case of any Stockholder who is an individual,
(A) such Stockholder, (B) the spouse and lineal descendants of such Stockholder
and (C) a trust for the benefit of any of the foregoing;
(2) in the case of any Stockholder that is a partnership,
(A) such partnership and any of its limited or general partners, (B) any
corporation or other business organization to which such partnership shall sell
all or substantially all of its assets or with which it shall be merged and (C)
any Affiliate of such partnership; and
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(3) in the case of any Stockholder that is a corporation,
(A) such corporation, (B) any corporation or other business organization to
which such corporation shall sell or transfer all or substantially all of its
assets or with which it shall be merged and (C) any Affiliate of such
corporation.
(d) "Investor" shall mean America Online, Inc., a Delaware
corporation ("AOL") and shall include any successor to, or assignee of, the
Investor who or which agree in writing to be treated as an Investor and to be
bound by the terms and comply with the provisions hereof.
(e) "Management Stockholders" shall mean Michael Ashker, Alvin
H. Clemens and any executive officer that holds equity or rights to such capital
stock in the Corporation.
(f) "Proportionate Percentage" shall mean the pro rata
percentage of Stock being offered by a Selling Group Stockholder pursuant to
Section 3 hereof that the Investor shall be entitled to purchase; such pro rata
percentage shall be the percentage figure that expresses the ratio, based upon
Common Stock equivalents, between (x) the number of shares of Stock owned by the
Investor and (y) the aggregate number of shares held by the Investor and the
Selling Group Stockholder that is proposing to Sell.
(g) "Provident" shall mean Provident American Corporation, a
Pennsylvania corporation.
(h) "Purchase Agreement" shall mean the Stock Purchase
Agreement dated as of the date hereof, among the Corporation, Provident and the
Investor.
(i) "Sell", as to any Stock, shall mean to sell, or in any
other way directly or indirectly transfer, assign, distribute, encumber or
otherwise dispose of, either voluntarily or involuntarily.
(j) "Selling Group Stockholders" shall mean each Management
Stockholder, Provident, Health Plan Services, Inc. or Provident Indemnity Life
Insurance Company or any member of the Group of any of the above proposing to
Sell its Stock, or who has delivered a notice of intention to Sell, pursuant to
Section 3 and 4 hereof.
(k) "Stock" shall mean (i) the presently issued and
outstanding shares of capital stock of the Corporation and any stock options or
stock subscription warrants exercisable therefor (which options and warrants
shall be deemed to be that number of outstanding shares of Stock for which they
are exercisable), (ii) any additional shares of capital stock hereafter issued
and outstanding and (iii) any shares of capital stock of the Corporation into
which such shares may be converted or for which they may be exchanged or
exercised.
(l) "Stockholders" shall mean those persons identified on
Schedule I attached hereto as the holders of Stock and shall include any other
person who agrees in writing with the parties hereto to be bound by and to
comply with all applicable provisions of this Agreement.
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<PAGE>
Section 2. Limitations on Sales of Stock by Stockholders. Anything
contained in this Agreement to the contrary notwithstanding, each Selling Group
Stockholder hereby agrees that she, he or it shall not at any time during the
term of this Agreement Sell any Stock except:
(a) by sale in accordance with Sections 3 or 4 hereof, as
applicable; or
(b) by transfer to another member of the Group to which such
Selling Group Stockholder belongs; provided that the recipient of such Stock
shall agree in writing with the parties hereto to be bound by and to comply with
all applicable provisions of this Agreement and to be deemed a member of such
Group.
Section 3. Procedures on Sale of Stock to Third Parties by Selling
Group Stockholders. Except as otherwise expressly provided herein, each Selling
Group Stockholder, and each member of the Group of any of the above hereby
agrees that she, he or it shall not Sell any Stock, except in accordance with
the following procedures:
(a) Each Selling Group Stockholder shall first deliver to the
Investor, a written notice (the "Section 3 Offer Notice"), which Section 3 Offer
Notice shall (i) specifically identify the party or parties to whom or which
such Selling Group proposes to sell Stock (such party or parties being
hereinafter referred to as the ("Identified Parties"), pursuant to a bona fide
written offer from such Identified Parties ("Third Party Offer"), (ii) include a
copy of the Third Party Offer and (iii) be irrevocable for a period of 30 days
after delivery thereof, offering (the "Section 3 Offer") to the Investor all of
the Stock proposed to be sold by such Selling Group Stockholder to such
Identified Parties at the purchase price and on the terms specified therein. The
Investor shall have the right and option, for a period of 30 days after the
delivery of the Section 3 Offer Notice to accept up to its Proportionate
Percentage of the Stock so offered at the purchase price and on the terms stated
in the Section 3 Offer Notice.
(b) Sales of Stock under the terms of Section 3(a) above shall
be made at the offices of the Corporation on a mutually satisfactory business
day within 30 days after the expiration of the applicable period. Delivery of
certificates or other instruments evidencing such Stock duly endorsed for
transfer shall be made on such date against payment of the purchase price
therefor.
(c) If effective acceptance shall not be received pursuant to
Section 3(a) above with respect to all Stock offered for sale pursuant to the
Section 3 Offer Notice, then the Selling Group Stockholder shall not be
obligated to Sell such Stock to the Investor pursuant to Section 3(a) above and
may Sell to the Identified Parties all, but not less than all, of the Stock so
offered for sale at a price not less than the price, and on terms not more
favorable to the purchaser thereof than the terms, stated in the Section 3 Offer
Notice at any time within 90 days after the expiration of the offer required by
Section 3(a) above. In the event that the Stock is not sold by the Selling Group
during such 90-day period, the right of the Selling Group Stockholder to Sell
such Stock shall expire and the obligations of this Section 3 shall be
reinstated; provided, however, that in the event that Selling Group Stockholder
determines, at any time during such 90-day period, that the sale of all or any
part of the remaining Stock on the terms set forth in the Section 3 Offer Notice
is impractical, the Selling Group Stockholder can terminate the offer and
reinstate the procedure provided in this Section 3 without waiting for the
expiration of such 90-day period.
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<PAGE>
(d) Any acceptance received pursuant to Section 3(a) hereof
shall be deemed conditioned upon (i) receipt of written notices of acceptance
with respect to all Stock mentioned in such Section 3 Offer Notice and/or (ii)
the sale of the remaining Stock, if any, pursuant to Section 3(c) above.
(e) Anything contained herein to the contrary notwithstanding,
any purchaser of Stock pursuant to Section 3 who is not a Stockholder shall
agree in writing in advance with the parties hereto to be bound by and comply
with all applicable provisions of this Agreement and shall be deemed to be a
Stockholder for all purposes of this Agreement.
(f) Anything contained herein to the contrary notwithstanding,
the Selling Group Stockholder shall, in addition to complying with the
provisions of this Section 3 in the event of a proposed sale of Stock, comply
with the provisions of Section 4 hereof.
Section 4. Right of Co-Sale.
(a) In the event that any Selling Group Stockholder (being
hereinafter collectively referred to as the "Section 4 Offeree") receives a bona
fide offer (the "Section 4 Offer") from a third party (the "Section 4 Offeror")
to purchase any shares of Stock from such Section 4 Offeree, for a specified
price payable in cash or otherwise and on specified terms and conditions, such
Section 4 Offeree shall promptly forward a notice (the "Section 4 Notice")
complying with Section 4(b) to the Investor. Subject to Section 4(c), the
Section 4 Offeree shall not Sell any Stock to the Section 4 Offeror unless (i)
the terms of the Section 4 Offer are extended to the Investor and (ii) the
Section 4 Offeror offers to purchase from the Investor, on the same terms as the
Section 4 Offer, the same proportion of the Investor's stock as the Section 4
Offeror proposes to purchase from the Section 4 Offeree.
(b) The Section 4 Notice shall set forth (i) the number of
shares of Stock (based on Common Stock equivalents) to which the Section 4 Offer
relates and the name of the Section 4 Offeree, (ii) the name and address of the
Section 4 Offeror, (iii) the proposed amount and type of consideration
(including, if the consideration consists in whole or in part of non-cash
consideration, such information available to the Section 4 Offeree as may be
reasonably necessary for the Investor to properly analyze the economic value and
investment risk of such non-cash consideration) and the terms and conditions of
payment offered by the Section 4 Offeror and (iv) that the Section 4 Offeror has
been informed of the co-sale rights provided for in this Section 4 and has
agreed to purchase Stock in accordance with the terms of this Section 4.
(c) Anything contained herein to the contrary notwithstanding,
the Section 4 Offeree shall, in addition to complying with the provisions of
this Section 4, comply with the provisions of Section 3 (it being understood
that the Section 3 Offer Notice contemplated by Section 3(a) and the Section 4
Notice may be included in a single notice).
(d) Anything contained herein to the contrary notwithstanding,
any purchaser of Stock pursuant to this Section 4 which is not a Stockholder
shall agree in writing to be bound by all applicable provisions of this
Agreement and shall be deemed to be a Stockholder for all purposes of this
Agreement.
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<PAGE>
Section 5. Provident Co-Sale.
(a) In the event that Provident or any member of Provident's
Group that directly or indirectly holds Stock in the Corporation (a "Provident
Group Holder") proposes to engage in a Change-of-Control Transaction (as
hereinafter defined), it or he shall first deliver not less than thirty (30)
days prior written notice (the "Sale Notice") thereof to the Investor
specifically identifying the party or parties (the "Acquirors") with whom or
which such Change-of-Control Transaction is proposed to be effected and all
other material terms of such proposed Change-in-Control Transaction. Neither
Provident nor a Provident Group Holder shall consummate such proposed
Change-of-Control Transaction unless the Acquirors shall concurrently acquire
from the Investor all of the Stock held by the Investor at a cash purchase price
per share (on a Common Stock equivalents basis) equal to the Stipulated Price
Per Share (as hereinafter defined). Within ten (10) days of delivery of the Sale
Notice, if Investor desires to participate in such transaction in accordance
with this Section 5, it shall notify in writing (the "Participation Notice")
Provident of its or his intention to so participate. Within five (5) days of
delivery of a Participation Notice, Provident on the one hand and the Investor
on the other hand shall designate a mutually acceptable nationally recognized
investment banking firm (or, if such designation cannot be made, each shall
select a nationally recognized independent investment banking firm and such two
investment banking firms shall designate a third nationally recognized
independent investment banking firm to act hereunder) (the "Appraiser"). Prior
to the consummation of the Change-in-Control Transaction, the Appraiser shall
determine the value of the consideration proposed to be paid by the Acquirors in
the Change-of-Control Transaction (reflecting, in the case of any non-cash
consideration, the net present value thereof) which is reasonably allocable to
the Stock of the Corporation proposed to be sold directly or indirectly as part
of such Change-of-Control Transaction (and in making such determination the
Appraiser shall assume that the Corporation is being sold as a going concern,
without any discount for lack of liquidity or minority status (i.e., that the
Acquirors will acquire, directly or indirectly, 100% of the outstanding Stock of
the Corporation)) and shall derive therefrom the consideration reasonably
allocable to each share of Stock of the Corporation proposed to be sold directly
or indirectly to the Acquirors in such transaction (the "Stipulated Price Per
Share").
(b) For purposes hereof, a "Change-of-Control Transaction"
shall mean (a) the consummation of a reorganization, merger or consolidation or
other disposition of all or substantially all of the assets of Provident or a
Provident Group Holder (as the case may be); or (b) the acquisition by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1933, as amended) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under such Act) of more than 50%
of either (i) the then outstanding shares of common stock of Provident or any
Provident Group Holder (as the case may be); or (ii) the combined voting power
of the then outstanding voting securities entitled to vote generally in the
election of directors of Provident or a Provident Group Holder (as the case may
be); provided, however, that any transaction with respect to any of the
respective Affiliates of Provident or any Provident Group Holder shall not
constitute a Change of Control so long as such Affiliate does not then, directly
or indirectly, own Stock in the Corporation.
5
<PAGE>
Section 6. Legend on Stock Certificates. Each certificate representing
shares of Stock shall bear a legend containing the following words:
"THE SALE, TRANSFER, ASSIGNMENT, PLEDGE, OR ENCUMBRANCE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE AND/OR THE RIGHTS OF
THE HOLDER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IN
RESPECT OF THE ELECTION OF DIRECTORS ARE SUBJECT TO THE TERMS
AND CONDITIONS OF A STOCKHOLDERS' AGREEMENT DATED AS OF
NOVEMBER 13, 1998, AMONG HEALTHAXIS.COM, INC. AND CERTAIN
HOLDERS OF THE OUTSTANDING CAPITAL STOCK OF SUCH CORPORATION.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF HEALTHAXIS.COM, INC.
Section 7. Additional Shares of Stock; Etc. In the event additional
shares of Stock are issued by the Corporation to a Selling Group Stockholder at
any time during the term of this Agreement, either directly or upon the exercise
or exchange of securities of the Corporation exercisable for or exchangeable
into shares of Stock, such additional shares of Stock shall, as a condition to
such issuance, become subject to the terms and provisions of this Agreement.
Section 8. Duration of Agreement. The rights and obligations of each
Stockholder under this Agreement shall terminate as to such Selling Group
Stockholder upon the earlier to occur of (a) the transfer of all Stock owned by
such Stockholder and (b) the occurrence of a Designated Public Offering.
Section 9. Severability; Governing Law. If any provisions of this
Agreement shall be determined to be illegal and unenforceable by any court of
law, the remaining provisions shall be severable and enforceable in accordance
with their terms. This Agreement shall be governed by, and construed in
accordance with, (a) the laws of the Commonwealth of Virginia applicable to
contracts made and to be performed wholly therein (without reference to
principles of conflict of laws) and (b) the laws of the State of Pennsylvania
with respect to corporations organized thereunder.
Section 10. Successors and Assigns. This Agreement shall bind and inure
to the benefit of the parties and their respective successors and assigns, legal
representatives and heirs.
Section 11. Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or by telecopy or sent by
nationally-recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or at such other address as may hereafter be designated
in writing by such party to the other parties:
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<PAGE>
(i) if to the Corporation, to it at:
HealthAxis.Com, Inc.
2500 Dekalb Pike
Norristown, PA 19404
Attention: Michael Ashker
Telecopier: 610-279-4498
with a copy to:
(ii) if to the Investor, to it at;
America Online, Inc.
22000 AOL Way
Dulles, VA 20166-9323
Attention: David M. Colburn, Senior Vice President,
Business Affairs
Telecopier: 703-265-1206
e-mail: [email protected]
With a copy to:
America Online, Inc.
22000 AOL Way
Dulles, VA 20166
Attention: General Counsel
Telecopier: 703-265-1105
with a copy to:
Orrick, Herrington & Sutcliffe LLP,
30 Rockefeller Plaza
New York, New York 10112
Telecopier: (212) 506-3730
Attention: Martin H. Levenglick, Esq.
(iii) if to a Stockholder, to it at the address set forth
on Schedule I attached hereto.
All such notices, requests, consents and other communications shall be deemed to
have been delivered (a) in the case of personal delivery or delivery by
telecopier, on the date of such delivery, (b) in the case of dispatch by
nationally-recognized overnight courier, on the next business day following such
dispatch and (c) in the case of mailing, on the third business day after the
posting thereof.
Section 12. Modification. Except as otherwise provided herein, neither
this Agreement nor any provisions hereof can be modified, changed, discharged or
terminated except by an instrument in writing signed by the party against whom
the enforcement of any modification, change, discharge or termination is sought
or by the written consent of the Investor.
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<PAGE>
Section 13. Headings. The headings of the sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be a part of this Agreement.
Section 14. Nouns and Pronouns. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice-versa.
Section 15. Entire Agreement. This Agreement, the Purchase Agreement
and the other writings referred to therein or delivered pursuant thereto contain
the entire agreement among the parties hereto with respect to the subject matter
hereof and supersede all prior and contemporaneous agreements and understandings
with respect thereto.
Section 16. Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
HEALTHAXIS.COM, INC.
By:_______________________________________
Name:
Title:
AMERICA ONLINE
By:_______________________________________
Name:
Title:
PROVIDENT AMERICAN CORPORATION
By:_______________________________________
Name:
Title:
PROVIDENT INDEMNITY LIFE INSURANCE COMPANY
By:_______________________________________
Name:
Title:
HEALTHPLAN SERVICES, INC.
By:_______________________________________
Name:
Title:
<PAGE>
[COUNTERPART SIGNATURE PAGE TO THE STOCKHOLDERS' AGREEMENT]
MANAGEMENT SHAREHOLDERS:
---------------------------
Michael Ashker
---------------------------
Alvin H. Clemens
<PAGE>
SCHEDULE I
STOCKHOLDERS
Name and Mailing Address of Stockholder
- ---------------------------------------
America Online, Inc.
22000 AOL Way
Dulles, VA 20166-9323
HealthPlan Services, Inc.
501 Frontage Road
Tampa, FL 33607
Provident American Corporation
2500 Dekalb Pike
Norristown, Pennsylvania 19404-0511
Provident Indemnity Life Insurance Company
2500 Dekalb Pike
Norristown, Pennsylvania 19404-0511
Michael Ashker
HealthAxis.Com, Inc.
2500 Dekalb Pike
Norristown, PA 19404
Alvin H. Clemens
Provident American Corporation
2500 Dekalb Pike
Norristown, PA 19404-0511
